AGREEMENT
THIS AGREEMENT is entered into the 4th day of December, 1998 by and
between ENVIRONMENTAL SYSTEMS & SOLUTIONS, INC., a Nevada corporation
("ESSI"), on the one hand, and PACIFIC AMERICAN CULTURAL EXCHANGE, INC., a
Japanese corporation ("PACE"), and XXXXXXXX XXXXXXXX ("XXXXXXXX") under the
following terms and conditions:
RECITALS:
WHEREAS, ESSI owns the worldwide rights to the patented "HydroMaid"
product; and
WHEREAS, NAKAMURA is the sole shareholder of PACE which has paid-in
capital of Y35,000,000; and
WHEREAS, NAKAMURA and PACE desire to acquire manufacturing and
marketing rights under license from ESSI (the "License Rights") for Japan,
Korea, the People's Republic of China, Hong Kong, Macao, the Republic of
China (Taiwan), the Philippines, Vietnam, Laos, Cambodia, Malaysia,
Singapore, Thailand, Myanmar, Indonesia, New Guinea, Sri Lanka, India,
Pakistan, Afghanistan, Iran, and Iraq (the "Territory"); and
WHEREAS, ESSI is willing to grant the License Rights for the Territory
to PACE on the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
1. LICENSE.
1.1 ESSI hereby agrees to grant to PACE the License Rights to the
Territory upon the terms and conditions set forth in remainder of Section 1
of this Agreement. The License Rights as set forth in this Agreement shall
be incorporated into a License Agreement reasonably agreeable to the parties
and their respective counsel.
1.2 The parties agree that the License Rights shall be exclusive,
subject to the condition that the license will revert to a non-exclusive
license if PACE does not achieve sales as follows:
1.2.1 3,840 HydroMaid units in the second calendar quarter of
1999;
1.2.2 7,680 HydroMaid units in the third calendar quarter of
1999;
1.2.3 11,520 HydroMaid units in the fourth calendar quarter of
1999;
1.2.4 15,360 HydroMaid units in the first calendar quarter of
2000;
1.2.5 17,920 HydroMaid units in the second calendar quarter of
2000; and
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1.2.6 19,200 HydroMaid units per calendar quarter commencing
in the third quarter of 2000 and in each quarter thereafter.
1.3 ESSI shall be entitled to cancel the License Rights upon 90
days written notice to PACE if PACE does not achieve a minimum of 50% of the
sales required for two consecutive calendar quarters as set forth in Section
1.2 above.
1.4 The parties agree that PACE will pay a royalty to ESSI equal to
U.S. $50.00 per HydroMaid unit (the "Royalty"), up to an aggregate of U.S.
$5,000,000.00 (the "Royalty Cap"), subject to the conditions set forth in
Section 1.5 below. After payment of Royalties equal to the Royalty Cap, the
license granted hereby shall be considered a fully-paid license and no
further Royalties shall be payable.
1.5 PACE shall have the right to purchase, up to 2,500 HydroMaid
units per month at a price of U.S. $155.00 from ESSI's production facilities
in the United States for sale in the direct marketing, multi-level marketing,
or to installers of water purification equipment in Japan, in accordance with
terms to be agreed upon in negotiations between such parties as PACE may
determine. After either ESSI or PACE has production capabilities in China or
Japan, sales to such channels will be made from production in China or Japan,
with royalties payable to ESSI in accordance with the provisions of Section
1.4 above.
1.6 As a condition for the grant of the License Rights, NAKAMURA
agrees to establish a credit facility in the amount not to exceed U.S.
$5,000,000 (the "Credit Facility") for the benefit of PACE to be utilized for
the manufacture and/or purchase of HydroMaid units to be marketed in the
Territory. NAKAMURA agrees to fund the Credit Facility from time to time in
such amounts as may be necessary to satisfy the reasonable production
requirements to meet the demand for HydroMaid units in the Territory. To the
extent that NAKAMURA funds the Credit Facility, the Royalty Cap shall be
reduced by the amount of the funded Credit Facility. For example, if a line
of credit in the amount of U.S. $1,000,000.00 is established by NAKAMURA, the
Royalty Cap shall be reduced by U.S. $1,000,000.00. The specific terms and
conditions of the Credit Facility shall be determined by the parties hereto
based upon the reasonable production requirements to meet the demand for
HydroMaid units in the Territory.
1.7 As a condition for the grant of the License Rights, NAKAMURA
agrees to provide $200,000 in working capital to PACE for operating expenses
from the Closing, as defined in Section 5 below. The parties agree to bear
their own expenses relating to the development of the business in Japan up to
and including the Closing Date.
1.8 The parties agree to continue negotiations with Seiko
Instruments, Inc. for the manufacture of the HydroMaid units in Japan. If
the HydroMaid units are manufactured in Japan, the parties acknowledge that
no Credit Facility shall be required.
1.9 As a condition precedent for the grant of the License Rights to
PACE, NAKAMURA agrees to assign 50% of the issued and outstanding shares of
PACE to ESSI.
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1.10 As a condition to and in consideration for the transfer of the
PACE shares to ESSI, ESSI agrees to issue to NAKAMURA 25,000 shares of ESSI,
such number of shares to be subject to adjustment in the event of a merger,
reorganization, or other similar transaction.
1.11 As a condition to the grant of the License Rights to PACE,
NAKAMURA, in his capacity as the shareholder of PACE, agrees to elect XXXXX
XXXXX, XXXXXXXX XXXXXXXXX, XXXXX XXXXXXXX, XXXXXX X. XXXXX, XXXXXX X. XxXXXX,
and XXXXX X. XXXXXXX as members of the Board of Directors of PACE and
XXXXXXXX XXXXXX as Statutory Auditor.
1.12 As a condition to the grant of the License Agreement, the
parties agree that the officers of PACE, to be elected by the Board of
Directors, shall be as follows:
Chairman Emeritus XXXXXXXX XXXXXXXX
Chairman of the Board XXXXXX X. XXXXX
President/ Chief Executive Officer XXXXX XXXXX
Chief Financial Officer XXXX X. XXXXX
Secretary/General Counsel XXXXX X. XXXXXXX
Vice President XXXXXXXX XXXXXXXX
Vice President XXXXX XXXXXXXX
Vice President XXXXXX X. XxXXXX
Vice President HIRORUMI SHIMOZATO
Vice President XXXXXXXXX XXXXXXXX
1.13 As a condition to the grant of the License Agreement, PACE
agrees to purchase a 40-foot container of approximately 1,280 HydroMaid units
with PACE responsible to pay U.S. $155.00 per unit. PACE and ESSI agree that
payment for half of the units shall be due on the later of February 15, 1999
or 45 days after the delivery of the shipment and payment for the other half
of the units shall be due on the later of March 31, 1999 or 90 days after the
delivery of the shipment.
2. OPERATIONAL PHILOSOPHY.
2.1 The parties agree that the operational philosophy of PACE shall
be to concentrate initially on sales in Japan and to establish a strategic
plan for the marketing of HydroMaid units in other countries in the Territory
to be approved by the Board of Directors (the "Strategic Plan"). The
Strategic Plan shall establish a target date for the commencement of sales in
each country in the Territory and a target amount of HydroMaid units to be
sold by identified dates. Prior to approval of the Strategic Plan, Xx. XXXXX
and Xx. XXXXXXX shall (i) agree upon the direction of the business of PACE,
(ii) jointly approve all agreements with distributors, office lease
arrangements, employment arrangements, and (iii) coordinate the business
decisions of PACE to insure that PACE and ESSI are fully informed as to all
material business matters.
2.2 The parties agree that if ESSI receives a bona fide offer in
writing (the "Offer") for a license or distributorship in any market in the
Territory in which PACE is not selling HydroMaid units in accordance with the
Strategic Plan, ESSI shall notify
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PACE in writing that it has received the Offer. PACE shall have a right of
first refusal to agree to a license or distributorship in such country on the
same terms and conditions as set forth in the Offer during the 30-day period
following notice by ESSI to PACE (the "Initial Deadline"). If PACE does not
agree to the terms set forth in the Offer by the Initial Deadline, such
country shall no longer be considered part of the Territory and ESSI shall be
free to grant license or distribution rights in such country on the terms set
forth in the Offer. If no agreement in accordance with the Offer is entered
into between ESSI and the party advancing the Offer within 30 days after the
Initial Deadline, such country shall be deemed included again in the
Territory for purposes of the License Rights.
2.3 The parties agree that the Board of Directors of PACE shall
meet on a quarterly basis to review financial statements, budgets, forecasts,
marketing plans, manufacturing plans, and such other matters as reasonably
necessary to provide proper oversight to the operations of PACE. The place
of such meetings shall be (i) Tokyo, Japan, (ii) Salt Lake City, Utah, or
(iii) such other place as the Board of Directors may determine by majority
agreement. The parties agree that NAKAMURA, in his capacity as Chairman
Emeritus of PACE, and Xx. XXXXXX, in his capacity as the Statutory Auditor,
shall be entitled to receive all notices of meetings of the Board of
Directors and to attend such meetings.
2.4 English shall be the official language of PACE. All Board
meetings shall be conducted in English and all notices and official
communications shall be in English. Except for required filings with the
Japanese government, all official corporate documents shall be maintained in
English, and the English version of any such document shall prevail in the
event of a conflict between the English and Japanese versions. At the
Closing (as defined in Section 5), English translations of all official
corporate documents (e.g. Articles of Incorporation and Bylaws) shall be
delivered to ESSI.
3. PHILIPPINES.
The parties agree that PACE shall have the right to negotiate a
sublicense or distributorship for the Philippine Islands on the basis of a
joint venture company owned 50% by PACE and 50% by a Philippine joint partner
for approval by the Board of Directors.
4. NAME CHANGE.
The parties agree that PACE shall change its name to "Environmental
Systems International, Inc." and ESSI hereby consents to the use of such
corporate name.
5. CLOSING.
The parties agree to conduct a closing at the earliest practicable
date to accomplish the grant of the License Rights at such time (the "Closing
Date") and place in Tokyo, Japan as the parties mutually agree upon (the
"Closing"). The following shall be accomplished at the Closing:
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5.1 PACE shall deliver a current balance sheet to ESSI as of the
Closing Date.
5.2 NAKAMURA shall deliver a certificate to ESSI representing 50%
of the outstanding shares of capital stock of PACE to ESSI.
5.3 ESSI shall deliver a stock certificate for 25,000 shares of
Common Stock to NAKAMURA.
5.4 PACE shall deliver a Certificate of Secretary of PACE
evidencing (i) the election of XXXXX XXXXX, XXXXXXXX XXXXXXXX, XXXXX
XXXXXXXX, XXXXXX X. XXXXX, XXXXXX X. XxXXXX, and XXXXX X. XXXXXXX as members
of the Board of Directors, (ii) the election of Xx. XXXXXX as the Statutory
Auditor, and (iii) the change of the name of PACE to "Environmental Systems
International, Inc."
5.5 XXXXX XXXXX, XXXXXXXX XXXXXXXX, XXXXX XXXXXXXX, XXXXXX X.
XXXXX, XXXXXX X. XxXXXX, and XXXXX X. XXXXXXX, as members of the Board of
Directors of PACE, shall execute a Unanimous Written Consent electing the
officers as set forth in Section 1.12 above.
6. BUDGET; BUSINESS PLAN.
After the Closing, the Board of Directors will meet to develop a
budget and business plan for 1999, including the approval of the Strategic
Plan.
7. MISCELLANEOUS.
7.1 This Agreement supersedes any and all Agreements, whether oral
or written, between the parties hereto and contains all of the covenants and
Agreements between the parties with respect to the rendering of such services
in any manner whatsoever. Each party to this Agreement acknowledges that no
representations, inducements, promises or agreements, orally or otherwise,
have been made by any party, or anyone acting on behalf of any party, which
are not embodied herein, and that no other agreement, statement or promise
with respect to such employment not contained in this Agreement shall be
valid or binding. Any modification of this Agreement will be effective only
if it is in writing and signed by the parties hereto.
7.2 If any provision in this Agreement is held by a court of
competent jurisdiction to be invalid, void, or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect without being
impaired or invalidated in any way.
7.3 This Agreement will be governed by and construed in accordance
with the laws of the State of Utah, except where the Japanese corporate laws,
anti-trust laws, and other Japanese laws apply to a Japanese corporation on a
mandatory basis, in which case Japanese law will supersede the contractual
arrangements agreed to by the parties to this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and at the place indicated below their respective signatures.
ESSI: ENVIRONMENTAL SYSTEMS & SOLUTIONS, INC.
By: /s/ Xxxxxx X. Xxxxx
------------------------
Xxxxxx X. Xxxxx,
Chief Executive Officer
Date: 12/4/98
----------------------
Place: Salt Lake City, Utah
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NAKAMURA:
/s/ Xxxxxxxx Xxxxxxxx
---------------------------
XXXXXXXX XXXXXXXX
Date: 12/4/98
----------------------
Place: Tokyo, Japan
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PACE: PACIFIC AMERICAN CULTURAL EXCHANGE, INC.
By: /s/ Xxxxxxxx Xxxxxxxx
------------------------
Xxxxxxxx Xxxxxxxx,
Its Authorized Officer
Date: 12/4/98
----------------------
Place: Tokyo, Japan
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