LICENSE AGREEMENT
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This Agreement is made between Carbite Inc., a California corporation having
an address at 0000 Xxxxxxxxxx Xxxxxx, Xxx Xxxxx, XX 00000 ("Licensor"), and
Xxxxxx Sporting Goods Co., a Delaware corporation having its principal offices
at 0000 X. Xxxx Xxxx, Xxxxxxx, XX 00000 ("Licensee"). This Agreement shall be
deemed effective on April 1, 2001.
WHEREAS, Licensor represents that it is the owner of all right, title and
interest in all of the Licensed Property, as defined below; and
WHEREAS, the parties desire to execute this License Agreement in accordance
with its terms;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
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1.1 "Density" of the core or cover component of a golf ball shall
mean: the weight of such component divided by the volume of such component.
1.2 "Licensed Property" shall mean and include:
(A) A golf ball having a core and one or more cover layers,
in which the Density of the core is the same as: (i) the
Density of the cover, if the golf ball is a two-piece
golf ball, or (ii) the Density of each cover layer, if
the golf ball has two or more cover layers; and
(B) Any patent which is issued to Licensor, or any company or
person affiliated with Licensor, and which is owned or
controlled by Licensor concerning (whether specifically
or more generally) the technology described in the
preceding clause (A), including any and all
continuations, continuations-in-part, reissuances, re-
examinations, and divisions, and any corresponding
foreign patents. Such patent(s) may be referred to herein
as a "Patent" or the "Patents."
****
1.3 "Licensed Products" shall mean golf balls which utilize the
Licensed Property.
1.4 "Territory" shall mean worldwide.
1.5 "Net Sales" shall mean aggregate invoiced sales of Licensed
Products, sold by Licensee during the Term throughout the Territory, less
freight, sales taxes, returns actually credited, and allowances on invoices
actually taken by customers. Sales to an affiliate of Licensee shall not
constitute a "Net Sale" by Licensee. The "Net Sale" shall occur upon the first
sale from Licensee, or its corporate affiliate, to an unaffiliated party.
1.6 "Royalty Amount" shall have the following meaning during the
Term:
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From April 1, 2001 through December 31, 2003, the Royalty Amount
shall be: (A) ****% (****percent) of Net Sales of Licensed Products, for any Net
Sales up to the first one million dozen Licensed Products (i.e., twelve million
Licensed Product golf balls) sold by Licensee in the Contract Year, or (B) ***%
(**** percent) of Net Sales of Licensed Products, on any Net Sales in excess of
one million dozen Licensed Products sold by Licensee in the Contract Year;
provided, that the Royalty Amount in preceding clauses (A) and (B) shall be
capped at $**** (**** cents, U.S.) per dozen of Licensed Products. Royalty
Amounts shall be paid in U.S. dollars. Royalty Amounts on Net Sales made in
currencies other than U.S. dollars shall be converted to U.S. dollars as
follows: for each quarterly period for reporting and paying Royalty Amounts,
Licensee will determine the Net Sales made in each foreign currency, calculate
the Royalty Amount in the foreign currency, and then convert to U.S. dollars by
using the exchange rate published in the U.S. Wall Street Journal on the last
business day of the calendar quarter in that quarterly reporting period.
On and after January 1, 2004 during the Term, the Royalty Amount
shall be payable only on Net Sales of Licensed Products which are covered by the
claims of a Patent which has issued in the jurisdiction of the sale. If on or
after January 1, 2004, a Licensed Product sold by Licensee is covered by the
claims of an issued Patent in the jurisdiction of the sale, the Royalty Amount
shall be calculated the same way as set forth in the preceding grammatical
paragraph.
However, if on or after January 1, 2004, a Licensed Product is not
covered by an issued Patent in the jurisdiction of the sale, then no Royalty
Amount shall be owed on the sale or distribution of such Licensed Product. This
License Agreement shall remain in effect during the pendency of any patent
applications (even though no Royalty Amounts may be due). If Licensor
determines, after January 1, 2004, that no Patents covering the Licensed
Products sold by Licensee will ever issue, then the Agreement shall terminate,
and Licensee shall have no Royalty Amount obligations to Licensor, or other
restrictions, respecting the Licensed Products sold or distributed after January
1, 2004.
In other words, between April 1, 2001 and December 31, 2003,
Licensor's entitlement to the Royalty Amount is in compensation for giving
Xxxxxx a "first mover" advantage. However, on and after January 1, 2004,
Licensor shall be entitled to a Royalty Amount only if that advantage has been
made exclusive and sustainable by the issuance of a Patent covering Licensee's
golf balls in the jurisdiction of sale of such Licensed Product.
1.7 "Contract Year" shall mean a twelve-month period from January 1
through the following December 31 during the Term. However, Contract Year One
shall be the 21-month period from April 1, 2001 through December 31, 2002.
Contract Year Two shall be the 2003 calendar year. Subsequent Contract Years
shall be subsequent calendar years while this Agreement remains in effect.
SECTION 2. LICENSE GRANT
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Licensor grants to Licensee, on the terms and conditions stated in
this Agreement, the exclusive license and right to make, have made, use,
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advertise, promote, sell, import and otherwise distribute in the Territory the
Licensed Products. The parties agree to the adequacy of consideration stated in
this Agreement.
Licensee, at its sole discretion and election, can convert this
license into a non-exclusive license, without further Annual Minimum Royalty
obligations under Section 3.2, at any time after Licensee
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has paid Licensor an aggregate of $500,000 in Royalty Amounts or Annual Minimum
Royalty amounts under this License Agreement. Licensee must give Licensor
written notice of its election to convert the license to a non-exclusive
license.
SECTION 3. PAYMENTS
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3.1 Quarterly Payments. Payments of Royalty Amounts shall be made
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quarterly, with reports in a form and substance mutually agreeable to the
parties. Royalty reports and payments shall be due within 30 days after the end
of each calendar quarter.
3.2 Annual Minimum Royalty. If the quarterly payments of Royalty
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Amounts do not meet or exceed the Annual Minimum Royalty (described below) for
the applicable Contract Year, then Licensee shall pay Licensor, within 30 days
after the end of the Contract Year, the amount by which the Annual Minimum
Royalty exceeds the aggregate Royalty Amount for that Contract Year.
Contract Year Annual Minimum Royalty
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Contract Year One (4/1/01 - 12/31/02) $160,000
Contract Year Two (Calendar Year 2003) $160,000
For any and all Contract Years after Contract Year Two, the Annual
Minimum Royalty shall be $160,000 per Contract Year; provided, that the Annual
Minimum Royalty shall be zero for those Contract Years after Contract Year Two
in which a U.S. Patent has not issued describing the Licensed Property and the
Licensed Products sold by Licensee. If a U.S. Patent, describing the Licensed
Property and the Licensed Products sold by Licensee, issues during the course of
a Contract Year after Contract Year Two, then the Annual Minimum Royalty for
that year shall be pro-rated by days for that year.
Once Licensee has paid Licensor an aggregate of $**** in Royalty
Amounts or Annual Minimum Royalty amounts under this License Agreement, Licensee
may at any time terminate its Annual Minimum Royalty obligations by electing to
convert its exclusive license to a non-exclusive license, as outlined in Section
2 above.
Licensee does not, and cannot, guarantee any level of Net Sales
under this Agreement, as the Licensed Property has not yet been commercially
tested by Licensee.
3.3 Partial Advance Payment at Signing of the Annual Minimum
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Royalty for Contract Year One. Licensee shall pay Licensor the sum of $80,000
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upon execution of this Agreement by both parties. Such amount shall be an
advance payment of royalties, and shall be credited against Licensee's Royalty
Amounts and Annual Minimum Royalty amount for Contract Year One.
3.4 [Intentionally Omitted]
3.5 (A) Licensor's Right to Distribute Golf Balls Utilizing the
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Licensed Property. Notwithstanding Licensee's exclusive licensed in this
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Agreement. Licensor retains for itself the right to distribute, market, and sell
golf balls utilizing the Licensed Property, subject to the terms of this Section
3.5. Licensor will distribute such balls under its own brand name and
distribution network and shall not distribute such golf balls either to or
through competitors of Licensee (other than Licensor itself).
(B) Licensee to Manufacture Balls for Licensor.
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(i) During the term of this Agreement, Licensee agrees to
make for, and sell to, Licensor golf balls utilizing the Licensed Property. Such
golf balls shall be referred to as "Balls Manufactured for Licensor." At the
outset of this Agreement, the price for Balls Manufactured for Licensor shall be
$**** per dozen, plus normal shipping costs, assuming normal packaging and
artwork. If Licensee's budget standard cost for Balls Manufactured for Licensor
increases to a price above $**** per dozen, then the price for Balls
Manufactured for Licensor shall be Licensee's budget standard cost plus ***%,
plus normal shipping cots. Payment by Licensor to Licensee on Balls Manufactured
for Licensor shall be due 30 days after shipping by Licensee. Licensor agrees
that Licensee may deduct, as an offset, from any Royalty Amount or Minimum
Annual Royalty amount owed by Licensee to Licensor, the amount of any invoices
for Balls Manufactured for Licensor which are past due at the time the Royalty
Amount or Minimum Annual Royalty amount is payable. No Royalty Amount shall be
owned by Licensee on Balls Manufactured for Licensor under this Section 3.5.
(ii) Licensor agrees to purchase from Licensee all of
Licensor's needs for golf balls utilizing the Licensed Property, unless Licensee
is unable, after all reasonable efforts, to supply such balls to Licensee on a
timely basis.
3.6 Records and Audits. Licensee shall maintain, or cause to be
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maintained, accurate and complete records sufficient to enable calculation of
Royalty Amount payments due Licensor under this Agreement. Once per calendar
year, Licensor shall have the right to select a certified public accountant to
inspect and audit, on reasonable notice and during regular business hours, the
records of Licensee to verify Licensee's statements and payments due under this
Agreement. In the event of any audited shortfall in payments due from Licensee
to Licensor hereunder, Licensee shall promptly rebut such shortfall or make
payment of the shortfall to Licensor. Licensor shall bear the expense for such
inspection and audit unless the audit ultimately reveals a discrepancy of more
than five percent (5%) in payments due to Licensor, in which event Licensee
shall bear the expense of the audit, and pay the shortfall to Licensor with
interest thereon at the then applicable prime rate. Licensor's right to audit
under this paragraph shall extend for a period of two years after the close of
the year to be audited.
3.7 Receipt of Licensor's Payments. Licensor agrees that payments
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by Licensee shall be made to the address indicated in the preamble of this
Agreement. Licensee shall have fully satisfied its payment obligations if its
payments are made to such entity at such address, unless all parties connected
with Licensor agree in writing to a change of such entity and address.
SECTION 4. TERM
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4.1 Term. The Term of this Agreement shall commence on April 1,
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2001 and shall extend (a) until the expiration of any and all Patents (defined
in Section 1.2(B)), if any Patents issue to Licensor or its affiliates, or (b)
until Licensee gives written notice to Licensor of Licensee's desire to
terminate the Agreement, pursuant to Section 4.3 below. This Agreement may also
terminate, or be terminated, earlier than the then-current Term pursuant to a
party's termination rights in Sections 4.2 and 6.2 below.
4.2 Early Termination due to Default, Bankruptcy. If either party
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violates or fails to perform any material obligation, term or condition of this
Agreement, then the non-defaulting party may, at its option, cancel and
terminate this Agreement by giving thirty (30) days written notice to the
defaulting party, specifying the default. However, if the defaulting party
within thirty (30) days after such notice reasonably cures the default, then the
notice shall cease to be operative and this Agreement shall continue in full
force and effect as though such default had not occurred. Additionally, if
either party is adjudged
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bankrupt or becomes insolvent or makes an assignment for the benefit of
creditors or is placed in the hands of a receiver or trustee in bankruptcy, then
the other party may terminate this Agreement upon written notice to the
bankrupt, insolvent or assigning party.
4.3 Other Early Termination Rights. For Licensee only: At any time
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during the Term and for any reason, Licensee may terminate this license upon
giving Licensor three (3) months prior written notice. All obligations of
Licensee shall cease as of the date of termination, other than Licensee's
obligations to make payment of any Royalty Amounts owed under this Agreement as
of the date of termination and in any sell-off period. Annual Minimum Royalty
amounts shall not apply to Licensee in the year in which the termination date
falls, pursuant to notice given under this Section 4.3. In addition, Licensee
shall have the right to terminate immediately this Agreement, without any
additional financial obligation to Licensor, in the event Licensor's ownership
of the Licensed Property or any Patent has been successfully contested in a
court of competent jurisdiction without any further right of appeal.
4.4 Rights After Termination. If a Patent covering any of
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Licensee's Licensed Products has issued as of the date of termination, then
Licensee may nevertheless continue to sell such Licensed Products which are
covered by the Patent for a period up to six months after termination; provided,
first, that Licensee has such Licensed Products in inventory or in current
production at the time of termination; and provided, second, that Licensee shall
pay to Licensor the Royalty Amount on all Net Sales of Licensed Products made in
the jurisdiction of the issued Patent after termination under this paragraph.
SECTION 5. PATENT FILINGS
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Licensor shall bear the patent costs for all Patent filings.
SECTION 6. LEGAL PROCEDURES
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This Section shall apply only if a Patent issues to Licensor which
describes the Licensed Property.
6.1 Enforcement of Infringements on a Patent. In the event that
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Licensee becomes aware of any infringement of a Patent by another party
respecting the Licensed Products, Licensee shall promptly notify Licensor of the
infringement, and the parties shall consult with a view to reaching agreement as
to the means of eliminating the infringement. Licensee shall have the first
right (but not the obligation) to pursue enforcement. If Licensee initiates
legal proceedings to eliminate the infringement, Licensor shall join as a named
party, if necessary. Any recovery from such legal proceedings initiated by
Licensee shall be Licensee's alone and Licensee shall be responsible for its
costs in the legal proceedings, including the attorney fees. If Licensee does
not initiate legal proceedings to eliminate the infringement within ninety (90)
days of notification by Licensor, then Licensor may (but shall not be obligated
to) initiate such legal proceedings at its own expense and Licensee shall join
as a named party, if necessary. Any recovery from such legal proceedings
initiated by Licensor shall be Licensor's alone and Licensor shall be
responsible for its costs in the legal proceedings, including the attorneys
fees.
6.2 Licensee Accused of Infringement. In the event of a claim by a
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third party that Licensee's utilization of the Licensed Property infringes the
intellectual property rights of such third party, Licensee shall have the right
to terminate this Agreement promptly. Licensor agrees to cooperate with Licensee
in any such suit, to establish that Licensor is the owner of the Licensed
Property.
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SECTION 7. SUBLICENSES AND ASSIGNMENTS
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7.1 Sublicenses. Licensee shall have the right to grant
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sublicenses under this Agreement. Licensor shall not have the right to grant
sublicenses under this Agreement (although Licensor may grant other licenses, if
this Agreement becomes a non-exclusive license at Licensee's election under
Section 2). If Licensee grants any sublicenses which would allow parties not
affiliated with Licensee to sell, or offer for sale Licensed Products on or
after the date of the date of the sublicense, then any payments or royalties to
Licensee under such sublicense(s) shall be allocated between Licensor and
Licensee as follows: (a) Licensor shall receive the amount equal to the Royalty
Amount set forth in Section 1.5 of this Agreement, as applied to the Net Sales
made by the sublicensee, without any inclusion of the Licensee's Net Sales, and
(b) Licensee shall receive and retain all amounts paid by a sublicensee in
excess of Licensor's allocation in clause (a). The parties agree that Licensee
shall be permitted to source Licensed Products from a third-party manufacturer,
and such arrangement shall not be considered to be a sublicense requiring any
payment to Licensor. The parties also agree that Licensee shall be permitted to
grant sublicenses to its affiliates doing business under the "Xxxxxx" name, and
such sublicenses shall not be considered to be sublicenses requiring any payment
to Licensor. The Royalty Amount on Net Sales made by Licensee's affiliates shall
be based on the price of the Net Sale made by such affiliate, as determined and
converted to U.S. dollars pursuant to the terms of Sections 1.5 and 1.6 of this
Agreement.
7.2 Assignments. This Agreement shall only be assignable to a
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third party purchaser of a party's entire business as it relates to the subject
matter of this Agreement. Licensor shall have the right to assign its rights to
any payments under this Agreement (in accordance with Section 3.7), provided
that Licensor shall not thereby be released from its obligations hereunder, and
the assignee's rights to receive payments shall be subject to the terms of this
Agreement and Licensor's and the assignee's performance of their contractual
obligations.
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SECTION 8. WAIVERS
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The waiver by either party of any right hereunder, or failure to
perform an obligation hereunder, or breach by the other party, shall not
constitute a waiver of any other right, failure or breach by the other party,
whether of a similar nature or otherwise.
SECTION 9. ADDRESS FOR NOTICES AND REPORTS
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All notices and reports required to be given by Licensee to
Licensor, or by Licensor to Licensee, shall be in writing and shall be mailed by
registered or certified mail (return receipt requested), by overnight express
mail, or by facsimile with a confirmation copy sent by registered or certified
mail (return receipt requested) to the following address:
To Licensor: As stated in the preamble to this Agreement
Attn: X.X. Xxxxx
Fax: 000.000.0000
or to Licensee: As stated in the preamble to this Agreement
Attn: Xxxxx Xxxxxxx
Fax: 000-000-0000
SECTION 10. GOVERNING LAW
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The parties agree to submit themselves and the subject matter of any
dispute arising under this Agreement to the law and the courts of California,
including the federal courts sitting in California concerning any matter
properly before the federal courts.
SECTION 11. REPRESENTATION OF OWNERSHIP; INDEMNIFICATION.
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Licensor represents and warrants to Licensee: that Licensor owns all
right, title and interest in the Licensed Property; that no other party has any
rights to license any of the rights, including any Patent rights, licensed under
this Agreement; and that it has no reason on this date to believe that
utilization of the Licensed Property by Licensee would violate the intellectual
property rights of any other party. Licensor agrees to indemnify Licensee to the
full amount of the payments made by Licensee to Licensor (including reasonable
expenses, and including attorney fees) to the extent that Licensor's
representations are proved to be false as of the execution date of this
Agreement.
SECTION 12. PACKAGING REFERENCE.
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Licensee agrees to place a statement on the packaging of the
Licensed Products as follows: "Manufactured under license from Carbite Golf." It
is intended that the placement will appear on the exterior of the dozen box.
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SECTION 13. ENTIRE AGREEMENT
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This Agreement sets forth the entire agreement and understanding
between the parties as to the subject matter contained herein, and merges all
prior discussions and writings between them. Neither of the parties shall be
bound by any terms, conditions, definitions, warranties or representations with
respect to the subject matter of this Agreement, except as to matters expressly
provided herein or duly set forth subsequent to the date hereof in writing
signed by the party to be bound thereby.
SECTION 14. LICENSOR'S CURRENT LINE.
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Licensor acknowledges that Exhibit A is an accurate depiction of
Licensor's commercialization, as of this date, of the Licensed Property.
SECTION 15. PATENT PROSECUTION HISTORY AND DOCUMENTS.
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Licensor agrees, following execution of this Agreement, to provide
Licensee with a complete copy of all patent prosecution documents and
correspondence related to any Patent or application for a Patent or Patents.
Licensor also agrees to provide Licensee with a copy of all future records and
correspondence sent or received by Licensor to or from any patent office or
department, or service, concerning any Patent or application for a Patent or
Patents. The copies of such future records and correspondence shall be sent by
Licensor to Licensee contemporaneously with Licensor's receipt or delivery of
such materials. For clarification, the terms "Patent" and "Patents" in this
Section 15 have the same meaning as in Section 1.2(B).
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed, in duplicate, all as of the date written below. The
parties agree that signature pages sent by facsimile machine are acceptable.
CARBITE INC. XXXXXX SPORTING GOODS CO.
By: /s/ X. X. Xxxxx, By: /s/ Xxxxx Xxxxxxx
Title: Chairman Title: Director, R&D
Date: 4/28/01 Date: 5/1/01
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