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STRATEGIC ALLIANCE AGREEMENT

Strategic Alliance Agreement

STRATEGIC ALLIANCE AGREEMENT | Document Parties: E-SMART TECHNOLOGIES INC You are currently viewing:
This Strategic Alliance Agreement involves

E-SMART TECHNOLOGIES INC

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Title: STRATEGIC ALLIANCE AGREEMENT
Date: 8/4/2005

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Exhibit 10 ( r )

 

STRATEGIC ALLIANCE AGREEMENT

 

This Strategic Alliance Agreement (“Agreement”) is made by and between e-Smart Korea, Inc., a corporation organized under the laws of the Republic of Korea (“e-Smart”) having an office located at Songchon B/D, 9F, 642-9 Yeoksam-dong, Gangnam-gu, Seoul, Republic of Korea (“Korea”), and MYBi, Inc., a corporation organized under the laws of the Republic of Korea (“MYBi”) having an office located at Wooshin Building, 12F, 830-266 Bumil-Dong, Dong-gu, Busan-City, Korea, as of July 25, 2005 (the “Effective Date”). Each of e-Smart and MYBi may be referred to herein individually as a “Party” and collectively as the “Parties.”

 

RECITALS

 

A. WHEREAS, e-Smart’s Affiliates have developed a proprietary biometric authentication system to be used in connection with “smart card” transactions, and has developed its own payment processing system related thereto;

 

B. WHEREAS, MYBi has developed certain proprietary technology to facilitate automated fare collection and other pre-paid micro-payments, and has entered into agreements with certain entities in Busan and other locations in Korea for the use of such technology; and

 

C. WHEREAS, each of e-Smart and MYBi desire to form a strategic alliance pursuant to the terms and subject to the conditions of this Agreement.

 

AGREEMENT

 

In consideration of the foregoing, and for good and valuable consideration, the receipt of which is hereby acknowledged, e-Smart and MYBI hereby agree as follows:

 

1. Definitions

 

Capitalized terms not defined herein shall have the definitions ascribed to them in the attached Appendix A, incorporated herein by reference.

 

2. Intent and Purpose of Alliance

 

This Agreement contemplates certain joint activities that are designed to facilitate the development, adoption, and use of certain automated fare collection, micro-payment and macro-payment systems in Korea and elsewhere around the world. Among other things, these activities would marry e-Smart’s proprietary biometric smartcard system with MYBi’s proprietary automated fare collection and micro-payment system. In addition, the Parties intend to promote e-Smart’s payments processing system and usage of e-Smart’s bank identification number (“BIN”) on the SSCs. Pursuant to the foregoing, it is the intent of the Parties to undertake the development, integration, and promotional projects as discussed in this Agreement with a contemplated investment by e-Smart of an aggregate amount in excess of US$150 million subject to its sole and complete satisfaction with all aspects of the transactions as contemplated herein as they progress including the ongoing cooperation of all parties concerned.


3. e-Smart Obligations

 

3.1 Supply of Terminals . Pursuant to the terms and subject to the conditions of this Agreement, e-Smart shall supply to area merchants in combination an aggregate of up to (a designated number of) terminals and other ISO 7816-compatible types of terminals (collectively, the “Terminals”) necessary to facilitate the intent of the Parties as provided in Section 2 of this Agreement, for deployment and use in the MYBi AFC Operating Areas.

 

3.1.1 Terminal Deployment and Marketing . The Parties will reasonably cooperate on the deployment and marketing of the Terminals; provided that if the Parties disagree as to any specific issue in the deployment and marketing of the Terminals, e-Smart’s determination shall prevail in each case, subject to its obligation to supply Terminals as provided in Section 3.1.

 

3.1.2 Supply of Additional Terminals . In its sole determination, e-Smart may, but is not obligated to, supply Terminals in quantities exceeding the quantity specified in Section 3.1.

 

3.2 Supply of SSCs. Pursuant to the terms and subject to the conditions of this Agreement, e-Smart shall supply to Bank of Busan and other designated issuers a quantity of SSCs sufficient to satisfy consumer demand within the MYBi AFC Operating Areas and maintain a twenty (20) day supply of SSCs based on e-Smart’s sole opinion as guided by the then current Quarterly SSC Forecast (as defined below) and any forecast available from Busan Bank and/or any other issuing bank.

 

3.2.1 Quarterly SSC Forecast . MYBi, no later than thirty (30) days prior to the expiration of each calendar quarter, shall provide e-Smart with a good faith estimate of the number of SSCs needed for the next calendar quarter pursuant to Section 3.2 of this Agreement (each such notice referred to herein as a “Quarterly SSC Forecast”). MYBi will provide its first Quarterly SSC Forecast as soon as practicable after the Effective Date.

 

3.2.2 Quantity Limitation . Notwithstanding anything to the contrary contained in this Agreement, the quantity of SSCs to be supplied by e-Smart pursuant to Section 3.2 shall be (a designated number of ) units per month for a period of five (5) years commencing on the Effective Date, without e-Smart’s prior written consent, which consent may be withheld in e-Smart’s sole discretion.

 

3.3 Stock Purchase . e-Smart shall as soon as practicable purchase, or cause the purchase through an e-Smart Affiliate, of 15% of MYBi’s issued and outstanding stock held by certain of its existing shareholders on terms and conditions acceptable to e-Smart and at a purchase price of (a designated number of ) Won per share.

 

3.4 Subscription of Senior Convertible Debenture with Warrant . e-Smart agrees that it shall as soon as practicable purchase from MYBi a senior convertible debenture with warrant


(the “Debenture”) on terms and conditions acceptable to e-Smart, which funds shall be used by MYBi to upgrade its existing system and as additional working capital. The conversion price of the Debenture shall be priced so as to enable e-Smart to purchase a percentage of MYBi’s issued and outstanding equity of not less than 10.1 percent on a fully diluted basis at a price per share no greater than the price per share e-Smart pays to existing shareholders pursuant to the transaction envisaged in Section 3.3 above and for a total investment for Section 3.3 and 3.4 not exceeding (a designated number) . In addition, the Debenture shall (i) provide e-Smart with at least (1) permanent seat on MYBi’s board of directors and that MYBi hire a manager assigned by e-Smart as a full time employee for harmonious coordination; (ii) provide e-Smart with specified veto rights with respect to major decisions; and (iii) contain customary assurances with respect to management and business plan as well as customary covenants and negative covenants.

 

3.5 Operations Center . Pursuant to the terms and subject to the conditions of this Agreement, e-Smart shall create, operate, and service as soon as reasonably practicable an Operations Center in Korea necessary to process any type of non-cash payment and all other functions it deems necessary or desirable as enabled by the SSC other than Automated Fare Collections and other traditional MYBi e-purse transactions.

 

4. MYBi Obligations

 

4.1 SSC Promotion and Issuance . Pursuant to the terms and subject to the conditions of this Agreement, MYBi and e-Smart shall jointly use commercially reasonable efforts to cause and assist Busan Bank and/or other mutually-agreed upon institutions to issue SSCs, using e-Smart’s BIN, for use in Korea, and use e-Smart’s payment processing system. Throughout the Term (defined below), MYBi and e-Smart shall jointly use commercially reasonable efforts to actively promote and market e-Smart’s Terminals and SSCs and MYBi’s pre-payment processing system throughout Korea. It is understood and agreed by the Parties that MYBi’s pre-payment (including automated fare collection) system shall be loaded on any and all of e-Smart’s biometric smartcards issued in Korea, without regard to who issues such cards.

 

4.2 Notice of Contracts . Pursuant to the terms and subject to the conditions of this Agreement and incorporated herein by reference, MYBi shall attach as addenda to this Agreement prior to its execution (a) authentic copies of all executed contracts and agreements between or among, as the case may be, MYBi and other parties in the MYBi AFC Operating Areas confirming that MYBi’s payment system is and shall be, for a minimum term of ten (10) years, the exclusive non-cash means to pay for bus, taxi or subway services throughout the City of Busan; and (b) authentic copies of any executed agreements between MYBi and any other city, province, unit or other governmental instrumentality of Korea specifying such entity’s use of MYBi’s non-cash payment systems.

 

4.3 Marketing Assistance . Pursuant to the terms and subject to the conditions of this Agreement, MYBi shall use commercially reasonable efforts to ensure that its sales force assists e-Smart’s merchant sales and marketing team and non-technical servicing team in Korea to fulfill those performance metrics, and subject to those job specifications, set forth by e-Smart and attached hereto as Appendix B and incorporated by reference into this Agreement, as they may be amended by mutual agreement of e-Smart and MYBi from time to time. In furtherance


of this provision, e-Smart and MYBi shall form a full-time marketing team and MYBi shall use commercially reasonable efforts to not issue any MYBi accessory cards in real-name card issuance situations ( i.e. , where payment cards are required to be issued on a real-name basis) such as schools, private educational institutes, corporations, banks, stock markets, insurances, and credit cards, etc.

 

4.4 Roll-Out and Acceleration . Pursuant to the terms and subject to the conditions of this Agreement, after the Effective Date MYBi shall process automated fare collection and other prepaid micro-payments in Korea in a manner consistent with its service level prior to the Effective Date. However, MYBi shall issue and sell accessory cards for automated fare collection purposes only and it shall use commercially reasonable efforts to reduce the quantity of such issuances in order to accelerate SSC deployment.

 

4.5 Governmental Assistance . Upon e-Smart’s request, MYBi shall use commercially reasonable efforts to assist e-Smart in securing and maintaining any and all registrations, permits, licenses, approvals, certificates and other governmental actions required to be secured and maintained by e-Smart for the activities contemplated by this Agreement. Any such registration, permit, license, approval, certificate or other action will be secured and maintained solely in the name of e-Smart.

 

5. License to MYBi Technology

 

5.1 License Grant . Subject to the terms and conditions of this Agreement, MYBi hereby grants to e-Smart an exclusive license to use, during the Term, the MYBi Technology, and any updates, new versions, upgrades or other revisions thereof made by MYBi during the Term and all related Documentation. The license granted in this Section 5.1 may not be transferred by e-Smart to any third party, except to e-Smart’s Affiliates (in which case prior written notice of such transfer shall be made to MYBi and such Affiliate shall agree in writing to be bound by the provisions of this Agreement relating to the MYBi Technology and/or Documentation prior to such transfer). The geographic scope of this license is worldwide except for Korea. e-Smart shall obtain “SAM” for MYBi transactions in Korea only from MYBi and MYBi shall supply same on competitive terms and conditions to e-Smart.

 

5.2 Reservations . MYBi reserves all rights in and to the MYBi Technology and Documentation not expressly granted to e-Smart in Section 5.1. No title to or ownership of the MYBi Technology or any proprietary rights related thereto or Documentation is granted or transferred to e-Smart under this Agreement.

 

5.3 License Royalties. As consideration for the license granted in Section 5.1, e-Smart shall pay the following amounts (plus applicable value added taxes) to MYBi:

 

(a) an annual royalty of (a designated number) due and payable on each anniversary of the Effective Date; and

 

(b) a royalty in an amount equal to (a designated number) the Ex-Korea Automated Fare Collection Net Operating Profits, which shall be due and payable on a biannual basis, on July 31 and January 31 of each year of the Term, for the periods from January 1 through June 30 of that calendar year and from July 1 through December 31 of the previous calendar year, respectively.


5.4 Restrictions . e-Smart shall not, for itself or any of its Affiliates sell, license, assign, or transfer the MYBi Technology or any Documentation; decompile, disassemble, or reverse engineer the MYBi Technology; copy the MYBi Technology or any Documentation (except that e-Smart may make a reasonable number of copies of the MYBi Technology for backup purposes only); or remove from the MYBi Technology or any Documentation any notice of the confidential nature thereof or the proprietary rights of MYBi in such items.

 

5.5 Delivery of MYBi Technology . As soon as practicable after the Effective Date, MYBi shall deliver to e-Smart at least one complete copy of the MYBi Technology and all of the related Documentation, together with all items necessary for e-Smart to use the MYBi Technology pursuant to this Agreement. In addition, MYBi shall, during the Term and for no additional consideration, deliver to e-Smart one copy of any update, new version, upgrade or other revision of the MYBi Technology, along with related Documentation.

 

5.6 Additional Services . MYBi shall provide e-Smart with such installation, support, training for use and training for maintenance services relating to the MYBi Technology as may be reasonably requested by e-Smart from time to time during the Term and MYBi shall provide same to e-Smart without any additional cost or consideration in Korea. If e-Smart requests any such services outside of Korea, the Parties shall discuss and agree on the terms and conditions on which MYBi will provide such additional services on a case-by-case basis.

 

5.7 Ownership of Upgrades made by e-Smart . As between the Parties, e-Smart shall own all right, title, and interest in and to any modifications independently developed by e-Smart to the MYBi Technology (“e-Smart Modifications”). Pursuant to the terms of this Agreement, e-Smart hereby grants to MYBi a non-exclusive, perpetual, worldwide, royalty-free license in and to such e-Smart Modifications.

 

6. Use of Marks

 

6.1 MYBi’s Use of e-Smart’s Marks

 

6.1.1 e-Smart’s Marks . Subject to the terms and conditions of this Agreement, MYBi may display or refer to e-Smart’s proprietary indicia, trademarks, service marks, trade names, logos, symbols, BIN, and/or brand names (collectively “e-Smart Marks”) in connection with MYBi’s performance of its obligations pursuant to this Agreement. MYBi may not remove, destroy or alter any e-Smart Marks on any object including, but not limited to, the SSCs and the Terminals. All use of the e-Smart Marks shall be subject to e-Smart’s logo and trademark usage guide, as provided to MYBi, and as the same may be updated from time to time.

 

6.1.2 No Challenge . MYBi agrees that it shall not challenge or assist others to challenge e-Smart’s rights in the e-Smart Marks or the registration of the e-Smart Marks, or attempt to register any trademarks, trade names or other proprietary indicia confusingly similar to the e-Smart Marks.


6.1.3 Ownership Restriction . All e-Smart Marks appearing on or incorporated in any article, including but not limited to the Terminals or SSCs or the MYBi Technology, are and shall remain, as between MYBi and e-Smart, the exclusive property of e-Smart. e-Smart does not grant any right in the e-Smart Marks or in any other trademark, trade name, service mark, business name or goodwill of any other party except as expressly permitted hereunder or by separate written agreement of the Parties and all use of the e-Smart Marks shall inure to the benefit of e-Smart.

 

6.2 MYBi Marks.

 

6.2.1 Use of MYBi Marks . Subject to the terms and conditions of this Agreement, e-Smart may display or refer to MYBi’s proprietary indicia, trademarks, service marks, trade names, logos, symbols and/or brand names (collectively “MYBi Marks”) in connection with e-Smart’s performance of its obligations pursuant to this Agreement. e-Smart may not remove, destroy or alter any MYBi Marks on any article. All use of the MYBi Marks shall be subject to MYBi’s logo and trademark usage guide, as provided to e-Smart, and as the same may be updated from time to time.

 

6.2.2 No Challenge . e-Smart agrees that it shall not challenge or assist others to challenge MYBi’s rights in the MYBi Marks or the registration of the MYBi Marks, or attempt to register any trademarks, trade names or other proprietary indicia confusingly similar to the MYBi Marks.

 

6.2.3 Ownership Reservation . All MYBi Marks are and shall remain, as between MYBi and e-Smart, the exclusive property of MYBi. MYBi does not grant any right in the MYBi Marks or in any other trademark, trade name, service mark, business name or goodwill of any other party except as expressly permitted hereunder or by separate written agreement of the Parties and all use of the MYBi Marks shall inure to the benefit of MYBi.

 

6.3 Notification of Infringement . Each Party (the “Notifying Party”) shall immediately notify the other Party (the “Infringed Party”) of any infringement, misappropriation or violation of any of the Infringed Party’s patents, copyrights, trademarks, trade secrets or other proprietary rights that comes to the attention of the Notifying Party. In the event of any such infringement, misappropriation or violation relating to the activities of the Notifying Party or any of its employees, agents, representatives, distributors, dealers, sales representatives or customers, the Notifying Party shall take all steps reasonably necessary to terminate any such infringement, misappropriation or violation. The Infringed Party shall have exclusive control over the prosecution and settlement of any legal proceeding to enforce, to recover damages on account of any infringement, misappropriation or violation of, or to defend any of its proprietary rights. The Notifying Party shall: (a) provide such assistance related to such proceeding as the Infringed Party may reasonably request; and (b) assist the Infringed Party in enforcing any settlement or order made in connection with such proceeding; provided that the Infringed Party shall reimburse the expenses reasonably incurred by the Notifying Party to provide such assistance in accordance with the Infringed Party’s requests for the same.


7. Other Fee Sharing

 

7.1 Korea Macro-Payment Net Operating Profits . Subject to the terms and conditions of this Agreement, e-Smart shall pay to MYBi on the 28 th calendar day of each month, or if a holiday the first business day thereafter, a fee equal to (a designated number) of the Korea Macro-Payment Net Operating Profits, which amount shall include all applicable value added taxes.

 

7.1.1 Period of Calculation . Except as provided in Section 7.1.2 and subject to the terms and conditions of this Agreement, fees payable for the Korea Macro-Payment Net Operating Profits pursuant to Section 7.1 shall be calculated for a period beginning at 0:00:00 hours (Busan, Korea time) on the 28 th calendar day of each month and ending at 23:59:59 hours (Busan, Korea time) on the 27 th day of the subsequent month.

 

7.1.2 First Payment Cycle . The first payment due pursuant to Section 7.1 shall be calculated for a period beginning at 12 noon (Busan, Korea time) on the Effective Date and ending at 23:59:59 hours (Busan, Korea time) on the 27 th day of the following calendar month.

 

7.2 Non-SSC Gross Collections and SSC Gross Net Profits . Subject to the terms and conditions of this Agreement, MYBi shall pay to e-Smart on the 28 th calendar day of each month, or if a holiday the first business day thereafter, a fee equal to the aggregate sum of (a) an amount equal to (a designated number) of the MYBi Non-SSC Gross Collections, (b) an amount equal to (a designated number) of the MYBi SSC Gross Net Profits (varied by area) and (c) an amount equal to (a designated number) of the e-Smart SSC Gross Net Profits (varied by area), plus applicable value-added taxes.; provided , however , that no fees shall be payable to e-Smart with respect to the MYBi Non-SSC Gross Collections until and unless the Completion Date occurs and, once the Completion Date occurs, fees payable for the MYBi Non-SSC Gross Collections shall be paid only for a period of two (2) years thereafter.

 

7.2.1 Period of Calculation . Except as provided in Sections 7.2.2 and 7.2.3 and subject to the terms and conditions of this Agreement, fees payable for the MYBi Non-SSC Gross Collections, the MYBi SSC Gross Net Profits and the e-Smart SSC Gross Net Profits pursuant to Section 7.2 shall be calculated for a period beginning at 0:00:00 hours (Busan, Korea time) on the 28 th calendar day of each month and ending at 23:59:59 hours (Busan, Korea time) on the 27 th day of the subsequent month.

 

7.2.2 First Payment Cycle for MYBi Non-SSC Gross Collections . The first payment due pursuant to Section 7.2(a) shall be calculated for a period beginning at 12 noon (Busan, Korea time) on the Completion Date and ending at 23:59:59 hours (Busan, Korea time) on the 27 th day of the following calendar month.

 

7.2.3 First Payment Cycle for MYBi SSC Gross Net Profits and e-Smart SSC Gros


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