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Exhibit 10.5
LICENSE AGREEMENT
THIS AGREEMENT is made and entered into this 24th day of November,
1988, by and between SYSTEMS TECHNOLOGY, INC., a California corporation ("STI"),
and COGNITIVE SYSTEMS, INC., a California corporation ("CSI").
RECITALS
A. STI has developed a computer system and associated protocols and
methodology collectively named Critical Task Testing (CTT) designed to test
operator impairment in an objective manner. This system is described briefly in
Exhibit "B" hereto. This system is hereinafter referred to as the "Property".
The software component of the Property is sometimes hereinafter referred to as
the "Software", and the technology underlying the Property is sometimes
hereinafter referred to as the "Technology".
B. CSI desires to market the Property to customers in the market
segments hereinafter set forth.
C. An agreement was executed on April 6, 1988 between CSI and STI
(hereinafter "First Agreement") for evaluating the marketing and manufacture of
systems incorporating the technology, software and property of this Agreement.
This Agreement upon execution supersedes the First Agreement and the First
Agreement thereafter has no force and effect.
NOW, THEREFORE, the parties hereto agree as follows:
1. EXCLUSIVE LICENSE.
(a) Grant of License. Except as is specifically reserved in
subparagraph 1(c) below, STI hereby grants to CSI a sole and exclusive license
to (i) develop and manufacture or have manufactured devices incorporating the
Property, Software and/or Technology, including all future developments and
improvements that may be made by STI, and (ii) reproduce, use, market and
otherwise fully exploit the commercial potential of the Property, Software,
Technology and/or future developments thereof in the market segments set forth
in Exhibit "A" attached hereto and
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incorporated herein. Without limiting the foregoing, CSI shall have the sole
and exclusive right to use the Property in connection with the routine testing
of employees, customers, clients or agents for impairment. Except as granted
to CSI, the right to future development of the Property, Software and/or
Technology shall be left exclusively to STI.
(b) Sublicenses and Assignment. STI also grants to CSI the right to
issue sublicenses during the term of this Agreement. Each sublicense shall
include all of the rights and obligations due STI under the terms of this
Agreement. This Agreement may be assigned by CSI to one of its subsidiaries or
affiliates, provided such subsidiary or affiliate shall be bound by all the
terms and conditions of this Agreement.
(c) Reservation. STI specifically reserves from the license being
granted to CSI, the research market in the same market segments in Exhibit "A".
Notwithstanding the preceding sentence, this reservation shall apply only to
nonprofit entities, including but not limited to, government organizations,
research foundations, educational and trade foundations, and only the right to
use, develop, manufacture and sell the Property for a purpose other than the
routine testing of employees, customers, clients or agents for impairment.
(d) Royalties.
(1) Within sixty (60) days following the conclusion of each
calendar quarter following date of signing this Agreement, CSI shall pay to STI
a royalty of 8-1/2% of the gross contract revenue for CTT related impairment
testing products and services. This only includes employees tested for which CSI
is paid, and does not include employees tested for other purposes such as for
calibration or experimental reasons. STI is not entitled to royalty revenue
derived from installation, maintenance or any other revenues that are not
directly related to CTT impairment testing of employees.
2. TERM.
This Agreement shall commence on the date hereof and continue for an
initial period of five years after the expiration of the First Agreement. The
term of the Agreement may be extended by CSI for a further period of five years
by written notice given to STI in the manner provided in paragraph 15, below at
any time prior to the expiration of such initial period.
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3. ACCOUNTING
(a) Records. CSI shall maintain accurate records covering the
transactions relating to employee testing and assistance projects which utilize
the Property (the "Records"). "Records" shall mean property related (Records)
relating to the Property related employee testing and assistance projects. Each
payment of the Quarterly Fee shall be accompanied by a statement ("fee
statement") setting forth the computation of the Quarterly Fee in accordance
with subparagraph 3(b) below. STI and/or STI's agent, upon giving seven (7) days
prior written notice to CSI, shall have the right to inspect the Records during
normal business hours at CSI's place of business. STI agrees to sign or require
its agent to sign reasonable non-disclosure Agreements obliging STI and its
agent not to disclose confidential information of CSI that does not pertain to
STI, the employee testing and assistance projects, or the Records.
(b) Fee Statements. Each fee statement shall accurately contain the
following information:
(1) The amount in dollars of Gross Testing Receipts from all
Property related employee testing.
(2) The net Quarterly Fee due to STI.
(c) Due Date. Payment with respect to each fee statement shall be
due and payable within thirty (30) days after such statements are dated.
4. MINIMUM PAYMENT.
If the total royalty payment made by CSI to STI at the end of the third
year after execution or this agreement does not exceed $75,000, then STI shall
have the option to terminate this agreement, except that CSI may maintain this
agreement by payment to STI of the difference between the received royalties and
the amount indicated above.
5. MAJOR DEVELOPMENTS.
Major developments involving uses for the Property not know at the date
of this Agreement shall be communicated in writing promptly by STI to CSI and
CSI to STI. Upon request by CSI or STI, (each party,) shall furnish to the other
detailed descriptions of each such major development.
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6. SOFTWARE MAINTENANCE AND PRODUCT DEVELOPMENT.
(a) Billing for Technical Assistance. STI shall be entitled to xxxx
CSI on a time and materials basis, at its standard hourly rate, for the time
cost and labor cost expended in maintaining the Software or providing CSI with
any technical assistance referred to in this paragraph 6; provided, however,
that STI shall not be entitled to xxxx CSI for time and labor costs spent on
correcting errors or defects in the Software. All billable technical assistance
shall be estimated by STI and agreed upon in writing by CSI before STI performs
services in connection with any project. STI shall provide monthly statements
for technical assistance which shall itemize the expenditure of time and
materials on a project by project basis.
(b) Maintenance of the Software. STI and CSI acknowledge and agree
that the Software will, from time to time, undergo changes as necessary to
maintain the Property in a commercially viable condition or to exploit certain
or all market segments listed in Exhibit "A". From time to time during the term
of this Agreement, CSI may request STI to make reasonable modifications and
improvements to the software to enhance the marketability of the Property and
the devices, products and special equipment manufactured therefrom, and to
correct any errors or defects that CSI has reason to believe exist in the
Software. STI shall use its best efforts to make such modifications and
improvement, and shall initiate activity to verify and remedy any such error or
defect within 5 working days after written notification. If a requested
modification and/or improvement, or verified error or defect, cannot be remedied
within 60 days, or if STI is unwilling or unable to maintain the Software in a
commercially viable condition, then upon written demand by CSI, STI shall
promptly provide appropriate source codes and consultation to CSI as necessary
to enable CSI to make the modifications or improvements, correct the errors or
defects, and/or maintain the Software in a commercially viable condition.
(c) Product Development and Software Conversion. STI and CSI
acknowledge and agree that the successful commercial exploitation of the
Property will require the manufacture of one or more end devices incorporating
the Property and/or Technology covered by this Agreement. STI and CSI also
acknowledge and agree that it may be necessary at some future time to convert
the Software into another medium (such as firmware), or into another computer
language, in order to successfully market the product. From time to time during
the term of this Agreement, CSI may request STI to provide technical assistance
to CSI and to those
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persons or entities with which CSI contracts or which CSI directs for purposes
of undertaking the tasks expressed and implied in this subparagraph 6(c), and
upon such request by CSI, STI shall make available to CSI qualified technical
personnel for 15 man days per calendar quarter for the purpose of providing such
technical assistance. If STI is unwilling or unable to provide qualified
technical personnel upon request from CSI, then CSI shall have the right to
engage independent contractors and employees as necessary to obtain the
technical assistance required to complete the tasks expressed and implied by
this paragraph 6, and STI shall make available to such independent contractors
and employees all documents and information relevant to completing such tasks.
Without limiting the foregoing, STI shall promptly supply necessary
specifications of the Software, Technology, and Property as reasonably requested
by CSI to facilitate the development of the Property into a product or products
which may be utilized in providing services or sold to prospective customers, in
the market segments listed in Exhibit "A".
(d) Rights in New Development. Any new developments or improvements
made to the devices or Property by CSI or at CSI's expense shall belong to CSI.
CSI grants STI the right to use such new developments or improvements in the
field designated to STI under this Agreement. Upon any termination of this
License Agreement, CSI continues to own the developments or improvements and STI
is limited thereafter to use of the
development or improvement only in STI's field designated in this Agreement.
7. REPRESENTATION AND WARRANTY OF STI.
(a) Right and Power to License. STI represents and warrants that it
is the sole owner of all right, title and interest in and to the Property, and
patents or patent applications therefore, and that it has the full right and
power to grant this license in the manner and form herein expressed, free and
clear of any adverse assignment, grant or any other encumbrances inconsistent
herewith.
(b) Exclusive License. STI represents and warrants that it has not
granted any license relating to the Property in the market segment set forth in
Exhibit "A" to any party and will not negotiate or grant any such license to any
party other than CSI during the term of this Agreement, including any extension
hereof.
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(c) Fitness. STI represents and warrants that the Property is in
substantial accordance with the description previously supplied to CSI, a copy
of which is attached hereto as Exhibit "B" and incorporated herein. This
warranty is in addition to all other warranties, express or implied, including
the implied warranty of merchantability, and fitness for a particular purpose.
8. MANUFACTURING.
(a) Basic Design Specifications. STI shall assist CSI in the
development of a definitive set of basic design specifications (the
"Specifications") for use in manufacturing devices which (i) embody the Property
and (ii) are suitable for use in CSI 's employee testing and assistance
projects. The specifications shall be determined by mutual agreement of the
parties; provided, however, that if the parties fail to reach agreement as to
the Specifications, or any part thereof, CSI shall have the right to resolve any
point of disagreement as CSI, in its sole discretion, deems appropriate.
(b) STI and CSI acknowledge and agree that in order to successfully
exploit the Property CSI must obtain the services of qualified and experienced
contractors that have the technical, competence to manufacture in a timely
manner, and according to the Specifications, the devices, products and
specialized equipment contemplated by this Agreement. STI shall have the right
to submit a bid, as a contractor, for the manufacture of such devices, products
and specialized equipment, which CSI will reasonably consider. CSI and STI will
jointly and by mutual consent establish criteria for accepting bids submitted by
contractors. To be considered as a contractor, STI should (a) demonstrate to the
satisfaction of CSI that STI is capable of manufacturing the Property according
to the Specifications, (b) That STI satisfies such criteria or STI furnishes a
performance bond issued by a corporation surety authorized to issue surety
insurance in the State of California for the faithful performance of the
contract in an amount equal to 100% of the contract price, and (c) submits a bid
that CSI determines is within 5% of the lowest competitive bid. Then CSI will
accept STI's lowest bid. If STI'S bid is the lowest competitive bid, and all
other conditions to CSI's acceptance of STI's bid are otherwise satisfied, then
CSI, if it accepts STI's bid, will pay an amount equal to one hundred five
percent [105%] of STI's bid. In lieu of the performance bond described in the
preceding sentence, CSI may, in its sole discretion, provide STI with an
alternative method of establishing that it has sufficient financial resources
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to indemnify CSI for any losses or delays caused by its inability to manufacture
the devices, products, and specialized equipment contemplated by this paragraph
8, in a timely manner, and in accordance with the Specifications.
9. PROPERTY APPLICATION.
CSI agrees that any promotion to or solicitation from prospective
customers for the Property or devices manufactured therefrom shall be made with
due consideration of the impact to STI's general business and professional
reputation. CSI further agrees that it shall inform and consult with STI as to
proposed promotions of the Property or devices manufactured therefrom for the
purpose of obtaining an appraisal of the performance standards, given the
commercial environment involved, in the operation of the property or the devices
manufactured therefrom for the proposed use by the prospective customer(s). Said
appraisal shall consider the efficiency, efficacy and accuracy of the Property
or devices manufactured therefrom in the proposed commercial environment. In
connection therewith, STI agrees that CSI may with prior written disclosure to
STI publish and release the results of said appraisal to those prospective
customers or to a class of similar prospective customers.
Any consulting requested by CSI under this paragraph 9, including the
rendering of any appraisal, shall be billable as technical assistance in
accordance with paragraph 6.
10. CONFIDENTIALITY.
(a) It is recognized that in the course of the performance of this
Agreement, proprietary, confidential and trade secret information of STI may be
furnished to CSI and proprietary, confidential and trade secret information of
CSI furnished to STI. Any such "Confidential Information" shall be first
presented in a sealed envelope or container that is identified as such on the
outer cover. It is mutually agreed between the parties that any such
Confidential Information that is received and accepted by the other party shall
be kept in confidence, not disclosed to any unauthorized person or persons, and
not used except for carrying out the purposes of this Agreement. It is agreed,
however, that there shall be no liability for the use or disclosure of any such
information, except as may be afforded under the United States or Foreign Patent
and Copyright Laws, if such information was in the public domain at the time of
receipt, was known to recipient at the time of receipt, is disclosed
inadvertently despite the reasonable
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degree of care such as recipient would take to safeguard its own proprietary
information, is disclosed or used with the written approval of the party
providing the information, is used or disclosed after three years from the date
of dissolution of this Agreement, or becomes known to recipient from a source
other than the other party without a breach of this Agreement.
(b) Each party agrees, that it shall take immediate affirmative
steps to ensure that confidentiality is maintained including, without
limitation, obtaining the prior written agreement of all employees, agents and
other individuals who have or may have contact with Confidential Information,
that they shall not disclose Confidential Information to any unauthorized third
party. The parties further agree to protect all Confidential Information
received from each other with the same standard of care and procedures with
which the receiving party's own Confidential Information is protected.
11. ESCROW OF SOURCE CODE.
(a) Creation of Escrow. STI agrees that, it shall place In escrow,
in a system satisfactory to both parties, the complete source code, object code,
related documentation, and similar data relating to the Property, Software and
Technology and shall keep such materials updated as may be required.
(b) Escrow Instructions. The instructions of the escrow shall
direct that CSI shall be delivered the corpus of the escrow by the escrow agent
in the event that:
STI is acquired, merged or its principal assets acquired, unless the
successor-in-interest agrees in writing to be bound by all obligations
undertaken by STI to CSI hereunder.
(c) Finalization. The parties agree that the precise language of
the escrow instructions and choice of an escrow holder for deposit of the source
code and other materials shall be finalized not later than sixty (60) days
following the effective date hereof.
12. PROPERTY OWNERSHIP
CSI acknowledges that the Property is licensed to it pursuant to this
Agreement. The Property shall remain the exclusive property of STI, and STI's
trade name and logo shall be
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clearly displayed on the Property. Except as set forth herein, CSI shall
obtain no ownership rights to the Property.
13. SUPPORT.
If requested by CSI, STI shall advise and assist CSI in the
presentation of the Property to CSI's customers and potential customers, and in
the marketing of the Property generally. CSI shall reimburse STI for its
reasonable expenses incurred in connection with providing such advice and
assistance.
14. NOTICES.
All notices required to be given hereunder shall be in writing and may
be and delivered or sent certified mail, return receipt requested, to the
parties at the following Addresses:
If to STI:
SYSTEMS TECHNOLOGY, INC.
00000 Xxxxx Xxxxxxxxx Xxxx.
Xxxxxxxxx, Xxxxxxxxxx 00000
Attn: President.
If to CSI:
COGNITIVE SYSTEMS, INC.
0000 Xxxxxxx Xx.
Xxxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxx X. Xxxxxxxxx
cc: Xxxxxx X. Xxxxxxxxx
cc: Xxx Xxxxxxx
or at such other address as either party may in writing advise to the other
party pursuant to the Paragraph. If notice is given by mail it shall be deemed
effective on the fourth business day following mailing or on the date of actual
receipt, whichever is earlier.
15. INFRINGEMENT.
If either party shall learn of a substantial infringement of CSI's
exclusive rights to use the Properly in connection with the testing of
employees, customers, clients and agents for impairment, and such infringement
is being accomplished by means of information obtained in a confidential
relationship with CSI or STI, or by a device or through the use of information
which was sold by STI under STI's reserved right to market the
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Property, pursuant to this Agreement, then STI shall use its best efforts in
cooperation with CSI to terminate such infringement with or without litigation.
16. INDEMNITIES AND COSTS.
Each party to the Agreement shall, at its own expense, indemnify,
defend, and hold harmless the other party against and in respect of any and all
claims, demands, loses, costs, expenses, obligations, liabilities, damages,
recoveries, and deficiencies, that the other party incurs or suffers which arise
or result from any breach of, or failure by it, to perform any of its
representations, warranties or promises in this Agreement.
(a) However STI makes no representation or warranty that the use of
the Property licensed hereunder will be free of infringement of the rights of
other parties.
(b) STI assumes no liability for the use of the Property under this
License Agreement.
(c) CSI agrees to indemnify STI and to hold STI harmless against
all loss, cost or damage resulting from claims of third party for loss or
injury, arising in connection with the manufacture, assembly, use or sale of
devices licensed under this agreement except in the event such devices are
manufactured by STI. CSI further agrees to include STI as a co-insuree in any
insurance policy obtained to insure against such loss or injury.
17. MISCELLANEOUS
(a) Severability. If any one or more of the provisions of this
Agreement shall be found to be illegal or unenforceable, then this Agreement
shall remain in full force and effect, and such illegal and unenforceable term
or provision shall be deemed stricken
(b) Performance. Neither party's right to require performance of
the other party's obligations hereunder shall be affected by any previous
waiver, forbearance or course of dealing.
(c) Relationship of Parties. No agency, partnership, joint venture
or joint relationship is created hereby and neither party has any authority of
any kind to bind the other in any respect whatever.
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(d) Excusable Default. Notwithstanding anything in this Agreement
to the contrary, no default, delay or failure to perform by either party shall
be a breach of this Agreement if such default, delay or failure to perform is
shown to be due entirely to causes beyond the reasonable control of the
defaulting party including, without limitation, labor disputes, inclement
weather, default of a common carrier, acts of embargo or of the acts of God.
(e) Integration. This Agreement supersedes all proposals, oral or
written, and all communications between the parties relating to the subject
matter hereof, except for the First Agreement. This Agreement may be modified
only by a writing signed by both parties.
(f) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
(g) In the case of the failure of either party to fulfill any of
its obligations hereunder, the other party shall have the right to cancel and
terminate this Agreement by giving sixty (60) days written notice of its
intention so to do and specifying the alleged failure, providing, however, that
if there has been no such failure or such obligations are fulfilled during such
sixty (60) day period, then such notice of cancellation shall be null and void;
otherwise, this Agreement shall be considered as canceled after the expiration
of said sixty (60) day period.
(h) In the event of any adjudication or bankruptcy, appointment on
a receiver by any court of competent jurisdiction, assignment for the benefit of
creditors, or levy of execution directly involving said CSI this Agreement may
be terminated at the option of STI by giving CSI five (5) days written notice of
his intention so to do.
(i) Should this Agreement be canceled or terminated as provided
herein, CSI shall not be relieved of liability for payment of royalty or license
fees due STI which accrued prior to the effective date of such cancellation or
termination.
(j) Arbitration. Any dispute relating to the interpretation or
performance of this Agreement shall be resolved at the request of either party
through binding arbitration. Arbitration shall be conducted in the City of Los
Angeles, California, in accordance with the prevailing rules of the
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American Arbitration Association. Judgment upon any award by the arbitrators may
be entered in the state or federal Court having jurisdiction. In the event of
litigation or arbitration under this Agreement, the prevailing party in any such
dispute shall be entitled to an award of cost of suit including investigative
cost and reasonable attorneys fees and costs as shall be determined by the
Court.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as indicated below.
SYSTEMS TECHNOLOGY, INC., a
California corporation
By /s/ XXX XXXXXXXX
------------------------------------
Its Vice President
-----------------------------------
COGNITIVE SYSTEMS, INC., a
California corporation
By /s/ XXXX XXXXXXXXX
------------------------------------
Its President
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EXHIBIT A
MARKET SEGMENTS
1. Public Transportation
2. Trucking
3. Utilities
4. Military
5. Aerospace
6. HAZMAT
7. Law enforcement
8. Fire fighters
9. Hospitals
10. Construction
11. Security
12. Banking/Securities
13. Manufacturing
14. Service Industries
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May 19, 1994
Xx. Xxxx Xxxxx
President
Systems Technology, Inc.
00000 X. Xxxxxxxxx Xxxx.
Xxxxxxxxx, XX 00000
RE: Addendum to the License Agreement dated November 24, 1988 between
System Controls, Inc. ("STI") and Performance Factor, Inc. ("PFI"),
formerly Cognitive Systems, Inc. (CSI)
ADDENDUM TO LICENSE AGREEMENT
This addendum deletes the original PARAGRAPH 2. TERM in its entirety and
replaces it with the following:
PARAGRAPH 2. TERM. "This agreement shall commence on the date hereof and
continue for an initial period of five (5) years. The term of the Agreement may
be extended by PFI for three (3) periods of five years each by written notice
given to STI in the manner provided in paragraph 14 of this agreement at any
time prior to the expiration of the previous period."
All other terms and conditions in the Agreement remain unchanged.
Agreed, Accepted and Agreed,
/s/ XXXX XXXXXXXXX /s/ XXXX XXXXX
Xxxx Xxxxxxxxx Xxxx Xxxxx
President President
Performance Factors, Inc. Systems Technology, Inc.
