6.1 Sales and Related Taxes. In the event any governmental entity imposes any tax on the sale of CPS Products, Siemens shall either pay the amount of such tax directly, or cause the customers to pay the amount of such taxes directly, to such governmental entity. CTI shall have no obligation to pay any taxes on the sale of the CPS Products and Siemens agrees to indemnify and reimburse CTI for any such taxes imposed on CTI by any governmental entity, except that Siemens shall not be obligated to pay sales or related taxes on sales of any CPS Products for which Siemens does not get sales credit under the terms of this Agreement.
6.2 Employment Taxes. The parties acknowledge and agree that the Account Managers will be employed by CTI and will under no circumstances be considered employees of Siemens. CTI shall be responsible for all withholding, payroll and similar taxes related to its employment of the Account Managers none of the Account Managers shall be entitled to any benefits afforded to the employees of Siemens. CTI agrees that: (i) Siemens will not withhold on behalf of the Account Managers any sums for income tax, unemployment insurance, social security, or any other withholding pursuant to any law or requirement of angovernmental body; and (ii) all of such taxes, payments and withholdings, if any, are the sole responsibility of CTI. CTI agrees to indemnify and reimburse Siemens for any income tax, unemployment withholding or other employment taxes with respect to the Account Managers that are imposed on Siemens by any governmental entity.
SERVICE AND WARRANTY
7.1 Service Contracts.
(a) For purposes of this Article 7, the term "SERVICE CONTRACT" means a service contract covering a CPS Product for which formal customer acceptance is received (i) at the time of sale of the CPS Product, regardless of whether the CPS Product is sold as a new unit or as a used unit, or (ii) at any time after such sale until the date which is eleven (11) months after formal customer acceptance of installation of the CPS Product.
(b) As soon as reasonably practicable after the Effective Date, the parties shall form a committee (the "SERVICE MANAGEMENT COMMITTEE") which shall be composed of six representatives as follows: three representatives each from Siemens and CTI with two representatives from each party from the service organization and one from the finance group. The presence of two Siemens representatives and two CTI representatives shall constitute a quorum for
meetings of the Service Management Committee. The Service Management Committee
shall meet on a monthly basis, and may meet by telephone conference. At each
meeting, Siemens shall submit to the Service Management Committee a list of all
Service Contracts received by Siemens since the previous meeting. The list of Service Contracts shall include a summary of all information the Service Management Committee deems necessary for the selection of such contracts by the Parties. The selection of such contracts by CTI and Siemens shall take into consideration certain parameters, including, but not limited to, predominant geographic coverage in the customer's region, pre-existing business relationships, and contract value. At the initial meeting of the Service Management Committee, Siemens shall have the right to select the first Service Contract it desires to maintain, then CTI shall have the right to select one Service Contract, and thereafter the parties shall alternate selections until all Service Contracts have been divided between them as closely as possible to the revenue split contemplated in Section 7.2 below. The selection sequence will continue to alternate at subsequent Service Management Committee meetings, such that the party that did not have the last selection at the prior meeting shall have the right to select first at the next meeting. Within thirty (30) days of the end of each fiscal quarter, the chief financial officer of Siemens or the chief financial officer of its Nuclear Medicine Group shall certify that all Service Contracts required to be submitted to the Service Management Committee under this Agreement have been submitted as required hereunder and that the summaries of such service contracts as provided by Siemens are true and correct in all material respects.
7.2 Service Contract Transfers. As a result of the selections made by the representatives of the Service Management Committee under Section 7.1 hereof, Siemens and CTI shall each enter into or otherwise effect the transfer or assignment of such initial Service Contracts to ensure that the aggregate revenues to be derived respectively by Siemens and CTI thereunder shall be substantially equal. Siemens shall ensure that the agreements executed by the customer authorize the transfer or assignment of such Service Contracts to CTI as contemplated in Section 7.1 above.
7.3 Service Contract Disputes. In the event the Service Management Committee is unable to resolve any dispute or controversy, the matter shall be promptly submitted to the President of each organization for resolution prior to submission of the dispute to arbitration in accordance with Section 12.1 of this Agreement. The parties agree to work in good faith to resolve any such dispute expeditiously in a manner consistent with the spirit of this Article 7.
7.4 First Year Warranty. First year warranty service shall be provided by the party that receives the Service Contract, with such party also receiving the first-year parts credit from CPS. If CTI provides first-year warranty labor, Siemens shall pay CTI the applicable lump-sum labor reimbursement amount set by Schedule 7.4 attached hereto. For all CPS Products, whether sold as new units or used units, not covered by a Service Contract at the time of formal customer acceptance of installation, the responsibility for providing first-year warranty labor on such CPS Products shall be allocated equally between CTI and Siemens by the Service Management Committee at the last monthly meeting before formal customer acceptance of installation. Any Service Contract later executed with respect to any such CPS Product shall be allocated in accordance with Section 7.1 above.
7.5 Existing Service Contracts; Installed Base.
(a) Except as provided in Article 8 of this Agreement, all contracts in force on the Effective Date between either CTI or Siemens and any third party for extended warranty service on any CPS Product shall be retained after the Effective Date by the party which originally entered into them.
(b) Notwithstanding the other provisions of this Article 7, but subject to the provisions of Article 8, Siemens and CTI shall have the right independently to pursue any and all service contracts for CPS Products that, if entered into, would not meet the definition of "Service Contract" set forth in Section 7.1(a) above; and CTI nor Siemens shall be obligated to submit any such service contract to the Service Management Committee.
8.1 Assignment of Service Contracts.
(a) CTI shall assign to Siemens all scanner service contracts for the service of any CPS Products to which CTI or any of its affiliates is a party in any international market other than Korea or Japan. A list of the applicable service contracts to be assigned is attached hereto as Schedule 8.1. In connection with such assignment, Siemens agrees to assume all remaining first year warranty labor obligations applicable to such CPS Products, as well as installation and first-year warranty labor obligations as to those CPS Products covered by Backlog Orders to be installed at any international location after the Effective Date. CTI agrees to credit Siemens for the unused prorated portion of the first-year parts warranty for those CPS Products contemplated in the immediately preceding sentence, up to the amount set by CPS. The parties agree that in no event shall such credit exceed the aggregate unused prorated portion of the first-year parts warranty applicable to such assigned service contracts.
(b) In consideration for the assignment of service contracts pursuant to this Section 8.1, Siemens shall pay CTI $2,200,000, in immediately available funds, to the account designated by CTI. CTI reserves the right to direct that some or all of these funds be paid directly to CTI's wholly owned European subsidiaries.
(c) CTI shall be responsible for all severance and other costs associated with the cessation of its international sales and service business with respect to the sale and service of the CPS Products. Siemens shall have the right to interview, solicit and hire those CTI employees currently engaged in CTI's international sales and service operations for the CPS Products.
8.2 Limitation. In consideration of the assignment set forth in Section 8.1 above, CTI hereby agrees that, during the term of this Agreement, it shall not enter or re-enter the United States market or any international market with respect to the sale or service of CPS Products, either directly or indirectly, alone or in cooperation with any third party other than CPS, except as may be otherwise agreed in writing by the parties hereto or as follows:
(a) In Korea, CTI shall continue its focus on sales based on the fee/scan business model and the service of such equipment.
(b) From and after the Effective Date, the parties acknowledge and agree that CTI shall retain the existing Distribution Agreement for CTI PET Products dated January 22, 2003 (the "CMI AGREEMENT") between CTI and Kabushiki Kaisha CMI ("CMI") in Japan, which has an initial term of three (3) years; provided, that (i) upon the termination or expiration of the CMI Agreement, CTI shall not replace CMI with another distributor in Japan or extend the CMI Agreement with respect to the sale or service of CPS Products, and (ii) during the term of the CMI Agreement, CTI will not enter into any new agreements regarding the distribution of CPS Products in Japan.
8.3 Restrictive Covenant. In consideration of the payment of the
consideration provided for in Section 8.1(b) of this Agreement, during the term
of this Agreement neither CTI nor any entity in which CTI owns 50% or more of
the voting securities, other than CPS (collectively, the "CTI RESTRICTED PARTIES"), shall engage in the business of selling, servicing, maintaining, or repairing PET or PET/CT scanners in the United States market or any international market other than Korea and Japan.
8.4 Termination of Restrictions. The limitations and restrictive covenants set forth in Sections 8.2 and 8.3 above shall terminate and become of no further force and effect immediately upon CTI's receipt of any notice of non-renewal of this Agreement given by Siemens pursuant to Section 10.1 below in order to allow CTI to prepare to re-enter the markets at or after the effective date of termination.
SALE OF CTI PRODUCTS
9.1 Siemens as Representative. CTI hereby appoints Siemens, and Siemens hereby accepts appointment, as CTI's non-exclusive representative to offer for sale to Siemens' customers products manufactured and/or distributed by CTI and
its subsidiaries (collectively, the "CTI PRODUCTS"), including but not limited to:
(a) positron-emitting molecular probes used in PET procedures, whether for diagnosis of disease or for research purposes ("RADIOPHARMACEUTICALS"), distributed by PETNET;
(c) REVEAL(TM) Marketing and Network Solutions; and
(d) sources; provided, with respect to Section 9.1(d) above, that regulatory requirements for CPS sources are met and that offers are made by Siemens in a good faith basis.
(a) Subject to the expiration or termination of any existing agreements to which Siemens is a party regarding the provision to Siemens customers of cyclotrons or radiopharmaceuticals, Siemens hereby agrees that during the term of this Agreement it shall offer exclusively CTI cyclotrons, PETNET radiopharmaceuticals, and CPS sources for sale to Siemens customers interested in purchasing cyclotrons, radiopharmaceuticals, or sources. It is a condition to Siemens' obligations under this Section 9.2 that the cyclotrons, radiopharmaceuticals, or sources be competitively priced, and that (with respect to radiopharmaceuticals), PETNET be able to timely deliver the radiopharmaceuticals to the customer site. Siemens agrees to review and pursue the early termination of any such conflicting agreement or relationship if Siemens can do so without cost to itself and such termination will not adversely affect Siemens's existing business operations.
(b) Siemens and CTI agree that the provisions of this Article 9 do not impose any restriction on (i) CTI's right to distribute the CTI Products itself or through others, (ii) Siemens's rights to distribute its products itself or through others, or (iii) CPS's right to distribute any CPS Products itself or through others.
9.3 Procedures. CTI and Siemens shall cooperate to develop procedures for the sale of CTI Products pursuant to this Article 9; provided, that all sales of CTI Products shall be made in accordance with CTI's standard terms and conditions of sale and pursuant to orders accepted by CTI.
9.4 Packaging of CTI Products with Siemens Products. CTI Products offered by Siemens under this Article 9 may be included as an option to the customer as part of a package with the CPS Products and Siemens' own products. In no event shall Siemens be obligated to package CTI Products with any other Siemens products, nor shall any customer be forced to purchase any such package. Any such packaged offering shall comply with all Federal, state and local laws.
9.5 Commission. The commission that the Siemens sales representatives will receive for the sale of the CTI Products shall be consistent with the commission paid by CTI to its PET tomography sales representatives for the same
9.6 Mirada License. As additional consideration for CTI's execution of this Agreement, Siemens shall execute and enter into that certain Fusion7D(R) Software License Agreement dated as of the Effective Date (the "MIRADA LICENSE") between Siemens and Mirada Solutions Limited, a wholly owned subsidiary of CTI incorporated under the laws of England and Wales.
9.7 Further Cooperation. The parties will work together to identify other potential areas in which they may collaborate in furtherance of their respective businesses. Siemens also acknowledges its desire to enter into a separate agreement with Concorde Microsystems, Inc. ("CONCORDE") for the distribution of its microPET(TM) product line, on terms to be mutually agreed upon between Siemens and Concorde.
10.1 Term. The initial term of this Agreement shall be two (2) years from the Effective Date and shall automatically be extended for additional one (1) year periods unless either party provides not less than 180 days prior written notice of its election not to renew for such additional term or this Agreement is earlier terminated pursuant to Sections 10.2, 10.3, 10.4, or 10.5 hereof.
10.2 Termination for Cause. At any time during this Agreement, this Agreement may be terminated for cause:
(a) By any party, upon thirty (30) days' written notice to the other parties, upon the occurrence of any one or more of the following events:
(i) a material breach by any other party of this Agreement if such other party shall have failed to cure such breach within ninety (90) days' of receipt of written notice thereof from the terminating party describing with specificity the factual basis constituting the material breach;
(ii) an adjudication of bankruptcy of any party under any bankruptcy or insolvency law; or
(iii) the commission by any party of a receiver for business or property, or the making of any general assignment for the benefit of Creditors
(b) By CTI, in the event that total unit sales of CPS Products represent less than *% of total unit sales of new PET and PET/CT scanners in the United States for two consecutive fiscal quarters as reported by the National Electronics Manufacturers Association (in either dollar volume or number of orders), if such reduction is not directly attributable to a decline in the quality of the CPS Products, non-competitive pricing or transfer pricing issues not attributable to the Transfer Prices paid for CTs to Siemens by CPS, adverse action by the U.S. Food and Drug Administration (the "FDA") related to CPS or the CPS Products, work stoppage or labor unrest at CPS that results in missed shipments, or similar events adversely affecting CPS's business operations in a manner that erodes total market share.
(c) By CTI, if Siemens terminates the Mirada License for any reason.
(d) By CTI, if Siemens is in breach or default of any of its payment obligations set forth in this Agreement and such breach or default continues for thirty (30) days or more after receipt of written notice thereof, upon written notice to Siemens, with such termination to be effective on the date of receipt by Siemens of such termination notice.
10.3 Termination Upon a Force Majeure Event. If a Force Majeure Event (as defined in Section 14.2) continues for a period of six (6) months or longer, then the entirety of this Agreement may be terminated by any party whose own performance is not delayed or prevented by the Force Majeure Event (the "UNAFFECTED PARTY") immediately thereafter by providing notice to the other parties.
* 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.
10.4 Termination by Mutual Agreement . This Agreement may be terminated at any time during the term hereof the mutual written agreement of the parties hereto.
10.5 Termination Upon Exercise of Option. Either party shall have the right to terminate this Agreement at such time as Siemens attains an 80% or greater interest in CPS pursuant to the closing of the additional purchase and sale rights set forth in Section 14 of the Joint Venture Agreement (the "OPTION").
10.6 Obligations Upon Termination.
(a) Except as provided, CTI agrees that upon the termination of this Agreement for any reason whatsoever CTI shall:
(i) cease all marketing and promotion of CPS Products and the solicitation of Purchase Orders on behalf of Siemens; and
(ii) on or before the effective date of termination, assist Siemens in preventing any disruption of service or supply to customers of CPS Products located within the Territory, by providing Siemens with a complete and accurate list and description of all unfulfilled Purchase Orders from customers for the CPS Products submitted to CTI on or before the effective date of the termination.
(b) Upon termination of this Agreement, Siemens shall reimburse CTI for all expenses for which Siemens is obligated to reimburse CTI and which were incurred on or before the effective date of termination.
10.7 Distribution of CPS Products.
(a) Upon the termination or non-renewal of this Agreement by Siemens for any reason, CTI shall have the right to distribute CPS Products on substantially the terms set forth in the CTI Distribution Agreement, as such
agreement may be amended from time to time by the parties.
(b) Upon the termination or non-renewal of this Agreement by CTI for any reason other than a payment default by Siemens in accordance with to Section 10.2(d) above, CTI shall not have the right to be a distributor of the CPS Products; provided, however, that Siemens and CTI may enter into discussions regarding an appropriate OEM relationship to further the commercial interests of the parties.
LIMITS ON DAMAGES AND INSURANCE
11.1 Limitation of Damages. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR LOSS OF ANTICIPATED PROFITS, OR FOR ANY INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES ARISING OUT OF THIS AGREEMENT OR THE SALE OR USE OF THE CPS PRODUCTS.
11.2 Insurance. CTI and Siemens each agrees to maintain during the term hereof liability insurance for personal injury and property damage, including product liability and contractual coverage, as set forth herein. Coverage for personal injury shall be not less than One Million Dollars ($1,000,000) aggregate annual liability. Coverage for property damage shall be not less than Two Million Dollars ($2,000,000) per occurrence. CTI and Siemens agree that all liability insurance obtained by CTI and Siemens shall include CTI and Siemens as named insureds reasonably acceptable to CTI and Siemens. CTI and Siemens further agree, as a continuing obligation after the term hereof, to maintain such insurance with no less than the coverage specified above in full force and effect for the full life of the CPS Products sold hereunder. CTI and Siemens shall supply each other with a Certificate of Insurance upon written request by Siemens or CTI.
12.1 Arbitration. Except for (i) claims resulting from an alleged breach of a party's confidentiality obligations hereunder or infringement of a party's technology or software, or (ii) situations in which a party may suffer irreparable harm, any controversy or claim between the parties arising out of or relating to this Agreement which cannot be settled by mutual agreement of the parties in lieu of the institution of legal proceedings by either party shall be submitted to binding arbitration on the terms set forth in the Joint Venture Agreement.
12.2 Release of Siemens by CTI. For and in consideration of the promises made by Siemens set forth herein, the adequacy and sufficiency of which hereby is acknowledged, CTI hereby does release, acquit, remise and forever discharge Siemens, all of its past and present servants, agents, employees, shareholders, officers, directors, partners, associates, principals, attorneys, successors, predecessors, insurers, and assigns, and any parent, subsidiary or affiliated entities from any and all claims, causes of action, liabilities, obligations, responsibilities, agreements, damages, actions, costs, and expenses of any nature whatsoever, including attorneys' fees, arising out of or relating to violations or alleged violations of Section 12.2 the Joint Venture Agreement related to the sale of PET image display or image analysis workstations, spare parts or sources, from the beginning of time to the Effective Date. No portion of this Section 12.2 shall apply to matters arising pursuant to this Agreement after the Effective Date.
12.3 Release of CTI by Siemens. For and in consideration of the promises made by CTI set forth herein, the adequacy and sufficiency of which hereby is acknowledged, Siemens hereby does release, acquit, remise and forever discharge CTI, all of its past and present servants, agents, employees, shareholders, officers, directors, partners, associates, principals, attorneys, successors, predecessors, insurers, and assigns, and any parent, subsidiary or affiliated entities from any and all claims, causes of action, liabilities, obligations, responsibilities, agreements, damages, actions, costs, and expenses of any nature whatsoever, including attorneys' fees, arising out of or relating to violations or alleged violations of Section 11.4 of the Joint Venture Agreement related to the sale of PET image display or image analysis workstations, spare parts or sources, from the beginning of time to the Effective Date. No portion of this Section 12.3 shall apply to matters arising pursuant to this Agreement after the Effective Date.
12.4 Release by CPS. For and in consideration of the promises made by CTI and Siemens set forth herein, the adequacy and sufficiency of which hereby is acknowledged, CPS hereby does release, acquit, remise and forever discharge CTI and Siemens, all of their respective past and present servants, agents, employees, shareholders, officers, directors, partners, associates, principals, attorneys, successors, predecessors, insurers, and assigns, and any of their respective parent, subsidiary or affiliated entities from any and all claims, causes of action, liabilities, obligations, responsibilities, agreements, damages, actions, costs, and expenses of any nature whatsoever, including attorneys' fees, arising out of or relating to violations or alleged violations of Sections 11.4 or 12.2 of the Joint Venture Agreement related to the sale of PET image display or image analysis workstations, spare parts or sources, from the beginning of time to the Effective Date. No portion of this Section 12.4 shall apply to matters arising pursuant to this Agreement after the Effective Date.
12.5 Denial of Admissions. The parties hereby agree that the releases set forth in Sections 12.2, 12.3, and 12.4 of this Agreement shall not be deemed to be an admission by any party of any violation of any provision of the Joint Venture Agreement.
12.6 Sale of Workstations. The Parties hereby agree to amend the Joint Venture Agreement to provide that future sales of PET image display and image analysis workstations (as opposed to those workstations that provide PET reconstruction or image correction capability, which shall continue to be excluded as part of the CPS Business) by either CTI or Siemens pursuant to the terms of this Agreement shall not constitute a breach of the covenant not to compete contained in the Joint Venture Agreement.