Technology License Agreement

Exhibit 10.1


TECHNOLOGY LICENSE AGREEMENT
----------------------------


This Technology License Agreement is entered into this 22nd day of
September, 1995 between MERCK & CO., INC, a New Jersey corporation, having
a place of business at One Merck Drive, Whitehouse Station, New Jersey
08889-0100 ("Merck") and COMPUMED, INC., a Delaware corporation, having a
place of business at 1230 Rosencrans Avenue, Suite 1000, Manhattan Beach,
California 90266 ("CompuMed").


WHEREAS CompuMed is in the business of, among other things, performing RA
(as hereafter defined) using the Proprietary Technology (as hereafter
defined) and the Acquired Assets (as hereafter defined); and


WHEREAS, Merck desires to license the Proprietary Technology and to
purchase the Acquired Assets and from CompuMed for the purpose of
performing RA and other activities in the Field (as hereafter defined), and
CompuMed is willing to license the Proprietary Technology and to sell the
Acquired Assets and to Merck for such purpose on the terms provided in this
Agreement.


NOW THEREFORE, in consideration of the mutual promises and undertakings set
forth herein, the parties agree as follows:


SECTION 1: DEFINITIONS
----------------------


1.1 For the purposes of this Agreement, the following definitions shall
apply:


(a) "Acquired Assets" shall mean the assets set forth on Schedule 1.


(b) "Affiliate" shall mean (i) any entity, fifty percent (50%) or
more of the voting equity interests of which are owned or
controlled, directly or indirectly, by Merck or CompuMed, (ii)
any entity which owns or controls, directly or indirectly, fifty
(50%) or more of the voting equity interests in Merck or
CompuMed, or (iii) any entity under the direct or indirect
control of an entity described in (i) or (ii).


(c) "Agreement" shall mean this Technology License Agreement between
Merck and CompuMed, including all Exhibits and Schedules hereto.


(d) "Ancillary Agreements" shall mean, collectively, Sublease (if
executed by Merck as provided in Section 10.5), the Trademark
Assignment, the Copyright Assignment, the Technology License
Acknowledgement, the Bill of Sale, the Assignment and Assumption
Agreement and the Transition Operating Agreement.


(e) "Assignment and Assumption Agreement" shall mean the Assignment
and Assumption Agreement to be executed and delivered by
CompuMed and Merck at the Closing in the form attached as
Exhibit A.


(f) "Bill of Sale" shall mean the Bill of Sale to be executed and
delivered by CompuMed to Merck at the Closing in the form
attached as Exhibit B.


(g) "BuIk Sale Law" shall mean the provisions or Article 6 of the
Uniform Commercial Code as they apply to the sale of the
Acquired Assets hereunder.


(h) "Closing" shall mean the time and place for (i) the execution and
delivery of the Ancillary Agreements and the Guaranties and (ii)
the consummation of the transactions contemplated by this
Agreement and the Ancillary Agreements.


(i) "Commercial Software" shall mean the software identified on
Schedule 2 in the form commercially available, and as the same
may hereafter be modified from time to time by the commercial
licensor thereof.


(j) "Copyright Assignment" shall mean the Assignment of Copyright to
be executed and delivered by CompuMed to Merck at the Closing in
the form attached as Exhibit C.


(k) "Documentation" shall mean all flow charts, logic diagrams,
program listings, operating instructions, user manuals and all
other related materials (to the extent they now exist and in
whatever form), for use in connection with the Proprietary
Technology.


(l) "FDA" shall mean the United States Food and Drug Administration.


(m) "FDC Act" shall mean the Federal Food, Drug and Cosmetic Act, as
amended, 21 U.S.C. 301 et seq.
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(n) "Field" shall mean the screening for or assessment of
pathological conditions in human bones as it relates to
osteoporosis and rheumatology.


(o) [deleted].


(p) [deleted].


(q) "Hardware" shall mean the personal computers, servers, scanners
and other items set forth on Schedule 4, as the same may
hereafter be modified or replaced from time to time.


(r) "Key Employees" shall mean those employees or consultants of
CompuMed identified on Schedule 5.


(s) "Law" shall mean any statute, law, ordinance, regulation, rule,
order, judgment or decree of any federal, state, local or other
governmental authority, whether legislative, executive, judicial,
administrative or otherwise.


(t) "License Payment" is defined in Section 2.3 of this Agreement.


(u) "Liens" shall mean any mortgage, lien, pledge, charge, security
interest or other encumbrance of any kind.


(v) "Proprietary Technology" shall mean all technology, computer
software and related databases and algorithms used in connection
with the performance of RA and related customer billing and order
tracking by CompuMed, any and all software object code, software
source code and updates thereto, and any and all drawings,
specifications, designs, operating and manufacturing information
and other materials or things relating thereto, as the same may
hereafter be modified from time to time, including but not
limited to the trade secrets identified on Schedule 13, but
---
excluding the Commercial Software. Proprietary Technology does
---------
not include Major Enhancements (as defined in Section 3.4(f))
unless acquired or licensed to Merck pursuant to Section 3.4.


(w) "Purchase Price" is defined in Section 2.4 of this Agreement.


(x) "Quarter" shall mean each three calendar month period occurring
during a Year and ending March 31, June 30, September 30 and
December 31, as the case may be.


(y) "RA" shall me.an the analysis of photodensitometry measurements
using radiographic absorptiometry.


(z) "Royalty" is defined in Section 4.1


(aa) "Sublease" shall mean the sublease to be executed and delivered
by CompuMed and consented to by Hughes Aircraft Company, a
Delaware corporation, and USAA Income Properties III Limited
Partnership, a Delaware limited partnership, at or prior to the
Closing, in the form attached as Exhibit E, and as to which Merck
shall have the option expressed in Section 10.5.


(bb) "System" shall mean the Proprietary Technology and Commercial
Software used in conjunction with the Hardware.


(cc) "Technology License" is defined in Section 3.1.


(dd) "Technology License Acknowledgment" shall mean the Technology
License Acknowledgment to be executed and delivered by CompuMed
and Merck at the Closing in the form attached as Exhibit F.


(ee) "Test" shall mean the performance by Merck or its Affiliates of
RA using the System to determine bone mineral density
measurements for one individual person and with respect to which
an amount payable is due or payment has been received.


(ff) "Trademark Assignment" shall mean the Trademark Assignment to be
executed and delivered by CompuMed at the Closing in the form
attached as Exhibit G.


(gg) "Transition Operating Agreement" shall mean the Transition
Operating Agreement to be executed and delivered by CompuMed and
Merck at the Closing in the form attached as Exhibit H.


(hh) "Use", when used in connection with the Proprietary Technology
and Documentation, shall mean the following:


(i) operation and/or utilization of the Proprietary Technology
and Documentation in performing RA or otherwise in the
Field;


(ii) copying or otherwise making available the Proprietary
Technology and Documentation for (A) use by Merck and its
Affiliates in accordance with Section 1.1 (hh)(i); (B)
distribution to sublicensees or assignees of Merck as
permitted by Section 16 for use in accordance with Section
1.1 (hh)(i); (C) backup or archival requirements; and (D)
maintenance, improvement and trouble shooting with respect
to the Proprietary Technology, the Documentation and/or the
System;


(iii) escrowing or otherwise making available software source
code to regulatory authorities for the purposes of
complying with Laws;


(iv) modification of or preparation of derivative works from
the Proprietary Technology or the Documentation for use in
the Field, which modifications or derivative works may be
made by Merck or its Affiliates, CompuMed, or any of their
respective employees, contractors, consultants or agents;
and


(v) such other purposes as are set forth in this Agreement or
any modification or amendment thereto.


(ii) "Wedge" shall mean the aluminum alloy wedge used by CompuMed in
the performance of RA using the System, having the
characteristics and specifications described on Schedule 6.


(jj) "Year" shall mean each one (1) year period beginning on January 1
and ending on December 31, with the first Year beginning on
January 1, 1996.


SECTION 2: SIGNING PAYMENT; LICENSE FEE, PURCHASE PRICE AND CLOSING
-------------------------------------------------------------------


2.1 Subject to the terms and conditions hereinafter set forth, at the
Closing CompuMed shall (i) license to Merck the Proprietary Technology
and Documentation, free and clear of Liens and other rights of third
parties, and (ii) sell, assign, transfer and deliver to Merck, free
and clear of Liens and other rights of third parties, all of the
Acquired Assets.


2.2 The license fee to be paid by Merck to CompuMed for the Technology
License shall consist of (a) a one time payment of $250,000, to be
paid by Merck at Closing by wire transfer of immediately available
funds (the "License Payment") and (b) a royalty to be paid as provided
in Section 4.1 (the "Royalty").


2.3 The purchase price to be paid by Merck to CompuMed for the Acquired
Assets shall be the book value of the Acquired Assets at the Closing,
as reflected on CompuMed's books and records used in the preparation
of CompuMed's financial statements, up to a maximum of $175,000 (the
"Purchase Price"). CompuMed's preliminary determination of the
current book value of the Acquired Assets is set forth on Schedule 1.
At the Closing, CompuMed shall deliver its calculation of the Purchase
Price, itemized to Merck's satisfaction, which calculation shall be
certified by CompuMed's Chief Financial Officer as having been
calculated in accordance with this Section. Payment of the Purchase
Price shall be made by Merck at Closing by wire transfer of
immediately available funds.


2.4 The Closing shall occur on September 22, 1995 at the offices of Merck
at Summneytown Pike, West Point, Pennsylvania, or at such other time
and place as the parties may mutually agree in writing. At the
Closing, each party shall make all the deliveries and take all of the
actions required of it under Section 13 of this Agreement.


2.5. Merck shall have the right, for a period of sixty (60) days after the
Closing, to review CompuMed's books and records used in the
calculation of the Purchase Price. In the event that Merck shall
dispute such calculation, Merck shall notify CompuMed and the parties
shall meet to attempt to resolve such dispute. In the event that the
parties are unable to resolve the dispute, the matter shall be
submitted to KPMG Peat Marwick for resolution. The costs and expenses
of KPMG Peat Marwick shall be paid equally by the parties. CompuMed
shall immediately remit to Merck any excess between the purchase price
paid by Merck at Closing and the correct Purchase Price, as ultimately
determined in accordance with this Section.


SECTION 3: GRANT OF LICENSE
---------------------------


3.1 At the Closing, CompuMed shall grant Merck and its Affiliates an
exclusive world wide perpetual license to Use the Proprietary
Technology and Documentation, subject to the terms and conditions
hereof and the qualification in Section 3.4 regarding Major
Enhancements (the "Technology License").


3.2 Merck shall have the right to independently develop or have developed
and use software and technology which interfaces with or connects to
the Proprietary Technology. Such independently developed software and
technology shall remain Merck personal and proprietary property.


3.3 Any new releases, versions or other updates to the Proprietary
Technology or Documentation made, in whole or in part, by CompuMed or
its Affiliates and which are funded, in whole or in part by Merck or
its Affiliates, shall be deemed licensed to Merck and its Affiliates
hereunder and will be provided to Merck subject to the terms and
conditions of this Agreement.


3.4 (a) Notwithstanding anything to the contrary contained in this
Agreement, CompuMed shall retain the right to perform developmental
work on the System for the performance of RA in the Field, at its sole
cost and expense. If, in the course of its development work, CompuMed
develops a prototype of a technology that CompuMed believes has the
potential of constituting a Major Enhancement (as defined below),
CompuMed shall provide Merck, on a confidential basis, with (i) a
notice of such development (the "Prototype Notice"), (ii) a brief
description of the Major Enhancement that the prototype is intended to
exemplify, and (iii) an opportunity to evaluate the prototype.


(b) Merck shall have 45 days from receipt of the Prototype Notice to
evaluate the prototype and notify CompuMed as to whether Merck wishes
to fund the remaining development thereof (the "Development Project").
If Merck is interested in funding the Development Project, Merck and
CompuMed shall negotiate with each other, on an exclusive basis, for a
period not to exceed 60 days, the terms under which Merck shall fund
the Development Project. If Merck and CompuMed reach agreement
regarding the terms of Merck's funding such Development Project, the
results of the Development Project shall (to the extent actually
funded by Merck) be owned by Merck. In the event that Merck and
CompuMed are unable to reach agreement on such terms within such 60
day period, or Merck shall fail to indicate its interest in funding
the Development Project within 45 days after receipt of the Prototype
Notice, CompuMed shall be entitled to proceed with the Development
Project, subject to the remaining provisions of this Section 3.4.


(c) If CompuMed completes the Development Project (the "Completed
Project") and believes that the Completed Project is a Major
Enhancement, CompuMed shall provide Merck, on a confidential basis,
with (i) a notice of such completion (the "Completion Notice"), (ii) a
brief description of the Completed Project, and (iii) an opportunity
to evaluate the Completed Project.


(d) Merck shall have 45 days from receipt of the Completion Notice to
(i) test such Completed Project, (ii) notify CompuMed whether Merck
agrees that the Completed Project is a Major Enhancement, and (iii) if
Merck agrees that the Completed Project is a Major Enhancement, to
indicate whether Merck is interested in acquiring a license to the
Major Enhancement. If Merck does not agree that the Completed Project
is a Major Enhancement, then the parties shall resolve such dispute as
provided in Section 3.4(f). If Merck agrees that the Completed
Project is a Major Enhancement and Merck indicates that it is
interested in licensing such Major Enhancement within such 45 day
period, Merck and CompuMed shall negotiate with each other, on an
exclusive basis for a period not to exceed an additional 60 days, the
terms under which Merck shall acquire an exclusive license to the
Major Enhancement. As to any dispute regarding whether a Completed
Project is a Major Enhancement that is submitted for resolution
pursuant to Section 3.4(f) and the result of which is a determination
that the Completed Project does constitute a Major Enhancement, Merck
shall have an additional 5 days from the date of such determination to
indicate whether Merck is interested in acquiring the Major
Enhancement, and if Merck so indicates, Merck and CompuMed shall
negotiate with each other, on an exclusive basis for a period not to
exceed an additional 30 days, the terms under which Merck shall
acquire an exclusive license to the Major Enhancement. In the event
that Merck and CompuMed are unable to reach agreement on the terms
under which Merck shall acquire an exclusive license to such Major
Enhancement within such 60 or 30 day period, as applicable, or Merck
shall fail to indicate its interest in acquiring an exclusive license
to the Major Enhancement within the 45 day period following receipt of
the Completion Notice or the 5 day period following a determination
under Section 3.4(f) that a Development Project is a Major
Enhancement, as applicable, CompuMed shall be entitled to use the
Licensed Technology and the System, as modified by the Major
Enhancement (the "Enhanced System") to perform RA in the Field without
the need for any further authorization from Merck. In no event,
however, shall CompuMed be entitled to commercialize, or grant any
rights to a third party to commercialize, any Completed Development
that fails to constitute a Major Enhancement.


(e) In no event shall CompuMed offer to transfer its rights to
commercialize the Enhanced System for the performance of RA in the
Field to any third party unless CompuMed shall first set forth the
terms on which such offer shall be made in writing to Merck (the
"Offer Notice"). The sending of the Offer Notice shall constitute an
offer by CompuMed to transfer the Enhanced System to Merck on the
terms set forth therein. Merck shall have 45 days from receipt of the
Offer Notice to accept the transfer of the Enhanced System on the
terms set forth in the Offer Notice if Merck fails to accept the terms
set forth in the Offer Notice within such 45 day period, CompuMed
shall be free to offer the Enhanced System to third parties on terms
not less favorable to CompuMed than those specified in the Offer
Notice. CompuMed shall not change in any material respect the offer
made to any third party from that specified in the Offer Notice or
accept any counter offer from a third party which contains terms
different in any material respect from that contained in the Offer
Notice (other than such changes which, in the aggregate, are not less
favorable to CompuMed than those set forth in the Offer Notice),
without complying again with the terms of this Section 3.4(e) by
sending a new Offer Notice to Merck which reflect such different
terms. Upon compliance by CompuMed with all of the applicable terms
of this Section 3.4 and the failure by Merck to acquire or license the
Major Enhancement pursuant to this Section 3.4, CompuMed may license
or sublicense the Enhanced System to a third party, including such
portion of the Proprietary Technology and the intellectual property
rights relating thereto as may reasonably be required to use the
Enhanced System for performing RA in the Field without the need for
any further authorization, excluding however (i) trademarks and
tradenames constituting a part of the Acquired Assets and (ii)
intellectual property rights developed after the date hereof and owned
by or licensed to Merck.


(f) For the purposes of this Section 3.4, the term "Major
Enhancement" shall mean an improvement to the System that creates
substantial additional value or improved clinical performance for RA
in the Field, over and above the value or performance inherent in the
System as it is then being commercialized by Merck. Major
Enhancements do not include (i) debugging or maintenance of the
System, or (ii) updates or enhancements that derive their added value
or improved performance principally from (A) new releases or versions
of Commercial Software or (B) new versions of commercially available
hardware. Merck and CompuMed shall attempt in good faith to agree
upon whether any development constitutes a Major Enhancement. If the
parties are unable to agree, then the matter shall be submitted to
binding confidential arbitration pursuant to the Federal Arbitration
Act, 9 U.S.C. 1 et seq. The arbitration shall be conducted before a
-- ---
panel of three arbitrators, one selected by Merck, one selected by
CompuMed and the third selected by the two arbitrators chosen by the
parties. All arbitrators must be experts in the field of bone
densitometry. Each of the parties shall select its arbitrator within
45 days of being served with a notice of arbitration hereunder, and
the third arbitrator shall be selected within 90 days of such notice
of arbitration. In the event that any arbitrator shall fail to be
selected within the prescribed time period, either party may apply to
the American Arbitration Association for the appointment of such
arbitrator. The arbitration shall be held in New York, New York and
shall be conducted in accordance with the Commercial Arbitration Rules
of the American Arbitration Association. The arbitration award shall
be final and binding and it may be confirmed and enforced in any court
of competent jurisdiction. Each party shall pay for all attorney fees
and costs it incurs in connection with the arbitration. Each party
shall share equally in the costs of the arbitration.


(g) Notwithstanding anything to the contrary contained in this
Section 3.4 and in addition the representation contained in Section
7.6, CompuMed agrees that it will not conduct such work on developing
a potential Major Enhancement as would require the sending of a
Completion Notice prior to the expiration of the first Year.


SECTION 4: ROYALTY
------------------


4.1 As part of the license fee payable by Merck to CompuMed pursuant to
Section 2.3, and subject to the limitations contained in this Section
4.1, Merck shall pay CompuMed a Royalty during the first five Years as
follows:


Year 1 Year 2 Year 3 Year 4 Year 5
------ ------ ------ ------ ------
Royalty
Payment
per Test
in Year $2.00 $2.50 $3.00 $3.50* $4.00*


*Notwithstanding the above, the maximum Royalty payment, (i) for Year 4,
shall not exceed the lesser of (a) $3,000,000 or (b) 10% of Total Collected
Revenues for such Year, and (ii) for Year 5, shall not exceed the lesser of
(a) $4,000,000 or (b) 10% of Total Collected Revenues for such Year,
provided however that the limitations contained in clauses (i)(b) and
(ii)(b) shall not apply unless the Average Collected Revenue per Test in
such Year is less than $35, and further provided that if the cost of
performing Tests has substantially decreased (i.e. decreased by at least
33%) in Year 4 or Year 5 from that in effect for Year 1, after taking into
account all expenses incurred by Merck in achieving such cost savings, then
Merck and CompuMed shall equitably adjust the $35 Average Collected Revenue
per Test figure to reflect such cost savings for such of Years 4 or 5 (or
portions thereof) that such savings are in effect For the purposes of the
foregoing, Total Collected Revenues shall equal all amounts collected by
Merck for the performance of Tests, less returns, refunds, rebates,
retroactive price reductions, and taxes paid directly in respect of such
Tests, and Average Collected Revenues shall equal Total Collected Revenues
divided by the total number of all Test performed which gave rise to suc ...