My understanding of Commercial Arrangements - For discussion

Hello Steve and Ray,

In view of our mutual and separate discussions on the commercial arrangements between the three of us, I thought it might be beneficial as an aid to further discussions, if I put my thoughts down on 'paper'. These notes are intended to be used to progress our discussions so that we can settle arrangements which will be mutually acceptable.

These arrangements are based upon the understanding that Steve had the original idea of a trolley management system. Steve recognised that he needed engineering expertise to develop the system and he approached Ray for assistance. The system continued to develop following further discussions until Ray suggested to Steve that I become involved with preparing a PowerPoint presentation. Following further discussions including the development of the RFID concept proposed by Andrew, it was agreed that Andrew become involved to develop the required hardware and software under Ray's supervision. These discussions have developed the system considerably since the original concept of a coin operated locking mechanism. It is now necessary to document the commercial arrangements between the parties.

In these notes I will use our names but clearly they could and should be exchanged for commercial entities such as a Pty Ltd company. In essence I see the arrangements as follows. The owner(s) of the patent is to sell an exclusive licence for the use of the patent for a given period of time to Steve (as TMS). The cost of granting a licence to Steve has yet to be determined. Steve is primarily responsible for the sale, installation and maintenance of the complete TMS system. All overheads, including a salary to Steve, will be met by TMS. All profits of TMS will go 100% to Steve.

Ray is responsible for the manufacture of the trolley locking system including all aspects of the system including hardware, software and communications equipment (the "TMS System"). Steve is to enter into an agreement with Ray for him to be granted an exclusive licence to manufacture the equipment the subject of the patent for an identical period of time that Steve has been granted a licence to use the patent. As part of these arrangements Steve and Ray are to share any profits arising from Ray on a 50:50 basis. Ray is to sell the TMS System to Steve on commercial arrangements yet to be agreed. The sale price of the TMS System is to include the cost of all overheads, including an income to Ray. As stated earlier, any profits made by Ray after the accounting for all costs, are to be shared between Steve and Ray on a 50:50 basis.

Steve, Ray and Stuart are to jointly own an entity with Steve and Ray holding 40% each whilst Stuart holds 20%. Let's call this entity 'SRS'. Steve is to enter into an agreement with SRS for it to be granted an exclusive licence to sell and manage the RFID cards, the subject of the patent, for an identical period of time that Steve has been granted a licence to use the patent. SRS will be responsible for sourcing, managing and selling the RFID cards to the customers of Steve. All overheads, including an income to Stuart, will be met by SRS. All profits from SRS, after accounting for all overheads, are to be shared as to 40% to Steve, 40% to Ray and 20% to Stuart.

I foresee, provided we all continue to work well together, that these arrangements will continue to change, reflecting the growth of the various entities. To maximise the profit potential in both the operating sense as well as, perhaps, a sale of the complete system including the patent, it will become necessary to consolidate some or all of the arrangements we are presently discussing.

As I stated earlier, these are only my thoughts - nothing is cast in concrete. However I think we should progress our discussions so that we all have an agreed basis of working together for our mutual benefit.

Regards,
--
Stuart
.

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