EXHIBIT 10.4
LICENSE AGREEMENT
This License Agreement ("Agreement"), is made on June 30, 2000, between
Sylvan Learning Systems, Inc., with its principal place of business at 0000
Xxxxxxxxx Xxxxxx, Xxxxxxxxx, XX 00000, ("Licensor") and eSylvan, Inc., with a
principal place of business at 0000 Xxxxxxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxx 00000
("Licensee").
RECITALS
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Licensor is, and has been, through franchised Sylvan Learning Centers, in
the business of providing a proprietary system (with respect to which Licensor
has retained associated intellectual property rights) of programs, systems,
teaching and management techniques, individualized diagnostic tests and academic
and educational courses and programs, designed to be personally taught,
supervised or administered to students who come to site based businesses or
centers for in-person instruction (the "Sylvan System").
In order to respond to the actual and anticipated actions of its
competitors and to take advantage of new means of making educational services
available to the public, Licensor has determined that it must and should
develop, in addition to the Sylvan System, an internet version of Licensor's
proprietary programs, systems, and teaching and management techniques to be
administered to end consumers only through the internet (the "eSylvan Internet
Business").
Licensor has concluded that the most effective way to develop and roll-out
the eSylvan Internet Business is to establish Licensee as a separate company,
and to grant to Licensee the exclusive right to develop and offer the eSylvan
Internet Business in the United States and Canada, pursuant to this Agreement.
AGREEMENT
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NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth below, the parties agree as follows:
1. RECITALS. The Recitals set forth above are made a part of this
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Agreement.
2. GRANT OF TRADEMARK LICENSE. To the extent that it lawfully may,
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Licensor grants to Licensee during the term of this Agreement, an
exclusive license to use the trademarks and service marks set forth on
Schedule A (collectively, the "Marks"), solely in connection with the
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eSylvan Internet Business in the United States and Canada. Licensee
shall not use the Marks in any other business lines or endeavors.
Licensor retains all right to use or license the Marks for any other
purpose, including, without limitation, in connection with the
operation or franchising of site based businesses or centers and in
connection with business lines or endeavors not comprising a portion of
the Sylvan System. Additional trademarks and service marks of Licensor
may be licensed from time to time upon mutual agreement of the parties;
provided, however, that if Licensor modifies or revises the Marks set
forth in Schedule A, Licensor has the right to incorporate such
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modifications or revisions into the Marks licensed hereunder without
further consideration.
3. GRANT OF CONTENT LICENSE.
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a. Generally. To the extent that it lawfully may, Licensor grants to
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Licensee a nonexclusive, perpetual license to use, copy,
distribute,
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perform and display the materials, software and other
information set forth on Schedule B (collectively, the "Existing
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Sylvan Content") only in connection with the eSylvan Internet
Business in the United States and Canada. Licensor retains all
right to use or license the Existing Sylvan Content for any other
purpose, including, without limitation, in connection with the
operation or franchising of site based businesses or centers.
Pursuant to this license, Licensee may distribute and sublicense
products embodying the Existing Sylvan Content to end users for
personal use only in connection with the eSylvan Internet
Business, and not for sale, distribution or relicensing by such
end users. With respect to that portion of the Existing Sylvan
Content which comprises homework assistance, Licensee may provide
such homework assistance content to third parties for use by end
users ("Permissible Homework Assistance"). While Licensor is not
obligated to modify, enhance or improve the Existing Sylvan
Content, Licensor shall be obligated to make available to
Licensee (i) any modifications, enhancements, improvements to the
Existing Sylvan Content or (ii) new Sylvan materials and software
related to the Sylvan System ((i) and (ii), collectively, "New
Sylvan Content") developed or created by Licensor after the date
hereof and during the term of this Agreement and made
commercially available to third parties, subject to and in
accordance with
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Xxxxxxxxx 12.b. hereof. Licensee is under no obligation to use
the Existing Sylvan Content, and may develop other content,
subject to the provisions of this Agreement, including the right
of Licensor to license such content under Paragraph 12.c. hereof.
b. Manuals. Licensee shall assist Licensor to develop a
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Confidential Operations and Instruction Manual (the "Confidential
Operations Manual") to establish certain programs, policies,
systems, techniques and materials for the successful operation of
the eSylvan Internet Business. The standards, specifications or
requirements established by Licensor for Licensee, unless
otherwise indicated, shall be set forth in this Agreement or may,
from time to time, be set forth by Licensor in the Confidential
Operations Manual. Licensee acknowledges that the Confidential
Operations Manual belongs solely to Licensor and is provided to
Licensee solely during the term of this Agreement and shall be
treated as "Confidential Information" in accordance with
Paragraph 24 hereof. Licensee understands and acknowledges that
the Sylvan System serves markets and operates under market
conditions that are continuously changing and evolving, and that
new and different standards, procedures, and techniques will be
developed and recommended by Licensor in response to those
changes, or other conditions in the Sylvan System, to maintain
and/or enhance the quality of, among other matters, the Marks,
and
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the reputation and goodwill of the Sylvan System. Accordingly,
Licensee understands and acknowledges that Licensor may, from
time to time, revise the contents of the Confidential Operations
Manual to implement new or different requirements for the Marks,
and Licensee expressly agrees to comply with all such changed
requirements related to the Marks; provided that the fundamental
terms and conditions of this Agreement shall not be altered.
4. ROYALTIES. Royalties for the license rights granted to Licensee
under Paragraph 2 hereof will be payable to Licensor as follows:
a. Initial License Fee. Licensee will pay an initial license fee of
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$1,000,000, due upon execution of this Agreement.
b. Royalty. In addition to the initial license fee, Licensee will
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pay Licensor a periodic, running royalty equal to four percent
(4%) of all net revenues of Licensee received by Licensee during
the term hereof. "Net Revenues" shall be calculated and payable
as follows:
i. the aggregate gross amount of all revenues from whatever
source derived (based upon a cash method of accounting),
which arise from or are derived by Licensee, directly or
indirectly, from or in connection with the eSylvan Internet
Business;
ii. excluding all revenues received by Licensee for the account
of a third party for such party's products or services,
which
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revenues are actually delivered by Licensee to such
third party (but including any portion of such revenues
retained by Licensee); and
iii. reduced by all documented refunds, returns and allowances
made in good faith by Licensee; and only sales and other tax
receipts, the collection of which is required by law.
In addition, Licensee agrees to pay an additional amount equal to
any sales, gross receipts, or similar tax imposed on Licensor and
calculated solely on payments required to be made by Licensee to
Licensor under this Agreement, unless such tax is an optional
alternative to an income tax otherwise payable by Licensor. In
no event shall Licensee be required to pay any income tax
otherwise payable by Licensor.
c. Guaranteed Minimum Royalty. There will be no guaranteed minimum
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royalty for the period beginning on the effective date of this
Agreement and ending on the last day of the first full calendar
year thereafter. With respect to each calendar year thereafter
during the term and any renewal terms and extensions, Licensee
will pay to Licensor a guaranteed minimum royalty equal to 120%
of the prior year's guaranteed minimum royalty, with the
guaranteed minimum royalty for the first calendar year such
minimum royalty is due being equal to $400,000.
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d. Calculation of Royalties. Royalties will be calculated and paid
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quarterly. Licensee shall submit payment to Licensor within
twenty (20) business days after the close of each calendar
quarter with respect to Net Revenues received during such
previous quarter, accompanied by a Net Revenues report, described
in Paragraph 4.e. below. With respect to the period for which no
guaranteed minimum royalty is due, each such quarterly payment
shall equal the royalties due for such quarter. With respect to
each calendar year in which the guaranteed minimum royalty is
due, each quarterly payment shall equal the greater of (i) the
royalties due for such quarter, or (ii) one quarter of the
guaranteed minimum royalties for such calendar year. If payment
of royalties is subject to any state, local or foreign tax,
Licensee will be responsible for determining the amount of any
tax and will pay the taxes.
e. Net Revenues Report. Licensee's quarterly royalty payment shall
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be accompanied by fully completed and accurate Net Revenue report
on forms as required by Licensor, setting forth the gross
revenues received during the previous month, the adjustments
required under Paragraph 4.b., the number of students currently
enrolled by program category (and the associated tuition and
other charges), and any further information Licensor may
reasonably request. Such form and information required therein
may be changed by Licensor, in its reasonable discretion, from
time to
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time. Licensee shall keep adequate records and retain appropriate
data and receipts to verify the information provided in such
reports and shall provide such backup data as Licensor may
request from time to time. Licensee shall certify the accuracy of
such data in writing on each such report.
5. AUDIT OF RECORDS.
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a. Audit. Licensee shall allow Licensor or its representatives to
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inspect the premises of Licensee, the books of account and
federal and state income tax and sales tax returns of Licensee
pertaining to the eSylvan Internet Business during reasonable
times of the business day upon two (2) days advance written
notice. Licensee shall maintain on its premises, or at a
mutually agreed upon location, for a period of at least three
years, all sales slips, cancelled checks and receipts, and all
books of account relating to the eSylvan Internet Business. If
Licensor's audit discloses a liability for any fees due to
Licensor, Licensee shall pay the amount of the deficiency,
including late charges due under Paragraph 5.b., within thirty
(30) days of Licensor's notice to Licensee of the deficiency.
Should the audit reflect a balance due Licensee, Licensor agrees
to pay said balance within thirty (30) days of completion of the
audit report. If the deficiency (excluding late charges) is
three percent (3%) or more of the fees Licensee was required to
pay hereunder for the relevant period, Licensee
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shall pay Licensor its reasonable costs incurred in performing
the audit (and, if applicable, in successfully defending such
audit in arbitration) in addition to the amount of the
deficiency. Nothing in this paragraph shall limit Licensor's
right to terminate Licensee under Paragraph 16 for Licensee's
failure to pay when due royalties owing Licensor. Licensee agrees
to pay any additional royalties, and penalties as set forth
below, within thirty (30) days of receipt of the audit report, or
within said thirty (30) day period, shall submit the dispute to
arbitration in accordance with Paragraph 25.
b. Late Charge. The following late charges (to the extent permitted
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by law) shall apply:
i. for late payment of royalties, Licensee will pay a late
charge equal to 2% of the amount then due; and
ii. for underpayment of royalties in excess of 3%, Licensee will
pay a late charge of 10% of the amount of the underpayment.
c. Confidentiality. Licensor agrees that it will maintain the
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confidentiality of all financial information it shall obtain
about Licensee's operations in accordance with Paragraph 24, and
shall not disclose such financial information to any third party
who is not bound to maintain the confidentiality of such
information.
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d. Licensee to Pay Taxes . Licensee shall pay all taxes,
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regardless of their nature, assessed against it when due and
before delinquent except when being contested in good faith by
appropriate proceedings.
6. FORM OF MARKS. Licensee will use the Marks in proper trademark form
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and with proper notice of their status as trademarks (SM, TM or (R)).
Licensee will display the Marks only in the forms provided on Schedule
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A, or in such other form and style, or in connection with other marks
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or brands as permitted under the Agreement, including as set forth in
the Confidential Operations Manual, and as may be approved in advance
in writing by Licensor and not thereafter disapproved, such approval
not to be unreasonably withheld, delayed or conditioned. Licensee
acknowledges that any such new form or style of the Marks adopted by
Licensee shall be owned by Licensor, including the right to use
similar stylized form in connection with any other marks. Licensor
may direct Licensee (by notice hereunder) to modify the forms of the
Marks to reflect changes in Licensor's own use of the marks and/or
changes in registration status of the Marks, all in accordance with
the then current Confidential Operations Manual.
7. USE OF MARKS. Licensee shall not use any of the Marks in such a way
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as may cause any confusion between Licensee and Licensor; provided
that the uses set forth on Schedule A, including in domain name
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registrations, have been approved by Licensor; provided further that
such uses are to be
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in compliance with the Confidential Operations Manual. In order to
maintain standards of use with respect to the Marks licensed
hereunder, Licensee agrees to use the Marks licensed hereunder in
accordance with the Confidential Operations Manual, as amended. The
first use of any of the Marks in web pages, software, or in other
materials shall indicate that the Xxxx is a "trademark [or service
xxxx, or registered trademark or service xxxx, as appropriate] of
Sylvan Learning Systems, Inc. Licensee is an authorized licensee of
Sylvan Learning Systems, Inc." All Existing Sylvan Content and all New
Sylvan Content (collectively, the "Sylvan Content"), whether
physically distributed or displayed on-line, will bear the following
notice: "Copyright (year) Sylvan Learning Systems, Inc. Licensee is an
authorized Licensee of Sylvan Learning Systems, Inc." If Licensee has
developed or created Sylvan Derivative Works as permitted in this
Agreement, the notice may read: "Copyright (year of creation) Sylvan
Learning Systems, Inc., and (year of modification) eSylvan, Inc.
Licensee is an authorized Licensee of Sylvan Learning Systems, Inc."
8. USE OF eSYLVAN. Licensee may use "eSylvan" in its business names and
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in its Internet domain names solely in accordance with Schedule A;
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provided that all other uses require the prior written approval of
Licensor, which approval shall not be unreasonably withheld. While
Licensee is permitted such limited use of "eSylvan", Licensee agrees
that use of "eSylvan" in its business names and in its Internet domain
names will be terminated and the use of names containing or consisting
of "eSylvan" and
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the other Marks or any similar names or marks in its business names
and in its Internet domain names shall cease upon termination of this
Agreement in accordance with the terms hereof.
9. OWNERSHIP OF THE MARKS AND CONTENT.
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a. Ownership. Licensee acknowledges and confirms Licensor's
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proprietary rights in, and ownership of, the programs, systems,
techniques, manuals, and trade secrets which will be disclosed to
Licensee under this Agreement, including without limitation, the
Marks and the Sylvan Content as well as their validity, and
agrees not to represent in any manner that Licensee has acquired
any ownership rights in such assets, including without
limitation, the Marks. Licensee further acknowledges that
Licensee does not acquire any right or interest therein
(including in any Licensor-approved modification to the Marks)
beyond the rights expressly granted to it under this Agreement.
Licensee acknowledges that the know-how and operating format
related to Licensor's proprietary methods and materials is also
proprietary to Licensor and Licensee shall not disclose such
methods and materials except in connection with Licensee's
required activities as authorized by this Agreement. Licensee
represents and acknowledges that all use of the Marks will inure
to the benefit of Licensor. Licensee further acknowledges and
agrees that any and all goodwill associated with the Marks shall
inure directly and exclusively to the benefit of
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Licensor and that, upon the expiration or termination of this
Agreement for any reason, no monetary amount shall be
attributable to any goodwill associated with Licensee's use of
the Marks.
b. Prohibited Use. In conducting any business or enterprise,
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Licensee agrees that it shall not commit, nor permit any of its
licensees to commit, any act causing an incurable tarnishment of
the Marks or the reputation and goodwill associated with the
Sylvan System. Licensee acknowledges that it may, but is not
obligated to, use the Marks in connection with the Permissible
Homework Assistance. Licensee understands and agrees that any
use of the Marks other than as expressly authorized by this
Agreement, without Licensor's prior written consent, is an
infringement of Licensor's rights in the Marks. Licensee
acknowledges that the right to use the Marks granted herein does
not extend beyond the termination or expiration of this
Agreement. Licensee expressly covenants that, during the term of
this Agreement and thereafter, Licensee shall not, directly or
indirectly, commit any act of infringement or contest or aid
others in contesting the validity of Licensor's right to use the
Marks or take any other action in derogation thereof. Licensee
will not at any time challenge or dispute the validity of the
Marks, or the copyrights in the Sylvan Content.
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c. Confidentiality. Licensee agrees to maintain adequate security in
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the control, use, and handling of the Confidential Information of
Licensor in accordance with the practices described in the
Confidential Operations Manual or as stated otherwise in writing
from Licensor from time to time. Unless expressly waived by
Licensor in writing, Licensee shall require all persons who have
or could have access to Licensor proprietary materials, to sign
written confidentiality agreements pertaining to the security of
Licensor's Confidential Information, which agreement shall be in
a form reasonably acceptable to, and approved in advance by
Licensor, and shall name Licensor as a third party beneficiary
thereof.
d. Intellectual Property Protection. Trademark, copyright and other
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intellectual property protection relating to the Marks and the
Sylvan Content will be obtained only by Licensor at its own
expense. Licensee is not permitted to file trademark or service
xxxx applications for the Marks or confusingly similar marks, or
to file for copyright or other intellectual property protection
for the Sylvan Content, in each case, in any jurisdiction.
10. QUALITY CONTROL.
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x. Xxxxx. Licensee agrees to maintain a standard of high quality of
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goods and services and promotional materials offered in
connection with the Marks.
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b. Quality Assurance Review. Licensor may at any time review all
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aspects of Licensee's operation of the eSylvan Internet Business
("Quality Assurance Review") to determine the extent to which
Licensee's operations are or are not in compliance with the
standards, methods and procedures Licensor establishes with
respect to the Marks. At Licensee's request, Licensor will
provide Licensee with the materials and forms used in the Quality
Assurance Review process for Licensee's use in reviewing
Licensee's operations.
c. Training. To assist Licensee in the operation of the eSylvan
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Internet Business, and the proper delivery of the programs
provided as part of the eSylvan Internet Business, Licensor will
use its reasonable efforts to assist Licensee in providing
training programs substantially similar to those set forth in the
Confidential Operations Manual.
d. Web Sites. Licensee agrees that all web sites associated with all
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domain names used by Licensee in association with the eSylvan
Internet Business shall be managed and administered in a
competent manner, in full compliance with this Agreement, and
with respect to use of any Marks, in accordance with this
Agreement and the Confidential Operations Manual so as to
preserve, maintain and enhance the goodwill associated with the
Sylvan System and the Marks. At all times during the term
hereof,
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Licensor and Licensee shall each maintain a hypertextual link to
the other's web site(s) in accordance with the Confidential
Operations Manual. Licensee acknowledges that Licensor has the
right to conduct, from time to time, a quality control review of
the use of the Marks in connection with: (1) all web sites
associated with all domain names used by Licensee in association
with the eSylvan Internet Business; and (2) any products or
services offered, provided or promoted on such sites, regardless
of whether such products or services bear independent trademarks
or service marks. Licensee must provide Licensor with the
opportunity of timely review (which at Licensee's discretion may
be prior to use on the sites) and approval, which approval shall
not be unreasonably withheld, of any products or services to be
provided or promoted on such sites which are not within the scope
of use of the eSylvan Internet Business.
e. Management. In order to maintain the high image and quality
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standards of Licensor's proprietary programs and materials,
including without limitation, the Marks and the Sylvan Content,
Licensee agrees to provide sufficient and competent management,
staff and Licensor-certified tutors for use in connection with
the eSylvan Internet Business to provide adequate instruction for
students enrolled in all of the diagnostic and prescriptive
instruction programs. Licensee agrees that if accreditation for
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supplemental education programs or services offered by Licensee
is available from an accrediting body or organization, Licensee
will at Licensor's request comply with the standards necessary to
attain and maintain such accreditation.
f. Compliance with Educational Standards. Licensor will establish,
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and Licensee shall comply with, certain defined standards set
forth in its Confidential Operations Manual in teaching methods
and procedures for the delivery of its educational and
instructional programs, and Licensor will offer help and
assistance to the Licensee in attaining and maintaining those
standards.
g. Compliance With Law. Licensee agrees that it will comply with all
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applicable U.S. and foreign laws, including with respect to any
privacy requirements imposed by such laws on the use of
information developed by or provided to Licensee by Licensor, end
users, or other third parties.
11. ADVERTISING. In order to promote the Marks in connection with the
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eSylvan Internet Business, Licensee agrees that it shall expend
quarterly on advertising at least 6% of Licensee's prior quarterly
gross revenues on the type of advertising specified in the
Confidential Operations Manual or on other marketing and advertising
materials approved by Licensor. Licensee shall keep appropriate
records and receipts for all advertising or marketing expenditures for
at least three years, and shall provide substantiating data for such
expenditures upon request by Licensor.
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12. FUTURE TECHNOLOGY; CONTENT.
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a. Technology. The parties contemplate that changes will occur in
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optimal methods of conducting business over the Internet. The
parties contemplate that the provisions of this Agreement may be
extended to any future method or technology of how to conduct
business on the Internet or on-line. However, the provisions of
this Paragraph 12.a. apply to new methodologies and not to New
Sylvan Content and eSylvan Content, as defined in Paragraph 12.b.
and 12.c. below, which rights are controlled by Paragraph 12.b.
and 12.c., respectively. Licensee shall consult with Licensor for
permission to modify this Agreement in accordance with changes in
technology or best practices relating to the Internet or on-line
technology, and the parties shall negotiate in good faith
regarding such modifications, which shall be in writing signed by
both parties.
b. New Sylvan Content. To the extent after the date hereof and
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during the term of this Agreement, Licensor develops or creates
New Sylvan Content which it has made commercially available to
third parties, on each such occasion, it shall so notify
Licensee, including a reasonably detailed description and copy
thereof and the financial terms of such license (based on the
same basis as the financial terms offered to all of its franchise
licensees), and Licensee shall have 30 days thereafter to
evaluate whether it
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wishes to obtain a license of such New Sylvan Content. If
Licensee notifies Licensor within said 30 day period of its
desire to license such New Sylvan Content, then on each such
occasion, a new Schedule C setting forth the New Sylvan Content
and the terms and conditions of the license shall be executed by
both parties and attached hereto as an addendum. Licensee agrees
that the scope of use and the restrictions on use of such
licensed New Sylvan Content (including Paragraph 22 hereof) shall
have the same scope of use and restrictions on use as set forth
in the licenses granted hereunder with respect to the Existing
Sylvan Content.
c. eSylvan Content. To the extent and during the term of this
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Agreement, Licensee creates or develops software or materials for
the eSylvan Internet Business, or modifies, enhances or improves
such software and/or materials ("eSylvan Content"), on each such
occasion, it shall so notify Licensor, including a reasonably
detailed description and copy thereof and the financial terms of
such license (based on a reasonable fee for Licensee to recoup
its development cost on a proportional basis across all of the
products or services in which Licensee will commercialize such
eSylvan Content), and Licensor shall have 30 days thereafter to
evaluate whether it wishes to license such eSylvan Content. If
Licensor notifies Licensee within said 30-day period of its
desire to license
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such eSylvan Content, then on each such occasion, a new Schedule
D setting forth the eSylvan Content and the terms and conditions
of the license shall be executed by both parties and attached
hereto as an addendum. Licensor agrees that the scope of use and
the restrictions on use of such licensed eSylvan Content
(including Paragraph 22 hereof) shall have the same scope of use
and restrictions on use as set forth in the licenses granted
hereunder with respect to the Existing Sylvan Content.
d. Sylvan Derivative Works. Licensee has the right to modify the
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Existing Sylvan Content and the New Sylvan Content (if licensed
in accordance with Paragraph 12.b.) and to create derivative
works, including, but not limited to, the right to disassemble,
decompile and/or reverse engineer the Existing Sylvan Content and
the New Sylvan Content, and to create textual works from digital
materials and vice versa (collectively, "Sylvan Derivative
Works"); provided that such Sylvan Derivative Works may be used,
copied, distributed, performed and/or displayed only in
connection with the eSylvan Internet Business and not in
violation of Paragraph 22; and provided further that Licensee
will not distribute or sublicense products embodying the Sylvan
Derivative Works other than to end users for personal use only in
connection with the eSylvan Internet Business, and not for sale,
distribution or relicensing by such end users. Licensee will be
deemed the owner of any
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copyright in the Sylvan Derivative Works. Licensee shall be
obligated to license to Licensor the Sylvan Derivative Works
developed or created by Licensee after the date hereof and during
the term of this Agreement and made commercially available,
subject to and in accordance with Paragraph 12.c. hereof.
e. eSylvan Derivative Works. Licensor has the right to modify the
------------------------
eSylvan Content (if licensed in accordance with Paragraph 12.c.)
and to create derivative works, including, but not limited to,
the right to disassemble, decompile and/or reverse engineer the
eSylvan Content, and to create digital works from textual
materials and vice versa (collectively, "eSylvan Derivative
Works"); provided that such eSylvan Derivative Works may be used,
copied, distributed, performed and/or displayed only in
connection with the Sylvan System and not in violation of
Paragraph 22; and provided further that Licensor will not
distribute or sublicense products embodying the eSylvan
Derivative Works other than to Licensor's Sylvan Learning Center
licensees and to end users for personal use only in connection
with the Sylvan System, and not for sale, distribution or
relicensing by such end users. Licensor will be deemed the owner
of any copyright in the eSylvan Derivative Works. Licensor shall
be obligated to license to Licensee the eSylvan Derivative Works
developed or created by Licensor after the date hereof and during
the term of this
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Agreement and made commercially available, subject to and in
accordance with Paragraph 12.b. hereof.
f. Errors; Corrections. Notwithstanding anything set forth in this
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Paragraph 12 to the contrary, to the extent that (i) Licensor
corrects any errors in the Sylvan Content, or (ii) Licensee
corrects any errors in the eSylvan Content, during the term
hereof, then in each such case, the corrected content shall be
licensed to the other for no additional consideration under the
scope of use and restrictions on use set forth herein.
13. INFRINGEMENT BY OTHERS.
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x. Xxxxx. Licensee acknowledges an obligation to monitor its own
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and other parties' use of the Marks and agrees to do so.
Licensee will promptly notify Licensor upon learning of any
potential infringement by third parties of any of the Marks.
Licensor shall control all litigation against and settlement with
any and all third party infringers or apparent infringers of the
Marks, it being expressly understood and agreed by Licensee that
the determination of whether and how to proceed in any such
infringement action shall be in the sole judgment of Licensor.
Licensee will cooperate with Licensor as requested by Licensor,
in accordance with this Paragraph, in connection with any action
taken by Licensor in its judgment against any potential
infringer(s). Licensee's cooperation will include without
limitation providing
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its personnel to appear as witnesses at depositions or in court,
furnishing documents and information, executing all necessary
documents, and being joined as a party to any legal proceedings.
Licensor will reimburse Licensee for reasonable costs actually
incurred in connection with activities requested by Licensor
during such litigation. Any recovery of damages or attorney's
fees in these actions, or in settlement of the actions or
disputes, will belong to Licensor.
b. Existing Sylvan Content. Licensor has no obligation to take
-----------------------
action against third-party infringers of the Existing Sylvan
Content. Licensee will promptly notify Licensor upon learning of
any potential infringement by third parties of any of the
Existing Sylvan Content. If Licensor, at Licensor's sole
discretion, decides to take action against such infringers within
30 days of notice from Licensee of such infringement, the
provisions of the preceding paragraph will apply. Should, in the
absence of Licensor's action within 30 days of such notice,
Licensee determine to take action against any third-party
infringers of the Existing Sylvan Content, it shall notify
Licensor and Licensor shall have an additional 30 days to
determine whether it wishes to control such action (in which case
the provisions of the preceding paragraph will apply). If
Licensor determines not to undertake such action or fails to so
notify Licensee of its decision within the second 30 day period,
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Licensee shall have the right to undertake such action in its
sole behalf and at its sole cost (which shall only include a
claim of damages of such infringement against eSylvan alone),
with any recovery of damages or attorneys fees belonging to
Licensee.
c. New Sylvan Content; eSylvan Content. If either Licensor or
-----------------------------------
Licensee licenses to the other any materials or software pursuant
to Paragraph 12 hereof, the licensing party shall have no
obligation to take action against third party infringers with
respect to such materials or software. The licensee will promptly
notify the licensing party upon learning of any potential
infringement by third parties of any of such materials or
software. If the licensing party, at its sole discretion, decides
to take action against such infringers within 30 days of notice
from the licensee of such infringement, the provisions of
paragraph 13.a. will apply. Should, in the absence of the
licensing party's action within 30 days of such notice, the
licensee determine to take action against any third-party
infringers of such materials or software, it shall notify the
licensee and the licensing party shall have an additional 30 days
to determine whether it wishes to control such action (in which
case the provisions of paragraph 13.a. will apply). If the
licensing party determines not to undertake such action or fails
to so notify the licensee of its decision within the second 30
day period, the licensee shall have the right to undertake such
action in its sole
-24-
behalf and at its sole cost (which shall only include a claim of
damages of such infringement against the licensee alone), with
any recovery of damages or attorneys fees belonging to the
licensee.
14. TRADEMARK PROCEEDINGS. In the event that Licensee learns of a
---------------------
trademark application (or registration) filed by any third party with
any governmental authority, including without limitation, the United
States Patent and Trademark Office, for a trademark or service xxxx
which may be confusingly similar to or otherwise harmful to the Marks,
Licensee will immediately notify Licensor. Licensor will have the
sole option of filing and pursuing an opposition, cancellation or
other appropriate proceeding. Licensee will have the same assistance
obligations as set forth in Paragraph 13.a.
15. TERM. The initial term of this Agreement will be five (5) years from
----
the effective date of this Agreement and will terminate on the fifth
anniversary of that date; provided, however, that the license with
respect to the Sylvan Content and the eSylvan Content is perpetual for
the duration of applicable copyrights and will not otherwise
terminate. Provided that Licensee has complied with all of the terms
of this Agreement and performed all of its obligations under it,
Licensee at its sole option may serially renew this Agreement for
unlimited consecutive five (5) year terms, by providing written notice
thereof to Licensor at least 120 days prior to termination of the
initial or any subsequent term, provided Licensee remains in
compliance with all the terms of this
-25-
Agreement and performs all of its obligations under it. No initial
license fee will be owed for such renewal term.
16. TERMINATION.
-----------
a. Generally. Notwithstanding the provisions of Paragraph 15, either
---------
party may terminate this Agreement upon one or more of the
following events:
i. if the other party materially breaches any provision of this
Agreement (other than as specifically contemplated in this
Paragraph 16), after being provided prior written notice of
such material breach, specifying in reasonable detail its
nature, and after giving the breaching party an opportunity
to cure such breach within thirty (30) days of such notice;
ii. if either party fails to comply with Paragraph 22, upon
written notice thereof; or
iii. if a party breaches its confidentiality obligations as set
forth in Section 24, with written notice thereof.
If this Agreement is terminated as a result of any of the events
set forth in this Paragraph 16.a., the breaching party shall pay
the other a termination fee of $500,000 (the "Termination Fee"),
within thirty (30) days of the effective date of such
termination. If this Agreement is terminated pursuant to this
Paragraph
-26-
16 as a result of Licensor's breach, Paragraph 22 shall continue
in full force and effect. If this Agreement is terminated
pursuant to this Paragraph 16 as a result of Licensee's breach,
Paragraph 22 shall no longer apply to Licensor.
b. Licensor's Right to Terminate. Notwithstanding the provisions of
-----------------------------
Paragraph 15, Licensor may terminate this Agreement upon one or
more of the following events:
i. if Licensee misuses the Marks or fails to comply with, or
acts inconsistently with Paragraph 7 or 10, after being
provided prior written notice of such material breach,
specifying in reasonable detail its nature, and after giving
Licensee an opportunity to cure such breach within thirty
(30) days of such notice;
ii. if Licensee undergoes any change in control (other than in
connection with financings where a competitor to Licensor's
business does not become a controlling person (as defined in
the Securities Exchange Act of 1934), or other than an
Initial Public Offering); and after an Initial Public
Offering if Licensee undergoes any change in control which
results in a competitor to Licensor's business (defined as
any entity which undertakes any of the activities set forth
in Paragraphs 22.a.i, 22.a.ii, or 22.a.iii) being a
controlling person (as defined in the Securities Exchange
Act of 1934) of Licensee, upon written notice thereof;
-27-
iii. if Licensee licenses, transfers or otherwise assigns a
material portion of the Sylvan Content to any third party
whose business (or those of its affiliates) is competitive
with the Sylvan System (other than Permissible Homework
Assistance as contemplated by Paragaph 3.a. hereof), upon
written notice thereof;
iv. beginning with the 2002 calendar year, if for any three
consecutive quarters the royalties owed to Licensor fall
below one-fourth of the guaranteed annual minimum royalty,
per quarter, upon written notice thereof;
v. if Licensee challenges or otherwise breaches or violates
Licensor's ownership rights as set forth in Section 8,
without notice or further action;
vi. if Licensee fails to pay any royalty payment, after written
notice, within thirty (30) days of when due; or
vii. if Licensee assigns or transfers, or attempts or agrees to
assign or transfer, this Agreement or its rights hereunder,
without Licensor's prior written consent.
If this Agreement is terminated as a result of any of the events
set forth in this Paragraph 16.b., Licensee shall pay to Licensor
the Termination Fee, within thirty (30) days of the effective
date of such termination, and Paragraph 22 shall no longer apply
to Licensor.
-28-
c. Insolvency. If during the term of this Agreement, either party
----------
becomes bankrupt or insolvent or if the business of a party is
placed in the hands of a receiver or trustee, whether by the
voluntary act of a party or otherwise or if a party shall cease
to exist an active business this Agreement shall immediately
terminate without notice or further action.
d. Effect of Termination.
---------------------
i. The expiration of this Agreement or its earlier termination
for any reason, shall in no way affect the license of the
Sylvan Content and the eSylvan Content, which shall remain
in effect in accordance herewith.
ii. Upon expiration of this Agreement, or if this Agreement is
terminated by any party for the reasons set forth in
Paragraphs 16.a.ii, 16.a.iii, 16.b.i, 16.b.ii, 16.b.iii,
16.b.v, 00.x.xx, 00.x.xxx, or 16.c., upon such earlier
termination, Licensee will immediately cease all use of the
Marks, including without limitation, use of "eSylvan" in its
business names and in its Internet domain names.
iii. If this Agreement is terminated by any party for the
reasons set forth in Paragraphs 16.a.i, or 16.b.iv, upon 120
days after such earlier termination, Licensee will
immediately cease all use of the Marks, including without
limitation, use
-29-
of "eSylvan" in its business names and in its Internet
domain names.
iv. Upon expiration of this Agreement, or if this Agreement is
terminated by any party for any reason, upon such earlier
termination, each party will have the right to terminate the
connection or link to the other party's web site(s) and to
take such other technical steps to terminate any inter-
connectivity, provided that during the 120 day period
contemplated by Paragraph 16.d.iii, at the request of either
party, the other shall provide a one page screen (including
a hypertextual link), that may be used to direct users to a
new web site or some other domain name of such party's
choosing.
v. Licensee's obligation to pay royalties under this Agreement
to Licensor for Net Revenues received during the term hereof
shall survive termination of this Agreement.
17. REPRESENTATIONS AND WARRANTIES.
------------------------------
a. Title. Licensor represents to Licensee that Licensor has all
-----
right, title and interest in, or if applicable, licenses to, the
Sylvan Content and the Marks in a manner reasonably necessary to
grant the rights contemplated hereby. Licensee represents to
Licensor that Licensee has all right, title and interest, or if
applicable, licenses to,
-30-
the eSylvan Content in a manner reasonably necessary to grant the
rights contemplated hereby.
x. Xxxxx. Licensor represents and warrants that the Marks do not
-----
infringe upon or violate any trademark or service xxxx of any
third party under United States law. Licensor does not warrant
---
that the Marks do not infringe upon or violate the trademark or
service xxxx rights of any third party under the laws of any
country other than the United States, and provides no
indemnification therefor. However, Licensor represents that it
has received no notice of any such potential violation.
c. Sylvan Content; eSylvan Content. Neither Licensee nor Licensor
-------------------------------
provides to the other any other representation or warranty as to
the Sylvan Content or the eSylvan Content, including without
limitation as to the form, merchantability, fitness for use,
function or accuracy. Neither Licensee nor Licensor has any
obligation of maintenance, update or repair with respect to the
Sylvan Content or the eSylvan Content. Licensor and Licensee do
not warrant that the Sylvan Content or the eSylvan Content do not
---
infringe upon or violate the copyrights, patent or other
intellectual property rights of any third party under the laws of
any country, and provides no indemnification therefor. However,
each of Licensee and Licensor represents to the other that it has
received no notice of any such potential violation.
-31-
d. Third Party Materials. Neither Licensor nor Licensee provides to
---------------------
the other any representation or warranty with respect to any
written material, software or any other information obtained from
third parties, other than its right to license such material to
the other in accordance with its license with said third party.
18. INDEMNITY.
---------
x. Xxxxx. Licensor will defend at its own expense, and with counsel
-----
of its choice, any action, suit, or proceeding brought against
Licensee in the United States based upon any alleged infringement
of United States intellectual property rights with respect to the
Marks. Licensor agrees to indemnify and hold Licensee harmless
from any liabilities, claims or demands with respect to any such
action, suit, or proceeding; provided, however, that Licensor
shall not be required to indemnify Licensee in an amount greater
than the amount of royalties paid to Licensor within the 24
months preceding the date upon which Licensee makes a demand for
indemnification, including, if applicable, the initial license
fee. Licensor will have no obligation to indemnify Licensee if
the Marks are infringing solely or in material part because such
infringement results from changes made by Licensee or any third
party to the Marks.
b. By Licensor. Licensor will defend at its own expense, and with
-----------
counsel of its choice, any action, suit, or proceeding brought
-32-
against Licensee from and against any and all claims, causes of
action, suits, damages, liabilities, judgments and settlements,
including all costs, expenses, and reasonable attorney's fees,
based upon or arising out of Licensor's operation of the Sylvan
System (other than with respect to claims of infringement
regarding the eSylvan content).
c. By Licensee. Licensee will defend at its own expense, and with
-----------
counsel of its choice, any action, suit, or proceeding brought
against Licensor from and against any and all claims, causes of
action, suits, damages, liabilities, judgments and settlements,
including all costs, expenses, and reasonable attorney's fees,
based upon or arising out of Licensee's operation of the eSylvan
Internet Business (other than with respect to claims of
infringement regarding the Sylvan Content).
d. Generally. The indemnified party may participate in any
---------
litigation involving through counsel of its own selection and at
its own expense. However, the indemnifying party will have sole
control of any negotiations or any suit which may be brought, and
the indemnified party will provide the indemnifying party with
all reasonable assistance in defending such action; provided that
the indemnifying party will not make any settlement of any claim,
suit or demand for which the indemnified party may become liable
for other than monetary damages (being indemnified by the
-33-
indemnifying party under this Agreement) without the indemnified
party's written consent, which shall not be unreasonably
withheld.
e. Limitation. The foregoing indemnities are in lieu of any other
----------
rights, express or implied, are the indemnified party's sole
remedy, and constitutes the indemnifying party's entire liability
with respect to any such claim from any third party.
19. WAIVERS. The failure of either party at any time to require the
-------
performance by the other of any of the provisions of this Agreement
will in no way affect the full right to require that performance at
any later time.
20. NOTICES. Any notices required to be given by either of the parties in
-------
connection with this Agreement must be in writing, delivered by
registered mail or overnight delivery service providing a receipt upon
delivery, as follows, or to another address provided by a party in the
manner described in this Paragraph:
to Licensor:
Sylvan Learning Systems, Inc.
0000 Xxxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attn:Xxxxx Xxxxx
with a copy to the same address,
Attn: General Counsel
-34-
to Licensee:
eSylvan, Inc.
0000 Xxxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attn: President
with a copy to the same address,
Attn: General Counsel
21. NO ASSIGNMENT. Licensee may not assign this Agreement or its rights
-------------
hereunder (except with respect to Permissible Homework Assistance in
accordance with Paragraph 3.a.) without the prior written approval of
Licensor. Any assignee will be bound by all terms and conditions of
this Agreement. Licensor may assign this Agreement and its rights
hereunder to any third party that agrees in writing to be bound by the
terms hereof.
22. NONCOMPETE.
----------
a. By Licensee. Subject to the provisions of Paragraph 22.e. below,
-----------
for the duration of this Agreement and for a period of one year
thereafter, Licensee shall not, directly or indirectly, through a
license or otherwise, engage in or compete with, the following
business lines of Licensor:
i. site based businesses or centers that offer individualized
diagnostic and/or prescriptive tutoring of curriculum
subjects for elementary and secondary school students; and
ii. site based businesses or centers that offer curriculum
homework assistance for elementary and secondary school
students; and
iii. site based businesses or centers that offer SAT/ACT
preparation courses, state-based assessment preparation
-35-
courses, AP preparation courses, and/or english as a second
language courses.
b. By Licensor. Subject to the provisions of Paragraph 22.e. below,
-----------
for the duration of this Agreement and for a period of one year
thereafter, Licensor shall not, directly or indirectly, through a
license or otherwise, engage in or compete with, the following
business lines of Licensee:
i. fee-based individualized diagnostic and/or prescriptive
tutoring of curriculum subjects for elementary and secondary
school students delivered to such students by online access
which uses the Internet or similar network and which uses
the Marks in connection with such activities, other than
online access by such students while present at site based
businesses or centers;
ii. fee-based synchronous and asynchronous curriculum homework
assistance for elementary and secondary school students
delivered to such students by on-line access which uses the
Internet or similar network and which uses the Marks in
connection with such activities, other than online access by
such students while present at site based businesses or
centers; and
iii. fee based SAT/ACT preparation courses, state-based
assessment preparation courses, AP preparation courses,
-36-
and/or english as a second language courses, by online
access which uses the Internet or similar network and which
uses the Marks in connection with such activities, other
than online access by such students while present at site
based businesses or centers.
c. Exception for Sylvan/ZapMe! Agreement. The provisions of
-------------------------------------
Paragraph 22.b above shall not in any way restrict or prohibit
Licensor from fulfilling its obligations, rights and duties under
the Products and Services Agreement entered into between Licensor
and ZapMe! Corporation on March 3, 1999, including all amendments
("ZapMe Agreement"). The parties expressly agree that Licensor
shall have the right to assign all its rights and obligations
under the ZapMe Agreement to Licensee, and Licensee shall have
the right to assume all such rights and obligations. In the event
such an assignment occurs, then the provisions of Paragraph 22.b
above shall not in any way restrict or prohibit Licensee from
fulfilling its obligations and duties under the ZapMe Agreement.
d. Agreement of Others. Both parties will agree to cause third
-------------------
parties contractually or otherwise affiliated with such party to
abide by the foregoing restrictions.
e. Effect of Termination. The provisions of Paragraph 22.a. will
---------------------
survive early termination of this Agreement and will remain in
-37-
effect until the first anniversary of the date on which the term
of this Agreement then in effect would have expired, if the
reason for such early termination is due to the breach of this
Agreement by Licensee. The provisions of Paragraph 22.b. will
survive early termination of this Agreement and will remain in
effect until the first anniversary of the date on which the term
of this Agreement then in effect would have expired, if the
reason for such early termination is due to the breach of this
Agreement by Licensor.
23. BEST EFFORTS; USE OF OTHER MARKS. Licensee agrees to use its best
--------------------------------
efforts throughout the term of this Agreement to develop and expand
the eSylvan Internet Business. Licensee agrees to use the Marks
exclusively in connection with the eSylvan Internet Business and
agrees to refrain from adopting any other Marks or brands without
prior written approval from Licensor; provided, however, that if this
Agreement is renewed after the expiration of the initial five-year
term, Licensee must use the Marks for the duration of the renewal
term, but Licensee may begin to use other trademarks and service marks
in addition to, but in conjunction with, the Marks (the "New Marks").
The New Marks shall not be derived from or confusingly similar to the
Marks. Licensee agrees to use domain names including the Xxxx
"eSylvan" exclusively in connection with the eSylvan Internet Business
during the initial term and agrees to refrain from using any other
domain names in connection with the eSylvan Internet Business without
the prior written approval from
-38-
Licensor; provided, however, that if this Agreement is renewed after
the expiration of the initial five-year term, Licensee must use domain
names including the Xxxx "eSylvan" for the duration of the renewal
term, but Licensee may begin to use other domain names in addition to,
but in conjunction with, the domain names including the Xxxx "eSylvan"
(the "New Domain Names"). The New Domain Names shall not be derived
from or confusingly similar to the Marks.
24. CONFIDENTIALITY. At all times during the term hereof and at all times
---------------
thereafter, each party shall keep confidential and not disclose,
directly or indirectly, and shall not use for the benefit of itself or
any other individual or entity, other than as expressly provided
herein, any Confidential Information of the other. "Confidential
Information" means any trade secrets or confidential or proprietary
information whether in written, oral, digital or other form which is
unique, confidential or proprietary to the disclosing party,
including, but not limited to, the Sylvan Content and, if applicable,
the eSylvan Content, and any other materials or information related to
the business or activities of the disclosing party which are not
generally known to others engaged in similar businesses or activities.
Either party's failure to xxxx any confidential Information as
confidential, proprietary or otherwise shall not affect its status as
Confidential Information hereunder.
25. DISPUTE RESOLUTION. Any party may seek injunctive relief to enforce
------------------
any intellectual property rights or other rights under this
-39-
Agreement. Any dispute relating to the interpretation or performance
of this Agreement, other than claims for which injunctive relief is
sought, will be resolved at the request of either party through
binding arbitration. The arbitration will be conducted in accordance
with the then existing rules of the American Arbitration Association
in Baltimore, Maryland by a qualified arbitrator selected by the
American Arbitration Association (or otherwise mutually selected by
the parties) who will possess knowledge of Licensor's and Licensee's
industry. The Arbitrator will be selected with the understanding that
he or she will have the capability of providing an expedited review
and decision with respect to the matter at issue within 45 days of his
or her appointment. The discovery rights and procedures provided by
the Federal Rules of Civil Procedure shall be available and
enforceable in the arbitration proceeding. Judgment upon any award by
the arbitrator may be entered in any state or federal court having
jurisdiction. Any claims which are not submitted to arbitration or for
which injunctive relief is sought shall be brought solely in the state
courts of the State of Maryland or the U.S. District Court for the
District of Maryland, to which personal jurisdiction the parties
specifically submit.
26. CHOICE OF LAW. Maryland substantive law, without regard to its
-------------
conflicts of laws, shall apply in all respects in the interpretation
of this Agreement.
27. EXCLUSION OF CONSEQUENTIAL AND INCIDENTAL DAMAGES. In no event shall
-------------------------------------------------
either party be liable for any loss, profits or special,
-40-
incidental or consequential damages (however arising, including
negligence) arising out of or in connection with this Agreement.
28. BINDING EFFECT. This Agreement shall be binding on and inure to the
--------------
benefit of each of the parties and their respective permitted
successors and assigns.
29. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
----------------
parties with respect to its subject matter, and there are no terms,
conditions, or provisions except as expressly set forth in it. This
Agreement may not be amended or modified except by a written
instrument executed by the authorized representative of the parties to
this Agreement.
30. PARTICIPATION AGREEMENT. Licensee agrees to use its best efforts to
-----------------------
perform, comply with and otherwise effectuate those contractual
provisions directly relating to Licensee as set forth in those certain
participation agreements executed and delivered by Licensor and
certain of Licensor's franchisees, as of and at all times after such
agreements are valid and enforceable in accordance with their terms
(the "Participation Agreement Effective Date").
31. eSYLVAN BOARD. Licensee acknowledges and agrees that Licensor shall
-------------
elect to Licensee's board of directors a nominee mutually acceptable
to Licensor and the Sylvan Franchise Owners Association, Inc. Board
(the "FOA Director") as soon as practicable after the Participation
Agreement
-41-
Effective Date. There shall be a designated FOA Director during the
term of this Agreement and any renewals thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date set forth above.
eSylvan, Inc. Sylvan Learning Systems, Inc.
By: /s/ XXXXX XXXXXX By: /s/ XXXXX XXXXX
---------------- ---------------
Title: President Title: Acting President
-42-
SCHEDULE A
eSylvan
xXxxxxx.xxx, and the associated Internet domain name registration
Xxxxxx
Xxxxxx Learning Center
Sylvan Learning Centers
Sylvan Learning Systems
-43-
SCHEDULE B
The Sylvan system which includes, but is not limited to, Sylvan's proprietary
programs, systems and techniques and certain copyrighted materials, all software
and computer programs necessary to offer online educational services.
Xxxxxx Xxx Prep materials for the online delivery of college entrance
examination preparation courses.
-44-
SCHEDULE C
[New Sylvan Content]
-45-
SCHEDULE D
[eSylvan Content]
-46-
