Exhibit 10.3
SETTLEMENT AGREEMENT INCLUDING CROSS-LICENSING AGREEMENT
This Settlement Agreement Including Cross-Licensing Agreement (“Settlement
Agreement”) is between Flow International Corporation, a Washington corporation
(“Flow”) and OMAX Corporation, a Washington corporation (“OMAX”) and is to be
effective as of March 12, 2009.
RECITALS
A. OMAX and Flow, respectively, are the owners of the certain patents identified
below in Recital C all of which were asserted in litigation between the two
companies.
B. The parties have agreed to settle the litigation between them as set forth
below. In addition, the parties have agreed to cross license the Licensed
Patents, as defined below, to each other on the following terms and conditions.
C. Flow patents as used herein shall refer to:
United States Patent No. 6,766,216 (Method and System for Automated Software
Control of Waterjet Orientation Parameters) and United States Patent
No. 6,996,452 (Method and System for Automated Software Control of Waterjet
Orientation Parameters)
together with any and all continuations, continuations-in-part or divisionals
thereof, or other applications or patents which claim priority from the ‘216
and/or ‘452 patents including any and all foreign counterpart patents.
D. OMAX patents as used herein shall refer to:
United States Patent No. 5,508,596 (Motion Control With Precomputation); United
States Patent No. 5,892,345 (Motion Control For Quality In Jet Cutting) together
with any and all continuations, continuations-in-part or divisionals thereof, or
other applications or patents which claim priority from the ‘596 and/or ‘345
patents including any and all foreign counterpart patents.
AGREEMENT AND CROSS LICENSE
1. Upon execution of this Settlement Agreement, and upon the payment of the
$8,000,000 required by Section 2, the escrow with Foster Pepper PLLC of
$15,000,000 required by Section 2.1, and execution and escrow with Foster Pepper
PLLC of the documents required by Sections 2.1 and 2.4 of this Settlement
Agreement, the parties will dismiss with prejudice the litigation between them
relating to the Flow patents and the OMAX patents that is currently pending in
the United States District Court for the Western District of Washington, case
no. CV 04-2334, releasing all claims encompassed by the litigation.
2. In settlement of all outstanding claims or potential claims for damages
(whether or not asserted) up to the date of this Settlement Agreement in the
pending litigation, Flow agrees to pay OMAX the

 

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non-refundable sum of $8,000,000 in cash upon execution of this Settlement
Agreement, and, contingent on the parties not having merged pursuant to the
Second Amended and Restated Agreement And Plan Of Merger among Flow, OMAX and
others dated March ___, 2009, then on August 16, 2009, Flow shall pay to OMAX
the additional settlement amount of $21,000,000 as follows:
     2.1 $15,00,000 in cash payable on or before August 16, 2009 and a
promissory note in the principal amount of $6,000,000.
     2.2 The promissory note will bear interest at 2%, compounded annually,
payable at maturity. The note will mature on August 16, 2013, and be
subordinated only to Flow’s senior bank debt.
     2.3 Any shortfall in any payment required by this Agreement shall be
subject to interest of 15% per annum, compounded annually, commencing on date of
failure to pay.
     2.4 Flow hereby consents to Judgment By Confession Without Suit pursuant to
RCW 4.60 et seq and shall execute statements in writing pursuant to RCW 4.60.060
for each of the payments herein contemporaneously with the execution of this
Settlement Agreement, plus attorneys’ fees and interest, which Judgments By
Confession can be filed with a Court of competent jurisdiction immediately upon
failure of payment. Such Judgments By Confession shall be a Judgment of
$6,494,593 (representing $6,000,000 at two (2) percent interest compounded
annually for four years), which can be filed immediately after failure of the
payment due on August 16, 2014, of the $6,000,000 promissory note and shall
cease to be valid upon merger of the parties or satisfactory payment of such
$6,000,000 promissory note. Flow shall be entitled to set aside any such
Judgment By Confession upon a showing that it has, in fact, paid the amount or
amounts due in accordance with the terms of the underlying documents.
3. In settlement of all outstanding or potential claims (whether or not
asserted) for injunctive relief in the pending litigation, and to avoid future
disputes over the Licensed Patents, the parties agree to the Cross License set
forth below. The parties acknowledge and agree that the licenses granted by each
party are of equal value.
4. Definitions
     4.1 Licensed Patents as used herein shall refer to the Flow patents and the
OMAX patents collectively.
     4.2 Affiliate shall mean any legal entity (such as a corporation,
partnership, or limited liability company) that is controlled by either party to
this transaction. For the purposes of this definition, the term “control” means
(i) beneficial ownership of at least fifty percent (50%) of the voting
securities of a corporation or other business organization with voting
securities or (ii) a fifty percent (50%) or greater interest in the net assets
or profits of a partnership or other business organization without voting
securities.
     4.3 Future Patent Dispute means a dispute that arises in the future between
the parties relating to any patent or patents owned by either party other than
the Licensed Patents.
     4.4 Cross License refers to Paragraphs 3 through 11 of the Settlement
Agreement.
5. License Grant

 

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     5.1 OMAX grants to Flow and its Affiliates a worldwide, irrevocable,
non-assignable, non-exclusive, paid-up license to practice each and every claim
of the OMAX patents. Such license includes the right to make, have made, use,
sell, or import products that are covered by any claim of the OMAX patents, and
to authorize the use or resale by others of products made by or for Flow and/or
its Affiliates that are covered by any claim of the OMAX patents.
     5.2 Flow grants to OMAX and its Affiliates a worldwide, irrevocable,
non-assignable, non-exclusive, paid-up license to practice each and every claim
of the Flow patents. Such license includes the right to make, have made, use,
sell, or import products that are covered by any claim of the Flow patents, and
to authorize the use or resale by others of products made by or for OMAX and/or
its Affiliates that are covered by any claim of the Flow patents.
6. Patent marking
     Each party will mark, and will cause each Affiliate to mark, all products
with the number of each Licensed Patent that applies to such product, if and to
the extent necessary to comply with all statutory marking requirements.
7. Termination
     7.1 Flow may terminate its license to OMAX by giving OMAX written notice of
such termination if any of the following take place: (i) OMAX makes a general
assignment for the benefit of its creditors; (ii) the filing by or against OMAX
of a petition to have OMAX adjudged bankrupt or of a petition for reorganization
or arrangement of OMAX under any law relating to bankruptcy or insolvency
unless, in the case of a filing against OMAX, the same is dismissed within sixty
(60) days; (iii) the appointment of a trustee or receiver to take possession of
all or substantially all of the assets of OMAX, where possession is not restored
to OMAX within thirty (30) days; or (iv) the attachment, execution or other
judicial seizure of all or substantially all of the assets of OMAX, where such
seizure is not discharged within thirty (30) days.
     7.2 OMAX may terminate its license to Flow by giving Flow written notice of
such termination if any of the following take place: (i) Flow makes a general
assignment for the benefit of its creditors; (ii) the filing by or against Flow
of a petition to have Flow adjudged bankrupt or of a petition for reorganization
or arrangement of Flow under any law relating to bankruptcy or insolvency
unless, in the case of a filing against Flow, the same is dismissed within sixty
(60) days; (iii) the appointment of a trustee or receiver to take possession of
all or substantially all of the assets of Flow, where possession is not restored
to Flow within thirty (30) days; or (iv) the attachment, execution or other
judicial seizure of all or substantially all of the assets of Flow, where such
seizure is not discharged within thirty (30) days.
8. Arbitration of Disputes under this Cross License and /or of Future Patent
Disputes
     8.1 Scope
     The parties agree that any dispute arising from this Cross License (but not
obligations to pay amounts due under the Settlement Agreement, which obligations
to pay may be enforced in a court of law of competent jurisdiction) or any
Future Patent Dispute between the parties with respect to any patent or patents
owned by either party other than the Licensed Patents, shall be resolved
according to the procedures in this Section 8.

 

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     8.2 Pre-arbitration Negotiation Requirement
     The parties agree to negotiate in good faith to resolve any dispute to
which this Section applies. If the negotiations do not resolve the dispute to
the reasonable satisfaction of both parties, each party shall nominate one
senior officer of the rank of Vice President or higher as its representative.
These representatives shall, within thirty (30) days of a written request by
either party to call such a meeting, meet in person and alone (except for one
assistant for each party) and shall attempt in good faith to resolve the
dispute. If the dispute cannot be resolved by such senior officers in such
meeting, the parties agree that they shall, if requested in writing by either
party, meet within thirty (30) days after such written notification for one day
with an impartial mediator and consider settlement and dispute resolution
alternatives other than arbitration. If an alternative method of dispute
resolution is not agreed upon within thirty (30) days after the one day
mediation, either party may begin arbitration proceedings. This procedure shall
be a required prerequisite before taking any additional action hereunder. It is
agreed by the parties that all communications between them pursuant to this
Section shall be deemed settlement communications inadmissible at litigation
including trial or arbitration, for example as protected by Federal Rule of
Evidence 408 and all similar state evidence rules. The costs of mediation shall
be split equally.
     8.3 Commencement of Arbitration
     If, after the negotiations described in Section 8.2 above have occurred,
the dispute has not been resolved, then either party may commence arbitration by
giving the other party written notice, including a statement of the dispute and
a demand for arbitration of the dispute under this Section.
     8.4 Selection and Qualifications of an Arbitrator
     The parties will use their best efforts to agree upon a mutually acceptable
arbitrator within twenty (20) days after submission of the dispute to
arbitration in accordance with Section 8.3. The arbitrator must be impartial in
fact and appearance, and not be an advocate of either party. The arbitrator must
not have any direct or indirect financial or personal interest in the outcome of
the arbitration or any past, present or anticipated financial, business,
professional, family, social or other relationship which is likely to affect
impartiality or which might reasonably create the appearance of partiality or
bias. If the parties are unable to agree upon a mutually acceptable arbitrator
within the twenty (20) days, then each party will select one individual meeting
the qualifications for the arbitrator specified in this Section 8.4, and those
two individuals will select the arbitrator within a further twenty (20) days. If
the two individuals selected by the parties cannot agree upon the selection of
the arbitrator, then the arbitrator will be selected by the American Arbitration
Association.
     8.5 Unless otherwise agreed upon by the parties, if the dispute concerns
infringement, validity or enforceability of any patent owned by either party
other than the Licensed Patents, then in addition to the qualifications set
forth in paragraph 8.4 above the arbitrator selected must have education and
experience appropriate to the technology exemplified by the patent or patents in
dispute.
     8.6 Location
     Unless otherwise agreed by the parties, any hearing in connection with the
arbitration will be held in King County, Washington.
     8.7 Discovery

 

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     Upon the request of either party, the arbitrator may permit limited
discovery (including document production and depositions), but only if and to
the extent that the party requesting discovery can show that such discovery is
required in order to ensure a fair and equitable determination of the issues
within the scope of the arbitration.
     8.8 Schedule
     The parties and the arbitrator will endeavor to conduct the arbitration in
an efficient, expeditious and economic manner, with the objectives of
(i) completing all discovery within three (3) months after the appointment of
the arbitrator and (ii) obtaining a hearing (or, if the matter is submitted to
the arbitrator on a written record, completion of the submissions) within four
(4) months after the appointment of the arbitrator.
     8.9 Arbitrator(s)’ Final Decision
     The arbitrator will render his or her final decision in writing no later
than thirty (30) days after the final statements and proof have been submitted,
and any hearing on the matter is closed. The arbitrator’s decision will be
conclusive and binding upon the parties and nonappealable absent a showing of
fraud, or an improper interest by the arbitrator in a winning party.
     8.10 Costs
     Costs of the arbitrator, AAA, court reporters, hearing rooms and other
common costs will be divided equally between the parties. Each party will bear
the costs of preparing and presenting its own case in accordance with the
arbitration (including, but not limited to, its own attorneys’ fees and costs of
witnesses). However, the arbitrator shall, as part of his or her decision, award
the prevailing party its reasonable attorneys’ fees and other costs incurred in
connection with the arbitration, unless the arbitrator determines that neither
party substantially prevailed in the action.
9. Termination
     Unless earlier terminated pursuant to paragraph 7 hereof, this Cross
License shall terminate upon the expiration of the last remaining valid patent
among the Licensed Patents.
10. No Right of Sublicense
     Neither party shall sublicense any Licensed Patent owned by the other
party.
11. Miscellaneous
     11.1 Confidentiality: Neither party will publicly disclose the financial
terms of this Settlement Agreement except:
(a) as reasonably required in connection with the performance or enforcement of
this Settlement Agreement;
(b) as required by any law, rule, regulation, order, discovery request, subpoena
or other governmental requirement;

 

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(c) to such party’s accountants, attorneys, financial advisers and other
professionals engaged by such party, as reasonably required for their
performance of services for such party, and to OMAX‘s shareholders;
(d) any information that becomes part of the public domain without a breach of
this Section 11.1 by the disclosing party; and
(e) with the prior written consent of the other party.
11.2 Names, Trade Names, Trademarks, Trade Secrets, Copyrights, Technology And
Know-How.
     This Cross License does not grant, create, assign or transfer to either
party any license or other right with respect to any name, trade name,
trademark, trade secret, copyright, technology or know-how of the other party.
11.3 Notices
     All notices, requests, demands, or other communications required or
permitted to be given under this Settlement Agreement will be in writing and
deemed given upon: (i) delivery by hand, (ii) confirmed delivery by a standard
overnight courier, (iii) the second day after mailing when mailed in the United
States by certified or registered mail, postage prepaid, addressed at the
following addresses (or at such address for a party as will be specified by
notice given hereunder), or (iv) transmitter’s confirmation of a receipt of a
facsimile transmission:

         
(a)
  if to Flow   Flow International Corporation
 
      23500 64th Avenue South
 
      Kent, WA 98032
 
      Attention: John Leness, General Counsel
 
      Facsimile No.: (253) 813-3280
 
       
 
  With a copy to:   K&L Gates LLP
 
      925 Fourth Avenue, Suite 2900
 
      Seattle, WA 98104-1158
 
      Attention: Robert S. Jaffe
 
      Facsimile No.: (206) 623-7022
 
       
(b)
  if to OMAX, to:   OMAX Corporation
 
      21409 72nd Ave. South
 
      Kent, WA 98032
 
      Attention: James O’Connor
 
      Facsimile No.: (253) 872-6190
 
       
 
  With a copy to:   Foster Pepper PLLC
 
      1111 Third Avenue
 
      Seattle, WA 98101-3299
 
      Attention: Robert Diercks
 
      Facsimile No.: (206) 447-9700

 

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     11.4 Nonwaiver
     The failure of either party to insist upon or enforce strict performance by
the other of any of the provisions of this Settlement Agreement, or to exercise
any right or remedy under this Settlement Agreement, will not be construed as a
waiver or relinquishment to any extent of such party’s right to assert or rely
upon any such provisions, rights or remedies or any related provisions, rights
or remedies in any other instance; rather, the same will be and remain in full
force and effect.
     11.5 No Partnership
     This Settlement Agreement will not be interpreted or construed to create a
partnership or other joint venture between the parties or to impose any
partnership obligation or liability upon either party. Neither party will have,
by virtue of this Settlement Agreement, any right, power or authority to act as
the agent of, enter into any contract, make any representation or warranty, or
incur any obligation or liability of the other party.
     11.6 Successors and Assigns
     Neither party will assign (whether voluntarily, involuntarily, by operation
of law or otherwise, including, without limitation, any assignment in connection
with any merger, consolidation or other corporate reorganization involving
either party or any sale, assignment or other transfer of all or any portion of
either party’s assets) this Cross License without the prior written consent of
the other party. However, each party hereby consents to the other’s assignment
of this Cross License to a successor of the assigning party’s business that
utilizes the Cross License (e.g., by way of a merger or transfer of assets);
provided that the successor assumes or is otherwise bound by all of the
assignor’s obligations and liabilities under this Cross License, and also
providing that the license to the assignee does not cover any product of the
assignee unless the product is branded exclusively under the Flow or OMAX name,
as applicable. No assignment by either party, with or without the consent of the
other party, will relieve or release the party making the assignment from any of
its obligations or liabilities under this Cross License. Subject to the
foregoing, this Cross License will be binding upon, inure to the benefit of, and
be enforceable by each of the parties and their respective successors and
assigns.
     11.7 Attorneys’ Fees
     In the event of any action (including an arbitration under Section 8 above)
to enforce this Settlement Agreement or on account of any default or breach of
under this Settlement Agreement, the prevailing party in such action or
arbitration will be entitled to recover, in addition to any other relief to
which it may be entitled, from the other party all reasonable attorneys’ fees
incurred by the prevailing party in connection with such action (including, but
not limited to, any appeal thereof).
     11.8 Jurisdiction
     Any legal action brought by either party hereunder, including to compel
arbitration or to enforce an arbitration award pursuant to Section 8 above, must
be brought in the federal or state courts located in King County, Washington.
     11.9 Governing Law

 

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          This Settlement Agreement will be interpreted, construed and enforced
in accordance with the laws of the State of Washington without reference to its
choice of law rules, except to the extent preempted by the laws of the U.S.
     11.10 Entire Agreement
     This Settlement Agreement, in conjunction with the agreements listed above,
constitutes the entire agreement, and supersedes any and all prior written or
oral agreements and representations, of the parties with respect to the subject
matter hereof. Any amendment, waiver or modification of this Settlement
Agreement must be set forth in writing and signed the party to be bound thereby.
     11.11 Severability
     In the event that any part of this Settlement Agreement shall be held
illegal, void or ineffective, the remaining portions hereof shall remain in full
force and effect. If any of the terms or provisions of this Settlement Agreement
are, or become in conflict with any applicable statute, rule or law, then such
terms or provisions shall be deemed inoperative only to the extent that they may
conflict therewith and shall be modified or deemed modified to conform with such
statute, rule or law.
     11.12 No Rights Created In Third Parties
     Except as expressly provided, This Settlement Agreement is made for the
sole benefit of Flow and OMAX and no other persons or entities shall have any
benefits or rights or remedies in or by reason of this Settlement Agreement, or
by reason of any actions or inactions taken by the Parties hereto.
     11.13 Headings
     The headings of the several sections are inserted for convenience and
reference only and are not intended to be a part of or to affect the meaning, or
interpretation of this Settlement Agreement
     IN WITNESS WHEREOF, the parties have signed or caused their respective duly
authorized officers to sign this Settlement Agreement, all as of the date first
written above.

            FLOW INTERNATIONAL CORPORATION
      By   /s/ Charles M. Brown        Charles M. Brown       Its  President and
CEO               OMAX CORPORATION
      By   /s/ John B. Cheung        John B. Cheung       Its  President