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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
For the quarterly period ended JUNE 30, 1996
-------------
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 0-18962
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CYGNUS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2978092
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification No.)
400 PENOBSCOT DRIVE, REDWOOD CITY, CALIFORNIA 94063-4719
(Address of principle executive offices and zip code)
Registrant's telephone number, including area code: (415) 369-4300
--------------
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
----- ----
Number of shares outstanding of each of the registrant's classes of common
stock as of AUGUST 6, 1996:
Common Stock - 18,579,630 shares
Total pages: 4
Page number of exhibit index: 3
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CYGNUS, INC.
This amendment to Form 10-Q is being filed to amend the following exhibit in
connection with a request for confidential treatment:
Exhibit 10.2 Product Supply and Distribution Agreement between the
Registrant and Yamanouchi Pharmaceutical Co., LTD. dated as of July 14, 1996
(confidential treatment has been applied for or granted for portions of this
agreement. The portions redacted have been filed separately with the SEC).
1
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CYGNUS, INC.
June 30, 1996
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a) EXHIBITS
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The following exhibits are filed herewith or incorporated by reference:
10.1 Loan and Security Agreement between the Registrant and Silicon
Valley Bank entered into as of June 24, 1996.*
10.2 Product Supply and Distribution Agreement between the Registrant
and Yamanouchi Pharmaceutical Co., LTD. dated as of July 14, 1996
(Confidential treatment has been applied for or granted for portions of this
agreement. The portions redacted have been filed separately with the SEC).
27. Financial Data Schedule.*
- -----------
* Previously filed with the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996.
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INDEX OF EXHIBITS
The following exhibits are included herein:
Exhibit 10.1 Loan and Security Agreement between the Registrant and
Silicon Valley Bank entered into as of June 24, 1996.*
Exhibit 10.2 Product Supply and Distribution agreement between Cygnus, Inc.
and Yamanouchi Pharmaceutical Co., Ltd. dated July 14, 1996
(Confidential treatment has been applied or granted for portions
of this agreement. The portions redacted have been filed
separately with the SEC).
Exhibit 27 Financial Data Schedule.*
- --------------
* Previously filed with the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996.
3
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CYGNUS, INC.
June 30, 1996
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.
CYGNUS, INC.
By: /s/ John C. Hodgman
---------------------------------------
John C. Hodgman
Chief Financial Officer (and Principal
Accounting Officer), and Vice President,
Finance; President, Cygnus Diagnostics
4
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Application for an order granting
confidential treatment pursuant to Rule
24b-2 of the Securities Exchange Act of
1934 has been made. Confidential
portions of this document have been
redacted and marked with an * and have
been filed with the Securities and
Exchange Commission separately with
such application.
PRODUCT SUPPLY AND DISTRIBUTION AGREEMENT
BETWEEN
CYGNUS, INC.
AND
YAMANOUCHI PHARMACEUTICAL CO., LTD.
DATED
JULY 14, 1996
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TABLE OF CONTENTS
Page
1. Definitions........................................................ 2
2. Grant of Distributorship........................................... 8
2.1. Exclusive Distributorship.................................... 8
2.2. Minor Improvement Product.................................... 8
2.3. Major Improvement Product.................................... 13
2.4. Meetings to Discuss Product Development...................... 17
2.5. Right to Use Subdistributors................................. 17
2.6. Sales Only in the Territory.................................. 18
3. Product Registration............................................... 18
4. Obligations of Cygnus.............................................. 21
4.1. Regulatory Submissions....................................... 21
4.2. Supply of Product............................................ 22
4.3. Quantity: Forecasts.......................................... 22
4.4. Delivery..................................................... 24
4.5. Acceptance and Rejection of Product in Case of Nonconformity. 24
4.6. Inability to Supply.......................................... 24
4.7. Sample Products.............................................. 24
4.8. Technical Support............................................ 25
4.9. No Duty to Deliver if Product Terminated..................... 25
5. Obligations of Yamanouchi........................................... 25
5.1. General Obligations of Yamanouchi............................ 25
5.2. Korea........................................................ 25
5.3. Long Range Forecasts............................... 26
5.4. Adjustments of Long Range Forecast, Quantity Forecast
and Firm Order............................................. 27
5.5. Non-achievement of Long Range Forecast....................... 27
5.6. Marketing Obligations........................................ 28
5.7. Purchasing Requirements...................................... 29
6. Payments........................................................... 29
6.1. Milestone Payments........................................... 29
6.2. Product Related Payments..................................... 30
6.3. Currency Conversion................................ 34
6.4. Payment Terms...................................... 34
6.5. Taxes and Duties............................................. 34
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7. Records and Audit Rights........................................... 35
8. Non-Competition.................................................... 36
9. Adverse Reaction................................................... 37
10. Export Law......................................................... 37
11. Term and Termination............................................... 38
11.1. Term........................................................ 38
11.2. Termination by Either Party for Cause....................... 38
11.3. Termination for Unsatisfactory Results...................... 39
11.4. Effect of Termination; Survivability of Certain Provisions.. 40
11.5. Termination Not Sole Remedy................................. 41
12. Product Warranty and Warranty Disclaimers.......................... 41
12.1. Cygnus Warranty............................................. 41
13. Insurance.......................................................... 43
14. Ownership.......................................................... 43
14.1. Ownership................................................... 43
14.2. Use of Non-Clinical and Clinical Data....................... 44
15. Confidentiality.................................................... 44
16. Trademarks......................................................... 45
16.1. Trademark Registration...................................... 45
16.2. No Rights in Trademarks, Trade Names, Logos or Designations. 46
16.3. After Termination or Expiration............................. 47
17. Patent and Trademark Indemnification............................... 47
17.1. Cygnus' Patent and Copyright Indemnity...................... 47
17.2. Limitation of Indemnity..................................... 49
17.3. Settlement.................................................. 49
18. Limited Liability.................................................. 49
19. Infringement by Third Parties...................................... 50
20. Manufacturing in the Event of Bankruptcy........................... 50
21. General............................................................ 51
21.1. Amendment and Waiver........................................ 51
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21.2. Governing Law and Legal Actions............................. 52
21.3. Arbitration................................................. 52
21.4. Headings.................................................... 53
21.5. Notices..................................................... 53
21.6. Entire Agreement............................................ 53
21.7. Severability................................................ 54
21.8. Basis of Bargain............................................ 54
21.9. Relationship of Parties..................................... 54
21.10. Assignment................................................. 54
21.11. Publicity and Press Releases............................... 54
21.12. Force Majeure.............................................. 55
21.13. Remedies................................................... 55
SCHEDULE A MILESTONE PAYMENTS
EXHIBIT A INITIAL GLUCOSE MONITORING PRODUCT
iii
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Application for an order granting
confidential treatment pursuant to Rule
24b-2 of the Securities Exchange Act of
1934 has been made. Confidential
portions of this document have been
redacted and marked with an * and have
been filed with the Securities and
Exchange Commission separately with such
application.
PRODUCT SUPPLY AND DISTRIBUTION AGREEMENT
This Product Supply and Distribution Agreement (the "Agreement") is
entered as of July 14, 1996 (the "Effective Date") by and between Cygnus, Inc.
("Cygnus"), a Delaware corporation, with its principal place of business at 400
Penobscot Drive, Redwood City, California 94063, and Yamanouchi Pharmaceutical
Co., Ltd. ("Yamanouchi"), a Japanese corporation, with its principal place of
business at 3-11, Nihonbashi-honcho 2-chome, Chuo-ku, Tokyo 103, Japan.
WHEREAS, Cygnus is a leading developer of non-invasive glucose
monitoring systems and Cygnus owns (or is otherwise licensed or entitled to)
certain Proprietary Rights (defined below) relating to the Products (defined
below);
WHEREAS, Cygnus and Yamanouchi desire to commercially introduce the
Products in the Territory (defined below);
WHEREAS, Yamanouchi has the capabilities and expertise to market, sell
and distribute the Products in the Territory and Cygnus desires to maximize the
long-
1.
[*Confidential Treatment Requested*]
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term sales of the Products by developing new Products suitable for the market in
the Territory in cooperation with Yamanouchi; and
WHEREAS, Cygnus and Yamanouchi are prepared to enter into a supply and
distribution agreement on the terms and conditions set forth below;
NOW THEREFORE, in consideration of the mutual promises, undertakings
and covenants herein expressed, the parties agree as follows:
1. DEFINITIONS.
1.1. "Affiliate Company" shall mean any company, corporation, or
other business entity which owns or controls directly or indirectly, or is under
common control with Cygnus or Yamanouchi, or which Cygnus or Yamanouchi owns or
controls directly or indirectly by ownership of fifty percent (50%) or more of
the outstanding voting stock of such corporation or business entity.
1.2. "Calculation Period" shall mean each of the following half
year periods: April 1 through September 30 and October 1 through March 31.
1.3. "Component Products" shall mean with respect to any Initial
Glucose Monitoring Product and Improved Glucose Monitoring Product, such
products, parts or replacement components capable of sale or sold individually
to consumers and including the Glucopad and the sensors described in Exhibit A.
1.4. "Contract Year" shall be for the first Contract Year, that
annual period commencing on the first day of First Commercial Sale of the
Initial Glucose
2.
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Monitoring Product system in any country in the Territory. Subsequent Contract
Years shall be annual periods commencing on the anniversaries of the first
Contract Year.
1.5. "Delivery Date" shall mean a date for which delivery of a
Product is properly requested in a purchase order.
1.6. "First Commercial Sale" shall mean, as to each Product, the
first commercial sale by Yamanouchi.
1.7. "Fully Burdened Development Cost" of a Product means the
following direct and indirect costs (as determined in accordance with generally
accepted accounting principles ("GAAP")), to the extent specifically
attributable to an Improved Glucose Monitoring Product: all costs related to *
and/or related activities from preliminary conception through production process
development and scale-up (including packaging and production of prototypes for
pre-clinical and registration clinical trials), but does not include any portion
of * expenses or the * (apart from the production of product to be used in the
trials). Direct costs are * and contracted and * specifically attributable to
the applicable * or *. Indirect costs are (i) * expenses and (ii) * expenses or
* from other departments, in each case, only to the extent specifically
attributable to the applicable * or *.
1.8. "Improved Glucose Monitoring Products" shall mean (i) any
and all systems for glucose monitoring which is based upon iontophoresis
technology, except the Initial Glucose Monitoring Product system, and (ii) any
Component Products thereof.
3.
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1.9. "Initial Glucose Monitoring Products" shall mean the glucose
monitoring system and any Component Product thereof described and listed in
Exhibit A as first approved for sale in the United States. Yamanouchi may
request that such product be modified from the form first approved for sale in
the United States, (i) to the extent necessary to comply with Japanese or Korean
laws and regulations; (ii) to the extent necessary to adapt the product to the
Japanese or Korean language; and (iii) to the extent necessary to adapt the
product to the Japanese or Korean market. For each such change, Yamanouchi
shall provide the specifications and the justification(s) therefor as soon as
reasonably practicable to Cygnus. If Yamanouchi requests modifications relating
to Korea, it shall accompany such request with notice under Section 5.2 stating
its intention to distribute in Korea. Provided such modifications can be
performed without changing the size of the product or its construction, Cygnus
shall perform such modifications at its expense. In the event such modification
is performed by Cygnus, the modified version and any Component Product thereof
shall be deemed the "Initial Territory Glucose Monitoring Product."
1.10. "Know-How" shall mean all know-how, techniques, trade
secrets, practices, procedures, processes, inventions, methods, data, skill,
experience, technology, test data, including but not limited to nonclinical
data, special ability and information, including but not limited to improvements
thereof relating to each Product.
1.11. "Long Range Forecast" shall have the meaning set forth in
Section 5.3 of this Agreement.
4.
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1.12. "Major Improvement Product" shall mean any Improved Glucose
Monitoring Product which (i) embodies or offers a substantial change in function
or performance from existing Products, or (ii) incorporates any additional
patent or patentable invention which has not been employed in any existing
Product, or (iii) needs a clinical trial to obtain U.S regulatory approval for
sale in the U.S. As used herein, a substantial change in function or
performance will be deemed to exist for an entire product and the components
thereof if such improvement exists in a major component thereof, notwithstanding
the absence of such improvements in the other components of the product system.
Mere cosmetic or superficial changes do not constitute a substantial improvement
in function or performance.
1.13. "Manufacturing Cost" means the aggregate of the following
(as determined in accordance with generally accepted accounting principles):
both direct and indirect costs specifically attributable to materials or for the
production, processing and packaging of a product, and does not include any *.
Direct costs are * services, * costs and * costs specifically attributable to
the applicable materials or activities. Indirect costs are (i) * expenses and
(ii) * expenses of * services from other departments, in each case, only to the
extent specifically attributable to the applicable materials or activities.
1.14. "Market Research" shall mean, with respect to each Product,
market research to determine, among other things, market size, price, Product
requirements and other appropriate market data.
5.
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1.15. "Minor Improvement Product" shall mean any Improved Glucose
Monitoring Product that is not a Major Improvement Product.
1.16. "Non-Invasive Product" shall mean a glucose monitoring
product that does not require sample extraction that penetrates the skin (other
than an existing Product) for management of diabetes in humans.
1.17. "Payment Report" shall mean the report for every Calculation
Period described in Section 6.2.3 of this Agreement.
1.18. "Product Launch" for a country shall mean the date such
Product has received all necessary approvals and the first commercial sale of
such Product has occurred in such country.
1.19. "Products" shall mean (i) any Initial Glucose Monitoring
Product, (ii) any Improved Glucose Monitoring Product included in this Agreement
pursuant to Sections 2.2 and 2.3 of this Agreement, and (iii) any Component
Product.
1.20. "Proprietary Rights" shall mean all rights with respect to
all patented or patentable material, including singularly or in groups, or
subgroups, any component or ingredient thereof, medical, clinical, toxicological
or other scientific data or information relating to the Products or the
manufacture of the Products, trademarks, copyrights or copyrightable material,
any Know-How and all business, technical and financial information disclosed by
one party hereunder to the other. Such Proprietary Rights shall be deemed the
confidential property of the disclosing party.
6.
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1.21. "Qualified Subdistributors" shall be a medical-device or
pharmaceutical manufacturer or distributor of medical devices within the
Territory selling to the same classes of customer within the Territory as
Yamanouchi within the Territory.
1.22. "Submission" shall mean the filing of all materials
specified by applicable governmental statutes and/or regulations as necessary to
obtain approval for commercial sale within a particular country.
1.23. "Territory" shall mean Japan and Korea.
1.24. "Total Net Sales" for a period means the * or otherwise
recognized in that period with respect to Products sold by Yamanouchi or
permitted Qualified Subdistributors, *:
(i) * actually given;
(ii) * actually given or made on account of * (including *
or other *, *, and *), or *;
(iii) separately stated (on customer invoice) * on sales
(such as *); and
(iv) separately stated (on customer invoice) * charges
actually paid to * (including * and * costs); all as determined in
accordance with GAAP.
However, bona fide * and * of each Product will not be included in any
calculations of Total Net Sales price. Total Net Sales shall be computed in *
in the Territory.
7.
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1.25. "U.S. Regulatory Submission" shall mean a 510K or PMA
submission (whichever the U.S. Food and Drug Administration determines to be
applicable) to the U.S. Food and Drug Administration.
2. GRANT OF DISTRIBUTORSHIP.
2.1. EXCLUSIVE DISTRIBUTORSHIP. Subject to the terms and
conditions of this Agreement and during the term hereof, Cygnus grants
Yamanouchi an exclusive distributorship of the Products in the Territory.
2.2. MINOR IMPROVEMENT PRODUCT. If either Cygnus or Yamanouchi
desire that a Minor Improvement Product be developed, either may make a written
proposal (the "Proposal") to the other.
2.2.1. In the event either party wishes to make a Proposal it
shall set forth (1) a description and proposed specifications of the product,
(ii) if the Proposal is made by Cygnus, an estimate of the Fully Burdened
Development Cost and details of the conditions for and amounts of milestone
payments and (iii) a schedule for development. The party receiving the Proposal
may accept or reject the Proposal. If, within sixty (60) days of sending of the
Proposal, the receiving party has not provided notice in writing either (i)
accepting the Proposal or (ii) offering a counter Proposal, the Proposal shall
be deemed rejected. If the parties reach agreement, which must be evidenced in
writing, and which must include express agreement upon the (i) description and
proposed specifications; (ii) details of the conditions for and amounts of
milestone payments totaling * of the estimated Fully Burdened Development Cost
and (iii)
8.
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schedule for development, such Minor Improvement Product shall become a Product
under this Agreement to be developed by Cygnus. Failure to reach such agreement
within 120 days of the giving of the first notice with respect to the Proposal
shall be deemed a rejection of the Proposal. Yamanouchi shall make all * when
due as provided in the agreement between the parties for such Minor Improvement
Product. If Cygnus finds that the actual Fully Burdened Development Cost is
likely to exceed the agreed upon estimate, Cygnus shall give notice of such
excess to Yamanouchi for its prior written approval to pay such excess, which
approval shall not be unreasonably withheld. Following completion of the
development work, Cygnus shall submit its invoice in the amount of * of the
Fully Burdened Development Cost for the Minor Improvement Product. In the event
that the total of the milestone payments exceeds * of the Fully Burdened
Development Cost, Cygnus shall * the difference within thirty (30) days after
the completion of the development work; in the event that * of the Fully
Burdened Development Cost * the * to Cygnus, Yamanouchi shall pay Cygnus the
difference within thirty (30) days of the receipt of invoice. All rights and
obligations with respect to such accepted Minor Improvement Product shall be as
provided in this Agreement for any Product. Cygnus shall have the right to
make, have made, use, sell and to grant rights to any such accepted Minor
Improvement Product outside the Territory. In the event the Proposal is
rejected, Cygnus and Yamanouchi shall be prohibited during the term of the
Agreement from directly or indirectly manufacturing, distributing or offering
for sale such Minor Improvement Product in the Territory and/or contracting
with, licensing to
9.
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or forming a venture with any third party for the purpose of manufacturing,
selling, promoting, distributing or otherwise offering such Minor Improvement
Product in the Territory; PROVIDED, HOWEVER there shall be no such restrictions
upon Cygnus outside the Territory.
2.2.2. Yamanouchi may elect to terminate the development work for
any Minor Improvement Product as set forth below by providing written notice of
termination to Cygnus. In the event, Yamanouchi can demonstrate (i) that
following completion of Cygnus' development work on a Minor Improvement Product,
the Minor Improvement Product has actually failed to meet the agreed upon
specifications and that such failure substantially and materially impairs the
commercial value of the Minor Improvement Product; (ii) that following actual
payment by Yamanouchi and receipt by Cygnus of the full amount of the estimated
Fully Burdened Development Cost plus any additional amounts approved under
Section 2.2.1, that there are additional amounts of the development cost to be
paid, computed as * of Fully Burdened Development Cost, which additional amounts
are substantial so as to substantially and materially impair the commercial
value of the Minor Improvement Product; or (iii) that Cygnus has actually failed
to meet the deadline for completion of development and that the additional time
required to complete development will substantially and materially impair the
commercial value of the Minor Improvement Product, Yamanouchi may give notice of
termination for cause ("Termination for Cause"). In the event of Termination
for Cause, Yamanouchi shall become obligated to pay Cygnus fifty percent (50%)
of Cygnus' Fully
10.
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Burdened Development Cost incurred through the date of notice of Termination for
Cause. Cygnus shall submit an invoice following notice of Termination for Cause
showing the difference between * of its Fully Burdened Development Cost and *
received. In the event that the aggregate of the milestone payments paid to
Cygnus exceeds * of the Fully Burdened Development Cost, Cygnus shall refund the
difference within thirty (30) days after the termination of the development
work; in the event that * of the Fully Burdened Development Cost exceeds the
milestone paid to Cygnus, Yamanouchi shall pay Cygnus the difference within
thirty (30) days of the receipt of invoice. In the event Yamanouchi elects to
terminate the development work for any reason other than a Termination for Cause
in compliance with the conditions as set forth above, Yamanouchi shall become
obligated to pay Cygnus * (*%) of Cygnus' Fully Burdened Development Cost
incurred through the date of termination (the "Yamanouchi Termination Cost").
Yamanouchi shall pay the difference between the Yamanouchi Termination Cost and
any milestone payments previously paid for such Minor Improvement Product within
thirty (30) days upon receipt of invoice therefor from Cygnus. Upon Cygnus'
determination that it has developed a product which reasonably meets the agreed
upon specifications, Cygnus shall give notice of completion to Yamanouchi.
Yamanouchi's right to give notice of termination shall expire within thirty days
of receipt of such notice. Upon the expiration of such thirty (30) day period,
Yamanouchi shall be required to use reasonable efforts to obtain regulatory
approval (if required) and launch the Minor Improvement Product as soon as
reasonably practicable.
11.
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2.2.3. Cygnus may elect to terminate development work for any
Minor Improvement Product if it in good faith determines that there is a
substantial risk that (i) it will be unable to meet the agreed upon
specifications or (ii) that the Fully Burdened Development Cost will exceed the
agreed upon milestone payments or (iii) that it will be unable to meet the
agreed upon schedule for development. In such event, Cygnus may give Yamanouchi
notice in writing terminating the project to develop such Minor Improvement
Product. Following notice of termination, Cygnus shall be entitled to receive *
percent (*%) of the Fully Burdened Development Cost through the date of the
notice for the Minor Improved Product and shall submit its invoice therefor
within thirty (30) days of the giving of the notice of termination. In the
event the amount received by Cygnus in milestone payments for the Minor
Improvement Product project exceeds the amount of * percent (*%) of Fully
Burdened Development Cost through the date of notice, Cygnus shall refund the
difference to Yamanouchi; in the event such received milestone payments are less
than * percent (*%) of the Fully Burdened Development Cost through the date of
notice, Yamanouchi shall pay Cygnus the difference within thirty (30) days of
receipt of invoice.
2.2.4. In the event either Yamanouchi or Cygnus terminate a
Minor Improvement Product development project, Cygnus and Yamanouchi shall be
prohibited during the term of the Agreement from directly or indirectly
manufacturing, distributing or offering for sale such Minor Improvement Product
in the Territory and/or contract licensing with, licensing to, or forming a
venture with any third party for the purpose of
12.
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manufacturing, selling, promoting, distributing or otherwise offering such Minor
Improvement Product in the Territory; PROVIDED, HOWEVER, there shall be no such
restriction upon Cygnus outside the Territory.
2.2.5. In the event that Yamanouchi has launched a Minor
Improvement Product in the Territory and Cygnus launches a product outside the
Territory, which is identical in each and every respect with the launched Minor
Improvement Product, Cygnus shall refund to Yamanouchi the difference between
(i) the total * received by Cygnus and (ii) * percent (* %) of Cygnus' Fully
Burdened Development Cost for the Minor Improvement Product. The foregoing
right to refund shall exist only if both of the foregoing conditions are met.
There shall be no right of refund for products which are substantially similar
or which are identical in some respects, but not in all respects.
2.3. MAJOR IMPROVEMENT PRODUCT. If either party wishes to
develop, manufacture or sell a Major Improvement Product, it may make a written
proposal (the "Proposal") therefor to the other. Any such Proposal shall set
forth the following: (i) a description and proposed specification of the
product; (ii) if the Proposal is made by Cygnus, an estimate of the Fully
Development Cost and a proposal for five (5) milestone payments with conditions
for each payment and the amount thereof (each payment conceived to be made in
advance of performing the development work contemplated thereunder and in an
amount estimated to cover * of the estimated Fully Burdened Development Cost for
such work); and (iii) a schedule for development. In the event
13.
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Cygnus has already commenced a Major Improvement Product as of the Effective
Date of the Agreement, Cygnus shall make a Proposal in the first meeting set
forth in Section 2.4 and in such case the Proposal shall set forth the Fully
Burdened Development Cost already incurred by Cygnus through that date, in
addition to items (i) through (iii) above. Following the making of any such
Proposal, the receiving party shall have sixty (60) days from the sending of the
Proposal to either (i) give written notice of acceptance or (ii) offer a
counter-Proposal. If notice of acceptance or a counter-Proposal is not given
within the 60-day period, the Proposal shall be deemed rejected. If the parties
reach agreement, which must be evidenced in writing and which must include
agreement upon the (i) description and proposed specifications; and (ii) the
details of the conditions for and the amounts of the five milestone payments,
with each payment to be made in advance of performing development work as
described above totalling one-third of the estimated Fully Burdened Development
Cost, for development work not completed; or for completed development work,
payment for one-third of Cygnus' Fully Burdened Development Cost already
incurred; and (iii) a schedule for development. Such Major Improvement Product
shall become a Product under this Agreement to be developed by Cygnus. Failure
to reach such agreement within one hundred twenty (120) days of the giving of
the first notice with respect to the Proposal, shall be deemed a rejection of
the Proposal.
2.3.1. In the event a Proposal given under the above Section 2.3
is accepted, Yamanouchi shall make all milestone payments when due as provided
in the
14.
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agreement between the parties. If Cygnus finds that the actual Fully Burdened
Development Cost is likely to exceed the agreed upon estimate, Cygnus shall give
notice of such excess to Yamanouchi for its approval to pay such excess, which
approval shall not be unreasonably withheld. Following completion of the
development work, Cygnus shall submit its invoice in the amount of * of the
Fully Burdened Development Cost for the Major Improvement Product. In the event
that the total of the milestone payments exceeds * of the Fully Burdened
Development Cost, Cygnus shall refund the difference; in the event that * of the
Fully Burdened Development Cost exceeds the milestones paid to Cygnus,
Yamanouchi shall pay Cygnus the difference within thirty (30) days of the
receipt of invoice. All rights and obligations with respect to such accepted
Major Improvement Product shall be as provided for any Product in this
Agreement. Cygnus shall have the right to make, have made, use, sell and to
grant rights to any such accepted Major Improvement Product outside the
Territory.
2.3.2. Either party may terminate a Major Improvement Product by
giving notice thereunder. In the event of termination, Yamanouchi shall be
obligated to pay * of Cygnus' Fully Burdened Development Cost through the date
of notice of termination. Cygnus shall submit an invoice following notice of
termination showing the difference between one-third of its Fully Burdened
Development Cost and any milestone payments received. It shall refund to
Yamanouchi any excess of the milestone payments paid over * of its Fully
Burdened Development Cost; if * of the Fully Burdened Development Cost is
greater, Yamanouchi shall pay within thirty (30) days of receipt of
15.
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invoice the difference between * of the Fully Burdened Development Cost and the
milestone payments paid. In the event of termination by Cygnus, if Cygnus
recommences work on the terminated Major Improvement Product, it shall make a
new Proposal therefor under Section 2.3.
2.3.3. In the event that a Proposal is rejected or deemed
rejected, or the development project is terminated by Yamanouchi under Section
2.3.2, Cygnus shall be free itself, or with a third party to develop,
manufacture, distribute or sell or otherwise exploit the Major Improvement
Product (and all future modifications to or evolutions thereof) within or
outside the Territory. PROVIDED, HOWEVER, with respect to a rejected or deemed
rejected Proposal or a Major Improvement Product for which development was
terminated by Yamanouchi under Section 2.3.2, if Cygnus receives a proposal or
offer from a third-party to sell, distribute or otherwise exploit such Major
Improvement Product in the Territory, Cygnus shall give notice thereof to
Yamanouchi, prior to concluding a binding agreement with the third-party. Such
notice shall set forth all monetary consideration to be received under the
proposal or offer from the third-party and the amount of Cygnus' Fully Burdened
Development Cost incurred to date and Cygnus' estimate of the Fully Burdened
Development Cost to complete development. Upon receipt of such notice,
Yamanouchi shall have fifteen (15) days to make a "Qualifying Offer." A
"Qualifying Offer" shall be equal to the greater of (i) the net present value of
all * under the third-party proposal or (ii) * percent (*%) (*% times *) of the
Fully Burdened Development Cost to date plus Yamanouchi's commitment to pay
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* percent (*%) of the Fully Burdened Development Cost to be incurred in the
future to complete development. In the event Cygnus elects to distribute such
previously rejected or deemed rejected Major Improvement Product in the
Territory itself or through wholesalers, Cygnus shall give notice thereof to
Yamanouchi, who shall have fifteen (15) days to make a Qualifying Offer. A
Qualifying Offer where Cygnus is to distribute itself or through wholesalers
must be equal to * percent (*%) of the Fully Burdened Development Cost incurred
to date plus * percent (*) of the Fully Burdened Development Cost to be incurred
in the future to complete development. In the event Yamanouchi shall fail to
make a Qualifying Offer fully meeting the requirements set forth in this section
within fifteen (15) days of the receipt of notice by Yamanouchi, in the case of
a proposal by a third-party, Cygnus shall be free to conclude an agreement with
respect to such Major Improvement Product or, in the case of distribution itself
or with wholesalers, to commence such activity.
2.4. MEETINGS TO DISCUSS PRODUCT DEVELOPMENT. The parties shall
meet every six months, or more often by agreement of both parties, to discuss
product development. In such meetings, the parties may discuss the concepts of
new products, estimated budgets for the development thereof and the timing of
Launch.
2.5. RIGHT TO USE SUBDISTRIBUTORS. Yamanouchi may submit a
request to Cygnus that Yamanouchi be allowed to utilize Qualified
Subdistributors. Such request must be accompanied by a consent on the part of
the proposed Qualified Subdistributor to be bound by all of the terms of this
Agreement including the audit provisions set forth
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in Section 7. Such request shall not become effective without Cygnus' prior
written approval which shall not be unreasonably withheld; PROVIDED, HOWEVER,
that no approval is required in the event that Yamanouchi designates an
Affiliate Company as a Qualified Subdistributor. Notwithstanding the giving of
consent to a Qualified Subdistributor hereunder, Yamanouchi shall remain
directly and primarily obligated to Cygnus with respect to Products received and
sold by any Qualified Subdistributor including all payments, forecasts and
marketing obligations.
2.6. SALES ONLY IN THE TERRITORY. Yamanouchi shall market, sell
and distribute the Products only to persons or entities taking delivery in and
located in the Territory.
3. PRODUCT REGISTRATION.
3.1. Yamanouchi shall be responsible, at its sole cost and
expense, for (i) submitting all applications in each country in the Territory
for registration or approval of the Products with the appropriate authorities in
each country in the Territory requiring such an application; (ii) conducting or
having others conduct on its behalf, any clinical trials necessary to support
Submission of all such applications for each Product, including, but not limited
to all statistical analysis and preparation of any registration summary
documents, with the appropriate regulatory authorities in each country within
the Territory requiring such an application; (iii) filing and obtaining all such
registrations and approvals; and (iv) conducting Market Research in each such
country. Yamanouchi shall use its reasonable efforts to make its Submission in
each country in the Territory on
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the Initial Territory Glucose Monitoring Product or any Improved Glucose
Monitoring Product included in this Agreement as soon as reasonably possible;
PROVIDED, HOWEVER, in the case of the Initial Territory Glucose Monitoring
Product, Yamanouchi shall use reasonable efforts to make its Submission no later
than an estimated target date set in notice to Cygnus to be provided by
Yamanouchi within six (6) months of execution of this Agreement, which date
shall be established by Yamanouchi after its consultation with regulatory
agencies in the Territory. To the extent that approval must be obtained or
application made for any governmental or insurance reimbursement plan,
Yamanouchi shall use reasonable efforts to obtain such reimbursement rate in an
amount designed to maximize Total Net Sales, and in no event less than the
amount established for existing glucose monitoring products. Yamanouchi shall
promptly submit copies of all documentation related to each application and
registration (including regulatory approvals) to Cygnus for its use and review.
3.2. Cygnus shall cooperate with Yamanouchi in Yamanouchi's
Submission in the countries within the Territory by providing such materials as
may otherwise be in existence and as are necessary to Yamanouchi's Submission.
Such materials include the U.S. Regulatory Submissions. In addition, Cygnus
shall at its cost conduct more than seventeen (17) month real-time stability
tests on the Glucopad in the U.S. pursuant to the regulations issued by the
Ministry of Health and Welfare of Japan ("Koseisho"), which regulations shall be
delivered to Cygnus by Yamanouchi after execution hereof upon consultation with
Koseisho. (The foregoing covenant with respect to length of
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the test to be conducted is not to be construed as a covenant with respect to
the ultimate Product specifications.) Upon development of Product suitable for
clinical trials, Cygnus agrees to provide Yamanouchi such Products as are
reasonably necessary to conduct required clinical and non-clinical trials in
connection with Yamanouchi's Submission. Such Products will be provided at
Cygnus' Manufacturing Cost plus * and *.
3.3. In the event that Cygnus believes Yamanouchi is not using
reasonable efforts to perform any of its responsibilities with respect to
registration or approval as set forth in Section 3.1 above and that such failure
has or may cause a delay with respect to Product Launch or regulatory approval
of such Product or any Product relating to such Proprietary Information, Cygnus
shall provide written notice thereof to Yamanouchi. Upon the giving of such
written notice, Yamanouchi shall have sixty (60) days to explain to Cygnus in
writing the cause of the delay. If the delay is caused by Yamanouchi's failure
to use reasonable efforts to perform any of the foregoing responsibilities,
then: (i) Cygnus shall be free to terminate Yamanouchi's rights to such Product
upon thirty (30) days' prior written notice, and Cygnus shall be free to fully
exploit without approval or accounting, all of the information (including but
not limited to the Market Research) developed by or supplied to Cygnus hereunder
with respect to such terminated Product, and (ii) Yamanouchi shall for the
immediately following eighteen (18) months from the date the termination becomes
effective refrain from developing, acquiring, marketing or working with others
to develop or market any Non-Invasive products intended or designed to compete,
or that would be competitive with the terminated Products.
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3.4. Yamanouchi shall use reasonable efforts to launch any
Product within sixty (60) days after receiving regulatory approval to
commercially sell such Product and, if applicable, obtaining the governmental or
insurance reimbursement for the Product. In the event Yamanouchi fails to
reasonably launch any Product within such sixty (60) day period, Cygnus, at its
sole option and discretion, in addition to any other remedy hereunder, may elect
to terminate the distributorship rights for such a Product and for such a
country upon thirty (30) days written notice to Yamanouchi. Such termination
shall occur without reimbursement for any costs or expenses incurred by
Yamanouchi or refund of payments made. Any payments accrued as of the date of
such termination shall remain payable to Cygnus according to the terms of this
Agreement.
4. OBLIGATIONS OF CYGNUS.
4.1. REGULATORY SUBMISSIONS. Cygnus shall be solely responsible
for any U.S. Regulatory Submission required for each Product. Cygnus shall keep
Yamanouchi reasonably informed of the progress with respect to the
U.S. Regulatory Submission. With respect to the Initial Glucose Monitoring
Product, Cygnus further agrees as soon as reasonably practicable to provide
Yamanouchi with necessary information to enable Yamanouchi to evaluate Cygnus'
U.S. Submission. If Cygnus has not otherwise reported during a calendar
quarter, Yamanouchi may make one (1) request for information during the quarter
and Cygnus shall reply concerning the U.S. Regulatory Submission.
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4.2. SUPPLY OF PRODUCT. Cygnus, within the limitations contained
in this Section 4, agrees to supply to Yamanouchi such quantities of each
Product as Yamanouchi has ordered in conformity with the provisions of this
Agreement.
4.3. QUANTITY: FORECASTS.
4.3.1. Yamanouchi shall deliver to Cygnus (i) at least * (*)
full calendar quarters prior to the calendar quarter in which the First
Commercial Sale of such Product is projected to occur, a forecast of
Yamanouchi's quantity requirements for such Product for the calendar quarter in
which the First Commercial Sale of such Product is projected to occur and
(ii) at least * (*) full calendar quarter prior to the calendar quarter in which
the First Commercial Sale of such Product is projected to occur, Yamanouchi's
firm order including Delivery Dates for such Product for such calendar quarter
(which shall be subject to agreement by Cygnus, which agreement shall not be
unreasonably withheld) and a good faith forecast of its quantity requirements
for such Product for the next * (*) calendar quarters, provided that such
forecasts shall not materially deviate from the forecast of sales provided in
the Long Range Forecast. Thereafter, Yamanouchi shall deliver to Cygnus at or
prior to the end of each calendar quarter, Yamanouchi's firm order, including
Delivery Dates for such Product for the * calendar quarter following such
calendar quarter and a forecast of its quantity requirements for such Product
for the next * (*) calendar quarters, provided that no forecasts or orders need
be given for any period after the term of this Agreement. If a required
forecast or order for a quarter is not timely submitted for a Product, the
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immediately preceding forecast for that quarter shall become the new forecast or
order; if there is no preceding forecast for a quarter, the forecast or order
for the immediately preceding quarter shall become the forecast or order.
4.3.2. For each quarterly forecast of each Product, the
quantity of any Product forecasted for delivery in the first of the * (*)
calendar quarters forecasted shall be not less than * percent (*%) or more than
* percent (*%) of the most recent previous forecast for such quarter.
4.3.3. The total quantity of each Product ordered by
Yamanouchi for delivery in any calendar quarter for which an order is required
may not be less than * percent (*%) of Yamanouchi's most recent forecast of its
requirements for such Product for such quarter. In addition, Cygnus will not be
obligated to supply more than * percent (*%) of Yamanouchi's most recent
forecast of its requirements for such Product for such quarter. If a firm order
for any quarter exceeds *% of Yamanouchi's most recent forecast of its
requirements for such Product for such calendar quarter, Cygnus and Yamanouchi
will discuss in good faith the additional quantity which Cygnus will be able to
supply consistent with its other obligations, and Yamanouchi will adjust its
order accordingly.
4.3.4. Yamanouchi's forecasts and orders shall reflect its
good faith expectations of customer demand and Yamanouchi shall act in a
commercially reasonable manner to schedule orders to avoid creating production
capacity problems for Cygnus.
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4.4. DELIVERY. All Products delivered by Cygnus to Yamanouchi
shall be F.O.B. the place of shipment within the Territory designated by
Yamanouchi. Cygnus shall use reasonable commercial efforts to deliver Product
on the applicable Delivery Dates as set forth in each firm order and shall
arrange any insurance (in amounts that Cygnus shall determine) and
transportation, via air freight unless otherwise specified in writing, to any
destinations specified in writing from time to time by Yamanouchi.
4.5. ACCEPTANCE AND REJECTION OF PRODUCT IN CASE OF
NONCONFORMITY. No less than six (6) months prior to the date of the First
Commercial Sale of the Initial Glucose Monitoring Products, both parties shall
agree on the acceptance criteria and procedures and upon the manner for return
of the Product rejected thereunder. The parties have already agreed that
shipped Product shall have at least * of its official life remaining (as
established by Cygnus) upon receipt by Yamanouchi.
4.6. INABILITY TO SUPPLY. In the event that Cygnus expects an
inability to supply any Product continuously for more than three (3) months due
to force majeure or other reasons, Cygnus shall immediately notify Yamanouchi,
and both parties hereto shall consult with each other with respect to responses.
In the event that both parties agree upon the manufacture of the Product by
Yamanouchi, Cygnus shall cooperate therefor.
4.7. SAMPLE PRODUCTS. Cygnus shall provide sample Product to
Yamanouchi at Cygnus' *, plus * .
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4.8. TECHNICAL SUPPORT. Cygnus shall provide * training to
Yamanouchi personnel to enable such personnel to conduct training, sales
presentations, and acceptance tests for any shipment within the Territory;
PROVIDED, HOWEVER, such * training for training and sales presentations shall be
up to * (*) days. The expenses for travel, lodging and related expenses for
each party's personnel shall be borne by such party.
4.9. NO DUTY TO DELIVER IF PRODUCT TERMINATED. Cygnus shall be
under no obligation to deliver any Product if Yamanouchi's rights to such
Product shall have been terminated for any reason.
5. OBLIGATIONS OF YAMANOUCHI.
5.1. GENERAL OBLIGATIONS OF YAMANOUCHI. Subject to the terms and
conditions of this Agreement, Yamanouchi shall use reasonable efforts to perform
from time to time the Market Research necessary to ensure the successful
commercialization of the Products in the Territory. Yamanouchi shall
periodically, and in no event less than semi-annually, provide Cygnus with
access to all of the data and information (discovered during the Market
Research, as well as a written summary of such data.
5.2. KOREA. Yamanouchi shall have until December 31, 1997 to
give written notice to Cygnus stating its intention to distribute Product in
Korea. Prior to December 31, 1997 the parties shall meet to discuss any
modifications required for the Product to comply with or meet governmental
regulations or market customs for Korea and the costs thereof. If Yamanouchi
fails to give timely written notice, it shall be
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deemed to have relinquished all rights under this Agreement to Korea and Korea
shall immediately cease to be a Territory hereunder. If Yamanouchi decides to
distribute Product in Korea, it must proceed under the terms and conditions of
this Agreement. Yamanouchi shall then employ reasonable efforts to submit an
application for registration or approval of the Product in Korea and,
thereafter, to launch the Products as soon as reasonably practicable. The
parties hereby agree to discuss any changes to this Agreement which are
appropriate for the country. All such changes shall be in the form of a written
request if Yamanouchi intends to distribute Product in Korea.
5.3. LONG RANGE FORECASTS. With respect to each country within
the Territory, at least three (3) months prior to the beginning of the second
Contract Year, Yamanouchi shall supply Cygnus with a * (*) * forecast of sales
(determined by Yamanouchi in good faith after consultation with Cygnus) for the
second and third Contract Years (including sales by any approved Qualified
Subdistributor) in such country ("Long Range Forecast"). Such Long Range
Forecasts shall not be deemed to have been submitted as required under this
Agreement until approved by Cygnus, such approval not to be unreasonably
withheld. Such Long Range Forecasts shall, among other things, separately
identify sales by each type of Product, shall be made on a country-by-country
basis, and shall reflect its good faith expectations of customer demand, price
per unit and other relevant factors. Long Range Forecasts for the next three
(3) Contract Years (i.e., contract years four (4) through six (6)) shall be
submitted at least three (3) months prior to the beginning of the fourth
contract year, and
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thereafter new * (*) * forecasts shall be prepared, as provided above, every
three (3) years. In the event any new Product is expected to be launched in any
country in the Territory, the existing Long Range Forecast shall be adjusted
accordingly by Yamanouchi before the First Commercial Sale for such Product, and
shall be approved by Cygnus, such approval not to be unreasonably withheld.
5.4. ADJUSTMENTS OF LONG RANGE FORECAST, QUANTITY FORECAST AND
FIRM ORDER. In the event that (i) the timing of the governmental approval and,
if any, the listing on the governmental reimbursement plan are different from
the good faith estimate by Yamanouchi, (ii) market conditions materially change
due to the changes in laws or governmental relations or due to the launch of
competitive products, or (iii) any government in any country in the Territory
orders or instructs the discontinuation of or any other restriction on the sales
of any Product, due to the discovery of unexpected defects in the Products, both
parties hereto shall consult with each other and, if necessary, shall adjust the
Long Range Forecast fixed pursuant to Section 5.3, and the quantity forecasts
and firm orders as fixed under Section 4.3.
5.5. NON-ACHIEVEMENT OF LONG RANGE FORECAST. At or following the
end of the second Contract Year and in each subsequent Contract Year, in the
event that Yamanouchi's annual Total Net Sales in any country in the Territory
fall below * percent (*%) of the Long Range Forecast for such country in the
Territory for that year, the parties hereto shall have a meeting to discuss in
good faith how to increase sales.
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5.6. MARKETING OBLIGATIONS. Yamanouchi, for itself and for its
Qualified Subdistributors approved pursuant to Section 2.4, agrees to conduct
reasonable sales and promotion activities. In addition, Yamanouchi, for itself
and for its Qualified Subdistributors represents, warrants and agrees:
(i) to use reasonable efforts to successfully market, sell
and support the Products throughout the Territory on a continuing basis and
to comply with good business practices and all laws and regulations
relevant to the regulatory authorities in each country in the Territory
where any Product is sold;
(ii) to use reasonable efforts to substantially and
continuously commercially distribute and sell each of the Products after
the first regulatory approval to do so and, if any, the first listing on
the governmental reimbursement plan for each such Product or, where no
regulatory approval or listing is required, after the First Commercial Sale
of such Products;
(iii) to use reasonable efforts to achieve the Long Range
Forecasts set forth in Section 5.3;
(iv) to keep Cygnus informed as to any problems encountered
with any of the Products and any resolutions arrived at for those problems,
and to communicate promptly to Cygnus any and all modifications, design
changes or improvements of any of the Products suggested by any customer,
employee or agent;
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(v) not to make any claims, representations or warrants
directly or indirectly to any third party about the Products except as
expressly agreed upon by the parties in writing prior thereto; PROVIDED,
HOWEVER, that Yamanouchi may conduct promotional activities to consumers
based upon information and material provided by Cygnus to Yamanouchi or
those acquired by Yamanouchi within the Territory;
(vi) to maintain and provide Cygnus with all sales and other
information which is useful in monitoring sales progress on a country-by-
country basis and with which Yamanouchi is able to provide to Cygnus;
(vii) to the extent that Yamanouchi obtains or generates such
records, to keep for a five (5) year period after termination of this
Agreement records of all Product sales and customers, including complaints
or reports sufficient to adequately administer a recall of any of the
Products and to fully cooperate in any decision to recall, retrieve and/or
replace such Product.
5.7. PURCHASING REQUIREMENTS. Subject to the terms and
conditions of this Agreement, Yamanouchi, for itself and for its Qualified
Subdistributors, agrees to purchase all of its Product requirements from Cygnus.
6. PAYMENTS.
6.1. MILESTONE PAYMENTS. Yamanouchi shall pay the amounts set
forth in Schedule A in accordance with the milestone dates set forth therein.
Yamanouchi shall
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not be obligated to make any payment for the right to distributorship for any
Improved Glucose Monitoring Product.
6.2. PRODUCT RELATED PAYMENTS. In addition to the payments
specified in Section 6.1 above, Yamanouchi shall pay Cygnus the following:
6.2.1. PURCHASE PRICE. Yamanouchi shall be obligated to pay
Cygnus in U.S. Dollars an amount equal to *% of the Total Net Sales for the
Products sold during the Calculation Period (the "Purchase Price"); PROVIDED,
HOWEVER that in the event (i) any damage occurs to a Component Product after
acceptance by Yamanouchi, Yamanouchi may return the Component Product to Cygnus
and receive a credit for the difference, if any, between the Estimated Purchase
Price paid for the Component Product, as defined in Section 6.2.2 below, and the
Manufacturing Cost applicable as of the date the Component Product was shipped
to Yamanouchi, plus * paid by Cygnus in respect of the Component Product. (In
the event that the * does not exceed * plus *, there shall be no credit) or (ii)
any Component Product accepted by Yamanouchi remains unsold to any Yamanouchi
direct customer at the end of its product life as established by Cygnus for that
type of Component Product, Yamanouchi may return the Component Product to Cygnus
and receive a credit for the difference, if any, between the * paid for the
Component Product, as defined in Section 6.2.2 below and * percent (*%) of the *
applicable as of the date the Component Product was * to Yamanouchi, plus * paid
by Cygnus in respect of the Component Product. (In the event that the * does
not exceed * percent (* %) of Manufacturing Cost plus * there shall be no
credit.)
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Product shall be considered sold at the earlier of * or * to the customer.
PROVIDED, FURTHER the right to receive the foregoing credit for damaged goods or
out-of-life goods is expressly conditioned upon the exercise by Yamanouchi of
reasonable care, in the case of damaged goods, to prevent and minimize damage to
or destruction of Product and, in the case of out-of-life goods, to avoid
letting product fall out of date.
6.2.2. ESTIMATED PURCHASE PRICE. Yamanouchi shall pay and Cygnus
shall receive from Yamanouchi, on the twentieth (20) day of the month following
the month when the Products were received and accepted (as defined below) by
Yamanouchi, an estimated payment (the "Estimated Purchase Price") for each of
the Component Products shipped during the month. As used herein, the Component
Products will be deemed accepted by Yamanouchi fifteen (15) days from the date
of their delivery to Yamanouchi unless they are rejected by the acceptance test
performed by Yamanouchi within that period. Yamanouchi shall establish the
amount of the initial Estimated Purchase Price in U.S. Dollars for each type of
Component Product prior to placing its first order for that type of product.
Cygnus will notify Yamanouchi * (*) months prior to launch for each type of
Component Product and, thereafter, at three months prior to the start of each
Calculation Period of its estimate of the Manufacturing Cost for each type of
Component Product. The Estimated Purchase Price shall represent Yamanouchi's
best estimate of Purchase Price for each such Component Product. Thereafter,
Yamanouchi shall revise the Estimated Purchase Price on the first day of each
Calculation Period. Unless there is an express agreement to the contrary
reached
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pursuant to Section 6.2.5, the Estimated Purchase Price for each Component
Product shall be no less than * percent (*%) of Cygnus' estimate of the
Manufacturing Cost for the Component Product. Provided, however, in the event
that any reconciliation pursuant to Section 6.2.4 results in a payment to Cygnus
of an amount which is more than * percent (*%) of Total Net Sales for all
Products sold during a Calculation Period (for reasons other than currency
fluctuations), Cygnus may elect to establish the Estimated Purchase Prices for
the next Calculation Period.
6.2.3. PAYMENT REPORT. Within thirty (30) days following the end
of each Calculation Period, Yamanouchi shall prepare a report in accordance with
GAAP (the "Payment Report") showing the following (i) the calculation of Total
Net Sales in local currency, (ii) the number of units of each Product sold on a
country-by-country basis during the Calculation Period, (iii) the aggregate
Estimated Purchase Price paid for all Products sold in such period (converted to
local currencies at the exchange rate(s) in effect on the date(s) each Estimated
Purchase Price Payment was made, accounted on a first-in, first-out basis); (iv)
the amount for reconciliation (converted to U.S. Dollars at the exchange rate at
the closing of the last day of such Calculation Period in Tokyo); and (v) the
calculation of the Estimated Purchase Payment for the next Calculation Period.
6.2.4. RECONCILIATION. For each Calculation Period, in the event
that * percent (*%) of the Total Net Sales in local currencies exceeds the
aggregate Estimated Purchase Price paid for all Products sold during such period
(converted to local currencies at the exchange rate(s) in effect on the date(s)
each Estimated Purchase
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Price payment was made , and accounted on a first-in, first-out basis),
Yamanouchi shall pay the amount of such excess in U.S. Dollars (converted to
U.S. Dollars at the exchange rate at the closing of the last day of such
Calculation Period in Tokyo) to Cygnus promptly after the submission of the
Payment Report. In the event that (i) * percent (*%) of Total Net Sales in
local currencies is less than the aggregate Estimated Purchase Price paid for
all Products sold during such period (converted to local currencies at the
exchange rate(s) in effect on the date(s) each Estimated Purchase Price payment
was made, and accounted on a first-in, first-out basis), and (ii) * percent (*%)
of Total Net Sales for all Products sold during the period is greater than or
equal to a "Floor Price" computed * percent (*%) of the aggregate Manufacturing
Cost for the Product sold (converted to local currencies at the exchange rate in
effect on the date(s) each Estimated Purchase Price payment was made for such
Product), Cygnus, within thirty (30) days of the receipt of the Payment Report,
shall refund such difference in Japanese Yen. In the event that * percent (*%)
of Total Net Sales for all Product sold during the Calculation Period is less
than the Floor Price therefor, no refund will be paid by Cygnus. Within thirty
(30) days of the receipt of the Payment Report for each Calculation Period,
Cygnus shall notify Yamanouchi of aggregate Floor Price for such Calculation
Period and basis of such calculation.
6.2.5. PRICE DISCUSSION. In the event that * percent (*%) of
Total Net Sales for a Calculation Period falls below * percent (*%) of the
aggregate Manufacturing Cost of the Products sold during such period, then the
parties hereto shall
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promptly meet to discuss in good faith the willingness of the respective parties
to agree to a price reduction or an increase in the Net Sales Prices for the
Products.
6.3. CURRENCY CONVERSION. Conversion from foreign currency to
U.S. Dollars will be determined as of an applicable date based on the rate at
which Japanese yen or Korean won, as applicable, may be purchased with U.S.
Dollars at the close of business in Tokyo as stated in the Nikkei for that day.
6.4. PAYMENT TERMS. All payments under this Agreement are non-
credible and nonrefundable unless otherwise expressly provided herein. All such
payments to Cygnus shall be made in U.S. dollars in the United States or other
country designated by Cygnus. Late payments shall bear a late fee at the lower
of: (i) the Bank of America prime rate on the due date plus * percent (* %) or
(ii) the maximum rate allowed by law.
6.5. TAXES AND DUTIES. All payments to Cygnus under this
Agreement are exclusive of non-U.S. taxes, all of which shall be borne by
Yamanouchi. Non-U.S. taxes do not include import duties, which shall be borne
by Cygnus. PROVIDED, HOWEVER, if laws or regulations require withholding of
taxes from any payment to Cygnus, such taxes shall be deducted by Yamanouchi
from such payment and shall be paid by Yamanouchi to the proper taxing authority
and the remaining amount shall be paid to Cygnus as set forth herein. Official
receipts of payment of any withholding tax shall be secured and sent to Cygnus
as evidence of such payment. In the event of any such withholding, the parties
agree to confer regarding other measures to minimize such withholding.
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7. RECORDS AND AUDIT RIGHTS.
7.1. Among other things, Yamanouchi and any Qualified Subdistributor
shall keep complete and accurate records reflecting all information necessary or
useful in verifying the accuracy of each Payment Report. Cygnus shall have the
right to hire an independent certified public accountant to inspect all the
above required records (who shall agree in writing to keep all information
confidential except as needed to disclose any discovered discrepancies);
PROVIDEd, such audit: (i) is conducted during normal business hours, (ii) is
conducted no more often than once per year (unless a discrepancy is discovered
in favor of the auditing party), (iii) is conducted only after the giving of
thirty (30) days' prior written notice, and (iv) is conducted only on records
which have not been reviewed in the previous inspections. Cygnus shall bear the
full cost and expense of such audit, unless a discrepancy in excess of five
percent (5%) in favor of Cygnus is discovered, in which event Yamanouchi shall
bear the full cost and expense of such audit. Regardless of the amount of
discrepancy discovered, all discrepancies (and interest thereon) shall be
immediately due and payable. In addition, Cygnus shall at its own expense have
the right, at its option, upon reasonable notice to Yamanouchi, during normal
business hours and no more than once per year, to inspect any promotional
materials then in use by Yamanouchi or any sales and/or marketing practices of
Yamanouchi.
7.2. Among other things, Cygnus shall keep complete and accurate
records reflecting all information necessary or useful in verifying the accuracy
of each Fully
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Burdened Development Cost and Manufacturing Cost. Yamanouchi shall have the
right to hire an independent certified public accountant to inspect all the
above required records (who shall agree in writing to keep all information
confidential except as needed to disclose any discovered discrepancies);
PROVIDED, such audit: (i) is conducted during normal business hours, (ii) is
conducted no more often than once per year (unless a discrepancy is discovered
in favor of the auditing party), (iii) is conducted only after the giving of
thirty (30) days' prior written notice, and (iv) is conducted only on records
which have not been reviewed in the previous inspections. Yamanouchi shall bear
the full cost and expense of such audit, unless a discrepancy in excess of five
percent (5%) in favor of Yamanouchi is discovered, in which event Cygnus shall
bear the full cost and expense of such audit. Regardless of the amount of
discrepancy discovered, all discrepancies (and interest thereon) shall be
immediately due and payable.
8. NON-COMPETITION.
8.1. Except as provided below, during the term hereof Yamanouchi
shall be prohibited from each of the following acts with respect to any form of
Non-Invasive Product:
(i) directly or indirectly manufacturing, distributing or
offering for sale any Non-Invasive Products, other than the Products
contemplated in this Agreement, within the Territory; and
(ii) contracting with or forming a venture with any third
party for the purpose of manufacturing, selling, promoting, distributing or
otherwise offering any
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Non-Invasive Products, other than the Products contemplated in this Agreement,
for sale within the Territory, or assisting in any of the foregoing acts.
9. ADVERSE REACTION. Each party hereto shall immediately notify the
other party of any adverse or unexpected reaction or results or any actual or
potential government action relevant to any of the Products. If Cygnus requests
in writing for good cause (e.g., safety reasons), both parties hereto shall in
good faith discuss the necessary counter-measures, including but not limited to
suspension of distribution of any of the Products. In the event that the
governmental agency in the Territory orders or instructs, or both parties agree
upon, the recall of any Product, the costs for such recall shall be borne by
Cygnus unless Yamanouchi is responsible for the recall.
10. EXPORT LAW. Both parties hereto shall, in cooperation with each
other, comply with all export laws and restrictions and regulations of the
Department of Commerce or any other United States or foreign agency or
authority, and agree not to export, or allow the export or reexport of any
Cygnus Proprietary Rights or Products or any direct product thereof in violation
of any such restrictions, laws or regulations, or, without obtaining all
necessary approvals and authorizations therefrom. Yamanouchi shall assist
Cygnus in obtaining any necessary licenses and/or exemptions with respect to the
export from the U.S. of all material or items, including but not limited to, any
material or items deliverable by Cygnus, to any location and shall demonstrate
to Cygnus compliance with all applicable laws and regulations prior to delivery
thereof by Cygnus.
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11. TERM AND TERMINATION.
11.1. TERM. Unless terminated earlier as provided below or
elsewhere in this Agreement, with respect to each Product this Agreement shall
have a term extending from the Effective Date to the later of: (i) the
expiration of the last patent relating to the Products for the use or sale of
such Product in any country in the Territory or (ii) fifteen (15) years from the
date of the First Commercial Sale of such Product; PROVIDED, HOWEVER that unless
either party gives the other notice of termination twelve (12) months prior to
the expiration date of the original term hereof, this Agreement shall be
automatically extended for three (3) years. Thereafter, this Agreement shall be
further extended for an additional three (3) years unless either party gives the
other party notice of termination twelve (12) months prior to the expiration
date of such extension.
11.2. TERMINATION BY EITHER PARTY FOR CAUSE. This Agreement
(including any rights to any Product hereunder) may be terminated by a party for
cause immediately upon the occurrence of any of the following events:
(i) if the other party ceases to do business, or otherwise
terminates its business operations;
(ii) if the other party shall fail to promptly secure or
renew any license, registration, permit, authorization or approval
necessary for the conduct of its business in the manner contemplated by
this Agreement or in the Territory, or
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if any such license, registration, permit, authorization or approval is
revoked or suspended and not reinstated within sixty (60) days;
(iii) if the other party materially breaches any provision of
this Agreement and fails to cure such breach within sixty (60) days (ten
(10) days in the case of a failure to pay as provided for in Sections 2.2,
2.3 and 6, and immediately in the case of a breach of Section 15) of notice
describing the breach; or
(iv) if the other party shall seek protection under any
bankruptcy, receivership, trust deed, creditors arrangement, composition or
comparable proceeding, or if any such proceeding is instituted against the
other (and not dismissed within one hundred and twenty (120) days).
11.3. TERMINATION FOR UNSATISFACTORY RESULTS. In the event either
party determines that it is receiving an unsatisfactory financial return under
the Agreement, it may notify the other in writing that it desires a meeting to
discuss its dissatisfaction. Upon the giving of such notice, the parties shall
meet promptly but in no event later than thirty (30) days after giving of
notice. If there is no agreement on a solution within thirty (30) days of the
commencement of negotiations or the deadline for commencing negotiations, the
party giving notice may elect, in its sole discretion, to give written notice of
termination. In the case of Cygnus, it shall be deemed to receive a
satisfactory financial return so long as the aggregate Purchase Price for all
Products sold during the most recent Calculation Period is no less than *
percent (*%) of the aggregate
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applicable Manufacturing Cost for the Product Sold during such Period. Notice
of termination shall become effective nine months after the date of the notice.
PROVIDED, HOWEVER, Yamanouchi's rights under Section 2.1 and 16.1 shall become
non-exclusive immediately upon the giving of notice of termination. For
eighteen (18) months following the date of notice of such termination under this
Section 11.3, if Cygnus offers to a distributor in the Territory selling to the
same tier of customers as Yamanouchi has sold prior to termination Products
covered by the Agreement at a price equal to or less than the Purchase Price
being paid by Yamanouchi during the Calculation Period immediately preceding the
date of notice of such termination, Yamanouchi shall have a fifteen (15) day
right of first refusal on the terms offered to such other distributor. If
Yamanouchi has given notice of termination pursuant to this Section 11.3, then
it is prohibited from selling any Non-Invasive Products in the Territory for a
one (1) year period from the effective date of the termination.
11.4. EFFECT OF TERMINATION; SURVIVABILITY OF CERTAIN PROVISIONS.
The following provisions shall survive the termination of this Agreement:
(i) the last sentence of Section 3.4, (ii) Sections 5.6(iv) and (vii),
(iii) payment obligations accrued or earned under Section 6, (iv) Section 12.1,
(v) Section 14.1, (vi) Section 15, (vii) Sections 16.2 and 16.3, (viii) Section
17, and (ix) Section 18. Each party shall promptly return all Proprietary
Information of the other (and all copies and abstracts thereof) that it is not
entitled to use under the surviving terms of this Agreement. Upon termination,
Yamanouchi shall promptly deliver all of its customer lists related to the
Product to
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Cygnus and shall promptly transfer to Cygnus all Product regulatory submissions,
regulatory approvals and clinical data used to support any regulatory approval.
Termination of this Agreement with respect to a particular Product in a
particular country shall have the same effect as termination of this entire
Agreement, but with respect to the applicable Product and country only.
11.5. TERMINATION NOT SOLE REMEDY. Termination is not the sole
remedy under this Agreement and, whether or not termination is effected, all
other remedies shall remain available.
12. PRODUCT WARRANTY AND WARRANTY DISCLAIMERS.
12.1. CYGNUS WARRANTY. Cygnus warrants only to Yamanouchi that
the Products, when shipped to Yamanouchi by Cygnus, from the time of delivery to
Yamanouchi to the end of the official life of the Products (as established by
Cygnus), shall conform in all material respects to the applicable Product
specifications as then in effect. Cygnus shall establish the terms of the
warranty that may be given to end-users, consistent with the Product
specifications. Yamanouchi shall write packaging, packaging inserts or other
materials to be given to end-users which refer or relate to any end-user
warranty consistent with the terms established by Cygnus. In such event,
Yamanouchi may distribute such consistent written warranty materials with the
Products to end-users. In the event that Product delivered to a customer or end
user is found, prior to the end of the official life of the Product (as
established by Cygnus), not to conform in a material respect to warranty,
established as provided above and Yamanouchi may replace the
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non-conforming Product from Yamanouchi's inventory. Upon notice of such
replacement from Yamanouchi's inventory, Cygnus shall either refund to
Yamanouchi the Purchase Price paid by Yamanouchi for the replacement Product or
ship replacement Product to Yamanouchi. Such warranty does not apply to units
that have been mishandled, mistreated or used or maintained or stored other than
in conformity with Cygnus' instructions.
YAMANOUCHI'S SOLE AND EXCLUSIVE REMEDY FOR ANY BREACH OF THE FOREGOING WARRANTY
SHALL BE REPLACEMENT BY CYGNUS OF THE NON-CONFORMING GOODS, OR, AT CYGNUS'
OPTION, REFUND TO YAMANOUCHI OF THE FULL PURCHASE PRICE PAID BY YAMANOUCHI.
EXCEPT FOR THE FOREGOING WARRANTIES, CYGNUS DOES NOT WARRANT THE MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OF THE PRODUCTS OR PERFORMANCE OF THE
PRODUCTS OR NONINFRINGEMENT BY THE PRODUCTS; DOES NOT MAKE ANY WARRANTY, EXPRESS
OR IMPLIED, WITH RESPECT TO PRODUCTS, SPECIFICATIONS, SUPPORT, SERVICE OR
ANYTHING ELSE AND DOES NOT MAKE ANY WARRANTY TO YAMANOUCHI'S CUSTOMERS OR
AGENTS. CYGNUS HAS NOT AUTHORIZED ANYONE TO MAKE ANY REPRESENTATION OR WARRANTY
OTHER THAN AS PROVIDED ABOVE.
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13. INSURANCE.
13.1. During the Term, as defined in Section 11 above, and if
coverage is on a claims made basis, for a period after the Term reasonably
calculated to cover the legal time for which a claim for injury might be brought
for Product sold during the Term, the parties will jointly purchase and maintain
in full force and effect, with a responsible insurance carrier, a comprehensive
product liability insurance policy naming both parties as insureds. Details
with respect to such insurance, including the sharing of premium, shall be
agreed between the parties no later than six months prior to the First
Commercial Sale of the Initial Glucose Monitoring Product.
14. OWNERSHIP.
14.1. OWNERSHIP. As between the parties and with respect to any
inventions conceived and reduced to practice during the Term hereof or within
three (3) years after the expiration of the Term, each party will be the sole
owner of the intellectual property rights in any invention of which only its
employees and its third party contractors are inventors and each party will
jointly own the intellectual property rights in all inventions of which both
parties employees or contractors are joint inventors, except that intellectual
property rights with respect to inventions relating to the Products,
iontophoresis, or reverse iontophoresis regardless of the identity of the
inventor, will be solely owned by Cygnus. Nothing herein shall be interpreted
or construed to grant to Yamanouchi any rights or interest in the Proprietary
Rights (other than the distributorship rights granted hereunder) owned by Cygnus
or to which Cygnus is
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otherwise entitled under this Agreement or otherwise. Any assignments necessary
to accomplish the foregoing are hereby made and each party will execute such
further documents as may be reasonably requested by the other with respect
thereto. Jointly owned inventions may be exploited and non-exclusively licensed
to third parties by Cygnus without accounting to or further approval of
Yamanouchi. Neither party will be obligated under this Agreement to obtain
intellectual property licenses from third parties.
14.2. USE OF NON-CLINICAL AND CLINICAL DATA. Each party hereto
shall provide the other party with a copy of all data of any nonclinical and
clinical studies of any Product in its possession for which disclosure is not
otherwise barred by contract and shall permit the other to use it for Submission
or promotion of the Products during the term hereof.
15. CONFIDENTIALITY. Each party agrees that all proprietary information
it obtains from the other ("Proprietary Information") is the confidential
property of the disclosing party. Except as expressly allowed in this Agreement
and except that Yamanouchi and Cygnus may make disclosures in connection with
regulatory matters (provided that the parties shall confer in advance and
mutually agree on the extent of such disclosures), the receiving party shall
hold in confidence and not use or disclose any Proprietary Information of the
disclosing party and shall similarly bind its employees in writing. The
receiving party shall not be obligated under this Section 15 beyond five (5)
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years after the termination of this Agreement or (b) with respect to information
the receiving party can document:
(i) is or has become readily publicly available through no
fault of the receiving party or its employees or agents; or
(ii) is received from a third party lawfully in possession
of such information and lawfully empowered to disclose such information and
provided the receiving party abides by all restrictions imposed by such
third party; or
(iii) was rightfully in the possession of the receiving party
prior to its disclosure by the other party provided the receiving party
abides by all restrictions imposed on its possession of such information.
16. TRADEMARKS.
16.1. TRADEMARK REGISTRATION. Cygnus represents that it has
registered the trademarks "Glucowatch" and "Glucopad" in the U.S. Cygnus
agrees to maintain such registered trademarks. In the event the foregoing marks
are not available in the Territory or, upon the advice of Yamanouchi, Cygnus
deems it inadvisable to use either of those marks in a country in the Territory,
Cygnus may make additional registrations. Cygnus shall be the sole owner of all
such trademarks. In the event Cygnus elects to use a previously registered
trademark of Yamanouchi, the parties shall negotiate an agreement for the
transfer of ownership of such mark to Cygnus and the amount of consideration to
be paid to Yamanouchi for such transfer. For each Product in each country,
Cygnus may specify in writing which of its trademarks are to be used for the
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Product. Upon receiving such specification, Yamanouchi shall employ the
designated trademark on the product, product packaging and all promotional
materials. For each such use, such designated mark shall be the most prominent
mark utilized for the article, package or promotional material. Cygnus hereby
grants Yamanouchi an exclusive license to use such trademarks in the Territory
in connection with the sale of the Products. Yamanouchi shall submit exemplars
of such proposed form of use, including any Yamanouchi marks to be employed, to
Cygnus for Cygnus' review and approval and shall be deemed to have granted
Cygnus a nonexclusive limited license during the term of this Agreement as to
any country in the Territory for use in furtherance of this Agreement.
16.2. NO RIGHTS IN TRADEMARKS, TRADE NAMES, LOGOS OR DESIGNATIONS.
Yamanouchi acknowledges that it has paid no consideration for the use of Cygnus'
trademarks, trade names, logos and designations, and nothing contained in this
Agreement shall give Yamanouchi any right, title or interest in or to any of
such trademarks, trade names, logos or designations. Yamanouchi acknowledges
that Cygnus owns and retains all proprietary rights in all of its trademarks,
trade names, logos and designations; and agrees that it will not at any time
during or after the Term assert or claim any interest or do anything that might
adversely affect the validity or enforceability of any trademark, trade names,
logo or designation belonging to Cygnus. Yamanouchi agrees that it will not
affix any Cygnus mark to any product other than a Product.
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16.3. AFTER TERMINATION OR EXPIRATION. Upon expiration or
termination of this Agreement (whether in whole or as to one or more countries),
each party will forthwith cease (in the terminated country or countries only, in
the case of a partial termination) all display, advertising and use of the
trademark, trade names, logos and designations of the other party and will not
thereafter use, advertise or display any name, mark or logo that is, or any part
of which is, similar to or confusing with any such designation associated with
any Product, except to the extent necessary to sell any Products remaining in
inventory after termination of this Agreement, not to exceed [six] months,
provided that the use of such trademarks, trade names, logos and designations is
otherwise in accordance with this Agreement.
17. PATENT AND TRADEMARK INDEMNIFICATION.
17.1. CYGNUS' PATENT AND COPYRIGHT INDEMNITY.
17.1.1. If Yamanouchi receives a claim that any of the Products
infringe upon a valid patent, copyright, or any other intellectual property,
Yamanouchi will notify Cygnus promptly in writing and give Cygnus all necessary
information and assistance. Yamanouchi hereby grants Cygnus the exclusive
authority to evaluate, defend and settle any such claim as it deems appropriate;
Cygnus, at its own expense and option, may then (i) settle or defend against
such claim, (ii) procure for Yamanouchi the right to such Products, (iii)
replace or modify the Products to avoid infringement, (iv) recall the Product
from any country in the Territory, or (v) do any combination of the foregoing;
PROVIDED, HOWEVER that Cygnus hereby agrees to use reasonable efforts to
minimize the
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impact of its actions on Yamanouchi's ability to market, sell and distribute the
Products. Provided such timely notice has been given by Yamanouchi, should any
court of competent jurisdiction hold such Product to be infringing, Cygnus will
pay any final judgment against Yamanouchi and expenses, including attorneys fees
reasonably incurred by Yamanouchi, provided such expenses were consented to, in
advance, by Cygnus arising from such infringement and, if the use of such
Product is enjoined, Cygnus shall take the actions described in (ii) above. If
such option is not available, Cygnus may request Yamanouchi to recall the
Product from such country within the Territory, and shall refund the purchase
price paid under Section 6 less a reasonable amount of depreciation and, if any,
the cost of recall.
17.1.2. The indemnity in Section 17.1 will not apply to any claim
arising out of compliance with Yamanouchi's specifications, or arising out of
the incorporation of any other hardware or software in the Products, the manner
in which the Products are combined with each other or any other products, or
from a modification of the Products alter delivery by Cygnus. Cygnus'
obligations hereunder shall not apply to any infringement occurring after
Yamanouchi has received notice alleging the infringement unless Cygnus has given
Yamanouchi written permission for such continuing infringement.
17.1.3. Notwithstanding any other provisions hereof, Cygnus shall
not be liable for any claim based on Yamanouchi's use of the Products as shipped
after Cygnus has informed Yamanouchi of modifications or changes in the Products
required
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to avoid such claims and offered to implement those modifications or changes, if
such claim would have been avoided by implementation of Cygnus' suggestions.
17.1.4. THE FOREGOING IS GIVEN TO YAMANOUCHI SOLELY FOR ITS
BENEFIT AND IN LIEU OF, AND CYGNUS DISCLAIMS, ALL OTHER WARRANTIES OF
NONINFRINGEMENT WITH RESPECT TO THE PRODUCTS.
17.2. LIMITATION OF INDEMNITY. The indemnity provisions in this
Section 17.2 shall not apply (i) if the claim is found to be based upon the
recklessness or willful action or inaction of the party seeking indemnification
(the "Indemnified Party"), or (ii) if the Indemnified Party fails to give the
party from whom indemnification is sought (the "Indemnifying Party") prompt
notice of any claim it receives and such failure materially prejudices the
Indemnifying Party, or (iii) unless the Indemnifying Party is given the
opportunity to approve in writing any settlement, which approval shall not be
unreasonably withheld.
17.3. SETTLEMENT. In no event shall the indemnified party be
entitled to settle any of the above mentioned claims without the consent of the
indemnifying party.
18. LIMITED LIABILITY. NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR
OTHERWISE, CYGNUS SHALL NOT BE LIABLE WITH RESPECT TO ANY SUBJECT MATTER OF THIS
AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR
EQUITABLE THEORY, FOR ANY AMOUNTS IN EXCESS OF SEVENTY-FIVE
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PERCENT (75%) OF THE AGGREGATE OF THE AMOUNTS ACTUALLY RECEIVED BY CYGNUS
HEREUNDER (INCLUDING THE PAYMENTS RECEIVED PURSUANT TO SECTIONS 2.2, 2.3 AND 6).
19. INFRINGEMENT BY THIRD PARTIES. Cygnus shall have the sole right and
option, at its sole and absolute discretion, to file and maintain lawsuits in
its own name for infringement by third parties of any Cygnus' patents,
trademarks or other Proprietary Rights and occurring in the Territory licensed
hereunder. Yamanouchi shall, at the request of Cygnus, give Cygnus all
reasonable assistance and cooperation in any such proceedings. Notwithstanding
any of Cygnus' elections hereunder, or the results or outcomes thereof,
Yamanouchi's obligation to make payments to Cygnus under this Agreement shall be
unaffected. In the event that Yamanouchi's market share of the Products is
adversely affected by such third party infringement, Cygnus shall not be
obligated to offset any payments made hereunder. Notwithstanding any decision
on the part of Cygnus to forego bringing or continuing to prosecute any suit,
claim or litigation, Yamanouchi shall not have the right to bring, file or
litigate any claim for infringement by third parties of any Proprietary Rights
of Cygnus occurring in the Territory licensed hereunder.
20. MANUFACTURING IN THE EVENT OF BANKRUPTCY In the event (i) Cygnus
files, by its own initiative, a petition in bankruptcy or is placed in a
bankruptcy proceeding and (ii) is substantially unable to supply Product ordered
in accord with Section 4 for a commercially substantial period of time,
Yamanouchi may give notice of intent to
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manufacture. If Cygnus is unable within sixty (60) days of receipt of such
notice to offer reasonable assurances of its ability to resume supply in
conformity with Section 4, Yamanouchi shall be granted a license to make or have
made Product under this Agreement. With respect to Products manufactured under
such license, Yamanouchi shall be required to make payments equal to * percent
(*%) of Total Net Sales for all the Products sold less the aggregate Yamanouchi
Substitute Manufacturing Cost for such Products; PROVIDED, HOWEVER, such payment
shall in no event be less than * percent (*%) of the aggregate Yamanouchi
Substitute Manufacturing Cost for the Products. The Yamanouchi Substitute
Manufacturing Cost for a Product shall be deemed to be equal to the Cygnus
Manufacturing Cost for the same Product during the Calculation Period
immediately preceding Yamanouchi's commencement of manufacture. The foregoing
license shall terminate ninety (90) days after the giving of notice by Cygnus
(or on behalf of Cygnus) that it is able to resume supply in accordance with
this Agreement.
21. GENERAL.
21.1. AMENDMENT AND WAIVER. Except as otherwise expressly
provided herein, any provision of this Agreement may be amended and the
observance of any provision of this Agreement may be waived (either generally or
in any particular instance and either retroactively or prospectively) only with
the written consent of the parties. However, it is the intention of the parties
that this Agreement be controlling over additional or different terms of any
purchase order, confirmation, invoice or similar document, even if accepted in
writing by both parties, and that waivers and amendments
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shall be effective only if made by non-pre-printed agreements clearly understood
by both parties to be an amendment or waiver. The failure of either party to
enforce its rights under this Agreement at any time for any period shall not be
construed as a waiver of such rights.
21.2. GOVERNING LAW AND LEGAL ACTIONS. This Agreement shall be
interpreted and enforced in accordance with the laws of the State of California
and the United States of America without regard to conflicts of law provisions
thereof and without regard to the United Nations Convention on Contracts for the
International Sale of Goods. The sole jurisdiction and venue for actions
related to the subject matter hereof shall be the California state or U.S.
federal courts having within their jurisdiction the location of Cygnus'
principal place of business. Both parties consent to the jurisdiction of such
courts. In any action or proceeding to enforce rights under this Agreement, the
prevailing party shall be entitled to recover costs and attorneys' fees.
21.3. ARBITRATION. Any dispute arising out of Sections 2, 3, 5, 6
or 11 of this Agreement will be settled by binding arbitration (which
arbitration shall be binding for purposes of this Agreement only) as follows:
(a) plaintiff shall file an Opening Brief with the Judicial Arbitration and
Mediation Service ("JAMS"), with a copy to defendant, which brief shall set
forth the basis for such claims, (b) either party may request a list of five (5)
independent retired judge arbitrators from JAMS in San Francisco) thereafter,
within ten (10) days of the receipt of such list, each may strike two (2) names
from the list; failure to timely submit notice of the striking of names shall be
deemed acceptance
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of the entire list, (c) if more than one name remains, the arbitrator shall be
selected from the remaining names by JAMS, (d) defendant will have thirty (30)
days after receipt of plaintiff's Opening Brief to submit its case in writing to
the arbitrator, (e) the arbitrator shall have fifteen (15) days from such
submissions to hold a hearing to last not more than seven (7) days, (f) the
arbitrator shall have seven (7) days from the date of the conclusion of the
hearing, in which to render a decision, and (g) such arbitration shall be
informal and need not conform to JAMS or other established procedures. Unless
otherwise agreed to by the parties, arbitration will take place in San
Francisco, California.
21.4. HEADINGS. Headings and captions are for convenience only
and are not to be used in the interpretation of this Agreement.
21.5. NOTICES. Notices under this Agreement shall be sufficient
only if in writing and personally delivered, delivered by a major commercial
rapid delivery courier service or mailed by certified or registered mail, return
receipt requested to a party at its addresses first set forth herein or as
amended by notice pursuant to this Section 20.5, to the attention of the
President in the case of Cygnus and to the attention of the President in the
case of Yamanouchi. If not received sooner, notice by mail shall be deemed
received five (5) days after deposit in the U.S. or Japan mails.
21.6. ENTIRE AGREEMENT. This Agreement supersedes all proposals,
oral or written, all negotiations, conversations, or discussions between or
among parties relating to the subject matter of this Agreement and all past
dealing or industry custom.
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21.7. SEVERABILITY. If any provision of this Agreement is held to
be illegal or unenforceable, that provision shall be limited or eliminated to
the minimum extent necessary so that this Agreement shall otherwise remain in
full force and effect and enforceable.
21.8. BASIS OF BARGAIN. Each party recognizes and agrees that the
warranty disclaimers and liability and remedy limitations in this Agreement are
material bargained for basis of this Agreement and that they have been taken
into account and reflected in determining the consideration to be given by each
party under this Agreement and in the decision by each party to enter into this
Agreement.
21.9. RELATIONSHIP OF PARTIES. The parties hereto expressly
understand and agree that the other is an independent contractor in the
performance of each and every part of this Agreement, is solely responsible for
all of its employees and agents and its labor costs and expenses arising in
connection therewith.
21.10. ASSIGNMENT. This Agreement and the rights and obligations
hereunder are not transferable or assignable without the prior written consent
of the parties hereto, except for rights to payment and except to an Affiliate
Company or to a person or entity who acquires all or substantially all of the
assets or business of a party, whether by sale, merger or otherwise.
21.11. PUBLICITY AND PRESS RELEASES. Except to the extent
necessary under applicable laws or for ordinary marketing purposes, the parties
agree that no press releases or other publicity relating to the substance of the
matters contained herein shall
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be made without joint approval. A press release announcing this Agreement shall
be jointly developed and released by the parties.
21.12. FORCE MAJEURE. No liability or loss of rights hereunder
shall result to either party from delay or failure in performance (other than
payment) caused by force majeure, that is, circumstances beyond the reasonable
control of the party affected thereby, including, without limitation, acts of
God, fire, flood, war, government action, compliance with laws or regulations,
strikes, lockouts or other serious labor disputes, or shortage of or inability
to obtain material or equipment.
21.13. REMEDIES. Except as otherwise expressly stated in this
Agreement, the rights and remedies of a party set forth herein with respect to
failure of the other to comply with the terms of this Agreement (including,
without limitation, rights of full termination of this Agreement) are not
exclusive, the exercise thereof shall not constitute an election of remedies and
the aggrieved party shall in all events be entitled to seek whatever additional
remedies may be available in law or in equity.
CYGNUS, INC.
By: /s/ GARY W. CLEARY
---------------------------------
Name: Gary W. Cleary, Ph.D.
-------------------------------
Title: Chairman and Chief Technical
Officer
-------------------------------
YAMANOUCHI PHARMACEUTICAL CO., LTD
By: /s/ MASAYOSHI ONODA
---------------------------------
Name: Masayoshi Onoda
-------------------------------
Title: President and Chief Operating
Officer
-------------------------------
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SCHEDULE A
MILESTONE PAYMENTS
Product and Amount of Payment by
Milestone Date Yamanouchi to Cygnus
- -------------- --------------------
- - Effective Date $*
- - Upon written notice by Yamanouchi to Cygnus of its
decision to obtain the right to distributorship
within * (*) month after receipt of the U.S.
Regulatory Submission material filed by Cygnus with
the FDA for the Initial Glucose Monitoring Product
In the event that Yamanouchi notifies Cygnus that
it does not intend to accept distributorship, or
if Yamanouchi fails to send written notice within
the said * (*) month period, this Agreement shall
automatically terminate, and Yamanouchi shall not
be obligated to pay the $* listed above, nor the
$* listed below *
- - Upon first U.S. or Japanese registration *
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TOTAL $*
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EXHIBIT A
INITIAL GLUCOSE MONITORING PRODUCT
1. Glucopad
2. Glucowatch
3. Glucowatch biosensor
4. Rechargeable batteries, type AAA
5. Battery recharger
A-1
