EXCLUSIVE DEVELOPMENT, SUPPLY AND DISTRIBUTION AGREEMENT

 

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EXHIBIT 10.3

 

            EXCLUSIVE DEVELOPMENT, SUPPLY AND DISTRIBUTION AGREEMENT

 

     THIS EXCLUSIVE DEVELOPMENT, SUPPLY AND DISTRIBUTION AGREEMENT ("Agreement")

is made and entered into effective as of June 23, 2005 (the "Effective Date") by

and between GENESEE BIOMEDICAL, INC., a corporation organized under the laws of

the state of Colorado ("GBI"), with an address at 1308 South Jason Street,

Denver, Colorado 80223, and ATS MEDICAL, INC., a Minnesota corporation ("ATS"),

with an address at 3905 Annapolis Lane, Minneapolis, Minnesota 55447,

(hereinafter sometimes individually or collectively referred to as a "Party" or

the "Parties," respectively).

 

                                    RECITALS

 

A.    ATS and GBI are engaged in the design, development, manufacture and sale of

     products for use in cardiac surgery.

 

B.    GBI has special knowledge and expertise relating to the design, development

     and manufacture of cardiac surgical products, including annuloplasty repair

     rings, c-rings and accessories, and ATS has a distribution network that is

     capable of marketing and selling such products.

 

C.    ATS and GBI previously agreed in principal to certain non-binding terms and

     conditions regarding the development of the Products (the "Term Sheet") and

     after executing the Term Sheet market input data generated by the Parties'

     investigations have affected certain commercial considerations reflected in

     the Term Sheet.

 

D.    GBI desires to manufacture the Products for ATS and to supply such

     quantities of Products as ATS desires, and ATS desires to obtain from GBI a

     supply of the Products after it has complied with the necessary FDA

     requirements so that ATS can exclusively distribute the Products worldwide.

 

E.    ATS and GBI desire to formalize their relationship by entering into this

     Exclusive Development, Supply and Distribution Agreement for the purpose of

     developing, manufacturing, supplying and distributing the Products, on the

     terms set forth in this 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 1

                                    DEFINITIONS

 

1.1. Act shall mean the United States 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. Additional Product shall mean all improvements to, modifications of or

     subsequent generations of the Products that do not affect the form, fit or

     function of the Product and any support product(s) developed by GBI during

     the term of this Agreement.

 

1.3. Affiliates shall mean, with respect to either Party, those entities

     controlled by, in control of, or under common control with such person. 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.

 

1.4. ATS Confidential Information shall mean any non-public information about

     ATS, its development of intellectual property and its operations including,

     but not limited to, any non-public information or scientific or technical

     data, know-how, or expertise of ATS relating to the Products, existing as

     of the Effective Date or developed during the term of this Agreement

     (excluding Joint Inventions) and non-public information that relates to 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, and engineering information.

 

1.5. ATS Invention shall mean any invention (excluding Joint Inventions),

     whether or not patentable, conceived or developed without the use of any

     GBI Confidential Information by employees of ATS, alone or together with

     any third Party (including Affiliates, agents and consultants of ATS or a

     person or entity working in any fashion on behalf of ATS but excluding

     GBI), during the term of this Agreement, or prior to the Effective Date,

     specifically related to the development of the Product.

 

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 (ii) a

     sale, lease or other disposition of all or substantially all the assets of

     either Party.

 

1.7. Demonstration Products shall have the meaning ascribed thereto in Section

     3.1.

 

1.8. Development Period shall mean the period commencing on the Effective date

     and ending upon passage of necessary notice periods with no further

     comments from the FDA under Section 510(k) of the Act, as more particularly

     set forth in the Development Plan.

 

1.9. Development Plan shall mean the description of development activities for

      the Products, the responsibilities of each of the Parties in developing the

     Products, and the schedule for performing such activities including timing,

     milestone schedules, scope of work, specifications, general quality and

     regulatory requirements and other relevant terms and information as more

     particularly set forth in Exhibit A attached hereto, which the Parties may

     amend from time to time by mutual written agreement.

 

 

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1.10. Distribution Fee shall have the meaning ascribed thereto in Section 10.5.

 

1.11. FDA shall mean the Food and Drug Administration of the U.S. Department of

     Health and Human Services.

 

1.12. GBI Confidential Information shall mean any non-public information about

     GBI, its development of intellectual property, and its operations

     including, but not limited to, any non-public information or scientific or

     technical data, know-how, or expertise of GBI relating to the Products

     existing as of the Effective Date or developed during the term of this

     Agreement (excluding Joint Inventions) and non-public information that

     relates to 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, and engineering information.

 

1.13. GBI Invention(s) shall mean any invention (excluding Joint Inventions),

      whether or not patentable, conceived or developed without the use of any

     ATS Confidential Information by employees of GBI, alone or together with

     any third Party (including affiliates, agents or consultants of GBI or a

     person or entity working in any fashion on the behalf of GBI excluding

     ATS), during the term of this Agreement, or prior to the Effective Date,

     specifically related to the development of the Product.

 

1.14. GMP/QSR Regulations shall mean the Good Manufacturing Practices/Quality

     System Regulations set forth in 21 C.F.R. Section 820.

 

1.15. Joint Invention shall mean any invention, discovery or idea, whether or

     not patentable, conceived or developed jointly by both Parties, their

     employees, agents or consultants (i) in the course of performing work

     related to this Agreement but prior to the Effective Date; (ii) in the

     course of performing the work contemplated under this Agreement including

     performance of the Development Plan; (iii) arising out of the development

     of the Products whether before or after the Effective Date; or (iv) that

     utilizes, or is a modification of, derived from or based upon an GBI

     Invention, GBI Confidential Information, ATS Invention, or ATS Confidential

     Information. Joint Inventions shall include, but shall not be limited to,

     the four Products identified in Section 1.22(i)-(iv).

 

1.16. Manufacturer of Record shall mean the Party who owns the Premarket

     Notification and is responsible for compliance with conditions of approval

     of the Premarket Notification. For purposes of this Agreement, GBI shall be

     the Manufacturer of Record for all Products.

 

1.17. Net Sales means the aggregate amount of net sales reported by ATS or any

     of its Affiliates from the sales of the Products to third parties,

     recognized in accordance with GAAP by ATS in a manner consistent with its

     recognition of net sales across all similar product lines, in connection

     with the preparation of ATS' financial statements, as publicly-reported. In

     addition to the foregoing, the following shall apply:

 

 

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          The term "Net Sales" shall not include revenue received by ATS (or any

          of its Affiliates) from transactions with an Affiliate of ATS unless

          such Affiliate is the end user of the Product.

 

1.18. New Product shall mean (i) any improvement to or modification of the

     Product that affects the form, fit or function and for which a new

     regulatory submission is required; and (ii) any and all products for heart

     valve repair.

 

1.19. Non-Product Joint Inventions shall have the meaning ascribed thereto in

     Section 6.2.

 

1.20. Preliminary Specifications shall mean the documents describing the form,

     fit, and function of the initial test quantities of Products as the case

     may be, at various milestones during the development process, and shall be

     superseded by the Specifications upon Premarket Notification to the FDA.

 

1.21. Premarket Notification shall mean the date on which a Product obtains FDA

     clearance of GBI's 510(k) Premarket Notification submission for the

     Products under Section 510(k) of the Act.

 

1.22. Product(s) shall mean annuloplasty repair rings, c-rings and accessories,

     including without limitation the following four annuloplasty repair

     products: (i) a flexible ring, (ii) a flexible c-ring, (iii) a semi-rigid

     ring, and (iv) a rigid ring, and related tools and accessories, as further

     developed by the Parties during the Development Period, and all

     improvements, modifications or subsequent generations of such products

     developed by GBI or jointly by the Parties during the term of this

     Agreement. "Accessories" include relevant sizers and sterilization trays.

 

1.23. Profit Sharing Payments shall have the meaning ascribed thereto in Section

     10.6.

 

1.24. Remedial Action shall have the meaning ascribed thereto in Section 4.5.

 

1.25. Specifications shall mean the documents describing the form, fit and

     function of the Products that obtain clearance of its Premarket

     Notification by FDA under Section 510(k) of the Act.

 

1.26. Territory shall mean the world.

 

1.27. Transfer Prices shall have the meaning ascribed thereto in Section 10.1.

 

1.28. Unit shall mean an individual item of Product.

 

1.29. Vigilance Report shall mean the incident report for death or serious

     injury required under the post market surveillance system as defined by the

     European Council Directive 93/42/EEC or the relevant and applicable

     equivalent of any other regulatory body.

 

 

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                                    ARTICLE 2

                                   DEVELOPMENT

 

2.1. Development and Preliminary Specifications.

 

     (a)   Prior to the Effective Date GBI, either alone or jointly with ATS,

          developed certain technical data and Preliminary Specifications for

          the Product. During the Development Period ATS and GBI shall (i)

          continue to collaborate to further develop the Products, the

          Preliminary Specifications, the Specifications, and the manufacturing

          process for the Products and (ii) conduct the activities set forth in

           the Development Plan, attached hereto as Exhibit A. Notwithstanding

          the foregoing, ATS shall have the right to approve the Preliminary

          Specifications, Specifications and further modifications, if any.

 

     (b)   ATS and GBI agree that the priority for development and regulatory

          approval of the Products is for the U.S. market. Notwithstanding, both

          Parties intend that the Products be marketed in additional countries,

          including Europe, and that the Products will be developed to maximize

          the opportunity for such future market expansion.

 

2.2. Exclusivity. In consideration of entering into this Agreement and for other

     good and valuable consideration the receipt and sufficiency of which are

     hereby acknowledged, GBI and ATS each agree that it shall not enter into a

     development or distribution agreement or otherwise undertake any

     development project to develop a product or manufacture or distribute any

     product for itself or for any third Party that competes, either directly or

     indirectly, with the Products.

 

2.3. GBI Obligations. GBI shall use its commercially reasonable efforts to

     develop the Products in accordance with the Development Plan including but

     not limited to the following activities:

 

     (a)   Develop Preliminary Specifications and Specifications for the Products

          based on (i) design inputs and marketing requirements approved by ATS;

          and (ii) data collected during the testing of the Products;

 

     (b)   On its own, or jointly with ATS, develop the technical know-how and

          manufacturing processes for manufacturing both clinical and commercial

          quantities of the Products, including final assembly, packaging,

          labeling and sterilization procedures, and quality control release

          specifications for the Products;

 

     (c)   Provide status reports to ATS in writing on a monthly basis (or more

          frequently, but not more often than weekly, as reasonably required by

          ATS) on the progress of the Development Plan; any delays in developing

          the test quantities of Products;

 

     (d)   Provide project management by participating in and attending meetings,

          by teleconference or otherwise, of GBI's design control process for

          the Products;

 

 

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     (e)   Establish and install, at GBI's sole cost and expense (except as

          otherwise provided by Section 5.2), all equipment and facilities

          necessary to effectuate the Development Plan;

 

     (f)   Deliver to ATS on the delivery date specified in the Development Plan

          such test quantities of Products to be agreed upon by the Parties to

          permit testing to determine whether such Products meet the Preliminary

          Specifications or Specifications, as the case may be, under Section

          3.1;

 

     (g)   Produce the quantities of Products ordered by ATS, as more

          particularly set forth in Article 9;

 

     (h)   Comply with all applicable laws and regulations regarding the conduct

          of work performed under the Development Plan including complying with

          all current governmental regulatory requirements concerning good

          Laboratory Practices (21 C.R.R. Part 58), GMP/QSR Regulations, and

          with all other federal, state and local laws and regulations as are

          applicable to the Development Plan for the manufacture of the

          Products.

 

     (i)   Provide at least one individual employed by GBI, who will be named as

          co- Program Director and whose responsibility will be for the

          oversight of the relationship between the Parties, the Development

          Plan and the commercialization of the Products.

 

     (j)   Fund at its sole cost and expense, except as otherwise provided in

          Section 5.2, the development of the Products.

 

     (k)   Conduct all necessary meetings and discussions with FDA and obtain all

          necessary IDE and IRB approvals to test the Products and obtain 510(k)

          clearance from the FDA for the Products.

 

2.4. ATS Obligations. ATS shall use its commercially reasonable efforts to

     assist GBI in performing its activities under the Development Plan,

     including but not limited to:

 

     (a)   Furnish to GBI in accordance with the schedule as set forth in the

          Development Plan, marketing requirements and design inputs and such

          other data as may be necessary to allow GBI to develop the Preliminary

          Specifications and Specifications for the Product. Notwithstanding the

          foregoing, ATS shall have the right to approve the design of the

          Products and the Specifications;

 

     (b)   Review design decisions during development of the test quantities of

          Products by participating in design review meeting according to the

          Development Plan and approve design documents at designation

          intervals;

 

     (c)   Participate in and attend meetings of, by teleconference or otherwise,

          GBI's design control process for the test quantities of the Products

          and approve the design of the test Products during such meetings;

 

 

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     (d)   Provide at least one individual employed by ATS, who will be named as

          co-Program Director and whose responsibility will be for the oversight

          of the relationship between the Parties, the Development Plan and the

          commercialization of the Products.

 

     (e)   Provide to GBI any required parameters or standards for the Products

          to allow GBI to develop protocols to be used in verifications and

          validation of the Products.

 

2.5. Joint Obligations of ATS and GBI. During the Development Period ATS and GBI

     shall (a) within 120 days of the Effective Date jointly develop the

     Development Plan, which shall be attached as Exhibit A and become part of

     this Agreement; and (b) perform the activities set forth in the Development

     Plan including but not limited to: (i) develop a comprehensive test plan to

     ensure verification and validation of the Products; and (ii) jointly

     compile the technical file necessary to obtain CE marking. If a Development

     Plan that is mutually acceptable to both Parties cannot be developed within

     such 120-day period, either Party may terminate this Agreement upon thirty

     (30) days prior written notice to the other.

 

2.6. Changes to Products Specifications. From time to time during the

     Development Period, ATS may change the requirements for the Products as a

     result of data generated from the Pilot Study, Pivotal Clinical Trial, and

     preclinical or other testing, and shall forward such revised requirements

     to GBI. GBI shall modify the then current Preliminary Specifications to

     reflect the revised requirements. ATS shall then have the opportunity to

     review the revised Preliminary Specifications, and test Products made in

     accordance with the revised Preliminary Specifications under Section 3.1.

 

                                    ARTICLE 3

                             DEMONSTRATION PRODUCTS

 

3.1. Demonstration Products. During the Development Period, GBI shall

     manufacture quantities of clinical test grade Products for use as

     demonstration Products (a "Demonstration Product") by ATS. The Development

     Plan shall set forth the dates when Demonstration Products shall be

     available to be delivered to ATS for testing. Shipments of Demonstration

     Products shall contain detailed Preliminary Specifications for the

     Products.

 

3.2. Acceptance. ATS shall be deemed to have accepted the Preliminary

     Specifications for the Products being tested as provided in the Development

     Plan upon ATS' written notification to GBI of its acceptance. Upon

     acceptance, GBI shall commence the manufacture of the Products and

     Demonstration Products, as the case may be, in accordance with orders

     placed by ATS under Sections 9.1 and 9.3, respectively.

 

3.3. Testing and Documentation. With each lot of Products manufactured by GBI,

     GBI shall supply to ATS documentation certifying in writing that each

     shipment of Products complies with (i) the then current Specifications and

     with the testing procedures described therein; and (ii) all other

     documentation agreed to by ATS and GBI.

 

 

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                                    ARTICLE 4

                             REGULATORY SUBMISSIONS

 

4.1. Medical Device Establishment Registration. GBI shall maintain a Medical

     Device Establishment Registration (as defined under the Act) as

     manufacturer and Specifications developer for the Products, as is required.

 

4.2. U.S. Approval. GBI shall be responsible, at its expense, for filing and

     obtaining and maintaining all necessary authorizations from regulatory

     authorities of the U.S. federal government, including the FDA, or of the

     various states necessary for the sale of the Products in the United States

     or export to foreign countries. GBI's obligations under this Section 4.2

     shall include the preparation and filing of any required submissions and

     the establishment and oversight of any required clinical investigations and

     clinical follow-up relating to future commercial sale of the Products. GBI

     will provide ATS with drafts of all proposed filings for U.S. federal or

     state regulatory authorization for review and comment by ATS in advance of

     filing with the applicable authority. ATS shall support the process of all

     regulatory filings and registrations by GBI by providing to GBI all

     documentation reasonably requested by GBI from ATS including, without

     limitation, clinical and technical information.

 

4.3. Foreign Approvals. GBI shall be responsible, on a timely basis, for filing,

     obtaining and maintaining all necessary "device" or "medical" regulatory

     approvals from foreign regulatory authorities necessary for the commercial

      sale of the Products in those foreign countries ("Foreign Approvals") into

     which the Parties mutually agree Products will be sold. The expense for

     obtaining such approvals shall be divided evenly between the Parties. If

     ATS desires to obtain Foreign Approvals for a country and GBI reasonably

     disagrees that such Foreign Approval is too costly for the anticipated

     sales in such country, GBI shall proceed to obtain such approval provided

     ATS agrees to bear the full expense of obtaining such Foreign Approval. All

     Foreign Approvals shall, to the extent permitted, be in GBI's name. GBI

     shall obtain the CE Mark in such foreign countries as ATS may determine.

     GBI and ATS shall work together to establish the strategy for obtaining in

     the most timely and efficient manner the Foreign Approvals to be obtained

     pursuant to this Section 4.3. GBI's obligations under this Section 4.3

     shall include assisting in the preparation and filing of any required

     submissions relating to future commercial sale of the Products. Except as

     otherwise required by law or agreed by the Parties, GBI shall be primarily

     responsible for all dealings with the appropriate competent authority such

     as notification, medical device vigilance and national labeling issues, and

     GBI shall bear final legal responsibility for the content of all its own

     labeling.

 

4.4. Manufacturing Compliance. GBI represents and warrants to ATS that all

     Products manufactured and sold under this Agreement will have been

     manufactured, labeled, packaged and sold to ATS in accordance with ATS

     approved Specifications and all applicable international federal, state and

     local laws and regulations pertaining to medical devices including, but not

     limited to, the Act and GMP/QSR Regulations. GBI represents and warrants to

     ATS that GBI's manufacturing facility is in compliance with all GMP/QSR

     Regulations and ISO 13485:1996, EN 46001 requirements and that GBI has all

     approvals and consents required to mark the Products with the CE mark.

 

 

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4.5. Remedial Actions. Each party will notify the other immediately, and

     promptly confirm such notice in writing, if it obtains information

     indicating that any of the Products may be subject to any recall, field

     corrective action or other regulatory action (other than a corrective and

     preventive action ("CAPA") under the Act) with respect to a Product taken

      either by virtue of applicable federal, state, foreign or other law or

     regulation or good business judgment (a "Remedial Action"). The Parties

     will assist each other in gathering and evaluating such information as is

     necessary to determine the necessity of conducting Remedial Action;

     provided that ATS shall have sole responsibility for collecting information

     from its customers, including customer complaints. ATS will determine

     whether to commence any Remedial Action with respect to the Product. Each

     Party will maintain adequate records to permit the Parties to trace the

     manufacture of the Product and the distribution and use of the Product. In

     the event ATS determines that any Remedial Action with respect to the

     Product should be commenced or Remedial Action is required by any

     governmental authority having jurisdiction over the matter, ATS will

     control and coordinate all efforts necessary to conduct such Remedial

     Action. If ATS conducts any Remedial Action related to the Product and GBI

     is determined to be (either by mutual agreement or by arbitration pursuant

     to the terms of this Agreement) responsible for the problem requiring the

     Remedial Action (i.e., a problem arises from faulty manufacture), GBI, at

     ATS' option, will either issue a credit to ATS or reimburse ATS for the

     sales price of all ATS devices recalled in such Remedial Action and the

     other reasonable costs of conducting such Remedial Action. GBI shall have

     sole responsibility for handling any CAPA's. ATS shall cooperate with GBI

     to the extent reasonably requested by GBI in handling any CAPA.

 

4.6. Complaints and Medical Device Reporting. Each party will comply with

     applicable provisions of the Medical Device Reporting systems, including

     the requirements of 21 CFR Part 803, and each party will cooperate with the

     other for the efficient compliance therewith. ATS and GBI agree to notify

     the other within two (2) business days of receipt from any customer of any

     complaint or Medical Device Report ("MDR") filable complaint relating to

     the Product. ATS will investigate such complaint or MDRs/Vigilance Reports

     and forward to GBI all information relating to any defects in the

     performance, design, or quality of the Products. GBI shall investigate all

     instances of product failure or inadequacy documented by ATS and forwarded

     by ATS for investigation. GBI shall provide a written summary of the

     findings from such investigation to ATS within seven days following the

     date that GBI is informed of such complaint or MDR. ATS shall have sole

     responsibility for filing the MDR with the appropriate regulatory agency.

 

4.7. Vigilance Reporting. ATS will notify GBI in writing if a Vigilance Report

     is required to be filed with respect to the Product. ATS, at its sole cost

     and expense, will be responsible for complying with Vigilance Reporting

     requirements for the Product in cooperation with GBI as the manufacturer of

     the Product. GBI will remain responsible for any and all Product

     investigation as provided in Section 4.6.

 

4.8. ATS Audits. GBI will give ATS reasonable access to its records to allow ATS

     to conduct full compliance audits relating to the Product, at ATS' expense,

     as reasonably deemed necessary by ATS, but no more frequently than once in

     any twelve (12) month

 

 

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     period. The audit may include, without limitation, records relating to

     manufacturing compliance with the Specifications, compliance with quality

     control and inspection reports procedures, compliance with GMP/QSR

     Regulations, CE mark certification records and procedures, regulatory

     compliance, and after the following certifications have been obtained

     compliance with ISO 13485:1996 and EN 46001 requirements. Such audits will

     be conducted during GBI's normal business hours, after two (2) weeks prior

     written notice to GBI by ATS, and at times mutually agreeable to the

     parties. GBI will make its regulatory compliance and quality assurance

     personnel reasonably available to ATS in connection with such audits. If

     ATS recommends any corrective actions to GBI in connection with such

     audits, GBI will take any corrective action recommended by ATS within

     thirty (30) days of receipt of any corrective action recommendations, if

     possible, or will inform ATS in writing of the reasons why GBI believes

     such corrective action is not required or cannot be completed within such

     30-day period. ATS will be given access to audit any corrective action.

 

4.9. Regulatory Inspections. GBI will promptly notify ATS of any inspection of

     its facilities manufacturing the Product or any component part of a Product

     by the FDA, ISO, CE mark certification organization or other federal,

     state, or local regulatory agency which relates to the manufacture,

     assembly, or packaging of the Product and provide ATS with information

     about the progress and outcome of such inspection, including, without

     limitation, copies of any notice of observations or warnings, requests for

     Remedial Action, CAPA's or other adverse findings.

 

                                     ARTICLE 5

                         RESEARCH AND DEVELOPMENTS COSTS

 

5.1. Research and Development Costs. Except as otherwise provided in Section

     5.2, GBI shall fund the development of the Products at its sole cost and

     expense as more particularly set forth in the Development Plan attached as

     Exhibit A. Upon commercialization of the Products, GBI shall provide, at

     its own cost and expense, on-going research and development and training

     support of the Products, as more specifically provided in Sections 12.2 and

     12.3 of this Agreement.

 

5.2. **

 

                                    ARTICLE 6

                              INTELLECTUAL PROPERTY

 

The Parties contemplate that inventions may be developed or conceived by either

Party alone or by the Parties jointly in furtherance of the development set

forth in this Agreement and agree with respect to such inventions as follows:

 

6.1. Ownership Generally. Except as otherwise specifically set forth in this

     Article 6 and subject to the licenses granted in this Agreement, GBI shall

     own all right, title and interest in and to GBI Confidential Information

     and GBI Inventions and ATS shall own all right, title and interest in and

     to ATS Confidential Information and ATS Inventions. The ownership of Joint

     Inventions shall be as set forth in Section 6.2.

 

 

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6.2. Patenting Joint Inventions.

 

     (a)   Except as otherwise set forth in this Agreement, if the Parties

           develop, invent or conceive a Joint Invention during the term of this

          Agreement, the Joint Invention(s) shall have joint ownership. Each

          Party shall promptly provide notice to the other and shall disclose

          any Joint Invention to the other in sufficient technical detail to

          allow the other Party to evaluate such Joint Invention. In addition,

          GBI shall provide ATS with sufficient information to file a patent

          application on the Joint Invention, if desired. ATS shall have the

          exclusive right (except as set forth below) to prosecute (or not

          prosecute and maintain as trade secret information) and maintain all

          patent applications related to Joint Inventions, provided the Parties

          are identified as co-owners of such Joint Invention, and any patents

          issuing therefrom and to enforce and defend such patents and/or any

          and all intellectual property rights arising from such Joint

          Inventions. Each Party represents and warrants to the other that all

          employees and consultants of such Party have agreements with such

          Party assigning rights in all inventions to ATS or GBI, as applicable.

 

     (b)   All patent maintenance fees related to Joint Inventions shall be paid

          by ATS no later than thirty (30) days before the due date. ATS will

          notify GBI regarding each maintenance fee payment that has been made

          by ATS no later than fifteen (15) days before the due date. If ATS

          does not pay the maintenance fee for any patent as required hereby, or

          if ATS does not notify GBI of such payment, GBI shall have the right

          to pay the fee and be reimbursed by ATS for such fee and any expenses

          incurred (including reasonable attorneys' fees) in arranging for

          proper filing and payment of such fee and in seeking reimbursement

          from ATS.

 

     (c)   If ATS fails to take reasonable actions to defend patents and/or

           intellectual property rights arising from Joint Inventions within

          sixty (60) days following a written demand made by GBI (or sooner if

          any statute of limitation or other enforceability right will expire),

          then GBI may commence action to defend and protect such rights. ATS

          shall reimburse GBI for any expenses (including reasonable attorneys'

          fees) incurred in such action.

 

     (d)   Any amount recovered in any action to defend or enforce patents or

           intellectual property rights arising from Joint Inventions shall first

          be applied to the expenses of pursuing such action. Any excess

          recovery shall be split equally between the Parties.

 

6.3. Marketing Joint Inventions. Joint Inventions which constitute Products

     shall be manufactured and distributed pursuant to the terms of this

     Agreement. With respect to each Joint Invention which is not a Product (a

     "Non-Product Joint Invention") either Party may notify the other of its

     desire to further develop and commercialize such Non-Product Joint

     Invention. For a period of ninety (90) days after the date of delivery of

     such notice, the Parties shall negotiate in good faith with respect to the

     terms of the further development and commercialization of such Non-Product

     Joint Invention. During such 90-day period, neither party will enter into

     an agreement with any third party for the

 

 

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     development, distribution, supply or other commercialization of such

     Non-Product Joint Invention and none of ATS, GBI or any officer, director,

     employee or representative of ATS or GBI shall solicit or conduct any

     discussions or negotiations with, or provide information to, any third

     party with respect to the Non-Product Joint Invention. Each Party will

     promptly communicate to the other the terms of any proposal or inquiry it

     receives from any third party or attempts to initiate such discussions or

     negotiations by any third party with respect to such a transaction. If

     during such 90-day period, ATS and GBI are unable to agree upon mutually

     acceptable terms and conditions for the development of such Non-Product

     Joint Invention, and such time period has not been extended by mutual

     agreement, then each Party shall have the right to pursue development and

     commercialization of the Non-Product Joint Invention pursuant to the profit

     sharing rights set forth in Section 6.4.

 

6.4. Profit Sharing from Non-Product Joint Inventions. Except as otherwise

     agreed in writing, any net profits made by either Party from the sale,

     transfer or other commercialization of a Non-Product Joint Invention shall

     be split evenly between the Parties. Within thirty (30) days after each

     calendar quarter, in which a Party has gross receipts from commercializing

     a Non-Product Joint Invention, such Party shall submit a report to the

     other Party identifying gross receipts from Non-Product Joint Inventions

     and a net profit calculation with a reasonably detailed explanation of the

     amounts deducted from gross receipts accompanied by payment of fifty

     percent (50%) of the net profit amount, if any.

 

                                     ARTICLE 7

                                  AUDIT RIGHTS

 

7.1. Each Party and its respective Affiliates, subdistributors, agents and

     sublicensees shall maintain accurate books and records in accordance with

     generally accepted accounting principals and showing sales of the Products

     and Non-Product Joint Inventions by such Party and its Affiliates,

     subdistributors, agents and sublicensees in sufficient detail to enable Net

     Sales and/or net profits pursuant to Section 6.4 payable hereunder to be

     determined and to otherwise enable each Party to monitor compliance by the

     other with the terms of this Agreement. Each Party (or its accountants)

     shall have the right to inspect such books and records at reasonable

     intervals (but no more frequently than once in any twelve (12) month

     period) and upon reasonable prior written notice. Such inspections shall

     occur during normal business hours at the offices of the Party being

     inspected and at the expense of the inspecting Party; provided, however,

     that if such inspection shall reveal an underpayment by a Party of amounts

     actually due of more than five percent (5%), then the Party being inspected

     shall bear the expense of such inspection. Any deficiencies in payment

     shall be immediately due and payable together with interest at the rate of

     eighteen percent (18%) per annum from the date or dates such amounts should

     have been paid.