December 31, 1996
Xxxx X. Xxxxxxx
c/o East-West Capital Associates
00000 Xxxxxxxx Xxxxxxxxx,
Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Dear Xx. Xxxxxxx:
This letter agreement is entered into by and among Faroudja, Inc., a
Delaware corporation ("FI"), Faroudja Laboratories, Inc., a California
corporation and wholly-owned subsidiary of FI ("FLI") and you to confirm your
prior agreement and our understanding that Xxxx X. Xxxxxxx will serve FI and
its subsidiary, FLI, as a consultant in the matter of the analysis and
implementation of potential strategic alliances ("Proposed Strategic
Alliances") in the specific field of television signal enhancement for
television, cable TV, satellite TV and digital video disks ("Signal
Enhancement") and that Xx. Xxxxxxx shall not provide consulting services in
the field of Signal Enhancement to any other entity or person, except for Xx.
Xxxxxxx'x activities on behalf of Time Warner or its subsidiaries or
controlled affiliates.
Accordingly, the parties agree as follows:
1. SERVICES PROVIDED. Xx. Xxxxxxx will provide such reasonable
assistance (at no cost to Xx. Xxxxxxx) and advice as FLI may reasonably
request, specifically limited to the following (some of which may have been
previously performed during the period from February 9, 1996 to December 31,
1996):
(a) providing to FLI a list of possible corporate investors,
partners, customers, buyers, lenders and joint venturers for FLI's review and
reasonable approval (each, a "Proposed Strategic Alliance Partner");
(b) revising an executive summary regarding FLI's business (based on
detailed information supplied by FLI to Xx. Xxxxxxx) to be provided to
Proposed Strategic Alliance Partners;
(c) coordinating and making approaches to Proposed Strategic
Alliance Partners, after due consultation with FLI as to the prioritization
of approaching Proposed Strategic Alliance Partners; and
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(d) assisting (at no cost to Xx. Xxxxxxx) in the negotiation of the
principal terms of the Proposed Strategic Alliance and preparation of all
contracts, documents, approvals and related matters necessary to consummate a
Proposed Strategic Alliance with a Proposed Strategic Alliance Partner.
2. COMPENSATION. If FLI consummates a Proposed Strategic Alliance (or a
combination of Proposed Strategic Alliances), during the Term of this
agreement, as a result of which FLI receives Consideration (as defined below)
(in the aggregate) of at least $5,000,000, FI shall immediately grant to
Xxxxxxx Investors, LLC an additional warrant to purchase from FI at $.15 per
share, 65,152 shares of Common Stock of FI, which warrant shall be in the
form of Exhibit A attached hereto.
For purposes of this section, the term "Consideration" shall mean:
(a) in relation to any product-specific transaction (or combination
of transactions), the total of (i) all up-front license payments, PLUS (ii)
all payments by the Proposed Strategic Alliance Partner to FLI for research
and development PLUS (iii) the net present value of the estimated value of
all royalty payments in the seven-year period starting on the date of the
launch of each product, using 10% as the discount rate and using FLI's own
reasonable sales forecast for each product to estimate the annual royalties
payable; or
(b) in relation to an equity or debt investment (or series of such
investments) in FLI, the total cash paid by the Proposed Strategic Alliance
Partner(s), PLUS the fair market value of any equity or debt securities or
other consideration transferred by the Proposed Strategic Alliance Partner(s)
to FLI, PLUS any long-term debt or other obligations of FLI explicitly
assumed or refinanced by the approved Strategic Alliance Partner(s) in
connection with the Proposed Strategic Alliance; or
(c) in relation to both an equity or debt investment in FLI and a
product-specific transaction, the sum of the amounts calculated pursuant to
paragraphs (a) and (b) above; or
(d) the relationship with the Proposed Strategic Alliance Partner(s)
is expected, in the sole determination of the board of directors of FLI, to
result in FLI or a subsidiary or affiliate or parent of FLI receiving at
least $5,000,000 of revenues (or other consideration or value) attributable
to the relationship with the Proposed Strategic Alliance Partner(s).
3. ELECTION OF DIRECTORS. During the term of this agreement, FI shall
use its best efforts to cause Xx. Xxxxxxx (or a designee of Xx. Xxxxxxx who
is reasonably acceptable to the board of directors of FI) (the "First
Director"), and, in addition to the First Director, a designee of Xx. Xxxxxxx
who is reasonably acceptable to the board of directors of FI, to be elected
to the board of directors of FI, and, if so elected, the First Director and
the designee shall serve, at their discretion, on the board of directors of
FI.
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4. CERTAIN ADDITIONAL MATTERS. Notwithstanding anything to the contrary
in this agreement, FLI shall have no obligation to consummate any Proposed
Strategic Alliance, and FLI and FI shall have no liability or obligation to
Xx. Xxxxxxx or Xxxxxxx Investors, LLC for any failure by FLI to consummate
any Proposed Strategic Alliance for any reason. In addition, nothing in this
agreement, shall be deemed to authorize Xx. Xxxxxxx to commit or bind FLI to
enter into any Proposed Strategic Alliance or otherwise to act as FLI's agent
or representative.
5. TERM. Xx. Xxxxxxx shall serve as consultant for FI and its
subsidiary, FLI, until February 9, 1999 (the "Term").
6. INDEMNIFICATION. FLI agrees to indemnify and hold harmless Xx.
Xxxxxxx against and from any and all losses, claims, damages, liabilities and
expenses (including reasonable attorneys' fees and disbursements and other
expenses incurred by Xx. Xxxxxxx in connection with the preparation for, or
defense of, any claim, action or proceeding, whether or not resulting in any
liability) to which Xx. Xxxxxxx may become liable arising out of Xx.
Xxxxxxx'x acting for FLI pursuant to this agreement; provided, that, FLI
shall not be liable hereunder to the extent any loss, claim, damage,
liability or expense is found to have resulted from Xx. Xxxxxxx'x gross
negligence, bad faith or material breach of this agreement.
The provisions of this section 6 shall remain operative and in full force
and effect regardless of any termination of this agreement.
7. MISCELLANEOUS
7.1 GOVERNING LAW. This agreement shall be governed by and
construed in accordance with the law of the State of California applicable to
agreements made and to be performed wholly in California.
7.2 ARBITRATION. Any dispute arising under or in connection with
this agreement shall be resolved by binding arbitration in Los Angeles,
California in accordance with the rules and procedures of the American
Arbitration Association by a single neutral arbitrator appointed by the
American Arbitration Association or its president. Judgement upon the
arbitrator's award may be entered in any court having jurisdiction. Each
party shall bear its or his own costs of any arbitration or litigation,
including, without limitation, attorneys' fees and expenses, and the costs of
the arbitration itself and of the arbitrator shall be borne equally by each
party, in each case unless determined otherwise by the arbitrator.
7.3 ENTIRE AGREEMENT; AMENDMENT. This agreement contains a complete
statement of all the arrangements between the parties with respect to its
subject matter, supersedes all existing agreements between them with respect
to that subject matter, and may not be changed or terminated orally. Any
amendment or modification must be in writing and signed by the party to be
charged.
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If you are in agreement with the foregoing, please sign in the space
provided below, and the foregoing shall then become a binding agreement among
us.
Very truly yours,
FAROUDJA, INC.
By:/s/ Xxxxxxx Xxxxx
-------------------------------------
Xxxxxxx Xxxxx,
President and CEO
FAROUDJA LABORATORIES, INC.
By:/s/ Xxxxxxx Xxxxx
-------------------------------------
Xxxxxxx Xxxxx,
President and CEO
Agreed and Accepted:
/s/ Xxxx Xxxxxxx
-------------------------------------
Xxxx Xxxxxxx
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