<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 000-22023
MACROVISION CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 77-0156161
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1341 Orleans Drive
Sunnyvale, California 94089
(Address of principal executive offices) (Zip code)
(408) 743-8600
(Registrant's telephone number including area code)
Not applicable
(Former name, former address, and former fiscal year, if changed since last
report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
------ -----
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APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the registrant has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.
Yes ____ No ____
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title Outstanding as of April 30, 1998
Common Stock 7,274,640
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
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MACROVISION CORPORATION
FORM 10-QSB
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
as of March 31, 1998 (unaudited) and December 31, 1997........... 4
Condensed Consolidated Statements of Income (unaudited)
for the Three Months Ended March 31, 1998 and 1997............... 5
Condensed Consolidated Statements of Cash Flows (unaudited)
for the Three Months Ended March 31, 1998 and 1997............... 6
Notes to Condensed Consolidated Financial Statements................ 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................. 12
Item 2-3 Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders................ 12
Item 5. Other Information ................................................. 12
Item 6. Exhibits and Reports on Form 8-K .................................. 13
Signatures................................................................... 13
3
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MACROVISION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- ------------
<S> <C> <C>
ASSETS (Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 2,784 $ 1,314
Short-term investments 8,823 11,241
Accounts receivable, less allowance for doubtful
accounts of $681 and $684 4,118 5,240
Inventories 545 433
Deferred tax assets 1,418 1,336
Prepaid expenses and other assets 717 709
---------- -----------
Total current assets 18,405 20,273
Property and equipment, net 1,614 1,722
Patents and other intangibles, net 1,132 1,098
Long-term marketable investment securities 751 1,763
Other assets 8,534 4,000
---------- ----------
$ 30,436 $ 28,856
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 888 $ 919
Accrued expenses 1,740 2,190
Deferred revenue 1,705 944
Income taxes payable 899 846
Current portion of capital lease 109 108
---------- ----------
Total current liabilities 5,341 5,007
---------- ----------
Capital lease liability 160 188
Deferred tax liabilities 72 84
---------- ----------
TOTAL LIABILITIES 5,573 5,279
Stockholders' equity:
Common stock 7 7
Additional paid-in capital 23,534 23,277
Stockholders note receivable (131) (131)
Deferred stock compensation (61) (96)
Accumulated other comprehensive income (214) (214)
Retained earnings 1,728 734
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 24,863 23,577
---------- ----------
$ 30,436 $ 28,856
---------- ----------
---------- ----------
</TABLE>
See the accompanying notes to these condensed consolidated financial statements.
4
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MACROVISION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
1998 1997
--------- ----------
<S> <C> <C>
Net revenues $ 5,178 $ 4,564
Costs and expenses:
Cost of revenues 398 681
Research and development 623 557
Selling and marketing 1,526 1,548
General and administrative 1,159 879
--------- --------
Total costs and expenses 3,706 3,665
--------- --------
Operating income 1,472 899
Interest and other income, net 131 24
--------- --------
Income before income taxes 1,603 923
Provision for income taxes 609 369
--------- --------
Net income $ 994 $ 554
--------- --------
--------- --------
Computation of basic and diluted earnings per share:
Net income $ 994 $ 554
Preferred stock dividends - (156)
--------- --------
Earnings applicable to common stock $ 994 $ 398
--------- --------
--------- --------
Basic earnings per share $ 0.14 $ 0.09
--------- --------
--------- --------
Shares used in computing basic earnings per share 7,244 4,490
--------- --------
--------- --------
Diluted earnings per share $ 0.13 $ 0.08
--------- --------
--------- --------
Shares used in computing diluted earnings per share 7,735 4,903
--------- --------
--------- --------
</TABLE>
See the accompanying notes to these condensed consolidated financial statements.
5
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MACROVISION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Unaudited
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
------- --------
<S> <C> <C>
Cash flows from operating activities
Net income $ 994 $ 554
Adjustments to reconcile net income to net cash provided
by continuing operations:
Depreciation and amortization 266 252
Deferred income taxes (94) (380)
Amortization of deferred stock compensation 35 36
Change in provision for accounts and notes receivable (3) 154
Change in operating assets and liabilities:
Accounts receivable, inventories, and other current assets 1,005 (690)
Accounts payable, accrued expenses, deferred revenue and other
current liabilities 333 1,136
Other 12 (55)
------- --------
Net cash provided by operating activities 2,548 1,007
------- --------
Cash flows from investing activities:
Purchases of short-term investments (3,197) (9,766)
Sales or maturity of long-term investment securities 1,013 -
Sales or maturity of short-term investments 5,619 -
Acquisition of property and equipment (86) (165)
Payments for patents and other intangibles (123) (31)
Investment in C-Dilla Limited (3,553) -
Prepaid future royalties to C-Dilla Limited (1,015) -
Other, net 34 (108)
------- --------
Net cash (used in) provided by investing activities (1,308) (10,070)
------- --------
Cash flows from financing activities:
Payments on capital lease obligations (27) (27)
Proceeds from issuance of common stock, net 257 11,064
Cash dividends - (156)
------- --------
Net cash provided by financing activities 230 10,881
------- --------
Net increase in cash and cash equivalents 1,470 1,818
Cash and cash equivalents at beginning of period 1,314 2,409
------- --------
Cash and cash equivalents at end of period $ 2,784 $ 4,227
------- --------
------- --------
</TABLE>
See the accompanying notes to these condensed
consolidated financial statements.
6
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MACROVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared by Macrovision Corporation (the "Company") in accordance with
the rules and regulations of the Securities and Exchange Commission ("SEC").
Certain information and footnote disclosure, normally included in financial
statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted in accordance with such rules and
regulations. In the opinion of management, the accompanying unaudited
condensed consolidated financial statements reflect all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly
the financial position of the Company, and its results of operations and cash
flows for those periods presented. This quarterly report on Form 10-QSB
should be read in conjunction with the audited financial statements and notes
thereto for the year ended December 31, 1997 included in the Company's Annual
Report on Form 10-KSB filed on March 30, 1998.
The results of operations for the interim periods presented are not
necessarily indicative of the results expected for the entire year ending
December 31, 1998 or any other future interim period, and the Company makes
no representations related thereto.
NOTE 2 - CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less at date of acquisition to be cash
equivalents.
Investments held by the Company are classified as "available-for-sale" and
are carried at fair value based on quoted market prices, with unrealized
gains and losses, if material, reported in stockholders' equity. Such
investments consisting of U.S. government or agency issues with an original
maturity beyond 3 months and less than 12 months are classified as short-term
investments. All marketable securities with a maturity over one year are
classified as marketable long-term investment securities.
<TABLE>
<CAPTION>
Gross
(In thousands) Amortized Unrealized Fair
Cost Gain Value
--------- ---------- ------
<S> <C> <C> <C>
Government bonds $5,765 $9 $5,774
Auction rate preferred stock certificates 3,800 - 3,800
------ -- ------
$9,565 $9 $9,574
------ -- ------
------ -- ------
</TABLE>
7
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NOTE 3 - INVENTORIES
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market and consisted of the following:
<TABLE>
<CAPTION>
(In thousands) March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
Raw materials $216 $203
Work-in-process 161 -
Finished goods 168 230
---- ----
$545 $433
---- ----
---- ----
</TABLE>
NOTE 4 - NET INCOME PER SHARE
In 1997, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, EARNINGS PER SHARE ("EPS"). In accordance with SFAS No.
128, basic EPS is computed using the weighted average number of common shares
outstanding during the period. Diluted EPS is computed using the weighted
average number of common and dilutive common equivalent shares outstanding
during the period. Dilutive common equivalent shares consist of common stock
issuable upon exercise of stock options using the treasury stock method.
Common equivalent shares from preferred stock have been excluded from the
computation of diluted EPS because the effect of the inclusion would be
antidilutive. The following is a reconciliation of the shares used in the
computation of basic and diluted EPS (in thousands):
<TABLE>
<CAPTION>
March 31, March 31,
(in thousands) 1998 1997
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Basic EPS - weighted average number of common shares outstanding 7,244 4,490
Effect of dilutive common equivalent shares - stock options outstanding 491 413
----- -----
Diluted EPS - weighted average number of common shares and common
equivalent shares outstanding 7,735 4,903
----- -----
----- -----
</TABLE>
NOTE 5 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes
standards of reporting and display of comprehensive income and its components
of net income and "other comprehensive income" in a full set of general
purpose financial statements. "Other comprehensive income" refers to
revenues, expenses, gains and losses that are not included in net income but
rather are recorded directly in shareholders' equity. SFAS No. 130 is
effective for annual and interim periods beginning after December 15, 1997
and for periods ended before that date when presented for comparative
purposes. The Company has not yet determined the format it will use to
display the information required by SFAS No. 130 in the financial statements
for the year ending December 31, 1998. Total comprehensive income was
$994,000 and $496,000 for the three months ended March 31, 1998 and 1997,
respectively. The primary components of other comprehensive income include
unrealized gains and losses resulting from the translation of the Company's
foreign subsidiaries which have a local functional currency and unrealized
holding gains and losses related to the Company's available-for-sale
investments.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards of
reporting information about operating segments in
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annual financial statements by public business enterprises and requires such
enterprises to report selected information about operating segments in
interim financial reports. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997, and for periods ended before that date
when presented for comparative purposes. The required interim disclosures
are not required to be made in the initial year of application but the
information for the interim periods for the initial year is required as
comparative information in the second year of application. As such, the
Company intends to display the information required by SFAS No. 131 in the
interim and annual financial statements for the year ending December 31, 1999.
NOTE 6 - OTHER ASSETS
In February 1998, Macrovision acquired 247,500 shares (approximately 19.8%)
of the common stock of C-Dilla, Ltd. ("C-Dilla"), a UK company for a purchase
price of $3,553,000. In February 1998, the Company also entered into a
Software Marketing License and Development Agreement under which it has
obtained, for an initial five-year term, the world-wide exclusive license to
market, in the consumer multimedia software market, C-Dilla's proprietary
copy protection technology for CD-ROM and internet-delivered software
products. The Company paid $1,015,000 in up-front license fees subject to
offset against future royalties and will pay royalty payments to C-Dilla of
between 30% to 45% of revenues from sales of software products incorporating
C-Dilla's technology. No revenue has been recorded under this arrangement.
The Company intends to hold the its investments for the long-term and
monitors the recoverability of these investments based on management's
estimates of the fair value based on the achievements of milestones in
business plans and third-party financing. The Company records its investments
using the cost basis and is classified in other assets in the accompanying
condensed consolidated balance sheets as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
Investment in CAC $2,337 $2,337
Investment in Digimarc 1,500 1,500
Investment in C-Dilla 3,553 --
Prepayment of royalties to C-Dilla 1,015 --
Deposits and other assets 129 163
------ ------
$8,534 $4,000
------ ------
------ ------
</TABLE>
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
THE FOLLOWING DISCUSSION IN THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED,
AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
PREDICTIONS OF FUTURE EVENTS ARE INHERENTLY UNCERTAIN. ACTUAL EVENTS COULD
DIFFER MATERIALLY FROM THOSE PREDICTED IN THE FORWARD LOOKING STATEMENTS AS A
RESULT OF THE RISKS SET FORTH IN THIS FORM 10-QSB AND IN THE RISK FACTORS
SECTION OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ON MARCH 30, 1998. THERE ARE NO
ASSURANCES THAT THE COMPANY HAS IDENTIFIED ALL POSSIBLE PROBLEMS WHICH THE
COMPANY MIGHT FACE. ALL INVESTORS SHOULD CAREFULLY READ THE COMPANY'S ANNUAL
REPORT ON FORM 10-KSB, TOGETHER WITH THIS FORM 10-QSB, AND CONSIDER ALL SUCH
RISKS BEFORE MAKING AN INVESTMENT DECISION WITH RESPECT TO THE COMPANY'S
STOCK.
OVERVIEW
The Company was founded in 1983 to develop video security solutions for major
motion picture studios and independent video producers. Since that time, the
Company has derived most of its revenues and operating income from licensing
its video copy protection technologies. The revenues of the Company
primarily consist of licensing fees for videocassette and DVD copy
protection, licensing of digital Pay-Per-View copy protection, and licensing
and selling products incorporating its PhaseKrypt video scrambling technology
to cable television system operators, law enforcement agencies, television
broadcasters and private analog satellite networks.
RESULTS OF OPERATIONS
The following table provides revenue information by general product lines for
the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
March 31, March 31,
1998 % 1997 % % Change
--------- ----- --------- ----- --------
<S> <C> <C> <C> <C> <C>
Copy Protection Group $4,403 85.0 $3,555 77.9 23.8%
Video Scrambling Group 775 15.0 971 21.3 (20.2)%
Other -- -- 38 .8 --
------ ----- ------ -----
Total $5,178 100.0 $4,564 100.0 13.4%
------ ----- ------ -----
------ ----- ------ -----
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
NET REVENUES
Consolidated net revenues for the first quarter of 1998 increased 13% to
$5.2 million from $4.6 million in the first quarter of 1997. Revenues in the
Copy Protection group increased 24% to $4.4 million from $3.6 million due to
the higher volumes of videocassettes from studio business and increases in
DVD replication as compared to the first quarter of 1997. The DVD licensing
fees from DIVX and PC subassembly manufacturers also contributed to the
increased revenue in the first quarter of 1998 over the first quarter of 1997
when the Company recorded its first DVD license fee. Revenues in the Video
Scrambling group decreased 20% to $775,000 from $971,000. This was due to
the decreased demand for VES products from various government law enforcement
agencies and decreases for the analog decoding equipment primarily due to the
Southeast Asian financial situation which has delayed expected cable TV
system upgrades and, consequently, the ability of the Company's licensees' to
sell addressable set-top converters which include the Company's PhaseKrypt TM
scrambling technology.
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GROSS MARGIN
Gross margin for the first quarter of 1998 was 92% compared to 85% for the
first quarter of 1997. The Company's gross margin is influenced by the sales
mix which in the first quarter of 1998 benefited from increased license fees
and higher margin home video royalties versus lower margin product sales.
Costs of revenues include items such as product costs, duplicator fees and
patent amortization.
RESEARCH AND DEVELOPMENT
Research and Development expenses increased by $66,000 or 12% in the first
quarter of 1998 compared to the first quarter of 1997 primarily due to higher
compensation and benefit expenses from additional personnel and higher
depreciation from equipment purchased in the second half of 1997.
SELLING & MARKETING
Selling and marketing expenses decreased by $22,000 or 1% in the first
quarter of 1998 compared to the first quarter of 1997 primarily due to
reduced consulting fees offset by higher compensation and benefit expenses
from additional personnel.
GENERAL & ADMINISTRATIVE
General and administrative expenses increased by $280,000 or 32% in the first
quarter of 1998 compared to the first quarter of 1997 due to increased legal,
consulting fees, and accounting expenses relating to the evaluation of
investment opportunities and higher compensation and benefit expenses
associated with increased personnel.
INTEREST AND OTHER EXPENSE
Other income during the first quarter of 1998 benefited from interest income
earned on the invested proceeds from the Company's initial public offering
("IPO") in March 1997.
PROVISION FOR INCOME TAXES
Income tax expense represents combined federal and state taxes at an
effective rate of 38% and 40% for the three months ended March 31, 1998 and
1997, respectively. The higher rate for 1997 was due to higher foreign taxes
related to income in the quarter.
NET INCOME
Net income for the first quarter of 1998 was $994,000 compared to $554,000 in
the first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily from cash generated by
operations, principally by its copy protection business. The Company's
operating activities provided net cash of $2,548,000 and $1,007,000 for the
three months ending March 31, 1998 and 1997, respectively. For the first
three months of 1998, net cash was provided primarily by net income, a
reduction in receivables and an increase in deferred revenue offset slightly
by a reduction in accrued expenses. For the respective period of 1997, net
cash was provided primarily by net income, an increase in deferred revenue
and income taxes payable, offset slightly by an increase in receivables and
prepaids.
The Company made capital expenditures of $86,000 and $165,000 in the first
three months ending March 31, 1998 and 1997, respectively. The Company also
paid $123,000 and $31,000 in the three months ended March 31, 1998 and 1997,
respectively, for costs associated with obtaining patents and other
intangibles. The net proceeds from the IPO in March 1997, have been used to
invest in CAC, Digimarc and C-Dilla
11
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with the remainder being invested in various cash equivalents, short term
securities and long-term marketable investment securities.
During the three months ended March 31, 1998, the Company invested
approximately $3,553,000 in C-Dilla to acquire approximately 19.8% equity
ownership interest. The Company intends to hold this investment for the
long-term. The Company also paid approximately $1,015,000 for up-front
license fees subject to offset against future royalties under a Software
Marketing License and Development Agreement under which it has obtained, for
an initial five-year term, the world-wide exclusive license to market, in the
consumer multimedia software market, C-Dilla's proprietary copy protection
technology for CD-ROM and internet-delivered software products. The Company
accounts for the investment in C-Dilla using the cost basis.
The Company believes that the remaining net proceeds of its initial public
offering, together with available funds and cash flows generated from
operations will be sufficient to meet its working capital and capital
expenditure requirements through 1998. The Company may also utilize cash to
acquire or invest in complementary businesses or to obtain the right to use
complementary technologies.
The Company paid interest of $5,000 and $2,000 in the three months ended
March 31, 1998 and 1997, respectively. The interest expense relates
primarily to a capital lease agreement. The Company paid $581,000 and
$273,000 in taxes for the three months ended March 31, 1998 and 1997,
respectively.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In October 1995, Joseph Swyt, a former officer and director of the Company,
filed suit against the Company in the Superior Court of the State of
California alleging monetary damages suffered as a result of alleged fraud,
misrepresentation and other malfeasance in connection with the Company's
grant of stock options to him. Mr. Swyt maintains that the Company induced
him to accept employment by falsely representing to him that the options
granted to him eventually would have substantial value. Between August 1990
and December 1993, the Company granted to him options to purchase
approximately 200,000 shares of the Company's common stock with per share
exercise prices of $2.25 or $2.70. Substantially all of these options
expired unexercised within three months following his departure from the
Company in June 1995. In December 1996, the court ordered this matter to
binding arbitration in accordance with a written agreement between him and
the Company. The arbitration agreement contains limitations on the types of
damages available to him and expressly precludes punitive damages. Mr. Swyt
filed his claim in arbitration for this matter with the American Arbitration
Association in June 1997 and the arbitration is proceeding. The Company
believes that the case is without merit and intends to contest it vigorously.
In the opinion of counsel, it is not possible presently to determine with
precision the probable outcome or the amount of liability, if any, under this
lawsuit.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fiscal quarter ended March 31, 1998, no matters were submitted to
a vote of security holders.
ITEM 5 - OTHER INFORMATION.
On February 17, 1998, Macrovision acquired 247,500 shares (approximately a
19.8% ownership interest) of the common stock of C-Dilla Ltd. ("C-Dilla"), a
UK company for a purchase price of $3,553,000. On February 17, 1998, the
Company also entered into a Software Marketing Licence and Development
Agreement, (the Agreement) under which it has obtained, for an initial
five-year term, the world-wide exclusive license to market, in the consumer
multimedia software market, C-Dilla's proprietary copy protection technology
for CD-ROM and internet-delivered software products. The Company paid
$1,015,000 in up-front license fees subject to offset against future
royalties and will pay royalty payments to C-Dilla of between 30% to 45% of
revenues from sales of software products incorporating C-Dilla's
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technology. In the event that the Company fails to reach minimum royalty
levels of $2,000,000 in year three of the Agreement, $5,000,000 in year four,
and $10,000,000 in year five, the license becomes a non-exclusive license for
the term of the Agreement. Additionally, in connection with C-Dilla's
granting of licenses for certain of its products outside of the markets for
which the Company has been granted rights under the Agreement, C-Dilla will
pay to the Company royalties of between 7.5% to 30% of revenues from such
licenses. The Company has the option to extend the initial term of the
Agreement for an additional five year period upon payment of an option fee of
$1,000,000 and an additional license fee of $5,000,000 which fee may be paid
through future increased royalty payments.
Under the terms of the Agreement, the Company also agreed to develop jointly
with C-Dilla certain other proprietary copy protection technologies for
CD-ROM, DVD-ROM and other digital delivery methods.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.1 - Subscription Agreement between Macrovision
Corporation and C-Dilla Limited dated February 17,
1998. **
10.2 - Software Marketing Licence and Development
Agreement between Macrovision Corporation and
C-Dilla Limited dated February 19, 1998. **
27.1 - 1998 Financial Data Schedule.
27.2 - 1997 Financial Data Schedule.
** Confidential treatment has been requested with respect to
certain portions of these Exhibits. Such portions have been omitted
from this filing and have been filed separately with the Securities
and Exchange Commission.
(b) Reports on Form 8-K.
During the quarter ended March 31,1998, the Company filed one report
on Form 8-K relating to the agreements with C-Dilla Limited.
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, thereunto duly authorized.
Macrovision Corporation
Date: May 15, 1998 By: /S/ William A. Krepick
------------ ---------------------------------
William A. Krepick, President
and Chief Operating Officer
Date: May 15, 1998 By: /S/ Victor A. Viegas
------------ ---------------------------------
Victor A. Viegas, Vice President,
Finance and Administration and
Chief Financial Officer
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EXHIBIT 10.1
CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE PORTIONS OF THIS AGREEMENT
MARKED [*]. THE OMITTED PORTIONS OF THIS AGREEMENT HAVE BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
Effective as at 17th February 1998
----------------------------------
[*]
(2) MACROVISION CORPORATION
(3) C-DILLA LIMITED
------------------------------------------
SUBSCRIPTION AGREEMENT
relating to C-DILLA LIMITED
------------------------------------------
<PAGE>
INDEX
1. Definitions and Interpretations
2. Conditions Precedent
3. Subscription
4. Completion
5. Shareholders Agreement
6. [*]
7. Warranties, Representations and Undertakings
8. Warranty Limitations
9. [Not used]
10. Authorisation
11. Restrictive Covenant
12. Notices
13. Performance of this Agreement
14. Announcements
15. Costs
16. Whole Agreement
17. Successors
18. Proper Law
19. Severability
20. No Partnership
21. Waiver and Forbearance
22. Further Assurance
23. Joint and Several Obligations
24. Exchange Rate
25. Relationship of Parties
26. Confidentiality
SCHEDULE 1 - Short Details of Company
SCHEDULE 2 - The Warranties
SCHEDULE 3 - Properties
SCHEDULE 4- Charges
AGREED FORM DOCUMENTS
A - [Not used]
B - Articles of Association
C - Licence to Occupy
D - Financial Projections
E - Management Accounts
F - Directors' Questionnaires
G - Resolutions
H - Letter of amendment to the Service Agreement
I - Software Marketing Licence and Development Agreement
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SUBSCRIPTION AGREEMENT
Effective as at 17th February 1998
PARTIES:
(1) [*]
(2) MACROVISION CORPORATION whose registered office is at 1341 Orleans Drive
Sunnyvale CA 94089 ("Macrovision"); and
(3) C-DILLA LIMITED (Company number 2683202) whose registered office is at
Woodley House Crockhamwell Road Woodley Reading Berkshire RG5 3JP ("the
Company").
RECITALS:
(A) The Company (particulars whereof are set out in Schedule 1) is a private
company incorporated in England on 31st January 1992 under the Companies
Act 1985.
(B) The Investors hold the number of Shares in the capital of the Company set
out opposite their names in Schedule 1 being all of the Shares in the
capital of the Company in issue at the date of this Agreement.
(C) At the request of the Founder, Macrovision has agreed to subscribe for new
Shares in the Company upon the terms and conditions and in reliance of the
Warranties hereinafter appearing.
(D) In consideration of the above subscription the Investors and the Company
have agreed to amend the Shareholders Agreement (as defined below) on the
terms and conditions in this Agreement.
OPERATIVE PART:
1. DEFINITIONS AND INTERPRETATIONS
In this Agreement, unless the context otherwise requires:
1.1 the following expressions shall have the following meanings:
""A" Ordinary Shares ""A" Ordinary Shares of 10 pence each in the
capital of the Company having the rights set
out in the Articles
"Accounts" the audited profit and loss account of the
Company for the period ended on the Balance
Sheet Date and the audited balance sheet of
the Company as at the Balance Sheet Date
together with the notes and the report of the
Directors and Auditors, being in the Agreed
Form
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"Agreed Form" in the form (or in the form of the draft)
which has for the purpose of identification
been initialled by or on behalf of the
Founder, Macrovision and the Company
"Articles" the new Articles of Association in the Agreed
Form marked "B" to be adopted by the Company
"Auditors" [*]
""B" Ordinary Shares" "B" Ordinary Shares of 10 pence each in the
capital of the Company having the rights set
out in the Articles
"Balance Sheet Date" 31st December 1996
"Board" the Board of Directors of the Company (or
when the context requires any other Group
Company from time to time)
"Business" [*]
"Business Plan" the business plan to be prepared by the
Founder and approved by the Board in
accordance with Clauses 7.10 and 7.11 of this
Agreement
"Claim" a claim for breach of any of the Warranties
""C" Ordinary Shares" "C" Ordinary Shares of 10 pence each in the
capital of the Company having the rights set
out in the Articles
"Companies Act" the Companies Acts 1985 and 1989
"Company's Solicitors" Nabarro Nathanson of The Anchorage 34 Bridge
Street Reading RG1 2LU
"Completion" completion of the matters referred to in
Clause 4
"Completion Date" 19 February 1998
""D" Ordinary Shares" "D" Ordinary Shares of 10 pence each in the
capital of the Company having the rights set
out in the Articles
"Directors" all those individuals identified as directors
of the Company in Schedule 1 being all the
directors of the Company at the date of this
Agreement and each other member of the Board
from time to time
"Directors' Questionnaires" the questionnaires in relation to the
Directors in the agreed form marked "F"
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"Disclosure Letter" the letter of the same date as this Agreement
addressed to Macrovision by the Founder and
the Company
""E" Ordinary Shares" "E" Ordinary Shares of 10 pence each in the
capital of the Company having the rights set
out in the Articles
"Emoluments" in relation to a person:-
(a) sums paid by way of fees, salary, bonus,
commission, pension contributions and
benefits in kind; and
(b) all items of value received by any
person (or by his spouse or by another
on his behalf or for his benefit) from
any Group Company
"Employees" all the present employees of the Company
""F" Ordinary Shares" "F" Ordinary Shares of 10 pence each in the
capital of the Company having the rights set
out in the Articles
"Financial Projections" the financial projections for the Company
prepared by the Founder in the Agreed Form
marked "D"
"Founder" Peter Alfred Newman
"Group" the Company and any Holding Company of the
Company and each Subsidiary of the Company
and such Holding Company from time to time
"Group Company" each company in the Group
"Holding Company" a holding company as that expression is
defined in Section 736 Companies Act 1985
"Intellectual Property Rights" any or all of the following (whether written
or unwritten) and all rights in, arising out
of, or associated therewith anywhere in the
world: (i) all United Kingdom, international
and foreign patents and applications therefor
and all reissues, renewals and extensions
thereof; (ii) all inventions (whether
patentable or not), invention disclosures,
discoveries, secret process, improvements,
trade secrets, proprietary information, know
how, technology, technical data and customer
lists, and all documentation relating to any
of the foregoing; (iii) all copyrights,
copyright registrations and applications
therefor; (iv) all industrial designs and
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registrations and applications therefor
throughout the world; (v) all trade names,
logos, trademarks and service marks;
trademark and service mark registrations and
applications therefor and all goodwill
associated therewith throughout the world;
(vi) all databases and data collections and
all rights therein throughout the world; and
(vii) all computer software including all
source code, object code, firmware,
development tools, files, records and data,
specifications, all media on which any of the
foregoing is recorded, (viii) any similar,
corresponding or equivalent rights to any of
the foregoing and (ix) all manuals,
instructions, catalogues and other
documentation related to any of the foregoing
"Licence to Occupy" [*]
"Listing" the admission to listing on the Official List
of the London Stock Exchange, or the grant of
permission to trade the whole or any class of
the issued shares capital of the Company on
the Alternative Investment Market or other
recognised investment exchange (as defined by
section 207 of the Financial Services Act
1986)
"Macrovision Director" any Director appointed to the Board by
Macrovision from time to time pursuant to
Clause 5.5
"Macrovision's Solicitors" Pitmans of 47 Castle Street, Reading RG1 7SR
"Management Accounts" (a) the draft unaudited profit and loss
account of the Company for the period
ended on 31 December 1997 and
(b) the draft unaudited Balance Sheet of the
Company as at 31 December 1997 in the
Agreed Form marked "E"
"Management Accounts Date" 31 December 1997
"Ordinary Shares" Ordinary Shares of 10 pence each of whatever
class in the capital of the Company having
the rights set out in the Articles
"Preference Shares" redeemable preference shares of L1 each in
the capital of the Company having the rights
set out in the Articles
"Properties" the properties short particulars of which are
set out in Schedule 3
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"Proprietary Information" shall include but not be limited to the
parties' ideas, concepts, development plans
for new or improved products or processes,
data, formulae, techniques, designs,
sketches, know-how, photographs, plans,
drawings, specifications, samples, test
specimens, reports, customer lists, price
lists, findings, studies or inventions
relating to tools, equipment and products.
"Resolutions" the Ordinary and/or Special Resolutions of
the Company in the Agreed Form marked "G"
"Service Agreement" the service agreement between (1) the Founder
and (2) the Company dated 2 October 1996
"Shares" all the shares of the Company of whatever
class from time to time in issue
"Shareholders" the holders of the Shares from time to time
"Shareholders Agreement" the agreement dated 2 October 1996 between
the Investors, [*] and the Company;
"Software Marketing Licence
and Development Agreement" the licence to be granted by the Company to
Macrovision in the Agreed Form marked "I"
"Subsidiary" a subsidiary company as defined in Section
736 of the Companies Act
"Sunnyvale" Macrovision's headquarters at 1341 Orleans
Drive Sunnyvale CA
"TA" Income and Corporation Taxes Act 1988
"Taxation" all forms of taxation, duties, imposts,
levies and rates whatsoever and whenever
imposed and whether of the United Kingdom or
elsewhere and any interest, surcharge,
penalty or fine in connection with the same
"TCGA" Taxation of Chargeable Gains Act 1988
"Warranties" the warranties, representations and
undertakings set out in Schedule 2
(references to a Warranty being to any of
them);
1.2 references to a statute or statutory provision shall include any statute or
statutory provision which (whether before or after the date of this
Agreement) consolidates or replaces the same or which has been amended,
consolidated or replaced by the same
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and shall include any order, regulation, instrument or other subordinate
legislation made under the relevant statute or statutory instrument;
1.3 the term "equity share capital" shall have the meaning attributed to it in
the Companies Act;
1.4 sections 839 (connected persons) and 417 (associate) TA are to apply to
determine whether a person is connected or associated with another for the
purposes of this Agreement;
1.5 references to those of the parties that are individuals include their
respective legal personal representatives;
1.6 references to a "Business Day" are to any day from Monday to Friday
(inclusive) other than United Kingdom public bank holidays during normal
working hours;
1.7 references in this Agreement and the Schedules to the parties, Clauses and
Schedules are respectively to the parties and the Clauses of and the
Schedules to this Agreement;
1.8 the headings are included for convenience only and shall not affect the
interpretation or construction of this Agreement;
1.9 the Schedules shall for all purposes form part of this Agreement and the
expression "this Agreement" shall include the Schedules
1.10 references to the masculine gender shall include the feminine and neuter
and vice versa and references to the singular number shall include the
plural and vice versa;
1.11 references to persons shall include trustees, firms, unincorporated
associations, corporations, partnerships, states and governmental and
administrative entities;
1.12 references to "writing" or "written" include any form of visible
reproduction;
1.13 any agreement, covenant, representation, warranty or undertaking in this
Agreement on the part of two or more persons is made or given by such
persons jointly and severally;
1.14 where any warranty is qualified by the expression "so far as the Founder is
aware" or "so far as the Company is aware" or any similar expression, such
warranty shall be deemed to include an additional warranty that the Company
or Founder has made enquiry of the Directors and employees of the Company
and patent registries throughout the world and has consulted the books and
records of the Company and no further level of enquiry shall be imputed to
the Founder or the Company under such additional warranty or otherwise;
2. CONDITIONS PRECEDENT
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2.1 Completion and all obligations of Macrovision under this Agreement are
conditional upon:
(a) the passing of the Resolutions by the Company in general meeting, without
amendment, and the implementation of the Resolutions;
(b) Macrovision being satisfied with the replies to the Directors'
Questionnaires;
(c) Macrovision being satisfied as to the adequacy of the Company's insurance
arrangements;
(d) no breach of any undertaking referred to in Clause 5 and no condition,
event or act which might constitute such a breach having occurred;
(e) the delivery to Macrovision of such waivers, consents or authorities by
members of the Company or other persons as Macrovision may require
(including such waivers and class consents as may be required under the
Company's existing articles of association) in order to enable Macrovision
to be registered as the holder of the Shares for which it subscribes under
this Agreement;
(f) the due execution of a letter of amendment to the Service Agreement by the
Founder and the Company; and
(g) the delivery of the following to Macrovision's Solicitors for inspection:
(i) the Common Seal, Certificate of Incorporation, Statutory Books,
Share Certificate Books and Memorandum and Articles of
Association of the Company; and
(ii) all licences (if any) obtained by or issued to the Company or any
other person in connection with the Business or businesses
carried on by it or them; and
(iii) any contracts, deeds or other documents which Macrovision has
required prior to the date of this Agreement; and
(iv) such minutes, resolutions and other documents as Macrovision may
reasonably require in relation to the constitution of the Company
and in relation to the creation and allotment of the Shares and
the registration in the Register of Members of the Company of
Macrovision as a Member of the Company.
2.2 The Founder hereby undertakes to Macrovision that he shall procure so far
as he is able and otherwise use all reasonable endeavours to procure, the
satisfaction of each of the conditions set out in Clause 2.1.
2.3 If any of the said conditions is not satisfied in full on or before
Completion or waived by Macrovision then this Agreement shall cease to be
of effect and no party shall have any liability under it except insofar as
there is a breach by the Founder of Clause 2.2 or a breach by any party of
Clause 21.
3. SUBSCRIPTION
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Macrovision hereby applies for the allotment and issue to it or its
trustee, nominee or custodian at Completion of 247,500 "F" Ordinary Shares
(currently representing 19.8% of the equity of the Company) for an
aggregate price of TWO MILLION ONE HUNDRED AND TWENTY ONE THOUSAND TWO
HUNDRED AND TWELVE POUNDS (L2,121,212) and the Company shall allot to
Macrovision or its trustee, nominee or custodian the said Shares and the
Investors shall procure that Macrovision is registered as the holder of the
said Shares in the Register of Members of the Company
4. COMPLETION
4.1 Completion of the subscription by Macrovision shall take place on the
Completion Date at the offices of Macrovision's Solicitors (or at such
other place and time as the Investors and Macrovision may agree) when:
(a) a Board Meeting shall be duly convened for the purpose of producing Written
Resolutions of the Company in the form of the Resolutions;
(b) subject to the passing of the Resolutions, Macrovision shall deliver to the
Company, or as it may direct, the sum of L2,121,212.
(c) a Board Meeting of the Company shall be duly convened at which the
Directors shall:
(i) validly allot the Shares for which Macrovision has subscribed;
(ii) issue to Macrovision properly executed share certificates in
respect of those Shares for which Macrovision has subscribed in
the name of Macrovision or its nominee and enter the name of
Macrovision or its nominee in the Register of Members as the
registered holder of those Shares for which it has subscribed;
(iii) appoint [*] as the first Macrovision Director in accordance with
the provisions of clause 5.5 below; and
(iv) approve the execution of the letter of amendment to the Service
Agreement
(v) approve the execution of the Software Marketing Licence and
Development Agreement
(vi) approve the execution of the [*]
4.2 The Shares belonging to Macrovision and the Investors shall have attached
thereto and be subject to the rights and restrictions set out in the
Articles.
5. SHAREHOLDERS AGREEMENT
5.1 The Investors and the Company undertake to and covenant with Macrovision
with effect from the Completion Date to comply with the provisions of and
to perform their respective obligations as provided in the Shareholders
Agreement, so far as they remain to be observed and performed and from the
Completion Date, Macrovision shall become a party to the Shareholders
Agreement as if Macrovision were named in the Shareholders Agreement as an
Investor holding 247,500 F Shares.
5.2 The parties to this Agreement agree that all provisions of the Shareholders
Agreement shall remain in full force and effect subject to the amendments
set out in this clause.
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5.3 The parties to this Agreement agree that from the Completion Date the
Shareholders Agreement shall be read and construed as if the definitions
"F" Ordinary Shares" and "Macrovision Director" as set out in clause 1 were
included in clause 1.1 of the Shareholders Agreement.
5.4 The Investors confirm to Macrovision that the conditions set out in clause
3 of the Shareholders Agreement have been satisfied in full.
5.5 Macrovision shall be entitled to appoint a non-executive director to the
Board and to the board of each Group Company in accordance with the terms
of Clause 5.1.1 of the Shareholders Agreement (the non-executive director
appointed by Macrovision to be known as the "Macrovision Director") which
shall apply to Macrovision mutatis mutandis as if set out herein.
5.6 The appointment of the Macrovision Director pursuant to Clause 5.5 shall
cease with immediate effect if the aggregate number of "F" Ordinary Shares
held by Macrovision shall be less than 123,750
5.7 Macrovision agrees to comply with the terms of Clause 5.1.7 of the
Shareholders Agreement regarding the appointment of a non-executive
director.
5.8 The Macrovision Director shall be entitled to appoint an alternate director
in accordance with the terms of Clause 5.2 of the Shareholders Agreement
which shall apply to Macrovision mutatis mutandis as if set out herein.
5.9 Macrovision undertake to the Investors and the Company with effect from the
Completion Date to comply with the provisions of clauses 8.1, 8.2, 8.3,
8.4, 8.5, 9.1, 9.4, 9.5, 10.5, 14.2, 14.3 and 16.4 of the Shareholders
Agreement.
5.10 Subject to the provisions of Clause 5.22 of this Agreement, the Macrovision
Director and his alternate director shall be entitled to disclose to
Macrovision such information concerning the Company and/or any Group
Company as he thinks fit.
5.11 The Company (or relevant Group Company as the case may be) shall pay in
respect of the services of the Macrovision Director but only for such time
as he is appointed (apportioned pro rata for the term of appointment in any
one year) a fee at the rate of L12,000 (plus VAT) per annum, quarterly in
arrears, such amount being increased on each anniversary of the Completion
Date by the percentage thereof (or of any increased amount) equal to the
percentage increase (if any) in the Retail Price Index published by the
Department of Employment (or any index substituted for the same) in the
preceding 12 months.
5.12 The Company agrees with and undertakes to Macrovision to observe the
provisions set out in clause 6.1 of the Shareholders Agreement which clause
shall apply to Macrovision as if Macrovision were named as one of "the
Investors" therein.
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5.13 The Company will prepare and send to Macrovision as it may direct (all in
such form and detail as is approved by the Macrovision Director) the items
set out in clause 6.2 of the Shareholders Agreement within the times
specified therein. Where any provision of clause 6.2 refers to
consultation with, the request of, or the agreement of (or similar) any
Investor or [*] or the Nominated Director (as those parties are defined in
the Shareholders Agreement) such provision shall be read and construed as
if consultation with, or the request of, or the agreement of (or similar)
Macrovision was incorporated into such sub-clauses.
5.14 If the Company shall be in breach of its obligations under clauses 15.12 or
15.13 then (without prejudice to any other rights which it may have in
respect of such breach) Macrovision shall be entitled to appoint a firm of
accountants pursuant to the provisions contained in Clause 6.3 of the
Shareholders Agreement which shall apply as if Macrovision were named
therein.
5.15 The Company undertakes to and covenants with Macrovision in the terms of
Clause 6.4 of the Shareholders Agreement as if such undertakings were
repeated herein.
5.16 The Company undertakes to and covenants with Macrovision that the Company
shall not carry out any of the matters referred to in clause 6.5 of the
Shareholders Agreement without the prior consent of the holders of not less
than 75 per cent of the voting rights conferred by the issued ordinary
share capital of the Company.
5.17 The Company undertakes to and covenants with Macrovision that the Company
shall not while there is a Macrovision Director without the prior written
consent of the Macrovision Director (such consent not to be unreasonably
withheld) do any of the acts set out in Clauses 6.6.1 - 6.6.22 of the
Shareholders Agreement
5.18 Where in accordance with the provisions of the Shareholders Agreement (as
amended by this Agreement) a consent or approval is expressed to be
required of the Macrovision Director it may only be given:
5.18.1 by the Macrovision Director signing a written resolution of the Board
approving the relevant transaction or matter;
5.18.2 by the Macrovision Director in writing addressed to the Board; or
5.18.3 if there is no Macrovision Director in office at the relevant time, by
Macrovision giving its written consent or approval to the relevant
matter.
5.19 The Investors (other than [*]) jointly and severally warrant to Macrovision
in the terms of clause 6.7.8 of the Shareholders Agreement as if such
warranty was repeated herein.
5.20 Subject to clause 5.22 the Company shall supply to the Macrovision Director
the information and documents referred to in clause 7.5 of the Shareholders
Agreement.
5.21 The Founder undertakes to Macrovision in the terms set out in clause 10.1
of the Shareholders Agreement as if such undertakings were repeated herein.
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5.22 Macrovision shall and procure that the Macrovision Director and any
alternate director appointed by him shall comply with the terms of the
confidentiality undertakings set out in Clause 10.4 of the Shareholders
Agreement provided that such confidentiality undertakings shall not prevent
Macrovision divulging or disclosing or making known or using such
confidential information or information relating to Inventions or Know How
where the same is permitted by the terms of the Software Marketing Licence
and Development Agreement. Provided further that the undertakings in
clause 10.4 shall cease to apply to information which has come into the
public domain (other than by a breach by Macrovision of this clause) or
where disclosure is ordered by law or by any governmental or other
authority or regulatory body.
5.23 The Investors confirm (for the purposes of clause 6.5.1 of the Shareholders
Agreement) that they consent to the issue by the Company to Macrovision of
the "F" Ordinary Shares subscribed for by Macrovision in this Agreement.
5.24 [Not used]
5.25 The Company and the Founder undertake and covenant to Macrovision that:
(a) they will apply the subscription monies hereunder of Macrovision in the
furtherance of the Products (as defined in the Software Marketing Licence
and Development Licence Agreement)
(b) comply fully with all laws, bye-laws, rules, regulations and codes of
conduct relating to or being effective in respect of the Business and
conduct its affairs so as to ensure that there is no breach or failure by
the Company to comply with its duties and obligations under or restrictions
imposed on it and its officers by the provisions of the Articles of
Association of the Company
(c) at all times promptly and fully inform Macrovision of all matters coming to
the attention of the Company that affect or may affect the validity or
enforceability of the Intellectual Property Rights including the actual or
anticipated commencement of any proceedings by or against the Company in
respect of them and to take such action as may from time to time be
requested by Macrovision to protect, safeguard and enforce such
Intellectual Property Rights
(d) in so far as it is appropriate:
(i) procure that each Group Company shall give effect to each of the
undertakings contained in this Clause 5 (other than this Clause
5.25(d)) as if such undertakings had also been given individually by
each such Group Company as if it had appeared in each undertaking in
substitution for "the Company" wherever it occurs; and
(ii) if so requested by Macrovision ensure that each Group Company shall
enter into a direct covenant with Macrovision in terms which are
identical (mutatis mutandis) to the undertakings on the part of the
Company contained in this Clause.
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5.26 In the event of a Listing of the Company Macrovision agrees that it will
prior to the Listing give such class and other consents as may be required
to vary the class rights relating to the "F" shares in order to amend the
Articles of Association to establish one class of ordinary share capital
and make other changes as may reasonably be necessary.
5.27 The parties agree that to the extent that any further equity share capital
is required by the Company, an offer shall be made to Macrovision to
participate in the provision of such funding (by subscription for further
"F" Shares) in proportion (as nearly as practicable) to the percentage of
the overall voting rights (exercisable by the equity shares in the capital
of the Company) then exercisable by Macrovision. No new "F" Shares will be
issued other than to the holders of "F" Shares. Macrovision agrees that if
it does not participate to the full amount of its entitlement as above the
voting rights exercisable in respect of its holding of "F" Shares shall be
reduced to the following percentage of the said overall voting rights:-
A x C
---
B
where A is the number of "F" Shares held by Macrovision after the said
funding is completed.
B is the number of "F" Shares that would have been held by Macrovision
after the said funding is completed if it had taken up its full
entitlement to participate in the provision of the funding
C is the percentage (immediately before the said funding) of the total
voting rights exercisable by the "F" Shares held by Macrovision.
and Macrovision undertakes to give all necessary class and other consents
to give effect to this reduction and the corresponding increases in the
voting rights of other classes of Ordinary Shares.
6. [*]
6.1 [*]
6.2 [*]
7. WARRANTIES, REPRESENTATIONS AND UNDERTAKINGS
7.1 Each of the Founder and the Company jointly and severally hereby:-
(a) acknowledges that Macrovision has been induced to enter into this
Agreement and to subscribe for Shares on the basis of the Warranties;
and
(b) warrants, represents and undertakes to Macrovision in the terms of
Schedule 2 subject only to any matters fully and fairly disclosed in
the Disclosure Letter
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7.2 Each of the Founder and the Company hereby confirms and agrees that each of
the Warranties is a separate and independent warranty, representation and
undertaking and that no one of the Warranties shall be limited by reference
to any other of them or by this Agreement.
7.3 No proceedings shall be commenced in respect of any claim for breach of the
Warranties unless notice giving details of the claim shall have been
delivered to the Founder and/or the Company by Macrovision within two years
of the Completion Date or, in the case of Warranties relating to Taxation,
within seven years of the Completion Date (except in the case of fraud or
wilful non-disclosure when this limitation shall not apply)
7.4 Macrovision may assign the whole or any part of the benefit of any of the
Warranties on a transfer of all or any Shares held by Macrovision.
7.5 The rights and remedies of Macrovision in respect of any breach of any of
the Warranties shall not be affected by:
(a) Completion;
(b) any investigation made by or on behalf of Macrovision into the affairs
of any Group Company or the Business; or
(c) any other event or matter whatsoever which otherwise might have
affected such rights and remedies except a specific and duly
authorised written waiver or release.
7.6 Any information supplied by any Group Company or its agents,
representatives or advisers to the Founder or his agents, representatives
or advisers in connection with, or which forms the basis of, any of the
Warranties, the Disclosure Letter, the Financial Projections or otherwise
in relation to the business and affairs of any Group Company (whether
before or after the date of this Agreement) shall not be treated as a
representation, warranty or guarantee of the accuracy thereof by that or
any other Group Company to the Founder and shall not constitute a defence
to any claim by Macrovision under the Warranties and the Founder hereby
irrevocably waives any and all claims against the relevant Group Company in
respect thereof.
7.7 In the event of any breach of Warranties 5.5 and/or 13 (without restricting
the rights or ability of Macrovision to claim damages or indemnity from the
Founder and on any basis available to it in respect of such breach) the
Founder shall on demand at the sole option of Macrovision
7.7.1 pay to the Company the amount by which the value of any asset or
assets of the Company is or are less than or (as the case may be) the
amount by which any loss and/or liability or liabilities of the
Company is or are greater than would have been the case if there had
been no breach of the Warranties; or
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7.7.2 pay to Macrovision the amount by which the aggregate value of
Macrovision's shares then in issue is less than would have been the
case if there had been no breach of the Warranties
and shall further on demand fully indemnify Macrovision and the Company
against all costs charges expenses and other losses or liabilities which
they would not have incurred or which would not have existed if there had
been no such breach or claim or which are reasonably incurred by
Macrovision or the Company or any of them in connection with any claim or
enforcement of its or their rights arising in relation thereto and also
against any additional liability to tax which may arise by reason of any
payment under clause 7.7.1 and 7.7.2
7.8 In the event of any breach of the Warranties (other than Warranties 5.5
and/or 13) the Company and/or the Founder shall on demand pay to
Macrovision the amount by which the aggregate value of Macrovision's shares
then in issue is less than would have been the case if there had been no
breach of the Warranties and shall further on demand fully indemnify
Macrovision and the Company against all costs charges expenses and other
losses or liabilities which they would not have incurred or which would not
have existed if there had been no such breach or claim or which are
reasonably incurred by Macrovision or the Company or any of them in
connection with any claim or enforcement of its or their rights arising in
relation thereto and also against any additional liability to tax which may
arise by reason of any payment under clause 7.8.
7.9 Each of the Investors hereby jointly and severally warrant to Macrovision
that at Completion no claim or dispute has arisen under the Subscription
and Shareholders Agreement dated 2 October 1996 entered into between (1)
The Founder and others [*] ("the Subscription and Shareholders Agreement")
and others which remains outstanding or unresolved including, without
limitation, any claim under the representations and warranties set out in
Schedules 5, 6 and 7 thereto and so far as the Investors are aware no such
claim or dispute is pending or threatened.
7.10 The Founder undertakes within 3 weeks of Completion to prepare and submit
to the Board a Business Plan setting out the Company's commercial and
financial objectives and commitments during the following year in relation
to all projects proposed to be undertaken by the Company and including the
facilities required, the members of staff involved and the estimated time
and cost of completing each stage of the proposed Projects.
7.11 The Board shall have 21 days from the date of receipt of the draft Business
Plan to review the same and shall give written notice to the Company
stating whether or not it accepts the draft Business Plan. If the Board
notifies the Founder of any amendments or modifications to the draft
Business Plan in order for it to be accepted by the Board the Founder shall
re-submit the draft Business Plan to the Board containing such amendments
or modifications for further review and acceptance by it.
7.12 Macrovision shall not upon a sale of Shares be required to give any
warranties or indemnities except as to title to its Shares.
16
<PAGE>
8. WARRANTY LIMITATIONS
8.1 Neither the Founder nor the Company shall have any liability in respect of
any Claim to the extent arising from any matter, act, omission or
circumstance:
8.1.1 fully and fairly disclosed in the Disclosure Letter;
8.1.2 which would not have occurred but for any act, omission or transaction
on or after Completion by or with the consent of Macrovision.
8.2 In the event of a Claim Macrovision shall not be entitled to rescind this
agreement
8.3 Nothing in this agreement shall operate to reduce Macrovision's common law
duty to mitigate any loss giving rise to any Claim and Macrovision shall
take reasonable steps so to mitigate.
8.4 A Claim in respect of which notice is given in accordance with clause 7.3
shall, if it has not previously been satisfied, settled or withdrawn, be
deemed to have been withdrawn and be barred and unenforceable unless legal
proceedings have been issued and served on the Founder in respect of such
Claim within 9 months after the date of such notice or, where the Claim is
based on a contingent liability, within 6 months after such liability
ceases to be contingent.
8.5 Neither the Founder nor the Company shall have any liability in respect of
a Claim unless:
8.5.1 the liability agreed or determined in respect of the Claim (excluding
related interest and costs) exceeds [*] (save that where one or more
individual Claims relate to the same cause or an associated event
Macrovision may treat all such Claims as one Claim and not as
individual Claims); and
8.5.2 the aggregate liability agreed or determined (excluding related
interest and costs) in respect of all Claims referred to in clause
8.5.1 exceeds [*] and if such aggregate liability exceeds that amount
then the Founder and/or the Company shall be liable for the whole of
the liability and not just the excess.
8.6 The aggregate liability of the Founder for any breach of this Agreement
shall not exceed [*]
8.7 The aggregate liability of the Company for any breach of this Agreement
shall not exceed [*] (excluding related interest and costs)
8.8 Neither the Founder nor the Company shall have any liability in respect of
any Claim which is based upon a liability which is contingent only unless
and until such contingent liability becomes an actual liability and is due
and payable.
17
<PAGE>
8.9 Neither the Founder nor the Company shall have any liability in respect of
any Claim to the extent that the Accounts make provision or reserve for
the matter giving rise to the Claim;
8.10 Neither the Founder nor the Company shall have any liability in respect of
any Claim to the extent arising from:-
8.10.1 the passing of, or change in, after the date of this agreement, any
law, regulation or rule of any government, governmental department,
agency or regulatory body (including any stock exchange) or any
judgment delivered after the date of this agreement with retrospective
effect, or any increase in the rates of Taxation or any imposition of
Taxation not in effect at the date of this agreement;
8.10.2 a change after Completion in the methods which have been used by the
Company in valuing stock in trade and work in progress or any other
change in accounting policy or practice all not in accordance with
relevant SSAPs or FRSs or any change to the length of any accounting
period or to the accounting reference date of the Company;
8.10.3 the failure or omission by the Company or Macrovision to make any
claim, election, surrender or disclaimer or give any notice or consent
or do any other thing under the provisions of any enactment or
regulation relating to Taxation after Completion, and the making,
giving or doing of which was taken into account in computing the
Taxation in the Accounts;
8.10.4 any claim, election, surrender or disclaimer properly made or notice
or consent properly given or any other thing properly done after
Completion by the Company or Macrovision or their agents under the
provisions of any enactment or regulation relating to Taxation.
8.11 Neither the Founder nor the Company shall have any liability in respect of
any Claim to the extent that the loss in respect of which the Claim is made
is recovered under a policy of insurance in favour of the Company
8.12 If the Founder has paid to Macrovision any amount in respect of a Claim and
Macrovision subsequently receives or recovers from a third party (including
an insurer) a sum which is referable to such Claim, Macrovision shall
forthwith repay to the Founder the amount so received or recovered up to
the amount which has been paid by the Founder in respect of such Claim
(after deducting all reasonable costs charges and expenses incurred by
Macrovision in making such recovery)
8.13 If Macrovision becomes aware of a matter which could reasonably be
expected to give rise to a Warranty Claim, Macrovision shall give notice in
writing of that fact as soon as reasonably practicable to the Founder.
8.14 If the Company or Macrovision receives notice of a claim by a third party
("Third Party Claim") against the Company or Macrovision which might
constitute or give rise
18
<PAGE>
to a liability pursuant to this agreement, the Founder and Macrovision
shall consult with each other regarding the conduct of the Third Party
Claim.
8.15 A party having conduct of a Third Party Claim shall keep the other fully
informed of the progress and the defence of any Third Party Claim and shall
consult with and have due regard for the other's reasonable
representations.
9. [NOT USED]
10. AUTHORISATION
Each of the parties represents, warrants and undertakes to the others that
he or it has taken all necessary corporate and other action to enable he or
it validly to accept and perform the obligations imposed on him or it under
the terms of this Agreement and that performance of the provisions of this
Agreement will not result in a breach of or constitute a default under any
agreement, statute, law, regulation or other contractual restriction
binding upon him or it.
11. RESTRICTIVE COVENANT
The Company and Macrovision each hereby covenants with each other that for
so long as Macrovision is a Shareholder and for 12 months after Macrovision
ceases to be a Shareholder it will not directly or indirectly and whether
on its own behalf or for another do or attempt to do any of the following:
11.1 communicate with an employee of the other in a manner calculated or likely
to cause that employee to leave or end or seek to leave or end his or her
position or relationship with any company in the same group as the other,
regardless of whether or not such communication would be in breach of any
contract;
11.2 employ, engage the services of or work directly or indirectly with an
employee of the other, except in accordance with the terms of the Software
Marketing Licence and Development Agreement.
12. NOTICES
Any notice to be given pursuant to this Agreement shall be in writing and
addressed to the person concerned at the last address which such person
shall have notified in writing to the parties to this Agreement for the
purpose at least 15 Business Days prior to such notice being given or,
failing such notification, at it registered office for the time being (if a
company) or at the address set out in this Agreement (if an individual).
Any notice in writing correctly addressed shall be treated as validly
served, if by delivery, at the time of delivery; if remote copier, at the
time of despatch; and if by post, 48 hours after it is posted in the United
Kingdom by first class prepaid registered post. In proving service, it
shall be sufficient for the sender to prove that the notice was delivered,
despatched or posted in the manner described above.
13. PERFORMANCE OF THIS AGREEMENT
19
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13.1 The Founder and Macrovision agree that, so far as permitted by law, they
will jointly and severally take all necessary steps (including if necessary
but without limitation the exercise of any voting rights held by them,
whether as shareholder in the Company or as Director, or otherwise) in
order that the provisions of this Agreement and of any agreements entered
into by the Company pursuant to this Agreement are given full force and
effect.
13.2 In the event of any conflict between the provisions of this Agreement and
the provisions of the Articles, the provisions of this Agreement shall
prevail.
13.3 This Agreement shall, as to any of its provisions remaining to be performed
or capable of taking effect following the Completion Date, remain in full
force and effect following the Completion Date.
14. ANNOUNCEMENTS
No party hereto shall make any announcement statement or communication in
relation to any of the transactions provided for in this Agreement or any
matter ancillary thereto (other than to professional advisers whose
province it is to know the same) without the prior consent of the other
parties hereto, (which consent shall not be unreasonably withheld or
delayed) save to the extent required by law or any Stock Exchange or by any
governmental or other authority or regulatory body
15. COSTS
The Company, Macrovision and the Investors shall each pay their own costs
and expenses incurred in relation to the negotiation, preparation and
completion of this Agreement.
16. WHOLE AGREEMENT
16.1 It is acknowledged and agreed that this Agreement (which shall include the
documents and instruments referred to herein) shall supersede all prior
representations arrangements understandings and agreement between the
parties relating to the subject matter hereof and shall constitute the
entire complete and exclusive agreement and understanding between the
parties hereto.
16.2 The parties irrevocably and unconditionally waive any right they may have
to claim damages for any misrepresentation arrangement understanding or
agreement not contained in this Agreement or for any breach of any
representation or warranty not contained in this Agreement (unless such
misrepresentation or representation or warranty was made fraudulently).
16.3 It is further acknowledged and agreed that no misrepresentations
arrangements understandings or agreements (whether written or oral) made
by or on behalf of any the other parties have been relied upon other than
those expressly set out or referred to in this Agreement.
20
<PAGE>
16.4 No alteration amendment or variation of this Agreement shall be of any
force or effect unless it is writing and signed by (or by some person duly
authorised by) each of the parties
17. SUCCESSORS
17.1 This Agreement shall be binding upon the personal representatives or
successors in title and permitted assigns of the parties hereto and
references to "the Company", and "the Founder" and the "Investors" shall be
read and construed accordingly provided that this Agreement shall not be
binding on the Personal Representatives of the Founder.
17.2 Save as specifically provided in Clause 7.4 and without prejudice to the
right to transfer shares under the Articles no party shall be entitled to
assign his or its rights or obligations under this Agreement without the
written consent of all the other parties (such consent not to be
unreasonably withheld or delayed).
17.3 Macrovision shall be entitled to assign all (but not some only) of its
rights or obligations under this Agreement to any person to whom it shall
have transferred all or any of its holding of Shares pursuant to the
provisions of this Agreement and/or the Articles.
18. PROPER LAW
This Agreement and the documents to be entered into as provided herein
shall be governed by and construed in accordance with English law and the
parties hereto agree to submit to the non-exclusive jurisdiction of the
English Courts.
19. SEVERABILITY
Each of the obligations contained in the clauses and sub-clauses of this
Agreement shall be construed as separate and severable obligations but if
at any time any one or more of the obligations is or becomes invalid
illegal or unenforceable in any respect under law but would be valid if
some part thereof were deleted or the period or area of application reduced
such obligation shall apply with such modification as may be necessary to
make it valid and effective and in any event the validity legality and
enforceability of the remaining obligations clauses and sub-clauses hereof
shall not in any way be affected or impaired thereby. Notwithstanding the
foregoing the parties hereto shall thereupon negotiate in good faith in
order to agree the terms of a mutually satisfactory provision to be
substituted for the provision so found to be invalid illegal or
unenforceable.
20. NO PARTNERSHIP
21
<PAGE>
None of the provisions of this Agreement shall be deemed to constitute a
partnership between the Investors and Macrovision and the Investors shall
have no authority to bind Macrovision in any way.
21. WAIVER AND FORBEARANCE
No failure or delay on the part of any party hereto to exercise any right
or remedy under this Agreement will operate as a waiver thereof and no
waiver by any party in respect of any breach shall operate as a waiver in
respect of any subsequent breach.
22. FURTHER ASSURANCE
The Company and the Investors jointly and severally agree to do and execute
all such lawful and necessary acts, deeds, documents and things within its
or their power as Macrovision may reasonably require for giving full effect
to this Agreement and for securing to Macrovision the full benefit of the
rights powers and remedies conferred upon it in this Agreement.
23. JOINT AND SEVERAL OBLIGATIONS
Where this Agreement is executed by or on behalf of two or more parties
together:-
23.1 Those parties' obligations shall take effect as joint and several
obligations and all references to those parties shall take effect as
references to any of them;
23.2 This Agreement shall not be revoked or impaired as to any of such parties
by the death incapacity or insolvency of any other; and
23.3 Macrovision may release or discharge any one of such party from their
obligations under this Agreement or accept any composition from or make any
other arrangements with any of such parties without releasing or
discharging the other(s) or otherwise prejudicing or affecting the rights
and remedies of Macrovision against the other(s)
24. EXCHANGE RATE
The parties agree that other than any payments due on Completion or where
the express terms of this Agreement otherwise require any payments from one
party to any other party or parties under this Agreement shall be paid in
US Dollars in accordance with the exchange rate applicable at the date of
payment.
25. RELATIONSHIP OF PARTIES
Each of the parties to this Agreement confirms that it is executing this
Agreement as principal and not as agent or broker for any other person.
26. CONFIDENTIALITY
22
<PAGE>
26.1 All Proprietary Information disclosed by any party to any other party in
connection with the performance of this Agreement or otherwise relating to
the Company's Business or the business and affairs of any other party to
this Agreement (except such information as may be generally available to
the public) shall be agreed to have been disclosed in confidence and each
party is obliged to keep any such information as it may acquire
confidential and, save to the extent required by law or by any governmental
or other authority or regulatory body or as set out on clause 26.2 below,
not to disclose it, nor the contents and existence of this Agreement to any
other person or otherwise improperly use it at any time hereafter, except
insofar as such information has entered the public domain otherwise than in
breach of this clause.
26.2 Each party shall ensure that disclosure of any Proprietary Information is
restricted to those employees or directors having the need to know the
same. Copies or reproductions shall not be made except to the extent
reasonably necessary for the performance of this Agreement and shall be the
property of the disclosing party.
EXECUTION:
The parties have shown their acceptance of the terms of this Agreement by
executing it at the end of the Schedules.
23
<PAGE>
SIGNED by the said )
[*] )
in the presence of: )
Witness:
Address:
Occupation:
SIGNED by the said )
[*] )
in the presence of: )
Witness:
Address:
Occupation:
SIGNED by )
[*] )
Director for and on behalf of )
[*] )
in the presence of: )
Witness:
Address:
Occupation:
24
<PAGE>
SIGNED by )
[*] )
Director for and on behalf of )
[*] )
in the presence of: )
Witness:
Address:
Occupation:
SIGNED by )
[*] )
Director for and on behalf of )
[*] )
in the presence of: )
Witness:
Address:
Occupation:
SIGNED by )
)
Director for and on behalf of )
[*] in the presence of: )
Witness:
Address:
Occupation:
SIGNED by )
25
<PAGE>
)
Director for and on behalf of )
[*] in the presence of: )
Witness:
Address:
Occupation:
SIGNED by )
)
Director for and on behalf of )
[*] )
in the presence of: )
Witness:
Address:
Occupation:
SIGNED by )
)
Director for and on behalf of )
[*] )
in the presence of: )
Witness:
Address:
Occupation:
SIGNED by )
[*] )
26
<PAGE>
Director for and on behalf of )
C-DILLA LIMITED )
in the presence of: )
Witness:
Address:
Occupation:
27
<PAGE>
EXHIBIT 10.2
CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE PORTIONS OF THIS AGREEMENT
MARKED [*]. THE OMITTED PORTIONS OF THIS AGREEMENT HAVE BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
DATED 19 FEBRUARY, 1998
____________________________
(1) C-DILLA LIMITED
- and -
(2) MACROVISION CORPORATION
___________________________________________________
SOFTWARE MARKETING LICENCE AND DEVELOPMENT AGREEMENT
___________________________________________________
Nabarro Nathanson
The Anchorage
34 Bridge Street
Reading
RG1 2LU
Tel: 0118 925 4603
Fax: 0118 950 5640
<PAGE>
Ref: RCB/C2963.6
CONTENTS
1. DEFINITIONS
2. APPOINTMENT AND LICENCE GRANT
3. TERM
4. LICENCE RESTRICTIONS
5. CUSTOMER LICENCES
6. INCOME AND ROYALTIES
7. RIGHT OF AUDIT
8. C-DILLA'S SALE OF PRODUCTS
9. MACROVISION OBLIGATIONS
10. COMPETING PRODUCTS
11. C-DILLA'S OBLIGATIONS
12. MINIMUM ROYALTY PAYMENTS
13. INTELLECTUAL PROPERTY RIGHTS INDEMNITY
14. ESCROW
15. CONFIDENTIALITY
16. TERMINATION
17. CONSEQUENCES OF TERMINATION
18. GENERAL
19. WARRANTIES
20. FUTURE CO-OPERATION
SCHEDULE A - THE PRODUCTS
SCHEDULE B - MINIMUM ROYALTY PAYMENTS (INITIAL TERM)
SCHEDULE C - MINIMUM ROYALTY PAYMENTS (EXTENDED TERM)
SCHEDULE D - TRAINING
SCHEDULE E - PERFORMANCE SPECIFICATION
APPENDIX 1 - CUSTOMER LICENCE AGREEMENT (REQUIRED PROVISIONS)
APPENDIX 2 - ESCROW AGREEMENT
APPENDIX 3 - REPORT
<PAGE>
THIS AGREEMENT IS MADE THE 19TH DAY OF FEBRUARY 1998 BY AND BETWEEN:
(1) C-DILLA LIMITED (Company number 2683202) whose registered office is at
Woodley House, Crockhamwell Road, Woodley, Reading, Berkshire RG5 3JP
("C-Dilla"); and
(2) MACROVISION CORPORATION whose registered office is at 1341 Orleans Drive
Sunnyvale CA 94089 ("Macrovision").
WHEREAS:
(A) C-Dilla is in the business of the development and distribution of secure
computer software products.
(B) Macrovision wishes to be appointed as a distributor of certain secure
computer software products developed by C-Dilla.
(C) C-Dilla is willing to appoint Macrovision as a distributor of the
software products set out below on the terms and subject to the
conditions set out in this Agreement.
THE PARTIES NOW AGREE AS FOLLOWS:
1. DEFINITIONS
In this Agreement the following terms shall have the meanings shown
1.1 "Additional Licence Fee" means a fee of five million US dollars
($5,000,000) (subject to reduction in
accordance with clause 3.4);
1.2 "Advance Payment" means the sum of six hundred and six
thousand and sixty pounds sterling
(L606,060);
1.3 "Agreement" means this Software Marketing Licence
and Development Agreement between
C-Dilla and Macrovision including the
schedules hereto;
1.4 "CD-Secure" means the product details of which are
set out in paragraph 2 of Schedule A,
and any upgrades, new releases and
enhancements thereof;
1.5 "C-Dilla's Market" means any market outside the [*];
1.6 "Product A" means the product details of which are
set out in paragraph 1 of Schedule A,
and any upgrades, new releases and
enhancements thereof;
1.7 "Customer" means customers and potential
customers of Macrovision for the
Products;
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<PAGE>
1.8 "Customer Licence means the agreement(s) referred to in
Agreement" clause 5.2;
1.9 "DVD Consortium" means the group of ten consumer
electronic manufacturers who have
established the standards and
licensing mechanisms for the current
Digital Versatile Disc (DVD) format;
1.10 "DVD-ROM" means an optical disc for computer
software other than linear video
programmes;
1.11 "DVD-V" means a standalone audio/video
player/recorder for the digital
versatile disc for the application of
linear video programmes;
1.12 "Effective Date" means the date of signature of this
Agreement;
1.13 "Escrow Agreement" means the agreement referred to in
clause 14;
1.14 "Events of Default" means the events referred to in clause
16.2;
1.15 "Extended Term" means the extended term of five (5)
years from the end of the Initial Term
set out in clause 3.3;
1.16 "First Sale Date" means the date Macrovision concludes
its first licence of any Products in
the [*];
1.17 "Initial Support Period" means a period of six (6) months from
the Product Release Date;
1.18 "Initial Term" means the initial term of five (5)
years set out in clause 3.1;
1.19 "Intellectual Property any or all of the following (whether
Rights" written or unwritten) and all rights
in, arising out of, or associated
therewith anywhere in the world: (i)
all United Kingdom, international and
foreign patents and applications
therefor and all reissues, renewals
and extensions thereof; (ii) all
inventions (whether patentable or
not), invention disclosures,
discoveries, secret process,
improvements, trade secrets,
proprietary information, know how,
technology, technical data and
customer lists, and all documentation
relating to any of the foregoing;
(iii) all copyrights, copyright
registrations and applications
therefor; (iv) all industrial designs
and registrations and applications
therefor throughout the world; (v) all
trade names, logos, trademarks and
service marks;
2
<PAGE>
trademark and service mark
registrations and applications
therefor and all goodwill associated
therewith throughout the world; (vi)
all databases and data collections and
all rights therein throughout the
world; and (vii) all computer software
including all source code, object
code, firmware, development tools,
files, records and data,
specifications, all media on which any
of the foregoing is recorded, (viii)
any similar, corresponding or
equivalent rights to any of the
foregoing and (ix) all manuals,
instructions, catalogues and other
documentation related to any of the
foregoing
1.20 "Mixed Product A" means versions of Product A which also
incorporate one or more of C-Dilla's
other products;
1.21 [*] [*]
1.22 "NCC" means NCC Escrow International Limited
of Oxford House, Oxford Road,
Manchester M1 7ED, United Kingdom;
1.23 [*] [*]
1.24 [*] [*]
1.25 "Product Release Date" means the date Product A is released
from development for sale, as approved
by C-Dilla and Macrovision;
1.26 "Pure Product A" means versions of Product A which do
not incorporate any of C-Dilla's other
products;
1.27 [*] [*]:
(a) [*],
(b) [*],
(c) [*],
(d) [*]
(e) [*]
1.28 "Royalties" means the royalties set out in clause
6.2, or as increased under clause 3.4
or as otherwise agreed between the
parties;
1.29 "Sales Revenue" means invoiced sums for sales of
Products which have been invoiced and
supplied to Customers (whether or not
such invoices have been paid) less all
applicable taxes including, without
limitation, sales tax, value added
tax, duties, tariffs and other similar
taxes and after deduction of all
properly invoiced credit notes which
relate to such
3
<PAGE>
invoiced sums;
1.30 "Term" means the period of five (5) years
from the Effective Date set out in
clause 3.1, subject to extension in
accordance with clause 3.2, or earlier
termination in accordance with clause
16;
1.31 "Warranties" means the warranties, representations
and undertakings set out in clause 19
(references to a Warranty being to any
one of them);
1.32 "Year" means a period of twelve calendar
months commencing on the Product
Release Date, or the relevant
anniversary of the Product Release
Date.
1.33 "Disclosure Letter" means the letter of even date
addressed to Macrovision from Peter
Newman and C-Dilla.
2. APPOINTMENT AND LICENCE GRANT
2.1. PURE PRODUCT A
C-Dilla hereby grants to Macrovision, for the Term, a world-wide
exclusive licence to market Pure Product A in the [*].
2.2. [*]
2.2.1. [*];
2.2.2. [*]
2.2.3. [*];
in the [*].
2.3. ADDITIONAL PRODUCTS
C-Dilla agrees to grant to Macrovision first refusal on any new or
enhanced products produced by C-Dilla during the Term [*] upon the
same terms and conditions as contained in this Agreement or upon
such other terms and conditions as the parties may mutually agree,
for marketing within the [*], provided that:
2.3.1. Macrovision must exercise such right of refusal within a
reasonable period (being no longer than sixty (60) days)
from its offer by C-Dilla; and
2.3.2. Macrovision's rights to such products within the [*]
shall be exclusive.
2.3.3. [*].
2.4. MARKETING ACTIVITIES AND RIGHTS
Macrovision shall be entitled to:
2.4.1. licence the Products under its own name and to publish
its own advertising or promotional materials for such
licensing; and
4
<PAGE>
2.4.2. alter or modify the Products to enable it to exercise its
right under this sub-clause;
provided that (i) any trade mark to be applied to Product A (or to
any of the Products) shall be agreed and approved by the parties
prior to use, and (ii) Macrovision shall not remove any copyright
or other intellectual property right notices or other marks of
designation included in the Products by C-Dilla.
2.5. APPROVED TRADE MARKS
The parties agree that in respect of any agreed and approved trade
marks under clause 2.4 above, the trade mark(s) for:
2.5.1. Product A,
2.5.2. any jointly developed Products,
2.5.3. other Products as agreed by C-Dilla,
shall (subject to C-Dilla's agreement as regards 2.5.3) be owned
by the parties jointly, but with a licence to be granted from each
party to the other for the use and attribution thereof in relation
to the relevant Product(s) during the Term.
2.6. INCLUDED AND EXCLUDED COMPANIES
For the guidance of both parties in interpreting this Agreement,
the parties agree that:
2.6.1. a preliminary guideline [*] and within C-Dilla's Market
will be drafted within three (3) weeks of the Effective
Date;
2.6.2. this list shall be merely a beginning list and customers
may be added or deleted according to the process
developed under clause 2.6.1; and
2.6.3. if there is dispute as to whether a customer is within
the [*] or within C-Dilla's Market, this dispute shall be
dealt with in the first instance by escalation to the
Managing Director of C-Dilla and President of Macrovision.
2.7. DUAL MARKET CUSTOMERS
The parties further acknowledge that there may be instances where
a part of the activities of a customer (or an operating division
of a customer) fall within the [*], and a part of their activities
fall within C-Dilla's Market. In such cases, both parties shall
ensure that their future licences with such customers include
appropriate provisions to limit exploitation to the [*] (in the
case of Macrovision) or the C-Dilla Market (in the case of
C-Dilla).
3. TERM
3.1. INITIAL TERM
The Initial Term of this Agreement shall be five (5) years from
the Effective Date, (subject to termination under clause 16 below).
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<PAGE>
3.2. OPTION TO EXTEND
Macrovision shall have the right, subject to clause 3.3,
exercisable at any time during the period of two (2) years from
the Product Release Date to extend the Term for a further period
of five (5) years commencing on the expiry of the Initial Term.
3.3. EXERCISE OF OPTION
The option set out in clause 3.2 above shall be exercisable by
Macrovision lodging with the secretary of C-Dilla at its
registered office a notice in writing together with payment of:
3.3.1. an option fee of one million US dollars (US$1,000,000);
and
3.3.2. the Additional Licence Fee (which however may be
satisfied in accordance with clause 3.4 below);
provided that if Macrovision does not achieve an income to C-Dilla
of ten million [*] in the fifth Year of the Agreement then under
the Extended Term of the Agreement the licences under clause 2.1
and 2.2 above shall[*].
3.4. ADDITIONAL LICENCE FEE
The Additional Licence Fee may be satisfied by means of a
temporary increase in the Royalty on Product A to [*] until the
amount of the Additional Licence Fee is paid (but providing, for
the avoidance of doubt, that if (i) the Agreement is terminated or
expires prior to payment of the full Additional Licence Fee, and
(ii) Macrovision have throughout the Term been paying an increased
Royalty of [*] on all Sales Revenue for Product A, then the
balance properly remaining shall not be payable and the Additional
Licence Fee shall be deemed to be reduced to an amount equal to
the increased Royalty paid for all relevant Sales Revenue).
4. LICENCE RESTRICTIONS
4.1. DECOMPILATION
Macrovision shall not decompile, reverse engineer, interrogate or
decode the Products to bypass or delete protection methods
provided for preventing unauthorised uses of the Products, to
derive from them any source code in any form whatsoever.
4.2. CONFIDENTIAL INFORMATION AND NEW PRODUCTS
Macrovision shall not use any of the confidential information of
C-Dilla contained in or derived from the Products to develop or
market any software which is substantially similar in its
expression to any part of the Products, save where:
4.2.1. such use is expressly permitted by C-Dilla pursuant to
clause 9.3; or
4.2.2. such confidential information is in the public domain
(other than by a breach by Macrovision of this clause);
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4.2.3. Macrovision can show by documentary evidence that such
information was in its possession or known to it by
being in its use or being recorded in its files or
computers or other recording media prior to receipt from
C-Dilla of such information;
4.2.4. Macrovision can show that such information has been
developed independently of any information disclosed to
it by C-Dilla.
5. CUSTOMER LICENCES
5.1. RIGHT TO SUB-LICENCE
Macrovision may grant sub-licences to use the Products to
Customers within the [*], for their use within the [*] (and with
the appropriate rights for Customers to sub-licence the Products
to a mastering house to enable mastering or replication on behalf
of the Customer).
5.2. CUSTOMER LICENCE AGREEMENTS
Prior to the first time Macrovision transfers a Product (or copy
or part thereof) to any Customer it shall first enter into an
agreement with that Customer which:
5.2.1. contains provisions with no greater liability on the part
of Macrovision than those set out in Appendix 1;
5.2.2. contains equivalent or greater protection for C-Dilla's
intellectual property rights (and other protections
required by C-Dilla) as are set out in Appendix 1, or as
otherwise agreed by C-Dilla;
provided that, subject to the above and to clause 5.3, Macrovision
shall have the right to determine the form of content of all such
Customer Licence Agreements.
5.3. FORM OF AGREEMENTS AND VARIATION
Macrovision shall, specifically:
5.3.1. consult with C-Dilla in developing a standard form of
Customer Licence Agreement for use with its Customers;
5.3.2. not enter into any Customer Licence Agreement which
includes provisions conflicting with the requirements of
clauses 5.2.1 and 5.2.2, except with the prior written
agreement of C-Dilla.
5.4. ENFORCEABILITY AND ENFORCEMENT OF CUSTOMER LICENCE AGREEMENTS
Macrovision shall use all reasonable endeavours to:
5.4.1. ensure that the terms of each such agreement are
enforceable (to the extent that they can be legally
enforced) in the jurisdiction to which the agreement is
subject, and/or where the relevant Customer is granted
rights;
5.4.2. enforce the terms of each such agreement, and notify
C-Dilla of any material breaches of which it becomes
aware.
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5.5. RIGHT TO APPOINT SUB-DISTRIBUTORS
Macrovision is free to appoint sub-distributors in relation to the
marketing of the Products provided that if any such
sub-distributors require application rights to the Products'
technology the prior written consent of C-Dilla shall be obtained
before such sub-distributors are appointed.
6. INCOME AND ROYALTIES
6.1. CUSTOMER PRICES AND CHANGES
Macrovision shall be entitled to determine for itself the level at
which it shall charge Customers for Customer licences and
Customers' use of the Products, provided that:
6.1.1. it shall set such prices and charges in good faith in
order to maximise the long term revenue to be derived
from the Products;
6.1.2. it shall not cross-discount any prices or charges for
Products in order to increase its revenue for other
products at the expense of revenue for the Products.
6.2. ROYALTIES
C-Dilla shall be entitled, by way of royalty, to a payment of:
6.2.1. [*] (subject to variation pursuant to clauses [*]) of all
Sales Revenue relating to the Products (excluding any
authentication component of DVD-V);
6.2.2. [*] of all Sales Revenue received by Macrovision (net of
any third party royalties) relating to any authentication
component of DVD-V which is marketed by Macrovision
whether or not the technology for the same is developed
by C-Dilla and whether or not Macrovision exercises a
right of first refusal for the same under clause 2.3;
provided that where licensing sales are made within the United
Kingdom or European Union, Macrovision shall additionally pay any
Value Added Tax due on the same.
6.3. RECORDS OF INCOME
Macrovision shall maintain a complete, accurate and up-to-date
record of all Sales Revenue relating to the Products and
Customers' use of the Products, including:
6.3.1. a record of the names and addresses of all Customers from
whom Sales Revenue is received or due to be received;
6.3.2. a record for each Customer of the use of Products in
respect of which the Sales Revenue is received or due to
be received,
6.3.3. such other records and books of account as are normally
kept by any
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competent and prudent business, to be of sufficient
quality and detail as to permit the ascertainment and
validation of any royalty payment due from Macrovision to
C-Dilla under the terms of this Agreement.
6.4. MONTHLY SUBMISSION OF RECORDS
Within fifteen (15) days of the end of each calendar month
Macrovision shall submit to C-Dilla a monthly report properly
identifying all Customers from whom Sales Revenue for Products has
been invoiced for the preceding month (whether or not such
invoices have been paid), and details of the Sales Revenue for
each Customer.
6.5. INVOICING AND PAYMENT
Immediately upon Macrovision's submission of records pursuant to
clause 6.4:
6.5.1. C-Dilla shall be entitled to invoice Macrovision for the
Royalties due for the preceding month, in accordance with
clause 6.2;
6.5.2. Macrovision shall pay such invoice (by wire transfer in
US dollars in accordance with C-Dilla's reasonable
instructions) within fifteen (15) days of receipt of the
invoice.
6.6. SURCHARGE
If Macrovision is in delay in (i) submitting records pursuant to
clause 6.4, or (ii) making payment pursuant to clause 6.5, C-Dilla
shall be entitled to:
6.6.1. in the case of delay
under clause 6.4 - an immediate right to invoice
Macrovision for an interim
payment equal to the amount
of Royalties for the last
calendar month for which
records have been submitted
pursuant to clause 6.4;
6.6.2. in the case of late
payment under clause 6.5 - interest on the outstanding
(past due) payment at the
rate of eighteen per cent
(18%) per annum.
6.7. ADVANCE PAYMENT REDUCTION
Pending repayment in full to Macrovision of the Advance Payment,
Macrovision shall pay a reduced Royalty to C-Dilla pursuant to
clause 6.2.1 of [*] of the Sales Revenue, with the remaining [*]
of such normal royalty being set off against the Advance Payment
subject to clause 3.4.
7. RIGHT OF AUDIT
7.1. INSPECTION AND AUDIT
Either party shall have the right at any reasonable time during
normal business
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hours, upon giving not less than 5 Business Days written notice,
to require an independent chartered accountant of its appointment
to:
7.1.1. inspect and audit the accounts and records of the party
(held in the case of Macrovision pursuant to clause 6.3
above and in the case of C-Dilla pursuant to clause 8.3
below);
7.1.2. enter upon the other party's premises or any premises
controlled by the other party in order to inspect and
audit such accounts and records which are relevant to
verifying and determining the calculation of payments due
to the auditing party under this Agreement (subject to
any reasonable undertaking of confidentiality as the
other party may reasonably require of the independent
accountant and the auditing party in respect of such
inspection).
7.2. AUDIT - ANCILLARY PROVISIONS
In relation to clause 7.1, such audit shall be at the auditing
party's expense, and shall be conducted not more than once during
each Year of the Term, except that if any audit indicates the
presence of significant book-keeping errors or insufficient
reporting to the auditing party of more than five per cent (5%),
then:
7.2.1. the cost of the audit shall be at expense of the party
being audited;
7.2.2. additional audits may be carried out quarterly during the
relevant Year (and further audits if the additional or
further audits also indicate errors or under-reporting of
more than five per cent (5%) ).
7.3. UNDECLARED SALES REVENUE
If the auditing party's inspection and audit under clause 7.1
reveals that Sales Revenue in any month has been under-reported,
then:
7.3.1. the Royalties on such Sales Revenue shall immediately
become payable by the party being audited; and
7.3.2. if the Sales Revenue for such month has been
under-reported by more than five per cent (5%), then the
party being audited shall pay Royalties on such
un-reported Sales Revenue at a rate of five per cent (5%)
above the rate which would otherwise be due. (this
provision being without prejudice to C-Dilla's rights to
charge interest on such un-reported income at the rate
set out in clause 6.6.2 from the date when C-Dilla would
have been entitled to invoice for the same).
8. C-DILLA'S SALE OF PRODUCTS
8.1. SALE OUTSIDE THE [*]
When C-Dilla licenses Product A to customers in C-Dilla's Market,
it agrees that:-
8.1.1 it shall pay to Macrovision the sums set out in clause 8.2
below on all Sales Revenue received in respect of such
licenses;
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8.1.2 it shall set such prices and charges in good faith in
order to maximise the long term revenue to be derived
from the Products;
8.1.3 it shall not cross-discount any prices or charges for
Pure Product A or Mixed Product A in order to increase
its revenue for other products nor shall it
cross-discount any prices or charges for other products
at the expense of revenue for the Products;
except subsequent to:
(i) Macrovision's election to market any competing product to
Product A; or
(ii) Macrovision election not to continue to market Product A.
8.2. REVERSE ROYALTIES
C-Dilla shall pay to Macrovision:
8.2.1. on licences of Pure Product A [*] of its Sales
Revenue from the
same;
8.2.2. on licences of Mixed Product A [*] of its Sales
Revenue from the
same.
8.3. RECORDS OF INCOME
C-Dilla shall maintain a complete, accurate and up-to-date record
of all Sales
Revenue relating to Product A and Mixed Product A and Customers'
use of Product A and Mixed Product A including:
8.3.1. a record of the names and addresses of all Customers from
whom Sales Revenue is received or due to be received;
8.3.2. a record for each Customer of the use of Product A for
which Sales Revenue is received or due to be received,
8.3.3. such other records and books of account as are normally
kept by any competent and prudent business, to be of
sufficient quality and detail as to permit the
ascertainment and validation of any royalty payment due
from C-Dilla to Macrovision under the terms of this
Agreement.
8.4. MONTHLY SUBMISSION OF RECORDS
Within fifteen (15) days of the end of each calendar month C-Dilla
shall submit to Macrovision a monthly report properly identifying
all Customers from whom Sales Revenue for Product A has been
invoiced for the preceding month (whether or not such invoices
have been paid), and details of the Sales Revenue for each
Customer.
8.5. INVOICING AND PAYMENT
Immediately upon C-Dilla's submission of records pursuant to
clause 8.4:
8.5.1. Macrovision shall be entitled to invoice C-Dilla for the
Royalties due for the
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preceding month, in accordance with clause 8.2;
8.5.2. C-Dilla shall pay such invoice (by wire transfer in US
Dollars (calculated at the exchange rate applicable on
the earlier of the date payment is due and the date of
actual payment in accordance with Macrovision's
reasonable instructions) within fifteen (15) days of
receipt of the invoice.
8.6. SURCHARGE
If C-Dilla is in delay in (i) submitting records pursuant to
clause 8.4, or (ii) making payment pursuant to clause 8.5,
Macrovision shall be entitled to:
8.6.1. in the case of delay
under clause 8.4 - an immediate right to invoice
C-Dilla for an interim
payment equal to the amount
of Royalties for the last
calendar month for which
records have been submitted
pursuant to clause 8.4;
8.6.2. in the case of late
payment under clause
8.5 - interest on the outstanding
(past due) payment at the
rate of eighteen per cent
(18%) per annum.
9. MACROVISION OBLIGATIONS (PERFORMANCE GUARANTEES)
9.1. STAFF
Macrovision shall, within the periods specified below and for the
remainder of the Term, provide the staff set out below, dedicated
to the sale and marketing of the Products:
within sixty (60) days from
the Effective Date - one full time Vice President
and administrative support
staff;
9.2. MARKETING
Macrovision shall, within one hundred and twenty (120) days from
the Effective Date, produce and provide to C-Dilla a marketing
plan detailing the 1998 and 1999 budget for marketing collateral,
advertising, direct mail, trade shows, PR etc.
9.3. PRODUCT A PROMOTION IN DVD PLAYERS
Macrovision agrees (subject to compliance by C-Dilla with the
provisions by clause 11.2) to:-
9.3.1. include and promote the adapted Product A technology, or
a mutually agreed alternative, in its current digital
copy protection / authentication solution to the Data
Hiding Sub Group ("DHSG") of the DVD
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Consortium's Copy Protection Working Group ("CPTWG"); and
9.3.2. use all reasonable efforts to win the CPTWG bid process
and be selected as the industry standard.
9.4. OBLIGATIONS AND PRODUCT INFRINGEMENT/NON-PERFORMANCE
C-Dilla acknowledges that in the event of:
9.4.1. the institution of legal proceedings alleging the
infringement of the intellectual property rights of any
third party by Product A and, in addition, delivery of an
opinion by independent legal counsel (appointed by
agreement between the parties, or in default of agreement
by application of either party to the President of the
Law Society of England and Wales, with the costs of such
counsel to be split between the parties) that, in such
counsel's opinion, the claim is one of merit and there is
a substantial likelihood of Product A being found to
infringe; or
9.4.2. Product A failing to perform substantially in accordance
with the Performance Specification set out in Schedule E;
then, subject to clause 9.5, there shall be the following
consequences -
(i) [*]
(ii) [*]. For the avoidance of doubt Macrovision shall retain
an exclusive licence pursuant to Clause 2.2; and
(iii) subject to clause 9.6 C-Dilla's obligations under clause 8
shall cease.
9.5. CURE PERIOD
C-Dilla shall have a period of sixty five (65) days from the
delivery of counsel's opinion pursuant to clause 9.4.1, or
determination of non-performance pursuant to clause 9.4.2 to
remedy the infringement or non-performance and if it is able to
remedy the same within such period, then the consequences set out
in clause 9.4 shall not occur.
9.6 REPLACEMENT PRODUCT
In the event that C-Dilla is unable to remedy the infringement or
non-performance within the cure period set out in clause 9.5, then
notwithstanding the provisions of clause 9.4 C-Dilla shall
continue to use its reasonable endeavours to develop a replacement
product to Product A which shall be offered to Macrovision
pursuant to clause 2.3. In the event that Macrovision accepts the
replacement product C-Dilla shall (from the date of such
acceptance) become bound by the provisions of clause 8 in relation
to such replacement product.
10. COMPETING PRODUCTS
10.1. PRODUCT A - FIRST TWO YEARS
During the period of [*] years from the Product Release Date,
Macrovision shall not promote, market or exploit any product or
products which are competitive with Product A.
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10.2. OTHER PRODUCTS
If Macrovision wishes to promote, market or exploit any product or
products which are competitive with any of the Products other than
Product A, (and with Product A after the first two (2) years from
the Product Release Date) then:
10.2.1. Macrovision shall give C-Dilla not less than [*] written
notice of its intention so to do;
10.2.2. at the end of such notice period it shall (subject to
clause 10.2.3) be entitled to promote or market such
products;
10.2.3. (subject to clause 10.2.4) at the end of such period its
rights in (and licence from C-Dilla relating to) the
Products with which the products are competing shall
immediately be terminated (but without prejudice to its
exclusive rights in the other Products);
10.2.4. if the product which Macrovision wishes to promote or
market is a product competing with Product A, then upon
the expiry of such notice the licence granted pursuant to
clause 2.1 shall cease and the licence granted pursuant
to clause 2.2 shall revert to a non-exclusive basis in
relation to all other Products
10.2.5. clause 10.3 shall have effect.
10.3. ASSIGNMENT OF RIGHTS TO C-DILLA
Immediately on the termination of Macrovision's rights in relation
to any Products under clause 10.2.3 (and on termination under
clause 16.2 by C-Dilla)
10.3.1. Macrovision shall provide to C-Dilla details of all
licences concluded in respect of all such Products,
details of all Customers and prospective Customers with
whom it has negotiated the licence of such Products;
10.3.2. assign to C-Dilla its rights under such licences,
including without limitation the right to future income
(or, at Macrovision's reasonable request, procure the
novation of such licences but not of any additional
obligations, to C-Dilla).
10.4. OWNERSHIP AND DEVELOPMENTS
The parties agree that Macrovision shall not, during the Term or
for a period of twelve months thereafter, itself develop any
products which are competitive with the Products, but that:-
10.4.1 in the event that Macrovision develops improvements to or
replacements for any of the technologies covered by this
Agreement where such improvements or replacements were
developed without reliance on any of C-Dilla's
confidential information then such improvements or
replacements shall:-
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(i) be immediately communicated to C-Dilla;
(ii) be wholly owned by Macrovision; and
(iii) licensed to C-Dilla under reasonable terms to be
negotiated
however, Macrovision may not engage in independent
commercialisation of the same unless C-Dilla terminates
the exclusive licence;
10.4.2 in the event that Macrovision and C-Dilla jointly develop
improvements to or replacements for any of the
technologies covered by this Agreement where such
improvements or replacements were developed without
reliance on any of C-Dilla's confidential information
then such improvements or replacements shall:-
(i) be jointly owned by Macrovision and C-Dilla; and
(ii) be licensed by each party to the other under
reasonable terms to be negotiated.
however, Macrovision may not engage in independent
commercialisation of the same unless C-Dilla terminates
the exclusive licence.
10.4.3 in the event that Macrovision develops improvements or
replacements for any of the technologies covered by this
Agreement where such improvements or replacements
resulted from confidential information imparted to
Macrovision by C-Dilla (with consent to use for
development) then such improvements or replacements
shall:-
(i) be immediately communicated to C-Dilla;
(ii) be jointly owned by Macrovision and C-Dilla; and
(iii) be licensed by each party to the other free of
royalties.
however, Macrovision may not engage in independent
commercialisation of the same unless C-Dilla terminates the
exclusive licence.
11. C-DILLA'S OBLIGATIONS (PERFORMANCE GUARANTEES)
11.1. RESEARCH AND DEVELOPMENT SUPPORT
C-Dilla shall during the Term provide reasonably adequate research
and development support to the Products [*]), being not less than
[*] per Year on Product A during the Term.
11.2. [*]:
11.2.1. [*];
11.2.2. [*].
11.3. [*].
11.4. SUPPORT AND TRAINING DURING INITIAL SUPPORT PERIOD
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C-Dilla agrees for the Initial Support Period to provide:
11.4.1. training for Macrovision's customer support staff in
accordance with Schedule E;
11.4.2. first line support of Macrovision's Customers.
11.5. SUPPORT AND TRAINING AFTER INITIAL SUPPORT PERIOD
After the Initial Support Period C-Dilla may provide training and
support at its then current full charges.
11.6. SECOND LINE SUPPORT
C-Dilla shall during the Term provide free-of-charge second line
customer support at its Reading office during its normal working
hours.
11.7. OTHER INFORMATION
C-Dilla shall during the Term:
11.7.1. provide all information and documents reasonably
requested by Macrovision in relation to the Products;
11.7.2. notify Macrovision of any changes in law and regulations
relating to the sale of the Products of which it becomes
aware, and of any breach of the same of which it becomes
aware; and
11.7.3. inform Macrovision of any material changes in the market
for the Products and of competing products and the
activities of C-Dilla or C-Dilla's competitors of which
it becomes aware, so far as is reasonably practicable.
11.8. FAILURE RATE TESTING
C-Dilla agrees to use all reasonable efforts and carry out
reasonable testing required to achieve a [*] failure rate for
Product A and to meet the Product Release Date within [*] of the
Effective Date provided that Macrovision also agrees to provide
all reasonable assistance in running trials, pilots and beta
testing procedures during the market introduction phase of Product
A
11.9 ADDITIONAL
The parties agree that:
11.9.1 [*];
11.9.2 [*].
12. MINIMUM ROYALTY PAYMENTS
12.1. TARGETS FOR INITIAL TERM
Macrovision agrees that if the Royalties paid by Macrovision to
C-Dilla do not reach the minimum levels set out in Schedule B
during the Years set out in Schedule B, the licence granted to
Macrovision shall become a non-exclusive
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licence in respect of all Products.
12.2. TARGETS FOR EXTENDED TERM
If the Term is extended in accordance with clause 3.2, Macrovision
agrees that if the Royalties paid by Macrovision to C-Dilla do not
reach the minimum levels set out in Schedule C during the Years
referred to in Schedule C, the licence granted to Macrovision
shall become a non-exclusive licence in respect of all Products.
13. INTELLECTUAL PROPERTY RIGHTS INDEMNITY
13.1 INDEMNIFICATION
Provided that Macrovision complies with the provisions of clause
13.2, C-Dilla shall indemnify Macrovision (which for the purpose
of this clause 13 shall include its agents, officers, directors,
employees, servants, shareholders, customers and the like) and
shall keep Macrovision fully and effectively indemnified against
(subject to clause 13.7) any and all losses, claims, damages,
costs, charges, expenses, liabilities, demands, proceedings and
actions which Macrovision may sustain or incur or which may be
brought or established against Macrovision by any person which in
any case arise by reason of the use or possession of any of the
Products in accordance with this Agreement infringing:
13.1.1 any Intellectual Property Rights (excluding patents) of
any third party;
13.1.2 any patent rights of any third party which are as
follows: patent rights in countries where Customers are
permitted to use the Products in accordance with Customer
Licence Agreements; and patent rights in countries where
Macrovision has given C-Dilla notice in accordance with
clause 13.9.
13.2 NOTIFICATION
Each party shall notify the other immediately if it becomes aware
of any claim of infringement as referred to in clause 13.1.
13.3 CO-OPERATION
Macrovision shall:
13.3.1 notify C-Dilla immediately that it becomes aware of any
claim of infringement of any patent right against
Macrovision relating to the Products; and
13.3.2 co-operate fully with C-Dilla and permit C-Dilla to
defend or settle the claim on behalf of Macrovision
subject to:-
(i) C-Dilla taking action within a reasonable period
from notification;
(ii) consulting Macrovision prior to such settlement
and where such settlement affects Macrovision
obtaining Macrovision's prior approval to the same;
(iii) taking into account any reasonable requirements of
Macrovision;
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and
(iv) Macrovision's right under clause 13.4.
13.4 MACROVISION'S RIGHT TO DEFEND
If Macrovision reasonably believes that C-Dilla is not properly or
effectively defending any claim as referred to under clause 13.3.2
above, then Macrovision shall be entitled to take over the defence
or settlement of such claim on its own behalf provided that:
13.4.1 the costs of defending such claim (and amount of any
settlement) shall be borne exclusively by Macrovision;
13.4.2 Macrovision shall (where any settlement affects C-Dilla)
consult with C-Dilla prior to any settlement and shall
take into account any reasonable requirements of C-Dilla;
13.4.3 Macrovision shall not make any statement or take any
action which shall prejudice any other claim, proceedings
or action to which C-Dilla may be or may subsequently be
a party (whether on its own behalf or otherwise).
13.5 RIGHT TO REMEDY
If -
(i) a claim is made in respect of infringement by the Products
of the intellectual property rights of any third party, and
(ii) in the opinion of independent legal counsel (appointed by
agreement between the parties, or in default of agreement by
application of either party to the President of the Law
Society of England and Wales) the claim is one of merit and
there is a reasonable likelihood that a Product is likely to
determined to constitute an infringement of a third party's
intellectual property rights, then C-Dilla shall have the
right to take the following actions:
13.5.1 procure for Macrovision and its Customers the right to
continued use and possession of the Products; or
13.5.2 replace or modify the Products (without materially
detracting from their overall performance) to make them
non-infringing, and compensate Macrovision for all fair
and reasonable costs incurred by Macrovision directly as
a result of introducing such modified or replaced
Products;
provided that in the case of Product A, Macrovision shall also
have the right (if the conditions set out above are met) to
require C-Dilla to use all reasonable efforts to take such actions.
13.6 EXCEPTIONS
The indemnity set out in clause 13.2 shall not apply:
13.6.1 to any infringement which is due to Macrovision's
alteration of the Products;
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13.6.2 to any infringement which is due to Macrovision's
continued use of a version of any of the Products which
has been replaced by a non-infringing version or
replacement pursuant to clause 13.5.2 in circumstances
where C-Dilla has notified Macrovision of such
replacement; or
13.6.3 where Macrovision exercises its right to take over or
retain control of any action pursuant to clause 13.3.2.
13.7 CONSEQUENTIAL LOSSES
Except in the case of fraudulent or wilful concealment of any
patent infringement by C-Dilla, C-Dilla's liability and the extent
of its indemnity under this clause 13 shall be limited solely to
direct losses incurred by Macrovision, and C-Dilla shall have no
liability (except in the case of fraudulent or wilful concealment
of any patent infringement) for (i) loss of profits, (ii) loss of
contracts or revenue, or (iii) indirect or consequential losses,
howsoever arising.
13.8 ENTIRE LIABILITY
The provisions of this clause 13 state the entire liability of
C-Dilla to Macrovision for infringement of any Intellectual
Property Rights of any third party due to the use of any of the
Products in accordance with this Agreement.
13.9 INSURANCE NOTIFICATION
Macrovision agrees to keep C-Dilla informed of the countries in
which it licenses Customers to use the Products, and in which
Products are permitted to be used or otherwise likely to be used,
with reasonable notice so that C-Dilla may be able to review and
extend its patent infringement indemnity insurance in advance of
such use.
14. ESCROW
14.1 AGREEMENT
Within forty (40) days of the Effective Date the parties shall
enter into an escrow agreement with the NCC in respect of the
Products, on the same terms as are contained in the Escrow
Agreement attached as Appendix 2.
14.2 COMPLIANCE WITH AGREEMENT
C-Dilla agrees that it shall deposit the source code to the
Products (and other materials as required under the Escrow
Agreement) in accordance with the Escrow Agreement, and shall
otherwise comply with the terms of the Escrow Agreement.
15. CONFIDENTIALITY
15.1 Macrovision expressly recognises and acknowledges that the
Products contain confidential information and trade secrets which
are the property of C-Dilla and C-Dilla expressly recognises and
acknowledges that in performing the terms of this Agreement it may
obtain confidential information and trade secrets of Macrovision
(in each case "Confidential Information") and each party therefore
acknowledges that during the continuance of this Agreement or
thereafter:-
19
<PAGE>
15.1.1 it shall not disclose or communicate any of the
Confidential Information of the other party to any third
party (including to any parent company or subsidiary of
Macrovision or C-Dilla (as the case may be);
15.1.2 it shall disclose or communicate Confidential Information
of the other party to any of its employees only to the
extent that they need to know the same for the purpose of
each party fulfilling its obligations or exercising its
rights under this Agreement.
15.2 The above restrictions shall not apply:-
15.2.1 to information which is required to be disclosed by
Macrovision to Customers for the purpose of their making
use of the Products (to the extent that it is so
required);
15.2.2 to information which is in the public domain (other than
due to a breach by either party of this clause);
15.2.3 to information which the receiving party can show by
documentary evidence was in its possession prior to
receipt from the other party;
15.2.4 to information which the receiving party can demonstrate
was developed by it independently of any information
disclosed to it by the other party;
15.2.5 to any disclosure of information to which the disclosing
party gives its express written consent;
15.2.6 to any development to which the provisions of clause 10.4
apply;
15.2.7 where disclosure is ordered by a Court or any stock
exchange or governmental authority or other regulatory
body;
15.2.8 to auditors attorneys and other professional advisers
whose province it is to know the same; and
15.2.9 to announcements statements or communications to the
press agreed by the other party.
16. TERMINATION
This Agreement may be terminated:
16.1 immediately by either party if the other commits any material
breach of clauses 4, 9.1, 10.1, 10.2, 11,13 and 15 of this
Agreement and which, in the case of a breach capable of being
remedied, shall not have been remedied within twenty eight (28)
days of a written request to remedy the same; and
16.2 immediately by either party if:
20
<PAGE>
16.2.1 the other shall convene a meeting of its creditors or if
a proposal shall be made for a voluntary arrangement
within Part I of the Insolvency Act 1986 or a proposal
for any other composition scheme or arrangement with (or
assignment for the benefit of) its creditors: or
16.2.2 the other party is insolvent it or shall be unable to pay
its debts within the meaning of section 123 of the
Insolvency Act 1986; or
16.2.3 a trustee, receiver, administrative receiver,
administrator, liquidator or similar officer is appointed
in respect of all or any part of the business or assets
of the other party; or
16.2.4 a petition is presented or a meeting is convened for the
purpose of considering a resolution or other steps are
taken for the winding up of the other party or for the
making of an administration order (otherwise than for the
purpose of an amalgamation or reconstruction); or
16.2.5 anything analogous to any of the foregoing under the law
of any jurisdiction occurs in relation to that other
party;
17. CONSEQUENCES OF TERMINATION
17.1 EXISTING RIGHTS AND REMEDIES
Any termination of this Agreement for whatever reason shall be
without prejudice to any other rights or remedies a party may be
entitled to hereunder or at law and shall not affect any accrued
rights or liabilities of either party nor the coming into or
continuance in force of any provision which is expressly or by
implication intended to come into or continue in force on or after
such termination.
17.2 ADVANCE PAYMENT
Upon termination by C-Dilla, or termination under clause 16.1 and
16.2 the [*] from the date of termination.
17.3 CUSTOMER RECORDS
Upon termination of this Agreement for whatever reason,
Macrovision shall assign to C-Dilla (or procure for the assignment
to C-Dilla) its rights under the Customer Licence Agreements,
including [*].
17.4 TRADE MARK
Upon termination of this Agreement for whatever reason,
Macrovision shall at no cost assign absolutely its co-ownership of
any of the trade marks referred to in clause 2.5 to C-Dilla (other
than in relation to trade marks which are dealt with under clause
10.4), and undertakes to execute (at C-Dilla's costs) any
documents and do any acts which may be reasonably required to
effect such assignment.
18. GENERAL
18.1 OWNERSHIP
21
<PAGE>
The parties acknowledge that:-
(i) title to and ownership of all intellectual property rights
in any Products solely developed by C-Dilla remains with
C-Dilla and Macrovision acquires no title or ownership in
any of them or any products developed from them and no
interest in them other than the licences granted under this
Agreement;
(ii) title to and ownership of all intellectual property rights
in any products solely developed by Macrovision remains with
Macrovision and C-Dilla acquires no title or ownership in
any of them or any products developed from them and no
interest in them; and
(iii) title to and ownership of all intellectual property rights
in any products jointly developed by C-Dilla and Macrovision
shall be jointly owned.
(but subject to the overriding provisions of clause 10.4)
18.2 SUB-CONTRACTING AND ASSIGNMENT
Except as permitted under clause 5.5, Macrovision shall not assign
or sub-contract any of its rights or obligations under this
Agreement without C-Dilla's prior written consent.
18.3 RELATIONSHIP
Nothing in this Agreement shall create a partnership or the
relationship of employer and employee between the parties. Except
as expressly provided in this Agreement neither party shall enter
into or have authority to enter into any engagement or make any
representation or warranty on behalf of or pledge the credit of or
otherwise bind or oblige the other party.
18.4 WAIVER
Failure or neglect by either party to enforce at any time any of
the provisions of this Agreement shall not be construed nor shall
be deemed to be a waiver of that party's rights under this
Agreement nor in any way affect the validity of the whole or any
part of this Agreement nor prejudice that party's rights to take
subsequent action.
18.5 SEVERABILITY
If any provision of this Agreement is held by any court or any
other competent authority to be invalid or unenforceable, in whole
or in part, the other provisions of this Agreement, and the
remainder of the affected provision shall continue to be valid.
18.6 RESTRICTIVE TRADE PRACTICES ACT AND COMPETITION LAW
Both parties shall co-operate in making any amendments to this
Agreement which may be required in order to ensure the
enforceability of any provisions, or in substituting equivalent
provisions therefor.
18.7 EC SOFTWARE DIRECTIVE
18.7.1 In this clause "the Directive" means the Directive of the
Council for the European Communities of 14 May 1991 on
the legal protection of computer programs.
22
<PAGE>
18.7.2 If any provision of this Agreement which limits or
defines the rights of Macrovision in relation to the
Products would (but for this clause) be rendered void by
the Directive, the provision shall be deemed to include
exceptions to the limitations and extensions of the
rights granted, to the extent necessary (but no further)
to avoid the provisions being null and void.
18.8 HEADINGS
The headings to the clauses and sub-clauses to this Agreement are
included for convenience only and shall not affect the
construction or interpretation of this Agreement.
18.9 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement of the parties and
supersedes all prior agreements, understandings and negotiations.
18.10 LAW
This Assignment shall be governed by and construed in accordance
with the laws of England and the parties hereby submit to the
exclusive jurisdiction of the English courts.
18.11 EXPORT CONTROL
18.11.1 C-Dilla agree that it shall apply for and shall use all
reasonable endeavours to obtain and maintain an Open
Individual Export Licence from the Department of Trade
and Industry (or any future equivalent thereof) to enable
export of the Products to the USA and to such other
countries as Macrovision may request and shall comply
with all terms of such Licence;
18.11.2 Macrovision agrees that it shall be its responsibility to
ensure compliance with any export control regulations
imposed by the Department of Commerce in the USA and in
any other country in relation to the Products, and to
obtain all consents that may be required under such
regulations.
18.12 COUNTERPARTS
This Agreement may be entered into in any number of counterparts
and by the parties to it on separate counterparts, each of which
when so executed and delivered shall be an original.
19. WARRANTIES
19.1 C-Dilla hereby warrants, represents and undertakes to Macrovision
in the following terms:-
19.1.1 the entering into by C-Dilla of this Software Marketing
Licence and Development Agreement shall not infringe any
licences or rights granted to[*]. pursuant to the
agreements entered into with them by C-Dilla, copies of
which have been disclosed to Macrovision, or any other
licences entered into with or rights granted by C-Dilla
and any third parties.
23
<PAGE>
19.1.2 in performing the terms of this Agreement Macrovision
shall not be infringing:
19.1.2.1 [*];
19.1.2.2 any patent published or published application
published prior to June 1997 of which C-Dilla
should have reasonably been aware;
19.1.2.3 any patent published or published application
published after June 1997 of which C-Dilla is
aware.
For the purpose of this clause a published application
means any application for which the specification has
been published.
19.1.3 [*];
19.1.4 except as disclosed in the Disclosure Letter C-Dilla is
not engaged either on its own account or vicariously in
any suit, action, litigation, arbitration tribunal
proceedings or any governmental or official investigation
or inquiry and no such suit, action, litigation,
arbitration tribunal proceedings or investigation or
inquiry or other dispute are pending or threatened by or
against the Company;
19.1.5 the findings in relation to the performance of Product A
contained in the Report attached as Appendix 3 are
accurately recorded in that Report.
19.2 In the event of any breach of the Warranties referred to above
Macrovision shall (without restricting the rights or ability of
Macrovision to claim damages or indemnity on any basis available
to it in respect of such breach) be entitled to forthwith
terminate this Agreement and C-Dilla shall further on demand (and
notwithstanding the provisions of clause 17.2) pay to Macrovision
the remaining unpaid balance of the Advance Payment and
Macrovision shall have no further liability to C-Dilla pursuant to
the terms of this Agreement.
20. FUTURE CO-OPERATION
The Parties agree that so long as exclusivity has been maintained by
Macrovision at the completion of the Extended Term both parties will use
all best endeavours to enter into an agreement for a further 5 year term
based upon the same principles that have been agreed for the extended
Term which are no less favourable.
IN WITNESS whereof the parties by their duly authorised representatives
have executed this Agreement the day and year set out at the top of page
1 of this Agreement
24
<PAGE>
EXECUTED (but not delivered until )
the date hereof) as a DEED by )
C-DILLA LIMITED )
acting by
Director: ....................................
Director/Secretary: .............................
EXECUTED (but not delivered until )
the date hereof) as a DEED by )
MACROVISION LIMITED )
acting by
Director: ....................................
Director/Secretary: .............................
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Financial Statements of Macrovision Corporation for the three months ended March
31, 1998, and is qualified in its entirety by reference to such Financial
Statements.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2784
<SECURITIES> 8823
<RECEIVABLES> 4799
<ALLOWANCES> 681
<INVENTORY> 545
<CURRENT-ASSETS> 18405
<PP&E> 4611
<DEPRECIATION> 2997
<TOTAL-ASSETS> 30436
<CURRENT-LIABILITIES> 5341
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 24856
<TOTAL-LIABILITY-AND-EQUITY> 30436
<SALES> 5178
<TOTAL-REVENUES> 5178
<CGS> 398
<TOTAL-COSTS> 398
<OTHER-EXPENSES> 3308
<LOSS-PROVISION> 28
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> 1603
<INCOME-TAX> 609
<INCOME-CONTINUING> 994
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 994
<EPS-PRIMARY> .14
<EPS-DILUTED> .13
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Financial Statements of Macrovision Corporation for the three months ended March
31, 1997, and is qualified in its entirety by reference to such Financial
Statements.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 4227
<SECURITIES> 9763
<RECEIVABLES> 3919
<ALLOWANCES> 371
<INVENTORY> 716
<CURRENT-ASSETS> 19998
<PP&E> 4484
<DEPRECIATION> 2494
<TOTAL-ASSETS> 23960
<CURRENT-LIABILITIES> 6361
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 16962
<TOTAL-LIABILITY-AND-EQUITY> 23960
<SALES> 4564
<TOTAL-REVENUES> 4564
<CGS> 681
<TOTAL-COSTS> 681
<OTHER-EXPENSES> 2984
<LOSS-PROVISION> 135
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 923
<INCOME-TAX> 369
<INCOME-CONTINUING> 554
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 554
<EPS-PRIMARY> .09
<EPS-DILUTED> .08
</TABLE>
