EXHIBIT 10.3
PATENT SUB-LICENSE AGREEMENT, DATED FEBRUARY 17, 1999
BETWEEN JANESVILLE GROUP LIMITED AND
LAZER-TEK DESIGNS, LTD.
JANESVILLE/LAZER-TEK PATENT SUB-LICENSE
AGREEMENT
This Agreement by and between JANESVILLE GROUP LIMITED, a Wisconsin
corporation (hereinafter "Licensor"), on the one hand, and LAZER-TEK DESIGNS
LIMITED, a Nevada corporation (hereinafter "Licensee") is entered into as of
February 17, 1999 (hereinafter the "Effective Date").
WHEREAS United Distillers & Vintners (ER) Limited, a corporation
organized under the laws of the United Kingdom ("Distillers"), formerly known as
United Distillers, PLC, is the assignee of the Licensed Patent (as defined
below);
WHEREAS Distillers entered into a written patent license agreement
relating to the Licensed Patent with Podarok International Inc. on or about 10
November 1995, a true and correct copy of which is attached hereto as Exhibit A
("LDI License");
WHEREAS Laser Design International, LLC, a California limited liability
company ("LDI") acquired the interest of Podarok International Inc. in that
license with the consent of Distillers;
WHEREAS LDI entered into a written sublicense agreement with the
Janesville Group, LTD ("Janesville") on or about February 1997, a true and
correct copy of which is attached hereto as Exhibit B ("Janesville
Sub-License"), with the consent of Distillers;
WHEREAS Licensee has manufactured and sold and desires to continue to
manufacture and/or sell in the future products that come within the scope of the
Licensed Patent;
WHEREAS Licensee desires to obtain a license to the Licensed Patent and
Licensor is willing to grant to Licensee a license to the Licensed Patent on the
terms set forth below.
NOW THEREFORE, in view of the above premises and the following mutual
covenants and promises, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
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JANESVILLE/LAZER-TEK PATENT SUB LICENSE AGREEMENT
1.1 "Licensed Patent" means United States Patent No. 5,206,496 (the "496
Patent") issued April 7, 1993 and the foreign counterparts to the '496 patent,
as listed on Schedule 1 of the Janesville Sub- License
1.2 "Net Sales" means the sale, lease, or other disposition of Products by
Licensee and its Affiliates, reduced by any units of Products returned to and
accepted by Licensee or its Affiliates for which the purchase price of such
units has been refunded in full. For sales of licensed products to an Affiliate,
sister company, subsidiary, or entity otherwise related to the Licensee
(hereinafter "Related Company), the higher of the Related Company's purchase or
sale price for each item will be included in Net Sales; provided however that
the Net Sales to such Related Company shall not be recognized for royalty
calculations until sold by the Related Company to a non-Related Company and
shall then be recognized as a sale at the higher of the Related Company's
purchase or sale price.
1.3 "Laser Crystal Products" means decorative objects that contain internal
images that have been created inside a transparent medium using a laser.
1.4 "Product" or "Products" means all articles made and/or sold by Licensee
which are Laser Crystal products that, in the absence of this Agreement, would
infringe one or more claims of any Licensed Patent, when made, used or sold.
"Products" shall be specifically limited to the "Decorative Field of Use," as
defined by the LDI License as of the Effective Date of this Agreement.
1.5 "ASI, Premium & Retail Market Segments" means Products that are sold in
the specialty advertising ("ASI"), premium, and retail market segments, limited
editions, collectibles, and portraits (or busts) sold within the United States,
Canada, Mexico, the United Kingdom, and all countries in Central America, South
America, and the Caribbean Basin.
1.6 "Affiliate" means a corporation or other entity that is controlled or is
controlled by Licensee or Licensor. The term Affiliate includes Lazer-Tek
Designs, Inc. and Scanova Limited, provided, however, that they are considered
Affiliates only so long as ownership and control by Licensee exists.
ARTICLE II
LICENSE GRANT AND RELEASE
2.1 LICENSE. Subject to Licensee's compliance with all material terms of
this agreement, Licensor hereby grants to Licensee under the Licensed Patent, a
non-exclusive, royalty-bearing, sub- license of the Janesville Sub-License to
make, use, import, offer for sale, sell, lease, or, otherwise dispose of
Products in the ASI Premium & Retail Market Segments. For the purpose of this
Agreement, all terms are deemed material with the exception of the terms
governed by the following sections: 5.1, 9.6, 9.7, 9.8, and 9.9. Compliance with
non-material terms may be enforced (subject to the notice and cure requirements
of section 7.2) through binding arbitration, with the prevailing party
recovering costs its costs and attorneys fees.
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JANESVILLE/LAZER-TEK PATENT SUB LICENSE AGREEMENT
2.2 GEOGRAPHIC LIMITATION. The geographic scope of the license shall be
limited to products that are sold within the United States, Canada, Mexico, the
United Kingdom, and all countries in Central America, South America, and the
Caribbean Basin.
2.3 JANESVILLE SUB-LICENSE LIMITATION. The scope of this license shall be
no broader than the scope of the Janesville Sub-License, attached to this
Agreement as Exhibit B..
2.4 COVENANT NOT TO XXX. Subject to Licensee's compliance with the terms of
this Agreement, Licensor shall not assert any claim or action against Licensee,
its distributors, or direct or indirect customers for practicing any method or
process within the scope of the Licensed Patent, in using a Product for which
all applicable royalties have been paid to Licensor under this Agreement.
2.5 NO IMPLIED LICENSES. Except as expressly stated in this Article II, no
other rights or licenses are granted to Licensee, express or implied, by virtue
of this Agreement.
2.6 CHANGES IN CONTROL OF LICENSEE. Licensor has the right to terminate
this license following changes in control of Licensee, unless the prior written
approval of Licensor is obtained, which approval shall not be unreasonably
withheld. Provided, however, that Licensee agrees to notify Licensor in advance
of any such proposed change in control and to provide Licensor in advance with
relevant financial data and information about new investors and purchasers.
Should Licensee (or any proposed investor/purchaser) dispute Licensor's
decision, then the sole remedy shall be AAA arbitration under its Commercial
Rules in the Janesville, Wisconsin are by a three-arbitrator panel, reviewing
the decision as quickly as possible with any damages claims waived.
ARTICLE III
LICENSE FEES AND ROYALTY PAYMENTS
3.1 ROYALTY PAYMENTS. Within thirty (30) days after completion of each
calendar quarter, Licensee will pay to Licensor royalties in accordance with the
rates below based on the Net Sales during that quarter. Licensee will provide
with each payment a statement certified to be correct by Licensee, specifying
the Net Sales for the quarter, and the total royalties owed (with a copy to
LDI). Such payment will commence upon completion of the first calendar quarter
after the Effective Date. In order for royalties to be put on a calendar year
basis, the remainder of 1999 shall be treated as a year for royalty base
calculations. Thereafter, the royalty bases shall be calculated on a calendar
year basis. Royalties shall begin to accrue on any sales after April 15, 1999.
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JANESVILLE/LAZER-TEK PATENT SUB LICENSE AGREEMENT
ANNUAL SALES VOLUME PERCENTAGE
Up to $500,000 17%
$500,000 to $750,000 20%
$750,000 to $1,000,000 20%
$1,000,000 and over 20%
No more than one royalty shall be paid for any Product, and royalties
shall not be paid to both Licensor and LDI for any Product. It is understood
that incorrect payment of a royalties to Licensor shall not operate as a breach,
default or noncompliance, so long as the aggregate payment of royalties to
Licensor and LDI is correct for the period.
3.2 EXAMINATION OF RECORDS; AUDITS. Licensee agrees to maintain all books
and records necessary and sufficient to enable Licensor to determine the
accuracy of the initial fee for a period of four (4) years from the Effective
Date and royalties paid to Licensor under this Agreement. Licensor shall have
the right to formally audit by written notice, but may not audit more frequently
than annually. Audits shall be performed by a firm of certified public
accountants reasonably acceptable to both parties. If the parties cannot agree
on a firm of certified public accountant, then Licensor may choose one of the
top five nationally recognized certified public accounting firms or, at
Licensor's election, Licensor and Licensee shall each select an accounting firm
and agree that those accounting firms may select a third firm for the purposes
of auditing. Licensee will allow the examination of the records of Licensee by
the selected certified public accountants for the purpose of determining the
accuracy of royalties paid or payable by Licensee to Licensor under this
Agreement. The parties to the audit will agree to abide by the results. Licensee
will agree to fully cooperate. Auditing expenses shall be borne by the
requesting party. If the audit determines a shortfall in royalty payments,
Licensee will promptly pay all shortfalls. If the shortfall is 5% or more,
Licensee will pay all audit costs and expenses; if 10% or more, then in addition
Licensee will pay a penalty equal to 20% of any shortfall. If the audit
determines a shortfall in royalty payments, Licensee shall have thirty (30) days
after written determination of the audit to pay any shortfall or penalty.
Provided however that for any audit for calendar year 1999, maximum penalty
should be reduced to 10%.
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JANESVILLE/LAZER-TEK PATENT SUB LICENSE AGREEMENT
3.3 LATE PAYMENTS; ATTORNEYS' FEES. Licensee agrees to pay Licensor a late
charge of five percent (5%) of any amounts not paid when due. In addition,
interest will be due and payable on past due amounts at the rate of one percent
(1%) per month. Lazer-Tek agrees to pay attorneys fees in the event of any
successful court action undertaken for collection.
3.4 MAINTENANCE OF RECORDS. Licensee shall maintain all books and records
necessary and efficient to enable Licensor to determine the accuracy of the
royalties paid to Licensor under this Agreement for a period of four (4)
calendar years after the applicable calendar year, after which Licensee shall
have no obligation to maintain and Licensor shall have no right to inspect,
examine or audit any such books or records relating to such applicable calendar
year.
ARTICLE IV
LIMITED WARRANTY AND INDEMNITY
4.1 EXCEPT AS EXPRESSLY STATED IN THIS ARTICLE IV, NO OTHER WARRANTIES OR
REPRESENTATIONS ARE GIVEN BY LICENSOR OR LICENSEE UNDER THIS AGREEMENT,
including but not limited to, any warranty or representation: (a) as to the
validity of the Licensed Patent; (b) that any manufacture, importation, sale,
lease, use, or other disposition of Products will be free from infringement of
another party's intellectual property rights; (c) that Licensor will enforce any
intellectual property rights it may have in the Licensed Patent against third
parties; or (d) as to the quality, merchantability, or fitness for a particular
purpose of any Product.
4.2 Licensee shall defend, indemnify and hold harmless Licensor, and its
directors, officers, employees and affiliates, from and against any claims,
liabilities, actions, costs or damages (including fees of attorneys and other
professionals) arising from Licensee's manufacture, use, sale or distribution of
Products, or any representations by Licensee concerning Products, provided
Licensor gives Licensee notice of such claim, provides reasonable cooperation
and assistance in connection with such claim, and does not agree to any
settlement without Licensee's consent.
4.3 Licensee will provide reasonable cooperation and assistance to Licensor
in connection with any litigation concerning the Licensed Patent brought by or
against a third party, including but not limited to any action or claim
involving alleged infringement of the Licensed Patent.
4.4 Licensor represents and warrants that Licensor has sufficient interest
in the Licensed Patent to grant the licenses that are granted under this
Agreement.
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JANESVILLE/LAZER-TEK PATENT SUB LICENSE AGREEMENT
ARTICLE V
CONFIDENTIALITY
5.1 Licensee agrees not to disclose the financial terms of this Agreement
to any third party without Licensor's prior written consent, except that if
Licensee is required by law or is ordered to produce such information by
subpoena or other judicial or governmental order, Licensee will immediately
inform Licensor and will provide reasonable cooperation and assistance to
Licensor in seeking confidential treatment of such information in connection
with the proceedings for which the information is sought.
ARTICLE VI
PATENT NOTICES
6.1 Licensee will xxxx each Product or its packaging with a notice of U.S.
Patent No. 5,206,496 or other patents licensed as applicable.
ARTICLE VII
TERM AND TERMINATION
7.1 TERM. The obligation to pay royalties under this Agreement shall
continue, and Licensee agrees to pay royalties on any Licensed Product sold
until the earlier of (1) the expiration of the term of the '496 patent or (2)
after all possibility of appeal has been exhausted for any final judgment
declaring all claims of the '496 patent invalid., unless terminated earlier in
accordance with Section 7.2. The continued validity, enforceability, and/or
patent term of foreign counterparts for the '496 patent will not affect the term
of this Agreement.
7.2 TERMINATION.
(a) If there should occur a material beach, default or noncompliance
by one party (the "Defaulting Party") of or with any term or condition
hereof followed by written notice of such breach, default or
noncompliance from the other party (the "Non-Defaulting Party") and the
failure of the Defaulting Party to remedy or correct such breach,
default or noncompliance within sixty (60) days after receipt of such
notice, then, in addition to any other remedy available at law or in
equity or under this Agreement, the Non-Defaulting Party may, at its
election, terminate this Agreement.
(b) Licensor may, at its election, terminate this Agreement upon
Licensee's bankruptcy or reorganization for the benefit of creditors.
7.3 In the event this Agreement is terminated in accordance with this Article
VII, then the license rights granted to Licensee by this Agreement shall
immediately terminate, except that Licensee shall have the right to sell any
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JANESVILLE/LAZER-TEK PATENT SUB LICENSE AGREEMENT
completed units of Products in existence as of the date of termination, subject
to, and provided Licensee has at all times complied with, its obligations to pay
royalties and submit to audit in accordance with this Agreement. The provisions
of Sections 1, 2.4, 3, 4, 5, 7.3, 8 and 9 and any liability arising from breach
of this Agreement will survive termination of this Agreement.
ARTICLE VIII
LIMITATION OF LIABILITY
8.1 DISCLAIMER OF CONSEQUENTIAL, ETC. DAMAGES. IN NO EVENT SHALL A PARTY BE
LIABLE TO THE OTHER PARTY OR ANY OTHER PERSON FOR ANY SPECIAL, INDIRECT,
INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING BUT NOT
LIMITED TO, LOSS OF PROFITS OR DAMAGES TO THE OTHER PARTY'S BUSINESS REPUTATION
HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, WHETHER IN AN ACTION FOR
CONTRACT, STRICT LIABILITY OR TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, WHETHER
OR NOT THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE AND
NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF ANY REMEDY.
8.2 LIMITATION OF LIABILITY. At no time shall a party's liability to the
other party in connection with any claim related to or arising out of this
Agreement exceed the royalties paid under this Agreement within the preceding
twelve months.
ARTICLE IX
GENERAL
9.1 INCORPORATION OF LDI LICENSE TERMS. This license shall be subject to
the terms of the LDI License, and Lazer-Tek agrees to be bound by its terms to
the extent that such term impose obligations on LDI as licensee. This obligation
specifically extends to insurance requirements imposed by Distillers, and
Lazer-Tek agrees to provide such coverage as Distillers in its reasonable
opinion considers appropriate. Further, Lazer-Tek agrees to provided copies of
all insurance certificates and renewal certificates to LDI and Distillers within
thirty days of receipt of the same.
9.2 INCORPORATION OF JANESVILLE SUB-LICENSE TERMS. This license shall be
subject to the terms of the Janesville Sub-License, and Lazer-Tek agrees to be
bound by its terms to the extent that such term impose obligations on Janesville
as sub-licensee. This obligation specifically extends to insurance requirements
imposed by Distillers, and Lazer-Tek agrees to provide coverage as UD in its
reasonable opinion considers appropriate, and any additional amounts as
Janesville in its reasonable opinion considers appropriate. Further, Lazer-Tek
agrees to provided copies of all
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JANESVILLE/LAZER-TEK PATENT SUB LICENSE AGREEMENT
insurance certificates and renewal certificates to Janesville and Distillers
within thirty days of receipt of the same.
9.3 BELOW COST SALES. No sales will be made below cost, except for samples
or promotional items in commercially reasonable quantities.
9.4 NO WAIVER. No waiver by Licensor, express or implied, of any breach of
any term, condition, or obligation of this Agreement by the Licensee shall be
construed as a waiver of any subsequent breach of that term, condition or
obligation, or of any other term, condition, or obligation of this Agreement of
the same or different nature.
9.5 NO ASSIGNMENT OR SUBLICENSING. Licensee shall not assign or otherwise
transfer, by contract, operation of law or otherwise, without the written
consent of both Licensor and Distillers, this Agreement or any license right
granted hereunder or any interest herein, or grant any sublicense for any
purpose under this Agreement, and any such assignment, transfer or sublicense
shall be null and void.
9.6 GOVERNING LAW. This Agreement shall be construed under the laws of the
State of California and the United States of America as though entered into
between two parties residing in California to be performed wholly within
California.
9.7 COMPLETE AGREEMENT. This Agreement sets forth the entire understanding
between the parties and supersedes all prior discussions, representations, and
agreements between them as to the subject matter of this Agreement. This
Agreement cannot be modified except in writing by duly authorized
representatives of both parties.
9.8 EXPORT CONTROL. Licensee shall be responsible for ensuring it complies
with all laws and regulations of the United States Government relating to the
export of Products from the United States.
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JANESVILLE/LAZER-TEK PATENT SUB LICENSE AGREEMENT
9.9 NOTICES. A notice, request, or statement hereunder shall be deemed to
be sufficiently given or rendered when sent by certified mail and addressed to
such address as may be specified by written notice.
IN WITNESS THEREOF, the parties have executed this Agreement
LICENSOR:
JANESVILLE GROUP LIMITED
/s/ XXXXXX X. XXXXXX
--------------------------------------------
By: XXXXXX X. XXXXXX
-----------------------------------------
Its: PRESIDENT
----------------------------------------
LICENSEE:
LAZER-TEK DESIGNS LIMITED
/s/ XXXX XXXXXXX
--------------------------------------------
By: XXXX XXXXXXX
-----------------------------------------
Its: PRESIDENT
----------------------------------------
THIS SUB-LICENSE IS APPROVED:
UNITED DISTILLERS & VINTNERS (ER)
LIMITED
--------------------------------------------
By: ________________________________________
Its: _______________________________________
LASER DESIGN INTERNATIONAL, LLC
/s/ XXXXX XXXXXXXXX
--------------------------------------------
By: XXXXX XXXXXXXXX
-----------------------------------------
Its: CHIEF OPERATING OFFICER
----------------------------------------
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