Exhibit 6(ii)
Letter Agreement
Strategic Alliance Between NovaMed Inc. and Inamed Corporation
1. Preamble. This document sets forth the principles governing the strategic
alliance between NovaMed Inc. ("NovaMed") and Inamed Corporation ("Inamed") with
respect to their mutual objectives of obtaining broader regulatory approval for,
and greater sales of, certain breast implant products which are currently
manufactured by NovaMed. Through this strategic alliance it is the parties'
intention to utilize NovaMed's product technology and its regulatory approvals
which are already in place in certain extensive sales and marketing network, to
enhance the sales and profitability of both parties. This document is meant to
provide a framework for the negotiation and execution of binding legal
agreements under which various aspects of the strategic alliance will be
implemented. In the absence of any such formal documentation, it is the parties'
intention to be governed by this statement of principles.
2. Products and Territories Covered. The products included within the strategic
alliance are XxxxXxx's NovaGold alternate fill breast implant and XxxxXxx's
pre-filled NovaSaline breast implant, including any improvements or
modifications to these products. Effective immediately, these NovaMed products
will be made available for exclusive marketing, distribution and sale by
Inamed's sales and marketing network on a worldwide basis, with the following
exceptions:
1. NovaMed has an existing sales network in Germany, which will
continue to be the exclusive seller of the products. However,
by December 31, 1999 the parties will seek to discuss and, if
possible, formalize a mutually agreeable basis for
transitioning this NovaMed sales network into Inamed's sales
subsidiary in Germany.
2. NovaMed has distribution relationships with third party sales
representatives in certain territories throughout the world.
In order to avoid legal liability, NovaMed can continue to
supply those representatives on a non-exclusive basis; it
being the parties' intention that NovaMed would terminate all
such third party arrangements by December 31, 2000. The names
of such third party representatives and their territories of
operation will be furnished to Inamed by April 30, 1999.
3. In certain countries where XxxxXxx currently does business
(e.g., Poland and Russia), as well as other territories where
Inamed does not wish to establish or maintain a sales
presence, NovaMed would continue to sell its products. The
parties will mutually agree from time to time on the
territories which fall under this exception.
As used in this document, Inamed's sales and marketing network includes
both direct sales representatives who are employed by Inamed or its subsidiaries
and affiliates, as well as third party distributors with whom Inamed (either
directly or through its subsidiaries or affiliates) has arranged for the
exclusive sale of its products in certain territories. A list with the names of
such third party representatives and their territories of operation will be
furnished to NovaMed by April 30, 1999; that list will be updated on an annual
basis.
3. Term and Scope of the Strategic Alliance. The term of the strategic alliance
will be until the later of fifteen years from the date this statement of
principles is signed or the expiration of the last significant patent for any of
the NovaMed products. During the term of the strategic alliance, so long as the
minimum sales
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thresholds required to maintain Inamed's exclusive sales and distribution rights
are being met, neither party will discuss, negotiate or enter into any agreement
or understanding with any third party for the manufacture, sale or distribution
of either pre-filled saline breast implant or an alternate fill breast implant
(e.g., a breast implant meant to contain a filler material that is not either
saline or silicone gel); except that either party can study and conduct due
diligence with respect to alternate fill material concepts pursuant to existing
arrangements, or proposals made by inventors of in the ordinary course of
business, or as an ancillary result of any potential acquisition of a company
for which the alternate fill breast implant business is not a significant
portion.
4. Pricing. The NovaMed products will be sold to the Inamed entities (either
directly or through its subsidiaries, affiliates or third party distributors) on
the following terms:
a. With respect to the NovaGold product (except in the United States)
and pre-filled NovaSaline product, the price charged by NovaMed
will be on a cost plus basis which is designed to ensure that the
Inamed entities receive at least a 50% gross margin for their
sales to healthcare providers. Initially, the per unit (implant)
price will be $300 for NovaGold and $200 for pre-filled
NovaSaline. The parties will review these prices on an annual
basis, beginning for the year 2000, and make appropriate adjust-
ments based on manufacturing costs, end-user pricing, the volume
to be purchased, and the competitive environment in the various
major marketplaces.
b. With respect to the NovaGold product in the United States (which
for purposes of this document also includes Canada and Puerto
Rico), the parties will establish a joint venture entity so that
they can share on a 50/50 basis the profits and losses arising
from the sales of that product. The joint venture entity will
contract with its parents for manufacturing, administrative,
regulatory and sales and marketing services on a cost plus basis
which will be specified and negotiated by the parties prior to the
receipt of FDA approval of the PMA to sell the NovaGold product in
the United States. It is the present intention of the parties that
the mark-up above cost for such manufacturing, administrative,
regulatory and sales and marketing services would be 10%.
c. Unless the parties agree otherwise with respect to a specific
product or territory, all sales under the strategic alliance shall
be paid within 45 days of the invoice date. The invoice date
cannot be any earlier that the shipment date.
5. Volume. The minimum volume of implant products which the Inamed entities
shall purchase under the strategic alliance in order to retain exclusivity will
be:
a. With respect to NovaGold (except in the United States) and
pre-filled NovaSaline products, 12,000 units in year one,
18,000 units in year two, and 24,000 units in year three.
Thereafter, the minimum volume purchase requirement will be
based on a rolling annual average of the prior two years'
sales, but in no event less than 24,000 units per year.
b. With respect to NovaGold product in the United States,
assuming that the FDA approves PMAs for augmentation use of
both silicone gel and NovaGold, 12,000 units in year one,
18,000 units in year two, and 24,000 units in year three.
Thereafter, the minimum purchase requirement will be based on
a rolling annual average of the prior two years' sales, but in
no
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event less than 24,000 units per year. In the event the FDA
does not approve a PMA for silicone gel for augmentation use,
the minimum purchase requirements noted above would be doubled
starting in year two.
c. In the event of a failure to meet the minimum volume purchase
threshold for any given year, the Inamed entities shall have
the right to make up such deficiency by paying NovaMed $67.50
per implant needed to reach the minimum volume level; except
that in the event such eficiency payments represent more that
25% of the target minimum volume (for years one or two),
NovaMed has the option of refusing to accept any deficiency
payment and, instead, terminating the exclusivity rights in
the territory in question. From and after year three,
XxxxXxx's ability to terminate exclusivity rights in the
territory in question will arise if the deficiency payments
represent more than 20% of the target minimum volume for that
year.
d. The failure to meet the minimum volume threshold under clause
(a) or (b) above will not affect the exclusivity rights of the
Inamed entities under the clause where the Inamed entities did
meet the minimum volume threshold (whether through actual
purchases or through a deficiency payment under clause (c)),
or where the measuring period did not yet begin due to
regulatory issues.
e. For purposes of measuring the unit sales under this section,
there will be a four month ramp- up period from the later of
the date of this document and the receipt of all appropriate
regulatory approvals which are necessary to sell the product
in all significant territories. Accordingly, the first year of
any annual measurement period will consist of sixteen months
of sales from the appropriate starting date.
6. Manufacturing. It is the intention of the parties that during the term of the
strategic alliance NovaMed will continue to manufacture the NovaGold and
pre-filled NovaSaline products. The parties will examine that decision from time
to time and mutually agree on the appropriate course of action, based on
NovaMed's manufacturing capacity, financial resources available to expand, and
any costing advantages which may be obtained by allowing the Inamed entities to
manufacture any of those products. In the event a change of manufacturer is
made, the parties will mutually agree on new financial terms which are
consistent to the greatest extent feasible with the objectives set forth in this
document.
7. Joint Venture. No later than January 1, 2001 the parties will agree on the
form and governance of the joint venture entity which will mange the manufacture
and sale of NovaGold for the United States.
8. Regulatory. NovaMed will promptly take all appropriate steps to obtain 510(k)
clearance for the sale of pre-filled NovaSaline in the United States. NovaMed
and Inamed will fully cooperate in obtaining an IDE for NovaGold in the United
States, and following the signing of this document, Inamed will bear all of the
costs of obtaining such regulatory approval (including preparing the PMA and
conducting the clinical trials.) Based on estimates of the third party costs of
obtaining regulatory approval for NovaGold in the United States, the value of
Inamed's agreement to bear those costs is approximately $2 million.
9. Payments by Inamed. In addition to Inamed's payments to NovaMed for products,
and the assumption by Inamed of regulatory costs for NovaGold in the United
States, as outlined above, Inamed shall make the following payments to NovaMed
in consideration for the arrangements which constitute the strategic
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alliance between them:
a. Within 10 days after the execution of this document, Inamed
shall pay $100,000 as non-refundable "xxxxxxx money". In the
event Inamed elects to extend the due diligence period
referred to in Section 13 below, Inamed would be obligated to
pay an additional $100,000 withing 10 days of making that
election, which would also be non-refundable.
b. Once the FDA grants an IDE for NovaGold in the United States,
Inamed shall pay $2 million within 30 days after the clinical
trial is fully enrolled. Inamed shall receive a credit against
that first $2 million payment for all of the sums paid under
Section 9(a).
c. Within 30 days after the filing of the PMA for NovaGold in the
United States, Inamed shall pay $2 million.
d. Within 30 days after the FDA approves the PMA for NovaGold in
the United States, Inamed shall pay $2 million.
e. The parties shall consider the alternative of Inamed making an
equity investment for at least 10% of NovaMed, under such
terms as the parties (and their respective investment bankers)
may agree. Such an investment may take the place of the
payments specified in clauses (c) and (d) above.
10. Inflatable NovaSaline Product. By May 30, 1999 Inamed will undertake and
complete a technical and marketplace evaluation of the inflatable NovaSaline
product, for which NovaMed has already filed a 510(k) application with the FDA.
By that date Inamed shall have a right of first refusal to either (a)
incorporate this product within the exclusive distribution rights contemplated
by Sections 4(a) and 5(a) of this document (with minimum target volumes to be
agreed upon), or (b) pay NovaMed $275,000 to shelve the product. In the event
Inamed does not exercise either such right, XxxxXxx would be entitled to sell
and distribute the inflatable NovaSaline product as it chooses, including in
competition with Inamed's existing inflatable saline breast implant products.
11. Liability Insurance. NovaMed and the joint venture, as appropriate, will
carry at least $10 million of product liability insurance for the NovaMed
products which are included within the strategic alliance. Inamed and XxxxXxx
will be named as an insured party under any such insurance policies and make
such appropriate adjustments as they may mutually agree upon.
12. Labeling on Packages; Intellectual Property. At Inamed's option, the
labeling on the packaging for the products which are included within the
strategic alliance shall include one or more brand names of the Inamed entities,
and will also include NovaMed's name. NovaMed will grant the appropriate
licenses to the Inamed entities to use its intellectual property in order to
carry out the objectives of this document, and will indemnify Inamed against any
third party claims due to manufacturing defects.
13. Due Diligence and Cooperation. The parties agree to use their respective
best efforts to cooperate in implementing the terms of this document, so that
the strategic alliance can fully achieve its objectives. Toward that end,
promptly following the execution of this document, XxxxXxx will afford the
Inamed entities complete and full due diligence so that it can become familiar
with the current status of the scientific, technical and regulatory aspects of
the products which are included within the strategic alliance; such
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initial due diligence period will be completed by May 15, 1999 and the
definitive documentation needed to formalize the first aspects of the strategic
alliance will be completed by June 30, 1999. However, Inamed can elect to extend
the initial due diligence period to June 30, 1999 (and the deadline for
formalizing the definitive documentation to July 31, 1999), at its sole option,
by making the second payment described in Section 9(a). The confidentiality
agreement between the parties will govern all such discussions and exchanges of
information.
Xxxxxx and accepted as of
March 25, 1999
Nova Med, Inc. Inamed Corporation
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Xxxxxxxx Xxxxxxxx Xxxx Xxxxx
President President
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