Exhibit 10.4
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.
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.
2. 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.
3. Article 5.1, Licensing Fee, 5.2, Royalties, 5.3, and 5.7 Books
and Records, shall be amended by deleting Articles 5.1, 5.2, 5.3 and 5.7 in
their entirety and substituting the following new Articles 5.1, 5.2, 5.3 and 5.7
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.
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.
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:
XXXXXX INTERNATIONAL, LTD.
By: /s/ Xxxxxx X. Xxxxxx
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Xxxxxx X. Xxxxxx, President
SUBLICENSEE:
XXXXXX MOTORCYCLE COMPANY, LTD.
By: /s/. Xxxxxxx X. Xxxxxx
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Xxxxxxx X. Xxxxxx, President
