Exhibit 10.36

 
[ * ]   = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
 
 
 
Distribution Agreement
 

 

 
by and between
 

 

 
Cardica, Inc.
 
a Delaware Corporation
 

 

 
and
 

 

 
Century Medical, Inc.
 
a Japanese Corporation
 

 

 
Dated as of September 2, 2011
 
 

 

 
 

--------------------------------------------------------------------------------

 
 
DISTRIBUTION AGREEMENT
 
This DISTRIBUTION AGREEMENT (this “Agreement”) is made this 2nd day of
September, 2011 (the “Effective Date”), by and between Cardica, Inc., a Delaware
corporation with its principal place of business located at 900 Saginaw Drive,
Redwood City, California 94063, USA (hereinafter referred to as “COMPANY”) and
Century Medical, Inc., a Japanese Corporation with its principal place of
business located at 1-11-2 Ohsaki, Shinagawa-Ku, Tokyo, 141-8588, Japan
(hereinafter referred to as “DISTRIBUTOR”) in consideration of the mutual
covenants and conditions hereinafter stated.
 
 
1.  DEFINITION OF TERMS
 
1.1
“Competing Products”

 
“Competing Products” shall mean stapling products that cut and seal tissue by
means of applying a line of metallic staples to the tissue.
 
1.2
“Contract Year”

 
“Contract Year” shall mean a twelve (12) month period commencing on, and
thereafter beginning on the anniversary of, the first day of the first full
month following the date of First Commercial Sale in the Territory of any
Product.
 
1.3
“First Commercial Sale”

 
“First Commercial Sale” shall mean the first sale of any Product by DISTRIBUTOR
to a third-party in the Territory with all medical device approvals required to
market and sell such Product from The Japanese Ministry of Health, Labour and
Welfare (“MHLW”) (the “Shonin”) through the Pharmaceuticals and Medical Devices
Agency (“PMDA”), an administrative agency under the control of the MHLW,
including but not limited to, Facility Accreditation, QMS Investigation and
registration in the Japanese Reimbursement Health Insurance System with the MHLW
for the Products, all the foregoing of which are needed to import and market the
Products in the Territory.
 
1.4
“Initial Term”

 
“Initial Term” shall mean the five (5) year period beginning on the date of
expiration of the Premarketing Term.
 
1.5
“Note Agreement”

 
“Note Agreement” shall mean that certain secured note purchase agreement by and
between COMPANY and DISTRIBUTOR dated as of even date herewith pursuant to which
DISTRIBUTOR agrees to disburse in one or more tranches to COMPANY a secured loan
in an aggregate amount up to four million U.S. dollars ($4,000,000) at a simple
interest rate of five percent (5%), payable quarterly in arrears.
 
1.6
“Party” or “Parties”

 
“Party” or “Parties” shall mean COMPANY or DISTRIBUTOR, individually and
collectively.
 

Distribution Agreement  
September 2, 2011
  Cardica, Inc. Initial           BH         page-1   Century Medical, Inc.
Initial          AH             

 
[ * ]   = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
 
 
 

--------------------------------------------------------------------------------

 

1.7
“Premarketing Term”

 
“Premarketing Term” shall mean the period beginning on the Effective Date and
ending on the first day of the first full month following the date of First
Commercial Sale.
 
1.8
“Products”

 
“Products” shall mean those Products specifically listed in Schedule 1, whether
manufactured by or for COMPANY or its affiliates, including any improvements or
modifications thereto, as such schedule may be amended from time to time.  As
used herein, “affiliate” means a person or entity that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, a specified person or entity, where “control” means (a)
fifty percent (50%) or more common equity ownership, or (b) the ability to
direct the management or policies of a person or entity, whether by contract or
otherwise.
 
1.9
  “Territory”

 
“Territory” shall mean Japan.
 
 
2.  APPOINTMENT OF DISTRIBUTOR
 
2.1
Appointment as DISTRIBUTOR by COMPANY.

 
COMPANY hereby appoints DISTRIBUTOR as its exclusive importer and distributor of
COMPANY’s Products for the Territory, and DISTRIBUTOR hereby accepts such
appointment on the terms and conditions set forth in this Agreement.  Under no
circumstances shall DISTRIBUTOR have authority to sell or distribute any
Products outside the Territory.  COMPANY shall also grant to DISTRIBUTOR a right
of first negotiation for the import and distribution in the Territory of all new
and future products with all line extensions, modifications and improvements
thereto, manufactured and sold by COMPANY or products acquired by COMPANY or its
affiliates for distribution by COMPANY.  Such distribution shall be in
accordance with the terms and conditions of this Agreement, with a per unit
purchase price and minimum purchase levels (“MPL”) mutually agreeable to COMPANY
and DISTRIBUTOR.  If within thirty (30) days of COMPANY’s first written proposal
to DISTRIBUTOR, COMPANY and DISTRIBUTOR cannot agree upon a per unit purchase
price and MPL for such new products or if DISTRIBUTOR declines to distribute
such products, then COMPANY will be permitted to distribute or cause to
distribute by alternate means only such products as were first offered to
DISTRIBUTOR for distribution in the Territory; provided, however, that COMPANY’s
distribution of said products by alternate means shall be upon terms and
conditions (including the per unit purchase price and MPL) to such alternate
distributor no more favorable than the terms and conditions under which such
products were last offered to DISTRIBUTOR for distribution.
 
2.2
Subdistributors.

 
DISTRIBUTOR may appoint subdistributors to make sales of Products within the
Territory on such terms and conditions as DISTRIBUTOR determines to be necessary
to fulfill its obligations under this Agreement; provided that no such
appointment or delegation shall relieve DISTRIBUTOR from any obligations
hereunder.  COMPANY acknowledges and agrees that DISTRIBUTOR will use
subdistributors in the sale of Products, the use of said subdistributors being a
normal business custom in the Territory.
 

Distribution Agreement  
September 2, 2011
  Cardica, Inc. Initial           BH         page-2   Century Medical, Inc.
Initial          AH             

 
[ * ]   = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
 
 
 

--------------------------------------------------------------------------------

 
 
3.  TERM OF DISTRIBUTORSHIP
 
3.1
Consideration for Distribution Rights.

 
Concurrent with and contingent upon the execution of this Agreement, COMPANY and
DISTRIBUTOR shall execute the Note Agreement.  All rights and obligations of the
Parties under this Agreement, except for COMPANY’s obligation under Sections
5.1(x) and 5.1(xi) below, shall be conditioned upon, in the sole discretion of
DISTRIBUTOR, successful deployment of the Products in a clinical case and
satisfactory completion of a wet lab described therein.
 
3.2
Term.

 
Subject to the foregoing, this Agreement and the rights conferred on DISTRIBUTOR
hereunder shall come into effect on the Effective Date and shall remain in
effect until the expiration of the Initial Term.  At the end of the Initial
Term, this Agreement shall automatically renew for an additional five (5) years
(the “Renewal Period”) subject to DISTRIBUTOR having met the MPL for each
Contract Year during the Initial Term as required under Section 8.6 below.
 
 
4.  DUTIES OF DISTRIBUTOR
 
4.1
Duties of DISTRIBUTOR.

 
DISTRIBUTOR covenants and agrees to do each of the following:
 
(i)           DISTRIBUTOR shall use commercially reasonable efforts to promote
and sell the Products in the Territory;
 
(ii)           DISTRIBUTOR shall send one person from its sales and marketing
organization to COMPANY for training prior to the First Commercial Sale of the
Products in the Territory for a period of time mutually agreed upon by the
Parties;
 
(iii)           DISTRIBUTOR shall maintain a commercially reasonable stock of
the Products in order to promote the Products in the Territory;
 
(iv)           DISTRIBUTOR shall exhibit Products at industry meetings in the
Territory;
 
(v)           DISTRIBUTOR shall create and develop a training program for
end-user physician customers in the Territory in cooperation with
COMPANY.  DISTRIBUTOR shall not sell Products to any end-users who have not been
trained in the use of the Products;
 
(vi)           DISTRIBUTOR shall confer with COMPANY, from time to time, upon
the written request of COMPANY, on matters relating to the marketing and
promotion of the Products in the Territory;
 
(vii)           DISTRIBUTOR shall keep COMPANY informed regarding regulatory
requirements in the Territory and shall, from time to time, provide COMPANY with
updates to the Memorandum of Compliance;
 
(viii)           DISTRIBUTOR shall not solicit the sale of, promote the sale of,
sell, exhibit for sale, distribute or manufacture any Competing Products in the
Territory;
 
(ix)           (a) DISTRIBUTOR shall translate into the local languages of the
Territory, at its own expense, any promotional materials, advertising or
marketing information (“Marketing Materials”) supplied at the discretion of
COMPANY which DISTRIBUTOR determines may be useful in the marketing of
Products.  DISTRIBUTOR shall translate the Marketing Materials as is, and shall
not make claims regarding the use of the Products that are not present in the
English language materials.  DISTRIBUTOR will forward to COMPANY a copy of all
translated Marketing Materials.  Any revision to such translated Marketing
Materials must be sent to Company within thirty (30) days of release.
 

Distribution Agreement  
September 2, 2011
  Cardica, Inc. Initial           BH         page-3   Century Medical, Inc.
Initial          AH             

 
[ * ]   = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
 
 
 

--------------------------------------------------------------------------------

 
 
(b) DISTRIBUTOR shall translate labeling, including instructions for use, for
the Products into the official languages of the Territory.  DISTRIBUTOR will
provide COMPANY with such translated labeling within five (5) days after such
translation is complete, and before distributing Products bearing such
labeling.  DISTRIBUTOR shall not distribute Products bearing translated labeling
before receiving approval from COMPANY, which shall not be unreasonably
withheld.  COMPANY and DISTRIBUTOR have communicated regarding translations and
amendments of instructions for use for the Products, and both COMPANY and
DISTRIBUTOR hereby acknowledge that the current translation of instructions for
use for the Products under use by DISTRIBUTOR in the Territory is considered
approved by COMPANY.
 
(c) Notwithstanding Section 4.1(ix)(b), DISTRIBUTOR shall amend the instructions
for use as necessary in accordance with the Japanese Pharmaceutical Affairs Law
and its related ordinances or guidance issued by the MHLW.  DISTRIBUTOR shall
also amend the translation as necessary whenever requested by the MHLW or
PMDA.  In addition, DISTRIBUTOR can amend the translation as a mean of
preventive actions for adverse events or device malfunctions.  In any major
amendments in the above cases, DISTRIBUTOR will provide for COMPANY’s review
such translated instructions for use; and
 
(x)           during the term of this Agreement, and for a period of three (3)
years from the expiration or termination of this Agreement, DISTRIBUTOR, its
affiliates, successors and assigns shall not directly solicit or indirectly
solicit for employment or hire in any capacity any personnel employed by COMPANY
or any affiliate of COMPANY.
 
4.2
Product Approvals.

 
DISTRIBUTOR shall use its commercially reasonable efforts to obtain, at its own
expense (except as otherwise provided herein), all Shonin required to market the
Products in the Territory.  DISTRIBUTOR shall be under no obligation to conduct
or perform any clinical trial for purposes of obtaining any Shonin or marketing
the Products in the Territory.
 
In the event that DISTRIBUTOR is unable, within five (5) years of the Effective
Date, to make First Commercial Sale, COMPANY shall have the sole and exclusive
right to terminate this Agreement with immediate effect.
 
 
5.  DUTIES OF COMPANY
 
5.1
Duties of COMPANY.

 
COMPANY covenants and agrees to do each of the following:
 
(i)           COMPANY shall use its commercially reasonable efforts to research
and respond to Product improvement needs of end-users in the Territory;
 
(ii)           COMPANY shall not (a) appoint any other distributor or importer
of the Products in the Territory during the term of this Agreement or (b) make
sales, directly or indirectly, of any of the Products to any person in the
Territory other than DISTRIBUTOR or to any customer outside the Territory who is
known to COMPANY, or who COMPANY should reasonably know, intends to introduce,
directly or indirectly, the Products into the Territory.  Further, COMPANY shall
not, directly or indirectly, import, manufacture, sell, market or otherwise
distribute in the Territory (except pursuant to this Agreement) the Products or
any products directly competitive with the Products;
 

Distribution Agreement  
September 2, 2011
  Cardica, Inc. Initial           BH         page-4   Century Medical, Inc.
Initial          AH             

 
[ * ]   = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
 
 
 

--------------------------------------------------------------------------------

 
 
(iii)           COMPANY shall provide DISTRIBUTOR with all materials necessary
to obtain and maintain the Shonin for the import and sale of Products within the
Territory by promptly furnishing to DISTRIBUTOR, at COMPANY’s cost, such
technical descriptions, specifications, data, drawings, information, service
manuals, quality control audits, facility inspection reports issued by
governmental regulators or international quality control auditors, and so forth
regarding the Products, in the English language, as DISTRIBUTOR may reasonably
request;
 
(iv)           COMPANY shall provide DISTRIBUTOR, at no cost, all Products
necessary for DISTRIBUTOR to fulfill its obligations under Section 4.2; however,
the number of Products supplied at no charge to DISTRIBUTOR shall not exceed
five (5) units of sterile Products per Shonin application;
 
(v)           COMPANY shall provide DISTRIBUTOR with the information,
documentation, data and certificates listed in the Memorandum of Compliance
executed between the Parties, as amended from time to time, necessary for
DISTRIBUTOR to remain in compliance with the Good Manufacturing Practices laws
and regulations of the Territory;
 
(vi)           COMPANY shall inform DISTRIBUTOR, from time to time, of technical
and other developments regarding the Products as they may occur;
 
(vii)           COMPANY shall furnish to DISTRIBUTOR on an on-going basis, at
COMPANY’s cost, with a reasonable quantity of such technical, advertising and
selling information and other promotional literature in the English language
regarding the Products.  COMPANY shall review labeling translated by DISTRIBUTOR
in accordance with Sections 4.1(ix)(b) and (c), including instructions for use,
within ten (10) days of its receipt;
 
(viii)           COMPANY shall provide Product training to personnel of
DISTRIBUTOR at times and places mutually agreed upon by both Parties, with each
Party bearing its own expenses for attending such training;
 
(ix)           COMPANY shall provide DISTRIBUTOR sterile Product samples at a
price equal to COMPANY’s manufacturing cost plus a fifteen percent (15%)
handling fee.  DISTRIBUTOR’s sterile Product sample purchases shall be capped
annually at an amount not to exceed ten percent (10%) of DISTRIBUTOR’s
commercial Product purchases.  The total number of non-sterile non-functional
Products given to DISTRIBUTOR at no charge shall initially be twenty (20) units
and any additional quantities shall be provided at COMPANY’s sole
discretion.  All such non-sterile Products shall be used for demonstration
purposes only and may not be used for any other commercial activity (e.g., sale;
lease; loaner; etc.) or implanted;
 
(x)           COMPANY shall reasonably afford an opportunity to DISTRIBUTOR to
observe deployment of the [ * ] Product in a clinical case, currently scheduled
in Germany for [ * ], or at such other date or site as mutually agreed upon
between the Parties;
 
(xi)           COMPANY shall reasonably afford an opportunity to DISTRIBUTOR to
participate in a wet lab deployment of the [ * ] Products, currently planned at
COMPANY’s facilities for [ * ], or at such other date as mutually agreed upon
between the Parties; and
 

Distribution Agreement  
September 2, 2011
  Cardica, Inc. Initial           BH         page-5   Century Medical, Inc.
Initial          AH             

 
[ * ]   = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
 
 
 

--------------------------------------------------------------------------------

 
 
(xii)           during the term of this Agreement and for a period of three (3)
years from the expiration or termination of this Agreement, COMPANY, its
affiliates, successors and assigns shall not directly solicit or indirectly
solicit for employment or hire in any capacity any personnel employed by
DISTRIBUTOR or any affiliate of DISTRIBUTOR.
 
 
6.  EXPENSES
 
6.1
DISTRIBUTOR’s Expenses.

 
Except as otherwise specifically provided herein, DISTRIBUTOR shall be
responsible for all expenses incurred by it in connection with the
implementation of this Agreement, including without limitation salaries, office
and travel expenses of its employees, advertising and trade shows within the
Territory and any and all taxes which may be imposed on DISTRIBUTOR within the
Territory.  COMPANY shall bear only such of these expenses as to which it has
given prior written approval.
 
6.2
COMPANY’s Expenses.

 
Except as otherwise specifically provided herein, COMPANY shall be responsible
for payment of all expenses incurred by it including any taxes imposed on it and
shall also pay those expenses incurred in connection with the implementation of
this Agreement for which it has given prior written approval.
 
 
7.  RECORDS and REPORTS
 
7.1
Records and Reports.

 
Subject at all times to Section 11.2, DISTRIBUTOR shall maintain complete and
accurate records of aggregate purchases and resales of the
Products.  DISTRIBUTOR shall provide to COMPANY, by the thirtieth (30th) day of
the first month following the end of each calendar quarter during the term of
this Agreement, a quarterly report summarizing DISTRIBUTOR’s sales activities
under this Agreement for the prior calendar quarter and containing such other
information as COMPANY may reasonably request, including without limitation a
description of and the amount of all Products in DISTRIBUTOR’s inventory as of
the first day of each calendar month.
 
DISTRIBUTOR and COMPANY each shall, for tracking purposes, maintain accurate
delivery, receiving and shipping records including model and lot numbers of the
Products.
 
7.2
Adverse Experience Reporting.

 
COMPANY and DISTRIBUTOR shall follow the guidelines contained in the Memorandum
of Compliance executed between the Parties regarding adverse events associated
with the Products.
 
7.3
Recall.

 
If either Party believes or is notified that a recall in the Territory of any
Product is desirable or required by law, it will notify the other Party within
twenty-four (24) hours of any such notice.  The Parties will then discuss
reasonably, expeditiously and in good faith whether such recall is appropriate
or required and the manner in which any mutually agreed recall shall be
handled.  The Party whose mistake, negligence or gross negligence results in
such recall shall bear the expenses incurred in connection with such recall.  In
addition, if COMPANY is the responsible Party, COMPANY shall reimburse
DISTRIBUTOR for the price paid hereunder for such Products as may be recalled,
plus all freight and related travel costs incurred by DISTRIBUTOR in connection
with such recalled Products, including any costs incurred in disposing of or
returning such recalled Products to COMPANY at COMPANY’s instruction.  The
Parties will mutually agree upon the methods of disposal consistent with
applicable laws in the Territory.
 

Distribution Agreement  
September 2, 2011
  Cardica, Inc. Initial           BH         page-6   Century Medical, Inc.
Initial          AH             

 
[ * ]   = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
 
 
 

--------------------------------------------------------------------------------

 
 
8.  SALES OF PRODUCT TO DISTRIBUTOR
 
8.1
Purchase Prices and Terms.

 
COMPANY shall sell the Products to DISTRIBUTOR at the prices set forth in
Schedule 1.  Payments on purchase orders shall be due at the end of the month
immediately following the month of shipment of the Products to
DISTRIBUTOR.  Payment shall be made by wire transfer in U.S. funds to an account
designated in writing by COMPANY.  All shipments of Products shall be billed to
DISTRIBUTOR at the price in effect for each Product in accordance with this
Section 8.1 and Schedule 1, on the date of DISTRIBUTOR’s purchase order for such
Products.  COMPANY shall have the right to change the prices of the Products no
more than once each Contract Year consistent with prices charged to third-party
international distributors of the Products, taking into consideration such
factors as exchange rates, device-specific reimbursement rates for the Products
in the Territory, if any, competition, and the like, by notifying DISTRIBUTOR in
writing of any such change at least ninety (90) days prior to the effective date
of any such change.  Notwithstanding the foregoing, in no event shall any price
increase exceed five percent (5%) of the then current price for such
Product.  Further, DISTRIBUTOR shall have the right to request a change in
price, taking into consideration such factors as exchange rates, device-specific
reimbursement rates for the Products or technical fees given to institutions for
procedures where the Products are used in the Territory, if any, competition,
and the like, by notifying COMPANY in writing of any such request and the reason
for such request which request COMPANY shall consider in good faith.
 
8.2
Risk of Loss, Deliveries.

 
DISTRIBUTOR shall purchase the Products from COMPANY EXW (as defined under
Incoterms 2010 of the International Chamber of Commerce) place of manufacture
with risk of loss passing to DISTRIBUTOR upon delivery of the Products to the
carrier.  DISTRIBUTOR shall be responsible for taxes (other than any taxes on
COMPANY’s income) and import duties imposed in the Territory and for shipping
fees.  COMPANY shall deliver accepted orders within the acknowledged time of
shipment stated in COMPANY’s acceptance of the order.  All Products shall be
packed for shipment and storage in accordance with COMPANY’s standard commercial
practices, unless DISTRIBUTOR notifies COMPANY of special packaging
requirements, in which event COMPANY shall be entitled to charge DISTRIBUTOR for
any additional costs approved in advance by DISTRIBUTOR.
 
8.3
Acceptance and Cancellation of Orders.

 
All orders for Products by DISTRIBUTOR shall be initiated by DISTRIBUTOR’s
issuance of a written purchase order sent via facsimile or mail to COMPANY or
such other place as designated by COMPANY.  Such orders shall state unit
quantities, unit descriptions, requested delivery dates, and shipping
instructions.  The acceptance by COMPANY of an order shall be indicated by
written acknowledgment thereof by COMPANY within five (5) business days
following receipt of each order.  This Agreement shall control orders of
Products by DISTRIBUTOR.  Any conflicting or different or additional terms or
conditions contained in DISTRIBUTOR’s purchase order, COMPANY’s acknowledgment
or other similar document shall not add to or modify the terms of this
Agreement.  COMPANY shall have the right to cancel any order placed by
DISTRIBUTOR or to refuse or delay the shipment thereof to the extent that
DISTRIBUTOR is in default of any payment obligations hereunder.  DISTRIBUTOR may
cancel an order, or any part thereof, for standard Products normally kept in
COMPANY’s inventory which COMPANY has accepted only by providing written notice
to COMPANY prior to the shipment of such Products and by paying such reasonable
cancellation charge as requested by COMPANY.  DISTRIBUTOR may not cancel an
order for non-inventory Products or custom made Products which COMPANY has
accepted unless confirmed in writing by COMPANY and by paying such reasonable
cancellation charge as requested by COMPANY, which cancellation charge may
include, without limitation reasonable tooling and works-in-progress expenses
requested by COMPANY.
 

Distribution Agreement  
September 2, 2011
  Cardica, Inc. Initial           BH         page-7   Century Medical, Inc.
Initial          AH             

 
[ * ]   = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
 
 
 

--------------------------------------------------------------------------------

 
 
8.4
Product Specifications.

 
COMPANY shall be obligated to deliver Products of the specifications and quality
standards in effect at the time and made known to DISTRIBUTOR and which contain
a minimum shelf life of the greater of ten (10) months or eighty percent (80%)
of the intended maximum shelf life for such Product at the time COMPANY delivers
an order.  COMPANY shall use reasonable efforts to extend the intended maximum
shelf life of Products to twenty-four (24) months or more for such Products by
the end of 2012.  COMPANY reserves the right to change the design or
specifications of any of the Products at any time with ninety (90) days’ prior
written notice to DISTRIBUTOR.  COMPANY also reserves the right to discontinue
the manufacture and distribution of any of the Products at any time, with ninety
(90) days’ prior written notice to DISTRIBUTOR and, without substitution, in
COMPANY’s sole discretion; provided that a discontinuation or cancellation of a
Product or Product line for the purpose of transfer to a third-party or to an
affiliate of COMPANY shall be deemed an assignment of COMPANY’s rights and
obligations of this Agreement with respect to such Products, and COMPANY shall
ensure that such transferee shall be bound by the terms and conditions of this
Agreement to the same extent as COMPANY with respect to any such
Products.  COMPANY acknowledges and understands that a substantial lead time is
required to obtain Shonin for Product specification changes and COMPANY will use
its commercially reasonable efforts to give DISTRIBUTOR as much advance
notification as possible in excess of ninety (90) days concerning Product
specification changes.  In the event COMPANY discontinues the manufacture or
distribution of any Product or in the event of a Product specification change or
in the event of COMPANY’s refusal to or failure to accept or fill any bona fide
purchase orders for Products, DISTRIBUTOR’s MPL under Section 8.6 herein shall
be amended and adjusted accordingly.
 
8.5
Taxes.

 
DISTRIBUTOR shall be responsible for all taxes levied and/or imposed by the
Japanese government or Japanese taxing authority (other than any tax on
COMPANY’s income) related to this Agreement; provided that DISTRIBUTOR may
withhold from any payments to COMPANY any amounts required by Japanese law to be
withheld, and shall provide to COMPANY receipts of any amounts so withheld
issued by the proper authority, and such withholding taxes shall not be “grossed
up”.  COMPANY shall be responsible for all taxes levied and/or imposed by the
United States government or any taxing authority in the United States related to
this Agreement.
 

Distribution Agreement  
September 2, 2011
  Cardica, Inc. Initial           BH         page-8   Century Medical, Inc.
Initial          AH             

 
[ * ]   = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
 
 
 

--------------------------------------------------------------------------------

 
 
8.6
Purchase Levels.

 
DISTRIBUTOR’s right to maintain its exclusive distributorship as set forth in
Section 2.1, herein, shall be subject to the following:
 
(i)           The MPL for Contract Year 1 shall be a best effort basis
only.  Upon receipt of the Shonin, DISTRIBUTOR shall place an initial stocking
order for one thousand (1,000) units of the Products, the composition of which
order shall be determined at DISTRIBUTOR’s sole discretion.
 
(ii)           For Contract Year 2 and thereafter, DISTRIBUTOR and COMPANY shall
prepare and agree upon an MPL ninety (90) days prior to the anticipated
beginning of the Contract Year 2 of the Initial Term and ninety (90) days prior
to the beginning of each subsequent Contract Year thereafter during Initial
Term and any subsequent Renewal Periods.  With respect to Product line additions
or extensions, the Parties shall make MPL adjustments as mutually agreed upon,
commensurate with the expanded total available market opportunity associated
with the expanded Product offerings.  If after exhausting all reasonable efforts
COMPANY and DISTRIBUTOR are unable to mutually agree upon an MPL ten (10) days
prior to the beginning of a subsequent Contract Year, then the default MPL for
the subsequent Contract Year shall be the product of the actual purchases by
DISTRIBUTOR during the Contract Year immediately preceding the subsequent
Contract Year times one point one zero (1.10) for Contract Year 2-4 and one
point zero five (1.05) for any subsequent Contract Year after Contract Year 4.
 
(iii)           For thirty (30) days following the conclusion of any Contract
Year of the Agreement in which DISTRIBUTOR has not purchased the MPL for that
Contract Year, DISTRIBUTOR shall have the discretionary right but not the
obligation to purchase additional Products from COMPANY at the then applicable
purchase prices in order to satisfy DISTRIBUTOR’s MPL for the prior Contract
Year.  Any purchases credited towards the prior Contract Year’s MPL in
accordance with the immediately preceding sentence shall not be credited towards
the then current Contract Year’s MPL.
 
(iv)           Except as described in Section 8.6(iii) above, for purposes of
this Section 8.6, a Product shall be deemed purchased during a designated
Contract Year when a firm purchase order has been received and accepted by
COMPANY during such Contract Year, and which order calls for delivery of
Products within that Contract Year.
 
(v)           Notwithstanding any other provision of this Agreement to the
contrary, any MPL then in effect shall be adjusted accordingly to reflect the
effect of any new Products and any Product line extensions, any Product recall,
any discontinuation of a Product or Product line, any change in design or
specifications of any Product which has a material adverse impact on
DISTRIBUTOR’s ability to market or sell such Product, any transfer to a
third-party or affiliate of COMPANY of any Product as described in Section 8.4
that has a material adverse impact on DISTRIBUTOR’s ability to market or sell
such Product, any termination of this Agreement with respect to a Product as
described in Section 12.2, any refusal or failure by COMPANY to satisfy a bona
fide purchase order made in accordance with the terms of Section 8.3, or any
relevant event of force majeure as set forth in Section 14.1.
 
(vi)           COMPANY shall have the right but not the obligation to terminate
this Agreement in the event that DISTRIBUTOR has not purchased the MPL for
Contract Year 2 and any Contract Year thereafter during the term of this
Agreement.
 

Distribution Agreement  
September 2, 2011
  Cardica, Inc. Initial           BH         page-9   Century Medical, Inc.
Initial          AH             

 
[ * ]   = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
 
 
 

--------------------------------------------------------------------------------

 
 
(vii)           Notwithstanding any provision of this Agreement to the contrary,
the MPL has been and will be established solely for the purpose of providing
COMPANY with a contingent right to terminate the exclusive distributorship
granted to DISTRIBUTOR under Section 2.1, in Contract Year 2 and any Contract
Year thereafter, and failure to meet the MPL (1) shall not be deemed a material
breach of this Agreement or (2) a fundamental breach under the United Nations
Convention on Contracts for the International Sale of Goods.  COMPANY agrees
that its sole remedy for any failure of DISTRIBUTOR to achieve the MPL for
Contract Year 2 and any Contract Year thereafter shall be the termination of
DISTRIBUTOR’s exclusive distributorship rights hereunder without any rights to
claim against DISTRIBUTOR for any alleged losses or damages of any kind, for
reimbursement of any costs of any kind, including attorneys’ fees, or for
payment of any other kind; provided, however, that the obligations between
DISTRIBUTOR and COMPANY under Section 13.2, which may include payments, shall
survive a termination for failure of DISTRIBUTOR to fulfill the MPL.  This
Section 8.6(vii) is not intended to, and shall not be construed to, create any
obligation on the part of DISTRIBUTOR to purchase, or any right on the part of
COMPANY to cause DISTRIBUTOR to purchase, Products in quantities necessary to
satisfy any MPL for any Contract Year.
 
 
9.  PRODUCT LIABILITY
 
9.1
Claim, Suit or Action.

 
If any claim is made or any suit or action is instituted against DISTRIBUTOR
arising out of or otherwise in connection with any defect or alleged defect in
the Products sold by COMPANY to DISTRIBUTOR under this Agreement, COMPANY shall,
without limiting the general indemnity provided by Section 12.1 of this
Agreement, at its own expense and upon request by DISTRIBUTOR:
 
(i)           investigate or research the causes of accidents, occurrences,
injuries or losses affecting any person or property as a result of the manner in
which the Products are designed, manufactured, treated, packaged, labeled,
delivered, sold or used, and use its best efforts to correct or eliminate such
causes within a reasonable period; and
 
(ii)           provide to DISTRIBUTOR any and all assistance (including, without
limitation, technical and other information, documents, data, materials and
witnesses) which are, in the opinion of DISTRIBUTOR or its counsel, necessary or
useful for DISTRIBUTOR’s defense to such claim, suit or action in relation to
the Products sold by COMPANY to DISTRIBUTOR hereunder.
 
9.2
Product Liability Insurance.

 
COMPANY shall, at its own expense, obtain and maintain product liability
insurance underwritten by a company or companies authorized to do business in
the state, countries and Territory contemplated by this Agreement, subject to
DISTRIBUTOR’s prior written approval, to cover any and all losses, damages
(actual, consequential or indirect), liabilities, penalties, claims, demands,
suits or actions, and related costs and expenses of any kind (including without
limitation, expenses of investigation, counsel fees, judgments and settlements)
for injury to or death of any person or property damages or any other loss
suffered or allegedly suffered by any person or entity arising out of or
otherwise in connection with the Products sold by COMPANY to DISTRIBUTOR
pursuant to this Agreement.  COMPANY shall maintain such insurance in a minimum
amount of five million U.S. dollars ($5,000,000.00) per occurrence in connection
with such insurance.  COMPANY shall furnish DISTRIBUTOR with copies of all
applicable insurance policies, which insurance policies shall not be canceled,
modified or reduced without the prior written consent of DISTRIBUTOR.
 

Distribution Agreement  
September 2, 2011
  Cardica, Inc. Initial           BH         page-10   Century Medical, Inc.
Initial          AH             

 
[ * ]   = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
 
 
 

--------------------------------------------------------------------------------

 
 
10.  WARRANTY POLICY
 
10.1
Warranties.

 
COMPANY warrants that the Products sold to DISTRIBUTOR shall be (1) free from
any defects in material, design, workmanship, manufacture, treatment, packing,
instruction manuals, labeling, warning or otherwise until the use before date
(“UBD”) for sterile Products, (2) substantially in conformance with the written
specifications maintained by COMPANY at the date of delivery of such Products,
and (3) in compliance at all times with the requirements of and regulations
adopted pursuant to the U.S. Federal Food, Drug and Cosmetic Act and applicable
Japanese law.  COMPANY further warrants that it will convey good title to all
Products delivered to DISTRIBUTOR free from any security interest, liens or
other encumbrance.  COMPANY will provide, when requested by DISTRIBUTOR,
certification that, to the best of its knowledge, it is in compliance with U.S.
and applicable Japanese laws, statutes, rules, and regulations and relevant
orders relating to the manufacture, use, distribution and sale of the
Products.  COMPANY’S SOLE OBLIGATION UNDER THE FOREGOING WARRANTY SHALL BE, AT
COMPANY’S SOLE ELECTION, TO EITHER REPLACE THE RELEVANT PRODUCT OR REFUND
DISTRIBUTOR’S FULLY-LANDED PURCHASE PRICE FOR SUCH PRODUCT.  Such obligation
shall be subject to COMPANY being granted the reasonable opportunity to inspect,
at COMPANY’s expense, the defective Product at the location of its use or
storage and, upon request in accordance with COMPANY’s instruction, return of
the Product to COMPANY at COMPANY’s cost.  Any such replacement of Products may
be made by substitution of any similar Product meeting substantially identical
quality specifications and payment by COMPANY of all freight, handling and duty
charges or taxes incident to the delivery of such replacement Products.  Upon
request by COMPANY, in accordance with COMPANY’s instruction, DISTRIBUTOR shall
return the Product to COMPANY at COMPANY’s cost; provided, however, that IN THE
EVENT THAT THE RETURN OF A PRODUCT POSES A HEALTH RISK, DUE TO THE POSSIBILITY
THAT SUCH PRODUCT HAS BEEN EXPOSED TO AN INFECTIOUS DISEASE OR OTHERWISE,
COMPANY, DISTRIBUTOR AND THE END-USER SHALL DETERMINE A MUTUALLY SATISFACTORY
METHOD FOR COMPANY TO INSPECT OR OTHERWISE OBTAIN ADDITIONAL INFORMATION ABOUT
THE PRODUCT IN ORDER FOR COMPANY TO DETERMINE ITS OBLIGATION UNDER THE FOREGOING
WARRANTY.  NOTWITHSTANDING THE FOREGOING, COMPANY MAKES NO WARRANTY, NOR SHALL
IT HAVE ANY OTHER OBLIGATION TO DISTRIBUTOR WITH RESPECT TO ANY PRODUCT SOLD
HEREUNDER, TO THE EXTENT THAT, PRIOR TO USE, SUCH PRODUCT HAS EXCEEDED ITS UBD
ACCORDING TO THE PRODUCT’S LABEL OR HAS NOT BEEN USED, HANDLED OR STORED IN
ACCORDANCE WITH COMPANY GUIDELINES AS COMMUNICATED BY COMPANY TO DISTRIBUTOR.
 
Without limiting the generality of the foregoing, and except as provided in
Section 12.1, DISTRIBUTOR shall not purport to give, or assume on behalf of
COMPANY, any other or different guarantee, warranty, obligation or liability
whatsoever, including without limitation liability for loss or damage to person
or property resulting from default or defect in design, workmanship or material
or goods of any kind, other than stipulated in such warranties as COMPANY may
specify from time to time.  Furthermore, DISTRIBUTOR shall only give such
warranties as specified in this Section 10.1 or as specified by COMPANY from
time to time on its own behalf and shall not give such other or different
warranties or guarantees on its own behalf unless DISTRIBUTOR obtains the prior
written consent of COMPANY on each such occasion.
 

Distribution Agreement  
September 2, 2011
  Cardica, Inc. Initial           BH         page-11   Century Medical, Inc.
Initial          AH             

 
[ * ]   = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
 
 
 

--------------------------------------------------------------------------------

 
 
EXCEPT AS EXPRESSLY PROVIDED ABOVE AND IN SECTION 12.1 BELOW, COMPANY GRANTS
DISTRIBUTOR NO OTHER WARRANTIES, WHETHER EXPRESS,  IMPLIED OR BY
STATUTE  REGARDING THE PRODUCTS, THEIR FITNESS FOR ANY PARTICULAR PURPOSE, THEIR
QUALITY, THEIR MERCHANTABILITY OR OTHERWISE.
 
10.2
Rejection of Products.

 
(i)           DISTRIBUTOR shall inspect all Products promptly upon receipt
thereof and may reject any Product that fails in any material way to meet the
then-current specifications for such Product.  Any Product not properly rejected
within thirty (30) days of receipt of such Product by DISTRIBUTOR (the
“Rejection Period”) shall be deemed accepted.  To reject a Product, DISTRIBUTOR
shall, within the Rejection Period, notify COMPANY of its rejection and request
a Material Return Authorization (“MRA”) number.  COMPANY shall provide the MRA
number to DISTRIBUTOR within seven (7) days of receipt of the request.  Within
seven (7) days of receipt of the MRA number, DISTRIBUTOR shall return to COMPANY
the rejected Product, freight collect, with the MRA number displayed on the
outside of the carton.  COMPANY reserves the right to refuse to accept any
rejected Products that do not bear an MRA number on the outside of the
carton.  As promptly as possible but no later than thirty (30) working days
after receipt of properly rejected Products, COMPANY shall, at its option and
expense, either replace the Products or refund DISTRIBUTOR’s original fully
landed purchase price for the Products.  COMPANY shall pay the cost of shipping
charges incurred by DISTRIBUTOR for properly rejected products.
 
(ii)           Notwithstanding the foregoing, Products which are found to be
defective for failure to conform to COMPANY’s specifications at an end-user’s
site shall be initially replaced by DISTRIBUTOR.  COMPANY shall then replace
such defective Products with Products meeting specifications within thirty (30)
days of (1) receipt of the defective Products, or (2) confirmation by
DISTRIBUTOR that such defective Products have been disposed of by an end-user
and receipt of a completed customer complaint form.  The final good faith
determination concerning non-conformance of any Product shall rest solely with
COMPANY.
 
 
11.  PATENTS, TRADEMARKS, COPYRIGHTS;
 
 
PROPRIETARY AND CONFIDENTIAL INFORMATION
 
11.1
Trademark License.

 
COMPANY hereby grants to DISTRIBUTOR a non-exclusive, royalty-free right and
license (with right of sub-license to sub-distributors appointed under Section
2.2) to use the trademarks, trade names, copyrights, and other intellectual
property (except patents which are expressly excluded from this Agreement) of
COMPANY as communicated to DISTRIBUTOR from time to time (hereinafter referred
to as the “Trademarks”) in connection with the sale or other distribution,
promotion, advertising and maintenance of the Products under this
Agreement.  DISTRIBUTOR may indicate in its advertising and promotion and on its
stationery that it is an “authorized exclusive distributor” of the Products for
the Territory.  DISTRIBUTOR has no permission to and will not adopt, use or
register as a trademark, trade name, business name, or corporate name or part
thereof, whether during the term of this Agreement or after its termination, any
word, or symbol confusingly similar to any Trademarks.  Furthermore, upon
request and at COMPANY’s expense, DISTRIBUTOR shall discontinue or cancel the
registration of any and all Trademarks utilized and registered by DISTRIBUTOR in
connection with the Products prior to or after the execution of this Agreement,
except as provided in Section 13.2 (iii).
 

Distribution Agreement  
September 2, 2011
  Cardica, Inc. Initial           BH         page-12   Century Medical, Inc.
Initial          AH             

 
[ * ]   = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
 
 
 

--------------------------------------------------------------------------------

 
 
11.2
Duty to Preserve Confidentiality.

 
Without the prior written consent of the supplying Party, no receiving Party,
its officers, agents, or employees shall, in any manner whatsoever for use in
any way for its own account or for any third- party disclose or communicate to a
third-party, any technical, engineering, manufacturing, business, financial, or
other information or know-how (hereinafter referred to as the “Confidential
Information”) generated by any Party hereto and acquired directly or indirectly
by the other Party.  Nothing in this Section 11.2 shall prevent disclosure or
use of information: (i) previously known to the receiving Party; (ii) which is
or later becomes public knowledge, by publication or otherwise, through no
breach of this Agreement by the receiving Party; (iii) which is properly
acquired by the receiving Party from a third-party having the legal right to
disclose such information; (iv) which is required to be disclosed by a
governmental or judicial authority; or (v) which the receiving Party can
demonstrate in writing was independently developed without reference to or
reliance upon the other Party’s Confidential Information.  No receiving Party
shall, in any manner whatsoever for use in any way for its own account or for
the account of any third-party, disclose or communicate to a third-party, any
Confidential Information for any purpose except for the purpose for which such
Confidential Information was supplied, and such receiving Party shall take every
reasonable precaution to protect the confidentiality of such information.  Each
Party acknowledges that any breach of any obligation under this Section 11.2 is
likely to cause or threaten irreparable harm to the other Party, and
accordingly, each Party agrees that in such event the non-breaching Party shall
be entitled to equitable relief to protect its interests, including, but not
limited to, preliminary and permanent injunctive relief.
 
11.3
Proprietary.

 
DISTRIBUTOR acknowledges that the Products are proprietary to COMPANY and may
not be copied and that all rights of design and invention are reserved by
COMPANY.
 
 
12.  INDEMNITIES
 
12.1
Indemnity.

 
COMPANY shall, at its own expense, defend, indemnify and hold harmless
DISTRIBUTOR, its officers, directors, employees, agents, successors and assigns
(the “Indemnified Parties”) against any and all liabilities, claims, actions,
suits, fines, penalties, losses, settlements, costs and expenses (including,
without limitation, reasonable attorneys’ fees and expenses) (collectively
“Losses”) relating to or arising out of any suit, claim or proceeding instituted
against any of the Indemnified Parties by any third-party or incurred in
connection therewith, alleging that: (i) any patent, trademark or any other
intellectual property right of COMPANY infringes the intellectual property
rights of such third-party; or (ii) any defect in the Products or their design
or manufacture caused bodily injury or death to any person or damage to any
property.  Notwithstanding the foregoing, COMPANY shall not be responsible for
such Losses as set forth in this section to the extent that: (a) such Product
has been altered, modified or tampered with by DISTRIBUTOR directly resulting in
such Product defect; or (b) such Product has been misused as a result of
DISTRIBUTOR’s unauthorized representation about the Product directly resulting
in such Losses; or (c) such Losses arise directly out of any negligence,
recklessness or willful misconduct by DISTRIBUTOR or any of its employees; or
(d) DISTRIBUTOR fails to give COMPANY reasonable written notice of any such
claim as soon as is reasonably practicable.  COMPANY shall have the sole control
of the defense and/or settlement of any claim subject to indemnification under
this Section 12.1; provided, however, that COMPANY shall not control or settle
any such claim without prior consultation with DISTRIBUTOR.
 

Distribution Agreement  
September 2, 2011
  Cardica, Inc. Initial           BH         page-13   Century Medical, Inc.
Initial          AH             

 
[ * ]   = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
 
 
 

--------------------------------------------------------------------------------

 
 
12.2
Infringing Products.

 
If a claim of patent or other proprietary right infringement is made by a
third-party with respect to a Product, then COMPANY, at its option and expense,
shall (i) obtain for DISTRIBUTOR the right to continue to market and distribute
the Product, (ii) replace the Product with a functionally-equivalent
non-infringing Product, (iii) modify the Product so that it becomes
non-infringing, so long as the functionality of the Product is not thereby
adversely affected, and replace the infringing Product with such modified
Product or (iv) have dismissed, settle or otherwise cause such claim to be
withdrawn.  If COMPANY is unable to accomplish any of the foregoing within one
hundred eighty (180) days of the initial infringement claim and the ability of
DISTRIBUTOR to market such Product is effectively prevented by a court of
relevant jurisdiction in the Territory, then COMPANY shall grant DISTRIBUTOR a
full refund of DISTRIBUTOR’s fully-landed cost for all affected Products and
accept return of such Products at COMPANY’s expense, the Parties shall remove
all such affected Products from then current and future MPL and adjust
DISTRIBUTOR’s MPL accordingly and this Agreement shall be terminated with
respect to such affected Product.  If partial termination of this Agreement with
respect to one or more Products pursuant to this Section 12.2 results in a
greater than fifty percent (50%) decrease in DISTRIBUTOR’s total sales of
Products in the three (3) month period following any such partial termination as
compared to the average quarterly sales over the twelve-month period immediately
preceding the third-party claim which precluded DISTRIBUTOR from marketing and
distributing any Product, then DISTRIBUTOR shall have the option to terminate
this Agreement in its entirety, subject to Section 13.2.
 
 
13.  TERMINATION
 
13.1
Cancellation for Cause.

 
COMPANY or DISTRIBUTOR, as the non-defaulting Party, may cancel this Agreement,
immediately by providing written notice to the other Party, upon the occurrence
of any of the following events:
 
(i)           The other Party becomes insolvent or is unable to pay its debts as
they mature or ceases to pay in the ordinary course of business its debts as
they mature; or the other Party makes an assignment for the benefit of its
creditors; or a receiver, liquidator, custodian, trustee or the like is
appointed for the other Party or its property; or the other Party commences a
voluntary case under any applicable bankruptcy or insolvency law or consents to
the entry of an order for relief in any involuntary case, or a court with
jurisdiction enters a decree for relief in any involuntary case involving the
other Party.
 

Distribution Agreement  
September 2, 2011
  Cardica, Inc. Initial           BH         page-14   Century Medical, Inc.
Initial          AH             

 
[ * ]   = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
 
 
 

--------------------------------------------------------------------------------

 
 
(ii)           The other Party defaults in the material performance of any of
its obligations under this Agreement and fails to cure such default within sixty
(60) days after written notice thereof from the non-defaulting Party.
 
13.2
Obligations upon Cancellation or Termination.

 
Upon the expiration of this Agreement or its termination in accordance with
Section 8.6(vi), Section 12.2 or Section 13.1 above, and after allowance for any
applicable cure periods, DISTRIBUTOR and COMPANY each promise to do the
following immediately:
 
(i)           DISTRIBUTOR shall pay to COMPANY all amounts which are then due
and payable by DISTRIBUTOR to COMPANY under this Agreement less any such amounts
which reasonably may be set-off by DISTRIBUTOR based on a dispute or otherwise
arising out of or related to this Agreement.
 
(ii)           Each Party shall return to the other Party all Confidential
Information of the other Party in its possession or under its control, together
with a statement signed by an officer or duly authorized representative of the
Party to the effect that all of the Confidential Information has been returned
to the other Party.
 
(iii)           Except to the extent that DISTRIBUTOR requires use of the
Trademarks in order to exercise DISTRIBUTOR’s right to sell any existing
inventories of Products upon the expiration or termination of this Agreement, as
provided for in Section 13.2(iv), DISTRIBUTOR shall cease to use any of the
Trademarks and return to COMPANY all materials supplied to DISTRIBUTOR by
COMPANY which contain any of the Trademarks.  Furthermore, upon receipt of
written notice from COMPANY, DISTRIBUTOR shall dispose of all packaging, labels,
brochures, lists, and other similar materials containing any of the Trademarks
in accordance with COMPANY’s instructions, except for those materials necessary
for DISTRIBUTOR’s continuing sale of existing inventories of Products provided
for in Section 13.2(iv).  COMPANY shall reimburse DISTRIBUTOR for the direct
costs (exclusive of overhead) and disposal costs of such materials.
 
(iv)           COMPANY or its successor (A) shall repurchase all sterile
Products with a UBD at the date of termination or expiration of this Agreement
of twenty-five percent (25%) of the intended maximum shelf life remaining or
greater at DISTRIBUTOR’s original landed cost plus any consumption tax
applicable in the Territory to sales or deliveries of Products to a third-party
in the Territory; provided, however, that any Products with twenty-five percent
(25%) or more of the UBD remaining but less than fifty percent (50%) of the UBD
remaining shall be subject to a ten percent (10%) restocking fee to be charged
by COMPANY, and (B) shall pay DISTRIBUTOR for all documented out of pocket
expenses directly related to all Shonin then held by DISTRIBUTOR; provided,
however, that DISTRIBUTOR shall have the absolute right to continue to sell any
such Products not repurchased by COMPANY in accordance with this Section
13.2(iv).  All payments by COMPANY under this Section 13.2(iv) shall be made by
wire transfer to an account to be specified by DISTRIBUTOR on or prior to thirty
(30) days after DISTRIBUTOR has delivered the Products and provided COMPANY with
an invoice.
 
For purposes of this Section 13.2(iv), “out of pocket expenses” shall include
any Product costs, documentation, Product testing fees, and any clinical trial
related expenses, etc.  Specifically excluded from “out of pocket expenses” are
DISTRIBUTOR overhead, salary, travel expenses and other expenses, which derive
from the operation of DISTRIBUTOR’s business as an ongoing business concern in
the Territory.
 

Distribution Agreement  
September 2, 2011
  Cardica, Inc. Initial           BH         page-15   Century Medical, Inc.
Initial          AH             

 
[ * ]   = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
 
 
 

--------------------------------------------------------------------------------

 
 
(v)           Subject to payment by COMPANY to DISTRIBUTOR of all out of pocket
expenses, as described in Section 13.2(iv) above, DISTRIBUTOR shall diligently
and expeditiously take the necessary steps to transfer any Shonin held by
DISTRIBUTOR for the Products to a third-party affiliated with COMPANY, and
located and organized under the law of the Territory, that is authorized and
legally entitled to hold the Shonin.
 
(vi)           During the period that the Shonin are in the process of being
transferred, DISTRIBUTOR shall otherwise cooperate with COMPANY by importing and
reselling the Products to COMPANY’s next authorized distributor at DISTRIBUTOR’s
fully landed cost for the Products plus a mark-up of twenty percent (20%) and
any applicable consumption tax.  The general purchase and sales terms of this
Agreement will govern the sale of Products during this transfer period.  COMPANY
expressly agrees to indemnify DISTRIBUTOR for any non-payment by COMPANY’s next
distributor for Products so resold by DISTRIBUTOR or for any other
non-performance of DISTRIBUTOR out of DISTRIBUTOR’s immediate control during
such transfer period.
 
(vii)           In the event that COMPANY or its successor exercises its right
to terminate this Agreement pursuant to Section 14.3(ii) below, COMPANY shall be
obligated to pay DISTRIBUTOR a termination fee which shall be calculated in
accordance with the following table (the “Change of Control Termination Fee”):
 
If Change in Control termination occurs during:
Then the Change of Control Termination Fee shall be equal to:
Multiplied by a factor of
Period from the Effective Date up to the end of Contract Year 3
Termination not permitted due to a Change in Control (defined below).
 
Contract Years 4 or 5
DISTRIBUTOR’s gross profit from the Products in the twelve (12) month period
immediately preceding termination of this Agreement
 
[ * ]
the Renewal Period
[ * ]

 
Gross profit shall mean net sales in YEN of the Products less the price of the
Products paid by DISTRIBUTOR to COMPANY in YEN.
 
In the event that COMPANY challenges the applicability or efficacy of COMPANY’s
Change of Control Termination Fee, or if this provision is held to be void or
unenforceable for any reason, DISTRIBUTOR shall be entitled to all remedies
provided at law, including attorney’s fees.  The Parties expressly acknowledge
that substantial injury will result to DISTRIBUTOR upon a termination of this
Agreement by COMPANY or its successor pursuant to Section 14.3(ii) below.  The
Parties further expressly acknowledge that it may be difficult or impossible to
determine with precision the amount of monetary damages that would be required
to compensate DISTRIBUTOR for such injury.  Accordingly, the Parties have made a
good-faith effort to accurately determine what those damages might be and the
amount agreed to as reasonable by the Parties is COMPANY’s Change of Control
Termination Fee.
 

Distribution Agreement  
September 2, 2011
  Cardica, Inc. Initial           BH         page-16   Century Medical, Inc.
Initial          AH             

 
[ * ]   = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
 
 
 

--------------------------------------------------------------------------------

 
 
(viii)           If any portion of the Note is still outstanding, COMPANY shall
immediately repay to DISTRIBUTOR the principal balance of the Note and any
accrued interest owed at the time of such repayment.
 
 
14.  GENERAL PROVISIONS
 
14.1
Force Majeure.

 
Save in respect of payments due under this Agreement, neither Party to this
Agreement is responsible to the other Party for nonperformance or delay in
performance of the terms and conditions herein due to any event of force
majeure, including without limitation acts of god, acts of government, wars,
civil disturbances, strikes and other labor unrest, accidents in transportation
or other cause beyond the control of the Parties.  The Party whose performance
is prevented under this paragraph shall immediately inform the other Party of
the state of affairs.  Notwithstanding the foregoing, should any Party be
prevented from materially performing its obligations under this Agreement due to
any such event of force majeure for a period in excess of four (4) months, then
the other Party may elect to terminate this Agreement upon delivery of thirty
(30) days’ prior written notice to such effect.
 
14.2
Relationship between Parties.

 
DISTRIBUTOR’s relationship to the COMPANY shall be that of an independent
contractor.  Nothing contained in this Agreement shall make DISTRIBUTOR a
partner, joint venturer, employee, or agent of COMPANY for any purpose
whatsoever.  DISTRIBUTOR shall not sign any contract in the name of COMPANY,
shall not purport to bind COMPANY in any way to any obligation, and shall not
hold itself out or purport to act as COMPANY’s legal partner or legally
empowered agent or representative for any purpose whatsoever.
 
14.3
Successors, Nonassignability.

 
(i)           This Agreement and each and every covenant, term and condition
hereof is binding upon and inures to the benefit of the Parties hereto and their
respective successors and permitted assigns.  Except as provided in Section 2.2
above, neither this Agreement nor any rights hereunder may be assigned by
DISTRIBUTOR directly, indirectly, voluntarily or by operation of law, without
first receiving the prior written consent of COMPANY.  In the event of (A) any
consolidation of COMPANY with or merger of COMPANY with or into another entity,
or (B) any sale, transfer or lease of all or substantially all the Product
related assets of COMPANY, or (C) any event in which any person or group of
persons acting in concert acquire more than fifty percent (50%) of the voting
stock of COMPANY (each, a “Change in Control”), COMPANY shall to such extent
assign its rights and obligations under this Agreement to such acquirer of
COMPANY’s stock or assets.  COMPANY shall further provide DISTRIBUTOR with prior
written notice of such assignment accompanied by a written undertaking of the
assignee that the assignee shall be bound by this Agreement and assume all
obligations of COMPANY under this Agreement.
 
(ii)           Provided that such Change in Control occurs, COMPANY or COMPANY’s
successor shall have ninety (90) days from the date of such a Change in Control
to notify DISTRIBUTOR in writing of its intention either to terminate this
Agreement at any time on or after the beginning of the first day of Contact Year
4 or to accept the assignment of and assume all rights and obligations of
COMPANY under the terms and conditions of this Agreement.  In the event that
COMPANY or COMPANY’s successor notifies DISTRIBUTOR within ninety (90) days of
the Change in Control that it has chosen to terminate this Agreement at any time
on or after the beginning of the first day of Contact Year 4, then COMPANY shall
pay to DISTRIBUTOR by wire transfer to an account to be specified by DISTRIBUTOR
the Change of Control Termination Fee set forth in Section 13.2(vii) within
seven (7) days after termination of this Agreement.
 

Distribution Agreement  
September 2, 2011
  Cardica, Inc. Initial           BH         page-17   Century Medical, Inc.
Initial          AH             

 
[ * ]   = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
 
 
 

--------------------------------------------------------------------------------

 
 
14.4
Survival of Obligations.

 
Both Parties agree that the obligations described in Sections 4.1(x), 5.1(xii),
8.5, 10.1, 13.2 and Articles 7, 9, 11, 12 and 14 of this Agreement shall survive
any termination, cancellation, or expiration of this Agreement.
 
14.5
Remedies.

 
The rights and remedies of each Party under this Agreement are not exclusive but
shall be in addition to all of the rights and remedies to which a Party is
entitled against the other Party under the law governing this Agreement.
 
14.6
Notices.

 
Unless otherwise specified, any notice required by this Agreement shall be made
in a writing sent by prepaid certified mail, overnight courier or any means of
electronic communications with confirmation copy sent by certified mail to the
addresses first listed above, until notice of another address shall be given in
the manner provided herein.  All notices, consents or requests shall be
effective from the date of transmission if sent by facsimile, seven (7) days if
sent by certified mail and when received if sent by international courier.
 
14.7
Disputes.

 
In the event there arises a dispute between the Parties as to the performance or
interpretation of any of the provisions of this Agreement, or as to matters
related to but not covered by this Agreement, the Parties shall first attempt to
find a mutually agreeable solution by consultation in good faith.  If the matter
has not been resolved within thirty (30) days of their first meeting to resolve
a dispute, then any such dispute shall be determined finally by final and
binding arbitration in accordance with the International Arbitration Rules of
the American Arbitration Association.  The place of arbitration shall be either
(a) Redwood City, California, U.S.A. if initiated and brought by DISTRIBUTOR or
(b) Tokyo, Japan if initiated and brought by COMPANY and the language of the
arbitration shall be English.  The arbitral tribunal shall consist of a single
arbitrator.  If the Parties shall not have agreed upon an arbitrator within
thirty (30) days of the notice of arbitration, then the Administrator of the
American Arbitration Association shall appoint one.  At minimum, the arbitral
tribunal shall be experienced in cross-border transactions in the area of
medical devices.  The unsuccessful Party in an arbitration shall pay and
discharge all reasonable costs and expenses (including reasonable attorneys’
fees) which are incurred by the other Party in enforcing this Agreement.
 
Judgment upon the award of the arbitrator may be entered in any court having
jurisdiction thereof.  The Parties acknowledge that this Agreement and any award
rendered pursuant to it shall be governed by the 1958 United Nations Convention
on the Recognition and Enforcement of Foreign Arbitral Award.
 
Pending the submission to arbitrators and thereafter until the single arbitrator
renders the award, the Parties shall, except in the event of termination,
continue to perform all their obligations under this Agreement without prejudice
to a final adjustment in accordance with the award.
 

Distribution Agreement  
September 2, 2011
  Cardica, Inc. Initial           BH         page-18   Century Medical, Inc.
Initial          AH             

 
[ * ]   = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
 
 
 

--------------------------------------------------------------------------------

 
 
Nothing herein shall prevent any party from seeking injunctive relief from any
court of competent jurisdiction, in order to preserve assets, prevent
irreparable harm or as otherwise appropriate.
 
14.8
Unenforceable Terms.

 
In the event any term or provision of this Agreement shall for any reason be
invalid, illegal or unenforceable in any respect, it shall be deemed separate
and shall not affect any other provisions hereof or the validity hereof.  The
Parties agree to re-negotiate in good faith any term or provision held invalid
and to be bound by the mutually agreed substitute term or provision.
 
14.9
Waivers.

 
No waiver of any of the terms and conditions of this Agreement shall be
effective for any purpose, unless expressed in a writing and signed by the Party
thereto giving the same, and any such waiver shall be effective only in the
specific instance and for the purpose given.
 
14.10
Governing Law; Headings.

 
This Agreement shall be governed by and construed in accordance with the
substantive law of the State of California, U.S.A. excluding  (a) any conflict
of laws rule, or principle therein contained under which any other law would be
made applicable, and (b) the United Nations Convention on Contracts for the
International Sale of Goods.  The headings to the paragraphs of this Agreement
are for convenience of reference only, do not form a part of this Agreement, and
shall not in any way affect the interpretation hereof.
 
14.11
Entire Agreement, Modification.

 
This Agreement constitutes the entire and final agreement between the Parties on
the subject matter hereof and supersedes any and all prior oral or written
agreements or discussions on the subject matter hereof.  This Agreement may not
be modified in any respect except in a writing which states the modification and
is signed by both Parties hereto.
 
14.12
Further Assurances.

 
The Parties agree to execute any and all such further agreements, instruments or
documents, and to take any and all such further action as may be necessary or
desirable to carry out the provisions hereof and to effectuate the purposes of
this Agreement.
 
14.13
Schedule.

 
The schedule attached hereto is incorporated herein by this reference and
expressly made a part hereof as fully as though completely set forth herein.
 
14.14
Counterparts.

 
This Agreement may be executed in two or more counterparts, each of which shall
be deemed an original and all of which together shall constitute one instrument.
 

Distribution Agreement  
September 2, 2011
  Cardica, Inc. Initial           BH         page-19   Century Medical, Inc.
Initial          AH             

 
[ * ]   = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
 
 
 

--------------------------------------------------------------------------------

 
 
IN WITNESS WHEREOF, this Agreement has been prepared in two (2) original copies
and the Parties and/or their duly authorized representatives have placed their
signatures here below.
 

 
CARDICA, INC.
 

 

       
By:
/s/ Bernard Hausen            
Name:
Bernard Hausen, MD            
Title:
President & CEO    

 
 
CENTURY MEDICAL, INC.
 
 

 

       
By:
/s/ Akira Hoshino            
Name:
Akira Hoshino            
Title:
President & CEO    

 

 
 
 
 

Distribution Agreement  
September 2, 2011
  Cardica, Inc. Initial           BH         page-20   Century Medical, Inc.
Initial          AH             

 
[ * ]   = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
 
 
 

--------------------------------------------------------------------------------

 
 
Schedule 1.  Products and Prices
 
 
Microcutter Xpress 30
EXW Transfer Price
 4 deployments
$[ * ] each
 6 deployments
$[ * ] each
 8 deployments
T.B.D.
Microcutter Xpress 45
 
4 deployments
$[ * ] each
6 deployments
$[ * ] each
8 deployments
T.B.D.
Xchange
T.B.D.
fleXchange (5mm)
T.B.D.
 30mm
 
 45mm
 

 
Transfer Prices set forth above are estimated pricing to DISTRIBUTOR as of the
Effective Date.  Transfer Prices under this Agreement will be determined once
final specifications, configurations and manufacturing costs are known to
COMPANY.
 
COMPANY shall on a case-by-case basis prepare price quotations for custom-made
Products based upon DISTRIBUTOR’s specific inquiry, taking into consideration
expected purchase volumes.
 
 
 
 
 
 

Distribution Agreement  
September 2, 2011
  Cardica, Inc. Initial           BH         page-21   Century Medical, Inc.
Initial          AH             

 
[ * ]   = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.