Exhibit 10.40
SUBLICENSE AGREEMENT
BETWEEN
NSI ASIA PACIFIC LTD.
AND
PAPNET (FAR EAST) LTD.
Dated as of September 30, 1997
SUBLICENSE AGREEMENT
This SUBLICENSE, made this 30th day of September, 1997, (This "Sublicense
Agreement") by and between NSI Asia Pacific Ltd., a Cayman Islands corporation
("NSI-APL"), and PAPNET (Far East) Ltd., a Cayman Islands corporation ("PFEL").
WHEREAS, NSI-APL is a wholly owned subsidiary of Neuromedical Systems,
Inc., a Delaware corporation ("NSI");
WHEREAS, NSI has designed, developed and produces the PAPNET Testing System
("PAPNET" or "PAPNET Testing"), which is a semi-automated system for the review
of conventionally prepared cytological specimen slides ("Slides");
WHEREAS, PAPNET consists of a scanning system (the "Scanner"), which
processes Slides and stores digital images of certain portions of such Slides on
a DAT tape or other digital media ("PAPNET Images"), and a proprietary review
station (the "Review Station"), which, among other things, permits a NSI-trained
cytotechnologist to review the images stored on the DAT tape or other digital
media;
WHEREAS, NSI markets and sells PAPNET Testing as a service, by which end-
user laboratories submit Slides to one of NSI's central facilities for
processing on a Scanner, and NSI returns such Slides and related DAT tape or
other digital media containing PAPNET Images to such laboratories so that NSI-
trained cytotechnologists employed by such laboratories may review the Slides
and the related PAPNET Images using a licensed or leased Review Station
(collectively referred to as the "PAPNET Service");
WHEREAS, NSI and PFEL are parties to an agreement dated July 13, 1993
providing for, among other things, the representation of NSI in certain markets
by PFEL and the provision of the PAPNET Service to PFEL as an end-user
laboratory (the "First Agreement");
WHEREAS, NSI and PFEL are parties to an agreement dated May 27, 1994,
amending and restating the First Agreement, and providing for, among other
things, the representation of NSI in certain markets by PFEL and the provision
of the PAPNET Service to PFEL as an end-user laboratory (the "Second
Agreement");
WHEREAS, NSI-APL has acquired as of June 1, 1997 all of the issued and
outstanding stock of New System International Ltd., a Hong Kong corporation,
previously a wholly owned subsidiary of PFEL, and under the terms and conditions
of the Royalty Agreement Term Sheet, dated as of June 1, 1997 (the "Royalty
Agreement"), executed in connection with such acquisition, NSI and PFEL have
agreed to renegotiate the Second Agreement in accordance with the terms and
conditions set forth therein;
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WHEREAS, NSI and PFEL have executed as even date herewith an Amended and
Restated Representation Agreement (the "Third Agreement") in accordance with the
terms and conditions set forth in the Royalty Agreement, which supersedes and
replaces the Second Agreement;
WHEREAS, subject to the terms and conditions of the Third Agreement, NSI
has granted to PFEL a non-exclusive right and license to market, sell and
distribute the PAPNET Service (the "Representation Rights") in Hong Kong, Taiwan
and the People's Republic of China (the "Territory") for a term of fifteen (15)
years;
WHEREAS, PFEL now desires to assign and sublicense its Representation
Rights for the Territory to NSI-APL, and NSI-APL desires to acquire such
Representation Rights for the Territory.
NOW, THEREFORE, in consideration of the mutual promises and upon the terms
and subject to the conditions set forth herein, the parties agree as follows:
1. Assignment of Representation and Marketing Rights.
1.1 Representation Rights. Upon the terms and subject to the conditions
of this Sublicense Agreement, PFEL hereby assigns exclusively to NSI-APL during
the Term hereof (as defined in Section 10 herein) any and all of PFEL's
Representation Rights with respect to the PAPNET Service in the Territory to the
full extent granted by NSI to PFEL pursuant to the Third Agreement.
1.2 Intellectual Property. PFEL hereby assigns to NSI-APL any and all of
its non-exclusive intellectual property rights, for the limited purpose of NSI-
APL's marketing and sale of the PAPNET(R) Service, the copyrights, trademarks
and trade names used by NSI to identify PAPNET(R) or the PAPNET Service in
accordance with such written specifications as NSI may from time to time make
available to NSI-APL. NSI-APL agrees to comply with NSI's prevailing policies
regarding use of NSI's copyrights, trademarks and trade names used by NSI's
distributors and representatives, as such policies may be amended from time to
time. NSI-APL shall not use NSI's copyrights, trademarks or trade names in a
disparaging manner. Except as authorized in this Section 1.2, NSI-APL shall
not otherwise use NSI's copyrights, trademarks or trade names without the prior
written approval of NSI. NSI-APL shall not take any action which is
inconsistent with NSI's ownership of its copyrights, trademarks and trade names.
NSI agrees to include correct trademark, trade name, copyright, trade secrets
and patent notices for the PAPNET System and the PAPNET Service on all materials
and equipment where appropriate. NSI-APL shall not remove, alter, cover,
obfuscate or otherwise deface any NSI trademark, trade name, patent, trade
secret or copyright notice on the PAPNET System or any part thereof or any
promotion or advertising material used in conjunction with or for the PAPNET
System or the PAPNET Service.
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1.3 Nature of appointment. Nothing contained in this Sublicense
Agreement shall (i) prohibit NSI from making, using, licensing, distributing,
selling or granting any other rights in and to PAPNET in the Territory, or (ii)
operate to grant NSI-APL any rights in or to any product or service offered by
NSI or PFEL other than its rights expressly provided by this Sublicense
Agreement.
1.4 Field of use restriction. Except as otherwise contemplated by this
Sublicense Agreement, NSI-APL shall not market, distribute, sell or license, or
permit any third party to market, distribute, sell or license, the PAPNET
Service to any third party located outside of the NSI-APL Territory other than
as permitted by NSI. NSI-APL shall not, or shall not permit any third party
to, encourage uses of PAPNET other than as permitted by NSI.
1.5 Regulatory approval. NSI-APL shall not market the PAPNET Service
in a particular jurisdiction unless and until all regulatory approvals, licenses
and permits required by such jurisdiction or any court of competent
jurisdiction, governmental body or regulatory agency (a "Governmental Body"), if
any, have been obtained. NSI-APL, at its sole cost and expense, shall prepare
and submit any and all appropriate applications, data and other information
required by such jurisdiction or Governmental Body to obtain all regulatory
approvals, licenses and permits in such jurisdictions. NSI shall assist NSI-APL
in filing all required documents with, and in obtaining any necessary approvals,
permits or licenses from, any applicable Governmental Body.
1.6 Governmental restrictions. In the event that any Governmental Body
restricts or prohibits the marketing, distribution, provision or licensing of
the PAPNET Service or PAPNET, NSI-APL's rights hereunder shall be subject to and
limited by any such restriction or prohibition without liability to NSI or PFEL
of any type or nature except as expressly provided herein to the contrary.
1.7 Marketing. NSI-APL hereby expressly assumes PFEL's marketing
obligations under the Third Agreement, and, at its expense will develop and
implement a comprehensive marketing and sales program to promote successfully
the PAPNET Service in the Territory. NSI-APL will develop, on an annual basis,
market plans for each major segment of the Territory. These plans will be
subject to review by NSI. Each plan will include an outline of NSI-APL's
strategic objectives for the marketing of PAPNET in such Territory, as well as
the specific steps NSI-APL proposes to execute.
2. Consideration.
2.1 Royalties for Sales in the Territory. In consideration of the
Representation Rights assigned hereunder, NSI-APL will pay PFEL a royalty
expressed as a specified percentage of NSI-APL's consolidated revenues derived
from PAPNET(R) Testing System Slides which originate in the Territory (the "Base
Consolidated Revenue"), provided, however, that the Base Consolidated Revenue
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shall not include revenues derived from the processing of Slides within the
Territory with respect to Slides which originate from
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geographic areas outside the Territory (for example, Slides originating in
Australia and processed in the NSI Hong Kong scanning facility shall not be
included in the calculation of Base Consolidated Revenue). The "specified
percentage" referred to in the first sentence of this Section 2.1 will be 4% of
Base Consolidated Revenue per year during the first four years until the fourth
anniversary of the date hereof, and 3% of Base Consolidated Revenue per year for
each of the following eleven (11) years after the fourth anniversary of the date
hereof (collectively, the "Royalties"), in each case as set forth on the
attached Annex A. Notwithstanding the foregoing provisions of this Section 2.1,
any Royalties payable from the consolidated revenues from the Territory, shall
include revenues originating in Taiwan only from and after the closing of the
purchase of substantially all of the assets of New System Taiwan Ltd. by NSI-
APL (or a duly delegated affiliate).
2.2 Timing and manner of payment of Royalties. Royalties will be paid
by NSI-APL to PFEL within fifteen (15) days of the last day of the calendar
quarter in which the applicable revenues are actually received by NSI-APL. Such
payment of Royalties shall be accompanied by a statement setting forth the
calculation thereof. Any other provision of this Sublicense Agreement
notwithstanding, PFEL shall not be entitled to receive any Royalties with
respect to which NSI-APL has not actually received payment of the related
revenues.
2.3 Right to verify the calculation of Royalties. NSI-APL will maintain
records and bank statements for the purpose of calculating Base Consolidated
Revenues received by NSI-APL from clients in the Territory. PFEL will have the
right to inspect such records and NSI-APL will provide upon request such other
information as may be reasonably requested by PFEL to confirm the calculation of
the Royalties paid by NSI-APL to PFEL pursuant to this Sublicense Agreement.
3. Representations and Warranties of NSI-APL.
NSI-APL hereby represents and warrants to PFEL as follows:
3.1 Organization. NSI-APL is a corporation duly organized, validly
existing and in good standing under the laws of Cayman Islands. NSI-APL has the
corporate power to own or lease its properties and assets and to carry on its
business as now conducted.
3.2 Authority relative to this Sublicense Agreement. NSI-APL has the
right, power and authority to enter into this Sublicense Agreement and to
perform all of its obligations hereunder. This Sublicense Agreement has been
authorized by all necessary corporate action, has been duly executed and
delivered, and constitutes the valid and binding obligation of NSI-APL,
enforceable in accordance with its terms.
3.3 No Conflicts; No Consents. The execution, delivery and performance
of this Sublicense Agreement will not result in a breach in the terms or
conditions of, or
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constitute a default under, or violate, or conflict with, or require, as the
case may be: (i) any provision of any law, regulation or ordinance, (ii) the
charter and organizational documents of NSI-APL, (iii) any agreement, lease,
mortgage or other instrument or undertaking, oral or written, to which NSI-APL
is a party or by which it or any of its properties or assets is or may be bound
or affected, (iv) any judgment, order, writ, injunction or decree of any
Governmental Body, or (v) any action of or by, or filing with, any Governmental
Body. To the knowledge of NSI-APL, the execution and delivery of this
Sublicense Agreement does not and, except for any approvals, permits and
licenses required to market the PAPNET Service in the Territory, the performance
of this Sublicense Agreement will not, require any action, consent or approval
of any person, entity or Governmental Body.
3.4 Litigation. There is no pending or, to the knowledge of NSI-APL,
threatened, legal, administrative, arbitration or other proceeding or
governmental investigation which is likely to have a material adverse effect on
NSI or the performance by NSI-APL of this Sublicense Agreement.
4. Representations and Warranties of PFEL.
PFEL hereby represents and warrants to NSI-APL as follows:
4.1 Organization. PFEL is a corporation duly organized, validly
existing and in good standing under the laws of the Cayman Islands. PFEL has
the corporate power to own or lease its properties and assets and to carry on
its business as now conducted.
4.2 Authority relative to this Sublicense Agreement. PFEL has the
right, power and authority to enter into this Sublicense Agreement and to
perform all of its obligations hereunder. This Sublicense Agreement has been
authorized by all necessary corporate action, has been duly executed and
delivered, and constitutes the valid and binding obligation of PFEL, enforceable
in accordance with its terms.
4.3 No Conflicts: No Consents. The execution, delivery and performance
of this Sublicense Agreement will not result in a breach in the terms or
conditions of, or constitute a default under, or violate, or conflict with, or
require, as the case may be: (i) any provision of any law, regulation or
ordinance, (ii) the Certificate of Incorporation or Bylaws of PFEL, (iii) any
agreement, lease, mortgage or other instrument or undertaking, oral or written,
to which PFEL is a party or by which it or any of its properties or assets is or
may be bound or affected, (iv) any judgment, order, writ, injunction or decree
of any Governmental Body, or (v) any action of or by, or filing with, any
Governmental Body. To the knowledge of PFEL, the execution and delivery of this
Sublicense Agreement does not, and except for any foreign approvals, permits and
licenses required to market the PAPNET Service in the PFEL Territory, the
performance of this Sublicense Agreement will not, require any action, consent
or approval of any person, entity or Governmental Body.
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4.4 Litigation. There is no pending or, to the knowledge of PFEL,
threatened, legal, administrative, arbitration or other proceeding or
governmental investigation which is likely to have a material adverse effect on
PFEL or the performance by PFEL of this Sublicense Agreement.
5. Additional Covenants.
5.1 Further Assurances. Each of NSI, PFEL and NSI-APL covenant that
they shall, at any time during the Term of this Sublicense Agreement, take any
further action that is reasonably necessary or desirable to carry out the
purposes of this Sublicense Agreement and the transactions contemplated hereby,
as may be determined in the reasonable discretion of the requesting party, and
the other party, or parties as the case may be, will take any and all such
further action thereof, including the execution and delivery of any further
instruments and documents. NSI shall cause NSI-APL to fully perform its
respective duties and obligations under the terms of this Sublicense Agreement
and/or any delegation to NSI-APL of the duties required by NSI under the Third
Agreement. NSI further covenants, and shall cause NSI-APL and their respective
direct and/or indirect subsidiaries to covenant, that PFEL shall receive
substantially the same consideration as it would otherwise receive under this
Sublicense for use of the PAPNET(R) Testing System in any part of the Territory
in the event that NSI or any of its subsidiaries assigns, transfers or
sublicenses any other NSI marketing and/or sales rights to any third party for
use of the PAPNET(R) Testing System in any part of the Territory.
5.2 Business Practice. PFEL shall not solicit or take any action that is
designed or intended to have the effect of discouraging any PAPNET(R) Testing
System customer, supplier, or other business associate from maintaining the same
business relationships after execution hereof as PFEL maintained prior to such
date.
5.3 Exclusivity. Except for the rights granted exclusively to NSI-APL
under this Sublicense Agreement and except as expressly permitted in writing by
NSI-APL, PFEL will not assign, transfer, license or sublicense, or convey in any
manner, to any person or entity, any other rights under the Third Agreement.
6. Limitations on Warranties and Limitation of Liability.
6.1 No warranties. Except as otherwise provided herein, PFEL makes no
representations or warranties with respect to the PAPNET System or the PAPNET
Service, express or implied, including, but not limited to, implied warranties
of merchantability and fitness for a particular purpose or that the PAPNET
System or the PAPNET Service as developed and designed will met any requirements
of or will perform error free or in conformance with the needs or requirements
of NSI-APL or any NSI-APL customer.
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6.2 Limitation of liability. Except as provided in Section 8 herein, PFEL
and NSI-APL, as the case may be, shall have no liability with respect to their
respective obligations under this Sublicense Agreement or otherwise for
indirect, special, incidental, consequential, punitive or exemplary damages,
whether in contract, in tort or otherwise, including, but not limited to, loss
of use, revenue or profit, even if PFEL or NSI-APL, as the case may be, has
been advised of the possibility of such damages, provided, however, that NSI-APL
agrees to indemnify and hold PFEL free and harmless from and against any
liabilities, damages, losses, costs and expenses, including reasonable
attorney's fees incurred by PFEL due to the negligence of NSI-APL in handling
and scanning of Pap smear slides. In no event shall PFEL's or NSI-APL's
liability, as the case may be, for any reason and upon any cause of action
arising from or relating to this Sublicense Agreement exceed the gross revenues
derived by PFEL or NSI-APL, as the case may be, from this Sublicense Agreement
for the twelve (12) month period immediately preceding the date such cause of
action was commenced; provided, that nothing herein shall be construed to limit
injunctive relief as may be ordered by any court or arbitrator.
7. Ownership and Intellectual Property Protection.
7.1 Ownership of PAPNET System. NSI-APL acknowledges and agrees that
NSI is the sole and exclusive owner of all current and future worldwide patents
and patent rights, copyrights, trademarks, trade names, trade secrets, know-how,
utility models and other intellectual property rights (including without
limitation, all applications and registrations with respect thereto) in and to
the PAPNET System or the PAPNET Service (the "Intellectual Property") embodied
in the PAPNET System, all information, materials, clinical and test data reports
and filings produced in connection with any required regulatory approvals,
permits and licenses, and all information, reports, specifications, source code,
object code, documentation, diagrams, flow charts and any other tangible or
intangible materials of any type whatsoever relating to the PAPNET System and
derived or produced by any parties (collectively the "Proprietary Materials").
No provision contained in this Sublicense Agreement shall be construed to
transfer to NSI-APL any title or ownership interest in the Proprietary Materials
or any Intellectual Property embodied in the PAPNET System or the PAPNET
Service. NSI-APL hereby irrevocably assigns, transfers and quitclaims to NSI
all rights, title and interest NSI-APL may at any time be deemed to have in and
to the PAPNET System and all associated Intellectual Property and Proprietary
Material thereof.
7.2 Scope of use. NSI-APL shall not, and shall not permit any third
party to, (a) modify or alter, create or attempt to create, by reverse
engineering or otherwise, translate or decompile, translate or transfer, or
otherwise attempt to derive the source code, structure or algorithms of, the
PAPNET System or any part thereof, (b) use or adapt the PAPNET System or any
part thereof in any way, including using or adapting the PAPNET System or any
part thereof otherwise than in connection with the marketing or sale of the
PAPNET Service, (c) use the PAPNET System or any part thereof to create a
derivative work of the PAPNET System, or (d) rent, lease or otherwise provide
temporary access to the PAPNET System or any part thereof. Unless
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otherwise agreed to, in the event that NSI, in its sole discretion, provides any
modification, upgrades or enhancements to the PAPNET System, such modifications
shall become a part of, and subject to, this Sublicense Agreement.
7.3 Control of Intellectual Property protection. NSI shall at all times
retain the sole and exclusive right to pursue, secure, maintain, protect and
enforce its Intellectual Property in and to, or arising out of or related to,
the PAPNET System.
7.4 PAPNET System name. NSI shall have the right in its sole discretion
to select and include any trademark or trade name to identify the PAPNET System.
7.5 Protection of Intellectual Property. NSI-APL shall use its best
efforts, and shall cause clients to use their best efforts, to protect and
maintain the protection of the Intellectual Property in and to the PAPNET System
or the PAPNET Service. Upon NSI's request, NSI-APL shall, at NSI's sole cost
and expense, assist NSI-APL in securing, maintaining and enforcing NSI's
Intellectual Property in and to the PAPNET System or the PAPNET Service
including, but not limited to, undertaking any and all necessary and appropriate
actions in accordance with NSI's request.
7.6 Notice of infringement. NSI-APL shall promptly notify, and shall
require clients to notify, NSI of any infringement of any Intellectual Property
of NSI with respect to the PAPNET System or the PAPNET Service. Upon reasonable
notice of infringement, NSI shall have the right, but not the obligation, to
bring any suit or action for infringement of its Intellectual Property at its
own expense. NSI-APL shall, if requested by NSI, actively assist in the
prosecution of such action. In the event that NSI fails to take action with
respect to such infringement within a reasonable time after notice of
infringement, NSI-APL shall have the right to bring any appropriate suit or
action against the infringer at NSI-APL expense. In the event NSI-APL brings
and prevails in such infringement action, any amount recovered from the
infringer, whether by judgment, award, decree or settlement shall firstly be
applied to pay for all losses and damages suffered by NSI-APL together with all
reasonable legal costs and expenses incurred in such action, any balance
thereafter be divided equally between NSI-APL and NSI.
8. Indemnification.
8.1 Indemnification. NSI-APL or PFEL, as the case may be (the
"Indemnifying Party"), shall, at its sole cost and expense, indemnify and hold
NSI-APL or PFEL and their respective directors, officers, employees, agents,
representatives and affiliates (each, an "Indemnified Party") harmless with
respect to any liabilities, damages, loses, costs and expenses, including
reasonable attorney's fees (any or all of the foregoing being hereinafter
referred to as a "Loss"), insofar as such Loss arises out of or is based upon:
(i) a misrepresentation or breach (or alleged misrepresentation or breach) by
the Indemnifying Party of its warranties, covenants and agreements contained
herein, or (ii) a claim that the PAPNET System or the PAPNET Service, as the
case may be, as used
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within the scope of this Sublicense Agreement, infringes or violates any
proprietary rights of any third party.
8.2 Notice of claim; defense. No claim for indemnification hereunder
shall be valid unless notice of the matter which may give rise to such claim is
promptly provided to the Indemnifying Party in writing. The Indemnifying Party
shall have the exclusive right to defend against any claim and control such
defense. The Indemnified Party shall cooperate with the Indemnifying Party in
defending against such claim. In no event shall the Indemnified Party settle
any such claim, lawsuit or proceeding without the Indemnifying Party's prior
written approval.
8.3 Infringement. If, as a result of any such claim of infringement, PFEL
or NSI-APL is permanently enjoined from selling the PAPNET Service or using the
PAPNET(R) System, as the case may be, by a final, nonappealable decree, of a
court of competent jurisdiction, (i) NSI-APL at its sole option and expense, may
procure from NSI the right to continue to sell the PAPNET Service or use the
PAPNET System that is subject to such decree or may replace or modify the PAPNET
System or PAPNET Service so that the PAPNET Service or PAPNET System is non-
infringing, (ii) NSI-APL may terminate this Sublicense Agreement with respect to
the PAPNET Service or PAPNET(R) System, as the case may be, that is subject to
such decree, or (iii) if PFEL is enjoined from marketing and distributing the
PAPNET Service, NSI-APL may terminate this Sublicense Agreement in accordance
with Section 10 hereof. The foregoing states the entire liability of PFEL or
NSI-APL, as the case may be, to the other with respect to infringement of any
proprietary rights of any third party, and PFEL and NSI-APL hereby expressly
waive any other such liabilities that each may have against the other and its
directors, officers, employees, agents, representatives and affiliates.
9. Confidentiality.
9.1 Confidentiality. During the term of this Sublicense Agreement and
thereafter, each of NSI-APL and PFEL shall keep strictly confidential all
proprietary information, sales statistics, customer lists, customer account
information, this Sublicense Agreement and its terms and other confidential
information concerning the business of the other party, however obtained, and
shall not reveal or disclose the same to any person or entity without the prior
written consent of the other party; provided, however, that either party may
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disclose such information pursuant to a subpoena, order, statute, rule or other
legal requirement promulgated or imposed by a court or by a judicial, regulatory
or legislative body or agency in which such party is involved; and provided,
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further, that either party may disclose the terms of this Sublicense Agreement
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to the extent its counsel determines in good faith that such disclosure is
necessary to comply with applicable securities laws. In the event that either
party discloses such confidential information in accordance with the previous
sentence, such party shall immediately notify the other party.
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10. Term.
10.1 Term. The term of this Sublicense Agreement shall commence on the
date first set forth above and terminate at the end of the fifteenth (15th) year
from the date of execution hereof (the "Term") unless terminated on an earlier
date as provided below in this Section 10.
10.2 Termination Fee. In the event of cessation of business related to
the Representation Rights by NSI-APL or its affiliates in the entirety of the
Territory prior to the end of the Term, a termination fee shall be due and
payable to PFEL by NSI-APL in an amount equal to US$800,000 (the "Termination
Fee"), provided, however, that payment of the Termination Fee shall be
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subordinate to all other creditors of NSI-APL, including, but limited to, any
interest due with regard to any indebtedness thereto, and further provided that
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the Termination Fee shall diminish in amount equal to the aggregate amount of
Royalties received by PFEL (for example, if the business of NSI-APL terminated
at the end of year one, and as of such date PFEL had received an aggregate of
US$200,000 in royalties from NSI-APL, the Termination Fee would be reduced by
US$200,000).
10.3 Purchase Option. During the period commencing four years after
execution of this Sublicense Agreement, and ending eight years after such
execution, as set forth on the attached Annex A, PFEL may, at its option,
require NSI-APL to purchase the entirety of PFEL's interest as a party to the
Third Agreement (including any and all rights obtained by assignment or
sublicense thereof) for an aggregate price equal to five times the trailing
year's Royalty (the "Purchase Option" and the price paid pursuant thereto, the
"Purchase Price"). The Purchase Price may be payable at the option of NSI-APL
in either cash or in NSI common stock, par value $.0001 per share ("Common
Stock"). For purposes of this provision, "trailing year" shall mean the most
recent twelve (12) month period measured at the end of the most recently
completed calendar quarter (for example, if PFEL exercises the Purchase Option
at the end of the second (2nd)calendar quarter during year six of this
Sublicense Agreement, the Purchase Price would be five (5) times the amount of
Royalties recorded as paid or payable during the twelve (12) month period
immediately preceding the end of the second (2nd) calendar quarter of year six
(6)). If the Purchase Price is paid in NSI Common Stock, (i) the value of the
NSI Common Stock will be determined based on the average closing price of the
Common Stock on the most recent thirty (30) calendar days immediately prior to
the exercise date of such Purchase Option; (ii) PFEL shall execute a
Subscription Agreement substantially in the form set forth in the attached Annex
B and (iii) PFEL shall execute a Registration Rights agreement substantially in
the form set forth in the attached Annex C and NSI shall provide registration
rights with respect to such NSI Common Stock in accordance with the terms
thereunder. The Termination Fee shall not be due or payable if the Purchase
Option is exercised by PFEL. Exercise and consummation of the Purchase Option
shall terminate this Sublicense Agreement. For purposes of clarity, this
Purchase Option may only be exercised by PFEL and not by NSI or XXX-XXX.
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(x) This Sublicense Agreement shall be terminated prior to the end of the
Term upon performance by NSI-APL of its duties and obligations in accordance
with the terms of paragraphs 10.2 or 10.3.
(b) Except as otherwise provided in this Sublicense Agreement, this
Sublicense Agreement may be terminated by NSI-APL without notice to PFEL or
further action on the part of NSI-APL, upon the occurrence of any of the
following events: (i) the liquidation, dissolution, winding up or other
termination, suspension, discontinuation or failure of the business of PFEL;
(ii) the insolvency of or admission by PFEL of its failure to pay debts as they
mature, the making by PFEL of an assignment for the benefit of its creditors or
the filing by PFEL of a petition in bankruptcy, the seeking by PFEL of
reorganization or arrangement with creditors or PFEL otherwise taking advantage
of any insolvency, readjustment of debt, dissolution or liquidation law, or any
similar law, of any jurisdiction whether now or hereafter in effect; (iii) upon
PFEL being declared bankrupt or wound up by any court of competent jurisdiction;
(iv) if PFEL is enjoined at any time from marketing and distributing the
PAPNET(R) Service, or assigning and/or sublicensing its rights under the Third
Agreement or delegating its duties and obligations undertaken thereby; (v) any
assignment, sublicense, delegation, or any other transfer, in whole or in part,
of the Third Agreement by PFEL without the express prior written consent of NSI;
or (vi) upon termination of the Third Agreement by reason of the default of
PFEL.
(c) Except as otherwise provided in this Sublicense Agreement, this
Sublicense Agreement may be terminated by PFEL without notice to NSI-APL OR
further action on the part of PFEL, upon the occurrence of any of the following
events (each, an "NSI-APL Termination Event"): (i) The liquidation, dissolution,
winding up or other termination, suspension, discontinuation or failure of the
business of NSI-APL or its efforts to market the PAPNET Service; (ii) the
insolvency of or admission by NSI-APL of its failure to pay debts as they
mature, the making by NSI-APL of an assignment for the benefit of its creditors
or the filing by NSI-APL of a petition in bankruptcy, the seeking by NSI-APL of
reorganization or arrangement with creditors or NSI-APL otherwise taking
advantage of any insolvency, readjustment of debt, dissolution or liquidation
law of any jurisdiction whether now or hereafter in effect; or (iii) the filing
of any bankruptcy petition against NSI-APL, which petition is not dismissed
within sixty (60) days. Termination of this sublicense agreement due to an nsi-
apl termination event shall not absolve or excuse performance of NSI-APL'S
duties and obligations in accordance with SECTIONS 10.2 OR 10.3.
(D) Except as otherwise provided herein, the termination of this
Sublicense AGREEMENT (whether pursuant to Section 10.4 or upon the expiration of
the Term) or any part hereof by either party shall not relieve either party of
any obligations accruing prior to such termination. The representations,
warranties, covenants and agreements of NSI and PFEL set forth herein shall
survive any such termination.
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11. Arbitration.
11.1 Arbitration. Except as otherwise provided herein, the parties
hereto agree that the sole and exclusive remedy for any dispute between the
parties arising out of or relating to this Sublicense Agreement shall be
resolved by an arbitration procedure conducted in The City of New York, Borough
of Manhattan in accordance with the rules then obtaining of the American
Arbitration Association, except that the arbitrators shall have no power to
alter or modify any express provision of this Sublicense Agreement, or to render
any award which by its terms, effects any such alteration or modification.
Judgment upon the award rendered may be entered by any court having jurisdiction
in the State of New York. If any action or proceeding is brought to enforce the
decision of the arbitrators, the prevailing party shall be entitled to recover
its reasonable attorney's fees and other costs incident to such action or
proceeding. The provisions of this Section 11 shall not affect the right of any
party to seek provisional legal or equitable remedies.
12. Miscellaneous.
12.1 Rules of Construction. As used in this Sublicense Agreement,
neutral pronouns and any variations thereof shall be deemed to include the
feminine and masculine and all terms used in the singular shall be deemed to
include the plural, and vice versa, as the context may require. The words
"hereof", "herein" and "hereunder" and other words of similar import refer to
this Sublicense Agreement as a whole, including the Annexes hereto, as the same
may from time to time be amended or supplemented, and not to any subdivisions
contained in this Sublicense Agreement. The world "including" when used herein
is not intended to be exclusive and means "including, without limitation".
References herein to "dollars", "U.S.$" and "$" are to United States dollars.
References herein to Section, subsection or Annex shall refer to the appropriate
Section, subsection or Annex in or to this Sublicense Agreement.
12.2 No adverse actions. PFEL agrees to take no action that could
materially adversely affect the business, operations or prospects of NSI-APL.
12.3 Independent Contractors. It is expressly agreed that the parties
hereto are acting hereunder as independent contractors and not joint venturers,
and under no circumstances shall any of the employees of one (1) party be deemed
the employees of the other for any purpose. This Sublicense Agreement shall not
be construed as authority for either party to act for the other party in any
agency or other capacity, or to make commitments of any kind for the account of
or on behalf of the other except to the extent and for the purposes expressly
provided for and set forth herein.
12.4 Assignment; Sublicense. The rights, duties and obligations of NSI-
APL under the terms and conditions of this Sublicense Agreement, are not further
assignable, sublicensable, transferable or delegable by NSI-APL without the
prior written consent of NSI and PFEL. The rights, duties and obligations of
PFEL under the terms and conditions of this Sublicense Agreement are not
assignable, sublicensable, transferable or
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delegable without the prior written consent of NSI and NSI-APL. This
Sublicense Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and permitted assigns.
12.5 Waiver. No waiver by any party of any breach of any provision
hereof shall constitute a waiver of any other breach of that or any other
provision hereof.
12.6 Severability. If any provision of this Sublicense Agreement is
determined by a court of competent jurisdiction to be invalid or unenforceable,
such determination shall not affect the validity or enforceability of any other
party or provision of this Sublicense Agreement.
12.7 Choice of law. This Sublicense Agreement and the performance
hereunder shall be governed by and construed in accordance with the laws of the
State of New York (without giving affect to principles of conflicts of laws).
12.8 Notice. All notices, invoices, consents or other communications
required or permitted to be given by either party to the other shall be in
writing (including facsimile or similar writing) and shall be given by certified
or registered mail, postage prepaid, with a copy by facsimile, as follows:
(a) If to NSI:
Neuromedical Systems, Inc.
Xxx Xxxxxxxxx Xxxxxxxxx
Xxxxxxx, Xxx Xxxx 00000-0000
Xxxx X. Xxxxxxxx, III
Co-CEO, Vice President of Corporate Development and General Counsel
Facsimile: (000) 000-0000
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(a) If to NSI-APL:
Neuromedical Systems, Inc.
Two Executive Xxxxxxxxx
Xxxxxxx, Xxx Xxxx 00000-0000
Xxxx X. Xxxxxxxx, III
Co-CEO, Vice President of Corporate Development and General Counsel
Facsimile: (000) 000-0000
(b) If to PFEL:
Papnet (Far East) Ltd.
C/O Xx. Xxxxxxx X.X. Xx, President
Papnet (Far East) Ltd.
0xx Xxxxx, Xxxxxx Xxxxx,
Xxxx Xxxxxx, PO Box 709.
Xxxxxx Town, Cayman Islands
or at such other address or facsimile number (or other similar number) as any
party may from time to time specify to the other party hereto. Any notice,
consent or other communication required or permitted to be given hereunder shall
be deemed to have been given on the date of mailing, personal delivery or
facsimile (provided the appropriate answerback is received) thereof and shall be
conclusively presumed to have been received on the second business day following
the date of mailing or, in case of personal delivery, the actual day of personal
delivery thereof, or, in the case of facsimile delivery, when such facsimile is
transmitted, except that a change of address shall not be affective until
actually received.
12.9 Entire Agreement. This Sublicense Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all previous proposals, both oral and written, negotiations,
representations, commitments, writings and all other communications between the
parties, including, but not limited to, the Royalty Agreement. It may not be
released, discharged, changed or modified except by an instrument in writing
signed by a duly authorized representative of each of the parties.
12.10 Headings. The headings used in this Sublicense Agreement are for
reference purposes only and shall not be construed to limit or further define
any term or provisions hereof.
12.11 Counterparts. This Sublicense Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Sublicense
Agreement by a duly authorized representative as of the date first written
above.
NSI ASIA PACIFIC LTD.
By: /s/ Xxxx X. Xxxxxxxx, III
Xxxx X. Xxxxxxxx, III
Vice President
PAPNET FAR EAST LIMITED
By: /s/ Xxxxxxx X.X. Xx, M.D.
Xxxxxxx X.X. Xx, M.D.
President
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Annex A
Contract Purchase
Year Effective Date Royalty Option Periods
Year 1 September 30, 1997-September 29, 1998 4% of Base Consolidated
Revenue
Year 2 September 30, 1998-September 29, 1999 4% of Base Consolidated
Revenue
Year 3 September 30, 1999-September 29, 2000 4% of Base Consolidated
Revenue
Year 4 September 30, 2000-September 29, 2001 4% of Base Consolidated
Revenue
Year 5 September 30, 2001-September 29, 2002 3% of Base Consolidated Purchase Option Period
Revenue
Year 6 September 30, 2002-September 29, 2003 3% of Base Consolidated Purchase Option Period
Revenue
Year 7 September 30, 2003-September 29, 2004 3% of Base Consolidated Purchase Option Period
Revenue
Year 8 September 30, 2004-September 29, 2005 3% of Base Consolidated Purchase Option Period
Revenue
Year 9 September 30, 2005-September 29, 2006 3% of Base Consolidated
Revenue
Year 10 September 30, 2006-September 29, 2007 3% of Base Consolidated
Revenue
Year 11 September 30, 2007-September 29, 2008 3% of Base Consolidated
Revenue
Year 12 September 30, 2008-September 29, 2009 3% of Base Consolidated
Revenue
Year 13 September 30, 2009-September 29, 2010 3% of Base Consolidated
Revenue
Year 14 September 30, 2010-September 29, 2011 3% of Base Consolidated
Revenue
Year 15 September 30, 2011-September 29, 2012 3% of Base Consolidated
Revenue
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CONSENT
WHEREAS, Neuromedical Systems, Inc., a Delaware corporation ("NSI") and
PAPNET (Far East) Ltd., a Cayman Islands corporation ("PFEL") have executed as
of even date herewith an Amended and Restated Representation Agreement (the
"Third Agreement") granting to PFEL a non-exclusive right and license to market,
sell and distribute certain PAPNET Services (the "Representation Rights") in
Hong Kong, Taiwan and the People's Republic of China (the "Territory") for a
term of fifteen (15) years;
WHEREAS, PFEL now desires to assign and sublicense its Representation
Rights for the Territory to NSI Asia Pacific Ltd., a Cayman Islands corporation
("NSI-APL"), and NSI-APL desires to acquire such Representation Rights for the
Territory.
WHEREAS, the Third Agreement is not assignable, sublicensable, transferable
or delegable by PFEL, in whole or in part, without the express prior written
consent of NSI.
NOW, THEREFORE, NSI hereby acknowledges and consents to the assignment and
sublicense of the Third Agreement upon the terms and conditions of the
Sublicense Agreement between NSI-APL and PFEL, dated as of even date herewith,
in the form attached hereto.
NEUROMEDICAL SYSTEMS, INC.
By: /s/ Xxxx X. Xxxxxxxx, III September 30, 1997
Xxxx X. Xxxxxxxx, III Date
Co-CEO, Vice-President, Secretary
and General Counsel
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