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Royalty Agreement

Royalty Agreement

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 This Royalty Agreement involves

ADVANCED PHOTONIX INC | Advanced Photonix, Inc | Picometrix, LLC

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Governing Law: Virginia     Date: 2/14/2011
Industry: Semiconductors     Sector: Technology

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Exhibit 10.4



THIS ROYALTY AGREEMENT ( “Agreement” ) is among Picometrix, LLC, a Delaware limited liability company ( “Company” ), Advanced Photonix, Inc., a Delaware corporation (“ API ”), and In-Q-Tel, Inc., a Delaware corporation ( “IQT” ), and is dated as of November 12, 2010 (the “ Effective Date ”).  Company, API and IQT are referred to as the “ Parties .”




WHEREAS, Company, API and IQT executed that certain Development Agreement (Sub Contract No. API/Picometrix 01, dated as of the date hereof ( “Development Agreement” );


WHEREAS, pursuant to the Statement of Work ( “SOW” ) attached to the Development Agreement, Company will develop and deliver certain deliverables ( “Deliverables” );


WHEREAS, API, Company and IQT agree that API and Company will pay IQT royalties as specified in this Agreement;


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


1.             Royalty Products and Royalty Payments



Royalty Product means a hand-held terahertz sensing device (and any related non-hand-held items) developed by API, or a sensing device (e.g. a security portal)   using terahertz technology developed by API under the Development Agreement (but without the requirement that it be hand-held), that, in either case, is intended to be used for examining personnel by using far-infrared light pulses and analyzing the resulting time domain signature to determine if an object is located in an area where normally such an object would not be expected.  It is anticipated that this sensor for examining personnel would be used by homeland security, military, law enforcement, commercial, governmental, and industrial users at (including but not limited to) airports, borders, ports of entry, buildings, monuments, arenas, stadiums, and factories.



Royalty Payments .  API and Company agree that from and after the date that IQT approves the Specification Signoff deliverable under the Development Agreement, they will pay royalties to IQT as follows.







In General .   API and Company shall be jointly and severally liable for paying IQT royalties as follows until the earlier of November 12, 2021 or the date IQT has received aggregate royalty payments hereunder of $5 million.  Except as provided in Section 1(b)(ii) below, the royalty shall be (i) 3% of the gross revenues (excluding (A) normal and customary trade and quantity discounts actually allowed, (B) amounts repaid or credited by reasons of defects, recalls, returns, rebates, retroactive price reductions and allowances of goods or bad debts, (C) chargeback’s, rebates (or the equivalent thereof) and other amounts paid in respect of a Royalty Product, (D) tariffs, duties, excise, sales, value-added and other taxes (other than taxes based on income) and charges of any governmental authority, and (E) any discounts for timely payment) of API, the Company and their respective Affiliates (each a “ Selling Person ”) from (a) the sale or lease of Royalty Products (other than direct sales/leases to the U.S. Government), (b) maintenance service contracts for Royalty Products (other than maintenance service contracts directly with the U.S. Government), and (c) licensing or other grant of rights associated with the Royalty Products (other than directly to the U.S. Government) from the date that IQT approves the Specification Signoff deliverable under the Development Agreement through November 12, 2016, (ii) 2.8% of such revenues for the period November 12, 2016 through November 12, 2017, (iii) 2.6% of such revenues for the period November 12, 2017 through November 12, 2018, (iv) 2.4% of such revenues for the period November 12, 2018 through November 12, 2019, (v) 2.2% of such revenues for the period November 12, 2019 through November 12, 2020, and (vi) 2.0% of such revenues for the period November 12, 2020 through November 12, 2021.  For purposes of the foregoing, (I) gross revenues from the sale or lease of Royalty Products shall not include revenues from one-off repair and maintenance of Royalty Products, including revenues from acquisition of software updates on a one-off basis; (II) revenues from the sale or lease of a Royalty Product (or from any other activity set forth in clauses (b) and (c) above) by a Selling Person to any other Selling Person shall not be included in gross revenues; and (III) in the case of Royalty Products containing one or more sensor technologies in addition to terahertz technology (a “ Combination Product ”), gross revenue shall be calculated by multiplying actual gross revenues of the Combination Product by the fraction A/C where A is the list price of the comparable Royalty Product containing only terahertz technology, if sold separately, or otherwise A is the fair market value of a comparable Royalty Product containing only terahertz technology, and C is the invoice price of the Combination Product.



Commencement of Royalty Period for Revenues Funded by TSA’s Transit Security Grant Program .   Gross revenues received under by TSA’s Transit Security Grant Program shall not be subject to payment of royalties under Section 1(b) (i) above except to the extent earned more than 30 months after the inclusion of a Royalty Product   on TSA’s Authorized Equipment List.







Making of Payments .   Payments to IQT of the royalties specified in Sections 1(a) (i) and 1(a) (ii) above shall be made on a quarterly basis within 60 days after each quarter.  Payments shall be accompanied by a true and correct statement setting forth in detail the calculation of such royalties, breaking out separately revenues from sales, leases, maintenance service contracts and licensing or other grant of rights; showing any exclusion pursuant to Section 1(b) (ii) above; specifically indicating the quantities of each Royalty Product sold or leased during the relevant quarter; and including such other informat

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