CANADIAN LICENSE AGREEMENT
This Agreement, effective as of the date of execution by both parties,
is by and between THE PROCTER & ▇▇▇▇▇▇ COMPANY, an Ohio Corporation having a
principal place of business at ▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇, (hereinafter referred to as "P&G") and PARAGON TRADE BRANDS, INC., a
Delaware Corporation having a principal place of business at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ and its wholly-owned subsidiary, Paragon Trade
Brands (Canada) Inc., a Canadian corporation having a principal place of
business at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇ (hereinafter
collectively referred to as "Paragon"). P&G and Paragon will be jointly referred
to as the "parties".
WHEREAS, P&G is the owner of Canadian Patent 1,311,879 issued to ▇▇▇▇▇▇
on December 29, 1992 relating to an absorbent article having dual cuffs;
WHEREAS, P&G owns patents corresponding to Canadian Patent 1,311,879
in a number of other countries;
WHEREAS, P&G is the owner of Canadian Patent 1,290,501 issued to ▇▇▇▇▇▇
on October 15, 1991 relating to an absorbent article having dual leakage
resistant cuffs;
WHEREAS, P&G owns patents corresponding to Canadian Patent 1,290,501
in a number of other countries;
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WHEREAS, P&G is the owner of Canadian Patent 1,175,602 issued to Aziz et
al. on October 9, 1984 relating to a disposable absorbent article having
elasticized flaps provided with leakage resistant portions;
WHEREAS, P&G owns patents corresponding to Canadian Patent 1,175,602
in a number of other countries;
WHEREAS, P&G is the owner of Canadian Patent 1,216,702 issued to Buell
on January 20, 1987 relating to a disposable absorbent article having breathable
leg cuffs;
WHEREAS, P&G owns patents corresponding to Canadian Patent 1,216,702
in a number of other countries;
WHEREAS, Paragon makes, uses, offers for sale and sells integral
disposable infant diapers having barrier cuffs throughout Canada;
WHEREAS, P&G believes that the diapers made and sold by Paragon fall
within the scope of one or more of the extant claims of Canadian Patent
1,311,879 to ▇▇▇▇▇▇, Canadian Patent 1,290,501 to ▇▇▇▇▇▇, Canadian Patent
1,175,602 to Aziz et al. and Canadian Patent 1,216,702 to Buell; and
WHEREAS, Paragon desires to obtain from P&G and P&G is willing to grant
to Paragon a royalty bearing, non-exclusive right to make, to have made for
Paragon with the prior written
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consent of P&G, to use, to offer for sale and to sell in Canada integral
disposable absorbent articles which are within the scope of one or more of the
extant claims of Canadian Patent 1,311,879 to ▇▇▇▇▇▇, Canadian Patent 1,290,501
to ▇▇▇▇▇▇, Canadian Patent 1,175,602 to Aziz et al. and Canadian Patent
1,216,702 to Buell;
NOW THEREFORE, in consideration of the promises, mutual covenants, and
agreements contained herein, the parties agree as follows:
DEFINITIONS
"Licensed Product" as used herein, shall mean an integral disposable absorbent
article comprising an infant diaper, an adult diaper, or a training pant falling
within the scope of one or more extant, valid and enforceable claims of Canadian
Patent 1,311,879 to ▇▇▇▇▇▇, Canadian Patent 1,290,501 to ▇▇▇▇▇▇, Canadian Patent
1,175,602 to Aziz et al., or Canadian Patent 1,216,702 to Buell, including any
continuations, continuations-in-part, divisionals, reexaminations, reissues or
extensions thereof.
"Training Pant", as used herein, shall mean a disposable absorbent pant marketed
for use in transitioning children from diapers to underwear.
"Net Sales Price", as used herein, shall mean the revenue received by Paragon
from the sale of Licensed Products to independent third parties in the Canada
less the following amounts: (i) discounts, including cash discounts, or rebates
actually allowed or granted, (ii) credits or allowances actually granted upon
claims or returns regardless of the party requesting the return, (iii) freight
charges paid for delivery, (iv) revenue for defective articles sold exclusively
as scrap,
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and (v) taxes or other governmental charges levied on or measured by the
invoiced amount whether absorbed by the billing or the billed party.
"Settlement Agreement", as used herein, shall mean the Settlement Agreement
entered into between Paragon and P&G concurrently with this License Agreement.
REPRESENTATIONS AND WARRANTIES
With the exception of non-exclusive license rights granted to others, P&G
represents and warrants that: 1) it is the owner of all right, title and
interest in and to Canadian Patent 1,311,879 to ▇▇▇▇▇▇, Canadian Patent
1,290,501 to ▇▇▇▇▇▇, Canadian Patent 1,175,602 to Aziz et al., and Canadian
Patent 1,216,702 to Buell; and 2) it has the right to enter this Agreement
without breaching any other agreement or obligation to a third party.
Paragon represents and warrants that it is an independent entity and that it has
the right to enter into this Agreement without breaching any other agreement or
obligation to a third party.
LICENSE GRANT
1. Upon execution of this License Agreement by both parties, and in
consideration of Paragon's agreement to pay prospective running royalties on
Licensed Products in accordance with Paragraph (2), below, P&G agrees to
grant and hereby does grant to Paragon, as of January 7, 1999, a
non-exclusive license to make, to have made for Paragon with the prior
written consent of P&G, to use, to offer for sale and to sell in Canada,
without the right to grant sublicenses, Licensed Products.
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2. As consideration for the prospective license rights herein granted by P&G,
Paragon agrees that it will, commencing upon January 7, 1999, begin to pay
to P&G a running royalty in accordance with each applicable provision of the
following schedule:
(A) For a restricted, non-exclusive license in Canada under P&G's
Canadian Patent 1,311,879 to ▇▇▇▇▇▇ to make, to have made for
Paragon with the prior written consent of P&G, to use, to offer
for sale and to sell, without the right to grant sublicenses,
Licensed Products restricted to the configuration and
characteristics specifically depicted in attached Drawing No.
105674-2 identified as Appendix No. 1 -- One Percent (1.00%) of
the Net Sales Price of Licensed Products;
(B) For an unrestricted, non-exclusive license in Canada under P&G's
Canadian Patent 1,311,879 to ▇▇▇▇▇▇ to make, to have made for
Paragon with the prior written consent of P&G, to use, to offer
for sale and to sell, without the right to grant sublicenses,
Licensed Products which fall within the scope of one or more
valid and enforceable claims of Canadian Patent 1,311,879 to
▇▇▇▇▇▇, other than those exhibiting the configurations and
characteristics specifically depicted in attached Drawing No.
105674-2 identified as Appendix No. 1 -- One and One Quarter
Percent (1.25%) of the Net Sales Price of Licensed Products;
(C) For an unrestricted, non-exclusive license in Canada to make,
have made for Paragon with the prior written consent of P&G, to
use, to offer for sale and to sell, without the right to grant
sublicenses, Licensed Products which are within the scope of the
license granted in section (B) above, but which also fall within
the
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scope of one or more valid and enforceable claims of Canadian
Patent 1,290,501 to ▇▇▇▇▇▇ -- Two percent (2.00%) of the Net
Sales Price of Licensed Products;
(D) For an unrestricted, non-exclusive license in Canada under P&G's
Canadian Patent 1,175,602 to Aziz et al. to make, to have made
for Paragon with the prior written consent of P&G, to use, to
offer for sale and to sell, without the right to grant
sublicenses, Licensed Products:
(i) No additional royalty for Licensed Products for which
Paragon has paid a royalty to P&G pursuant to Section (A),
(B) or (C) above, for the period in question; or
(ii) Three Eighths of One Percent (0.375%) of the Net Sales
Price of Licensed Products which Licensed Products are
within the scope of one or more valid and enforceable
claims of the aforementioned Aziz et al. Patent and for
which Paragon has paid no royalty to P&G under Section
(A), (B) or (C) above, for the period in question.
(E) For an unrestricted, non-exclusive license in Canada under P&G's
Canadian Patent 1,216,702 to Buell, to make, to have made for
Paragon with the prior written consent of P&G, to use, to offer
for sale and to sell, without the right to grant sublicenses,
Licensed Products:
7
(i) No additional royalty for Licensed Products for which
Paragon has paid a royalty to P&G pursuant to Section (A),
(B) or (C) above, for the period in question; or
(ii) Three Eighths of One Percent (0.375%) of the Net Sales
Price of Licensed Products for Licensed Products which are
within the scope of one or more valid and enforceable
claims of the aforementioned Buell Patent and for which
Paragon has paid no royalty to P&G under Section (A), (B)
or (C), above, for the period in question.
The parties agree that non-limiting examples of Licensed Products falling
within subsection (C) are Paragon's Ultra products sold prior to July 6,
1998 (a sample of which is attached hereto as Appendix 2). In addition,
it is Paragon's intention to transition from its current product design
with a unitary cuff design, which it began manufacturing for sale on or
about July 6, 1998 (a sample of which is attached hereto as Appendix 3), to
the Ultra product design as described above. The parties, therefore, agree
that Paragon will pay to P&G a royalty of two percent (2%) of the Net Sales
Price for sales of the current Paragon product line with a unitary cuff
design from January 7, 1999 until the transition to the Ultra product design
is complete and Paragon no longer sells such unitary cuff design product.
Paragon agrees to notify P&G in writing within ten (10) days if it changes
any of its product lines in such a way that it no longer intends to make
running royalty payments pursuant to subsections (A), (B) or (C) hereof.
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3. The license rights granted in Paragraph (1) under Canadian Patent 1,311,879
to ▇▇▇▇▇▇ shall automatically expire on the date of expiration of said
patent, including any continuations, continuations-in-part, divisionals,
reexaminations, reissues or extensions thereof. The license rights granted
in Paragraph (1) under Canadian Patent 1,290,501 to ▇▇▇▇▇▇ shall
automatically expire on the date of expiration of said patent, including
any continuations, continuations-in-part, divisionals, reexaminations,
reissues or extensions thereof. The license rights granted in Paragraph
(1) under Canadian Patent 1,175,602 to Aziz et al. shall automatically
expire on the date of expiration of said patent, including any
continuations, continuations-in-part, divisionals, reexaminations, reissues
or extensions thereof. The license rights granted in Paragraph (1) under
Canadian Patent 1,216,702 to Buell shall automatically expire on the date
of expiration of said patent, including any continuations, continuations-
in-part, divisionals, reexaminations, reissues or extensions thereof.
Should any patent licensed hereunder be held to have lapsed for the failure
to pay maintenance fees, royalties for said patent shall not be due for the
period of any such lapse. However, should any such lapsed patent
subsequently be considered as not having expired by the acceptance by the
relevant Canadian Patent Authority of delayed payment of the maintenance
fee, the license rights granted under said patent shall automatically revive
and royalties shall again accrue beginning on the date that the term of
the patent has been maintained as a result of the acceptance by the
relevant Canadian Patent Authority of a payment of the maintenance fee. P&G
agrees to provide written notice to Paragon of the lapse of any such patent,
and if applicable, the date that the patent has been maintained as a result
of the acceptance by the relevant Canadian Patent Authority of a delayed
payment of the maintenance fee.
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4. Within thirty (30) days of June 28, 1999, Paragon shall provide P&G with
an initial statement reporting Paragon's Net Sales Price of Licensed
Products covered by this License Agreement for the period beginning on
January 7, 1999 and ending on June 27, 1999 and be accompanied by the
appropriate royalty payment. On an ongoing basis, the Paragon fiscal year
ends on the last Sunday of December. Therefore, after making said initial
report, Paragon shall, within 30 days after the end of each subsequent
Paragon fiscal year, commencing on December 26, 1999, provide P&G with
an annual statement reporting Paragon's Net Sales Price of Licensed Products
covered by this License Agreement for the preceding one year period. The
parties recognize that the report and payment for the 1999 fiscal year
will cover only the six month period commencing on June 28, 1999 and ending
on December 26, 1999 in light of the previous initial report and payment.
Each report shall specify the Net Sales Price of Licensed Products
attributable on an individual basis to each of the categories (A), (B), (C),
(D)(i) and (ii) and (E)(i) and (ii) set forth in Paragraph (2) of this
License Agreement. Each such report is due within thirty (30) days of the
close of the fiscal year for which the report is made, and shall be
accompanied by the royalty payment owed to P&G by Paragon.
Each such report shall be treated as confidential and proprietary
information of Paragon and shall only be used for the purposes set forth
herein. The report shall only be shared within P&G with such persons at P&G
who need to know such information for the purposes set forth herein. Each
such report may be shared with P&G's outside counsel or auditors who need
to know such information for the purpose of verifying such report.
10
5. Once each year, at P&G's election and expense, Paragon's independent
public accountant shall certify to P&G that the annual report for the
previous period or year is true, complete and that royalties have been paid
for Licensed Products sold during the previous year. Paragon shall keep
correct and complete records containing all information required for
computation and verification of the amounts to be paid hereunder for a
period of at least three (3) years after making each such report. Upon
reasonable notice, during regular business hours, independent "Big Six"
public accountants selected by P&G, and paid for by P&G in the event the
Paragon payment being verified proves accurate to within two percent
(2.00%), may make such examinations of Paragon's records, not more
frequently than once a year, as P&G deems necessary to verify such reports
and payments provided for hereunder. Such examination shall occur at
such location as designated by Paragon, and such verification shall
only state the amount of payments due in each of categories (A), (B), (C),
(D)(i) and (ii) and (E)(i) and (ii) of Paragraph (2) of this License
Agreement. If the Paragon payment does not prove accurate to within two
percent (2.00%), royalties being underpaid, then Paragon shall pay for
such independent public accountants.
6. If Paragon shall be in default in making any payments hereunder at the times
and in the manner herein provided or in complying with the financial
obligations it assumed pursuant to the concurrently executed Settlement
Agreement with P&G, P&G may give written notice to Paragon specifying the
particulars of such default, and in the event Paragon does not fully remedy
such default within thirty (30) days after such notice, P&G may at its
option, terminate this License Agreement by giving ten (10) days prior
written notice to Paragon to that effect. In addition, P&G may proceed to
enforce the defaulted obligation
11
of Paragon by any legally available means. No waiver on the part of P&G in
respect to a default by Paragon shall be construed as a waiver of P&G's
right to proceed under this Paragraph with respect to subsequent defaults.
7. Neither expiration of this License Agreement in accordance with its
provisions nor termination of this License Agreement shall relieve Paragon
of its obligations for payment of unpaid royalties under Paragraph (2)
or for enforcement of any other obligation or liability accrued hereunder
prior to the effective date of such expiration or termination.
8. The failure of either party to strictly enforce this License Agreement, or
to insist upon the strict compliance with its terms shall not at any time be
considered a waiver or condonation by such party of the default or failure
by the other party to strictly perform the covenants, conditions and
agreements on its part to be performed.
9. Paragon agrees, when its existing supply of packaging has been exhausted, to
▇▇▇▇ the packages of its Licensed Products to be sold within Canada with
the following statement: "Licensed under one or more of the following
Canadian Patents (with appropriate patent numbers filled in per Paragraph
(2))", and if a reexamination certificate or a reissue of any such patent
occurs, to place on its packages appropriate statements relating to that
reexamination certificate and/or that reissue patent. There shall be no
reference to "The Procter & ▇▇▇▇▇▇ Company", "Procter & ▇▇▇▇▇▇", "P&G",
any variation or affiliate thereof, or any trademark or tradename owned or
controlled by P&G on the packaging.
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10. No patent rights outside Canada are granted by P&G in this License
Agreement. However, P&G agrees that it will, upon request by Paragon,
negotiate in good faith in an attempt to establish mutually acceptable terms
and conditions for Paragon to obtain non-exclusive royalty bearing license
rights under P&G's foreign patents corresponding to the Canadian Patents
licensed herein on a case by case basis. The parties recognize that the
terms and conditions, including the royalty rates, for said foreign license
rights may not be the same as those herein set forth nor the same with
respect to one another.
11. Should Canadian Patent No. 1,311,879 to ▇▇▇▇▇▇ expire or all extant claims
covering Licensed Products be held invalid or unenforceable in a decision
by a court of competent jurisdiction from which no appeal can or has been
taken, each provision of Paragraph (2) shall remain valid and enforceable
with a royalty rate reduction of One Percent for Licensed Products in
category (A) and One and One Quarter Percent (1.25%) for Licensed Products
in category (B) or (C). Should Canadian Patent 1,290,501 to ▇▇▇▇▇▇ expire
or all claims covering Licensed Products be held invalid or unenforceable in
a decision by a court of competent jurisdiction from which no appeal can or
has been taken, each provision of Paragraph (2) shall remain valid and
enforceable with a royalty rate reduction for Licensed Products in category
(C) of Three Quarters of One Percent (.75%). Should Canadian Patent
1,175,602 to Aziz et al. expire or all claims covering Licensed Products be
held invalid or unenforceable in a decision by a court of competent
jurisdiction from which no appeal can or has been taken, the royalty rate
will be reduced Three Eighths of One Percent (0.375%) for Licensed Products
in category (D)(ii). Should Canadian Patent 1,216,702 to Buell expire or all
claims covering Licensed Products be held invalid or unenforceable in a
decision by a court of competent jurisdiction from which
13
no appeal can or as been taken, the royalty rate will be reduced Three
Eighths of One Percent (0.375%) for Licensed Products in category (E)(ii).
Should all claims of the patents covering Licensed Products expire or be
held invalid or unenforceable in a decision by a court of competent
jurisdiction from which no appeal can or has been taken this License
Agreement will terminate. Any such decision shall have no impact upon
Paragon's liability to pay any running royalties accrued prior thereto
pursuant to Paragraph (2), nor shall Paragon have any right to recover any
portion of the running royalties already paid to P&G. Other than as
expressly set forth in this License Agreement, P&G makes no warranties
whatsoever with respect to Paragon's manufacture, use, offer for sale or
sale of Licensed Products pursuant to this License Agreement.
12. P&G hereby waives any and all rights to ▇▇▇ (including, but not limited to,
actions to enjoin and/or recover damages from) Paragon for making, having
made for Paragon with the prior written consent of P&G, using, offering
for sale, and/or selling Licensed Products in Canada, provided: (1) this
License Agreement has not been terminated by either party; (2) Paragon is
in full compliance with all material terms of the concurrently executed
Settlement Agreement with P&G and is current in meeting its obligation to
pay the running royalties provided in Paragraph (2) hereof; and (3) Paragon
is otherwise in full compliance with the material terms of this License
Agreement.
13. Notices relating to this Agreement shall be in writing and shall be
considered served when deposited as certified or registered U.S. mail,
return receipt requested, in a sealed envelope with sufficient postage
affixed, addressed as follows:
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P&G: Attention: Vice President & General Counsel - Patents
The Procter & ▇▇▇▇▇▇ Company
▇▇▇▇▇▇ ▇▇▇▇ Technical Center
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Paragon: Attention: Vice President & General Counsel
Paragon Trade Brands, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
14. The parties agree that this License shall be personal to Paragon and
shall be nontransferable and nonassignable to third parties without the
prior written consent of P&G, which consent P&G agrees not to unreasonably
withhold or unreasonably delay. In this context, the parties agree that it
is not an unreasonable ground for P&G to withhold or delay its consent if
the effect of the proposed transfer or assignment would be to allow a
transferee or assignee to obtain the prospective right to make, import, use,
offer for sale and/or sell Licensed Products in Canada without entering
into a mutually agreeable settlement agreement for any past infringing
activity by the transferee or assignee with respect to the patents included
in the definition of "Licensed Products". In addition, the parties agree
that this License shall not apply to the manufacture, import, use or sale
of Licensed Products by any other business entity acquired by Paragon, by
which Paragon is acquired, merged with Paragon, consolidated with Paragon,
partnered with Paragon, or in any other business arrangement with Paragon
after the effective date of this Agreement without the prior written consent
of P&G, which consent P&G agrees not to unreasonably withhold or
unreasonably delay. In this context, the parties agree that it is not an
unreasonable ground for P&G to withhold or delay its consent if the effect
of the proposed transaction would be to allow an acquiring, merging or
consolidating entity or partner to obtain the prospective right to make,
import, use, offer for sale and/or sell
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Licensed Products in Canada without entering into a mutually agreeable
settlement agreement with P&G for any past infringing activity by the
acquiring, merging or consolidating entity or partner with respect to the
patents included in the definition of "Licensed Products".
15. In the event the Settlement Agreement executed concurrently herewith is not
approved by the Bankruptcy Court (as defined in the Settlement Agreement) or
in the event that the order approving the Settlement Agreement does not
become a Final Order by July 31, 1999 (as defined in the Settlement
Agreement), this License Agreement shall be terminable by P&G, at P&G's
option. Termination in such circumstance shall not relieve Paragon of its
obligation to pay royalties accrued hereunder for the period before
termination. P&G agrees to provide Paragon with a three month conversion
period after the date of termination. Royalties, as set forth above, shall
be due on the Licensed Products manufactured and/or sold during the
conversion period and such royalties shall be payable within 30 days of the
end of the conversion period.
16. P&G agrees to give Paragon notice of all future running royalty based
private label or brand manufacturer licenses granted under any of the P&G
Canadian patents herein, and, upon written request, provide Paragon copies
of all such subsequent running royalty based agreements within thirty
(30) days of execution of any such agreements. Paragon shall be entitled,
upon thirty (30) days written request to P&G, to have this License Agreement
brought into conformity with any such subsequent running royalty based
license to any private label or brand manufacturer other than Paragon in the
event P&G grants any
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license under any of the P&G Canadian patents herein under terms more
favorable than those set forth herein.
17. This Agreement and the Settlement Agreement set forth the entire
understanding of the parties with respect to the subject matter herein set
forth. There are no ancillary understandings or agreements with respect
to the subject matter of this License Agreement.
18. This Agreement may be executed in counterparts. Each part shall constitute
an original.
19. This Agreement shall become effective as of the date of acceptance by the
last party to sign.
FOR: PARAGON TRADE BRANDS, INC. FOR: THE PROCTER & ▇▇▇▇▇▇ COMPANY
By /S/ B.V. ▇▇▇▇▇▇▇ By /S/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------- --------------------------------
Title CHAIRMAN AND CEO Title PRESIDENT - GLOBAL BABY CARE
------------------------------ ------------------------------
Date FEBRUARY 2, 1999 Date FEBRUARY 2, 1999
------------------------------ ------------------------------
FOR: PARAGON TRADE BRANDS (CANADA), INC.
By /S/ ▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------------
Title PRESIDENT
------------------------------
Date FEBRUARY 2, 1999
------------------------------
