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EXHIBIT 10.3(b)
PATENT LICENSE AGREEMENT
This Patent License Agreement (the "Agreement") is entered into as of
April 1, 1997 by and between International Remote Imaging Systems, Inc., a
Delaware corporation ("IRIS"), and TOA Medical Electronics Co., Ltd., a Japanese
corporation ("TOA"), with reference to the following facts:
A. IRIS and TOA entered into that certain Temporary License Agreement
dated as of June 8, 1995 (the "Temporary License Agreement") which granted TOA a
temporary license until September 30, 1996 to use certain patented and other
technology developed by IRIS prior to April 1, 1988 for developing,
manufacturing and test marketing instruments for non-medical, industrial
applications in Japan.
B. Pursuant to the Temporary License Agreement, and on or before
September 30, 1996, TOA manufactured a limited number of instruments, which it
designated as the FPIA-1000, for non-medical, industrial applications in Japan.
Although TOA stopped manufacturing such instruments on or before such date, it
sold, or will have sold on or before June 30, 1997, its remaining units from
inventory in Japan after September 30, 1996 and paid, or will have paid on or
before July 31, 1997, IRIS a royalty in respect thereof under the Temporary
License Agreement at a rate of 5%;
C. The Temporary License Agreement required that, if TOA so elected by
giving written notice to IRIS on or before June 30, 1996, which notice was in
fact given, that the parties negotiate in good faith mutually acceptable terms
for a permanent license for the development, manufacture and marketing of
industrial instruments.
D. TOA now desires to re-commence manufacture and sale of the FPIA-1000
and successor instruments effective as of April 1, 1997, and thus wishes to
license from IRIS, and IRIS desires to license to TOA, subject to the terms and
conditions hereof, certain of IRIS' patents for use by TOA in the development,
manufacturing, marketing, distribution and sale, on a commercial basis, of the
FPIA-1000 and successor instruments for non-medical, industrial applications.
NOW, THEREFORE, in consideration of the foregoing premises and the
promises, covenants and conditions set forth herein, and for other good valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Definitions.
1.1 "Associated Consumables" means consumables for use with the
Industrial Products.
1.2 "Industrial Products" means products or
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instruments for non-medical, industrial uses or applications which incorporate
any part or all of the IRIS Patents. By way of illustration, but not limitation,
the parties acknowledge and agree that those certain products and/or instruments
set forth on Schedule 1.2 attached hereto are deemed to be Industrial Products
within the meaning of this Section 1.2.
1.3 "IRIS Patents" means the United States patents and their
respective foreign counterparts listed on Schedule 1.3.
1.4 "Japanese Customer" means any end-user of an Industrial
Product organized and existing under the laws of Japan (or any political
subdivision thereof) and having its principal business headquarters located in
Japan, and any of its foreign-based subsidiaries or joint ventures in which it
directly or indirectly owns more than 25% of the equity capital.
1.5 "Modifications and Improvements" means any and all
engineering, design or other changes derived from or based on the IRIS Patents
or the Industrial Products.
1.6 "Periodic Payments" has the meaning specified in Section
5.1(b).
1.7 "Revenues" means all revenues received by TOA or its
subsidiaries with regard to Sales of Industrial Products and related parts and
consumables, net of returns, allowances and trade discounts.
1.8 "Sales" means any sale, lease, license or other placement of
an Industrial Product, Associated Consumable or Spare Part by TOA or its
subsidiaries, or any arrangement whereby TOA or its subsidiaries receive
Revenues based on tests using any Industrial Product.
1.9 "Spare Parts" means spare parts used with Industrial Products.
1.10 "Term" will commence on April 1, 1997, and will continue until
the earlier of (a) the expiration of the last to expire of the United States
Patents, which the parties acknowledge and agree is on July 10, 2004 and (b) the
date on which this Agreement is terminated pursuant to Section 6.
2. Grant of Rights and Licenses. In consideration of the payments by
TOA to IRIS pursuant to Section 5.1, IRIS hereby grants to TOA for the Term a
non-exclusive right and license under the IRIS Patents to practice the
inventions covered by the IRIS Patents (a) to make and use Industrial Products
worldwide, (b) to make Sales of
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Industrial Products to any Japanese Customer worldwide and (c) to make Sales of
Industrial Products to any other person or entity in Japan for use solely in
Japan. Sales of Industrial Products may be made directly by TOA or indirectly
through a distributor or agent of TOA. IRIS represents and warrants that it owns
or holds rights to the IRIS Patents necessary to grant the rights conveyed
hereunder, and that the exercise of such rights by TOA as contemplated hereunder
will not conflict with, infringe or otherwise violate the rights of third
parties. This representation is not intended to cover compliance with United
States export laws affecting the transfer of IRIS Patents to Japan or elsewhere,
compliance with which TOA assumes responsibility.
3. Reservation of Rights. TOA hereby acknowledges and agrees that IRIS
reserves all right, title and interest in and to the IRIS Patents not expressly
granted to TOA pursuant to Section 2 of this Agreement or pursuant to that
certain License Agreement, Amended and Restated Distribution Agreement and
Restructuring Agreement, each dated as of July 15, 1988 between TOA and IRIS
(the "1988 Agreements"). TOA hereby acknowledges and agrees that (i) it shall
not use, or permit the use of, the IRIS Patents except as expressly permitted
pursuant to Section 2 or in the 1988 Agreements and (ii) the license granted in
Section 2 does not include the right to use any proprietary rights of IRIS other
than the IRIS Patents, including, without limitation any copyrights which IRIS
may own.
4. Modifications and Improvements. All Modifications and Improvements
of a general or specific nature made by either party, whether or not such
Modifications and Improvements embody patentable subject matter, shall belong
solely to the party making such Modifications and Improvements.
5. Payments; Records and Statements; Audit Rights.
5.1 Payments.
a. Up-front Payment. Within ten (10) business days after
the execution of this Agreement, TOA shall pay to IRIS the amount of Three
Hundred Thousand US Dollars (US$300,000).
b. Periodic Payments. Not later than thirty (30) days
following the end of each calendar quarter throughout the Term, TOA shall pay to
IRIS in immediately available funds in US Dollars royalties in the amount of
five percent (5%) of Revenues received by TOA or its subsidiaries from Sales of
Industrial Products and Associated Consumables and Spare Parts during such
completed calendar quarter (the "Periodic Payments"), net of any payment made
pursuant to Section 5.1(c).
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c. Minimum Payments. For each of the three (3) 12-month
periods commencing July 1, 1998, July 1, 1999 and July 1, 2000 only, TOA shall
make minimum payments to IRIS in the amount of Fifty Thousand US Dollars
(US$50,000). Each such minimum payment shall be payable at the commencement of
each such twelve-month (12-month) period and shall be credited against the
payment of Periodic Payments due in respect of Revenues received by TOA during
such 12-month period.
d. Withholding Taxes. It is understood and agreed that, to
the extent that any present or future income, stamp, sales, transfer, property,
VAT or other levies, imposts, duty, charge, fee, deduction or withholding, now
or hereafter imposed, levied, collected, withheld or assessed by any taxing
authority ("Taxes"), is due and payable by TOA in respect of any payments made
by it pursuant to this Section 5.1, TOA shall pay such Taxes on IRIS' behalf;
provided; however, that each and all such Tax payments shall be deemed included
in and a part of any payments made by TOA to IRIS pursuant to this Section 5.1.
By way of illustration but not limitation, if TOA owes a Periodic Payment to
IRIS in the amount of US$25,000 and the applicable withholding percentage is ten
(10%) percent, TOA will (i) withhold $2,500 from such Periodic Payment and pay
such amount to the relevant taxing authority and (ii) pay over $22,500 in cash
to IRIS; provided that the total Periodic Payment made by TOA shall be deemed to
be US$25,000. TOA shall cooperate with IRIS to provide such records and
documents as IRIS may reasonably request in connection with any application by
IRIS to any taxing authority with respect to (i) Tax credits available to it in
respect of, or (ii) obtaining a refund for, Taxes paid by TOA hereunder.
e. Interest; Late Payment. After the due date, all payments
required to be made hereunder shall bear interest at the lesser of (i) two
percent (2%) over Bank of America NT&SA's prime rate or (ii) the maximum legal
rate.
5.2 Records. TOA shall keep accurate records as to shipment of,
and all transactions relating to, Industrial Products and Associated Consumables
and Spare Parts. Such records shall clearly and separately set forth, without
limitation, as to each Industrial Product, Associated Consumables and Spare
Parts, at least the following information: (i) the kind and number sold to each
customer and (ii) the gross receipts, returns, allowances and trade discounts in
connection with all Sales.
5.3 Statement of Periodic Payments. At the same time that any
Periodic Payment is due under Section 5.1(b), TOA shall submit to IRIS a clearly
itemized statement showing the calculation of such Periodic Payment including
separately
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setting forth the quantity of Industrial Products, Associated Consumables and
Spare Parts shipped or otherwise transferred during the period, the name of each
customer purchasing an Industrial Product during such period and the amount of
Revenues received by TOA and its subsidiaries during such period. TOA shall also
provide to IRIS one copy of each product brochure and each sales literature
document for the Industrial Products concurrently with their availability to
prospective customers.
5.4 Audit Rights. So long as royalties are due and payable
hereunder and for one year thereafter, IRIS and/or any of its agents shall have
the unqualified right to inspect, audit and analyze all of TOA's records as
required as required under Section 5.2, and all of TOA's other books, accounts
and shipping records in each case relating to Sales of Industrial Products,
Associated Consumables and Spare Parts, during business hours, at TOA's regular
place of business. IRIS shall bear the cost of such inspection and audit unless
such audit discloses that TOA has underpaid the Periodic Payments due IRIS under
this Agreement by five percent (5%) or more of the amount actually paid for the
relevant period, in which case such cost shall be borne by TOA. The amount of
any such underpayment, regardless of the percentage, shall be due and payable to
IRIS immediately.
5.5 Confidentiality. Except to the extent necessary for the
enforcement of its rights hereunder, IRIS shall hold in strict confidence any
and all Sales and other information learned or discovered in connection with any
audit conducted by IRIS or any information provided by TOA hereunder and shall
use its best efforts to keep and maintain such information confidential.
6. Termination.
Without prejudice to any other rights such party may have in
law and equity, either party may terminate this Agreement if the other party
fails in any material respect to perform any of its obligations under this
Agreement, and such failure continues for sixty (60) days after its receipt of
notice from the party not in default specifying the nature of the default. The
parties agree that the licenses granted herein are rights in "intellectual
property" within the scope of Section 101 of the United States Bankruptcy Code
(the "Code") and that this Agreement is subject to Section 365(n) of the Code.
Each party hereby acknowledges and agrees that the royalties payable by Licensee
hereunder represent the fair value for the licenses and rights being granted to
Licensee under this Agreement.
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7. General Provisions.
7.1 Assignability. Except as otherwise expressly provided by the
terms of this Agreement, TOA shall not have the right to transfer, sublicense or
assign any of its rights granted hereunder, except to (i) one or more
majority-owned subsidiaries for so long as they remain majority-owned
subsidiaries or (ii) the successor or assignee of all or substantially all of
its business, which successor or assignee expressly assumes the obligations of
this Agreement, but any such transfer, sublicense or assignment shall not
relieve TOA of its obligations hereunder.
7.2 Alterations and Waivers. The waiver, amendment or modification
of any provision of this Agreement or any right, power or remedy thereunder,
whether by agreement of the parties or by custom, course of dealing or trade
practice, shall not be effective unless in writing and signed by the party
against whom enforcement of such waiver, amendment or modification is sought. No
failure or delay by either party in exercising any right, power or remedy with
respect to any of the provisions of this Agreement shall operate as a waiver of
such provisions with respect to such occurrences.
7.3 Validity, Forum, Laws and Construction. The legal relations
between the parties to this Agreement shall be governed by the laws of the State
of California, excluding the conflict of laws provisions thereof. Unless the
parties otherwise agree in writing, any disputes arising in connection with this
Agreement shall be finally settled by arbitration under the Rules of
Conciliation and Arbitration of the International Chamber of Commerce conducted
in the home country and state of the party which did not initiate the
proceedings. Each party shall appoint one arbitrator within ten (10) days of
notice of the proceedings, who together will agree on a third within ten (10)
days, or the International Chamber of Commerce will appoint a suitable third
arbitrator. Appropriate discovery will be allowed, and the provisions of Section
1283.05 of the California Code of Civil Procedure are hereby incorporated by
reference. Judgment on the award of the arbitrators may be entered in any court
having jurisdiction hereof or having jurisdiction over one or more of the
parties or their assets. In the event any provision of this Agreement or the
application of any such provision shall be held to be contrary to law, the
remaining provisions of this Agreement shall remain in full force and effect.
The parties shall use their best efforts to replace the provision that is
contrary to law with a legal one approximating to the extent possible the
original intent of the parties.
7.4 Attorneys' Fees. In the event of any dispute or controversy
arising out of this Agreement, the prevailing party shall be entitled to
reimbursement of its costs,
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including court and arbitration costs and attorneys' and expert witnesses' fees
and costs.
7.5 Parties Independent. Each party is an independent contractor.
Neither of the parties (including its affiliates, agents, sub-distributors,
employees or others acting on its behalf) is a representative of the other for
any purpose, and no such party has any power or authority to represent, act for,
bind, or otherwise create or assume any obligation on behalf of the other party
for any purpose whatsoever. All financial obligations associated with each
party's business are the sole responsibility of such party.
7.6 No Third-Party Beneficiaries. Nothing contained in this
agreement shall be construed to give any person other than IRIS and TOA any
legal or equitable right, remedy or claim under or with respect to this
Agreement other than those expressly provided for under this Agreement.
7.7 Headings. Section headings are included solely for
convenience, are not to be considered a part of this Agreement, and are not
intended to be full and accurate descriptions of their contents.
7.8 Notices. All notices or other communications which shall be or
may be given pursuant to this Agreement shall be in writing, shall be effective
upon receipt, and shall be delivered by certified or registered air mail,
facsimile transmission or telex mail addressed as follows (or as is provided in
the future by written notice):
If to IRIS: INTERNATIONAL IMAGING SYSTEMS, INC.
9162 Eton Avenue
Chatsworth, California 91311-5805
Fax: (818) 700-9661
Attn: Fred H. Deindoerfer,
President and Chairman
If to TOA: TOA MEDICAL ELECTRONICS CO., LTD.
7-2-1 Minanojima-Nakamachi
Chno-kn
Kobe 650, Japan
Fax: 011-81-78-991-1917
Attn: Hisashi Ietsugu,
President and CEO
7.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which
together shall constitute on and the same instrument.
7.10 Language Interpretation. This Agreement is in English. In the
interpretation of this Agreement, unless the
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context otherwise requires, words importing the singular shall be deemed to
import the plural and vice versa. Words denoting gender shall include all
genders, and references to persons shall include corporations or other bodies,
and vice versa.
7.11 Further Assurances. Each party hereto agrees to execute and
deliver any and all further documents, and to perform such other acts as may be
necessary or expedient to carry out and make effective this Agreement.
7.12 Complete Agreement; Modifications. This Agreement constitutes
the entire Agreement among the parties with respect to the subject matter
hereof, and may not be surrendered, altered or modified except by a writing
signed by the parties. This Agreement supersedes all agreements,
representations, warranties, statements, promises and understandings, whether
oral or written, with respect to the subject matter hereof. Without limiting the
generality of the foregoing, the 1988 Agreements shall not be construed as
governing the subject matter hereof, and nothing in this Agreement is intended
in any way, by implication or otherwise, to affect the meaning or construction
of the 1988 Agreements.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as of
the date first set forth above.
INTERNATIONAL REMOTE IMAGING
SYSTEMS, INC., a Delaware
corporation
By: /s/ Fred H. Deindoerfer
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Name: Fred H. Deindoerfer,
Title: President and Chairman
TOA MEDICAL ELECTRONICS CO.
LTD., a Japanese corporation
By: /s/ Kenichi Yukimoto
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Name: Kenichi Yukimoto
Title: Managing Director
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