SOFTWARE DISTRIBUTION AND LICENSE AGREEMENT
This Agreement is dated as of _____________, 1996 between Siboney
Corporation ("Siboney"), a Maryland corporation with an address at 0000
Xxxxxxxx, Xx. Xxxxx, Xxxxxxxx 00000, and Merit Audio Visual, Inc. a New York
corporation with an address at 000 Xxxx 00xx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000
("Merit").
Recitals
A. Merit has developed and owns rights in the software products set forth
on Exhibit A hereto, and may make improvements therein during the term of this
Agreement (the products in Exhibit A, and the Improvements (as defined in
Section 1.4 herein) collectively being called the "Licensed Software"), and
Siboney currently lacks corresponding products in its line and wishes to add
such products to its line quickly and without excessive development costs.
B. Siboney desires to obtain from Merit, and Merit is willing to xxxxx
Xxxxxxx, the right to reproduce, repackage, modify, and distribute the Licensed
Software and a license to use the Licensed Software to create new products for
distribution by Siboney.
C. Siboney desires to secure exclusivity, as between the parties, for sales
of the Licensed Software through resellers to the schools market.
D. Merit wishes to continue sales of the Licensed Software to the schools
market, directly and through selected sales representatives.
E. Merit wishes to have, and Siboney is willing to grant, the right to
distribute new products created by Siboney using the Licensed Software.
NOW, THEREFORE, in consideration of the mutual promises set forth below,
the parties agree as follows:
1. License Rights.
1.1 Merit grants Siboney the exclusive right, subject to Section 5 herein,
to repackage, copy, make, sell, lease and distribute the Licensed Software in
the schools market.
1.2 Merit grants Siboney a license, exclusive except as to Merit, to use
the Licensed Software to create, market, sell, lease and distribute in the
schools market software products consisting of Licensed Software converted to
Macintosh and/or Windows (such converted products are referred to herein as
"Converted Software").
1.3 Siboney grants to Merit the right to distribute Converted Software
through Merit's Educational Frontiers catalog.
1.4 "Improvements" in the Licensed Software shall consist of modifications
of or replacements for only MS-DOS versions of the "Reading Nonfiction
Critically" and "Diagnostic Prescriptive Reading" Licensed Software products for
use in the schools market.
1.5 Siboney shall not make any Licensed Software or demos thereof available
for downloading off of the Internet or any other public network, but may make
Converted Software available for such purposes.
1.6 Notwithstanding anything in this Agreement to the contrary, (a) Siboney
acknowledges that certain rights and licenses granted hereunder are derived by
Merit from Xxxxx Childress pursuant to the Software License Agreement between
Xxxxx Childress and Merit dated August 14, 1996, a copy of which is included in
Exhibit D attached hereto and made a part hereof, and that Xxxxx Childress has
retained certain rights as expressed in such Software License Agreement and (b)
Siboney agrees that Merit shall not be deemed to be in breach of any provision
of this agreement by virtue of Xxxxx Childress having retained such rights.
1.7 In the event that Merit should make a new software product for the
schools market, before offering a license to such new software to any third
party Merit will notify Siboney thereof upon release of such new software
product to the market. Within thirty (30) days of such notice, Siboney may make
an offer to Merit to license such product and Merit agrees to respond to such
offer within one (1) week of its receipt thereof.
1.8 At any time during the term of this Agreement, Siboney may notify Merit
of its request to add any MS-DOS version of a Merit software product existing as
of the date of this Agreement to the Licensed Software. Merit agrees to respond
to any such request within one (1) week of its receipt thereof.
2
2. Right To Sublicense
Siboney will have the right to grant sublicenses hereunder, but only with
Merit's written consent, which will not be unreasonably withheld, upon terms at
least as favorable to Merit as those of this Agreement, and only if the
sublicensee agrees in writing to assume the same obligations as Siboney has
agreed to in this Agreement. Siboney will be allowed to grant single user
licenses, lab licenses, site licenses, district licenses, network licenses and
limited duplication licenses to end user customers without Merit's written
permission, provided that such licenses are charged for in the customer invoice.
3. Merit Assistance
3.1 Promptly upon execution of this Agreement, Merit will provide Siboney
with all necessary source code, technical information and content documentation
regarding the Licensed Software in order to facilitate Siboney's ability to
exploit the rights granted herein ("Software Documentation").
3.2 Merit will make available qualified personnel to provide Siboney with
technical and/or editorial assistance as requested by Siboney in order to allow
Siboney to exploit the rights granted herein, provided that Siboney will pay
Merit a consulting fee of $100.00 (one hundred dollars) per hour with a minimum
of $25.00 (twenty-five dollars) per instance of assistance, plus expenses. These
sums will be paid within thirty (30) days after receipt of the invoice therefor.
3.3 Siboney will send Merit a copy of each item of Licensed Software and
Converted Software, promptly after Siboney's first release of the item. If Merit
requests it, Siboney also will send Merit a copy of each other item of software
which Merit believes might require the payment of a royalty hereunder, promptly
after Siboney's first release of the item.
3.4 Merit will notify Siboney of its intended release date of any
Improvement. Promptly upon Merit's first release of the Improvement, Merit will
send Siboney a copy of the Improvement, together with all source code, technical
information and content documentation therefor.
3
4. Intellectual Property Rights
4.1 Except as otherwise provided herein, Siboney agrees that it will not
use the name "Merit" or "Merit AV" or the existing titles of any of the Licensed
Software on or in connection with the products sold, leased or distributed by
Siboney.
4.2 Siboney will own all rights in the Converted Software, subject to
Merit's rights in any part of Licensed Software used in such Converted Software.
4.3 Siboney agrees to xxxx a Copyright Notice on each copy of Licensed
Software and Converted Software made, sold, leased or distributed by Siboney
hereunder, said Notice corresponding to that used by Merit on the Licensed
Software. Siboney may also include whatever additional copyright notices it
deems appropriate.
4.4 Merit agrees that within thirty (30) days after execution hereof, it
will apply for U.S. Copyright registrations on each of the programs set forth on
Exhibit A. Merit will send Siboney a copy of each certificate of registration
promptly after its receipt thereof.
5. Competition and Exclusivity
5.1 From and after the date of this Agreement, except as set forth below,
Merit may continue its current marketing efforts including, without limitation,
distribution of the "Educational Frontiers" catalog and on-line downloading and
distribution of timed demos.
4
5.2 Merit may not sell, license or distribute the Licensed Software to
known resellers in the schools market. Without limitation on Merit's rights,
Siboney agrees that Merit may continue its internal expansion into non-school or
non-educational channels, and sell to resellers in those channels, and also may
sell, license or distribute the Licensed Software to its existing Canadian
reseller and to the New York City Board of Education.
5.3 Merit acknowledges that the rights granted to Siboney in Sections 1 and
2 of this Agreement are exclusive, subject only to Merit's rights with regard to
Licensed Software set forth in Sections 5.1 and 5.2 herein. Accordingly, Merit
agrees that it will not grant to any entity other than Siboney the rights
granted to Siboney herein, except as specifically permitted herein.
5.4 Siboney agrees that it will sell Converted Software to Merit at its
cost plus ten percent (10%) for sale in Merit's Educational Frontiers catalog
only. Merit acknowledges that Siboney is not obligated to pay royalties on such
sales to Merit.
6. Royalties
6.1 Siboney agrees to pay Merit royalties on Net Sales of the Licensed
Software and Converted Software at the rate of fifteen percent (15%) of Net
Sales ("Earned Royalties"). Such royalties shall accrue when the Licensed
Software or Converted Software are invoiced or shipped, whichever occurs later.
The term "Net Sales" as used in this section means Siboney's invoice selling or
lease price, less any sales or use taxes, sale discounts, refunds, returns,
freight, shipping and handling charges included in that price and listed on the
invoice. Merit agrees that no royalties are due on products sold by Siboney
which are not either Licensed Software or Converted Software.
6.2 Siboney agrees to pay Merit a minimum royalty in the aggregate amount
of $300,000 by April 30, 1999, payable in the manner set forth in section 6.4
herein. After January 1, 2000, the minimum royalties due under this section will
be as set forth in Section 6.5.
5
6.3 The first royalty payment of $50,000 will be due upon execution.
6.4 (a) Within thirty days after the end of each calendar quarter during
the term of this Agreement, beginning with the calendar quarter ending December
31, 1996, Siboney shall calculate the total royalties paid Merit to date
("Cumulative Paid Royalties") and the total of Earned Royalties for past
quarters and the Earned Royalties accrued and payable for the immediately
preceding calendar quarter (the "Total Earned Royalties"). The quarter ending
December 31, 1996 includes the prior period from the execution date of this
Agreement to the start of that quarter.
(b) On each Payment Date (other than the execution date) set forth on
Exhibit B, Siboney will furnish to Merit a report setting forth (a) the Net
Sales and number of units of the Licensed Software and Converted Software sold,
leased or distributed by Siboney during the preceding quarter and (b) the Earned
Royalties due therefor, together with a payment to Merit in the amount of the
royalties then due. The amount of royalties then due shall be the sum of (a) any
Earned Royalties accrued and payable for the preceding calendar quarter and (b)
the amount, if any, by which the Target Payment for that Payment Date as set
forth on Exhibit B exceeds the sum of (i) the Earned Royalties for that quarter
and (ii) the Cumulative Paid Royalties; provided, however, that the amount of
royalties then due plus the Cumulative Paid Royalties shall not exceed the
greater of the Target Payment for that Payment Date or Total Earned Royalties.
Examples of calculations pursuant to this section are set forth on Exhibit C
hereto.
6.5 Beginning January 1, 2000 and continuing during the remainder of this
Agreement, the royalty percentages due on Net Sales of the Licensed Software and
Converted Software during that period shall be reduced to a rate of twelve
percent (12%), and the annual minimum royalty guaranty will be $50,000 per year
due and payable as shown in Exhibit B. The minimum royalty guarantee set by this
Paragraph 6.5 for each calendar year beginning 2001 will be increased by the
percentage increase of the U.S. Consumer Price Index, All Urban Consumers, U.S.
City Index, all items, or comparable successor index, for the previous year.
6.6 Siboney will keep accurate records of Net Sales, the number of software
units sold, leased or distributed, and the data from which those items are
determined. At Merit's request, Siboney will disclose those records and data to
a certified public accountant and/or attorney of Merit's choice for
determination of the accuracy of Siboney's reports. If such a review discloses a
deficiency of five percent (5%) or more in the royalties reported in the reports
reviewed, then Siboney will pay the reasonable costs of the review, including
the fees of such accountant and/or attorney. If the deficiency is less than five
percent (5%), then Merit will pay those costs.
6
7. Representations and Warranties
7.1 Merit represents and warrants that (a) the agreements between (i) Merit
and Xxxxx Xxxxxxx, (ii) Merit and Xxxxxxx Xxxxxxx, (iii) Merit and Xxxxxxx
Xxxxxxx, (iv) Merit and Xxxxxxx Xxxxxxxx, and (v) Merit and Xxxxx Xxxxxxxxx and
(b) the Software License Agreement between Merit and Xxxxx Childress, copies of
which are attached hereto as Exhibit D, are true and correct copies thereof and
are in full force and effect.
7.2 Merit warrants and represents that it has full power and authority to
grant the rights granted in this Agreement without the consent of any other
party.
7.3 Merit represents and warrants that the Licensed Software will perform
in accordance with Merit's normal quality control standards for such software
and with any specifications provided by Merit to end-users of the Licensed
Software. Merit will promptly, upon request by Siboney, correct any errors or
bugs identified by Siboney in the Licensed Software.
7.4 Merit warrants that the Licensed Software, as delivered by Merit, does
not contain any virus, or any drop dead device, trojan horse, or any other
software routine designed to disable a computer program automatically, or permit
unauthorized access, or otherwise disable, erase or harm software, hardware or
data.
7.5 Merit warrants and represents that the Licensed Software, as delivered
by Merit, does not infringe the copyright, trademark, trade secret or any other
proprietary right of any third party, and further warrants and represents that
the Licensed Software does not violate any right of privacy or constitute any
defamation of any third party. Merit agrees to defend, indemnify and hold
harmless Siboney from and against any and all third-party claims, demands,
liabilities, suits, proceedings, and costs (including reasonable legal fees and
expenses) arising from any alleged breach of the representation and warranty of
Merit under this Section 7.5. The foregoing indemnity is subject to (i) Siboney
giving Merit notice of any claim, demand, suit or proceeding giving rise to any
claim for indemnification under this section which shall enable Merit to respond
to same in a timely fashion, and (ii) Siboney's reasonable cooperation with
Merit in the defense and settlement thereof. Merit shall control the defense and
settlement of any such claim, demand, suit or proceeding, including the
selection of attorneys. Siboney may participate in the defense of any claim,
demand, suit or proceeding hereunder through its own chosen counsel at its own
expense.
7
7.6 Siboney warrants and represents that it has full power and authority to
enter into this Agreement, and to grant the rights granted in this Agreement
without the consent of any other party.
7.7 Each party warrants that its officer executing this Agreement on its
behalf is fully empowered to bind it to the promises made herein with his or her
signature.
8. Confidentiality and Non-Disclosure
The parties acknowledge that the source codes for the Licensed Software are
valuable and proprietary information of Merit (the "Confidential Information").
Each party agrees that it will not at any time during or subsequent to the term
of this Agreement, directly or indirectly, use or divulge any of the
Confidential Information other than in confidence to those of its employees,
consultants or independent contractors who have a need to know the Confidential
Information in order to carry out the purpose of this Agreement, except that
Merit may (a) make limited disclosures to the U.S. Copyright Office necessary to
obtain copyright registrations for the Licensed Software; (b) allow the
confidential use of limited portions of said code by its programmers and by
third parties involved in tasks on behalf of Merit and (c) disclose the
Confidential Information to any licensee of the Licensed Software pursuant to
any license which is not prohibited by this Agreement, provided that such
licensee is not an end-user of the Licensed Software.
9. Enforcement of Intellectual Property Rights
9.1 During the term of this Agreement, each party agrees to promptly notify
the other if it becomes aware of any unauthorized use of the Licensed Software.
9.2 Merit shall have the initial right to take action against such
violation. If, within thirty (30) days after being notified of such a violation,
Merit fails or refuses to take any action against such violation, or fails or
refuses to file suit against such violation within thirty (30) days after
Siboney reasonably requests that suit be filed, then Siboney will have the right
to take action against such violation, and Merit agrees to be named as a party
to any suit filed by Siboney against such violation, to the extent necessary to
sustain the suit.
8
9.3 Both parties will cooperate in any litigation undertaken by either
party under this paragraph 9. The party undertaking such litigation must pay all
costs thereof and will have the exclusive right to control the litigation and
keep any recovery obtained, except that the other party will be entitled to
receive twenty percent (20%) of the recovery remaining after the deduction of
the reasonable costs of the litigation.
10. Notices
Any notice or other communication hereunder shall be effective only if
given in writing and sent to the other party by (i) certified mail, return
receipt requested, at the address for such party set forth in this Agreement; or
(ii) transmitted by telecopy at the telecopier number for such party set forth
in this Agreement with confirmation of receipt. Notice will be deemed to have
been given on the first date of actual receipt of either form of notice.
For Siboney: For Merit:
Xxxxx Xxxx Xxx Xxxxxxxxx
President, Merit Audio Visual, Inc.
Siboney Learning Group 000 X. 00xx Xxxxxx
8135 Forsyth-Suite 000 Xxx Xxxx, Xxx Xxxx 00000
Xx. Xxxxx, Xxxxxxxx 00000 Fax: (000) 000-0000
Fax: (000) 000-0000
With a copy to:
Xxxx X. Xxxxxxx, Esq.
Gallop, Xxxxxxx & Xxxxxx, X.X.
000 Xxxxx Xxxxxx, Xxxxx 0000
Xx. Xxxxx, Xxxxxxxx 00000
Fax: (000) 000-0000
11. Termination
11.1 Either party may terminate this Agreement in the event of a breach of
any material term of this Agreement upon thirty (30) days' notice of its intent
to terminate, or ten (10) business days if the breach is a failure to make
payment when due and payable hereunder (a "Payment Default"). Such notice of
termination shall specify the reason or reasons for such termination. If a
defaulting party fails to cure the default with such 30-day period, or ten
business day period in the event of a Payment Default, the non-defaulting party
shall have the right to terminate immediately upon notice to the other party.
9
11.2 Sections 4, 7 and 8 shall survive termination of this Agreement.
11.3 This Agreement will be terminated automatically upon the filing of a
petition in bankruptcy by or against Siboney.
11.4 Beginning with calendar year 2000, if the Earned Royalties due in any
calendar year (including 2000) are less than the minimum royalties due for that
year, then Merit shall have the right to terminate this Agreement, on ten (10)
days notice to Siboney. Beginning with the calendar year 2002, if Siboney's
aggregate Net Sales of Licensed Software and Converted Software are less than
$100,000 in any given calendar year, Siboney may terminate this Agreement on
sixty (60) days notice to Merit.
11.5 Upon termination, Siboney agrees to immediately stop making, using,
selling, leasing or distributing software whose use is licensed hereunder, and
to return to Merit all copies of the source code and documentation for all such
software.
12. General
12.1 Severability Any invalidity, in whole or in part, or any provision of
this Agreement shall not affect the validity of any other of its provisions.
12.2 Waiver No term or provision of this Agreement shall be deemed waived
or any breach excused unless such waiver or consent shall be in writing and
signed by the party claimed to have waived or consented.
12.3 Entire Agreement; Amendment This Agreement contains the entire
understanding of the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings between them with respect to
the subject matter hereof. This Agreement may not be amended except in a writing
signed by both parties.
10
12.4 Binding Effect; Assignment This Agreement shall be binding upon and
inure to the benefit of Siboney and Merit and their respective successors and
assigns; provided, however, neither party to this Agreement shall have the right
to assign or transfer its rights under this Agreement, or to assign or
subcontract all or any part of this Agreement, or any interest or obligations in
or under this Agreement, without the other party's prior written consent, which
shall not be unreasonably withheld, except that either party can assign its
rights to a purchaser of substantially all assets of a party's business to which
the Licensed Software relates, if the purchaser agrees in writing to be bound by
the obligations hereunder of the assignor.
12.5 Force Majeure Any delays in or failure by either party thereto in the
performance of any obligations hereunder shall be excused in and to the extent
such delay is caused by occurrences beyond its control including, but not
limited to, acts of God, strikes or other labor disturbances, war, whether
declared or not, sabotage and any other cause or causes, whether similar or
dissimilar to those herein specified, which cannot reasonably be controlled by
such party.
12.6 Counterparts The Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, and all of which
together shall constitute one and the same Agreement. This Agreement may be
executed and delivered by electronic facsimile transmission with the same force
and effect as if it were executed and delivered by the parties simultaneously in
the presence of one another.
SIBONEY CORPORATION MERIT AUDIO VISUAL, INC.
--------------------------- -----------------------------
--------------------------- -----------------------------
Print Name and Title Print Name and Title
--------------------------- -----------------------------
Date Date
11
EXHIBIT A
Licensed Software
shall consist of the following products in MS-DOS versions only:
Paragraph Punch
Writing About Reading
Write It Right
Writing Demons
Writing Style Demons
Grammar Demons
Diagnostic Prescriptive Reading
Reading Non-Fiction Critically
Developing Critical Thinking Skills For Effective Reading
Accu-Reading
Word Demons
ESL Demons
ESL Bilingual Demons (Spanish edition)
Idiom Demons
EXHIBIT B
Payment Date Target Payment
------------ ----------------
Execution Date of Agreement $ 50,000
January 31, 1997 75,000
April 30, 1997 100,000
July 31, 1997 125,000
October 31, 1997 150,000
January 31, 1998 175,000
April 30, 1998 200,000
July 31, 1998 225,000
October 31, 1998 250,000
January 31, 1999 275,000
April 30, 1999 300,000
July 31, 1999 300,000
October 31, 1999 300,000
January 31, 2000 300,000
April 30, 2000 312,500
July 31, 2000 325,000
October 31, 2000 337,500
January 31, 2001 350,000
April 30, 2001 362,500
July 31, 2001 375,000
October 31, 2001 387,500
January 31, 2002 400,000
April 31, 2002 412,500
July 31, 2002 425,000
October 31, 2002 437,500
January 31, 2003 450,000
Subsequent payment dates Target Payments for
are quarterly through Subsequent Payment
end of Agreement Dates shall increase
by $12,500 each quarter
EXHIBIT C
Examples of Payment Calculations
Example A
Assume: Payment Date -- July 31, 1997
Cumulative Paid Royalties -- $100,000
Earned Royalties for past quarters -- $50,000
Earned Royalties accrued and payable for the immediately
preceding calendar quarter -- $10,000
Step 1
Pursuant to Section 6.4(b), the amount of royalties then due shall be the
sum of (a) Earned Royalties accrued and payable for the preceding calendar
quarter ($10,000) and (b) the amount by which the Target Payment ($125,000)
exceeds the sum of (i) Earned Royalties for that quarter ($10,000) and (ii) the
Cumulative Paid Royalties ($100,000) (this equals $25,000: $10,000 plus
($125,000 - [$10,000 + $100,000]);
Step 2
provided that the amount of royalties then due ($25,000) plus the
Cumulative Paid Royalties ($100,000) (a total of $125,000) shall not exceed the
greater of the Target Payment ($125,000) or Total Earned Royalties ($60,000).
Since $125,000 does not exceed $125,000, the amount of royalties then due will
not be reduced under the proviso.
In this example, the royalties then due will be $25,000; Merit will have
received Cumulative Paid Royalties of $125,000 (the Target Payment for that
Payment Date), even though Earned Royalties to date have been only $60,000.
Example B
Assume: Payment Date -- October 31, 1997
Cumulative Paid Royalties -- $125,000
Earned Royalties for past quarters -- $60,000
Earned Royalties accrued and payable for the immediately
preceding calendar quarter -- $90,000
Step 1
Pursuant to Section 6.4(b), the amount of royalties then due shall be the
sum of (a) Earned Royalties accrued and payable for the preceding calendar
quarter ($90,000) and (b) the amount by which the Target Payment ($150,000)
exceeds the sum of (i) Earned Royalties for that quarter ($90,000) and (ii) the
Cumulative Paid Royalties ($125,000) (this equals $90,000: $90,000 plus $0
(since $150,000 does not exceed $215,000);
Step 2
provided that the amount of royalties then due ($90,000) plus the
Cumulative Paid Royalties ($125,000) (a total of $215,000) shall not exceed the
greater of the Target Payment ($150,000) or Total Earned Royalties ($150,000)
(under this proviso, since $215,000 is greater than $150,000, the $90,000 must
be reduced by the amount of the overage ($65,000) to $25,000).
In this example, the royalties then due will be $25,000; Merit will have
received Cumulative Paid Royalties of $150,000 (a figure equal to the total
Earned Royalties to that date and the Target Payment for that Payment Date).
