Exhibit 10.19
OEM SUPPLY AGREEMENT
This is an Agreement dated and effective as of the last date of signature
below ("Effective Date"), by and between Ethicon Endo-Surgery, Inc., a
corporation organized under the laws of the State of Ohio, having a business
address at 0000 Xxxxx Xxxx, Xxxxxxxxxx, Xxxx 00000 ("Ethicon"); and General
Surgical Innovations, a corporation organized under the laws of the State of
California, having a business address at 0000X Xxxxxx Xxxxx, Xxxx Xxxx,
Xxxxxxxxxx 00000 ("GSI").
ARTICLE 1 - BACKGROUND
1.1 Ethicon manufactures and markets surgical instruments and accessories
for minimally invasive surgery, including trocars, staplers, ligation devices,
hand-held instruments, retractors, manipulation devices and electrosurgery
products. As of the Effective Date hereof, Ethicon has developed and begun
marketing a balloon dissector to facilitate minimally invasive surgery for
hernia repair.
1.2 GSI has developed and patented an array of balloon dissectors and
their methods of use to facilitate minimally invasive surgery for hernia repair,
urinary stress incontinence ("USI"), plastic and reconstructive surgery,
vascular surgery, and other surgical methods.
1.3 Ethicon desires to qualify GSI as an original equipment manufacturer
("OEM") supplier for certain balloon dissectors, and to thereafter purchase from
GSI certain balloon dissectors meeting agreed-upon specifications for resale to
Ethicon's customers. Correspondingly, GSI desires to be qualified as an OEM
supplier of certain balloon dissectors to Ethicon, and to thereafter sell
certain balloon dissectors to Ethicon meeting agreed-upon specifications.
1.4 As of the Effective Date hereof, the parties acknowledge an Existing
OEM Supply Agreement (as defined below), which may be renewed by its parties,
notwithstanding any provision of this Agreement.
Therefore, GSI agrees to supply to Ethicon, and Ethicon agrees to purchase
from GSI, certain balloon dissectors upon the terms and conditions set forth
below.
ARTICLE 2 - DEFINITIONS
The following terms, when used with initial capital letters, shall have the
following meanings, whether used in the singular or the plural:
2.1 "Affiliate" is any entity that directly or indirectly controls, is
controlled by, or is under common control with a party, and for such purpose
"control" shall mean the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of the entity, whether
through the ownership of voting securities, by contract or otherwise.
2.2 A "Change of Control" shall be deemed to have occurred if any of the
following occurs: a) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of GSI representing thirty percent
(30%) or more of the combined voting power of GSI's then outstanding securities;
b) the stockholders of GSI approve a merger or consolidation of GSI with any
other corporation, other than a merger or consolidation which would result in
the voting
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securities of GSI outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least sixty percent (60%) of the
combined voting power of the voting securities of GSI or such surviving
entity outstanding immediately after such merger or consolidation, or c) or
the stockholders of GSI approve a plan of complete liquidation of GSI or an
agreement for the sale or disposition by GSI of all or substantially all of
GSI's assets.
2.3 "OEM Balloon Dissectors" are collectively the First OEM Balloon
Dissector and the Subsequent OEM Balloon Dissectors. The parties acknowledge
that, during the term of the Existing OEM Supply Agreement or any extension
thereof, OEM Balloon Dissectors exclude all products covered under the Existing
OEM Supply Agreement, and the Spacemaker Balloon Dissector.
2.4 "Bonutti Agreement" is an agreement between Apogee Medical Products,
Inc. and GSI, whose last date of signature therein is March 9, 1995, a copy of
which is provided by GSI to Ethicon as of the Effective Date.
2.5 "Calendar Quarter" is the usual and customary Ethicon calendar
quarter, used for internal accounting purposes, of approximately three (3)
months, in which each of the first two months consist of four weeks and the
third month consists of five weeks.
2.6 "Ethicon Balloon Dissector" is the balloon dissector Ethicon has
itself begun to manufacture and sell to its customers, identified as the
ENDOPATH XXX 12 Balloon Dissector, or any substantially identical modifications
thereof.
2.7 "Existing OEM Supply Agreement" is an agreement between GSI and U.S.
Surgical Corporation effective March 9, 1994, a redacted copy of which has been
made publicly available and is on file with the Securities and Exchange
Commission ("SEC").
2.8 "Expanded Field" shall mean all Tissue Dissectors, inclusive of all
products covered under the Existing OEM Supply Agreement and the Spacemaker
Balloon Dissector, in the field of hernia repair and USI.
2.9 "FDA" shall mean the U.S. Department of Health and Human Services,
Food and Drug Administration, or any successor governmental organization.
2.10 "Field" shall mean all Tissue Dissectors in the field of hernia repair
and USI, exclusive of (i) all products covered under the Existing OEM Supply
Agreement and (ii) the Spacemaker Balloon Dissector.
2.11 "First Accounting Quarter" is the first Calendar Quarter following the
Effective Date of this Agreement. The successive Calendar Quarters following
the First Accounting Quarter shall be referred to in their numerical order as,
for example, the "Second", "Third", "Fourth" and "Fifth" Accounting Quarter,
until the expiration or termination of this Agreement. For purposes of this
Agreement, the final Accounting Quarter shall extend from the end of its
preceding Accounting Quarter to the termination or expiration of this Agreement.
2.12 "First OEM Balloon Dissector" is the balloon dissector labeled under
the Ethicon name which GSI initially supplies to Ethicon hereunder in accordance
with and meeting the product and quality assurance specifications mutually
agreed to between the parties. The parties may hereinafter modify such
specifications upon mutual written consent.
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2.13 "First Commercial Delivery" is the first delivery of the First OEM
Balloon Dissector from GSI to Ethicon, pursuant to Article 4.7 below, excluding
sales samples and training aids intended for promotional use only.
2.14 "510(k) Clearance" shall mean premarket concurrence of substantial
equivalence in accordance with Article 510(k) of the U.S. Food, Drug and
Cosmetic Act of 1938, as amended.
2.15 "GSI Patents" are each patent and patent application, U.S. and
foreign, which GSI owns or is empowered to grant a license to Ethicon prior to
or during the term of this Agreement or any extension thereof, the practice of
which is reasonably necessary for Ethicon to sell Tissue Dissectors.
2.16 "Guaranteed Payment" shall mean a negotiated transfer price for the
Tissue Dissectors multiplied by a guaranteed minimum number of units of such
dissectors which a potential purchaser (either Ethicon or a third party)
would be obligated to purchase from GSI in a given [ * * * ]. In the case of
Ethicon, such negotiated transfer price will not [ * * * ].
2.17 "Insolvency Event" shall mean the occurrence of any of the following
events:
(a) GSI shall admit in writing its inability, or be generally unable,
to pay its debts as such debts become due; or
(b) GSI shall (1) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its property, (2) make a general assignment
for the benefit of its creditors, (3) commence a voluntary case under the United
States Bankruptcy Code, as now or hereafter in effect (the "Bankruptcy Code"),
(4) file a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or
readjustment of debts, (5) fail to controvert in a timely and appropriate
manner, or acquiesce in writing to, any petition filed against it in any
involuntary case under the Bankruptcy Code, or (6) take any corporate action for
the purpose of effecting any of the foregoing; or
(c) A proceeding or case shall be commence against GSI in any court
of competent jurisdiction, seeking (1) its liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of its debts, (2)
the appointment of a trustee, receiver, custodian, liquidator or the like of GSI
or of all or any substantial part of its assets, or (3) similar relief in
respect of GSI under any law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or adjustment of debts, or an order, judgment or
decree approving or ordering any of the foregoing shall be entered and continue
unstayed and in effect for a period of 90 days; or an order for relief against
GSI shall be entered in an insolvency case under the Bankruptcy Code.
2.18 "Kieturakis Agreement" is an agreement between Xxxxxx X. Xxxxxxx, M.D.
or his designee (represented by GSI to be GSI) and Xxxxxx Xxxxxxxxxx, M.D., made
as of April 29, 1992, and as filed with the SEC.
2.19 "Regulatory Compliance" shall mean compliance with (i) all applicable
statutes, laws, and regulations, including good manufacturing practices ("GMP");
(ii) Ethicon Endo-Surgery, Inc. Quality Assurance requirements, and (iii)
Xxxxxxx & Xxxxxxx Corporate Quality Assurance requirements generally applicable
to all suppliers of products to Xxxxxxx & Xxxxxxx companies in effect as of the
Effective Date, and as amended by Xxxxxxx & Xxxxxxx.
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2.20 "Spacemaker Balloon Dissector" is collectively the Spacemaker II
balloon dissector and Spacemaker World balloon dissector both of which GSI has
made commercially available.
2.21 "Subsequent OEM Balloon Dissectors" are balloon dissectors labeled
under the Ethicon name which GSI subsequently supplies to Ethicon hereunder
following the initial supply of the First OEM Balloon Dissector, and supplied in
accordance with and meeting the product and quality assurance specifications
mutually agreed to between the parties and set forth hereinafter in successive
appendices to this Agreement. The parties may modify such specifications upon
mutual written consent.
2.22 "Tissue Dissectors" are surgical instruments or the use of such
instruments, which are covered by a Valid Claim of any of the GSI Patents for
separating adjacent tissue layers to create an operative space during or in
connection with a medical or surgical procedure, including but not limited to
the OEM Balloon Dissectors and the Ethicon Balloon Dissector, and whether for
open or endoscopic surgery.
2.23 "Trademarks" are (i) U.S. Trademark Registration No. 1,860,825,
"Spacemaker" and (ii) the "General Surgical Innovations, Inc." and "GSI" names,
unregistered.
2.24 "Valid Claim" means any claim of the issued GSI Patents.
Notwithstanding the foregoing, the term "Valid Claim" will not include (x) any
claims which have been declared or rendered invalid or otherwise become
unenforceable by reissue, disclaimer, or any unappealed or unappealable decision
or judgment of a court or governmental agency of competent jurisdiction, or (y)
any claims of the GSI Patents that have lapsed or become abandoned.
ARTICLE 3 - TERM
3.1 The term of this Agreement shall be for a period of five years from
the Effective Date unless earlier terminated under Article 10 below. The
parties may extend the term of this Agreement for successive one (1) year
periods upon the terms and conditions set forth herein, provided the parties
mutually agree on a transfer price and minimum purchase requirements for the
OEM Balloon Dissectors. For a period of [ * * *] following the
termination of this Agreement, or any extension thereof, GSI shall not enter
into any agreement with a single distributor or OEM for exclusive rights to
supply Tissue Dissectors for resale in the Field to such party upon terms
requiring such distributor or OEM to make a Guaranteed Payment less than the
midpoint of those terms last offered in writing by GSI and by Ethicon.
Ethicon's offer will be deemed to be zero if Ethicon fails to make an offer
in writing.
ARTICLE 4 - RESPONSIBILITIES OF THE PARTIES
4.1 The parties shall cooperate with each other to qualify GSI as an OEM
supplier of OEM Balloon Dissectors for Ethicon, and to ensure that GSI
satisfactorily meets Ethicon's requirements for Regulatory Compliance and
manufacturing capacity. Ethicon shall render assistance to GSI as necessary or
desirable to reasonably expedite the qualification process, without charge to
GSI. Any costs incurred by GSI to expedite the qualification process, and to
meet the requirements of Regulatory Compliance, shall be borne by GSI.
4.2 Once Ethicon has qualified GSI as an OEM supplier, and GSI is
capable of meeting Ethicon's requirements for manufacturing capacity and
Regulatory Compliance, GSI shall manufacture and sell the OEM Balloon
Dissectors exclusively to Ethicon, and shall not sell the OEM Balloon
Dissector to any third party. After the date that (i) Ethicon has qualified
GSI as an OEM supplier, and (ii) GSI is capable of meeting Ethicon's
requirements for manufacturing capacity and Regulatory Compliance, Ethicon
will exclusively purchase tissue Dissectors in the Field from GSI, and will
not manufacture or have manufactured for it (except by GSI) such dissectors,
except as permitted under Article 8 below. Ethicon also agrees not to
manufacture, have
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manufactured, sell or market Tissue Dissectors, except for (a) the Ethicon
Balloon Dissector, (b) Tissue Dissectors purchased from or on behalf of
GSI, or (c) as permitted under Article 8 below. GSI shall not change the
form, fit, function, color, components or materials of the OEM Balloon
Dissectors, or the process by which the OEM Balloon Dissectors are
manufactured, without the prior written consent of Ethicon (which consent
will not be unreasonably withheld).
4.3 (a) During the original term of this Agreement, Ethicon shall pay[
* * *].
(b) The parties shall negotiate in good faith the transfer price of
any Subsequent OEM Balloon Dissectors which GSI desires to supply to Ethicon
and Ethicon desires to purchase from GSI.
(c) During the term of this Agreement or any extension thereof, the
[ * * * ] for fully functional sample units of the First OEM Balloon
Dissector shall be set forth in Appendix 1. The [ * * * ] for fully
functional sample units of Subsequent OEM Balloon Dissectors shall be
mutually agreed upon.
4.3A (a) During the original term of this Agreement, GSI shall pay
[ * * * ] for each component or subassembly purchased from Ethicon for use in
the First OEM Balloon Dissector as set forth in Appendix 1.
(b) The parties shall negotiate in good faith the transfer price of
any components or subassemblies purchased from Ethicon for use in Subsequent
OEM Balloon Dissectors.
(c) During the term of this Agreement or any extension thereof, the
[ * * * ] for fully functional sample components or subassemblies for the
First OEM Balloon Dissector shall be set forth in Appendix 1. The [ * * * ]
for fully functional sample components or subassemblies of Subsequent OEM
Balloon Dissectors shall be mutually agreed upon.
4.4 Ethicon shall pay the [ * * * ] set forth in Article 4.3 above for
delivery of the OEM Balloon Dissectors within thirty (30) days from the date of
invoice, F.O.B. GSI's factory in Palo Alto, California, or other location
mutually agreed upon between the parties. The date of invoice shall not be
earlier than the date of shipment. GSI shall ship, at Ethicon's cost, to any
location chosen by Ethicon utilizing carriers chosen by Ethicon. The risk of
loss with respect to the OEM Balloon Dissectors shall remain with GSI until the
OEM Balloon Dissectors are loaded aboard the common carrier in Palo Alto, or
other location mutually agreed upon between the parties. GSI will pack the OEM
Balloon Dissectors in a manner suitable for shipment to enable the OEM Balloon
Dissectors to withstand the effects of shipping, including handling during
loading and unloading.
4.5 GSI shall provide the following information at no cost to Ethicon:
(a) necessary data, descriptions, processes, photographs and
statements of claims for safety, efficacy or performance so that Ethicon may
prepare, at its cost, labeling, inserts and sales literature relating to the OEM
Balloon Dissectors;
(b) technical data to allow Ethicon to prepare up-to-date customer
instruction for the OEM Balloon Dissectors;
(c) a copy of the Device Master Record and the Device History Record,
as defined in 21 Code of Federal Regulations 800, for the OEM Balloon Dissectors
and components thereof; and
(d) copies of all U.S. and foreign regulatory submissions, including
the 510(k) submission, for the OEM Balloon Dissectors.
4.5A Ethicon shall provide the following information at no cost to GSI:
(a) Any information reasonably necessary for GSI to meet the
requirements of Regulatory Compliance for the purchase by or on behalf of
Ethicon of the OEM Balloon Dissectors.
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4.6 MINIMUM QUARTERLY PAYMENT REQUIREMENTS
(a) During each of the [ * * *] Accounting Quarters,
Ethicon shall purchase from GSI enough of the OEM Balloon Dissectors or, during
the period preceding GSI's qualification as Ethicon's OEM supplier, pay enough
earned royalties based on the sale of the Ethicon Balloon Dissector pursuant to
Article 9.1 below, to satisfy the following minimum quarterly payment
requirements:
ACCOUNTING QUARTER QUARTERLY MINIMUM PAYMENT REQUIREMENT
[ * * *] [ * * *]
[ * * *] [ * * *] [ * * *]
[ * * *] [ * * *] [ * * *]
[ * * *] [ * * *] [ * * *]
[ * * *] [ * * *] [ * * *]
[ * * *] [ * * *] [ * * *]
[ * * *] [ * * *] [ * * *]
[ * * *] [ * * *] [ * * *]
[ * * *] [ * * *] [ * * *]
If the actual sales of the OEM Balloon Dissectors or Ethicon Balloon Dissectors
(if applicable) for either procedural category set forth above (Hernia or USI)
in any Accounting Quarter exceeds the quarterly minimum payment requirement for
such quarter, then such excess may be applied as a credit to the other
procedural category for such quarter.
During the Accounting Quarters following the [ * * *] Accounting
Quarter, Ethicon's quarterly minimum payment requirement shall be based on the
greater of (i) [ * * *]or (ii) [ * * *].
(b) GSI shall consider satisfaction of the quarterly minimum payment
requirements of Article 4.6(a) and satisfaction of the mutual initiatives set
forth in Article 14.12A (provided GSI satisfies such initiatives in cooperation
with Ethicon) herein as complete satisfaction of any duty, whether express or
implied, which could be imposed upon Ethicon to commercially exploit its rights
under this Agreement, and is accepted by GSI in lieu of any best efforts
obligation on the part of Ethicon. If Ethicon fails to make its quarterly
minimum payment requirements to GSI, then GSI may provide Ethicon with written
notice of such failure. Ethicon shall have thirty (30) days after receiving
such written notice to deliver a binding purchase order to GSI for the OEM
Balloon Dissectors for delivery within the applicable quarter or to make a
payment to GSI in order to make up any deficiencies in its quarterly minimum
payment requirements. If Ethicon fails to take this action, then GSI may
manufacture and sell the Tissue Dissectors to third parties upon written notice,
or otherwise terminate this Agreement under Article 10.1 herein; provided,
however, Ethicon will not be relieved from its obligation to make the quarterly
minimum payments occurring prior to the termination of this Agreement.
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(c) The quarterly minimum payment requirements set forth under
Article 4.6(a) above shall for any applicable Accounting Quarter be reduced in
the following circumstances:
(i) If GSI fails for any reason within GSI's reasonable control
(other than (1) a Major Forces event under Article 14.8 below, (2) a failure by
Ethicon to supply components or subassemblies to GSI for use in OEM Balloon
Dissectors, or (3) breach by Ethicon) to deliver the OEM Balloon Dissectors to
Ethicon in accordance with the terms of this Agreement, or replace OEM Balloon
Dissectors which are defective under Article 5.1 below, then the quarterly
minimum payment requirements for the applicable Accounting Quarter(s) shall be
reduced by an amount equal to [ * * *] of the number of units of OEM
Balloon Dissectors not delivered or replaced.
(ii) If any of the OEM Balloon Dissectors are recalled from
market or withdrawn from sale for reason of safety, efficacy or quality
primarily due to GSI (and beyond Ethicon's reasonable control), (i)
involuntarily regardless of lot size, (ii) voluntarily and involving multiple
lots, or (iii) voluntarily and involving a single lot where such lot is not
immediately replaced; or if a Major Forces event under Article 14.8 occurs, then
the quarterly minimum payment requirements shall be waived until a period [
* * *] whichever is applicable, and shall then be proportionately
reduced.
(iii) If GSI fails to meet its obligations under Article 9.2
below, then the quarterly minimum payment requirements shall be waived until
such time as GSI does, in fact, meet its obligation under such article.
(iv) If this Agreement is terminated pursuant to Article 10 below
during any applicable Accounting Quarter, then the minimums shall be
proportionately reduced for such quarter, and Ethicon shall be relieved of
minimums thereafter.
4.7 Within thirty (30) days of the First Commercial Delivery, Ethicon
shall provide GSI with a forecast of its expected purchases of the OEM Balloon
Dissectors, including a schedule of desired delivery dates, for the following
[ * * *] and the [ * * *] of this forecast shall
constitute a binding purchase order. Thereafter, Ethicon shall update the
forecast monthly so that its expected purchases and schedule of desired
delivery dates are continually forecast for a [ * * *] the
[ * * *] of such rolling forecasts constituting a binding
purchase order. Unless both parties otherwise agree, the [ * * *]
month of each binding purchase order will be at [ * * *] or
not more than [ * * *] of the prior month's forecast for that same
month. Furthermore, Ethicon's forecasts and purchase orders must be
consistent with reasonable expected usage based on historical procedural
volumes and shall also be consistent with its practices with other suppliers.
4.8 Ethicon may adjust the total number of OEM Balloon Dissectors to be
delivered pursuant to Article 4.7 above upon thirty (30) days written notice,
provided however, that any such adjustment shall not serve to reduce Ethicon's
obligation to purchase the total number of OEM Balloon Dissectors indicated in
the binding purchase order In any given month, if Ethicon wants GSI to deliver
more than [ * * *] of the total number of the OEM Balloon Dissectors
indicated in the binding purchase order, then GSI shall not be obligated to
supply the excess above [ * * *] but GSI shall nevertheless use its
reasonable commercial efforts to deliver to Ethicon any such excess [ *
* *] on a priority basis.
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4.9 GSI shall use reasonable commercial efforts to deliver the OEM Balloon
Dissectors to Ethicon in accordance with the schedule of delivery dates
specified in the binding purchase orders set forth in Article 4.7 above.
4.9A Insofar as the terms and conditions of Ethicon's standard purchase
order (a copy of which is attached as Appendix 2) are contrary to or
inconsistent with the terms and conditions of this Agreement, the terms and
conditions of this Agreement shall control. The parties acknowledge that as of
the Effective Date there are existing terms and conditions of the Ethicon
standard purchase order that are contrary to or inconsistent with the terms and
conditions of this Agreement, and that the terms and conditions of this
Agreement shall control. Insofar as terms and conditions are added to such
purchase order after the Effective Date hereof, GSI shall not be subject to such
added terms and conditions unless specifically agreed to in writing.
4.9B All amounts due hereunder are payable in full to GSI without deduction
and are net of taxes (including any withholding tax) and custom duties.
4.9C Ethicon shall, at Ethicon's own expense, obtain and pay for import and
export licenses and permits, pay customs charges and duty fees, and take all
other actions required to accomplish the export and import of the OEM Balloon
Dissectors purchased by Ethicon. Ethicon understands that both Ethicon and GSI
are subject to regulation by agencies of the United States of America
government, including the United States of America Department of Commerce,
which prohibit export or diversion of certain technical products to certain
countries. Ethicon warrants that Ethicon will comply in all respects with all
such export regulations to the extent they relate to the OEM Balloon Dissector.
4.9D Ethicon shall provide GSI within ninety (90) days after the end of
each Calendar Quarter (for purposes of international information) and within
sixty (60) days after the end of each Calendar Quarter (for purposes of U.S.
information) the following information with respect to the term of this
Agreement: (i) a summary of the number of units of OEM Balloon Dissectors sold
(broken down (X) by the five digit customer's zip code (or as the Parties
otherwise mutually agree as necessary and reasonably available in order for GSI
to comply with its obligations to compensate its sales representatives and
employees), for sales in the United States and (Y) by country for sales
internationally), (ii) a copy of any market research which Ethicon has in its
discretion conducted regarding competition with respect to the OEM Balloon
Dissectors and changes in the market for the OEM Balloon Dissectors in the
United States or internationally, and (iii) a summary of the number of OEM
Balloon Dissectors held by Ethicon at the end of such quarter. Notwithstanding
whether Ethicon designates such information or any portion therof as
confidential, such information shall be deemed to be confidential and GSI shall
treat such information as confidential information in accordance with Article
9.4 below.
ARTICLE 5 - WARRANTY
5.1 GSI warrants during the warranty period set forth under Article 5.2
below that the OEM Balloon Dissectors delivered to Ethicon under this Agreement
shall be manufactured in accordance with the mutually agreed-upon
specifications, and that the OEM Balloon Dissectors so delivered shall be free
from material defects in design, construction, materials and workmanship (except
for components and design supplied solely by Ethicon). Ethicon may inspect the
OEM Balloon Dissectors within thirty (30) days of receipt of a shipment, on a
sample basis, to determine conformity with such specifications. If this
inspection shows a failure to meet
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such specifications, then Ethicon may return the entire lot in question to
GSI for a full credit, including credit for freight and insurance costs
incurred by Ethicon, with a written reasonably detailed description of the
reasons for rejection. Prior to issuing credit, GSI shall have thirty (30)
days to modify or correct the OEM Balloon Dissectors to conform to such
specification. Notwithstanding failure of Ethicon to inspect or return any
shipment, or its acceptance of any shipment, Ethicon shall be entitled during
the warranty period to return to GSI for exchange or full credit at Ethicon's
original cost, including incurred freight and insurance costs, OEM Balloon
Dissectors returned by a customer of Ethicon for material defects in design,
construction, materials or workmanship or failure to meet mutually agreed
upon specifications, except for components provided by Ethicon. Any
inspection by Ethicon shall not relieve GSI of its obligation to manufacture
OEM Balloon Dissectors which meet the Specifications and comply with good
manufacturing practices.
EXCEPT FOR THE EXPRESS LIMITED WARRANTY SET FORTH IN THIS ARTICLE 5.1, GSI
GRANTS NO WARRANTIES FOR THE OEM BALLOON DISSECTORS, EXPRESS OR IMPLIED, EITHER
IN FACT OR BY OPERATION OF LAW, BY STATUTE OR OTHERWISE, AND GSI SPECIFICALLY
DISCLAIMS ANY IMPLIED WARRANTY OF QUALITY, WARRANTY OF MERCHANTABILITY OR
WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE.
5.2 The warranty period shall be for a period of [ * * *] from
the date of GSI's shipment of an OEM Balloon Dissector to Ethicon. GSI shall
reasonably agree to extend this warranty period, up to an additional [ *
* *] based on applicable data generated by the parties during the term of
this Agreement or any extension thereof .
5.3 GSI agrees that Ethicon may pass the warranty given to Ethicon under
Article 5 above along to Ethicon's customers.
ARTICLE 6 - REGULATORY COMPLIANCE
6.1 GSI shall promptly file for 510(K) Clearance from the FDA to
manufacture and sell the First OEM Balloon Dissector as required by applicable
laws, rules and regulations, as soon as accurate and complete data and
information regarding the First OEM Balloon Dissector is made available to GSI
as required by applicable laws, rules and regulations. In addition, GSI shall
likewise file for 510(K) clearance for Subsequent OEM Balloon Dissectors which
GSI desires to sell to Ethicon and Ethicon desires to purchase from GSI. GSI
shall maintain and make available for Ethicon's review for the term of this
Agreement or any extension thereof all of the 510(K) Clearances for the OEM
Balloon Dissectors. Furthermore, GSI shall file, and maintain at its own cost,
all registrations for which GSI would be the appropriate party to so file and
maintain such registrations with the FDA and similar regulatory authorities in
the United States and in foreign countries which have the authority to approve
the sale of the OEM Balloon Dissectors for use in humans.
6.2 GSI represents and warrants that all OEM Balloon Dissectors sold or
delivered to Ethicon during the term of this Agreement or any extension thereof
shall be manufactured and delivered in accordance with Regulatory Compliance,
and that continually during the term of this Agreement or any extension thereof
no OEM Balloon Dissectors delivered by GSI to Ethicon will be adulterated or
misbranded at the time of delivery within the meaning of the Federal Food, Drug
and Cosmetic Act. GSI shall notify Ethicon as soon as practicable after
receiving notice of any claim or
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action by the FDA relating to non-compliance with this Article or any notice
with respect to any violation of any applicable laws, rules or regulations.
Both parties shall notify each other of any adverse reaction, malfunction,
injury or other similar claims with respect to the OEM Balloon Dissectors of
which either becomes aware.
6.3 GSI shall notify Ethicon of any FDA audit, or any audit from any other
regulatory body, of its factories for the manufacture of the OEM Balloon
Dissectors, or any request for information from the FDA or other regulatory body
related to the manufacture of the OEM Balloon Dissectors, as soon as practically
possible after GSI receives notice of such audit or such request.
6.4 Ethicon or its designated representative may, at its discretion and
upon ten (10) days written notice to GSI, conduct periodic GMP audits of GSI's
factories for the manufacture of the OEM Balloon Dissectors.
6.5 Upon mutual consent of the parties, which consent may not be
unreasonably withheld, or in the case of a recall required by an agency with
competent jurisdiction, GSI shall be required to institute and fund any recall,
field corrective action, or the like in circumstances relating to a breach by
GSI of the warranty set forth in Article 5 above or other breach of its
obligations hereunder. In such circumstances, the actual retrieval of the OEM
Balloon Dissectors and costs associated with that retrieval will be undertaken
and absorbed by Ethicon. The parties shall maintain adequate records concerning
traceability of the OEM Balloon Dissectors, and shall cooperate with each other
in the event that any procedures described in this paragraph are undertaken. In
the event of any such recall, GSI shall accept recalled OEM Balloon Dissectors
and deliver to Ethicon replacement OEM Balloon Dissectors at GSI's sole cost and
expense.
6.6 Because regulatory requirements vary throughout the world, the parties
agree to cooperate with one another to obtain regulatory approvals.
6.7 Both parties agree to comply with their state, federal, and
international regulatory requirements as are required for their status as a
medical device manufacturer or medical device distributor.
ARTICLE 7 - RESPONSIBILITY FOR CLAIMS
In order to distribute between themselves the responsibility for the
handling and expense of claims arising out of the manufacture, distribution,
sale or use of the OEM Balloon Dissectors, the parties agree as follows:
7.1 GSI shall be liable for and shall indemnify and hold Ethicon harmless
against any liability, damages or loss (other than loss of potential sales) and
from any claims, suits, proceedings, demands, recoveries or expenses, including
without limitation, expenses of total or partial device recalls, in connection
with the OEM Balloon Dissectors manufactured by GSI (other than (i) the Ethicon
Balloon Dissector which is manufactured by GSI or changes thereto requested
solely by Ethicon, and (ii) components or designs supplied solely by Ethicon)
arising out of, based on, or caused by:
(a) alleged defects in materials, workmanship or design of the OEM
Balloon Dissectors manufactured by or on behalf of GSI; or
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CONFIDENTIAL TREATMENT REQUESTED
(b) failure of the OEM Balloon Dissectors manufactured by or on
behalf of GSI to fulfill claims relating to safety, efficacy or performance
furnished by GSI under Article 4.5 above (excluding matters for which Ethicon is
responsible under Article 7.2 below); and
(c) claims of patent infringement made with respect to the OEM
Balloon Dissectors manufactured by or on behalf of GSI, or claims of trademark
infringement made with respect to Ethicon's use of GSI's Trademarks; and
(d) a breach of the representations and warranties set forth in
Article 14.1 below.
GSI shall obtain and maintain in full force and effect valid and
collectible product liability insurance in respect of the OEM Balloon Dissectors
for death, illness, bodily injury and property damage in an amount not less than
$2 million per occurrence. Such policy shall name Ethicon as an insured or an
additional insured thereunder and GSI shall grant like coverage to Ethicon under
a standard broad form vendor's endorsement thereto. GSI shall within ten (10)
days of the Effective Date provide Ethicon with evidence of this coverage,
provided that the existence of such coverage shall in no way limit GSI's
liability or obligations hereunder. Such insurance policy shall provide that in
the event such insurance coverage should be materially adversely changed or
terminated for any reason, the insurer thereunder will give GSI and Ethicon ten
(10) days prior notice of such change or termination.
7.2 Ethicon shall be liable for and shall indemnify and hold GSI harmless
against any liability, damages or loss (other than loss of potential sales) and
from any claims, suits, proceedings, demands, recoveries or expenses, including
without limitation, expenses of total or partial device recalls, (i) in
connection with the OEM Balloon Dissectors, and/or the Ethicon Balloon
Dissectors sold by Ethicon, or (ii) arising out of, based on, or caused by
claims whether written or oral, made or alleged to be made, by Ethicon in its
advertising, publicity, promotion, or sale of the OEM Balloon Dissectors where
such claims were not substantially the same as those claims furnished by GSI
under Article 4.5 above, or (iii) arising out of, based on, or caused by the
Ethicon Balloon Dissector which is manufactured by GSI or changes thereto
requested solely by Ethicon, or (iv) arising out of, based on or caused by
components or designs supplied solely by Ethicon, or (v) arising out of, based
on, or caused by the labeling of the OEM Balloon Dissectors where such labeling
was not substantially the same labeling information furnished by GSI under
Article 4.5 above, or by negligent handling by Ethicon of the OEM Balloon
Dissectors (excluding matters for which GSI is responsible under Article 7.1
above).
7.3 (a) GSI is the "Indemnifying Party" and Ethicon is the "Indemnified
Party" for purposes of Section 7.1, and Ethicon is the "Indemnifying Party" and
GSI is the "Indemnified Party" for purposes of Section 7.2. In the event a
Claim is made upon the Indemnified Party, the Indemnified Party shall promptly
give notice of such Claim to the Indemnifying Party, and shall promptly deliver
to such Indemnifying party all information and written material available to the
indemnified Party relating to such Claim. If such Claim is first made upon the
Indemnifying Party, the Indemnifying Party shall promptly give notice of such
Claim to the Indemnified Party.
(b) The Indemnified Party will, if notified of the Indemnifying
Party's election to do so within fifteen (15) days of the date of notice of a
Claim, permit the Indemnifying Party to defend in the name of the Indemnified
Party any Claim in any appropriate administrative or judicial proceedings and
take whatever actions may be reasonably requested of the Indemnified
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CONFIDENTIAL TREATMENT REQUESTED
Party to permit the Indemnifying Party to make such defense and obtain an
adjudication of such Claim on the merits, including the signing of pleadings
and other documents, if necessary; provided that the Indemnifying Party shall
defend the Claim with counsel reasonably satisfactory to the Indemnified
Party and provide the Indemnified Party with evidence reasonably satisfactory
to the Indemnified Party that the Indemnifying Party can satisfy the Claim if
it is upheld. In addition to the liability for the ultimate settlement or
judgment, if any, arising out of such Claim under this Agreement, the
Indemnifying Party shall be solely responsible for all the expenses incurred
in connection with such defense or proceedings, regardless of their outcome.
However, the Indemnifying Party shall not be responsible for any expenses,
including attorneys fees and costs, incurred by the Indemnified Party to
monitor the defense of the Claim by the Indemnifying Party.
(c) In the event the Indemnifying Party does not accept the defense
of such Claim under the terms hereof, the Indemnified Party shall be entitled to
conduct such defense and settle or compromise such Claim, and the Indemnifying
Party's indemnification obligation under this Agreement shall be absolute,
regardless of the outcome of such Claim. The Indemnified Party, at its option,
may elect not to permit the Indemnifying Party to control the defense against a
Claim. If the Indemnified Party so elects, then the Indemnifying Party shall
not be obligated to indemnify the Indemnified Party against any settlements,
judgments or other costs or obligations arising thereunder which the Indemnified
Party may make or incur relating to such Claim.
ARTICLE 8 - FAILURE TO SUPPLY, CHANGE OF CONTROL
OR INSOLVENCY EVENT
8.1 If GSI fails to supply the quantity of the OEM Balloon Dissectors on a
desired delivery date specified on a binding purchase order issued in compliance
with the terms of this Agreement (a "Failure to Supply Event") for any reason
other than those set forth under Article 14.8 below, and this failure lasts
longer than sixty (60) days from such desired delivery date, then so long as (i)
Ethicon is then in compliance with Articles 4.7 and 4.8 above at the time of
such Failure to Supply Event, and (ii) at such time, such event has not been
caused by Ethicon's failure to supply or have supplied components to GSI,
Ethicon shall thereafter have the right to immediately terminate this Agreement
upon written notice to GSI and to manufacture or have manufactured the Tissue
Dissectors. During such sixty (60) days, Ethicon agrees to cooperate with GSI
in any commercially reasonable manner in an effort to cure such event.
Additionally, if a Failure to Supply Event occurs following a Change of Control
or an Insolvency Event, and such failure lasts longer than thirty (30) days from
the date specified on the binding purchase order, then immediately upon written
notice to GSI, Ethicon shall have the right to immediately terminate this
Agreement and to manufacture or have manufactured the Tissue Dissectors. If
Ethicon exercises its rights under this Article 8.1, GSI grants Ethicon an
exclusive worldwide license in the Field under the GSI Patents to make, have
made, use or sell the Tissue Dissectors, rights under GSI's regulatory
clearances in the Field, including 510(K) Clearances, to market the Tissue
Dissectors, and all know-how necessary to make, have made, use or sell the
Tissue Dissectors in the Field, such license and rights to expire upon the date
when this Agreement would have expired without the intervention of this
paragraph (the "Default License"). In consideration for the grant of the
Default License, Ethicon shall pay GSI an earned royalty [ * * *]
per unit sold of the Tissue Dissectors (the "Default Royalty"). The royalty and
accounting provisions for paying such earned royalty are set forth in Appendix 3
attached to this Agreement. In the event Ethicon exercises its rights under
this Article 8.1, GSI shall make available to Ethicon all
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CONFIDENTIAL TREATMENT REQUESTED
of the information then in GSI's possession or at its free disposal relating
to the manufacture of the Tissue Dissectors (including information placed in
escrow pursuant to Article 14.2 below).
8.1A If a Failure to Supply Event occurs for any reason set forth in
Article 14.8 below, then GSI shall have the option, upon written notice within
forty five (45) days of such event, to inform Ethicon of its inability to cure
such event within ninety (90) days of the desired delivery date specified on the
binding purchase order, and to agree to fully reimburse Ethicon for its costs in
connection with the manufacture of the Tissue Dissectors by or on behalf of
Ethicon for resale to its customers to satisfy forecasted demand (the "Default
Option"). If GSI elects the Default Option, and Ethicon correspondingly is
therefore capable of providing its customers with forecasted requirements, then
GSI may thereafter renew its exclusive distributorship arrangement with Ethicon
provided GSI once again satisfactorily meets Ethicon's requirements for
Regulatory Compliance and manufacturing capacity. If GSI does not elect the
Default Option, and such Failure to Supply Event lasts longer than ninety (90)
days from such desired delivery date, then upon written notice to GSI, Ethicon
may terminate this Agreement, and GSI thereafter grants Ethicon the Default
License to immediately manufacture or have manufactured the Tissue Dissectors.
During such ninety (90) days, Ethicon agrees to cooperate with GSI in any
commercially reasonable manner in an effort to cure such event. In
consideration of the Default License, Ethicon shall pay GSI the Default Royalty
for any units sold of the Tissue Dissectors. The royalty and accounting,
provisions for paying such earned royalty are set forth in Appendix 3 attached
to this agreement. In the event Ethicon exercises its rights under this
Article 8.1A, GSI shall make available to Ethicon all of the information then in
GSI's possession or at its free disposal related to the manufacture of the
Tissue Dissectors including information placed in escrow pursuant to
Article 14.2 below.
8.2 The remedy provided in Article 8.1 and 8.1A above for failure to
supply shall be in addition to and not in lieu of Ethicon's other remedies under
applicable law. However, notwithstanding the foregoing, in the event of such
failure to supply, Ethicon shall not be entitled to recover its lost profits or
other incidental or consequential damages from GSI.
ARTICLE 9 - PATENTS, TRADEMARKS AND SECRETS
9.1 PATENTS. During the time period preceding GSI's qualification as
Ethicon's OEM supplier of OEM Balloon Dissectors pursuant to Article 4.1 above,
Ethicon and its Affiliates shall have a worldwide, exclusive license in the
Field under the GSI Patents to make, have made, use or sell the Ethicon Balloon
Dissector (the "Pre-Qualification License"). During such time period, Ethicon
shall pay GSI an earned royalty [ * * *] per unit sold of the
Ethicon Balloon Dissector. The royalty and accounting provisions for paying
such earned royalty are set forth in Appendix 3 attached to this Agreement.
Following such time period, and when GSI becomes qualified, the
Pre-Qualification License shall expire, and Ethicon and its Affiliates shall
thereafter have a worldwide, exclusive license in the Field under the GSI
Patents to use or sell the Tissue Dissectors manufactured by or on behalf of GSI
for the remainder of the term of this Agreement or any extension thereof (the
Post-Qualification License). The parties acknowledge that the Pre-Qualification
License and the Post-Qualification License are subject to as of the Effective
Date hereof certain GSI International Distributorship Agreements, a list of
which is attached in Appendix 5, and GSI shall use its best efforts to either
terminate such agreements or allow such agreements to expire as promptly as
possible after the Effective Date hereof.
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CONFIDENTIAL TREATMENT REQUESTED
9.1A Ethicon grants GSI a nonexclusive, worldwide license (to the extent
such license is available) outside the Field under any patents which it owns or
is empowered to grant a license thereunder to make, have made, use or sell
Tissue Dissectors. GSI will pay Ethicon an earned royalty of [ * *
*] per unit sold of such dissectors. The royalty and accounting provisions for
paying such earned royalties are set forth in Appendix 4 attached to this
Agreement.
9.2 PATENT ENFORCEMENT. The parties acknowledge that prior to the
Effective Date hereof, GSI has sued a third party having a significant presence
in the marketplace for Tissue Dissectors. GSI shall diligently prosecute such
suit until the litigation upon which such suit is founded results in such third
party voluntarily or involuntarily withdrawing such dissectors from the
marketplace in the Field. Furthermore, upon resolution of such suit, if another
third party is then or thereafter offers Tissue Dissectors for sale in the
Field, and such dissectors have a market share in the Field in the United States
of [ * * *] then GSI shall promptly xxx such other third party for
patent infringement if such third party does not cease or continue to cease its
infringing activities, and GSI shall diligently prosecute such infringement suit
in the same manner as described in the preceding sentence. GSI does not have
any obligation to diligently prosecute more than one patent infringement suit at
any one time. If GSI fails to meet its obligations pursuant to this Article 9.2
after thirty days written notice from Ethicon, then the minimums set forth in
Article 4.6 above will be waived until such time as GSI once again fulfills its
obligations hereunder.
9.3 TRADEMARKS. Ethicon shall have the right to promote and sell the OEM
Balloon Dissectors under any trademark selected by Ethicon which trademark shall
be and shall remain the property of Ethicon. Nothing herein shall be deemed to
give one party, either during the term of this Agreement or thereafter, any
right to trademarks or copyrights of the other party or to their use except that
Ethicon shall have the right to use GSI's name in association with the marketing
and sale of the OEM Balloon Dissectors during the term of this Agreement or any
extension thereof if it chooses to do so, but such use by Ethicon shall be for
the benefit of GSI and Ethicon shall acquire no ownership rights to the GSI
Trademarks.
9.4 CONFIDENTIAL INFORMATION. All written information designated as
confidential and exchanged between GSI and Ethicon while this Agreement is in
effect shall be treated as confidential information. Neither party shall for
three (3) years after such exchange, use (other than in the performance of its
obligations hereunder) or disclose such information to any third party without
the prior written approval of the other party (other than in the performance of
its obligations hereunder), unless such information has become public knowledge
through no fault of the party receiving such information, or comes to such party
from a third party under no obligation of confidentiality with respect to such
information, or was in the possession of such party prior to the date of
disclosure, or is developed by or on behalf of such party without reliance on
confidential information received hereunder, or is requested to be disclosed in
compliance with applicable laws or regulations in connection with the sale of
the OEM Balloon Dissectors, or is otherwise required to be disclosed in
compliance with applicable law, an order by a court or other regulatory body
having competent jurisdiction, or is product-related information which is
reasonably required to be disclosed in connection with marketing the OEM Balloon
Dissectors. The obligations imposed by this section shall not limit any rights
provided to Ethicon pursuant to Article 8.1 above to manufacture or have
manufactured the OEM Balloon Dissectors following GSI's failure to supply
pursuant to this Agreement; provided that the disclosure of confidential
information to a
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CONFIDENTIAL TREATMENT REQUESTED
third party (except as may be reasonably required in preliminary discussions
with such third party) for the purpose of enabling such party to manufacture
or distribute the OEM Balloon Dissectors shall be conditioned upon such third
party signing a confidentiality agreement prohibiting the disclosure of such
information to any other party and limiting the use of such information to
the manufacturing or distribution of the OEM Balloon Dissectors.
ARTICLE 10 - TERMINATION
10.1 This Agreement may be terminated by either party in the event the
other substantially fails to perform or otherwise substantially breaches any of
its obligations under this Agreement by giving written notice of its intent to
terminate and stating the grounds for termination. The party receiving the
notice shall have three (3) months from the date of receipt of the notice to
cure the failure or breach. In the event it is cured, the notice shall be of no
effect. In the event it is not cured, this Agreement then shall, without any
further action, terminate at the end of such three (3) month period. If the
failure to perform or other breach is due to circumstances covered under Article
14.8 below, then this subsection shall not apply until such circumstances have
ceased.
10.2 If Ethicon discovers a patent of a third party which Ethicon
reasonably believes, upon advice of patent counsel, covers in whole or in part
any aspect of the OEM Balloon Dissector or the Ethicon Balloon Dissector which
is then offered for sale by or for Ethicon, and if the parties are unable to
either design around such patent to the satisfaction of patent counsel for
Ethicon, or to obtain a license to such patent, within three months of Ethicon's
notice of such discovery to GSI, Ethicon may automatically terminate this
Agreement upon notice to GSI.
10.3 Ethicon may terminate this Agreement upon written notice pursuant to
the conditions set forth under Articles 8.1 and 8.1A above.
10.4 Termination of this Agreement for any reason shall not affect rights
and obligations of the parties accrued through the effective date of
termination, including without limitation indemnification provisions relating to
the OEM Balloon Dissectors manufactured or distributed by or on behalf of GSI
during the term of this Agreement or any extension thereof.
ARTICLE 11 - ARBITRATION OF DISPUTES
11.1 Any controversy or claim arising out of or relating to this Agreement,
except for any controversy regarding the validity of a patent licensed hereunder
by either party to the other, any claim seeking injunctive relief based on or
related to a claim of patent infringement, and the decision to enter into this
Agreement, shall be settled exclusively by binding arbitration by a single
arbitrator chosen by agreement of the parties, which agreement shall not be
unreasonably withheld. The law of the state where the arbitration is conducted
pursuant to Article 11.2 below shall apply to the arbitration proceeding
(without regard to its conflict of law principles). Judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction over
the matter. In connection with any such arbitration, the prevailing party shall
be entitled to recover from the non-prevailing party reasonable expenses,
including, without limitation, reasonable attorneys' fees and reasonable
accountants' fees. If the arbitrator is unable to designate a prevailing party,
the arbitration award shall so state and the expenses shall be split equally
between the parties.
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CONFIDENTIAL TREATMENT REQUESTED
11.2 If Ethicon submits a claim or controversy to arbitration pursuant to
Article 11.1 above, then such arbitration shall be conducted in Palo Alto,
California. If GSI submits a claim or controversy to arbitration, then such
arbitration shall be conducted in Cincinnati, Ohio.
11.3 Notwithstanding any other provision hereof, any arbitration conducted
pursuant to this Article 11 shall adopt the procedural rules of the Federal
Rules of Civil Procedure and the evidentiary rules of the Federal Rules of
Evidence. The parties and the arbitrator shall use all reasonable efforts to
conclude arbitration proceedings within six (6) months from the date of
selection of the arbitrator. The arbitrator shall render a decision, setting
forth findings and conclusions of law, within thirty (30) days after completion
of hearing the arbitration evidence on the merits.
11.4 The arbitrator shall be bound by the express terms of this Agreement
and may not amend or modify such terms in any manner. Any award rendered by the
arbitrator shall be consistent with the terms of this Agreement, and such terms
shall control the rights and obligations of the parties. Notwithstanding
anything to the contrary set forth in this Agreement, in no event shall the
arbitrator be empowered to award exemplary, consequential or punitive damages,
and the parties shall be deemed to have waived any right to such damages. The
proceedings shall be confidential and the arbitrator shall issue appropriate
protective orders to safeguard both parties confidential information.
11.5 From the date one party notifies the other it wishes to commence an
arbitration proceeding until such time as the matter has been finally settled by
arbitration, the running of the time period set forth in Article 10.1 above, as
to which a party must cure a breach, shall be suspended as to the subject matter
of the dispute.
ARTICLE 12 - DISCLAIMER
12.1 Ethicon makes no representation or warranty that it will market the
OEM Balloon Dissectors (or the Ethicon Balloon Dissector), or if it does market
the OEM Balloon Dissectors (or the Ethicon Balloon Dissector), that the OEM
Balloon Dissectors (or the Ethicon Balloon Dissector) shall be the exclusive
means by which Ethicon shall participate in the marketing of surgical devices
for hernia repair and USI. Furthermore, all business decisions, including
without limitation, the design, manufacture, sale, price and promotion of the
OEM Balloon Dissectors (or the Ethicon Balloon Dissector) marketed under this
Agreement and the decision whether to sell the OEM Balloon Dissectors (or the
Ethicon Balloon Dissector) shall be within the sole discretion of Ethicon. GSI
realizes that Ethicon already sells a line of surgical devices for hernia repair
and USI and that Ethicon may itself or with others develop new surgical devices
which may compete with the OEM Balloon Dissectors (or the Ethicon Balloon
Dissector) sold under this Agreement.
ARTICLE 13 - AVAILABILITY OF EXPANDED FIELD
13.1 If an exclusive license becomes available to Ethicon from GSI in the
Expanded Field after the Effective Date hereof and before [ * * *],
GSI shall promptly notify Ethicon thereof in writing. If notice is provided
before [ * * *], then upon such notification, the parties shall
negotiate in good faith and enter into an Amendment to this Agreement within
thirty (30) days of such notification setting forth a grant from GSI to Ethicon
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CONFIDENTIAL TREATMENT REQUESTED
and its Affiliates of a worldwide, exclusive license in the Expanded Field
under the GSI Patents effective the first day of availability of such
license. Such amendment shall set forth the modification of Articles 4.2,
4.3, 4.3A, 4.6, 8.1, 9.1, 9.1A, 9.2, 9.3, 12.1 and 14.1 of this Agreement,
and any other Articles the parties mutually agree to modify (collectively the
"Affected Articles"). If the parties are unable to agree on the terms for
such amendment within twenty (20) days of such notification, then the
presidents of the respective parties shall intervene directly in an attempt
to agree upon such terms. If the presidents of the respective parties are
unable to agree within the thirty (30) day period from GSI's notice to
Ethicon, then either party may submit the disagreement to binding arbitration
in accordance with Article 11 above for final resolution.
13.2 If and when the parties negotiate an Amendment to this Agreement upon
availability of a license in the Expanded Field pursuant to Article 13.1 above,
then the parties shall consider the guiding principles set forth in Principles
Side Letter, attached hereto as Appendix 4, as significant factors in reaching a
mutual agreement on the modification of the Affected Articles.
13.3 The terms and conditions of the Amendment to this Agreement which are
to be negotiated pursuant to Article 13.1 above shall be retroactive to the
first date of availability of a license in the Expanded Field.
13.4 If GSI does not provide notice of the availability of the Expanded
Field to Ethicon before [ * * *] and the Expanded Field or any
portion thereof thereafter becomes available, GSI shall not enter into any
agreement with a single distributor or OEM for exclusive rights at any time
within [ * * *] following the termination of this Agreement, or any
extension thereof, to supply Tissue Dissectors for resale in the Expanded Field
or any portion thereof to such party upon terms requiring such distributor or
OEM to make a Guaranteed Payment less than the midpoint of those terms last
offered in writing by GSI and by Ethicon.
ARTICLE 14 - MISCELLANEOUS
14.1 REPRESENTATIONS AND WARRANTIES. GSI expressly warrants and represents
that (a) it owns all of the right, title and interest in and to the Tissue
Dissectors supplied by or on behalf of GSI under this Agreement; (b) it is
empowered to supply the OEM Balloon Dissectors to Ethicon in the Field; (c) to
the best of its knowledge, either actual or constructive, it has no outstanding
encumbrances or agreements, including but not limited to the Existing OEM Supply
Agreement, or arrangements of any kind pursuant to which any entity is entitled
to purchase from GSI, or has the right to sell or market, the OEM Balloon
Dissectors or any component thereof in the Field; (d) it shall not enter into
any such agreements or arrangements during the term of this Agreement or any
extension thereof; (e) it is empowered to grant Ethicon an exclusive license of
the scope set forth in Article 8 above if Ethicon exercises its rights to such a
license; (f) it has the financial capacity to supply the OEM Balloon Dissectors
to Ethicon in view of the terms and conditions set forth in this Agreement; (g)
the "BONUTTI INVENTIONS" as defined in the Bonutti Agreement have in fact been
assigned to GSI; h) any licenses granted to Ethicon herein under the BONUTTI
INVENTIONS survive an Insolvency Event; (i) the BONUTTI INVENTIONS include all
counterparts to the patents and patent applications listed in the Bonutti
Agreement, including all continuations and divisionals thereof; (j) GSI owns all
of the BONUTTI INVENTIONS regardless whether GSI prosecutes or maintains patent
applications or patents thereon; (k) neither GSI nor Ethicon is required to
credit Bonutti on packaging inserts and labels which specify patent numbers for
the BONUTTI INVENTIONS; (l) any licenses or sublicenses granted to Ethicon
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CONFIDENTIAL TREATMENT REQUESTED
herein under the Kieturakis Agreement survive the termination of such agreement,
and m) GSI neither has been nor is, as of the Effective Date hereof, in material
breach of the Bonutti Agreement or the Kieturakis Agreement, and GSI shall not
materially breach such agreements prior to the expiration or termination of this
Agreement, including extensions thereof.
14.2 ESCROW. GSI shall place with an escrow agent mutually acceptable to
GSI and Ethicon, a description of GSI's process for the manufacture of the OEM
Balloon Dissectors in sufficiently clear and detailed terms that it can be
readily followed and carried out by a trained scientist or engineer to make the
OEM Balloon Dissectors in the manner GSI considers most efficient. Furthermore,
should GSI alter, modify or change its process for manufacturing the OEM Balloon
Dissectors, GSI shall amend the description in escrow to include such
alteration, modification or change. The description held in escrow pursuant to
this Article 14.2, shall be available to Ethicon or its designee only in the
event GSI is unable to supply or fails to supply Ethicon with the OEM Balloon
Dissectors pursuant to this Agreement for any reason other than those set forth
under Article 14.8 below, or if a Change of Control or Insolvency Event occurs
and Ethicon exercises its rights under Article 8 above. Each party represents,
warrants and covenants, that it shall treat as confidential information in
accordance with Article 9.4 above any written information designated as
confidential concerning the other party disclosed in accordance with this Escrow
provision of this Agreement.
14.3 ASSIGNABILITY. Neither party shall transfer or assign this Agreement,
in whole or in part, without the prior written consent of the other party (which
shall not be unreasonably withheld); except that either party may, without such
consent, assign this Agreement to an Affiliate or with the sale of substantially
all of the assets of the business to which the OEM Balloon Dissectors relates.
14.4 NOTICES. All notices hereunder shall be in writing and shall be
deemed to have been duly given if delivered personally, one day after delivery
to a nationally recognized overnight delivery service, charges prepaid, three
days after sent by registered or certified mail, postage prepaid, or when
receipt is confirmed if by telex, facsimile or other telegraphic means:
In the case of GSI:
General Surgical Innovations, Inc.
0000-X Xxxxxx Xxxxx
Xxxx Xxxx, XX 00000
Attn: Xxx Xxxxx, President
With a copy to:
Venture Law Group
0000 Xxxx Xxxx Xxxx
Xxxxx Xxxx, XX 00000
Attn: Tae Xxx Xxxx
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CONFIDENTIAL TREATMENT REQUESTED
In the case of Ethicon:
Ethicon Endo-Surgery, Inc.
0000 Xxxxx Xxxx
Xxxxxxxxxx, Xxxx 00000
With a copy to:
Chief Patent Counsel
Xxxxxxx & Xxxxxxx
Xxx Xxxxxxx & Xxxxxxx Xxxxx
Xxx Xxxxxxxxx, Xxx Xxxxxx 00000
Such addresses may be altered by written notice given in accordance with
this Article 14.4.
14.5 RELATIONSHIP OF PARTIES. The parties hereto are entering into this
Agreement as independent contractors, and nothing herein is intended or shall be
construed to create between the parties a relationship of principal and agent,
partners, joint venturers or employer and employee. Neither party shall hold
itself out to others or seek to bind or commit the other party in any manner
inconsistent with the foregoing provisions of this Article.
14.6 WAIVER. The failure of either party to enforce at any time for any
period the provisions of this Agreement shall not be construed to be a waiver of
such provisions or of the right of such party thereafter to enforce each such
provision.
14.7 GOVERNING LAW. This Agreement and its performance are to be governed
by the laws of the state where the arbitration occurs, except that the
arbitration provisions set forth in Article 11 above shall be governed by the
provisions of the Federal Arbitration Act as well as the laws of the state where
the arbitration occurs.
14.8 MAJOR FORCES. Subject to Ethicon's rights set forth in Article 8
above, neither party shall be responsible for and the terms of this Agreement
shall be inapplicable to any defaults or delays which are due to unforeseen
causes beyond the parties control including, but without limitation, acts of God
or public enemy, acts or other order of a government, particularly full market
approval by the United States Food and Drug Administration and any foreign
government equivalent approval, fire, flood or other natural disasters,
embargoes, accidents, explosions, strikes or other labor disturbances
(regardless of the reasonableness of the demands of labor), shortage of fuel,
power or raw materials, inability to obtain or delays of transportation
facilities, incidents of war, or other unforeseen events causing the inability
of a party, acting in good faith with due diligence, to perform its obligations
under this Agreement.
14.9 PUBLICITY. With respect to any other publicity, neither party shall
originate any such publicity, news release or public announcement, written or
oral, whether to the public or press, stockholders or otherwise, relating to
this Agreement, to any amendment or performances under the Agreement, save only
such announcements as in the opinion of counsel for the party
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CONFIDENTIAL TREATMENT REQUESTED
making such announcement is required by law to be made. If a party decides
to make an additional announcement required by law under this Agreement, it
will give the other party thirty (30) days advance written notice, or any
shorter notice period otherwise required by law, of the text of the
announcement so that the other party will have an opportunity to comment upon
the announcement.
14.10 RELEASE FOR PAST INFRINGEMENT. GSI forever releases Ethicon from
any claims, liabilities, demands, damages, expenses and losses for patent
infringement which GSI may have had against Ethicon for the sale of the Ethicon
Balloon Dissector prior to the Effective Date hereof.
14.11 BANKRUPTCY. All rights and licenses granted under or pursuant to
this Agreement by GSI to Ethicon are, and shall otherwise be deemed to be, for
purposes of Section 365(n) of Title 11, U.S. Code (the "Bankruptcy Code"),
licenses of rights to "intellectual property" as defined in the Bankruptcy
Code. The parties agree that Ethicon, as a licensee of such rights under this
Agreement, shall retain and may fully exercise all of its rights and elections
under the Bankruptcy Code. GSI agrees during the term of this Agreement to
create and maintain current copies or, if not amenable to copying, detailed
descriptions or other appropriate embodiments, of all such intellectual
property. The parties further agree that, in the event of the commencement of a
bankruptcy proceeding by or against GSI under the Bankruptcy Code, Ethicon
shall be entitled to a complete duplicate of (or complete access to, as
appropriate) any such intellectual property and all embodiments of such
intellectual property, and same, if not already in its possession, shall be
promptly delivered to Ethicon (i) upon any such commencement of a bankruptcy
proceeding upon Ethicon's written request, unless GSI elects to continue to
perform all of its obligations under this Agreement, or (ii) if not delivered
under (i) above, upon the rejection of this Agreement by or on behalf of GSI
upon Ethicon's written request. All rights, powers and remedies of Ethicon
provided under this Article are in addition to and not in substitution for any
and all other rights, powers and remedies now or hereafter existing at law or in
equity in the event of any such commencement of a bankruptcy proceeding by or
against GSI.
14.12 ENHANCEMENTS. The parties agree to meet periodically at their
respective facilities to discuss proposed enhancements to the OEM Balloon
Dissectors. If Ethicon wishes to engage GSI's services to develop an enhanced
OEM Balloon Dissector and GSI wishes to perform such services, and Ethicon
agrees to pay for such services or any portion thereof, then Ethicon and GSI
shall enter into a development agreement in a form mutually acceptable to both
parties.
14.12A USI INITIATIVES. As of the Effective Date hereof, the parties will
use their reasonable commercial efforts to develop and market a Tissue
Dissector in the Field only for USI. The parties agree to cooperate to define
the specifications for such dissector and, within 90 days after the
development of such dissector, the sales and marketing program to promote
such dissector. In addition, Ethicon will make available its Institute to
train surgeons to use such dissector in a minimum of twenty training sessions
during the term of this Agreement, the exact time and duration of which shall
be mutually agreed upon by the parties. Within 30 days after the development
of such dissector, the parties will mutually evaluate promotional efforts,
such as patient education, consumer awareness, education of referring
doctors, and comarketing programs with Affiliates. The parties shall use good
faith efforts to develop a procedural kit using such dissector promptly after
the date such dissector is first commercially available.
14.13 IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY
CONSEQUENTIAL DAMAGES, HOWEVER CAUSED, ON ANY THEORY OF LIABILITY, WHETHER
CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, WHETHER OR NOT A PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
14.14 PRIOR UNDERSTANDINGS. The parties have, in this Agreement,
incorporated all representations, warranties, covenants, commitments and
understandings on which they have relied in entering into this Agreement and,
except as provided herein, the parties make no
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covenants or other commitments to the other concerning their future actions.
Accordingly, this Agreement
(i) constitutes the entire agreement and understanding between the
parties, and there are no promises, representations, conditions, provisions or
terms relating to it other than as set forth in this Agreement, and
(ii) supersedes all previous understandings, agreements and
representations between the parties, written or oral, relating to the subject
matter of this Agreement. This Agreement may be altered or amended only upon
mutual written consent.
14.15 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be considered an original and all of which
taken together shall constitute one and the same instrument, provided that this
Agreement shall not become effective until each party has received the
counterparts executed by the other party.
The parties agree to the terms of this Agreement, as indicated by the
signatures of their respective corporate officers, duly authorized as of the
last date of signature below.
General Surgical Innovations Ethicon Endo-Surgery, Inc.
By: /s/ Xxx Xxxxx By: /s/ Xxxxxx Xxxxxxx
----------------------------- -------------------------------
Xxx Xxxxx, President Xxxxxx Xxxxxxx, Vice President
Business Development & Strategic Planning
Date: June 28, 1996 Date: June 28, 1996
--------------------------- ---------------------------
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APPENDIX 1
TRANSFER PRICES
First OEM Balloon Dissector for Resale [ * * *]
First OEM Balloon Dissector for Samples [ * * *]
COMPONENTS
[ * * *] [ * * *] [ * * *]
[ * * *] [ * * *] [ * * *]
[ * * *] [ * * *] [ * * *]
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APPENDIX 2
ETHICON STANDARD PURCHASE ORDER
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APPENDIX 3
ROYALTY AND ACCOUNTING PROVISIONS
Ethicon shall keep accurate books and records of all payments due GSI.
Ethicon shall deliver to GSI written reports of the number of units sold of the
Ethicon Balloon Dissector during the preceding Accounting Quarter, on or before
the sixtieth day following the end of each Accounting Quarter. Such report
shall include a calculation of the earned royalty due and the earned royalty
payment.
GSI shall have the right to nominate an independent accountant acceptable
to and approved by Ethicon (which approval shall not be unreasonably withheld)
who shall have access to Ethicon's records during reasonable business hours for
the purpose of verifying, at GSI's expense, the royalty payable as provided for
in this Agreement for the two preceding years, but this right may not be
exercised more than once in any year. GSI shall solicit or receive only
information relating to the accuracy of the royalty report and the royalty
payments made. Ethicon shall be entitled to withhold approval of an accountant
which GSI nominates unless the accountant agrees to sign a confidentiality
agreement with Ethicon which shall obligate such accountant to hold the
information he receives from Ethicon in confidence, except for information
necessary for disclosure to GSI necessary to establish the accuracy of the
royalty reports.
The remittance of royalties payable on sales outside the United States will
be payable to the GSI in United States Dollar equivalents at the official rate
of exchange of the currency of the country from which the royalties are payable
as quoted by The Wall Street Journal, New York Edition, for the day upon which
the transfer of funds for the royalty payment is made. If the transfer or the
conversion into United States Dollar equivalents in any such instance is not
lawful or possible, the payment of such part of the royalties as is necessary
shall be made by the deposit thereof, in the currency of the country where the
sales were made on which the royalty was based, to the credit and account of GSI
or its nominee in any commercial bank or trust company of its choice located in
that country, prompt notice of which shall be given by Ethicon to GSI. In order
to facilitate payments from countries other than the United States, GSI shall,
whenever requested by Ethicon, enter into a direct agreement in writing with a
foreign affiliate of Ethicon. Such shall be obligated to remit any earned
royalties due for sales in such country directly to GSI, and GSI shall execute
such direct agreement as Ethicon may request which may be necessary to effect
such purpose. Such direct agreement shall provide generally for the payment of
earned royalties under the same terms as provided for herein, insofar as such
terms are lawful under the applicable laws and regulations of the particular
country. Notwithstanding the provisions of this paragraph, Ethicon shall remain
primarily liable for all payments due GSI.
Any tax required to be withheld on royalties payable to GSI under the laws
of any country, shall be promptly paid by Ethicon on behalf of GSI to the
appropriate governmental authority, and Ethicon shall furnish GSI with proof of
payment of such tax together with official or other appropriate evidence issued
by the appropriate governmental authority, sufficient to
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enable GSI to support a claim for income tax credit for the sum withheld.
Any such tax required to be withheld shall be an expense of GSI.
Notwithstanding whether the Ethicon Balloon Dissector is covered by more than
one patent, only one royalty payment shall be payable to consultant for the
Ethicon Balloon Dissector.
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APPENDIX 4
GUIDING PRINCIPLES
The Principals wish to reflect the addition of the Expanded Field through a
modification of the Affected Articles which include the determination of
transfer prices, minimum purchases, and cash payments, if any, for the remainder
of the term of the contract.
MODIFIED AGREEMENT OBJECTIVE:
--Ensure GSI's aggregate gross profit for its fiscal year 1997 which it would
have made from continued sales of SPACEMAKER Balloons following notice to
Ethicon of the availability of a license in the Expanded Field (the "Notice
Event"). The aggregate gross profit for 1997 will be determined by
extrapolating gross profits from sales of SPACEMAKER Balloons for the [* * *]
period immediately preceding the Notice Event (the "Trailing [* * *] Period")
through June 30, 1997. The parties will mutually agree on the specific method
of extrapolation. It is contemplated that this objective will be achieved by
modifying EES's minimum unit purchase/payment requirements or product transfer
prices payable from EES to GSI, or requiring EES to make a cash payment to GSI,
or a combination of any of these.
IN MEETING THESE OBJECTIVES, THE PARTIES WISH TO EXPLICITLY INCLUDE THE
FOLLOWING CONSIDERATIONS:
GSI CONSIDERATIONS:
Net Sales for the Trailing [* * *] Period (units and $$), Costs (Materials,
Labor, and Overhead (OH)) and gross profit (GP), for SPACEMAKER Balloons.
GSI overall gross profit margins.
EES CONSIDERATIONS:
Net Sales for the Trailing [* * *] Period (units and $$), Costs (Materials,
Labor, and Overhead, and gross profit) for EES Balloon Products in the Field.
Purchases from GSI and/or royalty payments to GSI during the Trailing [* * *]
Period.
EES forecasted purchases of SPACEMAKER Balloons.
EES selling expenses.
EES professional education expenses and commitments for continued education.
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MARKET CONDITIONS:
Sales (units and $$) and average sell price for SPACEMAKER Balloons during the
Trailing [* * *] Period.
Number of Customers for Tissue Products in the Expanded Field.
Industry Customary Distributor Gross Profit Margins.
Industry Customary Royalty Rates.
Industry pricing for proprietary technology (based upon number of competitors
offering clinical equivalent technology).
GENERAL:
Wherever possible, Xxx Xxxxx, Tae Xxx Xxxx, Xxxx Xxxxx and Xxxx Xxxxxxx will
be involved and/or consulted.
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APPENDIX 5
LIST OF INTERNATIONAL DISTRIBUTORS
-------------------------------------------------------
DISTRIBUTOR COUNTRY
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Blue Mountain International Korea
China
Hong Kong
Macau
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Escor Oy Finland
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PRIM Spain
Portugal
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