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EXHIBIT 10.1
EXCLUSIVE DISTRIBUTION AGREEMENT
THIS EXCLUSIVE DISTRIBUTION AGREEMENT (this "Agreement") is made
and
entered into effective as of October 1, 2006 (the "Effective Date")
by and
between Novare Surgical Systems, Inc., a corporation organized
under the laws of
Delaware ("Novare"), with an address at 10440 Bubb Road, Suite A,
Cupertino,
California 95014, and ATS Medical, Inc., a Minnesota corporation
("ATS"), with
an address at 3905 Annapolis Lane, Minneapolis, Minnesota
55447.
RECITALS
A. Novare is the owner of the Enclose II Anastomotic Assist Device
and is
engaged in, among other things, the manufacture, marketing, sale
and
distribution of the Enclose II Anastomotic Assist Device, and
all
accessories relating thereto, all as more fully described in
Exhibit A
hereto (collectively, the "Product").
B. ATS has knowledge and capability to promote the sale of, and
effectively
distribute, the Product in the United States, Germany, France, and
the
United Kingdom, including all dependencies and territories of the
foregoing
(collectively, the "Territory").
C. ATS desires to obtain from Novare, and Novare desires to grant
to ATS, the
exclusive right to market, sell and distribute the Product in the
Territory
on the terms and conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual
representations, warranties, covenants and agreements contained
herein, the
Parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
1.1 Act shall mean the U.S. Food, Drug and Cosmetic Act and the
regulations
promulgated thereunder, as amended from time to time.
** 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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1.2 Affiliates shall mean, with respect to either party, those
entities
controlled by, in control of, or under common control with such
party. For
the purposes of this definition, "control" means ownership or
control,
direct or indirect, of more than fifty percent (50%) of the voting
capital
or equity participation of an entity.
1.3 ATS Confidential Information shall mean any non-public
information, or
scientific or technical data, know-how, or expertise of ATS,
regardless of
the form in which it is disclosed, existing as of the Effective
Date or
developed during the term of this Agreement. ATS Confidential
Information
includes, but is not limited to, any non-public information of ATS
that
relates in any way to the Products, its financial statements,
marketing or
finances, market research, customers, markets, product plans,
business
plans, services, software, developments, inventions, processes,
procedures,
methods, know-how, designs, data, programs, drawings,
engineering
information, organization, employees, agents, distributors or
business in
general of ATS or its Affiliates.
1.4 Initial minimum shall mean the product obtained **. Novare will
provide ATS
with Novare's documentation and records evidencing the relevant
Product
sales.
1.5 Novare Confidential Information shall mean any non-public
information, or
scientific or technical data, know-how, or expertise of Novare,
regardless
of the form in which it is disclosed, existing as of the Effective
Date or
developed during the term of this Agreement. Novare
Confidential
Information includes, but is not limited to, any non-public
information of
Novare that relates in any way to the Products, its financial
statements,
marketing or finances, market research, customers, markets, product
plans,
business plans, services, software, developments, inventions,
processes,
procedures, methods, know-how, designs, data, programs,
drawings,
engineering information, organization, employees, agents,
distributors or
business in general of Novare or its Affiliates.
1.6 Change in Control shall mean (i) any consolidation or merger of
either
party with or into any other corporation or other entity or person,
or any
other corporate reorganization, in which the stockholders of such
party
immediately prior to such consolidation, merger or reorganization,
own less
than fifty percent (50%) of such party's voting power immediately
after
such consolidation, merger or reorganization, or any transaction or
series
of related transactions to which either is a party in which in
excess of
fifty percent (50%) of such party's voting power is transferred
or
diminished; or (ii) a sale, lease or other disposition of all
or
substantially all the assets of either party; provided however that
a
"Change of Control" shall not include a Financing Transaction
unless as a
result of such Financing Transaction a Strategic Investor owns more
than
50% of the outstanding capital stock of the Company following
the
consummation of such Financing Transaction; and provided, further,
however,
that a "Change of Control" shall not result
** 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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from the exercise of stock options granted by Novare to employees
or
consultants (who are not Strategic Investors) of the Company. A
"Financing
Transaction" shall mean the Company's sale of its capital stock
other than
as a result of the exercise of options or warrants, and a
"Strategic
Investor" shall mean an entity for which making equity investments
is not
one of the principal activities of such entity.
1.7 FDA shall mean the Food and Drug Administration of the U.S.
Department of
Health and Human Services.
1.8 GMP/QSR Regulations shall mean the applicable Good
Manufacturing
Practices/Quality System Regulations set forth under the Act.
1.9 Intellectual Property shall mean any U.S. or foreign patents
and patent
applications (including any substitutions, extensions, reissues,
renewals,
divisionals or continuations); trademarks, service marks and
registrations
thereof and applications therefore; copyrights and copyright
registrations
and applications; mask works and registrations thereof; all
discoveries,
innovations, ideas, inventions, technology, techniques, methods,
know-how,
trade secrets, processes, formulas, specifications, drawings and
designs,
computer programs or software, including all amendments,
modifications and
improvements to any of the foregoing, and any other proprietary
information.
1.10 Transfer Price shall have the meaning ascribed thereto in
Section 4.1.
ARTICLE II.
APPOINTMENT AS EXCLUSIVE DISTRIBUTOR
2.1 Scope. Subject to ATS's compliance with all of the terms and
conditions of
this Agreement, Novare grants to ATS and its Affiliates the
exclusive right
to market, sell and distribute the Products in (and only in) the
Territory
during the term of this Agreement.
2.2 Exclusivity. ATS' distribution rights under this Agreement
shall be
exclusive in the Territory for the Products. Novare represents and
warrants
to ATS that subject to applicable law, as of the Effective Date,
Novare is
not party to any other agreements, written or oral, with any third
party
permitting the sale or distribution of Products in the Territory,
and
Novare covenants and agrees that from and after the Effective Date
until
the date this agreement terminates, Novare will not enter into any
such
agreement. In addition, from the Effective Date until the date
this
Agreement terminates, neither Novare nor its Affiliates will (i)
engage in
any sales, marketing or distribution of the Products in the
Territory, or
(ii) act as an agent or distributor in the sale of products that
compete
with any products of ATS or the Products covered under this
Agreement in
the Territory.
2.3 Additions to the Territory. Upon termination or change of
existing
distributors in countries outside of the Territory, Novare will
give ATS 30
days notice to agree to add
** 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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such countries to the Territory by letter amendment to this
agreement,
including adjustment of the Minimum Purchase Requirements.
2.4 Subdistributors and Subagents. ATS may appoint subdistributors
or subagents
for distribution of the Products in the Territory. Notwithstanding
such
appointment of subdistributors or subagents, ATS shall remain
fully
responsible for the performance, acts and omissions of all of its
and its
Affiliates, subdistributors and subagents covenants,
representations,
warranties and obligations hereunder, and any sales by Novare to
such
subdistributor shall be billed by Novare to ATS directly.
2.5 Limitation of Rights. No rights or licenses are granted except
as expressly
and unambiguously set forth in this Agreement. Without limiting
the
foregoing, ATS acknowledges and agrees that it has no right to
market or
exploit the Products in any manner outside the Territory.
ARTICLE III.
SUPPLY AND ORDERS FOR PRODUCTS
3.1 Purchase Orders. ATS shall submit purchase orders to Novare for
the
Products in writing or by facsimile or e-mail, which purchase
orders shall
include the following and no terms inconsistent with this
Agreement: (a)
identification of the Products ordered; (b) quantity; (c)
requested
delivery date; and (d) shipping instructions and shipping address.
ATS
shall ensure that its purchase orders are received by Novare at
least six
(6) weeks prior to the delivery dates requested in the purchase
order.
Novare will ship Products within six (6) weeks of receiving a
purchase
order. On a monthly basis during the term of this Agreement, ATS
will
provide Novare with a twelve (12)-month rolling forecast that
defines for
each calendar month during the rolling forecast number of units
forecasted[, provided that no forecast for any particular month
shall vary
by more than 25% from the immediately preceding forecast for such
month.
3.2 Acceptance of Orders. All purchase orders issued in accordance
with this
Agreement shall be automatically accepted by Novare. Each purchase
order
shall be deemed to be an irrevocable offer by ATS to purchase
the
quantities of Products specified pursuant to the terms of this
Agreement
and shall give rise to a contract between ATS and Novare for the
sale of
such Products ordered according to the terms specified therein
subject to
the terms of this Agreement. The terms and conditions of this
Agreement
shall govern and supersede any additional or contrary terms set
forth in
ATS' purchase order or any Novare or ATS acceptance, confirmation,
invoice
or other document, unless the specific additional or contrary terms
are
stated in writing and duly signed by an officer of ATS and an
officer of
Novare.
3.3 Modification of Orders. No purchase order shall be modified or
canceled
except upon the mutual written agreement of the parties, which
shall not be
unreasonably withheld by
** 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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either party. Mutually agreed change orders shall be subject to
all
provisions of this Agreement, whether or not the changed purchase
order so
states. Notwithstanding the foregoing, any purchase order may be
canceled
by ATS as to any Products which are not delivered within thirty
(30) days
of the delivery date requested by ATS pursuant to a purchase
order
submitted to Novare under Section 4.1 and accepted by Novare under
Section
4.2 (the "Requested Delivery Date"), and any such cancellation
shall not
limit or affect any contract remedies available to ATS with
respect
thereto. Any such cancellation by ATS must be by written notice to
Novare
given within forty-five (45) days following the Requested Delivery
Date and
shall be effective as of the 30th day following the Requested
Delivery
Date.
3.4 Shipment. All Products sold by Novare to ATS shall be tendered
for shipment
by Novare free on board ("F.O.B.") Novare's designated
manufacturing point
(the "Shipping Point"). Novare shall bear all risk of loss prior
to
Novare's delivery of the Products to a common carrier at the
Shipping
Point, and shall have no further responsibility for the Products
after it
has delivered the Products to the common carrier. ATS assumes all
risk of
loss upon Novare's delivery of the Products to a common carrier at
the
Shipping Point. ATS shall pay all loading, freight, shipping,
insurance,
forwarding and handling charges, taxes, fees, storage, and all
other
charges applicable to the Products after they are delivered by
Novare to
the common carrier at the Shipping Point. If ATS requests any
expedited
shipping due to a modification of its purchase order pursuant to
Section
4.3, ATS shall be responsible for all such expedited shipping
costs.
3.5 Inspection.
(a) Novare shall inspect all Products sold by Novare to ATS prior
to
shipment to ATS to validate that all such Products sold to ATS
meet
all of the then applicable specifications for such final
Products.
Novare shall include with the shipment of such Products a
written
proof of inspection for each Product shipped to ATS, which will
provide such detail as requested by ATS.
(b) ATS shall conduct any incoming inspection tests on the Products
within
thirty (30) days of delivery of the Products to the Shipping
Point,
unless otherwise agreed by Novare. In cases where obligations of
ATS
to the customer do not allow for the completion of incoming
inspection
within this time, ATS shall notify Novare with the specific
inspection
terms at the time of submission of the purchase order, and shall
also
give notification to Novare when the inspection is completed. In
the
event of any shortage or damage (i.e. a failure of a Product to
conform to Novare's specifications therefore) in or to a shipment
of
Products, ATS shall promptly give notice thereof to Novare and
shall
furnish such written evidence or other documentation as Novare
reasonably may deem appropriate. If such evidence indicates that
such
shortage, damage or discrepancy existed at the time of delivery of
the
Products to the carrier, Novare will promptly deliver
** 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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additional or replacement Products to ATS, without additional cost
to
ATS. Any Products not properly rejected by ATS by written notice
given
to Novare within such inspection period, shall be deemed to have
been
accepted. Following any such acceptance, the sole remedies of ATS
with
respect to damage to or defects in the Products shall be those
set
forth in Article 10 below.
(c) Any claims for shipping damage shall be submitted to Novare
in
accordance with the provisions of Section 3.5(b) above.
3.6 Testing. Novare shall be responsible for testing the Products
to ensure
that the product and sterilization testing and validation
activities
outlined in Exhibit B attached hereto meet the testing and
validation
activities ATS requires for its own products. Novare shall provide
to ATS
documented test results that demonstrate compliance with the
activities
outlined in Exhibit B.
3.7 Packaging, Sterilization and Labeling. Novare shall be
responsible for
finished goods, packaging, labeling, instructions for use, and
any
necessary and sterilization of Products purchased under this
Agreement. If
ATS desires or if a change in packaging, labeling or instructions
for use
is required in the Territory, Novare shall, at ATS's expense,
deliver the
text of proposed packaging, labeling, instructions for use to ATS
for its
review and comment prior to printing. ATS shall have thirty (30)
days to
review and provide comments on such packaging, labeling,
instructions for
use. Novare shall prepare packaging, labeling and instructions for
use in
English, German, French, ___ at ATS's sole cost and expense. The
Products
will be labeled as "Manufacturer: Novare" and either "ATS: ATS" or
"ATS:
ATS Medical, Inc." ATS hereby grants Novare a limited,
non-exclusive,
license to use ATS' name in accordance with ATS' instructions,
solely for
purposes of packaging and labeling Products sold by Novare to ATS
or its
Affiliates under this Agreement.
3.8 Subcontracts and Suppliers. If ATS requires information on the
Products
(for regulatory or operational purposes), Novare will promptly
supply ATS a
list of Novare's subcontractors and suppliers contributing to
the
manufacture of the Product. After Novare has supplied ATS with such
list,
Novare shall provide ATS with at least thirty (30)-days' notice of
any
proposed change in such subcontractors and suppliers.
3.9 Changes to Facility, Processing, Product Specifications and
Material
Specifications. Novare will inform ATS in writing at least thirty
(30) days
in advance of making any changes involving or effecting the
Products, which
changes are reportable to the FDA or which effect the safety or
effectiveness of the Products, including, without limitation, the
process
which is used to manufacture the Products or the specifications for
such
Products or materials used in such Products.
** 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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ARTICLE IV.
PRICES AND PAYMENTS
4.1 Transfer Prices. During the period from the Effective Date
until December
31, 2007 (the "Initial Price Period"), the transfer price for one
box of
the Product (each box will contain **) shall be ** (as such price
may be
adjusted from time to time, the "Transfer Price"). From time to
time
following the Initial Price Period, Novare may increase the
Transfer Price
after thirty (30) days notice to ATS and to the extent that Novare
can
demonstrate to ATS' reasonable satisfaction that **; provided,
however,
that no such increases shall, during any given calendar year,
amount to an
increase in more than ** over the Transfer Price in effect on
December 31
of the previous calendar year. All Transfer Prices are F.O.B.
Shipping
Point.
4.2 Payment Terms. Novare will invoice ATS upon delivery of
Products to the
Shipping Point. Invoices for Products shipped to ATS shall be due
and
payable in full within forty-five (45) days from the delivery of
the
applicable Products to the Shipping Point; provided, however, that
payment
for the first eighty (80) boxes received by ATS shall be due and
payable in
full within one hundred eighty (180) days after the delivery of
such
Products at the Shipping Point. All payments hereunder shall be
made in
U.S. dollars in the United States in immediately available
funds.
4.3 Taxes. The Transfer Prices for Products do not include any
sales, use,
value added or similar taxes, customs duties, or tariffs imposed by
any
governmental authority or agency on Products or any components
thereof that
are imposed by ATS into any country in the Territory. ATS shall pay
or
reimburse Novare for all such amounts incurred in connection with
ATS'
purchase of Products; provided, however, that Novare shall pay all
net
income or franchise taxes imposed upon Novare.
4.4 Resale Prices. ATS may resell the Products at such prices as
ATS, in its
sole discretion, shall determine.
ARTICLE V.
MINIMUM OBLIGATIONS OF ATS
5.1 Minimum Purchase Requirements. From the Effective Date until
December 31,
2006, ATS shall not have any minimum purchase requirement. For
calendar
year 2007, and subject to Section 5.2, ATS agrees to purchase and
take
delivery of at least that number of Products equal to the Minimum
Units.
During each calendar year after 2007, and subject to Section 5.2,
ATS
agrees to purchase and take delivery of at least that number of
Products
equal to the product obtained ** (as such number may have been
adjusted in
accordance with Section 5.2) (each such amount, a "Yearly Quota"
and,
collectively, the "Quota").
** 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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5.2 Reductions in Quota. Notwithstanding Section 5.1, the Yearly
Quota for any
calendar year shall be reduced by a pro rata amount of the Yearly
Quota for
the applicable calendar year based upon the number of days of such
period
which have transpired prior to the removal of the restriction on
sale
referenced in such subpart:
(a) If a Product covered by this Agreement is recalled from the
United
States of America market or withdrawn from sale for reasons of
product
safety or quality as determined by any applicable governmental
authority in the United States of America or by the mutual
agreement
of the parties; or
(b) If ATS is restricted in the sale of Products in the United
States of
America by any applicable regulatory authority because approval
to
sell the Product is pending, denied or revoked or because the
Products
infringe any third party intellectual property rights.
(c) If ATS is restricted in the sale of Products in a market by
any
applicable regulatory authority because approval to sell the
Product
is pending, denied or revoked or because the Products infringe
any
third party intellectual property rights.
ARTICLE VI.
GENERAL RIGHTS AND OBLIGATIONS OF ATS
6.1 Sales and Marketing. ATS will provide a level of sales and
marketing
support for the Products that is comparable to the sales and
marketing
support that ATS provides for any of its other products and will
use
commercially reasonable efforts on a continuous basis to further
the
promotion, marketing, sale and other distribution of the Products
in the
Territory. ATS will incorporate into its sales force compensation
structure
for the Products similar sales incentive arrangements as ATS has
used for
other products and, in particular, there will be a set commission
rate for
each representative based on the total amount of commissions
expected at
100% of plan divided by the sales revenue plan number.
Additionally, total
over-achievement bonus will increase commensurately as the
sales
representative achieves additional individual sales goals for our
various
product groups.
6.2 Training. ATS shall provide its sales force with all reasonably
necessary
and appropriate training and support regarding the use of the
Products.
Novare shall provide reasonable personnel and assistance in the
training of
ATS' sales force. Each party will be responsible for their own
expenses
incurred in connection with such training.
6.3 Alteration of Products. ATS shall not, in any way, alter the
Products or
remove, cover, change, alter or add to the labels attached to the
Products
by Novare, except with
** 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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Novare's express prior written approval. In the event that Novare
makes any
changes or alterations to the Products, Novare shall not ship any
such
changed or altered Products to ATS unless Novare has notified ATS
of such
changes or alterations to the Products at least thirty (30) days
before
shipping any such altered or changed Products to ATS.
6.4 Import Approvals. ATS shall be responsible for obtaining all
import
licenses and permits (other than regulatory approvals under Article
11) as
may be required to import the Products into any of the Territories
in
accordance with then prevailing laws and regulations of such
Territory. All
such filings and registrations of the Products shall be in the name
of ATS,
whenever feasible in accordance with prevailing laws and
regulations.
Novare shall cooperate reasonably with ATS in its efforts to obtain
any
such approvals.
6.5 Export. ATS shall be responsible for obtaining all required
export licenses
and other authorizations and permits from the United States
Government for
the sale of the Products to ATS. Novare shall cooperate reasonably
with ATS
in its efforts to obtain any such approvals.
6.6 Records and Recall. ATS shall, or shall cause its
subdistributor to,
maintain complete and accurate records of all Products sold by ATS
and any
subdistributors appointed pursuant to Section 2.3. In the event of
a recall
of any of the Products, ATS and any subdistributor will
cooperate
reasonably with Novare in effecting such recall.
6.7 Compliance with Laws. ATS shall at all times: (i) conduct its
activities
under this Agreement in strict compliance with all applicable laws,
rules,
regulations and governmental orders now or hereafter in effect in
the
Territory; (ii) pay any and all fees and other charges required by
such
laws, rules, regulations and orders; and (iii) have and maintain in
full
force and effect any and all licenses, permits, authorizations,
registrations and qualifications from all governmental agencies,
within or
outside the Territory, to the extent necessary or appropriate to
perform
its obligations hereunder.
ARTICLE VII.
GENERAL RIGHTS AND OBLIGATIONS OF NOVARE
7.1 Manufacture of Products. During the term of this Agreement,
Novare shall
manufacture and sell Products to ATS in accordance with the terms
and
conditions set forth in this Agreement, provided that if Novare
fails to
manufacture the Products or is unable meet the volume requirements
set
forth in any purchase order delivered by ATS under this Agreement,
Novare
shall promptly notify ATS in writing of such manufacturing
deficiency. In
addition, if ATS becomes aware of any such manufacturing
deficiency, ATS
shall provide written notice to Novare of such manufacturing
deficiency. If
Novare is not able to cure the deficiency within ninety (90) days
of notice
from ATS, ATS will have the right to terminate this Agreement.
** 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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7.2 Samples and Technical Support. Novare shall provide, at no
charge, to ATS
reasonable quantities of samples of the Product and accessories (if
Novare
has such in its
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