Oem Software Development And Distribution

OEM SOFTWARE DEVELOPMENT AND DISTRIBUTION AGREEMENT


between


EASTMAN KODAK COMPANY


and


R2 TECHNOLOGY, INC.


Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as * * *. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.


[TABLE OF CONTENTS]


1. DEFINITIONS ............................................................ 1 1.1. Confidential Information ......................................... 1 1.2. Developed Software ............................................... 1 1.3. Documentation .................................................... 1 1.4. End User ......................................................... 1 1.5. Functional Specifications ........................................ 2 1.6. Joint Inventions ................................................. 2 1.7. Kodak ............................................................ 2 1.8. Kodak Product .................................................... 2 1.9. Kodak Proprietary Software ....................................... 2 1.10. Supplier Software ................................................ 2 2. SCOPE OF AGREEMENT ..................................................... 2 3. SOFTWARE DEVELOPMENT ................................................... 3 3.1. Overview ......................................................... 3 3.2. Change Orders .................................................... 3 3.3. Project Schedule ................................................. 3 3.4. Kodak Equipment .................................................. 3 4. PAYMENT AND REPORTING .................................................. 4 4.1. Currency ......................................................... 4 4.2. Payments to Supplier ............................................. 4 4.3. Auditing ......................................................... 4 4.4. Interest ......................................................... 4 5. COPYRIGHTS AND TRADEMARKS .............................................. 5 5.1. Copyrights ....................................................... 5 5.2. Trademark and Copyright Notices .................................. 5 6. MAINTENANCE, SUPPORT, MODIFICATIONS, AND NEW SUPPLIER SOFTWARE ......... 5 6.1. Maintenance and Support .......................................... 5 6.2. Supplier Modifications ........................................... 6 6.3. New Supplier Software ............................................ 6 7. PERSONNEL .............................................................. 7 7.1. Project Managers ................................................. 7 7.2. Authority of Project Managers .................................... 7 7.3. Staffing ......................................................... 7 7.4. Project Manager's Meetings and Reports ........................... 7 8. EXPENSES ............................................................... 7 9. INVOICES AND TAXES ..................................................... 7 9.1. Invoices ......................................................... 7 9.2. Taxes ............................................................ 8 10. TRAINING AND DOCUMENTATION ............................................. 8 10.1. Training ......................................................... 8 10.2. Documentation .................................................... 8 11. TITLE / OWNERSHIP INTERESTS AND EXCLUSIVITY ............................ 8 11.1. Supplier Software ................................................ 8 11.2. Kodak Proprietary Software ....................................... 8 11.3. Supplier Inventions .............................................. 8


11.4. Kodak Proprietary Inventions .............................................. 9 11.5. Joint Inventions .......................................................... 9 11.6. Developed Software ........................................................ 9 12. LICENSE GRANT AND EXCLUSIVITY .................................................. 9 13. DISTRIBUTION ................................................................... 10 13.1. End User License Agreement ................................................ 10 13.2. Export Licenses ........................................................... 10 13.3. Supplier Distribution Channel ............................................. 10 13.4. FDA and other Regulatory Approvals ........................................ 11 14. WARRANTY ....................................................................... 11 14.1. Warranty of Performance ................................................... 11 14.2. Warranty of Title ......................................................... 12 14.3. Defense and Indemnification of Kodak. ..................................... 12 14.4. Defense and Indemnification of Supplier ................................... 13 14.5. Indemnification Procedures. ............................................... 15 14.6. Representations and Warranties by and between Supplier and Kodak. ......... 15 14.7. WARRANTY LIMITATIONS ...................................................... 15 15. LIMITATION OF LIABILITY ........................................................ 16 15.1. Indirect, Consequential and Special Damages ............................... 16 15.2. Supplier's Liability ...................................................... 16 15.3. Kodak's Liability ......................................................... 16 16. INSURANCE ...................................................................... 17 17. CONFIDENTIAL INFORMATION ....................................................... 17 17.1. Protection of Confidential Information .................................... 17 17.2. Permitted Use and Disclosures. ............................................ 18 17.3. Confidential Terms. ....................................................... 18 17.4. Right to Injunctive Relief ................................................ 18 18. TERM, TERMINATION, AND DEFAULT ................................................. 18 18.1. Term ...................................................................... 18 18.2. Termination For Cause ..................................................... 18 18.3. Default On Notice ......................................................... 18 18.4. Immediate Termination for Default ......................................... 19 18.5. Effect of Termination By Kodak For Default due to Insolvency of Supplier .. 19 19. DISPUTE RESOLUTION PROCEDURE ................................................... 19 20. ADDITIONAL PROVISIONS .......................................................... 20 20.1. Negotiations .............................................................. 20 20.2. Independent Contractor .................................................... 20 20.3. Additional Supply Rights .................................................. 20 20.4. Additional Developed Software ............................................. 20 20.5. Survival .................................................................. 20 20.6. Publicity ................................................................. 20 20.7. Governing Law ............................................................. 21 20.8. Amendment ................................................................. 21 20.9. Entire Agreement .......................................................... 21 20.10. Successors and Assigns .................................................... 21 20.11. Counterparts .............................................................. 21


20.12. Assignment ...................................................... 21 20.13. Notices ......................................................... 22 20.14. Force Majeure ................................................... 22 20.15. Remedies ........................................................ 22 20.16. Non-Waiver ...................................................... 22 20.17. Severability .................................................... 22 20.18. Section Headings ................................................ 23 ATTACHMENT A - STATEMENT OF WORK .......................................... 24 ATTACHMENT B - SUPPLIER SOFTWARE .......................................... 30 ATTACHMENT C - ESCROW AGREEMENT ........................................... 31 ATTACHMENT D - SUPPLIER COPYRIGHT NOTICE AND KODAK COPYRIGHT NOTICE ....... 35 ATTACHMENT E - KODAK TRAVEL POLICY ........................................ 36 ATTACHMENT F - SAMPLE KODAK END USER LICENSE AGREEMENT .................... 39


THIS AGREEMENT MADE this _13th_ day of _October_, 2000, by and between


Eastman Kodak Company, a New Jersey corporation, with its principal place of business at 343 State Street, Rochester, New York 14650 ("Kodak"), and R2 Technology, Inc., with its principal place of business at 325 Distel Circle, Los Altos, CA 94022 ("Supplier").


WHEREAS, Kodak and Supplier entered into a non-binding Memorandum of Understanding on July 27, 2000 for the purpose of stating their joint intentions to create a strategic alliance for developing, selling and servicing various computer-aided detection ("CAD") products intended for the medical imaging market.


WHEREAS, Kodak and Supplier now want to enter into a binding relationship to develop the first two projects under this OEM Software Development and Distribution Agreement: new CAD algorithms for lung nodule detection in Computer Radiography ("CR") and digital radiography ("DR") applications for integration into Kodak digital capture and PACS ("Picture Archiving and Communication Systems") and CAD algorithms for breast cancer detection integrated into Kodak's digital mammography systems.


THEREFORE, the parties agree as follows:


1. DEFINITIONS


1.1. Confidential Information


"Confidential Information" shall mean, subject to the provisions of Article 17 hereof, any proprietary or confidential information or material in tangible form disclosed hereunder that is (i) marked as "Confidential" at the time it is delivered to the receiving party or its employees or agents or contractors under this Agreement or in contemplation thereof; and/or (ii) disclosed orally and is confirmed in writing as being Confidential Information within 30 days after initial disclosure.


1.2. Developed Software


"Developed Software" means the software to be developed by Supplier and licensed by Supplier to Kodak under this Agreement, including all object code. Developed Software also includes any derivations, improvements, enhancements or translations of the Developed Software as mutually agreed to by the parties.


1.3. Documentation


"Documentation" means the hard copy and digital versions of all documentation required by Kodak in order to perform its obligations under this Agreement. The complete listing of Documentation is attached hereto as part of Attachment A, which list is subject to change by mutual agreement of the parties. For purposes of clarity, Documentation shall include translations of Documentation as agreed to by the parties.


1.4. End User


"End User" means end user customers of Kodak, which shall not include, without limitation, Kodak distributors or other third parties acting on Kodak's behalf.


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1.5. Functional Specifications


"Functional Specifications" means the detailed specifications for the Developed Software, which specifications are attached to this Agreement as part of Attachment A and may be amended from time to time by mutual agreement of the parties. The parties hereby agree and understand that the Functional Specifications may be modified from time to time by mutual agreement of the parties.


1.6. Joint Inventions


"Joint Inventions" mean inventions, improvements, discoveries and know how jointly conceived or developed by Supplier and Kodak relating to and made using or comprising Supplier and/or Kodak product during the term of the Agreement.


1.7. Kodak


"Kodak" means Eastman Kodak Company and any of its subsidiaries in which Kodak owns or controls, directly or indirectly, more than fifty percent (50%) of the stock eligible to vote for the election of directors.


1.8. Kodak Product


"Kodak Product" means the product, product family, or components of products (more particularly described in the Statement of Work attached at Attachment A) that will include or incorporate the Supplier Software and the Developed Software. Additional Attachments of Statements of Work (A-1, A-2, etc.) will be created for additional Kodak products that will include or incorporate Supplier Software and/or Developed Software.


1.9. Kodak Proprietary Software


"Kodak Proprietary Software" means software (and associated documentation) of Kodak, to be considered for use in Developed Software, and if incorporated into the Developed Software will be supplied only to Kodak unless licensed to Supplier under the terms of a software license with rights to distribute to third parties.


1.10. Supplier Software


"Supplier Software" means software (and associated documentation) of Supplier described in Attachment B and licensed to Kodak for use only in the Developed Software created under the terms of this Agreement unless otherwise specified in Attachment B or an amendment thereto.


2. SCOPE OF AGREEMENT


Subject to the terms of this Agreement, Supplier will perform the development work described in Attachment A and grant a license to Kodak for the Developed Software and Supplier Software (described in Attachment B) under the license terms set forth in Article 12 herein. Supplier and Kodak agree to enter into an escrow agreement ("Escrow Agreement") for all Developed Software per the form attached as Attachment C, with an escrow holder mutually acceptable to Supplier and Kodak.


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3. SOFTWARE DEVELOPMENT


3.1. Overview


Supplier will use commercially reasonable efforts to develop the Developed Software for Kodak, including object code and Documentation, required to meet the Functional Specifications (the "Development Project").


3.2. Change Orders


The Functional Specifications, costs, schedules, and other matters affecting the Development Project may be changed only by the written agreement of Kodak and Supplier, in accordance with the following Change Order procedure. When so changed, the changes will be deemed to be incorporated in this Agreement as an amendment to the applicable Attachment. This Change Order procedure is to be used to control the technical configuration of the software through specification documents, as well as to control costs and schedules.


Either party may request a change. No change will be effective until it has been recorded on a fully executed Change Order form as set forth in Attachment A. Neither party will be liable for work performed by the other party prior to such work being authorized by a completed Change Order form. Change Order forms must be signed by the Project Managers of Kodak and Supplier, or their designee.


3.3. Project Schedule


3.3.1. Milestones


The Development Project is divided into milestones ("Milestones"). Supplier will use commercially reasonable efforts to deliver specified Milestones on specific due dates ("Milestone Due Dates").


For each Milestone, Kodak will have a period of time (the "Acceptance Period") after receipt of all Deliverables for that Milestone, in which to review, perform acceptance tests, and accept or reject the Deliverables. Where a time period is provided after Kodak's rejection of a Deliverable during which Supplier may make corrections so that the Deliverable is acceptable, that period is referred to as the "Correction Period".


A description of each Milestone, with applicable Milestone Due Date, Deliverables, acceptance tests, Acceptance Period, and Correction Period is set forth in Attachment A.


3.3.2. Delivery


Supplier will use commercially reasonable efforts to deliver the Deliverables on or before the appropriate Milestone Due Date.


3.3.3. Review, Testing and Acceptance of Deliverables


Kodak will timely review, test, and accept the Deliverables as provided in Attachment A.


3.4. Kodak Equipment


Kodak will timely provide, at no charge to Supplier, reasonable access to the equipment specified in Attachment A for Supplier's use in the performance of its obligations under this Agreement. Kodak may,


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at its option, change the configuration of the equipment from time to time provided that the change does not unreasonably hinder Supplier's ability to timely carry out any remaining obligations under this Agreement including the incurring of additional cost or time to complete its obligations. Kodak will be responsible for maintenance of the equipment while it is being used by Supplier, except that Supplier will reimburse Kodak for the costs of any maintenance or repairs to the equipment solely resulting from the grossly negligent or intentionally wrongful acts of Supplier. Upon Supplier no longer requiring use of the equipment or upon termination or expiration of this Agreement for any reason, Supplier will return equipment in Supplier's possession to Kodak upon Kodak's request. Kodak will arrange for and pay for all transportation to and from Supplier's facility for the equipment.


4. PAYMENT AND REPORTING


4.1. Currency


All payments and fees shall be in U.S. funds.


4.2. Payments to Supplier


4.2.1. License Fees


Kodak will pay Supplier the License Fees in Attachment A. Within thirty (30) days after the close of each calendar quarter, Kodak shall (a) provide to Supplier a report (in a format to be agreed between Kodak and Supplier) setting out the calculation of payments due to Supplier in respect of that quarter; and (b) make payment to Supplier of the applicable fees in accordance with such report. Payments and reports are to be sent to the attention of Doris Pon at the Supplier address in the beginning of this Agreement or other address as Supplier may designate by written notice. Kodak shall provide to Supplier a report for the quarter regardless of whether any amounts are payable for the quarter. Any amounts due to Supplier shall be paid by bank wire transfer to the following account:


Citibank, NYC ABA #021000089 FBO: Morgan Stanley & Co., Inc. Account #38890774 For further credit to: R2 Technology, Inc. Account #14-78809


4.3. Auditing


During the Term and for two (2) years thereafter, each party agrees to keep all usual and proper records and books of account and all usual and proper entries relating to calculation of payments or credits to the other party. Each party shall have the right, at its own expense, upon fourteen (14) business days' written notice to the other party and during normal business hours (and, in any event, not more than once in any twelve month period), to inspect and audit the records of the other party for the purpose of verifying any reports, information, payments or credits due to the other under this Agreement. Any such audit may be conducted by a firm of independent certified public accountants mutually chosen by Kodak and Supplier. In the event of any shortfall in payment or credit is found which exceeds five percent (5%) of the total due for the reporting period audited, the other party shall be reimbursed for the reasonable fees of the accountants conducting the audit. Any overpayment or underpayment exceeding five percent (5%), or credit shall be made good between the parties within 14 days of the audit report.


4.4. Interest


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For any unpaid or late payment by Kodak under this Agreement, Supplier shall be entitled to charge interest at the rate of two percent (2%) per annum above the U.S. prime lending rate from the date such payment was due.


5. COPYRIGHTS AND TRADEMARKS


5.1. Copyrights


Supplier warrants that it is the copyright owner of the Supplier Software or has the authority to enter into and perform this Agreement and to grant licenses to Kodak for the Supplier Software in conformance with the terms of this Agreement. Supplier agrees to cooperate with Kodak in obtaining any copyright or other statutory protections for the Supplier Software and Developed Software reasonably in each country in which they are sold, distributed or sublicensed by Kodak. Supplier shall retain ownership to the Supplier Software and Developed Software, including all corrections, modifications and enhancements made by Supplier, and any regulatory filings, and trademarks, trade names related thereto.


5.2. Trademark and Copyright Notices


Kodak agrees to use efforts at least as stringent as those Kodak uses to maintain its own trademarks and copyrights to maintain and respect the trademark and copyright notices used by Supplier in connection with Kodak advertisement, distribution and sublicensing of the Kodak Products. Copyright notices placed by Kodak on the Kodak Products shall read as listed in Attachment D, which may be amended from time to time by Supplier. Kodak agrees to include one of the copyright notices (as selected in writing by Supplier) listed on Attachment D on start-up screens in Kodak Product. If Supplier's copyright notice is amended by Supplier, Kodak will include the new copyright notice in the next software release.


6. MAINTENANCE, SUPPORT, MODIFICATIONS, AND NEW SUPPLIER SOFTWARE


6.1. Maintenance and Support


Supplier will provide to Kodak ongoing Maintenance and Support (as defined below) for the Supplier Software and the Developed Software for up to 40 hours per month at no cost to Kodak. The parties agree and understand that such 40 hours are the total number of hours Supplier will provide at no cost to Kodak for all Developed Software and Supplier Software contemplated by and licensed under this Agreement. In the event Kodak requests Maintenance and Support (as defined below) in excess of 40 hours per month, such additional hours will be invoiced to Kodak at the rate of $50.00 per hour.


"Maintenance and Support" means correction of errors and telephone and e-mail consulting services as follows: Kodak is provided with three paths for escalating issues concerning the Supplier Software and the Developed Software to Supplier:


6.1.1. Escalation Email Support:


Email confirmation same day, response within 24 hours, during Supplier's operational hours (8AM - 5PM Pacific Time) and excluding predetermined holidays and weekends;


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6.1.2. Direct Access (Phone Support):


Telephone support availability for designated Kodak contact to designated Supplier Support Lead [to be defined/discussed], so no need for confirmation; response within 8 hours, during Supplier's operational hours and excluding predetermined holidays and weekends. and


6.1.3. Priority Callback Support:


Automatically invoked during all off-hours for critical issues only, confirmation within 4 hours and response within 24 hours.


Notwithstanding the foregoing, Kodak will reimburse reasonable travel expenses for on-site support requested by Kodak.


6.2. Supplier Modifications


Supplier agrees to provide promptly to Kodak without charge (i) any modifications to the Supplier Software and revisions to the Documentation to reflect the modifications, insofar as such are provided to Supplier's other customers without charge and; (ii) any derivative works, whether marketed under the same name or not, which provide substantially the same functionality, insofar as such are provided to Supplier's other customers without charge. Such modifications shall include both modifications made by Supplier pursuant to Section 6.1 and Article 14 (Warranty). During the term of this Agreement Supplier may develop new programs and related documentation that would provide new functional capability for the Supplier Software. Should such new software and documentation be made available generally to other similarly situated Supplier customers, Supplier shall offer to license such software and documentation to Kodak on terms and conditions no less favorable than those terms and conditions, when considered in the aggregate, offered to any other of Supplier's similarly situated customers. A similarly situated customer shall mean a customer of Supplier ordering similar products at similar volumes under similar terms and conditions as provided for herein.


6.3. New Supplier Software


Supplier will give Kodak the right of first notice for new Computer Aided Detection ("CAD") applications developed solely by Supplier during the period of exclusivity provided for in Section 11.6 and Article 12 for Developed Software. Supplier agrees not to secure partnerships and/or license agreements until sixty (60) days after the first day of notice by Supplier to Kodak with respect to a particular CAD application. During those sixty (60) days Supplier and Kodak will use their best efforts to discuss/negotiate the rights to such CAD application. If Kodak elects to not participate in a particular CAD application, or in the event the parties cannot reach agreement within the sixty (60) day period on mutually agreeable terms for Kodak to, Supplier shall be free to exploit such CAD application, either by itself or with any third party.


Kodak will have equal access, as those given to similarly situated third parties, to negotiate non-exclusive rights to all CAD applications and upgrades that R2 has provided exclusively to other customers. Where it is commercially feasible, in R2's reasonable determination, the time period for Kodak access will not exceed 18 months after FDA (or other regulatory agencies) approval of the application for each such CAD application. Where it is commercially feasible, in R2's reasonable determination, Kodak and R2 will be able to begin unique product development and integration efforts prior to and during the period of exclusivity to other customers.


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Supplier will continue to invest, at its sole discretion, in Supplier's FDA approved CR/DR Lung Nodule Product to ensure leading-edge product performance.


7. PERSONNEL


7.1. Project Managers


The parties designate the persons named on Attachment A as their respective Project Managers, to serve in such capacity until the other party is notified in writing of their replacement. The parties will make the Project Managers reasonably available to each other on a daily basis for purposes of managing the project.


7.2. Authority of Project Managers


The written directions and orders of the Project Manager for a party will be binding upon such party and may be relied upon by the other party, except that the Project Managers will have no authority to amend this Agreement.


7.3. Staffing


Kodak will provide reasonable access to its personnel as is necessary to provide Supplier with the information needed to perform Supplier's obligations under this Agreement.


The personnel of both parties, when on the premises of the other party, wil ...