DEVELOPMENT AND LICENSE AGREEMENT

 

           [CONFIDENTIAL TREATMENT REQUESTED. CERTAIN PORTIONS OF THIS

     AGREEMENT HAVE BEEN REDACTED AND SEPARATELY FILED WITH THE COMMISSION]

 

                                                                    Exhibit 10.1

 

                        DEVELOPMENT AND LICENSE AGREEMENT

 

      THIS DEVELOPMENT AND LICENSE AGREEMENT (the "AGREEMENT"), dated as of

August 13, 2004 (the "EFFECTIVE DATE"), is made by and between U.S. GLOBAL

NANOSPACE, INC. a Delaware corporation ("USGN"), on the one hand, and KIDDE FIRE

FIGHTING INC. a Pennsylvania corporation ("Kidde") (as used herein the term

"party" means either USGN or Kidde and the term "parties" means both USGN and

Kidde).

 

                                   BACKGROUND

 

      WHEREAS, USGN has entered into that certain TIAX AGREEMENT (as defined in

Section 1.20 below), pursuant to which it acquired an exclusive license to

practice certain patent and technology rights related to the commercialization

of products and/or services in the field of non-hazardous biological and

chemical decontamination by or through the use of an aqueous, sprayable foam;

and

 

      WHEREAS, USGN has developed and/or acquired the technology and rights

necessary to manufacture a non-toxic, non-hazardous, aqueous, sprayable,

biological and chemical decontaminant foam, which it has marketed under the

trademark "All-Clear(TM);" and

 

      WHEREAS, Kidde is engaged in the development, production and worldwide

commercialization of industrial foam and foam distribution systems; and

 

      WHEREAS, USGN and Kidde desire to enter into a development and license

agreement, under which (i) USGN shall sublicense to Kidde the patent and

technology rights licensed by USGN under the TIAX AGREEMENT, including any

patent and technology rights developed and/or acquired by USGN necessary for the

manufacture, use and sale of non-toxic, non-hazardous, aqueous, sprayable foam

products in the field of biological and chemical decontamination, and (ii) USGN

and Kidde shall agree upon the terms and conditions for the worldwide

development, production, marketing and commercialization of non-toxic,

non-hazardous, aqueous, sprayable, decontaminant foam products, including such

products marketed under the All-Clear(TM) trademark.

 

      NOW, THEREFORE, in consideration of the foregoing premises and the

covenants and obligations set forth in this Agreement, and for such other good

and valuable consideration, the receipt and sufficiency of which are hereby

acknowledged, the parties hereby agree as follows:

 

                                     ARTICLE 1

 

                                   DEFINITIONS

 

      As used herein, the following terms will have the following meanings:

 

      1.1 "AFFILIATE" means any entity that directly or indirectly Owns, is

Owned by or is under common Ownership with, a party to this Agreement, where

"Own" or "Ownership"

 

 

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means direct or indirect possession of at least fifty percent (50%) of the

outstanding voting securities of a corporation or a comparable ownership in any

other type of entity.

 

      1.2 "APPLICATION" means a use for a Product that is distinct from other

uses for the Products. The determination that a use is distinct will be based on

either (a) a significant distinction in the general business characteristics of

the intended end user or (b) a significant distinction in the functional

purposes for which the end user will acquire the Product.

 

      1.3 The non-capitalized term "application" means the application of a

Product through a foam distribution system.

 

      1.4 "COVER" (including variations thereof such as "Covered," "Coverage,"

or "Covering") shall mean that the manufacture, import, use, sale or offer for

sale of a particular product would infringe a Valid Claim of an issued and

unexpired patent in the absence of rights under such patent. The determination

of whether a product is Covered by particular patent rights shall be made on a

country by country basis.

 

      1.5 "DAMAGES" means any and all costs, losses, claims, suits, actions,

liabilities, fines and penalties for death, illness, personal injury and

property damage, damages, and expenses incurred by a party or its Affiliates

hereto with respect thereto (including any interest payments which may be

imposed in connection therewith).

 

      1.6 "EQUIVALIZED GALLONS" means the amount of Product required to deliver

one (1) Gallon of `deployed foam' in application. By way of example, the

`All-Clear pre-mix' requires no dilution so its actual Gallonage and Equivalized

Gallonage are the same. By way of further example, should Product be made as a

ten percent (10%) concentrate, then following dilution, one (1) Gallon of

concentrated Product would generate ten (10) Equivalized Gallons of deployable

foam. By way of additional example, should Product be made as a five percent

(5%) concentrate, then following dilution, one (1) Gallon of concentrated

Product would generate twenty (20) Equivalized Gallons of deployable foam, etc.

 

      1.7 "FIRST COMMERCIAL SALE" means the first Sale, in any particular

country, by Kidde or its Affiliates or sublicensees of Product for use by the

government or general public after Kidde has obtained the required marketing,

safety, efficacy and/or pricing approval from the governing health, safety or

other regulatory authority for which approval is required in that country.

 

      1.8 "GALLON" means a United States standard gallon.

 

      1.9 "INVENTION" means any new or useful process, manufacture, compound,

composition of matter, improvements, discoveries, claims, formulae, processes,

trade secrets, technologies and know-how (including confidential data and

Proprietary Information), to the extent relating to, derived from, necessary

and/or useful for the manufacture, use, import, sale or offer for sale of a

Product within the field of non-toxic, non-hazardous biological and chemical

decontamination, including, without limitation, synthesis, preparation, recovery

and purification processes and techniques, control methods and assays, chemical

data, toxicological data and techniques, clinical data, medical uses, product

forms and product formulations and specifications, whether patentable or

unpatentable, that is conceived or first reduced to practice or demonstrated to

have utility during the Term of this Agreement.

 

 

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      1.10 "JOINT PATENT RIGHTS" means the rights under or in information or

discoveries claimed in any invention disclosures, patents, and/or patent

applications, both foreign and domestic, and all divisionals, continuations,

continuations-in-part, refilings, reissues, substitutions, renewals,

reexaminations, patents of addition, inventors' certificates, patent term

extensions, supplementary protection certificates, and any letters patent that

issue thereon that are owned jointly by Kidde and USGN and which: (a) Cover a

non-toxic, non-hazardous, aqueous, sprayable, decontaminant foam, or its

manufacturing formulation or use within the field of non-toxic, non-hazardous

biological and chemical decontamination; and/or (b) are based on an Invention

made at any time during the Term of this Agreement.

 

      1.11 "KIDDE KNOW-HOW" means all proprietary inventions, technology, trade

secrets, and any physical, chemical or biological material, or other

information, which are not claimed in Kidde Patent Rights, that during the Term

of this Agreement are owned, or acquired with right to sublicense during the

term of this Agreement by Kidde or any Affiliate of Kidde and are necessary or

useful to Kidde in (i) the development, formulation, manufacture, use or sale of

Products, or (ii) the practice of Kidde Patent Rights.

 

      1.12 "KIDDE PATENT RIGHTS" means the rights under or in information or

discoveries claimed in any invention disclosures, patents, and/or patent

applications, both foreign and domestic, and all divisionals, continuations,

continuations-in-part, refilings, reissues, substitutions, renewals,

reexaminations, patents of addition, inventors' certificates, patent term

extensions, supplementary protection certificates, and any letters patent that

issue thereon which (a) Cover a non-toxic biological and/or chemical

decontaminant foam, or its manufacturing formulation or use, and (b) are based

on an Invention made at any time during the Term of this Agreement that would be

necessary or useful to Kidde in the development, formulation, manufacture, use

or sale of Products, and (c) are owned or acquired by Kidde or any Kidde

Affiliate, with the right to sublicense during the Term of this Agreement.

 

       1.13 "NET SALES" means, with respect to Product, gross sales invoiced by

Kidde, its Affiliates or sublicencees for Sales of the Product to Third Parties

(other than any agent, distributor or sublicensee of Kidde or its Affiliates)

less deductions for costs related to: (a) product returns (including recalls,

withdrawals, credits and refunds); (b) volume, cash and trade discounts,

discounts granted at the time of invoicing, discounts granted later than at the

time of invoicing, rebates, chargebacks and any other allowances which

effectively reduce the net selling price; (c) excise, use, value added and sales

taxes, duties, unrecoverable taxes, and other such taxes directly linked to and

included in the gross revenues amount; (d) sales expenses (such as agent or

distributor commissions, sales discounts and other direct sales expenses); (e)

the costs of outbound freight and transportation insurance; (f) the costs of

import, export or custom duties if taken on as the responsibility of Kidde

versus the customer directly; and (g) bad debt in accordance with Section 6.4

below. Such amounts shall be determined from books and records maintained in

accordance with generally accepted accounting principles in the United States.

 

 

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      In the event that Products are sold incorporated in other services or

products, the gross sales invoiced for the Sale of such Products shall be

calculated by using the average price per Equivalized Gallon for similar bulk

Product during that same Kidde Fiscal Quarter multiplied by the number of

Equivalized Gallons of Product bundled in the other services and products. Net

Sales shall then be calculated by making appropriate deductions from such gross

sales in accordance with this Section.

 

      Notwithstanding the foregoing, amounts received by Kidde or its Affiliates

or sublicensees for the Sale of Product among Kidde and its Affiliates or

sublicensees for resale to end users shall not be included in the computation of

Net Sales hereunder.

 

      In determining the Net Sales in each country, on a country-by country

basis, the local currency shall be converted to U.S. dollars as of the last

business day of each Kidde Fiscal Quarter, based on applicable currency exchange

rates then in effect as reported by the Wall Street Journal (U.S. edition);

accordingly, all monetary figures set forth in this Agreement shall be stated in

U.S. dollars.

 

      1.14 "PRODUCT(S)" means any and all aqueous, sprayable foam products that

are (i) intended for the non-hazardous and non-toxic neutralization and/or

decontamination of biological pathogens and/or chemical agents, and (ii) covered

by USGN Patent Rights.

 

      1.15 "PROPRIETARY INFORMATION" means, subject to the limitations set forth

in Section 10.1 hereof, all information disclosed by a party hereto to the other

party pursuant to this Agreement that is marked "confidential" or "proprietary".

1.16 "SAFETY ACT" means the Support Anti-terrorism by Fostering Effective

Technologies Act of 2002, 6 U.S.C. ss.ss. 441-444, Pub. L. 107-296 Title VIII,

Subtitle G (ss.ss. 861-865) and the Regulations Implementing the Support

Anti-terrorism by Fostering Effective Technologies Act of 2002, 6 CFR 25.

 

      1.17 "SIGNIFICANT MARKETS" means the United States, European common

markets and other worldwide industrialized countries.

 

      1.18 "SOLD" or "SALE" means the transfer or disposition of a Product for

value.

 

      1.19 "THIRD PARTY" means any person or entity other than USGN, Kidde or an

Affiliate of either party hereto.

 

      1.20 "TIAX AGREEMENT" means that certain Patent and Technology License

Agreement between USGN and TIAX LLC dated July 24, 2003, as amended by Amendment

No. 1 dated as of October 3, 2003. The TIAX AGREEMENT (including Amendment No.

1) is attached as Exhibit A hereto. USGN shall provide Kidde with a true,

complete and correct copy of any subsequent amendments to the TIAX AGREEMENT

within thirty (30) days after the execution date of such amendment.

 

      1.21 "TRADEMARK" means the mark "All-Clear."

 

 

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      1.22 "USGN KNOW-HOW" means all inventions, technology, technical

information, clinical and preclinical results, know-how, processes, procedures,

compositions, devices, methods, formulae, protocols, techniques, software,

designs, drawings, data, trade secrets, and any physical, chemical or biological

material, or other information or rights in such information, which are: (i)

proprietary to USGN; and (ii) not claimed in USGN Patent Rights; and (iii) owned

or exclusively licensed, with the right to sublicense, by USGN or any Affiliate

of USGN (including but not limited to such information exclusively licensed by

USGN or any Affiliate of USGN under the TIAX Agreement), to the extent necessary

or useful to Kidde in, or related to or derived from: (a) the development,

formulation, manufacture, use, import, sale or offer for sale of Products,

and/or (b) the practice of USGN Patent Rights.

 

      1.23 "USGN PATENT RIGHTS" means the rights under or in information or

discoveries claimed in any invention disclosures, patents, and/or patent

applications, both foreign and domestic, and all divisionals, continuations,

continuations-in-part, refilings, reissues, substitutions, renewals,

reexaminations, patents of addition, inventors' certificates, patent term

extensions, supplementary protection certificates, and any letters patent that

issue thereon that are: (i) owned or exclusively licensed, with the right to

sublicense, by USGN or any Affiliate of USGN under the TIAX AGREEMENT (including

without limitation with respect to the information and discoveries claimed in

U.S. Patent Application Serial No. 10/182,821, Canadian Patent Application

Serial No. 2397075 and European Patent Application Serial Number EPO/01 918

985.1) and/or (ii) based on an Invention made at any time prior to or during the

Term of this Agreement that are necessary or useful to Kidde in, or relate to or

are derived from the development, formulation, manufacture, use, import, sale or

offer for sale of Products and that are owned or exclusively licensed, with the

right to sublicense, by USGN or any USGN Affiliate.

 

      1.24 "VALID CLAIM" means a claim in the USGN Patent Rights or the Joint

Patent Rights, which has not been disclaimed or held invalid by a decision

beyond the right of review or otherwise has been finally determined by a court

of competent jurisdiction to be unenforceable.

 

                                    ARTICLE 2

 

                                 GRANT OF RIGHTS

 

      2.1 TECHNOLOGY LICENSE. Subject to the terms of this Agreement, and in

particular subject to the rights reserved in Article 3 hereof, USGN hereby

grants to Kidde and its Affiliates an exclusive, worldwide license (with the

right to sublicense pursuant to Section 2.2 of this Agreement) under the USGN

Patent Rights, USGN's interest in the Joint Patent Rights, and the USGN Know-How

to develop, manufacture or have manufactured, use, import, sell and offer to

sell the Products worldwide for use within the field of biological and/or

chemical decontamination. Kidde agrees not to use the USGN Patent Rights and the

USGN Know-How for any other purpose, without the prior written consent of USGN,

which shall not be unreasonably withheld. USGN shall retain a non-exclusive

license (with no right to sublicense) under the USGN Patent Rights and USGN

Know-How solely for the limited purpose of making and using Products for

internal research purposes. For purposes of clarity, the parties acknowledge and

agree that the license to the rights described Section 1.23(i) of this Agreement

is limited by the scope of the license granted in Section 3.1 of the TIAX

AGREEMENT.

 

 

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      2.2 SUBLICENSING. Kidde shall have the right to sublicense the rights

granted under Section 2.1 to Third Parties upon obtaining the prior written

consent of USGN, which USGN shall not unreasonably withhold or deny. If Kidde

grants a sublicense, all of the terms and conditions of this Agreement shall

apply to the sublicensee to the same extent as they apply to Kidde for all

purposes of this Agreement. Kidde assumes full responsibility for the

performance of all obligations so imposed on such sublicensee and will itself

pay and account to USGN for all royalties due under this Agreement by reason of

the operations of any such sublicensee.

 

      2.3 USGN SUBLICENSES. The USGN Patent Rights with respect to the

information and discoveries claimed in U.S. Patent Application Serial No.

10/182,821 were acquired by or licensed to USGN pursuant to the terms of the

TIAX AGREEMENT, and the license to those rights granted under Section 2.1 of

this Agreement is and will be limited by the scope of the license granted in

Section 3.1 of the TIAX AGREEMENT.

 

      2.4 DISCLOSURE OF USGN KNOW-HOW. Within thirty (30) days following the

Effective Date, USGN shall make available to Kidde, subject to the terms of this

Agreement, all USGN Know-How. Thereafter, USGN shall promptly make such revised

and updated USGN Know-How available to Kidde throughout the Term of this

Agreement.

 

      2.5 PATENT MARKING. Kidde agrees that all packaging containing Products or

documentation therefore will be permanently and legibly marked with the number

of the patent issued with respect to the information and discoveries claimed in

U.S. Patent Application Serial No. 10/182,821 in accordance with each country's

patent laws, including Title 35, United States Code. Kidde agrees to include the

logo of USGN, in a size not less than one half (1/2) inch square, on all Product

packaging and containers; provided, however, that USGN agrees to consider in

good faith a request by Kidde on a product by product basis to include a USGN

logo less than one half (1/2) inch square and to not to unreasonably deny such a

request where it is commercially impracticable to include a one half (1/2) inch

square logo.

 

      2.6 RELATED TECHNOLOGY. During the Term of this Agreement, if: (i) USGN

acquires rights, from a Third Party other than TIAX LLC, under any patented

technology within the field of non-hazardous, non-toxic biological and/or

chemical decontamination by or through the use of an aqueous, sprayable foam;

and (ii) Kidde desires to sublicense such patented technology, the parties

shall, in good faith, attempt to negotiate mutually acceptable terms and

conditions applicable to the sublicensing of such technology. If the parties

fail to negotiate a written agreement governing the use thereof, such technology

shall not be included within the definition of Products under this Agreement and

neither party shall be under any further obligation to, or have rights against,

the other party with respect to such technology. Notwithstanding the foregoing,

Kidde may acquire rights from a Third Party with respect to any biological

and/or chemical decontamination products and/or technology that are not Covered

by the USGN Patent Rights and such products and/or technology shall not be

deemed to fall within the definition of Products under this Agreement and shall

not be subject to any royalty obligations hereunder.

 

 

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      2.7 ASSIGNMENT OF TRADEMARK. On the Effective Date, USGN shall deliver to

Kidde an assignment agreement, in the form of Exhibit G, whereby USGN shall,

subject to the terms of this Agreement, assign to Kidde all of its right, title

and interest in the Trademark, including all goodwill associated therewith (the

"Trademark Assignment Agreement"). After the Effective Date, USGN, for no

further consideration, shall execute and deliver, or cause to be executed and

delivered, such other instruments of conveyance, assignment, transfer and

delivery, and will take such other actions, as Kidde may reasonably request in

order to more effectively transfer, convey, assign and deliver to Kidde the

Trademark, or to enable Kidde to exercise and enjoy all rights and benefits of

USGN with respect thereto and put Kidde in actual possession and control of the

Trademark. Kidde shall be responsible for any and all future expenses associated

with registration and prosecution of the Trademark. During the Term of this

Agreement, Kidde undertakes to use commercially reasonable efforts to protect

the Trademark against infringement worldwide. During the Term of this Agreement,

Kidde shall not use the Trademark except in connection with the manufacture,

marketing and sale of the Products. During the Term of this Agreement, Kidde

shall not assign any interest in the Trademark except to Affiliates for use

solely in connection with the manufacture, marketing and sale of the Products

during the Term of this Agreement. During the Term of this Agreement, Kidde may

license use of the Trademark to its Affiliates, or sublicensees under Section

2.2 of this Agreement, for use in connection with the manufacture, marketing and

sale of the Products.

 

                                    ARTICLE 3

 

                            RESEARCH AND DEVELOPMENT

 

      3.1 PRIMARY RESPONSIBILITIES. USGN shall be responsible for research and

development with respect to the quality and formulation of existing Products, at

its sole cost and expense. Kidde shall be responsible for research and

development with respect to the manufacturing processes of existing Products, at

its sole cost and expense.

 

      3.2 PROPOSALS. Either party may, from time to time and on a project by

project basis, submit written project proposals to the other party for research

and development opportunities to be conducted for Kidde by USGN regarding: (i)

new Products for existing Applications and/or (ii) new Applications for existing

Products (each such proposal is hereinafter referred to as a "Proposal"). Each

Proposal will contain, at a minimum, detailed information describing: (i) the

scope of the new Product and/or new Application, (ii) the market research

conducted demonstrating the market for such new Product and/or new Application,

(iii) the budgetary cost for such research and development opportunity and (iv)

delivery schedules and targets. For purposes of clarity, the parties agree that

any such research and development opportunity shall not be treated as

consideration received by USGN under Section 4.1(e) of the TIAX AGREEMENT and

further that the budgetary cost for such research and development opportunity

shall not be marked up to compensate for any amounts USGN might otherwise have

owed TIAX under Section 4.1(e) of the TIAX AGREEMENT. Thereafter, the submitting

 

 

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party shall discuss the Proposal with the receiving party, and shall provide

such additional information as the receiving party reasonably requests. Provided

that the submitting party complies with the foregoing obligations, the receiving

party shall inform the submitting party in writing, within sixty (60) days after

receipt of the Proposal as to whether or not the receiving party desires USGN to

undertake such research and development project. If the receiving party accepts

such a Proposal, then USGN shall notify TIAX LLC of the research and development

activities to be performed under such Proposal and shall obtain a written (i)

consent from TIAX LLC approving such research and development activities

pursuant to Section 5.1 of the TIAX AGREEMENT and (ii) waiver from TIAX LLC of

any right to claim a license, pursuant to Section 13.4(d) of the TIAX AGREEMENT,

with respect to any technology developed in connection with such research and

development activities. If USGN provides Kidde with an original of such written

consent and waiver from TIAX LLC, the parties will negotiate, in good faith, a

separate written agreement setting forth the specific terms and conditions

(including but not limited to cost and delivery obligations) of any accepted

research and development opportunity. If the parties fail to negotiate a written

agreement governing such proposed research and development activities, neither

party shall be under any further obligation to, or have rights against, the

other party with respect to such research and development activities. If Kidde

rejects a Proposal submitted by USGN, USGN may undertake such Proposal at USGN's

sole cost and expense and market or manufacture such improved Product. Nothing

in this Section shall prevent Kidde from conducting its own research and

development projects at Kidde's sole cost and expense.

 

      3.3 PAYMENTS. Upon execution of a written agreement governing the

Proposal, USGN shall promptly begin performing the research and development

work. Within ten (10) days after the end of a calendar month, USGN shall submit

written invoices and supporting documentation of work performed, such as time

sheets, during the previous calendar month. Kidde shall pay USGN for such

research and development work within thirty (30) days of receipt of such

invoices and supporting documentation, provided that the total amount to be

received by USGN for such research and development work shall not exceed the

amount agreed upon by the parties in the written agreement with respect to the

Proposal. Notwithstanding anything in this Agreement to the contrary, USGN

agrees that all research and development work performed by USGN for Kidde

pursuant to a Proposal, including but not limited to any Inventions arising out

of such work, and any and all products, information and results thereof,

including but not limited to any and all new product formulations and data,

shall: (i) be considered a "work made for hire" under the copyright laws of the

United States, (ii) be the sole and exclusive property of Kidde, (iii) not

constitute or be deemed an "improvement" made by USGN under or pursuant to

Section 13.4(d) of the TIAX AGREEMENT, and (iv) not be considered a Joint

Invention, USGN Know-How or lead in any way to the creation of Joint Patent

Rights or any other patent rights on behalf of USGN. Kidde shall exclusively own

all right, title and interest in and to the products, information and results of

the research and development work performed for Kidde by USGN, including but not

limited to any Inventions or patent rights resulting from such efforts. USGN

shall take any and all necessary actions including but not limited to executing

assignment agreements needed to secure to Kidde full and exclusive ownership of

such products, information and results and any and all Inventions and patent

rights related thereto.

 

 

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       3.4 AUDIT RIGHTS. USGN shall keep complete and accurate records pertaining

to the costs incurred in performing research and development for any accepted

Proposal in sufficient detail to permit Kidde to confirm the accuracy of such

costs. At Kidde's written request, USGN will prepare abstracts of USGN's

relevant business records for review by Kidde and/or it's independent certified

public accountants. If, based on a review of such abstracts, Kidde reasonably

believes that a full audit of said business records would be necessary for the

confirmation of the accuracy of the research and development costs, Kidde's

independent certified public accountants shall have full access to review all

work papers and supporting documents pertinent to such abstracts, and shall have

the right to discuss such documentation with USGN's independent certified public

accountants. Such audit rights may be exercised no more often than once a year,

within three (3) years after the period to which such records relate, upon

written notice to USGN and during normal business hours. Kidde will bear the

full cost of such audit unless such audit discloses an overpayment by Kidde of

more than five percent (5%) from the amount due in which case USGN shall

promptly refund any such overpayment and reimburse the costs incurred by Kidde

for such audit. The terms of this Section 3.4 shall survive any termination or

expiration of this Agreement for a period of three (3) years.

 

      3.5 RIGHT OF FIRST REFUSAL. Kidde shall inform USGN in writing, within

sixty (60) days after USGN completes agreed upon research and development work

under a Proposal, as to whether or not Kidde will undertake the marketing and/or

manufacturing of the Products for the new Product or new Application. In the

event Kidde decides to market and/or manufacture such new Product or

Application, the parties shall in good faith mutually agree upon a reasonable

schedule and agree upon apportioning the financial commitments required for

Kidde to begin marketing and/or manufacturing the Products. For purposes of

clarity, Kidde may agree to both manufacture and market the Products for the

improved Product or Application or it may elect to either manufacture or market

the Products for such Product or Application.

 

      3.6 EXCLUDED APPLICATIONS. In the event that Kidde does not agree to

market and/or manufacture the new Product or new Application, then Kidde shall

in good faith endeavor to license such research and development products,

information and results to USGN upon such terms and conditions, including but

not limited to terms and conditions of use, and subject to a reasonable royalty

rate to be mutually agreed upon by the parties in a separate written agreement.

 

                                    ARTICLE 4

 

                              LIMITATION OF LIABILITY

 

      4.1 LIMITATION OF LIABILITY. REGARDLESS OF WHETHER ANY REMEDY PROVIDED FOR

HEREIN FAILS OF ITS ESSENTIAL PURPOSE BY LAW, IN NO EVENT SHALL EITHER PARTY BE

LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL, OR CONSEQUENTIAL LOSSES OR DAMAGES

(INCLUDING, WITHOUT LIMITATION DAMAGES FOR LOSS OF USE OF FACILITIES OR

EQUIPMENT, LOSS OF REVENUE, LOSS OF PROFITS OR LOSS OF GOODWILL) SUFFERED BY THE

OTHER PARTY IN CONNECTION WITH THIS AGREEMENT, EVEN IF SUCH PARTY SHALL HAVE

BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSS OR DAMAGE.

 

 

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                                    ARTICLE 5

 

                           MANUFACTURING AND MARKETING

 

      5.1 MANUFACTURING. Kidde shall be solely and exclusively responsible at

its own expense for commercial manufacture of the Products, either through

itself, its Affiliates or Third Parties, and shall be responsible for complying

with local manufacturing protocols in the event it elects to manufacture

Products outside of the United States.

 

      (a) KIDDE WARRANTY AND PRODUCT LIABILITY CLAIMS. Kidde shall be

responsible for recalls, warranty claims, and product liability claims to the

extent resulting from: (i) the failure of Kidde to manufacture the Products in

conformance with the Product Specifications set forth on Exhibit B (and such

future Product Specifications as mutually agreed upon by the parties in writing)

and/or (ii) the failure of the Product to conform to the application standards

set forth in Exhibit D (and such future application standards as mutually agreed

upon by the parties in writing) as a result of an error in Kidde's foam

distribution system for the Products.

 

      (b) USGN WARRANTY AND PRODUCT LIABILITY CLAIMS. USGN shall be responsible

for recalls, warranty claims, and product liability claims to the extent

resulting from: (i) the Products failing to perform in accordance with the

Performance Requirements of the Products as set forth on Exhibit C (and such

future Performance Requirements as mutually agreed upon by the parties in

writing), and/or (ii) the Products failing to conform to the safety standards

set forth in Exhibit E (and such future safety standards as mutually agreed upon

by the parties in writing) and/or (iii) products marketed or manufactured by

USGN under Section 3.2 or 3.6 of this Agreement.

 

      5.2 PRICING. Kidde shall determine, in its sole discretion, the pricing,

discounting policy and other commercial terms relating to sale of the Products.

 

      5.3 PROSECUTION OF USGN PATENT RIGHTS. USGN shall be responsible for

preparing, filing, prosecuting and maintaining patent applications (including

handling interferences), and for obtaining patent extensions, supplementary

protection certificates, and the like for the USGN Patent Rights (including all

payment obligations) in any countries and territories where Kidde desires to

commercialize the Products and such applications, extensions and certificates

shall be included within the USGN Patent Rights. USGN shall promptly furnish

copies of all such related documents to Kidde within 30 days of receipt or

filing. USGN shall consult with Kidde in all aspects of the preparation, filing,

prosecution and maintenance of the USGN Patent Rights and shall provide Kidde

sufficient opportunity to comment on any document that USGN intends to file or

to cause to be filed with the relevant intellectual property or patent office,

which comments shall be reasonably considered by USGN. USGN shall promptly

inform Kidde as to all matters that come to its attention that may affect the

preparation, filing, prosecution, or maintenance of the USGN Patent Rights and

permit Kidde to provide comments and suggestions with respect to such

activities, which comments and suggestions shall be reasonably considered by

USGN. USGN shall not surrender or abandon any USGN Patent Rights without the

prior written consent of Kidde, not to be unreasonably withheld, and shall

immediately notify Kidde in the event it becomes aware that TIAX LLC intends to

surrender or abandon any rights under the USGN Patent Rights, in which case USGN

shall undertake its obligations under this Section.

 

 

                                      -10-

<PAGE>

 

      5.4 REGULATORY APPROVAL. Kidde shall be responsible for obtaining all

necessary governmental and regulatory approvals (including but not limited to

all required marketing, safety, efficacy and pricing approvals) required to

manufacture, market and sell the Products worldwide. USGN agrees to provide

reasonable cooperation and assistance to Kidde with respect to obtaining such

approvals. The parties further both agree to diligently complete (including

providing all required information and such missing or additional information as

requested by the Department of Homeland Security) and simultaneously submit

separate Safety Act applications, within a prompt period of time following the

Execution Date, for both: (i) "Designation" of the Product as a "Qualified

Anti-Terrorism Technology" ("QATT"), and (ii) "Certification" of the Product as

an "Approved Product for Homeland Security," for purposes of obtaining the

liability protections set forth in the Safety Act (including, but not limited

to, the government contractor defense). Kidde and USGN shall reasonably

cooperate with respect to such applications and shall use reasonable commercial

efforts to require TIAX LLC to file such an application.

 

      5.5 MARKETING. Upon obtaining the requisite governmental and/or regulatory

approvals as required by Section 5.4 of this Agreement, Kidde and/or its

sublicensees shall use commercially reasonable efforts to promote and market the

Product in all Significant Markets.

 

      5.6 COMMERCIAL SUCCESS. Upon obtaining the requisite governmental and/or

regulatory approvals as required by Section 5.4 of this Agreement, Kidde shall

use commercially reasonable efforts to commercialize the Product in

substantially all major channels and major geographic markets in the world in

accordance with the annual sales targets for such channels and markets as set

forth in Exhibit F, which is incorporated herein by such reference. The parties

shall update such sales targets on an annual basis. If, during the time period

beginning on the date of the First Commercial Sale in the U.S. and ending five

(5) years thereafter, annual sales of Products invoiced by Kidde and its

Affiliates and any sublicensees with respect to major channels and major

geographic markets continuously fall short of the sales targets set forth in

Exhibit F for such channels and geographic markets, then the parties agree to

meet and confer in good faith regarding the most appropriate corrective actions

to take in such channels and markets. The following factors shall be considered

by the parties in determining the most appropriate course of action to take with

respect to such channels and markets: (i) Kidde's and its Affiliates and

sublicensees competitive position, including promotional spending levels, sizes

of field sales forces and market development expenditures, relative to

competitive products in such channels and markets; (ii) USGN's interest in, and

ability to increase revenues by, assuming all/or partial rights to the Product

in such channels and markets and (iii) the policy of the governing health,

safety or other applicable regulatory authority in such channels and markets

with respect to any required marketing, safety, efficacy and/or pricing

approval. USGN shall not have the right to terminate Kidde's license in Section

2.1 of this Agreement with respect to any such channel and/or market where Kidde

can show that it used commercially reasonable efforts and that there are

impediments beyond Kidde's reasonable control to commercializing the Products in

the channel and/or market in question. In the event the parties agree in writing

that all or partial rights to the Product shall revert to USGN with respect to

such channel and market, the parties shall thereupon mutually agree on

appropriate commercial terms for the reversion of such rights.

 

 

                                      -11-

<PAGE>

 

       5.7 SECURITIES EXCHANGE ACT COMPLIANCE. Each party will promptly provide

the other on a timely basis such information as it reasonably requests in order

to satisfy filing and disclosure obligations under the Securities Exchange Act

of 1934, as amended, the Rules and Regulations of the Securities and Exchange

Commission promulgated hereunder, and under the laws, rules and regulations

pertaining to the London Stock Exchange or any foreign securities exchange.

 

      5.8 INSURANCE. In addition to and separate from any other obligations of

the parties contained herein, during the Term of this Agreement, each party

represents and warrants that it and its Affiliates are covered by and shall

maintain a reasonable program of commercial insurance, with respect to Products,

in amounts no less than the amounts, types and terms reasonably required by the

Department of Homeland Security under the Safety Act in connection with the

Safety Act applications of Kidde and USGN for Product to be "Designated" as a

QATT and "Certified" as an "Approved Product for Homeland Security." The parties

shall reasonably endeavor to obtain such other insurance amounts, types and

terms as required by such similar agencies or regulatory authorities in each of

the other countries in which Product is to be manufactured, used and sold.

Throughout the Term of this Agreement, each party will promptly notify the other

if at any time such insurance is not in effect, and each party will deliver to

the other a certificate of insurance evidencing the insurance required herein no

less than once during each calendar year. Each party shall endeavor to maintain

such insurance program, or other program with comparable coverage, beyond the

expiration or termination of this Agreement for a commercially reasonable

period.

 

                                    ARTICLE 6

 

                                  COMPENSATION

 

      6.1. LICENSE FEE. In consideration of the license set forth in Section 2.1

hereof, Kidde shall pay to USGN a total fee of *** to be paid as follows: (i)

*** shall be payable within *** days following the Effective Date and (ii) the

remaining *** shall be payable within *** days of the Effective Date. Such

license fee shall be *** and ***.

 

      6.2 FEE FOR TRADEMARK. In consideration of the assignment of the Trademark

set forth in Section 2.7 hereof, Kidde shall pay to USGN a total fee of *** to

be paid as follows: (i) *** shall be payable within *** days following the

Effective Date and (ii) the remaining *** shall be payable within *** days of

the Effective Date. This assignment fee shall be *** and *** to Kidde in the

event the Trademark reverts back to USGN pursuant to Section 7.9 of this

agreement.

 

      *** CONFIDENTIAL TREATMENT REQUESTED

 

 

                                      -12-

<PAGE>

 

      6.3 ROYALTY PAYMENTS; ADJUSTMENTS.

 

      (a) ROYALTY ON PRODUCTS. During the Term of this Agreement, Kidde agrees

to pay USGN, a royalty payment on Equivalized Gallons of Product Sold during a

Kidde Fiscal Quarter (as defined in Section 6.4 below) by Kidde, its Affiliates

and sublicensees (the "Royalty"), according to the following rates, as may be

adjusted in accordance with subsection (b) below:

 

      (i) *** per Equivalized Gallon for the first *** Equivalized Gallons Sold

during a "Kidde Fiscal Year";

 

      (ii) *** per Equivalized Gallon for each Equivalized Gallon Sold, during a

"Kidde Fiscal Year," in excess of *** Equivalized Gallons and up to ***

Equivalized Gallons; and

 

      (iii) *** per Equivalized Gallon for each Equivalized Gallon Sold in

excess of *** Equivalized Gallons during a "Kidde Fiscal Year".

 

      No multiple royalties shall be payable because the use, manufacture, or

sale of any Product is, or shall be, Covered by more than one Valid Claim under

the USGN Patent Rights. Kidde shall identify the dates of the "Kidde Fiscal

Year" prior to the commencement of each such fiscal year, which fiscal year

shall consist of four (4) Kidde Fiscal Quarters. Upon the beginning of each new

Kidde Fiscal Year, the measure of Product Sold by Kidde, its Affiliates and

sublicensees shall begin at *** for purposes of calculating the appropriate rate

to apply under subsections (i), (ii) and (iii) above.

 

      (b) ROYALTY ADJUSTMENTS. Upon request by Kidde from time to time, the

parties agree to enter into good faith discussions to determine whether the

royalty rate set forth in subsection (a) above should be reduced, on a product

by product and/or worldwide or country by country basis, either: (i) with

respect to specific large contracts or sales opportunities; provided, however,

that in the event a such a reduced royalty rate is agreed to, any Equivalized

Gallons of Product Sold under any such contract or opportunity shall not count

towards the volume breakpoints set forth in Section 6.3(a), until such time as

the royalty rate established under 6.3(a) is *** the royalty rate under such

contract or opportunity, at which point the total cumulative amount of

Equivalized Gallons of Product previously Sold under such contract or

opportunity shall count (and any additional Equivalized Gallons of Product Sold

shall continue to count) towards such volume breakpoints; and/or (ii) because of

material changes or developments in the commercial environment adversely

affecting profitability. Material changes or developments in the commercial

environment would include, but not be limited to, situations where (i) lower

selling prices are necessary to effectively compete with competitive products,

and as a result reduce profitability; (ii) the co-ownership by any United States

government agency or other Third Party in the USGN Patent Rights, the Joint

Patent Rights and/or the USGN Know-How legally or effectively reduces or limits

Kidde's ability to derive the full benefit of the rights granted to Kidde under

Section 2.1 of this Agreement, and/or (iii) any Third Party's patent

 

*** CONFIDENTIAL TREATMENT REQUESTED

 

 

                                      -13-

<PAGE>

 

or patent application legally or effectively reduces or limits Kidde's ability

to derive the full benefit of the rights granted to Kidde under Section 2.1 of

this Agreement. Notwithstanding the foregoing, in the event that (i) the USGN

Patent Rights or Joint Patent Rights do not Cover the manufacture, import, use,

sale or offer for sale of a Product and/or (ii) no patents have issued by ***,

with respect to Product covered by the information and discoveries claimed in

***, the parties shall in good faith, *** the rate of the Royalty on a product

by product basis and/or worldwide or country by country basis, to be

commercially competitive with the cost of alternative sources of supply.

 

      6.4 PAYMENTS. The Royalty shall be paid within *** days after the

completion of each Kidde Fiscal Quarter with respect to Product Sold during the

completed Kidde Fiscal Quarter. Kidde shall, prior to each calendar year,

identify the dates of each "Kidde Fiscal Quarter" for the upcoming calendar

year. Kidde shall be entitled to *** against and *** of any Royalty paid on

Product Sold during a Kidde Fiscal Quarter where (i) payment is not received

within *** days past the applicable *** for such Product, which in no event

shall exceed *** days of the invoice date for such Product and (ii) the total

amount of such *** exceeds *** of the overall value of Net Sales of Product

during any Kidde Fiscal Quarter. Such *** shall then be applied against the next

Royalty payment. Any payments due hereunder shall be payable in United States

dollars to USGN by wire transfer at such bank in the United States as USGN shall

specify to Kidde in writing from time to time. Not less than one (1) business

day prior to such wire transfer, the remitting party shall telefax the receiving

party advising it of the amount and of the payment to be made.

 

      6.5 REPORTS. Each payment of Royalties owing to USGN shall be accompanied

by a statement, on a country-by-country basis, of the amount of Equivalized

Gallons of Product Sold during the relevant Kidde Fiscal Quarter.

 

      6.6 RECORDS AND AUDIT. Kidde shall keep complete and accurate Product

records pertaining to the number of Equivalized Gallons of Product Sold and of

the Royalty and other amounts payable under this Agreement in sufficient detail

to permit USGN to confirm the accuracy of all payments due hereunder. At USGN's

written request, Kidde will prepare abstracts of Kidde's relevant business

records for review by USGN. If, based on a review of such abstracts, USGN

reasonably believes that a full audit of said business records would be

necessary for the confirmation of the accuracy of all payments due hereunder,

USGN's independent certified public accountants shall have full access to review

all work papers and supporting documents pertinent to such abstracts, and shall

have the right to discuss such documentation with Kidde's independent certified

public accountants. Such audit rights may be exercised no more often than *** a

year, within *** years after the payment period to which such records relate,

upon written notice to Kidde and during normal business hours. USGN will bear

the full cost of such audit unless such audit discloses an underpayment of more

than *** from the amount of royalties due. Kidde shall promptly make up any

underpayment. The terms of this Section 6.6 shall survive any termination or

expiration of this Agreement for a period of *** years.

 

*** CONFIDENTIAL TREATMENT REQUESTED

 

 

                                      -14-

<PAGE>

 

      6.7 SUBLICENSE. In the event Kidde sublicenses its right to sell or

manufacture a Product, such sublicenses shall include an obligation for the

sublicensee to account for and report its Sales of such Product on the same

basis as if such sales were Sales of Product by Kidde, and Kidde shall pay the

applicable Royalty to USGN as if the Sales of the sublicensee were sales of

Kidde.

 

      6.8 EXPIRATION OF ROYALTY OBLIGATIONS. The royalty obligations set forth

in Section 6.3 above shall expire on a country-by-country and product-by-product

basis upon the later of: (i) in those countries in which a USGN Patent Right or

Joint Patent Right Covers the manufacture, use or sale of a Product sold by

Kidde, its Affiliate or its sublicensees, the date upon which the manufacture,

use or sale of such Product would no longer infringe a Valid Claim of a USGN

Patent Right or Joint Patent Right in the absence of rights hereunder; or (ii)

ten (10) years from the Effective Date.

 

                                    ARTICLE 7

 

                              TERM AND TERMINATION

 

      7.1 TERM. The "Term" of this Agreement shall commence upon the Effective

Date. Unless earlier terminated as provided in this Article 7, the Term shall

expire on the expiration of royalty obligations as set forth in Section 6.8 of

this Agreement.

 

      7.2 LICENSES UPON EXPIRATION. In the event that the Agreement expires as

set forth in Section 7.1 above without early termination by USGN for a material

breach by Kidde as provided in Section 7.3 or upon the filing by or against

Kidde of a bankruptcy event as provided in Section 7.4, the license granted

under Section 2.1 shall automatically become a non-exclusive, irrevocable,

perpetual, fully-paid license to use and/or sublicense the use of USGN Know-How

to manufacture, use and sell Products in each country where such license had

previously been in effect. In the event one or more channels or markets are

eliminated from the scope of the Kidde license pursuant to Section 5.6, the

license to Kidde in this Section 7.2 shall not apply to such channels or

markets.

 

      7.3 TERMINATION FOR BREACH. Each party shall have the right to terminate

this Agreement and its obligations hereunder for material breach by the other

party, which breach remains uncured for ninety (90) days after written notice is

provided to the breaching party, or in the case of an obligation to pay a

Royalty or other payments owing under