AGREEMENT FOR SHARING DEVELOPMENT
COSTS
THIS AGREEMENT is
entered into as of July 18th and effective as of July 1,
2005 (the “Effective Date”) by and between Micrus
Endovascular Corporation (“Micrus US”), a Delaware
corporation whose principal office is at 610 Palomar Avenue,
Sunnyvale, California 94085, and Micrus Endovascular SA
(“Micrus International”), a corporation organized under
the laws of Switzerland whose principal office is at En Chamard,
1442 Montagny-Pres-Yverdon, Switzerland (each, a
“Party” and collectively, the
“Parties”).
WHEREAS, within
their respective territories, Micrus US and Micrus International
are, or intend to be, engaged in the business of developing,
manufacturing, selling and supporting medical devices;
WHEREAS, Micrus US
and Micrus International have entered into license agreement dated
concurrently herewith (the “License Agreement”) under
which Micrus International has obtained certain intellectual
property rights for the use of the Licensed Technology (as defined
therein) as they exist on the Effective Date including the right to
use the Licensed Technology for research and development purposes;
and
WHEREAS, Micrus US
and Micrus International desire to pool their resources for the
purpose of further developing and otherwise enhancing the value of
the Licensed Technology and desire to obtain the benefits from
exploiting such developments in their respective businesses in
accordance with this Agreement for Sharing Development Costs
(“Agreement”), which is intended to be a
“qualified cost sharing agreement” as defined in
section 1.482-7 of U.S. Treasury Regulations;
NOW, THEREFORE, in
consideration of the premises and of the mutual promises
hereinafter set forth, the Parties hereto agree as
follows:
1
For purposes of
this Agreement, the following definitions shall apply to the terms
set forth below wherever they appear:
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1.1
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“Affiliate” of a Party
means any entity controlled by, controlling, or under common
control with such Party, where “control” means
ownership, either direct or indirect, of more than fifty percent
(50%) of the equity interest entitled to vote for the election of
directors or equivalent governing body.
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1.2
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“Aggregate Allocable
Development Costs” for any Year means the sum of the
Development Costs of Micrus US and Micrus International during such
Year.
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1.3
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“Annual Cost Sharing
Report” means the document prepared by the Parties as
provided in Articles 3 and 4 of this Agreement.
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1.4
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“Cost Share” and
“Cost Share Percentage” for any Year are the amounts
specified in Article 3 of this Agreement.
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1.5
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“Developed Intangibles”
means any and all Micrus Licensed Technology arising from or
developed as a result of the Development Program, and all elements
of the Micrus Brand Rights that are created through, or derive
their value from, the Parties’ activities after the Effective
Date, and any applicable intangible property as defined under
Treasury Regulation Section 1.482-4(b).
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1.6
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“Development Costs”
means those costs incurred by each Party that are specified in
Article 2 of this Agreement.
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1.7
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“Development Program”
means the activities of either Party that give rise to Development
Costs, with due regard to the rules and principles of
Section 2.4 of this Agreement.
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1.8
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“Fiscal Year End” means
March 31, the last day of each of Micrus US’s fiscal
year ending after the Effective Date.
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1.9
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“Local Business” shall
mean and include the establishment, marketing, and operation of the
Micrus business within a specific country or region (including
Micrus’s business currently operated by Micrus US in the
United States).
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2
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1.10
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“Licensed Technology”
means: all Patent Rights, Technical Information, Brand Rights, and
Copyrights (as such terms are defined in the License Agreement),
including without limitation, all right, title and interest in the
foregoing, and all devices, patents, copyrights, hardware,
software, trade secrets, proprietary techniques, business models,
processes, methods, applications, technical information,
documentation and other similar items that were conceived,
discovered, owned, licensed, or acquired by Micrus US or any of its
Affiliates or agents prior to or as of the Effective
Date.
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1.11
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“Micrus Brand Rights”
means (a) all trade names, trademarks, service marks, logos,
Internet domain names or similar property that Micrus US uses, has
developed or has registered anywhere in the world, and any
derivations of such marks that are developed, used or registered in
the future; and (b) all customer lists, market surveys,
customer and transaction data, and other market or customer related
intangible property or goodwill that Micrus US has created,
collected or acquired, or that either Party creates, collects or
acquires in the future, and any applicable intangible property as
defined under Treasury Regulation Section
1.482-4(b).
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1.12
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“Net Funding Party”
means the Party whose Cost Share for a particular Year is expected
to exceed its Development Costs for that Year. Initially, Micrus
International shall be the Net Funding Party.
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1.13
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“Patent Rights” means
(a) any and all issued patents, reissue or reexamination
patents, patents of importation, revivals of patents, revalidation
patents, utility models, certificates of invention, registrations
of patents, or extensions thereof, regardless of country or formal
name; and (b) all U.S. and foreign utility and design Patents,
and published or unpublished regular patent and provisional
applications, including without limitation any and all applications
of addition, divisionals, continuations, continuations-in-part
(“CIPs”), continuing prosecution applications
(“CPAs”), reexaminations, substitutions, extensions,
renewals, utility models, certificates of invention or reissues
thereof or therefore, invention disclosures and records of
invention, and any license to practice any of the
foregoing.
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1.14
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“Prior Year Adjustment”
means any adjustment to the Parties’ Cost Shares for a Year
prior to the current Year, which may be made in accordance with
Article 3.5 of this Agreement.
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1.15
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“Quarterly Close Date”
means June 30, September 30 and December 31, or
equivalent dates corresponding to the last day of the fiscal
quarters of Micrus US’s fiscal year, and also includes the
Fiscal Year End.
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1.16
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“Quarterly Payment”
means a payment by the Net Funding Party to the other Party as
provided in Article 4.1 of this Agreement.
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1.17
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“Year” means each period
between Fiscal Year Ends, except the first Year shall begin on the
Effective Date and end on March 31, 2006, and the final Year
shall end on the date of termination of this Agreement.
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2.1
Development Costs . Development Costs of a Party shall mean
the following:
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a.
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All
costs incurred by such Party from activities relating to the
further development or refinement of the Micrus Licensed Technology
(but specifically excluding all license fees and royalties paid by
Micrus International to Micrus US pursuant to the License
Agreement);
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b.
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All
costs incurred by such Party from activities relating to the
protection of Micrus Licensed Technology and the promotion of the
Micrus Brand Rights on a global basis, or the creation or
refinement of Global Brand Protocols (as defined in the License
Agreement), but shall specifically exclude costs relating solely to
the promotion of a Local Business, to obtaining and renewing
government registrations or filings to protect the use of the
Micrus Licensed Technology in a Local Business or to day-to-day
operations of a Local Business. Costs shall include expenses
related to quality control standards and specifications established
from time-to-time by Micrus US, including any requirements of
applicable regulatory agencies worldwide for the manufacture and
sale of Licensed Technology, as mutually agreed upon by the
parties.
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c.
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Costs of stock-based compensation
granted to Micrus US or Micrus SA employees or independent
contractors on or after the Effective Date, but only to the extent
such employees or independent contractors are engaged in a
Development Program. Costs will exclude any amount for stock-based
compensation granted before the Effective Date. The parties further
agree that cost-sharing payments made under this Agreement in any
year to account for the costs of stock-based compensation will be
refunded in their entirety in the event that the current Treas.
Reg. § 1.482-7 requirement to include stock-based compensation
in the calculation of intangible development costs is invalidated
or withdrawn. Pursuant to Treas. Reg. §1.482-7(d)(2)(iii)(B)
the parties hereby elect
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to
take into account all operating expenses attributable to stock
options in the same amount, and as of the same time, as the fair
value of the stock options reflected as a charge against income in
the audited financial statements of Micrus US or disclosed in
footnotes to the audited financial statements of Micrus
US.
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2.2
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Sublicensee’s Costs
. Development Costs
incurred by a person that has licensed, sublicensed or otherwise
received rights in the Micrus Licensed Technology or the Micrus
Brand Rights from a Party (“Sublicensee”) shall be
considered Development Costs of that Party if the Party materially
participates in the management or control of the sublicensee and if
the Party retains ownership of, or receives material rights to use,
any intangible property developed by the sublicensee.
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2.3
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Determination of Costs
. The following
principles shall apply in the determination of Development
Costs:
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a.
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Costs shall be determined in
accordance with U.S. generally accepted accounting principles as
applied by Micrus US for financial reporting purposes and in
accordance with the relevant Treasury Regulations.
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b.
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Such costs shall specifically
exclude any amounts relating to or resulting from a corporate
merger or acquisition, regardless of their accounting treatment or
characterization. For example, costs exclude any charge for
in-process research and development resulting from a transaction
treated as an acquisition.
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c.
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Such costs shall exclude any
depreciation or amortization incurred by either Party ,
provided, however, that for administrative convenience the
Parties may agree to use such depreciation and amortization
as reasonable proxies for an arm’s length charge for the use
of tangible personal property where the amounts are relatively
similar.
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d.
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Such costs shall include direct
costs of the relevant activities, and an allocable share of
administrative, overhead and other indirect costs. Allocations of
indirect costs and of any direct costs that benefit both the
Development Program and a Party’s other business activities
shall be made using methods that are mutually agreed to be
consistent, reasonable and in keeping with sound accounting
practices.
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2.4
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Scope of the Development
Program . In
general, the Parties intend that all development activities
relating to any product or service of either Party be included
within the scope of
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the
Development Program, and that all intellectual property rights
related to such products and services be included within the Micrus
Licensed Technology and the Micrus Brand Rights. In this regard,
the following specific rules apply:
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a.
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Existing Products and
Services. The
Parties hereby note that the Micrus Licensed Technology and the
Micrus Brand Rights include all intellectual property rights
related to all products and services of either Party in existence
as of the Effective Date, and the Development Program includes all
development activities related to improving or extending such
products and services.
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b.
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New Lines of Business
. In the event that
either Party undertakes development activities relating to any new
products or services, such activities will be included in the
Development Program except to the extent specifically excluded by
the written agreement of the Parties. Micrus International may only
perform development activities upon receiving the express consent
of Micrus US.
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c.
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Acquisitions . In the event that either Party
acquires any intellectual property after the Effective Date from a
non-Party by means of a cash purchase or corporate merger, such
intangible property shall be added to the Development Program
unless either Party gives written notice objecting thereto within
sixty (60) days of the acquisition date or unless the Parties
fail to enter into a written agreement providing appropriate
arm’s length compensation for use of such
property.
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d.
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Licenses. In the event that either Party
licenses any intellectual property from a non-Party after the
Effective Date, such intangible property shall be added to the
Development Program unless
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