Patent License Agreement

EXHIBIT 10.10


LICENSE AGREEMENT

between

PIAGET ASSOCIATES, L.L.C.,

A LIMITED LIABILITY COMPANY

(LICENSOR)

and

DIRECT FOCUS, INC.

(A Washington Corporation)

(LICENSEE)


This Agreement is the complete and exclusive statement of Licensor' s and Licensee' s obligations and responsibilities to each other and supersedes any other proposal, representation, or other communication by or on behalf of Licensor relating to the subject matter hereof. This Agreement shall become effective when both Licensor and Licensee have executed this Agreement.

1. LICENSE

1.1 Licensed Intellectual Property. Licensor owns, and warrants to Licensee that its ownership comprises rights sufficient to grant exclusively to Licensee the rights so granted herein, to U.S. Patent 5,336,146 and U.S. Patent Des. 406,621 and all follow-on and supplemental utility and design patents either filed or pending or which may be filed in the future and any common law or registered trademarks covering the name " Tread Climber" (hereinafter referred to as " Patent" and/or " Trademark" ). Goods incorporating the Patent shall be " Licensed Goods." A copy of the Patent shall be attached to this Agreement and listed as Exhibit A hereto.

1.2 License Grant.

A. Licensor hereby grants to Licensee an exclusive worldwide right and license to all of Licensor' s rights and interest in the Patent and Trademark, including the right to sublicense to others, to manufacture, have manufactured, import, use, sell, or otherwise distribute or dispose of Licensed Goods.

1.3 Patent Notice/Location of the Mark.

A. Licensed Goods shall be marked with the patent numbers in a manner that allows the consumer to be easily informed upon examination of Licensed Goods of the patented nature of the Licensed Product.

2. WARRANTIES AND PROPRIETARY RIGHTS

2.1 Warranty of Title. Licensor represents and warrants to Licensee that Licensor has all necessary rights, power and authority to enter into and perform this Agreement and to grant the licenses granted to Licensee herein. Licensor represents that Licensor has experience in research and development regarding products related to the Patent and has made reasonable efforts to ascertain regarding the Patent, the absence of infringement or misappropriation of any third party rights in any patent, copyright, trademark, trade secret or any other proprietary rights and that there are no claims known of any third party which, if upheld, would impair Licensor' s right to enter into this Agreement, or that would, in any way, restrict or limit Licensee' s ability to manufacture or market products worldwide using the Licensed Goods. Licensor has not granted any prior licenses which would interfere with or restrict in any way its ability to grant the License to Licensee. 2.2 Licensee' s Warranties and Representations. Licensee represents and warrants that it has the requisite authority, ability and resources to enter into this Agreement and to perform all of the contemplated obligations enumerated therein. Entering into this Agreement will not cause Licensee to be in breach or default of any other agreement and the product to be manufactured and sold under the Agreement will be manufactured of good workmanship and of a reasonable quality to enable the product to be used for its intended purpose.

2.3 Limitation Warranty. Except as expressly set forth in this Agreement, Licensor makes no other representations or warranties, expressed or implied, and Licensor makes no representations or warranties of merchantability or fitness for a particular purpose.

2.4 Limitation of Damages. Except for the indemnity provided in Section 2.5 in this Agreement, in no event shall Licensor be liable for any damages or losses, whether direct, incidental or consequential or otherwise, arising out of any claim or allegation or damage sustained by Licensee or a third party, that arises from or relates to Licensee' s use of the Patents or the use of the Mark under this Agreement.

2.5 Indemnity. Licensor, subject to the limitation below, shall indemnify, hold harmless, and defend Licensee, and its officers, agents, and employees, against any and all claims, expense, judgments, liabilities, damages or losses, including reasonable attorney fees, court costs, and any settlements, whether direct or consequential or otherwise, arising out of any claim or allegation that the Licensed Goods, solely with respect to licensed rights hereunder, infringe or misappropriates any patent, copyright, trademark, trade secret, mask work, intention, intellectual property right, or other proprietary right of any third party, including any claims of Trace O. Gordon associated with any claims he may have concerning his status as co-inventor under Patent 5,336,146, and Licensee shall cooperate with Licensor, at Licensor' s expense, in the defense or settlement of any such claim. In the event Licensor does not defend Licensee, Licensee shall have the right to defend itself and its officers, agents, and employees against any such charge of infringement, misappropriation of trade secrets or violation of any proprietary rights, and to deduct the cost of doing so from the royalties as they come due under Article 3.1 of this Agreement. Licensor' s liabilities under this paragraph shall be limited to royalties as they come due after Licensor has received written notice of such claim.

2.6 Proprietary Rights of Licensor. Ownership of subsequent developments, improvements, or inventions which are patented shall be jointly owned by Licensor and Licensee when such developments, improvements, or inventions are derived by Licensee from claims allowed in the Patents and may be used without the requirement for the payment of any additional royalties by Licensee other than those specified in 4.2 (A) of this Agreement. Otherwise, Licensor shall have sole and exclusive ownership of all right, title and interest in and to the Patent and to all modifications and enhancements thereof made by Licensor subject only to the rights of Licensee under this License. Any foreign patents developed by Licensor during the term of this Agreement shall be licensed to Licensee on the terms and conditions of this Agreement without the requirement for the payment of any additional royalties by Licensee.

3. ASSIGNMENT OF PATENT

3.1 Licensor agrees to assign patents covered by this Agreement to Licensee upon request of Licensee as long as Licensee is not in default under this Agreement, and so long as Licensee has paid Licensor at least a total of $100,000 in royalties during the most recent four calendar quarters cumulative. Licensor further agrees to assign all improvements to Licensee and to reasonably cooperate with Licensee in prosecuting patent applications, both U.S. and foreign, covering the patented technology and/or any improvements, modifications, enhancements or adaptations made to the patent technology or products covered under this Agreement by Licensee, provided that Licensee shall pay all expenses (including legal fees and expenses) of the Licensor in connection therewith. Licensee shall be obligated to pay all ongoing maintenance fees for existing patents previously obtained by Licensor. 3.2 If this Agreement is terminated for any reason other than upon expiration of the term hereof, Licensee shall execute any instrument necessary to formally revest Licensor of his interest in the Patent Rights as fully and entirely as the Licensor would have held and enjoyed if an assignment of the patent had not been made.

3.3 During the term of the Agreement, Licensee may apply for a patent based on any improvements, adaptations or inventions of Licensee relating to the Licensed Product. Licensee will be responsible to prosecute and maintain such applications and pay all costs incurred in connection therewith. Licensor shall receive notice of any such improvements, adaptations or inventions at such time as patents are applied for. These patents would be royalty free; however, upon termination of the Agreement, all such patent rights would revert to Licensor.

4. ROYALTY, PAYMENT, AND RECORD KEEPING

4.1 The Licensee shall use its best reasonable efforts to develop, market and sell Licensed Goods. Licensee commits to make a national rollout of the contemplated direct response commercial within twelve (12) months of execution of this Agreement. Failure to do so will be an event of default giving Licensor the right of termination pursuant to paragraph 5.2(B). However, in the event Licensee has not commenced a national rollout of the direct response commercial within twelve (12) months of execution of this Agreement, Licensee may extend its license rights for up to an additional six (6) months by paying the minimum quarterly royalty payment amount specified in paragraph 4.1(D) ii of $25,000 per quarter. Said payments would not count toward the advance royalty. Additionally, Licensee agrees to develop, market and offer for sale a club version within two and one-half (2 1 / 2 ) years from the date of this Agreement. Failure to develop, market and offer for sale a club version within two and one-half (2 1 / 2 ) years from the date of this Agreement will result in termination of Licensee' s right to exclusivity to develop, market and offer for sale a club version of the Licensed Goods.

4.2 Royalties and Payments/Minimum Royalties.

A. As consideration for the rights and licenses herein granted, Licensee shall pay to Licensor a royalty on all Licensed Goods at a rate of four percent (4%) of net collected sales by Licensee.

B. Licensee may enter into sub-license agreements for part or all of the Licensed Goods. However, in no case shall royalties be less than what would have been payable under 4.2(A).

C. Licensee shall pay such royalties and all other amounts due under this License each quarter no later than thirty (30) days following the end of such quarter and shall, at that time, deliver to Licensor a royalty statement for such quarter. " Net collected sales" shall be defined as gross sales by Licensee less credit card and cash discounts actually credited to the customer, financing discounts, selling commissions paid, freight and bad debt. " Net collected sales" shall refer only to sales for which the company has received payment. Net collected sales will also include any actual net profit realized from shipping and handling revenue after fully burdening of shipping and handling.

D. Licensee agrees to make royalty payments, as follows:

i. $17,500 within two (2) weeks of the signing of this Agreement and an additional $17,500 within six months from the signing of this Agreement. ii. $25,000 minimum per quarter beginning with the quarter ending eighteen (18) months from the date of this Agreement and thereafter until such time actual royalties due under this Agreement exceed royalty minimums paid. However, in the event Licensee has commenced the sale of Licensed Goods earlier than eighteen (18) months from the date of this Agreement, minimum royalty payments shall be due for the quarter in which first sales of Licensed Goods are made. 4.3 Reports and Records.

4.3.1 Licensee shall keep complete and accurate records of its operations under this Agreement and shall furnish Licensor with a statement not more than thirty (30) days after the end of each calendar quarter during the term of this Agreement, setting forth the " net sales" and the method used to determine net sales during the quarter to which the statement pertains, and the royalty then due. Each such statement shall be accompanied by payment to Licensor of all amounts then due. The first such report and payment shall be due not more than thirty (30) days after the quarter in which product sales have commenced. 4.3.2 Licensor shall have the right to audit the records and accounts of Licensee relating to the sales under this Agreement, provided that such audits shall be made at reasonable times during normal business hours by a certified public accountant selected by Licensor solely at Licensor' s expense.

4.3.3 If an audit shall reveal that in any calendar quarter, Licensee has made an error in its favor in any payment due to Licensor, Licensee shall be obligated to pay the reconciled unpaid amount and, in addition, pay the audit fee in respect of such audits if such error equals or is greater than five percent (5%).

4.3.4 In calculating and determining the royalties payable hereunder, Licensee shall consistently apply the conventions, rules and procedures of Generally Accepted Accounting Principles (GAAP) as defined by the American Institute of Certified Public Accountants (AICPA).

5. TERM, TERMINATION AND REVISION

5.1 Term. Unless sooner terminated as provided herein, this Agreement shall remain in effect for the term of the licensed patents, or for so long as Licensee continues to manufacture, market, promote or sell the Licensed Product, whichever is longer.

5.2 Termination.

A. Licensee shall have the right to terminate this Agreement upon ninety (90) days written notice to Licensor. Expiration or termination of this Agreement or of any license rights under this Agreement shall not relieve the parties of any obligation accruing prior to or at the time of such expiration or termination, and any provisions relating to enforcement of the license rights hereunder or indemnification of one party by the other shall survive the expiration or termination of this Agreement.

B. In the event of a breach of any of the terms or provisions of this Agreement by either party, the party not in default shall have the right to terminate the Agreement by giving thirty (30) days written notice to such effect to the defaulting party, such notice to set forth the nature of the breach or default relied upon to effect termination. In the event that the breach or default is cured by the defaulting party within the period of the notice, then the notice shall be null and void and of no further effect.

C. If Licensee becomes insolvent or files for liquidation under any provision of the bankruptcy law, all rights of the Licensee will be automatically deemed to have expired as of a date seven (7) days prior to that event ...