exv10w3






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



 









 







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



 









 





     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.



 









 





     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



 









 





     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;



 









 






(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






 









 






     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



 









 







          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