EXHIBIT 10.2
GAIA/THOR
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ROYALTY AGREEMENT
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This Gaia/Thor Royalty Agreement (hereinafter, this "Agreement") is made
and entered into as of December ____, 1995 (the "Effective Date"), by and among
Gaia Technologies, Inc., a Texas corporation ("Gaia"), North American
Technologies Group, Inc., a Delaware corporation ("NATK," and together with
Gaia, "Payor"), Gaia Holdings, Inc., a Delaware corporation ("GHI"), and Thor
Ventures, L.C., a Texas limited liability company ("Thor", and together with
GHI, "Payee").
RECITALS:
1. Payor, Payee and others are parties to that one certain Asset Purchase
Agreement (the "Purchase Agreement") of even or approximate date herewith
whereby, among other things, GHI contracted to sell its assets to Gaia.
2. As partial consideration for the assets transferred to Gaia from GHI,
the Purchase Agreement requires that Payor pay GHI certain royalties.
3. GHI has notified Payor that a portion of such royalties should be paid
directly to Thor.
4. This Agreement constitutes the royalty agreement contemplated by the
Purchase Agreement.
AGREEMENTS:
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and
agreements hereinafter set forth, the sum of $10.00, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parties (as that term is defined below) hereby agree as follows:
ARTICLE I
Definitions
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The following terms shall have the following meanings for purposes of the
Agreement:
1.1 "Affiliate" means "affiliate" and "insider" as those terms are defined
in Section 24.002 of the Texas Business & Commerce Code, except that the term
"debtor" shall be substituted with "Payor".
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1.2 "Applicable Hard Goods" means (a) railroad cross-ties, oil field mats,
marine structures, and other products all having advanced structural properties
derived from or growing out of any Technology used to produce railroad cross-
ties, and (b) roofing materials. "Applicable Hard Goods" does not include air
conditioning pads.
1.3 "Equipment" shall mean that equipment (including prototypes) now or
hereafter designed, engineered, acquired, created or employed for (a) the
implementation or practice of the Technology, or (b) the manufacture, production
or refinement of Products.
1.4 "Parties" shall mean Payor and Payee, and "Party" shall mean any of
them.
1.5 "Patents" means (a) United States Patent Number 4,191,522, 4,033,408,
4,168,799 and 4,110,420 together with any modifications, improvements,
corrections or substitutions thereto or thereof, and (b) any new patent
applications, newly issued patents, patents pending or patent amendments, in any
way associated therewith.
1.6 "Porous Pipe" means those Products, other than Applicable Hard Goods,
which (a) are extruded, and (b) have a constant cross section, and (c) have
porous walls.
1.7 "Porous Pipe Technology" means any portion of the Technology used in
the production or manufacture of Porous Pipe.
1.8 "Products" means all tangible, marketable goods, including Applicable
Hard Goods and Porous Pipe.
1.9. "Selected Parties" shall mean those entities listed on Exhibit "A"
attached hereto and incorporated herein by this reference for all purposes, and
their Affiliates.
1.10 "Technology" shall mean (a) the Patents, (b) the trade secrets,
design, instrumentation, technology, method and know-how developed, conceived,
owned, acquired and/or reduced to practice by Payor or its Affiliates for
materials, processes and methods (including Equipment) to be used in the
production, manufacture or refinement of Products, (c) any information, data, or
experience relating to the foregoing, including such information, data, or
experience relating to the operation and maintenance of Equipment and the method
or procedural steps followed to practice of anything described in subparts (a),
(b) or (d) hereof, and (d) any additions to or modifications of any of the
foregoing, including, without limitation, additions to or modifications of (i)
the methods or processes involved with the manufacturing of Products, (ii) the
methods of use of Equipment or Products, (iii) the design of the Equipment or
Products, (iv) the construction or fabrication of the Equipment or Products, (v)
the operating procedures which improve the manufacture, design, or operation of
the Equipment or Products, and (vi) any patent rights, new patent applications,
newly issued patents, or patents pending associated with any such addition or
modification.
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ARTICLE II
Royalties
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2.1 Generally. Payor shall pay to Payee royalties ("Royalties" or
"Royalty") as provided in this Article II. Royalties consist of both (a) ten
percent (10%) of all Gross Margin (as defined below) received or receivable
during the fifteen (15) year period beginning on the Effective Date, and (b) 10%
of all License Fees (as defined below) received or receivable during the five
(5) year period beginning on the Effective Date. Royalties shall be determined
for each calendar quarter (or portion thereof) within ninety (90) days following
the last day of each calendar quarter within which Royalties become due.
2.2 Gross Margin.
(a) The term "Gross Margin" means Revenues less Cost of Goods Sold.
(b) As used herein, the term "Revenues" includes all monies,
instruments, assets and other things of value received or
receivable by Payor or any of its Affiliates for (i) any
Applicable Hard Goods sold or transferred by any of them, and
(ii) any licensing, renting, sale, or transfer of all or any part
of the Technology relating to the manufacture, production or
refinement of Applicable Hard Goods. "Revenues" shall also
include any distribution or other compensation received by Payor
or any of its Affiliates from any company, partnership, joint
venture or other entity to which all or any portion of the
Technology relating to the manufacture, production or refinement
of Applicable Hard Goods is contributed, but if such entity is an
Affiliate of Payor, only to the extent that any such distribution
or compensation from such Affiliate is not derived from Revenues
on which Royalty has previously been paid. The term "Revenues"
shall not include and shall, if necessary, be calculated to
exclude (i) amounts paid by Payor to any third parties, who are
not Affiliates of Payor, acting as sales representatives of
Payor, which amounts are directly attributable to the sale of
Applicable Hard Goods, (ii) accounts which, according to
generally accepted accounting principles, are determined to be
uncollectable, provided, however, such accounts have previously
been credited to Payee as "Revenues" (but, any amounts received
by Payor on any account previously determined to be uncollectable
as aforesaid shall be treated as "Revenues"), (iii) governmental
excise or sales taxes, tariffs, duties and similar changes added
to the selling price of the item and paid by Payor directly to a
government, and/or (iv) refunds or allowances to customers
resulting from defects, failures or malfunctions not in excess of
the original selling price of the item. Under no circumstances
shall there be any deduction from Revenues by reason of Payor's
being liable to pay any franchise tax, capital stock tax, income
tax, or similar or dissimilar tax based upon Payor's income,
capital structure, or profits.
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(c) As used herein, the term "Cost of Goods Sold" means (i) direct
material cost, direct labor cost, and factory or other relevant
burden (including depreciation for equipment and facilities
directly used in the manufacture of Applicable Hard Goods)
incurred by Payor (or its Affiliate) directly associated with the
manufacture of Applicable Hard Goods, and (ii) any payments made
by Payor to Xxxxxxxx Xxxx during any period in which Revenues are
received or receivable by Payor. Administrative costs associated
with procurement of materials, interest cost, advertising costs,
sales costs, office costs and administrative costs shall not
constitute a component of "Cost of Goods Sold." There shall be no
"Cost of Goods Sold" associated with Revenue described in Section
2.2(b)(ii). Whether a particular expense not specifically listed
should be treated as "Cost of Goods Sold" shall be resolved by
application of generally accepted accounting principles.
2.3 License Fees. The term "License Fees" includes all monies, instruments,
assets and other things of value received or receivable by Payor or any of its
Affiliates from any of the Selected Parties for a right to manufacture, produce,
sale or otherwise commercially exploit the Porous Pipe Technology. The term
"License Fees" shall not include and shall, if necessary, be calculated to
exclude (i) governmental excise or sales taxes, tariffs, duties and similar
changes added to the selling price of the item and paid by Payor directly to a
government or (ii) refunds or allowances to customers resulting from defects,
failures or malfunctions not in excess of the original selling price of the
item. Under no circumstances shall there by any deduction from License Fees by
reason of Payor's being liable to pay any franchise tax, capital stock tax,
income tax, or similar or dissimilar tax based upon Payor's income, capital
structure, or profits.
2.4 Records. All Gross Margin (including Revenues and Cost of Goods Sold)
and License Fees will be recorded in accordance with generally accepted
accounting principles. Full and adequate records and books of account shall be
accurately maintained by Payor on all business operations involving sale of
Products and licensing the Technology. All books of account, records, sales
slips, invoices, purchase orders, franchise tax returns, and federal income tax
returns relating to Payor's operations will be retained by Payor for a period of
three (3) years after preparation, and will be open to inspection by Payee (or
Payee's representative) at all reasonable times.
2.5 Statements. Within ninety (90) days after the end of each calendar
quarter during which Royalties are due, Payor will deliver to Payee a certified
statement in form reasonably approved by Payee, signed and sworn to by Payor,
accurately setting forth the amount of Gross Margin (together with an analysis
of Revenues and Cost of Goods Sold) and License Fees received or receivable
during said quarter, itemized in reasonable detail, and will contemporaneously
therewith pay any Royalty due. Within 180 days after the end of each calendar
year, Payor will furnish to Payee, according to the foregoing provisions, a
statement of sales, costs and other transactions itemized in reasonable detail
and in a form approved by Payee, accurately showing and reconciling Revenues,
Costs of Goods Sold, and License Fees
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for the entire preceding year, certified by Payor to be true and correct. The
Royalty payment (if any) due at the end of the second calendar quarter of any
calendar year shall include an adjustment or additional payment (as the case may
be) to reflect any uncollected receivables, to correct any mistakes, or as
otherwise may be necessary to properly reflect Royalty for the preceding
calendar year.
2.6 Audit.
(a) Payee may, at any time or times during normal business hours
designated by Payee upon three (3) days' prior written notice to
Payor, have an audit made of any statement delivered pursuant to
Section 2.5, and may examine Payor's sales reports, expense
records and other relevant records for such period. Acceptance of
any Royalty tendered by Payor shall not prejudice these rights.
(b) The cost of the first audit conducted by Payee pursuant to
Section 2.6(a) shall be the sole cost and expense of Payee.
(c) Except as provided in Section 2.6(b), the cost of any audit shall
be borne by Payee unless such audit shows that (i) Payor's
statement was in error by five percent (5%) or more of the Gross
Margin or License Fees for the relevant year, and (ii) such error
arose out of a situation, matter, problem, method, approach or
other criticism raised in any previous audit which demonstrated
an error by 5% or more of Gross Margin or License Fees for the
relevant quarter or year, in which event Payor will pay the cost
of such audit.
2.7 Prohibited Transactions. Payor shall not, at any time, transfer
(a) the Technology or any part thereof or (b) any commercial quantities of
Applicable Hard Goods to any third party except in an arms length transaction
where the value received by Payor has been established in good faith. Any
transfer in violation of this Section 2.7 shall be void.
2.8 GAAP. Any reference herein to "generally accepted accounting
principles" shall mean generally accepted accounting principles as applied
consistently by Payor.
ARTICLE III
Matters Concerning the Payee
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Thor owns and shall be entitled to receive 66.67% of all Royalty. GHI owns
and shall be entitled to receive 33.33% of all Royalty. All Royalty paid by
Payor pursuant to Article II shall be paid pro rata to Thor and GHI according to
the foregoing percentages.
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ARTICLE IV
Miscellaneous
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4.1 Governing Law. The construction and interpretation of this
Agreement shall be in accordance with the laws of the State of Texas and the
applicable laws of the United States of America.
4.2 Notice. Any payment, report, communication, request, or notice
required or permitted by this Agreement shall be in writing and shall become
effective at the time of receipt thereof and shall be addressed to the Parties
as follows:
(a) If to Payor:
North American Technologies Group, Inc.
Gaia Technologies, Inc.
0000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention: Xxx Xxxxxxxxx
WITH A COPY TO:
Xxxxxxxx X. Xxx
0000 Xxxxx Xx., Xxxxx 000
Xxxxxxx, Xxxxx 00000
Telecopier: 713/623-0990
(b) If to Payee:
Xxxxxxx X. Xxxxxxx and Xxxxx X. Xxxxxxxx
Gaia Holdings, Inc.
Thor Ventures, L.C.
0000 Xxxxxxxx Xxxx., Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx
Telecopier: 713/661-1677
WITH A COPY TO:
J. Xxxxx Xxxxxxx
000 Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Telecopier: 713/227-8503
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WITH A COPY TO:
Xxxxxxx X. Xxxxxxxx
Xxxxx, Xxxxx & Xxxxx, P.C.
000 Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Telecopier: 713/658-1921
Notice may be effected by hand delivery, U.S. mail, or telecopy. Each Party
shall have the continuing right to change its address for notice at any time or
times by giving ten (10) days' notice in the manner hereinabove described.
Notices shall be deemed given only upon actual receipt; however, notice sent by
U.S. mail, postage prepaid, certified, return receipt requested shall be deemed
received three business days after deposited with the U.S. Postal Service.
4.3 Amendments. This Agreement shall not be modified, amended or
otherwise varied by any oral agreement or representation and all modifications,
amendments and variations shall be by an instrument in writing executed by the
Parties hereto.
4.4 Successors and Assigns. This Agreement shall be binding on and
inure to the benefit of the Parties hereto and their successors and assigns.
4.5 No Partnership. Nothing in this Agreement shall in any way be
construed to make the Parties partners, joint venturers, agents, servants or
employees of one another, and no such relationship is intended.
4.6 Joint and Several Obligations. NATK and Gaia are and shall be
jointly and severally liable for the obligations of Payor hereunder. No
assignment of all or any part of the Technology shall relieve Payor of any
liability for any sums or obligations due hereunder.
4.7 Confidentiality. During the performance of each Party's obligation
under this Agreement, each Party may obtain information of various types from
the other Party. Each Party agrees that all such information, whether technical,
financial, business or other nature shall be held in confidence and not used to
the detriment of the disclosing Party by the non-disclosing Party nor disclosed
to any third party by the non-disclosing Party. This Section 4.7 shall not apply
to any information which (a) can be shown by a Party to have been in that
Party's possession prior to the date hereof; (b) is now or hereafter (by
operation of law) becomes information in the public domain, (c) can be shown by
a Party to have been received on a non-confidential basis from a third party who
did not acquire same, directly or indirectly, from the other Party, (d) can be
shown by a Party to have been developed without access to any confidential
information otherwise covered by this Section 4.7, (e) is required to be
disclosed as a matter of law, or (f) is required to be disclosed pursuant to a
written agreement between the parties.
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4.8 Payee Representatives. Payor shall only be required to rely on
instructions and directives from the President of either GHI and/or Thor with
respect to their pro rata share of Royalty. In the event that GHI or Thor
should dissolve or, alternatively, the rights to receive Royalty should
otherwise be distributed to the shareholders or members of GHI or Thor (as the
case may be), then Payor may rely on (a) a duly executed copy of the Agreement,
Plan and/or Articles of Dissolution of GHI or Thor (as the case may be, in the
case of dissolution) or (b) a duly executed assignment (in the case of
distribution) to determine the ownership of the rights to receive Royalty. In
addition, the members of Thor and/or the shareholders of Gaia shall each,
unanimously, designate among themselves a representative, and thereafter Payor
shall only be required to rely on instructions and directives from such
representative. Payor shall have the right to request and rely on instructions
from each such representative, provided such instructions do not impair the
rights of any shareholders or members represented by the other representative.
4.9 Headings. The headings and subheadings that are in this Agreement
are for convenience only and are not to be used in the interpretation of the
provisions of this Agreement.
4.10 Integration. This Agreement represents the final agreement
between the parties and may not be contradicted by evidence of prior,
contemporaneous, or subsequent oral agreements by the Parties with respect to
the subject matter of this Agreement. There are no unwritten oral agreements
between the Parties.
IN WITNESS WHEREOF, the Parties hereto have caused this instrument to be
executed in duplicate by duly authorized persons.
"PAYOR"
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
A DELAWARE CORPORATION
By: /s/ Xxx Xxxxxxxxxx December 29, 1995
Name: Xxx Xxxxxxxxxx Date
Title: President
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GAIA TECHNOLOGIES, INC.,
A TEXAS CORPORATION
By: /s/ Xxx Xxxxxxxxxx December 29, 1995
Name: Xxx Xxxxxxxxxx Date
Title: President
"PAYEE"
GAIA HOLDINGS, INC.,
A DELAWARE CORPORATION
By: /s/ Xxxxx X. Xxxxxxxx December 29, 1995
Name: Xxxxx X. Xxxxxxxx Date
Title: President
THOR VENTURES, L.C.,
A TEXAS LIMITED LIABILITY COMPANY
By: /s/ Xxxxxxx X. Xxxxxxx December 29, 1995
Name: Xxxxxxx X. Xxxxxxx Date
Title: President
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