Settlement Agreement - Inline Connection Corp. and CAIS Inc.
SETTLEMENT AGREEMENT
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SETTLEMENT AGREEMENT dated as of January 24, 1999, by and among Inline
Connection Corporation (hereinafter "Inline), a corporation existing under the
Laws of the State of Virginia, having its principal place of business at 730 N.
Danville Street, Arlington, Virginia 22201; CAIS, Inc. (hereinafter "CAIS") a
corporation existing under the laws of the State of Virginia, having its
principal place of business at 6861 Elm Street, McLean, Virginia 22101; and Terk
Technologies,Corp. (hereinafter "Terk"), a New York Corporation, having its
principal place of business at 63 Mall Drive, Commack, New York 11725.
WHEREAS, Inline is the owner and/or assignee of all right, title and
interest in and to certain patents, patent applications and technology for
products which transmit one or more signals onto twisted pair wires at
frequencies above 3KhZ, and products that receive one or more signals at
frequencies above 3KhZ, by connection to twisted pair wires; and
WHEREAS, Inline and Terk entered into an exclusive license agreement
within a specified field of use, dated as of December 17, 1994 entitled
Licensing Agreement Terk Technologies ----- Inline Connection (the " Inline/Terk
Agreement"); and
WHEREAS, Inline and CAIS entered into an agreement dated November 5,
1996 entitled "Agreement for Cooperative Use of Communication Patents" (the
"Inline/CAIS Agreement"); and
WHEREAS, a dispute has arisen in connection with the Inline/Terk
Agreement, which dispute is currently pending before the American Arbitration
Association and entitled "In the Matter of the Arbitration between Inline
Connection Corporation and Terk Technologies, Inc.", Claim No.: 13 133 0078397
("the Arbitration"); and
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WHEREAS, a dispute has arisen concerning the patents, patent
applications and technology owned and/or assigned by Inline and/or David D.
Goodman, which dispute is currently the subject of a patent infringement and
related claims lawsuit pending in the United States District Court, Eastern
District of New York, entitled "Terk Technologies Corp. v. CAIS, Inc., Ulysses
G. Auger II, Inline Connection Corp., and David Goodman", Civil Action No.: CV
98 5942 (Wexler, J.) (hereinafter "the District Court Action"); and
WHEREAS, the parties to this Agreement desire to settle the disputes
pending, or which could have been raised, in the Arbitration and the District
Court Action and, modify, amend and clarify the respective rights of the parties
concerning the Inline/Terk Agreement.
NOW, THEREFORE, in consideration of the above premises and such other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties do hereby agree as follows:
1. Dismissal of Actions.
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The Arbitration and the District Court Action, referenced above, shall
be dismissed with prejudice, and the parties to those proceeding shall each
execute Stipulated Dismissals in the forms annexed hereto as Exhibits "A" and
"B", respectively (hereinafter collectively the "Stipulated Dismissals").
Counsel shall promptly sign and file the Stipulated Dismissals. Each party to
the Arbitration and District Court Action shall bear its/his own costs, expenses
and fees, including but not limited to expert witness and attorneys fees.
2. Amendment of Inline/Terk Agreement.
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(a) Scope of License - Subject to and pursuant to the terms and
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conditions of this Agreement, the Inline/Terk Agreement shall be amended as
follows:
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(i) the second grammatical paragraph appearing in page 1 shall be
amended to read as follows:
"As part of this agreement, Inline hereby grants to Terk a non-
exclusive license, under the intellectual property defined below, to build, use,
manufacture, have manufactured, market, distribute, sell and to otherwise
commercialize products utilizing or incorporating the technology, as defined
below, in the field of use, as defined below".
(ii) the third grammatical paragraph on page 2 of the Inline/Terk
Agreement is hereby amended to read as follows:
"Terk shall not have the right to sublicense its rights to the
technology, and may use the technology within the field of use permitted by this
Agreement only in conjunction with (a) products manufactured by or for Terk or
(b) for the purpose of OEM and private label sales by Terk of products utilizing
the technology."
(iii) the "Field of Use" Section appearing on page 2 of the
Inline/Terk Agreement is hereby amended to read as follows:
"The Field of Use is strictly confined to residential settings,
specifically single-family dwellings and inside apartment and other multi-family
residential units, and bars, restaurants, coffee shops, and other business
establishments earning at least 90% of their revenues from the sale of food and
beverages consumed on premises. Specifically excluded from the Field of Use are
non-residential sites including specifically, but not exclusively, hotels,
hospitals, schools, all commercial sites (other than those listed in the first
sentence of this "Field of Use" section), and office buildings.
With respect to apartment and other multi-family residential
buildings, the only use permitted in the Field of Use is the transmission of
signals internal within the residential unit.
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Use of the technology to transmit signals to the building and from the
"telephone wiring closet", commonly found on the ground floor of apartment
buildings, or a similar point of convergence of wires leading to terminations in
different apartment or different residential units, is specifically excluded
from the Field of Use.
Terk shall adhere to the foregoing Field of Use limitations, and Terk
has no license rights outside the Field of Use prescribed herein. Terk agrees
to affix the following label on all products sold under this agreement: "For
Residential Use Only". Terk further agrees to place the foregoing Field of Use
limitation in all sales contracts or other agreements relating to the licensed
products with the proviso: "This limitation is the only agreement on its
subject and shall supersede all contradictory agreements. It may be enforced by
Inline Connection Corporation." Terk shall be released from any claims for any
violation of the terms of this section if this Field of Use limitation was
included in the contract to sell the violating products or is contained in the
user's manual.
(b) Royalties - Subject to and pursuant to the terms and conditions of this
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Agreement, the Inline/Terk Agreement is hereby amended as follows:
(i) the portion of the Inline/Terk Agreement entitled "Royalty
Rate" beginning on page 3 of the Inline/Terk Agreement and ending on page 4 of
the Inline/Terk Agreement is hereby amended by the addition of the following
paragraph at the end of such section:
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"Nothing contained herein to the contrary notwithstanding, any
royalties, commissions or other payments of any kind or nature payable by CAIS
or its parents, subsidiaries or affiliates to Terk, whether pursuant to the
terms of this Agreement or otherwise, shall not be subject to the payment of
royalties to Inline pursuant to this Agreement or included in any way in the
calculation of royalties due to Inline pursuant to this Agreement."
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(ii) the first paragraph of the portion of the Inline/Terk
Agreement entitled "Minimum Annual Royalties" beginning on page 4 of the
Inline/Terk Agreement and ending on page 5 of the Inline/Terk Agreement is
hereby amended to read as follows:
"MINIMUM ANNUAL ROYALTIES
Terk is required to pay Inline the following minimum royalties:
- $25,000 payable no later than December 31, 1995
- $25,000 payable no later than December 31, 1996
Thereafter, no minimum royalties shall be payable by Terk. Inline
acknowledges the above royalties have been paid in full."
(c) Deletions - Subject to and pursuant to the terms and conditions of
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this Agreement, the Inline/Terk Agreement is hereby amended by deleting the
following provisions:
(i) the Section entitled "Best Efforts" appearing on page 5 of the
Inline/Terk Agreement is hereby deleted in its entirety and shall no longer
have any force and effect;
(ii) the Section entitled "Enforcement of Intellectual Property
Rights" appearing on page 5 of the Inline/Terk Agreement is hereby deleted
in its entirety and shall no longer have any force and effect;
(iii) the Section of the Inline/Terk Agreement entitled "Exchange of
Intellectual Property Rights" beginning at the bottom of page 5 and
carrying over to the top of page 6 of the Inline/Terk Agreement is deleted
in its entirety and shall no longer have any force and effect; and
(iv) the Section of the Inline/Terk Agreement entitled
"Consultation and Commercial Development" appearing on page 6 of the
Inline/Terk Agreement is deleted in its entirety and shall no longer have
any force and effect.
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(d) Construction and Jurisdiction - Subject to and pursuant to the terms
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of this Agreement, the "Construction and Jurisdiction" section, appearing on
page 8 of the Inline/Terk Agreement, shall be amended as follows:
"This Agreement shall be construed, interpreted and applied in
accordance with the laws of the State of New York applying to contracts fully
executed and performed in New York. In the event of any dispute in connection
with this Agreement, or the provisions thereof, the parties agree and consent
that any lawsuit filed by Inline shall be filed in the United States District
Court for the Eastern District of New York , and any lawsuit filed by Terk shall
be filed in the United States District Court for the District of Columbia.. The
parties further agree and consent that the trial of such action by either
District Court shall be without a jury."
(e) Assignability - Subject to and pursuant to the terms of this
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Agreement, the "Assignment" section appearing at the top of page 8 of the
Inline/Terk Agreement shall be amended as follows:
(i) The first grammatical paragraph appearing on page 8 shall be
amended to read as follows: "The rights and obligations set forth in this
Agreement are not severable by any party hereto. Inline shall have the right to
assign its rights and obligations under this Agreement on the condition that the
assignee assume, in writing, all of Inline's obligations under the Inline/Terk
Agreement, and upon receiving the written consent of Terk, which consent shall
not be unreasonably withheld. It is understood and agreed between the parties
hereto that the license granted to Terk is personal and indivisible. The rights
and obligations of Terk under this Agreement, and the license granted herein,
cannot be assigned or transferred by Terk, and cannot otherwise pass from Terk
as a matter of law, except as part of the sale of the entire business or
division of Terk to which this Agreement relates and on the
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condition that the assignee assume, in writing, all of Terk's obligations under
the Inline/Terk Agreement."
(ii) The second grammatical paragraph appearing on page 8 shall be
deleted in its entirety and shall no longer have any force and effect.
(f) Except as expressly set forth herein, the terms and conditions of the
Inline/Terk Agreement shall remain in full force and effect.
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3. Payments by CAIS to Terk
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(a) Subject to the Terms and Conditions of this Section 3, CAIS shall pay
to Terk the aggregate amount of $500,000, payable as follows:
(i) $250,000 upon the execution and delivery of this Agreement,
which shall be paid by delivering to Stephen M. Rosenberg, Esquire (hereinafter
"Rosenberg"), Attorney for Terk, two (2) post-dated checks each in the amount of
One Hundred Twenty-five Thousand Dollars ($125,000.00) and payable to Terk. The
checks will be post-dated five (5) business days after CAIS receives the
Stipulated Dismissals properly executed by Terk's counsel. Rosenberg is
authorized to release one check to Terk on the post-dated date appearing on the
check and the other check in accordance with the terms set forth in Section 3(c)
below,
(ii) $150,000 on or before July 1, 1999; and
(iii) $100,000 on or before July 1, 2000.
(b) Simultaneously with the execution of this Agreement,
(i) the parties are executing and delivering to CAIS the fully
executed Stipulated Dismissal in the form of Exhibits A and B, dismissing with
prejudice Inline's claims and Terk's counterclaims in the Arbitration and
dismissing with prejudice the District Court Action; and
(ii) the parties hereto are executing and delivering General
Releases in the form of Exhibits C and D.
(c) The parties hereto agree to promptly execute and deliver such
additional documents and instruments as may be reasonably necessary to
effectuate the dismissal of the Arbitration and the District Court Action with
prejudice. The second $125,000 check held by Rosenberg paid pursuant to Section
3(a)(i) above, shall be released to Terk upon confirmation that both the
Arbitration and the District Court Action have been dismissed with prejudice.
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4. Sales and Sub-Licensing
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(a) Terk's license being nonexclusive, Inline and CAIS shall have the
right to build, use, manufacture, have manufactured, market, distribute, sell,
and to otherwise commercialize products utilizing or incorporating the
technology of the Inline/Terk Agreement within Terk's Field of Use without any
payment to Terk.
(b) Inline and CAIS each agree not to sub-license to manufacturers of
consumer electronic products for sale or resale through retail stores,
catalogues, infomercials, direct response marketing or Internet sites, rights to
sell products utilizing the Licensed Technology, or any enhancements,
modifications or improvements, in Terk's Field of Use.
5. Failure of Payments to Terk
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(a) Upon the failure of CAIS to pay any amounts due to Terk pursuant to
Section 3(a) hereof and such default continues for five (5) business days after
written notice is received by CAIS, then the amendments to the Inline/Terk
Agreement provided by Sections 2(a), 2(c), 2(d) and 2(e) hereof and the
provisions in Section 4(a) hereof shall, at Terk's election, be subject to
termination by written notice to Inline and CAIS and, upon Terk giving such
notice, will thereafter be void and without further force or effect and the
Inline/Terk Agreement shall continue in full force on the terms and conditions
contained therein prior to the effective date of such amendments. If Terk
elects to exercise its rights to rescind such amendments and Section 4(a), such
election shall not relieve CAIS of any obligations it may have to Terk pursuant
to this Agreement. Upon the failure of CAIS to make any payment when due under
Section 3(a), the entire unpaid amount due under Section 3(a) shall become due
and payable.
(b) If any amounts payable to Terk under Section 3(a) of this Agreement
are not paid when due and Terk engages legal counsel to collect such amounts due
pursuant to this
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Agreement, then CAIS shall pay to Terk all of Terk's costs and expenses,
including reasonable legal fees, incurred by Terk in connection with the
collection of such amounts or the enforcement of Terk's rights.
6. Common Stock
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(a) Upon dismissal of the Arbitration and District Court Action with
prejudice, CAIS shall deliver to Terk one or more certificates representing
twenty-five thousand (25,000) shares of the common stock of CAIS Internet Inc.
("CAIS Internet"), currently known as CGX Communications, Inc. In the event
there is an initial public offering of common shares or other equity securities
of CAIS Internet pursuant to a registration statement filed on Form S-1, or such
other form as may then be applicable, which becomes effective under the
Securities Act of 1933, as amended, and the rules and regulations thereunder
(the "IPO") at a price less than Ten Dollars ($10.00) per share, CAIS shall
deliver to Terk, at no cost to Terk, a further certificate or certificates
representing additional shares of CAIS Internet common stock such that the total
shares delivered to Terk under this subsection multiplied by the IPO share price
equals Two Hundred Fifty Thousand Dollars ($250,000.00). If the IPO consists of
units of securities which include equity securities of CAIS Internet, then the
foregoing calculation shall be made with respect to the offering price of such
units of securities, each unit being considered one (1) share. The shares of
CAIS Internet common stock delivered to Terk under this subsection are hereafter
referred to as "Terk Shares".
(b) CAIS shall cause Terk's Shares to be registered on Form S-1 or such
applicable form promulgated by the Securities and Exchange Commission ("SEC") as
may then be available when requested by Terk in writing after the effective date
of CAIS Internet's IPO; provided, however, that, at the written request of CAIS
Internet's underwriter, such registration of Terk's
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Shares may be delayed for the shortest period accorded to any of CAIS Internet's
other shareholders. CAIS agrees to take such steps as may be required from time
to time for the registration of Terk's Shares to remain effective. Terk shall
reimburse CAIS for the pro rata cost of the SEC registration fees associated
with registering the Terk Shares and any underwriter's discounts if the Terk
Shares are offered through an underwriter.
(c) Terk understands and agrees that the Terk Shares are not currently
registered and are subject to Rule 144 restrictions and any other applicable
restrictions of the SEC. Terk also understands and agrees that the Terk Shares
may be subject to the most favorable restrictions imposed on the sales of shares
by CAIS Internet's underwriters in the future on any of the other shareholders
of CAIS Internet, but not to exceed one year and one day from the effective date
of CAIS Internet's IPO.
(d) In the event any monies to be paid to Terk under Section 3(a) have
not been paid sixty (60) days after the CAIS Internet IPO becomes effective,
CAIS agrees to pay such monies to Terk within sixty (60) days following said
effective date.
(e) Upon its initial filing of a registration statement with the SEC, CAIS
shall promptly notify Terk of its intent to conduct an initial public offering
and the terms then contemplated. CAIS shall promptly furnish Terk with a "red
herring" prospectus when available and, when such registration becomes
effective, a final prospectus.
7. Additional Common Stock
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In the event an IPO of CAIS Internet occurs, twenty-five thousand (25,000)
shares of the common stock of CAIS Internet will be set aside to be purchased by
Terk at such IPO. Terk shall purchase such additional shares at the same price
and upon the same terms as any other member of the public.
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8. Enforcement of Intellectual Property Rights.
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In the event that Terk becomes aware of a product or service made, used,
sold or offered for sale in Terk's Field of Use, which Terk believes to infringe
an issued patent within the intellectual property as defined in the Inline/Terk
Agreement, Terk shall promptly advise Inline and CAIS of all the relevant facts
and circumstances known by Terk in connection with such infringement. Inline
and/or CAIS shall have the first right to enforce such patent against such
infringement, at its own expense. In the event that Inline and/or CAIS shall
fail, within ninety (90) days after receiving notice from Terk of the
infringement, either (i) to terminate such infringement or (ii) to institute an
action for patent infringement, then Terk shall have the right to do so at its
own expense, and Inline and/or CAIS agree to be joined as parties plaintiff to
such action. Any damages or costs recovered by Inline and/or CAIS (collectively
"Inline/CAIS") in connection with any action filed by one or both hereunder,
after first reimbursing them for out-of-pocket costs and expenses of litigation,
including expert witness and attorneys fees, shall be divided seventy-five
percent (75%) to Inline/CAIS and twenty-five percent (25%) to Terk. Any damages
or costs recovered in connection with any action filed by Terk hereunder, after
first reimbursing Terk for its out-of-pocket costs and expenses of litigation,
including expert witness and attorneys fees, shall be equally divided seventy-
five percent (75%) to Terk and twenty-five percent (25%) to Inline/CAIS.
9. Distribution of CAIS Products.
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Simultaneous with the execution of this Agreement, CAIS and Terk shall
enter into a non-exclusive distribution agreement by which Terk shall have the
non-exclusive right to distribute, market, sell and commercialize in the United
States and throughout the world, products manufactured by or for CAIS which
utilize the technology, but solely for installation
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within residential dwelling units including, single family homes and inside
residential units of multifamily dwellings.
10. Representations.
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(a) Terk represents, warrants and agrees that Terk has full right, power
and authority to enter into this Agreement and carry out the transactions
contemplated hereby; that the execution and delivery of this Agreement by Terk
and the transactions contemplated hereby have been duly authorized; and that
this Agreement is a valid and binding obligation of Terk enforceable against it
in accordance with its terms.
(b) CAIS represents and warrants that CAIS has full right, power and
authority to enter into this Agreement and carry out the transactions
contemplated hereby; that the execution and delivery of this Agreement by CAIS
and the transactions contemplated hereby have been duly authorized; and that
this Agreement is a valid and binding obligation of CAIS enforceable against it
in accordance with its terms.
(c) Inline represents and warrants that Inline has full right, power and
authority to enter into this Agreement and carry out the transactions
contemplated hereby; that the execution and delivery of this Agreement by Inline
and the transactions contemplated hereby have been duly authorized; and that
this Agreement is a valid and binding obligation of Inline enforceable against
it in accordance with its terms
11. Notices.
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All notices, demands or other communications which are required or may be
given hereunder, shall be sent by Overnight Courier, Certified Mail, Return
Receipt Requested, or by hand delivery to the officials of the respective
parties as set forth below:
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For Inline:
David Goodman
Inline Connection Corp.
730 N. Danville Street
Arlington, Virginia 22201
For CAIS (through February 14, 1999): For CAIS (after February 14, 1999):
Ulysses G. Auger II Ulysses G. Auger II
CAIS, Inc. CAIS, Inc.
1232 22nd Street, N.W. 1255 22nd Street, N.W.
Washington, D.C. 20037 Washington, D.C. 20037
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with a copy to:
Michael G. Plantamura Michael G. Plantamura
CAIS, Inc. CAIS, Inc.
1232 22/nd/ Street, N.W. 1255 22/nd/ Street, N.W.
Washington, D.C. 20037 Washington, D.C. 20037
For Terk:
Neil Terk
Terk Technologies Corp.
63 Mall Drive
Commack, New York 11725
with a copy to:
Stephen M. Rosenberg, Esquire
Cowan, Liebowitz & Latman
1133 Avenue of the Americas
New York, New York 10036
Each party reserves the right to change its official(s) and address(es) by
written notice to the other parties from time-to-time by notice properly given.
Any notice tendered and refused will serve as notice received as of the date of
such refusal.
12. Term.
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The term of this Agreement shall be for the duration of the patents issued
with respect to the technology or any extensions thereof.
13. Force Majeure
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Anything contained in this Agreement to the contrary notwithstanding, no
party shall be held responsible or liable for any delay or failure in the
performance of its obligations hereunder caused by the elements, acts of God,
acts of civil or military authority, fires, floods, epidemics, quarantine
restrictions, wars, riots, strikes, lockouts, industrial disturbances, delays in
transportation or similar forces beyond the control of the parties hereto.
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14. Independent Contractors
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Terk, CAIS and Inline each agree that it is an independent contractor and
not an agent of the others. Nothing contained in this Agreement shall be
construed to create a partnership, joint venture or similar entity nor shall
Terk, CAIS or Inline have the power or authority to legally bind or obligate the
others in any manner.
15. Miscellaneous.
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This Agreement (a) constitutes the entire agreement and understanding of
the parties hereto and supercedes and replaces all prior agreements and
understandings with respect to its subject matter, (b) may not be changed or
terminated orally, (c) shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, (d) shall
not inure to the benefit of, or be deemed to create rights for the benefit of,
any third party, and (e) shall be governed by and construed in accordance with
the laws of the State of New York. The rights and obligations of CAIS and Terk
under this Agreement are not severable and may
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be assigned only to an Affiliate of a party, or as part of the sale of the
entire business or division of CAIS or Terk to which this Agreement relates.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth above.
TERK TECHNOLOGIES CORP.
By: /s/ Neil Terk
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Neil Terk, President
CAIS, INC.
By: /s/ William M. Caldwell, IV
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William M. Caldwell, IV, Vice Chairman
INLINE CONNECTION CORP.
By: /s/ David Goodman
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David Goodman, President
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