Exhibit 10.24
DEVELOPMENT
AGREEMENT
THIS DEVELOPMENT AGREEMENT (“
Agreement ”) is made effective this 8
th day of January, 2009 (the “
Effective Date ”), by and between Toshiba Medical
Systems Corporation, a Japanese corporation, having its place of
business at 1385 Shimoishigami, Otawara-Shi, Tochigi 324-8550,
Japan (“ Toshiba ”) and Vital Images, Inc.,
a Minnesota corporation having its principal place of business at
5850 Opus Parkway, Suite 300, Minnetonka, Minnesota 55343 USA
(“ Vital Images ”).
RECITALS
A.
Vital Images is in the business of
developing and licensing proprietary medical visualization
application software products.
B.
Toshiba is in the business of
developing and marketing proprietary medical visualization scanners
and related hardware and software products.
C.
Toshiba and Vital Images
desire to collaborate to develop and commercialize
visualization application software.
NOW THEREFORE, in consideration of the terms,
covenants, premises and conditions contained herein and for other
good and valuable consideration, the parties hereto agree as
follows:
1. Definitions
a.
“
Affiliate ” of a person means another person that
directly or indirectly controls, is controlled by or is under
common control with the first person and, for this purpose, the
term “control” (and the terms
“controlling”, “controlled by” and
“under common control”) means the possession, direct or
indirect, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership
of voting securities, by contract, or otherwise.
b.
“ Agreed
Royalties ” means the stream of running royalty payments
payable by Vital Images to Toshiba in consideration of the grant of
the Non-Exclusive License, as determined in accordance with the
following provisions. Promptly after the determination of the Fair
Market Value of the Option Rights, Toshiba and Vital Images shall
negotiate in good faith, using the most recent information
available which is capable of verification (including the Fair
Market Value of the Option Rights), with a view to determining the
Agreed Royalties, including the amount, frequency and duration of
the payments. If Toshiba and Vital Images are unable to agree
on the Agreed Royalties within thirty (30) days of the
determination of the Fair Market Value of the Option Rights, then
the Parties shall submit to mediation and, if necessary,
arbitration in accordance with the principles and procedures set
forth in the definition of
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“Fair
Market Value of the Option Rights”, which shall apply to the
determination of the Agreed Royalties, mutatis mutandis ,
provided that the relevant time periods therein shall commence as
at the end of the 30-day period referred to above. In
the event the Fair Market Value of the Option Rights has been
determined through mediation or arbitration, the parties agree to
appoint, subject to their availability, the same mediators and
arbitrators to determine the Agreed Royalties as were appointed to
determine the Fair Market Value of the Option
Rights.
c.
“
Algorithm ” means the mathematical equation underlying
the process of identifying structures and calculating values that
guides the development of a software application, whether or not
patentable.
d.
“ Change
in Control ” shall mean (i) any merger, statutory
share exchange or consolidation of a party with or into any third
party, that entitles the shareholders of the third party to receive
at least one (1) seat on the board of directors and at least
thirty-three and one-third percent (33-1/3%) of the outstanding
capital stock of the post-merger company (provided, however, that
any acquisition merger, statutory share exchange or consolidation
of a party with or into * * *, * * *, and * * * or any of their
affiliates that entitles any such company of at least
thirty-three and one-third percent (33-1/3%) of the outstanding
capital stock of Vital Images shall be a Change in Control, whether
or not such entity also receives a seat on the board of directors
of Vital Images; (ii) any third party becoming the holder of a
majority of the capital stock of a party entitled to vote generally
for the election of directors; or (iii) the sale, lease,
assignment, transfer or other conveyance of all or substantially
all of the assets of a party in any transaction or series of
transactions by such party. In case of “Change in
Control” of either party, that party shall assure that the
acquiring equity shall agree to honor and fullfill the obligation
of the party as contained in this Agreement.
e.
“
Confidential Information ” means, in relation to any
Party, any confidential or proprietary information of such Party,
whether in written, graphic, electronic, oral or physical form,
including without limitation, (i) all Intellectual Property of
such Party (including without limitation its Background Rights,
Foreground Rights and Jointly-Owned Foreground Rights),
(ii) any Product Development Plan, (iii) the terms of
this Agreement, and (iv) the Parties’ discussions in
connection with any of the foregoing. The term
“Confidential Information” shall not include any
information which (1) is or becomes generally available to the
public or the industry other than as a result of a breach of this
Agreement by the recipient Party; (2) becomes available to the
recipient Party on a non-confidential basis from a third party
which, to the knowledge of the recipient Party (after reasonable
inquiry), is not bound by any obligation of confidentiality to the
disclosing Party in respect of such information; (3) the
recipient Party can establish by its written records was already in
its possession on a non-confidential basis prior to disclosure by
or on behalf of the disclosing Party; (4) the recipient Party
can establish by its written records was
* * * Confidential Treatment has been requested,
the portion indicated has been redacted and the redacted portion
has been separately filed with the Securities and Exchange
Commission.
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independently
developed by the recipient Party without the use of any
Confidential Information of the disclosing Party; or (5) is
the subject of a written consent to disclose by the disclosing
Party or otherwise is expressly acknowledged or agreed in writing
by the disclosing party to not be or no longer be confidential or
proprietary information.
f.
“
Documentation ” means user documentation created by
Vital Images for use with the Project Software.
g.
“ Fair
Market Value of the Option Rights ” means the fair market
value of the Option Rights as at the date of occurrence of a Change
in Control (but immediately prior, and without giving any effect,
to such Change in Control), as determined in accordance with the
following provisions. Toshiba and Vital Images shall
negotiate in good faith, using the most recent information
available which is capable of verification, with a view to
determining the Fair Market Value of the Option Rights. If
Toshiba and Vital Images are unable to agree on the Fair Market
Value of the Option Rights within thirty (30) days of the
occurrence of a Change in Control or a mutually-agreed upon longer
period of time (the “ Negotiation Period ”),
Toshiba and Vital Images shall attempt to establish the Fair Market
Value of the Option Rights by submitting, within ten (10) days
following the expiration of the Negotiation Period, to non-binding
mediation in accordance with the Model Procedures for the Mediation
of Business Disputes promulgated by the Center for Public Resources
(“ CPR ”) then in effect, except where those
procedures conflict with the terms and conditions of this
definition, in which case this definition shall control. The
mediation shall be conducted in the Borough of Manhattan in New
York, New York and shall be attended by senior executives of
Toshiba and Vital Images with authority to make binding decisions
with respect to the Fair Market Value of the Option Rights.
The mediator shall be experienced in mediating intellectual
property right disputes and appointed from the list of neutrals
maintained by CPR. Following their submission to non-binding
mediation, Toshiba and Vital Images shall promptly confer in an
effort to select a mediator by mutual agreement. In the
absence of such an agreement, the mediator shall be selected from a
list generated by CPR with each of Toshiba and Vital Images having
the right to exercise challenges for cause and two
(2) peremptory challenges within five (5) days after
receiving the CPR list. The mediator shall confer with
Toshiba and Vital Images to design procedures to conclude the
mediation within no more than twenty (20) days after
initiation. No statements or offers (written, electronic,
verbal or otherwise) made by Toshiba and Vital Images during the
mediation may be used by the other in any subsequent arbitration or
litigation (other than in respect of any fraud). If Toshiba
and Vital Images are unable to determine the Fair Market Value of
the Option Rights through mediation, Toshiba and Vital Images
shall, within ten (10) days following the expiration of the
mediation period set forth above, submit the issue of determination
of the Fair Market Value of the Option Rights to binding
arbitration pursuant to the Rules of the American Arbitration
Association for Commercial Arbitration then in effect, except where
those rules
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conflict with the
terms and conditions of this definition, in which case this
definition shall control. Concurrently with its submission to
arbitration, each of Toshiba and Vital Images shall (i) select
an arbitrator (each a “ Valuing Arbitrator ”)
who is unaffiliated with such Party and experienced in arbitrating
intellectual property disputes and (ii) notify the other in
writing of the identity of the arbitrator so selected. In the
event that Toshiba or Vital Images shall fail to timely select its
Valuing Arbitrator, such Valuing Arbitrator shall be selected by
the office of the American Arbitration Association (or any
successor thereto) located in the Borough of Manhattan in New York,
New York. The Valuing Arbitrators shall, within twenty (20)
days following their selection, select a third arbitrator (the
“ Deciding Arbitrator ” and collectively with
the Valuing Arbitrators, the “ Arbitrators
”). If the Valuing Arbitrators are unable to agree on
the Deciding Arbitrator, within such twenty (20)-day period, then
the Deciding Arbitrator shall be selected by the office of the
American Arbitration Association (or any successor thereto) located
in the Borough of Manhattan in New York, New York. Each of
Toshiba and Vital Images shall pay the fees and expenses of the
Valuing Arbitrator selected by it. The fees and expenses of
the Deciding Arbitrator shall be borne equally by Toshiba and Vital
Images. The arbitration hearing shall be conducted in the
Borough of Manhattan in New York, New York and conclude no later
than sixty (60) days after the date on which the Deciding
Arbitrator is selected. The Arbitrators shall set a date for
the arbitration hearing; make determinations based solely on the
documents and other evidence presented at the arbitration hearing;
commit to the rendering of a determination of the Fair Market Value
of the Option Rights within twenty (20) days after the conclusion
of the arbitration hearing (the date on which such arbitration
hearing concludes being hereinafter referred to as the “
Conclusion Date ”) and provide discovery according to
the time limits specified herein, giving recognition to the
understanding of Toshiba and Vital Images that they contemplate
reasonable discovery, including document demands and depositions,
but that such discovery be limited so that the time limits
specified herein may be met without undue difficulty. In no
event shall the Arbitrators allow either Toshiba or Vital Images to
obtain more than a total of thirty (30) hours of deposition
testimony from all witnesses, including both fact and expert
witnesses. In the event multiple hearing days are required,
they shall be scheduled consecutively to the greatest extent
possible. The Arbitrators shall, within twenty (20) days
after the Conclusion Date, render a written opinion (the “
Valuation Opinion ”) to each of Toshiba and Vital
Images setting forth in reasonable detail the Fair Market Value of
the Option Rights and the criteria upon which such value is
based. The Fair Market Value of the Option Rights established
shall be final and binding on Toshiba and Vital Images.
Neither Toshiba nor Vital Images may apply to any court to vacate,
modify or appeal the Fair Market Value of the Option Rights as
established pursuant to this definition, but may apply to an
appropriate court solely for the purpose, if necessary, of
enforcing the recognition of the Fair Market Value of the Option
Rights as established pursuant to this definition.
Notwithstanding the foregoing, Toshiba or Vital Images may seek to
vacate or modify the Fair
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Market Value of
the Option Rights as established pursuant to this definition solely
on the grounds of fraud or miscalculation of figures.
h.
“
Foreground Rights ” means any Patents, Algorithms or
other Intellectual Property authored, conceived and/or reduced to
practice by Toshiba and/or Vital Images employees or agents during
the Term pursuant to this Agreement or any Product Development
Plan.
i.
“
Intellectual Property ” means all forms of
intellectual property in any jurisdiction and under any law,
whether now or hereafter existing, including (a) Patents;
(b) Algorithms; (c) trade secrets and other confidential
or non-public business information, including, ideas, formulas,
compositions, inventor’s notes, discoveries, improvements,
concepts, know-how, manufacturing and development information, data
resulting or derived from research activities, inventions,
invention disclosures, unpatented blue prints, drawings,
specifications designs, plans, proposals and technical data,
business and marketing plans, market surveys, market know-how and
customer lists and related information; (d) copyrights,
whether or not registered, and any non-registered copyright to any
writings and other copyrightable works of authorship, including
source code, object code, documentation (whether or not released),
and databases; (e) integrated circuit topographies and mask
works; (f) features of shape, configuration, pattern or
ornament; and (g) registrations of, and applications to
register, any of the foregoing with any governmental entity and any
renewals or extensions thereof and all other rights to any of the
foregoing, but excluding trademarks and related rights.
j.
“
Jointly-Owned Foreground Rights ” means any Foreground
Rights (including any improvements, modifications or derivative
works thereto) authored, conceived and/or reduced to practice
jointly by both Toshiba and Vital Images employees or agents in the
performance of a Product Development Plan. Notwithstanding the
foregoing, any source code written by, on behalf of or with the
participation of Vital Images, its employees or agents is not a
part of Jointly-Owned Foreground Rights, regardless whether such
source code is part of Project Software and even if Toshiba
employees or agents participate in the creation of such source
code. For purposes of clarity, the fact that the development of
Foreground Rights by Vital Images employees or agents may be funded
in whole or in part by Toshiba does not make such Foreground Rights
Jointly-Owned Foreground Rights unless Toshiba employees or agents
also authored, conceived and/or reduced to practice such Foreground
Rights.
k.
“
Party ” means each of Toshiba and Vital Images, and
their respective successors and assigns.
l.
“
Patents ” means inventions, discoveries, patent
applications, patents (including letters patent, industrial
designs, and inventor’s certificates), design registrations,
invention disclosures, and applications to register industrial
designs, and any and all rights to any of the foregoing anywhere in
the world,
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including any
provisionals, substitutions, extensions, supplementary patent
certificates, reissues, re-exams, renewals, divisions,
continuations, continuations in part, continued prosecution
applications, and other similar filings or notices provided for
under the laws of the United States or of any other
country.
m.
“
Product Development Plan ” means a written statement
of work with respect to particular Project Software that is
executed by Toshiba and Vital Images in substantially the form of
Exhibit B attached hereto.
n.
“
Product Development Plan Commencement Date ” means,
with respect to each Product Development Plan, the date work is to
begin on such Product Development Plan (which shall be noted on
such Product Development Plan).
o.
“
Product Roadmap ” is defined in
Section 3.b.
p.
“
Project Software ” means software or clinical
applications developed pursuant to this Agreement, as more fully
described in a Product Development Plan. Project Software may
be based on, covered by, incorporate or use Toshiba Background
Rights, Toshiba Foreground Rights, Vital Images Background Rights,
Vital Images Foreground Rights, or Jointly-Owned Foreground Rights,
and such underlying rights are not within the definition of
“Project Software”. Each Product Development Plan will
specifically describe the Project Software to be developed pursuant
to such Product Development Plan.
q.
“
Release of Project Software ” means achievement of
Vital Images Milestone 3 (M3), i.e. , the completion of
testing and fulfillment of release requirements of Project
Software, as more fully described in the Product Development Plan
applicable to such Project Software.
r.
“
Reseller Agreement ” means the Marketing and
Distribution Agreement between Toshiba and Vital Images dated as of
November 21, 2008, and effective as of January 1, 2009,
as amended, restated, supplemented, extended, renewed or otherwise
modified from time to time.
s.
“ Silent
Period ” means any period of time during the Term during
which no Product Development Plans are active.
t.
“
Specifications ” means instructions, drawings,
technical specifications and any other requirements for the Project
Software agreed between Toshiba and Vital Images.
u.
“ Third
Party Tools ” means programming, development, or other
tools of third parties that Vital Images desires to use or does use
or incorporates in the Project Software or
Documentation.
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v.
“
Toshiba Background Rights ” means any Intellectual
Property authored, conceived and/or reduced to practice by Toshiba
(i) prior to the Effective Date, (ii) after the
expiration or termination of this Agreement or (iii) during
the Term but which is outside the scope of the work contemplated by
any Product Development Plan.
w.
“
Toshiba Competitor ” means (i) each of * * *, * *
*, and * * * and their respective Affiliates and (ii) each of
the medical visualization subsidiaries or businesses of the
entities in subsection (i), if and when such subsidiaries or
business is no longer owned by such entities.
x.
“
Toshiba Field of Use ” means software residing on
modality scanner hardware and any related consoles that is
developed, manufactured, promoted, marketed, sold and/or
distributed by or on behalf of Toshiba.
y.
“
Toshiba Foreground Rights ” means any Foreground
Rights authored, conceived, and/or reduced to practice solely by
Toshiba’s employees or agents.
z.
“ Vital
Images Background Rights ” means any Intellectual
Property authored, conceived and/or reduced to practice by Vital
Images (i) prior to the Effective Date, (ii) after the
expiration or termination of this Agreement or (iii) during
the Term but which is outside the scope of the work contemplated by
any Product Development Plan.
aa.
“ Vital
Images Field of Use ” means software for medical
visualization that is developed, manufactured, promoted, marketed,
sold and/or distributed by or on behalf of Vital
Images.
bb.
“ Vital
Images Foreground Rights ” means any Foreground Rights
authored, conceived, and/or reduced to practice solely by Vital
Images’ employees or agents. Notwithstanding the
foregoing, any source code written by, on behalf of or with the
participation of Vital Images, its employees or agents is not a
part of Vital Images Foreground Rights, regardless whether such
source code is part of Project Software.
cc.
“ Work
Product ” means all reports, designs, data, test results,
drawings, models, algorithms, instructions, specifications, notes,
analysis, memoranda, designs, software, object code, source code,
plans, records, hardware, manuals, documents, prototypes, trade
secrets, inventions, discoveries, works of authorship, deliverables
and other materials and work products created or made by or on
behalf of a Party pursuant to this Agreement.
2.
Development of Project
Software.
a.
Product
Development Plans . From time to time
during the Term of this Agreement, Toshiba and Vital Images may
enter into Product Development
* * * Confidential Treatment has been requested,
the portion indicated has been redacted and the redacted portion
has been separately filed with the Securities and Exchange
Commission.
7
Plans with
respect to Project Software. Upon the execution of a
Product Development Plan, Vital Images shall begin developing the
Project Software described in such Product Development Plan in
accordance with the schedule and other terms set forth in such
Product Development Plan and the other terms and conditions set
forth in this Agreement.
b.
Changes to
Product Development Plans . The Parties may amend
a Product Development Plan at any time by mutual written agreement.
Any changes or amendments shall be made in accordance with Vital
Images’ change control process.
c.
Cooperation
. The
performance of the development contemplated hereunder shall be
coordinated by the Project Managers (defined in
Section 3). The Parties agree that the successful
completion of any development activities is largely dependent upon
the cooperation and the regular exchange of information between the
Parties. The Parties shall facilitate the development
contemplated hereunder through the regular exchange of
information. Each Party shall inform the other without undue
delay about any delays in the performance under any ongoing Product
Development Plan or the achievement of any milestones under any
ongoing Product Development Plan.
d.
Release of
Project Software . Upon Release of
Project Software with respect to any Project Software described in
a Product Development Plan (the date of Release of Project
Software, the “ Release Date ”), such Project
Software shall become a “Product” (as such term is
defined in the Reseller Agreement) and shall be subject to all
terms and conditions of the Reseller Agreement. The Parties
shall agree upon pricing for the Project Software and shall amend
Exhibit E to the Reseller Agreement to reflect the pricing for
the Project Software that the parties have agreed upon. The
Product Development Plan shall terminate on the Release Date of the
related Project Software. For purposes of clarity, ownership
of Project Software, including the source code and object code,
shall remain with Vital Images (subject to Toshiba’s rights
in any Toshiba Background Rights, Toshiba Foreground Rights or
Jointly-Owned Foreground Rights incorporated therein) and Toshiba
shall have no rights to reverse engineer or decompile such Project
Software.
e.
Toshiba
Exclusive Resell Period . With respect to
Project Software that becomes a Product as described above,
notwithstanding any provisions to the contrary in any other
agreement between the parties, Toshiba shall have the exclusive
right to resell such Product in accordance with the Reseller
Agreement, until the date that is one hundred eighty (180) days
after the Release Date (the “ Exclusive Period
”). Vital Images agrees that it will not sell, license,
sub-license or otherwise transfer or dispose of such Product to any
person other than Toshiba during the applicable Exclusive
Period.
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3.
Project
Management.
a.
Each Party shall
each designate a “ Project Manager ” for each
Product Development Plan in effect from time to time who shall be
the principal point of contact for all matters relating to such
Product Development Plan. The Project Manager designated by a
Party for a Product Development Plan may be changed by written
notice to the other Party.
b.
Toshiba and Vital
Images agree to develop a “ Product Roadmap ”
that will describe the development activities the parties desire to
undertake under this Agreement. The Product Roadmap shall be
revised by the parties every six months and shall describe the
Parties’ development and release plans relating to this
Agreement for the next two years (or until the end of the term of
this Agreement, if the remaining term of this Agreement is less
than two years at the time of the revision of the Product
Roadmap).
c.
Toshiba and Vital
Images will meet on an as needed basis, but at least twice
annually, at mutually agreed times and places to:
(i)
review and revise
the Product Roadmap;
(ii)
review the
progress of each ongoing Product Development Plan and discuss
necessary changes to the scope, development schedule or actions to
be taken;
(iii)
synchronize the
Parties’ product development plans and processes;
and
(iv)
discuss any other
matters as agreed upon by the Parties.
4.
Funding of Development Costs;
Resources Devoted to Development .
a.
Vital Images
Resources . Vital Images agrees to
devote at least * * * full-time product development engineering
personnel (including project management, scientist/algorithm
development engineers, software/clinical development engineers, and
quality/test engineers) during the term of this Agreement to work
exclusively on activities defined in the Product Development Plans
in effect from time to time and to accelerating clinical
application development as defined in the Product Roadmap. In
addition, Vital Images will assign without limitation the necessary
shared resources to support the validation and testing, alpha/beta
testing, clinical evaluation support, and program and release
management defined in the Product Development Plans in effect from
time to time.
b.
Toshiba
Funding/Resources . Toshiba shall pay
Vital Images for the efforts expended in each Product Development
Plan in effect from time to time at the rates set forth on
Exhibit A (the “ Toshiba Funding
”). Toshiba agrees that so long as at least one Product
Development Plan is in effect, Toshiba Funding will not be less
than an amount sufficient to provide funding for the * * *
full-time
* * * Confidential Treatment has been requested,
the portion indicated has been redacted and the redacted portion
has been separately filed with the Securities and Exchange
Commission.
9
product
development engineering personnel referred to in Section 4.a.
Toshiba will devote such internal resources and personnel as are
reasonably necessary to fulfill Toshiba’s obligations under
this Agreement. Toshiba shall be responsible for managing and
funding clinical evaluation and validation of Project Software and
shall enable the participation of Vital Images’ personnel in
such process; provided, however, that Vital Images may also conduct
independent clinical evaluation and validation. Clinical
evaluation and validation for Project Software shall be defined in
each Product Development Plan in effect from time to
time.
c.
Silent
Period . During any Silent
Period but not to exceed six (6) months, Toshiba will continue
to provide funding to Vital Images, at the rates set forth in
Exhibit A, for any Vital Images personnel who, during such
Silent Period, are assigned to and act
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