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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the quarter ended March 27, 1999
Commission file number 0-14742
CANDELA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 04-2477008
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
530 Boston Post Road, Wayland, Massachusetts 01778
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (508) 358-7400
-----------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
CLASS OUTSTANDING AT MAY 10, 1999
----- ---------------------------
Common Stock, $.01 par value 5,545,887
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<PAGE>
CANDELA CORPORATION
INDEX
<TABLE>
<CAPTION>
Page(s)
<S> <C>
Part I. Financial Information:
Item 1. Unaudited Condensed Consolidated Balance Sheets
as of March 27, 1999 and June 27, 1998 3
Unaudited Condensed Consolidated Statements of
Operations for the three and nine month periods ended
March 27, 1999 and March 28, 1998 4
Unaudited Condensed Consolidated Statements of Cash
Flows for the nine month periods ended March 27, 1999
and March 28, 1998 5
Notes to Unaudited Condensed Consolidated
Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-13
Cautionary Statements 13-15
Item 3. Quantitative and Qualitative Disclosure
about Market Risk 15
Part II. Other Information:
Item 1. Legal proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
Exhibit 10.1, Exclusive Distribution Agreement dated as of
December 21, 1999, by and among the Company and Physicians
Sales and Services
Exhibit 10.2, Exclusive License Agreement dated February
14, 1995 and amended October 15, 1998 by and among the
Company and The Regents of the University of California.
Exhibit 27.1 Financial Data Schedule
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CANDELA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
March 27, June 27,
ASSETS 1999 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,059 $ 1,615
Accounts receivable, net 9,921 8,419
Notes receivable 1,582 1,486
Inventories 6,809 7,241
Other current assets 1,174 200
- --------------------------------------------------------------------------------------------------
Total current assets 27,545 18,961
- --------------------------------------------------------------------------------------------------
Property and equipment, net 2,533 3,120
Other assets 370 523
- --------------------------------------------------------------------------------------------------
Total Assets $30,448 $ 22,604
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 4,574 $ 4,292
Accrued payroll and related expenses 1,889 1,319
Accrued warranty costs 2,356 2,012
Income taxes payable 2,254 335
Restructuring reserve 1,639 1,995
Other accrued liabilities 1,680 957
Lines of credit and short-term notes - 3,052
Current portion of long-term debt 488 597
Deferred income 1,687 1,763
- --------------------------------------------------------------------------------------------------
Total current liabilities 16,567 16,322
- --------------------------------------------------------------------------------------------------
Long-term debt 2,971 887
- --------------------------------------------------------------------------------------------------
Commitments and contingencies - -
- --------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock 55 55
Additional paid-in capital 18,577 17,407
Accumulated deficit (7,127) (11,337)
Cumulative translation adjustment (595) (730)
- --------------------------------------------------------------------------------------------------
Total Stockholders' equity 10,910 5,395
- --------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 30,448 $ 22,604
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
CANDELA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MARCH 27, MARCH 28, MARCH 27, MARCH 28,
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE:
PRODUCTS $ 12,847 $5,789 $ 31,254 $ 16,735
SERVICE AND OTHER 2,997 2,828 8,627 8,227
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUE 15,844 8,617 39,881 24,962
COST OF REVENUE:
PRODUCTS 4,908 2,555 13,213 7,447
SERVICE AND OTHER 1,912 2,219 5,780 6,653
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL COST OF REVENUE 6,820 4,774 18,993 14,100
- -----------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 9,024 3,843 20,888 10,862
OPERATING EXPENSES:
SELLING, GENERAL, AND ADMINISTRATIVE 4,586 3,331 12,131 11,421
RESEARCH AND DEVELOPMENT 933 659 2,381 1,979
RESTRUCTURING CHARGE - - - 2,609
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 5,519 3,990 14,512 16,009
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 3,505 (147) 6,376 (5,147)
OTHER INCOME (EXPENSE):
INTEREST INCOME 29 12 60 29
INTEREST EXPENSE (136) (47) (377) (181)
OTHER (21) (12) 91 (109)
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) (128) (47) (226) (261)
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 3,377 (194) 6,150 (5,408)
PROVISION FOR INCOME TAXES 1,470 - 1,940 78
- -----------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $1,907 ($194) $4,210 ($5,486)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS (LOSS) PER SHARE $0.35 $(0.04) $0.77 $(1.01)
DILUTED EARNINGS (LOSS) PER SHARE $0.31 $(0.04) $0.72 $(1.01)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING 5,498 5,448 5,486 5,446
ADJUSTED WEIGHTED AVERAGE SHARES 6,168 5,448 5,841 5,446
OUTSTANDING
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
CANDELA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the nine months ended:
March 27, March 28,
1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 4,210 $ (5,486)
Adjustments to reconcile net income (loss) to net
Cash provided by (used for) operating activities:
Depreciation and amortization 589 586
Provision for restructuring charges - 2,609
Accretion of imputed interest for debt discount 52 -
Provision for bad debts 72 790
Increase (decrease) in cash from working capital:
Accounts receivable (944) 1,343
Notes receivable (175) 79
Inventories 540 (1,550)
Other current assets (979) (40)
Other assets (32) 583
Accounts payable (179) (88)
Accrued payroll and related expenses 511 (60)
Deferred income (129) (260)
Accrued warranty costs 340 36
Income taxes payable 1,944 (388)
Accrued restructuring charges (356) (484)
Other accrued liabilities 994 640
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities 6,460 (1,690)
- --------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale (purchase) of property, plant and equipment 181 (170)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities 181 (170)
- --------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Borrowings from (repayments of) line of credit (2,700) 950
Proceeds from issuance of debt and stock warrants 3,700 -
Principal payments of long-term debt (627) (468)
Proceeds from equipment financing - 84
Principal payments of capital lease obligations (540) (284)
Proceeds from the issuance of common stock 90 164
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (77) 446
- --------------------------------------------------------------------------------------------------------------------
Effect of exchange rates on cash and cash equivalents (120) (120)
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 6,444 (1,534)
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 1,615 2,674
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 8,059 $ 1,140
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
CANDELA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
and notes do not include all of the disclosures made in the Annual
Report on Form 10-K of Candela Corporation (the "Company") for fiscal
1998, which should be read in conjunction with these financial
statements. The financial information included herein is unaudited,
with the exception of the consolidated balance sheet which was derived
from the audited consolidated balance sheet dated June 27, 1998.
However, in the opinion of management, the statements include all
necessary adjustments for a fair presentation of the quarterly results
and are prepared and presented in a manner consistent with the
Company's Annual Report on Form 10-K. The results for the three and
nine month periods ended March 27, 1999, are not necessarily indicative
of the results to be expected for the full year.
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 27, 1999 JUNE 27, 1998
-------------- -------------
<S> <C> <C>
Raw materials $2,348 $3,110
Work in process 1,833 1,062
Finished goods 2,628 3,069
------ ------
$6,809 $7,241
------ ------
------ ------
</TABLE>
3. DEBT
On October 15, 1998, the Company issued eight-year, 9.75% subordinated
notes to three investors in the aggregate amount of $3,700,000. The notes
become due in October, 2006, and require quarterly interest payments. In
addition, the Company issued warrants to purchase 370,000 shares of common
stock to the note holders that have an exercise price of $4.00 per share.
The value ascribed to the warrants, using the Black Scholes pricing model,
is $1,080,000 (measured as of the date of issuance). This value has been
recorded as a component of Additional Paid-In Capital and represents a
discount to Long-Term Debt. Interest expense, equal to such value, will be
accreted to debt over the eight-year life of the warrants.
On October 22, 1998, $2,700,000 of the note proceeds was used to retire
the full amount then outstanding on the Company's line of credit. In
December, 1998, this line of credit was renewed and will expire on
December 1, 1999, bearing interest at the bank's prime lending rate and
collateralized by domestic accounts receivable, inventories, and a
pledge of subsidiary stock. At March 27, 1999, there were no borrowings
outstanding on this line of credit and no amounts were drawn from the
line during the period.
4. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the
weighted average number of shares of common stock outstanding for the
period and, if there are dilutive securities, diluted earnings per
share is computed by including common stock equivalents outstanding for
the period. Common stock equivalents include shares issuable upon the
exercise of stock options or warrants, net of shares assumed to have
been purchased with the proceeds, using the treasury stock method.
6
<PAGE>
CANDELA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
-------------------------- -------------------------
March 27, March 28, March 27, March 28,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NUMERATOR
Net income(loss) $ 1,907 $ (194) $ 4,210 $(5,486)
------- ------- ------- -------
------- ------- ------- -------
DENOMINATOR
BASIC EARNINGS PER SHARE
Weighted average shares
outstanding 5,498 5,448 5,486 5,446
------- ------- ------- -------
Earnings(loss) per share $ 0.35 $ (0.04) $ 0.77 $ (1.01)
------- ------- ------- -------
------- ------- ------- -------
DILUTED EARNINGS PER SHARE
Weighted average shares
outstanding 5,498 5,448 5,486 5,446
Effect of dilutive securities:
Stock options 438 -- 252 --
Stock warrants 232 -- 103 --
------- ------- ------- -------
Adjusted weighted average
shares outstanding 6,168 5,448 5,841 5,446
------- ------- ------- -------
Earnings(loss) per share $ 0.31 $ (0.04) $ 0.72 $ (1.01)
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
During the third quarter of 1999, options to purchase 32,500 shares of
common stock at exercise prices ranging from $8.50 to $14.50 and with
expiration dates ranging up to March 10, 2009 were outstanding, but were
not included in the computation of diluted EPS because the options'
exercise prices were greater than the average market price of the common
stock. During the nine months ended March 27, 1999, options to purchase
326,500 shares of common stock at exercise prices ranging from $5.75 to
$14.50 and with expiration dates ranging up to January 12, 2011, were
outstanding, but were not included in the computation of diluted EPS
because the options' exercise prices were greater than the average market
price of the common stock. Warrants to purchase 281,983 shares of common
stock with exercise prices of $6.875 and with an expiration date of
November 2000 were also outstanding, but were not included in the
computation of diluted EPS because the options' exercise prices were
greater than the average market price of the common stock.
Options to purchase 481,634 and 349,211 shares of common stock during the
three and nine month periods ending March 28, 1998, respectively, at
exercise prices ranging up to $14.50 and expiration dates ranging up to
August 21, 2007, were outstanding, but were not included in the
computation of diluted EPS because the options' exercise prices were
greater than the average market price of the common stock. Warrants to
purchase 281,983 share of common stock with exercise prices of $6.875 and
an expiration date of November 2000 were also outstanding, but were not
included in the computation of diluted EPS because the warrants' exercise
prices were greater than the average market price of the commons stock.
Additionally, options totaling 108,000 and 171,000, respectively, for the
three and nine months ended March 28, 1998, were not included in the
earnings per share calculation as a result of the losses in each of those
periods.
7
<PAGE>
CANDELA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. RESTRUCTURING CHARGES
During the quarter ended December 27, 1997, the Company recorded
restructuring charges of $2,609,000 resulting from management's decision
to close the skin care center located in Scottsdale, Arizona. During the
nine months ended March 27, 1999, $355,000 was charged against this
reserve, representing costs associated with the shutdown of the
Scottsdale facility.
6. INCOME TAXES
The provision for income taxes results from a combination of activities of
both the domestic and foreign subsidiaries of the Company. Provision for
income taxes for the nine months ended March 27, 1999, reflects the
utilization of the Company's domestic net operating loss carryforwards and
minimum tax provisions calculated in Japan at a rate in excess of the U.S.
statutory tax rate.
The Company had a net operating loss carryforward of approximately
$2,174,000 and tax credit carryforwards of approximately $1,595,000 at
June 28, 1998, the beginning of the current fiscal year. Based on current
year operating results, the Company anticipates utilizing all of the net
operating loss carryforward and tax credit carryforwards.
The Company had provided valuation allowances for 100% of the deferred tax
assets resulting from the net operating loss and tax credit carryforwards.
Income tax expense for the nine month period ended March 27, 1999 has been
reduced by $1,274,000 through a reduction in the valuation allowance.
The Company expects the effective tax rate for the year to be
approximately 36.5% which assumes the utilization of the remaining
$662,000 of the deferred tax asset through a reduction in the valuation
allowance during the last quarter of the current fiscal year.
7. COMPREHENSIVE INCOME
Effective the first quarter of 1999, the Company adopted Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive
Income." This statement establishes new rules for the reporting and
display of comprehensive income and its components; however, the
adoption of this statement had no impact on the Company's net income or
stockholders' equity. The Company's comprehensive earnings were as
follows:
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
----------------------------------------------------
March 27, March 28, March 27, March 28,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income $ 1,907 $ (194) $ 4,210 $(5,486)
Foreign currency translation
adjustment, net (142) 23 166 (331)
------- ------- ------- -------
$ 1,765 $ (171) $ 4,376 $(5,817)
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
8. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 131 ("SFAS 131"),
"Disclosure about Segments of an Enterprise and Related Information."
Based on the management approach to segment reporting, SFAS No. 131
establishes
8
<PAGE>
CANDELA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
requirements to report selected segment information and to report
entity-wide disclosures about products and services, major customers and
the countries in which the entity holds material assets and reports
material revenue. The Company will adopt SFAS No. 131 for its fiscal year
ending July 3, 1999, and management is currently evaluating its effects on
the Company's reporting of segment information.
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133 ("SFAS 133") "Accounting for Derivative Instruments
and Hedging Activities." SFAS 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
"derivatives"), and for hedging activities. SFAS 133 requires companies
to recognize all derivatives as either assets or liabilities, with the
instruments measured at fair value. The accounting for changes in fair
value, gains or losses, depends on the intended use of the derivative
and its resulting designation. The statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. The
Company plans to implement SFAS 133 for its fiscal year 2000. Had the
Company implemented the policy in the current period, it would have
increased assets and liabilities equal to the notional amount of
forward currency contracts held by the Company in the amount of
$1,914,000, and there would have been no material impact on the
statements of operations.
9
<PAGE>
CANDELA CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW:
Candela Corporation develops, manufactures, and distributes innovative
clinical solutions that enable physicians, surgeons and personal care
practitioners to treat selected cosmetic and medical problems using lasers,
cryosurgery and other proven technologies. Currently, the Company is expanding
from its core customer base of plastic surgeons and dermatologists and has
entered into a strategic distribution agreement to reach family and general
practice physicians, ob/gyn specialists, and general and vascular surgeons. In
addition, the Company operates one Company-owned skin care center.
RESULTS OF OPERATIONS
Total revenue for the three and nine month periods ended March 27,
1999, were $15,844,000 and $39,881,000 respectively, in comparison to
$8,617,000 and $24,962,000 for the three and nine month periods in the prior
year, representing an 84% and 60% increase, respectively. The increases
resulted primarily from a significant increase in shipments of the Company's
hair removal laser, the GentleLASE(TM), which the Company began shipping in
March, 1998. International product sales were 62% for the nine months of 1999
compared to 71% for the same period in 1998.
Revenue for the third quarter and year to date, fiscal 1999 and 1998:
<TABLE>
<CAPTION>
($ in 000's) 3 MONTHS 9 MONTHS
-------- -------
FY 99 FY 98 CHANGE FY 99 FY 98 CHANGE
----- ----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Laser operations $15,123 $ 7,941 90% $37,627 $22,927 64%
Skin care centers 721 676 7% 2,254 2,035 11%
------- ------- ------- -------
Total $15,844 $ 8,617 84% $39,881 $24,962 60%
</TABLE>
Gross profits were 57% and 52%, respectively, for the three month and nine
month periods ended March 27, 1999, compared to gross profits of 45% and 44% for
the same periods one year earlier. The improved gross margins are the result of
increased sales of higher margin laser systems and higher absorption of fixed
portions of manufacturing overhead than in the same periods a year earlier.
Gross profit for the nine months ended March 27, 1999, was favorable impacted
by a reduction of the accrued warranty expense associated with the
GentleLASE(TM). This reduction was based on our actual experience with first
year warranty cost relating to GentleLASE(TM) shipments.
Selling, general and administrative expenses increased from $3,331,000
to $4,586,000, for the three month period ending March 27, 1999, in
comparison to the same period in the prior year, an increase of 38%. This
increase is primarily a result of the increased costs incurred in supporting
the Company's revenue growth, specifically, additional marketing and sales
staff. Selling, general and administrative expenses decreased as a percentage
of revenue to 29% from 39% for the same three month period a year ago. For
the nine month period ended March 27, 1999, selling, general and
administrative expenses increased 6%, from $11,421,000 to $12,131,000, in
comparison to the same nine month period a year earlier. This increase
reflects increased staffing levels in the Company's sales and marketing
departments partially offset by savings realized from one, rather than two,
skin care centers during the first six months of the fiscal year. Also
impacting selling, general and administrative expense for the first nine
months of fiscal 1999 was the accrual of approximately $600,000 for the
payment of management bonuses which are tied to pre-tax profits derived from
product and service revenue. In the first nine months of fiscal 1998, pre-tax
profit targets had not yet been achieved, and no accrual was taken until the
fourth quarter. We currently expect to accrue an additional $600,000 in
management bonuses for the fourth quarter of fiscal 1999. Selling, general,
and administrative expenses for the nine month period ended March 27, 1999,
decreased to 30% as a percentage of revenue in comparison to 46% for the same
period in the prior year.
10
<PAGE>
CANDELA CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
All research and development spending is for laser operations and
increased 42% to $933,000 for the three months ended March 27, 1999, compared to
$659,000 for the same period one year earlier. For the nine month period ended
March 27, 1999, research and development spending increased 20% to $2,381,000 in
comparison to $1,979,000 for the same period in the prior year. The increase in
research and development reflect the Company's efforts to develop products and
product improvements designed to enhance, augment, and expand the Company's
existing product lines.
During the quarter ended December 27, 1997, a restructuring charge was
recorded and a reserve established in the amount of $2,609,000 resulting from
management's decision to close the skin care center located in Scottsdale,
Arizona. During the nine months ended March 27, 1999, a total of $355,000 was
charged against this reserve, representing costs associated with the
Scottsdale facility. Candela continues to pursue a sublease of the Scottsdale
facility, but if this effort is not successful, we could incur additional
costs in excess of our existing reserve. Management believes that the reserve
established to date will be sufficiently adequate so that no additional
material charges will need to be recognized for at least the next 18 months.
Income from operations was $3,505,000 for the three months ended March 27,
1999, compared to a loss of $147,000 for the same period in the prior year.
Income from operations for the nine month period ended March 27, 1999, increased
by $11,523,000, from a loss of $5,147,000 to a profit of $6,376,000, in
comparison to the same nine month period in the prior year.
Other income and expense reflected $128,000 in expenses for the three
months ended March 27, 1999, in comparison to expenses of $47,000 for the same
period a year earlier. This increase was primarily caused by increased interest
charges resulting from a higher level of average borrowings during the period
and non-cash interest charges related to the warrants issued in conjunction with
the Company's subordinated notes. For the nine month period ended March 27,
1999, other income and expense reflected $226,000 in expenses in comparison to
$261,000 in expenses, for the same period a year earlier. The improvement
resulted from exchange gains realized at the Company's foreign subsidiaries,
relative to exchange losses in the same period a year earlier that were
partially offset by increased interest costs.
The provision for income taxes results from a combination of activities
of both the domestic and foreign subsidiaries of the Company. Provision for
income taxes for the three and nine months ended March 27, 1999, reflects the
utilization of a portion of the Company's domestic net operating loss
carryforwards and minimum tax provisions calculated in Japan at a rate in
excess of the U.S. statutory tax rate. The Company had a net operating loss
carryforward of approximately $2,174,000 and tax credit carryforwards of
approximately $1,595,000 at June 28, 1998, the beginning of the current
fiscal year. Based on current year operating results, the Company anticipates
utilizing all of the net operating loss carryforward and the tax credit
carryforwards. The Company had provided valuation allowances for 100% of the
deferred tax assets resulting from the net operating loss and tax credit
carryforward. Income tax expense for the nine month period ended March 27,
1999 has been reduced by $1,284,000 through a reduction in the valuation
allowance. The Company expects to utilize an additional $662,000 of the
deferred tax asset through a reduction in the valuation allowance during the
last quarter of the current fiscal year. The effective tax rate for the year
is expected to be approximately 36.5%.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities amounted to $6,460,000 for the nine
months ended March 27, 1999, in comparison to cash used for operating activities
of $1,690,000 for the same period a year earlier reflecting increased operating
earnings during the current period. Cash provided by investing activities
totaled $181,000 for the nine months ended March 27, 1999 compared to cash used
for investing activities of $170,000 for the same period in the prior year. Cash
used for financing activities amounted to $77,000 in
11
<PAGE>
CANDELA CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
comparison to cash provided from financing activities of $446,000 for the same
period a year earlier. This reflects $3,700,000 in cash provided from the
issuance of eight-year, 9.75% subordinated notes and warrants, offset by
payments of $2,700,000 on the Company's line of credit and payments on
short-term notes by the Company's Japanese subsidiary for 74,999,000 Japanese
Yen, or $627,000 based on average exchange rates for the nine month period. The
Company borrowed $950,000 on its line of credit during the same nine month
period a year ago.
Cash and cash equivalents at March 27, 1999, increased by $6,444,000 to
$8,059,000 from $1,615,000 at June 27, 1998, due principally to higher cash
receipts resulting from increases in shipments of the Company's new laser.
On October 15, 1998, the Company issued eight-year, 9.75% subordinated
notes to three investors in the aggregate amount of $3,700,000. The notes become
due in October, 2006, and require quarterly interest payments. In addition, the
Company issued warrants to purchase 370,000 shares of common stock to the note
holders that have an exercise price of $4.00 per share. The value ascribed to
the warrants, using the Black Scholes pricing model, is $1,080,000 (measured as
of the date of issuance). This value has been recorded as a component of
Additional Paid-In Capital and represents a discount to Long-Term Debt. Interest
expense, equal to such value, will be accreted to debt over the eight-year life
of the warrants.
The Company also maintains a $3,500,000 line of credit with a major bank
which expires December 1, 1999. The line of credit bears interest at the bank's
prime lending rate and is collateralized by total domestic accounts receivable,
inventories, and a pledge of subsidiary stock. At March 27, 1999, the Company
had no borrowings outstanding on this line of credit.
The Company's Japanese subsidiary has borrowed funds to be used for
payment of equipment purchases made from the parent corporation. At March 27,
1999, this liability was $138,000, converted at the quarter-end exchange rate.
The Company's remaining short-term and long-term debt is comprised of capital
lease obligations which were $350,000 and $299,000, respectively, at March 27,
1999, compared to $362,000 and $828,000, respectively, at June 27, 1998.
YEAR 2000 COMPLIANCE
The Company has established a committee to assess the implications of Year
2000 issues on operations, from information and financial systems to each aspect
of its manufacturing processes, in order to determine the extent to which the
Company may be adversely affected by Year 2000 issues. Indications based on the
internal assessment, which is approximately 80% complete, reveals minimal impact
of Year 2000 issues on the Company. The Company has completed the initial
assessment of Year 2000 issues. Though limited testing of systems has been
performed to date, the Company has developed its systems and products with Year
2000 in mind, thus minimizing the impact of the change. The Company will conduct
further testing and/or an external audit following the conclusion of its
internal assessment. To date there has been a limited number of hours devoted to
Year 2000 issues, with minimal costs expended in systems upgrades directly
relating to Year 2000 issues. Present estimates for further expenditures of both
employee time and expenses to address Year 2000 issues are between 40 and 120
hours and up to $15,000 of incremental expenses. All expenditures will be
expensed as incurred and they are not expected to have a significant impact on
the Company's ongoing results of operations.
12
<PAGE>
CANDELA CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The Company has undertaken an informal survey of its suppliers' Year 2000
compliance status with responses indicating Year 2000 compliance at this time.
Further, the Company has conferred with significant customers to assure that
various systems used for data and information exchanges between them will be
compatible following December 31, 1999.
Based on its assessments to date, the Company believes it will not
experience any material disruption as a result of Year 2000 issues in internal
manufacturing processes, information processing or interface with key customers,
or with processing orders and billing. However, if certain critical third party
providers, such as those supplying electricity, water or telephone service,
experience difficulties resulting in disruption of service to the Company, a
shutdown of the Company's operations at individual facilities could occur for
the duration of any such disruption.
The Company is developing contingency plans relating to Year 2000
issues. There can be no assurance that Year 2000 issues will not have a material
adverse effect on the Company's business, results of operation and financial
condition.
CAUTIONARY STATEMENTS
In addition to the other information in this Quarterly Report on Form 10-Q,
the following cautionary statements should be considered carefully in evaluating
the Company and its business. Statements contained in this Form 10-Q that are
not historical facts (including, without limitation, statements concerning
anticipated operational and capital expense levels and such expense levels
relative to the Company's total revenues) and other information provided by the
Company and its employees from time to time may contain certain
"forward-looking" information, as that term is defined by (i) the Private
Securities Litigation Reform Act of 1995 (the "Act") and, (ii) in releases made
by the Securities and Exchange Commission (the "SEC"). The factors identified in
the cautionary statements below, among other factors, could cause actual results
to differ materially from those suggested in such forward-looking statements.
The cautionary statements below are being made pursuant to the provisions of the
Act and with the intention of obtaining the benefits of the "safe harbor"
provisions of the Act.
HEAVY DEPENDENCE ON ONE PRODUCT. We introduced our GentleLASE system in March
1998. GentleLASE's sales have grown rapidly and accounted for more than half of
our total revenue in the most recent fiscal quarter, ended March 27, 1999. Heavy
dependence on GentleLASE sales increases our susceptibility to changes in the
marketplace, such as competitors' reducing prices or adding new features to
their products, or customers ordering fewer of our products. Changes in the
marketplace that result in reduced sales of the GentleLASE(TM) system would hurt
our financial results.
WE COULD LOSE OUR EXCLUSIVITY TO KEY TECHNOLOGY. We developed our Dynamic
Cooling Device ("DCD"), which is used to selectively cool the subject's
outermost layers of skin during cosmetic laser treatments, under an exclusive
license to patent rights owned by the Regents of the University of California
(the "Regents"). The DCD is an integral component of our biggest-selling
device, the GentleLASE, and is also currently sold as an attachment to our
other principal laser device, the ScleroPLUS. We believe the efficacy of the
DCD has been a key element in the recent growth in sales of our laser
devices. In October of 1998, we entered into an amendment of the license
agreement which now gives us an exclusive right under the Regents' patent to
make, use and sell the dynamic cooling technology in all fields of use.
However, this amendment also imposes on us an obligation to negotiate in good
faith and make commercially reasonable efforts to conclude sublicensing
agreements with third parties, subject to certain stipulated minimum terms
and conditions. If we fail to negotiate in good faith or enter into
sublicenses with third parties within certain time periods, the Regents may
then grant license rights to such third parties directly, provided that
Candela will receive 50% of all revenues received under such licenses. While
no such sublicenses or further licenses have been granted by us or the
Regents to date, principal competitors of ours, or new entrants into the
medical laser industry, may successfully conclude licensing arrangements
providing them with access to the dynamic cooling technology. While our
agreement provides that we would receive 50% of all revenues received under
such licenses, the loss of exclusivity to this technology could hurt our
financial results. In addition, another laser company has filed suit
challenging the validity of the patent rights to DCD held by the Regents.
While we believe this suit is without merit, we can't be certain that the
Regents' patent rights will not be reduced or invalidated, which could also
hurt our business and financial results.
VARIABILITY OF QUARTERLY OPERATING RESULTS. The Company's quarterly operating
results may vary significantly from quarter to quarter, depending upon factors
such as the timing of product sales, the timing of expenditures in anticipation
of future product orders, the introduction and market acceptance of new
products, effectiveness in managing manufacturing processes, changes in cost and
availability of labor and product components, order cancellations, the budgetary
cycles of its customers, the timing of regulatory approvals and the cost of
operating the Company's skin care center. The Company's ability to accurately
13
<PAGE>
forecast future revenues and income for any period is necessarily limited, and
any forward-looking information provided from time to time by the Company
represents only management's then-best current
CANDELA CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
estimate of future results or trends, and actual results may differ materially
from those contained in the Company's estimates.
POTENTIAL VOLATILITY OF STOCK PRICE. There has been significant volatility in
the market price of securities of companies in the medical device industry.
Factors such as announcements of new products by the Company or its competitors,
quarterly fluctuations in the financial results of the Company or its
competitors, shortfalls in the Company's actual financial results compared to
results previously forecast by stock market analysts, conditions in the medical
device industry and the financial markets and the economy generally could cause
the market price of the Company's securities to fluctuate substantially and may
adversely affect the price of the Company's securities.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. A significant portion of the
Company's revenues are attributable to international operations and those
revenues are likely to continue to represent a significant portion of the
Company's revenues in future periods. The Company's international business and
financial performance may be adversely affected by a number of factors,
including without limitation, fluctuations in exchange rates, tariffs and other
trade barriers, adverse tax regulation, and adverse political and economic
conditions. Adverse effects on the Company's international operations may have
materially adverse effects on the Company's overall financial condition and
operating results.
BUSINESS STRATEGIC DEVELOPMENT. The Company has renewed its commitment to expand
and diversify its core cosmetic and surgical laser equipment business. As part
of this refocus, the Company has decided not to pursue additional skin care
treatment or spa centers, and is actively seeking buyers for the two facilities
it has sponsored in Scottsdale, Arizona and Boston, Massachusetts. The Company
anticipates that the sale of both facilities will be finalized within the fiscal
year, but no assurances can be made that the sale/sublease will be completed on
terms favorable to the Company or at all within this time frame. Reserves have
been established to cover the closure of the Scottsdale, Arizona, facility,
however, there can be no assurances that the reserves will be adequate.
GOVERNMENTAL REGULATION. Medical devices are subject to governmental approval
before they can be utilized for clinical studies or sold commercially. In
addition, the Company's activities in connection with its CSCC business may
subject the Company to additional regulation under state and federal laws. The
process for obtaining the necessary approvals and compliance with applicable
regulations can be costly and time-consuming. Many foreign countries in which
the Company markets or may market its products have similar regulatory bodies
and restrictions. There is no assurance that the Company will be able to obtain
any such government approvals or successfully comply with any such regulations
in a timely and cost-effective manner, if at all, and failure to do so may have
an adverse effect on the Company's financial condition and results of
operations.
RISKS ASSOCIATED WITH PRODUCT LIABILITY. The administration of medical and
cosmetic treatments using laser products is subject to various risks of physical
injury to the patient which may result in product liability or other claims
against the Company. The costs and resources involved in defending or settling
any such claims, or the payment of any award in connection therewith, may
adversely affect the Company's financial condition and operating results. The
Company maintains product liability insurance, but there is no assurance that
its policy will provide sufficient coverage for any claim or claims that may
arise, or that the Company will be able to maintain such insurance coverage on
favorable economic terms.
14
<PAGE>
CANDELA CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RAPID TECHNOLOGICAL CHANGE; COMPETITION. The medical laser industry is subject
to rapid and substantial technological development and product innovations. To
be successful, the Company must be responsive to new developments in laser
technology and new applications of existing technology, and the Company's
financial condition and operating results may be adversely affected by the
failure of new or existing products to compete favorably in response to such
technological developments. In addition, the Company competes against numerous
other companies offering products similar to those of the Company and/or
alternative products and technologies, some of which have greater financial,
marketing and technical resources than the Company. There can be no assurance
the Company will be able to compete successfully with these companies. Such
competition could have a material adverse effect on the Company's business,
financial condition and results of operations.
RELIANCE ON ATTRACTING AND RETAINING KEY EMPLOYEES. The Company's success will
depend in large part on its ability to attract and retain highly-qualified
scientific, technical, managerial, sales and marketing, management and other
personnel. Competition for such personnel is intense and any decline in the
Company's ability to attract and retain such personnel may have adverse effects
on its financial condition and operating results.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At March 27, 1999, the Company held foreign currency forward contracts with
notional value totaling approximately $1,914,000 (228,556,000 Japanese Yen)
compared to forward contracts a value of $1,352,000 (172,951,000 Japanese
Yen) held at March 28, 1998. These contracts have maturity dates prior to
July 22, 1999. The past contracts carrying and net fair value of these
contracts at March 27, 1999, was $0 and $14,000, respectively, compared to $0
and $25,000 respectively, at March 28, 1998.
15
<PAGE>
CANDELA CORPORATION
PART II OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
On March 5, 1999, New Star Lasers, Inc., and its subsidiary Laser Aesthetics,
Inc., filed a complaint in the United States District Court for the Eastern
District of California against The Regents of the University of California
(the "Regents"), the Beckman Laser Institute and Medical Clinic ("Beckman")
and Candela. In the complaint New Star Lasers is seeking a declaration that
its technology does not infringe the U.S. Patent No. 5,814,040 issued to the
Regents and pertaining to dynamic cooling technology, or in the alternative
that the patent is invalid and not infringed by the plaintiff's technology.
The complaint also includes various tort claims against us and
contract-related claims against the Regents and Beckman. The complaint asserts
that we interfered with the licensing of the dynamic cooling technology to
the plaintiffs. We intend to defend this matter vigorously, and have filed a
motion to dismiss the case on jurisdictional grounds. That motion is pending.
The Regents have orally requested that we indemnify them in connection with
this litigation pursuant to the license agreement between the Regents and
Candela. We have rejected this request.
From time to time, we are a party to various legal proceedings incidental to
its business. We believe that none of the other presently pending legal
proceedings will have a material adverse effect upon our financial position,
results of operation, or liquidity.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 12, 1999, the Company held its Annual Shareholder meeting. At the
meeting, the Shareholders acted upon the following proposals: (I) election of
directors; (ii) ratification of the firm of PricewaterhouseCoopers LLP as
independent accountants for the fiscal year ending July 3, 1999; and (iii)
ratification of the adoption of the 1998 Stock Plan.
Votes "For" represent affirmative votes and do not include abstentions or broker
non-votes. In cases where a signed proxy was submitted without direction, the
shares represented by the proxy were voted "For" each proposal in the manner
disclosed in the Proxy Statement and Proxy.
Voting results were as follows:
<TABLE>
<CAPTION>
Broker
Matter For Against Withheld Abstain Non-votes
<S> <C> <C> <C> <C> <C>
I. ELECTION OF DIRECTORS:
Gerard E. Puorro 3,980,998 41,669 N/A N/A -0-
Kenneth D. Roberts 3,984,756 37,911 N/A N/A -0-
Theodore G. Johnson 3,983,405 39,262 N/A N/A -0-
Douglas W. Scott 3,985,556 37,111 N/A N/A -0-
Richard J. Cleveland, MD 3,982,605 40,062 N/A N/A -0-
Robert E. Dornbush 3,985,654 37,013 N/A N/A -0-
II. RATIFICATION OF INDEPENDENT ACCOUNTANTS:
3,983,672 13,215 N/A 25,780 -0-
III. 1998 STOCK PLAN:
833,516 276,963 N/A 24,860 2,887,328
</TABLE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.1*, Exclusive Distribution Agreement dated as of December
21, 1999, by and among the Company and Physicians, Sales, and
Services.
Exhibit 10.2*, Exclusive License Agreement dated February 14, 1995
and amended October 15, 1998 by and among the Company and The
Regents of the University of California.
Exhibit 27.1, Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 27,
1999.
* Confidential treatment as to certain portions has been requested pursuant to
Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as amended.
16
<PAGE>
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 duly authorized.
CANDELA CORPORATION
Registrant
Date: May 10, 1999 /s/ Gerard E. Puorro
------------ --------------------------------------------
Gerard E. Puorro
(President and Chief Executive Officer)
Date: May 10, 1999 /S/ F. Paul Broyer
------------ --------------------------------------------
F. Paul Broyer
(Senior Vice President of Finance and
Administration, Chief Financial Officer
and Treasurer)
17
<PAGE>
CONFIDENTIAL
TREATMENT
REQUEST
Exhibit 10.1
EXCLUSIVE DISTRIBUTION AGREEMENT
Agreement made by CANDELA CORPORATION, a Delaware corporation with its principal
place of business at 530 Boston Post Road, Wayland, Massachusetts 01778
(hereinafter referred to as the "Candela") and Physicians Sales and Service,
with a principal place of business at 4345 Southpoint Boulevard, Jacksonville,
FL 32216, (hereinafter referred to as "PSS").
WITNESSETH
WHEREAS, Candela develops and manufactures medical lasers and certain other
products described in Exhibit A (hereinafter referred to as the "Products'); and
WHEREAS, PSS desires to purchase and distribute the Products through its
marketing, selling, and support organization; and
WHEREAS, PSS and Candela desire to work together to the mutual benefit of both
parties;
NOW THEREFORE, in consideration of the premises and mutual covenants and
agreements contained herein, the parties agree as follows:
1. PRODUCTS. The technical definition of the Products are included in
Exhibit A.
2. EXCLUSIVITY.
2.1 PSS shall have the exclusive right commencing on the date of
signing this Agreement (the "Commencement Date") and ending on
the date of expiration or termination of this Agreement to sell
the Products in the territory (the "Territory") as defined in
Exhibit B attached hereto.
2.2 The exclusivity applies only when the Products are sold to be
used for aesthetic applications to all medical specialties
except dermatology, plastic surgery and otorhinolarygolgist
(ENT). PSS shall not directly or indirectly sell the Products or
knowingly have the reason to believe that the Products will be
resold to any other person with the view to re-sale to Candela
customers in dermatology, plastic surgery, and/or
otrhinolaryngology (ENT).
2.3 Candela shall have no restriction whatsoever to sell other
devices not included in Exhibit A in the Territory.
2.4 PSS shall not directly or indirectly sell the products outside
of the agreed Territory or knowingly have the reason to believe
that the products will be re-sold to any
<PAGE>
-2-
other person within the Territory with the view to re-sale outside of
the agreed Territory.
2.5 For the duration of this Agreement, PSS shall not be allowed to
market and sell competitive products based on similar laser
technology. PSS shall not be allowed to develop and product
competitive products based on similar laser technology for the
duration of this Agreement.
3. DISTRIBUTOR'S DUTIES.
PSS agrees at its expense:
3.1 To use all reasonable efforts through the use of its sales and
marketing organization to promote the sales of the Products.
3.2 To devote the time and effort to the promotion of the Products
reasonably required to realize the maximum sales of such
products.
3.3 To use reasonable efforts to report to Candela in a written form
defined in Exhibit C all customer complaints, errors, and
malfunctions.
3.4 To make a good faith effort to comply with all applicable
statutes, laws, ordinances, rules and regulations of any
governmental body having jurisdiction over the Territory, which
are applicable to its activities hereunder, except for the
United States FDA clearance, where Candela will obtain necessary
governmental approvals for sales of the Products.
3.5 To share with Candela all marketing and promotional material.
3.6 Provide Candela with quarterly forecasts for a six month period.
3.7 Provide Candela with a [CONFIDENTIAL TREATMENT REQUESTED]* for
any clean lead (a lead not currently active for the respective
product in the company data base) in the PSS market (as defined
in 2.2). A clean lead should have a scheduled appointment within
30 days.
4. MANUFACTURER'S DUTIES.
Candela agrees at its expense:
4.1 To manufacture and deliver the Products as specified in
Exhibit A to this Agreement and to make changes as reasonably
required in said Products and pricing so as to maintain the
competitive position of said products in the marketplace.
4.2 To ship the Products in suitable packaging that adequately
provides for the arrival of the Products to the destination
without any change.
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
-3-
4.3 To obtain the necessary United States FDA clearance for the
products.
4.4 To manufacture products in accordance with FDA GMP regulations.
4.5 To respond promptly to corrective action requests by PSS.
4.6 To the extent reasonably necessary to support PSS distribution
efforts, to maintain a suitable stock of products, consumables
and spare parts which would be required relating to submitted
forecasts.
4.7 To provide consumables according to the price lists.
4.8 To share with PSS all marketing and promotional material and
physician contacts which will help to sell the products in the
Territory.
4.9 Provide PSS with a [CONFIDENTIAL TREATMENT REQUESTED]* for any
clean lead (a lead not currently active for the respective
product in the company data base) in the Candela market (as
defined in 2.2).
4.10 Candela will train the designated PSS personnel at mutually
agreed upon times.
5. PRICING.
All prices shall be quoted by Candela on a "F.O.B. Wayland,
Massachusetts" basis and shall include the cost of packaging. The price
of laser systems is included in this Agreement as Exhibit E. Further,
Candela will provide PSS with notice of any price increase ninety (90)
days prior to the effective date of said increase.
6. PAYMENT TERMS.
[CONFIDENTIAL TREATMENT REQUESTED]*
7. ORDER PLACEMENT.
PSS shall place written purchase orders for systems, 30 days in advance
of the required delivery date for the Product.
8. RISK OF LOSS.
All risk of loss to the Products shipped shall pass to PSS upon
delivery to the carrier at the F.O.B. points. Candela shall not be
liable to PSS or anyone claiming through PSS for any loss due to
circumstances, including without limitation, delays in delivery caused
by other parties, force majeure, or any other event beyond its
reasonable control.
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
-4-
9. TERMINATION.
a. This Agreement has a three-year from its effective date but
shall be sooner terminable in accordance with the provisions
of this Section. At the satisfactory completion of each year,
there will be one year added to this contract.
b. Either party has the right to terminate this Agreement on the
other party's "Event of default" upon written notice of said
Event. The following are "Events of default" under this
Agreement:
(i) the failure to make any payment of principal or
interest hereunder within ten (10) days of notification
of default and intention to terminate;
(ii) the failure to perform any of a party's obligations
under this Agreement, which failure is not cured within
thirty (30) days of the other party's written notice to
this effect;
(iii) the falsity, in any material respect, of any warranty,
representation, or statement made or furnished to a
party by the other party and called for by this
Agreement;
(iv) the inability to pay its business debts as due;
(v) the making of any assignment of its property for the
benefit of creditors;
(vi) the application for the appointment of a trustee or
receiver of any parts of its assets, or the
commencement of any proceedings under any bankruptcy,
reorganization, arrangement, insolvency, readjustment
of debt, dissolution, or other liquidation law of any
jurisdiction.
(vii) the application or commencement of any proceedings as
enumerated in Section 9(b)(vi) above, against any
party, and such party, and such party indicates its
approval, consent or acquiescence, or the entering of
any order appointing such trustees or receiver or
adjudicating such party bankrupt or insolvent, or the
approval of the petition in any such proceedings, and
such order remains in effect for sixty (60) days;
(viii) the entering of any order in any proceedings against
any party decreeing the dissolution or division of said
party of its assets, and such order remains in effect
for sixty (60) days, or any material part of said
party's assets or property become subject to liens,
security interests, or encumbrances; and
(ix) a material part of any party's operations shall cease
for a period of thirty (30) days, other than temporary
cessation's, which, if continued, would have a material
adverse effect of said party's operations or financial
condition.
<PAGE>
-5-
c. Either party has the right to cure an Event of Default within
sixty (60) days of notification
d. This agreement may be terminated by either party when no Event
of Default has occurred upon six (6) months written notice.
10. WARRANTY.
Candela warrants to the original purchaser that the new hardware
system, excluding instrument, accessories and consumable products, will
be free from defect in material and/or workmanship for one (10) days or
the appropriate number of pulses, from the date of installation. For
used, demonstration, or refurbished hardware systems, the terms of
warranty shall be specified on Candela's quotation. If the customer
schedules or delays Candela installation more than 60 days after
shipment, warranty begins on the 31st day after shipment. If Candela
receives notice of defects during the warranty period, Candela will, at
its option, either repair or replace the hardware components that prove
to be defective. The customer must notify Candela of any defect within
seven (7) business days faster the defect first comes to the customer's
attention.
Any replacement products shall be at Candela's option, be new or
remanufactured products, and are warranted for the remainder or the
original warranty or thirty (30) days, whichever is longer. This
warranty is not transferable and is subject to limitations. Please
request the Candela Corporation Limited Warranty for details.
Under no circumstances shall Candela be liable for any special,
incidental, or consequential damages based upon breach of warranty,
breach of contract, negligence, strict liability or any other legal
theory. Such uncovered damages include, but are not limited to; loss of
profits, loss or revenue, loss of use of the hardware system or any
associated equipment, costs of capital, cost of substitute or
replacement equipment, facilities or services, down time, purchaser's
time, the claims or third parties including customers, and damages to
any real or personal property.
THE WARRANTY STATED ABOVE IS THE ONLY WARRANTY APPLICABLE TO THIS
PRODUCT. ALL OTHER WARRANTIES, EXPRESS OR IMPLIED (INCLUDING ALL
IMPLIED WARRANTIES OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE), ARE HEREBY DISCLAIMED. NO ORAL OR WRITTEN INFORMATION OR
ADVICE GIVEN BY CANDELA CORPORATION, ITS AGENTS OR EMPLOYEES SHALL
CREATE A WARRANTY OR IN ANY WAY INCREASE THE SCOPE OF THIS WARRANTY.
11. PROPRIETARY RIGHTS.
Except as otherwise provided by this Agreement does not grant to the
PSS any manufacturing rights, license rights, or the right to use any
patent of Candela. PSS recognizes the exclusive proprietary rights of
Candela in and to its Products, patents, trademarks, and the trade
names, and shall use commercially reasonable efforts to protect
<PAGE>
-6-
such proprietary rights. It is agreed that all activities of PSS with
respect to proprietary information, patents, and copyrights are for the
benefit of Candela. PSS shall cooperate with Candela to take such
action as Candela may consider necessary to protect any trademark or
trade names in any manner without prior written approval of Candela.
Upon any expiration or termination of this Agreement, PSS shall take
all action necessary to perfect, including by transfer or assignment to
Candela or its nominee, any right, title, or interest in or to any of
the trademarks or trade names of Candela. Nothing contained in this
Agreement shall be construed as conveying to PSS any right, title, or
interest in or to any trademarks or trade names of Candela other than
an express right to a permissive use therefore in connection with the
sale of the Products hereunder. PSS shall notify Candela within a
reasonable time of any infringement of Candela's patents, copyrights,
trademarks, or trade names relating to products that come to PSS
attention, and shall assist Candela in such actions as Candela may
elect to take relating thereto.
12. BRAND NAME.
All marketing materials and promotional campaigns shall be prepared by
PSS in a manner to equivalently reflect Candela as the manufacturer and
PSS as the distributor.
13. CONFIDENTIALITY.
13.1 During the term of this Agreement, except as otherwise provided in
this section, PSS and Candela agree to take all steps reasonably
necessary to safeguard the secrecy and confidentiality of all
confidential or proprietary information. All written confidential
information produced by either party shall clearly be marked
"CONFIDENTIAL" or "PROPRIETARY" on each page containing confidential
information. Neither party may use the confidential information to the
detriment of the other party.
13.2 The obligation of confidentiality imposed by the foregoing section
shall not apply to information which is:
a) in the public domain at the time of such disclosure or
development or subsequently comes into the public domain by
publication or otherwise except by breach of this Agreement; or
b) received by PSS or Candela from a third party not under any
confidentiality obligation to PSS or Candela; or
c) in PSS or Candela's possession prior to disclosure by the
disclosing party, as shown by clear and convincing proof; or
d) required to be disclosed by operation of law; or
e) subsequently developed completely independent from this
Agreement.
The requirement of this section shall survive termination or expiration
of this Agreement.
<PAGE>
-9-
14. REPRESENTATIONS.
Each of the parties hereto warrants and represents to the other that it
has the authority, corporate and otherwise, to enter into this
Agreement and to perform in accordance with the terms hereof. PSS
agrees not to make any representations concerning products of Candela,
except as authorized herein or otherwise in writing by Candela, or to
engage in unfair trade practices or activities as prohibited by the
law. PSS agrees to defend, hold harmless and indemnify the Company with
respects to any loss suffered by Candela resulting from any such
prescribed activities.
15. LEGAL RELATIONSHIP.
PSS is and shall at times remain an independent contractor with respect
to Candela. Candela is and shall at time remain an independent
contractor which respect to PSS. PSS shall buy and sell the Products in
its own name and for its own account. PSS has no right or authority to
assume or create any obligations of any kind or to make any
representations and warranties, whether expressed or implied, on behalf
of Candela, or to bind Candela in any respect whatsoever. Candela has
no right or authority to assume or create any obligations of any kind
or to make any representations and warranties, whether expressed or
implied, on behalf of PSS, or to bind PSS in any respect whatsoever.
Neither party may act in the name or on behalf or the other party.
16. APPLICABLE LAW.
This Agreement and all transactions between Candela and PSS shall be
governed by the laws of the Commonwealth of Massachusetts.
17. ARBITRATION.
Any controversy, dispute, or claim arising out of or relating to this
Agreement or the breach thereof, if not earlier resolved by the parties
hereto, shall be settled by arbitration in accordance with the rules
then in force of the American Arbitration Association. This Agreement
to arbitrate shall be enforceable and judgment upon any award rendered
by all or a majority of the arbitrators may be entered in any court
having jurisdiction. The arbitration shall be held in the Commonwealth
of Massachusetts, United States of America.
18. BINDING AGREEMENT.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective affiliates, subsidiaries,
successors. Any assignment of this Agreement of the rights hereunder by
one party without prior written consent of the other party shall be
void.
<PAGE>
-9-
19. MISCELLANEOUS.
This Agreement constitutes the entire understanding of the parties,
superseding any and all previous understandings, contracts, and
agreements, written and oral, and this Agreement may only be waived,
modified or amended in writing signed by the party against whom
enforcement of the waiver, modification, or amendment is sought. The
failure of either party to enforce any condition or part of this
Agreement shall not be considered as a waiver of that condition. If any
part of this Agreement shall be held invalid by the law, it is the
intent of the parties that the remainder of the Agreement will not be
effected thereby but that a clause will be substituted therefore, which
could be as similar as possible in economic and business objective to
such part but which shall be valid, legal, and enforceable.
20. NOTICES.
Unless otherwise specified herein, all notices under this Agreement
shall be in writing, and shall be effective when sent by Certified
Mail, postage prepaid, to the address of the parties as stated on the
first page of this Agreement. Each party may change his address
pursuant to written notice of the other party.
21. EXECUTION OF COUNTERPARTS.
This Agreement may be executed in counterpart, each of which shall be
deemed an original, and this Agreement shall constitute a binding
agreement between Candela and PSS when a counterpart or counterparts
(whether the same or separate) shall have been executed and delivered
by or on behalf of each of the parties.
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be duly
executed by their duly authorized representatives on the dates indicated below,
it being understood that this Agreement shall be effective as of the latest
date.
WITNESS: CANDELA CORPORATION (CANDELA)
BY: BY:
---------------------------- ---------------------------------------
Gerard E. Puorro
President and Chief Executive Officer
DATE: DATE:
-------------------------- -------------------------------------
WITNESS: PSS
------------------------- --------------------------------------
<PAGE>
-9-
BY: BY:
---------------------------- ---------------------------------------
Douglas J. Harper
Senior Vice President
DATE: DATE:
-------------------------- -------------------------------------
<PAGE>
LIST OF EXHIBITS
A - Products
B - Territory
C - Customer Complaint Handling Policy
D - No Exhibit
E - Price List
<PAGE>
"EXHIBIT A"
PRODUCTS
ScleroPlus
Dynamic Cooling Device
GentleLase
DCD Canisters
<PAGE>
"EXHIBIT B"
TERRITORY
The following areas constitute the "Territory"
United State office base Medical Specialties with the exception of:
Dermatology
Plastic Surgery
ENT
DCD Canisters can be sold to all specialties including Dermatology, Plastic
Surgery, and ENT.
<PAGE>
"EXHIBIT C"
Customer Complaint Handling Policy
(Attached)
<PAGE>
"EXHIBIT D"
INTENTIONALLY LEFT BLANK
<PAGE>
"EXHIBIT E"
PRICE LIST
The annual transfer price from Candela to PSS (US Dollars) will be as follows:
<TABLE>
<CAPTION>
PRODUCT US LIST PRICE UNITS 1-50 51-100 101+
<S> <C> <C> <C> <C> <C>
GentleLASE [CONFIDENTIAL [CONFIDENTIAL [CONFIDENTIAL [CONFIDENTIAL
TREATMENT REQUESTED]* TREATMENT TREATMENT TREATMENT
REQUESTED]* REQUESTED]* REQUESTED]*
ScleroPLUS US LIST PRICE UNITS [CONFIDENTIAL [CONFIDENTIAL [CONFIDENTIAL
TREATMENT TREATMENT TREATMENT
REQUESTED]* REQUESTED]* REQUESTED]*
[CONFIDENTIAL [CONFIDENTIAL [CONFIDENTIAL [CONFIDENTIAL
TREATMENT REQUESTED]* TREATMENT TREATMENT TREATMENT
REQUESTED]* REQUESTED]* REQUESTED]*
DCD US LIST PRICE UNITS [CONFIDENTIAL [CONFIDENTIAL
TREATMENT TREATMENT
REQUESTED]* REQUESTED]*
[CONFIDENTIAL [CONFIDENTIAL [CONFIDENTIAL
TREATMENT REQUESTED]* TREATMENT TREATMENT
REQUESTED]* REQUESTED]*
CRYOGEN US LIST PRICE UNITS [CONFIDENTIAL
TREATMENT
REQUESTED]*
CANISTERS [CONFIDENTIAL [CONFIDENTIAL
TREATMENT REQUESTED]* TREATMENT
REQUESTED]*
</TABLE>
[CONFIDENTIAL TREATMENT REQUESTED]*
*CONFIDENTIAL TREATMENT REQUESTED INDICATES MATERIAL THAT HAS BEEN OMITTED
AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED
MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
CONFIDENTIAL
TREATMENT
REQUEST
Exhibit 10.2
EXCLUSIVE LICENSE AGREEMENT
BETWEEN
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
AND
CANDELA LASER CORPORATION
FOR
DYNAMIC SKIN COOLING METHOD AND APPARATUS
U.C. CASE NO. 93-364-1
<PAGE>
-i-
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
ARTICLE NO. TITLE
<S> <C>
RECITALS.....................................................................................1
1. DEFINITIONS............................................................................3
2. LIFE OF PARENT EXCLUSIVE GRANT.........................................................5
3. LICENSE ISSUE FEE......................................................................7
4. ROYALTIES..............................................................................8
5. DUE DILIGENCE.........................................................................11
6. PROGRESS AND ROYALTY REPORTS..........................................................12
7. BOOKS AND RECORDS.....................................................................14
8. LIFE OF THE AGREEMENT.................................................................14
9. TERMINATION BY THE REGENTS............................................................15
10. TERMINATION BY LICENSEE..............................................................16
11. DISPOSITION OF PATENT PRODUCTS ON HAND UPON TERMINATION..............................16
12. USE OF NAMES AND TRADEMARKS..........................................................16
13. LIMITED WARRANTY.....................................................................17
14. PATENT PROSECUTION AND MAINTENANCE...................................................18
15. PATENT MARKING.......................................................................21
16. PATENT INFRINGEMENT..................................................................21
17. INDEMNIFICATION......................................................................23
18. NOTICES..............................................................................25
19. ASSIGNABILITY........................................................................25
20. LATE PAYMENTS........................................................................26
21. WAIVER...............................................................................26
22. FAILURE TO PERFORM...................................................................26
23. FOREIGN GOVERNMENT APPROVAL OR REGISTRATION..........................................26
24. EXPORT CONTROL LAWS..................................................................27
25. FORCE MAJEURE........................................................................27
26. CONFIDENTIALITY......................................................................27
27. MISCELLANEOUS........................................................................29
</TABLE>
<PAGE>
U.C. Case No. 93-364-1
Draft date: 08/22/94
Revised: 12/19/94
EXCLUSIVE LICENSE AGREEMENT
for
DYNAMIC SKIN COOLING METHOD AND APPARATUS
THIS LICENSE AGREEMENT (the Agreement) is effective this 19th day of
December, 1994, by and between The Regents of the University of California (The
Regents), a California corporation, having its statewide administrative offices
at 300 Lakeside Drive, 22nd Floor, Oakland, California 94612-3550 and Candela
Laser Corporation (Licensee), a Delaware corporation, having a principal place
of business at 530 Boston Post Road, Wayland, MA 01778-1886.
RECITALS
WHEREAS, certain Inventions, characterized as "Method and Apparatus for
the Dynamic Cooling of Biological Tissue Treated via Thermal Mediated Surgery"
(Invention), were made at the University of California, Irvine, by Drs. J.
Stuart Nelson, Thomas E. Milner, and Lars 0. Svaasand, and are claimed in
Regents' Patent Rights defined below;
WHEREAS, Licensee entered into a Non-Disclosure Agreement, having U.C.
Agreement Control No. 94-20-0029 and effective January 10, 1994, that allowed
Licensee to evaluate its interest in taking a license to the Invention;
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
-2-
WHEREAS, Licensee entered into a [CONFIDENTIAL TREATMENT REQUESTED]*,
having U.C. Agreement Control No. 94-30-0201 and [CONFIDENTIAL TREATMENT
REQUESTED]*, that allowed Licensee to [CONFIDENTIAL TREATMENT REQUESTED]* with
The Regents for [CONFIDENTIAL TREATMENT REQUESTED]* to the Invention;
WHEREAS, the Invention was made under funding provided in part by the
U.S. Department of Health and Human Services (DHHS);
WHEREAS, under 35 USC ss.ss.200-212, The Regents may elect to retain
title to any Invention (including the Invention) made by it under U.S.
Government funding;
WHEREAS, if The Regents elects to retain title to the Invention, then
the law requires that The Regents grant to the U.S. Government a
nontransferable, paid-up, nonexclusive, irrevocable license to use the Invention
by or on behalf of the U.S. Government throughout the world;
WHEREAS, The Regents elected on August 24, 1994, to retain title to the
Invention and granted the required licenses to the U.S. Government;
WHEREAS, both parties recognize that royalties due under this Agreement
will be paid on pending patent applications and issued patents;
WHEREAS, Licensee requested certain rights from The Regents to
commercialize the Invention; and
WHEREAS, The Regents responded to the Licensee's requests by granting
the following rights to Licensee so that the products and other benefits derived
from the Invention can be enjoyed by the general public. The parties agree as
follows:
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
-3-
The Parties agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the meaning
set forth below:
1.1 "Regents' Patent Rights" means all U.S. patents and patent
applications and foreign patents and patent applications assigned to The Regents
and requested under Paragraph 14.4 herein, including any reissues, extensions,
substitutions, continuations, divisions and continuations-in-part (only to the
extent, however, that claims in the continuations-in-part are entitled to the
priority filing date of the parent patent application) based on and including
any subject matter claimed in or covered by any of the following: U.S. Patent
Application Serial Number 08/222,976 entitled "Apparatus and Method for Dynamic
Cooling of Biological Tissues for Thermal Mediated Surgery"; filed April 5,
1994; and assigned to The Regents.
1.2 "Patent Products" means any kit, composition of matter, material,
or product whose manufacture, use, or sale in a particular country would
infringe, but for the license granted to Licensee pursuant to this Agreement, an
unexpired claim of a patent or pending claim of a patent application under
Regents' Patent Rights in that country in which such patent has issued or
application is pending; any kit, composition of matter, material, or product to
be used in a manner requiring the performance of the Patent Method; or any it,
composition of matter, material, or product produced by the Patent Method. This
definition of Patent Products also includes a service either used by Licensee or
provided by Licensee to its customers when such service requires the practice of
the Patent Method.
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
-4-
1.3 "Field of Use" means use only in conjunction with a laser that
Licensee has the legal right to manufacture, sell, or upgrade for use in
dermatology and plastic surgery procedures which do not involve the shrinking or
removal of collagen and not in conjunction with any other type laser.
1,4. "Patent Method" means any process or method the use or practice of
which would constitute in a particular country, but for the license granted to
Licensee pursuant to this Agreement, an infringement of an unexpired claim of a
patent or pending claim of a patent application within Regents' Patent Rights in
that country in which the Patent Method is used or practiced.
1.5 "Net Sales" means the gross invoice prices from the sale of Patent
Products by Licensee, an Affiliate, or a Joint Venture to independent third
parties for cash or other forms of consideration in accordance with Generally
Acceptable Accounting Principles limited to the following deductions (if not
already deducted from the gross invoice price and at rates customary within the
industry): (i) allowances (actually paid and limited to rejections, returns, and
prompt payment and volume discounts granted to customers of Patent Products,
whether in cash or Patent Products in lieu of cash), (ii) freight, transport
packing, insurance charges associated with transportation, and (iii) taxes,
tariff, or import/export duties based on sales when included in gross sales, but
not value-added taxes or taxes assessed on income derived from such sales. Where
Licensee distributes Patent Products for end use to itself, an Affiliate, or a
Joint Venture, then such distribution shall be considered a sale at list price
normally charged to independent third parties, and The
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
-5-
Regents shall be entitled to collect a royalty on such sale in accordance with
Article 4 (ROYALTIES).
1.6 "Affiliate(s)" of Licensee means any entity which, directly or
indirectly, controls Licensee, is controlled by Licensee, or is under common
control with Licensee ("control" for these purposes being defined as the actual,
present capacity to elect a majority of the directors of such affiliate, or if
not, the capacity to elect the members that control fifty percent (50%) of the
outstanding stock or other voting rights entitled to elect directors) provided,
however, that in any country where the local law shall not permit foreign equity
participation of a majority, then an "Affiliate" shall include any company in
which Licensee shall own or control, directly or indirectly, the maximum
percentage of such outstanding stock or voting rights permitted by local law.
Each reference to Licensee herein shall be meant to include its Affiliates.
1.7 "Joint Venture" means any separate entity established pursuant to
an agreement between a third party and Licensee to constitute a vehicle for a
joint venture, in which the separate entity manufactures, uses, purchases,
sells, or acquires Patent Products from Licensee. Each reference to Licensee
herein shall be meant to include its Joint Venture(s).
2. LIFE OF PARENT EXCLUSIVE GRANT
2.1 Subject to the limitations set forth in this Agreement and subject
to the licenses granted to the U.S. Government as set forth in the Recitals
above, The Regents hereby grants to Licensee exclusive licenses under The
Regents' Patent Rights to make,
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
-6-
have made, use, and sell Patent Products and to practice the Patent Method in
the Field of Use.
2.2 The licenses granted hereunder shall be subject to the overriding
obligations to the U.S. Government including those set forth in 35 U.S.C.
SS.SS.200-212 and applicable governmental implementing regulations.
2.3 The licenses granted hereunder shall be limited to methods,
products, and services that are within the Field of Use. For other methods,
products, and services, Licensee has no license hereunder.
2.4 The manufacture of Patent Products and the practice of the Patent
Method shall be subject to applicable government importation laws and
regulations of a particular country on Patent Products made outside said
particular country in which such Patent Products are used or sold.
2.5 The Regents grants to Licensee no right to issue sublicenses.
2.6 Because this Agreement grants the exclusive right to use or sell
the Patent Products in the United States, Licensee agrees that any Patent
Products embodying the Invention or produced through the use thereof will be
manufactured substantially in the United States.
2.7 Nothing in this Agreement shall be deemed to limit The Regents'
right to publish any and all technical data resulting from any research
performed by The Regents relating to the Invention and to make and use the
Invention, Patent Product(s), Patent Method(s) and associated technology solely
for educational and research purposes and for purposes not covered by this
Agreement.
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
-7-
3. LICENSE ISSUE FEE
3.1 As consideration for all the rights and licenses granted to
Licensee, Licensee shall pay to The Regents a license issue fee of [CONFIDENTIAL
TREATMENT REQUESTED]*; Licensee shall donate to the Beckman Laser Institute at
Irvine, California, [CONFIDENTIAL TREATMENT REQUESTED]*. Licensee shall deliver
the [CONFIDENTIAL TREATMENT REQUESTED]* to The Regents together with two
executed originals of this Agreement. Licensee shall deliver the [CONFIDENTIAL
TREATMENT REQUESTED]*, to the Beckman Laser Institute on or before June 1, 1995.
3.2 Licensee shall use its best efforts to replace the [CONFIDENTIAL
TREATMENT REQUESTED]*, referenced in Paragraph 3.1 above with a new
[CONFIDENTIAL TREATMENT REQUESTED]*, as soon as such a laser becomes available.
3.3 Licensee shall also pay to The Regents a license maintenance fee of
[CONFIDENTIAL TREATMENT REQUESTED]* beginning on the one-year anniversary date
of the effective date of this Agreement and continuing annually on each
anniversary date of the effective date of this Agreement. The license
maintenance fee shall not be due and payable on any anniversary date of the
effective date of this Agreement if on said date Licensee is commercially
selling Product and paying an earned royalty to The Regents on the sales of that
Product.
3.4 The fees set forth in Paragraphs 3.1 and 3.2 above are
non-refundable, non-creditable, and not an advance against royalties.
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
-8-
4. ROYALTIES
4.1 As further consideration for all the rights and licenses granted to
Licensee, Licensee shall also pay to The Regents an earned royalty at the rate
of [CONFIDENTIAL TREATMENT REQUESTED]* based on the Net Sales of Patent
Products.
4.2 Paragraphs 1.1, 1.2, and 1.3 define Regents' Patent Rights, Patent
Product and Patent Method so that royalties shall be payable on products and
methods covered by both pending patent applications and issued patents. Earned
royalties shall accrue in each country for the duration of Regents' Patent
Rights in that country and shall be payable to The Regents when Patent Products
are invoiced, or if not invoiced, when delivered to a third party or to itself,
an Affiliate, Joint Venture, or sublicensee in the case where such delivery of
the Patent Products to Licensee, an Affiliate, Joint Venture, or sublicensee is
intended for end use.
4.3 Royalties accruing to The Regents shall be paid to The Regents
quarterly on or before the following dates of each calendar year:
February 28 for the calendar quarter ending December 31
May 31 for the calendar quarter ending March 31
August 31 for the calendar quarter ending June 30
November 30 for the calendar quarter ending September 30
Each such payment will be for royalties which accrued up to Licensee's most
recently completed calendar quarter.
4.4 Beginning in the year 1996, Licensee shall pay to The Regents a
minimum annual royalty as set forth below:
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
-9-
1996 --[CONFIDENTIAL TREATMENT REQUESTED]*
1997 --[CONFIDENTIAL TREATMENT REQUESTED]*
1998 --[CONFIDENTIAL TREATMENT REQUESTED]*
In each succeeding calendar year after the year 1998, Licensee shall pay a
minimum annual royalty of [CONFIDENTIAL TREATMENT REQUESTED]* and thereafter for
the life of this Agreement. This minimum annual royalty shall be paid to The
Regents by February 28 of each year and shall be credited against the earned
royalty due and owing for the calendar year in which the minimum payment was
made.
4.5 If Licensee fails to pay the minimum annual royalties according to
the schedule set forth in Paragraph 4.4, then The Regents may give written
notice of such default (Notice of Default) to Licensee. If Licensee should fail
to repair such default within sixty (60) days of the date of such notice takes
effect, The Regents shall have the right to terminate this Agreement and the
licenses herein by a second written notice (Notice of Termination) to Licensee.
If a Notice of Termination is sent to Licensee, this Agreement shall
automatically terminate on the date such notice takes effect.
4.6 All monies due The Regents shall be payable in United States funds
collectible at par in San Francisco, California. When Patent Products are sold
for monies other than United States dollars, the earned royalties will first be
determined in the foreign currency of the country in which such Patent Products
were sold and then converted into equivalent United States funds. The exchange
rate will be that rate quoted in the Wall Street Journal on the last business
day of the reporting period.
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
-10-
4.7 Earned royalties paid to The Regents on sales of Patent Products
occurring in any country outside the United States shall not be reduced by any
taxes, fees, or other charges imposed by the government of such country, except
as provided by Paragraph 1.5 of this Agreement. Licensee shall also be
responsible for all bank transfer charges.
4.8 Notwithstanding the provisions of Article 25 (FORCE MAJEURE), if at
any time legal restrictions prevent prompt remittance of part or all royalties
owed to The Regents by Licensee with respect to any country where a Patent
Product is sold or distributed, Licensee shall convert the amount owed to The
Regents into United States funds and shall pay The Regents directly from another
source of funds for the amount impounded.
4.9 In the event that any patent or any claim thereof included within
the Regents' Patent Rights shall be hold invalid in a final decision by a court
of competent jurisdiction and last resort and from which no appeal has or can be
taken, all obligation to pay royalties based on such patent or claim or any
claim patentability indistinct therefrom shall cease as of the date of such
final decision. Licensee shall not, however, be relieved from paying any
royalties that accrued before such decision or that are based on another patent
or claim that has not expired or that is not involved in such decision.
4.10 No royalties shall be collected or paid hereunder to The Regents
on Patent Products sold to the account of the U.S. Government. Licensee and its
sublicensee shall reduce the amount charged for Patent Products distributed to
the United States Government by an amount equal to the royalty for such Patent
Products otherwise due The Regents as provided herein.
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
-11-
5. DUE DILIGENCE
5.1 Licensee, upon execution of this Agreement, shall diligently
proceed with the development, manufacture and sale of Patent Products and
[CONFIDENTIAL TREATMENT REQUESTED]* after execution of this Agreement and
[CONFIDENTIAL TREATMENT REQUESTED]* to meet the [CONFIDENTIAL TREATMENT
REQUESTED]*.
5.2 Licensee shall be entitled to exercise prudent and reasonable
business judgment in the manner in which it meets its due diligence obligations
hereunder. In no case, however, shall Licensee be relieved of its obligations to
meet the due diligence provisions of this Article 5 (DUE DILIGENCE).
5.3 Licensee shall endeavor to obtain all necessary governmental
approvals in each country for the manufacture, use and sale of Patent Products.
5.4 If Licensee is unable to perform any of the following:
(5.4a) spend an aggregate of not less, than [CONFIDENTIAL
TREATMENT REQUESTED]* for the development of Patent
Products [CONFIDENTIAL TREATMENT REQUESTED]* of this
Agreement;
(5.4b) submit a 510(k) Premarket Approval Application or its
equivalent covering a Patent Product to the United
States Food and Drug Administration [CONFIDENTIAL
TREATMENT REQUESTED]* the effective date of this
Agreement;
(5.4c) market such Patent Product in the United States
[CONFIDENTIAL TREATMENT REQUESTED]* after approval to
market such Patent Product is issued by the United
States Food and Drug Administration; and
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
-12-
(5.4d) [CONFIDENTIAL TREATMENT REQUESTED]* for Patent
Products [CONFIDENTIAL TREATMENT REQUESTED]* at any
time during the exclusive period of this Agreement:
then The Regents shall have the right and option to terminate this Agreement or
reduce Licensee's exclusive licenses to non-exclusive licenses in accordance
with Paragraph 5.6 hereof. The exercise of this right and option by The Regents
supersedes the rights granted in Article 2 (LIFE OF PATENT EXCLUSIVE GRANT).
5.5 To exercise either the right to terminate this Agreement or reduce
Licensee's exclusive licenses to non-exclusive licenses for lack of diligence
required in this Article 5 (DUE DILIGENCE), The Regents must give Licensee
written notice of the deficiency. Licensee thereafter [CONFIDENTIAL TREATMENT
REQUESTED]* to cure the deficiency. If The Regents has not received written
tangible evidence that the deficiency has been cured by the end of [CONFIDENTIAL
TREATMENT REQUESTED]*, then The Regents may, at its option, terminate this
Agreement or reduce Licensee's exclusive licenses to non-exclusive licenses by
giving written notice to Licensee. These notices shall be subject to Article 18
(NOTICES).
6. PROGRESS AND ROYALTY REPORTS
6.1 Beginning February 28, 1995, and semi-annually thereafter, Licensee
shall submit to The Regents a progress report covering Licensee's activities
related to the development and testing of all Patent Products and the obtaining
of the governmental approvals necessary for marketing. These progress reports
shall be provided to The Regents to cover the progress of the research and
development of the Patent Products until their first commercial sale in the
United States.
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
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6.2 The progress reports submitted under Paragraph 6.1 shall include,
but not be limited to, the following topics so that The Regents may be able to
determine the progress of the development of Patent Products and may also be
able to determine whether or not Licensee has met its diligence obligations set
forth in Article 5 (DUE DILIGENCE) above:
- summary of work completed
- key scientific discoveries
- summary of work in progress
- current schedule of anticipated events or milestones
- market plans for introduction of Patent Products,
- a summary of resources (dollar value) spent in the reporting
period, and
- activities of sublicenses, if any.
6.3 Licensee also agrees to report to The Regents in its immediately
subsequent progress and royalty report the date of first commercial sale of a
Patent Product(s) in each country.
6.4 After the first commercial sale of a Patent Product, Licensee will
provide The Regents with quarterly royalty reports to The Regents on or before
each February 28, May 31, August 31 and November 30 of each year. Each such
royalty report will cover Licensee's most recently completed calendar quarter
(October through December, January through March, April through June, and July
through September) and will show:
(6.4a) the gross sales and Net Sales of Patent Products sold
by Licensee and reported to Licensee as sold by its
sublicenses during the most recently completed
calendar quarter;
(6.4b) the number of Patent Products sold or distributed by
Licensee and reported to Licensee as sold or
distributed by its sublicensees;
(6.4c) the royalties, in U.S. dollars, payable hereunder
with respect to Net Sales; and
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
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(6.4d) the exchange rates used , if any.
6.5 If no sales of Patent Products have been made during any reporting
period after the first commercial sale of a Patent Product, then a statement to
this effect is required.
6.6 The Regents shall provide Drs. J. Stuart Nelson, Thomas E. Milner,
and/or Lars 0. Svaasand with a copy of each progress report submitted by
Licensee. Prior to exercising its right to terminate this Agreement and the
licenses herein pursuant to Article 9, The Regents shall consult with the
aforementioned Drs. Nelson, Milner, and/or Svaasand.
7. BOOKS AND RECORDS
7.1 Licensee shall keep books and records accurately showing all Patent
Products manufactured, used, and/or sold under the terms of this Agreement. Such
books and records shall be preserved for [CONFIDENTIAL TREATMENT REQUESTED]*
from the date of the royalty payment to which they pertain and shall be open to
inspection by representatives or agents of The Regents at reasonable times.
7.2 The fees and expenses of The Regents' representatives performing
such an examination shall be borne by The Regents. However, if an error in
royalties of more than [CONFIDENTIAL TREATMENT REQUESTED]* of the total
royalties due for any year is discovered, then the fees and expenses of these
representatives shall be borne by Licensee.
8. LIFE OF THE AGREEMENT
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
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8.1 Unless otherwise terminated by operation of law or by acts of the
parties in accordance with the terms of this Agreement, this Agreement shall be
in force from the effective date recited on page one and shall remain in effect
for the life of the last-to-expire patent licensed under this Agreement, or
until the last patent application licensed under this Agreement is abandoned.
8.2 Any termination of this Agreement shall not affect the rights and
obligations set forth in the following Articles:
Article 7 Books and Records
Article 11 Disposition of Patent Products on
Hand Upon Termination
Article 12 Use of Names and Trademarks
Paragraph 14.6 Patent Prosecution and Maintenance
Article 17 Indemnification
Article 22 Failure to Perform
Article 25 Confidentiality
9. TERMINATION BY THE REGENTS
9.1 If Licensee should violate or fail to perform any term or covenant
of this Agreement, then The Regents, may give written notice of such default
(Notice of Default) to Licensee. If Licenses should fall to repair such default
within [CONFIDENTIAL TREATMENT REQUESTED]* of the date of such notice takes
effect, The Regents shall have the right to terminate this Agreement and the
licenses herein by a second written notice (Notice of Termination) to Licensee.
If a Notice of Termination is sent to Licensee, this Agreement shall
automatically terminate on the date such notice takes effect. Such termination
shall not relieve Licensee of its obligation to pay any royalty or license fees
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
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owing at the time of such termination and shall not impair any accrued right of
The Regents. These notices shall be subject to Article 18 (NOTICES).
10. TERMINATION BY LICENSEE
10.1 Licensee shall have the right at any time to terminate this
Agreement in whole or as to any portion of Regents' Patent Rights by giving
notice in writing to The Regents. Such Notice of Termination shall be subject to
Article 18 (NOTICES) and termination of this Agreement shall be effective
[CONFIDENTIAL TREATMENT REQUESTED]* from the effective date of such notice.
10.2 Any termination pursuant to the above paragraph shall not relieve
Licensee of any obligation or liability accrued hereunder prior to such
termination or rescind anything done by Licensee or any payments made to The
Regents hereunder prior to the time such termination becomes effective, and such
termination shall not affect in any manner any rights of The Regents arising
under this Agreement prior to such termination.
11. DISPOSITION OF PATENT PRODUCTS ON HAND UPON TERMINATION
11.1 Upon termination of this Agreement, Licensee shall have the
privilege of disposing of all previously made or partially made Patent Products,
but no more, within a period of [CONFIDENTIAL TREATMENT REQUESTED]*, provided,
however, that the sale of such Patent Products shall be subject to the terms of
this Agreement including, but not limited to the payment of royalties on the Net
Sales of Patent Products at the rates and at the times provided herein and the
rendering of reports in connection therewith.
12. USE OF NAMES AND TRADEMARKS
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
-17-
12.1 Nothing contained in this Agreement shall be construed as
conferring any right to use in advertising, publicity, or other promotional
activities any name, trade name, trademark, or other designation of either party
hereto by the other (including contraction, abbreviation or simulation of any of
the foregoing). Unless required by law, the use by Licensee of the name, "The
Regents of the University of California" or the name of any campus of the
University of California is expressly prohibited.
12.2 It is understood that The Regents shall be free to release to the
inventors and senior administrative officials employed by The Regents the terms
and conditions of this Agreement upon their request. If such release is made,
The Regents shall request that such terms and conditions not be disclosed to
others. It is further understood that should a third party inquire whether a
license to Regents' Patent Rights is available, The Regents may disclose the
existence of this Agreement and the Extent of the grant in Article 2 to such
third party, but shall not disclose the name of Licensee, except where The
Regents is required to release such information under either the California
Public Records Act or other applicable law.
13. LIMITED WARRANTY
13.1 The Regents warrants to Licensee that it has the lawful right to
grant this license.
13.2 This license and the associated Invention are provided WITHOUT
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER
WARRANTY, EXPRESSED OR IMPLIED. THE REGENTS MAKES NO REPRESENTATION OR WARRANTY
THAT THE PATENT
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
-18-
PRODUCTS OR PATENT METHOD WILL NOT INFRINGE ANY PATENT OR OTHER PROPRIETARY
RIGHT.
13.3 IN NO EVENT WILL THE REGENTS BE LIABLE FOR ANY INCIDENTAL, SPECIAL
OR CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THIS LICENSE OR THE USE OF
THE INVENTION, PATENT METHOD, OR PATENT PRODUCTS.
13.4 Nothing in this Agreement shall be construed as:
(13.4a) a warranty or representation by The Regents
as to the validity, enforceability, or scope
of any Regents' Patent Rights; or
(13.4b) a warranty or representation that anything
made, used, sold or otherwise disposed of
under any license granted in this Agreement
is or will be free from infringement of
patents of third parties; or
(13.4c) an obligation to bring or prosecute actions
or suits against third parties for patent
infringement except as provided in
Article 17; or
(13.4d) conferring by implication, estoppel or
otherwise any license or rights under any
patents of The Regents other than Regents'
Patent Rights as defined herein, regardless
of whether such patents are dominant or
subordinate to Regent's Patent Rights; or
(13.4e) an obligation to furnish any know-how not
provided in Regents' Patent Rights.
14. PATENT PROSECUTION AND MAINTENANCE
14.1 The Regents shall diligently prosecute and maintain the United
States and foreign patents comprising Regents' Patent Rights using counsel of
its choice. The Regents shall promptly provide Licensee with copies of all
relevant documentation so that
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
-19-
Licensee may be currently and promptly informed and apprised of the continuing
prosecution, and may comment upon such documentation sufficiently in advance of
any initial deadline for filing a response, provided, however, that if Licensee
has not commented upon such documentation prior to the initial deadline for
filing a response with the relevant government patent office or The Regents must
act to preserve Regent's Patent Rights, The Regents shall be free to respond
appropriately without consideration of Licensee's comments, if any. Both parties
hereto agree to keep this documentation in confidence in accordance with the
provisions of Article 26 (CONFIDENTIALITY) herein, The Regents' counsel Will
take instructions only from The Regents.
14.2 The Regents shall use all reasonable efforts to amend any patent
application to include claims requested by Licensee and required to protect the
Patent Products contemplated to be sold or Patent Method to be practiced under
this Agreement.
14.3 The Regents and Licensee shall cooperate in applying for an
extension of the term of any patent included within Regents' Patent Rights, If
appropriate, under the Drug Price Competition and Patent Term Restoration Act of
1984, Licensee shall prepare all such documents, and The Regents agrees to
execute such documents and to take such additional action as Licensee may
reasonably request in connection therewith.
14.4 The Regents shall, at the request of Licensee, file, prosecute and
maintain patent applications and patents covered by Regents' Patent Rights in
foreign countries if available. Licensee must notify The Regents within seven
(7) months of the filing of the corresponding United States application of its
decision to request The Regents to file foreign counterpart patent applications.
This notice concerning foreign filing shall be in
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
-20-
writing and must identify the countries desired. The absence of such a notice
from Licensee to The Regents within the seven (7) month period shall be
considered an election by Licensee not to request The Regents to secure foreign
patent rights on behalf of Licensee. The Regents shall have the right to file
patent applications at its own expense in any country Licensee has not included
in its list of desired countries, and such applications and resultant patents,
if any, shall not be included in the licenses granted under this Agreement.
14.5 All past, present and future costs of preparing, filing,
prosecuting and maintaining all United States and foreign patent applications
and all costs and fees relating to the preparation and filing of patents covered
by Regents' Patent Rights in Paragraph 1.1 shall be borne by Licensee. This
includes patent preparation and prosecution costs for this Invention incurred by
The Regents prior to the execution of this Agreement; such costs will be due
upon execution of this Agreement; and shall be payable at the time that the
Licensee Issue Fee is payable. The costs of all interferences and oppositions
shall be considered prosecution expenses and also shall be borne by Licensee.
Licensee shall reimburse The Regents for all assessed costs and charges within
[CONFIDENTIAL TREATMENT REQUESTED]* following receipt of a proper itemized
invoice from The Regents for same. The costs and charges assessed to Licensee
pursuant to this paragraph shall not exceed [CONFIDENTIAL TREATMENT REQUESTED]*
per patent application.
14.6 Licensee's obligation to underwrite and to pay patent filing costs
and related costs, prosecution and maintenance costs shall continue until three
(3) months after receipt
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
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by either party of a Notice of Termination. But Licensee may with respect to any
particular patent application or patent terminate its obligations with the
patent application or patent in any or all designated countries upon three (3)
months written notice to The Regents. The Regents will use its best efforts to
curtail the associated patent costs after such a notice is received from
Licensee. The Regents may continue prosecution and/or maintenance of such
application(s) or patent(s) at its sole discretion and expense, provided,
however, that Licensee shall have no further right or licenses thereunder.
14.7 Licensee shall have a continuing responsibility to keep The
Regents informed of its large/small entity status (as defined by the United
States Patent and Trademark Office) of itself and its sublicensees.
15. PATENT MARKING
15.1 Licensee shall mark all Patent Products made, used or sold under
the terms of this Agreement, or their containers, in accordance with the
applicable patent marking laws.
15.2 Licensee furthermore shall conspicuously place on all Patent
Products made, used, or sold under the terms of this Agreement and in the manual
for such Patent Products the following statement: "The skin cooling apparatus of
this device is licensed for use in dermatology and plastic surgery procedures
which do not involve the shrinking or removal of collagen."
16. PATENT INFRINGEMENT
16.1 In the event that Licensee shall learn of the substantial
infringement of any patent licensed under this Agreement, Licensee shall call
The Regents' attention thereto in
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
-22-
writing and shall provide The Regents with reasonable evidence of such
infringement. Both parties to this Agreement agree that during the period and in
a jurisdiction where Licensee has exclusive rights under this Agreement, neither
will notify a third party of the infringement of any of Regents' Patent Rights
without first obtaining consent of the other party, which consent shall not be
unreasonably denied. Both parties shall use their best efforts in cooperation
with each other to terminate such infringement without litigation.
16.2 Licensee may request that The Regents take legal action against
the infringement of Regents' Patent Rights. Such request shall be made in
writing and shall include reasonable evidence of such infringement and damages
to Licensee. If the infringing activity has not been abated within [CONFIDENTIAL
TREATMENT REQUESTED]* following the effective date of such request, The Regents
shall have the right to elect to:
(16.2a) commence suit on its own account; or
(16.2b) refuse to participate in such suit,
and The Regents shall give notice of its election in writing to Licensee by the
end of the [CONFIDENTIAL TREATMENT REQUESTED]* after receiving notice of such
request from Licensee. Licensee may thereafter bring suit for patent
infringement if and only if The Regents elects not to commence suit and if the
infringement occurred during the period and in a jurisdiction where Licensee had
exclusive rights under this Agreement. However, in the event Licensee elects to
bring suit in accordance with this paragraph, The Regents may thereafter join
such suit at its own expense. In the event The Regents elect to join such suit,
The Regents shall pay [CONFIDENTIAL TREATMENT
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
-23-
REQUESTED]* of the past costs incurred by Licensee in conjunction with the
infringement suit.
16.3 Such legal action as is decided upon shall be at the expense of
the party on account of whom suit is brought and all recoveries recovered
thereby shall belong to such party, provided, however, that legal action brought
jointly by The Regents and Licensee and fully participated in by both shall be
at the joint expense of the parties and all recoveries shall be allocated in the
following order: (i) to each party reimbursement in equal amounts of costs and
fees of outside attorneys and other related expenses to the extent each party
paid for such costs, fees, and expenses until all such costs, fees, and expenses
are consumed for each party; and (ii) any remaining amount shared jointly by
them in proportion to the share of expense paid by each party.
16.4 Each party agrees to cooperate with the other in litigation
proceedings instituted hereunder, but at the expense of the party on account of
whom suit is brought. Such litigation shall be controlled by the party bringing
the suit, except that The Regents may be represented by counsel of its choice in
any suit brought by Licensee.
17. INDEMNIFICATION
17.1 Licensee agrees to (and requires its sublicensees to) indemnify,
hold harmless and defend The Regents, its officers, employees, and agents; the
sponsors of the research that led to the Invention; the inventors of any
Invention covered by patents or patent applications in Regents' Patent Rights
(including the Patent Products and Patent Method contemplated thereunder) and
their employers against any and all claims, suits, losses, damage, costs, fees,
and expenses resulting from or arising out of exercise of this
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
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license or any sublicense. This indemnification will include, but will not be
limited to, any product liability.
17.2 Licensee, at its sole cost and expense, shall insure its
activities in connection with the work under this Agreement and obtain, keep in
force and maintain insurance as follows (or an equivalent program of self
insurance)
Comprehensive or Commercial Form General Liability Insurance
(contractual liability included) with limits as follows:
(a) Each Occurrence [CONFIDENTIAL TREATMENT
REQUESTED]*
(b) Products/Completed
Operations Aggregate [CONFIDENTIAL TREATMENT
REQUESTED]*
(c) Personal and Advertising
Injury [CONFIDENTIAL TREATMENT
REQUESTED]*
(d) General Aggregate
(commercial form only) [CONFIDENTIAL TREATMENT
REQUESTED]*
It should be expressly understood, however, that the coverages and
limits referred to under the above shall not in any way limit the liability of
Licensee. Licensee shall furnish The Regents with certificates of insurance
evidencing compliance with all requirements. Such certificates shall:
(a) Provide for thirty (30) day advance written notice to The
Regents of any modification.
(b) Indicate that The Regents has been endorsed as an additional
insured under the coverages referred to under the above.
(c) Include a provision that the coverages will be primary and
will not participate with nor will be excess over any valid
and collectable insurance or program of self-insurance carried
or maintained by The Regents.
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
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17.3 The Regents shall promptly notify Licensee in writing of any claim
or suit brought against The Regents in respect of which The Regents intends to
invoke the provisions of this Article 17 (INDEMNIFICATION). Licensee will keep
The Regents informed on a current basis of its defense of any claims pursuant to
this Article 17 (INDEMNIFICATION).
18. NOTICES
18.1 Any notice or payment required to be given to either party shall
be deemed to have been properly given and to be effective (a) an the date of
delivery if delivered in person or (b) five (5) days after mailing if mailed by
first-class certified mail, postage paid, to the respective addresses given
below, or to such other address as it shall designate by written notice given to
the other party.
In the case of Licensee: Candela Laser Corporation
530 Boston Post Road
Wayland, MA 01778-1886
Attention: Mr. Gerard E. Puorro
In the case of The Regents THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
1320 Harbor Bay Parkway, Suite 150
Alameda, California 94502
Attention: DIRECTOR; Office of Technology
Transfer
Referring to: U.C Case No. 93-364-1
19. ASSIGNABILITY
19.1 This Agreement is binding upon and shall inure to the benefit of
The Regents, its successors and assigns, but shall be personal to Licensee and
assignable by
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
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Licensee only with the written consent of The Regents, which
consent shall not be unreasonably withheld.
20. LATE PAYMENTS
20.1 In the event royalty payments or fees or patent prosecution costs
are not received by The Regents when due, Licensee shall pay to The Regents
interest charges at a rate of [CONFIDENTIAL TREATMENT REQUESTED]* simple
interest per annum. Such interest shall be calculated from the date payment was
due until actually received by The Regents. Acceptance by The Regents of any
late payment interest from Licensee under this Paragraph 20.1 shall in no way
affect the provision of Article 21 (WAIVER) herein.
21. WAIVER
21.1 It is agreed that no waiver by either party hereto of any breach
or default of any of the covenants or agreements herein set forth shall be
deemed a waiver as to any subsequent and/or similar breach or default.
22. FAILURE TO PERFORM
22.1 In the event of a failure of performance due under the terms of
this Agreement and if it becomes necessary for either party to undertake legal
action against the other on account thereof, then the prevailing party shall be
entitled to reasonable attorney's fees in addition to costs and necessary
disbursements.
23. FOREIGN GOVERNMENT APPROVAL OR REGISTRATION
23.1 If this Agreement or any associated transaction is required by the
law of any nation to be either approved or registered with any governmental
agency, Licensee shall
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
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assume all legal obligations to do so and the costs in connection therewith will
be assumed by Licensee.
24. EXPORT CONTROL LAWS
24.1 Licensee shall observe all applicable United States and foreign
laws with respect to the transfer of Patent Products and related technical data
to foreign countries, including, without limitation, the International Traffic
in Arms Regulations (ITAR) and the Export Administration Regulations.
25. FORCE MAJEURE
25.1 The parties to this Agreement shall be excused from any
performance required hereunder if such performance is rendered impossible or
unfeasible due to any acts of God, catastrophes or other minor events beyond
their reasonable control, including, without limitation, war, riot, and
insurrection laws, proclamations, edicts, ordinances or regulations; strikes,
lock-outs or other serious labor disputes; and floods, fires, explosions, or
other natural disasters. When such events have abated, the parties' respective
obligations hereunder shall resume.
26. CONFIDENTIALITY
26.1 Licensee and The Regents respectively shall treat and maintain the
other party's proprietary business, patent prosecution, software, engineering
drawings, process and technical information, and other proprietary information
(hereinafter referred to as "Proprietary Information") in confidence using at
least the same degree of care as that party uses to protect its own proprietary
information of a like nature for a period from the date of disclosure until five
(5) years after the date of termination of this Agreement,
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
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provided that all Proprietary Information shall be labeled or marked
confidential or as otherwise similarly appropriate by the disclosing party, or
if the Proprietary Information is orally disclosed, it shall be reduced to
writing or some other physically tangible form, marked and labeled as set forth
above by the disclosing party and delivered to the receiving party within thirty
(30) days of the oral disclosure as a record of the disclosure and the
confidential nature thereof. Notwithstanding the foregoing, Licensee and, the
Regents may use and disclose Proprietary Information to its employees, agents,
consultants, contractors, and sublicensees, or as is deemed necessary by
Licensee or The Regents to market and sell Patent Products, and for any purpose
set forth or relating to this Agreement, provided that any such parties are
bound by a like duty of confidentiality.
(26.1a) Nothing contained herein shall in any way restrict or
impair the right of Licensee or The Regents to use,
disclose or otherwise deal with any Proprietary
Information:
(i) that recipient can demonstrate by written
records was previously known to it; or
(ii) that is now, or becomes, in the future,
public knowledge other than through acts or
omissions of recipient; or
(iii) that is lawfully obtained without
restrictions by recipient from sources
independent of the disclosing party; or
(iv) that is required to be disclosed to a
governmental entity or agency in connection
with seeking any governmental or regulatory
approval, or pursuant to the lawful
requirement or request of a governmental
entity or agency; or
(v) that is furnished to a third party by the
recipient with similar confidentiality
restrictions imposed on such third party, as
evidenced in writing; or
(vi) that The Regents is required to disclose
pursuant to the California Public Records
Act or other applicable law.
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
-29-
26.2 Upon termination of this Agreement, Licensee and The Regents agree
to destroy or return to the disclosing party Proprietary Information received
from the other in its possession within fifteen (15) days following the
effective date of termination. Licensee and The Regents agree to provide each
other, within thirty (30) days following termination, with a written notice that
Proprietary Information has been returned or destroyed. Each party may, however,
retain one copy of Proprietary Information for archival purposes in non-working
files.
27. MISCELLANEOUS
27.1 The headings of the several sections are inserted for convenience
of reference only and are not intended to be a part of or to affect the meaning
or interpretation of this Agreement.
27.2 This Agreement will not be binding upon the parties until it has
been signed below on behalf of each party, in which event, it shall be effective
as of the date recited on page one.
27.3 No amendment or modification hereof shall be valid or binding upon
the parties unless made in writing and signed on behalf of each party.
27.4 This Agreement embodies the entire understanding of the parties
and shall supersede all previous communications, representations or
understandings, either oral or written, between the parties relating to the
subject matter hereof. The Non-Disclosure Agreement specified in the Recitals in
this Agreement is hereby terminated. The Letter of Intent specified in the
Recitals in this Agreement is hereby terminated.
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
-30-
27.5 In case any of the provisions contained in this Agreement shall be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions hereof, but
this Agreement shall be construed as if such invalid or illegal or unenforceable
provisions had never been contained herein.
IN WITNESS WHEREOF, both The Regents and Licensee have executed this
Agreement, in duplicate originals, by their respective officers hereunto duly
authorized, on the day and year hereinafter written.
CANDELA LASER CORPORATION: THE REGENTS OF THE
UNIVERSITY OF CALIFORNIA:
By: By:
------------------------------- ------------------------------
(signature)
Name: Name: Terence A. Feuerborn
-----------------------------
(please print)
Title: Title: Director, Office of
-----------------------------
Technology Transfer
Date: Date:
------------------------------- ------------------------------
Approved as to legal form:
--------------------------------
Edwin H. Baker
Associate Resident Counsel
Office of Technology Transfer
University of California
Date:
--------------------------
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
-31-
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
AMENDMENT NO. 1
TO
LICENSE AGREEMENT
This Amendment No. 1 (the "Amendment"), dated as of September 30, 1998,
(the "Effective Date") is made by and between The Regents of the University of
California ("The Regents"), a California corporation, having its statewide
administrative offices at 1111 Franklin Street, 12th Floor, Oakland, CA
94607-5200 and Candela Corporation (the "Licensee"), a Delaware corporation,
having a principal place of business at 530 Boston Post Road, Wayland, MA
01778-1886.
WHEREAS, the parties entered into an Exclusive License Agreement
("Agreement") effective as of December 19, 1994 to provide the Licensee with
rights to certain Inventions, defined in The Regents' Patent Rights as set forth
therein; and
WHEREAS, the Licensee and The Regents desire to resolve the lawsuit,
Civil Action No. 97-11577, currently pending between them.
NOW, THEREFORE, the parties for good and valuable consideration,
receipt and sufficiency of which is hereby acknowledged, agree to amend such
Agreement in order to facilitate cooperative licensing of The Regents' Patent
Rights to third parties as follows:
1. By deleting Section 1.3 as currently written and substituting the
following:
1.3 "Gross Revenue" means all revenue, receipts, and monies or
other forms of consideration actually received by The Regents or the
Licensee from (1) any third-party Further Licenses granted by The
Regents or (2) any third-party sublicenses granted by the Licensee.
2. By adding Section 1.8:
1.8 "Further Licenses" means any licenses under The Regents
Patent Rights granted by The Regents to any third-party pursuant to
Sections 2.8 and 5.5.
3 By deleting Section 2.1 as currently written and substituting the
following:
2.1 Subject to the limitations set forth in this Agreement,
and subject to the license granted to the U.S. Government as set forth
in the Recitals above, The Regents hereby grants to the Licensee an
exclusive license under the Regents' Patent Rights to make, have made,
use, sell, offer for sale, and import Patent Products and to practice
the Patent Method. However, the exclusive license granted herein is
subject to The Regents' right to grant Further Licenses as provided in
Sections 2.8 and 5.5.
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
-2-
4. By deleting Section 2.3 in its entirety.
5. By deleting Section 2.5 as currently written and substituting the
following:
2.5 The Regents grants to the Licensee the first right to
issue sublicenses to third parties to make, use, sell, offer for sale,
and import Patent Products and to practice the Patent Method, subject
to the provisions of Sections 2.8, 4.1, and 5.5 of this Agreement. The
Licensee shall negotiate in good faith and shall make commercially
reasonable efforts to conclude sublicensing agreements with such
interested third parties. The Licensee, however, has no obligation to
pursue [CONFIDENTIAL TREATMENT REQUESTED]*, due to [CONFIDENTIAL
TREATMENT REQUESTED]* between the Licensee and [CONFIDENTIAL TREATMENT
REQUESTED]*.
The Regents shall direct any third party expressing
an interest in obtaining license rights under the Regents' Patent
Rights to contact the Licensee. The Regents shall notify the Licensee
and the interested party in writing [CONFIDENTIAL TREATMENT REQUESTED]*
received by The Regents' licensing professional responsible for
administration of the Agreement. The Regents shall provide the name and
contact person of such a third party in the written notice to the
Licensee with that third party's permission, and the Licensee hereby
gives The Regents permission to inform such third party of the
Licensee's name. Except with the Licensee's prior written consent, The
Regents shall [CONFIDENTIAL TREATMENT REQUESTED]* regarding licensing
or Further Licensing the Patent Product with such third party
[CONFIDENTIAL TREATMENT REQUESTED]* of the inquiry to the Licensee by
The Regents. The Licensee shall notify The Regents in writing
[CONFIDENTIAL TREATMENT REQUESTED]* the Licensee receives that were not
referred to the Licensee by The Regents.
6. By inserting Section 2.8 as follows:
Any sublicense executed by the Licensee or Further License executed by
The Regents for The Regents' Patent Rights shall contain at least the
following: (1) a [CONFIDENTIAL TREATMENT REQUESTED]* of not less than
[CONFIDENTIAL TREATMENT REQUESTED]*; (2) a [CONFIDENTIAL TREATMENT
REQUESTED]* of at least [CONFIDENTIAL TREATMENT REQUESTED]* and (3) a
[CONFIDENTIAL TREATMENT REQUESTED]* of at least [CONFIDENTIAL TREATMENT
REQUESTED]*.
To the extent applicable, such sublicense or Further License shall
include all of the rights of, and obligations due to, The Regents (and,
if applicable, the United States government) that are contained in this
Agreement, including but not limited to the following: (1) the third
party shall provide progress and royalty reports The
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
-3-
Regents and the Licensee (Article 6); (2) the third party shall
accurately maintain books and records, which The Regents and the
Licensee shall retain the right to inspect (Article 7); (3) the third
party shall comply with all applicable patent marking laws, In
addition, the third party shall insure its activities and agree to
indemnify The Regents and the Licensee (Article 17).
7. By deleting the following from Section 3.1:
A) Lines 4-6: ; and the Licensee [CONFIDENTIAL TREATMENT
REQUESTED]* under this Agreement.
8. By deleting Section 3.2 as currently written and substituting the
following:
The Licensee shall provide title to the [CONFIDENTIAL
TREATMENT REQUESTED]*, previously delivered to the Beckman Laser
Institute and, [CONFIDENTIAL TREATMENT REQUESTED]* from the Effective
Date of this Amendment, shall deliver and install a [CONFIDENTIAL
TREATMENT REQUEST]* designed for use as an attachment to the
[CONFIDENTIAL TREATMENT REQUESTED]*. As further consideration,
[CONFIDENTIAL TREATMENT REQUESTED]* from the Effective Date of this
Amendment, the Licensee shall deliver possession of, and title to, a
[CONFIDENTIAL TREATMENT REQUESTED]* with an installed [CONFIDENTIAL
TREATMENT REQUESTED]* to the Beckman Laser Institute. The Regents agree
that Beckman Laser Institute shall [CONFIDENTIAL TREATMENT REQUESTED]*
for the [CONFIDENTIAL TREATMENT REQUESTED]* and the [CONFIDENTIAL
TREATMENT REQUESTED]*, and shall [CONFIDENTIAL TREATMENT REQUESTED]*
for the [CONFIDENTIAL TREATMENT REQUESTED]* from the License, for a
duration agreed upon between Candela and the Beckman Laser Institute.
The Regents agree that Beckman Laser Institute shall be responsible for
maintenance of the [CONFIDENTIAL TREATMENT REQUESTED]* beyond the
Licensee's one-year warranty. The pricing of the [CONFIDENTIAL
TREATMENT REQUESTED]* shall be deemed to have the monetary value that
the Licensee provides its most favored customers. In addition, The
Regents agree that the Beckman Laser Institute shall dedicate the
Licensee to the highest level of [CONFIDENTIAL TREATMENT REQUESTED]*
for a [CONFIDENTIAL TREATMENT REQUESTED]*.
9. By adding the following sentence at the end of Section 4.1:
In addition, The Regents shall receive [CONFIDENTIAL TREATMENT
REQUESTED]* of Gross Revenue actually remitted as a result of the
Licensee's sublicensing of The Regents' Patent Rights, and the Licensee
shall receive [CONFIDENTIAL TREATMENT REQUESTED]* of Gross Revenue
actually
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
-4-
remitted as a result of The Regents' Further Licensing of The Regents'
Patent Rights. In cases where the Licensee sublicenses The Regents'
Patent Rights, each sublicensee shall make all sublicensing royalty
payments directly to the Licensee on a quarterly basis. The Licensee
shall then, [CONFIDENTIAL TREATMENT REQUESTED]*, remit the appropriate
payment to The Regents. In such cases, the Licensee shall not be held
responsible or accountable for any sublicensee's failure to make
royalty payments. In cases where The Regents Further Licenses its
Patent Rights, each Further Licensee shall make all royalty payments to
The Regents on a quarterly basis. The Regents shall then, [CONFIDENTIAL
TREATMENT REQUESTED]*, remit the appropriate payment to the Licensee.
In such cases, The Regents shall not be responsible or accountable for
any Further Licensee's failure to make royalty payments.
Notwithstanding any provision of the amended Agreement to the
contrary, as consideration for the [CONFIDENTIAL TREATMENT REQUESTED]*,
which the Licensee shall provide to The Regents pursuant to amended
Section 3.2, the Licensee shall have no payment obligation or liability
for [CONFIDENTIAL TREATMENT REQUESTED]* of any royalties [CONFIDENTIAL
TREATMENT REQUESTED]* to the Effective Date of this Amendment.
Notwithstanding the previous paragraph, with respect to the remaining
[CONFIDENTIAL TREATMENT REQUESTED]* of royalties [CONFIDENTIAL
TREATMENT REQUESTED]* to the Effective Date of this Amendment, Candela
shall pay such royalties from any and all [CONFIDENTIAL TREATMENT
REQUESTED]* received by Candela from [CONFIDENTIAL TREATMENT
REQUESTED]* have been paid.
10. By deleting the last sentence of Section 4.5 and substituting the
following:
Subject to the provisions and restrictions of Section 10A
governing dispute resolution, if a Notice of Termination is sent to the
Licensee, this agreement shall automatically terminate on the date such
notice takes effect.
11. By adding the following after "Agreement" at the end of Section
(5.4d):
or [CONFIDENTIAL TREATMENT REQUESTED]* a sublicense agreement
to the extent required by Section 5.5;
12. By replacing Section 5.5 with the following:
5.5 If the Licensee is [CONFIDENTIAL TREATMENT REQUESTED]*, as
evidenced by written correspondence:
(5.5a) within [CONFIDENTIAL TREATMENT REQUESTED]* of
receipt of written notice of a [CONFIDENTIAL
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
-5-
TREATMENT REQUESTED]* an interest in [CONFIDENTIAL TREATMENT
REQUESTED]* to such [CONFIDENTIAL TREATMENT REQUESTED]* on sublicensing
Regents' Patent Rights;
(5.5b) within [CONFIDENTIAL TREATMENT REQUESTED]* of
receipt of written notice of a [CONFIDENTIAL TREATMENT REQUESTED]* an
interest in [CONFIDENTIAL TREATMENT REQUESTED]* a term sheet that
[CONFIDENTIAL TREATMENT REQUESTED]* of the sublicense (e.g.,
field-of-use, extent of exclusivity, financial and business terms) to
the third party;
(5.5c) within [CONFIDENTIAL TREATMENT REQUESTED]* of
receipt of written notice of a [CONFIDENTIAL TREATMENT REQUESTED]* an
interest in [CONFIDENTIAL TREATMENT REQUESTED]* a [CONFIDENTIAL
TREATMENT REQUESTED]* to the third party; and
(5.5d) within [CONFIDENTIAL TREATMENT REQUESTED]* of
receipt of written notice of a [CONFIDENTIAL TREATMENT REQUESTED]* an
interest in [CONFIDENTIAL TREATMENT REQUESTED]* sublicense agreement;
then the Regents shall have the [CONFIDENTIAL TREATMENT REQUESTED]* a
Further License to that party at the minimum terms specified in
Paragraph 2.8 by giving written notice to the Licensee that the
[CONFIDENTIAL TREATMENT REQUESTED]* to that party has terminated. Prior
to The Regents giving notice, the Licensee may submit a written request
for an [CONFIDENTIAL TREATMENT REQUESTED]* to The Regents to
[CONFIDENTIAL TREATMENT REQUESTED]* 5.5a-d, such [CONFIDENTIAL
TREATMENT REQUESTED]* shall not be unreasonably withheld by The
Regents.
13. By inserting Section 5.6 as follows:
If the Licensee [CONFIDENTIAL TREATMENT REQUESTED]* to meet
the Due Diligence requirements set forth in Section 5.4, The Regents
shall have the right to terminate this Agreement or reduce the
Licensee's exclusive license to a non-exclusive license. To exercise
this right, The Regents shall give the Licensee written notice of the
default pursuant to Section 9.1, the Licensee thereafter shall have
[CONFIDENTIAL TREATMENT REQUESTED]* to cure the deficiency. If The
Regents has received written evidence that the deficiency has been
cured before the end of the [CONFIDENTIAL TREATMENT REQUESTED]*, then
The Regents shall provide the Licensee with written notice that the
deficiency has been cured. If The Regents has not received written
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
-6-
evidence that the deficiency has been cured by the end of the
[CONFIDENTIAL TREATMENT REQUESTED]*, then the Regents may, subject to
the provisions of Section 10A, terminate this Agreement or reduce the
Licensee's exclusive license to a non-exclusive license by giving
written notice to the Licensee. Such notice shall be subject to
Section 18 (Notices).
14. By inserting Section 6.7 as follows:
On or before the dates set forth in Section 6.4, the Licensee
and The Regents shall each provide the other with a quarterly report
stating any royalties that the party has received from the
sublicensing/Further Licensing of The Regents' Patent Rights. Each
royalty report shall cover the party's most recently completed calendar
quarter. This reporting obligation shall commence at the time either
party enters into a sublicensing or Further Licensing agreement for The
Regents' Patent Rights. Thereafter, if no sublicensing or Further
Licensing royalties are received by the Licensee or The Regents,
respectively, a statement to this effect is required in lieu of a
royalty report.
15. By adding the following Section after Section 10:
10A. DISPUTE RESOLUTION
At the written request of either party, any controversy or
claim arising out of or relating to this Agreement, excluding Article
12 (Use of Names and Trademarks), Article 13 (Limited Warranty),
Article 16 (Patent Infringement), and Article 17 (Indemnification),
shall be settled by binding arbitration, the hearing of which will be
commenced within 90 days of the written request in accordance with the
then-current Patent Arbitration Rules of the American Arbitration
Association. The parties shall use a single, mutually acceptable
arbitrator in any arbitration contemplated under this Section.
Arbitration arising out of this amended Agreement shall take place in
the state in which the original respondent in any such arbitration has
its principal place of business.
16. By inserting Section 13.5 as follows:
Except as otherwise provided in Section 3.2, the Licensee will
provide to the Beckman Laser Institute the equipment described in
Section 3.2 above without warranty of merchantability or fitness for a
particular purpose or any other warranty, expressed or implied.
17. By deleting Section 15.2.
18. By inserting in Section 18 the following after "Attention: Mr.
Gerard E. Puorro":
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
-7-
with a copy to:
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02110
Attention: Scott A. Birnbaum, Esq.
19. By inserting the following after the last sentence in Section 20.1:
In the event that The Regents fails to remit Further Licensing
royalty payments to the Licensee when due, The Regents shall pay to the
Licensee interest charges at a rate of [CONFIDENTIAL TREATMENT
REQUESTED]* simple interest per annum. Such interest shall be
calculated from the date payment was due until actually received by the
Licensee. Acceptance by the Licensee of any late payment interest from
The Regents under this Section shall in no way affect the provision of
Article 21 (WAIVER) herein.
20. By inserting the following section after Section 26:
26A. NONDISPARAGEMENT
The Licensee and the Office of Technology Transfer and UCI's
Office of Technology Alliances agree not to unreasonably portray the
other party or the other party's products in a negative light and not
to make any disparaging, false or misleading statement concerning the
other party or the other party's products.
21. By inserting Section 27.5 as follows:
27.5 The Regents hereby designates Associate Director of the
Office of Technology Transfer Valentin Fikovsky, or another employee of
the same or higher grade, as the individual responsible for conducting
all further communications with the Licensee. The Licensee designates
its President and Chief Executive Officer, Gerard E. Puorro, as the
individual responsible for conducting all further communications with
The Regents. Either party may designate additional employees to dispose
of routine administrative matters arising under this Agreement.
22. By inserting Section 27.6 as follows:
27.6 Upon execution of this Amendment by The Regents and the
Licensee, the parties shall instruct their respective counsel to file
promptly with the Court a joint stipulation of dismissal with prejudice
in Civil Action No. 97-11577. In addition, the parties release each
other from all claims which have been, or could have been, raised in
Civil Action No. 97-11577.
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
-8-
IN WITNESS WHEREOF, The Regents and the Licensee have executed this
Amendment, in duplicate originals, by their respective officers hereunto duly
authorized, on the day and year first hereinafter written.
CANDELA LASER CORPORATION THE REGENTS OF THE
UNIVERSITY OF CALIFORNIA
By: By:
------------------------------- --------------------------------
Name: Gerard E. Puorro Name: Terence A. Feuerborn
Title: President and CEO Title: Director
Office of Technology Transfer
Date: Date:
------------------------------- --------------------------------
Approved as to legal form:
--------------------------------
E. Martin Simpson, Jr.
University Counsel
Office of the General Counsel
University of California
Date:
---------------------------
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM SEC FORM 10Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> JUL-03-1999 JUN-27-1998 JUL-03-1999 JUN-27-1998
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<DEPRECIATION> 5,075 4,558 5,075 4,588
<TOTAL-ASSETS> 30,448 21,136 30,448 21,136
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55 55 55 55
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<TOTAL-REVENUES> 15,873 8,629 40,032 24,991
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<INTEREST-EXPENSE> 136 47 377 181
<INCOME-PRETAX> 3,377 (194) 6,150 (5,408)
<INCOME-TAX> 1,480 0 1,940 78
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</TABLE>
