AMENDMENT NO. 1 TO SUBLICENSE AGREEMENT
THIS AMENDMENT NO.1 TO SUBLICENSE AGREEMENT, (the "Amendment"), is made as
of the 5th day of March, 2004, by and between XXXXXX INTERNATIONAL, LTD.,
A Delaware corporation, having its principal offices located at 0000
Xxxxxxx #00 & Xxxxxxxxx Xxxx, Xxxx Xxxxxxxx, Xxx Xxxxxx 00000-0000 (
SUBLICENSOR") and XXXXXX MOTORCYCLE COMPANY, LTD., having its principal
offices located at Xxxxxxx Xxxxxx, Xxxxxxxx 0 Xxxxxxxxxxx, Xxx Xxxxxx
00000 ( the " SUBLICENSEE").
BACKGROUND
WHEREAS, SUBLICENSOR owns the exclusive license (the "Exclusive
License") to make, use and sell combustion engines utilizing the CSRV
Valve System as well as the rights to franchise and sublicense certain
Patent Rights* and Technical Information* relating to Licensed Products*
utilizing the CSRV Valve System* throughout the countries, their
territories and possessions, of Xxxxx Xxxxxxx, Xxxxxxx Xxxxxxx xxx Xxxxx
Xxxxxxx (the "Territory");
WHEREAS, pursuant to its rights under the Exclusive License,
SUBLICENSOR and SUBLICENSEE entered into a certain Sublicense Agreement,
dated April 30, 2003 (the "Sublicense Agreement") pursuant to the general
terms of which SUBLICENSOR granted SUBLICENSEE an exclusive sublicense to
make, use and sell motorcycles utilizing the CSRV Valve System in all of
the countries and their territories and possessions comprising Xxxxx
Xxxxxxx, Xxxxxxx Xxxxxxx xxx Xxxxx Xxxxxxx (the "Territory"), for a period
equal to the duration of the patents, including the periods covering any
continuations and reissuances thereof as well as any additional patents
that may be issued relating to the CSRV Valve System as well as a certain
"anti-dilution" right in order that the SUBLICENSOR have the right at all
times to maintain a fifty percent plus ownership and control position over
the SUBLICENSEE;
WHEREAS, SUBLICENSEE is engaged in the preparation of an initial
public offering of its securities and has determined that it would be in
the best interests of its present and future shareholders to amend the
Sublicense Agreement to terminate the "anti-dilution" rights granted by
the SUBLICENSEE to the SUBLICENSOR in the original Sublicense Agreement as
well as to clarify SUBLICENSEE's rights to further sublicense and
franchise its sublicense rights;
WHEREAS, SUBLICENSOR currently owns 2,558,000 shares of the common
stock of SUBLICENSEE and notwithstanding any dilution resulting from the
contemplated initial public offering of SUBLICENSEE's common shares,
SUBLICENSOR acknowledges that it will be a direct beneficiary and obtain
material benefits as a result of SUBLICENSEE's public offering, which may
include but not be limited to enhanced opportunities to earn royalties
from licensed products sold by a well-capitalized SUBLICENSEE as well as
increased marketing awareness and brand recognition for its technology and
licensed products which could result from the motorcycle sales,
anticipated in part from the funds derived by SUBLICENSEE's contemplated
initial public offering;
WHEREAS, SUBLICENSOR and SUBLICENSEE desire and intend to set forth
in this Amendment the express modifications to the Sublicense Agreement
that shall govern their business relationship.
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NOW, THEREFORE, in consideration of the premises and covenants, and
other good and valuable consideration, and the mutual promises of the
performance of the undertakings set forth herein, it is agreed by and
among the SUBLICENSOR and SUBLICENSEE as follows:
I. Amendment of Sublicense Agreement.
Subject to the terms and conditions set forth herein, SUBLICENSOR
and SUBLICENSEE agree to amend the Sublicense Agreement in the following
manner:
1. Article 1.14, Sold Unit, shall be amended by deleting
Article 1.14 in its entirety and substituting the following new Article
1.14 in lieu thereof:
1.14.(A) Manufactured Unit shall mean a Licensed Product that
has completed the manufacturing process by a permitted
sublicensee or franchisee of SUBLICENSEE under the terms of
this Agreement and as a result, is included in the
determination of royalty payments due and owing to SUBLICENSOR
pursuant to the terms of this Agreement.
(B) Sold Unit shall mean a Licensed Product that has
been sold by SUBLICENSEE under the terms of this Agreement and
the sales price from such sale has been received or collected
by the SUBLICENSEE and as a result, is included in the
determination of royalty payments due and owing to SUBLICENSOR
pursuant to the terms of this Agreement.
3. Article 2.1, Licenses Granted to LICENSEE, shall be amended by
deleting Article 2.1 in its entirety and substituting the following
new Article 2.1 in lieu thereof:
2.1 Sublicenses Granted to SUBLICENSEE
Subject to the terms and conditions set forth herein, for a sublicense
period equal to the duration of the Patents commencing upon the Payment Date, as
defined in Section 5.1 (the "Sublicense Period"), unless terminated pursuant to
Article VIII, SUBLICENSOR hereby grants to SUBLICENSEE:
(a) Engines. An exclusive sublicense, with the right to grant
further sublicenses and franchises to make, use or sell to others,
throughout the Territory within the Field of Use under the Patent
Rights and Technical Information subject to the payment of royalties
as provided herein, to make or retrofit motorcycle engines that
incorporate the CSRV Valve System in accordance with the Technical
Specifications, and to sell, lease or otherwise dispose of such
motorcycle engines; and
(b) CSRV Valve Seals.Within the limitations set forth in subsections
2.1(a), a non-exclusive sublicense to use CSRV Valve Seals solely in
the manufacture of CSRV Valve Systems for incorporation into
motorcycle engines throughout the Territory within the Field of Use
under the Patent Rights and Technical Information subject to the
payment of royalties as provided herein.
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1. Article 5.1, Licensing Fee, 5.2, Royalties, 5.3, and 5.7 Books and
Records, shall be amended by deleting Article 5.1 in its entirety and
substituting the following new Article 5.1 in lieu thereof:
5.1 - Sublicensing Fee and Undertakings.
In consideration of the rights granted under the Sublicense
Agreement, SUBLICENSEE paid to SUBLICENSOR a Sublicensing Fee
of 2,550,000 shares of SUBLICENSEE'S common stock and granted
to SUBLICENSOR an antidilution right to maintain a 50%+
ownership position in SUBLICENSEE'S securities. SUBLICENSOR
and SUBLICENSEE hereby agree to terminate the antidilution
rights granted to SUBLICENSOR in the Sublicense Agreement,
effective immediately. As consideration for the expansion of
its sublicense rights granted to it by SUBLICENSOR in this
Amendment, SUBLICENSEE and SUBLICENSOR agree as follows:
(a) SUBLICENSEE hereby agrees to issue to SUBLICENSOR an
additional 1,000,000 shares of its common stock as partial
consideration for the expanded sublicense rights granted to it
in this Amendment;
(b) SUBLICENSEE further agrees to utilize its best efforts to
register 1,000,000 shares of its common stock transferred and
paid to SUBLICENSOR and to include such shares in the Form
SB-2 registration statement SUBLICENSEE has filed with the
U.S. Securities and Exchange Commission and which is currently
under review;
(c) SUBLICENSEE acknowledges that it is the intent of
SUBLICENSOR to distribute the subject 1,000,000 shares to its
shareholders of record as a stock dividend following their
registration under the Securities Act of 1933, provided, that
the subject registration statement, including the subject
1,000,000 shares, is declared effective by the Securities and
Exchange Commission and its intended distribution to
SUBLICENSOR'S shareholders is in compliance with applicable
state securities laws;
(d) In the event the SUBLICENSEE'S registration statement,
including the 1,000,000 common shares, is not declared
effective by the Securities and Exchange Commission on or
before June 1, 2004, SUBLICENSEE'S obligations to continue its
efforts to register said shares under the Securities Act of
1933 shall terminate, unless such obligation is extended by
mutual agreement of SUBLICENSOR and SUBLICENSEE;
(e) SUBLICENSEE agrees to take all necessary corporate action
in order to register the 1,000,000 shares of its common stock
under the Securities Act of 1933 on behalf of SUBLICENSOR in
order to permit the lawful distribution of these shares to the
shareholders of SUBLICENSOR;
(f) SUBLICENSOR shall utilize its best efforts to cooperate
and assist SUBLICENSEE in the preparation of any documents
necessary in order to facilitate the registration and
distribution of the subject 1,000,000 common shares pursuant
to the Securities Act of 1933 and applicable state securities
laws.
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SUBLICENSOR acknowledges its receipt of the Sublicensing Fee
payment of 2,550,000 shares of SUBLICENSEE'S common stock
pursuant to the Sublicense Agreement, and the additional
1,000,000 shares pursuant to this Amendment; SUBLICENSOR
further agrees that such stock issuances to it represents the
only payment and consideration that constitutes the
Sublicensing Fee due and payable under the Sublicense
Agreement and this Amendment. Accordingly, SUBLICENSOR further
acknowledges that its equity ownership position in the
SUBLICENSEE'S common stock shall be subject to further
dilution for proper corporate purposes and that the common
shares issuable to SUBLICENSOR under the Sublicense Agreement
and this Amendment do not bear any pre- emptive or similar
rights.
5.2 - Royalties.
(a) In further consideration for the grant of the Sublicense
described in Article II of the Sublicense Agreement,
SUBLICENSEE and its further sublicensees and franchisees shall
pay SUBICENSOR royalties as follows: in the case of the
SUBLICENSEE, it shall pay a royalty to SUBLICENSOR for each
Sold Unit in the amount of $25.00 per each 1,000 cc. within
the Territory, and; in the case of a sublicensee or franchisee
of SUBLICENSEE, it shall pay a royalty to SUBLICENSOR for each
Manufactured Unit that has completed the manufacturing process
in the Territory in the amount of $25.00 per each 1,000 cc.
and shall accrue when a Licensed Product becomes a
Manufactured Unit produced by a further sublicensee or
franchisee of the SUBLICENSEE. The royalties provided for in
this Section 5.2 shall be payable with respect to each Sold
Unit by SUBLICENSEE sold within the Territory and with respect
to each Manufactured Unit produced by a further sublicensee or
franchisee of the SUBLICENSEE within the Territory.
(b) Except as otherwise specified, the royalty payments
required by Section 5.2 shall accrue, in the case of the
SUBLICENSEE when a Licensed Product becomes a Sold Unit and,
in the case of a further sublicensee or franchisee of
SUBLICENSEE, shall accrue when a Licensed Product becomes a
Manufactured Unit.
5.3 - SUBLICENSEE or a further sublicensee or franchisee of
SUBLICENSEE, as the case may be, shall pay the royalties
accruing during each Payment Computation Period (consisting of
each day during each calendar month for each calendar year,
including the first and the last day of each calendar month),
ten (10) days after the end of such Payment Computation Period
and such payment shall be accompanied by a royalty report
stating the following:
(a) in the case of the SUBLICENSEE, the number of Sold Units
of each Licensed Product type sold during such Payment
Computation Period, and in the case of a further SUBLICENSEE
or franchisee of the SUBLICENSEE, the number of Manufactured
Units of each Licensed Product type manufactured during such
Payment Computation Period; and
(b) the amount of the royalty payment due for each such
Licensed Product during each such Payment Computation Period,
broken down to reflect the derivation of such amount.
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5.7 - Books and Records.
Until five (5) years after the termination of the Sublicense
Period, SUBLICENSEE shall keep full and accurate books and
records setting forth the sales records and the amount of
compensation payable with respect to the Sold Units of each
Licensed Product. In the case of a further sublicensee or
franchisee of SUBLICENSEE, SUBLICENSEE shall cause each such
further sublicensee and franchisee to keep full and accurate
books and records setting forth the manufacturing records and
the amount of compensation payable with respect to the
Manufactured Units of each Licensed Product. SUBLICENSEE and
its further sublicensees and franchisees shall permit an
independent certified public accountant selected by
SUBLICENSOR to examine such books and records, upon reasonable
notice during working hours, at any time, but not later than
two (2) years following the payment in question, for the
purpose of verifying the reports, accounting and payments
required by this Sublicense Agreement.
II. Ratification and Confirmation of Balance of Terms and Provisions of
Sublicense Agreement
SUBLICENSOR and SUBLICENSEE hereby ratify and confirm all of the terms
and provisions of the Sublicense Agreement not expressly modified by this
Amendment and incorporate by reference all of such terms and provisions
into this Amendment as if set forth herein in their entirety.
IN WITNESS WHEREOF, the SUBLICENSOR and SUBLICENSEE have executed this
Amendment as of the day, month and year first above written.
SUBLICENSOR:
ATTEST: XXXXXX INTERNATIONAL, LTD.
/s/ Xxxxxxx Xxxxxx /s/ Xxxxxx X. Xxxxxx
--------------------- -----------------------------------
Secretary Xxxxxx X. Xxxxxx, President
ATTEST: SUBLICENSEE:
XXXXXX MOTORCYCLE COMPANY, LTD.
/s/ Xxxxxxx Xxxxxx By: /s/ Xxxxxxx X. Xxxxxx
--------------------- -----------------------------------
Secretary Xxxxxxx X. Xxxxxx, President
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