GENERAL OBLIGATIONS OF CTI, SIEMENS AND CPS
2.1 CTI Sales Activities. At all times during the term of this Agreement CTI, as Siemens's non-exclusive sales representative, shall:
(a) diligently promote sales of the CPS Products in the Territory;
(b) maintain in the Territory an adequately trained sales force knowledgeable of the CPS Products as is reasonably necessary to perform its obligations hereunder, and manage its sales force personnel as "product sales engineers" (as that term is understood by Siemens on the Effective Date) in support of Siemens's account executives;
(c) participate, as is appropriate and in compliance with applicable legal requirements, in appropriate sales, promotion, marketing or merchandising programs in the Territory prepared or undertaken by or on behalf of Siemens;
(d) participate in, and consult with Siemens and its designated agents, regarding trade shows and exhibitions in the Territory where such participation will promote the CPS Products;
(e) as applicable, refer prospective customers to the designated Siemens representative to obtain financing for the purchase of CPS Products, subject to the provisions of Section 2.6 below.
2.2 Documentation and Reports. CTI shall prepare or cause to be prepared, keep, maintain and provide Siemens with the following documentation and reports in a form and format reasonably acceptable to Siemens:
(a) periodic (though no less often than quarterly) reports of sales activities of CTI within the Territory identifying, among other things, actual purchasers of the CPS Products and active prospective purchasers, actual or pending orders, contact and other relevant lead information for each customer and active prospect, and any other information or data as mutually agreed upon from time to time by Siemens and CTI;
(b) non-confidential business records customarily maintained by CTI with respect to CTI's solicitation of Purchase Orders;
(c) information, in such reasonable detail as requested by Siemens, regarding market conditions and product performance;
(d) a forecast for the number and type of units that will be sold the following fiscal year, by no later than May 15 of each year; and
(e) such other matters as reasonably requested by Siemens.
2.3 License to Product Technology. Subject to the terms and conditions of this Agreement, CPS grants to CTI a non-exclusive license in the Territory to use the Product Technology (as defined below) to the extent reasonably necessary for CTI to promote and solicit Purchase Orders for the Products and to service and support the Products in order to allow CTI to fulfill its obligations under this Agreement.
This license is royalty-free and non-transferable except as permitted by Section 14.3. "PRODUCT TECHNOLOGY" shall mean all computer software code (in object code format and including all associated tool sets) and other technology and know-how comprised within the Products as well as any service manuals and user documentation that is generally provided by CPS to its customers and similarly situated distributors. All rights in and to the Product Technology not expressly granted in this license shall be retained by CPS.
2.4 Obligations of Siemens. At all times during the term of this Agreement, Siemens shall support marketing of the CPS Products by:
(a) Providing product managers to support the combined CTI-Siemens sales force (created pursuant to Section 1.4 of this Agreement) with regard to technical matters within their expertise;
(b) Providing product demonstrators to demonstrate CPS Products, including both software and hardware aspects of them;
(c) Developing sales tools and sales aids, including, among other things, case studies, cost analyses, and competitive analyses;
(d) Promoting the unique capabilities of CPS Products using LSO HI-REZ technologies and other pertinent technologies that may be developed (and, if necessary, approved by the FDA) for use in CPS Products during the term of this Agreement;
(e) Promoting the use of CPS Products in relevant medical disciplines including, but not necessarily limited to, oncology, cardiology, and neurology (the "KEY DISCIPLINES"), and further development of each Key Discipline as a market for CPS Products and other CTI and Siemens products and services;
(f) Placing advertisements in applicable journals and publications, emphasizing those journals and publications pertaining to the Key Disciplines;
(g) Attending and participating in appropriate trade shows pertaining to the PET industry or any of the Key Disciplines;
(h) Ensuring equal representation of CTI and Siemens personnel and shared presentation space at all trade shows attended, unless otherwise agreed by the parties;
(i) Together with CPS, developing medical advisory boards for each of the three Key Disciplines;
(j) Together with CPS, developing luminary and reference-site accounts for PET and PET/CT;
(k) Participating in research projects with luminaries, including commitments to make research contributions to luminaries from time to time in connection with such research projects, subject to applicable legal requirements and Siemens internal policies governing the funding of research grants; and
(l) Supporting and promoting to Siemens customers and Siemens corporate accounts, in accordance with Article 9 of this Agreement, the products and services manufactured, distributed, and/or provided by CTI and its subsidiaries (including P.E.T.Net Pharmaceuticals, Inc., a Tennessee corporation ("PETNET")), including radiopharmaceuticals (as defined in Section 9.1 below), cyclotrons, sources, and REVEAL(TM) Marketing and Network Solutions worldwide.
2.5 Obligations of CPS. During the term of this Agreement, CPS shall use commercially reasonable efforts to support Siemens marketing of the CPS Products by:
(a) Providing product managers to support Siemens' product managers or, in lieu of providing product managers, providing adequate access for Siemens product managers to CPS' engineering and research personnel;
(b) Providing product demonstrators to demonstrate CPS Products, including both software and hardware aspects of them, to Siemens product managers and training personnel;
(c) Providing sufficient technical information, operational details and technical analyses for Siemens to develop competitive arguments, sales tools and promotional materials for sales of CPS Products;
(d) Continuing to develop competitive products or features to further advance the technology or address competitive pressures created by the technology or features developed by competitors;
(e) Maintaining adequate product planning processes, soliciting comments or feedback on development needs from Siemens and, if determined appropriate by CPS after consultation with Siemens, responding to or implementing such comments or feedback;
(f) Maintaining good quality standards and order completeness, including review of quality records with Siemens periodically;
(g) Providing adequate training, tools and methods to facilitate deployment and installation of and applications training for the CPS Products by Siemens personnel;
(h) Providing support for research projects with luminary and reference site accounts designated by CPS, including financial support in an amount and to the extent deemed necessary or appropriate to further the interests of CPS; and
(i) Evaluating requests from Siemens from time to time to provide support to facilitate development of e.soft(TM) applications and integration and connectivity of scanner data with other e.soft(TM) and e.soft@LEONARDO(TM) workstations or other Siemens products or applications; provided, that any such support will be provided by CPS to Siemens only upon their mutual agreement (and in each party's respective exercise of its sole discretion) and subject to availability of resources and other matters relating to the feasibility of providing such support.
2.6 Product Financing. Siemens shall have the right of first refusal to provide financing arrangements to purchasers of the CPS Products from CTI pursuant to this Agreement; provided, that the financing terms and productoffering shall be no less favorable to the CTI sales team than Siemens provides to its own sales team. If Siemens is unwilling or unable to provide financing on a timely basis for a prospective purchaser, CTI will be permitted to refer such customer to alternative financing sources.
2.7 Initial Transfer Price Reductions. For all orders for CPS Products received by CPS after the Effective Date, the parties agree that (i) the component prices for which CTI supplies LSO and Siemens supplies CTs to CPS shall be reduced by the amounts set forth on Schedule 2.7 attached hereto, and (ii) such component price reductions shall be passed to Siemens in their entirety by reducing the Transfer Prices (as that term is defined in the Distribution Agreement) by the sum of such amounts, as also set forth on Schedule 2.7. The parties agree that Exhibit D to the Distribution Agreement shall be substituted with a revised Exhibit D in substantially the form of Schedule 2.7.1 reflecting the initial transfer price reductions.
2.8 Additional Transfer Price Reductions. Following the initial transfer price reductions contemplated in Section 2.7 above, CPS agrees to further reduce the transfer prices for the Siemens/CPS PET/CT products in its product line in the amount of $* per system as reflected on Schedule 2.8 attached hereto (the "ADDITIONAL TRANSFER PRICE REDUCTIONS"), subject to the receipt by CPS of an additional transfer price reduction of $* per unit from the Siemens CT division (i.e. $* from CPS and $* from Siemens CT). The Additional Transfer Price Reductions will become effective with the order of the * unit from Siemens to CPS after October 1, 2003 which shall include CPS Products ordered from CPS to fill Purchase Orders generated by CTI after May 1, 2004 pursuant to this Agreement.
* Omitted information is the subject of a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934 and has been filed separately with the Securities and Exchange Commission.
2.9 Scope. The initial transfer price reductions and the Additional Transfer Price Reductions contemplated in Sections 2.7 and 2.8 above shall apply to Siemens global sales of CPS Products.
2.10 Periodic Transfer Price Review. Upon Siemens's written request given not more frequently than *, CPS and Siemens shall review CPS's Transfer Prices (as that term is defined in the Distribution Agreement). Following such review, Siemens shall have the right to provide its recommendations as to appropriate adjustments to such Transfer Prices. All determinations regarding the setting or the changing of Transfer Prices shall be made by CPS as provided in the Joint Venture Agreement, and no provision of this Section 2.10 shall restrict CPS's discretion in making such determinations.
ORDERS FOR CPS PRODUCTS
3.1 Purchase Orders. CTI shall solicit Purchase Orders solely on the basis of the terms and conditions of sale (the "TERMS OF SALE") by utilizing the established standard sales processes of Siemens. In order to determine the price to customers, CTI's sales agents shall use the list prices as published in the Siebel quote system utilizing the same prizing authorities and escalation processes as the Siemens personnel. Siemens shall implement its pricing policies fairly between the Siemens and CTI sales organization so that neither party is disadvantaged in pursuing opportunities in the marketplace. Where appropriate, CTI shall inform each prospective customer that consummation of the sale is subject to Siemens' acceptance of the Purchase Order.
3.2 Submission of Purchase Orders to Siemens. Within one (1) business days after CTI has obtained a signed Purchase Order from a prospective customer, CTI shall submit the Purchase Order to Siemens for review and approval. CTI shall include any additional information regarding the prospective customer or the order that Siemens reasonably may request.
3.3 Acceptance of Purchase Orders. All Purchase Orders submitted by CTI are subject to acceptance in writing by Siemens in accordance with its corporate policy. Siemens shall determine whether or not it will accept a Purchase Order within two (2) business days of receiving the Purchase Order and any additional information from CTI. Siemens promptly thereafter shall deliver notice of its decision in writing to CTI. Siemens shall be obligated to accept all Purchase Orders submitted by CTI that have been approved through the Siemens standard order acceptance process, which applies for all business conducted by Siemens in the Territory. If the Purchase Order requires financing, then the Purchase Order will be conditionally accepted based on financing approval.
* Omitted information is the subject of a request for confi ential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934 and has been filed separately with the Securities and Exchange Commission.
3.4 Sales Revenue. Sales revenue under this Agreement shall accrue to Siemens in full, in accordance with generally accepted accounting principles.
3.5 Installation and Training. Siemens shall be responsible for installation and initial applications training through formal customer acceptance of the sold CPS Products. CTI agrees to provide installation support and initial applications training during the first six (6) months of the term of this Agreement, at a price to be mutually agreed by CTI and Siemens. Pricing shall be comparable to current pricing presently offered by CTI and/or Siemens. Wherever possible during the first six (6) months of the term of this Agreement, the party awarded the Service Contract for a CPS Product under the provisions of Article 7 will perform installation and training; and, if such party is CTI, then Siemens will pay to CTI $* per CPS Product, equal to the first-year warranty labor credit extended to Siemens under the provisions of the Distribution Agreement.
3.6 Backlog. The completion of firm Purchase Orders which have been executed by the customer prior to the Effective Date but for which delivery has not yet taken place (the "BACKLOG ORDERS") shall be carried out by Siemens or hCTI, whichever originally entered into the Purchase Order.
3.7 Sales Funnel. On or before June 1, 2004, representatives of CTI and Siemens shall review all unexpired quotes that are in the course of being negotiated by CTI that were outstanding as of the Effective Date (the "FUNNEL ORDERS"). CTI shall enter into all Funnel Orders, from time to time after the Effective Date, in the ordinary course of business. Based on its review of the Funnel Orders with CTI, Siemens shall select such of the Funnel Orders as meet Siemens' standards for acceptance, whereupon CTI and Siemens shall work together to effect a transition of the relationship from CTI to Siemens in a manner that meets the individual needs of the customer. CTI shall carry out all Funnel Orders (a) not selected by Siemens in accordance with the foregoing, or (b) selected by Siemens, but as to which a transition approach acceptable to the customer is not achieved.
(a) Not later than one hundred fifty (150) days prior to the end of each CTI fiscal year, CTI shall prepare and present to Siemens a proposed annual operating and capital budget (the "BUDGET") for the expenses to be reimbursed by Siemens pursuant to Section 4.1(b) hereof ("REIMBURSABLE EXPENSES") during the following CTI fiscal year. Siemens shall have thirty (30) days in which to review the Budget and communicate any material objections or requested changes to the Budget in writing to CTI in reasonable detail. CTI and Siemens shall work together to promptly respond to any objections and requested changes submitted by Siemens. Siemens and CTI shall mutually agree upon a Budget by no later than June 20 of each year; provided, that if Siemens and CTI are unable to approve a Budget by the beginning of CTI's fiscal year, then until an agreement is reached the Budget for the prior year shall be deemed to be adopted as the Budget for the current year, with each line item, as applicable, in the Budget increased by the percentage increase in the Consumer Price Index - All Urban Consumers (CPI-U) U.S. City Average All Items 1982-84=100 from August of the prior year to August of the current year.
* Omitted information is the subject of a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934 and has been filed separately with the Securities and Exchange Commission
(b) Siemens shall reimburse CTI for all direct expenses incurred by CTI with respect to the Account Managers employed by CTI who assist in the sales, marketing and account management for the CPS Products and related administrative support personnel (the "ACCOUNT MANAGERS"), including without limitation (i) payroll, wages, salaries and benefits; and (ii) travel, lodging and related expenses; except employment taxes, which will be paid as provided in Section 6.2.
(c) On the tenth (10th) day following the end of each month during the term of this Agreement, CTI shall submit to Siemens an invoice identifying the amount of Reimbursable Expenses incurred in the previous month. Within thirty (30) business days following the date of such invoice, Siemens shall pay to CTI in cash via wire transfer to an account designated by CTI the amount set forth on such invoice.
(d) The expenses to be incurred by Siemens pursuant to this Section 4.1 shall not exceed $* for the period from the Effective Date to September 30, 2004.
(e) Contemporaneously with the execution of this Agreement, CTI has provided to Siemens, and Siemens has approved, a budget for the fiscal year from October 1, 2004 to September 30, 2005 reflecting annual expenses of not more than $*.
4.2 Evaluation of CRPs.
(a) The Parties agree that the average customer realized prices for the CPS Product configuration set forth on Schedule 4.2 hereof (the "CRPS") will be reviewed no later than October 31, 2004 for the five months ending September 30, 2004 (the "REVIEW PERIOD") in order to determine whether, over the Review
Period, the CRPs on sales of CPS Products in the United States exceed the following target CRPs for substantially similar product configurations:
2-slice PET/CT . . $*
6-slice PET/CT . . $*
16-slice PET/CT . . $*
The Parties agree that the analysis of sales during the Review Period will include only those transactions that were entered into after the transfer price reductions became effective, regardless of shipment date. In the event the average CRPs exceed the target CRPs set forth above for CPS Products installed in the United States, Siemens and CTI shall each receive 50% of such excess with such payment, if any, to be made within thirty (30) days of the turnover and acceptance by customer. A similar review will be conducted each fiscal quarter during the term of this Agreement commencing October 1, 2004. The parties agree that the target CRPs will be reduced dollar-for-dollar with any transfer price reductions implemented after the initial transfer price reduction referred to in Sections 2.7 and 2.8 hereof.
* Omitted information is the subject of a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934 and has been filed separately with the Securities and Exchange Commission
(b) Transfer Price Relief to Luminaries. Siemens and CPS acknowledge that certain sales to key accounts and other key market opportunities ("luminaries") may from time to time necessitate a further reduction in CRPs for commercial reasons. The parties agree that CPS shall be free to reduce its transfer prices within the limited scope of making sales to such luminaries, such decision to be based upon reasonable business factors. Accordingly, the parties agree that CRPs arising from such transactions shall be excluded from the calculation contemplated in Section 4.2(a) above. The CRPs for all sales of PET and PET/CT products in multi-modality deals where the CPS volume is less than *% of the total order volume also will be excluded from the calculation contemplated in Section 4.2(a) above. The Parties shall designate one representative from each of their finance organizations to evaluate and agree on those transactions that should be excluded from the foregoing calculation. In the event the finance teams fail to agree, the disputed transactions shall be escalated to the President of each Party for a decision, prior to submission to arbitration in accordance with Section 12.1 of this Agreement. In order to facilitate proactive decision making, once per fiscal quarter the combined Siemens and CTI sales forces will develop a list of the luminary accounts to be targeted, as a 12-month rolling forecast.
4.3 Inspection. CTI shall have the right, exercisable twice per fiscal year upon five (5) business days notice to Siemens, to inspect at Siemens' headquarters for a period of no longer than three (3) business days the customer account information, financial records, service contracts, books, reports, and other documents prepared, maintained or retained by Siemens that support the calculation of CRPs contemplated in Section 4.2 hereof and the additional payments, if any, to be made, as well as the allocation of service contracts contemplated in Section 7.1 below. If Siemens reasonably determines that the dates initially chosen by CTI to perform the inspection would unreasonably interfere with Siemens's business, then Siemens and CTI shall select new dates for the inspection by mutual agreement. CTI agrees that it shall hold in confidence and treat as confidential all confidential information received from Siemens pursuant to this Section 4.3 and shall only use and disclose such information on a need-to-know basis in connection with the business relations between CTI and Siemens, for financial and planning purposes, to resolve disputes between the parties regarding the allocation of Service Contracts or the amount owed to CTI pursuant to Section 4.2 of this Agreement.
5.1 Siemens Brand. The CPS Products sold by CTI pursuant to the terms of this Agreement shall be marketed and sold under Siemens trademarks, service marks, logos, trade names, labels and/or other materials; provided, however,
* Omitted information is the subject of a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934 and has been filed separately with the Securities and Exchange Commission. that those CPS Products sold by CTI in fulfillment of Backlog Orders pursuant to Section 3.6 of this Agreement or in fulfillment of Funnel Orders not entered into and completed by Siemens pursuant to Section 3.7 of this Agreement shall be sold under CTI trademarks, service marks, logos, trade names, labels and/or other materials. Nothing herein contained shall give or be deemed to give CTI or its employees, agents or contractors any right, title or interest in any trademark, service mark, copyright or other intellectual property right held or used by Siemens. CTI shall not knowingly take any action, or knowingly fail to take any action where such action or failure would, directly or indirectly, have an adverse effect upon the trademarks, service marks, copyrights or other intellectual property rights of Siemens.
5.2 CTI Products. All CTI Products shall be marketed and sold under CTI trademarks, service marks, logos, trade names, labels and/or other materials. Nothing herein contained shall give or be deemed to give Siemens or its employees, agents or contractors any right, title or interest in any trademark, service mark, copyright or other intellectual property right held or used by CTI. Siemens shall not knowingly take any action, or knowingly fail to take any action where such action or failure would, directly or indirectly, have an adverse effect upon the trademarks, service marks, copyrights or other intellectual property rights of CTI.
5.3 CPS. The parties hereto agree that nothing contained in this Agreement is intended (i) to limit or restrict CPS' right to label or use its trademarks, service marks, logos and trade names in any manner necessary to maximize the growth of its business, or (ii) to amend or modify any term or provision of the Joint Venture Agreement or the rights of the parties thereunder. With respect to the CPS Products shipped with the Siemens logo or under the Siemens brand, CPS agrees that it will not also place a CPS logo on the equipment, other than the CPS manufacturer label on the lower right rear corner, without the prior approval of Siemens. For purposes of this Agreement, the parties agree that CPS shall not be considered an "affiliate" of either CTI or Siemens, but shall be deemed an independent business enterprise subject to the oversight and control of its Board of Directors and the terms of the Joint Venture Agreement.