1
Certain portions of this exhibit have been omitted based upon a request for
confidential treatment. Omitted portions have been separately filed with the
Commission.
EXHIBIT 10.6
DEVELOPMENT AND SUPPLY AGREEMENT dated as of this
21st day of August 1996, by and between THE STRYKER ENDOSCOPY DIVISION of
Stryker Corporation, a Michigan corporation ("Stryker"), and COMPUTER MOTION
INCORPORATED, a California corporation ("CMI").
WITNESSETH:
WHEREAS, CMI has designed, engineered and developed and is the owner of
all right, title and interest in and to the intellectual and commercial rights
relating to a voice activated system for controlling surgical equipment that
incorporates (a) know-how, drawings, sketches, configurations, models,
prototypes, designs, schematics, layouts, inventions, processes, machines,
ideas, concepts and other information developed by CMI used in the design,
development, modification, improvement and manufacture of such system (the "CMI
Technology") and (b) patents controlled by CMI or patent applications filed by
CMI with respect to the CMI Technology and any reissues, reexaminations,
continuations or continuations-in-part thereof (the "CMI Patent Rights");
WHEREAS, Stryker believes that the System (as that term is defined in
Section I hereof) is complementary to its existing business and desires that CMI
and Stryker engage in a joint development project (the "Development Project") to
adapt the System for use in conjunction with the medical products manufactured
and/or marketed by Stryker that are listed on Schedule A hereto (the "Stryker
Products") and CMI has agreed to undertake its portion of the development
program, all upon the terms and subject to the conditions hereinafter set forth;
and WHEREAS, Stryker and CMI have agreed that, if Stryker determines to market
the System in conjunction with Stryker Products, CMI shall manufacture and
supply the System to Stryker and Stryker shall purchase the System from CMI for
resale in conjunction with the Stryker Products, all upon the terms and subject
to the conditions hereinafter set forth;
NOW, THEREFORE, in reliance upon the representations, warranties and
agreements herein contained and other valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. The System. As used in this Agreement, the term "System" shall mean CD4I's
"Hermes Surgical Equipment Control System," as more fully described on Schedule
B attached hereto, and modifications and improvements thereof hereafter
developed by CMI or in which CMI has any rights.
2. Development Project. CMI agrees to diligently conduct research and
development with a view toward completing the System development and engineering
work to be performed by it as more fully described on Schedule C hereto (the
"CMI Tasks"). Stryker agrees to fund [*] of the cost of the CD4I Tasks, up to a
maximum expenditure therefor by Stryker of
2
[*], but subject, unless Stryker agrees otherwise in writing, to the maximum
amount budgeted for each Phase of the Development Project specified in Schedule
C. CMI shall keep Stryker informed at reasonable times, orally or in writing,
with respect to the status of the CMI Tasks and the overall Development Project
and shall provide Stryker with a written report at the conclusion of each Phase.
Promptly after the delivery of each such report, CMI shall, if requested to do
so by Stryker, also give an oral presentation describing in reasonable detail
the results of the Development Project through the end of that Phase as defined
in Schedule C to persons designated by Stryker at a "Phase-End Meeting." The
Phase-End Meetings shall be held within twenty-one (21) days of the end of that
phase at locations alternately determined by CMI and Stryker. Stryker shall have
the right, within 45 days of the holding of each Phase-End Meeting, to cancel
the Development Project without further obligation to CMI except as set forth in
paragraph 16 if the results thereof are unsatisfactory to Stryker or if Stryker
shall have determined not to proceed with commercialization of the Systems.
Stryker's share of the expenses for each Phase as set forth above shall be paid
within forty-five (45) days after receipt of an invoice therefor, which shall be
issued by CMI monthly subject to the maximum ceiling for each Phase of the
Development Project and shall document in reasonable detail the total expenses
incurred by CMI during the month to which it relates. As part of the Development
Project, Stryker shall be responsible for the performance of the tasks assigned
to it in Schedule C that are necessary to permit the interface of the System
with the Stryker Products (the "Stryker Tasks"). Each of Stryker and CMI agrees
to use its reasonable best efforts to perform the tasks for which it is
responsible within the time allotted thereto in Schedule C. In the event that
the entire project is delayed by six months or more, the party responsible
therefor shall be penalized -- by a one-month reduction of the Exclusivity
Period (as defined in Section 4) if Stryker's failure to perform the Stryker
Tasks in a timely manner is the cause of the delay or a one-month increase in
the Exclusivity Period if CMI's failure to perform the CMI Tasks in a timely
manner is the cause of the delay. If the failure is a result of both CMI and
Stryker actions, no change will be made to the Exclusivity Period. If the
Development Project has not been completed on or before June 30, 1998 or such
later date as the parties may agree in writing, this Agreement shall terminate
and neither party shall have any continuing obligation to the other except as
set forth in Section 16 hereof. In consideration of the payments to be made by
Stryker hereunder, CMI agrees that it shall not conduct research and development
activities with respect to products of the type described in Schedule B for use
with products of the type described on Schedule A for any party other than
Stryker as long as the Development Project is continuing and, thereafter, until
the end of the Exclusivity Period.
3. Ownership of Rights. CMI shall remain the owner of the CMI
Technology and the CMI Patent Rights. Stryker shall own patent rights, if any,
that arise out of inventions or
3
discoveries conceived, made or reduced to practice by it as a result of the
performance by it of the Stryker Tasks. The intellectual property and commercial
rights that arise out of inventions or discoveries conceived, made or reduced to
practice by CMI as a result of the performance by it of the CMI Tasks shall be
owned by CMI and deemed "CMI Technology" or "CMI Patent Rights," as the case may
be.
4. Manufacturing and Supply of the Systems.
(a) Exclusivity of Stryker. If the Development Project is successfully
completed and Stryker advises CMI of its intention to market the System in
conjunction with the Stryker Products which it shall do within forty-five (45)
days of the completion of Phase 4 as set forth on Schedule C or this Agreement
shall terminate, CMI agrees that it shall supply the System to Stryker for use
in conjunction with the Stryker Products and that it will not supply the System
to any other manufacturer or marketer of products of the type described in
Schedule A for as long as Stryker meets the minimum purchase requirements set
forth below (the "Annual Minimum") for the successive twelve-month periods (each
an "Agreement Year") commencing on the date that the first 30 Systems have been
delivered to Stryker as provided herein (the "Exclusivity Period"):
First Agreement Year [*] Systems
(including the first
[*] Systems)
Second Agreement Year [*] Systems
Third Agreement Year [*] Systems
Thereafter [*] Annual Growth
In the event that Stryker fails to purchase the Annual Minimum in any Agreement
Year, CMI shall thereafter be free to sell Systems to any other party. In
addition, in the event that Stryker fails to purchase more than [*] percent
([*]) of any Annual Minimum in any Agreement Year, CMI may, at any time within
ninety (90) days after the end of such Agreement Year, give written notice to
Stryker of its intention to terminate this Agreement. Such termination shall be
effective on the date specified in such notice, which date shall not be earlier
than six (6) months after the date such notice is given. CMI will continue to
deliver product to Stryker for twelve (12) months following the effective
termination date for all "Active Customers", defined as customers which Stryker
has submitted quotations and/or has received purchase orders at the time written
notice of termination is submitted by CMI. Stryker shall supply CMI with a list
of such Active Customers within thirty (30) days of receipt of such notice of
termination. CMI shall have the right to reasonably request copies of
documentation required to substantiate the propriety of customers being
categorized as Active Customers. In consideration of the exclusivity of supply
provided in this Section 4(a), Stryker shall pay $[*] to CMI in three (3)
equal monthly installments commencing on the date of execution and delivery of
this Agreement, and, thereafter, on the same date in each of the two (2)
succeeding months. During the Exclusivity Period, Stryker shall not develop,
have developed, purchase or utilize any products serving
4
the same function as the System with the products described in Schedule A unless
technology with greater market acceptance or a lower cost is available. In the
event Stryker intends to develop, have developed, purchase or utilize any such
other products, it shall provide to CMI, at least forty-five (45) days prior to
such action, a statement setting out Stryker's intent and the basis for
Stryker's bona fide belief that such other products have technology with greater
market acceptance or are available at a lower cost. For purposes hereof, lower
cost shall mean at least [*] percent ([*]%) less than the then current cost of
the similar System from CMI. During the forty-five (45) day period following
Stryker's notice, CMI and Stryker shall confer with the goal of retaining CMI as
Stryker's exclusive supplier by mutually agreed changes to the Systems and/or
the prices therefor. It is understood and agreed by the parties hereto that the
only consequence of a failure of Stryker's purchases from CMI to meet the Annual
Minimum for any Agreement Year shall be the loss of exclusivity of supply or
termination of this Agreement as provided in this Section 4(a) and that Stryker
shall have no obligation to CMI for the shortfall in revenues or profit as a
result of such failure. Stryker shall sell Systems only in conjunction with the
products listed on Schedule A.
(b) Pricing. CMI agrees to price the System components sold to Stryker
hereunder at an amount no more than [*] times the direct manufacturing cost (as
defined by generally accepted accounting principles ("GAAP") and including costs
of raw materials, direct labor, indirect labor and overhead) thereof and, in any
event, not more than the amount set forth therefor on Schedule D hereto. CMI
further agrees to reduce the overall System price by [*] percent ([*]%) in each
successive Agreement Year during the Exclusivity Period and that the price for
new models of the System will not exceed the price then in effect for existing
Systems unless additional features requested by Stryker increase the cost
thereof, in which case CMI may increase the price in proportion to the increased
costs.
Notwithstanding the foregoing, CMI agrees to sell Systems to Stryker
for use as sales and marketing samples and up to [*] ([*]) Systems as
requested by Stryker for placement in "Centers of Excellence" at one and one
half times CMI's direct manufacturing cost.
(c) Ordering and Delivery. Commencing on the date after completion of
the Development Project that Stryker confirms to CMI its intention to market the
System in conjunction with the Stryker Products, Stryker shall place purchase
orders with CMI, at least quarterly, specifying quantities and shipment dates,
which shall be not less than sixty (60) days after the placing of such order
unless otherwise agreed by CMI. Each quarterly order shall be accompanied by a
forecast of Stryker's anticipated requirements for Systems for the next three
quarters. Stryker shall not be obligated to purchase any System that is not the
subject of a confirmed purchase order. If CMI foresees any problem in meeting
the proposed delivery schedule set forth in any purchase order, it shall
promptly advise Stryker in writing. In the event that CMI does not deliver
Systems that are accepted by Stryker in a quantity at least equal to [*]
percent ([*]%) of the Systems ordered within the time period specified in
Stryker's purchase orders for delivery in quarter of any
5
Agreement Year, provided such purchase orders for such quarter do not exceed
[*] percent ([*]%) of the amounts forecast by Stryker for such
quarter at the time of its order for the preceding quarter as set forth above,
the Annual Minimum for such Agreement Year shall be reduced by the number of
Systems not supplied on a timely basis. CMI will package and ship the Systems to
such Stryker facility as is designated by Stryker in accordance with such other
instructions as Stryker shall specify in the applicable purchase order. CMI's
prices to Stryker are F.O.B. Santa Barbara, California, with Stryker being
obligated to pay for shipping and insurance. Title and risk of loss to the
Systems delivered hereunder shall pass to Stryker at such time as they are
delivered to and accepted by Stryker or its agents and, in any event, within 15
business days of receipt unless rejected as non-conforming.
(d) Invoicing. upon shipment of each order, CMI will invoice Stryker
therefor. All such invoices for Components accepted by Stryker shall be paid
within forty-five (45) days of their receipt.
(e) Quality and Inspection. CMI warrants and agrees that the Systems
will be manufactured in accordance with Good Manufacturing Practice (IIGMP") as
required pursuant to applicable provisions of the U.S. Food, Drug, Cosmetic and
Device Act, as amended, and promulgated by the Food and Drug Administration
("FDA"). CMI further specifically agrees that it will use commercially
reasonable efforts to assure that the Systems will comply with the electrical
safety requirements of UL and CSA per IEC 601-1 and with the Quality Assurance
and Good Manufacturing Practice requirements of ISO 9000/EN46000 as soon as
possible and that the Products will be EMC compliant and carry the 'ICE" xxxx,
all expenses in connection therewith to be borne by CMI. CMI agrees to undertake
such quality control and inspection procedures as required by the FDA or any
other appropriate regulatory agency and to provide Stryker with access to its
manufacturing facilities in order that Stryker may make GMP audits at such
reasonable times as Stryker shall deem necessary. If, within thirty (30) days
after receiving any shipment of Systems, Stryker shall, in its reasonable
judgment and in accordance with applicable GMP regulations, determine that any
of the Systems in such shipment is non-conforming, CMI will, unless it disputes
such claim within fifteen (15) business days after receiving notice of
non-conformity from Stryker, ship new Systems to Stryker in replacement for the
non-conforming Systems within fourteen (14) days. Stryker shall return
non-conforming Systems to CMI at CMI's expense or otherwise hold or dispose of
them at CMI's expense as CMI may direct.
(f) Product Labeling. The Systems sold to Stryker for marketing in
conjunction with the Stryker Products shall be labeled and advertised under
Stryker's name but shall refer to CMI as the manufacturer thereof. The type size
of CMI's name on System labeling and in brochures and demonstration videos shall
be approximately one-half the size of Stryker's name unless otherwise agreed by
CMI. CMI's name shall also appear on each System in a position visible to users
thereof.
6
(g) Manufacture by Stryker. In the event that CMI shall fail to supply
[*] percent ([*]%) of the quantity of Systems ordered by Stryker pursuant to
subsection (c) of this Section 4 to Stryker in a timely manner for [*] ([*])
consecutive quarters during the first two Agreement Years or shall fail to
deliver [*] percent ([*]%) of the quantity of Systems ordered by Stryker
pursuant to subsection (e) of this Section 4 to Stryker in a timely manner for
[*] ([*]) consecutive quarters during any subsequent two Agreement Years, (ii)
the Systems delivered to Stryker shall consistently fail to meet the
requirements set forth in subsection (e) of this Section 4 and, in either case,
such failure shall continue for thirty (30) days after written notice from
Stryker or (iii) CMI shall become insolvent or admit in writing the inability to
pay its debts as they fall due, shall make an assignment for the benefit of
creditors or shall apply for, consent to or acquiesce in the appointment of a
trustee or receiver for it or any substantial part of its property; or, in the
absence of such application, consent or acquiescence, a trustee, receiver or
similar officer is appointed for it or for a substantial part of its property
and is not discharged within thirty (30) days; or any bankruptcy,
reorganization, debt arrangement or other proceeding under any bankruptcy or
insolvency law, or any dissolution or liquidation proceeding, is instituted by
or against it and is consented to or acquiesced in by it or remains undismissed
for thirty (30) days, CMI shall xxxxx Xxxxxxx the irrevocable right and
exclusive, royalty-bearing license to use all CMI Technology and CMI Patent
Rights in the manufacture of Systems for use in, and only in, conjunction with
products having the same or similar applications as the Stryker Products. Such
license shall continue to be exclusive as long as Stryker has paid royalties on
sales of a number of Systems at least equal to the Annual Minimum that it would
have been required to purchase in order that the Exclusivity Period continue in
effect pursuant to subsection (a) of this Section 4 for the prior Agreement
Year, commencing with the Agreement Year in which the first System manufactured
by Stryker is sold (if the first System manufactured by Stryker is sold during
an Agreement Year, Stryker shall only be required to have paid royalties on
sales of a number of Systems in such Agreement Year equal to that proportion of
the applicable Annual Minimum that the number of full months after such first
sale is to twelve (12)) and shall be non-exclusive thereafter. CMI may elect to
terminate such license at any time after it becomes non-exclusive by giving
Stryker at least six (6) months, prior written notice of its intention to do so.
Such right and license shall not be assignable by Stryker and shall not be
sublicensable by Stryker, except to the extent necessary for Stryker to have
Systems manufactured by a third party for resale by Stryker. In the event
Stryker exercises its rights hereunder, Stryker shall pay CMI royalties equal to
[*] percent ([*]%) of the Net Sales Price of the Systems sold by Stryker. For
purposes hereof, "Net Sales Price,, shall mean the standard cost of Stryker's
Endoscopy Division plus [*] in the case of intra-company sales of Systems to
any other division or subsidiary of Stryker and the gross
7
sales price billed for all other sales of Systems less, in each case:
(i) transportation and insurance charges or allowances, if included in
such amount;
(ii) discounts allowed, and commissions paid in lieu of trade discounts
(other than commissions paid to the seller's employees) in amounts customary in
the trade;
(iii) credits and allowances, if any, given or made on account of the
return or rejection of Systems previously delivered or retroactive price
reductions; and
(iv) any tax or other governmental charge on the sale, transportation
or use of Systems that is paid, absorbed or allowed by the seller.
Stryker shall deliver to CMI within [*] ([*]) days after the end of each
calendar quarter, a true and accurate report, covering the preceding calendar
quarter in sufficient detail to accurately account for the number of Systems or
components thereof sold, and Stryker's Net Sales Price therefor. Royalties shown
by such report to be due shall accompany such report. Stryker shall keep full,
true and accurate books of accounts containing all particulars which may be
necessary for the purpose of determining the number of Systems or components
thereof sold, the Net Sales Price thereof and royalty payments. Stryker agrees,
at the request of CMI and at CMI's expense, to permit an independent certified
accountant selected by CMI and reasonably acceptable to Stryker, to have access
upon at least ten (10) business days, prior notice and no more than once per
calendar year to such books of accounts for the purpose of verifying the
statements described herein. Such accountant shall not be entitled to disclose
any information relating to the business of Stryker except that which should be
properly contained in any report to CMI contemplated in this Section 4(g). Such
inspection shall be at the sole cost and expense of CMI; provided, however, that
if such inspection reveals a deficiency of five percent (5%) or more in the
payment of royalties due hereunder, the cost of such inspection shall be paid by
Stryker. Interest at the rate of ten percent (10%) per annum shall accrue and be
paid by Stryker on all delinquent payments. CMI agrees that it will execute such
documents as Stryker shall reasonably request in order to confirm the grant of
such license and shall instruct the employees of CMI to cooperate with employees
and representatives of Stryker or any third party with which Stryker has
contracted for the manufacture of the Systems and answer questions they may have
concerning the CMI Technology and CMI Patent Rights. In connection with the
transfer of the CMI Technology and CMI Patent Rights at such time as Stryker is
entitled under the terms of this Agreement to manufacture or cause third parties
designated by it to manufacture Systems, CMI shall make available to Stryker the
services of such personnel of CMI as Stryker may reasonably request in order to
assist Stryker or its designee in establishing production facilities for the
manufacture of Systems and otherwise to assist in the transfer of the CMI
Technology and the CMI Patent Rights to Stryker and/or its designee. Stryker
8
shall pay reasonable out-of-pocket expenses incurred by such employees in
connection with the performance of such services.
5. Warranty and Repairs; Defective Products; Recalls. (a) CMI hereby
warrants that the Systems manufactured and sold hereunder by it to Stryker shall
meet the performance characteristics, specifications and drawings in the most
recent form agreed to by Stryker and CMI and shall be free from defects in
material and workmanship for a period of [*] ([*]) [*] from the date of purchase
from Stryker by the end user of a System. During the [*] warranty period,
CMI agrees that it shall correct or cause to be corrected, by repair or
replacement at its option, any System that proves to be defective within
[*] ([*]) hours of receipt of the defective System at a designated CMI
repair station. CMI agrees to maintain a field clinical specialist force of at
least [*] specialists during the Exclusivity Period to support the Stryker Sales
Force with respect to training, in-servicing and related marketing issues and to
provide an "800" technical support phone service for sales representatives and
customers of Stryker to be manned between 6 A.M. and 5:30 P.M. (Pacific time) on
each Monday through Friday (other than federal holidays) during such period.
(b) CMI shall notify Stryker promptly upon becoming aware of any
defect in any of the Systems and shall initiate corrective action at CMI's
expense. In the event that a recall is required by a governmental agency or
deemed advisable by Stryker or CMI, CMI shall, at its expense, develop and
implement a recall program. Defective and recalled Systems will be returned to
CMI for credit.
6. Regulatory Approvals. CMI shall be primarily responsible for
obtaining ETL, CSA, and IEC 601 approval and any other regulatory approvals
required from the FDA (or other equivalent regulatory authorities) for the
manufacture of the Systems. Stryker shall be primarily responsible for obtaining
such acceptance and approvals that are required for the marketing of the
Systems, including 510(k) clearance in conjunction with Stryker Products. CMI
and Stryker each agree to cooperate with the other in connection with the
obtaining of such approvals.
7. Marketing Assistance. CMI agrees to provide Stryker with reasonable
sales and marketing assistance as may be requested by Stryker in connection with
its sales, marketing and promotional programs, which assistance shall include
providing sales or technical service support and providing training courses for
personnel of Stryker and its dealers and distributors and educational programs
for surgical personnel. In connection with such activities, during the
Exclusivity Period CMI agrees to reasonably make available the services of its
employees, including at least [*] ([*]) field clinical specialists who will
assist Stryker's marketing efforts with key accounts as requested and provide
training and support for Stryker's customers, upon the reasonable request of
Stryker. Stryker acknowledges that such field clinical specialists shall also
support other CMI products and will not be exclusively devoted to the support of
9
Stryker's customers. Stryker and CMI will cooperate regarding exhibitions at
trade shows and conventions demonstrating the use of Systems in conjunction with
the Stryker Products.
8. Indemnification; Insurance. (a) CMI indemnities and holds Stryker
harmless from any and all loss, liability and expense arising out of (i) the
death or injury to any person or damage to property resulting from any
negligence or defect in the design or manufacture of any System furnished by CMI
in the performance of this Agreement or (ii) any claim of patent infringement
with respect to any System furnished by CMI in the performance of this
Agreement, except to the extent such claims arise from modifications to the
Systems made by Stryker after delivery thereof by CMI or as a result of the use
of the Systems in a manner not in compliance with the directions for use as
approved by CMI or the use of the Systems in connection with products not listed
on Schedule A. CMI shall, on behalf of Stryker, defend any action brought
against Stryker for any such claim, shall bear all the costs and expenses,
including reasonable attorneys' fees, in the defense thereof and shall pay any
judgment that may be awarded against Stryker in respect thereof.
(b) CMI shall carry and maintain in force at least one million dollars
($1,000,000) per occurrence of product liability coverage with respect to the
Systems sold to Stryker pursuant to this Agreement and shall provide Stryker
with a Certificate of Insurance evidencing that such coverage extends to Stryker
under a Broad Form Vendors Endorsement.
(c) Stryker indemnifies and holds CMI harmless from any and all loss,
liability and expense arising out of the death or injury to any person or damage
to property resulting from the marketing or sale by Stryker of products
incorporating Systems or any use thereof, except to the extent such death or
injury or damage results, in whole or in part, from any negligence or defect in
the design or manufacture of any System furnished by CMI in the performance of
this Agreement. Stryker shall, on behalf of CMI, defend any action brought
against CMI for any such claim, shall bear all the costs and expenses, including
reasonable attorneys' fees, in the defense thereof and shall pay any judgment
that may be awarded against CMI in respect thereof. Stryker shall carry and
maintain in force product liability coverage in amounts determined by it from
time to time to be appropriate and shall provide CMI with a Certificate of
Insurance evidencing such coverage and naming CMI as an additional insured
thereunder.
9. Representations and Warranties.
(a) Organization; Authority. CMI is a corporation duly organized and
validly existing in good standing under the laws of the State of California. CMI
has the corporate power to execute, deliver and perform this Agreement.
(b) Binding Obligation. The execution and delivery of this Agreement by
CMI does not, and the performance of its obligations hereunder will not, violate
any
10
provision of the articles of incorporation or by-laws of CMI or violate any
provisions of, or result in a breach of any of the terms or provisions of or the
acceleration of any of the obligations under, or constitute a default under, any
mortgage, lease, agreement, instrument, order, arbitration award, judgment or
decree to which CMI is a party or to which CMI or its assets, properties or
business are subject. This Agreement is a valid and binding agreement of CMI
enforceable against it in accordance with its terms.
10. Representations and Warranties of Stryker.
(a) Organization. Stryker is a corporation duly organized and validly
existing in good standing under the laws of the State of Michigan.
(b) Binding Obligation. The execution and delivery of this Agreement by
Stryker does not, and the performance of its obligations hereunder will not,
violate any provision of the certificate of incorporation or by-laws of Stryker
or violate any provisions of, or result in a breach of any of the terms or
provisions of or the acceleration of any of the obligations under, or constitute
a default under, any mortgage, lease, agreement, instrument, order, arbitration
award, judgment or decree to which Stryker is a party or to which Stryker or its
assets, properties or business are subject. This Agreement is a valid and
binding agreement of Stryker enforceable against it in accordance with its
terms.
11. Prosecution and Maintenance of Patents. CMI, through its own patent
attorney and at its own cost and expense, shall cause to be filed and prosecuted
patent applications corresponding to the CMI Patent Rights in such other
countries as Stryker shall reasonably request, in which event such patent
applications and any patents issued thereon shall become a part of the CMI
Patent Rights as that term is used in this Agreement. CMI agrees to exercise all
reasonable efforts to cause such applications to be prosecuted and all patents
issued in respect thereof to be maintained in such manner that the best possible
patent protection may be obtained thereon. In the event that CMI fails to take
action with respect to the CMI Patent Rights under the patent law of any country
pursuant to Stryker's request, Stryker may, on behalf and in the name of CMI but
at Stryker's own cost and expense and through patent attorneys designated by it,
cause to be filed and/or prosecute applications for patents, and cause to be
maintained all patents, in such country, in which case Stryker shall be entitled
to take a credit against payments that are or become due as a result of
purchases of Systems in an amount equal to the out-of-pocket expenses and costs
incurred by Stryker in connection with the filing, prosecution and/or
maintenance of any application or patent in such country.
12. Infringement of Licensed Patents. In the event that either party
shall become aware that the CMI Patent Rights are being infringed by a third
party, such party shall notify the other of the facts in respect thereof. In the
event Stryker deems that a CMI Patent Right is being or has been infringed by a
third party and CMI does not file suit or resolve the matter within a period of
90 days after notice from Stryker, then and in such event Stryker shall have the
right to file suit, at its
11
own expense and for its own benefit as regards any damages and costs recovered,
and shall have the right to join CMI in the event CMI is determined to be an
indispensable party. In any such suit brought by Stryker, CMI shall have the
right to be represented by counsel of its selection at its expense.
13. Unforeseen Occurrences. Neither party to this Agreement shall be
liable for any delay or failure of performance that is the result of any
happening or event that could not reasonably have been avoided or that is
otherwise beyond its control. Such happenings or events shall include, but not
be limited to, fire, flood, explosion, action of the elements, inability to
obtain or shortage of material, equipment or transportation, governmental
orders, regulations, restrictions, priorities or rationing, acts of God,
accidents and strikes, lockouts or other labor trouble or shortage.
14. Confidentiality. Each party agrees that, except to the extent
necessary for the commercialization of Stryker Products in conjunction with the
System, all information relating to the design, manufacture, assembly, testing
and marketing of the products of the other, whether of a technical, engineering,
manufacturing, operational or economic nature, that comes into its possession as
a result of this Agreement that is not generally known to the public shall be
held in confidence and safeguarded by it with the same care and precautionary
procedures that it would use to hold and safeguard its own proprietary
information. Each party further agrees that it will not disclose the existence
of this Agreement or the terms hereof through a press release, public filing or
otherwise, unless required to do so by applicable disclosure requirements and
that, if any such disclosure is required, it will submit the text of the
proposed disclosure to the other party and consult with the other party hereto
regarding the form and content thereof. Notwithstanding the foregoing, CMI may
disclose the existence of this Agreement on a confidential basis to noncompeting
customers with which it is negotiating similar agreements and to potential
investors and their advisors, to which investors and representatives CMI may
also disclose the terms hereof provided that the Annual Minimums are disclosed
as targets to preserve exclusivity rather than commitments and provided further
that any written disclosure regarding such terms is first submitted to Stryker
for its review.
15. Termination. This Agreement shall terminate on the tenth (10th)
anniversary hereof. This Agreement shall also terminate if the Development
Project is not completed as provided in Section 2 and may be terminated by
Stryker within forty-five (45) days of the holding of each Phase-End meeting as
provided in section 2 hereof, by CMI as provided in Section 4(a) hereof and
otherwise upon the earlier to occur of any of the following:
(a) By either party for breach of this Agreement, unless the
breaching party shall have corrected such breach within ninety (90)
days from the receipt by it of written notice thereof from the other
party; and (b) By either party in the event that the other shall go
into liquidation, or seek the benefit of any bankruptcy or insolvency
act, or a
12
receiver or trustee is appointed for its property or estate, or it
makes an assignment for the benefit of creditors, whether any of the
aforesaid events be the outcome of the voluntary act of Stryker or
otherwise.
The termination of this Agreement for any reason shall be without prejudice to
CMI's right to receive all payments accrued and unpaid for development expenses
and for Systems delivered at or prior to the effective date of such termination
and to the remedy of either party hereto in respect of any previous breach of
any of the covenants herein contained. The termination of this Agreement shall
not release CMI from its obligation to deliver all Products theretofore ordered
by Stryker. Section 14 shall survive the termination hereof.
16. Notices. All notices and consents hereunder shall be in writing and
shall be deemed to have been properly given and to be effective on the date of
delivery if delivered in person, by one-day courier service or by facsimile
transmission (provided a copy is sent by one-day courier service) to the
respective address or facsimile number provided below or to such other address
or facsimile number as either party shall designate by written notice to the
other in such manner:
If to Stryker:
0000 Xxxxx Xxxxxx
Xxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxx
Facsimile: 000-000-0000
If to CMI:
000-X Xxxxxxx Xxxxx
Xxxxxx, Xxxxxxxxxx 00000
Attention: President
Facsimile: 000-000-0000
17. Entire Agreement. This Agreement supersedes all prior agreements,
understandings, representations, and statements, if any, regarding the subject
matter contained herein, whether oral or written, and no amendment of this
Agreement shall be valid and binding upon the parties unless made in writing and
signed on behalf of each of such parties BY an authorized officer.
18. Governing Law; Dispute Resolution. This Agreement shall be
construed and interpreted in accordance with the laws of the State of
California. In an effort to resolve informally and amicably any claim,
controversy, or dispute arising out of or related to the interpretation,
performance, or breach of this Agreement (a "Dispute") without resorting to
litigation, each party shall notify the other party to the Dispute in writing of
any Dispute hereunder that requires resolution. Such notice shall set forth the
nature of the Dispute, the amount involved, if any, and the remedy sought. Each
party shall promptly designate an employee to investigate, discuss and seek to
settle the matter between them. If the two designated representatives are unable
to settle the matter within thirty (30) days after such notification, the matter
shall be submitted to CMI's Chief
13
Executive Officer and the General Manager of the Stryker Endoscopy Division for
consideration. If settlement cannot be reached through their efforts within an
additional thirty (30) days (or such longer time period as they shall agree upon
in writing) then either party may thereafter take such actions as they deem
appropriate. The parties agree that any applicable statute of limitations shall
be tolled during the pendency of such informal dispute resolution process and
that neither party shall raise or assert any claim of laches or other legal or
equitable principle of limitation or repose of action based upon such process.
Each of the parties hereto submits to the jurisdiction of any California state
court or United States federal court sitting in Santa Xxxxx County, California
for the purposes of any suit, action or proceeding arising out of or related to
this Agreement and the transactions contemplated hereby.
19. Waiver of Default. The waiver of any default under this Agreement
by either party shall not constitute a waiver of any rights for any subsequent
default.
20. Assignability, Successors and Assigns. Neither party shall be
entitled to assign its rights and obligations under this Agreement without the
other party's written consent, provided however either party (after providing
written notice thereof to the other party) may assign this Agreement in
connection with any sale or transfer of substantially all of its business,
whether by way of sale of assets, sale of stock, merger or otherwise. This
Agreement shall be binding upon and inure to the benefit of the successors and
permitted assigns of the parties hereto and, to the extent any successor or
assign is not bound by operation of law, each party shall cause such successor
or assign to expressly agree in writing to be bound by this Agreement.
21. Severing Clause. If any portion of this Agreement is held invalid
by a court of competent jurisdiction, such portion shall be deemed to be of no
force and effect and the Agreement shall be construed as if such portion had not
been included herein; provided however, if the deletion of such provision
materially impairs the commercial value of this Agreement to either party, the
parties shall attempt to renegotiate such provision in good faith. If after
ninety (90) days the parties are unsuccessful in negotiating an appropriate
remedy, a party so impaired may terminate this Agreement on ninety (90) days
notice to the other party.
22. Independent Contractor. Each party hereto shall be and remain an
independent contractor and nothing herein shall be deemed to constitute the
parties as partners. Further, neither party shall have any authority to act, or
attempt to act, or represent itself, directly or by implication, as an agent of
the other or in any manner assume or create, or attempt to assume or create, any
obligation on behalf of or in the name of the other, nor shall either be deemed
the agent of the other. IN WITNESS WHEREOF, the parties have executed this
agreement as of the day and year first above written.
STRYKER CORPORATION COMPUTER MOTION INCORPORATED
/s/ /s/
---------------------------- ----------------------------
14
SCHEDULE "A"
[*]
[*]
[*]
[*]
[*]
SCHEDULE "X"
,0 system for the control of surgical devices composed of some combination of
the following:
[*]
[*]
[*]
[*]
[*]
[*]
[*]
System components listed above will at a minimum control the following functions
and provide [*] feedback on the status of the Stryker Products
as specified below:
The functional specifications of the System Components are described below:
[*] CONTROLLED
- The HERMES INTERFACE COMPUTER will be manufactured by CMI, and have the
ability to interpret information via [*] control from selected Stryker
Equipment through various interfaces.
- The [*] control unit should interface with the Hermes Interface Computer
to provide functional control of the specified Stryker Equipment as well
as display feedback on the Monitor for said equipment. The [*] will be
designed and manufactured by CMI to operate all of the specified controls
of the Stryker equipment and should also trigger the [*] feedback on the
monitor. The [*] Control should also have the ability to control [*]
feedback independent of function controls.
- The Hermes Interface Computer should be able to interface with the Stryker
Equipment via [*] that will be co-designed by Stryker and CMI and
manufactured by Stryker, and will also be incorporated into the Hermes
Interface Computer.
- The [*] will be designed and manufactured by CMI, and will be incorporated
into the Hermes Interface Computer to generate [*] feedback [*].
- CONTROLLED COMPONENTS
-[*]
-[*]
15
-[*]
-[*]
-[*]
[*] CONTROLLED
- The HERMES INTERFACE COMPUTER will be manufactured by CNU, and have the
ability to interpret information via [*] from selected Stryker Equipment
through [*] interfaces.
- The [*] should interface with the Hermes Interface Computer to provide
functional control of the specified Stryker Equipment as well as display
feedback on the Monitor for said equipment by [*] commands that have been
stored [*]. The [*] will be designed and manufactured by CMI to operate
all of the specified controls of the Stryker equipment which should also
trigger the [*] feedback [*]. This will be accomplished by issuing [*]
commands stored on the [*] card. The [*] Interfaces should also have the
ability to control [*] feedback independent of function controls.
- The Hermes Interface Computer should be able to interface to the Stryker
Equipment via [*] that will be co-designed by Stryker and CMI and
manufactured by Stryker, and will be incorporated into the Hermes
Interface Computer.
- The [*] will be designed and manufactured by CMI, and will be incorporated
into the Hermes Interface Computer to generate [*] feedback [*].
- The [*] will be an OEM Product with [*] technology modifications performed
by CMI to allow [*] command and control all of the functions outlined for
the Stryker equipment. This [*] will be inserted into [*] the Hermes
Computer to activate the [*] capabilities.
- CONTROLLED COMPONENTS
-[*]
-[*]
-[*]
-[*]
-[*]
[*] COMPUTER
The [*] COMPUTER will be a Hermes Computer without the Interface card
capabilities. The Training Computer should provide a [*] slot, and have the
capability of teaching individual [*] cards and their respective [*] commands
which will be recognized by the Hermes Interface Computer for all interfaces and
functional capabilities.
16
SCHEDULE "C"
Hermes Project Milestones
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
CMI TASKS
Functional Design Specification - a document which describes in detail all of
the functionality of the complete system.
High Level Design - a schematic block diagram of the entire system, which
includes the selection of all of the major components used in the design (e.g.
processors, memory type and sizes).
[*] Feedback defined - CMI and Stryker agree on the [*] feedback parameters
for all of the devices.
[*] defined - CMI and Stryker agree on all of the [*] chosen to control and
status each device.
IF Card Schematically Defined - CMI will develop a generic schematic definition
and then work with Stryker to refine this design to the specific requirements of
each device to be controlled.
17
[*] Display card working - CMI will demonstrate to Stryker a card which can
plug into the Hermes box, accept [*] input, and can superimpose the agreed
upon [*] feedback onto the accepted [*] input.
Hermes working prototype - CMI will demonstrate to Stryker the Hermes box
working and running test programs which demonstrate its operation.
IF Bus Prototype we - CMI will demonstrate Hermes controlling and receiving
[*] feedback information from the Stryker devices.
[*] Prototype working - CMI will demonstrate Hermes controlling the Stryker
devices through a [*] control.
[*] Interface working - CMI will demonstrate Hermes controlling the Stryker
devices with the [*] interface.
[*] Computer working - CMI will demonstrate the [*] training process for the
Stryker [*] card which can enable the controlling of the Stryker devices [*].
Safety agency approvals - IEC-601 and ETL listings received.
Pilot Production Run - CMI will deliver to Stryker [*] working Hermes system.
STRYKER TASKS
Define Interfaces to Devices - Stryker defines all of the interfaces to each of
the Stryker devices which need to be controlled in terms of an analog voltage, a
binary logic level, a relay, or other.
Prototype Devices with Connection points - Stryker physically demonstrates to
CMI how each of their devices can be controlled by the appropriate control
means.
Prototype IF cards installed in units - Stryker will deliver to CMI one of each
type of unit with prototype IF cards installed.
FDA filing for Stryker devices - Stryker will file the appropriate FDA
documentation, including the 51O(k), for each of the devices which require FDA
clearance. Computer Motion will assist in this process with specifications,
validations, and documentation for the Hermes component.
SCHEDULE "D"
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
18
AMENDMENT #1 TO:
CMI/STRYKER DEVELOPMENT AND SUPPLY AGREEMENT
The Development and Supply Agreement between the Stryker Endoscopy Company
("Stryker") and Computer Motion Incorporated ("CMI") is hereby amended in order
to include the [*] at an additional cost to Stryker of up to $[*]. Of this cost,
up to $[*] will be funded in cash in accordance with the payment terms of the
Development and Supply Agreement, Section 2. The remainder will be paid to CMI
in the form of video equipment valued at $[*], to be delivered to CMI by May 15,
1997. Modifications to the Development and Supply Agreement are as follows:
Clause 2, Paragraph 1, which currently reads:
---------------------------------------------
"Stryker agrees to fund [*] percent ([*]%) of the cost of the CMI Tasks, up to
a maximum expenditure therefore by Stryker of $[*], but subject, unless Stryker
agrees otherwise in writing, to the maximum amount budgeted for each Phase of
the Development Project specified in Schedule C."
is hereby modified to read:
---------------------------
"Stryker agrees to fund [*] percent ([*]%) of the cost of the CMI Tasks, up
to a maximum expenditure therefore by Stryker of $[*], but with Stryker's
maximum cost liability per Phase subject, unless Stryker agrees otherwise in
writing, to the maximum amount budgeted for each Phase of the Development
Project, as specified in Schedule C."
Schedule "A" currently reads as follows:
-------------------------------------------
[*]
[*]
[*]
[*]
[*]
Schedule "A" is modified to read as follows:
--------------------------------------------
[*]
[*]
[*]
[*]
[*]
[*]
[*]
19
Schedule "B" is amended to include the following text:
------------------------------------------------------
[*]
---
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
---
[*]
[*]
[*]
[*]
[*]
[*]
Paragraph 4(a) "Exclusive of Stryker", First Sentence Modified as Follows (new
text in italics):
". . . CMI agrees that it shall supply the System to Stryker for use in
conjunction with the Stryker Products and that it will not supply the System to
any other manufacturer or marketer of products of the type described in
Schedule A, with the exception of the [*] for as long as Stryker meets the
minimum purchase requirements,. . . "
IN WITNESS WHEREOF, the parties have executed this amendment as of the date and
year first written below.
STRYKER CORPORATION COMPUTER MOTION INCORPORATED
By: /s/ By: /s/
---------------------------- ----------------------------
Title: Title:
------------------------- -------------------------
Date: Date:
------------------------- -------------------------
2
