**Exhibit 10.38**

**PRODUCT DISTRIBUTIONAGREEMENT**

 

THIS PRODUCT DISTRIBUTION AGREEMENT (the “Agreement”) is entered intoand effective on this day, November 28, 2002 (the “Effective Date”), by andbetween R2 Technology, Inc., a Delaware corporation having a principal place ofbusiness at 1195 Fremont Ave., Sunnyvale, California 94087 (“R2”), and VitalImages, Inc., organized under the laws of Minnesota, having a principal placeof business at 3300 Fernbrook Lane N., Suite 200, Plymouth, Minnesota 55447(“VTAL”).

**RECITALS**

A.                                   R2 is engaged in the business ofdeveloping, manufacturing, distributing, and selling computer aided detection(“CAD” as further defined below) software and hardware.

B.                                     VTAL is engaged in the business ofdeveloping, distributing and selling VTAL Workstations (as hereafter defined).

C.                                     The parties desire that R2 customize itsLung Nodule CAD Application (as defined below) and related software such thatit will operate with the VTAL Workstation (“R2 Products” as further definedbelow).

D.                                    The parties further desire that VTALdistribute the R2 Products in conjunction with the VTAL Workstation, either:(i) installed on, and as a component of the VTAL Workstation; or (ii) on astand-alone basis, to VTAL Installed Base Sites (as defined below) solely foruse with the VTAL Workstation, in accordance with the terms and conditions ofthis Agreement.

NOW, THEREFORE, in consideration of the mutual promises containedherein, the parties agree as follows:

# **1.     DEFINITIONS**

## 1.1   “ASP” means average sales price asmore fully described in Section 8.5.

## 1.2   “CAD” means computer aided detectionand similar automated disease detections systems.

## 1.3   “Confidential Information” has themeaning set forth in Section 13.1

## 1.4   “Customer” means an end user customerto whom VTAL or its distributors, sells the R2 Product.

## 1.5   “Europe Date” means the later of: (a)the date on which R2 is able to meet CE certification requirements and producea “Declaration of Conformance” for the R2 Product; or (b) the completion of themilestones in the Development Plan with respect to the R2 Product that will bedistributed in Europe.

## 1.6   “Intellectual Property Rights” meansany and all current and future trade secrets, technical know-how, copyrights,moral rights, patents, patent applications (including any 

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## substitutions, extensions, reissues, renewals,divisions, continuations, or continuations-in-part), and any and all otherworldwide intellectual property rights.

## 1.7   “Lung Nodule CAD Application” meansR2’s proprietary lung nodule CAD software, including Updates, Upgrades and NewFeatures made available by R2 during the term of this Agreement, and allrelated documentation.

## 1.8   “New Features” means significantimprovements or enhancements, other than Updates and/or Upgrades, to the operatingsystem, application software or hardware component of the Lung Nodule CADApplication or R2 Product, as the context requires, if any.

## 1.9   “Maintenance Program” means themaintenance and support arrangement between VTAL (or its Subdistributors) and aCustomer, as more fully described in Section 3.3.

## 1.10 “Minimum” means the minimum number ofLung Nodule CAD Application units that VTAL will purchase each Quarter inaccordance with Sections 8.2 and 8.4.

## 1.11 “Quarter” means each three-month periodbeginning with the first day of the first month following the Europe Date; byway of non-limiting example, if the Europe Date is February 15, 2003, the first3-month period would run from March 1, 2003 to May 31, 2003.

## 1.12 “R2 Installed Base Sites” means those personsor entities identified on a separate document delivered by R2 to VTALquarterly, as may be accurately updated by R2 from time to time, who arelocated in the United States and Europe and are in possession of R2 products(other than demonstration units). Notwithstanding anything to the contrary, R2 Installed Base Sites shallinclude up to twenty (20) entities identified by R2 within sixty (60) days ofthe Effective Date who work with R2 in an advisory or other similar capacity,but who may not have actually purchased R2 products.

## 1.13 “R2 Product” means the (i) Lung NoduleCAD Application configured by R2 for use by with the VTAL Workstation, asreflected in the Specifications; (ii) visualization software applications;(iii) all other supporting software applications (including bug fixes madepursuant to Section 3.4, Updates, Upgrades and New Features to the foregoing(i), (ii) and (iii) made available by R2 during the term of this Agreement);and (iv) all related documentation.

## 1.14 “R2 Showcase” means the combination ofR2’s proprietary workstation and related products which incorporate the LungNodule CAD Application, as more fully described in Section 2.8.

## 1.15 “Server” has the meaning set forth inSection 3.6.

## 1.16 “Specifications” means the functionaland technical standards of the Lung Nodule CAD Application as well as thecompatibility standards for the R2 Products to loosely integrate and operatewith the VTAL Workstation, developed pursuant to Section 2.1 below.  The parties understand that the Specificationswith respect to the performance in sensitivity and specificity of the R2Product delivered by R2 to VTAL will be the same as those for the Lung NoduleCAD Application used by R2 in the R2 Showcase.

## 1.17 “Territory” means those countries, regionsor geographical markets identified on Exhibit B.

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## 1.18 “Trademarks” with respect to a partymeans the trademarks, service marks, logos and other proprietary marks thatsuch party may adopt from time to time.

## 1.19 “Updates” means software bug fixes andcorrections that ensure functionality of the Lung Nodule CAD Application or R2Product, as the context requires, that are released by R2 for field use, ifany.  Updates do not includeimprovements or enhancement to the operating system, applications software, orhardware and do not include new software features.

## 1.20 “Upgrades” means a release or version ofthe Lung Nodule CAD Application or R2 Product, as the context requires, thatcontains new CAD detection improvements including algorithm and performanceenhancements, limited to an increase in sensitivity and/or a decrease in markerrate, if any.  For example: improvementin the algorithm through reduced false positives.  Upgrades do not include new software features or new hardware.

## 1.21 “US Date” means the later of : (a) thedate on which R2 obtains FDA approval for the Lung Nodule CAD Applicationpursuant to Section 7.1, below, or (ii) the completion of the milestones in theDevelopment Plan with respect to the R2 Product that will be distributed in theUnited States.

## 1.22 “VTAL Installed Base Sites” means thosepersons or entities identified on a separate document delivered by VTAL to R2quarterly, as may be accurately updated by VTAL from time to time, who are inpossession of one (1) or more VTAL Workstation(s) (other than demonstrationunits).

## 1.23 “VTAL Workstation” means any VTAL workstationand the components thereof, including without limitation the Vitrea brandworkstation, consisting of hardware, display devices and Vitrea and othersoftware applications.

## 1.24 “Warranty Period” means a period ofone (1) year after delivery and installation of the R2 Product at a Customerlocation.

In addition to the foregoing, terms such as “sale”, “purchase”,“distribute” and variants and synonyms thereof, when used with reference tosoftware herein, are used for convenience only and refer to transactionsinvolving the grant of a software license for the R2 Product.

# **2.     DEVELOPMENT**

## 2.1   Development Efforts.  The parties will develop and implement aplan to define and test the Specifications and to address other compatibilityissues of the R2 Product with the VTAL Workstation (the “Development Plan”).  The parties will use their best efforts tocomplete and attach the Development Plan to this Agreement as Exhibit A withinfourteen (14) days of the Effective Date. The parties may amend the Development Plan as they mutually agree inwriting to reflect changes in the Specifications.   The parties acknowledge and agree that the development effortsare dependent on mutual cooperation and performance of each party’s obligationsset forth in the Development Plan.

## 2.2   Progress Meetings.  The parties will conduct meetings eachcalendar quarter and keep each other reasonably informed with respect toprogress under the Development Plan and other significant changes,modifications, revisions, or updates that are being planned for theirrespective products.

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## 2.3   DICOM Standard.  Whenever possible, the standard ofcommunication for images and the corresponding CAD results between the CADcomponent of the R2 Products and the VTAL Workstation shall be the DigitalImaging and Communications in Medicine (“DICOM”) Standard when such standardsupports the classes and services required. VTAL agrees that the DICOM header in each acquisition device containedin the VTAL Workstation shall contain a unique identifier for each suchacquisition device.  The parties shallmeet periodically to discuss such changes, modifications, revisions, or updates,and shall provide each other with such information and assistance as may benecessary or useful and commercially reasonable to enable compatibility andinteroperability between future versions of the R2 Product and the VTALWorkstation.  Such changes andmodifications may include, but are not limited to:

### (a)   the addition or deletion of servicessupported,

### (b)                                 changes to the information contained inthe DICOM fields of DICOM headers, including the use of required fields,

### (c)   changes to the image processing used tocreate DICOM  for presentation images.

## 2.4   Validation Testing.  Each party shall provide commerciallyreasonable levels of resources necessary to validate DICOM connectivity andverify clinical usability after each Update, Upgrade or New Feature, if any.

## 2.5   Development and Test Data.  The development and testing data provided byVTAL to R2, or generated by R2 under this Agreement, together with any and allother cases, training databases and other related materials provided to R2 byVTAL (“Test Data”) will remain the property of VTAL.  VTAL agrees to remove all personally identifiable patientinformation on any Test Data before delivery to R2.  VTAL hereby grants to R2 a non-exclusive, royalty-free,perpetual, irrevocable, non-transferable (subject to Section 15.1) license touse the Test Data:  (i) internally forR2’s business and development purposes; and (ii) in aggregate form, asnecessary for the purpose of obtaining the regulatory approvals described inSection 7.  All Test Data provided byVTAL to R2 hereunder will be deemed “Confidential Information” of R2, subjectto the obligations of Section 13.2, except for purposes of (ii) above.

## 2.6   Restrictions.  Unless otherwise stated in the DevelopmentPlan, neither party is entitled to receive any source code, algorithms,designs, or similar source materials from the other party.  With respect to the other party’s productsand Confidential Information provided hereunder, neither party shall: (a)reverse engineer, decompile, disassemble, or otherwise attempt to derive anysource code, algorithms, ideas, process, technique, know how, technology, orother underlying content therefrom; or (b) copy, alter, modify, or createderivative works of any portion or component thereof; or (c) assist any thirdparty, or allow or permit any third party within its control, to do any of theforegoing.

## 2.7   Ownership.

### (a)   As between VTAL and R2, R2 will own, andhereby retains, all right, title, and interest in and to the Lung Nodule CADApplication and the R2 Product, and any improvements, enhancements, interfacecomponents, and/or derivative works thereof, and all Intellectual PropertyRights relating thereto.  At R2’srequest, VTAL will assign or cause to be assigned to R2 all right, title,interest in and to the foregoing materials and Intellectual Property 

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### Rights therein, and VTAL shall reasonably assist andcooperate with R2 in prosecuting, maintaining, filing for, enforcing, andotherwise protecting R2’s rights and interests therein.  Any and all registerable and patentabledesigns relating to the Lung Nodule CAD Application and/or the R2 Product, andthe right to apply for protection therefore, shall belong exclusively to R2.

 

(b)           As between R2 and VTAL, VTAL willown, and hereby retains, all right, title, and interest in and to the VTALWorkstation and any modifications, improvements, enhancements, interfacecomponents, and/or derivative works thereof, and all Intellectual PropertyRights relating thereto.  At VTAL’srequest, R2 will assign or cause to be assigned to VTAL all right, title andinterest in and to the foregoing materials and Intellectual Property Rightstherein, and R2 shall reasonably assist and cooperate with VTAL in prosecuting,maintaining, filing for, enforcing, and otherwise protecting VTAL’s rights andinterests therein.  Any and allregisterable or patentable designs relating to the VTAL Workstation, and theright to apply for protection therefore, shall belong exclusively to VTAL.  The parties acknowledge that R2 has beengiven, under the terms and conditions to be imposed upon VTAL customers, thirdparty beneficiary rights to enforcement its Intellectual Property Rights withrespect to Customers.  The partiesagree, however, that (i) R2 shall not exercise such rights so long as VTAL actsto protect such R2 Rights with at least the same degree of care and diligenceit uses to protect its own rights of similar type and value, and in any eventwith at least reasonable care and diligence and (ii) R2 shall exercise suchrights at its own cost and expense.

## 2.8   R2 Showcase Product.

### (a)   VTAL acknowledges that R2 is in the processof developing its own workstation product that will incorporate the Lung NoduleCAD Application (when available) and that will be branded with the R2Trademarks (“R2 Showcase”).  TheR2 Showcase is inclusive of the workstation, all accompanying non-CAD relatedsoftware, and the Lung Nodule CAD Application, whether such components are soldat the same time or separately.  Subjectto Section 4.1, R2 reserves the right, by itself or with third parties, todevelop, market, promote, sell, and distribute the Lung Nodule CAD Application,and any future versions, enhancements, derivative works, or modificationsthereof, whether inside or outside of the Territory.

### (b)   The parties will work together to coordinatethe timing of the release of both the R2 Product and the R2 Showcase. In anycase, R2 agrees that it will make the R2 Product available to VTAL for use withthe VTAL Workstation upon the mutual completion by the parties of themilestones set forth in the Development Plan. Further, VTAL shall not release the R2 Product before such date that R2releases the R2 Showcase.

### (c)   Subject to Section 4, no provision of thisAgreement shall be deemed to restrict either party’s right to exploit anyIntellectual Property Rights belonging to that party in other products orservices, including without limitation, in products or services which maydirectly or indirectly compete with the other party’s product or services, orwith the products or services contemplated by this Agreement.

## 2.9   Costs.  Except as expressly stated herein, each party shall bear its owncosts and expenses in connection with the development activities contemplatedherein.

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# **3.     DISTRIBUTION**

## 3.1   Appointment.  Subject to the terms and conditions herein, R2 hereby authorizesVTAL to distribute the R2 Product within the Territory either:  (i) installed on, and as part of the VTALWorkstation; or (ii) to VTAL Installed Base Sites for use solely with the VTALWorkstation, and not on a stand-alone basis. VTAL shall include the terms and conditions attached as Exhibit G (whichmay be modified from time to time by either party subject to the other party’sconsent, which consent will not be unreasonably withheld) with thedocumentation VTAL provides to Customers.

## 3.2   Subdistributors.  VTAL’s distributors, resellers and channelpartners that are authorized in writing by VTAL (“Subdistributors”) may alsopurchase the R2 Product directly from R2 for distribution within the Territoryto Customers solely in conjunction with the VTAL Workstation, either as partthereof, or to Customers already owning a VTAL Workstation for use inconnection therewith, and not on a stand-alone basis, and subject to all otherapplicable terms and conditions of this Agreement.  In all events, VTAL shall remain responsible and liable for itsSubdistributors’ compliance with the terms and conditions of this Agreement.

## 3.3     Customer Installation, Service andSupport.  VTAL shall be responsible,at its sole cost and expense, for the installation of the R2 Product at theCustomer site.  VTAL agrees to provideR2 with quarterly reports (no later than the twentieth (20) business dayfollowing February 28, May 31, August 31, and November 30) stating eachCustomer’s name, location, contact information and date of sale.  VTAL shall offer each Customer theopportunity to enter into a Maintenance Program through which VTAL willprovide, through its own technical personnel, first-level technical support andmaintenance to such Customer, in accordance with Exhibit H.  Customers may also opt to receive quarterlynewsletters and participate in a R2 sponsored Lung Nodule CAD user group underthe Maintenance Program.  R2 shallprovide second-level support to VTAL with respect to all Customers free ofcharge during the Warranty Period, and thereafter for Customers in theMaintenance Program as further set forth in Exhibit H.  VTAL hereby acknowledges that R2 shall haveno responsibility or obligation to provide any support services directly toCustomers; however, upon VTAL’s request and in R2’s sole discretion, R2 mayprovide direct support to Customers.  R2shall make available Updates, free of charge, to all Customers during theWarranty Period, and thereafter to Customers participating in a MaintenanceProgram, and VTAL may indicate to its Customers that it will provide Updates,when and if such Updates are made available. However, VTAL shall indicate that warranty and support services do not,and the Maintenance Program does not, include Upgrades or New Features. Upgradesand New Features, if any, are subject to an additional fee, as further setforth in Section 8.9.  R2 agrees to makeUpdates, Upgrades and New Features for the R2 Product available to VTAL withinthe same time frames that R2 makes Updates, Upgrades and New Features for theLung Nodule CAD Application generally available, if any.

## 3.4   Ongoing Support.  For so long as a Customer has a softwarelicense for the R2 Product, all software “bug fixes” to the R2 Product that arereleased by R2 to correct safety and regulatory issues will be provided by R2to VTAL free of charge and installed by VTAL on the VTAL Workstation free ofcharge.

## 3.5   Training.  VTAL shall ensure that its service personnel are sufficientlyskilled and knowledgeable about the R2 Product.  R2 shall provide initial training to VTAL regarding the use andmaintenance of the R2 Product as reasonably necessary, for VTAL to fulfill itsservice 

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## obligations to the Customer.  Such training shall take place at the dates and locations asmutually agreed between the parties.

## 3.6   Hardware Procurement.  VTAL shall purchase directly hardware thatmeets the R2 specifications attached as Exhibit I (as may be modified byR2 from time to time) for use with the R2 Product (“Servers”). ** **Theparties shall mutually agree upon vendors of such Servers.  VTAL will install the R2 Product (shipped byR2 in accordance with Section 6) on the Servers at VTAL’s expense.

# **4.     EXCLUSIVITY**

## 4.1   By R2.  R2 shall not license or otherwise provide lung nodule CADtechnology to any vendors of freestanding workstations for sale in the UnitedStates, Canada or European Union and identified on Exhibit D (“WorkstationVendors”).  Notwithstanding theforegoing, R2 shall not be restricted from providing the lung nodule CADtechnology to: (i) any other third party workstation vendor not listed inExhibit D; (ii) any PACS vendor identified on Exhibit D that sells workstationsin conjunction with PACS (“PACS Vendor”); provided that R2 shall not providethe lung nodule CAD technology to any PACS Vendor for use with such vendor’ssale of freestanding workstations; (iii) or to any third party OEM or PACScompany that in turn contracts with any Workstation Vendor identified onExhibit D.

## 4.2   By VTAL.  During the term, VTAL shall not sell any lung nodule CADtechnology in connection with any VTAL product or services (including the VTALWorkstation), other than the CAD provided by R2.  Further, VTAL shall not: (i) sell the R2 Product to any R2Installed Base Sites located in the United States for a period of six (6)months after the US Date; and (ii) sell the R2 Product or VTAL Workstation toany R2 Installed Base Sites located outside the United States for a period ofsix (6) months after the Europe Date.

# **5.     MARKETING**

## 5.1   VTAL Responsibilities.  VTAL shall use commercially reasonableefforts to promote and market the R2 Product.

## 5.2   Materials.   R2 will provide assistance to VTAL in the form of reasonablequantities of promotional and other marketing materials in English and suchother languages as may be available from time to time.  VTAL shall be responsible for such othertranslation of promotional materials and other documents required for use of R2Product in the Territory, and in the event of any such translations, VTAL shallcertify to R2 that any such translations have been appropriately verified, if,and only to the extent, such verification is required by a regulatory agency inthe country for which the translation was made.  VTAL shall provide to R2 for review an example of each item ofpromotional, advertising and educational materials and programs and otherliterature relating to the R2 Product that VTAL intends to use to market,promote and sell the R2 Product at least thirty (30) days prior to thecommercial release of such materials or commencement of such programs.   R2 reserves the right to reject anypromotional materials that contain inaccurate claims regarding the R2 Productprovided that if no written notice of rejection is received within the thirty(30) day period following receipt of an item, it shall be deemed approved.

## 5.3   Product Presentation.  Each party represents and warrants that itwill:  (a) present the R2 Productfairly to potential Customers; (b) not disparage the other party, theother party’s 

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## Trademarks, or the other party’s products or servicesin any material respect, (c) avoid deceptive, misleading or unethical businesspractices, (d) avoid false or misleading representations with regard tothe Lung Nodule CAD Application, the VTAL Workstation or the R2 Product, and(v) avoid soliciting orders for the R2 Product from any Customer that itknows engages in illegal or deceptive trade practices.

## 5.4   Demonstration and Training Licenses.  VTAL will provide R2 with a quarterlylisting of the total number, broken down by region, of VTAL direct salespersonnel and distributor sales personnel who are selling the R2 Product.  R2 will provide copies of the R2 Product,Updates, Upgrades and New Features for demonstration purposes only to each suchsalesperson.  R2 will provide the firstfive (5) demonstration copies to VTAL free of charge.  For the remainder, VTAL agrees to reimburse R2 for the costs toR2 directly attributable to third-party software licenses purchased by R2 indeveloping the Lung Nodule CAD Application, Updates, Upgrades or NewFeatures.  In addition, R2 will providefree of charge up to two (2) copies of the R2 Product, Updates, Upgrades andNew Features (promptly following release) solely for VTAL’s internal trainingof its sales personnel.  The totalnumber of copies provided to VTAL by R2 for demonstration and training purposeswill not exceed a total of one hundred (100) during the first twelve (12)months of this Agreement and will not exceed a total of two hundred (200) overthe term of the Agreement.

## 5.5   Trademarks.  Subject to compliance with the terms of this Agreement,(a) R2 shall have the right to indicate to the public that the R2 Producthas been tested for compatibility, and is being marketed for use, with the VTALWorkstation; (b) VTAL shall have the right to indicate to the public thatthe VTAL Workstation has been tested for compatibility and is being marketedfor use with the R2 Product; and (c) each party shall have the right to use theother party’s Trademarks in connection with performance of this Agreement.  VTAL shall not alter or remove any R2Trademarks applied to, or embedded in the R2 Product.  VTAL shall market and promote the VTAL Workstation as having R2lung nodule CAD capability and shall use the R2 Trademarks on all VTALWorkstation advertising materials that relate to lung nodule CADtechnology.  Each party shall submit samples of the other party’sTrademarks prior to their first use for approval by the other party.  Such approval will not limit the otherparty’s obligation to comply with all applicable laws and will not be deemed anendorsement or approval of any of the other party’s advertising content.  Nothing herein shall grant either party anyrights or title to the other party’s Trademarks, and all goodwill associatedwith such party’s Trademarks shall inure solely to the benefit of thatparty.  Each party reserves the right toreject any use of its Trademark by the other party, and the other party shallimmediately discontinue use of such Trademark upon notice.   Neither party shall challenge, or assistothers to challenge, the validity of the other party’s Trademarks, and neitherparty shall register or attempt to register any trademarks, trade names orservice marks confusingly similar to the other party’s Trademarks.

## 5.6   Packaging and Labeling.  VTALshall reproduce all copyright and other proprietary notices contained in the R2Product on the user interface of the VTAL Workstation.  In addition, except for the addition ofinformation required by applicable laws and regulations in the Territory, VTALshall not re-label the R2 Product or any other R2 products supplied to VTAL byR2 hereunder without the prior written consent of R2.  If applicable law or regulation requires re-labeling of the R2Product, VTAL shall so notify R2, and promptly thereafter the parties shallcooperatively develop labels in compliance with such laws or regulations.

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## 5.7   Display Obligations.   VTAL shall not alter, remove or obfuscatethe R2 Trademarks that appear on any visualization or display of the outputderived from the R2 Product on any screen, printout, and/or workstation thatdisplays such output.  VTAL shall ensurethat the VTAL Workstation displays a standard size icon which permits theCustomer to open the R2 Product.

# **6.     ORDERS AND DELIVERY**

## 6.1   Forecasts.  To facilitate planning, at the start of each Quarter, VTAL willprovide R2 with a non-binding, ninety (90)-day forecast.

## 6.2   Shipment/Risk of Loss.  Each shipment of the R2 Product will bepackaged by R2 and delivered to R2’s designated shipping point (the “ShippingPoint”). All freight, insurance, duty, and other shipping expenses, as well asany special packing expenses, shall be paid by VTAL.  VTAL shall also bear all applicable taxes, tariffs, duties, andsimilar charges that may be assessed against the R2 Product(s) after deliveryto the Shipping Point.  All shipmentsand freight charges will be deemed correct unless R2 receives from VTAL, nolater than forty-five (45) days after the shipping date of a given shipment, awritten notice specifying the shipment, the purchase order number, and theexact nature of the discrepancy between the order and shipment or discrepancyin the freight cost, as applicable.

## 6.3   Inspection and Return.  VTAL shall promptly, but in no event laterthan thirty (30) days, after the date of installation of the R2 Product at anInstalled Base Site, on a  Server or ona VTAL Workstation, inform R2 of a defect in the R2 Product.  R2 shall replace such defective copy with anew copy, free of charge.

# **7.     GOVERNMENTAL APPROVALS**

## 7.1   Regulatory Approvals.  With respect to the R2 Product, R2, at itsexpense, will be responsible for obtaining and maintaining, in R2’s name: (a)FDA and other applicable United States regulatory agency approvals; (b) ISO9000certification; (c) CE certification in accordance with the provisions ofDirective 93/42 governing medical devices for the R2 Product; and (d)applicable regulatory approvals in Canada. R2 shall inform VTAL in writing, noless than frequently than quarterly, as to the status of such approvals.  Further, R2 will promptly inform VTAL if anyof the elements which has permitted R2 to obtain the foregoing approvals is notlonger valid.  To the extent applicable,VTAL will be responsible for obtaining all regulatory agency approvals in thecountries in which VTAL (in its sole discretion) distributes the R2 Productwithin the Territory, as may be necessary for displaying the R2 Product inconnection with the VTAL Workstation. Each respective company will cover its own costs for regulatoryactivities.  Each party agrees toexecute such instruments, documents and agreements and to give such furtherwritten assurances, as may be reasonably necessary to better realize the intentand understanding of the parties set forth in this Section 7.1.

## 7.2   Registrations, Licenses and Permits.

### (a)   Except as set forth in Sections 7.1, VTAL, atVTAL ‘s expense, shall obtain all registrations, licenses, and permits(“Permits”) required to comply with the laws and regulations for the countrieswithin the Territory where VTAL, in its sole discretion, imports anddistributes the R2 Product; provided, however, that VTAL shall promptly notifyR2 upon the 

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### initiation of any applications for Permits.  VTAL shall provide to R2 complete copies ofall applications for and issued Permits relating to the R2 Product.  To the extent permitted by law, all Permitsobtained by VTAL in the Territory with respect to the R2 Product shall be inthe name of R2.  Each party agrees toexecute such instruments, documents and agreements and to give such furtherwritten assurances, as may be reasonably necessary to better realize the intentand understanding of the parties set forth in this Section 7.2.

### (b)   Upon the expiration or termination of thisAgreement, at R2’s requests, all Permits relating to the R2 Product shall betransferred and delivered to, and shall inure to the benefit of R2 or itsdesignee, to the extent that this is permissible under applicable law, at nocost to R2 other than legitimate fees and charges imposed by local governmentalauthorities; and VTAL agrees to execute any documents and render anyassistance, at R2’s request and expense, as may be necessary to perfect R2rights in such Permits.   The partieswill split equally (50%) any other customary and routine fees which are agreedand approved in advance by both parties.

## 7.3   Health and Safety Laws and Regulations.  Both parties shall monitor the appropriateinformation sources closely for changes in laws and regulations, and otherrequirements relating to the R2 Product or the VTAL Workstation, and shallnotify the other party promptly in writing of any and all such changes of whichit becomes aware.  If R2 is required byany regulatory agency to recall the R2 Product, or if R2 or a regulatoryauthority initiates a recall of the R2 Product, VTAL shall cooperate with andassist R2 in locating, and retrieving if necessary, recalled R2 Products fromCustomers.  VTAL shall be responsiblefor maintaining all records of its sales to Customers in the event of a recallor other quality related issue.  R2shall bear the costs of all recalls of the R2 Product.  VTAL shall bear the costs of all recalls ofthe VTAL Workstation.

## 7.4   Compliance with Local Laws.  VTAL agrees to comply with all local lawsand regulations applicable to the distribution of the R2 Product in eachcountry within the Territory.

# **8.     CONSIDERATION**

 

## 8.1   Prices for Lung Nodule CAD Application.  VTAL agrees to pay the transfer prices(adjusted per the applicable discount schedule) set forth in the pricingschedule attached as Exhibit C.

## 8.2   Minimum Sales.

### (a)   Beginning on the Europe Date, VTAL shallorder and purchase a minimum number of R2 Product units each Quarter, duringeach year of the term of this Agreement (“Minimum”), as follows:

#### (i)    First 12-month period:         units per Quarter

#### (ii)   Second 12-month period:    units per Quarter

#### (iii)  Third 12-month period:       units per Quarter

### By wayof non-limiting example, during the first Quarter, VTAL shall purchase aminimum of          (   ) units. If, by the 59th day, VTAL has purchased          (  ) units, VTAL shall purchase       (   ) additional units on day 60to satisfy the minimum for that Quarter. If more than the minimum is 

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### purchasedin any Quarter, these additional numbers over the Minimum will be appliedtowards the Minimum required in the subsequent Quarters.

### (b)   Once VTAL purchases and pays for a totalof                       (      ) units, the Minimum will no longerapply.

### (c)   During the period between the Europe Date andthe US Date, VTAL’s Quarterly Minimum will be decreased by                   (    ) of the units in Section 8.2(a) above, however, the totalMinimum will not change.  Rather, theremaining                 (      ) of the Minimum for a given Quarterwill be deferred and added to the Quarters subsequent to the US Date.  VTAL shall purchase the deferred Minimumduring a period of time subsequent to the US Date that is equivalent to theduration of the period between the Europe Date and the US Date.  By way of non-limiting example, if theperiod between the Europe Date and the US Date was exactly nine (9) months,then during those three Quarters, the Minimum would be only           (    ) units per Quarter, rather than           (   ) units asnoted above.  However, during the subsequentthree (3) Quarters following the US Date, the Minimum would increase to                (    ) units in the first Quarter and               (   ) unitsper Quarter for the next two Quarters, rather than             (   ) unitsand             (   ) respectively as noted above.

### (d)   Purchases by Subdistributors shall applytowards the Minimums set forth herein, as if the purchases had been by VTAL.

### (e)   Notwithstanding the foregoing terms of thisSection 8.2, the Minimum shall not apply to a Quarter, nor shall suchMinimum be deferred to a subsequent period, if:  (i) subsequent to the Europe Date, the CE certification withrespect to the R2 Product is revoked or otherwise becomes ineffective; (ii)subsequent to the US Date, any FDA approval with respect to the R2 Product isrevoked or otherwise becomes ineffective; (iii) a regulatory agency, or R2,issues a recall of the R2 Product or VTAL Workstation, as a result of the R2Product installed thereon; (iv) VTAL issues a recall of the VTAL Workstationsolely attributable to the R2 Product; (v) the ability of VTAL to sell the R2Product is impaired by any governmental action, riots, war, prolonged shortageof energy, epidemics, fire, flood, hurricane, typhoon, earthquake, or otherevent of force majeure beyond the reasonable control of VTAL (“Force Majeure”),or (vi) VTAL becomes subject to any injunction or other legal prohibitionagainst the sale of the R2 Product (except one which would be cured byobtaining a Permit or other applicable regulatory approvals).

## 8.3   Reports.  R2 shall provide a report to VTAL in writing within thirty (30)days of the close of each Quarter, containing the total number of R2 Showcaseunits sold worldwide during such Quarter (excluding beta, demonstration,training and non-CAD enabled units), and the price (exclusive oftransportation, insurance, taxes, duties and the like) paid therefore.

## 8.4   Adjustment of Minimums.  If the total number of R2 Showcase unitssold worldwide in any two (2) Quarter period by R2 and all of its distributor/channelpartners (excluding VTAL) is less than the sum of the Quarterly Minimums forthe preceding two (2) Quarters, then VTAL’s Quarterly Minimums for thesubsequent two (2) Quarters will be decreased by the same number by which R2and all of its distributors/channel partners fell short during the preceding(2) Quarters.  By way of non-limitingexample, if R2 and all of its distributor/channel partners sell              (   ) units, instead of          (   ) units during the first two(2) Quarters in the third twelve (12) month period after the Europe Date, thenthe Minimum VTAL must purchase in the subsequent two (2) 

## 

##  

## Quarters would decrease by a total of          (  ) units, from           (   ) per Quarter to          (   ) per Quarter.

## 8.5   Revenue Share/Referrals by R2.    R2 may refer its existing and potentialcustomers to VTAL and for each such referral that is not a VTAL Installed BaseSite that purchases the R2 Product (“R2 Referral”), VTAL shall reimburse R2 for                (       ) of the incentive that R2 pays to its sales representativefor such R2 Referral; provided that the total dollar amount paid as anincentive by R2 to its sales representative will not exceed                                                  ($            ) per R2 Referral.

## 8.6   Adjustment of Transfer Prices.

### (a)   If the ASP for all R2 Showcase units(excluding beta, demonstration, training and non-CAD enabled units) sold by R2directly to end-users in any given Quarter falls below                                  (               ), then VTAL’s transfer price as set forth inExhibit C in the subsequent Quarter will be decreased by the same percentagethat the ASP of all such R2 Showcase units falls below such                      figure.  By way of non-limiting example, if the ASPon such R2 Showcase units were             in a given Quarter, then the transfer price for the Minimum number ofunits required to be purchased by VTAL in the subsequent Quarter would drop by                (      ).

### (b)   If VTAL desires to purchase more than theMinimum during any Quarter in which VTAL’s transfer price is below             in the US and            outside the US, as per thecalculation noted above, VTAL must submit a signed purchase order from eachCustomer for all units above the Minimum that it purchases in that Quarter inwhich the transfer price was lowered pursuant to this Section, and VTAL mustsubsequently verify placement of such units at a Customer location.  Otherwise, prices for additional unitsbeyond the Minimum for which there are no signed purchase orders will be set atthe subsequent Quarter’s transfer prices as calculated in Section 8.5 (a)above. So long as the ASP for all R2 Showcase units is at least            during a Quarter, the transferprices noted in Exhibit C will apply for the next Quarter.  If R2 fails to sell any such R2 Showcaseunits during a Quarter, the transfer price from the previous Quarter willcontinue for the subsequent Quarter.

## 8.7   Maintenance.  VTAL shall pay R2 a non-refundable, flat fee as set forth inExhibit C, for each Maintenance Program sold to a Customer, in accordance withthe payment terms set forth in Section 8.10. VTAL shall not be required to continue making payments under this Section8.7 if the source code to the R2 Product is released to VTAL pursuant to theescrow agreement attached as Exhibit F.

## 8.8   Audits.  Each party shall have the right, at its own expense, to inspectthose accounting records of the other party necessary to verify compliance withthe terms of this Agreement.  Suchinspections shall take place upon not less than fifteen (15) days prior writtennotice, and during the audited party’s normal business hours.  The audited party shall promptly pay thedifference, plus interest, on any underpayments revealed in the audit.  Further, if an audit reveals an underpaymentof more than five percent (5%), the audited party shall also pay the cost andexpenses related to the audit.

## 8.9   Upgrades and New Features.  Upgrades and New Features for the R2Product, if any, are subject to an additional fee to be agreed in good faithnegotiations between the parties; provided that such fee shall not be morethan                 (      ) of the list price for the correlating 

## 

##  

## Upgrade or New Feature made to the Lung Nodule CADApplication used in the R2 Showcase (exclusive of hardware components).

## 8.10 Payments.  VTAL shall make all payments due hereunder within forty-five (45)days of the date of R2’s invoice.  Anypayments that are not timely paid as provided hereunder shall bear interest atan annual rate equal to one and a half percent (1.5%) per month or the maximumamount permitted by law, whichever is less, calculated from the date thepayment was due until the date the payment is received by R2.  Any failure of VTAL to make timely paymentto R2 due hereunder will constitute a material breach of this Agreement andVTAL’s payment of such interest on late payments will not prevent R2 fromexercising any other rights under applicable law.

## 8.11 Taxes. All prices specified hereunder do not include and are net of any foreignor domestic governmental taxes or charges of any kind that may be applicable tothe sale, licensing, marketing, or distribution of the R2 Product, includingwithout limitation excise, sales, use, property, license, value-added taxes,withholding or similar taxes, customs or other import duties or other taxes,tariffs or duties, other than taxes which are imposed solely on the net incomeof R2.  Any such taxes which areotherwise imposed on payments to R2 shall be the sole responsibility of VTAL.

# **9.     REPORTING AND CUSTOMER COMPLAINTS**

## 9.1   Medical Device Reporting.  Pursuant to governmental medical devicereporting regulations (e.g. the FDA’s Medical Device Reporting (MDR)Regulations, the European Medical Device Vigilance Guidelines, and any otherapplicable medical device reporting regulations), the parties may be requiredto report to the applicable agency information that reasonably suggests thatthe products contemplated hereunder may have caused or contributed to the deathor serious injury or has malfunctioned and that the device would be likely tocause or contribute to a death or serious injury if the malfunction were torecur.  R2 shall be primarilyresponsible for evaluating any such reportable incidents that relate to the R2Product, and VTAL shall be primarily responsible for evaluation of anyreportable incidents that relate to the VTAL Workstation. Each of R2 and VTALagree to supply to the other any information relating to such reportable incidentpromptly after becoming aware of it so that each of R2 and VTAL can comply withgovernmental reporting requirements.

## 9.2   Customer Complaints.  VTAL shall promptly investigate, monitor,and notify R2 of all Customer and/or regulatory complaints concerning the useof the R2 Product, or the VTAL Workstation (regardless of whether such VTALWorkstation is equipped with the R2 Product) in the Territory.   R2 shall promptly investigate, monitor andnotify VTAL of all customer and/or regulatory complaints concerning the use ofthe R2 Showcase.   Each party shalladvise the other of all such complaints alleging patient injury within twentyfour (24) hours, and of all other material complaints as promptly as possiblebut not more than five (5) business days following the date a party receivessuch complaint.  In addition, withinfifteen (15) calendar days following the date it receives such complaint, suchparty shall also provide the other party with a materially complete writtenreport relating thereto.  Any notice toVTAL under this Section shall be sent via facsimile and email to the attentionof the Manager of Regulatory Affairs and the Senior Director of Operations orto such other address or person as VTAL may designate, and any notice to R2under this Section shall be sent via facsimile and email to the attentionof R2’s Vice President of Regulatory Affairs or to such other address or personas R2 may designate.

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# **10.  INDEMNITY AND INSURANCE**

## 10.1 R2 Indemnity.  Subject to Sections 10.2 and10.5 below, R2 agrees to indemnify and hold harmless VTAL, its officers,directors, employees and agents, from and against any and all liabilities,damages, losses, costs and expenses attributable to claims, actions, suits, orother proceedings (“Claims”) brought by a third party alleging:  (a) that the R2 Product, as delivered toVTAL, infringes any third party Intellectual Property Right; (b) productliability with respect to the R2 Product; (c) that any materials provided by R2to VTAL under Section 5.2 are deceptive or misleading; or (d) a failure byR2 to comply with applicable law.

## 10.2 Exclusions.  Notwithstanding the foregoing, R2 will have no liability forinfringement claims arising from: (a) combination of the R2 Product with other software or productsnot provided or authorized by R2, which claim would have been avoided if the R2Product had not been so combined; (b) the modification of the R2 Product,in whole or in part, by anyone other than R2 which claim would have beenavoided if the R2 Product had not been so modified.

## 10.3 VTAL Indemnity.   Subject to Section 10.4 and 10.5 below,VTAL agrees to indemnify and hold R2, its officers, directors, employees andagents, from and against any and all liabilities, damages, losses, costs andexpenses attributable to Claims brought by a third party alleging: (a)infringement of any third party Intellectual Property Right by the VTALWorkstation; (b) product liability with respect to the Product to the extentdirectly attributable to the VTAL Workstation; (c) deceptive or misleadingadvertising or sales practices by VTAL or its Subdistributors, other than anymade in reliance on the content of the materials provided to VTAL underSection 5.2; (d) negligence or misconduct by VTAL, or its Subdistributors,in connection with the marketing, distribution, or sale of the R2 Product; or(e) a failure by VTAL to comply with applicable law.

## 10.4 Exclusions.  Notwithstanding the foregoing, VTAL will have no liability forinfringement claims with respect to VTAL Workstations, if any, arisingfrom:  (a) combination of the VTALWorkstations with other software or products not provided or authorized byVTAL, which claim would have been avoided if the VTAL Workstation had not beenso combined; or (b) the modification of the VTAL Workstation, in whole or inpart, by any party other than VTAL which claim would have been avoided if theVTAL Workstation were not so modified.

## 10.5 Procedure.   The party seeking indemnification, (“Indemnitee”) shall:(a) promptly notify the indemnifying party (“Indemnitor”) in writing ofany Claim brought by a third party for which it is seeking indemnification;(b) provide Indemnitor with sole control of the defense and/or settlementthereof; and (c) provide Indemnitor, at Indemnitor’s request and expense,with reasonable assistance and full information with respect thereto.  Indemnitee shall have the right toparticipate, at its own expense, with counsel of its own choosing in thedefense and/or settlement of such claim, suit or proceeding.  The indemnification obligations of theparties in this Section 10 shall not apply to amounts paid in settlementof any claim, suit or proceeding if such settlement is effected without theconsent of Indemnitor, which consent shall not be unreasonably withheld ordelayed.

## 10.6 Additional Remedy.  If any portion of either party’s productscontemplated by this Agreement (the VTAL Workstation and the R2 Product) isheld, or in such party’s reasonable opinion is likely to be held, to infringeor misappropriate a third party’s Intellectual Property Right, then such partymay at its sole option and expense: (a) procure for the other party and/or the Customer, asappropriate, the right to continue using such product; (b) replace the productwith a 

## 

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## non-infringing, functionally equivalent product; or(c) if neither of the foregoing is reasonably practicable, and to theextent the infringing component restricts a Customer’s ability to continue useof a Product, terminate this Agreement and refund to Customer and/or the otherparty, as appropriate, the amounts paid for the Product, or the infringingcomponent (by way of non-limiting example, the Lung Nodule CAD Application,) asapplicable, less a reasonable amount for prior use.

## 10.7 Entire Liability.  THE FOREGOING PROVISIONS OF THIS SECTION 10STATE THE ENTIRE LIABILITY AND OBLIGATIONS OF EACH PARTY, AND EACH PARTY’SEXCLUSIVE REMEDY, WITH RESPECT TO ANY ACTUAL OR ALLEGED INFRINGEMENT OF ORMISAPPROPRIATION OF ANY INTELLECTUAL PROPERTY RIGHT BY THE LUNG NODULE CADAPPLICATION, THE VTAL WORKSTATION, OR THE R2 PRODUCT.

## 10.8 Insurance.  Each party shall use commercially reasonable efforts to add theother party to its existing insurance policies as an additional insured;provided that such addition would not materially alter the other terms andconditions of such existing insurance policy.

# **11.  WARRANTY**

## 11.1 LimitedWarranty.  R2 represents and warrants to VTAL that theR2 Product will conform in all material respects to the Specifications duringthe Warranty Period.

## 11.2 WarrantyLimitations.  The foregoing warranty does not extend toproblems or errors in the R2 Product that result from: (a) Customer’sfailure to implement all Updates which are provided by R2, if any; (b) anyuse of the R2 Product in a manner for which it was not designed or as notauthorized under this Agreement or under the Customer’s license;(c) negligence on the part of VTAL or Customer, or their employees,contractors, or consultants; or (d) any use of the R2 Product with othersoftware, hardware or products not authorized by R2.  Neither party shall have the authority to offer, and neitherparty shall make, any representations or give warranties on behalf of the otherparty.

## 11.3 Disclaimer.  EXCEPT AS EXPRESSLY STATED IN SECTION 11.1, THE R2 PRODUCT ISPROVIDED “AS IS” WITHOUT WARRANTY OF ANY KIND. R2 MAKES NO ADDITIONAL WARRANTIES OR CONDITIONS OF ANY KIND, WHETHER,EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE, AND R2 SPECIFICALLY DISCLAIMS THEIMPLIED WARRANTIES AND CONDITIONS OF MERCHANTABILITY, FITNESS FOR A PARTICULARPURPOSE AND NON-INFRINGEMENT WITH RESPECT TO THE LUNG NODULE CAD APPLICATIONPROVIDED HEREUNDER, AND WITH RESPECT TO THE USE THEREOF.

# **12.  LIMITATION OF LIABILITY**

Except for each party’s obligations under Section 10, and exceptfor a breach of Sections 2.6 or 13.2 of this Agreement, IN NO EVENT SHALLEITHER PARTY BE LIABLE TO THE OTHER FOR ANY LOST PROFITS, COST OF SUBSTITUTEGOODS, OR ANY CONSEQUENTIAL, SPECIAL, INCIDENTAL, OR INDIRECT DAMAGES, HOWEVERCAUSED AND ON ANY THEORY OF LIABILITY, INCLUDING NEGLIGENCE, ARISING OUT OFTHIS AGREEMENT, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.  IN NO EVENT SHALL THE TOTAL LIABILITY OFEITHER PARTY EXCEED THE AMOUNTS 

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PAID BY VTAL TO R2 DURING THE TWELVE-MONTH PERIOD PRECEDING THE EVENTGIVING RISE TO THE LIABILITY.  THEFOREGOING LIMITATIONS APPLY NOTWITHSTANDING OF THE FAILURE OF ESSENTIAL PURPOSEOF ANY LIMITED REMEDY HEREIN.

# **13.  CONFIDENTIALITY**

## 13.1 Definition.  For purposes of this Agreement, “Confidential Information”means information exchanged between R2 and VTAL pursuant to this Agreement andthe performance of the parties’ obligations hereunder, orally (if reduced towriting and delivered to the other party within fifteen (15) days ofdisclosure) or in writing, if marked to indicate its confidential nature or ifof a type that a reasonable person would expect to be proprietary andconfidential and shall include the terms of this Agreement.  Confidential Information shall not meaninformation which is (a) in the public domain or subsequently enters thepublic domain through no act or omission of the receiving party;(b) subsequently acquired free of any confidentiality obligation by thereceiving party from a third person having, to the receiving party’s knowledge,no obligation of confidentiality to the disclosing party; (c) known to thereceiving party at the time of disclosure, as established by competent proof;or (d) developed independently by or on behalf of the receiving party,without reliance on or use of any Confidential Information of the other.Notwithstanding the above, before either party discloses ConfidentialInformation which includes technical or scientific information, it will informthe other party of the general nature of such information and the other partymay agree or decline to receive such information, or the parties may negotiatea separate agreement covering such information.  Except as to technical or scientific information, which a partyso agrees to receive, neither party shall have any obligations with respect toany technical or scientific information, which it may learn without referenceto the other party’s Confidential Information.

## 13.2 Obligations.  Neither party shall use the Confidential Information of the otherexcept as permitted or expressly provided under this Agreement.  In addition, each party shall hold allConfidential Information of the other in confidence and shall not publish,disclose or disseminate the same to any other person or entity except asspecified herein.  Each party maydisclose Confidential Information of the other to its employees and consultantswho are bound by confidentiality obligations at least as protective as thosestated herein.  Each party shall takethe same measures to preserve the confidentiality of the ConfidentialInformation of the other as it does for its own Confidential Information, butin no event with less than reasonable care. In addition to the foregoing, either party may disclose ConfidentialInformation disclosed to it by the other party to the extent such disclosure isrequired by law, government agency, governmental regulation, court order orvalid discovery request in connection with a legal proceeding, provided that ifa party is required to disclose another party’s Confidential Information inconnection therewith, it shall provide the other party with prior writtennotice of any such disclosure and a reasonable opportunity to seek confidentialtreatment or a protective order, if appropriate.  In the event that such confidential treatment or protective orderis not obtained, the party required to disclose such Confidential Informationshall disclose only that portion of the Confidential Information which itscounsel advises that it is legally required to disclose.  For the avoidance of doubt, if thisAgreement is required to be filed with any governmental or regulatory agency,the party required to make such filing shall seek confidential treatment of theterms of this Agreement, and shall in any event, redact 

## 

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## those portions of the Agreement that its legal counseladvises may be redacted, but still comply with such filing requirement.

# **14.   TERM AND TERMINATION**

## 14.1 Term. This Agreement shall commence on the Effective Date and shall continuein full force for a period of three (3) years from the Europe Date, unlessearlier terminated as set forth in this Section 14.  The parties may renew this Agreement foradditional one (1) year terms upon mutual written agreement.

## 14.2 Termination for Cause.  If either party breaches any of its materialobligations hereunder, and such breach is not cured within thirty (30) daysafter notice from the other party, the non-breaching party shall be entitled toterminate this Agreement upon written notice.

## 14.3 Termination for Insolvency.  This Agreement may be terminated by eitherparty, on notice: (a) upon the institution by the other party ofinsolvency, receivership or bankruptcy proceedings; or any other proceedingsfor the general settlement of all or substantially all of its debts;(b) upon the institution of such proceedings against the other party,which are not dismissed or otherwise resolved in its favor within sixty (60)days thereafter; (c) upon the other party’s making a general assignmentfor the benefit of creditors; or (d) upon the other party’s dissolution orceasing to conduct business as a going concern, or upon taking action todissolve or to cease business as a going concern.

## 14.4 Termination for Ongoing Force Majeure.  If any of the events described inSubsection 8.2(e) occur and continue for a period of in excess of thirty(30) days, either party shall be entitled to terminate this Agreement uponwritten notice.

## 14.5 Failure to Obtain Regulatory Approvals.  VTAL may terminate this Agreementimmediately, with written notice, if R2, after diligent efforts, fails to obtainFDA approval or CE certification with respect to the R2 Product on, or before,September 30, 2004.  R2 may terminatethis Agreement, immediately, with written notice, if R2, after diligentefforts, fails to obtain FDA or CE certification with respect to the R2 Producton, or before, the third (3rd) anniversary of the Effective Date.

## 14.6 Effect of Termination.

### (a)   Accrued Obligations.  Expiration or termination of this Agreementfor any reason shall not release any party hereto from any liability which, atthe time of such termination, has already accrued to the other party or whichis attributable to a period prior to such termination nor preclude either partyfrom pursuing any rights and remedies it may have hereunder or at law or inequity with respect to any breach of this Agreement.

### (b)   Maintenance.  Each party’s maintenance obligations then in effect will continuein full force and effect with respect to each Customer, until such obligationsexpire by their terms.

### (c)   Continued Right to Sell.  Upon termination of this Agreement, R2 shallhave the right, at its sole option, to purchase all or part of VTAL’s inventoryof the R2 CAD that is not already required to fulfill accepted Customerpurchase orders, at a price equal to the transfer price invoiced to VTAL.  If R2 opts not to buy back VTAL’s inventoryof the R2 Product, VTAL shall have the right to continue to market, distribute,and sell unsold R2 Products in the Territory 

### 

###  

### pursuant to the terms hereof for an additional periodof one hundred eighty (180) days after notice of termination of this Agreement.

### (d)   Limitation on Liability.  In the event of termination by either partyin accordance with any of the provisions of this Agreement, neither party shallbe liable to the other because of such termination, for compensation,reimbursement or damages on account of the loss of prospective profits oranticipated sales or on account of expenditures, investments, leases, inventoryor commitments in connection with the business or goodwill of R2 or VTAL.

### (e)   Survival.  The provisions of Sections 1, 2.7, 3.4, 7.2(b), 8.10, 9.1,10.1-10.7, 11.3, 12, 13, 14.6, 15 and any payment obligations shall survive theexpiration or termination of this Agreement for any reason.

# **15.  GENERAL**

## 15.1 Assignment.  Neither party may assign or transfer this Agreement or any of itsrights and obligation under this Agreement without the prior written consent ofthe other party, except that either party may assign this Agreement in the caseof a merger, sale of stock or assets or other reorganization; provided that anypermitted assignee agrees in writing to be bound by the terms of thisagreement. Subject to the foregoing, this Agreement shall be binding on andinure to the benefit of any permitted assignee.  Any attempted assignment in violation of this Section 15.1shall be void.

## 15.2 Basis of Bargain.  Each party recognizes and agrees that thewarranty disclaimers and liability and remedy limitations in this Agreement arematerially bargained for and that such warranty disclaimers and liability andremedy limitations have been taken into account and reflected in determiningthe consideration to be given by each party to enter into this Agreement.

## 15.3 Counterpart Originals.  This Agreement may be executed in two (2) ormore English language counterparts or duplicate originals, all of which shallbe regarded as one and the same instrument, and which shall be the official andgoverning version in the interpretation of this Agreement.

## 15.4 Entire Agreement.  The terms and conditions herein contained,including exhibits, constitute the entire agreement between the parties andsupersede all previous and contemporaneous agreements and understandings,whether oral or written, including the parties’ term sheet, with respect to thesubject matter hereof.

## 15.5 Expense of Doing Business.  Any and all obligations associated with aparty’s business shall remain the sole responsibility of that party.  Any and all sales and other agreementsbetween a party and its customers are and shall remain that party’s exclusiveresponsibility and shall have no affect on that party’s obligations pursuant tothis Agreement.  Each party shall bearthe entire cost and expense of conducting its business in accordance with theterms of this Agreement.

## 15.6 Export. The parties acknowledge the products contemplated by this Agreement maybe subject to the export control laws and regulations of the United States, andany amendments thereof.  Each partyagrees that it will not transfer, deal with, export or re-export such productsdirectly or indirectly, to (i) any countries that are subject to United Statesexport restrictions, except with appropriate United States governmentapprovals; (ii) any third party who a party knows or has reason to know willutilize them in the design, development or production of 

## 

##  

## nuclear, chemical or biological weapons; or (iii) anythird party who has been prohibited from participating in United States exporttransactions by any federal agency of the United States government.

## 15.7 Foreign Corrupt Practices Act.  In conformity with the United States ForeignCorrupt Practices Act regarding foreign business practices, R2 and itsemployees and agent as well as VTAL and its employees and agents shall notdirectly or indirectly make a payment, promise to pay, or authorize payment, oroffer a gift, promise to give or authorize the gift of anything of value forthe purpose of influencing an act or decision (including a decision not to act)of an official of any government or governmental agency or for inducing suchofficial to use any influence to affect any such governmental act or decision.

## 15.8 Governing Law.  This Agreement shall be governed by the laws of the State ofCalifornia, without regard to its conflicts of law provisions.  The parties expressly exclude application ofthe United Nations Convention for the International Sale of Goods.

## 15.9 Governmental Consent.  VTAL shall be responsible for timely filingsof this Agreement with any required government entities within theTerritory.  If any such governmentalentity objects to this Agreement of any provision hereof, the parties shallhave the right to suspend or discontinue distribution of the R2 Product withinsuch region or country in the Territory.

## 15.10       Independent Contractors.  The relationship of the parties establishedby this Agreement is that of independent contractors, and nothing contained inthis Agreement should be construed to give either party the power to direct orcontrol the day-to-day activities of the other.  All financial and other obligations associated with each party’sbusiness are the sole responsibility of that party.

## 15.11       Injunctive Remedies.  Each party acknowledges that due to thenature of proprietary information, any breach or threatened breach of Sections2.6, 5.3, or 13 would result in irreparable harm to the non-breaching party,for which there is no adequate remedy at law, and therefore, the non-breachingparty shall be entitled to apply for injunctive or other equitable relief torestrain such material breach in addition to other appropriate remedies.

## 15.12       Modification.  No alteration, amendment, waiver,cancellation or any other change in any term or condition of this Agreementshall be valid or binding on either party unless the same shall have been mutuallyassented to in writing by both parties.

## 15.13       No Implied Licenses.  Except for the licenses granted by theexpress terms of this Agreement, each party reserves and retains all right,title, and interest in and to its products, technology, and all IntellectualProperty Rights therein and no right or license shall be deemed granted byimplication, estoppel, or otherwise.

## 15.14       Notices.  Any notice required or permitted to be given by either partyunder this Agreement shall be in writing and shall be personally delivered orsent by commercial courier service (e.g., DHL), or by registered or certifiedmail by the U.S.  Postal Service,postage prepaid, or sent by fax or telecopy and confirmed by first class mail(registered or certified), postage prepaid, to the other party at the addressfirst shown above or at such other address of which such party gives noticehereunder.  If mailed, notices will bedeemed effective five (5) working days after deposit, postage prepaid, in themail.

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## 15.15       Partial Invalidity.  If any provision in this Agreement shall befound or be held to be invalid or unenforceable in any jurisdiction in whichthis Agreement is being performed, then the meaning of said provision shall beconstrued, to the extent feasible, so as to render the provision enforceable,and if no feasible interpretation would save such provision, it shall besevered from the remainder of this Agreement, which shall remain in full forceand effect.  In such event, the partiesshall negotiate, in good faith, a substitute, valid and enforceable provisionwhich most nearly effects the parties’ intent in entering into this Agreement.

## 15.16       Press Releases.  The parties agree to cooperate to issue ajoint press release, approved in writing by each party, promptly afterexecution of this Agreement.

## 15.17       Waiver.  The failure or delay of either party to enforce at any time anyof the provisions of this Agreement, or the failure to require at any timeperformance by the other party of any of the provisions of this Agreement,shall in no way be construed to be a present or future waiver of suchprovisions, nor in any way affect the right of either party to enforce each andevery such provision thereafter.  Theexpress waiver by either party of any provision, condition or requirement ofthis Agreement shall not constitute a waiver of any future obligation to complywith such provision, condition or requirement.

## 15.18       Non-solicitation.

### (a)   Neither party shall solicit for employment,as an employee or a self-employed independent contractor, during the term ofthis Agreement or within six (6) months thereafter, any person who was employedby or a principal of the other party at anytime during the then preceding six(6) month period.

### (b)   For purposes of this Section 15.17, the term“R2” shall include the R2 and any of its affiliates and the term “VTAL” shallinclude the VTAL and any of its affiliates.

### (c)   Breach of this Section 15.17 shall requirethe violating party to pay to the non-violating party, immediately followingthe retention of a person giving rise to the violation, as liquidated damagesand not as a penalty, a sum equal to one hundred percent (100%) of suchperson’s cash salary or other cash compensation (including any cash bonuses,awards or incentives) earned during the twelve (12) month period ending on thedate of such retention (annualized if such person was employed or otherwiseretained by the non-violating party for less than twelve (12) months).

 

Exhibit A:  Development Plan

Exhibit B:  [Reserved]

Exhibit C:  Pricing

Exhibit D:  Workstation and PACSVendors

Exhibit E:  Source Code EscrowAgreement

Exhibit F:  [Reserved]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to besigned by duly authorized officers or representatives as of the date firstabove written.

 
| **R2 Technology, Inc.** |                 |   | **Vital Images, Inc.** |
|-------------------------|----------------------|--------|------------------------|
| By:                     | /s/ Michael S. Klein |   | By:                    | /s/ Jay D. Miller |
| Print Name:             | Michael S. Klein     |   | Print Name:            | Jay D. Miller |
| Title:                  | President & CEO  |   | Title:                 | President & CEO |
| Date:                   | 1/6/03               |   | Date:                  | 1/8/03 |
|                         |                      |        |                        |  |  |  |  |  |  |

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**EXHIBIT A**

**DEVELOPMENTPLAN**

*(To beattached within 14 days of Effective Date)*

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**EXHIBIT B**

**INTENTIONALLYLEFT BLANK**

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**EXHIBITC**

**PRICELIST**

Transfer Price:  The transferprice for R2 Products shall be calculated using the applicable base price forR2 Products (determined by whether R2 Products are sold to Customers locatedeither inside or outside the U.S. as set forth below), less the EstimatedServer Price.

                For purposes ofthe foregoing, “Estimated Server Price” means the estimated price of a Server,based on the average price for all Servers purchased during the first Quarterafter either the Europe Date or the US Date, whichever occurs first.  To the extent the Estimated Server Price issignificantly different from the actual Server price, the Estimated ServerPrice will be adjusted each Quarter based upon the actual price of Servers inthe preceding Quarter.  At the end ofeach Quarter, if the Estimated Server Price for all Servers purchased is lessthan the actual Server price for such Quarter, VTAL shall pay the difference inaccordance with the payment terms set forth in Section 8.10.  If the Estimated Server Price is greaterthan the actual Server price, VTAL will be credited the difference againstpurchases of R2 Products in the next Quarter.

 

 

R2 Products placedin U.S.

Maintenance inU.S.

R2 Products placedoutside U.S.

Maintenanceoutside U.S.

 

Suggested RetailPrice

R2 Products(inside or outside U.S.)

Maintenance insideU.S.

Maintenanceoutside U.S.

 

Notwithstanding thepublished suggested retail price, VTAL shall be solely responsible for settingthe prices of R2 Products and Maintenance to its Customers.

Volume discounts

Cumulative discount:  VTAL willreceive a               discount onunits sold beginning with the       unit and an additional           (              ) discount on units sold beginning with the             unit.

Quarterly discount:  In anyQuarter, VTAL will receive a              discount for units sold beginning with each unit beyond the Quarterlyminimum, and an additional              (          ) discount for units sold beginning with each unit beyondtwice the Quarterly minimum.  By way ofnon-limiting example, assuming that the quarterly minimum was        units, VTAL would receive a            discount on units           sold, and an additional         discount on units       and greater sold.

----

 

For the avoidance of doubt, the cumulative discount and the quarterlydiscount are not mutually exclusive.

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**EXHIBITD**

**WORKSTATIONAND PACS VENDORS**

 

 

1.               “Workstation Vendors”:

•

•

•

•

•

•

 

2.               “PACS Vendors”:

•

•

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**EXHIBIT E**

**R2 ESCROW AGREEMENT**

 

This Escrow Agreement isentered into between R2 and VTAL concurrently with the Product DistributionAgreement (the “Agreement”), and constitutes an Exhibit thereto.   Any capitalized terms not expressly definedin this Escrow Agreement will have the meanings given to such terms in theAgreement.

 

NOW THEREFORE, in consideration of the mutual promises herein, theparties agree as follows:

**1.             DEFINITIONS**

(a)           “Escrow Materials” means thehuman readable, source code of the R2 Product, including any corrections, bugfixes, maintenance modifications, customizations or improvements provided by R2to VTAL, and associated documentation and manuals, provided by R2 hereunder.

(b)           “Triggering Event” means anevent which will trigger the release of the Escrow Materials as set forth inSection 3, and which event will trigger the vesting of VTAL’s rights under thelicense grant in Section 2(a).

**2.             LICEN**SE

(a)           License Grant. Subject to theoccurrence of a Triggering Event and all other terms and conditions of thisEscrow Agreement, R2 hereby grants to VTAL a perpetual, non-exclusive,non-transferable, limited license to use the Escrow Materials internally forthe sole purpose of supporting Customers of the R2 Product, as of the date oftermination or expiration of the Agreement.  VTAL shall not use the Escrow Materials for any other commercialpurposes.  VTAL acknowledges and agreesthat R2 shall not be obligated to provide any support or maintenance for the EscrowMaterials, whatsoever.

(b)           License Restrictions.  VTAL’s rights in the license granted inSection 2 (a) above shall not vest until the occurrence of a TriggeringEvent.  VTAL shall not, and shall notpermit any third party to: (i) modify or create any derivative works basedon the Escrow Materials or any portion thereof; (ii) time-share or otherwiseuse the Escrow Materials to operate a service bureau; (iii) use the EscrowMaterials anywhere other than at VTAL’s business facilities; (v) reproduce the EscrowMaterials other than for archival or back-up purposes; or (vi) use the EscrowMaterials in any way other than as permitted in Section 2(a).

(c)           Escrow Materials Security.**** VTAL shall use the Escrow Materials onlyunder carefully controlled conditions, will treat the Escrow Materials with thesame security measures as VTAL treats its own most valuable trade secrets (butin no event less than a standard of care typical for the treatment of EscrowMaterials).  VTAL shall restrict accessto the Escrow Materials to those employees and third party contractors of VTALwho have agreed to be bound by a confidentiality obligation at least asprotective of R2’s rights as this Escrow Agreement, and who have a need toaccess the Escrow Materials for the purposes allowed in this Escrow Agreement.

(d)           Ownership.  Except for those limited rights expresslygranted in Section 2(a), R2 and its third party licensors retain all right,title and interest in and to the Escrow Materials, including all 

----

 

Intellectual Property Rights therein.  VTAL acknowledges that the license grantedpursuant to this Escrow Agreement is not a sale and does not transfer to VTALtitle or ownership of the Escrow Materials, but only a right of limited use forthe purposes stated herein.   ALL RIGHTSNOT EXPRESSLY GRANTED HEREUNDER ARE RESERVED TO R2.

**3.             TRIGGERING EVENT**

(a)           The Escrow Materials shall bedelivered to VTAL by R2’s designated escrow agent (approved by VTAL), andVTAL’s rights under the license granted in Section 2(a) shall vest only upon abreach by R2, which breach continues uncured for a period of forty (45) daysfrom the date VTAL gives written notice to R2, of any material supportobligation as set out in the Agreement, which support obligation requiresaccess to the Escrow Materials in order to be fulfilled.  For avoidance of doubt, any failure tocomply with such support obligations as a result of a Force Majeure shall notbe deemed a breach for purposes of this Section 3(a).

**4.             TERM AND TERMINATION**

(a)           Term.** **This Escrow Agreement will commence as of the Effective Dateand will remain in full force and effect until termination or expiration of theAgreement or until otherwise terminated as set forth below.

(b)           Termination for Cause.  Either party may terminate this Escrow MaterialsAgreement immediately if the other party fails to cure a material breach withinten (10) days written notice from the non-breaching party of such materialbreach.  R2 may terminate this EscrowAgreement immediately, upon notice, if VTAL breaches any provision of Sections2(b) or 2(c).

(c)           Effects of Termination.  Upon termination of this Escrow Agreementfor any reason: (i) the rights and licenses granted to VTAL hereunder willimmediately terminate; (ii) VTAL shall immediately discontinue any use of theEscrow Materials and shall return or destroy all copies of the EscrowMaterials; (iii) each party shall promptly return or destroy all ConfidentialInformation of the other party; and (iv) Sections 1, 2(d), 4(c), 6, 7 and 8shall survive.

**5.             CONSIDERATION**

(a)           Escrow Fees.  VTAL shall be responsible for all feescharged by the escrow agent for maintaining the Escrow Materials in escrow.

(b)           Taxes.  All fees specified hereunder do not includeand are net of any taxes or duties of any kind which may be imposed by anygovernmental entity on the transactions contemplated by this Escrow MaterialsAgreement, and VTAL shall be solely responsible for all such taxes or dutiesother than U.S. taxes based solely on R2’s income.

**6.             WARRANTY AND DISCLAIMER**

(a)           Limited Warranty.  R2 represents and warrants to VTAL that theEscrow Material will contain the source code for the R2 Product.

(b)           Disclaimer.   EXCEPT AS EXPRESSLY SET FORTH IN 6(a)ABOVE, THE ESCROW MATERIALS ARE PROVIDED “AS IS” WITHOUT WARRANTY OF ANYKIND.  R2 MAKES NO WARRANTIES, WHETHEREXPRESS, IMPLIED, STATUTORY OR OTHERWISE WITH RESPECT TO THE ESCROW MATERIALSINCLUDING THEIR CONDITION, CONFORMITY TO ANY REPRESENTATION OR DESCRIPTION ORTHE EXISTENCE OF ANY LATENT OR PATENT DEFECTS AND R2 SPECIFICALLY 

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DISCLAIMS ALL IMPLIED WARRANTIES OF MERCHANTABILITY,FITNESS FOR A PARTICULAR PURPOSE, AND NON-INFRINGEMENT.  R2 DOES NOT WARRANT THAT THE ESCROWMATERIALS WILL BE ERROR-FREE OR THAT THE ESCROW MATERIALS WILL OPERATE WITHOUTINTERRUPTIONS.

**7.             INDEMNITY**

VTAL shall defend, indemnify and hold harmless R2, its affiliates,employees, officers, directors and agents from and against any and all claims,proceedings, actions, costs, expenses, damages and liabilities arising out ofor related to VTAL’s use of the Escrow Material; provided that R2: (i) promptlynotifies VTAL of any claim, action, suit, or other proceeding for which it isseeking indemnification; (ii) provides VTAL with sole control of the defensethereof; and (iii) provides VTAL, at VTAL’ expense and request, withreasonable assistance and full information with respect thereto.  R2 shall have the right to participate, atits own expense, with counsel of its own choosing in the defense and/orsettlement of such claim, suit or proceeding.

**8.             LIMITATION OF LIABILITY**

EXCEPT FOR A BREACH OFSECTION 2.2 OR 2.3, AND FOR OBLIGATIONS UNDER SECTION 7, IN NO EVENT SHALLEITHER PARTY BE LIABLE TO THE OTHER FOR INDIRECT, INCIDENTAL, SPECIAL OR OTHERCONSEQUENTIAL DAMAGES, INCLUDING WITHOUT LIMITATION DAMAGES FOR LOSS OFPROFITS, DATA OR USE, INCURRED BY EITHER PARTY OR ANY THIRD PARTY, ARISING OUTOF OR RELATED TO THIS ESCROW MATERIALS AGREEMENT WHETHER IN AN ACTION INCONTRACT, TORT, OR OTHERWISE, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THEPOSSIBILITY OF SUCH DAMAGES.   EXCEPTFOR A BREACH OF SECTION 2.2 OR 2.3, AND FOR OBLIGATIONS UNDER SECTION 7, IN NOEVENT SHALL EITHER PARTY’S TOTAL LIABILITYARISING OUT OF OR RELATED TO THISESCROW AGREEMENT EXCEED THE LICENSE FEES PAID BY VTAL TO R2 HEREUNDER.  THE PARTIES AGREE THAT THE FOREGOINGLIMITATIONS REPRESENT A REASONABLE ALLOCATION OF RISK UNDER THIS ESCROWAGREEMENT.

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**EXHIBIT F**

**INTENTIONALLYLEFT BLANK**

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**EXHIBITG**

**TERMSAND CONDITION**

**VITAL IMAGES, INC.**

**SOFTWARE LICENSE AGREEMENT**

 

 

THIS SOFTWARE LICENSE AGREEMENT (“License Agreement”) is made as of_________________, 200__, by and between Vital Images, Inc., 3300 FernbrookLane N., Suite 200, Plymouth, Minnesota 55447 U.S.A. (“Vital Images”) and__________________________________________, having its principal place ofbusiness at ___________________________________________________ (“Licensee”).

 

 

# **RECITALS**

 

A.                                   Vital Images develops and licensesproprietary medical visualization software products (defined below as the“Products”).

 

B.                                     Licensee desires to license and use theProducts, and Vital Images so agrees, subject to the terms and conditions ofthis License Agreement.

 

## **ARTICLE 1: DEFINITIONS**

 

For purposes of this License Agreement, the following words, terms andphrases shall have the following meanings unless the context otherwiserequires:

 

1.1                                 Confidential Information. “Confidential Information” shall mean all information disclosed by VitalImages to Licensee or embodied in the Products, regardless of the form in whichit is disclosed, which relates to markets, customers, products, patents,inventions, procedures, methods, designs, strategies, plans, assets,liabilities, prices, costs, revenues, profits, organization, employees, agents,resellers or business in general of Vital Images, or the algorithms, programs,user interfaces and organization of the Products.

 

1.2                                 Products.  “Products”shall mean only those computer software products in object code form asdescribed in Exhibit A and any related user documentation as released from timeto time by Vital Images, including any later authorized releases or versions ofsuch software or documentation during the term of this License Agreement.

 

## **ARTICLE 2: LICENSE GRANT AND USE**

 

2.1                                 License Grant. In consideration for Licensee’s payment of the applicable license fee,and subject to the terms of this License Agreement, Vital Images hereby grantsto Licensee a nonexclusive, non-transferable license (“License”) to use theProducts only on one (1) computer of the type described in Exhibit B 

----

 

attached hereto (“Designated Equipment”), and only atthe site described in Exhibit B (“Designated Site”).  Licensee must purchase a License for each computer at aDesignated Site on which it desires to install and use the Products.  Licensee’s use of the Products shall be limitedto Licensee’s internal business activities.

 

2.2                                 Restrictions on Use. Licensee shall not engage in, cause or permit the reverse engineering,disassembly, recompilation, modification or any similar manipulation of theProducts, nor may Licensee loan, lease, distribute, assign or otherwisetransfer the Products or copies thereof, in whole or in part, to any thirdparty.  Licensee may not install, use oraccess the Products at or from any location other than a Designated Site, or onany type of computer other than the Designated Equipment, without the priorwritten approval of Vital Images.

 

2.3                                 Copying.  Licenseeshall not copy the Products, except that Licensee may make and maintain one (1)copy of the Products for back-up and archival purposes, provided such copyincludes all Vital Images copyright, proprietary rights and other noticesincluded on or in the Products.

 

2.4                                 Ownership.  All right,title and interest in the Products shall at all times remain the property ofVital Images and its licensors, subject to the Licenses granted to Licenseeunder this License Agreement.  Licenseeunderstands and agrees that it takes title only to the media on which theProducts are provided to it, but that the Products shall remain the propertyof, and proprietary to, Vital Images.

 

## **ARTICLE 3: TERMINATION**

 

3.1           Termination.

 

(a)                                  Either party may terminate this LicenseAgreement at any time if the other party fails to cure its material breachhereof within thirty (30) days after its receipt of notice specifying such breachfrom the other party.

 

(b)                                 Vital Images may terminate this LicenseAgreement at any time immediately upon Licensee (i) becoming insolvent, (ii)commencing, or having commenced against it (without dismissal within sixty (60)days), any bankruptcy, insolvency, liquidation, reorganization or similarproceeding under any U.S. or foreign law, (iii) making an assignment for thebenefit of its creditors, (iv) admitting in writing its inability to satisfyits debts in the ordinary course of business or that its business or financialcondition indicates that it is presently unable to continue as a going concern,or (v) taking an action resulting in or directed to ceasing, on a permanentbasis, its business or relevant operations; or

 

(c)                                  Licensee may terminate this LicenseAgreement or any License granted hereunder at any time by giving written noticeto Vital Images.

 

3.2                                 Effect of Termination of a License. Upon any termination of a License, Licensee shall (a) immediately ceaseall use of the Products licensed pursuant to such License, and (b) certify inwriting to Vital Images within thirty (30) days after such termination thatLicensee has either destroyed, permanently erased or returned to Vital Imagesthe Products and all copies thereof licensed pursuant to such License.

----

 

3.3                                 Effect of Termination of LicenseAgreement.  Upon termination of this License Agreementfor any reason, all Licenses to the Products granted hereunder shallimmediately terminate, and Licensee shall return to Vital Images all ConfidentialInformation.  Articles 2.4, 5, 6, 7, 8and 9 shall survive any termination of this License Agreement.

 

## **ARTICLE 4: ADVERSE REACTIONS; PRODUCT RECALLS**

 

4.1                                 Adverse Event Reporting. Licensee shall advise Vital Images, by telephone or facsimile, withintwenty-four (24) hours after it becomes aware of any adverse event from the useof any Product or malfunction of any Product. Unless otherwise required by applicable local laws, Licensee shalladvise Vital Images of any such adverse event prior to any report or filingbeing made with the U.S. Food and Drug Administration (“FDA”) or any othercomparable regulatory body elsewhere in the world.

 

4.2           Product Recall;Corrective Action.

 

(a)                                  Corrective Action. If Vital Images believes that a corrective action with respect to theProducts is desirable or required by law, or if any governmental agency havingjurisdiction (including without limitation, the FDA) shall request or order anycorrective action with respect to the Products, including any recall, customer notice,restriction, change, corrective action or market action or any Product change,Vital Images or its reseller shall promptly notify Licensee.  Licensee shall comply with all reasonabledirections regarding such corrective action, including the return of theProducts to Vital Images or a reseller at Vital Images’ expense.

 

(b)                                 Refund.  If anyProducts are required to be returned to Vital Images or its resellers pursuantto this Article 4.2 and no replacement is provided therefor by Vital Images,Vital Images shall refund to Licensee any unearned license fees paid (theamount of the license fee Licensee paid for the Products, less a reasonablevalue for use determined by prorating the license fee paid on a thirty-six (36)month straight line amortization method).

##  

## **ARTICLE 5: WARRANTIES; INDEMNIFICATION**

 

5.1                                 Limited Warranty. Vital Images warrants to Licensee for one (1) year from the deliverydate (the “Warranty Period”), that the Products, when properly installed andoperated, will substantially perform the functions described in the functionalspecifications for the Products, as contained in the applicable writtendocumentation for the Products.  VitalImages shall have no obligation to Licensee or any third party under thisArticle 5.1 if (a) the Products have not been properly installed, used ormaintained, whether by Licensee or any third party, in accordance with theLicenses granted hereunder or Vital Images’ then-applicable operating manuals;or (b) the Products have been modified in any manner or are used or combinedwith other computer software programs, hardware or data not supplied by VitalImages and without the prior written consent of Vital Images.

 

5.2                                 Exclusive Remedy. Vital Images’ entire liability, and Licensee’s exclusive remedy, for anywarranty claim made by Licensee under Article 5.1 above during the WarrantyPeriod shall be for Vital Images, at its option, to either (a) replace anydefective media which prevents the Products from satisfying the limitedwarranty described in Article 5.1; (b) attempt to correct any material andreproducible errors reported by Licensee; or (c) terminate this LicenseAgreement and refund the license fee paid for the Products.   Vital Images does not warrant that the operationof the Products will be uninterrupted or error-free, that all errors 

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in the Products will be corrected, that the Productswill satisfy Licensee’s requirements or that the Products will operate in thecombinations which Licensee may select for use.

 

5.3                                 Limited Warranty. Vital Images warrants to Licensee that the Products, when properlyinstalled and operated, will produce no material errors when processing datesprior to, during and after the calendar year 2000.  Vital Images shall have no obligation to Licensee or any thirdparty under this Article 5.3 if (a) the Products have not been properlyinstalled, used or maintained, whether by Licensee or any third party, inaccordance with the Licenses granted hereunder or Vital Images’ then-applicableoperating manuals; (b) the Products have been modified in any manner or areused or combined with other computer software programs, hardware or data; or(c) the material error reported by Licensee is not reproducible by VitalImages.

 

5.4                                 Exclusive Remedy. Vital Images’ entire liability, and Licensee’s exclusive remedy, for anybreach of the warranty in Article 5.3 above shall be for Vital Images, at itsoption, to either (a) attempt to correct such material and reproductive errors,or (b) terminate the License to such Products and refund any unearned licensefees paid (the amount of the license fee Licensee paid for the Products, less areasonable value for use determined by prorating the license fee paid on athirty-six (36) month straight-line depreciation method) with no furtherliability to Licensee.  This Article 5.4states Licensee’s exclusive remedy, and Vital Images and its licensors’ entireliability for any breach of the warranty set forth in Article 5.3.

 

5.5                                 Warranty Disclaimer. THE WARRANTIES SET FORTH IN ARTICLES 5.1 AND 5.3 ABOVE ARE EXCLUSIVE ANDIN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, WHICH ARE HEREBYDISCLAIMED AND EXCLUDED BY VITAL IMAGES, INCLUDING WITHOUT LIMITATION ANYWARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENTOR USE, AND ALL OBLIGATIONS OR LIABILITIES ON THE PART OF VITAL IMAGES FORDAMAGES ARISING OUT OF OR IN CONNECTION WITH THE USE, MAINTENANCE ORPERFORMANCE OF THE PRODUCTS.  Repair orreplacement of all or any part of the Products does not extend the WarrantyPeriod, which shall begin on the delivery date.  Vital Images and its third party licensors expressly disclaim anycommitment to provide maintenance or support of the Products beyond theWarranty Period, in the absence of a Licensee entering into a separate agreementwith Vital Images or its reseller. Furthermore, the Products are derived from and include software fromthird party licensors, who make no warranty, express or implied, regarding theProducts, who disclaim any and all liability for the Products and who will notundertake to provide any information or support regarding the Products.

 

5.6                                 Infringement Indemnity. Vital Images hereby agrees to indemnify, defend and hold Licenseeharmless from any third party suit, claim or other legal action (“Legal Action”)that alleges the Products infringe any United States patent, copyright, ortrade secret, including any award of damages and costs made against Licensee bya final judgment of a court of last resort based upon a Legal Action, providedthat:  (a) Licensee gives written noticeof any Legal Action to Vital Images within fifteen (15) days of Licensee’sfirst knowledge thereof; (b) Vital Images has sole and exclusive control of thedefense of any Legal Action, including the choice and direction of any legalcounsel, and all related settlement negotiations; and (c) Licensee providesVital Images (at Vital Images’ expense for reasonable out-of-pocket expenses)with assistance, information and authority to perform the above.

 

Notwithstanding the foregoing, Vital Images and itslicensors shall have no liability for any Legal Action based on or arising outof:  (a) the failure by Licensee to usea non-infringing version or release of the Products if made available by Vital Images,(b) the combination, operation or use of the Products with software, hardwareor data not furnished by Vital Images, if such Legal Action would have beenavoided by use of the Products without such software, hardware or data, or (c)the use of any Products in a manner for which it was neither designed norcontemplated.

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In the event that the Products are held or arebelieved by Vital Images to infringe, Vital Images shall, at its option andexpense, (a) modify the infringing Products, (b) obtain for Licensee a licenseto continue using such Products, (c) substitute the Products with othersoftware reasonably suitable to Licensee, or (d) if none of the foregoing arecommercially feasible, terminate the License to such Products and refund anyunearned license fees paid (the amount of the license fee paid for theProducts, less a reasonable value for use determined by prorating the licensefee paid on a thirty-six (36) month straight-line amortization method) with nofurther liability to Licensee.

 

This Article 5.6 states Licensee’s exclusive remedy,and Vital Images’ and its licensors’ entire liability, for any infringementclaim related to the Products or their use.

##  

## **ARTICLE 6: LIMITATION OF REMEDIES**

 

6.1                                 Delay.  VITAL IMAGESSHALL NOT BE LIABLE FOR ANY LOSS OR DAMAGE CAUSED BY DELAY IN FURNISHINGPRODUCTS OR SERVICES OR ANY OTHER PERFORMANCE UNDER THIS LICENSE AGREEMENT.

 

6.2                                 Sole Remedies. THE SOLE AND EXCLUSIVE REMEDIES FOR BREACH OF ANY AND ALL WARRANTIES ANDTHE SOLE REMEDIES FOR VITAL IMAGES’ LIABILITY OF ANY KIND (INCLUDING LIABILITYFOR NEGLIGENCE OR PRODUCT LIABILITY) WITH RESPECT TO THE PRODUCTS AND SERVICESCOVERED BY THIS LICENSE AGREEMENT AND ALL OTHER PERFORMANCE BY VITAL IMAGESUNDER THIS LICENSE AGREEMENT SHALL BE LIMITED TO THE REMEDIES PROVIDED INARTICLE 5 OF THIS LICENSE AGREEMENT.

 

6.3                                 Damages Limitation. VITAL IMAGES SHALL HAVE NO LIABILITY OF ANY KIND FOR ANY SPECIAL,INDIRECT, INCIDENTAL OR CONSEQUENTIAL LOSS OR DAMAGE, EVEN IF VITAL IMAGESSHALL HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH POTENTIAL LOSS OR DAMAGE, AND EVEN IF A REMEDY SET FORTH HEREIN ISFOUND TO HAVE FAILED OF ITS ESSENTIAL PURPOSE. THE DAMAGES LIMITATION SET FORTH IN THIS ARTICLE 6.3 SHALL INCLUDE, BUTNOT BE LIMITED TO, ANY LIABILITY FOR DAMAGES ARISING OUT OF OR RESULTINGFROM THE USE, MAINTENANCE OR PERFORMANCE OF THE PRODUCTS, INCLUDING, WITHOUTLIMITATION, THE LOSS OR CORRUPTION OF LICENSEE’S OR ANY THIRD PARTY DATA.  IN NO EVENT SHALL VITAL IMAGES BE LIABLE FORANY DAMAGES IN EXCESS OF THE AGGREGATE AMOUNTS ACTUALLY PAID BY LICENSEE TOVITAL IMAGES UNDER THIS LICENSE AGREEMENT.

## **ARTICLE 7: CONFIDENTIALITY**

 

7.1                                 Confidential Information. All Confidential Information shall be deemed confidential andproprietary to Vital Images, and are the sole and exclusive property of VitalImages.  Licensee may use theConfidential Information during the term of this License Agreement only aspermitted hereunder or as necessary in order to use the Products in accordancewith the License(s) granted hereunder. Licensee shall not disclose or provide any Confidential Information toany third party and shall take reasonable measures to prevent any unauthorizeddisclosure by Licensee’s employees, agents, contractors or consultants duringthe term hereof including appropriate individual nondisclosure agreements.

 

7.2                                 Exclusions.  Thefollowing information shall not be considered Confidential Information underthis Article 7:

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(a)                                  Information which is or becomes in thepublic domain through no fault or act of Licensee;

 

(b)                                 Information which was independentlydeveloped by Licensee without the use or reliance on Vital Images’ ConfidentialInformation; or

 

(c)                                  Information which was provided toLicensee by a third party under no duty of confidentiality to Vital Images.

 

7.3                                 Permitted Disclosure. Nothing in Article 7.1 shall restrict disclosure by Licensee as requiredby applicable law, regulation, or the order of any court or administrativeagency having jurisdiction regarding such matters, provided, however, Licenseegives prompt notice thereof to Vital Images prior to such disclosure.

 

7.4                                 Cooperation. At Vital Images’ request, Licensee shall cooperate fully with VitalImages in any and all legal actions taken by Vital Images to protect its rightsin the Products and in the Confidential Information.  Vital Images shall bear all out-of-pocket costs and expensesreasonably incurred by Licensee in the course of such cooperation.

 

## **ARTICLE 8: ARBITRATION**

 

8.1                                 Dispute Resolution. Except as provided in Article 8.2 below, Vital Images and Licensee shalleach use its best efforts to resolve any dispute between them promptly andwithout resort to any legal process if feasible within thirty (30) days ofreceipt of a written notice by one party to the other party of the existence ofsuch dispute.  The foregoing requirementin this Article 8.1 shall be without prejudice to either party’s right, ifapplicable, to terminate this License Agreement under Article 3.1 above.

 

8.2                                 Litigation Rights Reserved. If any dispute arises with regard to Licensee’s unauthorized use of theProducts or unauthorized use or infringement of Confidential Information, VitalImages may seek any available remedy at law or in equity from a court ofcompetent jurisdiction.

 

8.3                                 Procedure for Arbitration. Except as provided in Article 8.2 above, any dispute, claim orcontroversy arising out of or in connection with this License Agreement whichhas not been settled through negotiation within a period of thirty (30) daysafter the date on which either party shall first have notified the other partyin writing of the existence of a dispute shall be settled by final and bindingarbitration under the then-applicable Commercial Arbitration Rules or, ifLicensee’s principal place of business is outside the United States, theInternational Arbitration Rules of the American Arbitration Association(“AAA”).  Any such arbitration shall beconducted by three (3) arbitrators appointed by mutual agreement of the partiesor, failing such agreement, in accordance with said Rules.  At least one (1) arbitrator shall be anexperienced computer software professional, and at least one (1) arbitratorshall be an experienced business attorney with a background in the licensingand distribution of computer software. Any such arbitration shall be conducted in Minneapolis, Minnesota, U.S.A.in the English language.  An arbitralaward may be enforced in any court of competent jurisdiction.  Notwithstanding any contrary provision inthe AAA Rules, the following additional procedures and rules shall apply to anysuch arbitration:

 

(a)                                  Each party shall have the right torequest from the arbitrators, and the arbitrators shall order upon good causeshown, reasonable and limited pre-hearing discovery, including (i) 

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exchange of witnesslists, (ii) depositions under oath of named witnesses at a mutually convenientlocation, (iii) written interrogatories and (iv) document requests.

 

(b)                                 Upon conclusion of the pre-hearingdiscovery, the arbitrators shall promptly hold a hearing upon the evidence tobe adduced by the parties and shall promptly render a written opinion andaward.

 

(c)                                  The arbitrators may not award or assesspunitive damages against either party.

 

(d)                                 Each party shall bear its own costs andexpenses of the arbitration and one-half (1/2) of the fees and costs of thearbitrators, subject to the power of the arbitrators, in their sole discretion,to award all such reasonable costs, expenses and fees to the prevailing party.

##  

## **ARTICLE 9: MISCELLANEOUS**

 

9.1                                 Assignment.  Licenseeshall not have the right to assign or otherwise transfer its rights orobligations under this License Agreement except with the prior written consentof Vital Images, which consent shall not be unreasonably withheld.  This License Agreement shall be binding onthe parties hereto and their respective successors and permitted assigns.  Any prohibited assignment shall be null andvoid.

 

9.2                                 Notices.  Noticespermitted or required to be given hereunder shall be deemed sufficient if givenby registered or certified mail, postage prepaid, return receipt requested, byprivate courier service, or by facsimile addressed to the respective addressesof the parties as first above written or at such other addresses as therespective parties may designate by like notice from time to time.  Notices so given shall be effective upon (a)receipt by the party to which the notice is given, or (b) on the fifth (5th)day following domestic mailing or the tenth (10th) day followinginternational mailing, as may be the case, whichever occurs first.

 

9.3                                 Exports and U.S. Government Rights. Licensee hereby acknowledges that it will not export or reexport any ofthe Products or technical data (which includes, among other things, anytechnical information relating to the Products, written or otherwise), or anyproduct incorporating any Products or technical data.  The Products are provided with Restricted Rights.  Use, duplication or disclosure by the U.S.government is subject to restrictions as set forth in (a) this LicenseAgreement pursuant to DFARs 227.7202-3(a); (b) subparagraph (c)(1)(i) of theRights in Technical Data and Computer Software clause at DFARs 252.227-7013; or(c) the Commercial Computer Software Restricted Rights clause at FAR 52.227-19subdivision (c)(1) and (2), as applicable. Contractor/manufacturer is Vital Images, Inc., 3100 West Lake Street,Suite 100, Minneapolis, Minnesota 55416 U.S.A.

 

9.4                                 Entire Agreement. This License Agreement, including the Exhibits attached hereto which areincorporated herein, constitutes the entire agreement of the parties withrespect to the subject matter hereof and supersedes all prior agreements by andbetween Licensee and Vital Images as well as all proposals, oral or written,and all prior negotiations, conversations and discussions between the partiesrelated hereto.

 

9.5                                 Amendment.  This LicenseAgreement may not be modified, amended, rescinded, canceled or waived, in wholeor in part, except by written amendment signed by both parties hereto.

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9.6                                 Governing Law. This License Agreement shall be governed by and interpreted under thelaws of the State of Minnesota, U.S.A., excluding (a) its choice of law rules,and (b) the United Nations Convention on the International Sale of Goods.

 

9.7                                 Severability. If any provision of this License Agreement is found unenforceable underany of the laws or regulations applicable thereto, such provision terms shallbe deemed stricken from this License Agreement, but such invalidity orunenforceability shall not invalidate any of the other provisions of thisLicense Agreement.

 

9.8                                 Waiver.  No failureby either party to take any action or assert any right hereunder shall bedeemed to be a waiver of such right in the event of the continuation orrepetition of the circumstances giving rise to such right.

 

9.9                                 Attorneys’ Fees. Subject to Article 8.3, if any action at law or in equity is necessaryto enforce or interpret the terms of this License Agreement, the substantiallyprevailing party shall be entitled to its reasonable attorneys’ fees and costsin addition to any other relief such party may be entitled.

 

9.10                           Counterparts. This License Agreement may be executed by facsimile and in two or morecounterparts in the English language and each such counterpart shall be deemedan original hereof.  In case of anyconflict between the English version and any translated version of this LicenseAgreement, the English version shall govern.

 

9.11                           Further Assurances. The parties shall perform all such further acts, provide such furtherdocuments or written assurances, and execute such further documents as arereasonably required or necessary to carry out the acts and transactionscontemplated by this License Agreement.

 

IN WITNESS WHEREOF, the parties have executed thisLicense Agreement by their duly authorized representatives.

 
| VITAL IMAGES, INC. |   | LICENSEE |
|--------------------|--------|----------|
|               |   |     |
|               |   |     |
|               |   |     |
| By                 |   |     | By |   |
|               |   |     |
| Name               |   |     | Name |   |
|               |   |     |
| Title              |   |     | Title |   |
|                    |        |          |  |  |  |  |  |  |

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**VITAL IMAGES, INC.**

**END USER AGREEMENT**

 

**EXHIBIT A**

**PRODUCTS**

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**VITAL IMAGES, INC.**

**DEMONSTRATION LICENSE AGREEMENT**

 

**EXHIBIT B**

**DESIGNATED EQUIPMENT AND SITE**

 

 

**DesignatedEquipment:**

 

 

 

 

**DesignatedSite:**

 

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**EXHIBIT H**

**MAINTENANCEAND SUPPORT**

 

A.            FirstLevel Maintenance.  During the Warranty Period and for so longas a Customer participates in the Maintenance Program, VTAL shall providetelephone, email, on-site emergency support during normal business days andnormal business hours (as determined locally by the time-zone and customs inthe country in which the R2 Product is installed).  If the problem reported by a Customer is due to amisunderstanding of the documentation or improperly functioning hardware orVTAL Workstation software, VTAL’s shall be solely responsible for resolving theproblem in accordance with the terms of the Maintenance Program.   If the problem is not due to amisunderstanding of the Documentation or improperly functioning hardware or VTALWorkstation software and its cause cannot be determined by VTAL despitecommercially reasonable efforts to determine the cause, VTAL will attempt toduplicate the problem on its own demonstration unit of the R2 Product.  If VTAL determines that the problem reportedby a Customer is due to an error in the R2 Product that VTAL is unable, usingcommercially reasonable efforts, to resolve, VTAL may notify R2 of such errorin accordance with Section B, below.

 

B.            SecondLevel Maintenance.  During the Warranty Period and for so longas a Customer participates in the Maintenance Program, R2 shall usecommercially reasonable efforts to provide to telephone and email support toVTAL regarding the R2 Product during R2’s normal business hours, and to providea fix, patch or workaround for errors that VTAL is unable to resolve inaccordance with Section A, above.  R2,may, in its discretion, provide emergency on-site support to Customers.

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**EXHIBIT I**

**SERVER SPECIFICATIONS**

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**ShowcaseCAD Server Preliminary Specifications**

 

The followingspecification is provided as a guideline. R2 reserves the right to change the specification listed here at anytime.

Specifications for theserver for the integrated solution shall be completed as part of theDevelopment Agreement

 

**ServerHardware for Showcase product**

Standard MicrosoftTM PC compatible platform with dual CPU @2.1 GHz or better with a minimum of 1 GB of RAM

1USB port; standard PS/2keyboard and PS/2 style mouse with 10/100BaseT Ethernet port

1 x 36 GB HD for imagesand system

Peripherals required arestandard IDE CD-RW drive and Floppy Disk drive for 3/5" media

Video board supports24-bit non-interlaced pixel depth with minimum 1024 x 768 pixel resolution at60 Hz minimum with 4 MB video memory

•Supports18 inch SVGA color monitor (not included)

**ServerSoftware**

•RedHatTM LinuxTM Operating System

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