PATENT LICENSE AND ASSIGNMENT AGREEMENT

Exhibit 10.4

PATENT LICENSE AND ASSIGNMENT AGREEMENT

This Patent License Agreement (this “Agreement”) is entered into as of August 12, 2005 (the “Effective Date”) by and between Science Applications International Corporation, a Delaware corporation (“SAIC”), and VirnetX Inc., a Delaware corporation (“Licensee”), herein individually referred to as a “Party” and collectively referred to as the “Parties”.

RECITALS

WHEREAS, SAIC owns certain patents and patent applications relating to the facilitation of secure communications over networks, as more particularly described in Exhibit A (the “SAIC Patent Rights”);

WHEREAS, Licensee is in the business of developing and manufacturing products and providing services in the Internet, enterprise networking, and communications markets;

WHEREAS, Licensee desires to obtain a license to the SAIC Patent Rights in connection with its business in a particular field of use, and SAIC desires to grant such license on the terms and conditions contained herein solely in the field of use;

WHEREAS, Licensee believes it must own the SAIC Patent Rights to effectively raise funds to develop and license products and services which practice the SAIC Patent Rights, and consequently Licensee desires to acquire title to the SAIC Patent Rights, subject to the terms and conditions for such assignment as set out in this Agreement;

WHEREAS, subject to the terms and conditions of this Agreement, SAIC desires to convey to Licensee the SAIC Patent Rights solely for Licensee or its sub-licensee to practice in a particular field of use;

WHEREAS, SAIC currently has, and seeks to maintain, an exclusive right to practice the SAIC Patent Rights outside Licensee’s field of use, and consequently Licensee desires to grant back an exclusive license to SAIC under such SAIC Patent Rights outside Licensee’s particular field of use; and

WHEREAS, the parties desire that, both during the term of the license grant to Licensee under the SAIC Patent Rights and post any conveyance to Licensee of such SAIC Patent Rights, SAIC shall have the exclusive ability to license the SAIC Patent Rights outside Licensee’s particular field of use.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual promises made herein and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:

1.

DEFINITIONS .

1.1

“ Affiliate ” shall mean any company that ultimately controls, is controlled by, or is under common control with, whether directly or indirectly, a Party.

1.2

“ Agreement ” shall have the meaning set forth in the preamble of this Agreement.

1.3

“ Agreement Year ” shall have the meaning set forth in Section 7.2 of this Agreement.

1.4

“ Assignment ” shall have the meaning set forth in Section 4.1.

1.5

“ Assignment Trigger Event ” shall mean the first date on which Licensee has complied with the following:  (i) closed a Qualified Financing with proceeds to Licensee in immediately available funds equal to or greater than seven million dollars ($7,000,000) when aggregated with all prior Qualified Financings; (ii) Licensee has provided to SAIC its current thirty six (36) month business and financial plan, detailing the proposed sale and development of products using the SAIC Patent Rights with Licensee’s Board of Directors certifying in writing that the plan will be commercially reasonable and will maximize Licensee’s payments of royalties to SAIC as set out in Section 7 of this agreement,; (iii) SAIC, in writing, approves of the business and financial plan, which shall not be unreasonably withheld or delayed; provided that if SAIC has not disapproved of such business and financial plan within twenty (20) business days after delivery thereof, such business and financial plan shall be deemed approved by SAIC; and (iv) Licensee’s Board certifies, and SAIC in its sole commercially reasonable discretion agrees in writing, that Licensee either has three (3) years sufficient working capital or firm commitments in writing for such capital, as determined in accordance with GAAP, on such date to meet Licensee’s obligations as they become due as set forth in Licensee’s business and financial plan for the succeeding thirty six (36) month period.  For sake of clarity and not by way of limitation, the parties agree that SAIC’s approval or disapproval of the business plan and determination of working capital shall not be used by Licensee as proof, evidence, confirmation or even information to be provided to any third party, including without limitation shareholders, investors, licensees and potential shareholders, investors or licensees, that Licensee’s business plan is likely to succeed or result in any financial remuneration to Licensee or that Licensee will have future viability as a corporation.

1.6

“ Audited Financial Statements ” shall mean the audited balance sheet of Licensee and the related statements of income, changes in stockholders’ equity and cash flows, prepared in accordance with GAAP as of the last date of Licensee’s fiscal year, together with the notes thereto and an audit report of independent public accountants.

1.7

“ Available For Beta Test ” shall mean the earlier of (i) testing by a potential commercial customer of any product or product prototype, not yet released to the general target customer base, which product or product prototype would otherwise infringe or contribute to the infringement of any SAIC Patent Rights or SAIC Improvements or Licensee Improvements thereto; (ii) sale, license or any other payment by a third party for a product or service which would otherwise infringe or contribute to the infringement of any SAIC Patent Rights or SAIC Improvements or Licensee Improvements thereto; (iii) when a product or service is available for third parties to test which contains any of the functionality of the products or services specified in the Statement of Work; or (iv) twelve (12) months from the date Licensee accepts delivery of the Statement of Work, which approval shall not be unreasonably withheld or delayed.

1.8

“ Damages ” shall have the meaning set forth in Section 10.1 of this Agreement.

1.9

“ Effective Date ” shall have the meaning set forth in the preamble of this Agreement.

1.10

“ Exchange Act ” shall have the meaning set forth in Section 7.5 of this Agreement.

1.11

“ Field of Use ” shall mean the field of secure communications in the following areas:  Virtual Private Networks (VPN); Secure Voice Over Internet Protocol (VoIP); Electronic Mail (E-mail); Video Conferencing; Communications Logging; Dynamic Uniform Resource Locators (URLs); Denial of Service; Prevention of Functional Intrusions; IP Hopping; Voice Messaging and Unified Messaging; Live Voice and IP PBX’s; Voice Web Video Conferencing and Collaboration; Instant Messaging (IM); Minimized Impact of Viruses; and Secure Session Initiation Protocol (SIP).  The Field of Use is not limited by any predefined transport mode or medium of communication ( e.g. , wire, fiber, wireless, or mixed medium).

1.12

“ Force Majeure Occurrences ” shall have the meaning set forth in Section 16.4 of this Agreement.

1.13

“ GAAP ” means the then current generally accepted accounting principles for financial reporting in the United States.

1.14

“ License ” shall mean the license rights granted in Section 2.1 below, subject to the terms and conditions of this Agreement.

1.15

“ License Trigger Event ” means the first to occur of the following:  (i) the expiration or termination of this Agreement; (ii) the insolvency or bankruptcy of Licensee; (iii) a material breach by Licensee of any of the provisions of this Agreement that has not been cured within thirty (30) days after Licensee’s receipt of written notice of such failure; (iv) the failure of Licensee to make any required payment of Minimum Royalties hereunder that has not been cured within thirty (30) days after Licensee’s receipt of written notice of such failure; (v) the exercise by SAIC of its Security Interest hereunder; or (vi) the conversion of the License to a non-exclusive license under Section 2.2.

1.16

“ Licensed Product ” means any product, the manufacture, use, sale offer for sale, lease or import of which would infringe or contribute to the infringement of any SAIC Patent Rights or any product manufactured using a process which would infringe the SAIC Patent Rights.

1.17

“ Licensee ” shall have the meaning set forth in the preamble of this Agreement.

1.18

“ Licensee Improvements ” shall have the meaning set forth in Section 3.2 of this Agreement.

1.19

“ Licensee Indemnified Party ” shall have the meaning set forth in Section 10.2 of this Agreement.

1.20

“ Maximum Amount ” shall have the meaning set forth in Section 7.3 of this Agreement.

1.21

“ Minimum Royalty ” shall have the meaning set forth in Section 7.2 of this Agreement.

1.22

“ Non-Disclosure Agreement ” means that certain form of agreement attached hereto as Exhibit B, to be effective pursuant to the terms of Section 8.

1.23

“ Parties ” shall have the meaning set forth in the preamble of this Agreement.

1.24

“ Party ” shall have the meaning set forth in the preamble of this Agreement.

1.25

“ Professional Services Agreement ” means that certain form of agreement attached hereto as Exhibit C, entered into by the parties and dated August 12, 2005.

1.26

“ Project Completion ” means the date of completion of a product by Licensee in the Field of Use that is Available For Beta Test.

1.27

“ Qualified Financing(s) ” means the sale of equity securities by Licensee to one or more “accredited investors” within the meaning of Securities and Exchange Commission Rule 501 of Regulation D, as presently in effect, in each case, on or prior to the first anniversary of Project Completion.

1.28

“ Quarterly Financial Statements ” shall mean the Licensee’s balance sheet and the related statements of income, changes in stockholders’ equity and cash flows, as of each quarter during the Term hereof beginning on Project Completion, which Licensee’s chief executive officer and chief financial officer shall certify have been prepared in accordance with GAAP.

1.29

“ Reseller Agreement ” means that certain form of agreement attached hereto as Exhibit D, to be effective pursuant to the terms of Section 15.

1.30

“ Revenues ” shall mean all gross revenues of Licensee less (a) trade, quantity and cash discounts allowed, (b) commercially reasonable commissions, discounts, refunds, rebates, chargebacks, retroactive price adjustments, and other allowances which effectively reduce the net selling price, and which are based on arms length terms and are customary and standard in Licensee’s industry, and (c) actual product returns and allowances.

1.31

“ Reversion ” shall have the meaning set forth in Section 5.1 of this Agreement.

1.32

“ Reversion Trigger Event ” shall mean the first to occur of the following:  (i) the date that is five (5) years after Project Completion, if Licensee pays to SAIC an aggregate cumulative amount hereunder of less than seven million five hundred thousand dollars ($7,500,000); (ii) any failure by Licensee to pay the Minimum Royalty that has not been cured within ninety (90) days after Licensee’s receipt of written notice of such failure; (iii) for the period prior to the date of Licensee’s full payment of the Maximum Amount, any breach by Licensee of SAIC’s grant back license that has not been cured within thirty (30) days after Licensee’s receipt of written notice of such failure; or (iv) for the period prior to the date of Licensee’s full payment of the Maximum Amount, any termination of this Agreement.

1.33

“ SAIC ” shall have the meaning set forth in the preamble of this Agreement.

1.34

“ SAIC Improvements ” shall have the meaning set forth in Section 3.1 of this Agreement.

1.35

“ SAIC Indemnified Party ” shall have the meaning set forth in Section 10.1 of this Agreement.

1.36

“ SAIC’s Knowledge ” shall have the meaning of the actual knowledge of Edmund C. Munger, Robert Short, Victor J. Larson, Michael Lachuk or Pamela Bumann.

1.37

“ SAIC Patent Rights ” shall have the meaning set in the Recitals of this Agreement.

1.38

“ Security Agreement(s) ” means the certain form of agreement(s) attached hereto as Exhibit E, to be effective pursuant to the terms of Section 7.7.

1.39

“ Security Interest ” means that certain security interest contemplated by Section 7.7.

1.40

“ Source Code Escrow Agreement ” means that certain form of agreement, which shall be attached hereto as Exhibit F and which must be mutually agreed to as a condition precedent to SAIC being required to perform under the Professional Services Agreement.

1.41

“ Statement of Work ” means the statement of work prepared as a deliverable by SAIC as set out in Task No. 4 in Phase I of Exhibit A in the Professional Services Agreement which shall specify material functionality of a product or service which would, except pursuant to this Agreement, otherwise be anticipated to infringe or contribute to the infringement of any SAIC Patent Rights or SAIC Improvements or Licensee Improvements thereto.

1.42

“ Subsidiary ” means a majority owned subsidiary of Licensee whose financial statements are consolidated into Licensee’s financial statements.

1.43

“ Term ” shall have the meaning set forth in Section 12.1 of this Agreement.

1.44

“ U.S. Export Control Laws ” shall have the meaning set forth in Section 16.3 of this Agreement.

2.

LICENSE GRANT; OWNERSHIP; PROJECT COMPLETION .

2.1

License of SAIC Patent Rights to Licensee .  Subject to the terms and conditions hereof, including without limitation the Security Interest set out in Section 7.7 and the encumbrances set out in Section 14 of this Agreement, SAIC hereby grants to Licensee the sole and exclusive, worldwide right and license to the SAIC Patent Rights, solely for use within the Field of Use, to (i) make, have made, import, use, offer for sale, and sell products and services covered by a valid claim under the SAIC Patent Rights, and (ii) make improvements to the SAIC Patent Rights and make, have made, import, use, offer for sale, and sell products and services covered by a valid claim under such improvements to the SAIC Patent Rights (provided that the grant of such right to make improvements is subject, in each instance, to Licensee granting SAIC a license to such improvements as set forth in Section 3.2 below).  The term “valid claim” means a claim of an issued patent, which claim has not been declared invalid by a court of competent jurisdiction.  The License is not assignable (other than to a Subsidiary of Licensee as set out in Section 16.7 of this Agreement) without the prior written consent of SAIC which shall not be unreasonably withheld or delayed, which consent shall be contingent upon Licensee and the potential assignee providing SAIC with all commercially reasonable information necessary for SAIC to make a fully informed consent.  Any such assignment without SAIC’s prior written consent shall be null and void.  The License is sublicensable pursuant to the terms of Section 14.2 below.  Licensee agrees to maintain the quality and performance of any products or services which are covered by a valid claim under the SAIC Patent Rights or improvements thereto, including without limitation SAIC Improvements or Licensee Improvements, at a level that meets or exceeds standards of quality and performance generally accepted in the industry.

2.2

Conversion to Non-Exclusive License .  The License grant set out in Section 2.1 shall automatically become non-exclusive, if Licensee has not paid SAIC, within thirty six (36) months after Project Completion, a cumulative amount under this Agreement equal to at least two million dollars ($2,000,000).

2.3

Reserved Rights .  Except as set out in Section 2.1 and Section 4.1, the Parties hereby agree SAIC will have sole and exclusive ownership of all right, title and interest, (including without limitation worldwide intellectual property rights such as rights under patents, patent applications, trade secret laws, and copyright laws) in the SAIC Patent Rights.  SAIC reserves all other rights to the SAIC Patent Rights that are not licensed to Licensee.

2.4

Project Completion .  Licensee shall provide written notice of the date which it has in good faith determined to be the date of Project Completion, and sufficient information for SAIC to evaluate the accuracy of the date.  Licensee agrees to commercially reasonably cooperate with SAIC to answer questions and provide additional information for SAIC to verify the accuracy of the date.  SAIC shall provide written notice of its approval or disapproval of the proposed date, which shall not be unreasonably withheld or delayed.  In the event of a dispute with respect to the proposed date of Project Completion, the two parties shall hold a meeting within thirty (30) days of receipt of written notice of the dispute whereby the Chief Executive Officer of Licensee and the Senior Vice President for Mergers and Acquisitions Technology Commercialization for SAIC shall meet to resolve the dispute.  In the event the parties have not resolved the dispute within ten (10) business days, or mutually agreed in writing to extend the time to resolve the dispute, then the dispute shall be resolved as set out in Section 13 of this Agreement (Disputes).

3.

IMPROVEMENTS .

3.1

By SAIC (Within the Field of Use) .  If within thirty (30) months after the Effective Date, SAIC files a patent application or obtains the issuance of any patents that come within the scope of the SAIC Patent Rights claims licensed or assigned as set out in this Agreement, and where any of the named inventors on such patents is either (i) named as an inventor on any of the SAIC Patent Rights; or (ii) is a material contributor towards completion of the Professional Services Agreement (“SAIC Improvements”), SAIC hereby grants and agrees to grant to Licensee, only under the claims in the new patent applications or patents which fall within the scope of the SAIC Patent Rights claims, the sole and exclusive, worldwide right and license solely in the Field of Use to make, have made, import, use, offer for sale and sell products and services under such claims and make improvements under such claims and to sublicense subject to the limitations set out in Section 14.2.  The license grant set out in this Section 3.1 shall automatically become non-exclusive if Licensee has not paid SAIC, within thirty six (36) months of Project Completion, a cumulative amount under this Agreement equal to at least two million dollars ($2,000,000).  This license grant is subject to the terms and conditions of this Agreement, including without limitation Licensee’s obligations to pay the amounts set out in Section 7 and SAIC’s ability to terminate the license set out in Section 12.  Licensee shall have no rights to any SAIC Improvements, modifications or enhancements to the SAIC Patent Rights or to any other additional SAIC intellectual property other than as specifically set forth in this Section 3.1.

3.2

By Licensee .  During the Term of this Agreement and thereafter, during the license grant period set out in Section 2, during the assignment period set out in Section 4 and during the time period when any of the SAIC Patent Rights are in effect, if Licensee (or any of its sublicensees) files a patent application or obtains the issuance of any patents that come within the scope of the SAIC Patent Rights claims licensed or assigned to Licensee as set out in this Agreement (collectively the “Licensee Improvements”):

3.2.1

Outside of the Field of Use :  Licensee (or its sublicensees) hereby grants and agrees to grant to SAIC, only under the claims in the new patent applications or patents which fall within the scope of the SAIC Patent Rights claims, an unlimited, non-exclusive, royalty free, fully paid, perpetual, irrevocable, worldwide, sublicensable and transferable license in all fields outside of the Field of Use to make, have made, import, use, offer for sale, and sell products and services under such claims, and to make improvements under such claims; and

3.2.2

Within the Field of Use :  Upon the first occurrence of a License Trigger Event, Licensee (or its sublicensees) hereby grants and agrees to grant to SAIC, only under the claims in the new patent applications or patents which fall within the scope of the SAIC Patent Rights claims, an unlimited, non-exclusive, royalty free, fully paid, perpetual, worldwide, irrevocable, sublicensable and transferable license in the Field of Use to make, have made, import, use, offer for sale, and sell products and services under such claims, and to make improvements under such claims.

3.2.3

For sake of clarity and not by way of limitation, the provisions of this Section 3.2 shall survive the Assignment and expiration or termination of this Agreement.

3.3

Records .  Licensee will keep complete and accurate records of its research and development performed in connection with the SAIC Patent Rights.  During the Term of this Agreement and for two (2) years thereafter, Licensee will make such records available to SAIC at Licensee’s premises at a mutually convenient time no more frequently than two times in any calendar year upon SAIC’s reasonable request, subject to the confidentiality provisions in Section 8 hereof.

4.

ASSIGNMENT .

4.1

Grant .  If the date of the Assignment Trigger Event occurs within twelve (12) months after Project Completion, then, effective as of the date of the Assignment Trigger Event and subject to and contingent upon the grant back license to SAIC as set out in Section 4.2 of this Agreement and the Reversion as set out in Section 5 of this Agreement, SAIC hereby agrees to unconditionally and irrevocably convey, transfer, assign and quitclaim to Licensee all of its right, title and interest in and to the SAIC Patent Rights (the “Assignment”).  For sake of clarity and not by way of limitation, SAIC will be under no obligation to assign the SAIC Patent Rights to Licensee if the date of the Assignment Trigger Event occurs later than the date which is twelve (12) months after Project Completion.  SAIC agrees to execute and deliver, at Licensee’s sole expense, such further instruments of conveyance, transfer, assignment and quitclaim as Licensee may reasonably request that are reasonably necessary for the purpose of further evidencing Licensee’s ownership of the assigned SAIC Patent Rights.  Subject to the limitations set forth in Section 16.7, SAIC hereby constitutes and appoints Licensee as SAIC’s agent to execute and deliver any such assignments and other documents, solely for the purposes of consummating the Assignment set out in this Section 4.1, that SAIC unreasonably fails or refuses to execute and deliver after receipt of written notice of Licensee’s commercially reasonable request provided pursuant to Section 16.1, the Parties hereto agreeing this power and agency being irrevocable and coupled with an interest.  Licensee agrees to assume, as of the date of the Assignment Trigger Event, all responsibility and bear all costs and logistics associated with further evidencing, enforcing, registering or defending Licensee’s ownership of the SAIC Patent Rights.

4.2

Grant Back License .  Effective as of the date of the Assignment Trigger Event, Licensee agrees to grant, and hereby grants, to SAIC an exclusive, royalty free, fully paid, perpetual, worldwide, irrevocable, sublicensable and transferable right and license under the SAIC Patent Rights permitting SAIC and its assignees to make, have made, import, use, offer for sale, and sell products and services covered by, and to make improvements to, the SAIC Patent Rights outside the Field of Use.

5.

REVERSION TO SAIC .

5.1

Grant .  Effective as of the date of the Reversion Trigger Event, Licensee hereby agrees to unconditionally and irrevocably convey, transfer, assign and quitclaim to SAIC all of its right, title and interest in and to the SAIC Patent Rights (the “Reversion”).  Licensee agrees to execute and deliver without additional consideration, at Licensee’s sole expense, such further instruments of conveyance, transfer, assignment and quitclaim as SAIC may reasonably request that are reasonably necessary for the purpose of further evidencing SAIC’s ownership of the assigned SAIC Patent Rights.  Licensee hereby constitutes and appoints SAIC as Licensee’s agent to execute and deliver any such assignments and other documents that Licensee unreasonably fails or refuses to execute and deliver, the Parties hereto agreeing this power and agency being irrevocable and coupled with an interest.

5.2

Reinstatement of License .  If the Reversion occurs due to Licensee’s failure to pay to SAIC an aggregate cumulative amount hereunder of at least seven million five hundred thousand dollars ($7,500,000) within five (5) years after Project Completion, then, effective as of the date of the Reversion Trigger Event, SAIC agrees to grant, and hereby grants to Licensee a license to the SAIC Patent Rights on the terms and conditions of the License originally granted hereunder; however, such license shall be on a non-exclusive basis limited to the Field of Use.  The provisions of Section 4 shall no longer apply to such license.

6.

PATENT FILINGS; MAINTENANCE; ENFORCEMENT .

6.1

Patent Prosecution and Maintenance .  Prior to the date of the Assignment Trigger Event, SAIC shall prosecute and maintain the SAIC Patent Rights by timely prosecuting the patent applications and paying all fees and costs required by 35 United States Code 41(b) and similar regulations.  Post the date of the Assignment Trigger Event, Licensee shall prosecute and maintain the SAIC Patent Rights by timely prosecuting the patent applications and paying all fees and costs required by 35 United States Code 41(b) and similar regulations.

6.2

Patent Markings .  Each Party shall comply with all applicable United States and foreign statutes relating to the marking of licensed products, services and related packaging with patent number(s) or other intellectual property notices and legends required to maintain the intellectual property rights licensed in this Agreement.

6.3

Infringement; Enforcement .

6.3.1

General .  Each Party shall promptly notify the other Party in writing of any alleged or threatened infringement of any of the SAIC Patent Rights of which they become aware.  The Parties shall use their best efforts in cooperating with each other to terminate such infringement without litigation.  In the event a Party brings an infringement action in accordance with this Section 6.3, the other Party shall cooperate fully, including if required to bring such action, the furnishing of a power of attorney.  Neither Party shall have the right to settle any patent infringement litigation under this Section 6.3 in a manner that diminishes the rights or interests of the other Party without the prior written consent of the other Party.

6.3.2

SAIC Enforcement .  During the following time periods:  (i) prior to the date of the Assignment Trigger Event; (ii) after the Assignment Trigger Event date if the infringement or enforcement is outside the Field of Use; (iii) post the date of the Reversion Trigger Event; and (iv) as long as Licensee has a License to the SAIC Patent Rights, SAIC shall have the first right to bring and control any action or proceeding with respect to infringement or enforcement of the SAIC Patent Rights in the Field of Use at its own expense and by counsel of its own choice, and SAIC shall have the sole right to bring and control any action or proceeding with respect to infringement or enforcement of the SAIC Patent Rights outside the Field of Use, at its own expense and by counsel of its own choice.  If the infringement or enforcement of the SAIC Patent Rights is in the Field of Use, Licensee shall have the right to participate in such action, at its own expense and by counsel of its own choice.  If SAIC fails to either terminate such infringement, enter into a reasonable license agreement to terminate such infringement subject to Licensee’s rights under this Agreement, or bring an action or proceeding with respect to infringement or enforcement of the SAIC Patent Rights in the Field of Use within (i) one-hundred and twenty (120) days following the notice of alleged infringement, or (ii) ten (10) business days before the time limit, if any, set forth in the appropriate laws and regulations for the filing of such actions, whichever comes first, Licensee shall have the right to bring and control any such action, at its own expense and by counsel of its own choice, and SAIC shall have the right to be represented in any such action, at its own expense and by counsel of its own choice.

6.3.3

Licensee Enforcement .  After the date of the Assignment Trigger Event if the infringement or enforcement is in the Field of Use, Licensee shall have the first right to bring and control any action or proceeding with respect to infringement or enforcement of the SAIC Patent Rights in the Field of Use, at its own expense and by counsel of its own choice.  SAIC shall have the right to participate in such action, at its own expense and by counsel of its own choice.  If Licensee fails to either terminate such infringement, enter into a reasonable license agreement to terminate such infringement subject to SAIC’s rights under this Agreement, or bring an action or proceeding with respect to infringement or enforcement of the SAIC Patent Rights in the Field of Use within (a) one-hundred and twenty (120) days following the notice of alleged infringement, or (b) ten (10) business days before the time limit, if any, set forth in the appropriate laws and regulations for the filing of such actions, whichever comes first, SAIC shall have the right to bring and control any such action, at its own expense and by counsel of its own choice, and Licensee shall have the right to be represented in any such action, at its own expense and by counsel of its own choice.  For sake of clarity and not by way of limitation, if the SAIC Patent Rights revert to SAIC under Section 5 or pursuant to the Security Agreement, the terms of this Section 6.3.3 shall no longer apply.  Licensee agrees that it shall pay SAIC its standard labor rates, costs and other expenses as necessary for SAIC’s non-attorney staff to support Licensee’s enforcement of the SAIC Patent Rights under this Section 6.3.3 or to respond to discovery served upon SAIC by a defendant in any enforcement action brought by Licensee.

6.3.4

Recovery .  Except as otherwise agreed to by the Parties in a written agreement, any recovery realized as a result of any action or proceeding brought by SAIC or Licensee pursuant to this Section 6, after reimbursement of any expenses of SAIC and Licensee, shall be divided in the following ratio:  seventy five percent (75%) to the Party who brings the action or proceeding and twenty five percent (25%) to the other Party.

7.

CONSIDERATION; PAYMENT TERMS; REPORTS; AUDIT; SECURITY INTEREST .

7.1

Royalty .  In consideration of the rights granted hereunder, including without limitation the License set out in Section 2, the Assignment set out in Section 4 and the license grant post reversion set out in Section 5 of this Agreement, Licensee agrees to pay to SAIC royalties in the amount of fifteen percent (15%) of Revenues up to the Maximum Amount.

7.2

Minimum Royalty .  Subject to Section 7.3 below, Licensee will pay to SAIC a minimum guaranteed annual royalty of fifty thousand dollars ($50,000) (the “Minimum Royalty”) due and payable on each anniversary of Project Completion (the “Agreement Year”).  If during the Term of this Agreement the total amount paid to SAIC under Section 7.1 during any Agreement Year is less than the Minimum Royalty, Licensee will pay the difference within thirty (30) days after the end of the applicable Agreement Year.  For the avoidance of doubt, but not by way of limitation:  (i) in the event the Minimum Royalty is not paid in full on a timely basis, this Agreement will terminate pursuant to Section 12.2 and all rights hereunder to the SAIC Patent Rights and Licensee Improvements will revert to SAIC; (ii) Licensee’s exclusive license to the SAIC Patent Rights and SAIC Improvements will terminate and SAIC will be under no obligation to assign SAIC Patent Rights if the Agreement is terminated due to Licensee’s material breach of this Section 7.2 prior to assignment of SAIC’s Patent Rights as set out in Section 4 of this Agreement; and (iii) Licensee shall assign the SAIC Patent Rights and Licensee Improvements to SAIC if this Agreement is terminated due to Licensee’s material breach of this Section 7.2 post assignment of SAIC’s Patent Rights as set out in Section 4 of this Agreement.

7.3

Maximum Amount .  The maximum amount of all payments under Sections 7.1 and 7.2 shall be thirty five million dollars ($35,000,000) less any amounts received by SAIC from Licensee paying SAIC twenty five percent (25%) of any recovery realized as a result of any action or proceeding brought by Licensee against a third party to resolve a claim of infringement or enforcement pursuant to Section 6.3.4 of this Agreement (but not, for sake of clarity, payments by Licensee for SAIC’s costs, expenses, labor or time and materials or payments pursuant to Section 6.3.3) (the “Maximum Amount”).  Upon payment of this Maximum Amount by the Licensee to the SAIC, no additional Royalties shall be due to SAIC, and all of the Licensee’s Royalty obligations shall be deemed to be satisfied.  For sake of clarity and not by way of limitation, even if Licensee has paid the Maximum Amount, SAIC shall continue to receive its percentage of any recovery realized as a result of any action or proceeding brought against a third party as set out in Section 6.

7.4

Payment Terms .  Payments as set out in Section 7 will be calculated based on each quarter during the Term hereof beginning on Project Completion.  All such payments due to SAIC under this Agreement shall be paid within thirty (30) days following the end of each such quarter.  Late payments bear interest at the rate of six percent (6%) per annum.

7.5

Reports .  During the Term hereof beginning on Project Completion, within thirty (30) days after the end of each first, second and third fiscal quarter of Licensee and within sixty (60) days after the end of the fourth fiscal quarter of Licensee, Licensee shall provide to SAIC a Quarterly