WOODALL, Justice.
Karl Storz Endoscopy-America, Inc., and others (collectively "KSEA") appeal from an order denying their motion to compel arbitration of this dispute with Integrated Medical Systems, Inc. ("IMS"). We reverse and remand.
KSEA, a California corporation, is a "wholly-owned subsidiary of Karl Storz's GmbH & Co. (`Storz'), located in Tuttlingen, Germany." It is the "exclusive" national distributor of a medical device known as the "Storz Rigid Endoscope" (the "Storz Endoscope"). IMS is an Alabama Corporation that purports to "repair" rigid endoscopes, including the Storz Endoscope.
This dispute arises out of the settlement of an action commenced by KSEA against IMS in United States District Court for the Central District of California. In essence, the complaint in that action alleged that the "repairs" effected by IMS amounted to a "remanufacture" of the Storz Endoscope and constituted, among other things, a trademark infringement. That litigation culminated in a comprehensive Settlement Agreement (the "Agreement"), effective September 1, 1998.
The Agreement provided in pertinent part:
"IV. PROVISIONS RELATING TO THE UNDERTAKINGS HEREIN
"A. Neither this agreement, nor the fact of compliance by any party with the terms of the agreement, is intended by the parties to define or circumscribe, or reflect acquiescence in—other than for purposes of the agreement—past, present or future activities constituting or not constituting trademark or trade dress infringement or unfair competition with respect to activities performed on or to a KARL STORZ Rigid Endoscope."
"XI. TERM AND TERMINATION
". . . .
"B. This agreement may be terminated by ... IMS ... in the event of material breach by KSEA, which has not been satisfactorily cured within 30 days of the sending of written notice of said breach. In the event of termination as a consequence of material breach, ... the provisions of this agreement as between or among the terminating parties shall become null and void...."
"XII. MEDIATION/ARBITRATION:
"A. Except as otherwise specifically provided for herein, any dispute relating to whether a material breach of this agreement has occurred by any party... shall initially be attempted to be resolved by the involved parties through non-binding mediation to be commenced within 30 days following expiration of the period for cure of a noticed breach....
"B. If within 30 days after the commencement of mediation, a resolution of the dispute has not been achieved, the dispute may thereafter be submitted by any party to binding arbitration under the commercial rules of the American Arbitration Association then in effect.... The forum of arbitration shall be Chicago, Illinois, but the governing law for such arbitration nevertheless shall be the law of the State of California. The scope of binding arbitration shall, as noted, be strictly limited to ... a determination of whether a material breach of this agreement permitting termination has occurred, and the award of compensatory damages therefor, if any,... and shall in no manner encompass any issues respecting the validity, enforceability or infringement of any KSEA trademarks or trade dress, or unfair competition or any like cause or issue related thereto, which issues, matters and causes are reserved for U.S. district court determination as may be initiated in the event of termination of this agreement.... Each party is required to continue to perform its obligations under this agreement pending final resolution of any such dispute."
"XVI. APPLICABLE LAW
"The validity and interpretation of this agreement shall be governed by and construed in accordance with the laws of the State of California."
The execution of the Agreement was followed almost immediately by a series of communications between representatives of IMS and KSEA regarding compliance with its terms. A letter dated October 20, 1998, from a representative of IMS stated:
"As we have discussed, Storz has been charging `repair-exchange' prices to IMS customers that exceed standard rates. Also, Storz representatives have been aggressively, and incorrectly, telling customers across the country that the settlement represents a defeat for IMS and a surrender to Storz's demands.
"IMS formally requests, therefore, that (a) Storz immediately comply with Section III.B. of the Agreement so that IMS customers are charged the same prices as Storz customers; and (b) Storz implement whatever measures are necessary to prevent the breach of Section IX. by its sales representatives.
"Please consider this a notice of material breach pursuant to Section XI.B. of the Agreement."
(Emphasis added.)
KSEA responded in a letter dated October 22, 1998, stating in part:
"We are not aware of any instances where an IMS customer has been charged `repair-exchange' prices by KSEA that exceed KSEA's existing standard rate list prices therefor. However, if you will provide me with particulars of the customers and transactions you have reference to, we will have KSEA pull the relevant invoices and we will promptly get back to you.
"As for statements allegedly made by KSEA sales representatives, again we are not aware of any instances of the type you have referenced. If you will provide me with specifics of the individuals, customers and dates involved, we will have KSEA investigate this promptly."
By a letter dated November 4, 1998, IMS responded as follows:
"I received your October 22 letter. Under ordinary circumstances, I would certainly understand your request for documentation of Storz's predatory pricing and disparagement that constitute breaches of the settlement agreement. However, Chip [Antoine] has acknowledged to Gene [Robinson] and Bo [Mundy] that these actions are taking place and states that he can't do anything about them. This response is unacceptable, and IMS requests mediation pursuant to the settlement agreement.
"Notice of breach was transmitted October 21, so the mediation should take place on or before November 21 in Chicago. Please call me so that we can work out the details."
(Emphasis added.)
KSEA responded with a letter dated November 6, 1998, stating in pertinent part:
"It is our understanding that you were not in attendance at the meeting last week among Chip Antoine, Gene Robinson and Bo Mundy. Based upon the information we have been provided, your sense of the tenor and conclusions of that meeting, and in particular your attribution to Mr. Antoine of certain acknowledgements allegedly made by him, is inaccurate.
"What you have elected to term as `predatory pricing' is, as we understand it, nothing of the sort. The agreement provides that, for services performed by KSEA for [IMS] customers (for example, the provision of `refurbish/exchange' scopes), KSEA will bill the customer at KSEA's then-existing standard rates therefor. We are not aware of any instance where KSEA's billing to the customer was not in strict compliance with this agreement provision based upon the existing KSEA standard list prices. It is always possible, or course, that some instances of miscommunication might have occurred between IMS reps and KSEA's customer service department in connection with requests for pricing. This is precisely why we have requested details from you so that we can see if anything of this nature may have inadvertently occurred, and we would continue to encourage you to give us some specifics.
"As for what you have elected to term as `disparagement,' you appear to be unaware that, at the meeting last week, KSEA too expressed concerns about instances of misinformation and/or misrepresentation by IMS sales reps that had come to its attention. We understand that the conclusion of the meeting in this respect was that the parties would each draft for review a suitable clarifying communication to their respective sales forces regarding the agreement relationship.
"In short, we were given to understand that the meeting last week was very productive in airing, discussing and clarifying the parties' relationship, and that agreement was had to further confer in certain of these respects in the near future. We trust that the formal and adversarial tone of your letter is born simply of not having all the facts, rather than an intention to announce a complete change of attitude on the part of your clients.
"For at least these reasons, your demand for mediation is not considered warranted, nor does it accurately carry out (and indeed directly contradicts and interferes with) what we understand to be the intentions of the parties based upon the meeting. Moreover, the agreement provision for mediation cannot in any event be invoked until the expiry of the cure period, so your demand is premature."
(Emphasis added.)
In a letter dated November 17, 1998, IMS stated:
"It is true that the parties do not have to schedule or convene a mediation session prior to the lapse of the cure period. However, based on my understanding of the Florida meeting and Storz's ongoing course of conduct, I doubt that Storz will halt its breaches of the agreement in the next week.
"Chip's recent statement that he hopes IMS will someday be unable to repair any Storz scopes, Storz's refusal to charge IMS the standard contract rates at the hospitals under contract with Storz, and the campaign of misrepresentation and disinformation which Storz reps are waging against IMS across the country all argue for scheduling a mediation session as quickly as possible."
KSEA responded in a letter dated November 18, 1998, stating in pertinent part:
"From the tenor of your
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