EXHIBIT 10.1


 


DEVELOPMENT, DISTRIBUTION, AND MANUFACTURING AGREEMENT


 


This DEVELOPMENT, DISTRIBUTION, AND MANUFACTURING AGREEMENT (the “Agreement”) is entered into as of March 23, 2005
(the “Effective Date”), by and
between RAPISCAN SYSTEMS, INC., a
California corporation having a principal place of business at 12525 Chadron
Avenue, Hawthorne, California 90250 (“Rapiscan”),
and IMPLANT SCIENCES CORPORATION,
a Massachusetts corporation having a principal place of business at 107 Audubon
Road #5, Wakefield, Massachusetts 01880 (“IMX”).
 Rapiscan and IMX shall be referred to
herein individually as a “Party” and collectively as the “Parties.”


 


RECITALS


 


WHEREAS,
IMX is engaged in the business of developing, manufacturing, marketing, selling
and servicing explosive and toxic substance trace detection devices for the
Security Market (as defined herein);


 


WHEREAS,
Rapiscan is engaged in the business of developing, manufacturing, marketing,
selling and servicing products for the Security Market;


 


WHEREAS, IMX desires
to grant Rapiscan an exclusive license to sublicense, market, sell and service
the Quantum SnifferTM Products, as further defined herein, under a
private label and upon the terms and subject to the conditions set forth
herein;


 


WHEREAS,
Rapiscan desires to provide IMX funding to develop systems and subsystems for
an integrated baggage screening device and [*] for the Security Market; and


 


WHEREAS,
Rapiscan and IMX desire to manufacture and sell the integrated baggage
screening device and [*] resulting from the development of these devices.


 


NOW, THEREFORE, in consideration of the promises and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by each of the Parties
hereto, the Parties agree as follows:


 


1.                                      DEFINITIONS.


 


Capitalized terms used in this Agreement and not otherwise defined
herein shall have the respective meanings set forth below.


 


“Affiliate” means
with respect to any Party, any person or entity that, directly or indirectly,
is controlled by, controls or is under common control with such Party.


 


“Agreement” means this Development, Distribution and
Manufacturing Agreement, together with all exhibits, schedules and appendices
hereto (which are hereby incorporated by reference herein), as the same may be
amended or supplemented from time to time in accordance herewith.


 


“Patent Rights” means all
patents, patent applications and rights to file patent applications that relate
to any QSTM Product or its manufacture, sale, use, design, import
and export and are licensed to, owned or controlled by IMX now or in the
future, including those listed on Exhibit “A”


 










[*]  Information omitted due to confidential
treatment.


 


1





















 


attached
hereto, and including, in each case, any improvements, reissues or extensions
thereof and any foreign counterparts, divisions, continuations or
continuation-in-part of any applications or substitutes therefore including any
applications which may claim priority from patents included in the Patent
Rights, whether listed in Exhibit “A” or otherwise.


 


“Product Approvals” means, for any country or other jurisdiction
in the Territory, those regulatory approvals required for importation, exportation,
promotion, pricing, marketing and sale of the QSTM Products in such
country or other jurisdiction for use in the Territory.


 


“Product Specifications” means
the detailed specifications developed for the QSTM Products..


 


“Proprietary Module” means the IMX Ion Source/Drift Tube
Assembly.


 


“Proprietary Rights” means all proprietary rights and interests
of every nature owned or licensed by IMX, as they relate to the QSTM Products
or any other products which are subject to the terms and conditions herein, whether
now existing or hereafter arising, including
Patent Rights, in, to, related to or covering or incorporated into any Product,
including those relating to their manufacture, sale, use or design and shall
include inventions, ideas, improvements (including Improvements), manufacturing
know-how, technology, trade secrets, and trademarks (including Trademarks (as
defined herein)).


 


 “QSTM Private
Label Products” means the QSTM Products, having a design and
functionality identical to that of the QSTM Products (except for
agreed changes), produced by or exclusively for Rapiscan.


 


“QSTM Products” means only the two (2) following IMX
Quantum SnifferTM products, which are in existence
and available for sale on a private-label basis to Rapiscan, immediately prior
to the Effective Date: (i) a hand-held trace detection device, specifically
known as model no. QS-H100; and (ii) a bench-top trace
detection device, specifically known as model no.  QS-BT100.  QSTM Products
includes any improvements to, and derivatives of, (i) and (ii).


 


“QSTM Proprietary Rights” means all proprietary
rights and interests of every nature owned or licensed by IMX, as they relate
to QSTM Products, whether now existing or hereafter arising,
including Patent Rights, in, to, related to or covering or incorporated into
any QSTM Products, including those relating to their manufacture,
sale, use or design and shall include inventions, ideas, improvements,
manufacturing know-how, technology, trade secrets, and trademarks.


 


“QSTM Technology” means the proprietary  Ion Mobility Spectrometry technology
developed by IMX.


 


“Rapiscan X-ray Products” means the belt-driven X-ray inspection
devices manufactured and sold by Rapiscan.


 


“Regulatory Authority” means any national, supra-national,
regional, state or local regulatory agency, department, bureau, commission,
council or other governmental entity in the Territory.


 


“Security Market” means any and all markets in the Territory,
other than medical or non-destructive testing, related to the provision of
security products and/or services.


 


2





















 


“Standard List Price” means the best price at which IMX has sold
the referenced product, other than distributors, subject to Rapiscan’s audit, measured
at the time of the referenced Rapiscan order, but not taking into account
special promotional pricing given to a third party with Rapiscan’s agreement.  If pricing is lowered within 90 days after a
particular sale of products from IMX to Rapiscan, the newly-lowered price shall
be considered the Standard List Price with respect to that sale; if pricing is
lowered more than 90 days after a particular sale of products from IMX to
Rapiscan, that sale will not be subject to a retro-active discount.


 


“Territory” means the entire world.


 


“Trademarks” means the trademarks described on Exhibit “A”
attached hereto, and any additional trademarks owned or controlled by IMX that
may be used from time to time with respect to the QSTM Products
and/or Improvements, or any other products which are subject to the terms and
conditions herein, whether now existing or hereafter arising


 


2.                                      GRANT OF LICENSE.


 


2.01                           With respect of the QSTM Private Label Products,
and subject to the terms and conditions set forth in this Agreement, IMX hereby
grants to Rapiscan a fully-paid and royalty free (except for the provisions of Section 6)
exclusive right and license to purchase, use, sublicense, market, offer to
sell, sell, import and otherwise exploit the QSTM Private Label Products
throughout the Territory during the Term. 
Subject to the terms and conditions of this Agreement, IMX agrees not to
manufacture, license for manufacture, private-label, provide or sell the QSTM
Products or QSTM Private Label Products to any third party that
manufactures, licenses for manufacture, private-labels, provides or sells X-ray
products to the Security Market, other than Rapiscan as provided for herein,
within the Territory during the Term. 
Notwithstanding the aforementioned, IMX will not be prevented from
marketing and selling the QSTM Products to end-users through its
direct sales force and/or independent third-party distributors (the “IMX
Distributor”).  However, IMX agrees that
it will not sell QSTM Products to the IMX Distributors if the IMX
Distributor represents an X-ray product competitive to the Rapiscan X-ray
Products and intends to bundle the QSTM Product with such
competitive X-ray products, and IMX will procure that its products using QSTM
Technology will never be sold to any manufacturer or seller of X-ray equipment,
other than Rapiscan, and that IMX will not permit its distributors to have
sub-distributors.  During the Term, IMX
further agrees to take all actions reasonably requested by Rapiscan to prevent
such unauthorized sales activity.  The
Parties acknowledge and agree that with respect to any QSTM Private
Label Products, the rights of the Parties as set forth herein shall survive the
termination or expiration of this Agreement on a non-exclusive basis throughout
the Territory in perpetuity.


 


2.02                           With respect to the Development Products (as defined
in Section 5.01), and subject to the terms and conditions set forth in
this Agreement, IMX hereby grants to Rapiscan a fully-paid and royalty free
(except for the provisions of Section 6) exclusive right and license to
purchase, use, sublicense, market, offer to sell, sell, import and otherwise
exploit the Development Products throughout the Territory during the Term.  Subject to the terms and conditions of this
Agreement, IMX agrees not to manufacture, license for manufacture,
private-label, provide or sell the Development Products to any third party.  During the Term, IMX further agrees to take
all actions reasonably requested by Rapiscan to prevent such unauthorized sales
activity.  The Parties acknowledge and
agree that with respect to any Development Products, the rights of the Parties as
set forth herein shall survive the termination or expiration of this Agreement
on a non-exclusive basis throughout the Territory in perpetuity.


 


3





















 


2.03                           If at any time IMX shall cease to sell the QSTM
Products for security and inspection applications, Rapiscan shall then have the
right to manufacture the QSTM Products under the terms set forth
under Section 3.04 of this Agreement, and Rapiscan shall have the
exclusive right in the Territory to market, sell, and offer to sell the QSTM
Products for security and inspection applications.  In the event Rapiscan exercises its right to
manufacture pursuant to this Section 2.03, Rapiscan shall pay IMX a
royalty as set forth in Section 6.01.


 


3.             QSTM PRIVATE LABEL PRODUCTS MANUFACTURE AND SUPPLY; RIGHTS TO PURCHASE.


 


3.01                           Product Orders.  All orders to purchase the QSTM
Private Label Products from IMX shall be on Rapiscan’s standard form of purchase
order and IMX shall deliver the QSTM Private Label Products in
accordance therewith.  The provisions of
this Agreement shall prevail over any inconsistent statements or provisions,
rights and obligations contained in any document related to this Agreement
passing between the Parties, including but not limited to, any purchase order,
acknowledgment, confirmation and/or notice. 
IMX acknowledges and agrees that Rapiscan shall have the right to
purchase the QSTM Private Label Products, upon the terms and conditions
set forth in this Agreement.  The
Proprietary Module of the QSTM Products and QSTM Private
Label Products will be sold by IMX to Rapiscan at no more than [*]per complete
unit.


 


3.02                           Product Specifications; Packaging and Labeling.  All QSTM
Private Label Products manufactured and delivered by IMX hereunder shall be in
full compliance with Product Specifications and shall be ready for end-user
sale, including all packaging, labeling, and instructions for use as approved
by Rapiscan.  All QSTM Private
Label Products shall include the
Rapiscan brand names.  The design, size
and location of each of such brand name shall be determined by Rapiscan in its
sole discretion, and be
labeled (including without limitation bar coding/UPN numbers) in accordance with
the procedures specified from time to time by Rapiscan and Rapiscan shall have
the right to review and comment on all packaging and labeling for the QSTM
Private Label Products sold to Rapiscan on a private label basis.  Rapiscan may, in its sole option, include any
QSTM Private Label Products as a component in any kit or collection
of other products sold by Rapiscan into the Security Market.


 


3.03                           Obligation to Supply.  Subject to
the terms and conditions set forth in this Agreement, during the Term, IMX
shall manufacture, sell and deliver to Rapiscan, and Rapiscan will purchase
from IMX, the QSTM Private Label Products, or Developed Products, or
components thereof (collectively, “IMX Manufactured Products”), in such
quantities as Rapiscan may request from time to time pursuant to the
requirements set forth in Section 3.04. 
Rapiscan shall be responsible for providing reasonable forecasts
pursuant to the requirements set forth in Section 3.04.  If Rapiscan complies with Section 3.04,
then IMX shall be obligated to maintain an adequate inventory of the IMX
Manufactured Products in order to satisfy Rapiscan’s orders throughout the
Territory and during the Term.  IMX shall
deliver all of the IMX Manufactured Products ordered by Rapiscan on the date
specified for delivery in the purchase order or, if no such date is specified,
within sixty (60) days of the date of the purchase order for the QSTM
Private Label Products.  In the event
that Rapiscan places orders exceeding its forecast, IMX shall use its best efforts
to deliver such order at the earliest possible date, but shall not be required
to deliver such order in less than 60 days. 
In the event Rapiscan places an order exceeding 100 units, Rapiscan
shall have the right to require a second manufacturing source for such
units.  At no time shall Rapiscan be
required to provide IMX with any funding in advance with respect to its orders.


 


4





















 


3.04                           Manufacturing Rights.  Rapiscan
shall have the right, but not the obligation, to manufacture (including
assembly) all or some (at Rapiscan’s election) components of the QSTM
Private Label Products, other than the Proprietary Module, and any other
electronic components that IMX currently purchases or manufactures (each a “Component”
and collectively the “Components”) if Rapiscan can do so at a price equal to or
less than the higher of: (a) the price IMX charges to Rapiscan for such
Components; or (b) IMX’s cost as indicated by reasonable documentation.  Upon such election by Rapiscan to manufacture
any Component, IMX shall buy from Rapiscan its entire requirement of that
Rapiscan-manufactured Component.  If IMX
outsources any manufacturing of Components, and receives a bona fide written
offer from an unrelated and non-Affiliated third party whereby such third party
offers to manufacture the Component(s) ordered by IMX from Rapiscan for a price
less than the amount charged by Rapiscan, then Rapiscan shall have the option,
in its sole discretion, to match such third party offer, whereupon IMX shall be
obligated to purchase such Component(s) from Rapiscan at a price equal to the
matched offer.  In the event Rapiscan
elects not to match such third party offer, IMX may elect to have such third party
manufacture the Component(s) on the terms and at the price set forth in such
third party offer.  The Parties
acknowledge and agree that Rapiscan shall have the right to match each and
every offer made by any third party with respect to the manufacture of
Components during the Term.  IMX acknowledges
and agrees that within six (6) months after the Effective Date, IMX shall enter
into good faith discussions with Rapiscan with respect to granting Rapiscan the
exclusive right to manufacture the Proprietary Module such that the Proprietary
Module shall then be a Component hereunder. 
In the event Rapiscan elects to exercise its rights pursuant to this Section 3.04,
then IMX agrees to provide Rapiscan with all specifications, criteria,
standards, custom parts, and tooling
reasonably necessary for Rapiscan to manufacture the Components.  IMX shall also provide such other assistance
and materials that Rapiscan may reasonably request from time to time.  Any and all tooling developed and paid for by
Rapiscan in connection with the manufacturing of Components shall at all times be the exclusive property of Rapiscan.  Upon request, IMX shall supply Rapiscan with
a list of Components with respect to which IMX outsources manufacturing,
including specifications for such Components.


 


3.05                           Forecasts.  Rapiscan shall provide IMX with
monthly rolling 180-day forecasts of its requirements for products or
components under this Agreement, of which the requirements for the first 60
days shall be binding, and the requirements for days 61 through 90 may be
changed by no more than 50%.


 


3.06                           Product Pricing for QSTM Private Label Products.  Rapiscan
shall purchase QSTM Private Label Products at a discounted purchase
price as follows: i) the QS-H100 (ie., Handheld QSTM product) will
initially be discounted by [*] from the Standard List Price for the first 25
units in a calendar year, and [*] from the Standard List Price for subsequent
units in that calendar year, and reviewed periodically to determine mutually
agreed upon adjustments to the discount resulting from efficiencies in the
manufacturing cost of the product, and ii) the QS-BT100 (ie., Benchtop QSTM
product) will be discounted by [*] from the Standard List Price for the first
25 units in a calendar year, and [*] for subsequent units in that year.  The parties agree that single orders in large
quantities will be subject to a negotiated further discount.  Rapiscan may sell any QSTM Private
Label Products at any price it desires, however, in no event shall IMX be
obligated to sell any of such QSTM Private Label Products at a price
lower than the Standard List Price less applicable discount as set forth in
this Section 3.05.  Notwithstanding
the discounts provided for the QSTM Private Label Products set forth
herein, both Rapiscan and IMX shall periodically review the discounts, and make
adjustments as are necessary. 
Notwithstanding the foregoing, if a [*] discount from the lowest price
that IMX charges or has charged any distributor, at the time of a Rapiscan
order or for 120 days thereafter, for the product that Rapiscan ordered, would
result in a lower price


 


5





















 


than the
preceding formulas, IMX shall provide Rapiscan with the lower price calculated
in accordance with this sentence.


 


3.07                           QSTM Private Label Products Installation,
Training and Warranty.  Rapiscan shall perform all installation,
training and shall fulfill the one year warranty service obligations in
accordance with Section 7.  IMX
shall fulfill its spare and warranty obligations set forth in Section 9.


 


3.08                           Payment.  Except as set forth below, IMX shall invoice
Rapiscan for QSTM Private Label Products delivered to Rapiscan in
accordance with this Agreement and the purchase orders therefore at the
purchase price set forth above.  For a
period of one (1) year commencing on the Effective Date, Rapiscan shall pay for
the QSTM Private Label Products, as applicable, within thirty (30)
days of the IMX invoice date for such products, and thereafter, until the
expiration or termination of this Agreement, Rapiscan shall pay for the QSTM
Private Label Products, as applicable, within sixty (60) days of the IMX
invoice date for such products, in each case, provided there is no dispute
regarding the validity of the invoice.


 


3.09                           Demos.  Upon Rapiscan’s request, IMX shall promptly
provide and deliver to Rapiscan five demonstration units of the QSTM
Private Label Products per fiscal year.  The
purchase price for such demonstration units shall be at a [*] discount from the
QSTM Products Standard List Price. 
Rapiscan shall certify that such demonstration units shall not be
resold; in the event that a demonstration unit purchased by Rapiscan is resold,
Rapiscan shall pay IMX the difference between the prices stated in this Section 3.09,
and the price Rapiscan otherwise would have paid.


 


3.10                           Shipping; Risk of Loss.  IMX shall
ship QSTM Private Label Products ordered by Rapiscan hereunder in
accordance with the purchase orders therefore via a common carrier selected by
IMX, FOB IMX’s facility.  Title and risk
of loss shall pass to Rapiscan upon shipment of the QSTM Private
Label Products from IMX’s facility.


 


3.11                           Acceptance.  All QSTM Private Label
Products will be subject to Rapiscan’s acceptance at Rapiscan’s designated
destination point at any time after delivery, which acceptance will not be
unreasonably withheld.  Rapiscan shall
notify IMX within 90 days after delivery of any apparent defect in material or
workmanship or non-conformity of any QSTM Private Label Product to
the Product Specifications, Product Approvals or purchase order.  Rapiscan’s remedy in the event of any defect
is to require IMX to promptly repair or replace, at IMX’s election and sole
cost, the defective QSTM Product. 
Without prejudice to any other right or remedy of Rapiscan, in the event
any QSTM Private Label Product is defective in material or workmanship,
or is otherwise not in conformity with the QSTM Product
Specifications, Product Approvals or the requirements of Rapiscan’s purchase
order, Rapiscan will have the right to reject such QSTM Private
Label Product.  Any QSTM
Private Label Product that has been rejected shall be replaced by and at the
sole expense of IMX promptly after receipt of notice from Rapiscan.  Rapiscan will not be required to pay for any
rejected item, or its shipping costs or any other costs related thereto.  Rapiscan will return all rejected QSTM
Private Label Products to IMX at IMX’s sole expense.


 


3.12                           Changes.  IMX shall not make any significant changes to
its manufacturing processes, any QSTM Private Label Product
(including labeling) or to the QSTM Product Specifications, unless
approved by Rapiscan in writing in advance (which approval shall not be
unreasonably withheld), except to the extent required by law.  IMX shall notify Rapiscan not less


 


6





















 


than seven
(7) days in advance of implementing any significant change to the QSTM
Products or QSTM Product Specifications to be made.  Notwithstanding the aforementioned, should
Rapiscan request new capability or engineering redesign of the QSTM
Private Label Products to provide design modifications or additional
functionality other than what is commercially available in the QSTM Products,
then the cost of such modifications to design and/or functionality will be
borne by Rapiscan on a time and material basis.


 


4.                                      PRODUCT DEVELOPMENT.


 


4.01                           QSTM Baggage Screening Development and
Funding.  IMX shall use its QSTM Technology
to develop the subsystem necessary for integration with the Rapiscan X-ray
Products resulting in an integrated baggage screening device prototype capable
of detecting trace and bulk explosives (the “QSTM Baggage Screening
Prototype”).  Rapiscan shall provide IMX
up to One Million Dollars ($1,000,000) to develop the QSTM Baggage
Screening Prototype based upon a statement of work to be developed within ninety
(90) days of the Effective Date (the “Baggage Screening Statement of Work”).  On the Effective Date, Rapiscan will make an
initial payment of One Hundred Thousand Dollars ($100,000) in order to develop
the Baggage Screening Statement of Work. 
The Baggage Screening Statement of Work shall set forth the specifications,
nature and timing of the work necessary to develop the QSTM Baggage
Screening Prototype and three (3) key milestone dates to be used for purposes
of evaluating the continued feasibility of development (the “Baggage Screening
Milestone Dates”).  Upon acceptance by
Rapiscan of the Baggage Screening Statement of Work (the “Baggage Screening
Development Effective Date”), Rapiscan shall make a payment of Two Hundred
Twenty Five Thousand Dollars ($225,000) to IMX in order to begin the
development of the QSTM Baggage Screening Prototype.  At each Baggage Screening Milestone Date, and
upon mutual agreement of the parties as to continued development of the QSTM
Baggage Screening Prototype, Rapiscan shall pay IMX an additional Two Hundred
Twenty Five Thousand Dollars ($225,000). 
The Baggage Screening Statement of Work shall provide for IMX to use its
best efforts to deliver two (2) QSTM Baggage Screening Prototypes
within twelve (12) months of the Baggage Screening Development Effective Date.  Upon Rapiscan’s request for additional QSTM
Baggage Screening Prototypes, which are not to be used for purpose of resell to
end-user customers without IMX’s consent, IMX will build each additional
prototype and Rapiscan shall pay IMX the cost of material, labor, and overhead,
plus IMX’s G&A costs as set by the Defense Contract Audit Agency (“DCAA”)
rate.  In the event, and at any time,
that Rapiscan shall determine that continued development of the QSTM
Baggage Screening Prototype is not feasible or will not result in a
commercially viable product, then IMX will retain all rights to continue the
development of the QSTM Baggage Screening Prototype and all
exclusive rights to commercialize, manufacture, market, sell, and resell to
third-parties, provided that IMX shall make any such sale only to end-users,
and not to resellers, and Rapiscan shall have no further funding obligations
with respect thereto.  IMX will be under
no obligation to repay any funds provided by Rapiscan and Rapiscan shall have
no rights to demand repayment of any funds provided through the time that
Rapiscan may decide to decline from any further funding of the QSTM
Baggage Screening Prototype development.


 


4.02                           QSTM [*] Development and Funding.  IMX shall
use its QSTM Technology to develop the subsystem necessary for the
development of [*] prototype capable of detecting trace explosives (the “QSTM
[*] Prototype”).  Rapiscan shall provide
IMX up to Two Million Dollars ($2,000,000) to develop the QSTM [*]
Prototype (the “[*] Funding”) based upon a statement of work to be developed
within ninety (90) days of the Effective Date (the “[*] Statement of Work”),
and subject to limitations resulting from government funding as set forth in Section 4.04.  On the Effective Date, Rapiscan will make an
initial payment of One Hundred Thousand Dollars ($100,000) in order to develop
the [*] Statement of Work.  The [*]
Statement of Work shall set forth the specifications, nature and timing of the
work necessary to develop the QSTM [*] Prototype and three (3) key


 


7





















 


milestone
dates to be used for purposes of evaluating the continued feasibility of
development (the “[*] Milestone Dates”).  Upon acceptance by Rapiscan of the [*]
Statement of Work (the “[*] Development Effective Date”), Rapiscan shall make a
payment of Four Hundred Seventy Five Thousand Dollars ($475,000) to IMX in
order to begin the development of the QSTM [*] Prototype.  At each [*] Milestone Date, and upon mutual
agreement of the parties as to continued development of the QSTM [*]
Prototype, Rapiscan shall pay IMX an additional Four Hundred Seventy Five
Thousand Dollars ($475,000).  The [*]
Statement of Work shall provide for IMX to use its best efforts to deliver one
(1) QSTM [*] Prototypes within fourteen (14) months of the [*]
Development Effective Date.  Upon
Rapiscan’s request for additional QSTM [*] Prototypes, which are not
to be used for purpose of resell to end-user customers without IMX’s consent,
IMX will build each additional prototype and Rapiscan shall pay IMX the cost of
material, labor, and overhead, plus IMX’s G&A costs as set by the Defense
Contract Audit Agency (“DCAA”) rate.  In
the event, and at any time, that Rapiscan shall determine that continued
development of the QSTM [*] Prototype is not feasible or will not
result in a commercially viable product, then IMX will retain all rights to
continue the development of the QSTM [*] Prototype and all exclusive
rights to commercialize, manufacture, market, sell, and resell to third-parties,
provided that IMX shall make any such sale only to end-users, and not to
resellers, and Rapiscan shall have no further funding obligations with respect
thereto.  IMX will be under no obligation
to repay any funds provided by Rapiscan and Rapiscan shall have no rights to
demand repayment of any funds provided through the time that Rapiscan may
decide to decline from any further funding of the QSTM Baggage
Screening Prototype development.


 


4.03                           Adjustment to QSTM [*] Prototype Funding.  In the
event that IMX receives a government award for the development of a [*]for the detection of trace explosives, then Rapiscan may
adjust the [*] Funding, for purposes of developing the QSTM [*]
Prototype, as follows:


 


(a)                                  If IMX receives government funding for the
development of [*], Rapiscan’s funding obligation under Section 4.02 shall
be reduced by the amount of such government funding.


 


(b)                                 In the event that Rapiscan’s funding is adjusted under
Section 4.03(a), and on condition that Rapiscan has not determined that
continued development of the QSTM [*] Prototype is not feasible or
will not result in a commercially viable product, then IMX and Rapiscan shall,
in good faith, cooperate to identify additional products to be developed for
the Security Market using the QSTM Technology of types other than
the products described in Sections 4.01 and 4.02 (the “Other QSTM
Development Products”), and funding by Rapiscan in an amount equal to the reduction
in funding under Section 4.03(a) shall be used to fund the Other QSTM
Development Products upon terms and conditions similar to those set forth in
this Agreement.


 


4.04                           Intellectual Property.  Intellectual
property developed by a party in fulfilling its obligations under this
Agreement shall remain the property of that party.  Intellectual property jointly developed under
this agreement shall be jointly owned by the parties.  As used in this section, “intellectual
property” includes rights protectable under patent, copyright, trademark, or
similar rights of any kind.


 


5.                                      DEVELOPED PRODUCTS MANUFACTURE AND
SUPPLY.


 


5.01                           Definition of Developed Products.  As used in this Agreement, the following
terms shall have the indicated meanings:


 


(a)                                  “QSTM Baggage Screening Subsystem” means
the commercial version of the QSTM Baggage Screening Prototype.


 


8





















 


(b)                                 “Integrated Baggage Screening Device” means the
developed device capable of detecting trace and bulk explosives through the
combination of the QSTM Baggage Screening Subsystem and Rapiscan
X-ray Products.


 


(c)                                  “[*] Trace Subsystem” means the commercial version
of the QSTM [*] Prototype.


 


(d)                                 “[*]” means the developed device capable of
detecting trace explosives using the QSTM [*] Trace Subsystem,
exclusive of any other value added components integrated by Rapiscan.


 


(e)                                  “Development Products” means, collectively, the QSTM
Baggage Screening Subsystem and the [*].


 


5.02                           Manufacturing Rights.  In the
event that the Integrated Baggage Screening Device and/or the [*] go into
production, then components of the QSTM Baggage Screening Subsystem or
the [*] Trace Subsystem shall be added to the definition of “Components” under Section 3.04,
and Rapiscan shall have the manufacturing rights set forth therein.  In the event that Rapiscan shall elect to
manufacture all components of either the QSTM Baggage Screening
Subsystem or the [*] Trace Subsystem, then Rapiscan shall pay the royalty set
forth in Section 6.  If Rapiscan
does not elect to manufacture any components of the [*] Trace Subsystem (as
defined below), IMX shall sell the [*] Trace Subsystem to Rapiscan for a price
that is currently estimated to be approximately [*], or if such price is
ultimately agreed to be different, a different price will be negotiated in good
faith with the goal of providing IMX with [*] in small quantities.


 


6.                                      ROYALTIES.


 


6.01                           QSTM Private Label Products
Royalties.  In the event that IMX
withdraws from the business of manufacturing and selling the QSTM Products or QSTM Private Label Products, then
Rapiscan may elect to manufacture and sell the QSTM Products and QSTM Products on an exclusive basis.  In consideration of this exclusive right to
manufacture and sell the QSTM
Products and QSTM
Private Label Products, Rapiscan shall pay to IMX a royalty of [*] on the net
selling price of the QSTM
Products and QSTM
Private Label Products for the first twenty-five (25) units sold within each
fiscal year (prorated for partial years); and ii) if Rapiscan sells more than
twenty-five (25) units in that fiscal year (prorated for partial years), then
royalties on all units sold in that fiscal year shall be [*].  For purposes of this section, “net selling
price” means the selling price of the subject products, less (a) any amounts
paid by Rapiscan to IMX for the purchase of components for those products, and
(b) third party commissions.


 


6.02                           Integrated
Baggage Screening Device Royalties. 
Rapiscan shall pay to IMX a royalty on the sale of the Integrated
Baggage Screening Device as follows: i) [*] of the Baggage Screening Value
Added, as defined herein, for the first twenty-five (25) units sold within each
fiscal year (prorated for partial years); and ii) if Rapiscan sells more than
twenty-five (25) units in that fiscal year (prorated for partial years), then
royalties on all units sold in that fiscal year shall be [*] of the Baggage
Screening Value Added.  The Baggage
Screening Value Added is defined as: i) the difference between Rapiscan’s
selling price of the Integrated Baggage Screening Device and Rapiscan’s selling
price of the comparable Rapiscan X-ray Product, less ii) the price paid to IMX
by Rapiscan for any components purchased by Rapiscan from IMX, and less (iii)
third party commissions.


 


6.03                           [*]Royalties. 
Rapiscan shall pay to IMX a royalty on the sale of the [*] as follows:
i) [*] Net Selling Price, as defined herein, for the first twenty-five (25)
units sold within each fiscal year (prorated for partial years) and ii) if
Rapiscan sells more than twenty-five (25) units in that fiscal year, then
royalties on all units sold in that fiscal year shall be [*] Net Selling
Price.  The [*]


 


9





















 


Net Selling Price is defined as
[*]the total selling price by Rapiscan of the [*]less:
(a) the purchase price paid by Rapiscan to IMX for the [*]and any other
components purchased by Rapiscan from IMX; and (b) third party
commissions.  The [*] Net Selling Price
excludes any value added components added to the [*] by Rapiscan.


 


6.04                           Time
of Payment of Royalties.  With
respect to each fiscal year in which royalties are due hereunder, Rapiscan
shall pay all royalties due hereunder for that fiscal year on or before the
45th day after the end of the fiscal year, delivered concurrently with a
statement indicating the manner in which the royalties were calculated.


 


6.05                           Fiscal
Year.  As used in this Agreement, “fiscal
year” means a yearly period ending June 30.


 


7.                                      PRODUCT
SERVICES OBLIGATIONS.


 


7.01                           QSTM Private Label Products
Services Obligations.  Commencing as
of the Effective Date and after the training of Rapiscan personnel, Rapiscan
shall service the QSTM
Private Label Products sold by Rapiscan under IMX warranty and in accordance
with Rapiscan’s standard service procedures. 
IMX shall use commercially diligent efforts to train Rapiscan
personnel.  IMX acknowledges and agrees
that all QSTM Private
Label Products shall include an IMX warranty in accordance with the terms and
conditions of this Agreement. 
Notwithstanding the foregoing, IMX acknowledges and agrees that Rapiscan
shall have the exclusive right to provide warranty repair services for the QSTM Private Label Products for
the term of any such warranty, as extended. 
Rapiscan shall have the right to provide out of warranty repair service
for the QSTM Private
Label Products for the life of such QSTM Private Label Products upon such terms and conditions
(including prices) as determined by Rapiscan in its sole discretion from time
to time.


 


7.02                           Development
Products Service Obligation. 
Commencing as of the respective effective date of commercial
availability of each of the Integrated Baggage Screening Device and [*],
Rapiscan shall service the Development Products sold by Rapiscan.  IMX acknowledges and agrees that all Development
Product subsystems shall include an IMX warranty in accordance with the terms
and conditions of this Agreement. 
Notwithstanding the foregoing, IMX acknowledges and agrees that Rapiscan
shall have the exclusive right to provide warranty repair services for the
Development Products for the term of any such warranty, as extended.  Rapiscan shall have the right to provide out
of warranty repair service for the Development Products for the life of such
Development Products upon such terms and conditions (including prices) as
determined by Rapiscan in its sole discretion from time to time.


 


8.                                      REGULATORY APPROVALS AND COMPLIANCE.


 


8.01                           General.  IMX shall be responsible, at its sole cost
and expense, notwithstanding those costs that are directly related to research
and development and are funded by Rapiscan in accordance with the provisions of
Section 4, for obtaining, maintaining and complying with all United States
and foreign regulatory requirements and approvals (including all Product
Approvals) necessary to promote and sell the QSTM Products, QSTM
Private Label Products, and Development Products (collectively, the “Products”)
in the Territory during the Term.  Should
Rapiscan manufacture any Components, IMX shall provide Rapiscan with all
information in its possession and such technical assistance as Rapiscan may
reasonably request in order for Rapiscan to obtain, maintain, and comply with
all United States and foreign regulatory requirements and approval (including
Products Approvals) to which it may become subject as a manufacturer of the
Components.  In addition, Rapiscan shall
be responsible for obtaining any import or export licenses that may be required
in order to ship a Product internationally, but IMX shall be obligated to
provide Rapiscan with such technical information and assistance as Rapiscan may
reasonably


 


10





















 


request in order that Rapiscan may submit information
necessary to obtain import or export licenses, as applicable.  IMX shall promptly notify Rapiscan and
provide to Rapiscan a copy or transcription, if available, of any communication
from any Regulatory Authority relating to the Products, the marketing thereof
or any related matter (including copies of all Product Approvals) and shall
keep Rapiscan reasonably apprised of regulatory interactions and similar
activities with governmental authorities and international bodies in connection
with the Products.  In pursuing such
approvals, IMX shall permit Rapiscan, upon reasonable request, to review IMX’s
regulatory and ongoing trial plans (if any) for the Territory.


 


8.02                           Data.  IMX shall provide to Rapiscan copies of its
existing technical and other data related to the Products to support Rapiscan’s
marketing activities.  IMX shall update
the data submissions it makes under this Section 8.02 and provide Rapiscan
with all new data promptly after the same is developed, assembled or comes to
the attention of IMX.  IMX shall also
periodically (and in any event, no less
frequently than once per calendar quarter) provide Rapiscan with a
written report summarizing the progress of all product trials (if any) with
respect to the Products.


 


8.03                           Product Recalls.  (a) If, in the reasonable
judgment of IMX on an individual basis, or in the reasonable judgment of IMX
and Rapiscan on a mutual basis, any Product defect or any government action
requires a recall of, or the issuance of an advisory letter regarding any
Product, either Party may undertake such recall or issue such advisory letter,
after consultation with the other Party. 
Each Party shall notify the other Party in a timely manner prior to
making any recall or issuing any advisory letter.  The Parties shall endeavor to reach an
agreement prior to making any recall or issuing any advisory letter regarding
the manner, text and timing of any publicity to be given such matters in time
to comply with any applicable legal or regulatory requirements, but such
agreement will not be a precondition to any action that either Party deems
necessary to protect users of the Products or to comply with any applicable
governmental orders or mandates.  The
Parties agree to provide reasonable assistance to one another in the event of
any recall or issuance of any advisory letter.  The party responsible for the cause of the recall
shall promptly pay or reimburse the non-responsible party for the reasonable
costs of effecting such recall or issuing such
advisory letter, including costs related to return of recalled Products and
refunding to the non-responsible party any purchase price paid for recalled Products.  Notwithstanding anything in this Agreement to
the contrary, Rapiscan shall have the right to manage any Product recall within
the Territory.


 


(b)                                 In the event of a recall of any Product, IMX shall
correct any deficiency relating to its manufacturing, packaging, testing,
labeling, storing or handling of such product, if applicable, and shall, at
Rapiscan’s option, either, at IMX’s sole cost replace each unit of the Product
recalled (including units held in inventory by Rapiscan or its customers) with
a corrected Product within a reasonable period of time, or refund the full
purchase price therefore. IMX shall reimburse Rapiscan for all costs and
expenses (including shipping, quality control testing, notification and restocking
costs) incurred by Rapiscan as a result of any recall.


 


8.04                           Notices.


 


(a)                                  IMX shall notify Rapiscan immediately if it becomes
aware of any issue with the Products or their testing, manufacture, labeling or
packaging, including any issue relating to regulatory compliance, safety or
efficacy of such products.  Without
limiting the generality of the foregoing, IMX will notify Rapiscan immediately
if it becomes aware of any death or bodily injury caused by a Product (or
suspected to be caused by a Product  or any malfunction of a Product occurring
within the Territory.


 


11





















 


(b)                                 Rapiscan shall notify IMX immediately if it becomes
aware of any issue with a Product or its testing, manufacture, labeling or
packaging, including any issue relating to regulatory compliance, safety or
efficacy of a Product. Without limiting the generality of the foregoing,
Rapiscan will notify IMX immediately if it becomes aware of any death or bodily
injury caused by a Product (or suspected to be caused by a Product) or any
malfunction of a Product.


 


8.05                           Compliance with Laws.  Each Party
will comply with all applicable laws and regulations in the Territory
pertaining to the testing, manufacture, labeling or packaging of the Products and
in any other manner pertaining to performance by such Party of its obligations
under this Agreement, including the maintenance of ongoing quality assurance
and testing procedures to comply with applicable regulatory requirements.  Each Party will also comply with all
applicable laws and regulations of the countries and jurisdictions in the
Territory pertaining to the import, export, distribution, sales and marketing
of the Products.  Without limiting the
generality of the foregoing, IMX or Rapiscan will (i) report to every
applicable Regulatory Authority within any relevant time periods all events
that are required to be reported (including without limitation any death or
serious bodily injury caused by a Product); and (ii) deliver, within the
permitted time periods, all annual or other periodic reports required to be
delivered to every applicable Regulatory Authority.


 


8.06                           Manufacturing Requirements.  Each party will
manufacture the Products in accordance with (a) the Product Specifications, (b)
all applicable regulations, and (c) other pertinent rules and regulations of
the Regulatory Authorities.  The Products
will equal or exceed industry standards of quality, and the manufacturer shall
maintain a quality assurance program that equal or exceeds industry standards,
including compliance with standards published by the International Organization
for Standardization.  Upon the request of
the other party, the manufacturing party shall provide written evidence of
compliance with the criteria set forth in the preceding sentence.


 


8.07                           Rapiscan  Inspection Rights and Regulatory Co-operation.


 


(a)                                  Rapiscan shall have the right to have its
representatives present at the plant or plants at which the Products are
manufactured during normal business hours to conduct an initial and periodic
inspections of such facilities and manufacturing procedures for compliance with
the Product Specifications and Rapiscan’s quality assurance requirements and to
inspect IMX’s inventory of the Products, work-in-process, raw materials to be
used for the Products, production records and such other matters as may be
pertinent to proper quality assurance of the Products to be delivered
hereunder.  Rapiscan agrees to give IMX a
minimum of five (5) days’ prior
notice of any such inspection.  IMX shall
use commercially reasonable efforts to promptly take such action as is required
to correct any deficiencies identified by Rapiscan relating to such facilities
and procedures and/or the production of any Product.  IMX further agrees to use commercially
reasonable efforts to provide such documentation or conduct such analysis as
Rapiscan may reasonably request in connection with any regulatory submission or
audit.


 


(b)                                 IMX agrees to assist Rapiscan in arranging visits
and inspection of the plants at which IMX’s vendors manufacture any component
(if applicable), material, sub-assembly or service for any Product.  Subject to the terms and conditions of this
Agreement, IMX may not outsource manufacturing of sub-components of any
Product, or change any supplier, including engaging a new supplier or changing
an existing supplier, for any component material, sub-assembly or service
relating to any Product without providing ninety (90) days advance
written notice to Rapiscan.


 


12





















 


8.08                           Regulatory Audit.  IMX will permit authorized
representatives of any Regulatory Authority to inspect IMX’s plant and
production facilities relating to or used in connection with the manufacture of
the Products and will promptly notify Rapiscan when IMX receives notice of any
such inspection.  IMX will advise
Rapiscan of the findings of any regulatory inspection and will take the
necessary steps reasonably promptly to correct any compliance deficiencies
found by the Regulatory Authority relating to the production of the Products.  IMX further agrees to use commercially
reasonable efforts to provide to Rapiscan such documentation or conduct such
analyses as Rapiscan may reasonably request in connection with any regulatory
submission or audit concerning the Products.


 


8.09                           Complaints.  IMX will perform complaint
evaluations in order to investigate the cause of any complaints and to
determine any required corrective actions.  IMX will maintain records of such
investigations.  IMX has a period of
seven (7) business days from the time it receives a request from Rapiscan to
perform a complete investigation that contains a root cause analysis, and
corrective action recommendations.  IMX
will also maintain a cross-reference system from IMX’s complaint handling
system to Rapiscan’s complaint handling system. 
IMX will complete all corrective actions, including corrective actions
identified in a response to Rapiscan pursuant to this Section 8.09 or
corrective actions reasonably requested by Rapiscan, within ninety (90) days.


 


9.                                      INTELLECTUAL PROPERTY.


 


9.01                           Trademark License.  Subject to the terms and
conditions of this Agreement, IMX hereby grants to Rapiscan a fully-paid and
royalty-free right and license to use the Trademarks in connection with
sublicensing, promoting, marketing, selling, and/or delivering the Products and
the in the Territory.  Rapiscan shall not
be obligated to use the Trademarks in connection with sublicensing, promoting,
marketing, selling, distributing and/or delivery of any Product.  IMX shall take such actions as are reasonably
required to maintain the Trademarks in effect, and shall inform Rapiscan of any
changes in or additions to the Trademarks. Without limiting the foregoing,
Rapiscan shall be entitled to use its own trademarks, or its Affiliate(s), in
connection with sublicensing, promoting, marketing, selling, distributing
and/or delivering of the Products, which trademarks shall remain at all times
the exclusive property of Rapiscan, or its Affiliate(s) (as applicable).  The Parties acknowledge and agree that the
Trademarks shall remain at all times the exclusive property of IMX.


 


9.02                           Infringement.


 


(a)                                  (a) Each Party will notify
the other Party in writing of any infringement of a Patent Right or Trademark
or any other intellectual property right within thirty (30) days after it
becomes aware of such infringement or unauthorized disclosure.  IMX shall have the exclusive right at its own
cost to take all legal action it deems necessary or advisable to eliminate or
minimize the consequences of any infringement of a Patent Right or Trademark or
any other intellectual property right.


 


(b)                                 IMX shall permit Rapiscan to participate at its own
cost in any legal action brought by IMX to eliminate or minimize the
consequences of any infringement of a Patent Right or Trademark.


 


(c)                                  All proceeds realized upon any judgment or
settlement regarding an action undertaken pursuant to Section 9.02(a)
above and in which Rapiscan participates as described in Section 9.02(b)
above shall be shared on a pro-rata basis in accordance with the out-of-pocket
costs by IMX and Rapiscan with respect to such infringement.  Notwithstanding the foregoing, if IMX


 


13





















 


notifies
Rapiscan in writing that it does not intend to exercise its rights to take
legal action to eliminate or minimize the consequences of an infringement of a
Patent Right or Trademark or any other intellectual property right, then (i)
Rapiscan may pursue legal action with respect of such infringement in its own
name or in the name of IMX at Rapiscan’s sole cost, (ii) IMX shall cooperate
with Rapiscan in connection therewith, and (iii) Rapiscan shall be entitled to
one hundred percent (100%) of the proceeds realized from any judgment or settlement
in connection with such legal action.


 


9.03                           Patent Prosecution.  IMX shall apply for, prosecute
and maintain, during the term of this Agreement, the Patent Rights listed in Exhibit
“A” hereto. IMX shall keep Rapiscan advised as to the issuance or lapse of
any Patent Rights.


 


9.04                           Patent Prosecution Costs.  Payment of
all fees and costs relating to the filing, prosecution and maintenance of the
Patent Rights shall be the sole responsibility of IMX.


 


10.                               CERTAIN OBLIGATIONS OF IMX.


 


10.01                     Product Information.  IMX will
furnish to Rapiscan any and all product handling manuals, sales literature, and
other applicable information relating to the Products, including such
information as is necessary or appropriate for Rapiscan to formulate any other
manuals, promotional materials and warning labels deemed necessary or
appropriate by Rapiscan  (collectively,
the “Product Information”).  IMX
represents and warrants that the Product Information shall be accurate and
complete in all material respects, and undertakes to update any such Product
Information when any information included therein becomes outdated, inaccurate
or misleading.  Rapiscan shall have the
right, but not the obligation, to produce, at its expense and with the approval
of IMX (which approval will not be unreasonably withheld), promotional
material, product handling manuals, instructions for use, warning labels and
other written information relating to the Products which is based in whole or
in part on the material supplied by IMX.


 


10.02                     Training Advice and Assistance.  IMX will
provide reasonable technical assistance and training regarding the Products for
Rapiscan’s representatives as Rapiscan reasonably requests.  IMX shall also provide to Rapiscan other
services or other support information to assist Rapiscan in marketing the Products
as Rapiscan reasonably requests. 
Rapiscan shall be solely responsible for providing training and
assistance to its customers for the use of the Products at its own cost and
expense.


 


11.                               REPRESENTATIONS AND WARRANTIES.


 


11.01                     Mutual Representations and Warranties.  Each of the
Parties hereby represents and warrants to the other that:


 


(a)                                  it is a duly and validly organized and existing
corporation in good standing, in the case of Rapiscan under the laws of the State
of California, and in the case of IMX, under the laws of the Commonwealth of
Massachusetts, and that it or its Affiliates that may be performing its
obligations under this Agreement are legally qualified to do business in each
jurisdiction in which this Agreement may be performed and its activities
hereunder requires such qualification;


 


(b)                                 the performance of this Agreement and the consummation
of the transactions contemplated herein will not result in any breach or
violation of any terms or provisions of, or


 


14





















 


constitute a
default under, its Certificate of Incorporation or Articles of Incorporation,
as applicable, or By-Laws, or other organizational documents, or any material
agreement or instrument to which it is a party, by which it is bound, or to
which any of its property is subject; and


 


(c)                                  all requisite corporate action has been taken for
the due authorization, execution, delivery, and performance of this Agreement
by it, and this Agreement constitutes a legal binding obligation, enforceable
against such Party, in accordance with its terms, except insofar as
enforceability may be limited by bankruptcy, insolvency, reorganization, or
similar laws affecting the rights of creditors generally.


 


11.02                     Product Warranty.  IMX represents and warrants to
Rapiscan that all Products supplied to Rapiscan hereunder shall: (i) conform to
the relevant Product Specifications, (ii) be manufactured, labeled, packaged
and tested (while in the possession or control of IMX) in accordance with the
applicable Product Approvals therefore and the applicable laws and regulations
in each country or jurisdiction within the Territory relating to the
manufacture, labeling, packaging and testing of the Products, (iii) be free from
defects in design, materials and workmanship, (iv) at all times be merchantable
and fit for intended uses, and (v) be free and clear of all liens and
encumbrances.


 


11.03                     Non-Infringement and Ownership.  IMX
represents and warrants to Rapiscan that (i) the Trademarks, Patents, and any
other intellectual property rights underlying the Products now or in the future
do not and shall not infringe the rights of any third parties, and (ii) IMX is
the exclusive owner of the Trademarks, Patents and all other intellectual
property rights related to any of them or the Products, (iii) said Trademarks
and Patents are valid and enforceable and in good standing, and (iv) IMX has
the sole right to use the Trademarks and Patents throughout the Territory as
well as any other intellectual property rights necessary for Rapiscan to
exploit the Products.


 


12.                               INDEMNIFICATION. IMX shouldn’t have any problems with any Rapiscan
infringement, since Rapiscan is downstream.


 


12.01                     Infringement Indemnification with Respect to the
Products.  IMX shall defend, indemnify and hold harmless
Rapiscan, its subsidiaries, parent corporations, Affiliates, officers,
directors, shareholders, partners, employees, agents, and their respective
successors and assigns from and against any claim, suit, demand, loss, damage,
expense (including reasonable attorney’s fees and those that may be asserted by
a third party) or liability (collectively, “Losses”) arising from or related to
an allegation that any Product infringes or misappropriates any intellectual
property right of any third party (including any patent, copyright, trade
secret or trademark).


 


12.02                     Replacement Indemnification.  If any
Product is deemed to be defective, IMX shall, at its own expense, replace the
defective Product, as applicable, with a non-defective product conforming to
the Product Specifications at no additional cost to Rapiscan.


 


12.03                     Other Claims.  Subject to the provisions of Section 12.05
below, each of IMX and Rapiscan (each, in such capacity, an “Indemnifying Party”)
will defend, indemnify and hold harmless the other Party, its subsidiaries,
parent corporations, Affiliates, officers, directors, partners, shareholders,
employees, agents, and their respective successors and assigns (collectively,
in such capacity, the “Indemnitees”) from and against any Losses, including
Losses imposed upon the Indemnitee(s) by any third party, arising from or
related to: (a) any breach of such Indemnifying Party’s representations and
warranties, covenants or obligations under this Agreement; or (b) any


 


15





















 


negligence
or intentional misconduct by such Indemnifying Party (or its employees, agents
or representatives) in performing its obligations under this Agreement. Without
limiting the foregoing, IMX shall defend, indemnify and hold harmless the
Rapiscan Indemnitees from and against any Losses imposed upon the Rapiscan
Indemnitees by any third party arising from or related to any of the Products in
connection with any (i) regulatory claims or any injury, illness or death to
the extent that such injury, illness or death resulted from the act or omission
of IMX (or any person or entity acting on IMX’s behalf), (ii) a breach of any
Product warranty, (iii) Product defect, and (iv) product liability claims.


 


12.04                     Procedure.  A Party seeking indemnification
shall promptly notify the other Party in writing of a claim or suit; provided,
that a Party’s failure to give such notice or delay in giving such notice shall
not affect such Party’s right to indemnification under this Section 12 except
to the extent that the other Party has been prejudiced by such failure or
delay.  Neither Party has any obligation
to indemnify the other Party in connection with any settlement made without the
Indemnifying Party’s written consent. 
The Indemnitee has the right to participate at its own expense in the
claim or suit and in selecting counsel therefore.  The Indemnitee shall cooperate with the Indemnifying
Party as reasonably requested, at the Indemnifying Party’s sole cost and
expense.  The Indemnifying Party shall
not settle any claim or suit without the Indemnitee’s prior written consent
unless such settlement is limited to the payment of cash by the Indemnifying
Party and contains a full release of the Indemnitee.


 


12.05                     Insurance.  At all times during which any
Product is commercially distributed or sold by Rapiscan hereunder, as well as
for a period of seven (7) years thereafter, both Rapiscan and IMX shall procure
and maintain from a reputable insurer reasonably satisfactory to each other’s
insurance, including product liability insurance, adequate to cover its
obligations hereunder and which is consistent with normal business practices of
prudent companies similarly situated. Such insurance policy shall at all times name Rapiscan as an additional insured
thereunder.  It is understood that such
insurance shall not be construed to create a limit of IMX’s liability with
respect to its indemnification obligations under this Section 12.  IMX and Rapiscan shall provide each other
with written evidence of such insurance on or before the Effective Date.  IMX and Rapiscan shall provide each other with
written notice at least fifteen (15) days prior to the cancellation,
non-renewal or material change in such insurance.  IMX shall promptly seek “certification” and “designation”
of the Products under the S.A.F.E.T.Y. Act, as such terms are
defined in such Act.  The parties shall
cooperate and share equally in the costs of obtaining such “certification” and “designation”
for any IMX Future Products or Improvements.


 


13.                               TERM AND TERMINATION.


 


13.01                     Term.  This Agreement shall take effect as of the
Effective Date and shall remain in full force and effect for a period of seven
(7) years from the Effective Date and shall automatically renew for an
additional term of seven (7) years unless and until either Party elects to
terminate this Agreement by providing written notice to the other Party of its
election to terminate this Agreement at least six (6) months prior to the end
of the initial seven (7) year term (the “Term”).


 


13.02                     Termination.


 


(a)                                  Either Party may terminate this Agreement at any
time upon thirty (30) days prior written notice to the other Party in the event
that the other Party shall have materially


 


16





















 


breached
any of its obligations, representations or warranties hereunder and shall not
have cured such breach within ninety (90) days of the receipt of such notice.


 


(b)                                 The Parties may also terminate this Agreement at any
time upon mutual written agreement.


 


13.03                     Change of Control.  This Agreement shall not be
terminated upon a change in control of either Party and, to the extent applicable, the Party undergoing a change of control shall
cause such transferee to assume all of its duties and obligations hereunder.


 


13.04                     Effect of Termination. 
Notwithstanding anything to the contrary contained herein, upon
termination or expiration of this Agreement, IMX shall fill all Product orders
placed by Rapiscan at any time prior to and including the date of termination
or expiration in accordance with the terms of this Agreement.  Further, IMX shall fill all Product orders
placed by Rapiscan with respect to Products which Rapiscan is permitted to
continue to exploit in accordance with Sections 3, 5 and 6, if any, at any time
following the date of termination or expiration of this Agreement (the “Post-Termination
Orders”), provided that, any such Product orders, exclusive of orders for QSTM
Private Label Products, shall be made on terms and conditions which are no less
favorable to Rapiscan than as provided for in this Agreement.  With respect of Post-Termination Orders for
the QSTM Private Label Products, the terms and conditions, including
pricing, will be negotiated in good faith. 
Following the date of such termination or expiration, Rapiscan shall
continue to have all rights necessary or appropriate to manufacture, market, sell
and service such Products (including Products delivered pursuant to
Post-Termination Orders and any Products ordered by Rapiscan prior to
termination or expiration), on a non-exclusive basis in perpetuity, and IMX
shall continue to comply with all of its duties and obligations hereunder
necessary or appropriate to facilitate such activities of Rapiscan.  The termination or expiration of this
Agreement shall not affect the rights and obligations of either Party that may
have accrued prior to the effective date of termination or any obligation that
by its nature or express terms survives termination.


 


14.                               RAPISCAN COMPETITORS.


 


14.01                     Competitors.  During the Term, IMX hereby
acknowledges and agrees that IMX and its Affiliates shall not accept, whether
directly or indirectly, without Rapiscan’s prior written consent, any
investments, solicitations, or any business of any kind whatsoever from any
competitors of Rapiscan or its Affiliates (including without limitation, OSI
Systems, Inc.) who are in direct or indirect competition with the development,
manufacture, marketing or sales of Security Market products similar to those of
Rapiscan or its Affiliates.


 


14.02                     Exclusion of [*].  Notwithstanding the
restrictions set forth in Section 14.01, Rapiscan will allow IMX to engage
in any and all business transactions with [*]and successors, including the distribution
of QSTM Products and use of the QSTM Technology for
integration with [*].  However, IMX will
procure that no products sold by IMX to [*] will be resold, whether directly or
indirectly, to a competitor of Rapiscan.


 


15.                               GENERAL PROVISIONS.


 


15.01                     Governing Law.  This Agreement shall be governed
and construed in accordance with the laws of the State of California without
giving effect to its rules regarding conflicts of laws.


 


17





















 


15.02                     Waiver.  Except as otherwise expressly set forth
herein, no provision of or right under this Agreement shall be deemed to have
been waived by any act or acquiescence on the part of either
Party, its agents or employees, except by an instrument in writing
signed by an authorized officer of each Party. 
No waiver by either Party of any breach of this Agreement by the other
Party shall be effective as to any other breach, whether of the same or any
other term or condition and whether occurring before or after the date of such
waiver.


 


15.03                     Independent Contractors.  Each Party
represents that it is acting on its own behalf as an independent contractor and
is not acting as an agent for or on behalf of any third party.  This Agreement and the relations hereby
established by and between IMX and Rapiscan do not constitute a partnership,
joint venture, franchise, agency or contract of employment.


 


15.04                     Assignment.  Except as set forth in Section 15.03
above, (i) Rapiscan may not assign its rights or obligations hereunder without
the prior written consent of IMX to any person or entity other than an
Affiliate of Rapiscan, and (ii) IMX may not assign its rights or obligations
hereunder without the prior written consent of Rapiscan to any person or entity
other than an Affiliate of IMX. Subject to the limitations herein, this
Agreement shall be binding upon and inure to the benefit of said successors in
interest and permitted assigns of the Parties and shall not be deemed to be for
the benefit of any other person or entity. 
Any such successor or assignee of a Party’s interest shall upon request
expressly assume in writing the performance of all the terms and conditions of
this Agreement to be performed by said Party and such succession or assignment
shall not relieve the assignor of any of its obligations under this Agreement.


 


15.05                     Publicity. 
Except as is necessary for governmental notification purposes
or to comply with applicable laws and regulations or to enforce their
respective rights under this Agreement, and except as otherwise agreed to by
the Parties hereto in writing, the Parties shall (a) keep the material terms of
this Agreement confidential and (b) agree upon the text and the exact timing of
any press release or public announcement relating to the transactions
contemplated by this Agreement.  Such
filing party shall seek confidential treatment for all of or, at a minimum,
those sections of the Agreement containing confidential, proprietary, and trade
secret information.  To the extent
permitted by applicable law, the filing party shall consult with and seek
assistance from the non-filing party in requesting such confidential treatment.


 


15.06                     Notices.  Unless otherwise provided herein, any notice,
report, payment or document to be given by one Party to the other shall be in
writing and shall be deemed given when delivered personally or mailed by
certified or registered mail, postage prepaid (such mailed notice to be
effective on the date which is three business days after the date of mailing),
or sent by reputable overnight courier (such notice sent by courier to be
effective one business day after it is deposited with such courier), and in the
case of Rapiscan, addressed to the attention of President, with a copy to the
attention of the General Counsel, Law
Department, 12525 Chadron Avenue, Hawthorne, California 90250, and in
the case of IMX, addressed to the attention of President at 107 Audubon Road, #5, Wakefield,
Massachusetts 01880, or to such other place as any Party may designate
as to itself by written notice to the other Party.


 


15.07                     Severability.  In the event any provision of
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other term or provision hereof.  The parties agree that they will negotiate in
good faith or will permit a court to replace any provision hereof so held
invalid, illegal or unenforceable with a valid provision which is as similar as
possible in substance to the invalid, illegal or unenforceable provision.


 


18





















 


15.08                     Headings.  Headings of the sections and subsections of
this Agreement are for reference purposes only and shall not limit or affect
the meaning or construction of the terms and conditions hereof.


 


15.09                     Interpretation.  Words such as “herein”, “hereinafter”,
“hereof” and “hereunder” refer to this Agreement as a whole and not merely to a
section or paragraph in which such words appear, unless the context
otherwise requires.  The singular shall
include the plural, unless the context otherwise requires.  Whenever the word “include”, “includes” or “including”
appears in this Agreement, it shall be deemed in each instance to be followed
by the words “without limitation.”


 


15.10                     Entire Agreement; Amendment.  The terms and provisions contained in this
Agreement constitute the entire understanding of the parties with respect to
the transactions and matters contemplated hereby and supersede all previous
communications, representations, agreements and understandings relating to the
subject matter hereof.  No agreement or
understanding amending, supplementing or extending this Agreement shall be
binding upon either Party unless it is in a writing
and signed by the applicable Party. 
Without limiting the foregoing, the parties anticipate that the
Exhibits, annexes and schedules hereto may be amended or supplemented from time
to time by mutual written agreement.


 


15.11                     Counterparts.  This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.


 


15.12                     Specific Performance.  Each Party
acknowledges that it will be impossible to measure in money the damage to the
other Party if a Party fails to comply with the obligations imposed by this
Agreement, and that, in the event of any such failure, the other Party will not
have an adequate remedy at law or in damages. 
Accordingly, each Party agrees that injunctive relief or other equitable
remedy, in addition to remedies at law or damages, is an appropriate remedy for
any such failure and will not oppose the granting of such relief on the basis
that the other Party has an adequate remedy at law.  Each Party agrees that it will not seek, and
agrees to waive any requirement for, the securing or
posting of a bond in connection with any other Party’s seeking or obtaining
such equitable relief.


 


15.13                     Currency.  All payments due hereunder shall be made in
U.S. Dollars.


 


[SIGNATURE PAGE TO
FOLLOW]


 


19





















 


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers, and have duly
delivered and executed this Agreement under seal as of the date first set forth
above.


 


 


	
  RAPISCAN SYSTEMS, INC.

  
	
   

  
	
   

  
	
  By:

  	
  /s/ Deepak Chopra

  	
   

  
	
   

  	
  Name: Deepak Chopra

  
	
   

  	
  Title: Chairman and CEO, OSI Systems Inc.

  
	
   

  
	
   

  
	
  IMPLANT SCIENCES CORPORATION

  
	
   

  
	
   

  
	
  By:

  	
  /s/ Anthony J. Armini

  	
   

  
	
   

  	
  Name: Anthony J. Armini

  
	
   

  	
  Title: Chairman and CEO

  
					



 


20





















 


Exhibit “A”


 


PATENTS AND TRADEMARKS


 


	
  Filing Date

  	
   

  	
  Title

  
	
  3/5/02

  	
   

  	
  18-0 Oxide Cyclotron Targets for 18F
  Production.

  
	
   

  	
   

  	
   

  
	
  11/14/02

  	
   

  	
  Cyclone Sampling Nozzle for an Ion Mobility
  Spectrometer.

  
	
   

  	
   

  	
   

  
	
  11/14/02

  	
   

  	
  Radiative Sample Warming for IMS.

  
	
   

  	
   

  	
   

  
	
  1/22/03

  	
   

  	
  Explosives Detection System.

  
	
   

  	
   

  	
   

  
	
  1/7/04

  	
   

  	
  Virtual Wall Gas Sampling for an Ion
  Mobility Spectrometer.

  
	
   

  	
   

  	
   

  
	
  4/5/04

  	
   

  	
  Modified Vortex for Ion Mobility
  Spectrometer.

  
	
   

  	
   

  	
   

  
	
  5/25/04

  	
   

  	
  Pulsed Vapor Desorber.

  
	
   

  	
   

  	
   

  
	
  7/14/04

  	
   

  	
  Flash Vapor Sampling for a Trace Chemical
  Detector.