[LETTERHEAD OF BRILLIANT DIGITAL ENTERTAINMENT, INC.]
February 17, 2000
Enewmedia Company
00/X Xxxxxxxx Xxxxx
000 Xxxxxxxx Xxxx
Xxxxxxx, Xxxx Xxxx
Attention: Xxxxxx Xxxxxx, Business Development Director
Re: STRATEGIC PARTNER AGREEMENT
Gentlemen:
When signed by you and Brilliant Digital Entertainment, Inc., a Delaware
corporation ("ENTERTAINMENT"), in the manner hereinafter provided, this letter
agreement (this "AGREEMENT") shall constitute the binding agreement of Enewmedia
Digital Entertainment Limited, a Cayman Islands corporation, organized under the
laws of ______, and a wholly-owned subsidiary of e-New Media Company whose
shares are listed on the Hong Kong Stock Exchange code (0128) ("ENM"),and
Entertainment with respect to the matters set forth herein unless subsequently
superseded by a long form agreement executed by the parties (the "DEFINITIVE
AGREEMENT").
TRANSACTION AGREEMENTS:
By and between Enewmedia ("ENM") and Brilliant Digital Entertainment, Inc.
("BDE") and BDE's wholly owned subsidiaries Brilliant Entertainment, Inc.
("ENTERTAINMENT") and B3D, Inc. ("B3D").
PURPOSE:
X. Xxxxxx the terms of the limited exclusive distribution license to be
granted by Entertainment to ENM (the "DISTRIBUTION AGREEMENT");
B. Define the terms of a production joint venture between ENM and
Entertainment (the "PRODUCTION JOINT VENTURE AGREEMENT");
C. Define the terms of a technology license agreement between ENM and B3D
(the "TECHNOLOGY LICENSE AGREEMENT");
X. Xxxxxx the terms of an investment in common stock and warrants to be
issued by BDE to ENM (the "INVESTMENT AGREEMENT").
I. DISTRIBUTION AGREEMENT
Licensor:
Entertainment
LICENSEE:
ENM
CURRENCY:
As used herein, all amounts are US$
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NON-RECOUPABLE ADVANCE:
$2.5 million
PAYMENT TERMS:
$1.5 million due on signing of this agreement with the balance of $1.0
million payable pro rata upon delivery of the Masters for the titles as set
forth in Exhibit A.
TERM:
Six (6) years from execution of the Distribution Agreement (the "TERM").
TERRITORIES:
China, Hong Kong, Indonesia, Japan, Macao, Malaysia, North Korea,
Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand and
Vietnam and their legal successors (each a "TERRITORY" and taken together
"TERRITORIES").
CONTENT:
All content, in the licensed Languages, now existing or produced by
Entertainment during the Term intended for entertainment purposes
("CONTENT"). For the avoidance of doubt, content produced for e-commerce,
informational, business, scientific, training and related purposes shall
not be deemed Content.
Furthermore, Content shall specifically exclude any title for which
Entertainment does not own or control distribution rights (or for which
Entertainment has limited distribution rights that do not include the
Territories). Distribution rights shall be deemed to include distribution
through the Media (as defined herein). A description of the Content is
hereby set forth in Exhibit A hereto.
MEDIA:
Distribution rights granted herein shall only be for distribution over the
Internet utilizing Internet Protocol (I.P.) or its successor protocols (the
"MEDIA") in the Territory subject to the limitations of the License section
below.
LANGUAGES:
Asian languages principally spoken in the Territory (the "LANGUAGES") and
English, subject to the limitations of the License section below, but
excluding in all cases all European languages.
LICENSE:
(i) Entertainment will grant ENM a limited, non-exclusive license to
distribute the English language version of the Content in the Territories
through the Media, subject to the right of Entertainment to grant third
parties worldwide English language exclusive rights in the Content. The
Content will be provided subject to customary protective and copyright
protection provisions.
(ii) Entertainment will grant ENM a limited, exclusive license to
distribute the Content in the Languages in the Territory through the Media,
subject to subsection (v) below. ENM shall have the right to localize
versions of the Content in each of the Languages. ENM shall be responsible
for all quality control procedures in the localization process. All
localized and non-English language versions of the Content shall require
approval of Entertainment and/or all third party licensors with approval
rights and will constitute "Works for Hire", owned by Entertainment under
Section 201 of Title 17 of the United States Code. ENM further waives any
moral rights in such localized and non-English language
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versions of the Content.
(iii) All Content provided to users in each Territory shall be hosted on
servers located in such Territory. For example, Content provided through
the Media to users in South Korea must be hosted on a server physically
located in South Korea.
(iv) ENM shall have the right, and shall use best efforts, to sublicense
the Content to third party web sites in the Territory with a view towards
wide distribution in the Territory, provided that Entertainment has
received ENM's prior approval for each such sublicense. Such distribution
of Content by ENM shall be comparable to or better than that achieved by
Entertainment in its territories.
(v) Entertainment shall not grant any third parties the right to distribute
the Content in each of the Territories and Languages described herein
during the term and any combination there of through the Media; provided,
however that (a) this limitation shall not apply to the distribution of
English language Content; (b) Entertainment shall have no liability
whatsoever to ENM if current or future licensees independently choose to
offer, promote, or make available the Content, or any localized or
non-English language version of the Content to users in the Territories,
provided Entertainment shall use it's best endeavors to ensure compliance
by the licensees.
(vi) Beginning in year three (3) of the Term, ENM must generate a minimum
of $1.5 million per annum in Revenue (as defined below) in order to
maintain exclusivity.
RESERVED RIGHTS:
All rights not specifically granted to ENM (including but not limited to
CD-ROM, DVD-ROM, television, merchandising, licensing) are hereby reserved
by Entertainment.
REVENUE:
Revenue shall be defined as consideration received or receivable by ENM and
its subsidiaries and/or affiliates from any and all forms of exploitation
of the Content, including but not limited to advertising revenues,
subscription revenues, link fees, referral fees, etc. but net of Value
Added Tax or other tax or duty payable on fees received or receivable by
ENM.
DISTRIBUTION FEE AND EXCESS REVENUES:
ENM shall be entitled to deduct a twenty percent (20%) distribution fee
from Revenue and shall remit all excess Revenue to Entertainment as
provided herein. Revenues shall be calculated on an accrual basis and shall
be paid to Entertainment on a quarterly basis no later than the fifteenth
(15th) of the month following the end of the preceding quarter. For example
Entertainment's share of accrued revenues during the first quarter of 2000
shall be paid by ENM no later than April 15th. Entertainment may recover
such reasonable collection costs and interest on late payments.
ACCOUNTING:
ENM and all Entertainment-approved sublicensees of the Content shall agree
to the following:
(i) ENM and the sublicensees will provide monthly user logs to
Entertainment.
(ii) ENM and the sublicensees will provide detailed quarterly accounting of
Revenue, and shall pay such excess Revenue concurrently with such
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statements.
(iii) ENM and the sublicensees will provide customary audit rights and
access.
II. PRODUCTION JOINT VENTURE AGREEMENT
PURPOSE:
To create new content (not derived from Entertainment's content)
specifically intended for the Territories described above.
FORM:
The co-production activities of ENM and BDE will be undertaken through a
jointly-owned limited liability company to be created by Entertainment
under the laws of the Cayman Islands ("NEWCO"). NewCo will be owned 50% by
ENM and 50% by Entertainment.
CAPITALIZATION:
ENM shall provide enough funds to NewCo such that NewCo can conduct its
operations and acquire the "alpha-code" license described herein. Such
funds shall not be capitalized to dilute Entertainment's 50% share in
NewCo. and shall be repaid to ENM forthwith upon receipt of revenues by
Xxxxx
DISTRIBUTION RIGHTS:
(i) All Asian-language versions including the English translation of such
Asian Language Versions (but excluding a) all English language
versions of the content developed under the Production Joint Venture
Agreement in places outside the Territory, and (b) all English
versions which were originally in English and are localized by the
Production Joint Venture) shall be exploited by ENM in the
Territories.
(ii) Any costs and quality control responsibilities in respect of the
localization and production of Content shall be borne by Newco and
funded by ENM.
(iii) Entertainment shall have the right (but not the obligation) to
distribute the content created under the Production Joint Venture
Agreement in all other languages and territories. Entertainment shall
be entitled to deduct a twenty percent (20%) fee from revenues earned
from distribution of content produced by the Production Joint Venture
and shall remit all excess revenue to the Production Joint Venture.
Revenues shall be calculated on an accrual basis and shall be paid to
Entertainment on a quarterly basis no later than the fifteenth (15th)
of the month following the end of a preceding quarter.
III. TECHNOLOGY LICENSE AGREEMENT
PARTIES:
NewCo, a 50/50 joint venture between ENM and Entertainment ("LICENSEE")
and
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B3D, a wholly owned subsidiary of BDE ("LICENSOR").
LICENSE
NewCo shall receive a non-transferable, royalty-free, unlimited seat
license to use the tool suite commonly referred to as B3D Studio (the
"SOFTWARE"). During the term of the license, NewCo shall be eligible to
receive the latest "alpha-code" versions of the Software, comprised of
object code and related documentation (but no source code) at no additional
cost. The Software will be provided subject to customary protective and
copyright protection provisions.
LICENSE FEE:
$2.5 million of which $1.0million is payable upon the execution hereof and
the balance upon delivery by Entertainment to Licensee of the object code
version of the Software and current documentation, plus a royalty equal to
10% of NewCo's gross receipts.
EXCLUSIVITY:
NewCo shall be the exclusive recipient of an "alpha-code" license to the
Software in the Territories. Nothing contained herein shall limit B3D from
issuing "beta-code" licenses or release versions of the Software or
additional "alpha-code" licenses in other territories. B3D shall also have
the right to distribute "beta-code" licenses or release versions of the
Software in the Territories, subject to a right of first refusal in favor
of NewCo to distribute such "beta-code" licenses or release versions of the
Software in the Territories.
TERM:
Five (5) years from the date of execution
TRAINING:
B3D shall provide the services of (i) one software engineer and (ii) one
experienced director for a period of thirty days without markup or profit
to B3D. Additional training or support, if and when necessary shall be
provided to NewCo without markup or profit to B3D. NewCo shall pay all
applicable training costs.
WARRANTY
Entertainment hereby warrants that it has the rights and ownership in the
technology and its related intellectual property rights licensed under this
agreement.
DILIGENCE
The parties agree that upon the execution of this Agreement, ENM shall have
a thirty (30) days period to conduct a diligence review ("REVIEW PERIOD")
with respect to the Software. During the Review Period, ENM, at any time,
shall have the right to accept the terms and conditions of the Technology
License Agreement outlined in this Section III of this Agreement. In the
event ENM elects not to accept the terms and conditions as outlined in this
Section III of the agreement, the License Fee of $1.0 million dollars paid
previously pursuant to the Technology License Agreement will be applied as
payment in full to the balance of the non-recoupable advance due per the
Distribution Agreement.
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IV. INVESTMENT AGREEMENT
INVESTMENT:
ENM shall invest $4 million (the "INVESTMENT") in the common stock of BDE
at a purchase price of $6 per share. The investment will be made upon
execution of this Agreement
WARRANTS:
On the conclusion of the Investment, ENM shall receive nine (9) month
warrants to purchase 307,692 shares of BDE's common stock, at the exercise
price indicated below. The gross amount of such warrants exercise shall be
limited to fifty (50%) of the Investment. The warrants are upon the terms
and conditions set forth in Exhibit B hereto. The warrants shall be
callable by BDE upon thirty (30) days notice, at a price of once cent (US
$0.01) per share, if the value of such warrants exceeds one hundred twenty
percent (120%) of the exercise price over a period of twenty (20)
consecutive days. The securities will be issued in a private placement and
wil be restricted securities under Rule 144.
By way of example only, in the event that ENM invests $5 million in BDE
common stock, ENM shall receive warrants to purchase $2.5 million worth of
common stock (or 384,615 shares) at the exercise price indicated below.
EXERCISE PRICE:
The exercise price of the warrants shall be $6.50 per share.
CONDITIONS PRECEDENT:
Entertainment's Board approval of the equity component of the Investment
Agreement.
WARRANTY:
Entertainment represents and warrants that its Annual Report on Form 10-K
for the year ended December 31, 1998, Quarterly Reports on Form 10-Q for
the quarters ended March 31, 1999, June 30, 1999 and September 30, 1999,
and Proxy Statement for the 1999 Annual Meeting of Stockholders, as of the
date each was filed with the Securities and Exchange Commission, did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements, in
light of the circumstances under which they were made, not misleading.
OTHER TERMS:
The parties intend that the principal terms and conditions will be set
forth in the Definitive Agreement which shall be executed by all parties,
however if a Definitive Agreement is not executed prior to the closing
date, this Agreement shall be binding. The shares issuable hereunder shall
be restricted securities under the Securities Act of 1933, as amended, and
will contain appropriate securities legends and legends referencing this
Agreement. ENM represents that it is an accredited investor as that term is
defined by Rule 501 under the Securities Act of 1933, as amended. ENM and
Entertainment agrees to jointly make a public announcement of the matters
contemplated. The parties shall mutually agree to the timing form and
contest of any such public announcement; provided that each party shall be
permitted to make any announcements required by applicable law, regulation
or stock exchange rule.
Each of the agreements described herein shall be governed and construed in
accordance with the laws of the State of California, USA exclusive of its
provisions on conflicts of laws. The parties agree that the forum for any
dispute that may arise hereunder shall be either the State or Federal
Courts located in Los Angeles County, California, USA, and the prevailing
party therein shall be entitled to recover, and the other party hereto
agrees to pay, the prevailing party's costs and expenses in connection
therewith, including reasonable attorneys fees.
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Entertainment and ENM each warrants and represents to the other that it has
the full right and authority to enter into this agreement and to perform
its obligations contemplated hereby. Each license and right granted
hereunder shall be subject to the complete and continuing performance by
the applicable licensee of its commitments hereunder.This Agreement
represents the entire agreement between the parties pertaining to the
subject matter hereof. There are no warranties, representations or other
agreements in connection with the subject matter hereof except as set forth
or referred to herein. The Agreement contained herein shall bind and inure
to the benefit of the successors, assigns, personal representatives, heirs
and legatees of the respective parties. The Agreement contained herein may
be amended or modified only by the written agreement of each of us. The
Parties agree that this document has been executed and delivered in the
State of California
If the terms and provisions of this Agreement are acceptable to you, please
indicate your acceptance and approval by signing, or by causing to be signed on
your behalf, the enclosed copy of this Agreement and returning it to the
undersigned. This Agreement may be executed in counterparts (including by
facsimile), all of which, when taken together, shall constitute one original.
Very truly yours,
BRILLIANT DIGITAL ENTERTAINMENT, INC.,
a Delaware corporation
By: /S/ XXXX XXXX
----------------------------------
Chief Executive Officer
Date: 2/28/00
ACCEPTED:
ENEWMEDIA,Company
a ________________________
By: /S/ XXXXXX XXXXXX
-----------------------------------
Name: XXXXXX XXXXXX
Its: BUSINESS DEVELOPMENT DIRECTOR
Date: 2/28/00
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EXHIBIT A
DESCRIPTION OF THE CONTENT
Xena: Girls Just Wanna Have Fun
Xena: Death in Chains
Xxx Xxxxxxx: Case of the Serial Xxxxxx
Xxx Xxxxxxx: The Don is Dead
KISS: Immortals
Choose Your Own Nightmare: How I became a Freak
Choose Your Own Nightmare: The Evil Penpal
Choose Your Own Nightmare: The Curse of the Mummy
Choose Your Own Nightmare: The Bite of the Vampire
Choose Your Own Nightmare: Halloween Party
Choose Your Own Nightmare: Night of the Werewolf
Gravity Angels: Part 1 Alien Discovery
Gravity Angels: Part 2 The Betrayal
Gravity Angels: Part 3 Payback
Gravity Angels: Part 4 Death Force
(All licensed titles are subject to Licensor approval
