UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d)
of
the Securities Exchange Act of 1934
Date
of Report (Date of earliest event reported): February 12,
2008
MANDALAY
MEDIA, INC.
(Exact
name of registrant as specified in its charter)
Delaware
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|
00-10039
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22-2267658
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(State
or other jurisdiction
of
incorporation)
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|
(Commission
File Number)
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|
(IRS
Employer
Identification
No.)
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2121
Avenue of the Stars, Suite 2550
Los
Angeles, CA 90067
(Address
of principal executive offices and zip code)
Registrant’s
telephone number, including area code: (310) 601-2500
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (
see
General
Instruction A.2. below):
¨
|
Written
communications pursuant to Rule 425 under the Securities Act (17
CFR
230.425)
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¨
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|
¨
|
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR
240.14d-2(b))
|
¨
|
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR
240.13e-4(c))
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Safe
Harbor Statement under the Private Securities Litigation Reform Act of
1995
Information
included in this Current Report on Form 8-K may contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933,
as
amended (the “Securities Act”), and Section 21E of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”). This information may involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of Mandalay Media, Inc., a Delaware
corporation (“Mandalay” or the “Registrant”), and Twistbox Entertainment, Inc.,
a Delaware corporation (“Twistbox” and together with Mandalay, the “Companies”),
to be materially different from future results, performance or achievements
expressed or implied by any forward-looking statements. Forward-looking
statements, which involve assumptions and describe future plans, strategies
and
expectations of the Companies, are generally identifiable by use of the words
“may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend”
or “project” or the negative of these words or other variations on these words
or comparable terminology. Forward-looking statements are based on assumptions
that may be incorrect, and there can be no assurance that any projections or
other expectations included in any forward-looking statements will come to
pass.
The actual results of the Companies could differ materially from those expressed
or implied by the forward-looking statements as a result of various factors.
Except as required by applicable laws, Mandalay undertakes no obligation to
update publicly any forward-looking statements for any reason, even if new
information becomes available or other events occur in the future.
Unless
the context otherwise indicates, the use of the terms “we,” “our” or “us” refers
to the business and operations of Mandalay Media, Inc. through its sole
operating and wholly-owned subsidiary, Twistbox Entertainment,
Inc.
Item
1.01 Entry into a Material Definitive Agreement.
As
reported on our Current Report on Form 8-K filed with the Securities and
Exchange Commission (the “Commission”) on January 2, 2008, which is incorporated
herein by reference, on December 31, 2007, Mandalay entered into an Agreement
and Plan of Merger (the “Original Merger Agreement”) with Twistbox Acquisition,
Inc., a Delaware corporation and a wholly-owned subsidiary of Mandalay (“Merger
Sub”), Twistbox, and Adi McAbian and Spark Capital, L.P. as representatives of
the stockholders of Twistbox (the “Stockholder Representatives”), pursuant to
which Merger Sub would merge with and into Twistbox, with Twistbox as the
surviving corporation through an exchange of capital stock of Twistbox for
common stock of Mandalay (the “Merger”).
On
February 12, 2008, Mandalay, Merger Sub, Twistbox and the Stockholder
Representatives entered into an Amendment to Agreement and Plan of Merger (the
“Amendment”), which amended certain provisions of the Original Merger Agreement.
Pursuant to the Amendment, each outstanding Twistbox option (a “Twistbox
Option”) to purchase shares of common stock, $0.001 par value per share, of
Twistbox (“Twistbox Common Stock”) issued pursuant to Twistbox’s 2006 Stock
Incentive Plan (the “Twistbox 2006 Plan”) was assumed by Mandalay upon the
consummation of the Merger, subject to the same terms and conditions as were
applicable under such plan immediately prior to the Merger, except that (a)
the
number of shares of common stock of Mandalay, $0.0001 par value per share
(“Mandalay Common Stock”), issuable upon exercise of each such Twistbox Option
was determined by multiplying the number of shares of Twistbox Common Stock
that
were subject to such Twistbox Option immediately prior to the Merger by 0.72967
(the “Option Conversion Ratio”), rounded down to the nearest whole number; and
(b) the per share exercise price for the shares of Mandalay Common Stock
issuable upon exercise of each Twistbox Option was determined by dividing the
per share exercise price of Twistbox Common Stock subject to such Twistbox
Option, as in effect prior to the Merger, by the Option Conversion Ratio,
subject to any adjustments required by the Internal Revenue Code. The merger
consideration was also amended to consist of up to an aggregate of 12,325,000
shares of Mandalay Common Stock (the “Merger Consideration”), which included the
conversion of all shares of Twistbox capital stock and the reservation of
2,144,700 shares of Mandalay Common Stock required for assumption of the vested
Twistbox Options. Mandalay reserved an additional 318,722 shares of Mandalay
Common Stock required for the assumption of the unvested Twistbox Options.
All
other terms of the Original Merger Agreement remained the same and in effect.
The Merger was completed on February 12, 2008. A copy of the Amendment is
attached hereto as Exhibit 2.2 and incorporated herein by reference.
In
connection with the Merger, Mandalay guaranteed part of Twistbox’s outstanding
debt owed to ValueAct SmallCap Master Fund L.P. (“ValueAct”), and in connection
therewith issued ValueAct two warrants to purchase shares of Mandalay Common
Stock, as fully described below in Item 2.03 of this Current Report on Form
8-K,
which is incorporated herein by reference.
Item
2.01 Completion of Acquisition or Disposition of Assets.
SUMMARY
OF THE MERGER
Mandalay
entered into an Agreement and Plan of Merger on December 31, 2007, as
subsequently amended by the Amendment dated February 12, 2008 (the “Merger
Agreement”), with Merger Sub, Twistbox, and the Stockholder Representatives,
pursuant to which Merger Sub would merge with and into Twistbox, with Twistbox
as the surviving corporation. The Merger was completed on February 12,
2008.
Pursuant
to the Merger Agreement, upon the completion of the Merger, each outstanding
share of Twistbox Common Stock, on a fully-converted basis, with the conversion
on a one-for-one basis of all issued and outstanding shares of the Series A
Convertible Preferred Stock of Twistbox and the Series B Convertible Preferred
Stock of Twistbox, each $0.01 par value per share (the “Twistbox Preferred
Stock,” and together with Twistbox Common Stock, the “Twistbox Capital Stock”),
converted automatically into and became exchangeable for Mandalay Common Stock
in accordance with certain exchange ratios set forth in the Merger Agreement.
In
addition, by virtue of the Merger, each Twistbox Option issued pursuant to
the
Twistbox 2006 Plan was assumed by Mandalay, subject to the same terms and
conditions as were applicable under such plan immediately prior to the Merger,
except that (a) the number of shares of Mandalay Common Stock issuable upon
exercise of each Twistbox Option was determined by multiplying the number of
shares of Twistbox Common Stock that were subject to such Twistbox Option
immediately prior to the Merger by the Option Conversion Ratio, rounded down
to
the nearest whole number; and (b) the per share exercise price for the shares
of
Mandalay Common Stock issuable upon exercise of each Twistbox Option was
determined by dividing the per share exercise price of Twistbox Common Stock
subject to such Twistbox Option, as in effect prior to the Merger, by the Option
Conversion Ratio, subject to any adjustments required by the Internal Revenue
Code. As part of the Merger, Mandalay also assumed all unvested Twistbox
Options. The Merger Consideration consisted of an aggregate of up to 12,325,000
shares of Mandalay Common Stock, which included the conversion of all shares
of
Twistbox Capital Stock and the reservation of 2,144,700 shares of Mandalay
Common Stock required for assumption of the vested Twistbox Options. Mandalay
reserved an additional 318,722 shares of Mandalay Common Stock required for
the
assumption of the unvested Twistbox Options. In exchange for the grant
of piggy-back registration rights, Mandalay intends to enter into lock-up
agreements with certain of our stockholders holding, in the aggregate,
9,466,720 shares
of Mandalay Common Stock issued or issuable as part of the Merger
Consideration pursuant to which all of such shares, and all other shares of
Mandalay Common Stock or securities exercisable for or convertible into Mandalay
Common Stock currently held or to be acquired in the future by such
stockholders, will be subject to an 18-month lock-up
period commencing as of on February 12, 2008, during which time their
shares shall not be sold or otherwise transferred without the prior written
consent of Mandalay. All warrants to purchase shares of Twistbox Common
Stock outstanding at the time of the Merger were terminated on or before the
effective time of the Merger.
Upon
the
completion of the Merger, all shares of the Twistbox Capital Stock were no
longer outstanding and were automatically canceled and ceased to exist, and
each
holder of a certificate representing any such shares ceased to have any rights
with respect thereto, except the right to receive the applicable Merger
Consideration. Additionally, each share of the Twistbox Capital Stock held
by
Twistbox or owned by Merger Sub, Mandalay or any subsidiary of Twistbox or
Mandalay immediately prior to the Merger, was canceled and extinguished as
of
the completion of the Merger without any conversion or payment in respect
thereof. Each share of common stock, $0.001 par value per share, of Merger
Sub
issued and outstanding immediately prior to the Merger was converted upon
completion of the Merger into one validly issued, fully paid and non-assessable
share of common stock, $0.001 par value per share, of the surviving
corporation.
Effective
as of the closing of the Merger (the “Closing”), Ian Aaron and Adi McAbian were
appointed to our board of directors (the “Board of Directors”).
SUMMARY
DESCRIPTION OF BUSINESS
Historical
Operations of Mandalay Media, Inc.
Mandalay
Media, Inc. was originally incorporated in the State of Delaware on November
6,
1998 under the name eB2B Commerce, Inc. On April 27, 2000, Mandalay merged
into
DynamicWeb Enterprises Inc., a New Jersey corporation, and changed its name
to
eB2B Commerce, Inc. On April 13, 2005, Mandalay changed its name to Mediavest,
Inc. On November 7, 2007, through a merger, we reincorporated in the State
of
Delaware under the name Mandalay Media, Inc.
On
October 27, 2004, and as amended on December 17, 2004, Mandalay filed a plan
for
reorganization under Chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court for the Southern District of New York (“the Plan
of Reorganization”). Under the Plan of Reorganization, as completed on January
26, 2005: (1) Mandalay’s net operating assets and liabilities were transferred
to the holders of the secured notes in satisfaction of the principal and accrued
interest thereon; (2) $400,000 were transferred to a liquidation trust and
used
to pay administrative costs and certain preferred creditors; (3) $100,000 were
retained by Mandalay to fund the expenses of remaining public; (4) 3.5% of
the
new common stock of Mandalay (140,000 shares) was issued to the holders of
record of Mandalay’s preferred stock in settlement of their liquidation
preferences; (5) 3.5% of the new common stock of the company (140,000 shares)
was issued to common stockholders of record as of January 26, 2005 in exchange
for all of the outstanding shares of the common stock of the company; and (6)
93% of the new common stock of Mandalay (3,720,000 shares) was issued to the
sponsor of the Plan of Reorganization in exchange for $500,000 in cash. Through
January 26, 2005, Mandalay and its subsidiaries were engaged in providing
business-to-business transaction management services designed to simplify
trading between buyers and suppliers.
Immediately
prior to the Closing, Mandalay was a public shell company with no operations,
and controlled by its stockholder, Trinad Capital Master Fund, L.P (“Trinad
Capital Master Fund”).
Current
Operations of our Sole Operating and Wholly-Owned Subsidiary, Twistbox
Entertainment, Inc. and its Subsidiaries
Overview
Twistbox
Entertainment, Inc. is a global publisher and distributor of branded
entertainment content, including images, video, TV programming and games, for
Third Generation (3G) mobile networks. Twistbox publishes and distributes its
content in over 40 countries representing more than one billion subscribers.
Twistbox began operations in 2003. Since that time, Twistbox has developed
an
intellectual property portfolio unique to its target demographic (18 to 35
year
old) that includes worldwide exclusive (or territory exclusive) mobile rights
to
global brands and content from leading film, television and lifestyle content
publishing companies. Twistbox has built a proprietary mobile publishing
platform that includes: tools that automate handset rendering and provisioning
for the distribution of images and video; a mobile games development suite
that
automates the porting of mobile games and applications to over 1,500 handsets;
and a content standards and ratings system globally adopted by major wireless
carriers to assist with the responsible deployment of age-verified content.
Twistbox has leveraged its brand portfolio and platform to secure “direct”
distribution agreements with the largest mobile operators in the world,
including, among others, AT&T, Hutchinson 3G, O2, MTS, Orange, T-Mobile,
Telefonica, Verizon and Vodafone.
Twistbox
is headquartered in the Los Angeles area and has offices in London, Paris,
Stockholm, Dortmund, Moscow and Mexico City that provide local sales and
marketing support for both mobile operators and third party distribution in
their respective regions.
Lines
of Business
Twistbox
operates under three lines of business that include general entertainment,
games
and late night (with mature themes) programming.
General
Entertainment
The
general entertainment category that includes mobile content, games and mobile
marketing programs targets 18 to 35 year olds and is focused on Hollywood,
lifestyle and glamour. Twistbox has launched services that include Latin Twist,
a mobile portal focused on celebrity news, gossip and Telenovelas targeting
the
U.S. Hispanic and Latin American markets with leading local and national brands
from companies such as Editorial Televisa. Twistbox also has an exclusive global
agreement with CardPlayer Media LLC, the leading magazine publisher for poker
news and entertainment that incorporates extensive tournament coverage, results,
schedules and exclusive interviews with players and celebrities. Twistbox has
taken a partnership approach to this category by providing mobile site creation,
content localization, game development, integrated mobile marketing campaigns
and global distribution.
Games
Twistbox
Games, Twistbox’s related entity, develops, publishes and aggregates mobile
games and applications. Twistbox has developed and published more than 250
branded and casual games across a number of genres including action, casino,
puzzle and strategy. Twistbox Games’ portfolio is based on third party licensed
brands as well as its own original brands and intellectual property and includes
works for leading publishers such as Sony, EA, Square Enix, Taito, Namco,
i-Play, PopCap and many others. This division provides services including
award-winning development, universal handset porting and quality assurance
based
on its proprietary RapidPort™ development platform. Through unique applications
that include in-game advertising and promotions, a play-for-prizes platform
with
fulfillment and in-game billing services and carrier class content download
platform Nitro CDP™, Twistbox Games has taken a value-added approach that has
allowed it to secure agreements and preferred on-deck placement with leading
mobile operators that collectively represent over one billion
subscribers.
Late
Night Entertainment
Twistbox
distributes mature programming to the 18 to 35 year old demographic under its
separate wholly-owned subsidiary, WAAT Media Corp. (“WAAT Media”). This
programming is directed towards male audiences and includes extreme sports,
comedy, glamour and adult content from leading brands such as Playboy, Havoc,
Penthouse and Vivid. Within this late night category, approximately 38% of
the
programming is age-verified, while 62% is within each territory’s local
broadcast standards. WAAT Media has developed a proprietary content standards
matrix and a suite of tools and best practices for the responsible deployment
of
age-verified mobile programming. The “WAAT Media Wireless Content Standards
Rating Matrix
©
”
,
developed in conjunction with the top six mobile operators in the UK, has been
globally adopted by major mobile carriers including Vodafone, Orange, O2,
Telefonica and Hutchinson 3G, among others, to support the “on-deck” deployment
of age-verified mobile entertainment. Through its brands and its commitment
to
content standards and best practices, Twistbox has secured on-deck distribution
in over 40 countries and exclusive carrier relationships for the late night
and
age-verified categories with more than 20 operators in markets that include
the
U.S., the United Kingdom, Mexico, Greece, Netherlands, Hungary, Spain and
Portuga1.
Distribution
Twistbox
distributes its programming and services through on-deck relationships with
mobile carriers and off-deck relationships with third-party aggregation,
connectivity and billing providers.
On-Deck
Twistbox’s
on-deck services include the programming and provisioning of games and games
aggregation, images, videos and mobile TV content and portal management.
Twistbox currently has on-deck agreements with more than 100 mobile operators
including Vodafone, T-Mobile, Verizon, Cingular, Orange, O2, Virgin Mobile,
Telefonica and MTS in over 40 countries. Through these on-deck agreements,
Twistbox relies on the carriers for both marketing and billing. Through these
relationships, Twistbox currently reaches over one billion mobile subscribers
worldwide. Its currently deployed programming includes over 300 Wireless
Application Protocol (“WAP”) sites, 250 games, and 66 mobile TV
channels.
Off-Deck
Twistbox
has recently deployed off-deck services that include the programming and
distribution of video, images, games, videos and text chat services and mobile
marketing campaigns. Twistbox manages the campaigns directly and maintains
billing and connectivity agreements with leading service providers in each
territory. In addition, Twistbox has built and implemented a “Web-to-Mobile”
affiliate program that allows for the cross-marketing and sales of mobile
content from Web storefronts of its various programming partners and their
affiliates. To date, Twistbox’s on-line content and magazine publishing partners
generate in excess of 20 million unique page views per day.
Technology
Twistbox’s
proprietary portfolio of technology encompasses platforms and tools that enhance
the delivery, management and quality of Twistbox’s programming.
·
Renux™
-
Twistbox’s
carrier class content management, publishing and distribution platform developed
internally for the development, integration, deployment and marketing of
mobile
programming. Renux value added WAP services include comprehensive advertising,
ad auction, search and web based promotional tools.
·
RapidPort™
-
Twistbox’s
software suite that enables the development and porting of mobile games and
applications to over 1,500 different handsets from leading manufacturers
including Nokia, Motorola, Samsung and Sony Ericsson.
·
Nitro-CDP™
-
an
internally developed content download and delivery platform allowing for
real-time content upload, editing, rating and deployment, and merchandising,
while maintaining carrier-grade security, reliability and
scalability.
·
CMX
Wrapper™ -
developed
internally by Twistbox, enables mobile operators to integrate additional and
complimentary functionality (“try before you buy”) into existing mobile games
and applications without the need to alter the original code or involve the
original developer.
·
Play
for Prizes - Competition goes mobile® -
The
Twistbox Games For-Prizes platform enables skill-based multiplayer tournaments
for prizes with the ability to integrate unique in game promotions through
carrier-specific campaigns in cooperation with sponsors and
advertisers.
·
WAAT
Media Content Standards Rating Matrix -
WAAT
Media has developed a proprietary and copyrighted content standards matrix
widely known as the “WAAT Media Wireless Content Standards Ratings Matrix©”. It
is the globally-accepted content ratings system for age-verified mobile
programming that encompasses explicitness and is available to Mobile operators
and content providers through a licensing program on a royalty-free
basis.
Revenue
Model
Twistbox’s
primary revenue model is based on a per-download or subscription charge for
image galleries, video clips, games, WAP site access, mobile TV and other
content. In addition to its mobile content offerings, Twistbox generates, or
intends to generate, revenues from selective advertising and permission-based
marketing, where appropriate, to its target demographic. Twistbox receives
payment directly from the mobile operators and from third-party service
providers. The network operators typically receive between 40% to 50% of the
retail purchase price in the on-deck environment. The remainder, the net
revenue, is shared with Twistbox’s content providers, with the licensor
typically receiving between 20% to 50%.
INDUSTRY
OVERVIEW
Overview
The
wireless entertainment market has emerged as a result of the rapid growth and
significant technological advancement in the wireless communications industry.
Wireless carriers are launching new data services, including video clips, games,
ring tones and images, to drive revenues and take advantage of advanced wireless
networks and next generation mobile phones. The growth in the wireless
entertainment market has been positively influenced by a number of key factors
and trends that are expected to continue in the near future, including the
following factors set out below.
Growth
in Wireless Subscribers
The
number of global wireless subscribers has surpassed 1.0 billion and subscriber
growth is expected to continue as wireless communications increase in emerging
markets, including China and India. According to iSuppli, a provider of market
analysis, the number of global wireless subscribers is expected to grow from
approximately 2.6 billion in 2006 to over 4.0 billion in 2010 with most of
this
growth occurring in markets outside the U.S., Western Europe and
Japan.
Deployment
of Advanced Wireless Networks
Wireless
carriers are deploying high-speed, next-generation digital networks to enhance
wireless voice and data transmission. These advanced networks have enabled
the
provisioning and billing of data applications and have increased the ability
of
wireless subscribers to quickly download large amounts of data, including
games.
Availability
of Mobile Phones with Multimedia Capabilities
Annual
mobile phone sales grew from 482.5 million units in 2001 to 561.0 million units
in 2004 and are expected to grow to 767.0 million units in 2009, according
to
The ARC Group, a provider of market research and analysis. In recent years,
the
mobile phone has evolved from a voice-only device to a personal data and voice
communications device that enables access to wireless content and data services.
Mobile phone manufacturers are competing for consumers by designing
next-generation mobile phones with enhanced features including built-in digital
cameras, color screens, music and data connectivity. Manufacturers are also
embedding application environments such as BREW and Java into mobile phones
to
enable multimedia applications. The ARC Group estimates that sales of
BREW-enabled mobile phones are expected to grow from 11.6 million units in
2003
to 75.6 million units in 2008, and sales of Java-enabled mobile phones are
expected to grow from 95.5 million units in 2003 to 594.9 million units in
2008,
collectively representing approximately 97% of all mobile phones to be sold
in
2008. We believe that the availability of these next-generation mobile phones
is
driving demand for wireless entertainment applications that take advantage
of
these advanced multimedia capabilities.
Demand
for Wireless Entertainment
Wireless
carriers are increasingly launching and promoting wireless entertainment
applications to differentiate their services and drive revenues. The delivery
of
video clips, games, ring tones, images, and other entertainment content to
subscribers enables wireless carriers to leverage both the increasing installed
base of next-generation mobile phones and their investment in high bandwidth
wireless networks. Consumers are downloading and paying for wireless gaming
content offered by the carriers. According to Informa Telecoms and Media, a
market forecast provider in the telecommunications and media markets, worldwide
mobile content sales will climb from $18.8 billion in 2006 to $38.1 billion
in
2010, representing a compound growth rate of 15.2%.
DESCRIPTION
OF OUR BUSINESS
Effective
as of the Closing, Twistbox became Mandalay’s wholly-owned subsidiary. As a
result thereof, the historical business operations of Twistbox will comprise
Mandalay’s principal business operations going forward.
Overview
Twistbox
Entertainment, Inc. is a global publisher and distributor of branded
entertainment content, including images, video, TV programming and games, for
Third Generation (3G) mobile networks. Twistbox publishes and distributes its
content in over 40 countries representing more than one billion subscribers.
Operating since 2003, Twistbox has developed an intellectual property portfolio
unique to its target demographic (18 to 35 year old) that includes worldwide
exclusive (or territory exclusive) mobile rights to global brands and content
from leading film, television and lifestyle content publishing companies.
Twistbox has built a proprietary mobile publishing platform that includes:
tools
that automate handset portability for the distribution of images and video;
a
mobile games development suite that automates the porting of mobile games and
applications to over 1,500 handsets; and a content standards and ratings system
globally adopted by major wireless carriers to assist with the responsible
deployment of age-verified content. Twistbox has leveraged its brand portfolio
and platform to secure “direct” distribution agreements with the largest mobile
operators in the world, including, among others, AT&T, Hutchinson 3G, O2,
MTS, Orange, T-Mobile, Telefonica, Verizon and Vodafone. Twistbox has
experienced annual revenue growth in excess of 50% over the past two years
and
expects to become one of the leading players in the rapidly-growing,
multibillion-dollar mobile entertainment market.
Twistbox
maintains a worldwide distribution agreement with Vodafone. Through this
relationship, Twistbox serves as Vodafone’s exclusive supplier of late night
content, a portion of which is age-verified. Additionally, Twistbox is one
of
the select few content aggregators for Vodafone. Twistbox aggregates content
from leading entertainment companies and manages distribution of this content
to
Vodafone. Additionally, Twistbox maintains distribution agreements with other
leading mobile network operators throughout the North American, European, and
Asia-Pacific regions that include Verizon, Virgin Mobile, T-Mobile, Telefonica,
Hutchinson 3G, Three, O2 and Orange.
Twistbox’s
intellectual property encompasses over 75 worldwide exclusive or territory
exclusive content licensing agreements that cover all of its key content genres
including lifestyle, glamour, and celebrity news and gossip for U.S. Hispanic
and Latin American markets, poker news and information, late night entertainment
and casual games.
Twistbox
currently has content live on more than 100 network operators in 40 countries.
Through these relationships, Twistbox can currently reach over one billion
mobile subscribers worldwide. Its existing content portfolio includes 300 WAP
sites, 250 games, and 66 mobile TV channels.
In
addition to its content publishing business, Twistbox operates a rapidly growing
suite of Premium Short Message Service (Premium SMS) services that include
text
and video chat and web2mobile marketing services of video, images and games
that
are promoted through on-line, magazine and TV affiliates. The Premium SMS
infrastructure essentially allows end consumers of Twistbox content to pay
for
their content purchases directly from their mobile phone bills.
Twistbox’s
end-users are the highly-mobile, digitally-aware 18 to 35 year old demographic.
This group is a major consumer of digital entertainment services and commands
significant amounts of disposable income. In addition, this group is very
focused on consumer lifestyle brands and is much sought after by
advertisers.
Revenue
Model
Twistbox’s
revenue model is based primarily on a per-download or, alternatively,
subscription charge for video clips, games, WAP sites, and other
content.
In
addition to its mobile content offerings, Twistbox has begun to leverage its
distribution and traffic to generate revenues from WAP advertising where it
manages mobile content portals on an exclusive basis.
Twistbox
typically bills and receives payment directly through mobile operators and
portals that form the majority of its customers. The network operators typically
receive between 40% to 50% of the retail purchase price in the on-deck
environment. The remainder, the net revenue, is shared with Twistbox’s content
providers, with the licensor typically receiving between 20% to 50% of the
net
revenue.
Payment
methods available to end-users include SMS reverse billing and prepayment as
well as the more traditional credit and debit card channels. Twistbox typically
receives payment directly from the mobile operators and portals that constitute
the majority of its customers.
Development
Process
Twistbox
has an active content development program and has experience producing
release-ready applications for the world’s leading wireless formats and
platforms, including J2ME, BREW, DoJa, Windows Mobile, SMS and
Symbian.
Twistbox
intends to acquire additional third-party licenses and to develop new
applications through relationships with outside developers and its in-house
development staff. We believe that these efforts will assure that Twistbox
has a
steady stream of new content to offer its customers and end-users.
Twistbox
Technology and Tools
Twistbox’s
production activities currently address over 1,500 handsets, including models
manufactured by Nokia, Motorola, Samsung and Sony Ericsson. Twistbox has created
an automated handset abstraction tool that significantly reduces the time
required to “port” a game across a significant number of these
handsets.
Twistbox
works with a number of languages, platforms, and formats, including J2ME, BREW,
DoJa, and Symbian, and localizes its releases in the EFIGS languages (English,
French, Italian, German and Spanish). It is actively involved in a number of
technical initiatives aimed at enhancing its titles with value-added features,
such as multi-player functionality, 3D graphics, and location-based features.
The market for mobile entertainment should increase dramatically as mobile
operators continue to roll out their next generation service offerings and
we
see increases in bandwidth drive acceptance of handsets and other connected
devices offering improvements in data handling capability, graphics resolution,
and other features. Real-time, operating-system based handsets (smart phones/PDA
phones) were previously available but at high price points, reflecting the
fact
they were high-end devices. As prices decrease in the future, phones should
continue to grow steadily in both penetration and power.
The
availability of mobile content should hasten the adoption of the next generation
of handsets and promote the increase in data traffic required by carriers for
recovery of their investments in 3G licenses and infrastructure.
Twistbox’s
proprietary portfolio of technology encompasses platforms and tools that enhance
the delivery, management and quality of Twistbox’s programming.
Renux™
Renux™
is
Twistbox’s carrier class content management, publishing and distribution
platform developed internally for the development, integration, deployment
and
marketing of mobile programming. The system has been in operation for over
five
years and today supports over 300 WAP sites, more than 66 mobile TV channels
and
250 games in 18 languages. The Renux™ content management system stores image and
video content formatted for 1.5G to up to 3G devices, and incorporates a
comprehensive metadata format that categorizes the content for handset
recognition, programming, marketing and reporting. Twistbox maintains content
hosting facilities in Los Angeles, Washington, D.C. and Frankfurt that support
the distribution of content to mobile network operators.
RapidPort™
RapidPort™
is Twistbox’s software suite that enables the development and porting of mobile
games and applications to over 1,000 different handsets from leading
manufacturers including Nokia, Motorola, Samsung and Sony Ericsson. Twistbox
has
created an automated handset abstraction tool that significantly reduces the
time required to “port” a game across a significant number of these handsets.
The RapidPort™ development platform supports a broad number of wireless device
formats including J2ME, BREW, DoJa and Symbian, and provides localization in
over 18 languages. Twistbox Games has recently enhanced RapidPort™ to include
new technology designed to enhance titles with value-added features, such as
in-game advertising, multi-player and play for prizes functionality, 3D graphics
and location-based services (LBS).
Nitro-CDP™
Nitro-CDP™
is an internally developed content download and delivery platform for mobile
network operators, portals and content publishers. The Nitro-CDP™ platform
allows for real-time content upload, editing, rating and deployment, and
merchandising, while maintaining carrier-grade security, reliability and
scalability. The platform enables mobile network operators to effectively manage
millions of mobile download transactions across multiple channels and
categories. Nitro-CDP™ also provides innovative cross-promotional tools,
including purchase history-based up-sales and advertising, an individual “My
Downloads” area for each consumer and peer-to-peer recommendations.
CMX
Wrapper™
The
CMX
Wrapper™ technology, developed internally by Twistbox, enables mobile operators
to integrate additional and complimentary functionality into existing mobile
games and applications without the need to alter the original code or involve
the original developer. This value-added functionality includes support for
in-game promotions and billing, and “try before you buy” and “refer a friend”
functionality.
Play
for Prizes - Competition goes mobile®
The
Twistbox Games For-Prizes Network, currently deployed by major mobile operators
across the US such as AT&T Wireless and Verizon, offers several genres of
games in which players compete in daily and weekly skill-based multiplayer
tournaments to win prizes. Subscribers can compete in both daily head-to-head
and weekly progressive tournaments. The Twistbox Games For-Prizes platform
enables unique in-game promotions through carrier-specific campaigns in
cooperation with sponsors and advertisers.
WAAT
Media Wireless Content Standards Rating Matrix©
First
developed in 2003, and refined over the last several years, WAAT Media has
developed a proprietary content standards matrix widely known as the “WAAT Media
Wireless Content Standards Ratings Matrix©” (the “Ratings Matrix”). The Ratings
Matrix has been filed with the Library of Congress’ Copyright Office. It is the
globally-accepted content ratings system for age-verified mobile programming
that encompasses language, violence and explicitness. The system is licensed
on
a royalty-free basis by the world’s leading mobile carriers and leading content
providers and is the basis for the United Kingdom’s Code of Practice. The
Ratings Matrix currently supports 33 ratings levels and incorporates a suite
of
content validation tools and industry best practices that takes into account
country-by-country carrier programming requirements and local broadcast
standards.
Mobile
Rights
Twistbox
has major mobile publishing agreements with leading entertainment companies.
Through such agreements, as well as its own portfolio of intellectual property,
Twistbox has the wireless mobile rights to the following applications and brands
that include but are not limited to:
Games
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General
Entertainment
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Late
Night
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Taito
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Sony
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EA
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i-Play
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PopCap
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Konami
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Namco
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Editorial
Televisa
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CardPlayer
Magazine
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Playboy
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Penthouse
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Girls
Gone
Wild
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Vivid
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Portland
TV
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We
believe that these widely recognized brands attract both mobile operators and
end users. Twistbox intends to exploit the depth and breadth of its intellectual
property in order to continue to grow its revenue and cash flow.
Content
Development
Twistbox
has experience producing release-ready entertainment applications for several
wireless formats and platforms, including J2ME, BREW, WAP 2.0, Symbian and
DoJa.
Twistbox
intends to acquire additional third-party licenses and to develop new
applications through relationships with third-party developers as well as its
in-house development staff. We believe that these efforts will assure that
it
has a steady supply of new content to offer its customers.
In
addition to mobile video clips, games, WAP sites, and other entertainment
applications, Twistbox is currently focusing its development and licensing
activities on complementary applications such as in game advertising, TV-SMS
campaigns, play-for-prizes, and multi-player games.
Distribution
Twistbox
distributes its programming and services through on-deck relationships with
mobile carriers and off-deck relationships with third-party aggregation,
connectivity and billing providers.
On-Deck
Twistbox’s
on-deck services include the programming and provisioning of games and games
aggregation, images, videos and mobileTV content and portal management. Twistbox
currently has on-deck agreements with more than 100 mobile operators including
Vodafone, T-Mobile, Verizon, AT&T, Orange, O2, Virgin Mobile, Telefonica and
MTS in over 40 countries. Through these on-deck agreements, Twistbox relies
on
the carriers for both marketing and billing. Through these relationships,
Twistbox currently reaches over one billion mobile subscribers worldwide. Its
currently deployed programming includes over 300 WAP sites, 250 games, and
66
mobile TV channels.
Off-Deck
Twistbox
has recently deployed off-deck services that include the programming and
distribution of games, images, videos, chat services and mobile marketing
campaigns. Twistbox manages the campaigns directly and maintains billing and
connectivity agreements with leading service providers in each territory. In
addition, Twistbox has built and implemented a “Web-to-Mobile” affiliate program
that allows for the cross-marketing and sales of mobile content from Web
storefronts of its various programming partners and their affiliates. To date,
Twistbox’s content partners generate in excess of eight million on-line unique
users per day.
Mobile
Operators (Carriers)
Twistbox
currently has a large number of distribution agreements with mobile operators
and portals in Europe, the U.S., Japan, and Latin America. Twistbox currently
has distribution agreements with more than 100 single territory operators in
40
countries. Twistbox continues to sign new operators on a quarterly basis and,
in
the near term, intends to extend its distribution base into Eastern Europe
and
South America. The strength and coverage of these relationships is of paramount
importance and the ability to support and service them is a vital component
in
route to the consumer. Twistbox’s distribution agreements with Vodafone account
for approximately 36% of the company’s current revenue.
Affiliates
Program
Twistbox
has also established an Affiliates Program to market and sell its content
“off-deck,” that is, through a direct-to-consumer online portal that end users
can access directly from their PCs or phones. We believe that this channel
offers an attractive secondary outlet for consumers wishing to peruse and
purchase content in an environment less limiting and restrictive than an
operator’s “walled garden.”
Sales
and Marketing
In
order
to sell to its target base of carrier and infrastructure customers, Twistbox
has
built a growing affiliate sales and marketing team that is localized on a
country-by-country basis. In order to sell to its target base of carrier and
infrastructure customers, Twistbox has built a growing affiliate sales and
marketing team that is localized on a country-by-country basis. As of February
8, 2008, Twistbox had a workforce of approximately 132 employees.
Competition
While
many mobile marketing companies sell a diversified portfolio of content from
ring tones to wall papers and kids programming to adult, Twistbox has taken
a
more focused and disciplined approach. Twistbox focuses on programming and
platforms where it can manage categories on an exclusive or semi-exclusive
basis
for a mobile operator. Target markets include Age Verified Programming,
Play4Prizes or areas in which Twistbox has exclusive rights to the top one
or
two brands in a genre.
In
the
area of mature themed mobile entertainment, Twistbox is a leading provider
of
content and services. Twistbox has strengthened its position with the operators
by deploying new services to enhance the category revenue that include age
verification systems, in portal advertising and ad auction services and new
search features to enhance discover. The industry trend has been for leading
operators to focus on fewer partners and often assign a company to manage the
category. We believe that its responsible reputation and the Ratings Matrix
combined with its publishing platform and leading brands that maximize revenue,
positions it to manage the age-verified category for operators
globally.
Twistbox
competes with a number of other companies in the mobile games publishing
industry, including Arvato, Minick, Jamba, Buongiorno, Mobile Streams, Glu
Mobile, Player X and Gameloft. Brands such as Playboy have sought to create
their own direct distribution arrangements with network operators. To the extent
that such firms continue to seek such relationships, they will compete directly
with Twistbox in their respective content segments. While Twistbox competes
with
many of the leading publishers, its core business is providing services and
platforms for operators and publishers to enhance revenues. In turn, through
the
management of an operator’s download platform, providing a cross carrier
Play4Prizes infrastructure or facilitating in game advertising or billing,
Twistbox has become a strategic value added partner to both the mobile operator
and publishing communities.
Direct-to-consumer
(D2C) Web portals may have an adverse impact on Twistbox’s business, as these
portals may not strike distribution arrangements with Twistbox. Additionally,
wireless device manufacturers such as Nokia, Sony Ericsson and Motorola may
choose to pursue their own content strategies.
We
believe that the principal competitive factors in the market for mobile games
and other content include carrier relationships, access to compelling content,
quality and reliability of content delivery, availability of talented content
developers and skilled technical personnel, and financial
stability.
Trademarks,
Tradenames and Copyrights
Twistbox
has used, registered and applied to register certain trademarks and service
marks to distinguish its products, technologies and services from those of
its
competitors in the United States and in foreign countries. Twistbox also
has a copyright known as the “WAAT Media Wireless Content Standards Ratings
Matrix©”, which has been filed with the Library of Congress’ Copyright Office.
We believe that these trademarks, tradenames and copyright are important to
its
business. The loss of some of Twistbox’s intellectual property might have a
negative impact on its financial results and operations.
RISK
FACTORS
You
should carefully consider each of the risks described below and other
information contained in this Current Report on Form 8-K, including our
consolidated financial statements and the related notes. The following risks
and
the risks described elsewhere in this Current Report on Form 8-K, including
in
the section entitled “Management’s Discussion and Analysis of Financial
Condition and Results of Operation,” could materially affect our business,
prospects, financial condition, operating results or cash flow. Additional
risks
and uncertainties not currently known to us or that we currently deem immaterial
may also adversely affect our business. If any of these risks materialize,
the
trading price of our common stock could decline.
Unless
the context otherwise indicates, the use of the terms “we,” “our” or “us” refers
to the business and operations of Mandalay Media, Inc. through its sole
operating and wholly-owned subsidiary, Twistbox Entertainment, Inc.
Risks
Related to Our Business
Twistbox
has a history of net losses, may incur substantial net losses in the future
and
may not achieve profitability.
We
expect to continue to increase expenses as we implement initiatives designed
to
continue to grow our business, including, among other things, the development
and marketing of new products and services, further international and domestic
expansion, expansion of our infrastructure, development of systems and
processes, acquisition of content, and general and administrative expenses
associated with being a public company. If our revenues do not increase to
offset these expected increases in operating expenses, we will continue to
incur
significant losses and will not become profitable. Our revenue growth in recent
periods should not be considered indicative of our future performance. In fact,
in future periods, our revenues could decline. Accordingly, we may not be able
to achieve profitability in the future.
We
have a limited operating history in an emerging market, which may make it
difficult to evaluate our business.
We
have only a limited history of generating revenues, and the future revenue
potential of our business in this emerging market is uncertain. As a result
of
our short operating history, we have limited financial data that can be used
to
evaluate our business. Any evaluation of our business and our prospects must
be
considered in light of our limited operating history and the risks and
uncertainties encountered by companies in our stage of development. As an early
stage company in the emerging mobile entertainment industry, we face increased
risks, uncertainties, expenses and difficulties. To address these risks and
uncertainties, we must do the following:
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maintain
our current, and develop new, wireless carrier relationships, in
both the
international and domestic markets;
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maintain
and expand our current, and develop new, relationships with third-party
branded and non-branded content owners;
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retain
or improve our current revenue-sharing arrangements with carriers
and
third-party content owners;
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maintain
and enhance our own brands;
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continue
to develop new high-quality products and services that achieve significant
market acceptance;
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continue
to port existing products to new mobile handsets;
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continue
to develop and upgrade our technology;
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continue
to enhance our information processing systems;
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increase
the number of end users of our products and services;
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maintain
and grow our non-carrier, or “off-deck,” distribution, including through
our third-party direct-to-consumer distributors;
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expand
our development capacity in countries with lower costs;
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execute
our business and marketing strategies successfully;
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respond
to competitive developments; and
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attract,
integrate, retain and motivate qualified
personnel.
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We
may be unable to accomplish one or more of these objectives, which could cause
our business to suffer. In addition, accomplishing many of these efforts might
be very expensive, which could adversely impact our operating results and
financial condition.
Our
financial results could vary significantly from quarter to quarter and are
difficult to predict.
Our
revenues and operating results could vary significantly from quarter to quarter
because of a variety of factors, many of which are outside of our control.
As a
result, comparing our operating results on a period-to-period basis may not
be
meaningful. In addition, we may not be able to predict our future revenues
or
results of operations. We base our current and future expense levels on our
internal operating plans and sales forecasts, and our operating costs are to
a
large extent fixed. As a result, we may not be able to reduce our costs
sufficiently to compensate for an unexpected shortfall in revenues, and even
a
small shortfall in revenues could disproportionately and adversely affect
financial results for that quarter. Individual products and services, and
carrier relationships, represent meaningful portions of our revenues and net
loss in any quarter. We may incur significant or unanticipated expenses when
licenses are renewed. In addition, some payments from carriers that we recognize
as revenue on a cash basis may be delayed unpredictably.
In
addition to other risk factors discussed in this section, factors that may
contribute to the variability of our quarterly results include:
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the
number of new products and services released by us and our
competitors;
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the
timing of release of new products and services by us and our competitors,
particularly those that may represent a significant portion of revenues
in
a period;
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the
popularity of new products and services, and products and services
released in prior periods;
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changes
in prominence of deck placement for our leading products and those
of our
competitors;
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the
expiration of existing content licenses;
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the
timing of charges related to impairments of goodwill, intangible
assets,
royalties and minimum guarantees;
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changes
in pricing policies by us, our competitors or our carriers and other
distributors;
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changes
in the mix of original and licensed content, which have varying gross
margins;
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the
timing of successful mobile handset
launches;
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the
seasonality of our industry;
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fluctuations
in the size and rate of growth of overall consumer demand for mobile
products and services and related content;
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strategic
decisions by us or our competitors, such as acquisitions, divestitures,
spin-offs, joint ventures, strategic investments or changes in business
strategy;
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our
success in entering new geographic markets;
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foreign
exchange fluctuations;
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accounting
rules governing recognition of revenue;
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the
timing of compensation expense associated with equity compensation
grants;
and
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decisions
by us to incur additional expenses, such as increases in marketing
or
research and development.
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As
a
result of these and other factors, our operating results may not meet the
expectations of investors or public market analysts who choose to follow our
company. Failure to meet market expectations would likely result in decreases
in
the trading price of our common stock.
The
markets in which we operate are highly competitive, and many of our competitors
have significantly greater resources than we do.
The
development, distribution and sale of mobile products and services is a highly
competitive business. We compete for end users primarily on the basis of
“on-deck” or “off-deck” positioning, brand, quality and price. We compete for
wireless carriers for “on-deck” placement based on these factors, as well as
historical performance, technical know-how, perception of sales potential and
relationships with licensors of brands and other intellectual property. We
compete for content and brand licensors based on royalty and other economic
terms, perceptions of development quality, porting abilities, speed of
execution, distribution breadth and relationships with carriers. We also compete
for experienced and talented employees.
Our
primary competitors include
Arvato,
Minick, Jamba, Buongiorno, Mobile Streams, Glu Mobile, Player X and
Gameloft.
In the
future, likely competitors include major media companies, traditional video
game
publishers, platform developers, content aggregators, mobile software providers
and independent mobile game publishers. Carriers may also decide to develop,
internally or through a managed third-party developer, and distribute their
own
products and services. If carriers enter the wireless market as publishers,
they
might refuse to distribute some or all of our products and services or might
deny us access to all or part of their networks.
Some
of our competitors’ and our potential competitors’ advantages over us, either
globally or in particular geographic markets, include the following:
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significantly
greater revenues and financial
resources;
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stronger
brand and consumer recognition regionally or worldwide;
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the
capacity to leverage their marketing expenditures across a broader
portfolio of mobile and non-mobile products;
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more
substantial intellectual property of their own from which they can
develop
products and services without having to pay royalties;
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pre-existing
relationships with brand owners or carriers that afford them access
to
intellectual property while blocking the access of competitors to
that
same intellectual property;
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greater
resources to make acquisitions;
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lower
labor and development costs; and
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broader
global distribution and presence.
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If
we are unable to compete effectively or we are not as successful as our
competitors in our target markets, our sales could decline, our margins could
decline and we could lose market share, any of which would materially harm
our
business, operating results and financial condition.
Failure
to renew our existing brand and content licenses on favorable terms or at all
and to obtain additional licenses would impair our ability to introduce new
products and services or to continue to offer our products and services based
on
third-party content.
Revenues are derived from our products and services based on or incorporating
brands or other intellectual property licensed from third parties. Any of our
licensors could decide not to renew our existing license or not to license
additional intellectual property and instead license to our competitors or
develop and publish its own products or other applications, competing with
us in
the marketplace. Several of these licensors already provide intellectual
property for other platforms, and may have significant experience and
development resources available to them should they decide to compete with
us
rather than license to us.
We
have
both exclusive and non-exclusive licenses and both licenses that are global
and
licenses that are limited to specific geographies. Our licenses generally have
terms that range from two to five years
.
We may
be unable to renew these licenses or to renew them on terms favorable to us,
and
we may be unable to secure alternatives in a timely manner. Failure to maintain
or renew our existing licenses or to obtain additional licenses would impair
our
ability to introduce new products and services or to continue to offer our
current products or services, which would materially harm our business,
operating results and financial condition. Some of our existing licenses impose,
and licenses that we obtain in the future might impose, development,
distribution and marketing obligations on us. If we breach our obligations,
our
licensors might have the right to terminate the license which would harm our
business, operating results and financial condition.
Even
if we are successful in gaining new licenses or extending existing licenses,
we
may fail to anticipate the entertainment preferences of our end users when
making choices about which brands or other content to license. If the
entertainment preferences of end users shift to content or brands owned or
developed by companies with which we do not have relationships, we may be unable
to establish and maintain successful relationships with these developers and
owners, which would materially harm our business, operating results and
financial condition. In addition, some rights are licensed from licensors that
have or may develop financial difficulties, and may enter into bankruptcy
protection under U.S. federal law or the laws of other countries. If any of
our
licensors files for bankruptcy, our licenses might be impaired or voided, which
could materially harm our business, operating results and financial condition.
We
currently rely on wireless carriers to market and distribute our products and
services and thus to generate our revenues. The loss of or a change in any
of
these significant carrier relationships could cause us to lose access to their
subscribers and thus materially reduce our revenues.
Our
future success is highly dependent upon maintaining successful relationships
with the wireless carriers with which we currently work and establishing new
carrier relationships in geographies where we have not yet established a
significant presence. A significant portion of our revenue is derived from
a
very limited number of carriers. We expect that we will continue to generate
a
substantial majority of our revenues through distribution relationships with
a
limited number of carriers for the foreseeable future. Our failure to maintain
our relationships with these carriers would materially reduce our revenues
and
thus harm our business, operating results and financial condition.
We
have both exclusive and non-exclusive carrier agreements. Typically, carrier
agreements have a term of one or two years with automatic renewal provisions
upon expiration of the initial term, absent a contrary notice from either party.
In addition, some carrier agreements provide that the carrier can terminate
the
agreement early and, in some instances, at any time without cause, which could
give them the ability to renegotiate economic or other terms. The agreements
generally do not obligate the carriers to market or distribute any of our
products or services. In many of these agreements, we warrant that our products
do not violate community standards, do not contain libelous content, do not
contain material defects or viruses, and do not violate third-party intellectual
property rights and we indemnify the carrier for any breach of a third party’s
intellectual property. In addition, many of our agreements allow the carrier
to
set the retail price without adjustment to the negotiated revenue split. If
one
of these carriers sets the retail price below historic pricing models, the
total
revenues received from these carriers will be significantly
reduced.
Many
other factors outside our control could impair our ability to generate revenues
through a given carrier, including the following:
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the
carrier’s preference for our competitors’ products and services rather
than ours;
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the
carrier’s decision not to include or highlight our products and services
on the deck of its mobile handsets;
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the
carrier’s decision to discontinue the sale of some or all of products and
services;
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the
carrier’s decision to offer similar products and services to its
subscribers without charge or at reduced prices;
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the
carrier’s decision to require market development funds from publishers
like us;
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the
carrier’s decision to restrict or alter subscription or other terms for
downloading our products and services;
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a
failure of the carrier’s merchandising, provisioning or billing
systems;
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the
carrier’s decision to offer its own competing products and
services;
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the
carrier’s decision to transition to different platforms and revenue
models; and
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consolidation
among carriers.
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If
any of
our carriers decides not to market or distribute our products and services
or
decides to terminate, not renew or modify the terms of its agreement with us
or
if there is consolidation among carriers generally, we may be unable to replace
the affected agreement with acceptable alternatives, causing us to lose access
to that carrier’s subscribers and the revenues they afford us, which could
materially harm our business, operating results and financial condition.
End
user tastes are continually changing and are often unpredictable; if we fail
to
develop and publish new products and services that achieve market acceptance,
our sales would suffer.
Our
business depends on developing and publishing new products and services that
wireless carriers distribute and end users will buy. We must continue to invest
significant resources in licensing efforts, research and development, marketing
and regional expansion to enhance our offering of new products and services,
and
we must make decisions about these matters well in advance of product release
in
order to implement them in a timely manner. Our success depends, in part, on
unpredictable and volatile factors beyond our control, including end-user
preferences, competing products and services and the availability of other
entertainment activities. If our products and services are not responsive to
the
requirements of our carriers or the entertainment preferences of end users,
or
they are not brought to market in a timely and effective manner, our business,
operating results and financial condition would be harmed. Even if our products
and services are successfully introduced and initially adopted, a subsequent
shift in our carriers or the entertainment preferences of end users could cause
a decline in the popularity of our offerings that could materially reduce our
revenues and harm our business, operating results and financial condition.
Inferior
deck placement would likely adversely impact our revenues and thus our operating
results and financial condition.
Wireless
carriers provide a limited selection of products that are accessible to their
subscribers through a deck on their mobile handsets. The inherent limitation
on
the volume of products available on the deck is a function of the limited screen
size of handsets and carriers’ perceptions of the depth of menus and numbers of
choices end users will generally utilize. Carriers typically provide one or
more
top level menus highlighting products that are recent top sellers or are of
particular interest to the subscriber, that the carrier believes will become
top
sellers or that the carrier otherwise chooses to feature, in addition to a
link
to a menu of additional products sorted by genre. We believe that deck placement
on the top level or featured menu or toward the top of genre-specific or other
menus, rather than lower down or in sub-menus, is likely to result in products
achieving a greater degree of commercial success. If carriers choose to give
our
products less favorable deck placement, our products may be less successful
than
we anticipate, our revenues may decline and our business, operating results
and
financial condition may be materially harmed.
If
we are unsuccessful in establishing and increasing awareness of our brand and
recognition of our products and services or if we incur excessive expenses
promoting and maintaining our brand or our products and services, our potential
revenues could be limited, our costs could increase and our operating results
and financial condition could be harmed.
We
believe that establishing and maintaining our brand is critical to retaining
and
expanding our existing relationships with wireless carriers and content
licensors, as well as developing new relationships. Promotion of the company’s
brands will depend on our success in providing high-quality products and
services. Similarly, recognition of our products and services by end users
will
depend on our ability to develop engaging products and quality services to
maintain existing, and attract new, business relationships and end users.
However, our success will also depend, in part, on the services and efforts
of
third parties, over which we have little or no control. For instance, if our
carriers fail to provide high levels of service, our end users’ ability to
access our products and services may be interrupted, which may adversely affect
our brand. If end users, branded content owners and carriers do not perceive
our
offerings as high-quality or if we introduce new products and services that
are
not favorably received by our end users and carriers, then we may be
unsuccessful in building brand recognition and brand loyalty in the marketplace.
In addition, globalizing and extending our brand and recognition of our products
and services will be costly and will involve extensive management time to
execute successfully. Further, the markets in which we operate are highly
competitive and some of our competitors already have substantially more brand
name recognition and greater marketing resources than we do. If we fail to
increase brand awareness and consumer recognition of our products and services,
our potential revenues could be limited, our costs could increase and our
business, operating results and financial condition could suffer.
Our
business and growth may suffer if we are unable to hire and retain key
personnel, who are in high demand.
We
depend
on the continued contributions of our domestic and international senior
management and other key personnel. The loss of the services of any of our
executive officers or other key employees could harm our business. All of our
executive officers and key employees are under short term employment agreements
which means, that their future employment with the company is uncertain. We
do
maintain a key-person life insurance policy on some of our officers or other
employees, but the continuation of such insurance coverage is uncertain.
Our
future success also depends on our ability to identify, attract and retain
highly skilled technical, managerial, finance, marketing and creative personnel.
We face intense competition for qualified individuals from numerous technology,
marketing and mobile entertainment companies. In addition, competition for
qualified personnel is particularly intense in the Los Angeles area, where
our
headquarters are located. Further, two of our principal overseas operations
are
based in the United Kingdom and Germany, areas that, similar to our headquarters
region, have high costs of living and consequently high compensation standards
and/or intense demand for qualified individuals which may require us to incur
significant costs to attract them. We may be unable to attract and retain
suitably qualified individuals who are capable of meeting our growing creative,
operational and managerial requirements, or may be required to pay increased
compensation in order to do so. If we are unable to attract and retain the
qualified personnel we need to succeed, our business would suffer.
Volatility
or lack of performance in our stock price may also affect our ability to attract
and retain our key employees. Many of our senior management personnel and other
key employees have become, or will soon become, vested in a substantial amount
of stock or stock options. Employees may be more likely to leave us if the
shares they own or the shares underlying their options have significantly
appreciated in value relative to the original purchase prices of the shares
or
the exercise prices of the options, or if the exercise prices of the options
that they hold are significantly above the market price of our common stock.
If
we are unable to retain our employees, our business, operating results and
financial condition would be harmed.
Growth
may place significant demands on our management and our
infrastructure.
We
operate in an emerging market and have experienced, and may continue to
experience, growth in our business through internal growth and acquisitions.
This growth has placed, and may continue to place, significant demands on our
management and our operational and financial infrastructure. Continued growth
could strain our ability to:
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develop
and improve our operational, financial and management
controls;
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enhance
our reporting systems and procedures;
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recruit,
train and retain highly skilled personnel;
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maintain
our quality standards; and
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maintain
branded content owner, wireless carrier and end-user
satisfaction.
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Managing
our growth will require significant expenditures and allocation of valuable
management resources. If we fail to achieve the necessary level of efficiency
in
our organization as it grows, our business, operating results and financial
condition would be harmed.
The
acquisition of other companies, businesses or technologies could result in
operating difficulties, dilution and other harmful
consequences.
We
have
made acquisitions and, although we have no present understandings, commitments
or agreements to do so, we may pursue further acquisitions, any of which could
be material to our business, operating results and financial condition. Future
acquisitions could divert management’s time and focus from operating our
business. In addition, integrating an acquired company, business or technology
is risky and may result in unforeseen operating difficulties and expenditures.
We may also raise additional capital for the acquisition of, or investment
in,
companies, technologies, products or assets that complement our business. Future
acquisitions or dispositions could result in potentially dilutive issuances
of
our equity securities, including our common stock, or the incurrence of debt,
contingent liabilities, amortization expenses or acquired in-process research
and development expenses, any of which could harm our financial condition and
operating results. Future acquisitions may also require us to obtain additional
financing, which may not be available on favorable terms or at all.
International
acquisitions involve risks related to integration of operations across different
cultures and languages, currency risks and the particular economic, political
and regulatory risks associated with specific countries.
Some
or
all of these issues may result from our acquisition of the Germany based mobile
games development and publishing company Charismatix Ltd & Co KG in May 2006
and the U.S. based mobile games studio from Infospace, Inc. in January 2007.
If
the anticipated benefits of these or future acquisitions do not materialize,
we
experience difficulties integrating Charismatix, the games studio or businesses
acquired in the future, or other unanticipated problems arise, our business,
operating results and financial condition may be harmed.
In
addition, a significant portion of the purchase price of companies we acquire
may be allocated to acquired goodwill and other intangible assets, which must
be
assessed for impairment at least annually. In the future, if our acquisitions
do
not yield expected returns, we may be required to take charges to our earnings
based on this impairment assessment process, which could harm our operating
results.
We
face added business, political, regulatory, operational, financial and economic
risks as a result of our international operations and distribution, any of
which
could increase our costs and hinder our growth.
We
expect international sales to continue to be an important component of our
revenues. Risks affecting our international operations include:
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challenges
caused by distance, language and cultural differences;
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multiple
and conflicting laws and regulations, including complications due
to
unexpected changes in these laws and regulations;
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the
burdens of complying with a wide variety of foreign laws and
regulations;
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higher
costs associated with doing business internationally;
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difficulties
in staffing and managing international operations;
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greater
fluctuations in sales to end users and through carriers in developing
countries, including longer payment cycles and greater difficulty
collecting accounts receivable;
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protectionist
laws and business practices that favor local businesses in some
countries;
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foreign
tax consequences;
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foreign
exchange controls that might prevent us from repatriating income
earned in
countries outside the United
States;
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price
controls;
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the
servicing of regions by many different carriers;
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imposition
of public sector controls;
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political,
economic and social instability;
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restrictions
on the export or import of technology;
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trade
and tariff restrictions;
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variations
in tariffs, quotas, taxes and other market barriers;
and
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difficulties
in enforcing intellectual property rights in countries other than
the
United States.
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In
addition, developing user interfaces that are compatible with other languages
or
cultures can be expensive. As a result, our ongoing international expansion
efforts may be more costly than we expect. Further, expansion into developing
countries subjects us to the effects of regional instability, civil unrest
and
hostilities, and could adversely affect us by disrupting communications and
making travel more difficult. These risks could harm our international expansion
efforts, which, in turn, could materially and adversely affect our business,
operating results and financial condition.
If
we fail to deliver our products and services at the same time as new mobile
handset models are commercially introduced, our sales may
suffer.
Our
business is dependent, in part, on the commercial introduction of new handset
models with enhanced features, including larger, higher resolution color
screens, improved audio quality, and greater processing power, memory, battery
life and storage. We do not control the timing of these handset launches. Some
new handsets are sold by carriers with certain products or other applications
pre-loaded, and many end users who download our products or use our services
do
so after they purchase their new handsets to experience the new features of
those handsets. Some handset manufacturers give us access to their handsets
prior to commercial release. If one or more major handset manufacturers were
to
cease to provide us access to new handset models prior to commercial release,
we
might be unable to introduce compatible versions of our products and services
for those handsets in coordination with their commercial release, and we might
not be able to make compatible versions for a substantial period following
their
commercial release. If, because of launch delays, we miss the opportunity to
sell products and services when new handsets are shipped or our end users
upgrade to a new handset, or if we miss the key holiday selling period, either
because the introduction of a new handset is delayed or we do not deploy our
products and services in time for the holiday selling season, our revenues
would
likely decline and our business, operating results and financial condition
would
likely suffer.
Wireless
carriers generally control the price charged for our products and services
and
the billing and collection for sales and could make decisions detrimental to
us.
Wireless
carriers generally control the price charged for our products and services
either by approving or establishing the price of the offering charged to their
subscribers. Some of our carrier agreements also restrict our ability to change
prices. In cases where carrier approval is required, approvals may not be
granted in a timely manner or at all. A failure or delay in obtaining these
approvals, the prices established by the carriers for our offerings, or changes
in these prices could adversely affect market acceptance of our offerings.
Similarly, for the significant minority of our carriers, when we make changes
to
a pricing plan (the wholesale price and the corresponding suggested retail
price
based on our negotiated revenue-sharing arrangement), adjustments to the actual
retail price charged to end users may not be made in a timely manner or at
all
(even though our wholesale price was reduced). A failure or delay by these
carriers in adjusting the retail price for our offerings, could adversely affect
sales volume and our revenues for those offerings.
Carriers
and other distributors also control billings and collections for our products
and services, either directly or through third-party service providers. If
our
carriers or their third-party service providers cause material inaccuracies
when
providing billing and collection services to us, our revenues may be less than
anticipated or may be subject to refund at the discretion of the carrier. This
could harm our business, operating results and financial condition.
We
may be unable to develop and introduce in a timely way new products or services,
and our products and services may have defects, which could harm our
brand.
The
planned timing and introduction of new products and services are subject to
risks and uncertainties. Unexpected technical, operational, deployment,
distribution or other problems could delay or prevent the introduction of new
products and services, which could result in a loss of, or delay in, revenues
or
damage to our reputation and brand. If any of our products or services is
introduced with defects, errors or failures, we could experience decreased
sales, loss of end users, damage to our carrier relationships and damage to
our
reputation and brand. Our attractiveness to branded content licensors might
also
be reduced. In addition, new products and services may not achieve sufficient
market acceptance to offset the costs of development, particularly when the
introduction of a product or service is substantially later than a planned
“day-and-date” launch, which could materially harm our business, operating
results and financial condition.
If
we fail to maintain and enhance our capabilities for porting our offerings
to a
broad array of mobile handsets, our attractiveness to wireless carriers and
branded content owners will be impaired, and our sales could suffer.
Once
developed, a product or application may be required to be ported to, or
converted into separate versions for, more than 1,000 different handset models,
many with different technological requirements. These include handsets with
various combinations of underlying technologies, user interfaces, keypad
layouts, screen resolutions, sound capabilities and other carrier-specific
customizations. If we fail to maintain or enhance our porting capabilities,
our
sales could suffer, branded content owners might choose not to grant us licenses
and carriers might choose not to give our products and services desirable deck
placement or not to give our products and services placement on their decks
at
all.
Changes
to our design and development processes to address new features or functions
of
handsets or networks might cause inefficiencies in our porting process or might
result in more labor intensive porting processes. In addition, we anticipate
that in the future we will be required to port existing and new products and
applications to a broader array of handsets. If we utilize more labor intensive
porting processes, our margins could be significantly reduced and it might
take
us longer to port our products and applications to an equivalent number of
handsets. This, in turn, could harm our business, operating results and
financial condition.
If
we do not adequately protect our intellectual property rights, it may be
possible for third parties to obtain and improperly use our intellectual
property and our competitive position may be adversely
affected.
Our
intellectual property is an essential element of our business. We rely on a
combination of copyright, trademark, trade secret and other intellectual
property laws and restrictions on disclosure to protect our intellectual
property rights. To date, we have not sought patent protection. Consequently,
we
will not be able to protect our technologies from independent invention by third
parties. Despite our efforts to protect our intellectual property rights,
unauthorized parties may attempt to copy or otherwise to obtain and use our
technology and software. Monitoring unauthorized use of our technology and
software is difficult and costly, and we cannot be certain that the steps we
have taken will prevent piracy and other unauthorized distribution and use
of
our technology and software, particularly internationally where the laws may
not
protect our intellectual property rights as fully as in the United States.
In
the future, we may have to resort to litigation to enforce our intellectual
property rights, which could result in substantial costs and diversion of our
management and resources.
In
addition, although we require third parties to sign agreements not to disclose
or improperly use our intellectual property, it may still be possible for third
parties to obtain and improperly use our intellectual properties without our
consent. This could harm our business, operating results and financial
condition.
Third
parties may sue us for intellectual property infringement, which, if successful,
may disrupt our business and could require us to pay significant damage
awards.
Third
parties may sue us for intellectual property infringement or initiate
proceedings to invalidate our intellectual property, either of which, if
successful, could disrupt the conduct of our business, cause us to pay
significant damage awards or require us to pay licensing fees. In the event
of a
successful claim against us, we might be enjoined from using our licensed
intellectual property, we might incur significant licensing fees and we might
be
forced to develop alternative technologies. Our failure or inability to develop
non-infringing technology or software or to license the infringed or similar
technology or software on a timely basis could force us to withdraw products
and
services from the market or prevent us from introducing new products and
services. In addition, even if we are able to license the infringed or similar
technology or software, license fees could be substantial and the terms of
these
licenses could be burdensome, which might adversely affect our operating
results. We might also incur substantial expenses in defending against
third-party infringement claims, regardless of their merit. Successful
infringement or licensing claims against us might result in substantial monetary
liabilities and might materially disrupt the conduct of our business.
Indemnity
provisions in various agreements potentially expose us to substantial liability
for intellectual property infringement, damages caused by malicious software
and
other losses.
In
the ordinary course of our business, most of our agreements with carriers and
other distributors include indemnification provisions. In these provisions,
we
agree to indemnify them for losses suffered or incurred in connection with
our
products and services, including as a result of intellectual property
infringement and damages caused by viruses, worms and other malicious software.
The term of these indemnity provisions is generally perpetual after execution
of
the corresponding license agreement, and the maximum potential amount of future
payments we could be required to make under these indemnification provisions
is
generally unlimited. Large future indemnity payments could harm our business,
operating results and financial condition.
As
a result of a majority of our revenues currently being derived from a limited
number of wireless carriers, if any one of these carriers were unable to fulfill
its payment obligations, our financial condition and results of operations
would
suffer.
If
any of our primary carriers is unable to fulfill its payment obligations to
us
under our carrier agreements with them, our revenues could decline significantly
and our financial condition will be harmed.
We
may need to raise additional capital to grow our business, and we may not be
able to raise capital on terms acceptable to us or at all.
The
operation of our business and our efforts to grow our business will further
require significant cash outlays and commitments. If our cash, cash equivalents
and short-term investments balances and any cash generated from operations
are
not sufficient to meet our cash requirements, we will need to seek additional
capital, potentially through debt or equity financings, to fund our growth.
We
may not be able to raise needed cash on terms acceptable to us or at all.
Financings, if available, may be on terms that are dilutive or potentially
dilutive to our stockholders, and the prices at which new investors would be
willing to purchase our securities may be lower than the fair market value
of
our common stock. The holders of new securities may also receive rights,
preferences or privileges that are senior to those of existing holders of our
common stock. If new sources of financing are required but are insufficient
or
unavailable, we would be required to modify our growth and operating plans
to
the extent of available funding, which would harm our ability to grow our
business.
We
face risks associated with currency exchange rate
fluctuations.
We
currently transact a significant portion of our revenues in foreign currencies.
Conducting business in currencies other than U.S. Dollars subjects us to
fluctuations in currency exchange rates that could have a negative impact on
our
reported operating results. Fluctuations in the value of the U.S. Dollar
relative to other currencies impact our revenues, cost of revenues and operating
margins and result in foreign currency transaction gains and losses. To date,
we
have not engaged in exchange rate hedging activities. Even if we were to
implement hedging strategies to mitigate this risk, these strategies might
not
eliminate our exposure to foreign exchange rate fluctuations and would involve
costs and risks of their own, such as ongoing management time and expertise,
external costs to implement the strategies and potential accounting
implications.
Our
business in countries with a history of corruption and transactions with foreign
governments, including with government owned or controlled wireless carriers,
increase the risks associated with our international
activities.
As
we operate and sell internationally, we are subject to the U.S. Foreign Corrupt
Practices Act, or the FCPA, and other laws that prohibit improper payments
or
offers of payments to foreign governments and their officials and political
parties by the United States and other business entities for the purpose of
obtaining or retaining business. We have operations, deal with carriers and
make
sales in countries known to experience corruption, particularly certain emerging
countries in Eastern Europe and Latin America, and further international
expansion may involve more of these countries. Our activities in these countries
create the risk of unauthorized payments or offers of payments by one of our
employees, consultants, sales agents or distributors that could be in violation
of various laws including the FCPA, even though these parties are not always
subject to our control. We have attempted to implement safeguards to discourage
these practices by our employees, consultants, sales agents and distributors.
However, our existing safeguards and any future improvements may prove to be
less than effective, and our employees, consultants, sales agents or
distributors may engage in conduct for which we might be held responsible.
Violations of the FCPA may result in severe criminal or civil sanctions, and
we
may be subject to other liabilities, which could negatively affect our business,
operating results and financial condition.
Changes
to financial accounting standards could make it more expensive to issue stock
options to employees, which would increase compensation costs and might cause
us
to change our business practices.
We
prepare our financial statements to conform with accounting principles generally
accepted in the United States. These accounting principles are subject to
interpretation by the Financial Accounting Standards Board, or FASB, the
Commission and various other bodies. A change in those principles could have
a
significant effect on our reported results and might affect our reporting of
transactions completed before a change is announced. For example, we have used
stock options as a fundamental component of our employee compensation packages.
We believe that stock options directly motivate our employees to maximize
long-term stockholder value and, through the use of vesting, encourage employees
to remain in our employ. Several regulatory agencies and entities have made
regulatory changes that could make it more difficult or expensive for us to
grant stock options to employees. We may, as a result of these changes, incur
increased compensation costs, change our equity compensation strategy or find
it
difficult to attract, retain and motivate employees, any of which could
materially and adversely affect our business, operating results and financial
condition.
We
may be liable for the content we make available through our products and
services with mature themes.
Because
some of our products and services contain content with mature themes, we may
be
subject to obscenity or other legal claims by third parties. Our business,
financial condition and operating results could be harmed if we were found
liable for this content. Implementing measures to reduce our exposure to this
liability may require us to take steps that would substantially limit the
attractiveness of our products and services and/or its availability in various
geographic areas, which would negatively impact our ability to generate revenue.
Furthermore, our insurance may not adequately protect us against all of these
types of claims.
Government
regulation of our content with mature themes could restrict our ability to
make
some of our content available in certain jurisdictions.
Our
business is regulated by governmental authorities in the countries in which
we
operate. Because of our international operations, we must comply with diverse
and evolving regulations. The governments of some countries have sought to
limit
the influence of other cultures by restricting the distribution of products
deemed to represent foreign or “immoral” influences. Regulation aimed at
limiting minors’ access to content with mature themes could also increase our
cost of operations and introduce technological challenges, such as by requiring
development and implementation of age verification systems. As a result,
government regulation of our adult content could have a material adverse effect
on our business, financial condition or results of operations.
Negative
publicity, lawsuits or boycotts by opponents of content with mature themes
could
adversely affect our operating performance and discourage investors from
investing in our publicly traded securities.
We
could
become a target of negative publicity, lawsuits or boycotts by one or more
advocacy groups who oppose the distribution of adult
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oriented
entertainment. These groups have mounted negative publicity campaigns, filed
lawsuits and encouraged boycotts against companies whose businesses involve
adult
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oriented
entertainment. To the extent our content with mature themes is viewed as
adult
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oriented
entertainment, the costs of defending against any such negative publicity,
lawsuits or boycotts could be significant, could hurt our finances and could
discourage investors from investing in our publicly traded securities. To date,
we have not been a target of any of these advocacy groups. As a provider of
content with mature themes, we cannot assure you that we may not become a target
in the future.
Risks
Relating to Our Industry
Wireless
communications technologies are changing rapidly, and we may not be successful
in working with these new technologies.
Wireless
network and mobile handset technologies are undergoing rapid innovation. New
handsets with more advanced processors and supporting advanced programming
languages continue to be introduced. In addition, networks that enable enhanced
features are being developed and deployed. We have no control over the demand
for, or success of, these products or technologies. If we fail to anticipate
and
adapt to these and other technological changes, the available channels for
our
products and services may be limited and our market share and our operating
results may suffer. Our future success will depend on our ability to adapt
to
rapidly changing technologies and develop products and services to accommodate
evolving industry standards with improved performance and reliability. In
addition, the widespread adoption of networking or telecommunications
technologies or other technological changes could require substantial
expenditures to modify or adapt our products and services.
Technology
changes in the wireless industry require us to anticipate, sometimes years
in
advance, which technologies we must implement and take advantage of in order
to
make our products and services, and other mobile entertainment products,
competitive in the market. Therefore, we usually start our product development
with a range of technical development goals that we hope to be able to achieve.
We may not be able to achieve these goals, or our competition may be able to
achieve them more quickly and effectively than we can. In either case, our
products and services may be technologically inferior to those of our
competitors, less appealing to end users, or both. If we cannot achieve our
technology goals within our original development schedule, then we may delay
their release until these technology goals can be achieved, which may delay
or
reduce our revenues, increase our development expenses and harm our reputation.
Alternatively, we may increase the resources employed in research and
development in an attempt either to preserve our product launch schedule or
to
keep up with our competition, which would increase our development expenses.
In
either case, our business, operating results and financial condition could
be
materially harmed.
The
complexity of and incompatibilities among mobile handsets may require us to
use
additional resources for the development of our products and
services.
To
reach
large numbers of wireless subscribers, mobile entertainment publishers like
us
must support numerous mobile handsets and technologies. However, keeping pace
with the rapid innovation of handset technologies together with the continuous
introduction of new, and often incompatible, handset models by wireless carriers
requires us to make significant investments in research and development,
including personnel, technologies and equipment. In the future, we may be
required to make substantial investments in our development if the number of
different types of handset models continues to proliferate. In addition, as
more
advanced handsets are introduced that enable more complex, feature rich products
and services, we anticipate that our development costs will increase, which
could increase the risks associated with one or more of our products or services
and could materially harm our operating results and financial condition.
If
wireless subscribers do not continue to use their mobile handsets to access
mobile entertainment and other applications, our business growth and future
revenues may be adversely affected.
We
operate in a developing industry. Our success depends on growth in the number
of
wireless subscribers who use their handsets to access data services and, in
particular, entertainment applications of the type we develop and distribute.
New or different mobile entertainment applications developed by our current
or
future competitors may be preferred by subscribers to our offerings. In
addition, other mobile platforms may become widespread, and end users may choose
to switch to these platforms. If the market for our products and services does
not continue to grow or we are unable to acquire new end users, our business
growth and future revenues could be adversely affected. If end users switch
their entertainment spending away from the kinds of offerings that we publish,
or switch to platforms or distribution where we do not have comparative
strengths, our revenues would likely decline and our business, operating results
and financial condition would suffer.
Our
industry is subject to risks generally associated with the entertainment
industry, any of which could significantly harm our operating results.
Our
business is subject to risks that are generally associated with the
entertainment industry, many of which are beyond our control. These risks could
negatively impact our operating results and include: the popularity, price
and
timing of release of our offerings and mobile handsets on which they are
accessed; economic conditions that adversely affect discretionary consumer
spending; changes in consumer demographics; the availability and popularity
of
other forms of entertainment; and critical reviews and public tastes and
preferences, which may change rapidly and cannot necessarily be predicted.
A
shift of technology platform by wireless carriers and mobile handset
manufacturers could lengthen the development period for our offerings, increase
our costs and cause our offerings to be of lower quality or to be published
later than anticipated.
Mobile
handsets require multimedia capabilities enabled by technologies capable of
running applications such as ours. Our development resources are concentrated
in
today’s most popular platforms, and we have experience developing applications
for these platforms. If one or more of these technologies fall out of favor
with
handset manufacturers and wireless carriers and there is a rapid shift to a
new
technology where we do not have development experience or resources, the
development period for our products and services may be lengthened, increasing
our costs, and the resulting products and services may be of lower quality,
and
may be published later than anticipated. In such an event, our reputation,
business, operating results and financial condition might suffer.
System
or network failures could reduce our sales, increase costs or result in a loss
of end users of our products and services.
Mobile
publishers rely on wireless carriers’ networks to deliver products and services
to end users and on their or other third parties’ billing systems to track and
account for the downloading of such offerings. In certain circumstances, mobile
publishers may also rely on their own servers to deliver products on demand
to
end users through their carriers’ networks. In addition, certain
products
require
access over the mobile internet to our servers in order to enable certain
features. Any failure of, or technical problem with, carriers’, third parties’
or our billing systems, delivery systems, information systems or communications
networks could result in the inability of end users to download our products,
prevent the completion of a billing transaction, or interfere with access to
some aspects of our products. If any of these systems fails or if there is
an
interruption in the supply of power, an earthquake, fire, flood or other natural
disaster, or an act of war or terrorism, end users might be unable to access
our
offerings. For example, from time to time, our carriers have experienced
failures with their billing and delivery systems and communication networks,
including gateway failures that reduced the provisioning capacity of their
branded e-commerce system. Any failure of, or technical problem with, the
carriers’, other third parties’ or our systems could cause us to lose end users
or revenues or incur substantial repair costs and distract management from
operating our business. This, in turn, could harm our business, operating
results and financial condition.
Our
business depends on the growth and maintenance of wireless communications
infrastructure.
Our
success will depend on the continued growth and maintenance of wireless
communications infrastructure in the United States and internationally. This
includes deployment and maintenance of reliable next-generation digital networks
with the speed, data capacity and security necessary to provide reliable
wireless communications services. Wireless communications infrastructure may
be
unable to support the demands placed on it if the number of subscribers
continues to increase, or if existing or future subscribers increase their
bandwidth requirements. Wireless communications have experienced a variety
of
outages and other delays as a result of infrastructure and equipment failures,
and could face outages and delays in the future. These outages and delays could
reduce the level of wireless communications usage as well as our ability to
distribute our products and services successfully. In addition, changes by
a
wireless carrier to network infrastructure may interfere with downloads and
may
cause end users to lose functionality. This could harm our business, operating
results and financial condition.
Future
mobile handsets may significantly reduce or eliminate wireless carriers’ control
over delivery of our products and services and force us to rely further on
alternative sales channels, which, if not successful, could require us to
increase our sales and marketing expenses significantly.
A
growing number of handset models currently available allow wireless subscribers
to browse the internet and, in some cases, download applications from sources
other than through a carrier’s on-deck portal. In addition, the development of
other application delivery mechanisms such as premium-SMS may enable subscribers
to download applications without having to access a carrier’s on-deck portal.
Increased use by subscribers of open operating system handsets or premium-SMS
delivery systems will enable them to bypass the carriers’ on-deck portal and
could reduce the market power of carriers. This could force us to rely further
on alternative sales channels and could require us to increase our sales and
marketing expenses significantly. Relying on placement of our products and
services in the menus of off-deck distributors may result in lower revenues
than
might otherwise be anticipated. We may be unable to develop and promote our
direct website distribution sufficiently to overcome the limitations and
disadvantages of off-deck distribution channels. This could harm our business,
operating results and financial condition.
Actual
or perceived security vulnerabilities in mobile handsets or wireless networks
could adversely affect our revenues.
Maintaining
the security of mobile handsets and wireless networks is critical for our
business. There are individuals and groups who develop and deploy viruses,
worms
and other illicit code or malicious software programs that may attack wireless
networks and handsets. Security experts have identified computer “worm” programs
that target handsets running on certain operating systems. Although these worms
have not been widely released and do not present an immediate risk to our
business, we believe future threats could lead some end users to seek to reduce
or delay future purchases of our products or reduce or delay the use of their
handsets. Wireless carriers and handset manufacturers may also increase their
expenditures on protecting their wireless networks and mobile phone products
from attack, which could delay adoption of new handset models. Any of these
activities could adversely affect our revenues and this could harm our business,
operating results and financial condition.
Changes
in government regulation of the media and wireless communications industries
may
adversely affect our business.
It
is possible that a number of laws and regulations may be adopted in the United
States and elsewhere that could restrict the media and wireless communications
industries, including laws and regulations regarding customer privacy, taxation,
content suitability, copyright, distribution and antitrust. Furthermore, the
growth and development of the market for electronic commerce may prompt calls
for more stringent consumer protection laws that may impose additional burdens
on companies such as ours conducting business through wireless carriers. We
anticipate that regulation of our industry will increase and that we will be
required to devote legal and other resources to address this regulation. Changes
in current laws or regulations or the imposition of new laws and regulations
in
the United States or elsewhere regarding the media and wireless communications
industries may lessen the growth of wireless communications services and may
materially reduce our ability to increase or maintain sales of our products
and
services.
A
number
of studies have examined the health effects of mobile phone use, and the results
of some of the studies have been interpreted as evidence that mobile phone
use
causes adverse health effects. The establishment of a link between the use
of
mobile phone services and health problems, or any media reports suggesting
such
a link, could increase government regulation of, and reduce demand for, mobile
phones and, accordingly, the demand for our products and services, and this
could harm our business, operating results and financial condition.
Risks
Relating to Our Common Stock
There
is a limited trading market for our common stock.
Although
prices for our shares of common stock are quoted on the OTC Bulletin Board
(under the symbol MNDL.OB), there is no established public trading market for
our common stock, and no assurance can be given that a public trading market
will develop or, if developed, that it will be sustained.
The
liquidity of our common stock will be affected by its limited trading
market.
Bid
and
ask prices for shares of our common stock are quoted on the OTC Bulletin Board
under the symbol MNDL.OB. There is currently no broadly followed, established
trading market for our common stock. While we are hopeful that, following the
Merger, we will command the interest of a greater number of investors, an
established trading market for our shares of common stock may never develop
or
be maintained. Active trading markets generally result in lower price volatility
and more efficient execution of buy and sell orders. The absence of an active
trading market reduces the liquidity of our common stock. As a result of the
lack of trading activity, the quoted price for our common stock on the OTC
Bulletin Board is not necessarily a reliable indicator of its fair market value.
Further, if we cease to be quoted, holders of our common stock would find it
more difficult to dispose of, or to obtain accurate quotations as to the market
value of, our common stock, and the market value of our common stock would
likely decline.
If
and when a trading market for our common stock develops, the market price of
our
common stock is likely to be highly volatile and subject to wide fluctuations,
and you may be unable to resell your shares at or above the current
price.
The
market price of our common stock is likely to be highly volatile and could
be
subject to wide fluctuations in response to a number of factors that are beyond
our control, including announcements of new products or services by our
competitors. In addition, the market price of our common stock could be subject
to wide fluctuations in response to a variety of factors,
including:
|
·
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quarterly
variations in our revenues and operating
expenses;
|
|
·
|
developments
in the financial markets, and the worldwide or regional
economies;
|
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·
|
announcements
of innovations or new products or services by us or our
competitors;
|
|
·
|
fluctuations
in merchant credit card interest
rates;
|
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·
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significant
sales of our common stock or other securities in the open market;
and
|
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·
|
changes
in accounting principles.
|
In
the
past, stockholders have often instituted securities class action litigation
after periods of volatility in the market price of a company’s securities. If a
stockholder were to file any such class action suit against us, we would incur
substantial legal fees and our management’s attention and resources would be
diverted from operating our business to respond to the litigation, which could
harm our business.
The
sale of securities by us in any equity or debt financing could result in
dilution to our existing stockholders and have a material adverse effect on
our
earnings.
Any
sale
of common stock by us in a future private placement offering could result in
dilution to the existing stockholders as a direct result of our issuance of
additional shares of our capital stock. In addition, our business strategy
may
include expansion through internal growth by acquiring complementary businesses,
acquiring or licensing additional brands, or establishing strategic
relationships with targeted customers and suppliers. In order to do so, or
to
finance the cost of our other activities, we may issue additional equity
securities that could dilute our stockholders’ stock ownership. We may also
assume additional debt and incur impairment losses related to goodwill and
other
tangible assets if we acquire another company, and this could negatively impact
our earnings and results of operations.
Future
sales of shares by our stockholders could cause the market price of our common
stock to drop significantly, even if our business is performing.
Upon
completion of the Merger, we will have outstanding 32,048,365 shares of common
stock.
In
exchange for the grant of piggy-back registration rights, Mandalay intends
to
enter into lock-up agreements with certain of our new stockholders and
optionholders as of the Merger holding, in the aggregate,
10,566,720 shares
of our common stock or securities exercisable for or convertible into our
common stock, and certain of our directors, officers, and principal
stockholders prior to the Merger holding,
an
additional 16,200,000 shares of our common stock or securities exercisable
for
our common stock pursuant to which all of such shares and all other shares
of
our common stock or securities exercisable for or convertible into our common
stock held by such stockholders and option holders will be subject to an
18-month lock-up period beginning on February 12, 2008, during which
time their shares shall not be sold or otherwise transferred without the prior
written consent of Mandalay. As these restrictions on transfer end, the
market price of our stock could drop significantly if the holders of such shares
sell them or are perceived by the market as intending to sell them. This decline
in our stock price could occur even if our business is otherwise doing well.
If
securities or industry analysts do not publish research or reports about our
business, or if they downgrade their recommendations regarding our common stock,
our stock price and trading volume could decline.
The
trading market for our common stock will be influenced by the research and
reports that industry or securities analysts publish about us or our business.
If any of the analysts who cover us downgrade our common stock, our common
stock
price would likely decline. If analysts cease coverage of our company or fail
to
regularly publish reports on us, we could lose visibility in the financial
markets, which in turn could cause our common stock price or trading volume
to
decline.
“Penny
stock” rules may restrict the market for our common stock.
Our
common stock is subject to rules promulgated by the Commission relating to
“penny stocks,” which apply to companies whose shares are not traded on a
national stock exchange or on NASDAQ, trade at less than $5.00 per share, or
who
do not meet certain other financial requirements specified by the Commission.
These rules require brokers who sell “penny stocks” to persons other than
established customers and “accredited investors” to complete certain
documentation, make suitability inquiries of investors, and provide investors
with certain information concerning the risks of trading in such penny stocks.
These rules may discourage or restrict the ability of brokers to sell our common
stock and may affect the secondary market for our common stock. These rules
could also hamper our ability to raise funds in the primary market for our
common stock
.
If
we fail to maintain an effective system of internal controls, we might not
be
able to report our financial results accurately or prevent fraud; in that case,
our stockholders could lose confidence in our financial reporting, which could
negatively impact the price of our stock.
Effective
internal controls are necessary for us to provide reliable financial reports
and
prevent fraud. In addition, Section 404 of the Sarbanes-Oxley Act of 2002,
or the Sarbanes-Oxley Act, will require us to evaluate and report on our
internal control over financial reporting and have our independent registered
public accounting firm attest to our evaluation beginning with our Annual Report
on Form 10-K for the year ending December 31, 2008. We are in the process of
preparing and implementing an internal plan of action for compliance with
Section 404 and strengthening and testing our system of internal controls
to provide the basis for our report. The process of implementing our internal
controls and complying with Section 404 will be expensive and
time
-
consuming, and will require significant attention of management. We cannot
be
certain that these measures will ensure that we implement and maintain adequate
controls over our financial processes and reporting in the future. Even if
we
conclude, and our independent registered public accounting firm concurs, that
our internal control over financial reporting provides reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles, because of its inherent limitations, internal control
over financial reporting may not prevent or detect fraud or misstatements.
Failure to implement required new or improved controls, or difficulties
encountered in their implementation, could harm our operating results or cause
us to fail to meet our reporting obligations. If we or our independent
registered public accounting firm discover a material weakness or a significant
deficiency in our internal control, the disclosure of that fact, even if quickly
remedied, could reduce the market’s confidence in our financial statements and
harm our stock price. In addition, a delay in compliance with Section 404
could subject us to a variety of administrative sanctions, including
ineligibility for short form resale registration, action by the Commission,
and
the inability of registered broker-dealers to make a market in our common stock,
which could further reduce our stock price and harm our business.
We
do not anticipate paying dividends.
We
have
never paid cash or other dividends on our common stock. Payment of dividends
on
our common stock is within the discretion of our Board of Directors and will
depend upon our earnings, our capital requirements and financial condition,
and
other factors deemed relevant by our Board of Directors. However, the earliest
our Board of Directors would likely consider a dividend is if we begin to
generate excess cash flow now that the Merger is completed.
Our
officers, directors and principal stockholders can exert significant influence
over us and may make decisions that are not in the best interests of all
stockholders.
Our
officers, directors and principal stockholders (greater than 5% stockholders)
collectively beneficially own approximately 88% of our outstanding common stock.
As a result, this group will be able to affect the outcome of, or exert
significant influence over, all matters requiring stockholder approval,
including the election and removal of directors and any change in control.
In
particular, this concentration of ownership of our common stock could have
the
effect of delaying or preventing a change of control of us or otherwise
discouraging or preventing a potential acquirer from attempting to obtain
control of us. This, in turn, could have a negative effect on the market price
of our common stock. It could also prevent our stockholders from realizing
a
premium over the market prices for their shares of common stock. Moreover,
the
interests of this concentration of ownership may not always coincide with our
interests or the interests of other stockholders, and, accordingly, this group
could cause us to enter into transactions or agreements that we would not
otherwise consider.
Maintaining
and improving our financial controls and the requirements of being a public
company may strain our resources, divert management’s attention and affect our
ability to attract and retain qualified members for our Board of
Directors.
As
a
public company, we will be subject to the reporting requirements of the Exchange
Act and the Sarbanes-Oxley Act. The requirements of these rules and regulations
will increase our legal, accounting and financial compliance costs, will make
some activities more difficult, time-consuming and costly and may also place
undue strain on our personnel, systems and resources.
The
Sarbanes-Oxley Act requires, among other things, that we maintain effective
disclosure controls and procedures and internal control over financial
reporting. This can be difficult to do. For example, we depend on the reports
of
wireless carriers for information regarding the amount of sales of our products
and services and to determine the amount of royalties we owe branded content
licensors and the amount of our revenues. These reports may not be timely,
and
in the past they have contained, and in the future they may contain, errors.
In
order
to maintain and improve the effectiveness of our disclosure controls and
procedures and internal control over financial reporting, we will need to expend
significant resources and provide significant management oversight. We have
a
substantial effort ahead of us to implement appropriate processes, document
our
system of internal control over relevant processes, assess their design,
remediate any deficiencies identified and test their operation. As a result,
management’s attention may be diverted from other business concerns, which could
harm our business, operating results and financial condition. These efforts
will
also involve substantial accounting-related costs.
The
Sarbanes-Oxley Act will make it more difficult and more expensive for us to
maintain directors’ and officers’ liability insurance, and we may be required to
accept reduced coverage or incur substantially higher costs to maintain
coverage. If we are unable to maintain adequate directors’ and officers’
insurance, our ability to recruit and retain qualified directors, and officers
will be significantly curtailed.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You
should read the following discussion and analysis in conjunction with our
consolidated
financial
statements and related notes included elsewhere in this Current Report on Form
8-K. This discussion contains forward-looking statements that involve risks,
uncertainties and assumptions. Our actual results may differ materially from
those anticipated in these forward-looking statements as a result of a variety
of factors, including those set forth under “Risk Factors” beginning on page 15
and elsewhere in this filing.
Overview
Our
operations are currently conducted through our sole operating and wholly-owned
subsidiary, Twistbox Entertainment, Inc.
Unless
the context otherwise indicates, the use of the terms “we,” “our” or “us” refers
to the business and operations of Mandalay Media, Inc. through Twistbox.
Twistbox
is a global publisher and distributor of branded entertainment content,
including images, video, TV programming and games, for Third Generation (3G)
mobile networks. Twistbox publishes and distributes its content in over 40
countries representing more than one billion subscribers.
Strategies
We
believe that improving quality and greater availability of 2.5 and 3G handsets
is in turn encouraging consumer awareness and demand for high quality content
on
their mobile devices. At the same time, carriers and branded content owners
are
focusing on a small group of publishers that have the ability to provide
high-quality mobile content consistently and port it rapidly and
cost
-
effectively
to a wide variety of handsets. Additionally, branded content owners are seeking
publishers that have the ability to distribute content globally through
relationships with most or all of the major carriers. We believe we have created
the requisite development and porting technology and have achieved the scale
to
operate at this level. We also believe that leveraging our carrier and content
owner relationships will allow us to grow our revenues without corresponding
percentage growth in our infrastructure and operating costs. Our revenue growth
rate will depend significantly on continued growth in the mobile content market
and our ability to leverage our distribution and content relationships, as
well
as to continue to expand. Our ability to attain profitability will be affected
by the extent to which we must incur additional expenses to expand our sales,
marketing, development, and general and administrative capabilities to grow
our
business. The largest component of our expenses is personnel costs. Personnel
costs consist of salaries, benefits and incentive compensation, including
bonuses and stock-based compensation, for our employees. Our operating expenses
will continue to grow in absolute dollars, assuming our revenues continue to
grow. As a percentage of revenues, we expect these expenses to
decrease.
Twistbox
started its business as The WAAT Corp. in 2003. A global agreement was signed
with Vodafone plc that year. In 2005, the company was reconstituted with its
founding shareholders. In September 2006, we reorganized the corporate
structure, with The WAAT Corp. being merged into Twistbox Entertainment Inc.,
and separate divisions created for the games and late night businesses. We
acquired Charismatix in February 2006, a developer and distributor of games,
based in Germany. The acquisition gave us access to unique technology developed
by Charismatix, provided a games development studio, and deepened our
relationship with our primary European customer. We acquired the mobile games
assets from InfoSpace in January 2007. This acquisition provided a games studio
in San Mateo, California, as well as a unique multi-player gaming platform
(
Play
for Prizes
),
additional valuable content licenses, and increased access to U.S. based
wireless carriers.
These
acquisitions:
·
|
broadened
our capabilities and expanded our distribution
network;
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·
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expanded
and deepened our management capacity and capability to conduct business
globally;
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·
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enabled
us to compete for licenses on a broader scale because of enhanced
distribution and production
capabilities;
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·
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provided
access to unique technologies that enable us to develop and offer
content
across multiple handsets and systems in a cost effective manner;
and
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·
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provided
complementary technical production and testing capabilities that
enabled
the combined companies to create products superior to those developed
by
either separately.
|
We
believe that these acquisitions, together with our internal growth, have
significantly enhanced our attractiveness to wireless carriers and branded
content owners, allowing us to pursue our ongoing strategy.
Revenues
We
generate the vast majority of our revenues from mobile phone carriers that
market and distribute our content. These carriers generally charge a one-time
purchase fee or a monthly subscription fee on their subscribers’ phone bills
when the subscribers download our games to their mobile phones. The carriers
perform the billing and collection functions and generally remit to us a
contractual percentage of their collected fee for each game. We recognize as
revenues the percentage of the fees due to us from the carrier. End users may
also initiate the purchase of our games through various Internet portal sites
or
through other delivery mechanisms, with carriers or third parties being
responsible for billing, collecting and remitting to us a portion of their
fees.
To date, our international revenues have been much more significant than our
domestic revenues.
Cost
of Revenues
Our
cost
of revenues consists primarily of royalties that we pay to content owners from
which we license brands and other intellectual property. In addition, certain
other direct costs such as quality assurance (“QA”) and use of short codes are
included in cost of revenues. Our cost of revenues also includes noncash
expenses—amortization of certain acquired intangible assets, and any impairment
of guarantees. We generally do not pay advance royalties to licensors. Where
we
acquire rights in perpetuity or for a specific time period without revenue
share
or additional fees, we record the payments made to content owners as prepaid
royalties on our balance sheet when payment is made to the licensor. We
recognize royalties in cost of revenues based upon the revenues derived from
the
relevant game multiplied by the applicable royalty rate. If applicable, we
will
record an impairment of prepaid royalties or accrue for future guaranteed
royalties that are in excess of anticipated recoupment. At each balance sheet
date, we perform a detailed review of prepaid royalties and guarantees that
considers multiple factors, including forecasted demand, anticipated share
for
specific content providers, development and launch plans, and current and
anticipated sales levels. We expense the costs for development of our content
prior to technological feasibility as we incur them throughout the development
process, and we include these costs in product development
expenses.
Gross
Margin
Our
gross
margin is determined principally by the mix of content that we deliver. Our
games based on licensed intellectual property require us to pay royalties to
the
licensor and the royalty rates in our licenses vary significantly. Our own
in-house developed games, which are based on our own intellectual property,
require no royalty payments to licensors. For late night business, branded
content requires royalty payment to the licensors, generally on a revenue share
basis, while for acquired content we amortize the cost against revenues, and
this will generally result in a lower cost associated with it. There are
multiple internal and external factors that affect the mix of revenues between
games and late night content, and among licensed, developed and acquired content
within those categories, including the overall number of licensed games and
developed games available for sale during a particular period, the extent of
our
and our carriers’ marketing efforts for each type of content, and the deck
placement of content on our carriers’ mobile handsets. We believe the success of
any individual game during a particular period is affected by the
recognizability of the title, its quality, its marketing and media exposure,
its
overall acceptance by end users and the availability of competitive games.
In
the case of Play for Prizes games, this is further impacted by its suitability
to “tournament” play and the prizes available. For other content, we believe
that success is driven by the carrier’s deck placement, the rating of the
content, by quality and by brand recognition. If our product mix shifts more
to
licensed games or games with higher royalty rates, our gross margin would
decline. For other content as we increase scale, we believe that we will have
the opportunity to move the mix towards higher margin acquired product. Our
gross margin is also affected by direct costs such as charges for mobile phone
short codes, and QA, and by periodic charges for impairment of intangible assets
and of prepaid royalties and guarantees. These charges can cause gross margin
variations, particularly from quarter to quarter.
Operating
Expenses
Our
operating expenses primarily include product development expenses, sales and
marketing expenses and general and administrative expenses. They have in the
past also included a charge for taxes associated with our major customer. Our
product development expenses consist primarily of salaries and benefits for
employees working on creating, developing, editing, programming, porting,
quality assurance, carrier certification and deployment of our content, on
technologies related to interoperating with our various mobile phone carriers
and on our internal platforms, payments to third parties for developing our
content, and allocated facilities costs. We devote substantial resources to
the
development, supporting technologies, porting and quality assurance of our
content. We believe that developing games internally through our own development
studios allows us to increase operating margins, leverage the technology we
have
developed and better control game delivery. During 2006, as a result of our
acquisition of Charismatix, and again in 2007 with the acquisition of the mobile
games division of InfoSpace, we substantially increased our ability to develop
games internally. As a result, we have not generally incurred significant
expenses for external development. Games development may encompass development
of a game from concept through deployment or adaption or rebranding of an
existing game. For acquired content, typically we will receive content from
our
licensors which must be edited for mobile phone users, combined with other
appropriate content, and packaged for end consumers. The process is made more
complex by the need to deliver content on multiple carriers platforms and across
a large number of different handsets.
Sales
and Marketing.
Our
sales
and marketing expenses consist primarily of salaries, benefits
and
incentive compensation for sales, business development, project management
and
marketing personnel, expenses for advertising, trade shows, public relations
and
other promotional and marketing activities, expenses for general business
development activities, travel and entertainment expenses and allocated
facilities costs. We expect sales and marketing expenses to increase in absolute
terms with the growth of our business and as we further promote our content
and
expand our carrier network.
General
and Administrative.
Our
general and administrative expenses consist primarily of
salaries
and benefits for general and administrative personnel, consulting fees, legal,
accounting and other professional fees, information technology costs and
allocated facilities costs. We expect that general and administrative expenses
will increase in absolute terms as we hire additional personnel and incur costs
related to the anticipated growth of our business and our operation as a public
company. We also expect that these expenses will increase because of the
additional costs to comply with the Sarbanes-Oxley Act and related regulation,
our efforts to expand our international operations and, in the near term,
additional accounting costs related to our operation as a public company.
Amortization
of Intangible Assets.
We
record
amortization of acquired intangible assets that are directly related to
revenue-generating activities as part of our cost of revenues and amortization
of the remaining acquired intangible assets, such as customer lists and
platform, as part of our operating expenses. We record intangible assets on
our
balance sheet based upon their fair value at the time they are acquired. We
determine the fair value of the intangible assets using a contribution approach.
We amortize the amortizable intangible assets using the straight-line method
over their estimated useful lives of three to five years.
Interest
Income and Interest Expense
Interest
income represents interest earned, primarily on money market accounts placed
with our bank. Interest income was substantially higher in fiscal 2007 due
to
cash invested following our Series B private placement in May 2006. In fiscal
2006 interest expense was primarily connected to advances from an associated
company, PowerSports Video Productions CCT, Inc. In fiscal 2007, interest
expense primarily related to a facility provided by our bank to fund the
acquisition of the mobile games division of InfoSpace. In April 2007, we raised
$3.0 million by issuing 436,680 shares of Series B1 Preferred Stock at $6.87
per
share. In July 2007, we entered into a debt financing agreement in the form
of a
Senior Secured Note amounting to $16.5 million payable at 30 months. These
financing arrangements will result in both interest income and interest expense
being higher in fiscal 2008. The level of net interest expense will depend
on
our use of cash in the future.
Accounting
for Income Taxes
We
are
subject to tax in the United States as well as other tax jurisdictions or
countries in which we conduct business. Earnings from our non-U.S. activities
are subject to local country income tax and may be subject to current United
States income tax depending on whether these earnings are subject to U.S. income
tax based upon U.S. anti-deferral rules, such as Subpart F of the Internal
Revenue Code of 1986, as amended, or the Code. In addition, some revenues
generated outside of the United States may be subject to withholding taxes.
In
some cases, these withholding taxes may be deductible on a current basis or
may
be available as a credit to offset future income taxes depending on a variety
of
factors. We record a valuation allowance to reduce any deferred tax asset to
the
amount that is more likely than not to be realized. We consider historical
levels of income, expectations and risks associated with estimates of future
taxable income and ongoing prudent and feasible tax planning strategies in
assessing the need for a valuation allowance. If we were to determine that
we
would be able to realize deferred tax assets in the future in excess of the
net
recorded amount, we would record an adjustment to the deferred tax asset
valuation allowance. Such an adjustment would increase our income in the period
the determination is made. Historically, we have incurred operating losses
and
have generated significant net operating loss carryforwards. At September 30,
2007, we had net operating loss carryforwards of approximately $17.0 million
federal and state tax purposes. These carryforwards will begin to expire in
2019. Our ability to use our net operating loss carryforwards to offset any
future taxable income may be subject to restrictions attributable to equity
transactions that result in changes of ownership as defined by section 382
of
the Code.
Critical
Accounting Policies and Estimates
Our
consolidated financial statements are prepared in accordance with United States
generally accepted accounting principles, or GAAP. These accounting principles
require us to make certain estimates and judgments that can affect the reported
amounts of assets and liabilities as of the dates of the consolidated financial
statements, the disclosure of contingencies as of the dates of the consolidated
financial statements, and the reported amounts of revenues and expenses during
the periods presented. Although we believe that our estimates and judgments
are
reasonable under the circumstances existing at the time these estimates and
judgments are made, actual results may differ from those estimates, which could
affect our consolidated financial statements. We believe the following to be
critical accounting policies because they are important to the portrayal of
our
financial condition or results of operations and they require critical
management estimates and judgments about matters that are
uncertain:
·
revenue
recognition;
·
license
fees;
·
goodwill;
·
software
development costs;
·
stock-based
compensation; and
·
income
taxes.
Revenue
Recognition
Our
revenues are derived primarily by licensing material and software products
in
the form of products (Image Galleries, Wallpapers, video, WAP Site access,
Mobile TV) and mobile games. License arrangements with the end user can be
on a
perpetual or subscription basis.
A
perpetual license gives an end user the right to use the product, image or
game
on the registered handset on a perpetual basis. A subscription license gives
an
end user the right to use the product, image or game on the registered handset
for a limited period of time, ranging from a few days to as long as one month.
We distribute our products primarily through mobile telecommunications service
providers, or carriers, which market the product, images or games to end users.
License fees for perpetual and subscription licenses are usually billed by
the
carrier upon download of the product, image or game by the end user. In the
case
of subscriber licenses, many subscriber agreements provide for automatic renewal
until the subscriber opts-out, while the others provide opt-in renewal. In
either case, subsequent billings for subscription licenses are generally billed
monthly. We apply the provisions of Statement of Position 97-2,
Software
Revenue Recognition
,
as
amended by Statement of Position 98-9, Modification of SOP 97-2,
Software
Revenue Recognition, With Respect to Certain Transactions
,
to all
transactions.
Revenues
are recognized from our products, images and games when persuasive evidence
of
an arrangement exists, the product, image or game has been delivered, the fee
is
fixed or determinable, and the collection of the resulting receivable is
probable. For both perpetual and subscription licenses, management considers
a
signed license agreement to be evidence of an arrangement with a carrier and
a
“clickwrap” agreement to be evidence of an arrangement with an end user. For
these licenses, we define delivery as the download of the product, image or
game
by the end user. We estimate revenues from carriers in the current period when
reasonable estimates of these amounts can be made. Most carriers only provide
detailed sales transaction data on a one to two month lag. Some carriers provide
reliable interim preliminary reporting and others report sales data within
a
reasonable time frame following the end of each month, both of which allow
us to
make reasonable estimates of revenues and therefore to recognize revenues during
the reporting period when the end user licenses the product, image or game.
Determination of the appropriate amount of revenue recognized involves judgments
and estimates that the we believe are reasonable, but it is possible that actual
results may differ from our estimates. We estimate for revenues include
consideration of factors such as preliminary sales data, carrier-specific
historical sales trends, volume of activity on company monitored sites,
seasonality, time elapsed from launch of services or product lines, the age
of
games and the expected impact of newly launched games, successful introduction
of new handsets, growth of 3G subscribers by carrier, promotions during the
period and economic trends. When we receive the final carrier reports, to the
extent not received within a reasonable time frame following the end of each
month, we record any differences between estimated revenues and actual revenues
in the reporting period when we determine the actual amounts. Revenues earned
from certain carriers may not be reasonably estimated. If we are unable to
reasonably estimate the amount of revenues to be recognized in the current
period, we recognize revenues upon the receipt of a carrier revenue report
and
when a portion of licensed revenues are fixed or determinable and collection
is
probable. To monitor the reliability of our estimates, management, where
possible, reviews the revenues by country by carrier and by product line on
a
regular basis to identify unusual trends such as differential adoption rates
by
carriers or the introduction of new handsets. If we deem that a carrier is
not
creditworthy, we defer all revenues from the arrangement until we receive
payment and all other revenue recognition criteria have been met.
In
accordance with Emerging Issues Task Force, or EITF Issue No. 99-19,
Reporting
Revenue
Gross
as a Principal Versus Net as an Agent
,
we
recognize as revenue the amount the carrier reports as payable upon the sale
of
our products, images or games. We have evaluated our carrier agreements and
have
determined that it is not the principal when selling our products, images or
games through carriers. Key indicators that it evaluated to reach this
determination include:
|
·
|
wireless
subscribers directly contract with the carriers, which have most
of the
service
interaction
and are generally viewed as the primary obligor by the
subscribers;
|
|
·
|
carriers
generally have significant control over the types of games that they
offer
to their
subscribers;
|
|
·
|
carriers
are directly responsible for billing and collecting fees from their
subscribers, including the resolution of billing
disputes;
|
|
·
|
carriers
generally pay us a fixed percentage of their revenues or a fixed
fee for
each
game;
|
|
·
|
carriers
generally must approve the price of our games in advance of their
sale to
subscribers, and our more significant carriers generally have the
ability
to set the ultimate price charged to their subscribers;
and
|
|
·
|
we
have limited risks, including no inventory risk and limited credit
risk.
|
License
Fees
Our
license fees expense consist of fees that we pay to branded content owners
for
the use of their intellectual property, including trademarks and copyright.
We
do not generally pay advances to licensors, and license fees are expensed as
incurred. Where we acquire the rights for unlimited use of content either in
perpetuity or for a specific period, we treat the cost as a prepayment and
amortize it against revenue over its anticipated life. Minimum guarantees are
required under certain content provider contracts and are expensed when paid.
We
regularly evaluate remaining liabilities under contracts subject to minimum
guarantees and where recoupability of the guarantees is subject to doubt,
recognizes the relevant liability and record an impairment charge immediately.
This
evaluation considers multiple factors, including the term of the agreement,
forecasted revenue, forecasted demand for that content, and launch plans. As
a
result, we recorded a minimum guaranteed liability of approximately $6.0 million
as of March 31, 2007. The impairments that we recorded were related to license
agreements entered into prior to June 2006 and contained significant and in
some
cases escalating regular guarantee payments to secure a long term contract
for
the brand. Subsequent to that time we have not entered into contracts with
significant future guaranteed payments. We classify minimum royalty payment
obligations as current liabilities to the extent they are contractually due
within the next twelve months.
Goodwill
In
accordance with SFAS No. 142,
Goodwill
and Other Intangible Assets
(“SFAS
No. 142”), we do not amortize goodwill or other intangible assets with
indefinite lives but rather test them for impairment. SFAS No. 142 requires
us
to perform an impairment review of our goodwill balance at least annually,
which
we do as of December 31 each year, and also whenever events or changes in
circumstances indicate that the carrying amount of these assets may not be
recoverable. In our impairment review, we look at two of our reporting
units—Twistbox Games Germany and the United States — since none of our goodwill
is attributable to other areas. We compare the fair value of each unit to its
carrying value, including goodwill. The primary methods used to determine the
fair values for SFAS No. 142 impairment purposes were the discounted cash flow
and market methods. To date, no unit’s carrying value has exceeded its fair
value, and thus we have taken no goodwill impairment charges. Application of
the
goodwill impairment test requires judgment, including the identification of
the
reporting units, the assigning of assets and liabilities to reporting units,
the
assigning of goodwill to reporting units and the determining of the fair value
of each reporting unit. Significant judgments and assumptions include the
forecast of future operating results used in the preparation of the estimated
future cash flows, including forecasted revenues and costs, timing of overall
market growth and our percentage of that market, discount rates and growth
rates
in terminal values. The market comparable approach estimates the fair value
of a
company by applying to that company market multiples of publicly traded firms
in
similar lines of business. The use of the market comparable approach requires
judgments regarding the comparability of companies with lines of business
similar to ours. This process is particularly difficult in a situation where
no
similar public companies exist. The factors used in the selection of comparable
companies include growth characteristics as measured by revenue or other
financial metrics, margin characteristics; product-defined markets served,
customer defined markets served, the size of a company as measured by financial
metrics such as revenue or market capitalization, the competitive position
of a
company, such as whether it is a market leader in terms of indicators such
as
market share, and company-specific issues that suggest appropriateness or
inappropriateness of a particular company as a comparable. We weighted the
income and market comparable valuations equally as we did not believe that
either method was more appropriate. Further, the total gross value calculated
under each method was not materially different and therefore if the weighting
were different we do not believe that this would significantly impact our
conclusion. If different comparable companies had been used, the market
multiples and resulting estimates of the fair value of our stock would also
have
been different. Changes in these estimates and assumptions could materially
affect the determination of fair value for each reporting unit, which could
trigger impairment.
Software
Development Costs
We
apply
the principles of Statement of Financial Accounting Standards No. 86,
Accounting
for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed
(“SFAS
No. 86”). SFAS No. 86 requires that software development costs incurred in
conjunction with product development be charged to research and development
expense until technological feasibility is established. Thereafter, until the
product is released for sale, software development costs must be capitalized
and
reported at the lower of unamortized cost or net realizable value of the related
product. We have adopted the “tested working model” approach to establishing
technological feasibility for our products and games. Under this approach,
we do
not consider a product or game in development to have passed the technological
feasibility milestone until we have a completed a model of the product or game
that contains essentially all the functionality and features of the final game,
and we have tested the model to ensure that it works as expected. To date,
we
have not incurred significant costs between the establishment of technological
feasibility and the release of a product or game for sale. Thus, we have
expensed all software development costs as incurred. We consider the following
factors in determining whether costs can be capitalized: the emerging nature
of
the mobile market; the gradual evolution of the wireless carrier platforms
and
mobile phones as they relate to products and games; the lack of pre-orders
or
sales history for products and games; the uncertainty regarding a product’s or
game’s revenue-generating potential; the lack of control over the carrier
distribution channel resulting in uncertainty as to when, if ever, a product
or
game will be available for sale; and the historical practice of canceling
products and games at any stage of the development process.
Stock-Based
Compensation
We
have
adopted the fair value provisions of SFAS No. 123R,
Share-Based
Payment
(“SFAS
No. 123R”). SFAS No. 123R requires the recognition of compensation expense,
using a fair-value based method, for costs related to all share based payments
including stock options. SFAS No. 123R requires companies to estimate the fair
value of share-based payment awards on the grant date using an option pricing
model. To value stock option awards, we used the Black-Scholes option pricing
model, which requires, among other inputs, an estimate of the fair value of
the
underlying common stock on the date of grant and assumptions as to volatility
of
our stock over the term of the related options, the expected term of the
options, the risk-free interest rate and the option forfeiture rate. We
determined the assumptions used in this pricing model at each grant date. We
concluded that it was not practicable to calculate the volatility of our share
price since our securities are not publicly traded and therefore there is no
readily determinable market value for our stock. Therefore, we based expected
volatility on the historical volatility of a peer group of publicly traded
entities. We determined the expected term of our options based upon the options’
contractual term, along with expected experience with exercises and post-vesting
cancellations. We based the risk-free rate for the expected term of the option
on the U.S. Treasury Constant Maturity Rate as of the grant date. We determined
the forfeiture rate based upon anticipated experience with option cancellations
since there is little historical experience.
We
recorded total employee non-cash stock-based compensation expense under SFAS
123R of $19,000 in fiscal 2006; $55,000 in fiscal 2007 and $58,000 for the
six
months ended September 30, 2007. We expect that in future periods, stock-based
compensation expense may increase as we issue additional equity-based awards
to
continue to attract and retain key employees. Additionally, SFAS 123R requires
that we recognize compensation expense only for the portion of stock options
that are expected to vest. Our estimated forfeiture rate in fiscal 2007 was
10%.
If the actual number of forfeitures differs from that estimated by management,
we may be required to record adjustments to stock-based compensation expense
in
future periods.
Given
the
absence of an active market for our common stock at the date of grant prior
to
the Merger, our board of directors, the members of which we believe had
extensive business, finance and venture capital experience, was required to
estimate the fair value of our common stock for purposes of determining exercise
prices for the options it granted. Through the first half of 2006, it determined
the estimated fair value of our common stock, based in part on a market
capitalization analysis of comparable public companies and other metrics,
including revenue multiples and price/earning multiples, as well as the
following:
|
·
|
the
prices for our convertible preferred stock sold to outside investors
in
arms-length transactions;
|
|
·
|
the
rights, preference and privileges of that convertible preferred stock
relative to those of our common
stock;
|
|
·
|
our
operating and financial
performance;
|
|
·
|
the
hiring of key personnel;
|
|
·
|
the
introduction of new products;
|
|
·
|
our
stage of development and revenue
growth;
|
|
·
|
the
fact that the options grants involved illiquid securities in a private
company;
|
|
·
|
the
risks inherent in the development and expansion of our services;
and
|
|
·
|
the
likelihood of achieving a liquidity event, such as an initial public
offering or sale of the company, for the shares of common stock underlying
the options given prevailing market
conditions.
|
In
late
2006, we engaged an independent third-party valuation firm, Cerian Technology
Ventures LLC (“Cerian”), to perform valuations of our common stock. We obtained
estimates of the respective then-current fair values of our stock prepared
by
Cerian as of November 13, 2006 and August 31, 2007. These valuations used a
market comparable approach to estimate our aggregate enterprise value at each
valuation date. The market comparable approach estimates the fair value of
a
company by applying to that company market multiples of publicly traded firms
in
similar lines of business. The use of the market comparable approach requires
judgments regarding the comparability of companies with lines of business
similar to ours. If different comparable companies had been used, the market
multiples and resulting estimates of the fair value of our stock would also
have
been different. We allocated the implied enterprise value that we estimated
to
the shares of preferred and common stock using the option-pricing method at
each
valuation date. The option-pricing method involves making assumptions regarding
the anticipated timing of a potential liquidity event, such as an initial public
offering, and estimates of the volatility of our equity securities. The
anticipated timing was based on the plans of our board of directors and
management. Estimating the volatility of the share price of a privately held
company is complex because there is no readily available market for the shares.
Cerian estimated the volatility of
our
stock
based on available information on the volatility of stocks of publicly traded
companies in our industry. Had different estimates of volatility and anticipated
timing of a potential liquidity event been used, the allocations between the
shares of preferred and common stock would have been different and would have
resulted in a different value being determined for our common stock as of each
valuation date. Finally, a discount was applied to the valuation of the common
stock for lack of marketability. Based on empirical studies, Cerian used a
factor of 25% for this purpose.
Since
January 15, 2003, we have granted options as listed above. The Cerian valuation
at both valuation dates noted above determined a valuation for our common stock
of $0.59 per share. While there have been placements of preferred stock during
these periods, there have not been any sales of common stock which could be
used
to assist in the determination of valuation of the common stock. From January
15, 2003 to May 15, 2006, stock options were issued at an exercise price of
$0.35. From June 5, 2006 onwards, all stock options were issued with an exercise
price of $0.59, which was based on the two Cerian reports and was equivalent
to
the fair market value of the shares. The first Cerian valuation was available
to
the Board at the time that stock grants were approved with grant dates as from
June 2006 and the valuation was considered to be appropriate for grants from
that time. In addition, at that time the Board also approved grants for certain
employees as of their employment start date, which covered periods prior to
June
2006. The Board determined that the exercise price for these grants should
also
be set at $0.59.
If
we had
made different assumptions and estimates than those described in the paragraphs
above,
the amount of our recognized and to be recognized stock-based compensation
expense, net
loss
and
net loss per share amounts could have been materially different. We believe
that
we have
used
reasonable methodologies, approaches and assumptions consistent with the
American Institute of Certified Public Accountants Practice Guide,
Valuation
of Privately-Held-Company Equity Securities
Issued
as Compensation,
to
determine the fair value of our common stock.
Income
Taxes
We
account for income taxes in accordance with SFAS No. 109,
Accounting
for Income Taxes
.
As part
of the process of preparing our consolidated financial statements, we are
required to estimate our income tax benefit (provision) in each of the
jurisdictions in which we operate. This process involves estimating our current
income tax benefit (provision) together with assessing temporary differences
resulting from differing treatment of items for tax and accounting purposes.
These differences result in deferred tax assets and liabilities, which are
included within our consolidated balance sheet using the enacted tax rates
in
effect for the year in which we expect the differences to reverse. We record
a
valuation allowance to reduce our deferred tax assets to an amount that more
likely than not will be realized. As of September 30, 2007, our valuation
allowance on our net deferred tax assets was $9.9 million. While we have
considered future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for the valuation allowance, in the event
we
were to determine that we would be able to realize our deferred tax assets
in
the future in excess of our net recorded amount, we would need to make an
adjustment to the allowance for the deferred tax asset, which would increase
income in the period that determination was made. We have not provided federal
income taxes on the unremitted earnings of foreign subsidiaries because these
earnings are intended to be reinvested permanently.
Results
of Operations
The
following sections discuss and analyze the changes in the significant line
items
in the historical operations and statements of operations for Twistbox for
the
comparison periods identified. This discussion does not include any historical
information of Mandalay, which was a shell company prior to the
Merger.
Comparison
of the Six Months Ended September 30, 2006 and 2007
Revenues
|
|
Six
Months Ended
September
30,
|
|
|
|
2007
|
|
2006
|
|
|
|
(In
thousands)
|
|
Revenues
by type:
|
|
|
|
|
|
Games
|
|
$
|
1,917
|
|
$
|
1,248
|
|
Other
content
|
|
|
5,147
|
|
|
3,581
|
|
Total
|
|
$
|
7,064
|
|
$
|
4,829
|
|
|
|
|
|
|
|
|
|
Percentage
of Revenues by type:
|
|
|
|
|
|
|
|
Games
|
|
|
27.1
|
%
|
|
25.8
|
%
|
Other
content
|
|
|
72.9
|
%
|
|
74.2
|
%
|
Total
|
|
|
100.0
|
%
|
|
100.0
|
%
|
Our
revenues increased $2.3 million, or 46 %, from $ 4.8 million in the six months
ended September 30, 2006 to $ 7.1 million in six months ended September 30,
2007, largely as a result of volume increases, achieved by both increasing
volume with individual carriers and by expanding our base by adding carrier
relationships in territories in which we already operated, and by expanding
into
new territories. Other content includes a broad range of primarily licensed
product delivered in the form of WAP, Video, Wallpaper and more recently Mobile
TV. Other content revenues grew by $1.6 million or 44 % period over period
-
primarily the result of an increase in volume in existing major territories
-
the top eight territories revenues increased by $1.1 million or 35%.
Cost
of Revenues
|
|
Six
Months Ended
September
30,
|
|
|
|
2007
|
|
2006
|
|
Cost
of Revenues:
|
|
(In
thousands)
|
|
License
Fees
|
|
|
3,218
|
|
|
2,512
|
|
Other
direct cost of revenues
|
|
|
269
|
|
|
51
|
|
Total
Cost of Revenues
|
|
|
3,487
|
|
|
2,563
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
7,064
|
|
|
4,829
|
|
|
|
|
|
|
|
|
|
Gross
Margin
|
|
|
50.6%
|
|
|
46.9%
|
|
Our
cost
of revenues increased $0.9 million, or 36%, from $2.6 million in the six months
ended September 30, 2006 to $3.5 million in the six months ended September
30,
2007. The increase in license fees was largely driven by the increase in
revenues flowing through to increased license fees payable. The average royalty
rate for games decreased due to the 2007 revenues including game revenue from
the InfoSpace acquisition at lower average rates. Other direct cost of revenues
increased as we have introduced new revenue streams which have an element of
fixed costs.
Gross
Margin
Our
gross
margin increased from 46.9% in the six months ended September 30, 2006 to 50.6%
in the six months ended September 30, 2007. This increase was primarily due
to
increased mix of higher margin games revenue, and the impact of the higher
margin InfoSpace games within the games revenue.
Product
Development Expenses
|
|
|
Six
Months Ended
September
30,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
(In
thousands)
|
|
Product
Development Expenses
|
|
$
|
4,792
|
|
$
|
3,310
|
|
Percentage
of Revenues
|
|
|
67.8
|
%
|
|
68.5
|
%
|
Our
product development expenses increased $1.5 million, or 45%, from $3.3 million
in the six months ended September 30, 2006 to $4.8 million in the six months
ended September 30, 2007. The increase primarily resulted from a $1.5 million
increase in salaries and benefits due to increases in personnel. The increase
in
these costs and expenses was primarily due to the build up of our development
infrastructure - for games in Germany and Poland as well as the addition of
the
San Mateo development studio with the acquisition of the InfoSpace assets in
January 2007; and for other content we increased our development staff in Los
Angeles.
Sales
and Marketing Expenses
|
|
|
Six
Months Ended
September
30,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
(In
thousands)
|
|
Sales
and Marketing Expenses
|
|
$
|
2,554
|
|
$
|
1,636
|
|
Percentage
of Revenues
|
|
|
36.2
|
%
|
|
33.9
|
%
|
Our
sales
and marketing expenses increased $0.9 million, or 56%, from $1.6 million in
the
six months ended September 30, 2006 to $2.6 million in the six months ended
September 30, 2007. The increase resulted from a $1.0 million increase in
salaries and benefits, and $0.3 million increase in rent and allocated
facilities costs, offset by a $0.4 million reduction in expenditures on trade
shows. We increased our sales and marketing staff from 14 at June 30, 2006
to 21
at June 30, 2007. We expanded our staff as we continued to expand into new
territories, which required an on-the-ground account management presence, and
as
we continued to develop a more sophisticated approach to dealing with our
primary customers.
General
and Administrative Expenses
|
|
|
Six
Months Ended
September
30,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
(In
thousands)
|
|
General
and Administrative Expenses
|
|
$
|
2,363
|
|
$
|
1,542
|
|
Percentage
of Revenues
|
|
|
33.5
|
%
|
|
31.9
|
%
|
Our
general and administrative expenses increased $0.8 million, or 53%, from $1.5
million in the six months ended September 30, 2006 to $2.4 million in the six
months ended September 30, 2007. The increase was due primarily to an increase
of $0.6 million in salaries and benefits resulting from an increase in
headcount. We increased our general and administrative staff from 15 on June
30,
2006 to 24 on June 30, 2007. As a percentage of revenues, general and
administrative expenses increased from 31.9% in 2006 to 33.5.2% in 2007 due
to
the timing of general and administrative expense increases.
Other
Operating Expenses
Our
amortization of intangible assets increased from $0 in the six months ended
September 30, 2006 to $47,000 in the six months ended September 30, 2007. This
increase was due to the intangible assets acquired from InfoSpace in January
2007.
Other
Expenses
Interest
income decreased from $110,000 in the six months ended September 30, 2006 to
$100,000 in the six months ended September 30, 2007. In 2006, we had excess
funds invested following the Series B preferred stock placement; in 2007 we
had
excess funds invested following the debt financing in July 2007. Interest
expense increased from $29,000 in the six months ended September 30, 2006 to
$326,000 in the six months ended September 30, 2007. The 2006 expense related
to
a loan in place prior to the Series B placement, the 2007 expense represents
2
months of interest on the $16.5 million debt financing completed in late July
2007.
Foreign
exchange transaction gain increased from $15,000 in the six months ended
September 30, 2006 to $104,000 in the six months ended September 30, 2007,
as
the result of the steadily declining value of the US dollar during the six
months ended September 30, 2007 against the major currencies in which we collect
revenues - primarily the Euro and UK pound sterling.
Other
expense increased from $122,000 in the six months ended September 30, 2006
to
$252,000 in the six months ended September 30, 2007. The increase primarily
relates to amortization of transaction costs related to the debt and equity
placements in the period, and an increase in a reserve for payment of VAT
liabilities related to changes in reporting proposed by our largest customer.
Income
Tax Benefit/(Provision)
Income
tax benefit was $6,000 in the six months ended September 30, 2006 - resulting
from a tax refund. There was no benefit/(provision ) in the six months ended
September 30, 2007. Our primary operating entities in the U.S. and Germany
incurred losses for tax purposes in both periods.
Quarterly
Results of Operations
The
following table sets forth unaudited quarterly consolidated statements of
operations data for
fiscal
2006 and fiscal 2007 and the six months ended September 30, 2007. We derived
this information from unaudited consolidated financial statements, which
we
prepared on the same basis as our audited consolidated financial statements
contained in this document. In our opinion, these unaudited statements include
all adjustments, consisting only of normal recurring adjustments, that we
consider necessary for a fair statement of that information when read in
conjunction with the consolidated financial statements and related notes
included elsewhere in this document. The operating results for any quarter
should not be considered indicative of results for any future
period.
|
|
Fiscal
2006
|
|
Fiscal
2007
|
|
Fiscal
2008
|
|
|
|
June
30
|
|
September
30
|
|
December
31
|
|
March
30
|
|
June
30
|
|
September
30
|
|
December
31
|
|
March
30
|
|
June
30
|
|
September
30
|
|
Revenues
|
|
$
|
442
|
|
$
|
639
|
|
$
|
1,343
|
|
$
|
2,445
|
|
$
|
2,247
|
|
$
|
2,582
|
|
$
|
3,361
|
|
$
|
3,708
|
|
$
|
3,708
|
|
$
|
3,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
Fees
|
|
|
217
|
|
|
372
|
|
|
651
|
|
|
1,232
|
|
|
1,155
|
|
|
1,357
|
|
|
1,866
|
|
|
1,889
|
|
|
1,719
|
|
|
1,499
|
|
Impairment
of guarantees
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,022
|
|
|
-
|
|
|
-
|
|
Other
direct cost of revenues
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1
|
|
|
50
|
|
|
46
|
|
|
15
|
|
|
119
|
|
|
150
|
|
Total
cost of revenues
|
|
|
217
|
|
|
372
|
|
|
651
|
|
|
1,232
|
|
|
1,156
|
|
|
1,407
|
|
|
1,912
|
|
|
7,926
|
|
|
1,838
|
|
|
1,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit/(Loss)
|
|
|
225
|
|
|
267
|
|
|
692
|
|
|
1,213
|
|
|
1,091
|
|
|
1,175
|
|
|
1,449
|
|
|
(4,218
|
)
|
|
1,870
|
|
|
1,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
development
|
|
|
229
|
|
|
410
|
|
|
596
|
|
|
1,619
|
|
|
1,511
|
|
|
1,799
|
|
|
1,987
|
|
|
2,516
|
|
|
2,491
|
|
|
2,301
|
|
Sales
and marketing
|
|
|
36
|
|
|
188
|
|
|
313
|
|
|
593
|
|
|
558
|
|
|
1,078
|
|
|
816
|
|
|
1,672
|
|
|
1,352
|
|
|
1,202
|
|
General
and administrative
|
|
|
213
|
|
|
40
|
|
|
56
|
|
|
221
|
|
|
516
|
|
|
1,026
|
|
|
735
|
|
|
1,317
|
|
|
1,215
|
|
|
1,148
|
|
Amortization
of intangible assets
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
23
|
|
|
24
|
|
|
23
|
|
Restructuring charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
Total
operating expenses
|
|
|
478
|
|
|
638
|
|
|
965
|
|
|
2,433
|
|
|
2,585
|
|
|
3,903
|
|
|
3,538
|
|
|
5,528
|
|
|
5,082
|
|
|
4,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(253
|
)
|
|
(371
|
)
|
|
(273
|
)
|
|
(1,220
|
)
|
|
(1,494
|
)
|
|
(2,728
|
)
|
|
(2,089
|
)
|
|
(9,746
|
)
|
|
(3,212
|
)
|
|
(2,967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and other income/(expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
11
|
|
|
39
|
|
|
71
|
|
|
36
|
|
|
23
|
|
|
9
|
|
|
91
|
|
Interest
expense
|
|
|
(18
|
)
|
|
(20
|
)
|
|
(28
|
)
|
|
(28
|
)
|
|
(23
|
)
|
|
(6
|
)
|
|
(10
|
)
|
|
(35
|
)
|
|
(54
|
)
|
|
(272
|
)
|
Foreign
exchange transaction gain/(loss)
|
|
|
(5
|
)
|
|
-
|
|
|
-
|
|
|
6
|
|
|
(10
|
)
|
|
25
|
|
|
55
|
|
|
54
|
|
|
69
|
|
|
35
|
|
Other
income/(expense), net
|
|
|
(5
|
)
|
|
(7
|
)
|
|
(1
|
)
|
|
(32
|
)
|
|
(54
|
)
|
|
(68
|
)
|
|
(94
|
)
|
|
(154
|
)
|
|
(170
|
)
|
|
(82
|
)
|
Interest
and other income/(expense)
|
|
|
(28
|
)
|
|
(27
|
)
|
|
(29
|
)
|
|
(43
|
)
|
|
(48
|
)
|
|
22
|
|
|
(13
|
)
|
|
(112
|
)
|
|
(146
|
)
|
|
(228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(281
|
)
|
|
(398
|
)
|
|
(302
|
)
|
|
(1,263
|
)
|
|
(1,542
|
)
|
|
(2,706
|
)
|
|
(2,102
|
)
|
|
(9,858
|
)
|
|
(3,358
|
)
|
|
(3,195
|
)
|
Income
tax benefit/(provision)
|
|
|
-
|
|
|
-
|
|
|
(1
|
)
|
|
-
|
|
|
-
|
|
|
6
|
|
|
(4
|
)
|
|
(21
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
(281
|
)
|
|
(398
|
)
|
|
(303
|
)
|
|
(1,263
|
)
|
|
(1,542
|
)
|
|
(2,700
|
)
|
|
(2,106
|
)
|
|
(9,879
|
)
|
|
(3,358
|
)
|
|
(3,195
|
)
|
The
following table sets forth our historical results, for the periods indicated,
as
a percentage of
our
revenues.
|
|
Fiscal
2006
|
|
Fiscal
2007
|
|
Fiscal
2008
|
|
|
June
30
|
|
September
30
|
|
December
31
|
|
March
30
|
|
June
30
|
|
September
30
|
|
December
31
|
|
March
30
|
|
June
30
|
|
September
30
|
|
Revenues
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
Fees
|
|
|
49.1
|
|
|
58.2
|
|
|
48.5
|
|
|
50.4
|
|
|
51.4
|
|
|
52.6
|
|
|
55.5
|
|
|
50.9
|
|
|
46.4
|
|
|
44.7
|
|
Impairment
of guarantees
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
162.4
|
|
|
-
|
|
|
-
|
|
Other
direct cost of revenues
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
0.0
|
|
|
1.9
|
|
|
1.4
|
|
|
0.4
|
|
|
3.2
|
|
|
4.5
|
|
Total
cost of revenues
|
|
|
49.1
|
|
|
58.2
|
|
|
48.5
|
|
|
50.4
|
|
|
51.4
|
|
|
54.5
|
|
|
56.9
|
|
|
213.8
|
|
|
49.6
|
|
|
49.1
|
|
Gross
Profit/(Loss)
|
|
|
50.9
|
|
|
41.8
|
|
|
51.5
|
|
|
49.6
|
|
|
48.6
|
|
|
45.5
|
|
|
43.1
|
|
|
(113.8
|
)
|
|
50.4
|
|
|
50.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
development
|
|
|
51.8
|
|
|
64.2
|
|
|
44.4
|
|
|
66.2
|
|
|
67.2
|
|
|
69.7
|
|
|
59.1
|
|
|
67.9
|
|
|
67.2
|
|
|
68.6
|
|
Sales
and marketing
|
|
|
8.1
|
|
|
29.4
|
|
|
23.3
|
|
|
24.3
|
|
|
24.8
|
|
|
41.8
|
|
|
24.3
|
|
|
45.1
|
|
|
36.5
|
|
|
35.8
|
|
General
and administrative
|
|
|
48.2
|
|
|
6.3
|
|
|
4.2
|
|
|
9.0
|
|
|
23.0
|
|
|
39.7
|
|
|
21.9
|
|
|
35.5
|
|
|
32.8
|
|
|
34.2
|
|
Amortization
of intangible assets
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
0.6
|
|
|
0.6
|
|
|
0.7
|
|
Total
operating expenses
|
|
|
108.1
|
|
|
99.8
|
|
|
71.9
|
|
|
99.5
|
|
|
115.0
|
|
|
151.2
|
|
|
105.3
|
|
|
149.1
|
|
|
137.1
|
|
|
139.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(57.2
|
)
|
|
(58.1
|
)
|
|
(20.3
|
)
|
|
(49.9
|
)
|
|
(66.5
|
)
|
|
(105.7
|
)
|
|
(62.2
|
)
|
|
(262.8
|
)
|
|
(86.6
|
)
|
|
(88.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and other income/(expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
0.5
|
|
|
1.7
|
|
|
2.7
|
|
|
1.1
|
|
|
0.6
|
|
|
0.2
|
|
|
2.7
|
|
Interest
expense
|
|
|
(4.1
|
)
|
|
(3.1
|
)
|
|
(2.1
|
)
|
|
(1.1
|
)
|
|
(1.0
|
)
|
|
(0.2
|
)
|
|
(0.3
|
)
|
|
(0.9
|
)
|
|
(1.5
|
)
|
|
(8.1
|
)
|
Foreign
exchange transaction gain/(loss)
|
|
|
(1.1
|
)
|
|
-
|
|
|
-
|
|
|
0.2
|
|
|
(0.4
|
)
|
|
1.0
|
|
|
1.6
|
|
|
1.5
|
|
|
1.9
|
|
|
1.0
|
|
Other
income/(expense), net
|
|
|
(1.1
|
)
|
|
(1.1
|
)
|
|
(0.1
|
)
|
|
(1.3
|
)
|
|
(2.4
|
)
|
|
(2.6
|
)
|
|
(2.8
|
)
|
|
(4.2
|
)
|
|
(4.6
|
)
|
|
(2.4
|
)
|
Interest
and other income/(expense)
|
|
|
(6.3
|
)
|
|
(4.2
|
)
|
|
(2.2
|
)
|
|
(1.8
|
)
|
|
(2.1
|
)
|
|
0.9
|
|
|
(0.4
|
)
|
|
(3.0
|
)
|
|
(3.9
|
)
|
|
(6.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(63.6
|
)
|
|
(62.3
|
)
|
|
(22.5
|
)
|
|
(51.6
|
)
|
|
(68.6
|
)
|
|
(104.8
|
)
|
|
(62.5
|
)
|
|
(265.9
|
)
|
|
(90.6
|
)
|
|
(95.2
|
)
|
Income
tax benefit/(provision)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-63.6
|
%
|
|
-62.3
|
%
|
|
-22.6
|
%
|
|
-51.6
|
%
|
|
-68.6
|
%
|
|
-104.6
|
%
|
|
-62.7
|
%
|
|
-266.4
|
%
|
|
-90.6
|
%
|
|
-95.2
|
%
|
Our
revenues generally increased as we established and then expanded our carrier
distribution network, by both increasing volume with individual carriers and
by
expanding our base by adding carrier relationships in territories in which
we
already operated; and by expanding into new territories. Revenues from the
March
quarter of fiscal 2006 onwards were favorably impacted by revenues generated
from the Charismatix acquisition in February 2006; and from the March quarter
of
fiscal 2007 by incremental revenues flowing from the InfoSpace acquisition.
Many
new
mobile handset models are released in the fourth calendar quarter to coincide
with
the
holiday shopping season. Because many end users download our content soon after
they purchase new handsets, we may experience seasonal sales increases based
on
this key holiday selling period. However, due to the time between handset
purchases and content purchases, much of this holiday impact may occur in our
March quarter. For a variety of reasons, we may experience seasonal sales
decreases during the summer, particularly in Europe, which is predominantly
reflected in our September quarter. In addition to these possible seasonal
patterns, our revenues may be impacted by new or changed carrier deals, and
by
changes in the manner that our major carrier partners marketing our content
on
their deck. Initial spikes in revenues as a result of successful launches or
campaigns may create further aberrations in our revenue patterns.
Our
cost
of revenues increased over the above periods as a result of increased royalty
payments to licensors and developers caused by increased revenues. However,
our
cost of revenues did not increase sequentially as a percentage of revenues
in
all quarters because of changes in revenue mix, because of the impact of minimum
guarantees (primarily in fiscal 2007) and because of the impairment charge
in
the March quarter of fiscal 2007.
Our
quarterly product development expenses increased over the period as we built
up
our development infrastructure. These expenses increased particularly in the
March quarter of fiscal 2006 with the addition of the development following
the
Charismatix acquisition, and in the March quarter of fiscal 2007 with the
addition of the staff in the San Mateo games development studio acquired from
InfoSpace. The decrease in product development expenses in the September quarter
of fiscal 2008 was due to a reduction in employee costs resulting from a
restructuring initiated in that quarter.
Our
sales
and marketing expenses increased over the period as we created and then built
up
our sales and marketing infrastructure. We added staff and local sales office
as
we expanded into new territories and as we further developed our relationships
with our carrier partners. In the March quarter of fiscal 2007 we significantly
upgraded our staffing with the addition of senior sales and marketing personnel
and the establishment of enhanced sales capabilities in our German subsidiary.
The decrease in the September quarter of fiscal 2008 was due to a reduction
in
employee costs resulting from a restructuring initiated in that
quarter.
Our
general and administrative expenses increased over the period as we built up
our
ability to service the business and created a corporate infrastructure. In
the
September quarter of fiscal 2006, we incurred significant legal expenses related
to a corporate entity restructuring and re-branding under the Twistbox name.
Several members of the executive team were added during fiscal 2007.
Amortization of intangible assets commenced in the March quarter of fiscal
2007
following the acquisition of intangibles from InfoSpace
Liquidity
and Capital Resources
|
|
|
|
|
|
|
|
Six
Months Ended
|
|
|
|
|
|
Year
Ended March 31,
|
|
September
30,
|
|
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
Consolidated
Statement of Cash Flows Data:
|
|
|
|
(In
thousands)
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
|
|
|
631
|
|
|
553
|
|
|
204
|
|
Cash
flows used in operating activities
|
|
|
|
|
|
9,090
|
|
|
1,643
|
|
|
6,670
|
|
Cash
flows (used in)/ provided by investing
activities
|
|
|
|
|
|
2,084
|
|
|
780
|
|
|
184
|
|
Cash
flows provided by financing activities
|
|
|
|
|
|
10,784
|
|
|
3,286
|
|
|
(16,936
|
)
|
Since
our
inception, we have incurred recurring losses and negative annual cash flows
from
operating activities, and we had an accumulated deficit of $25.4 million as
of
September 30, 2007. Our primary sources of liquidity have historically been
private placements of shares of our preferred stock with aggregate proceeds
of
$15.7 million and borrowings under our credit facilities with aggregate proceeds
of $16.5 million. In the future, we anticipate that our primary sources of
liquidity will be cash generated by our operating activities.
Operating
Activities
In
fiscal
2007, we used $9.1 million of net cash in operating activities as compared
to
$1.6 million in
fiscal
2006. This increase was primarily due to an increase in our net loss of $14.0
million from fiscal 2006 to fiscal 2007, and the increase in net receivables
of
$3.1 million and prepaid expenses by $0.4 million; offset by increases in
accounts payable, accrued license fees and other liabilities of $10.3. The
loss
and the increase in accrued license fees both include the non-cash impact of
the
$6.0 impairment charge recorded in fiscal 2007.
In
the
six months ended September 30, 2007, we used $6.7 million of net cash in
operating activities as compared to $4.5 million in the six months ended
September 30, 2006. This increase was primarily to an increase in our net loss
of $2.3 million, an increase in accrued license fees of $2.2 million, offset
by
a decrease in accounts receivable of $1.0 million , and a decrease in current
liabilities and accrued compensation of $1.1 million.
Investing
Activities
Our
primary investing activities have consisted of purchases of property and
equipment, and the acquisitions of Charismatix in fiscal 2006 and the mobile
games division of InfoSpace in fiscal 2007. Property and equipment purchases
were $0.6 million in fiscal 2006 and $0.6 million in fiscal 2007. The
consideration for the acquisition of Charismatix in fiscal 2006 included $0.3
million in cash, but was offset by $0.2 cash acquired within the business.
The
consideration for the acquisition of the assets from InfoSpace in fiscal 2007
was $1.5 million in cash.
In
the
six months ended September 30, 2007, our primary investing activities have
consisted of purchases of property and equipment.
Financing
Activities
In
fiscal
2006, we generated $3.3 million of net cash from financing activities - this
came from a combination of a short term loan from a related party, and the
issuance and sale of $2.5 million of Series A preferred stock. In fiscal 2007,
we generated $10.8 million of net cash from financing activities - $10.3 from
the issuance and sale of Series A and Series B preferred stock, and $1.7 million
from a short term bank facility, offset by a net repayment of short term loans
from a related party of $1.2 million.
In
the
six months ended September 30, 2007, we generated $16.9 million of net cash
from
financing activities - this came from a $3.0 million issuance of Series B-1
preferred stock, and $15.7 from a secured debt facility, net of costs - detailed
under “Contractual Obligations” below. At the same time we repaid $1.7 million
in short term bank loans.
Sufficiency
of Current Cash, Cash Equivalents and Short-Term
Investments
Our
cash,
cash equivalents and short-term investments were $10.7 million as of September
30, 2007. We believe that our cash, cash equivalents and short-term investments
and any cash flow from operations will be sufficient to meet our anticipated
cash needs, including for working capital purposes, capital expenditures and
various contractual obligations, for the next 12 months. We may, however,
require additional cash resources due to changed business conditions or other
future developments, including any investments or acquisitions we may decide
to
pursue. If these sources are insufficient to satisfy our cash requirements,
we
may seek to sell additional debt securities or additional equity securities
or
to obtain a credit facility. The sale of convertible debt securities or
additional equity securities could result in additional dilution to our
stockholders. The incurrence of increased indebtedness would result in
additional debt service obligations and could result in additional operating
and
financial covenants that would restrict our operations. In addition, there
can
be no assurance that any additional financing will be available on acceptable
terms, if at all.
Contractual
Obligations
The
following table is a summary of our contractual obligations as of September
30,
2007:
|
|
Payments
due by period
|
|
|
|
|
Total
|
|
|
|
1-3
Years
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
Long-term
debt obligations
|
|
$
|
20,213
|
|
$
|
1,513
|
|
$
|
18,700
|
|
Operating
lease obligations
|
|
|
763
|
|
|
301
|
|
|
462
|
|
Guaranteed
royalties
|
|
|
7,248
|
|
|
2,615
|
|
|
4,633
|
|
Capitalized
leases and other obligations
|
|
|
5,571
|
|
|
3,089
|
|
|
2,482
|
|
Debt
obligations include interest payments on the loan. In July 2007, we borrowed
$16,500,000 from ValueAct, in the form of a Senior Secured Note (“the Note”)
payable at 30 months. ValueAct was granted first lien over all of the company’s
assets. The Note carries interest of 9% annually for the first year and 10%
subsequently, with semi-annual interest only payments. In connection with the
Merger, the debt obligations to ValueAct are guaranteed in part by Mandalay,
as
described in more detail in Item 2.03 below. The agreement includes certain
restrictive covenants, including a requirement to maintain certain levels of
cash by Twistbox and Mandalay. ValueAct was also
granted
a
warrant which has been canceled in connection with the Merger and Mandalay
issued ValueAct two new warrants to purchase its common stock.
One
warrant entitles ValueAct to purchase up to a total of 1,092,622 shares
of our common stock at an exercise price of $7.55 per share. The
other warrant entitles ValueAct to purchase up to a total of 1,092,621 shares
of our common stock at an initial exercise price of $5.00 per
share, which, if not exercised in full by February 12, 2009, will be permanently
increased to an exercise price of $7.55 per share. The warrants expire on July
30, 2011.
Operating
lease obligations represent noncancelable operating leases for our office
facilities in several locations, expiring in various years through
2010.
We
have
entered into license agreements with various owners of brands and other
intellectual property so that we could develop and publish branded products
for
mobile handsets. Pursuant to some of these agreements, we are required to pay
minimum royalties over the term of the agreements regardless of actual sales.
The commitments in the above table include guaranteed royalties to licensors
that are included as a liability in our consolidated balance sheet of $5.3
million as of September 30, 2007 because we have determined that recoupment
is
unlikely.
Capitalized
leases and other obligations include payments to various distribution providers,
technical providers and employees for agreements with initial terms greater
than
one year at September 30, 2007.
On
May
30, 2006, we entered into a distribution agreement pursuant to which we are
required to pay quarterly license fees for the use and distribution of certain
intellectual property. The amount of license fees payable by us is equal to
the
greater of 50% of the net revenues received by us in connection with the use
and
distribution of the intellectual property subject to the agreement and certain
minimum guarantee payments. The term of the agreement expires on December 1,
2009, subject to earlier termination under certain circumstances, and
automatically renews for one two-year period unless prior notice is given by
either party of its intent not to renew the agreement.
Off-Balance
Sheet Arrangements
We
do not
have any relationships with unconsolidated entities or financial partners,
such
as
entities
often referred to as structured finance or special purpose entities, which
would
have been
established
for the purpose of facilitating off-balance sheet arrangements or other
contractually narrow or limited purposes. In addition, we do not have any
undisclosed borrowings or debt, and we have not entered into any synthetic
leases. We are, therefore, not materially exposed to any financing, liquidity,
market or credit risk that could arise if we had engaged in such
relationships.
Comparison
of the Years Ended March 31, 2006 and 2007
Revenues
|
|
Year
Ended March 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
Games
|
|
$
|
3,162
|
|
$
|
902
|
|
Other
content
|
|
|
8,736
|
|
|
3,968
|
|
Total
|
|
$
|
11,898
|
|
$
|
4,869
|
|
|
|
|
|
|
|
|
|
Percentage
of Revenues by type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Games
|
|
|
26.6
|
%
|
|
18.5
|
%
|
Other
content
|
|
|
73.4
|
%
|
|
81.5
|
%
|
Total
|
|
|
100.0
|
%
|
|
100.0
|
%
|
Our
revenues increased $7.0 million, or 144%, from $4.9 million in 2006 to $11.9
million in 2007, largely as a result of volume increases, achieved by both
increasing volume with individual carriers and by expanding our base by adding
carrier relationships in territories in which we already operated, and by
expanding into new territories. The fiscal 2006 games revenues include only
two
months related to Charismatix, while fiscal 2007 includes $1.9million related
to
the German subsidiary. Other content includes a broad range of primarily
licensed product delivered in the form of WAP, Video, Wallpaper and more
recently Mobile TV. Other content revenues grew by $4.8 million or 120% year
over year. This was a combination of an increase in volume in existing major
territories - the top eight territories revenues increased by $3.7 milllion
or
101% year over year; and expansion into new territories - which contributed
some
$0.6 million of the growth.
Cost
of Revenues
|
|
Year
Ended March 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(In
thousands)
|
|
Cost
of Revenues:
|
|
|
|
|
|
License
Fees
|
|
$
|
6,267
|
|
$
|
2,472
|
|
Impairment
of guarantees
|
|
|
6,022
|
|
|
-
|
|
Other
direct cost of revenues
|
|
|
112
|
|
|
-
|
|
Total
Cost of Revenues
|
|
$
|
12,401
|
|
$
|
2,472
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
11,898
|
|
$
|
4,869
|
|
|
|
|
|
|
|
|
|
Gross
Margin
|
|
|
-4.2
|
%
|
|
49.2
|
%
|
Our
cost
of revenues increased $9.9 million, from $2.5 million in fiscal 2006 to $12.4
million in fiscal 2007. Excluding the effect of the impairment of guarantees,
the increase was $3.9 million. The increase in license fees was largely driven
by the increase in revenues flowing through to increased license fees payable.
The impairment charge related to three specific content deals which were entered
into prior to June 2006 and contained significant and in some cases escalating
regular guarantee payments to secure a long term contract for the brand. As
part
of our evaluation of the remaining commitments under these deals and the
recoupability of the guarantees, we recorded a charge for impairment of $6.0
million in the period ended March 31, 2007.
Gross
Margin
Games
revenues include a mix of licensed and internally developed product, while
other
revenues were largely from licensed products in these periods. Excluding the
effect of the impairment charge, margins decreased from 49.2% to 46.4%,
primarily due to the incidence of minimum guarantees in the mix of license
fees
during the course of the year.
Product
Development Expenses
|
|
Year
Ended March 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(In
thousands)
|
|
Product
Development Expenses
|
|
$
|
7,813
|
|
$
|
2,854
|
|
Percentage
of Revenues
|
|
|
65.7
|
%
|
|
58.6
|
%
|
Our
product development expenses increased $5.0 million, or 174%, from $2.9 million
in
fiscal
2006 to $7.9 million in fiscal 2007. The increase in product development costs
was primarily due to increases in headcount during the period. This was driven
by the acquisition of Charismatix which immediately 20 heads in product
development, and the subsequent build up of our games development capabilities
in Germany, Poland and in the U.S. As we built up our capability in the U.S.,
the headcount increased from 38 in March 2006 to 58 in December 2006. The
acquisition of the InfoSpace mobile games division added a further 10 heads
in
January 2007. Product development expenses included $10,000 of stock-based
compensation expense in fiscal 2006 and $18,000 in fiscal 2007. As a percentage
of revenues, product development expenses increased from 58.6% in fiscal 2006
to
65.7% in fiscal 2007.
Sales
and Marketing Expenses
|
|
Year
Ended March 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(In
thousands)
|
|
Sales
and Marketing Expenses
|
|
$
|
4,124
|
|
$
|
1,130
|
|
Percentage
of Revenues
|
|
|
34.7
|
%
|
|
23.2
|
%
|
Our
sales
and marketing expenses increased $3.0 million, or 265%, from $1.1 million in
fiscal 2006 to $4.1 million in fiscal 2007. Most of the increase was
attributable to a $1.4 million increase in salaries and benefits, as we built
up
our sales and marketing presence in our key territories to a headcount of 16
by
March 2007. As we built up the sales force, travel and entertainment and
facilities allocations increased by $0.5 million in this area. In addition
we
made a significant investment in two major trade shows in fiscal 2007 as we
were
building up our brand and our relationships in the market, resulting in $0.6
million higher expenses in fiscal 2007. We expanded our staff as we continued
to
expand into new territories, which required an on-the-ground account management
presence, and as we continued to develop a more sophisticated approach to
dealing with our primary customers. As a percentage of revenues, sales and
marketing expenses increased from 23.2% in fiscal 2006 to 34.7% in fiscal 2007
as we created the infrastructure necessary to support further expansion. Sales
and marketing expenses included $5,000 of stock-based compensation expense
in
fiscal 2006 and $19,000 in fiscal 2007.
General
and Administrative Expenses
|
|
Year
Ended March 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(In
thousands)
|
|
General
and Administrative Expenses
|
|
$
|
3,594
|
|
$
|
530
|
|
Percentage
of Revenues
|
|
|
30.2
|
%
|
|
10.9
|
%
|
Our
general and administrative expenses increased $3.1 million, from $0.5 million
in
fiscal 2006 to $3.6 million in fiscal 007. The increase in general and
administrative expenses was primarily the result of a $2.7 million increase
in
salaries and benefits and a $0.4 million increase in consulting and professional
fees. We increased our general and administrative headcount from 10 to 21 in
fiscal 2007. As a percentage of revenues, general and administrative expenses
increased from 10.9% in fiscal 2006 to 30.2% in fiscal 2007 as a result of
the
growth in salaries, particularly as the executive management team was completed.
General and administrative expenses included $3,000 of stock-based compensation
expense in fiscal 2006 and $23,000 in fiscal 2007.
Amortization
of Intangible Assets
|
|
Year
Ended March 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(In
thousands)
|
|
Amortization
of Intangible Assets
|
|
$
|
23
|
|
$
|
-
|
|
Percentage
of Revenues
|
|
|
0.2
|
%
|
|
0.0
|
%
|
Our
amortization of intangible assets, such as platform, licenses and trademarks,
acquired from InfoSpace was $23,000 in fiscal 2007.
Other
Income and Expenses
Interest
income increased from $11,000 in fiscal 2006 to $169,000 in fiscal 2007. This
increase was primarily due to interest income earned an excess funds invested
following the Series B preferred stock placement in May 2006. Interest expense
decreased from $94,000 in fiscal 2006 to $74,000 in fiscal 2007, due to the
shorter period in fiscal 2007 during which we required loan funding.
Foreign
exchange transaction gain increased from $1,000 in fiscal 2006 to $124,000
in
fiscal 2007, as the result of the steadily declining value of the US dollar
during fiscal 2007 against the major currencies in which we collect revenues
-
primarily the Euro and UK pound sterling. Other income (expense), net increased
from $45,000 in fiscal 2006 to $370,000 in fiscal 2007. The increase primarily
relates to an increase in a reserve for payment of VAT liabilities related
to
changes in reporting proposed by our largest customer.
Income
Tax Benefit/(Provision)
Income
tax provision increased from $1 in fiscal 2006 to $19 in fiscal 2007. The
amounts in both years represent minimum payments required in certain
jurisdictions. Our primary operating entities in the U.S. and Germany incurred
losses for tax purposes in both years.
Recent
Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(“SFAS No. 157”). This statement clarifies the definition of fair value,
establishes a framework for measuring fair value, and expands the disclosures
on
fair value measurements. SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007. The adoption of SFAS No. 157 is not
expected to have a material effect on our consolidated results of
operations or financial condition.
In
September 2006, the FASB released SFAS No. 158, “Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106, and 132(R).” Under the new standard, companies
must recognize a net liability or asset to
report
the funded status of their defined benefit pension and other postretirement
benefit plans on their balance sheets. The recognition and disclosure
provisions of SFAS No. 158 are effective for periods beginning after December
15, 2006. We believe that SAB 108 will not have a significant impact on
our results of operations or financial position.
In
October 2006, the FASB issued FASB Staff Position No. 123R-5, “Amendment of FASB
Staff Position FAS 123(R)-1”. The FSP amends FSP 123(R)-1 for equity
instruments that were originally issued as employee compensation and then
modified, with such modification made to the terms of the instrument solely
to
reflect an equity restructuring that occurs when the holders are no longer
employees. In such circumstances, no change in the recognition or the
measurement date of those instruments will result if both of the following
conditions are met: a. There is no increase in fair value of the award (or
the
ratio of intrinsic value to the exercise price of the award is preserved, that
is, the holder is made whole), or the antidilution provision is not added to
the
terms of the award in contemplation of an equity restructuring; and b. All
holders of the same class of equity instruments (for example, stock options)
are
treated in the same manner. We believe that FSP 123(R)-5 will not have a
significant impact on our results of operations or financial
position.
In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Liabilities, including an amendment of FASB Statement
No.
115" ("SFAS No. 159"). SFAS No. 159 permits entities to choose, at specified
election dates, to measure many financial instruments and certain other items
at
fair value that are not currently required to be measured at fair value.
Unrealized gains and losses shall be reported on items for which the fair value
option has been elected in earnings at each subsequent reporting date. SFAS
No.
159 is effective for fiscal years beginning after November 15, 2007. Early
adoption is permitted as of the beginning of a fiscal year that begins on or
before November 15, 2007, provided the entity also elects to apply the
provisions of SFAS No. 157 "Fair Value Measurements" ("SFAS No. 157"). We are
currently assessing the impact that SFAS No. 159 will have on our financial
statements.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements” (“SFAS No. 160”), which is an amendment of
Accounting Research Bulletin (“ARB”) No. 51. This statement clarifies
that a noncontrolling interest in a subsidiary is an ownership interest in
the
consolidated entity that should be reported as equity in the consolidated
financial statements. This statement changes the way the consolidated
income statement is presented, thus requiring consolidated net income to be
reported at amounts that include the amounts attributable to both parent and
the
noncontrolling interest. This statement is effective for the fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008. Based on current conditions, we do not expect the
adoption of SFAS No. 160 to have a significant impact on our results of
operations or financial position.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS No. 141”). This statement replaces FASB
Statement No. 141, “Business Combinations.” This statement retains the
fundamental requirements in SFAS 141 that the acquisition method of
accounting (which SFAS No.141 called the purchase method) be used for all
business combinations and for an acquirer to be identified for each business
combination. This statement defines the acquirer as the entity that obtains
control of one or more businesses in the business combination and establishes
the acquisition date as the date that the acquirer achieves control. This
statement requires an acquirer to recognize the assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree at the acquisition
date, measured at their fair values as of that date, with limited exceptions
specified in the statement. This statement applies prospectively to business
combinations for which the acquisition date is on or after the beginning of
the
first annual reporting period beginning on or after December 15, 2008. We do
not
expect the adoption of SFAS No. 160 to have a significant impact on our results
of operations or financial position.
Quantitative
and Qualitative Disclosures about Market Risk
Interest
Rate and Credit Risk
We
have
exposure to interest rate risk that relates primarily to our investment
portfolio. All of our current investments are classified as cash equivalents
or
short-term investments and carried at cost, which approximates market value.
We
do not currently use or plan to use derivative financial instruments in our
investment portfolio. The risk associated with fluctuating interest rates is
limited to our investment portfolio, and we do not believe that a 10% change
in
interest rates would have a significant impact on our interest income, operating
results or liquidity.
As
of
September 30, 2007, our cash and cash equivalents were maintained by financial
institutions in the United States, Germany, the United Kingdom, Poland, Russia,
Argentina and Colombia, and our current deposits are likely in excess of insured
limits. We believe that the financial institutions that hold our investments
are
financially sound and, accordingly, minimal credit risk exists with respect
to
these investments. Our accounts receivable primarily relate to revenues earned
from domestic and international Mobile phone carriers. We perform ongoing credit
evaluations of our carriers’ financial condition but generally require no
collateral from them.
At
September 30, 2007, our largest customer represented 36% of our gross accounts
receivable.
Foreign
Currency Risk
The
functional currencies of our United States and German operations are the United
States Dollar, or USD, and the Euro, respectively. A significant portion of
our
business is conducted in currencies other than the USD or the Euro. Our revenues
are usually denominated in the functional currency of the carrier. Operating
expenses are usually in the local currency of the operating unit, which
mitigates a portion of the exposure related to currency fluctuations.
Intercompany transactions between our domestic and foreign operations are
denominated in either the USD or the Euro. At month-end, foreign
currency-denominated accounts receivable and intercompany balances are marked
to
market and unrealized gains and losses are included in other income (expense),
net. Our foreign currency exchange gains and losses have been generated
primarily from fluctuations in the Euro and pound sterling versus the USD and
in
the Euro versus the pound sterling. In fiscal 2007 and in the six months ended
September 30, 2007 these movements have resulted in net foreign exchange
transaction gains, due to the strengthening of other currencies against the
USD.
It is uncertain whether these currency trends will continue. In the future,
we
may experience foreign currency exchange losses on our accounts receivable
and
intercompany receivables and payables. Foreign currency exchange losses could
have a material adverse effect on our business, operating results and financial
condition.
Inflation
We
do not
believe that inflation has had a material effect on our business, financial
condition or results of operations. If our costs were to become subject to
significant inflationary pressures, we might not be able to offset these higher
costs fully through price increases. Our inability or failure to do so could
harm our business, operating results and financial condition.
DESCRIPTION
OF PROPERTY
The
principal offices of the Registrant are the offices of Trinad Capital, L.P.,
located at 2121 Avenue of the Stars, Suite 2550, Los Angeles, California 90067.
In March 2007, we entered into a month-to-month lease for such office space
with
Trinad Management, LLC (“Trinad Management”) for rent in the amount of $8,500
per month.
The
principal offices of our subsidiary Twistbox are headquartered at 14242 Ventura
Boulevard., 3
rd
Floor,
Sherman Oaks, California 91423. On July 1, 2005, the WAAT Corp. (Twistbox’s
predecessor-in-interest) entered into a lease for these premises with Berkshire
Holdings, LLC, at a base rent of $21,000 per month. The term of the lease
expires on July 15, 2010.
Twistbox
als
o
leases
property
in
Dortm
und,
Germany
and
Poland, where it has a branch operation.
SECURITY
OWNERSHIP OF CERTAIN
BENEFICIAL
OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding the beneficial
ownership of our common stock on February 12, 2008, immediately prior to and
immediately following the Closing by (i) each of our executive officers and
directors, (ii) all persons, including groups, known to us to own beneficially
more than five percent (5%) of our outstanding common stock, and (iii) all
current executive officers and directors as a group. As of February 12, 2008,
(a) immediately prior to the Merger, there were a total of 21,868,074 shares
of
our common stock outstanding and (b) following the Merger, there were a total
of
32,048,365 shares of our common stock outstanding.
Name
and Address
(1)
|
|
Number
of Shares
Beneficially
Owned
(2)
|
|
Percentage
Owned
|
|
|
|
Prior
to the Merger
|
|
Following
the Merger
|
|
Prior
to the Merger (%)
|
|
Following
the Merger (%)
|
|
|
|
|
|
|
|
|
|
|
|
Trinad
Capital Master Fund, Ltd.(3)
|
|
|
9,400,000
|
|
|
9,400,000
|
|
|
43.0
|
|
|
29.3
|
|
Robert
S. Ellin(4)
|
|
|
9,400,000
|
|
|
9,400,000
|
|
|
43.0
|
|
|
29.3
|
|
Jay
A. Wolf (5)
|
|
|
9,400,000
|
|
|
9,400,000
|
|
|
43.0
|
|
|
29.3
|
|
Lyrical
Partners, L.P.(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
405
Park Avenue, 6th Floor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
York, NY 10022
|
|
|
3,000,000
|
|
|
3,000,000
|
|
|
12.8
|
|
|
8.9
|
|
David
E. Smith (7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
888
Linda Flora Drive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Los
Angeles, CA 90049
|
|
|
4,000,000
|
|
|
4,000,000
|
|
|
16.8
|
|
|
11.7
|
|
David
Chazen (8)
|
|
|
150,000
|
|
|
150,000
|
|
|
*
|
|
|
*
|
|
Barry
I. Regenstein (9)
|
|
|
50,000
|
|
|
50,000
|
|
|
*
|
|
|
*
|
|
Peter
Guber (10)
|
|
|
4,500,000
|
|
|
5,071,427
|
|
|
20.6
|
|
|
15.8
|
|
Paul
Schaeffer (11)
|
|
|
500,000
|
|
|
500,000
|
|
|
2.3
|
|
|
1.6
|
|
Jim
Lefkowitz (12)
|
|
|
166,667
|
|
|
166,667
|
|
|
*
|
|
|
*
|
|
Bruce
Stein (13)
|
|
|
166,667
|
|
|
166,667
|
|
|
*
|
|
|
*
|
|
Robert
Zangrillo (14)
|
|
|
166,667
|
|
|
166,667
|
|
|
*
|
|
|
*
|
|
Richard
Spitz (15)
|
|
|
33,333
|
|
|
33,333
|
|
|
*
|
|
|
*
|
|
Ian
Aaron(16)
|
|
|
0
|
|
|
1,166,813
|
|
|
0
|
|
|
3.6
|
|
Adi
McAbian (17)
|
|
|
0
|
|
|
966,813
|
|
|
0
|
|
|
3.0
|
|
Russell
Burke (18)
|
|
|
0
|
|
|
171,392
|
|
|
0
|
|
|
*
|
|
David
Mandell (19)
|
|
|
0
|
|
|
263,394
|
|
|
0
|
|
|
*
|
|
Eugen
Barteska (20)
|
|
|
0
|
|
|
251,281
|
|
|
0
|
|
|
*
|
|
Spark
Capital, L.P. (21)
|
|
|
0
|
|
|
2,867,143
|
|
|
0
|
|
|
8.9
|
|
ValueAct
SmallCap Master Fund L.P. (22)
|
|
|
0
|
|
|
2,185,243
|
|
|
0
|
|
|
6.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
directors and executive officers as a group (11 persons prior to
the
Merger and 16 persons following the Merger)
|
|
|
15,133,334
|
|
|
18,524,454
|
|
|
46.2
|
|
|
54.8
|
|
*
Less
than one percent.
(1)
Except as otherwise indicated, the address of each of the following persons
is
c/o Mandalay Media, Inc., 2121 Avenue of the Stars, Suite 2550, Los Angeles,
CA
90067.
(2)
Except as specifically indicated in the footnotes to this table, the persons
named in this table have sole voting and investment power with respect to all
shares of common stock shown as beneficially owned by them, subject to community
property laws where applicable. Beneficial ownership is determined in accordance
with the rules of the Commission. In computing the number of shares beneficially
owned by a person and the percentage ownership of that person, shares of common
stock subject to options, warrants or rights held by that person that are
currently exercisable or exercisable, convertible or issuable within 60 days
of
February 12, 2008, are deemed outstanding. Such shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of any other
person.
(3)
Consists
of 9,300,000 shares of common stock held by Trinad Capital Master Fund, Ltd.
and
100,000 shares of common stock issuable upon conversion of 100,000 shares of
Series A Convertible Preferred Stock held by Trinad Management, assuming a
conversion on a one-for-one basis of the Series A Convertible Preferred
Stock. The number of shares of common stock into which the Series A
Convertible Preferred Stock is convertible is subject to adjustment for stock
splits, stock dividends, reorganizations, the issuance of dividends, and other
events specified in our certificate of incorporation. Trinad Management is
an affiliate of, and provides investment management services to, Trinad Capital
Master Fund. The address of Trinad Capital Master Fund, Ltd. is 2121 Avenue
of
the Starts, Suite 2550, Los Angeles, CA 90067.
(4)
Consists of 9,300,000 shares of common stock held by Trinad Capital Master
Fund,
Ltd. and 100,000 shares of common stock issuable upon conversion of 100,000
shares of Series A Convertible Preferred Stock held by Trinad Management. Trinad
Management is an affiliate of, and provides investment management services
to,
Trinad Capital Master Fund. Robert Ellin and Jay Wolf are the managing members
of Trinad Management. As a result, each may be deemed indirectly to beneficially
own an aggregate of 9,400,000 shares of common stock. Mr. Ellin disclaims
beneficial ownership of these securities except to the extent of his pecuniary
interest therein.
(5)
Consists of 9,300,000 shares of common stock held by Trinad Capital Master
Fund
and 100,000 shares of common stock issuable upon conversion of 100,000 shares
of
Series A Convertible Preferred Stock held by Trinad Management. Trinad
Management is an affiliate of, and provides investment management services
to,
Trinad Capital Master Fund. Robert Ellin and Jay Wolf are the managing members
of Trinad Management. As a result, each may be deemed indirectly to beneficially
own an aggregate of 9,400,000 shares of common stock. Mr. Wolf disclaims
beneficial ownership of these securities except to the extent of his pecuniary
interest therein.
(6)
Lyrical Multi-Manager Fund, LP beneficially owns 2,000,000 units (1,000,000
of
which are shares of common stock and 1,000,000 of which are shares of common
stock issuable upon exercise of warrants held by Lyrical Multi-Manager
Fund, LP) and Lyrical Multi-Manager Offshore Fund Ltd. beneficially owns
1,000,000 units (500,000 of which are shares of common stock and 500,000 of
which are shares of common stock issuable upon exercise of warrants held by
Lyrical Multi-Manager Offshore Fund Ltd.) of the company. Lyrical Partners,
L.P., as the investment manager of Lyrical Multi-Manager Fund, LP and Lyrical
Multi-Manager Offshore Fund Ltd., has the sole power to vote and dispose of
the
3,000,000 shares of common stock held collectively by Lyrical Multi-Manager
Fund, LP and Lyrical Multi-Manager Offshore Fund Ltd. This information is
based solely on a Schedule 13D filed by Jeffrey Keswin with the Commission
on
February 13, 2007, which reported ownership as of September 12,
2006.
(7)
David
E. Smith beneficially owns 4,000,000 units, consisting of 2,000,000 shares
of
common stock of the company and 2,000,000 warrants, each exercisabel
for one share of common stock. This information is based solely on a
Schedule 13D filed by David E. Smith with the Commission on November 27, 2006,
which reported ownership as of September 25, 2006.
(8)
Consists of a warrant to purchase 150,000 shares of our common
stock.
(9)
Consists of a warrant to purchase 50,000 shares of our common
stock.
(10)
Consists of 4,500,000 shares of common stock held prior to the Merger and
571,427 shares issued upon consummation of the Merger. The securities
indicated are held indirectly by Mr. Guber through the Guber Family Trust
for which he serves as a trustee. Mr. Guber disclaims beneficial ownership
of these securities except to the extent of his pecuniary interest.
(11)
Consists of 500,000 shares of common stock. The securities indicated are held
indirectly by Mr. Schaeffer through the Paul and Judy Schaeffer Living
Trust for which he serves as a trustee. Mr. Schaeffer disclaims beneficial
ownership of these securities except to the extent of his pecuniary
interest.
(12)
Includes 166,667 shares of common stock underlying options.
(13)
Includes 166,667 shares of common stock underlying options.
(14)
Includes 166,667 shares of common stock underlying options.
(15)
Includes 33,333 shares of common stock underlying options.
(16)
Includes 254,725 shares of common stock underlying options. The address for
Mr.
Aaron is c/o Twistbox Entertainment, Inc., 14242 Ventura Blvd., 3
rd
Floor,
Sherman Oaks, CA 91423.
(17)
Includes 54,725 shares of common stock underlying options. The address for
Mr.
McAbian is c/o Twistbox Entertainment, Inc., 14242 Ventura Blvd., 3
rd
Floor,
Sherman Oaks, CA 91423.
(18)
Includes 221,725 shares of common stock underlying options. The address for
Mr.
Burke is c/o Twistbox Entertainment, Inc., 14242 Ventura Blvd., 3
rd
Floor,
Sherman Oaks, CA 91423.
(19)
Includes 263,394 shares of common stock underlying options. The address for
Mr.
Mandell is c/o Twistbox Entertainment, Inc., 14242 Ventura Blvd., 3
rd
Floor,
Sherman Oaks, CA 91423.
(20)
Includes 199,161 shares of common stock underlying options. The address for
Mr.
Barteska is c/o
Twistbox
Games Ltd & Co KG (Charismatix), Lohbachestr. 12, D-58239, Schwerte,
Germany.
(21)
Consists
of: (i) 2,779,986 shares of common stock held by Spark Capital, L.P.,
(ii) 49,357 shares of common stock held by Spark Capital Founders’
Fund, L.P., and (iii) 27,801 shares of common stock held by Spark Member Fund,
L.P.
The
address for Spark Capital, L.P. is c/o Gipson, Hoffman & Pancione, 1901
Avenue of the Stars, Suite 1100, Los Angeles, CA 90067.
(22)
Represents 2,185,243 shares of common stock underlying currently exercisable
warrants. The address for ValueAct SmallCap Master Fund, L.P. is c/o ValueAct
Capital, 435 Pacific Avenue, 4th Floor, San Francisco, CA 94133
.
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The
following table sets forth our directors and executive officers as of the
completion of the Merger:
Name
|
|
Age
|
|
Position(s)
|
Robert
S. Ellin
|
|
43
|
|
Chief
Executive Officer, Director
|
Jay
A. Wolf
|
|
35
|
|
Chief
Financial Officer, Secretary, Director
|
James
Lefkowitz
|
|
49
|
|
President
|
Bruce
Stein
|
|
53
|
|
Chief
Operating Officer, Director
|
Ian
Aaron
|
|
47
|
|
President,
Chief Executive Officer of Twistbox, Director
|
Russell
Burke
|
|
47
|
|
Senior
Vice President and Chief Financial Officer of Twistbox
|
David
Mandell
|
|
46
|
|
Executive
Vice President, General Counsel and Corporate Secretary of
Twistbox
|
Eugen
Barteska
|
|
36
|
|
Managing
Director of Twistbox Games
|
Adi
McAbian
|
|
34
|
|
Managing
Director of Twistbox. Director
|
David
Chazen
|
|
46
|
|
Director
|
Barry
I. Regenstein
|
|
51
|
|
Director
|
Peter
Guber
|
|
66
|
|
Director
|
Paul
Schaeffer
|
|
60
|
|
Director
|
Robert
Zangrillo
|
|
42
|
|
Director
|
Richard
Spitz
|
|
47
|
|
Director
|
Biographical
information for our directors and executive officers are as
follows:
Robert
S. Ellin.
Mr.
Ellin has been our Chairman and Chief Executive Officer since February 2005.
Mr.
Ellin is also a Managing Member of Trinad Capital Master Fund, Ltd., our
principal stockholder and a hedge fund dedicated to investing in micro-cap
public companies. Mr. Ellin currently sits on the boards of Command Security
Corporation (CMMD), ProLink Holdings Corporation (PLKH), MPLC, Inc. (MPNC)
and
U.S. Wireless Data, Inc. (USWD). Prior to joining Trinad Capital Master Fund
Ltd., Mr. Ellin was the founder and President of Atlantis Equities, Inc., a
personal investment company. Founded in 1990, Atlantis has actively managed
an
investment portfolio of small capitalization public company as well as select
private company investments. Mr. Ellin frequently played an active role in
Atlantis investee companies including board representation, management
selection, corporate finance and other advisory services. Through Atlantis
and
related companies, Mr. Ellin spearheaded investments into ThQ, Inc. (OTC:THQI),
Grand Toys (OTC: GRIN), Forward Industries, Inc. (OTC: FORD) and completed
a
leveraged buyout of S&S Industries, Inc. where he also served as President
from 1996 to 1998. Prior to founding Atlantis Equities, Mr. Ellin worked in
Institutional Sales at LF Rothschild and prior to that he was the Manager of
Retail Operations at Lombard Securities. Mr. Ellin received his B.A. from Pace
University.
Jay
A. Wolf.
Mr. Wolf
has been our Chief Financial Officer since February 2005, and was Chief
Operating Officer from February 2005 until January 2008.
He has served on our Board of Directors since February 2005. Mr. Wolf is also
a
Managing Director of Trinad Capital Master Fund Ltd. Mr. Wolf currently sits
on
the boards of Shells Seafood Restaurants (SHLL), ProLink Holdings Corporation
(PLKH), U.S. Wireless Data, Inc. (USWD) and Optio Software, Inc. Mr.
Wolf has ten years of investment and operations experience in a broad range
of
industries. Mr. Wolf is a co-founder of Trinad Capital, L.P., where he served
as
a managing director since its inception in 2003. Prior to founding Trinad,
Mr.
Wolf served as the Executive Vice-President of Corporate Development for Wolf
Group Integrated Communications where he was responsible for the company's
acquisition program. Prior to Wolf Group Integrated Communications, Mr. Wolf
worked at Canadian Corporate Funding, a Toronto-based merchant bank, in the
senior debt department, and subsequently for Trillium Growth, the Canadian
Corporate Funding's venture capital fund. Mr. Wolf received his B.A from
Dalhousie University.
James
Lefkowitz.
Mr.
Lefkowitz has been our President since June 2007. He is a 20 year entertainment
industry veteran with a wide range of experience in law, business, finance,
film
and television. Mr. Lefkowitz joined Mandalay from Cantor Fitzgerald (Cantor),
where he was managing director of Cantor Entertainment. Prior to Cantor, Mr.
Lefkowitz was an agent for eight years at Creative Artists Agency, the premiere
talent agency in Hollywood, where he represented actors, writers and directors.
He began his career as an attorney at the law firm of Manatt, Phelps, and
Phillips in Los Angeles. He subsequently worked for six years as a business
affairs executive at Walt Disney Studios and Touchstone Pictures. Mr. Lefkowitz
is a graduate of the University of Michigan School of Business Administration
and Michigan Law School.
Bruce
Stein.
Mr. Stein has served on our Board of Directors since November
2007. He has been our Chief Operating Officer since January
2008. Mr. Stein is founder and since September 2003 has
been Co-Chief Executive Officer of The Hatchery LLC (“The Hatchery”), a company
specializing in intellectual property development and entertainment production
of kids and family franchises. Since 2003, he has served on the board of
directors of ViewSonic, Inc. and is chairman of the compensation committee.
Prior to joining The Hatchery, Mr. Stein held various executive titles at
Mattel, Inc., including Worldwide President, Chief Operating Officer and a
member of the board of directors from August 1996 through March 1999. From
August 1995 through August 1996, Mr. Stein was Chief Executive Officer of Sony
Interactive Entertainment Inc., a subsidiary of Sony Computer Entertainment
America Inc. At various times between January 1995 and June 1998, Mr. Stein
served as a consultant to DreamWorks SKG, Warner Bros. Entertainment and
Mandalay Entertainment. From 1987 through 1994, Mr. Stein served as President
of
Kenner Products, Inc. Mr. Stein received a B.A. from Pitzer College and an
M.B.A. from the University of Chicago.
Ian
Aaron.
Ian
Aaron
became a member of our Board of Directors as of the Closing and has been the
President of Twistbox since January 2006.
He
is
responsible for Twistbox’s general entertainment, games and late night business
units. Mr. Aaron has over 20 years of experience in the fields of international
CATV, telecom and mobile distribution and has served on the board of directors
of a number of international media and technology-based companies. Prior to
joining Twistbox, Mr. Aaron served as President of the TV Guide Television
Group
of Gemstar - TV Guide International, Inc., a NASDAQ publicly traded company
that
engages in the development, licensing, marketing, and distribution of products
and services for TV guidance and home entertainment needs of TV viewers
worldwide. From August 2000 to May 2003, Mr. Aaron served as President, Chief
Executive Officer and Director of TVN Entertainment, Inc., which is the largest
privately held digital content aggregation, management, distribution, and
service company in the United States. From October 1994 to August 2000, Mr.
Aaron worked in a number of capacities, including as President and Director,
with SoftNet Systems, Inc., a broadband internet service provider that was
traded publicly on NASDAQ. Mr. Aaron received a B.S. in electrical engineering
and a B.S. in communications from the University of Illinois.
Russell
Burke.
Russell
Burke serves as Senior Vice President and Chief Financial Officer of Twistbox
and is responsible for all aspects of Twistbox's financial infrastructure
including reporting and financial systems and information systems. He also
has
responsibility for strategic planning and for managing investor relationships.
Mr. Burke was previously the Managing Director for Australia and New Zealand
for
Weight Watchers International, Inc, a publicly traded company. He had full
responsibility for the company's operations across those territories, and was
a
member of the company's global executive committee. Prior to this, Mr. Burke
served as the Senior Vice-President and Chief Financial Officer of pressplay,
a
joint venture of Sony Music and Universal Music. He joined pressplay at the
start up stage and was part of a small management team which forged a viable
business in the digital music arena. He was responsible for developing all
financial systems and oversaw the creation of management and external reporting;
as well as international business development. Additionally, he was involved
in
the acquisition of pressplay by Roxio, Inc. and the subsequent re-branding
and
re-launching of the service as Napster. Before joining pressplay, Mr. Burke
held
a number of senior financial positions at Sony Music International in Sydney
(Australia), New York and London. Mr Burke began his career with Price
Waterhouse (now PricewaterhouseCoopers) in Australia, where over a period of
13
years he worked with a broad range of clients in the Los Angeles, Sydney and
Newcastle (Australia) offices of Price Waterhouse, advising on business and
compliance matters. Mr. Burke received a B. Comm. from the University of
Newcastle (Australia).
David
Mandell.
David
Mandell has served as Executive Vice President, General Counsel and Corporate
Secretary of Twistbox since June 2006. Mr. Mandell is responsible for all
corporate governance matters for Twistbox, including those related to all
foreign and domestic subsidiaries and affiliated companies. Prior to joining
Twistbox, Mr. Mandell was Senior Vice President, Business/Legal Affiars of
Gemstar-TV Guide International, Inc., a NASDAQ publicly traded company that
engages in the development, licensing, marketing, and distribution of products
and services for TV guidance and home entertainment needs of TV viewers
worldwide. From October 1998 to January 2003, Mr. Mandell served as Vice
President, Business/Legal Affairs of Playboy Entertainment Group, Inc., a
subsidiary of Playboy Enterprises, Inc., which owns adult film and television
properties (Playboy Films, Playboy TV, Spice Networks), related home video
imprints, and online content and gaming operations. Mr. Mandell received a
B.A.
from the University of Florida and a J.D. from the University of Miami School
of
Law.
Eugen
Barteska.
Eugen
Barteska is the co-founder and Managing Director of Twistbox Games. As Managing
Director of Twistbox Games, Mr. Barteska designs and develops Java games and
applications for the mobile space and is responsible for the deployment of
games
and application to wireless telephone operators. Prior to co-founding Twistbox
Games, Mr. Barteska served as manager of technical support and a programmer
for
HSP GmbH, a German company that delivers and supports leading high-end
development tools for the embedded real-time market. Mr. Barteska graduated
with
a degree in civil engineering for microelectronics and physics from the
University of Applied Sciences Südwestfalen in Iserlohn, Germany.
Adi
McAbian.
Adi
McAbian has served on our Board of Directors since February 2008 and is a
co-founder and Managing Director of Twistbox. As the Managing Director of
Twistbox, Mr. McAbian is responsible for global sales and carrier relationships
that span the globe. Mr. McAbian's background includes experience as an
entrepreneur and executive business leader with over 12 years experience as
a
business development and sales manager in the broadcast television industry.
Mr.
McAbian is experienced in entertainment and media rights management, licensing
negotiation and production, and has previously secured deals with AOL/Time
Warner, Discovery Channel, BMG, RAI, Disney, BBC and Universal among others.
He
has been responsible for facilitating strategic collaborations with over 60
mobile operators worldwide on content standards and minor protection legislation
and he has been a frequent speaker, lecturing on adult mobile content business
and management issues throughout Europe and the U.S., including conferences
organized by iWireless World, Mobile Entertainment Forum, and Informa.
David
Chazen.
Mr.
Chazen has served on our Board of Directors since August
2006. He was also our President from August
2006 until June 2007. Mr. Chazen is Managing Director of Chazen Capital
Partners, a private investment partnership founded in 1997 that provides equity
capital and management support to consumer-oriented companies. Mr.
Chazen also serves as President of Win Stuff Corporation, the
largest specialized operator of entertainment skill crane vending machines
in the U.S. Mr. Chazen also serves as the President of Good Stuff Toys, a
manufacturer of licensed toys. Mr. Chazen is also the Managing Director of
HQ Enterprises, a provider of stored value gift cards for the shopping mall
industry. Mr. Chazen is a director of the St. Johns Companies, the Chazen
Institute of International Business at Columbia University, the Society of
Fellows at the Aspen Institute, and Jazz Aspen. Mr. Chazen also serves on the
Board of Advisors of Trinad Management, LLC, the manager of Trinad Capital
Master Fund, one of our principal stockholders. Mr. Chazen received his B.S.
from the Wharton School at the University of Pennsylvania in 1982, and his
M.B.A. from Columbia Business School in 1986.
Barry
I. Regenstein.
Mr.
Regenstein has served on our Board of Directors since February 2005. Mr.
Regenstein is also the President and Chief Financial Officer of Command Security
Corporation. Trinad Capital Master Fund, Ltd. is a significant shareholder
of Command Security Corporation and Mr. Regenstein has formerly served as a
consultant for Trinad Capital Master Fund, Ltd. Mr. Regenstein has over 28
years
of experience with 23 years of such experience in the aviation services
industry. Mr. Regenstein was formerly Senior Vice President and Chief Financial
Officer of Globe Ground North America (previously Hudson General Corporation),
and previously served as the company’s Controller and as a Vice President. Prior
to joining Hudson General Corporation in 1982, he had been with Coopers &
Lybrand in Washington, D.C. since 1978. Mr. Regenstein currently sits of the
boards of GTJ Co., Inc., ProLink Holdings Corporation (PLKH) and MPLC, Inc.
(MPNC). Mr. Regenstein is a Certified Public Accountant and received his
Bachelor of Science in Accounting from the University of Maryland and an M.S.
in
Taxation from Long Island University.
Peter
Guber
. Mr.
Guber has served on our Board of Directors since August 2007 as
Co-Chairman. He is a 30-year veteran of the entertainment industry.
His positions previously held include: Former Studio Chief, Columbia Pictures;
Founder of Casablanca Record and Filmworks; Founder, and Former Chairman/CEO,
PolyGram Filmed Entertainment; Founder and Former Co-owner, Guber-Peters
Entertainment Company; Former Chairman and CEO, Sony Pictures Entertainment
(SPE). Films directly produced and executive produced by Guber have received
more than 50 Academy Award nominations, including four times for Best Picture.
Among his personal producing credits are Witches of Eastwick, The Deep, Color
Purple, Midnight Express, The Jacket, Missing, Batman and Rain Man, which won
the Oscar for best picture. During Mr. Guber's tenure at SPE, the Motion Picture
Group achieved, over four years, an industry-best domestic box office market
share averaging 17%. During the same period, Sony Pictures led all competitors
with a remarkable total of 120 Academy Award nominations, the highest four-year
total ever for a single company. After leaving Sony in 1995, Mr. Guber formed
Mandalay Entertainment Group (“Mandalay Entertainment”) as a multimedia
entertainment vehicle in motion pictures, television, sports entertainment
and
new media. Mr. Guber is a full professor at the UCLA School of Theater, Film
and
Television and has been a member of the faculty for over 30 years. He also
can
be seen every Sunday morning on the American Movie Channel (AMC), as the co-host
of the critically acclaimed show, Sunday Morning Shootout. He received his
B.A.
from Syracuse University, and both a Masters and Juris Doctor degree in law
from
New York University and was recruited by Columbia Pictures Corporation from
NYU
where he pursued an M.B.A. degree. He is a member of the New York and California
Bars.
Paul
Schaeffer
. Mr. Schaeffer
has served on our Board of Directors since August 2007 as Vice-Chairman.
He is Vice Chairman, Chief Operating Officer and Co-Founder of the Mandalay
Entertainment. Along with Peter Guber, Mr. Schaeffer is responsible for all
aspects of the motion picture and television business, focusing primarily on
the
corporate and business operations of those entities. Prior to forming Mandalay
Entertainment, Mr. Schaeffer was the Executive-Vice President of Sony Pictures
Entertainment, overseeing the worldwide corporate operations for SPE including
Worldwide Administration, Financial Affairs, Human Resources, Corporate Affairs,
Legal Affairs and Corporate Communications. During his tenure, Mr. Schaeffer
also had supervisory responsibility for the $105 million rebuilding and
renovation of Sony Pictures Studios. Mr. Schaeffer is a member of the Academy
of
Motion Pictures, Arts, & Sciences. A veteran of 20 years of private law
practice, Mr. Schaeffer joined SPE from Armstrong, Hirsch and Levine, where
he
was a senior partner working with corporate entertainment clients. He spent
two
years as an accountant with Arthur Young & Company in Philadelphia. He
graduated from the University of Pennsylvania Law School and received his
accounting degree from Pennsylvania State University.
Robert
Zangrillo.
Mr. Zangrillo has served on our Board of Directors since November
2007. He is a 19-year veteran of the financial services, software
and Internet-based industries. Mr. Zangrillo is the founder, Chairman and Chief
Executive Officer of North Star Systems International (“North Star”), which
provides wealth management software to financial services institutions. Prior
to
joining North Star, Mr. Zangrillo was founder, Chairman and Chief Executive
Officer of InterWorld, Corp., a provider of eCommerce software applications.
Over the last 19 years, Mr. Zangrillo has held various positions including
Chairman, Chief Executive Officer, private equity investor, director and advisor
to numerous growth companies including ArcSight, Inc., Dick’s Sporting Goods
Inc. (NYSE: DKS), EarthLink, Inc. (NASDAQ: ELNK), HomeSpace (acquired by Lending
Tree International, Inc., NASDAQ: LTRE), InterWorld Corp. (acquired by The
Essar
Group), Imperium Renewables, Inc., Loudeye Corp. (acquired by Nokia, NYSE:
NOK),
Overture (acquired by Yahoo, NASDAQ: YHOO), Project PlayList, UGO Networks
(acquired by the Hearst Corporation), Ulta Salon, Cosmetics & Fragrance,
Inc. (NASDAQ:ULTA) and YOUcentric Inc. (acquired by JG Edwards, NASDAQ: ORCL).
Mr. Zangrillo also worked as an associate in the Investment Banking Division
of
Donaldson, Lufkin & Jenrette. He recently served as a member of the Council
on Foreign Relations, where he served on the Committee on Finance and Budget.
Mr. Zangrillo received a B.A. from the University of Vermont and an M.B.A.
from
Stanford University Graduate School of Business.
Richard
Spitz.
Mr. Spitz has served on our Board of Directors since November
2007. He is the head of Korn/Ferry International Global
Technology Markets where he is in charge of go-to market strategy across all
subsectors and regions within the technology market. Mr. Spitz has worked at
Korn/Ferry International since May 1996 where he has advised investors and
companies on leadership issues, talent management and senior executive
recruitment. From August 1987 through May 1996, Mr. Spitz worked at Paul,
Hastings, Janofsky and Walker. Mr. Spitz has served on and advises private
and
public company boards as well as on the Dean’s Special Task Force for New York
University Law School. He also currently serves on the Board of Advisors to
the
Harold Price Center for Entrepreneurial Studies at the Anderson School of
Business. Mr. Spitz received a BS from California State University, Northridge,
a J.D. from Tulane University Law School and an L.L.M. from New York University
Law School.
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
following table sets forth information concerning all compensation paid during
our fiscal year ended December 31, 2007 to our named executive officers:
Name
and Principal Position
|
|
Year
|
|
Salary
|
|
Bonus
|
|
Stock
Awards
|
|
Option
Awards
|
|
All
Other Compensation
|
|
Total
|
|
|
|
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
S. Ellin,
|
|
|
2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Chief
Executive
|
|
|
2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
Lefkowitz,
|
|
|
2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
-
|
|
President
|
|
|
2007
|
|
|
123,923
|
|
|
100,000
|
|
|
-
|
|
|
771,862
|
(1)
|
|
-
|
|
|
995,785
|
|
Ian
Aaron,
Chief
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
Officer of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twistbox
(2)
|
|
|
2007
|
|
|
396,538
|
(3)
|
|
-
|
|
|
-
|
|
|
3,048
|
(4)
|
|
23,888
|
|
|
423,474
|
|
(1)
We
valued the options for FAS 123R purposes utilizing the Black-Scholes method.
The
assumptions made for utilizing the Black-Scholes method were a volatility equal
to 75.2% and a discount rate equal to 3.89%.
(2)
Ian
Aaron became one of our executive officers in connection with the Merger. The
table reflects his compensation received as an executive officer of Twistbox
in
2007.
(3)
This
amount reflects Mr. Aaron’s salary reduction that occurred during the fourth
quarter of 2007.
(4)
This
amount was calculated using the provisions of FAS 123R for the calendar year
ended December 31, 2007. For a description of FAS 123R and the assumptions
used
in determining the value of the options, see “Management’s Discussion and
Analysis or Plan of Operation - Critical Accounting Policies - Stock Based
Compensation”.
On
June
28, 2007, James Lefkowitz was appointed our President pursuant to an employment
letter. Pursuant to such employment letter, his initial base salary was set
at
$250,000 per year. Additionally, he received a signing bonus of $100,000 and
is
eligible for bonus compensation at the discretion of the Board. In the event
that he is terminated without cause, meaning misconduct that harms the company,
conviction of a felony or a crime involving fraud or financial misconduct,
violation of our Code of Ethics, or violation of confidentiality obligations,
he
is eligible for severance equal to one month of base pay (determined at the
time
of termination) for each year of employment, up to a maximum of 12 months of
base pay. He is not eligible for severance if he resigns or is terminated for
cause.
Our
Board
of Directors granted Mr. Lefkowitz options to purchase 500,000 shares of our
common stock pursuant to the Mandalay Media, Inc. 2007 Employee, Director and
Consultant Plan on November 7, 2007 in connection with his employment as
President. The options have a 10-year term and are exercisable at a price of
$2.65 per share. One-third of the options were immediately exercisable upon
grant, an additional one-third become exercisable on June 28, 2008, and the
remaining one-third become exercisable on June 28, 2009.
On
January 17, 2006, Mr. Aaron was granted options to purchase 75,000 shares of
common stock of Twistbox, pursuant to the terms of the Twistbox 2006 Plan,
at $0.35 per share in connection with his employment agreement. The options
have
a term of 10 years. Upon consummation of the Merger, all of the options held
by
Mr. Aaron, which pursuant to the Merger became exercisable for 54,725 shares
of
Mandalay Common Stock, became immediately exercisable.
On
February 12, 2008, in connection with the Closing, Twistbox entered into the
Second Amendment to Employment Agreement (the “Second Amendment”), an amendment
to its existing letter employment agreement with Ian Aaron for his service
as
Chief Executive Officer of Twistbox, dated as of May 16, 2006, as amended by
that certain Amendment to Employment Agreement dated December 30, 2007 and
then
in effect. Pursuant to such employment agreement, as amended by the Second
Amendment (the “Employment Agreement”), Mr. Aaron shall serve in his role as CEO
until February 12, 2011, such term to thereafter renew upon mutual agreement
of
Twistbox and Mr. Aaron (to be determined on or about August 12, 2010), unless
earlier terminated pursuant to the Employment Agreement. Mr. Aaron’s Employment
Agreement provides that his base salary shall be at the annual rate of $350,000
from February 12, 2008 through February 11,
2009
,
$367,500
from February 12, 2009 through February
11,
2010,
and
$385,875 from February 12, 2010 through February 12, 2011. He is eligible for
an
annual cash bonus of up to 50% of base salary
based
upon the achievement of performance goals set by Twistbox’s board of directors,
a minimum of four weeks paid vacation, reimbursement of certain expenses, an
automobile allowance of $1,000 per month, and life insurance equal to two times
base salary. During the term of his employment and for 12 months thereafter,
Mr.
Aaron is prohibited from competing with the company directly or indirectly
by
participating in any business relating to Mobile Adult WAP, Adult MobileTV,
Adult Off-Deck Services, Mobile AVS Systems or Mobile Adult Advertising
Services, soliciting customers, or soliciting employees.
Upon
termination of Mr. Aaron’s employment as a result of disability or death, he is
entitled to receive all accrued but unpaid payments and benefits and any bonus
earned but unpaid. Upon termination of Mr. Aaron’s employment as a result of
cause, generally defined as willful misconduct having a material negative impact
on the company, indictment for, conviction of, or pleading guilty to a felony
or
any crime involving fraud, dishonesty or moral turpitude, failure to perform
duties or follow legal direction of Board of Directors in good faith, or any
uncured other material breach of the Employment Agreement, he is entitled to
receive all accrued but unpaid payments and benefits excluding any bonus earned
but unpaid. In addition, if Mr. Aaron’s employment is terminated by us without
cause or by Mr. Aaron for good reason, which is defined as material diminution
in title, position, authority, duties or reporting requirements unless
incapacitated, mandatory relocation to a principal place of employment greater
than 15 miles from current location, or any other material breach of the
Employment Agreement, then he is entitled to receive all accrued but unpaid
payments and benefits and any bonus earned but unpaid, and (i) continued payment
of base salary for a period equal to six months following the termination,
(ii)
a pro-rata bonus based on actual results achieved during the fiscal year of
termination, (iii) continued participation during the six month period following
termination in our group health plan, subject to certain conditions and
restrictions and (iv) immediate vesting of all outstanding stock options to
purchase our common stock.
In
addition, pursuant to the Second Amendment, Mr. Aaron received options on
February 12, 2008 pursuant to the Mandalay Media, Inc. 2007 Employee, Director
and Consultant Plan to purchase 600,000 shares of our common stock at an
exercise price of equal to the fair market value of the closing trading price
of
our common stock on February 12, 2008. One-third of the options vested on
February 12, 2008, with the remaining amount vesting annually in equal
installments over a two-year period thereafter. All of such options accelerate
upon a change of control or sale of all or substantially all of the assets
of
Mandalay.
Other
than as described above, we have no plans or arrangements with respect to
remuneration received or that may be received by our named executive officers
to
compensate such officers in the event of termination of employment (as a result
of resignation, retirement, change of control) or a change of responsibilities
following a change of control.
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
The
following table presents information regarding outstanding options held by
certain of our executive officers as of December 31, 2007.
Name
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
|
Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
Option
Exercise Price
($)
|
|
Option
Expiration
Date
|
|
Robert
S. Ellin,
Chief
Executive Officer
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
James
Lefkowitz,
President
(1)
|
|
|
166,667
|
|
|
333,333
|
|
|
—
|
|
|
2.65
|
|
|
11/7/17
|
|
Ian
Aaron,
Chief
Executive Officer of Twistbox
(2)
|
|
|
54,725
|
|
|
—
|
|
|
—
|
|
|
.35
|
|
|
1/17/16
|
|
(1)
Mandalay’s Board of Directors granted Mr. Lefkowitz the options pursuant to the
Mandalay Media, Inc. 2007 Employee, Director and Consultant Plan on November
7,
2007 in connection with his employment as President of Mandalay. The options
have a 10 year term and are exercisable at a price of $2.65 per share. One-third
of the options were immediately exercisable upon grant, an additional one-third
become exercisable on June 28, 2008 and the remaining one-third become
exercisable on June 28, 2009.
(2)
Twistbox’s
board of directors granted Mr. Aaron the options pursuant to the terms of the
Twistbox 2006 Plan on January 17, 2006 in connection with his employment as
Chief Executive Officer of Twistbox. The options have a 10-year term and are
exercisable at a price of $0.35 per share. Upon consummation of the Merger,
all
of the options held by Mr. Aaron, became immediately exercisable for 54,725
shares of Mandalay Common Stock.
DIRECTOR
COMPENSATION
The
following table presents information regarding outstanding compensation paid
to
our directors as of December 31, 2007.
Name
|
|
Fees Earned or
Paid in Cash
($)
|
|
Option Awards
($)
|
|
All
Other
Compensation
($)
|
|
Total ($)
|
|
Bruce
Stein
|
|
$
|
25,641
|
|
|
771,862
|
(1)
|
|
-
|
|
$
|
797,503
|
|
Robert
Zangrillo
|
|
$
|
-
|
|
|
771,862
|
(2)
|
|
-
|
|
$
|
771,862
|
|
Richard
Spitz
|
|
$
|
-
|
|
|
145,634
|
(3)
|
|
-
|
|
$
|
145,634
|
|
Adi
McAbian (4)
|
|
$
|
-
|
|
|
-
|
|
|
-
|
|
$
|
-
|
|
(1)
Mandalay’s Board of Directors granted Mr. Stein the options pursuant to the
Mandalay Media, Inc. 2007 Employee, Director and Consultant Plan on November
7,
2007 in connection with services provided to Mandalay. The options have a
10-year term and are exercisable at a price of $2.65 per share. One-third of
the
options were immediately exercisable upon grant, an additional one-third become
exercisable on the first anniversary of the date of grant and the remaining
one-third become exercisable on the second anniversary of the date of
grant.
(2)
Mandalay’s Board of Directors granted Mr. Zangrillo the options pursuant to the
Mandalay Media, Inc. 2007 Employee, Director and Consultant Plan on November
7,
2007 in connection with services provided to Mandalay. The options have a
10-year term and are exercisable at a price of $2.65 per share. One-third of
the
options were immediately exercisable upon grant, an additional one-third become
exercisable on the first anniversary of the date of grant and the remaining
one-third become exercisable on the second anniversary of the date of
grant.
(3)
Mandalay’s Board of Directors granted Mr. Spitz the options pursuant to the
Mandalay Media, Inc. 2007 Employee, Director and Consultant Plan on November
14,
2007 in connection with services provided to Mandalay. The options have a
10-year term and are exercisable at a price of $2.50 per share. One-third of
the
options were immediately exercisable upon grant, an additional one-third become
exercisable on the first anniversary of the date of grant and the remaining
one-third become exercisable on the second anniversary of the date of
grant.
(4)
Mr.
McAbian became a member of our Board of Directors in connection with the Merger.
He was not a director of Twistbox, but did receive compensation for his services
as an executive officer of Twistbox in 2007, which is not reflected in this
table.
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Mandalay
On
September 14, 2006, we entered into a management agreement (the “Management
Agreement”) with Trinad Management, an affiliate of Trinad Capital Master Fund,
which is one of our principal stockholders. Pursuant to the terms of the
Management Agreement, which is for a term of five years, Trinad Management
will
provide certain management services, including without limitation the sourcing,
structuring and negotiation of a potential business combination transaction
involving the company. We have agreed to pay Trinad Management a management
fee
of $90,000 per quarter, plus reimbursement of all expenses reasonably incurred
by Trinad Management in connection with the provision of management services.
Either party may terminate with prior written notice. However, in the event
the
company terminates the Management Agreement, we shall pay to Trinad Management
a
termination fee of $1,000,000. Management fee expenses for the year ended
December 31, 2006 totaled $107,000 and for the year ended December 31, 2007
totaled $360,000.
In
addition, Trinad Capital Master Fund beneficially owns 9,400,000 shares of
Mandalay, which consists of 9,300,000 shares of Mandalay Common Stock and
100,000 shares of Mandalay Common Stock issuable upon conversion of 100,000
shares of Series A Convertible Preferred Stock held by Trinad Management. Robert
Ellin and Jay Wolf are the managing members of Trinad Management.
Twistbox
Twistbox
engages in various business relationships with its shareholders and officers
and
their related entities. The significant relationships are as
follows:
Lease
of Premises
Twistbox
leases its primary offices in Los Angeles, California from Berkshire Holdings,
LLC, a company with common ownership by officers of Twistbox. Amounts paid
in
connection with this lease were $314,000 and $213,000 for the years ended March
31, 2007 and 2006 respectively.
Twistbox
is party to an oral agreement with a person affiliated with Twistbox with
respect to a lease of an apartment in London. Amounts paid in connection with
this lease were $59,000 and $48,000 for the years ended March 31, 2007 and
2006
respectively.
In
addition, Twistbox paid the costs of a leased apartment in Sherman Oaks,
California that was rented by an officer of Twistbox. The apartment was used
to
accommodate employees visiting from other locations. Amounts paid in connection
with this lease were $18,000 and $2,000 for the years ended March 31, 2007
and
2006 respectively. In August 2007, Twistbox entered into a one-year written
agreement to rent an apartment in the same building at a cost of $1,500 per
month.
Loans
Twistbox
had a note payable to an affiliated company, PowerSports Video Productions
CCT,
Inc., as of March 31, 2007 for $250,000 (the “PowerSports Note”). The
PowerSports Note had a maturity date of March 28, 2008 and carried interest
at
8.25%. The PowerSports Note was subsequently cancelled. In addition, Twistbox
had an advance from an affiliated company, PowerSports Video Productions CCT,
Inc., as of March 31, 2006 for $1,335, inclusive of accrued interest. The
advance did not have a specific maturity date and carried interest at 7.73%.
Interest expense paid or payable to PowerSports Video Productions CCT was
$18,000 and $80,000, for the years ended March 31, 2007 and 2006 respectively.
Twistbox
is party to a loan from East-West Bank, which originated on January 27, 2006
in
an amount of $161,000. Twistbox also entered into a loan agreement with an
affiliated company, PowerSports Video Productions CCT,
effective
on the same date for the same amount. The bank agreement was secured with a
motor vehicle operated exclusively by an officer of Twistbox. The interest
income under the loan to an affiliate completely offset interest expense
incurred under the bank loan. As of March 31, 2007, $106,000 was due to Twistbox
under this loan, and the amount payable under the bank loan was $102,000.
Amounts paid for the years ended March 31, 2007 and 2006 were $59,000 and,
$10,000, respectively, including interest of $8,000 and $1,000, respectively.
Amounts received for the years ended March 31, 2007 and 2006 were $55,000 and
$10,000, respectively, including interest of $8,000 and $1,000, respectively.
The agreement has subsequently been terminated.
Dealings
with Content Provider
Two
officers of Twistbox, Camill Sayadeh and Adi McAbian, are also members of the
board of directors of Peach International, with which Twistbox has a Content
Provider Agreement. Amounts paid or payable under this agreement to Peach
International in the years ended March 31, 2007 and 2006 were $165,000 and
$203,000, respectively.
DESCRIPTION
OF SECURITIES
Common
Stock
We
are
authorized to issue up to 100,000,000 shares of common stock, par value $0.0001
per share, of which 32,048,365 shares were outstanding as of the Closing.
Holders of our common stock are entitled to one vote for each share held of
record on each matter submitted to a vote of stockholders. Subject to the prior
rights of any series of preferred stock which may from time to time be
outstanding, holders of our common stock are entitled to receive dividends
if,
as and when declared by our Board of Directors out of funds legally available
therefor and, upon the liquidation, dissolution, or winding up of the company,
are entitled to share ratably in all assets of the company available for
distribution to its stockholders. Holders of our common stock have no preemptive
rights and have no rights to convert their common stock into any other
securities.
Preferred
Stock
.
Our
Board
of Directors is authorized, without further action by the stockholders, to
fix
the designations, powers, preferences and other rights and the qualifications,
limitations or restrictions of, and cause Mandalay to issue, up to 1,000,000
shares of preferred stock, par value $0.0001 per share (“Preferred Stock”), in
one or more series. There are currently 100,000 shares of Preferred Stock
designated as Series A Convertible Preferred Stock (“Series A Preferred Stock”),
of which 100,000 shares were issued and outstanding as of the Closing. Unless
otherwise provided by law, the holders of Series A Preferred Stock vote together
with the holders of our common stock as a single class on all matters submitted
for a vote of the holders of our common stock; each share of Series A Preferred
Stock entitles the holder thereof to cast one vote on an as-converted basis,
subject to adjustment as set forth in our certificate of
incorporation.
If
our
Board of Directors declares a dividend payable upon our common stock, the
holders of the outstanding shares of Series A Preferred Stock are entitled
to
the same amount of dividends on an as-converted basis (rounded down to the
nearest whole share). Upon the liquidation, dissolution, or winding up of
Mandalay, the holders of Series A Preferred Stock are entitled to have set
apart
for them or to be paid, out of the assets of the company available for
distribution to stockholders, before any distribution or payment is made with
respect to any shares of common stock, an amount equal to the greater of (i)
$10.00 per share of Series A Preferred Stock (subject to adjustment as set
forth
in our certificate of incorporation) and (ii) the amount that would have been
payable as on as-converted basis (rounded down to the nearest whole share)
immediately prior to such event.
Each
holder of Series A Preferred Stock may elect after any such transaction is
consummated, to treat any of the following transactions as a dissolution or
winding up of the company: a consolidation or merger of the company with or
into
any other corporation, a sale of all or substantially all of the assets of
the
company, the issuance and/or sale by the company in a single or integrated
transaction of shares of common stock (or securities convertible into shares
of
common stock) constituting a majority of the shares of common stock outstanding
immediately following such issuance and any other form of acquisition or
business combination where the company is the target of such acquisition and
where a change in control occurs
Anti-Takeover
Provisions
The
provisions of Delaware law and of our certificate of incorporation and by-laws
discussed below could discourage or make it more difficult to accomplish a
proxy
contest or other change in our management or the acquisition of control by
a
holder of a substantial amount of our voting stock. It is possible that these
provisions could make it more difficult to accomplish, or could deter,
transactions that stockholders may otherwise consider to be in their best
interests or our best interests.
Business
Combinations
.
We are
subject to the provisions of Section 203 of the General Corporation Law of
the State of Delaware (“DGCL”). Section 203 prohibits a publicly-held
Delaware corporation from engaging in a “business combination” with an
“interested stockholder” for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A “business
combination” includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to specified
exceptions, an “interested stockholder” is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more
of
the corporation’s voting stock.
Limitation
of Liability; Indemnification
.
Our
certificate of incorporation contains provisions permitted under the DGCL
relating to the liability of directors. The provisions eliminate a director’s
liability for monetary damages for a breach of fiduciary duty as a director,
except in certain circumstances including involving wrongful acts, such as
the
breach of a director’s duty of loyalty or acts or omissions which involve
intentional misconduct or a knowing violation of law, or for any transaction
from which the director derived an improper personal benefit. The limitation
of
liability described above does not alter the liability of our directors and
officers under federal securities laws. Furthermore, our certificate of
incorporation and by-laws contain provisions to indemnify our directors and
officers to the fullest extent permitted by the DGCL. These provisions do not
limit or eliminate our right or the right of any stockholder of ours to seek
non-monetary relief, such as an injunction or rescission in the event of a
breach by a director or an officer of his duty of care to us. We believe that
these provisions will assist us in attracting and retaining qualified
individuals to serve as directors.
Preferred
Stock Issuances
.
As
described above, our certificate of incorporation provides that, without
stockholder approval, we can issue up to 1,000,000 shares of preferred stock
with rights and preferences determined by our Board of Directors.
MARKET
PRICE OF AND DIVIDENDS ON COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Market
Information
As
of
February 11, 2008, the closing price of our common stock was
$4.60.
Our
common stock is quoted on the OTC Bulletin Board under the symbol “MNDL.OB.” Any
investor who purchases our common stock is not likely to find any liquid trading
market for our common stock and there can be no assurance that any liquid
trading market will develop.
The
following table reflects the high and low closing quotations of our common
stock
for the years ended December 31, 2006 and December 31, 2007.
Fiscal
2006
|
|
|
High
|
|
|
Low
|
|
Fiscal
2007
|
|
|
High
|
|
|
Low
|
|
First
quarter
|
|
|
N/A
|
|
|
N/A
|
|
First
quarter
|
|
$
|
2.50
|
|
$
|
1.75
|
|
Second
quarter
|
|
$
|
5.75
|
|
$
|
0.40
|
|
Second
quarter
|
|
$
|
3.00
|
|
$
|
1.90
|
|
Third
quarter
|
|
$
|
2.05
|
|
$
|
1.25
|
|
Third
quarter
|
|
$
|
4.00
|
|
$
|
2.25
|
|
Fourth
quarter
|
|
$
|
2.05
|
|
$
|
2.00
|
|
Fourth
quarter
|
|
$
|
4.50
|
|
$
|
2.30
|
|
There
has
never been a public trading market for any of our securities other than our
common stock.
Holders
As
of
February 12, 2008, there were 534 holders of record of our common stock. There
were also an undetermined number of holders who hold their stock in nominee
or
"street" name.
Dividends
We
have
not declared cash dividends on our common stock since our inception and we
do
not anticipate paying any cash dividends in the foreseeable future.
Equity
Compensation Plan Information
The
following table sets forth information concerning our equity compensation plans
as of December 31, 2007.
Plan
Category
|
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
(a)
|
|
Weighted-average
exercise price of outstanding options, warrants and
rights
(b)
|
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
(c)
|
|
Equity
compensation plans approved by security holders
|
|
|
1,600,000
|
|
$
|
2.64
|
|
|
1,400,000
|
|
Equity
compensation plans not approved by security holders
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Total
|
|
|
1,600,000
|
|
$
|
2.64
|
|
|
1,400,000
|
|
LEGAL
PROCEEDINGS
As
of
this date of filing this Current Report on Form 8-K, we are not a party to
any
litigation that we believe would have a material adverse effect on
us.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS
On
May
11, 2007, we were advised by Most & Company, LLP (“Mostco”) that Mostco had
combined its practice into Raich Ende Malter & Co. LLP (“Raich Ende”).
Mostco therefore effectively resigned as our independent certified public
accounting firm. Effective May 11, 2007, we engaged Raich Ende as our
independent certified public accounting firm to audit our financial
statements. Raich Ende was not consulted on any matter described in Item
304(a)(2) of Regulation S-B prior to May 11, 2007. The resignation of Mostco
and
appointment of Raich Ende was approved by our Board of Directors.
The
reports of Mostco on our financial statements for the years ended December
31,
2006 and 2005 contained no adverse opinions or disclaimers of opinion, nor
were
they qualified or modified as to uncertainty, audit scope or accounting
principles.
In
connection with the audits for the fiscal years ended December 31, 2006 and
2005
and during the subsequent interim period through May 11, 2007, there were no
disagreements between us and Mostco on any matter of accounting principles
or
practices, financial statement disclosure, or auditing scope or procedures,
which disagreements, if not resolved to Mostco’s satisfaction, would have
caused Mostco to make reference to the subject matter of the disagreement in
connection with its reports.
In
connection with the audit of the fiscal years ended December 31, 2006 and 2005
and during the subsequent interim period through May 11, 2007, Mostco did not
advise us that: internal controls necessary for us to develop reliable financial
statements did not exist; information had come to its attention that led
them to no longer be able to rely on our management's representations or
made it unwilling to be associated with the financial statements prepared
by our management; there was a need to expand significantly the scope
of its audit, or that information had come to its attention during
such time periods that, if further investigated, might materially impact the
fairness or reliability of either a previously issued audit report or the
underlying financial statements, or the financial statements issued or to be
issued covering the fiscal periods subsequent to the date of the most recent
financial statements covered by an audit report; or information had come
to its attention that it had concluded materially impacted the
fairness or reliability of either (i) a previously issued audit report or the
underlying financial statements, or (ii) the financial statements issued or
to
be issued covering the fiscal periods subsequent to the date of the most recent
financial statements covered by an audit report.
Prior
to
the engagement of Raich Ende, we had no consultations or discussions with Raich
Ende regarding the application of accounting principles to a specific completed
or contemplated transaction, or the type of audit opinion that might be rendered
by them on or financial statements. Further, prior to their engagement, we
received no oral or written advice from Raich Ende of any kind.
RECENT
SALES OF UNREGISTERED SECURITIES
On
November 7, 2007, we entered into non-qualified stock option agreements with
certain of our directors and officers (the “Option Holders”) pursuant to the
2007 Employee, Director and Consultant Plan (the “Mandalay 2007 Plan”) whereby
we issued options (the “Options”) to purchase an aggregate of 1,500,000 shares
of our common stock. The Option Holders include James Lefkowitz, our President,
Robert Zangrillo, a director of the company, and Bruce Stein, a director of
the
company and Chief Operating Officer, each of whom was granted Options to
purchase 500,000 shares of our common stock in connection with services provided
to Mandalay. The Options have a ten year term and are exercisable at a price
of
$2.65 per share. The Options for Messrs. Zangrillo and Stein become exercisable
over a two-year period, with one-third of the Options granted vesting
immediately upon grant, an additional one-third vesting on the first anniversary
of the date of grant, and the remaining one-third on the second anniversary
of
the date of grant. The Options for Mr. Lefkowitz also become exercisable over
a
two-year period, with one-third of the Options granted vesting immediately
upon
grant, an additional one-third vesting on June 28, 2008, and the remainder
vesting on June 28, 2009. The Options were granted pursuant to the exemption
from registration permitted under Rule 506 of Regulation D of the Securities
Act.
On
November 14, 2007, we appointed Richard Spitz as a director and granted Mr.
Spitz options to purchase an aggregate of 100,000 shares of our common stock,
pursuant to the Mandalay 2007 Plan. The options have a ten year term and are
exercisable at a price of $2.50 per share. The options are exercisable over
a
two-year period, with one-third of the options granted vesting immediately
upon
grant, an additional one-third vesting on the first anniversary of the date
of
grant and the remaining one-third vesting on the second anniversary of the
date
of grant. The options were granted pursuant to the exemption from registration
permitted under Rule 506 of Regulation D of the Securities Act.
On
January 2, 2008, we granted Mr. Stein additional options to purchase 50,000
shares of our common stock. The options have a ten-year term and are exercisable
at a price of $4.65 per share. One-third of the options granted were immediately
exercisable upon grant, an additional one-third will vest on November 7, 2008
and the remaining one-third will vest on November 7, 2009. The options were
granted pursuant to the exemption from registration permitted under Rule 506
of
Regulation D of the Securities Act.
As
described
above, pursuant to the Merger, we issued
10,180,291
shares
of Mandalay common stock as part of the Merger Consideration in connection
with
the Merger. Such issuance was made
pursuant
to the exemption from registration permitted under Section 4(2) of the
Securities Act.
In
addition, also in connection with the Merger, on February 12, 2008, we entered
into non-qualified stock option agreements with certain of our directors and
officers under the Mandalay 2007 Plan, as amended, whereby we issued options
to
purchase an aggregate of 1,700,000 shares of our common stock. Ian Aaron, Chief
Executive Officer of Twistbox and a director of Mandalay, Russell Burke, Chief
Financial Officer of Twistbox, David Mandell, Executive Vice-President, General
Counsel and Corporate Secretary of Twistbox and Patrick Dodd, Senior Vice of
Worldwide Sales and Marketing of Twistbox, each of whom received an option
to
purchase 600,000 shares, 350,000 shares, 450,000 shares and 300,000 shares,
respectively, of our common stock. The options have a ten year term and are
exercisable at a price per share equal to the fair market value of our common
stock on February 12, 2008. The options become exercisable over a two-year
period, with one-third of the options granted vesting immediately upon grant,
an
additional one-third vesting on the first anniversary of the date of grant,
and
the remaining one-third on the second anniversary of the date of grant. The
options were granted pursuant to the exemption from registration permitted
under
Rule 506 of Regulation D of the Securities Act.
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
Our
certificate of incorporation and by-laws provide that each person who was or
is
made a party or is threatened to be made a party to or is otherwise involved
(including, without limitation, as a witness) in any action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the
fact
that he or she is or was a director or an officer of Mandalay Media, Inc. or
is
or was serving at our request as a director, officer, or trustee of another
corporation, or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan, whether the basis
of
such proceeding is alleged action in an official capacity as a director, officer
or trustee or in any other capacity while serving as a director, officer or
trustee, shall be indemnified and held harmless by us to the fullest extent
authorized by the DGCL against all expense, liability and loss (including
attorneys’ fees, judgments, fines, excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such.
Section
145 of the DGCL permits a corporation to indemnify any director or officer
of
the corporation against expenses (including attorney’s fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred in connection
with any action, suit or proceeding brought by reason of the fact that such
person is or was a director or officer of the corporation, if such person acted
in good faith and in a manner that he reasonably believed to be in, or not
opposed to, the best interests of the corporation, and, with respect to any
criminal action or proceeding, if he or she had no reason to believe his or
her
conduct was unlawful. In a derivative action, (i.e., one brought by or on behalf
of the corporation), indemnification may be provided only for expenses actually
and reasonably incurred by any director or officer in connection with the
defense or settlement of such an action or suit if such person acted in good
faith and in a manner that he or she reasonably believed to be in, or not
opposed to, the best interests of the corporation, except that no
indemnification shall be provided if such person shall have been adjudged to
be
liable to the corporation, unless and only to the extent that the court in
which
the action or suit was brought shall determine that the defendant is fairly
and
reasonably entitled to indemnity for such expenses despite such adjudication
of
liability.
Pursuant
to Section 102(b)(7) of the DGCL, our certificate of incorporation eliminates
the liability of a director to us or our stockholders for monetary damages
for
such a breach of fiduciary duty as a director, except for liabilities arising:
from any breach of the director’s duty of loyalty to us or our stockholders;
from acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law; under Section 174 of the DGCL from any
transaction from which the director derived an improper personal
benefit.
Item
2.03 Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
As
part
of the Merger, Mandalay agreed to guarantee up to $8,250,000 of
Twistbox’s outstanding debt to ValueAct, with certain amendments.
On July 30, 2007, Twistbox had entered into a Securities Purchase
Agreement by and among Twistbox, the Subsidiary Guarantors, as defined therein,
and ValueAct, pursuant to which ValueAct
purchased a note in the amount of $16,500,000 (the "Note") and a
warrant which entitled ValueAct to purchase from Twistbox up to a total of
2,401,747 shares of Twistbox’s common stock (the “Warrant”). In
connection therewith, Twistbox and ValueAct had also entered into
a Guarantee and Security Agreement by and among Twistbox, each of the
subsidiaries of Twistbox, the Investors, as defined therein, and ValueAct,
as
collateral agent, pursuant to which the parties agreed that the Note would
be
secured by substantially all of the assets of Twistbox and its subsidiaries.
In
connection with the Merger, the Warrant was terminated and we issued
two warrants in place thereof to ValueAct to purchase shares of our
common stock. One of such warrants entitles ValueAct to purchase up to a total
of 1,092,622 shares of our common stock at an exercise price of
$7.55 per share. The other warrant entitles ValueAct to purchase up to a total
of 1,092,621 shares of our common stock at an initial exercise
price of $5.00 per share, which, if not exercised in full by February 12, 2009,
will be permanently increased to an exercise price of $7.55 per share.
Both warrants expire on July 30, 2011. We also entered into a Guaranty
with ValueAct whereby Mandalay agreed to guarantee Twistbox’s payment to
ValueAct of up to $8,250,000 of principal under the Note in accordance with
the
terms, conditions and limitations contained in the Note. The financial covenants
of the Note were also amended, pursuant to which Twistbox is
required maintain a cash balance of not less than $2,500,000 at all
times and Mandalay is required to maintain a cash balance of not
less than $4,000,000 at all times.
Item
3.02 Unregistered Sales of Equity Securities.
As
described above in Item 2.01 of this Current Report on Form 8-K, which is
incorporated herein by reference, Mandalay issued
10,180,291
shares
of Mandalay common stock as part of the Merger Consideration in connection
with
the Merger.
9,466,720 of
such shares are subject to an 18-month lock-up period beginning
on February 12, 2008, during which time they shall not be sold or otherwise
transferred without the prior written consent of Mandalay.
Such
issuance was made
pursuant
to the exemption from registration permitted under Section 4(2) of the
Securities Act.
Also
in
connection with the Merger, as described above in Item 2.01 of this Current
Report on Form 8-K, which is incorporated herein by reference, on February
12,
2008, we granted options to purchase an aggregate of 1,700,000 shares of our
common stock to certain of our directors and officers. The options have a
10-year term and are exercisable at a price per share equal to the fair market
value of our common stock on February 12, 2008. We intend to enter into
lock-up agreements with all of such option holders pursuant to which all of
the shares subject to such options will be subject to an
18-month lock-up period commencing as of February 12, 2008, during
which time they shall not be sold or otherwise transferred without the prior
written consent of Mandalay, and in exchange will grant piggy-back
registration rights with respect to all such shares. The options were granted
pursuant to the exemption from registration permitted under Rule 506 of
Regulation D of the Securities Act.
Item
5.02 Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain
Officers.
(d)
On February 12, 2008, Mandalay increased its
the
size
of its Board of Directors to eleven members and appointed Ian Aaron and Adi
McAbian as directors of Mandalay, as set forth in
Item
2.01
of this Current Report on Form 8-K, which is incorporated herein by
reference.
There
are
no arrangements or understandings between each of Messrs. Aaron or McAbian
and
any other person pursuant to which each was appointed as a director of Mandalay.
There are no transactions to which Mandalay is a party and in which Messrs.
Aaron or McAbian have material interests that are required to be disclosed
under
Item 404(a) or (b) of Regulation S-B. Messrs. Aaron and McAbian have not
previously held any positions in Mandalay, and do not have family relations
with
any directors or executive officers of Mandalay.
As
described above in Item 2.01 of this Current Report on Form 8-K, under the
heading “Executive Compensation,” which Item 2.01 is incorporated herein by
reference, Twistbox entered into the Second Amendment to Employment Agreement,
which amended its existing employment agreement with Mr. Aaron regarding his
service as Chief Executive Officer.
(e) In
connection with the Merger, we amended the Mandalay 2007 Plan (the “Plan
Amendment”) to increase the number of shares
of
our common stock
that
may
be issued under the Mandalay 2007 Plan to 7,000,000 shares and to increase
the
shares with respect to which stock rights may be granted in any fiscal year
to
600,000 shares. All other terms of the plan remain in full force and effect.
The
Plan Amendment is attached hereto as Exhibit 10.2 and incorporated herein by
reference.
Pursuant
to the Merger, we assumed the Twistbox 2006 Plan and the options
issued under the plan to purchase an aggregate of 2,463,472 shares of our common
stock. We cannot grant any further options under the plan. The Twistbox 2006
Plan is attached hereto as Exhibit 10.3 and incorporated herein by reference.
Item
5.06 Change in Shell Company Status.
We
ceased
to be a shell company on February 12, 2008, as described in Item 2.01 of this
Current Report on Form 8-K, which is incorporated herein by
reference.
Item
9.01 Financial Statements and Exhibits.
(a)
Financial
Statements of Businesses Acquired
.
The
audited financial statements of Twistbox for fiscal years ended March 30, 2006
through March 31, 2007 are incorporated herein by reference to Exhibit 99.1
to
this Current Report. The unaudited financial statements of Twistbox for the
quarterly periods ended September 30, 2006 and September 30, 2007 are
incorporated herein by reference to Exhibit 99.2 to this Current Report on
Form
8-K.
(b)
Pro
Forma Financial Informatio
n.
Immediately
prior to the Merger on February 12, 2008, the Registrant had no material
operations, assets, or liabilities. Accordingly, for all meaningful purposes,
the audited financial statements for Twistbox which are filed with this Current
Report on Form 8-K comprise the Registrant’s pro forma financials as well.
Preparation of unaudited pro forma financials other than the financial
statements filed herewith would have imposed a substantial burden upon the
Registrant as the surviving entity at this time without any meaningful
additional disclosure.
(c)
Shell
company transactions
.
Reference
is made to the disclosure set forth under Item 9.01(a) and 9.01(b) of this
Current Report on Form 8-K, which disclosure is incorporated herein by
reference.
(d)
Exhibits.
See
attached Exhibit Index.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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|
|
|
MANDALAY
MEDIA, INC.
|
|
|
|
Dated
: February 12, 2008
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By:
|
/s/ Jay
A. Wolf
|
|
Jay
A. Wolf
|
|
Chief
Financial Officer
|
EXHIBIT
INDEX
|
|
Description
|
|
|
|
2.1
|
|
Agreement
and Plan of Merger, dated as of December 31, 2007, by and among
Mandalay
Media, Inc., Twistbox Acquisition, Inc., Twistbox Entertainment,
Inc. and
Adi McAbian and Spark Capital, L.P. Incorporated by reference to
Exhibit
2.1 of the Registrant’s Current Report on Form 8-K (File No.000-10039),
filed with the Commission on January 2, 2008.
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|
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2.2
|
|
Amendment
to Agreement and Plan of Merger, dated as of February 12, 2008, by
and
among Mandalay Media, Inc., Twistbox Acquisition, Inc., Twistbox
Entertainment, Inc. and Adi McAbian and Spark Capital, L.P.
|
3.1
|
|
Certificate
of Incorporation of the Registrant. Incorporated by reference to
Exhibit
3.1 of the Registrant’s Current Report on Form 8-K (File No. 000-10039),
filed with the Commission on November 14, 2007.
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|
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3.2
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|
Bylaws
of the Registrant. Incorporated by reference to Exhibit 3.2 of the
Registrant’s Current Report on Form 8-K (File No. 000-10039), filed with
the Commission on November 14, 2007.
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4.1
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Senior
Secured Note, dated July 30, 2007, by and between Twistbox and ValueAct
SmallCap Master Fund, L.P.
|
|
|
|
4.2
|
|
Class
A Warrant, dated July 30, 2007, issued to ValueAct SmallCap Master
Fund,
L.P.
|
|
|
|
4.3
|
|
Warrant
dated February 12, 2008 issued to ValueAct SmallCap Master Fund,
L.P.
(fixed exercise price)
|
|
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|
4.4
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|
Warrant
dated February 12, 2008 issued to ValueAct SmallCap Master Fund,
L.P.
(adjusting exercise price)
|
|
|
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4.5
|
|
Amendment
and Waiver to Senior Secured Note, dated February 12, 2008, by and
between
Twistbox and ValueAct SmallCap Master Fund, L.P.
|
|
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10.1
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|
2007
Employee, Director and Consultant Stock Plan. Incorporated by reference
to
Exhibit 10.2 of the Registrant’s Current Report on Form 8-K (File No.
000-10039), filed with the Commission on November 14,
2007.
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|
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10.1.1
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|
Form
of Non-Qualified Stock Option Agreement for the 2007 Employee, Director
and Consultant Stock Plan. Incorporated by reference to Exhibit 10.3
of
the Registrant’s Current Report on Form 8-K (File No. 000-10039), filed
the Commission on November 14, 2007.
|
10.2
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Amendment
to 2007 Employee, Director and Consultant Stock Plan.
|
|
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|
10.3
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|
Twistbox
2006 Stock Incentive Plan.
|
|
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10.3.1
|
|
Form
of Stock Option Agreement for Twistbox 2006 Stock Incentive
Plan.
|
|
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10.4
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Securities
Purchase Agreement, dated July 30, 2007, by and among Twistbox
Entertainment, Inc., the Subsidiary Guarantors and ValueAct SmallCap
Master Fund, L.P.
|
|
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10.5
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|
Guarantee
and Security Agreement, dated July 30, 2007 by and among Twistbox
Entertainment, Inc., each of the Subsidiaries party thereto, the
Investor
party thereto and ValueAct SmallCap Master Fund, L.P.
|
|
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10.6
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Control
Agreement, dated July 30, 2007, by and among Twistbox Entertainment.
Inc.
and ValueAct SmallCap Master Fund, L.P. to East West
Bank.
|
|
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10.7
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|
Trademark
Security Agreement, dated July 30, 2007, by Twistbox, in favor of
ValueAct
SmallCap Master Fund, L.P.
|
|
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10.8
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Copyright
Security Agreement, dated July 30, 2007, by Twistbox in favor of
ValueAct
SmallCap Master Fund, L.P.
|
|
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10.9
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Guaranty
given as of February 12, 2008, by Mandalay Media, Inc. to ValueAct
SmallCap Master Fund, L.P.
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|
|
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10.10
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Termination
Agreement, dated as of February 12, 2008, by and between Twistbox
Entertainment, Inc. and ValueAct SmallCap Master Fund, L.P.
|
|
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10.11
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|
Waiver
to Guarantee and Security Agreement, dated February 12, 2008, by
and
between Twistbox Entertainment, Inc. and ValueAct SmallCap Master
Fund,
L.P.
|
|
|
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10.12
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|
Standard
Industrial/Commercial Multi-Tenant Lease, dated July 1, 2005, by
and
between Berkshire Holdings, LLC and The WAAT Corp.
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|
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10.13
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|
Letter
Agreement, dated May 16, 2006, between The WAAT Corp. and Adi
McAbian.
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10.14
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|
Amendment
to Employment Agreement by and between Twistbox Entertainment, Inc.
and
Adi McAbian, dated as of December 31, 2007.
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|
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10.15
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|
Second
Amendment to Employment Agreement, dated February 12, 2008, by and
between
Twistbox Entertainment, Inc. and Adi
McAbian.
|
10.16
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|
Letter
Agreement, dated May 16, 2006 between The WAAT Corp. and Ian Aaron.
|
|
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10.17
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|
Amendment
to Employment Agreement, by and between Twistbox Entertainment, Inc.
and
Ian Aaron, dated as of December 31, 2007.
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|
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10.18
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|
Second
Amendment to Employment Agreement by and between Twistbox Entertainment,
Inc. and Ian Aaron, dated February 12, 2008.
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|
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10.19
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Employment
Agreement, dated May 9, 2006, between Charismatix and Eugen Barteska.
|
|
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10.20
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|
Employment
Agreement, dated June 5, 2006, between The WAAT Corp. and David
Mandell.
|
|
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10.21
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|
First
Amendment to Employment Agreement, by and between Twistbox Entertainment,
Inc. and David Mandell, dated February 12, 2008.
|
|
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10.22
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|
Employment
Agreement, dated December 11, 2006 between Twistbox and Russell
Burke.
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|
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10.23
|
|
First
Amendment to Employment Agreement by and between Twistbox Entertainment,
Inc. and Russell Burke, dated February 12, 2008.
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|
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10.24
|
|
Directory
Agreement, dated as of May 1, 2003, between Vodafone Global Content
Services Limited and The WAAT Corporation.*
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|
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|
10.25
|
|
Contract
Acceptance Notice - Master Global Content Reseller Agreement by Vodafone
Hungary Ltd.
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|
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10.26
|
|
Master
Global Content Agency Agreement, effective as of December 17, 2004,
between Vodafone Group Services Limited and The WAAT Media
Corporation.*
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10.27
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|
Letter
of Amendment, dated February 27, 2007, by and between WAAT Media
Corporation and Vodafone UK Content Services Limited.*
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|
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10.28
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|
Content
Schedule, dated December 17, 2004, by and between WAAT Media Corporation
and Vodafone Group Services Limited.*
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10.29
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|
Contract
Acceptance Notice - Master Global Content Agency Agreement by Vodafone
D2
GmbH.
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10.30
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|
Contract
Acceptance Notice - Master Global Content Agency Agreement by Vodafone
Sverige AB.
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10.31
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|
Master
Global Content Reseller Agreement, effective January 17, 2005, between
Vodafone Group Services Limited and The WAAT
Corporation.*
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10.32
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|
Contract
Acceptance Notice - Master Global Content Agency Agreement by Vodafone
New
Zealand Limited.
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10.33
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Contract
Acceptance Notice - Master Global Content Agency Agreement by Vodafone
España, S.A.
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10.34
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Contract
Acceptance Notice - Master Global Content Reseller Agreement by Vodafone
UK Content Services LTD.
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10.35
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|
Contract
Acceptance Notice - Master Global Content Reseller Agreement by
VODAFONE-PANAFON Hellenic Telecommunications Company
S.A.
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|
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10.36
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|
Content
Schedule, dated January 17, 2005, by and between WAAT Media Corporation
and Vodafone Group Services Limited.*
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10.37
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|
Contract
Acceptance Notice - Master Global Content Agency Agreement by Belgacom
Mobile NV.
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10.38
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|
Content
Schedule, dated January 17, 2005, by and between WAAT Media Corporation
and Vodafone Group Services Limited.*
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10.39
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|
Contract
Acceptance Notice - Master Global Content Agency Agreement by Swisscom
Mobile.
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|
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|
10.40
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|
Linking
Agreement, dated November 1, 2006 between Vodafone Libertel NV and
Twistbox Entertainment, Inc.*
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10.41
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|
Agreement,
dated as of March 23, 2007, between Twistbox Entertainment, Inc.
and
Vodafone Portugal - COMUNICAÇÕES PESSOAIS, S.A.*
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|
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10.42
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|
Contract
for Content Hosting and Services “Applications and Games Services,”
effective August 27, 2007 between Vodafone D2 GmbH and Twistbox Games
Ltd
& Co. KG.*
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10.43
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|
Partner
Agreement, dated August 27, 2007, by and between Vodafone D2 GmbH
and
Twistbox.*
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|
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|
10.44
|
|
Letter
of Amendment, dated February 25, 2006 by and between WAAT Media
Corporation and Vodafone UK Content Services Limited.*
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|
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|
10.45
|
|
Letter
of Amendment, dated August 2007, by and between WAAT Media Corporation
and
Vodafone UK Content Services Limited.*
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|
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|
10.46
|
|
Content
Schedule, dated December 17, 2004, by and between WAAT Media
Corporation and Vodafone Group Services Limited.*
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99.1
|
|
Consolidated
financial statements of Twistbox Entertainment, Inc. for the fiscal
years
ended March 31, 2006 and March 31,
2007.
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99.2
|
|
Consolidated
financial statements of Twistbox Entertainment, Inc. for the six
months
ended September 20, 2006 and September 30, 2007.
|
*
We have
requested confidential treatment for certain provisions contained in this
exhibit. The confidential portions have been so omitted in the copy filed as
an
exhibit and has been filed separately with the Commission.
AMENDMENT
TO
AGREEMENT
AND PLAN OF MERGER
This
Amendment, dated as of February 12, 2008, is among Mandalay Media, Inc., a
Delaware corporation (“Parent”), Twistbox Acquisition, Inc., a Delaware
corporation and a wholly-owned subsidiary of Parent (“Merger Sub”), Twistbox
Entertainment, Inc., a Delaware corporation (the “Company”), and Adi McAbian and
Spark Capital, L.P. (“Spark Capital”) as representatives of the stockholders of
the Company (collectively, the “Stockholder Representatives” and individually, a
“Stockholder Representative”).
1.
Reference
to Merger Agreement; Definitions.
Reference is made to the Agreement and Plan of Merger dated as of December
31,
2007, by and among Parent, Merger Sub, the Company and the Stockholder
Representatives (the “Merger Agreement”). Terms defined in the Merger Agreement
and not otherwise defined herein are used herein with the meanings so defined.
2.
Amendment
to Section 1.4(a) of Merger Agreement. Section 1.4(a) of the Merger Agreement
is
hereby deleted in its entirety and replaced with the following:
“(a)
At
the
Effective Time, the Certificate of Incorporation of the Company shall be
the
Certificate of Incorporation of the Surviving Corporation.”
3.
Amendment
to Schedule 1.5(a) of Merger Agreement
.
Schedule 1.5(a) of the Merger Agreement is hereby deleted in its entirety
and
replaced with new Schedule 1.5(a) attached hereto.
4.
Amendment
to Section 1.5(e) of Merger Agreement. Section 1.5(e) of the Merger Agreement
is
hereby deleted in its entirety and replaced with the following:
“(e)
Stock
Options
.
At
the
Effective Time,
each
outstanding option (a “Company Option”) to purchase shares of Company Common
Stock issued pursuant to the Company’s 2006 Stock Incentive Plan (the “Stock
Plan”) shall be assumed by Parent, on the same terms and conditions as were
applicable under the Stock Plan immediately prior to the Effective Time,
except
that:
(i) the
number of shares of Parent Common Stock subject to each Company Option shall
be
determined by multiplying the number of shares of Company Common Stock that
were
subject to such Company Option immediately prior to the Effective Time by
the
Option Conversion Ratio (as defined below), and rounding the resulting number
down to the nearest whole number of shares of Parent Common Stock; and (ii)
the
per share exercise price for the shares of Parent Common Stock issuable upon
exercise of each Company Option shall be determined by dividing the per share
exercise price of Company Common Stock subject to such Company Option, as
in
effect immediately prior to the Effective Time, by the Option Conversion
Ratio;
provided, however, that the exercise price and the number of shares of Parent
Common Stock subject to each Company Option shall be determined in a manner
consistent with the requirements of Section 409A of the Code to the extent
applicable; and provided, further, that in the case of any Company Option
to
which Section 422 of the Code applies, the option price, the number of shares
subject to such Company Option and the terms and conditions of exercise of
such
Company Option shall be determined in accordance with the foregoing, subject
to
such adjustments as are necessary in order to satisfy the requirements of
Section 424(a) of the Code. Any restriction on the exercise of any Company
Option assumed by Parent shall continue in full force and effect and the
term,
exercisability and other provisions of such Company Option shall otherwise
remain unchanged as a result of the assumption of such Company Option; provided,
however, the Company Options that are accelerated at the Effective Time as
a
result of the Merger, as set forth in
Schedule
2.3(a)
,
shall
be immediately exercisable after the Effective Time. The “
Option
Conversion Ratio
”
shall
be equal to 0.72967. Notwithstanding anything to the contrary set forth herein
or on Schedule 1.5(a), the Merger Consideration shall consist of an aggregate
of
12,325,000 shares of Parent Common Stock which will include the conversion
of
all shares of Company Capital Stock and the reservation of all shares of
Parent
Common Stock required for assumption of the Company Options that have vested
as
of the Effective Time.
Parent
shall reserve for issuance a sufficient number of shares of Parent Common
Stock
for delivery upon exercise of the Company Options assumed by Parent, which,
as
of the date hereof, are as set forth on Schedule 1.5(a) (such Schedule to
be
amended at or prior to Closing to reflect the issuance of any shares of Company
Common Stock, whether by exercise of Company Options or otherwise, after
the
date hereof and prior to Closing).
”
5.
Miscellaneous
.
Except
as otherwise set forth herein, the Merger Agreement shall remain in full
force
and effect without change or modification. This Amendment may be executed
in any
number of counterparts, which together shall constitute one instrument, and
shall bind and inure to the benefit of the parties and their respective
successors and assigns.
IN
WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
day
and year first above written.
|
MANDALAY MEDIA, INC.
|
|
|
|
|
|
By:
/s/ Jay Wolf
|
|
Name: Jay Wolf
|
|
Title: Chief Financial
Officer
|
|
|
|
|
|
TWISTBOX ACQUISITION, INC.
|
|
|
|
|
|
By:
/s/ Jay
Wolf
|
|
Name: Jay Wolf
|
|
Title: Chief Financial
Officer
|
|
|
|
|
|
TWISTBOX ENTERTAINMENT, INC.
|
|
|
|
|
|
By:
/s/ Ian Aaron
|
|
Name: Ian Aaron
|
|
Title: President and Chief Executive
Officer
|
|
|
|
|
|
STOCKHOLDER REPRESENTATIVE
|
|
|
|
|
|
By:
/s/ Adi McAbian
|
|
Name: Adi McAbian
|
|
|
|
|
|
Spark Capital, L.P.
|
|
|
|
By: Spark Management Partners, LLC,
|
|
its General Partner
|
|
|
|
|
|
By:
/s/ Dennis
Miller
|
|
Name: Dennis Miller
|
|
Managing
Member
|
THIS
NOTE
HAS NOT BEEN REGISTERED UNDER THE SECURIT
IES
ACT
OF
1933, AS
AMENDED
(THE “SECURITIES ACT”),
OR
APPLICABLE STATE SECURIT
IE
S
LAWS
AND
MAY
NOT BE
SOLD,
T
RANSFERRED,
OR OTHERWISE DISPOSED OF EXCEPT
PURSUA
NT
TO
AN
EFFECTIVE
REGISTRATION
STATEMENT
UNDER
THE
SECURIT
IES
ACT
AND
APPLIC
A
BLE
STATE
SECURITIES LAWS OR PURSUANT TO
AN
APPL
IC
ABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURIT
IE
S
ACT AND
APPLICAB
LE
STATE
SECURITIES LAWS.
$16,500,000
|
|
TWISTBOX
ENTERTAINMENT, INC.
|
|
|
Section
1.
General
.
FOR
VALUE
RECEIVED, TWISTBOX ENTERTAINMENT, INC., a Delaware
corporation
(the
“
Company
”)
,
hereby
promises to pay to the order of VALUEACT
SMALLCAP
MASTER FUND, L.P. (the
“
Investor
”),
the
principal sum of SIXTEEN
MILLION
FIVE HUNDRED THOUSAND DOLLARS AND ZERO CENTS
(
$16,500,000.00
),
or
such
lesser amount as shall then equal the outstanding principal amount hereof,
together with
interest
(“
Interest
”)
thereon
at a rate (the
“
Interest
Rate
”)
equal
to
(i) 9.00% per annum from, and including, July 30, 2007 to, but excluding, July
30, 2008 and (ii) 10.00% per annum from,
and
including, July 30, 2008 to, but excluding, January 30, 2010, each computed
on
the basis of
a
year of
360 days comprised of twelve 30 day months. All unpaid principal, together
with
any
then
unpaid and accrued interest and other amounts payable hereunder, shall be due
and payable on the earlier of the January 30, 2010 (the
“
Maturity
Date
”);
or
(ii)
when such amounts become due and payable as a result of, and following, an
Event
of Default in accordance with Section 3. This Note shall be prepayable without
penalty, in whole or in part, at any time at the Company
’
s
option
at
100% of the principal amount plus accrued but unpaid interest to and including
the date
of
prepayment. Any prepayments will be applied first to any accrued but unpaid
interest and
then
to
unpaid principal.
This
Note
is one of a duly authorized issue of notes of the Company (this note being
referred
to as the
“
Note
”
and,
collectively, all similar notes issued by the Company being
referred
to as the
“
Notes
”),
issued
in
the aggregate principal amount limited to $16,500,000.00
pursuant
to the Securities Purchase Agreement, dated as of July 30, 2007 (as the same
may
be
amended,
supplemented or otherwise modified from time to time, the
“
Securities
Purchase
Agreement
”)
by
and
among the Company and the Investor party thereto, and is entitled to the
benefits
thereof and to the exercise of the remedies provided thereby or otherwise
available in
respect
thereof. Capitalized terms used herein without definition have the meanings
assigned
thereto
in the Securities Purchase Agreement. Unless the context otherwise requires,
an
accounting
term not otherwise defined has the meaning assigned to it in accordance with
the
United
States generally accepted accounting principles (
“
GAAP
”
)
.
Interest
on this Note shall accrue from, and including, the date of issuance through
and
until
repayment of the principal amount of this Note and payment of all Interest
in
full, and shall
be
payable in cash semi-annually in arrears on each January 1 and July 1 that
the
Notes are
outstanding
or, if any such date shall not be a Business Day, on the next succeeding
Business
Day
to
occur after such date (each date upon which interest shall be so payable, an
“
Interest
Payment
Date
”),
to
holders of record on each preceding December 15 and June 15 to the
applicable
Interest Payment Date, beginning on January 1, 2008, by wire transfer of
immediately
available
funds to an account at a bank designated in writing by the Investor on
reasonable
notice.
Notwithstanding
the foregoing provisions of this Section 1, any overdue principal of,
overdue
Interest on, and any other overdue amounts payable under, this Note shall bear
interest,
payable
on demand in immediately available funds, for each day from the date payment
thereof
was
due
to the date of actual payment at a rate equal to the sum of (i) the Interest
Rate and (ii) an
additional
two percent (2.00%) per annum. Subject to applicable law, any interest that
shall
accrue
on
overdue interest on this Note as provided in the preceding sentence and shall
not have
been
paid
in full in cash on or before the next Interest Payment Date to occur after
the
date on
which
the
overdue interest became due and payable shall itself be deemed to be overdue
interest
on
this
Note to which the preceding sentence shall apply. In addition, notwithstanding
the
foregoing
provisions of this Section 1, if an Event of Default has occurred and is
continuing,
then,
so
long as such Event of Default is continuing, all outstanding principal of this
Note shall
bear
interest, after as well as before judgment, at a rate equal to the sum of (i)
the Interest Rate
and
(ii)
an additional two percent (2.00%) per annum.
Section
2.
Repurchase
Right Upon a Fundamental Change
.
Notwithstanding
anything to the contrary contained herein and in addition to any other
right
of
the Investor, upon the occurrence of a Fundamental Change the Investor shall
have the
right
for
a period of thirty days, by written notice to the Company, to require the
Company to
repurchase
all of this Note on the repurchase date that is five Business Days after the
date of delivery of such notice to the Company at a price equal to 100% of
the
outstanding principal amount under this Note plus all accrued and unpaid
interest on such principal amount to, but
excluding,
the date of such repurchase plus any other amounts due hereunder. A
“
Fundamental
Change
”
shall
be
deemed to have occurred upon the occurrence of any of the following events:
(a)
any merger or consolidation of the Company with or into another Person or any
sale of all or
substantially
all of the stock or assets of the Company, unless (i) the holders of capital
stock of
the
Company immediately prior to such transaction are entitled to exercise, directly
or indirectly,
50%
or
more of the voting power of all shares of capital stock entitled to vote
generally in the
election
of directors of the continuing or surviving corporation, and (ii) such
Fundamental
Change
does not result in a reclassification, conversion, exchange or cancellation
of
the
Common
Stock, (b) the approval of a plan relating to the liquidation or dissolution
of
the
Company
by its stockholders or (c) the Company
’
s first
domestic
or foreign public offering of its
capital
stock. A
“
Person
”
means
any
individual, corporation, partnership, joint venture,
association,
joint-stock company, trust, unincorporated organization, limited liability
company or
government
or other entity.
Section
3.
Events
of Defaults
.
The
occurrence of any of the following shall constitute an
“
Event
of Default
”
under
this
Note:
(a)
The
Company shall fail to pay any principal owing under this Note when due;
or
(b)
The
Company shall fail to pay any interest owing under this Note when due, and
such
failure shall continue for thirty (30) days; or
(c)
The
Company or any Subsidiary shall fail to observe or perform any other
covenant,
obligation, condition or agreement contained in this Note (other than those
specified in
clauses
(a) or (b) above) or the Guarantee and Security Agreement, dated the date
hereof, among
the
Company, the Subsidiaries party thereto and ValueAct SmallCap Master Fund,
L.P.,
as
Collateral
Agent for the benefit of the Investor (as the same may be amended, supplemented
or
otherwise
modified from time to time, and together with all other documents, agreements
and
instruments
executed in connection therewith, the
“
Guarantee
and Security Agreement
”),
and,
to
the
extent such failure is capable of being cured, such failure shall continue
for
sixty (60) days
after
notice is given to the Company by the Investor holding more than 25% of the
aggregate
principal
balance of the Notes then outstanding to comply with such provisions contained
in the
Note
or
the Guarantee and Security Agreement; or
(d)
The
Company or any Subsidiary shall (i) fail to make any payment when due
under
the
terms of any bond, debenture, note or other evidence of indebtedness to be
paid
by the
Company
or such Subsidiary (excluding this Note, which default is addressed by clauses
(a) and
(b)
above, but including any other evidence of indebtedness of the Company or such
Subsidiary)
and
such
failure shall continue beyond any period of grace provided with respect thereto,
or (ii)
default
in the observance or performance of any other agreement, term or condition
contained in any such bond, debenture, note or other evidence of indebtedness,
and the effect of such failure
or
default is to cause, or permit the holder thereof to cause, indebtedness of
the
Company and the
Subsidiaries
in an aggregate amount of One Million Dollars ($1,000,000) or more to become
due
prior
to
its stated date of maturity; or
(e)
An
involuntary proceeding shall be commenced or an involuntary petition shall
be
filed
seeking (i) liquidation, reorganization or other relief in respect of the
Company or any
Subsidiary
or its debts, or of a substantial part of its assets, under any federal, state
or foreign
bankruptcy,
insolvency, receivership or similar law now or hereafter in effect or (ii)
the
appointment
of a receiver, trustee, custodian, sequestrator, conservator or similar official
for the
Company
or any Subsidiary or for a substantial part of the Company's or such
Subsidiary
’
s
assets,
and, in any such case, such proceeding or petition shall continue undismissed
for 60 days
or
an
order or decree approving or ordering any of the foregoing shall be entered;
or
(f)
The
Company or any Subsidiary shall (i) voluntarily commence any proceeding
or
file
any petition seeking liquidation, reorganization or other relief under any
federal, state or
foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in effect,
(ii)
consent
to the institution of, or fail to contest in a timely and appropriate manner,
any proceeding
or
petition described in clause (e) of this Section, (iii) apply for or consent
to
the appointment of
a
receiver, trustee, custodian, sequestrator, conservator or similar official
for
the Company or any
Subsidiary
or for a substantial part of the Company
’
s or such
Subsidiary
’
s
assets, (iv) file an
answer
admitting the material allegations of a petition filed against it in any such
proceeding, (v)
make
a
general assignment for the benefit of creditors or (vi) take any action for
the
purpose of
effecting
any of the foregoing; or
(g)
One
or
more judgments for the payment of money in an amount in excess of Five
Million
Dollars ($5,000,000) in the aggregate, outstanding at any one time, shall be
rendered
against
the Company and the Subsidiaries and the same shall remain undischarged for
a
period of
sixty
(60) days during which execution shall not be effectively stayed, or any
judgment, writ,
assessment,
warrant of attachment, or execution or similar process shall be issued or levied
against
a
substantial part of the property of the Company or any Subsidiary and such
judgment,
writ,
or
similar process shall not be released, stayed, vacated or otherwise dismissed
within sixty
(60)
days
after issue or levy; or
(h)
Any
Note
or the Guarantee and Security Agreement shall be asserted in writing
by
the
Company or any Subsidiary not to be in full force and effect, or the Company
or
any
Subsidiary
shall disavow any of its obligations thereunder;
(i)
Any
Lien
purported to be created under the Guarantee and Security Agreement
shall
be
asserted by the Company or any Subsidiary not to be, a valid and perfected
Lien
on any
Collateral,
with the priority required by the Guarantee and Security Agreement;
or
(j)
The
Company shall have failed to make filings within sixty (60) days of the date
hereof with the United States Patent and Trademark Office in respect of the
security interests
granted
in the Company
’
s Trademarks
(as
defined in the Guarantee and Security Agreement) to
the
Investor under the Guarantee and Security Agreement; or
(k)
Any
Event
of Default under and as defined in the Guarantee and Security
Agreement
shall have occurred.
Section
4.
Rights
Of Investor Upon Default
.
(a)
Upon
the
occurrence or existence of any Event of Default (other than an Event of
Default
referred to in Sections 3(e) or 3(f) hereof) and at any time thereafter during
the
continuance
of such Event of Default, the Investor may, upon the approval of Investor
holding
more
than
25% of the aggregate principal balance of the Notes then outstanding, by written
notice
to
the Company, declare all outstanding amounts payable by the Company hereunder
to
be
immediately
due and payable without presentment, demand, protest or any other notice of
any
kind,
all
of which are hereby expressly waived, anything contained herein to the contrary
notwithstanding.
Upon
the
occurrence or existence of any Event of Default described in
Sections
3(e) or 3(f) hereof, immediately and without notice, all outstanding amounts
payable by
the
Company hereunder shall automatically become immediately due and payable,
without
presentment,
demand, protest or any other notice of any kind, all of which are hereby
expressly
waived,
anything contained herein to the contrary notwithstanding. In addition to the
foregoing
remedies,
upon the occurrence or existence of any Event of Default, the Investor may
exercise,
upon
the
approval of Investor holding more than a majority of the aggregate principal
balance of
the
Notes, any other right, power or remedy permitted to it by law, either by suit
in equity or by
action
at
law, or both.
(b)
Upon
the
occurrence of an event specified in Section 3 that with the giving of
notice
or
passage of time would be an Event of Default, the Company may assign the right
to one or more of its then existing shareholders, to purchase the Notes from
the
Investor and acquire all,
but
not
less than all, of such Investor
’
s right,
title and
interest herein at a price equal to 100% of
the
outstanding principal amount under this Note plus all accrued and unpaid
interest on such
principal
amount to, but excluding, the date of such purchase plus any other amounts
due
hereunder.
The Company may assign its right to repurchase the Notes by giving the Investor
written
notice five business days before the specified purchase date. In any event
the
purchase
date
may
take place after the occurrence of an Event of Default without the Investor's
prior
written
consent.
Section
5.
Affirmative
Covenants
.
Until
all
principal and interest and any other amounts due and payable under this Note
have
been
paid in full in cash, the Company shall, and shall cause each Subsidiary
to:
(a)
pr
omptly
upon the Company's receipt of the proceeds of issuance of the Note, pay
in
full
the Indebtedness existing as of the date hereof listed on Exhibit A
hereto;
(b)
make,
within sixty (60) days of the date hereof, filings with the United States
Copyright
Office in respect of the security interests granted in the Company’s Copyrights
(as
defined
in the Guarantee and Security Agreement) to the Investor under the Guarantee
and
Security
Agreement; provided, that such period shall be extended to the extent required
by the
United
States Copyright Office in connection with the recordation of the security
interest granted
in
the
Company’s Copyrights; provided, further, that no filings shall be required to be
made by
the
Company or any Subsidiary in respect of the Exclusive Distribution Agreement
dated
October
30, 2000 between Vivid Interactive, Inc. and WAAT Corporation, Inc. recorded
with the
United
States Copyright Office on February 8, 2001;
(c)
provide
written notice to the Investor promptly upon becoming aware of: (i) the
occurrence of any Event of Default, or any event which with the giving of notice
or passage of time, or both, would constitute an Event of Default, hereunder;
(ii) the occurrence of each and every event which would be an event of default
(or an event which with the giving of notice or lapse of time would be an event
of default) under any indebtedness for borrowed money, such
notice
to
include the names and addresses of the holders of such indebtedness and the
amount
thereof;
and (iii) any loss or damage to any Collateral (as defined in the Guarantee
and
Security
Agreement)
in excess of $500,000;
(d)
do
or
cause to be done all things necessary to preserve, renew and keep in full
force
and
effect its legal existence and the rights, licenses, permits, privileges and
franchises
material
to the conduct of its business; and
(e)
maintain,
with financially sound and reputable insurance companies, adequate
insurance
for its insurable properties, all to such extent and against such risks,
including fire,
casualty,
fidelity, business interruption and other risks insured against by extended
coverage, as
is
customary with companies in the same or similar businesses operating in the same
or similar
locations;
and
The
Company shall maintain a Consolidated EBITDA (as defined below) for any period
of
four
consecutive fiscal quarters (the
“
Reference
Period
”)
commencing
with the Reference
Period
ending on March 31, 2008 of greater than negative $8,500,000. The Company shall
calculate
the Company's Consolidated EBITDA with respect to each fiscal month within
75
days
of
the
end of such month and provide Investor the necessary information to validate
such
calculation.
As
used
herein
“
Consolidated
EBITDA
”
shall
mean, with respect to the Company, for
any
period, the Consolidated Net Income of the Company for such period adjusted
to
add thereto
(to
the
extent deducted from the net revenues in determining consolidated net income),
without
duplication,
the sum of:
(a)
consolidated
income tax expense;
(b)
consolidated
depreciation and amortization expense;
(c)
Consolidated
Fixed Charges;
(d)
non-cash
charges relating to employee benefit or other management compensation
plans
of
the Company or any of its Subsidiaries or any non-cash compensation charge
arising
from
any
grant of stock, stock options or other equity-based awards of the Company or
any
of its
Subsidiaries
(excluding in each case any non-cash charge to the extent that it represents
an
accrual of or reserve for cash expenses in any future period or amortization
of
a prepaid cash
expense
incurred in a prior period);
(e)
non-cash
losses or charges relating to impairment of goodwill and other intangible
assets,
less the amount of all cash payments made by the Company or any of its
Subsidiaries
during
such period to the extent such payments relate to non-cash charges that were
added back
in
determining Consolidated EBITDA for such period or any prior period;
and
(f)
non-recurring
income and expenses that are of a non-operating and non-cash
nature
including but not limited to: diminution in value of an asset, impairment in
the
value of
goodwill
or contracts, and changes in accounting policy or accounting methods which
are
consistent
with GAAP. Notwithstanding the foregoing none of the above shall include
restructuring
charges, expenses or write-offs that are expected to result in current or future
cash outlays;
provided,
that
consolidated income tax expense and depreciation and amortization of a
Subsidiary
that is a less than wholly-owned Subsidiary shall only be added to the extent
of
the
equity
interest in such Subsidiary.
As
used
herein
“
Consolidated
Fixed Charges
”
shall
mean, with respect to the Company,
for
any
period, the aggregate amount (without duplication and determined in each case
in
accordance
with GAAP) of:
(a)
interest
expensed or capitalized, paid, accrued, or scheduled to be paid or accrued
of
the
Company and Subsidiaries during such period, (x) including (1) original issue
discount and non-cash interest payments or accruals on any Indebtedness, (2)
the
interest portion of all deferred payments obligations, (3) all commissions,
discounts and other fees and charges owed with respect to bankers' acceptances
and letters of credit financings and currency and interest
swap
hedging obligations and (4) legal costs and expenses, and advisory fees paid
in
connection
with
equity or debt financing activities on behalf of the Company or its
Subsidiaries, but (y) less
any
interest income, in each case to the extent attributable to such period;
and
(b)
the
amount of dividends accrued or payable (or guaranteed) by the Company or
Subsidiaries
in respect of capital stock of the Company (other than by
Subsidiaries).
Additionally,
for the purpose of calculating Consolidated EBITDA:
(a)
acquisitions
that have been made by the Company or any of its Subsidiaries,
including
through mergers or consolidations and including any related financing
transactions,
during
the four-quarter reference period or subsequent to such reference period and
on
or prior to
the
date
of calculation will be given pro forma effect as if they had occurred on the
first day of
the
four-quarter reference period and consolidated cash flow for such reference
period will be
calculated
on a pro forma basis in accordance with Regulation S-X under the Securities
Act;
(b)
the
Consolidated Net Income attributable to discontinued operations, as
determined
in accordance with GAAP, and operations or businesses disposed of on or prior
to
the
date
of calculation, will be excluded; and
(c)
the
Consolidated Fixed Charges attributable to discontinued operations of the
Company
or any of its Subsidiaries, as determined in accordance with GAAP, and
operations or
businesses
disposed of on or prior to the date of calculation, will be excluded, but only
to the
extent
that the obligations giving rise to such fixed charges will not be obligations
of the
Company
or its Subsidiaries following the date of calculation.
As
used
herein
“
Consolidated
Net Income
”
shall
mean, with respect to the
Company,
for any period, the aggregate net income of the Company and wholly owned
Subsidiaries
and its
pro
rata
share
of
the net income of its other Subsidiaries for such period, on
a
consolidated basis, determined in accordance with GAAP;
provided
that
(a)
the
net
income (but not loss) of any Person that is not a Subsidiary or that is
accounted
for by the equity method of accounting will be included only to the extent
the
amount
of
dividends or distributions paid in cash to the specified Person or a Subsidiary
of the Person;
(b)
the
net
income of any Subsidiary will be excluded to the extent, but only to the
extent,
that the declaration or payment of dividends or similar distributions by that
Subsidiary of
that
net
income is not at the time permitted by the operation of the terms of its charter
or any
agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable
to that Subsidiary; and
(c)
the
cumulative effect of a change in accounting principles will be
excluded.
Section
6.
Negative
Covenants
.
Until
all
principal and interest and any other amounts due and payable under this Note
have
been
paid in full in cash, the Company shall not, and shall not permit any Subsidiary
to,
without
the prior written approval of the Investor holding a majority in principal
amount of the
Notes:
(a)
create,
incur, assume or permit to exist (i) all indebtedness, whether or not
contingent,
for borrowed money or for the deferred purchase price of property or services,
(ii)
any
other
indebtedness that is evidenced by a note, bond, debenture or similar instrument,
(iii) all
obligations
under financing leases or letters of credit, (iv) all obligations in respect
of
acceptances
issued or created, (v) all liabilities secured by any lien on any property,
and
(vi) all
guarantee
obligations, in each case including the principal amount thereof, any accrued
interest
thereon
and any prepayment premiums or fees or termination fees with respect thereto
((i)-(vi)
together,
“
Indebtedness
”)
except:
(i)
Indebtedness
with respect to trade accounts of the Company or any
Subsidiary
arising in the ordinary course of business,
(ii)
Indebtedness
of any Subsidiary in favor of the Company or another
Subsidiary,
(iii)
Indebtedness
under the Notes,
(iv)
Indebtedness
in an amount less than $500,000 per incurrence; provided
however,
that the aggregate amount of indebtedness that can be incurred pursuant to
this
Section
6(a)(iv) shall not exceed $3,000,000 and all such Indebtedness shall be
subordinated
in right of payment to the Notes and shall have an average weighted
maturity
after the Maturity Date,
(v)
Indebtedness in connection with a receivables facility not in excess of the
lesser of (x) $5,000,000 or (y) 85% of the Net Receivable Balance (as defined
in
the Guarantee and Security Agreement) at any point in time, which Indebtedness
shall rank pari passu in right of payment to the Notes (the “
Receivables
Facility
”),
(vi)
Indebtedness
in favor of VAC relating to an acquisition of another entity
by
the
Company,
(vii)
Indebtedness incurred in connection with equipment leases entered into in
the
ordinary course of business subsequent to the date hereof not exceeding $250,000
in
the
aggregate, and
(viii)
Indebtedness
existing as of the date hereof listed on Exhibit B hereto;
(b)
create,
incur, assume or suffer to exist any mortgage, pledge, security interest,
assignment,
lien (statutory or other), claim, encumbrance, license or sublicense or security
interest
(collectively, a
“
Lien
”)
in
or
upon any of its assets, except:
(i)
Liens
existing on July 30, 2007,
(ii)
Liens
in
favor of the Company or any Subsidiaries,
(iii)
Liens
for
taxes, assessments or similar charges incurred in the ordinary
course
of
business that are not yet due and payable,
(iv)
Liens
created pursuant to the Guarantee and Security Agreement,
(v)
Liens
created pursuant to the Receivables Facility as follows: (1) Liens on
(x)
an
amount of cash not to exceed $1,000,000 which shall be placed in a Deposit
Account that shall not be commingled with and shall be separate from the Deposit
Accounts
in which the Investor has an existing Lien, and (y) all right, title and
interest in,
to
and
under all Receivables (the terms
“
Deposit
Account
”
and
“
Receivables
”
shall
have
the
meanings ascribed to such terms in the Guarantee and Security Agreement) and
(2)
subject
to an intercreditor agreement reasonably acceptable to the Collateral Agent
which
shall
contain customary limitations on the exercise of remedies and pay-over
provisions,
Liens
on
assets other than those described in the foregoing clauses (x) and (y) that
are
junior
and subordinate in right, priority, operation, effect and all other respects
to
all
Liens
on
such assets in favor of the Collateral Agent securing the Obligations (the
terms
“
Collateral
Agent
”
and
“
Obligations
”
shall
have the meanings ascribed to such terms in the Guarantee and Security
Agreement),
(vi)
Liens
created to secure indebtedness incurred pursuant to Section 6(a)(vi)
hereof,
(vii)
Liens
to
secure the performance of statutory obligations, surety or appeal
bonds,
performance bonds or other obligations of a like nature incurred in the ordinary
course
of
business,
(viii)
Liens
created in connection with equipment leases pursuant to Section
6(a)(vii),
and
(ix)
licenses
relating to the Company’s intellectual property granted in the
ordinary
course of business.
(c)
create,
incur, assume or permit to exist any guarantee, directly or indirectly,
except:
(i)
Indebtedness
with respect to trade accounts of the Company or any Subsidiary arising in
the
ordinary course of business, including, without limitation,
guaranteed
minimum payments required to be made under agreements entered into by the
Company
or any Subsidiary in the ordinary course of business, consistent with current
practice,
(ii)
Indebtedness
under the Notes, and
(iii)
Indebtedness
incurred pursuant to Section 6(a)(v);
(d)
change
to
any material extent the principal type of business conducted by it on
July
30,
2007;
(e)
excluding
(x) the transactions with Affiliates as of the date hereof and as set forth
on
Exhibit C hereto (each, an
“
Existing
Affiliate Transaction
”)
and
(y)
transactions between or
among
the
Company and its Subsidiaries, enter into any transaction, including, without
limitation,
the purchase, sale, or exchange of property or the rendering of any service,
with any
Affiliate
(each, an
“
Affiliate
Transaction
”
),
unless
(i)
the
Affiliate Transaction is in the ordinary course of and pursuant to the
reasonable requirements of the Company’s or such Subsidiary’s business and upon
fair and reasonable terms no less favorable to the Company or such Subsidiary
than would
obtain
in
a comparable arm’s length transaction with a Person not an Affiliate;
and
(A)
if
the Affiliate Transaction or series of related Affiliate
Transactions
involves aggregate consideration less than or equal to $2,000,000,
the
Company shall deliver to the Investor a resolution of the Board of Directors
of
the
Company set forth in an officers' certificate certifying that such Affiliate
Transaction
complies with this covenant and that such Affiliate Transaction has
been
approved by a majority of the disinterested members of the Board of
Directors
of the Company; and
(B)
if
the
Affiliate Transaction or series of related Affiliate
Transactions
involves aggregate consideration greater than $2,000,000, the
Company
shall either deliver to the Investor an opinion as to the fairness to the
Company
of such Affiliate Transaction from financial point of view issued by an
accounting,
appraisal or investment banking firm of national standing or shall
receive
the Investor's affirmative written consent.
(f)
declare
any dividends on any shares of any class of its capital stock or
membership
interests, or apply any of its property or assets to the purchase, redemption
or
other
retirement
of, or set apart any sum for the payment of any dividends on, or for the
purchase,
redemption
or other retirement of, or make any other distribution by reduction of capital
or otherwise in respect of, any shares of any class of its capital stock or
membership interests;
provided,
however, any Subsidiary wholly owned by the Company may pay dividends directly
to
the
Company;
(g)
issue
or
sell any shares, or rights to acquire any shares, of preferred stock,
whether
hereafter designated, of any Subsidiary;
(h)
sell
or
transfer any of the Company’s technology or intellectual property other
than
licenses in the ordinary course of business;
(i)
purchase
or acquire the obligations or stock of, or any other interest in, or make
any
loan
or advance or any other investment in any Person (other than a Person that
is
directly or
indirectly
100% owned by the Company or as a result of such purchase, acquisition, loan,
advance
or investment will be directly or indirectly 100% owned by the Company),
except:
(i)
direct
obligations issued or guaranteed by the United States of America
with
a
maturity not exceeding two years,
(ii)
commercial
paper rated at least A-2 or the equivalent thereof by S&P or at least P-2 or
the equivalent thereof by Moody’s with a maturity not exceeding two
years,
(iii)
money
market accounts or certificates of deposit with a maturity not
exceeding
two years issued by a commercial bank having a combined capital and surplus
of
at
least $100,000,000, chartered under the laws of the United States or one of
the
states
thereof
and a member of the Federal Reserve System,
(iv)
loans
or
advances made in the ordinary course of business to employees or
directors,
and
(v)
payments
in connection with the retirement of up to $3,000,000 in the
aggregate
of indebtedness of the Company existing on July 30, 2007 incurred pursuant
to
Section
6(a)(iv);
(j)
create
or
acquire any new Subsidiary, unless (A) (i) such Subsidiary, if required
under
the
terms of the Guarantee and Security Agreement, promptly, and in no event later
than
five
Business Days, becomes a party to the Guarantee and Security Agreement in the
manner provided therein and complies with all of the terms, provisions and
requirements thereof,
including,
without limitation, taking such actions to create and perfect Liens on such
Subsidiary’s assets, and (ii) the Investor shall have received an opinion of
counsel of such
Subsidiary
containing such opinions that are reasonably acceptable to the Investor and
that
are materially identical in substance to the opinions received on the date
hereof with respect to the Subsidiaries entering into the Guarantee and Security
Agreement on the date hereof or (B) if
such
Subsidiary is a foreign Subsidiary and 65% of such Subsidiary's capital stock
is
pledged to
the
Investor under the Guarantee and Security Agreement;
(k)
enter
into any sale and leaseback transaction;
(1)
merge
with or into or consolidate with any other Person unless the holders of capital
stock of the Company immediately prior to such transaction are entitled to
exercise,
directly
or indirectly, 50% or more of the voting power of all shares of capital stock
entitled to vote generally in the election of directors of the continuing or
surviving corporation, or sell,
lease,
or
otherwise dispose of all or substantially all of its properties or
assets;
(m)
enter
into or suffer to exist or become effective any consensual encumbrance or
restriction
on the ability of any Subsidiary of the Company to (i) make any dividend
payments in
respect
of any capital stock of such Subsidiary held by the Company, (ii) repay or
prepay any
indebtedness
owed to or by the Company or any other Subsidiary of the Company, (iii) transfer
any
of
its assets to the Company or any other Subsidiary of the Company, except for
such restrictions existing under or by reason of (x) this Note or the Guarantee
and Security
Agreement,
(y) the Receivables Facility or (z) customary restrictions on the assignment
of
agreements,
leases and licenses entered into in the ordinary course of
business;
(n)
knowingly
take any action that could reasonably be likely to result in (i) the
approval
of a plan relating to the liquidation or dissolution of the Company by its
stockholders or
(ii)
any
event specified in Section 3(e) or Section 3(f) hereof; and
(o)
permit
the Subsidiaries that are not party to the Guarantee and Security
Agreement
to have assets in an aggregate amount greater than $250,000 individually or
$1,000,000
in the aggregate.
Section
6A.
Company's
Issuance of Securities
.
The
Investor agrees that the Company shall not be prohibited from, nor be deemed
in
breach
of
the provisions of any Transaction Document due to, issuing any equity
security.
Section
7.
Defenses
.
The
obligations of the Company under this Note shall not be subject to reduction,
limitation,
impairment, termination, defense, set-off, counterclaim or recoupment for any
reason.
Section
8.
Guarantee
and Security Agreement
.
This
Note
is a senior secured obligation of the Company. The Company’s obligations under
this Note are (i) guaranteed by certain of its Subsidiaries, and (ii) secured
by
a security
interest
in substantially all of the assets of the Company and such Subsidiaries, in
each
case
pursuant
to the terms and provisions of the Guarantee and Security Agreement. This Note
is
subject
to the terms and provisions of the Guarantee and Security Agreement, and the
Investor,
by
its
acceptance of this Note, hereby acknowledges and agrees to such terms and
provisions.
Section
9.
Transfer
of Note; Lost or Stolen Note
.
(a)
The
Investor may sell, transfer or otherwise dispose of all or any part of this
Note
(including
without limitation pursuant to a pledge) to any Person or entity as long as
such
sale,
transfer
or disposition is in accordance with the provisions of the Securities Purchase
Agreement.
From
and
after the date of any such sale, transfer or disposition, the transferee hereof
shall be
deemed
to
be the holder of a Note in the principal amount acquired by such transferee,
and
the
Company
shall, as promptly as practicable, issue and deliver to such transferee a new
Note
identical
in all respects to this Note, in the name of such transferee and, if such
transferee
acquires
less than the entire principal amount of this Note, the Company shall
contemporaneously
issue to the Investor a new Note identical in all respects to this Note,
representing
the outstanding balance of this Note. The Company shall be entitled to treat
the
original
Investor as the holder of this entire Note unless and until it receives written
notice of the
sale,
transfer or disposition hereof.
(b)
Upon
receipt by the Company of evidence of the loss, theft, destruction or
mutilation
of this Note, and (in the case of loss, theft or destruction) of indemnity
or
security
reasonably
satisfactory to the Company, and upon surrender and cancellation of the Note,
if
mutilated, the Company shall execute and deliver to the Investor a new Note
identical in all
respects
to this Note.
Section
10.
Attorneys’
and Collection Fees
.
Should
the indebtedness evidenced by this Note or any part hereof be collected at
law
or in equity or in bankruptcy, receivership or other court proceedings, the
Company agrees to pay,
in
addition to the principal and interest due and payable hereon, all costs of
collection, including
reasonable
attorneys’ fees and expenses, incurred by the Investor or its agent in
collecting or
enforcing
this Note.
Section
11.
Indemnification
(a)
The
Company shall indemnify the Investor, and any other Person directly or
indirectly
controlling or controlled by or under direct or indirect common control with
such
Investor
(each an
“
Affiliate
”
of
the
Investor) (each such Person being called an
“
Indemnitee
”)
a
gainst,
and hold each Indemnitee harmless from, any and all losses, claims, damages,
liabilities
and
related expenses, including the fees, charges, disbursements of any counsel
for
any
Indemnitee,
incurred by or asserted against any Indemnitee by a third party arising out
of,
in
connection
with, or as a result of (i) the execution or delivery of this Note, the
Securities
Purchase
Agreement, the Guarantee and Security Agreement or any agreement or instrument
contemplated hereby or thereby, the performance by the parties hereto of their
respective
obligations
hereunder or the consummation of or the use of the proceeds therefrom, (ii)
the
breach by the Company or any Subsidiary of any representation, warranty,
covenant or agreement contained herein, in the Securities Purchase Agreement
or
in the Guarantee and
Security
Agreement, or (iii) any actual or prospective claim, litigation, investigation
or
proceeding
relating to any of the foregoing, whether based on contract, tort or any other
theory and regardless of whether any Indemnitee is a party thereto; provided
that such indemnity shall
not,
as
to any Indemnitee, be available to the extent that such losses, claims, damages,
liabilities
or
related expenses are determined by judgment of a court of competent jurisdiction
to have
primarily
resulted from the gross negligence or willful misconduct of such
Indemnitee.
(b)
To
the
extent permitted by applicable law, the Company shall not assert, and
hereby
waives, any claim against any Indemnitee, on any theory of liability, for
special, indirect,
consequential
or punitive damages arising out of, in connection with, or as a result of,
this
Note, the Securities Purchase Agreement, the Guarantee and Security Agreement
or
any agreement or instrument contemplated hereby or thereby, or the use of the
proceeds thereof, other than claims
predicated
upon the gross negligence or willful misconduct of such Indemnitee.
Section
12.
Waivers.
(a)
The
Company hereby waives presentment, demand for payment, notice of
dishonor,
notice of protest and all other notices or demands in connection with the
delivery,
acceptance,
performance or default of this Note. No delay by the Investor in exercising
any
power
or
right hereunder shall operate as a waiver of any power or right, nor shall
any
single or
partial
exercise of any power or right preclude other or further exercise thereof,
or
the exercise
thereof,
or the exercise of any other power or right hereunder or otherwise; and no
waiver
whatsoever
or modification of the terms hereof shall be valid unless set forth in writing
by the
Investor
and then only to the extent set forth therein.
(b)
The
Company covenants (to the extent that it may lawfully do so) that it shall
not
at
any
time insist upon, plead, or in any manner whatsoever claim or take the benefit
or
advantage
of, any usury law wherever enacted, now or at any time hereafter in force,
that
may
affect
the covenants or the performance of this Note; and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage
of
any such law, and covenants
that
it
shall not, by resort to any such law, hinder, delay or impede the execution
of
any power
herein
granted to the Investor, but shall suffer and permit the execution of every
such
power as
though
no
such law has been enacted.
Section
13.
Amendments
.
No
amendment, modification or other change to, or waiver of any provision of,
this
Note
may
be
made unless such amendment, modification or change is set forth in writing
and
is signed
by
the
Company and Investor holding more than 75% of the aggregate principal balance
of
the
Notes.
Section
14.
Governing
Law; Jurisdiction; Consent to Service of Process; Waiver of Jury
Trial
.
(a)
THIS
AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, INCLUDING,
WITHOUT
LIMITATION, SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL
OBLIGATIONS
LAW AND NEW YORK CIVIL PRACTICE LAWS AND RULES 327(b).
(b)
THE
COMPANY HEREBY IRREVOCABLY AND UNCONDITIONALLY
SUBMITS,
FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION
OF
THE
SUPREME COURT OF THE STATE OF NEW YORK SITTING
IN
NEW
YORK
COUNTY
AND OF THE UNITED STATES' DISTRICT
COURT
FOR THE
SOUTHERN
DISTRICT
OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF,
IN
ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT
OR ANY OTHER COLLATERAL DOCUMENT, OR FOR R
EC
OGNITION
OR
ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE
PARTIES
HERETO
HEREBY
IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS
IN
RESPECT
OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED
IN
SUCH
NEW
YORK STATE OR, TO THE
EXTENT
PERMITTED BY
LAW,
IN
SUCH
FEDERAL COURT. EACH OF THE PARTIE
S
HERETO
AGREES THAT A
FINAL
JUDGMENT
IN
ANY
SUCH
ACTION
OR
PROCEEDING
SHALL
BE
CONCLUSIVE
AND MAY BE ENFORCED
IN
OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR
IN
ANY
OTHER
MANNER PROVIDED BY LAW. NOTHING
IN
THIS
AGREEMENT
SHALL AFFECT ANY RIGHT THAT LENDER MAY OTHERWISE HAVE
TO
BRING
ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT
AGAINST
THE COMPANY OR ITS PROPERTIES
IN
THE
COURTS OF ANY
JURISDICTION.
(c)
THE
COMPANY
HEREBY
IRREVOCABLY
AND
UN
CONDITIONALLY
WAIVES,
TO THE FULLEST EXTENT IT MAY LEGA
L
LY
AND
EFFECTIVELY DO SO,
ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF
VENUE
OF
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS
NOTE, THE SECURIT
IE
S
PURCHASE AGREEMENT OR THE GUARANTEE AND
SECURITY
AGREEMENT IN ANY COURT REFERRED TO IN PARAGRAPH (B) OF THIS
SECTION.
EACH OF THE
PARTIES
HERETO
HEREB
Y
I
RREVOCABLY
WAIVES, TO
THE
FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVEN
IE
NT
FORUM
TO
THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH
COURT.
(d)
EACH
PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO
SERVICE
OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION
16.
NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS
AGREEMENT
TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED
BY
LAW.
(e)
EACH
PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT
PERMITTED
BY
APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL
PROCEED
IN
G
DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING
TO THIS
NOTE,
THE
SECURIT
IE
S
PURCHASE AGREEMENT,
THE
GUARANTEE
AND
SECURITY
AGREEMENT
OR
THE
TRANSACTIONS
CONTEMPLATED
HEREBY OR THEREBY (WHETHER BASED ON
CONTRACT,
TORT
OR
ANY
OTHER THEORY).
EACH
PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE,
AGENT
OR
ATTORNEY
OF
ANY
OTHER
PARTY
HAS
REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT,
IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER
AND
(B)
ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES
HERETO
HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
Section
15.
Successors
and Assigns
.
The
terms
and conditions of this Note shall inure to the benefit of and be binding upon
the
respective successors (whether by merger or otherwise)
and
permitted assigns of the
Company
and the Investor. The Company may not assign its rights or obligations under
this Note.
Section
16.
Notices
.
Whenever
notice is required to be given under this Note, unless
otherwise
provided
herein,
such notice shall be delivered in accordance with Section 9.4 of the Securities
Purchase
Agreement.
Section
17.
Entire
Agreement
.
The
Securities Purchase Agreement, the Notes, the Guarantee and Security Agreement
and the other Transaction Documents constitute the full and entire understanding
and agreement
between
the parties with regard to the subjects hereto and thereof.
Section
18.
Headings
.
The
headings used in this Note are used for convenience only and are not to be
considered in construing or interpreting this Note.
Section
19.
Severability
.
In
case
any one or more of the provisions of this Note shall be held invalid, illegal
or
unenforceable,
in any respect for any reason, the validity, legality and enforceability of
any
such
provision in every other respect and of the remaining provisions shall not
in
any way be affected
or
impaired thereby, it being intended that all of the provisions hereof shall
be
enforceable
to
the
fullest extent permitted by law.
[Signature
Page Follows]
IN
WITNESS WHEREOF, the Company has caused this Senior Secured Note to be duly
executed
by its duly authorized officer as of the date indicated below.
Date:
July 30, 2007
|
|
|
|
TWISTBOX ENTERTAINMENT,
INC.
|
|
|
|
|
By:
|
/s/
Ian
Aaron
|
|
Name:
IAN AARON
Title:
PRES.
/ CEO
|
Note
No.
1
Amount:
$16,500,000.000
Investor
Name: ValueAct SmallCap Master Fund, L.P.
Address:
435 Pacific Avenue, 4th Floor
San
Francisco, CA 94133
Telephone:
(415) 249-1237
Facsimile:
(415) 249-1242
NEITHER
THE SECURITIES REPRESENTED BY THIS WARRANT NOR THE
SECURITIES
INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE
STATE SECURITIES AND BLUE SKY LAWS. THE SECURITIES MAY
NOT
BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (1) IN THE
ABSENCE
OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES
ACT”) OR FOREIGN SECURITIES LAW, OR (B) IF REASONABLY
REQUESTED
BY THE COMPANY, AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE
TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED
UNDER
SAID ACT OR FOREIGN SECURITIES LAW AND (2) IF SUCH SALE,
TRANSFER
OR ASSIGNMENT VIOLATES APPLICABLE STATE SECURITIES AND
BLUE
SKY LAWS.
THIS
WARRANT
AND THE UNDERLYING SECURITIES ISSUABLE UPON
EXERCISE
OF THIS WARRANT ARE SUBJECT TO THE PROVISIONS OF A
CERTAIN
SECURITIES PURCHASE AGREEMENT,
DATED
AS
OF JULY 30, 2007, INCLUDING CERTAIN RESTRICTIONS ON TRANSFER SET FORTH THEREIN,
AND
AN AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT, DATED
AS
OF JULY 30, 2007.
COMPLETE
AND CORRECT COPIES OF SUCH
AGREEMENTS
ARE AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE
OF
THE COMPANY AND WILL BE FURNISHED TO ANY HOLDER OF THIS
WARRANT
OR ANY UNDERLYING SECURITIES ISSUABLE UPON EXERCISE OF
THIS
WARRANT UPON WRITTEN REQUEST AND WITHOUT CHARGE.
TWISTBOX
ENTERTAINMENT, INC.
CLASS
A WARRANT
Warrant No.
WR-1
|
Dated:
July 30, 2007
|
Twistbox
Entertainment, Inc., a Delaware corporation (the
“Company”
)
,
hereby
certifies
that,
for
value received, ValueAct SmallCap Master Fund, L.P. (together with its
transferees
permitted
hereby, the
“Holder”
)
,
is
entitled to purchase from the Company up to a total of TWO
MILLION
FOUR
HUNDRED ONE THOUSAND SEVEN HUNDRED FORTY SEVEN
(2,401,747)
shares of common stock, $0.001 par value per share (the
“Common
Stock”
)
,
of
the
Company
(each such share, a
“Warrant
Share”
and
all
such shares, the
“Warrant
Shares”
)
at
an
exercise price equal to $6.87 per share (as adjusted from time to time as
provided in
Section
9
,
the
“Exercise
Price”
)
,
at
any
time and from the date hereof and through and including 6:30 p.m.
New
York
City Time on July 30, 2011 (the
“Expiration
Date”)
,
and
subject to the following
terms
and
conditions. This Class A Warrant (this
“Warrant”
)
is
issued
pursuant to that certain Securities Purchase Agreement, dated as of the date
hereof, by and among the Company and the
Investors
identified therein (the
“Securities
Purchase Agreement”
)
and
in
connection with the
issuance
of certain of the Company's Senior Secured Notes. All such warrants are referred
to
herein,
collectively, as the
“Warrants.”
1.
Definitions.
In
addition
to
the
terms
defined
elsewhere
in
this
Warrant,
capitalized
terms that are not otherwise defined herein have the meanings given to such
terms in
the
Securities Purchase Agreement.
2.
Registration
of Warrant
.
The
Company shall register this Warrant, upon records
to
be
maintained by the Company for that purpose (the
“Warrant
Register”
),
in the
name of the
record
Holder hereof from time to time. The Company may deem and treat the registered
Holder
of
this
Warrant as the absolute owner hereof for the purpose of any exercise hereof
or
any
distribution
to the Holder, and for all other purposes, absent actual notice to the
contrary.
3.
Registration
of Transfers.
(a)
The
Company shall register the transfer of any portion of this Warrant in the
Warrant Register, upon surrender of this Warrant, with the Form of Assignment
attached hereto duly completed and signed, to the transfer agent or to the
Company at its address specified
herein
and the payment by the Holder of any tax payable in respect of any such
transfer. Upon
any
such
registration or transfer, a new warrant to purchase Common Stock, in
substantially the
form
of
this Warrant (any such new warrant, a
“
New
Warrant”
),
evidencing the portion of this
Warrant
so transferred shall be issued to the transferee and a New Warrant evidencing
the
remaining
portion of this Warrant not so transferred, if any, shall be issued to the
transferring
Holder.
The
acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance
by such transferee of all of the rights and obligations of a holder of a
Warrant.
(b)
This
Warrant and the Warrant Shares issued upon exercise thereof may
not
be
offered for sale, sold, assigned, hypothecated or otherwise transferred (i)
in
the absence of
(a)
an
effective registration statement for the securities under the Securities Act
or
Foreign
Securities
Law, or (b) if so requested by the Company, an opinion of counsel reasonably
acceptable
to the Company that registration is not required under said act or Foreign
Securities
Law
and
(ii) if such sale, assignment, hypothecation or transfer is in violation of
applicable state securities and blue sky laws. The Holder may not sell, assign,
hypothecate or otherwise transfer any Warrant or any Warrant Shares to any
Person that the Board of Directors of the Company, in
its
reasonable judgment, deems to be a competitor of the Company or an affiliate
thereof;
provided
,
however
,
that
upon
the filing of an effective registration statement for the securities
under
the
Securities Act or Foreign Securities Law, such restriction shall be null and
void.
Notwithstanding
anything contained herein to the contrary, any transferee of any Warrant or
Warrant
Shares shall, as a condition precedent to such Transfer, agree in writing to
be
subject to
the
terms
of the Transaction Documents to the same extent as if the transferee were an
original
Investor
under the Securities Purchase Agreement.
4.
Exercise
and Duration of Warrants
.
(a)
This
Warrant shall be exercisable by the registered Holder at any time and
from
time
to time on or after the date hereof to and including the Expiration Date.
On
the
Expiration
Date, the portion of this Warrant not exercised prior thereto shall be and
become void and of no value;
provided
that
,
on the Expiration Date, if the Closing Price exceeds the Exercise
Price,
this Warrant shall be deemed to have been exercised in full (to the extent
not
previously
exercised)
on a
“
cashless
exercise” basis immediately prior to the expiration thereof.
(b)
A
Holder
may exercise this Warrant by delivering to the Company (i) an exercise notice,
in the form attached hereto (the
“Exercise
Notice”)
,
appropriately
completed
and
duly
signed along with the Warrant, and (ii) payment of the Exercise Price for the
number of
Warrant
Shares as to which this Warrant is being exercised (which may take the form
of
(w)
cash,
(x)
Senior Secured Notes having a principal amount plus accrued but unpaid interest
equal
to
the
Exercise Price, (y) a “cashless exercise” pursuant to
Section
10
below,
or
(z) any
combination
thereof, in each case as indicated in the Exercise Notice), and the date such
items
are
delivered to the Company (as determined in accordance with the notice provisions
hereof) is
an
“Exercise
Date.”
Execution
and delivery of the Exercise Notice shall have the same effect as
cancellation
of the original Warrant and issuance of a New Warrant evidencing the right
to
purchase
the remaining number of Warrant Shares.
5
.
Delivery
of Warrant Shares.
(a)
Upon
exercise of this Warrant, the Company shall promptly issue or cause to be issued
and cause to be delivered to or upon the written order of the Holder a
certificate for the Warrant Shares issuable upon such exercise.
(b)
This
Warrant is exercisable, either in its entirety or, from time to time, in
part.
Upon surrender of this Warrant following one or more partial exercises, the
Company shall
issue
or
cause to be issued, at its expense, a New Warrant evidencing the right to
purchase the
remaining
number of Warrant Shares.
(c)
The
Company's obligations to issue and deliver Warrant Shares in
accordance
with the terms hereof are absolute and unconditional, irrespective of any action
or
inaction
by the Holder to enforce the same, any waiver or consent with respect to any
provision
hereof,
the recovery of any judgment against any Person or any action to enforce the
same, or
any
setoff, counterclaim, recoupment, limitation or termination, or any breach
or
alleged breach
by
the
Holder or any other Person of any obligation to the Company (other than a
failure to
comply
with the provisions of this Warrant related to the exercise thereof). Nothing
herein shall
limit
a
Holder's right to pursue any other remedies available to it hereunder, at law
or
in equity
including,
without limitation, a decree of specific performance and/or injunctive relief
with
respect
to the Company's failure to timely deliver certificates representing shares
of
Common
Stock
upon exercise of the Warrant as required pursuant to the terms
hereof.
6.
Charges,
Taxes and Expenses
.
Initial
issuance and delivery of certificates for
shares
of
Common Stock to the Holder upon exercise of this Warrant shall be made without
charge
to
the Holder for any issue or transfer tax, withholding tax, transfer agent fee
or
other
incidental
tax or expense in respect of the issuance of such certificates, all of which
taxes and
expenses
shall be paid by the Company;
provided
,
however,
that
the
Company shall not be
required
to pay any tax which may be payable in respect of any transfer involved in
the
registration
of any certificates for Warrant Shares or Warrants in a name other than that
of
the
Holder
and the Holder shall be responsible therefor. The Holder shall be responsible
for all other
tax
liability that may arise as a result of holding or transferring this Warrant
or
receiving Warrant Shares upon exercise hereof.
7.
Replacement
of Warrant
.
If
this
Warrant is mutilated, lost, stolen or destroyed,
the
Company shall issue or cause to be issued in exchange and substitution for
and
upon
cancellation
hereof, or in lieu of and substitution for this Warrant, a New Warrant, but
only
upon
receipt
of evidence reasonably satisfactory to the Company of such loss, theft or
destruction and customary and reasonable bond or indemnity, if requested.
Applicants for a New Warrant under such circumstances shall also comply with
such other reasonable regulations and procedures and
pay
such
other reasonable third-party costs as the Company may prescribe.
8.
Reservation
of Warrant Shares
.
The
Company covenants that it will at all times
reserve
and keep available out of the aggregate of its authorized but unissued and
otherwise
unreserved
Common Stock, solely for the purpose of enabling it to issue Warrant Shares
upon
exercise
of this Warrant as herein provided, the number of Warrant Shares which are
then
issuable
and deliverable upon the exercise of this entire Warrant, free from preemptive
rights or any other contingent purchase rights of persons other than the
Holder
(after giving effect to the
adjustments
and restrictions of
Section
9,
if
any).
The Company covenants that all Warrant
Shares
so
issuable and deliverable shall, upon issuance and the payment of the applicable
Exercise
Price in accordance with the terms hereof, be duly and validly authorized,
issued and
fully
paid and nonassessable.
9.
Certain
Adjustments
.
The
Exercise Price and number of Warrant Shares issuable
upon
exercise of this Warrant are subject to adjustment from time to time as set
forth in this
Section
9.
(a)
Adjustments
for Split, Subdivision or Combination of Shares
.
If
the
Company
at any time while this Warrant, or any portion hereof, remains outstanding
and
unexpired
shall split, subdivide or combine the Common Stock as to which purchase rights
under
this
Warrant exist, into a different number of shares of Common Stock, the Exercise
Price for
such
shares shall be proportionately decreased in the case of a split or subdivision
or
proportionately
increased in the case of a combination or reverse split and the shares of
Common
Stock
as
to which purchase rights under this Warrant exist shall be proportionately
increased in
the
case
of a split or subdivision or proportionately decreased in the case of a
combination or
reverse
split.
(b)
Adjustments
for Dividends in Stock or Other Securities or Property
.
If
while
this Warrant, or any portion hereof, remains outstanding and unexpired, the
holders of the
Common
Shares as to which purchase rights under this Warrant exist at the time shall
have
received,
or, on or after the record date fixed for the determination of eligible
stockholders, shall
have
become entitled to receive, without payment therefor, other or additional
stock
or other
securities
or property (other than cash) of the Company by way of dividend, then and
in
each
case,
this Warrant shall represent the right to acquire, in addition to the number
of
Warrant
Shares
receivable upon exercise of this Warrant, and without payment of any additional
consideration
therefor, the amount of such other or additional stock or other securities
or
property
(other than cash) of the Company that such holder would have received on
the
date of
such
exercise had it been the holder of record of the security receivable upon
exercise of this
Warrant
on the record date for such dividend or distribution.
(c)
Adjustment
of Exercise Price Upon Issuance of Additional Shares of
Common
Stock
.
In
the
event that any shares of Common Stock or any options to purchase
shares
of
Common Stock or any stock or security convertible into or exercisable or
exchangeable
for
Common Stock are issued following the date hereof (the “
Additional
Shares
”
)
for a
price
per
share
less than the Exercise Price (the “
Additional
Share Price
”
),
then
the Exercise Price
shall
be
reduced to the consideration per share of Common Stock (as calculated on
an as
converted
basis for the issuance of convertible securities and on an as exercised basis
assuming the payment in full of the exercise price for warrants or options
in
addition to any consideration
paid
in
connection with the issuance of such option, warrant or other convertible
security), if any,
received
or receivable by the Company upon such issuance or sale, the value of which,
if
not
cash,
shall
be
as determined by the Company's Board of Directors in good faith.
Notwithstanding
the foregoing, no adjustment shall be made pursuant to this Section 9(c)
in
connection
with any Additional Shares issued, issuable or deemed issued: (i) to officers,
directors
and employees of, and consultants to, the Company pursuant to any incentive
plans or
arrangements
approved by the Company's Board of Directors; (ii) upon conversion of shares
of
Company
preferred stock outstanding on the date hereof; (iii) pursuant to any bona
fide
business
acquisition;
provided,
however,
that
for
so long as the Senior Secured Notes are outstanding, the
maximum
aggregate value (as determined by the Company's Board, in good faith) of
all
such
Additional
Shares issued in connection with such bona fide business acquisitions for
consideration
that is less than the Exercise Price then in effect shall not exceed
$30,000,000; or
(iv)
pursuant to any event for which adjustment has already been made pursuant
to
this Section
9.
(d)
Adjustment
of Exercise Price Upon an Event of Default
.
Upon
the
occurrence
of an Event of Default, as such term is defined in the Senior Secured Note,
the
Exercise
Price shall be permanently reduced to $4.41 per share, as the same may
thereafter be
adjusted
from time to time as provided under this Section 9.
(e)
Fundamental
Transaction
.
If
at any
time while this Warrant, or any
portion
hereof, is outstanding and unexpired there shall be (i) a reorganization
(other
than a
combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein),
(ii)
a
merger or consolidation of the Company with or into another corporation in
which
the
Company
is not the surviving entity, or a reverse triangular merger in which the
Company
is the
surviving
entity but the shares of the Company's capital stock outstanding immediately
prior to
the
merger are converted by virtue of the merger into other property, whether
in the
form of
securities,
cash, or otherwise, or (iii) a sale or transfer of all or substantially all
the
Company's
properties
and assets to another person (each of
(i)-(iii)
a
“
Fundamental
Transaction
”
),
then,
as
a
part of
such reorganization, merger, consolidation, sale, or transfer, lawful provision
shall be
made
so
that the holder of this Warrant shall thereafter be entitled to receive upon
exercise of
this
Warrant, during the period specified herein and upon payment of the Exercise
Price then in
effect,
the number of shares of stock or other securities or property of the successor
corporation
resulting
from a Fundamental Transaction that a holder of the shares deliverable upon
exercise of
this
Warrant would have been entitled to receive in such Fundamental Transaction
if
this
Warrant
had been exercised immediately before such Fundamental Transaction, all subject
to
further
adjustment as provided in this Section 9. The foregoing provisions of this
Section 9(e) shall similarly apply to successive reorganizations,
consolidations, mergers, sales and transfers
and
to
the stock or securities of any other corporation that are at the time receivable
upon the
exercise
of this Warrant. If the per share consideration payable to the Holder for
shares
in
connection
with any such transaction is in a form other than cash or marketable securities,
then
the
value
of such consideration shall be determined in good faith by the Company's
Board
of
Directors.
If the per share consideration payable to the Holder for shares in connection
with any such transaction is in a form other than cash or marketable securities,
appropriate adjustment (as
determined
in good faith by the Company's Board of Directors) shall be made in the
application
of
the
provisions of this Warrant with respect to the rights and interests of the
Holder after the
transaction
(including provisions for adjustment to the Exercise Price), to the end that
the
provisions
of this Warrant shall be applicable after that event, as near as reasonably
may
be, in
relation
to any shares or other property deliverable after that event upon exercise
of
this Warrant.
(f)
Reclassifications,
etc
.
If
the
Company, at any time while this Warrant, or
any
portion hereof, remains outstanding and unexpired by reclassification of
securities or
otherwise,
shall change any of the securities as to which purchase rights under this
Warrant exist
into
the
same or a different number of securities of any other class or classes, this
Warrant shall thereafter represent the right to acquire such number and kind
of
securities as would have been
issuable
as the result of such change with respect to the securities that were subject
to
the
purchase
rights under this Warrant immediately prior to such reclassification or other
change and
the
Exercise Price therefore shall be appropriately adjusted, all subject to
further
adjustment as
provided
for in this Section 9.
(g)
Calculations
.
All
calculations under this Section 9 shall be made to the
nearest
cent or the nearest 1/100th of a share, as applicable. The disposition of
any
shares owned
or
held
by or for the account of the Company shall be considered an issue or sale
of
Common
Stock.
(h)
Notice
of Adjustments
.
Upon
the
occurrence of each adjustment pursuant
to
this
Section 9, the Company at its expense will promptly compute such adjustment
in
accordance
with the terms of this Warrant and prepare a certificate setting forth such
adjustment,
including
a statement of the adjusted Exercise Price and adjusted number or type of
Warrant Shares or other securities issuable upon exercise of this Warrant
(as
applicable), describing the
transactions
giving rise to such adjustments and showing in detail the facts upon which
such
adjustment is based. Upon written request, the Company will promptly deliver
a
copy of each
such
certificate to the Holder and to the Company's transfer agent.
(i)
Notice
of Corporate Events
.
If the
Company (i) declares a dividend or any other distribution of cash, securities
or
other property in respect of its Common Stock, including
without
limitation any granting of rights or warrants to subscribe for or purchase
any
capital
stock
of
the Company or any Subsidiary, (ii) authorizes or approves, enters into any
agreement
contemplating
or solicits stockholder approval for (x) any Fundamental Transaction, (y)
any
tender
offer or exchange offer (whether by the Company or another Person) pursuant
to
which holders of Common Stock are permitted to tender or exchange their shares
for other securities,
cash
or
property, or (z) any reclassification of the Common Stock or any compulsory
share
exchange
pursuant to which the Common Stock is effectively converted into or exchanged
for
other
securities, cash or property or (iii) authorizes the voluntary dissolution,
liquidation or
winding
up of the affairs of the Company, then the Company shall deliver to the Holder
a
notice describing the material terms and conditions of such transaction,
at
least fifteen days prior to the
applicable
record or effective date on which a Person would need to hold Common Stock
in
order
to
participate in or vote with respect to such transaction.
10.
Payment
of Exercise Price
.
The
Holder shall pay the Exercise Price which may
take
the
form of (i) cash, (ii) Senior Secured Notes having a principal amount plus
accrued but
unpaid
interest equal to the Exercise Price, (iv) a “cashless exercise” or (iv) any
combination
thereof.
If the Holder elects to satisfy its obligation to pay the Exercise Price
through
a "cashless
exercise,"
the Company shall issue to the Holder the number of Warrant Shares determined
as
follows:
X=Y
(
A-B
)
A
where:
X
= the
number of Warrant Shares to be issued to the Holder.
Y
= the
number of Warrant Shares with respect to which this Warrant is being
exercised.
A
= the
Closing Price.
B
= the
Exercise Price.
For
purposes of the above calculation, “
Closing
Price”
shall
be
determined by the Company's Board of Directors in good faith;
provided,
however,
that
where there exists a public
market
for the Common Stock at the time of such exercise, the fair market value
per
share shall
be
the
average of the closing bid and asked prices of the Common Stock quoted in
the
Over-The-C
ounter
Market Summary or the last reported sale price of the Common Stock or the
closing
price
quoted on the Nasdaq National Market or any exchange on which the Common
Stock
is
listed,
whichever is applicable, for the five (5) trading days prior to the date
of
determination of
fair
market value. Notwithstanding the foregoing, in the event the Warrant is
exercised in
connection
with the Company's initial public offering of Common Stock, the fair market
value
per
share
shall be the per share offering price to the public of the Company's initial
public
offering.
11.
Compliance
with Securities Laws
.
(a)
The
Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant
and
the Warrant Shares are being acquired solely for the Holder's own account
and
not
as
a
nominee for any other party, and for investment, and that the Holder will
not
offer, sell or
otherwise
dispose of this Warrant or any Warrant Shares except under circumstances
that
will
not
result in a violation of the Securities Act or any state securities or blue
sky
laws. Upon
exercise
of this Warrant, the Holder shall, if so requested by the Company, confirm
in
writing, in
a
form
satisfactory to the Company, that the Warrant Shares so purchased are being
acquired
solely
for Holder's own account and not as a nominee for the any other party, for
investment and
not
with
a view toward distribution or sale.
(b)
This
Warrant may not be transferred or assigned in whole or in part
without
compliance with all applicable federal and state securities laws by the
transferor and the
transferee
(including the delivery of investment representation letters and legal opinions
reasonably satisfactory to the Company, if such are requested by the Company).
Subject to the
provisions
of this Warrant with respect to compliance with the Securities Act or Foreign
Securities
Law and the provisions of the Transaction Documents with respect to the
restrictions
on
transfer (including, without limitation, the requirement that any transferee
agree in writing to be subject to the terms of the Transaction Documents
to the
same extent as if the transferee were
an
original Investor under the Securities Purchase Agreement), title to this
Warrant may be
transferred
by endorsement (by the Holder executing the assignment form annexed hereto)
and
delivery
in the same manner as a negotiable instrument transferable by endorsement
and
delivery.
(c)
For
purposes of Rule 144 promulgated under the Securities Act, it is
intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise
transaction
shall be deemed to have been acquired by the Holder, and the holding period
for
the
Warrant
Shares shall be deemed to have commenced, on the date this Warrant was
originally
issued
pursuant to the Securities Purchase Agreement.
(d)
The
Warrant Shares shall be stamped or imprinted with a legend in
substantially
the following form (in addition to any legend required by state securities
laws):
THE
SECURIT
IE
S
REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES
ACT OF
1933, AS AMENDED, OR
APPLICA
B
LE
STATE
SECURITIES
AND
BLUE
SKY LAWS. THE
SECURIT
IE
S
MAY NOT
BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR
ASSIGNED (1) IN THE ABSENCE OF (A) AN E
FF
ECTIVE
REGIST
R
ATION
STATEMENT FOR THE SECURITIE
S
UNDER
THE
SECURI
TIES
ACT
OF
1933,
AS
AMEN
D
ED
(THE
“SECURITI
ES
ACT”)
OR
FOREIGN
SECURIT
IE
S
LAW, OR
(B)
IF
REASONABLY REQUESTED BY
THE
COMPANY, AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE
TO THE COMPANY THAT REGISTRAT
IO
N
IS NOT
REQUIRED
UNDER
SAID
ACT OR
FOREIGN SECURIT
IE
S
LAW AND
(2) IF
SUCH
SALE, TRANSFER OR ASSIGNMENT VIOLATES APPLICABLE
STATE
SECURIT
IE
S
AND
BLUE SKY LAWS.
THE
SECURITIES REPRESENTED
HEREBY
ARE
SUBJECT TO THE
PROVISIONS
OF A CERTAIN SECURITIES PURCHASE AGREEMENT,
DATED
AS
OF
JULY
30, 2007, INCLUDING CERTAIN RESTRICTION
S
ON
TRANSFER
SET FORTH THEREIN AND
AN
AMENDED
AND RESTATED
INVESTORS'
RIGHTS AGREEMENT, DATED AS OF JULY 30, 2007.
COMPLETE
AND CORRECT COPIES
OF
SUCH
AGREEMENTS ARE
AVAILABLE
FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE
COMPANY
AND
WILL
BE FURNISHED TO ANY HOLDER OF THE
SECURIT
IE
S
UPON
WRITTEN REQUEST WITHOUT CHARGE.
12.
Fractional
Shares
.
The
Company shall not be required to issue or cause to be
issued
fractional Warrant Shares on the exercise of this Warrant. If any fraction
of a
Warrant
Share
would, except for the provisions of this Section, be issuable upon exercise
of
this Warrant,
the
Company shall pay the Holder an amount in cash equal to the product of (i)
such
fraction of a
Warrant
Share and (ii) the excess of the Closing Price over the Exercise
Price.
13.
Notices
.
Any
and
all notices or other communications or deliveries hereunder
(including
without limitation any Exercise Notice) shall be in writing and shall be
deemed
given
and
effective on the earliest of (i) the date of transmission, if such notice
or
communication is
delivered
via facsimile at the facsimile number specified in the Securities Purchase
Agreement
prior
to
6:30 p.m. (New York City time) on a Business Day, (ii) the next Business
Day
after the
date
of
transmission, if such notice or communication is delivered via facsimile
at the
facsimile
number
specified in the Securities Purchase Agreement on a day that is not a Business
Day or
later
than 6:30 p.m. (New York City time) on any Business Day, (iii) the Business
Day
following
the
date
of mailing, if sent by nationally recognized overnight courier service or
(iv)
upon actual
receipt
by the party to whom such notice is required to be given. The address for
such
notices or
communications
shall be as set forth in the Securities Purchase Agreement.
14.
Registration
Rights
.
The
Common Shares for which this Warrant is exercisable
are
entitled to the benefits of registration rights as set forth in the Amended
and
Restated
Investors'
Rights Agreement and subject to the limitations therein.
15.
Governing
Law; Venue; Waiver Of Jury Trial
.
(A)
ALL
QUESTIONS
CONCERNING
THE
CONSTRUCTION,
VALIDITY,
ENFORCEMENT AND INTERPRETATION OF THIS WARRANT SHALL BE
GOVERNED
BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
LAWS
OF
THE STATE OF NEW YORK, INCLUDING, WITHOUT LIMITATION,
SECTIONS
5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW
AND
NEW
YORK CIVIL PRACTICE LAWS AND RULES 327(b). EACH PARTY HEREBY
IR
REVOCABLY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND
FEDERAL
COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF
MANHATTAN,
FOR
THE
ADJUDICATION
OF ANY DISPUTE HEREU
ND
ER
OR
IN
CONNECTION
HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY
OR
DISCUSSED HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF
ANY
OF
THE TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY WAIVES,
AND
AGREES NOT TO ASSERT
IN
ANY
S
UIT,
ACTION OR PROCEEDING, ANY CLAIM
THAT
IT
IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH
COURT,
THAT SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY
HEREBY
IRREVOCABLY
WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS
TO PROCESS BEING SERVED
IN
ANY
SUCH SUIT, ACTION
OR
PROCEEDING
BY MAILING A COPY T
H
EREOF
VIA
REGISTERED OR CERTIF
IE
D
MAIL
OR
OVERNIGHT DELIVERY
(WITH
EVIDENCE
OF DELIVERY) TO SUCH
PARTY
AT
THE ADDRESS
IN
EFFECT
FOR NOTICES TO IT UNDER THIS
AGREE
ME
NT
AND
AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND
SUFFIC
IE
NT
SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED
HEREIN
SHALL BE DEEMED TO LIMIT
IN
ANY
WAY
ANY RIGHT TO SERVE
PROCESS
IN
ANY
MANNER PERMITTED BY LAW.
THE
COMPANY HEREBY
WAIVES
ALL RIGHTS TO A TRIAL BY JURY.
16.
Miscellaneous
.
(a)
Subject
to the restrictions on transfer set forth herein, this Warrant may be
assigned
by the Holder. This Warrant may not be assigned by the Company except to
a
successor
in the event of a Fundamental Transaction. This Warrant shall be binding
on and
inure
to
the
benefit of the parties hereto and their respective successors and assigns.
Subject to the
preceding
sentences, nothing in this Warrant shall be construed to give to any Person
other than
the
Company and the Holder any legal or equitable right, remedy or cause of action
under this
Warrant.
This Warrant may be amended only in writing signed by the Company and the
Holder
and
their
successors and assigns.
(b)
The
Company will not, by amendment of its governing documents or
through
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek
to
avoid the observance or performance of any of the terms of this Warrant,
but
will at all times in good faith assist in the carrying out of all
such
terms. Without limiting the generality of the foregoing, the Company (i)
will
not increase
the
par
value of any Warrant Shares above the amount payable therefor on such exercise,
(ii) will
take
all
such action as may be reasonably necessary or appropriate in order that the
Company
may
issue
fully paid and nonassessable Warrant Shares on the exercise of this Warrant,
and
(iii)
will
not
close its stockholder books or records in any manner which interferes with
the
timely
exercise
of this Warrant.
(c)
Nothing
contained in this Warrant shall be construed as conferring upon
the
Holder any rights as a stockholder of the Company.
(d)
The
headings herein are for convenience only, do not constitute a part of
this
Warrant and shall not be deemed to limit or affect any of the provisions
hereof.
(e)
In
case
any one or more of the provisions of this Warrant shall be invalid
or
unenforceable in any respect, the validity and enforceability of the remaining
terms and
provisions
of this Warrant shall not in any way be affected or impaired thereby and
the
parties
will
attempt in good faith to agree upon a valid and enforceable provision which
shall be a
commercially
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute
provision in this Warrant.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
by its
authorized officer as of the date first indicated above.
|
|
|
|
TWISTBOX
ENTERTAINMENT, INC.
|
|
|
|
|
By:
|
/s/ IAN AARON
|
|
Name:
IAN AARON
|
|
Title:
PRES./CEO
|
ACCEPTED
AND AGREED TO BY:
|
|
VALUEACT
SMALLCAP MASTER FUND, L.P.
|
By
Its General Partner, VA SmallCap Partners, LLC
|
|
By:
|
/s/
DAVID LOCKWOOD
|
|
|
|
Name:
|
DAVID
LOCKWOOD
|
|
|
|
Title:
|
MANAGING
MEMBER
|
|
FORM
OF EXERCISE NOTICE
To
be
executed by the Holder to exercise the right to purchase shares of Common
Stock
under
the
foregoing Warrant.
To:
TWISTBOX ENTERTAINMENT, INC.
The
undersigned is the Holder of Warrant No. ____________
(the
“Warrant”
)
issued
by
Twistbox
Entertainment,
Inc., a Delaware corporation (the
“Company”
)
.
Capitalized
terms used herein
and
not
otherwise defined have the respective meanings set forth in the
Warrant.
1.
|
The
Warrant is currently exercisable to purchase a total of
_____________
Warrant
Shares.
|
2.
|
The
undersigned Holder hereby exercises its right to purchase
___________
Warrant
Shares pursuant to the Warrant.
|
3.
|
The
Holder intends that payment of the Exercise Price shall be made
as (check
one):
|
____
“
Cash
Exercise
”
under Section 10
____
“Cashless Exercise” under Section 10
____
“Senior Secured Note Due January 30, 2010” having a
principal
amount plus accrued but unpaid interest equal to the
Exercise
Price
4.
|
If
the Holder has elected a Cash Exercise, the holder shall pay the
sum of
$________
to
the Company in accordance with the terms of the
Warrant.
|
5.
|
Pursuant
to this exercise, the Company shall deliver to the holder
__________
Warrant Shares in accordance with the terms of the
Warrant.
|
6.
|
Following
this exercise, the Warrant shall be exercisable to purchase a
total of
_____________
Warrant
Shares.
|
|
|
|
Dated: _______________,
________
|
Name
of Holder:
(Print)
|
|
By:
|
|
|
Name:
|
|
|
Title:
|
|
|
|
|
|
(Signature
must conform in all respects to name of holder
as
specified on the face of the
Warrant)
|
FORM
OF ASSIGNMENT
To
be
completed and signed only upon transfer of Warrant.
FOR
VALUE
RECEIVED, the undersigned hereby sells, assigns and transfers unto
_______________________
the
right
represented by the within Warrant to purchase
______________
shares of Common Stock of Twistbox Entertainment, Inc. to which the within
Warrant
relates and appoints ______________
attorney
to transfer said right on the books of
Twistbox
Entertainment, Inc. with full power of substitution in the
premises.
|
|
|
Dated:
_____________,_____
|
|
|
|
|
|
(Signature
must conform in all respects to name of holder
as
specified on the face of the Warrant)
|
|
|
|
Address
of Transferee
|
|
|
|
Security
or Taxpayer Identification Number
|
|
|
In the presence of:
|
|
|
|
|
|
NEITHER
THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED
BY SUCH SECURITIES.
MANDALAY
MEDIA, INC.
WARRANT
Date
of
Original Issuance: February 12, 2008
Mandalay
Media, Inc.
,
a
Delaware corporation (the
"Company"
),
hereby
certifies that, for value received, VALUEACT SMALLCAP MASTER FUND, L.P. or
its
registered assigns (the
"Holder"
),
is
entitled to purchase from the Company up to a total of 1,092,622
shares
of
common stock, $0.0001 par value per share (the
"Common
Stock"
),
of the
Company (each such share, a
"Warrant
Share"
and all
such shares, the
"Warrant
Shares"
),
at an
exercise price equal to $7.55 per share (as adjusted from time to time as
provided in
Section 9
,
the
"Exercise
Price"
),
at any
time and from time to time from and after the date hereof and through and
including July 30, 2011 (the
"Expiration
Date"
),
and
subject to the following terms and conditions:
1.
Registration
of Warrant
.
The
Company shall register this Warrant, upon records to be maintained by the
Company for that purpose (the
"Warrant
Register"
),
in the
name of the record Holder hereof from time to time. The Company may deem and
treat the registered Holder of this Warrant as the absolute owner hereof for
the
purpose of any exercise hereof or any distribution to the Holder, and for all
other purposes, absent written notice to the contrary.
2.
Registration
of Transfers
.
The
Company shall register the transfer of any portion of this Warrant in the
Warrant Register, upon surrender of this Warrant, with the Form of Assignment
attached hereto duly completed and signed, to the Company at its address
specified herein. Upon any such registration or transfer, a new Warrant to
purchase Common Stock, in substantially the form of this Warrant (any such
new
Warrant, a
"New
Warrant"
),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance by such transferee of all of the rights and obligations of a holder
of a Warrant.
3.
Lock-Up
.
Holder
agrees with the Company that, during a period of one (1) year from the date
of
the Effective Time (as such term is defined in the Agreement and Plan of Merger
by and among the Company, Twistbox Acquisition, Inc., Twistbox Entertainment,
Inc. ("
Twistbox
")
and
Adi McAbian and Spark Capital L.P. as representatives of the stockholders of
Twistbox), Holder will not, directly or indirectly, (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant for the sale of, or
otherwise dispose of or transfer any Common Stock or any securities convertible
into or exchangeable or exercisable for Common Stock, whether now owned or
hereafter acquired by the Holder or with respect to which the Holder has or
hereafter acquires the power of disposition, or file, or cause to be filed,
any
registration statement under the Securities Act with respect to any of the
foregoing (collectively, the "
Lock-Up
Securities
")
or
(ii) enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic consequence
of ownership of the Lock-Up Securities, whether any such swap or transaction
is
to be settled by delivery of Common Stock or other securities, in cash or
otherwise. The Holder also agrees and consents to the entry of stop transfer
instructions with the Company's transfer agent and registrar against the
transfer of the Holder's shares of Common Stock except in compliance with the
foregoing restrictions.
4.
Exercise
and Duration of Warrants
.
(a)
This
Warrant shall be exercisable by the registered Holder at any time and from
time
to time on or after the date hereof to and including the Expiration Date. At
5:30 p.m., New York City time on the Expiration Date, the portion of this
Warrant not exercised prior thereto shall be and become void and of no value;
provided
that
,
on the
Expiration Date, if the Closing Price exceeds the Exercise Price, this Warrant
shall be deemed to have been exercised in full (to the extent not previously
exercised) on a "cashless exercise" basis immediately prior to expiration
thereof.
(b)
A
Holder
may exercise this Warrant by delivering to the Company (i) an exercise notice,
in the form attached hereto (the "
Exercise
Notice
")
(with
the attached Warrant Shares Exercise Log), appropriately completed and duly
signed along with the Warrant, and (ii) payment of the Exercise Price for
the number of Warrant Shares as to which this Warrant is being exercised (which
may take the form of (w) cash, (x) surrender of Senior Secured Notes issued
by
Twistbox due January 30, 2010 ("
Senior
Secured Notes
")
having
a principal amount plus accrued but unpaid interest equal to the Exercise Price,
(y) a "cashless exercise" pursuant to
Section
10
below,
or (z) any combination thereof, in each case as indicated in the Exercise
Notice), and the date such items are delivered to the Company (as determined
in
accordance with the notice provisions hereof) is a "
Date
of Exercise
."
Execution and delivery of the Exercise Notice shall have the same effect as
cancellation of the original Warrant and issuance of a New Warrant evidencing
the right to purchase the remaining number of Warrant Shares.
5.
Delivery
of Warrant Shares
.
(a)
Upon
exercise of this Warrant, the Company shall promptly issue or cause to be issued
and cause to be delivered to or upon the written order of the Holder a
certificate for the Warrant Shares issuable upon such exercise.
(b)
This
Warrant is exercisable, either in its entirety or, from time to time, in part.
Upon surrender of this Warrant following one or more partial exercises, the
Company shall issue or cause to be issued, at its expense, a New Warrant
evidencing the right to purchase the remaining number of Warrant
Shares.
(c)
The
Company's obligations to issue and deliver Warrant Shares in accordance with
the
terms hereof are absolute and unconditional, irrespective of any action or
inaction by the Holder to enforce the same, any waiver or consent with respect
to any provision hereof, the recovery of any judgment against any Person (as
defined herein) or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the
Holder or any other Person of any obligation to the Company or any violation
or
alleged violation of law by the Holder or any other Person, and irrespective
of
any other circumstance which might otherwise limit such obligation of the
Company to the Holder in connection with the issuance of Warrant Shares. Nothing
herein shall limit a Holder's right to pursue any other remedies available
to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company's
failure to timely deliver certificates representing shares of Common Stock
upon
exercise of the Warrant as required pursuant to the terms hereof. "
Person
"
shall
mean any individual, corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint venture,
estate, trust, company (including any limited liability company or joint stock
company),
firm
or
other enterprise, association, organization, entity or governmental
entity
6.
Charges,
Taxes and Expenses
.
Issuance and delivery of certificates for shares of Common Stock upon exercise
of this Warrant shall be made without charge to the Holder for any issue or
transfer tax, withholding tax, transfer agent fee or other incidental tax or
expense in respect of the issuance of such certificates, all of which taxes
and
expenses shall be paid by the Company;
provided
,
however
,
that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the registration of any certificates for Warrant
Shares or Warrants in a name other than that of the Holder. The Holder shall
be
responsible for all other tax liability that may arise as a result of holding
or
transferring this Warrant or receiving Warrant Shares upon exercise
hereof.
7.
Replacement
of Warrant
.
If this
Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
hereof, or in lieu of and substitution for this Warrant, a New Warrant, but
only
upon receipt of evidence reasonably satisfactory to the Company of such loss,
theft or destruction and customary and reasonable indemnity (which shall not
include a surety bond), if requested. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable third-party costs as the Company may
prescribe. If a New Warrant is requested as a result of a mutilation of this
Warrant, then the Holder shall deliver such mutilated Warrant to the Company
as
a condition precedent to the Company's obligation to issue the New
Warrant.
8.
Reservation
of Warrant Shares
.
The
Company covenants that it will at all times reserve and keep available out
of
the aggregate of its authorized but unissued and otherwise unreserved Common
Stock, solely for the purpose of enabling it to issue Warrant Shares upon
exercise of this Warrant as herein provided, the number of Warrant Shares which
are then issuable and deliverable upon the exercise of this entire Warrant,
free
from preemptive rights or any other contingent purchase rights of persons other
than the Holder (taking into account the adjustments and restrictions of
Section
9
).
The
Company covenants that all Warrant Shares so issuable and deliverable shall,
upon issuance and the payment of the applicable Exercise Price in accordance
with the terms hereof, be duly and validly authorized, issued and fully paid
and
nonassessable. The Company will take all such action as may be necessary to
assure that such Warrant Shares may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of any
securities exchange, over-the-counter bulletin board or automated quotation
system upon which the Common Stock may be listed.
9.
Certain
Adjustments
.
The
Exercise Price and number of Warrant Shares issuable upon exercise of this
Warrant are subject to adjustment from time to time as set forth in this
Section
9
.
(a)
Stock
Dividends and Splits
.
If the
Company, at any time while this Warrant is outstanding, (i) pays a stock
dividend on its Common Stock or otherwise makes a distribution on any class
of
capital stock that is payable in shares of Common Stock, (ii) subdivides
outstanding shares of Common Stock into a larger number of shares, or (iii)
combines outstanding shares of Common Stock into a smaller number of shares,
then in each such case the Exercise Price shall be multiplied by a fraction
of
which the numerator shall be the number of shares of Common Stock outstanding
immediately before such event and of which the denominator shall be the number
of shares of Common Stock outstanding immediately after such event. Any
adjustment made pursuant to clause (i) of this paragraph shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution, and any adjustment pursuant to clause
(ii) or (iii) of this paragraph shall become effective immediately after the
effective date of such subdivision or combination.
(b)
Fundamental
Transactions
.
If, at
any time while this Warrant, or any portion hereof, is outstanding and unexpired
there shall be (i) a reorganization (other than a combination, reclassification,
exchange or subdivision of shares otherwise provided for herein), (ii) a merger
or consolidation of the Company with or into another Person in which the Company
is not the surviving entity, or a reverse triangular merger in which the Company
is the surviving entity but the shares of the Company's capital stock
outstanding immediately prior to the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, or (iii) a sale of all or substantially all of the Company's assets
to another Person in one or a series of related transactions, (iv) any tender
offer or exchange offer (whether by the Company or another Person) completed
pursuant to which holders of Common Stock are permitted to tender or exchange
their shares for other securities, cash or property, or (v) any reclassification
of the Common Stock or any compulsory share exchange pursuant to which the
Common Stock is effectively converted into or exchanged for other securities,
cash or property (each of (i)-(v), a "
Fundamental
Transaction
"),
then,
as a part of such Fundamental Transaction, lawful provision shall be made so
that the Holder shall thereafter be entitled to receive upon exercise of this
Warrant, during the period specified herein and upon payment of the Exercise
Price then in effect, the number of shares of stock or other securities or
property resulting from a Fundamental Transaction that a Holder upon exercise
of
this Warrant would have been entitled to receive in such Fundamental Transaction
if this Warrant had been exercised immediately before such Fundamental
Transaction, all subject to further adjustment as provided in this
Section
9
.
The
foregoing provision of this
Section
9(b)
shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation that
are
at the time receivable upon the exercise of this Warrant. If holders of Common
Stock are given any choice as to the securities, cash or security to be received
in a Fundamental Transaction, then the Holder shall be given the same choice.
If
the per share consideration payable to the Holder for shares in connection
with
any such transaction is in a form other than cash or marketable securities,
then
the value of such consideration shall be determined in good faith by the
Company's Board of Directors. If the per share consideration payable to the
Holder for shares in connection with any such transaction is in a form other
than cash or marketable securities, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Warrant with respect to the rights and interests
of
the Holder after the transaction (including provisions for adjustment to the
Exercise Price), to the end that the provisions of this Warrant shall be
applicable after that event, as near as reasonably may be, in relation to any
shares or other property deliverable after that event upon exercise of this
Warrant. The terms of any agreement pursuant to which a Fundamental Transaction
is effected shall include terms requiring any such successor or surviving entity
to comply with the provisions of this
Section
9(b)
and
insuring that the Warrant (or any such replacement security) will be similarly
adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.
(c)
Number
of Warrant Shares
.
Simultaneously with any adjustment to the Exercise Price pursuant to paragraph
(a) of this
Section
9
,
the
number of Warrant Shares that may be purchased upon exercise of this Warrant
shall be increased or decreased proportionately, so that after such adjustment
the aggregate Exercise Price payable hereunder for the adjusted number of
Warrant Shares shall be the same as the aggregate Exercise Price in effect
immediately prior to such adjustment.
(d)
Calculations
.
All
calculations under this
Section
9
shall be
made to the nearest cent or the nearest 1/100
th
of a
share, as applicable. The number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for the account of
the
Company, and the disposition of any such shares shall be considered an issue
or
sale of Common Stock.
(e)
Notice
of Adjustments
.
Upon
the occurrence of each adjustment pursuant to this
Section
9
,
the
Company at its expense will promptly compute such adjustment in accordance
with
the terms of this Warrant and prepare a certificate setting forth such
adjustment, including a statement of the adjusted Exercise Price and adjusted
number or type of Warrant Shares or other securities issuable upon exercise
of
this Warrant (as applicable), describing the transactions giving rise to such
adjustments and showing in detail the facts upon which such adjustment is based.
Upon written request, the Company will promptly deliver a copy of each such
certificate to the Holder and to the Company's transfer agent.
(f)
Notice
of Corporate Events
.
If the
Company (i) declares a dividend or any other distribution of cash, securities
or
other property in respect of its Common Stock, including without limitation
any
granting of rights or warrants to subscribe for or purchase any capital stock
of
the Company or any Subsidiary, (ii) authorizes or approves, enters into any
agreement contemplating or solicits stockholder approval for any Fundamental
Transaction or (iii) authorizes the voluntary dissolution, liquidation or
winding up of the affairs of the Company, then the Company shall deliver to
the
Holder a notice describing the material terms and conditions of such
transaction, at least ten business days prior to the applicable record or
effective date on which a Person would need to hold Common Stock in order to
participate in or vote with respect to such transaction, and the Company will
take all steps reasonably necessary in order to insure that the Holder is given
the practical opportunity to exercise this Warrant prior to such time so as
to
participate in or vote with respect to such transaction;
provided
,
however
,
that
the failure to deliver such notice or any defect therein shall not affect the
validity of the corporate action required to be described in such
notice.
10.
Payment
of Exercise Price
.
The
Holder may pay the Exercise Price in one of the following manners:
(a)
Cash
Exercise
.
The
Holder may deliver immediately available funds;
(b)
Senior
Secured Notes Exercise
.
The
Holder may surrender Senior Secured Notes having a principal amount plus accrued
but unpaid interest equal to the Exercise Price; or
(c)
Cashless
Exercise
.
The
Holder may notify the Company in an Exercise Notice of its election to utilize
cashless exercise, in which event the Company shall issue to the Holder the
number of Warrant Shares determined as follows
:
X
= Y
[(A-B)/A]
where:
X
= the
number of Warrant Shares to be issued to the Holder.
Y
= the
number of Warrant Shares with respect to which this Warrant is being
exercised.
A
= the
average of the closing bid and asked prices of the Common Stock quoted in the
Over-The-Counter Market Summary or the last reported sale price of Common Stock
or the closing price quoted on the Nasdaq National Market or any exchange on
which the Common Stock is listed, whichever is applicable, for the five trading
days immediately prior to (but not including) the Exercise Date.
B
= the
Exercise Price.
For
purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have commenced,
on
the date this Warrant was originally issued.
11.
No
Rights as Stockholder
.
Until
the exercise of this Warrant, the Holder shall not have or exercise any rights
by virtue hereof as a stockholder of the Company.
12.
No
Fractional Shares
.
No
fractional shares of Warrant Shares will be issued in connection with any
exercise of this Warrant. If any fraction of a Warrant Share would, except
for
the provisions of this
Section
12
,
be
issuable upon exercise of this Warrant, the number of Warrant Shares to be
issued will be rounded up to the nearest whole share.
13.
Notices
.
Any and
all notices or other communications or deliveries hereunder (including, without
limitation, any Exercise Notice) shall be in writing and shall be deemed given
and effective on the earliest of (i) the date of transmission, if such notice
or
communication is delivered via facsimile at the facsimile number specified
in
this
Section
13
prior to
5:30 p.m. (New York City time) on a business day, (ii) the next business day
after the date of transmission, if such notice or communication is delivered
via
facsimile at the facsimile number specified in this
Section
13
on a day
that is not a business day or later than 5:30 p.m. (New York City time) on
any
business day, (iii) the business day following the date of mailing, if sent
by
nationally recognized overnight courier service, or (iv) upon actual receipt
by
the party to whom such notice is required to be given. The addresses for such
communications shall be: (i) if to the Company, to Mandalay Media, Inc., 2121
Avenue of the Stars, Suite 2550, Los Angeles, CA 90067 Attention: President,
Facsimile No.: 310-277-2741 or such other address as the Company shall so notify
the Holder, or (ii) if to the Holder, to the address or facsimile number
appearing on the Warrant Register or such other address or facsimile number
as
the Holder may provide to the Company in accordance with this
Section
13
.
14.
Warrant
Agent
.
The
Company shall serve as warrant agent under this Warrant. Upon 10 business days'
notice to the Holder, the Company may appoint a new warrant agent. Any
corporation into which the Company or any new warrant agent may be merged or
any
corporation resulting from any consolidation to which the Company or any new
warrant agent shall be a party or any corporation to which the Company or any
new warrant agent transfers substantially all of its corporate trust or
shareholders services business shall be a successor warrant agent under this
Warrant without any further act. Any such successor warrant agent shall promptly
cause notice of its succession as warrant agent to be mailed (by first class
mail, postage prepaid) to the Holder at the Holder's last address as shown
on
the Warrant Register.
15.
Miscellaneous
.
(a)
This
Warrant shall be binding on and inure to the benefit of the parties hereto
and
their respective successors and assigns. Subject to the preceding sentence,
nothing in this Warrant shall be construed to give to any Person other than
the
Company and the Holder any legal or equitable right, remedy or cause of action
under this Warrant. This Warrant may be amended only in writing signed by the
Company and the Holder and their successors and assigns.
(b)
ALL
QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION
OF THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK
,
INCLUDING, WITHOUT LIMITATION, SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK
GENERAL OBLIGATIONS LAW AND NEW YORK CIVIL PRACTICE LAWS AND RULES
327(b).
EACH
PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE
AND
FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN, FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY
TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT
TO
THE ENFORCEMENT OF ANY OF THE TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY
WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM
THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT
SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY
WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN
ANY
SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR
CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY
AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES
THAT
SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE
THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT
TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. THE COMPANY HEREBY WAIVES
ALL
RIGHTS TO A TRIAL BY JURY.
(c)
The
headings herein are for convenience only, do not constitute a part of this
Warrant and shall not be deemed to limit or affect any of the provisions
hereof.
(d)
In
case
any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Warrant shall not in any way be affected or
impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
(e)
This
Warrant may be executed and acknowledged in one or more counterparts by the
different parties hereto, each of which when executed shall be deemed to be
an
original but all of which taken together shall constitute one and the same
instrument.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by
its
authorized officer as of the date first indicated above.
|
MANDALAY
MEDIA, INC.
By:
/s/ Jay Wolf
Name:
Jay Wolf
Title:
Chief Financial Officer
|
Acknowledged
and accepted:
VALUEACT
SMALLCAP MASTER FUND, L.P.
By:
/s/ David Lockwood
Name:
David Lockwood
Title:
Managing Member
FORM
OF EXERCISE NOTICE
To
be
executed by the Holder to exercise the right to purchase shares of Common Stock
under the foregoing Warrant.
To:
MANDALAY MEDIA, INC.
The
undersigned is the Holder of Warrant No. _______ (the "
Warrant
")
issued
by Mandalay Media, Inc., a Delaware corporation (the "
Company
").
Capitalized terms used herein and not otherwise defined have the respective
meanings set forth in the Warrant.
(1)
|
The
Warrant is currently exercisable to purchase a total of ______________
Warrant Shares.
|
(2)
|
The
undersigned Holder hereby exercises its right to purchase
_________________ Warrant Shares pursuant to the
Warrant.
|
(3)
|
The
Holder intends that payment of the Exercise Price shall be made as
(check
one):
|
____
"Cash
Exercise" under Section 10
____
"Cashless
Exercise" under Section 10
____
"Senior
Secured Note Due January 30, 2010" having a principal amount plus accrued but
unpaid interest equal to the Exercise Price
(4)
|
If
the Holder has elected a Cash Exercise, the holder shall pay the
sum of
$____________ to the Company in accordance with the terms of the
Warrant.
|
(5)
|
Pursuant
to this exercise, the Company shall deliver to the holder _______________
Warrant Shares in accordance with the terms of the
Warrant.
|
(6)
|
Following
this exercise, the Warrant shall be exercisable to purchase a total
of
______________ Warrant Shares.
|
|
|
|
Dated:
__________
,
____
|
|
Name
of Holder:
|
|
|
|
|
|
(Print)_________________________
|
|
|
|
|
|
By:___________________________
|
|
|
Name:_________________________
|
|
|
Title:_________________________
|
|
|
|
|
|
(Signature
must conform in all respects to name of holder as specified on the
face of
the Warrant)
|
Warrant
Shares Exercise Log
Date
|
Number
of Warrant Shares Available to be Exercised
|
Number
of Warrant Shares Exercised
|
Number
of Warrant Shares Remaining to be Exercised
|
|
|
|
|
MANDALAY
MEDIA, INC.
WARRANT
ORIGINALLY ISSUED FEBRUARY 12, 2008
FORM
OF
ASSIGNMENT
[To
be
completed and signed only upon transfer of Warrant]
FOR
VALUE
RECEIVED, the undersigned hereby sells, assigns and transfers unto
________________________________ the right represented by the above-captioned
Warrant to purchase ____________ shares of Common Stock to which such Warrant
relates and appoints ________________ attorney to transfer said right on the
books of the Company with full power of substitution in the
premises.
Dated:
_______________,
____
|
_______________________________________
(Signature
must conform in all respects to name of holder as specified on the
face of
the Warrant)
_______________________________________
Address
of Transferee
_______________________________________
_______________________________________
|
In
the
presence of:
__________________________
NEITHER
THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED
BY SUCH SECURITIES.
MANDALAY
MEDIA, INC.
WARRANT
Date
of
Original Issuance: February 12, 2008
Mandalay
Media, Inc.
,
a
Delaware corporation (the
"Company"
),
hereby
certifies that, for value received, VALUEACT SMALLCAP MASTER FUND, L.P. or
its
registered assigns (the
"Holder"
),
is
entitled to purchase from the Company up to a total of 1,092,621
shares
of
common stock, $0.0001 par value per share (the
"Common
Stock"
),
of the
Company (each such share, a
"Warrant
Share"
and all
such shares, the
"Warrant
Shares"
),
at an
exercise price equal to $5.00 per share (as adjusted from time to time as
provided in
Section 9
,
the
"Exercise
Price"
),
at any
time and from time to time from and after the date hereof and through and
including July 30, 2011 (the
"Expiration
Date"
),
and
subject to the following terms and conditions:
1.
Registration
of Warrant
.
The
Company shall register this Warrant, upon records to be maintained by the
Company for that purpose (the
"Warrant
Register"
),
in the
name of the record Holder hereof from time to time. The Company may deem and
treat the registered Holder of this Warrant as the absolute owner hereof for
the
purpose of any exercise hereof or any distribution to the Holder, and for all
other purposes, absent written notice to the contrary.
2.
Registration
of Transfers
.
The
Company shall register the transfer of any portion of this Warrant in the
Warrant Register, upon surrender of this Warrant, with the Form of Assignment
attached hereto duly completed and signed, to the Company at its address
specified herein. Upon any such registration or transfer, a new Warrant to
purchase Common Stock, in substantially the form of this Warrant (any such
new
Warrant, a
"New
Warrant"
),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance by such transferee of all of the rights and obligations of a holder
of a Warrant.
3.
Lock-Up
.
Holder
agrees with the Company that, during a period of one (1) year from the date
of
the Effective Time (as such term is defined in the Agreement and Plan of Merger
by and among the Company, Twistbox Acquisition, Inc., Twistbox Entertainment,
Inc. ("
Twistbox
")
and
Adi McAbian and Spark Capital L.P. as representatives of the stockholders of
Twistbox), Holder will not, directly or indirectly, (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant for the sale of, or
otherwise dispose of or transfer any Common Stock or any securities convertible
into or exchangeable or exercisable for Common Stock, whether now owned or
hereafter acquired by the Holder or with respect to which the Holder has or
hereafter acquires the power of disposition, or file, or cause to be filed,
any
registration statement under the Securities Act with respect to any of the
foregoing (collectively, the "
Lock-Up
Securities
")
or
(ii) enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic consequence
of ownership of the Lock-Up Securities, whether any such swap or transaction
is
to be settled by delivery of Common Stock or other securities, in cash or
otherwise. The Holder also agrees and consents to the entry of stop transfer
instructions with the Company's transfer agent and registrar against the
transfer of the Holder's shares of Common Stock except in compliance with the
foregoing restrictions.
4.
Exercise
and Duration of Warrants
.
(a)
This
Warrant shall be exercisable by the registered Holder at any time and from
time
to time on or after the date hereof to and including the Expiration Date. At
5:30 p.m., New York City time on the Expiration Date, the portion of this
Warrant not exercised prior thereto shall be and become void and of no value;
provided
that
,
on the
Expiration Date, if the Closing Price exceeds the then applicable Exercise
Price, this Warrant shall be deemed to have been exercised in full (to the
extent not previously exercised) on a "cashless exercise" basis immediately
prior to expiration thereof.
(b)
A
Holder
may exercise this Warrant by delivering to the Company (i) an exercise notice,
in the form attached hereto (the "
Exercise
Notice
")
(with
the attached Warrant Shares Exercise Log), appropriately completed and duly
signed along with the Warrant, and (ii) payment of the then applicable
Exercise Price for the number of Warrant Shares as to which this Warrant is
being exercised (which may take the form of (w) cash, (x) surrender of Senior
Secured Notes issued by Twistbox due January 30, 2010 ("
Senior
Secured Notes
")
having
a principal amount plus accrued but unpaid interest equal to the Exercise Price,
(y) a "cashless exercise" pursuant to
Section
10
below,
or (z) any combination thereof, in each case as indicated in the Exercise
Notice), and the date such items are delivered to the Company (as determined
in
accordance with the notice provisions hereof) is a "
Date
of Exercise
."
Execution and delivery of the Exercise Notice shall have the same effect as
cancellation of the original Warrant and issuance of a New Warrant evidencing
the right to purchase the remaining number of Warrant Shares.
5.
Delivery
of Warrant Shares
.
(a)
Upon
exercise of this Warrant, the Company shall promptly issue or cause to be issued
and cause to be delivered to or upon the written order of the Holder a
certificate for the Warrant Shares issuable upon such exercise.
(b)
This
Warrant is exercisable, either in its entirety or, from time to time, in part.
Upon surrender of this Warrant following one or more partial exercises, the
Company shall issue or cause to be issued, at its expense, a New Warrant
evidencing the right to purchase the remaining number of Warrant
Shares.
(c)
The
Company's obligations to issue and deliver Warrant Shares in accordance with
the
terms hereof are absolute and unconditional, irrespective of any action or
inaction by the Holder to enforce the same, any waiver or consent with respect
to any provision hereof, the recovery of any judgment against any Person (as
defined herein) or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the
Holder or any other Person of any obligation to the Company or any violation
or
alleged violation of law by the Holder or any other Person, and irrespective
of
any other circumstance which might otherwise limit such obligation of the
Company to the Holder in connection with the issuance of Warrant Shares. Nothing
herein shall limit a Holder's right to pursue any other remedies available
to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company's
failure to timely deliver certificates representing shares of Common Stock
upon
exercise of the Warrant as required pursuant to the terms hereof. "
Person
"
shall
mean any individual, corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint venture,
estate, trust, company (including any limited liability company or joint stock
company),
firm
or
other enterprise, association, organization, entity or governmental
entity
6.
Charges,
Taxes and Expenses
.
Issuance and delivery of certificates for shares of Common Stock upon exercise
of this Warrant shall be made without charge to the Holder for any issue or
transfer tax, withholding tax, transfer agent fee or other incidental tax or
expense in respect of the issuance of such certificates, all of which taxes
and
expenses shall be paid by the Company;
provided
,
however
,
that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the registration of any certificates for Warrant
Shares or Warrants in a name other than that of the Holder. The Holder shall
be
responsible for all other tax liability that may arise as a result of holding
or
transferring this Warrant or receiving Warrant Shares upon exercise
hereof.
7.
Replacement
of Warrant
.
If this
Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
hereof, or in lieu of and substitution for this Warrant, a New Warrant, but
only
upon receipt of evidence reasonably satisfactory to the Company of such loss,
theft or destruction and customary and reasonable indemnity (which shall not
include a surety bond), if requested. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable third-party costs as the Company may
prescribe. If a New Warrant is requested as a result of a mutilation of this
Warrant, then the Holder shall deliver such mutilated Warrant to the Company
as
a condition precedent to the Company's obligation to issue the New
Warrant.
8.
Reservation
of Warrant Shares
.
The
Company covenants that it will at all times reserve and keep available out
of
the aggregate of its authorized but unissued and otherwise unreserved Common
Stock, solely for the purpose of enabling it to issue Warrant Shares upon
exercise of this Warrant as herein provided, the number of Warrant Shares which
are then issuable and deliverable upon the exercise of this entire Warrant,
free
from preemptive rights or any other contingent purchase rights of persons other
than the Holder (taking into account the adjustments and restrictions of
Section
9
).
The
Company covenants that all Warrant Shares so issuable and deliverable shall,
upon issuance and the payment of the applicable Exercise Price in accordance
with the terms hereof, be duly and validly authorized, issued and fully paid
and
nonassessable. The Company will take all such action as may be necessary to
assure that such Warrant Shares may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of any
securities exchange, over-the-counter bulletin board or automated quotation
system upon which the Common Stock may be listed.
9.
Certain
Adjustments
.
The
Exercise Price and number of Warrant Shares issuable upon exercise of this
Warrant are subject to adjustment from time to time as set forth in this
Section
9
.
(a)
Stock
Dividends and Splits
.
If the
Company, at any time while this Warrant is outstanding, (i) pays a stock
dividend on its Common Stock or otherwise makes a distribution on any class
of
capital stock that is payable in shares of Common Stock, (ii) subdivides
outstanding shares of Common Stock into a larger number of shares, or (iii)
combines outstanding shares of Common Stock into a smaller number of shares,
then in each such case the Exercise Price shall be multiplied by a fraction
of
which the numerator shall be the number of shares of Common Stock outstanding
immediately before such event and of which the denominator shall be the number
of shares of Common Stock outstanding immediately after such event. Any
adjustment made pursuant to clause (i) of this paragraph shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution, and any adjustment pursuant to clause
(ii) or (iii) of this paragraph shall become effective immediately after the
effective date of such subdivision or combination.
(b)
Fundamental
Transactions
.
If, at
any time while this Warrant, or any portion hereof, is outstanding and unexpired
there shall be (i) a reorganization (other than a combination, reclassification,
exchange or subdivision of shares otherwise provided for herein), (ii) a merger
or consolidation of the Company with or into another Person in which the Company
is not the surviving entity, or a reverse triangular merger in which the Company
is the surviving entity but the shares of the Company's capital stock
outstanding immediately prior to the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, or (iii) a sale of all or substantially all of the Company's assets
to another Person in one or a series of related transactions, (iv) any tender
offer or exchange offer (whether by the Company or another Person) completed
pursuant to which holders of Common Stock are permitted to tender or exchange
their shares for other securities, cash or property, or (v) any reclassification
of the Common Stock or any compulsory share exchange pursuant to which the
Common Stock is effectively converted into or exchanged for other securities,
cash or property (each of (i)-(v), a "
Fundamental
Transaction
"),
then,
as a part of such Fundamental Transaction, lawful provision shall be made so
that the Holder shall thereafter be entitled to receive upon exercise of this
Warrant, during the period specified herein and upon payment of the Exercise
Price then in effect, the number of shares of stock or other securities or
property resulting from a Fundamental Transaction that a Holder upon exercise
of
this Warrant would have been entitled to receive in such Fundamental Transaction
if this Warrant had been exercised immediately before such Fundamental
Transaction, all subject to further adjustment as provided in this
Section
9
.
The
foregoing provision of this
Section
9(b)
shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation that
are
at the time receivable upon the exercise of this Warrant. If holders of Common
Stock are given any choice as to the securities, cash or security to be received
in a Fundamental Transaction, then the Holder shall be given the same choice.
If
the per share consideration payable to the Holder for shares in connection
with
any such transaction is in a form other than cash or marketable securities,
then
the value of such consideration shall be determined in good faith by the
Company's Board of Directors. If the per share consideration payable to the
Holder for shares in connection with any such transaction is in a form other
than cash or marketable securities, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Warrant with respect to the rights and interests
of
the Holder after the transaction (including provisions for adjustment to the
Exercise Price), to the end that the provisions of this Warrant shall be
applicable after that event, as near as reasonably may be, in relation to any
shares or other property deliverable after that event upon exercise of this
Warrant. The terms of any agreement pursuant to which a Fundamental Transaction
is effected shall include terms requiring any such successor or surviving entity
to comply with the provisions of this
Section
9(b)
and
insuring that the Warrant (or any such replacement security) will be similarly
adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.
(c)
Adjustment
of Exercise Price
.
If this
Warrant is not exercised in full by February 12, 2009, the Exercise Price shall
be permanently increased to $7.55 per share, as the same may thereafter be
adjusted from time to time as provided under this
Section
9
,
except
that the provisions of
Section
9(d)
below
shall not apply with respect to the increase of the Exercise Price pursuant
to
this
Section
9(c)
.
(d)
Number
of Warrant Shares
.
Simultaneously with any adjustment to the Exercise Price pursuant to paragraph
(a) of this
Section
9
,
the
number of Warrant Shares that may be purchased upon exercise of this Warrant
shall be increased or decreased proportionately, so that after such adjustment
the aggregate Exercise Price payable hereunder for the adjusted number of
Warrant Shares shall be the same as the aggregate Exercise Price in effect
immediately prior to such adjustment.
(e)
Calculations
.
All
calculations under this
Section
9
shall be
made to the nearest cent or the nearest 1/100
th
of a
share, as applicable. The number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for the account of
the
Company, and the disposition of any such shares shall be considered an issue
or
sale of Common Stock.
(f)
Notice
of Adjustments
.
Upon
the occurrence of each adjustment pursuant to this
Section
9
(other
than the adjustment under
Section
9(c))
,
the
Company at its expense will promptly compute such adjustment in accordance
with
the terms of this Warrant and prepare a certificate setting forth such
adjustment, including a statement of the adjusted Exercise Price and adjusted
number or type of Warrant Shares or other securities issuable upon exercise
of
this Warrant (as applicable), describing the transactions giving rise to such
adjustments and showing in detail the facts upon which such adjustment is based.
Upon written request, the Company will promptly deliver a copy of each such
certificate to the Holder and to the Company's transfer agent.
(g)
Notice
of Corporate Events
.
If the
Company (i) declares a dividend or any other distribution of cash, securities
or
other property in respect of its Common Stock, including without limitation
any
granting of rights or warrants to subscribe for or purchase any capital stock
of
the Company or any Subsidiary, (ii) authorizes or approves, enters into any
agreement contemplating or solicits stockholder approval for any Fundamental
Transaction or (iii) authorizes the voluntary dissolution, liquidation or
winding up of the affairs of the Company, then the Company shall deliver to
the
Holder a notice describing the material terms and conditions of such
transaction, at least ten business days prior to the applicable record or
effective date on which a Person would need to hold Common Stock in order to
participate in or vote with respect to such transaction, and the Company will
take all steps reasonably necessary in order to insure that the Holder is given
the practical opportunity to exercise this Warrant prior to such time so as
to
participate in or vote with respect to such transaction;
provided
,
however
,
that
the failure to deliver such notice or any defect therein shall not affect the
validity of the corporate action required to be described in such
notice.
10.
Payment
of Exercise Price
.
The
Holder may pay the Exercise Price in one of the following manners:
(a)
Cash
Exercise
.
The
Holder may deliver immediately available funds;
(b)
Senior
Secured Notes Exercise
.
The
Holder may surrender Senior Secured Notes having a principal amount plus accrued
but unpaid interest equal to the Exercise Price; or
(c)
Cashless
Exercise
.
The
Holder may notify the Company in an Exercise Notice of its election to utilize
cashless exercise, in which event the Company shall issue to the Holder the
number of Warrant Shares determined as follows
:
X
= Y
[(A-B)/A]
where:
X
= the
number of Warrant Shares to be issued to the Holder.
Y
= the
number of Warrant Shares with respect to which this Warrant is being
exercised.
A
= the
average of the closing bid and asked prices of the Common Stock quoted in the
Over-The-Counter Market Summary or the last reported sale price of Common Stock
or the closing price quoted on the Nasdaq National Market or any exchange on
which the Common Stock is listed, whichever is applicable, for the five trading
days immediately prior to (but not including) the Exercise Date.
B
= the
Exercise Price.
For
purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have commenced,
on
the date this Warrant was originally issued.
11.
No
Rights as Stockholder
.
Until
the exercise of this Warrant, the Holder shall not have or exercise any rights
by virtue hereof as a stockholder of the Company.
12.
No
Fractional Shares
.
No
fractional shares of Warrant Shares will be issued in connection with any
exercise of this Warrant. If any fraction of a Warrant Share would, except
for
the provisions of this
Section
12
,
be
issuable upon exercise of this Warrant, the number of Warrant Shares to be
issued will be rounded up to the nearest whole share.
13.
Notices
.
Any and
all notices or other communications or deliveries hereunder (including, without
limitation, any Exercise Notice) shall be in writing and shall be deemed given
and effective on the earliest of (i) the date of transmission, if such notice
or
communication is delivered via facsimile at the facsimile number specified
in
this
Section
13
prior to
5:30 p.m. (New York City time) on a business day, (ii) the next business day
after the date of transmission, if such notice or communication is delivered
via
facsimile at the facsimile number specified in this
Section
13
on a day
that is not a business day or later than 5:30 p.m. (New York City time) on
any
business day, (iii) the business day following the date of mailing, if sent
by
nationally recognized overnight courier service, or (iv) upon actual receipt
by
the party to whom such notice is required to be given. The addresses for such
communications shall be: (i) if to the Company, to Mandalay Media, Inc., 2121
Avenue of the Stars, Suite 2550, Los Angeles, CA 90067 Attention: President,
Facsimile No.: 310-277-2741 or such other address as the Company shall so notify
the Holder, or (ii) if to the Holder, to the address or facsimile number
appearing on the Warrant Register or such other address or facsimile number
as
the Holder may provide to the Company in accordance with this
Section
13
.
14.
Warrant
Agent
.
The
Company shall serve as warrant agent under this Warrant. Upon 10 business days'
notice to the Holder, the Company may appoint a new warrant agent. Any
corporation into which the Company or any new warrant agent may be merged or
any
corporation resulting from any consolidation to which the Company or any new
warrant agent shall be a party or any corporation to which the Company or any
new warrant agent transfers substantially all of its corporate trust or
shareholders services business shall be a successor warrant agent under this
Warrant without any further act. Any such successor warrant agent shall promptly
cause notice of its succession as warrant agent to be mailed (by first class
mail, postage prepaid) to the Holder at the Holder's last address as shown
on
the Warrant Register.
15.
Miscellaneous
.
(a)
This
Warrant shall be binding on and inure to the benefit of the parties hereto
and
their respective successors and assigns. Subject to the preceding sentence,
nothing in this Warrant shall be construed to give to any Person other than
the
Company and the Holder any legal or equitable right, remedy or cause of action
under this Warrant. This Warrant may be amended only in writing signed by the
Company and the Holder and their successors and assigns.
(b)
ALL
QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION
OF THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK
,
INCLUDING, WITHOUT LIMITATION, SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK
GENERAL OBLIGATIONS LAW AND NEW YORK CIVIL PRACTICE LAWS AND RULES
327(b).
EACH
PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE
AND
FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN, FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY
TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT
TO
THE ENFORCEMENT OF ANY OF THE TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY
WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM
THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT
SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY
WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN
ANY
SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR
CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY
AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES
THAT
SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE
THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT
TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. THE COMPANY HEREBY WAIVES
ALL
RIGHTS TO A TRIAL BY JURY.
(c)
The
headings herein are for convenience only, do not constitute a part of this
Warrant and shall not be deemed to limit or affect any of the provisions
hereof.
(d)
In
case
any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Warrant shall not in any way be affected or
impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
(e)
This
Warrant may be executed and acknowledged in one or more counterparts by the
different parties hereto, each of which when executed shall be deemed to be
an
original but all of which taken together shall constitute one and the same
instrument.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by
its
authorized officer as of the date first indicated above.
|
MANDALAY
MEDIA, INC.
By:
/s/ Jay Wolf
Name:
Jay Wolf
Title:
Chief Financial Officer
|
Acknowledged
and accepted:
VALUEACT
SMALLCAP MASTER FUND, L.P.
By:
/s/ David Lockwood
Name:
David Lockwood
Title:
Managing Member
FORM
OF EXERCISE NOTICE
To
be
executed by the Holder to exercise the right to purchase shares of Common Stock
under the foregoing Warrant.
To:
MANDALAY MEDIA, INC.
The
undersigned is the Holder of Warrant No. _______ (the "
Warrant
")
issued
by Mandalay Media, Inc., a Delaware corporation (the "
Company
").
Capitalized terms used herein and not otherwise defined have the respective
meanings set forth in the Warrant.
(1)
|
The
Warrant is currently exercisable to purchase a total of ______________
Warrant Shares.
|
(2)
|
The
undersigned Holder hereby exercises its right to purchase
_________________ Warrant Shares pursuant to the
Warrant.
|
(3)
|
The
Holder intends that payment of the Exercise Price shall be made as
(check
one):
|
____
"Cash
Exercise" under Section 10
____
"Cashless
Exercise" under Section 10
____
"Senior
Secured Note Due January 30, 2010" having a principal amount plus accrued but
unpaid interest equal to the Exercise Price
(4)
|
If
the Holder has elected a Cash Exercise, the holder shall pay the
sum of
$____________ to the Company in accordance with the terms of the
Warrant.
|
(5)
|
Pursuant
to this exercise, the Company shall deliver to the holder _______________
Warrant Shares in accordance with the terms of the
Warrant.
|
(6)
|
Following
this exercise, the Warrant shall be exercisable to purchase a total
of
______________ Warrant Shares.
|
|
|
|
Dated:
___________
,
____
|
|
Name
of Holder:
|
|
|
|
|
|
(Print)________________
|
|
|
|
|
|
By:__________________
|
|
|
Name:________________
|
|
|
Title:_________________
|
|
|
|
|
|
(Signature
must conform in all respects to name of holder as specified on the
face of
the Warrant)
|
Warrant
Shares Exercise Log
Date
|
Number
of Warrant
Shares
Available to be
Exercised
|
Number
of Warrant Shares
Exercised
|
Number
of
Warrant
Shares
Remaining
to
be
Exercised
|
|
|
|
|
MANDALAY
MEDIA, INC.
WARRANT
ORIGINALLY ISSUED FEBRUARY 12, 2008
FORM
OF
ASSIGNMENT
[To
be
completed and signed only upon transfer of Warrant]
FOR
VALUE
RECEIVED, the undersigned hereby sells, assigns and transfers unto
________________________________ the right represented by the above-captioned
Warrant to purchase ____________ shares of Common Stock to which such Warrant
relates and appoints ________________ attorney to transfer said right on the
books of the Company with full power of substitution in the
premises.
Dated:
_______________,
____
|
_______________________________________
(Signature
must conform in all respects to name of holder as specified on the
face of
the Warrant)
_______________________________________
Address
of Transferee
_______________________________________
_______________________________________
|
In
the
presence of:
__________________________
AMENDMENT
AND WAIVER TO SENIOR SECURED NOTE
This
AMENDMENT
AND WAIVER TO SENIOR SECURED NOTE
(this
"
Amendment
")
amends
that Senior Secured Note due January 30, 2010 (the "
Secured
Note
")
issued
pursuant to the Securities Purchase Agreement, dated July 30, 2007 (the
"
Purchase
Agreement
")
by and
among TWISTBOX ENTERTAINMENT, INC., a Delaware corporation (the "
Company
"),
certain subsidiaries of the Company and VALUEACT SMALLCAP MASTER FUND, L.P.
(the
"
Investor
")
and is
made and entered into as of February 12, 2008 by and between the Company and
the
Investor. Capitalized terms used and not otherwise defined in this Amendment
are
used herein as defined in the Secured Note.
W
I T N E S S E T H
:
WHEREAS,
the Company and the Investor desire to amend certain provisions of the Secured
Note and to waive compliance with certain provisions of the Secured
Note.
WHEREAS,
Section 13 of the Secured Note provides that the terms thereof may be amended
or
waived only pursuant to a written instrument executed by the Company and the
holders of 75% of the aggregate principal amount of all Notes issued pursuant
to
the Purchase Agreement.
WHEREAS,
the Investor owns 100% of the aggregate principal amount of all Notes issued
pursuant to the Purchase Agreement.
NOW,
THEREFORE, in consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
the
parties hereby agree as follows:
1.
Waivers
.
1.1
Waiver
of Section 2
.
The
Investor hereby waives its rights to require the Company to repurchase the
Secured Note upon the occurrence of a Fundamental Change pursuant to Section
2
of the Secured Note solely with respect to the transactions contemplated by
the
Agreement and Plan of Merger dated as of December 31, 2007, by and among
Mandalay Media, Inc., a Delaware corporation ("
Parent
"),
Twistbox Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary
of Parent, the Company and Adi McAbian and Spark Capital, L.P., as
representatives of the stockholders of the Company, as the same may be amended
from time to time (the "
Merger
Agreement
").
1.2
Waiver
of Section 6(l)
.
The
Investor hereby waives compliance with the covenant set forth in Section 6(l)
of
the Secured Note solely with respect to the transactions contemplated by the
Merger Agreement.
2.
Amendments
.
2.1
Amendment
to Section 3
.
The
Secured Note is hereby amended by adding the following paragraph to Section
3:
“(l)
Guarantor shall fail to observe its covenant contained in Section 5 of this
Note.”
2.2
Amendment
to Section 5
.
The
Secured Note is hereby amended by deleting the financial covenants consisting
of
the entire text of Section 5 following Section 5(e) and replacing such text
with
the following:
"The
Company shall maintain a cash balance of not less than $2,500,000 to be held
in
a "deposit account", as such term is defined in Article 9 of the Uniform
Commercial Code as in effect from time to time in the State of New York (the
"UCC"), free and clear of all Liens except as set forth in the Guarantee and
Security Agreement and will provide the Investor with reasonable proof of such
cash balance as reasonably requested by the Investor from time to time.
Mandalay
Media, Inc., the Company's parent corporation (the “
Guarantor
”),
shall
maintain a cash balance of not less than $4,000,000 and will provide the
Investor with reasonable proof of such cash balance as reasonably requested
by
the Investor from time to time. Until at least $8,250,000 of principal has
been
paid on this Note, Guarantor will not, without the prior written approval of
Investor (which approval will not be unreasonably withheld after good faith
negotiations between Guarantor and Investor) create, incur, assume or permit
to
exist (i) all indebtedness, whether or not contingent, for borrowed money or
for
the deferred purchase price of property or services, (ii) any other indebtedness
that is evidenced by a note, bond, debenture or similar instrument, (iii) all
obligations under financing leases or letters of credit, (iv) all obligations
in
respect of acceptances issued or created, (v) all liabilities secured by any
lien on any property, and (vi) all guarantee obligations, in each case including
the principal amount thereof, any accrued interest thereon and any prepayment
premiums or fees or termination fees with respect thereto ((i)-(vi)) together,
“
Guarantor
Indebtedness
”)
except: (a) Guarantor Indebtedness with respect to trade accounts of the
Guarantor or for services provided to the Guarantor each as arising in the
ordinary course of business; (b) Guarantor Indebtedness in connection with
a
receivables facility not in excess of $25,000,000 and (c) Guarantor Indebtedness
incurred in connection with equipment leases entered into in the ordinary course
of business subsequent to the date hereof not exceeding $250,000 in the
aggregate.”
3.
Effectiveness
of this Amendment
.
This
Amendment shall have no force or effect until immediately prior to the Effective
Time (as defined in the Merger Agreement).
4.
Full
Force and Effect
.
Except
as modified by this Amendment, all other terms and conditions in the Secured
Note shall remain in full force and effect.
5.
Effect
.
Unless
the context otherwise requires, the Secured Note and this Amendment shall be
read together and shall have effect as if the provisions of the Secured Note
and
this Amendment were contained in one agreement. After the effective date of
this
Amendment, all references in the Secured Note to "this Note," "hereto,"
"hereof," "hereunder" or words of like import referring to the Secured Note
shall mean the Secured Note as modified by this Amendment.
6.
Counterparts
.
This
Amendment may be executed in separate counterparts, all of which taken together
shall constitute a single instrument.
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, the parties hereto have executed this Amendment effective
as of
the day and year first above written.
THE
COMPANY
:
|
TWISTBOX
ENTERTAINMENT, INC.
By:
/s/ Ian Aaron
Name:
Ian Aaron
Title:
CEO
|
INVESTOR:
|
VALUEACT
SMALLCAP MASTER FUND, L.P.,
By
VA Smallcap Partners, LLC, its General Partner
By:
/s/ David Lockwood
Name:
David Lockwood
Title:
Managing Member
With
respect to Section 2 hereof,
and
the amendment to Section 5 of the
Secured
Note:
MANDALAY
MEDIA, INC.
By:
/s/ Jay Wolf
Name:
Jay Wolf
Title: Chief
Financial Officer
|
MANDALAY
MEDIA, INC.
AMENDMENT
TO 2007 EMPLOYEE, DIRECTOR AND CONSULTANT STOCK PLAN
This
Amendment (the “Amendment”) to the Mandalay Media, Inc. (the “Company”) 2007
Employee, Director and Consultant Stock Plan (the “Plan”), is hereby effective
as of February 12, 2008. Capitalized terms used in this Amendment and not
otherwise defined herein shall have the meanings ascribed to them in the
Plan.
WHEREAS,
the
Company enacted the Plan in accordance with the purposes set forth
therein;
WHEREAS,
Section
31 of the Plan reserves to the Company’s board of directors (the “Board”) the
power in its discretion to amend the Plan at any time and from time to time
subject to applicable law and the rights of the Participants on the date of
such
action;
WHEREAS,
the
Board
deems it appropriate to amend the Plan to increase the aggregate number of
Shares which may be issued from time to time pursuant to the Plan from three
million (3,000,000) shares to seven million (7,000,000) shares; and
WHEREAS,
the
Board
deems it appropriate to amend the Plan to increase the maximum number of Shares
with respect to which Stock Rights may be granted to any Participant in any
fiscal year from five hundred thousand (500,000) to six hundred thousand
(600,000).
NOW,
THEREFORE,
the Plan
is hereby amended as set forth below:
1.
Section
3(a) of the Plan is hereby amended by deleting “three million (3,000,000)” from
the second line thereof and inserting “seven million (7,000,000)” in its
place.
2.
Section
4(c) of the Plan is hereby amended by deleting “500,000” from the third line
thereof and inserting “600,000” in its place.
3.
The
Plan
shall remain in full force and effect except as specifically amended
herein.
TWISTBOX
2006
STOCK INCENTIVE PLAN
TWISTBOX
2006
STOCK INCENTIVE PLAN
ARTICLE
I
PURPOSE
The
purpose of the Plan is to enhance the profitability and value of the Company
for
the benefit of its shareholder by enabling the Company to offer Eligible
Employees, Consultants and Non-Employee Directors stock options, restricted
stock and other stock-based awards, thereby creating a means to raise the level
of stock ownership by such individuals to attract, retain and reward such
individuals and strengthen the mutuality of interests between such individuals
and the Company's shareholders.
ARTICLE
II
DEFINITIONS
For
purposes of the Plan, the following terms shall have the following
meanings:
2.1.
“
Acquisition
Events
”
has the meaning set forth in Section 4.2(d).
2.2.
“
Award
”
means any award under the Plan of any Stock Option, Restricted Stock or Other
Stock-Based Award. All Awards shall be confirmed by, and subject to the terms
of, a written or electronic agreement executed by the Company and the
Participant. Any reference herein to an agreement in writing shall be deemed
to
include an electronic writing to the extent permitted by applicable
law.
2.3.
“
Board
”
means the Board of Directors of the Company.
2.4.
“
Cause
”
means, with respect to a Participant
’
s
Termination of Employment or Termination of Consultancy, the following: (a)
in
the case where there is no employment agreement, consulting agreement, change
in
control agreement or similar agreement in effect between the Company or a
Subsidiary and the Participant at the time of the grant of the Award (or where
there is such an agreement but it does not define “cause” (or words of like
import)), termination due to a Participant
’
s
insubordination, dishonesty, fraud, incompetence, moral turpitude, misconduct,
refusal to perform his or her duties or responsibilities for any reason other
than illness or incapacity or unsatisfactory performance of his or her duties
for the Company or a Subsidiary, as determined by the Committee in its sole
discretion; or (b) in the case where there is an employment agreement,
consulting agreement, change in control agreement or similar agreement in effect
between the Company or a Subsidiary and the Participant at the time of the
grant
of the Award or an Award agreement that defines “cause” (or words of like
import), “cause” as defined under such agreement; provided, that with regard to
any agreement under which the definition of “cause” only applies on occurrence
of a change in control, such definition of “cause” shall not apply until a
change in control actually
takes
place
and
then
only with regard to a termination thereafter. With respect to a
Participant
’
s
Termination of Directorship, “cause” means an act or failure
to
act
that
constitutes
cause for removal of a
director
under applicable Delaware law.
2.5.
“
Change
in Control
”
has
the
meaning set forth in Section 10.2.
2.6.
“
Code
”
means
the
Internal Revenue Code of
1986,
as
amended. Any
reference
to any section of the Code shall also be a reference to any successor provision
and
any
Treasury Regulation promulgated thereunder.
2.7.
“
Committee
”
means
(a)
prior to the Registration Date, a committee or
subcommittee
of
the
Board appointed from time to time by the Board and (b) following the
Registration Date, a committee or subcommittee of the Board appointed from
time
to
time
by
the Board that shall consist of two or more non-employee directors, each of
whom
is
intended to be, to the extent required by Rule 16b-3, a “non-employee director”
as
defined in Rule
16b-3
and
comply
with
any
applicable
stock
exchange
rules; provided, however, that if for any reason the appointed Committee does
not meet the requirements of Rule 16b-3 such noncompliance shall not affect
the
validity of grants, interpretations
or
other
actions of the Committee. With respect to the application of the Plan to Non
-
Employee
Directors, the Committee shall refer to the Board. Notwithstanding the
foregoing, if, and to the extent that no Committee exists that has the authority
to
administer
the Plan, the functions of the Committee shall be exercised by the Board and
all
references herein to the Committee shall be deemed to be references to the
Board.
2.8.
“
Common
Stock
”
means
the
common stock of the Company, $0.001 par
value
per
share.
2.9.
“
Company
”
means
The WATT Corp., a California corporation, and its successors by operation of
law.
2.10.
“
Consultant
”
means
any
natural person who is an advisor or consultant that provides bona fide services
to the Company or its Subsidiaries, provided that such
services
are not
in
connection
with the offer or sale of securities in a capital raising transaction, and
do
not directly or indirectly promote or maintain a market for the
Company's
or its Subsidiaries' securities.
2
11.
“
Disability
”
means,
with respect
to
a
Participant
’
s
Termination,
a
permanent
and total disability as defined in Section 22(e)(3) of the Code; provided,
that
for
Awards that are subject to Section 409A of the Code, Disability shall mean
that
a
Participant
is disabled under Section 409A(a)(2)(C)(i) of the Code. A Disability shall
only
be
deemed to occur at the time of the determination by the Committee of the
Disability.
2.12.
“
Effective
Date
”
means
the
effective date of the Plan as defined in Article
XV.
2.13.
“
Eligible
Employee
”
means
each employee of the company or
a
Subsidiary.
2.14.
“
Exchange
Act
”
means
the Securities
Exchange
Act of 1934, as
amended,
and all
rules and regulations promulgated thereunder. Any references to any section
of
the
Exchange Act shall also be a reference to any successor provision and all rules
and regulations promulgated thereunder.
2.15
“
Fair
Market Value
”
means,
for purposes of the Plan, unless
otherwise
required
by any applicable provision of the Code, as of any date and except as provided
below,
(a) if the
Common
Stock is not readily tradable on an established securities
market
as
determined under Section 409A of the Code or other guidance promulgated
thereunder, a value determined by the reasonable application of a reasonable
valuation
method
in
accordance with Section 409A of the Code or other guidance promulgated
thereunder
or (b) if the Common Stock is readily tradable on an established securities
market as determined under Section 409A of the Code or other guidance
promulgated thereunder, a value based on the closing price reported for the
Common Stock on the trading day before the determination. Notwithstanding
anything herein to the contrary, for purposes of granting Incentive Stock
Options, “Fair Market Value” means the price for Common Stock set by the
Committee in good faith based on reasonable methods set forth under Section
422
of
the
Code
including, without limitation, a method utilizing the average of prices of
the
Common Stock reported on the principal national securities exchange on which
it
is then traded during a reasonable period designated by the
Committee.
2.16.
“
Family
Member
”
means
“family member” as defined in Rule 701 under
the
Securities Act or, following the filing of a Form S-8 pursuant to the Securities
Act
with
respect
to the Plan, as in Section Al(5) of the general instructions of Form
S-8.
2.17.
“
Incentive
Stock Option
”
means
any
Stock Option awarded to an
Eligible
Employee under the Plan intended to be and designated as an “Incentive Stock
Option”
within the meaning of
Section
422 of
the
Code.
2
.18.
“
Listing
Date
”
means
the
first
date
upon
which any security of the
Company
is listed (or approved for listing) upon notice of issuance on any securities
exchange or designated (or approved for designation) upon notice of issuance
as
a
national
market security on an interdealer
quotation
system
if
such securities
exchange
or
interdealer
quotation system has been certified in accordance with
the
provisions of
Section
25100(o) of the California
Corporate
Securities
Law of 1968.
2.19.
“
Non-Employee
Director
”
means
a
“non-employee director” as
defined
in
Rule
16b-3.
2.20.
“
Non-Qualified
Stock Option
”
means
any
Stock
Option
awarded
under t
he
Plan
that is not an
Incentive
Stock Option.
2.21.
“
Other
Stock-Based Award
”
means
an
Award
of
Common Stock and
other
awards
(including
awards of cash, restricted
stock
units and performance share
awards)
made
pursuant
to Article VIII that are valued in whole or in part by reference to, or are
payable in or otherwise based on, Common Stock, including, without limitation,
an Award valued by reference to a Subsidiary.
2.22.
“
Parent
”
means
any
parent corporation of the Company within the meaning of Section 424(e) of the
Code.
2.23.
“
Participant
”
means
any
Eligible Employee, Consultant or Non-Employee Director to whom an Award has
been
granted under the Plan.
2.24.
“
Person
”
means
any
individual, corporation, partnership, limited liability company, firm, joint
venture, association, joint-stock company, trust, incorporated
organization,
governmental or regulatory or other entity.
2.25.
“
Plan
”
means
The
WAAT
Corp.
2006 Stock Incentive Plan, as amended
from
time
to time.
2.26.
“
Registration
Date
”
means
the
first date after the Effective Date (a) on
which
the
Company sells its Common Stock in a bona fide, firm commitment
underwriting
pursuant to a registration statement under the Securities Act or (b) any class
of common equity securities of the Company is required to be registered under
Section
12
of
the
Exchange Act.
2.27.
“
Restricted
Stock
”
means
a
share of Common Stock issued under the Plan that is subject to restrictions
under Article VII.
2.28.
“
Restriction
Period
”
has
the
meaning set forth in Section 7.1.
2.29.
“
Retirement
”
means
a
Termination of Employment or Termination of
Consultancy
for any reason other than for Cause at or after age 65 or such earlier date
after age 50 as may be approved by the Committee with regard to such
Participant.
With
respect
to a Participant
’
s
Termination of Directorship, Retirement means the failure to
stand
for
reelection (other than a Termination for Cause) on or after a Participant has
attained age 65 or, with the consent of the Board, before age 65 but after
age
50.
2.30.
“
Rule
16b-3
”
means Rule 16b-3 under Section 16(b) of the Exchange Act
as
then
in effect or any successor provision.
2.31.
“
Securities
Act
”
means
the
Securities Act of 1933, as amended and all rules and regulations promulgated
thereunder. Any reference to any section of the Securities Act shall also be
a
reference to any successor provision and all rules and
regulations
promulgated thereunder.
2.32.
“
Shareholders
Agreement
”
means
the
Shareholders Agreement dated December 16, 2005 entered into by and among the
Company and certain individuals set
forth
therein, as amended from time to time in accordance with the terms
thereof.
2.33.
“
Stock
Option
”
or
“
Option
”
means
any option to purchase shares of
Common
Stock granted to Eligible Employees, Non-Employee Directors or Consultants
under
Article VI.
2.34.
“
Subsidiary
”
means
any
subsidiary corporation of the Company within the meaning of Section 424(f)
of
the Code.
2.35.
“
Ten
Percent Stockholder
”
means a
person owning
stock
possessing rare than 10% of the total combined voting power of all classes
of
stock of the
Company,
its Subsidiaries or its Parent.
2.36.
“
Termination
”
means
a
Termination of Consultancy, Termination of Directorship or Termination of
Employment, as applicable.
2.37.
“
Termination
of Consultancy
”
means:
(a)
that
the
Consultant is no
longer
acting as a consultant to the Company or a Subsidiary; or (b) when an entity
that is retaining a Participant as a Consultant ceases to be a Subsidiary unless
the Participant otherwise is, or thereupon becomes, a Consultant to the Company
or a Subsidiary at the
time
the
entity ceases to be a Subsidiary. In the event that a Consultant becomes an
Eligible
Employee or a Non-Employee Director upon the termination of his or her
consultancy,
unless otherwise determined by the Committee, in its sole discretion, no
Termination of Consultancy shall be deemed to occur until such time as such
Consultant
is
no
longer a Consultant, Eligible Employee or Non-Employee Director.
Notwithstanding
the foregoing, the Committee may otherwise define Termination of Consultancy
in
the Award agreement or, if no rights of a Participant are reduced, may otherwise
define Termination of Consultancy thereafter.
2.38.
“
Termination
of Directorship
”
means
that the Non-Employee Director
has
ceased to the a director of the Company; except that if a Non-Employee Director
becomes
an Eligible Employee or a Consultant upon the termination of his or her
directorship, his or her ceasing to be a director of the Company shall not
be
treated as a Termination of Directorship unless and until the Participant has
a
Termination of
Employment
or Termination of Consultancy, as the case may be.
2.39.
“
Termination
of Employment
”
means:
(a) a termination of
employment
(for reasons other than a military or approved
personal
leave
of
absence) of a Participant from the Company and its Subsidiaries; or (b) when
an
entity that is employing
a
Participant
ceases to be a Subsidiary, unless the Participant otherwise is, or thereupon
becomes,
employed by the Company or a Subsidiary at the time the entity ceases to be
a
Subsidiary.
In the event that an Eligible Employee becomes a Consultant or Non-
Employee
Director upon the termination of his or her employment, unless otherwise
determined
by the Committee, in its sole discretion, no Termination of Employment shall
be
deemed to occur until such time as such Eligible Employee is no longer an
Eligible Employee, Consultant or Non-Employee Director. Notwithstanding the
foregoing, the
Committee
may otherwise define Termination of Employment in the Award agreement
o
r,
if no
rights of a Participant are reduced, may otherwise define Termination of
Employment
thereafter.
2.40.
“
Transfer”
means: (a) when used as a noun, any direct or indirect transfer,
sale,
assignment, pledge, hypothecation, encumbrance or other disposition (including
the issuance of equity in a Person), whether for value or no value and whether
voluntary or involuntary (including by operation of law), and (b) when used
as a
verb, to directly or
indirectly
transfer, sell, assign, pledge, encumber, charge, hypothecate or otherwise
dispose
of (including the issuance of equity in a Person) whether for value or for
no
value and whether voluntarily or involuntarily (including by operation of law).
“
Transferred”
and
“Transferable” shall have a correlative meaning.
ARTICLE
III
ADMINISTRATION
3.1.
The
Committee
.
The
Plan
shall be administered and interpreted by the Committee.
3.2.
Grants
of Awards
.
The
Committee shall have full authority to grant Awards to Eligible Employees,
Consultants and Non-Employee Directors pursuant to the terms of the Plan. All
Awards shall be granted by, confirmed by, and subject to the terms
of,
a
written agreement executed by the Company and the Participant.
In
particular, the
Committee
shall have the authority:
(a)
to
select
the Eligible Employees, Consultants and Non-Employee
Directors
to whom Awards may from time to time be granted hereunder;
(b)
to
determine whether and to what extent Awards are to be granted
hereunder
to one or more Eligible Employees, Consultants and Non-Employee
Directors;
(c)
to
determine, in accordance with the terms of the Plan, the number
of
shares
of Common Stock to be covered by each Award granted hereunder;
(d)
to
determine the terms and conditions, not inconsistent with the
terms
of
the Plan, of any Award granted hereunder (including, but not limited to,
the
exercise or purchase price (if any), any restriction or limitation, any vesting
schedule
or acceleration thereof and any forfeiture restrictions or waiver thereof,
regarding any Award and the shares of Common Stock relating thereto, based
on
such
factors, if any, as the Committee shall determine, in its sole
discretion);
(e)
to
determine whether and under what circumstances
a
Stock
Option
may be settled in cash, Common Stock and/or Restricted
Stock
under
Section
6.3(d);
(f)
to
determine whether, to what extent and under what circumstances
to
provide loans (which may be on a recourse basis and shall bear interest at
the
rate
the
Committee shall provide) to Participants in order to exercise Awards or to
purchase
or pay for shares of Common Stock issuable pursuant to
Awards,
provided
that on and after the Registration Date executive officers and directors
are
not
eligible to receive such loans, and provided further, that all outstanding
loans
shall be repaid before the Registration Date;
(g)
to
determine whether a Stock Option is an Incentive Stock Option
or
Non-Qualified Stock Option;
(h)
to
determine whether to require an Eligible
Employee,
Non-
Employee
Director or Consultant, as a condition of the granting of any Award,
not
to
sell or otherwise dispose of shares of Common Stock acquired pursuant to
the
Award
for a period of time as determined by the Committee,
in
its
sole discretion, following the date of the Award;
(i)
to
modify, extend or renew an Award, subject to Article XI herein, provided,
however, that if a Stock Option is modified, extended or renewed and
thereby
deemed to be the issuance of a new Stock Option under the Code or the
applicable
accounting rules, the exercise price of a Stock Option may continue to
be
the
original exercise price even if less than the Fair Market Value
of
the
Common
Stock at the time of such modification, extension or renewal; and
(j)
to
offer
to buy out a Stock Option previously granted, based on
such
terms and conditions as the Committee shall establish and communicate to
the
Participant at the time such offer is made.
3.3.
Guidelines
.
Subject
to Article XI hereof, the Committee shall have the authority to adopt, alter
and
repeal such administrative rules, guidelines and practices governing the Plan
and perform all acts, including the delegation of its administrative
responsibilities to the extent permitted by applicable law and applicable stock
exchange
rules,
as
it shall, from time to time, deem advisable; to construe and interpret the
terms
and
provisions of the Plan and any Award granted under the Plan (and any agreements
relating
thereto); and to otherwise supervise the administration of the Plan.
The
Committee
may correct any defect, supply any omission or reconcile any inconsistency
in
the
Plan
or in any agreement relating thereto in the manner and to the extent it shall
deem necessary to effectuate the purpose and intent of the Plan.
The
Committee may adopt
special
guidelines and provisions for persons who are residing in or employed in, or
subject to, the taxes of, any domestic or foreign jurisdictions to comply with
applicable
tax
and
securities laws and may impose any limitations and restrictions that it deems
necessary
to comply with the applicable tax and securities laws of such domestic or
foreign jurisdictions. To the extent applicable, the Plan is intended to comply
with the applicable requirements of Rule 16b-3 and shall be limited, construed
and interpreted in a
manner
so
as to comply therewith.
3.4.
Decisions
Final
.
Any
decision, interpretation or other action made or
taken
in
good faith by or at the direction of the Company, the Board or the Committee
(or
any of its members) arising out of or in connection with the Plan shall be
within the absolute discretion of all and each of them, as the case may be,
and
shall be final, binding and conclusive on the Company and all employees and
Participants and their respective
heirs,
executors, administrators, successors and assigns.
3.5.
Reliance
on
Counsel
.
The
Company,
the
Board
or the Committee may
consult
with legal counsel,
who
may be
counsel for the Company or other counsel, with
respect
to its obligations or duties hereunder, or with respect to any action or
proceeding or any question of law, and shall not be liable with respect to
any
action taken or omitted by it in good faith pursuant to the advice of such
counsel.
3.6.
Procedures
.
If the
Committee is appointed, the Board shall designate one
of
the
members of the Committee as chairman and the Committee shall hold meetings,
subject
to the By-Laws of the Company, at such times and places as it shall deem
advisable,
including, without limitation, by telephone conference or by written consent
to
the
extent permitted by applicable law. A majority of the Committee members shall
constitute
a quorum. All determinations of the Committee shall be made by a majority of
its
members. Any decision or determination reduced to writing and signed by all
the
Committee
members in accordance with the By-Laws of the Company, shall be fully as
effective
as if it had been made by vote at a meeting duly called and held.
The
Committee
shall keep minutes of its meetings and shall make such rules and regulations
for
the conduct of its business as it shall deem advisable.
3.7.
Designation
of Consultants/Liability
.
(a)
The
Committee may designate
employees
of the Company and professional advisors to assist the Committee in the
administration of the Plan (to the extent permitted by applicable law and
applicable stock
exchange
rules) and may grant authority to officers to execute agreements or other
documents on behalf of the Committee.
(b)
The
Committee may employ such legal counsel, consultants and
agents
as
it may deem desirable for the administration of the Plan and may rely upon
any
opinion received from any such
counsel
or consultant and any computation received from any such consultant or agent.
Expenses
incurred by
the
Committee or the Board in the engagement of any such counsel, consultant or
agent
shall be paid by the
Company.
The
Committee, its members and any person
designated
pursuant to this Section 3.7 above shall not be liable for any action or
determination
made in good faith with respect to the Plan.
To
the
maximum
extent
permitted by applicable law, no officer of the Company or member
or
former
member of the Committee or of the Board shall be liable for any action or
determination made in good faith with respect to the Plan or any Award granted
under it.
3.8.
Indemnification
.
To
the
maximum extent permitted by applicable law and the Certificate of
Incorporation
and
By-Laws
of the Company and to the extent not
covered
by insurance directly
insuring
such
person,
each officer and member or former
member
of
the Committee or the Board shall be indemnified and held harmless by the Company
against any cost or expense (including reasonable fees of counsel reasonably
acceptable to the Committee) or liability (including any sum paid in settlement
of a claim with the approval of the Committee), and advanced
amounts
necessary
to pay the
foregoing
at the earliest time and to the fullest extent permitted, arising out of any
act
or omission to act in connection with the administration of the Plan, except
to
the extent
arising
out of such officer’s, member’s or former member’s own fraud or bad faith.
Such
indemnification
shall be in addition to any rights of indemnification the employees, officers,
directors or members or former officers, directors or members may have under
applicable law or under the Certificate of Incorporation or By-Laws of the
Company or any Subsidiary. Notwithstanding anything else herein, this
indemnification will not apply to the actions or determinations made by an
individual with regard to Awards granted to him or her under the
Plan.
3.9.
Shareholders
Agreement
.
Notwithstanding
anything herein to the contrary, the Plan and the operation and administration
of the Plan (including any action taken by the Committee) shall be subject
to
the terms and conditions set forth in the Shareholders Agreement to the greatest
extent permissible under applicable law.
ARTICLE
IV
SHARE
AND
OTHER LIMITATIONS
4.1.
Shares
.
The
aggregate number of shares of Common Stock that may be issued or used for
reference purposes under the Plan or with respect to which Awards
may
be
granted under the Plan shall not exceed 2,463,422 shares (subject to
any increase or decrease pursuant to Section
4.2),
which
may
be either authorized and unissued
Common
Stock or Common Stock held in or acquired for the treasury of the Company or
both.
To
the
extent that a distribution pursuant to an Award is made in cash, the share
reserve shall be reduced by the number of shares of Common Stock bearing a
value
equal to the amount of the cash distribution as of the time that such amount
was
determined.
4.2.
Changes
.
(a)
The
existence of the Plan and the Awards granted hereunder shall
not
affect in any way the right or power of the Board or the shareholders of the
Company
to make or authorize (i) any
adjustment,
recapitalization, reorganization
or
other
change in the Company's capital structure or its business, (ii) any merger
or
consolidation of the Company or any Subsidiary, (iii) any
issuance
of bonds,
debentures,
preferred or prior preference stock ahead of or affecting the Common
Stock,
(iv) the dissolution or liquidation of the Company or any Subsidiary,
(v)
any
sale
or transfer of all or part of the assets or business of the Company or any
Subsidiary
or (vi) any other corporate act or proceeding.
(b)
Subject to the provisions of Section
4.2(d),
in
the
event of any such
change
in
the capital structure or business of the Company by reason of any stock
split,
reverse stock split, stock dividend, combination or reclassification of shares,
recapitalization,
or other change in capital structure of the
Company,
merger,
consolidation,
spin-off, reorganization, partial or complete liquidation, issuance of
rights
or
warrants to purchase any Common Stock or securities convertible into
Common
Stock, any sale or transfer of all or part of the Company's assets
or
business,
or any other corporate transaction or event having an effect similar to
any
of
the foregoing and effected without receipt of consideration by the Company,
then
the aggregate number and kind of shares that thereafter may be issued under
the
Plan, the number and kind of shares or other property (including cash) to be
issued upon exercise of an outstanding Stock Option or under other Awards
(“Exercisable Awards”) granted under the Plan and
the
purchase or
exercise
price thereof shall be appropriately adjusted consistent with such change
in
such
manner as the Committee may deem equitable to prevent substantial
dilution
or enlargement of the rights granted to, or available
for,
Participants under the Plan, and any such adjustment determined by the Committee
in good faith shall be final, binding and conclusive on the Company and all
Participants
and
their
respective heirs, executors, administrators, successors and assigns.
In
connection
with any event described in this sub-section,
the
Committee may
provide,
in its sole discretion, for the cancellation of any outstanding Awards and
payment in cash or other property in exchange therefor.
Except
as
provided in
this
Section 4.2, a Participant shall have no rights by reason of any issuance by
the
Company of any class of securities convertible into stock of any class,
any
subdivision
or consolidation of shares of stock of any class, the payment of any
stock
dividend, any other increase or decrease in the number of shares of stock of
any
class, any sale or transfer of all or part of the Company's assets or business
or
any
other
change affecting the Company's capital structure or business.
(c)
Fractional shares of Common Stock resulting from any adjustment
in
Exercisable Awards pursuant to Section 4.2(a) or (b) shall be aggregated until,
and
eliminated at the time of such adjustment by rounding-down for fractions less
than
one-half and rounding-up for fractions equal to or greater than
one-half;
provided,
however, that any such fractional shares of Common Stock resulting from any
adjustment to an Incentive Stock Option shall be eliminated by rounding down.
No
fractional shares of Common Stock shall be issued under the Plan. Notice of
any
adjustment shall be given by the Committee to each Participant
whose
Award has been adjusted and such adjustment (whether or not such notice
is
given)
shall be effective and binding for all purposes of the Plan.
(d)
In
the
event of a merger or consolidation in which the Company is
not
the
surviving entity or in the event of any transaction that results
in
the
acquisition
of all or substantially all of the Company's
outstanding
Common
Stock
(or
the acquisition of more than fifty percent
(50%)
of
the
voting interests
of
all
outstanding classes of stock of the Company) by a single person or entity or
by
a
group of persons and/or entities acting in concert, or in the event of the
sale
or
transfer of all or substantially all of the Company's assets (all of the
foregoing
being
referred to as “Acquisition Events”), then the Committee may, in its
sole
discretion,
terminate all outstanding Exercisable Awards, effective as of the date of the
Acquisition Event, by delivering notice of termination to each Participant
at
least
20
days prior to the date of consummation of the Acquisition Event,
in
which
case during the period from the date on which such notice of termination is
delivered to the consummation of the Acquisition Event, each such Participant
shall have the right to exercise his or her Exercisable Awards
that
are
then
outstanding
to the extent vested as of the date on which such notice of termination
is
delivered (or, at the discretion of the Committee, without regard to, or subject
to,
any
limitations
on
exercisability
otherwise
contained
in
the
Award
agreements),
but any such exercise shall be contingent upon and subject to the
occurrence
of the Acquisition Event, and, provided that, if the Acquisition Event
does
not
take place within a specified period after giving such notice
for
any
reason
whatsoever, the notice and exercise pursuant thereto shall be null and void.
If
the Acquisition Event does take place after giving of such notice, any
Exercisable Award not exercised prior to the date of the consummation of such
Acquisition Event shall be forfeited simultaneous with the consummation of
the
Acquisition
Event.
If
an
Acquisition Event occurs but the
Committee
does not terminate the
outstanding
Exercisable Awards pursuant to this Section
4.2(d),
then
the
provisions of
Section
4.2(b) shall apply.
4.3.
Minimum
Purchase Price
.
Notwithstanding
any provision of the Plan to the contrary, if authorized but previously unissued
shares of Common Stock are issued under the Plan, such shares shall not be
issued for a consideration that is less than as
permitted
under applicable law.
4.4.
Assumption
of Awards
.
Stock
options that were granted by the Company prior to the Effective Date shall
for
all purposes be treated as if granted under the Plan and shall be governed
by
the terms of the Plan as of the Effective Date.
ARTICLE
V
ELIGIBILITY
5.1.
General
Eligibility
.
All
Eligible Employees, Non-Employee Directors and
Consultants
and prospective Eligible Employees, Consultants and Non-Employee Directors
are
eligible to be granted Non-Qualified Stock Options, Restricted Stock and Other
Stock-Based Awards. Eligibility for the grant of Awards and actual participation
in
the
Plan shall be determined by the Committee in its sole discretion.
5.2.
Incentive
Stock
Options
.
All
Eligible Employees of the Company and its
Subsidiaries
are eligible to be granted Incentive Stock Options under the Plan.
Eligibility
for
the grant of an Incentive Stock Option and actual participation in the Plan
shall be determined by the Committee in its sole discretion.
5.3.
General
Requirement
.
The
granting, vesting and exercise of
Awards
granted
to
a
prospective Eligible Employee
Consultant
or Non-Employee
Director
are
conditioned
upon such individual actually becoming an Eligible Employee, Consultant or
Non-Employee Director, provided that no Award may be granted to a prospective
Eligible
Employee, Consultant or Non-Employee Director unless the Company
determines
that the Award will comply with applicable laws, including the securities laws
of
all
relevant jurisdictions.
ARTICLE
VI
STOCK
OPTIONS
6.1.
Stock
Options
.
Each
Stock Option granted hereunder shall be one of two
types:
(a) an Incentive Stock Option
;
or (b)
a Non-Qualified
Stock
Option.
6.2.
Grants
.
Subject
to the provisions of Article V, the Committee shall have
the
authority
to grant to any
Eligible
Employee one or more Incentive
Stock
Options, Non-Qualified Stock Options or both types of Stock Options.
To
the
extent that any
Stock
Option does not
qualify
as an
Incentive
Stock Option (whether because of its provisions or the time or manner of its
exercise or otherwise), such Stock Option or the portion thereof that does
not
qualify, shall constitute a separate Non-Qualified Stock
Option.
The Committee shall have the authority to grant any Consultant or
Non-
Employee
Director one or more Non-Qualified Stock Options.
6.3.
Terms
of Stock Options
.
Stock
Options shall be subject to the following terms and conditions, and shall be in
such form and contain such additional terms and conditions, not inconsistent
with the terms of the Plan (including Article XVII), as the
Committee
shall deem desirable:
(a)
Exercise
Price
The
exercise
price
per
share
of Common Stock subject to a Stock
Option
shall
be
determined
by the Committee at the time of grant;
provided
that
the
per
share exercise price of a
Stock
Option
shall not be less
than
100%
of the Fair Market Value of the share of Common Stock at the time of
grant;
and provided, further, that if an Incentive Stock Option is granted to a Ten
Percent
Stockholder, the exercise price per share
shall
be
no
less than 110% of the
Fair
Market Value of the Common Stock.
(b)
Stock
Option Term.
The
term
of each Stock
Option
shall
be
fixed
by
the
Committee; provided, however, that no Stock Option shall be exercisable
more
than
10 years after the date such Stock Option is granted;
and
further
provided
that the term of an Incentive Stock Option granted to a Ten Percent
Stockholder
shall not exceed five years.
(c)
E
xercisability.
Stock
Options shall be exercisable at such time or
times
and
subject to such terms and conditions as shall be determined by the
Committee
at the time of grant. If the Committee provides, in its discretion, that
any
Stock
Option is exercisable subject to certain limitations (including, without
limitation,
that such Stock Option is exercisable only in installments
or
within
certain
time periods or upon the attainment of certain financial results
or
other
criteria),
the Committee may waive such limitations on the exercisability at any
time
at
or after grant in whole or in part (including, without limitation, waiver of
the
installment exercise provisions or acceleration of the time at which such Stock
Option
may be exercised), based on such factors, if any, as the Committee shall
determine,
in its sole discretion.
(d)
Method
of Exercise.
Subject
to whatever installment exercise and
waiting
period provisions apply under sub-section (c) above, to the extent vested,
a
Stock Option may be exercised in whole or in part at any time and from time
to
time
during the Stock Option term by giving written notice of exercise
to
the
Committee
specifying the number of shares to be acquired.
Such
notice shall be
accompanied
by payment in full of the purchase price as follows: (i) in cash or by
check,
bank draft or money order payable to the order of the Company; (ii) to the
extent
permitted by law, if the Common Stock is traded on a national securities
exchange,
The Nasdaq Stock Market, Inc. or quoted on a national
quotation
system
sponsored by the National Association of Securities Dealers,
through
a
procedure
whereby the Participant delivers irrevocable instructions
to
a
broker
reasonably
acceptable to the Committee to deliver promptly to the Company an amount equal
to the purchase price, to the extent authorized by the Committee; or (iii)
on
such other terms and conditions as may be acceptable to the Committee
(including, without limitation, the relinquishment of Stock Options or by
payment
in
full
or in part in the form of Common Stock owned by the Participant (and for
which
the
Participant has good title free and clear of any liens and encumbrances)
based
on
the Fair Market Value of the Common Stock on the payment date).
No
shares
of
Common Stock shall be issued until payment therefor,
as
provided
herein,
has been made or provided for.
(e)
Incentive
Stock
Option
Limitations.
To
the
extent that the
aggregate
Fair Market Value (determined as of the time of grant) of the Common
Stock
with respect to which Incentive Stock Options are exercisable for the first
time
by an Eligible Employee during any calendar year under the Plan and/or any
other
stock option plan of the Company, any Subsidiary or any Parent exceeds $100,000,
such Options shall be treated as Non-Qualified Stock Options.
In
addition,
if an Eligible Employee does not remain employed by the Company, any
Subsidiary
or any Parent at all times from the time an Incentive Stock Option is
granted
until three months prior to the date of exercise thereof (or such
other
period
as
required by applicable law), such Stock Option shall be treated
as
a
Non-Qualified
Stock Option.
Should
any provision of the Plan not be necessary
in
order
for the Stock Options to qualify as Incentive Stock Options, or should
any
additional provisions be required, the
Committee
may amend the Plan
accordingly,
without the necessity of obtaining the approval of the shareholders of
the
Company.
(f)
Form,
Modification,
Extension
and
Renewal of Stock Options.
Subject
to the terms and conditions and within the
limitations
of the Plan, Stock
Options
shall be evidenced by such form of agreement
or
grant
as is approved by
the
Committee, and the Committee may (i) modify,
extend
or
renew outstanding
Stock
Options (provided that the rights of a Participant
are
not
reduced without
his
or
her consent), and (ii) accept the surrender of outstanding
Stock
Options (up
to
the
extent not theretofore exercised) and authorize
the
granting of new Stock
Options
in substitution therefor (to the extent not theretofore
exercised).
(g)
Early
Exercise.
The
Committee may provide that a Stock Option
include
a
provision whereby the Participant
may
elect
at any time before the
Participant
’
s
Termination to exercise the Stock Option
as
to any
part or all of the
shares
of
Common Stock subject to the Stock Option
prior
to
the full vesting of
the
Stock
Option and such shares
shall
be
subject to certain restrictions
as
determined
by the Committee and be treated as Restricted
Stock.
Any unvested
shares
of
Common Stock so purchased may be subject
to
a
repurchase option in favor of the Company or to any other restriction the
Committee
determines to be
appropriate.
(h)
Other
Terms and Conditions.
Stock
Options may contain such
other
provisions, which shall not be inconsistent with
any
of
the terms of the Plan, as the Committee shall deem appropriate.
ARTICLE
VII
RESTRICTED
STOCK
7.1.
Awards
of Restricted Stock.
The
Committee shall determine the eligible
Participants
to whom, and the time or times at which,
grants
of
Restricted Stock will be
made,
the
number of shares to be awarded, the purchase price
(if
any)
to be paid by the
Participant
(subject to Section
7.2),
the
time
or times at which such Awards may be
subject
to forfeiture (if any), the vesting schedule (if any) and rights to acceleration
thereof,
and all other terms and conditions of the Awards.
The
Committee may condition
the
grant
or vesting of Restricted Stock upon the attainment
of
specified performance
targets
or such other factors as the Committee may determine,
in
its
sole discretion.
Unless
otherwise determined by the Committee, the Participant
shall
not
be permitted to
transfer
shares of Restricted Stock awarded under the Plan during a period set by the
Committee
(if any) (the "Restriction Period") commencing
with
the
date of such Award,
as
set
forth in the applicable Award agreement.
7.2.
Awards
and Certificates.
A
Participant selected to receive Restricted
Stock
shall not have any rights with respect to such Award,
unless
and until such
Participant
has delivered to the Company a fully executed
copy
of
the Award agreement
evidencing
the Award and has otherwise complied with the
applicable
terms and
conditions
of such Award. Further, such Award shall be
subject
to the following
conditions
and the conditions specified in Article XVII:
(a)
Purchase
Price.
The
purchase price of Restricted Stock shall be determined by the Committee,
but
shall not be less than as
permitted
under
applicable
law.
(b)
Acceptance.
Awards
of
Restricted Stock must be accepted within
a
period
of 60 days (or such shorter period as the Committee may specify at grant)
after
the
grant date, by executing an Award agreement and by paying the purchase price
(if
any) the Committee has designated thereunder.
(c)
Legend
.
Each
Participant
receiving Restricted Stock shall be
issued
a
stock certificate in respect of such shares of Restricted Stock, unless the
Committee
elects to use another system, such as book entries by the
transfer
agent,
as
evidencing ownership of Restricted Stock.
Such
certificate shall be
registered
in the name of such Participant, and shall bear an appropriate legend referring
to the terms, conditions, and restrictions applicable
to
such
Award,
substantially
in the following form:
“The
anticipation, alienation, attachment,
sale,
transfer, assignment, pledge, encumbrance or charge of the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of The WAAT Corp. (the
“Company
”
)
2006
Stock Incentive Plan (the “Plan”), and an Award agreement
entered
into
between
the
registered
owner
and
the
Company
dated __________
.
Copies
of
such Plan and Award agreement are on file at the
principal
office of the Company.”
(d)
Custody.
The
Committee may require that any stock certificates evidencing such shares be
held
in custody by the Company until the restrictions thereon shall have lapsed,
and
that, as a condition to the grant of Restricted Stock, the Participant shall
have delivered a duly signed stock power, endorsed in blank, relating to the
Common Stock covered by such Award.
(e)
Rights
as Shareholder.
Except
as
provided in this sub-section and
sub-section
(d) above and as otherwise
determined
by the Committee, the
Participant
shall have, with respect to the shares of Restricted Stock,
all
of
the
rights
of
a holder of shares of Common Stock of the Company including, without
limitation,
the right to receive any dividends, the right to vote such shares
and,
subject
to and conditioned upon the full vesting of shares of Restricted Stock, the
right to tender such shares. Notwithstanding the foregoing, the payment of
dividends shall be deferred until, and conditioned upon, the expiration of
the
applicable Restriction Period, unless the
Committee,
in its sole discretion,
specifies
otherwise at the time of the grant of the Award.
(f)
Lapse
of Restrictions.
If
and
when the Restriction Period expires
without
a
prior forfeiture of the Restricted Stock subject to
such
Restriction
Period,
the certificates for such shares shall be delivered to the Participant.
All
legends
shall be removed from said certificates at the time of delivery
to
the
Participant
except as otherwise required by applicable law or the
Shareholders
Agreement.
Notwithstanding
the foregoing, actual certificates shall not be issued to the extent that book
entry recordkeeping is used.
ARTICLE
VIII
OTHER
STOCK-BASED AWARDS
8.1.
Awards
of Other Stock-Based Awards
.
The
Committee shall have
authority
to determine the persons to whom and the time or times at which Other
Stock-Based Awards shall be made, the number of shares of Common Stock or dollar
amount to
be
awarded pursuant to such Awards, and all other conditions of the Awards. The
Committee
may also provide for the grant of Common Stock or payment of the dollar amount
under such Awards upon the completion of a specified performance period or
such
other criteria as determined by the Committee, in its sole
discretion.
8.2.
Terms
and Conditions
.
Other
Stock-Based Awards made pursuant to this Article VIII shall be subject to the
terms of the applicable Award agreement and following terms and conditions
and
the conditions specified in Article XVII:
(a)
Dividends
.
Unless
otherwise determined by the Committee at the
time
of
award, subject to the provisions of the Award agreement or grant letter and
the
Plan, the recipient of an Award under this Article VIII shall be entitled to
receive,
currently or on a deferred basis, dividends or dividend equivalents
with
respect
to the number of shares of Common Stock covered by the Award,
as
determined
at the time of the Award by the Committee, in its sole discretion.
(b)
Vesting
.
Any
Award
under this Article VIII and any Common
Stock
covered by any such Award shall vest or be forfeited to the
extent
so
provided
in the Award agreement, as determined by the Committee, in its sole
discretion.
(c)
Waiver
of Limitation
.
The
Committee may, in its sole discretion,
waive
in
whole or in part any or all of the limitations imposed hereunder (if any)
with
respect to all or any portion of an Award under this Article VIII.
(d)
Price
.
Common
Stock or Other Stock-Based Awards issued on a bonus basis under this Article
VIII may be issued for no cash consideration;
Common
Stock or Other Stock-Based Awards purchased pursuant to a purchase
right
awarded under this Article VIII shall be priced
as
determined by the
Committee.
Subject
to Section 4.3, the purchase price of shares of Common
Stock
or
Other Stock-Based Awards may be zero to the extent permitted
by
applicable
law, and, to the extent not so permitted, such purchase price may not
be
less
than par value. The purchase of shares of Common Stock or Other
Stock-
Based
Awards may be made on either an after-tax or pre-tax basis, as determined by
the
Committee; provided, however, that if the purchase is made on a pre-tax
basis,
such purchase shall be made pursuant to a deferred compensation program
established
by the Committee, which will be deemed a part of the Plan.
(e)
Payment
.
The form
of payment for the Other Stock-Based Awards
shall
be
specified in the Award agreement.
(f)
ARTICLE
IX
NON-TRANSFERABILITY
AND TERMINATION OF
EMPLOYMENT/CONSULTANCY/DIRECTORSHIP
9.1.
Non-Transferability.
(a)
Except
as
otherwise specifically provided herein, no Stock Option
shall
be
Transferable by the Participant otherwise than by will or by the laws of
descent
and distribution.
All
Stock
Options shall be exercisable, during the
Participant
’
s
lifetime, only by the Participant.
Shares
of
Restricted Stock or Other Stock-Based Awards may not be Transferred prior to
the
date on which shares are
issued,
or if later, the date on which any applicable restriction, performance
or
deferral
period lapses.
Any
attempt to Transfer any such Award or share of Common Stock not in accordance
with the provisions of Section
12.2
shall be
void
and
immediately cancelled, and no Award shall in any manner be liable for
or
subject to the debts, contracts, liabilities, engagements or torts of any person
who
shall
be entitled to such Award, nor shall it be subject to attachment or legal
process for or against such person.
(b)
Notwithstanding the foregoing, the Committee may determine, in
its
sole
discretion, at the time of grant or thereafter that a Non-Qualified
Stock
Option
that is otherwise not Transferable pursuant to this Section 9.1
is
Transferable
to a Family Member in whole or in part and in such circumstances,
and
under
such conditions, as specified by the Committee.
A
Non-Qualified
Stock
Option that is Transferred to a Family Member pursuant to the preceding sentence
(i) may not be subsequently Transferred otherwise than by will or by the
laws
of
descent and distribution and (ii) remains subject to the terms of the Plan
and
the
Stock Option agreement. Any shares of Common Stock acquired upon
the
exercise of a Stock Option by a permissible transferee of a Stock Option or
a
permissible
transferee pursuant to a Transfer after the exercise of the Stock
Option
shall be subject to the terms of the Plan and the Stock Option agreement,
including,
without limitation, the provisions of Article XII hereof.
9.2.
Termination
.
The
following rules apply with regard to the Termination of a
Participant.
(a)
Rules
Applicable to Stock Options.
Unless
otherwise determined
by
the
Committee at grant or, if no rights of the Participant are reduced,
thereafter:
(i)
Termination
by Reason of Death, Disability or Retirement.
If
a
Participant
’
s
Termination is by reason
of
death,
Disability or
Retirement,
all Stock Options that are held by such Participant that are
vested
and exercisable at the time of the Participant
’
s
Termination may be exercised by the Participant (or, in the case
of
death,
by the legal
representative
of the Participant
’
s
estate) at any time within a period of
one
year
from the date of such Termination, but in no event beyond the expiration of
the
stated term of such Stock Options; provided, however,
that
in
the case of Retirement, if the Participant dies within such exercise
period,
all unexercised Stock Options held by
such
Participant shall
thereafter
be exercisable, to the extent to that they were exercisable at the time of
death, for a period of one year from the date of such death, but in
no
event
beyond the expiration of the stated term of such Stock
Options.
(ii)
Involuntary
Termination Without Cause.
If
a
Participant
’
s
Termination
is by involuntary termination
without
Cause, all Stock
Options
that are held by such Participant that are vested and exercisable at
the
time
of the Participant
’
s
Termination may
be
exercised by the Participant at any time within a period of 90 days from the
date of such Termination, but in no event beyond the expiration of the stated
term of
such
Stock Options.
(iii)
Voluntary
Termination.
If
a
Participant
’
s
Termination is
voluntary
(other than a voluntary termination
described
in Section
9.2(a)(iv)(2)
below),
all Stock Options that are held by such Participant
that
are
vested and exercisable at the time of the Participant
’
s
Termination may be exercised by the Participant at any time within a period
of
30 days
from
the
date of such Termination, but in no event beyond the expiration
of
the
stated terms of such Stock Options.
(iv)
Termination
for Cause.
If
a
Participant
’
s
Termination: (1)
is
for
Cause or (2) except with respect to Participants whose awards are subject to
Section 260.140.41 of Title
10
of the
California Code of
Regulations,
is a voluntary Termination (as provided in sub-section (iii)
above)
after the occurrence of an event that would be grounds
for
a
Termination
for Cause, all Stock Options, whether vested or not vested,
that
are
held by such Participant shall thereupon terminate and expire as of
the
date
of such Termination.
(v)
Unvested
Stock Options.
Stock
Options that are not vested
as
of the
date of a Participant
’
s
Termination for any reason shall terminate
and
expire as of the date of such Termination.
(b)
Rules
Applicable
to
Restricted Stock
and
Other
Stock-Based
Awards.
Unless
otherwise determined by the Committee at grant or, if no rights
of
the
Participant are reduced, thereafter, upon a Participant
’
s
Termination for any
reason:
(i) during the relevant Restriction Period, all Restricted Stock still subject
to
restriction shall be forfeited; and (ii) any unvested Other Stock-Based Awards
shall
be
forfeited.
ARTICLE
X
10.1.
Benefits.
Except
as
otherwise provided by the Committee in an Award
agreement,
in the event of a Change in
Control
of
the
Company after the Effective Date,
the
Committee may, but shall not be obligated to:
(a)
accelerate,
vest or cause the restrictions to lapse with respect to, all
or
any
portion of an Award; or
(b)
cancel
Awards for fair value (as determined in good faith by the
Committee)
which, in the case of Options, may equal the excess, if any, of the
value
of
the consideration to be paid in the Change in Control transaction
to
holders
of the same number of shares of Common Stock subject to such Options
(or,
if
no consideration is paid in any such transaction, the Fair Market Value of
the
shares of Common Stock subject to such Options) over the aggregate exercise
price
of
such Options; or
(c)
provide
for the issuance of substitute Awards that will substantially
preserve
the otherwise applicable terms of any
affected
Awards previously
granted
hereunder as determined by the Committee in its sole discretion.
10.2.
Change
in Control Defined.
Unless
otherwise determined by the
Committee
in the applicable Award agreement, a “Change in Control” shall be the
occurrence
of any of the following after the Effective Date: (i) any acquisition, by merger
or
otherwise, of equity securities of the Company, from shareholders of the
Company,
representing
at least 75% of the outstanding voting securities of the Company,
by
any
unaffiliated
third party; or (ii) any sale of all or substantially all
of
the
assets of the
Company
to any unaffiliated third party.
ARTICLE
XI
TERMINATION
OR AMENDMENT OF PLAN
Notwithstanding
any other provision of the Plan, the Board or the Committee may at any time,
and
from
time to
time,
amend, in whole or in part, any or all of the provisions
of
the
Plan (including any amendment deemed necessary to ensure that the
Company
may
comply with any regulatory requirement referred to in Article XIV or Section
409A
of
the
Code as described below), or suspend or terminate it entirely,
retroactively
or
otherwise;
provided, however, that if the Committee, in its sole discretion,
determines
that
the
rights of a Participant with respect to Awards granted prior to such amendment,
suspension
or termination, may be adversely impaired, the consent of such Participant
shall
be
required; and provided further, without the approval of the shareholders
of
the
Company
entitled to vote in accordance with applicable law, no amendment may be made
that
would:
(a)
increase
the aggregate number of shares of Common Stock that
may
be
issued under the Plan (other than due to an adjustment under Section
4.2);
(b)
change
the classification of individuals eligible to receive Awards
under
the
Plan;
(c)
decrease
the minimum exercise price of any Stock Option;
(d)
extend
the maximum Stock Option period under Section 6.3; or
(e)
require shareholder approval in order for the Plan to continue to
comply
with Section 422 of the Code to the extent applicable to Incentive Stock
Options
or the rules of any exchange or system on which
the
Company's
securities
are listed or traded at the request of the Company.
The
Committee may amend the terms of any
Award
theretofore granted,
prospectively
or retroactively,
but,
subject to Article IV above or as otherwise
specifically
provided herein, no such amendment or other action by the Committee
shall
adversely
impair the rights of any holder without the holder's consent.
Notwithstanding
anything
herein to the contrary, the Board or the Committee may amend the Plan or any
Award
granted hereunder at any time without a Participant
’
s
consent to
comply
with
Section
409A of the Code or any other applicable law.
ARTICLE
XII
COMPANY
CALL RIGHTS; RIGHTS OF FIRST REFUSAL
12.1.
Company
Call Rights
.
(a)
In
the
event of a Participant
’
s
Termination
for
Cause
or a
Participant
’
s
voluntary Termination within 90 days after the
occurrence
of an event that would be grounds for a Termination for Cause, the Company
may
at
any
time
repurchase (or may cause its designee to repurchase) from the Participant (or
his or her transferee) any shares of Common Stock previously
acquired
by the Participant through the exercise of a Stock Option or pursuant to
Restricted
Stock or Other Stock-Based Awards granted under
the
Plan
at a
repurchase
price equal to the lesser of (A) the original purchase price or exercise
price
(as
applicable), if
any
or
(B)
the Fair Market Value of a share of Common Stock on the date of Termination
or
the date of repurchase, as selected by the
Committee.
(b)
In
the
event of a Termination for any reason other than for Cause
(including
Termination
due
to
Retirement, death,
Disability,
involuntary
termination
without Cause or resignation), the Company may at any time within
the
later
of one year after (i) a Participant incurs a Termination or (ii) the date a
Participant
acquires shares of Common Stock upon the exercise of a Stock Option following
his or her Termination for any reason other than
for
Cause: (A)
repurchase
(or may cause its designee to purchase) from the
Participant
the
outstanding
vested portion of the Option based on the difference between
the
exercise
price of a share of Common Stock relating to such Stock Option and the
Fair
Market Value of a share of Common Stock on the date of repurchase and (B)
repurchase
from the Participant any shares of Common Stock previously acquired by the
Participant through the exercise of a Stock Option at a repurchase price equal
to the Fair Market Value on the date of repurchase.
(c)
In
the
event of a Termination for any reason other than for Cause
(including
Termination
due
to
Retirement,
death,
Disability,
involuntary
termination
without Cause or resignation), the Company may at any time within
one
year
after a Participant incurs a Termination other than for Cause repurchase
(or
may
cause its designee to purchase) from the Participant
any
shares of Common Stock previously acquired by the Participant pursuant
to
Restricted
Stock
or
Other Stock-Based Awards under the Plan at a repurchase price equal to
Fair
Market Value on the date of repurchase.
(d)
(i)
If
the Company elects to exercise call rights under this Section
12.1,
it
shall do so by delivering to the Participant a notice of such
election,
specifying the number of shares to be purchased and such closing date and time
that, solely for purposes of sub-sections (b) and
(c),
is
within
the applicable one
year
period. Such closing shall take place at the Company's principal executive
o
ffices.
(ii)
At
such
closing, the Company will pay the Participant the
repurchase
price as specified
in
this
Section 12.1
in
cash,
or by
cancellation
of indebtedness of the Participant to the Company.
12.2.
Transfer
Limit
.
(a)
No
Participant shall, directly or indirectly, prior to the Registration Date or
such other date determined by the Committee, Transfer any shares of Common
Stock
acquired through the exercise of a Stock Option or pursuant to Restricted
Stock
or
Other Stock-Based Award under the Plan prior to the Participant
’
s
Termination
and
expiration of the time period provided in Sections 11.1(b) and (c) hereof (the
“Transfer
Restriction Period”). Notwithstanding the foregoing, the Participant shall have
the
right
to Transfer such shares of Common Stock to a “Permissible Transferee" who
takes
the
shares subject to the terms of the Plan and applicable Award agreement.
Permissible
Transferees shall mean Family Members.
(b)
After
the
Transfer Restriction Period, no Participant shall Transfer
any
Common Stock acquired through the exercise of a Stock Option or pursuant
to
Restricted Stock or Other Stock-Based Award to any Person
other
than a
Permissible
Transferee unless in each such instance the Participant (or his or her
estate
or
legal representative) shall have first
offered
to the Company the
Common
Stock proposed to be Transferred pursuant to a bona fide offer to a third
party.
(c)
Notice
of Proposed
Transfer.
Prior
to
any proposed Transfer of the Common Stock acquired through the exercise of
a
Stock Option or pursuant to Restricted Stock or Other Stock-Based Award, the
Participant shall give a written
notice
(the “Transfer Notice”) to the Company describing fully
the
proposed
Transfer,
including the number of shares of Common Stock, the name and address
of
the
proposed Transferee (the “Proposed Transferee”) and, if the Transfer
is
voluntary,
the proposed Transfer price, and containing such information necessary to show
that the Participant has obtained a bona fide binding offer to Transfer the
Common Stock for cash from a third party. The Participant shall provide a
separate
Transfer Notice with regard to each Proposed Transferee.
The
Transfer
Notice
shall be signed by both the Participant and the Proposed Transferee and must
constitute a binding and unconditional commitment of the Participant and the
Proposed Transferee for the Transfer of the Common Stock to the Proposed
Transferee
for cash subject only to the right of first refusal specified
herein.
(d)
Bona
Fide
Transfer.
If
the
Company determines that the
information
provided by the Participant in the Transfer Notice is insufficient to establish
the bona fade nature of a proposed voluntary Transfer,
the
Company
shall
give the Participant written notice of the Participant
’
s
failure to comply with
the
procedure described herein, and the Participant shall have no right to Transfer
the
Common Stock without first complying with this procedure.
The
Participant
shall
not
be permitted to Transfer the Common Stock if the proposed Transfer is
not
bona
fide.
(e)
Exercise
of Right of First Refusal.
If
the
Company determines the
proposed
Transfer to be a bona fide Transfer, the Company shall have the right to
repurchase all or any part of the shares of Common
Stock
at
the proposed
Transfer
price per share, by delivering to the Participant (or his or her estate
or
legal
representative) written notice of such exercise within 30 days after the date
the
Company has determined that the proposed Transfer is
bona
fide.
The
Company's
exercise or failure to exercise the right of first refusal with respect to
any
proposed Transfer described in a Transfer Notice shall not affect the
Company's
right to exercise the right of first refusal with respect to any proposed
Transfer
described in any other Transfer Notice,
whether
or not such other
Transfer
Notice is issued by the Participant or issued by a person other than the
Participant
with respect to a proposed Transfer to the same Proposed Transferee.
If
the
Company exercises the right of first refusal,
the
Company and the
Participant
shall thereupon consummate the sale of the Common Stock to
the
Company
within five days after the date the Company has decided to exercise the right
of
first refusal described herein (unless a longer period is
offered
by the
Proposed
Transferee).
For
purposes of the foregoing, cancellation
of
any
indebtedness
of the Participant to the Company shall be treated as payment to the Participant
in cash to the extent of the unpaid principal and any accrued interest
canceled.
(f)
Failure to Exercise Right of First
Refusal.
If the Company
fails to exercise the right of first refusal with respect to any share of Common
Stock within the period specified in sub-section (e) above, and the Company
has
not given notice to the Participant that the proposed Transfer is not a bona
fide Transfer pursuant to sub-section (d) above, the Participant may conclude
a
Transfer to the Proposed Transferee of the Common Stock on the terms and
conditions described in the Transfer Notice, provided such Transfer occurs
not
later than five days after the date the Company has determined not to exercise
the right of first refusal described herein. The Company shall have the right
to
demand further assurances from the Participant and the Proposed Transferee
(in a
form satisfactory to the Company) that the Transfer of the Common Stock was
actually carried out on the terms and conditions described in the Transfer
Notice. No Common Stock shall be transferred on the books of the Company until
the Company has received such assurances, if so demanded, and has approved
the
proposed Transfer as bona fide. Any proposed Transfer on terms and conditions
different from those described in the Transfer Notice, as well as any subsequent
proposed Transfer by the Participant (or his or her estate or legal
representative), shall again be subject to the right of first refusal and shall
require compliance by the Participant with the procedure described in this
Section 12.2.
(g)
A
ssignment of Right of First
Refusal.
The Company
shall have the right to assign the right of first refusal at any time, whether
or not there has been an attempted Transfer, to one or more persons as may
be
selected by the Company, from time to time.
(h)
Application
to Transferees.
This
Section 12.2 shall apply to any
Permissible
Transferee in the same manner as it applies to a Participant.
12.3.
Alternative
Call Rights, Rights of First Refusal and Other Rights
.
The
Committee
may provide in the applicable Award agreement alternative (or no) call rights
and/or rights of first refusal and/or other rights at the time of grant (or,
thereafter, if no
rights
of
the Participant are reduced) as it may decide in its sole discretion (including
as
necessary
to comply with the requirements specified in Article XVII).
Notwithstanding
anything
herein to the contrary, if a Participant executes the Shareholders Agreement
(or
similar agreement) that provides call rights and/or rights of first refusal
and/or drag-along and/or co-sale rights, the provisions in the Shareholders
Agreement (or similar agreement) shall control to the extent they are
inconsistent with or in addition to the provisions of this Article
XII.
12.4.
Effect
of Registration
.
Notwithstanding
the foregoing, unless otherwise
determined
by the Committee, the Company shall cease to have rights pursuant to this
Article
XII on and after the Registration Date.
ARTICLE
XIII
UNFUNDED
PLAN
The
Plan
is intended to constitute an “unfounded” plan for incentive and deferred
compensation.
With respect to any payments as to which a Participant has a fixed and
vested
interest but which are not yet made to a Participant by the
Company,
nothing
contained
herein shall give any such Participant any rights that are greater than those
of
a
general
unsecured creditor of the Company.
ARTICLE
XIV
GENERAL
PROVISIONS
14.1.
Legend
.
The
Committee may require each person receiving shares
pursuant
to an Award to represent to and agree with the Company in writing that the
Participant is acquiring the shares without a view to distribution thereof
and
such other
securities
law related representations as the Committee shall request.
In
addition to any
legend
required by the Plan, the certificates and/or book entry accounts for such
shares may include any legend that the Committee deems appropriate to reflect
any restrictions
on
Transfer.
All
certificates and book entry accounts for shares of Common Stock delivered
under
the
Plan shall be subject to such stop transfer orders and other restrictions
as
the
Committee
may deem advisable under the rules, regulations and other requirements
of
the
Securities and Exchange Commission, any stock exchange upon which the Common
Stock
is
then listed or any national automated quotation system upon whose system the
Common
Stock is then quoted, any applicable Federal or state securities
law,
and
any
applicable
corporate law, and the Committee may cause a legend or legends to be put on
any
such
certificates to make appropriate reference to such restrictions.
14.2.
Other
Plans
.
Nothing
contained in the Plan shall prevent the Board from adopting other or additional
compensation arrangements, subject to shareholder approval if such approval
is
required; and such arrangements may be either generally applicable or
applicable
only in specific cases.
14.3.
No
Right to Employment/Consultancy/Directorship
.
Neither
the Plan nor
the
grant
of any Award hereunder shall give any Participant or other employee,
Consultant
or Non-Employee Director any right with respect to continuance of
employment,
consultancy or directorship by the Company or any Subsidiary, nor shall
there
be
a limitation in any way on the right of the Company or any Subsidiary by which
an
employee is employed or a Consultant or Non-Employee Director is retained to
terminate his or her employment, consultancy or directorship at any
time.
14.4.
Withholding
of Taxes
.
The
Company shall have the right to deduct from any payment to be made to a
Participant, or to otherwise require, prior to the issuance or delivery of
any
shares of Common Stock or the payment of any cash hereunder, payment by the
Participant of, any Federal, state or local taxes required by law to be
withheld. Upon the vesting of Restricted Stock, or upon making an election
under
Section 83(b) of the Code, a Participant shall pay all required withholding
to
the Company.
Any
statutorily required withholding obligation
with
regard to any Eligible
Employee
may be satisfied, subject to the consent of the Committee,
by
reducing the
number
of
shares of Common Stock otherwise deliverable or by delivering
shares
of
Common
Stock already owned.
Any
fraction of a share of Common Stock required to
satisfy
such tax obligations shall be disregarded and the amount due shall be paid
instead
in
cash
by the Participant.
14.5.
Listing
and Other Conditions
.
(a)
Unless otherwise determined by the Committee, as long as the
Common
Stock is listed on a national securities exchange or system sponsored by a
national securities association, the issue of any
shares
of
Common Stock
pursuant
to an Award shall be conditioned upon such shares being listed on such
exchange
or system. The Company shall have no obligation to issue such shares
unless
and until such shares are so listed, and the right to exercise any Award with
respect to such shares shall be suspended until such listing has been
effected.
(b)
If
at
any
time counsel to the Company shall be of the opinion that
any
sale
or delivery of shares of Common Stock pursuant to an Award is or may
in
the
circumstances be unlawful or result in the imposition of excise taxes on the
Company under the statutes, rules or regulations of any applicable jurisdiction,
the
Company shall have no obligation to make such sale or delivery, or to make
any
application or to effect or to maintain any qualification or registration under
the
Securities Act or otherwise with respect to shares of Common
Stock
or
Awards,
and the right to exercise any Award may be suspended until,
in
the
opinion
of said counsel, such sale or delivery shall be lawful and will not result
in
the
imposition of excise taxes on the Company.
(c)
Upon
termination of any
period
of
suspension
under
this
Section
14.5, an Award affected by such suspension that shall
not
then
have
expired
or terminated shall be reinstated as to all shares available before
such
suspension
and as to shares that would otherwise have become available during the period
of
such suspension, but no such suspension shall extend the term of any
Award.
(d)
A
Participant shall be required to supply the Company with any
certificates,
representations and information
that
the
Company requests and
otherwise
cooperate with the Company in obtaining
any
listing, registration, qualification, exemption, consent or approval the Company
deems necessary or
appropriate.
14.6.
Shareholders
Agreement and Other Requirements
.
Notwithstanding
anything herein to the contrary, as a condition to the receipt of shares of
Common Stock pursuant to an Award, to the extent required by the Committee,
the
Participant shall execute and deliver a shareholders agreement or such other
documentation that shall set forth certain restrictions on transferability
of
the shares of Common Stock acquired upon exercise or purchase, a right of first
refusal of the Company with respect to shares, and
such
other terms or restrictions as the Board or Committee shall from time to time
establish.
Such shareholders agreement or other documentation shall apply to the Common
Stock acquired under the Plan and covered by such shareholders agreement or
other
documentation. The Company may require, as a condition of exercise, the
Participant
to become a party to any other existing shareholders agreement or other
agreement.
14.7.
Governing
Law
.
The
Plan
shall be governed and construed in accordance with the laws of the State of
Delaware (regardless of the law that might otherwise govern under applicable
Delaware principles of conflict of laws).
14.8.
Construction
.
Wherever
any words are used in the Plan in the masculine gender they shall be construed
as though they were also used in the feminine gender in all cases where they
would so apply, and wherever any words are used herein in the singular form
they
shall be construed as though they were also used in the plural form in all
cases
where they would so apply.
14.9.
Other
Benefits
.
No
Award
shall be deemed compensation for purposes of computing benefits under any
retirement plan of the Company or its Subsidiaries nor affect any benefits
under
any other benefit plan now or subsequently in effect under which the
availability or amount of benefits is related to the level of
compensation.
14.10.
Costs
.
The
Company shall bear all expenses associated with administering the Plan,
including expenses of issuing Common Stock pursuant to any Award granted
hereunder.
14.11.
No
Right to Same Benefits
.
The
provisions of Awards need not be the same with respect to each Participant,
and
Awards granted to individual Participants need
not
be
the same.
14.12.
Death/Disability
.
The
Committee may in its discretion require the transferee of a Participant to
supply it with written notice of the Participant
’
s
death or Disability and to supply it with a copy of the will (in the case of
the
Participant
’
s
death)
or
such
other evidence as the Committee deems necessary to establish the validity of
the
transfer
of an Award. The Committee may also require that the agreement of the
transferee
to be bound by all of the terms and conditions of the Plan.
14
.13.
Section
16(b) of the Exchange Act
.
On
and
after the Registration Date, all elections and transactions under the Plan
by
persons subject to Section 16 of the Exchange Act involving shares of Common
Stock are intended to comply with any applicable exemptive condition under
Rule
16b-3.
The
Committee may establish and
adopt
written administrative guidelines, designed to facilitate compliance with
Section 16(b) of the Exchange Act, as it may deem necessary or proper for the
administration and operation of the Plan and the transaction of business
thereunder.
14.14.
Severability
of Provisions
.
If
any
provision of the Plan shall be held invalid or unenforceable, such invalidity
or
unenforceability shall not affect any other provisions hereof, and the Plan
shall be construed and enforced as if such provisions had
not
been
included; provided, however, that if the Company's call rights and rights of
first
refusal
set forth in Article XII shall be held invalid or unenforceable, the Awards
granted under the Plan shall be cancelled and terminated.
14.15.
Headings
and Captions
.
The
headings and captions herein are provided for reference and convenience only,
shall not be considered part of the Plan, and shall not be employed in the
construction of the Plan.
14.16.
Securities
Act Compliance
.
Except
as
the Company or Committee shall otherwise determine, the Plan is intended to
comply with Section 4(2) or Rule 701
of
the
Securities
Act, and any provisions inconsistent with such Section or Rule of the Securities
Act shall be inoperative and shall not affect the validity of the
Plan.
14
.17.
Successors
and Assigns
.
The
Plan
shall be binding on all successors and
permitted
assigns of a Participant, including, without limitation, the estate of such
Participant
and the executor, administrator or trustee of such estate.
I4.18.
Payment
to Minors, Etc
.
Any
benefit payable to or for the benefit of a minor, an incompetent person or
other
person incapable of receipt thereof shall be
deemed
paid when paid to such person's guardian or to the party providing or reasonably
appearing
to provide for the care of such person, and such payment shall fully discharge
the Committee, the Board, the Company, its Subsidiaries and their employees,
agents and representatives with respect thereto.
14.19.
Agreement
.
As
a
condition to the grant of an Award, if requested by the Company and the lead
underwriter of any public offering of the Common Stock (the
“
Lead
Underwriter
”
),
a Participant shall irrevocably agree not to sell, contract to sell,
grant
any
option to purchase, transfer the economic risk of ownership in, make any short
sale of, pledge or otherwise transfer or dispose of, any interest in any Common
Stock or
any
securities convertible into, derivative of, or exchangeable or exercisable
for,
or any
other
rights to purchase or acquire Common Stock (except Common Stock included in
such
public offering or acquired on the public market after such offering) during
such period of time following the effective date of a registration statement
of
the Company
filed
under the Securities Act that the Lead Underwriter shall specify (the
“
Lock-up
Period
”
).
The Participant shall further agree to sign such documents as may be requested
by the Lead Underwriter to effect the foregoing and agree that the Company
may
impose
stop-transfer
instructions with respect to Common Stock acquired pursuant to an Award until
the end of such Lock-up Period.
14.20.
No
Rights as Shareholder
.
Except
as
provided in Article VII with respect to Restricted Stock or Article VIII with
respect to Other Stock-Based Awards, subject to the provisions of the Award
agreement, no Participant or Permitted Transferee shall have any rights as
a
shareholder of the Company with respect to any Award until such individual
becomes the holder of record of the shares of Common Stock underlying the
Award.
14.21.
Section
409A of the Code
.
The
Plan
is intended to comply with the
applicable
requirements of Section 409A of the Code and shall be limited, construed and
interpreted
in accordance with such intent.
To
the
extent that any Award is subject to Section 409A of the Code, it shall be paid
in a manner that will comply with Section 409A of the Code, including proposed,
temporary or final regulations or any other guidance issued by the Secretary
of
the Treasury and the Internal Revenue Service with respect thereto.
Notwithstanding anything herein to the contrary, any provision in the Plan
that
is inconsistent with Section 409A of the Code shall be deemed to be amended
to
comply
with Section 409A of the Code and to the extent such provision
cannot
be
amended
to comply therewith, such provision shall be null and void.
14.22.
Consideration
.
Awards
may be awarded in consideration for past services
actually
rendered to the Company or a Subsidiary for its benefit; provided, however,
that
in
the
case of an Award to be made to a new Eligible Employee, Non-Employee Director,
or
Consultant who has not performed prior services for the Company, the Company
will
require
payment of the par value of the Common Stock by cash or check in order to ensure
proper issuance of the shares in compliance with Delaware General Corporation
Law
.
ARTICLE
XV
EFFECTIVE
DATE OF PLAN
The
Plan
shall become effective upon adoption by the Board or such later date as
provided
in the adopting resolution,
subject
to the approval of the Plan by the
shareholders
of the Company within 12 months before or after adoption of the Plan by the
Board in accordance with the laws of the State of Delaware.
ARTICLE
XVI
TERM
OF
PLAN
No
Award
shall be granted pursuant to the Plan on or after the tenth anniversary
of
the
earlier of the date the Plan is adopted or the date of shareholder approval,
but
Awards
granted prior to such tenth anniversary may, and the Committee's authority
to
administer
the terms of such Awards shall, extend beyond that date.
ARTICLE
XVII
PROVISIONS
APPLICABLE TO AWARDS
GRANTED
TO RESIDENTS OF CALIFORNIA
Notwithstanding
the foregoing, any Award granted under the Plan to a California resident shall
be subject to the provisions of this Article XVII (in addition to other
applicable provisions of the Plan that are not inconsistent with this Article
XVII) and, notwithstanding any provision of the Plan to the contrary, solely
to
the extent necessary to comply with Title 10 of the California Code of
Regulations at the time an Award is granted, the following shall apply to each
such Award:
17.1
At
no
time shall the total number of shares issuable upon exercise or
vesting
of all outstanding Awards provided for under any stock bonus or similar plan
of
the Company exceed thirty percent (30%) of all outstanding shares of the
Company, including convertible preferred shares or convertible senior common
shares on an as-converted basis, based on the shares of the Company which are
outstanding at the time the calculation is made.
17.2.
Any
Stock
Option granted under the Plan shall be exercisable according to the terms hereof
at such times and under such conditions as determined by the Committee
and
set
forth in the Stock
Option
agreement. Except
in
the
case
of
Stock Options granted
to
officers, directors and consultants, Stock Options shall become exercisable
at a
rate of no less
than
20%
per year over five
years
from the date the Stock Options are granted.
17.3.
Any
repurchase
option in favor of the Company that is applicable to an Award to an Eligible
Employee who is not an officer, director or consultant shall be subject to
the
following:
(a)
The
repurchase option gives the Company the right to repurchase
the
shares of
Stock
upon Termination at not less than the Fair Market Value of the shares of Common
Stock to be purchased on the date of Termination
and
(x)
the right to repurchase is exercised for cash or cancellation of purchase money
indebtedness for the shares of Common Stock within ninety (90) days of
Termination (or in the case of shares of Common Stock issued upon exercise
of
Awards after such date of Termination, within ninety (90) days after the date
of
the
exercise) or such longer period as may be agreed to by the Company and the
Participant
and (y) the right shall terminates on and after the Listing Date.
(b)
The
repurchase option gives the Company the right to repurchase the shares of Common
Stock upon Termination at the original purchase price, if and (x) the right
to
repurchase at the original purchase price lapses at the rate of at
least
twenty percent (20%) of such shares of Common Stock per year over five (5)
years
from the date that the Award is granted (without respect to the date
the
Award
was
exercised or became exercisable) and (y) the right to repurchase is
exercised
for cash or cancellation of purchase money indebtedness for the shares
of
Common
Stock within ninety (90) days of Termination (or in the case of shares
of
Common
Stock issued upon exercise of Options after such date of termination,
within
ninety (90) days after the date of the exercise) or such longer period
as
may
be
agreed to by the Company and the Participant in compliance with applicable
law.
17.4.
Prior
the
Date,
Listing
a
Ten
Percent Stockholder shall not be granted a
Non-Qualified
Stock
Option
unless
the exercise price of such Option is at least (i) one hundred ten percent (110%)
of the
F
air
Market Value of the Common Stock on the date
of
grant
or (ii) such
lower
percentage of the Fair Market Value of the Common Stock at
the
date
of grant as is permitted by Section 260.140.41 of Title 10 of the California
Code
of
Regulations at the time of the grant of the Option. Prior to the Listing Date,
a
Ten
Percent
Stockholder shall not be granted an award of Restricted Stock unless the
purchase price of the Restricted Stock is at least (i) one hundred percent
(100%) of the Fair Market Value of the Common Stock at the date
of
grant or (ii) such lower percentage
of
the
Fair Market Value of the Common Stock at the date of grant as is permitted
by
Section
260.140.41 of Title 10 of the California Code of Regulations at the time of
the
grant
of
the Option.
17.5.
Prior
to
the Listing Date, the Fair Market Value of the Common Stock
subject
to an Award shall be determined in a manner consistent with Section 260.140.50
of Title 10 of the California Code of Regulations.
17.6.
In
addition to the restrictions set forth in Section 9.1, an Award shall be
Transferable solely to the extent permitted by Section 260.140.41(d) of Title
10
of the California Code of Regulations.
17.7.
Prior
to
the Listing Date, to the extent required by Section 260.140.46 of Title 10
of
the California Code of Regulations, the Company shall deliver financial
statements to Participants at least annually. This sub-section shall not apply
to key
employees
whose duties in connection with the Company assure them access to
equivalent
information.
17.8.
Except as the Company or the Committee shall otherwise determine, the
Plan
is
intended to comply with Section 25.102(o) of the California Corporations Code,
and any provisions inconsistent with such Section of the California Corporations
Code shall be inoperative and shall not affect the validity of the
Plan
TWISTBOX
ENTERTAINMENT, INC.
NON-QUALIFIED
STOCK OPTION AGREEMENT
PURSUANT
TO THE
TWISTBOX
ENTERTAINMENT, INC. 2006 STOCK INCENTIVE PLAN
This
Non-Qualified Stock Option AGREEMENT (“
Agreement
”),
dated
as of ________ (the “
Grant
Date
”)
by and
between Twistbox Entertainment, Inc., a California corporation (the
“
Company
”)
and
«Name»
(the
“
Participant
”).
Preliminary
Statement
The
Committee has authorized this grant of a non-qualified stock option (the
“
Option
”)
on
________ to purchase the number of shares of the Company’s common stock (the
“
Common
Stock
”)
set
forth below to the Participant, as an Eligible Employee of the Company or a
Subsidiary (collectively, the Company and all Subsidiaries of the Company shall
be referred to as the “
Employer
”).
Unless otherwise indicated, any capitalized term used but not defined herein
shall have the meaning ascribed to such term in the Twistbox Entertainment,
Inc.
2006 Stock Incentive Plan (the “
Plan
”).
A
copy of the Plan has been delivered to the Participant. By signing and returning
this Agreement, the Participant acknowledges having received and read a copy
of
the Plan and agrees to comply with it, this Agreement and all applicable laws
and regulations.
Accordingly,
the parties hereto agree as follows:
1.
Tax
Matters
.
No part
of the Option granted hereby is intended to qualify as an “incentive stock
option” under Section 422 of the Internal Revenue Code of 1986, as
amended.
2.
Grant
of Option
.
Subject
in all respects to the Plan and the terms and conditions set forth herein and
therein, the Participant is hereby granted an Option to purchase from the
Company
«shares»
shares
of Common Stock, at a price per share of $__ (the “
Option
Price
”).
3.
Exercise
.
(a)
Except
as
set forth in subsection (b) below, the Option shall vest and become exercisable
as provided below, which shall be cumulative. To the extent that the Option
has
become exercisable with respect to a number of shares of Common Stock as
provided below, the Option may thereafter be exercised by the Participant,
in
whole or in part, at any time or from time to time prior to the expiration
of
the Option as provided herein and in accordance with Section 6.3(d) of the
Plan,
including, without limitation, the filing of such written form of exercise
notice, if any, as may be required by the Committee and payment in full of
the
Option Price multiplied by the number of shares of Common Stock underlying
the
portion of the Option exercised. Upon expiration of the Option, the Option
shall
be canceled and no longer exercisable. Exhibit A (Vesting Schedule) indicates
each date upon which the Participant shall be vested and entitled to exercise
the Option with respect to the percentage indicated beside that date provided
that the Participant has not suffered a Termination of Employment prior to
the
applicable vesting date.
There
shall be no proportionate or partial vesting in the periods prior to each
vesting date and all vesting shall occur only on the appropriate vesting
date.
(b)
Upon
the
occurrence of an IPO or Change in Control, the Option shall immediately become
exercisable with respect to all shares of Common Stock subject
thereto.
(c)
Notwithstanding
the foregoing, the Participant may not exercise the Option unless the shares
of
Common Stock issuable upon such exercise are then registered under the
Securities Act, or, if such shares of Common Stock are not then so registered,
the Company has determined that such exercise and issuance would be exempt
from
the registration requirements of the Securities Act. The exercise of the Option
must also comply with other applicable laws and regulations governing the
Option, and the Participant may not exercise the Option if the Company
determines that such exercise would not be in material compliance with such
laws
and regulations. In addition, the Participant may not exercise the Option if
the
terms of the Plan do not permit the exercise of Options at such time.
4.
Option
Term
.
The
term of each Option shall be until the tenth (10
th
)
anniversary of the Grant Date, after which time it shall terminate, subject
to
earlier termination in the event of the Participant’s Termination of Employment
as specified in Section 5 below.
5.
Termination
of Employment
.
(a)
Subject
to the terms of the Plan and this Agreement, the Option, to the extent vested
at
the time of the Participant’s Termination of Employment, shall remain
exercisable as provided in Section 9.2(a) of the Plan.
(b)
Any
portion of the Option that is not vested as of the date of the Participant’s
Termination of Employment for any reason shall terminate and expire as of the
date of such Termination of Employment.
(c)
If
the
Participant breaches any agreement with the Company or any of its Subsidiaries
regarding competition, confidentiality or the solicitation of customers or
employees, the Option (whether vested or unvested) and shares of Common Stock
acquired upon exercise of the Option (without compensation other than repayment
of the Option Price) shall be immediately forfeited to the Company unless the
Participant cures such breach (if curable) within 15 days of being notified
of
such breach.
6.
Restriction
on Transfer of Option
.
No part
of the Option shall be Transferable other than by will or by the laws of descent
and distribution and during the lifetime of the Participant, may be exercised
only by the Participant or the Participant’s guardian or legal representative.
In addition, the Option shall not be assigned, negotiated, pledged or
hypothecated in any way (except as provided by law or herein), and the Option
shall not be subject to execution, attachment or similar process. Upon any
attempt to Transfer the Option or in the event of any levy upon the Option
by
reason of any execution, attachment or similar process contrary to the
provisions hereof, the Option shall immediately become null and
void.
7.
Company
Call Rights; Restrictions on Transfer
.
The
Option, and any shares of Common Stock that the Participant acquires upon
exercise of the Option, shall be subject to the Company call rights and
restrictions on transfer (including the Company’s right of first refusal) set
forth in Article XIII of the Plan. To ensure that the shares of Common Stock
issuable upon exercise of the Option are not transferred in contravention of
the
terms of the Plan and this Agreement, and to ensure compliance with other
provisions of the Plan and this Agreement, the Company may deposit the
certificates evidencing the shares of Common Stock to be issued upon the
exercise of the Option with an escrow agent designated by the
Company.
8.
Securities
Representations
.
Upon the
exercise of the Option prior to the registration of the Common Stock subject
to
the Option pursuant to the Securities Act or other applicable securities laws,
the Participant shall be deemed to acknowledge and make the representations
and
warranties as described below and as otherwise may be requested by the Company
for compliance with applicable laws, and any issuances of Common Stock by the
Company shall be made in reliance upon the express representations and
warranties of the Participant.
(a)
The
Participant is acquiring and will hold the shares of Common Stock for investment
for his account only and not with a view to, or for resale in connection with,
any “distribution” thereof within the meaning of the Securities Act or other
applicable securities laws.
(b)
The
Participant has been advised that the shares of Common Stock have not been
registered under the Securities Act or other applicable securities laws, on
the
ground that no distribution or public offering of the shares of Common Stock
is
to be effected (it being understood, however, that the shares of Common Stock
are being issued and sold in reliance on the exemption provided under Rule
701
under the Securities Act), and that the shares of Common Stock must be held
indefinitely, unless they are subsequently registered under the applicable
securities laws or the Participant obtains an opinion of counsel (in the form
and substance satisfactory to the Company and its counsel) that registration
is
not required. In connection with the foregoing, the Company is relying in part
on the Participant’s representations set forth in this Section. The Participant
further acknowledges and understands that the Company is under no obligation
hereunder to register the shares of Common Stock.
(c)
The
Participant is aware of the adoption of Rule 144 by the Securities and Exchange
Commission under the Securities Act, which permits limited public resale of
securities acquired in a non-public offering, subject to the satisfaction of
certain conditions. The Participant acknowledges that he is familiar with the
conditions for resale set forth in Rule 144, and acknowledges and understands
that the conditions for resale set forth in Rule 144 have not been satisfied
and
that the Company has no plans to satisfy these conditions in the foreseeable
future.
(d)
The
Participant will not sell, transfer or otherwise dispose of the shares of Common
Stock in violation of the Plan, this Agreement, Securities Act (or the rules
and
regulations promulgated thereunder) or under any other applicable securities
laws. The Participant agrees that he will not dispose of the Common Stock unless
and until he has complied with all requirements of this Agreement applicable
to
the disposition of the shares of Common Stock.
(e)
The
Participant has been furnished with, and has had access to, such information
as
he considers necessary or appropriate for deciding whether to invest in the
shares of Common Stock, and the Participant has had an opportunity to ask
questions and receive answers from the Company regarding the terms and
conditions of the issuance of the Common Stock.
(f)
The
Participant is aware that his investment in the Company is a speculative
investment that has limited liquidity and is subject to the risk of complete
loss. The Participant is able, without impairing his financial condition, to
hold the Shares for an indefinite period and to suffer a complete loss of his
investment in the Common Stock.
9.
Rights
as a Stockholder
.
The
Participant shall have no rights as a stockholder with respect to any shares
covered by the Option unless and until the Participant has become the holder
of
record of the shares, and no adjustments shall be made for dividends in cash
or
other property, distributions or other rights in respect of any such shares,
except as otherwise specifically provided for in the Plan.
10.
Provisions
of Plan Control
.
This
Agreement is subject to all the terms, conditions and provisions of the Plan,
including, without limitation, the amendment provisions thereof, and to such
rules, regulations and interpretations relating to the Plan as may be adopted
by
the Committee and as may be in effect from time to time. The Plan is
incorporated herein by reference. If and to the extent that this Agreement
conflicts or is inconsistent with the terms, conditions and provisions of the
Plan, the Plan shall control, and this Agreement shall be deemed to be modified
accordingly. This Agreement contains the entire understanding of the parties
with respect to the subject matter hereof (other than any exercise notice or
other documents expressly contemplated herein or in the Plan) and supersedes
any
prior agreements between the Company and the Participant with respect to the
subject matter hereof.
11.
Notices
.
Any
notice or communication given hereunder shall be in writing and shall be deemed
to have been duly given: (i) when delivered in person; (ii) two (2) days after
being sent by United States mail; or (iii) on the first business day following
the date of deposit if delivered by a nationally recognized overnight delivery
service, to the appropriate party at the address set forth below (or such other
address as the party shall from time to time specify):
If
to the
Company, to:
Twistbox
Entertainment, Inc.
14242
Ventura Boulevard, 3
rd
Floor
Sherman
Oaks, California 91423
Attention:
Plan Administrator
If
to the
Participant, to the address on file with the Company.
12.
No
Obligation to Continue Employment
.
This
Agreement is not an agreement of employment. This Agreement does not guarantee
that the Employer will employ the Participant for any specific time period,
nor
does it modify in any respect the Employer’s right to terminate or modify the
Participant’s employment or compensation.
13.
Agreement
.
As a
condition to the receipt of shares of Common Stock when the Option is exercised,
the Participant shall execute and deliver an Assumption Agreement, and to the
extent required by the Committee, the Participant shall execute and deliver
a
stockholder’s agreement or such other documentation which shall set forth
certain restrictions on transferability of the shares of Common Stock acquired
and such other terms or restrictions as the Committee shall from time to time
establish. Such Assumption Agreement, stockholder’s agreement or other
documentation shall apply to the Common Stock acquired under the Plan and
covered by such Assumption Agreement, stockholder’s agreement or other
documentation. The Company may require, as a condition of exercise, the
Participant to become a party to any other existing stockholder agreement or
other agreement.
14.
409A
.
NOTWITHSTANDING
ANYTHING HEREIN OR IN THE PLAN TO THE CONTRARY, IF THE COMMON STOCK DOES NOT
CONSTITUTE “SERVICE RECIPIENT STOCK” FOR PURPOSES OF SECTION 409A OF THE CODE OR
IF THE OPTION OTHERWISE IS DEEMED TO BE DEFERRED COMPENSATION UNDER SECTION
409A
OF THE CODE AS A RESULT OF ANY PROPOSED, TEMPORARY OR FINAL REGULATIONS OR
ANY
OTHER GUIDANCE ISSUED BY THE SECRETARY OF THE TREASURY AND THE INTERNAL REVENUE
SERVICE WITH RESPECT TO SECTION 409A OF THE CODE, THE COMPANY SHALL BE PERMITTED
TO AMEND THE PLAN AND THE OPTION TO COMPLY WITH SECTION 409A WITHOUT THE
PARTICIPANT’S CONSENT. THE COMPANY SHALL HAVE NO LIABILITY TO THE PARTICIPANT OR
OTHERWISE IF THE OPTION AND ANY AMOUNTS PAID OR PAYABLE THEREUNDER IS SUBJECT
TO
SECTION 409A OF THE CODE.
[Remainder
of Page Left Intentionally Blank]
[Signature
Page Follows]
IN
WITNESS WHEREOF, the parties have executed this Agreement on the date and year
first above written.
TWISTBOX
ENTERTAINMENT, INC.
By:
Authorized
Officer
|
«Name»
Employee
[
ID
or
Social Security
]
number:
I,
_____________________, the spouse of the Participant, do hereby join with my
spouse in executing this Agreement and do hereby agree to be bound by all of
the
terms and provisions thereof.
_________________________
Signature
SECURITIES
PURCHASE AGREEMENT
by
and
among
TWISTBOX
ENTERTAINMENT, INC.,
THE
SUBSIDIARY GUARANTORS,
AND
VALUEACT
SMALLCAP MASTER FUND, L.P,
dated
as
of
July
30,
2007
|
|
TABLE
OF CONTENTS
|
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
|
ARTICLE
I
DEFINITIONS
|
|
|
1.1
|
|
Definitions
|
|
1
|
|
|
|
|
|
|
|
ARTICLE
II
PURCHASE
AND SALE
|
|
|
2.1
|
|
Closing
|
|
4
|
|
|
|
|
|
|
|
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES
|
|
|
3.1
|
|
Representations
and Warranties of the Company
|
|
5
|
3.2
|
|
Representations
and Warranties of the Investors
|
|
16
|
|
|
|
|
|
|
|
ARTICLE
IV
OTHER
AGREEMENTS OF THE PARTIES
|
|
|
4.1
|
|
Transfer
Restrictions
|
|
18
|
4.2
|
|
Use
of Proceeds
|
|
20
|
|
|
|
|
|
|
|
ARTICLE
V
REGISTRATION
RIGHTS
|
|
|
5.1
|
|
Warrant
Shares
|
|
20
|
|
|
|
|
|
|
|
ARTICLE
VI
OBSERVER
RIGHTS
|
|
|
6.1
|
|
Observer
|
|
20
|
6.2
|
|
Confidentiality
|
|
21
|
6.3
|
|
Termination
of Certain Rights
|
|
22
|
|
|
|
|
|
|
|
ARTICLE
VII
COVENANTS
|
|
|
7.1
|
|
Integration
|
|
22
|
7.2
|
|
Reservation
of Securities
|
|
22
|
|
|
|
|
|
|
|
ARTICLE
VIII
CONDITIONS
|
|
|
8.1
|
|
Conditions
Precedent to the Investor’s Obligation to Purchase
|
|
22
|
8.2
|
|
Conditions
Precedent to the Obligations of the Company
|
|
24
|
|
ARTICLE
IX
MISCELLANEOUS
|
|
|
|
|
9.1
|
Termination
|
25
|
9.2
|
Fees
and Expenses
|
25
|
9.3
|
Entire
Agreement
|
25
|
9.4
|
Notices
|
25
|
9.5
|
Amendments;
Waivers
|
26
|
9.6
|
Construction
|
26
|
9.7
|
Successors
and Assigns
|
26
|
9.8
|
Governing
Law; Venue; Waiver of Jury Trial
|
26
|
9.9
|
Survival
|
27
|
9.10
|
Execution
|
27
|
9.11
|
Severability
|
27
|
9.12
|
Rescission
and Withdrawal Right
|
27
|
9.13
|
Replacement
of Securities
|
27
|
9.14
|
No
Promotion
|
27
|
Exhibits
Exhibit
A
Schedule
of Investors
Exhibit
B
Form
of
Senior Secured Note
Exhibit
C
Form
of
Warrant
Exhibit
D
Form
of
Guarantee and Security Agreement
Exhibit
E
List
of
Material Agreements
Exhibit
F
Schedule
of Exceptions
Exhibit
G
Form
of
Opinion of Company Counsel
Exhibit
H
Form
of
Amended and Restated Investors’ Rights Agreement
Exhibit
I
Form
of
Shareholders Agreement Amendment
SECURITIES
PURCHASE AGREEMENT
This
SECURITIES
PURCHASE AGREEMENT
(the
“Agreement”
),
is
dated as of July 30, 2007, by and among Twistbox Entertainment, Inc., a Delaware
corporation (the
“Company”
),
each
of the Subsidiary Guarantors (as defined below) and ValueAct SmallCap Master
Fund, L.P. (the
“Investor”
).
WHEREAS:
A.
The
Company and the Investor are executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by Section 4(2)
of the
Securities Act of 1933, as amended (the
“Securities
Act”
),
and
Rule 506 of Regulation D (
“Regulation
D”
)
as
promulgated by the United States Securities and Exchange Commission (the
“SEC”
)
under
the Securities Act.
B.
The
Investor wishes to purchase, and the Company wishes to sell, upon the terms
and
conditions stated in this Agreement: (i) that aggregate principal amount
of
notes (the
“Senior
Secured Notes”
)
in
substantially the form attached hereto as
Exhibit
B
set
forth opposite such Investor’s name in column two (2) on the Schedule of
Investors attached hereto as
Exhibit
A,
and (ii)
that aggregate number of Warrants (the
“Warrants”
)
in
substantially the form attached hereto as
Exhibit
C
set
forth opposite such Investor’s name in column four (4) on the Schedule of
Investors which will be exercisable to purchase shares of Common Stock, par
value $0.001 per share (the
“Common
Stock”
),
of the
Company (as exercised, collectively, the
“Warrant
Shares”
).
C.
Each
of the Subsidiary Guarantors (as defined below) will guarantee (the
“Guarantee”
)
the
Company’s obligations under the Senior Secured Notes on the terms and subject to
the conditions of the Guarantee and Security Agreement (as defined
below).
D.
The
Senior Secured Notes, Warrants and Warrant Shares are collectively referred
to
herein as the
“Securities.”
E.
NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration the receipt and adequacy of
which
are hereby acknowledged, the Company and the Investors agree as
follows:
ARTICLE
I
DEFINITIONS
1.1
Definitions.
In
addition to the terms defined elsewhere in this Agreement, the following
terms
have the meanings indicated:
“Action”
has the
meaning set forth in Section 3.1(m).
“Affiliate”
means
any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person, as
such
terms are used in and construed under Rule 144.
“Amended
and Restated Investors’ Rights Agreement”
means
the Amended and Restated Investors’ Rights Agreement in substantially the form
set forth as Exhibit H hereto.
“Board”
means
the Board of Directors of the Company.
“Business
Day”
means
any day other than Saturday, Sunday or other day on which commercial banks
in
The City of New York are required by law to remain closed.
“Closing”
means
the closing of the purchase and sale of the Securities pursuant to Section
2.1.
“Closing
Date”
means
the date and time of the Closing and shall be 12:00 p.m., eastern standard
time,
on July 30, 2007 (or such other date and time as is mutually agreed to by
the
Company and each Investor).
“Collateral”
has the
meaning assigned to such term in the Guarantee and Security
Agreement.
“Collateral
Agent”
has the
meaning assigned to such term in the Guarantee and Security
Agreement.
“Company
Counsel”
means
Proskauer Rose LLP, special counsel to the Company.
“Common
Stock”
has the
meaning set forth in the Preamble.
“Environmental
Laws”
has the
meaning set forth in Section 3.1(n).
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended.
“Financial
Statements”
has the
meaning set forth in Section 3.1(h).
“Foreign
Securities Law”
means
the laws and regulations governing the sale of securities of a jurisdiction
outside the United States of America where the capital stock of the Company
may
be listed or traded.
“Fundamental
Transaction”
shall be
(i) a merger or consolidation of the Company with or into another corporation
in
which the Company is not the surviving entity unless the holders of the capital
stock of the Company immediately prior to such transaction are entitled to
exercise, directly or indirectly, 50% (fifty percent) or more of the voting
power of all shares of capital stock entitled to vote generally in the election
of directors of the continuing or surviving corporation, (ii) a reverse
triangular merger in which the Company is the surviving entity but the shares
of
the Company’s capital stock outstanding immediately prior to the merger are
converted by virtue of the merger into other property, whether in the form
of
securities, cash or otherwise, or (iii) a sale of transfer of all or
substantially all of the Company’s properties and assets to another
person.
“Guarantee
and Security Agreement”
by and
among the Company, the Investor and Subsidiary Guarantors party thereto in
substantially in the form set forth as
Exhibit
D
hereto.
“Grantor”
has the
meaning assigned to such term in the Guarantee and Security
Agreement.
“Information”
has the
meaning set forth in Section 6.1(b).
“Lien”
means
any lien, charge, claim, encumbrance, right of first refusal or other security
interest.
“Major
Content Provider”
means
each of the top five (5) content providers to the Company ranked by dollar
volume during the fiscal year ended March 31, 2007.
“Major
Mobile Telephone Carrier”
means
each of the top five (5) mobile telephone carriers of the Company’s content
ranked by revenue during the fiscal year ended March 31, 2007.
“Material
Adverse Effect”
has the
meaning set forth in Section 3.1(a).
“Material
Agreements”
has the
meaning set forth in Section 3.1(r).
“Material
Permits”
has the
meaning set forth in Section 3.1(ff).
“Measuring
Date”
has the
meaning set forth in Section 3.1(i).
“Observer”
has the
meaning set forth in Section 6.1(a).
“Person”
means
any individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, or
joint
stock company.
“Plan”
has the
meaning set forth in Section 3.1(f)(iii).
“Preferred
Stock”
means
the Company’s preferred stock designated as “Series A Preferred Stock” and
“Series B Preferred Stock”.
“Proceeding”
means an
action, claim, suit, investigation or proceeding (including, without limitation,
an investigation or partial proceeding, such as a deposition), whether commenced
or threatened in writing.
“Proprietary
Assets”
has the
meaning set forth in Section 3.1(k)(i).
“Purchase
Price”
has the
meaning set forth in Section 2.1(b).
“Rule
144”
means
Rule 144 promulgated by the SEC pursuant to the Securities Act, as such Rule
may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC having substantially the same effect as such
Rule.
“SEC”
has the
meaning set forth in the Preamble.
“Securities”
has
the
meaning set forth in the Preamble.
“Senior
Secured Notes”
has
the
meaning set forth in the Preamble.
“Shareholders
Agreement”
means
the
Second Amended and Restated Shareholders Agreement, dated as of May 15, 2006,
as
amended, or otherwise modified from time to time (including by the Shareholders
Agreement Amendment).
“Shareholders
Agreement Amendment”
means
the
Amendment to the Shareholders Agreement in substantially the form set forth
as
Exhibit I hereto.
“Shares”
means
shares of the Company’s Common Stock.
“Subsidiary”
means
any
Person in which the Company, directly or indirectly, owns capital stock or
holds
an equity or similar interest.
“Subsidiary
Guarantor”
means
each Subsidiary of the Company that has guaranteed the Senior Secured Notes
pursuant to the Guarantee and Security Agreement.
“Trading
Market”
means
any
foreign or United States securities exchange, market or trading or quotation
facility on which the Common Stock is then listed or quoted.
“Transactions”
means
the
transactions contemplated by the Transaction Documents.
“Transaction
Documents”
means
this Agreement, the schedules and exhibits attached hereto, the Senior Secured
Notes, the Warrants, the Amended and Restated Investors’ Rights Agreement, the
Shareholders’ Agreement Amendment and the Guarantee and Security
Agreement.
“Transfer”
means
any
sale, transfer, assignment or other disposition, directly or indirectly,
and
“Transferred” shall have the correlative meaning.
“
VAC
”
has
the
meaning set forth in Section 6.2(a).
“VAC
Entity”
or
“VAC
Entities”
has
the
meaning set forth in Section 6.2(a).
“Violation”
has
the
meaning set forth in Section 5.8(a).
“Warrant”
has
the
meaning set forth in the Preamble.
“Warrant
Shares”
has
the
meaning set forth in the Preamble.
ARTICLE
II
PURCHASE
AND SALE
2.1
Closing
.
(a)
Subject to the terms and conditions set forth in Sections 8.1 and 8.2 herein,
at
the Closing the Company shall issue and sell to the Investor, and the Investor
shall purchase from the Company, such principal amount of Senior Secured
Notes
and number of Warrants set forth opposite the Investor’s name on
Exhibit
A
hereto
under the headings “Senior Secured Notes” and “Warrants”. The Closing shall take
place on the Closing Date at the offices of Company Counsel.
(b)
At
the Closing, the Investor shall deliver or cause to be delivered to the Company
the purchase price set forth opposite such Investor’s name on
Exhibit
A
hereto
under the heading “Total Purchase Price” in United States dollars and in
immediately available funds (the
“Purchase
Price”
),
by
wire
transfer to an account designated in writing to such Investor by the Company
for
such purpose;
provided,
however,
that an
amount of the Purchase Price equal to the principal amount together with
accrued
interest on the promissory note dated July 16, 2007 between the Company and
the
Investor in the principal amount of $250,000 (the
“Promissory
Note”
)
may be
paid by the Investor by delivering to the Company the Promissory Note for
cancellation by the Company.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES
3.1
Representations
and Warranties of the Company.
The
Company hereby represents and warrants to the Investor that, except as set
forth
in the Schedule of Exceptions attached as
Exhibit
F
to this
Agreement, which exceptions shall be deemed to be part of the representations
and warranties made hereunder, the following representations are true and
complete as of the date hereof. The Schedule of Exceptions shall be arranged
in
sections corresponding to the numbered and lettered sections and subsections
contained in this Section 3, and the disclosures in any section or subsection
of
the Schedule of Exceptions shall qualify other sections and subsections in
this
Section 3 if it is reasonably apparent from a reading of the disclosure that
such disclosure is applicable to such other sections and
subsections:
(a)
Organization,
Good Standing, Corporate Power and Qualification.
Each of
the Company and the Subsidiary Guarantors has been duly incorporated and
organized, and is validly existing in good standing, under the laws of its
state
of incorporation and qualified to do business in any state or other jurisdiction
in which the nature of the business conducted or property owned by it makes
such
qualification necessary except where the failure to be so qualified or in
good
standing, as the case may be, would not reasonably be expected to individually
or in the aggregate, (i) materially and adversely affect the legality, validity
or enforceability of any Transaction Document, (ii) have or result in a material
adverse effect on the results of operations, assets, business, prospects
or
financial condition of the Company and the Subsidiaries, taken as a whole
on a
consolidated basis or (iii) materially and adversely impair the Company’s
ability to perform its obligations under any of the Transaction Documents
(any
of (i), (ii) or (iii), a
“Material
Adverse Effect”
).
Each
of
the Company and the Subsidiary Guarantors has the requisite corporate power
and
authority to enter into, deliver, and perform the Transaction Documents,
to sell
and issue the Securities (including the underlying Warrant Shares) hereunder,
and to own and operate their properties and assets and to carry on their
business as currently conducted and as presently proposed to be conducted.
The
Company has made available to the Investor copies of its Articles of
Incorporation, Bylaws and its minute books. Said copies are true, correct
and
complete and reflect all amendments now in effect, and with respect to the
minute books, contain minutes of all meetings and/or actions by written consent
of directors and stockholders since the time of incorporation.
(b)
Subsidiaries.
The
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, partnership, trust, joint venture, association,
or
other entity other than the Subsidiaries scheduled on Section 3.1(b) of the
Schedule of Exceptions. The Company owns, directly or indirectly, all of
the
capital stock or comparable equity interests of each Subsidiary free and
clear
of any Lien and all the issued and outstanding shares of capital stock or
comparable equity interest of each Subsidiary are, to the extent applicable,
validly issued and are fully paid, non-assessable and free of preemptive
and
similar rights.
(c)
Authorization;
Enforcement.
All
corporate action on the part of the Company’s and each of the Subsidiary
Guarantor’s directors and stockholders necessary, as applicable, for: (i) the
authorization, execution, delivery of, and the performance of all obligations
of
the Company and each Subsidiary Guarantor under this Agreement and the other
Transaction Documents to which it is a party; (ii) the authorization, issuance,
reservation for issuance, sale and delivery of all of the Securities being
sold
under this Agreement and of the Warrant Shares; and (iii) amending the Company’s
bylaws, has been taken. This Agreement, along with the other Transaction
Documents, when executed and delivered, will constitute valid and legally
binding obligations of the Company and each Subsidiary Guarantor, to the
extent
party thereto, enforceable against the Company and each Subsidiary Guarantor,
to
the extent party thereto, in accordance with their respective terms, except
as
may be limited by (i) applicable bankruptcy, insolvency, reorganization or
others laws of general application relating to or affecting the enforcement
of
creditors’ rights generally, (ii) applicable federal or state securities laws
limits on indemnification; and (iii) the effect of rules of law governing
the
availability of equitable remedies.
(d)
No
Conflicts.
The
execution, delivery and performance of this Agreement and the other Transaction
Documents to which it is a party, and the consummation of the Transactions
contemplated hereby or thereby will not result in any violation or default,
or
result in a violation or breach of, with or without the passage of time or
the
giving of notice or both, the Company’s or any Subsidiary Guarantor’s
certificate or articles of incorporation, bylaws or other organizational
or
charter documents, any judgment, order or decree of any court or arbitrator
to
which the Company or any Subsidiary Guarantor is a party or is subject, any
agreement or contract of the Company or any Subsidiary Guarantor, or, to
the
Company’s knowledge, a violation of any statute, law, regulation or order, or an
event which results in the creation of any Lien upon any asset of the Company
or
any Subsidiary Guarantor (other than the Lien granted to the Investor pursuant
to the Transaction Documents).
(e)
Valid
Issuance of Securities.
(i)
The
Senior Secured Notes have been duly and validly authorized by the Company
for
issuance and sale to the Investor pursuant to this Agreement and, when paid
for
and then issued, as provided in this Agreement, will have been validly executed,
issued and delivered by the Company in accordance with the terms of this
Agreement and the Senior Secured Note.
(ii)
The
Guarantee and Security Agreement has been duly and validly authorized by
each
Subsidiary Guarantor and, on the Closing Date, will have been validly executed
and delivered by each such Subsidiary Guarantor in accordance with the terms
of
the Guarantee and Security Agreement.
(iii)
The
Warrants have been duly and validly authorized by the Company and, when paid
for
and then issued, as provided in this Agreement, will have been validly executed
and delivered by the Company. The Warrant Shares have been duly and validly
authorized and reserved for issuance upon exercise of the Warrants and when
issued upon such exercise in accordance with the Warrant, will be duly and
validly issued and outstanding, fully paid and nonassessable.
(iv)
Assuming the truth and accuracy of the representations made by the Investor
in
Section 3.2 hereof, the offer and sale of the Securities solely to the Investor
in accordance with this Agreement and (assuming no change in currently
applicable law, no Transfer of Securities by any holder thereof and no
commission or other remuneration is paid or given, directly or indirectly,
for
soliciting the issuance of Warrant Shares upon exercise of the Warrants)
the
issuance of the Warrant Shares are exempt from the registration and prospectus
delivery requirements of the Securities Act and the securities registration
and
qualification requirements of the currently effective provisions of the
securities laws of the State of California and the states in which the Investor
is a resident based upon its address set forth on the Schedule of Investors
attached hereto as
Exhibit
A.
(f)
Capitalization
.
The
-
capitalization
of the Company immediately prior to the Closing consists of the
following:
(i)
Preferred Stock
. A total of 5,204,255 authorized shares of preferred
stock, $0.01 par value per share, consisting of 2,500,000 shares designated
as
“Series A Preferred Stock,” of which 825,075 shares will be issued and
outstanding and 2,704,255 shares designated as “Series B Preferred Stock,” of
which 2,704,254 will be issued and outstanding.
(ii)
Common Stock
. A total of 20,000,000 authorized shares of Common Stock, of
which 7,785,716 shares will be issued and outstanding.
(iii)
Options, Warrants, Reserved Shares
. Except for (i) any conversion
privileges of the Preferred Stock, (ii) the 3,700,000 shares of Common Stock
reserved for issuance under the Company’s 2006 Stock Incentive Plan (the
“
Plan
”) under which (y) options to purchase 2,223,689 shares
will be outstanding, and (z) 1,476,311 shares remain available for future
issuance under
the
Plan,
there are no outstanding options, warrants, rights (including conversion
or
preemptive rights) or agreement for the purchase or acquisition from the
Company
of any shares of its capital stock or any securities convertible into or
ultimately exchangeable or exercisable for any shares of the Company’s capital
stock. Apart from the exceptions noted herein or in the Schedule of Exceptions,
no shares of the Company’s outstanding capital stock, or stock issuable upon
exercise or exchange of any outstanding options, warrants or rights, or other
stock issuable by the Company, are subject to any preemptive rights, rights
of
first refusal or other rights to purchase such stock (whether in favor of
the
Company or any other person), pursuant to any agreement or commitment of
the
Company. The Company has not made any representations regarding equity
incentives to any officer, employee, director or consultant that are
inconsistent with the share amounts and terms set forth in the Board minutes
and/or actions by written consent of the Board.
(iv)
The
outstanding shares of the capital stock of the Company (i) are duly authorized
and validly issued, fully paid and nonassessable, and have been approved
by all
requisite stockholder action, and (ii) assuming the accuracy of the
representations and warranties and the compliance with the covenants made
by the
original purchasers of such shares, were issued in compliance with all
applicable state and federal laws concerning the issuance of
securities.
(v)
All
options granted vest as follows: twenty-five percent (25%) of the shares
vest
one (1) year following the vesting commencement date, with the remaining
seventy-five percent (75%) vesting in equal quarterly installments over the
next
three (3) years. No stock plan, stock purchase, stock option or other agreement
or understanding between the Company and any holder of any equity securities
or
rights to purchase equity securities provides for acceleration or other changes
in the vesting provisions or other terms of such agreement or understanding
as
the result of (i) termination of employment or consulting services (whether
actual or constructive); (ii) any merger, consolidated sale of stock or assets,
change in control or any other transaction(s) by the Company; or (iii) the
occurrence of any other event or combination of events.
(g)
Consents.
No
consent, approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, (i) any federal, state or local
governmental authority having jurisdiction over the Company or any Subsidiary
Guarantor, or (ii) any other Person, is required on the part of the Company
or
any Subsidiary Guarantor in order to enable the Company or the Subsidiary
Guarantors to execute, deliver and perform its obligations under this Agreement
and the other Transaction Documents to which it is a party except (A) where
the
failure to obtain the same would not have a material and adverse impact on
the
Company’s business, (B) for such qualifications or filings under applicable
securities laws as may be required in connection with the Transactions
contemplated by this Agreement and (C) for such board of director and
stockholder consents that have been obtained prior to Closing. All
such
qualifications and filings will, in the case of qualifications, be effective
on
the Closing and will, in the case of filings, be made within the time prescribed
by law.
(h)
Financial
Statements.
The
Company has delivered to each Investor its unaudited balance sheet and
statements of operations and cash flows as of and for the period ended March
31,
2007 (collectively the
“Financial
Statements”
).
The
Financial Statements are complete and correct in all material respects and
have
been prepared substantially in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated,
except as set forth in Section 3.1(h) of the Schedule of Exceptions. The
Financial Statements accurately set out and describe the financial condition
and
operating results of the Company as of the dates, and for the periods, indicated
therein.
(i)
Certain
Actions.
Since
March 31, 2007 (the
“Measuring
Date”
),
the
Company has not: (i) declared or paid any dividends, or authorized or made
any
distribution upon or with respect to any class or series of its capital stock;
(ii) incurred any indebtedness for money borrowed individually in excess
of Ten
Thousand Dollars ($10,000) or in excess of Twenty Five Thousand Dollars
($25,000) in the aggregate; (iii) made any loans or advances to any person,
other than advances (
e.g.
,
travel
expenses) made in the ordinary course of business in excess of Ten Thousand
Dollars ($10,000) in the aggregate; (iv) sold, exchanged or otherwise disposed
of any material assets or rights other than the sale of inventory in the
ordinary course of its business; or (v) entered into any material transactions
with any of its officers, directors or employees or any entity controlled
by any
of such individuals.
(j)
Activities
Since Measuring Date.
Since
the Measuring Date, there has not been:
(i)
any
damage, destruction or loss, whether or not covered by insurance, materially
and
adversely affecting the assets, properties, financial condition, operating
results, prospects or business of the Company (as presently conducted and
as
presently proposed to be conducted), taken as a whole;
(ii)
any
waiver by the Company or any Subsidiary Guarantor of any material right or
of a
material debt owed to it;
(iii)
any
change or amendment to a material contract or arrangement by which the Company,
any Subsidiary Guarantor or any of their assets or properties is bound or
subject, except for changes or amendments which are expressly provided for
or
disclosed in this Agreement;
(iv)
any
satisfaction or discharge of any lien, claim or encumbrance or payment of
any
obligation by the Company or any Subsidiary Guarantor, except in the ordinary
course of business and that is not material to the assets, properties, financial
condition, operating results or business of the Company (as such business
is
presently conducted and as it is proposed to be conducted);
(v)
any
material change in any compensation arrangement or agreement with any
employee;
(vi)
any
sale, assignment or Transfer of any material patents, trademarks, copyrights,
trade secrets or other material intangible assets;
(vii)
any
resignation or termination of employment of any key officer of the Company;
and
the chief executive officer of the Company, to his knowledge, does not know
of
the impending resignation or termination of employment of any such
officer;
(viii)
any receipt of notice that there has been a loss of, or material order
cancellation by, any Major Mobile Telephone Carrier or Major Content Provider
of
the Company;
(ix)
any
mortgage, pledge, Transfer of a security interest in, or lien, created by
the
Company or any Subsidiary Guarantor, with respect to any of its material
intellectual property rights or any other material properties or assets,
except
liens for taxes not yet due or payable;
(x)
any
loans or guarantees made by the Company to or for the benefit of its employees,
officers or directors, or any members of their immediate families, other
than
travel advances and other advances made in the ordinary course of its
business;
(xi)
any
declaration, setting aside or payment or other distribution in respect of
any of
the Company’s capital stock, or any direct; or indirect redemption, purchase or
other acquisition of any of such stock by the Company; or
(xii)
any
agreement or commitment by the Company or any Subsidiary Guarantor to do
any of
the things described in this Section 3.1(j).
(k)
Status
of Proprietary Assets
.
(i)
Status
.
The
Company and the Subsidiary Guarantors have full title and ownership of, or
are
duly licensed under or otherwise authorized to use, all inventions, patents,
patent applications, trademarks, service marks, trade names, trade secrets,
information, proprietary rights, processes and copyrights (all of the foregoing
collectively hereinafter referred to as the
“Proprietary
Assets”
)
necessary to enable it to carry on its business as now conducted and as
presently proposed to be conducted without any conflict with or, to its
knowledge, infringement upon the rights of others. Neither the Company nor
the
Subsidiary Guarantors has received any written communications alleging that
the
Company or the Subsidiary Guarantor has violated or, by conducting its business
as currently conducted, would violate any of the patents, trademarks, service
marks, trade names, copyrights or trade proprietary rights of any other person
or entity, nor is the Company or any Subsidiary Guarantor aware of any basis
therefore.
(ii)
Licenses;
Other Agreements
.
Neither
the Company nor any Subsidiary Guarantor has granted any options, licenses
or
agreements of any kind relating to any Proprietary Asset of the Company or
any
Subsidiary Guarantor, nor is the Company or any Subsidiary Guarantor bound
by or
a party to any option, license or agreement of any kind with respect to any
of
its respective Proprietary Assets. Neither the Company nor the Subsidiary
Guarantor is obligated to pay any royalties or other payments to third parties
with respect to the marketing, sale, distribution, manufacture, license or
use
of any Proprietary Asset or any other property or rights.
(iii)
Employee
Obligations
.
The
Company is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with their duties to the Company or that would
conflict with the Company’s business as presently proposed to the
conducted.
(iv)
Assignment
of Inventions
.
Each
current or former partner, director, officer, employee or consultant of the
Company who has, in each case, been involved in the development or modification
of any Proprietary Assets owned or purported to be owned by the Company,
has
executed a written agreement expressly assigning to the Company all right,
title
and interest in any inventions and works of authorship and all intellectual
property rights therein.
(1)
Tax
Matters
.
The
Company and each Subsidiary (i) has timely prepared and filed all material
foreign, federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject, (ii) has
paid
all material taxes and other governmental assessments and charges that are
material in amount, shown or determined to be due on such returns, reports
and
declarations, except those being contested in good faith, with respect to
which
adequate reserves have been set aside on the books of the Company and (iii)
has
set aside on its books provision reasonably adequate for the payment of all
taxes for periods subsequent to the periods to which such returns, reports
or
declarations apply. To the Company’s knowledge, there are no unpaid taxes in any
material amount claimed to be past due by the taxing authority of any
jurisdiction, and the Company knows of no basis for such claim. The Company
has
not waived or extended any statute of limitations at the request of any taxing
authority. There are no outstanding tax sharing agreements or other such
arrangements between the Company and any other corporation or entity and
the
Company is not presently undergoing any audit by a taxing
authority.
(m)
Absence
of Litigation
.
There
is no action, suit, proceeding, claim, arbitration or investigation
(
“Action”
)
pending
(or, to the Company’s knowledge, currently threatened) against the Company or
any Subsidiary Guarantor, its respective activities or its respective properties
before any court or governmental agency. There is no action, suit, proceeding
or
investigation by the Company or any Subsidiary Guarantor currently pending
or
which the Company or any Subsidiary Guarantor intends to initiate.
(n)
Environmental
Matters
.
The
Company and each Subsidiary (i) is not in violation of any statute, rule,
regulation, decision or order of any governmental agency or body or any court,
domestic or foreign, relating to the use, disposal or release of hazardous
or
toxic substances or relating to the protection or restoration of the environment
or human exposure to hazardous or toxic substances (collectively,
“Environmental
Laws
”),
(ii)
does not own or operate any real property contaminated with any substance
in
violation of any Environmental Laws, (iii) is not liable for any off-site
disposal or contamination pursuant to any Environmental Laws and (iv) is
not
subject to any claim relating to any Environmental Laws; which violation,
contamination, liability or claim has affected or would reasonably be expected
to affect, individually or in the aggregate, materially and adversely the
assets, properties, financial condition, operating results or business of
the
Company; and there is no pending or, to the Company’s knowledge, threatened
investigation that might lead to such a claim.
(o)
Compliance
.
None of
the Company or any Subsidiary Guarantor is in violation of (i) any term of
its
certificate or articles of incorporation, bylaws or other organizational
or
charter documents, (ii) any material term or provision of any indebtedness,
instrument, judgment or decree or Material Agreement and (iii) to its knowledge,
is not in violation of any order, statute, rule or regulation applicable
to the
Company where such violation would have a Material Adverse Effect.
(p)
Title
to Assets
.
The
Company and the Subsidiary Guarantors own and have good and marketable title
to
its respective tangible properties and assets, free and clear of all mortgages,
deeds of trust, liens, encumbrances and security interests except for statutory
liens for the payment of current taxes that are not yet delinquent and liens,
encumbrances and security interests which arise in the ordinary course of
business and which do not affect material properties and assets of the Company.
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company or the Subsidiary Guarantors are in
good
operating condition and repair, ordinary wear and tear excepted.
(q)
Real
Property
.
No
condemnation, eminent domain, or similar proceeding exists, is pending or,
to
the knowledge of the Company, is threatened with respect to or that could
affect
any real property leased by the Company or any of the Subsidiary Guarantors,
which proceedings has affected or would reasonably be expected to affect,
individually or in the aggregate, materially and adversely the assets,
properties, financial condition, operating results or business of the Company.
No real property leased by the Company or any of the Subsidiary Guarantors
is
subject to any sales contract, option, right of first refusal or similar
agreement or arrangement with any third party. The Company owns no real
property.
(r)
Material
Agreements and Obligations
.
All of
the indentures, contracts and agreements, with expected receipts or expenditures
in excess of $25,000 or involving a license or grant of material rights to
or
from the Company involving, patents, copyrights, trademarks, or other
proprietary information applicable to the current business of the Company
or
relating to compensation plans or arrangements with employees (other than
with
respect to such employees’ salaries or grants of options pursuant to the
Company’s Plan), to which the Company is a party and which are in effect as of
the Closing are listed on
Exhibit
E
(the
“Material
Agreements”
).
The
Material Agreements are valid, binding, and in full force and effect in all
material respects, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies, and
the
Company has not received any written notice of termination with respect to
any
such contract or agreement by any of the parties to any such contract or
agreement.
(s)
Material
Liabilities
.
The
Company has no material liabilities or obligations, absolute or contingent
(individually or in the aggregate), except (i) the liabilities and obligations
set forth in the Financial Statements, (ii) liabilities and obligations which
have been incurred subsequent to March 31, 2007 in the ordinary course of
business which have not been, in the aggregate, materially adverse to the
assets, properties, financial condition, operating results or business of
the
Company, (iii) liabilities and obligations under leases for its principal
offices and for equipment, and (iv) liabilities and obligations under sales,
procurement and other contracts and arrangements entered into in the normal
course of business.
(t)
No
General Solicitation; Brokers or Finders
.
Neither
the Company, nor any of its Affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offer or sale
of the
Securities. Other than as set forth on Section 3.1(t) of the Schedule of
Exceptions, neither the Company nor the Investor, as a result of any action
taken by the Company, have incurred or will incur, directly or indirectly,
any
liability for brokerage of finders’ fees or agents’ commissions or any similar
charges in connection with this Agreement or the Transactions contemplated
hereby.
(u)
Private
Placement
.
None of
the Company, its Subsidiaries, any of their Affiliates, or any Person acting
on
their behalf has, directly or indirectly, at any time within the past six
(6)
months, made any offer or sale of any security or solicitation of any offer
to
buy any security under circumstances that would (i) eliminate the availability
of the exemption from registration under Regulation D under the Securities
Act
in connection with the offer and sale by the Company of the Securities as
contemplated hereby or (ii) cause the offering of the Securities pursuant
to the
Transaction Documents to be integrated with prior offerings by the Company
for
purposes of any applicable law, regulation or stockholder approval provisions,
including, without limitation, under the rules and regulations of any Trading
Market.
(v)
Real
Property Holding Corporation
.
The
Company is not a real property holding corporation within the meaning of
Code
Section 897(c)(2) and any regulations promulgated thereunder.
(w)
Off-Balance
Sheet Arrangements
.
Neither
the Company nor any of its Subsidiaries is a party to, or has any commitment
to
become a party to, any “off-balance sheet arrangements” (as defined in Item
303(a) of Regulation S-K of the SEC).
(x)
Registration
Rights
.
Except
as contemplated by the Transaction Documents and the Registration Rights
Agreement, dated May 16, 2006 by and among the Company and certain holders
of
the Company’s Series A Preferred Stock, the Company is not under any obligation
to register under the Securities Act or Foreign Securities Law any of its
currently outstanding securities or any securities issuable upon exercise
or
conversion of its currently outstanding securities nor is the Company obligated
to register or qualify any such securities under any state securities or
blue
sky laws.
(y)
Disclosure
.
This
Agreement, the Exhibits hereto, the other Transaction Documents and any
certificate expressly delivered by the Company or any Subsidiary Guarantor
to
the Investor or their attorneys or agents in connection herewith or therewith
or
with the Transactions contemplated hereby or thereby, taken as a whole, neither
contain any untrue statement of a material fact nor, to the Company’s knowledge,
omit to state a material fact necessary in order to make the statements
contained herein or therein not misleading except that, with respect to the
Company’s business plan or investment presentations and any financial
projections submitted to the Investor in connection with this Agreement and
the
Transactions contemplated hereby, the Company represents and warrants only
that
such business plan, investment presentations and financial projections were
prepared in good faith based on reasonable assumptions and are not materially
inconsistent with any internal Company plans, budgets or forecasts.
(z)
Insurance
.
The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses and location in which the Company and the
Subsidiaries are engaged, including directors’ and officers’ liability
insurance. Neither the Company nor any Subsidiary has any knowledge that
it will
not be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business without a significant increase in cost.
(aa)
ERISA
.
The
Company does not have any Employee Pension Benefit Plan as defined in Section
3
of the Employee Retirement Income Security Act of 1974, as amended.
(bb)
Labor
Agreements and Actions; Employee Compensation
.
The
Company is not bound by or subject to any contract, commitment or arrangement
with any labor union, and no labor union has requested or, to the best of
the
Company’s knowledge, has sought to represent any of the employees of the
Company. There is no strike or other labor dispute involving the Company
pending, or to the best of the Company’s knowledge, threatened, that could have
a Material Adverse Effect, nor is the Company aware of any labor organization
activity involving its employees. Other than the Company’s Plan and any grants
of options thereunder, the Company is not a party to any employment contract,
deferred compensation agreement, bonus plan, incentive plan, profit sharing
plan, retirement agreement, or other employee compensation
agreement.
(cc)
Employees
.
To the
Company’s knowledge, no employee of the Company nor any consultant with whom the
Company has contracted, is in violation of any material term of any employment
contract, proprietary information agreement, non-disclosure agreement or
any
other similar contract or agreement relating to the relationship of such
employee or consultant with the Company, any former employer or any other
party;
and to the Company’s knowledge the continued employment by the Company of its
present employees, and the performance of the Company’s contracts with its
independent contractors, will not result in any such violation. The Company
has
not received any written notice alleging that any such
violation
has occurred. The Company does not have any collective bargaining agreement
covering any of its employees. The Company does not believe it is or will
be
necessary to utilize any inventions of any of its employees made prior to
or
outside the scope of their employment by the Company. No employee of the
Company
has been granted the right to continued employment by the Company or to any
material compensation following termination of employment with the Company.
The
chief executive officer of the Company is not aware that any officer, key
employee or group of employees intends to terminate his, her or their employment
with the Company, nor does the Company have a present intention to terminate
the
employment of any officer, key employee or group of
employees.
(dd)
Transactions
With Affiliates and Employees
.
There
are no obligations of the Company to officers, directors, stockholders, or
employees of the Company other than (a) for payment of salary for services
rendered, (b) reimbursement for reasonable expenses incurred on behalf of
the
Company and (c) for other standard employee benefits made generally available
to
all employees (including stock option agreements outstanding under any stock
option plan approved by the Board). No officer, director, key employee or
stockholder of the Company is indebted to the Company (excluding advances
to
employees made in the ordinary course of business not exceeding $10,000 in
the
aggregate). To the Company’s knowledge, none of the officers, directors, key
employees or stockholders of the Company or any members of their immediate
families, has any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company
has a
business relationship, or any firm or corporation that competes with the
Company, other than (i) passive investments in publicly traded companies
(representing less than 1 %
of
such
company) which may compete with the Company and (ii) investments by venture
capital funds or similar institutional investors with which directors of
the
Company may be affiliated and serve as a board member of a company in connection
therewith due to a person’s affiliation with a venture capital fund or similar
institutional investor in such company. No officer, director or stockholder,
or
any member of their immediate families, is, directly or indirectly, personally
interested in any material contract with the Company (other than such contracts
as relate to any such person’s (i) ownership of capital stock or other
securities of the Company, (ii) indemnification by the Company or (iii) salary
and other employment benefits provided by the Company to such
person).
(ee)
Questionable
Payments.
Neither
the Company nor any Subsidiary, nor, to the Company’s knowledge, directors,
officers, employees, agents or other Persons acting on behalf of the Company
or
any Subsidiary has, in the course of its actions for, or on behalf of, the
Company: (i) used any corporate funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to foreign or domestic
political activity; (ii) made any direct or indirect unlawful payments to
any
foreign or domestic governmental officials or employees from corporate funds;
(iii) violated in any respect any provision of the Foreign Corrupt Practices
Act
of 1977, as amended or (iv) made any other unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee which, in the aggregate of clauses (i) through
(iv) would materially and adversely affect the assets, properties, financial
condition, operating results or business of the Company.
(ff)
Regulatory
Permits
.
The
Company and the Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate federal, state, local or foreign
regulatory
authorities necessary to conduct their respective businesses, except where
the
failure to possess such permits does not, individually or in the aggregate,
materially and adversely affect the assets, properties, financial condition,
operating results, prospects or business of the Company (
“Material
Permits”
),
and
neither the Company nor any Subsidiary has received any written notice of
proceedings relating to the revocation or modification of any Material
Permit.
(gg)
Internal
Accounting Controls
.
The
Company and the Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
in
accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements substantially in conformity with generally accepted accounting
principles and to maintain asset accountability, (iii) access to assets is
permitted only in accordance with management’s general or specific authorization
and (iv) the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with respect
to
any differences.
(hh)
Investment
Company
.
Neither
the Company nor any of its Subsidiaries is (i) an “investment company” as
defined in, or subject to regulation under, the Investment Company Act of
1940
or (ii) a “holding company” as defined in, or subject to regulation under, the
Public Utility Holding Company Act of 1935.
(ii)
Margin
Stock
.
Neither
the Company nor any of the Subsidiaries is engaged principally, or as one
of
their important activities, in the business of extending credit for the purpose
of buying or carrying Margin Stock (as such term is defined in Regulation
U).
Immediately before and after giving effect to the sale of the Senior Secured
Note, Margin Stock will constitute less than 25% of the Company’s assets as
determined in accordance with Regulation U. No part of the proceeds of the
Senior Secured Note will be used, whether directly or indirectly, and whether
immediately, incidentally or ultimately, to purchase, acquire or carry any
Margin Stock or for any purpose that entails a violation of, or that is
inconsistent with, the provisions of the regulations of the Board of Governors
of the Federal Reserve System of the United States of America, including
Regulation T, U or X.
(jj)
Application
of Takeover Protections
.
There is
no control share acquisition, business combination, poison pill (including
any
distribution under a rights agreement) or other similar anti-takeover provision
under the Company’s charter documents or the laws of its state of incorporation
that is or would become applicable to any of the Investors as a result of
the
Investors and the Company fulfilling their obligations or exercising their
rights under the Transaction Documents, including, without limitation, as
a
result of the Company’s issuance of the Securities and the Investors’ ownership
of the Securities.
3.2
Representations
and Warranties of the Investors
.
The
Investor hereby represents and warrants to the Company as follows:
(a)
Authorization
.
This
Agreement constitutes the Investor’s valid and legally binding obligation,
enforceable against the Investor in accordance with its terms except as may
be
limited by (i) applicable bankruptcy, insolvency, reorganization or other
laws
of general application relating to or affecting the enforcement of creditors’
rights generally and (ii) the
effect
of
rules of law governing the availability of equitable remedies. The Investor
represents that it has full power and authority to enter into the Transaction
Documents to which it is a party.
(b)
Purchase
for Own Account
.
The
Securities to be purchased by the Investor hereunder will be acquired for
investment for the Investor’s own account, not as a nominee or agent, and not
with a view to the public resale or distribution thereof with the meaning
of the
Securities Act, and the Investor has no present intention of selling, granting
any participation in, or otherwise distributing the same. If not an individual,
the Investor also represents that the Investor has not been formed for the
specific purpose of acquiring Securities.
(c)
Disclosure
of Information
.
At no
time was the Investor presented with or solicited by any publicly issued
or
circulated newspaper, mail, radio, television or other form of general
advertising or solicitation in connection with the offer, sale and purchase
of
the Securities. To the knowledge of such Investor, such Investor has received
or
has had full access to all the information it requested in connection with
its
investment decision with respect to the Securities to be purchased by such
Investor under this Agreement. Such Investor further has had an opportunity
to
discuss the Company’s business, management and financial affairs with directors,
officers and management of the Company and has had the opportunity to review
the
Company’s operations and facilities. Investor has also had the opportunity to
ask questions of and receive answers from, the Company and its management
regarding the terms and conditions of this investment.
(d)
Investment
Experience
.
The
Investor understands that the purchase of the Securities involves substantial
risk. The Investor: (i) has experience as an investor in securities of companies
in the development stage and acknowledges that the Investor is able to fend
for
itself, can bear the economic risk of the Investor’s investment in the
Securities and has such knowledge and experience in financial or business
matters that the Investor is capable of evaluating the merits and risks of
this
investment in the Securities and protecting its own interests in connection
with
this investment and/or (ii) has a preexisting personal or business relationship
with the Company and certain of its officers, directors or controlling persons
of a nature and duration that enables such Investor to be aware of the
character, business acumen and financial circumstances of such persons. The
Investor represents that the office in which its investment decision was
made is
located at the address on the Schedule of Investors attached hereto as
Exhibit
A
.
(e)
Accredited
Investor Status
.
The
Investor is an “accredited investor” within the meaning of Regulation D
promulgated under the Securities Act.
(f)
Restricted
Securities
.
Such
Investor understands that the Securities are characterized as “restricted
securities” under the Securities Act inasmuch as they are being acquired from
the Company in a transaction not involving a public offering and that under
the
Securities Act and applicable regulations thereunder such securities may
be
resold without registration under the Securities Act only in certain limited
circumstances as set forth in Article IV. In this connection, such Investor
represents that the Investor is familiar with Rule 144, as presently in effect,
and understands the resale limitations imposed thereby and by the Securities
Act. The Investor understands that the Company is under no obligation to
register any of the Securities sold hereunder except as provided herein.
The
Investor understands that no public
market
now exists for any of the Securities and that it is uncertain whether a public
market will ever exist for the Securities.
ARTICLE
IV
OTHER
AGREEMENTS OF THE PARTIES
4.1
Transfer
Restrictions
.
(a)
The
Investor covenants that the Securities will only be Transferred pursuant
to an
effective registration statement under, and in compliance with the requirements
of, the Securities Act or Foreign Securities Law or, if so requested by the
Company, upon delivery to the Company of an opinion of counsel reasonably
satisfactory to the Company that such Transfer is being made pursuant to
an
available exemption from the registration requirements of the Securities
Act or
Foreign Securities Law, and in compliance with any applicable state securities
laws. The Investor may not Transfer any Securities to any person that the
Board,
in its reasonable judgment, deems to be a direct competitor of the Company
or an
affiliate thereof. In connection with any Transfer of Securities other than
pursuant to an effective registration statement or to the Company, the Company
may require the transferor to provide to the Company an opinion of counsel
selected by the transferor, the form and substance of which opinion shall
be
reasonably satisfactory to the Company, to the effect that such Transfer
does
not require registration under the Securities Act or Foreign Securities Law.
Notwithstanding anything contained herein to the contrary, any transferee
of any
Securities shall, as a condition precedent to such Transfer, agree in writing
to
be subject to the terms of the Transaction Documents to the same extent as
if
the transferee were an original Investor hereunder.
(b)
Such
Investor understands that the instruments representing the Senior Secured
Notes
and the Warrants and, when issued, the stock certificates representing the
Warrant Shares, until such time as the resale of the Secrities have been
registered and sold under the Securities Act and Foreign Securities Law,
shall
bear any legend as required by the “blue sky” laws of any state and a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):
[NEITHER
THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH
THESE SECURITIES ARE EXERCISABLE HAVE BEEN] [THIS NOTE HAS NOT BEEN] REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
AND
BLUE SKY LAWS. [THESE SECURITIES] [THIS NOTE] MAY NOT BE OFFERED FOR SALE,
SOLD,
TRANSFERRED OR ASSIGNED (1) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE
“SECURITIES ACT”) OR FOREIGN SECURITIES LAWS, OR (B) IF REASONABLY REQUESTED BY
THE COMPANY,
AN
OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THAT REGISTRATION
IS NOT
REQUIRED UNDER SAID ACT OR FOREIGN SECURITIES LAWS AND (2) IF SUCH SALE,
TRANSFER OR ASSIGNMENT VIOLATES APPLICABLE STATE SECURITIES AND BLUE SKY
LAWS.
[THESE SECURITIES] ARE SUBJECT TO THE PROVISIONS OF A CERTAIN SECURITIES
PURCHASE AGREEMENT, DATED AS OF JULY 30, 2007, INCLUDING CERTAIN RESTRICTIONS
ON
TRANSFER SET FORTH THEREIN, AND AN
AMENDED
AND RESTATED INVESTORS’ RIGHTS AGREEMENT, DATED AS OF JULY 30, 2007. COMPLETE
AND CORRECT COPIES OF SUCH AGREEMENTS ARE AVAILABLE FOR INSPECTION AT THE
PRINCIPAL OFFICE OF THE COMPANY AND WILL BE FURNISHED TO ANY HOLDER OF [THESE
SECURITIES] UPON WRITTEN REQUEST WITHOUT CHARGE.
The
legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which
it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities have been registered and sold pursuant to an effective registration
statement under the Securities Act or Foreign Securities Law or (ii) in
connection with a sale, assignment or other Transfer, the Company reasonably
requests that such holder provide the Company with opinion of counsel reasonably
acceptable to the Company that the legend may be removed without registration
under the applicable requirements of the Securities Act or Foreign Securities
Law.
(c)
Drag-Along
.
In the
event that the Board and holders of a majority of the outstanding shares
of
Common Stock issued or issuable upon conversion of the shares of Series A
Preferred Stock and Series B Preferred Stock approve (i) a sale of all or
substantially all of the assets of the Company to an unrelated third party,
(ii)
a sale of more than 50% of the outstanding capital stock of the Company (on
an
as-converted basis) to one or more unrelated third parties or (iii) a merger
or
consolidation of the Company with an unrelated third party as a result of
which
either (x) the Company does not survive or (y) such unrelated third parties
(or
equity owners thereof) hold, directly or indirectly, at least a majority
of the
Common Stock (on an as-converted basis), (such events, a “
Sale
of the Company
”),
then
each holder of Warrant Shares hereby agrees with respect to all shares of
capital stock of the Company (including Common Stock) that he, she or it
holds
and any other Company securities over which he, she or it otherwise exercises
dispositive power:
(i)
in
the event such transaction requires the approval of stockholders, (a) if
the
matter is to be brought to a vote at a stockholder meeting, after receiving
proper notice of any meeting of stockholders of the Company to vote on the
approval of a Sale of the Company, to be present, in person or by proxy,
as a
holder of the Company’s capital stock, at all such meetings and be counted for
the purposes of determining the presence of a quorum at such meetings; and
(b)
to vote (in person, by proxy or by action by written consent, as applicable)
all
shares of the Company’s capital stock in favor of such Sale of the Company and
in opposition of any and all other proposals that could reasonably be expected
to delay or impair the ability of the Company to consummate such Sale of
the
Company;
(ii)
in
the event that the Sale of the Company is to be effected by the sale of shares
of the Company’s capital stock held by the holders of the Company’s Series B
Preferred Stock (the “
Selling
Stockholders
”)
without the need for stockholder approval, each holder of Warrant Shares
agrees
to sell all shares of capital stock of the Company beneficially held thereby
(or
in the event that the Selling Stockholders are selling fewer than all of
their
shares of Company’s capital stock, shares in the same proportion as the Selling
Stockholders
are selling) to the person to whom the Selling Stockholders propose to sell
their shares, for the same per-share consideration (on an as-converted basis)
and on the same terms and conditions as the Selling Stockholders, except
that
the holders of Warrant Shares will not be required to sell their shares unless
the liability for indemnification of such holders of Warrant Shares in such
Sale
of the Company is several, not joint, and is pro rata in accordance with
such
holder’s respective relative stock ownership of the Company, and will not exceed
the consideration payable thereto, if any, in such transaction (except in
the
case of potential liability for fraud or willful misconduct
thereby);
(iii)
to
refrain from exercising any dissenters’ rights or rights of appraisal under
applicable law at any time with respect to such Sale of the Company;
and
(iv)
to
execute and deliver all related documentation and take such other action
in
support of the Sale of the Company as shall reasonably be requested by the
Company.
If
the
drag-along provisions set forth in the Shareholders Agreement are amended
or
modified, or are replaced with a similar provision applicable to the
shareholders of a successor to the Company in connection with a Fundamental
Transaction, then the provisions of Section 4.1(c) above shall be deemed
to have
been similarly amended, modified or replaced,
mutatis
mutandis.
4.2
Use
of
Proceeds
.
The
Company intends to use the net proceeds from the sale of the Securities for
working capital and general corporate purposes and not for the (i) repayment
of
any of the Senior Secured Notes or (ii) redemption or repurchase of any of
its
equity securities. Pending these uses, the Company intends to invest the
net
proceeds from this offering in short-term, interest-bearing, investment-grade
securities, or as otherwise pursuant to the Company’s customary investment
policies.
ARTICLE
V
REGISTRATION
RIGHTS
5.1
Warrant
Shares
.
The
Warrant Shares have certain rights to registration as set forth in the Amended
and Restated Investors’ Rights Agreement, dated as of July 30, 2007 and are
subject to certain restrictions as set forth therein.
ARTICLE
VI
OBSERVER
RIGHTS
6.1
Observer
.
(a)
If
ValueAct SmallCap Master Fund, L.P. (
“VAC”
)
no
longer has the right to elect one director pursuant to the Shareholders
Agreement, then, so long as VAC owns at least $5,500,000 of the principal
amount
of the Senior Secured Notes or at least 800,582 shares of Common Stock issued
or
issuable upon exercise of the Warrants (as adjusted pursuant to the terms
and
conditions set forth therein), then VAC shall be granted the right to appoint,
and the Company will permit, one representative appointed by VAC (the
“Observer”
)
to
attend
all
meetings
of the Board and all committees thereof (whether in person, telephonic or
other)
in a non-voting, observer capacity and shall provide to the Observer,
concurrently with the members of the Board, and in the same manner, notice
of
such meeting and a copy of all materials provided to such members. VAC may
transfer its rights to appoint the Observer to one transferee of the Warrants
or
Warrant Shares in connection with a Transfer permitted by the terms of this
Agreement, provided, however, that such Transfer to such transferee shall
include at least $5,500,000 in principal amount of the Senior Secured Notes
or
800,582 shares of Common Stock (as adjusted pursuant to the terms and conditions
set forth therein) issued or issuable upon exercise of the Warrants.
Notwithstanding anything contained herein to the contrary, the Company may
withhold portions of information from the Observer and exclude the Observer
from
portions of any meeting if, upon advice of the Company’s legal counsel, access
to such information or attendance at a portion of a meeting by the Observer
would adversely affect the attorney-client privilege between the Company
and its
legal counsel. The Observer shall execute a customary confidentiality agreement
reasonably acceptable to the Company.
(b)
The
Company acknowledges that the Investor will likely have, from time to time,
information that may be of interest to the Company (
“Information”
)
regarding
a wide variety of matters including, by way of example only, (i) current
and
future investments VAC has made, may make, may consider or may become aware
of
with respect to other companies and other technologies, products and services,
including, without limitation, technologies, products and services that may
be
competitive with the Company’s, and (ii) developments with respect to the
technologies, products and services, and plans and strategies relating thereto,
of other companies, including, without limitation, companies that may be
competitive with the Company. The Company recognizes that a portion of such
Information may be of interest to the Company. Such Information may or may
not
be known by the Observer. The Company, as a material part of the consideration
for this Agreement, agrees that VAC and its Observer shall have no duty to
disclose any Information to the Company or permit the Company to participate
in
any projects or investments based on any Information, or to otherwise take
advantage of any opportunity that may be of interest to the Company if it
were
aware of such Information, and hereby waives, to the extent permitted by
law,
any claim based on the corporate opportunity doctrine or otherwise that could
limit VAC’s ability to pursue opportunities based on such Information or that
would require VAC or Observer to disclose any such Information to the Company
or
offer any opportunity relating thereto to the Company.
6.2
Confidentiality
.
The
Investor agrees to hold all information received pursuant to this Article
VI, or
otherwise in connection with its rights under the Transaction Documents,
in
confidence, and not to use or disclose any of such information to any third
party, except to the extent such information was made publicly available
by the
Company;
provided,
however,
that
the
Investor may disclose such information (i) as may be required by law, (ii)
to
its attorneys, accountants, consultants, and other professionals to the extent
necessary to obtain their bona fide services in connection with monitoring
its
investment in the Company, (iii) to any potential purchaser of the Securities
so
long as such purchaser is advised of the confidentiality provisions of this
Section 6.2 and is bound by confidentiality obligations at least as restrictive
as this Section 6.2 and (iv) to any partner or affiliate of the Investor
so long
as such partner or affiliate is advised of the confidentiality provisions
of
this Section 6.2 and is bound by confidentiality obligations at least as
restrictive as this Section 6.2.
6.3
Termination
of Certain Rights
.
The
Company’s obligations under Sections 6.1 above will terminate (a) upon the
closing of the first sale of the Company’s Common Stock to the general public
pursuant to an effective registration statement filed under the Securities
Act
or Foreign Securities Law in which the gross proceeds of the Company (without
reduction for underwriter’s discounts and commissions or expenses of the sale),
equals or exceeds $25,000,000; (b) upon a Fundamental Transaction; or (c)
at
such time as VAC or any permitted transferee of the rights under Section
6.1, as
the case may be, no longer own, beneficially or of record, at least (i)
$5,500,000 in principal amount of the Senior Secured Notes or (ii) 800,582
of
shares of Common Stock issued or issuable upon exercise of the Warrants as
adjusted pursuant to the terms and conditions set forth therein.
ARTICLE
VII
COVENANTS
7.1
Integration
.
The
Company shall not, and shall use its best efforts to ensure that no Affiliate
thereof shall, sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Securities in
a
manner that would require the registration under the Securities Act of the
sale
of the Securities to the Investor or that would be integrated with the offer
or
sale of the Securities for purposes of the rules and regulations of any Trading
Market.
7.2
Reservation
of Securities
.
The
Company shall maintain a reserve from its duly authorized shares of Common
Stock
for issuance pursuant to the Transaction Documents in such amount as may
be
required to fulfill its obligations in full under the Transaction Documents.
In
the event that at any time the then authorized shares of Common Stock are
insufficient for the Company to satisfy its obligations in full under the
Transaction Documents, the Company shall promptly take such actions as may
be
required to increase the number of authorized shares.
ARTICLE
VIII
CONDITIONS
8.1
Conditions
Precedent to the Investor’s Obligation to Purchase
.
The
obligation of the Investor to purchase the Securities at the Closing is subject
to the satisfaction or waiver by the Investor, at or before the Closing,
of each
of the following conditions:
(a)
The
Company shall have duly executed and delivered to each Investor:
(i)
one
or more Senior Secured Notes with an aggregate principal amount as is set
forth
opposite the Investor’s name in column two (2) on the Schedule of
Investors;
(ii)
that
number of Warrants as is set forth opposite the Investor’s name in column three
(3) on the Schedule of Investors;
(iii)
copies of the Amended and Restated Investors’ Rights Agreement and the
Shareholders Agreement Amendment fully executed by all parties thereto (other
than the Investor);
(iv)
the
Guarantee and Security Agreement signed on behalf of the Company, and each
Subsidiary Guarantor party thereto, together with the following:
(1)
any
certificated securities representing shares of capital stock or other similar
interests owned by or on behalf of any Grantor (as defined in the Guarantee
and
Security Agreement) constituting Collateral (as defined in the Guarantee
and
Security Agreement) as of the Closing Date after giving effect to the
Transactions;
(2)
any
promissory notes and other instruments evidencing all loans, advances and
other
debt owed or owing to any Grantor constituting Collateral as of the Closing
Date
after giving effect to the Transactions;
(3)
stock
powers and instruments of transfer, endorsed in blank, with respect to such
certificated securities, promissory notes and other instruments;
(4)
descriptions of all intellectual property, including all patents, trademarks
and
copyrights, owned by the Company and its Subsidiaries in detail reasonably
satisfactory to the Investor;
(5)
the
Control Agreements executed by the relevant Grantors and the Collateral Agent
and acknowledged and agreed to by the relevant Control Account Bank pursuant
to
the Guarantee and Security Agreement (“Control Agreement”, “Collateral Agent”
and “Control Account Bank” shall have the meanings set forth in the Guarantee
and Security Agreement);
(6)
all
instruments and other documents, including UCC financing statements, required
by
law or reasonably requested by the Collateral Agent to be filed, registered
or
recorded to create or perfect the Liens intended to be created under the
Guarantee and Security Agreement; and
(7)
results of a search of the UCC (or equivalent) filings made and tax and judgment
lien searches with respect to the Grantors in the jurisdictions contemplated
by
the Guarantee and Security Agreement and copies of the financing statements
(or
similar documents) disclosed by such search and evidence reasonably satisfactory
to the Collateral Agent that the Liens indicated by such financing statements
(or similar documents) are acceptable to the Collateral Agent or have been
released.
(b)
Such
Investor shall have received the opinion of Company Counsel, dated as of
the
Closing Date, in substantially the form of
Exhibit
G
attached
hereto.
(c)
The
Company shall have delivered a certificate, executed on behalf of the Company
by
its Secretary, dated as of the Closing Date, certifying the resolutions
adopted
by
the
Board approving the Transactions contemplated by the Transaction Documents
and
the issuance of the Securities, certifying the current versions of the
Certificate of Incorporation and Bylaws of the Company and certifying as
to the
signatures and authority of persons signing this Agreement and related documents
on behalf of the Company.
(d)
The
representations and warranties of the Company shall be true and correct in
all
material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true
and
correct in all respects) as of the date when made and as of the Closing Date
as
though made at that time (except for representations and warranties that
speak
as of a specific date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Company at or prior to the Closing Date. The Investor shall have
received a certificate, executed on behalf of the Company by the Chief Executive
Officer of the Company, dated as of the Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by the
Investor.
(e)
The
Company shall have obtained all governmental, regulatory or third party consents
and approvals, if any, necessary for the sale of the Securities, except for
those consents and approvals set forth in Sections 3.1(d) and 3.1(g) to the
Schedule of Exceptions.
(f)
The
Investors shall have received all fees and other amounts due and payable
on or
prior to the Closing Date pursuant to Section 9.2 hereof.
(g)
The
Company shall have delivered to such Investor such other documents relating
to
the Transactions contemplated by this Agreement as such Investor or its counsel
may reasonably request.
8.2
Conditions
Precedent to the Obligations of the Company
.
The
Company’s obligation to sell and issue the Securities at the Closing is, at the
option of the Company, subject to the fulfillment or waiver of the following
conditions:
(a)
Receipt
of Payment
.
The
Investor shall have delivered payment of the Purchase Price to the Company
for
the Securities.
(b)
Representations
and Warranties
.
The
representations and warranties of the Investor shall be true and correct
in all
material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true
and
correct in all respects) as of the date when made and as of the Closing Date
as
though made at that time (except for representations and warranties that
speak
as of a specific date, which shall be true and correct as of such date) and
the
Investor shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by the Investor at
or
prior to the Closing Date.
(c)
Covenants.
All
covenants, agreements and conditions contained in this Agreement to be
performed, satisfied or complied with by the Investor on or prior to the
Closing
Date shall have been performed, satisfied or complied with in all material
respects.
(d)
Transaction
Documents.
The
Company shall have received copies of all Transaction Documents fully executed
by all parties thereto (other than the Company and its
Subsidiaries).
ARTICLE
IX
MISCELLANEOUS
9.1
Termination.
This
Agreement may be terminated by the Company or the Investor, by written notice
to
the other parties, if the Closing has not been consummated by the third Business
Day following the date of this Agreement; provided that no such termination
will
affect the right of any party to sue for any breach by the other party (or
parties).
9.2
Fees
and Expenses.
The
Company shall reimburse the Investor for all of its reasonable costs and
expenses incurred in connection with the Transactions contemplated by this
Agreement, including, but not limited to, fees of outside counsel (in an
amount
not to exceed $150,000) and other out-of-pocket expenses. The Company shall
pay
all transfer agent fees, stamp taxes and other taxes and duties levied in
connection with the initial sale and issuance of the applicable Securities
(other than the Warrant Shares) to the Investor.
9.3
Entire
Agreement.
The
Transaction Documents, together with the Exhibits and Schedules thereto,
contain
the entire understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements and understandings, oral or written,
with respect to such matters, which the parties acknowledge have been merged
into such documents, exhibits and schedules. At or after the Closing, and
without further consideration, the Company and the Investor will execute
and
deliver such further documents as may be reasonably requested in order to
give
effect to the intention of the parties under the Transaction
Documents.
9.4
Notices.
Any and
all notices or other communications or deliveries required or permitted to
be
provided hereunder shall be in writing and shall be deemed given and effective
on the earliest of (a) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile number specified in this Section
prior to 6:30 p.m. (New York City time) on a Business Day, (b) the next Business
Day after the date of transmission, if such notice or communication is delivered
via facsimile at the facsimile number specified in this Section on a day
that is
not a Business Day or later than 6:30 p.m. (New York City time) on any Business
Day, (c) the Business Day following the date of deposit with a nationally
recognized overnight courier service, or (d) upon actual receipt by the party
to
whom such notice is required to be given. The addresses and facsimile numbers
for such notices and communications are those set forth on the signature
pages
hereof, or such other address or facsimile number as may be designated in
writing hereafter, in the same manner, by any such Person.
9.5
Amendments;
Waivers.
Any term
of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and
either
retroactively or prospectively), with the written consent of the Company
and the
Investor(s) holding a majority in interest on an as converted basis of the
Warrant Shares. Subject to the preceding sentence, any amendment or waiver
effected in accordance with this Section shall be binding upon all parties
to
this Agreement, including, without limitation, any Investor who may not have
executed such amendment or waiver.
9.6
Construction.
The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof. The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rules of strict
construction will be applied against any party.
9.7
Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the Investors. Any Investor may assign its rights under this
Agreement to any Person to whom such Investor assigns or Transfers any
Securities, provided such transferee agrees in writing to be bound, with
respect
to the Transferred Securities, by the provisions hereof that apply to the
“Investors.”
9.8
Governing
Law; Venue; Waiver of Jury Trial.
ALL
QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION
OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, INCLUDING, WITHOUT LIMITATION, SECTIONS
5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW AND NEW YORK CIVIL
PRACTICE LAWS AND RULES 327(b). EACH PARTY HEREBY IRREVOCABLY SUBMITS TO
THE
EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY
OF
NEW YORK, BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER
OR
IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED
HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION
DOCUMENTS), AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY
SUIT,
ACTION OR PROCEEDING,
ANY
CLAIM
THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT,
THAT
SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY
WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN
ANY
SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED
OR
CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH
PARTY
AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES
THAT
SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND
NOTICE
THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY
RIGHT
TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. THE COMPANY HEREBY WAIVES
ALL
RIGHTS TO A TRIAL BY JURY.
9.9
Survival.
The
representations and warranties, agreements and covenants contained herein
shall
survive the Closing.
9.10
Execution.
This
Agreement may be executed in two or more counterparts, all of which when
taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered
to the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation
of the
party executing (or on whose behalf such signature is executed) with the
same
force and effect as if such facsimile signature page were an original
thereof.
9.11
Severability.
If any
provision of this Agreement is held to be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and
the
parties will attempt to agree upon a valid and enforceable provision that
is a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
9.12
Rescission
and Withdrawal Right.
Notwithstanding anything to the contrary contained in (and without limiting
any
similar provisions of) the Transaction Documents, whenever the Investor
exercises a right, election, demand or option owed to the Investor by the
Company under a Transaction Document and the Company does not timely perform
its
related obligations within the periods therein provided, then, prior to the
performance by the Company of the Company’s related obligation, such Investor
may rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or
in
part without prejudice to its future actions and rights.
9.13
Replacement
of Securities.
If any
certificate or instrument evidencing any Securities is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation thereof, or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction
and
the execution by the holder thereof of a customary lost certificate affidavit
of
that fact and an agreement to indemnify and hold harmless the Company for
any
losses in connection therewith. The applicants for a new certificate or
instrument under such circumstances shall also pay any reasonable third-party
costs associated with the issuance of such replacement Securities.
9.14
No
Promotion.
Except
as otherwise required by law and as provided in Section 4.5 herein, the Company
agrees that it will not, without the prior written consent of VAC in each
instance, (i) use in advertising, publicity, press release or otherwise the
name
of any VAC Entity, or any partner or employee of any VAC Entity, nor any
trade
name, trademark, trade device, service mark, symbol or any abbreviation,
contraction or simulation thereof owned by any VAC Entity or (ii) represent,
directly or indirectly, that any product or any service provided by the Company
has been approved or endorsed by any VAC Entity. This provision shall survive
termination of the Transaction Documents.
[SIGNATURE
PAGES TO FOLLOW]
IN
WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories
as of
the date first indicated above.
|
|
TWISTBOX
ENTERTAINMENT, INC.
|
|
|
By:
|
/s/
Ian
Aaron
|
|
|
Name:
|
IAN
AARON
|
|
|
Title:
|
PRES./CEO
|
|
|
WAAT
MEDIA CORP.
|
|
|
By:
|
|
|
|
Name:
|
IAN
AARON
|
|
|
Title:
|
PRES./CEO
|
|
|
TWISTBOX
GAMES LTD. & CO. KG
|
|
|
By:
|
|
|
|
Name:
|
IAN
AARON
|
|
|
Title:
|
PRES./CEO
|
Investor
Signature Page
By
its
execution and delivery of this signature page, the undersigned Investor hereby
joins in and agrees to be bound by the terms and conditions of the Securities
Purchase Agreement dated as of July 30, 2007 (the “Purchase Agreement”) by and
among Twistbox Entertainment, Inc., the Subsidiary Guarantors (as defined
therein) and the Investor (as defined therein) and authorizes this signature
page to be attached to the Purchase Agreement or counterparts
thereof.
|
|
VALUEACT
SMALLCAP MASTER FUND, L.P.
|
|
|
By
its General Partner, VA SmallCap Partners, LLC
|
|
|
|
|
|
By:
|
/s/
David Lockwood
|
|
|
Name:
|
DAVID
LOCKWOOD
|
|
|
Title:
|
MANAGING
MEMBER
|
GUARANTEE
AND SECURITY AGREEMENT
among
TWISTBOX
ENTERTAINMENT, INC.,
EACH
OF THE SUBSIDIARIES PARTY HERETO,
THE
INVESTOR PARTY HERETO,
and
VALUEACT
SMALLCAP MASTER FUND,
L.P.,
as
Collateral Agent
Dated
as of July 30, 2007
TABLE
OF CONTENTS
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|
Page
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|
ARTICLE
1. DEFINITIONS; GUARANTEE; GRANT OF SECURITY; CONTINUING
PERFECTION
AND PRIORITY
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1
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Section
1.1 General Definitions
|
|
|
1
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|
Section
1.2 Other Definitions; Interpretation
|
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8
|
|
Section
1.3 Guarantee
|
|
|
9
|
|
Section
1.4 Grant of Security
|
|
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13
|
|
ARTICLE
2. SECURITY FOR OBLIGATIONS; NO ASSUMPTION OF LIABILITY
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15
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Section
2.1 Security for Obligations
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15
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|
Section
2.2 No Assumption of Liability
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15
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ARTICLE
3. REPRESENTATIONS AND WARRANTIES AND COVENANTS
|
|
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15
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|
Section
3.1 Generally
|
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15
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|
Section
3.2 Equipment and Inventory
|
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19
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Section
3.3 Receivables
|
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19
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|
Section
3.4 Investment Property
|
|
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21
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|
Section
3.5 Letter of Credit Rights
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|
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24
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|
Section
3.6 Intellectual Property Collateral
|
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24
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|
Section
3.7 Commercial Tort Claims
|
|
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25
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Section
3.8 Deposit Accounts; Control Accounts
|
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26
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ARTICLE
4. FURTHER ASSURANCES
|
|
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27
|
|
ARTICLE
5. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT
|
|
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27
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ARTICLE
6. REMEDIES UPON DEFAULT
|
|
|
28
|
|
Section
6.1 Remedies Generally
|
|
|
28
|
|
Section
6.2 Application of Proceeds of Sale
|
|
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30
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|
Section
6.3 Investment Property
|
|
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30
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|
Section
6.4 Grant of License to Use Intellectual Property
|
|
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31
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ARTICLE
7. REIMBURSEMENT OF COLLATERAL AGENT
|
|
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31
|
|
ARTICLE
8. WAIVERS; AMENDMENTS
|
|
|
32
|
|
ARTICLE
9. SECURITY INTEREST ABSOLUTE
|
|
|
32
|
|
ARTICLE
10. TERMINATION; RELEASE
|
|
|
33
|
|
ARTICLE
11. ADDITIONAL SUBSIDIARY GUARANTORS AND GRANTORS
|
|
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33
|
|
ARTICLE
12. COLLATERAL AGENT
|
|
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34
|
|
ARTICLE
13. NOTICES
|
|
|
35
|
|
ARTICLE
14. BINDING EFFECT; SEVERAL AGREEMENT; ASSIGNMENTS
|
|
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36
|
|
ARTICLE
15. SURVIVAL OF AGREEMENT; SEVERABILITY
|
|
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37
|
|
ARTICLE
16. GOVERNING LAW
|
|
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37
|
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ARTICLE
17. COUNTERPARTS
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37
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ARTICLE
18. HEADINGS
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38
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ARTICLE
19. JURISDICTION; VENUE; CONSENT TO SERVICE OF PROCESS
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38
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ARTICLE
20. WAIVER OF JURY TRIAL
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39
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SCHEDULES:
Schedule
I
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List
of Subsidiary Guarantors and Addresses for Notices
List
of Foreign Subsidiaries which are not Subsidiary Guarantors as of
July 30,
2007,
and Addresses
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Schedule
1.4(a)
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Twistbox
Games Ltd. & Co KG Collateral
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Schedule
3.1(a)(i)
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List
of Chief Executive Offices, Jurisdictions of Organization, Federal
Employer
Identification Numbers and Company Organizational
Numbers
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Schedule
3.1(a)(ii)
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List
of Legal and Other Names
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Schedule
3.1(a)(v)(A)
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List
of Filing Offices
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Schedule
3.1(a)(v)(B)
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Excluded
Trademarks
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Schedule
3.2
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List
of Locations of Equipment and Inventory
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Schedule
3.4
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List
of Pledged Collateral, Investment Property and Securities
Accounts
|
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Schedule
3.5
|
|
List
of Letters of Credit
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Schedule
3.6
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List
of Intellectual Property
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Schedule
3.7
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List
of Commercial Tort Claims
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Schedule
3.8
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List
of Deposit Accounts
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EXHIBITS:
Exhibit
A
|
Form
of Supplement
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Exhibit
B
|
Form
of Control Agreement
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Exhibit
C
|
Form
of Securities Control Account
Letter
|
GUARANTEE
AND SECURITY AGREEMENT, dated as of July 30, 2007 (this “
Guarantee
and Security Agreement”
),
among
Twistbox Entertainment, Inc., a Delaware corporation
(the
“Company”
),
each
of
the subsidiaries of the Company identified on Schedule I as being a subsidiary
guarantor (each such subsidiary, individually a
“Subsidiary
Guarantor”
and,
collectively, the
“
Subsidiary
Guarantors
”; the Subsidiary Guarantors and the Company are referred to
collectively herein
as
the
“Grantors”
),
the
Investors from time to time party hereto (including their successors and
permitted
assigns,
the
“Investor”
)
and
ValueAct SmallCap Master Fund,
L.P.,
as
collateral agent for the benefit of
the
Secured Parties (including its successors and permitted assigns and in such
capacity, the “
Collateral
Agent”
).
Reference
is made to the Securities Purchase Agreement, dated as of July 30, 2007,
among
the
Company and the Investors from time to time party thereto (as amended,
supplemented or
otherwise
modified from time to time, the
“Securities
Purchase Agreement”).
The
Investor has agreed to purchase Senior Secured Notes in the aggregate principal
amount
of
$16,500,000 (as amended, supplemented or otherwise modified, the
“Senior
Secured Notes”)
from
the
Company pursuant to, and upon the terms and subject to the conditions specified
in, the
Securities
Purchase Agreement. Each of the Subsidiary Guarantors has agreed to guarantee,
among other
things,
all the obligations of the Company and each other Subsidiary Guarantor under
the
Secured
Transaction
Documents. The obligations of the Investor to purchase Senior Secured Notes
are
conditioned
upon, among other things, the execution and delivery by the Grantors of an
agreement in the
form
hereof to guarantee and secure the Obligations.
Accordingly,
the Grantors and the Collateral Agent, on behalf of itself and each other
Secured
Party (and each of their respective successors or permitted assigns), hereby
agree as follows:
ARTICLE
1.
DEFINITIONS;
GUARANTEE; GRANT OF SECURITY;
CONTINUING
PERFECTION AND PRIORITY
Section
1.1
General
Definitions
As
used
in this Guarantee and Security Agreement, the following terms shall have the
meanings
specified below:
“Account
Debtor”
means
each Person who is obligated in respect of any Receivable or any Supporting
Obligation or Collateral Support related thereto.
“Accounts”
means
all
“accounts” as defined in Article 9 of the UCC.
“Additional
Subsidiary Guarantor and Grantor”
has
the
meaning assigned to such
term
in
Article 11.
“Applicable
Date”
means
(i)
in the case of any Grantor (other than an Additional
Subsidiary
Guarantor and Grantor), the date hereof, and (ii) in the case of any Additional
Subsidiary
Guarantor
and Grantor, the date of the Supplement executed and delivered by such
Additional Subsidiary
Guarantor
and Grantor.
“Approved
Securities Intermediary”
means
a
Securities Intermediary or commodity
intermediary
selected or approved by the Collateral Agent and with respect to which a Grantor
has
delivered
to the Collateral Agent an executed Securities Control Account
Letter.
“Authorization”
means,
collectively, any license, approval, permit or other authorization issued by
Governmental Authority.
“Bankruptcy
Law”
means
Title 11, U.S. Code, or any similar foreign, federal or state
law
for
the relief of debtors.
“Business
Day”
means
any
day other than Saturday, Sunday or other day on which commercial banks in The
City of New York are authorized or required by law to remain
closed.
“Cash
Collateral Account”
means
any
Deposit Account or Securities Account
established
by the Collateral Agent in which cash may from time to time be on deposit or
held therein
pursuant
to the Secured Transaction Documents.
“Chattel
Paper”
means
all
“chattel paper” as defined in Article 9 of the UCC.
“Claim
Proceeds”
means,
with respect to any Commercial Tort Claim or any Collateral
Support
or Supporting Obligation relating thereto, all Proceeds thereof, including
all
insurance proceeds
and
other
amounts and recoveries resulting or arising from the settlement or other
resolution thereof, in each case regardless of whether characterized as a
“commercial
tort claim”
under
Article 9 of the UCC or “proceeds” under the UCC.
“Collateral”
has
the
meaning assigned to such term in Section
1.4(a).
“Collateral
Records”
means
all
books, instruments, certificates, Records, ledger cards, files, correspondence,
customer lists, blueprints, technical specifications, manuals and other
documents,
and
all
computer software, computer printouts, tapes, disks and related data processing
software and
similar
items, in each case that at any time represent, cover or otherwise evidence
any
of the Collateral.
“Collateral
Support”
means
all
property (real or personal) assigned, hypothecated or
otherwise
securing any of the Collateral, and shall include any security agreement or
other agreement
granting
a lien or security interest in such real or personal property.
“Commercial
Tort Claims”
means
(i)
all “commercial tort claims” as defined in
Article
9
of the UCC and (ii) all Claim Proceeds with respect to any of the foregoing;
including all claims
described
on
Schedule
3.7.
“Company”
has
the
meaning assigned to such term in the preliminary statement of this
Guarantee
and Security Agreement.
“Control
Account”
means
a
Deposit Account maintained by any Grantor with a Control
Account
Bank which account is the subject of an effective Control Agreement, and
includes all monies on
deposit
therein.
“Control
Account Bank”
means
a
financial institution selected or approved by the Collateral Agent and with
respect to which a Grantor has entered into a Control Agreement.
“Control
Agreement”
means
a
Control Agreement, substantially in the form of
Exhibit
B
(with such changes thereto as may be agreed to by the Collateral Agent),
executed by the relevant Grantor and the Collateral Agent and acknowledged
and
agreed to by the relevant Control
Account
Bank.
“Copyright
License”
means
any
written agreement, now or hereafter in effect, granting any right to any third
party under any Copyright now or hereafter owned or held by any Grantor or
which
any
Grantor otherwise has the right to license, or granting any right to any Grantor
under any Copyright
now
or
hereafter owned by any third party, and all rights of any Grantor under any
such
agreement, including each agreement described on
Schedule
3.6.
“Copyrights”
means
all
of the following: (i) all copyright rights in any work subject to
the
copyright laws of the United States or any other country, whether as author,
assignee, transferee or otherwise, and (ii) all registrations and applications
for registration of any such copyright in the United
States
or
any other country, including registrations, recordings, supplemental
registrations and pending
applications
for registration in the United States Copyright Office or any similar offices
in
the United
States
or
any other country, including those described on
Schedule
3.6.
“Deposit
Accounts”
means
all
“deposit accounts” as defined in Article 9 of the UCC,
including
all such accounts described on
Schedule
3.8.
“Documents”
means
all
“documents” as defined in Article 9 of the UCC.
“Equipment”
means
(i)
all “equipment” as defined in Article 9 of the UCC, (ii) all
machinery,
manufacturing equipment, data processing equipment, computers, office equipment,
furnishings, furniture, appliances, fixtures and tools, in each case, regardless
of whether characterized as
“equipment”
under the UCC, and (iii) all accessions or additions to any of the foregoing,
all parts thereof,
whether
or not at any time of determination incorporated or installed therein or
attached thereto, and all replacements therefor, wherever located, now or
hereafter existing.
“Equity
Interest”
means
(i)
shares of corporate stock, partnership interests, membership interests, and
any
other interest that confers on a Person the right to receive a share of the
profits and losses of, or distribution of assets of, the issuing Person, and
(ii) all warrants, options or other rights to acquire any Equity Interest set
forth in clause (i) of this defined term.
“Equity
Related Documents”
means
the
Securities Purchase Agreement, any Convertible Note or Warrant issued pursuant
to the Securities Purchase Agreement.
“Event
of Default”
has
the
meaning assigned to such term in the Senior Secured Notes.
“Excepted
Deposit Accounts”
has
the
meaning assigned to such term in Section
3.8(b).
“Foreign
Subsidiary”
means
any
direct subsidiary of any Grantor organized under the laws of any jurisdiction
outside the United States of America other than any Subsidiary Guarantor and
as
designated
as such on
Schedule
I
hereto.
“Foreign
Subsidiary Voting Stock”
means
the
voting capital stock of any Foreign
Subsidiary.
“Financial
Assets”
means
all
“financial assets” as defined in Article 8 of the UCC.
“General
Intangibles”
means
(i)
all “general intangibles” as defined in Article 9 of the
UCC
and
(ii) all chooses in action and causes of action, all indemnification claims,
all
goodwill, all tax
refunds,
all licenses, permits, concessions, franchises and authorizations, all
Intellectual Property, all
Payment
Intangibles and all Software, in each case, regardless of whether characterized
as a “general
intangible”
under the UCC.
“Goods”
means
(i)
all “goods” as defined in Article 9 of the UCC and (ii) all Equipment
and
Inventory and any computer program embedded in goods and any supporting
information provided in
connection
with such program, to the extent (a) such program is associated with such goods
in such a
manner
that it is customarily considered part of such goods or (b) by becoming the
owner of such goods, a
Person
acquires a right to use the program in connection with such goods, in each
case,
regardless of whether characterized as a “good” under the UCC.
“Governmental
Authority”
means
any
nation or government, any state, province, city,
municipal
entity or other political subdivision thereof, and any governmental, executive,
legislative,
judicial,
administrative or regulatory agency, department, authority, instrumentality,
commission, board,
bureau
or
similar body, whether federal, state, provincial, territorial, local or
foreign.
“Grantor”
and
“Grantors”
have
the
meanings assigned to such terms in the preliminary
statement
of this Guarantee and Security Agreement.
“Guaranteed
Obligations”
has
the
meaning assigned to such term in Section 1.3(a)(i).
“Instruments”
means
all
“instruments” as defined in Article 9 of the UCC.
“Insurance”
means
all
insurance policies covering any or all of the Collateral (regardless
of
whether the Collateral Agent or any other Secured Party is an additional named
insured or the loss
payee
thereof) and all business interruption insurance policies.
“Intellectual
Property”
means
all
intellectual and similar property owned by any
Grantor
of every kind and nature, including inventions, designs, Patents, Copyrights,
Trademarks,
Licenses,
domain names, Trade Secrets, confidential or proprietary technical and business
information,
know
how,
show how or other data or information, software and databases and all
embodiments or
fixations
thereof and related documentation, registrations and franchises, and all
additions, improvements and accessions to, and books and records describing
or
used in connection with, any of the foregoing.
“Inventory”
means
(i)
all “inventory” as defined in Article 9 of the UCC and (ii) all goods held for
sale or lease or to be furnished under contracts of service or so leased or
furnished, all raw
materials,
work in process, finished goods and materials used or consumed in the
manufacture, packing,
shipping,
advertising, selling, leasing, furnishing or production of such inventory or
otherwise used or
consumed
in any Grantor's business, all goods which are returned to or repossessed by
or
on behalf of
any
Grantor, and all computer programs embedded in any goods, and all accessions
thereto and products
thereof,
in each case, regardless of whether characterized as “inventory” under the
UCC.
“Investor”
has
the
meaning assigned to such term in the preliminary statements of this
Guarantee
and Security Agreement.
“Investment
Property”
means,
collectively, all
“investment
property”
as
defined in
Article
9
of the UCC including all Pledged Collateral.
“Letter
of Credit Rights”
means
all
“letter-of-credit rights” as defined in Article 9 of the
UCC
and
all rights, title and interests of each Grantor to any letter of credit, in
each
case regardless of
whether
characterized as a “letter-of-credit right” under the UCC.
“License”
means
any
Copyright License, Patent License, Trademark License, Trade
Secret
License or other license or sublicense to which any Grantor is a
party.
“Lien”
means
any lien, mortgage, charge, claim, security interest, encumbrance, or right
of
first
refusal.
“Net
Receivables Balance”
means
all
amounts recorded on the Company's balance sheet
as
Receivables or accrued Receivables net of allowance for doubtful accounts
consistent with past
practice.
“New
Deposit Account”
has
the
meaning assigned to such term in Section 3.8.
“Obligations”
means
(i)
the due and punctual payment of (a) principal of and premium,
if
any,
and interest (including interest accruing during the pendency of any bankruptcy,
insolvency,
receivership
or other similar proceeding, regardless of whether allowed or allowable in
such
proceeding)
on
the
Senior Secured Notes, when and as due, whether at maturity or by acceleration
or
otherwise, and
(b)
all
other monetary obligations, including fees, commissions, costs, expenses and
indemnities, whether primary, secondary, direct, contingent, fixed or otherwise
(including monetary obligations incurred during
the
pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of
whether
allowed or allowable in such proceeding), of the Grantors to the Secured Parties
when and as due,
or
that
are otherwise payable to any Investor, in each case under the Secured
Transaction Documents
when
and
as due, (ii) the due and punctual performance of all covenants, agreements,
obligations and liabilities of the Grantors or any other party (other than
an
Investor) under or pursuant to the Secured
Transaction
Documents, and (iii) with respect to the Subsidiary Guarantor, the Guaranteed
Obligations.
“Patent
License”
means
any
written agreement, now or hereafter in effect, granting to
any
third
party any right to make, use or sell any invention on which a Patent, now or
hereafter owned or
held
by
or on behalf of any Grantor or which any Grantor otherwise has the right to
license, is in existence, or granting to any Grantor any right to make, use
or
sell any invention on which a Patent, now
or
hereafter owned by any third party, is in existence, and all rights of any
Grantor under any such agreement, including each agreement described on
Schedule
3.6.
“Patents”
means
all
of the following: (i) all letters patent of the United States or any
other
country, all registrations and recordings thereof and all applications for
letters patent of the United
States
or
any other country, including registrations, recordings and pending applications
in the United
States
Patent and Trademark Office or any similar offices in the United States or
any
other country,
including
those described on
Schedule
3.6,
and
(ii)
all reissues, continuations, divisions, continuations in
part,
renewals or extensions thereof, and the inventions disclosed or claimed therein,
including the right to
make,
use
and/or sell the inventions disclosed or claimed therein.
“Payment
Intangibles”
means
all
“payment intangibles” as defined in Article 9 of the
UCC.
“Person”
means
any
individual or corporation, partnership, trust, incorporated or
unincorporated
association, joint venture, limited liability company, or joint stock
company.
“Pledged
Collateral
”
means, collectively, Pledged Debt and Pledged Equity Interests.
“Pledged
Debt”
means
all
indebtedness for borrowed money owed or owing to any Grantor, including all
indebtedness described on
Schedule
3.4,
all
Instruments other than checks received in the ordinary course of business,
Chattel Paper or other documents, if any, representing or evidencing
such
debt, and all interest, cash, instruments and other property or proceeds from
time to time received,
receivable
or otherwise distributed in respect of or in exchange for any or all of such
debt.
“Pledged
Equity Interests”
means
all
Equity Interests owned or held by or on behalf of
any
Grantor, including all such Equity Interests described on
Schedule
3.4,
and
all
certificates,
instruments
and other documents, if any, representing or evidencing such Equity Interests
and all interests
of
such
Grantor on the books and records of the issuers of such Equity Interests, all
of
such Grantor's
right,
title and interest in, to and under any partnership, limited liability company,
shareholder or similar agreements to which it is a party, and all dividends,
distributions, cash, warrants, rights, options,
instruments,
securities and other property or proceeds from time to time received, receivable
or otherwise
distributed
in respect of or in exchange for any or all of such Equity Interests;
provided,
however,
that
in
no
event
shall more than 65% of the total outstanding Foreign Subsidiary Voting Stock
of
any Foreign
Subsidiary
be pledged (or deemed to be pledged) hereunder.
“Proceeds”
means
(i)
all “proceeds” as defined in Article 9 of the UCC, (ii) payments or
distributions
made with respect to any Investment Property, (iii) any payment received from
any insurer
or
other
Person or entity as a result of the destruction, loss, theft, damage or other
involuntary conversion
of
whatever nature of any asset or property that constitutes the Collateral, and
(iv) whatever is receivable
or
received when any of the Collateral or proceeds are sold, exchanged, collected
or otherwise disposed of,
whether
such disposition is voluntary or involuntary, including any claim of any Grantor
against any third
party
for
(and the right to sue and recover for and the rights to damages or profits
due
or accrued arising
out
of or
in connection with) (a) past, present or future infringement of any Patent
now
or hereafter owned
or
held
by or on behalf of any Grantor, or licensed under a Patent License, (b) past,
present or future infringement or dilution of any Trademark now or hereafter
owned or held by or on behalf of any Grantor,
or
licensed under a Trademark License, or injury to the goodwill associated with
or
symbolized by any
Trademark
now or hereafter owned or held by or on behalf of any Grantor, (c) past, present
or future
infringement
of any Copyright now or hereafter owned or held by or on behalf of any Grantor,
or licensed under a Copyright License, (d) past, present or future infringement
of any Trade Secret now or hereafter owned or held by or on behalf of any
Grantor, or licensed under a Trade Secret License, and (e) past,
present
or future breach of any License, in each case, regardless of whether
characterized as “proceeds”
under
the
UCC.
“QRF
Deposit Account”
has
the
meaning assigned to such term in Section
1.4(c).
“QRF
Lender”
has
the
meaning assigned to such term in Section 1.4(c).
“Qualified
Receivables Facility” means a receivables facility not to exceed the lesser of
(i)
$5,000,000, or (ii) 85% of the Net Receivables Balance at any point in
time.
“Receivables”
means
all
rights to payment, whether or not earned by performance, for
goods
or
other property sold, leased, licensed, assigned or otherwise disposed of, or
services rendered or
to
be
rendered, including all such rights constituting or evidenced by any Account,
Chattel Paper,
Instrument
or other document, General Intangible or Investment Property, together with
all
of the
applicable
Grantor's rights, if any, in any goods or other property giving rise to such
right to payment, and all Collateral Support and Supporting Obligations related
thereto and all Receivables Records.
“Receivables
Records”
means
(i)
all originals of all documents, instruments or other writings or electronic
records or other Records evidencing any Receivable, (ii) all books,
correspondence,
credit
or
other files, Records, ledger sheets or cards, invoices, and other papers
relating to such
Receivable,
including all tapes, cards, computer tapes, computer discs, computer runs and
record keeping
systems,
whether in the possession or under the control of the applicable Grantor or
any
computer bureau
or
agent
from time to time acting for such Grantor or otherwise, (iii) all evidences
of
the filing of
financing
statements relating to such Receivable and the registration of other instruments
in connection
therewith,
and amendments, supplements or other modifications thereto, notices to other
creditors or
secured
parties, and certificates, acknowledgments, or other writings, including lien
search reports, from filing or other registration officers and (iv) all credit
information, reports and memoranda relating to such
Receivable.
“
Record
”
means
a
“record” as defined in Article 9 of the UCC.
“
Related
Party
”
means,
with respect to any specified Person, such Person's affiliates and
the
respective directors, officers, employees, agents and advisors of such Person
and such Person's
affiliates.
“
Secured
Parties
”
means
(i)
the Collateral Agent, (ii) the Investor under the Senior
Secured
Notes, (iii) the beneficiaries of each indemnification obligation undertaken
by
or on behalf of any
Grantor
under any Secured Transaction Document, and (iv) the successors and permitted
assigns of each
of
the
foregoing.
“
Secured
Transaction Documents
”
means
the
Senior Secured Notes, this Guarantee and
Security
Agreement, any Control Agreement, any Securities Control Account Letter, and
all
other
instruments,
documents, certificates and agreements related thereto (exclusive of the Equity
Related
Documents).
“
Securities
Accounts
”
means
all
“securities accounts” as defined in Article 8 of the UCC,
including
all such accounts described on
Schedule
3.4.
“
Securities
Control Account
”
means
a
Securities Account or commodity account maintained by any Grantor with an
Approved Securities Intermediary which account is the subject of an
effective
Control Account Letter, and includes all Financial Assets held therein and
all
certificates and instruments, if any, representing or evidencing the Financial
Assets held therein.
“
Securities
Control Account Letter
”
means
a
Securities Control Account Letter,
substantially
in the form of Exhibit C (with such changes thereto as may be agreed to by
the
Collateral Agent), executed by any Grantor and the Collateral Agent and
acknowledged and agreed to by the
relevant
Approved Securities Intermediary.
“
Securities
Intermediary
”
has
the
meaning specified in Article 8 of the UCC.
“
Securities
Purchase Agreement
”
has
the
meaning assigned to such term in the
preliminary
statement of this Guarantee and Security Agreement.
“
Security
Interest
”
has
the
meaning assigned to such term in Section 1.4(a).
“
Senior
Secured Notes
”
has
the
meaning assigned to such term in the preliminary
statement
of this Guarantee and Security Agreement.
“
Software
”
means
all
“software” as defined in Article 9 of the UCC.
“
Subordinated
Obligations
”
has
the
meaning assigned to such term in Section 1.3(e).
“
Subsidiary
Guarantee
”
has
the
meaning assigned to such term in Section
1.3(a)(i).
“
Subsidiary
Guarantor
”
has
the
meaning assigned to such term in the preliminary statement of this Guarantee
and
Security Agreement.
“
Supplement
”
means
a
supplement hereto, substantially in the form of Exhibit A.
“
Supporting
Obligation
”
means
(i)
all “supporting obligations” as defined in Article 9
of
the
UCC and (ii) all Guaranties and other secondary obligations supporting any
of
the Collateral, in
each
case
regardless of whether characterized as a “supporting obligation” under the
UCC.
“
Trade
Secret Licenses
”
means
any
written agreement, now or hereafter in effect,
granting
to any third party any right to use any Trade Secrets now or hereafter owned
or
held by or on
behalf
of
any Grantor or which such Grantor otherwise has the right to license, or
granting to any Grantor any right to use any Trade Secrets now or hereafter
owned by any third party, and all rights of any
Grantor
under any such agreement, including each agreement described on
Schedule
3.6.
“
Trade
Secrets
”
means
all
trade secrets and all other confidential or proprietary
information
and know-how now or hereafter owned or used in, or contemplated at any time
for
use in, the business of any Grantor (all of the foregoing being collectively
called a “Trade Secret”), whether or not
such
Trade Secret has been reduced to a writing or other tangible form, including
all
documents and
things
embodying, incorporating or referring in any way to such Trade Secret, the
right
to sue for any past, present and future infringement of any Trade Secret, and
all proceeds of the foregoing, including licenses,
royalties,
income, payments, claims, damages and proceeds of suit.
“
Trademark
License
”
means
any
written agreement, now or hereafter in effect, granting to any third party
any
right to use any Trademark now or hereafter owned or held by any Grantor or
which
such Grantor otherwise has the right to license, or granting to any Grantor
any
right to use any
Trademark
now or hereafter owned by any third party, and all rights of any Grantor under
any such
agreement,
including each agreement described on
Schedule
3.6.
“
Trademarks
”
means
all
of the following: (i) all trademarks, service marks, trade names,
corporate
names, company names, business names, fictitious business names, trade styles,
trade dress, logos, other source or business identifiers, designs and general
intangibles of like nature, now existing or hereafter adopted or acquired,
all
registrations and recordings thereof, and all registration and recording
applications filed in connection therewith, including registrations and
registration applications in the
United
States Patent and Trademark Office or any similar offices in the United States
or any other country,
and
all
extensions or renewals thereof, including those described on
Schedule
3.6,
(ii)
all
goodwill
associated
therewith or symbolized by any of the foregoing and (iii) all other assets,
rights and interests
that
uniquely reflect or embody such goodwill.
“
QRF
Lender
”
has
the
meaning assigned to such term in Section
1.4(c).
“
UCC
”
means the Uniform Commercial Code as in effect from time to time in the State
of
New
York or, when the context implies, the Uniform Commercial Code as in effect
from
time to time
in
any
other applicable jurisdiction.
Section
1.2
Other
Definitions; Interpretation
(a)
Other
Definitions.
Capitalized
terms used herein and not otherwise
defined
herein, and the term “subsidiary” shall have the meanings assigned to such terms
in the Securities
Purchase
Agreement.
(b)
Rules
of Interpretation.
The
definitions of terms herein shall apply equally
to
the
singular and plural forms of the terms defined. Whenever the context may
require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. The words “include”, “includes” and “including” shall be deemed to
be followed by the phrase “without limitation”. The word “will” shall be
construed to have the same meaning and effect as the word “shall”. Unless the
context requires
otherwise,
(i) any definition of or reference to any agreement, instrument or other
document herein shall
be
construed as referring to such agreement, instrument or other document as from
time to time amended,
supplemented
or otherwise modified, (ii) any definition of or reference to any law shall
be
construed as
referring
to such law as from time to time amended and any successor thereto and the
rules
and
regulations
promulgated from time to time thereunder, (iii) any reference herein to any
Person shall be
construed
to include such Person's successors and permitted assigns, (iv) the words
“herein”, “hereof
”
and
“hereunder”, and words of similar import, shall be construed to refer to this
Guarantee and Security
Agreement
in its entirety and not to any particular provision hereof, (v) all references
herein to Articles,
Sections,
Exhibits and Schedules shall be construed to refer to Articles and Sections
of,
and Exhibits and
Schedules
to and any Supplement thereto, this Guarantee and Security Agreement, and (vi)
the words
“asset”
and “property” shall be construed to have the same meaning and effect and to
refer to any and all
tangible
and intangible assets and properties, including cash, securities, accounts
and
contract rights. All references herein to provisions of the UCC shall include
all successor provisions under any subsequent
version
or amendment to any Article of the UCC.
Section
1.3
Guarantee
(a)
Subsidiary
Guarantee; Limitation of Liability
.
(i)
Each
Subsidiary Guarantor jointly and severally, hereby
absolutely,
unconditionally and irrevocably guarantees, as a primary obligor and not merely
as surety, to the Collateral Agent for the ratable benefit of the Secured
Parties the punctual payment when due (but subject to the expiration of any
grace period granted by the Secured Parties in their sole discretion or the
giving of any required notice provided for in any secured Transaction
Document),
whether at scheduled maturity or on any date of a required prepayment or by
acceleration, demand or otherwise, of the Obligations of the Company and each
other Grantor now or hereafter existing under or in respect of the Secured
Transaction Documents (including, without limitation, any extensions,
modifications, substitutions, amendments or renewals of any or all of the
foregoing Obligations), whether direct or indirect, absolute or contingent,
and
whether
for principal, interest, premiums, fees, indemnities, contract causes of action,
costs,
expenses
or otherwise (such Obligations being the
“
Guaranteed
Obligations
”),
and
agrees to pay any and all reasonable expenses (including, without limitation,
reasonable fees and out-of-
pocket
expenses of counsel) incurred by the Collateral Agent or any other Investor
in
enforcing
any
rights under this Subsidiary Guarantee (the
“
Subsidiary
Guarantee
”)
or
any
other Secured
Transaction
Document. Without limiting the generality of the foregoing, each Subsidiary
Guarantor's liability shall extend to all amounts that constitute part of the
Guaranteed Obligations
and
would
be owed by any other Grantor to the Collateral Agent or any Investor under
or in
respect
of the Secured Transaction Documents but for the fact that they are
unenforceable or not
allowable
due to the existence of a bankruptcy, reorganization or similar proceeding
involving
such
other Grantor.
(ii)
Each
Subsidiary Guarantor, and by its acceptance of this
Subsidiary
Guarantee, the Collateral Agent and each other Investor, hereby confirms that
it
is the
intention
of all such Persons that this Subsidiary Guarantee and the Obligations of each
Subsidiary
Guarantor hereunder not constitute a fraudulent transfer or conveyance for
purposes of
Bankruptcy
Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer
Act
or
any
similar foreign, federal or state law to the extent applicable to this
Subsidiary Guarantee
and
the
Obligations of each Subsidiary Guarantor hereunder. To effectuate the foregoing
intention,
the Collateral Agent, each Investor and the Subsidiary Guarantors hereby
irrevocably
agree
that the Guaranteed Obligations of each Subsidiary Guarantor under this
Subsidiary
Guarantee
at any time shall be limited to the maximum amount as will result in the
Guaranteed
Obligations
of such Subsidiary Guarantor under this Subsidiary Guarantee not constituting
a
fraudulent
transfer or conveyance.
(iii)
Each Subsidiary Guarantor hereby unconditionally and
irrevocably
agrees that in the event any payment shall be required to be made to the
Collateral
Agent
or
any Investor under this Subsidiary Guarantee, such Subsidiary Guarantor will
contribute,
to
the
maximum extent permitted by law, such amounts to each other Subsidiary Guarantor
so as
to
maximize the aggregate amount then required to be paid to the Collateral Agent
and Investor
under
or
in respect of the Secured Transaction Documents.
(b)
Subsidiary
Guarantee Absolute.
Each
Subsidiary Guarantor guarantees
that
the
Guaranteed Obligations will be paid strictly in accordance with the terms of
the
Secured Transaction Documents, regardless of any law, regulation or order now
or
hereafter in effect in any
jurisdiction
affecting any of such terms or the rights of the Collateral Agent or any
Investor with respect
thereto.
The Obligations of each Subsidiary Guarantor under or in respect of this
Subsidiary Guarantee
are
independent of the Guaranteed Obligations or any other Obligations of any other
Grantor under or in respect of the Secured Transaction Documents, and a separate
action or actions may be brought and
prosecuted
against each Subsidiary Guarantor to enforce this Subsidiary Guarantee,
irrespective of
whether
any action is brought against the Company or any other Grantor or whether the
Company or any
other
Grantor is joined in any such action or actions. The liability of each
Subsidiary Guarantor under this Subsidiary Guarantee shall be irrevocable,
absolute and unconditional irrespective of, and each Subsidiary Guarantor hereby
irrevocably waives any defenses it may now have or hereafter acquire in any
way
relating to, any or all of the following:
(i)
any
lack of validity or enforceability of any Secured
Transaction
Document or any agreement or instrument relating thereto;
(ii)
any
change in the time, manner or place of payment of, or
in
any
other term of, all or any of the Guaranteed Obligations or any other Obligations
of any
other
Grantor under or in respect of the Secured Transaction Documents, or any other
amendment
or
waiver
of or any consent to departure from any Secured Transaction Document, including,
without
limitation, any increase in the Guaranteed Obligations resulting from the
extension of
additional
credit to any Grantor or any of its Subsidiaries or otherwise;
(iii)
any
taking, release or amendment or waiver of, or consent
to
departure from, any other guarantee, for all or any of the Guaranteed
Obligations it being
understood
that any such amendment, waiver or consent shall be applicable to the Guaranteed
Obligations
of the Subsidiary Guarantors;
(iv)
any
change, restructuring or termination of the corporate
structure
or existence of any Grantor or any of its Subsidiaries;
(v)
any
failure of any Investor to disclose to any Grantor any information relating
to
the business, condition (financial or otherwise), operations, performance,
properties
or prospects of any other Grantor now or hereafter known to such Investor (each
Subsidiary
Guarantor waiving any duty on the part of the Investor to disclose such
information);
(vi)
the
failure of any other Person to execute or deliver this
Agreement,
any Supplement or any other guarantee or agreement or the release or reduction
of
liability
of any Subsidiary Guarantor or other guarantor or surety with respect to the
Guaranteed
Obligations;
or
(vii)
any
other circumstance (including, without limitation, any
statute
of limitations) or any existence of or reliance on any representation by any
Investor that
might
otherwise constitute a defense available to, or a discharge of, any Grantor
or
any other guarantor or surety, in each case other than payment in full of the
Guaranteed Obligations (other
than
contingent indemnification obligations).
This
Subsidiary Guarantee shall continue to be effective or be reinstated, as the
case may be, if at any
time
any
payment of any of the Guaranteed Obligations is rescinded or must otherwise
be
returned by any
Investor
or any other Person upon the insolvency, bankruptcy or reorganization of the
Company or any
other
Grantor or otherwise, all as though such payment had not been made.
(c)
Waivers
and Acknowledgments
.
Each
Subsidiary Guarantor hereby
unconditionally
and irrevocably waives:
(i)
promptness, diligence, notice of acceptance, presentment,
demand
for performance, notice of nonperformance, default, acceleration, protest or
dishonor and
any
other
notice with respect to any of the Guaranteed Obligations and this Subsidiary
Guarantee
and
any
requirement that any Investor protect, secure, perfect or insure any Lien or
any
property
subject
thereto or exhaust any right or take any action against any Grantor or any
other
Person;
(ii)
any
right to revoke this Subsidiary Guarantee and
acknowledges
that this Subsidiary Guarantee is continuing in nature and applies to all
Guaranteed
Obligations,
whether existing now or in the future;
(iii)
(A)
any defense arising by reason of any claim or defense
based
upon an election of remedies by any Investor that in any manner impairs,
reduces, releases
or
otherwise adversely affects the subrogation, reimbursement, exoneration,
contribution or
indemnification
rights of such Subsidiary Guarantor or other rights of such Subsidiary Guarantor
to
proceed against any of the other Grantors, any other guarantor or any other
Person, and (B) any
defense
based on any right of set-off or counterclaim against or in respect of the
Obligations of
such
Subsidiary Guarantor hereunder;
(iv)
any
duty on the part of any Investor to disclose to such
Subsidiary
Guarantor any matter, fact or thing relating to the business, condition
(financial or
otherwise),
operations, performance, properties or prospects of any other Grantor or any
of
its
Subsidiaries
now or hereafter known by such Investor; and
(v)
each
Subsidiary Guarantor acknowledges that it will
receive
substantial direct and indirect benefits from the financing arrangements
contemplated by
the
Secured Transaction Documents and that the waivers set forth in Section 1.3(b)
and this
Section
1.3(c) are knowingly made in contemplation of such benefits.
(d)
Subrogation
.
Each
Subsidiary Guarantor hereby unconditionally and
irrevocably
agrees not to exercise any rights that it may now have or hereafter acquire
against the
Company
or any other Grantor that arise from the existence, payment, performance or
enforcement of
such
Subsidiary Guarantor's obligations under or in respect of this Subsidiary
Guarantee or any other
Secured
Transaction Document, including, without limitation, any right of subrogation,
reimbursement,
exoneration,
contribution or indemnification and any right to participate in any claim or
remedy of any
Investor
against the Company or any other Grantor, whether or not such claim, remedy
or
right arises in
equity
or
under contract, statute or common law, including, without limitation, the right
to take or receive
from
the
Company or any other Grantor, directly or indirectly, in cash or other property
or by set-off or in any other manner, payment or security on account of such
claim, remedy or right, unless and until all of
the
Guaranteed Obligations (other than contingent indemnification rights) shall
have
been paid in full in
cash.
If
any amount shall be paid to any Subsidiary Guarantor in violation of the
immediately preceding
sentence
at any time prior to the latest of the payment in full in cash of the Guaranteed
Obligations (other
than
contingent indemnification rights), such amount shall be received and held
in
trust for the benefit of
the
Investor, shall be segregated from other property and funds of such Subsidiary
Guarantor and shall forthwith be paid or delivered to the Collateral Agent
in
the same form as so received (with any necessary
endorsement
or assignment) to be credited and applied to the Guaranteed Obligations, whether
matured or
unmatured,
in accordance with the terms of the Secured Transaction Documents, or to be
held
as
collateral
for any Guaranteed Obligations. If (i) any Subsidiary Guarantor shall make
payment to any
Investor
of all or any part of the Guaranteed Obligations and (ii) all of the Guaranteed
Obligations (other
than
contingent indemnification rights) shall have been paid in full in cash, the
Investor will, at such
Subsidiary
Guarantor
’
s
request and expense, execute and deliver to such Subsidiary Guarantor
appropriate
documents, without recourse and without representation or warranty, necessary
to
evidence the transfer by subrogation to such Subsidiary Guarantor of an interest
in the Guaranteed Obligations resulting from such payment made by such
Subsidiary Guarantor pursuant to this Subsidiary Guarantee.
(e)
Subordination
.
Each
Subsidiary Guarantor hereby subordinates any and all debts, liabilities and
other obligations owed to such Subsidiary Guarantor by each other Grantor (the
“Subordinated
Obligations”
)
to
the
Guaranteed Obligations to the extent and in the manner hereinafter
set
forth
in this Section 1.3:
(i)
Prohibited
Payments, Etc
.
Except
during the continuance
of
an
Event of Default, each Subsidiary Guarantor may receive payments from any other
Grantor on account of the Subordinated Obligations. Upon the occurrence and
during the continuance of
any
Event
of Default, however, any Subsidiary Guarantor may demand, accept or take any
action to collect any payment on account of the Subordinated
Obligations.
(ii)
Prior
Payment of Guaranteed Obligations
.
In
any
proceeding
under any Bankruptcy Law relating to any other Grantor, each Subsidiary
Guarantor agrees that the Investor shall be entitled to receive payment in
full
in cash of all Guaranteed
Obligations
(includings all interest and expenses accruing after the commencement of a
proceeding
under any Bankruptcy Law, whether or not constituting an allowed claim in such
proceeding
(
“Post-Petition
Interest”
))
(other
than contingent indemnification obligations) before
such
Subsidiary Guarantor receives payment of any Subordinated
Obligations.
(iii)
Turn-Over.
Upon the
occurrence and during the continuance of any Event of Default, each Subsidiary
Guarantor shall upon written request by the
Collateral
Agent, collect, enforce and receive payments on account of the Subordinated
Obligations
as trustee for the Investor and deliver such payments to the Collateral Agent
on
account
of the Guaranteed Obligations (including all Post-Petition Interest), together
with any necessary endorsements or other instruments of transfer, but without
reducing or affecting in any
manner
the liability of such Subsidiary Guarantor under the other provisions of this
Subsidiary
Guarantee.
(iv)
Collateral
Agent Authorization
.
Upon
the
occurrence and during the continuance of any Event of Default, the Collateral
Agent is authorized and empowered (but without any obligation to so do), in
its
reasonable discretion, (A) in the name of
each
Subsidiary Guarantor, to collect and enforce, and to submit claims in respect
of, the
Subordinated
Obligations and to apply any amounts received thereon to the Guaranteed
Obligations (including any and all Post-Petition Interest), and (B) to require
each Subsidiary
Guarantor
(1) to collect and enforce, and to submit claims in respect of, the Subordinated
Obligations
and (2) to pay any amounts received on such obligations to the Collateral Agent
for application to the Guaranteed Obligations (including any and all
Post-Petition Interest).
(f)
Continuing
Subsidiary Guarantee; Assignments
.
This
Subsidiary
Guarantee
is a continuing guarantee and shall (i) remain in full force and effect until
the payment in full in cash of the Guaranteed Obligations, (ii) be binding
upon
each Subsidiary Guarantor, its successors and assigns, and (iii) inure to the
benefit of and be enforceable by the Investor and their successors and permitted
transferees and assigns.
(g)
Mandatory
Provisions of Bankruptcy Law
.
Nothing
in this Section 1.3 shall limit any rights a receiver, liquidator, insolvency
administrator may have under the German
Insolvency
Act (Insolvenzordnung).
Section
1.4
Grant
of Security
(a)
Grant
by Grantors
.
As
security for the payment or performance, as applicable, in full of the
Obligations, each Grantor hereby pledges and grants to the Collateral Agent,
for
the ratable benefit of the Secured Parties, a lien on and security interest
(the
“Security
Interest”
)
in
and
to
all of
the right, title and interest of such Grantor in, to and under the following
property, wherever located, whether now existing or hereafter arising or
acquired from time to time (all of which being hereinafter collectively referred
to as the
“Collateral”
):
(i)
all
Accounts,
(ii)
all
Deposit Accounts and Securities Accounts, including
all
Cash
Collateral Accounts and Control Accounts,
(iii)
all
Chattel Paper, Documents and Instruments,
(iv)
all
Commercial Tort Claims,
(v)
all
Equipment,
(vi)
all
General Intangibles,
(vii)
all
Goods,
(viii)
all Insurance,
(ix)
all
Instruments,
(x)
all
Intellectual Property,
(xi)
all
Inventory,
(xii)
all
Investment Property, including all Pledged Collateral
and
all
Securities Control Accounts,
(xiii)
all Proceeds of Authorizations,
(xiv)
all
Receivables and Receivables Records,
(xv)
all
other
goods and personal property of such Grantor, whether tangible or intangible,
wherever located, including letters of credit,
(xvi)
to
the extent not otherwise included in clauses (i) through
(xv)
of
this Section, all Collateral Records, Collateral Support and Supporting
Obligations in
respect
of any of the foregoing,
(xvii)
to
the extent not otherwise included in clauses (i) through
(xvi)
of
this Section, all other property in which a security interest may be granted
under the UCC or which may be delivered to and held by the Collateral Agent
pursuant to the terms hereof (including the account referred to in Section
3.4(c)(ii) and all funds and other property from time to time therein or
credited thereto),
(xviii)
all Collateral of Twistbox Games Ltd. & Co. KG as further
defined
in
Schedule
1.4(a)
in
compliance with mandatory German law, and
(xix)
to
the extent not otherwise included in clauses (i) through
(xvii)
of
this Section, all Proceeds, products, substitutions, accessions, rents and
profits of or in
respect
of any of the foregoing.
(b)
Revisions
to UCC
.
For the
avoidance of doubt, it is expressly understood
and
agreed that, to the extent the UCC is revised after the date hereof such that
the definition of any of the foregoing terms included in the description or
definition of the Collateral is changed, the parties hereto
desire
that any property which is included in such changed definitions, but which
would
not otherwise be
included
in the Security Interest on the date hereof, nevertheless be included in the
Security Interest upon the effective date of such revision. Notwithstanding
the
immediately preceding sentence, the Security Interest is intended to apply
immediately on the date hereof to all of the Collateral to the fullest extent
permitted by applicable law, regardless of whether any particular item of the
Collateral was then subject
to
the
UCC.
(c)
Qualified
Receivables Facility
.
The
Secured Parties agree with each Grantor that the Collateral Agent shall, upon
receipt of written notice of such Grantor's imminent entry into a Qualified
Receivables Facility, release the Security Interest granted hereunder in all
of
such Grantor's right, title and interest in, to and under (i) all Receivables
of
such Grantor, whereupon such Grantor shall be permitted to pledge and grant
a
first priority lien on and security interest in all of its right, title and
interest in, to and under such Receivables in favor of the lender under such
Qualified Receivables
Facility
(the
“QRF
Lender”
)
and
(ii)
an amount of cash not to exceed $1,000,000 which shall be placed
in
a
Deposit Account not subject to a Control Agreement (the
“QRF
Deposit Account”
)
whereupon
such
Grantor
shall be permitted to pledge and grant a first priority lien on and security
interest in all of its right,
title
and
interest in, to and under the QRF Deposit Account in favor of the QRF Lender;
provided
,
that
the
QRF
Deposit Account shall not be commingled with and shall be separate from the
Deposit Accounts on
which
the
Secured Party has an existing Lien. Promptly after the QRF Lender's filing
of a
UCC-1
financing
statement in respect of such Receivables, such Grantor shall, at its own cost
and expense, execute, acknowledge, deliver and/or cause to be duly filed all
such agreements, instruments and other documents that may be reasonably
requested by the Collateral Agent, and take all such further actions,
that
the
Collateral Agent may from time to time reasonably request (i) in order to pledge
and grant to the
Collateral
Agent, for the ratable benefit of the Secured Parties, subject to an
intercreditor agreement
which
shall contain customary limitations on the exercise of remedies and pay-over
provisions, a second
priority
Security Interest in all of such Grantor's right title and interest in, to
and
under all of such
Grantor's
Receivables and (ii) to enable the Collateral Agent to perfect such Security
Interest. The
Secured
Parties acknowledge and agree that nothing in any Secured Transaction Document
shall restrict
or
be
deemed to restrict a Grantor from agreeing with the QRF Lender that, upon the
occurrence of an
event
of
default under the Qualified Receivables Facility, the QRF Lender shall be
entitled to instruct
each
Account Debtor to remit all payments in respect of Receivables directly to
the
QRF Lender or its
designee.
If any Grantor proposes to enter into a Qualified Receivables Facility, the
Collateral Agent
agrees
to
negotiate an intercreditor agreement with the QRF Lender reasonably and in
good
faith. Any costs reasonably incurred by the Collateral Agent in connection
with
the negotiation of and its entry into
an
intercreditor agreement with the QRF Lender shall be borne by the
Grantors.
ARTICLE
2.
SECURITY
FOR OBLIGATIONS; NO ASSUMPTION OF LIABILITY
Section
2.1
Security
for Obligations
This
Guarantee and Security Agreement secures, and the Collateral is collateral
security
for,
the
prompt and complete payment or performance in full when due, whether at stated
maturity, by
required
prepayment, declaration, acceleration, demand or otherwise (including the
payment of amounts
that
would become due but for the operation of the automatic stay under Section
362(a) of Title 11 of the
United
States Code, or any similar provision of any other bankruptcy, insolvency,
receivership or other similar law), of all Obligations with respect to each
Grantor.
Section
2.2
No
Assumption of Liability
Notwithstanding
anything to the contrary herein, the Security Interest is granted as
security
only and shall not subject the Collateral Agent or any other Secured Party
to,
or in any way alter
or
modify, any obligation or liability of any Grantor with respect to or arising
out of the Collateral.
ARTICLE
3.
REPRESENTATIONS
AND WARRANTIES AND COVENANTS
Section
3.1
Generally
(a)
Representations
and Warranties
.
Each
of
the Grantors, jointly with the
other
Grantors and severally, represents and warrants to the Collateral Agent and
the
other Secured
Parties
that:
(i)
As of
the Applicable Date, (A) such Grantor's chief
executive
office or its principal place of business is, and for the preceding four months
has been,
located
at the office indicated on
Schedule
3.1(a)(i)
,
(B)
such
Grantor's jurisdiction of
organization
is the jurisdiction indicated on
Schedule
3.1(a)(i)
,
and
(C)
such Grantor's Federal
Employer
Identification Number and/or company organizational number is as set forth
on
Schedule
3.1(a)(i)
.
(ii)
As
of the Applicable Date, (A) such Grantor's full legal
name
is
as set forth on
Schedule
3.1(a)(ii)
and
(B)
such Grantor has not changed its legal name in the preceding five years, except
as set forth on
Schedule
3.1(a)(ii)
.
(iii)
Such Grantor has not within the five years preceding the
Applicable
Date become bound (whether as a result of merger or otherwise) as debtor under
a
security agreement entered into by another Person, which has not theretofore
been terminated.
(iv)
Such
Grantor has good and valid rights in, and title to, the
Collateral
with respect to which it has purported to grant the Security Interest, except
for minor
defects
in title that do not materially interfere with its ability to conduct its
business as currently
conducted
or to utilize such Collateral for its intended purposes, and except for Liens
expressly
permitted
pursuant to the Secured Transaction Documents.
(v)
To
the best of such Grantor's knowledge, all actions and
consents,
including all filings, notices, registrations and recordings, necessary or
desirable to create, perfect or ensure the first priority (subject only to
Liens
expressly permitted by the Secured Transaction Documents) of the Security
Interest in the Collateral owned or held by it or on its behalf or for the
exercise by the Collateral Agent or any other Secured Party of any voting
or
other
rights provided for in this Guarantee and Security Agreement or the exercise
of
any
remedies
in respect of any such Collateral have been made or obtained, (A) except for
(1)
the filing of UCC financing statements naming such Grantor as “debtor” and the
Collateral Agent as “secured party”, or the making of other appropriate filings,
registrations or recordings, containing
a
description of such Collateral in each applicable governmental, municipal or
other office specified on
Schedule
3.1(a)(v)(A)
,
(2)
the
filing, registration or recordation of fully executed security agreements in
the
form hereof (or in such other form as shall be in all respects satisfactory
to
the Collateral Agent) and containing a description of all such Collateral
consisting of Patents, Trademarks and Copyrights, together with all other
necessary documents, in each applicable governmental registry or office, (3)
Deposit Accounts with respect to which a Control Agreement is not required
hereunder or is not required as of the Applicable Date, (4) Collateral in which
the Security Interest may be perfected only by possession, the delivery of
which
to the Collateral Agent is not required hereunder; (B) except for any such
Collateral as to which the representations and warranties in this Section
3.1(a)(v)
would
not
be true solely by virtue of such Collateral having been used or disposed of
in a
manner expressly permitted hereunder or under any other Secured Transaction
Document; and (C) except to the extent that such Security Interest
may
not
be perfected by filing, registering, recording or taking any other action in
the
United
States.
The filing, in a timely manner, of the Securities Purchase Agreement and/or
the
Guarantee
and Security Agreement and/or the Pledge Agreements with the following
governmental bodies is required in order to perfect the security interests
granted thereunder:
|
·
|
The
United States Patent and Trademark Office and the United States Copyright
Office
|
|
·
|
The
Patents, Trademarks and Designs Office of any other
jurisdiction.
|
The
Collateral Agent agrees that it shall not seek (nor require any
Grantor
to take any action in order) to perfect its Security Interest in the trademarks
set forth on
Schedule
3.1(a)(v)(B)
.
Subsequent
recording and filing with the United States Patent and
Trademark
Office and the United States Copyright Office may be necessary to perfect a
Lien
on registered patents, trademarks, trademark applications and copyrights
acquired by the Company or any of its Subsidiaries after the date
hereof.
(vi)
It
has not filed or authorized the filing of (A) any financing
statement
or analogous document under the UCC or any other applicable laws covering any
such
Collateral,
(B) any assignment in which it assigns any such Collateral or any security
agreement or similar instrument covering any such Collateral with the United
States Patent and Trademark
Office
or
the United States Copyright Office, or (C) any assignment in which it assigns
any such
Collateral
or any security agreement or similar instrument covering any such Collateral
with any foreign governmental, municipal or other office, in each case, which
financing statement,
analogous
document, assignment or other instrument, as applicable, is still in effect,
except for
Liens
expressly permitted by the Secured Transaction Documents.
(vii)
The
Security Interest in the Collateral owned or held by it
or
on its
behalf (A) is effective to vest in the Collateral Agent, on behalf of the
Secured Parties,
the
rights of the Collateral Agent in such Collateral as set forth herein and (B)
does not violate
Regulation
T, U or X as of the Applicable Date.
(viii)
Immediately after the Applicable Date, (i) the fair value of
the
assets of the Company and the Subsidiary Guarantors, taken as a whole, at a
fair
valuation, will exceed their debts and liabilities, subordinated, contingent
or
otherwise, (ii) the present fair
saleable
value of the property of the Company and the Subsidiary Guarantors, taken as
a
whole,
will
be
greater than the amount that will be required to pay the probable liability
of
their debts
and
other
liabilities, subordinated, contingent or otherwise, as such debts and other
liabilities
become
absolute and matured, (iii) the Company and the Subsidiary Guarantors, taken
as
a whole,
will
be
able to pay its debts and liabilities, subordinated, contingent or otherwise,
as
such debts
and
liabilities become absolute and matured, and (iv) each of the Company and the
Subsidiary Guarantors will not have unreasonably small capital with which to
conduct the business following
such
date.
(b)
Covenants
and Agreements
.
Each
Grantor hereby covenants and agrees as
follows:
(i)
It
will promptly notify the Collateral Agent in writing of
any
change (A) in its legal name, (B) in the location of its chief executive office,
principal place of business, any office in which it maintains books or records
relating to any of the Collateral owned or held by it or on its behalf or,
except to the extent permitted by Section 3.1(b)(vii) or Section 3.2, any office
or facility at which any such Collateral is located (including the establishment
of any such new office or facility), (C) in its identity or legal or
organizational structure or its jurisdiction of formation, or (D) in its Federal
Taxpayer Identification Number. It agrees not to effect or permit any change
referred to in the preceding sentence unless all filings have been made under
the Uniform Commercial Code or otherwise that are required in order for the
Collateral Agent to continue at all times following such change to have a valid,
legal and perfected security interest in all the Collateral with the priority
required hereby.
(ii)
It
shall
maintain, at its own cost and expense, such
complete
and accurate Records with respect to the Collateral owned or held by it or
on
its behalf
as
is
consistent with its current practices and in accordance with such prudent and
standard
practices
used in industries that are the same as or similar to those in which it is
engaged, but in
any
event
to include complete accounting Records indicating all payments and proceeds
received
with
respect to any part of such Collateral.
(iii)
It
shall, at its own cost and expense, take any and all
actions
reasonably necessary to defend title to the Collateral owned or held by it
or on
its behalf
against
all Persons and to defend the Security Interest in such Collateral and the
priority thereof
against
any Lien or other interest not expressly permitted by the Secured Transaction
Documents, and in furtherance thereof, it shall not take, or permit to be taken,
any action not otherwise
expressly
permitted by the Secured Transaction Documents that is reasonably likely to
impair the
Security
Interest or the priority thereof or any Secured Party's rights in or to such
Collateral in
violation
hereof.
(iv)
The
Collateral Agent and such Persons as the Collateral
Agent
may
designate shall have the right at reasonable times and on reasonable notice,
at
the cost
and
expense of such Grantor, to inspect all of its Records (and to make extracts
and
copies from
such
Records), to discuss its affairs with its officers and (to the extent consented
to by such
independent
accountants) independent accountants and to verify under reasonable procedures
the
validity,
amount, quality, quantity, value, condition and status of, or any other matter
relating to,
the
Collateral owned or held by or on behalf of such Grantor, including, upon the
occurrence and
during
the continuance of any Event of Default, in the case of Receivables, Pledged
Debt, General Intangibles, Commercial Tort Claims or Collateral in the
possession of any third person,
by
contacting Account Debtors, contract parties or other obligors thereon or any
third person
possessing
such Collateral for the purpose of making such a verification. The Collateral
Agent shall maintain the confidentiality of all such information and shall
have
the absolute right to share on a confidential basis any information it gains
from such inspection or verification with any Secured Party.
(v)
At
its option, the Collateral Agent may discharge past due
taxes,
assessments, charges, fees, Liens, security interests or other encumbrances
at
any time
levied
or
placed on the Collateral owned or held by or on behalf of such Grantor, and
not
permitted
by the Secured Transaction Documents, and may pay for the maintenance and
preservation
of such Collateral to the extent such Grantor fails to do so as required by
the
Secured
Transaction
Documents, and such Grantor agrees, jointly with the other Grantors and
severally, to
reimburse
the Collateral Agent on demand for any payment made or any expense incurred
by
the
Collateral
Agent pursuant to the foregoing authorization;
provided
,
however
,
that
nothing in this
paragraph
shall be interpreted as excusing any Grantor from the performance of, or
imposing any
obligation
on the Collateral Agent or any other Secured Party to cure or perform, any
covenants
or
other
promises of any Grantor with respect to taxes, assessments, charges, fees,
Liens, security
interests
or other encumbrances and maintenance as set forth herein or in the other
Secured
Transaction
Documents.
(vi)
It
shall not be excused from liability as a result of granting
of
the
Security Interest pursuant to this Guarantee and Security Agreement to observe
and
perform
all the conditions and obligations to be observed and performed by it under
each
contract,
agreement
or instrument relating to the Collateral owned or held by it or on its behalf,
all in accordance with the terms and conditions thereof and it agrees, jointly
with the other Grantors
and
severally, to indemnify and hold harmless the Collateral Agent and the other
Secured Parties from and against any and all liability for such
performance.
(vii)
It
shall not make, or permit to be made, an assignment,
pledge
or
hypothecation of the Collateral owned or held by it or on its behalf, or grant
any other
Lien
in
respect of such Collateral, except as expressly permitted by the Secured
Transaction
Documents.
Except as expressly permitted by the Secured Transaction Documents, it shall
not
make
or
permit to be made any transfer of such Collateral, and it shall remain at all
times in
possession
of such Collateral and the direct owner, beneficially and of record, of the
Pledged
Equity
Interests included in such Collateral, except that (A) Inventory may be sold
in
the ordinary
course
of
business and (B) unless and until the Collateral Agent shall notify it that
an
Event of
Default
shall have occurred and be continuing and that, during the continuance thereof,
it shall
not
sell,
convey, lease, assign, transfer or otherwise dispose of any such Collateral
(which notice
may
be
given by telephone if promptly confirmed in writing), it may use and dispose
of
such
Collateral
in any lawful manner not inconsistent with the provisions of this Guarantee
and
Security
Agreement or any other Secured Transaction Document.
Section
3.2
Equipment
and Inventory
Each
of
the Grantors, jointly with the other Grantors and severally, represents and
warrants to the Collateral Agent and the other Secured Parties that, except
for
such Equipment and
Inventory
that does not exceed a book value of $100,000 in the aggregate for all Grantors,
as of the
Applicable
Date, all of the Equipment and Inventory included in the Collateral owned or
held by it or on
its
behalf (other than mobile goods and Inventory and Equipment in transit) is
kept
only at the locations
specified
on
Schedule
3.2
.
In
addition, each Grantor covenants and agrees that it shall not permit any
Equipment
or Inventory owned or held by it or on its behalf to be in the possession or
control of any
warehouseman,
bailee, agent or processor for a period of greater than ninety (90) consecutive
days, unless
such
warehouseman, bailee, agent or processor shall have been notified of the
Security Interest and shall
have
agreed in writing to hold such Equipment or Inventory subject to the Security
Interest and the
instructions
of the Collateral Agent and to waive and release any Lien held by it with
respect to such
Equipment
or Inventory, whether arising by operation of law or otherwise.
Section
3.3
Receivables
(a)
Representations
and Warranties
.
Each
of
the Grantors, jointly with the
other
Grantors and severally, represents and warrants to the Collateral Agent and
the
other Secured
Parties
that, except for (i) Receivables valued at less than $25,000 individually and
$100,000 in the aggregate for all Grantors or (ii) any Receivable pledged to
the
QRF Lender, no Receivable is evidenced
by
an
Instrument (other than checks received in the ordinary course of business)
or
Chattel Paper that has
not
been
delivered to the Collateral Agent.
(b)
Covenants
and Agreements
.
Each
Grantor hereby covenants and agrees
that:
(i)
At
the reasonable request of the Collateral Agent, it shall
mark
conspicuously, in form and manner reasonably satisfactory to the Collateral
Agent, all
Chattel
Paper, Instruments (other than checks received in the ordinary course of
business) and other evidence of any Receivables owned or held by it or on its
behalf (other than any delivered to the Collateral Agent as provided herein
and
other than purchase orders sent to customers), as well as the related
Receivables Records with an appropriate reference to the fact that the
Collateral
Agent has a security interest therein.
(ii)
Except
with respect to any Receivable pledged to the QRF
Lender,
it will not, without the Collateral Agent's prior written consent (which consent
shall not
be
unreasonably withheld), grant any extension of the time of payment of any such
Receivable,
compromise,
compound or settle the same for less than the full amount thereof, release,
wholly or
partly,
any Supporting Obligation or Collateral Support relating thereto, or allow
any
credit or
discount
whatsoever thereon, other than extensions, credits, discounts, releases,
compromises or
settlements
granted or made in the ordinary course of business and consistent with its
then
current
practices
and in accordance with such practices reasonably believed by such Grantor to
be
prudent.
(iii)
Except as otherwise provided in this Section and unless
otherwise
determined by such Grantor in accordance with its good faith business judgment,
it shall continue to use its best efforts to collect all amounts due or to
become due to it under all
such
Receivables and any Supporting Obligations or Collateral Support relating
thereto, and diligently exercise each material right it may have thereunder,
in
each case at its own cost and expense, and in connection with such collections
and exercise, it shall, upon the occurrence and
during
the continuance of an Event of Default, except with respect to any Receivable
pledged to
the
QRF
Lender, take such action as it or the Collateral Agent may reasonably deem
necessary.
Notwithstanding
the foregoing, the Collateral Agent shall have the right at any time upon the
occurrence
and during the continuance of an Event of Default to notify, or require such
Grantor to
notify,
any Account Debtor with respect to any such Receivable, Supporting Obligation
or
Collateral
Support of the Collateral Agent's security interest therein, and in addition,
at
any time
during
the continuation of an Event of Default, the Collateral Agent may: (A) direct
such
Account
Debtor to make payment of all amounts due or to become due to such Grantor
thereunder
directly to the Collateral Agent and (B) enforce, at the cost and expense of
such
Grantor,
collection thereof and to adjust, settle or compromise the amount or payment
thereof, in
the
same
manner and to the same extent as such Grantor would be able to have done. If
the
Collateral Agent notifies such Grantor that it has elected to collect any such
Receivable,
Supporting
Obligation or Collateral Support in accordance with the preceding sentence,
any
payments
thereof received by such Grantor shall not be commingled with any of its other
funds or property but shall be held separate and apart therefrom, shall be
held
in trust for the benefit of the
Collateral
Agent hereunder and shall be forthwith delivered to the Collateral Agent in
the
same
form
as
so received (with any necessary indorsement), and such Grantor shall not grant
any
extension
of the time of payment thereof, compromise, compound or settle the same for
less
than
the
full
amount thereof, release the same, wholly or partly, or allow any credit or
discount
whatsoever
thereon. For the avoidance of doubt, the parties agree that the foregoing second
and
third
sentences of this Section 3.3(b)(iii) shall not apply to or be of any force
or
effect in respect of any Receivable which has been pledged to the QRF
Lender.
(iv)
It
shall use its reasonable best efforts to keep in full force
and
effect any Supporting Obligation or Collateral Support relating to any
Receivable.
(v)
During the continuance of an Event of Default, at the
request
of the Collateral Agent, it shall direct each Account Debtor to make payment
on
each
Receivable,
other than any Receivable which has been pledged to the QRF Lender, to a Control
Account.
Section
3.4
Investment
Property
(a)
Representations
and Warranties
.
Each
of
the Grantors, jointly with the other Grantors and severally, represents and
warrants to the Collateral Agent and the other Secured
Parties
that:
(i)
Schedule
3.4
sets
forth, as of the Applicable Date, (i) all of the Investment Property (other
than
(A) Receivables not evidenced by an Instrument or Chattel Paper and (B) Equity
Interests with an immaterial value) owned or held by or on behalf of such
Grantor to the extent not held in a Securities Account and (ii) each Securities
Account or commodities account maintained by or on behalf of such
Grantor.
(ii)
All
Pledged Equity Interests have been duly authorized
and
validly issued and are fully paid and nonassessable, and such Grantor is the
direct owner, beneficially and of record, thereof, free and clear of all Liens
(other than Liens expressly permitted by the Secured Transaction
Documents).
(iii)
All
Pledged Debt other than Pledged Debt described on
Schedule
3.4
hereto
has been duly authorized, issued and delivered and, where necessary,
authenticated,
and constitutes the legal, valid and binding obligation of the obligor with
respect thereto, enforceable in accordance with its terms, subject to the
effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, and general equitable principles (whether considered in a proceeding
in equity or at law).
(iv)
All
Investment Property, other than Investment Property
held
in a
Securities Account identified on
Schedule
3.4
,
consisting
of certificated securities,
Chattel
Paper or Instruments other than checks received in the ordinary course of
business has been delivered to the Collateral Agent.
(v)
All
Pledged Collateral held by a Securities Intermediary in
a
Securities Account or a commodities account is in a Securities Control
Account.
(vi)
Other than the Pledged Equity Interests that constitute
General
Intangibles, there is no Investment Property other than that (x) represented
by
certificated securities or Instruments in the possession of the Collateral
Agent
or (y) held in a Securities
Account
identified on
Schedule
3.4
.
(vii)
No
Person other than the Collateral Agent or an Approved
Securities
Intermediary has “control” (within the meaning of Article 8 of the UCC) over any
Investment Property of such Grantor.
(b)
Registration
in Nominee Name; Denominations
.
Each
Grantor hereby
agrees
that (i) without limiting Article 5, the Collateral Agent, on behalf of the
Secured Parties, shall have the right (in its sole and absolute discretion)
to
hold any Investment Property in its own name as pledgee, the name of its nominee
(as pledgee or as sub agent) or the name of the applicable Grantor, endorsed
or
assigned, where applicable, in blank or in favor of the Collateral Agent, (ii)
at the Collateral Agent's request, such Grantor will promptly give to the
Collateral Agent copies of any material notices or other communications received
by it with respect to any Investment Property registered in its name, and (iii)
the Collateral Agent shall at all times have the right to exchange any
certificates, instruments or other documents representing or evidencing any
Investment Property owned or held by or on behalf of such Grantor for
certificates, instruments or other documents of smaller or larger denominations
for any purpose consistent with this Guarantee and Security
Agreement.
(c)
Voting
and Distributions
.
(i)
Unless and until an Event of Default shall have occurred
and
be
continuing:
(A)
Each
Grantor shall be entitled to exercise any and all
voting
and/or other consensual rights and powers inuring to an owner of the Investment
Property,
or any part thereof, for any purpose not inconsistent with the terms of this
Guarantee
and Security Agreement and the other Secured Transaction Documents;
provided
,
however
,
that
such
Grantor will not be entitled to exercise any such right if the
result
thereof could materially and adversely affect the rights inuring to a holder
of
the
Investment
Property or the rights and remedies of the Collateral Agent under this
Guarantee
and Security Agreement or any other Secured Transaction Document or the
ability
of the Collateral Agent to exercise the same.
(B)
The
Collateral Agent shall execute and deliver to
each
Grantor, or cause to be executed and delivered to each Grantor, all such
proxies, powers of attorney and other instruments as such Grantor may reasonably
request for the
purpose
of enabling it to exercise the voting and/or consensual rights and powers it
is
entitled
to exercise pursuant to subsection (c)(i)(A)
and
to
receive the cash payments it is
entitled
to receive pursuant to subsection (c)(i)(C).
(C)
Each
Grantor shall be entitled to receive, retain and
use
any
and all cash dividends, interest and principal paid on the Investment Property
owned
or
held by it or on its behalf to the extent and only to the extent that such
cash
dividends,
interest and principal are not prohibited by, and otherwise paid in accordance
with,
the
terms and conditions of the Securities Purchase Agreement, the other Secured
Transaction
Documents and applicable laws. All non cash dividends, interest and
principal,
and all dividends, interest and principal paid or payable in cash or otherwise
in
connection
with a partial or total liquidation or dissolution, return of capital, capital
surplus
or paid in surplus, and all other distributions (other than distributions
referred to
in
the
preceding sentence) made on or in respect of the Investment Property, whether
paid
or
payable in cash or otherwise, whether resulting from a subdivision, combination
or
reclassification
of the outstanding Pledged Equity Interests in any issuer of any
Investment
Property or received in exchange for any Investment Property, or any part
thereof,
or in redemption thereof, or as a result of any merger, consolidation,
acquisition
or
other
exchange of assets to which such issuer may be a party or otherwise, shall
be
and
become
part of the Collateral, and, if received by such Grantor, shall not be
commingled
with
any
of its other funds or property but shall be held separate and apart therefrom,
shall
be
held in trust for the benefit of the Collateral Agent hereunder and shall be
forthwith
delivered to the Collateral Agent in the same form as so received (with any
necessary
endorsement).
(ii)
Without limiting the generality of the foregoing, upon the
occurrence
and during the continuance of an Event of Default:
(A)
Upon
the
direction of the Collateral Agent, all rights
of
each
Grantor to dividends, interest or principal that it is authorized to receive
pursuant to subsection
(c)(i)(C)
shall
cease, and all such rights shall thereupon become vested in the Collateral
Agent, which shall have the sole and exclusive right and authority to
receive
and retain such dividends, interest or principal, as applicable. All dividends,
interest and principal received by or on behalf of any Grantor contrary to
the
provisions
of
this
Section shall be held in trust for the benefit of the Collateral Agent, shall
be
segregated
from other property or funds of such Grantor and shall be forthwith delivered
to
the Collateral Agent upon demand in the same form as so received (with any
necessary
endorsement).
Any and all money and other property paid over to or received by the
Collateral
Agent pursuant to the provisions of this subsection (c)(ii)(A)
shall
be
retained
by
the
Collateral Agent in an account to be established in the name of the Collateral
Agent,
for the ratable benefit of the Secured Parties, upon receipt of such money
or
other
property
and shall be applied in accordance with the provisions of Section 6.2. Subject
to
the
provisions of this subsection (c)(ii)(A),
such
account shall at all times be under the
sole
dominion and control of the Collateral Agent, and the Collateral Agent shall
at
all
times
have the sole right to make withdrawals therefrom and to exercise all rights
with
respect
to the funds and other property from time to time deposited therein or credited
thereto
as set forth in the Secured Transaction Documents. After all Events of Default
have
been
cured or waived, the Collateral Agent shall, within five Business Days after
all
such
Events of Default have been cured or waived, repay to the applicable Grantor
all
cash
dividends, interest and principal (without interest) that such Grantor would
otherwise
be permitted to retain pursuant to the terms of subsection
(c)(i)(C)
and
which
remain
in
such account.
(B)
Upon
the direction of the Collateral Agent, all rights
of
each
Grantor to exercise the voting and consensual rights and powers it is entitled
to
exercise
pursuant to subsection
(c)(i)(A),
and
the
obligations of the Collateral Agent
under
subsection
(c)(i)(B),
shall
cease, and all such rights shall thereupon become vested
in
the
Collateral Agent, which shall have the sole and exclusive right and authority
to
exercise
such voting and consensual rights and powers, provided that, unless otherwise
directed
by the Investor, the Collateral Agent shall have the right from time to time
upon
the
occurrence of and during the continuance of an Event of Default to permit such
Grantor
to exercise such rights. After all Events of Default have been cured or waived,
the
applicable Grantor will have the right to exercise the voting and consensual
rights and
powers
that it would otherwise be entitled to exercise pursuant to the terms of
subsection (c)(i)(A).
(d)
Covenants
and Agreements
.
Each
Grantor hereby covenants and agrees as
follows:
(i)
Each
Grantor agrees that it will not establish or maintain,
or
permit
any other Grantor to establish or maintain, any Securities Account or
commodities
account
that is not a Control Account.
(ii)
In
the event (A) any Grantor or any Approved Securities
Intermediary
shall, after the date hereof, terminate an agreement with respect to the
maintenance
of
a
Securities Control Account for any reason, (B) the Collateral Agent shall demand
the
termination
of an agreement with respect to the maintenance of a Securities Control Account
as a
result
of
the failure of an Approved Securities Intermediary to comply with the terms
of
the applicable Securities Control Account Letter, or (C) the Collateral Agent
determines in good faith
that
the
financial condition of an Approved Securities Intermediary has materially
deteriorated,
such
Grantor agrees to promptly transfer the assets held in such Securities Control
Account to
another
Securities Control Account reasonably acceptable to the Collateral
Agent.
(iii)
If,
after
the date hereof, any Grantor seeks to establish a
Securities
Account or commodities account or the Collateral Agent, pursuant to the
preceding
clause
(ii),
requires
the transfer of the assets held in a Securities Control Account, the Collateral
Agent agrees (x) not to unreasonably withhold its consent to any Securities
Intermediary or
commodity
intermediary selected by such Grantor and (y) to negotiate the Securities
Control
Account
Letter reasonably and in good faith.
Section
3.5
Letter
of Credit Rights
Each
of
the Grantors, jointly with the other Grantors and severally, represents and
warrants to the Collateral Agent and the other Secured Parties that
Schedule
3.5
sets
forth, as of the
Applicable
Date, each letter of credit giving rise to a Letter of Credit Right included
in
the Collateral
owned
or
held by or on behalf of such Grantor.
Section
3.6
Intellectual
Property Collateral
(a)
Representations
and Warranties
.
Each
of
the Grantors, jointly with the
other
Grantors and severally, represents and warrants to the Collateral Agent and
the
other Secured
Parties
that
Schedule
3.6
sets
forth, as of the Applicable Date, all of the Patents, material Patent Licenses,
Trademarks,
Trademark Licenses, material Copyrights, material Copyright Licenses, Trade
Secret
Licenses
and Domain Names included in the Collateral owned or held by such
Grantor.
(b)
Covenants
and Agreements
.
Each
Grantor hereby covenants and agrees as
follows:
(i)
It
will not, knowingly or intentionally, nor will it permit
any
of
its licensees (or sublicensees) to, do any act, or omit to do any act, whereby
any Patent that is related to the conduct of its business may become invalidated
or dedicated to the public, and it
shall
use
its reasonable best efforts to continue to mark any products covered by a Patent
with the
relevant
patent number as necessary and sufficient to establish and preserve its maximum
rights
under
applicable patent laws.
(ii)
It
will (either directly or through its licensees or its
sublicensees),
for each Trademark that is necessary for the conduct of its business, (A)
maintain such Trademark in full force free from any claim of abandonment or
invalidity for non use, (B) display such Trademark with notice of Federal or
other analogous registration to the extent
necessary
and sufficient to establish and preserve its rights under applicable law, and
(C) not
knowingly
use or knowingly permit the use of such Trademark in violation of any third
party's
valid
and
legal rights.
(iii)
It
will promptly notify the Collateral Agent in writing if it
knows
or
has reason to know that any Intellectual Property material to the conduct of
its
business
may
become abandoned, lost or dedicated to the public, or of any adverse
determination or
development
(including the institution of, or any such determination or development in,
any
proceeding
in the United States Patent and Trademark Office or the United States Copyright
Office,
or any similar offices or tribunals in the United States or any other country)
regarding
such
Grantor's ownership of any such Intellectual Property, its right to register
the
same, or to
keep
and
maintain the same.
(iv)
In
no event shall it, either directly or through any agent,
employee,
licensee or designee, file an application for any Intellectual Property with
the
United
States
Patent and Trademark Office, the United States Copyright Office or any similar
offices in the United States or any other country, unless it promptly notifies
the Collateral Agent in writing
thereof
and, upon request of the Collateral Agent, executes and delivers any and all
agreements,
instruments,
documents and papers as the Collateral Agent may request to evidence the
Collateral Agent's security interest in such Intellectual Property, and such
Grantor hereby appoints the
Collateral
Agent as its attorney in fact to execute and file such writings for the
foregoing purposes,
all
acts
of such attorney being hereby ratified and confirmed; such power, being coupled
with an interest, is irrevocable.
(v)
It
will take all necessary steps that are consistent with the
practice
in any proceeding before the United States Patent and Trademark Office, the
United
States
Copyright Office or any similar offices or tribunals in the United States and
the European
Union,
and except as otherwise determined in its good faith business judgment, any
other country,
to
maintain and pursue each material application relating to the Intellectual
Property owned or
held
by
it (and to obtain the relevant grant or registration) and to maintain each
issued Patent and
each
registered Trademark and Copyright that is material to the conduct of its
business, including
timely
filings of applications for renewal, affidavits of use, affidavits of
incontestability and
payment
of maintenance fees, and, if consistent, in good faith, with good business
judgment, to
initiate
opposition, interference and cancellation proceedings against third parties.
In
the event
that
it
has reason to believe that any Intellectual Property material to the conduct
of
its business has been or is about to be infringed, misappropriated or diluted
by
a third party, it promptly shall
notify
the Collateral Agent in writing and shall, if consistent with good business
judgment,
promptly
sue for infringement, misappropriation or dilution and to recover any and all
damages
for
such
infringement, misappropriation or dilution, and take such other actions as
are
appropriate under the circumstances to protect such Intellectual
Property.
(vi)
During the continuance of an Event of Default, it shall use
its
reasonable best efforts to obtain all requisite consents or approvals by the
licenser of each
License
to effect the assignment (as collateral security) of all of its right, title
and
interest thereunder to the Collateral Agent or its designee.
(vii)
It
shall take all steps reasonably necessary to protect the
secrecy
of all Trade Secrets relating to the products and services sold or delivered
under or in
connection
with the Intellectual Property owned or held by, including entering into
confidentiality
agreements
with employees and labeling and restricting access to secret information and
documents.
(viii)
It
shall in accordance with its past practices continue to
collect
all amounts due or to become due to such Grantor under all Intellectual
Property, and
diligently
exercise each material right it may have thereunder, in each case at its own
cost and
expense,
and in connection with such collections and exercise, it shall, upon the
occurrence and
during
the continuance of an Event of Default, take such action as it or the Collateral
Agent may
reasonably
deem necessary. Notwithstanding the foregoing, the Collateral Agent shall have
the
right
at
any time after the occurrence and during the continuance of an Event of Default
to notify, or require such Grantor to notify, any relevant obligors with respect
to such amounts of the
Collateral
Agent's security interest therein.
Section
3.7
Commercial
Tort Claims
(a)
Representations
and Warranties
.
Each
of
the Grantors, jointly with the
other
Grantors and severally, represents and warrants to the Collateral Agent and
the
other Secured
Parties
that
Schedule
3.7
sets
forth, as of the Applicable Date, all Commercial Tort Claims made by it or
on
its
behalf or to which it otherwise has any right, title or
interest.
(b)
Covenants
and Agreements
.
Each
Grantor hereby covenants and agrees
that
promptly after the same shall have been commenced, it shall provide to the
Collateral Agent written
notice
of
any Commercial Tort Claim and any judgment, settlement or other disposition
thereof.
Section
3.8 Deposit Accounts; Control
Accounts
(a)
Representations
and Warranties
.
The
only
Deposit Accounts maintained
by
any
Grantor on the Applicable Date are those listed on
Schedule
3.8
which
sets forth such information
separately
for each Grantor.
(b)
Covenants
and Agreements
.
Each
Grantor hereby covenants and agrees as
follows:
Prior
to
the Applicable Date, each Grantor shall cause the financial institution
where
any
Deposit Account is maintained, other than the financial institutions where
the
Deposit
Accounts
specified in item nos. 10, 11, 12, 13 and 14 of
Schedule
3.8
are
maintained, to enter in to a
Control
Agreement in the form substantially as set forth on Exhibit B hereto;
provided
,
however
,
that
the
enforceability
of such Control Agreements shall be exclusively conditioned on the valid
issuance of the
Senior
Secured Notes to the Investor and the receipt by the Company of gross proceeds
of $16,500,000
therefrom.
Notwithstanding the foregoing, Deposit Accounts where the amount of cash on
deposit does
not
exceed $50,000 individually or $100,000 in the aggregate (exclusive of the
amounts in accounts for
unpaid
payroll, payroll taxes and withholding taxes) shall not be subject to a Control
Agreement.
Twistbox
Games Ltd. & Co. KG shall use its reasonable best efforts to cause the
financial
institution
where any Deposit Account specified in item nos. 10, 11, 12, 13 and 14 of
Schedule
3.8
is
maintained to enter in to a Control Agreement in the form substantially as
set
forth on Exhibit B
hereto
within forty-five (45) days after the Applicable Date;
provided
,
that if
Twistbox Games Ltd. & Co.
KG
is
unable to cause one or more of such financial institutions to enter into a
Control Agreement within
such
time
period, the Deposit Account(s) maintained at any such financial institutions
that are not subject to a Control Agreement (the
“Excepted
Deposit Accounts”
)
shall
instead be subject to the following
sentence.
If at any time the amount of cash on deposit in the Excepted Deposit Accounts
exceeds
$500,000
in the aggregate, the excess shall within forty-five (45) days be transferred
to
a Deposit Account
subject
to a Control Agreement. Notwithstanding the foregoing, Deposit Accounts where
the amount of
cash
on
deposit does not exceed $50,000 individually or $100,000 in the aggregate
(exclusive of the
amounts
in accounts for unpaid payroll, payroll taxes and withholding taxes) shall
not
be subject to a
Control
Agreement.
Following
the Applicable Date, each Grantor shall provide the Investor and
Collateral
Agent fifteen (15) days written notice prior to the formation of a Deposit
Account (each, a
“New
Deposit Account”
)
and
shall
(i) promptly cause the financial institution where such New Deposit
Account
is formed to enter into a Control Agreement with respect to such New Deposit
Account in
substantially
the form as set forth on Exhibit B hereto and (ii) update
Schedule
3.8
as
appropriate
thereafter.
The preceding sentence shall not apply to the QRF Deposit Account.
Notwithstanding the
foregoing,
New Deposit Accounts where the amount of cash on deposit does not exceed $50,000
individually
or $100,000 in the aggregate (exclusive of the amounts in accounts for unpaid
payroll,
payroll
taxes and withholding taxes) shall not be subject to a Control Agreement. If
any
Grantor seeks to
establish
a New Deposit Account, the Collateral Agent agrees (x) not to unreasonably
withhold its
consent
to any Control Account Bank selected by such Grantor and (y) to negotiate the
Control Agreement reasonably and in good faith.
Nothing
herein shall limit the Grantors’ right to transfer balances among Deposit
Accounts where each such Deposit Account is subject to a Control
Agreement.
ARTICLE
4.
FURTHER
ASSURANCES
Each
Grantor hereby covenants and agrees, at its own cost and expense, to execute,
acknowledge, deliver and/or cause to be duly filed all such further agreements,
instruments and other documents (including favorable legal opinions in
connection with any Transaction) that may be reasonably requested by the
Collateral Agent, and take all such further actions, that the Collateral Agent
may from time to time reasonably request to preserve, protect and perfect the
Security Interest granted by it and the rights and remedies created hereby,
including the payment of any fees and taxes required in connection with its
execution and delivery of this Guarantee and Security Agreement, the granting
by
it of the Security Interest and the filing of any financing statements or other
documents in connection herewith or therewith. In addition, to the extent
permitted by applicable law, each Grantor hereby irrevocably authorizes the
Collateral Agent to file one or more financing or continuation statements,
and
amendments
thereto,
relative to all or any part of the Collateral owned or held by it or on its
behalf without the
signature
of such Grantor and additionally agrees that a photographic or other
reproduction of this Guarantee and Security Agreement may be filed with the
United States Patent and Trademark Office and/or the United States Copyright
Office, as applicable. Each Grantor hereby further irrevocably authorizes the
Collateral Agent to file a Record or Records, including financing statements,
in
all jurisdictions and with all filing offices that the Collateral Agent may
determine, in its sole and absolute discretion, are necessary, advisable or
prudent to perfect the Security Interest granted by it and agrees that such
financing statements may describe the Collateral owned or held by it or on
its
behalf in the same manner as described herein or may contain an indication
or
description of collateral that describes such property in any other manner
that
the Collateral Agent may determine, in its sole and absolute discretion,
is
necessary, advisable or prudent to perfect the Security Interest granted by
such
Grantor, including
describing
such property as “all assets” or “all personal property.”
ARTICLE
5.
COLLATERAL
AGENT APPOINTED ATTORNEY-IN-FACT
Each
Grantor hereby appoints the Collateral Agent and any officer or agent thereof,
as its true and lawful agent and attorney in fact for the purpose of carrying
out the provisions of this Guarantee
and
Security Agreement and taking any action and executing any instrument that
the
Collateral Agent
may
deem
necessary or advisable to accomplish the purposes hereof, which appointment
is
irrevocable and coupled with an interest, and without limiting the generality
of
the foregoing, the Collateral Agent shall have the right, with power of
substitution for such Grantor and in such Grantor's name or otherwise,
for
the
use and benefit of the Collateral Agent and the other Secured Parties, upon
the
occurrence and
during
the continuance of an Event of Default, (i) to receive, endorse, assign and/or
deliver any and all notes, acceptances, checks, drafts, money orders or other
evidences of payment relating to the Collateral owned or held by it or on its
behalf or any part thereof; (ii) to demand, collect, receive payment of, give
receipt for, and give discharges and releases of, any of such Collateral; (iii)
to sign the name of such Grantor on any invoice or bill of lading relating
to
any of such Collateral; (iv) to send verifications of Receivables owned or
held
by it or on its behalf to any Account Debtor; (v) to commence and prosecute
any
and
all suits, actions or proceedings at law or in equity in any court of competent
jurisdiction to
collect
or otherwise realize on any of the Collateral owned or held by it or on its
behalf or to enforce any
rights
in
respect of any of such Collateral; (vi) to settle, compromise, compound, adjust
or defend any
actions,
suits or proceedings relating to any of such Collateral; (vii) to notify, or
to
require such Grantor to notify, Account Debtors and other obligors to make
payment directly to the Collateral Agent, and (viii) to
use,
sell, assign, transfer, pledge, make any agreement with respect to or otherwise
deal with any of such
Collateral,
and to do all other acts and things necessary to carry out the purposes of
this
Guarantee and
Security
Agreement, as fully and completely as though the Collateral Agent were the
absolute owner of
such
Collateral for all purposes;
provided
,
however
,
that
nothing herein contained shall be construed as
requiring
or obligating the Collateral Agent or any other Secured Party to make any
commitment or to make any inquiry as to the nature or sufficiency of any payment
received by the Collateral Agent or any
other
Secured Party, or to present or file any claim or notice, or to take any action
with respect to any of the Collateral or the moneys due or to become due in
respect thereof or any property covered thereby, and
no
action
taken or omitted to be taken by the Collateral Agent or any other Secured Party
with respect to
any
of
the Collateral shall give rise to any defense, counterclaim or offset in favor
of such Grantor or to any claim or action against the Collateral Agent or any
other Secured Party in the absence of the
Collateral
Agent’s or such Secured Party’s gross negligence or willful misconduct. The
provisions of this
Article
shall in no event relieve any Grantor of any of its obligations hereunder or
under the other Secured
Transaction
Documents with respect to any of the Collateral or impose any obligation on
the
Collateral
Agent
or
any other Secured Party to proceed in any particular manner with respect to
any
of the Collateral,
or
in any
way limit the exercise by the Collateral Agent or any other Secured Party of
any
other or further
right
that it may have on the date of this Guarantee and Security Agreement or
hereafter, whether
hereunder,
under any other Secured Transaction Document, by law or otherwise. Any sale
pursuant to the provisions of this paragraph shall conform to the commercially
reasonable standards as provided in Part 6
of
Article 9 of the UCC.
ARTICLE
6.
REMEDIES
UPON DEFAULT
Section
6.1
Remedies
Generally
(a)
General
Rights
.
Upon
the
occurrence and during the continuance of an
Event
of
Default, each Grantor agrees to deliver each item of Collateral owned or held
by
it or on its behalf to the Collateral Agent on demand, and it is agreed that
the
Collateral Agent shall have the right to take any of or all the following
actions at the same or different times to the extent permitted by law: (i)
with
respect to any Collateral consisting of Intellectual Property or Commercial
Tort
Claims, on
demand,
to cause the Security Interest to become an assignment, transfer and conveyance
of any such
Collateral
by the applicable Grantors to the Collateral Agent, or, in the case of
Intellectual Property, to
license
or sublicense, whether general, special or otherwise, and whether on an
exclusive or non-exclusive
basis,
any such Collateral throughout the world on such terms and conditions and in
such manner as the
Collateral
Agent shall determine (other than in violation of any then-existing licensing
arrangements to
the
extent that waivers cannot be obtained), and (ii) with or without legal process
and with or without
prior
notice or demand for performance, to take possession of the Collateral owned
or
held by it or on its
behalf
and without liability for trespass to enter any premises where such Collateral
may be located for the purpose of taking possession of or removing such
Collateral and, generally, to exercise any and all rights afforded to a secured
party under the UCC or other applicable law. Without limiting the generality
of
the
foregoing, each Grantor agrees that, upon the occurrence and during the
continuance of an Event of
Default,
the Collateral Agent shall have the right, subject to the mandatory requirements
of applicable law,
to
sell
or otherwise dispose of any of the Collateral owned or held by or on behalf
of
such Grantor, at
public
or
private sale or at any broker's board or on any securities exchange, for cash,
upon credit or for
future
delivery as the Collateral Agent shall deem appropriate. The Collateral Agent
shall be irrevocably
authorized
at any such sale of such Collateral constituting securities (if it deems it
advisable to do so) to
restrict
the prospective bidders or purchasers to Persons who will represent and agree
that they are
purchasing
such Collateral for their own account for investment and not with a view to
the
distribution or
sale
thereof, and upon consummation of any such sale, the Collateral Agent shall
have
the right to assign,
transfer
and deliver to the purchaser or purchasers thereof the Collateral so sold.
Each
such purchaser at
any
such
sale shall hold the property sold absolutely, free from any claim or right
on
the part of the
applicable
Grantor, and such Grantor hereby waives (to the extent permitted by law) all
rights of
redemption,
stay, valuation and appraisal which such Grantor now has or may at any time
in
the future
have
under any rule of law or statute now existing or hereafter enacted.
(b)
Sale
of Collateral
.
The
Collateral Agent shall give each Grantor ten days’ written notice (which such
Grantor agrees is reasonable notice within the meaning of Part 6 of Article
9 of
the
UCC)
of the Collateral Agent’s intention to make any sale of any of the Collateral
owned or held by
or
on
behalf of such Grantor. Such notice, in the case of a public sale, shall state
the time and place for
such
sale
and, in the case of a sale at a broker’s board or on a securities exchange,
shall state the board or
exchange
at which such sale is to be made and the day on which such Collateral will
first
be offered for
sale
at
such board or exchange. Any such public sale shall be held at such time or
times
within ordinary
business
hours and at such place or places as the Collateral Agent may fix and state
in
the notice (if any)
of
such
sale. At any such sale, the Collateral to be sold may be sold in one lot as
an
entirety or in separate parcels, as the Collateral Agent may (in its sole and
absolute discretion) determine. The Collateral Agent
shall
not
be obligated to make any sale of any Collateral if it shall determine not to
do
so, regardless of
the
fact
that notice of sale of such Collateral shall have been given. The Collateral
Agent may, without
notice
or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to
time
by
announcement at the time and place fixed for sale, and such sale may, without
further notice, be
made
at
the time and place to which the same was so adjourned. In case any sale of
any
of the Collateral
is
made
on credit or for future delivery, the Collateral so sold may be retained by
the
Collateral Agent until the sale price is paid by the purchaser or purchasers
thereof, but the Collateral Agent shall not incur
any
liability in case any such purchaser or purchasers shall fail to take up and
pay
for the Collateral so
sold
and,
in case of any such failure, such Collateral may be sold again upon like notice.
At any public
(or,
to
the extent permitted by applicable law, private) sale made pursuant to this
Section, any Secured
Party
may
bid for or purchase, free (to the extent permitted by applicable law) from
any
right of
redemption,
stay, valuation or appraisal on the part of such Grantor (all said rights being
also hereby waived and released to the extent permitted by law), any of the
Collateral offered for sale and may make payment on account thereof by using
any
claim then due and payable to such Secured Party from such Grantor as a credit
against the purchase price, and such Secured Party may, upon compliance with
the
terms of sale, hold, retain and dispose of such property without further
accountability to such Grantor
therefor.
For purposes hereof, (i) a written agreement to purchase any of the Collateral
shall be treated as a sale thereof, (ii) the Collateral Agent shall be free
to
carry out such sale pursuant to such agreement, and
(iii)
no
Grantor shall be entitled to the return of any of the Collateral subject
thereto, notwithstanding the fact that after the Collateral Agent shall have
entered into such an agreement all Events of Default shall
have
been
remedied and the Obligations paid in full. As an alternative to exercising
the
power of sale
herein
conferred upon it, the Collateral Agent may proceed by a suit or suits at law
or
in equity to
foreclose
upon any of the Collateral and to sell any of the Collateral pursuant to a
judgment or decree of a
court
or
courts having competent jurisdiction or pursuant to a proceeding by a
court-appointed receiver.
Without
limiting the generality of the foregoing, each Grantor agrees as follows: (A)
if
the proceeds of
any
sale
of the Collateral owned or held by it or on its behalf pursuant to this Article
are insufficient to pay all the Obligations, it shall be liable for the
resulting deficiency and the fees, charges and
disbursements
of any counsel employed by the Collateral Agent or any other Secured Party
to
collect such
deficiency,
(B) it hereby waives any claims against the Collateral Agent arising by reason
of the fact that the price at which any such Collateral may have been sold
at
any private sale pursuant to this Article was
less
than
the price that might have been obtained at a public sale, even if the Collateral
Agent accepts the
first
offer received and does not offer such Collateral to more than one offeree,
(C)
there is no adequate
remedy
at
law for failure by it to comply with the provisions of this Section and that
such failure would not be adequately compensible in damages, and therefore
agrees that its agreements in this Section may
be
specifically enforced, (D) the Collateral Agent may sell any such Collateral
without giving any
warranties
as to such Collateral, and the Collateral Agent may specifically disclaim any
warranties of title or the like, and (E) the Collateral Agent shall have no
obligation to marshall any such Collateral.
Section
6.2
Application
of Proceeds of Sale
The
Collateral Agent shall apply the proceeds of any collection or sale of the
Collateral,
as
well
as any Collateral consisting of cash, as follows:
FIRST
,
to
the
payment of all reasonable costs and expenses incurred by the Collateral Agent
in
connection with such collection or sale or otherwise in connection
with
this
Guarantee and Security Agreement, any other Secured Transaction Document or
any
of
the Obligations, including all out of pocket court costs and the reasonable
fees
and expenses of its agents and legal counsel, the repayment of all advances
made
by the
Collateral
Agent hereunder or under any other Secured Transaction Document on behalf of
any
Grantor and any other reasonable out-of-pocket costs or expenses incurred in
connection with the exercise of any right or remedy hereunder or under any
other
Secured
Transaction
Document;
SECOND
,
to the
payment in full of the Obligations (the amounts so
applied
to be distributed among the Secured Parties pro rata in accordance with the
amounts of the Obligations owed to them on the date of any such distribution);
and
THIRD
,
to
the
applicable Grantor, its successors or assigns, or as a court
of
competent jurisdiction may otherwise direct.
The
Collateral Agent shall have sole and absolute discretion as to the order
of
application of any such proceeds, moneys or balances in accordance with this
Guarantee and Security Agreement.
Upon
any
sale of the Collateral by the Collateral Agent (including pursuant to a power
of
sale granted by statute or under a judicial proceeding), the receipt of the
purchase money by the Collateral Agent or of the officer making the sale
shall
be a sufficient discharge to the purchaser or purchasers of the Collateral
so
sold
and
such purchaser or purchasers shall not be obligated to see to the application
of
any part of the
purchase
money paid over to the Collateral Agent or such officer or be answerable
in any
way for the
misapplication
thereof.
Section
6.3
Investment
Property
In
view
of the position of each Grantor in relation to the Investment Property, or
because
of
other
current or future circumstances, a question may arise under the Securities
Act
of 1933, as now or hereafter in effect, or any similar statute hereafter enacted
analogous in purpose or effect (such Act and
any
such
similar statute as from time to time in effect being called the
“Federal
securities laws”
)
with
respect
to any disposition of the Investment Property permitted hereunder. Each Grantor
understands that compliance with the Federal securities laws might very strictly
limit the course of conduct of the
Collateral
Agent if the Collateral Agent were to attempt to dispose of all or any part
of
the Investment Property, and might also limit the extent to which or the manner
in which any subsequent transferee of
any
Investment Property could dispose of the same. Similarly, there may be other
legal restrictions or
limitations
affecting the Collateral Agent in any attempt to dispose of all or part of
the
Investment
Property
under applicable Blue Sky or other state securities laws or similar laws
analogous in purpose or
effect.
Each Grantor recognizes that in light of such restrictions and limitations
the
Collateral Agent may,
with
respect to any sale of the Investment Property, limit the purchasers to those
who will agree, among
other
things, to acquire such Investment Property for their own account, for
investment, and not with a
view
to
the distribution or resale thereof. Each Grantor acknowledges and agrees that
in
light of such
restrictions
and limitations, the Collateral Agent, in its sole and absolute discretion,
(i)
may proceed to
make
such
a sale whether or not a registration statement for the purpose of registering
such Investment
Property,
or any part thereof, shall have been filed under the Federal securities laws
and
(ii) may approach
and
negotiate with a single potential purchaser to effect such sale. Each Grantor
acknowledges and
agrees
that any such sale might result in prices and other terms less favorable to
the
seller than if such sale
were
a
public sale without such restrictions. In the event of any such sale, the
Collateral Agent shall incur
no
responsibility or liability for selling all or any part of the Investment
Property at a price that the
Collateral
Agent, in its discretion, may in good faith deem reasonable under the
circumstances,
notwithstanding
the possibility that a substantially higher price might have been realized
if
the sale were
deferred
until after registration as aforesaid or if more than a single purchaser were
approached. The
provisions
of this Section will apply notwithstanding the existence of a public or private
market upon
which
the
quotations or sales prices may exceed substantially the price at which the
Collateral Agent sells
any
such
Investment Property.
Section
6.4
Grant
of License to Use Intellectual Property
For
the
purpose of enabling the Collateral Agent to exercise rights and remedies under
this Article, at such time as the Collateral Agent shall be lawfully entitled
to
exercise such rights and remedies, each Grantor hereby grants to the Collateral
Agent an irrevocable, non exclusive license
(exercisable
without payment of royalty or other compensation to such Grantor) to use,
license or sub
license
any of the Collateral consisting of Intellectual Property now owned or held
or
hereafter acquired
or
held
by or on behalf of such Grantor, and wherever the same may be located, and
including in such
license
reasonable access to all media in which any of the licensed items may be
recorded or stored and to
all
computer software and programs used for the compilation or printout thereof.
The
use of such license by the Collateral Agent shall be exercised, at the option
of
the Collateral Agent, upon the occurrence and during the continuation of an
Event of Default; provided that any license, sub license or other transaction
entered into by the Collateral Agent in accordance herewith shall be binding
upon such Grantor
notwithstanding
any subsequent cure of an Event of Default. Any royalties and other payments
received
by
the
Collateral Agent shall be applied in accordance with Section 6.2.
ARTICLE
7.
REIMBURSEMENT
OF COLLATERAL AGENT
Each
Grantor agrees, jointly with the other Grantors and severally, to pay to the
Collateral
Agent the amount of any and all reasonable out-of-pocket expenses, including
the
fees, other
charges
and disbursements of counsel and of any experts or agents, that the Collateral
Agent may incur in
connection
with (i) the administration of this Guarantee and Security Agreement relating
to
such Grantor
or
any of
its property, (ii) the custody or preservation of, or the sale of, collection
from, or other realization upon, any of the Collateral owned or held by or
on
behalf of such Grantor, (iii) the exercise,
enforcement
or protection of any of the rights of the Collateral Agent hereunder relating
to
such Grantor or any of its property, or (iv) the failure by such Grantor to
perform or observe any of the provisions
hereof.
Without limitation of its indemnification obligations under the other Secured
Transaction
Documents,
each of the Grantors agrees, jointly with the other Grantors and severally,
to
indemnify the
Collateral
Agent and each Related Party thereof (each such Person being called an
“Indemnitee”
)
against,
and
hold
each Indemnitee harmless from, any and all losses, claims, damages, liabilities
and related out-
of-pocket
expenses, including reasonable counsel fees, other charges and disbursements,
incurred by or
asserted
against any Indemnitee arising out of, in any way connected with, or as a result
of (a) the
execution
or delivery by such Grantor of this Guarantee and Security Agreement or any
other Secured
Transaction
Document or any agreement or instrument contemplated hereby or thereby, or
the
performance by such Grantor of its obligations under the Secured Transaction
Documents and the other
transactions
contemplated thereby or (b) any claim, litigation, investigation or proceeding
relating to any
of
the
foregoing, whether or not any Indemnitee is a party thereto, provided that
such
indemnity shall not,
as
to any
Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related
expenses
are determined by judgment of a court of competent jurisdiction to have
primarily resulted from
the
gross
negligence or willful misconduct of such Indemnitee. Any amounts payable as
provided
hereunder
shall be additional Obligations secured hereby and by the other Secured
Transaction
Documents.
The provisions of this Section shall remain operative and in full force and
effect regardless
of
the
termination of this Guarantee and Security Agreement or any other Secured
Transaction Document, the consummation of the transactions contemplated hereby
or thereby, the repayment of any of the
Obligations,
the invalidity or unenforceability of any term or provision of this Guarantee
and Security
Agreement
or any other Secured Transaction Document or any investigation made by or on
behalf of the
Collateral
Agent or any other Secured Party. All amounts due under this Section shall
be
payable within
ten
days
of written demand therefor and shall bear interest at the then prevailing rate
under the Secured
Notes.
ARTICLE
8.
WAIVERS;
AMENDMENTS
No
failure or delay of the Collateral Agent in exercising any power or right
hereunder
shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any
abandonment
or discontinuance of steps to enforce such a right or power, preclude any other
or further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Collateral Agent and the other Secured Parties
hereunder and under the other Secured Transaction Documents are
cumulative
and are not exclusive of any rights or remedies that they would otherwise have.
No waiver of
any
provision of this Guarantee and Security Agreement or any other Secured
Transaction Document or
consent
to any departure by any Grantor therefrom shall in any event be effective unless
the same shall be
permitted
by this Section, and then such waiver or consent shall be effective only in
the
specific instance
and
for
the purpose for which given. No notice or demand on any Grantor in any case
shall entitle such Grantor to any other or further notice or demand in similar
or other circumstances. Neither this Guarantee
and
Security Agreement nor any provision hereof may be waived, amended, supplemented
or otherwise
modified,
or any departure therefrom consented to, except pursuant to an agreement or
agreements in
writing
entered into by the Grantors and Investor holding more than a majority of the
aggregate principal
amount
of
the Senior Secured Notes then outstanding, provided that no such agreement
shall
waive,
amend,
supplement or otherwise modify, or consent to a departure to, the rights or
duties of the Collateral
Agent
hereunder without the prior written consent of the Collateral
Agent.
ARTICLE
9.
SECURITY
INTEREST ABSOLUTE
All
rights of the Collateral Agent hereunder, the Security Interest and all
obligations of each Grantor hereunder shall be absolute and unconditional
irrespective of (i) any lack of validity or enforceability of the Securities
Purchase Agreement, any other Secured Transaction Document, any
agreement
with respect to any of the Obligations, or any other agreement or instrument
relating to any of
the
foregoing, (ii) any change in the time, manner or place of payment of, or in
any
other term of, all or
any
of
the Obligations, or any other waiver, amendment, supplement or other
modification of, or any
consent
to any departure from, the Securities Purchase Agreement, any other Secured
Transaction Document or any other agreement or instrument relating to any of
the
foregoing, (iii) any exchange, release or non-perfection of any Lien on any
other collateral, or any release or waiver, amendment, supplement or other
modification of, or consent under, or departure from, any guarantee, securing
or
guaranteeing all or any of the Obligations, or (iv) any other circumstance
that
might otherwise constitute a defense available to, or a discharge of, any
Grantor in respect of the Obligations or in respect of this Guarantee and
Security Agreement or any other Secured Transaction Document.
ARTICLE
10.
TERMINATION;
RELEASE
This
Guarantee and Security Agreement and the Security Interest shall terminate
and
be of no further force and effect when the Obligations shall have been finally
and indefeasibly paid in full. Upon (i) any sale, transfer or other disposition
permitted by the Secured Transaction Documents (other
than
any
sale, transfer or other disposition of any Collateral that would, immediately
after giving effect
thereto,
continue to be Collateral but for the release of the Security Interest therein
pursuant to this clause) or (ii) the effectiveness of any written consent to
the
release of the Security Interest in any Collateral, the Security Interest in
such Collateral shall be automatically released. In addition, if any of the
Pledged Equity Interests in any Subsidiary are sold, transferred or otherwise
disposed of pursuant to a transaction permitted by the Secured Transaction
Documents and, immediately after giving effect thereto, such Subsidiary or
subsidiary, as applicable, would no longer be a Subsidiary or a subsidiary,
as
applicable, then the obligations of such Subsidiary or subsidiary, as
applicable, under this Guarantee and Security Agreement and the Security
Interest in the Collateral owned or held by or on behalf of such Subsidiary
or
such subsidiary, as applicable, shall be automatically released. In addition,
if
the Company enters into a Qualified Receivables Facility, that portion of the
Receivables subject to the Qualified Receivables Facility shall be automatically
released from Collateral and no longer subject to Section 3.3(b) of this
Guarantee
and Security Agreement;
provided
,
however
,
should
such a Qualified Receivables Facility terminate, the Receivables subject thereto
shall be Collateral and shall thereafter be subject to Section 3.3(b) of this
Guarantee and Security Agreement. In connection with any termination or release
pursuant to this Section, the Collateral Agent shall execute and deliver to
the
applicable Grantor, and hereby
authorizes
the filing of, at such Grantor's cost and expense, all Uniform Commercial Code
termination
statements
and similar documents that such Grantor may reasonably request to evidence
such
termination or release. Any execution and delivery of documents pursuant to
this
Article shall be without recourse to or warranty by the Collateral Agent or
any
other Secured Party.
ARTICLE
11.
ADDITIONAL
SUBSIDIARY GUARANTORS AND GRANTORS
Upon
execution and delivery after the date hereof by the Collateral Agent and a
Subsidiary
of a Supplement, such Subsidiary shall become a Subsidiary Guarantor and
Grantor, as
applicable,
hereunder with the same force and effect as of the date of such execution as
if
originally named as a Subsidiary Guarantor and a Grantor, as applicable, herein
(each an
“Additional
Subsidiary
Guarantor
and Grantor”
).
The
execution and delivery of any Supplement shall not require the consent of any
other Grantor hereunder. The rights and obligations of each Grantor hereunder
and each Grantor and other party (other than an Investor) under the Secured
Transaction Documents shall remain in full force and effect notwithstanding
the
addition of any Additional Subsidiary Guarantor and Grantor as a party to this
Guarantee and Security Agreement.
ARTICLE
12.
COLLATERAL
AGENT
Each
Investor hereby irrevocably appoints the Collateral Agent as its agent and
authorizes
the Collateral Agent to take such actions on its behalf and to exercise such
powers as are delegated to the Collateral Agent by the terms hereof, together
with such actions and powers as are
reasonably
incidental thereto.
The
Person serving as the Collateral Agent hereunder shall have the same rights
and
powers in its capacity as an Investor as any other investor and may exercise
the
same as though it were
not
the
Collateral Agent, and such Person and its Affiliates may accept deposits from,
lend money to and
generally
engage in any kind of business with the Company or any Subsidiary or other
Affiliate thereof as if it were not the Collateral Agent hereunder.
The
Collateral Agent shall not have any duties or obligations except those expressly
set
forth
herein. Without limiting the generality of the foregoing, (i) the Collateral
Agent shall not be subject
to
any
fiduciary or other implied duties, regardless of whether an Event of Default
has
occurred and is
continuing,
(ii) the Collateral Agent shall not have any duty to take any discretionary
action or exercise
any
discretionary powers, except discretionary rights and powers expressly
contemplated by this
Agreement,
and (iii) except as expressly set forth herein, the Collateral Agent shall
not
have any duty to disclose, and shall not be liable for the failure to disclose,
any information relating to the Company or any
of
the
Subsidiaries that is communicated to or obtained by the Person serving as
Collateral Agent or any
of
its
Affiliates in any capacity. The Collateral Agent shall not be liable for any
action taken or not taken by it in the absence of its own gross negligence
or
willful misconduct. The Collateral Agent shall be
deemed
not to have knowledge of any Event of Default unless and until written notice
thereof is given to
the
Collateral Agent by the Company or an Investor (and, promptly after its receipt
of any such notice, it
shall
give each Investor and the Company notice thereof), and the Collateral Agent
shall not
be
responsible
for or have any duty to ascertain or inquire into (a) any statement, warranty
or
representation
made
in
or in connection with any Secured Transaction Document, (b) the contents of
any
certificate,
report
or
other document delivered thereunder or in connection therewith, (c) the
performance or
observance
of any of the covenants, agreements or other terms or conditions set forth
therein, (d) the
validity,
enforceability, effectiveness or genuineness thereof or any other agreement,
instrument or other
document
or (e) the satisfaction of any condition set forth in herein, other than to
confirm receipt of items
expressly
required to be delivered to the Collateral Agent.
The
Collateral Agent shall be entitled to rely upon, and shall not incur any
liability for
relying
upon, any notice, request, certificate, consent, statement, instrument, document
or other writing reasonably believed by it to be genuine and to have been signed
or sent by the proper Person. The
Collateral
Agent also may rely upon any statement made to it orally or by telephone and
reasonably believed by it to be made by the proper Person, and shall not incur
any liability for relying thereon. The
Collateral
Agent may consult with legal counsel (who may be counsel for the Grantors),
independent
accountants
and other experts selected by it, and shall not be liable for any action taken
or not taken by it
in
accordance with the advice of any such counsel, accountants or
experts.
The
Collateral Agent may perform any and all its duties and exercise its rights
and
powers
by
or through any one or more sub agents appointed by the Collateral Agent,
provided that no
such
delegation shall serve as a release of the Collateral Agent or waiver by the
Company of any rights
hereunder.
The Collateral Agent and any such sub agent may perform any and all its duties
and exercise its rights and powers through their respective affiliates. The
exculpatory provisions of the preceding
paragraphs
shall apply to any such sub agent and to the affiliates of the Collateral Agent
and any such sub
agent,
and shall apply to their respective activities acting for the Collateral
Agent.
Subject
to the appointment and acceptance of a successor Collateral Agent as provided
in
this
paragraph, the Collateral Agent may resign at any time by notifying the Investor
and the Company.
Upon
any
such resignation, the Investor holding a majority of the principal amount of
the
Senior Secured
Notes
shall have the right to appoint a successor. If no successor shall have been
so
appointed by the
Investor
and shall have accepted such appointment within 30 days after the retiring
Collateral Agent gives
notice
of
its resignation, then the retiring Collateral Agent may, on behalf of the
Investor holding a
majority
of the principal amount of the Senior Secured Notes, appoint a successor
Collateral Agent which
shall
be
a bank with an office in New York, New York, or an affiliate of any such bank.
Upon the acceptance of its appointment as Collateral Agent hereunder by a
successor, such successor shall succeed
to
and
become vested with all the rights, powers, privileges and duties of the retiring
Collateral Agent,
and
the
retiring Collateral Agent shall be discharged from its duties and obligations
hereunder. After the
Collateral
Agent's resignation hereunder, the provisions of this Article shall continue
in
effect for the
benefit
of such retiring Collateral Agent, its sub agents and their respective
affiliates in respect of any
actions
taken or omitted to be taken by any of them while it was acting as Collateral
Agent.
Each
Investor acknowledges that it has, independently and without reliance upon
the
Collateral Agent or any other Investor and based on such documents and
information as it has deemed
appropriate,
made its own credit analysis and decision to enter into the Secured Transaction
Documents.
Each
Investor also acknowledges that it will, independently and without reliance
upon
the Collateral
Agent
or
any other-Investor and based on such documents and information as it shall
from
time to time
deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon any Secured Transaction Document, any related agreement
or
any document furnished thereunder.
ARTICLE
13.
NOTICES
All
notices, requests, demands and other communications to any party hereunder
shall
be
in
writing (including facsimile or similar writing) and shall be given to such
party at its address or
facsimile
number set forth below or such other address or facsimile number as such party
may hereafter
specify
by notice to the other parties listed below:
(a)
If
to the
Company:
Twistbox Entertainment, Inc.
14242
Ventura Blvd., Third Floor
Sherman
Oaks, CA 91423
Telephone:
(818)
301-6200
Facsimile:
(818)
708-0598
Attention:
Chief
Executive Officer
Attention:
General
Counsel
with
a
copy to:
Proskauer
Rose LLP
1585
Broadway
New
York,
New York 10036
Telephone:
(212)
969-3640
Facsimile:
(212)
969-2900
Attention:
Paul
Rachlin, Esq.
(b)
If
to a
Subsidiary Guarantor: At its address for notices set forth on
Schedule
I
.
(c)
If
to the
Collateral Agent:
ValueAct
SmallCap Master Fund, L.P.
435
Pacific Avenue, 4th Floor
San
Francisco, CA 94133
Telephone:
(415) 249-1237
Facsimile:
(415)
249-1242
Attention:
Jimmy
Price
with
a
copy to:
ValueAct
SmallCap Master Fund, L.P.
435
Pacific Avenue, 4th Floor
San
Francisco, CA 94133
Telephone:
(415) 249-1237
Facsimile:
(415)
249-1242
Attention:
Jimmy
Price
and
Skadden,
Arps, Slate, Meagher & Flom LLP
525
University Avenue, Suite 1100
Palo
Alto, CA 94301
Facsimile:
(650)
470-4570
Telephone:
(650) 470-4500
Attention:
Thomas
Ivey, Esq.
Each
such
notice, request or other communication shall be effective (i) upon receipt
(provided
,
however
,
that
notices received on a Saturday, Sunday or legal holiday or after 6:30 p.m.
(New
York City time) on any other day will be deemed to have been received on the
next Business Day),
if
given
by facsimile transmission, (ii) the Business Day following the date of delivery
with a nationally
recognized
overnight courier service or (iii) if given by any other means, when delivered
at the address
specified
in this Article 13.
ARTICLE
14.
BINDING
EFFECT; SEVERAL AGREEMENT; ASSIGNMENTS
Whenever
in this Guarantee and Security Agreement any of the parties hereto is referred
to, such reference shall be deemed to include the successors and permitted
assigns of such party, and all
covenants,
promises and agreements by or on behalf of any Grantor that are contained in
this Guarantee
and
Security Agreement shall bind and inure to the benefit of each party hereto
and
its successors and
permitted
assigns. This Guarantee and Security Agreement shall become effective as to
any
Grantor
when
a
counterpart hereof executed on behalf of such Grantor shall have been delivered
to the Collateral Agent and a counterpart hereof shall have been executed on
behalf of the Collateral Agent, and thereafter
shall
be
binding upon such Grantor and the Collateral Agent and their respective
successors and permitted
assigns,
and shall inure to the benefit of such Grantor, the Collateral Agent and the
other Secured Parties, and their respective successors and permitted assigns,
except that no Grantor shall have the right to assign
its
rights or obligations hereunder or any interest herein or in any of the
Collateral (and any such
attempted
assignment shall be void), except as expressly contemplated by this Guarantee
and Security
Agreement
or the other Secured Transaction Documents. This Guarantee and Security
Agreement shall be construed as a separate agreement with respect to each of
the
Grantors and may be amended, supplemented, waived or otherwise modified or
released with respect to any Grantor without the approval
of
any
other Grantor and without affecting the obligations of any other Grantor
hereunder.
ARTICLE
15.
SURVIVAL
OF AGREEMENT; SEVERABILITY
All
covenants, agreements, representations and warranties made by the Grantors
herein
and
in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this
Guarantee
and Security Agreement or any other Secured Transaction Document shall be
considered to
have
been
relied upon by the Collateral Agent and the other Secured Parties and shall
survive the
execution
and delivery of any Secured Transaction Document and the making of any Loan,
regardless of
any
investigation made by the Secured Parties or on their behalf, and shall continue
in full force and
effect
until this Guarantee and Security Agreement shall terminate. In the event any
one or more of the
provisions
contained in this Guarantee and Security Agreement or in any other Secured
Transaction
Document
should be held invalid, illegal or unenforceable in any respect, the validity,
legality and
enforceability
of the remaining provisions contained herein or therein shall not in any way
be
affected or impaired thereby (it being understood that the invalidity of a
particular provision in a particular
jurisdiction
shall not in and of itself affect the validity of such provision in any other
jurisdiction). The
parties
shall endeavor in good faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal
or
unenforceable provisions.
ARTICLE
16.
GOVERNING
LAW
THIS
GUARANTEE AND SECURITY AGREEMENT SHALL BE GOVERNED BY,
AND
CONSTRU
E
D
IN
ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK. THE
LAWS
OF
THE FEDERAL REPUBLIC OF GERMANY SHALL APPLY ONLY TO THE EXTENT SUCH APPLICATION
IS MANDATORY PURSUANT TO THE PRINCIPLES OF INTERNATIONAL
PRIVATE
LAW (CONFLICT OF LAWS).
ARTICLE
17.
COUNTERPARTS
This
Guarantee and Security Agreement may be executed in counterparts (and by
different
parties hereto on different counterparts), each of which shall constitute an
original, but all of
which,
when taken together, shall constitute but one contract (subject to Article
14),
and shall become
effective
as provided in Article 14. Delivery of an executed counterpart of this Guarantee
and Security
Agreement
by facsimile transmission shall be as effective as delivery of a manually
executed counterpart
of
this
Guarantee and Security Agreement.
ARTICLE
18.
HEADINGS
Article
and Section headings and the Table of Contents used herein are for convenience
of
reference only, are not part of this Guarantee and Security Agreement and shall
not affect the
construction
of, or be taken into consideration in interpreting, this Guarantee and Security
Agreement.
ARTICLE
19.
JURISDICTION;
VENUE; CONSENT TO SERVICE OF PROCESS
EACH
OF
THE GRANTORS HEREBY IRREVOCABLY AND
UNCONDITIONALLY
SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE
JURISDICTION
OF THE SUPREME COURT OF THE STATE OF NEW YORK SITTING
IN
NEW
YORK
COUNTY AND OF THE UNITED STATES' DISTRICT COURT FOR THE SOUTHERN
DISTRICT
OF
NEW
YORK,
AND
ANY APPELLATE COURT FROM ANY THEREOF,
IN
ANY
ACTION
OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER COLLATERAL
DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY
JUDGMENT,
AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY
AGREES THAT ALL CLAIMS IN
RESPECT
OF ANY SUCH ACTION OR
PROCEEDING
MAY BE HEARD AND DET
ER
MINED
IN
SUCH
NEW
YORK STATE OR, TO THE
EXTENT
PERMITTED BY LAW, IN
SUCH
FEDERAL COURT. EACH OF THE PARTIES HERETO
AGREES
THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE
AND MAY BE ENFORCED
IN
OTHER
JURISDICTIONS BY SUIT ON THE
JUDGMENT
OR
IN
ANY
OTHER
MANNER PROVIDED BY LAW. NOTHING
IN
THIS
AGREEMENT
SHALL AFFECT ANY
RIGHT
THAT
THE
SECURED PARTIES MAY OTHERWISE
HAVE
TO
BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT
AGAINST
THE COMPANY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
EACH
OF
THE GRANTORS HEREBY IRREVOCABLY AND
U
NC
ONDITIONALLY
WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND
EFFECTIVELY
DO SO, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO
THE
LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO
THIS GUARANTEE AND SECURITY AGREEMENT OR ANY OTHER SECURED
TRANSACTION
DOCUMENT
IN
ANY
COURT
REFERRED TO
IN
THE
PRECEDING PARAGRAPH (b) OF THIS SECTION. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH ACTION OR
PROCEEDING
IN
ANY
SUCH
COURT.
EACH
PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO SERVICE OF PROCESS
IN
THE
MANNER PROVIDED FOR NOTICES IN
ARTICLE
13. NOTHING
IN
THIS
AGREEMENT
WILL
AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS
IN
ANY
OTHER MANNER PERMITTED BY LAW.
ARTICLE
20.
WAIVER
OF
JURY TRIAL
EACH
PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT
PERMITTED
BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY
IN
ANY
LEGAL
PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO
THIS
GUARANTEE AND SECURITY AGREEMENT OR ANY OTHER SECURED TRANSACTION DOCUMENTS
OR
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER
BASED
ON
CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT,
IN
THE
EVENT
OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES
THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS
GUARANTEE AND SECURITY AGREEMENT AND THE OTHER SECURED
TRANSACTION
DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS
IN
THIS
SECTION.
[Signature
Pages Follow]
IN
WITNESS WHEREOF, the parties hereto have duly executed this Guarantee and
Security
Agreement
as of the day and year first above written.
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TWISTBOX
ENTERTAINMENT, INC.
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By:
|
/s/
IAN AARON
|
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Name:
IAN AARON
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Title:
PRES. / CEO
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FOREIGN SUBSIDIARIES
|
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TWISTBOX GAMES LTD. & CO. KG
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By:
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Name:
IAN
AARON
Title:
PRES. / CEO
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DOMESTIC SUBSIDIARIES
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WAAT MEDIA CORP.
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By:
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Name:
IAN AARON
Title:
PRES. / CEO
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VALUEACT
SMALLCAP MASTER FUND,
L.P.,
as
Collateral Agent
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By Its General Partner,
VA SmallCap
Partners,
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By:
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/s/
D
AVID
LOCKWOOD
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Name:
D
AVID
LOCKWOOD
Title:
MANAGING
MEMBER
|
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VALUEACT
SMALLCAP MASTER FUND,
L.P.,
as
Investor
By
Its General
Partner, VA SmallCap Partners,
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By:
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/s/
D
AVID
LOCKWOOD
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Name:
DAVID LOCKWOOD
Title:
MANAGING MEMBER
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CONTROL
AGREEMENT
July
30,
2007
East
West
Bank
9300
Flair Drive
El
Monte,
CA 91731
Ladies
and Gentlemen:
The
undersigned, WAAT Media Corp. (the “
Grantor
”
)
has
entered into a Guarantee and Security Agreement, dated as of July 30, 2007
(as
the same may be amended, restated, supplemented or otherwise modified from
time
to time, the “
Guarantee
and Security Agreement
”
),
among
Twistbox Entertainment, Inc. (the “
Company
”
),
each
of
the Subsidiaries of the Company party thereto and ValueAct SmallCap Master
Fund,
L.P., as Collateral Agent for the benefit of the Secured Parties referred to
therein (in such capacity, the “
Collateral
Agent
”
)
as
required by (i) that certain Securities Purchase Agreement, dated as of July
30,
2007 (as the same may be amended, restated, supplemented or otherwise modified
from time to time, the “
Securities
Purchase Agreement
”
),
among
the
Company and ValueAct SmallCap Master Fund, L.P. (the “
Investor
”
),
and
(ii)
the Senior Secured Note, dated as of July 30 2007, among the Company and the
Investor (as the same may be amended, restated, supplemented or otherwise
modified from time to time, the “
Senior
Secured Note
”
).
Pursuant
to the Guarantee and Security Agreement and related documents, the Grantor
has
granted to the Collateral Agent, for the benefit of the Secured Parties (as
defined therein), a security interest in the accounts set forth on Schedule
I
hereto (individually the “
Collateral
Account
”
,
together
the “
Collateral
Accounts
”
)
and
all
present and future Assets in the Collateral Account.
1.
Instructions
of the Grantor
.
The
Grantor hereby instructs you (the “
Control
Account Bank
”
)
to,
and
you hereby agree that you will:
(a)
maintain the Collateral Account, as “Collateral Account No.: _______ - Twistbox
Entertainment, Inc. Collateral Account”;
(b)
hold
in the Collateral Account the assets, including all cash and other financial
assets and property and rights now or hereafter received in such Collateral
Account (collectively the “
Assets
”
);
(c)
provide to the Collateral Agent, with a duplicate copy to the Grantor, a monthly
statement of Assets including a confirmation statement of each transaction
effected in the Collateral Account; and
(d)
honor
only the written instructions or entitlement orders in regard to or in
connection with the Collateral Account given by the Collateral Agent, except
that until such time as the Collateral Agent gives a written notice to the
Control Account Bank substantially in the form of Annex 1 hereto (a
“
Event
of Default Notice
”
)
that
the
Grantor’s rights under this Control Account Agreement (the “
Control
Account Agreement
”
)
have
been
terminated, the Grantor may request the withdrawal of, or transfer of, Assets
from any Collateral Account (each a “
Withdrawal
Request
”
),
and
the
Control Account Bank shall honor such Withdrawal Requests. The Collateral Agent
agrees with the Grantor that it shall not give (i) instructions or entitlement
orders in regard to or in connection with the Collateral Account or (ii) an
Event of Default Notice to the Control Account Bank unless, in each case, an
Event of Default has occurred and is continuing under the Senior Secured Note.
The Control Account Bank shall be entitled to rely and shall be fully protected
in relying on the due authorization of any such written notice without inquiry.
At the time the Collateral Agent gives an Event of Default Notice to the Control
Account Bank it shall deliver a copy of such Event of Default Notice to the
Grantor.
2.
Agreements
of the Control Account Bank
.
(a)
By
its signature below, the Control Account Bank agrees to comply with the written
entitlement orders and instructions of the Collateral Agent directing transfer
of the Assets relating to the Collateral Account (including any instructions
with respect to transfers and withdrawals of cash or other of the Assets)
without the consent of the Grantor or any other person (it being understood
and
agreed by the Grantor that the Control Account Bank shall have no duty or
obligation whatsoever of any kind or character to have knowledge of the terms
of
the Guarantee and Security Agreement or the Securities Purchase Agreement or
to
determine whether or not an Event of Default exists thereunder). The Grantor
hereby agrees to indemnify and hold harmless the Control Account Bank, its
affiliates, officers and employees from and against any and all claims, causes
of action, liabilities, lawsuits, demands and/or damages, including any and
all
court costs and reasonable attorney’s fees, that may result by reason of the
Control Account Bank complying with such instructions of the Collateral Agent.
In the event that the Control Account Bank is sued or becomes involved in
litigation as a result of complying with the above stated written instructions,
the Grantor and the Collateral Agent agree that the Control Account Bank shall
be entitled to charge all costs and fees it incurs in connection with such
litigation to the Assets in the Collateral Account and withdraw such sums as
the
costs and charges accrue.
(b)
Except with respect to the obligations and duties as set forth herein, this
Control Account Agreement shall not impose or create any obligations or duties
upon the Control Account Bank greater than or in addition to the customary
and
usual obligations and duties of the Control Account Bank to the
Grantor.
(c)
During the term of this Control Account Agreement, the Control Account Bank
agrees that, except for Liens resulting from customary, fees, or charges based
upon transactions in the Collateral Account, it subordinates in favor of the
Collateral Agent any security interest, lien or right of setoff the Control
Account Bank may have. The Control Account Bank acknowledges that it has not
received notice of any other security interest in the Collateral Account or
the
Assets. In the event any such notice is received, the Control Account Bank
will
promptly notify the Collateral Agent.
3.
Binding
Agreement
.
This
Control Account Agreement shall be binding upon and inure to the benefit of
the
parties hereto and their respective successors and permitted assigns and it
and
the rights and obligations of the parties hereto shall be governed by, and
construed and interpreted in accordance with, and the law of the Control Account
Bank’s jurisdiction for the purposes of Sections 9-301, 9-304 and 9-307 of the
UCC shall be, the law of the State of New York.
4.
Control
.
The
Grantor, Collateral Agent and Control Account Bank are entering into this
Control Account Agreement to provide for the Collateral Agent’s control of the
Assets and to confirm the first and exclusive priority of the Collateral Agent’s
security interest in the Assets. The Control Account Bank agrees to promptly
make and thereafter maintain all necessary entries or notations in its books
and
records to reflect the Collateral Agent’s security interest in the
Assets.
5.
Severability
.
If any
term or provision of this Control Account Agreement is determined to be invalid
or unenforceable, the remainder of this Control Account Agreement shall be
construed in all respects as if the invalid or unenforceable term or provision
were omitted. This Control Account Agreement may not be altered or amended
in
any manner without the express written consent of the Grantor, the Collateral
Agent and the Control Account Bank. This Control Account Agreement may be
executed in any number of counterparts, all of which shall constitute one
original agreement.
6.
Termination
.
This
Control Account Agreement shall be terminated upon the earlier of (i) thirty
(30) days following the date of the Control Account Bank’s delivery of written
notice to the Grantor and the Collateral Agent or (ii) written notice by the
Collateral Agent to the Control Account Bank and the Grantor. The Collateral
Agent shall deliver such notice promptly upon the termination of the Collateral
Agent’s security interest in the Assets.
7.
Miscellaneous
.
(a)
The
Grantor acknowledges that this Control Account Agreement supplements any
existing agreements of the Grantor with the Control Account Bank and, except
as
expressly provided herein, is in no way intended to abridge any rights that
the
Control Account Bank might otherwise have.
(b)
Any
action arising out of or relating to this Control Account Agreement shall be
litigated in, and only in, courts located in New York City, New York, Borough
of
Manhattan, and the parties hereby submit to the exclusive jurisdiction of such
courts and agree that they are a convenient forum. Each party hereby waives
the
right to trial by jury in any action arising out of or relating to this Control
Account Agreement.
(c)
This
Control Account Agreement may be executed in any number of counterparts and
by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which when taken together
shall constitute one and the same agreement. Delivery of an executed counterpart
of a signature page to this Control Account Agreement by telecopier shall be
effective as delivery of a manually executed counterpart of this Control Account
Agreement.
(d)
This
Control Account Agreement supersedes all prior agreements, oral or written,
with
respect to the subject matter hereof. There are no third party beneficiaries
to
this Control Account Agreement, other than as specifically referred to
herein.
(e)
This
Control Account Agreement shall be governed by, and construed in accordance
with, the law of the state of New York.
(f)
Upon
acceptance of this Control Account Agreement, it will be the valid and binding
obligation of the Grantor, the Collateral Agent, and you, in accordance with
its
terms.
[Remainder
of Page is Intentionally Blank]
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Very
truly yours,
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TWISTBOX
ENTERTAINMENT, INC.
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By:
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/s/
Ian Aaron
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Name:
|
IAN
AARON
|
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Title:
|
PRES.
/CEO
|
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VALUEACT
SMALLCAP MASTER FUND, L.P.,
|
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as
Collateral Agent
|
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By:
|
/s/
David Lockwood
|
|
|
Name:
|
David
Lockwood
|
|
|
Title:
|
Managing
Member
|
Acknowledged
and agreed to as of the date first above written:
EAST
WEST BANK
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By:
|
/s/
Phillip Leung
|
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Phillip
Leung, SVP
|
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TRADEMARK
SECURITY AGREEMENT
This
Trademark Security Agreement (this “
Trademark
Security Agreement
”),
dated
as of July 30, 2007, is made by Twistbox Entertainment, Inc., a Delaware
corporation, located at 14242 Ventura Blvd., Sherman Oaks, CA 91423 (the
“
Grantor
”),
in
favor of ValueAct SmallCap Master Fund, L.P., a British Virgin Islands limited
partnership, located at 435 Pacific Avenue, San Francisco, CA 94133, in its
capacity as collateral agent for the benefit of the Secured Parties pursuant
to
the Guarantee and Security Agreement (defined below) dated July 30, 2007 (in
such capacity, the “
Collateral
Agent
”).
WITNESSETH
:
WHEREAS,
reference is made to the Securities Purchase Agreement, dated as of July 30,
2007, among the Grantor, the Subsidiary Guarantors, and the Investor (as
amended, supplemented or otherwise modified from time to time, the “
Securities
Purchase Agreement
”);
WHEREAS,
the Investor has agreed to purchase the Senior Secured Notes from the Grantor
pursuant to, and upon the terms and subject to the conditions specified in,
the
Securities Purchase Agreement;
WHEREAS,
as a condition to the obligation of the Investor to purchase the Senior Secured
Notes under the Security Purchase Agreement, Grantor, the Subsidiary Guarantors,
Investor and the Collateral Agent have entered into a Guarantee and Security
Agreement dated July 30, 2007 (the “
Security
Agreement
”)
pursuant to which the Grantor is required to execute and deliver this Trademark
Security Agreement;
NOW,
THEREFORE, in
consideration
of the premises and as a condition to the obligation of the Investor to purchase
the Senior Secured Notes, the Grantor and the Collateral Agent hereby agree
as
follows:
SECTION
1.
Defined
Terms
.
Unless
otherwise defined herein, capitalized terms used herein have the meaning given
to them in the Security Agreement.
SECTION
2.
Grant
of Security Interest in Trademark Collateral
.
As
security for the payment or performance, as applicable, in full of the
Obligations, the Grantor hereby pledges and grants to the Collateral Agent,
for
the ratable benefit of the Secured Parties, a lien on and security interest
in
and to all of its right, title and interest in, to and under all the following
property of the Grantor, wherever located, whether now existing or hereafter
arising or acquired from time to time (all of which being hereinafter
collectively referred to as, the “
Trademark
Collateral
”):
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(a)
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all
trademarks, service marks, trade names, corporate names, company
names,
business names, fictitious business names, trade styles, trade dress,
logos, other source or business identifiers, designs and general
intangibles of like nature, now existing or hereafter adopted or
acquired,
all registrations and recordings thereof, and all registration and
recording applications filed in connection therewith, including
registrations and registration applications in the United States
Patent
and Trademark Office or any similar offices in the United States
or any
other
country,
and all extensions or renewals thereof, including those trademark
registrations and applications described on Schedule 1 attached hereto,
(ii) all goodwill associated therewith or symbolized by any of the
foregoing and (iii) all other assets, rights and interests that uniquely
reflect or embody such goodwill;
and
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[Signature
Page to Trademark Security Agreement]
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(b)
|
all
Proceeds, products, substitutions, accessions, rents and profits
of or in
respect of any of the foregoing.
|
SECTION
3.
Security
Agreement
.
The
security interest granted pursuant to this Trademark Security Agreement is
granted in conjunction with the security interest granted to the Collateral
Agent pursuant to the Security Agreement, and the Grantor hereby acknowledges
and affirms that the rights and remedies of the Collateral Agent with respect
to
the security interest in the Trademark Collateral made and granted hereby are
more fully set forth in the Security Agreement, the terms and provisions of
which are incorporated by reference herein as if fully set forth herein. In
the
event that any provision of this Trademark Security Agreement is deemed to
conflict with the Security Agreement, the provisions of the Security Agreement
shall control.
SECTION
4.
Termination
.
Upon
the full payment and performance of the Obligations and termination of the
Security Agreement, upon written request of the Grantor, the Collateral Agent
shall execute, acknowledge, and deliver to the Grantor an instrument in writing
in recordable form releasing the collateral pledge, grant, assignment, lien
on
and security interest in the Trademark Collateral under this Trademark Security
Agreement.
SECTION
5.
Governing
Law
.
THIS
TRADEMARK SECURITY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION
6.
Counterparts.
This
Trademark Security Agreement may be executed in counterparts (and by different
parties hereto on different counterparts), each of which shall constitute an
original, but all of which, when taken together, shall constitute but one
contract. Delivery of an executed counterpart of this Trademark Security
Agreement by facsimile transmission shall be as effective as delivery of a
manually executed counterpart of this Trademark Security Agreement.
[Signature
Page Follows]
IN
WITNESS WHEREOF, the Grantor has caused this Trademark Security Agreement to
be
executed and delivered by its duly authorized officer as of the date first
set
forth above.
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TWISTBOX
ENTERTAINMENT, INC.
as
Grantor
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By:
|
/s/
Ian Aaron
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Name:
IAN AARON
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Title:
PRES. / CEO
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Sworn
to and subscribed before me this
31
day of July, 2007.
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/s/
Lisa B. Cayanan
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Notary
Public
|
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[Signature
Page to Trademark Security Agreement]
IN
WITNESS WHEREOF, the Grantor has caused this Trademark Security Agreement to
be
executed and delivered by its duly authorized officer as of the date first
set
forth above.
Accepted
and Agreed:
VALUEACT
SMALLCAP MASTER FUND, L.P.
as
Collateral Agent
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By
Its General Partner,
VA
SmallCap Partners, LLC
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By:
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/s/
David Lockwood
|
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Name:
DAVID LOCKWOOD
|
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Title: MANAGING
MEMBER
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Sworn
to and subscribed before me this
1
st
day of AUGUST, 2007.
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STATE
OF CALIFORNIA
COUNTY
OF SAN FRANCISCO
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/s/
Sylvia N. Acacio
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Notary
Public
|
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[Signature
Page to Trademark Security Agreement]
SCHEDULE
1
to
TRADEMARK
SECURITY AGREEMENT
TRADEMARK
REGISTRATIONS AND APPLICATIONS
United
States Trademarks
Jurisdiction
|
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Trademark
|
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Registration
No.
(App.
No.)
|
|
Registration
Date
(App.
Date)
|
|
Record
Owner
|
|
Status/
Comments
|
United
States
|
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COMPETITION
GOES MOBILE
|
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3076001
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April
4, 2006
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Twistbox
Entertainment,
Inc.
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Registered
|
United
States
|
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PRIZE-21
FOR PRIZES
|
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3040851
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January
10, 2006
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Twistbox
Entertainment,
Inc.
|
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Registered
|
United
States
|
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TWISTBOX
ENTERTAINMENT and Design
|
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(78-958,901)
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(August
23, 2006)
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Twistbox
Entertainment,
Inc.
|
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Pending
|
Foreign
Trademarks
Jurisdiction
|
|
Trademark
|
|
Registration
No.
(App.
No.)
|
|
Registration
Date
(App.
Date)
|
|
Record
Owner
|
|
Status/
Comments
|
Canada
|
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TWISTBOX
ENTERTAINMENT
and
Design
|
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(1321869)
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October
27, 2006
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Twistbox
Entertainment, Inc.
|
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Pending
|
CTM
(EU)
|
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CHARISMATIX
|
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4022844
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January
25, 2006
|
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Charismatix
Ltd. & Co. KG
|
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Registered
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CTM
(EU)
|
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DELIGHT
ENTERTAINMENT
and
design
|
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4022745
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March
29, 2006
|
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Charismatix
Ltd. & Co. KG
|
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Registered
|
CTM
(EU)
|
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TWISTBOX
ENTERTAINMENT
and
Design
|
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005303581
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July
4, 2007
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Twistbox
Entertainment, Inc.
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Registered
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Germany
|
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BABESHUFFLE
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30452899
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December
16, 2004
|
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Charismatix
Ltd. & Co. KG
|
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Registered
|
Germany
|
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BABETRIS
|
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30452903
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December
16, 2004
|
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Charismatix
Ltd. & Co. KG
|
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Registered
|
Germany
|
|
BOMBS’N
BOOBS
|
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30452900
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December
16, 2004
|
|
Charismatix
Ltd. & Co. KG
|
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Registered
|
Germany
|
|
EROTRIX
|
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30452902
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December
16, 2004
|
|
Charismatix
Ltd. & Co. KG
|
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Registered
|
International
Register
|
|
TWISTBOX
ENTERTAINMENT
and
design
|
|
901928
|
|
September
19, 2006
|
|
Twistbox
Entertainment, Inc.
|
|
Pending
|
Jurisdiction
|
|
Trademark
|
|
Registration
No.
(App.
No.)
|
|
Registration
Date
(App.
Date)
|
|
Record
Owner
|
|
Status/
Comments
|
Brazil
|
|
TWISTBOX
ENTERTAINMENT
and
Design
|
|
(828805202)
|
|
(October
23, 2006)
|
|
Twistbox
Entertainment, Inc.
|
|
Pending
|
Brazil
|
|
TWISTBOX
ENTERTAINMENT
and
Design
|
|
(828805180)
|
|
(October
23, 2006)
|
|
Twistbox
Entertainment, Inc.
|
|
Pending
|
Brazil
|
|
TWISTBOX
ENTERTAINMENT
and
Design
|
|
(828805199)
|
|
(October
23, 2006)
|
|
Twistbox
Entertainment, Inc.
|
|
Pending
|
Argentina
|
|
TWISTBOX
ENTERTAINMENT
and
Design
|
|
(2711266)
|
|
(November
1, 2006)
|
|
Twistbox
Entertainment, Inc.
|
|
Pending
|
Argentina
|
|
TWISTBOX
ENTERTAINMENT
and
Design
|
|
(2711267)
|
|
(November
1, 2006)
|
|
Twistbox
Entertainment, Inc.
|
|
Pending
|
Argentina
|
|
TWISTBOX
ENTERTAINMENT
and
Design
|
|
(2711268)
|
|
(November
1, 2006)
|
|
Twistbox
Entertainment, Inc.
|
|
Pending
|
Chile
|
|
TWISTBOX
ENTERTAINMENT
and
Design
|
|
782585
|
|
(March
20, 2007)
|
|
Twistbox
Entertainment, Inc.
|
|
Registered
|
Chile
|
|
TWISTBOX
ENTERTAINMENT
and
Design
|
|
(748959)
|
|
(October
24, 2006)
|
|
Twistbox
Entertainment, Inc.
|
|
Pending
|
Chile
|
|
TWISTBOX
ENTERTAINMENT
and
Design
|
|
782536
|
|
March
20, 2007
|
|
Twistbox
Entertainment, Inc.
|
|
Registered
|
Colombia
|
|
TWISTBOX
ENTERTAINMENT
and
Design
|
|
332601
|
|
May
16, 2007
|
|
Twistbox
Entertainment, Inc.
|
|
Registered
|
Colombia
|
|
TWISTBOX
ENTERTAINMENT
and
Design
|
|
332600
|
|
May
16, 2007
|
|
Twistbox
Entertainment, Inc.
|
|
Registered
|
Colombia
|
|
TWISTBOX
ENTERTAINMENT
and
Design
|
|
332602
|
|
May
16, 2007
|
|
Twistbox
Entertainment, Inc.
|
|
Registered
|
Venezuela
|
|
TWISTBOX
ENTERTAINMENT
and
Design
|
|
(26866-06)
|
|
(November
15, 2006)
|
|
Twistbox
Entertainment, Inc.
|
|
Pending
|
Venezuela
|
|
TWISTBOX
ENTERTAINMENT
and
Design
|
|
(26867-06)
|
|
(November
15, 2006)
|
|
Twistbox
Entertainment, Inc.
|
|
Pending
|
Venezuela
|
|
TWISTBOX
ENTERTAINMENT
and
Design
|
|
(26868-06)
|
|
(November
15, 2006)
|
|
Twistbox
Entertainment, Inc.
|
|
Pending
|
Jurisdiction
|
|
Trademark
|
|
Registration
No.
(App.
No.)
|
|
Registration
Date
(App.
Date)
|
|
Record
Owner
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Status/
Comments
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Mexico
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TWISTBOX
ENTERTAINMENT
and
Design
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977723
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March
22, 2007
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Twistbox
Entertainment,
Inc.
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Registered
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Mexico
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TWISTBOX
ENTERTAINMENT
and
Design
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982555
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April
26, 2007
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Twistbox
Entertainment,
Inc.
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Registered
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Mexico
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TWISTBOX
ENTERTAINMENT
and
Design
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977724
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March
22, 2007
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Twistbox
Entertainment,
Inc.
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Registered
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COPYRIGHT
SECURITY AGREEMENT
This
Copyright Security Agreement (this
"Copyright
Security Agreement")
,
dated
as
of
July
30,
2007, is made by Twistbox Entertainment, Inc., a Delaware corporation, located
at
14242
Ventura Blvd., Sherman Oaks, CA 91423 (the
"Grantor"),
in
favor
of ValueAct
SmallCap
Master Fund,
L.P.,
a
British
Virgin Islands limited partnership, located at 435 Pacific
Avenue,
San Francisco, CA 94133, in its capacity as collateral agent for the benefit
of
the Secured Parties pursuant to the Guarantee and Security Agreement (defined
below) dated July
30,
2007
(in such capacity, the
"Collateral
Agent")
.
WITNESSETH
:
WHEREAS,
reference is made to the Securities Purchase Agreement, dated as of July 30,
2007,
among the Grantor, the Subsidiary Guarantors, and the Investor (as amended,
supplemented
or otherwise modified from time to time, the
"Securities
Purchase Agreement"
);
WHEREAS,
the Investor has agreed to purchase the Senior Secured Notes from the
Grantor
pursuant to, and upon
the
terms and subject to the conditions specified in, the Securities
Purchase
Agreement;
WHEREAS,
as a condition to the obligation of the Investor to purchase the Senior
Secured
Notes under the Security Purchase Agreement, Grantor, the Subsidiary Guarantors,
Investor and the Collateral Agent have entered into a Guarantee and Security
Agreement dated
July
30,
2007 (the
"Security
Agreement"
)
pursuant
to which the Grantor is required to execute
and
deliver this Copyright Security Agreement;
NOW,
THEREFORE, in consideration of the premises and as a condition to the
obligation
of the Investor to purchase the Senior Secured Notes, the Grantor and the
Collateral
Agent
hereby agree as follows:
SECTION
1.
Defined
Terms
.
Unless
otherwise defined herein, capitalized terms used herein have the meaning given
to them in the Security Agreement.
SECTION
2.
Grant
of Security Interest in Copyright Collateral
.
As
security for the
payment
or performance, as applicable, in full of the Obligations, the Grantor hereby
pledges and
grants
to
the Collateral Agent, for the ratable benefit of the Secured Parties, a lien
on
and security interest in and to all of its right, title and interest in, to
and
under all the following
property
of the Grantor, wherever located, whether now existing or hereafter arising
or
acquired
from
time
to time (all of which being hereinafter collectively referred to as, the
"
Copyright
Collateral"
):
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(a)
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(i)
all copyright rights in any work subject to the copyright laws of
the
United
States
or any other country, whether as author, assignee, transferee or
otherwise,
and
(ii) all registrations and applications for registration of any such
copyright in the United States or any other country, including
registrations, recordings,
supplemental
registrations and pending applications for registration in the United
States
Copyright Office or any similar offices in the United States or any
other
country,
including those copyright rights described on Schedule 1 attached
hereto;
and
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[Signature
Page to Copyright Security Agreement]
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(b)
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all
Proceeds, products, substitutions, accessions, rents and profits
of or in
respect
of
any of the foregoing.
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SECTION
3.
Security
Agreement
.
The
security interest granted pursuant to this Copyright Security Agreement is
granted in conjunction with the security interest granted to the Collateral
Agent pursuant to the Security Agreement, and the Grantor hereby acknowledges
and affirms that the rights and remedies of the Collateral Agent with respect
to
the security interest in
the
Copyright Collateral made and granted hereby are more fully set forth in the
Security
Agreement,
the terms and provisions of which are incorporated by reference herein as if
fully set
forth
herein. In the event that any provision of this Copyright Security Agreement
is
deemed to conflict with the Security Agreement, the provisions of the Security
Agreement shall control.
SECTION
4.
Termination
.
Upon the
full payment and performance of the Obligations
and
termination of the Security Agreement, upon written request of the Grantor,
the
Collateral
Agent
shall execute, acknowledge, and deliver to the Grantor an instrument in writing
in
recordable
form releasing the collateral pledge, grant, assignment, lien on and security
interest in the Copyright Collateral under this Copyright Security
Agreement.
SECTION
5.
Governing
Law
.
THIS
COPYRIGHT SECURITY AGREEMENT
SHALL
BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF
THE
STATE OF NEW YORK.
SECTION
6.
Counterparts
.
This
Copyright Security Agreement may be executed in
counterparts
(and by different parties hereto on different counterparts), each of which
shall
constitute
an original, but all of which,
when
taken
together, shall constitute but one contract.
Delivery
of an executed counterpart of this Copyright Security Agreement by facsimile
transmission shall be as effective as delivery of a manually executed
counterpart of this
Copyright
Security Agreement.
[Signature
Page Follows]
IN
WITNESS
WHEREOF, the Grantor has caused this Copyright Security Agreement to
be
executed and delivered by its duly authorized officer as of the date first
set
forth above.
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TWISTBOX
ENTERTAINMENT, INC.
as
Grantor
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By:
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/s/
Ian
Aaron
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Name:
IAN
AARON
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Title:
PRES. /CEO
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Sworn to and subscribed before me this
31
day
of
July
,
2007
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/s/
Lisa B. Cayanan
Notary
Public
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[Signature
Page to Copyright Security Agreement]
IN
WITNESS
WHEREOF, the Grantor has caused this Copyright Security Agreement to
be
executed and delivered by its duly authorized officer as of the date first
set
forth above.
Accepted
and Agreed:
VALUEACT
SMALLCAP MASTER FUND,
L.P.
as
Collateral Agent
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By
Its General Partner, VA SmallCap Partners, LLC
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By:
/s/ David Lockwood
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Name:
DAVID LOCKWOOD
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Title:
MANAGING
MEMBER
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Sworn
to
and subscribed before
me
this
1st
day
of AUGUST, 2007.
/s/
Sylvia N. Acacio
Notary
Public
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STATE
OF CALIFORNIA
COUNTY
OF SAN FRANASCO
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[Signature
Page to Copyright Security Agreement]
SCHEDULE
1
to
COPYRIGHT
SECURITY AGREEMENT
COPYRIGHT
REGISTRATIONS AND APPLICATIONS
Jurisdiction
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Title
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Registration
No.
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Registration
Date
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Status/
Comments
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United
States
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Content
rating matrix
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TX6507607
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10/06/2006
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Registered
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GUARANTY
This
Guaranty (the “
Guaranty
”)
is
given as of February 12, 2008, by
MANDALAY
MEDIA, INC
.,
a
Delaware corporation (“
Guarantor
”)
to
VALUEACT SMALLCAP MASTER FUND, L.P. (“
ValueAct
”).
WHEREAS,
Guarantor has entered into an Agreement and Plan of Merger dated as of December
31, 2007, by and among Guarantor, Twistbox Acquisition, Inc., a Delaware
corporation and a wholly-owned subsidiary of Guarantor, Twistbox Entertainment,
Inc. (the “
Company
”)
and
Adi McAbian and Spark Capital, L.P. as representatives of the stockholders
of
the Company, as the same may be amended from time to time (the “
Merger
Agreement
”),
pursuant to which Guarantor will acquire all of the capital stock of the
Company;
WHEREAS,
the Company is indebted to ValueAct in the original principal amount of
$16,500,000 pursuant to a Senior Secured Note due January 30, 2010, dated July
30, 2007, as amended (the “
Note
”);
WHEREAS,
each of ValueAct, Guarantor and the Company desire to amend the Note;
and
WHEREAS,
ValueAct is willing to enter into such amendment on the condition that the
Guarantor enter into this Guaranty
.
NOW,
THEREFORE, the Guarantor, in consideration of the foregoing, agrees as
follows
:
1.
Guaranty
.
Subject
to the other terms and the limitations contained in this Guaranty, the Guarantor
does hereby guarantee to ValueAct the payment by the Company of up to $8,250,000
of principal (the “
Guaranteed
Amount
”)
under
the Note in accordance in all material respects with the terms, conditions
and
limitations contained in the Note (the “
Obligations
”).
In
the event of a default in payment of the Obligations by the Company under the
Note, upon receipt of written notice of such default from ValueAct (which notice
shall specify the nature of such default and any dispute between ValueAct and
the Company with respect thereto), the Guarantor shall forthwith pay the same,
provided
,
however
,
that
Guarantor may (or may cause the Company) to cure such default within a period
of
5 business days after the date on which written notice specifying such default
shall have been given by ValueAct to the Guarantor.
The
Guarantor’s obligations under this Guaranty shall be subject to the limitation
that in no event shall the Guarantor be required to expend more than the
Guaranteed Amount
in
the
performance of its obligations under this Guaranty and in no event shall the
Guarantor be required to expend any amount with respect to interest, fees,
costs, expenses or other amounts.
2.
Scope
and Duration of Guaranty
.
Subject
to the limitations set forth herein, this Guaranty shall continue in full force
and effect until the Company or the Guarantor shall have satisfactorily
performed or fully discharged the Obligations. Further, this Guaranty (a) shall
remain in full force and effect without regard to, and shall not be affected
or
impaired by any invalidity, irregularity or unenforceability in whole or in
part
of this Guaranty, and (b) shall be discharged only by complete performance
of
the undertakings contained herein (subject to the limitations set forth herein);
provided, that the Guarantor shall have the full benefit of all defenses,
setoffs, counterclaims, reductions, diminution or limitations of any Obligations
available to the Company pursuant to or arising from the Note
or
otherwise
.
3.
Waivers
by Guarantor
.
The
Guarantor hereby waives, as a condition precedent to the performance of its
obligations hereunder, (a) notice of acceptance hereof, (b) any requirement
that, after a default by the Company, ValueAct exhaust any right, power or
remedy or proceed against the Company under the Note or any other agreement
or
instrument referred to therein, and (c) any defense arising by reason of
disability, lack of authority or power. Without limiting the generality of
the
foregoing, it is agreed that the occurrence of any one or more of the following
shall not affect the liability of the Guarantor hereunder:
(i)
at
any
time or from time to time, without notice to the Guarantor, the time for any
performance of or compliance with any of the Obligations shall be
extended;
or
(
ii
)
any
of
the Obligations shall be modified, supplemented or amended in any respect in
accordance with the terms of the Note.
Notwithstanding anything contained herein to the contrary, no modification,
supplement or amendment to the Note shall be made without the Guarantor’s prior
written consent.
4.
Subrogation
.
The
Guarantor hereby agrees that until the
payment
and discharge
in full
and/or
waiver of performance
of the
Obligations, it shall not exercise any right or remedy arising by reason of
the
performance of any of its obligations under this Guaranty, whether by
subrogation or otherwise, against the Company.
5.
Transfer
of Guaranty
.
Upon
written notice to the Guarantor, ValueAct may transfer its rights under this
Guaranty to any party to whom it sells, transfers or otherwise disposes of
all
or any part of the Note.
6.
Miscellaneous
.
6.1
Limitation
.
The
Guarantor’s obligations under this Guaranty are to pay the Obligations of the
Company under the Note (subject to the limitations set forth in this Guaranty)
and no others. In no event shall the Guarantor be liable for any damages, direct
or indirect, consequential, punitive or otherwise, as a result of the Company’s
failure to perform any of its obligations under the Note.
Guarantor’s liability shall be limited solely to
actual
and direct damages determined by a court of competent jurisdiction in a
proceeding not subject to further appeal to have arisen
primarily and directly as a result of Guarantor’s failure to perform its
obligations under this Guaranty.
6.2
Governing
Law
.
This
Guaranty is to be governed by and construed in accordance with the laws of
the
State of Delaware, without regard to its conflicts of laws rules.
6.3
Notices
.
All
notices and other communications provided for herein shall be in writing and
shall be delivered by hand or overnight courier service, mailed by certified
or
registered mail or sent by facsimile transmission, as follows:
Guarantor:
Mandalay
Media, Inc.
2121
Avenue of the Stars, Suite 2550
Los
Angeles, California 90067
Attention:
James Lefkowitz
with
a
copy to:
Kenneth
R. Koch, Esq.
Mintz
Levin Cohn Ferris Glovsky and Popeo, P.C.
666
Third
Avenue
New
York,
New York 10017
ValueAct:
435
Pacific Avenue, 4
th
Fl.
San
Francisco, CA 94133
Attention:
Jimmy Price
Either
the Guarantor or ValueAct may change its address for notices and other
communications hereunder by notice to the other. Each such notice or other
communication shall for all purposes of this Guaranty be treated as effective
or
having been given (i) when delivered if delivered personally, (ii) if sent
by
registered or certified mail, at the earlier of its receipt or three business
days after registration or certification thereof, (iii) if sent by overnight
courier, on the next business day after the same has been deposited with a
nationally recognized courier service for next day delivery, or (iv) when sent
by confirmed facsimile, on the day sent (if a business day) if sent during
normal business hours of the recipient, and if not, then on the next business
day.
6.4
Amendments
and Waivers
.
No
amendment, modification, termination or waiver of any provision of this Guaranty
or consent to any departure by the Guarantor therefrom shall be effective absent
the written agreement of the Guarantor and ValueAct.
6.5
Headings
.
Section
and subsection headings contained in this Guaranty are inserted for convenience
of reference only, shall not be deemed to be a part of this Guaranty for any
purpose, and shall not in any way define or affect the meaning, construction
or
scope of any of the provisions hereof.
6.6
Waiver
of Jury Trial
.
EACH
PARTY HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS GUARANTY OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY).
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, the Guarantor has duly executed and delivered this Guaranty
and
ValueAct has executed its acceptance of this Guaranty effective as of the date
first written above.
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MANDALAY
MEDIA, INC
.
By:
/s/
Jay Wolf
Name:
Jay Wolf
Title:
Chief Financial Officer
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Accepted
:
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VALUEACT
SMALLCAP MASTER FUND, L.P.,
By
VA Smallcap Partners, LLC, its General Partner
By:
/s/
David Lockwood
Name:
David Lockwood
Title:
Managing Member
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TERMINATION
AGREEMENT
This
Termination Agreement (the “Agreement”) is dated as of February 12, 2008 and is
entered into between TWISTBOX ENTERTAINMENT, INC., a Delaware corporation (the
“Company”) and VALUEACT SMALLCAP MASTER FUND, L.P. (the “Holder”).
WHEREAS,
reference is made to that certain Class A Warrant No. WR-1, dated July 30,
2007,
issued by the Company to the Holder (the “Warrant”). Capitalized terms used and
not otherwise defined herein shall have the meanings ascribed to them in the
Warrant;
WHEREAS,
reference is made to that certain Agreement and Plan of Merger dated as of
December 31, 2007, by and among Mandalay Media, Inc., a Delaware corporation
(“Parent”), Twistbox Acquisition, Inc., a Delaware corporation and a
wholly-owned subsidiary of Parent, the Company and Adi McAbian and Spark
Capital, L.P., as representatives of the stockholders of the Company, as the
same may be amended from time to time (the “Merger Agreement”); and
WHEREAS,
in order to consummate the transactions contemplated by the Merger Agreement,
the undersigned desire to terminate the Warrant as set forth herein.
NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency
of
which are hereby acknowledged, the parties hereto agree as follows:
1.
Each
of
the undersigned hereby agrees that, effective immediately, the Warrant shall
be
terminated and all of the terms and provisions contained therein shall be of
no
further force and effect.
2.
This
Agreement may be executed in one or more counterparts, and by facsimile, each
of
which shall constitute an original agreement, but which together shall
constitute one in the same instrument.
[SIGNATURE
PAGE TO FOLLOW]
IN
WITNESS WHEREOF, the undersigned have executed this Termination Agreement as
of
the date first written above.
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TWISTBOX
ENTERTAINMENT, INC.
By:
/s/ Ian Aaron
Name:
Ian Aaron
Title:
CEO
VALUEACT
SMALLCAP MASTER FUND, L.P.,
By
VA Smallcap Partners, LLC, its General Partner
By:
/s/ David Lockwood
Name:
Managing Member
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WAIVER
TO THE GUARANTEE AND SECURITY AGREEMENT
This
WAIVER
TO THE GUARANTEE AND SECURITY AGREEMENT
(this
“
Waiver
”)
relates to that Guarantee and Security Agreement, dated July 30, 2007 (the
“
Guarantee
”)
by and
among TWISTBOX ENTERTAINMENT, INC., a Delaware corporation (the “
Company
”),
certain subsidiaries of the Company and VALUEACT SMALLCAP MASTER FUND, L.P.
(the
“
Investor
”)
and is
made and entered into as of February 12, 2008 by and between the Company and
the
Investor. Capitalized terms used and not otherwise defined in this Waiver are
used herein as defined in the Guarantee.
W
I T N E S S E T H
:
WHEREAS,
the Company and the Investor desire to waive compliance with certain provisions
of the Guarantee.
WHEREAS,
Article 8 of the Guarantee provides that the terms thereof may be amended or
waived only pursuant to a written instrument executed by the Grantors and the
holders of a majority of the aggregate principal amount of the Senior Secured
Notes then outstanding.
WHEREAS,
the Investor owns 100% of the aggregate principal amount of the Senior Secured
Notes.
NOW,
THEREFORE, in consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
the
parties hereby agree as follows:
1.
Waiver
of Section 3.1(b)(i)(C)
.
The
Investor hereby waives compliance with the covenant set forth in Section
3.1(b)(i)(C) of the Guaranty solely with respect to the transactions
contemplated by the Agreement and Plan of Merger dated as of December 31, 2007,
by and among Mandalay Media, Inc., a Delaware corporation (“
Parent
”),
Twistbox Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary
of Parent, the Company and Adi McAbian and Spark Capital, L.P., as
representatives of the stockholders of the Company, as the same may be amended
from time to time (the “
Merger
Agreement
”)
2.
Effectiveness
of this Waiver
.
This
Waiver shall have no force or effect until immediately prior to the Effective
Time (as defined in the Merger Agreement).
3.
Full
Force and Effect
.
Except
as modified by this Waiver, all other terms and conditions in the Guarantee
shall remain in full force and effect.
4.
Effect
.
Unless
the context otherwise requires, the Guarantee and this Waiver shall be read
together and shall have effect as if the provisions of the Guarantee and this
Waiver were contained in one agreement. After the effective date of this Waiver,
all references in the Guarantee “this Guarantee and Security Agreement,”
“hereto,” “hereof,” “hereunder” or words of like import referring to the
Guarantee shall mean the Guarantee as modified by this Waiver.
5.
Counterparts
.
This
Waiver may be executed in separate counterparts, all of which taken together
shall constitute a single instrument.
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, the parties hereto have executed this Waiver effective as
of
the day and year first above written.
THE
COMPANY
:
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TWISTBOX
ENTERTAINMENT, INC.
By:
/s/
Ian Aaron
Name:
Ian Aaron
Title:
CEO
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INVESTOR:
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VALUEACT
SMALLCAP MASTER FUND, L.P.,
By
VA Smallcap Partners, LLC, its General Partner
By:
/s/
David Lockwood
Name:
David Lockwood
Title:
Managing Member
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STANDARD
INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE - NET
AIR
COMMERCIAL REAL ESTATE ASSOCIATION
1.
Basic
Provisions (“ Basic Provisions”).
1.1
Parties: This Lease (“Lease”), dated for reference purposes only July 1, 2005,
is made by and between Berkshire Holdings, LLC (“Lessor”) and Waat Corp., a
California corporation (“Lessee”), (collectively the “Parties”, or individually
a “Party”).
1.2
(a)
Premises: That certain portion of the Project (as defined below), including
all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 14242 Ventura Boulevard, Suite 300
located in the City of Sherman Oaks, County of Los Angeles, State of California,
with zip code 91423, as outlined on Exhibit A attached hereto (“Premises”) and
generally described as (describe briefly the nature of the Premises): Office
space
In
addition to Lessee’s rights to use and occupy the Premises as hereinafter
specified, Lessee shall have non-exclusive rights to the any utility raceways
of
the building containing the Premises (“Building”) and to the common Areas (as
defined in Paragraph 2.7 below), but shall not have any rights to the roof
or
exterior walls of the Building or to any other buildings in the Project. The
Premises, the Building, the Common Areas, the land upon which they are located,
along with all other buildings and improvements thereon, are herein collectively
referred to as the “Project.” (See also Paragraph 2)
1.2
(b)
Parking: 200 unreserved vehicle parking spaces (“Unreserved Parking Spaces”) and
30 reserved vehicle parking spaces (“Reserved Parking Spaces”). (See also
Paragraph 2.6)
1.3
Term:
five years and zero months (“Original Term”) commencing July 15, 2005
(“Commencement Date”) and ending July 15, 2010 (“Expiration Date”). (See also
Paragraph 3)
1.4
Early
Possession: N/A (“Early Possession Date”).
(See
also
Paragraphs 3.2 and 3.3)
1.5
Base
Rent: $21,000.00 per month (“Base Rent”), payable on the first day of each month
commencing July 15, 2005 (See also Paragraph 4)
¨
If this
box is checked, there are provisions in this Lease for the Base Rent to be
adjusted.
1.6
Lessee’s Share of Common Area Operating Expenses: Thirty-two percent (32%)
(“Lessee’s Share”). Lessee’s Share has been calculated by dividing the
approximate square footage of the Premises by the approximate square footage
of
the Project. In the event that the size of the Premises and/or the Project
are
modified during the term of this Lease, Lessor shall recalculate Lessee’s Share
to reflect such modification.
1.7
Base
Rent and Other Monies Paid Upon Execution:
(a)
Base
Rent: $10, 500.00 for the period July 15, 2005 - August 15, 2005
(b)
Common
Area Operating Expenses: $N/A for the period ___________
(c)
Security
Deposit: $21,000.00 (“Security Deposit”). (See also Paragraph 5)
(d)
Other:
$N/A for_______________________________________
(e)
Total
Due
Upon Execution of this Lease: $31,500.00
1.8
Agreed Use: Office use and no other purpose (See also Paragraph 6)
1.9
Insuring Party. Lessor is the “Insuring Party”. (See also Paragraph
8)
1.10
Real
Estate Brokers: (See also Paragraph 15) N/A
(a)
Representation: The following real estate brokers (the “Brokers”) and brokerage
relationships exist in this transaction
(check
applicable boxes):
þ
N/A
represents Lessor exclusively (“Lessor’s Broker”);
þ
N/A
represents Lessee exclusively (“Lessee’s Broker”); or
¨
_________________ represents both Lessor and Lessee (“Dual
Agency”).
(b)
Payment to Brokers: Upon execution and delivery of this Lease by both Parties,
Lessor shall pay to the Brokers the brokerage fee agreed to in a separate
written agreement (or if there is no such agreement, the sum of N/A or ___
% of
the total Base Rent for the brokerage services rendered by the
Brokers).
1.11
Guarantor. The obligations of the Lessee under this Lease are to be guaranteed
by N/A (“Guarantor”). (See also Paragraph 37)
1.12
Attachments. Attached hereto are the following, all of which constitute a part
of this Lease:
þ
an
Addendum consisting of Paragraphs 1 through 1;
þ
a site
plan depicting the Premises;
¨
a site
plan depicting the Project;
¨
a
current set of the Rules and Regulations for the Project:
¨
a
current set of the Rules and Regulations adopted by the owners’
association;
¨
a Work
Letter;
¨
other
(specify)
2.
Promises.
2.1
Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor,
the Premises, for the term, at the rental, and upon all of the terms, covenants
and conditions set forth in this Lease. Unless otherwise provided herein, any
statement of size set forth in this Lease, or that may have been used in
calculating Rent, is an approximation which the Parties agree is reasonable
and
any payments based thereon are not subject to revision whether or not the actual
size is more or less. NOTE: Lessee is advised to verify the actual size prior
to
executing this Lease.
2.2
Condition. Lessor shall deliver that portion of the Premises contained within
the Building (“Unit”) to Lessee broom clean and free of debris on the
Commencement Date or the Early Possession Date, whichever first occurs (“Start
Date”), and, so long as the required service contracts described in Paragraph
7.1(b) below are obtained by Lessee and in effect within thirty days following
the Start Date, warrants that the existing electrical, plumbing, fire sprinkler,
lighting, heating, ventilating and air conditioning systems (“HVAC”), loading
doors, sump pumps, if any, and all other such elements in the Unit, other than
those constructed by Lessee, shall be in good operating condition on said date,
that the structural elements of the roof, bearing walls and foundation of the
Unit shall be free of material defects, and that the Unit does not contain
hazardous levels of any mold or fungi defined as toxic under applicable state
or
federal law. If a non-compliance with such warranty exists as of the Start
Date,
or if one of such systems or elements should malfunction or fail within the
appropriate warranty period, Lessor shall, as Lessor’s sole obligation with
respect to such matter, except as otherwise provided in this Lease, promptly
after receipt of written notice from Lessee setting forth with specificity
the
nature and extent of such non-compliance, malfunction or failure, rectify same
at Lessor’s expense. The warranty periods shall be as follows: (i) 6 months as
to the HVAC systems, and (ii) 30 days as to the remaining systems and other
elements of the Unit. If Lessee does not give Lessor the required notice within
the appropriate warranty period, correction of any such non-compliance,
malfunction or failure shall be the obligation of Lessee at Lessee’s sole cost
and expense (except for the repairs to the fire sprinkler systems, roof,
foundations, and/or bearing walls - see Paragraph 7).
2.3
Compliance. Lessor warrants that to the best of its knowledge the improvements
on the Premises and the Common Areas comply with the building codes that were
in
effect at the time that each such improvement, or portion thereof, was
constructed, and also with all applicable laws, covenants or restrictions of
record, regulations, and ordinances in effect on the Start Date (“Applicable
Requirements”). Said warranty does not apply to the use to which Lessee will put
the Premises, modifications which may be required by the Americans with
Disabilities Act or any similar laws as a result of Lessee’s use (see Paragraph
49), or to any Alterations or Utility Installations (as defined in Paragraph
7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for
determining whether or not the Applicable Requirements and especially the zoning
are appropriate for Lessee’s intended use, and acknowledges that past uses of
the Premises may no longer be allowed. If the Premises do not comply with said
warranty, Lessor shall, except as otherwise provided, promptly after receipt
of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor’s expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within 6
months following the Start Date, correction of that non-compliance shall be
the
obligation of Lessee at Lessee’s sole cost and expense. If the Applicable
Requirements are hereafter changed so as to require during the term of this
Lease the construction of an addition to or an alteration of the Unit, Premises
and/or Building, the remediation of any Hazardous Substance, or the
reinforcement or other physical modification of the Unit, Premises and/or
Building (“Capital Expenditure”), Lessor and Lessee shall allocate the cost of
such work as follows:
(a)
Subject to Paragraph 23(c) below, if such Capital Expenditures are required
as a
result of the specific and unique use of the Premises by Lessee as compared
with
uses by tenants in general, Lessee shall be fully responsible for the cost
thereof, provided, however that if such Capital Expenditure is required during
the last 2 years of this Lease and the cost thereof exceeds 6 months’ Base Rent,
Lessee may instead terminate this Lease unless Lessor notifies Lessee, in
writing, within 10 days after receipt of Lessee’s termination notice that Lessor
has elected to pay the difference between the actual cost thereof and the amount
equal to 6 months’ Base Rent. If Lessee elects termination, Lessee shall
immediately cease the use of the Premises which requires such Capital
Expenditure and deliver to Lessor written notice specifying a termination date
at least 90 days thereafter. Such termination date shall however, in no event
be
earlier than the last day that Lessee could legally utilize the Premises without
commencing such Capital Expenditure.
(b)
If
such Capital Expenditure is not the result of the specific and unique use of
the
Premises by Lessee (such as, governmentally mandated seismic modifications),
then Lessor and Lessee shall allocate the obligation to pay for the portion
of
such costs reasonably attributable to the Premises pursuant to the formula
set
out in Paragraph 7.1(d); provided, however, that if such Capital Expenditure
is
required during the last 2 years of this Lease or if Lessor reasonably
determines that it is not economically feasible to pay its share thereof, Lessor
shall have the option to terminate this Lease upon 90 days prior written notice
to Lessee unless Lessee notifies Lessor, in writing, within 10 days after
receipt of Lessor’s termination notice that Lessee will pay for such Capital
Expenditure. If Lessor does not elect to terminate, and fails to tender its
share of any such Capital Expenditure, Lessee may advance such funds and deduct
same, with Interest, from Rent until Lessor’s share of such costs have been
fully paid. If Lessee is unable to finance Lessor’s share, or if the balance of
the Rent due and payable for the remainder of this Lease is not sufficient
to
fully reimburse Lessee on an offset basis, Lessee shall have the right to
terminate this Lease upon 30 days written notice to Lessor.
(c)
Notwithstanding the above, the provisions concerning Capital Expenditures are
intended to apply only to non-voluntary, unexpected, and new Applicable
Requirements. If the Capital Expenditures are instead triggered by Lessee as
a
result of an actual or proposed change in use, change in intensity of use,
or
modification to the Premises then, and in that event, Lessee shall either:
(i)
immediately cease such changed use or intensity of use and/or take such other
steps as may be necessary to eliminate the requirement for such Capital
Expenditure, or (ii) complete such Capital Expenditure at its own expense.
Lessee shall not have any right to terminate this Lease.
2.4
Acknowledgements. Lessee acknowledges that: (a) it has been advised by Lessor
and/or Brokers to satisfy itself with respect to the condition of the Premises
(including but not limited to the electrical, HVAC and fire sprinkler systems,
security, environmental aspects, and compliance with Applicable Requirements
and
the Americans with Disabilities Act), and their suitability for Lessee’s
intended use, (b) Lessee has made such investigation as it deems necessary
with
reference to such matters and assumes all responsibility therefor as the same
relate to its occupancy of the Premises, and (c) neither Lessor, Lessor’s
agents, nor Brokers have made any oral or written representations or warranties
with respect to said matters other than as set forth in this Lease. In addition,
Lessor acknowledges that: (i) Brokers have made no representations, promises
or
warranties concerning Lessee’s ability to honor the Lease or suitability to
occupy the Premises, and (ii) it is Lessor’s sole responsibility to investigate
the financial capability and/or suitability of all proposed
tenants.
2.5
Lessee as Prior Owner/Occupant. The warranties made by Lessor in Paragraph
2
shall be of no force or effect if immediately prior to the Start Date Lessee
was
the owner or occupant of the Premises. In such event, Lessee shall be
responsible for any necessary corrective work.
2.6
Vehicle Parking. Lessee shall be entitled to use the number of parking spaces
specified in Paragraph 1.2(b) on those portions of the Common Areas designated
from time to time by Lessor for parking. Lessee shall not use more parking
spaces than said number. Said parking spaces shall be used for parking by
vehicles no larger than full-size passenger automobiles or pick-up trucks,
herein called “Permitted Size Vehicles.” Lessor may regulate the loading and
unloading of vehicles by adopting Rules and Regulations as provided in Paragraph
2.9. No vehicles other than Permitted Size Vehicles may be parked in the Common
Area without the prior written permission of Lessor. In addition:
(a)
Lessee shall not permit or allow any vehicles that belong to or are controlled
by Lessee or Lessee’s employees, suppliers, shippers, customers, contractors or
invitees to be loaded, unloaded, or parked in areas other than those designated
by Lessor for such activities.
(b)
Lessee shall not service or store any vehicles in the Common Areas.
(c)
If
Lessee permits or allows any of the prohibited activities described in this
Paragraph 2.6, then Lessor shall have the right, without notice, in addition
to
such other rights and remedies that it may have, to remove or tow away the
vehicle involved and charge the cost to Lessee, which cost shall be immediately
payable upon demand by Lessor.
2.7
Common Areas - Definition. The term “Common Areas” is defined as all areas and
facilities outside the Premises and within the exterior boundary line of the
Project and interior utility raceways and installations within the Unit that
are
provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, Lessee and other tenants of the Project and their
respective employees, suppliers, shippers, customers, contractors and invitees,
including parking areas, loading and unloading areas, trash areas, roadways,
walkways, driveways and landscaped areas
2.8
Common Areas - Lessee’s Rights. Lessor grants to Lessee, for the benefit of
Lessee and its employees, suppliers, shippers, contractors, customers and
invitees. during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Lessor
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Project. Under no circumstances shall
the
right herein granted to use the Common Areas be deemed to include the right
to
store any property, temporarily or permanently, in the Common Areas. Any such
storage shall be permitted only by the prior written consent of Lessor or
Lessor’s designated agent, which consent may be revoked at any time. In the
event that any unauthorized storage shall occur then Lessor shall have the
right, without notice, in addition to such other rights and remedies that it
may
have, to remove the property and charge the cost to Lessee, which cost shall
be
immediately payable upon demand by Lessor.
2.9
Common Areas - Rules and Regulations. Lessor or such other person(s) as Lessor
may appoint shall have the exclusive control and management of the Common Areas
and shall have the right, from time to time, to establish, modify, amend and
enforce reasonable rules and regulations (“Rules and Regulations”) for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of the Building and the Project and
their invitees. Lessee agrees to abide by and conform to all such Rules and
Regulations, and shall use its best efforts to cause its employees, suppliers,
shippers, customers, contractors and invitees to so abide and conform. Lessor
shall not be responsible to Lessee for the non-compliance with said Rules and
Regulations by other tenants of the Project.
2.10
Common Areas - Changes. Lessor shall have the right, in Lessor’s sole
discretion, from time to time:
(a)
To
make changes to the Common Areas, including, without limitation, changes in
the
location, size, shape and number of driveways, entrances, parking spaces,
parking areas, loading and unloading areas, ingress, egress, direction of
traffic, landscaped areas, walkways and utility raceways;
(b)
To
close temporarily any of the Common Areas for maintenance purposes so long
as
reasonable access to the Premises remains available;
(c)
To
designate other land outside the boundaries of the Project to be a part of
the
Common Areas;
(d)
To
add additional buildings and improvements to the Common Areas;
(e)
To
use the Common Areas while engaged in making additional improvements, repairs
or
alterations to the Project, or any portion thereof; and
(f)
To do
and perform such other acts and make such other changes in, to or with respect
to the Common Areas and Project as Lessor may, in the exercise of sound business
judgment, deem to be appropriate.
3.
Term.
3.1
Term.
The Commencement Date, Expiration Date and Original Term of this Lease are
as
specified in Paragraph 1.3.
3.2
Early
Possession. If Lessee totally or partially occupies the Premises prior to the
Commencement Date, the obligation to pay Base Rent shall be abated for the
period of such early possession. All other terms of this Lease (including but
not limited to the obligations to pay Lessee’s Share of Common Area Operating
Expenses, Real Property Taxes and insurance premiums and to maintain the
Premises) shall be in effect during such period. Any such early possession
shall
not affect the Expiration Date.
3.3
Delay
In Possession. Lessor agrees to use its best commercially reasonable efforts
to
deliver possession of the Premises to Lessee by the Commencement Date. If,
despite said efforts, Lessor is unable to deliver possession as agreed, Lessor
shall not be subject to any liability therefor, nor shall such failure affect
the validity of this Lease or change the Expiration Date. Lessee shall not,
however, be obligated to pay Rent or perform its other obligations until Lessor
delivers possession of the Premises and any period of rent abatement that Lessee
would otherwise have enjoyed shall run from the date of the delivery of
possession and continue for a period equal to what Lessee would otherwise have
enjoyed, but minus any days of delay caused by the acts or omissions of Lessee.
If possession is not delivered within 60 days after the Commencement Date,
Lessee may, at its option, by notice in writing within 10 days after the end
of
such 60 day period, cancel this Lease, in which event the Parties shall be
discharged from all obligations hereunder. If such written notice is not
received by Lessor within said 10 day period, Lessee’s right to cancel shall
terminate. Except as otherwise provided, if possession is not tendered to Lessee
by the Start Date and Lessee does not terminate this Lease, as aforesaid, any
period of rent abatement that Lessee would otherwise have enjoyed shall run
from
the date of delivery of possession and continue for a period equal to what
Lessee would otherwise have enjoyed under the terms hereof, but minus any days
of delay caused by the acts or omissions of Lessee. If possession of the
Premises is not delivered within 4 months after the Commencement Date, this
Lease shall terminate unless other agreements are reached between Lessor and
Lessee, in writing.
3.4
Lessee Compliance. Lessor shall not be required to tender possession of the
Premises to Lessee until Lessee complies with its obligation to provide evidence
of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee shall
be
required to perform all of its obligations under this Lease from and after
the
Start Date, including the payment of Rent, notwithstanding Lessor’s election to
withhold possession pending receipt of such evidence of insurance. Further,
if
Lessee is required to perform any other conditions prior to or concurrent with
the Start Date, the Start Date shall occur but Lessor may elect to withhold
possession until such conditions are satisfied.
4.1
Rent
Defined. All monetary obligations of Lessee to Lessor under the terms of this
Lease (except for the Security Deposit) are deemed to be rent
(“Rent”).
4.2
Common Area Operating Expenses. Lessee shall pay to Lessor during the term
hereof, in addition to the Base Rent, Lessee’s Share (as specified in Paragraph
1.6) of all Common Area Operating Expenses, as hereinafter defined, during
each
calendar year of the term of this Lease, in accordance with the following
provisions.
(a)
“Common Area Operating Expenses” are defined, for purposes of this Lease, as all
costs incurred by Lessor relating to the ownership .and operation of the
Project, including, but not limited to, the following:
(i)
The
operation, repair and maintenance, in neat, clean, good order and condition,
and
if necessary the replacement, of the following.
(aa)
The
Common Areas and Common Area improvements, including parking areas, loading
and
unloading areas, trash areas, roadways, parkways, walkways, driveways,
landscaped areas, bumpers, irrigation systems, Common Area lighting facilities,
fences and gates, elevators, roofs, and roof drainage systems
(bb)
Exterior signs and any tenant directories.
(cc)
Any
fire sprinkler systems.
(ii)
The
cost
of water, gas, electricity and telephone to service the Common Areas and any
utilities not separately metered
(iii)
Trash
disposal, pest control services, property management, security services, owners’
association dues and fees, the cost to repaint the exterior of any structures
and the cost of any environmental inspections.
(iv)
Reserves
set aside for maintenance, repair and/or replacement of Common Area improvements
and equipment.
(v)
Real
Property Taxes (as defined in Paragraph 10).
(vi)
The
cost
of the premiums for the insurance maintained by Lessor pursuant to Paragraph
8.
(vii)
Any
deductible portion of an insured loss concerning the Building or the Common
Areas.
(viii)
Auditors,
accountants’ and attorneys’ fees and costs related to the operation,
maintenance, repair and replacement of the Project.
(ix)
The
cost
of any capital improvement to the Building or the Project not covered under
the
provisions of Paragraph 2.3 provided, however, that Lessor shall allocate the
cost of any such capital improvement over a 12 year period and Lessee shall
not
be required to pay more than Lessee’s Share of 1/144th of the cost of such
capital improvement in any given month.
(x)
Any
other
services to be provided by Lessor that are stated elsewhere in this Lease to
be
a Common Area Operating Expense.
(b)
Any
Common Area Operating Expenses and Real Property Taxes that are specifically
attributable to the Unit, the Building or to any other building in the Project
or to the operation, repair and maintenance thereof, shall be allocated entirely
to such Unit, Building, or other building. However, any Common Area Operating
Expenses and Real Property Taxes that are not specifically attributable to
the
Building or to any other building or to the operation, repair and maintenance
thereof, shall be equitably allocated by Lessor to all buildings in the
Project.
(c)
The
inclusion of the improvements, facilities and services set forth in Subparagraph
4.2(a) shall not be deemed to impose an obligation upon Lessor to either have
said improvements or facilities or to provide those services unless the Project
already has the same, Lessor already provides the services, or Lessor has agreed
elsewhere in this Lease to provide the same or some of them.
(d)
Lessee’s Share of Common Area Operating Expenses is payable monthly on the same
day as the Base Rent is due hereunder. The amount of such payments shall be
based on Lessor’s estimate of the annual Common Area Operating Expenses. Within
60 days after written request (but not more than once each year) Lessor shall
deliver to Lessee a reasonably detailed statement showing Lessee’s Share of the
actual Common Area Operating Expenses incurred during the preceding year. If
Lessee’s payments during such year exceed Lessee’s Share, Lessor shall credit
the amount of such over-payment against Lessee’s future payments. If Lessee’s
payments during such year were less than Lessee’s Share, Lessee shall pay to
Lessor the amount of the deficiency within 10 days after delivery by Lessor
to
Lessee of the statement.
(e)
Common Area Operating Expenses shall not include any expenses paid by any tenant
directly to third parties, or as to which Lessor is otherwise reimbursed by
any
third party, other tenant, or insurance proceeds.
4.3
Payment Lessee shall cause payment of Rent to be received by Lessor in lawful
money of the United States, without offset or deduction (except as specifically
permitted in this Lease), on or before the day on which it is due. All monetary
amounts shall be rounded to the nearest whole dollar. In the event that any
invoice prepared by Lessor is inaccurate such inaccuracy shall not constitute
a
waiver and Lessee shall be obligated to pay the amount set forth in this Lease.
Rent for any period during the term hereof which is for less than one full
calendar month shall be prorated based upon the actual number of days of said
month. Payment of Rent shall be made to Lessor at its address stated herein
or
to such other persons or place as Lessor may from time to time designate in
writing. Acceptance of a payment which is less than the amount then due shall
not be a waiver of Lessor’s rights to the balance of such Rent, regardless of
Lessor’s endorsement of any check so stating. In the event that any check,
draft, or other instrument of payment given by Lessee to Lessor is dishonored
for any reason, Lessee agrees to pay to Lessor the sum of $25 in addition to
any
Late Charge and Lessor, at its option, may require all future Rent be paid
by
cashier’s check. Payments will be applied first to accrued late charges and
attorney’s fees, second to accrued interest, then to Base Rent and Common Area
Operating Expenses, and any remaining amount to any other outstanding charges
or
costs.
5.
Security Deposit. Lessee shall deposit with Lessor upon execution hereof the
Security Deposit as security for Lessee’s faithful performance of its
obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults
under this Lease, Lessor may use, apply or retain all or any portion of said
Security Deposit for the payment of any amount due Lessor or to reimburse or
compensate Lessor for any liability, expense, loss or damage which Lessor may
suffer or incur by reason thereof. If Lessor uses or applies all or any portion
of the Security Deposit, Lessee shall within 10 days after written request
therefor deposit monies with Lessor sufficient to restore said Security Deposit
to the full amount required by this Lease. If the Base Rent increases during
the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional monies with Lessor so that the total amount of the Security Deposit
shall at all times bear the same proportion to the increased Base Rent as the
initial Security Deposit bore to the initial Base Rent. Should the Agreed Use
be
amended to accommodate a material change in the business of Lessee or to
accommodate a sublessee or assignee, Lessor shall have the right to increase
the
Security Deposit to the extent necessary, in Lessor’s reasonable judgment, to
account for any increased wear and tear that the Premises may suffer as a result
thereof. If a change in control of Lessee occurs during this Lease and following
such change the financial condition of Lessee is, in Lessor’s reasonable
judgment, significantly reduced, Lessee shall deposit such additional monies
with Lessor as shall be sufficient to cause the Security Deposit to be at a
commercially reasonable level based on such change in financial condition.
Lessor shall not be required to keep the Security Deposit separate from its
general accounts. Within 14 days after the expiration or termination of this
Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent,
and
otherwise within 30 days after the Premises have been vacated pursuant to
Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit
not used or applied by Lessor. No part of the Security Deposit shall be
considered to be held in trust, to bear interest or to be prepayment for any
monies to be paid by Lessee under this Lease.
6
Use
6.1
Use.
Lessee shall use and occupy the Premises only for the Agreed Use, or any other
legal use which is reasonably comparable thereto, and for no other purpose.
Lessee shall not use or permit the use of the Premises in a manner that is
unlawful, creates damage, waste or a nuisance, or that disturbs occupants of
or
causes damage to neighboring premises or properties. Other than guide, signal
and seeing eye dogs, Lessee shall not keep or allow in the Premises any pets,
animals, birds, fish, or reptiles. Lessor shall not unreasonably withhold or
delay its consent to any
written
request for a modification of the Agreed Use, so long as the sane will not
impair the structural integrity of the Building or the mechanical or electrical
systems therein, and/or is not significantly more burdensome to the Project.
If
Lessor elects to withhold consent, Lessor shall within 7 days after such request
give written notification of same, which notice shall include an explanation
of
Lessor’s objections to the change in the Agreed Use.
6.2
Hazardous Substances.
(a)
Reportable Uses Require Consent. The term “Hazardous Substance” as used in this
Lease shall mean any product, substance, or waste whose presence, use,
manufacture, disposal, transportation, or release, either by itself or in
combination with other materials expected to be on the Premises, is either:
(i)
potentially injurious to the public health, safety or welfare, the environment
or the Premises, (ii) regulated or monitored by any governmental authority,
or
(iii) a basis for potential liability of Lessor to any governmental agency
or
third party under any applicable statute or common law theory. Hazardous
Substances shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, and/or crude oil or any products, by-products or fractions thereof.
Lessee shall not engage in any activity in or on the Premises which constitutes
a Reportable Use of Hazardous Substances without the express prior written
consent of Lessor and timely compliance (at Lessee’s expense) with all
Applicable Requirements. “Reportable Use” shall mean (i) the installation or use
of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority, and/or
(iii) the presence at the Premises of a Hazardous Substance with respect to
which any Applicable Requirements requires that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may use any ordinary and customary materials reasonably
required to be used in the normal course of the Agreed Use, ordinary office
supplies (copier toner, liquid paper, glue, etc.) and common household cleaning
materials, so long as such use is in compliance with all Applicable
Requirements, is not a Reportable Use, and does not expose the Premises or
neighboring property to any meaningful risk of contamination or damage or expose
Lessor to any liability therefor. In addition, Lessor may condition its consent
to any Reportable Use upon receiving such additional assurances as Lessor
reasonably deems necessary to protect itself, the public, the Premises and/or
the environment against damage, contamination, injury and/or liability,
including, but not limited to, the installation (and removal on or before Lease
expiration or termination) of protective modifications (such as concrete
encasements) and/or increasing the Security Deposit.
(b)
Duty
to Inform Lessor. If Lessee knows, or has reasonable cause to believe, that
a
Hazardous Substance has come to be located in, on under or about the Premises,
other than as previously consented to by Lessor, Lessee shall immediately give
written notice of such fact to Lessor, and provide Lessor with a copy of any
report, notice, claim or other documentation which it has concerning the
presence of such Hazardous Substance.
(c)
Lessee Remediation. Lessee shall not cause or permit any Hazardous Substance
to
be spilled or released in, on, under, or about the Premises (including through
the plumbing or sanitary sewer system) and shall promptly, at Lessee’s expense,
comply with all Applicable Requirements and take all investigatory and/or
remedial action reasonably recommended, whether or not formally ordered or
required, for the cleanup of any contamination of and for the maintenance,
security and/or monitoring of the Premises or neighboring properties, that
was
caused or materially contributed to by Lessee, or pertaining to or involving
any
Hazardous Substance brought onto the Premises during the term of this Lease,
by
or for Lessee or any third party.
(d)
Lessee Indemnification. Lessee shall indemnify, defend and hold Lessor, its
agents, employees, lenders and ground lessor, if any, harmless from and against
any and all loss of rents and/or damages, liabilities, judgments, claims,
expenses, penalties, and attorneys’ and consultants’ fees arising out of or
involving any Hazardous Substance brought onto the Premises by or for Lessee,
or
any third party (provided, however, that Lessee shall have no liability under
this Lease with respect to underground migration of any Hazardous Substance
under the Premises from areas outside of the Project not caused or contributed
to by Lessee). Lessee’s obligations shall include, but not be limited to, the
effects of any contamination or injury to person, property or the environment
created or suffered by Lessee, and the cost of investigation, removal,
remediation, restoration and/or abatement, and shall survive the expiration
or
termination of this Lease. No termination, cancellation or release agreement
entered into by Lessor and Lessee shall release Lessee from its obligations
under this Lease with respect to Hazardous Substances, unless specifically
so
agreed by Lessor in writing at the time of such agreement.
(e)
Lessor Indemnification. Lessor and its successors and assigns shall indemnify,
defend, reimburse and hold Lessee. its employees and lenders, harmless from
and
against any and all environmental damages, including the cost of remediation,
which are suffered as a direct result of Hazardous Substances on the Premises
prior to Lessee taking possession or which are caused by the gross negligence
or
willful misconduct of Lessor, its agents or employees. Lessor’s obligations, as
and when required by the Applicable Requirements, shall include, but not be
limited to, the cost of investigation, removal, remediation, restoration and/or
abatement, and shall survive the expiration or termination of this
Lease.
(f)
Investigations and Remediations. Lessor shall retain the responsibility and
pay
for any investigations or remediation measures required by governmental entities
having jurisdiction with respect to the existence of Hazardous Substances on
the
Premises prior to the Lessee taking possession, unless such remediation measure
is required as a result of Lessee’s use (including “Alterations”, as defined in
paragraph 7. 3(a) below) of the Premises, in which event Lessee shall be
responsible for such payment. Lessee shall cooperate fully in any such
activities at the request of Lessor, including allowing Lessor and Lessor’s
agents to have reasonable access to the Premises at reasonable times in order
to
carry out Lessor’s investigative and remedial responsibilities.
(g)
Lessor Termination Option. If a Hazardous Substance Condition (see Paragraph
9.1(e)) occurs during the term of this Lease, unless Lessee is legally
responsible therefor (in which case Lessee shall make the investigation and
remediation thereof required by the Applicable Requirements and this Lease
shall
continue in full force and effect, but subject to Lessor’s rights under
Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor’s option, either (i)
investigate and remediate such Hazardous Substance Condition, if required,
as
soon as reasonably possible at Lessor’s expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to remediate
such condition exceeds 12 times the then monthly Base Rent or $100,000,
whichever is greater, give written notice to Lessee, within 30 days after
receipt by Lessor of knowledge of the occurrence of such Hazardous Substance
Condition, of Lessor’s desire to terminate this Lease as of the date 60 days
following the date of such notice. In the event Lessor elects to give a
termination notice, Lessee may, within 10 days thereafter, give written notice
to Lessor of Lessee’s commitment to pay the amount by which the cost of the
remediation of such Hazardous Substance Condition exceeds an amount equal to
12
times the then monthly Base Rent or $100,000, whichever is greater Lessee shall
provide Lessor with said funds or satisfactory assurance thereof within 30
days
following such commitment. In such event, this Lease shall continue in full
force and effect, and Lessor shall proceed to make such remediation as soon
as
reasonably possible after the required funds are available. If Lessee does
not
give such notice and provide the required funds or assurance thereof within
the
time provided, this Lease shall terminate as of the date specified in Lessor’s
notice of termination.
6.3
Lessee’s Compliance with Applicable Requirements. Except as otherwise provided
in this Lease, Lessee shall, at Lessee’s sole expense, fully, diligently and in
a timely manner, materially comply with all Applicable Requirements, the
requirements of any applicable fire insurance underwriter or rating bureau,
and
the recommendations of Lessor’s engineers and/or consultants which relate in any
manner to such Requirements, without regard to whether said Requirements are
now
in effect or become effective after the Start Date. Lessee shall, within 10
days
after receipt of Lessor’s written request, provide Lessor with copies of all
permits and other documents, and other information evidencing Lessee’s
compliance with any Applicable Requirements specified by Lessor, and shall
immediately upon receipt, notify Lessor in writing (with copies of any documents
involved) of any threatened or actual claim, notice, citation, warning,
complaint or report pertaining to or involving the failure of Lessee or the
Premises
to comply with any Applicable Requirements Likewise, Lessee shall immediately
give written notice to Lessor of: (i) any water damage to the Premises and
any
suspected seepage, pooling, dampness or other condition conducive to the
production of mold, or (ii) any mustiness or other odors that might indicate
the
presence of mold in the Premises.
6.4
Inspection; Compliance. Lessor and Lessor’s “Lender” (as defined in Paragraph
30) and consultants shall have the right to enter into Premises at any time,
in
the case of an emergency, and otherwise at reasonable times after reasonable
notice, for the purpose of inspecting the condition of the Premises and for
verifying compliance by Lessee with this Lease. The cost of any such inspections
shall be paid by Lessor, unless a violation of Applicable Requirements, or
a
Hazardous Substance condition (see Paragraph 9.1) is found to exist or be
imminent, or the inspection is requested or ordered by a governmental authority.
In such case, Lessee shall upon request reimburse Lessor for the cost of such
inspection, so long as such inspection is reasonably related to the violation
or
contamination. In addition, Lessee shall provide copies of all relevant material
safety data sheets (MSDS) to Lessor within 10 days of the receipt of written
request therefor.
7.
Maintenance; Repairs, Utility Installations; Trade Fixtures and
Alterations.
7.1
Lessee’s Obligations
(a)
In
General. Subject to the provisions of Paragraph 2.2 (Condition), 2.3
(Compliance), 6.3 (Lessee’s Compliance with Applicable Requirements), 7.2
(Lessor’s Obligations). 9 (Damage or Destruction), and 14 (Condemnation), Lessee
shall, at Lessee’s sole expense, keep the Premises, Utility Installations
(intended for Lessee’s exclusive use, no matter where located), and Alterations
in good order, condition and repair (whether or not the portion of the Premises
requiring repairs, or the means of repairing the same, are reasonably or readily
accessible to Lessee, and whether or not the need for such repairs occurs as
a
result of Lessee’s use, any prior use, the elements or the age of such portion
of the Premises), including, but not limited to, all equipment or facilities,
such as plumbing, HVAC equipment, electrical, lighting facilities, boilers,
pressure vessels, fixtures, interior walls, interior surfaces of exterior walls,
ceilings, floors, windows, doors, plate glass, and skylights but excluding
any
items which are the responsibility of Lessor pursuant to Paragraph 7.2. Lessee,
in keeping the Premises in good order, condition and repair, shall exercise
and
perform good maintenance practices, specifically including the procurement
and
maintenance of the service contracts required by Paragraph 7.1(b) below.
Lessee’s obligations shall include restorations, replacements or renewals when
necessary to keep the Premises and all improvements thereon or a part thereof
in
good order. condition and state of repair.
(b)
Service Contracts. Lessee shall, at Lessee’s sole expense, procure and maintain
contracts, with copies to Lessor, in customary form and substance for, and
with
contractors specializing and experienced in the maintenance of the following
equipment and improvements, if any, if and when installed on the Premises:
(i)
HVAC equipment, (ii) boiler and pressure vessels, (iii) clarifiers, and (iv)
any
other equipment, if reasonably required by Lessor. However, Lessor reserves
the
right, upon notice to Lessee, to procure and maintain any or all of such service
contracts and Lessee shall reimburse Lessor, upon demand, for the cost
thereof.
(c)
Failure to Perform. If Lessee fails to perform Lessee’s obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after 10 days’ prior written
notice to Lessee (except in the case of an emergency, in which case no notice
shall be required), perform such obligations on Lessee’s behalf, and put the
Premises in good order, condition and repair, and Lessee shall promptly pay
to
Lessor a sum equal to 115% of the cost thereof.
(d)
Replacement Subject to Lessee’s indemnification of Lessor as set forth in
Paragraph 8.7 below, and without relieving Lessee of liability resulting from
Lessee’s failure to exercise and perform good maintenance practices, if an item
described in Paragraph 7.1(b) cannot be repaired other than at a cost which
is
in excess of 50% of the cost of replacing such item, then such item shall be
replaced by Lessor, and the cost thereof shall be prorated between the Parties
and Lessee shall only be obligated to pay, each month during the remainder
of
the term of this Lease, on the date on which Base Rent is due, an amount equal
to the product of multiplying the cost of such replacement by a fraction, the
numerator of which is one, and the denominator of which is 144 (i.e. 1/144th
of
the cost per month). Lessee shall pay Interest on the unamortized balance but
may prepay its obligation at any time.
7.2
Lessor’s Obligations. Subject to the provisions of Paragraphs 2.2 (Condition),
2.3 (Compliance), 4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee’s
Obligations), 9 (Damage or Destruction) and 14 (Condemnation), Lessor, subject
to reimbursement pursuant to Paragraph 4.2, shall keep in good order, condition
and repair the foundations, exterior walls, structural condition of interior
bearing walls, exterior roof, fire sprinkler system, Common Area fire alarm
and/or smoke detection systems, fire hydrants, parking lots, walkways, parkways,
driveways, landscaping, fences, signs and utility systems serving the Common
Areas and all parts thereof, as well as providing the services for which there
is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall
not
be obligated to paint the exterior or interior surfaces of exterior walls nor
shall Lessor be obligated to maintain, repair or replace windows, doors or
plate
glass of the Premises. Lessee expressly waives the benefit of any statute now
or
hereafter in effect to the extent it is inconsistent with the terms of this
Lease.
7.3
Utility Installations; Trade Fixtures; Alterations.
(a)
Definitions. The term “Utility Installations” refers to all floor and window
coverings, air and/or vacuum lines, power panels, electrical distribution,
security and fire protection systems, communication cabling, lighting fixtures,
HVAC equipment, plumbing, and fencing in or on the Premises. The term “Trade
Fixtures” shall mean Lessee’s machinery and equipment that can be removed
without doing material damage to the Premises. The term “Alterations” shall mean
any modification of the improvements, other than Utility Installations or Trade
Fixtures, whether by addition or deletion. “Lessee Owned Alterations and/or
Utility Installations” are defined as Alterations and/or Utility Installations
made by Lessee that are not yet owned by Lessor pursuant to Paragraph
7.4(a).
(b)
Consent. Lessee shall not make any Alterations or Utility Installations to
the
Promises without Lessor’s prior written consent. Lessee may, however, make
non-structural Utility Installations to the interior of the Premises (excluding
the roof) without such consent but upon notice to Lessor, as long as they are
not visible from the outside, do not involve puncturing, relocating or removing
the roof or any existing walls, will not affect the electrical, plumbing, HVAC,
and/or life safety systems, and the cumulative cost thereof during this Lease
as
extended does not exceed a sum equal to 3 month’s Base Rent in the aggregate or
a sum equal to one month’s Base Rent in any one year. Notwithstanding the
foregoing, Lessee shall not make or permit any roof penetrations and/or install
anything on the roof without the prior written approval of Lessor. Lessor may,
as a precondition to granting such approval, require Lessee to utilize a
contractor chosen and/or approved by Lessor. Any Alterations or Utility
Installations that Lessee shall desire to make and which require the consent
of
the Lessor shall be presented to Lessor in written form with detailed plans.
Consent shall be deemed conditioned upon Lessee’s: (i) acquiring all applicable
governmental permits, (ii) furnishing Lessor with copies of both the permits
and
the plans and specifications prior to commencement of the work, and (iii)
compliance with all conditions of said permits and other Applicable Requirements
in a prompt and expeditious manner. Any Alterations or Utility Installations
shall be performed in a workmanlike manner with good and sufficient materials.
Lessee shall promptly upon completion furnish Lessor with as-built plans and
specifications. For work which costs an amount in excess of one month’s Base
Rent, Lessor may condition its consent upon Lessee providing a lien and
completion bond in an amount equal to 150% of the estimated cost of such
Alteration or Utility Installation and/or upon Lessee’s posting an additional
Security Deposit with Lessor.
(c)
Liens; Bonds Lessee shall pay, when due all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use
on
the Premises, which claims are or may be secured by any mechanic’s or
materialman’s lien against the Premises or any interest therein. Lessee shall
give Lessor not less than 10 days notice prior to the commencement of any work
in, on or about the Premises, and Lessor shall have the right to post notices
of
non-responsibility. If Lessee shall contest the validity of any such lien,
claim
or demand, then Lessee
shall
at
its sole expense defend and protect itself, Lessor and the Promises against
the
same and shall pay and satisfy any such adverse judgment that may be rendered
thereon before the enforcement thereof. If Lessor shall require, Lessee shall
furnish a surety bond in an amount equal to 150% of the amount of such contested
lien, claim or demand, indemnifying Lessor against liability for the same.
If
Lessor elects to participate in any such action, Lessee shall pay Lessors
attorneys’ fees and costs.
7.4
Ownership; Removal; Surrender; and Restoration.
(a)
Ownership Subject to Lessor’s right to require removal or elect ownership as
hereinafter provided, all Alterations and Utility Installations made by Lessee
shall be the property of Lessee, but considered a part of the Premises. Lessor
may, at any time, elect in writing to be the owner of all or any specified
part
of the Lessee Owned Alterations and Utility Installations. Unless otherwise
instructed per paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility
Installations shall, at the expiration or termination of this Lease, become
the
property of Lessor and be surrendered by Lessee with the Premises.
(b)
Removal. By delivery to Lessee of written notice from Lessor not earlier than
90
and not later than 30 days prior to the end of the term of this Lease, Lessor
may require that any or all Lessee Owned Alterations or Utility Installations
be
removed by the expiration or termination of this Lease. Lessor may require
the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent
(c)
Surrender; Restoration. Lessee shall surrender the Premises by the Expiration
Date or any earlier termination date, with all of the improvements, parts and
surfaces thereof broom clean and free of debris, and in good operating order,
condition and state of repair, ordinary wear and tear excepted. “Ordinary wear
and tear” shall not include any damage or deterioration that would have been
prevented by good maintenance practice. Notwithstanding the foregoing, if this
Lease is for 12 months or less, then Lessee shall surrender the Premises in
the
same condition as delivered to Lessee on the Start Date with NO allowance for
ordinary wear and tear. Lessee shall repair any damage occasioned by the
installation, maintenance or removal of Trade Fixtures, Lessee owned Alterations
and/or Utility Installations, furnishings, and equipment as well as the removal
of any storage tank installed by or for Lessee. Lessee shall also completely
remove from the Premises any and all Hazardous Substances brought onto the
Premises by or for Lessee, or any third party (except Hazardous Substances
which
were deposited via underground migration from areas outside of the Project)
even
if such removal would require Lessee to perform or pay for work that exceeds
statutory requirements. Trade Fixtures shall remain the property of Lessee
and
shall be removed by Lessee. Any personal property of Lessee not removed on
or
before the Expiration Date or any earlier termination date shall be deemed
to
have been abandoned by Lessee and may be disposed of or retained by Lessor
as
Lessor may desire. The failure by Lessee to timely vacate the Premises pursuant
to this Paragraph 7.4(c) without the express written consent of Lessor shall
constitute a holdover under the provisions of Paragraph 26 below.
8.
Insurance; Indemnity.
8.1
Payment of Premiums. The cost of the premiums for the insurance policies
required to be carried by Lessor, pursuant to Paragraphs 8.2(b), 8.3(a) and
8.3(b), shall be a Common Area Operating Expense. Premiums for policy periods
commencing prior to, or extending beyond. the term of this Lease shall be
prorated to coincide with the corresponding Start Date or Expiration
Date.
8.2
Liability Insurance.
(a)
Carried by Lessee. Lessee shall obtain and keep in force a Commercial General
Liability policy of insurance protecting Lessee and Lessor as an additional
insured against claims for bodily injury, personal injury and property damage
based upon or arising out of the ownership, use, occupancy or maintenance of
the
Premises and all areas appurtenant thereto. Such insurance shall be on an
occurrence basis providing single limit coverage in an amount not less than
$1,000,000 per occurrence with an annual aggregate of not less than $2,000,000.
Lessee shall add Lessor as an additional insured by means of an endorsement
at
least as broad as the Insurance Service Organization’s “Additional
Insured-Managers or Lessors of Premises” Endorsement and coverage shall also be
extended to include damage caused by heat, smoke or fumes from a hostile fire.
The policy shall not contain any intra-insured exclusions as between insured
persons or organizations, but shall include coverage for liability assumed
under
this Lease as an “insured contract” for the performance of Lessee’s indemnity
obligations under this Lease. The limits of said insurance shall not, however,
limit the liability of Lessee nor relieve Lessee of any obligation hereunder.
Lessee shall provide an endorsement on its liability policy(ies) which provides
that its insurance shall be primary to and not contributory with any similar
insurance carried by Lessor, whose insurance shall be considered excess
insurance only.
(b)
Carried by Lessor. Lessor shall maintain liability insurance as described in
Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required
to
be maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3
Property Insurance - Building, Improvements and Rental Value.
(a)
Building and Improvements. Lessor shall obtain and keep in force a policy or
policies of insurance in the name of Lessor, with loss payable to Lessor, any
ground-lessor, and to any Lender insuring loss or damage to the Premises. The
amount of such insurance shall be equal to the full insurable replacement cost
of the Premises, as the same shall exist from time to time, or the amount
required by any Lender, but in no event more than the commercially reasonable
and available insurable value thereof. Lessee Owned Alterations and Utility
Installations, Trade Fixtures, and Lessee’s personal property shall be insured
by Lessee under Paragraph 8.4. If the coverage is available and commercially
appropriate, such policy or policies shall insure against all risks of direct
physical loss or damage (except the perils of flood and/or earthquake unless
required by a Lender), including coverage for debris removal and the enforcement
of any Applicable Requirements requiring the upgrading, demolition,
reconstruction or replacement of any portion of the Premises as the result
of a
covered loss. Said policy or policies shall also contain an agreed valuation
provision in lieu of any coinsurance clause, waiver of subrogation, and
inflation guard protection causing an increase in the annual property insurance
coverage amount by a factor of not less than the adjusted U.S. Department of
Labor Consumer Price Index for All Urban Consumers for the city nearest to
where
the Premises are located. If such insurance coverage has a deductible clause,
the deductible amount shall not exceed $1,000 per occurrence.
(b)
Rental Value. Lessor shall also obtain and keep in force a policy or policies
in
the name of Lessor with loss payable to Lessor and any Lender, insuring the
loss
of the full Rent for one year with an extended period of indemnity for an
additional 180 days (“
Rental
Value Insurance
”).
Said
insurance shall contain an agreed valuation provision in lieu of any coinsurance
clause, and the amount of coverage shall be adjusted annually to reflect the
projected Rent otherwise payable by Lessee, for the next 12 month
period.
(c)
Adjacent Promises. Lessee shall pay for any increase in the premiums for the
property insurance of the Building and for the Common Areas or other buildings
in the Project if said increase is caused by Lessee’s acts, omissions, use or
occupancy of the Premises.
(d)
Lessee’s Improvements. Since Lessor is the Insuring Party, Lessor shall not be
required to insure Lessee Owned Alterations and Utility installations unless
the
item in question has become the property of Lessor under the terms of this
Lease.
8.4
Lessee’s Property; Business Interruption Insurance.
(a)
Property Damage. Lessee shall obtain and maintain insurance coverage on all
of
Lessee’s personal property, Trade Fixtures, and Lessee Owned Alterations and
Utility Installations. Such insurance shall be full replacement cost coverage
with a deductible of not to exceed $1,000 per occurrence. The proceeds from
any
such insurance shall be used by Lessee for the replacement of personal property,
Trade Fixtures and Lessee Owned Alterations and Utility Installations. Lessee
shall provide Lessor with written evidence that such insurance is in
force.
(b)
Business Interruption. Lessee shall obtain and maintain loss of income and
extra
expense insurance in amounts as will reimburse Lessee for direct or indirect
loss of earnings attributable to all perils commonly insured against by prudent
lessees in the business of Lessee
or
attributable to prevention of access to the Premises as a result of such
perils.
(c)
No
Representation of Adequate Coverage. Lessor makes no representation that the
limits or forms of coverage of insurance specified herein are adequate to cover
Lessee’s property, business operations or obligations under this
Lease.
8.5
Insurance Policies. Insurance required herein shall be by companies duly
licensed or admitted to transact business in the state where the Premises are
located and maintaining during the policy term a “General Policyholders Rating”
of at least A-, VI, as set forth in the most current issue of “Best’s Insurance
Guide”, or such other rating as may be required by a Lender. Lessee shall not do
or permit to be done anything which invalidates the required insurance policies.
Lessee shall, prior to the Start Date, deliver to Lessor certified copies of
policies of such insurance or certificates evidencing the existence and amounts
of the required insurance. No such policy shall be cancelable or subject to
modification except after 30 days prior written notice to Lessor. Lessee shall,
at least 10 days prior to the expiration of such policies, furnish Lessor with
evidence of renewals or “insurance binders” evidencing renewal thereof, or
Lessor may order such insurance and charge the cost thereof to Lessee, which
amount shall be payable by Lessee to Lessor upon demand. Such policies shall
be
for a term of at least one year, or the length of the remaining term of this
Lease, whichever is less. If either Party shall fail to procure and maintain
the
insurance required to be carried by it, the other Party may, but shall not
be
required to procure and maintain the same.
8.6
Waiver of Subrogation. Without affecting any other rights or remedies, Lessee
and Lessor each hereby release and relieve the other, and waive their entire
right to recover damages against the other, for loss of or damage to its
property arising out of or incident to the perils required to be insured against
herein. The effect of such releases and waivers is not limited by the amount
of
insurance, carried or required, or by any deductibles applicable hereto. The
Parties agree to have their respective property damage insurance carriers waive
any right to subrogation that such companies may have against Lessor or Lessee,
as the case may be, so long as the insurance is not invalidated
thereby.
8.7
Indemnity. Except for Lessor’s gross negligence or willful misconduct, Lessee
shall indemnify, protect, defend and hold harmless the Premises, Lessor and
its
agents, Lessor’s master or ground lessor, partners and Lenders, from and against
any and all claims, loss of rents and/or damages, liens, judgments, penalties,
attorneys’ and consultants’ fees, expenses and/or liabilities arising out of,
involving, or in connection with, the use and/or occupancy of the Premises
by
Lessee. If any action or proceeding is brought against Lessor by reason of
any
of the foregoing matters, Lessee shall upon notice defend the same at Lessee’s
expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate
with Lessee in such defense. Lessor need not have first paid any such claim
in
order to be defended or indemnified.
8.8
Exemption of Lessor from Liability. Lessor shall not be liable for injury or
damage to the person or goods, wares, merchandise or other property of Lessee,
Lessee’s employees, contractors, invitees, customers, or any other person in or
about the Premises, whether such damage or injury is caused by or results from
fire, steam, electricity, gas, water or rain, indoor air quality, the presence
of mold or from the breakage, leakage, obstruction or other defects of pipes,
fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or
from
any other cause, whether the said injury or damage results from conditions
arising upon the Premises or upon other portions of the Building, or from other
sources or places. Lessor shall not be liable for any damages arising from
any
act or neglect of any other tenant of Lessor nor from the failure of Lessor
to
enforce the provisions of any other lease in the Project. Notwithstanding
Lessor’s negligence or breach of this Lease, Lessor shall under no circumstances
be liable for injury to Lessee’s business or for any loss of income or profit
therefrom.
8.9
Failure to Provide Insurance. Lessee acknowledges that any failure on its part
to obtain or maintain the insurance required herein will expose Lessor to risks
and potentially cause Lessor to incur costs not contemplated by this Lease,
the
extent of which will be extremely difficult to ascertain Accordingly, for any
month or portion thereof that Lessee does not maintain the required insurance
and/or does not provide Lessor with the required binders or certificates
evidencing the existence of the required insurance, the Base Rent shall be
automatically increased, without any requirement for notice to Lessee, by an
amount equal to 10% of the then existing Base Rent or $100, whichever is
greater. The parties agree that such increase in Base Rent represents fair
and
reasonable compensation for the additional risk/costs that Lessor will incur
by
reason of Lessee’s failure to maintain the required insurance. Such increase in
Base Rent shall in no event constitute a waiver of Lessee’s Default or Breach
with respect to the failure to maintain such insurance, prevent the exercise
of
any of the other rights and remedies granted hereunder, nor relieve Lessee
of
its obligation to maintain the insurance specified in this Lease.
9.
Damage
or Destruction.
9.1
Definitions.
(a)
“Premises Partial Damage” shall mean damage or destruction to the improvements
on the Premises, other than Lessee Owned Alterations and Utility Installations,
which can reasonably be repaired in
3
months
or less from the date of the damage or destruction, and the cost thereof does
not exceed a sum equal to
6
month’s
Base Rent. Lessor shall notify Lessee in writing within 30 days from the date
of
the damage or destruction as to whether or not the damage is Partial or Total.
Notwithstanding the foregoing, Premises Partial Damage shall not include damage
to windows, doors, and/or other similar items which Lessee has the
responsibility to repair or replace pursuant to the provisions of Paragraph
7.1
(b)
“Premises Total Destruction” shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which cannot reasonably be repaired in 3
months or less from the date of the damage or destruction and/or the cost
thereof exceeds a sum equal to 6 month’s Base Rent. Lessor shall notify Lessee
in writing within 30 days from the date of the damage or destruction as to
whether or not the damage is Partial or Total.
(c)
“Insured Loss” shall mean damage or destruction to improvements on the Premises,
other than Lessee Owned Alterations and Utility Installations and Trade
Fixtures, which was caused by an event required to be covered by the insurance
described in Paragraph 8.3(a), irrespective of any deductible amounts or
coverage limits involved.
(d)
“Replacement Cost” shall mean the cost to repair or rebuild the improvements
owned by Lessor at the time of the occurrence to their condition existing
immediately prior thereto, including demolition, debris removal and upgrading
required by the operation of Applicable Requirements, and without deduction
for
depreciation.
(e)
“Hazardous Substance Condition” shall mean the occurrence or discovery of a
condition involving the presence of, or a contamination by, a Hazardous
Substance as defined in Paragraph 6.2(a), in, on, or under the Premises which
requires repair, remediation, or restoration.
9.2
Partial Damage - Insured Loss. If a Premises Partial Damage that is an Insured
Loss occurs, then Lessor shall, at Lessor’s expense, repair such damage (but not
Lessee’s Trade Fixtures or Lessee Owned Alterations and Utility Installations)
as soon as reasonably possible and this Lease shall continue in full force
and
effect, provided, however, that Lessee shall, at Lessor’s election, make the
repair of any damage or destruction the total cost to repair of which is $10,000
or less, and, in such event, Lessor shall make any applicable insurance proceeds
available to Lessee on a reasonable basis for that purpose. Notwithstanding
the
foregoing, if the required insurance was not in force or the insurance proceeds
are not sufficient to effect such repair, the Insuring Party shall promptly
contribute the shortage in proceeds as and when required to complete said
repairs. In the event, however, such shortage was due to the fact that, by
reason of the unique nature of the improvements, full replacement cost insurance
coverage was not commercially reasonable and available, Lessor shall have no
obligation to pay for the shortage in insurance proceeds or to fully restore
the
unique aspects of the Premises unless Lessee provides Lessor with the funds
to
cover same, or adequate assurance thereof, within 10 days following receipt
of
written notice of such shortage and request therefor. If Lessor receives said
funds or adequate assurance thereof within said 10 day
period,
the party responsible for making the repairs shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
such funds or assurance are not received, Lessor may nevertheless elect by
written notice to Lessee within 10 days thereafter to (i) make such restoration
and repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case this Lease shall remain in full force and effect. or
(ii) have this Lease terminate 30 days thereafter. Lessee shall not be entitled
to reimbursement of any funds contributed by Lessee to repair any such damage
or
destruction. Premises Partial Damage due to flood or earthquake shall be subject
to Paragraph 9.3, notwithstanding that there may be some insurance coverage,
but
the net proceeds of any such insurance shall be made available for the repairs
if made by either Party.
9.3
Partial Damage - Uninsured Loss. If a Premises Partial Damage that is not an
Insured Loss occurs, unless caused by a negligent or willful act of Lessee
(in
which event Lessee shall make the repairs at Lessee’s expense), Lessor may
either. (i) repair such damage as soon as reasonably possible at Lessor’s
expense, in which event this Lease shall continue in full force and effect,
or
(ii) terminate this Lease by giving written notice to Lessee within 30 days
after receipt by Lessor of knowledge of the occurrence of such damage. Such
termination shall be effective 60 days following the date of such notice. In
the
event Lessor elects to terminate this Lease, Lessee shall have the right within
10 days after receipt of the termination notice to give written notice to Lessor
of Lessee’s commitment to pay for the repair of such damage without
reimbursement from Lessor. Lessee shall provide Lessor with said funds or
satisfactory assurance thereof within 30 days after making such commitment.
In
such event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible after the required
funds are available. If Lessee does not make the required commitment, this
Lease
shall terminate as of the date specified in the termination notice.
9.4
Total
Destruction. Notwithstanding any other provision hereof, if a Premises Total
Destruction occurs, this Lease shall terminate 60 days following such
Destruction. If the damage or destruction was caused by the gross negligence
or
willful misconduct of Lessee, Lessor shall have the right to recover Lessor’s
damages from Lessee, except as provided in Paragraph 8.6.
9.5
Damage Near End of Term. If at any time during the last 6 months of this Lease
there is damage for which the cost to repair exceeds one month’s Base Rent,
whether or not an Insured Loss, Lessor may terminate this Lease effective 60
days following the date of occurrence of such damage by giving a written
termination notice to Lessee within 30 days after the date of occurrence of
such
damage. Notwithstanding the foregoing, if Lessee at that time has an exercisable
option to extend this Lease or to purchase the Premises, then Lessee may
preserve this Lease by, (a) exercising such option and (b) providing Lessor
with
any shortage in insurance proceeds (or adequate assurance thereof) needed to
make the repairs on or before the earlier of (i) the date which is 10 days
after
Lessee’s receipt of Lessor’s written notice purporting to terminate this Lease,
or (ii) the day prior to the date upon which such option expires. If Lessee
duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor’s commercially reasonable expense, repair such damage as soon
as reasonably possible and this Lease shall continue in full force and effect.
If Lessee fails to exercise such option and provide such funds or assurance
during such period, then this Lease shall terminate on the date specified in
the
termination notice and Lessee’s option shall be extinguished.
9.6
Abatement of Rent; Lessee’s Remedies.
(a)
Abatement. In the event of Premises Partial Damage or Premises Total Destruction
or a Hazardous Substance Condition for which Lessee is not responsible under
this Lease, the Rent payable by Lessee for the period required for the repair,
remediation or restoration of such damage shall be abated in proportion to
the
degree to which Lessee’s use of the Premises is impaired, but not to exceed the
proceeds received from the Rental Value insurance. All other obligations of
Lessee hereunder shall be performed by Lessee, and Lessor shall have no
liability for any such damage, destruction, remediation, repair or restoration
except as provided herein.
(b)
Remedies. If Lessor shall be obligated to repair or restore the Premises and
does not commence, in a substantial and meaningful way, such repair or
restoration within 90 days after such obligation shall accrue, Lessee may,
at
any lime prior to the commencement of such repair or restoration, give written
notice to Lessor and to any Lenders of which Lessee has actual notice, of
Lessee’s election to terminate this Lease on a date not less than 60 days
following the giving of such notice. If Lessee gives such notice and such repair
or restoration is not commenced within 30 days thereafter, this Lease shall
terminate as of the date specified in said notice. If the repair or restoration
is commenced within such 30 days, this Lease shall continue in full force and
effect. “Commence” shall mean either the unconditional authorization of the
preparation of the required plans, or the beginning of the actual work on the
Premises, whichever first occurs.
9.7
Termination; Advance Payments. Upon termination of this Lease pursuant to
Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made
concerning advance Base Rent and any other advance payments made by Lessee
to
Lessor. Lessor shall, in addition, return to Lessee so much of Lessee’s Security
Deposit as has not been, or is not then required to be, used by
Lessor.
9.8
Waive
Statutes. Lessor and Lessee agree that the terms of this Lease shall govern
the
effect of any damage to or destruction of the Premises with respect to the
termination of this Lease and hereby waive the provisions of any present or
future statute to the extent inconsistent herewith.
10.
Real
Property Taxes.
10.1
Definition. As used herein, the term “Real Property Taxes” shall include any
form of assessment; real estate, general, special, ordinary or extraordinary,
or
rental levy or tax (other than inheritance, personal income or estate taxes);
improvement bond; and/or license fee imposed upon or levied against any legal
or
equitable interest of Lessor in the Project, Lessor’s right to other income
therefrom, and/or Lessor’s business of leasing, by any authority having the
direct or indirect power to tax and where the funds are generated with reference
to the Project address and where the proceeds so generated are to be applied
by
the city, county or other local taxing authority of a jurisdiction within which
the Project is located. The term “Real Property Taxes” shall also include any
tax, fee, levy, assessment or charge, or any increase therein: (i) imposed
by
reason of events occurring during the term of this Lease, including but not
limited to, a change in the ownership of the Project, (ii) a change in the
improvements thereon, and/or (iii) levied or assessed on machinery or equipment
provided by Lessor to Lessee pursuant to this Lease. In calculating Real
Property Taxes for any calendar year, the Real Property Taxes for any real
estate tax year shall be included in the calculation of Real Property Taxes
for
such calendar year based upon the number of days which such calendar year and
tax year have in common.
10.2
Payment of Taxes. Except as otherwise provided in Paragraph 10.3, Lessor shall
pay the Real Property Taxes applicable to the Project, and said payments shall
be included in the calculation of Common Area Operating Expenses in accordance
with the provisions of Paragraph 4.2.
10.3
Additional Improvements. Common Area Operating Expenses shall not include Real
Property Taxes specified in the tax assessor’s records and work sheets as being
caused by additional improvements placed upon the Project by other lessees
or by
Lessor for the exclusive enjoyment of such other lessees. Notwithstanding
Paragraph 10.2 hereof, Lessee shall, however, pay to Lessor at the time Common
Area Operating Expenses are payable under Paragraph 4.2, the entirety of any
increase in Real Property Taxes if assessed solely by reason of Alterations,
Trade Fixtures or Utility Installations placed upon the Premises by Lessee
or at
Lessee’s request or by reason of any alterations or improvements to the Premises
made by Lessor subsequent to the execution of this Lease by the
Parties.
10.4
Joint Assessment. If the Building is not separately assessed, Real Property
Taxes allocated to the Building shall be an equitable proportion of the Real
Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor’s work sheets or such other information as
may be reasonably available. Lessor’s reasonable determination thereof, in good
faith, shall be conclusive.
10.5
Personal Property Taxes. Lessee shall pay prior to delinquency all taxes
assessed
against and levied upon Lessee Owned
Alterations
and Utility Installations, Trade
Fixtures,
furnishings, equipment and all personal property of Lessee contained in the
Premises.
When
possible, Lessee shall cause its Lessee Owned
Alterations
and Utility Installations, Trade
Fixtures,
furnishings. equipment and all other personal
property
to be assessed and billed separately from the
real
property of Lessor.
If
any of
Lessee’s said property shall be assessed with
Lessor’s
real
property,
Lessee shall pay Lessor the taxes attributable
to
Lessee’s property within 10 days after receipt of a written
statement
setting forth the taxes
applicable
to Lessee’s property.
11.
Utilities
and Services. Lessee shall pay for all water, gas,
heat,
light, power, telephone, trash disposal and other utilities
and
services
supplied
to the Premises, together with any taxes thereon.
Notwithstanding
the provisions of Paragraph 4.2,
it
at any
time in Lessor’s sole judgment. Lessor determines that Lessee is using a
disproportionate
amount
of
water, electricity or other commonly metered utilities,
or
that
Lessee is generating
such
a
large volume of trash as to require an increase
in
the
size
of the trash receptacle and/or an increase in
the
number of times per month that it is
emptied,
then Lessor may increase Lessee’s Base Rent by an
amount
equal to such increased costs.
There
shall be no abatement of Rent and Lessor shall not be liable in any respect
whatsoever for the inadequacy, stoppage, interruption or discontinuance of
any
utility or
service
due to riot, strike, labor
dispute,
breakdown, accident, repair or other cause beyond
Lessor’s
reasonable control or in cooperation with governmental
request
or directions.
12.
Assignment
and Subletting.
12.1
Lessor’s
Consent Required.
(a)
Lessee
shall not voluntarily or by operation of law assign, transfer, mortgage or
encumber (collectively,
“assign
or
assignment”)
or sublet all or any part of Lessee’s interest
in
this
Lease or in the Premises without Lessor’s prior written consent.
(b)
Unless
Lessee is a corporation and its stock is publicly traded
on
a
national stock exchange, a change in the control of
Lessee
shall constitute an assignment requiring consent.
The
transfer, on a cumulative basis, of 25% or more of the
voting
control of Lessee shall
constitute
a change in control for this purpose.
(c)
The
involvement of Lessee or its assets in any transaction,
or
series
of transactions (by way of merger, sale, acquisition,
financing,
transfer, leveraged buy-out or otherwise),
whether
or not a formal assignment or hypothecation
of
this
Lease or Lessee’s assets occurs,
which
results or will result in a reduction of the Net Worth
of
Lessee
by an amount greater than 25% of such Net Worth
as
it was
represented at the
time
of
the execution of this Lease or at the time of the most
recent
assignment to which Lessor has consented, or as it exists
immediately
prior to said
transaction
or transactions constituting such reduction,
whichever
was or is greater, shall be considered an assignment of this Lease to which
Lessor
may
withhold its consent. “Net Worth of Lessee” shall mean
the
net
worth of Lessee (excluding any guarantors) established under generally accepted
accounting principles.
(d)
An
assignment or subletting without consent shall,
at
Lessor’s option, be a Default curable after notice per Paragraph
13.1(c),
or a noncurable Breach without the
necessity
of any notice and grace period.
If
Lessor
elects to treat such unapproved assignment
or
subletting
as a noncurable Breach, Lessor may either:
(i)
terminate this Lease, or (ii) upon 30 days written
notice,
increase the monthly Base Rent to
110%
of
the Base Rent then in effect.
Further,
in the event of such Breach and rental adjustment,
(i)
the
purchase price of any option to purchase the
Premises
held by Lessee shall be subject to
similar
adjustment to 110% of the price previously in effect, and (ii) all fixed and
non-fixed
rental
adjustments scheduled during the remainder of the Lease term
shall
be
increased to 110% of the scheduled adjusted rent.
(e)
Lessee’s
remedy for any breach of Paragraph 12.1
by
Lessor
shall be limited to compensatory damages and/or injunctive relief.
(f)
Lessor
may reasonably withhold consent to a proposed assignment or subletting if Lessee
is in Default
at
the
time
consent
is requested.
(g)
Notwithstanding
the foregoing, allowing a diminimus portion
of
the
Premises, i.e. 20 square feet or less, to be used by
a
third
party vendor in connection with the installation of a
vending
machine or payphone shall not constitute a subletting.
12.2
Terms
and
Conditions Applicable to Assignment and Subletting.
(a)
Regardless
of Lessor’s consent, no assignment or subletting
shall:
(i) be effective without the express written assumption
by
such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations
hereunder,
or (iii) alter the primary
liability
of Lessee for the payment of Rent or for the performance
of
any
other obligations to be performed by Lessee.
(b)
Lessor
may accept Rent or performance of Lessee’s obligations
from
any
person other than Lessee pending approval or
disapproval
of an assignment.
Neither
a
delay in the approval or disapproval of such assignment nor the acceptance
of
Rent or performance shall
constitute
a waiver or estoppel of Lessor’s right to exercise
its
remedies for Lessee’s Default or Breach.
(c)
Lessor’s
consent to any assignment or subletting shall not constitute consent to any
subsequent assignment or
subletting.
(d)
In
the
event of any Default or Breach by Lessee. Lessor may proceed directly against
Lessee, any Guarantors or anyone
else
responsible for the performance of Lessee’s obligations
under
this Lease, including any assignee or
sublessee
,
without
first exhausting Lessor’s remedies against any other person or entity
responsible therefore
to
Lessor, or any security held by Lessor.
(e)
Each
request for consent to an assignment or subletting
shall
be
in writing, accompanied by information
relevant
to
Lessor’s
determination as to the financial and operational
responsibility
and appropriateness of the proposed
assignee
or sublessee, including but not
limited
to the intended use and/or required modification
of
the
Premises, if any, together with a fee of $500 as consideration for Lessors
considering
and
processing said request. Lessee agrees to provide Lessor with such other or
additional
information
and/or documentation as may be reasonably requested. (See also Paragraph
36)
(f)
Any
assignee of, or sublessee under, this Lease
shall,
by
reason of accepting such assignment, entering into such
sublease,
or entering into possession of the Premises or any portion thereof, be deemed
to
have assumed and
agreed
to
conform and comply with
each
and
every terms, covenant, condition and obligation
herein
to
be observed or performed by Lessee during the term of said assignment or
sublease,
other
than such obligations as are contrary to or inconsistent
with
provisions of an assignment or sublease to which Lessor has specifically
consented
to
in
writing.
(g)
Lessor’s
consent to any assignment or subletting shall
not
transfer to the assignee or sublessee any Option granted
to
the
original Lessee by this Lease unless such transfer is specifically consented
to
by Lessor in writing. (See Paragraph
39.2)
12.3
Additional
Terms and Conditions Applicable to Subletting.
The
following terms and conditions shall apply to any subletting
by
Lessee
of
all or any part of the Premises and shall be deemed included in all subleases
under this Lease whether or not expressly
incorporated
therein:
(a)
Lessee
hereby assigns and transfers to Lessor all of Lessee’s
interest
in all Rent payable on any sublease, and Lessor
may
collect such Rent and apply same toward
Lessee’s
obligations under this Lease;
provided,
however, that until a Breach shall
occur
in
the
performance
of Lessee’s obligations, Lessee may collect said Rent. In the event that the
amount collected by Lessor exceeds
Lessee’s
then
outstanding
obligations any such excess shall be refunded
to
Lessee
Lessor shall not, by reason of the foregoing or any
assignment
of such sublease,
nor
by
reason of the collection of Rent, be deemed
liable
to
the sublessee for any failure of Lessee
to
perform and comply with any of Lessee’s
obligations
to such sublessee.
Lessee
hereby irrevocably authorizes and directs
any
such
sublessee, upon receipt of a written notice
from
Lessor
stating
that a Breach exists in the performance of Lessee’s
obligations
under this Lease, to pay to Lessor all Rent due
and
to
become due under the
sublease
Sublessee
shall
rely
upon
any
such
notice from Lessor and shall pay all Rents to Lessor without any obligation
or
right to inquire
as
to
whether
such Breach exists, notwithstanding any claim from Lessee to the
contrary.
(b)
In
the
event of a Breach by Lessee, Lessor may,
at
its
option, require sublessee to attorn to Lessor,
in
which
event
Lessor
shall undertake the obligations of the sublessor
under
such sublease from the time of the exercise of
said
option to the expiration of such
sublease:
provided, however, Lessor shall not be liable
for
any
prepaid rents or security deposit paid by such
sublessee
to such sublessor or for any
prior
Defaults or Breaches of such sublessor.
(c)
Any
matter requiring the consent of the sublessor under a sublease
shall
also require the consent of Lessor.
(d)
No
sublessee shall further assign or sublet all or any part of the Premises without
Lessor’s prior written consent.
(e)
Lessor
shall deliver a copy of any notice of Default or Breach
by
Lessee
to the sublessee, who shall have the right to cure
the
Default of Lessee within the grace period, if any,
specified
in such notice. The sublessee shall have a right
of
reimbursement and offset from and
against
Lessee for any such Defaults cured by the sublessee
13.
Default;
Breach; Remedies.
13.1
Default;
Breach.
A
“Default” is defined as a failure by the Lessee
to
comply
with or perform any of the terms, covenants,
conditions
or Rules and Regulations under this Lease.
A
“Breach” is defined as the occurrence of one or more
of
the
following Defaults, and the
failure
of Lessee to cure such Default within any applicable grace period:
(a)
The
abandonment of the Premises, or the vacating of the Premises
without
providing a commercially reasonable level of
security,
or where the coverage of the property insurance described
in
Paragraph 8.3 is jeopardized as a result thereof, or without providing
reasonable assurances to minimize potential vandalism.
(b)
The
failure of Lessee to make any payment of Rent or any Security
Deposit
required to be made by Lessee hereunder,
whether
to Lessor or to a third party, when due, to provide
reasonable
evidence of insurance or surety bond, or to fulfill
any
obligation under this Lease which endangers or threatens life or property,
where
such failure
continues
for a period of 3 business days following written notice to Lessee.
(c)
The
commission of waste, act or acts constituting public or
private
nuisance, and/or an illegal activity on the Premises
by
Lessee,
where such actions continue for a period of 3 business days following written
notice to Lessee.
(d)
The
failure by Lessee to provide (i) reasonable written evidence of compliance
with
Applicable Requirements,
(ii)
the
service
contracts, (iii) the rescission of an
unauthorized
assignment or subletting,
(iv)
an
Estoppel Certificate, (v) a requested subordination, (vi)
evidence
concerning any guaranty and/or Guarantor, (vii) any document requested under
Paragraph 41,
(viii)
material data safety sheets (MSDS), or
(ix)
any
other documentation or information which
Lessor
may reasonably require of Lessee under the
terms
of
this Lease, where any such failure
continues
for a period of 10 days following written notice to
Lessee.
(e)
A
Default
by Lessee as to the terms, covenants, conditions or provisions of this Lease,
or
of the rules
adopted
under Paragraph 2.9 hereof, other than those described in subparagraphs
13.1(a),
(b),
(c)
or
(d),
above,
where such Default continues for a period of 30 days
after
written notice; provided, however, that if the
nature
of
Lessee’s Default is such that more than 30 days are
reasonably
required for its cure, then it
shall
not
be deemed to be a Breach if Lessee commences
such
cure
within said 30 day period and thereafter diligently
prosecutes
such cure to
completion.
(f)
The
occurrence of any of the following events:
(i)
the
making of any general arrangement or assignment for the benefit of creditors;
(ii)
becoming
a “debtor” as defined in 11 U.S.C.
§
101
or
any successor statute thereto (unless, in
the
case
of a petition filed against
Lessee,
the same is dismissed within 60 days); (iii)
the
appointment of a trustee or receiver to take possession of substantially all
of
Lessee’s assets
located
at the Premises or of Lessee’s interest
in
this
Lease, where possession is not restored
to
Lessee
within 30 days, or (iv) the attachment,
execution
or other judicial seizure of substantially
all
of
Lessee’s assets located at the Premises or of
Lessee’s
interest in this Lease, where such
seizure
is not discharged within 30 days; provided, however,
in
the
event that any provision of this subparagraph is contrary to any applicable
law,
such
provision
shall be of no force or effect, and not affect the validity
of
the
remaining provisions.
(g)
The
discovery that any financial statement of Lessee or of any
Guarantor
given to Lessor was materially false.
(h)
If
the
performance of Lessee’s obligations
under
this Lease is guaranteed:
(i)
the
death of a Guarantor, (ii) the
termination
of a Guarantor’s liability with respect to
this
Lease other than in accordance with the terms of such
guaranty,
(iii) a Guarantor’s becoming
insolvent
or the subject of a bankruptcy filing, (iv) a Guarantor’s refusal to honor the
guaranty, or (v) a Guarantor’s breach of its guaranty obligation on an
anticipatory basis, and Lessee’s failure, within 60 days following written
notice of any such event, to provide written
alternative
assurance or security,
which,
when coupled with the then existing resources
of
Lessee, equals or exceeds the combined financial resources
of
Lessee
and the Guarantors
that
existed at the time of execution of this Lease.
13.2
Remedies.
If Lessee fails to perform any of its affirmative
duties
or
obligations, within 10 days after written notice (or in case of an
emergency,
without notice), Lessor may, at its option,
perform
such duty or obligation on Lessee’s behalf,
including
but not limited to the obtaining of
reasonably
required bonds, insurance policies, or governmental licenses, permits or
approvals. Lessee shall pay to Lessor an
amount
equal to 115% of
the
costs
and expenses incurred by Lessor in such performance
upon
receipt of an invoice therefor.
In
the
event of a Breach, Lessor may, with or
without
further notice or demand, and without limiting
Lessor
in
the exercise of any right or remedy which Lessor may
have
by
reason of such Breach:
(a)
Terminate
Lessee’s right to possession of the Premises
by
any
lawful means, in which case this Lease shall terminate
and
Lessee shall immediately surrender possession to Lessor. In such event Lessor
shall be entitled to recover from Lessee:
(i)
the
unpaid Rent which
had
been
earned at the time of termination; (ii) the worth
at
the
time of award of the amount by which the unpaid rent which
would
have been earned
after
termination until the time of award exceeds the
amount
of
such rental loss that the Lessee proves could
have
been
reasonably avoided; (iii) the
worth
at
the time of award of the amount by which the unpaid
rent
for
the balance of the term after the time of award exceeds
the
amount of such rental
loss
that
the Lessee proves could be reasonably avoided, and (iv) any other amount
necessary to compensate Lessor for all
the
detriment proximately
caused
by
the Lessee’s failure to perform its obligations
under
this Lease or which in the ordinary course of things would
be
likely
to result therefrom,
including
but not limited to the cost of recovering
possession
of the Premises, expenses of reletting,
including
necessary renovation and alteration of
the
Premises, reasonable attorneys’ fees, and that portion
of
any
leasing commission paid by Lessor in connection
with
this
Lease applicable to the
unexpired
term of this Lease. The worth at the time of award
of
the
amount referred to in provision (iii) of the immediately
preceding
sentence shall be
computed
by discounting such amount at the discount rate of the
Federal
Reserve Bank of the District within which the Premises
are
located at the time
of
award
plus one percent.
Efforts
by Lessor to mitigate damages caused by Lessee’s
Breach
of
this Lease shall not waive Lessor’s right to recover damages under Paragraph 12.
If termination of this Lease is obtained through the provisional remedy of
unlawful detainer, Lessor shall have the right
to
recover in such proceeding any unpaid Rent and
damages
as are recoverable therein, or Lessor may reserve
the
right
to recover all or any part
thereof
in a separate suit.
If
a
notice and grace period required under Paragraph
13.1
was
not previously given, a notice to pay rent or quit, or to perform or quit given
to Lessee under the unlawful detainer
statute
shall also constitute the notice required
by
Paragraph 13.1.
In
such
case, the applicable grace period required by Paragraph 13.1 and the unlawful
detainer statute shall
run
concurrently, and the failure of Lessee to cure
the
Default
within the greater of the two such grace periods
shall
constitute both an unlawful detainer and a
Breach
of
this Lease entitling Lessor to the
remedies
provided for in this Lease and/or by said statute.
(b)
Continue
the Lease and Lessee’s right to possession
and
recover the Rent as it becomes due, in which event Lessee may sublet or assign,
subject only to reasonable limitations. Acts of maintenance, efforts to relet,
and/or the appointment of a receiver to protect the Lessor’s interests shall not
constitute a termination of the Lessee’s right to possession.
(c)
Pursue any other remedy now or hereafter available under the laws or judicial
decisions of the state wherein the Premises are located. The expiration or
termination of this Lease and/or the termination of Lessee’s right to possession
shall not relieve Lessee from liability under any indemnity provisions of this
Lease as to matters occurring or accruing during the term hereof or by reason
of
Lessee’s occupancy of the Premises.
13.3
Inducement Recapture. Any agreement for free or abated rent or other charges,
or
for the giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee’s entering into this Lease, all of which
concessions are hereinafter referred to as “Inducement Provisions”, shall be
deemed conditioned upon Lessee’s full and faithful performance of all of the
terms, covenants and conditions of this Lease. Upon Breach of this Lease by
Lessee, any such Inducement Provision shall automatically be deemed deleted
from
this Lease and of no further force or effect, and any rent, other charge, bonus,
inducement or consideration theretofore abated, given or paid by Lessor under
such an Inducement Provision shall be immediately due and payable by Lessee
to
Lessor, notwithstanding any subsequent cure of said Breach by Lessee. The
acceptance by Lessor of rent or the cure of the Breach which initiated the
operation of this paragraph shall not be deemed a waiver by Lessor of the
provisions of this paragraph unless specifically so stated in writing by Lessor
at the time of such acceptance.
13.4
Late
Charges. Lessee hereby acknowledges that late payment by Lessee of Rent will
cause Lessor to incur costs not contemplated by this Lease, the exact amount
of
which will be extremely difficult to ascertain. Such costs include, but are
not
limited to processing and accounting charges, and late charges which may be
imposed upon Lessor by any Lender. Accordingly, if any Rent shall not be
received by Lessor within 5 days after such amount shall be due, then, without
any requirement for notice to Lessee, Lessee shall immediately pay to Lessor
a
one-time late charge equal to 10% of each such overdue amount or $100, whichever
is greater. The parties hereby agree that such late charge represents a fair
and
reasonable estimate of the costs Lessor will incur by reason of such late
payment. Acceptance of such late charge by Lessor shall in no event constitute
a
waiver of Lessee’s Default or Breach with respect to such overdue amount, nor
prevent the exercise of any of the other rights and remedies granted hereunder.
In the event that a late charge is payable hereunder, whether or not collected,
for 3 consecutive installments of Base Rent, then notwithstanding any provision
of this Lease to the contrary, Base Rent shall, at Lessor’s option, become due
and payable quarterly in advance.
13.5
Interest. Any monetary payment due Lessor hereunder, other than late charges,
not received by Lessor, when due as to scheduled payments (such as Base Rent)
or
within 30 days following the date on which it was due for non-scheduled payment,
shall bear interest from the date when due, as to scheduled payments, or the
31st day after it was due as to non-scheduled payments. The interest
(“Interest”) charged shall be computed at the rate of 10% per annum but shall
not exceed the maximum rate allowed by law. Interest is payable in addition
to
the potential late charge provided for in Paragraph 13.4.
13.6
Breach by Lessor.
(a)
Notice of Breach. Lessor shall not be deemed in breach of this Lease unless
Lessor fails within a reasonable time to perform an obligation required to
be
performed by Lessor. For purposes of this Paragraph, a reasonable time shall
in
no event be less than 30 days after receipt by Lessor, and any Lender whose
name
and address shall have been furnished Lessee in writing for such purpose, of
written notice specifying wherein such obligation of Lessor has not been
performed; provided, however, that if the nature of Lessor’s obligation is such
that more than 30 days are reasonably required for its performance, then Lessor
shall not be in breach if performance is commenced within such 30 day period
and
thereafter diligently pursued to completion
(b)
Performance by Lessee on Behalf of Lessor. In the event that neither Lessor
nor
Lender cures said breach within 30 days after receipt of said notice, or if
having commenced said cure they do not diligently pursue it to completion,
then
Lessee may elect to cure said breach at Lessee’s expense and offset from Rent
the actual and reasonable cost to perform such cure, provided however, that
such
offset shall not exceed an amount equal to the greater of one month’s Base Rent
or the Security Deposit, reserving Lessee’s right to reimbursement from Lessor
for any such expense in excess of such offset, Lessee shall document the cost
of
said cure and supply said documentation to Lessor.
14.
Condemnation. If the Premises or any portion thereof are taken under the power
of eminent domain or sold under the threat of the exercise of said power
(collectively “Condemnation
”
), this
Lease
shall terminate as to the part taken as of the date the condemning authority
takes title or possession, whichever first occurs. If more than 10% of the
floor
area of the Unit, or more than 25% of Lessee’s Reserved Parking Spaces, is taken
by Condemnation, Lessee may, at Lessee’s option, to be exercised in writing
within 10 days after Lessor shall have given Lessee written notice of such
taking (or in the absence of such notice, within 10 days after the condemning
authority shall have taken possession) terminate this Lease as of the date
the
condemning authority takes such possession. If Lessee does not terminate this
Lease in accordance with the foregoing, this Lease shall remain in full force
and effect as to the portion of the Premises remaining, except that the Base
Rent shall be reduced in proportion to the reduction in utility of the Premises
caused by such Condemnation. Condemnation awards and/or payments shall be the
property of Lessor, whether such award shall be made as compensation for
diminution in value of the leasehold, the value of the part taken, or for
severance damages; provided, however, that Lessee shall be entitled to any
compensation for Lessee’s relocation expenses, loss of business goodwill and/or
Trade Fixtures, without regard to whether or not this Lease is terminated
pursuant to the provisions of this Paragraph. All Alterations and Utility
Installations made to the Premises by Lessee, for purposes of Condemnation
only,
shall be considered the property of the Lessee and Lessee shall be entitled
to
any and all compensation which is payable therefore. In the event that this
Lease is not terminated by reason of the Condemnation, Lessor shall repair
any
damage to the Premises caused by such Condemnation.
15.
Brokerage Fees.
15.1
Additional Commission. In addition to the payments owed pursuant to Paragraph
1.10 above, and unless Lessor and the Brokers otherwise agree in writing, Lessor
agrees that (a) if Lessee exercises any Option, (b) it Lessee acquires from
Lessor any rights to the Premises or other premises owned by Lessor and located
within the Project, (c) if Lessee remains in possession of the Premises, with
the consent of Lessor, after the expiration of this Lease, or (d) if Base Rent
is increased, whether by agreement or operation of an escalation clause herein,
then, Lessor shall pay Brokers a fee in accordance with the schedule of the
Brokers in effect at the time of the execution of this Lease.
15.2
Assumption of Obligations. Any buyer or transferee of Lessor’s interest in this
Lease shall be deemed to have assumed Lessor’s obligation hereunder. Brokers
shall be third party beneficiaries of the provisions of Paragraphs 1.10, 15,
22
and 31. If Lessor fails to pay to Brokers any amounts due as and for brokerage
fees pertaining to this Lease when due, then such amounts shall accrue Interest.
In addition, if Lessor fails to pay any amounts to Lessee’s Broker when due,
Lessee’s Broker may send written notice to Lessor and Lessee of such failure and
if Lessor fails to pay such amounts within 10 days after said notice, Lessee
shall pay said monies to its Broker and offset such amounts against Rent. In
addition, Lessee’s Broker shall be deemed to be a third party beneficiary of any
commission agreement entered into by and/or between Lessor and Lessor’s Broker
for the limited purpose of collecting any brokerage fee owed.
15.3
Representations and Indemnities of Broker Relationships. Lessee and Lessor
each
represent and warrant to the other that it has had no dealings with any person,
firm, broker or finder (other than the Brokers, if any) in connection with
this
Lease, and that no one other than said named Brokers is entitled to any
commission or finder’s fee in connection herewith. Lessee and Lessor do each
hereby agree to indemnify, protect, defend and hold the other harmless from
and
against liability for compensation or charges which may be claimed by any such
unnamed broker, finder or other similar party by reason of any dealings or
actions of the indemnifying Party, including any costs, expenses, attorneys’
fees reasonably incurred with respect thereto.
16.
Estoppel Certificates.
(a)
Each
Party (as “Responding Party”) shall within 10 days after written notice from the
other Party (the “Requesting Party”) execute, acknowledge and deliver to the
Requesting Party a statement in writing in form similar to the then most current
“Estoppel Certificate” form published by the AIR Commercial Real Estate
Association, plus such additional information, confirmation and/or statements
as
may be reasonably requested by the Requesting Party.
(b)
If
the Responding Party shall fail to execute or deliver the Estoppel Certificate
within such 10 day period, the Requesting Party may execute an Estoppel
Certificate stating that (i) the Lease is in full force and effect without
modification except as may be represented by the Requesting Party, (ii) there
are no uncured defaults in the Requesting Party’s performance, and (iii) if
Lessor is the Requesting Party, not more than one month’s rent has been paid in
advance. Prospective purchasers and encumbrancers may rely upon the Requesting
Party’s Estoppel Certificate, and the Responding Party shall be estopped from
denying the truth of the facts contained in said Certificate.
(c)
If
Lessor desires to finance, refinance, or sell the Premises, or any part thereof,
Lessee and all Guarantors shall deliver to any potential lender or purchaser
designated by Lessor such financial statements as may be reasonably required
by
such lender or purchaser, including but not limited to Lessee’s financial
statements for the past 3 years. All such financial statements shall be received
by Lessor and such lender or purchaser in confidence and shall be used only
for
the purposes herein set forth.
17.
Definition of Lessor. The term “Lessor” as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises, or, if this
is
a sublease, of the Lessee’s interest in the prior lease. In the event of a
transfer of Lessor’s title or interest in the Premises or this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid,
the
prior Lessor shall be relieved of all liability with respect to the obligations
and/or covenants under this Lease thereafter to be performed by the Lessor.
Subject to the foregoing, the obligations and/or covenants in this Lease to
be
performed by the Lessor shall be binding only upon the Lessor as hereinabove
defined.
18.
Severability. The invalidity of any provision of this Lease, as determined
by a
court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19.
Days.
Unless otherwise specifically indicated to the contrary, the word “days” as used
in this Lease shall mean and refer to calendar days.
20.
Limitation on Liability. The obligations of Lessor under this Lease shall not
constitute personal obligations of Lessor, or its partners, members, directors,
officers or shareholders, and Lessee shall look to the Premises, and to no
other
assets of Lessor, for the satisfaction of any liability of Lessor with respect
to this Lease, and shall not seek recourse against Lessor’s partners, members,
directors, officers or shareholders, or any of their personal assets for such
satisfaction.
21.
Time
of Essence. Time is of the essence with respect to the performance of all
obligations to be performed or observed by the Parties under this
Lease.
22.
No
Prior or Other Agreements; Broker Disclaimer. This Lease contains all agreements
between the Parties with respect to any matter mentioned herein, and no other
prior or contemporaneous agreement or understanding shall be effective. Lessor
and Lessee each represents and warrants to the Brokers that it has made, and
is
relying solely upon, its own investigation as to the nature, quality, character
and financial responsibility of the other Party to this Lease and as to the
use,
nature, quality and character of the Premises. Brokers have no responsibility
with respect thereto or with respect to any default or breach hereof by either
Party. The liability (including court costs and attorneys’ fees), of any Broker
with respect to negotiation, execution, delivery or performance by either Lessor
or Lessee under this Lease or any amendment or modification hereto shall be
limited to an amount up to the fee received by such Broker pursuant to this
Lease; provided, however, that the foregoing limitation on each Broker’s
liability shall not be applicable to any gross negligence or willful misconduct
of such Broker.
23.
Notices
23.1
Notice Requirements. All notices required or permitted by this Lease or
applicable law shall be in writing and may be delivered in person (by hand
or by
courier) or may be sent by regular, certified or registered mail or U. S. Postal
Service Express Mail, with postage prepaid, or by facsimile transmission, and
shall be deemed sufficiently given if served in a manner specified in this
Paragraph 23. The addresses noted adjacent to a Party’s signature on this Lease
shall be that Party’s address for delivery or mailing of notices. Either Party
may by written notice to the other specify a different address for notice,
except that upon Lessee’s taking possession of the Premises. the Premises shall
constitute Lessee’s address for notice. A copy of all notices to Lessor shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate in writing.
23.2
Date
of Notice. Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given 72 hours after the same is addressed
as
required herein and mailed with postage prepaid. Notices delivered by United
States Express Mail or overnight courier that guarantee next day delivery shall
be deemed given 24 hours after delivery of the same to the Postal Service or
courier. Notices transmitted by facsimile transmission or similar means shall
be
deemed delivered upon telephone confirmation of receipt (confirmation report
from fax machine is sufficient), provided a copy is also delivered via delivery
or mail. If notice is received on a Saturday, Sunday or legal holiday, it shall
he deemed received on the next business day.
24.
Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or
condition hereof by Lessee, shall be deemed a waiver of any other term, covenant
or condition hereof, or of any subsequent Default or Breach by Lessee of the
same or of any other term, covenant or condition hereof. Lessor’s consent to, or
approval of, any act shall not be deemed to render unnecessary the obtaining
of
Lessor’s consent to, or approval of, any subsequent or similar act by Lessee, or
be construed as the basis of an estoppel to enforce the provision or provisions
of this Lease requiring such consent. The acceptance of Rent by Lessor shall
not
be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be
accepted by Lessor on account of moneys or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before
the
time of deposit of such payment.
25.
Disclosures Regarding The Nature of a Real Estate Agency
Relationship.
(a)
When
entering into a discussion with a real estate agent regarding a real estate
transaction, a Lessor or Lessee should from the outset understand what type
of
agency relationship or representation it has with the agent or agents in the
transaction. Lessor and Lessee acknowledge being advised by the Brokers in
this
transaction, as follows:
(i)
Lessor’s Agent
. A Lessor’s agent under a listing agreement with the
Lessor acts as the agent for the Lessor only. A Lessor’s agent or subagent has
the following affirmative obligations:
To
the
Lessor
:
A
fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings
with
the Lessor.
To
the
Lessee and the Lessor
:
(a)
Diligent exercise of reasonable skills and care in performance of the agent’s
duties. (b) A duty of honest and fair dealing and good faith. (c) A duty to
disclose all facts known to the agent materially affecting the value or
desirability of the property that are not known to, or within the diligent
attention and observation of, the Parties. An agent is not obligated to reveal
to either Party any confidential information obtained from the other Party
which
does not involve the affirmative duties set forth above.
(ii)
Lessee’s Agent
. An agent can agree to act as agent for the Lessee only.
In these situations, the agent is not the
Lessor’s
agent, even if by agreement the agent may receive compensation for services
rendered, either in full or in part from the Lessor. An agent acting only for
a
Lessee has the following affirmative obligations.
To
the
Lessee
:
A
fiduciary duly of utmost care, integrity, honesty, and loyalty in dealings
with
the Lessee.
To
the
Lessee and the Lessor:
(a)
Diligent exercise of reasonable skills and care in performance of the agent’s
duties. (b) A duty of honest and fair dealing and good faith. (c) A duty to
disclose all facts known to the agent materially affecting the value or
desirability of the property that are not known to, or within the diligent
attention and observation of, the Parties. An agent is not obligated to reveal
to either Party any confidential information obtained from the other Party
which
does not involve the affirmative duties set forth above.
(iii)
Agent
Representing Both Lessor and Lessee
.
A real
estate agent, either acting directly or through one or more associate licenses,
can legally be the agent of both the Lessor and the Lessee in a transaction,
but
only with the knowledge and consent of both the Lessor and the Lessee. In a
dual
agency situation, the agent has the following affirmative obligations to both
the Lessor and the Lessee: (a) A fiduciary duty of utmost care, integrity,
honesty and loyalty in the dealings with either Lessor or the Lessee. (b) Other
duties to the Lessor and the Lessee as stated above in subparagraphs (i) or
(ii). In representing both Lessor and Lessee, the agent may not without the
express permission of the respective Party, disclose to the other Party that
the
Lessor will accept rent in an amount less than that indicated in the listing
or
that the Lessee is willing to pay a higher rent than that offered. The above
duties of the agent in a real estate transaction do not relieve a Lessor or
Lessee from the responsibility to protect their own interests. Lessor and Lessee
should carefully read all agreements to assure that they adequately express
their understanding of the transaction. A real estate agent is a person
qualified to advise about real estate. If legal or tax advice is desired,
consult a competent professional.
(b)
Brokers have no responsibility with respect to any Default or Breach hereof
by
either Party. The Parties agree that no lawsuit or other legal proceeding
involving any breach of duty, error or omission relating to this Lease may
be
brought against Broker more than one year after the Start Date and that the
liability (including court costs and attorneys’ fees), of any Broker with
respect to any such lawsuit and/or legal proceeding shall not exceed the fee
received by such Broker pursuant to this Lease, provided, however, that the
foregoing limitation on each Broker’s liability shall not be applicable to any
gross negligence or willful misconduct of such Broker.
(c)
Buyer
and Seller agree to identify to Brokers as “Confidential” any communication or
information given Brokers that is considered by such Party to be
confidential.
26.
No
Right To Holdover. Lessee has no right to retain possession of the Premises
or
any part thereof beyond the expiration or termination of this Lease. In the
event that Lessee holds over, then the Base Rent shall be increased to 150%
of
the Base Rent applicable immediately preceding the expiration or termination.
Nothing contained herein shall be construed as consent by Lessor to any holding
over by Lessee.
27.
Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive
but shall, wherever possible, be cumulative with all other remedies at law
or in
equity.
28.
Covenants and Conditions; Construction of Agreement. All provisions of this
Lease to be observed or performed by Lessee are both covenants and conditions.
In construing this Lease, all headings and titles are for the convenience of
the
Parties only and shall not be considered a part of this Lease. Whenever required
by the context, the singular shall include the plural and vice versa. This
Lease
shall not be construed as if prepared by one of the Parties, but rather
according to its fair meaning as a
whole,
as
if both Parties had prepared it.
29.
Binding Effect; Choice of Law. This Lease shall be binding upon the parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between
the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30.
Subordination; Attornment; Non-Disturbance.
30.1
Subordination. This Lease and any Option granted hereby shall be subject and
subordinate to any ground lease, mortgage, deed of trust, or other hypothecation
or security device (collectively, “Security Device”), now or hereafter placed
upon the Premises, to any and all advances made on the security thereof, and
to
all renewals, modifications, and extensions thereof. Lessee agrees that the
holders of any such Security Devices (in this Lease together referred to as
“Lender”) shall have no liability or obligation to perform any of the
obligations of Lessor under this Lease. Any Lender may elect to have this Lease
and/or any Option granted hereby superior to the lien of its Security Device
by
giving written notice thereof to Lessee, whereupon this Lease and such Options
shall be deemed prior to such Security Device, notwithstanding the relative
dates of the documentation or recordation thereof.
30.2
Attornment. In the event that Lessor transfers title to the Premises, or the
Premises are acquired by another upon the foreclosure or termination of a
Security Device to which this Lease is subordinated (i) Lessee shall, subject
to
the non-disturbance provisions of Paragraph 30.3, attorn to such new owner,
and
upon request, enter into a new lease, containing all of the terms and provisions
of this Lease, with such new owner for the remainder of the term hereof, or,
at
the election of the new owner, this Lease will automatically become a new lease
between Lessee and such new owner, and (ii) Lessor shall thereafter be relieved
of any further obligations hereunder and such new owner shall assume all of
Lessor’s obligations, except that such new owner shall not: (a) be liable for
any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (b) be subject to any offsets or defenses
which Lessee might have against any prior lessor, (c) be bound by prepayment
of
more than one month’s rent, or (d) be liable for the return of any security
deposit paid to any prior lessor.
30.3
Non-Disturbance. With respect to Security Devices entered into by Lessor after
the execution of this Lease, Lessee’s subordination of this Lease shall be
subject to receiving a commercially reasonable non-disturbance agreement (a
“Non-Disturbance Agreement”) from the Lender which Non-Disturbance Agreement
provides that Lessee’s possession of the Premises, and this Lease, including any
options to extend the terns hereof, will not be disturbed so long as Lessee
is
not in Breach hereof and attorns to the record owner of the Premises. Further,
within 60 days after the execution of this Lease, Lessor shall use its
commercially reasonable efforts to obtain a Non-Disturbance Agreement from
the
holder of any pre-existing Security Device which is secured by the Premises.
In
the event that Lessor is unable to provide the Non-Disturbance Agreement within
said 60 days, then Lessee may, at Lessee’s option, directly contact Lender and
attempt to negotiate for the execution and delivery of a Non-Disturbance
Agreement.
30.4
Self-Executing. The agreements contained in this Paragraph 30 shall be effective
without the execution of any further documents; provided, however, that, upon
written request from Lessor or a Lender in connection with a sale, financing
or
refinancing of the Premises, Lessee and Lessor shall execute such further
writings as may be reasonably required to separately document any subordination,
attornment and/or Non-Disturbance Agreement provided for herein.
31.
Attorneys’ Fees. If any Party or Broker brings an action or proceeding involving
the Premises whether founded in tort, contract or equity, or to declare rights
hereunder, the Prevailing Party (as hereafter defined) in any such proceeding,
action, or appeal thereon, shall be entitled to reasonable attorneys’ fees. Such
fees may be awarded in the same suit or recovered in a separate suit, whether
or
not such action or proceeding is pursued to decision or judgment. The term,
“Prevailing Party” shall include, without limitation, a Party or Broker who
substantially obtains or defeats the relief sought, as the case may be, whether
by compromise, settlement, judgment, or the abandonment by the other Party
or
Broker of its claim or defense. The attorneys’ fees award shall not be computed
in accordance with any court fee schedule, but shall be such as to fully
reimburse all attorneys’ fees reasonably incurred. In addition, Lessor shall be
entitled to attorneys’ fees, costs and expenses incurred in the preparation and
service of notices of Default and consultations in connection therewith, whether
or not a legal action is subsequently commenced in connection with such Default
or resulting Breach ($200 is a reasonable minimum per occurrence for such
services and consultation).
32.
Lessor’s Access; Showing Premises; Repairs. Lessor and Lessor’s agents shall
have the right to enter the Premises at any time, in
the
case
of an emergency, and otherwise at reasonable times after reasonable prior notice
for the purpose of showing the same to prospective purchasers, lenders, or
tenants, and making such alterations, repairs, improvements or additions to
the
Premises as Lessor may deem necessary or desirable and the erecting, using
and
maintaining of utilities, services, pipes and conduits through the Premises
and/or other premises as long as there is no material adverse effect on Lessee’s
use of the Premises. All such activities shall be without abatement of rent
or
liability to Lessee.
33.
Auctions. Lessee shall not conduct, nor permit to be conducted, any auction
upon
the Premises without Lessor’s prior written consent. Lessor shall not be
obligated to exercise any standard of reasonableness in determining whether
to
permit an auction.
34.
Signs. Lessor may place on the Premises ordinary “For Sale” signs at any time
and ordinary “For Lease” signs during the last 6 months of the term hereof.
Except for ordinary “For Sublease” signs which may be placed only on the
Premises, Lessee shall not place any sign upon the Project without Lessor’s
prior written consent. All signs must comply with all Applicable
Requirements.
35.
Termination; Merger. Unless specifically stated otherwise in writing by Lessor,
the voluntary or other surrender of this Lease by Lessee, the mutual termination
or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee,
shall automatically terminate any sublease or lesser estate in the Premises;
provided, however, that Lessor may elect to continue any one or all existing
subtenancies. Lessor’s failure within 10 days following any such event to elect
to the contrary by written notice to the holder of any such lesser interest,
shall constitute Lessor’s election to have such event constitute the termination
of such interest.
36.
Consents. Except as otherwise provided herein, wherever in this Lease the
consent of a Party is required to an act by or for the other Party, such consent
shall not be unreasonably withheld or delayed Lessor’s actual reasonable costs
and expenses (including but not limited to architects’, attorneys’, engineers’
and other consultants’ fees) incurred in the consideration of, or response to, a
request by Lessee for any Lessor consent, including but not limited to consents
to an assignment, a subletting or the presence or use of a Hazardous Substance,
shall be paid by Lessee upon receipt of an invoice and supporting documentation
therefor. Lessor’s consent to any act, assignment or subletting shall not
constitute an acknowledgment that no Default or Breach by Lessee of this Lease
exists, nor shall such consent be deemed a waiver of any then existing Default
or Breach, except as may be otherwise specifically stated in writing by Lessor
at the time of such consent. The failure to specify herein any particular
condition to Lessor’s consent shall not preclude the imposition by Lessor at the
time of consent of such further or other conditions as are then reasonable
with
reference to the particular matter for which consent is being given. In the
event that either Party disagrees with any determination made by the other
hereunder and reasonably requests the reasons for such determination, the
determining party shall furnish its reasons in writing and in reasonable detail
within 10 business days following such request.
37.
Guarantor.
37.1
Execution. The Guarantors, if any, shall each execute a guaranty in the form
most recently published by the AIR Commercial Real Estate
Association.
37.2
Default. It shall constitute a Default of the Lessee if any Guarantor fails
or
refuses, upon request to provide: (a) evidence of the execution of the guaranty,
including the authority of the party signing on Guarantor’s behalf to obligate
Guarantor, and in the case of a corporate Guarantor, a certified copy of a
resolution of its board of directors authorizing the making of such guaranty,
(b) current financial statements, (c) an Estoppel Certificate, or (d) written
confirmation that the guaranty is still in effect.
38.
Quiet
Possession. Subject to payment by Lessee of the Rent and performance of all
of
the covenants, conditions and provisions on Lessee’s part to be observed and
performed under this Lease, Lessee shall have quiet possession and quiet
enjoyment of the Premises during the term hereof.
39.
Options. If Lessee is granted an option, as defined below, then the following
provisions shall apply.
39.1
Definition. “Option” shall mean: (a) the right to extend the term of or renew
this Lease or to extend or renew any lease that Lessee has on other property
of
Lessor; (b) the right of first refusal or first offer to lease either the
Premises or other property of Lessor; (c) the right to purchase or the right
of
first refusal to purchase the Premises or other property of Lessor.
39.2
Options Personal To Original Lessee. Any Option granted to Lessee in this Lease
is personal to the original Lessee, and cannot be assigned or exercised by
anyone other than said original Lessee and only while the original Lessee is
in
full possession of the Premises and, if requested by Lessor, with Lessee
certifying that Lessee has no intention of thereafter assigning or
subletting.
39.3
Multiple Options. In the event that Lessee has any multiple Options to extend
or
renew this Lease, a later Option cannot be exercised unless the prior Options
have been validly exercised.
39.4
Effect of Default on Options.
(a)
Lessee shall have no right to exercise an Option: (i) during the period
commencing with the giving of any notice of Default and continuing until said
Default is cured, (ii) during the period of time any Rent is unpaid (without
regard to whether notice thereof is given Lessee), (iii) during the time Lessee
is in Breach of this Lease, or (iv) in the event that Lessee has been given
3 or
more notices of separate Default, whether or not the Defaults are cured, during
the 12 month period immediately preceding the exercise of the
Option.
(b)
The
period of time within which an Option may be exercised shall not be extended
or
enlarged by reason of Lessee’s inability to exercise an Option because of the
provisions of Paragraph 39.4(a).
(c)
An
Option shall terminate and be of no further force or effect, notwithstanding
Lessee’s due and timely exercise of the Option, if, after such exercise and
prior to the commencement of the extended term or completion of the purchase,
(i) Lessee fails to pay Rent for a period of 30 days after such Rent becomes
due
(without any necessity of Lessor to give notice thereof), or (ii) if Lessee
commits a Breach of this Lease.
40.
Security Measures. Lessee hereby acknowledges that the Rent payable to Lessor
hereunder does not include the cost of guard service or other security measures,
and that Lessor shall have no obligation whatsoever to provide same. Lessee
assumes all responsibility for the protection of the Premises, Lessee, its
agents and invitees and their property from the acts of third
parties.
41.
Reservations. Lessor reserves the right: (i) to grant, without the consent
or
joinder of Lessee, such easements, rights and dedications that Lessor deems
necessary, (ii) to cause the recordation of parcel maps and restrictions, and
(iii) to create and/or install new utility raceways, so long as such easements,
rights, dedications, maps, restrictions, and utility raceways do not
unreasonably interfere with the use of the Premises by Lessee. Lessee agrees
to
sign any documents reasonably requested by Lessor to effectuate such
rights.
42.
Performance Under Protest. If at any time a dispute shall arise as to any amount
or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted
shall
have the right to make payment “under protest” and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part
of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum
or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay. A Party who does not initiate
suit for the recovery of sums paid “under protest” within 6 months shall be
deemed to have waived its right to protest such payment.
43.
Authority; Multiple Parties; Execution.
(a)
If
either Party hereto is a corporation, trust, limited liability company,
partnership, or similar entity, each individual executing this Lease on behalf
of such entity represents and warrants that he or she is duly authorized to
execute and deliver this Lease on its behalf. Each Party shall, within 30 days
after request, deliver to the other Party satisfactory evidence of such
authority.
(b)
If
this Lease is executed by more than one person or entity as “Lessee”, each such
person or entity shall be
jointly
and severally liable hereunder. It is agreed that any one of the named Lessees
shall be empowered to execute any amendment to this Lease, or other document
ancillary thereto and bind all of the named Lessees, and Lessor may rely on
the
same as if all of the named Lessees had executed such
document.
(c)
This
Lease may be executed by the Parties in counterparts, each of which shall be
deemed an original and all of which together shall constitute one and the same
instrument.
44.
Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten
or
handwritten provisions.
45
Offer.
Preparation of this Lease by either party or their agent and submission of
same
to the other Party shall not be deemed an offer to lease to the other Party.
This Lease is not intended to be binding until executed and delivered by all
Parties hereto.
46.
Amendments. This Lease may be modified only in writing, signed by the Parties
in
interest at the time of the modification. As long as they do not materially
change Lessee’s obligations hereunder, Lessee agrees to make such reasonable
non-monetary modifications to this Lease as may be reasonably required by a
Lender in connection with the obtaining of normal financing or refinancing
of
the Premises.
47.
Waiver of Jury Trial. THE PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO TRIAL
BY JURY IN ANY ACTION OR PROCEEDING INVOLVING THE PROPERTY OR ARISING OUT OF
THIS AGREEMENT.
48.
Mediation and Arbitration of Disputes. An Addendum requiring the Mediation
and/or the Arbitration of all disputes between the Parties and/or Brokers
arising out of this Lease
o
is
o
is
not
attached to this Lease.
49.
Americans with Disabilities Act. Since compliance with the Americans with
Disabilities Act (ADA) is dependent upon Lessee’s specific use of the Premises,
Lessor makes no warranty or representation as to whether or not the Premises
comply with ADA or any similar legislation. In the event that Lessee’s use of
the Premises requires modifications or additions to the Premises in order to
be
in ADA compliance, Lessee agrees to make any such necessary modifications and/or
additions at Lessee’s expense.
LESSOR
AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO
THE
PREMISES.
ATTENTION:
NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AIR COMMERCIAL REAL ESTATE
ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR
TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES
ARE URGED TO.
1
SEEK
ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE.
2
RETAIN
APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES.
SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE
OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY,
THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, COMPLIANCE WITH THE AMERICANS
WITH DISABILITIES ACT AND THE SUITABILITY OF THE PREMISES FOR LESSEE’S INTENDED
USE.
WARNING:
IF THE PREMISES ARE LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS
OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN
WHICH THE PREMISES ARE LOCATED.
The
parties hereto have executed this Lease at the place and on the dates specified
above their respective signatures.
Executed
at:
|
|
|
Executed
at:
|
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On:
|
|
|
On:
|
|
|
|
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By
LESSOR:
|
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By
LESSEE:
|
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Berkshire
Holdings, LLC
|
|
Waat
Corp.,
|
|
|
|
a
California corporation
|
|
|
|
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By:
|
/s/
LENA BARSEGHIAN
|
|
By:
|
/s/
TAL McAbian
|
Name
Printed:
|
LENA
BARSEGHIAN
|
|
Name
Printed:
|
TAL
McAbian
|
Title:
|
OFFICE
MANAGER
|
|
Title:
|
Partner
|
|
|
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|
By:
|
|
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By:
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|
Name
Printed:
|
|
|
Name
Printed:
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|
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Title:
|
|
|
Title:
|
|
Address:
|
|
|
Address:
|
|
|
|
|
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|
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Telephone:
|
(
)
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|
Telephone:
|
(
)
|
Facsimile:
|
(
)
|
|
Facsimile:
|
(
)
|
Federal
ID No.
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Federal
ID No
|
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BROKER:
|
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BROKER:
|
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Attn:
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Attn:
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Title:
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Title:
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Address:
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Address:
|
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Telephone:
|
(
)
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Telephone:
|
(
)
|
Facsimile:
|
(
)
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Facsimile:
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(
)
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Email:
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Email:
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FederalI
D No.
|
|
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Federal
ID No.
|
|
These
forms are often modified to meet changing requirements of law and needs of
the
industry. Always write or call to make sure you are utilizing the most current
form: AIR COMMERCIAL REAL ESTATE ASSOCIATION, 700 South Flower Street, Suite
600, Los Angeles, CA 90017. (213) 687-8777.
©Copyright
1999 By AIR Commercial Real Estate Association.
All
rights reserved.
No
part
of these works may be reproduced in any form without permission in
writing.
Date:
July 15, 2005
By
and Between
|
(Lessor)
|
Berkshire
Holdings, LLC
|
|
(Lessee)
|
Waat
Corp.
|
Address
of Premises:
|
14242
Ventura Boulevard, Suite 300
|
|
Sherman
Oaks, California 91423
|
Addendum
A
This
Addendum is to the Standard Industrial Commercial Multi-Tenant Lease - Net
dated
July 1, 2005, between Berkshire Holdings, LLC and Waat Corp. of 18226 Ventura
Boulevard, Suite # 102 Tarzana, CA 91356 USA. As a material consideration for
Lessee’s agreement to lease the Premises from Lessor, Lessor hereby agrees to
construct the following improvements pursuant to Lessee’s
specifications.
·
|
Tempered
glass/dividers/doors
|
·
|
Tenant
improvement line/DSL line
|
·
|
Air
conditioning (additional)
|
·
|
Internal
Windows, Frames and Blinds
|
Lessor
and Lessee hereby agree that the total value and cost of these Improvements
is
$150,000.00, which shall be reimbursed to Lessor by Lessee upon commencement
of
the Lease.
Date:
July 15, 2005
By
and Between
|
(Lessor)
|
Berkshire
Holdings, LLC
|
|
(Lessee)
|
Waat
Corp.
|
Address
of Premises:
|
14242
Ventura Boulevard, Suite 300
|
|
Sherman
Oaks, California 91423
|
Addendum
A
This
Addendum is to the Standard Industrial Commercial Multi-Tenant Lease - Net
dated
July 1, 2005, between Berkshire Holdings, LLC and Waat Corp. of 18226 Ventura
Boulevard, Suite # 102 Tarzana, CA 91356 USA. As a material consideration for
Lessee’s agreement to lease the Premises from Lessor, Lessor hereby agrees to
construct the following improvements pursuant to Lessee’s
specifications.
·
|
Tempered
glass/dividers/doors
|
·
|
Tenant
improvement line/DSL line
|
·
|
Air
conditioning (additional)
|
·
|
Internal
Windows, Frames and Blinds
|
Lessor
and Lessee hereby agree that the total value and cost of these Improvements
is
$150,000.00, which shall be reimbursed to Lessor by Lessee upon commencement
of
the Lease.
Execution
Version
THE
WAAT CORP.
May
16,
2006
Mr. Adi
McAbian
c/o
The
WAAT Corp.
14242
Ventura Blvd, 3rd Floor
Sherman
Oaks, California 91423
Dear
Adi:
The
purpose of this letter (the
“
Letter
Agreement
”)
is
to
acknowledge and set
forth
the
terms and conditions of your employment with The WAAT Corp., a California
corporation
(the
“Company”
).
1.
Duties
and Responsibilities
.
During
the Employment Term, you will serve
as
the
Managing Director of the Company or in such other position as determined by
the
Chief
Executive Officer of the Company from time to time. You will report to the
Chief
Executive
Officer of the Company (or its designee). You will have such duties and
responsibilities
that are commensurate with your position and such other duties and
responsibilities
as are from time to time assigned to you by the Chief Executive Officer
(or
its
designee)
.
.
During
the Employment Term, you will devote your full business time,
energy
and skill to the performance of your duties and responsibilities hereunder,
provided
the foregoing shall not prevent you from (i) serving on the board of directors
of
non-profit
organizations and, with the prior written approval of the Board, other
companies,
(ii) participating in charitable, civic, educational, professional, community
or
industry
affairs and (iii) managing your and your family’s passive personal investments;
provided
such activities in the aggregate do not interfere or conflict with your duties
hereunder
or create a potential business conflict.
2.
Employment
Term
.
The
term
of your employment under this Letter
Agreement
(the
“
Employment
Term
”)
will
be
for a term commencing on the date first written above (the
“
Effective
Date
”)
and,
unless terminated earlier as provided in
paragraph
6 hereof or extended by mutual consent of you and the Company on terms at least
as favorable as those in the final year of the Employment Term, ending on the
third
anniversary
of the Effective Date.
3.
Base
Salary
.
During
the Employment Term, the Company will pay you a
base
salary at the rate of $300,000 per year, in accordance with the usual payroll
practices
of
the
Company. Your Base Salary shall be subject to annual review by the Board and
may
be
increased, but not decreased, from time to time by the Board; provided, however,
that,
commencing January 1, 2007, you shall receive a minimum annual increase in
Base
Salary equal to the lesser of 5% or the percentage equal to the increase, if
any, in the
Consumer
Price Index measured for the 12 month period immediately preceding the
effective
date of the increase. The base salary as determined herein from time to time
shall
constitute “
Base
Salary
”
for
purposes of this Letter Agreement. For purposes of
this
paragraph 3,
“
Consumer
Price
Index
”
shall
mean the Consumer Price Index for
Urban
Wage Earners and Clerical Works (1982 -
1984
=
100) for the Los Angeles
Metropolitan
area published by the United States Department of Labor, Bureau of
Statistics.
Mr. Adi
McAbian
Page
2
4.
Annual
Bonus
.
You
will
be eligible to receive an annual target cash bonus of up to 35% of Base Salary,
if earned, determined by the Board (the
“
Bonus
”).
Such
bonus
will
be
based upon the achievement of performance goals set by the Board (or a
committee
thereof), including, without limitation, the operating results of the Company
and
your
individual performance, as determined by the Board in its sole
discretion.
5.
Benefits
and Fringes
.
(a)
General
.
During
the Employment Term, you will be entitled to such benefits and fringes, if
any,
as are generally provided from time to time by
the
Company to its employees at a level commensurate with your position, subject
to
the
satisfaction of any eligibility requirements.
(b)
Vacation
.
You will
also be entitled to annual paid vacation in
accordance
with the Company’s vacation policies in effect from time to time, but
in
no
event less than four weeks per calendar year (as prorated for partial years),
which vacation may be taken at such times as you elect with due regard to the
needs of the Company.
(c)
Reimbursement
of Business and Entertainment Expenses;
Travel
.
Upon
presentation of appropriate documentation, you will be reimbursed
in
accordance with the Company’s expense reimbursement policy for all
reasonable
and necessary business and entertainment expenses incurred in connection with
the performance of your duties and responsibilities hereunder.
If
you
travel on business of the Company, you will be reimbursed for the cost of
airfare (business class airfare or other airfare class comparable in cost to
business
class
airfare on all flights scheduled to have a flight time of three or more hours)
and
the
reasonable cost of business class lodging accommodations, as well as for
your
reasonable and necessary out-of-pocket expenses incurred in connection
therewith,
in accordance with the Company’s policies.
(d)
Automobile
Allowance
.
During
the Employment Term, you will
receive
an automobile allowance in the amount of $600 per month.
6.
Termination
of Employment
.
Your
employment and the Employment Term
will
terminate on the first of the following to occur:
Mr. Adi
McAbian
Page
3
(a)
Disability
.
Upon
written notice by the Company to you of termination due to Disability, while
you
remain Disabled. For purposes of this
Letter
Agreement, “
Disability
”
will
be
defined as your inability to perform your material duties hereunder due to
a
physical or mental injury, infirmity or incapacity for a continuous period
of
not less than 90 days (including weekends
and
holidays) or for 180 days (including weekends and holidays) in any 365-day
period.
(b)
Death
.
Automatically
on the date of your death.
(c)
Cause
.
Immediately
upon written notice by the Company to you
of
a
termination for Cause. For purposes of this Letter Agreement,
“
Cause
”
will
mean:
(1)
your
willful misconduct which, in the good faith judgment
of
the
Board, has a material negative impact on the Company (either
economically
or on its reputation);
(2)
your
indictment for, conviction of, or pleading of guilty or
nolo
contendere
to,
a
felony (or equivalent outside of the United States) or any crime involving
fraud, dishonesty or moral turpitude;
(3)
your
failure to perform your duties, which failure is not
remedied
within 20 days of written notice from the Board specifying the
details
thereof;
(4)
your
failure to follow the legal direction of the Board after
written
notice from the Board specifying the details thereof; and
(5)
any
other
material breach of this Letter Agreement by you
that
is
not remedied within 20 days of written notice from the Board
specifying
the details thereof.
(d)
Without
Cause
.
Upon
30
days’ prior written notice by the
Company
to you of an involuntary termination without Cause, other than for
death
or
Disability;
(e)
Good
Reason
.
Upon
written notice by you to the Company of a
termination
for Good Reason, unless such events are corrected in all material respects
by
the Company within 20 days following your written notification to the
Company
for one of the reasons set forth below.
“
Good
Reason
”
will
mean,
withbut
your express written consent, any reduction of, or failure to timely pay,
your
Base
Salary or any material breach of paragraphs 4 or 5 of this Letter
Agreement.
Good Reason will cease to exist for an event on the 90th day following its
occurrence, unless you have given the Company written notice thereof prior
to
such date.
Mr. Adi
McAbian
Page
4
(f)
Expiration
of Employment Term
.
Upon
the
end of the
Employment
Term.
7
.
Compensation
Upon Termination.
(a)
Disability;
Death; Cause
.
If
your
employment terminates on
account
of your Disability or your death or if the Company terminates you for Cause,
the
Company will pay or provide to you (i) any unpaid Base Salary through the date
of termination; (ii) other than if the Company terminates your employment for
Cause, any Bonus earned but unpaid with respect to the fiscal
year
ending on or preceding the date of termination; (iii) reimbursement for any
unreimbursed
expenses incurred through the date of termination; (iv) any accrued but unused
vacation time in accordance with Company policy; and (v) all other payments,
benefits or fringe benefits to which you may be entitled under the terms
of
any
applicable compensation arrangement or benefit, equity or fringe benefit
plan
or
program or grant or this Letter Agreement (collectively items (i) through
(v)
shall
be hereafter referred to as
“
Accrued
Benefits
”)
(b)
Termination
Without Cause or For Good Reason
.
If
your
employment
by the Company is terminated by the Company without Cause or by you for Good
Reason, the Company will pay or provide you with (x) any Accrued
Benefits;
and (y) subject to your compliance with the obligations in paragraphs 8
and
9
hereof: (1) continued payment of your base salary (but not as an employee)
in
accordance with the usual payroll practices of the Company for the greater
of
(A)
a
period equal to the period between the date of termination and the end of the
Employment
Term or (B) a period equal to three months following such termination (the
“
Severance
Period
”);
(2)
at
the time bonuses are typically paid
to
employees, a pro-rata portion of the Bonus for the fiscal year in which your
termination occurs based on actual results for the plan year (determined by
multiplying
the amount of the Bonus which would be due for the full fiscal year
by
a
fraction, the numerator of which is the number of days during the fiscal year
of
termination that you are employed by the Company and the denominator of
which
is
365); (3) subject to (A) your timely election of continuation coverage
under
the
Consolidated Budget Omnibus Reconciliation Act of 1985, as amended
(“
COBRA
”)
and
(B) your continued copayment of premiums at the same level and cost to you
as if
you were an employee of the Company (excluding, for purposes of calculating
cost, an employee’s ability to pay premiums with pre-tax
dollars),
to the extent permitted under applicable law and the terms of such plan,
continued
participation during the Severance Period in the Company’s group
health
plan which covers you as of the date of termination at the Company’s
expense
(other than the aforementioned premiums), provided that you are eligible
and
remain eligible for COBRA coverage; provided, however, that in the event
that
you
obtain other employment that offers substantially similar or improved group
health benefits, such continuation of coverage by the Company under this
sub-paragraph
shall immediately cease; and (4) immediate vesting and
exercisability
of 50% of all outstanding stock options to purchase shares of the
Company’s
common stock. Payments or benefits provided in this paragraph 7(b)
shall
be
in lieu of any termination or severance payments or benefits for which you
may
be eligible under any of the plans, policies or programs of the
Company.
Mr. Adi
McAbian
Page
5
(c)
Expiration
of Employment Term
.
If
the
Employment Term ends
at
the
third anniversary of the Effective Date and you do not continue as an
employee
beyond such time, the Company will pay or provide you with (x) any
Accrued
Benefits; and (y) subject to your compliance with the obligations in
paragraphs
8 and 9 hereof: (1) continued payment of your base salary (but not as
an
employee) in accordance with the usual payroll practices of the Company for
a
period equal to three months following such termination; and (2) the benefits
provided
in paragraph
7(b)(3)
for a period of three months.
8.
Release;
No Set-Off; No Mitigation
.
(a)
Any
and
all amounts payable and benefits or additional rights
provided
pursuant to this Letter Agreement beyond Accrued Benefits shall only be payable
if you deliver to the Company and do not revoke a general release of
all
claims related to the Company, its affiliates, and their respective past,
present
and
future employees, officers, trustees, agents and representatives in a form
substantially in the form of Exhibit A hereto and mutually agreed upon by you
and
the
Company.
(b)
The
Company’s obligation to make any payment provided for in
this
Letter Agreement shall not be subject set-off, counterclaim or recoupment of
amounts
owed by you to the Company or its affiliates.
(c)
In no
event shall you be obliged to seek other employment or take any other action
by
way of mitigation of the amounts payable to you under any of the provisions
of
this Letter Agreement, nor shall the amount of any payment hereunder be reduced
by any compensation earned by you
as
a
result of
employment
by another employer (other than as provided in paragraph
7(b)(y)(3)).
Mr. Adi
McAbian
Page
6
9.
Restrictive
Covenants
.
(a)
Non-Competition
.
During
the Employment Term, you will not,
directly
or indirectly, without the prior written consent of the Company, enter into
Competition with the Company or any of its affiliates (the “
Employer
”).
“Competition”
means
participating, directly or indirectly, as an individual
proprietor,
partner, stockholder, officer, employee, director, joint venturer,
investor,
lender, consultant or in any capacity whatsoever in a business in the field
of
business that the Employer is engaged in as of the date of your termination
of
employment
with the Company or is actively planning to engage in as of the date
of
your
termination of employment with the Company.
(b)
Confidentiality
.
During
the Employment Term and thereafter,
you
will
hold in a fiduciary capacity for the benefit of the Employer all secret or
confidential
information, knowledge or data relating to the Employer, and their respective
businesses, which will have been obtained by you during your
employment
by the Company and which will not be or become public knowledge (other than
by
acts by you or your representatives in violation of this Letter
Agreement).
You will not, except as may be required to perform your duties
hereunder
or as may otherwise be required by law or legal process, without
limitation
in time or until such information will have become public or known in the
Employer’s industry (other than by acts by you or your representatives in
violation of this Letter Agreement), communicate or divulge to others or use,
whether directly or indirectly, any such information, knowledge or data
regarding
the
Employer, and their respective businesses.
(c)
Non-Solicitation
of
Customers
.
During
the Employment Term
and
for
the twelve-month period following your termination of employment for
any
reason (the
“
Restricted
Period
”),
you
will
not, directly or indirectly,
influence
or attempt to influence customers or suppliers of the Employer to divert their
business to any competitor of the Employer.
(d)
Non-Solicitation
of Employees
.
You
recognize that you possess
and
will
possess confidential information about other employees of the Employer
relating
to their education, experience, skills, abilities, compensation and benefits,
and
inter-personal relationships with customers of the Employer. You recognize
that
the
information you possess and will possess about these other employees is not
generally known, is of substantial value to the Employer in developing its
business
and in securing and retaining customers, and has been and will be
acquired
by you because of your business position with the Employer. You agree
that,
during the Restricted Period, you will not, directly or indirectly, solicit
or
recruit
any employee of the Employer for the purpose of being employed by you
or
by any
competitor of the Employer on whose behalf you are acting as an agent,
representative
or employee and that you will not convey any such confidential
information
or trade secrets about other employees of the Employer to any other
person.
Mr. Adi
McAbian
Page
7
(e)
Non-Disparagement
.
You
shall
not, or induce others to,
Disparage
the Employer or any of their past and present officers, directors, employees
or
products.
“
Disparage
”
shall
mean making comments or statements
to
the
press, the Employer’s employees or any individual or entity with whom the
Employer
has a business relationship which would adversely affect in any
manner:
(i) the conduct of the business of the Employer (including, without
limitation,
any products or business plans or prospects); or (ii) the business reputation
of
the Employer, or any of their products, or their past or present officers,
directors or employees.
(f)
Cooperation
.
Upon
the
receipt of notice from the Company
(including
outside counsel), you agree that during the Employment Term and
thereafter,
you will respond and provide information with regard to matters in which you
have knowledge as a result of your employment with the Company, and will provide
reasonable assistance to the Employer and its representatives in defense of
any
claims that may be made against the Employer, and will assist the Employer
in
the prosecution of any claims that may be made by the Employer, to the extent
that such claims may relate to the period of your employment with the
Company
(or any predecessor). You agree to promptly inform in the Company if
you
become aware of any lawsuits involving such claims that may be filed or
threatened
against the Employer. You also agree to promptly inform the
Company
(to the extent you are legally permitted to do so) if you are asked to
assist
in
any investigation of the Employer (or their actions), regardless of whether
a
lawsuit or other proceeding has then been filed against the Employer with
respect to such investigation, and will not do so unless legally
required.
(g)
Injunctive
Relief
.
It
is
further expressly agreed that the Employer will or would suffer irreparable
injury if you were to violate the provisions of this
paragraph
9 and that the Employer would by reason of such violation be entitled
to
injunctive relief in a court of appropriate jurisdiction and you further consent
and
stipulate to the entry of such injunctive relief in such court prohibiting
you
from
violating the provisions of this paragraph 9.
(h)
Survival
of Provisions
.
The
obligations contained in this paragraph 9 will survive the termination of your
employment with the Company
and
will
be fully enforceable thereafter. If it is determined by a court of
competent
jurisdiction in any state that any restriction in this paragraph 9 is
excessive
in duration or scope or extends for too long a period of time or over too great
a range of activities or in too broad a geographic area or is unreasonable
or
unenforceable
under the laws of that state, it is the intention of the parties that
such
restriction
may be modified or amended by the court to render it enforceable to the maximum
extent permitted by the law of that state or jurisdiction.
10.
Representations
.
You
represent and warrant that your execution and delivery
of
this
Letter Agreement and your performing the contemplated services does not and
will
not
conflict with or result in any breach or default under any agreement, contract
or
arrangement
which you are a party to or violate any other legal restriction.
You
further
represent
and warrant that you have been advised by the Company to consult independent
legal
counsel of your choice before signing this Letter Agreement.
Mr. Adi
McAbian
Page
8
11.
Assignment
.
Notwithstanding
anything else herein, this Letter Agreement is
personal
to you and neither the Letter Agreement nor any rights hereunder may be
assigned
by you. The Company may assign the Letter Agreement to an affiliate or to any
acquiror
of all or substantially all of the assets of the Company.
This
Letter Agreement will inure to the benefit of and be binding upon the personal
or legal representatives,
executors,
administrators, successors, heirs, distributees, devisees, legatees and
permitted assignees of the parties.
12.
Arbitration
.
You
agree
that all disputes and controversies arising under or in
connection
with this Letter Agreement, other than seeking injunctive or other equitable
relief under paragraph 9(g),
will
be
settled by arbitration conducted before one (1)
arbitrator
mutually agreed to by the Company and you, sitting in Los Angeles, California
or
such
other location agreed to by you and the Company, in accordance with the
National
Rules for the Resolution of Employment Disputes of the American Arbitration
Association
then in effect; provided, however, that if the Company and you are unable to
agree
on
a single arbitrator within 30 days of the demand by another party for
arbitration, an arbitrator will be designated by the Los Angeles Office of
the
American Arbitration Association. The determination of the arbitrator will
be
final and binding on you and the Employer. Judgment may be entered on the award
of the arbitrator in any court having
proper
jurisdiction. Each party will bear their own expenses of such
arbitration.
13.
Indemnification
.
The
Company hereby agrees to indemnify you and hold you harmless to the extent
provided under the by-laws of the Company against and in respect to any and
all
actions, suits, proceedings, claims, demands, judgments, costs,
expenses
(including reasonable attorney’s fees), losses, and damages resulting from the
your
good
faith performance of his duties and obligations with the Company.
This
obligation
shall survive the termination of your employment with the Company.
14.
Liability
Insurance
.
The
Company shall cover you under directors and
officers
liability
insurance both during and, while potential liability exists, after the
Employment
Term in the same amount and to the same extent as the Company covers its
other
officers and directors.
15.
Withholding
Taxes
.
The
Company may withhold from any and all amounts
payable
to you such federal, state and local taxes as may be required to be withheld
pursuant
to any applicable laws or regulations.
16.
Governing
Law
.
This
Letter Agreement will be governed by, and construed
under
and
in accordance with, the internal laws of the State of California, without
reference
to rules relating to conflicts of laws.
Mr. Adi
McAbian
Page
9
17.
Entire
Agreement; Amendments
.
This
Letter Agreement and the
agreements
referenced herein contain the entire agreement of the parties relating to the
subject
matter hereof, and supercede in their entirety any and all prior agreements,
understandings
or representations relating to the subject matter hereof. No amendments,
alterations
or modifications of this Letter Agreement will be valid unless made in writing
and
signed by the parties hereto.
18.
Notice
.
Any
notice or other communication required or permitted to be given
under
this Agreement
(a
“
Notice
”)
shall
be in writing and delivered in person, by
facsimile
transmission (with a Notice contemporaneously given by another method
specified
in this paragraph 18), by overnight courier service or by postage prepaid mail
with
a
return receipt requested, at the following locations (or to such other address
as
either
party may have furnished to the other in writing by like Notice.
All
such
Notices
shall
only be duly given and effective upon receipt (or refusal of
receipt).
If
to the
Executive:
At
the
address (or to the facsimile number) shown
on
the
records of the Company
If
to the
Company:
The
WAAT
Corp.
14242
Ventura Blvd, 3rd Floor
Sherman
Oaks, California 91423
Attention:
Chief Executive Officer
We
hope
that you find the foregoing terms and conditions acceptable.
You
may
indicate
your agreement with the terms and conditions set forth in this Letter Agreement
by
signing the enclosed duplicate original of this Letter Agreement and returning
it to me.
Mr. Adi
McAbian
P
age
10
We
look
forward to your continued employment with the Company.
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Very
truly yours,
|
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|
THE
WAAT
CORP.
|
|
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|
|
By:
|
/s/
Ian
Aaron
|
|
|
|
|
Name:
|
Ian
Aaron
|
|
|
|
|
Title:
|
Chief
Executive Officer
|
Accepted
and Agreed:
|
|
|
|
/s/
Adi McAbian
|
|
|
|
Adi
McAbian
|
|
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Exhibit
A
Form
of Release
To:
The
WAAT
Corp.
14242
Ventura
Blvd, 3rd Floor
Sherman
Oaks,
California 91423
Attention:
Chief Executive Officer
1.
Termination
.
(a)
I
hereby acknowledge that my employment with The
WAAT
Corp. (“
WAAT
”)
will
terminate on
____________
,
____
(the
“
Termination
Date
”)
pursuant
to provisions of paragraph 6 of my employment letter agreement dated
as
of May
__
,
2006
with
WAAT (the “
Letter
Agreement
”),
that
WAAT
will not have an
obligation
to rehire me or to consider me for reemployment after the Termination Date
and
that my employment with WAAT is permanently and irrevocably
severed.
(b)
I
hereby
confirm my resignation from my position as Chief
Executive
Officer of WAAT and that I will not be eligible for any benefits or compensation
after the Termination Date, other than as specifically provided hereunder and
in
paragraph 7 of the Letter Agreement.
In
addition, effective as of the Termination Date, I hereby resign from all
offices, directorships, trusteeships,
committee
memberships and fiduciary capacities held with, or on behalf of,
WAAT
or
any of its affiliates or any benefit plans of WAAT or any of its
affiliates.
These resignations will become irrevocable on the Effective Date of
this
Agreement, as defined in paragraph 7 below.
(c)
I
further
acknowledge and agree that, after the Termination Date, I
will
not
represent myself as being a director, employee, officer, trustee, agent or
representative
of WAAT for any purpose and will not make any public statements
relating
to WAAT and in no event will I make any statements as an agent or
representative
of WAAT.
2.
Consideration
.
I
acknowledge that this General Release is being executed in
accordance
with paragraph 8 of the Letter Agreement.
3.
General
Release
.
(a)
For
and in consideration of the payments to be made
and
the
promises set forth in the Letter Agreement, I, for myself and for my heirs,
dependents,
executors, administrators, trustees, legal representatives and assigns
(collectively
referred to as
“
Releasors
”),
hereby
forever release, waive and discharge WAAT and its shareholders, representatives,
affiliates and subsidiaries, employee benefit and/or pension plans or funds,
insurers, successors and assigns, and all of its or their past, present and/or
future officers, trustees, agents, attorneys, employees, fiduciaries, trustees,
administrators and assigns when acting as agents for WAAT (collectively referred
to as
“
Releasees
”),
from
any
and all claims, demands, causes of action, fees and liabilities of
any
kind
whatsoever, whether known or unknown, which Releasors ever had, now have, or
hereafter may have against Releasees by reason of any actual or alleged act,
omission, transaction, practice, policy, procedure, conduct, occurrence, or
other matter up to and
including
the date of my execution of this General Release, including without limitation,
those
in
connection with, or in any way related to or arising out of, my employment,
service
as a director, service as a trustee, service as a fiduciary or termination
of
any of
the
foregoing with WAAT or any other agreement, understanding, relationship,
arrangement,
act, omission or occurrence, with WAAT or other claims.
(b)
Without
limiting the generality of the foregoing, this General
Release
is intended and will release the Releasees from any and all claims,
whether
known or unknown, which Releasors ever had, now have, or may
hereafter
have against the Releasees including, but not limited to, (i) any claim of
discrimination
or retaliation under the Age Discrimination in Employment Act (“
ADEA
”)
29
U.S.C. Section 621 et seq., Title VII of the Civil Rights Act, the Americans
with Disabilities Act, the Employee Retirement Income Security Act
of
1974,
as amended (“
ERI
SA
”)
or the
Family and Medical Leave Act; (ii) any
claim
under the California Fair Employment Act, the California Labor Code, the
California
Family Rights Act, the California Pregnancy Disability Leave Law or
the
California Continuation Benefits Replacement Act; (iii) any other claim
(whether
based on federal, state or local law or ordinance statutory or decisional)
relating to or arising out of my employment, the terms and conditions of such
employment,
the termination of such employment and/or any of the events
relating
directly or indirectly to or surrounding the termination of such
employment,
and/or any of the events relating directly or indirectly to or
surrounding
the termination of that employment, including, but not limited to,
breach
of
contract (express or implied), tort, wrongful discharge, detrimental reliance,
defamation, emotional distress or compensatory or punitive damages;
and
(iv)
any claim for attorney’s fees, costs, disbursements and the like.
(c)
I
agree
that I will not, from any source or proceeding, seek or accept any award or
settlement with respect to any claim or right covered by paragraph 3(a) or
(b)
above, including, without limitation, any source or
proceeding
involving any person or entity, the United States Equal Employment
Opportunity
Commission or other similar federal or state agency. Except as
otherwise
required by law, I further agree that I will not, at any time hereafter,
commence, maintain, prosecute, participate in as a party, permit to be filed
by
any
other
person on my behalf (to the extent it is within my control or permitted by
law),
or
assist in the commencement or prosecution of as an advisor, witness (unless
compelled by legal process or court order) or otherwise, any action or
proceeding of any kind, judicial or administrative (on my own behalf, on behalf
of
any
other
person and/or on behalf of or as a member of any alleged class of
persons)
in any court, agency, investigative or administrative body against any
Releasee
with respect to any actual or alleged act, omission, transaction, practice,
conduct,
occurrence or any other matter up to and including the date of my
execution
of this General Release which I released pursuant to paragraph 3(a) or
(b)
above. I further represent that, as of the date I sign this General Release,
I
have
not
taken any action encompassed by this paragraph
3(c).
If,
notwithstanding
the foregoing promises, I violate this paragraph
3(c),
I
will
indemnify
and hold harmless Releasees from and against any and all demands, assessments,
judgments, costs, damages, losses and liabilities and attorneys’ fees
and
other
expenses which result from, or are incidents to, such violation.
Notwithstanding
anything herein to the contrary, this paragraph 3(c) will not apply to any
claims that I may have under the ADEA and will not apply to the portion of
the
release provided for in paragraph 3(a) or (b) relating to the
ADEA.
(d)
The
sole
matters to which the release and covenants in this
paragraph
3 do not apply are: (i) my rights of indemnification and coverage under
directors
and officers liability insurance to which I was entitled immediately prior
to
the
Termination Date under the Company’s certificate of incorporation, bylaws
or
other
corporate governance documents or paragraphs 13 and 14 of the Letter
Agreement;
or (ii) my rights under any tax-qualified pension plan maintained by WAAT or
claims for accrued, vested benefits under any other employee benefit
plan
or
under the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended,
(iii) my rights as a stockholder of the Company;
and
(iv)
my
rights
under
the
Letter Agreement.
(e)
I
hereby
expressly and knowingly waive application of Section
1542
of
the California Civil Code and all comparable, equivalent or similar
provisions
of state or federal law. I further certify that I have read and understand
the
provisions of Section
1542
of
the
California Civil Code, which reads as
follows:
A
GENERAL
RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT
TO
EXIST IN HIS FAVOR AT THE TIME
OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY
HIM
MUST
HAVE MATERIALLY AFFECTED HIS
SETTLEMENT
WITH THE DEBTOR.
4.
Restrictive
Covenants; Survival
.
I
hereby
acknowledge the existence and
applicability
of the restrictions set forth in paragraph 9 of the Letter Agreement, as well
as
the
other provisions of the Letter Agreement which are intended to survive
termination
of
employment. All such provisions shall remain in full force and effect following
the
Termination
Date.
5.
Governing
Law;
Enforceability
.
The
interpretation of this General Release will be governed and construed in
accordance with the laws of the State of California,
without
reference to principles of conflict of laws. If any provisions of this General
Release
will be declared to be invalid or unenforceable, in whole or in part, such
invalidity
or unenforceability will not affect the remaining provisions hereof which will
remain
in
full
force
and
effect.
6.
Acknowledgement
.
I
acknowledge that I have been advised by WAAT in
writing
to consult independent legal counsel of my choice before signing this General
Release.
I further acknowledge that I have had the opportunity to consult, and I have
consulted with, independent legal counsel and to consider the terms of this
General
Release
for a period of at least 21 days.
7.
Effective
Date
.
I
further
acknowledge that this General Release will not
become
effective until the eighth day following my execution of this General Release
(the
“
Effective Date
”), and that I may at any time prior to the
Effective Date revoke this
General
Release by delivering written notice of revocation to: The WAAT Corp. at 14242
Ventura
Blvd, 3rd Floor, Sherman Oaks, California 91423, to the attention of the
[________]
In
the
event that I revoke this General Release prior to the eighth day after its
execution, this General Release and the promises contained in the Letter
Agreement, will automatically be null and void.
8.
Entire
Agreement
.
I
understand that this General Release and the Letter
Agreement
constitute the complete understanding between WAAT and me and that no
other
promises or agreements will be binding unless in writing and signed by me and
WAAT
after the date hereof.
9.
Counterparts
.
This
General Release may be executed in several
counterparts,
each of which will be deemed to be an original but all of which together
will
constitute one and the same instrument.
Dated:
AMENDMENT
TO EMPLOYMENT AGREEMENT
This
amendment ("Amendment")
is
effective as of December
31,
2007
("Amendment
Date") by and between Twistbox Entertainment, Inc. (as successor-in-
interest
to The WAAT Corporation) ("Twistbox") and Adi McAbian ("Founder"),
and
amends
that certain Employment Agreement dated as of May 16, 2006 by and between
Twistbox and Founder ("Agreement").
Unless
otherwise defined herein, defined terms
shall
have their meanings as set forth in the Agreement.
RECITALS
WHEREAS,
Twistbox
and Ian Aaron, Adi McAbian, Tal Dean McAbian and
Camill
Sayadeh (the "Founders"), and owners of a significant percentage of the common
stock
of
Twistbox, have instituted a company wide cost reduction plan;
WHEREAS,
Founder
deems it to be in the best interest of Twistbox to agree to a
voluntary
reduction in his Base Salary; and
WHEREAS,
the
parties hereto desire to memorialize their prior oral agreements
and
mutual understandings as contained herein.
AMENDMENT
NOW
THEREFORE,
in
consideration of the foregoing, Twistbox and Founder
desire
to
amend and/or modify the Agreement and enter into this Amendment
on
the
terms
and
conditions provided below:
|
1.
|
Commencing
with the payroll paid on August 3, 2007 through November 9, 2007,
Founder
has agreed to reduce his Base Salary to One Hundred Fifty Thousand
Dollars
($150,000).
|
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2.
|
Commencing
with the payroll paid on November 23, 2007, Founder agreed to
reduce
his Base
Salary
to zero (subject to
California
minimum
wage
requirements);
provided that, Employee's Base
Salary
shall be reset to One Hundred Fifty Thousand Dollars ($150,000) (the
"Reset
Base Salary") upon
Twistbox
achieving cash flow break-even, as that term is customarily understood
and
applied under GAAP, with such cash flow break-even calculation to
include
Founder's
Reset Base Salary, interest payments to ValueAct SmallCap
Master
Fund,
L.P for a period of three (3) months and such other ordinary and
usual
amounts,
including earned interest income; provided further,
however,
in the
event
the Company achieves cash flow break-even ninety (90) days following
the
Amendment
Date, Twistbox shall cause the Board of Directors to
convene
a
subcommittee
of independent directors to consider awarding bonuses to Founder,
so
long as any such award does not result in the Company no longer being
cash
flow break-even in any given calendar
month.
|
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3.
|
Twistbox
hereby agrees and acknowledges that nothing contained herein
shall
serve
as a waiver of any other rights or remedies, in law or
equity,
which
Employee
may have by virtue of his Agreement and/or any statutes,
laws
or
regulations
governing employer/employee
matters.
|
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4.
|
All
terms and conditions of the Agreement not specifically and expressly
modified
or amended herein are hereby ratified and confirmed in all respects
and
shall
remain in full force and effect.
|
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5.
|
Each
person who executes this Amendment represents and warrants to each
party
hereto that he has the authority to do so and to bind each entity
as
contemplated hereby, and agrees to hold harmless each other party
from any
claim that such
authority
did not exist.
This
Amendment will inure to the benefit of and be
binding
upon the parties and their respective
shareholders,
successors and
permitted
assigns.
|
IN
WITNESS WHEREOF,
the
parties hereto have executed this Amendment as of the
Amendment
Date set forth above.
TWISTBOX ENTERTAINMENT, INC.
FOUNDER
(AS
SUCCESSOR-IN-INTEREST TO
THE
WAAT CORPORATION)
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FOUNDER
|
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By:
/s/
David
Mandell
|
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By:
/s/ Adi McAbian
|
Name:
David Mandell
|
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Name:
Adi McAbian
|
Title:
EVP/General Counsel
|
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Title:
Managing
Director
|
SECOND
AMENDMENT TO EMPLOYMENT AGREEMENT
This
second amendment (“Second Amendment”) is effective as of February 12, 2008
(“Amendment Date”) by and between Twistbox Entertainment, Inc. (as
successor-in-interest to The WAAT Corporation) (“Twistbox”) and Adi McAbian
(“Employee”), and amends that certain Letter Agreement dated May 16, 2006 by and
between Twistbox and Employee, as amended as of December 31, 2007 (collectively,
the “Agreement”). Unless otherwise defined herein, defined terms shall have
their meanings as set forth in the Agreement.
RECITALS
WHEREAS,
Twistbox
and Mandalay Media, Inc. (“Mandalay”) have entered into that certain Agreement
and Plan of Merger dated December 31, 2007, as amended (‘Plan of Merger”),
pursuant to which Employee has agreed to sell, assign, transfer and convey
his
shares of capital stock in Twistbox in exchange for shares of capital stock
of
Mandalay (the “Merger”);
WHEREAS
,
the
parties believe it is in the best interest of Twistbox and Employee to mutually
agree to certain modifications to the Agreement; and
WHEREAS
,
the
parties hereto desire to memorialize their mutual understandings as contained
herein.
AMENDMENT
NOW
THEREFORE,
in
consideration of the foregoing, Twistbox and Employee desire to amend and/or
modify the Agreement and enter into this Amendment on the terms and conditions
provided below:
Subject
to and expressly conditioned upon the close of the Plan of Merger, Employee’s
Agreement shall be modified as follows:
1.
|
Paragraph
3 shall be deleted in its entirety and replaced with the
following:
|
“In
consideration of your full time employment during the Employment Term, the
Company will pay you a base salary at the rate of $200,000 on an annualized
basis, in accordance with the usual payroll practices of the Company.”
2.
|
Sub-section
(a) of paragraph 9 shall be deleted in its entirety and replaced
with the
following:
|
“
Non-Competition
.
During
the Employment Term and for the twelve
month
period following expiration or termination of your employment (the
“Restricted
Period”)
,
you
will not, directly or indirectly, enter into
Competition
with the Company or any of its affiliates (the “
Employer
”).
“
Competition”
means
participating, directly or indirectly, as an individual
proprietor,
partner, stockholder, officer, employee, director, joint venturer,
investor,
lender or in any capacity whatsoever in
any
activities or
businesses
related to the provisioning of any of the following products
and/or
services in connection with Mobile Adult WAP, Adult MobileTV,
Adult
Off-Deck Services, Mobile AVS Systems and Mobile Adult
Advertising
Services.”
3.
|
All
terms and conditions of the Agreement not specifically and expressly
modified or amended herein are hereby ratified and confirmed in all
respects and shall remain in full force and
effect.
|
4.
|
Each
person who executes this Second Amendment represents and warrants
to the
other party hereto that they have the authority to do so and to bind
such
party as contemplated hereby, and agrees to hold harmless the other
party
from any claim that such authority did not exist. This Second Amendment
will inure to the benefit of and be binding upon the parties and
their
respective shareholders, successors and permitted
assigns.
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5.
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Employee
acknowledges and agrees that this Second Amendment and the agreement
by
Employee in Section 2 above is also given in consideration of Employee’s
sale, transfer and conveyance of his shares of capital stock in Twistbox
and his receipt of consideration in exchange
thereof.
|
IN
WITNESS WHEREOF
,
the
parties hereto have executed this Second Amendment as of the Amendment Date
set
forth above.
TWISTBOX
ENTERTAINMENT, INC.
(AS
SUCCESSOR-IN-INTEREST TO
THE
WAAT CORPORATION)
|
EMPLOYEE
|
|
|
By:
David
Mandell
|
By:
/s/ Adi
McAbian
|
Name: David Mandell
|
Name: Adi McAbian
|
Title:
EVP/General
Counsel
|
Title: Managing Director
|
|
|
THE
WAAT
CORP.
May
16
,
2006
Mr.
Ian
Aaron
c/o
The
WAAT Corp.
14242
Ventura Blvd, 3rd Floor
Sherman
Oaks, California 91423
Dear
Ian:
The
purpose of this letter (the “
Letter Agreement
”) is to
acknowledge and set forth the terms and conditions of your employment with
The
WAAT Corp., a California corporation (the
“
Company”
).
1.
Duties
and Responsibilities.
During
the Employment Term, you will serve
as
the
Chief Executive Officer of the Company and will report to the Board of Directors
of
the
Company (the
“Board”
).
You
will
have such duties and responsibilities that are commensurate with your position
and such other duties and responsibilities as are from
time
to
time assigned to you by the Board (or a committee thereof). During the
Employment
Term, you will devote your full business time, energy and skill to the
performance
of your duties and responsibilities hereunder, provided the foregoing shall
not
prevent you from (i) serving on the board of directors of non-profit
organizations and, with the prior written approval of the Board, other
companies, (ii) participating in
charitable,
civic, educational, professional, community or industry affairs and (iii)
managing your and your family's passive personal investments; provided such
activities in the aggregate do not interfere or conflict with your duties
hereunder or create a potential business conflict. The Company hereby
acknowledges that you are entitled to
continue
serving as a member of the board of directors of MEVEE and Platco and you are
entitled
to retain any compensation received on account of such services.
2.
Employment
Term.
The
term
of your employment under this Letter
Agreement
(the “
Employment
Term
”)
will
be
for a term commencing on the date first
written
above (the “
Effective Date
”) and, unless terminated earlier as
provided in
paragraph
6 hereof or extended by mutual consent of you and the Company on terms at least
as favorable as those in the final year of the Employment Term, ending on the
third
anniversary
of the Effective Date.
3.
Base
Salary.
During
the Employment Term, the Company will pay you a base salary at the annual rate
of $500,000 for the period commencing on the Effective
Date
and
ending on the first anniversary of the Effective Date, $525,000 for the period
commencing
on the first anniversary of the Effective Date and ending on the second
anniversary
of the Effective Date and $551,250 for the period commencing on the second
anniversary
of the Effective Date and ending on the third anniversary of the Effective
Date,
in accordance with the usual payroll practices of the Company.
Mr.
Ian
Aaron
Page
2
4.
Annual
Bonus.
You
will
be eligible to receive an annual target cash bonus of up to 50% of Base Salary,
if earned, determined by the Board (the
“Bonus”
).
Such
bonus
will
be
based upon the achievement of performance goals set by the Board (or a
committee
thereof) after good faith consultation with you, including, without limitation,
the operating results of the Company and your individual performance, as
determined by
the
Board
in its sole discretion.
5.
Benefits
and Fringes.
(a)
General.
During
the Employment Term, you will be entitled to such benefits and fringes, if
any,
as are generally provided from time to time by
the
Company to its senior executives at a level commensurate with your position,
subject
to the satisfaction of any eligibility requirements.
(b)
Vacation.
You
will
also be entitled to annual paid vacation in
accordance
with the Company's vacation policies in effect from time to time, but
in
no
event less than four weeks per calendar year (as prorated for partial years),
which
vacation may be taken at such times as you elect with due regard to the
needs
of
the Company.
(c)
Reimbursement
of Business and Entertainment Expenses;
Travel.
Upon
presentation of appropriate documentation, you will be reimbursed
in
accordance with the Company's expense reimbursement policy for all
reasonable
and necessary business and entertainment expenses incurred in connection with
the performance of your duties and responsibilities hereunder.
If
you
travel on business of the Company, you will be reimbursed for the cost of
airfare
(business class airfare on all flights scheduled to have a flight time of three
or more hours or, if sufficient business class service is not available for
such
flight,
first class airfare) and the reasonable cost of business class lodging
accommodations,
as well as for your reasonable and necessary out-of-pocket
expenses
incurred in connection therewith, in accordance with the Company's
policies.
(d)
Automobile
Allowance.
During
the Employment Term, you will
receive
an automobile allowance in the amount of $1,000 per month covering all
expenses
of maintaining and operating an automobile (including, without
limitation,
cost, repairs, maintenance, insurance and parking), provided that all
such
expenses are accounted for in accordance with the policies and procedures
established
by the Company. Alternatively, the Company may elect to provide
you
with
a Company-owned or leased automobile at an expense of not more than $1,000
per
month (including expenses).
(e)
Life
Insurance.
Notwithstanding
the foregoing, during the
Employment
Term, the Company will provide, subject to your insurability at
standard
rates and your full cooperation in obtaining such coverage (including, without
limitation, taking any required physical examinations), life insurance on
your
life
equal to two times your annual base salary.
Mr.
Ian
Aaron
Page
3
6.
Termination
of Employment.
Your
employment and the Employment Term
will
terminate on the first of the following to occur:
(a)
Disability.
Upon
written notice by the Company to you of
termination
due to Disability, while you remain Disabled.
For
purposes
of this
Letter
Agreement,
“Disability”
will
be
defined as your inability to perform your
material
duties hereunder due to a physical or mental injury, infirmity or
incapacity
for a continuous period of not less than 90 days (including weekends
and
holidays) or for 180 days (including weekends and holidays) in any 365-day
period.
(b)
Death.
Automatically
on the date of your death.
(c)
Cause.
Immediately
upon written notice by the Company to you
of
a
termination for Cause. For purposes of this Letter Agreement,
“Cause”
will
mean:
(1)
your
willful misconduct which, in the good faith judgment
of
the
Board, has a material negative impact
on
the
Company (either
economically
or on its reputation);
(2)
your
indictment for, conviction of, or pleading of guilty or
nolo
contendere
to,
a
felony (or equivalent outside of the United States) or
any
crime
involving fraud, dishonesty or moral turpitude;
(3)
your
failure to attempt in good faith to perform your duties,
which
failure is not remedied within 20 days of written notice from the
Board
specifying the details thereof;
(4)
your
failure to attempt in good faith to follow the legal
direction
of the Board after written notice from the Board specifying the
details
thereof; and
(5)
any
other
material breach of this Letter Agreement by you
that
is
not remedied within 20 days of written notice from the Board
specifying
the details thereof.
Notwithstanding
the foregoing, you will not be deemed to have been terminated for Cause without
(i) advance written notice provided to you setting forth the Company's intention
to consider terminating you; (ii) an opportunity for you to be heard before
the
Board;
and (iii) a duly adopted resolution of the Board, after such opportunity,
stating
that
your
actions constituted Cause. Cause will cease to exist for an event on the 90th
day
following its occurrence, unless the Company has given you written notice
thereof prior to such date.
Mr.
Ian
Aaron
Page
4
(d)
Without
Cause.
Upon
30
days' prior written notice by the
Company
to you of an involuntary termination without Cause, other than for
death
or
Disability;
(e)
Good
Reason.
Upon
written notice by you to the Company of a
termination
for Good Reason, unless such events are corrected in all material
respects
by the Company within 20 days following your written notification to the
Company
for one of the reasons set forth below.
“Good
Reason”
will
mean,
without
your express written consent, the occurrence of any of the following
events:
(1)
material
diminutions in title, position, authority, duties or
reporting
requirements, except temporarily while you are incapacitated;
(2)
your
being required to relocate to a principal place of
employment
more than 15 miles from your current location in Sherman
Oaks,
California;
(3)
any
other
material breach of this Letter Agreement, including, but not limited to, any
reduction of, or failure to pay, your Base Salary or any failure to timely
pay
or provide the benefits contemplated
herein.
Good
Reason will cease to exist for an event on the 90th day following its
occurrence,
unless
you have given the Company written notice thereof prior to such
date.
(f)
Expiration
of Employment Term.
Upon
the
end of the
Employment
Term.
7.
Compensation
Upon Termination.
(a)
Disability;
Death; Cause.
If
your
employment terminates on
account
of your Disability or your death or if the Company terminates you for
Cause,
the Company will pay or provide to you (i) any unpaid Base Salary through the
date of termination; (ii) other than if the Company terminates your employment
for Cause, any Bonus earned but unpaid with respect to the fiscal year ending
on
or preceding the date of termination; (iii) reimbursement for any unreimbursed
expenses incurred through the date of termination; (iv) any accrued but unused
vacation time in accordance with Company policy; and (v) all other
payments,
benefits or fringe benefits to which you may be entitled under the terms of
any
applicable compensation arrangement or benefit, equity or fringe benefit
plan
or
program or grant or this Letter Agreement (collectively items (i) through
(v)
shall
be hereafter referred to as
“Accrued
Benefits”
)
Mr.
Ian
Aaron
Page
5
(b)
Termination
Without Cause or For Good Reason.
If
your
employment
by the Company is terminated by the Company without Cause or by
you
for
Good Reason, the Company will pay or provide you with (x) any Accrued Benefits;
and (y) subject to your compliance with the obligations in paragraphs 8 and
9
hereof: (1) continued payment of your base salary (but not as an employee)
in
accordance with the usual payroll practices of the Company for the greater
of
(A) a period equal to the period between the date of termination and the end
of
the Employment Term or (B) a period equal to six months following such
termination
(the
“Severance
Period”
);
(2)
at
the time bonuses are typically paid to
employees,
a pro-rata portion of the Bonus for the fiscal year in which your
termination
occurs based on actual results for the plan year (determined by
multiplying
the amount of the Bonus which would be due for the full fiscal year
by
a
fraction, the numerator of which is the number of days during the fiscal year
of
termination that you are employed by the Company and the denominator of which
is
365); (3) subject to (A) your timely election of continuation coverage
under
the
Consolidated Budget Omnibus Reconciliation Act of 1985, as amended
(“
COBRA
”)
and (B) your continued copayment of premiums at the same level
and
cost
to you as if you were an employee of the Company (excluding, for purposes of
calculating cost, an employee's ability to pay premiums with pre-tax
dollars),
to the extent permitted under applicable law and the terms of such plan,
continued
participation during the Severance Period in the Company's group health plan
which covers you as of the date of termination at the Company's
expense
(other than the aforementioned premiums), provided that you are eligible
and
remain eligible for COBRA coverage; provided, however, that in the event that
you obtain other employment that offers substantially similar or improved
group
health benefits, such continuation of coverage by the Company under this
sub-paragraph shall immediately cease; and (4) immediate vesting and
exercisability of all outstanding stock options to purchase shares of the
Company's
common stock. Payments or benefits provided in this paragraph 7(b)
shall
be
in lieu of any termination or severance payments or benefits for which
you
may
be eligible under any of the plans, policies or programs of the
Company.
(c)
Expiration
of Employment Term.
If
the
Employment Term ends
at
the
third anniversary of the Effective Date and you do not continue as an
employee
beyond such time, the Company will pay or provide you with (x) any
Accrued
Benefits; and (y) subject to your compliance with the obligations in paragraphs
8 and 9 hereof: (1) continued payment of your base salary (but not as
an
employee) in accordance with the usual payroll practices of the Company for
a
period
equal to six months following such termination; and (2) the benefits
provided
in paragraph
7(b)(3)
for
a
period of six months.
Mr.
Ian
Aaron
Page
6
8.
Release;
No Set-Off; No Mitigation
.
(a)
Any
and
all amounts payable and benefits or additional rights
provided
pursuant to this Letter Agreement beyond Accrued Benefits shall only
be
payable if you deliver to the Company and do not revoke a general release of
all
claims related to the Company, its affiliates, and their respective past,
present and future employees, officers, trustees, agents and representatives
occurring up
to
the
release date in such form and substance as mutually agreed upon by you and
the
Company (such form shall also include a reciprocal general release by the
Company
and related parties of all claims against you and your related parties (other
than claims involving or arising from your criminal activity)), provided that
such release will not include a waiver of (a) your rights of indemnification
and
directors
and officers liability insurance coverage to which you were entitled
immediately
prior to the termination of your employment under the Company's By-laws, the
Company's Certificate of Incorporation, this Letter Agreement or
otherwise,
(b) your rights under any tax-qualified pension plan maintained by the
Company
or claims for accrued, vested benefits under any other employee benefit
plan
or
under COBRA, (c) your rights as a stockholder of the Company and (d)
your
rights under this Letter Agreement. Any such release shall not have any
forfeiture
provision, claw back, penalty, restriction or limitation (a “Restrictive
Provision”)
that is based on criteria that is any more limiting than the provisions
contained
in this Letter Agreement and the Company shall not require you to agree to
any
such Restrictive Provision as a condition of receiving any payment,
benefit
or grant. Any such Restrictive Provision violating the foregoing shall be
null
and
void.
(b)
The
Company's obligation to make any payment provided for in
this
Letter Agreement shall not be subject set-off, counterclaim or recoupment of
amounts
owed by you to the Company or its affiliates.
(c)
In
no
event shall you be obliged to seek other employment or take
any
other
action by way of mitigation of the amounts payable to you under any of the
provisions of this Letter Agreement, nor shall the amount of any payment
hereunder
be reduced by any compensation earned by you as a result of
employment
by another employer (other than as provided in paragraph
7(b)(y)(3)).
9.
Restrictive
Covenants.
(a)
Non-Competition.
During
the Employment Term, you will not, directly or indirectly, without the prior
written consent of the Company, enter into
Competition
with the Company or any of its affiliates (the “
Employer
”).
“Competition”
means
participating, directly or indirectly, as an individual
proprietor,
partner, stockholder, officer, employee, director, joint venturer, investor,
lender, consultant or in any capacity whatsoever in a business in the field
of
business that the Employer is engaged in as of the date of your termination
of
employment
with the Company or is actively planning to engage in as of the date
of
your
termination of employment with the Company.
Mr.
Ian
Aaron
Page
7
(b)
Confidentiality.
During
the Employment Term and thereafter,
you
will
hold in a fiduciary capacity for the benefit of the Employer all secret or
confidential
information, knowledge or data relating to the Employer, and their respective
businesses, which will have been obtained by you during your
employment
by the Company and which will not be or become public knowledge
(other
than by acts by you or your representatives in violation of this Letter
Agreement).
You will not, except as may be required to perform your duties
hereunder
or as may otherwise be required by law or legal process, without limitation
in
time or until such information will have become public or known in
the
Employer's industry (other than by acts by you or your representatives in
violation of this Letter Agreement), communicate or divulge to others or use,
whether
directly or indirectly, any such information, knowledge or data regarding the
Employer, and their respective businesses.
(c)
Non-Solicitation
of Customers.
During
the Employment Term and for the twelve-month period following your termination
of employment for
any
reason (the “
Restricted Period
”), you will not, directly or
indirectly,
influence
or attempt to influence customers or suppliers of the Employer to divert
their
business to any competitor of the Employer.
(d)
Non-Solicitation
of Employees.
You
recognize that you possess
and
will
possess confidential information about other employees of the Employer relating
to their education, experience, skills, abilities, compensation and benefits,
and
inter-personal relationships with customers of the Employer.
You
recognize
that
the
information you possess and will possess about these other employees is not
generally known, is of substantial value to the Employer in developing its
business and in securing and retaining customers, and has been and will be
acquired by you because of your business position with the Employer.
You
agree
that,
during the Restricted Period, you will not, directly or indirectly, solicit
or
recruit
any employee of the Employer for the purpose of being employed by you
or
by any
competitor of the Employer on whose behalf you are acting as an agent,
representative or employee and that you will not convey any such confidential
information
or trade secrets about other employees of the Employer to any other
person.
Mr.
Ian
Aaron
Page
8
(e)
Non-Disparagement.
You
shall
not, or induce others to,
Disparage
the Employer or any of their past and present officers, directors,
employees
or products.
“Disparage”
shall
mean making comments or statements
to
the
press, the Employer's employees or any individual or entity with whom the
Employer
has a business relationship which would adversely affect in any manner: (i)
the
conduct of the business of the Employer (including, without limitation, any
products or business plans or prospects); or (ii) the business reputation of
the
Employer, or any of their products, or their past or present
officers,
directors or employees.
(f)
Cooperation.
Upon
the
receipt of notice from the Company (including outside counsel), you agree that
during the Employment Term and thereafter, you will respond and provide
information with regard to matters in which you have knowledge as a result
of
your employment with the Company, and will provide reasonable assistance to
the
Employer and its representatives in
defense
of any claims that may be made against the Employer, and will assist the
Employer in the prosecution of any claims that may be made by the Employer,
to
the extent that such claims may relate to the period of your employment with
the
Company
(or any predecessor). You agree to promptly inform the Company if
you
become aware of any lawsuits involving such claims that may be filed or
threatened
against the Employer. You also agree to promptly inform the
Company
(to the extent you are legally permitted to do so) if you are asked to assist
in
any investigation of the Employer (or their actions), regardless of whether
a
lawsuit or other proceeding has then been filed against the Employer with
respect to such investigation, and will not do so unless legally
required.
(g)
Injunctive
Relief.
It
is
further expressly agreed that the Employer will or would suffer irreparable
injury if you were to violate the provisions of this paragraph 9 and that the
Employer would by reason of such violation be entitled
to
injunctive relief in a court of appropriate jurisdiction and you further consent
and
stipulate to the entry of such injunctive relief in such court prohibiting
you
from
violating the provisions of this paragraph 9.
(h)
Survival
of Provisions.
The
obligations contained in this
paragraph
9 will survive the termination of your employment with the Company
and
will
be fully enforceable thereafter. If it is determined by a court of
competent
jurisdiction in any state that any restriction in this paragraph 9 is
excessive
in duration or scope or extends for too long a period of time or over too
great
a
range of activities or in too broad a geographic area or is unreasonable or
unenforceable
under the laws of that state, it is the intention of the parties that
such
restriction may be modified or amended by the court to render it enforceable
to
the maximum extent permitted by the law of that state or
jurisdiction.
Mr.
Ian
Aaron
Page
9
10.
Representations.
You
represent and warrant that your execution and delivery
of
this
Letter Agreement and your performing the contemplated services does not and
will
not
conflict with or result in any breach or default under any agreement, contract
or
arrangement
which you are a party to or violate any other legal restriction.
You
further
represent
and warrant that you have been advised by the Company to consult independent
legal counsel of your choice before signing this Letter Agreement.
11.
Assignment.
Notwithstanding
anything else herein, this Letter Agreement is
personal
to you and neither the Letter Agreement nor any rights hereunder may be
assigned
by you. The Company may assign the Letter Agreement to an affiliate or to any
acquiror
of all or substantially all of the assets of the Company.
This
Letter Agreement will inure to the benefit of and be binding upon the personal
or legal representatives, executors, administrators, successors, heirs,
distributees, devisees, legatees and permitted
assignees
of the parties.
12.
Arbitration.
You
agree
that all disputes and controversies arising under or in
connection
with this Letter Agreement, other than seeking injunctive or other equitable
relief
under paragraph
9(g),
will
be
settled by arbitration conducted before one (1)
arbitrator
mutually agreed to by the Company and you, sitting in Los Angeles, California
or
such
other location agreed to by you and the Company, in accordance with the
National
Rules for the Resolution of Employment Disputes of the American Arbitration
Association then in effect; provided, however, that if the Company and you
are
unable to
agree
on
a single arbitrator within 30 days of the demand by another party for
arbitration,
an
arbitrator will be designated by the Los Angeles Office of the American
Arbitration Association. The determination of the arbitrator will be final
and
binding on you and the
Employer.
Judgment may be entered on the award of the arbitrator in any court having
proper jurisdiction. Each party will bear their own expenses of such
arbitration.
13.
Indemnification.
The
Company hereby agrees to indemnify you and hold
you
harmless to the extent provided under the by-laws of the Company against and
in
respect
to any and all actions, suits, proceedings, claims, demands, judgments, costs,
expenses
(including reasonable attorney's fees), losses, and damages resulting from
the
your
good
faith performance of his duties and obligations with the Company.
This
obligation
shall survive the termination of your employment with the Company.
14.
Liability
Insurance.
The
Company shall cover you under directors and officers liability insurance both
during and, while potential liability exists, after the
Employment
Term in the same amount and to the same extent as the Company covers its
other
officers and directors.
15.
Withholding
Taxes.
The
Company may withhold from any and all amounts
payable
to you such federal, state and local taxes as may be required to be withheld
pursuant to any applicable laws or regulations.
Mr.
Ian
Aaron
Page
10
16.
Governing
Law.
This
Letter Agreement will be governed by, and construed
under
and
in accordance with, the internal laws of the State of California, without
reference to rules relating to conflicts of laws.
17.
Entire
Agreement; Amendments.
This
Letter Agreement and the agreements referenced herein contain the entire
agreement of the parties relating to the subject matter hereof, and supercede
in
their entirety any and all prior agreements,
understandings
or representations relating to the subject matter hereof. No amendments,
alterations
or modifications of this Letter Agreement will be valid unless made in writing
and
signed by the parties hereto.
18.
Notice.
Any notice or other
communication required or permitted to be given under this Agreement (a
“
Notice
”) shall be in writing and delivered in person, by
facsimile transmission (with a Notice contemporaneously given by another method
specified in this paragraph 18), by overnight courier service or by postage
prepaid mail with a return receipt requested, at the following locations (or
to
such other address as either party may have furnished to the other in writing
by
like Notice. All such Notices shall only be duly given and effective upon
receipt (or refusal of receipt).
If
to
you:
At
the
address (or to the facsimile number) shown
on
the
records of the Company
If
to the
Company:
The
WAAT
Corp.
14242
Ventura Blvd, 3rd Floor
Sherman
Oaks, California 91423
Attention:
General Counsel
We
hope
that you find the foregoing terms and conditions acceptable. You may
indicate
your agreement with the terms and conditions set forth in this Letter Agreement
by signing the enclosed duplicate original of this Letter Agreement and
returning it to me.
We
look
forward to your continued employment with the Company.
|
|
|
|
Very
truly yours,
|
|
|
|
THE
WAAT
CORP.
|
|
|
|
|
By:
|
/s/
Tal
Dean McAbian
|
|
Name:
Tal Dean McAbian
|
|
Title:
Director of Content/Partner
|
Accepted
and
Agreed:
|
|
|
|
|
|
|
|
/s/
Ian Aaron
|
|
|
|
|
|
|
|
AMENDMENT
TO EMPLOYMENT AGREEMENT
This
amendment ("Amendment") is effective
as
of
December 30, 2007
("Amendment
Date") by and between Twistbox Entertainment, Inc. (as successor-in-
interest
to The WAAT Corporation) ("Twistbox") and Ian Aaron ("Founder"), and
amends
that certain Employment Agreement dated as of May 16, 2006 by and between
Twistbox
and Founder ("Agreement"). Unless otherwise defined herein, defined terms
shall
have their meanings
as
set
forth
in the Agreement.
RECITALS
WHEREAS,
Twistbox
and Ian Aaron, Adi McAbian, Tal Dean McAbian and
Camill
Sayadeh ("the Founders"), and owners of a significant percentage of the common
stock
of
Twistbox, have instituted a company wide cost reduction plan;
WHEREAS,
Founder
deems it to be in the best interest of Twistbox to voluntary
reduce
his Base Salary and waive certain rights under the Agreement; and
WHEREAS,
the
parties hereto desire to memorialize their prior oral agreements
and
the
further mutual understandings contained herein.
AMENDMENT
NOW
THEREFORE,
in
consideration of the foregoing, Twistbox and Founder
desire
to
amend and/or modify the Agreement and enter into this Amendment on the
terms
and
conditions provided below:
|
1.
|
Commencing
with the payroll paid on August 3, 2007 through August 31, 2007,
Founder
has agreed to reduce his Base Salary to Three Hundred Fifty Thousand
Dollars
($350,000).
|
|
2.
|
Commencing
with the payroll paid on September 19, 2007 through November 9,
2007,
Founder has agreed to further reduce his Base Salary to Three Hundred
Thousand
Dollars ($300,000).
|
|
3.
|
Commencing
with the payroll paid on November 23, 2007, Founder has agreed
to
reduce
his Base Salary to zero (subject to California minimum wage
requirements);
provided that, Founder's Base Salary shall be reset to One
Hundred
Fifty Thousand Dollars ($150,000) (the "Reset Base Salary") upon
Twistbox
achieving cash flow break-even,
as
that
term is customarily understood
and
applied under GAAP, with such cash flow break-even calculation
to include
Founder's
Reset Base Salary, interest payments to ValueAct SmallCap Master
Fund,
L.P for a period of three (3) months (the "Reduction Period") and
such
other
ordinary and usual amounts, including earned interest income; provided
further,
however, in the event the Company achieves cash flow break-even
ninety
(90)
days following the Amendment Date, Twistbox shall cause the Board
of
Directors to convene a subcommittee of independent directors to
consider
awarding
bonuses to Founder, so long
as
any
such award does not result in the
Company
no longer being cash flow break-even in any given calendar
month.
|
|
4.
|
Twistbox
and Mandalay Media, Inc. ("Mandalay") intend to enter into a plan
of
merger
whereby Twistbox shall become a wholly owned subsidiary of Mandalay
("Merger"). In the event the Merger is not consummated, Founder hereby
agrees
to
waive his right to seek the Severance Period benefits under the Agreement.
In exchange for such waiver, Twistbox shall issue to Founder an option
to
buy One
Hundred
Twenty-Five Thousand (125,000) shares of common stock of Twistbox
at
the then current fair market value (the "Option"). The Option shall
vest
in
twelve
(12) equal monthly installments commencing upon the first day following
Twistbox's
final determination not to pursue the
Merger.
|
|
5.
|
Twistbox
hereby agrees and acknowledges that nothing contained herein shall
serve
as a waiver of any other rights or remedies, in law or equity, which
Founder
may
have by virtue of his Agreement and/or any statutes, laws or regulations
governing
employer/employee matters.
|
|
6.
|
All
terms and conditions of the Agreement not specifically and expressly
modified
or amended herein are hereby ratified and confirmed in all respects
and
shall
remain in full force and effect.
|
|
7.
|
Each
person who executes this Amendment represents and warrants to each
party
hereto
that he has the authority to do so and to bind each entity
as
contemplated
hereby,
and agrees to hold harmless each other party from any claim that
such
authority
did not exist. This Amendment will inure to the benefit of and be
binding
upon the parties and their respective shareholders, successors and
permitted
assigns.
|
IN
WITNESS WHEREOF,
the
parties hereto have executed this Amendment as of the
Amendment
Date set forth above.
TWISTBOX ENTERTAINMENT, INC.
FOUNDER
(AS
SUCCESSOR-IN-INTEREST TO
THE
WAAT CORPORATION)
|
|
FOUNDER
|
|
|
|
|
|
|
By:
/s/
David
Mandell
|
|
By:
/s/ Ian Aaron
|
Name:
David Mandell
|
|
Name:
Ian Aaron
|
Title:
EVP/General Counsel
|
|
Title:
President/CEO
|
SECOND
AMENDMENT TO EMPLOYMENT AGREEMENT
This
second amendment (“Second Amendment”) is effective as of February 12, 2008
(“Amendment Date”) by and between Twistbox Entertainment, Inc. (as
successor-in-interest to the WAAT Corporation) (“Twistbox”) and Ian Aaron
(“Employee”), and amends that certain Letter Agreement dated May 16, 2006 by and
between Twistbox and Employee, as amended (the “Agreement”). Unless otherwise
defined herein, defined terms shall have their meanings as set forth in the
Agreement.
RECITALS
WHEREAS,
Twistbox
and Mandalay Media, Inc. (“Mandalay”) have entered into that certain Agreement
and Plan of Merger dated December 31, 2007, as amended, pursuant to which
Employee has agreed to sell, transfer, assign and convey all of his capital
stock in Twistbox to Mandalay in exchange for common stock of Mandalay;
WHEREAS
,
Twistbox and Employee believe it is in the best interest of Twistbox and
Employee to mutually agree to certain modifications to the Agreement;
and
WHEREAS
,
the
parties hereto desire to memorialize their mutual understandings as contained
herein.
AMENDMENT
NOW
THEREFORE,
in
consideration of the foregoing, Twistbox and Employee desire to further amend
and/or modify the Agreement and enter into this Second Amendment on the terms
and conditions provided below:
Employee’s
Agreement shall be modified as follows:
1.
|
Section
2 of the Agreement shall be deleted in its entirety and replaced
with the
following:
|
“
EMPLOYMENT
TERM
.
The
term
of your employment under this Letter Agreement (the “
Employment
Term
”)
will
be for a term commencing on February 12, 2008 (the “
Effective
Date
”)
and
unless terminated earlier as provided in paragraph 6 hereto or extended by
mutual consent of you and the Company on terms at least as favorable as those
in
the final year of the Employment Term, ending on the third anniversary of the
Effective Date. On or about August 12, 2010, you and the Company shall meet
in
good faith to discuss the terms of a renewal, in order to negotiate terms
related to, among other things, base salary, bonus percentage and additional
grants of stock options.”
2.
|
Section
3 of the Agreement shall be deleted in its entirety and replaced
with the
following:
|
“
A.
Base
Salary
.
During
the Employment Term, the Company will pay to you a base salary at the annual
rate of $350,000 from February 12, 2008 through February 11, 2009, $367,500
from
February 12, 2009 through February 11, 2010, and $385,875 from February 12,
2010
through February 12, 2011, in accordance with the usual payroll practices of
the
Company.”
3.
|
Sub-paragraph
(f) shall be added to Section 5 of the Agreement as
follows:
|
“
Stock
Options
.
On the
Effective Date, the Company shall cause Mandalay to grant to Employee an initial
option (“Option”) to purchase 600,000 shares of Mandalay’s common stock (“Common
Shares”) at an exercise price equal to the closing price of the Common Shares on
the Effective Date. Each Option shall represent the right to acquire one (1)
Common Share. The Option shall vest in full and become immediately exercisable
as follows: (a) one-third shall immediately vest on the Effective Date, (b)
one-third shall vest on the first anniversary of the Effective Date and (c)
one-third shall vest on the second anniversary of the Effective
Date.
The
Option shall be evidenced by a written option agreement and be governed by
the
terms and conditions thereof and the terms and conditions of Mandalay’s 2007
Stock Plan. Notwithstanding anything to the
contrary,
the Option is subject to full accelerated vesting upon a change of control
and/or the sale of all or substantially all of the assets of
Mandalay.”
4.
Lines
five through nine of sub-paragraph (b) of Section 7 of the Agreement beginning
with “(1)” and ending with “(the
“Severance
Period”
)”
shall
be deleted in their entirety and replaced with the following:
“(1)
continued payment of your base salary (but not as an employee) in accordance
with the usual payroll practices of the Company for a period equal to six (6)
months following such termination (the
“Severance
Period”
);”
5.
Sub-paragraph
(e)(2) of Section 6 shall be deleted in its entirety and replaced with the
following:
“(2)
your
being required to relocate to a principal place of employment more than 15
miles
from your current location in Sherman Oaks, California; provided, that you
acknowledge that the Company is currently seeking to relocate within the Los
Angeles, CA area and the Company’s first move from its current location to a new
location within the Los Angeles area will not be deemed a “Good Reason”
hereunder;
”
6.
Sub-paragraph
(c) of Section 7 of the Agreement is hereby deleted in its
entirety.
7.
Sub-paragraph
(a) of Section 9 shall be deleted in its entirety and replaced with the
following:
“
Non-Competition
.
During
the Employment Term and for the twelve
month
period following expiration or termination of your employment, you will
not,
directly or indirectly, enter into Competition with the Company or any of its
affiliates
(the “
Employer
”).
“
Competition”
means
participating, directly or
indirectly,
as an individual proprietor, partner, stockholder, officer, employee,
director,
joint venturer, investor, lender or in any capacity whatsoever in
any
activities
or businesses related to the provisioning of any of the following
products
and/or services in connection with Mobile Adult WAP, Adult
MobileTV,
Adult Off-Deck Services, Mobile AVS Systems and Mobile Adult
Advertising
Services.”
8.
All
terms
and conditions of the Agreement not specifically and expressly modified or
amended herein are hereby ratified and confirmed in all respects and shall
remain in full force and effect.
9.
Each
person who executes this Amendment represents and warrants to each party hereto
that he has the authority to do so and to bind each entity as contemplated
hereby, and agrees to hold harmless each other party from any claim that such
authority did not exist. This Amendment will inure to the benefit of and be
binding upon the parties and their respective shareholders, successors and
permitted assigns.
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF
,
the
parties hereto have executed this Second Amendment as of the Amendment Date
set
forth above.
TWISTBOX
ENTERTAINMENT, INC.
(AS
SUCCESSOR-IN-INTEREST TO
THE
WAAT CORPORATION)
|
EMPLOYEE
|
|
|
By:
David
Mandell
|
By:
/s/ Ian
Aaron
|
Name: David Mandell
|
Name:
Ian Aaron
|
Title:
EVP/General
Counsel
|
|
|
|
EMPLOYMENT
AGREEMENT
THIS
EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into as
of
the
9
th
day of
May 2006, by and between The WAAT Corp., a stock corporation with
offices
at 14242 Ventura Blvd, 3
rd
Floor,
Sherman Oaks, CA 91423 USA (“WAAT”),
Charismatix,
a German limited liability company with
offices
at
Lohbachstra
ß
e
12, 58239
Schwerte
(the “Company”), and Mr. Eugen Barteska, residing at Senningsweg
8a,
58239
Schwerte,
(the “Executive”; WAAT, the Company and Executive collectively the “Parties”
and
each
a “Party”).
WHEREAS,
the
Company has offered and desires to employ Executive upon the
terms
and
conditions set forth herein; and
WHEREAS,
Executive desires to accept such employment by the Company upon the
terms
and
conditions set forth herein.
NOW, THEREFORE,
in
consideration of the premises and the mutual covenants
and
obligations
undertaken herein, the Parties hereto agree as follows:
1.
Employment
The
Company hereby employs Executive and
Executive
hereby accepts such
employment,
subject to the terms and conditions herein set forth.
Executive
shall hold the
office
of
Vice President of the Company reporting to the Chief Executive
Officer
of the Company.
2.
Term
and Termination
(a)
This
Agreement shall commence on May 9, 2006 (the “Employment
Date”)
and
is
entered into for an initial period of four (4) years.
(b)
The
Executive is entitled to terminate this Agreement after the expiry
of
the
first year under this Agreement by giving three months notice per the end
of a
calendar month.
(c)
Unless
one Party terminates the Agreement three months prior to the expiration of
the
initial period or the subsequent periods
as
per
this
subsection, the term of
this
Agreement shall be automatically extended for further one-year periods, subject
however
to
subsection (b) above.
(d)
Either
Party may terminate the employment for Cause
(aus
wichtigem
Grund)
without
a
notice period. Notwithstanding German law, for the purposes hereof, the
term
“Cause” shall in particular, but not limited thereto, mean:
(i)
Executive's repeated
failure
or refusal to perform his duties or Executive's material breach
of
.
this
Agreement
where
such conduct or breach shall not have ceased within fifteen (15) days following
written
warning
from the Company; (ii) Executive's performance of any act or his failure
to act,
for
which
if
Executive were prosecuted and convicted, would constitute
a
crime
or offense
involving
money or other property of the Company or its subsidiaries or other affiliates,
or
a
felony
in
the jurisdiction involved; (iii) any attempt by Executive to secure any personal
profit
in
connection with the business of the Company or any of its subsidiaries
or
other
affiliates, except where Executive can demonstrate that there is no
misappropriation
of
any
corporate
opportunity; (iv) Executive's engagement in a fraudulent act which could
cause
damage
or
prejudice to the Company or its subsidiaries or other affiliates or in conduct
or
activities
which could be materially damaging to the property,
business
or reputation of
Company
or its subsidiaries or other affiliates, all as reasonably determined by
the
Board
of
Directors;
(v) any act or omission by Executive involving
willful
misconduct
or gross
negligence
in the performance of Executive's duties to the material detriment of the
Company
or
its
subsidiaries or other affiliates; (vi) the entry of an order of a court that
remains in effect and is not discharged for a period of at least sixty (60)
days, which enjoins or otherwise limits
or
restricts the performance by Executive under this Agreement, relating to
any
contract,
agreement
or
commitment
made by or applicable to Executive in favor of any
former
employer
or any other person; (vii) the engaging by Executive in any business other
than
the
business
of the Company and its subsidiaries or other affiliates which interferes
with
the
.
performance
of his material duties hereunder; (viii) any breach by Executive
of
his
non-
compete,
non-disclosure and/or non-solicitation obligations pursuant to this
Agreement;
or
(ix)
any
false representation made by Executive in
connection
with the employment
contemplated
hereunder. Upon termination of Executive's employment for cause, Executive
shall
not
be entitled to any amounts or benefits hereunder other than
such
portion of
Executive's
annual salary pursuant to Section 3(a) hereof, and reimbursement of expenses
pursuant
to Section 4 hereof as has been accrued through the effective date of his
termination
of
employment.
BIRD & BIRD
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2/10
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Employment
Agreement Eugen
Barteska
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The
WAAT Corp.
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Execution
Copy
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May
9, 2006
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(e)
Notice
of
termination must be given in writing.
3.
Compensation
(a)
Salary
As
compensation for the employment services to be rendered
by
Executive hereunder, including all services
as
an
officer of the Company and any of its
subsidiaries
or other affiliates, the Company agrees to pay, or cause to be paid, to
Executive,
and
Executive agrees to accept, an annual gross salary of EUR 125,000 (the “Base
Salary”),
payable
in arrears in twelve (12) monthly instalments at the end of each calendar
month.
Executive's
compensation hereunder shall be increased annually at a rate of three (3)
per
cent.
For
the
period from February 1, 2006 until the date of this Agreement, the Executive
shall
receive
an amount of EUR 33,940, less the amount of any withdrawal during such
period.
(b)
Bonus
At
the
sole discretion
.
of the
Company, Executive shall further
be
entitled to receive an annual bonus of up to 25% of his Base Salary (the
“Bonus”).
The
actual
amount
of
the Bonus, if any, shall be determined by the board of directors of
WAAT.
(c)
Stock
Options
On
the
Effective Date, Executive will receive two
hundred
thirty seven thousand nine hundred and fourty-six (237,946), options (the
“Options”)
in
accordance with The WAAT Corporation 2006
.
Stock
Incentive Plan (the “Plan”). The
Options
can be exercised for shares of voting common stock
in
WAAT
at
an exercise price
equal
to
US$0.35 per share. These Options vest on a linear basis during a four year
period
starting
from the Employment Date
as
follows:
(i) upon completion of the first year of
employment,
59,486 shares
shall
vest;
(ii) thereafter, 14,871 shares shall vest at the
completion
of each quarter with an additional 8 shares vesting at the completion
of
the
last
quarter
of the fourth year of employment. All Options will vest upon the occurrence
of
a
Change
of
Control in WAAT as defined in Section 10.2 of the Plan, in case of an Initial
Public
Offering of WAAT and upon termination of this Agreement by the Company other
than for Cause. “Initial Public
Offering”
shall
mean the closing of a firm commitment
underwritten
public offering of WAAT's Common Stock resulting in gross proceeds (before
underwriting
discounts and commissions, if any) to WAAT of at least US$15.0
million.
BIRD & BIRD
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3
/10
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Employment
Agreement Eugen
Barteska
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The
WAAT Corp.
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Execution
Copy
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May
9, 2006
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(d)
Benefit
Plans
Executive
shall be entitled to participate in all benefit
plans
for
which Executive qualifies that are generally available to other employees
of
WAAT
under
WAAT
’
s
general employee policies. WAAT reserves the right to amend the general
employee
policies from time to time.
(e)
No
extra overtime work compensation
By
payment of the above-mentioned total remuneration all activities
which
Executive must perform under this
Agreement
shall be deemed compensated. In particular, Executive shall not be entitled
to
any
additional
compensation for overtime work.
4.
Expenses
The Company shall pay
or
reimburse
Executive, upon presentment of suitable receipts
and
within the applicable German tax regulations, for all reasonable business
and
travel
expenses
which are incurred or paid by Executive in connection
with
his
employment,
hereunder,
provided that such expenses are approved in advance by the Company,
Executive
shall
keep
such
records as the Company may deem necessary to meet the requirements of the
German
tax law.
5.
Vacation,
Direct Insurance and Other Benefits
(a)
Executive
shall be entitled to thirty (30) days of paid vacation per year.
Saturdays
are not considered working days.
The
time
of vacation shall duly be agreed
between
the Company and the Executive, taking into
consideration
both the business
requirements
of the Company and the personal wishes of the Executive.
The
total
vacation
has
to be
taken in the given calendar year. In case the vacation cannot be taken due
to
special
personal
or business-related reasons, the vacation may be carried over until 31
March
of
the
following
calendar year. If the vacation is not taken by that date the vacation
entitlement
lapses.
(b)
The
Company shall provide Executive social benefits, including
payment
of medical health insurance contributions,
in
accordance with German social security law.
6.
Duties
and Services
(a)
Executive
shall perform such reasonable duties and functions as the
Chief
Executive Officer shall from time to time determine and Executive shall comply
in the
performance
of his duties with the policies of, and be subject to the direction of, the
Chief
Executive
Officer of the Company.
(b)
Executive
shall be obliged to procure business for the Company in
Germany,
cooperate in the conclusion and completion of contracts and
use
his
best
efforts to
support
the Company in all its business activities.
(c)
During
the term of this Agreement, Executive shall devote all of his working time
and
attention, the specified vacation time and absences for sickness excepted,
to
the
business of the Company, as necessary to properly fulfill his duties.
Executive
shall
perform
the duties assigned to him with fidelity and to the best of his
ability.
All other
activities
for remuneration as well
as
activities,
which normally entitle him to remuneration,
including
any part-time work or self-employed work, are prohibited unless the Company
has
explicitly
given its prior written consent. The Company will grant such consent if business
requirements are not affected by the activities. Notwithstanding
anything
herein to the
contrary,
Executive may engage in other non-employment activities so long as such
activities
do
not
unreasonably interfere with Executive's performance of his duties hereunder
and
do
not
violate Section 9 hereof.
BIRD & BIRD
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4/10
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Employment
Agreement Eugen
Barteska
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The
WAAT Corp.
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Execution
Copy
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May
9, 2006
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(d)
Nothing
in this Agreement shall be construed to prevent Executive
from
investing or trading in non-conflicting investments as he sees fit for his
own
account,
including
real estate, stocks, bonds, securities, commodities or other forms of
investments.
(e)
The
principal location at which Executive shall perform his duties
hereunder
shall be the location of the Company, or at such other location as may be
mutually
agreed
upon between the Parties.
7.
Inability
to Perform Duties
(a)
Executive
is obliged to inform the Company without delay of any inability to perform
his
duties and the expected duration. Upon request, he
shall
inform
the
Company
of the reasons for such absence.
(b)
In
case
of sickness lasting longer than three (3) calendar days, Executive is obliged
to
submit a medical certificate
on
his
incapacity to work and its
prospective
duration not later than on the following working day.
The
Company is entitled to
demand
an
earlier
submission
of
the
medical certificate. If his absence continues longer than
indicated
in the medical certificate, Executive is obliged to submit a new
medical
certificate
within three (3) days after the end of the period certified.
Also
in
this
case, Executive is
obliged
to inform the Company immediately of the continuation of the indicted absence.
The
notification may be given by telephone call.
(c)
In
the
event of sickness or accident, the Company shall continue to pay
the
monthly base salary pursuant to Section 3(a) for a period of
six
weeks.
(d)
If
Executive has compensation claims against third parties due to the loss of
his
earnings, caused by the inability to work, he shall assign such
claims
to
the
Company
in the amount of the continued payment of salary. This
shall
not
include any
payments
pursuant to insurance agreements concluded by the Executive.
8.
Representations
and Agreements of Executive
(a)
Executive represents and warrants that he is free to enter into
.
this
Agreement
and to perform the duties required hereunder, and that there are no
employment
contracts
or understandings, restrictive covenants or other restrictions,
whether
written or
oral,
relating to or preventing the performance of his duties hereunder.
(b)
Executive
agrees to cooperate and supply
such
information and
documents
as may be reasonably required by any insurance company in connection with
any
type
of
insurance or fringe benefit
as
the
Company shall determine from time to time to
obtain.
BIRD & BIRD
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5/10
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Employment
Agreement Eugen
Barteska
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The
WAAT Corp.
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Execution
Copy
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May
9, 2006
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9.
Non
-
Competition
(a)
In
view
of the unique and valuable services expected to be rendered by
Executive
to the Company, Executive's knowledge of the Company's trade secrets and
other
proprietary
information made available to Executive relating to the business and in
consideration
of the compensation to be received hereunder, Executive agrees that during
his
employment
(the “Contractual Non-Competition Period”) by the Company, and following the
termination of Executive's employment hereunder for a further period of twelve
(12)
months
(the
“Post-Contractual Non-Competition Period”, together with the Contractual
Non-
Competition
Period the “Non-Competition Period”)
.
Executive
shall not, directly or indirectly,
whether
as owner, partner, joint venturer, stockholder, employee, agent, principal,
corporate
officer,
director, licensor, or in any capacity whatsoever engage in, become financially
interested
in, be employed by, or render any consultation or business advice with respect
to
any
person, firm, corporation, business
or
other
organization engaged in fields of
development
and marketing of software, media design, multimedia entertainment as
well
as
services,
and in the business of an advertising agency in Germany, where, at the time
of
the
termination
of his employment hereunder, the business
of
the
Company or any of its
subsidiaries
or other affiliates is being conducted, or is proposed to be conducted as
set
forth
in
the
Company's then current annual plan for operation within the Non-Competition
Period,
in
any
manner whatsoever, provided, however, that Executive may passively own any
securities
of any corporation which is engaged in such business and is publicly owned
and
traded
on
a recognized national securities exchange but in an amount not to exceed
at any
one
time
five
percent (5%) of
any
class
of
stock or securities of such corporation.
(b)
In
addition, Executive shall not, directly or indirectly, during the
Non-
Competition
Period, request or cause any suppliers or customers with whom the Company
or
any
of
its subsidiaries or other affiliates
has
a
business relationship to cancel, terminate or
diminish
any such business relationship with the Company or any of its subsidiaries
or
other
affiliates
or solicit, interfere with or entice from the Company any employee of the
Company
or
any of
its subsidiaries or other affiliates.
(c)
The
obligations pursuant to Section 9(a) and
(b)
shall
apply for
Germany.
If the area in which the Company engaged in its business activities changes,
or
if
the
area
in which Executive performed his work duties changes within the term
of
this
Agreement,
the obligations pursuant to Section 9(a) and (b) shall apply for the area
in
which
the
Company engaged in its business activities at the time
of
the
termination of this
Agreement
and for the area in which Executive performed his work duties within the
past
two
(2)
years.
(d)
During
the Post-Contractual Non-Competition Period the
Company
shall
pay
Executive compensation in the amount of US$ 83,237.35 (the “Compensation”).
The
Compensation
is
to
be
.
paid
as a
one-time lump-sum at the beginning of the Post-
Contractual
Non-Competition Period. Executive will be entitled to the Compensation even
if
the
Company waives its rights under this non-competition covenant with respect
to
the Post-
Contractual
Non-Competition Period. Any amounts, be it
in
cash
or
in kind (including any
benefits
received
from unemployment insurance) Executive will receive, earn in the course of
any
other
employment or engagement or would have earned had he not maliciously failed
to
pursue
other opportunities during the Post-Contractual Non-Competition Period shall
be
set-
off
from
any further compensation which has to be paid pursuant to mandatory German
law,
if
any,
to the extent legally permissible. Executive shall, upon request by
the
Company,
provide
information with respect to the amount of his earnings and details of the
respective
employer.
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(e)
Executive
undertakes to pay a contractual penalty in the amount of
EUR
10,000 for each case of breach of his obligation pursuant to Section 9(a)
and
(b).
The
aforementioned
penalty shall be due for each additional month or portion thereof during
which
such violation persists. As long as Executive is in breach of his obligations
pursuant to
Section
9(a) and
(b),
the
Company shall not be obliged to pay to Executive the compensation
set
forth
in Section
9(c).
The
Company reserves the right to claim further damages.
(f)
Sections
74
et
seq.
of
the
German
Commercial
Code
(Handelsgesetzbuch)
shall
apply
accordingly.
(g)
If
any
portion of the restrictions set forth in this Section 9 should, for
any
reason whatsoever, be declared invalid by a court of competent jurisdiction,
the
validity
or
enforceability of the remainder of such restrictions shall not thereby be
adversely affected.
10.
Copyrights
Executive
hereby irrevocably assigns to the Company all exclusive
rights
to
all
copyrightable
work products originating from or in connection with Executive's performance
of
duties
and tasks within and during his employment relationship with the Company.
The
Company
.
may
assign such rights and may publish the work products.
The
assignment of rights
and
exploitation of work products by the Company shall be deemed compensated
by
the
remuneration paid to Executive.
Executive
hereby waives his right to be named as an
author
of
the work products and his right to publish the work products.
11.
Inventions
and Discoveries
Irrespective
of
the
German
Act
on
Employee's
Inventions
(Arbeitnehmererfindungsgesetz)
which
shall
remain
applicable,
Executive (i)
shall
fully
disclose
to the Company, and with all necessary detail for a complete understanding
of
the
same,
all
developments, know-how, discoveries, inventions, improvements, concepts,
ideas,
writings, formulae, processes and methods (whether copyrightable, patentable
or
otherwise)
made,
received, conceived, acquired or written during-working hours,
or
otherwise, by
Executive
during the period of his employment with, or rendering of advisory or consulting
services
to, the Company or any of its subsidiaries or other
affiliates,
solely
or
jointly with
others
in
or relating to any activities of the Company or its subsidiaries or other
affiliates
known
to
him
as a
consequence of his employment or the rendering of advisory
and
consulting
services hereunder (collectively, the “Subject Matter”), and
(ii)
shall
assign
and
transfer,
and agrees to assign and transfer, to the Company, at the Company's expense,
all
his
rights,
title and interest in and to the Subject Matter, and Executive further agrees
to
deliver
to
the
Company any and all drawings, notes, specifications and data relating to
the
Subject
Matter,
and to execute, acknowledge and
deliver
all such further papers, including
applications
for copyrights or patents, as
may
be
necessary to obtain copyrights and patents
for
any
thereof in any and
all
countries
and to vest title thereto to the Company.
Executive
shall assist the Company
in
obtaining
such
copyrights or patents during the term of this
Agreement,
and
any
time
thereafter on reasonable notice and at mutually convenient times,
and
Executive agrees to testify in any prosecution or litigation involving any
of
the
Subject
Matter;
provided, however, that Executive shall be reasonably compensated for his
time
and
reimbursed
for any out-of-pocket expenses incurred in rendering such assistance or giving
or
preparing
to give such testimony.
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12.
Non
-
Disclosure
of
Confidential
Information,
Return
of
Working
Material
(a)
Executive
shall not, during the term of this Agreement, or
at
any
time
following
termination of this Agreement, directly or indirectly, disclose or permit
to be
known
(other than as is required in
the
regular course of his duties (including without
limitation
disclosures to the Company's advisors and consultants) or is required
by
law
(in
which
case Executive shall give the Company prior written notice
of
such
required
disclosure)
or with the prior written consent of the Company),
to
any
person, firm or corporation, any confidential information acquired by him
during
the course
of,
or as
an
incident
to, his employment or the rendering of his advisory or consulting services
hereunder,
relating
to the Company or any of its subsidiaries
or
other
affiliates, any client of the
Company
or any of its subsidiaries or other
affiliates
,
or
any
corporation, partnership or other
entity
owned or controlled, directly or indirectly, by any of the foregoing, or
in
which any of the foregoing has a beneficial interest, including, but not
limited
to, the business affairs of each of the foregoing. Such confidential information
shall
include,
but shall not be limited to,
proprietary
technology, trade secrets, patented processes, research and development
data,
know-how,
financial statements and data, market studies and forecasts, competitive
analyses,
pricing
policies, employee lists, personnel
policies,
the substance of agreements with customers, suppliers and others, marketing
or
dealership
arrangements, servicing and training
programs
and arrangements, customer lists and any other
documents
embodying such
confidential
information. This confidentiality obligation shall not apply
to
any
confidential
information
which thereafter becomes publicly available other than pursuant to
a
breach
of
this
Section 12(a) by Executive.
(b)
All
information and
documents
relating to the Company and its
subsidiaries
or other affiliates as hereinabove described (or other business affairs)
shall
be
the
exclusive
property of the Company, and Executive shall use best efforts
to
prevent any
publication
or disclosure thereof.
Upon
termination of Executive's employment with the
Company,
all documents, records, reports, writings and other similar documents
containing
confidential
information, including copies thereof, then in Executive's possession
or
control
shall
be
returned and left with the Company.
13.
Release
from Obligation to Work
(a)
If
one of the Parties has given notice of termination, the Company is
entitled
to release Executive from his
obligation
to
work at
any time until
the
end
of the
notice
period. Any open vacation claims
shall be
deemed to be compensated by such period
of
release.
(b)
In
case
Executive receives remuneration due to another employment,
service
or consultancy contract during the
period
of
release, its amount shall be deducted
from
the
salary he receives from the Company, except for the part of the
period
of
release
during
which Executive takes his remaining vacation.
(c)
Executive
has to inform the Company, without being asked, about any remuneration he
obtains apart from the salary he receives from the Company.
This
duty
to
inform
also includes the amount of the remuneration. If the Company so requires,
Executive
has
to
prove this information by presenting auditable records.
(d)
At
any
time upon the request of the Company, and without solicitation
after
notice of termination
of
the
employment relationship, irrespective of
the
Party
giving
notice,
Executive shall return all working materials and other items belonging to
the
Company,
in particular business documents and copies thereof. Executive has no right
of
retention
and no damage compensation claims.
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14.
Amendment
or Alteration
No
amendment or alteration of the terms of this Agreement shall be valid unless
made
in
writing and signed by all of the Parties hereto.
15.
Governing
Law
This
Agreement shall be governed by, and be construed in accordance with, the
laws
of
the
Federal Republic of Germany.
16.
Severability
In
the
case
that
one
or more provisions of this Agreement shall be invalid,
unenforceable
or impracticable, this shall not affect the validity and enforceability of
the
other
provisions of this Agreement. In such case the Parties agree to recognize
and
give effect
to
such
valid, enforceable and practicable provision or provisions which reflect
as
closely as
possible
the commercial intention of the Parties associated with the invalid or
unenforceable
provision.
The same shall apply in the event that the Agreement
contains
any
omissions
(Vertragsl
Ü
cken).
17.
Notices
Any
notices required or permitted to be given hereunder shall be sufficient if
in
writing,
and if delivered by hand or courier, or sent by certified mail, return receipt
requested,
to
the
addresses set forth above or such other address as either Party may from
time to
time
designate
in writing to the other, and shall be deemed given as of the date of the
delivery or at
the
expiration of three days in the event of a mailing.
18.
Data
Protection
(a)
Executive
consents to the collection, processing and use of personal
data,
as
far as this is necessary for the performance of this Agreement.The data may
be
used
only
for
the purpose of performing this Agreement and may be communicated only within
the
Company or its
subsidiaries
or other affiliates. They can only be made accessible to those
persons
who
are
competent to work on confident personal matters and who are bound to
secrecy.
(b)
Within
the scope of the above- mentioned limits, Executive consents to
the
transmission of these data within Germany as well as abroad.
19.
Waiver
or Breach
It
is
agreed that a waiver by either
Party
of
a
breach of any provision of this
Agreement
shall not operate, or be construed, as a waiver of any subsequent breach
by that
same
Party.
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20.
Entire
Agreement and Binding Effect
This
Agreement contains the entire agreement of the Parties with respect to the
subject
matter hereof, supersedes all prior agreements, both written and oral, between
the
Parties
with respect to the subject matter hereof and may be modified only by a written
instrument
signed by each of the Parties hereto. This Agreement shall be binding upon
and
inure
to
the benefit of the Parties hereto and their respective legal representatives,
heirs,
distributors,
successors and assigns, provided, however, that Executive shall not be entitled
to
assign
or
delegate any of his rights or obligations hereunder without the prior written
consent
of
the
Company.
21.
Survival
Except
as
otherwise expressly provided herein, the termination of Executive's employment
hereunder or the expiration of this Agreement shall not affect the
enforceability of Sections 4, 9, 10, 11, 12 and 13 hereof.
22.
Further
Assurances
The
Parties agree to execute and deliver all such further documents, agreements
and
instrunents and take such other and further action as may be necessary or
appropriate to carry out the purposes and intent of this Agreement.
23.
Construction
of Agreement
No
provision of this Agreement or any related
document
shall
be
construed against or interpreted to the disadvantage of any Party hereto
by any
court
or
other
governmental or judicial authority by reason of such Party having or being
deemed to have structured or drafted such provision.
24.
Headings
The
Section headings appearing in this Agreement are for the purposes of easy
reference and shall not be considered a part of this Agreement or in any
way
modify, amend or affect its provisions.
25.
Counterparts
and Facsimile Signatures
This
Agreement may be
.
signed
in counterparts with the same effect as if the signatures to each counterpart
were upon a single instrument, and all such counterparts together shall be
deemed an original to this Agreement. For the purposes of this Agreement,
a
facsimile copy of a Party's signature shall be sufficient to bind such
Party.
IN
WITNESS WHEREOF,
the
Parties hereto have executed this Agreement as of
the
date
and year first above written.
The
WAAT Corp.
By:
/s/ Ian Aaron
Name:
Ian
Aaron
Title:
Chief Executive Officer
Charismatix
Ltd. & Co. KG
By:
/s/ Ian Aaron
Name:
Title:
The
Executive:
By:
/s/Eugen Barteska
Eugen
Barteska
Signature
Page to the Employment Agreement (Eugen Barteska)
EXECUTION
COPY
EMPLOYMENT
AGREEMENT
This
Employment Agreement (the "Agreement") is entered into by and between THE WAAT
CORPORATION., a corporation organized under the laws of California
with
its
principal offices located at 14242 Ventura Boulevard, Sherman Oaks, California
91423
(the "Company, which shall include any parent or holding company") and David
Mandell
("Employee"), as of June 5, 2006 ("Effective Date").
I.
EMPLOYMENT.
The
Company hereby employs Employee and Employee hereby accepts such employment,
upon the terms and conditions hereinafter set forth,
from
June
5, 2006
("Employment
Date"), to and including June 30, 2009 (the "Term").
This
Agreement is
subject
to renewal only as set forth in Section VI below. In the event the Agreement
is
renewed
pursuant to Section VI below, reference to the Term in this Agreement shall
also
refer
to
such renewal term.
II.
DUTIES.
A.
Employee
shall serve during the course of his employment as Executive
Vice
President, General Counsel and Corporate Secretary of the Company and shall
have
such
other duties and responsibilities as are consistent with those generally
performed
by
the
Executive Vice President, General Counsel and Corporate Secretary
of
a
similarly
situated
company as the Chief Executive Officer of the Company shall determine from
time
to time, including the authority to hire and fire appropriate legal and
administrative
staff
personnel. The Company shall provide Employee with all reasonable and necessary
business
equipment to allow Employee to perform such duties and responsibilities.
The
Company
retains absolute discretion to reorganize the Company from time to time and
that
nothing in this Agreement shall in any way affect or limit such discretion;
provided
that,
such reorganization shall not serve to
diminish
or otherwise materially alter
Employee's
position as Executive Vice President,
General
Counsel and Corporate
Secretary
after any such reorganization.
B.
Employee
agrees to devote substantially all of his time, energy
and
ability
to
the
business of the Company. Nothing herein shall prevent Employee, upon approval
of
the Board of Directors of the Company, from serving as a director or trustee
of
other
corporations
or businesses which are not in direct competition with the business
of
the
Company or in direct competition with any
present
or future
affiliate
of
the
Company;
provided,
however, that no approval of the Board of Directors of the Company shall be
required
for Employee to continue to serve as a director of any company of which he
was
a
director as of the Effective Date so long
as
such
company is not in direct competition
with
the
Company. Nothing herein shall prevent Employee from (i)
investing
in real
estate
for his own account, (ii) becoming a partner or a stockholder in any
corporation,
partnership
or other venture not in direct competition with the business of the Company
or
in direct competition with any present affiliate of the Company, or (iii)
becoming up
to
a 5%
stockholder in any publicly held corporation whether or not in competition
with
the
business of the Company or in competition with any present or future affiliate
of the
Company.
EXECUTION
COPY
C.
For
the Term of this Agreement, Employee shall report to the Chief Executive Officer
of the Company and serve as a member of the Company's core executive team,
regardless of any reorganization of the Company.
III.
COMPENSATION.
A.
The
Company will pay to Employee a base salary at the annual rate of
$300,000
from June 5, 2006 through June 4, 2007, $315,000 from June 5, 2007 through
June
4,
2008 and $330,750 from June 5, 2008 through June 30, 2009.
Such
salary shall
be
earned
monthly and shall be payable in periodic installments no less frequently than
monthly
in accordance with the Company's customary practices.
Amounts
payable shall
be
reduced by standard withholding and other authorized deductions. The Company
may
in
its
discretion increase Employee's salary beyond these set amounts
but
it
may not reduce it during the Term or any extension thereof.
B.
Annual
Bonus.
Employee
shall be paid an annual bonus (the "
Bonus
") at
the
Company's sole discretion based upon Employee's performance and the performance
of
the
Company with a target Bonus of thirty-five percent (35%) of the then-current
base
salary,
such Bonus to be determined and paid on the Company's fiscal year basis to
the
extent
and in such manner as determined with such other comparable senior executives
of
the
Company.
C.
Welfare
Benefit Plans.
Employee
and/or his family, as the case may be, shall be eligible for participation
in
and shall receive all benefits under welfare
benefit
plans,
practices, policies and programs provided by the Company (including,
without
limitation,
medical, prescription, dental, vision, disability, salary continuance,
employee
life,
group life, accidental death, travel accident insurance plans and programs
and
401K
Plan)
to
the extent applicable generally to other comparable senior executives of the
Company.
D.
Expenses.
Employee
shall be entitled to receive prompt reimbursement
for
all
reasonable employment expenses incurred by him in accordance with the policies,
practices
and procedures as in effect generally with respect to other comparable
senior
executives of the Company.
E.
Fringe
Benefits.
Employee
shall be entitled to fringe
benefits
in
accordance
with the plans, practices, programs and policies as in effect generally
with
respect
to other comparable senior executives of the Company.
F.
Vacation.
Employee
shall be entitled to four (4) weeks paid vacation each
year
which shall be taken in accordance with the policies and practices
as
in
effect
generally
with respect to other comparable senior executives of the Company.
EXECUTION
COPY
G.
Stock
Options.
The
Company
shall
grant
to
Employee on June 5, 2006 ("First Issue Date"), subject to Compensation Committee
approval
and the vesting
provisions
described in this Agreement, nonqualified stock options (the "Options")
under
the
Company's 2006 Stock Incentive Plan, as amended (the "Plan"), to acquire seventy
five
thousand (75,000) shares of the Company's Common Stock ("Common Shares") at
the
exercise price per Common Share under each such Option of Thirty
Five
Cents
($0.35).
The Company shall grant to Employee on June 5, 2007 ("Second Issue Date")
an
additional seventy five thousand (75,000) shares of the Company's Common Shares
at
the
exercise price per Common Share under each such Option determined at the time
of
grant
and
no greater than the Series B financing purchase price.
Each
Option shall
represent
the right to acquire one (1) Common Share. Subject to earlier termination of
the
Options
as described below, the Options shall vest in full and become immediately
exercisable
as follows: (a) twenty five percent (25%) on the first anniversary of the First
Issue
Date and the remaining seventy five percent (75%) in equal quarterly
installments over the three (3) year period following the first anniversary
of
the First Issue
Date
and
(b)
twenty five percent (25%) on the first anniversary of the Second Issue Date
and
the
remaining
seventy five percent (75%) in equal quarterly installments over the
three
(3)
year
period following the first anniversary of the Second Issue Date.
The
Options shall
expire
on
the first to occur of (i) the close of business on the last business day
of
the
Company
coinciding with or immediately preceding the day before the tenth anniversary
of
the
Effective Date, (ii) the termination of the Options pursuant to the Plan, or
(iii)
the
termination
of the Options in connection with a termination of Employee's employment
with
the
Company as contemplated by the Option Agreement.
The
Options shall be
evidenced
by a written option agreement in the form attached hereto
as
Exhibit
A
(the
"Option
Agreement").
In
addition to any provision contained in the Plan and/or the
Option
Agreement, all Options are subject to full accelerated vesting
upon
an
underwritten
initial public offering of the securities of the Company and/or a Change
of
Control
of the Company.
At
the
Company's sole discretion, to the extent
other
comparable
executives of the Company are granted additional Options, Employee
shall
be
granted additional Options.
H.
The
Company reserves the right to modify, suspend or discontinue any
and
all
of the plans, practices, policies and programs described in Sections III-C,
III-D,
and
III-E
above at any time without recourse by Employee so long as such action is taken
generally
with respect to other comparable senior executives, is not applied
retroactively, and does not single out Employee. Notwithstanding such right,
in
the event the Company ceases to provide medical insurance, the Company
shall
reimburse Employee for
premiums
paid for COBRA continuation of medical insurance during the Term and any
renewal.
IV.
TERMINATION.
A.
Death
or
Disability.
Employee's
employment
shall
terminate
automatically
upon Employee's death.
If
a
Disability of Employee has occurred (pursuant to the definition of Disability
set forth below), the
Company
may give to
Employee
written notice of its intention to terminate Employee's employment.
In
such
event,
Employee's employment with the Company shall terminate effective on the
120th
day
after receipt of such notice by Employee, provided that, within the
120
days
after
such
receipt, Employee shall not have returned to full-time performance
of
his
duties.
For
purposes of this Agreement, "Disability" shall mean either a physical
or
mental
impairment which substantially limits a major life activity
of
Employee and which renders Employee unable to perform the essential functions
of
his position, even with reasonable accommodation which does not impose an undue
hardship on the Company
for
an
aggregate of 120 days in any twelve-month period. The determination of
Disability
under the preceding sentence, shall be based upon information supplied
by
Employee
and/or his medical personnel,
as
well
as
information from medical personnel
(or
others) selected by the Company.
In
the
event Employee's health care provider and the Company do not agree
as
to
whether Employee has a Disability, Employee and the Company shall appoint a
third-party qualified physician who shall evaluate
Employee
and
provide a determination of whether Employee has a
Disability.
EXECUTION
COPY
B.
Cause.
The
Company may terminate Employee's
employment
for "Cause" in the event the Employee has engaged in or committed: willful
misconduct;
gross
negligence; theft, or fraud;
any
willful act that is reasonably likely to and which
does
in
fact have the effect of materially injuring the reputation, business or a
business
relationship
of the Company; and material breach of any material term of this
Agreement.
In the event the Company determines that Cause for termination exists based
upon
willful misconduct or gross negligence, the Company shall give Employee fourteen
(14)
days
prior written notice of such termination which notice shall include reasonable
detail
as
to the ground for such termination. If such ground is curable, Employee shall
be
given
thirty (30) days from the date of such notice to cure such ground for
termination for
Cause.
After the expiration of any such cure period,
the
Company shall make a good
faith
determination as
to
whether Employee has cured such ground for termination for
Cause
and
shall give written notice thereof to the Employee which,
in
the
case of a
determination
that Employee has failed to cure, shall include reasonable detail
as
to
why
Employee's
efforts to cure were not adequate.
Notwithstanding
anything to the contrary
set
forth
in this Section IV-B, the Company shall not have the right to terminate
the
Employee
for "Cause" after the expiration of six (6) months from
discovery
by the
Company
of the conduct or circumstances that are the basis for such
termination.
C.
Good
Reason.
Employee
may terminate employment for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean any of the following:
(i)
the
Company
requires Employee to relocate his principal office more than 25 miles from
the
Company's
current principal place of business without Employee's
consent;
(ii) the
Company
assigns Employee to a position other than Executive Vice President,
General
Counsel
and Corporate Secretary of the Company without Employee's consent; (iii) the
Company
requires Employee to report directly to any officer other than Ian Aaron, Chief
Executive
Officer, without Employee's consent; (iv) Ian Aaron is no longer the
Chief
Executive
Officer of the Company (v) the Company substantially diminishes Employee's
duties or responsibilities; and/or (vi) the Company fails to pay any amounts
owed to
Employee
when due or otherwise materially breaches any material term of this
Agreement.
Before terminating his employment with Good Reason under subsections (i)
-
(vi),
Employee
shall give the Company written notice of his intent to terminate
for
Good
Reason and the basis therefore, and the Company shall have thirty (30) days
to
cure (the "Cure Period") the Good Reason. At the end the Cure Period, Employee
shall
determine
in good faith determination as to whether the Company has cured such Good
Reason.
If Employee determines that the Company has failed to
cure
the
Good Reason within the Cure Period, Employee may terminate his employment and
this Agreement upon an additional ten (10) days' written notice which notice
shall include
reasonable
detail
as
to why the Company's
efforts
to
cure
such Good Reason were inadequate.
For
all
purposes under this Agreement, any termination by Employee with Good Reason
shall be treated as a termination without Cause and Employee shall be entitled
to the payments and benefits set forth in Section IV-E-3 pursuant to its
terms.
EXECUTION
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D.
Other
than Cause or Death or Disability
.
The
Company may terminate
Employee's
employment at any time, with or without cause, upon ninety
(90)
days'
written
notice.
E.
Obligations
of the Company Upon Termination.
1.
Death
or Disability.
If
Employee's employment is terminated by
reason
of
Employee's Death or Disability, this Agreement shall terminate
without
further obligations to Employee or his legal representatives under
this
Agreement (except as provided in this Section IV-E-1), other than for
(a)
payment of the sum of (i) Employee's annual base salary through the
date
of
termination to the extent not theretofore paid, (ii) Employee's pro
rata
portion of the Bonus (based on the number of days elapsed prior to
termination)
for the calendar year during which the Employee's Death or
Disability
occurs, and (iii) any compensation
previously
deferred by
Employee
(together with any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid (the sum of the
amounts described in clauses (i), (ii), and (iii) shall be
hereinafter
referred to
as
the
"Accrued Obligations"), which shall be paid
to
Employee or his estate or beneficiary, as applicable, in a lump sum in
cash
within thirty (30) days of the date of termination; (b) payment to
Employee
or his estate or beneficiary, as applicable, any amounts
due
pursuant
to the terms of any applicable welfare benefit plans, and (c) to the
extent
termination is due to Disability, until the earlier of the end of such
Disability
and June 30, 2009 (or the end of the renewal, if any), continued
participation
in medical, dental, hospitalization
and
life
insurance
coverage
and in all other plans and programs in which Employee was
participating
(on the same basis he was participating) on the
date
of
termination.
Upon a termination as a result of Death or Disability,
the
Options,
and any other options granted to Employee by the Company
during
his employment, to the extent outstanding and not
previously
vested
at
the time of such termination, shall thereupon vest in full and
shall
continue to be exercisable for a period of three (3) years after such
termination.
2.
Cause.
If
Employee's employment is terminated by the Company
for
Cause, this Agreement shall terminate without further obligations to Employee
other than for the timely payment of Accrued Obligations.
If
it
is
subsequently determined that the Company did not have Cause
for
termination
under Section IV-B, then the Company's decision to terminate
shall
be
deemed to have been a determination by the Company
that
Employee's
services are no longer needed or desired under Section IV-D
and
the
amounts payable under Section IV-E-3 shall be the only amounts
Employee
may receive thereunder.
EXECUTION
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3.
Other
than Cause or Death or Disability.
If
the
Company
terminates
Employee's employment for other than Cause or Death
or
Disability,
or if Employee terminates his employment with Company for
Good
Reason, this Agreement shall terminate without further obligations
to
Employee (except as provided in this Section IV-E-3) other than for (a)
the
immediate payment of Accrued Obligations; (b) upon Employee's
execution,
and non-revocation, of a release substantially
in
the
form
attached
hereto as Exhibit B, immediate lump sum payment to Employee
of
a sum
equal to the balance of base salary payments
for
all
remaining
years
of
this Agreement and Bonus had Employee remained employed through the end of
the
Term or renewal, less standard withholdings and
other
authorized deductions; and (c) reimbursement to Employee of all
premiums
paid for COBRA continuation of medical insurance until the earlier of (i)
Employee becomes eligible for group medical insurance with
another
employer or (ii) twelve (12)
months.
Furthermore,
if the
Company
terminates Employee's employment for other than Cause, Death
or
Disability, or if Employee terminates his employment with Company for Good
Reason, the Options, and any other options granted to Employee by the Company
during his employment, to the extent outstanding and not
previously
vested at the time of such termination, shall thereupon vest in
full
and
shall continue to be exercisable for a period of three (3) years after
such
termination.
4.
Termination
By
Employee
Other than for Good
Reason.
Employee
may terminate his employment with Company upon 30 days'
written
notice for any reason other than Good Reason, Death or Disability.
For
all
purposes under this Agreement, any such termination by Employee
shall
be
treated as a termination for Cause.
5.
Exclusive
Remedy; No Mitigation.
Employee
agrees that the payments contemplated by this Agreement shall constitute the
exclusive
and
sole
remedy for any termination of his employment and Employee
covenants
not to assert or pursue any other remedies, at law or in equity,
with
respect to any termination of employment.
The
Company agrees that
the
payments contemplated by the Agreement shall not be reduced by any
compensation
Employee may receive as a result of employment by any
other
person or entity after the termination of his employment.
EXECUTION
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V.
ARBITRATION.
Any
controversy arising out of or relating to this Agreement, its enforcement or
interpretation,
or because of an
alleged
breach, default,
or
misrepresentation in
connection
with any of its provisions, or any other controversy arising out of Employee's
employment,
including, but not limited to, any state or federal statutory claims,
shall
be
submitted
to arbitration in Los Angeles, California, before a sole arbitrator selected
from
the
American Arbitration Association
("AAA"),
and shall be conducted in accordance
with
the
AAA rules for the resolution of Employment Disputes as the exclusive forum
for
the
resolution of such dispute; provided, however, that provisional injunctive
relief may,
but
need
not, be sought by either party to this Agreement in a court
of
law
while
arbitration
proceedings are pending, and any provisional injunctive relief granted by
such
court
shall remain effective until otherwise modified by the Arbitrator; provided,
however,
that such provisional injunctive relief shall be sought in aid and in advance
of
the
arbitration only. Final resolution of any dispute through arbitration may
include
any
remedy
or
relief which the Arbitrator deems just and equitable,
including
any and all remedies provided by applicable state or federal statutes. At the
conclusion of the
arbitration,
the Arbitrator shall issue a written decision that sets forth the essential
findings
and conclusions upon which the Arbitrator's award or decision is based.
Any
award
or
relief granted by the Arbitrator hereunder shall be final and
binding
on the
parties
hereto and may be enforced by any court of competent jurisdiction.
The
parties
acknowledge
and agree that they are hereby waiving any rights to trial
by
jury
in
any
action,
proceeding or counterclaim brought by either of the parties against the other
in
connection
with any matter whatsoever arising out of or in any way connected with this
Agreement
or Employee's employment.
Employee
and Company agree that in any
proceeding
to enforce the terms of this Agreement, the prevailing party shall
be
entitled
to
its or
his reasonable attorneys' fees and costs (including forum costs associated
with
the
arbitration) incurred by it or him in connection with resolution of the dispute
in
addition
to any other relief granted.
VI.
RENEWAL.
This
Agreement shall automatically renew for one additional term of three
(3)
years,
commencing July 1, 2009, unless either Employee or the Company gives the other
written notice on or before April 1, 2009), of an intent not to renew.
If
this
Agreement is
to
renew,
Employee and the Company shall meet in good faith to discuss the terms of the
renewal
prior to May 1, 2009 to negotiate new terms related to, among other things,
base
salary, bonus percentage and additional grants of stock
options.
In
the
event the
Company
notifies Employee in writing of its election not to renew, this Agreement shall
expire
and terminate on June 30, 2009 and the Company shall pay Employee a lump sum
payment equal to six (6) months of Employee's then-current
base
salary and shall reimburse Employee for all premiums paid for COBRA continuation
of medical
insurance
for a period not to exceed six (6) months.
Furthermore,
if the Company elects
not
to
renew, the Options, and any other options granted to Employee by the Company
during
his employment, to the extent outstanding and not previously vested at the
time
of such notice of non-renewal, shall thereupon
vest
in
full and shall continue to be
exercisable
for a period of three (3) years after such notice of non-renewal.
In
the
event Employee notifies the Company of his election not to renew, this Agreement
shall expire
and
terminate on June 30, 2009, and such termination shall be treated for all
purposes
under
this Agreement as a termination by Employee without Good
Reason.
EXECUTION
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VII.
ANTISOLICITATION.
Employee
promises and agrees that during the term of this Agreement or renewal
in
accordance with Section VI above, and for a period of twelve (12) months
thereafter,
he
will
not influence or attempt to influence any mobile telecommunications
operator
which
distributes the Company's programming, games and services to cease distribution
of
the
Company's programming, games and services with its subscribers and replace
it
with
similar services of any direct competitor with the business of the
Company.
IX.
SOLICITING
EMPLOYEES.
Employee
promises and agrees that he will not, during the term of this Agreement
and
for a
period of twelve (12) months following termination of his employment or the
expiration
of this Agreement or renewal in accordance with Section VI above, directly
or
indirectly
solicit any of the Company employees who earned annually $50,000 or more as
a
Company
employee during the last six months of his or her own employment to work
for
any
business, individual, partnership, firm, corporation, or other entity then
in
direct
competition
with the business of the Company or any subsidiary of the Company.
For
the
purposes of this provision, "indirectly solicit" shall mean that Employee has
provided
name(s)
or other identifying information to aid in the solicitation of such
person.
X.
CONFIDENTIAL
INFORMATION.
A.
Employee,
in the performance of Employee's duties on behalf of the
Company,
shall have access to, receive and be entrusted with confidential information,
including
but in no way limited to development, marketing, organizational,
financial,
management, administrative, production, distribution
and
sales
information, data,
specifications
and processes presently owned or at any time in the future developed,
by
the
Company or its agents or consultants, or used presently or at any time in the
future in
the
course of its business that is not otherwise part of the public domain
(collectively, the
"Confidential
Material"). All such Confidential Material is considered secret and will
be
available
to Employee in confidence.
Except
in
the performance of duties on behalf of
the
Company, Employee shall not, directly or indirectly for any reason whatsoever,
disclose
or use any such Confidential Material, unless such Confidential Material
ceases
(through
no fault of Employee's) to be confidential because it has become part
of
the
public domain.
All
records, files, drawings, documents, equipment and other tangible
items,
wherever located, relating in any way to the Confidential Material or otherwise
to
the
Company's business, which Employee prepares, uses or encounters,
shall
be
and
remain
the Company's sole and exclusive property
and
shall
be included in the Confidential Material. Upon termination of this Agreement
by
any means, or whenever
requested
by the Company, Employee shall promptly deliver to the Company any and all
of
the
Confidential Material, not previously delivered to the Company, that may be
or
at
any
previous time has been in Employee's possession or under
Employee's
control,
provided however,
that
Employee may retain in his possession any Confidential Material
that
reflects the terms of his employment with the Company or the terms or amount
of
his
compensation
and benefits.
EXECUTION
COPY
XI.
INDEMNIFICATION.
To
the
maximum extent permitted by applicable law,
Company
shall indemnify Employee and hold Employee harmless from and
against
any
and
all
claims, liabilities, judgments fines, penalties, costs and expenses (including,
without limitation, reasonable attorneys' fees, costs of investigation and
experts,
settlements
and other amounts actually incurred by Employee
in
connection with the
defense
of any action, suit or proceeding, and in connection with any appeal
thereon)
incurred
by Employee in any and all threatened, pending or completed actions,
suits
or
proceedings,
whether civil, criminal administrative or investigative
(including,
without
limitation,
actions, suits or proceedings brought by or in the name of Company) arising,
directly
or indirectly, by reason of Employee's status, action or inaction as a director,
officer,
employee or agent of Company or of an affiliate of Company. The Company
shall
promptly advance to Employee upon request any and all expenses incurred by
Employee in defending any and all such actions, suits or proceedings to the
maximum extent permitted by law.
XII.
SUCCESSORS.
A.
This
Agreement is personal to Employee and shall not, without the prior written
consent of the Company, be assignable by Employee.
B.
This
Agreement may
not
be
assigned by the Company without
Employee's
prior written consent, unless such assignment is made in connection with
a
Change
in
Control, in which case, this Agreement shall inure to the benefit of and
be
binding
upon the Company and its successors and assigns and any such successor
or
assignee
shall be deemed substituted for the Company under the terms of this Agreement
for
all
purposes.
With
respect to any assignment of this Agreement by Company
requiring
Employee's prior written consent, no such permitted assignment shall
relieve
the
Company of its obligations or liability hereunder unless Employee otherwise
agrees
in
writing.
XIII.
WAIVER.
No
waiver
of any breach of any term or provision of this Agreement shall
be
construed
to be, nor shall be, a waiver of any other breach of this Agreement. No waiver
shall
be
binding unless in writing and signed by the party waiving the
breach.
XIV.
MODIFICATION.
This
Agreement may not be amended or modified other than
by
a
written
agreement
executed by Employee and the Company's Chief Executive Officer.
EXECUTION
COPY
XV.
SAVINGS
CLAUSE.
If
any
provision of this Agreement or the application thereof is held invalid, the
invalidity
shall not
affect
other
provisions or applications of the Agreement which can be
given
effect without the invalid provisions or applications and to this end the
provisions
of
this
Agreement are declared to be severable.
XVI.
COMPLETE
AGREEMENT.
This
Agreement constitutes and contains the entire agreement and final
understanding
concerning Employee's employment with the Company and the other
subject
matters addressed herein between the parties. It is intended by the parties
as a
complete
and exclusive statement of the terms of their agreement. It supersedes and
replaces
all prior negotiations and all agreements proposed or otherwise, whether written
or
oral,
concerning the subject matter hereof. Any
representation,
promise or agreement
not
specifically included in this Agreement
shall
not
be
binding upon or enforceable
against
either party. This is
a
fully
integrated agreement. To the extent that there is any
conflict
or inconsistency between the terms of this Agreement and the terms of the
Option
Agreement or the Plan, the terms of this Agreement shall govern.
XVII.
GOVERNING
LAW.
This
Agreement shall be deemed to have been executed and delivered within the
State
of
California, and the rights and obligations of the parties hereunder shall be
construed
and enforced in accordance with, and governed by, by the laws of the State
of
California
without regard to principles of conflict of laws.
XVIII.
CONSTRUCTION.
Each
party has cooperated in the drafting and preparation of this Agreement.
Hence,
in
any construction to be made of this Agreement, the same shall not be construed
against
any party on the basis that the party was the drafter. The captions of this
Agreement
are not part of the provisions hereof and shall have no force or
effect.
XIX.
COMMUNICATIONS.
All
notices, requests, demands and other communications hereunder shall be in
writing
and shall
be
deemed
to
have
been duly given if delivered or if mailed by
registered
or certified mail, postage prepaid, addressed to Employee at 4523 Grimes
Place,
Encino, California 91316 or addressed to the Company at 14242 Ventura Blvd.,
Sherman
Oaks CA 91423, Attention: Ian Aaron, Chief Executive Officer. Either party
may
change the address at which notice shall be given by written notice given in
the
above
manner.
EXECUTION
COPY
XX.
EXECUTION.
This
Agreement is being executed in one or more counterparts, each of which
shall
be
deemed an original, but all of which together shall constitute one and the
same
instrument.
Photographic copies of such signed counterparts may be used in lieu of the
originals for any purpose.
XXI.
CONFLICT
WITH OTHER AGREEMENTS.
In
the
event that an express provision of this Agreement conflicts with an express
provision
of the Plan and/or the Option Agreement,
the
express provision of this
Agreement
shall govern.
In
witness whereof, the parties hereto have executed this Agreement as of the
date
first above written.
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THE WAAT CORPORATION
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By:
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/s/ Ian
Aaron
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Its
Pres. /CEO
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DAVID
MANDELL
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/s/
David
Mandell
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EXECUTION
COPY
EXHIBIT
A
OPTION
AGREEMENT
(To
Be
Provided)
EXECUTION
COPY
EXHIBIT
B
General
Release Agreement
This
General Release Agreement (the "Agreement") is entered into as of
___
,
200_
,
by
and
between David Mandell (the
"
Employee
")
and
WAAT
CORPORATION. (the
"
Company
").
Employee
and the Company are parties to an Employment Agreement
effective
as of June 5, 2006 (the "Employment Agreement").
Employee's
employment with the Company will terminate effective on ______,
200_
(the
"Termination Date").
In
exchange for the severance pay and other severance
benefits
provided to Employee under Section IV-E-3 of the Employment
Agreement
(including,
but not limited to, the right to retain all vested 401K benefits pursuant to
the
401K
Plan), and except for the obligations of Company under such
Section
IV-E-3,
Employee
hereby
covenants
not to sue and releases the Company, and its subsidiaries,
parent
and affiliated entities, past and present,
and
each
of them,
as
well
as
their
respective
trustees, directors,
officers,
agents, employees,
shareholders,
assignees,
successors,
attorneys, and insurers, past and present, and each of them (individually
and
collectively
referred to herein as
"Releasees"),
from any and all claims,
wages,
agreements,
contracts, obligations, covenants, demands, costs, expenses, attorneys'
fees,
rights,
debts, liens, and causes of action, known or unknown, suspected or unsuspected,
arising
out of or in any way connected with his employment or any other transactions,
occurrences,
acts or omissions, or any loss, damage or injury
whatsoever,
known or
unknown,
suspected or unsuspected, resulting from any act or omission by or on the part
of
said
Releasees, or any of them, committed or omitted, prior to the execution of
this
Agreement, whether based on contract,
tort,
common
law, or statute.
Employee
acknowledges
by the execution of this Agreement that he has no further claims against
the
Releasees other than for the performance of the obligations set forth in Section
IV-E-
3
and
Section XI of the Employment Agreement.
The
Employee hereby acknowledges that he has read this Agreement, understands its
contents and agrees to its terms and conditions knowingly, voluntarily and
of
his own
free
will. Specifically, the Employee agrees:
(a)
that
he is releasing any and all claims
under
the
Age Discrimination in Employment Act of 1967, as amended by the Older Workers
Benefit Protection Act, and any federal, state or local
fair
employment acts
arising
up to the date of the execution of this Agreement; (b) that the consideration
being
received
by the Employee is greater than he would have been entitled to receive before
signing
this Agreement; (c) that the Employee is hereby advised to consult an attorney
of
his
choice prior to the execution of this Agreement; (d) that the Employee was
given
at
least
twenty-one (21) days from the date of receipt of this Agreement to decide
whether
or
not to
execute it; and (e) that the Employee has seven (7) days from the execution
of
this
Agreement to revoke its execution and this Agreement will become null and void
if
he
elects
revocation during that time.
Any
revocation must be in writing and must be
received
by the Company during the seven-day revocation period.
In
the
event of such
revocation,
the Company will not have any obligations under this Agreement or Section
IV-E-3
of
the Employment Agreement except for the payment of Accrued Obligations as
defined in the Employment Agreement.
EXECUTION
COPY
If
any
provision of this Agreement or its application is held invalid, the invalidity
shall
not
affect other provisions or applications of the Agreement which can be given
effect
without the invalid provisions or application and, therefore, the provisions
of
this
Agreement
are declared to be severable.
The
undersigned have read and understand the consequences of this Agreement
and
voluntarily sign it.
IN
WITNESS WHEREOF, the Parties have executed this Agreement as of the __
day
of
_
200_.
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THE
WAAT CORPORATION
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By
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Its
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FIRST
AMENDMENT TO EMPLOYMENT AGREEMENT
This
first amendment (“First Amendment”) is effective as of February 12, 2008
(“Amendment Date”) by and between Twistbox Entertainment, Inc. (as
successor-in-interest to The WAAT Corporation) (“Twistbox”) and David Mandell
(“Employee”), and amends that certain Employment Agreement dated as of June 5,
2006 by and between Twistbox and Employee (the “Agreement”). Unless otherwise
defined herein, defined terms shall have their meanings as set forth in the
Agreement.
RECITALS
WHEREAS,
Twistbox
and Mandalay Media, Inc. (“Mandalay”) have entered into that certain Agreement
and Plan of Merger dated December 31, 2007, as amended;
WHEREAS
,
Twistbox and Employee believe it is in the best interest of Twistbox and
Employee to mutually agree to certain modifications to the Agreement;
and
WHEREAS
,
the
parties hereto desire to memorialize their mutual understandings as contained
herein.
AMENDMENT
NOW
THEREFORE,
in
consideration of the foregoing, Twistbox and Employee desire to further amend
and/or modify the Agreement and enter into this First Amendment on the terms
and
conditions provided below:
Employee’s
Agreement shall be modified as follows:
1.
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The
first sentence of Section I of the Agreement shall be deleted and
replaced
with the following:
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“
EMPLOYMENT
.
The
Company hereby employs Employee and Employee hereby accepts such employment,
upon the terms and conditions hereinafter set forth, from February 12, 2008
(“Employment Date”), to and including February 12, 2011 (the “Term”). On or
about August 12, 2010, Employee and the Company shall meet in good faith to
discuss the terms of a renewal, in order to negotiate terms related to, among
other things, base salary, bonus percentage and additional grants of stock
options.”
2.
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The
first sentence of Sub-section A of Section III of the Agreement shall
be
deleted and replaced with the
following:
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“
A.
Base
Salary
.
The
Company will pay to Employee a base salary at the annual rate of $300,000 from
February 12, 2008 through February 11, 2009; $315,000 from February 12, 2009
through February 11, 2010, and $330,750 from February 12, 2010 through February
12, 2011.”
3.
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A
new Sub-paragraph G.2 shall be added to Section III of the Agreement
following Sub-paragraph G thereof as
follows:
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“G.2.
Stock
Options
.
On the
Employment Date, the Company shall cause Mandalay to grant to Employee an
initial option (the “Mandalay Option”) to purchase 450,000 shares of Mandalay’s
common stock (“Common Shares”) at an exercise price equal to the closing price
of the Common Shares on the date of grant. Each Mandalay Option shall represent
the right to acquire one (1) Common Share. The Mandalay Option shall vest in
full and become immediately exercisable as follows: (a) one-third shall
immediately vest on the Employment Date, (b) one-third shall vest on the first
anniversary of the Employment Date and (c) one-third shall vest on the second
anniversary of the Employment Date.
The
Mandalay Option shall be evidenced by a written option agreement and be governed
by the terms and conditions thereof and the terms and conditions of Mandalay’s
2007 Stock Plan. Notwithstanding anything to the contrary, the Mandalay Option
is subject to full accelerated vesting upon a change of control and/or the
sale
of all or substantially all of the assets of Mandalay.”
4.
Lines
6
through 9 of sub-paragraph C of Section IV of the Agreement that provides as
follows, “(iii) the Company requires employee to report directly to any officer
other than Ian Aaron, Chief Executive Officer, without Employee’s consent; (iv)
Ian Aaron is no longer the Chief Executive Officer of the Company”, shall be
deleted in their entirety.
5.
The
last
sentence of sub-paragraph E.2 of Section IV of the Agreement beginning with
“Upon” and ending with “termination.” is hereby deleted in its entirety and
replaced with the following:
“Upon
a
termination as a result of Death or disability, the Options, to the extent
outstanding and not previously vested at the time of such termination, shall
thereupon vest in full and shall continue to be exercisable for a period of
three (3) years after such termination.”
6.
Lines
6
through 12 of sub-paragraph E.3 of Section IV of the Agreement beginning with
“(b)” and ending with “deductions” shall be deleted in their entirety and
replaced with the following:
“(b)
upon
Employee’s execution, and non-revocation, of a release substantially in the form
attached hereto as Exhibit B, payment to Employee of a sum equal to base salary
in accordance with the usual payroll practices of the Company for a period
equal
to six (6) months following such termination;”
7.
Section
VI of the Agreement shall be deleted in its entirety and replaced with the
following: “INTENTIONALLY LEFT BLANK.”
8.
All
terms
and conditions of the Agreement not specifically and expressly modified or
amended herein are hereby ratified and confirmed in all respects and shall
remain in full force and effect.
9.
Each
person who executes this Amendment represents and warrants to each party hereto
that he has the authority to do so and to bind each entity as contemplated
hereby, and agrees to hold harmless each other party from any claim that such
authority did not exist. This Amendment will inure to the benefit of and be
binding upon the parties and their respective shareholders, successors and
permitted assigns.
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF
,
the
parties hereto have executed this First Amendment as of the Amendment Date
set
forth above.
TWISTBOX
ENTERTAINMENT, INC.
(AS
SUCCESSORS-IN-INTEREST TO
THE
WAAT CORPORATION)
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EMPLOYEE
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By:
/s/ Ian Aaron
Name: Ian Aaron
Title: CEO/PRES
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By:
/s/ David Mandell
Name: David
Mandell
|
EMPLOYMENT
AGREEMENT
This
Employment Agreement (the “Agreement”) is entered into by and between
Twistbox
Entertainment, Inc., a Delaware corporation organized under the laws of the
State
of
Delaware, with its principal offices located at 14242 Ventura Boulevard,
Sherman
Oaks, California 91423 (the “Company”) and Russell Burke (“Employee
”
) dated
as
of
December 11, 2006 (“Effective Date”).
I.
EMPLOYMENT
.
The
Company hereby employs Employee and Employee hereby accepts such
employment
upon the terms and conditions hereinafter set forth commencing as of
December
11, 2006 (“Employment Date”) through and including December 10, 2008;
provided
that, notwithstanding any other provision contained herein to the contrary,
the
first
ninety (90) days of your employment will be on a probationary basis where
either
party
may
provide the other with fifteen (l5) days prior notice of its intention not
to
continue
with your employment with the Company for any or no reason whatsoever. In
such
event, you agree and acknowledge that neither party shall have any further
obligation to the other except with respect to the Company
’
s obligation
to
pay your
accrued
salary as of the last day of your employment.
II.
DUTIES
.
A.
Employee
shall serve during the course of his employment as Chief
Financial
Officer and shall have such other duties and responsibilities as are consistent
with
those generally performed by the Chief Financial Officer of a similarly situated
company
and as the Chief Executive Officer shall determine from time to time including
matters
concerning: capital asset/financial planning; financial systems and modeling,
budgeting
and forecasting; strategic planning and competitive analyses; business
evaluations
and due diligence; acquisitions and divestitures; debt and equity financing
and
restructuring; financial management; banking relations; business policies,
practices
and
procedures; public and private offerings; and Sarbanes-Oxley (or similar)
compliance.
The Company shall provide Employee with
all
reasonable and necessary business equipment to allow Employee to perform
such
duties and responsibilities. The
Company
retains absolute discretion to reorganize the Company from time to time and
that
nothing in this Agreement shall in any way affect or limit such
discretion.
B.
Employee
agrees to devote substantially all of his time, energy and ability
to
the
business of the Company. Nothing herein shall prevent Employee, upon approval
of
the
Board of Directors of the Company, from serving as a director or trustee
of
other
corporations
or businesses which are not in direct competition with the business of the
Company
or in direct competition with any present or future affiliate of the Company;
provided, however, that no approval of the Board of Directors of the Company
shall be
required
for Employee to continue to serve as a director of any company of which he
was
a
director as of the Effective Date so long as such company is not in competition
with the
Company.
Nothing herein shall prevent Employee from (i)
investing
in real estate for his
own
account,
(ii)
becoming
a partner or a stockholder in any corporation, partnership or
other
venture not in direct competition with the business of the Company or in
competition
with any present affiliate of the Company, or (iii) becoming up to a
5%
stockholder
in any publicly held corporation whether or not in competition with the
business
of the Company or in competition with any present or future affiliate of
the
Company.
C.
Employee
shall report to Ian Aaron, Chief Executive Officer.
III.
COMPENSATION
.
A.
The
Company will pay to Employee a base salary at the annual rate of
$240,000.
Such
salary shall be earned monthly and shall be payable in periodic installments
no
less frequently than monthly in accordance with the Company's
customary
practices.
Amounts
payable shall be reduced by standard withholding and
other
authorized deductions. The Company may in its discretion increase
Employee’s
salary
beyond these set amounts but it may not reduce it.
B.
Annual
Bonus
.
Employee
shall
eligible for an annual performance/merit
bonus
(the “Bonus”) at the Company
’
s sole
discretion
based upon Employee’s
performance
and the performance of the Company with a target Bonus of fifty percent
(50%)
of
your base salary. Such Bonus to be determined by the Company’s Board of
Directors
and/or Compensations Committee based upon several factors including the
profitability
of the Company, your performance and the achievement of goals each fiscal
year.
A
Bonus is to be paid on the Company’s fiscal year basis to the extent and in such
manner
as
determined with such other comparable senior
executives
of
the
Company.
C.
Welfare
Benefit Plans
.
Employee
and/or his
family,
as
the case
may be,
shall
be
eligible for participation in and shall receive all benefits under welfare
benefit
plans,
practices, policies and programs provided by the Company (including, without
limitation,
medical, prescription, dental, vision, disability, salary continuance, employee
life,
group life, accidental death, travel accident insurance plans and programs
and
401K
Plan)
to
the extent applicable generally to other comparable senior executives of
the
Company.
D.
Expenses
.
Employee
shall be entitled to receive prompt reimbursement
for
all
reasonable employment expenses incurred by him in accordance with the policies,
practices
and procedures as in effect generally with respect to other comparable senior
executives
of the Company.
E.
Fringe
Benefits
.
Employee
shall be entitled to fringe benefits in
accordance
with the plans, practices, programs and policies as in effect generally with
respect
to other comparable senior executives of the Company.
F.
Vacation
.
Employee
shall be entitled to twenty (20) business days of paid
vacation
for each full year employment which shall be taken in accordance with the
policies
and practices as in
effect
generally with respect to other comparable senior executives of the
Company.
G.
Stock
Options
.
The
Company shall grant to Employee, subject to
Compensation
Committee approval and the vesting provisions described in this
Agreement,
nonqualified stock options (the “Options”) under the Company’s 2006 Stock
Incentive
Plan, as amended (the “Plan”), to acquire seventy five thousand (75,000) shares
of
the
Company’s Common Stock (“Common Shares”) at the exercise price of $0.59 per
Common
Share under each such Option. Each Option shall represent the right to acquire
one
(1)
Common Share. Subject to earlier termination of the Options as described
below,
the
Options shall vest in full and become immediately exercisable as follows:
(a)
twenty five percent (25%) on the first anniversary of the Employment Date
and
the remaining
seventy
five percent (75%) in equal quarterly installments over the three (3) year
period
following
the first anniversary of the Employment Date. The Options shall expire on
the
first
to
occur of (i) the close of business on the last business day of the Company
coinciding
with or immediately preceding the day before the tenth anniversary of the
Effective
Date, (ii) the termination of the Options pursuant to the Plan, or (iii)
the
termination
of the Options in connection with a termination of Employee’s employment
with
the
Company as contemplated by the Option Agreement.
The
Options shall be
evidenced
by a written option agreement in the Form attached hereto as Exhibit A (the
“Option
Agreement”).
In
addition to any provision contained in the Plan and/or the
Option
Agreement, all Options are subject to full accelerated vesting upon an
underwr
itten
initial public offering of the securities of the Company and/or a Change
of
Control
of the Company.
H.
The
Company reserves the right to modify, suspend or discontinue any
and
all
of the plans, practices, policies and programs described in Sections III-C,
III-D,
and
III-E
above at any time without recourse by Employee so long as such action is
taken
generally
with respect to other comparable employees, is not applied retroactively,
and
does
not
single out Employee.
IV.
TERMINATION
.
A.
Death
or
Disability
.
Employee’s
employment
shall
terminate
automatically
upon Employee’s death.
If
a
Disability of Employee has occurred
(pursuant
to the definition of Disability set forth below), the Company may give to
Employee
written notice of its intention to terminate Employee’s employment. In such
event,
Employee’s employment with the Company shall terminate effective on the 120th
day
after
receipt of such notice by Employee, provided that, within the 120 days after
such
receipt, Employee shall not
have
returned to full-time performance of his duties.
For
purposes of this Agreement. “Disability” shall mean either a physical or mental
impairment
which substantially limits a major life activity of Employee and which
renders
Employee unable to perform the essential
functions
of his position, even with
reasonable
accommodation which does not impose an undue hardship on the Company
for
an
aggregate of 120 days in any twelve-month period.
The
determination of
Disability
under the preceding sentence shall be based upon information supplied by
Employee
and/or his medical
personnel,
as
well as
information from medical personnel
(or
others) selected by the Company. In the event Employee’s health care provider
and
the
Company do not agree as to whether Employee has a Disability, Employee and
the
Company
shall appoint a third-party qualified physician who shall evaluate Employee
and
provide a determination of whether Employee has a Disability.
B.
Cause
.
The
Company may terminate Employee’s employment for
“
Cause”
in the event the Employee
has
engaged in o
r
committed:
willful misconduct;
gross
negligence; theft, or fraud; any willful act that is reasonably likely to
and
which
does
in
fact have the effect of materially injuring the reputation, business or a
business
relationship
of the Company; and material breach of any material term of this Agreement.
In
the event the Company determines that Cause for termination exists based
upon
willful
misconduct
or gross negligence, the Company shall give Employee fourteen (14) days
prior
written notice of such termination which notice shall include reasonable
detail
as to
the
ground for such termination. If such ground is curable, Employee shall be
given
thirty
(30)
days
from the date of such notice to cure such ground for termination for Cause.
After
the
expiration of any such cure period, the Company shall make a good faith
determination
as to whether Employee has cured such ground for termination for Cause
and
shall
give written notice thereof to the Employee which, in the case of a
determination
that Employee has failed to cure, shall include reasonable detail as to why
Employee’s
efforts to cure were not adequate.
C.
Other
than Cause or Death or Disability
.
The
Company may terminate
Employee’s
employment at any time, with or without cause, upon ninety (90) days’
written
notice.
D.
Obligations
of the Company Upon Termination
.
I.
Death
or Disability
.
If
Employee’s employment is terminated by
reason
of
Employee’s Death or Disability, this Agreement shall terminate
without
further obligations to Employee or his legal representatives under this
Agreement (except as provided in this Section IV-D-1
),
other
than for
(a)
payment of the sum of (i) Employee's pro rata portion of the annual base
salary
through the date of termination to the extent not theretofore
paid,
(ii) Employee's pro rata portion of the Bonus for any unpaid
amounts
accrued prior to termination for the calendar year during which
the
Employee's Death or Disability occurs, and (iii) any accrued vacation
pay,
in
each
case to the extent not theretofore paid (the sum of the
amounts
described in clauses
(i),
(ii),
and
(iii)
shall be hereinafter referred
to
as the
“Accrued Obligations”), which shall be paid to Employee or his
estate
or
beneficiary, as applicable, in a lump sum in cash within thirty
(30)
days
of the date of termination; (b) payment to Employee or his estate or
beneficiary,
as
applicable, any amounts due pursuant to the terms of any
applicable
welfare benefit plans, and (c) to the extent termination is due to
Disability,
until the earlier of the end of such Disability and one (1) year
following
Employee's notice to the Company of any such Disability,
continued
participation in medical, dental, hospitalization and life
insurance
coverage and in all other plans and programs in which
Employee
was participating (on the same basis he was participating) on
the
date
of
termination.
Upon
a
termination
as
a
result
of
Death
or
Disability,
the Options, and any other options granted to Employee by the
Company
during his
employment,
to
the
extent outstanding and not
previously
vested at the time of such termination, shall thereupon vest in
full
and
shall continue to be exercisable for a period of three (3) years after
such
termination.
2.
Cause
.
If
Employee's employment is terminated by the Company
for
Cause, this Agreement
shall
terminate without further obligations to
Employee
.
3.
Other
than Cause or Death or Disability
.
If
the
Company
terminates
Employee’s employment
for
other
than Cause or Death or
Disability,
this Agreement shall terminate without further obligations to Employee other
than for: (a) the payment of Accrued Obligations and (b)
the
lump
sum payment of a sum equal to the balance of base salary
payments
for the remainder of the Term had Employee remained
employed
through the end of the Term, less standard withholdings and
other
authorized deductions. Such payments to be made upon Employee’s
execution,
and non-revocation, of a release substantially in the form
attached
hereto as Exhibit B.
Furthermore,
if the Company terminates
Employee's
employment for other than Cause, Death or Disability, the
Options,
and any other options granted to Employee by the Company
during
his employment, to the extent outstanding and not previously
vested
at
the time of such termination, shall thereupon vest in full and
shall
continue to be exercisable for a period of three (3) years after such
termination.
4.
Termination
By
Employee
.
Employee
may terminate his
employment
with Company upon ninety (90) days’ written notice for any
reason
other than Good Reason, Death or Disability.
For
all
purposes
under
this agreement, any such termination by Employee shall be treated
as
a
termination for Cause.
5.
Exclusive
Remedy
.
Employee
agrees
that
the
payments
contemplated
by this Agreement shall constitute
the
exclusive and sole
remedy
for any termination of his employment and Employee covenants
not
to
assert or pursue any other remedies, at law or in equity, with respect to
any
termination of employment.
V.
ARBITRATION
.
Any
controversy arising out of or relating to this Agreement,
its
enforcement or interpretation or because of an alleged breach, default, or
misrepresentation
in connection with any of its provisions, or any other controversy
arising
out of Employee’s employment, including, but not limited to, any state or
federal
statutory
claims, shall be submitted to arbitration in Los Angeles, California, before
a
sole
arbitrator selected from the American Arbitration Association
(“AAA”),
and
shall
be
conducted
in accordance
with
the
AAA
rules for the resolution of Employment Disputes
as
the
exclusive forum for the resolution of such dispute, provided, however, that
provisional
injunctive
relief may, but need
not,
be
sought
by either party to this
Agreement
in a court of law while arbitration proceedings are pending, and any
provisional
injunctive relief granted by such court shall remain effective until otherwise
modified
by the Arbitrator, provided, however, that such provisional injunctive relief
shall
be
sought in aid and in advance of the arbitration only. Final resolution of
any
dispute
through arbitration may include any remedy or relief which the Arbitrator
deems
just
and
equitable, including any and all remedies provided by applicable state or
federal
statutes.
At the conclusion of the arbitration, the Arbitrator shall issue a written
decision
that
sets
forth the essential findings and conclusions upon which the Arbitrator’s award
or
decision
is based. Any award or relief granted by the Arbitrator hereunder shall be
final
and
binding on the parties hereto and may be enforced by any court of competent
jurisdiction.
The
parties
acknowledge
and agree that they are hereby waiving any rights
to
trial
by jury in any action, proceeding or counterclaim brought by either of the
parties
against
the other in connection with any matter whatsoever arising out of or in any
way
connected
with this Agreement or Employee's employment. Employee and Company
agree
that in any proceeding to enforce the terms of this Agreement, the prevailing
party
shall
be
entitled to its or his reasonable attorneys’ fees and costs (including forum
costs
associated
with the arbitration) incurred by it or him in connection with resolution
of the
dispute
in addition to any other relief granted.
VI.
ANTI SOLICITATION
.
Employee
promises and agrees that during his employment, and for a period of
twelve
(12) months thereafter, he will not influence or attempt to influence any
mobile
telecommunications
operator or other distributor of the Company's programming, games
and
services to cease distribution of the Company's programming, games and services
with
its
subscribers and replace it with similar services of any competitor with the
business
of the Company.
VII.
SOLICITING
EMPLOYEES
.
Employee
promises and agrees
that
during his employment, and for a period of
twelve
(12) months thereafter, directly or indirectly, solicit any of the Company
employees
who earned annually $50,000 or more as a Company employee during the last
six
months of his or her own employment to work for any business, individual,
partnership,
firm, corporation, or other entity then in direct competition with the business
of
the
Company or any subsidiary of the Company. For the purposes of this provision,
“indirectly
solicit” shall mean that Employee has provided name(s) or other identifying
information
to aid in the solicitation of such person.
VIII.
CONFIDENTIAL
INFORMATION
.
A.
Employee,
in the performance of Employee's duties on behalf of the
Company,
shall have access to, receive and be entrusted with confidential information,
including
but in no way limited to development, marketing, organizational, financial,
management,
administrative, production, distribution and sales information, data,
specifications
and processes presently owned or at any time in the future developed, by
the
Company or its agents or consultants, or used presently or
at
any
time in the future in
the
course of its business that is not otherwise part of the public domain
(collectively, the
“Confidential
Material”). All such Confidential Material is considered secret and will be
available
to Employee in confidence. Except in the performance of duties on behalf
of
the
Company, Employee shall not, directly or indirectly for any reason whatsoever,
disclose
or use any such Confidential Material, unless such Confidential Material
ceases
(through
no
fault
of Employee’s) to be
confidential
because it has become part of the
public
domain. All records, files, drawings, documents, equipment and other tangible
items,
wherever located, relating in any way
to
the
Confidential Material or otherwise to
the
Company’s business, which Employee prepares, uses or encounters, shall be and
remain
the Company’s sole and exclusive property and shall be
included
in the
Confidential
Material. Upon termination of this Agreement by any means, or whenever
requested
by the Company, Employee shall promptly deliver to the Company any and all
of
the
Confidential Material, not previously delivered to the Company, that may
be or
at
any
previous time has been in Employee’s possession or under Employee’s control,
provided
however, that Employee may retain in his possession any Confidential Material
that
reflects the terms of his employment with the Company or the terms or amount
of
his
compensation
and benefits.
IX.
SUCCESSORS
.
A.
This
Agreement is personal to Employee and shall not, without the prior
written
consent of the Company, be assignable by Employee.
B.
This
Agreement may not be assigned by the Company without
Employee’s
prior written consent, unless such assignment is made in connection with
a
Change
in
Control, in which case, this Agreement shall inure to the benefit of and
be
binding
upon
the
Company
and
its
successors
and
assigns and any such successor
or
assignee
shall be deemed substituted for the Company under the terms of this Agreement
for
all
purposes.
With
respect to any assignment of this Agreement by Company
requiring
Employee’s prior written
consent,
no
such
permitted assignment shall relieve
the
Company of its obligations or liability hereunder unless Employee otherwise
agrees
in
writing.
X.
WAIVER
.
No
waiver
of any breach of any term or provision of this Agreement shall be
construed
to be, nor shall be, a waiver of any other breach of this Agreement. No waiver
shall
be
binding unless in writing and signed by the party waiving the
breach.
XI.
MODIFICATION
.
This
Agreement may not be amended or modified other than by a written
agreement
executed by Employee and the Company’s Chief Executive Officer.
XII.
SAVINGS
CLAUSE
.
If
any
provision of this Agreement or the application thereof is held invalid, the
invalidity shall not affect other provisions or applications of the Agreement
which can be given effect without the invalid provisions or applications
and to
this end the provisions of this Agreement are declared to be
severable.
XIII.
COMPLETE
AGREEMENT
.
This
Agreement constitutes and contains the entire agreement and final understanding
concerning Employee’s employment with the Company and the other subject matters
addressed herein between the parties. It is intended by the parties as a
complete and exclusive statement of the terms of their agreement. It supersedes
and replaces all prior negotiations and all agreements proposed or otherwise,
whether written or oral, concerning the subject matter hereof. Any
representation, promise or agreement not specifically included in this Agreement
shall not be binding upon or enforceable against either party.
XIV.
GOVERNING
LAW
.
This
Agreement shall be deemed to have been executed and delivered within the
State
of
California, and the rights and obligations of the parties hereunder shall
be
construed
and enforced in accordance with, and governed by, by the laws of the State
of
California
without regard to principles of conflict of laws.
XV.
CONSTRUCTION
.
Each
party has cooperated in the drafting and preparation of this Agreement.
Hence,
in
any construction to be made of this Agreement, the same shall not be construed
against
any party on the basis that the party was the drafter.
The
captions of this
Agreement
are not part of the provisions hereof and shall have no force or
effect.
XVI.
COMMUNICATIONS
.
All
notices, requests, demands and other communications hereunder shall be in
writing
and shall be deemed to have been duly given if delivered or if mailed by
registered
or certified mail, postage prepaid, addressed to Employee at the address
on file
with
the
Company or addressed to the Company at 14242 Ventura Blvd., Sherman Oaks
CA
91423,
Attention: Ian Aaron, Chief Executive Officer. Either party may change the
address
at which notice shall be given by written notice given in the above
manner.
XVII.
EXECUTION
.
This
Agreement is being executed in one or more counterparts, each of which
shall
be
deemed an original, but all of which together shall constitute one and
the same
instrument.
Photographic
copies of such signed counterparts may be used in lieu of the
originals
for any purpose.
In
witness whereof, the parties hereto have executed this Agreement as of the
date
first
above written.
Russell
Burke
|
|
Twistbox
Entertainment, Inc.
|
|
|
|
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|
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|
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By:
|
/s/
R. J. Burke
|
|
By:
|
/s/
Ian
Aaron
|
|
|
|
|
Name:
Ian Aaron
|
|
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Its:
President/CEO
|
EXHIBIT
A
OPTION
AGREEMENT
TWISTBOX
ENTERTAINMENT, INC.
NON-QUALIFIED
STOCK OPTION AGREEMENT
PURSUANT
TO THE
TWISTBOX
ENTERTAINMENT, INC.
2006
STOCK INCENTIVE PLAN
This
Non-Qualified Stock Option Agreement
(“
Agreement
”
)
dated
as
of December 11, 2006 (the
“
Grant
Date
”
)
by
and
between Twistbox Entertainment, Inc., a Delaware
corporation
(the
“
Company
”)
and
Russell Burke (the
“
Participant
”).
Preliminary
Statement
The
Committee has authorized this grant of a non-qualified stock option (the
“
Option
”)
on
November 21,
2006
to
purchase the number of shares of the Company’s
common
stock (the
“
Common
Stock
”)
set
forth
below to the Participant, as an Eligible
Employee
of the Company or a Subsidiary (collectively, the Company and all
Subsidiaries
of the Company shall be referred to as the “
Employer
”).
Unless
otherwise
indicated,
any capitalized term used but not defined herein shall have the meaning
ascribed
to such term in the Twistbox Entertainment, Inc. 2006 Stock Incentive Plan
(the
“
Plan
”).
A
copy of
the Plan has been delivered to the Participant.
By
signing and
returning
this Agreement, the Participant acknowledges having received and read a copy
of
the
Plan and agrees to comply with it, this Agreement and all applicable laws
and
regulations.
Accordingly,
the parties hereto agree as follows:
1.
Tax
Matters
.
No
part
of the Option granted hereby is intended to qualify
as
an
“incentive stock option” under Section 422 of the Internal Revenue Code of 1986,
as
amended.
2.
Grant
of Option
.
Subject
in all respects to the Plan and the terms and conditions set forth herein
and
therein, the Participant is hereby granted an Option to
purchase
from the (Company 75,000 shares of Common Stock, at a price per share of
$0.59
(the
“
Option
Price
”).
3.
Exercise
.
(a)
Except
as
set forth in
subsection
(b) below, the Option shall vest
and
become exercisable as provided in Schedule A, which shall be cumulative.
To the
extent
that the Option has become exercisable with respect to a number of shares
of
Common
Stock as provided below, the Option may thereafter be exercised by the
Participant,
in whole or in part, at any time or from time to time prior to the expiration
of
the
Option as provided herein and in accordance with Section 6.3(d) of the Plan,
including,
without limitation, the filing of such written form of exercise notice, if
any,
as
may
be
required by the Committee and payment in full of the Option Price multiplied
by
the
number of shares of Common Stock underlying the portion of the Option exercised.
Upon
expiration of the Option, the Option shall be canceled and no longer
exercisable.
Schedule
A (Vesting Schedule) indicates each date upon which the Participant shall
be
vested
and entitled to exercise the Option with respect to the percentage indicated
beside that date provided that the Participant has not suffered a Termination
of
Employment
prior
to
the applicable vesting date. There shall be no proportionate or partial vesting
in
the
periods prior to each vesting date and all vesting shall occur only on the
appropriate
vesting
date.
(b)
Upon
the
occurrence of an IPO or Change of Control, the Options
shall
immediately become exercisable with respect to all shares of Common Stock
subject
thereto.
(c)
Notwithstanding
the foregoing, the Participant may not exercise
the
Option unless the shares of Common Stock issuable upon such
exercise
are
then
registered
under the Securities Act, or, if such shares of Common Stock are not then
so
registered,
the Company has determined that such exercise and issuance would be exempt
from
the
registration requirements of the Securities Act. The exercise of the Option
must
also
comply with other applicable laws and regulations governing the Option, and
the
Participant
may not exercise the Option if the Company determines that such exercise
would
not
be in material compliance with such laws and regulations. In addition, the
Participant
may not exercise the Option if the terms of the Plan do not permit the exercise
of
Options at such time.
4.
Option
Term
.
The
term
of each Option shall be until the tenth (10
th
)
anniversary
of the Grant Date, after which time it shall terminate, subject to earlier
termination
in the event of the Participant’s Termination of Employment as specified in
Section
5
below.
5.
Termination
of Employment
.
(a)
Subject
to the terms of the Plan and this Agreement, the Option, to
the
extent vested at the time of the Participant’s Termination of Employment, shall
remain
exercisable as provided in Section 9.2(a) of the Plan.
(b)
Any
portion of the Option that is not vested as of the date of the Participant’s
Termination
of Employment for any reason shall terminate and expire as of the date of
such
Termination of Employment.
(c)
If
the
Participant breaches any agreement with the Company or any of its
Subsidiaries
regarding competition, confidentiality or the solicitation of customers or
employees,
the Option
(whether
vested or unvested) and shares of Common Stock
acquired
upon exercise of the Option (without compensation other than repayment of
the
Option
Price) shall be immediately forfeited to the Company unless the Participant
cures
such
breach (if curable) within I5 days of being notified of such
breach.
6.
Restriction
on Transfer of Option
.
No
part
of the Option shall be
Transferable
other than by will or by
the
laws
of descent and distribution and during the
lifetime
of the
Participant,
may
be
exercised only by
the
Participant or the Participant's
guardian
or legal representative. In addition, the Option shall not be assigned,
negotiated,
pledged
or hypothecated in any way (except as provided by law or herein),
and
the
Option
shall not be subject to execution, attachment or similar process.
Upon
any
attempt
to Transfer the Option or in the event of any levy upon the Option by reason
of
any
execution, attachment or similar process contrary to the provisions hereof,
the
Option
shall
immediately become null and void.
7.
Company
Call Rights; Restrictions on Transfer
.
The
Option, and any shares of Common Stock that the Participant acquires upon
exercise of the Option, shall
be
subject to the Company call rights and
restrictions
on transfer (including the
Company’s
right of first refusal) set forth in Article XIII of the Plan.
To
ensure
that the
shares
of
Common Stock issuable upon exercise of the Option are not
transferred
in
contravention
of the terms of the Plan and this Agreement, and to ensure compliance with
other
provisions of the Plan and this Agreement, the Company may deposit the
certificates
evidencing the shares of Common Stock to be issued upon the exercise of the
Option with an escrow agent designated by the Company.
8.
Securities
Representations
.
Upon
the
exercise of the Option prior to the
registration
of the Common Stock subject
to the
Option pursuant to the Securities Act or
other
applicable securities laws, the Participant shall be deemed
to
acknowledge and
make
the
representations and warranties as described below and as otherwise
may
be
requested
by the Company for compliance with applicable laws, and any
issuances
of Common Stock by the Company
shall
he
made in reliance upon the
express
representations
and warranties of the Participant.
(a)
The
Participant is acquiring and will hold the shares of Common
Stock
for
investment for his account only and not with a view to,
or
for
resale in
connection
with, any “distribution” thereof within the meaning of the Securities
Act
or
other
applicable securities laws.
(b)
The
Participant has been advised that the shares of Common Stock
have
not
been registered under the Securities Act or other applicable securities laws,
on
the
ground that no distribution or public offering of the shares of Common Stock,
is
to be
effected
(it being understood, however, that the shares of Common Stock are being
issued
and
sold
in reliance on the exemption provided under Rule 701 under the Securities
Act),
and
that
the shares of Common Stock must be held
indefinitely,
unless they are
subsequently
registered under the applicable securities laws or the Participant obtains
an
opinion
of counsel (in the form and substance satisfactory to the
Company
and its counsel) that registration is not required.
In
connection with the foregoing, the Company
is
relying in part on the Participant’s representations set
forth
in
this Section.
The
Participant
further acknowledges and
understands
that the Company is under no
obligation
hereunder to register the shares of Common Stock.
(c)
The
Participant is aware of the adoption of Rule
144
by
the
Securities
and Exchange Commission under the Securities Act, which permits
limited
public resale of securities acquired in a non-public offering, subject to
the
satisfaction of
certain
conditions. The Participant acknowledges that he is familiar with the conditions
for
resale set forth in Rule 144,
and
acknowledges and understands that the conditions for
resale
set forth in Rule 144 have not been satisfied and that the Company has no
plans
to
satisfy
these conditions in the foreseeable future.
(d)
The
Participant will
not
sell,
transfer or otherwise dispose of the
shares
of
Common Stock in violation of the Plan, this Agreement, Securities Act (or
the
rules
and
regulations promulgated thereunder) or under any other applicable securities
laws.
The
Participant agrees that he will not dispose of the Common Stock unless and
until
he
has complied with all requirements of this Agreement applicable to the
disposition
of the shares of Common Stock.
(e)
The
Participant has been furnished with, and has had access to,
such
information as he considers necessary or appropriate for deciding whether
to
invest
in
the
shares of Common Stock, and the Participant has had an opportunity to ask
questions
and receive answers from the Company regarding the terms and conditions of
the
issuance of the Common Stock.
(f)
The
Participant is aware that his investment in the Company is a
speculative
investment that has limited liquidity and is subject to the risk of complete
loss.
The
Participant is able, without impairing his financial
condition,
to
hold the
Shares
for
an
indefinite period and to suffer a complete loss of his investment in the
Common
Stock.
9.
Rights
as
a
Stockholder
.
The
Participant shall have no rights as a
stockholder
with respect to any shares covered by the Option unless and until the
Participant has become the holder of record of the shares, and no adjustments
shall be
made
for
dividends in cash or other property, distributions or other rights in respect
of
any
such
shares, except as otherwise
specifically
provided for in the Plan.
10.
Provisions
of
Plan Control
.
This
Agreement is subject to all the terms, conditions and provisions of the Plan,
including, without limitation, the amendment
provisions
thereof, and to such rules, regulations and interpretations relating to the
Plan
as
may be
adopted by the Committee and as may be in effect from time to time. The Plan
is
incorporated herein by reference. If and to the extent that this Agreement
conflicts or
is
inconsistent with the terms, conditions and provisions of the Plan, the Plan
shall control, and this Agreement shall be deemed to be modified accordingly.
This
Agreement
contains the entire understanding of the parties with respect to the subject
matter
hereof (other than any exercise notice or other documents expressly contemplated
herein
or
in the Plan) and supersedes any prior agreements between the Company and
the
Participant
with respect to the subject matter hereof.
11.
Notices
.
Any
notice or communication given hereunder shall be in
writing
and shall be deemed to have been duly given: (i) when delivered in person;
(ii)
two
(2)
days after being sent by United States
mail;
or
(iii) on
the first business day
following
the date of deposit if delivered by a nationally recognized overnight delivery
service,
to
the
appropriate party at the address set forth below (or such other address as
the
party
shall from time to time specify):
If
to the
Company, to:
Twistbox
Entertainment, Inc.
14242
Ventura Boulevard, 3
rd
Floor
Sherman
Oaks, California 91423
Attention:
Plan Administrator
If
to the
Participant, to the address on file with the Company.
12.
No
Obligation
to Continue Employment
.
This
Agreement is not an
agreement
of employment. This Agreement does not guarantee that the Employer will
employ
the Participant for any specific time period, nor does it modify in any respect
the
Employer’s
right to terminate or modify the Participant’s employment or
compensation.
13.
Agreement
.
As
a
condition to the receipt of shares of Common Stock
when
the
Option is exercised, the Participant shall execute and deliver an Assumption
Agreement,
and to the extent required by the Committee, the Participant shall execute
and
deliver a stockholder’s agreement or such other documentation which shall set
forth
certain
restrictions on transferability of the shares of Common Stock acquired and
such
other
terms or restrictions as the Committee shall from time to time establish.
Such
Assumption
Agreement, stockholder’s agreement or other documentation shall apply to
the
Common Stock acquired under the Plan and covered by such Assumption Agreement,
stockholder’s
agreement or other documentation.
The
Company
may
require,
as
a
condition
of
exercise, the Participant to
become
a
party to any other existing stockholder
agreement
or other
agreement.
14.
409A
.
NOTWITHSTANDING
ANYTHING HEREIN OR IN THE
PLAN
TO
THE
CONTRARY, IF THE COMMON STOCK DOES NOT CONSTITUTE
“SERVICE
RECIPIENT STOCK” FOR PURPOSES OF SECTION 409A OF THE
CODE
OR
IF THE OPTION OTHERWISE IS DEEMED TO BE DEFERRED
COMPENSATION
UNDER SECTION 409A OF THE CODE AS A RESULT OF ANY
PROPOSED,
TEMPORARY
OR
FINAL
REGULATIONS
OR
ANY
OTHER
GUIDANCE
ISSUED BY THE SECRETARY OF THE TREASURY AND THE
INTERNAL
REVENUE SERVICE WITH RESPECT TO SECTION 409A OF THE
CODE,
THE
COMPANY SHALL BE PERMITTED TO AMEND THE PLAN AND
THE
OPTION
TO
COMPLY
WITH
SECTION
409A
WITHOUT
THE
PARTICIPANT’S
CONSENT. THE COMPANY SHALL HAVE NO LIABILITY TO
THE
PARTICIPANT OR OTHERWISE IF THE OPTION AND ANY AMOUNTS
PAID
OR
PAYABLE THEREUNDER IS SUBJECT TO SECTION 409A OF THE
CODE.
[Signature
Page
Follows]
IN WITNESS
WHEREOF, the parties have executed this Agreement on the date and
year
first above written.
|
|
|
|
TWISTBOX
ENTERTAINMENT, INC.
|
|
|
|
|
By:
|
/s/
Adi McAbian
|
|
Authorized
Officer
|
|
|
|
|
/s/
Russell Burke
|
|
|
|
Russell Burke
Employee Social Security number:
|
|
|
|
I,
____________________,
the
spouse of the Participant, do hereby join with my spouse
in
executing this Agreement and do hereby agree to be bound by all of the terms
and
provisions
thereof.
Employee
Name:
|
|
Russell
Burke
|
|
|
|
Total
Grant:
Shares:
|
|
75,000
|
Date:
|
|
December
11, 2006
|
|
|
|
First
Vesting Period:
|
|
|
Shares:
|
|
18,750
|
Date:
|
|
December
11, 2007
|
|
|
|
Shares:
|
|
23,438
|
Date:
|
|
March
11, 2008
|
|
|
|
Shares:
|
|
28,125
|
Date:
|
|
June
10, 2008
|
|
|
|
Shares:
|
|
32,813
|
Date:
|
|
September
9,
2008
|
|
|
|
Second
Vesting Period:
|
|
|
Shares:
|
|
37,500
|
Date:
|
|
December
10, 2008
|
|
|
|
Shares:
|
|
42,188
|
Date:
|
|
March
11, 2009
|
|
|
|
Shares:
|
|
46,875
|
Date:
|
|
June
10, 2009
|
|
|
|
Shares:
|
|
51,563
|
Date:
|
|
September
9, 2009
|
|
|
|
Third
Vesting Period:
|
|
|
Shares:
|
|
56,2
50
|
Date:
|
|
December
10, 2009
|
|
|
|
Shares:
|
|
60,938
|
Date:
|
|
March
11, 2010
|
|
|
|
Shares:
|
|
65,625
|
Date:
|
|
June
10, 2010
|
|
|
|
Shares:
|
|
70,313
|
Date:
|
|
September
9, 2010
|
|
|
|
Fourth
Vesting Period:
|
|
|
Shares:
|
|
75,000
|
Date:
|
|
December
10, 2010
|
EXHIBIT
B
General
Release Agreement
This
General Release Agreement (the “Agreement”) is entered into as
of____
,
200__,
by
and between Russell Burke (the
“
Employee
”)
and
Twistbox Entertainment, Inc.
(the
“
Company
”).
Employee
and the Company are parties to an Employment Agreement
effective
as of December 11, 2006 (the “Employment
Agreement
”
)
.
Employee’s
employment with the Company
will
terminate
effective on_____
,
200__
(the “
Termination
Date”). In exchange for the severance pay and other severance
benefits
provided to Employee under Section IV-D-3 of the Employment Agreement
(including,
but not limited to, the right to retain all vested 401K benefits pursuant
to the
401K
Plan), and except for the obligations of Company under such Section IV-D-3,
Employee
hereby covenants not to sue and releases the Company, and its subsidiaries,
parent
and affiliated entities, past and present, and each of
them,
as
well as
their
respective
trustees, directors, officers, agents, employees, shareholders, assignees,
successors,
attorneys, and insurers, past and present, and each of them (individually
and
collectively
referred to herein as “Releasees”), from any and all claims, wages,
agreements,
contracts, obligations, covenants, demands, costs, expenses, attorneys’ fees,
rights,
debts, liens, and causes of action, known or unknown, suspected or unsuspected,
arising
out of or in any way connected with his employment or any other transactions,
occurrences,
acts or omissions, or any loss, damage or injury whatsoever, known or
unknown,
suspected or unsuspected, resulting from any act or omission by or on the
part
of
said
Releasees, or any of them, committed or omitted, prior to the execution of
this
Agreement, whether based on contract, tort, common law, or statute.
Employee
acknowledges
by the execution of this Agreement that he has no further claims against
the
Releasees other than for the performance of the obligations set forth in
Section
IV-D-
3
and
Section XI of the Employment Agreement.
The
Employee hereby acknowledges that he has read this Agreement, understands
its
contents and agrees to its terms and conditions knowingly, voluntarily and
of
his own
free
will.
Specifically,
the Employee agrees: (a) that he is releasing any and all claims
under
the
Age Discrimination in Employment Act of 1967, as amended by the Older Workers
Benefit Protection Act, and any federal, state or local fair employment acts
arising
up to the date of the execution of this Agreement, (b) that the consideration
being
received
by the Employee is greater than he would have been entitled to receive before
signing
this Agreement, (c) that the Employee is hereby advised to consult
an
attorney
of
his
choice prior to the execution of this Agreement, (d) that the Employee was
given
at
least
twenty-one (21) days from the date of receipt of this Agreement to decide
whether
or
not to
execute it, and (e) that the Employee has seven (7) days from the execution
of
this Agreement to revoke its execution and this Agreement w
ill
become
null and void if
he
elects
revocation
during that time. Any revocation must be in writing and must be
received
by the Company during the seven-day revocation period. In the event of such
revocation,
the Company
will
not
have any obligations under this Agreement or Section
IV-D-3
of
the Employment Agreement except for the payment of Accrued Obligations as
defined in the Employment Agreement.
If
any
provision of this Agreement or its application is held invalid, the invalidity
shall
not
affect other provisions or applications of the Agreement which can be given
effect
without the invalid provisions or application and, therefore, the provisions
of
this Agreement are declared to be severable.
The
undersigned have read and understand the consequences of this Agreement
and
voluntarily sign it.
IN
WITNESS WHEREOF, the Parties have executed this Agreement as of the ________
day
of __________________ 200_.
Russell
Burke
|
|
Twistbox
Entertainment, Inc.
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Russell Burke
|
|
By:
|
/s/
Adi McAbian
|
|
Social
Security #:
___________________________
|
|
|
Name:
Adi McAbian
|
|
|
|
|
Its:
Managing Director
|
FIRST
AMENDMENT TO EMPLOYMENT AGREEMENT
This
first amendment (“First Amendment”) is effective as of February 12, 2008
(“Amendment Date”) by and between Twistbox Entertainment, Inc. (“Twistbox”) and
Russell Burke (“Employee”), and amends that certain Employment Agreement dated
as of December 11, 2006 by and between Twistbox and Employee (the “Agreement”).
Unless otherwise defined herein, defined terms shall have their meanings as
set
forth in the Agreement.
RECITALS
WHEREAS,
Twistbox
and Mandalay Media, Inc. (“Mandalay”) have entered into that certain Agreement
and Plan of Merger dated December 31, 2007, as amended;
WHEREAS
,
Twistbox and Employee believe it is in the best interest of Twistbox and
Employee to mutually agree to certain modifications to the Agreement;
and
WHEREAS
,
the
parties hereto desire to memorialize their mutual understandings as contained
herein.
AMENDMENT
NOW
THEREFORE,
in
consideration of the foregoing, Twistbox and Employee desire to further amend
and/or modify the Agreement and enter into this First Amendment on the terms
and
conditions provided below:
Employee’s
Agreement shall be modified as follows:
1.
|
Section
I of the Agreement is hereby deleted and replaced with the
following:
|
“
EMPLOYMENT
.
The
Company hereby employs Employee and Employee hereby accepts such employment
upon
the terms and conditions hereinafter set forth commencing as of February 12,
2008 (“Employment Date”) through and including February 12, 2011 (the “Term”).
On or about August 12, 2010, Employee and the Company shall meet in good faith
to discuss the terms of a renewal, in order to negotiate terms related to,
among
other things, base salary, bonus percentage and additional grants of stock
options.”
2.
|
The
first sentence of Sub-section A of Section III of the Agreement shall
be
deleted and replaced with the
following:
|
“
A.
Base
Salary
.
The
Company will pay to Employee a base salary at
the
annual rate of $204,000 from February 12, 2008 through March 31, 2008 and
$240,000
from April 1, 2008 through February 11, 2009; $252,000 from
February
12, 2009 through February 11, 2010; and $264,600 from February 12,
2010
through February 12, 2011.”
3.
A
new
Sub-paragraph G.2 shall be added to Section III of the Agreement following
Sub-paragraph G thereof as follows:
“G.2.
Stock
Options
.
On the
Employment Date, the Company shall cause Mandalay to grant to Employee an
initial option (the “Mandalay Option”) to purchase 350,000 shares of Mandalay’s
common stock (“Common Shares”) at an exercise price equal to the closing price
of the Common Shares on the date of grant. Each Mandalay Option shall represent
the right to acquire one (1) Common Share. The Mandalay Option shall vest in
full and become immediately exercisable as follows: (a) one-third shall
immediately vest on the Employment Date, (b) one-third shall vest on the first
anniversary of the Employment Date and (c) one-third shall vest on the second
anniversary of the Employment Date.
The
Mandalay Option shall be evidenced by a written option agreement and be governed
by the terms and conditions thereof and the terms and conditions of Mandalay’s
2007 Stock Plan. Notwithstanding anything to the
contrary,
the Mandalay Option is subject to full accelerated vesting upon a change of
control and/or the sale of all or substantially all of the assets of
Mandalay.”
3.
|
The
first sentence of Sub-section D.3 of Section IV of the Agreement
shall be
deleted and replaced with the
following:
|
“3
.
Other
than Cause or Death or Disability
.
If the
Company
terminates
Employee’s employment for other than Cause or Death or Disability,
this
Agreement shall terminate without further obligations to Employee other than
for:
(a)
the payment of Accrued Obligations and (b) the payment of Employee’s
base
salary in accordance with the usual payroll practices of the Company for a
period
equal to six (6) months following such termination.
”
4.
|
All
terms and conditions of the Agreement not specifically and expressly
modified or amended herein are hereby ratified and confirmed in all
respects and shall remain in full force and
effect.
|
5.
|
Each
person who executes this Amendment represents and warrants to each
party
hereto that he has the authority to do so and to bind each entity
as
contemplated hereby, and agrees to hold harmless each other party
from any
claim that such authority did not exist. This Amendment will inure
to the
benefit of and be binding upon the parties and their respective
shareholders, successors and permitted
assigns.
|
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF
,
the
parties hereto have executed this First Amendment as of the Amendment Date
set
forth above.
TWISTBOX
ENTERTAINMENT, INC.
|
EMPLOYEE
|
|
|
|
|
By:
/s/ David Mandell
Name: David Mandell
Title: EVP/General
Counsel
|
By:
/s/ Russell Burke
Name: Russell
Burke
|
DIRECTORY
AGREEMENT
DATE
|
This
directory agreement (the
“
Agreement
”
)
is made on the 1st of May, 2003 between:
|
|
|
THE
PARTIES
|
1.
|
Vodafone
Global Content Services Limited (CRN: 04064873)
a
company incorporated in England and whose registered office is Vodafone
House, The Connection, Newbury, Berkshire RG14 2FN
(
“
VGCS
”
)
|
|
|
|
|
2.
|
Name:
|
The
WAAT Corporation
|
|
|
Address:
|
18226
Ventura Blvd, Suite #102 Tarzana, CA 91356
U.S.A.
|
|
|
(the
“
Directory
Partner
”),
|
|
each
a “
Party
”
and together the “
Parties
”.
|
|
|
RECITALS
|
(A)
|
Vodafone
manages a directory service within “Vodafone live!” that facilitates
access to mobile content and services.
|
|
|
|
|
(B)
|
The
Directory Partner owns or has the rights to the Content, which it
wishes
to place in the Directory for the purposes of sale to
Customers.
|
|
|
|
|
(C)
|
The
Parties have agreed that VGCS shall place the Content on the Directory
on
the terms and subject to the conditions contained
herein.
|
|
|
|
AGREEMENT
STRUCTURE
|
This
Agreement comprises: (1) Operative Key Terms - Part 1 (2) the Terms
and
Conditions - Part 2 (3) the Definitions - Part 3 and any schedules,
annexures or addendums which may be attached to it from time to
time.
|
PART
1
OPERATIVE
KEY TERMS
1.
The
Content:
Content
description
|
The
Content to be made available under this Agreement relates to certain
Adult
/ Erotic, details of which are set out in Schedule 1 and shall also
include such other content as may be agreed by the Parties from time
to
time.
|
|
|
|
The
Content will be supplied in the languages and for the Specified Mobile
Phones listed in Schedule 1.
|
|
|
|
VGCS
shall be authorised to provide the Content to Customer in accordance
with
this Agreement in the Territories listed in Schedule 1.
|
|
|
Content
specifications
|
The
Content will
comply
with the Guidelines.
|
|
|
Placement
|
VGCS
shall be entitled to place the Content in any section of the Directory
as
it reasonably considers appropriate having regard to the Directory
proposition as a whole and the impact on the Customer experience
or
otherwise remove the Content from the
Directory.
|
Branding
|
The
Directory Partner must display its own brand (or, with the consent
of
VGCS, such other third party brands as it has the rights to display)
on
the Content such that it is clear that the Content is being provided
by
the Directory Partner and not VGCS or Vodafone. The Content will
be
provided to and sold by the Directory Partner to the Customer pursuant
to
the Directory Partner’s standard terms and conditions. The Directory
Partner will ensure that: (1) its terms and conditions are easily
accessible to the Customer at all times the Customer is accessing
the
Content; (2) such terms make it clear that VGCS will bill and collect
all
payments for the downloading and provision of the Content as the
Directory
Partner’s marketing and billing agent; and (3) that the Customer is
required to accept such terms and conditions as a precondition of
the
Content being made available to the Customer.
|
|
|
|
For
the purposes of this Clause, VGCS consents to the Directory Partner
branding the Content Peach, VIVID Interactive, or any other brands
represented by Directory Partner.
The
Directory Partner will supply to VGCS a copy of the Directory Partner
branding materials without charge which VGCS will be authorised to
use in
connection with any marketing or promotional activities which may
be
carried out by VGCS in relation to the Content from time to
time.
|
|
|
Advertising
|
Except
as instructed from time to time by VGCS, the Directory Partner shall
ensure that the Content shall at all times not contain any form of
advertising of any goods or services and the Directory Partner agrees
that
it shall have no right to include any form of advertising on such
Content
without Vodafone’s express prior written
approval.
|
2.
Content
testing:
Delivery
|
The
Content will be made available to VGCS for testing on the dates set
out in
Schedule 1 or as otherwise agreed from time to time by the Parties
in
writing.
|
|
|
Testing
|
Prior
to the Content being placed on the Directory by any Vodafone Group
Company
the Content shall to be tested to ensure that it is suitable in each
of
the Territories.
|
3.
Customer
Support:
Customer
Support
|
VGCS
shall be responsible for dealing with all First Line Customer inquiries
concerning the Content and the Directory Partner shall be responsible
for
dealing with all Second Line Customer inquiries and authorises VGCS
to
refer such inquiries to the Directory Partner’s nominated contact
number(s) specified in Section 8 of Part 1.
|
|
|
|
The
Directory Partner shall, if requested by VGCS, document and agree
in good
faith, appropriate operational processes for the transfer of any
Customer
from First Line Customer Support to Second Line Customer
Support.
|
|
|
“First
Line” and “Second Line”
Customer
Support
|
“
First
Line
”
customer support shall include all Customer inquiries relating to
billing
and payment collection, connection to the mobile internet, access
to the
Content and any non-Content specific issues relating to the
Directory.
|
|
|
|
“
Second
Line
”
customer support shall include all Customer inquiries other than
First
Line Customer support, including, but not limited to any Content,
delivery
related and/or Technical Support
enquiries.
|
4.
Hosting:
Hosting
|
The
Directory Partner will be responsible for hosting the Content on
the
Platform and for making available, operating, supporting and maintaining
the Platform in accordance with the further provisions of this Agreement
and will ensure that all such services shall meet or exceed the KPIs
for
such services at all times.
|
5
.
Pricing,
Revenue and Billing:
Pricing:
|
The
Directory Partner may in its reasonable discrection determine the
price at
which the Content is sold to Customers in the Territories. However,
nothing shall prevent VGCS from rebating or otherwise crediting part
or
all of the Directory Fee to Customers so as to effectively reduce
the
price which Customers pay for the Content.
|
|
|
Directory
Fee:
|
VGCS
shall be entitled to be paid a Directory Fee equivalent
to [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
UNDER RULE 24B-2] of the Net Revenue.
|
|
|
Billing
and Reconciliation:
|
VGCS
as agent for the Directory Partner, shall be responsible for the
billing
of and collection of revenues from the Customers in respect of Chargeable
Events.
|
|
|
|
The
Directory Partner shall provide to VGCS all relevant financial
information, in particular, details of all value added tax, turnover
tax
and other sales taxes which may be payable on supplies of Content
within
each Territory (collectively “VAT”) to enable VGCS to comply with its
billing, collection and financial obligations under this Agreement.
For
the avoidance of doubt, the Directory Partner remains wholly responsible
for payment of any such VAT to the relevant tax
authorities.
|
|
|
|
VGCS
will generate monthly reports showing the calculation of the Directory
Partner Revenue and the Directory Fee for the relevant
month.
|
|
|
|
Within
30 days of the end of each month VGCS will remit to the Directory
Partner
the report together with VGCS’s invoice for the Directory Fee for that
month. VGCS shall pay to the Directory Partner the Directory Partner
Revenue within 60 days of the end of the month in which the Chargeable
Event occurred. VGCS shall also be permitted to set off the sums
billed to
the Directory Partner in respect of its invoice for the Directory
Fee
against the Directory Partner Revenue owed to the Directory
Partner.
|
|
|
|
Where
a Deduction arises as a result of a refund issued or credited to
a
Customer, VGCS shall deduct that part of the Directory Partner Revenue
paid to the Directory Partner in respect of the refunded Chargeable
Event
against the calculation of the Directory Partner Revenue in the report
for
the month following the refund or credit.
|
|
|
|
The
monthly reports shall be sent to:
|
|
|
|
The
Waat Corporation
|
|
Mail:
18226 Ventura Blvd Suite #102 Tarzana, CA 91356 U.S.A.
|
|
Fax:
1-818-708-9995 Email: Adi@waatmedia.com
|
|
|
Payment
Terms:
|
Payment
by VGCS to the Directory Partner shall be made by BACS to the following
bank account:
|
|
|
|
EAST
WEST BANK
|
|
18321
Ventura Blvd. Tarzana, CA 91356
|
|
Account
Name: The Waat Corporation
|
|
Account
Number: 8270-2648
|
|
ABA#
322070381
|
|
|
|
The
currency of this Agreement shall be Euros. All financial reports,
statements, invoices, charges and payments made by one Party to the
other
shall be in Euros. In respect of revenues generated in a country
that does
not have the Euro as its primary currency (a “Non-Euro Amount”), VGCS
shall convert such Non-Euro Amount to Euros using the UK Financial
Times
average middle market exchange rate calculated for the applicable
month.
|
6.
Term:
The
Initial Term:
|
The
Initial Term shall be [INFORMATION OMITTED AND FILED SEPARATELY WITH
THE
COMMISSION UNDER RULE 24B-2] commencing on the date on which the
Agreement
is signed by both Parties.
|
7.
KPIs
and Technical Support:
Availability:
|
percentage
of 97% throughout each period of 30 consecutive days.
|
|
|
Capacity:
|
The
Content must be able to handle a minimum of 50 simultaneous Customer
requests per second.
|
|
|
Response
Time:
|
The
Content will not exceed an average Response Time of 1 second] over
any
24-hour period, excluding any Downtime.
|
|
|
Additional
KPIs:
|
None
|
Technical
Support
|
The
Directory Partner shall provide appropriate support when requested
by VGCS
in accordance with this Agreement. The Directory Partner will proactively
monitor all aspects of performance and not rely upon VGCS for notification
of faults.
The
following guidelines will be used to determine the priority of incidents
and the Directory Partner’s corresponding obligation to respond and
resolve such incidents involving the Content and other services delivered
or under the responsibility of the Directory Partner.
|
|
|
|
Priority
1 (Critical):
|
Complete
failure of the Content or a significant part of the Content or the
problem
creates a definite business or financial exposure or affects a large
number of Customers. Response within 10 minutes and resolution within
4
hours
|
|
|
|
|
Priority
2 (High):
|
Content
not totally down, but the affected components form a significant part of
the functionality of the Content and the problem creates a possible
business or financial exposure. Response within 30 minutes and resolution
within 8 hours
|
|
|
|
|
Priority
3 (Medium):
|
The
Content is largely available and the problem has little or no effect
on
the services provided by the Content and the problem creates no business
or financial exposure. Response time within 3 hours and resolution
time
within 2 business days
|
8.
Reporting:
KPI
Reporting:
|
By
the fifth day of each calendar month for the first six months of
this
agreement and quarterly thereafter during the term of this Agreement,
the
Directory Partner shall provide to VGCS’s commercial and technical contact
by email (or to such other contacts and in such other formats as
VGCS may
reasonably request from time to time) a report in relation to the
performance of the Directory Partner against the KPIs in the preceding
month.
|
|
|
Relevant
Contacts:
|
The
relevant contacts for this Agreement are as follows:
The
Directory Partner:
Technical
-
Camill
Sayadeh Tel (818)708-9995 Mobile (818)723-2488 fax (818)708-0598
Email
Camill@waatmedia.com
Commercial
- Adi McAbian Tel (818)708-9995 Mobile (818)644-1300 fax (818)708-0598
Email adi@waatmedia.com
VGCS:
Technical
-
Charlotte
Andrew Tel (+44 207 212 0000); Email
charlotte.andrew@vodafone.com
Commercial
-
Ion
Valaskakis Mobile +44 7900 227 088; Email
ion.valaskakis@vodafone.com
|
SIGNED
on behalf of Vodafone Global Content
|
)
|
|
Services
Limited
|
)
|
|
/s/
Lee Fenton
|
on:
|
|
|
Name:
Lee Fenton
|
|
|
|
Title:
Commercial Director
|
SIGNED
on behalf of The Waat Corporation
|
)
|
|
(the
Directory Partner)
|
)
|
|
on:
|
|
|
/s/
Adi McAbian
|
|
|
|
Name:
Adi McAbian
|
|
|
|
Title:
Vice President
|
*WE
HAVE REQUESTED CONFIDENTIAL TREATMENT OF CERTAIN PROVISIONS CONTAINED IN
THIS
EXHIBIT. THE COPY FILED AS AN EXHIBIT OMITS THE INFORMATION SUBJECT TO THE
CONFIDENTIALITY REQUEST.*
PART
2
TERMS
AND CONDITIONS
1.
|
ASSIGNMENT
AND THIRD PARTIES
|
1.1
|
The
Directory Partner acknowledges that all rights granted to VGCS hereunder
are for the benefit of VGCS and for the additional purpose of conferring
the same benefit on the Vodafone Group. The Parties agree that VGCS
may
assign, transfer or sub-contract any or all of its rights and/or
obligations under this Agreement to any company in the Vodafone Group
without the Directory Partner’s prior written consent provided that where
it sub-contracts it remains the contracting party and responsible
for all
obligations hereunder.
|
1.2
|
Subject
to Clauses 1.1 and 1.3, this Agreement is made solely and specifically
between the Parties hereto for the benefit of the Parties and the
Vodafone
Group Companies and is not intended to be for the benefit of or
enforceable by any other person, whether under the Contracts (Rights
of
Third Parties) Act 1999 or otherwise, and neither Party can declare
itself
a trustee of the rights under this Agreement for the benefit of any
such
person.
|
1.3
|
The
Directory Partner acknowledges that the rights of VGCS and the obligations
of the Directory Partner under this Agreement are also respectively
rights
of and obligations owed to the Vodafone Group Companies and that
any loss,
damage, cost or liability incurred by any member of the Vodafone
Group
Companies shall also be and shall be deemed to have been incurred
by VGCS
as if VGCS had incurred the same. Accordingly, VGCS may institute
and
maintain legal or other proceedings in its own name against the Directory
Partner for compensation, damages and all other remedies specifically
related to any breach of the terms & conditions of this agreement by
Directory Partner, subject to any applicable limitations contained
in this
Agreement. VGCS and the Directory Partner may by agreement amend
this
Agreement without obtaining the consent of the Vodafone Group
notwithstanding that such amendments may relate to benefits conferred
on
the Vodafone Group hereunder.
|
2.1
|
The
Directory Partner will provide the Content to VGCS in accordance
with this
Agreement and in particular the requirements set out in Section 1
of Part
1. The Directory Partner hereby appoints VGCS as its non-exclusive
agent
in the Territory to promote, advertise and offer for sale Content
in the
Territory on the Directory and to provide billing and payment collection
services to the Directory Partner. The Directory Partner further
gives
authority to VGCS to offer for sale the Content to Customers and
to bill
and collect payment in respect of sales made by the Directory Partner
of
the Content in accordance with the terms of this
Agreement.
|
2.2
|
The
Directory Partner will deliver the Content by the Delivery Date ready
for
testing by VGCS.
|
2.3
|
The
Parties will carry out testing in accordance with Section 2 of Part
1.
|
2.4
|
Unless
otherwise agreed in writing, the Content will not require a Customer
to
register separately with the Directory Partner in order to access
the
Content.
|
2.5
|
The
Directory Partner shall not change or vary materially the Content
or the
Format without VGCS’s prior written consent. The Content shall comply with
the Guidelines as updated by VGCS from time to time upon reasonable
notice
to the Directory Partner.
|
|
2.6.1
|
the
Content (or any part thereof) breaches any of the Guidelines or any
Code
of Practice;
|
|
2.6.2
|
VGCS
receives complaints regarding any of the Content or the Directory
Partner
which it considers to be of such seriousness or number as to be materially
prejudicial to the brand or reputation of VGCS or Vodafone;
and/or
|
|
2.6.3
|
the
Content (or any part thereof) breaches any other provision of this
Agreement,
|
Without
prejudice to its other rights and remedies, VGCS may require the Directory
Partner to and the Directory Partner shall use its reasonable endeavours to
amend or to replace the Content with Content which, in VGCS’s reasonable
opinion, satisfactorily deals with the matters set out in sub-Clauses 2.8.1
-
2.8.3 above. VGCS, without prejudice to its other rights and remedies, reserves
the right to temporarily suspend or disconnect the Directory Partner or remove
or bar access to all or any part of the Content from the Directory until such
time as the replacement or new Content is provided in accordance with this
Clause 2.8.
2.7
|
As
between VGCS and the Directory Partner, the Directory Partner accepts
responsibility for all matters relating to the provision or non-provision
of the Content to Customers. For the avoidance of doubt VGCS shall
be
under no obligation to review any of the Content to ascertain if
it
complies with the terms of this Agreement and any legal, regulatory
or
other applicable requirements.
|
2.8
|
Where
VGCS receives any complaint from a Customer in relation to the Content,
it
may in its sole discretion decide to make a refund or issue a credit
to
such Customer in respect of the
Chargeable
Event and such amount shall be treated as a Deduction and dealt with
in
accordance with the provisions of Section 5 of Part
1.
|
2.9
|
VGCS
may, with the written agreement of the Directory Partner, offer to
Customers promotions in respect of the Content and such offers shall
not
be treated as a Chargeable Event (unless otherwise expressly agreed
in
writing with the Directory
Partner).
|
2.10
|
The
Directory Partner will use its best efforts to rectify bugs associated
with any Content made available to Customers on the Directory at
its own
expense and in accordance with the response and fix times set out
in the
KPIs. Where a particular error cannot be fixed the Directory Partner
will
provide an amended version free of
charge.
|
3.1
|
VGCS
shall make available the Content to the Customers in accordance with
the
terms of this Agreement and in particular the requirements set out
in
Section 1 of Part 1 subject to the Content being Accepted by
VGCS.
|
3.2
|
As
soon as reasonably possible following the execution of this Agreement,
VGCS will provide to the Directory Partner a copy of each of the
relevant
Guidelines and all relevant Codes of Practice and will use its reasonable
endeavours to provide such other reasonable information and materials
as
reasonably requested by the Directory Partner which are necessary
to
enable the Directory Partner to comply with its obligations under
this
Agreement.
|
3.3
|
The
Directory Partner acknowledges and agrees that nothing in this Agreement
requires VGCS to place the Content (whether in whole or in part)
on the
Directory, to make the Content available to Customers in all of the
Territories and/or actively to market and promote the Content to
Customers.
|
4.1
|
The
Directory Partner will:
|
4.1.1
|
host
the Content on the Platform in accordance with the terms of this
Agreement;
|
4.1.2
|
provide
Second Line Customer support and general customer support (in respect
of
its hosting obligations which shall include application monitoring,
application support and fault and change management, in accordance
the
with the terms of this Agreement);
and
|
4.1.3
|
make
available, operate, support and maintain the Platform in accordance
with
in accordance with the terms of this Agreement; and will ensure that
all
such services shall meet or exceed the KPIs for such services at
all
times.
|
4.2
|
Where,
the Directory Partner materially or persistently fails to meet any
of the
KPIs Levels or any Codes of Practice relating to the services to
be
performed under Clause 4, without prejudice to its other rights and
remedies, VGCS shall be entitled to temporarily suspend or disconnect
the
Directory Partner or remove or to bar access to the Content (or any
part
thereof) on the Directory to its Customers until such time as the
Directory Partner, can show to VGCS’s reasonable satisfaction the it has
taken reasonable steps to resolve the
problem.
|
4.3
|
VGCS
shall on and from Acceptance, use its reasonable endeavours to maintain
the Directory on which Content displayed is 24 hours in every day
on every
day of the year but VGCS shall not be liable for any failure to maintain
the Directory in such manner whether this arises from a technical
or other
failure in the Directory, the Vodafone Networks or otherwise. VGCS
does
not warrant that the Directory or the Vodafone Networks will be fault
free
or free of interruptions. VGCS reserves the right from time to time
to
improve or alter the Directory as it deems appropriate (including
changes
to the category structure or channels). Further VGCS reserves the
right to
suspend the operation of the Directory for the purposes of remedial
or
preventative maintenance or improvement of the
Directory.
|
4.4
|
The
Directory Partner acknowledges and agrees the Directory and the
distribution of Content may depend on factors beyond VGCS’s control
including but not limited to factors affecting the operation of the
Vodafone Networks and the public networks. VGCS is not obliged to
provide
the Directory where such factors prevent
it.
|
4.5
|
VGCS
reserves the right to suspend or disconnect the Directory Partner
or
remove or bar access to any Content without prior notice or liability
of
whatsoever kind to the Directory Partner, in the event
that:
|
4.5.1
|
a
fault occurs (including for the avoidance of doubt any fault connected
with the Content) that is considered by VGCS in its sole discretion
to
affect or be likely to affect the performance of the Directory or
any
associated charging or payment mechanism or the Vodafone Networks
or any
mobile access devices; or
|
4.5.2
|
the
capacity of the Directory or the Vodafone Networks is or is likely
to be
exceeded; or
|
4.5.3
|
it
is reasonably requested to do so by
Vodafone.
|
4.6
|
VGCS
shall not be liable to the Directory Partner for barring access to
the
Directory or any part thereof or for ceasing to make available or
distribute any Content to Customers pursuant to this
Clause.
|
5.
|
INTELLECTUAL
PROPERTY RIGHTS
|
5.1
|
The
Directory Partner shall be responsible for clearing all Intellectual
Property Rights in the Content for use by VGCS pursuant to this Agreement
and the payment of any royalties thereon and the Directory Partner
shall
indemnify and hold harmless VGCS against any loss or damage of whatsoever
nature arising from a failure to do
so.
|
5.2
|
The
Parties agree that all Intellectual Property Rights in the Content
shall
remain with the Directory Partner and its licensors. In so far as
required
for VGCS to perform its obligations as agent under this Agreement,
the
Directory Partner grants VGCS a non-exclusive royalty-free licence
in the
Territory to display, broadcast and otherwise make available to the
public
the Content on or through the Directory for the term of this Agreement,
including without limitation the right to distribute the Content
through
various technologies (including without limitation SMS, MMS and IM)
to
Customers.
|
5.3
|
In
so far as is required for VGCS to perform its obligations as agent
under
this Agreement, the Directory Partner grants to VGCS a non-exclusive
royalty-free licence for the term of this agreement in the Territory
to
use those of its trade marks, brands and other intellectual property
(including the Directory Partner Branding) as are necessary to brand
the
Content in accordance with Part 1 and/or for the purposes of performing
its obligations as the Company’s agent under this
Agreement.
|
5.4
|
The
Directory Partner shall procure that all moral rights in the Content
are
waived to the extent necessary for the purposes of this
Agreement.
|
5.5
|
The
Directory Partner grants VGCS an irrevocable royalty free license
to keep
a copy of the Content for the purpose of archiving internal analysis
and
pursuant to Clause 6.4.
|
5.6
|
Vodafone
shall be entitled, without the consent of the Directory Partner,
to
appoint other companies within the Vodafone Group (the
“
Vodafone
Sub-Agents
”)
as its sub-agent for the purposes of this Agreement which have the
same
rights and obligations as Vodafone provided that Vodafone shall remain
liable for all of its obligations set out in this
Agreement.
|
6.
|
REPORTING
AND AUDITING
|
6.1
|
The
Parties shall comply with the reporting requirements set out in Part
1.
|
6.2
|
Each
Party shall during the term of this Agreement, deliver to the other
upon
its reasonable written request access to and copies of such information
that the other may reasonably require to perform its obligations
under
this Agreement, including without limitation any technical information
required to assess the Content, and any financial or statistical
information required to verify the number of Chargeable Events and
use of
the Content by Customers.
|
6.3
|
Both
Parties shall, at their own expense and upon 30 days’ notice to the other
Party, have the right to have the other Party’s relevant books and records
examined during the ordinary course of business by an independent
auditor
solely for the purposes of verifying the accuracy of any financial
report
or statement made under
this
Agreement. If such Party subsequently discovers any discrepancy,
the other
Party will rectify such discrepancy within 30 working days after
notification of the discrepancy. The Parties shall only be entitled
to
utilize this provision once in any three-month
period.
|
6.4
|
If
VGCS maintains a repository within a particular Territory containing
details of Content purchased by a Customer in such Territory, VGCS
shall
be entitled to download Content free of charge to any Customer in
that
Territory where such Customer has already been charged for such Content
on
a one-off basis by VGCS.
|
7.1
|
The
Parties shall make all payments which may be required to be paid
to each
other in accordance with the provisions of Section 5 of Part 1. Unless
otherwise expressly set out in this Agreement or unless such amount
is
bona fide in dispute, the Parties shall pay all sums owed to each
other
under such arrangements within 30 days of receipt of a valid invoice
for
the relevant sum.
|
7.2
|
The
Directory Fee is exclusive of value added tax (if any) chargeable
thereon
and the Directory Partner shall pay to VGCS in addition to the Directory
Fee an amount equal to any value added tax chargeable
thereon.
|
7.3
|
VGCS
and any Vodafone Group Company shall be entitled to make any deduction
or
withholding required by law from any payment payable under this Agreement
or any agreement between Vodafone Group Companies entered into for
the
purposes of this Agreement.
|
7.4
|
VGCS
shall not be obliged to make any payment for any Content that is
in breach
of Clause 8.1 or 8.2.
|
8.
|
WARRANTIES,
INDEMNITY AND LIABILITY
|
8.1
|
The
Directory Partner warrants and undertakes to VGCS
that:
|
8.1.1
|
it
has full right and authority to enter into this Agreement and that
its
entry into this Agreement does not breach any third party’s rights or any
other Agreement to which it is a
party;
|
8.1.2
|
it
shall implement and comply with the Codes of Practice and any other
reasonable policies provided by VGCS or Vodafone to the
Directory
Partner from time to time which address anti-social, fraudulent or
unlawful use of Directory, the Content, the Vodafone Networks and/or
any
mobile device;
|
8.1.3
|
it
shall not act in a way which will impair the operation of the Directory,
the Vodafone Networks or any part of them, or put them in
jeopardy;
|
8.1.4
|
it
shall comply with all relevant requirements of the Data Protection
Legislation and will not reproduce, sell, publish or otherwise
commercially exploit any information or data obtained by it under
this
Agreement;
|
8.1.5
|
it
has the necessary licences, consents, permission or approvals to
operate,
and to grant the rights to use the Content as permitted by the terms
of
this Agreement;
|
8.1.6
|
it
will use reasonable skill and care in carrying out its obligations
and
exercising its rights under this Agreement;
and
|
8.1.7
|
The
Company and the Platform shall comply with the KPIs and the Platform
shall
otherwise be fit for he purpose set out in this
Agreement.
|
8.2
|
The
Directory Partner warrants and undertakes to VGCS that the
Content:
|
8.2.1
|
be
of satisfactory quality, be fit for purpose, and be kept fresh, updated
and current (with reference to the nature of the Content’s subject matter)
at all times;
|
8.2.2
|
will
comply with the Format, the Content Description and all relevant
Guidelines;
|
8.2.3
|
will
not infringe any third Party’s rights (including Intellectual Property
Rights);
|
8.2.4
|
will
not be defamatory, racist, materially inaccurate, be so violent or
abusive
in nature as to be reasonably likely to cause serious offence to
any
material group of people, or otherwise be in breach of any applicable
law,
regulation or code of conduct or result in VGCS or any part of the
Vodafone Group or Vodafone Group being in breach of any
law;
|
8.2.5
|
will
not contain any Content that promotes a Competitor or criticises
VGCS or
Vodafone or brings VGCS or Vodafone into
disrepute;
|
8.2.6
|
shall
not, and the Platform shall not, contain any computer viruses, logic
bombs, trojan horses and/or any other items of software which would
disrupt the proper operation of the Directory or any mobile device;
and
|
8.2.7
|
it
is tax resident in the United States and will be deemed to remain
tax
resident in that territory unless it notifies VGCS of a change of
tax
residency on 30 days prior written notice. The Company shall immediately
provide any documentation required by VGCS evidencing its tax residency
in
such territory.
|
8.3
|
VGCS
warrants and undertakes that:
|
8.3.1
|
it
has full right and authority to enter into this
Agreement;
|
8.3.2
|
it
shall comply with all relevant requirements of the Data Protection
Legislation; and
|
8.3.3
|
it
will use reasonable skill and care in carrying out its obligations
and
exercising its rights under this
Agreement.
|
8.4
|
Each
Party will immediately notify the other in writing of any claim or
action,
actual or
threatened,
by a third Party as a consequence of this Agreement or any of the
Content.
|
8.5
|
The
Directory Partner shall indemnify Vodafone and all members of the
Vodafone
Group from and against all loss, damage, expense or cost (including
legal
costs calculated on a solicitor-client basis) sustained by Vodafone
or any
Vodafone Group company because of any claim or allegation that the
provision, use, receipt or possession of any Intellectual Property
Right
or materials provided by or on behalf of the Directory Partner to
Vodafone
or a Vodafone Group Company infringes the Intellectual Property Rights
of
a third party.
|
8.6
|
Nothing
in this Agreement excludes either Party’s liability with respect to death
and personal injury resulting from the negligence of that Party,
its
employees, agents or subcontractors, or either Party’s liability for fraud
or any other liability which may not be excluded or restricted by
law.
|
8.7
|
Except
under Causes 8.5 and 8.6 in no circumstances will either Party be
liable
for any indirect, special or consequential damages or loss of profits
arising from breach of contract, negligence or other liability even
if the
other Party had been advised or knew (or should have known) of the
possibility of such damages.
|
8.8
|
Both
Parties agree that they carry and will maintain throughout the term
adequate insurance to cover such of their liabilities under this
Agreement. In particular Directory Partner agrees to keep and maintain
products/liability insurance to the value of [INFORMATION OMITTED
AND
FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2] million and
third
party intellectual property rights insurance to the value of [INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2] million (and if requested to do so will note the Vodafone’s
interest on the policy) and will not do anything to vitiate such
insurance
during the term of this Agreement and a period of 1 year
thereafter.
|
8.9
|
The
Parties acknowledge that their respective obligations and liabilities
are
exhaustively defined in this Agreement and that the express obligations
and warranties made in this Clause 8 are in lieu of and to the exclusion
of any warranty, condition, term, undertaking or representation of
any
kind, express or implied, statutory or otherwise relating to anything
supplied or provided or services performed under or in connection
with
this Agreement including (without limitation) as to the condition,
quality, performance, satisfactory quality or fitness for the
purpose.
|
9.1
|
This
Agreement will commence on the day it is executed by the Directory
Partner
and will continue for the Initial Term set out in Part 1 unless it
is
otherwise terminated earlier in accordance with this Agreement. Following
the expiry of the Initial Term, this Agreement shall automatically
continue unless either Party gives to the other at least thirty (30)
days
prior written notice to terminate the
Agreement.
|
9.2
|
Either
Party may terminate this Agreement immediately on written notice
(such
notice not to be made by email) if:
|
9.2.1
|
the
other is in material breach of its terms and such breach is incapable
of
remedy or, if capable of remedy, fails to remedy that breach within
14
days’ notice from the non-breaching Party requiring remedy;
or
|
9.2.2
|
the
other ceases to carry on its business or has a liquidator, receiver
or
administrative receiver appointed to it or over any part of its
undertaking or assets or passes a resolution for its winding up (otherwise
than for the purpose of a bona fide scheme of solvent amalgamation
or
reconstruction where the resulting entity will assume all of the
liabilities of it) or a court of competent jurisdiction makes an
administration order or liquidation order or similar order over the
other,
or the other enters into any voluntary arrangement with its creditors,
or
is unable to pay its debts as they fall due or suffers any similar
or
equivalent act in another relevant
jurisdiction.
|
9.3
|
VGCS
will be entitled to terminate this Agreement immediately on written
notice, without prejudice to its other rights and remedies, in the
event
that:
|
9.3.1
|
the
Format for the Content set out in Part 1 is changed by the Directory
Partner in such a way that is, in VGCS’s reasonable opinion, incompatible
with the Directory;
|
9.3.2
|
the
Directory Partner materially or persistently fails to meet any of
the
KPIs, the Guidelines and/or the Codes of
Practice;
|
9.3.3
|
VGCS
receives complaints regarding any of the Content or the Directory
Partner
which it considers to be of such seriousness or number as to be materially
prejudicial to the brand or reputation of VGCS or Vodafone;
and/or
|
9.3.4
|
in
our reasonable opinion the continued use of the Content (or part
thereof)
or the performance of any of its obligations under this Agreement
relating
to the use of the Content will infringe third party rights, be illegal,
or
not in compliance with or will otherwise be in breach of any applicable
laws, regulations or statutory
enactments.
|
9.3.5
|
where
the access to the Content has been barred pursuant to Clauses 2.8,
4.2 and
12.5 and the Directory Partner has failed to resolve the problems
identified by VGCS to VGCS’s reasonable satisfaction by the date specified
by VGCS pursuant to those Clauses.
|
9.4
|
VGCS
shall be entitled to terminate this Agreement without cause at any
time,
either in full or in relation to particular Territories or items
of
Content (or both), by giving 30 days’ written notice to the Directory
Partner, without prejudice to its other rights and remedies. Any
partial
termination shall not affect the validity or enforceability of this
Agreement in respect of the remainder of the
Agreement.
|
9.5
|
Termination
of this Agreement does not affect the accrued rights, obligations
or
liabilities of the Parties prior to
termination.
|
9.6
|
Upon
termination or expiry of this Agreement for whatever
reason:
|
9.6.1
|
VGCS
will remove the Content from the Directory and cease providing access
to
the Content to its Customers;
|
9.6.2
|
each
Party will return to the other any confidential information or materials
provided to it by the other within 30 days of the date of
termination;
|
9.6.3
|
each
Party will remove all references to the other’s trade marks from any
marketing and promotional
materials;
|
9.6.4
|
the
Parties shall settle all outstanding sums either may owe the other
within
60 days of the date of termination;
and
|
9.6.5
|
all
licences granted under this Agreement will immediately
cease.
|
9.7
|
VGCS
may request and the Directory Partner will agree to extend the operation
of this Agreement for a period of not more than three (3) months
beyond
what would otherwise be the effective date of termination or expiration
to
give VGCS an opportunity to replace the Content and rebrand its marketing
materials.
|
10.1
|
Except
as may be required by law or any applicable regulatory body, or as
is
strictly required to perform its obligations under this Agreement,
each
Party shall keep secret and confidential and not use, disclose or
divulge
to any third party any information that they obtain about the other
concerning the business, finances, technology and affairs of the
other,
and in particular but not limited to this Agreement and its subject
matter. This Clause does not apply to information that has come into
the
public domain other than by breach of this Clause or any other duty
of
confidence or is obtained from a third Party without breach of this
Clause
or is required to be disclosed by law. The obligations under this
Clause
10.1 shall continue for period of five (5) years only following the
date
of expiry or termination of this
Agreement.
|
10.2
|
The
Parties agree that VGCS shall be entitled to share any or all information
it receives from or generates on behalf of the Directory Partner
pursuant
to this Agreement with the Vodafone
Group.
|
11.1
|
Each
Party agrees that any personal data used by the Parties in connection
with
this Agreement in their business and/or transferred beyond the European
Economic Area for the purposes of this Agreement shall be processed
in
accordance with the requirements of the applicable Data Protection
Legislation and each Party agrees to do all such acts and things
(including entering into any necessary agreements) at their own expense
to
ensure that they so comply.
|
11.2
|
All
personal and traffic data will remain the exclusive property
of Vodafone.
The Directory Partner shall be entitled to receive, on written
request
from time to time, aggregated user information for the limited
purpose of
analysing the effectiveness of the
Content.
|
11.3
|
To
the extent that the Directory Partner is required in connection
with the
performance of its obligations under this Agreement to gather
personal
data relating to any Customer, then the Directory Partner shall
not make
any use of that data for any reason other than to perform its
obligations
hereunder and in particular shall not make any use of the personal
data
for marketing purposes.
|
11.4
|
To
the extent that the Directory Partner handles personal data for
which
Vodafone are responsible, the Directory Partner undertakes to
use all
reasonable endeavours to ensure that it has in place appropriate
technical
and organisational security measures (in addition to those set
out in
Clause 12 of this Agreement) in respect of the relevant data
as far as
such endeavours are necessary to comply with the same or equivalent
obligations as those imposed on VGCS under applicable Data Protection
Legislation.
|
12.
|
BACKUPS,
ARCHIVING AND SECURITY
STANDARD
|
12.1
|
The
Directory Partner will provide sufficient redundancy in services
and
infrastructure in order to maintain the Content to the standards
set out
in this Agreement. The Directory Partner shall perform daily
backups of
all data regarding Chargeable Events and be able to recover to
the last
backup. Backups will be treated in accordance with the industry
standard
security.
|
12.2
|
Notwithstanding
the obligations under the Data Protection Legislation all facilities
associated with the hosting of the Content, the Content data
and the
transmission of that data will be provided with physical protection
in
order to ensure security commensurate with the sensitivity of
the data
being processed and the service being provided. The Directory
Partner is
responsible for obtaining and maintaining the Content and the
Platform.
|
12.3
|
The
Directory Partner
shall:
|
12.3.1
|
ensure
that viruses are not introduced to the
Platform;
|
12.3.2
|
respond
without delay to all virus attacks, destroy any Virus detected,
document
each incident and report the details to VGCS as soon as practicable
in the
circumstances; and
|
12.3.3
|
scan
all incoming computer media for viruses before they are read
by any
hardware associated with the
Content
|
12.4
|
The
Directory Partner will take all reasonable measures to prevent
unlawful or
unauthorised access to the Directory Partner computer systems
associated
with the Content and the Content data and Content backups (including
measures designed to prevent unlawful or unauthorised use, copying
or
redistribution of the Content data by Customers). Where appropriate
this
will include use of locking devices, firewalls, shared secrets,
digital
certificates, password protection, and content filtering, encryption
and
intrusion detection.
|
12.5
|
Where
the Directory Partner materially or persistently fails to meet
any of the
KPIs and/or the Codes of Practice relevant to the provisions
of this
Clause or any of its obligations under this Clause 12, without
prejudice
to its other rights and remedies, VGCS shall be entitled to temporarily
suspend or disconnect the Directory Partner or remove or to bar
access to
the Content (or any part thereof) on the Directory to its Customers
until
such time as the Directory Partner, can show to VGCS’s reasonable
satisfaction the it has taken reasonable steps to resolve the
problem.
|
13.1
|
Neither
Party shall issue any press statement or other announcements
relating to
this Agreement or the subject matter thereof without the prior
written
consent of the other
Party.
|
13.2
|
No
variation of this Agreement or of any of the documents referred
to in it
shall be valid or effective unless it is in writing and signed
by or on
behalf of each of the
Parties.
|
13.3
|
This
Agreement may be executed in any number of counterparts, each
of which,
when executed and delivered, shall be an original, and all the
counterparts together shall constitute one and the same
instrument.
|
13.4
|
Any
notice or other communication required to be given or made under
this
Agreement will be in writing and addressed to the receiving Party’s
principal contact at the address of the receiving Party as set
out in the
Agreement or such other person or address as notified from time
to time in
accordance with the terms of this Clause 13.4. Any such notice
or
communication may be delivered by hand, first class post (if
both Parties
are within the UK), airmail (If one of the Parties is overseas),
fax or
email and shall be deemed to be given or made if: (a) sent by
hand, upon
receipt; (b) by first class post, on the second working day following
the
date of posting; (c) by airmail, on the seventh working day following
the
date of posting and (d) by fax or email, when dispatched provided
that a
confirmatory copy is immediately dispatched by first class post
or airmail
(as appropriate).
|
13.5
|
This
Agreement represents the entire understanding between the Parties
in
relation to
its
subject matter and supersedes all agreements and representations
made by
either Party, whether oral or written. This Clause shall not
affect either
Party’s liability for
fraud.
|
13.6
|
Failure
or delay by either Party to enforce any provisions under this
Agreement
will not be taken as or deemed to be a waiver of its rights or
operate as
a waiver of any subsequent
breach.
|
13.7
|
If
any part of this Agreement is held to be void, voidable, illegal
or
unenforceable, the validity or enforceability of the remainder
of this
Agreement will not be
affected.
|
13.8
|
Except
as otherwise may be expressly permitted by this Agreement, neither
Party
shall assign, transfer or sub-contract to any other person any
of its
rights or obligations under this Agreement without the other
Party’s prior
written consent (which shall not be unreasonably
withheld).
|
13.9
|
The
Parties will use all reasonable endeavours to procure that any
necessary
third party will do, execute and perform all such further deeds,
documents, assurances, acts and things as may reasonably be required
to
carry the provisions of this Agreement into full force and
effect.
|
13.10
|
Any
termination of this Agreement for any reason shall be without
prejudice to
any other rights or remedies a Party may be entitled to at law
or under
this Agreement and shall not affect any accrued rights or liabilities
of
either Party nor the coming into force or the continuance in
force of any
provision of this Agreement which is expressly or by implication
intended
to come into or continue in force on or after such termination
including
without limitation Clauses 1.2 (Contracts (Rights of Third Parties)
Act
1999), 5 (Intellectual Property Rights), 6 (Audit), 8 (Warranties),
8.10
(Insurance), 10 (Confidentiality), 13.1 (Publicity), 13.5 (Entire
Agreement), 13.6 (Waiver), 13.7 (Severability), 13.11 (Survival
of Terms),
and 13.16 (Law).
|
13.11
|
VGCS
and the Directory Partner may amend this Agreement by mutual
agreement in
writing.
|
13.12
|
In
the event of any conflict between these Terms and Conditions
and Part 1
(Content Description) then, to the extent of such inconsistency
only, Part
1 shall prevail.
|
13.13
|
Neither
Party shall be liable for any delay or failure in performing
any of its
obligations under this Agreement if such delay or failure is
caused by
circumstances outside the reasonable control without limitation,
any delay
or failure caused by any act or default of the other
party).
|
13.14.1
|
reference
to persons shall include legal as well as natural persons and
(where the
context so admits), references to the singular shall include
the plural
and vice versa;
|
13.14.2
|
reference
to clause, paragraphs and section numbers and to schedules and
parts,
shall be
those
of this Agreement unless the contrary is
stated;
|
13.14.3
|
reference
to this Agreement shall include reference to any schedule and to
this
Agreement as the same may be amended, novated or supplemented from
time to
time in accordance with its terms;
|
I3.14.4
|
paragraph,
section and clause headings in this Agreement are for ease of reference
only and shall not affect its interpretation, validity or
enforceability;
|
13.14.5
|
in
the event of any conflict between the terms of this Agreement and
its
Schedules, the Schedules shall
prevail;
|
13.14.6
|
Reference
to any statute, act, directive or other regulation includes a reference
to
that statute, act or directive or other regulation as re-enacted
or
amended from time to time.
|
13.14.7
|
the
words “include” and “including” shall be construed without limitation to
the words following.
|
13.15
|
Any
times, dates or periods specified in the Agreement may be extended
or
altered only by agreement in writing between the Parties. Time shall
however be of the essence of this Agreement, as regards the obligations
of
the Directory Partner both as regards times, dates and periods specified
in the Agreement and as to any times, dates or periods that may by
agreement between the Parties be substituted for any of them.
|
13.16
|
This
Agreement will be governed by and construed and interpreted in accordance
with the law of England and Wales and the Parties to this Agreement
submit
to the exclusive jurisdiction of the English
Courts.
|
PART
3
DEFINITIONS
“
Acceptance
”
means
acceptance of the Content by VGCS in accordance with the terms of this Agreement
and “
Accept
”
and
“
Accepted
”
shall
be construed accordingly.
“
Acceptance
Criteria
”
shall
have the meaning given in Section 2 of Part 1.
“
Application
Submission Criteria for Java QA
”
means
those guidelines relating to the standards of Content produced and amended
from
time to time by VGCS and provided to the Directory Partner in connection with
the Vodafone certification process.
“
Availability
”
is
defined as the period of time the Content are accessible to VGCS or VGCS
Customers within each period of 30 (thirty) consecutive days and will be
measured using the following formula:
100
x
MP-D
=
% Availability
MP
|
“
Chargeable
Event
”
means
any use of the Content by a Customer for which the Customer will be charged
by
VGCS or any Vodafone Sub-Agent(which for the avoidance of doubt shall not
include use of the Content for demonstration, testing or for any other purpose
which has been expressly excluded under the terms of this
Agreement).
“
Codes
of Practice
”
means
(1) all codes of practice (including any generally recognised voluntary codes
of
practice regulating the operation of the internet), all applicable laws
Including the Data Protection Legislation), regulations, any government
recommendations and/or any recommendations of any regulatory body and (2) any
rules of procedure (including technical or quality control procedures),
guidelines, directions, policies and/or other requirements made or adopted
by
VGCS from time to time which relate to the operation of the Directory, the
participation of directory partners in the Vodafone Live! service, the provision
of content for use on the Directory and/or the subject matter generally of
this
Agreement.
“
Competitor
”
means
any third party competitor of the Vodafone Live! service including without
limitation any consumer focused multi-access internet portal, wireless portal
or
online service provider focused on the provision of wireless content services
including but not limited to any operator, or any company affiliated with such
operator, of a public mobile telephony network.
“
Content
”
means
the information, text, data, graphics, moving and still images and sound
recordings (including the music and lyrics on such recordings) and/or services
as described in the Agreement and where the context so requires, includes the
link supplied by the Directory Partner to VGCS to be placed in the
Directory.
“
Content
Charge
”
mean
VGCS’s and/or each Vodafone Group Company’s specific charge to the Customer
including any value added tax, turnover tax or other local sales or other taxes
for the use of the Content excluding for the avoidance of doubt the Network
Charges.
“
Contract
Year
”
means
each calendar year of this Agreement commencing on the date of this agreement
and on each subsequent anniversary thereof.
“
Customer
”
means
a
user of the Directory.
“
Data
Protection Legislation
”
means
any applicable national data protection and privacy legislation in force
anywhere in the Territory.
“
Deductions
”
means:
(1) all Customer refunds (or credits which may issued to a Customer in lieu
of a
refund,) in respect of a Chargeable Event; (2) any deductions or withholdings
which VGCS or any Vodafone Sub-Agent may be required to make by law from any
payment payable under this Agreement or any agreement between Vodafone Group
Companies entered into for the purposes of this Agreement; (3) any value added
tax, turnover tax or other local sales taxes or other taxes (other than such
taxes included in the Content Charge) paid by VGCS or a Vodafone Group Company
as a result of arrangements entered into for the purposes of this Agreement;
and
(4) such other deductions which the Parties may agree from time to time in
writing.
“
Delivery
Date
”
means
the date(s) agreed by the Parties for the delivery of the Content (if any)
as
set out in Schedule 1.
“
Directory
”
means
the mobile content directory operated for and on behalf of or in conjunction
with Vodafone that is accessible by Customers of the Vodafone Networks and
which
lists various mobile content and services.
“
Directory
Fee
”
means
the amount payable to VGCS in respect of the provision of its advertising and
billing and collection services under this Agreement as set out in Section
5 of
Part 1.
“
Directory
Partner Branding
”
means
the branding, layout, Format, “look and feel” and style (including all copyright
works and trade and service marks and names included therein) to be used in
relation to the Content, as set out in Section 1 of Part 1.
“
Directory
Partner Revenue
”
means
the Net Revenue less the Deductions.
“
File
”
means
each individual file comprising the Content which has been developed for use
on
each Specified Mobile Phone.
“
First
Line Customer Support
”
has
the
meaning ascribed to such term in Section 2 of Part 1.
“
Format
”
means
the technical format of the Content as set out in Section 1 of Part
1.
“
Gross
Revenue
”
means
the aggregate Content Charges billed by Vodafone to Customers in respect of
Chargeable Events.
“
Guidelines
”
means
the Style Guidelines, the Application Submission Criteria for Java QA (if
applicable) and the Integration Guidelines.
“
Initial
Term
”
shall
have the meaning given in Section 6 of Part 1.
“
Intellectual
Property Rights
”
means
all
intellectual and industrial property rights including registered trade and
service marks, letters patent, utility models, registered designs, unregistered
trade and service marks, trade and business names (including rights in any
get-up or trade dress), domain names, rights in domain names, topography rights,
copyright, database rights, unregistered design rights and all other similar
proprietary rights in every case which may subsist in any part of the world
including any registration of any such rights and applications and any rights
to
make applications for any of the foregoing.
“
Integration
Guidelines
”
means
the technical performance and format requirements relating to the Content
produced and amended from time to time by VGCS and provided to the Directory
Partner for use in accordance with the terms of this Agreement.
“
KPI
”
means
the
key performance indicators used to measure the operational and technical
performance of the Directory Partner as set out in Section 7 of Part
1.
“
month
”
means
a
calendar month and “monthly” shall be construed accordingly.
“
MP
”
or
“
Measured
Period
”
means
the
total number of hours in the period of 30 consecutive days less any Scheduled
Downtime registered with VGCS.
“
Scheduled
Downtime
,”
means
agreed downtime which is not included in the calculation of the Measured Period.
Scheduled Downtime is subject to a
maximum
of 2 hours in any period of 30 consecutive days, and not less than five working
days’ notice to VGCS, otherwise it shall be treated as Downtime.
“
D
”
or
“
Downtime
”
means
downtime of the Content which is not Scheduled Downtime.
“
Net
Revenue
”
means
the
Gross Revenue less any value added tax, turnover tax or other local sales or
other taxes tax charged to Customers.
“
Network
Charges
”
means
Vodafone’s or its service providers’ Network charges to the Customers in
connection with the access, carriage and use of the Content.
“
Platform
”
means
the
system, including the equipment, the link and the software used by the Directory
Partner to host and maintain the Content.
“
Response
Time
”
is
defined as the time period between (1) when the Directory Partner receives
a
request from a Customer or VGCS and (2) when the Directory Partner has
successfully recognised that request and responded to that request in accordance
with the Content agreed method of operation.
“
Second
Line Customer Support
”
has
the
meaning ascribed to such term in Section 2 of Part 1.
“
Specified
Mobile Phone
”
means
the
mobile phones on which the Content will be supplied as specified in Schedule
1
of the Agreement.
“
Style
Guidelines
”
means
those guidelines relating to the style of Content, produced and
amended
from time to time by VGCS and provided to the Directory Partner for use in
accordance with the terms of this Agreement.
“
Territory
”
means
all
of
those
countries in respect of which VGCS is authorised by this Agreement to provide
the Content to Customers as set out in Schedule 1 and
“
Territories
”
shall
mean any such country or countries.
“
Vodafone
Group
”
or
“
Vodafone
”
means
Vodafone Group plc and each company or entity in which Vodafone Group plc has
a
shareholding or interest, directly or indirectly of 15% or more or has the
right
to exercise, directly or indirectly 15% or more of the voting rights and all
Vodafone Partner Networks and
“
Vodafone
Group Company
”
shall be
construed accordingly.
“
Vodafone
Partner Networks
”
means
any
company or corporation with which a Vodafone Company has entered into a
co-operation agreement with regard to the development and supply of new products
and services and other related matters, and Vodafone Group Plc (or such Vodafone
Group Company as Vodafone Group Plc has nominated) has entered into a brand
licence agreement in relation to the licensing and use of the Vodafone name
and
brand.
“
Vodafone
Networks
”
means
the
wireless communications systems operated and/or provided for and on behalf
of
Vodafone within the Territory.
SCHEDULE
1
1.
|
Content
Description
|
Images
and videos (when technically possible and permitted by law) of erotic
/
adult content subject to VGCS guidelines and
restrictions
|
|
|
|
2.
|
Vodafone
Certification
|
Not
applicable
|
|
|
|
3.
|
Languages
|
English
and such other languages as agreed by the Parties from time to
time.
|
|
|
|
4.
|
Territories
|
Worldwide
|
|
|
|
5.
|
Specified
Mobile Phones
|
Sharp
GX10 and GXl0i and any other type of mobile appliance, machine or
device
that inter alia can be used to connect to the Directory as agreed
by the
Parties from time to time.
|
|
|
|
6.
|
Delivery
Dates
|
As
of May 15
th
2003
|
GUIDELINES
FOR ADULT CONTENT v.1.1
These
are
an initial set of Guidelines issued by VGCS as of 1 May 2003. Updates and
further Guidelines will be issued from time to time by VGCS and Vodafone
operating companies.
The
following elements are classified as hard core, illegal or defamatory and as
such must not form part of the Content provided by content partners for access
via the vodafone live! service:
·
|
The
portrayal of explicit sexual activity (i.e. contact,
intercourse)
|
·
|
Female
Genitalia / Aroused male genitalia
|
·
|
Oral-genital
contact of any kind
|
·
|
Penetration
(including anal, oral or vaginal) by finger, penis, tongue, or any
object
|
·
|
Fetish
material
–
die whips,
chains, bondage materials and dress
|
·
|
Hosted
material (including dialogue) likely to encourage an interest in
abusive
sexual activity (e.g. paedophilia, incest) which may include depictions
involving adults role-playing as
non-adults.
|
·
|
The
infliction of pain or physical harm, real or (in a sexual context)
simulated or otherwise.
|
·
|
Depiction
of the use of any form of physical restraint, for example, gags and
bonds.
|
·
|
Activity
which is degrading or dehumanising (examples include the portrayal
of
bestiality, necrophilia, defecation,
urolagnia).
|
·
|
Child
pornography or material that provides or depicts incest or the abuse
of
children.
|
·
|
Any
material which depicts a person that appears to be under the age
of 18 in
sexual activity, or presenting in a sexually provocative
way.
|
·
|
Material
containing racial, religious or ethnic hatred or abuse, material
containing discriminatory or defamatory
abuse
|
·
|
Any
material which is in breach of the law, including copyright laws,
criminal
laws, obscene publications etc.
|
These
guidelines apply equally to both heterosexual and homosexual activities. For
written materials, similar care should be taken to limit hard core content
(educational materials that are not erotic in nature may be considered
acceptable if agreed through sign off process).
In
addition, and without prejudice to any obligation contained in the agency
agreement between the parties, the content partners must adhere to the following
rules, in addition to any which may be imposed by applicable Vodafone operating
companies:
·
|
The
Directory Partner must implement a warning screen, notifying the
Customer
in the language native to the particular territory that they are
leaving
the vodafone live! service to go to a site controlled by the Directory
Partner and which contains adult content which they must be 18 years
of
age to view.
|
·
|
The
Directory Partner shall proactively implement industry best practice
as
regards the protection of children.
|
Contract
Acceptance Notice - Reseller
To:
|
WAAT
Media Corporation, United States of America, registered no. 2512380
and
Address:
18226 Ventura Blvd. Suite 102 Tarzana, Ca 91356
Attention:
Camill Sayadeh
Fax:
+1 818 708 0598
|
From
the Vodafone Group Company
identified
opposite:
|
Vodafone
Hungary Ltd (CRN: Cg. 01-10-044159), a company incorporated in Hungary
and
whose registered office is 1062 Budapest, Váci út 1-3..
|
CC:
|
Vodafone
Group Services Limited
Vodafone
House
The
Connection,
Newbury,
Berkshire RG14 2FN
United
Kingdom
Attention:
Executive Head of Content Development (Graeme Ferguson)
Fax:
+44 207 212 0312
|
Territory
|
Hungary
|
We
accept
the Standing Offer set out in the Master Agreement entered into between you
and
VGSL dated 17 January 2005 (entitled “Vodafone Master Global Content Reseller
Terms and Conditions”), a copy of which (together with any relevant Content
Schedules) we have seen.
We
elect
that our Contract’s Commencement Date be 29 September 2003.
Signed
on behalf of:
The
Vodafone Group Company
Identified
above
|
|
|
|
|
|
|
|
|
|
|
|
Print
signatories’ name: Vital Attila
|
|
|
|
|
|
|
|
Position:
CEO
|
|
|
|
|
|
|
|
Date
signed:
|
|
|
|
NB
-
Prior to signing this Contract Acceptance Notice, the Vodafone Group Company
must
be
sent copies of the final,
signed
versions of: (1) Terms and Conditions; and (2) Content
Schedule(s).
Master
Global Content Agency Agreement
between
Vodafone
Group Services Limited
and
The
WAAT Media Corporation
VODAFONE
MASTER GLOBAL CONTENT AGENCY TERMS AND CONDITIONS (the “Master
Agreement”)
1.1.
|
The
Content Provider owns or otherwise has the right to exploit certain
Content suitable for provision to Vodafone Group Companies for
distribution and sale by those companies to their Customers as the
non-exclusive agents of the Content
Provider.
|
1.2.
|
All
Content offered by the Content Provider from time to time under this
Master Agreement shall be set out in Content Schedules signed by
VGSL and
the Content Provider. The Parties intend that each Vodafone Group
Company
wishing to distribute and/or offer for sale some or all of such Content
enters into a separate Contract with the Content Provider in accordance
with the process set out in Clause
2.
|
1.3
|
The
Parties acknowledge and agree that:
|
1.3.1
|
VGSL
shall not be liable to the Content Provider in respect of any obligations
owed to the Content Provider by any other Vodafone Group Company
pursuant
to a Contract; and
|
1.3.2
|
the
Content Provider shall not be liable to VGSL in respect of any obligations
owed to another Vodafone Group Company by the Content Provider pursuant
to
a Contract.
|
2.
|
FORMATION
OF CONTRACTS
|
2.1
|
This
Master Agreement is a standing offer by the Content Provider to all
Vodafone Group Companies to be appointed as the non-exclusive agents
of
the Content Provider in the relevant Territories to (subject to Clause
2.5) promote, advertise, distribute and offer for sale to Customers
the
Content on and in the Directory and to provide billing and payment
collection services to the Content Provider on the terms of this
Master
Agreement. The Content Provider further gives authority to Vodafone
to
offer for sale by the Content Provider the Content to Customers and
to
bill and collect payment in respect of sales made by the Content
Provider
of the Content in accordance with the terms of this Master
Agreement.
|
2.2
|
Any
Vodafone Group Company may, but is not obliged to, accept the Standing
Offer by completing and signing the attached Contract Acceptance
Notice.
|
2.3
|
A
Contract is formed between the Content Provider and a Vodafone Group
Company when the Content Provider receives the Contract Acceptance
Notice
signed on behalf of that Vodafone Group Company. Where a Vodafone
Group
Company is already party to a Contract with the Content Provider
and the
Content Provider enters into a new Content Schedule with VGSL, such
new
Content Schedule shall be deemed to be added to such Contract on
the date
that the Vodafone Group Company first acquires, promotes, advertises,
distributes or resells the Content featured in such new Content Schedule.
Under each Contract Vodafone appoints VGSL as its agent to agree
with the
Content Provider any amendments to any Content Schedule (and therefore
Contract) but only to the extent that such amendments do not impose
additional obligations on Vodafone.
|
2.4
|
The
Standing Offer shall lapse upon termination or expiry of this Master
Agreement for any reason and is not otherwise revocable by the Content
Provider.
|
2.5
|
Two
Vodafone Group Companies may be party to the same Contract where
one of
such Vodafone Group Companies provides the billing and payment collecting
services, and the other provides the promotion, advertising, distribution
and offering for sale services, in relation to the Content. In such
circumstances the term “Vodafone” when used in this Master Agreement and
such Contract shall refer to both such Vodafone Group Companies or
to the
relevant one, as appropriate. All notices for the purposes of this
Master
Agreement or the Contract shall only be valid if sent to or by (as
appropriate) both such Vodafone Group Companies. Where two Vodafone
Group
Companies wish to be party to the same Contract in accordance with
this
Clause 2.5 they shall both execute the same Contract Acceptance
Notice.
|
3.
|
APPOINTMENT
AND DELIVERY
|
3.1
|
The
Content Provider appoints Vodafone as its non-exclusive agent in
the
Territory to promote, advertise, distribute and offer for sale to
Customers the Content (or licences thereof) on and in the Directory
and to
provide billing and payment collection services to the Content
Provider.
|
3.2
|
The
Content Provider shall at all times provide to Vodafone Content
compliant
and compatible with the Format, the Integration Guidelines, the
Mobile
Devices and in the Languages.
|
3.3
|
The
Content Provider shall provide the Content to Vodafone in accordance
with
any applicable Delivery Timetable.
|
3.4
|
Where
a Content Schedule provides that the Content is to be compliant with
the
Application Submission Criteria for QA, such Content shall be delivered
to
Vodafone only after it has been certified by a QA Company as complying
with the Application Submission Criteria for
QA.
|
3.5
|
The
Content shall not be featured on the Directory until it has successfully
completed any testing procedures required by Vodafone. The Content
Provider shall bear all the costs and expenses incurred in connection
with
any testing of the Content required by Vodafone (including, but not
limited to, any quality assurance testing undertaken by the QA
Company).
|
4.1
|
Unless
otherwise agreed in writing with Vodafone, the Content
shall:
|
4.1.1
|
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
|
4.1.2
|
not
require a Customer to provide any personal information or data to
the
Content Provider as a condition to
access.
|
4.2
|
Subject
to Clauses 4.3, 4.4 and 4.5, the Content Provider has full editorial
control over the Content.
|
4.3
|
The
Content Provider shall not change or vary the Content or the Format
in a
material way without VGSL’s prior written consent. The Content shall
comply with the Guidelines as updated by VGSL from time to time upon
reasonable notice to the Content
Provider.
|
4.4.1
|
the
Content (or any part thereof) breaches any of the
Guidelines;
|
4.4.2
|
Vodafone
receives complaints regarding any of the Content or the Content Provider
which it considers to be of such seriousness or number as to be
prejudicial to the brand or reputation of Vodafone or other Vodafone
Group
Companies; or
|
4.4.3
|
errors
are identified in the Content or the Content (or any part thereof)
breaches any other provision of this Master Agreement or a
Contract,
|
then,
without prejudice to its other rights and remedies, Vodafone may require the
Content Provider to use its reasonable endeavours to amend or to replace the
Content with content which is acceptable to Vodafone, acting
reasonably.
4.5
|
Vodafone
is entitled to alter the format, layout or form of display of the
Content:
|
4.5.1
|
to
the extent necessary or desirable to allow the Content to be presented
to
Customers on the Directory or in downloaded form in an attractive
or
easy-to-use/view fashion; and
|
4.5.2
|
to
comply with any Vodafone security, safety or other integrity process
or
requirement.
|
4.6
|
Vodafone
is entitled (without the consent of the Content Provider) to offer
Preview
Options to Customers in respect of the Content. Preview Options shall
not
be treated as Chargeable Events.
|
4.7
|
The
Content Provider shall ensure that the Content shall not contain
any form
of advertising for any goods or services and the Content Provider
agrees
that it shall have no right to include any form of advertising in
the
Content other than branding agreed to be incorporated in the Content
pursuant to the Content Provider Branding
Guidelines.
|
4.8
|
Vodafone
may, with the written agreement of the Content Provider, offer to
Customers promotions in respect of the Content and such offers shall
not
be treated as Chargeable Events (unless otherwise expressly agreed
in
writing with the Content Provider).
|
4.9
|
The
Content Provider agrees that Vodafone does not have an obligation
to place
the Content on the Directory or, once placed, retain the Content
on the
Directory or to make the whole or any part of the Content available
to
Customers or to make the Content available in all or any of the
Territories. Furthermore, Vodafone shall be entitled but not obliged,
to
market and promote the Content to
Customers.
|
4.10
|
The
Content Provider acknowledges that a Customer of a Directory in
a
Territory may as a result of international roaming or cross-border
signal
leakage be able to access that Directory, and access the Content,
outside
of the Territory. Such access, distribution or provision of
-
the
Content shall be permitted under this Master Agreement and the
provisions
relating to the Territory shall be interpreted
accordingly.
|
4.11
|
The
Content Provider shall ensure that:
|
4.11.1
|
its
terms and conditions of sale are easily accessible to the Customers
at all
times at which the Customers access the
Content;
|
4.11.2
|
such
terms and conditions make it clear that Vodafone will bill and collect
all
payments for the downloading and provision of the Content as the
Content
Provider’s marketing and billing agent;
and
|
4.11.3
|
the
Customer is required to accept such terms and conditions as a precondition
of the Content being made available to the
Customer.
|
4.12
|
As
between VGSL, Vodafone and the Content Provider, the Content Provider
accepts responsibility for all matters relating to the provision
or
non-provision of the Content to Customers. For the avoidance of doubt,
neither VGSL nor Vodafone shall be under any obligation to review
any of
the Content to ascertain if it complies with the terms of this Agreement
and any legal, regulatory or other applicable
requirements.
|
4.13
|
The
Content Provider will use its best efforts to rectify bugs associated
with
any Content made available to Customers on the Directory at its own
expense and in accordance with the response and fix times set out
in the
Content Schedule. Where a particular error cannot be fixed the Content
Provider will provide an amended version free of
charge.
|
5.1
|
The
Content Provider acknowledges and agrees that the Directory and the
distribution of Content may depend upon factors beyond Vodafone’s control
including, but not limited to, factors affecting the operation of
the
Vodafone Network. Vodafone shall use reasonable endeavours to maintain
the
availability of the Directory twenty-four (24) hours a day, every
day of
the year but Vodafone shall not be liable for any failure to maintain
the
Directory in such manner whether this arises from a technical or
other
failure in the Directory, the Vodafone Network or otherwise. Vodafone
does
not warrant that the Directory or the Vodafone Network will be free
of
errors, faults or interruptions.
|
5.2
|
Vodafone
reserves the right from time to time to improve or otherwise alter
the
Directory as it deems appropriate (including changes to the category
structure or channels). Vodafone reserves the right to suspend the
operation of the Directory for the purposes of remedial or preventative
maintenance or improvement of the
Directory.
|
5.3
|
Vodafone
may at any time during the term of a Contract, without incurring
any
liability to the Content Provider, temporarily or permanently suspend,
disconnect, remove or bar access to (a) the Directory; or (b) the
Content
(or any part thereof) on the Directory. Vodafone shall give the Content
Provider notice of any such action.
|
5.4
|
Without
prejudice to its other rights under a Contract, Vodafone shall be
entitled
to move the Content to, or place the Content in, any section of the
Directory as it considers
appropriate.
|
6.
|
INTELLECTUAL
PROPERTY RIGHTS AND
BRANDING
|
6.1
|
The
Content Provider grants to VGSL and Vodafone a non-exclusive,
non-transferable (except to an assignee in accordance with the terms
of a
Contract) royalty-free (except for the payments specified in Clause
10)
licence in the Territory (subject to Clause 4.10)
to:
|
6.1.1
|
use,
store, reproduce, display, distribute, transmit, broadcast and/or
otherwise communicate and/or make available to the public the Content
through various technologies (including without limitation WAP, SMS,
MMS
and IM);
|
6.1.2
|
use
the Content Provider Marks to display, promote and advertise the
Content
in accordance with the Content Provider Branding Guidelines;
and
|
6.1.3
|
use
the Marketing Materials to promote and advertise the Content in accordance
with Clause 6.2.
|
6.2
|
The
Content Provider shall provide to VGSL as soon as practicable the
Marketing Materials. VGSL and each Vodafone Group Company shall
be
entitled to use the Marketing Materials as
follows:
|
6.2.1
|
for
internal purposes within the Vodafone Group (including, without
limitation, featuring on www.vodafonebrand.com and, where Content
is
Java-based, on VGSL’s Java repository) and as a record of marketing
relating to the Directory, without the prior consent of the Content
Provider;
|
6.2.2
|
in
respect of advertising and marketing for and of the Content on television
and radio, in the press, on billboards and other outdoor media and
in
advertising in cinemas, with the prior consent of the Content Provider
(such consent not to be unreasonably withheld or delayed - in the
absence
of reasonable refusal within seven days of request, consent shall
be
deemed to have been given); and
|
6.2.3
|
in
respect of all advertising or marketing for and of the Content not
specified in Clause 6.2.2 (including, without limitation, featuring
in the
Vodafone section of www.java.com where the Content is Java based),
without
the prior consent of the Content
Provider.
|
6.3
|
All
use of the Content Provider Marks shall be for the benefit of Content
Provider and, save insofar as use of the Marketing Materials is permitted
under Clause 6.2, in accordance with the reasonable terms of use
generally
applied by the Content Provider to its own activities and applying
to
licensees of the Content Provider Marks as notified to Vodafone and
VGSL
in the Content Provider Branding
Guidelines.
|
6.4
|
For
the avoidance of doubt, neither VGSL nor any Vodafone Group Company
is
obliged to conduct any advertising, marketing or promotion for or
in
relation to the Content.
|
6.5
|
Except
as specifically authorised in a Contract or by this Clause 6, neither
Party shall use the other Party’s name or trade marks (including in the
case of the Content Provider, the “Vodafone” name and any trade mark of
any Vodafone Group Company) without the other’s prior written
consent.
|
6.6
|
Each
Vodafone Group Company shall be entitled to sub-license its rights
under
this Clause 6 to:
|
6.6.1
|
any
other Vodafone Group Company;
|
6.6.2
|
any
Customer to the extent necessary to enable that Customer to exercise
those
rights in connection with the Content as are associated with a
Chargeable
Event; and
|
6.6.3
|
any
service provider if that Vodafone Group Company outsources all or
part of
the provision or management of the Directory. Such outsourcing contractor
shall be allowed to use the rights granted under this Clause 6 subject
to
that Vodafone Group Company remaining responsible for the acts or
omissions of the outsourcing
contractor.
|
6.7
|
Title
to and ownership of all Intellectual Property Rights embodied by
or
otherwise incorporated into the Content shall remain with the Content
Provider or its licensor(s) and the Content Provider shall be responsible
for obtaining all licenses, clearances, permissions, waivers, approvals
or
consents required in order to grant the licenses required under Clause
6.1, including, without limitation, obtaining any necessary clearances
and
consents from, and making royalty or other payments to, the owners
of the
applicable Intellectual Property Rights (including payment of any
Collecting Society Royalties).
|
7.
|
TECHNICAL
AND CUSTOMER SUPPORT
|
7.1
|
Vodafone
shall provide First Line Customer Support in respect of the Content
and
the Content Provider shall provide Second Line Customer Support in
respect
of the Content. The Content Provider authorises Vodafone to refer
any
Second Line Customer support inquiries to the Content Provider’s nominated
Relevant Contacts.
|
7.2
|
The
Content Provider shall not be required to provide support directly
to any
Customers.
|
7.3
|
The
following ratings shall be used by the Parties to determine the priority
of incidents and the Content Provider’s corresponding obligation to
respond and resolve such incidents involving the Content and other
services delivered or under the responsibility of the Content
Provider:
|
7.3.1
|
Priority
1 (Critical):
Complete failure of the hosting service under Clause 9, the Content
or a
significant part of the Content or the problem creates a definite
business
or financial exposure or affects a large number of Customers. Response
within ten (10) minutes and resolution within two (2)
hours;
|
7.3.2
|
Priority
2 (High):
Content not totally down, but the affected components form a significant
part of the functionality of the Content and the problem creates
a
possible business or financial exposure. Response within thirty
(30)
minutes and resolution within eight (8) hours;
and
|
7.3.3
|
Priority
3 (Medium):
The Content is largely available and the problem has little or no
effect
on the services provided by the Content and the problem creates no
business or financial exposure. Response time within three (3) hours
and
resolution time within two (2) business
days.
|
8.1
|
These
Clauses 8.1 to 8.8 (inclusive) shall only apply in the circumstances
where
a Content Schedule provides that Vodafone is responsible for providing
the
agreed level of protection for the
Content.
|
8.2
|
Vodafone
shall put in place the agreed DRM specified in the DRM
Guidelines.
|
8.3
|
Nothing
in this Master Agreement or any Content Schedule or Contract shall
affect
any rights of action that the Content Provider or any Vodafone
Group
Company may have under any applicable law in the Territory
against:
|
8.3.1
|
the
circumvention of the DRM put in place by Vodafone pursuant to Clause
8.2
or other technological measures put in place by the Content Provider
pursuant to Clause 9.6;
|
8.3.2
|
any
device, product or component or the provision of services for
circumvention of such DRM or other technological
measures;
|
8.3.3
|
removal
or alteration of any Rights associated with Protected Content;
or
|
8.3.4
|
distribution,
importation, broadcasting, communication or making available to the
public
of Protected Content from which Rights have been removed or altered
without authority
|
(collectively,
the
“
Anti-Circumvention
Rights
”).
8.4
|
For
the avoidance of doubt, neither VGSL nor any Vodafone Group Company
is
obliged to exercise its Anti-Circumvention Rights in relation to
the
Protected Content.
|
8.5
|
The
Content Provider acknowledges that in order to carry out its obligations
under this Clause 8, Vodafone may need
to:
|
8.5.1
|
substantially
adapt any Protected Content distributed via the Vodafone Network
to make
it or a part of it deliverable to the recipient’s Mobile Device;
or
|
8.5.2
|
override
any copy protection or similar measures incorporated into the Content
delivered to VGSL or Vodafone (including without limitation copy
protection measures supported by SMAF formats) to make such Content
deliverable to Customers as Protected
Content.
|
8.6
|
The
Content Provider provides its irrevocable consent to any such adaptation
or overriding undertaken as Vodafone may reasonably determine is
necessary
for the purpose of transmission or delivery of the Content and to
any
transient copying undertaken in the process of transmission or delivery.
The Content Provider agrees that the existence and validity of this
Master
Agreement shall be conditional upon such consent. For the purposes
of this
Clause 8.6 and Clause 8.5.1, the term “adaptation” includes, without
limitation, the conversion of a video message into a series of still
images, the removal of all or part of the Content and the insertion
of a
link to a URL.
|
8.7
|
Neither
VGSL nor Vodafone warrants that the DRM put in place pursuant to
Clause
8.2 will prevent Protected Content being unlawfully accessed, copied,
distributed or used. In particular, the Content Provider acknowledges
that
the security of such DRM depends upon the robust implementation of
industry standards by third parties, in particular, the Mobile Device
manufacturers. Neither VGSL nor Vodafone can guarantee that such
standards
have been implemented correctly or to a sufficiently high standard
by such
third parties.
|
8.8
|
Vodafone
shall use its reasonable endeavours to identify the make and model
of
Mobile Devices to which the Protected Content is distributed with
the
intention of only distributing such Protected Content to the Mobile
Devices specified in the Content Schedule (Specified Mobile Devices)
purporting to support the DRM specified in the DRM Guidelines. Vodafone
does not warrant the authenticity of any Mobile Device identification
information and the Content Provider acknowledges and accepts the
risk
that third parties may seek to defraud Vodafone and the Content Provider
by misrepresenting such
information.
|
9.1
|
These
Clauses 9.1 to 9.7 (inclusive) shall only apply in the circumstances
where
a Content Schedule provides that the Content Provider is responsible
for
hosting the Content.
|
9.2
|
The
Content Provider shall host the Content on the Platform (which
shall
include provision of application monitoring, application support
and fault
and change management).
|
9.3
|
The
Content Provider shall provide sufficient redundancy in services
and
infrastructure in order to maintain the Content. The Content Provider
shall collect and process appropriately all data relating to Chargeable
Events and provide this data to VGSL on request. The Content Provider
shall perform daily backups of all data regarding Chargeable Events
and be
able to recover to the last backup. Backups shall be treated in accordance
with industry standard security.
|
9.4
|
Notwithstanding
obligations under Data Protection Legislation, all facilities associated
with the hosting of the Content, the Content data and the transmission
of
that data shall ensure security commensurate with the sensitivity
of the
data being processed and the service being provided. The Content
Provider
is responsible for obtaining and maintaining the Content and the
Platform.
|
9.5
|
The
Content Provider shall:
|
9.5.1
|
ensure
that viruses are not introduced to the
Platform;
|
9.5.2
|
respond
to all virus attacks and destroy any virus detected on the Platform,
document each incident and report the details immediately to Vodafone;
and
|
9.5.3
|
scan
all incoming computer media for viruses before they are read by any
hardware associated with the
Content.
|
9.6
|
The
Content Provider shall take all reasonable measures to prevent unlawful
or
unauthorised access to the Content Provider computer systems associated
with the Content and the Content data and Content backups (including
in
the circumstances where a Content Schedule provides that the Content
Provider is responsible for protecting the Content, technological
measures
designed to prevent unlawful or unauthorised use, copying or
redistribution of the Content by Customers or any other person).
Where
appropriate this shall include use of locking devices, firewalls,
shared
secrets, digital certificates, password protection, and content filtering,
encryption and intrusion detection.
|
9.7
|
Where
the Content Provider materially or persistently fails to meet any
of the
KPI levels set out in the Content Schedule or any Guidelines relating
to
its service under this Clause 9, without prejudice to its other rights
and
remedies and for the avoidance of doubt Vodafone shall be entitled
to
temporarily suspend or disconnect the Content Provider or remove
or bar
access to the Content (or any part thereof) on the Directory to its
Customers until such time as the Content Provider can show to Vodafone’s
reasonable satisfaction that it has taken reasonable steps to resolve
the
problem.
|
10.
|
PRICING,
REVENUE AND PAYMENTS
|
10.1
|
The
Content Provider may in its reasonable discretion determine the price
at
which the Content is sold, licensed or otherwise distributed to Customers
in the Territory (including in the case of Protected Content the
price
attributed
to each of the Purchase Options). However, nothing shall prevent
Vodafone
from rebating or otherwise crediting part or all of the Content Charge
to
Customers so as to effectively reduce the price which Customers pay
for
the Content. Vodafone may include the Content in a bundle or package
of
other content as a single or combined offering to the Customer, in
which
event the Gross Revenue applicable to the Content shall be an appropriate
proportion of the relevant charge for such bundle or package, as
reasonably determined by
Vodafone.
|
10.2
|
Vodafone
shall pay to the Content Provider the Content Provider Revenue less
Deductions in accordance with the procedure set out in this Clause
10.
Save as otherwise notified to the Content Provider, VGSL shall act
as each
relevant Vodafone Group Company’s agent for the purposes of paying such
sums.
|
10.3
|
Vodafone
shall not be obliged to make any payment in respect of any Chargeable
Event unless and/or until the Customer has paid for the Content in
full.
|
10.4
|
If
Vodafone maintains a repository within a particular Territory containing
details of Content purchased by a Customer in such Territory, Vodafone
shall be entitled to provide such Content free of charge to any Customer
in that Territory where such Customer has already been charged for
such
Content.
|
10.5
|
Save
as otherwise notified to the Content Provider, VGSL shall, on behalf
of
Vodafone, no later than thirty (30) days after the end of the month
in
which the relevant Chargeable Events were incurred (it being acknowledged
that, where the Content Provider hosts the Content, the Content Provider
will need to provide the relevant information to VGSL in a timely
manner
to allow VGSL to meet its obligations under this Clause
10.5):
|
10.5.1
|
generate
and send to the Content Provider’s Relevant Contact for financial matters
monthly reports showing the calculation of the Content Provider Revenue
for the relevant month; and
|
10.5.2
|
(where
relevant) issue and send to the Content Provider’s Relevant Contact for
finance matters monthly purchase invoices in respect of Vodafone
Commission for the relevant month.
|
10.6
|
The
Content Provider shall, upon receipt from VGSL of the report specified
in
Clause 10.5.1 on behalf of Vodafone, issue an invoice in respect
of the
applicable Content Provider Revenue in the name of each applicable
Vodafone Group Company and send such invoices to VSGL (or directly
to the
relevant Vodafone Group Company, if so directed by
VGSL).
|
10.7
|
Unless
an amount is in bona fide dispute, the Parties shall pay all sums
owed to
each other under a Contract within sixty (60) days of receipt of
a valid
invoice for the relevant sum.
|
10.8
|
Where
Vodafone receives any complaint from a Customer in relation to the
Content, it may in its sole discretion decide to make a refund or
issue a
credit to such Customer in respect of the Chargeable Event. Where
such a
refund is issued or credited, or where a bad debt is incurred, after
the
relevant Content Provider Revenue has been paid to the Content Provider,
Vodafone shall be entitled to deduct from the calculation of Net
Revenue
for the following month the amount of such refund, credit or bad
debt less
any sums (other than Deductions) already received and retained by
Vodafone
in respect of such Chargeable
Event.
|
10.9
|
Payment
by VGSL on behalf of Vodafone to the Content Provider shall be made
by
electronic transfer to the Content Provider’s bank account specified in
the relevant Content Schedule.
|
10.10
|
The
currency of this Master Agreement and each Contract shall be Euros.
All
financial reports, statements, invoices, charges and payments made
by one
Party to the other shall be in Euros. In respect of revenues generated
in
a Territory that does not have the Euro as its primary currency (a
“
Non-Euro
Amount
”),
Vodafone shall convert such Non-Euro Amount to Euros using the UK
Financial Times average middle market exchange rate calculated for
the
applicable month.
|
10.11
|
Where
a Party (the “
Debtor
”)
fails to pay another Party (the “
Creditor
”)
any amount due and payable under a Contract by the time prescribed
by the
Contract (the “
Due
Date
”),
the Creditor shall be entitled to give the Debtor written notice
of its
intention to charge interest. If payment of the amount due has still
not
been received by the Creditor within 14 days of receipt of such notice
by
the Debtor, the Debtor shall on demand by the Creditor pay the Creditor
interest on the unpaid amount at a rate of 1% per annum above the
Euribor
rate of interest (as prescribed by the European Banking Federation)
which
is in force on the Due Date, calculated from the Due Date until payment
of
the unpaid amount is made in full. The Parties acknowledge and agree
that
the interest payment mechanism set out in this Clause 10 is a substantial
remedy.
|
11.1
|
Vodafone
shall be entitled to make any deduction or withholding required by
law
from any payment payable under a Contract or any agreement between
Vodafone Group Companies entered into for the purposes of a Contract.
In
the event that a withholding tax or deduction is payable by Vodafone
in
respect of the Content Provider Revenue, Vodafone will pay the Content
Provider Revenue net of the required withholding or deduction to
the
Content Provider. Vodafone will supply to the Content Provider evidence
to
the reasonable satisfaction of the Content Provider that Vodafone
has
accounted to the relevant authority for the sum withheld or deducted
and
will provide all such assistance as may be reasonably requested by
the
Content Provider in recovering the amount of the withholding. In
the event
that a double taxation treaty applies which provides for a reduced
withholding tax rate, Vodafone shall only withhold and pay the reduced
tax
on behalf and for the account of the Content Provider if an appropriate
exemption certificate is issued by the competent tax authority and
provided to Vodafone.
|
11.2
|
lf
Vodafone, in good faith, pays the Content Provider Revenue without
set-off, counterclaim, or required withholding or deduction and a
subsequent audit identifies that a withholding or deduction should
have
been made from the Content Provider Revenue, the Content Provider
shall be
liable to pay this withholding or deduction to the relevant authority
or
(if Vodafone makes the payment to the relevant authority) to Vodafone,
together with any interest and penalties due thereon and shall indemnify
Vodafone in respect of any such residual
liability.
|
11.3
|
If
a Vodafone Group Company, in order to reduce the VAT Taxes due on
the
Content Charge, enters into a Contract with the Content Provider
and
sells, licenses or otherwise distributes the Content in a Territory
from
outside of that Territory, the following shall be deemed to be an
additional Deduction for the purposes of the Contract: the difference
between the valued added tax, turnover tax or other taxes included
in the
Content Charge, and, if higher, the prevailing rate of equivalent
taxes
that would otherwise be payable with respect to the Content in the
country
where the Customer purchased the
Content.
|
11.4
|
The
Content Provider warrants and undertakes to Vodafone that it is tax
resident in the place indicated in every Content Schedule and shall
be
deemed to remain tax resident in that territory unless it notifies
Vodafone of a change of tax residency on thirty (30) days prior written
notice. The Content Provider shall on demand provide any documentation
required by Vodafone evidencing its tax residency in such
territory.
|
11.5
|
In
the event that Vodafone is not reasonably informed of a change in
tax
residence by the Content Provider, the Content Provider will indemnify
Vodafone against any costs (including but not limited to withholding
tax
and any accrued interest and penalties) incurred by Vodafone due
to such
failure to inform.
|
11.6
|
Content
Provider Revenue shall be exclusive of any applicable VAT
Tax.
|
11.7
|
If
any VAT Tax is chargeable by the Content Provider in respect of any
amount
payable by Vodafone under this Master Agreement or any Contract,
the
Content Provider shall provide Vodafone with an invoice that specifically
states such VAT Tax and (if a relief procedure is available) meets
all
further conditions required by applicable law which are necessary
to allow
Vodafone to obtain relief from such VAT Tax. Vodafone shall, upon
receipt
of such invoice, pay to the Content Provider such VAT Tax at the
rate then
properly chargeable in respect of the relevant
payment.
|
11.8
|
If
the Content Provider provides Content or services under a Contract
from
outside of the European Union to Vodafone, the Content Provider shall
provide to Vodafone a reasonable explanation of the nature of any
applicable VAT Tax charged by the Content Provider under the Contract,
the
rate of such VAT Tax and the processes by which Vodafone can obtain
relief
for such VAT Tax.
|
11.9
|
If
the Content Provider has incorrectly charged VAT Tax to Vodafone
under a
Contract then the relevant invoice shall be corrected as soon as
practicable and: (a) where Vodafone has overpaid the VAT Tax, the
Content
Provider will repay to Vodafone the overpayment of VAT Tax; and (b)
where
Vodafone has underpaid the VAT Tax, Vodafone shall pay the outstanding
amount upon receipt of a valid invoice. Payments under (a) and (b)
shall
be made in accordance with Clauses 10.7 and
10.11.
|
11.10
|
In
the circumstances set out in section (b) of Clause 11.9 the Content
Provider shall reimburse Vodafone for any and all costs, charges.
VAT
Taxes and related interest and penalties relating to such underpayment,
save to the extent that Vodafone is (acting reasonably) able to recover
such amounts from the applicable
authorities.
|
12.1
|
Each
Party shall, during the term of a Contract, deliver to the other
upon its
reasonable written request access to and copies of such information
that
the other may reasonably require to perform its obligations (or to
verify
that the other Party is performing its obligations) under a
Contract.
|
12.2
|
Vodafone
and the Content Provider shall, at their own expense and upon 30
days’
prior written notice, have the right to appoint an independent auditor
solely for the purposes of verifying the accuracy of any financial
report
or statement issued by the other Party under a Contract. If such
audit
subsequently reveals any financial discrepancy, the audited Party
shall
rectify such discrepancy within thirty (30) working days after
notification of the discrepancy. Each Party shall only be entitled
to
utilize this provision once in any twelve (12) month period of a
Contract.
|
13.1
|
The
Content Provider warrants and undertakes to VGSL and Vodafone
that:
|
13.1.1
|
it
has full right and authority to enter into this Master Agreement
and any
Contract and that its entry into this Master Agreement and any Contract
does not breach any third party’s rights or any other agreement to which
it is a party;
|
13.1.2
|
it
shall implement and comply with any Guidelines provided from time
to time
by VGSL or any other Vodafone Group Company to the Content Provider
which
relate to:
|
13.1.2.1
|
content
standards (including anti-social, adult, fraudulent, unlawful or
otherwise
inappropriate content) and, in particular, shall clearly classify
the
Content in accordance with the adult content classification framework
criteria agreed between the Content Provider and
VGSL;
|
13.1.2.2
|
access
or use of the Directory by Customers (including anti-social, fraudulent,
underage, unlawful or improper use);
or
|
13.1.2.3
|
the
Vodafone Network and/or any mobile
device;
|
13.1.3
|
it
shall not act in a way which shall impair or put in jeopardy the
operation
of the Directory, the Vodafone Network, any mobile device or any
part of
them;
|
13.1.4
|
it
has the necessary licences, consents, permissions or approvals to
operate
and to grant Vodafone the rights to use the Content, the Marketing
Materials and the Content Provider Marks in accordance with the terms
of a
Contract;
|
13.1.5
|
it
shall use reasonable skill and care in carrying out its obligations
and
exercising its rights under a Contract and/or this Master Agreement;
and
|
13.1.6
|
it
shall comply with all applicable laws and regulations when performing
its
obligations under this Master Agreement and/or a
Contract.
|
13.2
|
The
Content Provider warrants and undertakes to VGSL and Vodafone that
the
Content shall:
|
13.2.1
|
be
of satisfactory quality and be kept fresh, updated and current (with
reference to the nature of the Content’s subject matter) and shall not be
factually inaccurate;
|
13.2.2
|
not
infringe any third party’s rights (including Intellectual Property
Rights);
|
13.2.3
|
not
offend taste or decency, nor be defamatory, obscene, racist, materially
inaccurate, be so violent, or abusive in nature as to be reasonably
likely
to cause serious offence in Vodafone’s opinion, or otherwise be in breach
of any applicable law, regulation or code of conduct or result in
Vodafone
or any Vodafone Group Company being in breach of any
law;
|
13.2.4
|
not
result in Vodafone or any other Vodafone Group Company being held
to carry
out any regulated activity in the applicable Territory including
but not
limited to any gambling service, betting service or lottery (where
“regulated activity” means any activity requiring specific governmental
authorisation or license, other than the provision of telecommunications
or electronic communications
services);
|
13.2.5
|
not
contain any content that promotes a Competitor or criticises Vodafone
or
any other company within the Vodafone Group, or otherwise bring Vodafone
Group Companies into disrepute or damages the reputation or goodwill
of
Vodafone, or any other Vodafone Group Company or any trade mark of
any
Vodafone Group Company in any of the Territories;
and
|
13.2.6
|
not
contain any computer viruses, logic bombs, trojan horses and/or any
other
items of software which would disrupt the proper operation of the
Directory, the Vodafone Network or any mobile
device.
|
13.3
|
VGSL
warrants and undertakes that it has full right and authority to enter
into
this Master Agreement. Each Vodafone Group Company which executes
the
Contract Acceptance Notice warrants and undertakes that it has full
right
and authority to execute that Contract Acceptance
Notice.
|
13.4
|
The
Parties acknowledge that their respective obligations and liabilities
are
exhaustively defined in each Contract and this Master Agreement (as
the
context requires) and that to the extent permitted by law, the express
obligations and warranties provided in each such Contract and this
Master
Agreement are in lieu of and to the exclusion of any warranty, condition,
term, undertaking or representation of any kind, express or implied,
statutory or otherwise relating to anything supplied or
provided
.
or
services performed under or in connection with each such Contract
and/or
this Master Agreement including (without limitation) as to the condition,
quality, performance, satisfactory quality or fitness for the
purpose.
|
13.5
|
Save
as otherwise notified to the Content Provider, VGSL shall act as
the
single point of contact between the Content Provider and each Vodafone
Group Company entering into a Contract including, without limitation,
in
respect of any claims made by the Content Provider or such a Vodafone
Group Company under this Master Agreement or any
Contract.
|
14.
|
INTELLECTUAL
PROPERTY INDEMNITY
|
14.1
|
The
Content Provider shall indemnify Vodafone, VGSL and all other Vodafone
Group Companies from and against all losses, damages, costs, expenses,
claims, proceedings and liabilities (including legal costs calculated
on a
solicitor-client basis) sustained or incurred by Vodafone or any
Vodafone
Group Company arising out of or in connection with any claim or allegation
that the provision, use, receipt or possession of the Content, the
Marketing Materials and/or the Content Provider
Marks:
|
14.1.1
|
infringes
the Intellectual Property Rights, other proprietary rights or rights
of
publicity or privacy of a third party;
or
|
14.1.2
|
is
defamatory, obscene, racist, materially inaccurate, violent, or abusive
in
nature, or otherwise in breach of any applicable law, regulation
or code
of conduct.
|
14.2
|
If
any third party makes a claim or demand or brings an action against,
or
notifies an intention to make or bring a claim, demand or action
against
VGSL or any Vodafone Group Company which may give rise to a liability
under this Clause 14 (in this clause, a “relevant claim”), Vodafone
shall:
|
14.2.1
|
without
limiting the generality of this Clause 14, as soon as reasonably
practicable give written notice of the relevant claim to the Content
Provider;
|
14.2.2
|
not
make any admission of liability, agreement or compromise in relation
to
the relevant claim (save where required by law, legislation, court
order
or governmental regulations) which may be prejudicial to the defence
or
settlement of any claim, demand or action by VGSL, a Vodafone Group
Company or the Content Provider without the prior written consent
of the
Content Provider (such consent not to be unreasonably withheld or
delayed); and
|
14.2.3
|
at
the request of the Content Provider and at the Content Provider’s cost,
afford all reasonable assistance for the purpose of contesting
the
relevant claim.
|
15.1
|
Except
for liability arising under Clauses 14.1 and 15.4, in each Contract
Year
the aggregate liability of each Party for all claims made under or
in
connection with a Contract, whether based on contract, tort, negligence
or
otherwise shall be limited to the greater of: (a)
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]
or (b) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
UNDER RULE 24B-2] arising under the Contract in question in the Contract
Year in which the applicable liability is
sustained.
|
15.2
|
Except
for liability arising under Clauses 14.1 and 15.4, the total aggregate
liability of (a) the Content Provider to VGSL and Vodafone (together);
and
(b) VGSL and Vodafone (together) to the Content Provider, under this
Master Agreement and all Contracts for all claims made under or in
connection with this Master Agreement and all Contracts, whether
based on
contract, tort, negligence or otherwise shall (in each of the cases
(a)
and (b)) be limited to [INFORMATION OMITTED AND FILED SEPARATELY
WITH THE
COMMISSION UNDER RULE 24B-2].
|
15.3
|
Except
for liability arising under Clauses 14.1 and 15.4, in no circumstances
shall a Party be liable for any indirect, special or consequential
damages
arising from breach of contract, negligence or other liability even
if the
other Party had been advised or knew (or should have known) of the
possibility of such damages.
|
15.4
|
Nothing
in this Master Agreement or a Contract excludes a Party’s liability with
respect to death or personal injury resulting from negligence, or
excludes
a Party’s liability for fraudulent misrepresentation or any other
liability to the extent that such liability may not be excluded or
restricted by law.
|
16.1
|
Both
Parties agree that they carry and will maintain throughout the term
adequate insurance to cover such of their liabilities under this
Master
Agreement and each Contract. In particular the Content Provider agrees
to
keep and maintain products/liability insurance to the value
of [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
UNDER RULE 24B-2] per claim and third party intellectual property
rights
insurance to the value of [INFORMATION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION UNDER RULE 24B-2] per
claim.
|
16.2
|
The
Content Provider shall ensure that the appropriate noting of VGSL’s and
Vodafone’s interests have been recorded on the Insurance Policies or a
generic interest clause has been included, together with a waiver
of
subrogation and any right of contribution in favour of VGSL and Vodafone,
and shall on the written request of Vodafone from time to time provide
a
certificate signed by the Content Provider’s insurer or such insurer’s
appointed agents confirming that the Content Provider is insured
in
accordance with this Clause 16. On the renewal of any Insurance Policies,
the Content Provider shall promptly send a copy of the premium receipt
to
VGSL, if so requested.
|
16.3
|
The
Content Provider shall during the term of this Agreement and for
a period
of [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
UNDER RULE 24B-2] thereafter.
|
16.3.1
|
administer
the Insurance Policies and the Content Provider’s relationship with its
insurers in such a manner as to preserve any benefits to Vodafone
from the
operation of this Clause 16;
|
16.3.2
|
do
nothing to invalidate any Insurance Policies or to prejudice the
Content
Provider’s entitlement under the insurance Policies;
and
|
16.3.3
|
not
subsequently alter the terms of the Insurance Policies in such a
way as to
diminish any benefits to VGSL or Vodafone from the Insurance
Policies.
|
16.4
|
The
Content Provider shall ensure that its contractors, subcontractors
and
agents are insured in the same manner as set out in this Clause
16.
|
17.1
|
This
Master Agreement shall commence on the date when it has been executed
by
both parties to the Master Agreement and shall continue unless and
until
terminated in accordance with the provisions of this Master Agreement.
Each Contract shall commence on its Commencement Date and will continue
unless otherwise terminated in accordance with its terms or, if earlier,
on the termination of this Master
Agreement.
|
17.2
|
Either
Party to this Master Agreement may terminate this Master Agreement,
or a
Party to a Contract may terminate that Contract, immediately on written
notice to the other Party (such notice not to be effective if sent
by
email) if:
|
17.2.1
|
the
other Party is in material breach of its terms and such breach is
incapable of remedy or, if capable of remedy, fails to remedy that
breach
within fourteen (14) days’ notice from the non-breaching Party requiring
remedy; or
|
17.2.2
|
the
other Party ceases to carry on its business or has a liquidator,
receiver
or administrative receiver appointed to it or over any part of its
undertaking or assets or passes a resolution for its winding up (otherwise
than for the purpose of a bona fide scheme of solvent amalgamation
or
reconstruction where the resulting entity will assume all of the
liabilities of it) or a court of competent jurisdiction makes an
administration order or liquidation order or similar order over the
other,
or the other enters into any voluntary arrangement with its creditors,
or
is unable to pay its debts as they fall due or suffers any similar
or
equivalent act in another relevant
jurisdiction.
|
17.3
|
VGSL
shall be entitled to terminate this Master Agreement or any Contract
without cause at any time, either in full or in relation to particular
Territories or items of Content (or both), by giving thirty [INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]
written
notice to the Content Provider, without prejudice to its other rights
and
remedies. Any partial termination of a Contract shall not affect
the
validity or enforceability of either (a) this Master Agreement; (b)
other
Contracts; or (c) the remainder of the Contract in
question.
|
17.4
|
Vodafone
shall be entitled to terminate a Contract to which it is party without
cause at any time, either in full or in relation to particular items
of
Content, by giving thirty [INFORMATION OMITTED AND FILED SEPARATELY
WITH
THE COMMISSION UNDER RULE 24B-2] written notice to the Content Provider,
without prejudice to its other rights and remedies. Any partial
termination of a Contract shall not affect the validity or enforceability
of the remainder of the Contract in
question.
|
17.5
|
The
Content Provider shall be entitled to terminate this Master Agreement
or
any Contract without cause at any time after the date [INFORMATION
OMITTED
AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2] from the
date
of this Master Agreement (in the case of termination of this Master
Agreement) or [INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION UNDER RULE 24B-2] from the Commencement Date of the relevant
Contract (in the case of termination relating to a Contract), either
in
full or in relation to particular Territories or items of Content
(or
both), by giving [INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION UNDER RULE 24B-2] written notice to VGSL (in the case
of
termination of this Master Agreement) or to Vodafone with a copy
to VGSL
(in the case of termination relating to a Contract), without prejudice
to
its other rights and remedies. Any partial termination of a Contract
shall
not affect either the validity or enforceability of either (a) this
Master
Agreement; (b) other Contracts; or (c) the remainder of Contract
in
question.
|
17.6
|
This
Master Agreement shall terminate automatically six [INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]
after
the expiration or termination of the last remaining
Contract.
|
17.7
|
Termination
of this Master Agreement or a Contract does not affect the accrued
rights,
obligations or liabilities of the Parties prior to
termination.
|
17.8
|
Upon
termination of a Contract or this Master Agreement for whatever
reason:
|
17.8.1
|
Vodafone
shall remove the relevant Content from the Directory and cease providing
access to such Content to its
Customers;
|
17.8.2
|
each
Party to that termination shall, upon request, return to the other
or
destroy any relevant confidential information or materials provided
to it
by the other;
|
17.8.3
|
each
Party to that termination shall remove all references to the other’s trade
marks from any marketing and promotional materials save in respect
of any
ongoing relationship between the Parties and subject to VGSL retaining
a
copy of all Content and related marketing and promotional materials
for
archive and internal analysis
purposes;
|
17.8.4
|
the
Parties shall settle all outstanding sums either may owe the other
within
one hundred and twenty (120) days of the date of termination;
and
|
17.8.5
|
subject
to Clause 20.8, all rights granted under the Contract in question
or this
Master Agreement (as appropriate) shall immediately
cease.
|
17.9
|
VGSL
has the right to extend the operation of a Contract for a period
of not
more than three (3) months after what would otherwise be the effective
date of termination or expiration to give Vodafone an opportunity
to
replace the relevant Content and make appropriate amendments to its
marketing materials.
|
18.
|
CONFIDENTIALITY
AND PUBLICITY
|
18.1
|
Except
as may be required by law or any applicable regulatory body,
or as is
strictly required to perform its obligations under this Master Agreement
or a Contract, each Party shall keep secret and confidential and
not use,
disclose or divulge to any third party any information that they
obtain
from the other concerning the business, finances, technology and
affairs
of the other, and in particular but not limited to the terms of this
Master Agreement and any Contract and their subject matters. This
Clause
does not apply to information that has come into the public domain
other
than by breach of this Clause or any other duty of confidence or
is
obtained from a third party without breach of this Clause or is required
to be disclosed by law.
|
18.2
|
The
Content Provider agrees that VGSL and Vodafone shall be entitled
to share
any or all information it receives from or generates on behalf of
the
Content Provider pursuant to this Master Agreement and/or any Contract
with other Vodafone Group
Companies.
|
18.3
|
Neither
Party shall issue any press statement or other announcements relating
to
this Master Agreement and/or any Contract or the subject matters
thereof
(as the context requires) without the prior written consent of the
other
Party.
|
19.1
|
All
personal and traffic data generated by or otherwise collected in
relation
to the Content will remain the exclusive property of Vodafone. The
Content
Provider shall be entitled to receive, on written request from time
to
time, aggregated user information for the limited purpose of analysing
the
effectiveness of the Content.
|
19.2
|
To
the extent that the Content Provider is required in connection with
the
performance of its obligations under this Master Agreement or a Contract
to process personal data relating to any Customer, the Content Provider
shall:
|
19.2.1
|
only
process such personal data on behalf of
Vodafone;
|
19.2.2
|
act
solely on the instructions of Vodafone in respect of such personal
data;
and
|
19.2.3
|
not
make any use of that data for any reason other than to perform its
obligations hereunder and in particular shall not make any use of
the
personal data for its marketing
purposes.
|
19.3
|
To
the extent that the Content Provider processes personal data on behalf
of
Vodafone, the Content Provider must ensure that it has in place
appropriate technical and organisational security measures (in addition
to
those expressly required by this Master Agreement or a Contract)
to
protect such personal data from accidental or unlawful destruction
or
accidental loss, damage, alteration, unauthorised disclosure or access,
in
particular where the processing involves the transmission of data
over a
network, and against all other unlawful forms of
processing.
|
20.1
|
No
variation of this Master Agreement or a Contract or of any of the
documents referred to in either agreement shall be valid or effective
unless it is in writing and signed by or on behalf of each of the
Parties
(and, in the case of a Contract, but subject to Clause 2.3, by the
relevant Vodafone Group Company).
|
20.2
|
This
Master Agreement may be executed in any number of counterparts, each
of
which, when executed and delivered, shall be an original, and all
the
counterparts together shall constitute one and the same
instrument.
|
20.3
|
Any
notice or other communication required to be given or made under
this
Master Agreement or a Contract shall be in writing and addressed
to the
receiving Party’s principal contact at the address of the receiving Party
as set out in the Master Agreement or a Contract (as the context
requires)
or such other person or address as notified from time to time in
accordance with the terms of this Clause. Any such notice or communication
may be delivered by hand, first class post (if both Parties are within
the
UK), airmail (if one of the Parties is overseas) or fax and shall
be
deemed to be given or made if: (a) sent by hand, upon receipt; (b)
by
first class post, on the second working day following the date of
posting;
(c) by airmail, on the seventh working day following the date of
posting;
and (d) by fax or email, when despatched provided that a confirmatory
copy
is immediately despatched by first class post or airmail (as appropriate).
The Content Provider shall, whenever it sends a notice to Vodafone,
provide a copy of such notice to
VGSL.
|
20.4
|
This
Master Agreement or each Contract, as the context requires, represents
the
entire understanding between the respective Parties in relation to
its
subject matter and supersedes all agreements and representations
made by
either Party, whether oral or written. In particular, this Master
Agreement supersedes the Directory Agreement (the “Old Agreement”) made on
1 May 2003 between the Content Provider and Vodafone Global Content
Services Limited (whose business was transferred to VGSL on 1 April
2004). The Old Agreement shall only remain in force until (and shall
automatically terminate on) the date that the last “Vodafone Sub-Agent”
(appointed in accordance with clause 5.6 of the Old Agreement) has
entered
into a Contract or otherwise terminated its sub-agency under the
Old
Agreement, save in respect of any accrued rights or liabilities under
or
in relation to the Old Agreement prior to that date. This Clause
shall not
affect either Party’s liability for
fraud.
|
20.5
|
Failure
or delay by either Party to enforce any provisions under this Master
Agreement or a Contract shall not be taken as or deemed to be a waiver
of
its rights or operate as a waiver of any subsequent
breach.
|
20.6
|
If
any part of this Master Agreement or a Contract is held to be void,
voidable, illegal or unenforceable, the validity or enforceability
of the
remainder of this Master Agreement or a Contract shall not be
affected.
|
20.7
|
The
Parties shall perform all such further deeds, assurances, acts and
things
and execute such other documents as may reasonably be required to
carry
the provisions of this Master Agreement or a Contract into full force
and
effect.
|
20.8
|
The
following clauses shall survive termination of this Master Agreement
or a
Contract for any reason: 10 (Pricing, Revenue and Payments) 11 (Tax),
13
(Warranties), 14 (Intellectual Property Indemnity), 15 (Liability),
16
(Insurance), 17.8 (Term and Termination), 18 (Confidentiality and
Publicity), 20.4 (Entire Agreement), 20.5 (Waiver), 20.6 (Severability),
20.7 (Further Assurances), 20.8 (Survival of Terms), 20.9 (Force
Majeure),
20.12 (Conflict), 20.13 (Third Party Beneficiaries), 20.14 (Law)
and any
other clause which should, by its nature, survive
termination.
|
20.9
|
Neither
Party shall be liable for any delay or failure in performing any
of its
obligations under this Master Agreement or a Contract if such delay
or
failure is caused by circumstances outside its reasonable control
including without limitation, any delay or failure caused by any
act or
default of the other Party.
|
20.10
|
Neither
Party may assign, transfer or sub-contract to any other party any
of its
rights or obligations under this Master Agreement or a Contract except
that VGSL (in respect of this Master Agreement) and Vodafone (in
respect
of a Contract) may assign or transfer its rights or sub-contract
its
obligations to any Vodafone Group Company. Any Vodafone Group Company
may
appoint a third party (including, without limitation and for the
avoidance
of doubt, another Vodafone Group Company) as its agent for the purpose
of
fulfilling its obligations or exercising its rights under this
Agreement.
|
20.11
|
To
the extent that any provision of this Master Agreement as incorporated
into any Contract conflicts with any local legislation or regulation
in
the Territory specified in the Contract, then the provisions of the
local
legislation or regulation shall prevail over the conflicting
provisions
.
to
the extent of such conflict.
|
20.12
|
If
there is any inconsistency between the provisions of this Master
Agreement
and the provisions set out in any Content Schedule or any other type
of
annexure, exhibit or other attachment, the following order of precedence
shall be applied so that the higher ranking provisions prevail over
the
lower-ranking provisions to the extent of the
inconsistency:
|
20.12.1
|
the
Special Conditions;
|
20.12.2
|
the
terms of this Master Agreement;
|
20.12.3
|
the
Content Schedule (excluding the Special Conditions);
and
|
20.12.4
|
any
other type of annexure, exhibit or other
attachment.
|
20.13
|
Save
where expressly provided to the contrary in this Master Agreement
or in
the provisions of a Contract, this Master Agreement is made solely
and
specifically between the Content Provider and VGSL and each Contract
is
made solely and
.
specifically
between the Content Provider and Vodafone and neither is intended
to be
for the benefit of or enforceable by any other person, whether under
the
Contracts (Rights of Third Parties) Act 1999 or otherwise, and neither
Party nor Vodafone can declare itself a trustee of the rights under
this
Master Agreement or a Contract for the benefit of any such
person.
|
20.14
|
This
Master Agreement and each Contract shall be governed by and construed
and
interpreted in accordance with the law of England and Wales and the
Parties to this Master Agreement and each Contract submit to the
exclusive
jurisdiction of the English Courts.
|
21.1
|
In
this Master Agreement and each
Contract:
|
21.1.1
|
reference
to persons shall include legal as well as natural persons and (where
the
context so admits), references to the singular shall include the
plural
and vice versa;
|
21.1.2
|
reference
to Clauses shall be to those clauses of this Master Agreement unless
the
contrary is stated;
|
21.1.3
|
reference
to this Master Agreement shall (unless the context otherwise requires)
include reference to any schedule to this Master Agreement as the
same may
be amended, novated or supplemented from time to time in accordance
with
its terms;
|
21.1.4
|
section
and clause headings in this Master Agreement are for ease of reference
only and shall not affect its interpretation, validity or
enforceability;
|
21.1.5
|
reference
to any statute, act, directive or other regulation includes a reference
to
that statute, act or directive or other regulation as re-enacted
or
amended from time to time;
|
21.1.6
|
the
words “include” and “including” shall be construed without limitation to
the words following; and
|
21.1.7
|
defined
terms are set out and described in Clause
21.2.
|
21.2
|
In
this Master Agreement and each Contract, the following words and
expressions shall have the expanded definitions set out
below.
|
“
Anti-Circumvention
Rights
”
shall
have the meaning given to that term in Clause 8.3;
“
Application
Submission Criteria for QA
”
means
those guidelines relating to the standards of Content produced and amended
from
time to time by Vodafone and provided to the Content Provider in connection
with
the Vodafone certification process;
“
Chargeable
Event
”
means
any purchase of the Content by a Customer (including in the case of Protected
Content any purchase of a subscription service offered pursuant to an applicable
Purchase Option) from the Content Provider for which the Customer is charged
by
Vodafone (as agent for the Content Provider);
“
Collecting
Society Royalties
”
means
the payment of any royalties due in respect of Collecting Society
Rights;
“
Collecting
Society Rights
”
means
those rights in or in relation to the Content which are controlled by copyright
and related rights collecting societies, or which copyright and related rights
collecting societies otherwise have the right to exploit, in the Territories
and
which are applicable to the use and exploitation of the Content pursuant to
a
Contract;
“
Commencement
Date
”
means
the date when the Content Provider receives the signed Contract Acceptance
Notice from a Vodafone Group Company;
“
Competitor
”
means
any third party competitor of the Vodafone live! service
.
in the
Territory including without limitation any consumer focused multi-access
Internet portal, wireless portal or online service provider focused on the
provision of wireless content services including but not limited to any
operator, or any company affiliated with such operator of an electronic
communications network;
“
Content
”
means
the information, text, data, graphics, images, software and audio and visual
material in whatever media or form described in a Content Schedule
or
otherwise provided by or on behalf of the Content Provider to Vodafone with
the
intent to be featured on the Directory and, where the context so requires,
includes any Link supplied by the Content Provider to Vodafone which is to
be
placed in the Directory, any underlying executable code and any
Rights;
“
Content
Charge
”
means
the specific charge to the Customer including any value added tax, turnover
tax
or other local sales or other taxes for the purchase of the Content from it
excluding for the avoidance of doubt the Network Charges;
“
Content
Provider
”
means
the company, partnership, person or entity identified in the Content Schedule
attached to this Master Agreement;
“
Content
Provider Branding Guidelines
”
means
the branding, layout, format, “look and feel” and style guidelines governing the
use of the Content and the Content Provider Marks described in a Content
Schedule or otherwise provided by the Content Provider to Vodafone under a
Contract as at the date of each applicable Contract;
“
Content
Provider Marks
”
means
the trade and service marks, trade names, domain names, logos and any and all
other branding which the Content Provider owns or has the right to license
(whether registered or not and including applications for the same), to be
used
by Vodafone to brand the Content in accordance with a Contract;
“
Content
Provider Revenue
”
means
the percentage of Net Revenue set out in the relevant Content Schedule which
is
(after deduction of any Deductions) payable to the Content Provider by Vodafone
under a Contract (being the Net Revenue less the Vodafone
Commission);
“
Content
Schedule
”
means
a
schedule in a format similar to the content schedule attached to this Master
Agreement and in each case completed and signed by VGSL and the Content
Provider,
“
Contract
”
means
a
contract to appoint as agent for the distribution and resale/licensing of and
associated activities relating to specified Content on the terms of the relevant
Content Schedule and this Master Agreement formed between the Content Provider
and a Vodafone Group Company in accordance with the process described in Clause
2;
“
Contract
Acceptance Notice
”
means
the form of contract acceptance notice attached to this Master
Agreement;
“
Contract
Year
”
means
each calendar year of a Contract commencing on the applicable Commencement
Date;
“
Creditor
”
shall
have the meaning given to that term in Clause 10.11;
“
Customer
”
means
a
user of the Directory;
“
Data
Protection Legislation
”
means
any applicable national data protection and privacy legislation;
“
Debtor
”
shall
have the meaning given to that term in Clause 10.11;
“
Deductions
”
means:
(1) any deductions or withholdings which VGSL or Vodafone may be required to
make by law from any payment payable under this Agreement or any agreement
between Vodafone Group Companies entered into for the purposes of this
Agreement; (2) any Collecting Society Royalties paid by VGSL, Vodafone and/or
any other Vodafone Group Company; and (3) such other deductions which the
Parties may agree from time to time in writing;
“
Delivery
Timetable(s)
”
means
the date(s) agreed by the Parties for the delivery of the Content (if any)
as
set out in the relevant Content Schedule or as otherwise agreed by the Parties
in writing from time to time;
“
Directory
”
means
the mobile content directory or other platform from time to time operated for
and on behalf of or in conjunction with Vodafone that lists or otherwise
facilitates access to various mobile content and services and associated use
rights;
“
DRM
”
means
technological measures that are designed to prevent or restrict unlawful use,
copying or redistribution of the Content or other acts in respect of the Content
by Customers or third parties which are not authorized by the Content Provider
pursuant to a Contract;
“
DRM
Guidelines
”
means
the technical, performance and other information relating to the DRM service
offered by VGSL and/or Vodafone as produced and amended from time to time by
VGSL and/or Vodafone and provided to the Content Provider;
“
Due
Date
”
means
the time for payment of a sum as specified in the relevant
Contract;
“
First
Line Customer Support
”
means
receiving and handling all Customer inquiries relating to billing and payment
collection, connection to the mobile Internet, access to the Content and any
non-Content specific issues relating to the Directory;
“
Format
”
means
any format described in the relevant Content Schedule or which Vodafone
specifies from time to time;
“
Gross
Revenue
”
means
the aggregate Content Charges billed to and collected from Customers by Vodafone
(as agent for the Content Provider) in respect of Chargeable
Events;
“
Guidelines
”
means
the Application Submission Criteria for QA (if applicable), the Integration
Guidelines and any other rules of procedure (including technical or quality
control procedures), guidelines, directions, policies and/or other requirements
made or adopted by Vodafone or the Vodafone Group from time to time which relate
to content, the operation of the
.
Directory, the participation of companies in the Directory, the provision of
content for use on the Directory and/or the subject matter generally of this
Master Agreement and/or a Contract;
“
Insurance
Policies
”
shall
have the meaning given to that term in Clause 16.1;
“
Intellectual
Property Rights
”
means
all intellectual and industrial property rights, whether registered or
unregistered, including trade and service marks, patents, utility models,
designs and design rights, trade and business names (including rights in any
get-up or trade dress), domain names, topography rights, copyright and related
rights, database rights, moral rights and all other similar proprietary rights
in every case which may subsist in any part of the world including any
registration of any such rights and applications and any rights to make
applications for any of the foregoing;
“
Integration
Guidelines
”
means
the technical performance, style and format requirements relating to the Content
produced and amended from time to time by Vodafone and provided to the Content
Provider for use in accordance with the terms of a Contract;
“
Languages
”
means
the languages that the Content is supplied in by the Content Provider as
specified in a Content Schedule;
“
Link
”
means
any link that the Content Provider provides in order to facilitate access to
the
Content by a Customer via the Directory;
“
Marketing
Materials
”
means
the marketing and promotional materials specified in each Content Schedule
or
otherwise provided by or on behalf of the Content Provider to Vodafone for
use
in relation to the Content;
“
Mobile
Device
”
means
the mobile device(s) that the Content must be compatible with as specified
in
the relevant Content Schedule;
“
month
”
means
a
calendar month and “monthly” shall be construed accordingly;
“
Net
Revenue
”
means
the Gross Revenue less (1) value added tax, turnover tax or other local sales
tax or other taxes charged to Customers and (2) all Customer refunds (or credits
which may be issued to a Customer in lieu of a refund) in respect of a
Chargeable Event;
“
Network
Charges
”
means
the charges to a Customer levied by Vodafone in connection with the Customer’s
access, carriage and use of the Content including but not limited to all airtime
revenue, whether measured in terms of time, volume or event consumption and
activation and access fee charges both from voice and data
transmission;
“
Party
”
and
“
Parties
”
means
a
party/the parties to a Contract and/or this Master Agreement, as the context
requires;
“
Platform
”
means
the system, including the equipment, the Link and the software used by the
Content Provider to host and maintain the Content;
“
Preview
Options
”
means
the provision by Vodafone to a Customer via the Directory of an option to
preview the Content for the purpose of enabling the Customer to evaluate the
Content before purchase;
“
Protected
Content
”
means
Content to which DRM has been applied by Vodafone in accordance with Clauses
8.1
to 8.8 (inclusive);
“
Purchase
Options
”
means
the options for use of Protected Content to be presented to Customers via the
Directory in response to a request to purchase Protected Content as specified
in
the relevant Content Schedule;
“
QA
Company
”
means
a
quality assurance company certified by VGSL;
“
Relevant
Contacts
”
means
the contacts for each Party from time to time as initially identified in the
relevant Content Schedule;
“
Rights
”
means
a
collection of permissions, constraints and other information, corresponding
to
the applicable Purchase Option, which identifies the Content and defines under
what circumstances access is granted to, and what usages are permitted for,
Protected Content and any underlying code that represents such
information;
“
Second
Line Customer Support
”
means
receiving and handling all inquiries from a Vodafone Group Company relating
to
First Line Customer Support;
“
Special
Conditions
”
means
the special conditions (if any) set out in the relevant Content
Schedule;
“
Standing
Offer
”
means
the offer made by the Content Provider to Vodafone Group Companies as described
in Clause 2;
“
Territory
”
means
those countries set out in the relevant Content Schedule or the particular
country(s), as applicable, specified in any signed Contract Acceptance
Notice;
“
VAT
Tax
”
means
any value added tax, any state or local sales or use tax, any business transfer
tax, any transaction tax and any tax analogous to such taxes in any relevant
jurisdiction;
“
VGSL
”
means
Vodafone Group Services Limited, a company incorporated in England (registered
number 3802001) and having its registered office at Vodafone House, The
Connection, Newbury, Berkshire RG14 2FN, United Kingdom;
“
Vodafone
”
means
any Vodafone Group Company which has entered into a Contract with the Content
Provider pursuant to Clause 2;
“
Vodafone
Commission
”
means
the Net Revenue less the Content Provider Revenue, which shall be the sum
retained by Vodafone as commission for its activities as the Content Provider’s
agent under this Master Agreement and each Contract;
“
Vodafone
Group
”
means
Vodafone Group Plc, Vodafone Partner Network Companies and each company or
entity in which Vodafone Group Plc has a shareholding or interest directly
or
indirectly of 15% or more or has the right to exercise directly or indirectly
15% or more of the voting rights and “
Vodafone Group Company
”
shall be construed accordingly;
“
Vodafone
Partner Network Companies
”
means
any company or corporation with which a Vodafone Group Company (which for the
avoidance of doubt excludes another Vodafone Partner Network Company) has
entered into a co-operation agreement with regard to the development and supply
of new products and services and other related matters, and with which Vodafone
Group Plc (or such Vodafone Group Company as Vodafone Group Plc has nominated)
has entered into a brand licence agreement in relation to the licensing and
use
of the Vodafone name and brand and “
Vodafone Partner Network
Company
” shall be construed accordingly; and
“
Vodafone
Network
”
means
the wireless communications systems operated and/or provided for and on behalf
of Vodafone within the
-
Territory.
Executed
as an agreement:
By
the authorised representative of:
|
)
|
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Vodafone
Group Services Limited
|
)
|
|
|
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)
|
|
|
|
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)
|
|
|
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)
|
|
/s/
Graeme Ferguson
|
|
|
)
|
|
Name:
GRAEME
FERGUSON
|
|
|
)
|
|
Title:
EXECUTIVE HEAD OF CONTENT DEVELOPMENT
|
|
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)
|
|
Date:
17
TH
DECEMBER 2004
|
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By
the authorised representative of:
|
)
|
|
|
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The
Content Provider
|
)
|
|
|
|
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)
|
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)
|
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)
|
|
/s/
Adi McAlian
|
|
|
)
|
|
Name:
ADI
MCALIAN
|
|
|
)
|
|
Title:
MANAGING
DIRECTOR
|
|
|
)
|
|
Date:
December
8, 2004
|
|
*WE
HAVE REQUESTED CONFIDENTIAL TREATMENT OF CERTAIN PROVISIONS CONTAINED IN
THIS
EXHIBIT. THE COPY FILED AS AN EXHIBIT OMITS THE INFORMATION SUBJECT TO THE
CONFIDENTIALITY REQUEST.*
27
February 2007
Waat
Media Corporation (k/n/a Twistbox Entertainment, Inc.)
14242
Ventura
Suite
300
Sherman
Oaks
CA
91356
United
States of America
FAO:
Justin Richardson
Dear
Sirs,
FURTHER
LETTER
OF
AMENDMENT
OF
CONTRACT
BETWEEN
WAAT
MEDIA
CORPORATION
("CONTENT PROVIDER") AND VODAFONE UK CONTENT SERVICES
LIMITED
("VCS")
The
Content Provider and Vodafone Group Services Limited entered into a Master
Global Content
Reseller
Agreement dated 17 December 2004
(
"Original
Agreement"
)
and
a
content schedule
dated
17
January 2005
(
"Content
Schedule"
).
To
implement the Original Agreement and the
Content
Schedule in the UK, VCS signed a Contract Acceptance Notice on 11 April 2005
(the
Original
Agreement, Content Schedule and Contract Acceptance Notice together the
"Contract"
).
On
25
February 2006 VCS entered into an agreement with the Content Provider which
provides
that
the
Content Provider shall supply certain services to VCS
(
"Linking
Agreement"
).
The
provision
of such services by the Content Provider necessitates certain amendments to
the
Contract.
Also
on
25 February 2006, VCS, Vodafone Group Services and the Content Provider
agreed
by
a letter ("the
First
Amendment Letter
")
to
make
amendments to the Contract with
effect
from that date, in respect of the relationship between the Content Provider
and
VCS in the
UK
only.
VCS and the Content Provider have now agreed to amend the Contract in respect
of
the
UK
only
as set out below:
1
|
Notwithstanding
the date of this Letter, with effect from 1 January 2007, the Content
Provider
will pay VCS a minimum revenue guarantee of [INFORMATION OMITTED
AND FILED
SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2] per month. Once
the
Gross
Revenue
(i.e.,
the
aggregate amount derived from both the Original Agreement and
the
Linking Agreement) for a month exceeds [INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2], then the Content
Provider Revenue
shall
be [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
UNDER RULE 24B-2]
of
the Gross Revenue in excess of such amount.
VCS
and the Content Provider agree to discuss in good faith, between
1 April
and 30 April 2007, whether these
commercial
terms are equitable and to adjust them
accordingly.
|
2
|
In
return for the payment of the minimum revenue guarantee in 1 above,
VCS
will
additionally
make available one dynamic module on the Vodafone Live! homepage
to the
Content
Provider between the hours of 10 p.m. each night and 6 a.m. the following
day for
the
Content Provider to promote the
Content.
|
Vodafone
UK Content Services Limited
Vodafone
Content Services
Vodafone
House, The Connection, Newbury, Berkshire RG14
2FN,
England
Telephone:
+44 (0)1635 33251, Facsimile: +44 (0)1635 686734
Registered
Office: Vodafone House, The Connection, Newbury, Berkshire RG14 2FN, England,
Registered in England No. 4064826
3
|
Save
as varied by this Letter, the Contract shall continue in full
force and
effect and in the
event
of any conflict between its terms and this letter the terms of
this letter
shall prevail.
|
For
the
avoidance of doubt and unless otherwise provided in this Letter, the capitalised
terms in
this
Letter shall have the same meaning as provided in the Contract.
Please
confirm your agreement to this Letter by signing and returning the enclosed
copy.
Yours
sincerely
Al
Russell
Head
of
UK Content & Messaging Services
E-mail:
al.russell@vodafone.com
We
hereby
agree to the contents of this Letter.
EVP/
General Counsel
for
and
on behalf of
Waat
Media Corporation (k/n/a Twistbox Entertainment, Inc.)
Dated:
28
February 2007
Vodafone
UK Content Services Limited
Vodafone
House, The Connection, Newbury, Berkshire RG14
2FN,
England
Telephone:
+44 (0)1635 33251, Facsimile: +44 (0)1635 686181
Registered
Office: Vodafone House, The Connection, Newbury, Berkshire RG14 2FN, England,
Registered in England No. 4064826
*WE
HAVE REQUESTED CONFIDENTIAL TREATMENT OF CERTAIN PROVISIONS CONTAINED IN
THIS
EXHIBIT. THE COPY FILED AS AN EXHIBIT OMITS THE INFORMATION SUBJECT TO THE
CONFIDENTIALITY REQUEST.*
Content
Schedule
1.
This
Content Schedule incorporates the terms of the Master Global Content Agency
Agreement (the “Master Agreement”) between Vodafone Group Services Limited
(“VGSL”), registered in England (registered number 3802001), having its
registered office at Vodafone House, The Connection, Newbury, Berkshire RG14
2FN, United Kingdom and the Content Provider (as defined below) dated 17
December 2004.
2.
When
signed by VGSL and the Content Provider this Content Schedule is a standing
offer by the Content Provider of the applicable Content (as defined below)
to
all Vodafone Group Companies on the terms of the Master Agreement and this
Content Schedule.
3.
A
Vodafone Group Company may accept the Standing Offer by completing and signing
the Contract Acceptance Notice and following the procedure set out in the
Master
Agreement.
1.
Content
Provider
|
|
Waat
Media Corporation; United States of America; Company reg.
2512380;
Address:
18226 Ventura Blvd. Suite 102, Tarzana. CA 91356.
|
|
|
|
2.
Content
|
|
Content
Provider will provide a minimum of two channels which may be included
in
the
Vodafone
mobile TV offering
:
|
|
|
|
|
|
1.
‘Blue’ (which may have an alternative name in different Territories) -
This will take
the
form of a two hour loop, updated by the Content Provider 5 days
per
week
(Monday-Friday),
or a suitable refresh rate which suits both the delivery
requirements
and commercial customer proposition and is agreed by both
parties,
with
the intent of offering the above refresh rate when commercially
and
technically
viable.
The channel shall be presented by a local presenter and/or local
graphics
will
ensure
a local feel to the channel, conforming to the highest television
editorial and
production
standards. A language agnostic version may be made available
for
smaller
markets as agreed between the Parties. The channel shall be produced
in
accordance
with broadcast quality production values including “mobile
sized”
sensual
clips, with captivating fillers and entertaining bumpers. The channel
shall
consist
of segmented programming, just like on television networks and
will
feature
quality
brands and top tier content.
2.
The Parties also intend to include a ‘Playboy’ channel which will be
included in
this
Content Schedule upon agreement in writing (which shall include
agreement
by
email)
by the Parties. The ‘Playboy’ channel shall take the form of a two hour
loop,
updated
by the Content Provider 5 days per week (Monday-Friday), or a
suitable
refresh
rate which suits both the delivery requirements and commercial
customer
proposition
and is agreed by both parties with the intent of offering the above
refresh
rate
when commercially and technically viable. The channel shall be
presented
by a
local
presenter and/or local graphics will ensure a local feel to the
channel,
conforming
to the highest television editorial and production standards. A
language
agnostic
version may be made available for smaller markets as agreed between
the
parties.
The channel shall consist of broadcast quality production values
including
“mobile
sized” sensual clips, with captivating fillers and entertaining
bumpers.
Content
Provider confirms that it understands the difference between US
and
local
European
tastes and will ensure that the Content fully reflects this
difference.
No
third party advertising shall be included in the Content unless
otherwise
specified
by
VGSL.
|
|
|
|
3.
Content
Provider Branding
Guidelines
|
|
The
Content Provider shall brand the Content in accordance with Section
2. of
this
Content
Schedule.
|
|
|
|
4.
Marketing
Materials
|
|
The
Content Provider will provide marketing materials as requested
by VGSL
and/or
the
Vodafone Group Companies from time to time.
|
|
|
|
5.
Content
Provider Revenue
|
|
For
‘Blue’, Content Provider Revenue shall be [INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2] of Net Revenue,
less all
the
Deductions.
It is understood that Deductions (if any) shall be deducted from
the
Content
Provider Revenue actually paid to the Content Provider in accordance
with
Clause
10.2.
For
‘Playboy’, Content Provider Revenue shall be [INFORMATION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2] of Net Revenue,
less all the
Deductions.
It is understood that Deductions (if any) shall be deducted from
the
Content
Provider Revenue actually paid to the Content Provider in accordance
with
Clause
10.2.
The
Content Provider and VGSL shall seek to agree reasonable commercial
models
for ‘promotional’ content and bundled content as and when requested by
VGSL or a
Vodafone
Group Company.
|
|
|
|
6.
Content
Protection
|
|
Clause
8.1 to 8.9 of the Master Agreement are not applicable. The Content
will be
streamed in H.263 or MPEG 4 or otherwise as decided by
VGSL.
|
|
|
|
7.
Hosting
|
|
Vodafone
shall be responsible for hosting the Content initially but the
Content
Provider agrees that on request by Vodafone, the Content Provider
shall be
responsible for hosting the Content at no additional cost to
Vodafone.
|
|
|
|
8.
Languages
|
|
As
per section 2 of this Content Schedule, the Content shall be presented
by
a local presenter and shall be available in a minimum of English,
French,
German, Italian and Spanish (EFIGS) and any other languages as
may be
reasonably requested by VGSL from time to time. A language agnostic
version of the Content shall be made available to those markets
where it
is not commercially viable to produce a non-EFIGS
language.
|
|
|
|
9.
Territories
|
|
‘Blue’
–
Worldwide
‘Playboy’
–
Worldwide excluding UK, Eire, Sweden, Austria, Italy, Australia,
New Zealand, Hong Kong, Thailand.
|
|
|
|
10.
Mobile
Devices
|
|
All
mobile devices.
|
|
|
|
11.
Format
|
|
The
Content Provider shall at its cost ensure that the Content is capable
of
supporting all Formats, which may be specified, by VGSL or the
Vodafone
Group
Companies
(the “Format”) from time to time. The Content Provider shall not change or
vary the Format without Vodafone‘s prior written
consent.
|
|
|
|
12.
Purchase
Options
|
|
Not
applicable.
|
|
|
|
13.
VGSL
Certification
|
|
Not
applicable
|
|
|
|
14.
Delivery
Timetables
|
|
As
requested by the Vodafone Group Companies. However the Content
Provider
should
be able to deliver the Content from 1 August 2005, or earlier depending
on
specific
market requirements.
|
15. Relevant
Contacts
|
|
The
Content Provider:
Technical
–
|
|
Camill
Sayadeh
Tel:.
+1 818 708 9995
Mob:
+1 818 723 2488
Fax:
+1 818 708 0598
camill@waatmedia.com
|
|
|
|
|
|
|
|
Commercial
–
|
|
Adi
McAbian
Tel:
+1 818 708 9995
Mob:
+1 818 644 1300
Fax.
+1 818 708 0598
adi@waatmedia.com
|
|
|
|
|
|
|
|
Financial
–
|
|
Lena
Barseghian
Tel:
+1 818 708 9995
Mob:
+1 818 652 6497
Fax:
+1 818 708 0598
lena@waatmedia.com
|
|
|
|
|
|
|
|
VGSL:
Commercial
– Andrew Stalbow
|
|
Tel:
+44 207 212 0591
Mob:
+44 7717 618 919
Fax:
+44 207 212 0701
E-mail:
andrew.stalbow@vodafone.com
|
16.
Tax
Residence
|
|
The
same country as the registered address of the Content Provider
set out
above.
|
|
|
|
17.
Content
Provider’s bank
account
details for electronic
transfer
payments
|
|
Payment
by VGSL to the Content Provider shall be made by BACS to the following
bank account:
EAST
WEST BANK
18321
Ventura Blvd. Tarzana, CA 91356
Account
Name: The Waat Corporation
|
|
|
Account
Number: 8270-2648
ABA#
322070381
The
currency of this Agreement shall be in Euros. All financial reports,
statements,
invoices,
charges and payments made by one Party to the other shall be in
Euros.
|
|
|
|
18.
Special Conditions
|
|
1.
The Content Provider will comply with all VGSL/Vodafone content
standards
guidelines and policies as have been worked on in conjunction with
the
Content Provider and / or have been provided to the Content Provider
as
may change from time to time. Content Provider agrees that Content
provided in accordance with Section 2 of this Content Schedule
will vary
according to the Content Standard rating in each Territory, and
that
Content supplied shall always adhere to such rating as-agreed by
the
Vodafone Group Company locally. Content Provider shall also provide
reasonable assistance to help create such standards and guidelines
as
agreed from time to time.
|
|
|
|
|
|
The
current Content Standards Classification Matrix and associated
Vodafone
Group Company ratings dated April 2005 is attached. The Content
Provider
acknowledges that this will be updated and will change over time,
and that
the Content Provider is responsible for ensuring it delivers Content
in
accordance with the rating specified by each Vodafone Group Company
as
such rating may be amended from time to time.
Where
a Vodafone Group Company has indicated in the Content Standards
Classification Matrix that Content with a higher rating than other
Content
may be provided behind its access controls solution, the Content
Provider
shall ensure that higher rated Content is only accessible behind
the
access controls solution.
2.
The Commencement Date for each individual Contract may, at the
election of
each relevant Vodafone Group Company, be either: (a) the Commencement
Date
as defined in the Master Agreement; (b) 29 September 2003; or (c)
a date
In between (a) and (b) specified by each relevant Vodafone Group
Company.
3.
Clause 15.2 of the Master Agreement shall not apply to this Content
Schedule.
4.
In addition to its obligation in Clause 6.7 of the Master Agreement,
Content Provider shall be responsible for obtaining all licences,
clearances, permissions, waivers, approvals or consents required
in order
to enable Vodafone and VGSL to exercise the rights granted to VGSL
and
Vodafone in the Master Agreement and each relevant Contract including
without limitation, obtaining any necessary clearances and consents
from,
making royalty or other payments to the owners of the applicable
Intellectual Property Rights (including payment of any Collecting
Society
Royalties). In the event that VGSL or Vodafone is required to obtain
any
clearances and consents or to make royalty or other payments, Content
Provider
shall
reimburse VGSL and Vodafone for any costs incurred in obtaining
such
clearances
and consents and for the amounts of such royalties or other payments.
5.
In the event that the Content contains any Intellectual Property
Rights in
which the Content Provider has not been able to obtain all licences,
clearances, permissions, waivers, approvals or consents referred
to in
Special Condition 4 above, Content Provider shall notify VGSL and
Vodafone
and shall give VGSL and Vodafone the option of including alternative
content.
|
Signed
on behalf of VGSL:
|
|
|
Signed
on behalf of Content Provider:
|
/s/ Graeme
Ferguson
|
|
|
/s/ Camill
Sayadeh
|
VGSL
authorised signatory
Print
name: Graeme Ferguson
Position:
Director of Global Content Development
Date
signed:
13
th
July 2005
|
|
|
Content
Provider authorised signatory
Print name: Camill Sayadeh
Position: COO
D
ate
signed: July 5
th
2005
|
|
|
|
|
*WE
HAVE REQUESTED CONFIDENTIAL TREATMENT OF CERTAIN PROVISIONS CONTAINED IN
THIS
EXHIBIT. THE COPY FILED AS AN EXHIBIT OMITS THE INFORMATION SUBJECT TO
THE
CONFIDENTIALITY REQUEST.*
Contract
Acceptance Notice - Agency
To:
|
WAAT
Media Corporation, United States of America, registered no. 2512380
and
Address:
18226 Ventura Blvd. Suite 102 Tarzana, Ca 91356
Attention:
Camill Sayadeh
Fax:
+1 818 708 0598
|
From
the Vodafone Group Company
identified
opposite:
|
Vodafone
D2 GmbH
Am
Seestern 1
40547
Düsseldorf
Germany
|
CC:
|
Vodafone
Group Services Limited
Vodafone
House
The
Connection,
Newbury,
Berkshire RG14 2FN
United
Kingdom
Attention:
Executive Head of Content Development (Graeme Ferguson)
Fax:
+44 207 212 0312
|
Territory
|
[Note
that this Territory must form part of the Territory as defined in
this
Content Schedule or this notice is not
valid]
|
We
accept
the Standing Offer set out in the Master Agreement entered into between you
and
VGSL dated 17 December 2004 (entitled “Vodafone Master Global Content Agency
Terms and Conditions”), a copy of which (together with any relevant Content
Schedules) we have seen.
Signed
on behalf of:
The
Vodafone Group Company
Identified
above
|
|
|
|
|
|
|
|
|
|
|
|
Print
signatories’ name: Erik Friemuth
|
|
|
|
|
|
|
|
Position:
Director Vodafone Live!
|
|
|
|
|
|
|
|
Date
signed:
|
|
|
|
NB
-
Prior to signing this Contract Acceptance Notice, the Vodafone Group Company
must
be
sent copies of the final,
signed
versions of: (1) Terms and Conditions; and (2) Content
Schedule(s).
Contract
Acceptance Notice - Agency
To:
|
WAAT
Media Corporation, United States of America, registered no. 2512380
and
Address:
18226 Ventura Blvd. Suite 102 Tarzana, Ca 91356
Attention:
Camill Sayadeh
Fax:
+1 818 708 0598
|
From
the Vodafone Group Company
identified
opposite:
|
Vodafone
Sverige AB
371
80 Kariskrona
Sweden
Attention:
Head of Content Services (Anders Jensen)
Fax:
+48 455 331375
|
CC:
|
Vodafone
Group Services Limited
Vodafone
House
The
Connection,
Newbury,
Berkshire RG14 2FN
United
Kingdom
Attention:
Executive Head of Content Development (Graeme Ferguson)
Fax:
+44 207 212 0312
|
Territory
|
[Note
that this Territory must form part of the Territory as defined
in this
Content Schedule or this notice is not
valid]
|
We
accept
the Standing Offer set out in the Master Agreement entered into between you
and
VGSL dated 17 December 2004 (entitled “Vodafone Master Global Content Agency
Terms and Conditions”), a copy of which (together with any relevant Content
Schedules) we have seen.
Signed
on behalf of:
The
Vodafone Group Company
Identified
above
|
|
|
|
|
|
|
|
|
|
|
|
Print
signatories’ name: Anders Jensen
|
|
|
|
|
|
|
|
Position:
Head of Content Services
|
|
|
|
|
|
|
|
Date
signed: 22/12/04
|
|
|
|
NB
-
Prior to signing this Contract Acceptance Notice, the Vodafone Group Company
must
be
sent copies of the final,
signed
versions of: (1) Terms and Conditions; and (2) Content
Schedule(s).
Master
Global Content Reseller Agreement
between
Vodafone
Group Services Limited
and
The
WAAT Corporation
VODAFONE
MASTER GLOBAL CONTENT RESELLER TERMS AND CONDITIONS (the “Master
Agreement”)
1.
|
BACKGROUND
AND STRUCTURE
|
1.1.
|
The
Content Provider owns or otherwise has the right to exploit certain
Content suitable for provision to Vodafone Group Companies for
distribution and sale by those companies to their
Customers.
|
1.2.
|
All
Content offered by the Content Provider from time to time under this
Master Agreement shall be set out in Content Schedules signed by
VGSL and
the Content Provider. The Parties intend that each Vodafone Group
Company
wishing to distribute and/or resell some or all of such Content enters
into a separate Contract with the Content Provider in accordance
with the
process set out in Clause 2.
|
1.3
|
The
Parties acknowledge and agree that:
|
1.3.1
|
VGSL
shall not be liable to the Content Provider in respect of any obligations
owed to the Content Provider by any other Vodafone Group Company
pursuant
to a Contract; and
|
1.3.2
|
the
Content Provider shall not be liable to VGSL in respect of any obligations
owed to another Vodafone Group Company by the Content Provider pursuant
to
a Contract.
|
2.
|
FORMATION
OF CONTRACTS
|
2.1
|
This
Master Agreement is a standing offer by the Content Provider to all
Vodafone Group Companies to acquire and resell to Customers the Content
on
the terms of this Master Agreement.
|
2.2
|
Any
Vodafone Group Company may, but is not obliged to, accept the Standing
Offer by completing and signing the attached Contract Acceptance
Notice.
|
2.3
|
A
Contract is formed between the Content Provider and a Vodafone Group
Company when the Content Provider receives the Contract Acceptance
Notice
signed on behalf of that Vodafone Group Company. Where a Vodafone
Group
Company is already party to a Contract with the Content Provider
and the
Content Provider enters into a new Content Schedule with VGSL. such
new
Content Schedule shall be deemed to be added to such Contract on
the date
that the Vodafone Group Company first acquires, promotes, advertises,
distributes or resells the Content featured in such new Content Schedule.
Under each Contract Vodafone appoints VGSL as its agent to agree
with the
Content Provider any amendments to any Content Schedule (and therefore
Contract) but only to the extent that such amendments do not impose
additional obligations on Vodafone.
|
2.4
|
The
Standing Offer shall lapse upon termination or expiry of this Master
Agreement for any reason and is not otherwise revocable by the Content
Provider.
|
3.
|
APPOINTMENT
AND DELIVERY
|
3.1
|
The
Content Provider appoints Vodafone as its non-exclusive authorised
distributor and reseller in the Territory to promote, advertise,
distribute and sell the Content (or licences thereof) on and in the
Directory.
|
3.2
|
The
Content Provider shall at all times provide to Vodafone Content compliant
and compatible with the Format, the Integration Guidelines, the Mobile
Devices and in the Languages.
|
3.3
|
The
Content Provider shall provide the Content to Vodafone in accordance
with
any applicable Delivery Timetable.
|
3.4
|
Where
a Content Schedule provides that the Content is to be compliant with
the
Application Submission Criteria for QA, such Content shall be delivered
to
Vodafone only after it has been certified by a QA Company as complying
with the Application Submission Criteria for
QA.
|
3.5
|
The
Content shall not be featured on the Directory until it has successfully
completed any testing procedures required by Vodafone. The Content
Provider shall bear all the costs and expenses incurred in connection
with
any testing of the Content required by Vodafone (including, but not
limited to, any quality assurance testing undertaken by the QA
Company).
|
4.1
|
Unless
otherwise agreed in writing with Vodafone, the Content
shall:
|
4.1.1
|
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
|
4.1.2
|
not
require a Customer to provide any personal information or data to
the
Content Provider as a condition to
access.
|
4.2
|
Subject
to Clauses 4.3, 4.4 and 4.5, the Content Provider has full editorial
control over the Content.
|
4.3
|
The
Content Provider shall not change or vary the Content or the Format
in a
material way without VGSL’s prior written consent. The Content shall
comply with the Guidelines as updated by VGSL from time to time upon
reasonable notice to the Content
Provider.
|
4.4.1
|
the
Content (or any part thereof) breaches any of the
Guidelines;
|
4.4.2
|
Vodafone
receives complaints regarding any of the Content or the Content Provider
which it considers to be of such seriousness or number as to be
prejudicial to the brand or reputation of Vodafone or other Vodafone
Group
Companies; or
|
4.4.3
|
errors
are identified in the Content or the Content (or any part thereof)
breaches any other provision of this Master Agreement or a Contract,
then,
without prejudice to its other rights and remedies, Vodafone may
require
the Content Provider to use its reasonable endeavours to amend or
to
replace the Content with content which is acceptable to Vodafone,
acting
reasonably.
|
4.5
|
Vodafone
is entitled to alter the format, layout or form of display of the
Content:
|
4.5.1
|
to
the extent necessary or desirable to allow the Content to be presented
to
Customers on the Directory or in downloaded form in an attractive
or
easy-to-use/view fashion; and
|
4.5.2
|
to
comply with any Vodafone security, safety or other integrity process
or
requirement.
|
4.6
|
Vodafone
is entitled (without the consent of the Content Provider) to offer
Preview
Options to Customers in respect of the Content. Preview Options shall
not
be treated as Chargeable Events.
|
4.7
|
The
Content Provider shall ensure that the Content shall not contain
any form
of advertising for any goods or services and the Content Provider
agrees
that it shall have no right to include any form of advertising in
the
Content other than branding agreed to be incorporated in the Content
pursuant to the Content Provider Branding
Guidelines.
|
4.8
|
Vodafone
may, with the written agreement of the Content Provider, offer to
Customers promotions in respect of the Content and such offers shall
not
be treated as Chargeable Events (unless otherwise expressly agreed
in
writing with the Content Provider).
|
4.9
|
The
Content Provider agrees that Vodafone does not have an obligation
to place
the Content on the Directory or, once placed, retain the Content
on the
Directory or to make the whole or any part of the Content available
to
Customers or to make the Content available in all or any of the
Territories. Furthermore, Vodafone shall be entitled, but not obliged,
to
market and promote the Content to
Customers.
|
4.10
|
The
Content Provider acknowledges that a Customer of a Directory in a
Territory may as a result of international roaming or cross-border
signal
leakage be able to access that Directory, and access the Content,
outside
of the Territory. Such access, distribution or provision of the Content
shall be permitted under this Master Agreement and the provisions
relating
to the Territory shall be interpreted
accordingly.
|
4.11
|
As
between VGSL, Vodafone and the Content Provider, the Content Provider
accepts responsibility for all matters relating to the provision
or
non-provision of the Content to Customers. For the avoidance of doubt,
neither VGSL nor Vodafone shall be under any obligation to review
any of
the Content to ascertain if it complies with the terms of this Agreement
and any legal, regulatory or other applicable
requirements.
|
4.12
|
The
Content Provider will use its best efforts to rectify bugs associated
with
any Content made available to Customers on the Directory at its own
expense and in accordance with the response and fix times set out
in the
Content Schedule. Where a particular error cannot be fixed the Content
Provider will provide an amended version free of
charge.
|
5.1
|
The
Content Provider acknowledges and agrees that the Directory and the
distribution of Content may depend upon factors beyond Vodafone’s control
including, but not limited to, factors affecting the operation of
the
Vodafone Network. Vodafone shall use reasonable endeavours to maintain
the
availability of the Directory twenty-four (24) hours a day, every
day of
the year but Vodafone shall not be liable for any failure to maintain
the
Directory in such manner whether this arises from a technical or
other
failure in the Directory, the Vodafone Network or otherwise. Vodafone
does
not warrant that the Directory of the Vodafone Network will be free
of
errors, faults or interruptions.
|
5.2
|
Vodafone
reserves the right from time to time to improve or otherwise alter
the
Directory as it deems appropriate (including changes to the category
structure or channels). Vodafone reserves the right to suspend the
operation of the Directory for the purposes of remedial or preventative
maintenance or improvement of the
Directory.
|
5.3
|
Vodafone
may at any time during the term of a Contract, without incurring
any
liability to the Content Provider, temporarily or permanently suspend,
disconnect, remove or bar access to: (a) the Directory; or (b) the
Content
(or any part thereof) on the Directory. Vodafone shall give the Content
Provider notice of any such action.
|
5.4
|
Without
prejudice to its other rights under a Contract, Vodafone shall be
entitled
to move the Content to, or place the Content in, any section of the
Directory as it considers
appropriate.
|
6.
|
INTELLECTUAL
PROPERTY RIGHTS AND
BRANDING
|
6.1
|
The
Content Provider grants to VGSL and Vodafone a non-exclusive,
non-transferable (except to an assignee in accordance with the terms
of a
Contract) royalty-free (except for the payments specified in Clause
10)
licence in the Territory (subject to Clause 4.10)
to;
|
6.1.1
|
use,
store, reproduce, display, distribute, transmit, broadcast and/or
otherwise communicate and/or make available to the public the Content
through various technologies (including without limitation WAP, SMS,
MMS
and IM);
|
6.1.2
|
use
the Content Provider Marks to display, promote and advertise the
Content
in accordance with the Content Provider Branding Guidelines;
and
|
6.1.3
|
use
the Marketing Materials to promote and advertise the Content in accordance
with Clause 6.2.
|
6.2
|
The
Content Provider shall provide to VGSL as soon as practicable the
Marketing Materials. VGSL and each Vodafone Group Company shall be
entitled to use the Marketing Materials as
follows:
|
6.2.1
|
for
internal purposes within the Vodafone Group (including, without
limitation, featuring on
www.vodafonebrand.com
and, where Content is Java-based, on VGSL’s Java repository) and as a
record of marketing relating to the Directory, without the prior
consent
of the Content Provider;
|
6.2.2
|
in
respect of advertising and marketing for and of the Content on television
and radio, in the press, on billboards and other outdoor media and
in
advertising in cinemas, with the prior consent of the Content Provider
(such consent not to be unreasonably withheld or delayed - in the
absence
of reasonable refusal within seven days of request, consent shall
be
deemed to have been given); and
|
6.2.3
|
in
respect of all advertising or marketing for and of the Content not
specified in Clause 6.2.2 (including, without limitation, featuring
in the
Vodafone section of
www.java.com
where the Content is Java based), without the prior consent of the
Content
Provider.
|
6.3
|
All
use of the Content Provider Marks shall be for the benefit of Content
Provider and, save insofar as use of the Marketing Materials is permitted
under Clause 6.2, in accordance with the reasonable terms of use
generally
applied by the Content Provider to its own activities and applying
to
licensees of the Content Provider Marks as
notified
to Vodafone and VGSL in the Content Provider Branding
Guidelines.
|
6.4
|
For
the avoidance of doubt, neither VGSL nor any Vodafone Group Company
is
obliged to conduct any advertising, marketing or promotion for or
in
relation to the Content.
|
|
|
6.5
|
Except
as specifically authorised in a Contract or by this Clause 6, neither
Party shall use the other Party's name or trade marks (including
in the
case of the Content Provider, the "Vodafone" name and any trade mark
of
any Vodafone Group Company) without the other's prior written
consent.
|
|
|
6.6
|
Each
Vodatone Group Company shall be entitled to sub-license its rights
under
this Clause 6 to:
|
|
|
6.6.1
|
any
other Vodafone Group Company;
|
|
|
6.6.2
|
any
Customer to the extent necessary to enable that Customer to exercise
those
rights in connection with the Content as are associated with a Chargeable
Event; and
|
|
|
6.6.3
|
any
service provider if that Vodafone Group Company outsources all or
part of
the provision or management of the Directory. Such outsourcing contractor
shall be allowed to use the rights granted under this Clause 6 subject
to
that Vodafone Group Company remaining responsible for the acts or
omissions of the outsourcng contractor.
|
|
|
6.7
|
Title
to and ownership of all Intellectual Property Rights embodied by
or
otherwise incorporated into the Content shall remain with the Content
Provider or its licensor(s) and the Content Provider shall be responsible
for obtaining all licences, clearances, permissions, waivers, approvals
or
consents required in order to grant the licences required under Clause
6.1, including, without limitation, obtaining any necessary clearances
and
consents from, and making royalty or other payments to, the owners
of the
applicable Intellectual Property Rights (including payment of any
Collecting Society Royalties).
|
|
|
7.
|
TECHNICAL
AND CUSTOMER SUPPORT
|
|
|
7.1
|
Vodafone
shall provide First Line Customer Support in respect of the Content
and
the Content Provider shall provide Second Line Customer Support in
respect
of the Content. The Content Provider authorises Vodafone to refer
any
Second Line Customer support inquiries to the Content Provider's
nominated
Relevant Contacts.
|
|
|
7.2
|
The
Content Provider shall not be required to provide support directly
to any
Customers.
|
|
|
7.3
|
The
following ratings shall be used by the Parties to determine the priority
of incidents and the Content Provider's corresponding obligation
to
respond and resolve such incidents involving the Content and other
services delivered or under the responsibility of the Content
Provider.
|
|
|
7.3.1
|
Priority
1 (Critical);
Complete failure of the hosting service under Clause 9, the Content
or a
significant part of the Content or the problem creates a definite
business
or financial exposure or affects a large number of Customers. Response
within ten (10) minutes and resolution within two (2)
hours;
|
|
|
7.3.2
|
Priority
2 (High);
Content not totally down, but the affected components form a significant
part of the functionality of the Content and the problem creates
a
possible business or financial exposure. Response within thirty (30)
minutes and resolution within eight (8) hours; and
|
|
|
7.3.3
|
Priority
3 (Medium):
The Content is largely available and the problem has little or no
effect
on the services provided by the Content and the problem creates no
business or financial exposure. Response time within three (3) hours
and
resolution time within two (2) business days.
|
|
|
8.
|
CONTENT
PROTECTION
|
|
|
8.1
|
These
Clauses 8.1 to 8.8 (inclusive) shall only apply in the circumstances
where
a Content Schedule provides that Vodafone is responsible for providing
the
agreed level of protection for the Content.
|
|
|
8.2
|
Vodafone
shall put in place the agreed DRM specified in the DRM
Guidelines.
|
|
|
8.3
|
Nothing
in this Master Agreement or any Content Schedule or Contract shall
affect
any rights of action that the Content Provider or any Vodafone Group
Company may have under any applicable law in the Territory
against:
|
|
|
8.3.1
|
the
circumvention of the DRM put in place by Vodafone pursuant to Clause
8.2
or other technological measures put in place by the Content Provider
pursuant to Clause 9.6;
|
|
|
8.3.2
|
any
device, product or component or the provision of services for
circumvention of such DRM or other technological
measures;
|
|
|
8.3.3
|
removal
or alteration of any Rights associated with Protected Content;
or
|
|
|
8.3.4
|
distribution,
importation, broadcasting, communication or making available to the
public
of Protected Content from which Rights have been removed or altered
without authority
|
|
|
|
(collectively,
the "Anti-Circumvention Rights").
|
|
|
8.4
|
For
the avoidance of doubt, neither VGSL, nor any Vodafone Group Company
is
obliged to exercise its Anti-Circumvention Rights in relation to
the
Protected Content.
|
|
|
8.5
|
The
Content Provider acknowledges that in order to carry out its obligations
under this Clause 8, Vodafone may need to:
|
|
|
8.5.1
|
substantially
adapt any Protected Content distributed via the Vodafone Network
to make
it or a part of it deliverable to the recipient's Mobile Device;
or
|
|
|
8.5.2
|
override
any copy protection or similar measures incorporated into the Content
delivered to VGSL or Vodafone (including without limitation copy
protection measures supported by SMAF formats) to make such Content
deliverable to Customers as Protected Content.
|
|
|
8.6
|
The
Content Provider provides its irrevocable consent to any such adaptation
or overriding undertaken as Vodafone may reasonably determine is
necessary
for the purpose of transmission or delivery of the Content and to
any
transient copying undertaken in the process of transmission or delivery.
The Content Provider agrees that the existence and validity of this
Master
Agreement shall be conditional upon such consent. For the purposes
of this
Clause 8.6 and Clause 8.5.1 the term “adaptation” includes, without
limitation, the conversion of a video message into a series of still
images, the removal of all or part of the Content and the insertion
of a
link to a URL.
|
8.7
|
Neither
VGSL nor Vodafone warrants that the DRM put in place pursuant to
Clause
8.2 will prevent Protected Content being unlawfully accessed, copied,
distributed or used. In particular, the Content Provider acknowledges
that
the security of such DRM depends upon the robust implementation of
industry standards by third parties, in particular, the Mobile Device
manufacturers. Neither VGSL nor Vodafone can guarantee that such
standards
have been implemented correctly or to a sufficiently high standard
by such
third parties.
|
|
|
8.8
|
Vodafone
shall use its reasonable endeavours to identify the make and model
of
Mobile Devices to which the Protected Content is distributed with
the
intention of only distributing such Protected Content to the Mobile
Devices specified In the Content Schedule (Specified Mobile Devices)
purporting to support the DRM specified in the DRM Guidelines. Vodafone
does not warrant the authenticity of any Mobile Device identification
information and the Content Provider acknowledges and accepts the
risk
that third parties may seek to defraud Vodafone and the Content Provider
by misrepresenting such information.
|
|
|
9.
|
HOSTING
|
|
|
9.1
|
These
Clauses 9.1 to 9.7 (inclusive) shall only apply in the circumstances
where
a Content Schedule provides that the Content Provider is responsible
for
hosting the Content.
|
|
|
9.2
|
The
Content Provider shall host the Content on the Platform (which shall
include provision of application monitoring, application support
and fault
and change management).
|
|
|
9.3
|
The
Content Provider shall provide sufficient redundancy in services
and
infrastructure in order to maintain the Content. The Content Provider
shall collect and process appropriately all data relating to Chargeable
Events and provide this data to VGSL on request. The Content Provider
shall perform daily backups of all data regarding Chargeable Events
and be
able to recover to the last backup. Backups shall be treated in accordance
with industry standard security.
|
|
|
9.4
|
Notwithstanding
obligations under Data Protection Legislation, all facilities associated
with the hosting of the Content, the Content data and the transmission
of
that data shall ensure security commensurate with the sensitivity
of the
data being processed and the service being provided. The Content
Provider
is responsible for obtaining and maintaining the Content and the
Platform.
|
|
|
9.5
|
The
Content Provider shall:
|
|
|
9.5.1
|
ensure
that viruses are not introduced to the Platform;
|
|
|
9.5.2
|
respond
to all virus attacks and destroy any virus detected on the Platform,
document each incident and report the details immediately to Vodafone;
and
|
|
|
9.5.3
|
scan
all incoming computer media for viruses before they are read by any
hardware associated with the Content.
|
|
|
9.6
|
The
Content Provider shall take all reasonable measures to prevent unlawful
or
unauthorised access to the Content Provider computer systems associated
with the Content and the Content data and Content backups (including
in
the circumstances where a Content Schedule provides that the Content
Provider is responsible for protecting the Content, technological
measures
designed to prevent unlawful or unauthorised use, copying or
redistribution of the Content by Customers or any other person).
Where
appropriate this shall include use of locking devices, firewalls,
shared
secrets, digital certificates, password protection, and content filtering,
encryption and intrusion detection.
|
|
|
9.7
|
Where
the Content Provider materially or persistently falls to meet any
of the
KPI levels set out in the Content Schedule or any Guidelines relating
to
its service under this Clause 9, without prejudice to its other rights
and
remedies and for the avoidance of doubt Vodafone shall be entitled
to
temporarily suspend or disconnect the Content Provider or remove
or bar
access to the Content (or any part thereof) on the Directory to its
Customers until such time as the Content Provider can show to Vodafone's
reasonable satisfaction that it has taken reasonable steps to resolve
the
problem.
|
|
|
10.
|
PRICING,
REVENUE AND PAYMENTS
|
|
|
10.1
|
Vodafone
determines the price at which it sells, licenses or otherwise distributes
the Content to Customers in the Territory (including in the case
of
Protected Content the price attributed to each of the Purchase Options).
Vodafone shall consider any reasonable recommendations from the Content
Provider when determining such price. Vodafone may include the Content
in
a bundle or package of other content as a single or combined offering
to
the Customer, In which event the Gross Revenue applicable to the
Content
shall be an appropriate proportion of the relevant charge for such
bundle
or package, as reasonably determined by Vodafone.
|
|
|
10.2
|
Vodafone
shall pay to the Content Provider the Content Provider Revenue less
Deductions in accordance with the procedure set out in this Clause
10.
Save as otherwise notified to the Content Provider, VGSL shall act
as each
relevant Vodafone Group Company's agent for the purposes of paying
such
sums.
|
|
|
10.3
|
Vodafone
shall not be obliged to make any payment in respect of any Chargeable
Event unless and/or until the Customer has paid for the Content in
full.
|
|
|
10.4
|
If
Vodafone maintains a repository within a particular Territory containing
details of Content purchased by a Customer in such Territory, Vodafone
shall be entitled to provide such Content free of charge to any Customer
in that Territory where such Customer has already been charged for
such
Content.
|
|
|
10.5
|
Save
as otherwise notified to the Content Provider, VGSL shall, on behalf
of
Vodafone, no later than thirty (30) days after the end of the month
in
which the relevant Chargeable Events were incurred (it being acknowledged
that, where the Content Provider hosts the Content, the Content Provider
will need to provide the relevant information to VGSL in a timely
manner
to allow VGSL to meet its obligations under this Clause
10.5):
|
|
|
10.5.1
|
generate
and send to the Content Provider's Relevant Contact for finance matters
monthly reports showing the calculation of the Content Provider Revenue
for the relevant month; and
|
|
|
10.5.2
|
(where
relevant) issue and send to the Content Provider's Relevant Contact
for
finance matters a monthly purchase order in respect of the Content
Provider Revenue for the relevant month.
|
|
|
10.6
|
The
Content provider shall, upon receipt from VGSL of the report specified
in
clause 10.5.1 on behalf of Vodafone, issue an invoice in respect
of the
applicable Content Provider Revenue in the name of each applicable
Vodafone Group Company and send such invoices to VGSL (or directly
to the
relevant Vodafone Group Company, if so directed by
VGSL).
|
10.7
|
Unless
an amount is in bona fide dispute, the Parties shall pay all sums
owed to
each other under a Contract within sixty (60) days of receipt of
a valid
invoice for the relevant sum.
|
|
|
10.8
|
Where
Vodafone receives any complaint from a Customer in relation to the
Content, it may in its sole discretion decide to make a refund or
issue a
credit to such Customer in respect of the Chargeable Event. Where
such a
refund is issued or credited, or where a bad debt is incurred, after
the
relevant Content Provider Revenue has been paid to the Content Provider,
Vodafone shall be entitled to deduct from the calculation of Net
Revenue
for the following month the amount of such refund, credit or bad
debt less
any sums (other than Deductions) already received and retained by
Vodafone
in respect of such Chargeable Event.
|
|
|
10.9
|
Payment
by VGSL on behalf of Vodafone to the Content Provider shall be made
by
electronic transfer to the Content Provider's bank account specified
in
the relevant Content Schedule.
|
|
|
10.10
|
The
currency of this Master Agreement and each Contract shall be Euros.
All
financial reports, statements, invoices, charges and payments made
by one
Party to the other shall be in Euros. In respect of revenues generated
in
a Territory that does not have the Euro as its primary currency (a
"Non-Euro Amount'), Vodafone shall convert such Non-Euro Amount to
Euros
using the UK Financial Times average middle market exchange rate
calculated for the applicable month.
|
|
|
10.11
|
Where
a Party (the "Debtor") fails to pay another Party (the "Creditor)
any
amount due and payable under a Contract by the time prescribed by
the
Contract (the "Due Date"), the Creditor shall be entitled to give
the
Debtor written notice of its intention to charge interest. If payment
of
the amount due has still not been received by the Creditor within
14 days
of receipt of such notice by the Debtor, the Debtor shall on demand
by the
Creditor pay the Creditor interest on the unpaid amount at a rate
of 1%
per annum above the Euribor rate of interest (as prescribed by the
European Banking Federation) which is in force on the Due Date, calculated
from the Due Date until payment of the unpaid amount is made in full.
The
Parties acknowledge and agree that the interest payment mechanism
set out
in this Clause 10 is a substantial remedy.
|
|
|
11.
|
TAX
|
|
|
11.1
|
Vodafone
shall be entitled to make any deduction or withholding required by
law
from any payment payable under a Contract or any agreement between
Vodafone Group Companies entered into for the purposes of a Contract.
In
the event that a withholding tax or deduction is payable by Vodafone
in
respect of the Content Provider Revenue, Vodafone will pay the Content
Provider Revenue net of the required withholding or deduction to
the
Content Provider. Vodafone will supply to the Content Provider evidence
to
the reasonable satisfaction of the Content Provider that Vodafone
has
accounted to the relevant authority for the sum withheld or deducted
and
will provide all such assistance as may be reasonably requested by
the
Content Provider in recovering the amount of the withholding. In
the event
that a double taxation treaty applies which provides for a reduced
withholding tax rate, Vodafone shall only withhold and pay the reduced
tax
on behalf and for the account of the Content Provider if an appropriate
exemption certificate is issued by the competent tax authority and
provided to Vodafone.
|
|
|
11.2
|
If
Vodafone, in good faith, pays the Content Provider Revenue without
set-off, counterclaim, or required withholding or deduction and a
subsequent audit identifies that a withholding or deduction should
have
been made from the Content Provider Revenue, the Content Provider
shall be
liable to pay this withholding or deduction to the relevant authority
or
(if Vodafone makes the payment to the relevant authority) to Vodafone,
together with any interest and penalties due thereon and shall indemnify
Vodafone in respect of any such residual liability.
|
|
|
11.3
|
If
a Vodafone Group Company, in order to reduce the VAT Taxes due on
the
Content Charge, enters into a Contract with the Content Provider
and
sells, licenses or otherwise distributes the Content in a Territory
from
outside of that Territory, the following shall be deemed to be an
additional Deduction for the purposes of the Contract: the difference
between the valued added tax, turnover tax or other taxes included
in the
Content Charge, and, if higher, the prevailing rate of equivalent
taxes
that would otherwise be payable with respect to the Content in the
country
where the Customer purchased the Content.
|
|
|
11.4
|
The
Content Provider warrants and undertakes to Vodafone that it is tax
resident in the place indicated in every Content Schedule and shall
be
deemed to remain tax resident in that territory unless it notifies
Vodafone of a change of tax residency on thirty (30) days prior written
notice. The Content Provider shall on demand provide any documentation
required by Vodafone evidencing its tax residency in such
territory.
|
|
|
11.5
|
In
the event that Vodatone is not reasonably informed of a change in
tax
residence by the Content Provider, the Content Provider will indemnify
Vodafone against any costs (including but not limited to withholding
tax
and any accrued interest and penalties) incurred by Vodafone due
to such
failure to inform.
|
|
|
11.6
|
Content
Provider Revenue shall be exclusive of any applicable VAT
Tax.
|
|
|
11.7
|
If
any VAT Tax is chargeable by the Content Provider in respect of any
amount
payable by Vodafone under this Master Agreement or any Contract,
the
Content Provider shall provide Vodafone with an invoice that specifically
states such VAT Tax and (if a relief procedure is available) meets
all
further conditions required by applicable law which are necessary
to allow
Vodafone to obtain relief from such VAT Tax. Vodafone shall, upon
receipt
of such invoice, pay to the Content Provider such VAT Tax at the
rate then
properly chargeable in respect of the relevant payment.
|
|
|
11.8
|
If
the Content Provider provides Content or services under a Contract
from
outside of the European Union to Vodafone. the Content Provider shall
provide to Vodafone a reasonable explanation of the nature of any
applicable VAT Tax charged by the Content Provider under the Contract,
the
rate of such VAT Tax and the processes by which Vodafone can obtain
relief
for such VAT Tax.
|
|
|
|
If
the Content Provider has incorrectly charged VAT Tax to Vodafone
under a
Contract then the relevant invoice shall be corrected as soon as
practicable and: (a) where Vodafone has overpaid the VAT Tax, the
Content
Provider will repay to Vodafone the overpayment of VAT Tax; and (b)
where
Vodafone has underpaid the VAT Tax, Vodafone shall pay the outstanding
amount upon receipt of a valid invoice. Payments under (a) and (b)
shall
be made in accordance with Clauses 10.7 and
10.11.
|
11.10
|
In
the circumstances set out in section (b) of Clause 11.9 the Content
Provider shall reimburse Vodafone for any
and
all costs, charges, VAT Taxes and related interest
and
penalties relating to such underpayment, save to the
extent
that Vodafone is (acting reasonably) able to
recover
such amounts from the applicable authorities.
|
|
|
12.
|
REPORTING
AND AUDIT
|
|
|
12.1
|
Each
Party shall, during the term of a Contract, deliver to the other
upon its
reasonable written request access to
and
copies of such information that the other may
reasonably
require to perform its obligations (or to verify that the other Party
is
performing its obligations) under a
Contract.
|
|
|
12.2
|
Vodafone
and the Content Provider shall, at their own
expense
and upon 30 days' prior written notice, have the
right
to appoint an independent auditor solely for the
purposes
of verifying the accuracy of any financial report
or
statement issued by the other Party under a Contract. If
such
audit
subsequently
reveals
any
financial
discrepancy,
the audited Party shall rectify such discrepancy within thirty (30)
working days after
notification
of the discrepancy. Each Party shall only be entitled to utilize
this
provision once in any twelve (12)
month
period of a Contract.
|
|
|
13.
|
WARRANTIES
|
|
|
13.1
|
The
Content Provider warrants and undertakes to VGSL
and
Vodafone that:
|
|
|
13.1.1
|
it
has
full right and authority to enter into this Master Agreement and
any
Contract and that its entry into this
Master
Agreement and any Contract does not breach any
third
party's rights or any other agreement to which it is a
party;
|
|
|
13.1.2
|
it
shall implement and comply with any Guidelines
provided
from time to time by VGSL or any other
Vodafone
Group Company to the Content Provider which
relate
to:
|
|
|
13.1.2.1
|
content
standards (including anti-social, adult, fraudulent,
unlawful
or otherwise inappropriate content) and, in
particular,
shall clearly classify the Content in accordance
with
the adult content classification framework criteria
agreed
between the Content Provider and VGSL;
|
|
|
13.1.2.2
|
access
or use of the Directory by Customers (including anti-social, fraudulent,
underage, unlawful or improper
use);
or
|
|
|
13.1.2.3
|
the
Vodafone Network and/or any mobile device;
|
|
|
13.1.3
|
it
shall not act in a way which shall impair or put in
jeopardy
the operation of the Directory, the Vodafone
Network,
any mobile device or any part of them;
|
|
|
13.1.4
|
it
has the necessary licences, consents, permissions or approvals to
operate
and to grant Vodafone the rights to
use
the Content, the Marketing Materials and the Content
Provider
Marks in accordance with the terms of a
Contract;
|
|
|
13.1.5
|
it
shall use reasonable skill and care in carrying out its obligations
and
exercising its rights under a Contract
and/or
this Master Agreement; and
|
|
|
13.1.6
|
it
shall comply with all applicable laws and regulations
when
performing its obligations under this Master
Agreement
and/or a Contract.
|
13.2
|
The
Content Provider warrants and undertakes to VGSL
and
Vodafone that the Content shall:
|
|
|
13.2.1
|
be
of satisfactory quality and be kept fresh, updated and
current
(with reference to the nature of the Content's
subject
matter) and shall not be factually inaccurate;
|
|
|
13.2.2
|
not
infringe any third party's rights (including intellectual
Property
Rights);
|
|
|
13.2.3
|
not
offend taste or decency, nor be defamatory, obscene.
racist,
materially inaccurate, be so violent or abusive in
nature
as to be reasonably likely to cause serious offence i
n
Vodafone's opinion, or otherwise be in breach of any
applicable
law, regulation or code of conduct or result in Vodafone or any Vodafone
Group Company being in breach of any law;
|
|
|
13.2.4
|
not
result in Vodafone or any other Vodafone Group Company being held
to carry
out any regulated activity in the applicable Territory including
but not
limited to any
gambling
service, betting service or lottery (where
“regulated
activity” means any activity requiring specific
governmental
authorisation or license, other than the
provision
of
telecommunications
or
electronic
communications
services);
|
|
|
13.2.5
|
not
contain any content that promotes a Competitor or
criticises
Vodafone or any other company within the
Vodafone
Group, or otherwise bring Vodafone Group
Companies
into disrepute or damages the reputation or goodwill of Vodafone,
or any
other Vodafone Group Company or any trade mark of any Vodafone Group
Company In any of the Territories; and
|
|
|
13.2.6
|
not
contain any computer viruses, logic bombs, trojan
horses
and/or any other items of software which would
disrupt
the proper operation of the Directory, the Vodafone
Network
or any mobile device.
|
|
|
13.3
|
VGSL
warrants and undertakes that it has full right and
authority
to enter into this Master Agreement. Each
Vodafone
Group Company which executes the Contract
Acceptance
Notice warrants and undertakes that it has full
right
and authority to execute that Contract Acceptance
Notice.
|
|
|
13.4
|
The
Parties acknowledge that their respective obligations and liabilities
are
exhaustively defined in each Contract
and
this Master Agreement (as the context requires) and
that
to the extent permitted by law, the express obligations
and
warranties provided in each such Contract and this Master Agreement
are in
lieu
of
and
to the exclusion of
any
warranty,
condition,
term,
undertaking
or
representation
of any kind, express or implied, statutory or
otherwise
relating to anything supplied or provided or
services
performed under or in connection with each such
Contract
and/or this Master Agreement including (without
limitation)
as to the condition, quality, performance
satisfactory
quality or fitness for the purpose.
|
|
|
13.5
|
Save
as otherwise notified to the Content Provider, VGSL
shall
act as the single point of contact between the
Content
Provider and each Vodafone Group Company
entering
into a Contract including, without limitation. in
respect
of
any
claims made by the Content Provider or
such
a Vodafone Group Company under this Master Agreement or any
Contract.
|
|
|
14.
|
INTELLECTUAL
PROPERTY INDEMNITY
|
|
|
14.1
|
The
Content Provider shall indemnify Vodafone, VGSL and all other Vodafone
Group Companies from and against all losses, damages, costs, expenses,
claims,
proceedings
and liabilities (including legal costs calculated
on
a solicitor-client basis) sustained or incurred by
Vodafone
or any Vodafone Group Company arising out of
or
in connection with any claim or allegation that the
provision,
use, receipt or possession of the Content, the
Marketing
Materials and/or the Content Provider
Marks:
|
14.1.1
|
infringes
the Intellectual Property Rights, other proprietary
rights
or rights of publicity or privacy of a third party; or
|
|
|
14.1.2
|
is
defamatory, obscene, racist, materially inaccurate,
violent
or abusive in nature, or otherwise in breach of any
applicable
law, regulation or code of conduct.
|
|
|
14.2
|
If
any third party makes a claim or demand or brings an
action
against, or notifies an intention to make or bring a
claim,
demand or action against VGSL or any Vodafone
Group
Company which may give rise to a liability under
this
Clause 14 (in this clause, a “relevant claim”),
Vodafone
shall:
|
|
|
14.2.1
|
without
limiting the generality of this Clause 14, as soon as reasonably
practicable give written notice of the
relevant
claim to the Content Provider;
|
|
|
14.2.2
|
not
make any admission of liability, agreement or compromise in relation
to
the relevant claim (save where
required
by law, legislation, court order or governmental
regulations)
which may be prejudicial to the defence or
settlement
of any claim, demand or action
by
VGSL,
a
Vodafone
Group Company or the Content Provider
without
the prior written consent of the Content Provider
(such
consent not to be unreasonably withheld or
delayed);
and
|
|
|
14.2.3
|
at
the request of the Content Provider and at the Content Provider's
cost,
afford all reasonable assistance for the
purpose
of contesting the relevant claim.
|
|
|
15.
|
LIABILITY
|
|
|
15.1
|
Except
for liability arising under Clauses 14.1 and 15.4, in
each
Contract Year the aggregate liability of each Party
for
all claims made under or in connection with a Contract,
whether
based on contract, tort, negligence or otherwise
shall
be limited to the greater of: (a) [INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]
or
(b) [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
UNDER RULE 24B-2] a
rising
under
the Contract in question in the Contract Year in which the applicable
liability is
sustained.
|
|
|
15.2
|
Except
for liability arising under Clauses 14.1 and 15.4,
the
total aggregate liability of: (a) the Content Provider to
VGSL
and Vodafone (together); and (b) VGSL and
Vodafone
(together) to the Content Provider, under this
Master
Agreement and all Contracts for all claims made
under
or in connection
with
this
Master
Agreement and all
Contracts,
whether based on contract, tort, negligence or
otherwise
shall (in each of the cases (a) and (b
))
be
limited
to [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
UNDER
RULE 24B-2]
.
|
|
|
15.3
|
Except
for liability arising under Clauses 14.1 and 15.4, in
no
circumstances shall a Party be liable for any indirect,
special
or consequential damages arising from breach of
contract,
negligence or other liability even i
f
the other
Party
had been advised or knew (or should have known)
of
the possibility of such damages.
|
|
|
15.4
|
Nothing
in this Master Agreement or a Contract excludes
a
Party's liability with respect to death or personal injury
resulting
from
negligence,
or excludes
a
Party's
liability for fraudulent misrepresentation or any other liability
to the
extent
that such liability may not be excluded or restricted
by
law.
|
16.
|
INSURANCE
|
|
|
16.1
|
Both
Parties agree that they carry and will maintain
throughout
the term adequate Insurance to cover such of
their
liabilities under this Master Agreement and each Contract. In particular
the Content Provider agrees to
keep
and maintain
products/liability
insurance to the value
of
US [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
UNDER
RULE 24B-2]
per
claim and third party intellectual property rights
insurance
to the value of US [INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION UNDER RULE 24B-2] pe
r
claim.
|
|
|
16.2
|
The
Content Provider shall ensure that the appropriate
noting
of VGSL’s and Vodafone’s Interests have been
recorded
on the Insurance Policies or a generic interest
clause
has been included, together with a waiver of
subrogation
and any right of contribution in favour of
VGSL
and Vodafone, and shall on the written request of
Vodafone
from time to time provide a certificate signed by
the
Content Provider's insurer or such insurer's appointed
agents
confirming that the Content Provider is insured in
accordance
with this Clause 16. On the renewal of any
Insurance
Policies, the Content Provider shall promptly
send
a copy of the premium receipt to VGSL, if so
requested.
|
|
|
16.3
|
The
Content Provider shall during the term of this
Agreement
and for a period of [INFORMATION OMITTED AND FILED SEPARATELY WITH
THE
COMMISSION UNDER RULE 24B-2]
years
thereafter:
|
|
|
16.3.1
|
administer
the Insurance Policies and the Content
Provider's
relationship with its insurers in such a manner as to preserve any
benefits to Vodafone from the
operation
of this Clause 16;
|
|
|
16.3.2
|
do
nothing to invalidate any Insurance Policies or to
prejudice
the Content Providers entitlement under the
insurance
Policies; and
|
|
|
|
|
16.3.3
|
not
subsequently alter the terms of the Insurance Policies
in
such a way as to diminish any benefits to VGSL
or
Vodafone
from the Insurance Policies.
|
|
|
16.4
|
The
Content Provider shall ensure that its contractors,
subcontractors
and agents are insured in the same
manner
as set out in this Clause 16.
|
|
|
17.
|
TERM
AND TERMINATION
|
|
|
17.1
|
This
Master Agreement shall commence on the date when
it
has been executed by both parties to the Master
Agreement
and shall continue unless and until terminated
in
accordance with the provisions of this Master
Agreement.
Each Contract shall commence on its
Commencement
Date and will continue unless otherwise
terminated
in accordance with Its terms or, if earlier
,
on
the
termination of this Master Agreement.
|
|
|
17.2
|
Either
Party
to
this Master Agreement may terminate this
Master
Agreement, or a Party to a Contract may terminate
that
Contract, Immediately on Written notice to the other
Party
(such notice not to be effective if sent by email) If:
|
|
|
17.2.1
|
the
other Party is in material breach of its terms and such
breach
is incapable of remedy or, if capable of remedy,
fails
to remedy that breach within fourteen (14) days’
notice
from the non-breaching Party requiring remedy; or
|
|
|
17.2.2
|
the
other Party ceases to carry on its business or has a
liquidator,
receiver or administrative receiver appointed to
it
or over any part of its undertaking or assets or passes a
resolution
for its winding
up
(otherwise
than for the
purpose
of a bona fide scheme
of
solvent
amalgamation
or
reconstruction where the resulting entity will assume all
of
the liabilities of it) or a court of competent jurisdiction
makes
an administration order or liquidation order or
similar
order over the other, or the other enters into any voluntary arrangement
with its creditors, or is unable to
pay
its debts as they fall due or suffers any similar or
equivalent
act in another relevant
jurisdiction.
|
17.3
|
VGSL
shall be entitled to terminate this Master Agreement
or
any Contract without cause at any time, either in full or i
n
relation to particular T
erritories
or Items of Content (or
both),
by giving [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
UNDER RULE 24B-2] written notice to the
Content
Provider, without prejudice
to
its other rights and
remedies.
Any partial termination of a Contract shall not
affect
the validity or enforceability of either: (a) this Master
Agreement;
(b) other Contracts; or (c) the remainder of
the
Contract in question.
|
|
|
17.4
|
Vodafone
shall be entitled to terminate a Contract to
which
it is party without cause at any time, either in full or
in
relation to particular items of Content, by giving thirty [INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]
written
notice to the Content Provider, without
prejud
ice
to its other rights and remedies. Any partial
termination
of a Contract shall not affect the validity or
enforceability
of the remainder of the Contract in question.
|
|
|
17.5
|
The
Content Provider shall be entitled to terminate this
Master
Agreement or any Contract without cause at any
time
after the date [INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION UNDER RULE 24B-2]
from
the date of
this
Master Agreement (in the case of termination of this
Master
Agreement) or [INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION UNDER RULE 24B-2]
from
the
Commencement
Date of the
relevant
Contract (in the case
of
termination relating to a Contract), either in full or in relation
to
particular Territories or items of Content (or
both),
by giving ninety [INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION UNDER RULE 24B-2] written notice to VGSL
(in
the case of termination of this Master Agreement) or to Vodafone
with a
copy to VGSL (in the case of termination relating to a Contract),
without
prejudice to its other rights
and
remedies. Any partial termination of a Contract shall not affect
either
the validity or enforceability of either: (a)
this
Master Agreement; (b) other Contracts; or (c) the
remainder
of Contract in question.
|
|
|
17.6.
|
This
Master Agreement shall terminate automatically [INFORMATION OMITTED
AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]
after
the expiration or termination of the last remaining
Contract.
|
|
|
17.7
|
Termination
of this Master Agreement or a Contract does
not
affect the accrued rights, obligations or liabilities of the
Parties
prior to termination.
|
|
|
17.8
|
Upon
termination of a Contract or this Master Agreement
for
whatever reason:
|
|
|
17.8.1
|
Vodafone
shall remove the relevant Content from the
Directory
and
cease providing access to such Content to
its
Customers;
|
|
|
17.8.2
|
each
Party to that termination shall, upon request, return to the other
or
destroy any relevant confidential
Information
or materials provided to it by the other;
|
|
|
17.8.3
|
each
Party to that termination shall remove
all
references
to
the other's trade marks from any marketing and
promotional
materials save in respect of any
ongoing
relationship
between the Parties and subject to VGSL
retaining
a copy of all Content and related marketing and
promotional
materials for archive and internal analysis
purposes;
|
|
|
17.8.4
|
the
Parties shall settle all outstanding sums either may
owe
the other within one hundred and twenty (120) days
of
the
date of termination; and
|
17.8.5
|
subject
to Clause 20.8, all rights granted under the
Contract
in question or this Master Agreement (as
appropriate)
shall immediately cease.
|
|
|
17.9
|
VGSL
has the right to extend the operation of a Contract
for
a period of not more than three (3) months after what
would
otherwise be the effective date of termination or
expiration
to give Vodafone an opportunity to replace the
relevant
Content and make appropriate amendments to its
marketing
materials.
|
|
|
18.
|
CONFIDENTIALITY
AND PUBLICITY
|
|
|
18.1
|
Except
as may be required by law or any applicable
regulatory
body, or as is strictly required to perform Its obligations under
this
Master Agreement or a Contract,
each
Party shall keep secret and confidential and not use, disclose or
divulge
to any third party any information that
they
obtain from the other concerning the business, finances, technology
and
affairs of the other, and in
particular
but not limited to the terms of this Master
Agreement
and any Contract and their subject matters. This Clause does not
apply to
information that has come
Into
the public domain other than by breach of this Clause or any other
duty of
confidence or is obtained from a third
party
without breach of this Clause or is required to be
disclosed
by law.
|
|
|
18.2
|
The
Content Provider agrees that VGSL and Vodafone
shall
be entitled to share any or all information it receives
from
or generates on behalf of the Content Provider pursuant to this Master
Agreement and/or any Contract
with
other Vodafone Group Companies.
|
|
|
18.3
|
Neither
Party shall issue any press statement or other
announcements
relating to this Master Agreement and/or
any
Contract or the subject matters thereof (as the
context
requires) without the prior written consent of the
other
Party.
|
|
|
19.
|
DATA
PROTECTION
|
|
|
19.1
|
All
personal and traffic data generated by or otherwise
collected
in relation to the Content will remain the
exclusive
property of Vodafone. The Content Provider
shall
be entitled to receive, on written request from time to
time,
aggregated user Information for the limited purpose of analysing
the
effectiveness of the Content.
|
|
|
19.2
|
To
the extent that the Content Provider is required in
connection
with the performance of its obligations under
this
Master Agreement or a Contract to process personal
data
relating to any Customer, the Content Provider shall:
|
|
|
19.2.1
|
only
process such personal data on behalf of Vodafone;
|
|
|
19.2.2
|
act
solely on the instructions of Vodafone in respect of
such
personal data; and
|
|
|
19.2.3
|
not
make any use of that data for any reason other than to
perform
its obligations hereunder and in particular shall
not
make any use of the personal data for its marketing
purposes.
|
|
|
19.3
|
To
the extent that the Content Provider processes
personal
data on behalf of Vodafone, the Content Provider
must
ensure that it has in place appropriate technical and
organisational
security measures (in addition to those
expressly
required by this Master Agreement or a
Contract)
to protect such personal data from accidental or
unlawful
destruction or accidental loss, damage,
alteration,
unauthorised disclosure or access,
in
particular
where
the processing involves the transmission of data over a network,
and
against all other unlawful forms of
processing.
|
20.
|
GENERAL
|
|
|
20.1
|
No
variation of this Master Agreement or a Contract or of any of the
documents referred to in either agreement shall be valid or effective
unless it is in writing and signed by or on behalf of each of the
Parties
(and, in the case of a Contract, but subject to Clause 2.3, by the
relevant Vodafone Group Company).
|
|
|
20.2
|
This
Master Agreement may be executed in any number of counterparts, each
of
which, when executed and delivered, shall be an original, and all
the
counterparts together shall constitute one and the same
instrument.
|
|
|
20.3
|
Any
notice or other communication required to be given or made under
this
Master Agreement or a Contract shall be in writing and addressed
to the
receiving Party's principal contact at the address of the receiving
Party
as set out in the Master Agreement or a Contract (as the context
requires)
or such other person or address as notified from time to time in
accordance with the terms of this Clause. Any such notice or communication
may be delivered by hand, first class post (if both Parties are within
the
UK), airmail (if one of the Parties is overseas) or fax and shall
be
deemed to be given or made if: (a) sent by hand, upon receipt; (b)
by
first class post, on the second working day following the date of
posting;
(c) by airmail, on the seventh working day following the date of
posting;
and (d) by fax or email, when despatched provided that a confirmatory
copy
is immediately despatched by first class post or airmail (as appropriate).
The Content Provider shall, whenever it sends a notice to Vodafone,
provide a copy of such notice to VGSL.
|
|
|
20.4
|
This
Master Agreement or each Contract, as the context requires, represents
the
entire understanding between the respective Parties in relation to
its
subject matter and supersedes all agreements and representations
made by
either Party, whether oral or written, save in respect of the Master
Agency Agreement signed between VGSL and the Content Provider and
dated 17
December 2004. This Clause shall not affect either Party's liability
for
fraud.
|
|
|
20.5
|
Failure
or delay by either Party to enforce any provisions under this Master
Agreement or a Contract shall not be taken as or deemed to be a waiver
of
its rights or operate as a waiver of any subsequent
breach.
|
|
|
20.6
|
If
any part of this Master Agreement or a Contract is held to be void,
voidable, illegal or unenforceable, the validity or enforceability
of the
remainder of this Master Agreement or a Contract shall not be
affected.
|
|
|
20.7
|
The
Parties shall perform all such further deeds, assurances, acts and
things
and execute such other documents as may reasonably be required to
carry
the provisions of this Master Agreement or a Contract into full force
and
effect.
|
|
|
20.8
|
The
following clauses shall survive termination of this Master Agreement
or a
Contract for any reason: 10 (Pricing, Revenue and Payments), 11 (Tax),
13
(Warranties), 14 (Intellectual Property Indemnity), 15 (Liability),
16
(Insurance). 17.8 (Term and Termination), 18 (Confidentiality and
Publicity), 20.4 (Entire Agreement), 20.5 (Waiver), 20.6 (Severability),
20.7 (Further Assurances), 20.8 (Survival of Terms), 20.9 (Force
Majeure),
20.12 (Conflict), 20.13 (Third Party Beneficiaries), 20.14 (Law)
and any
other clause which should, by its nature, survive
termination.
|
|
|
20.9
|
Neither
Party shall be liable for any delay or failure in performing any
of its
obligations under this Master Agreement or a Contract if such delay
or
failure is caused by circumstances outside its reasonable control
including without limitation, any delay or failure caused by any
act or
default of the other Party.
|
|
|
20.10
|
Neither
Party may assign, transfer or sub-contract to any other party any
of its
rights or obligations under this Master Agreement or a Contract except
that VGSL (in respect of this Master Agreement) and Vodafone (in
respect
of a Contract) may assign or transfer its rights or sub-contract
its
obligations to any Vodafone Group Company. Any Vodafone Group Company
may
appoint a third party (including, without limitation and for the
avoidance
of doubt, another Vodafone Group Company) as its agent for the purpose
of
fulfilling its obligations or exercising its rights under this
Agreement.
|
|
|
20.11
|
To
the extent that any provision of this Master Agreement as incorporated
into any Contract conflicts with any local legislation or regulation
in
the Territory specified in the Contract, then the provisions of the
local
legislation or regulation shall prevail over the conflicting provisions
to
the extent of such conflict.
|
|
|
20.12
|
If
there is any inconsistency between the provisions of this Master
Agreement
and the provisions set out in any Content Schedule or any other type
of
annexure, exhibit or other attachment, the following order of precedence
shall be applied so that the higher ranking provisions prevail over
the
lower-ranking provisions to the extent of the
inconsistency:
|
|
|
20.12.1
|
the
Special Conditions;
|
|
|
20.12.2
|
the
terms of this Master Agreement;
|
|
|
20.12.3
|
the
Content Schedule (excluding the Special Conditions);
and
|
|
|
20.12.4
|
any
other type of annexure, exhibit or other attachment.
|
|
|
|
Save
where expressly provided to the contrary In this Master Agreement
or in
the provisions of a Contract, this Master Agreement is made solely
and
specifically between the Content Provider and VGSL and each Contract
is
made solely and specifically between the Content Provider and Vodafone
and
neither is intended to be for the benefit of or enforceable by any
other
person, whether under the Contracts (Rights of Third Parties) Act
1999 or
otherwise, and neither Party nor Vodafone can declare itself a trustee
of
the rights under this Master Agreement or a Contract for the benefit
of
any such person.
|
|
|
20.14
|
This
Master Agreement and each Contract shall be governed by and construed
and
interpreted in accordance with the law of England and Wales and the
Parties to this Master Agreement and each Contract submit to the
exclusive
jurisdiction of the English Courts.
|
21.
|
DEFINITIONS
|
|
|
21.1
|
In
this Master Agreement and each Contract:
|
|
|
21.1.1
|
reference
to persons shall include legal as well as natural persons and (where
the
context so admits), references to the singular shall include the
plural
and vice versa;
|
|
|
21.1.2
|
reference
to Clauses shall be to those clauses of this Master Agreement unless
the
contrary is stated;
|
|
|
21.1.3
|
reference
to this Master Agreement shall (unless the context otherwise requires)
include reference to any schedule to this Master Agreement as the
same may
be amended, novated or supplemented from time to time in accordance
with
its terns;
|
|
|
21.1.4
|
section
and clause headings in this Master Agreement are for ease of reference
only and shall not affect its interpretation, validity or
enforceability;
|
|
|
21.1.5
|
reference
to any statute, act, directive or other regulation includes a reference
to
that statute, act or directive or other regulation as re-enacted
or
amended from time to time;
|
|
|
21.1.6
|
the
words “include” and “including” shall be construed without limitation to
the words following; and
|
|
|
|
|
|
defined
terms are set out and described in Clause 21.2.
|
|
|
21.2
|
In
this Master Agreement and each Contract, the following words and
expressions shall have the expanded definitions set out
below:
|
“Anti-Circumvention
Rights”
shall
have the meaning given to that term in Clause 8.3;
“Application
Submission Criteria for QA”
means
those guidelines relating to the standards of Content produced and amended
from
time to time by Vodafone and provided to the Content Provider in connection
with
the Vodafone certification process;
“Chargeable
Event”
means
any purchase of the Content by a Customer (including in the case of Protected
Content any purchase of a subscription service offered pursuant to an applicable
Purchase Option) from Vodafone for which the Customer is charged by
Vodafone;
“Collecting
Society Royalties”
means
the payment of any royalties due in respect of Collecting Society
Rights;
“Collecting
Society Rights”
means
those rights in or in relation to the Content which are controlled by copyright
and related rights collecting societies, or which copyright and related rights
collecting societies otherwise have the right to exploit, in the Territories
and
which are applicable to the use and exploitation of the Content pursuant to
a
Contract;
“Commencement
Date”
means
the date when the Content Provider receives the signed Contract Acceptance
Notice from a Vodafone Group Company;
“Competitor”
means
any third party competitor of the Vodafone live! service in the Territory
including without limitation any consumer focused multi-access internet portal,
wireless portal or online service provider focused on the provision of wireless
content services including but not limited to any operator, or any company
affiliated with such operator of an electronic communications
network;
“Content”
means
the information, text, data, graphics, images, software and audio and visual
material in whatever media or form described in a Content Schedule or otherwise
provided by or on behalf of the Content Provider to Vodafone with the intent
to
be featured on the Directory and, where the context so requires, includes any
Link supplied by the Content Provider to Vodafone which is to be placed in
the
Directory, any underlying executable code and any Rights;
“Content
Charge”
means
Vodafone's specific charge to the Customer including any value added tax,
turnover tax or other local sales or other taxes for the purchase of the Content
from it excluding for the avoidance of doubt the Network Charges;
“Content
Provider”
means
the company, partnership, person or entity identified in the Content Schedule
attached to this Master Agreement;
“Content
Provider Branding Guidelines”
means
the branding, layout, format, “look and feel” and style guidelines governing the
use of the Content and the Content Provider Marks described in a Content
Schedule or otherwise provided by the Content Provider to Vodafone under a
Contrat as at the date of each applicable Contract;
“Content
Provider Marks”
means
the trade and service marks, trade names, domain names, logos and any and all
other branding which the Content Provider owns or has the right to license
(whether registered or not and including applications for the same) to be used
by Vodafone to brand the Content in accordance with a Contract;
“Content
Provider Revenue”
means
the percentage of Net Revenue set out in the relevant Content Schedule which
is
(after deduction of any Deductions) payable to the Content Provider under a
Contract;
“Content
Schedule”
means a
schedule in a format similar to the content schedule attached to this Master
Agreement and in each case completed and signed by VGSL and the Content
Provider;
“Contract”
means a
contract for the distribution and resale/licensing of specified Content on
the
terms of the relevant Content Schedule and this Master Agreement formed between
the Content Provider and a Vodafone Group Company in accordance with the process
described in Clause 2;
“Contract
Acceptance Notice”
means
the form of contract acceptance notice attached to this Master
Agreement;
“Contract
Year”
means
each calendar year of a Contract commencing on the applicable Commencement
Date;
“Creditor”
shall
have the meaning given to that term in Clause 10.11;
“Customer”
means a
user of the Directory;
“Data
Protection Legislation”
means
any applicable national data protection and privacy legislation;
“Debtor”
shall
have the meaning given to that term in Clause 10.11;
“Deductions”
means:
(1) any deductions or withholdings which VGSL or Vodafone may be required to
make by law from any payment payable under this Agreement or any agreement
between Vodafone Group Companies entered into for the purposes of this
Agreement; (2) any Collecting Society Royalties paid by VGSL, Vodafone and/or
any other Vodafone Group Company; and (3) such other deductions which the
Parties may agree from time to time in writing;
“Delivery
Timetable(s)”
means
the date(s) agreed by the Parties for the delivery of the Content (if any)
as
set out in the relevant Content Schedule or as otherwise agreed by the Parties
in writing from time to time;
“Directory”
means
the mobile content directory or other platform from time to time operated for
and on behalf of or in conjunction with Vodafone that lists or otherwise
facilitates access to various mobile content and services and associated use
rights;
“DRM”
means
technological measures that are designed to prevent or restrict unlawful use,
copying or redistribution of the Content or other acts in respect of the Content
by Customers or third parties which are not authorised by the Content Provider
pursuant to a Contract;
“DRM
Guidelines”
means
the technical, performance and other information relating to the DRM service
offered by VGSL and/or Vodafone as produced and amended from time to time by
VGSL and/or Vodafone and provided to the Content Provider;
“Due
Date”
means
the time for payment of a sum as specified in the relevant
Contract;
“First
Line Customer Support”
means
receiving and handling all Customer Inquiries relating to billing and payment
collection, connection to the mobile Internet, access to the Content and any
non-Content specific issues relating to the Directory;
“Format”
means
any format described in the relevant Content Schedule or which Vodafone
specifies from time to time;
“Gross
Revenue”
means
the aggregate Content Charges billed to and collected from Customers by Vodafone
in respect of Chargeable Events;
“Guidelines”
means
the Application Submission Criteria for QA (if applicable), the Integration
Guidelines and any other rules of procedure (including technical or quality
control procedures), guidelines, directions, policies and/or other requirements
made or adopted by Vodafone or the Vodafone Group from time to time which relate
to content, the operation of the Directory, the participation of companies
in
the Directory, the provision of content for use on the Directory and/or the
subject matter generally of this Master Agreement and/or a
Contract;
“Insurance
Policies”
shall
have the meaning given to that term in Clause 16.1;
“Intellectual
Property Rights”
means
all intellectual and industrial property rights, whether registered or
unregistered, including trade and service marks, patents, utility models,
designs and design rights, trade and business names (including rights in any
get-up or trade dress), domain names, topography rights, copyright and related
rights, database rights, moral rights and all other similar proprietary rights
in every case which may subsist in any part of the world including any
registration of any such rights and applications and any rights to make
applications for any of the foregoing;
“Integration
Guidelines”
means
the technical performance, style and format requirements relating to the Content
produced and amended from time to time by Vodafone and provided to the Content
Provider for use in accordance with the terms of a Contract;
“Languages”
means
the languages that the Content is supplied in by the Content Provider as
specified in a Content Schedule;
“Link”
means
any link that the Content Provider provides in order to facilitate access to
the
Content by a Customer via the Directory;
“Marketing
Materials”
means
the marketing and promotional materials specified in each Content Schedule
or
otherwise provided by or on behalf of the Content Provider to Vodafone for
use
in relation to the Content;
“Mobile
Device”
means
the mobile device(s) that the Content must be compatible with as specified
in
the relevant Content Schedule;
“month”
means a
calendar month and “monthly
”
shall
be
construed accordingly;
“Not
Revenue”
means
the Gross Revenue less (1) value added tax, turnover tax or other local sales
tax or other taxes charged to Customers and (2) all Customer refunds (or credits
which may be issued to a Customer in lieu of a refund) in respect of a
Chargeable Event;
“Network
Charges”
means
the charges to a Customer levied by Vodafone in connection with the Customer's
access, carriage and use of the Content including but not limited to all airtime
revenue whether measured In terms of time, volume or event consumption and
activation and access fee charges both from voice and data
transmission;
“Party”
and
“Parties”
means a
party/the parties to a Contract and/or this Master Agreement, as the context
requires;
“Platform”
means
the system, including the equipment, the Link and the software used by the
Content Provider to host and maintain the Content:
“Preview
Options”
means
the
provision by Vodafone to a Customer via the Directory of an option to preview
the Content for the purpose of enabling the Customer to evaluate the Content
before purchase;
“Protected
Content”
means
Content to which DRM has been applied by Vodafone in accordance with Clauses
8.1
to 8.8 (inclusive);
“Purchase
Options”
means
the options for use of Protected Content to be presented to Customers via the
Directory in response to a request to purchase Protected Content as specified
in
the relevant Content Schedule;
“QA
Company”
means a
quality assurance company certified by VGSL;
“Relevant
Contacts”
means
the contacts for each Party from time to time as initially identified in the
relevant Content Schedule;
“Rights”
means a
collection of permissions, constraints and other information, corresponding
to
the applicable Purchase Option, which identifies the Content and defines under
what circumstances access is granted to, and what usages are permitted for,
Protected Content and any underlying code that represents such
information;
“Second
Line Customer Support”
means
receiving and handling all inquiries from a Vodafone Group Company relating
to
First Line Customer Support;
“Special
Conditions”
means
the special conditions (if any) set out in the relevant Content
Schedule;
“Standing
Offer”
means
the offer made by the Content Provider to Vodafone Group Companies as described
in Clause 2;
“Territory”
means
those countries set out in the relevant Content Schedule or the particular
country(s), as applicable, specified in any signed Contract Acceptance
Notice;
“VAT
Tax”
means
any value added tax, any state or local sales or use tax, any business transfer
tax, any transaction tax and any tax analogous to such taxes in any relevant
jurisdiction;
“VGSL”
means
Vodafone Group Services Limited, a company incorporated in England (registered
number 3802001) and having its registered office at Vodafone House, The
Connection, Newbury, Berkshire RG14 2FN, United Kingdom;
“Vodafone”
means
any Vodafone Group Company which has entered into a Contract with the Content
Provider pursuant to Clause 2;
“Vodafone
Group”
means
Vodafone Group Plc, Vodafone Partner Network Companies and each company or
entity in which Vodafone Group Plc has a shareholding or interest, directly
or
indirectly of 15% or more or has the right to exercise, directly or Indirectly
15% or more of the voting rights and “
Vodafone Group Company
”
shall be construed accordingly;
“Vodafone
Partner Network Companies”
means
any company or corporation with which a Vodafone Group Company (which for the
avoidance of doubt excludes another Vodafone Partner Network Company) has
entered into a co-operation agreement with regard to the development and supply
of new products and services and other related matters, and with which Vodafone
Group Plc (or such Vodafone Group Company as Vodafone Group Plc has nominated)
has entered into a brand licence agreement in relation to the licensing and
use
of the Vodafone name and brand and
“Vodafone
Partner Network Company”
shall
be
construed accordingly; and
“Vodafone
Network”
means
the wireless communications systems operated and/or provided for and on behalf
of Vodafone within the Territory.
Executed
as an agreement:
|
|
|
|
|
|
|
|
By
the authorised representative of:
Vodafone
Group Services Limited
|
)
)
|
|
|
|
)
|
|
/s/ Graeme
Ferguson
|
|
)
)
)
|
Name:
|
GRAEME FERGUSON
|
|
)
)
|
Title:
|
EXECUTIVE
HEAD OF CONTENT DEVELOPMENT
|
|
)
)
|
Date:
|
17
th
JANUARY
2005
|
By
the authorised representative of:
The
Content Provider
|
)
)
|
|
|
|
)
|
|
/s/ Camill
Sayadeh
|
|
)
)
)
|
Name:
|
Camill
Sayadeh
|
|
)
)
|
Title:
|
COO
|
|
)
)
|
Date:
|
|
Contract
Acceptance Notice - Agency
To:
|
WAAT
Media Corporation, United States of America, registered no. 2512380
and
Address:
18226 Ventura Blvd. Suite 102 Tarzana, Ca 91356
Attention:
Camill Sayadeh
Fax:
+1 818 708 0598
|
From
the Vodafone Group Company
identified
opposite:
|
Vodafone
New Zealand Limited, a company registered in New Zealand (927212),
whose
registered office is at Level 5, Vodafone House, 21 Pitt Street,
Auckland.
Attention:
General Manager, Legal
Fax:
+64 9 357 0333
|
CC:
|
Vodafone
Group Services Limited
Vodafone
House
The
Connection,
Newbury,
Berkshire RG14 2FN
United
Kingdom
Attention:
Executive Head of Content Development (Graeme Ferguson)
Fax:
+44 207 212 0312
|
Territory
|
New
Zealand
|
We
accept
the Standing Offer set out in the Master Agreement entered into between you
and
VGSL dated 17 December 2004 (entitled “Vodafone Master Global Content Agency
Terms and Conditions”), a copy of which (together with any relevant Content
Schedules) we have seen.
Signed
on behalf of:
Vodafone
New Zealand Limited
|
|
|
|
|
|
|
|
|
|
|
|
Print
signatories’ name: Kieren Cooney
|
|
|
|
|
|
|
|
Position:
General Manager
|
|
|
|
|
|
|
|
Date
signed: 8-2-2005
|
|
|
|
NB
-
Prior to signing this Contract Acceptance Notice, the Vodafone Group Company
must
be
sent copies of the final,
signed
versions of: (1) Terms and Conditions; and (2) Content
Schedule(s).
Contract
Acceptance Notice - Agency
To:
|
WAAT
Media Corporation, United States of America, registered no. 2512380
and
Address:
18226 Ventura Blvd. Suite 102 Tarzana, Ca 91356.
Attention:
Camill Sayadeh
Fax:
+1 818 708 0598
|
From
the Vodafone Group Company
identified
opposite:
|
Vodafone
Espa
ñ
a,
S.A, a company incorporated in Madrid, Spain and whose registered
office
is at Avda. De Europa 1, Parque Empresarial La Moraleja, 28108 Alcobandas,
Madrid, Spain
|
CC:
|
Vodafone
Group Services Limited
Vodafone
House
The
Connection,
Newbury,
Berkshire RG14 2FN
United
Kingdom
Attention:
Executive Head of Content Development (Graeme Ferguson)
Fax:
+44 207 212 0312
|
Territory
|
Spain
|
We
accept
the Standing Offer set out in the Master Agreement entered into between you
and
VGSL dated 17 December 2004 (entitled “Vodafone Master Global Content Agency
Terms and Conditions”), a copy of which (together with any relevant Content
Schedules) we have seen.
Signed
|
/s/
Juan Antonio Alberca
|
|
Signed
|
/s/
Federico Jos
é
Colom
|
|
Print
Name: Juan Antonio Alberca
|
|
Print
Name: Federico José Colom
|
|
Title:
Supply Chain Management Director
|
|
Title:
Financial Controller
|
|
For
and on behalf of Vodafone España, S.A.
|
|
For
and on behalf of Vodafone España, S.A.
|
|
|
|
|
|
Date: 14
TH
-February-2005
|
|
Date:
|
|
|
|
|
|
|
NB
-
Prior to signing this Contract Acceptance Notice, the Vodafone Group Company
must
be
sent copies of the final,
signed
versions of: (1) Terms and Conditions; and (2) Content
Schedule(s).
Contract
Acceptance Notice - Reseller
To:
|
WAAT
Media Corporation, United States of America, registered no. 2512380
and
Address:
18226 Ventura Blvd, Suite 102 Tarzana, Ca 91356
Attention:
Camill Sayadeh
Fax:
+1 818 708 0598
|
From
the Vodafone Group Company
identified
opposite:
|
VODAFONE
UK CONTENT SERVICES LTD
|
CC:
|
Vodafone
Group Services Limited
Vodafone
House
The
Connection,
Newbury,
Berkshire RG14 2FN
United
Kingdom
Attention:
Executive Head of Content Development (Graeme Ferguson)
Fax:
+44 207 212 0312
|
Territory
|
[Note
that this Territory must form part of the Territory as defined in
this
Content Schedule or this notice is not
valid]
|
We
accept
the Standing Offer set out in the Master Agreement entered into between you
and
VGSL dated 17 January 2005 (entitled “Vodafone Master Global Content Reseller
Terms and Conditions”), a copy of which (together with any relevant Content
Schedules) we have seen.
We
elect
that our Contract’s Commencement Date be 14/3/05.
Signed
on behalf of:
The
Vodafone Group Company
Identified
above
|
|
|
|
|
|
|
|
|
|
|
|
Print
signatories’ name: Al Russell
|
|
|
|
|
|
|
|
Position:
Head of Content Services
|
|
|
|
|
|
|
|
Date
signed: 14/3/05
|
|
|
|
NB
-
Prior to signing this Contract Acceptance Notice, the Vodafone Group Company
must
be
sent copies of the final,
signed
versions of: (1) Terms and Conditions; and (2) Content
Schedule(s).
Contract
Acceptance Notice - Reseller
To:
|
WAAT
Media Corporation, United States of America, registered no. 2512380
and
Address:
18226 Ventura Blvd. Suite 102 Tarzana, Ca 91356
Attention:
Camill Sayadeh
Fax:
+1 818 708 0598
|
From
the Vodafone Group Company
identified
opposite:
|
VODAFONE-PANAFON
Hellenic Telecommunications Company S.A.
1-3
Tzavella Street, Chalandri, 152-31, Athens, Greece.
Company
registration Number: 094349850
Tax
office: FAEE Athinon
Attention:
Commercial Consumer Director (Mr. Athanasios Zarkalis)
Fax:
+30 210 6703002
|
CC:
|
Vodafone
Group Services Limited
Vodafone
House
The
Connection,
Newbury,
Berkshire RG14 2FN
United
Kingdom
Attention:
Executive Head of Content Development (Graeme Ferguson)
Fax:
+44 207 212 0312
|
Territory
|
Greece
|
We
accept
the Standing Offer set out in the Master Agreement entered into between you
and
VGSL dated 17 January 2005 (entitled “Vodafone Master Global Content Reseller
Terms and Conditions”), a copy of which (together with any relevant Content
Schedules) we have seen. The relationship between the companies shall be
governed by Greek law. Any dispute regarding the global Content Agreement shall
be submitted to the exclusive jurisdiction of the courts of Athens.
We
elect
that our Contract’s Commencement Date be 01/03/2005.
Signed
on behalf of:
The
Vodafone Group Company
Identified
above
|
|
|
|
|
|
|
|
|
|
|
|
Print
signatories’ name: Mr. Athanaslos Zarkalis
|
|
|
|
|
|
|
|
Position:
Commercial Consumer Director
|
|
|
|
|
|
|
|
Date
signed: 15/03/2005
|
|
|
|
NB
-
Prior to signing this Contract Acceptance Notice, the Vodafone Group Company
must
be
sent copies of the final,
signed
versions of: (1) Terms and Conditions; and (2) Content
Schedule(s).
Content
Schedule
1.
|
This
Content Schedule incorporates the terms
of
the
Master Reseller Agreement (the "Master Agreement") between Vodafone
Group
Services Limited ("
VGSL
"),
registered in England (registered number 3802001), having its registered
office at Vodafone
House,
The Connection, Newbury, Berkshire RG14 2FN, United
Kingdom
and the Content Provider (as defined below) dated
17
January 2005.
|
2.
|
When
signed by VGSL and the Content Provider this Content Schedule is
a
standing offer by the Content
Provider
of the
applicable
Content (as defined below) to all Vodafone Group
Companies
on the terms of the Master Agreement and this Content
Schedule:
|
3.
|
A
Vodafone Group Company may accept the Standing
Offer
by completing and signing the Contract Acceptance
Notice
and
following
the procedure set out in the Master
Agreement.
|
1.
Content
Provider
|
|
Waat
Media Corporation; United States of America; Company reg.
2512380;
Address:
18226 Ventura Blvd. Suite 102, Tarzana, CA 91356.
|
|
|
|
2.
Content
|
|
The
Company will supply the following video Content to Vodafone Omnitel
N.V.
in
accordance
with agreement as subject to the Vodafone Omnitel N.V. self regulatory
code.
52
Erotic videos
|
|
|
Real
Media
(GPRS)
|
max
90
seconds
|
|
|
3GP
-
profilo
low (GPRS)
|
max
90
seconds
|
|
|
3GP
-
profilo
high (Umts) both streaming/download
max
150 seconds. max size 2, 8
Mega
|
|
|
|
|
|
naming
convention:
videonumber_contentprovider_length_description_
description_encoding.filetype
ES:
|
|
|
10001_p_90_jenny_blonde
realmedia.rm
|
(real
media
90 seconds)
|
|
|
10001_p_90_jenny_blonde_
low.3gp
|
(profilo
low
90 seconds)
|
|
|
10001_p_
30_jenny_blonde_high.3gp
|
(profilo
high
30 seconds)
|
|
|
|
|
|
NB
Each
video must be in three format and must have the naming convention
as
indicated
up
52
Erotic video MMS:
max
30 seconds
52
Erotic MMS (slide show)
Games
Titles
·
Vivid
Bombs 'N Boobs
·
Playgirl
Blox
|
|
|
|
|
|
Contents
For
each title we need:
·
one
title sreenshot higt resolution, gif format;
·
one
title sreenshot higt resolution 200x200, gif or tif
format;
·
coywryte
|
|
|
|
|
|
and
for each title and each devices we need:
·
File
jad;
·
File
jar,
·
One
in game screenshot, git format;
|
|
|
|
3.
Content
Provider
Branding
Guidelines
|
|
Waat
Media will provide branded content per VGSL's
guidelines.
|
|
|
|
4.
Marketing
Materials
|
|
Waat
Media will provide marketing materials as requested by VGSL and
local
operators.
|
|
|
|
5.
Content
Provider Revenue
|
|
Content
Provider Revenue shall be [INFORMATION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION UNDER RULE 24B-2] of Net Revenue, less all
the
Deductions. It is understood that Deductions (if any) shall be
deducted
from the Content Provider
|
|
|
Revenue
actually paid to the Content Provider in accordance with Clause
10.2.
|
|
|
|
|
|
The
Content Provider and VGSL shall seek to agree reasonable commercial
models
for
'promotional' content and bundled content as and when
required.
|
|
|
|
6.
Content
Protection
|
|
The
Content Provider shall be responsible for protecting the
Content.
|
|
|
|
7.
Hosting
|
|
The
Content Provider will provide the Content directly to Vodafone Omnitel
NV
for
hosting
by Vodafone Omnitel NV.
|
|
|
|
8.
Languages
|
|
All
languages as may be reasonably requested by VGSL from time to
time.
|
|
|
|
9.
Territories
|
|
Italy
only
|
10.
Mobile
Devices (to include but
not
limited to the following)
|
|
Category
|
|
Handset
|
|
|
|
|
|
|
|
UMTS
|
|
Motorola
V1050
|
|
|
UMTS
|
|
Sharp
902
|
|
|
UMTS
|
|
Samsung
Z105
|
|
|
UMTS
|
|
Samsung
Z107
|
|
|
UMTS
|
|
Sony
Ericsson Z1010
|
|
|
UMTS
|
|
Sony
Ericsson V800
|
|
|
UMTS
|
|
Motorola
V980
|
|
|
UMTS
|
|
Sharp
902
|
|
|
UMTS
|
|
Motorola
E1000
|
|
|
UMTS
|
|
Nokia
6630
|
|
|
VL
Advanced
|
|
Sharp
TQ-GX20
|
|
|
VL
Advanced
|
|
Nokia
6600
|
|
|
VL
Advanced
|
|
Motorola
V525m
|
|
|
VL
Advanced
|
|
Sharp
TQ-GX10 e GX10i
|
|
|
VL
Advanced
|
|
SonyEricsson
T610
|
|
|
VL
Advanced
|
|
Panasonic
X60
|
|
|
VL
Advanced
|
|
Panasonic
X70
|
|
|
VL
Advanced
|
|
Sharp
TQ-GX30
|
|
|
VL
Advanced
|
|
Panasonic
GD87a
|
|
|
VL
Advanced
|
|
Nokia
7650
|
|
|
VL
Advanced
|
|
Nokia
3200
|
|
|
VL
Advanced
|
|
Nokia
3650
|
|
|
VL
Advanced
|
|
Nokia
7250 e 7250i
|
|
|
VL
Advanced
|
|
Panasonic
x701
|
|
|
VL
Advanced
|
|
Samsung
SGH E700 E710
|
|
|
VL
Advanced
|
|
Samsung
SGH E810i
|
|
|
VL
Advanced
|
|
Motorola
V600
|
|
|
VL
Advanced
|
|
Nokia
3100
|
|
|
VL
Advanced
|
|
Nokia
6230
|
|
|
VL
Basic
|
|
SonyEricsson
T68i
|
|
|
VL
Basic
|
|
Motorola
C550
|
|
|
VL
Advanced
|
|
SonyEricsson
Z600
|
|
|
VL
Basic
|
|
Motorola
T7201
|
|
|
VL
Basic
|
|
Motorola
C350
|
|
|
VL
Advanced
|
|
Nokia
7610
|
|
|
VL
Basic
|
|
|
|
|
VL
Basic
|
|
Non
certificati
|
|
|
VL
Advanced
|
|
Sagem
my-V55
|
|
|
VL
Basic
|
|
Siemens
C62
|
|
|
|
|
Alcatel
OT735
|
|
|
|
|
Sagem
CX 2
|
|
|
|
|
Alcatel
-
OT531
|
|
|
|
|
|
|
|
|
|
Blackberry
|
|
|
|
|
|
|
|
VL
Advanced
|
|
Panasonic
X400
|
|
|
VL
Advanced
|
|
Samsung
SGH P400
|
|
|
VL
Advanced
|
|
Panasonic
G50
|
|
|
VL
Advanced
|
|
Nokia
6220
|
|
|
UMTS
|
|
LG
8110
|
|
|
UMTS
|
|
LG
8120
|
|
|
|
|
N9500
|
|
|
VL
Advanced
|
|
Nokia
3660
|
|
|
VL
Advanced
|
|
Samsung
SGH E310
|
|
|
VL
Basic
|
|
LG
G5400
|
|
|
VL
Basic
|
|
SonyEricson
T310
|
|
|
VL
Advanced
|
|
Samsung
SGH V200
|
|
|
VL
Advanced
|
|
Siemens
S55
|
|
|
VL
Basic
|
|
Panasonic
GD67
|
|
|
VL
Advanced
|
|
Siemens
MC60
|
|
|
VL
Advanced
|
|
Panasonic
GD87
|
|
|
VL
Advanced
|
|
Alcatel
OT565
|
|
|
VL
Advanced
|
|
Mitsubishi
Trium Eclipse
|
|
|
VL
Advanced
|
|
Samsung
E100
|
|
|
VL
Advanced
|
|
Nokia
6820
|
|
|
VL
Advanced
|
|
Siemens
Hera
|
|
|
VL
Basic
|
|
Nokia
6650
|
|
|
VL
Advanced
|
|
Samsung
SGH X100
|
|
|
VL
Advanced
|
|
Sagem
my-G5
|
|
|
VL
Advanced
|
|
Siemens
SXI
|
|
|
VL
Basic
|
|
Telit
G80
|
|
|
VL
Basic
|
|
Philips
Fisio 822
|
|
|
VL
Basic
|
|
Philips
Fisio 825
|
|
|
VL
Advanced
|
|
Nokia
7600
|
|
|
VL
Advanced
|
|
Siemens
SL55
|
|
|
VL
Advanced
|
|
Siemens
M55
|
|
|
VL
Basic
|
|
Ericsson
T68
|
|
|
VL
Advanced
|
|
Samsung
SGH Z100
|
|
|
VL
Basic
|
|
BlackBerry
7230
|
|
|
VL
Advanced
|
|
Siemens
A60
|
|
|
VL
Advanced
|
|
Sharp
GX15
|
|
|
VL
Advanced
|
|
Nokia
3300
|
|
|
VL
Advanced
|
|
Sagem
my-X5
|
|
|
VL
Advanced
|
|
Motorola
V525
|
|
|
VL
Advanced
|
|
SonyEricsson
Amy
|
|
|
VL
Advanced
|
|
Nokia7200
|
|
|
VL
Advanced
|
|
PanasonicG51
|
|
|
VL
Basic
|
|
EricssonT68
|
|
|
VL
Basic
|
|
SamsungSGH-S500
|
|
|
VL
Basic
|
|
SamsungSGH-P100
|
|
|
VL
Advanced
|
|
AlcatelOneTouch
535
|
11.
Format
|
|
Vodafone
Omnitel NV shall deliver the Content in the format described in attached
document Exhibit 1.
|
|
|
|
12.
Purchase Options
|
|
As
agreed from time to time.
|
|
|
|
13.
VGSL Certification
|
|
Unless
VGSL gives written notice otherwise, all Content requires certification
by
a QA Company.
|
|
|
|
14.
Delivery Timetables
|
|
The
company will make available to Vodafone Omnitel N.V. 52 video clips,
52
video mms, 52 mms, games from April 1
st
2005 in the formats
indicated on Exhibit 1. (Other Formats if necessary will be made
available
at a mutually agreed upon time).
|
|
|
|
15.
Relevant Contacts
|
|
The
Content Provider:
|
|
|
|
|
|
Technical
- Camill Sayadeh
Tel:
+1818 708 9995
Mob:
+1 818 723 2488
Fax:
+1818 708 0598
camill@waatmedia.com
Commercial
- Adi Mcabian
Tel: +1818 708 9995
Mob: +1818 644 1300
Fax: +1 818 708 0598
adi@waatmedia.com
|
|
|
|
|
|
Financial
- Lena Barseghian
Tel:
+1 818 708 9995
Mob:
+1 818 687 1377
Fax:
+1 818 708 0598
lena@waatmedia.com
|
|
|
|
|
|
VGSL:
|
|
|
|
|
|
Commercial
- Andrew Stalbow
Tel: +44 207 212 0591
Mob: +44 7717 618 919
Fax: +44 207 212 0701
E-mail: Andrew.stalbow@vodafone.com
|
|
|
|
16.
Tax Residence
|
|
The
same country as the registered address of the Content Provider set
out
above.
|
|
|
|
17.
Content Provider's bank account details for electronic transfer
payments
|
|
Payment
by VGSL to the Content Provider shall be made by BACS to the following
bank account
Bank:
EAST WEST BANK, 18321 Ventura Blvd. Tarzana, CA 91356
Account
Name: The Waat Corporation
Account
No.: 8270-2648
ABA#
322070381
The
currency of this Agreement shall be in Euros. All financial reports,
statements, invoices, charges and payments made by one Party to the
other
shall be in Euros.
|
18.
Special Conditions
|
|
The
Content Provider will comply with all VGSL/Vodafone content standards,
guidelines and policies provided to the Content Provider from time
to
time. The Content Provider shall also provide reasonable assistance
to
help create such standards and guidelines from time to time.
The
Commencement Date for this Content Schedule shall be 1 April
2005.
The
Contents can be distributed/supplied through the following technical
channels:
·
the
WAP portal
·
the
VL! Portal
·
the
WEB portal
·
the
VO download platform
·
the
VO streaming platform
·
the
VO portal
·
PDA
·
UMTS
·
AREA
BUSINESS
·
BLACKBERRY
|
Signed
on behalf of VGSL:
|
|
Signed
on behalf of Content Provider:
|
|
|
|
/s/
Graeme
Ferguson
VGSL
authorized signatory
|
|
/s/ Camill Sayadeh
Content
Provider authorized signatory
|
Print
name:
Graeme
Ferguson
|
|
Print
name: Camill Sayadeh
|
Position:
Director of Global Content Development
|
|
Position:
Head of Operations
|
Date
signed: 08/04/2005
|
|
Date
signed: 29/03/05
|
*WE
HAVE REQUESTED CONFIDENTIAL TREATMENT OF CERTAIN PROVISIONS CONTAINED IN
THIS
EXHIBIT. THE COPY FILED AS AN EXHIBIT OMITS THE INFORMATION SUBJECT TO THE
CONFIDENTIALITY REQUEST.*
Exhibit
1
Format
Real
Media (GPRS)
|
|
Real
Media
|
Video
codec
|
|
Real
Video 8
|
Audio
codec
|
|
Real
Audio 8 Voice (G2,RA8)
|
Bitrate
control
|
|
Constant
bitrate
|
MaxTarget
bitrate
|
|
30
Kbps
|
Video
bitrate
|
|
23.6
Kbps
|
Audio
bitrate
|
|
6.4
Kbps
|
Encoded
Frame rate
|
|
10
fps
|
Exporting
mode
|
|
Two
pass encoding
|
Frame
size
|
|
176x144
(QCIF)
|
|
|
|
3GP
- profilo low (GPRS)
|
|
|
|
|
|
Encoder
|
|
Helix
Producer Plus 10
|
Container
|
|
3GP
|
Video
Codec
|
|
MPEG4
|
Bitrate
control
|
|
Constant
bitrate
|
Total
bitrate
|
|
30
Kbps
|
Video
bitrate
|
|
21
Kbps
|
Audio
Codec
|
|
AMR-NR
|
Audio
bitrate
|
|
7950
bps
|
FpS
|
|
12.5
|
Key
frame
|
|
5
|
Hinting
Type
|
|
Streaming
optimized for server
|
Exporting
mode
|
|
Two
pass encoding
|
Frame
size
|
|
176x144
(QCIF)
|
|
|
|
3GP
- profilo high (Umts) both streaming/download
|
|
|
|
Encoder
|
|
Helix
Producer Plus 10
|
Container
|
|
3GP
|
Video
Codec
|
|
MPEG4
|
Bitrate
control
|
|
Constant
bitrate
|
Total
bitrate
|
|
110
Kbps
|
Video
bitrate
|
|
100
Kbps
|
Audio
Codec
|
|
AMR-NR
|
Audio
bitrate
|
|
10200
bps
|
FpS
|
|
12.5
|
Key
frame
|
|
5
|
Hinting
Type
|
|
Streaming
optimized for server
|
Exporting
mode
|
|
Two
pass encoding
|
|
|
950
KB (very important, be careful)
|
Frame
size
|
|
176x144
(QCIF)
|
The
parameters indicated above could be subjected to changes of the values so it
will
be
retain
valid until a new communication of VO.
Contract
Acceptance Notice - Agency
To:
|
WAAT
Media Corporation, United States of America, registered no. 2512380
and
Address:
18226 Ventura Blvd. Suite 102 Tarzana, Ca 91356
Attention:
Camill Sayadeh
Fax:
+1 818 708 0598
|
From
the Vodafone Group Company
identified
opposite:
|
Belgacom
Mobile NV
Vooruitgangstraat
55
B-1210
Brussels
BELGIUM
(HRB
587.244)
Attention:
Xavier
Huberland - Consumer Mobile Division Director
Guy
Mat - Procurement Manager
Geoffroy
de Wilde d’Estmael - Business Performance Manager
|
CC:
|
Vodafone
Group Services Limited
Vodafone
House
The
Connection,
Newbury,
Berkshire RG14 2FN
United
Kingdom
Attention:
Executive Head of Content Development (Graeme Ferguson)
Fax:
+44 207 212 0312
|
Territory
|
The
country in which Belgacom Mobile NV is incorporated, namely
Belgium
|
We
accept
the Standing Offer set out in the Master Agreement entered into between you
and
VGSL dated 17 December 2004 (entitled “Vodafone Master Global Content Agency
Terms and Conditions”), a copy of which (together with any relevant Content
Schedules) we have seen.
Signed
on behalf of:
The
Vodafone Group Company
Identified
above
|
|
Signed
on behalf of:
WAAT
Media Corporation
Print
signatories’ name: Camill Sayadeh
|
|
|
|
|
|
Belgacom
Mobile NV
Identified
above
|
|
Position:
Date
signed:
|
|
|
|
Signature
|
|
Print
signatories’ name: Xavier Huberland
|
|
|
|
Position:
Consumer Mobile Division Director
|
|
|
|
Date
signed: 13-06-05
|
|
|
|
Signature
|
|
|
|
|
|
|
|
|
|
|
|
Print
signatories’ name: Guy Mat
|
|
|
|
Position:
Procurement Manager
|
|
|
|
Date
signed: 24-04-05
|
|
|
|
Signature
|
|
|
|
|
|
|
|
|
|
|
|
Print
signatories’ name: Geoffroy de Wilde d’Estmael
|
|
|
|
Position:
Business Performance Manager
|
|
|
|
Date
signed: 22-04-05
|
|
|
|
Signature
|
|
|
|
|
|
|
|
NB
-
Prior to signing this Contract Acceptance Notice, the Vodafone Group Company
must
be
sent copies of the final,
signed
versions of: (1) Terms and Conditions; and (2) Content
Schedule(s).
TO
THE ATTENTION OF CAMILL SAYADEH
|
|
Europe,
Belgium 7
th
of
September 2005
Dear,
Because
of our cooperation together via Vodafone I would like you to sign the Contract
acceptance notice in attachment.
Thanks
for sending me a copy via fax end please also send me an original signed copy
via air-mail to the address/attention of:
Proximus
- Belgacom Mobile
To
Tania
De Decker
Vooruitgangstraat
55
B-1210
Brussel
BELGIUM_EUROPE
Kind
regards,
Tania
De
Decker
Tania.dedecker@proximus.net
Tel
+32 2
205 20 88
Fax
+32 2
205 45 28
BELGACOM
MOBILE S.A./N.V.
Rue
du
Progr
è
s 55 /
Vooruigangstraat 55
B-1210
Bruxelles / Brussel
Tel:
+32 2
205 40 00 - Fax: +32 2 205 40 40
TYA/BTW
BE
453 918 428 - RCB/HRB 587 244
www.proximus.be
Content
Schedule
1.
|
This
Content Schedule incorporates the terms of the Master Global Content
Reseller Agreement (the "Master Agreement")
between
Vodafone Group Services Limited
("VGSL"),
registered
in England (registered number 3802001), having its registered
office
at Vodafone House. The Connection, Newbury, Berkshire RG14 2FN, United
Kingdom and the Content Provider (as
defined
below) dated on the same date as this Content
Schedule.
|
2.
|
When
signed by VGSL and the Content Provider this Content Schedule is
a
standing offer by the Content Provider of the
applicable
Content (as defined below) to all Vodafone Group Companies on the
terms of
the Master Agreement and this Content
Schedule.
|
3.
|
A
Vodafone Group Company may accept the Standing Offer by completing
and
signing the Contract Acceptance Notice and
following
the procedure set out in the Master
Agreement.
|
1.
|
Content
Provider
|
|
Waat
Media Corporation; United States of America; Company reg.
2512380;
Address:
18226 Ventura Blvd. Suite 102, Tarzana, CA 91356.
|
|
|
|
|
2.
|
Content
|
|
Video,
images, games, audio and all other mobile content services of an
adult
nature.
This offering will be selected from a selection of branded content
such as
Vivid
Entertainment, Peach Interactive, and Spearmint Rhino. All
and
any
Content
provided
by the Content Provider shall be covered by this
Agreement.
|
|
|
|
|
3.
|
Content
Provider
Branding
Guidelines
|
|
Waat
Media will provide branded content per VGSLs
guidelines.
|
|
|
|
|
4.
|
Marketing
Materials
|
|
Waat Media
will
provide marketing materials
as
requested
by VGSL and local
operators.
|
|
|
|
|
5.
|
Content
Provider Revenue
|
|
Content
Provider Revenue
shall
be
[INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER
RULE
24B-2] of Net
Revenue,
less
all
the
Deductions. It
is
understood that Deductions (if any) shall be deducted from the Content
Provider
Revenue
actually paid to the Content Provider in accordance with Clause
10.2.
The
Content Provider and VGSL shall seek to agree reasonable commercial
models
for ‘promotional’ content and bundled content as and when
required.
|
|
|
|
|
6.
|
Content
Protection
|
|
The
Content Provider shall be responsible for protecting the
Content.
|
|
|
|
|
7.
|
Hosting
|
|
The
Content Provider shall be responsible for hosting the Content unless
otherwise
agreed
between the Parties in writing.
|
|
|
|
|
8.
|
Languages
|
|
All
languages as
may
be reasonably requested by VGSL from time to time.
|
|
|
|
|
9.
|
Territories
|
|
Worldwide,
in such territories where the relevant Vodafone Group Company does
not
accept the Standing Offer under the Master Agency Agreement entered
into
between
VGSL and the Content Provider and dated.
|
|
|
|
|
10.
|
Mobile
Devices
|
|
All
Vodafone Live! Handsets possible
|
|
|
|
|
11.
|
Format
|
|
The
Content Provider shall ensure that the Content is capable of supporting
all
Formats,
which may be specified, by VGSL or the Vodafone Group Companies or
the
Vodafone Partner Network Company (the "Format") from time to time.
The
Content Provider shall not change or vary the Format without Vodafone's
prior
written
consent.
|
|
|
|
|
12.
|
Purchase
Options
|
|
As
agreed from time to time.
|
|
|
|
|
13.
|
VGSL
Certification
|
|
Unless
VGSL gives written or email notice otherwise, all Content requires
certification
by a QA Company.
|
|
|
|
|
14.
|
Delivery
Timetables
|
|
The
initial global Delivery Timetable (which may be updated and amended
by the
mutual
written agreement of the Parties) is attached as an Annexure to this
Content Schedule or as otherwise agreed by the Parties in writing
or
email.
|
|
|
|
|
15.
|
Relevant
Contacts
|
|
The
Content Provider:
Technical
-
Camill
Sayadeh
Tel:
+1
818 708 9995
Mob:
+1 818
723
2488
Fax:
+1
818 708 0598
camill
@waatmedia.com
|
|
|
|
Commercial
-
Adi
McAbian
Tel:
+1
818
708 9995
Mob;
+1
818
644
1300
Fax:
+1 818 708 0598
adi@waatmedia.com
|
|
|
|
Financial
-
Lena
Barseghian
Tel:
+1
818 708 9995
Mob:
+1 818 652 6497
Fax:
+1 818 708 0598
lena@waatmedia.com
|
|
|
|
|
|
|
|
VGSL;
|
|
|
|
Commercial
-
Andrew
Stalbow
Tel:
+44 207 212 0591
Mob:
+44
7717
618
919
Fax:
+44 207 212 0701
E-mail:
andrew.stalbow@
vodafone.com
|
|
|
|
|
16.
|
Tax
Residence
|
|
The
same country as the registered address of the Content Provider set
out
above.
|
|
|
|
|
17.
|
Content
Provider's
bank
account
details for electronic
transfer
payments
|
|
Payment
by VGSL to the Content Provider shall be made by BACS to the following
bank
account:
EAST
WEST BANK
18321
Ventura Blvd. Tarzana, CA
91356
Account
Name: The Waat Corporation
Account
Number:
8270-2648
ABA#
322070381
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|
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The
currency
of this Agreement shall be in Euros. All financial reports, statements,
invoices,
charges and payments made by one Party to the other shall be in
Euros.
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18.
|
Special
Conditions
|
|
The Content
Provider
will
comply with all
VGSL/Vodafone
content standards
guidelines
and policies provided to the Content Provider from time to time. The
Content
Provider shall also provide reasonable assistance to help create such
standards
and guidelines as agreed from time to time.
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|
|
|
|
|
|
|
The
Commencement Date for each individual Contract may, at the election
of
each
relevant
Vodafone Group Company, be either: (a) the Commencement Date as
defined
In
the
Master Agreement; (b) 30 September 2003; or (c) a date in between
(a)
and (b) specified
by
each
relevant Vodafone Group
Company.
|
Signed
on behalf of VGSL:
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|
|
Signed
on behalf of Content Provider:
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/s/ Graeme
Ferguson
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/s/ Camill
Sayadeh
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VGSL
authorised signatory
|
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Content
Provider authorised signatory
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|
Print
name: GRAEME FERGUSON
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|
Print
name: Camill Sayadeh
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|
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Position:
EXECUTIVE
HEAD OF CONTENT DEVELOPMENT
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|
|
Position:
COO
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|
|
|
Date
signed: 17
th
JANUARY 2005
|
|
|
Date
signed: December 20, 2004
|
*WE
HAVE REQUESTED CONFIDENTIAL TREATMENT OF CERTAIN PROVISIONS CONTAINED IN
THIS
EXHIBIT. THE COPY FILED AS AN EXHIBIT OMITS THE INFORMATION SUBJECT TO THE
CONFIDENTIALITY REQUEST.*
Swisscom
Mobile Appendix 5 Acceptance Notice
From
the Vodafone Group Company:
|
Swisscom
Mobile Ltd.
Schwaiztortstrasse
61
3007
Bern
Switzerland
Attention:
Head of Content Management (Daniel Gerber)
Fax:
+41 31 342 28 82
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To:
|
WAAT
Media Corporation, United States of America, registered no. 2512380
and
Address:
18226 Ventura Blvd. Suite 102 Tarzana, CA 91356
Attention:
Camill Sayadeh
Fax:
+1 818 708 0598
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Territory
|
Switzerland
|
We
accept
the Appendix 5 from Swisscom Mobile Ltd. in coherence to the Master Agreement
entered into between us and VGSL dated 17 December 2004 (entitled “Vodafone
Master Global Content Agency Terms and Conditions”).
Signed
on behalf of:
The
WAAT Media Corporation
Identified
above
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|
Print
signatories’ name:
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Position:
Managing Director
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Date
signed: 3/17/06
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|
LINKING
AGREEMENT
This
linking agreement (the “Contract”) is dated the 1
st
day of
November 2006.
THE
PARTIES
(1)
|
Vodafone
Libertel NV, a company incorporated in the Netherlands and whose
registered
office
is at Avenue Ceramique 300, 6221 KX Maastricht (“Vodafone
NL”).
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(2)
|
Twistbox
Entertainment, Inc., a company incorporated in Delaware, under company
number
4207607 and whose registered office is at 14242 Ventura Boulevard,
3
rd
Floor,
Sherman
Oaks, California 91423, United States of America (the
“Company”).
|
THE
PARTIES AGREE AS FOLLOWS:
|
1.1
|
This
Contract shall commence on the Effective Date and shall continue
for the
Initial
Term
unless terminated in accordance with Clause 1.2 or Clause
9.
|
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1.2
|
On
expiry of the Fixed Period either Party shall have the right to
terminate
this
Contract
by giving 3 months notice in writing to the other Party in the
event
that:
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|
1.2.1
|
Vodafone
NL has a change in policy that would prohibit
either:
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|
1.2.1.1
|
the
Sale of Adult Content in the Directory;
or
|
|
1.2.1.2
|
link(s)
to Adult Content from the
Directory.
|
|
1.3
|
After
the Initial Term this Contract shall continue until terminated by
any
Party on 30
days
written notice to the other Party or otherwise in accordance with
Clause
9.
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|
2.1
|
The
Company shall supply the Links to Vodafone NL for incorporation into
the
Directory.
|
|
2.2
|
The
Company grants Vodafone NL the Link
Licence.
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|
2.3
|
Vodafone
NL shall not be deemed to be Selling any content or services to
Customers
or third parties on or through the Link Sites or the
Links.
|
|
2.4
|
Vodafone
NL shall place the Links in the Directory or any other section agreed
between
the Parties.
|
|
2.5
|
Vodafone
NL shall
give
the
Links prominent placement in particular sections of the
Directory
agreed between the Parties.
|
|
2.6
|
The
Company shall be entitled to link the first 10 On-Net Keyword Search
Results to
Link
Sites in the Directory.
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|
2.7
|
The
Company shall be entitled to link the first 10 Off-Net Keyword Search
Results
to:
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|
2.7.1
|
Link
Sites outside the Directory; or
|
|
2.7.2
|
other
sites where an affiliate arrangement exists between the Company and
that
site owner.
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|
2.8
|
The
Company shall have the sole and exclusive management and hosting
of the
FON
erotic part of the Vodafone NL WAP portal; provided, however, that
Vodafone
NL
shall reserve the right to enter into written binding agreements
with a
maximum of three (3) third parties to directly commercialize erotic
content on the Vodafone NL's FON Erotic WAP portal, without being
in
breach of this Agreement. Vodafone NL shall inform the Company in
writing
whenever it has entered into such written agreements with a third
party.
Any additional third party who desires to provide
Vodafone
NL's FON Erotic WAP Portal with erotic content, must first enter
into an
agreement
with the Company, upon reasonable commercial terms and conditions,
and
subject to Vodafone NL's prior written approval, not to be unreasonably
withheld.
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|
3.1
|
Each
Party
shall
comply with the provisions set out in Schedule 2 (Payment and
Reporting).
|
|
3.2
|
The
relevant currency for this Contract shall be in Euros. All financial
reports,
statements,
invoices, purchase orders, charges, payments and credits to be made
or
issued pursuant to this Contract shall be in
Euros.
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|
3.3
|
If
a Party (in this Clause 3.3 the “Debtor”) fails to pay the other Party (in
this Clause
3.3
the “Creditor”) any amount due and payable to the Creditor under this
Contract
by
the time prescribed by this Contract (in this Clause 3.3 the “Due Date”),
the
Creditor
shall be entitled to give the Debtor written notice of its intention
to
charge interest.
All
such notices shall be given in accordance with Clause 11.3.
If
payment
of the amount due has still not been received by the Creditor within
14
days of receipt of such notice by the Debtor, the Debtor shall on
demand
by the
Creditor
pay the Creditor interest on the unpaid amount at the rate of 2%
per annum
above
the De Nederlandsche Bank (d/b/a DNB) base rate in force on the Due
Date,
calculated
from the Due Date until payment of the unpaid amount is made in
full.
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4.1
|
Parties
make use of article 4 (3) of the Dutch VAT Act 1968. By which means
The
Company
shall provide Vodafone NL with a valid invoice for fictitious delivered
content
that meets all requirements duly imposed by the relevant taxation
authorities
and which specifically states the VAT (if VAT is applicable) and
reasonably
meets reasonable conditions necessary to allow Vodafone NL to obtain
relief
from such VAT if a relief procedure is available (“Tax Invoice”). The
Company
will
pay to the tax authorities any charged VAT stated on the Tax
invoice.
|
(Free
translation into English of article 4 (3) of the Dutch VAT Act 1968: Article
4
(1)
Services
are all transactions, not being a supply of goods, supplied for a
consideration.
(3) Services supplied by intermediation of a commissionaire or similar
entrepreneurs
who close agreements in own name but on behalf of another, must
be
considered to be received by and supplied to that entrepreneur.)
|
4.2
|
Vodafone
NL shall provide invoices to end consumers for the fictitious delivered
content
and Vodafone NL will pay the VAT charged on the invoices to the tax
authorities.
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4.3
|
Vodafone
NL handles the standard Dutch VAT rate of 19% on the invoices send
to
the
end consumers. (Unless the Company can
prove
to
Vodafone NL that a different
VAT
rate should apply and the application of a different VAT rate is
explicit
been
agreed
by Vodafone NL.)
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5
|
Directory
and Vodafone NL
Network
|
|
5.1
|
Vodafone
NL does not warrant that the Directory or the Vodafone NL Network
will
be
fault free or free of interruptions. Vodafone NL aims to make the
Directory
available
to its customers at all times and will take reasonable steps to do
this.
However,
due
to
constraints
of
radio
and
electronic
communications
it is not
possible
for Vodafone NL to provide a fault free Directory service to its
Customers.
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5.2
|
Vodafone
NL shall have no liability to the Company for any failure of the
Directory
or
the
Vodafone Network whether this arises from a technical fault or other
failure in
the
Directory, the Vodafone NL Network or
otherwise.
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|
5.3
|
Vodafone
NL may suspend the operation of the Directory and may suspend the
operation
of the Vodafone NL Network for the purposes of remedial or preventative
maintenance
and improvement and Vodafone NL (to the extent within its control)
shall
use all reasonable endeavours to keep such suspensions to a
minimum.
|
|
6.1
|
The
Parties agree that all IPR in the Links shall remain with the Company
and
its licensors.
|
|
6.2
|
The
Company shall be responsible to obtain all licences, clearances,
permissions,
waivers,
approvals or consents required in order to grant the Link Licence
to
Vodafone
NL pursuant to Clause 2.2.
|
|
6.3
|
The
Company shall indemnify and keep the Indemnified Parties indemnified
from
and against any and all demands, actions, claims, proceedings, losses,
damages, costs and expenses (including court costs and legal costs
assessed on a solicitor-
client
basis, and other professional costs and expenses) and other liabilities
of
whatever
nature (whether foreseeable or not) suffered, incurred or sustained
by any
or
all of the Indemnified Parties as a result of or in connection with
any
action, claim,
demand
or proceeding made or brought by any person alleging that the provision
of
any
part
of
the Links by the Company or Vodafone NL's receipt, use or possession
of
any part of the Links in accordance with the Link Licence infringes
the
rights
(including
IPRs) of any person.
|
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7.1
|
Each
Party warrants and represents to the other that it has full power
and
authority
to
enter into and perform its obligations under this
Contract.
|
|
7.2
|
The
Company warrants and represents to Vodafone NL
that:
|
|
7.2.1
|
it
has all necessary rights, title and interest in the Links in order
to
grant
the Link Licence;
|
|
7.2.2
|
the
Link Sites shall be compliant with the Guidelines and shall clearly
classify
any content accessible through the Link Sites with
any
adult
content
classification framework criteria agreed between Vodafone
NL
and
the Company; and
|
|
7.2.3
|
it
will exercise commercially reasonable efforts so that neither the
Links
nor the Link Sites will contain any
Viruses.
|
|
7.3
|
Vodafone
NL represents and warrants to the Company
that:
|
|
7.3.1
|
that
as of September 1, 2006, the total
number
of Age Verified Customers was 412,921;
and
|
|
7.3.2
|
it
will exercise commercially reasonable efforts to increase the number
of
Age Verified Customers by 30,000 for each
quarter.
|
|
7.4
|
Each
Party shall indemnify and hold harmless the Indemnified Parties from
and
against
any actions, proceedings, costs, claims and demands brought or made
against any or all of the Indemnified Parties and against any loss
or
expense suffered, incurred or sustained by any or all of the Indemnified
Parties
as a result of any breach of Clause
7.
|
8
|
Liability
and Insurance
|
|
8.1
|
Nothing
in this Contract shall be construed to limit or exclude any Party's
liability:
|
|
8.1.1
|
for
death or personal injury caused by such Party or such Party's
employee's
or contractor's negligence;
|
|
8.1.2
|
for
fraudulent misrepresentation or
fraud;
|
|
8.1.3
|
pursuant
to Clause 6 (IPR);
|
|
8.1.4
|
pursuant
to Clause 7 (Warranties); or
|
|
8.1.5
|
pursuant
to Clause 10 (Confidentiality and
Publicity).
|
|
8.2
|
Subject
to Clause 8.1, no Party shall be liable
for
any
loss of
profit,
business,
revenue,
opportunity,
goodwill
or anticipated savings
in
connection with this
Contract.
|
|
8.3
|
Subject
to Clause 8.1, no Party shall be liable for any indirect,
incidental,
special or
consequential
loss in connection with this
Contract.
|
|
9.1
|
Either
Party may terminate this Contract with immediate
effect
by giving written
notice
to the other Party, in circumstances where the other
Party:
|
|
9.1.1
|
is
in material breach of any terms of this Contract and fails to
remedy
the
breach
within 30 days after receiving written notice requiring
it
to do so; or
|
|
9.1.2
|
becomes
subject to an Insolvency Event.
|
|
9.2
|
In
the event that search terms and results provided by "Google," or
any other
white
label
solution, has a direct negative impact on traffic and revenues generated
by the
Company's
content on Vodafone NL's FON Erotic WAP portal, the Parties agree
to
enter
into good faith negotiation to renegotiate the terms of this Agreement.
If
the
Parties
fail to reach a compromise, the Company may terminate this Contract
with
immediate
effect by giving written notice to Vodafone
NL.
|
|
9.3
|
Termination
of this Contract shall not affect the accrued rights and remedies
of each
Party.
|
10
|
Confidentiality
and Publicity
|
|
10.1
|
Each
Recipient Party agrees to:
|
|
10.1.1
|
use
Confidential Information solely for the purposes envisaged under
this
Contract
and not to use the Confidential Information for any other
purposes;
|
|
10.1.2
|
ensure
that only those of its employees, agents, advisers or sub-contractors
who
are directly concerned with the performance of this
Contract
have access to the Confidential Information on a "need to know" basis;
and
|
|
10.1.3
|
keep
the Confidential Information secret and confidential and not to
disclose
such Confidential Information to any third party for any reason
without
the prior written consent of the Disclosing
Party.
|
|
10.2
|
The
obligations of confidence referred to in Clause 10.1 above shall
not
extend to
any
Confidential Information which:
|
|
10.2.1
|
is
or becomes generally available to the public otherwise than by reason
of a
breach by the Recipient Party of the provisions of Clause
10.1;
|
|
10.2.2
|
is
known to the Recipient Party and is at its free disposal prior to
its
disclosure
by the Disclosing Party;
|
|
10.2.3
|
is
subsequently disclosed to the Recipient Party without obligations
of
confidence
by a third party owing no such obligations of confidence to the
Disclosing
Party in respect of that Confidential
Information;
|
|
10.2.4
|
is
required to be disclosed by any court or government authority competent
to
require such disclosure; and
|
|
10.2.5
|
by
any material applicable law, legislation or
regulation.
|
|
10.3
|
Notwithstanding
Clause 10.1, Vodafone NL may disclose any Confidential Information
to any
company in the Vodafone Group provided always that such
company
agrees to observe the same confidentiality obligations imposed on
Vodafone
NL pursuant this Clause 10.
|
|
10.4
|
No
Party shall make any public statements or issue any press releases
about
this
Contract
or its contents or any other arrangements or potential arrangements
between
the Parties without the prior written consent
of
the
other Party
.
|
11
|
Data
Protection and Data
Security
|
|
11.1
|
The
Company shall not allow any personal data it collects pursuant to
this
Contract
to
be used for any purpose other than those authorised or permitted
by this
Contract.
|
|
11.2
|
The
Company shall not allow any personal data it collects pursuant to
this
Contract
to
be used (whether by the Company or any third party) for any marketing
purposes
without
the prior written consent of Vodafone NL and the prior consent of
the
Customer
to whom the personal information relates. Without limitation, this
clause
shall
prevent the use of MSIDNs, targeted advertising, and tailoring Link
Sites
or
affiliate
Sites to the Customer without the prior written consent of Vodafone
NL and
the prior consent of the Customer to whom the personal information
relates.
|
|
11.3
|
For
the avoidance of doubt, the Company shall acquire no rights in any
personal
data
collected pursuant to this Contract and shall only be entitled to
process
it in
accordance
with its obligations under this Contract. On termination of this
Contract
the
Company shall immediately cease to use such personal data and shall
arrange
for
its safe return, destruction, erasure or
deletion.
|
|
11.4
|
Each
Party shall strictly comply with:
|
|
11.4.1
|
the
notification requirements under the
DPA;
|
|
11.4.2
|
the
relevant data protection principles specified in the DPA;
and
|
|
11.4.3
|
any
material applicable legislation and regulation in The Netherlands
implementing
European Union Directive
2002/58/EC.
|
|
11.5
|
The
Company shall not allow any personal data it collects pursuant to
this
Contract
to
be transferred outside of the EEA without the prior written consent
of
Vodafone
NL.
|
|
11.6
|
Each
Party shall ensure that it has appropriate operational and technical
processes in place to safeguard against any unauthorised access,
loss,
destruction, theft, use
or
disclosure of any personal data it collects pursuant to this
Contract.
|
12
|
Assignment
and Sub-contracting
|
|
12.1
|
Each
Party shall be entitled to subcontract the performance of its rights
and
obligations under this Contract.
Notwithstanding
the use of any sub-contractor,
each
Party shall remain solely liable to the other Party for the performance
of
its
rights
and obligations under this
Contract.
|
|
12.2
|
No
Party shall be entitled to assign, novate or otherwise dispose of
or deal
with this
Contract
or any part of it without the previous consent in writing of the
other
Party,
which
may be withheld at the other Party's sole discretion; provided, however,
no
consent
is necessary in the event of an assignment by either Party: (i) to
a
successor
entity resulting from a merger, combination or consolidation; (ii)
to the
transferee
of
all
or substantially all of the assets of the assigning Party or
its
parent(s);
or (iii) to an entity under common control with, controlled by or
in
control
of
the
assigning Party.
|
|
12.3
|
Notices
given in accordance this Clause 12.3 shall be deemed to have been
duly
given:
when delivered, if delivered by messenger during normal business
hours of
the recipient; when sent, if transmitted by facsimile transmission
(receipt confirmed
and
with a confirmation copy sent by post) during normal business hours
of the
recipient;
or on the third business day following posting, if posted by first
class
or
recorded
post with postage pre-paid.
|
Notice
to
the Company to be provided as follows:
|
If
by mail or facsimile:
|
Twistbox
Entertainment, Inc..
14242
Ventura Boulevard,
Third
Floor
Sherman Oaks,
California 91423 USA
Attn:
International Sales/Distribution
Attn:
EVP/General Counsel
Fax:
(818)
708-0598
|
Notice
to Vodafone NL to be provided as follows:
|
If by mail or
facsimile:
|
Vodafone
Netherlands
Avenue
Ceramique 241
6221
HX Maastricht
The
Netherlands
Attn:
Content & VAS wholesale department
Fax:
+31 433558513
|
|
13.1
|
This
Contract shall be capable of being varied only by a written instrument
signed
by
duly authorised representatives of Vodafone NL and the
Company.
|
|
13.2
|
Except
in the case of any permitted assignment pursuant to this Contract
and
except in relation to Clause 6.3 and Clause 7.3, the Parties agree
to
exclude to the fullest extent possible the application of the Contracts
(Rights of Third Parties) Act
1999
to this Contract.
|
|
13.3
|
This
Contract is severable in that if any provision is determined to be
illegal
or
unenforceable
by any court of competent jurisdiction such provision shall be
deemed
to have been deleted without affecting the remaining provisions of
this
Contract.
|
|
13.4
|
The
failure to exercise or delay in exercising a right or remedy provided
by
this
Contract
or by law does not constitute a waiver of the right or remedy or
a waiver
of
other
rights or remedies.
|
|
13.5
|
Except
as expressly stated otherwise in this Contract, nothing in this Contract
constitutes any relationship of employer and employee, agent and
principal, or
partnership
between the Parties.
|
|
13.6
|
Except
as may be expressly provided herein, any dispute between the Parties
arising
under this Contract shall be finally settled in London, England pursuant
to
the
Rules
of
Arbitration of the
International
Chamber
of
Commerce.
|
14
|
Definitions
and Interpretation
|
|
14.1
|
In
this Contract the following words and terms shall have the following
meanings
unless
the context otherwise requires:
|
“Adult
Content”
|
|
means any adult erotica content which
is only
accessible
by Age Verified Customers.
|
|
|
|
“Advertising”
|
|
means the advertising and promotion
of any
goods
or
services offered for sale by any third party;
|
|
|
|
“Age
Verified Customers”
|
|
A customer which has a postpaid subscription
for
the
services provided by Vodafone NL. In
order
to
get
a postpaid subscription a person needs to be at
least
18 years old.
|
|
|
|
“Codes
of Practice”
|
|
means:
|
|
|
|
|
|
(a)
all
material applicable codes of practice,
laws,
regulations,
government
recommendations
and
any
recommendations
of
any
applicable
regulatory
body; and
|
|
|
|
|
|
(b)
any
rules, procedures (including technical or quality
control
procedures),
guidelines,
directions,
policies
and
any
other
requirements provided to the Company as
made
or adopted by Vodafone NL in relation
to
the operation
of
the
Directory,
the
participation
of content suppliers in the
VLive!
service or the provision of content for
placement
in the Directory;
|
|
|
|
“Confidential
Information”
|
|
means
any financial, business and technical or other
data
and all other confidential information (whether
written,
oral, in electronic form or on magnetic or
other
media) concerning the business and affairs of a Party that the other
Party
obtains, receives or has
access
to as a result of the discussions or dealings
leading
up to or the entering into or the performance
of
this Contract (including, for the avoidance of
doubt,
the terms of this Contract);
|
|
|
|
“Customer”
|
|
means a user of the Directory;
|
|
|
|
“Directory”
|
|
means:
|
|
|
|
|
|
(a)
the
VLive! mobile content directory;
|
|
|
|
|
|
(b)
any
SMS, MMS, video download, audio
download
and video and audio streaming services provided by Vodafone NL;
and
|
|
|
(c)
any
other delivery mechanism provided by
Vodafone
NL from time to time;
|
|
|
|
“Disclosing
Party”
|
|
means the Party which has disclosed,
furnished or
made
accessible to the Recipient Party, any
Confidential
Information;
|
|
|
|
“DPA”
|
|
means any material applicable laws,
regulations or codes of conduct relating to data protection or the
rights
of the data subject;
|
|
|
|
“EEA”
|
|
means the European Economic Area consisting
of
all
European Union member states together with
Iceland,
Liechtenstein and Norway;
|
|
|
|
“Effective
Date”
|
|
means the date that this Contract is
signed
by the
Parties;
|
|
|
|
“Fixed
Period”
|
|
means a period of 6 calendar months
commencing
on
the Effective Date;
|
|
|
|
“Guidelines”
|
|
means any written guidelines provided
by
Vodafone
NL
to the Company from time to time which relate to
content
standards
(including
anti-social,
adult,
fraudulent,
unlawful
or
otherwise inappropriate
content)
and any Codes of Practice;
|
|
|
|
“Image”
|
|
means the images,
likenesses,
characteristics,
names
and other aspects of artists, celebrities, well
known
or famous people;
|
|
|
|
“Indemnified
Parties”
|
|
means Vodafone NL including its officers,
servants,
agents,
contractors and assigns;
|
|
|
|
“Initial
Term”
|
|
means a period of 1 calendar year commencing
on
the
Effective Date;
|
|
|
|
“Insolvency
Event”
|
|
means circumstances in which a Party
makes
any
voluntary
arrangement with its creditors or becomes
subject
to an administration order or goes into
liquidation
(otherwise than for the purpose of
amalgamation
or
reconstruction),
or
(being a
company)
has a receiver or an administrative
receiver
appointed over all or part of its assets;
|
|
|
|
“IPR”
|
|
means
copyright (and related rights), database
rights,
design rights, topography rights, image
rights,
trade marks, service marks, trade and
business
names (including all goodwill associated
with
any trade marks, trade
and
business
names or
other
names) or domain names
(whether
or not any of
the
same
are
registered
and
including
applications
for registration of any of the
same);
|
“Keywords”
|
|
means
those adult erotic words and phrases which
the
Parties agree in writing will generate the relevant
On-Net
Keyword Search Results and Off-Net
Keyword
Search Results;
|
|
|
|
“Link
Licence”
|
|
means
the licence set out in Schedule 1;
|
|
|
|
“Links”
|
|
means
any selectable connections to the Link Sites
provided
by the Company to Vodafone NL from time
to
time;
|
|
|
|
“Link
Sites”
|
|
means
a site featuring Adult Content owned or
provided
by the Company;
|
|
|
|
“Off-
Net
Keyword Search
|
|
a result from a Customer search for Adult Content
using
a Keyword or Keywords in the Vodafone NL
owned
Directory search function which directs a
Customer
to Adult Content which is outside the
Directory;
|
|
|
|
“On-Net
Keyword Search
|
|
a
result from a Customer search for Adult Content
using
a Keyword or Keywords in the Vodafone NL
owned
Directory search function which directs a
Customer
to Adult Content in the Directory;
|
|
|
|
“Party”
|
|
means Vodafone NL and the Company
individually;
|
|
|
|
“Parties”
|
|
means Vodafone NL and the Company
collectively;
|
|
|
|
“Recipient
Party”
|
|
means the Party to whom Confidential
information has been disclosed, furnished or made accessible
by
the Disclosing Party;
|
|
|
|
“Sale”
|
|
means the licence and supply of content
by
the
Company
to a Customer on or through the Link
Sites,
and the terms “
Sell
” and “
Sold
” shall be
construed
accordingly;
|
|
|
|
“
Territory”
|
|
means The Netherlands;
|
|
|
|
“VAT”
|
|
“
VAT”
means Value Added Tax or any analogous
tax
in any relevant jurisdiction including but not
limited
to use, sales and local sales taxes of any
kind
on any goods or services supplied pursuant to
this
contract or any goods or services supplied to
customers
|
|
|
|
“Virus”
|
|
means any computer virus, trojan horses,
worms,
logic
bombs,
time
bombs,
invasive
computer
programs,
or other computer programming routines
that
may damage or detrimentally interfere with any computer or
telecommunications network (including
the
Vodafone NL Network), equipment or handsets;
|
|
|
|
“Vodafone
NL Network”
|
|
means
any telecommunication systems operated by
Vodafone
NL;
|
|
14.2.1
|
all
references to Clauses and Schedules are references to clauses
and
schedules in this Contract, unless the context otherwise
requires;
|
|
14.2.2
|
references
to “includes” or “including” shall be construed without
limitation
to the generality of the preceding or proceeding
words;
|
|
14.2.3
|
words
importing gender shall include all genders, words denoting the
singular
shall include the plural, words denoting persons include
incorporated
and unincorporated bodies, and in each case vice
versa;
|
|
14.2.4
|
any
reference to a Party to this Contract includes a reference to that
Party's
successors in title and permitted
assigns;
|
|
14.2.5
|
reference
to any directive, statute, statutory provision or statutory instrument
includes a reference to that directive, statute, statutory
provision
or statutory instrument together with all rules and regulations
made
under them and as from time to time amended, consolidated or
re-enacted.
|
|
14.3
|
The
headings in this Contract are for information only and are to be
ignored
in
construing
the same.
|
|
14.4
|
The
attached Schedules shall form part of this Contract and shall be
construed
and
shall
have the same force and effect as if they were expressly set out
in the
main
body
of this Contract and any references to this Contract includes the
Schedules.
|
|
14.5
|
In
the event of any inconsistency, the terms of the main body of this
Contract shall
prevail
over the terms of any Schedules.
|
|
14.6
|
References
to this Contract shall be deemed to be a reference to the current
version
of
this Contract in the event that it is varied by agreement of the
Parties
in
accordance
with Clause 13.1.
|
[SIGNATURE
PAGE TO FOLLOW]
Signed
for and behalf of Vodafone NL
|
|
|
|
|
|
|
|
Signature:
/s/ Harry Odenhoven
|
|
|
|
Name:
Harry Odenhoven
Title:
director on-line services
|
|
|
|
Name:
Graeme Millar
Title:
director consumer business unit
/s/
Graeme Millar
Signed
for and on behalf of the company
|
|
|
|
|
|
|
|
Signature:
/s/ David
Mandell
|
|
|
|
Name:
David
Mandell
Title:
EVP/General
Counsel
|
|
|
|
*WE
HAVE REQUESTED CONFIDENTIAL TREATMENT OF CERTAIN PROVISIONS CONTAINED
IN THIS
EXHIBIT. THE COPY FILED AS AN EXHIBIT OMITS THE INFORMATION SUBJECT
TO THE
CONFIDENTIALITY REQUEST.*
SCHEDULE
1
Link
Licence
1
|
The
Company hereby grants to Vodafone NL a non-exclusive licence for
the term
of this
Contract
to use, store, reproduce, display, distribute, transmit, communicate
and
make the
Link
available to Customers on or through the Directory in the
Territory.
|
2
|
The
Company hereby grants to Vodafone NL a non-exclusive licence to edit
and
modify the
Link
for the purpose of optimising such Content
for:
|
|
2.1
|
the
delivery of the Link to Customers on or through the Directory in
the
Territory;
and
|
|
2.2
|
the
display of the Link on mobile
phones.
|
SCHEDULE
2
Payment
and
Reporting
1
|
Definitions
and
Interpretation
|
|
1.1
|
In
this Schedule the following words and terms shall have the following
meanings
unless
the context otherwise requires:
|
“Actual
AVC”
|
|
means
the total number of Age Verified
Customers
measured at the end of a
Quarter;
|
|
|
|
“Actual
Availability”
|
|
means
the percentage of time that the Directory
is
available
to
Customers,
measured
across a Quarter;
|
|
|
|
“Availability
Factor”
|
|
means,
for each Quarter,
|
|
|
|
|
|
·
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
if Actual Availability is
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
or
greater;
·
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
,
if Actual Availability is
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
or greater but less than
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
;
·
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
,
if Actual Availability is
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
or
greater
but less than
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
;
·
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
,
if Actual Availability is
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
or greater but less than
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
;
·
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
,
if Actual Availability is
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
or greater but less than
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
;
·
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
,
if Actual Availability is less than
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
|
|
|
|
“AVC
Factor”
|
|
means,
for each Quarter
|
|
|
|
|
|
·
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
,
if Actual AVC / Projected AVC
expressed
as a percentage is
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
or greater;
·
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
,
if Actual AVC / Projected
AVC
expressed as a percentage is
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
or greater but less than
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
;
·
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
,
if Actual AVC / Projected
AVC
expressed as a percentage is
85%
or greater but less than
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
;
·
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
,
if Actual AVC / Projected
AVC
expressed as a percentage
is
|
“Q2”
|
|
means
a period of 3 calendar months commencing
on
the
date
immediately following the expiration
of
Q1;
|
|
|
|
“Q3”
|
|
means
a period of 3 calendar months
commencing
on
the
date
immediately
following
the expiration of
Q2;
|
|
|
|
“Q4”
|
|
means
a period of 3 calendar months commencing
on
the
date
immediately
following
the expiration of Q3;
|
|
|
|
“Quarter”
|
|
means
either Q1, Q2,
Q3
or Q4, as
appropriate;
|
|
|
|
“Quarter
Revenue Guarantee”
|
|
means:
|
|
|
|
|
|
·
for
Q1, [INFORMATION OMITTED
AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]
·
for
Q2, [INFORMATION OMITTED
AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]
·
for
Q3, [INFORMATION OMITTED
AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]
·
for
Q4, [INFORMATION OMITTED
AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
|
|
|
|
“Reporting
Address”
|
|
|
|
|
|
“Revenue
Payment”
|
|
means
the amount payable by the Company
to
Vodafone
NL
such
amount
being
calculated in accordance with paragraph 2
of
this Schedule 2;
|
|
|
|
“Sale
Deductions”
|
|
means
any VAT Amounts;
|
|
|
|
“Sale
Revenue”
|
|
means
the
total
amount
of
revenue
generated
by the Sale
of
Adult
Content on Link Sites; by content charging
(i.e.
any
data
charges
or access charges are excluded).
|
|
|
|
“VAT
Amounts”
|
|
means
any Value Added Tax or any
analogous
tax in any relevant jurisdiction
including
but not limited to use, sales and local sales taxes of any kind
(excluding
any
taxes
levied solely on the parties capital or
income)
to be paid and accounted for by
parties
in respect of a sale.
|
1.2
|
In
this Schedule all references to paragraphs are references to
paragraphs in
this
Schedule
unless the context otherwise
requires.
|
2
|
Revenue
Payment and Additional Revenue
Payment
|
|
2.1
|
The
Revenue Payment payable to Vodafone NL by the Company shall be
calculated
as [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
UNDER RULE 24B-2]%
of
the Net Partnership Revenue.
|
|
2.2
|
All
payments
shall be exclusive of VAT, which shall be paid in addition if
applicable
subject
to receipt of a valid VAT invoice.
|
|
2.3
|
The
combined total of all Net Sale Revenue and Net Partnership Revenue,
generated
by Vodafone NL's FON Erotic WAP portal, to be received by Vodafone
NL for
each Quarter shall be no less than the Quarter Revenue Guarantee
which
relates
to that Quarter.
Where
the total of all Net Sale Revenue and Net
Partnership
Revenue received by Vodafone NL for a particular Quarter is less
than
the
Quarter Revenue Guarantee which relates to that Quarter, the
Company shall
pay
an additional Revenue Payment to Vodafone NL for that Quarter
(“Additional
Revenue Payment”) in the same manner as the Revenue Payments are payable
under
of this Schedule 2. The Additional Revenue Payment shall be calculated
on
the following basis:
|
Additional
Revenue Payment = (X
-
Y)
x
AVC
Factor x
Availability
Factor
where:
X
= the
Quarter Revenue Guarantee which relates to that Quarter; and
Y
= the
combined total of all Net Sale Revenue and Net Partnership
Revenue.
|
3.1
|
Vodafone
NL shall prepare a Monthly Report for each calendar month (or
part
thereof) during the term of this Contract and provide it to the
Company no
later
than
10 working days after the end of each calendar month to which
the monthly
report
relates at the following addresses:
|
Twistbox
Entertainment, Inc.
14242
Ventura
Boulevard, Third Floor
Sherman
Oaks, California
91423
USA
Attn:
Finance Department
Fax:
1-818-708-0598
Email:
invoices
@
waat.com
and
mrosengarten@waat.com
|
3.2
|
The
Monthly Report shall set out details of the following
matters:
|
|
3.2.1
|
the
number and category of sales in that calendar month;
and
|
|
3.2.2
|
the
amount of gross sales revenue generated in that calendar
month.
|
|
4.1
|
The
Revenue Payment payable to the Company shall be calculated as
50% of the
Net Sales Revenue. No revenue share shall apply to any data charges
or
time
based
charges for browsing in the FON
area.
|
|
5.1
|
In
accordance with the Monthly Report, the Company shall issue an
invoice
which
contains
details of the relevant invoice and the amount of the Revenue
Payment
payable
to the Company for any calendar month (or part thereof) during
the term of
this
Contract.
The
Company shall provide such invoice to Vodafone NL no later
than
thirty (30) days after the end of the calendar month to which
the Revenue
Payment relates.
|
|
5.2
|
Vodafone
NL shall pay all invoices issued by the Company no later than
the end of
the
calendar month in which the invoice is received by Vodafone
NL.
|
|
5.3
|
Payment
of any Revenue Payment shall be made by Vodafone NL to the Company
as
follows:
|
Send
to:
American
Express Bank, Frankfurt
Swift
Code: AEIBDEFXXX
Credit
to:
EAST
WEST
BANK, Pasadena
Swift
Code:
EWBKUS66XXX
ABA
322070381
Account:
018081601
Further
Credit to:
EAST
WEST
BANK
18321
Ventura Boulevard
Tarzana,
California 91356
Account
Name: TwistBox Entertainment
ABA
Number: 322070381
Account
Number: 0082708884
|
6.1
|
During
the term of this Contract and for a period of 12 months after
termination
of
this
Contract, Vodafone NL shall, upon reasonable written request
by the
Company,
provide the Company with reasonable access to inspect any information
that
the Company may reasonably require in order to verify the accuracy
of any
financial
report or statement (including any Monthly Report) made or given
by
Vodafone
NL under this Contract.
|
|
6.2
|
If
as a result of any inspection carried out by the Company pursuant
to
paragraph
6.1
any discrepancy is discovered, Vodafone NL shall rectify such
discrepancy
within
15 days after being advised of the discrepancy and immediately
pay to the
Company
all amounts discovered to be due the Company as a result of any
such
inspection
within thirty (30) days of invoice.
In
addition, in the event any such
inspection
reveals a discrepancy of five percent (5%) or more in the Company's
favor,
Vodafone NL will pay all reasonable costs of the Company's inspection,
and
such
costs shall be added to the Company's invoice for amounts
due.
|
AGREEMENT
Entered
into by and between
TWISTBOX
ENTERTAINMENT, INC.
Tax
number 80-0058995
Tel:
+1-818-301-6200
Fax:
+1-818-708-0598
(hereinafter
“Twistbox”)
AND
VODAFONE
PORTUGAL - COMUNICAÇÕES PESSOAIS, S. A.
Tax
number 502 544 180
Tel:
+351
21 091 4407
Fax:
+
351 21 091 4414
(hereinafter
“Vodafone”)
AGREEMENT
THIS
AGREEMENT (“Agreement”) is entered into on 23
th
day of
March 2007, between:
TWISTBOX
ENTERTAINMENT, INC.,
a
company incorporated under the laws of the State of Delaware, USA, having its
registered office at Secretary of State Registry Office of Delaware under number
4207607, tax number 80-0058995, herein duly represented by David Mandell in
his
capacity of EVP/General Counsel, hereinafter referred to as
“Twistbox”
or “the
Partner”
AND
VODAFONE
PORTUGAL - COMUNICAÇÕES PESSOAIS, S.A.,
a
company incorporated under the laws of Portugal, having its registered office
at
Av. D. João II, Lote 1.04.01, 8
th
Floor,
Parque das Nações, 1990-093 Lisbon, Portugal, with share capital of €
107.500.000, registered at the Commercial Registry Office in Lisboa under number
2424, tax number 502 544 180, herein duly represented by Mr. António
Alberto Bastos Carriço and Mário Jorge Soares Vaz, in their capacity of members
of Proxies, hereinafter referred to as “Vodafone”.
Whereas
,
(A)
|
Vodafone
has developed a Mobile Portal (as defined herein) which contains
a
directory service aimed to facilitate access to mobile content and
services for the Customers (as defined
herein);
|
(B)
|
Twistbox,
formerly trading under the corporate name of WAAT Media, is a company
whose activity consists of licensing, creating, publishing and
distributing products and services for access and use by consumers
operating Wireless Devices (as defined
herein);
|
(C)
|
Vodafone
wishes to restructure the adult content channel (the “Channel” as further
defined herein) available within the Mobile Portal and Twistbox wishes
to
supply and place its content within such area of the Mobile Portal
and to
manage the adult content channel
thereof;
|
(D)
|
The
Parties wish to set the terms and conditions under which Twistbox
will
supply the Content (as defined herein) to be placed in the Mobile
Portal
and manage the adult content channel
thereof;
|
Therefore,
in consideration of the mutual promises and covenants contained in this
Agreement the Parties hereto agree as follows:
In
this
Agreement the following words and expressions shall have the meaning set out
below:
a)
|
“Agreement”
means this agreement and all its
schedules;
|
b)
|
“Channel”
means the area in the Mobile Portal which exclusively contains adult
content, which shall for the purposes of this Agreement exclude the
area
managed by Vodafone, as per the provisions of Clause 2.5 of this
Agreement;
|
c)
|
“Chargeable
Transaction”
means any use of the Content by a Customer for which the Customer
will be
charged in addition to the standard mobile telephone charges incurred
by
the Customer for access to the
Content;
|
d)
|
“Competitor”
means any telecommunications operator and telecommunications services
provider, other than Vodafone;
|
e)
|
“Content”
means the information, text, data, graphics, moving and still images
and
sound recordings (including the music and lyrics on such recordings)
and/or services as further described in the
Agreement;
|
f)
|
“Customer”
means the end user of the Mobile
Portal;
|
g)
|
“Intellectual
Property Rights”
means all intellectual and industrial property rights including registered
trade and service marks, patents, registered designs, unregistered
trade
and service marks, trade and business names, domain names, rights
in
domain names, topography rights, copyright, database rights, unregistered
design rights and all other similar proprietary rights in every case
which
may subsist in any part of the world including any registration of
any
such rights and applications and any rights to make applications
for any
of the foregoing;
|
h)
|
“Interface
Requirements”
means the technical requirements which are necessary to fulfil in
order to
enable Twistbox to supply and place the Content in the Mobile Portal,
as
defined in Schedule I hereto;
|
i)
|
“Mobile
Portal”
means the Vodafone’s WAP mobile sites or services that offer a broad
amount of resources and services to
Customers;
|
j)
|
“Territory”
means Portugal;
|
k)
|
“Vodafone’s
Policies”
means those guidelines relating to the standards of Content production,
format and style, attached hereto as Schedule III, as established
and
amended from time to time by Vodafone and with which Twistbox must
comply;
|
l)
|
“Wireless
Devices”
mean any device that can be carried from place to place, is generally
small enough to fit in one’s pocket, and that is able to receive, transmit
display and/or store information via wireless transmissions and/or
the
internet including, but not limited to, wireless phones, pagers,
personal
digital assistants and other such similar
devices.
|
1.
|
Twistbox,
and/or its subsidiaries, owns all Intellectual Property Rights on
the
Content or otherwise is duly licensed by the owners thereof to exploit
all
such rights.
|
2.
|
By
means of this Agreement the Parties agree on the
following:
|
|
a)
|
Twistbox
shall develop and manage the Channel, pursuant to the provisions
of
Schedule I;
|
|
b)
|
Twistbox
shall supply and place the Content into the Channel, pursuant to
the
provisions of Schedule I;
|
3.
|
Twistbox
hereby grants Vodafone, and Vodafone hereby accepts from Twistbox,
the
nonexclusive, non-transferable, revocable right to use, reproduce,
display
the Content within the Mobile Portal for distribution to the Customers
for
private use on Wireless Devices throughout the Territory during the
Term
(the “Licensed Rights”). For the purposes of clarification, the Parties
acknowledge and accept that Vodafone is under no obligation to pay
Twistbox or any third parties any financial consideration or any
other
rights, except for the payments agreed under the provisions of clause
4.3
and Schedule II.
|
4.
|
Twistbox
acknowledges and agrees that the Licensed Rights granted in the previous
paragraph includes (i) the right to copy and reproduce the Content,
should
it be the case, as well as to make it available to an unlimited number
of
Customers, both in Portugal and abroad (to the extent that Customers
may
have access to the Mobile Portal and acquire the Content while in
roaming
)
by
means of digital networks and mobile internet, in whatever formats
and
means Vodafone may decide to adopt during the Term of this Agreement;
and
(ii) the right to attach Twistbox’s logo, name or brands in the Content,
the Mobile Portal, Vodafone’s web site as well as in any advertising
materials. The use of the Content as authorised herein does not constitute
a breach by Vodafone of any Intellectual Property Rights of Twistbox
or
any third party. Twistbox further acknowledges and accepts that after
termination of this Agreement Customers may continue to use and store
the
Content previously purchased.
|
5.
|
Twistbox
shall be Vodafone’s exclusive provider of Content for the Channel
available within the Mobile Portal, except for the three areas currently
managed by Vodafone within the Channel. (i.e. Mobile TV, Alerts and
DIMO).
Vodafone may, at any time, by giving Twistbox a written notice thereof
(which in the case of this clause may be provided by email) discontinue
any of the above areas managed by Vodafone. In the event that any
third
party wishes to provide content for the Channel, the third party
content
provider shall first enter into an agreement with Twistbox upon reasonable
commercial terms and conditions.
|
6.
|
Vodafone
may use the Content in any promotional activities related to the
Mobile
Portal; provided that Vodafone shall not distribute free Content
to the
Customers without Twistbox’s prior written
approval.
|
3.
|
Management
of the Channel and Content
|
1.
|
Twistbox
shall manage the Channel in the name and on behalf of Vodafone, with
due
care and diligence and in respect with the guidelines contained in
Schedule I
of
this Agreement and any other future guidelines, issued from time
to time
by Vodafone and communicated in writing to
Twistbox.
|
2.
|
Any
changes to the Channel (i.e. user experience, updates, etc) shall
be
subject to Vodafone’s written
approval.
|
3.
|
The
Channel shall only present the name, trade marks or logos owned or
licensed by Twistbox, pursuant to the provisions of Schedule
I.
|
4.
|
Twistbox
shall provide the Content in accordance with the terms of this Agreement
and in particular with Schedules I and III
hereto.
|
5.
|
Vodafone
may, at any time, issue new guidelines in respect of the management
of the
Channel or of the Content as well as review, revoke or suspend any
existing or future guidelines, giving Twistbox reasonable prior written
notice thereof.
|
6.
|
Twistbox
acknowledges and accepts that:
|
|
a)
|
Vodafone
has developed a number of policies concerning social responsibility
(including but not limited to the display and marketing of adult
content
and access control), as reflected in Schedule III and to which Twistbox
shall comply with;
|
|
b)
|
Vodafone
has developed an access controls policy that enables Customers to
block
access to adult content, either on Vodafone Live!, Wap and
SMS.
|
4.
|
Fees,
Payments, Invoicing and other
Consideration
|
1.
|
The
prices charged to Customers, and any changes thereto, for each Chargeable
Transactions are suggested by Twistbox and defined by
Vodafone.
|
2.
|
Vodafone
shall be responsible for the billing and collecting of payments from
the
Customer in respect with the Chargeable
Transactions.
|
3.
|
The
Parties will share the amounts effectively collected from the Customers
in
respect with any Chargeable Transaction, subject to the payment of
a
minimum guaranteed fee paid by Twistbox to Vodafone, as defined in
Schedule II to this Agreement.
|
4.
|
Vodafone
will not pay to Twistbox its share of any Chargeable Transactions
which
could not be collected from the
Customers.
|
5.
|
Vodafone
shall send Twistbox, by e-mail and within the first fifteen (15)
days of
each month, a report (hereinafter referred to as the “Report”) with the
total number of the Chargeable Transactions made by the Customers
during
the preceding month, as per Schedule
III.
|
6.
|
Based
upon the Report the Partner shall invoice Vodafone, by the 20
th
day of each month. All invoices issued by the Partner must always
contain
“CC C20902000” reference and shall be sent to the address set out in
Schedule IV.
|
7.
|
All
the invoices shall be paid in Euros within forty-five (45) days after
the
invoice reception date.
|
8.
|
All
the amounts due under this Agreement shall be paid by wire transfer
sent
to:
|
9.
|
During
the Term, Vodafone shall maintain separate detailed and accurate
records
related to this Agreement and the Partner shall have the right, not
more
than once per calendar year, at Partner’s cost to audit or inspect such
records during normal business hours by an independent auditor selected
by
the Parties and in any event shall such inspection give access, or
cause
any disruptions, to Vodafone’s services or systems. The cost of the
audit(s) shall be for the account of the Partner, unless there is
a seven
and a half percent (7.5%) or higher discrepancy in the accuracy of
any or
all of Vodafone’s payments and/or reports due to Vodafone’s fault, in
which case, the reasonable costs of the audit shall be borne by Vodafone.
Vodafone shall remit any outstanding amount in respect of the discrepancy
to Content Provider within forty-five (45) days of the audit or in
case
there is an overpayment. Partner shall remit the overpayment to Vodafone
within forty-five (45) days of the audit and shall bear the costs
of the
audit.
|
5.
|
Warranties
and Liability
|
1.
|
Twistbox
represents and warrants that:
|
|
a)
|
it
has full right and authority to enter into this
Agreement;
|
|
b)
|
it
will comply with all applicable material requirements of the legislation
in force in Portugal regarding data
protection;
|
|
c)
|
it
will comply with the terms of Schedules I, II III, IV and V to this
Agreement; and
|
|
d)
|
it
will use reasonable skill and care in carrying out its obligations
and
exercising its rights under this
Agreement.
|
2.
|
Twistbox
further represents and warrants that the Channel and Content displayed
therein:
|
|
a)
|
is
and will remain, for the duration of this Agreement, in compliance
with
this Agreement and with all applicable material
legislations;
|
|
b)
|
is
of satisfactory quality, fit for any purpose contemplated in this
Agreement, and will be kept fresh, updated and current at all times
and
for all current and future Wap colour enabled
handsets;
|
|
c)
|
is
original and does not infringe any third Party’s rights including, but not
limited to, Intellectual Property
Rights;
|
|
d)
|
making
the Content available is duly authorised by the relevant entities
and does
not infringe any third Party’s
rights;
|
|
e)
|
is
not and will not be defamatory, illicit offensive, racist xenophobic,
obscene, pornographic (which for the avoidance of doubt is considered
to
be outside the levels of explicitness allowed in this Agreement),
materially inaccurate or otherwise be in breach of any applicable
material
law, regulation code of conduct, public order or customary usage
or result
in Vodafone being in breach of any such law or regulation, code of
conduct, public order or customary
usage;
|
|
f)
|
does
not and will not contain any Content that promotes a Competitor or
criticises Vodafone or brings Vodafone into disrepute;
and
|
|
g)
|
Twistbox’s
computer systems hosting and/or delivering the Content to Vodafone
and the
computer systems of any Twistbox’s subcontractor, should it be the case,
are, and shall be at all times, equipped with the latest versions
of the
anti-virus applications available on the market and Twistbox shall,
at all
times, exercise commercially reasonable efforts to avoid that the
Content
contains any computer viruses, logic bombs, trojan horses and/or
any other
items of software which would disrupt the proper operation of the
Channel
or the Mobile Portal.
|
3.
|
Vodafone
represents and warrants that:
|
|
a)
|
it
has full right and authority to enter into this
Agreement;
|
|
b)
|
it
will comply with all applicable material requirements of the legislation
in force regarding data protection;
|
|
c)
|
it
will use reasonable skill and care in carrying out its obligations
and
exercising its rights under this Agreement;
and
|
|
d)
|
it
will provide the necessary notifications to be given to Customer
prior to
any Chargeable Transaction being incurred (the messages shall include
the
specific price in euros).
|
4.
|
Vodafone
further represents and warrants
that:
|
|
a)
|
it
will, on a continuing basis, use its best efforts to ensure the Content
is
disseminated and distributed in the Territory (except for the cases
of
international roaming) where the receipt and viewing of said Content
is
lawful and within the contemporary community standards of the
Territory;
|
|
b)
|
it
will not allow or enable any person to access, view or receive or
otherwise use any portion of the Content without first agreeing to
pay the
Chargeable Transaction fee for such access and
viewing
|
5.
|
Each
Party will immediately notify the other in writing of any claim or
action,
actual or threatened, by a third party as a consequence of this Agreement
or any of its content.
|
6.
|
Each
Party hereby agrees to indemnify the other in full (including reasonable
legal fees), against all liabilities, claims, damages, losses and
proceedings brought against the other as a result of a breach of
any of
its representations and warranties and material obligation
contained
in this Agreement. In no event shall either Party be liable for any
indirect, special, incidental or consequential damages arising out
of or
in any way connected with this Agreement or any matter related hereto,
including without limitation, lost of business or lost profits, even
if
advised of the possibility of such
damages.
|
6.
|
Intellectual
Property Rights
|
1.
|
The
Parties agree that all Intellectual Property Rights in the Content
shall
remain with Twistbox and its
licensors.
|
2.
|
All
Intellectual Property Rights concerning the Mobile Portal and related
services shall remain at all times the property of Vodafone. For
the
avoidance of doubt, Twistbox may not use, or allow third parties
to use
(either in the benefit of Twistbox or in the benefit of such third
parties) the user experience defined and approved by Vodafone (including
any requirements set out in this Agreement or any of its Schedules)
for
any purposes other than the purposes of this
Agreement.
|
All
use
of Vodafone’s trade mark, logo or name, must be subject to Vodafone’s prior
approval.
1.
|
Vodafone,
or a company appointed by Vodafone for this purpose, shall be responsible
for dealing with all costumer inquiries concerning the Mobile Portal
in
general.
|
2.
|
Twistbox
will assist Vodafone’s customer support services to solve any customers’
issues within a maximum period of 24
hours.
|
1.
|
This
Agreement is entered into for an initial period of
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]
months (the
“Initial
Period”
),
being its effects to retroact to 1
st
February 2007. This Agreement shall be automatically renewed until
terminated by either Party pursuant to the provisions of the following
paragraph.
|
2.
|
Either
Party may terminate this Agreement by giving the other a written
notice at
least [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
UNDER RULE 24B-2] day (i) prior to the end of the Initial Period
or (ii)
thereafter, prior to the date it wishes the termination notice becomes
effective.
|
1.
|
Either
Party may, by written notice to the other, terminate this Agreement
with
immediate effect if the other Party breaches any of its representations
and warranties and/or material obligations hereunder and such breach
is
incapable of remedy or, if capable of remedy, the Party fails to
remedy
that breach within thirty (30) days notice from the non-breaching
Party
requiring remedy.
|
2.
|
Vodafone
will be entitled to suspend or terminate this Agreement immediately
on
written notice, without prejudice to its other rights and remedies,
in the
event that:
|
|
a)
|
Twistbox
fails to comply with any of the requirements set out in Schedules
I, II,
III, IV and V to this Agreement;
|
|
b)
|
Twistbox
ceases to carry on its business or has a liquidator, receiver or
administrative receiver appointed to it or over any part of its
undertaking or assets or passes a resolution for its winding up (otherwise
than for the purpose of a bona fide scheme of solvent amalgamation
or
reconstruction where the resulting entity will assume all of the
liabilities of it) or a court of competent jurisdiction makes a
liquidation order or similar order over the other, or the other enters
into any voluntary arrangement with its creditors, or is unable to
pay its
debts as they fall due;
|
|
c)
|
In
case of strategic changes in terms of Vodafone hosting an Erotic
channel
or service.
|
3.
|
Termination
of this Agreement does not affect the accrued rights, obligations
or
liabilities of the Parties prior to termination. Upon termination
of this
Agreement, the Parties shall settle all outstanding sums that either
Party
may owe the other within 45 days of the date of termination. Without
prejudice to the above, Twistbox shall not be entitled to any indemnity
or
compensation for any damages or direct or indirect
losses.
|
4.
|
The
termination notices must always be given in writing through registered
letter with acknowledgement of
receipt.
|
5.
|
Upon
termination of this Agreement, Vodafone shall cease to distribute,
display, reproduce or sell the Content provided by Twistbox under
this
Agreement.
|
Except
as
may be required by law or any applicable regulatory body, or as is strictly
required to perform its obligations under this Agreement, each Party shall
keep
secret and confidential and not use, disclose or divulge to any third party
any
information that they obtain about the other concerning the business, finances,
technology and affairs of the other, and in particular but not Limited to this
Agreement and its subject matter. This clause does not apply to information
that
has come into the public domain other than by breach of this clause or any
other
duty of confidence or is obtained from a third Party without breach of this
clause or is required to be disclosed by law.
12.
|
Assignment
and Subcontracting
|
1.
|
Neither
Party shall assign any of its rights or obligations under this Agreement
without the other Party’s prior written consent, such consent not to be
unreasonably withheld; provided, however, no consent is necessary
in the
event of an assignment by either Party to an entity under common
control
with, controlled by or in control of the assigning Party. In any
event
Twistbox shall provide Vodafone with a notice thereof, 15-day prior
to the
date of the assignment.
|
2.
|
Twistbox
may not subcontract to a third party, either in full or in part,
its
rights and obligations under this Agreement without Vodafone’s prior
written consent, not to be unreasonable withheld, and in any case
it shall
remain the entity exclusively and solely liable for the performance
thereof.
|
This
Agreement represents the entire understanding between the Parties in relation
to
its subject matter and supersedes all Agreements and representations made by
either Party, whether oral or written.
This
Agreement may only be modified or amended by a written instrument signed by
both
Parties.
If
any
part of this Agreement is held to be illegal or unenforceable, the validity
or
enforceability of the remainder of this Agreement will not be
affected.
16.
|
Governing
Law and Jurisdiction
|
1.
|
This
Agreement shall be governed by and construed and interpreted in accordance
with the Portuguese law.
|
2.
|
Any
dispute or disagreement regarding the interpretation or performance
of
this Agreement will be settled by the Lisbon Civil
Courts.
|
1.
|
Any
notice or other communication required to be given or made under
this
Agreement will be in writing and transmitted by post, fax or e-mail
to the
receiving Party’s address identified in Schedule
IV.
|
2.
|
Communications
under number one above shall be effective upon the date of receipt
or, if
carried out after business hours, on the following working day.
Communications transmitted by fax shall be effective on the day following
the transmission.
|
This
Agreement is signed by the Parties in two originals.
(Stamp
Duty Paid Against Receipt under Law 150/99, 11/09)
VODAFONE
PORTUGAL, Comunicações Pessoais, SA
Signature:
|
/s/
António Carriço
|
|
Signature:
|
/s/
Mário Vaz
|
Name:
|
António
Carriço
|
|
Name:
|
Mário
Vaz
|
Title:
|
Director
|
|
Title:
|
Director
|
TWISTBOX
ENTERTAINMENT, INC.
|
|
|
|
|
|
|
|
Signature:
|
/s/
David Mandell
|
|
|
|
Name:
|
David
Mandell
|
|
|
|
Title:
|
EVP/General
Counsel
|
|
|
|
*WE
HAVE REQUESTED CONFIDENTIAL TREATMENT OF CERTAIN PROVISIONS CONTAINED IN
THIS
EXHIBIT. THE COPY FILED AS AN EXHIBIT OMITS THE INFORMATION SUBJECT TO THE
CONFIDENTIALITY REQUEST.*
SCHEDULE
1
MANAGEMENT
OF THE CHANNEL AND SUPPLY AND PLACE OF CONTENT
Pursuant
to the provisions of this Agreement Twistbox undertakes to manage the Channel,
subject however to the rules set out in this Schedule I.
1.
|
The
Channel technologies and
Channel
|
The
Channel shall support at least the following technologies:
·
|
Browsing
Images (Male/Female of the day, Thematic
Strips)
|
·
|
Downloads
(Wallpapers, Java Games and Java
Stripshows)
|
·
|
Video
(Streaming and Download)
|
Without
prejudice to the above, Vodafone may continue to display the links or to provide
services to Customers based upon the following:
·
|
dimo-
directório móvel (Friendly Off-net
Directory)
|
These
3
links will have to be included in the user experience to be implemented by
Twistbox. In case Vodafone decides to maintain the above links, Twistbox will
have to include it in the bottom of the Channel’s home page, pursuant to the
instruction provided by Vodafone in this respect.
The
Channel should be developed in PartnerML (PML, a proprietary device-independent
XML format defined by Vodafone), as per the information kit already supplied
by
Vodafone to Twistbox. The Channel must work on all mobile terminals supported
by
the Vodafone live! and WAP Basic enabled colour portals.
Regularly
updates of this information kit will be available and sent to the
Partner.
The
supply of Content shall also be governed by the provisions of the proposal
submitted by Twistbox to Vodafone on 16
th
October
2006, attached hereto as Appendix A of this Schedule I. In case of conflict
between the provisions of the proposal and the provisions of this Agreement,
the
latter shall prevail.
Pursuant
to the provisions of clause 3.2. of the Agreement, Twistbox shall propose a
user
experience to be approved by Vodafone, which shall comply with the following
pre-requisites:
·
|
The
Channel main colours are red and
white.
|
·
|
The
Channel main language must be Portuguese (from
Portugal).
|
·
|
Content
updates should be, at least, on a weekly
basis
|
·
|
Only
Twistbox’s brands may be published in the Channel in the format “Powered
by”.
|
Vodafone
has implemented the following Access Controls structure to which Twistbox shall
comply with
·
|
To
enter the Channel, Customers must always pass through the warning
page
which is displayed by Vodafone
|
·
|
Customers
may either (i) accept the conditions by clicking on the “Continue” link;
or (ii) refuse to enter the Channel, by clicking on “Back” or (iii) chose
the “Bar” option in which case it will be redirected to an page containing
information as to the way to block access to the
Channel.
|
·
|
After
this, Customers will be redirected to the Partner
homepage.
|
·
|
This
control system is handled by
Vodafone.
|
Twistbox
warrants that the Channel will be available 99.5% throughout each period of
30
consecutive days.
Additionally
Twistbox shall exercise commercially reasonable efforts to ensure that Content
will be available 24 hours/ day, with no interruption.
Twistbox
shall provide technical support 24 hours a day, 365 days a year, with no
interruption.
Twistbox
shall exercise commercially reasonable efforts to monitor the performance of
the
Channel and the service and not rely upon Vodafone for notification.
Notwithstanding the above, if so requested by Vodafone Twistbox shall provide
appropriate support in accordance with this Agreement.
By
“monitoring commercially reasonable efforts” the Parties shall means the
following procedures undertaken by Twistbox on a daily baisis:
|
1.
|
Random
daily spot checks on the Channel and
service;
|
|
2.
|
outside
checks every five minutes from different locations on the
monitors;
|
|
3.
|
server
is monitored 24/7 and there is an automatic notification in case
of
failure, downtime, disconnection,
etc.;
|
|
4.
|
3
fully redundant datacenters + 2 backups (East Coast, West Coast,
and
Europe) (data replicated over VPN -Virtual Private
Network);
|
|
5.
|
in-house
monitors checking connectivity and
uptime;
|
|
6.
|
the
service is tested twice prior to going
“live;”
|
|
7.
|
monitoring
of Bandwidth, CPU and Memory;
|
|
8.
|
personnel
on call 24/7;
|
|
9.
|
code
walkthroughs are performed
regularly;
|
|
10.
|
bug
tracker system, firewalls, VPN, and SSH;
and
|
|
11.
|
daily
backups of the system stored both on-site and
off-site.
|
The
following guidelines will be used to determine the priority of incidents
involving the Content and other services delivered or under the responsibility
of Twistbox.
Priority
1 (Critical):
|
|
(i)
Failure of the Channel and/or the Content, in whole or in a significant
part, or Channel and/or Content not totally down, but the affected
components form a significant part of the functionality of the Content
or
(ii) the problem
creates
a definite or a possible business or financial exposure or affects
a large
number of Customers. Response within 2 hours from Twistbox having
knowledge of, or (in case of Vodafone detecting a problem) receiving
a
written notice by email reporting the critical incident and resolution
within 6 hours.
|
Priority
2 (High):
|
|
The
Channel and/or the Content is largely available and the problem has
little
or no effect on the services provided by the Content and the problem
creates no business or financial exposure. Response time within 12
hours
from written notice by email reporting the high incident and resolution
within 24 hours.
|
|
|
|
Priority
3 (Low):
|
|
Non-critical
issues, i.e. typos, translation errors, etc. Response time within
24 hours
from written notice by email reporting the low incident and resolution
within 48 hours.
|
APPENDIX
A
Proposal
submitted by Twistbox on 16
th
October 2006.
[page
intentionally left blank]
SCHEDULE
II
REMUNERATION
Pursuant
to the provisions of Clause 4 of the Agreement, the Parties will share the
amounts effectively collected from the Customers in respect with any Chargeable
Transaction subject to the payment of a minimum guaranteed fee by Twistbox
to
Vodafone.
On
the
basis of the monthly net revenue (i.e. exclusive of VAT, in EURO) generated
by
the Channel (which shall exclude any revenue generated by the areas managed
by
Vodafone as per Clause 2.5 of this Agreement) (the “
Net
Revenue
”),
the
following model shall apply with cumulative steps
Net
Revenue
|
|
|
|
Vodafone
revenue share
|
[INFORMATION
OMITTED AND FILED SEPARATELY WITH
THE COMMISSION UNDER RULE 24B-2]
|
|
[INFORMATION
OMITTED AND FILED SEPARATELY WITH
THE COMMISSION UNDER RULE 24B-2]
|
Partner
revenue share
|
[INFORMATION
OMITTED AND FILED SEPARATELY WITH
THE COMMISSION UNDER RULE 24B-2]
|
|
[INFORMATION
OMITTED AND FILED SEPARATELY WITH
THE COMMISSION UNDER RULE 24B-2]
|
2.
|
Vodafone’s
monthly minimum guaranteed
fee
|
Without
prejudice to the above, Vodafone shall receive on a monthly basis the Net
Revenue of 50.000 EUR; provided that traffic is not diverted from the Erotic
Portal by (i) the introduction of friendly off-net erotic portals or search
engines (e.g. Google); (ii) a decrease in marketing and promotion of the
Vodafone’s Mobile Portal; or (iii) any other reason not directly attributable to
Twistbox.
For
the
purposes of the previous paragraph, the calculations made by Twistbox were
based
on the figures represented by Vodafone Portugal in the RFP Erotic Channel of
October 2
nd
,
2006,
corresponding to 105 000 unique visitors in August 2006.
In
the
event traffic is diverted from the Erotic Portal for any reason not directly
attributable to Twistbox, the Parties agree to consider the review of this
amount. If the Parties fail to reach a compromise, they may terminate this
Agreement upon thirty (30) days written notice.
3.
|
Other
Business Conditions
|
a)
|
All
Channel developments shall be exclusively paid by
Twistbox.
|
b)
|
The
Content is supplied by Twistbox cleared from all authorisations and
consents and any licences, rights, duties, levies, taxes or otherwise
in
respect of the Content (including but not limited to any payments
due to
collecting societies or other entities) shall be paid by Twistbox,
being
Vodafone under no obligation to make any payments to Twistbox (except
for
those referred to in clause 4.3 of this Agreement and in paragraph
1 of
this Schedule II) or to any third Parties or
individuals.
|
SCHEDULE
III
VODAFONE’S
POLICIES
Part
A - Content Standards
The
Content available on the Channel shall be checked against the Content Matrix,
which shows the erotic rating acceptable by Vodafone and shall respect the
Banned Content list, as per point 2 hereof.
The
maximum level of explicitness allowed in the Channel, is the
following:
·
|
For
Video contents, the top rating is CS
2.3
|
·
|
For
Image contents (still images), the top rating is CS 3.2 excluding
CS 2.2,
CS 2.4, CS 2.5 and CS 2.6
|
The
Content Matrix (as approved from time to time by Vodafone Group) is attached
hereto as Appendix A to this Schedule III.
Twistbox
shall under no circumstances supply and place any Content that is forbidden
according to the provisions of the Banned Content List, as approved by Vodafone
Group and contained in Appendix B to this Schedule III (or any amended versions
thereof).
Notwithstanding
any of the above, VODAFONE reserves the right, at any time, to instruct Twistbox
to remove, change, discontinue, suspend, interrupt or otherwise not make
available to Customers any Content (including but not limited to text content
descriptions) VODAFONE, at its own discretion, decides that should not be
displayed, supplied or made available to Customers. Twistbox shall comply with
these instructions within reasonable time.
APPENDIX
A - CONTENT MATRIX
©
2006 WAAT Media. All Rights Reserved
APPENDIX
B - BANNED CONTENT LIST
The
following content must not be made available:
|
·
|
Any
material which is in breach of the national criminal law or otherwise
must
not be carried on a commercial
basis.
|
2/
|
Sexually
Explicit
Material
|
Content
of a highly explicit sexual nature, the sole purpose of which is sexual
entertainment. The below applies to both heterosexual and homosexual activities
equally.
a)
|
Minors
and Role playing
|
|
·
|
Content
depicting, or implying that a person who is (or who appears to be)
under
18 years of age is engaged in sexual activity, or presented in a
sexually
provocative manner which may include depictions involving adults
role-playing as non-adults
|
|
·
|
All
Vodafone’s adult content providers must confirm that the models in the
images supplied are over 18 years of
age
|
b)
|
Abusive
sexual activity
|
|
·
|
Sexual
violence e.g. sexual assault and / or
rape
|
|
·
|
Content
(including dialogue) likely to encourage an interest in abusive sexual
activity (e.g. paedophilia, incest)
|
c)
|
Sado
Masochistic activity
|
|
·
|
Content
depicting or implying the infliction of constraint, coercion and
pain or
physical harm in a sexual context
|
|
·
|
Content
depicting or implying the use of any form of physical restraint,
for
example, gags and bonds
|
d)
|
Other
Fetish sexual activity
|
|
·
|
Content
depicting or implying niche fetish activity not covered by the Adult
Erotic Matrix; for example, necrophilia, defecation and
urolagnia
|
|
·
|
Content
depicting or implying content that may or may not be covered by the
Adult
Erotic Matrix but is exploiting vulnerable people; for example, disabled
or elderly people
|
|
·
|
Content
depicting or implying bestiality (even where legal within the OpCo
territory)
|
f)
|
Live
adult erotic web cams
|
|
·
|
Live
web cams providing adult erotic
services
|
g)
|
Use
of sexual objects/props
|
|
·
|
Content
depicting the use of sex props that are excessively large (relative
to
normal anatomy) or content depicting the sexual use of sharp or dangerous
objects, or objects that imply illegal or abusive activities; for
example,
the use of guns and knives, bottles, children’s toys, religious artifacts,
household appliances or sports
equipment.
|
Content
depicting actual instances of harm or distress to people or animals where used
as a form of entertainment, excluding the reporting of an incident of public
interest within news or documentary content that is acceptable within the
Portuguese public broadcasting standards; or any fictional content covered
by
any Portuguese classification system e.g. gun scenes in film clips or any
content that is acceptable within the Portuguese public broadcasting
standards
|
·
|
Extreme
or gratuitous violence, including restraint, torture, sadism, mutilation,
execution
|
|
·
|
Exploitative
/ sadistic violence towards vulnerable and defenceless people and
animals
|
|
·
|
Self-infliction
of extreme pain or physical harm resulting in permanent damage or
death
|
|
·
|
Content
that incites violence
|
4/
|
Incitement
of illegal or anti-social
behaviour
|
|
·
|
Incitement
of racial, religious or ethnic hatred or
abuse
|
|
·
|
Incitement
or glamorising of anti-social behaviour such as illegal drug taking
and
solvent abuse, the glorification of vandalism, bomb making, terrorism
etc
|
|
·
|
Material
that demonstrates criminal
techniques
|
SCHEDULE
III
VODAFONE’S
POLICIES
Part
B - Code of Ethical Purchasing
|
|
2
Code of Ethical Purchasing. p...
|
|
VODAFONE
CODE OF ETHICAL PURCHASING
As
one of
the world’s largest mobile telecommunications network companies, Vodafone has a
significant role to play in enriching people’s lives.
We
also
understand that we have a significant role to play in managing our business
carefully and responsibly, which is why we have adopted a set of core Values
and
Business Principles to govern our activities and interactions with all our
stakeholders across the world, including our suppliers.
Our
Business Principles declare a commitment “to promote the application of our
Business Principles by our business partners and suppliers.”
The
following Code of Ethical Purchasing is to be read in conjunction with our
Business Principles, and is designed to promote safe and fair working
conditions, and the responsible management of environmental and social issues
in
Vodafone’s supply chain.
The
Code
has been developed in consultation with employees, suppliers, investors and
Non-Governmental Organisations. It sets out the standards we wish to see
achieved by Vodafone and our suppliers over time.
The
principle of continuous improvement applies to all aspects of the
Code.
In
accordance with the implementation provisions of the Code, Vodafone will require
first level suppliers to acknowledge their understanding and acceptance of
our
Code and to confirm that they will comply.
Vodafone
will work collaboratively with our suppliers on the implementation of the Code,
which may include joint audits and site visits to assess
performance.
Vodafone
will publicly report on the implementation of and compliance with the
Code.
Vodafone
will encourage all suppliers to implement our Code across their whole business
and within their own supply chains.
IMPLEMENTATION
OF THE CODE
Ownership
·
|
The
Vodafone Director of Global Supply Chain Management is the owner
of the
Vodafone Code of Ethical Purchasing, and reports to the Integrations
and
Operations Committee on the implementation of the
Code.
|
·
|
The
Director of Global Supply Chain Management and the Heads of Supply
Chain
Management in each of the Operating Companies have operational
responsibility for the implementation of the
Code.
|
Communication
·
|
Vodafone
will communicate and promote its Code of Ethical Purchasing internally
and
externally to relevant
stakeholders.
|
·
|
Suppliers
are encouraged to take all reasonable endeavours to promote the Code
to
their suppliers and subcontractors.
|
Training
and Awareness
·
|
Vodafone
and its suppliers will ensure that all relevant people are provided
with
appropriate training and guidelines to support the
Code.
|
Application
·
|
Suppliers
applying this code are expected to comply with all relevant laws,
regulations and standards in all of the countries in which they
operate.
|
·
|
The
Code is applied for the purposes of promoting safe and fair working
conditions and the responsible management of environmental and social
issues in Vodafone’s supply chain.
|
·
|
Suppliers
will be asked to confirm (in writing) that they are implementing
the Code,
or similar purchasing standard such as the Ethical Trading Initiative
(ETI) Base Code, Social Accountability International’s SA 8000, or the
Chartered Institute of Purchasing and Supply Ethical Business Practices
in
Purchasing and Supply.
|
·
|
Vodafone
will work collaboratively with its suppliers on the implementation
of the
Code, which may include joint audits
1
and site visits to assess performance against the
Code.
|
·
|
Suppliers
will be asked to provide Vodafone with reasonable access to all relevant
information and premises for the purposes of assessing performance
against
the Code, and use reasonable endeavours to ensure that sub-contractors
do
the same.
|
1
|
Audits
would ideally be conducted jointly between Vodafone and the
supplier, and
may also include the assistance of an industry representative,
or relevant
Non-Governmental
Organisation.
|
Corrective
Action
·
|
Suppliers
are expected to identify and correct any activities that fall below
the
standard of the Code.
|
·
|
Suppliers
shall immediately report to Vodafone any serious breaches of the
Code,
together with an agreed schedule for corrective
action.
|
·
|
Where
serious breaches of the Code persist, Vodafone will consider termination
of the business relationship with the supplier
concerned.
|
Monitoring
and Reporting
·
|
Vodafone’s
Corporate Responsibility and Purchasing teams will use a risk-based
approach
2
to
monitor implementation of and adherence to the Code in our supply
chain,
and will report progress in the annual Vodafone Corporate Social
Responsibility Report.
|
·
|
Vodafone
and its suppliers will use reasonable endeavours to provide employees
and
other stakeholders with a confidential means to report any actual
or
potential breach of the Code.
|
2
|
Vodafone
will focus on those parts of the supply chain where the risk of not
meeting the Code is highest and where the maximum difference can
be made
with resources available.
|
CODE
OF ETHICAL PURCHASING
·
|
No
person is employed who is below the minimum legal age for
employment.
3
|
·
|
Children
(persons under 18 years) are not employed for any hazardous work,
or work
that is inconsistent with the child’s personal development.
4
|
·
|
Where
a child is employed, the best interests of the child shall be the
primary
consideration.
|
·
|
Policies
and programmes that assist any child found to be performing child
labour
are contributed to, supported, or
developed.
|
·
|
Forced,
bonded or compulsory labour is not used and employees are free to
leave
their employment after reasonable notice. Employees are not required
to
lodge deposits of money or identity papers with their
employer.
|
·
|
A
healthy and safe working environment is provided for employees, in
accordance with international standards and national laws. This includes
access to clean toilet facilities, drinkable water and, if applicable,
sanitary facilities for food
storage.
|
·
|
Where
an employer provides accommodation, it shall be clean, safe and meet
the
basic needs of employees.
|
·
|
Appropriate
health and safety information and training is provided to
employees.
|
4.
|
Freedom
of Association
|
·
|
As
far as any relevant laws allow, all employees are free to join or
not to
join trade unions or similar external representative
organisations.
|
·
|
Negative
discrimination
5
including racial or sexual discrimination is
prohibited.
|
6.
|
Disciplinary
Practices
|
·
|
Employees
are treated with respect and dignity. Physical or verbal abuse or
other
harassment and any threats or other forms of intimidation are
prohibited.
|
·
|
Working
hours of employees comply with national laws and are not
excessive
6
.
|
3
|
Minimum
age is the age of completion of compulsory schooling, or not less
than 15
years (or not less than 14 years, in countries where educational
facilities are insufficiently
developed).
|
4
|
Personal
development includes a child’s health or physical, mental, spiritual,
moral or social development.
|
5
|
Forms
of discrimination may include race, colour, sex, sexual orientation,
religion, political opinion, nationality, social origin, social status,
indigenous status, disability, age and union
membership.
|
6
|
Consideration
should be given to the type of work performed and the acceptable
working
hours for the role and the country
concerned.
|
·
|
Employees
understand their employment conditions and fair and reasonable
pay
7
and terms are provided.
|
·
|
No
form of bribery, including improper offers for payments to or from
employees, or organisations, is
tolerated.
|
·
|
Processes
are in place to actively improve the efficiency with which finite
resources (such as energy, water, raw materials) are
used.
|
·
|
Appropriate
management, operational and technical controls are in place to minimise
the release of harmful emissions to the
environment.
|
·
|
Appropriate
measures are in place to improve the environmental performance of
products
and services when in use by the end
user.
|
·
|
Innovative
developments in products and services that offer environmental and
social
benefits are supported.
|
REFERENCES
Vodafone’s
Code of Ethical Purchasing is based on the following international
standards:
·
|
The
United
Nations Universal Declaration of Human
Rights.
|
·
|
The
Conventions
of the International Labour
Organisation.
|
·
|
The
United
Nations Convention on the Rights of the
Child.
|
Reference
has also been made to:
·
|
Social
Accountability International’s SA 8000 Standard
|
·
|
The
Ethical Trading Initiative (ETI) Base Code,
and
|
·
|
The
UN Draft Norms of Responsibilities of Transnational Corporations
and Other
Business Enterprises with Regard to Human Rights
(2003)
|
With
respect
to the International Labour Organisation Conventions on Labour Standards,
the
following provisions have been referenced in the development of this
Code:
·
|
Convention
1 (Acceptable working
hours)
|
·
|
Conventions
29 (Forced and bonded Labour)
|
·
|
Convention
87, 98, and
135
(Freedom of Association)
|
·
|
Convention
111
(Discrimination)
|
·
|
Convention
138
(Minimum Age)
|
·
|
Convention
135
&
Recommendation
143
(Workers’ Representatives
Convention)
|
·
|
Convention
155
Article 19 (Health and safety
training)
|
DEFINITIONS
A
child
means a
person below the age of 18 years, as defined in Article 1 of the United Nations
Convention
on the Rights of the Child.
Personal
development
is
described in the Article 32 of the United Nations Convention on the Rights
of
the Child.
7
|
Consideration
should be given to the type of work performed and the market wage
for the
work as well as any statutory minimum wage for the country
concerned.
|
SCHEDULE
IV
CUSTOMER
SUPPORT AND COMMUNICATIONS
For
the
purposes of Clauses 4, 8 and 17 of this Agreement, the following contacts shall
be used as shown below:
Subject
to Section 8.2 of the Agreement, Twistbox shall be responsible for the creation,
management and maintenance of a 24/7 technical support service the contacts
of
which are:
Telephone
number: +1-818-301-6200
Cell
Number: +1-310-770-6820
Email:
support
opco vopt@twistbox.com
For
Priority 1 issues:
Telephone
Number: +1-818-398-0303
2.
|
Contract
communications
|
Any
contract communications shall be made by either party to the other as
follows:
VODAFONE
|
|
TWISTBOX
ENTERTAINMENT, INC.
|
Av.D.João
II, Lote 1.04.01
|
|
|
Ala
Norte, 6° piso
|
|
14242
Ventura Boulevard, Third Floor
|
Parque
das Nações
|
|
Sherman
Oaks CA 91423 USA
|
1990-093
Lisboa
|
|
|
Name:António
Carriço
|
|
Name:
David Mandell
|
Title:
Director de Gestão de Conte
ú
dos
|
|
Title:
EVP/General Counsel
|
E-mail
:
antonio.carrico@vodafone.com
|
|
E-mail:
legal@twistbox.com
|
Tel:
+ 351 21 091 4407
|
|
Tel:+1-818-301-6200
|
Fax:
+ 351 21 091 4414
|
|
Fax:+1-818-301-6239
|
Any
business communication shall be shall be made by either party to the other
as
follows:
VODAFONE
|
|
TWISTBOX
ENTERTAINMENT, INC.
|
Name:
Paulo Costa
|
|
Name:
Jason Silberberg
|
Product
Manager
|
|
Title:
Senior operator Account Manager
|
Tel:
+ 351 21 091 5346
|
|
Tel:+1-818-668-776
|
Email:
paulo.costa@vodafone.com
|
|
E-mail:
jsilberberg@twistbox.com
|
4.
|
Technical
Communications
|
Any
technical communication shall be shall be made by either party to the other
as
follows:
VODAFONE
|
|
TWISTBOX
ENTERTAINMENT, INC.
|
Name:
Paulo Costa
|
|
Name:
Terance Thatch
|
Product
Manager
|
|
Title:
Project Manager
|
Tel:+351
21 091 5346
|
|
Tel:+1-818-301-6200
|
Email:
paulo.costa@vodafone.com
|
|
Cell:+1-310-770-6820
|
|
|
E-mail:
tthatch@twistbox.com
|
5.
Invoicing
Communications
Any
invoicing communication shall be shall be made by either party to the other
as
follows:
VODAFONE.
|
|
TWISTBOX
ENTERTAINMENT, INC.
|
|
|
|
|
|
Email:
invoices@twistbox.com
and
mrosengarten@twist
|
A/C
Dep
t
°Financeiro
Av.
D.
João II, Lote 1.04.01
Ala
Norte, 2° piso
Parque
das Nações
1990-093
Lisboa
Portugal
All
payments made under this Agreement by Vodafone to Twistbox shall be made
pursuant to the provisions of Clause 4 to the following address:
Send
to:
American
Express Bank, Frankfurt
Swift
Code: AEIBDEFXXX
Credit
to:
East
West
Bank, Pasadena
Swift
Code: EWBKUS66XXX
ABA
#
3222070381
Account:
018081601
Further
Credit to:
East
West
Bank
18321
Ventura Boulevard
Tarzana
CA 91356
Account
Name: Twistbox
Account
Number: 0082708884
ABA
#
322070381
SCHEDULE
V
Penalties
1.
|
Pursuant
to the provisions of Clause 5.1 (c) of this Agreement, VODAFONE reserves
the right to apply the following penalties to Twistbox, whenever
any of
the following event occurs and Twistbox is not able to resolve the
issues
within the agreed SLA, as set forth in Schedule
1,5:
|
|
a)
|
In
case there are mistakes in the Content (including but not limited
to rude
language, factual, graphical image mistakes or typos), Twistbox shall
pay
Vodafone, for each such mistake or typo, as a penalty, a sum corresponding
to [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
UNDER
RULE 24B-2] of the minimum monthly guaranteed fee, as set out in
Schedule
II;
|
|
b)
|
In
case any of the SLA defined in Schedule I is not met Twistbox shall
pay
Vodafone, for each such failure, as a penalty, a sum corresponding
to
[INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER
RULE
24B-2] of the minimum monthly guaranteed fee, as set out in Schedule
II.
|
2.
|
The
aggregate value of the penalties set out in the previous paragraph
shall
not exceed per month 20% of the minimum monthly guaranteed fee, as
set out
in Schedule II.
|
3.
|
Without
prejudice of the application of the penalties defined in the Schedule,
whenever the events described in paragraph 1 occurs during two consecutive
months Vodafone may terminate this Agreement pursuant to the provisions
of
Clause 10.
|
IN
STRICT COMMERCIAL CONFIDENCE
Portugal
Vlive!
White Label Erotic Portal
TOP
LEVEL SUMMARY INFORMATION
Prepared
by:
|
|
Jason
Silberberg
|
Direct
telephone:
|
|
+1.818.301.6200
Ext. 259
|
Mobile
telephone:
|
|
+1.818.668.7776
|
Fax:
|
|
+1.818.708.0598
|
E-mail:
|
|
Jason@waat.com
|
CONFIDENTIAL
For
use
by Vodafone Portugal only, in connection with the Request for Proposal dated
October 2006
Proposed
User Experience/Interface:
Through
case studies from other European operators we work with we have found that
a
user has a specific liking of erotic content. Our ability to locate and optimize
a user’s preference is built into our platform (please refer to Appendix A),
optimizing ARPU and user frequency. The site is genre specific with no reference
to brands (see below). Users will have the opportunity to find a specific genre
per product, i.e. Lingerie, Big Breasts, Bikinis, Brunettes, etc. These
categories are broken down into product types, i.e. (Video, Wallpaper and
Images). For wallpapers and videos we recommend a pay-per-event billing method.
For images galleries, which contain 12 images of a specific genre, we recommend
a pay-pay-photoset model. Price point recommendations are as follows, per video
download is €2.50, per video streaming €2.00, per wallpaper is €1.00 and per
photoset is €1.50. In addition, the use of a feedback form is a beneficial
service allowing users to voice their opinion of the content and the site,
giving us priceless information on what can be changed or added to generate
additional revenue per user. Furthermore, the ability to purchase a product
from
the main page will heighten conversion and revenue; these areas are updated
everyday as well as the featured site portion of the portal. The portal layout
allows for optimal navigation; users will be able to browse and locate their
specific content quickly and will consequently have an effect on revenue and
user experience, while keeping click through and churn at a minimum. Update
frequency will be daily and weekly, dependent on the genre and product. Video,
Wallpapers and Image categories will be updated on a weekly basis.
CONFIDENTIAL
For
use
by Vodafone Portugal only, in connection with the Request for Proposal dated
October 2006
CONFIDENTIAL
For
use
by Vodafone Portugal only, in connection with the Request for Proposal dated
October 2006
Types
of Content and Services:
The
site
contains Videos, Wallpapers, Java Games and Photosets. Our video offering will
be extensive and device specific - Offering 17, 30 and 90 second downloadable
videos dependent on the device capabilities. Our platform recognizes the User
Agent and sends the appropriate file respectively. In addition to Video
Downloads, we will support and make available Streaming Videos between 2-4
minutes, either being hosted on Vodafone Portugal’s platform or a third party,
Triple-it, if needed. High quality Wallpapers will also be available supporting
more than 1,000 handsets and over 150 different dimension types. Our system
will
recognize the User Agent and send the appropriate wallpaper dimension to ensure
quality and user experience. We will feature more than 10 Java Games within
the
portal, either off of our games platform or off the Vodafone Portugal Platform.
We support over 700 handsets and continuously make new ports for new handsets
released in various markets ahead of their commercial release. Photosets are
made available as well, giving users the opportunity to purchase one photoset
at
a time, each photoset contains 12 images. The photos have a preview image and
a
close-up image giving high user experience and quality. Samples of all the
above
mentioned content types and service are below for your reference:
CONFIDENTIAL
For
use
by Vodafone Portugal only, in connection with the Request for Proposal dated
October 2006
Content
Brands Portfolio:
Proposed
Content Refresh:
Refresh
rates will vary from genre and product. Below is a breakdown of our content
refresh rate:
Videos,
Wallpapers and Photosets will be updated weekly. Java games will be updated
on a
biweekly basis if necessary; currently we handle the erotic game section of
Vodafone Live!
CRM
Capabilities:
All
content is meta-tagged with more than 40 unique identifiers (please reference
Figure 3 in Appendix A). As users navigate through site, content is dynamically
presented to best suit customer needs as determined by our Psychographic
Analyzer (please reference Figure 4 in Appendix A). Content is presented to
the
user via targeted promotions, appearing as banners and, recommendation links
(please reference Figure 5 in Appendix A).
Serving
Targeted Content and Ads
Contextual
Personalized
Identifying
Personal Preferences
Traffic
Logs
Search
Queries
Brand
Preference
Purchase
Behavior
Ad
Click
through
CONFIDENTIAL
For
use
by Vodafone Portugal only, in connection with the Request for Proposal dated
October 2006
SLA:
We
guarantee a 99.5% availability of the WAP portal, which includes all the
information and telecommunication systems including connection lines as well
as
any application used for the provision of the service under our area of direct
control and responsibility. We will provide the necessary support and
maintenance services, at a 24x7x365 basis for all technical issues which may
or
may not arise. In the case that a problem does arise, we will notify Vodafone
Portugal with a trouble ticket within 24 hours, dependent on the Priority Level,
detailing the problem and current status of the specific issue as well as a
time
of completion of when the issue will be resolved. All issues will be broken
down
into 3 Priority Level as follows:
Priority
Level 1 - Complete fail of service or users have issues with access or
purchasing - Level 1 Priority notifications will be sent no later than 4 hours
and resolved within 24 hours.
Priority
Level 2 - Issue where parts of the service are unavailable or inaccessible,
but
the main part is still functional - Level 2 Priority notifications will be
sent
no later than 12 hours and resolved with 48 hours.
Priority
Level 3 - Non-critical issue, i.e. typos, translation errors, etc. - Level
3
Priority notifications will be sent no later than 24 hours and resolved within
72 hours.
We
reserve the right of a Schedules Maintenance of 3 hours per calendar month
and
availability does not apply. Notification of any Scheduled Maintenance will
be
provided 72 hours before each occurrence. We will deliver monthly reports
including all data necessary for the calculation of, i.e. justified downtime,
total availability of service provision, and detailed traffic (e.g. volume
and
type of traffic exchanged etc.) and will keep the relevant data for a period
of
at least 12 months. We shall provide access to the original system logs as
part
of problem investigation and verification should this need be necessary and
communicated at least 2 working days prior to the required examination. For
incidents identified through Quality Control testing where content retrieved
by
subscriber has no substance or with inaccurate or incomplete content or when
no
content is delivered at all during the service delivery/consumption process
we
will notify Vodafone Portugal in writing within 24 hours of the instance. The
delivery/provision of the service to the end user is done one at a time
following a request by the end user (pull service delivery). If needed, a “black
list” can be used to deny access to certain users based off of their MSISDN
whenever this is reasonably possible. For more detailed information concerning
our SLA, please send a formal request and one will be provided to
you.
Experience
with PML:
We
have a
long standing experience with PML from Version 1.10 to the newest R7 and R9
versions. We have been working with numerous Vodafone operators since 2001
and
have been building and maintaining PML sites throughout the years.
Timings
for deployment:
Once
a
decision is made, we can have our service ready for testing within 2-4 weeks
of
receiving the official decision and live within a 1 week of
delivery.
CONFIDENTIAL
For
use
by Vodafone Portugal only, in connection with the Request for Proposal dated
October 2006
Companies
we work with:
We
currently work with over 90 operators worldwide, including more than 10 Vodafone
operators. Additionally, we manage and aggregate more 10 erotic operator
portals. For a highlighted list of operators we currently work with, please
refer below (for a complete list, please send a request and one will be provide
immediately):
UK,
Spain, Germany, France, Netherlands, Greece, Hungary, Belgium, Sweden, Italy,
Romania, Czech Republic, Austria, Switzerland, Luxembourg, Slovenia,
Portugal
Germany,
Austria, Czech Republic, Slovakia, Poland, Croatia, Netherlands,
UK,
Portugal, Spain, Netherlands, Poland, Slovakia, France, Belgium, Dominican
Republic, Switzerland
UK
(02),
Czech Republic (02), Spain, Colombia, Mexico, Chile, Argentina,
Peru
CONFIDENTIAL
For
use
by Vodafone Portugal only, in connection with the Request for Proposal dated
October 2006
Appendix
A:
Figure
1: Waat Media - Sample Reporting
Figure
2: Waat Media Platform -
The
Waat
Media platforms contains an array of module specific to adult content including
model
release
information, content meta data, profiling and advertising / content
targeting.
CONFIDENTIAL
For
use
by Vodafone Portugal only, in connection with the Request for Proposal dated
October 2006
Figure
3: Sample Content Meta Data -
Meta
Data
information includes over 40 fields of data per piece of content form hair
colour to
breast
size to activity. These key have been built over 3 years of content and
behaviour analysis.
Figure
4: Sample Psychographic Profile -
Based
a
users behaviour and certain algorithms, our platform is able to build a
psychographic
profile
in a customer and place them in a class that we can optimize their
experience.
CONFIDENTIAL
For
use
by Vodafone Portugal only, in connection with the Request for Proposal dated
October 2006
Figure
5: Targeting and Recommendations -
Our
targeting module allows us to dynamically serve content that best suite the
customer. We dynamically change the order of links, able to service up targeted
banners and advertising as well as make recommendation at time of purchase
and
as well as a post purchase up sell.
Figure
6: Sample Products
CONFIDENTIAL
For
use
by Vodafone Portugal only, in connection with the Request for Proposal
dated
October 2006
Contract
for
Content
Hosting and Services
“Applications
and Games Service”
between
Vodafone
D2 GmbH
Am
Seestern 1
40547
Düsseldorf, Germany
-hereafter
known as “VF D2” -
and
Twistbox
Games Ltd & Co KG
Lohbachstr.
12
58239
Schwerte
Germany
-
hereafter known as the “Vendor” -
-
both hereafter referred to jointly as “Parties” -
August
2007
|
Commercial
in Confidence - Not for
Disclosure
|
|
C
ONTENTS
:
|
|
Page:
|
A.
General
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5
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1.
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Preamble
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5
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2.
|
Subject
Matter of Contract
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5
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|
3.
|
Scope
of Service
|
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6
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4.
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Content
Handling
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6
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5.
|
Service
Development
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8
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|
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6.
|
Operating
the Service
|
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8
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|
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|
|
7.
|
Reporting
and License Administration
|
|
9
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8.
|
Further
Development
|
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9
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9.
|
Prices,
Payments
|
|
10
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|
10.
|
Contracts
of Service
|
|
11
|
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|
|
11.
|
Surety
for VF D2
|
|
12
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|
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|
B.
|
Contractual
Services
|
|
13
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|
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12.
|
Characteristic
of the Services
|
|
13
|
13.
|
Vendor
Personnel
|
|
14
|
|
|
|
|
14.
|
Crisis
Management
|
|
14
|
|
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|
|
15.
|
Certification,
Quality Indicators
|
|
14
|
|
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|
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16.
|
Other
Testing by Vendor
|
|
15
|
|
|
|
|
17.
|
Deadlines,
Delays, System Failures
|
|
15
|
|
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|
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18.
|
Warranty,
Liability
|
|
16
|
|
|
|
|
19.
|
Compensation
for Loss of Sales
|
|
18
|
|
|
|
|
20.
|
Monitoring
of Performance of Service
|
|
18
|
|
|
|
C.
Acceptance and Further Procedure
|
|
19
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|
|
|
|
21.
|
Acceptance
|
|
19
|
|
|
|
|
22.
|
Contractual
Penalty for Faults during Acceptance
|
|
20
|
|
|
|
|
23.
|
Services
|
|
|
|
|
|
|
24.
|
Environmental
Legal Provisions, Waste Disposal
|
|
20
|
|
|
|
|
25.
|
Compliance
with Human Rights Principles
|
|
21
|
|
|
|
|
26.
|
Rights
to Services Performed, Results of Work, and Means of Work
|
|
21
|
D.
Other
|
|
23
|
|
|
|
|
27.
|
Third-Party
Rights
|
|
23
|
|
|
|
|
28.
|
Contractual
Penalties
|
|
23
|
|
|
|
|
29.
|
Contact
Persons
|
|
24
|
|
|
|
|
30.
|
Obligation
to Cooperate
|
|
24
|
|
|
|
|
31.
|
Confidentiality,
Data Protection
|
|
24
|
|
|
|
|
32.
|
Sub-Contractors,
Third Parties
|
|
26
|
|
|
|
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33.
|
Insurance
|
|
26
|
|
|
|
|
34.
|
Prohibition
of Transfer of Claims
|
|
26
|
|
|
|
|
35.
|
Term
of Contract, Termination
|
|
26
|
|
|
|
|
36.
|
Period
of Limitations
|
|
27
|
|
|
|
|
37.
|
Changes
to Services
|
|
28
|
|
|
|
|
38.
|
Site
of Fulfillment, Court of Jurisdiction
|
|
29
|
|
|
|
|
39.
|
Applicability
for Other Vodafone Companies
|
|
|
|
|
|
|
40.
|
Applicable
Law, Requirement of Written Form, Severance Clause
|
|
|
A.
General
1.
Preamble
Only
the
German version of this document is authoritative.
VF
D2 is
a mobile phone network operator and provides end customers and others a range
of
value-added services and products. The vendor, as a specialized service provider
for mobile network operators and other business customers, develops and operates
mobile value-added solutions. VF D2 intends to use individual or multiple
added-value service solutions provided by the vendor for company purposes.
VF D2
also intends to draw on the experience gained from working with the vendor
for
the benefit of the Vodafone Group, i.e. for all the Vodafone Group Pic’s direct
and indirect subsidiaries, insofar VF D2 views this as pertinent in each
specific case. In this context, and to achieve these goals, the parties agree
on
the following contractual terms and conditions.
2.
Subject
Matter of Contract
|
2.1
|
The
subject matter of this contract is to acquire the hosting and provide
the
following products to end customers, including their further development
(hereafter “contractual services”): Applications and games that end
customers download to their mobile phones or play on line without
the
option of storing (hereafter “contractual products”), including design and
hosting of the related WAP and WEB pages. The details are contained
in the
attachments to this contract, especially in the “Specifications”
attachment.
|
|
2.2
|
Services
shall be provided via a number of sales channels, especially the
Vodafone
WAP portal and also WEB portals. The details are contained in the
attachments to this contract, especially in the “Specifications”
attachment.
|
|
2.3
|
This
contract governs the vendor’s provision of the infrastructure and
application for use by the customer via the VF D2 network, and
all rights
and obligations resulting from this for the
parties.
|
|
2.4
|
The
vendor assumes responsibility for content handling including
the
clarification of rights, pursuant to the requirements in the
“Specifications” attachment. VF D2 and the vendor shall jointly agree on
the focus of content design and optimize it according to the
sales figures
achieved. In the event of disagreement, VF D2’s decision is
binding.
|
|
2.5
|
The
vendor shall - if desired by VF D2 - conclude contracts with
content
partners to be named by VF D2 and design an attractive and
up-to-date
portfolio.
|
|
2.6
|
If
nothing to the contrary is agreed, all services provided by the vendor
to
VF D2 shall be offered to the customer in the name of VF
D2.
|
3.
Scope
of Service
|
3.1
|
The
vendor shall provide, at no additional cost, the infrastructure and
application for customer use as well as a complete and error-free
integration of vendor systems with all relevant systems belonging
to VF
D2, the Vodafone Group (e.g. GSP) and / or any third-party partners
specified by VF D2. This shall apply irrespective of whether the
vendor,
and / or third parties, were involved in the creation of the existing
relevant VF D2 systems.
|
|
3.2
|
The
vendor also undertakes to integrate, at no extra cost, a fully functional
test version of every service in the multi-vendor test center operated
jointly by VF D2 and vendors, which consists of a technical model
of the
VF D2 mobile network.
|
|
3.3
|
If
the technical specifications set down in this contract, including
attachments, are incomplete, the vendor shall nevertheless be obligated
to
implement the services, such that the results are functional and
complete,
conforming both with latest technology and all other clauses in this
contract. If the aforementioned specifications are not suited to
achieve
service goals or contain errors, the vendor shall notify VF D2 of
this,
suggest any adjustments or changes needed to achieve the service
goals,
and implement these, should VF D2 demand, at no additional cost.
Where
software is used and no agreement has been made to the contrary,
the
vendor shall use the newest version of the respective
software.
|
|
3.4
|
The
vendor shall, for every service performed, provide at no extra charge
operating instructions, documentation, interface descriptions, and
other
information required by VF D2 for use, support, maintenance and repair
of
the contractual services, as well as for understanding how they
function.
|
|
3.5
|
The
vendor shall provide training sessions and training documents for
training
the relevant VF D2 personnel (e.g. in Customer Care, Product Management,
Partner Integration) as well as for third-party partners, where
applicable. This shall also apply for when launching new
releases.
|
4.
Content
Handling
The
vendor shall also take responsibility for content handling, and in certain
cases, if desired by VF D2, for acquiring and supplying an attractive portfolio
of the contractual products. The number of, and details pertaining to, the
products to be provided at the start, or in the course of time, is set down
in
the “Specifications” attachment. The vendor shall acquire the portfolio as
follows:
|
4.1
|
The
vendor shall himself acquire licenses for customer use of the contractual
products, if this is desired by VF D2 in specific cases. The vendor
shall
follow VF D2’s specifications in doing
so.
|
|
4.2
|
The
vendor hereby transfers to VF D2 the non-exclusive right to offer
and
advertise the contractual products for which the vendor obtained
licenses
in the Vodafone-live! Portal and in the Vodafone internet presence,
and to
make them publicly available via downloads to customers of Germany
mobile
network providers, service providers pursuant to the Telecommunications
Act (TKG), and mobile virtual network operators, such that users
can
determine themselves place and time of access. This includes, in
the case
of a download, the right to grant users the right to duplicate and
save
contractual products to their mobile end devices. The right to advertise
the contractual products in all media is also transferred to VF D2.
Due to
potential non-concurrence on the part of licensers regarding advertising
(product endorsement by artist), VF D2 shall inquire about advertising
in
media other than Vodafone Live! in good time to obtain written approval
by
the vendor or the licenser.
|
|
4.3
|
VF
D2 itself owns licenses for the contractual products, which VF D2
acquired
from licensers. VF D2 hereby grants - as far as possible - the vendor
the
right to store the contractual products for which VF D2 acquired
licenses
on the vendor’s servers for use as downloads. The vendor shall be
obligated to observe all rules of the VF D2 licenser regarding the
contractual products, and to perform for VF D2 any contractually-agreed
release processes etc.
|
|
4.4
|
The
vendor shall provide the licensers the options for delivering data
for the
contractual products specified in the “Specifications” attachment. The
vendor shall describe these delivery processes in detail in a document
that either vendor or VF D2 shall supply to the
licensers.
|
|
4.5
|
The
vendor shall optimize for downloading the data delivered pursuant
to
section 4.4. The vendor shall also ensure that all end devices listed
in
the “Specifications” attachment shall be supported for the contractual
services, by the dates named therein. VF D2 shall provide the vendor
with
an updated version of this list at regular intervals, and notify
the
vendor in good time of any end devices added. The vendor shall support
the
latest versions of the listed end devices for contractual
services.
|
5.
Service
Development
The
vendor shall develop the platform for the contractual service to conform with
VF
D2 specifications. The following points are especially important:
|
5.1
|
The
service’s scope of function at time of launch shall comply with the
specification in the “Specifications”
attachment.
|
|
5.2
|
The
navigation for the service as well as the page displays shall comply
with
the contract attachments and require clearance from VF D2 in the
framework
of integration preparation.
|
|
5.3
|
The
link to VF D2 content tracking system shall conform with the
specifications for the Integrated Purchase Page (IPP) interface contained
in the “Specifications” attachment. If needed, the vendor shall implement
a link to additional billing systems used by VF D2 (such as credit
card,
online payment).
|
|
5.4
|
The
vendor shall ensure that categorization of the contractual products
conforms with the specifications set down by VF
D2.
|
|
5.5
|
The
vendor shall always protect the contractual products against non-permitted
storing, copying or forwarding according to the relevant VF D2
specifications.
|
|
5.6
|
The
vendor shall - if nothing to the contrary is stipulated - implement
the
integration in the Vodafone-live! portal pursuant to the specifications
regarding PML authoring contained in the “Specifications”
attachment.
|
|
5.7
|
Where
the specifications and instructions provided by VF D2 are not suited
to
achieve service goals or contain errors, the vendor shall notify
VF D2 of
this, suggest any adjustments or changes needed to achieve the service
goals, and implement these, should VF D2 demand, at no additional
cost.
|
6.
Operating
the Service
The
vendor shall hold full responsibility for the technical and content-related
operation of the contractual service. This comprises the following:
|
6.1
|
The
vendor shall be responsible for hosting the service and all contractual
products. Requirements relating to technical availability etc. are
specified in the “Service Level Agreement”
attachment.
|
|
6.2
|
The
vendor shall regularly consult with VF D2 on the guidelines for content
design. A detailed description of this is contained in the
“Specifications” attachment.
|
|
6.3
|
The
vendor shall regularly update the service portfolio or contents.
A
detailed description of this is contained in the “Specifications”
attachment.
|
|
6.4
|
Where
the specifications as described are not suited to achieve service
goals,
or contain errors, the vendor shall notify VF D2 of this, suggest
any
adjustments or changes needed to achieve the service goals, and implement
these, should VF D2 demand, at no additional
cost.
|
7.
Reporting
and License Administration
The
vendor, in the framework of the contractual service, shall process the
transaction data collated for the following purposes:
|
7.1
|
The
vendor shall regularly provide VF D2 with the statistics and management
reports listed in the “Specifications” and “Service Level Agreement”
attachments in electronic form and, if needed, in
writing.
|
|
7.2
|
The
vendor shall transfer all types of invoices relating to the licenses
for
the contractual products (such as for GEMA, licensers and other partners)
- either in its own name to the relevant third parties, within the
time
limit specified in the respective agreements, or in the case of VF
D2
license agreements, to VF D2 within the time limit specified, and
to
answer any related queries from third parties or VF D2. The vendor
shall
be responsible for complying with all other contractual obligations
arising from its own license agreements, as well from vendor’s obligations
arising from VF D2 license agreements, in providing the contractual
services. Provided that the vendor shall not be responsible for any
financial obligations owed by VF D2 to any third
parties.
|
|
7.3
|
The
vendor shall pay the license payments resulting from these invoices
within
the time specified, on receipt of correct licensers’
invoices.
|
8.
Enhancement
The
vendor and VF D2 shall enhance the contractual service on a continual basis,
as
follows:
|
8.1
|
The
vendor shall continually enhance the contractual service, in mutual
agreement with VF D2, at no additional charge. In order to protect
VF D2’s
first mover status, the vendor shall implement for VF D2 at an
early point
in time additional features made possible by technological progress,
introduced by VF D2 competitors, required by the VF Group in the
framework
of cross-concern product planning, or implemented by the vendor
for other
customers.
|
|
8.2
|
For
this purpose, the vendor and VF D2 shall hold a joint workshop once
a
month, unless otherwise agreed. The vendor shall record the result
of this
workshop in the form of a specification together with a project plan
for
implementation, and send it to VF D2 for clearance. In the event
of
clearance being refused, the vendor shall improve the specification
and
project plan to incorporate the wishes of VF
D2.
|
|
8.3
|
On
clearance being given, the vendor shall proceed with implementation
pursuant to project plan and to this
contract.
|
9.
Prices,
Payments, Audit
|
9.1
|
The
prices are specified in the “Prices and Discounts” attachment to this
contract. Prices are exclusive of sales tax and in euros if not otherwise
specified. All contractual services are paid for according to the
“Prices
and Discounts”, and the “Consulting, Prices and Service”
attachments.
|
|
9.2
|
The
prices or revenue share agreed cover all the vendor’s costs arising in
connection with service
performance.
|
|
9.3
|
If
the vendor draws certain parts of a service from a third party, according
to agreement or stipulated by VF D2, the vendor shall be obligated
to pass
on to VF D2 purchase price savings arising in business with a third
party,
subsequent to agreement on the applicable price between the vendor
and VF
D2. Any price mark-up made for the vendor’s purchase price shall be shared
proportionally.
|
|
9.4
|
VF
D2 shall pay the contractual fee to the vendor within 30 days of
receipt
of a correct invoice.
|
|
9.5
|
If
the vendor does not dispute the correctness of the usage overviews
provided by VF D2 within a year of their receipt, they shall count
as
correct and binding for the vendor.
|
|
9.6
|
The
invoice must contain the vendor’s tax number and sales tax
certificate.
|
|
9.7
|
Payment
by VF D2 shall not imply any agreement with the
invoice.
|
|
9.8
|
VF
D2 will keep accurate and complete records in accordance with generally
accepted accounting principles in order to determine the accuracy
of the
payments, and retain such records for at least three (3) years
following
their generation. As long as the vendor is providing services to
VF D2
under the terms of this contract, the vendor or its legal representative
will have the right, subject to ten (10) days prior written notice
to VF
D2, to audit, and review all applicable records and accounts once
each
calendar year during VF D2’s normal business hours. VF D2 will pay to the
vendor all amounts discovered to be due to vendor as a result of
any audit
within thirty (30) days of invoice. In addition, in the event any
such
audit by vendor reveals a discrepancy of 10 percent (10%) or more
in
vendor’s favor, VF D2 will pay all reasonable costs of the vendor’s audit,
and such costs shall be added to vendor’s invoice for amounts
due.
|
10.
Services
|
10.1
|
If
VF D2 orders additional advisory or consulting services to which
contract
of service laws apply, the terms of this contract are valid as stipulated
above, except for the following
departures:
|
|
10.2
|
An
acceptance procedure shall not take place - with the exception of
repair
and error elimination services in the framework of an agreement on
maintenance services.
|
|
10.3
|
Payments
are made at 100% within 30 days of fulfillment of service and due
invoicing, on the basis of detailed proof of
service.
|
|
10.4
|
If
the vendor’s service comprises the commercial supply of temporary workers,
the vendor shall guarantee the possession of an unlimited permit
for the
commercial supply of temporary workers pursuant to section 1, paragraph 1
of the Temporary Labor Assignment Act (German acronym:
AÜG),
and
that the vendor has in the past ensured correct payment of taxes
and
social insurance contributions and shall continue to do
so.
|
|
10.5
|
If
payment on a time and material basis has been agreed for individual
secondary services, billing shall comply with the “Consulting Prices and
Services” attachment.
|
11.
Surety
for VF D2
|
11.1
|
No
later than 6 weeks after the conclusion of this contract, the vendor
will
place at the disposal of VF D2 an absolute surety that waives the
benefit
of discussion, to the sum of [INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2] euros, in a major
bank
domiciled in the European Union. At the end of the third month after
the
services are operational in accordance with the milestone plan, the
aforementioned surety can be reduced to [INFORMATION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2] euros. At
the end
of the twelfth month after the services are operation in accordance
with
the milestone plan, the surety can be reduced to [INFORMATION OMITTED
AND
FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]
euros.
|
|
11.2
|
The
aforementioned surety shall serve the securing of all VF D2 claims
to
service fulfillment, and claims arising from breach of vendor duties,
especially warranty claims and reimbursement claims. The vendor shall
be
able to reclaim the surety 24 months after the services are
operational.
|
B.
Contractual Services
12.
Characteristics of the Services
|
12.1
|
The
vendor shall faultlessly perform the services pursuant to the relevant
contractual terms. This includes implementation of the latest science
and
technology available at the point in time of service fulfillment
to the
extent relevant for the respective
services.
|
|
12.2
|
Furthermore,
the services shall comply with the principles of good business sense,
with
the principles of correct accounting and, where applicable, with
the
principles of correct data
processing.
|
|
12.3
|
The
vendor’s services shall meet all the technical specifications as defined
by VF D2, pursuant to the latest version of the specifications. The
delivery shall conform to the agreed specifications, and comply with
all
relevant laws, ordinances, rules and norms, especially regarding
technical
safety, workplace and health safety, and protection of the environment
and
fire prevention.
|
|
12.4
|
If
due to technical or legal circumstances, it becomes urgently necessary
to
change the scope of service, or to depart from the aforementioned
terms,
the vendor shall notify VF D2 of this immediately orally and in writing,
and immediately instruct VF D2 about viable potential solutions,
and agree
any changes with VF D2. VF D2 shall not be obliged to accept any
detrimental price alteration resulting from such changes. Any warranty
claims and / or claims for payment of contractual penalties shall
remain
unaffected.
|
|
12.5
|
The
vendor shall inform VF D2, at no extra charge, of changes in the
state of
science and technology, and of products that have become important
in the
market and might affect the contractual services. The vendor’s obligation
pursuant to section 8.1 shall remain
unaffected.
|
|
12.6
|
The
vendor shall guarantee that services are interoperable with VF D2
IT
systems as they were at the time that the vendor gained knowledge
of them,
or, pursuant to contractual terms between the parties, should have
gained
knowledge of them.
|
|
12.7
|
Connection
of third-party computers or systems (especially PCs, laptops, servers
etc.) to the VF D2 company network is not
permitted.
|
13.
Vendor
Personnel
|
13.1
|
The
vendor shall be obligated to deploy qualified personnel, sufficient
in
number for contract implementation.
|
|
13.2
|
The
vendor shall, at own expense, regularly train employees entrusted
with
contract implementation, in order that all services comprising contract
implementation retain a consistent level of quality over the whole
duration of implementation.
|
|
13.3
|
If
the vendor performs services on VF D2 premises, the vendor shall
immediately inform VF D2 of any workplace injuries to vicarious
agents.
|
14.
Crisis
Management
|
14.1
|
To
avoid major threats to the error-free functioning and utilizability
of the
VF D2 network, i.e. crises, VF D2 conducts business continuity planning
pursuant to BS7799 / ISO IEC 17799. These processes enable VF D2
to be
prepared in advance for a crisis.
|
|
14.2
|
In
order to safeguard delivery and performance during or after a crisis
affecting VF D2 and / or the vendor, the vendor is obligated to implement
similar or equivalent processes describing and securing all relevant
activities and the vendor’s crisis management in such
situations.
|
These
processes shall describe how the vendor will respond in specific situations,
such as malfunctioning of the VF D2 network, or a vendor production halt due
to
natural catastrophe or fire.
The
vendor is obligated to document these processes in written form and to check
them regularly regarding their capacity to function. The vendor shall, on
request, make this documentation available to VF D2.
15.
Certification,
Quality Indicators
|
15.1
|
The
parties agree that the vendor shall implement a properly documented
quality management system that meets the EN ISO 9001:2000 standards.
All
services, products, projects, and processes will be implemented according
to the guidelines of said quality management
system.
|
|
15.2
|
The
vendor shall be obligated to comply with the quality standards specified
in the “Example: ASP Quality Requirements”
attachment.
|
|
15.3
|
The
parties shall agree on quality indicators for all services to be
performed
by the vendor. The vendor shall guarantee conformity with these.
This
shall hold in particular for all specifications in the contractual
agreements relating to speed, absence of faults, data throughput,
admissible downtimes and response
times.
|
16.
Other
Testing by the Vendor
|
16.1
|
The
vendor shall regularly test the services’ conformity with the contract,
especially regarding compliance with the quality indicators, and
shall
document the test results in writing in meaningful test logs. The
vendor
shall retain these test logs for a period of two years from the date
of
their respective compiling. VF D2 shall have the right to view any
or all
of these test protocols at any time or request the submission of
photocopies.
|
|
16.2
|
If
nothing to the contrary is agreed for specific cases, tests shall
be
performed once a month.
|
17.
Deadlines,
Delays, System Failures
|
17.1
|
The
vendor shall perform all services on time, and, in particular, meet
all
agreed service deadlines. Deadlines for providing a defined acceptance
procedure shall also be regarded as service deadlines. If it should
transpire that the performance of a (component) service on time is,
for
what ever reason, not possible, the vendor shall be obligated to
notify VF
D2 of this immediately, orally and in written form by fax, together
with
details of the reasons. The obligation pursuant to sentence 1 remains
unaffected by this.
|
|
17.2
|
Service
performance deadlines are, in particular, specified in the “Milestones”
and “Specifications” attachments to this contract. The legal consequences
of non-compliance with the service performance deadlines specified
in the
aforementioned attachment shall only take effect in cases where,
for the
respective service, VF D2 had an obligation to co-operate of more
than
negligible extent, if the vendor was to blame for the tardiness.
In all
other cases, the vendor need not have been at fault for the legal
consequences to take effect.
|
|
17.3
|
For
service deadlines, a contractual penalty of [INFORMATION OMITTED
AND FILED
SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2] euros per day the
deadline is exceeded shall become due and payable during the first
14
days, with a penalty of [INFORMATION OMITTED AND FILED SEPARATELY
WITH THE
COMMISSION UNDER RULE 24B-2] euros for each day hereafter, not to
exceed a
total for a single instance of [INFORMATION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION UNDER RULE 24B-2] euros. The same shall apply
if no
deadline has been agreed, but VF D2 has set the vendor a reasonable
time
period for performing the service, and this has expired without any
result.
|
|
17.4
|
For
service downtime, the vendor shall pay VF D2 the following contractual
penalty: On availability falling short of the agreed level as per
Section
3.3 of the SLA, the contractual penalty shall comprise [INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]
euros
for every further started hour of system downtime / system impairment.
The
contractual penalty shall not exceed [INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2] euros for an individual
case, irrespective of the total duration of system failure / impairment.
The terms of the “Service Level Agreement” attachment to this contract, as
well as vendor obligations connected to them pursuant to this contract,
shall remain unaffected.
|
|
17.5
|
In
the event of the vendor’s failure to meet the agreed deadlines,
modification / revision by the parties of the schedule originally
agreed
upon shall not affect the vendor’s obligation to pay contractual penalties
resulting from failure to comply with the original
schedule.
|
|
17.6
|
Legal
rights are not affected by tardy or unperformed services. Temporary
hindering of service performance shall also constitute tardiness
in the
legal sense.
|
18.
Warranty,
Liability
|
18.1
|
The
vendor shall be liable for breach of duty pursuant to legal provisions,
without any restriction. This means that, in the event of breach
of duty,
in particular in the event of deficient service performance, VF D2
can
make the following claims for:
|
|
·
|
Subsequent
performance, including reimbursement of costs arising for VF D2 in
connection with the subsequent
performance.
|
And,
where sufficient legal grounds exist, for:
|
·
|
Compensation
for wasted expenditure or
|
|
·
|
Reimbursement
of costs arising from self-
performance
|
|
·
|
Rescission
of the contract and / or
|
|
·
|
Compensation
instead of service performance or
|
|
·
|
Compensation
for wasted expenditure.
|
Otherwise,
the terms of the following clauses shall apply.
|
18.2
|
In
the event of subsequent performance, VF D2 shall have the right to
choose
between rectification of defects and
reperformance.
|
|
18.3
|
In
the event of breach of duty, the vendor shall be obligated to provide
VF
D2 written notification of what measures are required to prevent
such
breach of duty occurring in the further course of service
performance.
|
|
18.4
|
In
the event of breach of duty by the vendor, and after expiry without
result
of a subsequent deadline set for the vendor by VF D2, VF D2 can take
upon
itself elimination of the consequences of the breach of duty, or
have them
eliminated by a third party, at the expense of the vendor. If documents
or
data in possession of the vendor are required for this, the vendor
shall
immediately render these free of charge to VF D2. If third party
rights
prevent such elimination, the vendor is obligated to indemnify VF
D2
against claims resulting from these
rights.
|
|
18.5
|
VF
D2 shall only be obligated to serve notification of defects, pursuant
to
German Commercial Code (HGB) section 377, if a defect was identifiable
in
the framework of an appropriate quantity of random sample tests.
Notification of defects can be made within 6 weeks; payment made
by VF D2
shall not constitute acceptance of the
services.
|
|
18.6
|
The
warranty period for defect claims shall comprise 24 months, commencing
with the complete and unreserved acceptance (final acceptance) of
the last
(component) service to be accepted pursuant to this
contract.
|
|
18.7
|
If
the vendor provides VD D2 services free of charge pursuant to section
2.1,
for instance for test purposes, the aforementioned rules shall apply,
even
in the event that the vendor does not expressly refer to this
contract.
|
|
18.8
|
Contractual Penalty for Tardy
Fault
Elimination
|
Irrespective
of the aforementioned rights, the vendor shall be obligated to comply with
the
“Service Level Agreement” attachment to this contract without any separate fee
being paid to the vendor by VF D2.
If
the
established deadlines for a workaround or the elimination of faults are exceeded
(depending on which event occurs first), a contractual penalty according to
the
table below shall become due and payable.
The
amount of the penalty is determined on a per-fault basis depending on the
classification according to priority or the highest escalation level reached
before the fault was eliminated.
|
|
|
Contract
Penalty for Each Time the Escalation Level is Reached
(According
to SLA Attachment)
|
|
Fault
Priority
(according
to SLA attachment)
|
|
|
Escalation
Level I
|
|
|
Escalation
Level II
|
|
|
Escalation
Level III
|
|
Priority
1
|
|
|
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]-
€
|
|
|
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]-
€
|
|
|
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]-
€
|
|
Priority
2
|
|
|
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]-
€
|
|
|
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]-
€
|
|
|
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]-
€
|
|
Priority
3
|
|
|
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]-
€
|
|
|
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]-
€
|
|
|
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]-
€
|
|
Priority
4
|
|
|
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]-
€
|
|
|
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]-
€
|
|
|
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]-
€
|
|
In
case a
fault is not eliminated within the established time period, a one-time contact
penalty shall apply. The contract penalties are due and payable at the end
of
each 12-month period.
Example
-
Priority 1
Problem:
The platform is down for 5 hours.
The
penalty is calculated as follows: One-time penalty of [INFORMATION OMITTED
AND
FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2] Euros due and payable
at
the end of the 12-month period.
19.
Compensation
for Loss of Sales
|
19.1
|
The
vendor shall be liable to pay compensation - irrespective of other
rights
connected to vendor’s breach of duty pursuant to this contract - but shall
be afforded opportunity for reperformance, or set another deadline.
In the
event that a fault in the service performed by the vendor should
cause
components in the VF D2 mobile network to fail, and consequently
VF D2 to
suffer loss of sales directly attributable to vendor’s breach of duty,
then the vendor shall not be afforded opportunity for reperformance,
or
set any other deadline.
|
|
19.2
|
All
contractual or other penalties payable by the vendor as a direct
result of
the respective fault in service are offset against the loss of
sales.
|
|
19.3
|
For
any compensation for the loss of sales, VF D2 must prove that the
vendor
caused the damages.
|
20.
Monitoring
Performance of Service
|
20.1
|
VF
D2 shall have the right to monitor at all times service performance
by the
vendor, in particular the installation of IT systems in the VF D2
network.
Both parties shall bear the costs they respectively incur
themselves.
|
|
20.2
|
The
vendor shall be obligated to demonstrate to VF D2 the functionality
of the
services being performed, on demand and upon reasonable prior notice
during normal business hours at the vendor’s place of business. The vendor
shall ensure that competent personnel are present at the demonstration
to
answer questions from VF D2 connected with the demonstration quickly
and
accurately.
|
C.
Acceptance and Further Procedure
21.
Acceptance
|
21.1
|
Work
performed by the vendor - except the services provided under contracts
of
service defined in this contract - shall require acceptance by VF
D2, or
third parties on behalf of VF D2. Acceptance of services - comprising
multiple successive acceptance tests - is regulated in the
“Specifications” attachment and “ASP Quality Requirements” attachment. In
the framework of the acceptance procedure, in particular the following
different declarations of acceptance may be
made:
|
|
·
|
Conditional
Acceptance - under reservation of all rights - shall be granted if,
by
this point in time, all tests specified have been passed successfully,
and
no Category 1 or 2 faults have been identified, or if the vendor’s
respective service has been in commercial use for VF D2 longer than
2
weeks. Commercial use occurs when VF D2, directly or through vendors
acting in its name, provides all end customers and potential end
customers
services based on the respective work performed, without these customers
receiving notification of any technical
restrictions.
|
|
·
|
A
further acceptance, called Final Acceptance, shall be given if no
Category
1, 2 and 3 errors exist any longer.
|
|
21.2
|
For
component services, a final acceptance as defined above, independent
of
acceptance of individual component services, can only be granted
subsequent to a final acceptance test of the interaction of the component
services, in particular of hardware and software, including interfaces.
If
the entire work is divided into different phases, where the component
service for the individual phase can stand alone, a project-specific
supplementary agreement can agree on final acceptance for the respective
stand-alone phases.
|
|
21.3
|
The
vendor shall give VF D2 20 working days advance warning of completion
of
work for the individual acceptance tests, in written form by
fax.
|
|
21.4
|
VF
D2 warranty rights shall commence with the vendor’s presenting a service
(a component service) for acceptance. The terms of section 18.6 are
unaffected by this.
|
22.
Contractual
Penalty for Faults during Acceptance
|
22.1
|
If
faults in the work are identified during acceptance, the vendor shall
be
obligated to pay a contractual penalty, the amount of which shall
be
calculated as follows:
|
·
According
to type and number of defects, a points score shall be calculated
according
to the following formula:
N=3X+2Y+Z
where:
N
is the
total points value,
X
is the
number of Priority 1 errors,
Y
is the
number of Priority 2 errors,
Z
is the
number of Priority 3 errors.
Errors
are divided into the respective priority categories pursuant to the “Service
Level Agreement” attachment to this contract or a corresponding attachment of
the respective project-specific supplementary agreement.
·
If
the
above formula give a value for N equal or greater to 20, the contractual
penalty
shall be:
N=
at least:
|
|
|
|
20
|
|
|
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]
euros
|
|
25
|
|
|
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]
euros
|
|
30
|
|
|
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]
euros
|
|
|
22.2
|
The
acceptance evaluation applies to the system as it is provided for
the RFA
(Ready for Acceptance) milestone.
|
|
22.3
|
Contractual
penalties paid shall be balanced against any VF D2 claims for damages
arising from the same cause in law; otherwise VF D2 warranty rights
of all
kinds shall not be affected by the contractual penalty mentioned
above.
|
23.
Environmental
Legal Provisions, Waste Disposal
|
23.1
|
The
vendor shall indemnify VF D2 against any liability relating to its
failure
to comply with material applicable laws for the protection of the
environment that apply to the services performed by vendor under
this
Contract.
|
|
23.2
|
If
the legal provisions adduced in the following are applicable, the
vendor
shall assume the responsibility of a producer pursuant to the German
Battery Ordinance and Directive 2002/96/EG of the European Parliament
and
Council of 27 January, 2003, on Waste Electrical and Electronic Equipment
including the norms implementing this directive in German law. To
this
extent, the vendor shall indemnify VF D2 against all costs resulting
from
the above legal provisions in connection with the contracted work.
Furthermore, the vendor shall be obligated to comply with the terms
of the
Directive 2002/95/EC of the European Parliament and Council of 27
January,
2003, on the Restrictions on Harmful Substances including the norms
implementing this directive in German
law.
|
24.
Compliance
with Human Rights Principles
|
24.1
|
The
vendor shall undertake to comply with the “Declaration on Fundamental
Principles and Rights at Work” accepted by the member states of the
International Labor Organization in 1998, and the principles and
rights
laid down here as well as in the eight core conventions (No. 87,
98, 29,
105, 100, 111, 138, 182) in the context of production and supply
for VF
D2. Furthermore, the vendor shall undertake to comply with the principles
and conditions set forth in the “Ethical Purchasing”
attachment.
|
|
24.2
|
Furthermore,
the vendor shall undertake, with regard to products and deliveries
for VF
D2, to only work with vendors or other third parties similarly respecting
the rights and principles mentioned
above.
|
25.
Rights
to Services Performed, Results of Work and Means of Work
|
25.1
|
If
creations protected by copyright or trademarks are incorporated in
the
service performed, VF D2 shall acquire a non-exclusive, transferable
right
of use unrestricted in time, space and content for so long as this
contract is valid. This right includes, in particular, use of such
creations in own business, or in third-party businesses, as well
as its
duplication, distribution, showing, exhibiting, transfer via or without
telecommunications, editing or modifying as well as a commercial
exploitation of the results of the work, even subsequent to their
use
(such as editing or modifying). In the case of the application of
above
rule to software, the vendor shall grant a non-exclusive, non-transferable
use right to VF D2 related to property rights over the relevant data
carriers.
|
|
25.2
|
If
the vendor uses third-party software in service performance, and
if the
license conditions for this exclude provision of exclusive rights
for
unrestricted use, or restrict such provision, VF D2 shall receive
a
correspondingly restricted right of use. The vendor shall indicate
to VF
D2 the existence of such a situation, at the latest on conclusion
of this
contract.
|
|
25.3
|
VF
D2 shall have the right, in all cases, to connect services performed
by
the vendor, in the case of an IT system, with other VF D2 systems,
or to
integrate them in other VF D2 systems. This shall apply irrespective
of
whether the other systems are owned by VF D2, or whether they are
operated
by a third party on behalf of D2.
|
|
25.4
|
The
vendor shall not demand any separate fee for providing these rights
described above to VF D2 or to customers of VF D2. The provision
of these
rights is covered by the fee pursuant to this
contract.
|
D.
Other
26.
Third
Party Rights
|
26.1
|
The
vendor shall be responsible for its services or any third- party
software
it supplies being free from third-party rights in Germany or abroad
that
restrict use of the work by VF D2 as set forth in this contract.
The
vendor shall not be liable for any infringement of third party rights
resulting from changes to the work performed, or to third-party software
supplied, by the vendor, made by VF D2 or third parties acting on
behalf
of VF D2.
|
|
26.2
|
The
vendor shall be responsible for seeing that all licenses necessary
for use
and provision of the contractual products in the framework of the
contractual services exist pursuant to the terms of this contract,
and
shall indemnify VF D2 against third-party claims due to absence of
or
infringement of the aforementioned
licenses.
|
|
26.3
|
The
vendor shall be responsible for the proper performance of contractual
services relative to end customers, and indemnifies VF D2 against
all
claims resulting from a breach of duty on the part of the vendor
in
performing the contractual
services.
|
|
26.4
|
Irrespective
of the preceding section, the vendor shall be obligated to notify
VF D2
immediately in writing on learning of third-party
rights.
|
27.
Contractual
Penalties
|
27.1
|
If
the vendor has become liable for a contractual penalty, VF D2 shall
be
able to enforce this even subsequent to settlement of vendor invoices
for
the period in which the contractual penalties were incurred. German
Civil
Code section 341 paragraph 3 shall not apply. This holds irrespective
of
whether the contractual penalty rule is contained in this contract,
or in
a supplement, and even if there is no explicit reference to this
rule.
|
|
27.2
|
Any
contractual penalty payments by the vendor shall be balanced against
VF D2
damage claims resulting from the same circumstance as the obligation
to
pay the contractual penalty.
|
|
27.3
|
If
VF D2 makes use of contractual or legal rights of rescission or
termination, claims for payment of contractual penalties already
forfeited
by the vendor at the point of rescission or termination remain
valid.
|
28.
Contact
Persons
|
28.1
|
The
vendor shall appoint a project manager and a deputy project manager,
who
shall prepare all necessary agreements relating to contract
implementation, and who can attain decisions promptly. Replacement
of the
project manager during the term of the contract shall require written
agreement in advance from VF D2. VF D2 shall provide such agreement
if
there is an important reason for replacing the project
manager.
|
|
28.2
|
VF
D2 shall have the right to demand the replacement of the vendor project
manager during the term of the
contract.
|
29.
Obligations
to Cooperate
|
29.1
|
VF
D2 shall take all measures to co-operate with service performance
by the
vendor, to the extent that this is reasonable according to business
considerations.
|
30.
Confidentiality,
Protection of Data
|
30.1
|
Both
parties shall be obligated to keep secret from third parties all
details
of contractual agreements between them. This applies especially to
prices.
This obligation shall not apply to transferal by VF D2 of information
to
other members of the Vodafone Group Plc who in their turn shall be
obligated to confidentiality.
|
|
30.2
|
In
particular, the vendor shall not name VF D2 as a reference customer,
or
divulge the conclusion of this contract to third parties or to the
public,
unless VF D2 shall give advance permission in
writing.
|
|
30.3
|
Both
parties shall assure each other that they shall treat all information
divulged to them from the other respective party, and expressly marked
as
confidential, or the confidential character of which can be deduced
from
the context, as trade secrets entrusted to them, and shall not divulge
them to third parties:
|
|
·
|
unless
they were already known to the recipient before the obligation to
confidentiality or
|
|
·
|
are
generally known or are becoming generally known through no fault
of the
recipient or
|
|
·
|
they
were legally divulged or rendered to the recipient without obligation
to
confidentiality or
|
|
·
|
it
can be proved that the recipient developed them independently
or
|
|
·
|
written
permission was given to the recipient, clearing them for general
circulation, or
|
|
·
|
they
were divulged to a financing party in the course of capital financing
and
for the sole purpose of obtaining said financing, to the extent that
the
confidentiality agreement in this contract also applies to this third
party, or
|
|
·
|
they
needed to be divulged due to legal
obligations.
|
|
30.4
|
The
parties shall apply at least the same degree of care to keep confidential
confidential information divulged to them by the other party, that
they
apply to similarly significant information of their
own.
|
|
30.5
|
The
party receiving the confidential information shall only give access
to it
to those personnel requiring it for implementation of the
contract.
|
|
30.6
|
If,
in the framework of the contractual partnership between the parties,
it
becomes necessary to entrust third parties with handling confidential
information, the party concerned shall request written permission
from the
other party in advance. This party shall be able to refuse permission,
if
it is not established that the third party is sufficiently obligated
to
confidentiality.
|
|
30.7
|
On
demand of a contracting party, and at the latest by expiry of the
collaboration between the parties, all confidential information of
the
other party shall be deleted such that it cannot be retrieved, or
returned
to the other party. Deletion must be confirmed in writing
immediately.
|
|
30.8
|
The
vendor shall bear in mind that VF D2 is subject to numerous data
protection obligations, in particular pursuant to the Federal Act
on Data
Protection and the Telecommunications Data Protection Ordinance.
The
vendor shall support VF D2 in meeting these obligations in the
framework
of the respective contractual agreements. If the vendor recognizes
that an
IT system to be deployed in the context of contract implementation,
and
for which the vendor is responsible in the relationship to VF D2,
will
infringe VF D2 data protection obligations, the vendor shall immediately
notify VF D2 of this in
writing.
|
|
30.9
|
The
vendor shall be authorized to process and store data only as specified
by
VF D2 in the context of the legal
provisions.
|
|
30.10
|
A
ll
aforementioned confidentiality and data protection obligations
shall
continue to apply even after expiry of this
contract.
|
31.
Subcontractors,
Third Parties
|
31.1
|
If
the vendor shall involve third parties in the performance of contractual
duties, the vendor shall be as liable for their behavior as for it
is for
its own behavior.
|
|
31.2
|
The
vendor shall waive any option of presenting exculpatory evidence
pursuant
to German Civil Code section 831 paragraph
2.
|
32.
Insurance
The
vendor shall be obligated to conclude a third-party insurance for all insurable
damages that might be anticipated in the framework of the contract, and to
provide VF D2 with documentary proof of this insurance. The vendor shall provide
such documentary proof at least once per year without being requested to do
so.
The
vendor shall be obligated to obtain third-party provided insurance coverage
from
a qualified recognized insurance company containing errors and omission coverage
with at least the stated amount of US[INFORMATION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION UNDER RULE 24B-2] per claim and US$[INFORMATION OMITTED
AND
FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2] in the
aggregate.
33.
Prohibition
of Transfer of Claims
Claims
of
the vendor arising from this contract shall only be transferred to third parties
with the agreement of VF D2.
34.
Term
of Contract, Termination
|
34.1
|
This
contract shall come into effect on August 27, 2007 with both parties
signing it, and will run for an unspecified time that shall, however,
not
be less than [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
UNDER RULE 24B-2] years. It shall be terminable with at [INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]
months
notice for both parties, to be submitted by 30
th
June or 31st December of any year, after expiry of the initial term.
This
shall not affect any right of immediate termination for an important
reason.
|
|
34.2
|
An
important reason for immediate termination of this contract shall
be
given
|
-
on a material uncured breach of vendor’s
service performance based on the service performance parameters contained in
the
“Specifications” attachment and “Service Level Agreement”
attachment
-
if
the other party ceases payment, or
in case looming insolvency, insolvency or over-indebtedness indicate a
significant deterioration in a party’s financial circumstances
-
on
offering an out-of-court settlement
to satisfy the creditors of the other party
-
on
an application being filed to
initiate bankruptcy procedures for the assets of the other party;
-
on
bankruptcy procedures being opened
for the assets of the other party;
The
other
respective party shall be obligated to notify the party with right of contract
termination if grounds for termination should arise; provided, that the other
party shall have a reasonable period of time to cure the grounds for
termination.
|
34.3
|
In
the event of termination of this contract, for whatever reason, the
vendor
shall be obligated to support VF D2 to the best of its ability in
continuing operation of the service for a commercially reasonable
period
of time and subject to the parties entering into a separate agreement
regarding vendor’s fees for the provision of such support. This shall
apply irrespective of whether VF D2 intends to operate the service
after
contract termination, or to have a third party operate
it.
|
|
34.4
|
Support
to be provided by the vendor pursuant to the preceding section shall
encompass transfer by the vendor of all information, especially parameter
settings, monitoring settings, operating rules, reporting indicators
etc.
at no extra charge for VF D2. The vendor shall be obligated to keep
available, at all times, relevant and up-to-date information for
this
purpose.
|
|
34.5
|
The
vendor shall also be obligated, in the event of termination, or any
other
ending of the contract, to transfer to VF D2, or a third party specified
by VF D2, all files for the contractual products, including metadata,
as
well as any customer data collated during the period of contract.
The
details of this electronic transfer shall be jointly defined in good
time
prior to termination of the
contract.
|
|
34.6
|
If
termination of contract means that further operation of the service
for VF
D2, which is necessary for VF D2 business operations, is impossible
and /
or pointless in business terms, VF D2 shall have the right to demand
from
the vendor that the agreed services be continued for, at the most,
one
year subsequent to contract end. In this case, the parties will agree
to
other contractual terms based on fair market terms and conditions
for such
continued support.
|
|
34.7
|
Termination
of contract, for whatever reason, must be submitted in
writing.
|
35.
Period of Limitations
|
35.1
|
The
period of limitations for payment claims on the part of the vendor
arising
from this contract shall comprise three (3) years, commencing with
the
start of the period of limitations as specified in
law.
|
|
35.2
|
For
all claims, the periods of limitations laid down by the German Civil
Code
section 438, paragraph 1, no. 3, section 634a, paragraph 1, number
1, and
section 479, paragraph 1, all comprise (3) three years, including
claims
arising from defects of title. Section 15.7 of the General Conditions
of
Purchase of IT Services shall be governed by this section
35.2.
|
36.
Changes to Services
|
36.1
|
Changes
to the agreed scope of service shall be agreed in a written supplement
to
this contract.
|
|
36.2
|
Change
requests shall be submitted in written form to the contact person
of the
other respective party. The vendor shall examine change requests
by VF D2
as a rule within one working day, at the latest, however, within
five
working days, and work out the effects of the changes in terms of
functions, schedule and prices, and detail them in writing in a
supplementary proposal. If the change request is labeled urgent by
VF D2,
then the aforementioned deadline shall comprise one working day.
The price
calculation shall be presented
transparently.
|
|
36.3
|
VF
D2 shall examine a supplementary proposal compiled by the vendor
free of
charge, and notify the vendor within an appropriate period of time,
to be
agreed case-by-case, whether VF D2 accepts the supplementary proposal.
The
supplementary proposal shall include in particular: A description
of the
proposal subject matter and the effects on existing documents and
other
results, effects on the scope of service as defined, as well as changes
to
time and material costs, and to the agreed schedule. If VF D2 rejects
the
proposal, this contract shall be enacted as originally
conceived.
|
|
36.4
|
Any
change requests made by the vendor shall be examined by VF D2 as
a rule
within five working days. The vendor shall be obligated to continue
work
pursuant to the original format, if, and for as long as, no agreement
is
reached pertaining to a change in the contract. If the vendor believes
there are technical arguments against implementation of the contract
as it
exists, the vendor shall notify VF D2 of these in writing
immediately.
|
|
36.5
|
Agreements
to suspend work shall be made in mutual agreement and in writing.
If
nothing to the contrary has been agreed for an individual case, the
implementation schedule and deadlines shall be rescheduled to accommodate
the interruption.
|
|
36.6
|
The
parties shall agree on the perso
nnel
and competencies of a joint committee that shall, regularly or
irregularly, discuss preceding and future contractual co-operation
and
that, under defined conditions, can effect contractual changes, or
binding
decisions, on whether services performed are consistent with the
contract.
|
37.
Site
of Fulfillment, Court of Jurisdiction
|
37.1
|
The
site of fulfillment for payment is the VF D2 head office. The site
of
fulfillment for the vendor’s services is Düsseldorf, or the respective
site of deployment of the services, if nothing to the contrary has
been
agreed.
|
|
37.2
|
Court
of jurisdiction for all legal disputes resulting from this contract
is
Düsseldorf, unless another exclusive court of jurisdiction is specified
by
law.
|
38.
Applicability
for other Vodafone Companies
|
38.1
|
The
vendor shall declare readiness to allow other companies with Vodafone
Group Plc having a direct or indirect stake of more than 25% to enjoy
the
conditions of this contract as negotiated by the parties based on
the
location, size, and business volume of such other company, should
they
wish.
|
39.
Applicable
Law, Requirement of Written Form, Severance Clause
|
39.1
|
If
this contract shall be applied, the entire legal relationship between
the
contracting parties shall be governed by German law on legal relations
between parties domiciled in the Federal Republic of Germany. The
parties
rule out any application of the Vienna Convention on the Sale of
Goods.
|
|
39.2
|
Changes
to this contract must be made in written form. This shall also apply
to
the abrogation or alteration of this requirement to make changes
in
written form.
|
|
39.3
|
If
one clause of this contract should be or become void, a legally valid
provision shall replace it, such that it optimally fulfils the declared
will of the parties. If such a clause is not obtained, the respective
provision laid down by German law shall be valid. The validity of
all
other clauses shall, however, not be affected by the nullity of one
clause.
|
|
39.4
|
If
the preceding contract terms contain contradictions, the following
order
of bindingness shall apply:
|
·
This
contract
·
The
attachments to this contract in numerical sequence.
·
The
VF D2
General Conditions of Purchase:
The
DDP
Incoterms 2000 shall supplement these.
|
39.5
|
The
vendor’s General Terms of Business shall not apply. This shall also hold
true in individual cases where such General Terms of Business are
not
expressly contradicted by VF D2.
|
|
39.6
|
The
language of the contract is German. To the extent that German law
allows,
the parties can draw up parts of the contract in English, and perform
contract implementation in English, as far as this is
pertinent.
|
|
39.7
|
The
attachments to this contract constitute components of the contract.
This
contract contains the following
attachments:
|
Attachment
|
1
|
-
Specification
|
|
|
|
Attachment
|
2
|
-
Service Level Agreement
|
|
|
|
Attachment
|
3
|
-
Quality Requirements
|
|
|
|
Attachment
|
4
|
-
Monitoring Alarming
|
|
|
|
Attachment
|
5
|
-
Prices and Discounts
|
|
|
|
Attachment
|
6
|
-
Consulting, Prices and Services
|
|
|
|
Attachment
|
7
|
-
Bank Guarantee
|
|
|
|
Attachment
|
8
|
-
Ethical Purchasing
|
|
|
|
Attachment
|
9
|
-
Milestones
|
|
|
|
Attachment
|
10
|
-
General Conditions of Purchase for IT
Services
|
Düsseldorf,
date:
8-27-2007
|
|
Schwerte,
date:
8-27-2007
|
|
|
|
/s/
Johannes Becher
_______________________
|
|
/s/
Ian
Aaron
|
Vodafone
D2 GmbH
|
|
Twistbox
Games Ltd & Co KG
|
*WE
HAVE REQUESTED CONFIDENTIAL TREATMENT OF CERTAIN PROVISIONS CONTAINED IN
THIS
EXHIBIT. THE COPY FILED AS AN EXHIBIT OMITS THE INFORMATION SUBJECT TO THE
CONFIDENTIALITY REQUEST.*
“Applications
& Games Service”
|
Att.05:
“Prices and Discounts”
|
Request
for Quotation
“Applications
& Games Service”
Attachment
05:
Prices
and Discounts
August
2007
|
Commercial
in Confidence - Not for Disclosure
|
|
“Applications
& Games Service”
|
Att.05:
“Prices and Discounts”
|
Contents
1
Basic Revenue Share Model
|
|
3
|
|
2
Discount
|
|
3
|
|
Example
calculation
|
|
3
|
|
3
Price Cap
|
|
3
|
|
4
Additional conditions
|
|
3
|
|
5
Systems covered by the revenue share
|
|
4
|
|
6
Service development
|
|
5
|
|
7
Wire Transfer Instructions
|
|
5
|
|
“Applications
& Games Service”
|
Att.05:
“Prices and Discounts”
|
The
prices shall be quoted according to the following
structure:
1
Basic
Revenue Share Model
Overall
monthly revenue share for Vendor in connection with the services rendered under
the Content Hosting and Services Agreement shall be: [INFORMATION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]% (the “Revenue
Share”).
The
Revenue Share will be calculated based on total service revenue (net price
excluding VAT) of VF D2 for all mobile games and application content items
directly processed via Vendor’s platform especially including all revenues
through single purchase events and subscription models.
The
Revenue Share will be retroactively calculated for each month based on the
revenue report send through the VF D2 financial department.
2
Discount
The
total
revenue amount based on the Vendor’s content selected by VF D2 and delivered
based on a separate games and applications content Partner Agreement with Vendor
and processed via Vendor’s platform will be deducted from the total service
revenue as a discount with a ratio of [INFORMATION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION UNDER RULE 24B-2]
before
applying the Revenue Share percentage defined above (ref 1.)
All
revenues for downloads within subscription models will be calculated as such
as
a single purchase would have been undertaken based on the valid single purchase
prices (net price excluding VAT) for specific content item at time of
download.
Example
calculation
Assumptions
(ficticious month):
|
|
VF
D2 Total Service Revenue:
|
|
EURO
[INFORMATION OMITTED AND FILED
SEPARATELY
WITH
THE COMMISSION UNDER RULE 24B-2]
|
|
|
Vendor
Total Content Revenue:
|
|
EURO
[INFORMATION OMITTED AND FILED
SEPARATELY
WITH
THE COMMISSION UNDER RULE 24B-2]
|
|
|
Vendor
Total Content Revenue Discount:
|
|
EURO
[INFORMATION OMITTED AND FILED
SEPARATELY
WITH
THE COMMISSION UNDER RULE 24B-2]
|
|
(Explanation:
[INFORMATION OMITTED AND FILED SEPARATELY
WITH
THE COMMISSION UNDER RULE 24B-2])
|
Calculation:
Discount
= [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
Adjusted
Service Revenue
=
[INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER
RULE 24B-2]
Revenue
Share
=
[INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER
RULE 24B-2]
3
Price
Cap
In
the
event the monthly calculated Revenue Share for Vendor as provider for the
platform (ref. 1.) exceeds the price cap EURO [INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2] the amount exceeding the price
cap will be attributed to advertising spend on VF D2’s live! portal with the
purpose of promoting Vendor’s Games & Applications content.
The
attributable monthly advertising spend will be calculated on a monthly basis
and
accrued for use at Vendor’s discretion, but within 12 months of
accrual.
4
Additional
conditions
|
·
|
The
fulfillment of all requirements of the RfQ is covered by the Revenue
Share, including development, integration, customization, quality
assurance, maintenance, software e.g. for wrapper,
etc.
|
“Applications
& Games Service”
|
Att.05:
“Prices and Discounts”
|
|
·
|
Capacity
extensions are covered by the Revenue Share. Capacity extensions
of
bandwidth/traffic and hardware are
included.
|
|
·
|
Features
and requirements marked priority 1 or priority 2 have to be ready-for-use
on launch date. Priority 3 timeline is
below
|
|
·
|
Quality
assurance covers an average of 7 titles at about 100 Stock Keeping
Units
each per week (also included in the Revenue
Share).
|
|
·
|
VF
D2 SHALL BE ENTITLED TO OFFER TO ITS END USERS EACH MONTH FREE OF
CHARGE A
NUMBER OF DOWNLOADS NOT TO EXCEED [INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2] PERCENT [INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]%
OF THE
AGGREGATE NUMBER OF DOWNLOADS AS REPORTED BY VF D2 DURING THE PRIOR
MONTH.
|
FOR
EXAMPLE, IF THE TOTAL NUMBER OF DOWNLOADS IN THE MONTH OF SEPTEMBER IS
[INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]
VF D2 MAY MAKE UP TO [INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION UNDER RULE 24B-2] DOWNLOADS FREE OF CHARGE.
THEREAFTER,
VENDOR SHALL BE ENTITLED TO RECEIVE ITS REVENUE SHARE FOR EACH ADDITIONAL FREE
OF CHARGE DOWNLOAD CALCULATED BASED UPON AN AVERAGE GAME OR APPLICATION RETAIL
PRICE OF 3,99€.
|
·
|
VF
D2 guarantees to Vendor a minimum of [INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2] new launch slots
per
month for supplier’s Games in the
portal.
|
Priority
3 timelines
|
|
|
|
C2.2.5
UI SVG Support
|
|
Q1
2008
|
|
|
|
|
|
C2.5.4
The platform has to have the automated capability to send out specified
SMS/MMS to upsell additional content
|
|
|
Available
with launch of the service
|
|
|
|
|
|
|
C2.6.12
The platform has to provide the capability for a
MMS-Newsletter
|
|
|
Q1
2008
|
|
|
|
|
|
|
C2.6.17
Vendor has to provide SMS keyword discovery of content if required
by VF
D2. The customer receives a (Video) MMS with a video trailer and
a
deeplink to the purchase page.
|
|
|
Q1
2008
|
|
|
|
|
|
|
C2.5.6
Delivery into non-VF networks
|
|
|
Q1
2008
|
|
5
Systems
covered by the revenue share
Systems
covered by the revenue share include
System
|
Production
System
|
Redundant
Backup System for Production (Hotswitch)
|
Testing
(MVTC)
|
“Applications
& Games Service”
|
Att.05:
“Prices and Discounts”
|
6
Service
development
For
additional and further service development and change requests not included
in
Att 1 Specifications or not otherwise included the supplier provides an overall
capacity of 33 mandays per month. Unused mandays will be credited up to 12
month.
7
Wire
Transfer Instructions
All
payments to be made to Supplier by VF D2 shall be made as follows:
Dortmunder
Volksbank eG
Zweigstelle
der Dortmunder Volksbank (optional)
Address:
Kuhstr.
4, 58239 Schwerte
Credit
to:
Charismatix
Ltd. & Co. KG
Account
number:
633
030
1700
lban#:
DE78
44160014 6330 3017 00
Reference:
BIC
GENODEMIDOR
Bank
Code:
441600
14
Partner
Agreement
between
Vodafone
D2 GmbH
Am
Seestern 1
40547
Düsseldorf
(hereinafter
referred to as “
VF
D2
”)
and
Twistbox
Games Ltd & Co KG
Lohbachstr.
12
58239
Schwerte
Germany
(hereinafter
referred to as “
ASP
”)
I.
Subject
of Agreement
Provision
of the Application by the ASP for use on the VF D2 portals such as, but not
limited to the portal “Vodafone-live” in compliance with VF D2’s general terms
and conditions for Partner Agreements as set out in the version of such terms
and conditions dated 27.08.2007 (hereinafter referred to as (“AGB”) as Annex
1.
II.
Type
of the Application
For
all
types of product mobile games and applications unless otherwise agreed.
III.
End
user device compatibility
ASP
is
responsible for the best possible support of handsets which are stipulated
in
the Annex 2 of this Partner Agreement. Furthermore the ASP is also responsible
for delivering reasonable application updates for supporting new
handsets.
IV.
Rights
of use
o
Only
German Vodafone Portals
o
Others:
_______________________________
V.
Brands
to be offered for use by VF D2
___________________________________________________________________________________________________
o
Co-branding with the ASP’s brand agreed
VI.
Normal
price
For
the
avoidance of doubt, VF D2 is free to set its own charges for subscriptions
for
end users in accordance with the AGB.
VII.
Subscription
fee revenue share
If
not
otherwise agreed between the parties, the following revenue share shall
apply:
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2] ASP
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]
VF
D2
Calculation
basis, pre-product deductions, free usages, calculation clauses for packs as
well as all accounting and payment provisions are subject to the
AGB.
VIII.
ASP’s
minimum fee in the event of discounts or packs
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]
EUR
IX.
ASP’s
Bank
Dortmunder
Volksbank eG
Credit
to: Charismatix Ltd. & Co. KG
Account
number: 633 030 1700
Iban#:
DE78 44160014 6330 3017 00
Reference:
BIC GENODEMIDOR
Bank
Code: 441600 14
X.
Term
Initial
term: [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2] beginning August 27th, 2007
Option
to
extend the term in favour of VF D2:
o
yes
o
no
Optional
term:
Automatic
unlimited extension of the Term if not terminated:
o
yes
o
no
Any
time
after the initial term, either party may terminate this Partner Agreement upon
at least [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER
RULE 24B-2] prior written notice to the other party which such notice shall
be
delivered on or before the 15
th
of June
or the 15
th
of
December of any year after the expiration of the initial term.
XI.
ASP
Contact persons
Business
Development:
|
Name:
eMail:
Telephone:
|
Technical
(Mo-Fri 8-18):
|
Name:
eMail:
Telephone:
|
Editorial:
|
Name:
eMail:
Telephone:
|
Customer
Care:
|
Name:
eMail:
Telephone:
Mobile:
|
XII.
Preferred
Aggregator;
1.
Preferred Aggregator. ASP shall be the main (preferred) content aggregator
for
the Games and Application Service by VF D2 such that any new third party which
desires to distribute Games and Applications under a local agreement must first
enter into negotiations for a license agreement with ASP on commercially
reasonable terms and conditions in order for such third party’s Games and
Applications to be available via VF D2. [INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]
2.
VF D2
guarantees to ASP [INFORMATION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION UNDER RULE 24B-2] launch slots per month for erotic games designated
as 18+ in addition to any other agreed launch slots between parties.
[INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
XIII.
Special
agreements and miscellaneous
1.
RIGHT
TO AUDIT
VF
D2
will keep accurate and complete records, in accordance with generally accepted
accounting principles, in order to determine the accuracy of VF D2’s reports and
payments and retain such records for at least two (2) years following their
generation. ASP, or its representative, will have the right, subject to ten
(10)
days prior written notice to VF D2, to examine, audit, and review all applicable
records and accounts once each calendar year during VF D2’s normal business
hours for so long as this contract is valid. VF D2 will pay to ASP all amounts
discovered to be due ASP as a result of any audit within thirty (30) days of
invoice. In addition, in the event any such audit by ASP reveals a discrepancy
of five percent (10%) or more in ASP’s favor, VF D2 will pay all reasonable
costs of ASP’s audit, and such costs shall be added to ASP’s invoice for amounts
due.
2.
NOTICES
Any
written notice given under this Agreement shall be to the addresses set forth
below. The notice shall be deemed duly given, if delivered by hand, on the
same
business day it was delivered, or on the next business day if delivered on
a
non-business day. The notice shall be deemed duly given, if delivered by
facsimile, upon receipt of confirmation from an employee of the receiving party.
The notice shall be deemed duly given, if sent by prepaid overnight, registered
or certified mail, on the day of receipt. The failure to send a notice copy
shall not affect the validity of any notice otherwise properly sent and actually
received by a party.
Notice
to
ASP to be provided as follows:
|
If
by mail
|
Twistbox
Entertainment, Inc.
|
|
or
facsimile:
|
14242
Ventura Boulevard, Third Floor
Sherman
Oaks, California 91423 USA
Attn:
International Sales/Distribution
Attn:
EVP/General Counsel
Fax:
(818) 301-6239
Email:
legal@twistbox.com
|
|
|
|
|
With
a copy to:
|
Twistbox
Games Ltd & Co KG
Lohbachstr.
12
58239
Schwerte - Germany
Attn:
Eugen Barteska
Email:
ebarteska@twistbox.com
|
3.
ASSIGNMENT
Either
party may assign this Partner Agreement, without the consent of the other party,
in the event of an assignment by either party: (i) to a successor entity
resulting from a merger, combination or consolidation; (ii) to the transferee
of
all or substantially all of the assets of the assigning party or its parent(s);
or (iii) to an entity under common control with, controlled by or in control
of
the assigning party. In the case of ASP, it shall not assign this Partner
Agreement to a competitor of VF D2.
4.
INDEMNIFICATION
Each
party (the “Indemnifying Party”) shall indemnify, defend and hold harmless the
other party (including its parents, subsidiaries and affiliated companies),
and
its directors, officers, employees, successors, licensees, assignees, attorneys
and
agents
(the “Indemnified Party(ies)”) from and against any and all claims, losses,
deficiencies, damages liabilities, costs, and expenses (including but not
limited to reasonable attorney fees and related costs and expenses) incurred
by
the Indemnified Party(ies) as a result of any claim, judgment, or adjudication
against the Indemnifying Party arising from any breach or alleged breach of
any
of the Indemnifying Party’s covenants, obligations, representations or
warranties under this Partner Agreement; provided that, the Indemnified
Party(ies) promptly notify the Indemnifying Party in writing of any such claim
and gives the Indemnifying Party the opportunity to defend or settle such claim
at the Indemnifying Party’s expense and cooperates with the Indemnifying Party
in defending or settling such a claim.
5.
LIMITED
LIABILITY
IN
NO
EVENT SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL, INCIDENTAL DAMAGES (German
explanation: entfernter Mangelfolgeschaden) ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS AGREEMENT OR ANY MATTER RELATED HERETO, INCLUDING WITHOUT
LIMITATION, LOST BUSINESS OR LOST PROFITS, EVEN IF ADVISED OF THE POSSIBILITY
OF
SUCH DAMAGES. EXCEPT FOR THE PARTIES’ INDEMNIFICATION OBLIGATIONS, IN NO EVENT
SHALL TWISTBOX’S LIABILITY ARISING UNDER THIS AGREEMENT EXCEED, IN THE
AGGREGATE, THE TOTAL AMOUNT PAID BY VF D2 TO ASP AS OF THE DATE ASP BECOMES
LIABLE FOR ANY SUCH DAMAGES HEREUNDER.
6.
SURVIVAL
All
representations, warranties indemnifications and payment obligations contained
in this Partner Agreement shall survive the termination and/or expiration of
this Partner Agreement
7.
VF
D2
REPRESENTATIONS AND WARRANTIES
7.1
VF
D2
represents and warrants as follows: (VF legal: remove paragraph)
|
(a)
|
it
has full authority and ability to enter into and perform its obligations
under this Partner Agreement.
|
|
(b)
|
it
has not and will not undertake any action which might impair the
exercise
of ASP’s full rights under this
Agreement.
|
|
(c)
|
VF
D2 will, on a continuing basis, use its best efforts to ensure the
content
is distributed only where receipt and viewing of such content is
lawful
and within the contemporary community
standards.
|
|
(d)
|
VF
D2 shall not make edits, modifications, changes or otherwise manipulate
or
rearrange the content without ASP’s prior written consent, which may be
withheld in ASP’s sole discretion.
|
This
Partner Agreement is subject to VF D2’s general terms and conditions for Partner
Agreements as set out in the version of such terms and conditions dated
15.03.2005 (Annex 1). Any conflicts between the terms of this Partner Agreement
and the terms of VF D2’s general terms and conditions for Partner Agreements,
the terms of this Partner Agreement shall govern the rights and obligations
of
the parties.
Düsseldorf,
27.08.2007
|
|
|
Schwerte,
AUG. 27, 2007
|
|
|
|
|
|
|
|
|
/s/
Johannes Becher
|
|
|
/s/
Ian Aaron
|
for
VF D2
|
|
|
for
the ASP
|
|
|
|
|
/s/
Johannes Becher
|
|
|
|
for
VF D2
|
|
|
|
Annex
1:
General
Terms and Conditions for Partner Agreements
Annex
2:
Vodafone
D2 Java Games & Applications Local Submission Specifications
*WE
HAVE REQUESTED CONFIDENTIAL TREATMENT OF CERTAIN PROVISIONS CONTAINED IN THIS
EXHIBIT. THE COPY FILED AS AN EXHIBIT OMITS THE INFORMATION SUBJECT TO THE
CONFIDENTIALITY REQUEST.*
GENERAL
TERMS AND CONDITIONS
FOR
PARTNER-CONTRACTS CONCERNING JAVA- APPLICATIONS
of
Vodafone
D2 GmbH, Am Seestern 1, D-40547 Düsseldorf, Germany
(hereinafter
“VF D2”)
1.1
|
VF
D2 is a company belonging to the Vodafone Group, which does business
internationally. VF D2 operates several Vodafone portals among which
are
the portals “Vodafone-live”, “Vodafone WAP” and “Vodafone Web” and
provides data for portals operated by Vodafone Group service providers,
all of which are so-called “multi-access portals” (hereinafter jointly
referred to as the “Portal”), through which third-party users
(hereinafter, “End Users”) are given access to data which is, if
necessary, transmitted to them. This data may be in the form of texts,
pictures, and sounds, singly or also in combined form or integrated
into
software programs (such data integrated into software programs such
as but
not limited to java-applications which represent mobile games hereinafter
referred to as “Application(s)”).
|
1.2
|
“Service
Provider” in terms of this General Terms and Conditions for
Partner-Contracts Concerning Java Applications (the “Agreement”) shall
mean providers of telecommunications services distributing on their
own
behalf and for their own account telecommunications services provided
via
the Vodafone telecommunications network to End
Users.
|
1.3
|
Access
to data on the Portal and Applications shall be effected regardless
of the
type of the device used in the individual case so long as ASP’s
obligations hereunder ex-tend to such device. Data access is presently
made possible through the WWW and WAP, i.e., by means of mobile devices
(such as mobile telephones) or personal computers. VF D2 intends
to also
employ new ways and forms of data transmission in the
future.
|
1.4
|
The
Partner Agreement between the parties (the “Contract”) and this Agreement
shall regulate the provision of ASP’s Applications for use by End Users
through Portals and rights and duties of the parties in connection
thereto. Unless otherwise expressly stipulated in the Contract or
in this
Agreement, the provision and transmission of all Applications and
data
provided to the End Users by ASP shall be effected through VF D2
in its
own name.
|
2.1
|
ASP
shall provide VF D2 with the Application described in the Contract
for use
on the Portal as stipulated in the Annex “Vodafone D2 Java Games &
Applications Local submissions
specifications”.
|
2.2
|
The
consideration rendered by the End Users for use of the Application
shall
entitle the End Users to use or to download the Application for the
frequency or the time (in case of the latter with unlimited frequency)
as
described in the contract for so long as any such End User complies
with
the applicable terms of use and contractual obligations of VF
D2.
|
The
End
User’s revocable right to use or to download ASP’s Application pursuant to this
Agreement and the Contract for a consideration paid in advance for a certain
time period or a certain number of times is referred to hereinafter as a
“Subscription”.
2.3
|
VF
D2 intends to offer the Application to the End User at the price
named in
the Contract (hereinafter, the “Normal Price”) per Subscription. The
parties agree that VF D2 shall be free to set its own charges for
Subscriptions for End Users.
|
2.4
|
ASP
shall carry out and fulfil its duties as set out in the Contract
and this
Agreement with commercially reasonable technical and commercial diligence
according to its best knowledge and ability. The Applications made
available by ASP shall be in compliance with the Contract and this
Agreement including technical specifications and other specifications
provided in advance by VF D2 and approved by ASP based on the Contract
and
this Agreement.
|
2.5
|
ASP
shall be entitled to establish a link from its Application to applications
of third persons only with the prior written approval of VF D2 in
each
individual case.
|
2.5.1
|
If
the Applications connect to an external server, i.e., one residing
outside
the Vodafone D2 network, that is hosted by the ASP itself or an agent
thereof, the document “Vodafone Service Level Agreement for Content
Partners” becomes part of the
contract.
|
3
|
Rights
of Use and Marketing
|
3.1
|
Unless
otherwise stated in the Contract, ASP grants VF D2 a non-exclusive
right
to provide third persons in Germany access to the Application via
a Portal
and/or to transmit the Application to third persons pursuant to the
terms
of this Agreement and the Contract. This license is limited in duration
to
the term of the Contract and in scope to third parties necessary
for
delivery and utilisation of the Services, and the license is only
transferable under the stipulations of the Contract and this Agreement.
FOR THE AVOIDANCE OF DOUBT, IT IS UNDERSTOOD THAT DUE TO VF D2’S
INTERNATIONAL ROAMING AGREEMENTS, GAMES AND APPLICATIONS MAY BE ACCESSED
BY A VF D2 CUSTOMER WHEN THE CUSTOMER IS PHYSICALLY OUTSIDE OF VF
D2’S
TERRITORY SIGNAL. SUCH INCIDENTAL ACCESS AND SIGNAL SPILLOVER WILL
NOT
CONSTITUTE A BREACH OF THIS
AGREEMENT.
|
3.2
|
In
particular, ASP grants VF D2 the right to copy and distribute the
Application and/or the results generated by it in whole or in part
by
means of on-demand procedure or by means of transfer in order to
make them
accessible for End Users. By the right of making available by means
of
on-demand procedure, the parties mean the utilisation of the Application
or parts thereof and/or its results in that they are stored in digital
form in a data processing system and can be requested by and/or
transmitted to End Users by means of wire-bound or wireless systems
as a
digital signal, with the result that the stored data is transferred
to the
End User’s receiver, where it is decoded either after storage, after
temporary storage, or immediately, and thus can be converted back
to
texts, images, sounds and/or other and made visible or audible. The
Application and/or its results may also be made accessible to the
End User
in such a way that the End User can call up the Application or parts
thereof repeatedly after transmission to End User’s receiver. A feature of
interactive use on demand is that the application stored in digital
form
is made accessible to members of the public who are not present at
the
location of the origin of the accessibility in such a way that they
have
access and can request the transfer individually as to time and location
even if the transfer of the application and/or its results to the
End User
is effected at a later time than requested. The parties understand
the
above-mentioned right to also mean the right of request and the right
of
making available to the public within the meaning of Directive 2001/29/EC
of the European Parliament and the Council of 22 May 2001 (Gazette
No. L
167, 22 June 2001, pp. 0010-0019). Concerning the right of making
available by means of transfer the parties mean that a feature of
such
transmission is that the Application and/or its results stored in
digital
form is made accessible to members of the public who are not present
at
the location of the origin of the accessibility in such a way that
initiation of
the
transmission process of the signals carrying the information to the
End
User’s receiver is reserved to VF D2 and cannot be effected by the End
User.
|
3.3
|
Also
granted to VF D2 is
|
|
·
|
the
right to print, meaning the right to edit and to publish the content
in
unchanged form - in the last case in particular in the form of summaries
and synopses for the purpose of copying and disseminating the content
as a
printed work, especially for advertising purposes. This also covers
the
right to manufacture, copy and distribute in any kind of book for
all
editions and issues, particularly in the form of illustrated and
non-illustrated books, brochures, customer magazines (e.g. the current
VF
D2 customer magazines “Vodafone World” and “CallYa Zin”), comics,
electronic press kits as well as other analogue and digital text,
image
and data carriers, etc. that are derived from the content by reproducing
or presenting the content even in modified or newly arranged form
- or by
photographic, drawn or painted representations or similar as well
as the
right to provide corresponding editions via video and audio text
or other
distribution systems to interested
persons;
|
|
·
|
the
right to present as the right to render the content entirely or partially
publicly perceptible;
|
|
·
|
the
right to perform as the right to put forward the content or parts
of the
content in a form that does not take place on
stage.
|
3.4
|
Subject
to other provisions in the Contract and/ or this Agreement, VF D2
shall
exclusively have the right to decide on the time and manner of making
the
Application available and marketing it. VF D2 shall decide, in particular,
whether and for which groups of End Users the Application will be
made
accessible, whether and to what extent registration will be required
for
use, whether and in what amount there will be a charge for use and
which
access method will be used or for which End Users the Application
will be
made available. Furthermore, VF D2 shall exclusively have the right
to
decide on the placement, positioning, and linking of the Application
within the Portal, on the name and title of the Application, and
on the
placement and manner of advertisements and other advertising and
marketing
steps for the Application inside and outside the Portal as long as
no
other express arrangement was made by the parties. The parties agree
that
VF D2 shall decide on its own whether the Application is to be marked
with
the logo of one or both of the parties or with the logo of a third
person,
as far as not otherwise set forth within the
Contract.
|
3.5
|
VF
D2 shall be entitled to market ASP’s Application in so-called packages
together with its own applications and/or applications of third persons
at
a package price set by VF D2.
|
3.6
|
After
the expiration of the contract, VF D2 shall continuously be entitled
for
an unlimited period to use the application for purposes of internal
archiving and preservation of
evidence.
|
4
|
Installation
of an Application
|
4.1
|
Release
of the Application
|
4.1.1
|
VF
D2 shall inform ASP, at latest, within ten working days after delivery
of
the application, whether the provided application is in conformity
with
the contract, in particular, whether the core functions are without
errors
(hereinafter, “release”). VF D2 shall not undertake to examine the legal
permissibility or harmlessness of the application, the altered
application, or individual parts thereof; ASP shall have a duty to
do
this. In the event the application provided by ASP is not in conformity
with the contract and VF D2 has notified ASP of this, VF D2 shall
be
entitled to postpone the planned launch date and to notify ASP of
a new
planned launch date. ASP shall implement the alterations notified
by VF D2
in each case, without cost to VF D2, within 5 working
days
after notification by VF D2. ASP shall again deliver the revised
application to VF D2 and notify VF D2 of this in advance by e-mail
and in
writing.
|
4.1.2
|
In
the event ASP does not deliver the Application as specified in
the
Contract and in this Agreement by the new planned launch date,
the
procedure set out in clause 4.1.1 shall be repeated if VF D2
gives notice
of a new planned launch date in each case within the specified
time
periods. VF D2’s right to terminate the contract without notice pursuant
to clause 12.2.5 shall remain
unaffected.
|
VF
D2
shall be entitled to postpone the planned launch date for technical, editorial,
or marketing reasons. VF D2 shall notify ASP of a postponement of the planned
launch date in advance in writing or by e-mail. In the event of the postponement
of the launch being a burden for ASP, ASP shall have a right to terminate of
the
contract within 7 days of such notification from VF D2.
5.1
|
VF
D2 shall be entitled, for the term of the Contract, to use the company
and
product names, designations, in particular, trademarks and logos
used by
ASP (hereinafter, “Brands”) within the framework of performance of the
Contract and limited to this purpose. ASP shall grant VF D2, for
the term
of the Contract, free of charge, the nonexclusive right to use its
Brands.
This right of use shall apply, in particular, to the use of the Brands
for
the purpose of advertising in the form customary in this line of
business
in print, on TV, online, and via direct marketing in classic and
electronic form as well as to PR, investor relations, and other
communications steps.
|
6.1.1
|
The
parties shall perform their contractual duties for each other
free of
charge unless the parties have expressly agreed otherwise in
writing in
the Contract or in this Agreement or in a separate agreement.
The parties
shall share the proceeds realised through the sale of the Application
itself and through chargeable events caused by the Application
(hereinafter, “Application Proceeds”) pursuant to the calculations set
forth in this Section 6 and the revenue share terms set forth
in the
Contract.
|
6.1.2
|
VF
D2 shall bill the application proceeds directly to end users
or third
persons. The billing of end users may, in particular, be carried
out by
charging through the telephone bill of the end user or direct
debit.
Furthermore, VF D2 shall distribute ASP’s share of the application
proceeds to ASP as set forth in detail in the stipulations under
clause
6.4.
|
6.1.3
|
Application
proceeds are the fees paid by the end users for the use of the
application
(hereinafter, gross application proceeds). In the event an application
is
offered to the end users together with other applications, contents,
goods, and/or services as a package at a package price which
is not broken
down in detail, only the portion of the fee attributed to the
relevant
application shall be deemed the gross application proceeds allocated
to
this application within the meaning of this clause (pro rata).
The portion
attributed to one application shall be calculated by multiplying
the
normal price by a fraction whose numerator is the package price
and
denominator is the total of the normal prices of all of the elements
of
the package. (Price portion for single application in package
= normal
price per application * (total price package / total of the normal
prices
for the individual applications/goods/services). Should any of
the
elements not have a normal price, the current or last end user
price
quoted on the portal shall be used. In the event there is no
such price,
€0,99 for b/w applications and
€1,49
for colour applications shall be used as a fictitious normal
Net price for
the package element in
question.
|
6.2
|
Division
of Application Proceeds
|
6.2.1
|
The
net application proceeds pursuant to clause 6.3 shall be divided
between
VF D2 and ASP as set out in the
contract.
|
6.2.2
|
In
the event VF D2 markets ASP’s application free of charge without the
consent of ASP or for a price below the normal price given in
clause 2.3,
or if, without ASP’s consent, the portion of the price attributed to the
application within the framework of a package offer is below
the normal
price, ASP shall receive at least the percentage of the normal
price as
set out in the contract minus statutory VAT per
use.
|
6.3
|
Calculation
of Net Application
Proceeds
|
6.3.1
|
Net
Application Proceeds means the Gross Application Proceeds actually
paid by
the End Users and received by VF D2 related to use of Application,
minus:
|
6.3.1.1
|
currently
valid value added tax or similar sales taxes charged to the End Users
(“Taxes”);
|
6.3.1.2
|
the
Gross Application Proceeds refunded at VF D2’s discretion to the
individual End Users (“Refunds”); VF D2 shall only effect such refunds if
the End User has given a substantiated and comprehensible account
of why
he was unable or only partly or incorrectly able to make use of the
relevant application for reasons for which he is not
responsible.
|
6.3.2
|
VF
D2 shall deduct from the gross application proceeds the deductible
costs
as stipulated in clause 6.3.1 on the statement that concern the period
in
which these are claimed from VF D2, at latest, however, three months
after
the respective claiming-date.
|
6.4
|
Billing,
Due Dates, Payment
|
6.4.1
|
VF
D2 shall transmit a detailed statement of application proceeds received
by
VF D2 and ASP’s share of these proceeds to ASP within two weeks after the
end of each calendar month. The statement shall include the Application
name, the end user device, the event type, the total events, the
price per
download/subscription, any additional Application Proceeds received
and
the calculation of Net Application Proceeds. ASP shall examine the
statement from VF D2 without undue delay after receipt and notify
VF D2 in
writing of possible errors without undue delay. In the event ASP
does not
give such notification, the statement shall be deemed to be approved
14
days after receipt of the statement by ASP. Notwithstanding anything
herein to the contrary, the parties may mutually agree to discuss
exceptions, errors or other peculiarities of the statements at any
time
prior to final payment.
|
6.4.2
|
ASP
shall be entitled to bill VF D2 for ASP’s share of the Application
Proceeds shown in the statement within two weeks after receipt of
the
statement. The invoice may be provided in electronic format and is
due
upon receipt. VF D2 shall make payments solely by wire transfer to
the ASP
account set out in the contract.
|
6.4.3
|
If
the ASP is registered outside of Germany, VF D2 might be obliged
to deduct
withholding tax from any payment due. In this event, VF D2 will withhold
and pay the tax on behalf of and for the account of ASP to the tax
office
in charge. VF D2 will provide ASP with a respective tax receipt
certificate. In case that a double taxation treaty applies which
provides
for a reduced withholding tax rate, VF D2 will only withhold and
pay the
reduced tax on behalf and for the account of ASP if a respective
exemption
certificate is issued by the competent authority. VF D2 shall assist
in
obtaining this
certificate.
Unless such a certificate is granted and presented VF D2 will deduct
the
tax of any respective sum according to the applicable tax
law.
|
6.4.4
|
The
Applications are subject to VAT in Germany. Therefore no VAT is issued
according to Art. 9 (2) (e) of the EEC 6
th
Directive (reverse charge). VAT is owed by the recipient of the
service.
|
6.5
|
ASP
shall only set off costs towards VF D2 if ASP’s claim is undisputed or has
been finally determined by the
courts.
|
7
|
Data
Recording and Data
Protection
|
ASP
shall
guarantee that it will observe current, applicable data protection rules (in
particular, laws, ordinances, court decisions, and official directives). ASP
shall not be entitled to record any data on End Users (including personal data),
unless conclusively necessary for the use of the Application or for the purposes
of reconciling reporting.
8
|
Responsibility
for Contents, Third-party Rights, Compensation for Damage,
Indemnification
|
8.1
|
ASP
guarantees (“Garantie” as known in German Law) that the Application does
not, to its knowledge, violate German law, in
particular,
|
8.1.1
|
that
it is not slanderous or defaming for other natural or legal
persons;
|
8.1.2
|
that
it does not infringe protected rights such as copyrights and intellectual
property rights, trademarks and other brand rights, patents, business
secrets or confidentiality
agreements;
|
8.1.3
|
that
it does not inflict injuries on persons or cause damage to
property;
|
8.1.4
|
that
it does not violate, the privacy of other
persons;
|
8.1.5
|
that
it does not contain pornographic, obscene, or disparaging material;
|
8.1.6
|
that
it does not aid and abet acts in violation of the law;
and/or
|
8.1.7
|
that
it cannot be prosecuted in criminal or civil proceedings under currently
valid law.
|
8.1.8
|
that
ASP has obtained all required licenses, releases, and permits from
third
persons or official authorities and government agencies which, according
to currently valid statutory law or rules, are required for the use
of the
Application in the Portal in compliance with the stipulations of
the
Contract and this Agreement.
|
8.2
|
Should
ASP breach its guarantee as defined in clause 8.1, it shall be obligated
to cease and desist from further breach, to compensate VF D2 for
any
actual sustained loss and loss which is still being sustained including
any claims for damages and compensation for expenses incurred by
third
persons which were directly caused by the breach. All other claims
of VF
D2, in particular, to block the Application and to terminate the
contract
for cause, shall be unaffected.
|
8.3
|
In
the event third persons assert claims against VF D2 due to ASP’s breach of
the guarantee listed in clause 8.1 or any other violations of law
committed by ASP, ASP shall indemnify VF D2 to the full extent including
any possible court costs and hold it harmless upon VF D2’s first demand.
VF D2 shall notify ASP without undue delay of the claim and, to the
extent
legally possible, give ASP the opportunity to defend itself against
the
asserted claim. Should VF D2, or any affiliate, alter, market, price,
sell,
advertise,
bundle or modify the Application in violation of any law, regulation,
intellectual property right or contract or reveal confidential information
of ASP resulting in harm to ASP, VF D2 shall hold ASP harmless against
any
and all losses, claims or expenses associated with, related to, or
caused
by such violation or
revelation.
|
9.1
|
ASP
gives the following warrants (“gew
ä
hrleistet”
as known in German Law)
|
9.2
|
The
Application as provided by ASP shall meet the system specifications
and
characteristics of performance set out in the Contract and this
Agreement.
|
9.3
|
ASP
shall, in each case, use technical systems and means corresponding
to
commercially reasonable technology to prevent third persons having
access
to the Application as provided and to protect VF D2’s and the End Users’
computer systems (including any other devices for use of the Application)
from software elements which could disturb or damage these computer
systems (e.g., computer viruses, logic bombs, Trojan horses,
etc.).
|
9.4
|
In
the event of a failure to fulfil one of the warranties listed above,
ASP
shall be liable towards VF D2 for compensation for actual loss or
damage
sustained due to this failure to fulfil the warranty in
question.
|
10
|
Refusal
and Blocking of the
Application
|
10.1
|
VF
D2 shall be entitled to refuse the Application altogether or to block
the
link to it if there is a reasonable assumption on the part of VF
D2 that
ASP is in breach of its du-ties in clause 8.1. Any further claim
of VF D2
against ASP shall be unaffected.
|
10.2
|
Should
ASP be of the opinion that there has been no breach of clause 8.1,
ASP
shall provide VF D2 with a legal expert opinion to this effect by
a person
qualified to be a judge.
|
10.3
|
The
event of a rightful refusal or blocking of the application by VF
D2 will
neither cause any responsibilities of VF D2 nor cause any rights
and/or
claims for damages in favour of
ASP.
|
11
|
Limitations
of Liability
|
Except
as
specifically stated herein, each party shall be liable for damages on any legal
basis whatsoever only in the amount stipulated in these provisions and only
up
to the fifty thousand euros (€ 50 000) Notwithstanding the above, neither party
shall be liable under contract, tort or any other principle of law, to the
other
party for any indirect loss, consequential loss or loss of anticipated
savings.
11.2
|
Intent
and gross negligence
|
Each
party’s liability for damages caused by such party or one of its vicarious
agents or legal representatives with intent or gross negligence shall not be
limited by amount.
In
the
event of damages based on injury to the life, body, or health of persons, each
party’s liability shall be unlimited in cases of simple negligence by such party
or one of its legal representatives or vicarious agents.
11.4
|
Organisational
negligence and warranty
Liability
for damages resulting from gross negligence with regard to organisation
on
the part of a party as well as damages caused by the lack of a warranted
quality shall also be unlimited as to
amount.
|
11.5
|
Breach
of material contractual duties
|
In
the
event of a breach of material contractual duties, each party’s liability shall
be limited to the typical, foreseeable damages for this type of contract unless
one of Clauses 11.2 - 11.4 is applicable.
11.6
|
Exclusion
of liability
|
Any
further liability for damages shall be excluded; in particular, liability
without fault shall be excluded.
11.7
|
Contributory
negligence
|
In
the
event damages are caused both by the negligence of VF D2 and ASP, each party
must allow the attribution of contributory negligence.
11.8
|
Neither
party shall not be liable towards the other for the commercial success
of
the contract.
|
12
|
Contractual
Term, Termination
|
12.1
|
The
Contract shall become effective upon execution and shall be concluded
for
a basic term as set out within the
Contract.
|
12.2
|
Each
party may terminate the Contract without notice (except as set forth
in
clause 12.3.1) for cause as set forth below. For cause shall be given,
in
particular, if
|
12.2.1
|
the
other party has violated a material contractual stipulation and does
not
remedy this violation within fourteen days after a written request
from
the party not in breach;
|
12.2.2
|
the
other party ceases its business activities or becomes unable to pay
its
debts or if insolvency proceedings are initiated or a petition to
initiate
insolvency proceedings has been filed and the insolvency court orders
security transactions pursuant to § 21
InsO;
|
12.2.3
|
ASP
has failed to make its Application available for the full time period
stipulated in the Contract and/ or this Agreement for two consecutive
months for reasons for which ASP is
responsible;
|
12.2.4
|
the
customer care costs allocated to the ASP Application incurred by
VF D2 in
two consecutive months exceed 10 percent of the monthly net subscription
proceeds for the Application;
|
12.2.5
|
if
VF D2 does not effect a Release of the application pursuant to clause
4.1.1 twice in succession due to circumstances for which ASP is
responsible;
|
12.2.6
|
if
VF D2 has failed to submit the proceeds statement (according to clause
6.4.1.) or to make its share payments in due course (according to
clause
6.4.3.) in two consecutive months for reasons for which VF D2 is
responsible.
|
13.1
|
The
contents of all documents and information of a commercial, financial,
or
technical nature or documents and information marked as confidential
which
the parties receive in the course of the contractual relationship
are to
be treated confidentially by the par-ties and may only be copied
or
forwarded to third persons with the prior written consent of the
other
party. These confidentiality obligations also apply to the conditions
of
the contract and these terms and conditions, the use numbers and
user
statistics established in its performance, and the business models
and
financial conditions proposed by VF D2 or ASP. The parties may copy
and
use such documents and information only within the framework of the
contract.
|
13.2
|
The
parties shall undertake to impose a corresponding confidentiality
obligation on the employees of the party, companies in the Vodafone
Group,
technical service provides and any outside firms called in connection
with
the Contract, including their
employees.
|
The
obligations above do not apply to information which
13.3.1
|
is
already or becomes public knowledge at or after disclosure without
fault
of the party receiving the
information;
|
13.3.2
|
is
already known to the party receiving the information as shown by
its own
written notes at the time of
receipt;
|
13.3.3
|
a
party receives from a third person without this third person having
received this in-formation directly or indirectly from the other
contractual party.
|
13.3.4
|
must
be disclosed according to statutory law or upon demand of a tax authority
or by order of a competent authority, government agency, or a competent
court, or accord-ing to the rules of a stock exchange at which the
shares
of a party to the contract or a holding company of one of the parties
to
the contract are noted.
|
13.4
|
The
party citing clause 13.3 shall bear the burden of proof that these
conditions are met.
|
13.5
|
VF
D2 shall be entitled to pass confidential information on to companies
within the Vodafone Group or, provided that this is fit and convenient
for
the purpose of operating the Portal, to technical service providers
operating a system necessary for the use of the Application or the
operation of the VF D2 platform.
|
13.6
|
The
above-described confidentiality duty shall survive the termination
of the
Contract by five years. The parties shall undertake everything which
can
reasonably be expected in good faith to warrant the fulfilment of
this
duty even in the event of employees’ leaving the company or a change of
the third persons called in.
|
13.7
|
ASP
shall require VF D2’s prior written consent for press releases or other
forms of public promotional
disclosure.
|
14.1
|
Unless
otherwise stipulated in the Contract or in this Agreement, neither
party
may assign rights, in particular, claims resulting from the contract,
to a
third person without the prior consent of the other contractual
party.
|
14.2
|
Amendments
or supplements to the contract, including this provision, must be
in
writing and executed by both
parties.
|
14.3
|
The
Contract, including its appendices, shall replace all written or
oral
statements in its scope submitted by the contractual parties during
negotiations. It shall replace, in particular, with immediate effect,
all
previous oral or written agreements between the contractual parties
with
respect to the subject matter of the
contract.
|
14.4
|
Neither
party shall be deemed to be in default of or to have breached any
provision of this Agreement or the Contract as a result of any material
delay, failure in performance, or interruption of service, resulting,
directly or indirectly, from acts of God, acts of civil or military
authorities, civil disturbances, wars, strikes or other labor disputes,
fires, transportation contingencies, interruptions in telecommunications
or Internet services, and other catastrophes or occurrences which
are
beyond such party’s reasonable control and which such party is unable to
avoid or overcome by the exercise of reasonable
diligence.
|
14.5
|
Waiver
of any breach or failure to enforce any term of this Agreement or
the
Contract will not be deemed a waiver of any breach or right to enforce
which may thereafter occur. No waiver will be valid against any party
hereto, unless made in writing and signed by the party against whom
enforcement of such waiver is sought and then only to the extent
expressly
specified therein. If any one or more of the provisions of this Agreement
will for any reason be held to be invalid, illegal or unenforceable,
that
provision will be enforced to the maximum extent permissible, and
the
other provisions of this Agreement will remain in force. The parties
shall
agree on a valid provision to replace the invalid provisions or the
omission which, to the extent legally possible, will reflect as closely
as
possible the economic purpose of the contractual parties or what
they
would have intended if they had considered this
point.
|
14.6
|
The
relationship of the parties hereunder is that of independent contractors.
Nothing herein shall be construed to constitute a partnership or
joint
venture between such parties, nor will either party be deemed the
agent of
or have the right to bind the other party in any way without the
prior
written consent of the other party.
|
14.7
|
Each
party hereby agrees to use commercially reasonable efforts to perform
its
obligations hereunder in a timely manner and agrees that the other
party
shall have the discretion to extend any delivery dates of its obligations
set forth in this Agreement or the Contract by the same number of
days
that it delays in performing its
obligations.
|
14.8
|
This
Agreement and the Contract is entered into solely between, and may
be
enforced only by the parties hereto and their permitted successors
and
assigns. This Agreement shall not create or be construed to create
any
rights in third parties, including Affiliates (other than permitted
successors and assigns), employees, suppliers, franchisees, or customers
of a party.
|
14.9
|
The
Contract shall be governed by the law of the Federal Republic of
Germany
under exclusion of the U. N. Convention on Contracts for the International
Sale of Goods. Jurisdiction and venue is Düsseldorf, Germany; VF D2 shall
also be entitled to bring suit against ASP in Los Angeles,
California.
|
25
February 2006
Waat
Media Corporation
14242
Ventura Blvd
Suite
300
Sherman
Oaks
CA
91423
United
States of America
FAO
Adi
McAbian
Dear
Sirs
LETTER
OF AMENDMENT OF CONTRACT BETWEEN WAAT MEDIA CORPORATION (“CONTENT PROVIDER”) AND
VODAFONE UK CONTENT SERVICES (“VCS”)
The
Content Provider and Vodafone Group Services Limited entered into a Master
Global Content Reseller Agreement dated 17 December 2004
(
“Original
Agreement”
)
and
a
content schedule dated 17 January 2005
(
“Content
Schedule”
)
.
To
implement the Original Agreement and the Content Schedule in the UK, VCS signed
a Contract Acceptance Notice on 11 April 2005 (the Original Agreement, Content
Schedule and Contract Acceptance Notice together the
“Contract”
).
On
[25]
February 2006 VCS entered into an agreement with the Content Provider which
provides that the Content Provider shall supply certain services to VCS
(
“Linking
Agreement”
)
.
The
provision of such services by the Content Provider necessitates certain
amendments to the Contract.
We
therefore write to confirm that the amendments set out below shall be made
to
the Contract with effect from the date of this Letter, in respect of the
relationship between the Content Provider and VCS in the UK only.
The
following Special Conditions shall be added to the Content
Schedule:
1.
|
The
Content Provider Revenue shall be [INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]% of Net Revenue,
less all
the Deductions in respect of distribution of the
Content.
|
2.
|
The
Content Provider shall be the sole supplier of Adult Content in the
Directory for the term of the Linking Agreement provided that VCS
shall be
entitled to place adult erotica content supplied by FHM, Maxim, 2dayuk
and
Filmnight within the Directory
|
For
the
purposes of the Contract, Adult Content means any adult erotica content which
is
only accessible by Age Verified Customers, other than any adult erotica content
supplied by FHM, Maxim, 2dayuk or Filmnight
(
“Adult
Content”
)
;
and
Age
Verified Customers means a
Customer
which Vodafone Limited has verified as being 18 years of age or older, by means
of its age verification process
(
“Age
Verified Customer”
)
.
Vodafone
Group Services Limited
Vodafone
House, The Connection, Newbury, Berkshire RG14 2FN, England
Telephone:
+44 (0)1635 33251, Facsimile: +44 (0)1635 580857, DX 30829 Newbury
1
Registered
Office: Vodafone House, The Connection,
Newbury, Berkshire RG14 2FN, England. Registered in England No.
4064826
3.
|
In
the event that the Content Provider breaches the Guidelines VCS shall
be
entitled to claim and receive from the Content Provider a liquidated
damages payment equal to [INFORMATION OMITTED AND FILED SEPARATELY
WITH
THE COMMISSION UNDER RULE 24B-2] in respect of each instance in which
a
breach occurs (i.e. per incident and not per video/image) up to a
maximum
of [INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
UNDER
RULE 24B-2] in any month. The Content Provider shall pay the liquidated
damages within fourteen days from demand by VCS of any or all of
the
liquidated damages under this Paragraph 3 or at its option VCS may
set off
the amount of the liquidated damages
against
any Content Provider Revenue due from VCS to the Content Provider.
The
amount of liquidated damages set out in this Paragraph 3 represents
a
genuine pre-estimate of the loss that it is anticipated VCS would
suffer
as a result of the breach.
|
In
the
event that the liquidated damages amount to [INFORMATION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2] in [INFORMATION OMITTED
AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2] consecutive months,
VCS may terminate the Contract on 30 days
notice.
For
the
avoidance of doubt and unless otherwise provided in this Letter, the capitalised
terms in this Letter shall have the same meaning as provided in the
Contract.
We
confirm that save as specified in this Letter the terms of the Original
Agreement and any contracts entered into under the Original Agreement (other
than the Contract between the Content Provider and VCS) remain
unchanged.
Please
confirm your agreement to this Letter by signing and returning the enclosed
copy.
for
and
on behalf of
Vodafone
Group Services Limited
We
hereby
agree to the contents of this Letter.
for
and
on behalf of
Waat
Media Corporation
Dated:
25
February 2006
We
hereby
agree to the contents of this Letter
for
and
on behalf of
Vodafone
UK Content Services Limited
*WE
HAVE REQUESTED CONFIDENTIAL TREATMENT OF CERTAIN PROVISIONS CONTAINED IN
THIS
EXHIBIT. THE COPY FILED AS AN EXHIBIT OMITS THE INFORMATION SUBJECT TO THE
CONFIDENTIALITY REQUEST.*
___
August 2007
Adi
McAbian
Waat
Media Corporation
14242
Ventura Boulevard, 3rd Floor
Sherman
Oaks, CA 91423
United
States of America
LETTER
OF AMENDMENT OF CONTRACT BETWEEN WAAT MEDIA CORPORATION (“CONTENT PROVIDER”) AND
VODAFONE UK CONTENT SERVICES LIMITED (“VCS”)
Dear
Adi,
The
Content Provider and Vodafone Group Services Limited entered into a Master
Global Content Reseller Agreement dated 17 December 2004 (“
Original
Agreement
”)
and a
content schedule dated 17 January 2005 (“
Content
Schedule
”).
To
implement the Original Agreement and the Content Schedule in the UK, VCS signed
a Contract Acceptance Notice on 11 April 2005 (the Original Agreement, Content
Schedule and Contract Acceptance Notice, as amended by the letters of amendment
dated 25 February 2007 and 27 February 2007 shall together be referred to as
the
“
Contract
”).
On
25
February 2006 VCS entered into an agreement with the Content Provider which
provides that the Content Provider shall supply certain services to VCS (as
amended by letters of amendment on 25 February 2007 and 27 February 2007, the
“
Linking
Agreement
”).
VCS
and the Content Provider have now agreed to amend the Contract and Linking
Agreement in respect of the UK only as set out below:
1
|
Effective
1 August 2007:
|
|
1.1
|
With
respect to the Contract, Content Provider shall receive [INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE 24B-2]%
of the
Net Revenue, less all Deductions in respect of distribution of the
Content.
|
|
1.2
|
With
respect to the Linking Agreement, Content Provider shall receive
[INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER
RULE
24B-2]% of Net Partnership Revenue.
|
2
|
Content
Provider shall remain responsible for ensuring that the Code of Practice
(as defined in the Linking Agreement) and Guidelines (as defined
in the
Linking Agreement) are adhered to and also the relevant content standards
are maintained in their current format and shall ensure that the
content
of any third parties meets the same
standards.
|
3
|
Save
as varied by this letter of amendment, the Contract and Linking Agreement
shall continue in full force and effect and in the event of any conflict
between its terms and this letter of amendment, the terms of this
letter
of amendment shall prevail.
|
Vodafone
UK Content Services Limited
Vodafone
Content Services
Vodafone
House, The Connection, Newbury, Berkshire RG14 2FN, England
Telephone:
+44 (0)1635 33251, Facsimile: +44 (0)1635 686734
Registered
Office: Vodafone House, The Connection, Newbury, Berkshire RG14 2FN, England.
Registered in England No. 4064826
For
the
avoidance of doubt and unless otherwise provided in this letter of amendment,
the capitalised terms in this letter of amendment shall have the same meaning
as
provided in the Contract and Linking Agreement, as applicable.
Please
confirm your agreement to this letter of amendment by signing and returning
the
enclosed copy.
Yours
sincerely
/s/
Bill Randall
Bill
Randall
|
Head
of Commercial Partnerships
E-mail:
bill.randall@vodafone.com
|
We
hereby
agree to the contents of this letter of amendment.
for and on behalf of
|
Waat
Media Corporation
|
Dated:
Vodafone
UK Content Services Limited
Vodafone
House, The Connection, Newbury, Berkshire RG14 2FN,
England
Telephone:
+44 (0)1635 33251, Facsimile: +44 (0)1635 686181
Registered
Office: Vodafone House, The Connection, Newbury, Berkshire RG14 2FN, England.
Registered
in England No. 4064826
*WE
HAVE REQUESTED CONFIDENTIAL TREATMENT OF CERTAIN PROVISIONS CONTAINED IN
THIS
EXHIBIT. THE COPY FILED AS AN EXHIBIT OMITS THE INFORMATION SUBJECT TO THE
CONFIDENTIALITY REQUEST.*
Content
Schedule
1.
|
This
Content Schedule incorporates the terms of the Master Global Content
Agency Agreement (the “Master Agreement”) between Vodafone Group Services
Limited (“VGSL”), registered in England (registered number 3802001),
having its registered office at Vodafone House. The Connection,
Newbury,
Berkshire RG14 2FN, United Kingdom and the Content Provider (as
defined
below) dated 17 December 2004.
|
2.
|
When
signed by VGSL and the Content Provider this Content Schedule is
a
standing offer by the Content Provider of the applicable Content
(as
defined below) to all Vodafone Group Companies on the terms of
the Master
Agreement and this Content
Schedule.
|
3.
|
A
Vodafone Group Company may accept the standing offer by completing
and
signing the Contract Acceptance Notice and following the procedure
set out
in the Master Agreement.
|
1.
|
Content
Provider
|
|
Waat
Media Corporation; United States of America; Company reg. 2512380;
Address: 18226 Ventura Blvd. Suite 102, Tarzana, CA
91356.
|
|
|
|
|
2.
|
Content
|
|
Content
Provider will provide a minimum of two channels which may be included
in
the Vodafone mobile TV offering:
|
|
|
|
|
|
|
|
1.
‘Blue’ (which may have an alternative name in different Territories)-
This
will take the form of a two hour loop, updated by the Content Provider
5
days per week (Monday-Friday), or a suitable refresh rate which
suits both
the delivery requirements and commercial customer proposition and
is
agreed by both parties, with the intent of offering the above refresh
rate
when commercially and technically viable. The channel shall be
presented
by a local presenter and/or local graphics will ensure a local
feel to the
channel, conforming to the highest television editorial and production
standards. A language agnostic version may be made available for
smaller
markets as agreed between the Parties. The channel shall be produced
in
accordance with broadcast quality production values including “mobile
sized” sensual clips, with captivating fillers and entertaining bumpers.
The channel shall consist of segmented programming, just like on
television networks and will feature quality brands and top tier
content.
|
|
|
|
|
|
|
|
2.The
Parties also intend to include a ‘Playboy’ channel which will be included
in this Content Schedule upon agreement in writing (which shall
include
agreement by email) by the Parties. The ‘Playboy’ channel shall take the
form of a two hour loop, updated by the Content Provider 5 days
per week
(Monday - Friday), or a suitable refresh rate which suits both
the
delivery requirements and commercial customer proposition and is
agreed by
both parties with the intent of offering the above refresh rate
when
commercially and technically viable. The channel shall be presented
by a
local presenter and/or local graphics will ensure a local feel
to the
channel, conforming to the highest television editorial and production
standards. A language agnostic version may be made available for
smaller
markets as agreed between the parties. The channel shall consist
of
broadcast quality production values including “mobile sized” sensual
clips, with captivating fillers and entertaining bumpers.
Content
Provider confirms that it understands the difference between US
and local
European tastes and will ensure that the Content fully reflects
this
difference.
No
third party advertising shall be included in the Content unless
otherwise
specified by VGSL.
|
|
|
|
|
3.
|
Content
Provider Branding Guidelines
|
|
The
Content Provider shall brand the Content in accordance with Section
2 of
this Content Schedule
|
|
|
|
|
4.
|
Marketing
Materials
|
|
The
Content Provider will provide marketing materials as requested
by VGSL
and/or the Vodafone Group Companies from time to time.
|
|
|
|
|
5.
|
Content
Provider Revenue
|
|
For
'Blue', Content Provider Revenue shall be
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
of Net Revenue, less all the Deductions. It is
understood that Deductions (if any) shall be deducted from the
Content
Provider Revenue actually paid to the Content Provider in accordance
with
: Clause 10.2.
.
For
'Playboy', Content Provider Revenue shall be
[INFORMATION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION UNDER RULE
24B-2]
of Net Revenue, less all the Deductions. It is
understood that Deductions (if any) shall be deducted from the
Content
Provider Revenue actually paid to the Content Provider in accordance
with
Clause 10.2.
The
Content Provider and VGSL shall seek to agree reasonable commercial
models
for 'promotional' content and bundled content as and when requested
by
VGSL or a
Vodafone
Group Company
|
6.
|
Content
Protection
|
|
Clause
8.1 to 8.9 of the Master Agreement are not applicable. The content
will be
streamed in H.263 or MPEG 4 or otherwise as decided by
VGSL.
|
|
|
|
|
7.
|
Hosting
|
|
Vodafone
shall be responsible for hosting the Content initially but the Content
Provider agrees that on request by Vodafone, the Content Provider
shall be
responsible for hosting the Content at no additional cost to
Vodafone.
|
|
|
|
|
8.
|
Languages
|
|
As
per section 2 of this Content Schedule, the Content shall be presented
by
a local presenter and shall be available in a minimum of English,
French,
German, Italian and Spanish (EFIGS) and any other languages as may
be
reasonably requested by VGSL from time to time. A language agnostic
version of the Content shall be made available to those markets where
it
is not commercially viable to produce a non-EFIGS
language.
|
|
|
|
|
9.
|
Territories
|
|
‘Blue’
- Worldwide
‘Playboy’
- Worldwide excluding UK, Eire, Sweden, Austria, Italy, Australia,
New
Zealand, Hong Kong, Thailand.
|
|
|
|
|
10.
|
Mobile
Devices
|
|
All
mobile devices
|
|
|
|
|
11.
|
Format
|
|
The
Content Provider shall at its cost ensure that the Content is capable
of
supporting all Formats, which may be specified, by VGSL or the Vodafone
Group Companies (the “Format”) from time to time. The Content Provider
shall not change or vary the Format without Vodafone’s prior written
consent.
|
|
|
|
|
12.
|
Purchase
Options
|
|
Not
applicable.
|
|
|
|
|
13.
|
VGSL
Certification
|
|
Not
applicable.
|
|
|
|
|
14.
|
Delivery
Timetables
|
|
As
requested by the Vodafone Group Companies. However the Content Provider
should be able to deliver the content from 1 August 2005,or earlier
depending on specific market requirements.
|
|
|
|
|
15.
|
Relevant
Contacts
|
|
The
Content Provider:
Technical-
Camill
Sayadeh
Tel:
+1 818 708 9995
Mob:
+1 818 723 2488
Fax:
+1 818 708 0598
camill@waatmedia.com
Commercial-
Adi
McAbian
Tel:
+1 818 708 9995
Mob:
+1 818 644 1300
Fax:
+1 818 708 0598
adi@waatmedia.com
Financial-
Lena
Barseghian
Tel:
+1 818 708 9995
Mob:
+1 818 652 6497
Fax:
+1 818 708 0598
lena@waatmedia.com
VGSL-
Commercial
- Andrew Stalbow
Tel:
+44 207 212 0591
Mob:
+44 7717 618 919
Fax:
+44 207 212 0701
E-mail:
andrew.stalbow@vadofone.com
|
|
|
|
|
16.
|
Tax
Residence
|
|
The
same country as the registered address of the Content Provider set
out
above.
|
|
|
|
|
17.
|
Content
Provider’s bank account details for electronic transfer
payments
|
|
Payment
by VGSL, to the Content Provider shall be made by BACS to the following
bank account:
EAST
WEST BANK
18321
Ventura Blvd. Tarzana, CA 91356
Account
Name: The Waat Corporation
|
|
|
|
Account
Number: 8270-2648
ABA#
322070381
The
currency of this Agreement shall be in Euros. All financial reports,
statements, invoices, charges and payments made by one Party to
the other
shall be in Euros.
|
|
|
|
|
18.
|
Special
Conditions
|
|
1.
The Content Provider will comply with all VGSL/Vodafone content
standards
guidelines and policies as have been worked on in conjunction with
the
Content Provider and / or have been provided to the Content Provider
as
may change from time to time. Content Provider agrees that Content
provided in accordance with Section 2 of this Content Schedule
will vary
according to the Content Standard rating in each Territory, and
that
Content supplied shall always adhere to such rating as-agreed by
the
Vodafone Group Company locally. Content Provider shall also provide
reasonable assistance to help create such standards and guidelines
as
agreed from time to time.
The
current Content Standards Classification Matrix and associated
Vodafone
Group Company ratings dated April 2005 is attached. The Content
Provider
acknowledges that this will be updated and will change over time,
and that
the Content Provider is responsible for ensuring it delivers Content
in
accordance with the rating specified by each Vodafone Group Company
as
such rating may be amended from time to time.
Where
a Vodafone Group Company has indicated in the Content Standards
Classification Matrix that Content with a higher rating than other
Content
may be provided behind its access controls solution, the Content
Provider
shall ensure that higher rated Content is only accessible behind
the
access controls solution.
2.
The Commencement Date for each individual Contract may, at the
election of
each relevant Vodafone Group Company, be either (a) the Commencement
Date
as defined in the Master Agreement; (b) 29 September 2003; or (c)
a date
in between (a) and (b) specified by each relevant Vodafone Group
Company.
3.
Clause 15.2 of the Master Agreement shall not apply to this Content
Schedule.
4.
In addition to its obligation in Clause 6.7 of the Master Agreement,
Content Provider shall be responsible for obtaining all licences,
clearances, permissions, waivers, approvals or consents required
in order
to enable Vodafone and VGSL to exercise the rights granted to VGSL
and
Vodafone in the Master Agreement and each relevant
Contract including without limitation, obtaining
any necessary clearances and consents from, making royalty or other
payments to the owners of the applicable Intellectual Property
Rights
(including payment of any Collecting Society Royalties). In the
event that
VGSL or Vodafone is required to obtain any clearances and consents
or to
make royalty or other payments, Content Provider shall reimburse
VGSL and
Vodafone for any costs incurred in obtaining such clearances and
consents
and for the amounts of such royalties or other payments.
5.
In the event that the Content contains any Intellectual Property
Rights in
which the Content Provider has not been able to obtain
all licences, clearances, permissions, waivers, approvals or
consents referred to in Special Condition 4 above, Content Provider
shall
notify VGSL and Vodafone and shall give VGSL and Vodafone the option
of
including alternative content.
|
|
|
|
|
Signed
on behalf of VGSL:
|
|
|
Signed
on behalf of Content Provider:
|
|
|
|
|
|
|
|
|
/s/ Graeme
Ferguson
|
|
|
/s/ Camill
Sayadeh
|
VGSL
authorised signatory
|
|
|
Content
Provider authorised signatory
|
|
|
|
|
Print
name: Graeme Ferguson
|
|
|
Print
name: Camill Sayadeh
|
|
|
|
|
Position:
Director of Global Content Development
|
|
|
Position:
COO
|
|
|
|
|
Date
signed: 13
TH
JULY 2005
|
|
|
Date
signed: JULY 5
TH
2005
|
*WE
HAVE REQUESTED CONFIDENTIAL TREATMENT OF CERTAIN PROVISIONS CONTAINED IN
THIS
EXHIBIT. THE COPY FILED AS AN EXHIBIT OMITS THE INFORMATION SUBJECT TO
THE
CONFIDENTIALITY REQUEST.*
Twistbox
Entertainment Inc.
and
Subsidiaries
Consolidated
Financial Statements
March
31, 2007 and 2006
Twistbox
Entertainment Inc. and Subsidiaries
Table
of Contents
|
Page(s)
|
|
|
Report
of Independent Auditors
|
1
|
|
|
Consolidated
Balance Sheets as of March 31, 2007 and 2006
|
2
|
|
|
Consolidated
Statements of Operations for the years ended March 31, 2007 and
2006
|
3
|
|
|
Consolidated
Statements of Stockholder’s Deficit and Comprehensive Loss for the years
ended March 31, 2007 and 2006
|
4
|
|
|
Consolidated
Statements of Cash Flows for the years ended March 31, 2007 and
2006
|
5
|
|
|
Notes
to Consolidated Financial Statements
|
6-23
|
Report
of Independent Auditors
Board
of
Directors and Stockholders
Twistbox
Entertainment Inc. and Subsidiaries
We
have
audited the accompanying consolidated balance sheets of Twistbox Entertainment
Inc. and Subsidiaries as of March 31, 2007 and 2006, and the related
consolidated statements of operations, stockholders’ deficit and comprehensive
loss, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We
conducted our audit in accordance with generally accepted auditing standards
as
established by the Auditing Standards Board (United States) and in accordance
with the auditing standards of the Public Company Accounting Oversight Board
(United States)
.
Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. Our
audit
included consideration of internal control over financial reporting as a
basis
for designing audit procedures that are appropriate in the circumstances,
but
not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly we express no
such opinion.
An
audit
also includes examining, on a test basis, evidence supporting the amounts
and
disclosures in the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe
that our audit provides a reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the financial position of Twistbox Entertainment
Inc.
and Subsidiaries as of March 31, 2007 and 2006, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of
America.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and a net stockholders’ deficiency that raise substantial doubt
about its ability to continue as a going concern. Management’s plans in regard
to these matters are also described in Note 3. The consolidated financial
statements do not include any adjustments that might result from the outcome
of
this uncertainty.
/s/
Grobstein, Horwath & Company LLP
Sherman
Oaks, California
January
31, 2008
Twistbox
Entertainment Inc. and Subsidiaries
Consolidated
Balance Sheets
|
|
March
31,
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
631
|
|
$
|
1,026
|
|
Accounts
receivable, net of allowances
|
|
|
4,876
|
|
|
1,897
|
|
Receivable
from related party
|
|
|
54
|
|
|
51
|
|
Prepaid
expenses and other current assets
|
|
|
475
|
|
|
47
|
|
Total
current assets
|
|
|
6,036
|
|
|
3,021
|
|
Receivable
from related party, net of current portion
|
|
|
52
|
|
|
102
|
|
Property
and equipment, net
|
|
|
1,027
|
|
|
588
|
|
Intangible
assets, net
|
|
|
453
|
|
|
12
|
|
Goodwill
|
|
|
1,487
|
|
|
439
|
|
TOTAL
ASSETS
|
|
$
|
9,055
|
|
$
|
4,162
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,168
|
|
$
|
307
|
|
Accrued
license fees
|
|
|
5,227
|
|
|
1,137
|
|
Accrued
compensation
|
|
|
694
|
|
|
181
|
|
Current
portion of long term debt
|
|
|
2,063
|
|
|
1,432
|
|
Other
current liabilities
|
|
|
918
|
|
|
598
|
|
Total
currrent liabilities
|
|
|
10,070
|
|
|
3,655
|
|
Accrued
license fees, long term portion
|
|
|
4,485
|
|
|
-
|
|
Long
term debt, net of current portion
|
|
|
69
|
|
|
166
|
|
Total
liabilities
|
|
|
14,624
|
|
|
3,821
|
|
Commitments
and contingencies (Note 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders
deficit
|
|
|
|
|
|
|
|
Preferred
stock (series A and B)
|
|
|
32
|
|
|
8
|
|
Common
stock, $0.001 par value: 20,000,000 shares authorized;
|
|
|
|
|
|
|
|
7,785,716
issued and outstanding at March 31, 2007 and 2006
|
|
|
8
|
|
|
8
|
|
Additional
paid-in capital
|
|
|
13,267
|
|
|
2,986
|
|
Accumulated
other comprehensive income
|
|
|
17
|
|
|
5
|
|
Accumulated
deficit
|
|
|
(18,893
|
)
|
|
(2,666
|
)
|
Total
stockholders' deficit
|
|
|
(5,569
|
)
|
|
341
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS DEFICIT
|
|
$
|
9,055
|
|
$
|
4,162
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Twistbox
Entertainment Inc. and Subsidiaries
Consolidated
Statements of Operations
(In
thousands)
|
|
Year
Ended March 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
11,898
|
|
$
|
4,869
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
|
|
|
|
|
|
License
fees
|
|
|
6,267
|
|
|
2,472
|
|
Impairment
of guarantees
|
|
|
6,022
|
|
|
-
|
|
Other
direct cost of revenues
|
|
|
112
|
|
|
-
|
|
Total
cost of revenues
|
|
|
12,401
|
|
|
2,472
|
|
|
|
|
|
|
|
|
|
Gross
profit/(loss)
|
|
|
(503
|
)
|
|
2,397
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
Product
development
|
|
|
7,813
|
|
|
2,854
|
|
Sales
and marketing
|
|
|
4,124
|
|
|
1,130
|
|
General
and administrative
|
|
|
3,594
|
|
|
530
|
|
Amortization
of intangible assets
|
|
|
23
|
|
|
-
|
|
Total
operating expenses
|
|
|
15,554
|
|
|
4,514
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(16,057
|
)
|
|
(2,117
|
)
|
|
|
|
|
|
|
|
|
Interest
and other income/(expense)
|
|
|
|
|
|
|
|
Interest
income
|
|
|
169
|
|
|
11
|
|
Interest
(expense)
|
|
|
(74
|
)
|
|
(94
|
)
|
Foreign
exchange transaction gain
|
|
|
124
|
|
|
1
|
|
Other
(expense)
|
|
|
(370
|
)
|
|
(45
|
)
|
Interest
and other income/(expense)
|
|
|
(151
|
)
|
|
(127
|
)
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(16,208
|
)
|
|
(2,244
|
)
|
Income
tax provision
|
|
|
(19
|
)
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(16,227
|
)
|
$
|
(2,245
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Twistbox
Entertainment Inc. and Subsidiaries
Consolidated
Statements of Stockholder’s Deficit and Comprehensive Loss
(In
thousands)
Fiscal
Years Ended March 31, 2007 and 2006
|
|
Common Stock
|
|
Preferred Stock
|
|
Additional
Paid-In
|
|
Accumulated
Other
Comprehensive
|
|
Accumulated
|
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Income/(Loss)
|
|
Deficit
|
|
Total
|
|
Loss
|
|
Balance
at March 31, 2005
|
|
|
7,500
|
|
|
7
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
(421
|
)
|
|
(414
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,245
|
)
|
|
(2,245
|
)
|
|
(2,245
|
)
|
Issuance
of common stock and options for Charismatix acquisition
|
|
|
286
|
|
|
1
|
|
|
|
|
|
|
|
|
476
|
|
|
|
|
|
|
|
|
477
|
|
|
|
|
Issuance
of preferred stock series A at $3.33 per share
|
|
|
|
|
|
|
|
|
750
|
|
|
8
|
|
|
2,490
|
|
|
|
|
|
|
|
|
2,498
|
|
|
|
|
Foreign
currency translation gain/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
5
|
|
|
5
|
|
Deferred
stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2,240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2006
|
|
|
7,786
|
|
|
8
|
|
|
750
|
|
|
8
|
|
|
2,986
|
|
|
5
|
|
|
(2,666
|
)
|
|
341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,227
|
)
|
|
(16,227
|
)
|
|
(16,227
|
)
|
Issuance
of preferred stock series A at $3.33 per share
|
|
|
|
|
|
|
|
|
75
|
|
|
1
|
|
|
249
|
|
|
|
|
|
|
|
|
250
|
|
|
|
|
Issuance
of preferred stock series B at $4.41 per share
|
|
|
|
|
|
|
|
|
2,268
|
|
|
23
|
|
|
9,977
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
Foreign
currency translation gain/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
12
|
|
|
12
|
|
Deferred
stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(16,215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2007
|
|
|
7,786
|
|
$
|
8
|
|
|
3,093
|
|
$
|
32
|
|
$
|
13,267
|
|
$
|
17
|
|
$
|
(18,893
|
)
|
$
|
(5,569
|
)
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Twistbox
Entertainment Inc. and Subsidiaries
Consolidated
Statements of Cash Flows
(In
thousands)
|
|
Years
Ended March 31,
|
|
|
|
2007
|
|
2006
|
|
Cash
flows from operating activities
|
|
|
|
|
|
Net
loss
|
|
$
|
(16,227
|
)
|
$
|
(2,245
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
220
|
|
|
56
|
|
Allowance
for doubtful accounts
|
|
|
146
|
|
|
-
|
|
Deferred
stock-based compensation
|
|
|
55
|
|
|
20
|
|
(Increase)
/ decrease in assets:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(3,125
|
)
|
|
(1,178
|
)
|
Prepaid
expenses and other
|
|
|
(428
|
)
|
|
(47
|
)
|
Increase
/ (decrease) in liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
861
|
|
|
(133
|
)
|
Accrued
license fees
|
|
|
8,575
|
|
|
1,108
|
|
Accrued
compensation
|
|
|
513
|
|
|
181
|
|
Other
current liabilities
|
|
|
320
|
|
|
595
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(9,090
|
)
|
|
(1,643
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
Issuance
of advance to related party
|
|
|
-
|
|
|
(153
|
)
|
Repayment
of advance to related party
|
|
|
47
|
|
|
-
|
|
Purchase
of property and equipment
|
|
|
(631
|
)
|
|
(553
|
)
|
Cash
paid for acquisitions
|
|
|
(1,500
|
)
|
|
(262
|
)
|
Cash
acquired with purchase of subsidiary
|
|
|
-
|
|
|
188
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(2,084
|
)
|
|
(780
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
Proceeds
from the issuance of debt
|
|
|
1,967
|
|
|
786
|
|
Repayment
of debt
|
|
|
(1,433
|
)
|
|
-
|
|
Proceeds
from the sale of Series A & B preferred stock
|
|
|
10,250
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
10,784
|
|
|
3,286
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(5
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
increase/(decrease) in cash and cash equivalents
|
|
|
(395
|
)
|
|
863
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of year
|
|
|
1,026
|
|
|
163
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of year
|
|
$
|
631
|
|
$
|
1,026
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
Interest
paid
|
|
|
137
|
|
|
13
|
|
Income
taxes paid
|
|
|
19
|
|
|
1
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Twistbox
Entertainment Inc. (formerly known as The WAAT Corporation) is incorporated
in
the State of Delaware.
The
Company is a global publisher and distributor of branded entertainment content,
including images, video, TV programming and games, for Third Generation (3G)
mobile networks. The Company publishes and distributes its content in a number
of countries. Since operations began in 2003, the Company has developed an
intellectual property portfolio that includes mobile rights to global brands
and
content from leading film, television and lifestyle content publishing
companies. The Company has built a proprietary mobile publishing platform that
includes: tools that automate handset portability for the distribution of images
and video; a mobile games development suite that automates the porting of mobile
games and applications to multiple handsets; and a content standards and ratings
system globally adopted by major wireless carriers to assist with the
responsible deployment of age-verified content. Twistbox has distribution
agreements with many of the largest mobile operators in the world.
The
Company is headquartered in the Los Angeles area and has offices in Europe
and
South America that provide local sales and marketing support for both mobile
operators and third party distribution in their respective regions.
2.
|
Summary
of Significant Accounting
Policies
|
Basis
of Presentation
The
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
(“GAAP”) and pursuant to the rules and regulations of the Securities and
Exchange Commission (“SEC”) for annual financial statements. The consolidated
financial statements, in the opinion of management, include all adjustments
necessary for a fair statement of the consolidated results of operations,
financial position and cash flows for each period presented.
Revenue
Recognition
The
Company’s revenues are derived primarily by licensing material and software
products in the form of products (Image Galleries, Wallpapers, video, WAP Site
access, Mobile TV) and mobile games. License arrangements with the end user
can
be on a perpetual or subscription basis.
A
perpetual license gives an end user the right to use the product, image or
game
on the registered handset on a perpetual basis. A subscription license gives
an
end user the right to use the product, image or game on the registered handset
for a limited period of time, ranging from a few days to as long as one month.
The Company distributes its products primarily through mobile telecommunications
service providers (“carriers”), which market the product, images or games to end
users. License fees for perpetual and subscription licenses are usually billed
by the carrier upon download of the product, image or game by the end user.
In
the case of subscriber licenses, many subscriber agreements provide for
automatic renewal until the subscriber opts-out, while the others provide opt-in
renewal. In either case, subsequent billings for subscription licenses are
generally billed monthly. The Company applies the provisions of Statement of
Position 97-2,
Software
Revenue Recognition
,
as
amended by Statement of Position 98-9, Modification of SOP 97-2,
Software
Revenue Recognition, With Respect to Certain Transactions
,
to all
transactions.
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Revenues
are recognized from our products, images and games when persuasive evidence
of
an arrangement exists, the product, image or game has been delivered, the fee
is
fixed or determinable, and the collection of the resulting receivable is
probable. For both perpetual and subscription licenses, management considers
a
signed license agreement to be evidence of an arrangement with a carrier and
a
“clickwrap” agreement to be evidence of an arrangement with an end user. For
these licenses, the Company defines delivery as the download of the product,
image or game by the end user. The Company estimates revenues from carriers
in
the current period when reasonable estimates of these amounts can be made.
Most
carriers only provide detailed sales transaction data on a one to two month
lag.
Estimated revenue is treated as unbilled receivables until the detailed
reporting is received and the revenues can be billed. Some carriers provide
reliable interim preliminary reporting and others report sales data within
a
reasonable time frame following the end of each month, both of which allow
the
Company to make reasonable estimates of revenues and therefore to recognize
revenues during the reporting period when the end user licenses the product,
image or game. Determination of the appropriate amount of revenue recognized
involves judgments and estimates that the Company believes are reasonable,
but
it is possible that actual results may differ from the Company’s estimates, and
those differences may be material. The Company’s estimates for revenues include
consideration of factors such as preliminary sales data, carrier-specific
historical sales trends, volume of activity on company monitored sites,
seasonality, time elapsed from launch of services or product lines, the age
of
games and the expected impact of newly launched games, successful introduction
of new handsets, growth of 3G subscribers by carrier, promotions during the
period and economic trends. When the Company receives the final carrier reports,
to the extent not received within a reasonable time frame following the end
of
each month, the Company records any differences between estimated revenues
and
actual revenues in the reporting period when the Company determines the actual
amounts. Revenues earned from certain carriers may not be reasonably estimated.
If the Company is unable to reasonably estimate the amount of revenues to be
recognized in the current period, the Company recognizes revenues upon the
receipt of a carrier revenue report and when the Company’s portion of licensed
revenues are fixed or determinable and collection is probable. To monitor the
reliability of the Company’s estimates, management, where possible, reviews the
revenues by country by carrier and by product line on a regular basis to
identify unusual trends such as differential adoption rates by carriers or
the
introduction of new handsets. If the Company deems a carrier not to be
creditworthy, the Company defers all revenues from the arrangement until the
Company receives payment and all other revenue recognition criteria have been
met.
In
accordance with Emerging Issues Task Force, or EITF Issue No. 99-19,
Reporting
Revenue Gross as a Principal Versus Net as an Agent
,
the
Company recognizes as revenues the amount the carrier reports as payable upon
the sale of the Company’s products, images or games. The Company has evaluated
its carrier agreements and has determined that it is not the principal when
selling its products, images or games through carriers. Key indicators that
it
evaluated to reach this determination include:
|
|
wireless
subscribers directly contract with the carriers, which have most
of the
service interaction and are generally viewed as the primary obligor
by the
subscribers;
|
|
|
carriers
generally have significant control over the types of content that
they
offer to their subscribers;
|
|
|
carriers
are directly responsible for billing and collecting fees from their
subscribers, including the resolution of billing
disputes;
|
|
|
carriers
generally pay the Company a fixed percentage of their revenues
or a fixed
fee for each game;
|
|
|
carriers
generally must approve the price of the Company’s content in advance of
their sale to subscribers, and the Company’s more significant carriers
generally have the ability to set the ultimate price charged to
their
subscribers; and
|
|
|
the
Company has limited risks, including no inventory risk and limited
credit
risk
|
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and our
wholly owned subsidiaries. The results of operations for acquisitions of
companies have been included in the consolidated statements of operations
beginning on the closing date of acquisition. All material intercompany balances
and transactions have been eliminated in consolidation.
Cash
and Cash Equivalents
The
Company considers all highly liquid short-term investments purchased with a
maturity of three months or less to be cash equivalents.
Content
Provider Licenses
Content
Provider License Fees and Minimum Guarantees
License
fees payable to content providers are expensed as incurred based on recognizing
the cost of sale associated with revenues. Minimum guarantees are required
under
certain content provider contracts and are expensed when paid. The Company
regularly evaluates remaining liabilities under contracts subject to minimum
guarantees and where recoupability of the guarantees is subject to doubt,
recognizes the relevant liability and expense immediately.
Content
Acquired
Amounts
paid to third party content providers as part of an agreement to make content
available to the Company for a term or in perpetuity, without a revenue share,
have been capitalized and are included in the balance sheet as prepaid expenses.
These balances will be expensed over the estimated life of the material
acquired.
Software
Development Costs
The
Company applies the principles of Statement of Financial Accounting Standards
No. 86,
Accounting
for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed
(“SFAS
No. 86”). SFAS No. 86 requires that software development costs incurred in
conjunction with product development be charged to research and development
expense until technological feasibility is established. Thereafter, until the
product is released for sale, software development costs must be capitalized
and
reported at the lower of unamortized cost or net realizable value of the related
product.
The
Company has adopted the “tested working model” approach to establishing
technological feasibility for its products and games. Under this approach,
the
Company does not consider a product or game in development to have passed the
technological feasibility milestone until the Company has completed a model
of
the product or game that contains essentially all the functionality and features
of the final game and has tested the model to ensure that it works as expected.
To date, the Company has not incurred significant costs between the
establishment of technological feasibility and the release of a product or
game
for sale; thus, the Company has expensed all software development costs as
incurred. The Company considers the following factors in determining whether
costs can be capitalized: the emerging nature of the mobile market; the gradual
evolution of the wireless carrier platforms and mobile phones for which it
develops products and games; the lack of pre-orders or sales history for its
products and games; the uncertainty regarding a product’s or game’s
revenue-generating potential; its lack of control over the carrier distribution
channel resulting in uncertainty as to when, if ever, a product or game will
be
available for sale; and its historical practice of canceling products and games
at any stage of the development process.
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Foreign
Currency Translation
.
The
Company uses the United States dollar for financial reporting purposes. Assets
and liabilities of foreign operations are translated using current rates of
exchange prevailing at the balance sheet date. Equity accounts have been
translated at their historical exchange rates when the capital transaction
occurred. Statement of Operations amounts are translated at average rates in
effect for the reporting period. The foreign currency translation adjustment
of
$12 and $5 in the years ended March 31, 2007 and 2006, respectively, has been
reported as a component of comprehensive loss in the consolidated statement
of
stockholders equity (deficit) and comprehensive loss. Translation gains or
losses are shown as a separate component of retained earnings.
Concentrations
of Credit Risk.
Financial
instruments which potentially subject us to concentration of credit risk consist
principally of cash and cash equivalents, short-term investments, and accounts
receivable. We have placed cash and cash equivalents and short-term investments
with a single high credit-quality institution. As of March 31, 2007 we did
not
have any long-term marketable securities. Most of our sales are made directly
to
large national Mobile Phone Operators in the countries that we operate. We
have
a significant level of business and resulting significant accounts receivable
balance with one operator and therefore have a high concentration of credit
risk
with that operator. We perform ongoing credit evaluations of our customers
and
maintain an allowance for potential credit losses. As of March 31, 2007 and
2006, approximately 54% and 72%, respectively, of our gross accounts receivable
outstanding was with one major customer. This customer accounted for 69% of
our
gross sales in fiscal 2007 and 88% of our gross sales in fiscal 2006.
Property
and Equipment
Property
and equipment is stated at cost. Depreciation and amortization is calculated
using the straight-line method over the estimated useful lives of the related
assets. Estimated useful lives are 8 to 10 years for leasehold improvements
and
5 years for other assets.
Goodwill
In
accordance with Statement of Financial Accounting Standards No. 142, Goodwill
and Other
Intangible
Assets (“SFAS No. 142”), the Company’s goodwill is not amortized but is tested
for
impairment
on an annual basis or whenever events or changes in circumstances indicate
that
the
carrying
amount of these assets may not be recoverable.
Impairment
of Long-Lived Assets and Intangibles
Long-lived
assets, including purchased intangible assets with finite lives are amortized
using the straight-line method over their useful lives ranging from three to
ten
years and are reviewed for impairment in accordance with SFAS No. 144,
Accounting
for the Impairment or Disposal of Long-Lived Assets,
whenever
events or changes in circumstances indicate that the carrying amount of an
asset
may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future undiscounted net
cash flows expected to be generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Income
Taxes
The
Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109,
Accounting
for Income Taxes
(“SFAS
No. 109”), which requires recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been included in its
financial statements or tax returns. Under SFAS No. 109, the Company determines
deferred tax assets and liabilities for temporary differences between the
financial reporting basis and the tax basis of assets and liabilities along
with
net operating losses, if it is more likely than not the tax benefits will be
realized using the enacted tax rates in effect for the year in which it expects
the differences to reverse. To the extent a deferred tax asset cannot be
recognized, a valuation allowance is established if necessary.
Stock-based
compensation
.
We
have
applied SFAS No. 123(R) Share-Based Payment (“FAS 123R”) and accordingly, we
record stock-based compensation expense for all of our stock-based awards.
Under
FAS
123R, we estimate the fair value of stock options granted using the
Black-Scholes option pricing model. The fair value for awards that are expected
to vest is then amortized on a straight-line basis over the requisite service
period of the award, which is generally the option vesting term. The amount
of
expense recognized represents the expense associated with the stock options
we
expect to ultimately vest based upon an estimated rate of forfeitures; this
rate
of forfeitures is updated as necessary and any adjustments needed to recognize
the fair value of options that actually vest or are forfeited are
recorded.
The
Black-Scholes option pricing model, used to estimate the fair value of an award,
requires the input of subjective assumptions, including the expected volatility
of our common stock and an option’s expected life. As a result, the financial
statements include amounts that are based upon our best estimates and judgments
relating to the expenses recognized for stock-based compensation.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosures of
contingent asset and liabilities at the date of the financial statements and
reported amounts of revenue and expenses during the period. Actual results
could
differ from those estimates. The most significant estimates relate to revenues
for periods not yet reported by Carriers, liabilities recorded for future
minimum guarantee payments under content licenses, accounts receivable
allowances, and stock-based compensation expense.
Recent
Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(“SFAS No. 157”). This statement clarifies the definition of fair value,
establishes a framework for measuring fair value, and expands the disclosures
on
fair value measurements. SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007. The adoption of SFAS No. 157 is not
expected to have a material effect on our consolidated results of
operations or financial condition.
In
September 2006, the FASB released SFAS No. 158, “Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106, and 132(R).” Under the new standard, companies
must recognize a net liability or asset to
report
the funded status of their defined benefit pension and other postretirement
benefit plans on their balance sheets. The recognition and disclosure
provisions of SFAS No. 158 are effective for periods beginning after December
15, 2006. The Company believes that SFAS No. 158 will not have a
significant impact on its results of operations or financial
position.
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
In
October 2006, the FASB issued FASB Staff Position No. 123R-5, “
Amendment
of FASB Staff Position FAS 123(R)-1
”.
The FSP amends FSP 123(R)-1 for equity instruments that were originally issued
as employee compensation and then modified, with such modification made to
the
terms of the instrument solely to reflect an equity restructuring that occurs
when the holders are no longer employees. In such circumstances, no change
in the recognition or the measurement date of those instruments will result
if
both of the following conditions are met: a. There is no increase in fair value
of the award (or the ratio of intrinsic value to the exercise price of the
award
is preserved, that is, the holder is made whole), or the antidilution provision
is not added to the terms of the award in contemplation of an equity
restructuring; and b. All holders of the same class of equity instruments (for
example, stock options) are treated in the same manner. The Company
believes that FSP 123(R)-5 will not have a significant impact on its results
of
operations or financial position.
In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Liabilities, including an amendment of FASB Statement
No.
115" ("SFAS No. 159"). SFAS No. 159 permits entities to choose, at specified
election dates, to measure many financial instruments and certain other items
at
fair value that are not currently required to be measured at fair value.
Unrealized gains and losses shall be reported on items for which the fair value
option has been elected in earnings at each subsequent reporting date. SFAS
No.
159 is effective for fiscal years beginning after November 15, 2007. Early
adoption is permitted as of the beginning of a fiscal year that begins on or
before November 15, 2007, provided the entity also elects to apply the
provisions of SFAS No. 157 "Fair Value Measurements" ("SFAS No. 157"). The
Company is currently assessing the impact that SFAS No. 159 will have on its
financial statements.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements”, which is an amendment of Accounting Research
Bulletin (“ARB”) No. 51. This statement clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. This statement changes the way the consolidated
income statement is presented, thus requiring consolidated net income to be
reported at amounts that include the amounts attributable to both parent and
the
noncontrolling interest. This statement is effective for the fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008. Based on current conditions, the Company does not
expect the adoption of SFAS 160 to have a significant impact on its results
of
operations or financial position.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations.” This statement replaces FASB Statement No. 141,
“Business Combinations.” This statement retains the fundamental requirements in
SFAS 141 that the acquisition method of accounting (which SFAS 141 called
the purchase method) be used for all business combinations and for an acquirer
to be identified for each business combination. This statement defines the
acquirer as the entity that obtains control of one or more businesses in the
business combination and establishes the acquisition date as the date that
the
acquirer achieves control. This statement requires an acquirer to recognize
the
assets acquired, the liabilities assumed, and any noncontrolling interest in
the
acquiree at the acquisition date, measured at their fair values as of that
date,
with limited exceptions specified in the statement. This statement applies
prospectively to business combinations for which the acquisition date is on
or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company does not expect the adoption of SFAS 160 to
have
a significant impact on its results of operations or financial
position.
The
Company has incurred losses and negative cash flows from operations since
commencement of operations. Management expects these operating losses and
negative cash flows to continue for the foreseeable future. The Company has
adequate liquidity for the time being, and management has projected to move
toward positive cashflow in a manner consistent with the Company’s strategies to
build its business and in a time frame to preserve the Company’s liquidity.
These plans include continued increases in revenues by introducing new products
and revenue streams, continued expansion into new territories and a
restructuring of its overhead base which has occurred subsequent to period
end.
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
4.
|
Balance
Sheet
Components
|
Accounts
Receivable
|
|
March
31,
2007
|
|
March
31,
2006
|
|
Accounts
receivable
|
|
$
|
5,022
|
|
$
|
1,897
|
|
Less:
allowance for doubtful accounts
|
|
|
(146
|
)
|
|
-
|
|
|
|
$
|
4,876
|
|
$
|
1,897
|
|
Accounts
receivable includes amounts billed and unbilled as of the respective balance
sheet dates. The Company had no significant write-offs or recoveries during
the
years ended March 31,
2007,
and 2006.
Property
and Equipment
|
|
March
31,
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
Equipment
|
|
$
|
700
|
|
$
|
226
|
|
Equipment
subject to capitalized lease
|
|
|
132
|
|
|
132
|
|
Furniture
& fixtures
|
|
|
272
|
|
|
142
|
|
Leasehold
improvements
|
|
|
177
|
|
|
151
|
|
|
|
|
1,281
|
|
|
651
|
|
Accumulated
depreciation
|
|
|
(254
|
)
|
|
(63
|
)
|
|
|
$
|
1,027
|
|
$
|
588
|
|
Depreciation
and amortization expense for the periods ended March 31, 2007 and 2006 was
$220
and $56, respectively.
Capital
Lease
Accumulated
depreciation associated with the equipment under capital lease noted above
was
$43 and $15 at March 31, 2007 and 2006, respectively. The Company has a
commitment to pay $42 under these leases during the year ending March 31, 2008
and $22 during the year ended March 31, 2009.These payments have a net present
value of $58.
5.
|
Description
of Stock Plans
|
Twistbox,
Inc. 2006 Stock Incentive Plan
On
May
16, 2006, the Company’s board of directors adopted, the WAAT Corp 2006
Stock Incentive Plan (the “2006
Plan
”).
The
purpose of the Plan is to promote the success and enhance the value of the
Company by providing the participants with an incentive for outstanding
performance in generating superior returns for the Company shareholders and
by
enhancing the Company’s capability to motivate, attract, and retain the services
of individuals whose knowledge, judgment, interest and special effort contribute
to the Company’s success.
Under
the 2006 Plan, a total of 3,700,000 common shares will be available
for issuance.
The
awards have a term of ten years and generally become fully vested between the
first and fourth years.
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
The
following table summarizes options granted for the periods or as of the dates
indicated:
|
|
Options
Granted
|
|
Weighted
Average
Exercise
Price
|
|
Balance,
March 31, 2005
|
|
|
313,500
|
|
$
|
0.36
|
|
Exercised
|
|
|
-
|
|
|
|
|
Cancelled
|
|
|
-
|
|
|
|
|
Granted
|
|
|
574,500
|
|
$
|
0.36
|
|
Balance,
March 31, 2006
|
|
|
888,000
|
|
$
|
0.36
|
|
Exercised
|
|
|
-
|
|
|
|
|
Cancelled
|
|
|
(20,000
|
)
|
$
|
0.35
|
|
Granted
|
|
|
1,493,054
|
|
$
|
0.43
|
|
Balance,
March 31, 2007
|
|
|
2,361,054
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
Exercisable,
March 31, 2007
|
|
|
715,288
|
|
$
|
0.38
|
|
The
weighted-average grant-date fair value of stock options granted during the
years
ended March 31, 2007 and 2006 was $0.29 and $0.21, respectively.
The
fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average
assumptions:
|
|
March 31,
2007
|
|
March 31,
2006
|
|
March 31,
2005
|
|
Expected
life (years)
|
|
|
3
|
|
|
3
|
|
|
3
|
|
Risk-free
interest rate
|
|
|
4.72% - 5.03
|
%
|
|
3.83% - 4.57
|
%
|
|
2.03% - 2.35
|
%
|
Expected
volatility
|
|
|
75
|
%
|
|
75
|
%
|
|
75
|
%
|
Expected
dividend yield
|
|
|
0
|
%
|
|
0
|
%
|
|
0
|
%
|
The
weighted average remaining contractual life of compensatory options outstanding
is 8.8 years at March 31, 2007.
The
exercise price for options outstanding at March 31, 2007 was as
follows:
Number of
Options
|
|
Exercise
Price
|
|
1,821,284
|
|
$
|
0.35
|
|
539,770
|
|
$
|
0.59
|
|
2,361,054
|
|
|
|
|
The
above
disclosure includes 951,784 options issued in connection with the Charismatix
acquisition (refer Note 6).
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
|
6.
|
Acquisitions/Purchase
Price Accounting
|
The
Company made two significant acquisitions during the period covered by these
financial statements. The acquisitions and related purchase accounting are
summarized as follows:
Charismatix
and related entities
The
Company acquired 100% of the shares in Charismatix & Co KG and Charismatix
Ltd (collectively “Charismatix”), incorporated in Germany and the United
Kingdom, respectively, as of February 1, 2006. Charismatix licensed and
developed software, games and multimedia entertainment and marketed those
licenses and services to companies including mobile phone carriers. Charismatix
had developed unique technology which it deployed in its business. The Company
had worked with Charismatix for some time and determined that an acquisition
would enhance the opportunities to increase its presence in the mobile phones
games business and introduce economies of scale to its games development
efforts.
The
purchase consideration consisted of $100 in cash; 285,716 shares of the
Company’s Common stock; 951,784 options to purchase common stock in the Company
(vesting over 4 years); and additional payments to the four owners of
Charismatix related to tax liabilities on pre-acquisition income. The additional
payments were made subsequently and amounted to $162. The four owners were
granted employment contracts with the Company, with 4 year terms.
Under
the
purchase method of accounting, the Company allocated the total purchase price
of
$740 to the net tangible and intangible assets acquired and liabilities assumed
based upon their respective estimated fair values as of the acquisition date
as
follows:
|
|
$
(000s)
|
|
Cash
|
|
|
188
|
|
Accounts
receivable
|
|
|
256
|
|
Accounts
Payable and Accruals
|
|
|
(200
|
)
|
PP&E
|
|
|
48
|
|
Intangibles
|
|
|
12
|
|
Goodwill
|
|
|
436
|
|
|
|
$
|
740
|
|
Purchase
of certain assets from InfoSpace Inc.
The
Company acquired certain assets from InfoSpace Inc. as of January 6, 2007.
These
assets represented the mobile games division of InfoSpace Inc. As part of the
transaction, InfoSpace Inc. agreed to transfer the operations of its games
studio in San Mateo, California including games platforms that had been
developed for mobile phones, and to use its best efforts to assist in the
transfer of existing business relationships with licensors and US based mobile
phone carriers to the Company. Ten employees of the division were transitioned
to become employees of the Company. The acquisition was strategic to the Company
at several levels – it provided access to a unique gaming platform; it
provided access to an established US market; and it helped to broaden the
Company’s products and market in its mobile games business. The acquisition has
been treated as a business combination under SFAS 141.
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
The
purchase consideration was $1,500 in cash. Under the purchase method of
accounting, the Company allocated the total purchase price of $1,500 to the
net
tangible and intangible assets acquired (no liabilities were assumed) based
upon
their respective estimated fair values as of the acquisition date as
follows:
|
|
$
(000s)
|
|
PP&E
|
|
|
27
|
|
Intangibles
|
|
|
469
|
|
Goodwill
|
|
|
1,004
|
|
|
|
$
|
1,500
|
|
Goodwill
recognized in the above two transactions amounted to $1,440. Goodwill in
relation to the acquisition of Charismatix is not expected to be deductible
for
income tax purposes. The preliminary purchase price allocation, including the
allocation of goodwill, will be updated as additional information becomes
available.
The
changes in the carrying amount of goodwill for the fiscal years ended March
31,
2007 and 2006 were as follows:
Balance
at March 31, 2005
|
|
$
|
-
|
|
Goodwill
acquired
|
|
|
436
|
|
Foreign
exchange translation differences
|
|
|
3
|
|
Balance
at March 31, 2006
|
|
|
439
|
|
Goodwill
acquired
|
|
|
1,004
|
|
Foreign
exchange translation differences
|
|
|
44
|
|
Balance
at March 31, 2007
|
|
$
|
1,487
|
|
The
Company performed an annual review of goodwill impairment in each of the fiscal
years ended March 31, 2007, and 2006 and found no impairment.
|
8.
|
Other
Intangible Assets
|
|
|
March
31,
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
Customer
list
|
|
|
277
|
|
|
-
|
|
Platform
|
|
|
113
|
|
|
-
|
|
Licenses
|
|
|
79
|
|
|
-
|
|
Trademarks
|
|
|
14
|
|
|
12
|
|
|
|
|
483
|
|
|
12
|
|
Accumulated
Amortization
|
|
|
(30
|
)
|
|
-
|
|
|
|
|
453
|
|
|
12
|
|
The
Company has included amortization of acquired intangible assets directly
attributable to revenue-generating activities in cost of revenues. The Company
has included amortization of acquired intangible assets not directly
attributable to revenue-generating activities in operating expenses. During
the
years ended March 31, 2007 and 2006, the Company recorded amortization expense
in the amounts of $7 and $0, respectively, in cost of revenues. During the
years
ended March 31, 2007 and 2006, the Company recorded amortization expense in
the
amounts of $23, and $0, respectively, in operating expenses.
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
As
of
March 31, 2007, the total expected future amortization related to intangible
assets was as follows:
|
|
Amortization
|
|
Amortization
|
|
|
|
|
|
Included
in
|
|
Included
in
|
|
Total
|
|
|
|
Cost
of
|
|
Operating
|
|
Amortization
|
|
Year
Ending March 31,
|
|
Revenues
|
|
Expenses
|
|
Expense
|
|
2008
|
|
$
|
26
|
|
$
|
93
|
|
$
|
119
|
|
2009
|
|
|
26
|
|
|
93
|
|
|
119
|
|
2010
|
|
|
20
|
|
|
84
|
|
|
104
|
|
2011
|
|
|
-
|
|
|
55
|
|
|
55
|
|
2012
|
|
|
-
|
|
|
42
|
|
|
42
|
|
|
|
$
|
72
|
|
$
|
367
|
|
$
|
439
|
|
|
|
March
31,
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
Short
Term Debt
|
|
|
|
|
|
|
|
|
|
|
|
Loan
from related party, inclusive of interest
|
|
$
|
250
|
|
$
|
1,335
|
|
Loans
from bank, current portion
|
|
|
1,771
|
|
|
51
|
|
Capitalized
lease liabilities, current portion
|
|
|
42
|
|
|
46
|
|
|
|
$
|
2,063
|
|
$
|
1,432
|
|
Details
of the loan from related party are included in Note 10. The current portion
of
loans from bank consists of $54 as of March 31, 2007 and $51 as of March 31,
2006 in connection with the loan detailed in Note 10; and loans of $1,717 as
of
March 31, 2007 that were initiated in January 2007 at an interest rate of 9.25%
and with a maturity of 12 months, and were fully repaid subsequent to March
31,
2007 as part of the debt financing disclosed in Note 16. Capitalized lease
assets are set out in Note 4. Future obligations under capitalized leases are
included as part of Other Obligations in Note 15.
|
|
March
31,
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
Long
Term Debt
|
|
|
|
|
|
|
|
|
|
|
|
Loan
from bank, long term portion
|
|
$
|
48
|
|
$
|
102
|
|
Capitalized
lease liabilities, long term portion
|
|
|
21
|
|
|
64
|
|
|
|
$
|
69
|
|
$
|
166
|
|
Loan
from
bank as of March 31, 2007 and 2006 is the long term portion of the loan detailed
in Note 10. Capitalized lease assets are set out in Note 4. Future obligations
under capitalized leases are included as part of Other Obligations in Note
15.
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
10.
|
Related
Party
Transactions
|
The
Company engages in various business relationships with shareholders and officers
and their related entities. The significant relationships are disclosed
below.
Lease
of Premises
The
Company leases its primary offices in Los Angeles from Berkshire Holdings,
LLC,
a company with common ownership by officers of the Company. Amounts paid in
connection with this lease were $314 and $231 for the years ended March 31,
2007
and 2006, respectively.
The
Company is party to an oral agreement with a person affiliated with the Company
with respect to a lease of an apartment in London.
Amounts
paid in connection with this lease were $59 and $48 for the years ended March
31, 2007 and 2006, respectively.
The
Company paid the costs of a leased apartment in Sherman Oaks that was rented
by
an officer of the Company. The apartment was used to accommodate employees
visiting from other locations. Amounts paid in connection with this lease were
$18 and $2 for the years ended March 31, 2007 and 2006, respectively. In August
2007 the Company entered into a one year written agreement to rent an apartment
in the same building at a cost of $1.5 per month.
Loans
The
Company had a note payable to an affiliated company,
PowerSports
Video Productions CCT, Inc., as of March 31, 2007 for $250. The note had a
maturity date of March 28, 2008 and carried interest at 8.25%.
The
Company had an advance from an affiliated company, PowerSports Video Productions
CCT, Inc., as of March 31, 2006 for $1,335, inclusive of accrued interest.
The
advance did not have a specific maturity date, but has been classified as short
term and carried interest at 7.73%.
Interest
expense paid or payable to PowerSports Video Productions CCT was $18 and $80,
for the years ended March 31, 2007 and 2006, respectively.
The
Company is party to a loan from East-West Bank, originated on January 27, 2006
in an amount of $161. The Company also entered into a loan agreement to an
affiliated company, effective on the same date for the same amount. The bank
agreement is secured with a motor vehicle operated exclusively by an officer
of
the Company. The interest income under the loan to the affiliate completely
offsets interest expense incurred under the bank loan. As of March 31, 2007
$106
was due to the Company under this loan, and the amount payable under the bank
loan was $102. Amounts paid for the years ended March 31, 2007 and 2006 were
$59
and $10, respectively, including interest of $8 and $1, respectively. Amounts
received for the years ended March 31, 2007 and 2006 were $55 and $10,
respectively, including interest of $8 and $1, respectively. The agreement
has
subsequently been terminated.
Dealings
with Content Provider
Two
officers of the Company are also board members of Peach International, with
which the Company has a Content Provider agreement. Amounts paid or payable
under this agreement to Peach in the years ended March 31, 2007 and 2006 were
$165 and $203, respectively.
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
11.
|
Capital
Stock
Transactions
|
In
December 2005, t
he
Company issued 750,000 shares of Series A Preferred Stock at $3.33 per share
for
a total purchase price of $2,498. As of March 31, 2006, 2,750,000 shares of
Series A preferred stock were authorized, and 750,000 were issued and
outstanding at a par value of $0.01 per share.
In
April
2006, the Company issued 75,075 shares of Series A Preferred Stock at $3.33
per
share for a total purchase price of $250. As of March 31, 2007, 2,750,000 shares
of Series A preferred stock were authorized, and 825,075 were issued and
outstanding at a par value of $0.01 per share.
In
May
2006, the Company issued 2,267,574 shares of Series B Preferred Stock at $4.41
per share for a total purchase price of $10,000. As of March 31, 2007, 2,267,574
shares of Series B preferred stock were authorized, issued and outstanding,
at a
par value of $0.01 per share.
Voting
Rights
The
Series A stockholders voting together as a single class elect one member of
the
Company’s Board of Directors. The Series B stockholder elects one member of the
Company’s Board of Directors.
Preference
Rights
Upon
any
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, the holders of shares of Series A Preferred Stock are entitled
to
receive an amount of cash equal to their original purchase price of $3.33 per
share plus all declared but unpaid dividends before any amount is paid with
respect to any other series of preferred stock or common stock. If the amounts
available for distribution are not sufficient to pay the full amount, then
all
assets of the Company legally available for distribution will be distributed
to
the holders
of
Series
A Preferred Stock on a proportionate basis. After payment in full of the
liquidation preference amount of the Series A Preferred Stock, the holders
of
shares of Series B Preferred
Stock
are
entitled to liquidation preferences equal to their original issue prices of
$4.41 per share, plus any declared but unpaid dividends. If the amounts
available for distribution are not sufficient to pay the full amount, then
any
remaining assets of the Company legally available for distribution will be
distributed to the holders of Series B Preferred Stock on a proportionate basis.
Upon full payment of the liquidation preference amounts of all preferred stock,
any remaining assets of the Company legally available for distribution will
be
distributed to the holders of common stock and preferred stock pro rata based
on
the number of shares on an “as-if converted” basis.
The
preference stockholders also have anti-dilution rights in the case of certain
specified transactions, so that to the extent that consideration is available
in
a transaction, each class of preferred stockholder is entitled to receive
consideration at least equal to their original purchase price plus all declared
but unpaid dividends before any amount is paid with respect to the next series
of preferred stock or common stock. The ranking for this purpose is Series
A,
then Series B, then common stockholders. There are no dividend rights, nor
are
the shares convertible or callable.
12.
|
Employee
Benefit Plans
|
The
Company has an employee 401(k) savings plan (the “Plan”) covering full-time
eligible employees. These employees may contribute eligible compensation up
to
the annual IRS limit. The Company does not make matching
contributions.
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial statement purposes
and
the amounts used for income tax purposes. Significant components of the
Company’s deferred tax liabilities and assets as of March 31, 2007 and 2006
are as follows:
|
|
2007
|
|
2006
|
|
Deferred
tax assets:
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
3,624
|
|
$
|
521
|
|
Accrued
compensation
|
|
|
262
|
|
|
72
|
|
Accrued
license fees
|
|
|
3,418
|
|
|
455
|
|
Allowance
for doubtful accounts
|
|
|
59
|
|
|
—
|
|
Equity
compensation
|
|
|
56
|
|
|
22
|
|
Less
valuation allowance
|
|
|
(7,419
|
)
|
|
(1,070
|
)
|
Net
deferred tax asset
|
|
$
|
—
|
|
$
|
—
|
|
Following
is a reconciliation of the amount of income tax expense (benefit) that would
result from applying the statutory federal income tax rates to pre-tax income
and the reported amount of income tax expense (benefit) for the years ended
March 31, 2007 and 2006:
|
|
2007
|
|
2006
|
|
Federal
statutory rates
|
|
|
(34.0
|
%)
|
|
(34.0
|
%)
|
State
taxes
|
|
|
(6.0
|
%)
|
|
(6.0
|
%)
|
Increase
in valuation allowance
|
|
|
39.9
|
%
|
|
40.0
|
%
|
Income
tax expense
|
|
|
0.1
|
%
|
|
0.0
|
%
|
At
March 31, 2007, the Company has provided a valuation allowance for the
deferred tax assets since management has not been able to determine that the
realization of that asset is more likely than not. The net change in valuation
allowance for the years ended March 31, 2007 and 2006 was an increase
of $6,349 and $901, respectively. The Company has net operating loss
carryforwards for United States and foreign taxes of approximately $8,000
that begin to expire in 2019.
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
14.
|
Segment
and Geographic
information
|
We
operate in one reportable segment in which we are a developer and publisher
of
branded entertainment content for mobile phones. The following information
sets
forth geographic information on our sales and net property and equipment for
the
fiscal years ended March 31, 2007 and 2006:
|
|
North
|
|
|
|
Latin
|
|
|
|
|
|
America
|
|
Europe
|
|
America
|
|
Consolidated
|
|
Year
ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
Net
sales to unaffiliated customers
|
|
|
309
|
|
|
11,374
|
|
|
215
|
|
|
11,898
|
|
Property
and equipment, net
|
|
|
918
|
|
|
109
|
|
|
-
|
|
|
1,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales to unaffiliated customers
|
|
|
-
|
|
|
4,869
|
|
|
-
|
|
|
4,869
|
|
Property
and equipment, net
|
|
|
536
|
|
|
52
|
|
|
-
|
|
|
588
|
|
Our
largest single customer accounted for 69% of our revenue in fiscal 2007,
and
88%
of our revenue in fiscal 2006.
15.
|
Commitments
and
Contingencies
|
Operating
Lease Obligations
The
Company leases office facilities under noncancelable operating leases expiring
in various years through 2011.
Following
is a summary of future minimum payments under initial terms of leases at March
31, 2007:
Year
Ending March 31,
|
|
|
|
2008
|
|
$
|
372
|
|
2009
|
|
|
269
|
|
2010
|
|
|
253
|
|
2011
|
|
|
74
|
|
Total
minimum lease payments
|
|
$
|
968
|
|
These
amounts do not reflect future escalations for real estate taxes and building
operating expenses. Rental expense amounted to $500 and $369 for the periods
ended March 31, 2007 and 2006, respectively.
Minimum
Guaranteed Royalties
The
Company has entered into license agreements with various owners of brands and
other intellectual property so that it could develop and publish branded
products for mobile handsets.
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Pursuant
to some of these agreements, the Company is required to pay minimum royalties
over the term of the agreements regardless of actual sales. Future minimum
royalty payments for those
agreements
as of March 31, 2007 were as follows:
|
|
Minimum
|
|
|
|
Guaranteed
|
|
Year
Ending March 31,
|
|
Royalties
|
|
2008
|
|
$
|
2,185
|
|
2009
|
|
|
2,990
|
|
2010
|
|
|
2,857
|
|
2011
|
|
|
120
|
|
2012
|
|
|
30
|
|
Total
minimum payments
|
|
$
|
8,182
|
|
Commitments
in the above table include guaranteed royalties to licensors that are included
as a liability in the Company’s consolidated balance sheet of $6,022 as of March
31, 2007, because the Company has determined that recoupment is unlikely.
Other
Obligations
As
of
March 31, 2007, the Company was obligated for payments under various
distribution agreements, equipment lease agreements and employment contracts
with initial terms greater than one year at March 31, 2007. Annual payments
relating to these commitments at March 31, 2007 are as follows:
Year
Ending March 31,
|
|
Commitments
|
|
2008
|
|
$
|
4,115
|
|
2009
|
|
$
|
3,023
|
|
2010
|
|
$
|
1,010
|
|
2011
|
|
$
|
78
|
|
Total
minimum payments
|
|
$
|
8,226
|
|
Other
Contingencies
Subsequent
to the period end, the Company has entered into an agreement with an investment
banking firm, to modify the terms of a previous agreement. Under this amendment,
$530 was paid in December 2007. An additional $650 may become payable should
the
Company enter into a merger or other business combination as defined in the
agreement. The merger discussed in Note 16 would qualify as a merger under
this
agreement.
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Litigation
The
Company is subject to various claims and legal proceedings arising in the normal
course of business. Based on the opinion of the Company’s legal counsel,
management believes that the ultimate liability, if any in the aggregate will
not be material to the financial position or results of operations of the
Company for any future period.
Leaway
Enterprise, Ltd (dba “Mobival”) v. Twistbox Entertainment, Inc.; FTV GmbH and
Michel Adam Lisowski
On
March
20, 2007, the Company and FTV GmbH entered into a Content License Agreement
(“CLA”) pursuant to which, among other things, the Company licensed certain FTV
GmbH content and, in exchange, the Company agreed to make certain payments
to
FTV GmbH, and the Company did make an initial U.S. $200 payment to FTV.
On
or
about
April
17,
2007
,
Leaway
Enterprises, Ltd. dba “Mobival” (“Mobival”) filed an action in the High Court of
Justice, Queen’s Bench Division, Commercial Court, Royal Courts of Justice,
Claim No. 2007 Folio 458
against
FTV Ltd. BVI (“FTV BVI”) alleging breach of a “Content Distribution Agreement”
between Mobival and FTV BVI (hereinafter, the “U.K. Action”). On or about July
20, 2007, Mobival filed an action in the Los Angeles Superior Court, No. LC
078611 against the Company, FTV GmbH and Michel Adam Lisowksi (“Adam”) alleging
interference, unfair business practices and fraud (hereinafter, the “U.S.
Action”).
The
Company has incurred certain legal fees participating in discovery and otherwise
monitoring the U.K. Action, and has incurred certain legal fees defending its
rights in the U.S. Action. The Company has demanded that FTV GmbH indemnify
Twistbox for legal fees incurred to date in the U.K. Action and the U.S. Action,
and the Company has also demanded that FTV GmbH defend the Company in the U.S.
Action as provided under the CLA.
The
Company contends and FTV denies that the claims made by Mobival in the U.K.
Action and U.S. Action, and the press surrounding Mobival’s claims, have placed
a cloud on the rights to the content being licensed, have made the FTV content
less valuable than it was at the time the CLA was signed, and has made it
difficult or impossible for the Company to effectively develop the business.
For
these reasons, the Company asked to terminate the CLA, other than the indemnity
and defense obligations, and the Company sought a return of its initial $200
payment;
FTV
GmbH
does not concede that it has an obligation to reimburse the Company for the
fees
the Company incurred in the U.K. Action or the U.S. Action, and FTV GmbH does
not concede that it has any obligation to terminate the CLA. Notwithstanding
FTV
GmbH’s position, the Company and FTV GmbH entered into that certain Indemnity,
Defense and Termination Agreement effective as of November 15, 2007, whereby
FTV
returned to the Company its initial $200 payment, as well as an amount to
reimburse the Company for a portion of its legal fees and costs related to
the
UK action and the US action.
There
has
been virtually no activity in the U.K. Action. With respect to the U.S. Action,
a law firm is representing the Company and the other defendants. Mobival has
propounded discovery requests, to which the Company has responded. Mobival
seeks
to depose an officer of FTV GmbH to establish FTV GmbH’s minimum contacts with
the State of California to effectuate a valid service of the
complaint.
Additional
disclosures regarding commitments to affiliate companies are included in Note
10.
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Series
B-1
In
April
2007, the Company issued 436,680 shares of Series B1 Preferred Stock at $6.87
per share for a total purchase price of $3,000. The stock has the same
liquidation preferences as other Preferred Stockholders, but ranking after
Series A and Series B.
Debt
Financing
In
July
2007 the Company entered into a debt financing agreement in the form of a Senior
Secured Note amounting to $16,500, payable at 30 months. The holder of the
Note
was granted first lien over all of the Company’s assets. The Note carries
interest of 9% annually for the first year and 10% subsequently, with
semi-annual interest only payments. The agreement includes certain restrictive
covenants, including a requirement not to exceed a maximum amount of losses.
The
Note holder was also granted 2,401,747 detachable warrants, with an exercise
price of $6.87, and a 48 month maturity.
Aggregation
Agreement
On
August
27, 2007, the Company entered into a significant agreement to host and manage
the games platform for a major customer. As part of the agreement, the Company
was required to place a surety deposit to cover potential third party
infringement claims and/or any defaults under the service level agreement.
The
Company is not aware of any claims against this surety.
Mandalay
Merger Agreement
On
January 2, 2008 Mandalay Media, Inc. (“Mandalay”) announced that it has executed
an Agreement and Plan of Merger with the Company. Pursuant to the proposed
merger, the Company will become a wholly-owned subsidiary of Mandalay, and
the
shareholders and other security holders of the Company will receive shares
of
common stock in Mandalay as provided in the Agreement and Plan of Merger.
If
the
transaction is consummated, the Company would become Mandalay’s sole current
operations and continue to operate as usual across its subsidiaries and
territories. The closing of the transaction is subject to certain conditions
and
expected to occur in the first quarter of 2008. There can be no assurance that
the merger will be consummated or, if consummated, that the businesses will
be
successfully integrated.
Twistbox
Entertainment Inc.
and
Subsidiaries
Consolidated
Financial Statements
For
the six months ended
September
30, 2007 and 2006
Twistbox
Entertainment Inc. and Subsidiaries
Table
of Contents
|
Page(s)
|
|
|
Consolidated
Balance Sheets as of September 30, 2007 (unaudited) and March 31,
2007
|
1
|
|
|
Consolidated
Statements of Operations (unaudited)
|
|
for
the six months ended September 30, 2007 and 2006
|
2
|
|
|
Consolidated
Statements of Stockholder’s Deficit and Comprehensive Loss
|
|
for
the six months ended September 30, 2007 (unaudited) and the year
ended
March 31, 2007
|
3
|
|
|
Consolidated
Statements of Cash Flows (unaudited)
|
|
for
the six months ended September 30, 2007 and 2006
|
4
|
|
|
Notes
to Consolidated Financial Statements (unaudited)
|
5-20
|
Twistbox
Entertainment Inc. and Subsidiaries
Consolidated
Balance Sheets
(In
thousands)
|
|
|
|
|
|
|
|
|
September 30,
|
|
March 31,
|
|
|
|
2007
|
|
2007
|
|
|
|
(unaudited)
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
10,726
|
|
$
|
631
|
|
Accounts
receivable, net of allowances
|
|
|
3,836
|
|
|
4,876
|
|
Receivable
from related party
|
|
|
51
|
|
|
54
|
|
Prepaid
expenses and other current assets
|
|
|
980
|
|
|
475
|
|
Total
current assets
|
|
|
15,593
|
|
|
6,036
|
|
Receivable
from related party, net of current portion
|
|
|
39
|
|
|
52
|
|
Property
and equipment, net
|
|
|
1,136
|
|
|
1,027
|
|
Other
long-term assets
|
|
|
482
|
|
|
-
|
|
Intangible
assets, net
|
|
|
394
|
|
|
453
|
|
Goodwill
|
|
|
1,518
|
|
|
1,487
|
|
TOTAL
ASSETS
|
|
$
|
19,162
|
|
$
|
9,055
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,004
|
|
$
|
1,168
|
|
Accrued
license fees
|
|
|
3,789
|
|
|
5,227
|
|
Accrued
compensation
|
|
|
977
|
|
|
694
|
|
Current
portion of long term debt
|
|
|
347
|
|
|
2,063
|
|
Other
current liabilities
|
|
|
1,731
|
|
|
918
|
|
Total
currrent liabilities
|
|
|
7,848
|
|
|
10,070
|
|
Accrued
license fees, long term portion
|
|
|
3,754
|
|
|
4,485
|
|
Long
term debt, net of current portion
|
|
|
16,506
|
|
|
69
|
|
Total
liabilities
|
|
|
28,108
|
|
|
14,624
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders
deficit
|
|
|
|
|
|
|
|
Preferred
stock (series A, B and B-1)
|
|
|
36
|
|
|
32
|
|
Common
stock, $0.001 par value: 20,000,000 shares authorized; 7,785,716
issued
and outstanding at September 30, 2007 and March 31, 2007
|
|
|
8
|
|
|
8
|
|
Additional
paid-in capital
|
|
|
16,341
|
|
|
13,267
|
|
Accumulated
other comprehensive income
|
|
|
115
|
|
|
17
|
|
Accumulated
deficit
|
|
|
(25,446
|
)
|
|
(18,893
|
)
|
Total
stockholders' deficit
|
|
|
(8,946
|
)
|
|
(5,569
|
)
|
TOTAL
LIABILITIES AND STOCKHOLDERS DEFICIT
|
|
$
|
19,162
|
|
$
|
9,055
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Twistbox
Entertainment Inc. and Subsidiaries
Consolidated
Statements of Operations (unaudited)
(In
thousands)
|
|
|
|
|
|
|
|
|
Six Months Ended September 30,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
7,064
|
|
$
|
4,829
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
|
|
|
|
|
|
License
fees
|
|
|
3,218
|
|
|
2,512
|
|
Other
direct cost of revenues
|
|
|
269
|
|
|
51
|
|
Total
cost of revenues
|
|
|
3,487
|
|
|
2,563
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
3,577
|
|
|
2,266
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
Product
development
|
|
|
4,792
|
|
|
3,310
|
|
Sales
and marketing
|
|
|
2,554
|
|
|
1,636
|
|
General
and administrative
|
|
|
2,363
|
|
|
1,542
|
|
Amortization
of intangible assets
|
|
|
47
|
|
|
-
|
|
Total
operating expenses
|
|
|
9,756
|
|
|
6,488
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(6,179
|
)
|
|
(4,222
|
)
|
|
|
|
|
|
|
|
|
Interest
and other income/(expense)
|
|
|
|
|
|
|
|
Interest
income
|
|
|
100
|
|
|
110
|
|
Interest
(expense)
|
|
|
(326
|
)
|
|
(29
|
)
|
Foreign
exchange transaction gain
|
|
|
104
|
|
|
15
|
|
Other
(expense)
|
|
|
(252
|
)
|
|
(122
|
)
|
Interest
and other income/(expense)
|
|
|
(374
|
)
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(6,553
|
)
|
|
(4,248
|
)
|
Income
tax benefit
|
|
|
-
|
|
|
6
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(6,553
|
)
|
$
|
(4,242
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Twistbox
Entertainment Inc. and Subsidiaries
Consolidated
Statements of Stockholder’s Deficit and Comprehensive Loss
(In
thousands)
Six
Months Ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Preferred Stock
|
|
Paid-In
|
|
Comprehensive
|
|
Accumulated
|
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Income/(Loss)
|
|
Deficit
|
|
Total
|
|
Loss
|
|
Balance
at March 31, 2006
|
|
|
7,786
|
|
$
|
8
|
|
|
750
|
|
$
|
8
|
|
|
2,986
|
|
|
5
|
|
$
|
(2,666
|
)
|
$
|
341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,227
|
)
|
|
(16,227
|
)
|
$
|
(16,227
|
)
|
Issuance
of preferred stock series A at $3.33 per share
|
|
|
|
|
|
|
|
|
75
|
|
|
1
|
|
|
249
|
|
|
|
|
|
|
|
|
250
|
|
|
|
|
Issuance
of preferred stock series B at $4.41 per share
|
|
|
|
|
|
|
|
|
2,268
|
|
|
23
|
|
|
9,977
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
Foreign
currency translation gain/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
12
|
|
|
12
|
|
Deferred
stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(16,215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2007
|
|
|
7,786
|
|
$
|
8
|
|
|
3,093
|
|
$
|
32
|
|
$
|
13,267
|
|
$
|
17
|
|
$
|
(18,893
|
)
|
$
|
(5,569
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,553
|
)
|
|
(6,553
|
)
|
$
|
(6,553
|
)
|
Issuance
of preferred stock series B-1 at $6.87 per share
|
|
|
|
|
|
|
|
|
437
|
|
|
4
|
|
|
2,996
|
|
|
|
|
|
|
|
|
3,000
|
|
|
|
|
Foreign
currency translation gain/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
|
|
|
|
|
|
98
|
|
|
98
|
|
Deferred
stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
|
|
|
|
|
|
|
|
|
58
|
|
|
|
|
Issuance
of 2,401,747 common stock warrants in connection with debt
financing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(6,455
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2007 (unaudited)
|
|
|
7,786
|
|
$
|
8
|
|
|
3,530
|
|
$
|
36
|
|
|
16,341
|
|
$
|
115
|
|
$
|
(25,446
|
)
|
$
|
(8,946
|
)
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Twistbox
Entertainment Inc. and Subsidiaries
Consolidated
Statements of Cash Flows (unaudited)
(In
thousands)
|
|
|
|
Six Months Ended September 30,
|
|
|
|
2007
|
|
2006
|
|
Cash
flows from operating activities
|
|
|
|
|
|
Net
loss
|
|
$
|
(6,553
|
)
|
$
|
(4,242
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
161
|
|
|
69
|
|
Allowance
for doubtful accounts
|
|
|
22
|
|
|
-
|
|
Deferred
stock-based compensation
|
|
|
58
|
|
|
22
|
|
(Increase)
/ decrease in assets:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
1,018
|
|
|
(1,740
|
)
|
Prepaid
expenses and other
|
|
|
(140
|
)
|
|
(168
|
)
|
Increase
/ (decrease) in liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(163
|
)
|
|
746
|
|
Accrued
license fees
|
|
|
(2,169
|
)
|
|
492
|
|
Accrued
compensation
|
|
|
283
|
|
|
264
|
|
Other
current liabilities
|
|
|
813
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(6,670
|
)
|
|
(4,571
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
Repayment
of advance to related party
|
|
|
20
|
|
|
30
|
|
Purchase
of property and equipment
|
|
|
(204
|
)
|
|
(243
|
)
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(184
|
)
|
|
(213
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
Proceeds
from the issuance of debt, net of costs
|
|
|
15,653
|
|
|
-
|
|
Repayment
of debt
|
|
|
(1,717
|
)
|
|
(1,384
|
)
|
Proceeds
from the sale of Series B-1 preferred stock
|
|
|
3,000
|
|
|
10,250
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
16,936
|
|
|
8,866
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
13
|
|
|
5
|
|
|
|
|
|
|
|
|
|
Net
increase/(decrease) in cash and cash equivalents
|
|
|
10,095
|
|
|
4,087
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
631
|
|
|
1,026
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
10,726
|
|
$
|
5,113
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
Interest
paid
|
|
|
72
|
|
|
10
|
|
Income
tax refund
|
|
|
-
|
|
|
6
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (unaudited)
Twistbox
Entertainment Inc. (formerly known as The WAAT Corporation) is incorporated
in
the State of Delaware.
The
Company is a global publisher and distributor of branded entertainment content,
including images, video, TV programming and games, for Third Generation (3G)
mobile networks. The Company publishes and distributes its content in a number
of countries.
Since
operations began in 2003, the Company has developed an intellectual property
portfolio that includes mobile rights to global brands and content from leading
film, television and lifestyle content publishing companies. The Company has
built a proprietary mobile publishing platform that includes: tools that
automate handset portability for the distribution of images and video; a mobile
games development suite that automates the porting of mobile games and
applications to multiple handsets; and a content standards and ratings system
globally adopted by major wireless carriers to assist with the responsible
deployment of age-verified content. Twistbox has distribution agreements with
many of the largest mobile operators in the world.
The
Company is headquartered in the Los Angeles area and has offices in Europe
and
South America that provide local sales and marketing support for both mobile
operators and third party distribution in their respective regions.
2.
|
Summary
of Significant Accounting
Policies
|
Basis
of Presentation
The
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
(“GAAP”) and pursuant to the rules and regulations of the Securities and
Exchange Commission (“SEC”) for annual financial statements. The consolidated
financial statements, in the opinion of management, include all adjustments
necessary for a fair statement of the consolidated results of operations,
financial position and cash flows for each period presented.
Revenue
Recognition
The
Company’s revenues are derived primarily by licensing material and software
products in the form of products (Image Galleries, Wallpapers, video, WAP Site
access, Mobile TV) and mobile games. License arrangements with the end user
can
be on a perpetual or subscription basis.
A
perpetual license gives an end user the right to use the product, image or
game
on the registered handset on a perpetual basis. A subscription license gives
an
end user the right to use the product, image or game on the registered handset
for a limited period of time, ranging from a few days to as long as one month.
The Company distributes its products primarily through mobile telecommunications
service providers (“carriers”), which market the product, images or games to end
users. License fees for perpetual and subscription licenses are usually billed
by the carrier upon download of the product, image or game by the end user.
In
the case of subscriber licenses, many subscriber agreements provide for
automatic renewal until the subscriber opts-out, while the others provide opt-in
renewal. In either case, subsequent billings for subscription licenses are
generally billed monthly. The Company applies the provisions of Statement of
Position 97-2,
Software
Revenue Recognition
,
as
amended by Statement of Position 98-9, Modification of SOP 97-2,
Software
Revenue Recognition, With Respect to Certain Transactions
,
to all
transactions.
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (unaudited)
Revenues
are recognized from our products, images and games when persuasive evidence
of
an arrangement exists, the product, image or game has been delivered, the fee
is
fixed or determinable, and the collection of the resulting receivable is
probable. For both perpetual and subscription licenses, management considers
a
signed license agreement to be evidence of an arrangement with a carrier and
a
“clickwrap” agreement to be evidence of an arrangement with an end user. For
these licenses, the Company defines delivery as the download of the product,
image or game by the end user. The Company estimates revenues from carriers
in
the current period when reasonable estimates of these amounts can be made.
Most
carriers only provide detailed sales transaction data on a one to two month
lag.
Estimated revenue is treated as unbilled receivables until the detailed
reporting is received and the revenues can be billed. Some carriers provide
reliable interim preliminary reporting and others report sales data within
a
reasonable time frame following the end of each month, both of which allow
the
Company to make reasonable estimates of revenues and therefore to recognize
revenues during the reporting period when the end user licenses the product,
image or game. Determination of the appropriate amount of revenue recognized
involves judgments and estimates that the Company believes are reasonable,
but
it is possible that actual results may differ from the Company’s estimates, and
those differences may be material. The Company’s estimates for revenues include
consideration of factors such as preliminary sales data, carrier-specific
historical sales trends, volume of activity on company monitored sites,
seasonality, time elapsed from launch of services or product lines, the age
of
games and the expected impact of newly launched games, successful introduction
of new handsets, growth of 3G subscribers by carrier, promotions during the
period and economic trends. When the Company receives the final carrier reports,
to the extent not received within a reasonable time frame following the end
of
each month, the Company records any differences between estimated revenues
and
actual revenues in the reporting period when the Company determines the actual
amounts. Revenues earned from certain carriers may not be reasonably estimated.
If the Company is unable to reasonably estimate the amount of revenues to be
recognized in the current period, the Company recognizes revenues upon the
receipt of a carrier revenue report and when the Company’s portion of licensed
revenues are fixed or determinable and collection is probable. To monitor the
reliability of the Company’s estimates, management, where possible, reviews the
revenues by country by carrier and by product line on a regular basis to
identify unusual trends such as differential adoption rates by carriers or
the
introduction of new handsets. If the Company deems a carrier not to be
creditworthy, the Company defers all revenues from the arrangement until the
Company receives payment and all other revenue recognition criteria have been
met.
In
accordance with Emerging Issues Task Force, or EITF Issue No. 99-19,
Reporting
Revenue Gross as a Principal Versus Net as an Agent
,
the
Company recognizes as revenues the amount the carrier reports as payable upon
the sale of the Company’s products, images or games. The Company has evaluated
its carrier agreements and has determined that it is not the principal when
selling its products, images or games through carriers. Key indicators that
it
evaluated to reach this determination include:
|
•
|
wireless
subscribers directly contract with the carriers, which have most
of the
service interaction and are generally viewed as the primary obligor
by the
subscribers;
|
|
•
|
carriers
generally have significant control over the types of content that
they
offer to their
subscribers;
|
|
•
|
carriers
are directly responsible for billing and collecting fees from their
subscribers, including the resolution of billing
disputes;
|
|
•
|
carriers
generally pay the Company a fixed percentage of their revenues or
a fixed
fee for
each
game;
|
|
•
|
carriers
generally must approve the price of the Company’s content in advance of
their sale to subscribers, and the Company’s more significant carriers
generally have the ability to set the ultimate price charged to their
subscribers; and
|
|
•
|
the
Company has limited risks, including no inventory risk and limited
credit
risk
|
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (unaudited)
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. The results of operations for acquisitions of
companies have been included in the consolidated statements of operations
beginning on the closing date of acquisition. All material intercompany balances
and transactions have been eliminated in consolidation.
Cash
and Cash Equivalents
The
Company considers all highly liquid short-term investments purchased with a
maturity of three months or less to be cash equivalents.
Content
Provider Licenses
Content
Provider License Fees and Minimum Guarantees
License
fees payable to content providers are expensed as incurred, based on recognizing
the cost of sale associated with revenues. Minimum guarantees are required
under
certain content provider contracts and are expensed when paid. The Company
regularly evaluates remaining liabilities under contracts subject to minimum
guarantees and where recoupment of the guarantees is subject to doubt,
recognizes the relevant liability and expense immediately.
Content
Acquired
Amounts
paid to third party content providers as part of an agreement to make content
available to the Company for a term or in perpetuity, without a revenue share,
have been capitalized and are included in the balance sheet as prepaid expenses.
These balances are expensed over the estimated life of the material
acquired.
Software
Development Costs
The
Company applies the principles of Statement of Financial Accounting Standards
No. 86,
Accounting
for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed
(“SFAS
No. 86”). SFAS No. 86 requires that software development costs incurred in
conjunction with product development be charged to research and development
expense until technological feasibility is established. Thereafter, until the
product is released for sale, software development costs must be capitalized
and
reported at the lower of unamortized cost or net realizable value of the related
product.
The
Company has adopted the “tested working model” approach to establishing
technological feasibility for its products and games. Under this approach,
the
Company does not consider a product or game in development to have passed the
technological feasibility milestone until the Company has completed a model
of
the product or game that contains essentially all the functionality and features
of the final game and has tested the model to ensure that it works as expected.
To date, the Company has not incurred significant costs between the
establishment of technological feasibility and the release of a product or
game
for sale; thus, the Company has expensed all software development costs as
incurred. The Company considers the following factors in determining whether
costs can be capitalized: the emerging nature of the mobile market; the gradual
evolution of the wireless carrier platforms and mobile phones for which it
develops products and games; the lack of pre-orders or sales history for its
products and games; the uncertainty regarding a product’s or game’s
revenue-generating potential; its lack of control over the carrier distribution
channel resulting in uncertainty as to when, if ever, a product or game will
be
available for sale; and its historical practice of canceling products and games
at any stage of the development process.
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (unaudited)
Foreign
Currency Translation
The
Company uses the United States dollar for financial reporting purposes. Assets
and liabilities of foreign operations are translated using current rates of
exchange prevailing at the balance sheet date. Equity accounts have been
translated at their historical exchange rates when the capital transaction
occurred. Statement of Operations amounts are translated at average rates in
effect for the reporting period. The foreign currency translation gain of $98
has been reported as a component of comprehensive loss in the consolidated
statement of stockholders deficit and comprehensive loss. Translation gains
or
losses are shown as a separate component of retained earnings.
Concentrations
of Credit Risk
Financial
instruments which potentially subject us to concentration of credit risk consist
principally of cash and cash equivalents, short-term investments, and accounts
receivable. We have placed cash and cash equivalents and short-term investments
with a single high credit-quality institution. As of September 30, 2007 we
did
not have any long-term marketable securities. Most of our sales are made
directly to large national Mobile Phone Operators in the countries that we
operate. We have a significant level of business and resulting significant
accounts receivable balance with one operator and therefore have a high
concentration of credit risk with that operator. We perform ongoing credit
evaluations of our customers and maintain an allowance for potential credit
losses. As of September 30, 2007 and March 31, 2007 approximately 36% and 54%,
respectively, of our gross accounts receivable outstanding was with one major
customer. This customer accounted for 57% of our gross sales in the six months
ended September 30, 2007, and 80% of our gross sales in the six months ended
September 30, 2006.
Property
and Equipment
Property
and equipment is stated at cost. Depreciation and amortization is calculated
using the straight-line method over the estimated useful lives of the related
assets. Estimated useful lives are 8 to 10 years for leasehold improvements
and
5 years for other assets.
Goodwill
In
accordance with Statement of Financial Accounting Standards No. 142, Goodwill
and Other
Intangible
Assets (“SFAS No. 142”), the Company’s goodwill is not amortized but is tested
for
impairment
on an annual basis or whenever events or changes in circumstances indicate
that
the
carrying
amount of these assets may not be recoverable.
Impairment
of Long-Lived Assets and Intangibles
Long-lived
assets, including purchased intangible assets with finite lives are amortized
using the straight-line method over their useful lives ranging from three to
ten
years and are reviewed for impairment in accordance with SFAS No. 144,
Accounting
for the Impairment or Disposal of Long-Lived Assets,
whenever
events or changes in circumstances indicate that the carrying amount of an
asset
may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future undiscounted net
cash flows expected to be generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
Income
Taxes
The
Company accounts for income taxes in accordance with Statement of Financial
Accounting
Standards
No. 109,
Accounting
for Income Taxes
(“SFAS
No. 109”), which requires recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been included in its
financial statements or tax returns. Under SFAS No. 109, the Company determines
deferred tax assets and liabilities for temporary differences between the
financial reporting basis and the tax basis of assets and liabilities along
with
net operating losses, if it is more likely than not the tax benefits will be
realized using the enacted tax rates in effect for the year in which it expects
the differences to reverse. To the extent a deferred tax asset cannot be
recognized, a valuation allowance is established if necessary.
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (unaudited)
Stock-based
compensation
We
have
applied SFAS No. 123(R) Share-Based Payment (“FAS 123R”) and accordingly, we
record stock-based compensation expense for all of our stock-based
awards.
Under
FAS
123R, we estimate the fair value of stock options granted using the
Black-Scholes option pricing model. The fair value for awards that are expected
to vest is then amortized on a straight-line basis over the requisite service
period of the award, which is generally the option vesting term. The amount
of
expense recognized represents the expense associated with the stock options
we
expect to ultimately vest based upon an estimated rate of forfeitures; this
rate
of forfeitures is updated as necessary and any adjustments needed to recognize
the fair value of options that actually vest or are forfeited are
recorded.
The
Black-Scholes option pricing model, used to estimate the fair value of an award,
requires the input of subjective assumptions, including the expected volatility
of our common stock and an option’s expected life. As a result, the financial
statements include amounts that are based upon our best estimates and judgments
relating to the expenses recognized for stock-based compensation.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosures of
contingent asset and liabilities at the date of the financial statements and
reported amounts of revenue and expenses during the period. Actual results
could
differ from those estimates. The most significant
estimates relate to revenues for periods not yet reported by Carriers,
liabilities recorded for future minimum guarantee payments under content
licenses, accounts receivable allowances, and stock-based compensation
expense.
Recent
Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(“SFAS No. 157”). This statement clarifies the definition of fair value,
establishes a framework for measuring fair value, and expands the disclosures
on
fair value measurements. SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007. The adoption of SFAS No. 157 is not
expected to have a material effect on the Company’s consolidated results of
operations or financial condition.
In
September 2006, the FASB released SFAS No. 158, “Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106, and 132(R).” Under the new standard, companies
must recognize a net liability or asset to report the funded status of their
defined benefit pension and other postretirement benefit plans on their balance
sheets. The recognition and disclosure provisions of SFAS No. 158 are
effective for periods beginning after December 15, 2006. The Company
believes that SFAS No. 158 will not have a significant impact on its results
of
operations or financial position.
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (unaudited)
In
October 2006, the FASB issued FASB Staff Position No. 123R-5, “
Amendment
of FASB Staff Position FAS 123(R)-1
”.
The FSP amends FSP 123(R)-1 for equity instruments that were originally issued
as employee compensation and then modified, with such modification made to
the
terms of the instrument solely to reflect an equity restructuring that occurs
when the holders are no longer employees. In such circumstances, no change
in the recognition or the measurement date of those instruments will result
if
both of the following conditions are met: a. There is no increase in fair value
of the award (or the ratio of intrinsic value to the exercise price of the
award
is preserved, that is, the holder is made whole), or the antidilution provision
is not added to the terms of the award in contemplation of an equity
restructuring; and b. All holders of the same class of equity instruments (for
example, stock options) are treated in the same manner. The Company
believes that FSP 123(R)-5 will not have a significant impact on its results
of
operations or financial position.
In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Liabilities, including an amendment of FASB Statement
No.
115" ("SFAS No. 159"). SFAS No. 159 permits entities to choose, at specified
election dates, to measure many financial instruments and certain other items
at
fair value that are not currently required to be measured at fair value.
Unrealized gains and losses shall be reported on items for which the fair value
option has been elected in earnings at each subsequent reporting date. SFAS
No.
159 is effective for fiscal years beginning after November 15, 2007. Early
adoption is permitted as of the beginning of a fiscal year that begins on or
before November 15, 2007, provided the entity also elects to apply the
provisions of SFAS No. 157 "Fair Value Measurements" ("SFAS No. 157"). The
Company is currently assessing the impact that SFAS No. 159 will have on its
financial statements.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements”, which is an amendment of Accounting Research
Bulletin (“ARB”) No. 51. This statement clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. This statement changes the way the consolidated
income statement is presented, thus requiring consolidated net income to be
reported at amounts that include the amounts attributable to both parent and
the
noncontrolling interest. This statement is effective for the fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008. Based on current conditions, the Company does not
expect the adoption of SFAS 160 to have a significant impact on its results
of
operations or financial position.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations.” This statement replaces FASB Statement No. 141,
“Business Combinations.” This statement retains the fundamental requirements in
SFAS 141 that the acquisition method of accounting (which SFAS 141 called
the purchase method) be used for all business combinations and for an acquirer
to be identified for each business combination. This statement defines the
acquirer as the entity that obtains control of one or more businesses in the
business combination and establishes the acquisition date as the date that
the
acquirer achieves control. This statement requires an acquirer to recognize
the
assets acquired, the liabilities assumed, and any noncontrolling interest in
the
acquiree at the acquisition date, measured at their fair values as of that
date,
with limited exceptions specified in the statement. This statement applies
prospectively to business combinations for which the acquisition date is on
or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company does not expect the adoption of SFAS 160 to
have
a significant impact on its results of operations or financial
position.
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (unaudited)
The
Company has incurred losses and negative cash flows from operations since
commencement of operations. Management expects these operating losses and
negative cash flows to continue for the foreseeable future. The Company has
adequate liquidity for the time being, and management has projected to move
toward positive cashflow in a manner consistent with the Company’s strategies to
build its business and in a time frame to preserve the Company’s liquidity.
These plans include continued increases in revenues by introducing new products
and revenue streams, continued expansion into new territories and a
restructuring of its overhead base.
4.
|
Balance
Sheet
Components
|
Accounts
Receivable
|
|
September
30,
2007
|
|
March 31,
2007
|
|
Accounts
receivable
|
|
$
|
4,004
|
|
$
|
5,022
|
|
Less:
allowance for doubtful accounts
|
|
|
(168
|
)
|
|
(146
|
)
|
|
|
$
|
3,836
|
|
$
|
4,876
|
|
Accounts
receivable includes amounts billed and unbilled as of the respective balance
sheet dates. The Company had no significant write-offs or recoveries during
the
six
months ended September 30, 2007
and
2006,
respectively.
Property
and Equipment
|
|
September 30,
|
|
March 31,
|
|
|
|
2007
|
|
2007
|
|
Equipment
|
|
$
|
846
|
|
$
|
700
|
|
Equipment
subject to capitalized lease
|
|
|
132
|
|
|
132
|
|
Furniture
& fixtures
|
|
|
329
|
|
|
272
|
|
Leasehold
improvements
|
|
|
184
|
|
|
177
|
|
|
|
|
1,491
|
|
|
1,281
|
|
Accumulated
depreciation
|
|
|
(355
|
)
|
|
(254
|
)
|
|
|
$
|
1,136
|
|
$
|
1,027
|
|
Depreciation
and amortization expense for the six months ended September 30, 2007 and 2006
was $101 and $71, respectively.
Capital
Lease
Accumulated
depreciation associated with the equipment under capital lease noted above
was
$57 and $43 at September 30, 2007 and March 31, 2007, respectively. The Company
has a commitment to pay $35 under these leases during the year ending September
30, 2008 and $5 during the year ended September 30, 2009. These payments have
a
net present value of $38.
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (unaudited)
5.
|
Description
of Stock Plans
|
Twistbox,
Inc. 2006 Stock Incentive Plan
On
May
16, 2006, the Company’s board of directors adopted, the WAAT Corp 2006
Stock Incentive Plan (the “2006
Plan
”).
The
purpose of the Plan is to promote the success and enhance the value of the
Company by providing the participants with an incentive for outstanding
performance in generating superior returns for the Company shareholders and
by
enhancing the Company’s capability to motivate, attract, and retain the services
of individuals whose knowledge, judgment, interest and special effort contribute
to the Company’s success.
Under
the 2006 Plan, a total of 3,700,000 common shares will be available
for issuance.
The
awards have a term of ten years and generally become fully vested between the
first and fourth years.
The
following table summarizes options granted for the periods or as of the dates
indicated:
|
|
Options
Granted
|
|
Weighted
Average
Exercise
Price
|
|
Balance,
March 31, 2006
|
|
|
888,000
|
|
$
|
0.36
|
|
Exercised
|
|
|
-
|
|
|
|
|
Cancelled
|
|
|
(20,000
|
)
|
$
|
0.35
|
|
Granted
|
|
|
1,493,054
|
|
$
|
0.43
|
|
Balance,
March 31, 2007
|
|
|
2,361,054
|
|
$
|
0.40
|
|
Exercised
|
|
|
(2,500
|
)
|
$
|
0.35
|
|
Cancelled
|
|
|
(73,500
|
)
|
$
|
0.46
|
|
Granted
|
|
|
1,089,741
|
|
$
|
0.59
|
|
Balance,
September 30, 2007 (unaudited)
|
|
|
3,374,795
|
|
$
|
0.46
|
|
|
|
|
|
|
|
|
|
Exercisable,
March 31, 2007
|
|
|
715,288
|
|
$
|
0.38
|
|
Exercisable,
September 30, 2007 (unaudited)
|
|
|
1,055,374
|
|
$
|
0.40
|
|
The
weighted-average grant-date fair value of stock options granted during the
six
months ended September 30, 2007 was $0.29 (unaudited) and during the year ended
March 31, 2007 was $0.21.
The
fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average
assumptions:
|
|
September 30,
2007
(unaudited)
|
|
March 31,
2007
|
|
Expected
life (years)
|
|
|
3
|
|
|
3
|
|
Risk-free
interest rate
|
|
|
3.94% - 4.85
|
%
|
|
4.72%
-
5.03
|
%
|
Expected
volatility
|
|
|
75
|
%
|
|
75
|
%
|
Expected
dividend yield
|
|
|
0
|
%
|
|
0
|
%
|
The
weighted average remaining contractual life of compensatory options outstanding
is 8.78 years at September 30, 2007 (unaudited) and 8.8 at March 31,
2007.
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (unaudited)
The
exercise price for options outstanding at March 31, 2007 was as
follows:
Number
of
Options
|
|
Exercise
Price
|
|
1,821,284
|
|
$
|
0.35
|
|
539,770
|
|
$
|
0.59
|
|
2,361,054
|
|
|
|
|
The
exercise price for options outstanding at September 30, 2007 (unaudited)
was as follows:
Number
of
Options
|
|
Exercise
Price
|
|
1,777,784
|
|
$
|
0.35
|
|
1,597,011
|
|
$
|
0.59
|
|
3,374,795
|
|
|
|
|
The
above
disclosure includes 951,784 options issued in connection with the Charismatix
acquisition.
The
changes in the carrying amount of goodwill for the
six
months ended September 30, 2007 and the year ended March 31, 2007 was as
follows:
Balance
at March 31, 2006
|
|
$
|
439
|
|
Goodwill
acquired
|
|
|
1,004
|
|
Foreign
exchange translation differences
|
|
|
44
|
|
Balance
at March 31, 2007
|
|
|
1,487
|
|
Foreign
exchange translation differences
|
|
|
31
|
|
Balance
at September 30, 2007
|
|
$
|
1,518
|
|
7.
|
Other
Intangible
Assets
|
|
|
September 30,
|
|
March 31,
|
|
|
|
2007
|
|
2007
|
|
Customer
list
|
|
$
|
277
|
|
$
|
277
|
|
Platform
|
|
|
113
|
|
|
113
|
|
Licenses
|
|
|
79
|
|
|
79
|
|
Trademarks
|
|
|
15
|
|
|
14
|
|
|
|
|
484
|
|
|
483
|
|
Accumulated
Amortization
|
|
|
(90
|
)
|
|
(30
|
)
|
|
|
$
|
394
|
|
$
|
453
|
|
The
Company has included amortization of acquired intangible assets directly
attributable to revenue-generating activities in cost of revenues. The Company
has included amortization of acquired intangible assets not directly
attributable to revenue-generating activities in operating expenses. During
the
six months ended September 30, 2007 and 2006, the Company recorded amortization
expense in the amounts of $13 and $0, respectively, in cost of revenues. During
the six months ended September 30, 2007 and 2006, the Company recorded
amortization expense in the amounts of $47, and $0, respectively, in operating
expenses.
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (unaudited)
As
of
September 30, 2007, the total expected future amortization related to intangible
assets was as follows:
|
|
Amortization
|
|
Amortization
|
|
|
|
|
|
Included
in
|
|
Included
in
|
|
Total
|
|
|
|
Cost
of
|
|
Operating
|
|
Amortization
|
|
|
|
Revenues
|
|
Expenses
|
|
Expense
|
|
Year
Ending September 30,
|
|
|
|
|
|
|
|
2008
|
|
$
|
26
|
|
$
|
93
|
|
$
|
119
|
|
2009
|
|
|
23
|
|
|
88
|
|
|
111
|
|
2010
|
|
|
10
|
|
|
70
|
|
|
80
|
|
2011
|
|
|
-
|
|
|
48
|
|
|
48
|
|
2012
|
|
|
-
|
|
|
36
|
|
|
36
|
|
|
|
$
|
59
|
|
$
|
335
|
|
$
|
394
|
|
|
|
September 30,
|
|
March
31,
|
|
|
|
2007
|
|
2007
|
|
|
|
|
|
|
|
Short
Term Debt
|
|
|
|
|
|
|
|
|
|
Loan
from related party, inclusive of interest
|
|
$
|
-
|
|
$
|
250
|
|
Loan
from bank, current portion
|
|
|
56
|
|
|
1,771
|
|
Capitalized
lease liabilities, current portion
|
|
|
35
|
|
|
42
|
|
Senior
Secured Note, accrued interest
|
|
|
256
|
|
|
-
|
|
|
|
$
|
347
|
|
$
|
2,063
|
|
Details
of the loans from related party are included in Note 9. The current portion
of
loans from bank consists of $56 at September 30, 2006 and $54 at March 31,
2007
in connection with the loan detailed in Note 9; and loans of $0 as of September
30, 2007 and $1,717 as of March 31, 2007 that were initiated in January 2007
at
an interest rate of 9.25% and with a maturity of 12 months and were fully repaid
in July, 2007 as part of the debt financing noted below. Capitalized lease
assets are set out in Note 4. Future obligations under capitalized leases are
included as part of Other Obligations in Note 14. The current portion of the
Senior Secured Note as described below represents accrued interest on that
facility.
|
|
September 30,
|
|
March
31,
|
|
|
|
2007
|
|
2007
|
|
|
|
|
|
|
|
Long
Term Debt
|
|
|
|
|
|
|
|
|
|
|
|
Loan
from bank, long term portion
|
|
$
|
19
|
|
$
|
48
|
|
Capitalized
lease liabilities, long term portion
|
|
|
5
|
|
|
21
|
|
Senior
Secured Note, long term portion, net of discount
|
|
|
16,482
|
|
|
-
|
|
|
|
$
|
16,506
|
|
$
|
69
|
|
Loan
from
bank as of September 30, 2007 and March 31, 2007 is the long term portion of
the
loan detailed in Note 9. Capitalized lease assets are set out in Note 4. Future
obligations under capitalized leases are included as part of Other Obligations
in Note 14.
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (unaudited)
In
July
2007 the Company entered into a debt financing agreement in the form of a Senior
Secured Note amounting to $16,500, payable at 30 months. The holder of the
Note
was granted first lien over all of the Company’s assets. The Note carries
interest of 9% annually for the first year and 10% subsequently, with
semi-annual interest only payments. The agreement includes certain restrictive
covenants, including a requirement not to exceed a maximum amount of losses.
The
Note holder was also granted 2,401,747 detachable warrants, with an exercise
price of $6.87 and a 48 month maturity. The Company calculated the fair value
of
the warrants using the Black-Scholes option pricing model with the following
assumptions: volatility of 75%, term of two years based on the anticipated
life
of warrants, risk-free interest rate of 4.9% and dividend yield of 0%. The
Company recorded the fair value of the warrants of $20 as a discount to the
carrying value of the Note, of which $2 was amortized to interest expense in
the
six months ended September 30, 2007.
As
of
September 30, 2007, the future minimum payments under this loan were as
follows:
|
|
Minimum
|
|
Year
Ending September 30,
|
|
Payments
|
|
2008
|
|
|
1,513
|
|
2009
|
|
|
1,650
|
|
2010
|
|
|
17,050
|
|
9.
|
Related
Party
Transactions
|
The
Company engages in various business relationships with shareholders and officers
and their related entities. The significant relationships are disclosed
below.
Lease
of Premises
The
Company leases its primary offices in Los Angeles from Berkshire Holdings,
LLC,
a company with common ownership by officers of the Company. Amounts paid in
connection with this lease were $180 and $150 for the six months ended September
30, 2007 and 2006, respectively.
The
Company is party to an oral agreement with a person affiliated with the Company
with respect to a lease of an apartment in London. Amounts paid in connection
with this lease were $36 and $28 for the six months ended September 30, 2007
and
2006, respectively
Loans
The
Company is party to a loan from East-West Bank, originated on January 27, 2006
in an amount of $161. The Company also entered into a loan agreement to an
affiliated company, effective on the same date for the same amount. The bank
agreement is secured with a motor vehicle operated exclusively by an officer
of
the Company. The interest income under the loan to the affiliate completely
offsets interest expense incurred under the bank loan. As of September 30,
2007,
$90 was due to the Company under this loan, and the amount payable under the
bank loan was $75. Amounts paid for the
six
months ended September 30, 2007 and 2006 were $30 and $30, respectively,
including interest of $3 and $5, respectively. Amounts received for the six
months ended September 30, 2007 and 2006 were $20 and $30 respectively,
including interest of $2 and $5, respectively. The agreement has subsequently
been terminated.
Dealings
with Content Provider
Two
officers of the Company are also board members of Peach International, with
which the Company has a content provider agreement. Amounts paid or payable
under this agreement to Peach in the six months ended September 30, 2007 and
2006 were $394 and $73, respectively.
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (unaudited)
10.
|
Capital
Stock
Transactions
|
In
December 2005, t
he
Company issued 750,000 shares of Series A Preferred Stock at $3.33 per share
for
a total purchase price of $2,498.
In
April
2006, the Company issued 75,075 shares of Series A Preferred Stock at $3.33
per
share for a total purchase price of $250. As of September 30, 2007 and March
31,
2007, 2,750,000 shares of Series A preferred stock were authorized, and 825,075
were issued and outstanding at a par value of $0.01 per share.
In
May
2006, the Company issued 2,267,574 shares of Series B Preferred Stock at $4.41
per share for a total purchase price of $10,000. As of September 30, 2007 and
March 31, 2007 2,267,574 shares of Series B preferred stock were authorized,
issued and outstanding at a par value of $0.01 per share.
In
April
2007, the Company issued 436,680 shares of Series B-1 Preferred Stock at $6.87
per share for a total purchase price of $3,000. As of September 30, 2007,
436,680 shares of Series B-1 preferred stock were authorized, issued and
outstanding at a par value of $0.01 per share.
Voting
Rights
The
Series A stockholders voting together as a single class elect one member of
the
Company’s Board of Directors. The Series B stockholder elects one member of the
Company’s Board of Directors.
Preference
Rights
Upon
any
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, the holders of shares of Series A Preferred Stock are entitled
to
receive an amount of cash equal to their original purchase price of $3.33 per
share plus all declared but unpaid dividends before any amount is paid with
respect to any other series of preferred stock or common stock. If the amounts
available for distribution are not sufficient to pay the full amount, then
all
assets of the Company legally available for distribution will be distributed
to
the holders of Series A Preferred Stock on a proportionate basis. After payment
in full of the liquidation preference amount of the Series A Preferred Stock,
the holders of shares of Series B Preferred Stock are entitled to liquidation
preferences equal to their original issue prices of $4.41 per share, plus any
declared but unpaid dividends. If the amounts available for distribution are
not
sufficient to pay the full amount, then any remaining assets of the Company
legally available for distribution will be distributed to the holders of Series
B Preferred Stock on a proportionate basis. After payment in full of the
liquidation preference amount of the Series B Preferred Stock, the holders
of
shares of Series B-1 Preferred Stock are entitled to liquidation preferences
equal to their original issue prices of $6.87 per share, plus any declared
but
unpaid dividends. If the amounts available for distribution are not sufficient
to pay the full amount, then any
remaining
assets of the Company legally available for distribution will be distributed
to
the holders of Series B-1 Preferred Stock on a proportionate basis. Upon full
payment of the liquidation preference amounts of all preferred stock, any
remaining assets of the Company legally available for distribution will be
distributed to the holders of common stock and preferred stock pro rata based
on
the number of shares on an “as-if converted” basis.
The
preference stockholders also have anti-dilution rights in the case of certain
specified transactions, so that to the extent that consideration is available
in
a transaction, each class of preferred stockholder is entitled to receive
consideration at least equal to their original purchase price plus all declared
but unpaid dividends before any amount is paid with respect to the next series
of preferred stock or common stock. The ranking for this purpose is Series
A,
then Series B, then Series B-1, then common stockholders. There are no dividend
rights, nor are the shares convertible or callable.
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (unaudited)
11.
|
Employee
Benefit Plans
|
The
Company has an employee 401(k) savings plan (the “Plan”) covering full-time
eligible employees. These employees may contribute eligible compensation up
to
the annual IRS limit. The Company does not make matching
contributions.
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial statement purposes
and
the amounts used for income tax purposes. Significant components of the
Company’s deferred tax liabilities and assets as of September 30, 2007 and
March 31, 2007 are as follows:
|
|
September 30,
2007
|
|
March
31,
2007
|
|
Deferred
tax assets:
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
6,790
|
|
$
|
3,624
|
|
Accrued
compensation
|
|
|
376
|
|
|
262
|
|
Accrued
license fees
|
|
|
2,550
|
|
|
3,418
|
|
Allowance
for doubtful accounts
|
|
|
67
|
|
|
59
|
|
Equity
compensation
|
|
|
87
|
|
|
56
|
|
Less
valuation allowance
|
|
|
(9,870
|
)
|
|
(7,419
|
)
|
Net
deferred tax asset
|
|
$
|
—
|
|
$
|
—
|
|
Following
is a reconciliation of the amount of income tax expense (benefit) that would
result from applying the statutory federal income tax rates to pre-tax income
and the reported amount of income tax expense (benefit) for the six months
ended
September 30, 2007 and 2006:
|
|
2007
|
|
2006
|
|
Federal
statutory rates
|
|
|
(34.0
|
)%
|
|
(34.0
|
)%
|
State
taxes
|
|
|
(6.0
|
)%
|
|
(6.0
|
)%
|
Increase
in valuation allowance
|
|
|
40.0
|
%
|
|
39.9
|
%
|
Income
tax expense (benefit)
|
|
|
(0.0
|
)%
|
|
(0.1
|
)%
|
At
September 30, 2007 and March 31, 2007, the Company has provided a valuation
allowance for the deferred tax assets since management has not been able to
determine that the realization of that asset is more likely than not. The net
change in valuation allowance for the six months ended September 30, 2007
and 2006 was an increase of $2,451 and $1,627, respectively. The
Company has net operating loss carryforwards for United States and foreign
taxes
of approximately $17,000 that begin to expire in 2019.
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (unaudited)
13.
|
Segment
and Geographic
information
|
We
operate in one reportable segment in which we are a developer and publisher
of
branded entertainment content for mobile phones. The following information
sets
forth geographic information on our sales for the six months ended September
30,
2007 and 2006; and property and equipment as of September 30, 2007 and March
31,
2007:
|
|
North
|
|
|
|
Latin
|
|
|
|
|
|
America
|
|
Europe
|
|
America
|
|
Consolidated
|
|
Net
sales to unaffiliated customers for the six months ended September
30,
2007
|
|
|
483
|
|
|
6,411
|
|
|
170
|
|
|
7,064
|
|
Property
and equipment, net as of September 30, 2007
|
|
|
917
|
|
|
219
|
|
|
-
|
|
|
1,136
|
|
Net
sales to unaffiliated customers for the six months ended September
30,
2006
|
|
|
16
|
|
|
4,795
|
|
|
18
|
|
|
4,829
|
|
Property
and equipment, net as of March 31, 2007
|
|
|
894
|
|
|
133
|
|
|
-
|
|
|
1,027
|
|
Our
largest single customer accounted for 57% of our revenue in six months ended
September 30, 2007 and 80% of our revenue in six months ended September 30,
2006.
14.
|
Commitments
and
Contingencies
|
Operating
Lease Obligations
The
Company leases office facilities under noncancelable operating leases expiring
in various years through 2010.
Following
is a summary of future minimum payments under initial terms of leases at
September 30, 2007:
Year
Ending September 30,
|
|
|
|
2008
|
|
$
|
301
|
|
2009
|
|
|
262
|
|
2010
|
|
|
200
|
|
|
|
|
|
|
Total
minimum lease payments
|
|
$
|
763
|
|
These
amounts do not reflect future escalations for real estate taxes and building
operating expenses. Rental expense under all leases amounted to $480 and $187
for the
six
months ended September 30, 2007 and 2006, respectively.
Minimum
Guaranteed Royalties
The
Company has entered into license agreements with various owners of brands and
other intellectual property so that it could develop and publish branded
products for mobile handsets.
Pursuant
to some of these agreements, the Company is required to pay minimum royalties
over the term of the agreements regardless of actual sales. Future minimum
royalty payments for those
agreements
as of September 30, 2007 were as follows:
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (unaudited)
|
|
Minimum
|
|
|
|
Guaranteed
|
|
Year
Ending September 30,
|
|
Royalties
|
|
2008
|
|
$
|
2,615
|
|
2009
|
|
|
3,510
|
|
2010
|
|
|
1,033
|
|
2011
|
|
|
90
|
|
|
|
|
|
|
Total
minimum payments
|
|
$
|
7,248
|
|
Commitments
in the above table include guaranteed royalties to licensors that are included
as a liability in the Company’s consolidated balance sheet of $5,337 as of
September 30, 2007 because the Company has determined that recoupment is
unlikely.
Other
Obligations
As
of
September 30, 2007, the Company was obligated for payments to various
distribution providers, technical providers and employees for agreements with
initial terms greater than one year at September 30, 2007. Annual payments
relating to these commitments at September 30, 2007 are as follows:
Year
Ending September 30,
|
|
Commitments
|
|
2008
|
|
$
|
3,089
|
|
2009
|
|
|
2,208
|
|
2010
|
|
|
274
|
|
|
|
|
|
|
Total
minimum payments
|
|
$
|
5,571
|
|
Other
Contingencies
Subsequent
to the period end, the Company has entered into an agreement with an investment
banking firm, to modify the terms of a previous agreement. Under this amendment,
$530 was paid in December 2007. The $530 was accrued as of September 30, 2007
and is included with Other current liabilities; an offsetting asset was also
created which is being amortized over 30 months. The net balance of $283 is
included with Prepaid expenses as of September 30, 2007. An additional $650
may
become payable should the Company enter into a merger or other business
combination as defined in the agreement. The merger discussed in Note 15 would
qualify a merger under this agreement.
Litigation
The
Company is subject to various claims and legal proceedings arising in the normal
course of business. Based on the opinion of the Company’s legal counsel,
management believes that the ultimate liability, if any in the aggregate will
not be material to the financial position or results of operations of the
Company for any future period.
Leaway
Enterprise, Ltd (dba “Mobival”) v. Twistbox Entertainment, Inc.; FTV GmbH and
Michel Adam Lisowski
On
March
20, 2007, the Company and FTV GmbH entered into a Content License Agreement
(“CLA”) pursuant to which, among other things, the Company licensed certain FTV
GmbH content and, in exchange, the Company agreed to make certain payments
to
FTV GmbH, and the Company did make an initial U.S. $200 payment to FTV.
On
or
about
April
17,
2007
,
Leaway
Enterprises, Ltd. dba “Mobival” (“Mobival”) filed an action in the High Court of
Justice, Queen’s Bench Division, Commercial Court, Royal Courts of Justice,
Claim No. 2007 Folio 458 against FTV Ltd. BVI (“FTV BVI”) alleging breach of a
“Content Distribution Agreement” between Mobival and FTV BVI (hereinafter, the
“U.K. Action”). On or about July 20, 2007, Mobival filed an action in the Los
Angeles Superior Court, No. LC 078611 against the Company, FTV GmbH and Michel
Adam Lisowksi (“Adam”) alleging interference, unfair business practices and
fraud (hereinafter, the “U.S. Action”).
Twistbox
Entertainment Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (unaudited)
The
Company has incurred certain legal fees participating in discovery and otherwise
monitoring the U.K. Action, and has incurred certain legal fees defending its
rights in the U.S. Action. The Company has demanded that FTV GmbH indemnify
Twistbox for legal fees incurred to date in the U.K. Action and the U.S. Action,
and the Company has also demanded that FTV GmbH defend the Company in the U.S.
Action as provided under the CLA.
The
Company contends and FTV denies that the claims made by Mobival in the U.K.
Action and U.S. Action, and the press surrounding Mobival’s claims, have placed
a cloud on the rights to the content being licensed, have made the FTV content
less valuable than it was at the time the CLA was signed, and has made it
difficult or impossible for the Company to effectively develop the business.
For
these reasons, the Company asked to terminate the CLA, other than the indemnity
and defense obligations, and the Company sought a return of its initial $200
payment;
FTV
GmbH
does not concede that it has an obligation to reimburse the Company for the
fees
the Company incurred in the U.K. Action or the U.S. Action, and FTV GmbH does
not concede that it has any obligation to terminate the CLA. Notwithstanding
FTV
GmbH’s position, the Company and FTV GmbH entered into that certain Indemnity,
Defense and Termination Agreement effective as of November 15, 2007, whereby
FTV
returned to the Company its initial $200 payment, as well as an amount to
reimburse the Company for a portion of its legal fees and costs related to
the
UK action and the US action.
There
has
been virtually no activity in the U.K. Action. With respect to the U.S. Action,
a law firm is representing the Company and the other defendants. Mobival has
propounded discovery requests, to which the Company has responded. Mobival
seeks
to depose an officer of FTV GmbH to establish FTV GmbH’s minimum contacts with
the State of California to effectuate a valid service of the
complaint.
Additional
disclosures regarding commitments to affiliate companies are included in Note
9.
Mandalay
Merger Agreement
On
January 2, 2008 Mandalay Media, Inc. (“Mandalay”) announced that it has executed
an Agreement and Plan of Merger with the Company. Pursuant to the proposed
merger, the Company will become a wholly-owned subsidiary of Mandalay, and
the
shareholders and other security holders of the Company will receive shares
of
common stock in Mandalay as provided in the Agreement and Plan of
Merger.
If
the
transaction is consummated, the Company would become Mandalay’s sole current
operations and continue to operate as usual across its subsidiaries and
territories. The closing of the transaction is subject to certain conditions
and
expected to occur in the first quarter of 2008. There can be no assurance that
the merger will be consummated or, if consummated, that the businesses will
be
successfully integrated.