DEVELOPMENT AND MANUFACTURING AGREEMENT
This Development and Manufacturing Agreement dated August 21, 1998,
is entered into by ZEVEX Incorporated, a corporation organized and existing
under the laws of the State of Delaware with its principal business address
at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ ("ZEVEX") and Cardiac
Science, a corporation organized and existing under the laws of the State of
Delaware with its principal place of business located at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇. ▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, ("Cardiac Science"), each of whom is individually
referred to as a "Party" and both of whom are sometimes collectively referred
to as "Parties."
RECITALS:
A. Cardiac Science is engaged in the business, INTER ALIA, of
inventing medical devices, including the device described herein. ZEVEX has
experience and expertise in the design, engineering, and manufacture of medical
devices for the health care industry.
B. Upon and subject to the terms and conditions of this Agreement,
Cardiac Science desires to retain ZEVEX's services for a two-phase project:
(i) to provide development services for the development of a heart monitor
and defibrillator device (the "Product") and to fabricate prototypes of the
Product for verification testing and clinical validation; and (ii) if the
prototypes pass the System Verification Requirements (as defined below), to
manufacture the Product for delivery to Cardiac Science.
ARTICLE I
1.1 SCOPE OF WORK AND DEVELOPMENT. ZEVEX shall (a) complete the
electronic design of the Product in accordance with the specifications set
forth in the Product Specifications set forth in Appendix II attached hereto
and by reference made a part hereof (the "Product Specification"), (b)
accomplish System Verification Testing on the entire instrument as set forth
in the Statement of Work as set forth in Appendix III attached hereto and by
reference made a part hereof (the "Statement of Work"), and (c) acknowledge
and agree that, pursuant to purchase orders numbered 98010 and 98021 (the
"Purchase Orders"), ZEVEX has already commenced the engineering and
development efforts contemplated by this Agreement. Both the Parties agree
that the Purchase Orders are valid and binding and are attached hereto as
Appendix I and by reference made a part hereof.
1.2 DEVELOPMENT MILESTONES. ZEVEX shall develop Alpha units and Beta
units and verification testing in accordance with the Statement of Work set
forth in Appendix III. ZEVEX will
diligently pursue completion of the work and will allocate sufficient staff and
technical resources and use its best efforts to meet the deadlines and complete
the work described herein. The parties shall cooperate to reach the market as
quickly as possible with a quality product.
1.3 DESIGN AND DEVELOPMENT -- REVIEW AND CHANGES. ZEVEX will hold
regular design reviews in accordance with its standard development operating
procedures, which procedures call for reviews of at least preliminary design
review, pre-product review, engineering release design review, and
post-design review. Cardiac Science shall be informed of the dates of these
design review meetings at least one week in advance. If Cardiac Science does
not attend, it will be required to sign off or provide comments on the
minutes of that review within two working days of actual receipt. Change in
project scope or specifications during development will be by mutual consent
and will be quoted separately by ZEVEX if necessary. ZEVEX agrees to use its
best efforts to accommodate Cardiac Science on such changes in scope and/or
specifications as may be reasonably requested by Cardiac Science with
appropriate changes in the purchase orders. Cardiac Science shall interface
with ZEVEX personnel as requested by ZEVEX.
1.4 SYSTEM VERIFICATION TESTING. For all sub-systems designed by
ZEVEX as defined in the Statement of Work, ZEVEX shall draft appropriate
verification protocol and perform the testing in Accordance with that
protocol. Cardiac Science shall author the system verification protocol and
Cardiac Science shall accomplish software verification and clinical
validation of the Product ("System Verification Testing"). Cardiac Science
has written the system protocol and ZEVEX shall test the system in accordance
with that protocol. Regulatory Standards Testing shall be managed by ZEVEX.
Third party testing shall be approved in advance by Cardiac Science and shall
be paid by Cardiac Science. Test materials shall be the exclusive property of
Cardiac Science and ZEVEX will not use them except as needed to perform
hereunder.
1.5 REJECTION OF WORK. Should Cardiac Science determine, in the
exercise of its reasonable good faith judgment, that any verification or
testing of ZEVEX's work (including, without limitation, testing does not
conform to applicable specifications, then Cardiac Science shall (i) notify
ZEVEX of such problems; and (ii) permit ZEVEX a reasonable opportunity to
make any necessary corrections. ZEVEX shall resubmit to Cardiac Science
revised testing or other work corrected to meet the relevant specifications
within thirty (30) days of notice to ZEVEX. Cardiac Science shall have
thirty (30) days after such resubmittal within which to notify ZEVEX in
writing of Cardiac Science's approval of the corrected work or of Cardiac
Science's discovery of any additional discrepancies between that work and the
relevant specifications.
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1.6 TOOLING AND FIRST ARTICLE SAMPLES. ZEVEX has estimated
circuit board tooling in Appendix IV attached hereto and by reference made a
part hereof (the "Deliverables.") Firm pricing will be provided once the
circuit design and layout are complete. Tooling will be approved by Cardiac
Science and invoiced by ZEVEX at cost as those costs are incurred. Design
and procurement of tooling for injection molded plastic parts is the
responsibility of Cardiac Science. Cardiac Science will utilize ZEVEX's
established vendors when possible, provided that pricing and quality are
competitive and approved by Cardiac Science. ZEVEX is responsible to qualify
all vendors per their system requirements. Cardiac Science can request a
requote of components.
1.7 COMPENSATION FOR PRODUCT DEVELOPMENT. In consideration for the
services rendered by ZEVEX for Product Development, ZEVEX shall be paid as
follows: 90,000 shares of Cardiac Science common stock (the "Shares") to be
issued as follows: 30,000 shares at the time of placement of the purchase
order, 30,000 shares at the time of acceptance of the Alpha units, and 30,000
shares at the time of completion of verification testing. In addition, ZEVEX
shall also be paid $339,360 as follows: $10,000 each upon placement of each
of the Purchase Orders, $129,480 upon Cardiac Science's acceptance of the
Alpha units, and $129,480 upon completion of verification testing. The
balance of $60,400 for outside laboratory testing and CPU circuit board
tooling shall be paid when incurred. The fact that Cardiac Science makes the
foregoing payments shall not imply Cardiac Science's acknowledgment that a
particular event or milestone has been achieved.
1.8 INVESTMENT REPRESENTATIONS. ZEVEX represents and warrants
that it is an "accredited investor" as such term is defined in Rule 501 of
Regulation D promulgated under the Securities Act of 1933, as amended, by
reason of being a corporation, not formed for the specific purpose of
requiring the Shares, with total assets in excess of $5,000,000. ZEVEX
further acknowledges that the Shares shall be restricted securities and
represents that the Shares are being acquired for its own account, for
investment and not for distribution or resale to others. ZEVEX acknowledges
receipt from Cardiac Science of the Annual Report on Form 10-KSB of Cardiac
Science for the year ended December 31, 1997, and the Quarterly Report on
Form 10-QSB of Cardiac Science for the quarter ended March 31, 1998, and all
other information regarding Cardiac Science which it has requested or desired
to know; that all documents which could reasonably be provided have been made
available for inspection and review and that ZEVEX has been afforded the
opportunity to ask questions of and receive answers from duly authorized
officers or other representatives of Cardiac Science concerning Cardiac
Science and an investment therein and any additional information which it has
requested.
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1.9 CONFIDENTIALITY AGREEMENT. Prior to execution of this agreement,
the parties have executed the Confidentiality Agreement attached hereto as
Appendix IV (the "Confidentiality Agreement.") In the event there is a conflict
between the terms of the Confidentiality Agreement and this Agreement, this
Agreement shall govern.
1.10 TECHNOLOGY OWNERSHIP. The parties agree as follows:
(a) Cardiac Science shall own all "Project Technology" which
shall be defined as: all inventions, improvements, discoveries,
designs, data, concepts, ideas, processes, methods, techniques,
now-how, and information respecting the Products conceived, made or
produced by ZEVEX during the course of performing design, engineering,
fabrication or manufacturing services under this Agreement, or made or
produced as the result of the joint efforts of ZEVEX and Cardiac
Science pursuant to this Agreement. The term "Project Technology"
shall exclude any of ZEVEX's proprietary processes used in the
manufacture of the Product.
(b) ZEVEX shall retain all of its "Technology and Manufacturing
Processes" which shall be defined as follows: its proprietary
electronic technology and processes and know-how and assembly and
manufacturing processes and technology and know-how, including such
technology and know-how concerning (i) developed or acquired by ZEVEX
prior to the exercise of this agreement or (ii) developed or acquired
by ZEVEX after such date where such development or acquisition is not
within the scope of the product or is not embodied in the Product.
(c) Nothing in this Agreement shall be deemed to prevent ZEVEX
from engaging in the design, engineering, fabrication or manufacture
of products embodying or using ZEVEX's Technology and Manufacturing
Processes; provided that such products do not embody or use any of
Cardiac Science's Confidential Information; and further provided that
such design, engineering, fabrication or manufacture of such products
would not otherwise constitute a breach of, or default under, this
Agreement.
1.11 PRIORITY AMONG CONTRACT DOCUMENTS. The whole of this Agreement
and Appendixes attached hereto are to be taken together so as to give effect to
every part thereof to the maximum extent practicable, with each document helping
to interpret the other. In the event of any conflict or inconsistency between
the terms of this Agreement and the terms of any other document, the terms of
this Agreement shall prevail.
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ARTICLE 2
MANUFACTURING OBLIGATIONS
2.1 MANUFACTURING. During the term of this Agreement, ZEVEX shall
timely manufacture the Product in compliance with the Product Specifications
described in Appendix II (the "Manufacturing Services"). Both during the term
and following termination of this Agreement, ZEVEX shall not supply the Product
(or any prototype thereof) to any third party whatsoever. All Products shall be
produced with Cardiac Science's logo imprinted or molded thereon, as the
relevant Product Specifications may require.
2.2 PURCHASE ORDERS. Cardiac Science shall provide a six-month
rolling forecast which shall be updated at the end of each calendar month. The
first three months of this forecast will be a firm commitment for ZEVEX to
deliver and for Cardiac Science to accept deliveries. Cardiac Science shall
issue a purchase order for each lot of product purchased. The parties shall
cooperate to purchase long lead items and obtain quantity discounts beyond the
three-month rolling forecast described in Paragraph 2.1.
2.3 SHIPMENT. The delivery of each Purchase Order shall be within
the time specified in the Purchase Order. All deliveries to Cardiac Science are
F.O.B. Salt Lake City, Utah, at point of manufacture using ZEVEX's standard
carriers unless a preferred carrier is identified in writing by Cardiac Science.
All risk of loss after delivery to shipper is borne by Cardiac Science.
2.4 PURCHASE ORDER CANCELLATION. In the event Cardiac Science
cancels a Purchase Order and ZEVEX has complied with its obligations under this
Agreement, Cardiac Science shall be responsible for the next three months of
production identified in the rolling forecast plus any extended inventory
ordered in excess of that three-month requirement and mutually agreed upon by
the parties as set forth in accordance with Paragraph 2.2.
2.5 PRICING. Cardiac Science shall pay for production and testing
of the Product at 1.8 times the total cost of material (hereafter the "Costed
▇▇▇▇ of Materials"). Such prices do not include freight, insurance, state or
local taxes. The Costed ▇▇▇▇ of Materials will be compiled from vendor
quotations approved by Cardiac Science. Engineering or vendor changes which
significantly impact (plus or minus 10%) the Costed ▇▇▇▇ of Materials will be
grounds for adjusting production pricing prior to the completion of one full
production year. Pricing will remain fixed for a period of one year (subject
to significant changes as previously stated) and will be reviewed and
requoted annually.
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2.6 PAYMENT. Cardiac Science shall pay ZEVEX within 30 days of
receipt of ZEVEX's invoice.
2.7 WARRANTY. ZEVEX warrants and represents that it shall strictly
adhere to the Product Specification set forth in Appendix III attached hereto
and by reference made a part hereof. ZEVEX warrants and represents that it has
the requisite and necessary experience, all necessary licenses and permits,
equipment, facilities and personnel to properly perform the Manufacturing
Services, and further warrants and represents that it is not a party to any
other agreement that would in any way conflict with, or restrict, its ability to
perform the Manufacturing Services.
2.8 DEFECTIVE PRODUCTS. ZEVEX warrants for a period of 15 months
from shipment that all Products sold to Cardiac Science shall be free from any
defects in ZEVEX design, materials, workmanship and shall conform to Product
Specification, excluding software. Warranty and non-warranty repair services
shall be provided at ZEVEX's Salt Lake City facilities F.O.B. ZEVEX will use
its best efforts to repair defective products as quickly as possible with
"turnaround time" to be four (4) weeks from receipt at the ZEVEX facility.
Non-warranty service pricing shall be negotiated in good faith at such time as
those services can be identified and the associated parts and labor costs are
known by the parties. ZEVEX hereby excludes all warranties not herein stated,
whether express or implied by operation of law, course of dealing, trade usage,
representation, statement or otherwise.
2.9 PRODUCTION TOOLING AND FIXTURES. Cardiac Science shall pay for
and retain title to any production tooling. ZEVEX shall be responsible for
periodic maintenance costs associated with tooling. Should any tooling require
replacement, ZEVEX shall receive approval from Cardiac Science to replace the
tooling and Cardiac Science shall be responsible for cost of placement.
2.10 DESIGN CHANGES AFTER PRODUCTION. Any required changes in design
will be negotiated. Any charges for obsolete parts shall be paid by Cardiac
Science.
2.11 CHANGE OF CONTROL. In the event that Cardiac Science is
acquired or merges with another organization, whereby, directly or indirectly,
control in excess of 50% of the Company or all or substantially all of its
business or assets is acquired by a third party in a sale or exchange of stock,
merger or consolidation, sale of assets or other similar transaction and the
successor corporation desires to be released from this contract, the following
shall apply: (a) Cardiac Science or the successor corporation may elect to
terminate this Agreement, without cost except as set forth in this paragraph,
(b) the successor corporation shall be responsible for the three guaranteed
months of firm product deliveries and parts specified in paragraph 2.2, and (c)
ZEVEX will, at that time, be awarded up to ninety thousand
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(90,000) shares (the "Termination Shares") of Cardiac Science common stock (as
adjusted for splits or combinations). ZEVEX will then be free to approach the
new organization and negotiate the possible continuation of manufacturing
business. If this Agreement is so terminated during the first two years of the
Agreement, ZEVEX will be entitled to 100% of the Termination Shares. After the
end of two years, the number of Termination Shares decreases to 70% of the
Termination Shares; and at the end of three years, the amount decreases another
30% to 40%; and at the end of four years, the amount decreases another 30% to
10%, then decreases to 0% at the end of the fifth year.
ARTICLE 3
REGULATORY RESPONSIBILITY; TRADEMARKS
3.1 REGULATORY APPROVALS. Cardiac Science shall undertake and be
responsible for the procurement of any and all regulatory approvals and/or
registrations and customs approval necessary for sale of the Product. Cardiac
Science shall be responsible for complying with the U.S. Food, Drug and Cosmetic
Act, Medical Device Amendments and the regulations promulgated thereunder for
sale of the Products under Cardiac Science's private label in the United States
("FDA Approval"). ZEVEX shall aid and cooperate with, where appropriate,
Cardiac Science in fulfilling the responsibilities set forth in this paragraph.
3.2 ZEVEX'S QUALIFICATIONS. ZEVEX is an FDA registered instrument
manufacturer and is ISO 9001 and EN 46001 certified and shall notify Cardiac
Science of any change in that status during the term of this agreement. Should
ZEVEX lose its status as an FDA registered instrument manufacturer or lose its
ISO 9001 and EN 46001 certification, it shall have a period of 30 days to have
the certification reinstated and if not reinstated within this cure period,
Cardiac Science shall have the right to terminate this contract in accordance
with paragraph 5.3.
3.3 TRADEMARKS. Cardiac Science shall have the sole right to
prepare, file, prosecute and maintain trademark applications or registrations
with respect to the Product. All such applications and registrations shall be
at Cardiac Science's expense. Cardiac Science shall retain ownership of these
applications and registrations throughout the term of this Agreement and
thereafter. ZEVEX shall from time to time, as Cardiac Science may deem
appropriate, execute and deliver to Cardiac Science any documents of transfer or
assignment relating to the Product and cooperate fully in obtaining whatever
approval or product protection that Cardiac Science may deem desirable or
appropriate.
3.4 PUBLIC RELEASE OF INFORMATION. Any public statement, verbal or
written, regarding the other party shall be approved by the other party in
advance. Cardiac Science approves
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the use of images of the Product by ZEVEX advertising, including printed
advertising materials, Internet web page, trade show booth exhibits and
broadcast media. The foregoing shall not prevent either party from issuing a
press release or making a public filing where required by law.
ARTICLE 4
PRODUCT LIABILITY
4.1 NOTICE OF PRODUCT LIABILITY CLAIMS. Each Party shall notify the
other promptly in writing of any product liability claim brought with respect to
the Product based on alleged defects in the design, manufacture, packaging, or
labeling of the Product or other adverse claim regarding the Product. Upon
receiving such written notice, Cardiac Science shall assume and have sole
control of the defense of any such claim, including the power to conduct and
conclude any and all negotiations, compromises or settlements. ZEVEX shall
promptly comply with all reasonable requests from Cardiac Science for
information, materials or assistance with respect to the conduct of such
defense.
4.2 NOTICE OF INVESTIGATION. ZEVEX and Cardiac Science shall
promptly notify each other of any potential or actual investigation or
governmental activity relating to the Product.
4.3 PRODUCT LIABILITY INSURANCE. During the term of this Agreement,
both parties, at their individual expense, shall maintain in force and effect
product liability insurance at a minimum liability limit of four (4) million
dollars covering the Product.
ARTICLE 5
TERM AND TERMINATION; FORCE MAJEURE
5.1 INITIAL TERM. Unless terminated sooner pursuant to the further
provisions of this Article, this Agreement shall expire five years from the date
hereof.
5.2 EXTENSIONS. Cardiac Science has three successive options to
extend the term of Agreement for a period of one (1) additional year (an
"Extension Period"). Cardiac Science's right to exercise each option to extend
the Agreement for another year is expressly conditioned upon Cardiac Science not
being in default under this Agreement at the time the option is exercised and
not being in default between the time the option is exercised and the start of
the Extension Period.
5.3 TERMINATION BY CARDIAC SCIENCE. Cardiac Science shall have the
right to terminate this agreement if ZEVEX fails to
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perform in accordance with this agreement and its appendices and fails to cure
such default within 90 days of written notice.
5.4 TERMINATION BY ZEVEX. ZEVEX shall have the optional right to
terminate this Agreement on written notice to Cardiac Science if Cardiac Science
(a) has failed to make any payments required by this Agreement in the time
provided therefor and (b) following fourteen (14) days' notice of such failure
from ZEVEX, Cardiac Science does not pay all delinquent sums in full.
5.5 TERMINATION BY EITHER PARTY. In addition to their respective
rights set forth in paragraphs 5.3 and 5.4, either party shall have the right to
terminate this agreement on written notice to the other party under the
following circumstances:
(a) by mutual agreement;
(b) if the other party materially defaults in the performance
of any material obligation hereunder (including failing to meet a
milestone on a timely basis as set forth in the Statement of Work and
such default continues for more than thirty (30) business days after
receiving written notice from the other party of such default;
provided, however, there shall be no default under this provision if
the defaulting party has cured the default within sixty (60) business
days after the giving of notice;
(c) in the event that the other party is declared insolvent, or
bankrupt by a court of competent jurisdiction, or a voluntary petition
of bankruptcy is filed in any court of competent jurisdiction by such
other party, or such other party shall make or execute an assignment
for the benefit of creditors, or a receiver is appointed by a court of
competent jurisdiction over all or a substantial portion of the other
party's assets and such receivership is not dismissed within 30 days
of appointment, or
(d) in the event of the issuance of a final order, decree or
other action by any competent judicial authority or governmental
agency which restrains, enjoins or prohibits the sale or introduction
into interstate commerce of the System and such restraint, injunction
or prohibition is not vacated within 30 days thereafter.
5.6 SURVIVAL. The termination or expiration of this Agreement shall
be without prejudice (a) to the rights of any party to receive upon its request
all payments accrued and unpaid, or all documents, data and deliverables not
delivered, as of the date of such expiration or termination; (b) the rights and
remedies of either party with respect to any previous breach or
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default under any representation, warranty or covenant herein contained; and
(c) rights under any other provision of this agreement which expressly and
necessarily calls for performance after expiration or termination.
5.7 FORCE MAJEURE. If the performance of this Agreement or of any
obligation hereunder is prevented, or restricted or interfered with by reason of
any event of Force Majeure, the Party so affected, upon prompt notice to the
other Party, shall be excused from performance, but only for the duration of
such inability, provided that the Party so affected shall use its best effort to
avoid or remove such causes of nonperformance, and shall continue performance
hereunder with the utmost dispatch whenever such causes are removed.
ARTICLE 6
PRODUCT LIABILITY
6.1 ZEVEX INDEMNITY. ZEVEX agrees to indemnify, defend and hold
harmless Cardiac Science or any of their respective customers, against any claim
arising out of or relating to any loss or damage, including bodily injury or
death, incurred by reason of or resulting from a defect in the product
proximately caused by ZEVEX's design, engineering, fabrication, manufacture,
packaging or labeling thereof; provided that the Product is used for its
intended purpose.
6.2 CARDIAC SCIENCE'S INDEMNITY. Cardiac Science shall indemnify,
defend and hold ZEVEX harmless against any claim arising out of or relating to
any loss or damage, including bodily injury or death, incurred by reason or
resulting from any defect in the Product, which is not caused by reason of or
resulting from a defect in the Product proximately caused by ZEVEX's design,
engineering, fabrication, manufacture, packaging or labeling thereof, provided
that the Product is used for its intended purpose.
ARTICLE 7
MISCELLANEOUS
7.1 NOTICES. Any notices required or permitted to be given to a
Party hereunder:
(a) shall be in writing;
(b) shall be delivered or sent to such Party at its address
given below:
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(i) if to ZEVEX:
ZEVEX, INC.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(ii) if to Cardiac Science:
Cardiac Science
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
or such other address as such Party may hereafter specify; and
(c) shall be deemed given (i) when personally delivered to such
Party; (ii) when transmitted by telecopy and receipt of such
transmission is confirmed by telecopy; (iii) 24 hours after dispatch
via an established overnight courier service; or (iv) three (3) days
after mailing by prepaid first class, certified mail with return
receipt requested.
7.2 ATTORNEYS' FEES. In the event of any litigation, arbitration,
judicial reference or other legal proceeding involving the Parties to this
Agreement to enforce any provision of this Agreement, to enforce any remedy
available upon default under this Agreement, or seeking a declaration of the
rights of either Party under this Agreement, the prevailing Party shall be
entitled to recover from the other such attorneys' fees and costs as may be
reasonably incurred, including the costs of reasonable investigation,
preparation and professional or expert consultation incurred by reason of such
litigation, arbitration, judicial reference, or other legal proceeding.
7.3 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Utah, without regard to the
principles of conflicts of laws of such State.
CARDIAC SCIENCE ZEVEX INCORPORATED
a Delaware corporation a Delaware corporation
By: [ILLEGIBLE] By: [ILLEGIBLE]
------------------------ ------------------------
Its: CEO/Secretary Its: CEO
-------------------- --------------------
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