VIA FACSIMILE & COURIER
Exhibit 10.1
XXX XXXXXXXXX & XXXXXXX
Xxxxx 0, 0000
Xxxxx Advanced Technologies
000 Xxxxx Xxxxx
Xxxxxx, Xxxxxxx
X0X 0X0
Attention: Xxxx Xxxxx
Dear Sirs:
Re: Gear Development Program for Automotive Applications
This letter agreement is intended to set forth the terms on which Ikona Gear International, Inc. (“Ikona”) is prepared to allow Magna Advanced Technologies and certain of its affiliates (collectively “MAT”), a division of Magna International Inc., to examine and develop automotive applications for patented planetary gear technology owned by Ikona. Wherever used in this letter agreement, the term “Technology” means all intellectual and industrial property (whether registered, applied for or unregistered), patents, inventions, inventor’s rights, copyrights, moral rights, utility models, industrial or other designs, trade secrets, scientific knowledge, know-how, show-how, processes, procedures, formulae, products, blue prints, drawings and specifications for materials, processes and equipment, and all other technical data, documents or information relating to the manufacture of gears using Ikona’s planetary gear technology, including the patents listed on Schedule “A” to this letter agreement (collectively, the “Technology”).
In the first phase of the development program for the Technology, MAT will examine the Technology in detail, build and test prototypes and determine the commercial feasibility of the Technology in one or more automotive applications, all in accordance with the terms set forth below. Assuming MAT’s satisfaction with the first phase of the development program, Ikona will license the Technology to MAT on a sole, exclusive and global basis for automotive applications, in accordance with the terms set forth below.
MAT and Ikona have executed a confidentiality agreement dated January 21, 2003 (the “Confidentiality Agreement”), which agreement is expressly extended to the development program contemplated in this letter agreement and the terms of which are incorporated by reference herein. For greater certainty, notwithstanding anything contained in the Confidentiality Agreement, the Confidentiality Agreement will terminate on the date which is the later of three (3) years from: (i) the date MAT terminates its development program under Phase 1; or (ii) the expiration or termination of the license relating to the Technology resulting from Phase 2 of the development program, as detailed below.
In consideration of the mutual covenants and other consideration (the receipt and sufficiency of which are hereby acknowledged), MAT and Ikona hereby agree as follows:
Phase 1: Technology Development, Protoyping and Testing; Market Research
| 1. | MAT will engage in a development, prototyping and
testing phase commencing May 1, 2003 and ending on April 30, 2004 (“Phase
1”), during which MAT will have the right, on a sole and exclusive
basis with respect to automotive applications, to build and test prototypes
of automotive modules incorporating the Technology. These modules may
include one or more automotive applications, including, without limitation,
electric power steering; seat recliners; sunroof and window movement systems;
wiper systems; power door, liftgate and tonneau systems; folding hardtops;
power running boards; power brakes; and brake-by-wire technology. MAT
does not offer any assurance or guarantee that it will develop the Technology
for application in any or all of these areas; this list is merely illustrative.
During Phase 1, MAT will assess the commercial feasibility of the Technology
in one or more automotive applications. For purposes of this agreement,
the term “automotive applications” means all applications of
the Technology in passenger cars and light trucks, the latter of which
includes sports-utility vehicles, pick-up trucks, minivans, cross-utility
vehicles and similar vehicles. Medium and heavy trucks are expressly excluded
from the scope of the term “automotive applications”. |
| 2. | Xxxxxx Xxxxx 0, Xxxxx will not seek any business,
contracts or orders incorporating the technology into any component for
automotive application. Ikona confirms it has previously had discussions
with Delphi, ZF and TRW regarding automotive applications for the Technology
and agrees to facilitate contact between MAT and any such party, at MAT’s
request. |
| 3. | Ikona will make available to (a) MAT, and (b) if
necessary (determined on a commercially reasonable basis), to potential
customers and suppliers of MAT, all applicable know-how, designs, inventions,
processes, methods, drawings, techniques, formulae, patterns, computations,
customer information, supplier information, distribution information,
computer or other data or other records and information relevant to the
Technology and any automotive applications of the Technology. All such
information provided by Ikona will be held in confidence by MAT and its
employees in accordance with the terms of the Confidentiality Agreement
between the parties. MAT may only disclose such information to potential
customers and suppliers pursuant to a confidentiality agreement which
is substantially similar to the Confidentiality Agreement. |
| 4. | Ikona will, on request by MAT, provide MAT with engineering
support services relating to the Technology. In consideration for the
engineering support services provided by Ikona during Phase 1, MAT agrees
to pay Ikona a fixed fee of Cdn.$15,000 per month (the “Engineering
Fee”) commencing May, 2003 and payable in arrears on the first day
of each month thereafter during Phase 1. MAT shall also pay the reasonable
travel expenses of applicable Ikona personnel provided that such travel
has been pre-approved by MAT and all expenses are incurred in accordance
with MAT’s travel expense policy. |
| 5. | Any intellectual property relating to the Technology
in existence at the date hereof shall belong exclusively to Ikona. Any
intellectual property arising during Phase 1 as a result of the development
efforts of MAT (collectively, “Improvements”) will be jointly
owned by MAT and Ikona. Ikona agrees that it will not license any such
Improvements to any third party for any automotive application as long
as this letter agreement or the License Agreement (defined below) is in
force. MAT agrees that Ikona may, without payment of royalty to MAT, license
any Improvements to third parties for applications other than automotive
applications. |
| 6. | By the end of Phase 1, MAT will deliver to Ikona
notice of MAT’s intention to proceed to Phase 2 (as defined below)
or terminate its relationship with Ikona. If MAT elects to proceed to
Phase 2, the parties will negotiate a license agreement relating to the
Technology in mutually |
acceptable form, the terms of which will be consistent
with those set forth below (the “License Agreement”). |
|
| 7. | MAT may immediately terminate this letter agreement
at any time on or after November 1, 2003, provided however that MAT will
pay Ikona: (i) all amounts due and payable in respect of the Engineering
Fee for months prior to the month of termination, and (ii) a termination
fee equal to Cdn.$15,000 (the “Termination Fee”). Ikona expressly
agrees that the Termination Fee is in lieu of all fees or amounts which
would have been payable had MAT proceeded under this letter agreement
until the end of Phase 1 or Phase 2. MAT will not be liable for damages
of any kind, including lost profits, if it terminates this letter agreement
during Phase 1 or elects not to proceed to Phase 2. |
| 8. | Upon termination of this letter agreement pursuant
to paragraphs 6 or 7 hereof, MAT will cease to have (a) any further Engineering
Fee or other payment obligations to Ikona, (b) any further rights arising
from this letter agreement except any rights acquired in respect of Improvements
pursuant to paragraph 5 of this letter agreement. Upon either such termination,
(a) the provisions in section 3 of the Confidentiality Agreement regarding
the delivery of Confidential Information shall take effect and be equally
applicable with respect to Improvementst, and (b) Ikona may purchase the
rights acquired by MAT pursuant to paragraph 5 of this letter agreement
by payment to MAT of an amount equal to the amount spent by MAT in developing
the Technology during Phase 1, such amount not to exceed $300,000. Such
amount may be paid on the same basis as the royalties proposed by MAT
to be paid to Ikona as provided under Phase 2 herein. Upon receipt of
final payment, MAT shall execute such documents as may be reasonably required
in order to transfer its interest in the Improvements to Ikona. |
| Phase 2: Sole & Exclusive Licensing of Technology for Automotive Applications | |
| 9. | Following the completion of Phase 1 and upon notifying
Ikona of its intention to proceed to Phase 2, MAT will continue developing
the Technology with the intent of commercializing any automotive applications
of the Technology. In conjunction with such continued development activities,
MAT will seek purchase orders from OEMs and/or automotive suppliers for
automotive components or modules incorporating the Technology. Ikona acknowledges
that securing purchase orders for components or modules incorporating
the Technology could take several years. MAT will pay Ikona a fee of Cdn.$20,000
per month for each month to, but excluding, the first month in respect
of which MAT makes a royalty payment to Ikona for any automotive application
of the Technology pursuant to a fully executed License Agreement. |
| 10. | Upon acceptance by MAT of a production purchase order
for the supply of components or modules incorporating the Technology,
the parties will execute the License Agreement. The License Agreement
will include the following terms: |
| a. | payment by MAT of the sum of Cdn.$1,000,000, payable
in four (4) equal installments as follows: (i) Cdn.$250,000 payable within
thirty (30) days of acceptance by MAT of the first production purchase
order for components or modules incorporating the Technology; (ii) Cdn.$250,000
payable on the 90-day, 180-day and 270-day anniversaries of the first
payment in this sub-paragraph; |
|
| b. | royalties payable (i) on a sliding scale of 1-3%
of the gross selling price of the plano-centric gear sub-assembly incorporating
the Technology for any original equipment production program, and (ii)
on a sliding scale of 3-6% of the gross selling price of the plano-centric
gear sub-assembly incorporating the Technology in any after-market production
program (collectively, the “Royalty”). For greater certainty,
the Royalty will not be calculated on the selling price to the OEM or
supplier of the entire component or |
module incorporating the Technology. For purposes
of determining the gross selling price of the plano-centric gear sub-assembly
incorporating the Technology in a situation where MAT has received a purchase
order that does not price such sub-assembly separately from the automotive
module in which it is incorporated, the gross selling price will be deemed
to be either (i) the actual price paid by MAT to third-party supplier(s)
for the plano-centric gear sub-assembly or (ii) if the components comprising
the plano-centric gear sub-assembly are manufactured by MAT, MAT’s
cost of production of such components plus a margin thereon mutually agreed
to by the parties. Ikona expressly acknowledges that the Royalty, as a
dollar amount, paid to it in respect of any particular program will decline
over time as a result of cost-downs or price “give-backs”; |
||
c. |
a mutually agreeable minimum Royalty in respect of
each of the first three years of commercial production will be payable
by MAT, following which, no minimum Royalty will be payable by MAT; |
|
d. |
Royalties will be paid within sixty (60) days of
the end of each financial year of MAT on the basis of gross sales of gear
sub-assemblies (as provided in sub-paragraph 10(b) above) in the immediately
preceding financial year; |
|
e. |
a term equal to the last to expire of the patents
relating to the Technology, including the Improvements; and |
|
f. |
other customary license terms mutually agreed to
by the parties. |
|
| 11. | MAT may, in its sole discretion,
refuse to accept a purchase order for a component or module incorporating
the Technology, including without limitation for any of the following
reasons: (i) the expected volume of components or modules would not generate
sufficient sales to enable MAT to pay the minimum Royalty set forth in
sub-paragraph 10(c) above; (ii) the selling price of the product or module
would not enable MAT to achieve a sufficient rate of return on the component
or module after payment of the Royalty thereon; or (iii) any other technical,
production or economic reason in MAT’s judgment. |
|
| 12. | The “Ikona” name
will appear on all gear sub-assemblies incorporating the Technology, unless
otherwise approved in writing by Ikona. |
|
| 13. | Neither party will, without
the prior written consent of the other party, publicly disclose by way
of press release or publication in any media, including publication on
an internet website or an offering memorandum or prospectus, the relationship
between the parties under this letter agreement. A party from whom consent
is requested under this paragraph will use best efforts to respond within
four (4) business days and neither party will unreasonably withhold its
consent hereunder. Notwithstanding the foregoing, Ikona may disclose the
generalities of its relationship with MAT in discussions with, or presentations
to, investors, analysts or other third parties in connection with a private
or public offering of Ikona securities. Neither party may use the trademarks
of the other party without express written consent of such party. |
|
| 14. | If MAT has failed to secure
a purchase order for a component or module incorporating the technology
within twenty-four (24) months of the commencement of Phase 2, MAT will
forfeit its rights to be the exclusive licensee of the Technology for
automotive applications, unless it pays to Ikona a further Cdn.$250,000
to extend its rights hereunder for a further twelve (12) months. |
|
| 15. | Throughout the term of this
letter agreement, the parties will engage in the exchange of information
regarding the Technology and Improvements with the objective of maximizing
the development potential of the underlying Technology. |
|
| 16. | |
| 17. | The parties agree to resolve any disputes
hereunder by commercial arbitration by a single mutually-acceptable arbitrator,
or a panel of three arbitrators, one of whom will be selected by each
party and the third of whom will be selected by the other two arbitrators.
Any such arbitration will be conducted in accordance with the provisions
of the Arbitrations Act (Ontario), except to the extent the parties otherwise
agree. |
If you are in agreement with the foregoing, please sign the acceptance portion of this letter and return one original to the undersigned.
Regards,
IKONA GEAR INTERNATIONAL, INC.
By: ____________________________________________
Laith
Nosh
The undersigned accepts and agrees to the foregoing terms.
MAGNA ADVANCED TECHNOLOGIES,
A division of Magna International Inc.
By: ____________________________________________
Xxxx
Xxxxx
SCHEDULE A
PATENTS AND PATENT APPLICATIONS
| Jurisdiction | Patent No. |
| Canada | 2,129,188 |
| United States | 5,505,668 |
| Europe | 0770192 |
