MARKETING SERVICES AGREEMENT

 

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EXHIBIT 10.2

 

                          MARKETING SERVICES AGREEMENT

 

     This Marketing Services Agreement (the "Agreement"), effective the 21st day

     of July, 2005 ("Effective Date"), is by and between Alabama Tissue Center,

     Inc., also known as Regeneration Technologies, Inc. - Cardiovascular

     ("ATC"), an Alabama corporation, having its principal place of business at

     201 London Parkway, Suite 300, Birmingham, Alabama, 35211 and ATS Medical,

     Inc. ("ATS MEDICAL"), a Minnesota corporation, having its principal place

     of business at 3905 Annapolis Lane, Suite 105, Minneapolis, Minnesota

     55447.

 

     WHEREAS, ATC owns and uses valuable proprietary processes, methods, trade

secrets and other intellectual properties related to human donor tissue

processing, and distributes the resulting human cardiovascular allograft tissue

("Cardiovascular Tissue") for use by physicians in implant procedures around the

world;

 

     WHEREAS, ATS MEDICAL wishes to provide marketing services for ATC's

Cardiovascular Tissue for use by physicians for implant procedures;

 

     WHEREAS, ATC desires to appoint ATS MEDICAL, and ATS MEDICAL wishes to

accept appointment, as the exclusive marketing services representative of the

Cardiovascular Tissues within a defined territory and field of use as set forth

herein;

 

     NOW, THEREFORE, in consideration of the premises and the mutual covenants

contained herein, the receipt and sufficiency of which is hereby acknowledged,

the parties agree as follows:

 

**   The appearance of a double asterisk denotes confidential information that

     has been omitted from the exhibit and filed separately, accompanied by a

     confidential treatment request, with the Securities and Exchange Commission

     pursuant to Rule 24b-2 of the Securities Exchange Act of 1934.

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I.   DEFINITIONS

 

The following definitions shall apply throughout this Agreement:

 

     1.1 "Cardiovascular Tissue" shall mean allograft tissues for use in the

Field of Use.

 

     1.2 "Field of Use" shall mean any cardiovascular procedures for

cardiovascular surgery or vascular surgical procedures.

 

     1.3 "Territory" shall mean North America.

 

     1.4 "Customers" shall mean patients, doctors, hospitals and clinics within

the Territory and Field of Use.

 

     1.5 "Processed Tissue" shall mean Cardiovascular Tissue processed by ATC

for marketing by ATS MEDICAL to customers in the Territory and Field of Use, as

identified on Exhibit "A" attached hereto.

 

     1.6 "Fee" shall mean a reimbursement paid to ATC by the Customers for

processing, research/development, manufacturing, quality assurance, quality

control, storage, handling and maintenance, and transportation charges of

Processed Tissue, as identified on Exhibit "A" attached hereto.

 

     1.7 "Net Invoice Amount" shall mean the total Fee billed to Customers per

shipment, less transportation charges and discount.

 

     1.8 "Service Compensation" shall mean compensation to be paid to ATS

MEDICAL by ATC, and computed as a percentage of the Net Invoice Amount.

 

     1.9 "Minimum Performance Level" shall mean total orders received by ATC for

Processed Tissue that are at least ninety percent (90%) of the aggregate

standard list price of Processed Tissue existing in ATC's inventory on the last

day of the quarter.

 

 

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     1.10 "Quarterly Order Performance Level" shall mean the total orders

received from Customers for Processed Tissue to be computed on the last day of

each quarterly period.

 

     1.11 "ATC Intellectual Property" shall mean ATC's confidential and

proprietary process, methods, patents, pending patents, trademarks, copyrights,

trade secrets, know-how, techniques, data, training materials, or other

intellectual properties developed, used, or owned by ATC.

 

     1.12 "Confidential Information" shall mean ATC Intellectual Property, as

well know-how, trade secrets, and other proprietary or confidential information

of either party, including, in the case of ATS MEDICAL, names of physicians,

hospitals or other health care providers solicited by ATS MEDICAL on behalf of

ATC, excluding information which:

 

          (a) was already in the possession of receiving party prior to its

receipt from the disclosing party (provided that the receiving party is able to

provide the disclosing party with reasonable documentary proof thereof);

 

          (b) is or becomes part of the public domain by reason of acts not

attributable to the receiving party;

 

          (c) is or becomes available to receiving party from a source other

than the disclosing party which source, to the best of receiving party's

knowledge, has rightfully obtained such information and has no obligation of

non-disclosure or confidentiality to the disclosure party with respect thereto;

 

          (d) is made available by the disclosing party to a third party

unaffiliated with the disclosing party on an unrestricted basis;

 

 

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          (e) is independently developed by the receiving party completely

without reference to any Confidential Information of the disclosing party, as

evidenced by the receiving party's written records; or

 

          (f) has been or must be publicly disclosed by reason of legal

accounting or regulatory requirements beyond the reasonable control, and despite

the reasonable efforts of the receiving party.

 

     1.13 "FDA" shall mean the United Stated Department of Health and Human

Services, Food and Drug Administration, or any successor agency.

 

     1.14 "NOTA" shall mean the National Organ Transplant Act (42 U.S.C.Section

273 et seq.), as amended.

 

     1.15 "AATB" shall mean American Association of Tissue Banks.

 

II.  RIGHTS GRANTED

 

     2.1 Subject to the terms and conditions contained herein, ATC hereby grants

ATS MEDICAL the exclusive right to market the Processed Tissue within the Field

of Use and Territory.

 

     2.2 Nothing contained herein shall prevent or prohibit ATC or a third party

designated by ATC from marketing or distributing the Processed Tissue outside

the Territory or Field of Use.

 

     2.3 The exclusive rights granted to ATS MEDICAL hereunder are contingent

upon ATC receiving firm orders for Processed Tissue at or above the Minimum

Performance Level to be measured on a quarterly basis throughout the term of

this Agreement.

 

 

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     2.4 Notwithstanding the foregoing, and on the last day of any quarterly

period during the term of this Agreement, if ATS MEDICAL's Quarterly Order

Performance Level is below the Minimum Performance Level, ATC will deliver a

letter of warning to ATS MEDICAL.

 

     2.5 In the event ATS MEDICAL fails to fulfill orders at or above the

Minimum Performance Level for two (2) consecutive quarters, ATC will notify ATS

MEDICAL in writing of such failure. In such event, and if ATC delivers all of

the foregoing notices to ATS MEDICAL, ATC shall have the right to declare this

Agreement non-exclusive or terminate it in accordance with Section VIII herein.

 

     2.6 From time to time and upon the request by ATC, the Parties shall meet

to discuss the status of ATC's Inventory and mutually develop strategies to

reduce such inventory.

 

     2.7 ATC will provide ATS MEDICAL with data at the end of each month

reporting the level of inventory available for distribution for the following

month. In the event any Processed Tissue remains in inventory for a period of

six (6) months, ATS MEDICAL and ATC will mutually agree on reducing the Fee for

those respective Processed Tissue or ATC may be allowed to use the Processed

Tissue in research if applicable.

 

     2.8 If ATC processes any new Cardiovascular Tissue after the date of this

Agreement, it shall promptly notify ATS MEDICAL of such new Cardiovascular

Tissue and the associated Fee. ATS MEDICAL will have the right to add such new

Cardiovascular Tissue to this Agreement by giving written notice to ATC within

thirty (30) days, and Exhibit A shall be appropriately amended.

 

     2.9 If ATC decides to pursue the marketing of Processed Tissue, whether

directly or through a third party, in any geographic area outside of the

Territory, ATC shall promptly notify ATS MEDICAL of the geographic area that ATC

intends to pursue. ATS MEDICAL will have

 

 

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the right to negotiate for the addition of such geographic area to this

Agreement by giving written notice to ATC within thirty (30) days. ATC shall not

grant any third party the right to market Processed Tissue outside the Territory

without first complying with this Section 2.9.

 

III. TERMS OF MARKETING SERVICES

 

     3.1 Processed Tissue shall be marketed pursuant to this Agreement and,

except as otherwise expressly agreed by ATC in advance and in writing, this

Agreement shall control all aspects of the dealings between ATC and ATS MEDICAL

with respect to the Processed Tissue.

 

     3.2 ATC shall use commercially reasonably efforts to promptly ship

Processed Tissue directly to Customers as instructed by ATS MEDICAL, subject to

the availability of Cardiovascular and Processed Tissue. All orders, however,

are subject to acceptance by ATC, and ATC shall be under no obligation to accept

such order received.

 

     3.3 ATS MEDICAL will provide ATC with the name, address and contact

information for the customers to which ATC is directed to ship and invoice

Processed Tissue.

 

     3.4 ATC shall be responsible for all billing and collections. ATC shall

promptly invoice the Customer for the applicable Fee of the Processed Tissue

ordered, payable net thirty (30) days.

 

     3.5 The Fee Schedule, attached hereto as Exhibit "A", is subject to change

at the sole discretion of ATC, provided that ATC provides ATS MEDICAL at least

thirty (30) days advance written notice.

 

     3.6 ATS MEDICAL shall be paid a Service Compensation for all Processed

Tissue orders invoiced by ATC prior to the termination date of this Agreement,

in accordance with the terms hereunder.

 

          3.6.1 **

 

 

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          3.6.2 Service Compensation shall be paid monthly as set forth in

Section III herein, but shall only be considered "earned" by ATS MEDICAL upon

ATC's receipt of the Fee due for the respective Processed Tissue Shipment.

 

     3.7 ATC shall provide a listing of all past due accounts to ATS MEDICAL at

the end of each month, and ATS MEDICAL shall use reasonable efforts to assist

ATC in the collection of all past due accounts.

 

          3.7.1 In the event that ATC is unable to collect a Fee from a Customer

within ninety (90) days of the respective Processed Tissue shipment, ATC shall

deduct the amount of such Service Compensation originally paid to ATS MEDICAL

from the Service Compensation next or currently due to ATS MEDICAL.

 

          3.7.2 In the event, and only in such event, that within twelve (12)

months from the original ship date of such unpaid Processed Tissue shipment, the

respective payment is collected, ATC shall reissue the respective Service

Compensation to ATS MEDICAL.

 

     3.8 ATC shall provide ATS MEDICAL with a monthly statement of ATS MEDICAL

activity for all Processed Tissue shipped in the previous month, within thirty

(30) days after the end of such month. Such statement shall include an

itemization of shipments as to Processed Tissue type, quantities shipped and

invoiced amounts, by Customer, and the calculated Service Compensation due.

Payment for the Service Compensation reflected on such statement shall be made

in conjunction with transmission of the statement.

 

     3.9 The Parties shall conduct weekly status calls to coordinate and

maximize marketing and distribution of Processed Tissue.

 

 

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IV.  GENERAL DUTIES OF ATC

 

     4.1 For the term of this Agreement, ATC shall maintain any and all AATB and

local, state, federal, and other governmental licenses, certifications and

registrations required for processing and distributing the Processed Tissue.

 

     4.2 ATC shall at all times conduct itself and all activities performed

under this Agreement in full compliance with all applicable federal, state and

local laws, rules, regulations and standards relating to the processing and

marketing of human tissue including, as applicable, regulations promulgated by

the FDA, NOTA, as amended from time to time, and AATB standards.

 

     4.3 ATC or an affiliate of ATC will obtain all required consents from

tissue donors for Processed Tissue. ATC will ensure that donors processed are

screened according to suitability criteria as set forth by the AATB and

applicable Federal regulations. ATC will perform serologic, bacterial and

microbiological testing on all donor tissue processed in accordance with AATB

standards and/or applicable U.S. federal regulations.

 

     4.4 ATC will cooperate with ATS MEDICAL in providing for effective training

and education to ATS MEDICAL and Customers with respect to the Processed Tissue

throughout the Territory and Field of Use.

 

V.   GENERAL DUTIES OF ATS MEDICAL

 

     5.1 ATS MEDICAL shall use commercially reasonable efforts to promote,

market and solicit orders for Processed Tissue to Customers in the Territory in

the Field of Use including generation of necessary marketing materials and

literature, with the content of such marketing materials and literature being

subject to the final approval of ATC.

 

 

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     5.2 ATS MEDICAL will engage in marketing and distribution promotion

activities in which Processed Tissue shall be designated by their correct names

and identified as Cardiovascular Tissue processed by ATC being marketed by ATS

MEDICAL.

 

     5.3 ATS MEDICAL will maintain a qualified marketing organization for the

Processed Tissue in the Territory.

 

     5.4 For the term of this Agreement, ATS MEDICAL shall maintain any and all

local, state, federal, and other governmental licenses, certifications and

registrations required for marketing the Processed Tissue.

 

     5.5 ATS MEDICAL shall at all times conduct itself and all activities

performed under this Agreement in full compliance with all applicable federal,

state and local laws, rules, regulations and standards relating to the marketing

of Cardiovascular Tissue including those of any jurisdiction where ATS MEDICAL

may be engaged in activities pursuant to this Agreement and including, as

applicable, regulations promulgated by the FDA, as well as NOTA and AATB

standards.

 

     5.6 ATS MEDICAL personnel and representatives shall make commercially

reasonable efforts to be adequately trained regarding the Processed Tissue.

 

     5.7 ATS MEDICAL agrees to participate in a training session at a mutually

agreed location within one month of the Effective Date herein, or at a mutually

agreed upon time. ATS MEDICAL and ATC will jointly agree on the timing, location

and content of any supplemental

 

 

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training and education sessions that may be necessary or appropriate for ATS

MEDICAL'S representatives related to the marketing of Processed Tissue.

 

     5.8 ATS MEDICAL shall provide ATC with a written, non-binding, annual

orders forecast, broken down by quarter, as requested by ATC.

 

     5.9 ATS MEDICAL shall not alter, modify, create, publish or distribute any

advertisement or literature of any kind which represents an ATC Processed Tissue

or which bears the ATC logo without prior review and written approval by the

General Manager of ATC or their designate. ATS MEDICAL agrees to permit ATC to

review all of ATS MEDICAL's promotion and advertising material for the Processed

Tissue prior to use. ATS MEDICAL shall not use and shall withdraw and retract

any promotion or advertising that ATC finds unsuitable for any reason, or would

otherwise cause a breach of the terms of this Agreement.

 

     5.10 ATS MEDICAL will assist ATC in assessing customer requirements for

Cardiovascular Tissue and in developing modifications and improvements of the

Processed Tissue, with a view towards maximizing the potential market for

Processed Tissue in the Territory. ATS MEDICAL will keep ATC fully informed of

all governmental, commercial, and competitive activities or plans that could or

do affect the market for Processed Tissue in the Territory.

 

     5.11 ATS MEDICAL will refer to ATC for direct action with respect to any

orders or inquiries for Processed Tissue from Customers outside of the Territory

or which involve non-standard versions of the Processed Tissue.

 

     5.12 ATS MEDICAL shall be responsible for all expenses incurred by it in

connection with the implementation and performance of its duties and obligations

under this Agreement including, but not limited to, costs and expenses

associated with establishing and maintaining its

 

 

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sales and marketing organization and offices, advertising and promotion

expenses, and any and all taxes, duties, tariffs or charges which may be imposed

on ATS MEDICAL.

 

     5.13 ATS MEDICAL shall diligently endeavor to train and educate Customers

with respect to the Processed Tissue in conformity with ATC's established

training and education policies and programs. ATS MEDICAL agrees to provide

appropriate educational services to Customers and potential Customers,

including, but not limited to, surgeons, hospital personnel, customer support

staff and potential recipient or customer groups, regarding applications of

Processed Tissue within the Field of Use in the Territory. Such services shall