<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2000 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
-------------- --------------
Commission file number 0-19707
INNERDYNE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 87-0431168
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation
or organization)
1244 REAMWOOD AVENUE, SUNNYVALE, CA 94089
(Address, including zip code, of principal executive offices)
Registrant's telephone number, including area code: (408) 745-6010
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 [ ]
The number of shares of Registrant's Common Stock issued and outstanding as
of April 30, 2000 was 22,838,768.
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets 1
Condensed Statements of Operations 2
Condensed Statements of Cash Flows 3
Notes to Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Changes in Securities and Use of Proceeds 25
Item 3. Defaults upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 25
Signature Page 26
Exhibit Index 27
</TABLE>
<PAGE> 3
PART I- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INNERDYNE, INC.
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
(UNAUDITED) (*SEE NOTE)
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................... $ 7,934,671 $ 6,862,313
Accounts receivable, net .................................... 3,720,835 3,524,228
Interest and other receivables .............................. 164,111 170,110
Inventories ................................................. 1,844,962 1,602,143
Prepaid expenses and other .................................. 941,088 197,874
------------- -------------
14,605,667 12,356,668
Total current assets
Equipment and leasehold improvements, net ...................... 610,105 721,846
Deposits ....................................................... 69,167 67,167
------------- -------------
Total assets $ 15,284,939 $ 13,145,681
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit .............................................. $ 639,989 $ 639,989
Current installments of long-term debt ...................... 235,731 284,816
Accounts payable ............................................ 274,280 234,911
Accrued liabilities ......................................... 1,575,375 1,189,836
------------- -------------
Total current liabilities ................................ 2,725,375 2,349,552
Long-term debt, excluding current installments ................. 210,658 232,797
Stockholders' equity:
Common stock ................................................ 226,473 221,536
Additional paid-in-capital .................................. 61,272,665 60,618,436
Accumulated deficit ......................................... (49,150,232) (50,276,640)
------------- -------------
Net stockholders' equity ................................. $ 12,348,906 $ 10,563,332
------------- -------------
Total Liabilities and Stockholders equity ...................... $ 15,284,939 $ 13,145,681
============= =============
</TABLE>
* Condensed from audited financial statements.
See accompanying notes to condensed financial statements.
1
<PAGE> 4
INNERDYNE, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE-MONTHS ENDED
------------------
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
Revenues:
<S> <C> <C>
Licensing, contract, and grant revenue .................... $ 5,588,287 $ 4,503,794
Costs and expenses:
Cost of product sales ..................................... 1,452,327 1,335,984
Research, development, regulatory, and clinical ........... 748,847 680,266
Sales and marketing ....................................... 2,253,381 1,671,985
General and administrative ................................ 625,842 504,931
-------------- --------------
Total costs and expenses ........................... 5,080,397 4,193,166
-------------- --------------
Operating profit (loss) ............................ 507,890 310,628
Other income (expense):
Interest/other income, net ................................ 55,568 40,171
-------------- --------------
Income before income taxes ........................................ 563,458 350,799
-------------- --------------
Income tax benefit ........................................ 562,951 --
-------------- --------------
Net income ......................................... 1,126,409 $ 350,799
============== ==============
Net income per share:
Basic ..................................................... $ 0.05 $ 0.02
-------------- --------------
Diluted ................................................... $ 0.05 $ 0.02
============== ==============
Weighted average basic and diluted common shares outstanding:
Basic ..................................................... 22,307,440 21,891,630
-------------- --------------
Diluted ................................................... 24,847,091 23,060,584
-------------- --------------
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE> 5
INNERDYNE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE-MONTHS ENDED
------------------
MARCH 31, MARCH 31,
2000 1999
------------ ------------
Cash flows from operating activities:
<S> <C> <C>
Net income ........................................................ $ 1,126,409 $ 350,799
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization .................................. 139,038 125,070
Compensation expense on stock options .......................... 15,612 0
Decrease (increase) in receivables ............................. (190,609) 114,257
Increase in inventories ........................................ (242,819) (37,258)
Increase in prepaid expenses, other, and deposits .............. (745,214) (51,171)
Increase (decrease) in accounts payable ........................ 39,369 (56,297)
Increase (decrease) in accrued liabilities ..................... 385,539 (143,756)
------------ ------------
Net cash provided by operating activities ......................... 527,325 301,644
------------ ------------
Cash flows used in investing activities: Capital expenditures .... (27,297) (129,881)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net .................... 643,554 15,000
Proceeds from issuance of long-term debt ....................... - 418,016
Principal payments on long-term debt ........................... (71,224) (191,999)
------------ ------------
Net cash provided by financing activities ......................... 572,330 241,017
------------ ------------
Net increase in cash and cash equivalents ......................... 1,072,358 412,780
Cash and cash equivalents at beginning of period .................. 6,862,313 5,757,538
------------ ------------
Cash and cash equivalents at end of period ........................ $ 7,934,671 $ 6,170,318
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE> 6
INNERDYNE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying interim condensed financial statements and notes are
unaudited, but in the opinion of management reflect all adjustments (consisting
of normal recurring adjustments) necessary for a fair presentation of the
results of such periods. The results of operations for any interim period are
not necessarily indicative of results for the respective full year. These
condensed financial statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations (MD&A) for the three-month period
ended March 31, 2000 should be read in conjunction with the audited financial
statements and notes thereto and MD&A included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999.
(2) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
-------------- --------------
(UNAUDITED)
<S> <C> <C>
Raw materials and supplies ........................................ $ 1,455,033 $ 1,339,016
Finished goods .................................................... 754,978 583,126
Reserve for obsolescence .......................................... (365,049) (319,999)
-------------- --------------
Net inventory ..................................................... $ 1,844,962 $ 1,602,143
============== ==============
</TABLE>
(3) COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standard No.130
("SFAS 130"), "Reporting Comprehensive Income," effective January 1, 1998. SFAS
130 establishes standards for reporting and display of comprehensive income and
its components in financial statements. For the periods ended March 31, 2000 and
1999 comprehensive income was equal to the net income as presented in the
accompanying statement of operations.
(4) NET INCOME PER COMMON SHARE
Net income per common share is the amount of income for the period
available to each share of common stock outstanding during the reporting period.
Diluted net income per common share is the amount of income for the period
available to each share of common stock outstanding during the reporting period
and to each share that would have been outstanding assuming the issuance of
common shares for all dilutive potential common shares outstanding during the
period.
4
<PAGE> 7
In calculating net income per common share, the net income was the same for both
the basic and diluted calculation. A reconciliation between the basic and
diluted weighted-average number of common shares for the three months ended
March 31, 2000 and 1999 is summarized as follows:
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Basic weighted average number of common shares
outstanding during the period 22,307,440 21,891,630
Weighted-average number of dilutive common stock
options outstanding during the period 2,539,651 1,168,954
--------- ---------
Diluted weighted average number of common and common
equivalent shares outstanding during the period 24,847,091 23,060,584
========== ==========
</TABLE>
Common stock equivalents of approximately 96,450 and 634,885 outstanding
during the three month periods ended March 31, 2000 and 1999 that could
potentially dilute basic earnings per share in the future were not included in
the computation of diluted earnings per share because to do so would have been
anti-dilutive for the period.
(5) OPERATING SEGMENTS
The Company operates in one line of business, the development, and
commercialization of access products for M.I.S procedures. The Company has
and/or is also pursuing licensing opportunities related to its proprietary
radial dilation and biocompatible coating technologies. As such, the Company has
only one reportable operating segment as defined by the Financial Accounting
Standards Board Statement No. 131, Disclosures About Segments of an Enterprise
and Related Information.
5
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Except for the historical information contained in this Quarterly Report
on Form 10-Q, the matters discussed throughout this Quarterly Report on Form
10-Q are forward-looking statements that are subject to certain risks and
uncertainties that could cause the actual results to differ materially from
those projected. Factors that could cause actual results to differ materially
include, but are not limited to, the impact of intense competition in the
Company's market, the extent of market acceptance of the Company's Step(TM)
family of products, the timely development and market acceptance of new
products, the compliance of the Company's manufacturing facilities with Good
Manufacturing Practices ("GMP") regulations, the continued acceptance of
minimally invasive surgical procedures, the Company's ability to further expand
into international markets, public policy relating to healthcare reform in the
United States and other countries, approval of the Company's products by
government agencies such as the United States Food and Drug Administration (the
"FDA") and the risks set forth in greater detail below under the heading
"Additional Factors that May Affect Future Results", as well as those set forth
in the Company's Annual Report on Form 10-K for the year ended December 31, 1999
and included from time to time in the Company's other Securities and Exchange
Commission ("SEC") reports and press releases, copies of which are available
from the Company upon request. The Company undertakes no obligation to publicly
release the result of any revisions to these forward-looking statements that may
be made to reflect events or circumstances after the date hereof or to reflect
the occurrence of unanticipated events.
INTRODUCTION
InnerDyne, Inc. (the "Company" or "InnerDyne") is primarily focused upon
the development and commercialization of access products based on its
proprietary radial dilation technology used to perform minimally invasive
surgical ("M.I.S.") procedures. InnerDyne designs, develops, manufactures and
commercializes minimally invasive surgical access products incorporating its
proprietary radial dilation technology in the fields of general surgery,
gynecology, pediatric laparoscopy, and urology. The Company is beginning
programs to commercialize the application of its radial dilation technology to
enhance percutaneous access for vascular procedures. The Company has proprietary
technology in the areas of biocompatible coatings, radiation delivery for the
treatment of restenosis and cancer, and drug attachment and diffusion, which it
intends to continue to develop either internally or through strategic alliances.
InnerDyne, Inc. common stock is traded on the Nasdaq National Market under the
symbol IDYN.
INNERDYNE'S PRODUCTS AND TECHNOLOGY
Radial Dilation Technology
The primary focus of the Company is the development and commercial
application of its proprietary radial dilation technology. The key feature of
this proprietary technology is the capability to enter the body of a patient by
creating a small puncture wound which can subsequently be dilated, or increased
in size, to create a larger working channel. Employment of radial dilation
within an expandable sheath permits the dilation to be accomplished in a manner
that tends to minimize tissue trauma. Upon completion of a procedure, the
dilation sequence is reversed; resulting in a smaller residual wound than would
be experienced through the employment of similarly sized conventional access
devices. Potential benefits of radial dilation technology include reduced risk,
less patient trauma and reduced procedure time.
Step Product Line. The Company has developed a family of products
utilizing InnerDyne's proprietary radial dilation technology. The initial Step
products were introduced commercially in late 1994 and are designed to provide
access to the abdominal cavity in order to facilitate the visualization and
treatment of target areas within the cavity while minimizing the tissue trauma
associated with such access.
6
<PAGE> 9
Step. The Step device incorporates the Company's proprietary radial
dilation technology and was InnerDyne's first product to be launched on a
commercial basis. The Company has received 510(k) clearances from the FDA to
market this device for laparoscopic and thorascopic M.I.S. procedures. The
Company's Step access device replaces trocars, eliminating the risk of internal
organ damage from contact with the sharp surfaces of a trocar. In contrast to
conventional trocars, the Step device utilizes a standard insufflation needle
for penetration through the abdominal wall, creating only a small puncture
wound. Following removal of the needle, a sheath that surrounds the needle is
then dilated to a larger working channel through the insertion of a tapered
dilator and cannula. Following dilation, the dilator is removed, leaving a rigid
sheath that serves as a working channel with an integral insufflation valve at
the proximal end. The radial dilation of tissue to an appropriately sized
working channel holds the cannula in place and obviates the need for an
anchoring system, which may cause a larger residual wound. After completion of a
procedure, the rigid cannula is removed and the sheath retracts permitting the
opening in each of the muscular layers of the abdominal wall to recover. The
residual wound is approximately half the size of that made using a conventional
trocar of similar size. The Step product is currently utilized primarily in
minimally invasive general, gynecological and pediatric surgical procedures.
Management believes that positive attributes of the Step product could
significantly affect health care system costs and patient satisfaction with
M.I.S. procedures in which trocars have traditionally been used. The results of
a Company-sponsored retrospective comparative outcome study examining this issue
were released during late 1995. The study included 98 patients and compared an
almost equal number of procedures performed using Step devices and conventional
trocars for access. Statistically significant results of that study indicated
that Step reduced device-related complications during surgery by over 90% and
resulted in an approximate 22% savings in surgery time. Based upon published
operating room costs, this time savings would equate to dollar savings of $345
to $515 per procedure, a substantial outcome for a product that is believed to
be competitively priced with conventional trocars. Management also believes that
post-procedure complications, such as infection and incisional hernias at access
sites, may be reduced with the use of the Step device as compared to
conventional trocars.
In January 1999, InnerDyne reported the acceptance by the FDA of the
Company's 510(k) premarket notification based on the demonstrated safety and
clinical performance of the Step line of minimally invasive surgical access
devices. The product safety premarket notification resulted from the submittal
of substantial information related to the comparative safety of the Step
radially expanding dilation technology for surgical access versus standard
cutting trocars. The FDA clearance acknowledged that the Step radially expanding
surgical access technology had been shown in independent clinical comparative
studies versus conventional cutting trocars to provide safety benefits
including, but not limited to: (1) a lower prevalence of abdominal wall
bleeding; (2) a lower prevalence of bowel and bladder injuries; (3) a lower
incidence of post operative incisional hernias; and (4) a lower prevalence of
major vascular injury. In addition, the FDA clearance noted that a substantial
number of patients reported reduced pain from Step access sites when compared to
conventional trocar sites.
By December 31, 1999 more than 30 peer reviewed papers or presentations
had been published or presented, concluding that patient safety is enhanced when
the Step product is used. A recent paper presented in November 1999 at the
American Association of Gynecological Laparoscopy Annual Meeting involved more
than 8,000 procedures and more than 21,000 Step insertions. The study concluded
that, based on a comparison to a control group where standard access devices of
various types were used, an adverse event was about ten times more likely to
occur with conventional trocars versus InnerDyne's product.
7
<PAGE> 10
Short Step(TM) The Short Step is a conventional Step device that has
been reduced in length to be particularly suitable for M.I.S. procedures
involving smaller individuals, especially children and thin females. The Short
Step was commercially introduced in 1995. In January 1996, the Company announced
that its Short Step device had been awarded the Seal of Acceptance by the
Alliance of Children's Hospitals, Inc. ("Alliance"). The Alliance is a wholly
owned subsidiary of Child Health Corporation of America, which is comprised of
35 freestanding children's hospitals across the United States. The Alliance
selected the Step system, after extensive research and review, based upon its
ability to reduce both the trauma and operative complications associated with
pediatric laparoscopic surgical procedures. In exchange for an ongoing royalty
payment, the Company is entitled to use this seal in connection with the
marketing and sale of its Step line of products. The Company hopes that the Seal
of Acceptance will continue to help the Company expand awareness and sales of
its Step product line for use in the pediatric environment.
Reposable Step(TM). Launched in 1996, the Reposable Step incorporates
the radial dilation features of disposable Step devices in a partially reusable
access device. A substantial market for reusable trocars exists, and management
expects a trend toward a somewhat more frequent usage of reusable devices. The
Reposable Step includes a number of reusable components consisting of a
combination of metal and plastic parts that may be cleaned and sterilized by
most conventional methods. The dilator, cannula and needle are reusable, while
the sheath and valve are single use components designed to be disposed of
following surgery.
Mini Step(TM). The Mini Step is a small-diameter radially dilating
access device designed for use in tubal ligation, pediatric procedures, and
micro-laparoscopic surgeries utilizing small instruments. The working diameter
of the Mini Step ranges from a nominal 2mm to 8mm. Like the Step device, Mini
Step is expected to offer clinicians the potential to reduce device-related
surgical complications and surgery time. The Mini Step devices were commercially
introduced in 1997.
One Step(TM). The One Step is a device with a universally adjustable
valve and seal system designed to eliminate the need for a reducer. The device
is intended to maintain insufflation while accommodating most conventional
surgical instruments. The One-Step device was commercially introduced in 1998.
Open Step(TM). The Open Step is a device designed to establish access
into the abdominal cavity using a technique known as open laparoscopy. The Open
Step device was commercially introduced in 1998.
Distribution of Step Products. The Step family of products is
distributed to health care professionals in both domestic and international
markets. In the United States, the Company's M.I.S. access product line is
generally sold directly to health care professionals by a network of sales
representatives, a limited number of whom are employees of the Company.
InnerDyne management employees manage these sales representatives on a regional
basis. In order to enhance the effectiveness of these domestic sales activities,
agreements with buying groups that represent multiple provider institutions have
been pursued. InnerDyne signed two buying group agreements in 1997. These
agreements cover approximately 1,350 hospitals across the United States. Three
additional buying group agreements were signed in 1999, adding approximately
2,150 hospitals and surgery centers to those covered by agreements.
In selected foreign countries, local distributors purchase products from
the Company for subsequent resale to their respective countries' health care
systems. Distributors in selected foreign markets can and have been changed when
the Company has deemed the performance of individual distributor organizations
to be unsatisfactory.
8
<PAGE> 11
Other Applications & Technology. During the second quarter of 1997,
InnerDyne established a business unit to better define the value that radial
dilation technology can bring to interventional cardiology and radiology
procedures and to develop access products based on this assessment. The Company
proceeded with animal studies and device refinements in 1997 and continued
testing the product concept in conjunction with cardiology advisors in early
1998. The study results were positive and human use trials to demonstrate the
clinical benefits were initiated in Europe during the second quarter of 1998. In
September 1998, InnerDyne announced that it had received clearance from the FDA
of a 510(k) application for its radially dilatable access device for use in
gaining percutaneous access for the performance of vascular procedures, and
limited domestic use evaluations have been ongoing throughout 1999. An
additional related 510(k) application was filed with the FDA in August 1999,
primarily to update labeling involving the most current version of the radially
expanding vascular access (InnerVasc(R)) product. In March, 2000 InnerDyne
announced the signing of an agreement with Maxxim Medical, Inc. covering the
distribution by Maxxim of the Company's InnerVasc vascular access product in the
United States and South America.
Management believes that the positive attributes of the Step product
line may also enable minimally invasive access to organs within the abdominal
cavity. The current alternative for this type of access involves the insertion
of a long flexible channel and scope through a natural body orifice such as the
mouth or the rectum, and only limited procedures are possible due to the
restricted size of the channel and the tortuous path that must be navigated. The
Step product line has been shown to enable laparoscopic access through the
abdominal wall and across the peritoneal space into the stomach for the
treatment of benign tumors. InnerDyne believes that the use of Step products
could substantially reduce recovery times for these types of procedures. The
Company expects that the enhanced capabilities of radially expanding dilation
may enable additional surgical procedures to be performed through minimally
invasive techniques. InnerDyne expects to continue expending development
resources through the first half of 2000 to determine the feasibility of
introducing an intra-organ access device based on its proprietary radially
expanding dilation technology.
The Company has also evaluated the potential use of its proprietary
radial dilation technology to gain access for urologic procedures, and a related
510(k) pre-market notification was submitted to and subsequently cleared by the
FDA in mid-1999. The Company is completing the development process for a new
product intended to facilitate percutaneous access to the kidney and bladder,
and has conducted expanded human clinical evaluation of the product during 2000.
Based on the results of this evaluation, the Company plans to initiate
distribution of a urological access product in 2000.
The Company also signed an agreement involving its radial dilation
access technology with a small private development-stage company during the
first quarter of 2000. This agreement will permit the partner entity to
potentially utilize InnerDyne's technology in the diagnosis and treatment of
selected cancer tumors.
There can be no assurance that current or future new product
developments will generate product opportunities that can be commercially sold
in sufficient quantities; failure to achieve commercial success with any or all
new product applications could have a material adverse impact on the Company's
profitability and operations.
InnerDyne announced an agreement covering the development and potential
use of its proprietary radial dilation technology for specialized vascular
access with EndoTex Interventional Systems ("EndoTex") in 1996. In January 1999,
the management of EndoTex notified InnerDyne that it was ceasing to make
payments required for EndoTex to use radial dilation for specialized vascular
access. The termination of the EndoTex
9
<PAGE> 12
agreement did not have a material impact on the Company's business, financial
condition, and results of operations.
The Company entered into an agreement covering the development of a less
traumatic means of placing enteral feeding tubes with Sherwood-Davis & Geck
("SDG") in 1997. The Company announced that it had received the single
regulatory milestone payment associated with the SDG agreement during the second
quarter of 1997. In the first quarter of 1998, InnerDyne and SDG terminated the
development agreement when SDG was acquired. In the future, the Company may
decide to develop a feeding tube placement system.
During 1997 and early 1998, InnerDyne committed resources to an
investigation of the market opportunity for a radially dilatable access device
for arthroscopic procedures. Clinical evaluation of an FDA cleared arthroscopic
access product indicated that clinical benefits of the technology in this market
were not sufficient to warrant further investment, and the project was
terminated.
Biocompatible Coating Technologies
The Company possesses certain proprietary technologies in the area of
biocompatible coatings. The technologies that comprise the Company's
thromboresistant coating ("TRC") capability are believed to have application
when foreign objects remain in contact with various areas of the body,
particularly within the blood stream, for sustained periods of time. These
technologies include the ability to deposit an extremely thin layer
(approximately one micron) of siloxane on a surface and the ability to graft a
bioactive substance, such as the drug heparin, to that siloxane layer. The
Company's TRC utilizes a "tether" molecule to attach heparin, other bioactive
molecules or radioisotopes to the previously applied siloxane subsurface. One
end of the tether molecule is covalently bonded to the siloxane coating and the
other end of the tether molecule is covalently bonded to the bioactive molecule
or radioisotope. Because both points of attachment may utilize covalent bonds,
the Company believes that its coating process may result in a stronger bond to
the surface of a device than some other methods presently in use. TRC coatings,
employed with the siloxane layer alone or in combination with bioactive
substances, can extend the life of blood-gas exchange devices or provide the
capability to extend the duration of contact of a coated device with blood or
other body fluids while minimizing the physiological impacts of such contact.
InnerDyne is developing a proprietary technology that coats materials with a
coating to which rhenium-188 or another radioisotope can be attached, to
potentially reduce restenosis in patients who have undergone interventional
vascular procedures. InnerDyne completed the stent-based studies using
rhenium-188 for the treatment of restenosis in early 2000. Though the results of
this animal study demonstrated clinical efficacy, recently published human
clinical results from a competing catheter-based technology have likely reduced
the probability that the Company can attract a corporate stent partner that will
license the technology under acceptable terms, if at all.
In the fourth quarter of 1999, the Company began to shift resources to
investigate a proprietary therapeutic coating which may potentially provide a
proprietary bioactive treatment for restenosis. If preliminary promising results
of this investigation are confirmed in further investigations, the Company may
increase associated resources, and endeavor to attract a corporate partner
interested in the technology. There can be no assurances that the results of
this further investigation will be positive, or that a corporate partner will be
interested in licensing or developing this technology on acceptable terms, if at
all.
The Company has begun a research program aimed at developing absorbable
brachytherapy products for the treatment of focal or site-specific cancers such
as breast, prostate, cervical, and neurological cancers. The program's goal is
to develop biocompatible and bio-absorbable brachytherapy sources for use in
radiotherapy or simultaneous radiotherapy and chemotherapy drug delivery. These
novel combined
10
<PAGE> 13
brachytherapy/chemotherapeutic drug sources are being designed for use in the
local-regional treatment of primary cancer, including treatment of the tumor bed
after removal of a tumor. The final product could fundamentally differ from both
current brachytherapy sources and drug-delivery sources and could provide an
efficient mechanism to control cancer growth and limit cancer recurrence. The
advantage of localized radiotherapy over other therapies is that local
radiotherapy can eliminate cancerous cells while sparing normal cells. Other
therapies, such as systemic chemotherapy and external beam radiation, affect
both cancerous and non-cancerous cells and can result in greater pain, longer
recovery times, and higher treatment costs. In contrast, local radiotherapy,
either alone or in combination with a chemotherapy agent, may lower the cost of
the therapeutic procedure, reduce hospital stays, and reduce the pain and
suffering experienced by the patient.
In December 1997, InnerDyne and Oak Ridge National Laboratory ("ORNL")
announced that the Department of Energy had awarded ORNL and Brookhaven National
Laboratories ("BNL") a cooperative research and development agreement ("CRADA")
for the development of InnerDyne's proprietary method of labeling or attaching
radioactivity to implantable devices. Initially, the ORNL researchers helped to
optimize chemical methods required to efficiently attach a radioactive source to
stents. Generators from ORNL and the new technology were provided to
investigators at BNL who, in conjunction with the Interventional Cardiology
Group at the State University of New York at Stonybrook, prepared radioactive
stents and implanted them into the arteries of swine and rabbits to evaluate the
effectiveness of this unique approach to inhibit restenosis. Initial testing
confirmed the Company's ability to attach radionuclides to metal stents and
other substrates. Additional testing to demonstrate the efficacy in animals of
InnerDyne's technology for the treatment of restenosis was completed in early
2000.
In October 1998, the CRADA's scope of work was modified to include the
development of absorbable brachytherapy devices for the treatment of focal
cancers because of the rapid strides made under the radiation coated stent
development program.
In January 1999, InnerDyne announced that it had been awarded a
California Cancer Research Program ("CRP") Cycle I grant, a Community Initiated
Research Collaboration Award ("CIRCA"), to examine the clinical benefits and the
development of absorbable brachytherapy devices. The commercial objective of
this project is to develop bioabsorbable brachytherapy sources for use in
radiotherapy or simultaneous radiotherapy and chemotherapy drug delivery. These
novel combined brachytherapy/chemotherapeutic drug sources will be designed
utilizing a proprietary InnerDyne technology for potential use in the treatment
of site-specific prostate, breast, and neurological cancers.
In June 1999, the Company announced that the National Institutes of
Health awarded the Company a Small Business Innovation Research ("SBIR") phase 1
research grant to support development of a new form of cancer treatment. The
InnerDyne technology allows for the concurrent delivery of drugs and radiation
through the use of implantable devices that are absorbed by the body after
delivering their therapeutic payloads. The absorbable devices are expected to
differ from both current brachytherapy and drug-delivery sources, and could
potentially provide a highly efficient and flexible treatment mechanism for the
handling of focal cancers.
In 1994, the Company signed a license agreement with SENKO Medical
Manufacturing Co., Ltd. ("SENKO"), a Japan-based manufacturer and marketer of
membrane oxygenators used in open-heart surgery, pursuant to which the Company
licensed one of its technologies to SENKO. In connection with this agreement,
the Company transferred its siloxane coating technology to SENKO for the coating
of microporous hollow fibers used in production of oxygenators. The initial
technology transfer was completed during the first quarter of 1995, at which
time the Company received the balance of an initial payment from SENKO, and the
royalty
11
<PAGE> 14
payment period commenced. In 1996, InnerDyne received an order from SENKO to
build a second fiber coating system which was delivered during the first half of
1997. In April 1998, in exchange for an initial payment and continuing material
purchases, SENKO licensed InnerDyne's less complex method for coating devices
with heparin on a non-exclusive basis. The addition of this new means of
attaching the drug heparin to prevent the formation of blood clots on a surface
is expected to further enhance SENKO's oxygenator product offering. If SENKO
continues to use the Company's technologies, royalties would be received through
2004.
In April 1996, the Company announced the signing of an agreement with
Boston Scientific Corporation ("Boston Scientific") covering the potential
application and use of InnerDyne's proprietary biocompatible coating
technologies with Boston Scientific's stents, grafts, vena cava filters and
other implantable medical devices. The agreement involved an equity investment
by Boston Scientific in InnerDyne, initial research support, license fees and
future royalty payments. Boston Scientific Corporation notified InnerDyne in
August 1998 that it had decided to proceed with the transfer of technology for
the application and use of InnerDyne's proprietary biocompatible coating
technology with Boston Scientific's stents, grafts, vena cava filters, and other
implantable medical devices. The transfer of the technology was completed during
1999.
In June 1998, InnerDyne announced the signing of an agreement with U.S.
Surgical covering the licensing of InnerDyne's proprietary siloxane coating
technology to enhance the performance of selected products used in minimally
invasive surgical procedures. Under the terms of the agreement, InnerDyne
constructed a custom coating system and provided coated product samples for
testing by U.S. Surgical, in exchange for payment of initial license fees and
capital equipment costs. If the testing confirms that coated samples meet U.S.
Surgical's requirements, InnerDyne will receive a final license fee payment and
will assist in the transfer of the system to a location designated by U.S.
Surgical. Coincident with transfer and system startup, a royalty payment period
would begin.
Because of the strength of the covalent bonds used in the Company's TRC
technology and other properties noted above, the Company believes that its
technology may have advantages over some presently available bioactive coating
technologies. Potential applications include the treatment of restenosis and
specific focal cancers when vascular stents, grafts, vena cava filters and other
implantable devices may be coated with drugs and/or isotopes using InnerDyne's
proprietary technology. The Company has undertaken a number of discussions with
potential licensees of the Company's coating technologies, and samples of coated
products have been provided to several companies. These discussions have been
with parties interested in the use of the technologies to enhance drug delivery
or gas exchange, as well as third parties interested in the possible coating of
in-dwelling devices for various applications. However, there can be no assurance
that additional agreements with third parties, if any, will be on acceptable
terms.
Other Technologies
In September 1999, the Company licensed to William Cook Europe A/S
("Cook") rights to a Rotatably Actuated Constricting Catheter Valve on a
non-exclusive basis for use in the treatment of aortic aneurysms. The agreement
requires that Cook pay InnerDyne a licensing fee in two installments, and annual
minimum royalty payments. InnerDyne has received the first license fee
installment.
In December 1999, InnerDyne licensed to Alung Technologies, Inc. certain
assets related to the Company's earlier development of an implantable lung
assist product, and associated technologies. Under the terms of the agreement,
InnerDyne is to receive a license fee, payable in two installments in the fourth
quarters of 1999 (already received) and 2000.
12
<PAGE> 15
Licensing, contract and grant revenues will continue to fluctuate from
year to year, and from quarter to quarter, based upon the number of agreements
in effect, the amount and timing of the payments to be made to InnerDyne
pursuant to such agreements, and the ability of the parties to satisfy
performance milestones.
The future success of the Company will depend upon its ability to
develop and gain regulatory clearance for new and enhanced versions of products
in a timely fashion and to attract corporate partners interested in licensing
its coating technologies. In addition, the Company may seek to identify
opportunities to obtain products or technologies from third parties. There can
be no assurance that the Company will be able to successfully develop or acquire
new products or technologies, license its proprietary technologies to third
parties, obtain regulatory clearance for its products, or gain market acceptance
of new and enhanced products. Delays in development, clearance or acceptance of
new products could have a material adverse effect on the Company's business,
results of operations and financial condition.
RESULTS OF OPERATIONS
Total revenue for the three month period ended March 31, 2000 was
$5,588,287, compared to $4,503,794 for the corresponding period in 1999. Total
revenue is comprised of revenue from product sales and licensing and contract
revenue. Revenue from product sales increased to $5,492,735 for the three month
period ended March 31, 2000 from $4,431,699 for the corresponding period in
1999, reflecting increased sales of the Company's Step devices. Licensing and
contract revenue for the three month period ended March 31, 2000 was $95,552,
compared to $72,095 for the corresponding period in 1999. Licensing and contract
revenue for the March 31, 2000 and March 31, 1999 periods related to agreements
with third parties covering the licensing of the Company's proprietary
biocompatible coating and radial dilation technologies. Licensing and contract
revenue fluctuates from quarter to quarter, based upon the number of agreements
in effect and the amount and timing of the payments to be made to InnerDyne
pursuant to such agreements.
Cost of sales was $1,452,327 for the three month period ended March 31,
2000, compared to $1,335,984 for the same period in 1999. The increase in cost
of sales for the three month period ended March 31, 2000 is attributable to the
increase in production and sales volume compared to the same period in 1999.
Cost of sales as a percentage of revenue was 26% for the three month period
ended March 31, 2000, compared to 29.7% for the same period in 1999. This
decrease reflects the impact of increased volume on the Company's manufacturing
overhead, which increased at a slower rate than revenues. Improvements in the
efficiency of the Company's manufacturing operations also positively impacted
the cost of goods as a percentage of revenue in the first quarter.
Research, development, regulatory and clinical expenses for the three
month period ended March 31, 2000 were $748,847, compared to $680,266 for the
corresponding period in 1999. The Company expects that research, development,
regulatory and clinical expenditures are likely to increase in absolute dollars
in future periods, though it is possible that expenses associated with one or
more research programs could be funded from outside the Company, thereby
reducing expected costs.
Sales and marketing expenses were $2,253,381 for the three month period
ended March 31, 2000, compared to $1,671,985 for the corresponding period ended
March 31, 1999, reflecting the growth of the Company's sales and marketing
functions to support commercialization of its M.I.S. products. InnerDyne expects
that sales and marketing expenses will generally continue to increase in
absolute dollars in future periods.
13
<PAGE> 16
General and administrative expenses were $625,842 for the three month
period ended March 31, 2000, compared to $504,931 for the corresponding period
ended March 31, 1999. The Company anticipates that general and administrative
expenses will generally increase in absolute dollars in future periods to
support expanding operations.
The Company generated operating income, before interest and tax, of
$507,890 for the three month period ended March 31, 2000, compared to $310,628
in the corresponding period of 1999. The improvement in operating income
primarily reflected higher gross margins on higher revenues.
The Company generated net income after tax of $1,126,409 for the three
month period ended March 31, 2000, compared to $350,799 in the corresponding
period of 1999. Results in the first quarter of 2000 included an income tax
benefit of $562,951. On December 31, 1999, the Company had a deferred tax asset
totaling $16.4 million, primarily a result of net operating loss carryforwards,
which was fully reserved. The deferred tax asset had a 100% reserve due to the
uncertainty of the Company's ability to generate future taxable income. Due to
the Company experiencing another quarter of positive operating results,
Management believes the company will have the ability to utilize a portion of
its deferred tax assets and has thus reduced the valuation allowance on the
Company's deferred tax asset. Management expects that the Company will generate
positive net income through 2000.
LIQUIDITY AND CAPITAL RESOURCES
From its inception to March 31, 2000, the Company has incurred a
cumulative net loss of approximately $49.2 million. Prior to 1992, the Company
was funded primarily through private placements of equity securities. In 1992,
the Company completed an initial public offering of 2,875,000 shares of its
Common Stock at $11.00 per share, which raised approximately $28.8 million (net
of underwriter's commissions and offering expenses). The 1994 acquisition of
InnerDyne Medical, Inc. was accomplished through the issuance of additional
Common Stock of the Company. In June 1995, the Company closed a private
placement of 1,435,599 shares of the Company's Common Stock and warrants to
purchase 287,200 additional shares of Common Stock, with gross proceeds to the
Company of approximately $3.2 million. In March and April of 1996, holders of
warrants to purchase an aggregate of 242,952 shares of Common Stock exercised
such warrants, resulting in gross proceeds to the Company of $704,561. The
Company concluded a public offering on May 20, 1996, with the sale of 2,650,000
shares of Common Stock at $3.50 per share, which raised $8,015,268 (net of
underwriters commissions and offering expenses).
At March 31, 2000, cash and cash equivalents totaled $7,934,671 compared
to a total cash and cash equivalents balance of $6,862,313 at December 31, 1999.
The Company had $27,297 in capital expenditures in the three months ended March
31, 2000. Working capital totaled $11,880,292 at March 31, 2000, and the Company
had long-term debt, excluding current installments, totaling $210,658 relating
to financing of equipment.
The Company was able to borrow up to $2,000,000 on a revolving line of
credit with a commercial bank at prime plus one-quarter of one percent (9.25
percent at March 31, 2000) based on eligible receivables. This revolving line of
credit expired on April 23, 2000. The Company is currently in negotiations to
renew this revolving line of credit. The Company also has an equipment advance
line of credit that allows the Company to borrow up to $750,000 based on
eligible equipment purchases. Amounts outstanding on this equipment advance line
of credit are periodically converted to 48-month term loans bearing interest at
prime plus one-quarter of one percent. As of March 31, 2000, the Company had
drawn $639,989 for financing of working
14
<PAGE> 17
capital needs on the revolving line of credit, secured by certain accounts
receivable, and had borrowed $446,389 for the financing of fixed assets. The
loans are subject to certain covenants and conditions.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
InnerDyne experienced operating losses from 1985 until mid 1998.
InnerDyne reported net income of $1.1 million on revenues of $5.6 million, $1.5
million on revenues of $20.4 million, $425,000 on revenues of $17.6 million and
a loss of $907,000 on revenues of $15.7 million for the three months ended March
31, 2000 and the fiscal years ended December 31, 1999, 1998 and 1997,
respectively. As of March 31, 2000, InnerDyne had an accumulated deficit of
approximately $49.2 million.
Our operating results may fluctuate substantially from quarter to
quarter as a result of general economic conditions. Accordingly, the Company
could generate operating losses, and may have cash outflow requirements as a
result of expenditures related to expansion of sales and marketing capability,
expansion of manufacturing capacity, research and development activities,
compliance with regulatory requirements, and possible investment in or
acquisition of additional complementary products, technologies or businesses.
The timing and amounts of these expenditures will depend upon many factors, such
as the availability of capital, progress of the Company's research and
development, and factors that may be beyond the Company's control, such as the
results of product trials, the requirements for and the time required to obtain
regulatory approval for existing products and any other products that may be
developed or acquired, the market acceptance of the Company's products, and the
actions of competitors in the Company's primary markets. The cash needs of the
Company have changed significantly as a result of the merger completed during
1994 and the support requirements of the added business focus areas. There can
be no assurance that the Company will not incur future losses, that the Company
will be able to raise cash as necessary to fund operations or that the Company
will maintain profitability.
Intense Competition. The primary industry in which the Company competes,
minimally invasive surgery, is dominated by two large, well-positioned entities
that are intensely competitive and frequently offer substantial discounts as a
competitive tactic. U.S. Surgical is primarily engaged in developing,
manufacturing and marketing surgical wound management products, and has
historically been the firm most responsible for providing products that have led
to the growth of the industry. U.S. Surgical supplies a broad line of products
to the M.I.S. industry, including products which facilitate access, assessment
and treatment. Ethicon has made a major investment in the M.I.S. field in recent
years and is one of the leading suppliers of hospital products in the world.
Furthermore, U.S. Surgical and Ethicon each utilize purchasing contracts that
link discounts on the purchase of one product to purchases of other products in
their broad product lines. Substantially all of the hospitals in the United
States have purchasing contracts with one or both of these entities.
Accordingly, customers may be dissuaded from purchasing access products from the
Company rather than U.S. Surgical or Ethicon to the extent it would cause them
to lose discounts on products that they regularly purchase from U.S. Surgical or
Ethicon.
The Company faces a formidable task in successfully gaining significant
revenues within the M.I.S. access market. In order to succeed, management
believes that the Company will need to objectively demonstrate substantial
product benefits, and its sales effort must be able to effectively present such
benefits to both clinicians and health care administrators. The M.I.S. access
market is dominated by U.S. Surgical and Ethicon. Both entities introduced new
access devices during the past three years. A number of other entities
participate in various segments of the M.I.S. market, including access.
15
<PAGE> 18
The Company's products will encounter competition from other companies
as its radial dilation platforms expand into new clinical areas. Within the
urology field, management expects its products will compete with product
offerings from Cook, Boston Scientific, and C.R. BARD, among others. In vascular
access, Maxxim Medical, Inc., will face competition from St. Jude/Daig,
Medtronic/AVE, Bard, Boston Scientific and others.
There can be no assurance that competitors will not succeed in
developing technologies and products that are more effective than any which have
been or are being developed by the Company or that would render the Company's
technologies or products obsolete or not competitive. Such competition could
have a material adverse effect on the Company's business, financial condition
and results of operations. As a result of the entry of large and small companies
into the market, the Company expects competition for devices to increase.
There can be no assurance that the Company or its partners will be able
to successfully compete in the M.I.S. access, urology access, or vascular access
markets, and failure to do so would have a material adverse effect on the
Company's business, financial condition and results of operations.
Continued Dependence on Step Products. To date, substantially all of the
Company's revenues from product sales are attributable to Step products, and
InnerDyne currently anticipates that sales of Step products will represent the
majority of the Company's revenues for the immediate future. Accordingly, the
success of the Company is largely dependent upon increased market acceptance of
its Step product line by the medical community as a reliable, safe and
cost-effective access product for minimally invasive surgery. InnerDyne
commenced commercial sales of its Step product in the fourth quarter of 1994
and, to date, sales have been made to a relatively limited number of physicians
and hospitals. Recommendations and endorsements by influential members of the
medical community are important for the increased market acceptance of the
Company's Step products, and there can be no assurance that existing
recommendations or endorsements will be maintained or that new ones will be
obtained. Failure to increase market acceptance of the Company's Step products
would have a material adverse effect upon the Company's business, financial
condition and results of operations.
Reliance on Future Products and New Applications; Uncertainty of
Technology Changes. The medical device industry is characterized by innovation
and technological change. The Company has made significant investments in
researching and developing its proprietary technologies, including radial
dilation and biocompatible coatings. During 2000, the Company expects to
commercially introduce urology and intra-organ access products, and through a
corporate partner, a vascular access product. The future success of the Company
will depend in part on the timely commercial introduction and market acceptance
of these and other possible products. There can be no assurance that these
products will be timely introduced in commercial quantities, if at all, or that
such products will achieve market acceptance. A failure by the Company to timely
introduce such products or a failure of such products to achieve market
acceptance could have a material adverse effect on the Company's business,
financial condition and results of operations. The future success of the Company
will also depend upon, among other factors, the ability to develop and gain
regulatory clearance for new and enhanced versions of products in a timely
fashion. There can be no assurance that the Company will be able to successfully
develop new products or technologies, manufacture new products in commercial
volumes, obtain regulatory approvals on a timely basis or gain market acceptance
of such products. Delays in development, manufacturing, regulatory approval or
market acceptance of new or enhanced products could have a material adverse
impact on the Company's business, financial condition and results of operations.
16
<PAGE> 19
Limited Manufacturing Experience; Compliance with Quality Systems
Regulations. The Company initiated manufacture of commercial quantities of its
Step access device in its Salt Lake City, Utah facility during late 1994.
Accordingly, the Company has relatively limited experience in manufacturing
M.I.S. access products or other products in commercial quantities at acceptable
costs. The Company's success will depend in part on its ability to manufacture
its products in compliance with the FDA's regulations and other regulatory
requirements in sufficient quantities and on a timely basis, while maintaining
acceptable product quality and manufacturing costs. Manufacturers often
encounter difficulties in scaling up production of new products, including
problems involving production yields, quality control and assurance, component
supply and shortages of qualified personnel. In connection with its ISO 9001
certification, InnerDyne now undergoes periodic audits by a regulatory body.
Regulatory changes recently introduced by the FDA have resulted in a system of
United States regulatory requirements for manufacturers of medical devices which
more closely resembles the ISO 9000 series of quality systems standards adopted
by most European countries. The FDA may also periodically inspect the Company's
operations and business practices to evaluate conformance to these standards.
Failure to maintain satisfactory regulatory system compliance could have a
significant impact on the Company's ability to continue to manufacture and
distribute its products and, in the most serious cases, result in the seizure or
recall of products. Failure to maintain production volumes or increase
production volumes in a timely or cost-effective manner would have a material
adverse effect on the Company's business, financial condition and results of
operations.
Potential Fluctuations in Operating Results. The Company's quarterly
operating results have in the past fluctuated and will continue to fluctuate
significantly in the future depending on the timing and shipment of product
orders; new product introductions and changes in pricing policies by the Company
or its competitors; the timing and market acceptance of the Company's new
products and product enhancements; the continued market acceptance of
InnerDyne's Step product line by the medical community; the Company's product
mix; the mix of distribution channels through which the Company's products are
sold; the extent to which the Company recognizes non-product revenues during a
quarter; and the Company's ability to obtain sufficient supplies of sole or
limited source components for its products. In particular, fluctuations in
production volumes can affect gross margins from quarter to quarter.
Furthermore, gross margins and net income or loss can fluctuate from quarter to
quarter to the extent the Company recognizes non-product revenue during a
quarter because the Company typically derives higher margins from non-product
revenue than from product sales. In response to competitive pressures or new
product introductions, the Company may take certain pricing or other actions
that could materially and adversely affect the Company's operating results. In
addition, new product introductions by the Company could contribute to quarterly
fluctuations in operating results as orders for new products commence and orders
for existing products decline.
The Company's expense levels are based, in part, on its expectations of
future revenues. Because a substantial portion of the Company's revenue in each
quarter normally results from orders booked and shipped in the final weeks of
that quarter, revenue levels are extremely difficult to predict. If revenue
levels are below expectations, net income will be disproportionately affected
because only a small portion of the Company's expenses varies with its revenue
during any particular quarter. In addition, the Company typically does not
operate with any material backlog as of any particular date.
As a result of the foregoing factors and potential fluctuations in
operating results, results of operations in any particular quarter should not be
relied upon as an indicator of future performance. In addition, in some future
quarter the Company's operating results may be below the expectations of public
market analysts and
17
<PAGE> 20
investors. In such event, the price of the Company's Common Stock would likely
be materially and adversely affected.
Reliance on Collaborative Relationships; Restrictions on Activities. The
Company has entered into, and intends to continue to pursue, collaborative
arrangements with corporations and research institutions with respect to the
research, development, regulatory approval and marketing of certain of its
potential products. InnerDyne's future success may depend, in part, on its
relationship with such third parties, their strategic interest in the potential
products under development and, eventually, their success in marketing or
willingness to purchase any such products. The Company's existing and
anticipated contracts with such third parties may restrict the rights of
InnerDyne to engage in certain areas of product development, manufacturing and
marketing. In addition, these third parties may have the unilateral right to
terminate any such arrangement without significant penalty. There can be no
assurance that InnerDyne will be successful in establishing or maintaining any
such collaborative arrangements or that any such arrangements will be
successful.
Limited Sales, Marketing and Distribution Experience. InnerDyne began
commercial sales of its first M.I.S. access product in the fourth quarter of
1994 and, therefore, has limited sales, marketing and distribution experience.
The Company is marketing its M.I.S. access products mainly to general surgeons,
gynecologists and pediatric laparoscopists. In the United States, InnerDyne
markets its products primarily through direct representatives who are employed
by the Company within selected geographical areas and a network of independent
sales representatives who typically sell other complementary M.I.S. products to
the same customer base. If the need arises, the Company may expand its sales
force, which will require recruiting and training additional personnel. There
can be no assurance that the Company will be able to recruit and train such
additional personnel in a timely fashion. Loss of a significant number of
InnerDyne's current sales personnel or independent sales representatives, or
failure to attract additional personnel, could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company markets its products outside of the United States through
international distributors in selected foreign countries after regulatory
approvals, if necessary, are obtained. Although InnerDyne currently has
relationships with a limited number of international distributors, there can be
no assurance that the Company will be able to build or maintain a network of
international distributors capable of effectively marketing its M.I.S. access
products or that such distributors will generate significant sales of such
products.
The Company has limited experience in marketing its products and faces
substantial competition from well-entrenched and formidable competitors. As a
result, there can be no assurance that the Company will successfully achieve
acceptable levels of product sales at prices which provide an adequate return.
Failure to do so would have a material adverse effect on the Company's business,
financial condition and results of operations.
Patents and Proprietary Rights. The Company's success will depend in
large part on its ability to obtain patent protection for products and
processes, to preserve its trade secrets and to operate without infringing the
proprietary rights of third parties. Although InnerDyne has obtained certain
patents and applied for additional United States and foreign patents covering
certain aspects of its technology, no assurance can be given that any additional
patents will be issued or that the scope of any patent protection will exclude
competitors or provide a competitive advantage, or that any of the Company's
patents will be held valid if subsequently challenged. The validity and breadth
of claims covered in medical technology patents involves complex legal and
factual questions and therefore may be highly uncertain. InnerDyne also relies
upon unpatented trade secrets, and no assurance can be given that others will
not independently develop or otherwise acquire substantially equivalent
18
<PAGE> 21
trade secrets. In addition, whether or not the Company's patents are issued,
others may hold or receive patents that contain claims having a scope that
covers products developed by InnerDyne.
There has been substantial litigation regarding patent and other
intellectual property rights in the medical device industry, and companies in
the medical device industry have used litigation to gain competitive advantage.
Litigation involving the Company would result in substantial cost to and
diversion of management attention from the day-to-day operation of the business,
but could be necessary to enforce patents issued to the Company, to protect
trade secrets and other specialized knowledge unknown to outside parties, to
defend the Company against claimed infringement of the rights of others or to
determine the scope and validity of the proprietary rights of others. An adverse
determination in litigation could subject the Company to significant liabilities
to third parties, could require the Company to seek licenses from third parties
under less favorable terms than might otherwise be possible and could prevent
the Company from manufacturing, selling or using its products, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company has in the past, and may in the future, receive
correspondence from third parties claiming that the Company's products or
technology infringe intellectual property rights of such third parties. The
Company and its patent counsel thoroughly review such claims and no such
outstanding claims currently exist. However, there can be no assurance that
InnerDyne will not receive additional claims that its products or technology
infringe third party rights or that third parties will not litigate such claims.
Any such occurrence could have a material adverse effect on the Company's
business, financial condition and results of operations.
Government Regulation. Clinical testing, manufacture and sale of the
Company's products, including the Step product line and the Company's
biocompatible coating technology, are subject to regulation by the FDA and
corresponding state and foreign regulatory agencies. Pursuant to the Federal
Food, Drug, and Cosmetic Act, and the regulations promulgated thereunder, the
FDA regulates the pre-clinical and clinical testing, manufacture, labeling,
distribution and promotion of medical devices. Noncompliance with applicable
requirements can result in, among other things, fines, injunctions, civil
penalties, recall or seizure of products, total or partial suspension of
production, failure of the government to grant pre-market clearance or
pre-market approval for devices, withdrawal of marketing approvals and criminal
prosecution. The FDA also has the authority to request recall, repair,
replacement or refund of the cost of any device manufactured or distributed by
the Company.
Before a new device can be introduced in the market, the manufacturer
must generally obtain FDA clearance of 510(k) notification or approval of a PMA.
A PMA application must be filed if a proposed device is not "substantially
equivalent" to a legally marketed Class I or Class II device, or if it is a
Class III device for which the FDA has called for PMAs. The PMA process can be
expensive, uncertain and lengthy, and a number of devices for which FDA approval
has been sought by other companies have never been approved for marketing.
A 510(k) clearance will be granted if the submitted information
establishes that the proposed device is substantially equivalent to a legally
marketed Class I or Class II medical device or a Class III medical device for
which the FDA has not called for PMAs. For any of the Company's devices cleared
through the 510(k) process, modifications or enhancements that could
significantly affect the safety or effectiveness of the device or that
constitute a major change to the intended use of the device will require a new
510(k) submission. There can be no assurance that the Company will obtain 510(k)
premarket clearance within a reasonable time frame, or at all, for any of the
devices or modifications for which it may file a 510(k).
19
<PAGE> 22
The Company has received clearance from the FDA for the marketing of its
Step device for use in accessing the abdominal and thoracic cavities for the
performance of minimally invasive surgical procedures. The Company has also
received FDA clearance for the marketing of its R.E.D. product for use in the
areas of gastrostomy, cystostomy, cholecystotomy, the dilation of biliary and
urethral strictures, laparoscopy and enterostomy. The Company has also received
market clearance for alternative versions of its Step and R.E.D. products,
including products designed to employ its radial dilation technology in
vascular, urological, and arthroscopic applications and for biliary indications.
Although the Company has been successful in preparing requests for 510(k)
clearance, there can be no assurance that 510(k) clearances for future products
or product modifications can be obtained in a timely manner or at all, or that
any existing clearance can be successfully maintained. A delay in receipt of, or
failure to receive or maintain, such clearances would have a material adverse
effect on the Company's business, financial condition and results of operations.
Although the Company is strictly limited to marketing its products for
the indications for which they were cleared, physicians are not prohibited by
the FDA from using the products for indications other than those cleared by the
FDA. There can be no assurance that the Company will not become subject to FDA
action resulting from physician use of its products outside of their approved
indications.
The Company has made modifications to its cleared devices that the
Company believes do not require the submission of new 510(k) notices. There can
be no assurance, however, that the FDA would agree with any of the Company's
determinations not to submit a new 510(k) notice for any of these changes or
would not require the Company to submit a new 510(k) notice for any of the
changes made to the device. If the FDA requires the Company to submit a new
510(k) notice for any device modification, the Company may be prohibited from
marketing the modified device until the 510(k) notice is cleared by the FDA.
Any devices manufactured or distributed by the Company pursuant to FDA
clearance or approval are subject to pervasive and continuing regulation by the
FDA and certain state agencies and various foreign governments. Manufacturers of
medical devices for marketing in the United States are required to adhere to
applicable regulations setting forth detailed Quality Systems Regulations
("QSR") requirements, which include testing, control and documentation
requirements. Manufacturers must also comply with requirements that a firm
report to the FDA any incident in which its product may have caused or
contributed to a death or serious injury, or in which its product malfunctioned
and, if the malfunction were to recur, it would be likely to cause or contribute
to a death or serious injury.
The Company is registered as a manufacturer of medical devices with the
FDA. The Company is subject to routine inspection by the FDA and certain state
agencies for compliance with QSR requirements, MDR requirements and other
applicable regulations. Failure of the Company to maintain satisfactory
regulatory compliance could have a significant adverse effect on the Company's
ability to continue to manufacture and distribute its products and, in the most
serious cases, could result in the seizure or recall of products, injunctions
and/or civil fines.
Dependence on Sole Sources. The materials utilized in the Company's
M.I.S. products consist of both standard and custom components that are
purchased from a variety of independent sources. The plastic parts used in the
Step product are injection molded by outside vendors. The majority of these
parts are produced utilizing molds that have been specially machined for and are
owned by the Company. Although the Company maintains significant inventories of
molded parts, any inability to utilize these molds for any reason might have a
material adverse effect on the Company's ability to meet its customers' demand
for product. In addition to
20
<PAGE> 23
plastic parts produced from injection molds owned by the Company, a number of
other materials are available only from a limited number of sources at the
present time, including the sheath component of the Company's Step products.
Efforts to identify and qualify additional sources of this sheath component and
other key materials and components are underway. Although InnerDyne believes
that alternative sources of these components can be obtained, internal testing
and qualification of substitute vendors could require significant lead times and
additional regulatory submissions. There can be no assurance that such internal
testing and qualification or additional regulatory approvals will be obtained in
a timely fashion, if at all. Any interruption of supply of raw materials could
have a material adverse effect on the Company's ability to manufacture its
products and, therefore, on its business, financial condition and results of
operations.
Uncertainty Relating to Third Party Reimbursement. In the United States,
health care providers that purchase medical devices, such as the Company's
products, generally rely on third-party payors, principally federal Medicare,
state Medicaid and private health insurance plans, to reimburse all or part of
the cost of the procedure in which the medical device is being used. In
addition, certain health care providers are moving toward a managed care system
in which such providers contract to provide comprehensive health care for a
fixed cost per person. Managed care providers are attempting to control the cost
of health care by authorizing fewer elective surgical procedures. The Company is
unable to predict what changes will be made in the reimbursement methods
utilized by third-party health care payors. Furthermore, the Company could be
adversely affected by changes in reimbursement policies of governmental or
private health care payors, particularly to the extent any such changes affect
reimbursement for procedures in which the Company's products are used. Failure
by physicians, hospitals and other users of the Company's products to obtain
sufficient reimbursement from health care payors for procedures in which the
Company's products are used or adverse changes in governmental and private
third-party payors' policies toward reimbursement for such procedures would have
a material adverse effect on the Company's business, financial condition and
results of operations.
If the Company obtains the necessary foreign regulatory approvals,
market acceptance of the Company's products in international markets would be
dependent, in part, upon the availability of reimbursement within prevailing
health care payment systems. Reimbursement and health care payment systems in
international markets vary significantly by country, and include both
government-sponsored health care and private insurance. The Company intends to
seek international reimbursement approvals, although there can be no assurance
that any such approvals will be obtained in a timely manner, if at all, and
failure to receive international reimbursement approvals could have an adverse
effect on market acceptance of the Company's products in the international
markets in which such approvals are sought.
Dependence on International Sales. In the future, the Company expects to
derive a portion of its revenue from international sales. To the extent that the
Company's international sales increase in future periods, a portion of the
Company's revenues could be subject to the risks associated with international
sales, including economic or political instability, shipping delays, changes in
applicable regulatory policies, fluctuations in foreign currency exchange rates
and various trade restrictions, all of which could have a significant impact on
the Company's ability to deliver products on a competitive and timely basis.
Future imposition of, or significant increases in the level of, customs duties,
import quotas or other trade restrictions could have an adverse effect on the
Company's business, financial condition and results of operations. The
regulation of medical devices, particularly in the European Economic Community,
continues to expand, and there can be no assurance that new laws or regulations
will not have an adverse effect on the Company.
21
<PAGE> 24
Dependence on Key Personnel. InnerDyne is dependent upon a limited
number of key management and technical personnel. The Company's future success
will depend in part upon its ability to attract and retain highly qualified
personnel. The Company will compete for such personnel with other companies,
academic institutions, government entities and other organizations. There can be
no assurance that the Company will be successful in hiring or retaining
qualified personnel. The loss of key personnel or the inability to hire or
retain qualified personnel could have a material adverse effect on the Company's
business, financial condition and results of operations.
Product Liability; Claims in Excess of Insurance Coverage. The
development, manufacture and sale of the Company's products entail the risk of
product liability claims, involving both potential financial exposure and
associated adverse publicity. The Company's current product liability insurance
coverage limits are $2,000,000 per occurrence and $2,000,000 in the aggregate,
and there can be no assurance that such coverage limits are adequate to protect
the Company from any liabilities it might incur in connection with the
development, manufacture and sale of its current and potential products. Product
liability insurance is expensive and may not be available in the future on
acceptable terms, or at all. In addition, if such insurance is available, there
can be no assurance that the limits of coverage of such policies will be
adequate. A successful product liability claim in excess of the Company's
insurance coverage could have a material adverse effect on the Company's
business, financial condition and results of operations.
Stock Price Volatility. The stock market in general and stocks of
medical device companies in particular, have from time to time experienced
significant price and volume fluctuations that are unrelated to the operating
performance of particular companies. These broad market fluctuations may
adversely affect the market price of the Company's Common Stock. In addition,
the market price of the Company's Common Stock has been and is likely to
continue to be highly volatile. Factors such as fluctuations in the Company's
operating results, announcements of technological innovations or new products by
the Company or its competitors, FDA and international regulatory actions,
actions with respect to reimbursement matters, developments with respect to
patents or proprietary rights, public concern as to the safety of products
developed by the Company or others, changes in health care policy in the United
States and internationally, changes in stock market analyst recommendations
regarding the Company, other medical device companies or the medical device
industry generally or general market conditions may have a significant effect on
the market price of the Common Stock.
Environmental Regulations. The Company is subject to a variety of local,
state and federal governmental regulations relating to the use, storage,
handling, manufacture and disposal of toxic and other hazardous substances used
to manufacture the Company's products. The Company believes that it is currently
in compliance in all material respects with applicable governmental
environmental regulations. Nevertheless, the failure by the Company to comply
with current or future environmental regulations could result in the imposition
of substantial fines on the Company, suspension of production, alteration of its
manufacturing processes or cessation of operations. Compliance with such
regulations could require the Company to acquire expensive remediation equipment
or to incur substantial expenses. Any failure by the Company to control the use,
disposal, removal or storage of, or to adequately restrict the discharge of, or
assist in the cleanup of, hazardous or toxic substances, could subject the
Company to significant liabilities, including joint and several liability under
certain statutes. The imposition of such liabilities could have a material
adverse effect on the Company's business, financial condition, and results of
operations.
Control by Directors and Principal Stockholders. As of March 31 2000,
directors and principal stockholders of the Company, and certain of their
affiliates, beneficially owned approximately 8% of the Company's outstanding
Common Stock. Accordingly, these persons, as a group, may be able to
significantly
22
<PAGE> 25
affect the direction of the Company's affairs and business, including any
determination with respect to the acquisition or disposition of assets by the
Company, future issuances of Common Stock or other securities by the Company and
the election of directors. Such concentration of ownership may also have the
effect of delaying, deferring or preventing a change in control of the Company.
Anti-Takeover Effect of Certain Charter Provisions of Common Stock.
Provisions of the Company's Certificate of Incorporation that allow the Company
to issue Preferred Stock without any vote or further action by the stockholders,
the fact that the Company's Certificate of Incorporation does not permit
stockholders to cumulate votes in the election of directors as well as the
Company's adoption of a poison pill Preferred Share Purchase Rights plan in
September 1997 may have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from attempting to acquire, control
of the Company. Certain provisions of Delaware law applicable to the Company
could also delay or make more difficult a merger, tender offer or proxy contest
involving the Company, including Section 203, which prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years unless certain conditions are met. The
possible issuance of Preferred Stock, the inability of stockholders to cumulate
votes in the election of directors, the poison pill and provisions of Delaware
law could have the effect of delaying, deferring or preventing a change in
control of the Company, including without limitation, discouraging a proxy
contest or making more difficult the acquisition of a substantial block of the
Company's Common Stock. The possible issuance of Preferred Stock, the poison
pill and these provisions could also limit the price that investors might be
willing to pay in the future for shares of the Company's Common Stock.
Risks Associated With Computer Software and Hardware. InnerDyne relies
on a variety of internal computer systems and programs in the operations of its
business. The Company also utilizes outside computer systems in the management
of certain business functions. The Company's internal systems run on personal
computers and microprocessor-based computer servers set up in a workstation
environment which the Company believes are not susceptible to universal
failures. These systems were extensively tested as part of the Company's
preparations for the Year 2000 changeover.
The Company believes that the failure of a system would not materially
affect the Company's ability to conduct its business operations, though such
failure could cause the expenditure of significant funds to affect a rapid
remedy to a systems failure. However, should a system fail, and the Company was
unable to restore or replace its function within a reasonable time frame, such
failure could have a material impact upon the Company's business, financial
condition, or results of operations. Similarly, should the Company internal or
external computer systems experience widespread failure that could not be
remedied quickly, such failure could have a similar impact.
23
<PAGE> 26
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The following discusses our exposure to market risk related to changes
in interest rates, equity prices, and foreign currency exchange rates. This
discussion contains forward-looking statements that are subject to risks and
uncertainties. Actual results could vary materially as a result of a number of
factors including those set forth above under the heading "Additional Factors
That May Affect Future Results."
INTEREST RATE RISK
As of March 31, 2000, InnerDyne had short-term investments of
$6,735,080. Substantially of these short-term investments consist of highly
liquid money market funds and commercial paper investments with remaining
maturities at the date of purchase of less than ninety days. These investments
are subject to interest rate risk and will decrease in value if market interest
rates increase. A hypothetical increase or decrease in market interest rates by
10 percent from the March 31, 2000 rates would cause the fair market value of
these short-term investments to change by an immaterial amount. The Company has
the ability to hold these investments until maturity; and therefore, the value
of these investments is not expected to be affected to any significant degree by
sudden changes in market interest rates. Declines in interest rates over time
will, however, reduce interest income. The Company has not used derivative
financial instruments.
InnerDyne does not own any equity investments; therefore, the Company is
not currently exposed to any direct equity price risk.
All InnerDyne revenues are realized in U.S. dollars; therefore,
management believes that the Company currently is not subject to significant
direct foreign currency exchange rate risk.
FOREIGN CURRENCY RISK
International revenues represented less than 10% of total revenues as of
March 31, 2000. International sales are made mostly through international
distributors with payments to the Company typically denominated in U.S. dollars.
The Company's international business is subject to risks typical of an
international business, including but not limited to differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions, and foreign exchange rate volatility. The
Company's future results could be materially adversely impacted by changes in
these or other factors. The effect of foreign exchange rate fluctuations on the
Company during the three month period ended March 31, 2000 was not material.
24
<PAGE> 27
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.2* 1991 Directors' Stock Option Plan, as amended
10.26* 1996 Stock Option Plan, as amended
10.47+ Development, License and Supply Agreement dated as of
February 11, 2000, by and between the Registrant and
Genesis Medical Technologies, Inc.
10.48+ Supply, License and Distribution Agreement dated as of
March 27, 2000, by and between the Registrant and Maxxim
Medical, Inc.
27.1 Financial Data Schedule
* Management compensatory plan or arrangement.
+ Confidential treatment requested as to certain portions of these Exhibits.
(b) Reports on Form 8-K: The Company did not file any reports on Form 8-K
during the quarter ended March 31, 2000.
25
<PAGE> 28
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.
INNERDYNE, INC.
/s/ William G. Mavity
William G. Mavity
President, Chief Executive Officer
and acting Chief Financial Officer
(Duly Authorized Signatory and
Principal Financial Officer)
Date: May 15, 2000
26
<PAGE> 29
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
10.2* 1991 Directors' Stock Option Plan, as amended
10.26* 1996 Stock Option Plan, as amended
10.47+ Development, License and Supply Agreement dated as of
February 11, 2000, by and between the Registrant and
Genesis Medical Technologies, Inc.
10.48+ Supply, License and Distribution Agreement dated as of
March 27, 2000, by and between the Registrant and Maxxim
Medical, Inc.
27.1 Financial Data Schedule
* Management compensatory plan or arrangement.
+ Confidential treatment requested as to certain portions of these Exhibits.
27
<PAGE> 1
Exhibit 10.2
INNERDYNE, INC.
1991 DIRECTORS' STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Directors' Stock Option
Plan are to attract and retain the best available individuals for service as
Directors of the Company, to pro-vide additional incentive to the Outside
Directors of the Company to serve as Directors, and to encourage their continued
service on the Board.
All options granted hereunder shall be "nonstatutory stock
options."
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Innerdyne, Inc., a Delaware corporation.
(e) "Continuous Status as a Director" shall mean the absence of any
interruption or termination of service as a Director.
(f) "Director" shall mean a member of the Board.
(g) "Employee" shall mean any person, including officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(i) "Option" shall mean a stock option granted pursuant to the Plan.
(j) "Optioned Stock" shall mean the Common Stock subject to an Option.
(k) "Optionee" shall mean an Outside Director who receives an Option.
(l) "Outside Director" shall mean a Director who is not an Employee.
(m) "Parent" shall mean a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(n) "Plan" shall mean this 1991 Directors' Stock Option Plan.
<PAGE> 2
(o) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(p) "Subsidiary" shall mean a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 10 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 300,000 Shares of Common Stock. The Shares may be authorized,
but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan. If Shares which were acquired upon exercise of an
Option are subsequently repurchased by the Company, such Shares shall not in any
event be returned to the Plan and shall not become available for future grant
under the Plan.
4. Administration of and Grants of Options under the Plan.
(a) Administrator. Except as otherwise required herein, the Plan shall
be administered by the Board.
(b) Procedure for Grants. All grants of Options hereunder shall be
automatic and nondiscretionary and shall be made strictly in accordance with the
following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options granted to Outside Directors.
(ii) Each Outside Director shall automatically receive, on the date of
each Annual Meeting of Stockholders at which such Director is elected, an Option
to purchase 10,000 Shares of the Company's Common Stock, such Option to become
exercisable on the date one (1) year subsequent to the date of grant. If an
Outside Director is appointed to the Board to fill a vacancy after the date of
the Annual Meeting of Stockholders (hereafter referred to as the "Prior
Meeting"), such Director shall automatically receive on the date of such
appointment an Option to purchase the number of Shares of the Company's Common
Stock calculated by multiplying 10,000 times a fraction, the numerator of which
is the difference between the number twelve and the number of full months since
the Prior Meeting and the denominator of which is twelve. Such Option will
become exercisable on the later of one year from the date of the Prior Meeting
or six months from the date of grant, as required under subparagraph (iii)(D)
below.
(iii) The terms of an Option granted hereunder shall be as follows:
(1) the term of the Option shall be five (5) years.
2
<PAGE> 3
(2) the Option shall be exercisable only while the Outside Director
remains a Director of the Company, except as set forth in Section 8 hereof.
(3) the exercise price per Share shall be 100% of the fair market
value per Share on the date of grant of the Option.
(4) To the extent necessary to comply with the applicable
provisions of Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3"), no
Option will be exercisable until a date more than six months subsequent to the
date of the grant of that Option.
(c) Powers of the Board. Subject to the provisions and restrictions of
the Plan, the Board shall have the authority, in its discretion: (i) to
determine, upon review of relevant information and in accordance with Section
7(b) of the Plan, the fair market value of the Common Stock; (ii) to determine
the exercise price per share of Options to be granted, which exercise price
shall be determined in accordance with Section 7(a) of the Plan; (iii) to
interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations
relating to the Plan; (v) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option previously
granted hereunder; and (vi) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(d) Effect of Board's Decision. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
5. Eligibility. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) hereof.
The Plan shall not confer upon any Optionee any right with
respect to continuation of service as a Director or nomination to serve as a
Director, nor shall it interfere in any way with any rights which the Director
or the Company may have to terminate his directorship at any time.
6. Term of Plan. The Plan shall become effective upon the earlier of (i)
its adoption by the Board or (ii) its approval by the stockholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 12 of the Plan.
7. Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be 100% of the fair market value
per Share on the date of grant of the Option.
(b) Fair Market Value. The fair market value ("Fair Market Value") of a
Share shall be determined by the Board in its discretion; provided however, that
where there is a public market for the Common Stock, the fair market value per
Share shall be the closing price of the Common Stock in the over-the-counter
market on the date of grant, as reported in The Wall Street Journal (or, if not
so reported, as otherwise reported by the National Association of
3
<PAGE> 4
Securities Dealers Automated Quotation ("NASDAQ") System) or, in the event the
Common Stock is traded on the NASDAQ National Market or listed on a stock
exchange, the fair market value per Share shall be the closing price on such
system or exchange on the date of grant of the Option, as reported in The Wall
Street Journal.
(c) Form of Consideration. Subject to compliance with applicable
provisions of Section 16(b) of the Exchange Act, (or other applicable law), the
consideration to be paid for the Shares to be issued upon exercise of an Option,
including the method of payment, shall be determined by the Board and may
consist entirely of (i) cash, (ii) check, (iii) promissory note, (iv) other
Shares which (X) in the case of Shares acquired upon exercise of an Option, have
been owned by the Optionee for more than six months on the date of surrender,
and (Y) have a Fair Market Value on the date of exercise equal to the aggregate
exercise price of the Shares as to which said Option shall be exercised, (v)
authorization for the Company to retain from the total number of Shares as to
which the Option is exercised that number of Shares having a Fair Market Value
on the date of exercise equal to the exercise price for the total number of
Shares as to which the Option is exercised, (vi) delivery of a properly executed
exercise notice together with irrevocable instructions to a broker to promptly
deliver to the Company the amount of sale or loan proceeds required to pay the
exercise price, (vii) by delivering an irrevocable subscription agreement for
the Shares which irrevocably obligates the option holder to take and pay for the
Shares not more than twelve months after the date of delivery of the
subscription agreement, (viii) any combination of the foregoing methods of
payment or (ix) such other consideration and method of payment for the issuance
of Shares as may be permitted under applicable laws. In making its determination
as to the type of consideration to accept, the Board shall consider whether
acceptance of such consideration may be reasonably expected to benefit the
Company (Section 153 of the Delaware General Corporation Law).
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option granted
hereunder shall be exercisable at such times as are set forth in Section 4(b)
hereof; provided however, that no Options shall be exercisable until stockholder
approval of the Plan in accordance with Section 16 hereof has been obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7(c) of the Plan. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a stockholder shall
exist with respect to the Optioned Stock, not-withstanding the exercise of the
Option. A share certificate for the number of Shares so acquired shall be issued
to the Optionee as soon as practicable after exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 10 of the Plan.
4
<PAGE> 5
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as a Director. If an Outside Director ceases
to serve as a Director, he may, but only within seven (7) months after the date
he ceases to be a Director of the Company, exercise his Option to the extent
that he was entitled to exercise it at the date of such termination. To the
extent that he was not entitled to exercise an Option at the date of such
termination, or if he does not exercise such Option (which he was entitled to
exercise) within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of Section
8(b) above, in the event an Optionee is unable to continue his service as a
Director with the Company as a result of his total and permanent disability (as
defined in Section 22(e)(3) of the Code) he may, but only within seven (7)
months from the date of termination, exercise his Option to the extent he was
entitled to exercise it at the date of such termination. To the extent that he
was not entitled to exercise the Option at the date of termination, or if he
does not exercise such Option (which he was entitled to exercise) within the
time specified herein, the Option shall terminate.
(d) Death of Optionee. Notwithstanding the provisions of Section 8(b)
above, in the event of the death of an Optionee:
(i) during the term of the Option who is at the time of his death a
Director of the Company and who has been in Continuous Status as a Director
since the date of grant of the Option, the Option may be exercised, at any time
within seven (7) months following the date of death, by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to exercise that would have
accrued had the Optionee continued living and remained in Continuous Status as a
Director for six (6) months after the date of death; or
(ii) within thirty (30) days after the termination of Continuous Status
as a Director, the Option may be exercised, at any time within seven (7) months
following the date of death, by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued at the date of termination.
9. Non-Transferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution or Merger.
(a) In the event that the number of outstanding shares of Common Stock of
the Company is changed by a stock dividend, stock split, reverse stock split,
combination, reclassification or similar change in the capital structure of the
Company without consideration, the number of Shares available under this Plan
and the number of Shares subject to outstanding Options and the exercise price
per share of such Options shall be proportionately adjusted,
5
<PAGE> 6
subject to any required action by the Board or stockholders of the Company and
compliance with applicable securities laws; provided however, that no
certificate or scrip representing fractional shares shall be issued upon
exercise of any Option and any resulting fractions of a Share shall be ignored.
Such adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive.
(b) In the event of a dissolution or liquidation of the Company, a
merger in which the Company is not the surviving corporation, a transaction or
series of related transactions in which 100% of the then outstanding voting
stock is sold or otherwise transferred, or the sale of substantially all of the
assets of the Company, any or all outstanding Options shall, notwithstanding any
contrary terms of the written agreement governing such Option, accelerate and
become exercisable in full at least ten days prior to (and shall expire on) the
consummation of such dissolution, liquidation, merger or sale of stock or sale
of assets on such conditions as the Board shall determine unless the successor
corporation assumes the outstanding Options or substitutes substantially
equivalent options.
11. Time of Granting Options. The date of grant of an Option shall, for all
purposes, be the date determined in accordance with Section 4(b) hereof. Notice
of the determination shall be given to each Outside Director to whom an Option
is so granted within a reasonable time after the date of such grant.
12. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter,
suspend, or discontinue the Plan, but no amendment, alteration, suspension, or
discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act (or any other applicable law or regulation), the Company shall obtain
shareholder approval of any Plan amendment in such a manner and to such a degree
as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
13. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant
to the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder,
state securities laws, and the requirements of any stock exchange upon which the
Shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares
6
<PAGE> 7
are being purchased only for investment and without any present intention to
sell or distribute such Shares, if, in the opinion of counsel for the Company,
such a representation is required by any of the aforementioned relevant
provisions of law.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
14. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. Stockholder Approval.
(a) The Plan shall be subject to approval by the stockholders of the
Company within twelve (12) months of its adoption by the Board. If such
stockholder approval is obtained at a duly held stockholders' meeting, it may be
obtained by the affirmative vote of the holders of a majority of the outstanding
shares of the Company present or represented and entitled to vote thereon. If
such stockholder approval is obtained by written consent, it may be obtained by
the written consent of the holders of a majority of the outstanding shares of
the Company.
(b) Any required approval of the stockholders of the Company shall be
solicited substantially in accordance with Section 14(a) of the Exchange Act and
the rules and regulations promulgated thereunder.
17. Information to Optionees. The Company shall provide to each Optionee,
during the period for which such Optionee has one or more Options outstanding,
copies of all annual reports to stockholders, proxy statements and other
information provided to all stockholders of the Company.
7
<PAGE> 1
Exhibit 10.26
INNERDYNE, INC.
1996 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock Options (as
defined under Section 422 of the Code) or Nonstatutory Stock Options, at the
discretion of the Board and as reflected in the terms of the written option
agreement.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" shall mean the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "Affiliate" shall mean an entity other than a Subsidiary (as defined
below) in which the Company owns an equity interest.
(c) "Applicable Laws" shall have the meaning set forth in Section 4(a)
below.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) "Committee" shall mean the Committee appointed by the Board of
Directors in accordance with Section 4(a) of the Plan, if one is appointed.
(g) "Common Stock" shall mean the Common Stock of the Company.
(h) "Company" shall mean Innerdyne, Inc., a Delaware corporation.
(i) "Consultant" means any person, including an advisor, who is engaged
by the Company or any Parent or Subsidiary to render services and is compensated
for such services, and any director of the Company whether compensated for such
services or not; provided that the term Consultant shall not include directors
who are not compensated for their services or are paid only a director's fee by
the Company.
(j) "Continuous Status as an Employee or Consultant" shall mean the
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave, military leave, or any other
leave of absence approved by the Administrator; provided that such leave is for
a period of not more than 90 days or reemployment upon the expiration of such
leave is guaranteed by contract or statute. For purposes of this Plan, a change
in status from an Employee to a Consultant or from a Consultant to an Employee
will not constitute a termination of employment.
<PAGE> 2
(k) "Director" shall mean a member of the Board.
(l) "Employee" shall mean any person (including any Named Executive,
Officer or Director) employed by the Company or any Parent, Subsidiary or
Affiliate of the Company. The payment by the Company of a director's fee to a
Director shall not be sufficient to constitute "employment" of such Director by
the Company.
(m) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(n) "Fair Market Value" means, as of any date, the value of Common Stock
determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or a national market system including without limitation the National Market of
the National Association of Securities Dealers, Inc. Automated Quotation
("Nasdaq") System, its Fair Market Value shall be the closing sales price for
such stock as quoted on such system on the last market trading day prior to the
date of determination (if for a given day no sales were reported, the average of
the closing bid and asked prices on that day shall be used), as such price is
reported in The Wall Street Journal or such other source as the Administrator
deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq System (but not on
the National Market thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the bid and asked prices for the Common Stock or;
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(o) "Incentive Stock Option" shall mean an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable written option agreement.
(p) "Named Executive" shall mean any individual who, on the last day of
the Company's fiscal year, is the chief executive officer of the Company (or is
acting in such capacity) or among the four highest compensated officers of the
Company (other than the chief executive officer). Such officer status shall be
determined pursuant to the executive compensation disclosure rules under the
Exchange Act.
(q) "Nonstatutory Stock Option" shall mean an Option not intended to
qualify as an Incentive Stock Option, as designated in the applicable written
option agreement.
(r) "Officer" shall mean a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(s) "Option" shall mean a stock option granted pursuant to the Plan.
2
<PAGE> 3
(t) "Optioned Stock" shall mean the Common Stock subject to an Option.
(u) "Optionee" shall mean an Employee or Consultant who receives an
Option.
(v) "Parent" shall mean a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(w) "Plan" shall mean this 1996 Stock Option Plan.
(x) "Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange
Act as the same may be amended from time to time, or any successor provision.
(y) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 14 of the Plan.
(z) "Subsidiary" shall mean a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 14 of
the Plan, the maximum aggregate number of shares that may be optioned and sold
under the Plan is 2,000,000 shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares that were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan. Notwithstanding any other provision of the Plan,
shares issued under the Plan and later repurchased by the Company shall not
become available for future grant under the Plan.
4. Administration of the Plan.
(a) Composition of Administrator.
(i) Multiple Administrative Bodies. If permitted by Rule 16b-3, and
by the legal requirements relating to the administration of incentive stock
option plans, if any, of applicable securities laws and the Code (collectively,
the "Applicable Laws"), the Plan may (but need not) be administered by different
administrative bodies with respect to Directors, Officers who are not directors
and Employees who are neither Directors nor Officers.
(ii) Administration with respect to Directors and Officers. With
respect to grants of Options to Employees or Consultants who are also Officers
or Directors of the Company, the Plan shall be administered by (A) the Board, if
the Board may administer the Plan in compliance with Rule 16b-3 as it applies to
a plan intended to qualify thereunder as a discretionary plan and Section 162(m)
of the Code as it applies so as to qualify grants of Options to Named Executives
as performance-based compensation, or (B) a Committee designated by the Board to
administer the Plan, which Committee shall be constituted in such a manner as to
permit the Plan to comply with Rule 16b-3 as it applies to a plan intended to
qualify thereunder
3
<PAGE> 4
as a discretionary plan, to qualify grants of Options to Named Executives as
performance-based compensation under Section 162(m) of the Code and otherwise
so as to satisfy the Applicable Laws.
(iii) Administration with respect to Other Persons. With respect to
grants of Options to Employees or Consultants who are neither Directors nor
Officers of the Company, the Plan shall be administered by (A) the Board or (B)
a Committee designated by the Board, which Committee shall be constituted in
such a manner as to satisfy the Applicable Laws. The Board or the Committee may
designate one or more of its members, the Non-Insider Option Committee, to grant
options to eligible employees pursuant to a set of guidelines approved by the
Board or the Committee.
(iv) General. If a Committee has been appointed pursuant to
subsection (ii) or (iii) of this Section 4(a), such Committee shall continue to
serve in its designated capacity until otherwise directed by the Board. From
time to time the Board may increase the size of any Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies (however caused) and remove
all members of a Committee and thereafter directly administer the Plan, all to
the extent permitted by the Applicable Laws and, in the case of a Committee
appointed under subsection (ii), to the extent permitted by Rule 16b-3 as it
applies to a plan intended to qualify thereunder as a discretionary plan, and to
the extent required under Section 162(m) of the Code to qualify grants of
Options to Named Executives as performance-based compensation.
(b) Powers of the Administrator. Subject to the provisions of the Plan
and in the case of a Committee, the specific duties delegated by the Board to
such Committee, the Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(m) of the Plan;
(ii) to select the Employees and Consultants to whom Options may
from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are granted
hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder (including, but not
limited to, the share price and any restriction or limitation, or any vesting
acceleration or waiver of forfeiture restrictions regarding any Option and/or
the shares of Common Stock relating thereto, based in each case on such factors
as the Administrator shall determine, in its sole discretion);
4
<PAGE> 5
(vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted.
(c) Effect of Administrator's Decision. All decisions, determinations
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options.
5. Eligibility.
(a) Recipients of Grants. Nonstatutory Stock Options may be granted to
Employees and Consultants. Incentive Stock Options may be granted only to
Employees, provided, however, that Employees of an Affiliate shall not be
eligible to receive Incentive Stock Options. An Employee or Consultant who has
been granted an Option may, if he or she is otherwise eligible, be granted an
additional Option or Options.
(b) Type of Option. Each Option shall be designated in the written
option agreement as either an Incentive Stock Option or a Nonstatutory Stock
Option. However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value of Shares with respect to which Incentive Stock
Options are exercisable for the first time by an Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
For purposes of this Section 5(b), Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the time the Option with respect to such
Shares is granted.
(c) No Employment Rights. The Plan shall not confer upon any Optionee
any right with respect to continuation of employment or consulting relationship
with the Company, nor shall it interfere in any way with his or her right or the
Company's right to terminate his or her employment or consulting relationship at
any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to occur
of its adoption by the Board or its approval by the stockholders of the Company
as described in Section 20 of the Plan. It shall continue in effect for a term
of ten (10) years unless sooner terminated under Section 16 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in the
Option Agreement; provided, however, that in the case of an Incentive Stock
Option, the term shall be no more than ten (10) years from the date of grant
thereof or such shorter term as may be provided in the Option Agreement.
However, in the case of an Incentive Stock Option granted to an Optionee who, at
the time the Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the term of the Option shall be five (5) years from the date of
grant thereof or such shorter term as may be provided in the Option Agreement.
8. Limitation on Grants to Employees. Subject to adjustment as provided in
this Plan, the maximum number of Shares which may be subject to options granted
to any one Employee under this Plan for any fiscal year of the Company shall be
800,000.
5
<PAGE> 6
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(1) granted to an Employee who, at the time of the grant of such
Incentive Stock Option, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant; or
(2) granted to any other Employee, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option
(1) granted to a person who, at the time of the grant of such
Option, is a Named Executive of the Company, the per share Exercise Price shall
be no less than 100% of the Fair Market Value on the date of grant; or
(2) granted to any person other than a Named Executive, the per
Share exercise price shall be no less than 85% of the Fair Market Value per
Share on the date of grant.
(b) Permissible Consideration. The consideration to be paid for the Shares
to be issued upon exercise of an Option, including the method of payment, shall
be determined by the Administrator (and, in the case of an Incentive Stock
Option, shall be determined at the time of grant) and may consist entirely of
(1) cash, (2) check, (3) other Shares that (x) in the case of Shares acquired
upon exercise of an Option either have been owned by the Optionee for more than
six months on the date of surrender or were not acquired, directly or
indirectly, from the Company, and (y) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised, (4) authorization from the Company to retain from the
total number of Shares as to which the Option is exercised that number of Shares
having a Fair Market Value on the date of exercise equal to the exercise price
for the total number of Shares as to which the Option is exercised, (5) delivery
of a properly executed exercise notice together with irrevocable instructions to
a broker to deliver promptly to the Company the amount of sale or loan proceeds
required to pay the exercise price, (7) a combination any of the foregoing
methods of payment, (8) a combination of any of the foregoing methods of payment
at least equal in value to the stated capital represented by the Shares to be
issued, plus a promissory note for the balance of the exercise price, or (9)
such other consideration and method of payment for the issuance of Shares to the
extent permitted under Applicable Laws. In making its determination as to the
type of consideration to accept, the Administrator shall consider if acceptance
of such consideration may be reasonably expected to benefit the Company.
6
<PAGE> 7
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 9(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 14 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as an Employee or Consultant. In the
event of termination of an Optionee's Continuous Status as an Employee or
Consultant, such Optionee may, but only within thirty (30) days (or such other
period of time, not exceeding three (3) months in the case of an Incentive Stock
Option or twelve (12) months in the case of a Nonstatutory Stock Option, as is
determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option) after the
date of such termination (but in no event later than the date of expiration of
the term of such Option as set forth in the Option Agreement), exercise his or
her Option to the extent that he or she was entitled to exercise it at the date
of such termination. To the extent that the Optionee was not entitled to
exercise the Option at the date of such termination, or if the optionee does not
exercise such Option (which he or she was entitled to exercise) within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding Section 10(b) above,
in the event of termination of an Optionee's Continuous Status as an Employee or
Consultant as a result of his or her total and permanent disability (as defined
in Section 22(e)(3) of the Code), he or she may, but only within six (6) months
(or such other period of time not exceeding twelve (12) months as is determined
by the Administrator, with such determination in the case of an Incentive Stock
Option being made at the time of grant of the Option) from the date of such
termination (but in no event later than the date of expiration of the term of
such Option as set forth in the Option Agreement), exercise his or her Option to
the extent he or she was entitled to exercise it at the date of such
termination. To the extent that he or she was not entitled to
7
<PAGE> 8
exercise the Option at the date of termination, or if he does not exercise such
Option (which he was entitled to exercise) within the time specified herein, the
Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee:
(i) during the term of the Option who is at the time of his
death an Employee or Consultant of the Company and who shall have been in
Continuous Status as an Employee or Consultant since the date of grant of the
Option, the Option may be exercised, at any time within six (6) months (or such
other period of time, not exceeding twelve (12) months, as is determined by the
Administrator, with such determination in the case of an Incentive Stock Option
being made at the time of grant of the Option) following the date of death (but
in no event later than the date of expiration of the term of such Option as set
forth in the Option Agreement), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance but only to
the extent of the right to exercise that would have accrued had the Optionee
continued living and remained in Continuous Status as an Employee or Consultant
three (3) months (or such other period of time as is determined by the
Administrator as provided above) after the date of death, subject to the
limitation set forth in Section 5(b); or
(ii) within thirty (30) days (or such other period of time not
exceeding three (3) months as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option) after the termination of Continuous Status as an Employee
or Consultant, the Option may be exercised, at any time within six (6) months
(or such other period of time, not exceeding twelve (12) months, as is
determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option) following
the date of death (but in no event later than the date of expiration of the term
of such Option as set forth in the Option Agreement), by the Optionee's estate
or by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to exercise that had accrued at
the date of termination.
(e) Extension of Exercise Period. Notwithstanding the limitations
set forth in Sections 10(b), (c) and (d) above, the Administrator has full power
and authority to extend the period of time for which any Option granted under
the Plan is to remain exercisable following termination of an Optionee's
Continuous Status as an Employee or Consultant from the limited period set forth
in the written option agreement to such greater period of time as the
Administrator shall deem appropriate; provided, however, that in no event shall
such Option be exercisable after the specified expiration date of the Option
term.
(f) Rule 16b-3. Options granted to persons subject to Section
16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
11. Withholding Taxes. As a condition to the exercise of Options granted
hereunder, the Optionee shall make such arrangements as the Administrator may
require for the satisfaction of any federal, state, local or foreign withholding
tax obligations that may arise in connection
8
<PAGE> 9
with the exercise, receipt or vesting of such Option. The Company shall not be
required to issue any Shares under the Plan until such obligations are
satisfied.
12. Taxes.
(a) As a condition of the exercise of an Option granted under the Plan,
the Participant (or in the case of the Participant's death, the person
exercising the Option) shall make such arrangements as the Administrator may
require for the satisfaction of any applicable federal, state, local or foreign
withholding tax obligations that may arise in connection with the exercise of
Option and the issuance of Shares. The Company shall not be required to issue
any Shares under the Plan until such obligations are satisfied.
(b) In the case of an Employee and in the absence of any other
arrangement, the Employee shall be deemed to have directed the Company to
withhold or collect from his or her compensation an amount sufficient to satisfy
such tax obligations from the next payroll payment otherwise payable after the
date of an exercise of the Option.
(c) This Section 12 (c) shall apply only after the date, if any, upon
which the Common Stock becomes a Listed Security. In the case of Participant
other than an Employee (or in the case of an Employee where the next payroll
payment is not sufficient to satisfy such tax obligations, with respect to any
remaining tax obligations), in the absence of any other arrangement and to the
extent permitted under the Applicable Laws, the Participant shall be deemed to
have elected to have the Company withhold from the Shares to be issued upon
exercise of the Option that number of Shares having a Fair Market Value
determined as of the applicable Tax Date (as defined below) equal to the minimum
statutory withholding rates for federal and state tax purposes, including
payroll taxes, applicable to the exercise. For purposes of this Section 12, the
Fair Market Value of the Shares to be withheld shall be determined on the date
that the amount of tax to be withheld is to be determined under the Applicable
Laws (the "Tax Date").
(d) If permitted by the Administrator, in its discretion, a Participant
may satisfy his or her tax withholding obligations upon exercise of an Option by
surrendering to the Company Shares that (i) in the case of Shares previously
acquired from the Company, have been owned by the Participant for more than six
(6) months on the date of surrender, and (ii) have a Fair Market Value
determined as of the applicable Tax Date equal to the minimum statutory
withholding rates for federal and state tax purposes, including payroll taxes,
applicable to the exercise.
(e) Any election or deemed election by a Participant to have Shares
withheld to satisfy tax withholding obligations under Section 12 (c) or (d)
above shall be irrevocable as to the particular Shares as to which the election
is made and shall be subject to the consent or disapproval of the Administrator.
Any election by a Participant under Section 12 (d) above must be made on or
prior to the applicable Tax Date.
(f) In the event an election to have Shares withheld is made by a
Participant and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Participant shall receive
the full number of Shares with respect to
9
<PAGE> 10
which the Option is exercised but such Participant shall be unconditionally
obligated to tender back to the Company the proper number of Shares on the
applicable Tax Date.
13. Non-Transferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution. The designation of a beneficiary
by an Optionee will not constitute a transfer. An Option may be exercised,
during the lifetime of the Optionee, only by the Optionee or a transferee
permitted by this Section 13.
14. Adjustments Upon Changes in Capitalization; Corporate Transactions.
(a) Adjustment. Subject to any required action by the stockholders of
the Company, the number of shares of Common Stock covered by each outstanding
Option, the number of shares of Common Stock that have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, the maximum number of shares of Common Stock for which Options may be
granted to any employee under Section 8 of the Plan, and the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Administrator, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option.
(b) Corporate Transactions. In the event of the proposed dissolution or
liquidation of the Company, the Option will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the
Administrator. The Administrator may, in the exercise of its sole discretion in
such instances, declare that any Option shall terminate as of a date fixed by
the Administrator and give each Optionee the right to exercise his or her Option
as to all or any part of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, the Option shall be assumed or an
equivalent option shall be substituted by such successor corporation or a parent
or subsidiary of such successor corporation, unless the Administrator
determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the Optionee shall have the right to exercise
the Option as to some or all of the Optioned Stock, including Shares as to which
the Option would not otherwise be exercisable. If the Administrator makes an
Option exercisable in lieu of assumption or substitution in the event of a
merger or sale of assets, the Administrator shall notify the Optionee that the
Option shall be exercisable for a period of fifteen (15) days from the date of
such notice, and the Option will terminate upon the expiration of such period.
10
<PAGE> 11
15. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option or such other date as is determined by the Administrator.
Notice of the determination shall be given to each Employee or Consultant to
whom an Option is so granted within a reasonable time after the date of such
grant.
16. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or terminate the Plan
from time to time in such respects as the Board may deem advisable; provided
that, the following revisions or amendments shall require approval of the
stockholders of the Company in the manner described in Section 20 of the Plan:
(i) any increase in the number of Shares subject to the Plan,
other than an adjustment under Section 14 of the Plan;
(ii) any change in the designation of the class of persons
eligible to be granted Options;
(iii) any change in the limitation on grants to employees as
described in Section 8 of the Plan or other changes which would require
stockholder approval to qualify options granted hereunder as performance-based
compensation under Section 162(m) of the Code; or
(iv) any revision or amendment requiring stockholder approval in
order to preserve the qualification of the Plan under Rule 16b-3.
(b) Stockholder Approval. If any amendment requiring stockholder
approval under Section 13(a) of the Plan is made subsequent to the first
registration of any class of equity securities by the Company under Section 12
of the Exchange Act, such stockholder approval shall be solicited as described
in Section 20 of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
17. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant
to the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder, and
the requirements of any stock exchange upon which the Shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares
11
<PAGE> 12
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required by any of the aforementioned relevant
provisions of law.
18. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the Company
to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
19. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
20. Stockholder Approval.
(a) Continuance of the Plan shall be subject to approval by the
stockholders of the Company within twelve (12) months before or after the date
the Plan is adopted. Such stockholder approval shall be obtained in the manner
and to the degree required under applicable federal and state law and the rules
of any stock exchange upon which the Shares are listed.
(b) In the event that the Company registers any class of equity
securities pursuant to Section 12 of the Exchange Act, any required approval of
the stockholders of the Company obtained after such registration shall be
solicited substantially in accordance with Section 14(a) of the Exchange Act and
the rules and regulations promulgated thereunder.
(c) If any required approval by the stockholders of the Plan itself or
of any amendment thereto is solicited at any time otherwise than in the manner
described in Section 20(b) hereof, then the Company shall, at or prior to the
first annual meeting of stockholders held subsequent to the later of (1) the
first registration of any class of equity securities of the Company under
Section 12 of the Exchange Act or (2) the granting of an Option hereunder to an
officer or director after such registration, do the following:
(i) furnish in writing to the holders entitled to vote for the
Plan substantially the same information that would be required (if proxies to be
voted with respect to approval or disapproval of the Plan or amendment were then
being solicited) by the rules and regulations in effect under Section 14(a) of
the Exchange Act at the time such information is furnished; and
(ii) file with, or mail for filing to, the Securities and
Exchange Commission four copies of the written information referred to in
subsection (i) hereof not later than the date on which such information is first
sent or given to stockholders.
12
<PAGE> 1
EXHIBIT 10.47
CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.
DEVELOPMENT, LICENSE
AND SUPPLY AGREEMENT
BETWEEN
GENESIS MEDICAL TECHNOLOGIES, INC.
AND
INNERDYNE MEDICAL, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1 DEFINITIONS................................................................2
1.1 "Affiliate"...................................................................2
1.2 "Change of Control"...........................................................2
1.3 "Development Costs"...........................................................2
1.4 "Exclusive Field".............................................................2
1.5 "FDA".........................................................................2
1.6 "Genesis Technology"..........................................................2
1.7 "Government Approval".........................................................2
1.8 "InnerDyne Technology"........................................................3
1.9 "Non-exclusive Field".........................................................3
1.10 "Option Period"...............................................................3
1.12 "Specifications"..............................................................3
1.13 "Standard Costs"..............................................................3
1.14 "System"......................................................................3
1.15 "Territory"...................................................................3
ARTICLE 2 SPECIALIZED DEVICE DEVELOPMENT.............................................3
2.1 Consultation Regarding Specialized Device.....................................3
2.2 Specifications; Minimum Quantities; Ordering..................................4
2.3 Free InnerDyne Devices........................................................5
2.4 Reimbursement of Development Costs............................................5
2.5 InnerDyne Determination.......................................................5
ARTICLE 3 MANUFACTURE AND SUPPLY OF SPECIALIZED DEVICES..............................6
3.1 Obligations to Supply and Purchase............................................6
3.2 Specifications................................................................6
3.3 Manufacturing Practices.......................................................6
3.4 Manufacture of Other System Components........................................7
ARTICLE 4 ORDERING AND FORECASTS.....................................................7
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
(a) 7
4.2 Delivery......................................................................8
4.3 Acceptance....................................................................8
4.4 Payment Terms.................................................................8
4.6 Failure to Supply Specialized Device Forecasts................................9
ARTICLE 5 LICENSE; LICENSE FEES......................................................9
5.1 Exclusive License Grant.......................................................9
5.2 Non-Exclusive License Grant..................................................10
5.3 Back-Up License Grant........................................................10
5.4 License in the Event InnerDyne chooses not to Manufacture....................10
5.5 Loss of Exclusivity..........................................................10
5.6 Covenant Not to Sell InnerDyne Device in the Exclusive Field.................10
5.7 License Fees.................................................................11
ARTICLE 6 REGULATORY MATTERS........................................................11
6.1 Government Approval; InnerDyne Assistance....................................11
6.2 Compliance...................................................................11
6.3 Serious Injury Reporting.....................................................11
6.4 Quality Systems Compliance...................................................12
6.5 Product Recall...............................................................12
ARTICLE 7 TERM AND TERMINATION......................................................12
7.1 Term.........................................................................12
7.3 Material Breach..............................................................13
7.4 Effect of Termination........................................................13
7.5 Accrued Rights and Obligations...............................................13
7.6 Confidential Information.....................................................13
7.7 No Other Rights Upon Termination.............................................14
7.8 Surviving Obligations........................................................14
</TABLE>
ii
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 8 SPECIALIZED DEVICE WARRANTIES; LIMITATIONS OF LIABILITY...................14
8.1 Specialized Device Warranty..................................................14
8.2 Limitation of Liability......................................................14
8.3 Disclaimer of Warranties.....................................................14
ARTICLE 9 INDEMNIFICATION...........................................................14
9.1 Indemnification by InnerDyne.................................................15
9.2 Indemnification by Genesis...................................................15
9.3 Indemnification Procedure....................................................15
ARTICLE 10 INTELLECTUAL PROPERTY.....................................................15
10.1 Ownership of Intellectual Property...........................................15
10.2 Third Party Patent Infringement..............................................16
10.3 Infringement of InnerDyne Technology.........................................16
ARTICLE 11 Confidential Information..................................................16
11.1 Definition...................................................................16
11.2 Nondisclosure Obligations; Exceptions........................................17
11.3 Authorized Disclosure........................................................18
11.4 Parties' Acknowledgment......................................................18
ARTICLE 12 REPRESENTATIONS AND WARRANTIES............................................18
12.1 Representation and Warranties of Genesis.....................................18
12.2 Representations and Warranties of InnerDyne..................................19
ARTICLE 13 MISCELLANEOUS.............................................................19
13.1 Assignment...................................................................19
13.2 Benefits and Binding Nature of Agreement.....................................19
13.3 Entire Agreement.............................................................19
13.4 Force Majeure................................................................20
13.5 Notice.......................................................................20
13.6 Choice of Law; Venue.........................................................20
</TABLE>
iii
<PAGE> 5
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
13.7 Waiver.......................................................................20
13.8 Severability.................................................................20
13.9 Rights and Remedies Cumulative...............................................20
13.10 Independent Contractors......................................................21
13.11 No Publicity.................................................................21
13.12 Captions and Section References..............................................21
13.13 Counterparts.................................................................21
</TABLE>
iv
<PAGE> 6
DEVELOPMENT, LICENSE AND SUPPLY AGREEMENT
This Development, License And Supply Agreement (the "Agreement") is made
as of the 11th day of February, 2000 (the "Effective Date"), by and between
Genesis Medical Technologies, Inc., a California corporation, with its principal
place of business at 655 Mariners Island Boulevard, Suite 303, San Mateo,
California 94404 ("Genesis") and InnerDyne, Inc., a Delaware corporation, with
its principal place of business at 1244 Reamwood Avenue, Sunnyvale, California,
94089 ("InnerDyne"). Genesis and InnerDyne may be referred to herein
individually as a "Party," and collectively, as "Parties."
RECITALS
WHEREAS, Genesis is in the business of developing, manufacturing and
marketing minimally invasive medical devices to improve [***]; and
WHEREAS, InnerDyne is in the business of developing, manufacturing and
marketing minimally invasive surgical access products using radially expanding
dilation technology ("R.E.D. Technology"); and
WHEREAS, InnerDyne has developed certain technologies including radially
expandable/dilatable access devices ("InnerDyne Devices") as part of its R.E.D.
Technology; and
WHEREAS, Genesis and InnerDyne desire to collaborate in the development
of devices for [***], including radially expandable/dilatable access devices
("Specialized Devices") suitable for use with Genesis proprietary technology
("Genesis Technology," as further defined below); and
WHEREAS, Genesis desires to potentially use the Specialized Devices with
other components and Genesis Technology to create a system useful in [***] (the
"System," as further defined below); and
WHEREAS, in the event Genesis chooses to use such Specialized Devices to
include in a System, and in the event InnerDyne provides Genesis a competitive
quote for the manufacture of such Specialized Device, Genesis desires to
purchase Specialized Devices from InnerDyne; and
WHEREAS, in such events InnerDyne desires to supply Specialized Devices
to Genesis;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants set forth below, the Parties hereby agree as follows:
[***] Confidential material redacted and filed separately with the Commission.
1
<PAGE> 7
AGREEMENT
ARTICLE 1
DEFINITIONS
As used herein, the following terms shall have the following meanings:
1.1 "AFFILIATE" shall mean any entity that directly or indirectly Owns,
is Owned by or is under common Ownership with, a Party to this Agreement, where
"Own" or "Ownership" means direct or indirect possession of greater than fifty
percent (50%) of the outstanding voting securities of a corporation or a
comparable equity interest in any other type of entity.
1.2 "CHANGE OF CONTROL" shall mean a merger or acquisition of a Party,
or sale of all or substantially all of a Party's assets.
1.3 "DEVELOPMENT COSTS" shall mean InnerDyne's cost of materials,
equipment (including dedicated tools and fixtures) and labor dedicated
exclusively to developing Specialized Devices, and to assisting Genesis in the
preparation of materials for Government Approval. For the sake of this
definition, the cost of labor shall include the cost of all direct payroll
employees providing direct labor, including the cost of such employees' health
and dental insurance, 401K co-payments, paid time off, and applicable employee
taxes.
1.4 "EXCLUSIVE FIELD" shall mean the use of the Specialized Devices
combined or not combined with other medical devices for: [***].
1.5 "FDA" shall mean both the United States Food and Drug Administration
and the California state Food and Drug Administration.
1.6 "GENESIS TECHNOLOGY" shall mean any and all patents, know-how,
technology, trade secrets, processes, data, methods and any physical, chemical
or biological material or other information which Genesis owns, controls or has
a license to, with the exception of InnerDyne Technology, relating to the
development and manufacture of Specialized Devices and the System.
1.7 "GOVERNMENT APPROVAL" shall mean any approvals, licenses,
registrations or authorizations of any domestic or international federal, state
or local regulatory agency, department, bureau or other government entity,
necessary for the use, marketing, sale or distribution of the Specialized Device
in the Territory.
[***] Confidential material redacted and filed separately with the Commission.
1.8
2
<PAGE> 8
"INNERDYNE TECHNOLOGY" shall mean any and all patents, know-how,
technology, trade secrets, processes, data, methods and any physical, chemical
or biological material or other information which InnerDyne owns, controls or
has a license to relating to the R.E.D. Technology and the development and
manufacture of InnerDyne Devices.
1.9 "NON-EXCLUSIVE FIELD" shall mean the use of a Specialized Device
for: [***].
1.10 "OPTION PERIOD" shall mean a period of up to and including [***]
from the Effective Date during which: (a) the Parties shall work to develop a
Specialized Device; (b) InnerDyne shall determine if it wishes to manufacture
Specialized Devices for Genesis; and (c) Genesis shall decide whether or not to
purchase Specialized Devices from InnerDyne.
1.11 "PURCHASE PRICE" shall mean the purchase price to be paid by
Genesis for the Specialized Devices from InnerDyne, which shall equal [***].
1.12 "SPECIFICATIONS" shall mean the final manufacturing specifications
for the Specialized Device as provided by Genesis to InnerDyne and subsequently
appended hereto as Exhibit A.
1.13 "STANDARD COSTS" shall mean the direct labor costs and direct
materials costs necessary to produce the Specialized Device, plus [***] of such
direct labor costs as overhead. Such direct costs shall be calculated consistent
with Generally Accepted Accounting Principles.
1.14 "SYSTEM" shall mean Genesis' medical device(s) incorporating the
Specialized Device.
1.15 "TERRITORY" shall mean [***].
ARTICLE 2
SPECIALIZED DEVICE DEVELOPMENT
2.1 CONSULTATION REGARDING SPECIALIZED DEVICE. Within thirty (30) days
from the Effective Date, the Parties shall meet to discuss Genesis' needs for a
Specialized Device, and InnerDyne's ability to supply such Specialized Device.
The Parties shall continue to discuss in good faith throughout the Option
Period, the required characteristics for the Specialized Device and potential
supply and demand of the Specialized Device, as appropriate.
[***] Confidential material redacted and filed separately with the Commission.
3
<PAGE> 9
2.2 SPECIFICATIONS; MINIMUM QUANTITIES; ORDERING.
(a) At Genesis' request, InnerDyne shall develop and provide to
Genesis a prototype Specialized Device corresponding to the mutually agreed upon
characteristics and specifications of the Parties. Such prototype shall assist
the Parties in setting specifications for a final Specialized Device. Genesis
shall consult closely with InnerDyne concerning such specifications, but the
final determination as to the Specifications shall be made by Genesis. In any
event, the Specifications must be consistent with and provide for a Specialized
Device which is capable of being manufactured by InnerDyne's processes. The
Specifications shall be appended at Exhibit A and shall include, but not be
limited to, [***] of Specialized Devices, and may also include [***]. Genesis
shall provide InnerDyne with the Specifications soon after they are determined.
(b) Concurrent with providing InnerDyne with the Specifications
(the "Submission Date"), Genesis shall submit to InnerDyne Genesis' minimum
Specialized Device needs for [***] (i.e., the minimum number of units Genesis
commits to purchase [***]) (the "Minimum Quantity"). InnerDyne shall have the
rights to accept or reject such Minimum Quantity in accordance with Section 2.5.
(c) On the Submission Date Genesis will also deliver to InnerDyne
a purchase order for such number of units as Genesis desires be delivered in the
[***], along with a non-binding forecast of the numbers of units expected to be
delivered over the following [***]. By a date no later than thirty (30) days
before the second and each subsequent [***], Genesis will submit a purchase
order for such number of units as Genesis desires be delivered in the second, or
such subsequent, [***], in each case along with a non-binding forecast of the
numbers of units projected to be ordered in the following [***]. All such
purchase orders shall include price terms as provided in Section 1.11.
(d) Prior to the first anniversary of the Submission Date the
parties shall meet and review the actual Standard Costs, as may be adjusted due
to any labor, material or other manufacturing cost decreases or overhead
absorption improvements to date, or which may reasonably be realized in the
following year. Immediately thereafter, Genesis shall submit to InnerDyne its
Minimum Quantity for the [***], and prior to the anniversary of [***] shall
submit its Minimum Quantity for each following [***]. InnerDyne then shall
either accept or reject such Minimum Quantity as provided in Section 2.5. Where
InnerDyne accepts such Minimum Quantity, Genesis will forecast and place
purchase orders as described in (c) above.
(e) In the event InnerDyne does not choose to supply the
Specialized Devices as provided under Section 2.5(c), it nonetheless agrees to
supply the Specialized Devices in such amount forecasted and ordered by Genesis
for such period of time until Genesis, acting in good faith and with commercial
diligence, has qualified a second source of manufacture of such Specialized
Devices.
[***] Confidential material redacted and filed separately with the Commission.
4
<PAGE> 10
2.3 FREE INNERDYNE DEVICES. During the Option Period, InnerDyne shall
supply to Genesis up to [***] standard InnerDyne Devices free of charge for
Genesis' use in clinical trials. Genesis shall be responsible for all aspects of
regulatory approvals related to such InnerDyne Devices supplied by InnerDyne
under this sub-section for clinical trials. In addition, InnerDyne shall supply
Genesis with reasonable quantities of rejected InnerDyne Devices for use in
Genesis' product development process related to this Agreement.
2.4 REIMBURSEMENT OF DEVELOPMENT COSTS. All development work on the
Specialized Device to be performed by InnerDyne during the Option Period shall
be mutually agreed upon in writing by the Parties and budgeted in advance.
Genesis shall reimburse InnerDyne's actual documented Development Costs expended
in developing the Specialized Device plus an additional amount equal to [***] of
such documented Development Costs less the costs of any dedicated tools and
fixtures, within thirty (30) days of delivery to Genesis of such documentation.
2.5 INNERDYNE DETERMINATION.
(a) Within ten (10) days of receiving the Specifications and
Minimum Quantity and first [***] purchase order from Genesis (or, with respect
to the second and any subsequent [***], the Minimum Quantity only), InnerDyne
shall notify Genesis in writing as to whether or not it wishes to manufacture
and supply the Specialized Devices meeting the Specifications and in quantities
equal to at least the Minimum Quantity ("InnerDyne Determination").
(b) If InnerDyne does wish to so supply the Specialized Devices
for Genesis during the [***], it shall inform Genesis as to the Purchase Price
then in effect. Genesis shall thereafter review it and determine during the
Option Period if it wishes to engage InnerDyne to manufacture and supply
Specialized Devices for Genesis. In the event Genesis chooses to engage
InnerDyne to manufacture and supply Specialized Devices ("Affirmative
Determination"), it shall so notify InnerDyne in writing before the expiration
of the Option Period and the Parties shall begin the manufacturing and supply
activities pursuant to ARTICLE 3. Thereafter, if InnerDyne wishes to supply the
Specialized Devices for Genesis during the [***], based upon its determination
under Section 2.5(a), the Purchase Price will be reviewed and adjusted, where
appropriate, by the Parties in accordance with their determination of the
Standard Costs under Section 1.13 and in light of anticipated cost and overhead
absorption changes. Genesis shall thereafter review such Purchase Price
applicable to [***], and determine if it wishes to engage InnerDyne to
manufacture and supply the Specialized Devices for Genesis during [***]. In the
event Genesis chooses to engage InnerDyne to manufacture and supply Specialized
Devices ("Affirmative Determination"), it shall so notify InnerDyne promptly in
writing.
(c) In the event Genesis chooses not to engage InnerDyne to
manufacture and supply Specialized Devices ("Negative Determination") for the
[***], it shall so promptly notify InnerDyne in writing. Within ten (10) days of
receipt of a Negative Determination, InnerDyne shall refund to Genesis the
amount of [***], provided such amount has previously been paid by Genesis to
InnerDyne pursuant to Section 5.7(b). This Agreement shall terminate within
thirty (30) days of any Negative Determination.
[***] Confidential material redacted and filed separately with the Commission.
5
<PAGE> 11
(d) If InnerDyne does not wish to supply the Specialized Devices
for Genesis meeting the Specifications and at the Minimum Quantity, and so
notifies Genesis, or if InnerDyne fails to make an InnerDyne Determination
within ten (10) days after receiving the Specifications and/or the Minimum
Quantity, then the license granted to Genesis pursuant to Section 5.4 shall
become immediately effective. InnerDyne shall also promptly instruct the escrow
agent to release all Escrow Information pursuant to Section 4.6, and provide to
Genesis or Genesis' designee sufficient information about raw materials,
know-how, methods of manufacture and compositions to permit someone skilled in
the art of manufacturing medical devices to practice the license granted herein.
Genesis shall have no further commitment to InnerDyne.
ARTICLE 3
MANUFACTURE AND SUPPLY OF SPECIALIZED DEVICES
3.1 OBLIGATIONS TO SUPPLY AND PURCHASE. In the event of an Affirmative
Determination, InnerDyne agrees to sell to Genesis, and Genesis agrees to buy
from InnerDyne, on [***] basis, Minimum Quantity of the Specialized Devices,
pursuant to purchase orders as issued in accordance with Section 2.2. Such [***]
Minimum Quantity obligations shall first be met [***] from FDA approval of
marketing the System in the U.S. InnerDyne shall allocate sufficient resources,
capital equipment, materials, tools and labor to enable it to supply the
Specialized Devices required by Genesis pursuant to its properly placed Purchase
Orders. Unless either of the licenses granted in Sections 5.3 or 5.4 has become
effective, Genesis shall have no right to manufacture or have manufactured
Specialized Devices, and Genesis shall purchase its full requirements of such
Specialized Devices solely from InnerDyne.
3.2 SPECIFICATIONS. All Specialized Devices manufactured and supplied by
InnerDyne shall conform to the Specifications. The Parties acknowledge that the
Specifications may need to be refined and modified as the Parties gain
experience with the manufacture, testing and use of the Specialized Device.
Accordingly, the Parties agree to negotiate in good faith to modify Exhibit A
from time to time as the Parties' experience with the manufacture, testing and
use of the Specialized Device warrants. Each Specialized Device lot delivered to
Genesis under this Agreement shall be accompanied by appropriate quality control
documentation for such production lot, as required by applicable current FDA
Quality Systems Regulations ("QSR") and ISO regulations, and as specified by
Genesis and agreed to by the Parties.
3.3 MANUFACTURING PRACTICES. All Specialized Devices shall be
manufactured in accordance with applicable current QSR standards promulgated by
the FDA, as well as in accordance with those promulgated by other regulatory
agencies in the Territory, including but not limited to, those of [***]. The
Specialized Devices shall be manufactured in a facility registered with and
approved for such purpose by the FDA, or in the case of jurisdictions outside
the United States, approved by the relevant regulatory agency. InnerDyne shall
not implement any change in the manufacturing process relating to the
Specialized Device which would materially and/or adversely affect the quality of
the Specialized Devices, or which would affect regulatory approval. Before
InnerDyne makes any such change in the manufacturing process, it must first
notify Genesis, and obtain Genesis' written approval. Genesis and its agents
[***] Confidential material redacted and filed separately with the Commission.
6
<PAGE> 12
shall have the right to conduct audits during the term of this Agreement upon
reasonable notice of InnerDyne's manufacturing facilities to verify InnerDyne's
compliance with such QSR and other regulatory regulations; provided, however,
that such audits shall not occur more than [***] a twelve (12)-month period. In
the event of significant manufacturing problems, product complaints, quality
control problems or other problems affecting the quality or supply of
Specialized Devices, the frequency of such audits may be increased upon
reasonable notice to InnerDyne.
3.4 MANUFACTURE OF OTHER SYSTEM COMPONENTS. Genesis shall manufacture or
have manufactured any components other than the Specialized Device comprising
the System. In the event Genesis desires InnerDyne to manufacture any such
components for Genesis, it shall notify InnerDyne, and InnerDyne shall consider
in good faith manufacturing such components for Genesis.
ARTICLE 4
ORDERING AND FORECASTS
4.1 ORDERS.
(a) Subject to an Affirmative Determination by Genesis and the
receipt of FDA marketing approval of the System, before or within sixty (60)
days after Genesis' receipt of the FDA marketing approval, Genesis shall provide
to InnerDyne the initial purchase order for Specialized Devices under Section
2.2. InnerDyne agrees to use best commercial efforts to deliver such Specialized
Devices as soon as practicable thereafter, but in no event later than sixty (60)
days after the date of such order, or as otherwise agreed in writing between the
parties.
(b) Purchase orders subsequent to the initial purchase order
shall be placed [***], in accordance with Section 2.2 (each a "Purchase Order").
InnerDyne will accept any Purchase Order from Genesis, or, in the event of
unanticipated difficulties, InnerDyne will negotiate with Genesis a new delivery
schedule for such Purchase Order and accept such revised Purchase Order, within
five (5) days after receipt of such Purchase Order at its principal place of
business. Notwithstanding the foregoing, following the acceptance of any
Purchase Order, Genesis may reduce or increase the number of Specialized Device
units requested in each [***] of such Purchase Order by up to [***] by notifying
InnerDyne in writing of the exact reduction or increase desired, no later than
sixty (60) days prior to the delivery date requested in the original Purchase
Order, provided, however, that by the end of the relevant [***] period, Genesis
will have nonetheless ordered the Minimum Quantity amount for such [***] period,
subject to Section 4.5.
4.2 DELIVERY. InnerDyne shall use diligent efforts, consistent with its
other shipment obligations and manufacturing capacity, to ship all Specialized
Devices ordered by Genesis on or before the requested shipment date, to the
extent such date is at least sixty (60) days after the date InnerDyne accepts
the Purchase Order for such shipment. The shipping and packaging method used
will be at the discretion of InnerDyne, subject to written approval of Genesis,
but shall be sufficient to ensure that the Specialized Devices will meet the
Specifications after transit.
[***] Confidential material redacted and filed separately with the Commission.
7
<PAGE> 13
Deliveries shall be made FCA InnerDyne's facility (ICC Incoterms 1990) and shall
be shipped to Genesis' address as set forth in this Agreement, or as otherwise
directed by Genesis in writing. All Specialized Devices will be shipped by
InnerDyne freight collect, or if prepaid, such freight will be subsequently
billed to Genesis. If required, InnerDyne will insure the shipments against
damage to or loss of Specialized Devices and will subsequently bill Genesis for
such shipping insurance. Genesis will reimburse InnerDyne for shipping and
insurance expenses, if any, within thirty (30) days after the date of such
invoices.
4.3 ACCEPTANCE. The Parties agree that at such time as an inspection
protocol is mutually agreed upon (the "Inspection Protocol") it shall be
appended to this Agreement as Exhibit B. Genesis shall inspect, using the
Inspection Protocol, all Specialized Device shipments promptly upon receipt
thereof at the shipping destination and may reject any Specialized Device units
which fail to comply with the Specialized Device warranty set forth in Section
8.1. Specialized Device Units not rejected by written notification to InnerDyne
within thirty (30) days after receipt by Genesis shall be deemed to have been
accepted. Rejected goods shall be returned freight prepaid to InnerDyne within
ten (10) days after rejection. As promptly as possible after receipt by
InnerDyne of properly rejected goods, InnerDyne shall, at InnerDyne's option,
(i) replace the rejected goods at InnerDyne's expense, or (ii) grant Genesis a
credit for such rejected goods equal to the price paid therefor. The Party
shipping the goods pursuant to this Section 4.3 shall bear the entire risk of
loss for goods during shipment. Any insurance proceeds payable in respect of any
loss incurred shall be paid to the Party bearing the risk of loss for such goods
to the extent of the loss incurred thereof. For properly rejected goods,
InnerDyne will prepay transportation charges back to Genesis and shall reimburse
Genesis for any reasonable costs of transportation for returning such goods; for
all other goods, Genesis shall pay transportation charges in both directions.
4.4 PAYMENT TERMS. Payments for each shipment of Specialized Devices
shall be due within thirty (30) days after the date of Genesis' receipt and
acceptance of the relevant shipment of Specialized Devices.
4.5 FAILURE TO MEET SPECIALIZED DEVICE MINIMUMS. Any failure by Genesis
to purchase the agreed upon Minimum Quantity during the [***] period after the
FDA marketing approval of the System, and during any [***] period thereafter,
shall be deemed a material breach by Genesis, subject to Section 7.3(a);
provided, however, that where Genesis has purchased at least [***] of the
Minimum Quantity, or purchases up to that percentage during the sixty (60) day
cure period provided under Section 7.3(a), Genesis shall have the option to pay
to InnerDyne an amount equal to the "Foregone Gross Profit" for that percentage
of the Minimum Quantity which Genesis failed to purchase, which amount shall be
due to InnerDyne within thirty (30) days after the end of such sixty (60) day
cure period. "Foregone Gross Profit shall mean the product of: (a) the number of
Specialized Devices that Genesis would have had to purchase for the [***] to
meet the Minimum Quantity; and (b) the Purchase Price for such quantity, less
InnerDyne's Standard Costs.
4.6 FAILURE TO SUPPLY SPECIALIZED DEVICE FORECASTS.
[***] Confidential material redacted and filed separately with the Commission.
8
<PAGE> 14
(a) Within ninety (90) days of an Affirmative Determination,
InnerDyne shall provide to a third party, who shall be a mutually acceptable
escrow agent, sufficient information about and documentation of raw materials,
know-how, methods of manufacture, compositions, relevant quality control
procedures, and regulatory documentation ("Escrow Information") to permit
someone skilled in the art of manufacturing medical devices to practice the
license granted in Section 5.3. From time to time InnerDyne shall deposit with
the escrow agent updated Escrow Information as such Escrow Information changes
or accumulates. The Parties shall enter into an agreement with such third party
escrow agent at Genesis' cost providing, among other things, that the Escrow
Materials be released to Genesis in the event that (a) InnerDyne elects not to
manufacture and supply under Section 2.5(c); or fails to supply pursuant to
Section 4.6(b) as provided below.
(b) In the event InnerDyne is unable to supply Genesis' binding
forecasted Specialized Device Units by a shortfall of greater than [***], it
shall immediately notify Genesis. Such a failure shall be deemed a material
breach by InnerDyne. At such time, Genesis may, at its sole election, either:
(a) work with InnerDyne to find a mutually agreeable solution to the supply
shortfall; (b) immediately exercise the license in Section 5.3; or (c) terminate
this Agreement. In the event that Genesis elects to terminate this Agreement
pursuant to subsection 4.6(b)(c), and less than [***] has elapsed since the
Effective Date, InnerDyne shall return to Genesis the fee set forth under
Section 5.7(b) of [***]. In the event Genesis elects to exercise the license in
Section 5.3, InnerDyne shall promptly assist Genesis in fully transferring any
and all other information or technology relating to Specialized Device
manufacturing (that has not already been escrowed) to Genesis or to Genesis'
sublicensee or agent, as the case may be.
ARTICLE 5
LICENSE; LICENSE FEES
5.1 EXCLUSIVE LICENSE GRANT. Subject to the terms and conditions of this
Agreement, InnerDyne hereby grants to Genesis, an exclusive (subject to Section
5.5), even as to InnerDyne, royalty-free license under InnerDyne Technology, to
use, market, sell and distribute Specialized Devices in the Exclusive Field in
the Territory.
5.2 NON-EXCLUSIVE LICENSE GRANT. Subject to the terms and conditions of
this Agreement, InnerDyne hereby grants to Genesis a non-exclusive, royalty-free
license under InnerDyne Technology to use, market, sell and distribute
Specialized Devices in the Non-Exclusive Field in the Territory.
5.3 BACK-UP LICENSE GRANT. Subject to an Affirmative Determination, and
to Sections 3.1 and Section 4.6, InnerDyne hereby grants Genesis a worldwide,
royalty-bearing, perpetual license (with the right to sublicense) under the
InnerDyne Technology to make and have made Specialized Devices, exclusively for
the Exclusive Field and non-exclusively for the Non-Exclusive Field. Such
royalty shall not exceed [***] of Genesis' or Genesis' sublicensee's
fully-burdened cost of manufacturing the Specialized Device. In the event of a
Change of Control of InnerDyne, the royalty owed to InnerDyne by Genesis for
exercising the
[***] Confidential material redacted and filed separately with the Commission.
9
<PAGE> 15
license under this Section 5.3, shall decrease to [***] of Genesis' or Genesis'
sublicensee's fully-burdened cost of manufacturing Specialized Devices. The
Parties agree that Genesis shall have the exclusive right to access and use the
Escrow Information deposited into escrow to practice the license granted
hereunder.
5.4 LICENSE IN THE EVENT INNERDYNE CHOOSES NOT TO MANUFACTURE. In the
event InnerDyne chooses not to manufacture the Specialized Devices pursuant to
Section 2.5(d), InnerDyne hereby grants Genesis a worldwide, royalty-bearing
license (with the right to sublicense) under the InnerDyne Technology to make
and have made Specialized Devices exclusively for the Exclusive Field and
non-exclusively for the Non-Exclusive Field. Such royalty shall equal [***] of
Genesis' or Genesis' sublicensee's fully-burdened cost of manufacturing the
Specialized Device. In the event of a Change of Control of InnerDyne, the
royalty owed to InnerDyne by Genesis for exercising the license under this
Section 5.4, shall decrease to [***] of Genesis' or Genesis' sublicensee's
fully-burdened cost of manufacturing Specialized Devices.
5.5 LOSS OF EXCLUSIVITY. In the event InnerDyne undergoes a Change of
Control, the license granted to Genesis in Section 5.1, shall become exclusive
to Genesis except as to the successor entity affecting the Change of Control.
5.6 COVENANT NOT TO SELL INNERDYNE DEVICE IN THE EXCLUSIVE FIELD. During
the term of this Agreement, InnerDyne hereby covenants not to make, use, sell,
or distribute any InnerDyne Device in the Exclusive Field other than in the
event of an InnerDyne Change of Control, where InnerDyne or its successor may
make, use, sell, distribute or have made, have sold or have distributed an
InnerDyne Device in such Exclusive Field. InnerDyne hereby also covenants that
it shall not knowingly provide or enter into a contract to provide any InnerDyne
Device to any third party for commercial sale, distribution or use in the
Exclusive Field, with the proviso that Genesis shall have the burden of
notifying InnerDyne and providing InnerDyne with reasonably sufficient evidence
that an InnerDyne Device is being sold, distributed or used in the Exclusive
Field. Genesis shall waive any claim for damages against InnerDyne under this
provision to the extent that such damages have accrued prior to Genesis'
notification of InnerDyne of the unapproved sales or use of the InnerDyne Device
in the Exclusive Field.
5.7 LICENSE FEES. In consideration for the licenses granted in this
Agreement, Genesis shall pay InnerDyne license fees as follows:
(a) [***] upon the Effective Date;
(b) [***] upon the earlier of the [***] anniversary of this
Agreement, or [***] after [***].
[***] Confidential material redacted and filed separately with the Commission.
10
<PAGE> 16
In the event this Agreement is terminated prior to the expiration of the Option
Period, InnerDyne shall promptly refund to Genesis any and all license fee
amounts paid to InnerDyne over [***].
ARTICLE 6
REGULATORY MATTERS
6.1 GOVERNMENT APPROVAL; INNERDYNE ASSISTANCE. At any time before and up
to ninety (90) days after an Affirmative Determination, unless such ninety (90)
day limitation is not possible due to the requirement by the FDA of clinical
testing, or as otherwise agreed to in writing by both parties, Genesis shall
file with the Food and Drug Administration (the "FDA") a Premarket Notification
510(k), as well as file all other filings necessary to obtain Government
Approval for the intended marketing and sale of the Specialized Device as part
of the System in the Territory. InnerDyne will furnish Genesis with such
assistance and cooperation as may reasonably be requested in connection with
securing any such Government Approvals. Genesis shall reimburse InnerDyne the
actual documented Development Costs expended in assisting Genesis in connection
with obtaining any Governmental Approval at InnerDyne's documented Development
Costs plus an additional amount equal to [***] of such documented Development
Costs less the costs of any dedicated tools and fixtures .
6.2 COMPLIANCE. InnerDyne shall conduct its efforts under this Agreement
in compliance with all applicable regulatory requirements governing the
development and manufacture of medical devices for each country in the
Territory. InnerDyne shall comply with Genesis' requests for the provision of
information necessary or useful for Genesis to comply with any medical device
reporting requirements in the Territory.
6.3 SERIOUS INJURY REPORTING. Either Party shall advise the other Party,
by telephone or confirmed facsimile, immediately but not later than twenty-four
(24) hours after it becomes aware of any serious injury from the use of the
Specialized Device or malfunction of the Specialized Device. Such advising Party
shall provide the other Party with a written report delivered by confirmed
facsimile and U.S. mail of any reported serious injury or malfunction, stating
the full facts known to it, including, but not limited to, customer name,
address, telephone number and instrument, and lot or serial number, as
appropriate. Genesis, or as agreed in Section 6.4, shall investigate and confirm
any reported serious injury and shall be responsible for reporting and
compliance under applicable medical device reporting regulations.
6.4 QUALITY SYSTEMS COMPLIANCE. In the event of an Affirmative
Determination, InnerDyne: (a) will manufacture the Specialized Device in
compliance with FDA Quality System Regulation (QSR) and other federal, state and
FDA requirements applicable to medical device manufacture; (b) will maintain
compliance with current ISO 9001 et seq. requirements and any future amendments;
(c) will maintain compliance with European Commission EN46000 et seq.
regulations applicable to the design and manufacture of medical devices; (d)
will comply with applicable requirements of any other regulatory bodies having
jurisdiction over the development and manufacture of the Specialized Device and
System. Within thirty (30) days of the Effective Date, the Parties shall
mutually agree upon a quality system matrix ("Quality System Matrix")
[***] Confidential material redacted and filed separately with the Commission.
11
<PAGE> 17
allocating between the Parties individual responsibilities for the development
of the Specialized Device in compliance with quality system regulations. Within
thirty (30) days of an Affirmative Determination, the Parties shall mutually
agree upon a Quality System Matrix allocating between the Parties individual
responsibilities for the marketing and supply of the Specialized Device in
compliance with quality system regulations. Genesis, the FDA and other
regulatory authorities may inspect InnerDyne's facilities, procedures and
records relating to the manufacture of Specialized Devices at reasonable times
and upon reasonable notice.
6.5 PRODUCT RECALL. If either Party believes or is notified that a
recall of any Specialized Device is desirable or required by law, it will
promptly notify the other Party. The Parties will then discuss reasonably and in
good faith whether such recall is appropriate or required and the manner in
which any mutually agreed recall shall be handled. This Section 6.5 shall not
limit the obligations of either Party under law with respect to recall of
Specialized Devices required by law or properly mandated by governmental
authority. In the event of a voluntary recall, the Party initiating the recall
shall bear the expenses incurred in connection with the voluntary recall. In the
event of a mandatory recall, the Party responsible for causing the recall shall
bear the expenses incurred in connection with the mandatory recall. InnerDyne
shall bear the expenses incurred for any failure of the Specialized Device to
meet Specifications due to manufacturing flaws.
ARTICLE 7
TERM AND TERMINATION
7.1 TERM. This Agreement shall commence on the Effective Date and shall
remain in full force and effect until any InnerDyne patents used in the
Specialized Devices have expired ("Term"), unless earlier terminated as provided
herein.
7.2 EARLY TERMINATION BY GENESIS. Genesis may terminate this Agreement
during the Option Period for any or no reason, upon [***] days' prior written
notice to InnerDyne, in which case Genesis shall compensate InnerDyne for all
costs incurred through the effective date of termination as provided for in
Section 2.4.
7.3 MATERIAL BREACH.
(a) MATERIAL BREACH BY GENESIS.
(i) Except as provided in Section 4.5, any failure by
Genesis to purchase the applicable Minimum Quantity in a given [***] period
after FDA marketing approval of the System and Affirmative Determination, which
failure is not cured within the sixty (60)-day period following the end of such
[***] period, shall be deemed a material breach of this Agreement and InnerDyne
shall have the right to terminate this Agreement.
(ii) With respect to any material breach of any of the
terms of this Agreement by Genesis other than as described in Section 7.3(a)(i)
above, InnerDyne shall have
[***] Confidential material redacted and filed separately with the Commission.
12
<PAGE> 18
the right to terminate this Agreement immediately upon written notice, or, in
the case of a breach capable of remedy, which such breach shall not have been
remedied within sixty (60) days after the receipt by Genesis of written notice
specifying the breach and requiring its remedy, upon expiration of such cure
period.
(b) MATERIAL BREACH BY INNERDYNE. Genesis shall have the right to
terminate this Agreement immediately upon written notice if InnerDyne commits
any material breach of any of the terms of this Agreement which, in the case of
a breach capable of remedy, shall not have been remedied within sixty (60) days
after the receipt by InnerDyne of written notice specifying the breach and
requiring its remedy. All licenses granted pursuant to this Agreement shall
survive any such termination for the duration of the Term.
7.4 EFFECT OF TERMINATION. Upon the termination of this Agreement, the
following shall occur:
(a) TERMINATION OF LICENSES. Except as otherwise provided in
Section 7.3(b), the licenses set forth in ARTICLE 5 shall terminate and Genesis
shall immediately discontinue all marketing, sales and distribution of the
Specialized Device in the Territory. Notwithstanding the foregoing, Genesis
shall have the right to sell any Specialized Devices remaining in inventory.
7.5 ACCRUED RIGHTS AND OBLIGATIONS. The rights of either Party which may
have accrued up to the date of such termination shall not be affected, and
Genesis shall not be relieved of any obligation for any sums due to InnerDyne
for development costs as per Section 2.4 and for Specialized Devices covered by
Purchase Orders accepted prior to termination and due to be delivered within the
ninety (90) day period following the effective date of such termination
(including any amount due but not yet paid, with all such amounts being
nonrefundable and not subject to any setoff or similar right).
7.6 CONFIDENTIAL INFORMATION. Each Party shall return to the other or
destroy, at the other Party's instruction, all Confidential Information of the
other Party, with the exception of records required to be maintained to be in
compliance with FDA or other governmental regulations.
7.7 NO OTHER RIGHTS UPON TERMINATION. Neither Party hereto shall be
responsible to the other for compensation, damages, or otherwise by reason of
termination of this Agreement, except for termination due to material breach
pursuant to Section 7.3, at any time, except as provided herein.
7.8 SURVIVING OBLIGATIONS. Termination of this Agreement shall not
relieve either Party of its obligations under Sections ARTICLEs 8, 9, 10, 11 and
12 hereof.
ARTICLE 8
SPECIALIZED DEVICE WARRANTIES; LIMITATIONS OF LIABILITY
13
<PAGE> 19
8.1 SPECIALIZED DEVICE WARRANTY. InnerDyne warrants that the Specialized
Devices supplied by InnerDyne under this Agreement will be of merchantable
quality, will conform to the Specialized Device Specifications and will be
manufactured in accordance with QSRs, ISO 9001 et seq., EN46000 et seq. and
other applicable regulations. In no event shall InnerDyne be liable under this
Agreement for any failure of any Specialized Device to meet the Specialized
Device Specifications due to improper use, storage or shipment by Genesis or
anyone receiving the Specialized Device directly or indirectly from Genesis.
8.2 LIMITATION OF LIABILITY. EXCEPT AS TO DAMAGES ARISING PURSUANT TO
SECTION 5.6, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT,
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING LOSS OF PROFITS,
REVENUE, DATA OR USE, INCURRED BY THE OTHER PARTY, WHETHER IN CONTRACT OR TORT
OR BASED ON A WARRANTY, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
8.3 DISCLAIMER OF WARRANTIES. EXCEPT AS EXPRESSLY PROVIDED FOR IN THIS
AGREEMENT, NEITHER PARTY MAKES ANY WARRANTIES TO THE OTHER OR TO ANY THIRD
PARTY, AND EACH PARTY EXPRESSLY DISCLAIMS ANY SUCH WARRANTIES, WHETHER EXPRESS
OR IMPLIED, RELATING TO THE SPECIALIZED DEVICES, THE PARTIES' RESPECTIVE
TECHNOLOGY, OR OTHERWISE RELATING TO THIS AGREEMENT, INCLUDING WITHOUT
LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, AND NONINFRINGEMENT.
ARTICLE 9
INDEMNIFICATION
9.1 INDEMNIFICATION BY INNERDYNE. InnerDyne agrees to and hereby does
indemnify and hold Genesis harmless from and against all third-party claims,
damages, losses, costs and expenses, including reasonable attorney's fees, which
Genesis may incur by reason of any Specialized Devices sold or furnished by
InnerDyne which result in injury, illness or death of any person, to the extent
that such claims arise out of or result from the failure of the Specialized
Device to meet the Specialized Device warranty set forth in Section 8.1, or the
recklessness, gross negligence, or willful misconduct of InnerDyne or its
officers, employees or agents.
9.2 INDEMNIFICATION BY GENESIS. Genesis agrees to and hereby does
indemnify and hold InnerDyne harmless from and against all third-party claims,
damages, losses, costs and expenses, including reasonable attorney's fees, which
InnerDyne may incur to the extent that such claims arise out of or result from
(i) the sale or other distribution of Specialized Devices by Genesis or use by
any purchasers, (ii) any representation made or warranty given by Genesis with
respect to the Specialized Device, (iii) the manufacture, sale or use of any
product which is not supplied by InnerDyne and which is sold or combined by
Genesis with a Specialized Device, or
14
<PAGE> 20
(iv) the recklessness, gross negligence, or willful misconduct of Genesis or
Genesis' officers, employees or agents.
9.3 INDEMNIFICATION PROCEDURE. The Party seeking indemnification under
this ARTICLE 9 (the "Indemnified Party") shall (i) give the other Party (the
"Indemnifying Party") notice of the relevant claim, (ii) cooperate with the
Indemnifying Party, at the Indemnifying Party's expense, in the defense of such
claim, and (iii) give the Indemnifying Party the right to control the defense
and settlement of any such claim, except that the Indemnifying Party shall not
enter into any settlement that affects the Indemnified Party's rights or
interest without the Indemnified Party's prior written approval. The Indemnified
Party shall have no authority to settle any claim on behalf of the Indemnifying
Party.
ARTICLE 10
INTELLECTUAL PROPERTY
10.1 OWNERSHIP OF INTELLECTUAL PROPERTY.
(a) Genesis shall retain all of its rights, title and interest in
and to and ownership of all Genesis Technology. InnerDyne shall retain all of
its rights, title and interest in and to and ownership of all InnerDyne
Technology.
(b) Any intellectual property, whether or not patentable,
developed by either Genesis or InnerDyne during the Option Period and the Term
of this Agreement related to Specialized Devices ("Specialized Device
Inventions") shall be promptly disclosed to the other Party. InnerDyne shall own
all such Specialized Device Inventions, provided however, that all such
Specialized Device Inventions are subject to the licenses granted to Genesis
under ARTICLE 5. Genesis hereby assigns all of its rights, title and interest in
and to such Specialized Device Inventions to InnerDyne.
10.2 THIRD PARTY PATENT INFRINGEMENT.
(a) INDEMNIFICATION AND SECURING CONTINUED RIGHTS. In the event a
System becomes the subject of a claim for patent or other proprietary right
infringement anywhere in the world by virtue of the incorporation of the
Specialized Device therein, the Parties shall promptly give notice to one
another. InnerDyne shall indemnify and hold Genesis harmless from and will
defend Genesis against any action brought against Genesis to the extent that the
action is based on a claim that the use or sale of the Specialized Device (as
such infringing portion of the Specialized Device corresponds to the InnerDyne
Device unmodified by the Parties under this Agreement) infringes any patent or
other proprietary rights of any third party, but in no event shall InnerDyne
indemnify Genesis for actions under this Section 10.2(a) in an aggregate of
[***]. In addition, in such event InnerDyne shall, either alone or with Genesis,
at Genesis' election, and at InnerDyne's sole expense: (a) engage in
negotiations with such third party with a view to settling any such infringement
suit; (b) obtain for Genesis all licenses and other rights to continue using and
selling the System incorporating the Specialized
[***] Confidential material redacted and filed separately with the Commission.
15
<PAGE> 21
Device; or (c) otherwise assist Genesis in connection with resolving any such
infringement and securing Genesis' rights to use and sell the Specialized
Device.
(b) NO MINIMUM OBLIGATIONS. Notwithstanding anything in this
Agreement to the contrary, Genesis shall be under no obligation to purchase the
Specialized Device for sale in the Territory if such Specialized Device has been
held to infringe a third party patent by a court or other tribunal of competent
jurisdiction in the Territory.
10.3 INFRINGEMENT OF INNERDYNE TECHNOLOGY. In the event InnerDyne or
Genesis becomes aware of any actual or threatened infringement of any InnerDyne
Technology, that Party shall promptly notify the other. InnerDyne shall have the
first right to bring, at its own expense, any infringement action against any
person or entity infringing the InnerDyne Technology directly or contributorily.
Genesis shall cooperate with InnerDyne as reasonably requested, at InnerDyne's
expense. Any and all amounts recovered with respect to such an infringement
action shall be retained by InnerDyne. In the event InnerDyne is unable or
unwilling to commence an action against the alleged infringer within one-hundred
and twenty (120) days of the date of InnerDyne's becoming aware of such
infringement, Genesis may, but shall not be required to, prosecute the alleged
infringement or threatened infringement. In such event Genesis shall act in its
own name and at its own expense. In the event of such action by Genesis, any
recovery obtained shall be retained by Genesis.
ARTICLE 11
CONFIDENTIAL INFORMATION
11.1 DEFINITION. For purposes of this Agreement, "Confidential
Information" shall mean, subject to the limitations set forth in Section 11.2
below, all information received by one Party from the other Party during the
term of this Agreement. In particular, Confidential Information shall be deemed
to include, but not be limited to, any technology, know-how, processes, patent
application or drawing or potential patent claim disclosed by the other Party or
derived from information thus disclosed, and any trade secret, invention, idea,
process, formula or test data relating to any research project, work in process,
future development, engineering, manufacturing, regulatory, marketing,
servicing, financing or personnel matter relating to the disclosing Party, its
present or future products, sales, suppliers, clients, customers, employees,
investors or business, whether in oral, written, graphic or electronic form.
11.2 NONDISCLOSURE OBLIGATIONS; EXCEPTIONS. During the term of this
Agreement, and for a period of five (5) years after termination thereof, each
Party will maintain all Confidential Information in trust and confidence and
will not disclose any Confidential Information to any third party or use any
Confidential Information for any unauthorized purpose. Each Party may use such
Confidential Information only to the extent required to accomplish the purposes
of this Agreement. Confidential Information shall not be used for any purpose or
in any manner that would constitute a violation of any laws or regulations,
including without limitation the export control laws of the United States.
Confidential Information shall not be reproduced in any form except as required
to accomplish the intent of this Agreement. No Confidential Information shall be
disclosed to any employee, agent, consultant, Affiliate, or sublicensee who does
not have a
16
<PAGE> 22
need for such information. To the extent that disclosure is authorized by this
Agreement, the disclosing Party will obtain prior agreement from its employees,
agents, consultants, Affiliates or sublicensees to whom disclosure is to be made
to hold in confidence and not make use of such information for any purpose other
than those permitted by this Agreement. Each Party will use at least the same
standard of care as it uses to protect proprietary or confidential information
of its own to ensure that such employees, agents and consultants do not disclose
or make any unauthorized use of the Confidential Information. Each Party will
promptly notify the other upon discovery of any unauthorized use or disclosure
of the Confidential Information.
Confidential Information shall not include any information which:
(a) is now, or hereafter becomes, through no act or failure to
act on the part of the receiving Party, generally known or available;
(b) is known by the receiving Party at the time of receiving such
information, as evidenced by its written records;
(c) is hereafter furnished to the receiving Party by a third
Party, as a matter of right and without restriction on disclosure;
(d) is independently developed by the receiving Party without any
breach of this Agreement; or
(e) is the subject of a written permission to disclose provided
by the disclosing Party.
The Parties agree that the material financial terms of the Agreement
will be considered Confidential Information of both Parties. The Parties also
agree that this Agreement will not be announced in any manner, except as
required by regulatory bodies.
11.3 AUTHORIZED DISCLOSURE. Notwithstanding any other provision of this
Agreement, each Party may disclose Confidential Information if such disclosure:
(a) is in response to a valid order of a court or other
governmental body of the United States or any political subdivision thereof;
provided, however, that the responding Party shall first have given notice to
the other Party hereto and shall have made a reasonable effort to obtain a
protective order requiring that the Confidential Information so disclosed be
used only for the purposes for which the order was issued;
(b) is otherwise required by law; or
(c) is otherwise necessary to file or prosecute patent
applications, prosecute or defend litigation or comply with applicable
governmental regulations or otherwise establish rights or enforce obligations
under this Agreement, but only to the extent that any such disclosure is
necessary.
17
<PAGE> 23
(d) is to a consultant or contractor of Genesis, where such
consultant or contractor is bound under a binder of confidentiality equivalent
in scope of ARTICLE 11 herein.
11.4 PARTIES' ACKNOWLEDGMENT. The Parties hereby expressly acknowledge
that [***] was the inventor of [***] and has knowledge of [***] information that
was not obtained by disclosure of InnerDyne under this Agreement. The Parties
agree that such information is not governed by this ARTICLE 11.
ARTICLE 12
REPRESENTATIONS AND WARRANTIES
12.1 REPRESENTATION AND WARRANTIES OF GENESIS. Genesis hereby represents
and warrants as follows:
(a) CORPORATE POWER. Genesis is duly organized and validly
existing under the laws of the state of California and has full corporate power
and authority to enter into this Agreement and to carry out the provisions
hereof.
(b) DUE AUTHORIZATION. Genesis is duly authorized to execute and
deliver this Agreement and to perform its obligations hereunder.
(c) BINDING AGREEMENT. This Agreement is a legal and valid
obligation binding upon Genesis and is enforceable in accordance with its terms.
The execution, delivery and performance of this Agreement by Genesis does not
conflict with any agreement, instrument or understanding, oral or written, to
which it is a Party or by which it may be bound, nor violate any law or
regulation of any court, governmental body or administrative or other agency
having authority over it.
12.2 REPRESENTATIONS AND WARRANTIES OF INNERDYNE. InnerDyne hereby
represents and warrants as follows:
(a) CORPORATE POWER. InnerDyne is duly organized and validly
existing under the laws of the state of Delaware and has full corporate power
and authority to enter into this Agreement and to carry out the provisions
hereof.
(b) DUE AUTHORIZATION. InnerDyne is duly authorized to execute
and deliver this Agreement and to perform its obligations hereunder.
(c) BINDING AGREEMENT. This Agreement is a legal and valid
obligation binding upon InnerDyne and is enforceable in accordance with its
terms. The execution, delivery and performance of this Agreement by InnerDyne
does not conflict with any agreement, instrument or understanding, oral or
written, to which it is a Party or by which it may be bound, nor violate any law
or regulation of any court, governmental body or administrative or other agency
having authority over it.
[***] Confidential material redacted and filed separately with the Commission.
18
<PAGE> 24
ARTICLE 13
MISCELLANEOUS
13.1 ASSIGNMENT. Except as otherwise provided herein, neither Party may
assign its rights or delegate its duties under this Agreement without the prior
written consent of the other; provided, however, that each Party may, without
such consent, assign this Agreement to any Affiliate or any successor by merger
or sale of substantially all of its business units to which this Agreement
relates. Any attempted assignment or delegation in contravention of the
foregoing shall be void and of no effect.
13.2 BENEFITS AND BINDING NATURE OF AGREEMENT. In the case of any
permitted assignment of this Agreement, this Agreement or the relevant
provisions shall be binding upon, and inure to the benefit of, the successors,
executors, heirs, representatives, administrators and assigns of the Parties
hereto.
13.3 ENTIRE AGREEMENT. This Agreement, together with the exhibits and
schedules attached and referenced herein, embodies the final, complete and
exclusive understanding between the Parties, and replaces and supersedes all
previous agreements, understandings or arrangements between the Parties with
respect to its subject matter. No modification or waiver of any terms or
conditions hereof, nor any representations or warranties shall be of any force
or effect unless such modification or waiver is in writing and signed by an
authorized officer of each Party hereto.
13.4 FORCE MAJEURE. Neither Party shall be liable to the other for its
failure to perform any of its obligations under this Agreement, except for
payment obligations, during any period in which such performance is delayed
because of, or rendered impracticable or impossible due to, circumstances beyond
its reasonable control, provided that the Party experiencing the delay promptly
notifies the other of the delay.
13.5 NOTICE. All notices concerning this Agreement shall be written in
the English language and shall be deemed to have been received (a) two (2) days
after being properly sent by commercial overnight courier, or (b) one (1) day
after being transmitted by confirmed facsimile, in each case addressed to the
address below:
If to Genesis:
Genesis Medical Technologies, Inc.
655 Mariners Island Boulevard, Suite 303
San Mateo, CA 94404
Fax:
If to InnerDyne:
InnerDyne Medical, Inc.
1244 Reamwood Avenue
Sunnyvale, CA 94089
19
<PAGE> 25
Fax:
13.6 CHOICE OF LAW; VENUE. This Agreement is made in accordance with and
shall be governed and construed under the laws of the State of California,
excluding its choice of law rules. Any claim or controversy arising out of or
related to this Agreement or any breach hereof shall be submitted to the
appropriate State Court or United States Federal Court in or for Santa Clara
County the State of California, and each Party hereby consents to the
jurisdiction and venue of such court.
13.7 WAIVER. Any waiver (express or implied) by either Party of any
default or breach of this Agreement shall not constitute a waiver of any other
or subsequent default or breach.
13.8 SEVERABILITY. In the event that any provision of this Agreement
shall be unenforceable or invalid under any applicable law or be so held by
applicable court decision, such enforceability or invalidity shall not render
this Agreement unenforceable or invalid as a whole, and, in such event, such
provision shall be changed and interpreted so as to best accomplish the
objectives of such unenforceable or invalid provision within the limits of
applicable law or applicable court decisions.
13.9 RIGHTS AND REMEDIES CUMULATIVE. Except as expressly provided
herein, the rights and remedies provided in this Agreement shall be cumulative
and not exclusive of any other rights and remedies provided by law or otherwise.
13.10 INDEPENDENT CONTRACTORS. Each Party shall act as an independent
contractor under the terms of this Agreement. Neither Party is, nor shall it be
deemed to be, an employee, agent, co-venturer or legal representative of the
other for any purpose. Neither Party shall be entitled to enter into any
contracts in the name of, or on behalf of the other, nor shall either Party be
entitled to pledge the credit of the other in any way or hold itself out as
having authority to do so.
13.11 NO PUBLICITY. Neither Party shall disclose the terms or existence
of this Agreement, except as required by regulatory entities such as the FDA and
the Securities and Exchange Commission. If public disclosure of this Agreement
is judged to be required or desired by either of the Parties (other than as
required by regulatory entities), the Party wishing to make the public
disclosure shall notify the other Party ("Notified Party") and request its
approval. Within forty-eight (48) hours of such notification, the Parties shall
discuss the potential disclosure in good faith, and the Notified Party shall not
unreasonably withhold approval of such disclosure.
13.12 CAPTIONS AND SECTION REFERENCES. The section headings appearing in
this Agreement are inserted only as a matter of convenience and in no way
define, limit, construe or describe the scope or extent of such section or in
any way affect such section.
13.13 COUNTERPARTS. This Agreement may be executed in counterparts with
the same force and effect as if each of the signatories had executed the same
instrument.
20
<PAGE> 26
IN WITNESS WHEREOF, the Parties have each caused this Agreement to be
signed and delivered by their duly authorized representatives as of the date
first written above.
GENESIS MEDICAL INNERDYNE MEDICAL, INC.
TECHNOLOGIES, INC.
By: /s/Paul W. Brown By: /s/ William G. Mavity
------------------------------ ------------------------------------
Title: Chairman Title: President and CEO
21
<PAGE> 27
EXHIBIT A
SPECIALIZED DEVICE SPECIFICATIONS
1
<PAGE> 28
EXHIBIT B
INSPECTION PROTOCOL
2
<
<PAGE> 1
EXHIBIT 10.48
CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.
SUPPLY, LICENSE AND DISTRIBUTION AGREEMENT
This Supply, License and Distribution Agreement (the "AGREEMENT") is
entered into as of March 27, 2000, between INNERDYNE, INC., a Delaware
corporation with principal offices at 1244 Reamwood Avenue, Sunnyvale, CA 94089
("INNERDYNE"), phone: 408/745-6010, fax: 408/745-6570, and MAXXIM MEDICAL, INC.,
a Delaware corporation, with principal offices at 10300 - 49th Street North,
Clearwater, Florida 33762 ("MAXXIM"), phone 727/561-2100, fax: 727/572-8840.
RECITALS
WHEREAS, Maxxim is in the business of developing, manufacturing and
marketing interventional cardiology, radiology and neurology medical devices;
and
WHEREAS, InnerDyne is in the business of developing and manufacturing
interventional cardiology, radiology and neurology access devices using radially
expanding dilation technology ("R.E.D. Technology"); and
WHEREAS, InnerDyne has developed certain technologies including radially
expandable/dilatable access devices ("InnerDyne Devices") as part of its R.E.D.
Technology; and
WHEREAS, Maxxim desires to potentially use the InnerDyne Devices with
other components to create a system useful for percutaneous vascular access (the
"System"); and
WHEREAS, Maxxim desires to purchase InnerDyne Devices from InnerDyne;
and
WHEREAS, InnerDyne desires to supply InnerDyne Devices to Maxxim
NOW THEREFORE, in consideration of the mutual promises contained herein,
the parties agree as follows:
1. DEFINITIONS
(a) "EFFECTIVE DATE" shall mean [***] if InnerDyne has received
510(k) approval for Filing No. K992668 for the InnerDyne
Devices discussed herein, and, if not, then the first day of
the month following InnerDyne's receipt of a marketing
clearance with respect to U.S. Food and Drug Administration
510(k) filing No. K992668. Such Effective Date shall be
confirmed in writing by the parties hereto once determined.
(b) "INNERDYNE DEVICES" shall mean those InnerDyne devices
listed in Exhibit "A" attached hereto.
(c) "SYSTEM" shall mean Maxxim's combination of an InnerDyne
Device and a Maxxim Product for use in the Permitted Fields.
(d) "MAXXIM PRODUCTS" shall mean those Maxxim products chosen by
Maxxim, in its sole and absolute discretion, to be sold in
conjunction with the InnerDyne Devices.
[***] Confidential material redacted and filed separately with the Commission.
<PAGE> 2
Maxxim shall be under no obligation to continue the
production of any Maxxim Product.
(e) "PERMITTED FIELDS" shall mean interventional cardiology,
radiology, neurology and critical care.
(f) "TERRITORY" shall mean the United States and Central and
South America including the East and West Caribbean.
(g) "ADDITIONAL TERRITORY" shall include [***].
(h) "AFFILIATE" shall mean any entity that directly or
indirectly Owns, is Owned by or is under common Ownership
with a Party to this Agreement, where "Own" or "Ownership"
means direct or indirect possession of greater than fifty
percent (50%) of the outstanding voting stock/securities of
a corporation or a comparable equity interest in any other
type of entity.
(i) "CHANGE OF CONTROL" shall mean a merger or acquisition of a
Party, or sale of all or substantially all of a Party's
assets.
(j) "GOVERNMENT APPROVAL" shall mean any approvals, licenses,
registrations or authorizations of any domestic or
international, federal, state or local regulatory agency,
department, bureau or other government entity, necessary for
the use, marketing, sale or distribution of the InnerDyne
Device in the Territory including but not limited to 510(k)
approvals.
(k) "PURCHASE PRICE" shall mean the purchase price to be paid by
Maxxim for the InnerDyne Devices from InnerDyne.
(l) "SPECIFICATIONS" shall mean the specifications for the
InnerDyne Device as provided hereto as Exhibit "A", which
shall include, as an attachment, the FDA 510K Filing No.
K992668, the terms and conditions of which shall be
incorporated into Exhibit A and all of which shall be
included in the Specifications.
2. APPOINTMENT AND AUTHORITY OF MAXXIM
(a) Appointment; License Grant. Subject to the terms and
conditions set forth herein, InnerDyne hereby appoints Maxxim
as InnerDyne's exclusive distributor for, and grants an
exclusive license to Maxxim under its intellectual property
rights to market and sell, the InnerDyne Devices individually
or in combination with Maxxim Products as part of a System
for use in the Permitted Fields throughout the Territory, and
Maxxim hereby accepts such appointment and grant. During the
Term of this Agreement, InnerDyne shall not appoint any other
distributor with responsibility for, or grant any other
license with respect to the marketing and sale of the
InnerDyne Devices in the Territory for use in the Permitted
Fields.
(b) Independent Contractors. The relationship of InnerDyne
and Maxxim established by this Agreement is that of
independent contractors, and nothing contained in this
Agreement shall be construed to create any kind of agency,
joint venture or other type
[***] Confidential material redacted and filed separately with the Commission.
<PAGE> 3
of relationship or to give either party the power to direct
and control the day-to-day activities of the other or allow
one party to create or assume any obligation on behalf of
the other for any purpose whatsoever. All financial
obligations associated with Maxxim's business are the sole
responsibility of Maxxim. All financial obligations
associated with InnerDyne's business are the sole
responsibility of InnerDyne. All sales and other agreements
between Maxxim and Maxxim's customers are Maxxim's exclusive
responsibility and shall have no effect on Maxxim's
obligations under this Agreement.
(c) Limited Rights. The rights granted to Maxxim hereunder
are solely marketing and distribution rights with respect to
the InnerDyne Devices, or the combination of InnerDyne
Devices with Maxxim Products as part of a System, for use in
the Permitted Fields throughout the Territory. Maxxim shall
have no rights, express or implied, to make, modify, use or
distribute the InnerDyne Devices other than as expressly
allowed by this Agreement, and InnerDyne expressly retains
all such rights. Maxxim shall retain all rights to the
Systems developed pursuant to this Agreement.
3. TERMS OF PURCHASE OF INNERDYNE DEVICES BY MAXXIM
(a) Terms and Conditions. All purchases of InnerDyne Devices
by Maxxim from InnerDyne during the term of this Agreement
shall be subject to the terms and conditions of this
Agreement.
(b) Prices. All prices of InnerDyne Devices are F.O.B.
InnerDyne's Sunnyvale, California or Salt Lake City, Utah
facility (as determined solely by InnerDyne) or as otherwise
provided by written notice to Maxxim (the "Distribution
Site"). The purchase price to Maxxim for each of the
InnerDyne Devices (the "Purchase Price") shall be as set
forth in Exhibit "A" attached hereto and shall be InnerDyne's
sole remuneration for this Agreement. [***]
(c) Taxes. The Purchase Price does not include any foreign,
federal, state or local taxes that may be applicable to the
InnerDyne Devices. In the event that such taxes are
applicable and InnerDyne has the legal obligations to collect
such taxes, InnerDyne shall be entitled to add to Maxxim's
invoice the amount of such taxes and Maxxim shall pay such
amount unless Maxxim provides InnerDyne with a valid tax
exemption certificate authorized by the appropriate taxing
authority.
(d) Order and Acceptance. All orders for InnerDyne Devices
submitted by Maxxim shall be initiated by written purchase
orders sent to InnerDyne and requesting a delivery date
during the term of this Agreement; provided, however, that an
order may initially be placed orally or by telecopy if a
confirmational written purchase order is received by
InnerDyne within five (5) days after said oral or telecopy
order. To facilitate InnerDyne's production scheduling,
Maxxim shall submit purchase orders to InnerDyne at least
thirty (30) days prior to the first day of the requested
month of
[***] Confidential material redacted and filed separately with the Commission.
<PAGE> 4
delivery. InnerDyne shall deliver InnerDyne Devices within 15
days of the times specified in Maxxim's purchase order.
(e) Terms of Purchase Orders. Maxxim's purchase orders submitted
to InnerDyne from time to time with respect to InnerDyne
Devices to be purchased hereunder shall be governed by the
terms of this Agreement. Nothing contained in any purchase
order of Maxxim shall in any way modify the terms of this
agreement or add any additional terms or conditions.
(f) Payment. Full payment of the Purchase Price for the InnerDyne
Devices (including any freight or taxes) shall be in United
States of America dollars. All exchange, interest, banking,
collection, and other charges shall be at Maxxim's expense.
Payment terms shall be net thirty (30) days, and payment shall
be made by check or other instrument approved by InnerDyne. If
Maxxim fails to make any payment to InnerDyne when due,
InnerDyne shall notify Maxxim in writing and provide Maxxim
with fifteen (15) additional days from receipt of such notice
to make payment. In the event that payment is not made within
such period, any invoiced amount not paid following the
fifteen (15) day period described above shall be subject to a
service charge at the lower of the rate of one and one-half
percent (1.5%) per month or the maximum rate permitted by law.
Provided, however, that Maxxim shall be entitled to withhold
payment for any orders which are the subject of a legitimate
dispute for which Maxxim has notified InnerDyne, but only with
respect to products to which the disputed invoice relates.
This in no way relieves Maxxim of its obligations to pay for
such disputed orders or other orders under this agreement.
(g) Shipping. InnerDyne shall be responsible to ensure that all
InnerDyne Devices delivered pursuant to the terms of this
Agreement shall be packaged bulk, non-sterile, suitably packed
for air freight shipment in InnerDyne's standard shipping
cartons, marked for shipment at InnerDyne's manufacturing
plant to Maxxim's address as designated by Maxxim, and
delivered to Maxxim or Maxxim's carrier agent F.O.B.
Distribution Site, at which time title to such InnerDyne
Devices and risk of loss shall pass to Maxxim. In the event
Maxxim does not provide written notice of their carrier agent,
InnerDyne shall select the carrier. All freight, insurance and
other shipping expenses, as well as any special packing
expense, shall be paid by Maxxim. Maxxim shall also bear all
applicable taxes, duties, and similar charges that may be
assessed against the InnerDyne Devices after delivery to the
carrier at InnerDyne's Distribution Site unless such
additional charges arise from InnerDyne's failure to properly
pack or package the InnerDyne Devices.
(h) Obligations to Supply and Purchase. InnerDyne shall allocate
sufficient resources, capital equipment, materials, tools and
labor to enable it to timely supply the InnerDyne Devices
required by Maxxim pursuant to its properly placed purchase
orders. For so long as InnerDyne continues to meet its supply
obligations hereunder during the Term hereof, Maxxim shall
have no right to manufacture, or have manufactured, InnerDyne
Devices, and Maxxim shall purchase its full requirements of
such InnerDyne Devices solely from InnerDyne.
(i) Manufacturing Practices. All InnerDyne Devices shall be
manufactured in accordance with applicable current QSR
standards promulgated by the FDA and shall be CE Mark
certifiable. The InnerDyne Devices shall be manufactured in a
facility registered with
<PAGE> 5
and approved for such purpose by the FDA . InnerDyne shall,
at its sole cost and expense, obtain the approval for U.S.
Food and Drug Administration 510(K) filing No. K992668, which
shall be incorporated in the Specifications listed on Exhibit
A. InnerDyne shall not implement any change in the
manufacturing process relating to the InnerDyne Device which
would significantly, materially and/or adversely affect the
quality or character of the InnerDyne Devices, or which would
affect regulatory clearance, without Maxxim's prior written
approval. Maxxim and its agents shall have the right to
conduct audits during the terms of this Agreement upon
reasonable notice at InnerDyne's manufacturing facilities to
verify InnerDyne's compliance with such QSR and other
regulatory regulations; provided, however, that such audits
shall not occur more than once in each quarter of a twelve
(12) month period without InnerDyne's prior approval. In the
event of significant manufacturing problems, product
complaints, quality control problems or other problems
affecting the quality of supply of InnerDyne Devices, the
frequency of such audits may be increased upon reasonable
notice to InnerDyne. Further, Maxxim shall conduct an audit
prior to the Effective Date for the purpose of becoming
familiar with the quality control and other procedures at the
facility.
4. WARRANTY FOR INNERDYNE DEVICES.
(a) InnerDyne Warranty. InnerDyne warrants that the InnerDyne
Devices shall conform to the Specifications in the attached
Exhibit "A", shall be free from defects in all respects and
shall adhere to the quality standards of the FDA.
(b) Rejection of InnerDyne Devices. Maxxim shall inspect all
InnerDyne Devices promptly upon receipt thereof and may reject
any product that fails in any material way or, in Maxxim's
judgment, in any significant way, to meet the Specifications
set forth in Exhibit "A". Any device not properly rejected
within a reasonable period of time following Maxxim becoming
aware of such failure (the "Rejection Period") shall be deemed
accepted; provided, however, that with respect to any latent
defects or defects which do not meet the Specifications and
which may not have been noticeable upon initial inspection,
Maxxim shall have twenty (20) days from the time Maxxim
notices such failure to reject such Device. Further provided
that to the extent that such failure is not discovered until
received by one of Maxxim's customers, Maxxim may still reject
such Products for a full refund or replacement within a
reasonable period of time following receipt by Maxxim of
notice from the customer. As promptly as possible but no later
than thirty (30) working days after receipt of properly
rejected InnerDyne Devices, InnerDyne shall, at its option and
expense, replace the InnerDyne Devices that do not meet
specifications. InnerDyne shall pay all shipping charges for
the rejected products to be sent by Maxxim to InnerDyne and
for the replacement products to be sent back to Maxxim.
Further, in the event of a recall due solely to the failure of
InnerDyne Devices to meet the Specifications, InnerDyne shall
accept the return for a full refund of all affected InnerDyne
Devices and shall reimburse Maxxim up to, and not to exceed,
[***] of the refund to reimburse Maxxim for their reasonable
expenses associated with the recall.
(c) No Other Warranty. OTHER THAN AS EXPRESSED HEREIN,
INNERDYNE GRANTS NO OTHER WARRANTIES FOR THE INNERDYNE
DEVICES, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION
OF LAW, BY
<PAGE> 6
STATUTE OR OTHERWISE, AND INNERDYNE SPECIFICALLY DISCLAIMS
ANY IMPLIED WARRANTY OF MERCHANTABILITY AND WARRANTY OF
FITNESS FOR A PARTICULAR PURPOSE.
(d) Limitation of Liability. INNERDYNE'S LIABILITY WITH
RESPECT TO THE REJECTED INNERDYNE DEVICES SHALL BE LIMITED TO
A REFUND OF THE AMOUNT PAID FOR THE INNERDYNE DEVICES. IN NO
EVENT SHALL INNERDYNE BE LIABLE FOR COSTS OF PROCUREMENT OF
SUBSTITUTE GOODS BY ANYONE. IN NO EVENT SHALL INNERDYNE BE
LIABLE TO MAXXIM OR ANY OTHER ENTITY FOR ANY SPECIAL,
CONSEQUENTIAL, INCIDENTAL, OR INDIRECT DAMAGES, HOWEVER
CAUSED, ON ANY THEORY OF LIABILITY OR BREACH OF WARRANTY,
WHETHER OR NOT INNERDYNE HAS BEEN ADVISED ON THE POSSIBILITY
OF SUCH DAMAGE.
(e) Insurance. InnerDyne shall at all times during the
Initial Term and any Renewal Term, and for a period of five
(5) years thereafter, maintain in full force and effect, at
InnerDyne's sole cost and expense, a general liability
insurance policy, product liability, and property damage
insurance for claims that might arise regarding the InnerDyne
Devices. Such insurance will contain a minimum combined
single limit of liability for bodily injury and property
damage in amounts not less than $3,000,000.00 per occurrence
and $3,000,00.00 in the aggregate. InnerDyne shall provide
Maxxim within fifteen (15) days following the Effective Date,
an insurance certificate indicating the foregoing coverage by
an insurance company licensed to do business in the relevant
states and signed by an authorized agent.
5. ADDITIONAL OBLIGATIONS OF MAXXIM MEDICAL
(a) Laws and Government Approvals. Maxxim shall comply fully,
at its expense, with any and all applicable health and safety
laws, regulations and obtain any necessary FDA and Government
Approvals, if required, for the sale of the InnerDyne Devices
in the Territory.
(b) Purchase Commitment. Maxxim hereby agrees to purchase
from InnerDyne during the [***] following the Effective Date
(the "[***] Purchase Commitment") the applicable number of
InnerDyne Devices set forth on Exhibit "B". Maxxim's [***]
Purchase Commitment shall be wholly conditioned upon
InnerDyne's ability to supply the InnerDyne Devices to enable
Maxxim to meet such commitments. In the event InnerDyne fails
to supply sufficient quantities of InnerDyne Devices in
conformity with the Specifications to allow Maxxim to meet
their [***] Purchase Commitments, Maxxim shall be released
from all such [***] Purchase Commitments.
(c) Representations. Maxxim shall not knowingly make any false
or misleading representations to customers or others
regarding InnerDyne or the InnerDyne Devices. Maxxim and its
employees and agents shall not make any representations,
warranties or guarantees with respect to the specifications,
features or capabilities of the InnerDyne Devices that are
not consistent with InnerDyne's representations, warranties
and guarantees, regulatory filing documentation or this
Agreement, including InnerDyne's standard limited warranty
and disclaimers.
[***] Confidential material redacted and filed separately with the Commission.
<PAGE> 7
6. TERM AND TERMINATION
(a) Term. This Agreement shall commence on the Effective Date and
continue in full force and effect for a fixed term of [***]
from such date (the "Initial Term"), unless terminated earlier
under the provisions of this Section 6. Unless terminated
earlier, this Agreement shall be, at Maxxim's option, renewed
for [***] (the "Renewal Term") upon expiration of the Initial
Term, provided, however, that Maxxim, at its sole option, may
elect not to renew the Agreement for the Renewal Term upon no
less than ninety (90) days notice prior to the end of the
current Term to InnerDyne. In the event Maxxim elects to renew
this agreement, the [***] Purchase Commitments under the
renewal agreement shall in no event be less than [***] of the
immediately preceding [***] Minimum Purchase Commitments,
unless agreed to in writing by both parties.
(b) Termination for Cause. If either party defaults in the
performance of any material provision of this Agreement, then
the non-defaulting party may give written notice to the
defaulting party that if the default is not cured within thirty
(30) days the Agreement will be terminated. If the
non-defaulting party gives such notice and the default is not
cured or if reasonable measures have not been taken by such
party to cure the default, during such thirty (30) day period,
then the Agreement shall automatically terminate at the end of
that period.
(c) Termination upon a Change in Control. In the event that
InnerDyne undergoes a Change in Control, as defined herein,
which results in a majority ownership, directly or indirectly,
of InnerDyne by a direct competitor of Maxxim, Maxxim shall
have the right, in its sole and absolute discretion, to
terminate this Agreement immediately upon the occurrence of the
Change in Control. Upon such termination, Maxxim shall have no
further obligations hereunder except for those payment
obligations accrued prior to the date of termination. Maxxim
agrees to provide, within 30 days of the effective date of this
agreement, a list of their current direct competitors.
(d) Limitation on Liability. In the event of termination by either
party in accordance with any of the provisions of this
Agreement, neither party shall be liable to the other for
indirect, consequential, punitive, special, exemplary or
incidental damages arising out of this Agreement. Termination
shall not, however, relieve either party of obligations
incurred prior to the termination.
(e) Survival of Certain Terms. The provisions of Sections 4, 6(d),
7(a), 7(b), 7(c), 7(d), 8(a), 9, 10, and 11 shall survive the
termination of this Agreement for any reason for the time
period specified therein, and if not specified, for an
indefinite period. All other rights and obligations of the
parties shall cease upon termination of this Agreement.
7. PROPERTY RIGHTS AND CONFIDENTIALITY
(a) Property Rights of InnerDyne. Maxxim agrees that InnerDyne owns
all right, title, and interest in and to all of InnerDyne's
patents, trademarks, trade names, inventions, copyrights,
know-how, and trade secrets relating to the design,
manufacture, operation or service of the InnerDyne Devices. The
use by Maxxim of any of these property rights is authorized
only for the purposes herein set forth, and upon termination of
this
[***] Confidential material redacted and filed separately with the Commission.
<PAGE> 8
Agreement for any reason such authorization shall cease.
Provided, however, that in the event that, upon termination,
Maxxim has an inventory of InnerDyne Devices, Maxxim shall be
permitted to sell the products in inventory and shall possess
the property rights to properly sell such products until the
inventory is depleted.
(b) Property Rights of Maxxim. InnerDyne agrees that Maxxim owns
and shall own all right, title, and interest in and to any
Maxxim Products and the Systems developed by Maxxim as
discussed herein and to all patents, trademarks, trade names,
inventions, copyrights, designs, know-how and trade secrets
relating to the Maxxim Products and the Systems, except solely
with respect to the InnerDyne Devices individually.
(c) Sale Conveys no Right to Manufacture or Copy. The InnerDyne
Devices are offered for sale and are sold by InnerDyne subject
in every case to the condition that such sale does not convey
any license, expressly or by implication, to manufacture,
duplicate or otherwise copy or reproduce any of the InnerDyne
Devices. Maxxim shall take appropriate steps with Maxxim's
customers, as InnerDyne may reasonably request, to inform them
of the restrictions contained in this Subsection 7(c). This
provision shall survive termination for a period of five (5)
years.
(d) Confidentiality.
(i) Each party acknowledges that by reason of its relationship
to the other hereunder, it will have access to certain
proprietary information and materials concerning the other
party's business, plans, customers, technology, and
InnerDyne Devices, which information is designated as
confidential when conveyed orally, in writing or through
other tangible materials (the "Confidential Information").
Each party agrees that it will not use in any way for its
own account or the account of any third party (except for
the purpose of performing its obligations under this
Agreement), nor disclose to any third party, any such
Confidential Information revealed to it by the other party
without the express written consent of the disclosing
party except as required by applicable law, rule,
regulation or legal process. The parties further agree to
use the same degree of care concerning Confidential
Information as it uses to protect its own confidential and
proprietary technical information to prevent the
unauthorized disclosure to any third party of the
Confidential Information received from the disclosing
party hereunder. The parties agree that they shall acquire
no rights with respect to Confidential Information of the
other party received hereunder. The parties agree that the
Confidential Information received by a disclosing party
hereunder shall not be disclosed to any third party or any
employee, officer or director of the receiving party,
except to those employees, officers and directors whose
responsibilities require such disclosure for purposes of
performing the parties' obligations under this Agreement;
provided that such employees, officers, and directors have
entered into confidentiality agreements with provisions
substantially similar to those set forth in this Section
7(d).
(ii) The obligations hereunder shall not apply to Confidential
Information:
(a) which the receiving party can demonstrate by
written records was known to the receiving party
prior the date of disclosure by the disclosing party;
provided that such information was not knowingly
obtained by the receiving
<PAGE> 9
party through disclosure by a third party receiving
such information in confidence from the disclosing
party;
(b) which is now in the public knowledge, or becomes
public knowledge in the future other than by breach
of this Agreement by the receiving party;
(c) which, as can be established by written records, is
independently developed by the receiving party
without benefit of Confidential Information received
from the disclosing party;
(d) which is disclosed to the receiving party, after the
date of disclosure by the disclosing party, by a
third party having a right to make such disclosure;
or
(e) which is required to be included in any filing or
action taken by the receiving party to obtain
government approval to market the InnerDyne Devices;
provided however, that when permitted by the
provisions of local laws, the receiving party shall
use its reasonable best efforts to protect the
confidentiality of such Confidential Information
submitted to governmental agencies or authorities
pursuant to this Agreement.
(iii) Upon request following termination of this Agreement,
the receiving party shall either (1) return to the
disclosing party or (2) destroy and certify in writing as
to the destruction of any tangible copies of any
Confidential Information provided to it by the disclosing
party hereunder, and any notes taken by employees,
officers and directors of the receiving party regarding
the Confidential Information disclosed to it.
(iv) The obligations of this Section 7(c) shall (i) apply to
Confidential Information relating to the subject matter of
this Agreement disclosed prior to the execution hereof and
(ii) survive termination of this Agreement for any reason
for a period of two (2) years.
(v) The terms and provisions of this Section 7(c) shall
supersede in their entirety the terms and provisions of
that certain Mutual Nondisclosure Agreement, dated as of
February 23, 2000 between InnerDyne and Maxxim (the
"NDA"). The use and disclosure of any "Confidential
Information" (as such term is defined in the NDA) provided
under the NDA shall be governed hereinafter by this
Agreement.
8. TRADEMARKS AND TRADE NAMES
(a) Use. During the term of this Agreement, Maxxim shall have the
right to use InnerDyne's INNERVASC trademark. Except as set
forth in this Section 8, nothing contained in this Agreement
shall grant to Maxxim any right, title or interest in
InnerDyne's Trademarks other than INNERVASC nor grant Maxxim
the right to use the InnerDyne name except as expressly
approved by InnerDyne. At no time during or after the Term of
this Agreement shall Maxxim challenge any InnerDyne
Trademarks.
(b) Approval of Representations. All types of representations
of InnerDyne trademarks that Maxxim intends to use shall first
be submitted to InnerDyne for approval, which shall not be
unreasonably withheld, of design, color, and other details or
shall be exact copies of those used by InnerDyne. Once a
particular type of representation is
<PAGE> 10
approved by InnerDyne, Maxxim may continue to reproduce and
reuse such representation without prior approval for each use.
9. PATENT, COPYRIGHT, AND TRADEMARK INDEMNITY
(a) Indemnification. Maxxim agrees that InnerDyne has the right to
defend, or at InnerDyne's option to settle, and InnerDyne
agrees, at InnerDyne's own expense, to defend or at
InnerDyne's option to settle, any claim, suit or proceeding
brought against Maxxim or Maxxim's customers on the issue of
infringement of any United States of America patent, copyright
or trademark on the InnerDyne Devices sold hereunder or the
use thereof, subject to the limitations hereinafter set forth.
Maxxim agrees to promptly notify InnerDyne of any alleged
infringement of patents, copyrights or trademarks, and to
cooperate and use reasonable efforts to assist InnerDyne in
any investigation, defense or settlement of such alleged
infringement. InnerDyne shall have sole control of any such
action or settlement negotiations to the extent that Maxxim is
not affected thereby. In all other cases, InnerDyne shall keep
Maxxim informed and shall consult with Maxxim as to any
resolution thereof.
(b) Limitation. Notwithstanding the provisions of Subsection 9(a)
above, InnerDyne assumes no liability for (1) infringements
arising from the composition, assembly, combinations, method
or process by Maxxim in which any of the InnerDyne Devices may
be used, including as part of the Systems, but not covering
the InnerDyne Devices when used alone; (2) trademark
infringements involving any marking or branding not approved
by InnerDyne or involving any marking or branding created by
Maxxim; or (3) infringements relating solely to Maxxim's
modification of the InnerDyne Devices, or any part thereof,
unless such modification was done by InnerDyne.
(c) Disruption. In the event that any action discussed in this
Section 9 prevents Maxxim from continuing to distribute the
InnerDyne Devices, Maxxim may return all such products for a
full refund.
10. INDEMNIFICATION
InnerDyne and Maxxim each agree to indemnify and hold the other
party harmless from and against any and all claims made by any
person or entity arising out of the processing, marketing,
distribution and sale of the InnerDyne Devices or the Systems,
where and to the extent such damages have been caused by the
negligent act or omission or fault of such party or its employees
or agents or by virtue of a breach by the indemnifying party of any
provision hereof. The indemnifying party shall have the right to
defend or, at its option, but only upon consent of the indemnified
party, to settle such claims, and if it chooses to exercise such
right, it shall have control over any such claim or settlement
negotiations subject to obtaining the prior consent of the
indemnified party. The indemnifying party shall be relieved of the
foregoing obligations unless the indemnified party gives prompt
notice in writing of any such claim, suit, or proceeding and, at
the indemnifying party's expense, gives the indemnifying party
proper and full information and reasonable assistance to settle
and/or defend any such claim, suit, or proceeding; provided,
however, that without relieving the indemnifying party of its
obligations hereunder or impairing the indemnifying party's right
to control the defense or settlement thereof, the indemnified
<PAGE> 11
party may elect to participate through separate counsel in the
defense of any such claim, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless
(a) the employment of counsel by such indemnified party has been
authorized in writing by the indemnifying party, (b) the
indemnified party shall have reasonably concluded that there
exists a material conflict of interest between the indemnifying
party and such indemnified party in the conduct of the defense of
such claim (in which case the indemnifying party shall not have
the right to control the defense or settlement of such claim on
behalf of such indemnified party) or (c) the indemnifying party
shall not have employed counsel to assume the defense of such
claim within reasonable time after notice of the commencement
thereof. In each of such cases the reasonable fees and expenses
of counsel shall be at the expense of the indemnifying party.
11. MISCELLANEOUS
(a) Governing Law and Jurisdiction. This Agreement shall be
governed by, and construed and interpreted in accordance with,
the laws of the State of Delaware, without reference to
conflict of law principles or statutory rules of arbitration.
The federal and state courts within the State of Delaware
shall have exclusive jurisdiction to adjudicate any dispute
arising out of this Agreement. InnerDyne hereby expressly
consents to (i) the personal jurisdiction of the federal and
state courts within the State of Delaware , (ii) service of
process being effected upon Maxxim by registered mail sent to
the address set forth at the beginning of this Agreement and
(iii) the uncontested enforcement of a final judgment from
such courts in any other jurisdiction wherein Maxxim or any of
Maxxim's assets are present.
(b) [***] Feasibility Study. InnerDyne agrees that Maxxim shall be
entitled, for a [***] period following the Effective Date to
conduct a market feasibility study in [***] and other areas
InnerDyne may agree to for the possible sale of the Systems.
If Maxxim so elects, the parties hereby agree to enter into
good faith negotiations to enter into a Supply, License and
Distribution agreement substantially similar to the Terms of
this agreement and with reasonable Minimum [***] Purchase
Commitments covering the Additional Territory.
(c) Entire Agreement. This Agreement sets forth the entire
Agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between
them. No modification of or amendment to this Agreement, nor
any waiver of any rights under this Agreement, shall be
effective unless in writing signed by the party to be charged.
(d) Notices. Any notice required or permitted by this Agreement
shall be in writing and shall be sent by telex, telecopier or
telegram or by prepaid registered or certified mail, return
receipt requested, addressed to the other party at the address
shown at the beginning of this Agreement or at such other
address for which such party gives notice hereunder. Such
notice shall be deemed to have been given upon the earlier of
receipt by the party to whom notice was sent or three (3) days
after deposit in the mail.
(e) Force Majeure. Non performance of either party shall be
excused to the other extent that performance is rendered
impossible by strike, fire, flood, governmental acts or
orders or restrictions, failure of suppliers, or any other
reason where failure to perform
[***] Confidential material redacted and filed separately with the Commission.
<PAGE> 12
is beyond the reasonable control of and is not caused by the
negligence or fault of the non-performing party.
(f) Assignment. Except as otherwise provided herein, neither party
hereunder may assign its rights or delegate its duties under
this Agreement without the prior written consent of the other,
provided, however, that each party hereunder may, without such
consent, assign this Agreement to any Affiliate or any
successor by merger or sale of substantially all of its
business units to which this Agreement relates. Any attempted
assignment or delegation in contravention of the foregoing
shall be void and of no effect.
(g) Legal Expenses. The prevailing party in any legal action
brought by one party against the other and arising out of this
Agreement shall be entitled, in addition to any other rights
and remedies that such prevailing party may have, to
reimbursement for expenses incurred by such prevailing party,
including court costs and reasonable attorneys' fees.
(h) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and
all of which together shall constitute one instrument.
(i) Partial Invalidity. If any provision of this Agreement is held
to be invalid, then the remaining provisions shall
nevertheless remain in full force and effect. The parties
agree to renegotiate in good faith any term held invalid and
to be bound by the mutually agreed substitute provision.
(j) Publicity. InnerDyne and Maxxim shall agree upon the
publication time and date of any press release or other public
statement announcing this Agreement or any transaction
contemplated under this Agreement. Neither party shall make
any public statement prior to the public release of such press
release except as may be required by law, judicial order or
any listing agreement with a national securities exchange or
over-the-counter trading system to which InnerDyne or Maxxim
is a party. Except as permitted by this Section 11(j) or
except as required by law, judicial order or any listing
agreement with a national securities exchange or
over-the-counter trading system to which InnerDyne or Maxxim
is a party, neither party shall disclose the terms and
conditions of this Agreement unless expressly authorized to do
so by the other party, which authorization shall not be
unreasonably withheld; provided that disclosure is expressly
permitted by either party to its attorneys and accountants on
a confidential basis. Notwithstanding the foregoing, InnerDyne
may disclose on a confidential basis the terms and conditions
of this Agreement to potential underwriters in connection with
any proposed public offering by InnerDyne or to third parties
interested in merging with or acquiring or entering into a
corporate partner transaction with InnerDyne.
(k) Export. Each party acknowledges that the laws and regulations
of the United States restrict the export and re-export of
commodities and technical data of United States origin. Each
party agrees that it will not export or re-export the
technical data of the other party in any form without any
required United States and foreign government licenses.
<PAGE> 13
IN WITNESS WHEREOF, the undersigned are duly authorized to execute this
Agreement on behalf of InnerDyne and Maxxim, as applicable.
INNERDYNE, INC. MAXXIM MEDICAL, INC.
/s/ William G. Mavity /s/ Jack Cahill
- ------------------------------------- ----------------------------------
Print Name: WILLIAM G. MAVITY Print Name: JACK CAHILL
-------------------------- -----------------------
Title: PRESIDENT/CEO Title: EVP SALES & MARKETING
-------------------------------- ----------------------------
<PAGE> 14
EXHIBIT "A"
INNERDYNE PRODUCT DESCRIPTION, PRODUCT SPECIFICATIONS AND PURCHASE PRICE
PRODUCT DESCRIPTION: InnerDyne's REVAS 006 (nosecone) vascular access device
MAXXIM PURCHASE PRICE: [***]
(U.S. DOLLARS)
PRODUCT SPECIFICATIONS:
Sleeve Dimensions
1 The sleeve must have a working length of 3.700" [***]".
(The working length is defined as the distance between the
distal end of the sleeve and the distal edge of the middle
handle of the three-piece sleeve handle.)
2 The maximum diameter of the sleeve does not exceed
[***]" of the distal tip.
3 The distal end of the sleeve must have no exposed braid
fibers prior to dilation.
Nosecone Dimensions
1 The ID of the distal tip of the nosecone must be [***]".
2 The maximum OD of the tapered portion of the nosecone must
be less than [***]".
3 The overall nosecone assembly length must be [***]".
Dilation with a 12 F dilator
1 The dilation of the sleeve to 12F (.158") must not cause
the sleeve to shorten by more than [***].
2 The dilation of the sleeve to 12F must not cause the
three-piece sleeve handle to crack.
3 The dilation of the sleeve to 12F must not cause the
distal tip to split resulting in braid fibers of greater
than [***]" being exposed.
4 The dilation of the sleeve to 12F must not cause the
urethane at the distal tip of the device to stretch or
extend more than [***]".
5 The dilation of the sleeve to 12 F must not cause any
sleeve material to come free from the device
THE 510K FILING NO. K992668 SHALL BE ATTACHED HERETO AND SHALL BE INCORPORATED
HEREIN.
[***] Confidential material redacted and filed separately with the Commission.
<PAGE> 15
EXHIBIT "B"
[***]
[***] Confidential material redacted and filed separately with the Commission.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 7,934,671
<SECURITIES> 0
<RECEIVABLES> 3,861,357
<ALLOWANCES> 140,522
<INVENTORY> 1,844,962
<CURRENT-ASSETS> 14,605,667
<PP&E> 4,320,849
<DEPRECIATION> 3,710,744
<TOTAL-ASSETS> 15,284,939
<CURRENT-LIABILITIES> 2,725,375
<BONDS> 0
0
0
<COMMON> 226,473
<OTHER-SE> 12,122,433
<TOTAL-LIABILITY-AND-EQUITY> 15,284,939
<SALES> 5,492,735
<TOTAL-REVENUES> 5,588,287
<CGS> 1,452,327
<TOTAL-COSTS> 5,080,397
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,265
<INTEREST-EXPENSE> 26,455
<INCOME-PRETAX> 563,458
<INCOME-TAX> (562,951)
<INCOME-CONTINUING> 1,126,409
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,126,409
<EPS-BASIC> .05
<EPS-DILUTED> .05
</TABLE>
