LICENSE AGREEMENT


         This License  Agreement  is made and entered  into  effective as of the
29th  day of May  2001,  by and  between  Videolocity  Direct,  Inc.,  a  Nevada
corporation ("Video Direct"),  and Merit Studios,  Inc., a Delaware  corporation
("Merit"), upon the following:

                                    Premises

         WHEREAS,  Merit and Video Direct entered into that certain  Amended and
Restated License Agreement (the "WormHole-Video  License Agreement") dated as of
March  6,  2001,  pertaining  to the  WormHole  Video  System,  which  agreement
superseded and replaced the license  agreement  previously  entered into between
Merit and Videolocity, Inc. dated as of October 27, 2000; and

         WHEREAS,  Merit  desires to license  to Video  Direct and Video  Direct
desires to license from Merit all aspects and applications of Merit's  "WormHole
Technology" other than the application previously licensed by Video Direct under
the  WormHole-Video  License  Agreement,  upon  and  subject  to the  terms  and
conditions set forth in this Agreement;

         NOW,  THEREFORE,  in  consideration  of  the  mutual  covenants  to  be
performed  and  benefits to be received  hereunder,  and other good and valuable
consideration,  the receipt and sufficiency of which are hereby  acknowledged by
the parties, Merit and Video Direct agree as follows:

                                    Agreement

         1. Grant of License.  Merit  hereby  grants  Video  Direct an exclusive
license for the period commencing as of May 29, 2001 and expiring at midnight on
May 28, 2011 to use, and to  sublicense  others to use, the WormHole  Technology
(as defined herein) in any and all countries in the world and the universe. Such
license  shall  continue  on a  non-exclusive  basis from May 29, 2011 until the
expiration or termination  of this  Agreement.  The term  "WormHole  Technology"
shall mean Merit's proprietary data compression/representation technology, which
is more  particularly  described in exhibit A attached  hereto and  incorporated
herein by reference, and all applications thereof except the application of such
technology  to compress and deliver  video  content,  which  application  is the
subject of the WormHole-Video  License Agreement.  The term WormHole  Technology
shall refer to Merit's proprietary WormHole Technology as the same exists on the
date of this  Agreement  and as the same may be  modified,  improved or enhanced
during the term of this  Agreement  and shall  include the system as a whole and
each  component  thereof.  Upon the  expiration or earlier  termination  of this
Agreement,  any license or  sublicense  for the WormHole  Technology  granted by
Video Direct to a third party during the term of this  Agreement  shall continue
in full force and effect in accordance  with its terms,  except that Merit shall
be entitled to receive any payments payable to Video Direct under such agreement
from and after the expiration or earlier termination of this Agreement.

         2. Term. The term of this  Agreement  shall commence on the date hereof
and expire at midnight on May 28, 2021.

         3. License  Fees.  Video Direct  shall make the  following  payments to
Merit in the  amounts  and at the times  indicated  as payment  for the  license
granted to Video Direct hereunder:


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<PAGE>

         A.  Payment  Upon  Execution.  Video Direct shall pay Merit Two Hundred
Thousand  Dollars  (&2000.000) on the date of execution  hereof,  the receipt of
which is hereby acknoledged by Merit.

         B. Advance  Royalty  Payments.  Video  Direct shall make the  following
advance  royalty  payments to Merit on the dates indicated  below.  Such advance
royalty  payments shall be in addition to the Royalties  payable by Video Direct
to Merit under Section 3.C below

         (i) One Hundred Fifty Thousand  Dollars  ($150,000) on or before August
         1, 2001

         (ii) Two Hundred Fifty thousand Dollars ($250,000) on or before the end
         of each of the four (4) calendar quarters  commencing with the calendar
         quarter ending September 30, 2001 and continuing  through and including
         the calendar quarter ending June 30, 2002.

         (iii) Five Hundred Thousand Dollars  ($500,000) on or before the end of
         each of the sixteen (16) calendar quarters commencing with the calendar
         quarter ending September 30, 2002 and continuing  through and including
         the calendar quarter ending June 30, 2006.

         (iv) One Million  Dollars  ($1,000,000) on or before the end of each of
         the twenty (20) calendar quarters  commencing with the calendar quarter
         ending  September  30, 2006 and  continuing  through and  including the
         calendar quarter ending June 30, 2011.


         In the event Video  Direct  fails to make the minimum  advance  royalty
         payments to Merit in the respective amounts and by the respective dates
         indicated  above,  then Merit may, upon written notice to Video Direct,
         modify the  exclusive  license  granted  to Video  Direct  pursuant  to
         Sections 1 of this  Agreement so that it  constitutes  a  non-exclusive
         license,  and from and after the date of such  notice,  Merit  shall be
         entitled to grant non-exclusive  licenses to the WormHole Technology to
         third parties.  In such event,  this  Agreement  shall continue in full
         force and effect on the terms and  conditions  set forth herein  except
         that  the  license   granted  to  Video  Direct   hereunder   shall  be
         non-exclusive  and there  shall be no  further  requirement  under this
         section  with  respect to the  payment of  advance  royalties  by Video
         Direct.  Notwithstanding the foregoing, in the event Video Direct fails
         to  make  the  advance   Royalty   payments  to  Merit   specified   in
         subparagraphs 3.B (i) and (ii) above by their respective due dates, and
         if such  default is not cured  within  thirty  (30) days after  written
         notice of such default by Merit,  then Merit may in its sole discretion
         terminate  this  Agreement  upon written notice of termination to Video
         Direct.

         C. Royalty  Payments.  Video Direct  shall make the  following  royalty
         payments to Merit (collectively referred to herein as the "Royalties").


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<PAGE>

         (i)  Twenty  percent  (20%)  of the Net  Revenue  (as  defined  herein)
         received by Video  Direct from its use and  sublicense  of the WormHole
         Technology,  except  initial,  up-  front  payments  from  the  sale of
         sublicenses,  which are  addressed  in  subparagraph  (ii)  below  (the
         "Revenue  Royalty").  The Revenue Royalty shall be paid by Video Direct
         to Merit on a monthly  basis  within 30 days  following  the end of the
         month in which the  Revenue  Royalty was  earned.  Each  payment of the
         Revenue  Royalty shall be accompanied by a statement  setting forth the
         data and information  used to calculate the Revenue Royalty and showing
         the  manner  of  calculation.  For  purposes  of this  Agreement,  "Net
         Revenue" shall mean the revenue derived by Video Direct from its use or
         sublicense  of the  WormHole  Technology  less any  direct  costs  (not
         including Video Direct's general and administrative  expenses) incurred
         by Video Direct in connection with the  implementation  or operation of
         the WormHole Technology.

         (ii) Forty Percent (40%) of the initial,  up-front payments received by
         Video Direct from the sale of sublicenses of the WormHole Technology to
         sub licensees (the "Sublicense Royalty).  Such Sublicense Royalty shall
         be paid by Video  Direct  to Merit on a  monthly  basis  within 30 days
         following the end of the month in which the subject sublicense payments
         are received by Video Direct.

     4.  Obligations of Merit.

     (a) Merit shall  complete  development  of the WormHol  Technology so it is
         subject  to  commercialization  and is fully  operational  on or before
         September 30, 2001, and is capable of reducing  and/or  compressing any
         and all  electronic  data  files of any  size to a size of Two  Hundred
         (200)  Kilobytes or smaller and then restoring such data files to their
         original form and format with no errors or alterations.  Merit warrants
         that  the  WormHole   Technology  will  continue  to  perform  to  such
         specifications,  and in accordance with the description of the WormHole
         Technology  attached  hereto  as  Exhibit  A,  during  the term of this
         Agreement.

     (b) Merit shall  devote all its  resources  to  completion  of the WormHole
         Technology  and shall not  undertake  any other  activities or projects
         (other than completion of the WormHole Video System) until the WormHole
         Technology has become fully operational.

     (c) Merit  shall  train  Video  Direct's  employees  to use and  employ the
         WormHole Technology to properly  compress/reduce and uncompress/restore
         data files as necessary to provide on-going services to its customers.

     (d) Merit shall make its management and technical personnel  (including its
         President,  Michael John)  available as may be reasonably  necessary to
         assist  Video Direct in  demonstrating  and/or  deploying  the WormHole
         Technology.


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<PAGE>

     (e) During the term of this  Agreement,  Merit  shall use its  commercially
         reasonable  efforts to upgrade and improve the WormHole  Technology  to
         maintain its competitiveness in the data compression market.

     (f) All payments  received by Merit under this  Agreement  shall be applied
         first to the reduction of Merit's  outstanding debt,  including debt to
         related  parties,  and none of such  payments  shall be utilized to pay
         compensation or dividends  until such time as all Merit's  indebtedness
         has been paid and satisfied.

         5. Obligations of Video Direct. Video Direct shall use its commercially
reasonable  efforts to  expeditiously  commercialize  and  market  the  WormHole
Technology  in as many  market  sectors  and in as many  geographical  areas  as
practicable.

         6. Warranties of Merit.  Merit warrants that it has good and marketable
title to the WormHole  Technology with full right,  power and authority to enter
into this Agreement and perform its obligations hereunder without the consent or
authorization  of any  third  party,  and that the  WormHole  Technology  is not
subject to any liens, security interests or other encumbrances.

         7.  Security  Interest/Escrow.  Merit  hereby  grants  Video  Direct  a
continuing   security  interest  in  the  WormHole   Technology  to  secure  the
performance of its  obligations  under this  Agreement.  During the term of this
Agreement,  Merit:  (a) shall maintain the first priority of Video Direct's lien
and security interest in the WormHole Technology;  (b) shall defend and maintain
title to the WormHole Technology;  (c) shall not create, incur, assume or suffer
to exist any mortgage, deed of trust, pledge, lien, security interest, charge or
encumbrance on the WormHole  Technology;  (d) shall  immediately  give notice to
Video Direct of any claim arising in connection with the WormHole Technology, or
of any  condition  or event which  constitutes,  or, with notice or the lapse of
time or both would  constitute,  a default by Merit in its material  obligations
under this Agreement; (e) shall comply, and cause all activities with respect to
the business of Merit to comply,  with all  applicable  laws,  statutes,  rules,
regulations,  ordinances,  decrees, judgments and orders; and (f) shall not move
the  WormHole  Technology  from its current  location  at the current  executive
offices of Merit in Las Vegas,  Nevada without twenty (20) days advance  written
notice  to Video  Direct.  Merit  shall not sell,  assign,  convey or  otherwise
transfer, or suffer or permit the sale, assignment, conveyance or other transfer
of any of the WormHole  Technology or any interest therein except those that are
specifically  made subject and  subordinate  to this Agreement and the rights of
Video Direct  hereunder.  Merit shall execute and deliver such further documents
(including appropriate UCC-1 filings) and do such other acts and things as Video
Direct  may  reasonably  request in order to  effectuate  the  purposes  of this
Agreement.

         Within  sixty  (60)  days of the  date of this  Agreement,  Merit  will
deliver to  SourceFile  or another  escrow agent  specializing  in the escrow of
intellectual  property  chosen by Merit (and which is  reasonably  acceptable to
Video Direct), to hold in escrow: (i) one copy of each software program utilized
in connection with the WormHole  Technology in machine readable form,  including
source code;  and (ii) one copy of any  documentation,  instruction  manuals and
similar items for each such software program and with respect to any other


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<PAGE>

intellectual  property,  proprietary  information  or  aspect  of  the  WormHole
Technology  required to operate the same at peak  capacity and  efficiency  (the
"Escrow  Materials").  The escrow agent's fee shall be paid by Video Direct. The
escrow  agreement  shall  provide that in the event Merit:  fails to perform its
material obligations under this Agreement, and such failure continues for thirty
(30) days after notice from Video Direct (unless such failure cannot  reasonably
be cured  within  thirty  (30) days and Merit has begun  good  faith  efforts to
resolve  such  failure);  Merit  makes a general  assignment  for the benefit of
creditors,  suffers or permits the appointment of a receiver for its business or
assets,  files, or has filed against it, an action under any state insolvency or
similar  law for the  purpose  of seeking  its  bankruptcy,  reorganization,  or
liquidation,  which  action is not  discharged  within  sixty  (60) days of such
filing;  enters  an order  for  relief  under the  Bankruptcy  Code,  or has its
business affairs wound up or liquidated,  voluntarily or involuntarily; or Merit
ceases  business  operations for any other reason  whatsoever;  upon delivery by
Video Direct of a certificate signed by its president  certifying the occurrence
of one of the foregoing  events and providing  evidence of the same,  the escrow
agent shall immediately report such delivery to Merit. Merit shall have ten (10)
business days to respond to such  certificate.  If Merit agrees with the request
for  release of the  Escrow  Materials  or fails to respond  within the ten (10)
business day period,  the Escrow  Materials  will be delivered to Video  Direct,
together with a non-exclusive  license to use the Escrow  Materials as necessary
to effect the terms and conditions of this  Agreement.  If Merit  disagrees with
the  reasons  stated for the  release of the Escrow  Materials,  Merit shall set
forth in writing the reasons why its disagrees and shall provide  copies of such
explanation  to the escrow  agent and Video  Direct,  and the escrow agent shall
promptly  commence an expedited  arbitration  proceeding  under the rules of the
American  Arbitration  Association for a determination  as to whether or not (A)
the  reason for  release is  accurate,  and (B) the Escrow  Materials  should be
released  to Video  Direct.  The  costs  of  arbitration,  including  reasonable
attorney's  fees,  incurred  by  the  prevailing  party  shall  be  paid  by the
non-prevailing  party.  Notwithstanding  any release of the Escrow  Materials to
Video Direct,  the terms and conditions of this  Agreement  shall remain in full
force and effect.

8. Audit Rights.  Video Direct agrees to allow an independent  certified  public
accountant  selected by Merit and reasonably  acceptable to Video Direct,  which
accountants  shall not be compensated on a contingency  basis and shall be bound
to  keep  all   information   confidential   except  as  necessary  to  disclose
discrepancies  to Merit,  to audit and analyze  relevant  accounting  records of
Video Direct to ensure  compliance  with all terms of this  Agreement.  Any such
audit shall be permitted  within thirty (30) days of Video Direct's receipt from
Merit of a written  request to audit,  during normal  business  hours, at a time
mutually agreed upon. The cost of such an audit shall be borne by Merit unless a
material  discrepancy  is found,  in which  case the cost of the audit  shall be
borne by Video Direct.  A discrepancy  shall be deemed material if it involves a
payment or adjustment of more than five percent (5%) of the amount  actually due
from Video Direct in any given  quarter.  Audits shall occur no more  frequently
than once per  calendar  year and shall not  interfere  unreasonably  with Video
Direct's business activities and shall be conducted in Video Direct's facilities
during  normal  business  hours on  reasonable  notice.  An audit  may cover any
period;  provided that: (i) the period has not been previously audited; and (ii)
the period under audit is within a two-year  period  immediately  preceding  the
commencement of the audit.  Video Direct shall promptly  reimburse Merit for the
amount of any discrepancy  arising out of such audit, which indicates that Merit
is owed amounts  hereunder as well as the costs of the audit, if applicable,  as
provided above.


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<PAGE>

         9. Scope of License.  The exclusive  license  granted in this Agreement
shall be exclusive both as to Video Direct acting in its own name or for its own
account,  and as to any third  parties that may be licensed or otherwise  acting
under authority of Video Direct.  Specifically,  but not by way of limitation of
the foregoing,  Merit agrees that as long as the license granted to Video Direct
under this Agreement is exclusive, Merit will not in its own name or for its own
account,  nor will it authorize any third party, to use, sell, lease, license or
otherwise market or sell the WormHole Technology anywhere in the world.

         10.  Patents,  Trademarks  Etc.  Merit agrees to  cooperate  with Video
Direct in taking any steps the parties  believe to be  necessary or desirable to
protect  Merits  ownership of the WormHole  Technology,  including the filing of
patents and/or trademark applications.

         11.  Indemnification.  Each  party  (the  "Indemnifying  Party")  shall
defend,  indemnify and hold harmless the other party (the  "Indemnified  Party")
and its agents,  officers,  board members and employees from and against any and
all claims,  damages, losses and expenses (including reasonable attorney's fees)
for  claims  caused by (i)  violation  by the  Indemnifying  Party of any state,
federal or other governmental license or regulations,  and (ii) violation by the
Indemnifying  Party of any third party  proprietary  rights  (including  without
limitation,  patent,  copyright,  trade secret and trademark rights);  and (iii)
damages to property,  injury or death to persons or for any other damage arising
due to the active or passive negligence of the indemnifying party.

         12. Infringement. Merit represents and warrants that it is not aware of
any patent,  copyright,  trade secret or other property right of any third party
that would be  infringed  or  violated  by the  development,  manufacture,  use,
license  or  sale  of the  WormHole  Technology.  In the  event  that  any  such
infringement  or violation is alleged by any third party  against  Video Direct,
Merit agrees to indemnify  and hold Video Direct  harmless  from and against all
damages, claims and liabilities arising in connection therewith and Video Direct
agrees to cooperate  with Merit in the defense of such alleged  infringement  or
violation.  Video  Direct  shall  promptly  notify  Merit of any  such  claim of
infringement or violation.  Video Direct shall refrain from making any admission
of liability or from settling  such claim  without the prior written  consent of
Merit.

         Merit  shall  promptly  and  decisively  assert  its  patent  or  other
intellectual  property  rights against any third party  infringer who is making,
using or selling a device that  infringes  on any of the  intellectual  property
rights pertaining to the WormHole Technology. Video Direct shall promptly notify
Merit of any such infringing activity of which it becomes aware.

         13. Termination. This Agreement may be terminated only:

         (a) By one  party  if the  other  party  should  be in  default  in any
         material term or provision this Agreement (which term or provision does
         not specify a remedy upon such default),  and such defaulting party has
         failed to cure such default within thirty (30) days  following  written
         notice of such default from the non-defaulting party;


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<PAGE>

         (b) By one party,  if the other party:  makes a general  assignment for
         the  benefit of  creditors;  suffers or permits  the  appointment  of a
         receiver for its business or assets; files, or has filed against it, an
         action  under any state  insolvency  or similar  law for the purpose of
         seeking its bankruptcy, reorganization, or liquidation, which action is
         not discharged  within sixty (60) days of such filing;  enters an order
         for relief under the Bankruptcy Code; or has its business affairs wound
         up or liquidated, voluntarily or involuntarily.

         (c) By Merit in the manner provided in Section 2.B of this Agreement.

The parties may  exercise  their  rights to  terminate  under this Section 13 by
specifying  in a written  notice to the other party the nature and extent of the
other party's  default(s) and by specifying a termination  date,  which shall be
not less than ten (10) days from the date of such  notice  (which ten days shall
be in addition to the applicable cure period).

         14.  Confidentiality.  Confidential  Information  means all proprietary
data, concepts, projections, strategies, client lists, marketing plans, designs,
processes,  methods of operation,  innovations, and other information pertaining
to the business  operations and other  activities of Merit, on the one hand, and
Video Direct and its affiliated  companies on the other hand.  Each party shall,
during the term of this Agreement use the Confidential  Information disclosed or
provided by the other party,  whether  orally,  written,  by  demonstration,  in
models or otherwise,  only as permitted  under this Agreement and shall maintain
all such  Confidential  Information  in  confidence  and shall not  disclose  or
divulge such  Confidential  Information  to any third party or to any of its own
personnel not having a need to know such information,  provided that the parties
have informed their respective  personnel of the parties' obligations under this
Section 13, and provided  further that each third party to whom such  disclosure
is made shall have entered into a  non-disclosure  agreement  the terms of which
require such third party to maintain  the  confidentiality  of the  Confidential
Information.  Notwithstanding  the  foregoing,  a party  shall not be liable for
disclosure of any such Confidential Information which:

         (a) can be demonstrated by reasonable documentary evidence to have been
in the possession of such party prior to receipt from the other party,  provided
that the source of such  information  was not known to the receiving party to be
bound by a  confidentiality  agreement  with or other  contractual  or fiduciary
obligation of  confidentiality  to the delivering party or any other person with
respect to such information;

         (b) is or becomes  part of the public  domain other than through an act
or omission attributable to employees or agents of the receiving party; or

         (c) is or is made  available  to the  receiving  party by a third party
unaffiliated  with the  delivering  party  and which  has no  obligation  to the
delivering party in respect thereof.


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<PAGE>

Upon the termination of this Agreement,  each party agrees to promptly return to
the other all  Confidential  Information  provided by the other party hereunder,
and all copies thereof, in its possession.

         15. Notices. Any notice,  consent,  approval,  request,  authorization,
direction  or  other  communication  under  this  Agreement  ("Notice")  that is
required to be given in writing will be deemed to have been  delivered and given
for all purposes (i) on the delivery  date if delivered by confirmed  facsimile;
(ii) on the delivery date if delivered  personally to the party to whom the same
is directed;  (iii) one business day after  deposit with a commercial  overnight
carrier,  with written verification of receipt; or (iv) five business days after
the mailing date, whether or not actually received, if sent by


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<PAGE>

U.S. mail, return receipt requested,  postage and charges prepaid,  or any other
means of rapid mail  delivery  for which a receipt is  available.  Such  notices
shall be addressed as follows:

                                  If to Merit:        Michael John
                                                      President
                                                      Merit Studios, Inc.
                                                      1930 Village Center Circle
                                                      PMB #402, Suite 3
                                                      Las Vegas, Nevada 89134

                                 If to Video Direct:  George Norman
                                                      Chairman
                                                      Videolocity Direct, Inc.
                                                      358 South 700 East, #B604
                                                      Salt Lake City, Utah 84102

or at such other  address as any of the parties  hereto may specify by notice to
the other parties hereto in accordance with this Section 15.

         16.  Publicity.  The  parties  shall  issue a joint  press  release  in
mutually   acceptable  form  announcing   their  execution  of  this  Agreement.
Thereafter, neither party shall issue any press release, file any report or make
any  other  public  communication  that  includes  the  name  or  describes  the
activities  of the other party  without  first  providing the other party with a
copy of any such proposed  release,  filing or communication  and providing such
party with an adequate opportunity to comment thereon.

         17. Assignment.  None of the rights or obligations under this Agreement
shall be assignable  by either party  without the prior  written  consent of the
other party, which consent shall not be unreasonably withheld.

         18.  No  Partnership.  No  agency,   partnership,   joint  venture,  or
employment  is created as a result of this  Agreement  and neither party nor its
agents  shall  have any  authority  of any kind to bind the  other  party in any
respect whatsoever.

         19.  Governing Law. This Agreement shall be deemed to have been entered
into,  and shall be construed  and enforced in  accordance  with the laws of the
State of Utah.

         20. Expenses of Legal Proceedings. If any action, suit or proceeding is
brought  by a party  with  respect  to a  matter  or  matters  governed  by this
Agreement, all costs and expenses of the prevailing party incurred in connection
with such proceeding, including reasonable attorneys' fees, shall be paid by the
nonprevailing party.

         21.  Severability.  If any provision of this  Agreement is or is deemed
invalid,  illegal or unenforceable in any jurisdiction,  such provision shall be
deemed amended to conform to applicable  laws so as to be valid and  enforceable
or, if it cannot be so amended without materially  altering the intention of the
parties,  it shall be stricken and the remainder of this Agreement  shall remain
in full force and effect.


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<PAGE>

         22.  Waiver.  No waiver  of any right  under  this  Agreement  shall be
effective  unless  contained in a writing  signed by the party charged with such
waiver, and no waiver of any right arising from any breach or failure to perform
shall be deemed to be a waiver of any  future  breach or failure or of any other
right arising under this Agreement.

         23. Section Headings. The headings of the sections contained herein are
for  convenience  only and are not  deemed  to limit or  construe  the  contents
thereof.

         24.  Authorization/No  Conflict.  Each person signing this Agreement on
behalf of the corporate  party  represents and warrants that he or she is a duly
authorized  and acting  officer of the  corporation on whose behalf he or she is
signing,  that the corporation has full power and authority to execute and enter
into  this  Agreement,  and  that  this  Agreement  has been  duly  and  validly
authorized  and  approved  by the  board  of  directors  of the  corporation  in
accordance  with  its  charter,  governing  instruments  and the  provisions  of
applicable law. Each corporate  party warrants that the execution,  delivery and
performance  of this  Agreement  by it will not  violate  any  provision  of its
charter,  bylaws or agreements  governing it, or any applicable state or federal
law, statute, rule, regulation,  ordinance,  decree, judgment or order, and will
not conflict  with or result in any breach of any  provision of, or constitute a
default  under,  or result in the  imposition  of any lien or charge  upon,  any
assets of such party, or result in the  acceleration of any obligation under the
terms of any agreement or document binding upon such party.

         25. Entire Agreement.  This Agreement  constitutes the entire agreement
between  the parties  hereto with  respect to the  subject  matter  hereof,  and
supersedes  any  and  all  prior   agreements,   understandings,   promises  and
representations  made by either party to the other concerning the subject matter
hereof. This Agreement may not be released,  discharged,  amended or modified in
any  manner  except  by an  instrument  in  writing  signed  by duly  authorized
representatives of both parties hereto.

         26.  Binding  Effect.  The rights and  obligations of the parties under
this Agreement shall inure to the benefit of and shall bind the respective legal
representatives, successors and assigns of the parties.


                                       10
<PAGE>

         IN WITNESS  HEREOF,  Merit and Video  Direct have  caused this  License
Agreement to be duly executed as of the date first written above.


                                   Merit:          Merit Studios, Inc.
                                                   A Delaware Corporation


                                                   By: /s/ Michael Jonh
                                                   --------------------
                                                           Michael John
                                                           President

                                   Video Direct:   Videolocity Direct, Inc.
                                                   A Nevada Corporation


                                                   By: /s/ George Norman
                                                   ---------------------
                                                           George Norman
                                                           Chairman


             Acknowledged and agreed to this 29th day of May, 2001.



                                                   By: /s/ Michael John
                                                   --------------------
                                                           Michael John,
                                                           an individual and the
                                                           inventor of  the Worm
                                                           Hole Technology


                                       11
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