Wholesale Sales & Marketing Agreement

Exhibit 10.5


WHOLESALE SALES & MARKETING AGREEMENT


THIS AGREEMENT ("Agreement") is entered into this 3rd day of March, 2003 and replaces in their entirety the License Agreement dated September 10, 2002 and the Amendment to License Agreement dated November 5, 2002 by and between Two Dog Net, Inc., a California corporation ("Seller") and The Children' s Internet, Inc., a Nevada corporation ("Buyer"). Seller and Buyer shall sometimes be referred to individually as the "Party" or collectively as the "Parties."


RECITALS


A.

Seller is the owner of all right, title, and interest in and to children' s oriented material and programming disseminated over the global computer network and a secured Internet service currently being used and sold as The Children' s Internetae including but not limited to a search engine, browser, secure e-mail system, education and entertainment portals, and all its proprietary characters and content, web pages, and home rooms (the "Product");


B.

Seller is the owner of all right, title, and interest in and to the trademark "Children' s Internet" (the "Registered Mark");


C.

Seller is an authorized re-seller of wholesale Internet dial-up service from Qwest Communications, Inc. (the "Wholesale Dial-Up Service"); and


D.

Buyer desires to have, in accordance with the terms and conditions of this Agreement, the exclusive sales and marketing rights to use the Registered Mark and Product and the non-exclusive right to be a re-seller of the Wholesale Dial-Up Service all as more fully set forth below.


NOW THEREFORE, in consideration of the foregoing Recitals which are incorporated into the operative provisions of this Agreement by this reference, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereto agree as follows:


ARTICLE I. GRANT OF RIGHTS


1.01

Grant of Exclusive Sales and Marketing Rights. The Seller grants to the Buyer an exclusive right to market, sell and distribute the Product and use the Registered Mark in marketing, selling, and distributing the Product.


1.02

Grants of Nonexclusive Reseller Rights. The Seller grants to the buyer a non-exclusive right to market, sell, and distribute the Wholesale Dial-Up Service in accordance with the terms and conditions of the Parties' Services Agreement, a copy of which is attached hereto and incorporated herein by this reference.


1.03

Prohibition on Resale by Buyer . Buyer may not resell any rights granted pursuant to this Agreement without Seller' s prior written consent. Any resale agreement granted in violation of this provision shall be void. Nothing in this paragraph will bar Buyer from engaging sales agents for the sales, marketing and distribution of the Product or the Wholesale Dial-Up Service.


1.04

Reservation of Rights . Seller expressly reserves all rights other than those being conveyed or granted in this Agreement.


1.05

Territory . The rights granted to Buyer are worldwide.


1.06

Term . This Agreement shall commence on March 3, 2003 (the "Effective Date") and shall extend for a period of five years (the "Initial Term"). Following the Initial Term, this Agreement shall be renewed automatically in five year terms (collectively with the Initial Term, the "Term"), with no further action of the Parties necessary, unless either Party terminates by written notice to the other no less than one year before the end of any Term.


ARTICLE 2. COMPENSATION


2.01

Per User Charge . Buyer agrees to pay Seller a Per User Charge of $3.00 per month for each User accessing the Product and a Per User Charge of $3.79 per month for each User accessing the Wholesale Dial-Up Service. The Per User Charge for Wholesale Dial-Up Service includes up to 150 hours of usage per User per month. For each hour of usage in excess of 150 hours per User in a given month, Buyer shall be charged $0.75 per hour. All Per User Charges provided for under this Agreement shall accrue when the respective items are billed or paid for, whichever occurs first.


2.02

Product Management . At all times during the Term of this Agreement, Seller is responsible for the management and maintenance of the hardware and the network, including without limitation capacity and network planning, managing customer volume, maintenance and upgrades of the Product and its functionality and any changes thereto (collectively, "Product Management"). Seller further agrees to immediately notify Buyer in the event Seller knows or has reason to know of any Product Management related issues that may affect the Product.


2.03

Payments and Statements to Seller . Within 30 days after the end of each month, an accurate statement of monthly usage activity along with any Per User Charge payments due to Seller shall be provided by Buyer to Seller. The acceptance by Seller of any of the statements furnished or user fees paid shall not preclude Seller from questioning the correctness of any payments or statements at any time.


2.04

Audit . Buyer shall keep accurate books of account and records covering all transactions relating to the rights granted in this Agreement, and Seller or its duly authorized representatives shall have the right, upon five days' prior written notice, and during normal business hours, to inspect and audit Buyer' s records relating to the Product and Registered Mark. Seller shall bear the cost of such inspection and audit, unless the results indicate an underpayment greater than $1,000 for any six-month period. In that case, Buyer shall promptly reimburse Seller for all costs of the audit along with the amount due with interest on such sums. Interest shall accrue from the date the payment was originally due and the interest rate shall be 1.5% per month, or the maximum rate permitted by law, whichever is less. All books of account and records shall be kept available for at least two years after the termination of this Agreement.


2.05

Late Payment . Time is of the essence with respect to all payments to be made by Buyer under this Agreement. If Buyer is late in any payment provided for in this Agreement, Buyer shall pay interest on the payment from the date due until paid at a rate of 1.5% per month, or the maximum rate permitted by law, whichever is less.


2.06

Termination Rights . In the event: (i) Buyer breaches or defaults on any term, condition or covenant of this Agreement and such breach or default continues for a period of 60 days after the giving of written notice to Buyer by Seller, or (ii) any proceeding is commenced by or against Buyer in bankruptcy or in the event of appointment of a receiver or trustee or an assignment for the benefit of creditors, then Seller may avail itself of any and all remedies at law and/or in equity or otherwise and, without limitation, shall have the right to immediately terminate the rights granted by this Agreement by written notice to Buyer.


ARTICLE 3. WARRANTIES AND INDEMNIFICATION


3.01

Seller Warranty . Seller warrants that it has the power and authority to enter into this Agreement and has no knowledge as to any third party claims regarding the proprietary rights in the Product or Registered Mark which would interfere with the rights granted under this Agreement.


3.02

Seller Indemnification . Seller shall indemnify Buyer and hold Buyer harmless from any damages and liabilities (including reasonable attorneys fees and costs), arising from: (a) any breach of Seller' s warranty as set forth in section 3.01; (b) any breach of Product warranties; (c) any alleged defects or failures to perform of the Product; and (d) any action taken or required to be taken but not taken by Seller, provided that such claim arises solely out of the Product or Registered Mark. Buyer shall give Seller prompt written notice of any such claim. Seller' s maximum liability to Buyer under this Agreement, regardless on what basis liability is asserted, shall in no event exceed the total amount paid to Seller under this Agreement. Seller shall not be liable to Buyer for any incidental, consequential, punitive, or special damages.


3.03

Marketing . Buyer warrants that it will use its best commercial efforts to market and promote sales of the Product and that its marketing shall be in conformance with all applicable laws and regulations, including but not limited to all intellectual property laws. Buyer shall have the right to use Seller' s 30-minute infomercial in connection with its marketing efforts, including the right to air the infomercial on television at Buyer' s own cost. Seller further agrees that Buyer has the right to use Seller' s promotional website, www.childrensinternet.com, and Seller' s support materials, technical data, descriptions, marketing and advertising materials, and brochures in its best commercial efforts to market and sell the Product. All costs associated with printing, duplicating and distributing such marketing and advertising materials are the responsibility of the Buyer.


3.04

Termination on Change of Control . In the event that Buyer undergoes a Change of Control (as defined below) Seller may terminate this Agreement upon written notice to Buyer at any time after receiving notice of the Change of Control. For purposes of this Agreement "Change of Control" shall mean the occurrence of any of: (i) an acquisition after the date hereof by an individual or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated under the U.S. Securities Exchange Act of 1934) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 50% of the voting securities of the Company, (ii) the merger of the Company with or into another entity that is not wholly-owned by the Company, consolidation or sale of 50% or more of the assets of the Company in one or a series of related transactions, or (iii) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth above in (i) or (ii).


3.05

Buyer Indemnification . Buyer shall indemnify Seller and hold Seller harmless from any damages and liabilities (including reasonable attorneys' fees and costs): (a) arising from any breach of Buyer' s warranties; (b) any claims arising out of advertising or marketing of the Product. Buyer' s maximum liability to Seller under this Agreement, regardless on what basis liability is asserted, shall in no event exceed the total amount paid to Seller under this Agreement. Buyer shall not be liable to Seller for any incidental, consequential, punitive, or special damages.


ARTICLE 4. OWNERSHIP AND PROTECTION OF INTELLECTUAL PROPERTY


4.01

Intellectual Property Protection . Seller may, but is not obligated to seek, in its own name and at its own expense, appropriate further patent, trademark or copyright protection for its Product and Registered Mark in the U.S. or in any foreign country. Seller makes no warranty with respect to the validity of any patent, trademark or copyright which may be granted. Seller grants to Buyer the right to apply for patents on the Product provided that such patents shall be applied for in the name of Seller and rights granted to Buyer during the Term and according to the conditions of this Agreement. Buyer shall have the right to deduct its reasonable out of pocket expenses for the preparation, filing and prosecution of any such U.S. patent application (but in no event more than $5,000) from future payments due Seller under this Agreement. Buyer shall obtain Seller' s prior written consent before incurring expenses for any foreign patent application.


4.02

Compliance with Intellectual Property Laws . The rights granted in this Agreement are conditioned on Buyer' s compliance with the provisions of the intellectual property laws of the United States and any foreign country in the Territory. All promotional material shall bear appropriate proprietary notices.


4.03

Infringement Against Third Parties . In the event that either Party learns of imitations or infringements of the Product or Registered Mark, that Party shall notify the other in writing of the infringements or imitations. Seller shall have the right to commence lawsuits against third persons arising from infringement of the Product or Registered Mark. In the event that Seller does not commence a lawsuit against an alleged infringer within 60 days of notification by Buyer, Buyer may commence a lawsuit against the third party. Before filing suit, Buyer shall obtain the written consent of Seller to do so and such consent shall not be unreasonably withheld. Seller will cooperate fully and in good faith with Buyer for the purpose of securing and preserving Buyer' s rights to the Product and Registered Mark. Any recovery (including, but not limited to a judgment, settlement or licensing agreement included as a resolution of an infringement dispute) shall be divided equally between the Parties after deduction and payment of reasonable attorneys fees to the party bringing the lawsuit.


4.04

Confidentiality . For purposes of this Agreement, "Confidential Information" shall mean any information belonging to a Party that is valuable to that Party and is not generally known in the industry in which it is engaged. The Parties acknowledge that each may be furnished or have access to Confidential Information that relates to each other' s business. The Parties agree to maintain the Confidential Information in strictest confidence for the sole and exclusive benefit of the other party and to restrict access to such Confidential Information to persons bound by this Agreement, only on a need to know basis or as required by law. Neither party, without prior approval of the other, shall use or otherwise disclose to others, or permit the use by others of Confidential Information.


4.05

Ownership . Buyer agrees that ownership of the Registered Mark, Product, and the goodwill relating thereto shall remain vested in Seller both during the Term of this Agreement and thereafter, and Buyer further agrees never to challenge, contest or question the validity of Seller' s ownership of the Product, Registered Mark or any registrations thereof by Seller. Any logos, designs, symbols, marks, graphics, or artwork derived from the Registered Mark by Buyer or by a third party for Buyer shall be owned exclusively by Seller. Buyer hereby assigns to Seller all right, title, and interest to any such derivative material. To prevent the dilution of the Registered Mark, Buyer shall not adopt or use any mark which is confusingly similar to the Registered Mark, either during the Term or thereafter.


4.06

Quality Control . Buyer agrees to comply with any requirements established by Seller concerning the style, design, display and use of the Registered Mark; to correctly use the registration symbol ae with every use of the Registered Mark; and to submit in advance of its use all advertising copy and internet copy to Seller for approval. Buyer may not use the Registered Mark in any manner which would disparage or tarnish or dilute the distinctive quality of the Registered Mark or the reputation and goodwill embodied in the Registered Mark or which would reflect adversely on the Registered Mark or Seller, as determined by Seller in it reasonable discretion.


4.07

Effect of Termination . Upon termination or expiration of this Agreement, all Per User Charge obligations as established under section 2.01 shall immediately become due. After the termination or expiration of this Agreement, all rights granted to Buyer under this Agreement shall terminate and revert to Seller, and Buyer will refrain from further copying, marketing, distribution, or use of any Product or Registered Mark. Upon termination or expiration of this Agreement, Buyer shall immediately ship to Seller, without charge, all artwork and other materials used to reproduce the Registered Mark or derivative materials, and each Party shall return to the other any Confidential Information or materials containing Confidential Information of the other Party.


4.08

Survival . The obligations of Sections 3.02, 3.05, 4.04 and Article 5 shall survive any termination or expiration of this Agreement.


ARTICLE 5. GENERAL PROVISIONS


5.01

Attorneys' Fees and Expenses . The prevailing Party shall have the right to collect from the other Party its reasonable costs and necessary disbursements and attorneys' fees incurred in enforcing this Agreement.


5.02

Governing Law . This Agreement shall be governed in accordance with the laws of the State of California.


5.03

Jurisdiction . The Parties consent to the exclusive jurisdiction and venue of the federal and state courts located in Alameda County, California in any action arising out of or relating to this Agreement. The Parties waive any other venue to which either Party might be entitled by domicile or otherwise.


5.04

Waiver . The failure to exercise any right provided in this Agreement shall not be a waiver of prior or subsequent rights.


5.05

Invalidity . If any provision of this Agreement is invalid under applicable statute or rule of law, it is to be considered omitted and the remaining provisions of this Agreement shall in no way be affected.


5.06

Entire Understanding . This Agreement expresses the complete understanding of the Parties and supersedes all prior representations, agreements, and understandings, whether written or oral. This Agreement may not be altered except by a written document signed by both Parties.


5.07

Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same agreement.


5.08

Notices . Any notice or consent required to be given under this Agreement shall be in writing and shall be sent by first class certified or registered mail, return receipt requested, or by any return receipt express courier service. Notice shall be deemed received on the date indicated on the return receipt.


If to Buyer:


The Children' s Internet, Inc.

2401 Crow Canyon Road, Suite 201

San Ramon, California 94583


If to Seller:


Two Dog Net, Inc.

1396 W. Herndon Ave, Suite 109

Fresno, California 93711


5.09

No Joint Venture . Nothing contained in this Agreement shall be construed to place the Parties in the relationship of agent, employee, franchisee, officer, partner or joint venturer.


5.10

Assignability . Buyer may not assign or transfer its rights or obligations pursuant to this Agreement without the prior written consent of Seller. Any assignment of transfer in violation of this section shall be void.


IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the date first written above.


BUYER:


The Children' s Internet, Inc., a Nevada corporation


/s/ Sholeh Hamedani


BY: Sholeh Hamedani

ITS: President and CEO


SELLER:


Two Dog Net, Inc., a California corporation


/s/ Nasser Hamedani


BY: Nasser Hamedani

ITS: Chairman of the Board


TWO DOG NET, INC.

SERVICES AGREEMENT


SIGNATURE PAGE


The undersigned parties have read and agree to the terms and conditions set forth in this Two Dog Net, Inc. Services Agreement (the "Agreement") and the Service Exhibits attached hereto.


TWO DOG NET, INC

Customer: THE CHILDREN' S INTERNET


By: /s/ Larry Wheeler

By: /s/ Sholeh Hamedani


Name:

LARRY WHEELER

Name:

SHOLEH HAMEDANI

Title:

CHIEF TECHNICAL OFFICER

Title:

PRESIDENT

Date:

March 3, 2003

Date:

March 3, 2003


APPLICATION SERVICES


As of the Effective Date of the Agreement, the Services ordered by Customer are as follows:


[X]

Exhibit A

Dial up Service


[ ]

Exhibit B

24/7 Service


[ ]

Exhibit C

Billing Service


INITIAL TERM:


Customer selects the following as the initial term applicable to the Service(s):


[ ]

Twelve (12) Months


[ ]

Twenty-Four (24) Months


[X]

Thirty-Six (36) Months


NOTICE INFORMATION:


All Written notices provided pursuant to the Agreement shall be sent to the following:

To Two Dog Net

To The Children' s Internet


Two Dog Net, Inc.

The Children' s Internet


1396 W Herndon Ave, Suite 109

2401 Crow Canyon Road, Suite 201

Fresno, CA 93711

San Ramon, CA. 94583


FACSIMILE #: (559) 322-5421

FACSIMILE #: (925) 406-2366


DIAL UP SERVICE

EXHIBIT A


1.

THIS AGREEMENT IS MADE BY AND BETWEEN TWO DOG NET ("TDN"), AND THE CUSTOMER, THE CHILDREN' S INTERNET ("CUSTOMER") , TDN WILL PROVIDE THE DIAL UP INTERNET ACCESS SERVICE ("SERVICE") IN ACCORDANCE WITH THE SERVICE LEVEL AGREEMENT ("SLA") ATTACHED HERETO AS ADDENDUM A, WHICH SLA IS MADE A PART OF THIS AGREEMENT.

2.

TEST SERVICE: EFFECTIVE DATE. UPON FIVE (5) DAYS AFTER EXECUTION OF THIS AGREEMENT, CUSTOMER AGREES TO DELIVER TO TDN A COMPLETED CONVERSION INFORMATION FORM ("CIF"), ATTACHED HERETO AS ADDENDUM B, IN ORDER TO INITIATE RADIUS AND REALM TESTING ("TEST SERVICE"). THIS AGREEMENT SHALL BE EFFECTIVE ON THE DATE THAT TDN DELIVERS WRITTEN NOTICE TO CUSTOMER CONFIRMING THAT THE TEST SERVICE WAS SUCCESSFULLY TESTED AND IS READ FOR CUSTOMER' S USE ("EFFECTIVE DATE"). IN THE ABSENCE OF WRITTEN NOTICE AT ANY TIME FOLLOWING THE COMPLETION OF TEST PERIOD, TDN MAY TERMINATE THIS AGREEMENT WITHOUT FURTHER OBLIGATION. AS USED HEREIN, "TEST PERIOD" SHALL REFER TO A THIRTY (30) DAY PERIOD COMMENCING ON THE DAY TDN EXECUTES THIS AGREEMENT FOLLOWING CUSTOMER' S EXECUTION.

3.

CUSTOMER SHALL PAY ALL APPLICABLE RATES AND CHARGES SET FOR ON ADDENDUM C HERETO WHICH A ADDENDUM IS MADE PART OF THIS AGREEMENT. RECURRING MONTHLY CHARGES SHALL BE DUE AND PAYABLE ON THE 10TH DAY OF EACH MONTH WITHOUT INVOICE. NON-RECURRING CHARGES, IF ANY, SHALL BE INVOICED IN THE FIRST BILLING CYCLE FOLLOWING TDN' S PROVISION OF THE RELEVANT SERVICES. NON-RECURRING CHARGES SHALL BE DUE UPON CUSTOMER'S RECEIPT OF INVOICE AND PAYABLE WITHIN TEN (10) DAYS OF THE INVOICE DATE. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTION 7 BELOW, ANY NOT PAID WITHIN SUCH PERIOD SHALL BEAR INTEREST AT THE LESSER OF (A) THE RATE OF ONE AND ONE-HALF PERCENT (1 bd%) PER MONTH, OR (B) THE HIGHEST RATE PERMITTED BY APPLICABLE LAW. IN ADDITION TO SUCH RATES AND CHARGES, CUSTOMER SHALL BE RESPONSIBLE FOR ALL TAXES AND FEES ASSESSED IN CONNECTION WITH THE SERVICE. TDN RESERVES THE RIGHT TO MODIFY THE RATES AND CHARGES OR CERTAIN COMPONENTS OF THE SERVICE UPON NOT LESS THEN SIXTY (60) DAYS PRIOR WRITTEN NOTICE TO CUSTOMER, PROVIDED THAT TDN MAY REDUCE THE FORGOING NOTICE PERIOD AS NECESSARY, IF THE MODIFICATION IS BASED UPON A CHANGE IN LAW OR REGULATION. TDN RESERVES THE RIGHT TO CONDITION PROVISION OF SERVICE ON CUSTOMER' S CREDITWORTHINESS AND REASONABLE ASSURANCE OF PAYMENT (E.G., A DEPOSIT). AT ANY TIME DURING THE TERM, TDN MAY REQUIRE A DEPOSIT OR OTHER ACCEPTABLE FOR OF SECURITY IF IT REASONABLY DEEMS ITSELF INSECURE WITH RESPECT TO CUSTOMER' S ABILITY TO PAY (E.G., IF CUSTOMER HAS FAILED TO PAY AN INVOICE WHEN DUE, CUSTOMER HAS A CHANGE OF CONTROL, OR IF THERE IS A MATERIAL CHANGE IN CIRCUMSTANCES OF CUSTOMER' S ACTUAL OR ANTICIPATED USAGE HEREUNDER OR CUSTOMER' S FINANCIAL CONDITION). IN ADDITION TO ITS TERMINATION RIGHTS UNDER SECTION 4, TDN MAY IMMEDIATELY AND WITHOUT NOTICE. SUSPEND THE SERVICES IF CUSTOMER FAILS TO COMPLY WITH THESE SECURITY OBLIGATIONS. TO SECURE PAYMENT FOR SERVICES PROVIDED BY TDN, CUSTOMER HEREBY GRANTS TO TDN A ...