Research, Option And License Agreement - 1992

RESEARCH, OPTION AND LICENSE AGREEMENT


THIS AGREEMENT made and entered into as of April 8, 1992 (the "Effective Date"), by and between IXION, Inc., a Delaware corporation having its principal place of business at 1335 N. Northlake Way, Suite #102, Seattle, Washington 98103 (hereafter "IXION"), and ETHICON Endo-Surgery, a division of ETHICON, INC. a Johnson & Johnson corporation, an Ohio corporation having its principal place of business at 4545 Creek Road, Cincinnati, Ohio 45242 (hereafter "ETHICON").


WITNESSETH


WHEREAS, IXION has developed, manufactured, and sold endoscopic surgery simulators for use by surgeons and trainees and owns rights to patents regarding such simulators, such as U.S. Patent No. 4,907,973, granted March 13, 1990; and


WHEREAS, ETHICON is in the business of providing instruments for endoscopic surgery and has substantial technology concerning the production, manufacture, design and marketing of such products; and


WHEREAS, ETHICON is interested in working with IXION in the further development of its technology and certain simulators and


3 to have IXION perform various research and development to meet ETHICON's needs; and


WHEREAS, ETHICON may wish to acquire from IXION rights to sell simulator inventions in the Field (as defined below) which derive from such research; and


WHEREAS, IXION wishes to undertake such work, manufacture simulators and transfer certain rights to ETHICON and


WHEREAS, ETHICON may wish to manufacture, or to market exclusively that simulator which would be manufactured by IXION.


WHEREAS, the parties have entered into a feasibility agreement (a letter form agreement) dated May 14, 1991, and as later amended September 10, 1991, whereby ETHICON has provided payments and certain computer products to IXION, and IXION has performed feasibility performance studies of such technology to ETHICON; and


WHEREAS, ETHICON has paid IXION Two Hundred Thousand Dollars on December 23, 1991 as a reflection of ETHICON's desire to enter into this agreement with IXION;


NOW, THEREFORE, in consideration of the above premises, and the undertakings, terms, conditions, and covenants set forth


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4 herein, the parties, intending to be legally bound, do agree as follows:


ARTICLE I - DEFINITIONS


As utilized herein, the following terms shall be defined as follows:


1.1 "Field" or "Technical Field" shall mean methods, processes, devices, and instruments for the simulation of endoscopic and minimally invasive surgery in humans through an extendable, multi-plane computer-based video laparoscopic surgical training apparatus with tactile feedback for the teaching of surgical skills.


1.2 "Technology" shall mean any inventions, designs, and technologies directly relating to instruments in the Field. Inventions, designs, and technologies not directly relating to instruments in the Field may be disclosed to ETHICON by IXION during the program as described in Appendix D.


1.3 "Royalty Bearing Product" (also "Product") shall mean any product which is made, made for, used, leased, or sold by ETHICON or its Affiliates, assignees or sub licensees, where such making, use, sale, or lease utilizes Technology and/or IXION Patents.


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1.4 "ETHICON Affiliate" shall mean Johnson & Johnson, a New Jersey corporation or a subsidiary of Johnson & Johnson, or a corporation controlled by Johnson & Johnson, control of a corporation being the actual, present capacity to elect a majority of the directors of the corporation, or if not a majority, the maximum number of directors that the applicable law allows.


1.5 "IXION Patents" shall mean United States and foreign patents applicable to Technology and to which IXION owns rights or any continuation, continuation-in-part, divisional, re-issue or re-examination of such patents. A list of IXION Patents shall be annually furnished to ETHICON as Appendix A of this Agreement.


1.6 "Valid Licensed Claim" shall mean a claim of an unexpired IXION Patent which has not been held invalid in an unappealed or unappealable final decision rendered by a court or other governmental body of competent jurisdiction.


1.7 "Program" shall mean the research and developmental efforts performed under this agreement within the period of time described in Article II.


1.8 "Effective Date" This Agreement will become effective on the date signed by all the parties.


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1.9 "Net Sales" on a given unit shall mean:


A. The revenue actually received by the Licensee for products sold or
leased to third party non-affiliates, less the following: (i) any usual
product trade discounts, including product-specific cash discounts or
rebates actually allowed or granted, up to 30% of the established list
price including cash or quantity discounts, rebates or other usual
practices, (ii) product-specific credits or allowances actually granted
upon claims or returns regardless of the party requesting the return,
(iii) freight charges paid by licensee for delivery, and (iv) taxes or
other governmental charges levied on or measured by the invoiced amount
whether absorbed by the billing or the billed party; or


B. The established list price for sale or lease of products put in to
use by licensee or an Affiliate other than as leased products, and for
products disposed of or leased by Licensee to third party
non-affiliates at or for actual compensation of less than 70% of the
established list price for the purchase or lease, but if no list price
or lease rate has been established, then the manufacturing cost,
including cost of materials plus direct and indirect labor cost plus
overhead at the rate currently established by ETHICON's accounting
system plus 15% of said manufacturing cost: or


5 7 C. The tuition compensation actually received by ETHICON or an Affiliate for organized instructional or testing purposes on the simulator (however, the minimum royalty payable to IXION by ETHICON under this paragraph will be $25 per student).


ARTICLE II - RESEARCH PROGRAM


2.1 The Program


A. IXION shall undertake efforts to provide ETHICON a replicable prototype simulator based on Technology for evaluation by ETHICON for inclusion as part of ETHICON's product line (the "Program") with IXION's corporate name visibly attached. An outline of the Program including payment and performance milestones is labeled as Appendix C.


B. ETHICON shall undertake to support IXION's efforts by making available from ETHICON on a basis which supports a program schedule, all such medical instrumentation and medical demonstrations and imaging-gathering sessions that IXION needs to meet ETHICON's needs, if not previously committed to ETHICON's needs said instrumentation to be returned to ETHICON upon completion of the Program. During the feasibility period preceding this agreement, ETHICON has already provided IXION with computer material, listed in Appendix B to this


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8 Agreement, which IXION had agreed to return upon ETHICON's request.


2.2 For its participation in the Program, IXION shall be paid a total fixed fee of $2.8 Million (Two Million, Eight Hundred Thousand Dollars). ETHICON has already made a first such installment of Two Hundred Thousand Dollars ($200,000.00). Further details concerning the anticipated direction and development of the Program are contained in the Program --Technical Plan attached hereto as Appendix C and incorporated herein.


2.3 Terms of the Program


The Program shall continue for a period of eighteen (18) months from the Effective Date or as extended under Paragraph 2.4.


2.4 The Program may, at ETHICON's option, be extended for an additional period up to one year, in three month increments, by sixty (60) days written notice to IXION; said extended Program to include revised Appendix C - Technical Plan (agreed to by both parties) with a payment of One Hundred Thousand Dollars ($100,000.00) per month during each notified three -month extension of the Program payable in conformance with the provisions of Paragraph 2.2.


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2.5. Reporting


IXION agrees to work under ETHICON direction and technical input and to communicate to ETHICON the status of the work and development on the Program, IXION's findings, and all results in a manner and at a periodicity as the parties shall reasonably agree but no less frequently than every sixty (60) days, and to promptly disclose to ETHICON any inventions or improvements pertaining to appropriate Technology conceived or reduced to practice in the course of the Program by IXION. Upon final payment of the Program invoices, IXION agrees to provide ETHICON with a final report which details the components and usage of the simulator.


ARTICLE III - OPTION PERIOD BEYOND PROGRAM


3. Option Extension


ETHICON shall have a One-hundred-Twenty-(120) day period from the date of IXION's submission of its final invoice for the Program as defined herein, in which to evaluate Program results, conduct market research, and exercise the option hereby granted to become the exclusive licensee within the Field under IXION Patents and the Technology, as granted under Article V hereof, such option to be exercised through written notification by ETHICON to IXION of its intention to take such a license.


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ARTICLE IV - INVENTIONS


4.1 Results and Inventions


11 Technology conceived or reduced to practice in the Program by IXION shall be the property of IXION throughout the world (hereinafter "Inventions"), subject to any rights granted to ETHICON.


4.2. Patent Filings


4.2.1 IXION shall file and then diligently prosecute, at ETHICON's expense, patent applications in the United States, and corresponding foreign patent applications covering Inventions or improvements representing Technology developed during the Program.


4.2.2 ETHICON shall provide technical assistance to IXION for patent filings at no cost when requested to do so by IXION.


4.2.3 Should IXION elect to abandon efforts to acquire patent protection for any invention or improvement representing Technology, IXION shall, at ETHICON's request, assign to ETHICON all further papers including such patent application as may be reasonably needed for ETHICON to continue efforts to acquire patent protection for such invention.


ARTICLE V - LICENSE GRANT


5.1 License Grant


As consideration for payments provided for under Article 11 to IXION and upon the exercise of the option by ETHICON under


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11 Article 111, and in consideration of royalty payments as herein after set forth as part of this Agreement, IXION hereby grants to ETHICON the exclusive worldwide license within the Field under IXION Patents and Technology to make, have made, use, lease, and sell or otherwise dispose of Royalty Bearing Products and to practice IXION Patents and Technology in the Field, and to grant sub licenses of commensurate scope to ETHICON affiliates. Any sub license granted by ETHICON pursuant to this Paragraph shall be communicated to IXION by written notice within fifteen (15) days of the grant of such sub license. Such written notice shall include, at least, the name of the sub licensee and the scope of the sub license granted. Under no circumstance without prior approval of IXION, will ETHICON grant sub licenses pursuant to this Paragraph which grant to the sub licensees the right to further sub license.


5.2 Upon request by ETHICON and upon IXION's approval of potential licensees, IXION will grant licenses within the Field to non-affiliates of ETHICON on terms to be negotiated. Such approval by IXION will not to be unreasonably withheld.


5.3 Royalties on Patented Products


5.3.1 Upon the exercise by ETHICON of its option under Article III to accept a license under Article V, ETHICON shall pay IXION a royalty on a quarterly basis based on the "Royalty Year" for which payment is due. A "Royalty Year" shall be


10 12 designated as commencing on the first day of the Calendar Quarter (January 1, April 1, July 1, or October 1) during which occurs, the earlier of: (a) the eighteen-month (18) anniversary of the end of the Program; or (b) the first arms-length sale or placement in use of a Royalty Bearing Product, and continuing for a 12-month period. In the event of delays in obtaining regulatory approval for the sale of Royalty Bearing Products, the beginning of a Royalty Year shall be tolled until the granting of such regulatory approval.


5.4 Royalties due IXION shall be Five Percent (5%) of Net Sales on Royalty Bearing Products which fall under a Valid Licensed Claim of a IXION Patent. Royalties due IXION on Royalty Bearing Products which do not fall under a Valid License Claim of a IXION Patent, royalties shall be Three (3 %) of Net Sales, for five (5) years of Royalty payments, after which ETHICON shall have a paid-up non-exclusive license to the non-patented Technology.


5.5 Minimum Royalties


In each Royalty Year, solely to hold the exclusive licenses granted herein, ETHICON shall pay IXION a minimum royalty, regardless of Net Sales of Royalty Bearing Products. Such Royalties shall be computed based within each Royalty Year as follows:


11 13 Royalty Year Minimum Royalty


First $100,000.00


Second through Fifth $200,000.00 per year


After the fifth year, should minimum royalties fall below $200,000 per year, the exclusive license granted ETHICON herein shall become non-exclusive.


5.5.1 The royalty payments set forth in Paragraph 5.5 are in lieu of any effort or responsibility on the part of ETHICON to market or develop Royalty Bearing Products at any time during the term of this Agreement. After the first Royalty Year, if ETHICON does not pay the minimum royalties in 5.5, IXION's sole remedy shall be to convert the exclusive license granted in this Agreement to a non-exclusive license. In the event that IXION has the right to convert ETHICON's rights to a non-exclusive license, royalty payments due by ETHICON to IXION shall be actual earned royalties only. Any such remedy shall be taken only upon written notice to ETHICON. ETHICON shall have ninety (90) days upon the receipt of such notice to make up any deficiencies in order to maintain the exclusive license granted under this Agreement.


5.5.2 It should be noted that any regulatory delays in the sale of Royalty Bearing Products shall not be construed as a failure by ETHICON to market such products as provided herein.


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5.6 Payments by ETHICON under Paragraphs 5.3 through 5.5 shall continue for as long as there are Royalty Bearing Products made within the scope of the Technology covered by IXION patents of by pending patent applications if such applications were filed within five years of the effective date of this Agreement.


5.7 Records


ETHICON shall keep complete and accurate records of the Net Sales of Royalty Bearing Products with respect to which a royalty is payable according to this Agreement and within sixty (60) days following each quarterly period of a Royalty Year, ETHICON shall render to IXION a written report, certified accurate by an officer of ETHICON, setting forth gross sales, permitted discounts, net sales, number, description and actual or established list selling or list lease price of all royalty bearing products under this license sold, leased, or otherwise disposed of or put into use by ETHICON and its sub licensees during such report period and the royalties due IXION thereon. ETHICON shall, upon rendering such report, remit to IXION in U.S. dollars the amount of royalty shown thereby to be due. On non-U.S. sales, IXION will accept a Royalty paid 60 days after each Royalty year until ETHICON's standard ...