MALCO THEATRES, INC.
585 Ridgeway Center Parkway* Memphis, TN
August 24, 2000
David V. Lott, President
Kiosk Solutions & Management International
574 Greentree Cove, Suite 101
Collierville, TN 38017
Dear David:
Representatives of Malco Theatres, Inc. and its affiliate (collectively,
"Malco") and Kiosk Solutions & Management International ("KSMI" or "Licensee")
have been discussing a proposed transaction for a development agreement (the
"Transaction"). This Memorandum confirms the current status of these
discussions and provides a framework for negotiating a definitive agreement
governing the Transaction. The name of the Malco affiliate is Digital
Theatres Resources Co., a Tennessee general partnership (which may become a
party to the definitive agreement or a beneficiary thereof).
1. Definitive Agreement. The parties will try to reach a definitive agreement
on mutually satisfactory terms governing the Transaction (the "Agreement"
or interchangeably with the "definitive Agreement") no later that November
1, 2000; provided, however, that either party may discontinue such
negotiations at any time by written notice to the other party for any
reason whatsoever or for no reason.
2. Due Diligence Access to Information. Prior to the execution and delivery of
the definitive Agreement or the termination of this Memorandum, KSMI will
provide Malco and its counsel, accountants and other advisors ("Malco
Representatives") with all information reasonably requested by Malco and
its Representatives and necessary or beneficial for an evaluation of the
Transaction.
3. Announcements. Pending the execution and delivery of the Agreements the
timing and content of all announcements regarding any aspect of the
Transaction to the financial community, advertising community, government
agencies, customers, suppliers or the public generally will be mutually
agreed upon in advance. If KSMI makes an announcement that it has entered
into an agreement with Malco, whether with or without Malco's advance
knowledge, such announcement shall have no consequence as far as either
party being bound to the other and the consent, knowledge or acquiescence
of Malco shall in no instance be deemed to be an acquiescence to an
obligation or liability to KSMI; those obligations of Malco which may be
found in Sections 3 and 5 and which are to be set forth in the Agreement
are the only obligations that shall be or become binding upon Malco, any
conduct of Malco to the contrary notwithstanding and anything contained in
this memorandum notwithstanding.
4. Governing Law This letter shall be governed by and construed under the laws
of the State of Tennessee as applied to contracts entered into solely
between residents of and to be performed entirely in such state, and the
forum for any dispute will be a court of general juris action within Shelby
County, Tennessee.
5. Expenses Each party will pay its own expenses incident to this Memorandum,
the Agreement and the transactions contemplated thereby, including all fees
and expenses of counsel and accountants and any broker or finder commission,
whether or not such transactions are completed.
6. Termination. This Memorandum may be terminated by either party, pursuant to
Section 1 above, or upon the failure of the other party to enter into the
Agreement prior to November 1, 2000, and shall terminate upon execution of
the Agreement. However, the Agreement will obligate KSMI (i) to give at
least thirty (30) days advance written notice before termination of service
and before removal of any equipment and (ii) to remove KSMI's equipment
from Malco's premises in not more than seven (7) calendar days in the event
of termination by Malco or its affiliate.
7. Covenants. KSMI's added covenants for inclusion in the Agreement:
(a) Business shall be fully operational in Malco theatres no later than
February 1, 2001.
(b) KSMI is responsible for all costs and expenses for installation,
management, maintenance, repair, replacement and upgrading of the
equipment and systems.
(c) KSMI to provide weekly accounting to Malco and to remit weekly shared
revenues.
(d) KSMI holds revenues in trust for Malco and KSMI, and Malco has lien on
revenues.
(e) Malco has veto power over any advertising display, in Malco's sole and
uncontrolled discretion, in each Malco theatre.
(f) Before projecting advertising in any Malco theatre, KSMI shall provide
Malco advance screening in each case without exception.
(g) Maintenance and repair.
(h) Pretesting
(i) Given that technology is changing rapidly, the Licensee shall also be
responsible, at its expense, for upgrading hardware and software to
keep pace with technological advances and replacements.
(j) Upon the expressed permission and in the location specified by Malco,
KSMI shall install the Dynamic Display, the site-based server, "kiosk
operating software," "network operations" software, and related high-
speed data lines. The commencement of operation of that Dynamic
Display shall mark the beginning of the term of the license for that
unit for the purpose of calculations set forth in Subsection (m) below.
(k) KSMI shall pay for all expenses related to the installation, management
and maintenance of the Dynamic Displays. Each Dynamic Display and its
related hardware and software components, with the exception of the
content provided by Malco, shall remain the property of KSMI. In the
event of termination of any license for any Dynamic Display, Malco
shall not be entitled to use, retain or otherwise appropriate any
rights to any of the intellectual property rights owned or controlled
by KSMI with respect to the Dynamic Display.
(l) Guaranty (by TouchVision or another guarantor satisfactory to Malco) of
Licensee's payment and performance for two year period.
(m) Two-thirds of the available time in the rotation of advertising content
is expected to be devoted to national advertising. Malco gets 50% of
gross revenue. Malco has no obligation to pay expenses except for
advertising content intentionally provided by it.
(n) For the first three years that advertising becomes operational at
Malco, added royalty (to Malco) for being the demonstration model is
5% of gross advertising revenues generated by third parties within
10-mile radius of Memphis and an added 5% of gross advertising
revenues generated by each third party which contracts with Licensee
after being shown operations at Malco; cannot be evaded by affiliate.
8. KSMI's Reps and Warranties in the Agreement.
(a) Standard vendor representations and warranties, including that the
equipment (including systems and software have been pre-tested and
are and will be bug free) and will be continuously operational.
(b) KSMI has developed a Plasma Wall Dynamic Display (the "Dynamic
Display") which consists of four panels of plasma screens with
integrated software that is controlled through a size-based server
which stores content for the Dynamic Display.
(c) KSMI has designed and shall operate "dynamic display operating system"
software which permits each of the four panels of the Dynamic Display
to present different or coordinated multi-media digital content. The
multi-media digital content displayed on each of the panels of the
Dynamic Displays is intended to assist in the promotion of Malco
Theatres or generate revenues as follows:
(i) One panel shall broadcast "trailers" or other promotional
materials relating to attractions and concessions at the Malco
Theatres.
(ii) One panel shall broadcast"loyaly program" information, including
special discount and contest activitites.
(iii) One panel shall broadcast advertisements by paying sponsors and
advertisers.
(iv) One panel shall broadcast general information of public interest
(via text or video transmission or certain productions related to
Malco Theatres loyalty or merchandising programs.
(v) Or the panels may be linked to display one contiguous display
depending upon content to be displayed.
(d) KSMI has designed software and, through TouchVision, Inc., shall
continuously link, manage and operate digital transmissions in each and
all Dynamic Displays through a process known as "network operations."
(e) KSMI has developed and shall operate Interactive Touchscreen Access
Stations (the "Kiosk Stations") controlled through integrated software
capable of integration with a site-based server.
(f) KSMI has designed and shall operate "kiosk operating systems" software
for the Kiosk Stations which permits users to engage in high-speed
digital transactions, including "e-commerce shopping," Internet-based
entertainment, and purchasing of downloaded digital multi-media content
(such as recorded music of films).
9. Content
(a) Malco may provide content to KSMI for the panel of the Dynamic Display
which broadcasts "trailers" or other promotional materials relating to
attractions and concessions at the Malco Theatres, and such broadcast
shall be made at no charge to Malco.
(b) KSMI shall provide all other content for the Dynamic Displays and
advertising and sponsorship content for the Dynamic Displays subject
to Malco's powers under Subsection 7(e).
10. KSMI's Remedies Under the Agreement Remedies for default by KSMI; only
termination.
11. Malco's Remedies Under the Agreement Remedies by default by KSMI:
(a) Right to terminate at any time for any reason, or no reason, that
Malco deems advisable, in Malco's sole and uncontrolled discretion;
and KSMI shall remove equipment within seven (7) calendar days
thereafter.
(b) Can also enjoy an accounting of revues for shared revenues; can
enforce its lien on revenues.
(c) Recover whatever Malco is entitled to under royalties.
(d) Can obtain a restraining order and injunctive relief whenever the
exclusivity or royalty provisions are violated and any other equitable
remedy.
(e) Malco enjoys option, on termination by Licensee or by Malco whenever
Licensee defaults, to buy the plasma screens for a price fixed by
formula.
(f) Malco shall also be direct beneficiary of Licensee's contract with
advertising provider, including intermediary (who places advertising):
Malco right to enforce contract.
(g) Exclusively available in Malco lobbies for five years and no other
exhibitors within a 10 mile radius of each Malco screen unless prior
written consent is given by Malco in writing (remedy of injunction
available, without bond).
12. Access Malco's reasonable access to KSMI's books and records.
13. Boilerplate Standard paragraphs for contracts
14. Subordination Licensee's banker(s) is to subordinate to the Agreement /
agree to nondisturbance.
15. Liability No liability one to the other, other than as expressly set
forth in the Agreement.
16. Non-Binding Memorandum Except for the parties' obligations set forth in
Sections 3 and 5 hereof, this Memorandum does not constitute or give rise
to any legally binding commitment but merely represents an expression of
the parties' preliminary discussion points. This Memorandum does not
constitute a binding commitment to proceed with the Transaction. Such
binding obligations will result only from the execution of the definitive
Agreement.
17. Subject To The license of the Dynamic Display is subject to any terms or
conditions of leases and existing business relationships between Malco and
third-parties. The license for the Dynamic Display and any related
hardware or software components, including the Kiosk Stations, shall be
three years from the date of the commencement of functional operation by
the Dynamic Display.
18. Base Station KSMI and Malco acknowledge that the on-site server is
designed to be the "base station" for multiple applications to be
delivered and installed per rollout schedule as the systems become
available and the market warrants.
MALCO THEATRES, INC.
If the terms and conditions set forth above are acceptable to KSMI, please
have KSMI complete, sign and return one copy of this letter to is no later
than 5:00 p.m., CST, September 1, 2000. It is understood that this letter may
be executed in counterparts, all of which shall constitute one and the same
instrument, and may be executed by facsimile signatures to be confirmed
promptly by originally signed hard copies. This Memorandum shall be of no
force and effect, and is expressly withdrawn, if not executed and returned to
the undersigned by such time and date.
Sincerely,
MALCO THEATRES, INC.
By:_________________________________
Robert T. Levy, Senior Vice President
ACCEPTED AND AGREED TO as of
__________________, 2000 by:
KIOSK SOLUTIONS & MANAGEMENT
INTERNATIONAL
By:_________________________________
Davis V. Lott, President
