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
