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EXHIBIT 10.73
PATENT SETTLEMENT AGREEMENT
This Patent Settlement Agreement (the "Settlement Agreement")
is entered into by and between Precise (as defined below) and Xxxxxxxxx (as
defined below), and is effective as of the Effective Date (as defined below).
WHEREAS, Precise owns the Patents (as defined below) and the
Patents are valid and enforceable;
WHEREAS, Xxxxxxxxx uses, offers to sell, sells, and
distributes the Products (as defined below) and the Patents read on the
Products;
WHEREAS, the parties to this Settlement Agreement desire to
avoid the substantial expense which would be incurred in litigating any patent
infringement claims;
NOW THEREFORE, for good and valuable consideration, the
adequacy of which is hereby acknowledged, Precise and Xxxxxxxxx do hereby
represent, warrant, covenant and agree as follows:
I. DEFINITIONS
1. "ACCUSED UNITS OF PRODUCT" shall mean the 400,000 units of Products
(defined below) that Xxxxxxxxx represents and warrants it has,
marketed, sold, offered to sell or distributed from September 1, 1999
through the Effective Date, excluding the Current Inventory (defined
below).
2. "XXXXXXXXX ACTION" shall mean Xxxxxxxxx Industries, L.P., v. Precise
Exercise Equipment, Inc., et al., Case No. 400-CV-0135-A in the United
States District Court for the Northern District of Texas (the "Texas
Court").
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3. "XXXXXXXXX" shall mean Xxxxxxxxx Industries, Inc., a Delaware
corporation, Xxxxxxxxx Industries, L.P., a Texas limited partnership,
and each of their respective directors, officers, stockholders, agents,
employees, affiliates, subsidiaries, successors and assigns.
4. "CURRENT INVENTORY" shall mean the units of Products for which
Xxxxxxxxx has a non-cancelable purchase commitment or that are in the
possession or control of Xxxxxxxxx as of the Effective Date which
Xxxxxxxxx represents and warrants do not exceed Two Hundred Thousand
(200,000) units. Xxxxxxxxx shall have the right to market the Current
Inventory only in accordance with the Limited Sell-off Right (as
defined below).
5. "EFFECTIVE DATE" shall mean the date that this Settlement Agreement is
fully executed by the parties.
6. "KMART ACTION" shall mean Precise Exercise Equipment, Inc., et al. v.
KMart Corporation, et al., Case No. ED CV 00-312 RT (RCx) in the United
States District Court for the Central District of California, Eastern
Division (the "Court").
7. "LIMITED SELL-OFF RIGHT" shall mean the limited right set forth in
paragraph II.3 below whereby Precise grants Xxxxxxxxx the limited right
to market and sell-off its Current Inventory.
8. "PATENTS" shall mean U.S. Patent Nos. 5,492,520 and 5,577,987, any
corresponding foreign patents and patent applications (a list of which
is attached hereto as EXHIBIT A), and any patents which issue on any
continuation, continuation-in-part, divisional or reissue applications
thereof.
9. "PRECISE" shall mean Precise Exercise Equipment, Inc., a New Jersey
corporation, and Fitness Innovations and Technologies (F.I.T.), Inc., a
Delaware corporation, and each of their respective directors, officers,
stockholders, agents, employees, affiliates, subsidiaries, successors
and assigns.
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10. "PRODUCTS" shall mean any and all abdominal exercise devices on which
one or more of the Patents read and which have been manufactured, used,
marketed, sold or distributed by Xxxxxxxxx since September 1, 1999,
including, but not limited to, the devices referred to as the
"AbRock'It", the "AbRock'It Plus", and the "EZ Abs".
11. "STEP PRODUCT" shall mean all products covered by the Sublicense
Agreement attached as Exhibit B.
12. "TERRA STAR" shall mean Terra Star, Inc., a Utah corporation.
13. "WALMART ACTION" shall mean Precise Exercise Equipment, Inc., et al.
vs. Walmart Stores Incorporated, Case No. ED CV 00-881 RT (RCx) in the
United States District Court for the Central District of California,
Eastern Division.
II. SETTLEMENT TERMS
1. WARRANTY REGARDING UNITS OF PRODUCT. Xxxxxxxxx warrants it has not
sold, manufactured, caused the manufacture of or distributed more than
the 600,000 units of Products since September 1, 1999. Xxxxxxxxx also
warrants that this number of units of Product includes the Current
Inventory, which consists of 200,000 units of Products.
a. AUDIT. On the Effective Date and for 90 days thereafter,
Xxxxxxxxx shall provide Precise with the opportunity to
inspect and audit the applicable records of Xxxxxxxxx relating
to the units of Product made, used, sold or distributed by
Xxxxxxxxx since September 1, 1999.
b. SALES IN EXCESS OF ACCUSED UNITS OF PRODUCT AND THE CURRENT
INVENTORY. Unless otherwise provided herein, Xxxxxxxxx shall
pay Precise a reasonable royalty rate of $4.50 per unit for
each and every additional unit of Product manufactured, sold
or
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distributed by Xxxxxxxxx after September 1, 1999 in excess of
the Accused Units of Product and the Current Inventory.
2. SETTLEMENT AMOUNT. In exchange for Precise settling and dismissing the
Action on the terms stated in this Settlement Agreement, Xxxxxxxxx has
agreed to deliver consideration to Precise that the parties have valued
at Four Dollars ($4.00) per Accused Product Unit. This consideration
will be paid or delivered by Xxxxxxxxx as follows: (1) on the Effective
Date, Xxxxxxxxx shall pay Precise by wire transfer or by certified
check One Hundred Three Thousand Dollars ($103,000.00); (2) Xxxxxxxxx
shall, as expeditiously as possible, obtain any necessary authorization
and approval and execute and deliver the Sublicense Agreement to
Precise; (3) within nine (9) days after the Effective Date, Xxxxxxxxx
shall execute and deliver the Assignment Agreement to Precise; and (4)
Xxxxxxxxx shall perform its obligations under paragraph II.4 below. The
payment and delivery of consideration by Xxxxxxxxx to Precise under
this Settlement Agreement are attributable to, among other things, the
past manufacture, use, sale and distribution of the Product by
Xxxxxxxxx and compensation for the diminution in value to the business
reputation, goodwill and customer relations of Precise.
3. LIMITED SELL-OFF RIGHT RE: CURRENT INVENTORY. After the Effective Date,
Xxxxxxxxx shall be entitled to market, sell and distribute its Current
Inventory only on the following terms:
a. LIMITED TO CURRENT INVENTORY. The Limited Sell-Off Right shall
apply only to the marketing and sale of the Current Inventory
for the purpose of fulfilling existing commitments from
current Xxxxxxxxx customers. The Current Inventory shall not
exceed Two Hundred Thousand (200,000) units of Product. This
Limited Sell-Off Right does not xxxxx Xxxxxxxxx any other
right to manufacture, market, sell or distribute any other
Products upon which one or more of the Patents read, nor does
it permit Xxxxxxxxx to market or sell any Products in excess
of the Two Hundred Thousand (200,000) units of Product of the
Current Inventory.
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b. ROYALTY AND TERMINATION DATE. Xxxxxxxxx shall pay Precise a
royalty equal to Two Dollars and Fifty Cents ($2.50) per unit
of Current Inventory [Product] sold or distributed pursuant to
the Limited Sell-Off Right (the "Sell-Off Royalty"). Xxxxxxxxx
shall pay Precise all such royalty payments on a monthly basis
by wire transfer or by cashier's check for all units of
Product which Xxxxxxxxx has shipped to any customer in the
immediately preceding month. Sell-Off Royalties shall be paid
within ten (10) days following the end of the month for which
they are due. The Sell-Off Royalty shall be paid on all
Products shipped from November 1, 2000 through the termination
of the Limited Sell-Off Right. The Limited Sell-Off Right
shall terminate on March 1, 2001.
c. REPORTING REQUIREMENT. Xxxxxxxxx shall supply Precise on a
monthly basis with a written accounting of all units of
Product sold from the Current Inventory by customer account.
This accounting shall be supplied with the Sell-Off Royalty
payment for the relevant month. At Precise's request,
Xxxxxxxxx shall supply Precise with copies of such documents
that permit Precise to verify the number of units of Product
sold by Xxxxxxxxx, including all purchase orders, bills of
lading, and shipping documentation.
d. PATENT NOTICE. Xxxxxxxxx agrees that prior to selling any
Current Inventory after the Effective Date it will apply a
label indicating that the unit is covered by the Patents. For
Current Inventory Products that are already packaged, the
label may be applied to the packaging. For Current Inventory
Products that have not yet been packaged, the label shall be
applied to the Product. Such label shall be substantially in
the following form:
U.S. Patent Nos.:
5,492,520
5,577,987
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and shall be of a size and in a location such that a user can
readily locate and read it and shall be of a quality such that
it will remain affixed to the unit or packaging as appropriate
through normal usage.
e. NO ASSIGNMENT OR SUB-LICENSE. This Limited Sell-Off Right is
particular to Xxxxxxxxx, and Xxxxxxxxx may not assign,
sub-license, pledge, mortgage or otherwise encumber it, in
whole or in part, except as expressly consented to by Precise
in advance in writing and except to the extent of loan
agreements.
f. INDEMNIFICATION FOR CURRENT INVENTORY. Xxxxxxxxx agrees that
it will defend and indemnify Precise with respect to any
claims, damages or causes of action that may be asserted
against Precise arising out of or relating to Xxxxxxxxx'x
manufacture, use, sale or distribution of Products. Xxxxxxxxx
further agrees that it will maintain product liability
insurance of not less than One Million Dollars per occurrence
for a period of three years and that it will add Precise as an
additional insured to such policies.
4. NOTIFICATION AND TRANSFER OF RETAIL ACCOUNTS. Within 10 days of the
Effective Date, Xxxxxxxxx shall notify its retail customer accounts,
including but not limited to Walmart, KMart, Modell's, The Sports
Authority and QVC, that the Products will be available for purchase
from Xxxxxxxxx only until the Current Inventory is exhausted and that
following March 1, 2001 the Products will no longer be available for
purchase from Xxxxxxxxx. Xxxxxxxxx shall also notify all its current
retail customer accounts that the Products, and any other product
covered by the claims of the Patents, may be purchased from Precise
and/or its authorized representative, Terra Star. After the Effective
Date, but subject to the Limited Sell-Off Right, Xxxxxxxxx shall direct
all customer inquiries for purchase of the Products to Precise.
a. TRANSITION TO TERRA STAR. Xxxxxxxxx shall use all reasonable
efforts to effectuate the transition of its current retail
customer accounts (including Xxxxxxx, XXxxx,
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Modell's, The Sports Authority and QVC) for the Products to
Terra Star. Such efforts shall include, but shall not be
limited to: meetings, conferences, telephone calls and written
correspondence with buyers, representatives or other necessary
personnel at each respective retail account; providing
consultations regarding warehousing, handling, manufacturing
and marketing of the Products; providing information to Terra
Star regarding Xxxxxxxxx'x retail customer accounts including
monthly shipment information by account, invoice selling price
to each account, and future forecast reports by each account;
and, for a period of 6 months after the Effective Date,
providing Terra Star with any other information or reasonable
assistance for the purpose of effectuating the transition of
Xxxxxxxxx'x current retail customer accounts for the Products
to Terra Star.
b. RETAILER COMMITMENTS. Xxxxxxxxx shall assist Terra Star to
obtain commitments from Xxxxxxxxx'x current retailer customers
for Terra Star to continue to supply the Product, or a similar
product covered by the Patents, to such retailers for calendar
years 2001-2002.
c. KMART SHELF SPACE AGREEMENT. If requested by KMart as a
condition for Terra Star sales of the Products under this
paragraph 4 to KMart, Xxxxxxxxx will release rights to its
shelf space as provided for in Xxxxxxxxx'x current marketing
agreement with KMart.
d. RELEASE. Upon Xxxxxxxxx'x payment to Precise of the $103,000
provided for in paragraph II.2 above, the delivery of a fully
executed copy of the Sublicense Agreement, the delivery of a
fully executed copy of the Assignment Agreement, and Precise's
or Terra Star's receipt of an order from each of KMart and
Walmart for any product covered by the Patents, Precise shall
completely release Xxxxxxxxx and its customers, including but
not limited to KMart and Walmart, from all claims, actions and
causes of action arising from Xxxxxxxxx'x past sales of
Product, and Xxxxxxxxx shall completely release Precise from
all claims, actions, and causes
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of action arising out of or relating to the dispute over the
Patents. This Release shall be effective with respect to the
sale or distribution of Current Inventory only to the extent
the royalties on such Products set forth herein have been paid
by Xxxxxxxxx to Precise.
5. ADMISSION OF VALIDITY AND ENFORCEABILITY OF PATENTS. Xxxxxxxxx admits
that the Patents are valid and enforceable and that one or more of the
claims of U.S. Patent No. 5,577,987 read on each of the Products.
Xxxxxxxxx covenants and agrees not to take any action to contest the
validity or enforceability of the Patents. Xxxxxxxxx also covenants and
agrees to abstain from manufacturing, offering to sell, selling, using
or distributing the Products and any and all colorable imitations
thereof, except as provided in this Settlement Agreement.
6. AGREEMENT TO RESPECT PATENTS. Xxxxxxxxx covenants and agrees not to
take any action or assist any other party in taking any action to
contest the validity of the Patents or to dispute infringement of the
Products on the Patents, unless required by subpoena or other
compulsory process.
7. STIPULATION OF DISMISSAL. Within ten (10) court days of the Effective
Date, Precise shall execute and, upon execution by Xxxxxxxxx, shall
file with the Court a Stipulation of Dismissal dismissing the KMart
Action without prejudice. Within ten (10) court days of the Effective
Date, Precise shall file with the Court a Voluntary Dismissal of the
Walmart Action without prejudice. Within ten (10) court days of the
Effective Date, Xxxxxxxxx shall execute and, upon execution by Precise,
shall file with the Texas Court a Stipulation of Dismissal dismissing
the Xxxxxxxxx Action with prejudice. Upon Xxxxxxxxx'x payment to
Precise of the $103,000 provided for in paragraph II.2 above, the
delivery of a fully executed Sublicense Agreement, the delivery of a
fully executed Assignment Agreement, and Precise's or Terra Star's
receipt of an order from each of KMart and Walmart for any product
covered by the Patents, Precise shall (i) execute and, upon execution
by Xxxxxxxxx, shall file with the Court an Amended Stipulation of
Dismissal dismissing the
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KMart Action with prejudice and (ii). file with the Court an Amended
Voluntary Dismissal dismissing the Walmart Action with prejudice.
8. CONSENT TO INJUNCTION. Xxxxxxxxx covenants and agrees to abstain from
manufacturing, offering to sell, selling, using or distributing the
Products and any and all colorable imitations thereof, in the United
States and in such other countries where Precise has patent protection
(including those countries listed on EXHIBIT A hereto), except as
provided in this Settlement Agreement or otherwise authorized by
Precise in writing. Xxxxxxxxx acknowledges that a breach of this
paragraph would not be remediable by monetary damages alone, but would
require equitable relief, including injunctive relief that bars
Xxxxxxxxx from (i) making, using, offering to sell, selling, or
distributing any device in the United States and in those other
countries where Precise has patent protection which infringes Precise's
Patent rights, including the Products and any and all colorable
imitations thereof; (ii) inducing infringement of Precise's Patent
rights; and (iii) marketing or distributing any advertising,
promotional materials or packaging bearing any photograph or graphic
artwork of any device that infringes Precise's Patent rights, including
the Products and any and all colorable imitations thereof. Xxxxxxxxx
hereby consents to the entry of such an injunction upon a sufficient
showing by Precise that Xxxxxxxxx is manufacturing, using, marketing,
selling or distributing in the United States and in such other
countries where Precise has patent protection any abdominal exercise
Product upon which one or more of the Patents reads, except as
authorized by this Settlement Agreement or otherwise authorized by
Precise in writing.
9. ASSIGNMENT OF RIGHTS TO PRODUCTS AND PROMOTIONAL MATERIALS. As of the
Effective Date, but subject to the Sell-Off Rights, Xxxxxxxxx shall
assign and transfer to Precise its entire right, title and interest in
intellectual property related to the Products (including but not
limited to any trademark, servicemark, trade dress, or patent rights
Xxxxxxxxx may have in or relating to the Products and all marketing and
promotional materials). A fully executed Assignment Agreement shall be
delivered to Precise within nine (9) days after the Effective Date.
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10. RIGHTS TO THE STEP PRODUCT. Effective as of the Effective Date,
Xxxxxxxxx will sublicense to Precise rights under certain intellectual
property relating to the STEP Product as set forth in the Sublicense
Agreement attached hereto as Exhibit X. Xxxxxxxxx agrees that it will
use its best efforts to obtain from the Step Company as soon as
possible any authorization or permission that may be required to permit
Xxxxxxxxx to xxxxx the sublicense provided by the Sublicense Agreement.
III. GENERAL PROVISIONS
1. ATTORNEYS' FEES AND COSTS. In any action involving any controversy,
claim or dispute between or among the parties hereto, arising out of
the interpretation or enforcement of this Settlement Agreement or any
of its terms, the prevailing party or parties shall be entitled to
recover its reasonable attorneys' fees and costs from the other party
or parties.
2. AUTHORITY. Each signatory hereto represents and warrants that it has
the full power and authority to execute, deliver, and perform this
Settlement Agreement.
3. CHOICE OF LAW AND JURISDICTION. This Settlement Agreement, including
its existence, validity, construction and operational effect, shall be
governed by the substantive laws of the State of California without
regard to choice of law principles. The parties hereto hereby consent
to the jurisdiction of the courts of the State of California including
the Federal Courts located therein. The parties hereto also hereby
agree that the venue for any dispute or action arising from this
Settlement Agreement shall be in the courts of the State of California
and the Federal Courts located therein (Central District).
4. CONFIDENTIALITY. This Settlement Agreement shall be kept confidential,
but may disclosed to Terra Star or as reasonably required by normal
business operations.
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5. COUNTERPARTS; INTEGRATION CLAUSE AND MODIFICATION. This Settlement
Agreement may be executed in counterparts and may include exhibits and
attachments. All counterparts, exhibits and attachments shall
constitute one agreement binding on the each of the parties to which
they pertain. This Settlement Agreement contains the entire agreement
of the parties hereto pertaining to the settlement of the Action and
fully supersedes all prior agreements, understandings and/or
discussions between the parties hereto pertaining to the subject matter
hereof. This Settlement Agreement may not be amended, nor any of its
provisions waived, except by a writing executed in like manner by the
parties.
6. FURTHER ASSURANCES. Without further consideration, the parties hereby
covenant and agree to execute such instruments, documents, pleadings
and statements, and to take such further action, as may be reasonably
necessary to effectuate and/or further the purposes of this Settlement
Agreement or any of its terms or conditions, including, but not limited
to, executing and/or consenting to any and all motions to the court
presiding over the KMart Action, the Walmart Action or the Xxxxxxxxx
Action for the purpose of dismissing those actions, or any other such
matter as may be reasonably required to effectuate this Settlement
Agreement or any of its terms and/or conditions. The parties also agree
not to take any action that would conflict with the provisions of this
Settlement Agreement and the transactions contemplated herein.
7. INTEGRATION CLAUSE AND MODIFICATION. This Settlement Agreement and the
exhibits and annexes referenced herein contain the entire agreement of
the parties hereto pertaining to the settlement of the KMart Action,
the Walmart Action and the Xxxxxxxxx Action. This Settlement Agreement
fully supersedes all prior agreements, understandings and/or
discussions between the parties hereto pertaining to the subject matter
hereof, and no change in, modification of, or addition, amendment or
supplement hereto shall be valid unless set forth in writing signed by
each of the parties hereto following the signing of this Settlement
Agreement.
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8. MUTUAL DRAFTING. The parties hereto participated equally in the
preparation of this Settlement Agreement; accordingly, any claimed
ambiguity should not be construed for or against any party.
9. NOTICES. All notices and other communications pertaining hereto shall
be in writing and shall be deemed to have been given when delivered
personally or five (5) days after being mailed, certified or registered
mail, return receipt requested, postage prepaid, to the respective
addresses set forth immediately opposite the signatures of the parties
hereto or to such other address or addresses as any of them may from
time to time in writing designate hereunder.
10. SEVERABILITY. In the event any provision of this Settlement Agreement
is found by a court of competent jurisdiction to be invalid or
prohibited by law, such provision shall be revised by said court to the
extent, and only to the extent, necessary to render such provision
valid, shall be ineffective only to the extent of such prohibition or
invalidity, and shall not invalidate or otherwise render ineffective
any of the remaining terms and conditions of this Settlement Agreement
provided any provision held to be invalid or prohibited by law is not
essential to the parties' enjoyment of the economic benefits
contemplated by this Agreement.
11. SUCCESSORS AND ASSIGNS. This Settlement Agreement shall be binding upon
and shall inure to the benefit of the successors, heirs and assigns of
the parties hereto. Xxxxxxxxx, however, shall not have the right to
assign any right or obligation created in this Settlement Agreement to
any other party, including any third party, without the express written
consent of Precise. Any attempt to assign or transfer any right or
obligation under the Agreement in violation of this provision shall be
null and void.
12. WAIVER, MODIFICATION AND AMENDMENT. The failure of any party to insist
at any time upon the strict performance of any provision, term or
condition of this Settlement Agreement or to act upon or exercise any
right or remedy available or possibly available
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to such party, whether hereunder, at law or in equity, shall not be
interpreted as a waiver, modification, or amendment of any such
provision, right or remedy unless specifically expressed in writing
signed by such party.
IN WITNESS WHEREOF, the parties have caused this Settlement Agreement to be duly
executed as of the date set forth in the signature lines below.
PRECISE EXERCISE EQUIPMENT, INC.
000 Xxxxxxxxxxxxx Xxxxx
---------------------------- Suite 300
By: Xx. Xxxxx, Xxx Xxxxxx 00000
Its:
Date:
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FITNESS INNOVATIONS AND TECHNOLOGIES (F.I.T.), INC.
000 Xxxxxxxxxxxxx Xxxxx
---------------------------- Suite 300
By: Xx. Xxxxx, Xxx Xxxxxx 00000
Its:
Date:
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XXXXXXXXX INDUSTRIES, INC.
000 Xxxxxxxx Xxxxxxx
---------------------------- Xxxxx Xxxxxxx, Xxxxx 00000
By:
Its:
Date:
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EXHIBIT A
PATENTS
U.S. Patent No. 5,492,520
U.S. Patent No. 5,577,987
European Patent No. EP 0717 649 B1
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