Exhibit 6.02
PATENT LICENSE AGREEMENT
BETWEEN
CARDGUARD INTERNATIONAL, INC.
AND
INFORMATION RESOURCE ENGINEERING, INC.
RELATING TO -
FINGERPRINT IDENTIFICATION TECHNOLOGY
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
THIS LICENSE AGREEMENT is made effective as of July 30, 1997 ("the
effective date") by and between CardGuard International, Inc., a North Carolina
corporation having a principal place of business at 00 Xxxx Xxxxx, X.X. Xxx
00000, Research Xxxxxxxx Xxxx, Xxxxx Xxxxxxxx 00000 (hereinafter referred to as
"CardGuard") and Information Resource Engineering, Inc., a Delaware corporation
having a principal place of business at 0000 Xxxxxxxxx Xxxxx, Xxxxxxxxx,
Xxxxxxxx 00000 (hereinafter referred to as "IRE").
W I T N E S S E T H
WHEREAS, CardGuard has developed Inventions relating to fingerprint
identification technology and owns full right, title and interest in U.S. Patent
Application Serial No. 08/515,151, filed August 15, 1995, entitled
"SELF-AUTHENTICATING IDENTIFICATION CARD WITH FINGERPRINT IDENTIFICATION" and
U.S. Patent No. 5,623,562, issued therefrom on April 22, 1997;
WHEREAS, IRE and CardGuard entered into a previous "Option" Agreement
dated 14 March 1996, and
WHEREAS, CardGuard has disclosed its inventions relating to fingerprint
identification technology, including U.S. Patent Application Serial No.
08/515,151, in confidence to IRE;
WHEREAS, IRE has a strong background in technologies relating to the
design, development and manufacture of products which can incorporate
fingerprint identification technology and is ready, willing and able to design
and develop state-of-the-art products embodying fingerprint identification
technology; and
WHEREAS, IRE is interested in obtaining a license to make, use and sell
products embodying CardGuard's inventions relating to fingerprint identification
technology, including a license under the aforementioned Patent Application
Serial No. 08/515,151 and U.S. Patent No. 3,623,552 issued therefrom;
NOW, THEREFORE, for and in consideration of the mutual covenants,
conditions and undertakings contained in this Agreement, CardGuard and IRE agree
as follows:
ARTICLE 1 - DEFINITIONS
1.1 "IRE" shall mean Information Resource Engineering, Inc. and its
Subsidiaries.
1.2 "Subsidiary" shall mean a corporation, company or other entity more
than fifty percent (50%) of whose outstanding shares or securities (representing
the right other than as affected by events of default, to vote for the election
of directors or other managing authority) are, now or hereafter, owned or
controlled directly by IRE, but such corporation, company or other entity shall
be deemed to be a subsidiary only so long as such ownership or control exists.
1.3 "Licensed Patent Applications" shall mean U.S. Application Serial
No. 08/515,151, filed August 15, 1995, entitled "SELF-AUTHENTICATING
IDENTIFICATION CARD WITH FINGERPRINT IDENTIFICATION", and any and all
continuations, divisions, and continuations-in-part of Application Serial No.
08/515,151.
1.4 "Licensed Patents" means all patents issuing from said Licensed
Patent Applications and all reissued or reexamined patents issuing therefrom,
including U.S. Patent 5,623,552.
1.5 "Licensed Product" means any product, the manufacture, use of sale
of which would, except for the licensed rights granted herein, infringe any
claim of any Licensed Patents.
1.6 "Net Selling Price" for purpose of computing running royalties
shall mean, the greater of any of the following: (a) in the case of a sale of a
Licensed Product to a third party customer at arm's length for monetary
consideration, IRE's gross invoice price to the customer, less actual allowances
far returns and less (to the extent separately stated an the invoices) cash and
other trade discounts, shipping, customs and insurance charges, and sales, use,
value added and similar taxes; (b) in the case of a transfer of a Licensed
Product to a purchaser which does not deal at arm's length with IRE, or a
transfer by IRE for other than monetary consideration, or the use of a Licensed
Product by IRE, the Net Selling Price shall be calculated as the price at which
IRE sells comparable quantities of Licensed Products at substantially the same
time to customers dealing at arm's length; (c) in the case of any disposition of
a Licensed Product by or an behalf of IRE, the Net Selling Price shall be IRE's
fully burdened cost of manufacture, determined by IRE's customary accounting
procedures, increased by a factor of one and one tenth (1.1); or (d) in the case
of any disposition of a Licensed Product made by another manufacturer, by or an
behalf of IRE, the Net Selling Price shall be the respective manufacturer's
fully burdened cost of manufacture, determined by the respective manufacturer's
customary accounting procedures, increased by a factor of one and one tenth
(1.1).
1.7 "Including" shall mean including without limitation.
1.8 "Exclusive Field" shall mean the following markets: (i) computer
security applications (including facilities and computer access control and
information security applications utilizing computer networks including the
Internet), and (ii) financial applications including government, treasury,
banking and credit and debit cards and regulatory applications.
However, excluded from the Exclusive Field are devices and uses set forth in
Attachment A to this Agreement as amended from time to time by written mutual
agreement of the parties.
ARTICLE 2 - LICENSE GRANT
2.1 CardGuard hereby grants to IRE a worldwide license in the Exclusive
Field to make, use and sell Licensed Products and to have Licensed Products made
by another in accordance with designs furnished by IRE, upon the terms and
conditions set forth herein. CardGuard also hereby grants to IRE the right under
the Licensed Patents to grant sublicenses to others.
2.2 No right or license is granted by this Agreement, either expressly
or by implication, to make, use or sell Licensed Products for applications
outside the Exclusive Field.
2.3 IRE agrees to xxxx all Licensed Products or products containing
Licensed Products in accordance with 35 USC ss.287.
ARTICLE 3 - PAYMENTS AND OTHER CONSIDERATION
3.1 Beginning on the effective date of this Agreement and continuing
for the life of this Agreement, IRE will pay CardGuard a non-refundable running
royalty of five percent (5%) of the applicable Net Selling Price or royalty
received-from all Licensed Products made, used, sold, sublicensed or otherwise
disposed of by or on behalf of IRE in countries in which Licensed Products are
covered by a valid patent. It is understood that, in the event a Licensed
Product or products which incorporate other patents or intellectual property
owned or licensed to IRE (IRE technology) is sold or such technology is
sublicensed as part of one or more other products sold or marketed by IRE, the
royalty with respect to such package sales would be based on a reasonably
allocated portion of gross revenue (or royalty) generated by the Licensed
Product only and not with respect to the value or sales price attributable to
the applicable IRE technology and/or transaction card upon which the
self-authenticating fingerprint identification card technology or intellectual
property resides.
3.2 IRE agrees to make payment of the aforesaid running royalty for
sales during each calendar quarter within thirty (30) days after the first days
of each January, April, July and October during the term of this Agreement. The
date of sale of a Licensed Product shall be the invoice date or the date of any
other revenue related disposition or other disposition of a Licensed Product.
Each payment of any royalty shall be accompanied by a report setting forth the
computation of the royalty payment for such quarter, including a list of unit
sales of Licensed Products by IRE's model number. All such royalty payments made
in under this section shall be non-refundable and shall not be credited against
any other payments or amounts made under this Agreement.
3.3 In connection with such royalty payments, the sales and accounting
records of IRE shall be available for inspection by CardGuard's independent
public accountants during usual business hours for the purpose of verifying such
reports. Such inspections shall be at the expense of CardGuard unless a
variation or error exceeding $20,000, or the equivalent, is discovered in the
course of any such inspection, whereupon all costs, expenses and fees relating
thereto shall be paid by IRE.
3.4 During the term of this Agreement, CardGuard agrees to timely pay
all government maintenance fees associated with the Licensed Patents.
3.5 In the event of default in payment of any royalties or other
payments owed to CardGuard under the terms of this Agreement, and if it becomes
necessary for CardGuard to undertake legal action to collect said royalties or
payments, IRE shall pay all legal fees and costs incurred by CardGuard in
connection therewith.
3.6 IRE agrees to provide to CardGuard audited IRE financials on or
before 31 March of each year. Such financials shall provide adequate details to
allow CardGuard to reasonably determine that its business with IRE has been
accurately reported by IRE's financial system. Should reasonable detail not be
available in this audit, CardGuard may on written notice of at least ten (10)
business days and no more often than once per year and at its own expense and
using an independent audit firm experienced in such matters have reasonable
access to IRE's accounts and records to verify these matters.
3.7 At CardGuard's request, IRE agrees to consider proposals for
sublicenses from any of CardGuard's prospective licensees. In the event that
CardGuard with IRE's written consent licenses said prospective licensee for
sales of Licensed Products in the Exclusive Field, CardGuard agrees to pay IRE
fifty percent (50%) of all revenue it receives from same relating to sales or
use of Licensed Products in the Exclusive Field. CardGuard agrees to make
payment of the aforesaid revenues received during each calendar quarter within
thirty (30) days after the first days of each January, April, July and October
during the term of this Agreement. Each payment to IRE shall be accompanied by a
report setting forth the computation of this revenue share payment for such
quarter, including a list of unit sales of Licensed Products. All such payments
made by CardGuard to IRE under this section shall be non-refundable and shall
not be credited against any other payments made under this Agreement.
3.8 CardGuard agrees to provide to IRE audited CardGuard financials on
or before 31 March of each year. Such financials shall provide adequate details
to allow IRE to reasonably determine that its business with CardGuard has been
accurately reported by CardGuard's financial system. Should reasonable detail
not be available in this audit, IRE may on written notice of at least ten (10)
business days and no more often than once per year and at its own expense and
using an Independent audit firm experienced in such matters have reasonable
access to CardGuard's accounts and records to verify these matters.
3.9 In the event IRE obtains a patent of patents for an invention or
inventions pertaining to the subject matter claimed in the Licensed Patents, IRE
agrees to grant CardGuard a nonexclusive license to use the inventions or such
patent or patents for the full term of terms thereof. If CardGuard desires to
grant sublicenses to use the IRE invention(s) it will submit written requests to
IRE for its consent and approval which will in IRE's reasonable discretion be
granted or denied. Such nonexclusive license shall be subject to a running
royalty to be paid by CardGuard to IRE at a rate two (2) times the running
royalty set forth in section 3.1.
ARTICLE 4 - AGREEMENT TERM AND TERMINATION
4.1 This Agreement shall commence on the effective date and shall
continue in full force and effect until the expiration date of the last of the
Licensed Patents upon payment by IRE of Ten Thousand ($10,000) Dollars on the
effective date. All such payments made under this section shall be
non-refundable and shall not be credited against any other payments or amounts
made under this Agreement.
4.2 If after four (4) years from the date of this License IRE has not
commercially developed the subject technologies to a reasonable level, CardGuard
shall have a right to terminate this License Agreement subject to any sublicense
then in effect by paying an amount of Ten Thousand ($10,000) Dollars to IRE. In
the event CardGuard elects to terminate this License Agreement, IRE may
terminate any license agreement granted to CardGuard under Section 3.8. Should
CardGuard so elect, IRE will have an option to require CardGuard to repurchase
IRE's CardGuard stock or any portion thereof at the subscription price set forth
in this Agreement.
4.3 It is expressly agreed that, notwithstanding the provisions of any
other section of this Agreement, if IRE should fail to deliver to CardGuard any
royalty at the time or times that the same should be due to CardGuard or if IRE
should in any material respect violate or fail to keep or perform any covenant,
condition, or undertaking of this Agreement on its part to be kept or performed
hereunder, then and in such event CardGuard shall have the right to cancel and
terminate this Agreement, and the license herein provided for, by written notice
to IRE if IRE has failed to cure any such breach within thirty (30) days of
receipt of written notice from CardGuard describing such breach. IRE's right to
cure a breach will apply only to the first two breaches properly noticed under
the terms of this Agreement, regardless of the nature of those breaches. Any
subsequent breach by IRE will entitle CardGuard to terminate this Agreement upon
proper notice.
4.4 If any one party should be adjudged bankrupt or otherwise enter
bankruptcy, then the other party shall have the right to cancel and terminate
this Agreement and the license herein provided for by providing written notice
to the one party.
4.5 Any termination or cancellation under any provision of this
Agreement shall not relieve IRE of its obligation to pay any royalty of other
fees (including legal fees and costs pursuant to section 3.5 hereof) due or owed
at the time of such cancellation or termination.
ARTICLE 5 - BEST EFFORTS
5.1 IRE shall proceed diligently to conduct research and development
programs to develop prototypes of Licensed Products during the course of this
Agreement. IRE may subcontract parts of the required work and/or acquire needed
technology from third party sources at its sole discretion.
ARTICLE 6 - INFRINGEMENT
6.1 IRE shall notify CardGuard in writing of any suspected
infringement(s) of the Licensed Patents and shall inform CardGuard of any
evidence of such infringement(s).
6.2 In the event any of the Licensed Patents are infringed by a third
party, IRE shall have the primary right, but not the obligation, to institute,
prosecute and control any action or proceeding with respect to such
infringement, by counsel of its choice, including any declaratory judgment
action arising from such infringement, with all related costs, attorneys' fees
and expenses to be paid by IRE.
6.3 Notwithstanding section 6.2, and in CardGuard's sole discretion,
CardGuard shall be entitled to participate through counsel of its own choosing
in any legal action involving the Licensed Patents.
6.4 IRE shall be entitled to any recovery of damages resulting from any
action or proceeding brought pursuant to section.6.2, however, in the event of
any such recovery IRE shall pay CardGuard an amount equal to the amount of
royalty due under section 3.1, if the acts of the third party were performed by
IRE under this Agreement.
6.5 IRE may not settle any action or proceeding brought pursuant to
section 6.2 without the prior written approval from CardGuard which approval
shall not be unreasonably withheld.
ARTICLE 7 - WAIVER
7.1 It is agreed that no waiver by IRE or CardGuard of any breach or
default of any of the covenants or agreements herein set forth shall be deemed a
waiver as to any subsequent and/or similar breach or default.
ARTICLE 8 - PURCHASE OF COMMON STOCK
8.1 Upon the terms and subject to the conditions hereinafter set forth,
at the Closing, CardGuard shall sell, transfer and deliver and/or shall cause
its existing shareholders to sell, transfer and deliver to IRE 1,120,660 shares
of CardGuard's common stock (the "Common Stock") free and clear of all manner of
liens, pledges, encumbrances, charges and claims thereon. Certificates
evidencing the Common Stock shall be delivered by CardGuard to IRE at the
Closing. Such certificates shall also be accompanied by evidence satisfactory to
IRE of CardGuard's payment of any applicable transfer taxes. Said stock will not
be issued in a transaction registered with the Securities and Exchange
Commission and shall, therefore, be restricted from resale to the public. The
Common Stock Certificate shall be in the form annexed hereto as Exhibit B.
8.2 The shares of Common Stock to be delivered by CardGuard to IRE as
set forth above shall constitute thirteen and 7/10 (13.70%) percent of the fully
diluted issued and outstanding Common Stock of CardGuard as of the Closing Date,
as hereinafter defined. The term "fully diluted" as used in this Agreement shall
mean the number of shares of the Common Stock of CardGuard to be outstanding
upon the exercise or conversion of all warrants, options or other securities
convertible into the Common Stock of CardGuard as of the Closing Date, including
the Common Stock to be issued on the Closing Date.
The Common Stock issuable to IRE pursuant to this Article 8 shall be
afforded "full-ratchet" anti-dilution protection. If, at any time or from time
to time from the date of this
Agreement. CardGuard shall issue or sell any shares of Common Stock, except for
Common Stock underlying existing Warrants, Options or other convertible
securities in existence as of the date of this Agreement, for a consideration
less than $.26 per share, then that number of additional shares of CardGuard
Common Stock shall be issued to IRE so that the average per share price paid by
IRE shall equal the lowest price hereafter paid for CardGuard Common Stock. This
provision will terminate when CardGuard's Common Stock is traded on a national
securities exchange.
8.3 Upon the sale, transfer and delivery to IRE by the Company of the
Common Stock, and in consideration therefor, IRE shall pay CardGuard at the
Closing, in cash, wire transfer or by a certified or bank cashiers check the sum
of Two Hundred Ninety Thousand ($290,000) Dollars, as full consideration for its
subscription therefor.
8.4 If CardGuard shall register any of its securities for sale pursuant
to any appropriate Registration Statement under the Act, CardGuard shall be
required to offer IRE the opportunity to register any or all of its CardGuard
Common Stock ("the Registrable Securities"), without cost to IRE. In connection
with these piggy-back registration rights, CardGuard shall give IRE notice by
certified mail at least thirty (30) business days prior to the filing of such
Registration Statement under the Act. The registration requirement shall not
apply to a Registration Statement filed by CardGuard pursuant to Form S-8 or
S-4, or any other inappropriate form. If the registration of which CardGuard
gives notice is for a registered public offering involving an underwriting,
CardGuard will so advise IRE. In such event, these registration rights shall be
conditioned upon IRE's participation in such underwriting and the inclusion of
the Registrable Securities in the underwriting to the extent provided herein. In
the event that the underwriter determines that marketing factors require a
limitation on the number of shares to be underwritten, the underwriter may limit
the number of Registrable Securities. In such event, CardGuard shall so advise
IRE of the number of shares of securities that are entitled to be included in
the registration and the underwriting shall be allocated among IRE and other
participants in proportion, as nearly as practicable, to the respective amounts
of Registrable Securities and other securities which they had requested to be
included in such registration statement at the time of filing the registration
statement. If IRE disapproves of the terms of any such underwriting, it may
elect to withdraw therefrom by written notice to CardGuard and the underwriter,
without thereby affecting the right of IRE to participate in subsequent
offerings hereunder.
8.5 CardGuard agrees to allow IRE to appoint one (1) member to
CardGuard's Board of Directors for a 5-year period commencing at the effective
date of this Agreement. CardGuard agrees to hold meetings of its Board of
Directors no less frequently than one meeting each calendar quarter.
ARTICLE 9 - INDEPENDENT CONTRACTOR STATUS
9.1 Neither party to this Agreement is an agent of the other for any
purpose.
ARTICLE 10 - ARBITRATION
10.1 All disputes arising in connection with the present Agreement and
which cannot be resolved by the parties in a friendly manner shall be submitted
to and finally settled by arbitration in accordance with the Rules of the
American Arbitration Association. The arbitration shall be conducted in
Baltimore, Maryland. The arbitration shall be governed in accordance with (i)
the language of the Agreement and (ii) the substantive law of the State of
Delaware, as is stated elsewhere in this Agreement. Arbitration, pursuant to
this Section, shall be the exclusive remedy for all disputes under this
Agreement, including but not limited to, the validity of the arbitration clause,
fraud or issues of nonarbitrability. There shall be no recourse to law or other
courts regarding interpretation of, or rights under, this Agreement, and each
party hereby expressly renounces any such recourse. The arbitrator(s) is
precluded from considering or awarding punitive or exemplary damages to any
party in said arbitration. Judgment upon the award rendered may be entered in
any court having jurisdiction or application may be made to such court for a
judicial acceptance of the award and an order of enforcement, as the case may
be.
ARTICLE 11 - WARRANTIES/DISCLAIMERS
11.1 CardGuard makes NO WARRANTIES, express or implied, that any
Licensed Patents will issue, or that any Licensed Patents which do issue will
remain valid or enforceable. CardGuard further makes NO WARRANTIES, express or
implied, as to any matter whatsoever, including, without limitation, the
condition of any right, invention, product or information that are the subject
of this Agreement; the merchantability or fitness for a particular purpose of
any right, invention, product or information; or that any right, invention,
product or information does not infringe any patent or any other rights of
another. ALL RIGHTS, LICENSES, INVENTIONS, PRODUCTS, TECHNOLOGY OR INFORMATION
ARE TRANSFERRED "AS IS." CardGuard shall not be liable for any direct,
consequential, or other damages suffered by IRE or any others resulting from the
use of the right licensed hereunder.
ARTICLE 12 - COMPLETE AGREEMENT
12.1 It is understood and agreed between CardGuard and IRE that this
Agreement constitutes the entire agreement, both written and oral, between IRE
and CardGuard and that all prior written or oral agreements between IRE and
CardGuard shall be abrogated, canceled, and are null and void and of no effect.
This Agreement may be changed only in writing stating that it is an amendment or
modification to this Agreement, and signed by an authorized representative of
each of the parties hereto.
ARTICLE 13 - NOTICES
13.1 Any notice required or permitted to be given to CardGuard or IRE
shall be deemed to have been properly given if delivered in person or mailed by
first-class mail, postage prepaid, to the respective party at the address as set
forth at the beginning of this Agreement or to such other addresses as may be
designated in writing by a party from time to time during the term of this
Agreement.
ARTICLE 14 - MISCELLANEOUS
14.1 Any term or provision of this Agreement which is invalid or
unenforceable or in conflict with the law of any jurisdiction, shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without affecting the validity of the remaining terms and
provisions of this Agreement or affecting the validity or enforceability of any
of the terms and provisions of this Agreement in any other jurisdiction.
14.2 This Agreement does not constitute a partnership, joint venture or
agency between CardGuard and IRE, nor shall either of the parties to this
Agreement hold itself out as such contrary to the terms hereof by advertising or
otherwise, nor shall either of the parties become bound or become liable because
of any representation, action, or omission of the other.
In WITNESS WHEREOF, CardGuard and IRE have executed this Agreement, In
duplicate originals, by their respective persons or officers hereunto duly
authorized.
IRE CardGuard
BY: /s/ X.X. Xxxxxx BY: /s/ Xxxxxxx X. Xxxx
-------------------------------- --------------------------------
Print Name: X.X. Xxxxxx Print Name: Xxxxxxx X. Xxxx
------------------------ ------------------------
Title: C.E.O. Title: President
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ATTACHMENT A
1. Driver's Licenses
2. Hunting Licenses
3. Fishing and Boating Licenses
4. Health Care, MediCare, Medicaid and Hospital/Medical Entitlement
Program Cards*
5. Military and National Identity (Citizenship) Cards
6. Social Security Cards*
7. Immigration and Naturalization Cards
8. Passport/Visa Document Systems Cards
9. Building Entry/Security Cards/Systems (not related to network and
computer access)
10. Hotel Security, including Door Lock and In-Room Safe Systems
11. Campus Security/ID Cards/Systems (not related to network and computer
access)
12. Testing ID/Security and Authentication (related to identity for
test-taking: SAT, LSAT, GRE, Civil Service, private sector,
Schools/MOS/Military, etc.
*To the extent that these cards are for ID purposes and excluding financial
applications.
