DEVELOPMENT AND ROYALTY AGREEMENT
This
DEVELOPMENT AND ROYALTY AGREEMENT (“
Agreement ”)
is made as of June __, 2008 (the “
Effective Date ”)
by and among QPC LASERS, INC., a Nevada corporation (“
QPC ”),
QUINTESSENCE PHOTONICS CORPORATION, a Delaware corporation and
wholly-owned subsidiary of QPC (“
Quintessence ”),
and, a____________ (“
Customer ”)
(each a “
Party ”
and collectively, the “
Parties ”).
RECITALS
WHEREAS:
QPC
and its wholly-owned subsidiary, Quintessence, are engaged in
the business of designing and manufacturing lasers in the
visible light range for use in the projection and display
business.
Customer
is seeking to buy such products and to benefit from the
commercialization of such products for applications in three
dimensional projection and display. Customer is prepared to
fund a portion of the development costs of such products in
return for certain purchase rights and royalty rights as set
forth in this Agreement.
NOW,
THEREFORE, in consideration of the mutual terms and conditions
contained herein, the sufficiency and adequacy of which is
hereby acknowledged, the Parties agree as
follows:
AGREEMENT
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1.
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DEFINITIONS AND INTERPRETATION
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1.1
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Definitions .
As used in this Agreement, the following terms shall have the
meanings set forth or as referenced below:
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“
Affiliate ”
means, with respect to any specified Person, any other Person which
directly or indirectly controls, is controlled by, or is under
common control with such Person, but only for so long as such
control continues to exist. For the purposes of this definition,
“control” (including the terms “controlled
by” and “under common control with”), with
respect to the relationship between or among two or more Persons,
shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the affairs or management of a
Person, whether through the ownership of voting securities, by
agreement or otherwise.
“
Agreement ”
has the meaning set forth in the preamble.
“
Confidential Information ”
has the meaning set forth in Section 10.2.
“
Customer Products ”
has the meaning set forth in Section 3.2 below.
“
Effective Date ”
has the meaning set forth in the preamble.
“
Field ”
means the use of Products for display/projection applications in
connection with the display and projection business. For the
avoidance of doubt, the Field expressly excludes the use of
Products or infrared lasers in connection with medical equipment or
other medical applications or any military or industrial
applications.
“
Licensed IP ”
means the intellectual property rights of QPC set forth in Exhibit
C relating to the Products.
"
Net Revenues ”
means the gross revenues actually received by QPC or Quintessence
for sales of Products in the Field within the Territory, but not
including separately stated charges for (a) sales to Customer,
(b) sales and use taxes, excise taxes, customs duties and other
similar taxes; (c) shipping and insurance charges; and
(d) the amount of any bad debts, refunds and credits, but only
to the extent that such bad debts, refunds and credits are actually
recognized against such gross revenues.
“
Royalty Term ”
means the period commencing on the Effective Date and ending on the
earlier of the fifth anniversary thereof or the date in which this
Agreement has been terminated.
“
Party ”
and “
Parties ”
have the meaning set forth in the preamble.
“
Person ”
means an individual, corporation, partnership, limited liability
company, association, trust or other entity or organization,
including a government or political subdivision or an agency or
instrumentality thereof.
"
Products "
means laser chips and modules intended for use as a light source
for laser projection display, products and systems.
"
Territory "
means worldwide.
“
Third Party ”
means any Person other than QPC, QPC’s Affiliates, Customer,
and Customer’s Affiliates.
In
consideration for the purchase rights set forth in Article 3
of this Agreement, the royalty rights set forth in Article 4
of this Agreement and the right of participation set forth in
Section 6.3 of this Agreement, Customer will make a
development payment in accordance with the terms set forth in
Exhibit A (the “
Development Payment ”).
The Development Payment shall be used to fund the development of
the Products. QPC shall have full control over the engineering and
development process. Customer shall have no right to a refund of
the Development Payment unless QPC notifies Customer that it is
abandoning development of the Products.
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3.1
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Purchase Rights .
In partial consideration for payment of the Development Payment set
forth in Article 2, so long as Customer is not in material breach
of this Agreement, during the Royalty Term, QPC hereby agrees to
grant Customer the right to purchase units of Products directly
from QPC at a price that is no less favorable to Customer than the
price offered by QPC to any Third Party for similar
quantities
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3.2
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Purchase Terms and License .
QPC hereby grants to Customer a non-exclusive, non-transferable,
non-sublicensable right and license to incorporate Products
purchased from QPC as provided hereunder into Customer's own
products (the resulting product a "
Customer Product ")
and to sell, have sold, distribute, have distributed, market and
export such Customer Products in the Territory (subject to the
restrictions in Section 10.1). The license granted in this Section
3.2: (a) is not sublicensable, but includes the right of Customer
to have Third Parties carry out the express rights granted herein
on Customer's behalf; (b) does not include the right make, sell,
distribute, market or export Products on a stand-alone basis, or
otherwise exploit Products except as expressly authorized herein.
Customer agrees that it will not use or otherwise exploit the
Products in any manner except as expressly permitted in this
Agreement and shall not manufacture, market, sell or otherwise
distribute Customer Products in violation of any applicable laws,
regulations or ordinances. Customer shall not alter or destroy any
intellectual property markings (including without limitation
trademarks) on Products or their packaging. Customer will
indemnify, defend and hold harmless QPC, its Affiliates, and its
and their officers, directors, agents, employees, against any
claims, suits, losses, or damages (including reasonable attorneys'
fees) arising out of the incorporation of Products into Customer
Products, and the manufacture, sale, offering for sale,
distribution or marketing of Customer Products (including, without
limitation, product liability claims).
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(a)
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In
partial consideration for payment of the Development Payment set
forth in Article 2, QPC shall pay Customer royalties on Net
Revenues during the Royalty Term at the rates and subject to the
terms and conditions set forth in Exhibit B and this Agreement
(collectively, the “
Royalty Payments ”).
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(b)
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Any
Royalty Payments due under this Agreement shall be payable solely
in the form of shares of unregistered and restricted common stock
of QPC (the “
Common Stock ”).
For purposes of determining the number of shares of Common Stock
issuable to Customer under this Article 4, the value of a share of
Common Stock shall be fixed at $1.05 per share throughout the
Royalty Term, subject to adjustments for stock dividends and splits
as provided in Section 4.1(d) below (as adjusted, the
“
Share Price ”).
The number of shares of Common Stock issuable to Customer shall be
determined by dividing the Royalty Payment amount due and payable
hereunder by the Share Price. QPC will not issue any fractional
shares under this Agreement. As to any fraction of a share that
Customer would otherwise be entitled to receive as a Royalty
Payment, QPC shall, at its election, either pay a cash adjustment
in respect of such final fraction in an amount equal to such
fraction multiplied by the Share Price or round up to the next
whole share.
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(c)
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Any
shares of Common Stock issuable as Royalty Payments hereunder shall
be issued to Customer on a quarterly basis in arrears on or prior
to the thirtieth (30
th )
day following the end of the quarter in which Royalty Payments, if
any, are due and payable pursuant to this Article 4; provided,
however, that the first issuance of Common Stock as Royalty
Payments hereunder shall not be due until the thirtieth (30
th )
day following the end of fourth quarter of 2008. Accompanying each
issuance of shares of Common Stock hereunder, QPC will provide
Customer a royalty report specifying the number of units of the
Products sold by QPC during the applicable royalty period,
QPC’s Net Revenues of Products for such period, and the
royalties, if any, payable with respect to sales of the
Product.
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(d)
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In
the event QPC should at any time after the Effective Date fix a
record date for the effectuation of a split or subdivision of the
outstanding shares of Common Stock or the determination of holders
of Common Stock entitled to receive a dividend or other
distribution payable solely in additional shares of Common Stock
without payment of any consideration by such holder for the
additional shares of Common Stock, then, as of such record date (or
the date of such dividend distribution, split or subdivision if no
record date is fixed), the Share Price shall be appropriately
decreased so that the number of shares of Common Stock issuable for
payment of the Royalty Payments shall be increased in proportion to
such increase of the aggregate of shares of Common Stock
outstanding. If the number of shares of Common Stock outstanding at
any time after the Effective Date is decreased by a combination of
the outstanding shares of Common Stock, then, following the record
date of such combination, the Share Price shall be appropriately
increased so that the number of shares of Common Stock issuable for
payment of the Royalty Payments shall be decreased in proportion to
such decrease in outstanding shares.
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4.2
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Taxes .
QPC may withhold from any royalty or other payment to Customer
under this Agreement any taxes required to be withheld by QPC under
the applicable laws of the United States or any other country,
state, territory or jurisdiction.
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5.1
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Deliverable Items .
QPC
shall deliver to Customer as of the Effective Date the following
“Deliverable Items”: (1) Demonstration in QPC’s
facility of a single laser module which emits 400 mW of Blue light,
400 mW of Green light and and 600 mW Red light; (2) Demonstration
in QPC’s facility of three individual laser chips emitting 3
watts of Green light, 1 watt of Blue light and 6 watts of Red light
and (3) Preliminary design of a module which emits 6 watts of
Green, 6 watts of Blue, and 12 watts of Red light suitable for
integrating into a three dimensional projection
system.
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5.2
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Use of the Product and Deliverable Items. Customer
shall not make use of the Products or Deliverable Items (or any
portion thereof) except in strict compliance with the provisions of
this Agreement. Customer shall not use or exploit any of the
intellectual property rights relating to the Product including,
without limitation, the Deliverable Items and other Confidential
Information of QPC, in connection with the development, use,
manufacture, sale or other distribution of any product or
mater ial.
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5.3
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Ownership .
QPC and Quintessence shall retain ownership of all intellectual
property rights in and to the Products and the Deliverable Items
(including without limitation all rights under patent, copyright,
trademark, and trade secrets), and nothing in this Agreement shall
be construed to convey any intellectual property or other rights in
the Products or Deliverable Items to Customer except for the
express licenses set forth herein.
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6.
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additional Obligations, Covenants and
agreements
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6.1
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Non-Compete Covenant .
Without the prior written consent of QPC, which consent may be
withheld in its sole discretion, Customer shall not, nor shall it
allow any Affiliate or Third Party acting on behalf of or for the
benefit of Customer or any of its Affiliates to, commercialize or
promote a product that could reasonably be expected to compete with
Products in the Territory during the Royalty Term.
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6.2
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Right
of Participation.
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(a)
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Subject
to the terms and conditions specified in this Section 6.2, in the
event that QPC or Quintessence elects, in its sole discretion, to
form a separate company to service and otherwise operate its laser
display and projection business, then QPC or Quintessence, as
applicable, hereby grants to Customer a right of first offer
(“
Right of First Offer ”)
to purchase up to ten percent (10%) of the equity interest in the
separate company (the
“
Separate Company ”)
being offered upon its formation on terms and conditions that are
identical to those offered to other Third Party
investors.
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(b)
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If
either QPC or Quintessence elects to form a Separate Company in
accordance with Section 6.2(a) above, it shall give Customer
written notice (the “
Offer Notice ”)
of its intention, describing the amount and type of securities of
the Separate Company to be issued, and the price and terms upon
which QPC or Quintessence proposes to issue the same. Customer
shall have fifteen (15) days from the date of receipt of the Offer
Notice to exercise Customer’
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