ROYALTY AGREEMENT
This Royalty Agreement is made and entered into as of 4/9, 1988 by and
between BOW-FLEX OF AMERICA, INC., a California corporation (hereinafter
called "Company"), and Xxxxxxx X. Xxxxxxxxx (hereinafter called "Inventor").
WITNESSETH:
WHEREAS, Inventor has developed certain proprietary products and has been
granted a patent thereon;
WHEREAS, Inventor has assigned all his rights to such proprietary products
and patent to the Company;
WHEREAS, Company is willing to pay Inventor royalties as provided herein;
WHEREAS, Inventor and the Company have previously executed a License
Agreement dated March 25, 1986, as amended (the "Prior Agreement"); and
WHEREAS, Inventor and the Company desire that this Agreement and the
Assignment attached hereto shall replace the Prior Agreement, which Prior
Agreement shall be terminated.
NOW, THEREFORE, in consideration of these premises and of the mutual
premises and of the mutual covenants herein contained, the Company and Inventor
hereby agree as follows:
ARTICLE I - DEFINITIONS
As used herein:
"Products" means - all products in the existing product line of the Company
based on the Patent Rights and any new products developed by the Company based
on the Patent Rights during the term of this Agreement.
"Patent Rights" shall mean the patent rights which have been assigned by
Inventor to the Company pursuant to the Assignment attached hereto as Exhibit A.
"Improvements" shall mean any and all improvements, modifications,
enhancements or adaptations made to the Products or the Patent Rights by
Inventor.
ARTICLE II - ASSIGNMENT
A. Inventor has executed the Assignment attached hereto as Exhibit A
assigning the Patent Rights and all other rights of Inventor in the Products to
the Company. Inventor further agrees to assign all Improvements to the Company,
and to reasonably cooperate with the Company in prosecuting patent applications,
both
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U.S. and foreign, covering the Improvements and/or any improvements,
modifications, enhancements or adaptations made to the Products by the Company,
provided that the Company shall pay all expenses (including legal fees and
expenses) of Inventor in connection therewith in advance and shall include a
reasonable per diem in the event Inventor is not then employed by the Company.
ARTICLE III - PAYMENT OF ROYALTIES
A. The Company shall use its best reasonable efforts to market and sell
(or to have a third party market and sell) the Products.
B. The Company shall pay to Inventor royalties (i) on sales of the
Products at the rate of three percent (3%) of the Net Sales Revenue, as
defined below, of all Products sold by the Company, and (ii) on revenue
received by the company from licensing third parties to manufacture and sell
the Products or otherwise utilize the Patent Rights to manufacture and sell
products at the rate of twelve percent (12%) of Net License Revenue, as
defined below, after the date hereof until the date the Patent Rights expire.
C. The Company shall pay Inventor royalties with respect to cash
received by the company (i) from sales of the Products in each quarter no
later than thirty (30) days following the end of such quarter and (ii) from
licensing the Products or Patent Rights in each quarter no later than forty
seven (47) days following the end of
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such quarter and shall at the same time deliver to Inventor a royalty
statement for such quarter; each such quarter royalty statement shall show,
for the period covered thereby, Net Sales Revenue and Net License Revenue,
with any adjustments made in such figures for preceding periods and whatever
other items or information may be necessary for Inventor in calculating the
royalties due under this Agreement. The Company's total sales revenue (net of
charges for insurance, freight, packaging or handling), less the sum of (i)
total credits for returns, (ii) any commissions paid to dealers or sales
representatives, (iii) uncollectible accounts receivable, (iv) cash or
credit-card discounts, (v) any fees paid to prosecute patent applications to
extend the Patent Rights or otherwise obtain patents coveting the Products in
foreign countries ("Patent Fees"), and (vi) all legal costs and fees incurred
by the Company in litigation with regard to upholding the Patent Rights or
prosecuting third parties for infringement of the Patent Rights ("Legal
Fees") is referred to herein as "Net Sales Revenue."
The Company's total revenues received from third parties for licensing
third parties to manufacture and sell the Products or otherwise utilize the
Patent Rights, less the sum of Patent Fees and Legal Fees not deducted from Net
Sales Revenue, is referred to herein as "Net License Revenue."
In the event that the Company shall (i) undertake a public offering of its
securities pursuant to the Securities Act of 1933, as amended, or (ii) merge
with another corporation, or sell all or
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substantially all of its assets or capital stock and the shareholders of the
Company shall receive cash or publicly traded securities in such transaction
having a value of not less than $10.00 per share of Common Stock of the
Company, appropriately adjusted for any stock splits, combinations, or
recapitalizations of the Company (with (i) or (ii) being referred to as a
"Transaction"), then the Company shall have the option (the "Option") to
reduce the royalty payable to Inventor to one percent (1%) of Net Sales
Revenue, effective upon the closing of the Transaction, and to provide that
the royalty shall be payable only for a period of five (5) years after the
date of closing of the Transaction. If the Company shall elect to exercise
the Option, the Company shall pay to Inventor the sum of $1,700,000.00, to be
paid in cash upon the closing of the Transaction.
D. Once during each calendar year falling in whole or in part in the
term of this Agreement and the following twelve months, any certified public
accountants or lawyers and/or other persons of Inventor's choice may, upon
reasonable notice to the Company in each case and during regular business
hours, examine and make copies of the Company's books of account, records,
vouchers, invoices and all other documents relating to the subject matter in
whole or in part of this Agreement in order to determine the correctness and
completeness of all payments made and statements delivered hereunder to
Inventor. If any such examination reveals an error of 5% or more in royalties
paid or payable to Inventor,
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then the Company shall at Inventor's request promptly pay Inventor all costs
of such examination together with the amount of such deficiency of royalties
payable to Inventor plus interest at the maximum rate permitted by law since
the date such amount should have been paid to Inventor. The Company shall
keep in accordance with generally accepted accounting principles consistently
applied, and preserve for a reasonable period of time, proper, accurate,
complete and easily auditable records and books of account reflecting all
dealings with the Product or related materials and shall make all such
entries therein as may be necessary to enable all calculations referred to
herein to be readily verified.
ARTICLE IV - TERMINATION
A. This Agreement, unless sooner terminated in a manner herein
provided, shall continue until the expiration of the last to expire of any
and all U.S. patents comprising the Patent Rights and thereafter the Company
shall be free to utilize the Patent Rights and manufacture and sell Products
without payment of royalties to Inventor.
B. In the event that either party defaults in its performance under this
Agreement and fails to correct such default within thirty (30) days after
receipt from the other party of a notice specifying such default, the
nondefaulting party shall have the right, in its sole option and discretion, to
terminate this
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Agreement. The rights under this Article shall be in addition to, and not in
lieu of, other rights afforded by operation of law or otherwise.
C. If this Agreement is terminated for any reason other than upon
expiration of the term hereof, the Company shall execute any instrument
necessary to formally revest Inventor of his interests in the Patent Rights as
fully and entirely as Inventor would have held and enjoyed if this Agreement and
the Assignment had not been made.
ARTICLE V - PATENTS, COPYRIGHTS AND TRADE SECRETS
A. Inventor shall hold and save the Company, its subsidiaries, agents,
customers and users, harmless of and from any and all loss, damage or liability
(including legal expense) for or on account of or resulting from any claim of
infringement of any existing or future Letters Patent or Copyright in the United
States and/or foreign countries or misappropriation of any trade secret or other
intellectual property right with respect to the Products and Patent Rights
provided that the Company shall give Inventor prompt written notice of any suit
against the Company based on any such claim and the option to defend or settle
the same through Inventor's counsel. However, nothing stated herein shall be
deemed to include within the indemnity hereby given any infringement caused by
modification of the Products or development of new
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products by the Company when said modification or development causes said
infringement.
B. If the Products or Patent Rights are held to be an infringement of any
patent or copyright or a misappropriation of any trade secret or other
intellectual property right and its use, sale or manufacture is enjoined,
Inventor shall, at Inventor's option and expense, either:
1. Procure for the Company the right to continue to manufacture,
have manufactured, use, sell, lease or otherwise dispose of such Product; or
2. Replace or modify the infringing part or portion of the Product
in such a way that it will not continue to constitute such infringement or
misappropriation without substantially changing the Company's manufacturing cost
of the Product.
ARTICLE VI - WARRANTY
Inventor warrants that he knows of no U.S. or foreign patents or patent
applications or copyrights which would be infringed or trade secrets or other
intellectual property rights which would be misappropriated by the Company's
manufacture, use or sale of the Products and that there is no present or
threatened trade secret, patent or copyright infringement suit with respect to
the Products or the Patent Rights.
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ARTICLE VII - SEVERABILITY
The invalidity or unenforceability of one or more provisions of this
Agreement shall not affect the other provisions and this Agreement shall be
constructed in all respects as if such invalid or unenforceable provisions were
omitted.
ARTICLE VIII - GENERAL
A. CONSTRUCTION: This Agreement shall be deemed to have been entered into
and shall be construed and interpreted in accordance with the laws of the State
of California.
B. NOTICE OF DELAY: Whenever any occurrence is delaying or threatens to
delay the timely performance of this Agreement, Inventor will immediately give
notice thereof, including all relevant information with respect thereto, to the
Company.
C. WAIVERS: The failure of either party to insist, in any one or more
instances, upon the performance of any of the terms, covenants or conditions of
this Agreement or to exercise any right hereunder, shall not be construed as a
waiver or relinquishment of the future performance of any such term, covenant or
conditions or the future performance of any such term, but the obligation of the
other party with respect to such future performance shall continue in full force
and effect.
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D. NO ASSIGNMENT: This Agreement is personal to the parties hereto and
shall be binding upon and inure solely to their benefit. Any assignment of the
rights or delegation of duties hereunder by either of the parties whether in
whole or in part shall only be made with the prior written consent of the other
party; provided, however, that the Company may assign this Agreement, without
the consent of Inventor, to any successor corporation in a merger or sale of
substantially all of the Company's assets transaction. Any attempted assignment
not made in accordance with the provisions of this Article shall be void and of
no effect.
E. ENTIRE AGREEMENT: This Agreement, together with the Assignment
attached hereto, sets forth and shall constitute the entire agreement between
the Company and Inventor with respect to the subject matter thereof, and shall
supersede any and all prior agreements, understandings, promises and
representations made by one party to the other concerning the subject matter
hereof and the terms applicable thereto. This Agreement may not be released,
discharged, supplemented, interpreted, amended or modified in any manner except
by an instrument in writing signed by a duly authorized officer or
representative of each of the parties hereto except as specifically provided
otherwise in this Agreement.
F. INDEPENDENT CONTRACTORS: In making and performing this Agreement, the
parties act and shall act at all times as independent contractors and nothing
contained in this Agreement shall be construed or implied to create any agency,
partnership or employer
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and employee relationship between the parties. At no time shall either party
make commitments or incur any charges or expenses for or in the name of the
other party.
G. PRIOR AGREEMENT: The Prior Agreement is hereby terminated.
IN WITNESS WHEREOF, the parties hereby execute this Agreement on April 9,
1988.
BOW-FLEX OF AMERICA, INC.
a California corporation
BY: /s/ Xxxxx X. Xxxx
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Title: President
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/s/ Xxxxxxx X. Xxxxxxxxx
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Xxxxxxx X. Xxxxxxxxx
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XXXXXXXX
XXXXXXX AGREEMENT
That certain ROYALTY AGREEMENT dated April 9, 1988, by and between Xxxxxxx X.
Xxxxxxxxx and Bowflex of America, Inc. is hereby amended as follows:
Article VIII - General
H. Notwithstanding any provision herein to the contrary, in the event of the
death of Inventor, the royalties and/or other benefits payable hereunder shall
inure to the administrators, representatives, heirs, beneficiaries and/or
successors of Inventor.
August 25, 1988 /s/ Xxxxxxx X. Xxxxxxxxx
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Xxxxxxx X. Xxxxxxxxx, Inventor
August 9, 0000 Xxxxxxx xx Xxxxxxx, Inc.
by /s/ Xxxxx X. Xxxx
------------------------------------
Xxxxx X.Xxxx, President
