<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 0-28460
FUSION MEDICAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3177221
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1615 Plymouth Street
Mountain View, CA 94043
(Address of principal executive offices)
(650) 903-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark whether the registrant has filed all documents and
reports required by Section 12, 13, or 15(d) of the Securities Exchange Act of
1934 subsequent to the distribution of the securities under a plan confirmed by
the Court. Yes [ X ] No [ ]
The number of outstanding shares of the registrant's Common Stock was 9,077,872
as of August 11, 1999.
This Report on Form 10-Q includes 62 pages with the Index to Exhibits
located on page 22.
<PAGE> 2
FUSION MEDICAL TECHNOLOGIES, INC.
INDEX TO
REPORT ON FORM 10-Q
FOR QUARTER ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
<S> <C>
Condensed Consolidated Balance Sheets - June 30,
1999 (unaudited) and December 31, 1998..................... 3
Condensed Consolidated Statements of Operations -
Three and Six Months Ended June 30, 1999 (unaudited)
and 1998 (unaudited)....................................... 4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1999 (unaudited) and
1998 (unaudited)........................................... 5
Notes to Condensed Consolidated Financial Statements........ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk.. 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 22
Item 2. Changes in Securities....................................... 22
Item 4. Submission of Matters to a Vote of Security Holders......... 22
Item 5. Other Information........................................... 22
Item 6. Exhibits and Reports on Form 8-K............................ 22
Signatures.................................................. 24
</TABLE>
2
<PAGE> 3
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FUSION MEDICAL TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30 December 31
1999 1998 (1)
--------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,339 $ 4,151
Available-for-sale-securities 1,000 3,013
Inventory 227 -
Other assets 203 135
--------- ---------
Total current assets 11,769 7,299
Property and equipment, net 854 735
Long-term assets 54 54
--------- ---------
Total assets $ 12,677 $ 8,088
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 791 $ 1,057
Long-term obligations 146 204
--------- ---------
Total liabilities 937 1,261
--------- ---------
Common stock and other equity 44,451 36,059
Accumulated deficit (32,711) (29,232)
--------- ---------
Total stockholders' equity 11,740 6,827
--------- ---------
Total liabilities and stockholders'
equity $ 12,677 $ 8,088
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
(1) Data extracted from audited consolidated financial statements dated
December 31, 1998 of Fusion Medical Technologies, Inc.
3
<PAGE> 4
<TABLE>
<CAPTION>
FUSION MEDICAL TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(unaudited)
Three Months Ended Six Months Ended
June 30 June 30
-------------------- ------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 25 $ - $ 25 $ -
-------- -------- -------- --------
Costs and expenses:
Cost of goods sold and start-up
manufacturing costs 145 - 145 -
Research and development 1,247 1,648 2,374 3,220
Marketing, selling, general
and administrative 665 616 1,199 1,197
-------- -------- -------- --------
Total costs and expenses 2,057 2,264 3,718 4,417
-------- -------- -------- --------
Operating loss (2,032) (2,264) (3,693) (4,417)
Interest income 146 170 225 327
Interest expense (7) - (14) -
Other income (expense), net (4) (14) 3 (52)
-------- -------- -------- --------
Net loss $ (1,897) $ (2,108) $ (3,479) $ (4,142)
======== ======== ======== ========
Basic and diluted net loss per
share $ (0.21) $ (0.29) $ (0.43) $ (0.58)
======== ======== ======== ========
Shares used in computing basic
and diluted net loss per share 8,886 7,153 8,027 7,149
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE> 5
<TABLE>
<CAPTION>
FUSION MEDICAL TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
June 30
-------- --------
1999 1998
-------- --------
<S> <C> <C>
Cash flows used for operating activities:
Net loss $ (3,479) $ (4,142)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 178 160
Accretion of available-for-sale 15 23
Amortization of deferred compensation 87 80
Deferred compensation
Change in assets and liabilities:
Accounts receivable (21) 21
Inventory (227) -
Prepaids and other current assets (91) (23)
Other assets 44 45
Accounts payable 188 (94)
Accrued expenses (454) (175)
-------- --------
Net cash used in operating activities (3,760) (4,105)
-------- --------
Cash flows from investing activities:
Acquisition of property and equipment (297) (104)
Purchases of available-for-sale securities (1,502) (2,025)
Sales and maturities of available-for-sale securities 3,500 5,953
-------- --------
Net cash provided by investing activities 1,701 3,824
-------- --------
Cash flows from financing activities:
Proceeds from issuance of note - 462
Repayment of notes payable (58) (72)
Proceeds from issuance of common stock 8,163 -
Proceeds from exercise of common stock options 142 59
-------- --------
Net cash provided by financing activities 8,247 449
-------- --------
Net increase in cash and cash equivalents 6,188 168
Cash and cash equivalents, beginning of period 4,151 7,473
-------- --------
Cash and cash equivalents, end of period $ 10,339 $ 7,641
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 14 $ 80
======== ========
Adjustment for cancellation of stock options $ 79 $ -
======== ========
Issuance of stock options to outside consultants $ 135 $ -
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE> 6
FUSION MEDICAL TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
1. Basis of presentation
The accompanying condensed consolidated financial statements of Fusion Medical
Technologies, Inc. (the "Company" or "Fusion") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions for Form 10-Q and Article 10 of Regulation S-X. The
condensed consolidated balance sheet as of June 30, 1999, and the condensed
consolidated statements of operations for the three and six months ended June
30, 1999 and 1998, and the condensed consolidated statements of cash flows for
the six month periods ended June 30, 1999 and 1998 are unaudited but include
all adjustments (consisting of normal recurring adjustments) which the Company
considers necessary for a fair presentation of the financial position at such
dates and the consolidated operating results and cash flows for those periods.
Although the Company believes the disclosures in these condensed consolidated
financial statements are adequate to make the information presented not
misleading, certain information normally included in financial statements and
related footnotes prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. The accompanying condensed
consolidated financial statements should be read in conjunction with the
financial statements as contained in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998.
Results for any interim period are not necessarily indicative of results for
any other interim period or for the entire year.
2. Net loss per share
Basic and diluted loss per common share are computed using the weighted average
number of shares of common stock outstanding share. Common equivalent shares
from stock options are excluded from the computation of diluted net loss per
common share as their effect is anti-dilutive. Stock options to purchase
1,323,993 and 1,251,854 shares of common stock at prices ranging from $0.16 to
$11.50 per share were outstanding at June 30, 1999 and 1998, respectively, but
were not included in the computation of diluted income per share. At June 30,
1999 and 1998, there was one warrant outstanding to purchase 4,500 shares of
common stock at $4.00 per share but is excluded from the computation of diluted
net loss per common share as its effect is anti-dilutive.
3. Cash, cash equivalents and available-for-sale securities
The Company classifies all highly liquid investments purchased with an original
maturity of three months or less as cash equivalents. Cash and cash
equivalents include money market funds and various deposit accounts.
The Company classifies both short term and long term investments as available-
for-sale. Such investments are recorded at fair market value and unrealized
gains and losses are recorded as a separate component of
6
<PAGE> 7
FUSION MEDICAL TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999
(Unaudited)
equity until realized. Interest income is recorded using an effective interest
rate, with associated premium or discount amortized to interest income. The
cost of securities sold is based upon the specific identification method.
4. Inventory
As of March 31, 1999, the Company began capitalizing its inventories of raw
materials related to FloSealTM. Inventory is recorded at the lesser of cost or
market using the FIFO method.
<TABLE>
<CAPTION>
June 30 December 31
1999 1998
-------- --------
<S> <C> <C>
Finished goods $ 31 $ -
Work in process 55 -
Raw materials 141 -
-------- --------
$ 227 $ -
======== ========
</TABLE>
5. Debt
In December 1997, the Company signed an agreement for a bank loan facility to
finance existing equipment up to a total of $1,000,000, and future equipment
purchases for up to a total facility limit of $2,500,000. The facility is
secured by the equipment financed. The loan balance is subject to a floating
interest rate equal to the bank's prime rate plus 1.5% per annum (9.25% at June
30, 1999). The unused portion of the total loan facility commitments are
subject to a 0.5% quarterly commitment fee. As of June 30, 1999, the Company
had drawn down $262,758 on the existing equipment loan facility and had no draw
down on the new equipment loan facility. In connection with this loan facility,
the Company issued a warrant to purchase 4,500 shares of common stock at an
exercise price of $4.00 per share. This warrant expires in December 2002. These
facilities are subject to specific positive and negative covenants that include
restrictions on the declaration or payment of any dividend or any other
distribution on any of its capital stock. The Company was in compliance with
those covenants at June 30, 1999.
6. Stockholders' Equity
On April 6, 1999, the Company closed a follow-on public offering of 1.8 million
shares of its common stock that resulted in net proceeds to the Company of
approximately $8.3 million.
7. Segment Reporting
The Company operates in one reportable segment: surgical sealants and topical
hemostat products. The Company is compliant with the segment reporting
requirements of SFAS No.131 "Disclosures about Segments of an Enterprise and
Related Information," which establishes annual and interim reporting
7
<PAGE> 8
FUSION MEDICAL TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999
(Unaudited)
standards for an enterprise's business segments and related disclosures about
its products, services, geographic areas and major customers. Adoption of this
statement has not impacted the Company's consolidated financial position,
results of operations or cash flows.
8. Recent Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities",
which establishes accounting and reporting standards for derivative instruments
and hedging activities. It requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. The Company, to date, has not engaged
in derivative and hedging activities. The Company will adopt SFAS No. 133 as
required for its first quarterly filing of calendar year 2001.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Report on Form 10-Q contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated by these forward-
looking statements as a result of certain factors, including those set forth in
"Additional Factors That Might Affect Future Results" commencing on page 12 and
those set forth under Item 1 in the Company's Annual Report filed on Form 10-K
for the Year Ended December 31, 1998.
OVERVIEW
Since inception in October 1992, we have been primarily engaged in the
research and development of surgical sealants and topical hemostats. As of June
30, 1999, we had an accumulated deficit of $32.7 million. Operating losses are
expected to continue at least through 2001.
We commenced selling our first product, the RapiSeal patch, in late 1996.
After careful consideration, we reallocated our capital resources to the
development of FloSeal and in late 1997 discontinued sales of the RapiSeal
patch and disbanded our sales force.
In 1998, we conducted a ten-center, 309-patient pivotal clinical trial to
demonstrate the safety and effectiveness of FloSeal. We received a CE mark
providing European regulatory clearance on April 20, 1999. Our premarket
approval application for FloSeal was accepted for filing by the FDA and given
streamlined review status on April 27, 1999. We completed the expansion of our
manufacturing facility to meet the anticipated product supply requirements for
commercial sale of FloSeal. We spent a total of approximately $150,000 for the
purchase of production equipment and approximately $380,000 for the facilities'
upgrade.
In July 1999, we signed a multi-year distribution agreement with
Minneapolis-based Sulzer Spine-Tech. Founded in 1991, Sulzer Spine-Tech is a
business unit of Sulzer Medica AG whose total annual sales exceed $1 billion
US. Under the agreement, Sulzer Spine-Tech becomes a worldwide distributor of
FloSeal for all spinal and cranial applications. The distribution agreement
covers most global markets with the primary exception of Japan.
Future revenues, if any, and our results of operations may fluctuate
significantly from quarter-to-quarter and will depend upon the following, among
other factors:
o our ability to obtain regulatory clearances for FloSeal,
o our ability to successfully commercialize the product,
o the speed with which the Company's future products proceed through
clinical trials and the preparation of related regulatory
submissions,
o the speed with which regulatory agencies review and potentially clear
the Company's products,
o the rate at which the Company or its corporate partners for
distribution establish product distribution networks and mobilize the
available sales forces,
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
o the rate at which the Company's products gain market acceptance,
o the timing and impact of the introduction of competitive products for
surgical sealant functions, and
o other factors relating to the commercialization of medical products.
RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 1999 and 1998
NET SALES
Net sales for the three and six months ended June 30, 1999 were
$25,000 and represented the initial revenues resulting from the introduction of
our new product line, FloSeal, in Europe. Due to our exit of the RapiSeal Patch
business in 1997 and our current focus on the development of FloSeal, the
Company had limited revenues in the three and six months ended June 30, 1999
and no revenues in the same periods of 1998, respectively. We filed for
European regulatory clearance and received CE mark clearance on April 20, 1999.
RESEARCH AND DEVELOPMENT
Research and development expenses decreased 24% to $1.2 million in the
three months ended June 30, 1999 compared to $1.6 million in the three months
ended June 30, 1998. For the six months ended June 30, 1999, research and
development expenses decreased 26% to $2.4 million compared to expenses of $3.2
million for the six months ended June 30, 1998. The decrease for the three and
six months ended June 30, 1999 is primarily attributable to completion of the
309 patient FloSeal clinical trial in December 1998. For the full fiscal year
1999, the Company believes research and development expenses are not likely to
exceed those of 1998. However, as the Company devotes more resources to the
support of new products based on the FloSeal Matrix technology, quarterly
research and development expenses should increase in the third quarter of 1999.
MARKETING, SELLING, GENERAL AND ADMINISTRATIVE
Marketing, selling, general and administrative expenses increased 8% to
$665,000 in the three months ended June 30, 1999, compared to $616,000 for the
three months ended June 30, 1998. Marketing, selling, general and
administrative expenses were $1.2 million for the six months ended June 30,
1999 and 1998. The increase for the three months ended June 30, 1999, compared
to the year earlier period, was primarily the result of increases in marketing
and selling expenses associated with commercialization of FloSeal.
INTEREST INCOME
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Interest income decreased 14% to $146,000 for the three months ended June
30, 1999 compared to $170,000 for the three months ended June 30, 1998. For the
six months ended June 30, 1998, interest income decreased 31% to $225,000
compared to $327,000 in the prior year. The decrease for the three and six
months ended June 30, 1999 was attributable primarily to the declining balance
of the Company's interest-bearing investment portfolio through April 6, 1999
(see "Liquidity and Capital Resources").
NET LOSS
As a net result of the items discussed above, the net loss was $1.9
million for the three months ended June 30, 1999. This is an improvement of
10% or $211,000 over the net loss of $2.1 million for the three months ended
June 30, 1998. The net loss was $3.5 million for the six months ended June 30,
1999. This is an improvement of 16% or $663,000 over the net loss of $4.1
million for the six months ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, our cash, cash equivalents and available-for-sale
securities were $11.3 million compared to $7.2 million at December 31, 1998.
Since our inception, we have funded the business with proceeds from private
security placements, our initial public offering of common stock and, most
recently, with a follow-on public offering of 1.8 million shares of our common
stock on April 6, 1999.
For the six months ended June 30, 1999 and 1998, our operations consumed
cash of $3.8 million and $4.1 million, respectively. The decrease in cash
consumed by operations was due primarily to a decrease in personnel costs, and
a reduction in overall administrative spending. We expect the use of cash in
operating activities to increase through calendar year 1999 and into 2000 as we
continue to devote resources to the commercialization of FloSeal Matrix and
develop other products based on the FloSeal Matrix technology.
For the six months ended June 30, 1999 and 1998, investing activities
provided net cash of $1.7 million and $3.8 million, respectively. Sales and
maturities of available-for-sale securities of $3.5 million and $6.0 million
for the six months ended June 30, 1999 and 1998, respectively, more than offset
purchases of available-for-sale securities of $1.5 million and $2.0 million in
the comparable periods, respectively.
For the six months ended June 30, 1999 and 1998, financing activities
provided net cash of $8.2 million and $449,000 for the six months ended June
30, 1999 and 1998, respectively. The increase in cash provided by financing
activities was due primarily to proceeds from the issuance of common stock
which totaled $8.2 million for the six months ended June 30, 1999 compared to
$59,000 in proceeds from the exercise of common stock options for the prior
year period.
In December 1997, we signed an agreement for a bank loan facility to
finance existing equipment up to a total of $1,000,000, and future equipment
purchases for up to a total facility limit of $2,500,000. The facility is
secured by the equipment financed. The loan balance is subject to a floating
interest rate equal to the bank's prime rate plus 1.5% per annum (9.25% at June
30, 1999). The unused portion of the total loan facility commitments are
subject to a 0.5% quarterly commitment fee. As of June 30, 1999, we had drawn
down $262,758 on the existing equipment loan facility and had no draw down on
the new equipment loan facility. In connection with this loan facility, we
issued a warrant to purchase 4,500 shares
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
of common stock at an exercise price of $4.00 per share. This warrant expires
in December 2002. These facilities are subject to specific positive and
negative covenants that include restrictions on the declaration or payment of
any dividend or any other distribution on any of its capital stock. The Company
was in compliance with those covenants at June 30, 1999.
We closed a follow-on public offering of 1.8 million shares of our common
stock on April 6, 1999. The follow-on offering resulted in net proceeds to us
of approximately $8.3 million. We believe net proceeds from the follow-on
public offering, together with existing cash, cash equivalents and available-
for-sale securities will be sufficient to fund our operations into the third
quarter of the year 2000. However, the amount and timing of our capital
requirements cannot be predicted with certainty. Our future capital
requirements will depend on numerous factors, including the following:
o timing of regulatory actions on FloSeal,
o our ability to enter into additional distribution agreements,
o the timing of our manufacturing scale-up,
o the extent and timing of any future FloSeal sales, and
o the nature, timing and success of other products under development.
We expect to commit substantial capital resources to the development of
commercial-scale manufacturing for FloSeal. The working capital requirements
for the development and commercial launch of our other products are also
expected to be substantial. If we are unable to secure corporate partners to
distribute our products, we will incur substantial additional expenditures in
sales and marketing capability. Given these factors, we anticipate that we will
need additional financing before the end of the second quarter of the year
2000.
ADDITIONAL FACTORS THAT MIGHT AFFECT FUTURE RESULTS
This Report on Form 10-Q contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated by these forward-
looking statements as a result of certain factors, including those set forth
under Item 1 in the Company's Annual Report filed on Form 10-K for the Year
Ended December 31, 1998.
The Year 2000 Computer Problem
We may be adversely affected by the Year 2000 computer problem.
Beginning on January 1, 2000, computer systems and software will produce
erroneous results or fail unless they have been modified or upgraded to process
date information correctly. Our primary exposure with respect to this problem
involves third party software we have purchased or licensed for our financial
systems, network and telecommunications equipment. Our financial systems
software is Year 2000 compliant. We have obtained the software needed to make
our network Year 2000 compliant. We have analyzed the Year 2000 risk with
regard to our telecommunications equipment and have concluded that there is no
material Year 2000 risk. We have surveyed all our major vendors and have found
their
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
preparedness to be sufficient. We have expended approximately $15,000 in our
internal review and will continue to make certain investments, estimated not to
exceed $50,000, in our software systems and applications to ensure our
information systems are ready for the year 2000. The necessary funds to
support these renovations have come from our operating budget and we do not
anticipate that we will need to allocate special future funding outside of
historical levels for this item. The financial impact of our year 2000
readiness effort has not been and is not anticipated to be material to our
financial position or results of operations in any given year.
To date, we have not encountered any material Year 2000 problems with
software and information systems provided to us by third parties. We have
contacted our suppliers of bovine hides and thrombin, the two essential
supplies we require for FloSeal and have confirmed that there is no material
Year 2000-associated risk of a delay in supply from these sources. We could be
materially adversely affected if third parties, upon whom we depend in order to
run our day-to-day business, experience Year 2000 problems. A worst case
scenario would involve a complete disruption in the delivery of materials,
power, heat and water to our facilities, which would prevent us from being able
to manufacture and ship our products. We have not developed contingency plans
for operation of our business in the event of a complete disruption of
utilities and other services nor do we believe it is feasible to do so. Other
than problems that would be experienced by businesses generally, we do not
anticipate any Year 2000 problems unique to our company.
We did not generate any revenues in 1998 and have generated only limited
revenues so far in 1999; we have a history of losses and we expect losses to
continue in the future.
We have not achieved profitability and expect to incur net losses through
at least 2001. We incurred net losses of $7.0 million, $10.0 million and $7.7
million for the years ended December 31, 1996, 1997 and 1998, respectively. As
of June 30, 1999, we had an accumulated deficit of $32.7 million. We have not
had significant revenues in any period since our inception. We expect to
increase our operating expenses in the near future, including sales and
marking, manufacturing and research and development expenses, as we approach
commercialization of FloSeal and continue development of our other products. As
a result, we will need to generate significant revenues to achieve and maintain
profitability. The amount of future net losses and the time required to achieve
profitability are highly uncertain. If we do achieve profitability in any
period, we cannot be certain that we will sustain or increase such
profitability on a quarterly or annual basis.
If we do not successfully commercialize FloSeal, our business will suffer.
We are dependent upon the success of our lead product under development,
FloSeal. We have not yet received necessary regulatory approval for the
commercial sale of FloSeal in the United States. We received a CE mark
providing European regulatory clearance on April 20, 1999. We have completed
submission of our premarket approval application for FloSeal was accepted for
filing by the FDA and given streamlined review status on April 27, 1999. Our
success after regulatory approvals, if any, will depend on the medical
community's acceptance of FloSeal and our ability to successfully scale up
commercial manufacturing and develop an effective sales, marketing and
distribution capability. We cannot predict how quickly, if at all, the medical
community will accept FloSeal, or if accepted, the extent of its use. A
surgeon's use of FloSeal will require the surgeon to change from his or her
usage of currently available products with which they are familiar. For FloSeal
to achieve market acceptance, it will have to be priced competitively and offer
clinically significant advantages over other
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
commercially available products. Even if the market generally accepts FloSeal,
surgeons may choose to use it in fewer procedures than projected. If FloSeal
does not achieve significant market adoption, our business will be materially
and adversely affected.
Significant increases in operating expenses in the future may adversely effect
our operating results and financial condition.
We plan to significantly increase our operating expenses to expand our
sales and marketing operations and broaden our customer support capabilities as
we approach commercial introduction of FloSeal and fund greater levels of
product development. Our operating expenses, which include sales and marketing,
research and development, and general and administrative expenses, are based on
our expectations of future revenues and are relatively fixed in the short term.
If revenues fall below our expectations, we will not be able to quickly reduce
our spending in response, which would materially adversely affect our operating
results and financial condition.
Our limited operating history, dependence upon an unapproved product and lack
of experience in manufacturing and marketing FloSeal may result in significant
fluctuations of our financial results.
Our limited operating history, dependence upon FloSeal, currently an
unapproved medical device except in Europe, to provide future revenue and our
lack of experience in manufacturing and marketing FloSeal may likely cause our
operating results to fluctuate dramatically. As a result of these fluctuations
and uncertainties in our operating results, we believe quarter-to-quarter or
annual comparisons of our operating results are not a good indication of our
future performance. In addition at some point in the future, these fluctuations
may likely cause us to perform below the expectations of public market analysts
and investors. If our results were to fall below market expectations, the price
of our common stock would likely fall. Our limited operating results have
varied widely in the past, and we expect they will continue to vary
significantly from quarter-to-quarter as we attempt to commercially produce and
establish our products in the market after the appropriate governmental
approvals, are received.
We received net proceeds of approximately $8.3 million on April 7, 1999
from our follow-on public offering of common stock. In addition to our current
cash and cash equivalents, these proceeds should be sufficient to fund our
planned operations through the second quarter of the year 2000, which is prior
to the time we expect to achieve profitability. As a result, we must raise
additional funds in order to be successful. Future financing strategies may
include, but are not limited to:
o partnering relationships with larger medical device companies,
o bank facilities, or
o debt or additional equity offerings.
If we are unable to raise additional funds when needed, we may not be able
to market FloSeal as planned, or continue development of our other products,
which would materially and adversely affect our business.
We will need to raise additional money before we expect to achieve
profitability. If we fail to raise such additional money, our business will
suffer.
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
In addition to our current cash and cash equivalents, we will need to
raise additional money in order to run our planned operations until the time we
expect to achieve profitability. We must raise additional funds to be
successful. Alternative financing strategies may include, but are not limited
to:
o bank facilities,
o debt or additional equity offerings, or
o partnering relationships with larger medical device companies.
If we are unable to raise additional funds when needed, we may not be able to
market FloSeal as planned, or continue development of our other products, which
would materially and adversely affect our business.
Additional funding may not be available to us or, if available, may not be
available on commercially reasonable terms.
When we need to raise additional money to fund our operations, we cannot
be certain funding from any source will be available to us on acceptable terms,
or at all. The amount and the timing of raising additional funds will depend
primarily upon our ability to obtain needed regulatory clearances and generate
revenues from the sale of FloSeal. Our inability to obtain any additional
funding on reasonable terms will materially and adversely affect our business.
If we do not obtain FDA approval, we cannot sell FloSeal in the United States,
which would significantly harm our business.
FloSeal is considered to be a medical device and will be subject to
extensive regulation in the United States. Before we can market FloSeal or any
of our other products under development in the United States, we must show in
clinical trials our products are safe and effective, and obtain approval from
the FDA, which cannot be guaranteed. Clinical trial data can also be the
subject of differing interpretation. There is no assurance FDA will interpret
our clinical data the same way we do, or that FDA will not require additional
clinical data to support approval.
We must obtain premarket approval from the FDA for FloSeal before we can
market it. In 1998, we conducted a ten-center, 309-patient pivotal clinical
trial to demonstrate the safety and effectiveness of FloSeal. Our premarket
approval application for FloSeal was accepted for filing by the FDA and given
streamlined review status on April 27, 1999. We cannot guarantee either the
timing or receipt of approval. The FDA may also limit the uses of FloSeal or
any of our other products during the approval process. Delays in the FloSeal
approval process, limitation of its labeling claims or denial of our premarket
approval application would cause our business to be materially and adversely
affected. We will face a similar process and similar risks for each product we
wish to market, including SinuSeal.
We may have to incur significant costs in attaining and maintaining compliance
with regulations governing our manufacturing operations.
We are also required to demonstrate compliance with Quality System
regulations before approval of FloSeal, and maintain compliance after approval.
The Quality System regulations are similar to good
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
manufacturing practices and relate to product testing and quality assurance, as
well as the maintenance of records and documentation. The FDA enforces the
Quality System regulations through pre-approval and periodic post-approval
inspections. We have never been through a Quality System inspection by the FDA,
and we can provide no assurance we will be able to pass such an inspection or
maintain compliance. If we or any third party manufacturer of our products do
not conform to the Quality System regulations and cannot be brought up to such
a standard, we will be required to find alternative manufacturers do conform.
This may be a long and difficult process. We may have to incur significant
costs to comply with such laws and regulations and our failure to comply with
them could lead to penalties that could have a material and adverse affect on
our business.
International sales of our products will also be subject to extensive
regulation.
In order to market our products in the member countries of the European
Union, we are required to obtain CE mark certification. We obtained required CE
mark certification for FloSeal in April 1999. CE mark certification is an
international symbol of adherence to certain quality assurance standards and
compliance with the European Medical Devices Directives.
If we fail to maintain regulatory approvals after FloSeal is commercialized,
our business will suffer.
If we get approval, whether in the United States or internationally, we
will continue to be subject to extensive regulatory requirements. These
regulations are wide-ranging and govern, among other things:
o product changes or modifications,
o product manufacturing,
o Quality System requirements,
o Medical Device Reporting regulations,
o FDA's restrictions on promoting products for unapproved, off-label
uses, and
o product sales and distribution.
If we fail to comply or maintain compliance with medical device laws or
regulations, we may be fined and barred from selling our products. If the FDA
believes we are not in compliance with the law, it can:
o retain or seize our products,
o issue a recall,
o stop future violations, and
o assess civil and criminal penalties against us.
Our failure to comply with regulatory requirements could have a material
adverse effect on our business. Regulations are also subject to change. We
cannot predict the effect, if any, such changes might have on our business.
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Our ability to achieve any significant revenue will depend on our ability to
establish effective sales, marketing and distribution capabilities.
If we fail to establish a sufficient marketing and distribution or direct
sales force to commercialize FloSeal or any of our other products, our ability
to enter new or existing markets will be impaired. Our inability to effectively
enter these markets would materially and adversely affect our business. The
alternatives for selling our products are:
o distribution agreements,
o collaborative arrangements with corporate strategic partners, or
o our own direct sales force.
We have not and we cannot be certain we will be able to enter into
additional distribution agreements or collaborative arrangements on a timely
basis or at all, or these relationships will be successful. We have only
limited experience in establishing and managing a direct sales force, from
selling the RapiSeal patch, a prior product line, and we cannot be certain we
can establish and manage a direct sales force for FloSeal. Our ability to
achieve any significant revenue will depend heavily upon our success in
establishing effective sales and marketing capabilities, either through
distribution or collaboration arrangements, a direct sales force or a
combination of these.
We may be unable to effectively commercialize FloSeal because the market for
surgical bleeding control products is highly competitive.
The market for products that control surgical bleeding is highly
competitive. A wide variety of approved products such as Gelfoam plus thrombin
and fibrin glues, exist today that will compete directly with FloSeal, which
has not yet received approval for domestic sale. Many competitive products are
produced by companies that have competitive advantages over us, such as:
o greater name recognition,
o broader product lines,
o greater distribution capabilities,
o substantially greater capital resources, and
o larger marketing, research and development staffs and facilities.
Such companies include, for example Upjohn, Inc. and Johnson & Johnson. We
cannot be certain FloSeal or our other products will be able to successfully
compete against these products and companies, or any other companies which may
enter the marketplace. In addition, we cannot be certain current competitors or
other companies will not succeed in developing technologies and other products
are more effective or would render our technology or products obsolete or
unable to compete.
We have five pending patent applications. Our failure to obtain issued patents
and, consequently, to protect our proprietary technology, could impair our
competitive position.
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
We regard elements of FloSeal as proprietary and we attempt to protect
them through patent and trade secret laws and restrictions, as well as licenses
and contractual confidentiality provisions. Any steps we take to protect our
intellectual property may be inadequate and expensive. Despite our efforts, we
may be unable to prevent third parties from infringing upon or misappropriating
our intellectual property. We have five pending U.S. patent applications
relating to FloSeal and other products under development, and one issued U.S.
patent. We also have two corresponding international patent applications filed
under the Patent Cooperation Treaty and may file additional patent applications
outside the United States at a later date. Obtaining foreign patents may be
more difficult than obtaining domestic patents because of differences in patent
laws. Protection provided by foreign patents, if obtained, and any other
foreign intellectual property protection may be weaker than provided
domestically. Any existing or new patent applications, domestic or
international, may not result in:
o the priority of our patent applications over others' applications or
issued patents,
o the issuance of any patents, or
o any competitive advantage.
Furthermore, our competitors may independently develop similar technology
in the future that substantially limits the value of our intellectual property.
We may not be able to commercialize FloSeal or our other products under
development if they infringe existing patents or patents that have not yet
issued, which would materially harm our business.
We have conducted searches to determine whether our patent applications
interfere with existing patents. Based upon these searches, we believe our
patent applications and products do not interfere with existing patents.
However, we cannot be sure relevant patents have not been issued that could
block our ability to obtain patents or commercialize our products. Moreover,
since U.S. patent applications are not a matter of public record, a patent
application could currently be on file that would stand in our way of obtaining
an issued patent. In addition, a number of medical device and other companies,
universities and research institutions have filed patent applications or have
issued patents relating to compositions and methods for surgical sealing. The
issuance of any of these potentially competing patents could materially and
adversely affect our business.
The European fear of "mad cow disease" could adversely impact acceptance of our
products in Europe.
There is uncertainty as to the European acceptance of products that
incorporate elements derived from cows. This uncertainty is due to concerns
over transmission of disease from cows to humans. This disease in cows is
commonly referred to as "mad cow disease." Transmission of this disease to
humans may cause serious illness or death. FloSeal and our other products under
development contain thrombin and gelatin derived from bovine tissue only from
traceable U.S. herds. There have been no cases of mad cow disease associated
with cattle from traceable U.S. herds. Despite this fact, concerns over
transmission of this disease to humans may prevent or substantially delay the
acceptance of FloSeal in Europe. A delay could materially and adversely affect
our business.
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
We cannot be certain we will be able to manufacture FloSeal in high volumes at
commercially reasonable costs.
We have produced FloSeal for use in Canada and for our U.S. clinical
trial. However, we have no experience manufacturing FloSeal or any of our other
products under development in the amounts necessary to achieve significant
commercial sales. We have expanded our manufacturing capacity, but we cannot be
certain we will be capable of reliable, high-volume manufacturing at
commercially reasonable costs. We believe our manufacturing capacity will be
sufficient through 2000. However, we could encounter problems related to:
o capacity constraints,
o production yields,
o quality control, and
o shortages of qualified personnel.
Such problems could affect our ability to adequately scale-up production
of our products and fulfill customer orders on a timely basis, which could
materially and adversely affect our business.
Our manufacturing facilities will be subject to Quality System
regulations, international quality standards and other regulatory requirements,
including pre-approval inspection for FloSeal and periodic post-approval
inspections for all products. We have never undergone a Quality System
inspection by FDA, and cannot guarantee we will pass such an inspection. Our
failure to implement and maintain our facilities in accordance with these
regulatory requirements and standards will result in a delay or termination of
production. Any delay or termination of production would materially and
adversely affect our business.
We do not have long-term supply arrangements with our key suppliers. There is a
risk we could lose one or more of our key suppliers, which would disrupt our
business.
We currently purchase bovine hides and thrombin, essential elements of
FloSeal, as well as sterilization services for the end product, from single
suppliers. We purchase bovine hides from Spear Products and thrombin from
GenTrac, Inc. We do not have long-term supply arrangements with any of these
suppliers. In the event any of our current single source suppliers become
unavailable for any reason, we will be required to obtain regulatory approval
of alternative suppliers and our business would be disrupted. Any disruption
caused by a loss of one of these suppliers could materially and adversely
affect our business.
Failure of our end-users to obtain adequate third party reimbursement for the
procedures utilizing FloSeal or our other products could adversely affect our
business.
In the United States, health care providers that purchase medical devices,
such as FloSeal and our other products under development, generally rely on
third party payors, such as federal Medicare, state Medicaid and private health
insurance plans, to reimburse some or all of the cost of the procedure in which
the medical device was used. We expect in a prospective payment system, such as
the one utilized by the Health Care Financing Administration which manages the
federal Medicare program, and whose polices are followed by state Medicaid and
private third party payors, our products' costs will be incorporated into the
overall cost of the procedures, and there will not be separate reimbursement
for our products. Our
19
<PAGE> 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
success depends, in part, upon health care providers obtaining satisfactory
reimbursement from third party payors for surgical procedures that may use
FloSeal and our other products under development. Failure by our products'
users to obtain sufficient reimbursement from third party payors for procedures
in which our products are used or adverse changes in governmental and private
third party payors' policies toward reimbursement for such procedures could
mean that they reduce or eliminate purchases of our products, which would
materially and adversely affect our business.
If we obtain the necessary foreign regulatory approvals, international
market acceptance of our products would be dependent, in part, upon the
availability of reimbursement for our products or procedures that use our
products by the prevailing health care payment systems. Reimbursement and
health care payment systems in international markets vary significantly by
country and include both government-sponsored health care and private
insurance. We intend to seek international reimbursement approvals where
applicable. We cannot be certain any such approvals will be obtained in a
timely manner, if at all. Failure to receive international reimbursement
approvals could materially and adversely affect our business.
We may face product liability claims related to the use or misuse of our
products.
We face an inherent business risk of product liability claims in the event
the use or misuse of our products results in personal injury or death. We have
not experienced any such claims to date, but we cannot be certain, in
particular after commercial introduction of our products, that we will not
experience losses due to product liability claims. We currently maintain
liability insurance with combined coverage limits of $3.0 million on a claims-
made basis. We cannot be certain that the insurance policies' coverage limits
are adequate. The insurance is expensive, difficult to obtain and may not be
available in the future on acceptable terms, or at all. Any claims against us,
regardless of their merit, could materially and adversely affect our business.
Trading in our shares could be subject to extreme price fluctuations which
could adversely affect your investment.
The market price of our common stock has fluctuated widely in the past and
is likely to fluctuate in the future. We discuss the fluctuations in the price
of our stock in the section entitled "Price Range of Common Stock" in our
Annual Report on Form 10-K. The stock prices of medical device companies over
the last few years have been volatile and difficult to predict.
We have implemented anti-takeover provisions, any of which may reduce the
market price of our common stock.
Provisions of our Certificate of Incorporation and Bylaws and Delaware
law, as well as our Preferred Shares Rights Agreement could make it more
difficult for a third party to acquire us, even if the acquisition would be
beneficial to our stockholders. We discuss these provisions in detail in the
section entitled "Description of Capital Stock" in our Annual Report on Form
10-K.
The issuance of preferred stock with special voting and dividend
privileges under the terms of the Preferred Shares Rights Agreement may have
the effect of delaying, deferring or preventing a change in control without any
further action by the stockholders. Any such issuance may materially and
adversely affect the price of the common stock. The preferred stock may also
result in the loss of the voting control of the holders of common stock to the
holders of the preferred stock.
20
<PAGE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
We also have a staggered board of directors. The board of directors
consists of seven authorized members and three classes with only one class
being elected in any one year. This staggered board could make it more
difficult for a third party to acquire us, even if the acquisition would be
beneficial to our stockholders.
Our actual results could differ materially from those anticipated in our
forward-looking statements.
This Report on Form 10-Q contains forward-looking statements that involve
risks and uncertainties. Discussions containing forward-looking statements may
be found in the material set forth under the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" as
well as in the report generally. We used words such as "believes," "intends,"
"expects," "anticipates," "plans," and similar expressions identify forward-
looking statements. This Report on Form 10-Q also contains statements regarding
the cardiovascular, spinal and vascular surgery markets, as well as the suture
and staples market and topical hemostat market. You should not place undue
reliance on these forward-looking statements. Our actual results could differ
materially from those anticipated in the forward-looking statements for the
reasons described above and elsewhere in this prospectus.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to Part II, Item 7A, "Quantitative and Qualitative
Disclosures About Market Risk", in the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1998. The average interest rate for our
available-for-sale securities, as of June 30, 1999, was 4.93% compared to 7.72%
reported in the Form 10-K for the year ended December 31, 1998. No other
material changes have occurred since the filing by the Registrant on Form 10-K
for the year ended December 31, 1998.
Fusion Medical Technologies Inc. and RapiSeal are registered trademarks of
Fusion Medical Technologies, Inc. FloSeal Matrix and FloSeal are trademarks of
Fusion Medical Technologies, Inc.
21
<PAGE> 22
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Registrant closed a follow-on public offering of 1.8 million
shares of our common stock on April 6, 1999. The follow-on
offering resulted in net proceeds to the Registrant of
approximately $8.3 million.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's Annual Meeting of Shareholders (the "Annual
Meeting") was held on May 20, 1999 at 10:00 a.m. local time, at
its principal corporate offices located at 1615 Plymouth Street,
Mountain View, California. The Annual Meeting was held for the
purpose of (a) electing one Class I Director to serve for three
years expiring upon the 2002 Annual Meeting of the Stockholders,
(b) approving an amendment to the Company's 1993 Stock Option
Plan (c) ratifying the appointment of PricewaterhouseCoopers LLP
as the Company's independent accountants for the fiscal year
ending December 31, 1999 and (d) transacting such other business
as may properly come before the Annual Meeting. The three matters
below were voted upon and approved:
o Olav B. Bergheim was duly elected as a Class I Director to
serve for three years expiring upon the 2002 Annual Meeting of
the Stockholders, or until a successor is duly elected and
qualified, with 3,752,189 votes cast for election and 80,700
votes withheld.
o The Amendment to the 1993 Stock Option Plan increasing the
number of shares of Common Stock authorized for issuance by
750,000 shares to 2,640,492 shares was approved with 3,171,713
votes cast for the amendment, 660,976 votes against, and 200
votes abstained.
o PricewaterhouseCoopers LLP was appointed as Independent
Accountants for the fiscal year ended December 31, 1999 with
3,832,489 votes cast for the appointment, 300 against, and 100
abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
--------
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -------------------------------------------------
<S> <C>
10.1* Purchase Agreement dated July 1, 1999 between the
Registrant and Sulzer Spin-Tech, Inc.
27.1 Financial Data Schedule.
* Confidential treatment requested for portions of this Exhibit.
</TABLE>
22
<PAGE> 23
(b) Reports on Form 8-K. The Company did not file any Reports on Form
-------------------
8-K during the quarter ended June 30, 1999.
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto.
FUSION MEDICAL TECHNOLOGIES, INC.
(Registrant)
Date: August 16, 1999 By: /s/ LARRY J. STRAUSS
-------------------------------
Larry J. Strauss
Vice President and
Chief Financial Officer
(Authorized Officer and
Principal Financial Officer)
24
<PAGE> 25
EXHIBIT 10.1
INTERNATIONAL DISTRIBUTOR AGREEMENT
This INTERNATIONAL DISTRIBUTOR AGREEMENT (the "Agreement") is entered into
effective July 1st, 1999 (the "Effective Date") by and between FUSION MEDICAL
TECHNOLOGIES, INC., a Delaware corporation with a principal place of business
at 1615 Plymouth Street, Mountain View, CA 94043 ("FMT") and SULZER SPINE-TECH
INC., a Delaware corporation with a principal place of business at 7375 Bush
Lake Rd., Minneapolis, MN 55439-2027 ("SST").
BACKGROUND
A. FMT is engaged in the business of manufacturing, distributing, and
selling Products (as defined below); and
B. SST desires to distribute and sell Products to customers in the
Territory (as defined below); and
C. SST desires to purchase from FMT, and FMT desires to sell to SST,
Products for resale in the Territory; and
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties agree as follows:
1. Definitions.
-----------
1.1 "Affiliate" shall mean any corporation or other entity, which is
---------
directly or indirectly controlling, controlled by or under common control with
FMT or SST. For the purpose of this Agreement, "control" shall mean the direct
or indirect ownership of fifty percent (50%) or more of the outstanding shares
or other voting rights of the subject entity to elect directors, or if not
meeting the preceding, any entity owned or controlled by or owning or
controlling at the maximum control or ownership right permitted in the country
where such entity exists.
1.2 "Customers" shall mean SST's end-user customers solicited by SST
---------
or its Subdistributors within the Territory.
1.3 "Field of Use" shall mean spinal and cranial applications of
------------
hemostatic agents.
1.4 "Gross Profits" shall mean net revenues derived by SST from the
-------------
sale of the Products in the Territory less (i) the cost of the Products sold,
(ii) sales, use, and/or other excise taxes or duties actually paid, (iii) the
cost of any packaging, shipping and handling, (iv) [*] and (vi) [*]
1.5 "Gross Sales" shall mean the total amounts invoiced by SST, its
-----------
Affiliates, or its Subdistributors to third parties for the sale of Products,
less sales taxes, in each case if charged separately on the invoice and paid by
[*] - Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portion.
1
<PAGE> 26
the customer. A "sale" shall include any transfer or other disposition for
consideration other than cash, in which case such consideration shall be valued
at the fair market value thereof.
1.6 "Product" or "Products" means those products listed in Exhibit A
---------------------
attached hereto, and as revised by the parties pursuant to Section 2.3 below.
The Products listed on Exhibit A, and as revised pursuant to Section 2.3 below,
may be changed, discontinued or added by FMT, at its sole discretion with
twelve (12) months notice to SST.
1.7 "Product Specifications" shall mean FMT's product specifications
----------------------
as set forth in Exhibit B attached hereto, and as may be amended from time to
time by FMT.
1.8 "Subdistributor" shall mean a third party whom SST has granted
--------------
the right to distribute the Products under Section 2.4 hereto.
1.9 "Territory" shall mean, as of the Effective Date, all countries
---------
worldwide, except those countries listed on Exhibit C attached hereto, as
revised by the parties pursuant to Section 2.2 below.
2. Appointment and Authority of SST.
--------------------------------
2.1 Exclusive Distributor.
---------------------
2.1.1 Subject to the terms and conditions herein, FMT hereby
appoints SST as FMT's exclusive sales distributor for the Products within the
Territory in the Field of Use, and SST hereby accepts such appointment. SST's
sole authority shall be to purchase Products from FMT and to promote, market
and resell such Products for delivery to Customers in the Territory in the
Field of Use in accordance with the terms of this Agreement. SST shall not
have the authority to make any commitments whatsoever on behalf of FMT.
2.1.2 Notwithstanding the rights granted to SST to
distribute Products hereunder, SST shall have no right to directly:
(a) solicit sales, promote, market or sell (i)
Products outside the Territory, or (ii)
Products, other than Products in the Field of
Use, in the Territory;
(b) advertise, market or promote (i) Products
outside the Territory, or (ii) Products, other
than Products in the Field of Use, in the
Territory;
(c) solicit orders from persons or entities
located outside the Territory.
2.2 Countries.
---------
2.2.1 Countries in which SST has not Initiated Direct
-----------------------------------------------
Conduct of Business. As Product becomes available for distribution in the
- -------------------
Field of Use in countries included within the Territory, FMT shall notify SST
as to the availability of such Product in such country. Within [*] following
receipt of such notice, the parties shall negotiate in good faith the terms
under which SST shall initiate and maintain direct distribution of such Product
in the Field of Use in such country. If the parties fail to reach written
agreement within such period, SST shall have no further rights with respect to
distribution rights for such Product in the Field of Use in such country and
FMT shall have the right to appoint third parties to distribute such Product in
the Field of Use in such country.
[*] - Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portion.
2
<PAGE> 27
2.2.2 Additional Countries; Other than Japan. As additional
--------------------------------------
countries, other than Japan, become available for inclusion in the Territory
(for distribution of Products in the Field of Use), FMT will notify SST as to
the availability of such country. Within [*] following receipt of such notice
from FMT, SST will notify FMT in writing whether it wishes to include such
country in the Territory. If SST notifies FMT in writing that it wishes to
include such country in the Territory, concurrent with such notice to FMT, the
Territory shall be expanded to include such country, and SST shall have
exclusive distribution rights for Products in the Field of Use in such country,
subject to the terms and condition of this Agreement. If SST fails to exercise
such right within such [*] period, or if SST notifies FMT in writing that it
does not wish to include such country within the Territory, then SST shall have
no further rights with respect to such country.
2.2.3 Japan. In the event that Japan becomes available for
-----
inclusion in the Territory (for distribution of Products in the Field of Use),
FMT will notify SST as to its availability. For a period of [*] after such
notice, SST shall have an exclusive right to negotiate with FMT an exclusive
license to distribute Products in the Field of Use in Japan, unless during such
[*] period SST notifies FMT in writing that it does not desire rights to
distribute Products in the Field of Use in Japan. If the parties fail to reach
written agreement upon mutually acceptable terms for the distribution rights of
Products in the Field of Use in Japan within such [*] period, SST shall have no
further rights with respect to Japan.
2.3 Additional Products. Prior to commencing the commercialization
-------------------
of [*] during the term of this Agreement, [*]. For a period of [*] after such
notice, SST shall have [*] with FMT [*] to distribute such [*] in the
Territory, unless during such [*] period SST notifies FMT in writing that it
does not desire rights to distribute such [*]. If the parties fail to reach
written agreement upon mutually acceptable terms for the distribution rights of
such [*] within such [*] period, SST shall have no further rights with respect
to the applicable [*].
2.4 Subdistributors. Subject to the provisions of this Section 2.4,
---------------
SST may appoint one or more third parties within any portion of the Territory
to distribute the Products in the Field of Use to Customers (each a
"Subdistributor"). Within [*] after the appointment of such Subdistributor,
SST shall notify FMT of the identity of such Subdistributor. SST shall not
sell or otherwise transfer Products to any Subdistributor until such
Subdistributor enters into a form of written agreement ("Subdistributor
Agreement") with SST, binding the Subdistributor to terms and conditions
substantially similar to those terms and conditions agreed upon by SST in this
Agreement. Further, SST shall only grant Subdistributors the right to make
sales of Products directly to Customers in the Territory in the Field of Use.
Distributor agrees to terminate a Subdistributor's right to distribute Products
promptly upon becoming aware that such Subdistributor is selling or otherwise
distributing Products, directly or indirectly, in a manner that is not in
accordance with the provisions of this Article 2. Each Subdistributor
Agreement shall contain provisions making FMT a direct and intended third party
beneficiary of such Subdistributor Agreement, and SST hereby guarantees the
[*] - Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portion.
3
<PAGE> 28
performance of each such Subdistributor with the provisions listed in this
Section 2.4.
2.5 Reservation of Rights. Except as expressly provided in this
---------------------
Article 2, no right, title, or interest is granted, whether express or implied,
by FMT to SST, and nothing in this Agreement shall be deemed to grant to SST
rights in any products or technology other than the Products, nor shall any
provision of this Agreement be deemed to restrict FMT's right to exploit
technology, know-how, patents, or any other intellectual property rights
relating to the Products in products other than Products. FMT reserves the
right to appoint other authorized distributors or resellers outside the
Territory without restriction. FMT also reserves the right to appoint third
parties to distribute Products in the Territory in fields of use other than the
Field of Use; provided, that (i) any such appointment shall contain terms
reasonably restricting such distribution rights to a field of use other than
spinal and cranial applications of hemostatic agents, and (ii) FMT shall notify
SST of such appointment. SST acknowledges that this Agreement does not
prohibit passive sales of Product in the Territory. It is further understood
and agreed that FMT may distribute products, other than Products or products in
the Field of Use, in the Territory, either directly or indirectly, for any and
all uses.
2.6 Conflict of Interest. SST shall pursue reasonable sales
--------------------
policies and procedures to realize the maximum sales potential for the Products
in the Territory. SST agrees that any efforts by SST to sell competing
products in the Territory would constitute a conflict of interest with respect
to SST's obligations to market the Products, and SST warrants to FMT that it
does not currently represent or promote any hemostatic products that compete
with the Products. During the terms of this Agreement, SST shall not
represent, promote or otherwise try to sell within the Territory any other
products that, in FMT's reasonable judgment, compete with the Products.
2.7 Sale Conveys No Right to Manufacture or Modify. Products are
----------------------------------------------
offered for sale and are sold by FMT subject in every case to the condition
that such sale does not convey any license, expressly or by implication, to
manufacture, modify, duplicate, or otherwise copy or reproduce any of the
Products.
2.8 Independent Contractors. The relationship of FMT and SST
-----------------------
established by this Agreement is that of independent contractors, and nothing
contained in this Agreement shall be construed to (i) give either party the
power to direct and control the day-to-day activities of the other, (ii)
constitute the parties as partners, joint venturers, co-owners or otherwise as
participants in a joint venture or common undertaking, or (iii) allow SST to
create or assume any obligation on behalf of FMT for any purpose whatsoever.
All financial and other obligations associated with SST's business are the sole
responsibility of SST. SST shall be solely responsible for, and shall
indemnify and hold FMT free and harmless from, any and all claims, damages or
lawsuits (including FMT's attorneys' fees) arising out of the acts of SST, its
employees or its agents.
3. Advertising, Marketing and Promotion.
------------------------------------
3.1 Advertising and Promotions. SST shall, at its own expense, (i)
--------------------------
reasonably promote the distribution of the Products in the Territory, and (ii)
use its best efforts to promote and market the Products and to realize the
maximum sales potential for the Products in the Territory. SST shall list the
Products in its catalogs and make such Products available to its Customers.
4
<PAGE> 29
Such advertising and promotion may take the form of, but shall not be limited
to, magazine advertising, direct mail promotion, trade show displays,
educational seminars and other activities related to promoting Products
3.2 Minimum Activities. SST hereby commits, at a minimum, to
------------------
undertake the following marketing and promotional activities:
(a) Development and execution of a promotional brochure for
the Products;
(b) Development and execution of a promotional mailer for
the Products;
(c) Development and execution of quarterly advertising for
the Products in a spinal surgery journal;
(d) Dedicated exhibit booth space for the Products at all
U.S. and European meetings where SST exhibits, including
but not limited to Product promotional graphics at the
following meetings:
(i) [*]
(ii) [*]
(iii) [*]
(iv) [*]
(e) Inclusion of Products in all SST surgeon training
courses;
(f) Inclusion of Products in product fairs at all SST
medical advisory board meetings;
(g) Launch promotion program for the Products with SST sales
force;
(h) Incorporation of the Products into SST sales training
syllabus at first appropriate sales meeting;
(i) Incorporation of the Product into SST sales training for
new representatives; and
(j) Establishment of the same commission and bonus structure
for the Product as for all other SST products.
3.3 SST Materials. SST shall provide to FMT for purposes of review,
-------------
comment and approval by FMT any and all promotional, advertising and
educational materials and programs, package data sheets, and other literature
relating to the Products at least fifteen (15) days prior to the commercial
release of such materials or commencement of such programs.
[*] - Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portion.
5
<PAGE> 30
3.4 FMT Collaboration. FMT will collaborate with SST in the
-----------------
development of all marketing and promotional materials. FMT shall acknowledge
SST's distributorship in all marketing and promotional materials prepared by
FMT for use in the Territory in the Field of Use. All such materials shall be
submitted to SST for its approval.
4. Product Packaging and Labeling.
------------------------------
4.1 Product, Packaging and Labeling. Each Product shall be
-------------------------------
delivered to Customer (if located in the U.S.), or SST, its Affiliate, or its
Subdistributor (if Customer is located outside of the U.S.), at SST's request
in its purchase order to FMT pursuant to Section 6.5 below, in a package (the
"Package") containing the Product together with a Product insert, labeled as
follows: "Manufactured by FMT." Unless otherwise instructed by FMT, SST shall
deliver the Product to its Customers only as part of an unopened Package. SST
shall not repackage Products supplied to SST by FMT hereunder without the prior
written consent of FMT. In addition, except for the addition of information
required by applicable laws and regulations, SST shall not re-label Products
supplied to SST by FMT hereunder without the prior written consent of FMT. FMT
shall be responsible for ensuring that all Products are packaged and labeled in
accordance with the requirements set forth by the U.S. Food and Drug
Administration ("FDA") and comparable regulatory authorities in the E.U..
4.2 Proprietary Notices. SST, its Affiliates, and its
-------------------
Subdistributors shall not remove, alter, cover or obfuscate any logo, trademark
notice or other proprietary rights notices placed or embedded by FMT on or in
any Package or any of the items contained therein.
5. Product Sales.
-------------
5.1 Solicitation and Placement of Orders from Customers. SST shall
---------------------------------------------------
be responsible for marketing and soliciting orders for Products from Customers
in the Territory. SST shall [*] submit all Customer orders to FMT, subject to
Section 6.5 below, and shall provide the following Customer order information:
(a) Date of order;
(b) Purchase order number;
(c) Customer name and contact;
(d) Surgeon user(s) of Product;
(e) Billing and shipping address of Customer;
(f) Telephone and facsimile numbers of Customer; and
(g) Product number, quantity, and Customer invoice price.
In addition to the above, for Customer orders outside the U.S., SST shall
provide the billing and shipping address of SST, SST's Affiliate, or its
Subdistributor.
[*] - Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portion.
6
<PAGE>
5.2 Customer Invoice and Payment. SST shall submit an invoice, in
----------------------------
SST's name, to: (i) its U.S. Customers upon FMT's invoice and confirmation of
shipment to SST, pursuant to Section 6.3.1, of Products ordered by such U.S.
Customer; and (ii) to its non-U.S. Customers upon SST's shipment of Products to
such non-U.S. Customer. Such invoice shall cover SST's price to its Customers
for the Products in any given shipment plus any freight, taxes, or other costs
incident to the purchase or shipment initially paid by FMT but to be borne by
SST. SST shall be solely responsible for the collection of all monies due to
SST from Customers.
6. Terms of Purchase of Products by SST.
------------------------------------
6.1 Terms and Conditions. All orders of Products by SST from FMT
--------------------
during the term of this Agreement shall be subject to the terms of this
Agreement. Nothing contained in any purchase order or the like document
submitted by SST to FMT shall in any way modify or add to the terms and
conditions in this Agreement.
6.2 Prices. For each Product purchased from FMT, SST shall pay to
------
FMT an amount equal to: (i) [*] per Product Unit (as described in Exhibit A)
for Products to be resold in the United States, and [*] per Product Unit for
Products to be resold outside the United States, plus (ii) [*] of the Gross
Sales in excess of [*] per Product Unit from the sale of such Product in the
United States, and [*] of the Gross Sales in excess of [*] per Product Unit
from the sale of such Product outside the United States (the "Product Price").
All prices are in U.S. Dollars. In the event that the Product pricing
structure defined in this Section is commercially impractical in a country
outside the United States, as determined mutually by the parties, SST and FMT
shall negotiate in good faith and mutually determine the appropriate Product
price to be paid by SST in such country; provided, the price described above
shall remain in effect unless the parties agree in writing to other prices. If
the parties fail to reach written agreement upon mutually acceptable terms for
the Product pricing in such country within three (3) months of their
determination that such Product pricing is impractical in such country, SST
shall have no further rights with respect to such country and FMT shall
thereafter by free to appoint third parties to distribute Products in such
country. The difference between the SST Product Price and SST's price to its
Customers shall be SST's sole remuneration for distribution of the Products.
FMT has the right at any time to revise the prices with [*] days advance
written notice to SST if FMT can provide reasonable documentation indicating
that FMT's costs for such Products have increased by [*] or more as of the
later of (i) the Effective Date or (ii) the last revision in prices. Such
revisions shall apply to all orders received after the effective date of
revision. Upon receipt of such notice of an increase in prices, SST may
anytime within such [*]days notice terminate the Agreement.
6.3 Payment.
-------
6.3.1 FMT shall submit an invoice to SST upon each shipment
of Products ordered by SST and as set forth below. The invoice shall cover
SST's Product Price pursuant to Section 6.2(i) above for the Products in a
given shipment plus any freight, taxes or other costs incident to the purchase
or shipment initially paid by FMT but to be borne by SST. By the [*] of each
month, the invoiced amounts for Product shipped in the previous calendar month
shall be due in full.
[*] - Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portion.
7
<PAGE> 31
6.3.2 Within [*] of the end of the calendar quarter in which
the applicable Products are sold, SST shall provide a detailed accounting on a
Product-by-Product basis, showing the calculations used to determine the
amounts due to FMT pursuant to Section 6.2(ii) above. On or before the earlier
of (i) [*] following the end of the calendar quarter in which such products are
sold, or (ii) at such time as [*], SST shall pay to FMT the remaining amounts,
if any, due pursuant to Section 6.2(ii) above, calculated by subtracting the
amounts previously paid pursuant to Section 6.2(i) above for such Products from
the amounts due pursuant to Section 6.2 above. [*]
6.3.3 SST shall make payments to FMT under this Agreement in
immediately available funds to a bank account designated by FMT. All payments
due hereunder shall be paid in United States dollars. If any currency
conversion shall be required in connection with the payment of any amounts due
FMT hereunder, such conversion shall be made by using the daily exchange rate
for the purchase of U.S. dollars reported by the Wall Street Journal. Any
-------------------
payments due hereunder which are not paid within [*] of the date such payments
are due shall be subject to a service charge of [*] per month or the maximum
rate permitted by law, calculated on the [*] such payment is delinquent. This
Section 6.3.3 shall in no way limit any other remedies available to FMT. SST
shall pay all of FMT's costs and expenses (including reasonable attorneys'
fees) to enforce and preserve FMT's rights under this Section 6.3.3.
6.3.4 In the event that SST's account becomes more than
sixty (60) days overdue, FMT may, in its sole discretion, require that SST pay
for all future orders through an irrevocable letter of credit drawn on a major
commercial bank and delivered to FMT at least thirty (30) days prior to
requested delivery date, and FMT shall have no obligation to deliver any
Products until it receives such letter of credit from SST.
6.4 Forecasts.
---------
6.4.1 Forecasts. Beginning [*] after FDA approval of the
---------
first Product and thereafter [*] prior to the first day of each calendar
quarter, SST shall provide to FMT a good faith, quarterly written forecast of
the number of units of each Product, on a Product-by-Product basis, that SST
expects to purchase over the [*] commencing with the first day of the next
calendar quarter ("Forecasts"). The Forecasts by SST shall constitute [*] The
parties acknowledge that the [*] included in each Forecast are for FMT's
planning purposes only and shall not be binding upon the parties. SST and FMT
shall meet, by telephone or in person, no less frequently than once per
calendar quarter to review Forecasts.
6.4.2 Subsequent Forecasts. The parties agree, that in no
--------------------
event may [*] any Forecast: (i) in the first year of the Initial Term (as
defined in Section 14.1 below), be greater than [*] (ii) in any subsequent
year, [*]
6.4.3 Outstanding Commitments. At the end of each calendar
-----------------------
quarter FMT shall [*] For all Products subject to [*] SST shall be
responsible for paying such invoice pursuant to Section 6.3.
6.5 Order and Acceptance. All orders for Products submitted by SST
--------------------
shall be initiated only by the office at SST's address for notice hereunder.
[*] - Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portion.
8
<PAGE> 32
All orders shall be by means of signed written, telexed or FAXed purchase
orders sent to FMT at FMT's address for notice hereunder, and requesting a
delivery date during the term of this Agreement; provided, however, that an
order may initially be placed orally if a confirmational written, telexed or
FAXed purchase order is received by FMT within [*] after said oral order. To
facilitate FMT's production scheduling, SST shall: (i) submit purchase orders
to FMT at least [*] prior to the requested day of delivery; and (ii) not order
more than [*] in any given month [*] unless such order has been pre-approved by
FMT. No order shall [*] FMT until accepted by FMT in writing, and FMT shall
have no liability to SST with respect to purchase orders that are not accepted.
FMT shall use its reasonable efforts to notify SST with respect to purchase
orders that are not accepted. FMT shall use its reasonable efforts to notify
SST of the acceptance or rejection of an order and of the assigned delivery
date for accepted orders within [*] of receipt of the order. No partial
shipment of an order shall constitute the acceptance of the entire order,
absent the written acceptance of such entire order. Once accepted by FMT, SST
may cancel or reschedule purchase orders for Products only with FMT's prior
written approval. FMT shall use its reasonable efforts to deliver Products at
the times specified either in its quotation or in its written acceptance of
SST's orders.
6.6 Taxes.
-----
(a) Any and all amounts payable hereunder by SST
do not include any government taxes (including without limitation sales, use,
excise, withholding, and value-added taxes) or duties imposed by any
governmental agency that are applicable to the export, import, or purchase of
the Products (other than taxes on the net income of FMT), and SST shall bear
all such taxes and duties (including, without limitation, sales, withholding,
value-added and similar taxes). When FMT has the legal obligation to collect
and/or pay such taxes, the appropriate amount shall be added to SST's invoice
and paid by SST, unless SST provides FMT with a valid tax exemption certificate
authorized by the appropriate taxing authority.
(b) All payments by SST specified hereunder (including those
under this Article 6) are expressed as net amounts and shall be made free and
clear of, and without reduction for, any withholding taxes. Any such taxes,
which are otherwise imposed on payments to FMT or SST shall be the sole
responsibility of SST. SST shall provide FMT with official receipts issued by
the appropriate taxing authority or such other evidence as is reasonably
requested by FMT to establish that such taxes have been paid. If FMT uses a
foreign tax credit received by FMT as a result of the payment of withholding
taxes by SST and thereby reduces the amount of U.S. income tax that FMT
otherwise would have paid, FMT shall refund to SST the amount of such reduction
with respect to such foreign tax credit.
6.7 Shipping. All Products delivered pursuant to the terms of this
--------
Agreement shall be suitably packed in FMT's standard shipping cartons, and
marked for shipment at either (i) the U.S. address of SST's Customer, or (ii)
the address of SST, its Affiliate, or its Subdistributor, as applicable, as
provided pursuant to Section 5.1 above, for delivery within [*] to Customer,
SST, its Affiliate, or its Subdistributor, as applicable, E.W. (Incoterms 1990)
FMT's facility currently located at the address listed for FMT at the beginning
of this Agreement or such other location as FMT may designate (the "Shipping
Location"), at which time risk of loss shall pass to SST. FMT shall provide
confirmation of shipping to SST by submitting an invoice to SST pursuant to
Section 6.3.1 above. SST has the right to select the carrier, but if it does
[*] - Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portion.
9
<PAGE> 33
not provide notice to FMT of its preferred carrier on or before [*] prior to
the shipment date, FMT may select the carrier. SST agrees to undertake all
import formalities required to import the Products into the Territory. All
customs, freight, insurance, and other shipping expenses, as well as any
special packing expense, shall be paid by SST. SST shall also bear all
applicable taxes, duties, and similar charges that may be assessed against the
Products after delivery to Customer, or SST or its carrier, at the Shipping
Location. All shipments and freight charges shall be deemed correct unless FMT
receives from SST, no later than [*] after the shipping date of a given
shipment, a written notice specifying the shipment, the purchase order number,
and the exact nature of the discrepancy between the order and shipment or
discrepancy in the freight cost, as applicable.
6.8 Product Availability. Under no circumstances shall FMT be
--------------------
responsible to SST or any other party for its failure to fill accepted orders,
or for its delay in filling accepted orders, when such failure or delay is due
to any cause beyond FMT's reasonable control.
6.9 Return of Defective Products. In the event that any Product
----------------------------
purchased by SST from FMT fails to conform to the warranty set forth in Article
7 hereof, FMT's sole and exclusive liability and SST's exclusive remedy shall
be, at FMT's sole election, to repair or replace the Product or credit SST's
account for the net amount actually paid for any such Product, provided that
(i) SST promptly notifies FMT in writing that such Product failed to conform
and furnishes a detailed explanation of any alleged nonconformity and requests
a return material authorization number; (ii) such Product is returned to FMT by
SST D.D.P. (Incoterms 1990) FMT's facility in California, United States of
America or such other location as FMT may designate, within [*] from the
invoice date with the return material authorization number affixed prominently
to the outside packaging, and (iii) FMT is satisfied that claimed
nonconformities actually exist and were not caused by accident, misuse,
neglect, alteration, unusual physical or electrical stress, improper
installation, repair or improper testing. If such Product fails to so conform,
FMT will reimburse SST for shipment charges for return of the nonconforming
Product. No credit will be given for returns made by SST after thirty (30)
days from the invoice date.
7. Warranty.
--------
7.1 Customer Warranty. Any warranty for the Products shall run
-----------------
directly from FMT to the Customer, and pursuant to the warranty the Customer
shall return any allegedly defective Products to FMT. SST shall have no
authority to accept any returned Products.
7.2 FMT Limited Warranties. Subject to Section 7.3 below, FMT
----------------------
warrants that, at the time of shipment, the Products subject to this Agreement
(i) shall be manufactured in accordance with GMP; and (ii) shall materially
conform to the Product Specifications and be substantially free from defects in
material and workmanship under normal use and service for the applicable
warranty period as set forth in Exhibit D hereto. SST's exclusive remedy and
FMT's sole liability for breach of the foregoing warranty shall be the remedy
set forth in Section 6.9. All defective Products shall be returned to FMT in
accordance with Section 6.9. SST shall not pass on to its Customers a warranty
or limitation of liability which is more protective of such Customers than the
warranty (including the limited remedy and exclusions) set forth in Article 7
and the limitation of liability set forth in Article 10.
[*] - Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portion.
10
<PAGE> 34
7.3 Warranty Limitations. The warranties in Section 7.2 shall not
--------------------
apply to Products that have been modified or altered in any manner by anyone
other than FMT, or to defects caused (i) through no fault of FMT during
shipment to or from SST; (ii) by the use or operation in an application or
environment other than that intended or recommended by FMT; (iii) by service by
anyone other than employees of, or persons approved in writing by, FMT; (iv) by
accident, negligence, misuse, other than normal electrical stress or other
causes other than normal use; or (v) by storage, usage or handling in any
manner inconsistent with the Product label. Replacement Products supplied
under this warranty shall carry only the unexpired portion of the original
warranty. FMT shall not be liable for misbranding with respect to any product
labeling or package insert text provided or used by SST, or any translation
thereof and FMT shall not be liable for any adulteration or failure to meet the
Product Specifications due to handling or packaging of the Products by SST, its
Affiliates, its Subdistributors or agents.
7.4 Exclusion of Other Warranties. EXCEPT FOR THE LIMITED WARRANTY
-----------------------------
PROVIDED IN SECTIONS 7.2 AND 7.3 ABOVE, FMT GRANTS NO OTHER WARRANTIES OR
CONDITIONS, EXPRESS OR IMPLIED, BY STATUTE, IN ANY COMMUNICATION WITH
DISTRIBUTOR OR THE CUSTOMER, OR OTHERWISE, REGARDING THE PRODUCT OR THE
PRODUCT'S QUALITY, AND FMT SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTIES OF
FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, AND NONINFRINGEMENT. FMT
DOES NOT WARRANT THAT OPERATION OF THE PRODUCTS WILL BE UNINTERRUPTED OR ERROR-
FREE. FMT NEITHER ASSUMES NOR AUTHORIZES ANY OTHER PERSON TO ASSUME ANY OTHER
LIABILITIES ARISING OUT OF OR IN CONNECTION WITH THE SALE OR USE OF ANY FMT
PRODUCT. ANY OTHER REPRESENTATIONS OR WARRANTIES MADE BY ANY PERSON OR ENTITY,
INCLUDING EMPLOYEES OR REPRESENTATIVES OF FMT, THAT ARE INCONSISTENT HEREWITH
SHALL BE DISREGARDED AND SHALL NOT BE BINDING UPON FMT OR ITS THIRD PARTY
SUPPLIERS.
7.5 Limitation of Liability. FMT LIABILITY UNDER THE WARRANTY SHALL
-----------------------
BE LIMITED TO A REFUND OF THE CUSTOMER'S PURCHASE PRICE. IN NO EVENT SHALL FMT
BE LIABLE TO DISTRIBUTOR OR ANY THIRD PARTY FOR LOST PROFITS, THE COST OF
PROCUREMENT OF SUBSTITUTE GOODS BY THE CUSTOMER, OR FOR ANY SPECIAL,
CONSEQUENTIAL, INCIDENTAL, OR INDIRECT DAMAGES FOR BREACH OF WARRANTY. THIS
LIMITATION SHALL APPLY EVEN WHERE FMT HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGE AND NOTWITHSTANDING THE FAILURE OF THE ESSENTIAL PURPOSE OF ANY
LIMITED REMEDY STATED HEREIN.
7.6 End User Warranty and Representations. SST shall pass on to end
-------------------------------------
user customers the foregoing standard limited warranties and disclaimer set
forth in this Article 7. SST further agrees not to represent the Products in a
manner that is inconsistent with the Product label claims or Product literature
or to otherwise misrepresent the Products.
7.7 Indemnity. SST shall indemnify, defend and hold FMT harmless
---------
against all claims, liabilities, costs and expenses (including the reasonable
fees of attorneys and other professionals) incurred by, or threatened against,
FMT in connection with any representation by SST or SST's personnel
11
<PAGE> 35
inconsistent with the foregoing limited warranty and disclaimer and
publications of FMT concerning the Products.
8. Additional Obligations of SST.
-----------------------------
8.1 Promotional Materials. SST shall, at its own expense, develop,
---------------------
in consultation with FMT, promotional materials, including, without limitation,
manuals, instructions, advertising literature, brochures, and package insert
data sheets for use in the Territory. SST shall (i) provide any and all
resources necessary to translate all required materials for use in the
Territory, and (ii) provide FMT and the applicable regulatory authorities
sufficient quantities of such materials to meet governmental and/or regulatory,
and market support requirements. SST shall obtain FMT's prior approval of any
promotional materials, sales aids or advertisements pertaining to Products
which SST intends to use or publish in the Territory for regulatory compliance,
including those materials to be submitted to governmental and/or regulatory
authorities.
8.2 Sales and Inventory Reports. SST agrees to maintain a point-of-
---------------------------
sale and inventory record showing, at a minimum, date sold, quantity and price
of each type of Product sold, serial number, shipment information, and the
buyers' names and addresses, as well as the quarter-end inventory position on
hand for each type of Product. Such records shall be kept at SST's principal
place of business for at least three (3) years following the end of the
calendar quarter to which they pertain. This information shall be made
available to FMT at FMT's request.
8.3 Minimum Performance Levels. SST shall use reasonable efforts to
--------------------------
maximize Product sales in the Territory. During each year, SST shall meet the
minimum performance requirements set for in Exhibit E hereto (collectively,
"Minimum Performance Requirements"). If SST does not meet the Minimum
Performance Requirements during the second and third years of the Initial Term
(as defined in Section 14.1 below), or does not meet at least [*] of the
Minimum Performance Requirement during the first year of the Initial Term, FMT
shall have the right, at its option, to terminate this Agreement for cause
pursuant to Section 14.3 hereof. If during the first year of the Initial Term
SST does not meet the Minimum Performance Requirement, but does meet at least
[*] of the Minimum Performance Requirement, then SST shall [*]; provided
however, that if SST does not make up the difference [*], FMT shall have the
right, at its option, to terminate this Agreement for cause pursuant to Section
14.3 hereof. FMT shall exercise this right by providing [*] written notice to
SST. In such event, SST's rights under this Agreement with respect to the
Products shall convert to non-exclusive during the [*] notice period. It is
understood and agreed that notwithstanding any other provision of this
Agreement, FMT shall be under no obligation to continue the production of any
Products.
8.4 Facilities. SST shall provide itself with, and be solely
----------
responsible for, (i) such facilities, employees, and business organization, and
(ii) such permits, licenses, and other forms of clearance from governmental or
regulatory agencies, if any, as it deems necessary for the conduct of its
business operations in accordance with this Agreement.
8.5 Shipping and Storage. SST shall maintain storage and shipping
--------------------
facilities and shipping containers for the Products in accordance with the
following requirements: (i) SST shall maintain adequate facilities at its
[*] - Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portion.
12
<PAGE> 36
warehouse(s) to store all Products according to Product package labeling, (ii)
SST will monitor and document conditions in its controlled storage areas, and
(iii) SST will ship Products in validated shipping containers, substantially
equivalent to FMT's standard shipping containers, using procedures which
maintain controlled temperature conditions as specified on the Product label.
FMT will supply SST, at SST's request and expense, with FMT standard shipping
containers. SST may use shipping containers other than those supplied by FMT;
provided that prior to using such shipping containers, SST shall provide FMT
with specifications and validation test results for such shipping containers.
At mutually agreed upon times, SST shall make available to FMT for inspection,
at FMT's expense: (a) SST storage and shipping facilities, shipping containers,
and related documentation, or (b) SST's records that establish SST's compliance
with FMT's storage and shipping requirements for the Products as described
above.
8.6 Import Permits. SST shall be responsible for obtaining the
--------------
appropriate licenses or permits required to import Products into each
destination country in the Territory. To the extent permitted by law within
the Territory, all such licenses and permits shall specify FMT as the approved
entity for importation of the Products in the Territory, and FMT shall have the
exclusive rights to all such licenses or permits if this Agreement is
terminated for any reason.
8.7 Registrations, Licenses and Permits. Except as expressly
-----------------------------------
provided in Section 9.3 below, if and as required from time to time under the
laws of any country or other jurisdiction within the Territory, SST, at SST's
expense, shall obtain all registrations, licenses and permits required to
comply with the laws and regulations of each country in the Territory for sale
and distribution of the Products; provided, however, that no activities in
connection with obtaining such registrations, licenses or permits shall be
initiated by SST without FMT's prior written approval. SST shall provide to
FMT complete copies of all applications, and all registrations, licenses and
permits obtained therefrom relating to the Products. To the extent permitted
by law, all registrations, approvals, and government authorizations obtained by
SST in the Territory with respect to the Products shall be in the name of FMT.
Upon the expiration, cancellation, or termination of this Agreement, all
registrations, approvals, and government authorizations shall be transferred
and delivered to, and shall inure to the benefit of FMT or its designee, to the
extent that this is permissible under applicable law, at no cost to FMT other
than lawfully imposed transfer fees. In the event that all necessary
registrations, licenses and permits required to sell and distribute the
Products in the Territory are not obtained within twelve (12) months after the
Effective Date of this Agreement, SST and FMT jointly shall review all actions
taken and determine what further actions, if any, should be undertaken. FMT
shall have the exclusive right to use all such registrations, licenses or
permits if this Agreement is terminated for any reason.
8.8 Product Presentation. SST agrees to (i) present the Products
--------------------
fairly to potential Customers; (ii) not to disparage the Products and Product
trademarks or FMT in any way; and (iii) do all things reasonable to promote the
reputation of the Products and the value of any Product trademark.
8.9 Health and Safety Laws and Regulations. SST shall comply fully
--------------------------------------
with any and all applicable health and safety laws and regulations of the
Territory as they relate to the Products. In addition, SST shall monitor the
13
<PAGE> 37
appropriate information sources closely for changes in such laws and
regulations, and other requirements in the Territory relating to the
distribution of Products in the Territory, and notify FMT promptly in writing
of any and all such changes.
8.10 Copyright and Trademark Protection. SST shall, at FMT's
----------------------------------
request and at FMT's expense, promptly notify FMT of the requirements for
copyright and trademark protection and registration for the Products in the
Territory and at FMT's request shall assist FMT in fulfilling such
requirements.
8.11 Customer and Sales Reporting. SST shall, at its own expense,
----------------------------
and in a manner consistent with the sales policies of SST:
(a) place the Products in SST's catalogues as soon as
possible, attend such the appropriate trade shows and
feature the Products in any applicable trade show that
it attends;
(b) provide adequate contact with existing and potential
Customers within the Territory on a regular basis,
consistent with good business practice;
(c) assist FMT in assessing Customers' requirements for the
Products, including modifications and improvements
thereto, in terms of quality, design, functional
capability, and other features; and
(d) submit market research information, as reasonably
requested by FMT, regarding competition and changes in
the market within the Territory.
8.12 Annual Business Plans. If requested by FMT, SST shall develop
---------------------
an annual business plan for the Products which shall include, without
limitation, promotion strategy and tactics, and sales and other marketing
plans, including, without limitation, such plans for [*] performance [*] Any
such Business Plan shall be provided to FMT for prior review. The Business
Plan for the first year of this Agreement shall be provided to FMT within [*]
after the Effective Date, and no request therefor need be made by FMT.
Thereafter, if requested, Business Plans shall be provided to FMT for review by
FMT not later than [*] before January 1 of the year to which such Business Plan
pertains.
8.13 Books and Records. At FMT's request, SST, its Affiliates, and
-----------------
its Subdistributors agree to furnish a full and detailed statement of such
party's business and operations (but only to the extent it relates to the SST
relationship created hereby), including, without limitation, any and all sales
and inventory records required to be kept pursuant to this Agreement
8.14 Reports. SST shall deliver to FMT within [*] after the last
-------
day of each calendar quarter in which Products are sold a report for such
calendar quarter identifying (i) [*] (ii) [*] (iii) [*]
8.15 Inspection of Books and Records. SST, its Affiliates, and its
-------------------------------
Subdistributors shall maintain accurate books and records, which enable the
calculation of [*] SST, its Affiliates, and its Subdistributors shall retain
the books and records for each quarterly period for three (3) years after the
submission of the corresponding report under Section 8.14 hereof. Upon [*]
prior notice to SST, independent accountants selected by FMT and reasonably
[*] - Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portion.
14
<PAGE> 38
acceptable to SST, may have access to the books and records of SST, its
Affiliates, and its Subdistributors during normal business hours to conduct a
review or audit, solely, however, to the extent necessary for the purpose of
verifying the accuracy of SST's payments and compliance with this Agreement.
Any such inspection or audit shall be at FMT's expense; however, in the event
an inspection reveals [*] in any audit period, SST shall pay the costs of the
inspection and promptly pay to FMT any underpayment with interest from the date
such amount(s) were due, at [*]
8.16 Customer Support.
----------------
(a) SST shall maintain knowledgeable sales, marketing, and
support personnel to provide instructions to Customers in the use of the
Products. SST agrees that such sales, marketing, and support personnel will,
at SST's expense, (i) attend hands-on training session relating to the Products
as appropriate and (ii) observe the use of Products in applicable surgical
applications to improve the clinical knowledge of such personnel relating to
the Products. SST shall be fully responsible for any and all technical support
of SST's Customers, and shall diligently assist its Customers' personnel in
using Products. SST shall, at its expense, provide adequate delivery service
for Customers.
(b) Upon SST's request, at agreed times, FMT shall provide
reasonable aid to SST in training sales personnel or to travel with SST sales
personnel to assist in problem solving, market needs identification and general
market development. Any expenses related to such activities shall be borne by
FMT.
(c) Upon FMT's request and in FMT's sole discretion, FMT may
provide direct support to SST's Customers and SST will provide FMT with such
Customers' names and information as FMT may reasonably request in order for FMT
to provide such support to such Customers.
8.17 Medical Device Reporting. Pursuant to governmental medical
------------------------
device reporting regulations (e.g. the FDA's Medical Device Reporting (MDR)
Regulations, the European Medical Device Vigilance Guidelines, and any other
applicable medical device reporting regulations), FMT is required to report to
the applicable agency information that reasonably suggests that a Product may
have caused or contributed to the death or serious injury or has malfunctioned
and that the device would be likely to cause or contribute to a death or
serious injury if the malfunction were to recur. Each of FMT and SST agree to
supply to the other any such information promptly after becoming aware of it so
that each of FMT and SST can comply with governmental reporting requirements.
It is understood and agreed that reporting to FMT shall be within twenty-four
(24) hours to enable FMT to comply with FDA reporting requirements. In the
event that FMT is required by any regulatory agency to recall a Product, or if
FMT or a regulatory authority initiates a Product recall, SST shall cooperate
with and assist FMT in locating, and retrieving if necessary, recalled Product
from SST's customers. Recalls initiated by FMT or by the FDA shall be at FMT's
cost and expense. Except as described in the preceding sentence, SST and FMT
shall share equally the costs and expenses of recalls initiated by a regulatory
authority. SST shall maintain records of sales of Products by lot number and
by end user to whom such Product was sold or otherwise transferred. Upon FMT's
request, SST shall provide FMT with access to such records in the event of a
Product recall or other quality related issue. SST shall be responsible for
[*] - Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portion.
15
<PAGE> 39
obtaining all records of its sales to end users in the event of a Product
recall or other quality related issue. During the time that the Products are
commercially marketed, distributed, or sold by SST, SST also shall promptly
forward all Product complaints which it received to FMT. SST shall make
available to FMT for inspection SST's process and records for adverse event and
other regulatory reporting purposes at mutually agreed upon times and further
shall ensure that SST's processes comply with all applicable laws and
regulations in the Territory.
8.18 Product Complaints. SST shall promptly investigate and monitor
------------------
all Customers and/or regulatory complaints and/or correspondence concerning the
use of the Products in the Territory. SST shall advise FMT of all complaints
relating to the Products as promptly as possible but not more than [*]
following the date SST receives such complaint. In addition, within [*]
following the date SST receives such complaint, SST shall also provide FMT with
a written report, substantially in the form attached hereto as Exhibit H (the
"Adverse Experience Report") relating thereto. Any notice to FMT under this
Section 8.17 shall be sent via facsimile and overnight delivery service to the
attention of FMT's Director of Regulatory Affairs or to such other address or
person as FMT may designate by notice. If SST fails to submit timely any
report pursuant to this Section 8.17, FMT may withhold Product shipments under
this Agreement until the reporting is received by FMT.
8.19 Expense of Doing Business. Any and all obligations associated
-------------------------
with SST's business shall remain the sole responsibility of SST. Any and all
sales and other agreements between SST and its customers are and shall remain
SST's exclusive responsibility and shall have no affect on SST's obligations
pursuant to this Agreement. SST shall bear the entire cost and expense of
conducting its business in accordance with the terms of this Agreement.
8.20 Notice of Change. SST shall promptly advise FMT of (i) any
----------------
changes in SST's status, organization, personnel, and similar matters, (ii) any
changes in the key personnel, organization, and status of any major Customers
of FMT in the Territory, and (iii) any political, financial, legislative,
industrial or other events in the Territory that could affect the mutual
business interests of SST and FMT, whether harmful or beneficial.
8.21 Standard of Business Practices. SST shall establish and
------------------------------
maintain, and shall cause its employees, consultants and agents to establish
and maintain a high standard of ethical business practices in connection with
its distribution of Products in the Territory.
8.22 Notification of Unauthorized Use. SST shall promptly notify
--------------------------------
FMT in writing upon its discovery of any unauthorized use or infringement of
the Products or FMT's patent, copyright, trademark or other intellectual
property rights with respect thereto. FMT shall have the sole and exclusive
right to bring an infringement action or proceeding against a third party, and,
in the event that FMT brings such an action or proceeding, SST shall cooperate
and provide full information and assistance to FMT and its counsel in
connection with any such action or proceeding; provided that FMT shall
reimburse SST for any expenses (including but not limited to reasonable
attorney's fees) incurred by SST.
9. Additional Obligations of FMT.
-----------------------------
[*] - Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portion.
16
<PAGE> 40
9.1 Supply of Products. FMT shall be responsible for the
------------------
manufacture of Products for sale to SST.
9.2 Research and Development. FMT shall be responsible for and
------------------------
maintain, at its own expense, ongoing research and development of new products
and improvements to existing products, as it deems appropriate. FMT shall use
its reasonable efforts to develop products to meet the needs of the market, as
identified and provided by SST to FMT from feedback from SST's field selling
efforts.
9.3 Health Regulatory Approvals. FMT, at its expense, shall use
---------------------------
commercially reasonable efforts to obtain and maintain regulatory approvals,
including clinical trial approvals, from the FDA and its equivalents in the
Territory consistent with such Product's development and to the extent required
to sell and distribute the Products in the Territory in the Field of Use.
However, in no event shall FMT be obligated to seek regulatory approvals in any
country in the Territory, other than the U.S. and E.U. FMT shall file and hold
title to all regulatory applications, approvals and supplements thereto.
9.4 Telephone Marketing and Technical Support. FMT shall provide a
-----------------------------------------
reasonable level of telephone marketing and technical support to employees of
SST who have been trained by FMT during its normal business hours to answer
SST's questions related to Products.
9.5 Insurance. FMT shall, at all times during the term of this
---------
Agreement, maintain in effect product liability insurance.
9.6 Samples. To assist SST's marketing efforts, FMT shall provide
-------
to SST, in the first year following the Effective Date: (i) [*], (ii) [*] and
(iii) [*] Such demo samples shall be marked as "Not for Human Use." The
parties shall mutually agree upon the schedule for delivery of such samples.
SST will provide the samples obtained from FMT under this Section 9.6 to its
sales force and Customers for promotional and marketing purposes only.
10. Limited Liability to SST and Others. FMT's LIABILITY ARISING OUT O
-----------------------------------
THIS AGREEMENT, THE TERMINATION THEREOF, AND/OR SALE OF THE PRODUCTS SHALL BE
LIMITED TO THE AMOUNT PAID BY DISTRIBUTOR FOR PRODUCTS UNDER THIS AGREEMENT.
IN NO EVENT SHALL FMT BE LIABLE TO SST OR ANY OTHER ENTITY FOR COSTS OF
PROCUREMENT OF SUBSTITUTE GOODS, LOST PROFITS, OR ANY OTHER SPECIAL,
CONSEQUENTIAL, OR INCIDENTAL DAMAGES, HOWEVER CAUSED AND ON ANY THEORY OF
LIABILITY ARISING OUT OF THIS AGREEMENT WHETHER BASED IN CONTRACT, TORT
(INCLUDING NEGLIGENCE), OR OTHERWISE. THESE LIMITATIONS SHALL APPLY WHETHER OR
NOT FMT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND NOTWITHSTANDING
ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY PROVIDED HEREIN OR IN
THE WARRANTY FOUND IN THE PRODUCTS.
11. Trademarks.
----------
11.1 Use. During the term of this Agreement, SST shall have the
---
right to indicate to the public that it is an authorized distributor of the
Products and to advertise and promote (within the Territory) such Products
under FMT's trademarks, marks, and trade names identified on Exhibit G as
[*] - Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portion.
17
<PAGE> 41
modified by FMT pursuant to this Article 11 ("Trademarks"). FMT reserves the
right to modify Trademarks or substitute alternative marks for any or all of
the Trademarks at any time upon [*] prior written notice. In addition, SST
agrees to use those Trademarks in connection with Products as may be designated
in writing by FMT. The rights granted under this Article 11 shall
automatically terminate on termination or expiration of this Agreement. SST
shall not alter or remove any Trademark applied to Products. Except as set
forth in this Article 11, nothing contained in this Agreement shall grant to
SST any right, title or interest in the Trademarks, whether or not specifically
recognized or perfected under applicable laws, and SST irrevocably assigns to
FMT all such right, title, and interest, if any, in any Trademarks. At no time
during or after the term of this Agreement shall SST challenge or assist others
to challenge the Trademarks or the registration thereof or attempt to register
any trademarks, marks or trade names confusingly similar to those of FMT.
11.2 Approval of Representations. All representations of the
---------------------------
Trademarks that SST intends to use shall first be submitted to FMT for approval
(which shall not be unreasonably withheld) of design, color, and other details
or shall be exact copies of those used by FMT. SST agrees to fully comply with
all reasonable guidelines, if any, communicated by FMT concerning use of the
Trademarks. SST may not mark the Products or Product packaging materials with
its own Trademarks or the Trademarks of any third party without the prior
written consent of FMT; which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, SST shall in addition have the right to promote
and sell the Products under trademarks, trade names and logotypes of SST
selected by SST, which trademarks, trade names and logotypes shall be and shall
remain the property of SST. All representations of the Trademarks that SST
intends to use shall first be submitted to FMT for approval (which shall not be
unreasonably withheld) of design, color, and other details or shall be exact
copies of those used by FMT. SST agrees to fully comply with all reasonable
guidelines, if any, communicated by FMT concerning use of the Trademarks. SST
may not mark the Products or Product packaging materials with its own
trademarks or the trademarks of any third party without the prior written
consent of FMT. If any of FMT's Trademarks are to be used in conjunction with
another trademark on or in relation to the Products, then the Trademarks shall
be presented equally legibly, equally prominently, and of greater size than the
other but nevertheless separated from the other so that each appears to be a
mark in its own right, distinct from the other mark.
11.3 Registered User Agreements. FMT and SST shall enter into
--------------------------
registered user agreements with respect to the Trademarks pursuant to
applicable trademark law requirements in the Territory. SST shall be
responsible for proper filing of any such registered user agreements with
government authorities within the Territory and shall pay all costs or fees
associated with such filing.
12. Confidentiality.
---------------
12.1 Confidentiality. SST acknowledges that by reason of its
---------------
relationship to FMT hereunder it will have access to certain information and
materials concerning FMT's business, plans, customers, technology, and products
that are confidential and of substantial value to FMT, which value would be
impaired if such information were disclosed to third parties. SST agrees that,
for the Term of this Agreement and for [*] thereafter, SST will not use in any
way for its own account or the account of any third party, nor disclose to any
[*] - Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portion.
18
<PAGE> 42
third party except as may be required by law, any such confidential information
revealed to it in written or other tangible form or orally, and identified as
confidential, by FMT without the prior written consent of FMT. SST shall take
every reasonable precaution to protect the confidentiality of such information.
Upon request by SST, FMT shall advise whether or not it considers any
particular information or materials to be confidential. If SST is required to
make any disclosure of FMT's confidential information, to the extent it may
legally do so, it will give reasonable advance written notice to FMT of such
disclosure and will use its reasonable efforts to secure confidential treatment
of such confidential information prior to its disclosure (whether through
protective orders or otherwise). In the event of termination of this
Agreement, there shall be no use or disclosure by SST of any confidential
information of FMT, and SST shall not manufacture or have manufactured any
devices, components or assemblies utilizing any of FMT's confidential
information. This section shall not apply to any confidential information
which is or becomes generally known and available in the public domain through
no fault of SST.
12.2 Confidentiality of Agreement. Except as required by law, SST
----------------------------
shall not disclose the contents or any term of this Agreement to any person or
entity without the prior written consent of FMT.
13. Indemnity.
---------
13.1 Indemnification of SST.
----------------------
(a) FMT shall indemnify, defend, and hold harmless SST and
its directors, officers and employees (each an "SST Indemnitee") from and
against any and all liabilities, damages, losses, costs or expenses (including
attorneys' and professional fees and other expenses of litigation and/or
arbitration) (a "Liability") resulting from a claim, suit or proceeding made or
brought by a third party against an SST Indemnitee arising from (a) a failure
by FMT to manufacture the Products in accordance with the specifications for
such Product, (b) any breach of the FMT representations and warranties set
forth in Article 7, (c) any claim alleging loss or damage, personal injury or
death, arising out of the operation and/or use of the Product or any of the
Products, (d) any claim alleging noncompliance by FMT with the Food, Drug and
Cosmetic Act and the regulations promulgated thereunder or similar foreign laws
and regulations, or (e) the negligence or willful misconduct of FMT, except to
the extent caused by the negligence or willful misconduct of an SST Indemnitee.
(b) FMT shall defend, or at its option settle, any claims
brought against SST by third parties as a result of any infringement by the
Products of any U.S. or foreign patent, or copyright existing under the laws of
the Territory, and shall reimburse SST for any judgments, damages, cost or
expenses payable by SST to a party bringing such action together with
reasonable attorneys' fees relating thereto. SST agrees that FMT shall be
relieved of its obligations under this Section 13.1(b) unless SST notifies FMT
promptly in writing of and gives FMT proper and full information and assistance
to settle or defend any such claims. If the Products, or any part thereof,
are, or in the opinion of FMT become, the subject of any claim for infringement
of such third party patent, or copyrights, or if it is adjudicatively
determined that the Products, or any part thereof, infringe any such third
party patent or copyright, then FMT may, at its option and expense, either (i)
procure for the SST the right under such third party patent or copyright to
sell or use, as appropriate, the Products or (ii) replace or modify the
19
<PAGE> 43
Products or parts thereof, with other suitable and reasonably equivalent
technology or parts so that the Products become non-infringing or (iii) if it
is not commercially reasonable to take the actions specified in items (i) or
(ii) immediately preceding, terminate this Agreement with ninety (90) days
written notice.
(c) Notwithstanding the provisions of Section 13.1(b) above,
FMT assumes no liability for (i) infringements relating to any assembly,
circuit, combination, method or process in which any of the Products may be
used where the Products when used alone would not result in such an
infringement; (ii) infringements involving the modification or servicing of the
Products, or any part thereof, unless such modification or servicing was done
by FMT; (iii) any trademark infringements involving any marking or branding of
the Products not applied by FMT or involving any marking or branding applied at
the request of SST; or (iv) the modification of any Products other than with
FMT's written consent.
(d) The foregoing provisions of this Section 13.1 state the
entire liability and obligations of FMT, and the exclusive remedy of SST and
its Customers, with respect to any alleged product liability claim related to
the Products, any alleged breach of the FMT representations and warranties set
forth in Article 7, or any alleged infringement of any patents, copyrights,
trademarks or other intellectual property rights by the Products or any part
thereof.
13.2 Indemnification of FMT. SST shall indemnify, defend and hold
----------------------
harmless FMT and its directors, officers, employees and agents and the
successors and assigns of any of the foregoing (each a "FMT Indemnitee") from
any and all claims, losses, costs, liabilities or expenses (including, without
limitation, attorneys' fees and other expenses of litigation) (a "Liability")
resulting from a claim, suit or proceeding made or brought by a third party
against a FMT Indemnitee arising out of (a) any acts or omissions of SST or its
employees and agents in the distribution or marketing of Products or otherwise
relating to the performance of this Agreement, (b) breach of the SST
representations and warranties set forth in this Agreement, (c) any claim
alleging noncompliance by SST with the Food, Drug and Cosmetic Act and the
regulations promulgated thereunder or similar foreign laws and regulations,
except to the extent caused by the negligence or willful misconduct of an FMT
Indemnitee, or (d) the negligence or willful misconduct of SST or its employees
and agents, except to the extent caused by the negligence or willful misconduct
of an FMT Indemnitee.
14. Term and Termination.
--------------------
14.1 Initial Term. The initial term of this Agreement shall
------------
commence on the Effective Date and shall continue in force until [*] from the
Effective Date, unless terminated earlier under the provisions of this Article
14 (the "Initial Term"). At the end of the Initial Term, the Agreement shall
terminate automatically without notice unless prior to that time the Agreement
is extended by mutual written consent of the parties.
14.2 Extension of Term. If SST [*] SST shall have the right to
-----------------
extend the term of this Agreement for an additional [*] if the parties agree in
writing on the Minimum Performance Requirement to be met by SST for such
subsequent year. SST may exercise this right by providing written notice to
[*] - Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portion.
20
<PAGE> 44
FMT no later than six (6) months prior to the expiration of the Initial Term.
14.3 Termination for Cause. If either party defaults in the
---------------------
performance of any provision of this Agreement, then the non-defaulting party
may give written notice to the defaulting party that if the default is not
cured within [*] the Agreement will be terminated. If the non-defaulting party
gives such notice and the default is not cured during the [*] period, then the
Agreement shall automatically terminate at the end of that period. In
addition, this Agreement shall automatically terminate if SST fails to pay FMT
in accordance with Section 6.3 and such failure shall have continued for [*]
after written notice thereof was provided to SST by FMT.
14.4 Termination for SST Insolvency. This Agreement may be
------------------------------
terminated by FMT effective immediately upon written notice (i) upon the
institution by or against SST of insolvency, receivership or bankruptcy
proceedings or any other proceedings for the settlement of SST's debts under
United States or California law, (ii) upon SST's making an assignment for the
benefit of creditors, or (iii) upon SST's dissolution or ceasing to do
business.
14.5 Termination Due to Price Increases. This Agreement may be
----------------------------------
terminated by SST with [*] written notice to FMT following notice from FMT
pursuant to Section 6.2 that FMT is increasing Product prices.
14.6 Termination Relating to Sales of Competing Products. FMT may,
---------------------------------------------------
at its sole discretion, terminate this Agreement with [*] notice if SST shall
directly or indirectly develop, market, sell, or otherwise distribute any
products or components within the Territory which could compete with the
Products, or SST appoints or licenses any third party to develop, market, sell,
or otherwise distribute any such products or components which could compete
with Products during the Term of this Agreement.
14.7 Termination for FMT Insolvency or Change in Ownership. In the
-----------------------------------------------------
event of any reorganization or bankruptcy of, or any sale of substantially all
the assets of, or any transfer of control of more than fifty percent (50%) of
the voting power of FMT, FMT may: (i) assign this Agreement to any third party
with the written consent of SST, which consent shall not be unreasonably
withheld, or (ii) terminate this Agreement by giving [*] written notice to the
other party any time within the [*] period following such event. If FMT or its
successor exercises such right to terminate the Agreement, it will [*]
14.8 Effect of Termination.
---------------------
14.8.1 Accrued Obligations. Expiration or termination of
-------------------
this Agreement for any reason shall not release any party hereto from any
liability which, at the time of such termination, has already accrued to the
other party or which is attributable to a period prior to such termination nor
preclude either party from pursuing any rights and remedies it may have
hereunder or at law or in equity with respect to any breach of this Agreement.
It is understood and agreed that monetary damages may not be a sufficient
remedy for any breach of this Agreement and that the non-breaching party may be
entitled to injunctive relief as a remedy for any such breach. Such remedy
[*] - Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portion.
21
<PAGE> 45
shall not be deemed to be the exclusive remedy for any such breach of this
Agreement, but shall be in addition to all other remedies available at law or
in equity.
14.8.2 Inventory. Within [*] after the effective date of
---------
termination of this Agreement, SST shall use its reasonable efforts to provide
FMT with a complete inventory of Products in SST's possession, in transit to
SST from FMT or otherwise in SST's control. Upon any expiration or other
termination of this Agreement, FMT may inspect SST's Product inventory and
audit SST's records.
14.8.3 Return of Materials. All trademarks, marks, trade
-------------------
names, patents, copyrights, designs, drawings, formulas or other data,
photographs, samples, literature, and sales and promotional aids of every kind
related to the Products or provided by FMT shall remain the property of FMT.
Within [*] after the effective date of termination of this Agreement, SST shall
destroy all tangible items bearing, containing, or contained in, any of the
foregoing, in its possession or control and provide written certification of
such destruction, or prepare such tangible items for shipment to FMT, as FMT
may direct, at FMT's expense. SST shall not make or retain any copies of any
confidential items or information which may have been entrusted to it.
Effective upon the termination of this Agreement, SST shall cease to use all
trademarks and trade names of FMT. During the term of this Agreement and after
any termination or expiration of this Agreement, FMT shall have the right to
continue to use and disclose for any purpose Customer lists, Customer data and
other Customer information and any and all clinical trial results and other
data relating to the Products and provided by SST to FMT during the term of
this Agreement.
14.8.4 Products. Upon termination of this Agreement, FMT
--------
shall [*] and SST shall [*]
14.8.5 Limitation on Liability. In the event of termination
-----------------------
by either party in accordance with any of the provisions of this Agreement,
neither party shall be liable to the other because of such termination, for
compensation, reimbursement or damages on account of the loss of prospective
profits or anticipated sales or on account of expenditures, investments,
leases, inventory or commitments in connection with the business or goodwill of
FMT or SST.
14.8.6 Transition. Upon termination of this Agreement, SST
----------
shall diligently cooperate with FMT to effect a smooth and orderly transition
in the sale of the Products in the Territory. Within [*] of termination or
expiration of this Agreement, SST shall deliver to FMT (i) copies of all sales
records and call reports for the previous one (1) year, and (ii) a report
identifying all outstanding leads for sales of Products and describing the
status of any other sales activities regarding the Products. From the time
that a notice of termination is received by either party until the effective
termination date, SST shall refer all Product inquiries to FMT, shall support
FMT's existing Customers in the Territory (but shall not sell them new
Products) and shall cooperate fully with any newly appointed distributors.
14.9 Early Termination for SST Default, Insolvency or Sale of
--------------------------------------------------------
Competing Products. In the event that this Agreement is terminated by FMT
- ------------------
pursuant to Sections 14.3, 14.4, or 14.5 prior to the first anniversary of the
Effective Date, SST shall be invoiced, at a price equal to SST's current
Product Price, for all Products subject to the current Forecast, but unordered
[*] - Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portion.
22
<PAGE> 46
by SST during the twelve month period of such Forecast. SST shall be
responsible for paying such invoice pursuant to Section 6.3.
14.10 No Renewal, Extension or Waiver. Acceptance of any order
-------------------------------
from, or sale of, any Products to SST after the date of termination of this
Agreement shall not be construed as a renewal or extension hereof, or as a
waiver of termination by FMT.
14.11 Survival. The provisions of Sections 2.8, 4.2, 6.3, 8.2, 8.7,
--------
8.13, 8.14, 8.15, 8.17, 11.1, 14.7, 14.9, and 14.10, and Articles 7, 10, 12,
13, 15, 16, and 17 shall survive the expiration or termination of this
Agreement for any reason. All other rights and obligations of the parties
shall cease upon termination of this Agreement.
15. Arbitration. If a dispute arises between the parties relating to the
-----------
interpretation or performances of this Agreement or the grounds for the
termination thereof, representatives of the parties with decision-making
authority shall meet to attempt in good faith to negotiate a resolution of the
dispute prior to pursuing other available remedies. If within sixty (60) days
after such meeting the parties have not succeeded in negotiating a resolution
of the dispute, such dispute shall be submitted to final and binding
arbitration under the then current Commercial Arbitration Rules of the American
Arbitration Association ("AAA"), by one (1) arbitrator in Palo Alto,
California. Such arbitrator shall be selected by the mutual agreement of the
parties or, failing such agreement, shall be selected according to the AAA
rules. The arbitrator will be instructed to prepare and deliver a written,
reasoned opinion stating his decision within thirty (30) days of the completion
of the arbitration. Such arbitration shall be concluded within nine (9) months
following the filing of the initial request for arbitration. The parties shall
bear the costs of arbitration equally and shall bear their own expenses,
including professional fees. The decision of the arbitrator shall be final and
non-appealable and may be enforced in any court of competent jurisdiction.
16. Compliance with Law.
-------------------
16.1 U.S. Export Control Notwithstanding any other provision of
-------------------
this Agreement, the obligations of FMT to provide the Products, documentation,
and any media in which any of the foregoing is contained, as well as any
technical assistance, shall be subject in all respects to such United States
laws and regulations as shall from time to time govern the license and delivery
of technology and products abroad by persons subject to the jurisdiction of the
United States, including the Export Administration Act of 1979, as amended, any
successor legislation, and the Export Administration Regulations issued by the
Department of Commerce, Bureau if Export Administration. SST warrants that it
will comply with the Export Administration Regulations and other United States
laws and regulations governing exports in effect from time to time. SST
certifies that unless prior written authorization is obtained from the Bureau
of Export Administration or the Export Administration Regulations explicitly
permit the re-export without such authorization, it will not export, re-export,
or transship, directly or indirectly, the Products, documentation, technical
assistance, or any media in which any of the foregoing is contained, or other
technology provided hereunder or the direct product thereof, to any country as
to which the U.S. Government has placed an embargo against the shipment of
products, software or technology which embargo is in effect during the term of
this Agreement. This Section 16.1 shall survive any expiration or termination
of this Agreement.
23
<PAGE> 47
16.2 Governmental Consent. SST represents and warrants that, as of
--------------------
the Effective Date of this Agreement, no consent, approval or authorization of,
or designation, declaration or filing with, any governmental authority in the
Territory which has not been made or obtained by SST prior to the Effective
Date is required in connection with the valid execution, performance and
delivery of this Agreement. SST shall be responsible for timely filings of
this Agreement with any required government agencies or commissions in the
Territory. In the event any such agency or governmental entity objects to or
disapproves of this Agreement or any provision hereof, FMT shall have the
right, in its discretion, to immediately terminate the Agreement.
16.3 Currency Control. SST represents and warrants that, on the
----------------
Effective Date of this Agreement, no currency control laws applicable in the
Territory prevent the payment to FMT of any sums due under this Agreement.
16.4 Foreign Corrupt Practices Act. In conformity with the United
-----------------------------
States Foreign Corrupt Practices Act and with FMT's established corporate
policies regarding foreign business practices, SST and its employees and agents
shall not directly or indirectly make an offer, payment, promise to pay, or
authorize payment, or offer a gift, promise to give, or authorize the giving of
anything of value for the purpose of influencing an act or decision of an
official of any government within the Territory or the United States Government
(including a decision not to act) or inducing such a person to use his
influence to affect any such governmental act or decision in order to assist
FMT in obtaining, retaining or directing any such business.
16.5 Intellectual Property Rights Registrations. SST shall promptly
------------------------------------------
notify FMT in writing of, and shall assist FMT with any registrations or
filings required to obtain patent, copyright, trademark or other intellectual
property rights protection, in FMT's name, for the Products in the Territory
under applicable law. FMT shall be responsible for all fees or expenses
incurred in connection with such intellectual property rights, registrations or
filings.
16.6 Non-Compliance as Material Default. Non-compliance by SST or
----------------------------------
its employees or agents with this Article 16 shall be deemed to constitute a
material default under this Agreement.
17. Miscellaneous.
-------------
17.1 Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without reference to principles of conflicts of laws. This
Agreement shall not be governed by the 1980 United Nations Convention on
Contracts for the International Sale of Goods.
17.2 Notices. Any notice required or permitted by this Agreement
-------
shall be in writing and shall be sent by prepaid registered or certified mail,
return receipt requested, addressed to the other party at the address shown
below or at such other address for which such party gives notice hereunder.
Such notice shall be deemed to have been given three (3) days after deposit in
the mail.
24
<PAGE> 48
To FMT: Fusion Medical Technologies, Inc.
1615 Plymouth Street
Mountain View, CA 94043
Attention: President
To SST: Sulzer Spine-Tech Inc.
7375 Bush Lake road
Minneapolis, MN 55439-2027
Attention: President
With a copy to: General Counsel
Sulzer Spine-Tech Inc.
3 East Greenway Plaza, Suite 1600
Houston, TX 77046-0391
17.3 Force Majeure. Nonperformance of either party (except for
-------------
payment obligations) shall be excused to the extent that performance is
rendered impossible by strike, fire, flood, earthquake, governmental acts or
orders or restrictions, delay or failure of suppliers, or any other reason
where failure to perform is beyond the reasonable control of and is not caused
by the gross negligence or willful misconduct of the nonperforming party,
provided such party uses reasonable efforts to complete its performance as soon
as practicable.
17.4 Assignment. SST may not assign or transfer this Agreement or
----------
any of its rights and obligations under this Agreement without the prior
written consent of FMT, except to an Affiliate of SST. Any permitted assignee
shall agree to perform the obligations of the assignor of this Agreement, and
this Agreement shall be binding on and inure to the benefit of any permitted
assignee. FMT may assign or transfer this Agreement.
17.5 Intellectual Property Rights. SST agrees that FMT owns all
----------------------------
right, title, and interest in (i) the product lines that include the Products,
any improvements to the Products, and (ii) all of FMT's patents, trademarks,
trade names, inventions, copyrights, know-how, and trade secrets relating to
the design, manufacture, operation or service of the Products. The use by SST
of any of these property rights is authorized only for the purposes herein set
forth, and upon termination of this Agreement for any reason such authorization
shall cease.
17.6 Inspections by Government Agencies. With respect to any
----------------------------------
adverse event or finding affecting the Products, SST shall promptly notify FMT
of any inspections by U.S. and foreign national, federal, state or local
regulatory agencies (including, without limitation, FDA, EPA, EEOC, OSHA, and
corresponding or similar foreign agencies or entities, state agencies or
building code inspectors) of its facilities and shall provide FMT with the
results of any such inspections, including actions taken by SST or any other
entity to remedy conditions cited in such inspections. Without limiting the
generality of the foregoing, SST shall provide copies of any written inspection
reports issued by such agencies and all correspondence between SST and the
agency involved. SST shall cooperate fully with any such regulatory entity
25
<PAGE> 49
during any such inspections. SST will give FMT prompt written notice of any
inspections relating to the Products.
17.7 Representation and Warranty. SST has not, to its knowledge,
---------------------------
committed or aided or abetted any violation of 42 U.S.C. Chapter 7, any
regulation promulgated thereunder, or any other federal, state or local law or
regulation relating to reimbursements or other payments to individuals or
institutions for medical procedures or devices or pharmaceuticals, nor is any
current or past action of SST a subject of any investigation or legal
proceeding by any governmental or institutional body relating to any such
violations or alleged violations.
17.8 Severability. If any provision(s) of this Agreement shall be
------------
held invalid, illegal or unenforceable by a court of competent jurisdiction,
the remainder of the Agreement shall be valid and enforceable and the parties
shall negotiate in good faith a substitute, valid and enforceable provision
which most nearly effects the parties' intent in entering into this Agreement.
17.9 Modification Waiver. This Agreement may not be altered,
-------------------
amended or modified in any way except by an agreement in writing signed by both
parties. The failure of a party to enforce at any time any of the provisions
of the Agreement, or the failure to require at any time performance by the
other party of any of the provisions of this Agreement, shall not be construed
to be a waiver of the right of such party to thereafter enforce that provision
or any other provision or right.
17.10 Entire Agreement. This Agreement and the exhibits hereto
----------------
represent and constitute the entire agreement between the parties with respect
to the subject matter hereof, and supersedes and merges all prior negotiations,
agreements and understandings, oral or written, with respect to the matters
covered by this Agreement.
17.11 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
FUSION MEDICAL TECHNOLOGIES, INC SULZER SPINE-TECH INC.
By: _______________________________ By: ________________________________
Title: _______________________________ Title: ________________________________
Date: _______________________________ Date: ________________________________
26
<PAGE> 50
EXHIBIT A
PRODUCTS
1. FloSeal Matrix Hemostatic Sealant for Spinal Applications, 1st
Generation.
o two-point-five inch (2.5") applicator tip
o gelatin matrix in a 5 mL syringe
o mixing materials
o five thousand (5,000) units of bovine thrombin
2. FloSeal Matrix Hemostatic Sealant for Spinal Application, 2nd
Generation, (when available).
3. FloSeal Matrix Hemostatic Sealant for Cranial Application, (when
available).
The trademarks for all Products shall be determined prior to the initial sale
thereof.
<PAGE> 51
EXHIBIT B
PRODUCT SPECIFICATIONS
Product Specifications for C.E. mark certified Product are listed in 4FG-400
attached hereto;
Product Specifications for U.S. PMA approved Product will be attached to this
Agreement at such time as the Product is approved by the FDA; and
As may be amended from time to time by FMT.
<PAGE> 52
EXHIBIT C
TERRITORY
Territory: Worldwide, as of the Effective Date, except for the following
countries:
[*]
[*]
[*]
[*]
[*] - Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portion.
<PAGE> 53
EXHIBIT D
WARRANTY PERIOD
All Products
- ------------
Until the expiration date provided on the Product label; provided that the
Product is stored properly and constantly maintained at the temperature stated
on such Product label.
<PAGE> 54
EXHIBIT E
MINIMUM PERFORMANCE REQUIREMENT (PRODUCTS SOLD)
Year 1 Year 2 Year 3
FloSeal-I and/or (July 1, 1999- (July 1, 2000- (July 1, 2001-
- ---------------- ------------- ------------- -------------
FloSeal-II Product June 30, 2000) June 30, 2001) June 30, 2002)
- ------------------ ------------- ------------- -------------
Worldwide, except
countries listed [*] [*] [*]
on Exhibit C
[*] - Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portion.
<PAGE> 55
EXHIBIT F
PERFORMANCE GOALS
Year 1 Year 2 Year 3
FloSeal-I and/or (July 1, 1999- (July 1, 2000- (July 1, 2001-
FloSeal-II Product June 30, 2000) June 30, 2001) June 30, 2002)
Worldwide, except
countries listed [*] [*] [*]
on Exhibit C
[*] - Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portion.
<PAGE> 56
EXHIBIT G
FMT TRADEMARKS
FloSeal Matrix (TM)
FloSeal (TM)
Fusion Medical Technologies Inc.(TM)
Proceed (TM)
[*] - Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portion.
<PAGE> 57
EXHIBIT H
ADVERSE EXPERIENCE REPORT
Attached hereto
25
<PAGE> 58
CONFIDENTIAL
FUSION MEDICAL TECHNOLOGIES
Specification
DATE *
EFFECTIVE: F1oSea1TM MATRIX HEMOSTATIC SEALANT
4-23-99 BOXED KIT, 21/2" TIP, EUROPE REVISION: -
ORIGINATOR:
M. STRINGER PAGE 1 OF 3
I. DESCRIPTION
The FloSeaPTM Matrix Hemostatic Sealant Boxed Kit, Europe, P/N * .
consists of the following: one FloSeal Matrix Hemostatic Sealant, Pouched,
Sterile, 2 1/2" Tip, P/N * * ; and one Instruction for Use, FloSeal
Matrix Hemostatic Sealant, 21/2" Tip, Europe, P/N * ; and a Thrombin
Component pouch, all placed in a Cardboard Box, FloSeal Matrix Kit,
Europe, 6.35 cm Applicator Tip, P/N * -
The Thrombin Component Pouch consists of a Thrombin Component Envelope,
P/N * * ; labeled with a Thrombin Pouch Label, Europe, P/N. * ;
and a FloSeal Thrombin Pouch Label, European Translations, P/N * .
The pouch contains one 1 cc syringe combo, P/N * ; a Thrombin, Topical
(Bovine) U.S.P. vial overlabeled with a Thrombin Overlabel 2 1/4" x 1 1/4"
P/N * ;and Thrombin Saline Diluent vial overlabeled with a Diluent
Overlabel 23/4" x 1 1/4", P/N * .
The lot number and expiration date printed on the kit box match those
printed on the FloSeal Matrix Hemostatic Sealant kits with the box.
Components:
Quantity * Description
-------- -----------
1 * FloSeal Matrix Hemostatic Sealant, Pouched, Sterile, 2 1/2" Tip
1 * Instructions for Use, FloSeal Matrix Hemostatic Sealant, 2 1/2"
Tip, Europe
1 * Thrombin Component Envelope
1 * Thrombin Pouch Label, Europe
1 * FloSeal Thrombin Pouch Label, European Translations
1 * Icc. Syringe Combo
1 N/A Thrombin, Topical (Bovine) U.&P. vial
1 N/A Thrombin Saline Diluent vial
[*] - Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portion.
<PAGE> 59
CONFIDENTIAL
FUSION MEDICAL TECHNOLOGIES
Specification
*
F1oSea1TM MATRIX HEMOSTATIC SEALANT BOXED KIT, 4-23-99 2
1/2" TIP, EUROPE REVISION: -
PAGE 2 OF 3
1 * Thrombin Overlabel 21/4" x 1 1/4"
1 * Diluent Overiabel 2 1/4" x 1 1/4"
1 * Cardboard Box, FloSeal Matrix Kit, Europe, 6.35 cm Applicator
Tip
II. APPROVED VENDOR
N/A.
III. REQUIREMENTS
Parameter Test Method Specification or Limit
--------- ----------- ----------------------
1. FloSeal Matrix 10 SOP 007 One FloSeal Matrix Hemostatic Sealant,
Hemostatic SealantTM Pouched, Sterile, 2" Tip, P/N * per
kits kit box, placed with label * facing
up.
2. Thrombin 10 SOP 007 One Thrombin Component envelope
Envelope and containing one 1 cc syringe combo,
Components one vial of Thrombin and one
vial of diluent. Envelope is labeled
front and back with label P/N * *
(on side opposite the pouch flap) and
* (on side with the pouch flap).
Thrombin and diluent vials are
overlabeled with label P/N * and
* * , respectively. Verify
that overlabels are marked with the
Thrombin lot number and expiration date
recorded in 15 SOP 093, which is
located in the Batch Record.
3. Instructions for use 10 SOP 007 One Instructions For Use, P/N * ,
per kit box, folded in half with page 1
showing, and placed on top of the
product.
4. Labeling 10 SOP 007 Cardboard box P/N * . Lot number
and expiration date on kit box matches
the lot number and expiration date on
the gelatin component pouch * ,
within the box. All laser-printed lot
numbers and expiration dates are
[*] - Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portion.
<PAGE> 60
CONFIDENTIAL
FUSION MEDICAL TECHNOLOGIES
Specification
*
F1oSea1TM MATRIX HEMOSTATIC SEALANT BOXED KIT, 4-23-99 2
1/2" TIP, EUROPE REVISION: -
PAGE 3 OF 3
clearly printed and legible.
5. Box 10 SOP 007 Box is undamaged.
<PAGE>
ADVERSE EXPERIENCE REPORT
[ADVERSE EXPERIENCE REPORT PAGE ONE DEPICTED HERE]
<PAGE> 61
ADVERSE EXPERIENCE REPORT
[ADVERSE EXPERIENCE REPORT PAGE TWO DEPICTED HERE]
<PAGE> 62
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 10,339
<SECURITIES> 1,000 <F1>
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 227
<CURRENT-ASSETS> 11,769
<PP&E> 854 <F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,677
<CURRENT-LIABILITIES> 791
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 44,451
<TOTAL-LIABILITY-AND-EQUITY> 12,677
<SALES> 25
<TOTAL-REVENUES> 25
<CGS> 145
<TOTAL-COSTS> 145
<OTHER-EXPENSES> 2,374 <F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> (3,693)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,693)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,479)
<EPS-BASIC> (0.43) <F4>
<EPS-DILUTED> (0.43)
<FN>
<F1> Securities, Item 5-02(2) are net of accrued interest and
unrealized gain/loss.
<F2> Item shown net of allowance, consistent with the balance
sheet presentation.
<F3> Item consists of research and development.
<F4> Item consists of basic earnings per share.
</FN>
</TABLE>
