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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X ] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 1999
or
[ ] TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
Commission File No. 000-24551
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COMPOSITE SOLUTIONS, INC.
(Name of Small Business Issuer in its Charter)
Florida 65-0790758
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State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification Number
3655 Nobel Drive, Suite 440, San Diego, CA 92122
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Address of principal executive office Zip Code
Issuer's telephone number: (858) 459-4843
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT
Common Stock, $0.0001 Par Value
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(Title of Class)
Check whether the issuer has (i) filed all reports required by Section 13 or
15(d) of the Exchange Act during the past 12 months, and (ii) been subject to
such filing requirements for the past ninety (90) days. Yes X No
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Check if there is no disclosure of delinquent filers in response to Item 405 of
regulation S-B not contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-KSB or any
amendment to this Form 10-KSB. ___
The Company's revenues for Fiscal Year ended September 30, 1999 were $0.00.
As of December 31, 1999, 10,520,000 shares of Common Stock were outstanding and
the aggregate market value of the Common Stock (based on the latest sale price
on the Nasdaq OTC Bulletin Board on December 31, 1999) held by non-affiliates
(5,018,718 shares) was $4,705,048.13.
Transitional Small Business Disclosure Format (check one): Yes No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) BUSINESS DEVELOPMENT.
The Company was incorporated under the laws of the State of Florida on
October 20, 1997 as JS Business Works, Inc. The Company's original business plan
was to deploy temporary industrial personnel to clients in the Southern Florida
area. In order to facilitate the financing of such business plan, the Company
became a reporting company under the Securities Act of 1934, as amended, in
September 1998. Subsequent to becoming a reporting company, the Board of
Directors of the Company instead decided to explore more promising opportunities
through a reverse merger and elected not to pursue its original business plan.
In December 1998, Composite Solutions, Inc., the initial developer of the
Company's construction technology, was incorporated under the laws of the State
of Nevada ("CSI Nevada"). On June 30, 1999, the Company consummated a reverse
acquisition pursuant to which the Company acquired CSI Nevada. Pursuant to the
terms of a Share Exchange Agreement executed in connection with such
transaction, the former stockholders of CSI Nevada were issued 1,000,000 shares
of the Company's Common Stock and the Company's corporate name was changed to
Composite Solutions, Inc.
(b) BUSINESS OF ISSUER.
GENERAL
Composite Solutions, Inc. ("CSI" or the "Company") is an early-stage
company that was formed to develop and market innovative and affordable high
technology/service solutions for the retrofit/repair of buildings and other
structures. The Company has not generated significant revenues from operations
to date and there can be no assurance that the Company will be able to generate
significant revenues in the future. The Company's technology/service solution
includes computational analysis tools, design procedures and software, material
systems and application methods. These technology solutions can be applied to
the retrofit/repair of structures that are subject to seismic or blast loads as
well as the upgrade of structures for increased service loads. In addition,
these technology solutions can be applied to new construction.
The Company's "composite overlay" solution is based upon the
application of an aerospace-type composite material that is layered or applied
to key areas of buildings and other structures to repair damaged areas or to add
structural integrity. In the retrofit of buildings and other structures,
composite overlays increase both the shear and flexural performance of
structural elements making the building or structure stronger and more ductile
than "as-built" construction. As a repair medium, composite overlays provide a
highly efficient, clean and cost-effective method of repairing damaged
structures. In addition, use of composite overlays is the preferred repair
method as buildings can be fortified without additional weight and damaged
structures are returned to use sooner than repairs made by traditional methods.
The Company believes that its composite overlay technology is a unique
and major advance in the construction industry. CSI believes that the simplicity
of the overlay application as well as the expected reduced cost and time to
apply the composite overlay could revolutionize the way retrofit/repairs are
performed and could provide an unique solution to many structures that require
expensive and extensive rebuilding or must be demolished.
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In addition to retrofit and repair, and with respect to new
construction, the Company believes that the application of the composite overlay
concept to encase concrete beams, columns and girders could substantially reduce
the need for reinforcing steel, which represents a significant portion of
building construction costs. In this application, the composite is
pre-manufactured in the form of a tube which serves both as a form and
reinforcement.
The composite overlay method has been applied to numerous structures in
the field and has been subjected to extensive laboratory testing. The Company
believes that the technique offers considerable cost advantages and performance
improvements over current retrofit/repair procedures.
THE COMPANY'S MARKETS
The Company believes that it has the potential to generate significant
revenues and profit from the introduction of its composite overlay technology
and solution-based services based on the demand for retrofit/repair of damaged
and aging buildings as well as the nation's highway and bridge infrastructure.
For example, industry experts estimate that in one area of the United States
approximately 40% of all existing buildings and structures could require
earthquake upgrading or retrofitting. In California, a major utility is
considering to undertake, over the next ten years, the retrofit of a number of
their switching facilities at an estimated cost of $300 to $500 million.
Further, the California Senate has passed Bill 1955 which requires all
hospitals to be retrofitted to comply with existing seismic codes by the year
2008. It is estimated that the total cost to retrofit these hospitals could
approximate $55 billion. In addition, published reports by the U.S. Department
of Transportation have indicated that approximately $35 billion a year is spent
in the United States to maintain the highway and bridge infrastructure.
Conservative estimates indicate that approximately $53 billion will be necessary
to maintain the highway and bridge infrastructure in its current conditions.
The Company plans to market RETROSHIELD, a material system that will
include composite materials, resins, fabric architectures and additives as well
as a unique and affordable high technology method for new construction called
the CARBON SHELL SYSTEM ("CSS"). The Company believes that RetroShield will be
capable of handling earthquake-type loads while containing damaged concrete and
steel in civil and building structures. The Carbon Shell System will combine
conventional civil construction and advanced carbon fiber reinforced polymer
matrix composites with concrete to provide a pre-manufactured advanced composite
tube depending on the strength, stiffness and stability requirements for the
structural component. CSS will have application in a variety of common
structural components, including columns, girders and beams.
The effectiveness and integrity of the Company's composite overlay
technique has been tested at The Charles Lee Powell Structural Research
Laboratories ("Powell Laboratories") located at The University of California,
San Diego ("UCSD"). These tests included both reinforced and unreinforced walls,
specimens that range from single-story walls to a full-scale five story building
as well as columns ranging from single columns to full-scale bridge bents. The
Powell Laboratories are one of the few such facilities in the world with the
capability to execute full-scale tests and has performed extensive tests
relating to the retrofit, and upgrading of structural elements such as walls,
columns and floor slabs.
The Company believes that one of its key competitive advantages will be
application of the composite material knowledge-base that it has accumulated.
Although the ultimate future revenue and cash flow realization of this
"knowledge capital" is uncertain, the Company believes that it will be a
critical component in the successful execution of its business strategy.
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THE COMPANY'S SOLUTION
The Company's composite overlay is created by impregnating a carbon or
glass fabric with a chemical resin. This combination is then "wallpapered" to a
structural surface. The Company believes that its composite overlay
technology/service solutions are applicable in the retrofit/repair of structures
which include reinforced concrete, reinforced masonry and unreinforced masonry.
The Company expects that its technology/service solutions will be able to
accomplish a variety of structural objectives including:
- earthquake retrofit and damage repairs,
- construction defect repairs,
- enhanced load capacity, and
- structural reinforcement against bomb
blasts.
Initially, the Company's primary business focus will be to adapt and market its
retrofit and rehabilitation processes to upgrade aging bridges, buildings and
other structures by wrapping the structural elements with composite materials.
The Company's business model will be to focus on total solutions by offering
turnkey or a combination of service/technology solutions such as design
services, material systems and/or material applications which would be licensed
to major construction companies.
The Company believes that its core competencies will include:
- retrofit design software,
- retrofit/repair/new construction design
services,
- material systems,
- construction,
- inspection, and
- technology licensing.
Potential sources of revenue for the Company include:
- turnkey projects where it will design and
apply material systems in the retrofit
and repair of commercial and government
buildings;
- providing material systems and training
to construction firms;
- providing design services to major A&E
firms;
- entering into technology licenses with
major constructors and/or A&E firms;
and/or
- construction (projects of less than $10
million).
The Company's total solution services will include its proprietary
design tools that have been developed which will allow engineers to complete
retrofit/rebuilding designs faster while accessing lower cost material sources.
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The Company believes that a significant opportunity exists for a
nationally-recognized composite materials, retrofit/repair service/technology
solution provider with the scale and expertise to offer a wide range of
value-priced services directly to commercial and governmental customers as well
as composite overlay solution services to construction and A&E firms through
technology licenses. In addition, the Company believes that through the focused
acquisition and consolidation of niche design service firms, it could offer an
expanded range of service that would enable it to deploy composite overlay
solutions more rapidly and cost-effectively.
PRODUCTS AND SERVICES
The Company has identified several composite overlay service/technology
solution offerings that it believes will meet the needs of the market and offer
attractive potential revenue and growth opportunities. These "portfolio
service/technology options" include:
- DESIGN SOFTWARE. The utilization of composites
in the retrofit/rebuilding of structures is an emerging
technology where the civil/structural engineering
profession is only now becoming aware of the significant
opportunities and potential applications of this
material. To facilitate the acceptance and application of
composite overlays, the Company, in cooperation with
Trans-Science Corporation, is developing proprietary
design software. Beta copies of the software have been
installed in several key design facilities in the U.S.
When completed, the design software will provide
civil/structural engineers with an easy to use design
service tool in the use of composite overlays for
columns, walls, floors, beams and connections between
such members.
- DESIGN SERVICES. The principals of CSI are
recognized as the developers of composite materials that
include the risk assessment, damage analysis and retrofit
design services which are the key components in seismic
and blast retrofit repairs. The Company is not aware of
any firms that offer and possess the experience and
knowledge base that its principals have developed.
- MATERIAL SYSTEM. Material systems refer to the
fabric (carbon, glass, etc.), the architecture of the
weave, the resin system as well as any additives
incorporated in the resin system for mitigating fire,
eliminating toxicity and influencing resin cure. The
Company has designed and will market a unique material
system that will consist of fiber-reinforced polymeric
matrix composites (PMCs). Fiber types can include carbon,
aramid and glass. Fiber forms can vary from tows (yarns)
to fabrics with architectures such as weaves, knits and
mats. Matrix materials include thermoset resins such as
epoxies, vinylesters and phenolics. These composites,
especially carbon-based, exhibit strength/weight and
stiffness/weight ratios which are up to ten times that of
the steel commonly used in the construction industry.
- APPLICATION METHODS. In the retrofit/repair of
existing structures, the material system starts as a
fabric which is impregnated with the matrix resin on-site
and subsequently applied or "wallpapered" to structural
elements (i.e., walls, columns, beams, and/or floor
slabs) after surface preparation.
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Each "structural wallpaper" layer forms a composite overlay
of approximately 0.05 inches (1.2 mm) in thickness. The
Company will enter into turnkey application for projects
under $10 million and in projects over $10 million will
farm-out the application to major construction firms and the
Company will provide the management or application
oversight, receiving a fee approximating 10% to 20% of the
total cost of the project.
COMPETITION
The use of composite overlays for retrofit and repair of
large structures, including buildings, bridges and highways,
is dominated by a number of larger material supply
competitors who are well established in the market place,
have experienced and tested management, are well financed
and have well recognized industry names, and are
aggressively competing in the market. These competing
companies are primarily focused on the sale of the material
components through supply houses or partnering construction
firms. There can be no assurance that existing companies
will not aggressively compete by introducing new products
substantially similar to the Company's and at a price below
that at which the Company can compete or by creating similar
alliances as the Company proposes. Should this occur, the
Company may not be able to survive for a sufficient time to
reach viability.
EMPLOYEES
As of September 30, 1999, the Company had four employees,
all of which were full-time employees. None of the employees
are represented by a labor union, and the Company considers
its relations with employees to be good.
RESEARCH AND DEVELOPMENT
Since the beginning of the fiscal year ended September 30,
1999, the Company's research and development activities have
primarily focused on software development. For the period
from inception to September 30, 1999 the Company's research
and development costs of $420,000 were capitalized in
accordance with Statement of Financial Accounting Standards
(SFAS) 86 and will be amortized against future revenues.
INTELLECTUAL PROPERTY
The Company owns retrofit design software for seismic
loading of structures. This software allows an engineer to
rapidly execute composite overlay designs for structural
elements such as reinforced concrete columns. The Company
has licensed additional key retrofit/repair and new
construction technology from the University of California.
This license is co-exclusive (see item 12 below). If the
third party license is surrendered or otherwise terminated,
the licensor has granted the Company the right of first
negotiations to become the exclusive licensee for that
technology. The University of California has retained the
priority rights to enforce the patent protection against
infringements by any third party. The foregoing licenses are
based on two patent applications. One has been granted
(Patent Number 6,003,276 issued
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December 21, 1999). The other patent application is under
review by the U.S. Patent and Trademark Office.
There are a number of other companies which do provide
competing technologies to those to be offered by the
Company. However, these competing companies are focused
primarily on the sale of material components through supply
houses or partnering construction firms.
The Company intends to rely on patent and copyright
protection, to the extent that such protection is
available under applicable law. However, any such patents
and copyrights would not foreclose all possibilities of
protection to that technology. It is possible that
certain patent or copyright claims superior to those of
the University of California's currently pending patent,
either within the U.S. or other countries, could impact
the Company's rights to the use of some aspects of the
Company's technology. It is also possible that similar
technology could be designed which, although not
identical and therefore not infringing upon the Company's
proprietary right, could function adequately enough to be
distributed into the same market. Moreover, it is
possible that unpatented or uncopyrighted but prior
existing technology or designs may exist which simply
have never been made public and therefore are not known
to Management or the industry in general. Such designs or
technologies could be introduced into the market without
infringing upon the Company's current rights. If any such
competing non-infringing technologies are offered in the
market the Company's profit potential could be seriously
limited.
ADDITIONAL CONSIDERATIONS AND RISK FACTORS
HISTORY OF LOSSES; GOING CONCERN QUALIFICATION. The Company's
financial position and operating results raise substantial
doubt about its ability to continue as a going concern, as
reflected by the net losses accumulated from inception
through September 30, 1999. The Company currently does not
have sufficient capital resources to effectively pursue its
plan of operation or continue its operations over the next
twelve months. The ability of the Company to continue as a
going concern will be dependent upon obtaining additional
capital and financing in order to support its marketing and
sales activities. The Company is currently seeking
additional capital to allow it to implement its business
plan. However, no assurances can be given that the Company
will be successful in raising such additional capital or
other financing or that the Company will be successful in
implementing its business plan even if adequate financing is
obtained. There can be no assurance that the Company will be
able to generate significant revenues or operate profitably
in the future.
NEED FOR ADDITIONAL WORKING CAPITAL. The Company's business
involves the continued investment of funds towards the
development of its technology and services. To the extent
that the Company is not successful in generating significant
cash flow from operations in order to fund such development
expenses and other operating costs, the Company will need to
rely on outside financing sources for working capital. There
can be no assurance that the Company will be able to obtain
sources of outside financing in the event that such
financing is required in the future. To the extent that the
Company's operations do not generate positive working
capital or enable it to
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secure adequate outside financing, the Company's ability to
implement its business plan and continue as a going concern
would be materially and adversely affected.
NO OPERATING HISTORY: Although the Company was formed in 1997,
it has had no significant operations or business assets
until just recently, and is yet in its early development
stage. It has only recently acquired the technology which is
the basis of its business and, at the present time, is only
beginning the process to undertake the commercialization of
that technology. There can be no assurance that the Company
will be able to successfully implement its business plan or
generate revenues or profits from operations.
RISK OF ACCEPTANCE OF NEW TECHNOLOGY AND SERVICES. The future
success and growth of the Company, if any, will depend in
large part upon the success and acceptance of the Company's
technology and services in the construction industry.
Although the Company has extensive large-scale validation
test data on its technology and extensive cost metric data
via field applications, there can be no assurance that the
Company will be able to successfully market its technology
and services to potential customers.
NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE. The markets for
the Company's products and services are characterized by
rapid technological advances, evolving industry standards,
changes in construction laws and customer requirements. The
introduction of products embodying new technologies and the
emergence of new industry standards could render the
Company's existing technology and services obsolete and
unmarketable. The Company's future success will depend upon
its ability to successfully introduce and sell its
technology and services to the construction industry and to
keep pace with technological developments and respond to
evolving user requirements. Any failure by the Company to
anticipate or respond adequately to technological
developments or user requirements, or any significant delays
in development or introduction of its products and services,
could damage the Company's competitive position in the
marketplace.
RISK OF UNPROVEN BUSINESS: The Company has been in actual
operation under its current management only since June,
1999. It faces all of the risks inherent in a new business
and those risks specifically inherent in the development and
operation of a new business. The likelihood of the Company's
success must be considered in light of the problems,
expenses, difficulties and delays frequently encountered in
connection with a new business, including, but not limited
to, uncertainty as to the ability to develop a market for
the a new product in a new area. The Company's business must
be regarded as a new or "start-up" venture with all of the
unforeseen costs, expenses, problems and difficulties to
which such ventures are subject.
MANAGEMENT RISKS INHERENT IN HIGH-TECH BUSINESSES: New ventures,
particularly those involved in a highly technical industry
such as those in the heavy construction industry, have
substantial inherent risks. These risks are in three general
areas: technical, mechanical and human. Notwithstanding any
pre-production planning, any new technology can incur
unexpected problems in full scale operation, all of which
cannot always be foreseen or accurately predicted. Designs
can become unworkable, for unpredicted reasons. Quality
control and component sourcing failures are to be expected
from time to time. Any operation, including the one
contemplated here, is
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substantially dependent upon the capabilities and
performance of both management and sales personnel. Mistakes
in judgment or performance can be costly and, in instances,
disabling. Therefore, management knowledge, skill,
experience, character and reliability are of premium
importance.
OPERATIONAL RISKS IN HIGH-TECH VENTURES: The high-tech
construction and retrofit process requires the Company to
deal with suppliers and subcontractors supplying specialized
materials, applying highly sophisticated and narrow
tolerance processes and performing highly technical
calculations and tasks. Components must be custom designed
and manufactured, which is not only complicated and
expensive, but can require a number of months to accomplish.
Slight mistakes in either the designing or manufacturing can
result in unsatisfactory materials which may not be
immediately correctable. Since this operation requires the
talents of various professions, mistakes from very slight
oversights or miscommunications can occur, resulting not
only in costly delays and lost orders but in disagreements
regarding liability and, in any event, extended delays in
production.
RISKS RELATED TO GOVERNMENTAL AND INDUSTRY REGULATIONS:
Widespread commercialization of certain of the Company's
technology into buildings is necessarily dependent upon
building and other code approvals of a great number of the
governmental jurisdictions in which sales are to be made.
Local governments which adopt and administer the building
codes, generally adopt the model codes of either the
International Conference of Building Officials (ICBO) with
its Uniform Building Code (UBC), or the American Concrete
Institute (ACI), each of which apply primarily to building
structures. The Company's technology is presently
acknowledged by ICBO and ACI, through published acceptance
criteria and preliminary guideline documents. No general
approvals of the technology have been granted to date.
Therefore, approval through any governmental office within
the United States will require departmental review in order
to be granted an exemption to the current code. Such
exemptions, although readily allowed for the nature of the
work contemplated by the Company, are yet political and
require justification, and therefore can be denied. Such
denials can impact the profitability of the Company. The
Company does believe that previous testing, approvals, and
technology use, along with future testing will provide the
necessary justification to obtain approvals. The Company
does intend to contribute to the adoption of new codes to
include the technology. However, adoption of such codes will
not occur for a period of time. Until those provisions are
adopted, the Company's technology cannot be considered as
being fully accepted within the building community. There
can be no assurance that such technology will be wholly
accepted in a timely manner, if at all.
NATURE OF MARKET APPEAL: There can be no assurance that the
Company's technology and services will be accepted by the
construction industry. Demand may be directed to other
similar or competing products, because of technical
developments or preferences or simply because of
overwhelming commercial promotion, thereby limiting the
commercial viability of the Company's technology and
services. Unexpected negative publicity, even if not
relating directly to the Company or its own products and
even if unwarranted, can devastate a market. Such
circumstances can never be predicted.
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DEPENDENCE UPON KEY PERSONNEL: At least in the near term, the
Company is dependent upon Gilbert A. Hegemier and Donald
Nicholson, the loss of either could have a material adverse
effect on the Company. The Company has not obtained key man
life insurance on the lives of any of its key personnel. At
the present time, the Company has not entered into
consulting and employment agreements with any of its key
employees. The continued success of the Company will also be
dependent upon its ability to attract and retain highly
qualified personnel in the sales area. There can be no
assurance that the Company will be able to recruit and
retain such personnel.
MARKET COMPETITION: The retrofit and repair of large structures,
including buildings, bridges and highways, is dominated by a
number of larger competitors who are well established in the
market place, have experienced and tested management, are
well financed and have well recognized industry names, and
are aggressively competing in the market. There can be no
assurance that existing companies will not aggressively
compete by introducing new products substantially similar to
the Company's and at a price below that at which the Company
can compete. Should this occur, the Company may not be able
to survive for a sufficient time to reach viability.
LIMITATION OF LICENSE PROTECTION: The Company's licenses for the
retrofit technology, and, the Carbon Shell System, are
co-exclusive with one other licensee. If that third-party's
license is surrendered or otherwise terminated, the licensor
has granted the Company the right of first negotiations to
become the exclusive licensee for that technology. However,
should that licensee become active and aggressive, an
element of competition could exist which would impact to a
limited extent the potential profitability of the Company's
technology and business model. Moreover, the University of
California has retained the priority rights to enforce the
patent protection against infringements by any third party.
As a result, the Company's ability to protect its rights to
the technology may be limited.
STATUS OF PATENT & COPYRIGHT PROTECTION: The Retrofit/Repair
technology is owned by the University of California and
licensed to the Company. That patent currently does not
extend to other countries. The Company is in discussions
with University of California to extend that patent to
selected countries in Western Europe and elsewhere. Patent
applications to that effect have not been filed and, if and
when filed, the prosecution of those would be at the
Company's expense. Although a patent has been filed, under
the Patent Cooperation Treaty, for that Carbon Shell System
technology, the claims have not yet been granted and may
never be.
INHERENTLY LIMITED NATURE OF PATENT PROTECTION: There are a
number of other companies which do provide competing
technologies to those to be offered by the Company. The
Company intends to rely on patent and copyright protection,
to the extent that such protections are available under
applicable law. However, any such patents and copyrights
would not foreclose all possibilities of protection to that
technology. It is possible that certain patent or copyright
claims superior to those of the Company's currently unfiled
are either pending or planned, either within the U.S. or
other foreign countries, which could significantly impact
the Company's rights to the use of all, or important
aspects, of the Company's technology. It is also possible
that similar technology could be designed which, although
not identical and therefore not infringing upon the
Company's proprietary right, could function adequately to
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be distributed into the same market. Moreover, it is
possible that unpatented or uncopyrighted but prior existing
technologies or designs may exist which simply have never
been made public and therefore are not known to Management
or the industry in general. Such designs or technologies
could be introduced into the market without infringing upon
the Company's current rights. If any such competing,
non-infringing, technologies are offered in the market the
Company's profit potential could be seriously limited.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's executive offices are located at 3655 Nobel
Drive, Suite 440, San Diego, CA 92122. The Company, along
with Trans-Science Corporation as a co-tenant entered into a
36.5 month lease for this office space which commenced on
November 15, 1999. The lease provides for monthly payments
of approximately $6,912, subject to periodic adjustments for
inflation.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor its assets are the subject of any
pending legal proceeding. Although the Company is not aware
of any pending or threatened claims, the Company may be
subject to claims in the ordinary course of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS
Quotation of the Company's Common Stock, $0.0001 par value,
commenced on the Over-The-Counter Bulletin Board market of
the National Association of Securities Dealers, Inc. on or
about October 21, 1999 under the symbol "KIPS." As trading
in the Company's Common Stock did not commence until after
completion of fiscal 1999, no information regarding the
trading price of the Company's Common Stock has been
provided. The last reported sale price per share of the
Common Stock of the Company as reported on the OTC Bulletin
Board market on December 31, 1999 was $0.9375. As of
December 31, 1999, there were approximately 68 record
holders of the Company's Common Stock.
The Company has not paid any dividends since its inception
and has no current plans to pay dividends on the Common
Stock in the foreseeable future. The Company intends to
reinvest future earnings, if any, in the development and
expansion of its business. Any future determination to pay
dividends will depend upon the Company's results of
operations, financial condition and capital requirements and
such other factors deemed relevant by the Company's Board of
Directors.
See Item 12 of this Annual Report on Form 10-KSB for a
description of certain private placement transactions by the
Company.
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ITEM 6. PLAN OF OPERATION
For the period from inception (October 20, 1997) through
September 30, 1999, the Company had no revenues from
operations and had no significant business operations other
than organizational and capital raising activities. On June
30, 1999, the Company consummated a reverse acquisition
pursuant to which the Company acquired CSI Nevada, a
developer of construction technology. Since the date of such
acquisition, the Company's business activities have
consisted of research and development activities relating to
the development of the Company's construction technology and
services.
In fiscal 2000, the Company intends to continue the
development of its technology and to commence the marketing
of its technology and services in the construction industry.
In order to facilitate such marketing efforts, the Company
expects to seek additional capital through the sale of debt
or equity securities or a combination thereof. The Company
may also seek to add sales and marketing personnel in order
to market its products and services.
The Company's financial position and operating results raise
substantial doubt about its ability to continue as a going
concern, as reflected by the net losses accumulated from
inception through September 30, 1999. The Company currently
does not have sufficient capital resources to effectively
pursue its plan of operation or continue its operations over
the next twelve months. The ability of the Company to
continue as a going concern will be dependent upon obtaining
additional capital and financing in order to support its
marketing and sales activities. The Company is currently
seeking additional capital to allow it to implement its
business plan. However, no assurances can be given that the
Company will be successful in raising such additional
capital or other financing or that the Company will be
successful in implementing its business plan even if
adequate financing is obtained.
To the extent that the Company is successful in its
financing activities, the Company intends to devote
substantially all of its financial resources towards the
marketing of its technology and services to the construction
industry. Capital will also be used for corporate and
administrative expenses and general working capital.
FORWARD-LOOKING STATEMENTS
When included in this Annual Report on Form 10-KSB, the
words "expects," "intends," "anticipates," "plans,"
"projects" and "estimates," and analogous or similar
expressions are intended to identify forward-looking
statements. Such statements, which include statements
contained in Item 6 and Item 1 hereof, are inherently
subject to a variety of risks and uncertainties that could
cause actual results to differ materially from those
reflected in such forward-looking statements. For a
discussion of certain of such risks, see the subsection of
Item 1 entitled "Risk Factors." These forward-looking
statements speak only as of the date of this Annual Report
on Form 10-KSB. The Company expressly disclaims any
obligation or undertaking to release publicly any updates or
revisions to any forward-looking statement contained herein
to reflect any change in the Company's expectations with
regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
-13-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
See the Consolidated Financial Statements and related Report
of Independent Certified Public Accountants included
herewith as pages F-1 through F-10
ITEM 8. CHANGE IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable
-14-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report............................................F-2
Consolidated Balance Sheets.............................................F-3
Consolidated Statements of Operations...................................F-4
Consolidated Statements of Stockholders' Equity.........................F-5
Consolidated Statements of Cash Flows...................................F-6
Notes to Consolidated Financial Statements.............................F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders,
Composite Solutions, Inc.
f/k/a JS Business Works, Inc.
(A Development Stage Enterprise)
San Diego, California
We have audited the accompanying consolidated balance sheets of Composite
Solutions, Inc., f/k/a JS Business Works, Inc., a development stage
enterprise, as of September 30, 1999 and 1998 and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Composite
Solutions, Inc. as of September 30, 1999 and 1998 and the results of their
operations and cash flows for the years then ended, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 7 to the
financial statements, the Company has experienced losses since inception. The
Company's financial position and operating results raise substantial doubt
about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 7. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
Durland & Company, CPAs, P.A.
Palm Beach, Florida
December 17, 1999
F-2
<PAGE>
COMPOSITE SOLUTIONS, INC.
f/k/a JS BUSINESS WORKS, INC.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
September 30,
<TABLE>
<CAPTION>
1999 1998
---------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 8,811 $ 379
Note receivable and accrued interest - shareholder 0 10,263
Prepaid expense 4,226 0
---------- --------
Total current assets 13,037 10,642
---------- --------
PROPERTY AND EQUIPMENT
Computer equipment 14,798 0
Less: Accumulated depreciation (1,655) 0
---------- --------
Net property and equipment 13,143 0
---------- --------
INTANGIBLE ASSETS
Technical licenses 93,682 0
Fire test data - related party 13,979 0
Software - related party 420,000 0
---------- --------
Total intangible assets 527,661 0
---------- --------
Total Assets $ 553,841 $ 10,642
---------- --------
---------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 90,630 $ 0
Accrued payroll and related liabilities 17,999 0
Accrued expenses - other 0 4,500
---------- --------
Total current liabilities 108,629 4,500
---------- --------
NON-CURRENT LIABILITIES
Long-term obligation 13,773 0
---------- --------
Total non-current liabilities 13,773 0
---------- --------
Total Liabilities 122,402 0
---------- --------
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value, authorized 10,000,000
shares, 0 issued and outstanding 0 0
Common stock, $0.0001 par value, authorized 50,000,000
shares; issued and outstanding 14,500,000 in 1999, and
21,196,410 in 1998 1,450 230
Additional paid-in capital 1,004,839 18,105
Deficit accumulated during the development stage (574,850) (12,193)
---------- --------
Total stockholders' equity 431,439 6,142
Total Liabilities and Stockholders' Equity $ 553,841 $ 10,642
---------- --------
---------- --------
</TABLE>
The accompanying notes are an integral part of the financial statements
F-3
<PAGE>
COMPOSITE SOLUTIONS, INC.
f/k/a JS BUSINESS WORKS, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended September 30,
<TABLE>
<CAPTION>
Cumulative
October 20, 1997
(Inception)
through
September 30,
1999 1998 1999
---------- ---------- ----------------
$ 0 $ 0 $ 0
---------- ---------- ----------------
<S> <C> <C> <C>
REVENUES
OPERATING EXPENSES
Consulting fees $ 79,000 2,100 81,100
Depreciation 1,655 0 1,655
General and administrative expenses 143,656 721 144,377
Organizational expenses 514 0 514
Professional fees - related party 16,249 9,635 25,884
Professional fees - other 12,641 0 12,641
Salaries - employees 320,661 0 320,661
---------- ---------- ----------------
Total expenses 574,376 12,456 586,832
---------- ---------- ----------------
-
Loss from operations (574,376) (12,456) (586,832)
---------- ---------- ----------------
OTHER INCOME (EXPENSE)
Interest income 5,686 263 5,949
Interest expense (17,825) 0 (17,825)
Gain on forgiveness of debt 4,861 0 4,861
Interest income - forgiveness of note 17,825 0 17,825
Loss on forgiveness of debt (11,021) 0 (11,021)
---------- ---------- ----------------
Total other income (expense) (474) 263 (211)
---------- ---------- ----------------
Net loss $ (574,850) $ (12,193) $ (587,043)
---------- ---------- ----------------
---------- ---------- ----------------
Basic net loss per weighted average share $ (0.03) $ (0.00) $ (0.03)
---------- ---------- ----------------
---------- ---------- ----------------
Weighted average number of shares 19,395,182 17,723,194 18,575,977
---------- ---------- ----------------
---------- ---------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements
F-4
<PAGE>
COMPOSITE SOLUTIONS, INC.
F/K/A JS BUSINESS WORKS, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Period from October 20, 1997 (Inception) through September 30, 1999
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE TOTAL
NUMBER OF COMMON PAID-IN DEVELOPMENT STOCKHOLDERS'
SHARES STOCK CAPITAL STAGE EQUITY
------------- ----------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
BEGINNING BALANCE, October 20, 1997 (Inception) 0 $ 0 $ 0 $ 0 $ 0
October 1997 - services ($0.0001/sh) 14,777,031 1,476 (4,453) 0 (2,977)
April 1998 - cash ($0.01/sh) 2,792,037 276 2,156 0 2,432
April 1998 - cash ($0.05/sh) 3,170,463 323 16,179 0 16,502
April 1998 - services ($0.05/sh) 456,879 45 2,333 0 2,378
Net loss 0 0 0 (12,193) (12,193)
------------- ----------- ------------- -------------- --------------
BALANCE, September 30, 1998 21,196,410 2,120 16,215 (12,193) 6,142
6/25 - shares contributed (7,896,410) (790) 790 0 0
Pre-acquisition income 0 0 0 47 47
6/30 - shares issued for acquisition 1,000,000 100 (12,146) 12,146 100
6/30 - shares issued for payment of note payable 200,000 20 999,980 0 1,000,000
Net loss 0 0 0 (574,850) (574,850)
------------- ----------- ------------- ---------------- -------------
ENDING BALANCE, September 30, 1999 14,500,000 $ 1,450 $ 1,004,839 $ (574,850) $ 431,439
============= =========== ============= ============== =============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-5
<PAGE>
COMPOSITE SOLUTIONS, INC.
F/K/A JS BUSINESS WORKS, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
From October 20, 1997 (Inception) through September 30,
<TABLE>
<CAPTION>
Cumulative
October 20, 1997
(Inception) through
September 30,
1999 1998 1999
--------------- -------------- --------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(574,850) $(12,193) $(587,043)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation 1,655 0 1,655
Stock issued for services 0 2,635 2,635
Stock issued in lieu of cash 100 0 100
Pre-acquisition income 47 0 47
Changes in operating assets and liabilities:
(Increase) decrease in accrued interest - shareholder 263 (263) 0
(Increase) decrease in prepaid expense (4,226) 0 (4,226)
Increase (decrease) accounts payable - trade 90,630 0 90,630
Increase (decrease) accrued expense (4,500) 4,500 0
Increase (decrease) accrued payroll and related liabilities 17,999 0 17,999
Increase (decrease) long-term accounts payable obligation 13,773 0 13,773
--------------- -------------- --------------------
Net cash used by operating activities (459,109) (5,321) (464,430)
--------------- -------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (14,798) 0 (14,798)
Acquisition of intangible assets (527,661) 0 (527,661)
(Issuance) repayment of note receivable - related party 10,000 (10,000) 0
--------------- -------------- --------------------
Net cash used by investing activities (532,459) (10,000) (542,459)
--------------- -------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 0 15,700 15,700
Proceeds from note payable 1,000,000 0 1,000,000
--------------- -------------- --------------------
Net cash provided by financing activities 1,000,000 15,700 1,015,700
--------------- -------------- --------------------
Net increase in cash 8,432 379 8,811
CASH, beginning of period 379 0 0
--------------- -------------- --------------------
CASH, end of period $8,811 $379 $8,811
=============== ============== ====================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Non-cash financing and investing activities:
Note payable paid by issuance of common stock $1,000,000 $0 $1,000,000
=============== ============== ====================
Investment in subsidiary $(12,046) $0 $(12,046)
=============== ============== ====================
Interest on note payable $17,825 $0 $17,825
=============== ============== ====================
Forgiveness of interest on note payable $(17,825) $0 $(17,825)
=============== ============== ====================
</TABLE>
The accompanying notes are an integral part of the financial statements
F-6
<PAGE>
COMPOSITE SOLUTIONS, INC.
(f/k/a JS BUSINESS WORKS, INC.)
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) THE COMPANY Composite Solutions, Inc, f/k/a JS Business Works,
Inc., is a Florida chartered development stage corporation which
conducts business from its headquarters in San Diego, California. The
Company was incorporated on October 20, 1997.
The Company has not yet engaged in its expected operations. The
Company's future operations include plans to market unique, innovative
and affordable high technology products and processes for utilization
in key areas of existing and new construction. Current activities
include raising additional capital and negotiating with potential key
personnel and facilities. There is no assurance that any benefit will
result from such activities. The Company will not receive any operating
revenues until the commencement of operations, but will nevertheless
continue to incur expenses until then.
The following summarize the more significant accounting and reporting
policies and practices of the Company:
(b) BASIS OF PRESENTATION On June 17, 1999, the Company entered into a
Share Exchange Agreement with Composite Solutions, Inc., a Nevada
corporation, headquartered in San Diego, California. The business
combination was closed on June 30, 1999 and is a reverse merger that is
accounted for as a reorganization of Composite Solutions, Inc., a
Nevada corporation. The consolidated financial statements include the
accounts of CSI, a Nevada company, its wholly owned subsidiary.
Intercompany accounts and transactions have been eliminated in
consolidation.
(c) USE OF ESTIMATES The consolidated financial statements have been
prepared in conformity with generally accepted accounting principles.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the statements of
financial condition and revenues and expenses for the year then ended.
Actual results may differ significantly from those estimates.
(d) START-UP COSTS Costs of start-up activities, including organization
costs, are expensed as incurred, in accordance with Statement of
Position (SOP) 98-5.
(e) NET INCOME (LOSS) PER SHARE Basic loss per share is computed by
dividing the net income (loss) by the weighted average number of common
shares outstanding during the period.
(f) COMPENSATION FOR SERVICES RENDERED WITH STOCK The Company issues
shares of common stock, in exchange for services rendered. The cost of
the services are valued according to generally accepted accounting
principles based upon estimated fair value of such stock or service and
have been charged to operations.
(g) PROPERTY AND EQUIPMENT All property and equipment are recorded at
cost and depreciated over their estimated useful lives, using the
straight-line method. Upon sale or retirement, the cost and related
accumulated depreciation are eliminated from their respective accounts,
and the resulting gain or loss is included in the results of
operations. Repairs and maintenance charges, which do not increase the
useful lives of the assets, are charged to operations as incurred.
F-7
<PAGE>
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(h) INTANGIBLE ASSETS Intangible assets are recorded at historical cost
and amortized, beginning on the date the asset is placed in service,
over the estimated useful life. The cost of software intended to be
sold or licensed to others has been capitalized in accordance with
Statement of Financial Accounting Standards (SFAS) 86, and will be
amortized at the greater of the ratio to estimated future gross revenue
or the straight-line method.
(2) NOTE RECEIVABLE-SHAREHOLDER A note in the amount of $10,000 was
advanced to a shareholder of the Company. The note receivable bore
interest at the rate of 9.0% per annum and was due on demand. Accrued
interest at September 30, 1998 was $263 and is presented in Accrued
interest - shareholder. The loan principal and accrued interest were
paid in full in fiscal 1999.
(3) INTANGIBLE ASSETS In April 1999, the Company entered into a license
agreement with the Regents of the University of California-San Diego,
(UCSD), for a license under patent rights to make, use, sell, offer for
sale, import licensed products, practice licensed methods, and use
technology. A license fee of $40,000 was paid upon execution of the
agreement. Under the terms of the agreement, the Company must pay to
the licensor a royalty of 1.5% on net sales of the licensed products.
The Company must also pay for one half of all past and future patent
costs, which totaled $7,362 during the period ended September 30, 1999.
Also, the Company is obligated to pay certain fees and royalties for
any executed sub-license arrangements. As of September 30, 1999, there
were no such arrangements.
In August 1999, the Company entered into a second license agreement
with UCSD under patent rights to make, use, sell, offer for sale, and
import licensed products and to practice licensed methods and to use
technology. A license fee in the amount of $5,000 was paid upon
execution of the agreement. Under the terms of the agreement, the
Company must pay to the licensor a royalty of 1.5% on net sales and
certain fees and royalties for any executed sub-license agreements. In
addition, the Company is obligated to pay for one-half of all past and
future patent costs. As of September 30, 1999, past patent costs
payable have been recorded as follows:
<TABLE>
<CAPTION>
<S> <C>
Due Year Ending September 30,
2000 (included in Accounts payable - trade) $27,547
2001 (Long-term obligation) 13,773
-------
$41,320
-------
-------
</TABLE>
In January 1999, the Company acquired certain intangible assets from
Trans-Science Corporation (TSC), a company under common control. Fire
test data, concerning the overlay systems in the form of technical
reports from an independent laboratory in New York performed prior to
the Company's inception, was purchased from TSC, at their cost, for
$13,979 in cash.
Also, in January 1999, TSC sold, assigned and transferred all of its
rights, title and interest to the Earthquake Retrofit Design Software
to the Company for $330,000 in cash. This purchase price is an amount
significantly less than the cost incurred by TSC. In addition, during
the period ended September 30, 1999, the Company paid TSC $90,000 for
upgrade services on this software.
There was no amortization expense incurred during the period ended
September 30, 1999, as these intangible assets have not yet been placed
in service.
F-8
<PAGE>
(4) STOCKHOLDERS' EQUITY The Company has authorized 50,000,000 shares of
$0.0001 par value common stock and 10,000,000 shares of $0.0001 par
value preferred stock. Rights and privileges of the preferred stock are
to be determined by the Board of Directors prior to issuance. The
Company had 14,500,000 and 0 shares of common and preferred stock
issued and outstanding, respectively, at September 30, 1999. On October
21, 1997, the Company issued 1,601,000 shares to its President for the
value of services rendered in connection with the organization of the
Company. In April 1998, the Company issued 646,000 shares of common
stock under Regulation D offerings in exchange for $20,200 in cash. The
Company paid $4,500 of legal expenses in connection with these
offerings. Also in April 1998, the Company issued 49,500 shares, to its
Executive Vice President for value of services rendered of $2,475.
On June 25, 1999, the Company completed a 9.229876 shares for 1 share
forward split. Retroactive effect to this split has been given in the
accompanying financial statements. On June 25, 1999, the Company
received 7,896,410 shares contributed back to the Company. On June 30,
1999, the Company issued 1,000,000 shares to acquire 100% of the issued
and outstanding common stock of Composite Solutions, Inc., (a Nevada
corporation). On June 30, 1999, the Company issued 200,000 shares in
settlement of its subsidiary note payable with a principal balance of
$1,000,000 and accrued interest of $17,825.
(5) INCOME TAXES Deferred income taxes (benefits) are provided for certain
income and expenses which are recognized in different periods for tax
and financial reporting purposes. The Company had net operating loss
carry-forwards for income tax purposes of approximately $575,000
expiring at September 30, 2019.
The amount recorded as deferred tax assets as of September 30, 1999 is
approximately $221,000, which represents the amount of tax benefit of
the loss carry-forward. The Company has established a valuation
allowance against this deferred tax asset, as the Company has no
history of profitable operations.
(6) RELATED PARTIES See Note (2) for disclosure of note receivable-related
party. See Note (3) for disclosure of related party intangible assets.
See Note (4) for issuance of stock for services rendered by related
parties. These amounts, totaling $2,635, were charged to Professional
fees - related party.
In June 1999, the Company advanced funds in the amount of $4,950 to an
officer of the Company for certain moving expenses. As of September 30,
1999, the amount has been repaid. At September 30, 1999, the Company
owed certain of its officers a total of $2,179 for reimbursement of
certain Company- related expenses. This amount is presented in Accounts
payable - officers.
As of January 1999, the Company shares office space and certain related
expenses with TSC, a company under common control. The Company remits
their portion of the lease payment directly to an independent lessor.
Rent expense totaled $37,800 for the period ended September 30, 1999.
Total payments to TSC for office expenses were $2,734 during the period
ended September 30, 1999. At September 30, 1999, the Company owed TSC a
total of $730 for utilities. This amount is presented in Accounts
payable - related party.
During the period ended September 30, 1999, the Company was advanced
funds from the then president and majority shareholder of the Company.
At September 30, 1999, the advance has been paid.
F-9
<PAGE>
(7) GOING CONCERN The accompanying consolidated financial statements have
been prepared assuming that the Company will continue as a going
concern. The Company's financial position and operating results raise
substantial doubt about the Company's ability to continue as a going
concern, as reflected by the net loss of $574,850 accumulated from
October 20, 1997 (Inception) through September 30, 1999. The ability of
the Company to continue as a going concern is dependent upon commencing
operations, developing sales and obtaining additional capital and
financing. The consolidated financial statements do not include any
adjustments that might be necessary if the Company is unable to
continue as a going concern. The Company is currently seeking
additional capital to allow it to begin its planned operations.
In October 1999, the Company began efforts to raise $2,000,000 through
a private placement limited offering of 2,000,000 shares of common
stock priced at $1.00 per share. See Note 8.
(8) SUBSEQUENT EVENTS
a) COMMITMENTS AND CONTINGENCIES In November 1999, the Company and TSC,
a company under common control, entered into an operating lease for its
offices. The lease term ends November 2002. Future minimum payments
under the lease are as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 65,664
2001 85,133
2002 87,898
2003 22,188
--------
$260,883
--------
--------
</TABLE>
In addition, the Company will be obligated to share operating expenses,
with calendar year 2000 being a base year.
b) STOCKHOLDERS' EQUITY In December 1999, a trustee shareholder
surrendered 4,300,000 shares which have been cancelled. In December
1999, the Company issued 320,000 shares of common stock under a private
placement in exchange for $320,000 cash.
F-10
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
EXECUTIVE OFFICERS AND DIRECTORS
The persons who were directors and/or executive officers of
the Company at September 30, 1999 are identified in the
following table. Upon completion of the acquisition of CSI
Nevada on June 30, 1999, all of the then directors and
officers of the Company at the time tendered their
resignations.
<TABLE>
<CAPTION>
Name Positions (Held Since) Address
- ---- ---------------------- -------
<S> <C> <C>
Gilbert A. Hegemier Director and 3655 Nobel Drive, Suite 440
Chairman of theBoard (6/99) San Diego, CA 92122
President (CSI-NV 12/98--6/99)
Donald Nicholson Director, Chief Executive 3655 Nobel Drive, Suite 440
Officer, President and Interim San Diego, CA 92122
Chief Financial Officer (10/99)
Vice President and
Chief Operating Officer (6/99)
Thomas Burke Director, President and Chief PO Box 7364
Executive Officer (6/99-10/99) Newport Beach, CA 92660
</TABLE>
Each director will serve until the next annual meeting of
shareholders, and thereafter if reelected. All corporate officers
serve at the pleasure of the Board.
GILBERT A. HEGEMIER, PH.D. - CHAIRMAN. Dr. Hegemier is one of the
developers of the composite overlay technology and has served as the
Company's Chairman since June 1999. Dr. Hegemier also served as
President of CSI Nevada from December 1998 through June 1999. Dr.
Hegemier has served as a professor at the University of California,
San Diego since 1968, where he currently serves as a Professor of
Structural Engineering and also serves as Director of The Powell
Structural Systems Laboratory. Since 1980, Dr. Hegemier has also
served as President and CEO of Trans-Science Corporation, a high
technology organization that creates simulation programs and advanced
material models for the Department of Defense in a wide range of
technical areas.
DONALD NICHOLSON - DIRECTOR, PRESIDENT, CHIEF EXECUTIVE OFFICER AND
INTERIM CHIEF FINANCIAL OFFICER. Mr. Nicholson has served as the
Company's Director, Chief Executive Officer, President and Interim
Chief Financial Officer since October 1999. From June through
September 1999, Mr. Nicholson served as Vice President and Chief
Operating Officer of the Company. In addition to his duties as an
officer and director of the Company, since 1996 Mr. Nicholson has
served as a management consultant and a director of various companies,
including Kensington Resources Ltd, Shiega Resources Corporation, Pan
Asia Mining Corporation, AGC Americas Gold
-15-
<PAGE>
Corporation, and Parkcrest Explorations Ltd. Prior to 1996, he served
as President and Chief Executive Officer for Yarrows Limited in
Vancouver/Victoria, British Columbia. Mr. Nicholson serves as a
director for Quantum Technology Corporation (OTC.BB), a software
development company, and American Bullion Corporation (TSE), a
Canadian mineral exploration company.
THOMAS BURKE. Thomas Burke served as the Company's President, CEO and
as director of the Company from June 30, 1999 through October 21,
1999. Over the past five years Mr. Burke has served as an independent
construction consultant, including rendering services as a forensic
expert witness in litigation regarding construction defects.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers and directors and persons who own more
than 10% of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission (hereafter referred to as the
"Commission") initial statements of beneficial ownership, reports of changes in
ownership and annual reports concerning their ownership, of Common Stock and
other equity securities of the Company on Forms 3, 4, and 5, respectively.
Executive officers, directors and greater than 10% shareholders are required by
Commission regulations to furnish the Company with copies of all Section 16(a)
reports they file. The Company has been informed that none of Mr. Nicholson, Dr.
Hegemier or Mr. Burke filed a Form 3 within the prescribed period following the
date on which such person became and officer, director or 10% beneficial owner
of the Company's outstanding Common Stock.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation of
the Chief Executive Officer of the Company and each other executive officer who
received annual compensation in excess of $100,000 for the fiscal year ended
September 30, 1999:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
FISCAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
- --------------------------- ------ ------ ----- ---------------
<S> <C> <C> <C> <C>
Donald Nicholson 1999 $29,667 $ -0- $ --
President, Chief Executive
Officer, Interim CFO
Gilbert A. Hegemier 1999 113,750 -0- --
Chairman and Former
President
Thomas Burke 1999 52,000 -0- --
</TABLE>
- -----------
(1) Perquisites and other personal benefits did not in the aggregate reach
the lesser of $50,000 or 10% of the total annual salary and bonus
reported in this table for any named executive officer.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-16-
<PAGE>
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of December 31, 1999, for
(i) each of the Company's directors, (ii) by each of the executive officers
identified in the Summary Compensation Table, (iii) all executive officers and
directors of the Company as a group and (iv) each person who is known by the
Company to beneficially own 5% or more of the outstanding shares of Common
Stock. The Company believes that the persons named in the table have sole voting
and investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws, where
applicable.
SHARES BENEFICIALLY OWNED(1)
<TABLE>
<CAPTION>
NUMBER OF PERCENT
NAME(2) SHARES (1) OWNED(3)
------- ---------- --------
<S> <C> <C>
Donald Nicholson 1,000,000 9.5%
Gilbert A. Hegemier 3,051,282 29.0%
Thomas Burke 1,000,000 (4) 9.5%
All current directors and 4,051,282 38.51%
executive officers as a group
(2 persons)
</TABLE>
- --------------------
(1) Shares of Common Stock which the person has the right to acquire within
60 days of December 31, 1999 are deemed outstanding in calculating the
percentage of ownership of the persons, but not deemed outstanding as
to any other person.
(2) The business address of each of Mr. Nicholson and Mr. Hegemier is c/o
the Company. The address of Mr. Burke is his mailing address.
(3) Percentages based on 10,520,000 shares of Common Stock outstanding as
of December 31, 1999.
(4) Based on representations made by Mr. Burke as to his direct and
indirect ownership of shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH DR. GILBERT HEGEMIER AND AFFILIATES
Dr. Gilbert A. Hegemier is President, Chief Executive Officer and a
principal shareholder of Trans-Science Corporation. The Company acquired key
items of its technology from that entity, which it purchased for substantial
cash payments. The Company also has a strategic business relationship with
Trans-Science under which the Company is, and will continue, to be acquiring
consulting services. Each of these situations result in obvious conflicts of
interest. To minimize these conflicts, Mr. Hegemier, as an officer and member of
the board, will defer to other officers and members in dealings with the
entities in which he has a direct interest.
The Company has acquired exclusive ownership of certain retrofit
design software from Trans-Science Corporation. This software concerns the
retrofit of building and bridge columns via composite overlays. The software
rights, which includes the source code and copyrights, were acquired from Trans-
Science Corporation, an affiliate of Dr. Hegemier, in consideration for the
payment of $330,000 cash.
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<PAGE>
Subsequent to this purchase, the Company paid Trans-Science Corporation $90,000
for upgrades to the software.
In addition, the Company has also acquired the fire technical data
reports regarding the overlay systems in consideration of the payment to
Trans-Science Corporation in the approximate amount of $14,000.
Dr. Hegemier is a full-time professor and staff member with the
University of California, San Diego, Department of Engineering, as well as
Director of The Powell Structural Systems Laboratory, which is the University's
testing laboratory for materials and technologies in the area which the Company
operates. In that position, he is responsible to the University and all entities
dealing with it to be open, fair and even handed in his research, testing and
public information. He cannot provide preference to the Company or its
clientele, even though he is the largest single stockholder and principal of the
Company.
LICENSES WITH THE UNIVERSITY OF CALIFORNIA
The University of California is the holder of a patent for the
Retrofit and Repair of Concrete and Masonry Walls from the inventions made in
the course of research by Prof. Gilbert A. Hegemier and his associates. On April
20, 1999, the Company entered into a License Agreement with the University of
California, San Diego, under which the University granted to the Company a
license for that patent. That document grants the Company a license to use that
technology throughout the world for the life of the patent. In consideration,
the Company paid a licencing fee of $40,000 and is to pay royalty fees of 1.5%
of its net sales revenues. Under the terms of the agreement, the Company must
also pay one-half of all past and future patent costs. The license is
co-exclusive with one other third party licensee. That third party licensee does
not have access to the other ancillary technology, has not recently been active
in the retrofit/repair business and is subject to a default notice by the
University. In the event of a termination of that license, the University has
expressed its willingness to negotiate in good faith with the Company to reach
an arrangement in which the Company would be the exclusive licensee for that
technology.
The University of California has developed certain proprietary
technology for the Carbon Shell System from the inventions made in the course of
research by Prof. Gilbert A. Hegemier and his associates. On August 4, 1999, the
Company entered into a License Agreement with the University of California, San
Diego, under which the University granted to the Company a co-exclusive license
throughout the part of the world the Company designates(after payment of costs)
for that technology. In consideration, the Company paid a licencing fee of
$5,000 and is to pay royalties of 1.5% of its net sales revenues. Under the
terms of the agreement, the Company must also pay one-half of all past and
future patent costs.
RESTRUCTURING TRANSACTIONS
In mid-June, 1999, the Company (whose name was then JS Business Works,
Inc.) entered into a Share Exchange Agreement with Composite Solutions, Inc.
which was then a privately held Nevada corporation of which Dr. Gilbert A.
Hegemier was the principal shareholder. That Share Exchange Agreement provided,
among other items for the Company, which is a Florida corporation, (i) to change
its name to Composite Solutions, Inc., (ii) to split its stock and to enter into
certain stock surrender-cancellations resulting in the Company having
outstanding no more than 14,500,000 shares, (iii) to then acquire 100% of the
outstanding stock of Composite Solutions, Inc. (the Nevada corporation) by
issuing 1,000,000 new shares of the Company in exchange for the stock of the
Nevada corporation; (iv) to elect
-18-
<PAGE>
a new board of directors to include those members now on the board. That Share
Exchange Agreement was closed on June 30, 1999.
Prior to that closing, the Company had obtained a line of credit from
a private source to provide its operating funds. On June 30, 1999, that debt
totaled $1,000,000. Immediately upon closing of the Share Exchange Agreement,
the Company exchanged 200,000 shares of its common stock for cancellation of
that debt.
In December, 1999, Gilbert A. Hegemier, who held 6,800,000 shares of
stock in trust for himself and others tendered all but 3,500,000 of those shares
to the Company for cancellation. On December 17, 1999, Gilbert A. Hegemier
distributed shares under the trust arrangement which left him with 3,051,282
shares.
In December, 1999, the Company issued 320,000 shares of its stock at
$1.00 per share in a private placement the proceeds of which were used for
working capital.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1 Articles of Incorporation of the Company, as amended*
3.2 Bylaws of the Company, as amended*
10.1 License Agreement with UCSD (Case No. SD96-103)
10.2 License Agreement with UCSD (Case No. SD96-040)
10.3 Share Exchange Agreement**
27 Financial Data Schedule
</TABLE>
- -------------------
* Incorporated by reference to the referenced document filed as an
exhibit to the Company's Registration Statement on Form 10SB12G/A,
Commission File No. 000-24551, filed on October 20, 1998.
** Incorporated by reference to the referenced document filed as an
exhibit to the Company's Registration Statement on Form 8-K, Commission
File No. 000-24551, filed on July 1, 1999.
b. Reports on Form 8-K.
On July 1, 1999, the Company filed a Current Report on Form
8-K (amended on August 30, 1999) relating to the Company's acquisition of CSI
Nevada by way of an exchange of shares of the Company for all of the shares of
CSI Nevada.
-19-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
the Company has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: January 12, 2000
Composite Solutions, Inc.
By: /s/ Don Nicholson
--------------------------
Don Nicholson,President and CEO
Pursuant to the requirements of the Securities Exchange Act, of 1934
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Capacity Date
- ---------- -------- ----
<S> <C> <C>
/s/ Don Nicholson President, Interim Chief Financial Officer, January 12, 2000
- -----------------
Don Nicholson Chief Executive Officer and
Director
/s/ Gilbert A. Hegemier Chairman of the Board January 12, 2000
- -----------------------
Gilbert A. Hegemier
</TABLE>
-20-
<PAGE>
LICENSE AGREEMENT
This agreement ("Agreement") is made by and between Composite Solutions,
Inc., a Florida corporation having an address at 7777 Fay Ave., Suite 112, La
Jolla, CA 92032 ("LICENSEE") and The Regents Of The University Of California,
a California corporation having its statewide administrative offices at 1111
Franklin Street, Oakland, California 94607-5200 ("UNIVERSITY"), represented
by its San Diego campus having an address at University of California, San
Diego, Technology Transfer Office, Mail-code 0910, 9500 Gilman Drive, La
Jolla, California 92093-0910 ("UCSD").
This Agreement is effective on the date of the last signature ("Effective
Date").
RECITALS
WHEREAS, the inventions disclosed in UCSD Case Docket No. SD96-103 and titled
"Retrofit and Repair of Concrete and Masonry Walls with Carbon Overlays"
("Invention"), were made in the course of research at UCSD by Profs. Gilbert
A. Hegemier and Frieder Seible and their associates (hereinafter and
collectively, the "Inventors") and are covered by Patent Rights as defined
below;
WHEREAS, the research was sponsored in part by the Government of the United
States of America and as a consequence this license is subject to overriding
obligations to the Federal Government under 35 U.S.C. Sections 200-212 and
applicable regulations;
WHEREAS, the Inventors are employees of UCSD, and they are obligated to
assign all of their right, title and interest in the Invention to UNIVERSITY;
WHEREAS, UNIVERSITY is desirous that the Invention be developed and utilized
to the fullest possible extent so that its benefits can be enjoyed by the
general public;
WHEREAS, LICENSEE is desirous of obtaining certain rights from UNIVERSITY for
commercial development, use, and sale of the Invention, and the UNIVERSITY
is willing to grant such rights; and
WHEREAS, LICENSEE understands that UNIVERSITY may publish or otherwise
disseminate information concerning the Invention and Technology (as defined
below) at any time and that LICENSEE is paying consideration thereunder for
its early access to the Invention and Technology, not continued secrecy
therein.
NOW, THEREFORE, the parties agree:
1
<PAGE>
ARTICLE 1. DEFINITIONS
The terms, as defined herein, shall have the same meanings in both their
singular and plural forms.
1.1 "Affiliate" means any corporation or other business entity in which
LICENSEE owns or controls, directly or indirectly, at least twenty
percent (20%) of the outstanding stock or other voting rights entitled
to elect directors, or in which LICENSEE is owned or controlled
directly or indirectly by at least twenty percent (20%) of the
outstanding stock or other voting rights entitled to elect directors;
but in any country where the local law does not permit foreign equity
participation of at least twenty percent (20%), then an "Affiliate"
includes any company in which LICENSEE owns or controls or is owned or
controlled by, directly or indirectly, the maximum percentage of
outstanding stock or voting rights permitted by local law.
1.2 "Sublicensee" means a third party to whom LICENSEE grants a sublicense
of certain rights granted to LICENSEE under this Agreement.
1.3 "Field" means the construction, retrofit, repair, or reinforcement of
unreinforced cementitious or masonry walls or other structures.
1.4 "Territory" means world-wide.
1.5 "Term" means the period of time beginning on the Effective Date and
ending on the later of (i) the expiration date of the longest-lived
Patent Rights; or (ii) the twenty-first (21st) anniversary of Effective
Date.
1.6 "Patent Rights" means any of the following: the US patent application
(serial number 08/667,916, titled "Reinforcement of Cementitous Walls
to Resist Seismic Forces") disclosing and claiming the Invention,
filed by Inventors and assigned to UNIVERSITY; and continuing
applications thereof including divisions, substitutions, and
continuations-in-part (but only to extent the claims thereof are enabled
by disclosure of the parent application); any patents issuing on said
applications including reissues, reexaminations and extensions; and
any corresponding foreign applications or patents.
1.7 "Technology" means the written technical information relating to the
Invention which the Inventors provide to LICENSEE prior to the
Effective Date and which the Inventors may provide to LICENSEE during
the Term of this Agreement.
1.8 "Sponsor Rights" means all the applicable provisions of any license to
the United States Government executed by UNIVERSITY and the overriding
obligations to the Federal Government under 35 U.S.C. Sections 200-212
and applicable governmental implementing regulations.
2
<PAGE>
1.9. "Licensed Method" means any method that uses Technology, or is covered
by Patent Rights the use of which would constitute, but for the
license granted to LICENSEE under this Agreement, an infringement of
any pending or issued and unexpired claim within Patent Rights.
1.10 "Licensed Product" means any services, composition or product that uses
the Invention or Technology, or is covered by the claims of Patent
Rights, or that is produced by the Licensed Method, or the
manufacture, use, sale, offer for sale, or importation of same which
would constitute, but for the license granted to LICENSEE by UNIVERSITY
herein, an infringement of any pending or issued and unexpired claim
within the Patent Rights.
1.11 "Net Sales" means the total of the gross invoice prices of Licensed
Products sold by LICENSEE, its Sublicensee, an Affiliate, or any
combination thereof, less the sum of the following actual and
customary deductions where applicable and separately listed: cash,
trade, or quantity discounts; sales, use, tariff, import/export duties
or other excise taxes imposed on particular sales (except for
value-added and income taxes imposed on the sales of Product in
foreign countries); transportation charges; or credits to customers
because of rejections or returns. For purposes of calculating Net
Sales, transfers to a Sublicensee or an Affiliate of Licensed Product
under this Agreement for (i) end use (but not resale) by the
Sublicensee or Affiliate shall be treated as sales by LICENSEE at list
price of LICENSEE, or (ii) resale by a Sublicensee or an Affiliate
shall be treated as sales at the list price of the Sublicensee or
Affiliate.
1.12 "Patent Costs" means all out-of-pocket expenses for the preparation,
filing, prosecution, and maintenance of all United States and foreign
patents included in Patent Rights. Patent Costs shall also include
reasonable out-of-pocket expenses for patentability opinions,
inventorship determination, preparation and prosecution of patent
application, re-examination, re-issue, interference, and opposition
activities related to patents or applications in Patent Rights.
1.13 "Combination Product" means any product which is a Licensed Product and
contains other product(s) or product component(s) that (i) does not
use Invention, Technology or Patent Rights; (ii) the sale, use or
import by itself does not contribute to the infringement of Patent
Rights; (iii) can be sold separately by LICENSEE, its Sublicensee or an
Affiliate; and (iv) enhances the market price of the final product(s)
sold, used or imported by LICENSEE, its Sublicensee, or an Affiliate.
3
<PAGE>
ARTICLE 2. GRANTS
2.1 LICENSE. Subject to the limitations set forth in this Agreement and
Sponsor's Rights, UNIVERSITY hereby grants to LICENSEE, and LICENSEE hereby
accepts, a license under Patent Rights to make, use, sell, offer for sale,
and import Licensed Products and to practice Licensed Methods and to use
Technology, in the Field within the Territory and during the Term.
The license granted herein is co-exclusive and LICENSEE understands and
acknowledges that UNIVERSITY has the right to grant one license to a third
party under Patent Rights to make, use, sell, offer for sale, and import
Licensed Products and to practice Licensed Methods and to use Technology, in
the Field within the Territory and during the Term.
UNIVERSITY shall not grant a third license under Patent Rights or to use
Technology in the Field, within the Territory and during the Term.
2.2 SUBLICENSE.
(a) The license granted in Paragraph 2.1 includes the right of LICENSEE to
grant sublicense to third parties during the Term but only for as long
the license is exclusive.
(b) With respect to sublicense granted pursuant to Paragraph 2.2(a),
LICENSEE shall:
(1) not receive, or agree to receive, anything of value in lieu of
cash as considerations from a third party under a sublicense
granted pursuant to Paragraph 2.2(a) without the express written
consent of UNIVERSITY;
(2) to the extent applicable, include all of the rights of and
obligations due to UNIVERSITY (and, if applicable, the Sponsor's
Rights) and contained in this Agreement;
(3) promptly provide UNIVERSITY with a copy of each sublicense
issued; and
(4) collect and guarantee payment of all payments due, directly or
indirectly, to UNIVERSITY from Sublicensees and summarize and
deliver all reports due, directly or indirectly, to UNIVERSITY
from Sublicensees.
(c) Upon termination of this Agreement for any reason, UNIVERSITY, at its
sole discretion, shall determine whether LICENSEE shall cancel or assign
to UNIVERSITY any and all sublicenses.
4
<PAGE>
2.3 RESERVATION OF RIGHTS. UNIVERSITY reserves the right to:
(a) use the Invention, Technology and Patent Rights for educational and
research purposes;
(b) publish or otherwise disseminate any information about the Invention
and Technology at any time; and
(c) allow other nonprofit institutions to use Invention, Technology and
Patent Rights for educational and non-commercial research purposes in
their facilities.
ARTICLE 3. CONSIDERATIONS
3.1 FEES AND ROYALTIES. The parties hereto understand that the fees and
royalties payable by LICENSEE to UNIVERSITY under this Agreement are
partial considerations for the license granted herein to LICENSEE under
Technology, and Patent Rights. LICENSEE shall pay UNIVERSITY:
(a) A LICENSE ISSUE FEE of Forty Thousand Dollars (US$ 40,000) upon
execution of this Agreement;
(b) AN EARNED ROYALTY of one and one half percent (1.5%) on Net Sales
of Licensed Products by LICENSEE and/or its Affiliate(s);
(c) fifty percent (50%) of all SUBLICENSE FEES received by LICENSEE
from its Sublicensees that are not earned royalties;
(d) on each and every SUBLICENSE ROYALTY payment received by LICENSEE
from its Sublicensees on sales of Licensed Product by Sublicensee,
the higher of (i) fifty percent (50%) of the royalties received
by LICENSEE; or (ii) royalties based on the royalty rate in
Paragraph 3.1(d) as applied to Net Sales of Sublicensee;
(e) beginning the calendar year of the Effective Date if the total
earned royalties paid by LICENSEE under Paragraphs 3.1(b) and (d)
to UNIVERSITY in any such year cumulatively amounts to less than
the amount specified herein for each calendar year ("MINIMUM
ANNUAL ROYALTY"), LICENSEE shall pay to UNIVERSITY a minimum
annual royalty on or before February 28 following the last quarter
of such year of the difference between amount noted above and the
total earned royalty paid by LICENSEE for such year under
Paragraphs 3.1(b) and (d).
1999 US$ 5,000
2000 US$ 10,000
5
<PAGE>
2001 US$ 20,000
2002 US$ 30,000
2003 US$ 40,000
2004 US$ 50,000 and for each calendar year of the Agreement
thereafter
All fees and royalty payments specified in Paragraphs 3.1(a) through
3.1(e) above shall be paid by LICENSEE pursuant to Paragraph 4.3 and
shall be delivered by LICENSEE to UNIVERSITY as noted in Paragraph 10.1.
3.2 PATENT COSTS. LICENSEE shall reimburse UNIVERSITY for one-half (1/2) of
all past (prior to the Effective Date) and future (on or after the
Effective Date) Patent Costs within thirty (30) days following receipt
by LICENSEE of an itemized invoice from UNIVERSITY.
One-half (1/2) of Past Patent Costs are five thousand eight hundred
seventy four dollars (US$ 5874).
3.3 DUE DILIGENCE.
(a) LICENSEE shall:
(1) diligently proceed within a reasonable time with the development,
manufacture and sale of Licensed Products according to the
business plan provided by LICENSEE to UNIVERSITY;
(2) market Licensed Products in the United States within six (6)
months of receiving regulatory approval to market such Licensed
Product's;
(3) should LICENSEE'S License be converted to an exclusive license,
then reasonably fill the market demand for Licensed Products
following commencement of marketing at any time during the term of
this Agreement; and
(4) obtain all necessary governmental approvals for the manufacture,
use and sale of Licensed Products.
(b) If LICENSEE fails to perform any of its obligations specified in
Paragraphs 3.3(a)(1)-(4), then UNIVERSITY shall have the right and option,
subject to LICENSEE'S right to written notice and rights to cure provided
herein under paragraph 7.1, to either terminate this Agreement or change
LICENSEE's exclusive license to a nonexclusive license. This right, if
exercised by UNIVERSITY, supersedes the rights granted in Article 2.
6
<PAGE>
ARTICLE 4. REPORTS, RECORDS AND PAYMENTS
4.1 REPORTS.
(a) PROGRESS REPORTS.
(1) Beginning January 1, 2000 and ending on the date of first
commercial sale of a Licensed Product in the United States,
LICENSEE shall submit to UNIVERSITY semi-annual progress reports
covering LICENSEE's (and Affiliate's and Sublicensee's)
activities to develop and test all Licensed Products and obtain
governmental approvals necessary for marketing the same. Such
reports shall include a summary of work completed; summary of work
in progress; current schedule of anticipated events or milestones;
market plans for introduction of Licensed Products; and summary of
resources (dollar value) spent in the reporting period.
(2) LICENSEE shall also report to UNIVERSITY, in its immediately
subsequent progress report, the date of first commercial sale of a
Licensed Product in each country.
(b) ROYALTY REPORTS. After the first commercial sale of a Licensed
Product anywhere in the world, LICENSEE shall submit to UNIVERSITY
quarterly royalty reports on or before each February 28, May 31, August 31
and November 30 of each year. Each royalty report shall cover LICENSEE's
(and each Affiliate's and Sublicensee's) most recently completed calendar
quarter and shall show:
(1) the gross sales, deductions as provided in Paragraph 1.11, and
Net Sales during the most recently completed calendar quarter and
the royalties, in US dollars, payable with respect thereto;
(2) the number of each type of Licensed Product sold;
(3) sublicense fees and royalties received during the most recently
completed calendar quarter in US dollars, payable with respect
thereto;
(4) the method used to calculate the royalties; and
(5) the exchange rates used.
If no sales of Licensed Products has been made and no sublicense
revenues has been received by LICENSEE during any reporting period,
LICENSEE shall so report.
7
<PAGE>
(c) To the extent allowed by law, all records and other proprietary
business information of LICENSEE made available to UNIVERSITY under
foregoing paragraphs 4.2(a) and 4.2(b) shall be held by UNIVERSITY and
UNIVERSITY'S inspecting agents in strictest confidence and shall not be
disclosed to any person or entity except for those persons who need to
have access to the same for the specific and limited purposes intended
by those sections to determine the compliance of LICENSEE with respect
to LICENSEE'S obligation to make royalty payments under this Agreement.
All such records, upon the completion of the audit, shall be returned
to LICENSEE with no copies being retained except those limited records
necessary to resolve a claim against LICENSEE if and when a reasonable
dispute exists about such payments.
4.2 RECORDS & AUDITS.
(a) LICENSEE shall keep, and shall require its Affiliates and Sublicensees
to keep, accurate and correct records of all Licensed Products
manufactured, used, and sold, and sublicense fees received under this
Agreement. Such records shall be retained by LICENSEE for at least five
(5) years following a given reporting period.
(b) All records shall be available during normal business hours for
inspection at the expense of UNIVERSITY by UNIVERSITY'S Internal
Audit Department or by a Certified Public Accountant selected by
UNIVERSITY and in compliance with the other terms of this Agreement for
the sole purpose of verifying reports and payments. Such inspector
shall not disclose to UNIVERSITY any information other than information
relating to the accuracy of reports and payments made under this
Agreement or other compliance issues. In the event that any such
inspection shows an under reporting and underpayment in excess of five
percent (5%) for any twelve (12) month period, then LICENSEE shall pay
the cost of the audit as well as any additional sum that would have been
payable to UNIVERSITY had the LICENSEE reported correctly, plus an
interest charge at a rate of ten percent (10%) per year. Such interest
shall be calculated from the date the correct payment was due to
UNIVERSITY up to the date when such payment is actually made by LICENSEE.
For underpayment not in excess of five percent (5%) for any twelve (12)
month period, LICENSEE shall pay the difference within thirty (30) days
without interest charge or inspection cost.
4.3 PAYMENTS.
(a) All fees and royalties due UNIVERSITY shall be paid in United States
dollars and all checks shall be made payable to "The Regents of the
University of California", referencing UNIVERSITY'S taxpayer
identification number, 95-6006144. When Licensed Products are sold in
currencies other than United States dollars, LICENSEE shall first
determine the earned royalty in the currency of the country in which
Licensed Products were sold and then convert the amount into
8
<PAGE>
equivalent United States funds, using the exchange rate quoted in the
Wall Street Journal on the last business day of the applicable reporting
period.
(b) Royalty Payments.
(1) Royalties shall accrue when Licensed Products are invoiced, or if
not invoiced, when delivered to a third party or Affiliate.
(2) LICENSEE shall pay earned royalties quarterly on or before
February 28, May 31, August 31 and November 30 of each calendar
year. Each such payment shall be for earned royalties accrued
within LICENSEE's most recently completed calendar quarter.
(3) Royalties earned on sales occurring or under sublicense granted
pursuant to this Agreement in any country outside the United
States shall not be reduced by LICENSEE for any taxes, fees, or
other charges imposed by the government of such country on the
payment of royalty income, except that all payments made by
LICENSEE in fulfillment of UNIVERSITY'S tax liability in any
particular country may be credited against earned royalties or
fees due UNIVERSITY for that country. LICENSEE shall pay all bank
charges resulting from the transfer of such royalty payments.
(4) If at any time legal restrictions prevent the prompt remittance of
part or all royalties by LICENSEE with respect to any country
where a Licensed Product is sold or a sublicense is granted pursuant
to this Agreement, LICENSEE shall convert the amount owed to
UNIVERSITY into US currency and shall pay UNIVERSITY directly from
its US sources of fund for as long as the legal restrictions apply.
(5) LICENSEE shall not collect royalties from, or cause to be paid on
Licensed Products sold to the account of the US Government or any
agency thereof as provided for in the license to the US Government.
(6) In the event that any patent or patent claim within Patent Rights
is held invalid in a final decision by a patent office from which
no appeal or additional patent prosecution has been or can be
taken, or by a court of competent jurisdiction and last resort
and from which no appeal has or can be taken, all obligation to
pay royalties based solely on that patent or claim or any claim
patentably indistinct therefrom shall cease as of the date of such
final decision. LICENSEE shall not, however, be relieved from
paying any royalties that accrued before the date of such final
decision, that are based on another patent or claim not involved
in such final decision, or that are based on the use of Technology.
9
<PAGE>
(b) LATE PAYMENTS. In the event royalty, reimbursement and/or fee payments
are not received by UNIVERSITY when due, LICENSEE shall pay to
UNIVERSITY interest charges at a rate of ten percent (10%) per year. Such
interest shall be calculated from the date payment was due until actually
received by UNIVERSITY. The payment of such interest shall not foreclose
UNIVERSITY from exercising any other rights it may have as a consequence
of the lateness of any payment. In no event shall this paragraph be
construed as a grant of permission for any payment delays.
ARTICLE 5. PATENT MATTERS
5.1 PATENT PROSECUTION AND MAINTENANCE.
(a) Provided that LICENSEE has reimbursed UNIVERSITY for Patent Costs
pursuant to Paragraph 3.2, UNIVERSITY shall diligently prosecute and
maintain the United States and, if available, foreign patents, and
applications in Patent Rights using counsel of its choice. UNIVERSITY
shall provide LICENSEE with copies of all relevant documentation
relating to such prosecution and LICENSEE shall keep this documentation
confidential. The counsel shall take instructions only from UNIVERSITY,
and all patents and patent applications in Patent Rights shall be
assigned solely to UNIVERSITY.
If UNIVERSITY decides not to file patent applications in any country or
countries in which LICENSEE deems patent protection to be necessary,
LICENSEE may require that such application or applications be made and
prosecuted by UNIVERSITY in such countries. Should the other third party
licensee choose not to participate in that third party's share of such
application, LICENSEE agrees to pay the full expense of such application
or applications, UNIVERSITY will use best efforts to amend that third
party's license to grant LICENSEE an exclusive license in such country
to countries to which such patent application apply.
(b) UNIVERSITY shall consider amending any patent application in Patent
Rights to include claims reasonably requested by LICENSEE to protect the
products contemplated to be sold by LICENSEE under this Agreement.
(c) LICENSEE shall apply for an extension of the term of any patent in
Patent Rights if appropriate under the Drug Price Competition and Patent
Term Restoration Act of 1984 and/or European, Japanese and other foreign
counterparts of this law. LICENSEE shall prepare all documents for such
application, and UNIVERSITY shall execute such documents and to take any
other additional action as LICENSEE reasonably requests in connection
therewith.
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(d) LICENSEE may elect to terminate its reimbursement obligations with
respect to any patent application or patent in Patent Rights upon three
(3) months' written notice to UNIVERSITY. UNIVERSITY shall use
reasonable efforts to curtail further Patent Costs for such application
or patent when such notice of termination is received from LICENSEE.
UNIVERSITY, in its sole discretion and at its sole expense, may continue
prosecution and maintenance of said application or patent, and LICENSEE
shall then have no further license with respect thereto. Non-payment of
any portion of Patent Costs with respect to any application or patent
may be deemed by UNIVERSITY as an election by LICENSEE to terminate its
reimbursement obligations with respect to such application or patent.
5.2 PATENT INFRINGEMENT.
(a) If LICENSEE learns of any substantial infringement of Patent Rights,
LICENSEE shall so inform UNIVERSITY and provide UNIVERSITY with
reasonable evidence of the infringement. Neither party shall notify a third
party of the infringement of Patent Rights without the consent of the
other party. Both parties shall use reasonable efforts and cooperation
to terminate infringement without litigation.
(b) LICENSEE may request UNIVERSITY to take legal action against such third
party for the infringement of Patent Rights. Such request shall be made
in writing and shall include reasonable evidence of such infringement
and damages to LICENSEE. If the infringing activity has not abated
thirty (30) days following LICENSEE's request, UNIVERSITY shall elect to
or not to commence suit on its own account. UNIVERSITY shall give notice
of its election in writing to LICENSEE by the end of the one hundredth
(100) day after receiving notice of such request from LICENSEE. LICENSEE
may thereafter bring suit for patent infringement at its own expense, if
and only if UNIVERSITY elects not to commence suit and the infringement
occurred in a jurisdiction where LICENSEE has an exclusive license under
this Agreement. If LICENSEE elects to bring suit, UNIVERSITY may join
that suit at its own expense.
(c) Recoveries from actions brought pursuant to Paragraph 5.2(b) shall belong
to the party bringing suit. Legal actions brought jointly by UNIVERSITY
and LICENSEE and fully participated in by both shall be at the joint
expense of the parties and all recoveries shall be shared jointly by
them in proportion to the proof of damages tendered by each in that
action.
(d) Each party shall cooperate with the other in litigation proceedings at
the expense of the party bringing suit. Litigation shall be controlled
by the party bringing the suit, except that UNIVERSITY may be
represented by counsel of its choice in any suit brought by LICENSEE.
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5.3 PATENT MARKING. LICENSEE shall mark all Licensed Products made, used or
sold under the terms of this Agreement, or their containers, in accordance
with the applicable patent marking laws.
ARTICLE 6. GOVERNMENTAL MATTERS
6.1 GOVERNMENTAL APPROVAL OR REGISTRATION. If this Agreement or any
associated transaction is required by the law of any nation to be either
approved or registered with any governmental agency, LICENSEE shall assume
all legal obligations to do so. LICENSEE shall notify UNIVERSITY if it
becomes aware that this Agreement is subject to a United States or foreign
government reporting or approval requirement. LICENSEE shall make all
necessary filings and pay all costs including fees, penalties, and all other
out-of-pocket costs associated with such reporting or approval process.
6.2 EXPORT CONTROL LAWS. LICENSEE shall observe all applicable United States
and foreign laws with respect to the transfer of Licensed Products and
related technical data to foreign countries, including, without limitation,
the International Traffic in Arms Regulations and the Export Administration
Regulations.
6.3 PREFERENCE FOR UNITED STATES INDUSTRY. If LICENSEE sells a Licensed
Product or Combination Product in the US, LICENSEE shall manufacture said
product substantially in the US.
ARTICLE 7. TERMINATION OF THE AGREEMENT
7.1 TERMINATION BY THE REGENTS. If LICENSEE fails to perform or violates any
term of this Agreement, then UNIVERSITY may give written notice of default
("Notice of Default") to LICENSEE. If LICENSEE fails to cure the default
within sixty (60) days of the Notice of Default, or if a complete cure is
impractical under the circumstances within that time, then reasonably
commenced an effective plan of rectification within that time, UNIVERSITY may
terminate this Agreement and the license granted herein or exercised
UNIVERSITY'S alternative option under paragraph 3.3(b) by a second written
notice ("Notice of Termination") to LICENSEE. If a Notice of Termination is
sent to LICENSEE, this Agreement shall automatically terminate on the
effective date of that notice. Termination shall not relieve LICENSEE of its
obligation to pay any fees or royalties owed at the time of termination and
shall not impair any accrued right of UNIVERSITY.
7.2 TERMINATION BY LICENSEE.
(a) LICENSEE shall have the right at any time and for any reason to terminate
this Agreement upon a ninety (90) day written notice to UNIVERSITY. Said
notice shall state LICENSEE's reason for terminating this Agreement.
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(b) Any termination under Paragraph 7.2(a) shall not relieve LICENSEE of
any obligation or liability accrued under this Agreement prior to
termination or rescind any payment made to UNIVERSITY or action by
LICENSEE prior to the time termination becomes effective. Termination
shall not affect in any manner any rights of UNIVERSITY arising under
this Agreement prior to termination.
7.3 SURVIVAL ON TERMINATION. The following Paragraphs and Articles shall
survive the termination of this Agreement:
(a) Article 4 (REPORTS, RECORDS AND PAYMENTS);
(b) Paragraph 7.4 (Disposition of Licensed Products on Hand);
(c) Paragraph 8.2 (Indemnification);
(d) Article 9 (USE OF NAMES AND TRADEMARKS);
(e) Paragraph 10.2 hereof (Secrecy); and
(f) Paragraph 10.5 (Failure to Perform).
7.4 DISPOSITION OF LICENSED PRODUCTS ON HAND. Upon termination of this
Agreement, LICENSEE may dispose of all previously made or partially
made Licensed Product within a period of one hundred and twenty (120)
days of the effective date of such termination provided that the sale
of such Licensed Product by LICENSEE, its Sublicensees, or Affiliates
shall be subject to the terms of this Agreement, including but not
limited to the rendering of reports and payment of royalties required
under this Agreement.
ARTICLE 8. LIMITED WARRANTY AND INDEMNIFICATION
8.1 LIMITED WARRANTY.
(a) UNIVERSITY warrants that it has the lawful right to grant this license.
(b) THE LICENSE GRANTED HEREIN AND THE ASSOCIATED TECHNOLOGY AND
INVENTION ARE PROVIDED "AS IS" AND WITHOUT WARRANTY OF
MERCHANTABILITY OR WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE OR
ANY OTHER WARRANTY, EXPRESS OR IMPLIED. UNIVERSITY MAKES NO
REPRESENTATION OR WARRANTY THAT THE LICENSED PRODUCT, LICENSED
METHOD OR THE USE OF PATENT RIGHTS OR TECHNOLOGY WILL NOT INFRINGE ANY
OTHER PATENT OR OTHER PROPRIETARY RIGHTS.
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(c) IN NO EVENT SHALL UNIVERSITY BE LIABLE FOR ANY INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THE LICENSE GRANTED
HEREIN OR THE USE OF THE INVENTION, LICENSED PRODUCT, LICENSED METHOD
OR TECHNOLOGY.
(d) Nothing in this Agreement shall be construed as:
(1) a warranty or representation by UNIVERSITY as to the validity
or scope of any Patent Rights;
(2) a warranty or representation that anything made, used, sold or
otherwise disposed of under any license granted in this
Agreement is or shall be free from infringement of patents of
third parties;
(3) an obligation to bring or prosecute actions or suits against
third parties for patent infringement except as provided in
Paragraph 5.2 hereof;
(4) conferring by implication, estoppel or otherwise any license
or rights under any patents of UNIVERSITY other than Patent
Rights as defined in this Agreement, regardless of whether
those patents are dominant or subordinate to Patent Rights;
(5) an obligation to furnish any know-how not provided in Patent
Rights and Technology; or
(6) an obligation to update Technology.
8.2 INDEMNIFICATION.
(a) LICENSEE shall indemnify, hold harmless, and defend UNIVERSITY, its
officers, employees, and agents; the sponsors of the research that
led to the Invention; and the Inventors of the patents and patent
applications in Patent Rights and their employers against any and all
claims, suits, losses, damage, costs, fees, and expenses resulting
from or arising out of exercise of this license or any sublicense.
This indemnification shall include, but not be limited to, any
product liability.
(b) LICENSEE, at its sole cost and expense, shall insure its activities
in connection with the work under this Agreement and obtain, keep in
force and maintain insurance or an equivalent program of self
insurance as follows:
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(1) comprehensive or commercial general liability insurance
(contractual liability included) with limits of at least: (i)
each occurrence, $1,000,000; (ii) products/completed
operations aggregate, $5,000,000; (iii) personal and
advertising injury, $1,000,000; and (iv) general aggregate
(commercial form only), $5,000,000; and
(2) the coverage and limits referred to above shall not in any way
limit the liability of LICENSEE.
(c) LICENSEE shall furnish UNIVERSITY with certificates of insurance
showing compliance with all requirements. Such certificates shall:
(i) provide for thirty (30) day advance written notice to UNIVERSITY
of any modification; (ii) indicate that UNIVERSITY has been endorsed
as an additional insured under the coverage referred to above; and
(iii) include a provision that the coverage shall be primary and
shall not participate with nor shall be excess over any valid and
collectable insurance or program of self-insurance carried or
maintained by UNIVERSITY.
(d) UNIVERSITY shall notify LICENSEE in writing of any claim or suit
brought against UNIVERSITY in respect of which UNIVERSITY intends to
invoke the provisions of this Article. LICENSEE shall keep UNIVERSITY
informed on a current basis of its defense of any claims under this
Article.
ARTICLE 9. USE OF NAMES AND TRADEMARKS
9.1 Nothing contained in this Agreement confers any right to use in
advertising, publicity, or other promotional activities any name, trade name,
trademark, or other designation of either party hereto (including
contraction, abbreviation or simulation of any of the foregoing). Unless
required by law, the use by LICENSEE of the name, "The Regents Of The
University Of California" or the name of any campus of the University Of
California is prohibited, without the express written consent of UNIVERSITY.
9.2 UNIVERSITY may disclose to the Inventors the terms and conditions of
this Agreement upon their request. If such disclosure is made, UNIVERSITY
shall request the Inventors not disclose such terms and conditions to others.
9.3 UNIVERSITY may acknowledge the existence of this Agreement and the
extent of the grant in Article 2 to third parties, but UNIVERSITY shall not
disclose the financial terms of this Agreement to third parties, except where
UNIVERSITY is required by law to do so, such as under the California Public
Records Act.
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ARTICLE 10. MISCELLANEOUS PROVISIONS
10.1 CORRESPONDENCE. Any notice or payment required to be given to either
party under this Agreement shall be deemed to have been properly given and
effective:
(a) on the date of delivery if delivered in person, or
(b) five (5) days after mailing if mailed by first-class or certified
mail, postage paid, to the respective addresses given below, or to such
other address as is designated by written notice given to the other
party.
If sent to LICENSEE:
-------------------
Composite Solutions, Inc.
Attention: Tom Burke
7777 Fay Ave, Suite 112
La Jolla, CA 92032
If sent to UNIVERSITY:
---------------------
Technology Transfer Office, Mail-code 0910
Attention: Director
University of California, San Diego
9500 Gilman Drive
La Jolla, CA 92093-0910
10.2 SECRECY.
(a) "Confidential Information" shall mean information, including Technology,
relating to the Invention and disclosed by UNIVERSITY to LICENSEE during
the term of this Agreement, which if disclosed in writing shall be
marked "Confidential", or if first disclosed otherwise, shall within
thirty (30) days of such disclosure be reduced to writing by UNIVERSITY
and sent to LICENSEE:
(b) Licensee shall:
(1) use the Confidential Information for the sole purpose of
performing under the terms of this Agreement;
(2) safeguard Confidential Information against disclosure to others
with the same degree of care as it exercises with its own data of
a similar nature;
(3) not disclose Confidential Information to others (except to its
employees, agents or consultants who are bound to LICENSEE by a
like obligation of confidentiality) without the express written
permission of UNIVERSITY,
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<PAGE>
except that LICENSEE shall not be prevented from using or
disclosing any of the Confidential Information that:
(i) LICENSEE can demonstrate by written records was
previously known to it;
(ii) is now, or becomes in the future, public knowledge other
than through acts or omissions of LICENSEE; or
(iii) is lawfully obtained by LICENSEE from sources
independent of UNIVERSITY; and
(b) The secrecy obligations of LICENSEE with respect to Confidential
Information shall continue for a period ending five (5) years from the
termination date of this Agreement.
10.3 ASSIGNABILITY. This Agreement may be assigned by UNIVERSITY, but is
personal to LICENSEE and assignable by LICENSEE only with the written consent
of UNIVERSITY.
10.4 NO WAIVER. No waiver by either party of any breach or default of any
covenant or agreement set forth in this Agreement shall be deemed a waiver as
to any subsequent and/or similar breach or default.
10.5 FAILURE TO PERFORM. In the event of a failure of performance due under
this Agreement and if it becomes necessary for either party to undertake legal
action against the other on account thereof, then the prevailing party shall be
entitled to reasonable attorney's fees in addition to costs and necessary
disbursements.
10.6 GOVERNING LAWS. THIS AGREEMENT SHALL BE INTERPRETED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, but the scope and validity
of any patent or patent application shall be governed by the applicable laws of
the country of the patent or patent application.
10.7 FORCE MAJEURE. A party to this Agreement may be excused from any
performance required herein if such performance is rendered impossible or
unfeasible due to any catastrophe or other major event beyond its reasonable
control, including, without limitation, war, riot, and insurrection; laws,
proclamations, edicts, ordinances, or regulations; strikes, lockouts, or other
serious labor disputes; and floods, fires, explosions, or other natural
disasters. When such events have abated, the non-performing party's
obligations herein shall resume.
10.8 HEADINGS. The headings of the several sections are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.
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10.9 ENTIRE AGREEMENT. This Agreement embodies the entire understanding of
the parties and supersedes all previous communications, representations or
understandings, either oral or written, between the parties relating to the
subject matter hereof.
10.10 AMENDMENTS.No amendment or modification of this Agreement shall be valid
or binding on the parties unless made in writing and signed on behalf of each
party.
10.11 SEVERABILITY. In the event that any of the provisions contained in this
Agreement is held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provisions
of this Agreement, and this Agreement shall be construed as if the invalid,
illegal, or unenforceable provisions had never been contained in it.
IN WITNESS WHEREOF, both UNIVERSITY and LICENSEE have executed this Agreement,
in duplicate originals, by their respective and duly authorized officers on the
day and year written.
COMPOSITE SOLUTIONS, THE REGENTS OF THE
INC.: UNIVERSITY OF CALIFORNIA:
By: /s/ Tom Burke By: /s/ Alan S. Paau
----------------------- ------------------------------
(Signature) (Signature)
Name: Tom Burke Alan S. Paau
---------------------
Title President/CEO Director, Technology Transfer Office
--------------------
Date 20 April 99 Date April 19, 1999
--------------------- -----------------------------
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LICENSE AGREEMENT
This agreement ("Agreement") is made by and between Composite Solutions,
Inc., a Florida corporation having an address at 7777 Fay Ave., Suite 112, La
Jolla, CA 92032 ("LICENSEE") and The Regents Of The University Of California,
a California corporation having its statewide administrative offices at 1111
Franklin Street, Oakland, California 94607-5200 ("UNIVERSITY"), represented
by its San Diego campus having an address at University of California, San
Diego, Technology Transfer Office, Mail-code 0910, 9500 Gilman Drive, La
Jolla, California 92093-0910 ("UCSD").
This Agreement is effective on the date of the last signature ("Effective
Date").
RECITALS
WHEREAS, the inventions disclosed in UCSD Case Docket No. SD96-040 and
titled "Modular Carbon Shell Concrete Structures" ("Invention"), were made
in the course of research at UCSD by Profs. Gilbert A. Hegemier and Frieder
Seible and their associates (hereinafter and collectively, the "Inventors")
and are covered by Patent Rights as defined below;
WHEREAS, the research was sponsored in part by the Government of the United
States of America and as a consequence this license is subject to overriding
obligations to the Federal Government under 35 U.S.C. Sections 200-212 and
applicable regulations;
WHEREAS, the Inventors are employees of UCSD, and they are obligated to
assign all of their right, title and interest in the Invention to UNIVERSITY;
WHEREAS, UNIVERSITY is desirous that the Invention be developed and utilized
to the fullest possible extent so that its benefits can be enjoyed by the
general public;
WHEREAS, LICENSEE is desirous of obtaining certain rights from UNIVERSITY for
commercial development, use, and sale of the Invention, and the UNIVERSITY is
willing to grant such rights; and
WHEREAS, LICENSEE understands that UNIVERSITY may publish or otherwise
disseminate information concerning the Invention and Technology (as defined
below) at any time and that LICENSEE is paying consideration thereunder for
its early access to the Invention and Technology, not continued secrecy
therein.
NOW, THEREFORE, the parties agree;
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ARTICLE 1. DEFINITIONS
The terms, as defined herein, shall have the same meanings in both their
singular and plural forms.
1.1 "Affiliate" means any corporation or other business entity in which
LICENSEE owns or controls, directly or indirectly, at least twenty percent
(20%) of the outstanding stock or other voting rights entitled to elect
directors, or in which LICENSEE is owned or controlled directly or
indirectly by at least twenty percent (20%) of the outstanding stock or
other voting rights entitled to elect directors; but in any country
where the local law does not permit foreign equity participation of at
least twenty percent (20%), then an "Affiliate" includes any company in
which LICENSEE owns or controls or is owned or controlled by, directly
or indirectly, the maximum percentage of outstanding stock or voting
rights permitted by local law.
1.2 "Sublicensee" means a third party to whom LICENSEE grants a sublicense
of certain rights granted to LICENSEE under this Agreement.
1.3 "Field" mean the modular structures including bridges and buildings
involving carbon or carbon/hybrid tubes filled or unfilled with
concrete, including the means (joints, connectors, and related assembly)
for joining two or more such tubes together to form multi-tubular
structures.
1.4 "Territory" means world-wide.
1.5 "Term" means the period of time beginning on the Effective Date and
ending on the later of (1) the expiration date of the longest-lived
Patent Rights; or (ii) the twenty-first (21st) anniversary of Effective
Date.
1.6 "Patent Rights" means any of the following: the US patent application
(serial number 08/597,010, titled "Modular Fiber Reinforced Composite
Structural Member") disclosing and claiming the Invention, filed by
Inventors and assigned to UNIVERSITY; and continuing applications
thereof including divisions, substitutions, and continuations-in-part
(but only to extent the claims thereof are enabled by disclosure of the
parent application); any patents issuing on said applications including
reissues, reexaminations and extensions; and any corresponding foreign
applications or patents.
1.7 "Technology" means the written technical information relating to the
Invention which the Inventors provide to LICENSEE prior to the Effective
Date and which the Inventors may provide to LICENSEE during the Term of
this Agreement.
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1.8 "Sponsor Rights" means all the applicable provisions of any license
to the United States Government executed by UNIVERSITY and the
overriding obligations to the Federal Government under 35 U.S.C. SS
200-212 and applicable governmental implementing regulations.
1.9 "Licensed Method" means any method that uses Technology, or is
covered by Patent Rights the use of which would constitute, but for
the license granted to LICENSEE under this Agreement, and
infringement of any pending or issued and unexpired claim within
Patent Rights.
1.10 "Licensed Product" means any service, composition or product that
uses the Invention or Technology, or is covered by the claims of
Patent Rights, or that is produced by the Licensed Method, or the
manufacture, use, sale, offer for sale, or importation of same which
would constitute, but for the license granted to LICENSEE by
UNIVERSITY herein, an infringement of any pending or issued and
unexpired claim within the Patent Rights.
1.11 "Net Sales" means the total of the gross invoice prices of Licensed
Products sold by LICENSEE, its Sublicensee, an Affiliate, or any
combination thereof, less the sum of the following actual and
customary deductions where applicable and separately listed: cash,
trade, or quantity discounts; sales, use, tariff, import/export
duties or other excise taxes imposed on particular sales (except for
value-added and income taxes imposed on the sales of Product in
foreign countries); transportation charges; or credits to customers
because of rejections or returns. For purposes of calculating Net
Sales, transfers to a Sublicensee or an Affiliate of Licensed Product
under this Agreement for (i) end use (but not resale) by the
Sublicensee or Affiliate shall be treated as sales by LICENSEE at list
price of LICENSEE, or (ii) resale by a Sublicensee or an Affiliate
shall be treated as sales at the list price of the Sublicensee or
Affiliate.
1.12 "Patent Costs" means all out-of-pocket expenses for the preparation,
filing, prosecution, and maintenance of all United States and foreign
patents included in Patent Rights. Patent Costs shall also include
reasonable out-of-pocket expenses for patentability opinions,
inventorship determination, preparation and prosecution of patent
application, re-examination, re-issue, interference, and opposition
activities related to patents or applications in Patent Rights.
1.13 "Combination Product" means any product which is a Licensed Product
and contains other product(s) or product component(s) that (i) does
not use Invention, Technology or Patent Rights; (ii) the sale, use or
import by itself does not contribute to the infringement of Patent
Rights; (iii) can be sold separate;y by LICENSEE, its sublicensee or
an Affiliate; and (iv) enhances the market price of the final
product(s) sold, used or imported by LICENSEE, its Sublicensee, or an
Affiliate.
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ARTICLE 2. GRANTS
2.1 LICENSE. Subject to the limitations set forth in this Agreement and
Sponsor's Rights, UNIVERSITY hereby grants to LICENSEE, and LICENSEE hereby
accepts a license under Patent Rights to make =, use, sell, offer for sale,
and import Licensed Products and to practice Licensed Methods and to use
Technology, in the Field within the Territory and using the Term.
The license granted herein is co-exclusive and LICENSEE understands and
acknowledges that UNIVERSITY has the right to grant one license to a third
party under Patent Rights to make, use, sell, offer for sale, and import
Licensed Products and to practice Licensed Methods and to use Technology, in
the Field within the Territory and during the Term.
UNIVERSITY shall not grant a third license under Patent rights or to use
Technology in the Field, within the Territory and during the Term.
2.2 SUBLICENSE.
(a) The license granted in Paragraph 2.1 includes the right of LICENSEE
to grant sublicense to third parties during the Term but only for as
long the license is exclusive.
(b) With respect to sublicense granted pursuant to Paragraph 2.2(a),
LICENSEE shall:
(1) not receive, or agree to receive, anything of value in lieu
of cash as considerations from a third party under a
sublicense granted pursuant to Paragraph 2.2(a) without the
express written consent of UNIVERSITY.
(2) to the extent applicable, include all of the rights of and
obligations due to UNIVERSITY (and, if applicable, the
Sponsor's Rights) and contained in this Agreement;
(3) promptly provide UNIVERSITY with a copy of each sublicense
issued; and
(4) collect and guarantee payment of all payments due, directly
or indirectly, to UNIVERSITY from Sublicensees and summarize
and deliver all reports due, directly or indirectly, to
UNIVERSITY from Sublicensees.
(c) Upon termination of this Agreement for any reason, UNIVERSITY, at its
sole discretion, shall determine whether LICENSEE shall cancel or
assign to UNIVERSITY any and all sublicenses.
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2.3 RESERVATION OF RIGHTS. UNIVERSITY reserves the right to:
(a) use the Invention, Technology and Patent Rights for educational and
research purposes;
(b) publish or otherwise disseminate any information about the Invention and
Technology at any time; and
(c) allow other nonprofit institutions to use Invention, Technology and
Patent Rights for educational and non-commercial research purposes in
their facilities.
ARTICLE 3. CONSIDERATIONS
3.1 FEES AND ROYALTIES. The parties hereto understand that the fees and
royalties payable by LICENSEE to UNIVERSITY under this Agreement are
partial considerations for the license granted herein to LICENSEE under
Technology, and Patent Rights. LICENSEE shall pay UNIVERSITY:
(a) A LICENSE ISSUE FEE of five thousand dollars (US$ 5,000.00) upon
execution of this Agreement;
(b) A MILESTONE PAYMENT of thirty five thousand dollars (US$ 35,000.00)
upon issuance any US patent covered under Patent Rights (paragraph
1.6);
(c) AN EARNED ROYALTY of one and one half percent (1.5%) on Net Sales
of Licensed Products by LICENSEE and/or its Affiliate(s);
(d) fifty percent (50%) of all SUBLICENSE FEES received by LICENSEE
from its Sublicensees that are not earned royalties;
(e) on each and every SUBLICENSE ROYALTY payment received by LICENSEE
from its Sublicensees on sales of Licensed Product by Sublicensee,
the higher of (i) fifty percent (50%) of the royalties received by
LICENSEE; or (ii) royalties based on the royalty rate in Paragraph
3.1(d) as applied to Net Sales of Sublicensee;
(f) beginning the calendar year of the Effective Date if the total
earned royalties paid by LICENSEE under Paragraphs 3.1(c) and (e)
to UNIVERSITY in any such year cumulatively amounts to less than
the amount specified herein for each calendar year ("MINIMUM
ANNUAL ROYALTY"), LICENSEE shall pay to UNIVERSITY a minimum
annual royalty on or before February 28 following the last quarter
of such year
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of the difference between amount noted above and the total earned
royalty paid by LICENSEE for such year under Paragraphs 3.1(b) and
(d).
<TABLE>
<S> <C>
2000 US$ 10,000
2001 US$ 20,000
2002 US$ 30,000
2003 US$ 40,000
2004 US$ 50,000 and for each calendar year of the Agreement
thereafter.
</TABLE>
All fees and royalty payments specified in Paragraphs 3.1(a) through
3.1(f) above shall be paid by LICENSEE pursuant to Paragraph 4.3 and
shall be delivered by LICENSEE to UNIVERSITY as noted in Paragraph 10.1.
3.2 PATENT COSTS. LICENSEE shall reimburse UNIVERSITY for one-half (1/2) of
all past (prior to the Effective Date) and future (on or after the
Effective Date) Patent Costs within thirty (30) days following receipt
by LICENSEE of an itemized invoice from UNIVERSITY.
One-half (1/2) of Past Patent Costs are estimated to be thirty nine
thousand six hundred and ninety seven dollars (US$ 39,697.00), to be
paid in six (6) equal payments of six thousand six hundred sixteen
dollars and sixteen cents (US$ 6,616.16) on 1 Oct 1999, 1 Jan 2000, 1
Apr 2000, 1 July 2000, 1 Oct 2000, and 1 Jan 2001.
3.3 DUE DILIGENCE.
(a) LICENSEE shall:
(1) diligently proceed within a reasonable time with the development,
manufacture and sale of Licensed Products according to the
business plan provided by LICENSEE to UNIVERSITY;
(2) market Licensed Products in the United States within six (6)
months of receiving regulatory approval to market such Licensed
Product's;
(3) should LICENSEE'S License be converted to an exclusive license,
then reasonably fill the market demand for Licensed Products
following commencement of marketing at any time during the term
of this Agreement; and
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(4) obtain all necessary governmental approvals for the manufacture, use
and sale of Licensed Products.
(b) If LICENSEE fails to perform any of its obligations specified in
Paragraphs 3.3(a)(1)-(4), the UNIVERSITY shall have the right and option,
subject to LICENSEE'S right to written notice and rights to cure provided
herein under paragraph 7.1. to either terminate this Agreement or change
LICENSEE's exclusive license to a nonexclusive license. This right, if
exercised by UNIVERSITY, supersedes the rights granted in Article 2.
ARTICLE 4. REPORTS, RECORDS AND PAYMENTS
4.1 REPORTS.
(a) PROGRESS REPORTS.
(1) Beginning January 1, 2000 and ending on the date of first commercial
sale of a Licensed Product in the United States, LICENSEE shall
submit to UNIVERSITY semi-annual progress reports covering
LICENSEE's (and Affiliate's and Sublicensee's) activities to develop
and test all Licensed Products and obtain governmental approvals
necessary for marketing the same. Such reports shall include a
summary of work completed; summary of work in progress; current
schedule of anticipated events or milestones; market plans for
introduction of Licensed Products; and summary of resources (dollar
value) spent in the reporting period.
(2) LICENSEE shall also report to UNIVERSITY, in its immediately
subsequent progress report, the date of first commercial sale of a
Licensed Product in each country.
(b) ROYALTY REPORTS. After the first commercial sale of a Licensed Product
anywhere in the world, LICENSEE shall submit to UNIVERSITY quarterly
royalty reports on or before each February 28, May 31, August 31 and
November 30 of each year. Each royalty report shall cover LICENSEE's (and
each Affiliate's and Sublicensee's) most recently completed calendar
quarter and shall show:
(1) the gross sales, deductions as provided in Paragraph 1.11, and Net
Sales during the most recently completed calendar quarter and the
royalties, in US dollars, payable with respect thereto;
(2) the number of each type of Licensed Product sold;
7
<PAGE>
(3) sublicense fees and royalties received during the most recently
completed calendar quarter in US dollars, payable with respect
thereto;
(4) the method used to calculate the royalties; and
(5) the exchange rates used.
If no sales of Licensed Products has been made and no sublicense revenues
has been received by LICENSEE during any reporting period, LICENSEE shall
so report.
(c) To the extent allowed by law, all records and other proprietary business
information of LICENSEE made available to UNIVERSITY'S under foregoing
paragraphs 4.2(a) and 4.2(b) shall be held by UNIVERSITY and UNIVERSITY'S
inspecting agents in strictest confidence and shall not be disclosed to any
person or entity except for those persons who need to have access to the same
for the specific and limited purposes intended by those sections to determine
the compliance of LICENSEE with respect to LICENSEE'S obligation to make
royalty payments under this Agreement. All such records, upon the completion
of the audit, shall be returned to LICENSEE with no copies being retained
except those limited records necessary to resolve a claim against LICENSEE if
and when a reasonable dispute exists about such payments.
4.2 RECORDS & AUDITS.
(a) LICENSEE shall keep, and shall require its Affiliates and Sublicensees to
keep, accurate and correct records of all Licensed Products manufactured,
used, and sold, and sublicense fees received under this Agreement. Such
records shall be retained by LICENSEE for at least five (5) years
following a given reporting period.
(b) All records shall be available during normal business hours for inspection
at the expense of UNIVERSITY by UNIVERSITY'S Internal Audit Department or
by a Certified Public Accountant selected by UNIVERSITY and in compliance
with the other terms of this Agreement for the sole purpose of verifying
reports and payments. Such inspector shall not disclose to UNIVERSITY any
information other than information relating to the accuracy of reports and
payments made under this Agreement or other compliance issues. In the
event that any such inspection shows an under reporting and underpayment
in excess of five percent (5%) for any twelve (12) month period, then
LICENSEE shall pay the cost of the audit as well as any additional sum
that would have been payable to UNIVERSITY had the LICENSEE reported
correctly, plus an interest charge at a rate of ten percent (10%) per
year. Such interest shall be calculated from the date the correct payment
was due to UNIVERSITY up to the date when such payment is actually made by
LICENSEE. For
8
<PAGE>
underpayment not in excess of five percent (5%) for any twelve (12) month
period, LICENSEE shall pay the difference within thirty (30) days without
interest charge or inspection cost.
4.3 PAYMENTS.
(a) All fees and royalties due UNIVERSITY shall be paid in United States
dollars and all checks shall be made payable to "The Regents of the
University of California", referencing UNIVERSITY'S taxpayer
identification number, 95-6006144. When Licensed Products are sold in
currencies other than United States dollars, LICENSEE shall first
determine the earned royalty in the currency of the country in which
Licensed Products were sold and then convert the amount into
eqivalent United States funds, using the exchange rate quoted in the
Wall Street Journal on the last business day of the applicable reporting
period.
(b) Royalty Payments.
(1) Royalties shall accrue when Licensed Products are invoiced, or if
not invoiced, when delivered to a third party or Affiliate.
(2) LICENSEE shall pay earned royalties quarterly on or before February
28, May 31, August 31 and November 30 of each calendar year. Each
such payment shall be for earned royalties accrued within
LICENSEE's most recently completed calendar quarter.
(3) Royalties earned on sales occurring or under sublicense granted
pursuant to this Agreement in any country outside the United States
shall not be reduced by LICENSEE for any taxes, fees, or other
charges imposed by the governments of such country on the payment
of royalty income except that all payments made by LICENSEE in
fulfillment of UNIVERSITY'S tax liability in any particular country
may be credited against earned royalties or fees due UNIVERSITY for
that country. LICENSEE shall pay all bank charges resulting from
the transfer of such royalty payments.
(4) If at any time legal restrictions prevent the prompt remittance of
part or all royalties by LICENSEE with respect to any country where
a Licensed Product is sold or a sublicense is granted pursuant to
this Agreement, LICENSEE shall convert the amount owed to
UNIVERSITY into US currency and shall pay UNIVERSITY directly from
its US sources of fund for as long as the legal restrictions apply.
9
<PAGE>
(5) LICENSEE shall not collect royalties from, or cause to be paid on
Licensed Products sold to the account of the US Government or any
agency thereof as provided for in the license to the US Government.
(6) In the event that any patent or patent claim within Patent Rights is
held invalid in a final decision by a patent office from which no
appeal or additional patent prosecution has been or can be taken,
or by a court of competent jurisdiction and last resort and from
which no appeal has or can be taken, all obligation to pay
royalties based solely on that patent or claim or any claim
patentably indistinct therefrom shall cease as of the date of such
final decision. LICENSEE shall nor, however, be relieved from
paying any royalties that accrued before the date of such final
decision, that are based on another patent or claim not involved in
such final decision, or that are based on the use of Technology.
(b) LATE PAYMENTS. In the event royalty, reimbursement and/or fee payments
are not received by UNIVERSITY when due, LICENSEE shall pay to
UNIVERSITY interest charges at a rate of ten percent (10%) per year.
Such interest shall be calculated from the date payment was due until
actually received by UNIVERSITY. The payment of such interest shall not
foreclose UNIVERSITY from exercising any other rights it may have as a
consequence of the lateness of any payment. In no event shall this
paragraph be construed as a grant of permission for any payment delays.
ARTICLE 5. PATENT MATTERS
5.1 PATENT PROSECUTION AND MAINTENANCE.
(a) Provided that LICENSEE has reimbursed UNIVERSITY for Patent Costs
pursuant to Paragraph 3.2, UNIVERSITY shall diligently prosecute and
maintain the United States and, if available, foreign patents, and
applications in Patent Rights using counsel of its choice. UNIVERSITY
shall provide LICENSEE with copies of all relevant documentation
relating to such prosecution and LICENSEE shall keep this documentation
confidential. The counsel shall take instructions only from UNIVERSITY,
and all patents and patent applications in Patent Rights shall be
assigned solely to UNIVERSITY.
If UNIVERSITY decides not to file patent applications in any country or
countries in which LICENSEE deems patent protection to be necessary,
LICENSEE may require that such application or applications be made and
prosecuted by UNIVERSITY in such countries. Should the other third party
licensee choose not to participate in that third party's share of such
application, LICENSEE agrees to pay the full expense of such application
or applications.
10
<PAGE>
UNIVERSITY will use best efforts to amend that third party's license to
grant LICENSEE an exclusive license in such country to countries to
which such patent application apply.
(b) UNIVERSITY shall consider amending any patent application in Patent
Rights to include claims reasonably requested by LICENSEE to protect the
products contemplated to be sold by LICENSEE under this Agreement.
(c) LICENSEE shall apply for an extension of the term of any patent in
Patent Rights if appropriate under the Drug Price Competition and Patent
Term Restoration Act of 1984 and/or European, Japanese and other foreign
counterparts of this law. LICENSEE shall prepare all documents for such
application, and UNIVERSITY shall execute such documents and to take
any other additional action as LICENSEE reasonably requests in
connection therewith.
(d) LICENSEE may elect to terminate its reimbursement obligations with
respect to any patent application or patent in Patent Rights upon three
(3) months' written notice to UNIVERSITY. UNIVERSITY shall use
reasonable efforts to curtail further Patent Costs for such application
or patent when such notice of termination is received from LICENSEE.
UNIVERSITY, in its sole discretion and at its sole expense, may continue
prosecution and maintenance of said application or patent, and LICENSEE
shall then have no further license with respect thereto. Non-payment of
any portion of Patent Costs with respect to any application or patent
may be deemed by UNIVERSITY as an election by LICENSEE to terminate its
reimbursement obligations with respect to such application or patent.
5.2 PATENT INFRINGEMENT.
(a) If LICENSEE learns of any substantial infringement of Patent Rights,
LICENSEE shall so inform UNIVERSITY and provide UNIVERSITY with
reasonable evidence of the infringement. Neither party shall notify a
third party of the infringement of Patent Rights without the consent of
the other party. Both parties shall use reasonable efforts and
cooperation to terminate infringement without litigation.
(b) LICENSEE may request UNIVERSITY to take legal action against such third
party for the infringement of Patent Rights. Such request shall be made
in writing and shall include reasonable evidence of such infringement
and damages to LICENSEE. If the infringing activity has not abated
thirty (30) days following LICENSEE's request, UNIVERSITY shall elect to
or not to commence suit on its own account. UNIVERSITY shall give
notice of its election in writing to LICENSEE by the end of the one
hundredth (100) day after receiving notice of such request from
LICENSEE. LICENSEE may
11
<PAGE>
thereafter bring suit for patent infringement at its own expense, if
and only if UNIVERSITY elects not to commence suit and the infringement
occurred in a jurisdiction where LICENSEE has an exclusive license
under this Agreement. If LICENSEE elects to bring suit, UNIVERSITY may
join that suit at its own expense.
(c) Unless otherwise agreed to by the parties to this Agreement via good
faith negotiations, recoveries from actions brought pursuant to
Paragraph 5.2(b) shall belong to the party bringing suit. Likewise,
unless otherwise agreed to by the parties to this Agreement via good
faith negotiation, legal actions brought jointly by UNIVERSITY and
LICENSEE and fully participated in by both shall be at the joint
expense of the parties and all recoveries shall be shared jointly by
them first in proportion to the share of direct out-of-pocket expense
paid by each party to investigate and pursue the claims against the
infringement and second in proportion to damages occurred on each in
that action.
(d) Each party shall cooperate with the other in litigation proceedings at
the expense of the party bringing suit. Litigation shall be controlled
by the party bringing the suit, except that UNIVERSITY may be
represented by counsel of its choice in any suit brought by LICENSEE.
5.3 PATENT MARKING. LICENSEE shall mark all Licensed Products made, used or
sold under the terms of this Agreement, or their containers, in accordance
with the applicable patent marking laws.
ARTICLE 6. GOVERNMENTAL MATTERS
6.1 GOVERNMENTAL APPROVAL OR REGISTRATION. If this Agreement or any
associated transaction is required by the law of any nation to be either
approved or registered with any governmental agency, LICENSEE shall assume
all legal obligations to do so. LICENSEE shall notify UNIVERSITY if it
becomes aware that this Agreement is subject to a United States or foreign
government reporting or approval requirement. LICENSEE shall make all
necessary filings and pay all costs including fees, penalties, and all other
out-of-pocket costs associated with such reporting or approval process.
6.2 EXPORT CONTROL LAWS. LICENSEE shall observe all applicable United
States and foreign laws with respect to the transfer of Licensed Products and
related technical data to foreign countries, including, without limitation,
the International Traffic in Arms Regulations and the Export Administration
Regulations.
6.3 PREFERENCE FOR UNITED STATES INDUSTRY. If LICENSEE sells a Licensed
Product or Combination Product in the US, LICENSEE shall manufacture said
product substantially in the US.
12
<PAGE>
ARTICLE 7. TERMINATION OF THE AGREEMENT
7.1 TERMINATION BY THE REGENTS. If LICENSEE fails to perform or violates
any term of this Agreement, then UNIVERSITY may give written notice of
default ("Notice of Default") to LICENSEE. If LICENSEE fails to cure the
default within sixty (60) days of the Notice of Default, or if a complete
cure is impractical under the circumstances within that time, then reasonably
commenced an effective plan of rectification within that time, UNIVERSITY may
terminate this Agreement and the license granted herein or exercised
UNIVERSITY'S alternative option under paragraph 3.3(b) by a second written
notice ("Notice of Termination") to LICENSEE. If a Notice of Termination is
sent to LICENSEE, this Agreement shall automatically terminate on the
effective date of that notice. Termination shall not relieve LICENSEE of its
obligation to pay any fees or royalties owed at the time of termination and
shall not impair any accrued right of UNIVERSITY.
7.2 TERMINATION BY LICENSEE.
(a) LICENSEE shall have the right at any time and for any reason to
terminate this Agreement upon a ninety (90) day written notice to
UNIVERSITY. Said notice shall state LICENSEE's reason for terminating
this Agreement.
(b) Any termination under Paragraph 7.2(a) shall not relieve LICENSEE of
any obligation or liability accrued under this Agreement prior to
termination or rescind any payment made to UNIVERSITY or action by
LICENSEE prior to the time termination becomes effective. Termination
shall not affect in any manner any rights of UNIVERSITY arising under
this Agreement prior to termination.
7.3 SURVIVAL ON TERMINATION. The following Paragraphs and Articles shall
survive the termination of this Agreement:
(a) Article 4 (REPORTS, RECORDS AND PAYMENTS);
(b) Paragraph 7.4 (Disposition of Licensed Products on Hand);
(c) Paragraph 8.2 (Indemnification);
(d) Article 9 (USE OF NAMES AND TRADEMARKS);
(e) Paragraph 10.2 hereof (Secrecy);
(f) Paragraph 10.5 (Failure to Perform); and
(g) Paragraph 7.3 (Survival on Termination)
13
<PAGE>
7.4 DISPOSITION OF LICENSED PRODUCTS ON HAND. Upon termination of this
Agreement, LICENSEE may dispose of all previously made or partially made
Licensed Product within a period of one hundred and twenty (120) days of the
effective date of such termination provided that the sale of such Licensed
Product by LICENSEE, its Sublicensees, or Affiliates shall be subject to the
terms of this Agreement, including but not limited to the rendering of
reports and payment of royalties required under this Agreement.
ARTICLE 8. LIMITED WARRANTY AND INDEMNIFICATION
8.1 LIMITED WARRANTY.
(a) UNIVERSITY warrants that it has the lawful right to grant this license.
(b) THE LICENSE GRANTED HEREIN AND THE ASSOCIATED TECHNOLOGY AND INVENTION
ARE PROVIDED "AS IS" AND WITHOUT WARRANTY OF MERCHANTABILITY OR WARRANTY
OF FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESS OR
IMPLIED. UNIVERSITY MAKES NO REPRESENTATION OR WARRANTY THAT THE
LICENSED PRODUCT, LICENSED METHOD OR THE USE OF PATENT RIGHTS OR
TECHNOLOGY WILL NOT INFRINGE ANY OTHER PATENT OR OTHER PROPRIETARY
RIGHTS.
(c) IN NO EVENT SHALL UNIVERSITY BE LIABLE FOR ANY INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THE LICENSE GRANTED
HEREIN OR THE USE OF THE INVENTION, LICENSED PRODUCT, LICENSED METHOD OR
TECHNOLOGY.
(d) Nothing in this Agreement shall be construed as:
(1) a warranty or representation by UNIVERSITY as to the validity or
scope of any Patent Rights;
(2) a warranty or representation that anything made, used, sold or
otherwise disposed of under any license granted in this Agreement
is or shall be free from infringement of patents of third parties;
(3) an obligation to bring or prosecute actions or suits against third
parties for patent infringement except as provided in Paragraph 5.2
hereof;
14
<PAGE>
(4) conferring by implication, estoppel or otherwise any license or
rights under any patents of UNIVERSITY other than Patent Rights as
defined in this Agreement, regardless of whether those patents are
dominant or subordinate to Patent Rights;
(5) an obligation to furnish any know-how not provided in Patent Rights
and Technology; or
(6) an obligation to update Technology.
8.2 INDEMNIFICATION.
(a) LICENSEE shall indemnify, hold harmless, and defend UNIVERSITY, its
officers, employees, and agents; the sponsors of the research that led
to the Invention; and the Inventors of the patents and patent
applications in Patent Rights and their employers against any and all
claims, suits, losses, damage, costs, fees, and expenses resulting from
or arising out of exercise of this license or any sublicense. This
indemnification shall include, but not be limited to, any product
liability.
(b) LICENSEE, at it sole cost and expense, shall insure its activities in
connection with the work under this Agreement and obtain, keep in force
and maintain insurance or an equivalent program of self insurance as
follows:
(1) comprehensive or commercial general liability insurance
(contractual liability included) with limits of at least: (i) each
occurrence, $1,000,000; (ii) products/completed operations
aggregate, $5,000,000; (iii) personal and advertising injury,
$1,000,000; and (iv) general aggregate (commercial form only),
$5,000,000; and
(2) the coverage and limits referred to above shall not in any way
limit the liability of LICENSEE.
(c) LICENSEE shall furnish UNIVERSITY with certificates of insurance showing
compliance with all requirements. Such certificates shall; (i) provide
for thirty (30) day advance written notice to UNIVERSITY of any
modification; (ii) indicate that UNIVERSITY has been endorsed as an
additional insured under the coverage referred to above; and (iii)
include a provision that the coverage shall be primary and shall not
participate with nor shall be excess over any valid and collectible
insurance or program of self-insurance carried or maintained by
UNIVERSITY.
15
<PAGE>
(d) UNIVERSITY shall notify LICENSEE in writing of any claim or suit brought
against UNIVERSITY in respect of which UNIVERSITY intends to invoke the
provisions of this Article. LICENSEE shall keep UNIVERSITY informed on
a current basis of its defense of any claims under this Article.
ARTICLE 9. USE OF NAMES AND TRADEMARKS
9.1 Nothing contained in this Agreement confers any right to use in
advertising, publicity, or other promotional activities any name, trade name,
trademark, or other designation of either party hereto (including
contraction, abbreviation or simulation of any of the foregoing). Unless
required by law, the use by LICENSEE of the name, "The Regents Of The
University Of California" or the name of any campus of the University Of
California is prohibited, without the express written consent of UNIVERSITY.
9.2 UNIVERSITY may disclose to the Inventors the terms and conditions of
this Agreement upon their request. If such disclosure is made. UNIVERSITY
shall request the Inventors not disclose such terms and conditions to others.
9.3 UNIVERSITY may acknowledge the existence of this Agreement and the
extent of the grant in Article 2 to third parties, but UNIVERSITY shall not
disclose the financial terms of this Agreement to third parties, except where
UNIVERSITY is required by law to do so, such as under the California Public
Records Act.
ARTICLE 10. MISCELLANEOUS PROVISIONS
10.1 CORRESPONDENCE. Any notice or payment required to be given to either
party under this Agreement shall be deemed to have been properly given and
effective:
(a) on the date of deliver if delivered in person, or
(b) five (5) days after mailing if mailed by first-class or certified
mail, postage paid, to the respective addresses given below, or to
such other address as is designated by written notice given to the
other party.
IF SENT TO LICENSEE:
Composite Solutions, Inc.
Attention: Tom Burke
7777 Fay Ave., Suite 112
La Jolla, CA 92032
16
<PAGE>
If sent to UNIVERSITY:
Technology Transfer & Intellectual Property Services. Mail code 0910
Attention: Director
University of California, San Diego
9500 Gilman Drive
La Jolla, CA 92093-0910
10.2 SECRECY.
(a) "Confidential Information" shall mean information, including
Technology, relating to the Invention and disclosed by UNIVERSITY to
LICENSEE during the term of this Agreement, which if disclosed in
writing shall be marked "Confidential", or if first disclosed
otherwise, shall within thirty (30 days) of such disclosure be reduced
to writing by UNIVERSITY and sent to LICENSEE;
(b) Licensee shall:
(1) use the Confidential Information for the sole purpose of
performing under the terms of this Agreement.
(2) safeguard Confidential Information against disclosure to others
with the same degree of care as it exercises with its own data of
a similar nature.
(3) not disclose Confidential Information to others (except to its
employees, agents or consultants who are bound to LICENSEE by a
like obligation of confidentiality) without the express written
permission of UNIVERSITY, except that LICENSEE shall not be
prevented from using or disclosing any of the Confidential
Information that:
(i) LICENSEE can demonstrate by written records was
previously known to it.
(ii) is now, or becomes in the future, public knowledge other
than through acts or omissions of LICENSEE; or
(iii) is lawfully obtained by LICENSEE from sources independent
of UNIVERSITY; and
(b) The secrecy obligations of LICENSEE with respect to Confidential
Information shall continue for a period ending five (5) years from the
termination date of this Agreement.
17
<PAGE>
10.3 ASSIGNABILITY. This Agreement may be assigned by UNIVERSITY, but is
personal to LICENSEE and assignable by LICENSEE only with the written consent
of UNIVERSITY.
10.4 NO WAIVER. No waiver by either party of any breach or default of any
covenant or agreement set forth in this Agreement shall be deemed a waiver as
to any subsequent and/or similar breach or default.
10.5 FAILURE TO PERFORM. In the event of a failure of performance due under
this Agreement and if it becomes necessary for either party to undertake
legal action against the other on account thereof, then the prevailing party
shall be entitled to reasonable attorney's fees in addition to costs and
necessary disbursements.
10.6 GOVERNING LAWS. THIS AGREEMENT SHALL BE INTERPRETED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, but the scope and
validity of any patent or patent application shall be governed by the
applicable laws of the country of the patent or patent application.
10.7 FORCE MAJEURE. A party to this Agreement may be excused from any
performance required herein if such performance is rendered impossible or
unfeasible due to any catastrophe or other major event beyond its reasonable
control, including, without limitation, war, riot, and insurrection; laws,
proclamations, edicts, ordinances, or regulations; strikes, lockouts, or
other serious labor disputes; and floods, fires, explosions, or other natural
disasters. When such events have abated, the non-performing party's
obligations herein shall resume.
10.8 HEADINGS. The headings of the several sections are inserted for
convenience of reference only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.
10.9 ENTIRE AGREEMENT. This Agreement embodies the entire understanding of
the parties and supersedes all previous communications, representations or
understandings either oral or written, between the parties relating to the
subject matter hereof.
10.10 AMENDMENTS. No amendment or modification of this Agreement shall be
valid or binding on the parties unless made in writing and signed on behalf
of each party.
10.11 SEVERABILITY. In the event that any of the provisions contained in this
Agreement is held to be invalid. illegal, or unenforceable in any respect,
such invalidity,illegality or unenforceability shall not affect any other
provisions of this Agreement, and this Agreement shall be construed as if the
invalid, illegal, or unenforceable provisions had never been contained in it.
18
<PAGE>
IN WITNESS WHEREOF, both UNIVERSITY and LICENSEE have executed this
Agreement, in duplicate originals, by their respective and duly authorized
officers on the day and year written.
COMPOSITE SOLUTIONS, INC.: THE REGENTS OF THE
UNIVERSITY OF CALIFORNIA
By /s/ Tom Burke By /s/ Alan S. Paau
----------------------- ---------------------
(Signature) (Signature)
Tom Burke Alan S. Paau
President, Composite Solutions Director, Technology Transfer Office
Date August 4, 1999 Date August 4, 1999
------------------------- -------------------------------
19
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL IMFORMATION EXTRACTED FROM THE AUDITED
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QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 8,811
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,226
<PP&E> 14,798
<DEPRECIATION> (1,655)
<TOTAL-ASSETS> 553,841
<CURRENT-LIABILITIES> 108,629
<BONDS> 0
0
0
<COMMON> 1,450
<OTHER-SE> 1,004,839
<TOTAL-LIABILITY-AND-EQUITY> 553,841
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 574,376
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 474
<INCOME-PRETAX> (574,850)
<INCOME-TAX> 0
<INCOME-CONTINUING> (574,850)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (574,850)
<EPS-BASIC> (0.03)
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