EXHIBIT 10.211


 


 


SALES, MARKETING AND
DISTRIBUTION

AGREEMENT


 


 


BY AND BETWEEN


 


 


CYGNUS, INC.


 


 


AND


 


 


SANKYO PHARMA INC.


 

















 


SALES, MARKETING AND
DISTRIBUTION AGREEMENT


 


THIS SALES,
MARKETING AND DISTRIBUTION AGREEMENT (the “Agreement”) is made and entered into
as of July         , 2002, by and
between CYGNUS, INC., a Delaware corporation with its principal place of
business at 400 Penobscot Drive, Redwood City, California 94063 (“Cygnus”) and
SANKYO PHARMA INC., a Delaware corporation with its place of business at Two
Hilton Court, Parsippany, New Jersey 07054 (“Sankyo”).  Cygnus and Sankyo are referred to herein
individually as a “party” and collectively as the “parties.”


 


RECITALS


 


WHEREAS:


 


A.                                   The
parties entered into a Co-Promotion Agreement on November 28, 2001 relating to
the sales and marketing in the United States of Cygnus’ reverse iontophoresis
glucose monitoring products (the “Co-Promotion Agreement”);


 


B.                                     The
parties now wish to supersede and completely replace the Co-Promotion Agreement
with this Sales, Marketing and Distribution Agreement as of the date set forth
above;


 


NOW, THEREFORE, for
good and valid consideration, the parties agree to the following terms and
conditions set forth herein:


 


1.                                      DEFINITIONS


 


Unless specifically provided
otherwise, capitalized terms used in this Agreement, whether used in the
singular or plural, shall have the meanings specified below.


 


1.1                                 “Advertising
and Promotional Amount” for any period shall mean all out-of-pocket costs and
expenses incurred (i.e., paid to third parties or accrued therefor) by Sankyo
or Cygnus with respect to the advertising, marketing and sales of the Product
in the Territory for such period, including, without limitation, costs for
advertisements, agency fees, meetings scheduled solely for the Product, sales
and marketing meetings, samples, sales force funds, development and production
of training materials, development and production of sales force training
materials, website costs, conventions and seminars, market research,
sponsorships, grants including funding of continuing medical education programs
that are relevant to the Product, and other payments for programs to
institutional and managed care purchasers, acquisition and shipping costs of
training and sales and marketing materials, and the cost of field aids and
sales premiums and other tokens.


 


 1.2                              “Affiliate”
of a person, firm or entity means any entity controlled by, under common
control with, or controlling such person, firm or entity.  For purposes of this Section 1.2, “control”
shall mean direct or indirect beneficial ownership of fifty percent (50%) or
more of the voting stock or other voting interest, of a corporation,
partnership or other business organization, or the possession of the power to
direct the management and policies of a person, firm or entity, whether through
ownership of voting securities, by contract, or otherwise.


 


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1.3                                 “Calendar
Quarter” shall mean the respective periods of three (3) consecutive calendar months
ending in March 31, June 30, September 30 and December 31.


 


1.4                                 
“Competitive Product” means any glucose monitoring product of a party other
than Cygnus.


 


1.5                                 “Cygnus
Copyrights” has the meaning set forth in Section 9.3.


 


1.6                                 “Cygnus
Intellectual Property Rights” has the meaning set forth in Section 8.2(b).


 


1.7                                 “Cygnus
Know-How” shall mean all information and data, technical information, trade
secrets, specifications, instructions, processes, formulae, materials,
expertise and information (whether or not patentable) relating to the Product,
processes for its manufacture, its manufacture, development, use or marketing
or methods of using the Product known to Cygnus, an Affiliate, designee,
licensee or sublicensee thereof as of the Effective Date or developed or
acquired by Cygnus, an Affiliate, designee, licensee or sublicensee thereof at
any time during the Term.


 


1.8                                 “Cygnus
Patent Rights” shall mean all U.S. patent rights owned or controlled by or
licensed to Cygnus or an Affiliate thereof, as of the Effective Date or at any
time during the Term, relating to the Product, including, but not limited to,
its development, processes for its manufacture, use of the Product or methods
of using the Product as well as any improvements thereof.  Cygnus Patent Rights shall include all U.S.
patents and U.S. patent applications, all U.S. divisionals, U.S. continuations,
U.S. substitutions, U.S. continuations-in-part, U.S. re-examinations, U.S.
reissues, U.S. extensions, U.S. registrations and the like of the foregoing.  Cygnus Patent Rights shall also include
Cygnus’, or any Affiliate’s, share of any U.S. patent rights relating to the
Product jointly owned by Cygnus or such Affiliate of Cygnus.  Attached hereto as Exhibit B is a list of
U.S. patents owned by Cygnus or licensed by Cygnus relating to the Product as
of the Effective Date.  Cygnus will
update such U.S. patents relating to the Product on an annual basis during the
Term of the Agreement, which such updates shall replace Exhibit B hereto.  Cygnus Patent Rights shall not include any
patent rights outside of the United States.


 


1.9                                 “Cygnus
Trademarks” has the meaning set forth in Section 9.1.


 


1.10                           “Effective
Date” is the date first set forth above in this Agreement.


 


1.11                           “FDA”
means the U.S. Food and Drug Administration, and any successor United States
governmental agency or division thereof responsible for approving a Product in
the Territory.


 


1.12                           “Net
Sales by Cygnus” means gross revenues in such period as measured by the gross
invoice amount for the Product sold to third-party customers other than Sankyo,
excluding any repair Product and further excluding any sales tax and other
non-Product charges, invoiced to third-party customers by Cygnus, its
Affiliates, designees (“designee” shall include any entity providing
fulfillment services for Cygnus), licensees, or sublicensees or any other third
party who shall have rights to sell the Product in the Territory less the
following items as determined in accordance with U.S. generally accepted
accounting principles (GAAP):


 


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(a)                                  cash
discounts;


 


(b)                                 credits
or allowances given or made on account of price adjustments, rebates (including
Medicaid or other government programs, chargebacks, and contractual agreements),
or volume reimbursements;


 


(c)                                  any
and all credits or allowances given or made on account of returns of  Product;


 


(d)                                 deductions
for bad debt and collection charges relating thereto; and


 


(e)                                  direct
shipping and handling expenses for the Product incurred by Cygnus, to the
extent such expenses are not billed separately to third-party customers until
one year after the initial Product Launch Date for the AutoSensor and six (6)
months after the launch of the GlucoWatch® G2TM Biographer provided
that all Regulatory Approvals, if any, have been obtained.


 


1.13                           “Net
Sales by Sankyo” means gross revenues in such period as measured by the gross
invoice amount for the Product, excluding any sales tax, invoiced to
third-party customers by Sankyo less the following items as determined in
accordance with U.S. generally accepted accounting principles (GAAP):


 


(a)                                  cash
discounts;


 


(b)                                 credits
or allowances given or made on account of price adjustments, rebates (including
Medicaid or other government programs, chargebacks, and contractual
agreements), or volume reimbursements; and


 


(c)                                  any
and all credits or allowances given or made on account of returns of Product.


 


For purposes of this Agreement,
“Net Sales” not qualified by either “by Cygnus” or “by Sankyo” shall refer to
the aggregate of Net Sales by Cygnus and Net Sales by Sankyo.


 


1.14                           “Product
Launch Date” shall be defined as April 1, 2002.


 


1.15                           “Product”
means any of Cygnus’ reverse iontophoresis (i.e., using electric current for
sampling a substance from a human) glucose monitoring products, including, but
not limited to, such Product covered by any claim of Cygnus Patent Rights, such
as, for example, the GlucoWatch® Biographer System approved by the
FDA on March 22, 2001 consisting of the Biographer (the primary, re-usable
glucose monitoring component) and the AutoSensor (the disposable, glucose
monitoring component, sold either alone or in combination with a Product) and
Accessories (wherein “Accessories” are defined as items that specifically
relate to the Product) and upgrades thereto, as well as any other Cygnus
reverse iontophoresis glucose monitoring products receiving Regulatory Approval
and sold during the Term (such as, for example, “GlucoWatch® G2TM
Biographer,” a Product approved by the FDA on March 21, 2002, and “Gemini,” a
Product having the durable and consumable components physically separated and
in wireless communication).  The term
“Product” is used in the singular throughout this Agreement, but is meant to
include the singular and plural.  Additionally,
there may be multiple Products covered by this Agreement.


 


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1.16                           “Proprietary
Information” of a party means


 


(a)                                  all
inventions, processes, materials, know-how and ideas of such party including but
not limited to Cygnus Intellectual Property Rights;


 


(b)                                 non-public
financial information concerning such party;


 


(c)                                  in
the case of Cygnus, among other information, Cygnus’ research and development
and  new product plans, and, in the case
of Sankyo, among other information, Sankyo’s Sales, Marketing and Distribution
Plans, unless and until publicly announced;


 


(d)                                 in
the case of Cygnus until such time as Sankyo assumes distribution pursuant to
Section 3.1, the customer list of purchasers of the Product; and, in the case
of Sankyo, the list of health care professionals who are called on or targeted
by Sankyo and after such time as Sankyo assumes distribution pursuant to
Section 3.1,the customer list of purchasers of the Product; and


 


(e)                                  any
other information designated as confidential by such party in writing; provided
that no oral or visual communications shall be deemed confidential unless
confirmed in writing to be so within thirty (30) calendar days of the time such
information is orally or visually communicated (however such information shall
be maintained as confidential during this thirty (30) calendar day period), and
provided further that Proprietary Information shall not include any information
that is:


 


(i)                                     already
in the possession of the receiving party at or before the time of disclosure
hereunder as shown by the receiving party’s files existing at the time of
disclosure antedating the date of disclosure; or


 


(ii)                                  now
or hereafter publicly known or otherwise known by the receiving party through
no wrongful act of the receiving party (provided that if Proprietary
Information becomes publicly known, this shall not excuse a prior disclosure by
the receiving party); or


 


(iii)                               lawfully
received by the receiving party from a third party without obligation of
confidence; or


 


(iv)                              developed
by the receiving party or its Affiliates independent of any disclosure made
hereunder as shown by the receiving party’s files; or


 


(v)                                 required
by law to be disclosed by the receiving party, provided that the disclosing
party is given ten (10) calendar days written notice of the legal requirement.


 


1.17                           “Regulatory
Approval” of a Product means FDA approval to sell such Product in the
Territory.


 


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1.18                           “Sales,
Marketing and Distribution Plan” shall mean, for any period, a written plan
that has been reviewed by the Steering Committee as defined in Section 7.1 and
sets forth for such period the plan and budget for the detail levels,
advertising, marketing and sale of the Product, including a Product sales
forecast for the upcoming year.  Sankyo
will be responsible for developing Sales, Marketing and Distribution Plans.


 


1.19                           “Sales
Year” shall mean, with respect to the first Sales Year, the twelve (12) month
period commencing on the Product Launch Date and, with respect to subsequent
Sales Years, each successive twelve (12) month period thereafter.


 


1.20                           “Sankyo
Gross Profit” is equal to Net Sales by Sankyo minus the Transfer Price (as
defined in Section 5.4(b)) and minus Sankyo’s out of pocket distribution costs
(which such out of pocket distribution costs shall not exceed *** of the
published Wholesale Acquisition Cost).


 


1.21                           “Term”
has the meaning set forth in Section 11.1.


 


1.22                           “Territory”
means the United States and its territories and commonwealth possessions only
and does not include any other countries.


 


2.                                      RIGHT
OF SALES AND MARKETING


 


2.1                                 Appointment.  Cygnus hereby grants to Sankyo the exclusive
right to sell and market the Product in the Territory during the Term upon the
terms and conditions set forth herein. Cygnus also grants to Sankyo an
exclusive license under the Cygnus Intellectual Property Rights to offer for
sale and sell the Product in the Territory during the Term, and a non-exclusive
license under the Cygnus Intellectual Property Rights to use the Product in the
Territory during the Term, only as set forth under the terms and conditions of
this Agreement. Additionally, Cygnus grants to Sankyo a non-exclusive license
to manufacture or have a third-party manufacture the Product for sale in the
Territory during the Term, and a non-exclusive license under the Cygnus
Intellectual Property Rights to make and have made the Product for sale in the
Territory during the Term, provided however that Sankyo will only manufacture
or have a third-party manufacture the Product for sale in the Territory in the
event that either an Anticipatory Breach as defined in Section 14.1 has
occurred and the conditions of Section 14.2 have been met, or Sankyo exercises
its option to manufacture under Section 5.4(h).  Notwithstanding these rights granted to Sankyo, (i) Cygnus or its
designee shall continue to take and fulfill orders and receive payment for the
Product until such time as Sankyo assumes distribution responsibilities under
Section 3.1; and (ii) Cygnus, its Affiliates, designees, licensees and/or its
sublicensees may promote the Product in the Territory through the use of
additional field sales personnel to detail health care professionals.  In the event that Cygnus utilizes the
services of such Affiliates, designees, licensees and/or sublicensees in the
Territory, then Cygnus shall obtain the prior written consent of Sankyo before
entering into an agreement or other business arrangement with such third party
and, if such consent is obtained, Cygnus shall provide Sankyo under
confidentiality with the terms and conditions of the agreement or other
business relationship.  Sankyo’s consent
shall not be unreasonably withheld, and Sankyo shall have reasonable grounds to
withhold consent in the event such third party is a competitor of Sankyo. Any
and all sales generated as a result of 


 












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Cygnus efforts under
subparagraphs (i) and (ii) of this Section 2.1 shall be included in the
calculation of Net Sales.  Sankyo shall
have no rights, whether explicit or implied, to the Product outside of the
Territory under any term or condition of this Agreement.


 


2.2                                 Consideration.  In consideration of Cygnus’ grants to Sankyo
of a right of sales and marketing, a right of distribution, and a right of
manufacture, all pursuant to Section 2.1, Sankyo shall pay to Cygnus milestone
payments totaling fifteen million dollars ($15,000,000) as follows: (i) twelve
and one-half million dollars ($12,500,000) within ten (10) calendar days of the
Effective Date of this Agreement, and (ii) 
two and one-half million dollars ($2,500,000) within ten (10) calendar
days of Cygnus’ supplemental PMA application (FDA number P990026/S08), for use
of the GlucoWatch® Biographer in children and adolescents (ages 7-17) being
approved by the FDA.


 


2.3                                 Payments.  In consideration for Sankyo’s sales and
marketing activities in the Territory under Section 4.1 during the Term and
commencing on the Product Launch Date, Cygnus shall pay to Sankyo as to each of
the first *** following the Product Launch Date, a fee equal to *** of all Net
Sales of the Product in the Territory minus Sankyo Gross Profit; as to the each
of the next *** thereafter, a fee equal to *** of all Net Sales of the Product
in the Territory minus Sankyo Gross Profit; and thereafter for the remainder of
the initial Term for each Calendar Quarter, a fee equal to *** of all Net Sales
of the Product in the Territory minus Sankyo Gross Profit (the “Sales and
Marketing Fee”).  Commencing on January
1, 2007, in the event that Sankyo Net Sales exceeds *** in any given Calendar
Year, then Cygnus shall pay to Sankyo as to only each of the *** immediately
following that Calendar Year, a Sales and Marketing Fee equal to *** of all Net
Sales of the Product in the Territory minus Sankyo Gross Profit. If this
Agreement is extended pursuant to Section 11.1, the parties will negotiate in
good faith the Sales and Marketing Fee for subsequent periods.


 


2.4                                 Deferral
of Payments.  For the first three (3)
Sales Years of this Agreement, if “Cygnus Product Profit,” as defined below, in
any Sales Year is a negative amount, the payment of the Sales and Marketing Fee
shall be deferred and payable out of future Cygnus Product Profit, as defined
below, earned before April 1, 2008. 
Regardless of Cygnus Product Profit, all deferred Sales and Marketing
Fees will be payable in full on April 1, 2008. 
After the first three (3) Sales Years, regardless of Cygnus Product
Profit, all subsequent Sales and Marketing Fees shall be due and payable as set
forth in Section 2.5.  “Cygnus Product
Profit” for any Sales Year is defined as the Transfer Price of the Product (as
defined in Section 5.4(b)) invoiced to Sankyo during that Sales Year less each
of the following: (a) Cygnus’ variable cost of goods of the Product during that
Sales Year; (b) the Sales and Marketing Fee for that Sales Year due Sankyo
under this Agreement; and (c) Cygnus’ operating expenses associated with the
Product during that Sales Year, including but not limited to, Cygnus’ research,
development, fixed manufacturing, customer service, and general and
administrative costs and expenses, and other costs associated with the
fulfillment of Cygnus’ obligations under Section 5.1, and a twelve (12)-year
amortization of Cygnus’ past research and development expenses associated with
the Product, provided however that the amount in this Section 2.4(c) shall not
exceed ***.  Commencing 


 












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upon the date that the combined
amount of (x) deferred Sales and Marketing Fees and (y) Advertising and
Promotion Amount reimbursement under Section 5.1(k) equals or exceeds ***,
Cygnus shall grant Sankyo a first lien and security interest in Cygnus-owned
issued U.S. Patents as set forth on Exhibit A hereto, and Sankyo will, at its
sole cost, file its interest, and release its interest at such time as Cygnus
has fully paid all such deferred Sales and Marketing Fees and Advertising and
Promotion Amount reimbursement, with the U.S. Patent and Trademark Office.  Furthermore, commencing upon the Effective
Date of this Agreement until such time as Cygnus has fully paid all such
deferred Sales and Marketing Fees and Advertising and Promotion Amount
reimbursement, Cygnus shall abide by the Negative Covenants set forth in
Exhibit D hereto. In the event that this Agreement shall terminate under
Section 11.1, Section 11.2, Section 11.3, Section 11.4 and
Section 11.5, and termination by Cygnus under Section 11.6, any and all
deferred Sales and Marketing Fees and Advertising and Promotion Amount
reimbursement shall become due and payable.  
Within fifteen (15) calendar days after Cygnus files with the U.S.
Securities and Exchange Commission its quarterly (10-Q) financial report for
the last Calendar Quarter within a given Sales Year, Cygnus will report in
writing to Sankyo as to the Cygnus Product Profit for the previous Sales Year.


 


2.5                                 Reports
and Payments. Until such time as Sankyo assumes distribution pursuant to
Section 3.1, within thirty (30) calendar days of the end of each Calendar
Quarter, Cygnus shall provide a written statement to Sankyo of Net Sales by
Cygnus of the Product in the Territory during such Calendar Quarter.  Thereafter, within thirty (30) calendar days
of the end of each Calendar Quarter, Sankyo shall provide Cygnus a written
statement of Net Sales by Sankyo of the Product in the Territory during such
Calendar Quarter.  Such written
statements shall include gross revenues of the Product and all itemized
deductions and calculated Net Sales as described in Section 1.12 and Section
1.13.  Such written statement shall also
be signed by a duly authorized representative of the party on behalf of that
party and shall show such Net Sales during such Calendar Quarter, and the
amount due and payable to Sankyo pursuant to Section 2.3.  Net Sales shall be calculated as set forth
in Section 1.12 and Section 1.13 and shall be consistent with accounting
methods used by Cygnus and/or Sankyo in preparing and maintaining its books and
records.  Except as set forth in Section
2.4, Cygnus shall make the payments specified in Section 2.3 to Sankyo on a
quarterly basis within thirty (30) calendar days after the end of each Calendar
Quarter if the payments are based on Net Sales by Cygnus, and within fifteen
(15) calendar days after receipt of the written statement of Net Sales by
Sankyo, during the Term with respect to amounts that become due and payable
during the preceding quarter.


 


2.6                                 Manner
of Payment.  All payments to Sankyo
under Section 2.3 shall be made by wire transfer in U.S. dollars.  Late payments shall bear interest at the
lower of (a) the prime rate as quoted from time to time by Bank of America plus
1%, or (b) the maximum rate permitted by law.


 












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3.                                      RIGHT
OF DISTRIBUTION


 


3.1                                 Appointment.  Cygnus will terminate its Services Agreement
dated May 7, 2002 with Express-Med with respect to Group II states as set forth
on Exhibit A to such Services Agreement, and will not renew its agreement with
respect to Group I states (which expires on November 30, 2002).  In addition, as of the date Sankyo provides
written notice of its ability to assume distribution responsibilities under
this Agreement, Cygnus will not produce any further promotional materials
directing patients to order Products through Express-Med.  Pursuant to Section 3.2 and Section 3.3,
Cygnus agrees that it will terminate its existing Warehouse Distribution
Contract with UPS Supply Chain Management, Inc. dated August 25, 2000 and, upon
such termination, Cygnus will grant to Sankyo the non-exclusive right during
the Term to distribute the Product in the Territory.  Upon the expiration of the Express-Med Services Agreement, such
non-exclusive right shall become an exclusive right to distribute the Product
in the Territory during the Term under the terms and conditions herein.


 


3.2                                 Subject
to Section 3.1, Cygnus shall give notice of termination of the Express-Med
Group II states and the UPS Warehouse Distribution Contract within ten (10)
calendar days after receipt of written notice from Sankyo of Sankyo’s ability
to assume distribution responsibilities under this Agreement.


 


3.3                                 Subject
to Section 3.1, Cygnus shall attempt to make the termination of the UPS
Warehouse Distribution Contract effective immediately upon such notice.  Any early termination fee or similar sum
will be Cygnus’ sole responsibility.


 


4.                                      RESPONSIBILITIES
AND OBLIGATIONS OF SANKYO


 


4.1                                 During
the Term, and with respect to each Product in the Territory for which
Regulatory Approval has been obtained, Sankyo will at its sole cost and
expense:


 


(a)                                  use
its commercially reasonable efforts to market, sell and support (through
education and training of health care professionals and customers) the Product
on a continuing basis;


 


(b)                                 comply
with good business practices and all applicable laws and regulations;


 


(c)                                  promptly
notify Cygnus or its designee of any Product complaints or adverse patient
reactions according to Section 4.3 and any actual or potential governmental
actions relevant to any Product;


 


(d)                                 not
make any false claims, representations, warranties or guarantees to any third
party with respect to the specifications, features, capabilities or intended
use of the Product;


 


(e)                                  deploy
initially a minimum of fifty (50) of its specialty sales representatives to
sell the Product and, by January 1, 2003 and thereafter, deploy a minimum of
one hundred (100) of its specialty sales representatives to sell the Product.  These specialty sales representatives will
target high potential physicians for the Product 


 


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(defined as
*** and will deliver a minimum of *** first position Product details to high
potential physicians and associated health care professionals in 2002 and ***
first position Product details annually thereafter;


 


(f)                                    commencing
January 1, 2003, provide support in the minimum form of third position details
through its national primary care sales representatives (currently approximately
450 primary care sales representatives, which approximate number is to be
maintained or increased during the Term of this Agreement unless Sankyo
provides a commercially reasonable basis for decreasing this number);


 


(g)                                 support
the sales forces set forth in Section 4.1(e) and Section 4.1(f) through its
sales operations and training programs, personnel and systems;


 


(h)                                 utilize
its managed care personnel (currently approximately 20 managed care
specialists, which approximate number is to be maintained or increased during
the Term of this Agreement unless Sankyo provides a commercially reasonable
basis for decreasing this number) to conduct and administer contracting and
pull-through programs within managed care accounts;


 


(i)                                     utilize
its medical manager group (currently approximately 20 personnel, which
approximate number is to be maintained or increased during the Term of this
Agreement unless Sankyo provides a commercially reasonable basis for decreasing
this number) to support the activities of the sales forces set forth in Section
4.1(e) and Section 4.1(f) as well as the managed care personnel set forth in
Section 4.1(h);


 


(j)                                     prepare
all marketing, sales, educational, training and communication materials,
graphical treatment of Product labeling (excluding the Patient Information
Sheet),  including Product websites
(e.g., glucowatch.com and other website domain names having glucowatch therein
and owned by Cygnus), subject to review by Cygnus through a designated person
who will participate in Sankyo’s review process, for marketing and sale of the
Product to consumers, third-party distributors, managed care organizations,
health care professionals,  (the “Sales
and Marketing Materials”). Sankyo shall include the trademarks and/or company
logos of Cygnus on such Sales and Marketing Materials;


 


(k)                                  develop
and produce sales force training materials for the Sankyo sales force;


 


(l)                                     spend
a minimum of ten million dollars ($10,000,000) in Advertising and Promotional
Amount as defined in Section 1.1, and subject to Section 5.1(k), in the
calendar year 2002. For the calendar year 2002, Cygnus’ “Promotional Amount” as
defined in Section 1.16 of the Co-Promotion Agreement of November 28, 2001,
spent in 2002 will apply toward this minimum amount for 


 












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2002.  Beginning January 1, 2003, Sankyo will spend
a minimum of *** on an annualized basis per calendar year in Advertising and
Promotional Amount;


 


(m)                               prepare
a Sales, Marketing and Distribution Plan as set forth in Section 1.18;


 


(n)                                 distribute
the Product in the Territory during the Term pursuant to Section 3.1, and shall
enter into, and administer, agreements with third-party distributors, including
but not limited to wholesale distributors, retail distributors and durable
medical equipment distributors;


 


(o)                                 keep
for five (5) years after termination of this Agreement records of information
relating to the Product; and


 


(p)                                 market,
sell and distribute the Products to the total and complete exclusion of any and
all Competitive Product.


 


4.2                                 Reports.  At least quarterly and whenever reasonably
requested by Cygnus, Sankyo will provide Cygnus with all current sales and
marketing information relating to the Product, including, without limitation, a
confidential written summary describing the number and type of details
performed, as well as any research and competitive analysis.  Sankyo will on a daily basis provide Cygnus
a copy of its daily sales report, which is generated by Sankyo in the ordinary
course of business.  In addition, upon
reasonable request by Cygnus, Sankyo will provide Cygnus with current
confidential information regarding potential medical professionals contacted by
Sankyo.  All reports provided by Sankyo
to Cygnus shall be treated as Proprietary Information unless otherwise agreed
to in writing by Sankyo.


 


4.3                                 Adverse
Event Reporting (“AER”). Sankyo shall report all suspected AERs to Cygnus’
Regulatory Department or its designee, via telephone at 1-866-GLWATCH or to
such other number as Cygnus may designate, as soon as possible but in no event
later than two (2) business days of receipt of such information by any employee
of Sankyo. For the purposes of this Section 4.3, AER shall mean any adverse
medical event in or complaint by a patient who uses the Product (as defined by
Parts 803 and 820 of the U.S. Code of Federal Regulations Chapter 21 and any
other applicable definitions in regulations promulgated by the FDA) that
require reporting by Cygnus to the FDA. 
If requested, Sankyo will make reasonable efforts to assist Cygnus, or
its designee, in obtaining AER follow-up information from reporters initially
identified by Sankyo.  Cygnus shall
retain responsibility for all FDA reporting requirements, and Sankyo shall have
no responsibility to report any AER to the FDA.


 


5.                                      RESPONSIBILITIES
AND OBLIGATIONS OF CYGNUS


 


5.1                                 During
the Term and with respect to each Product in the Territory, Cygnus will at its
sole cost and expense:


 












*** Certain information on this
page has been omitted and filed separately with the Commission.  Confidential treatment has been requested
with respect to the omitted portions.


 


11

















 


(a)                                  use
its commercially reasonable efforts to conduct all research, development,
legal, clinical and regulatory (including labeling) activities relating to the
Product;


 


(b)                                 use
its commercially reasonable efforts to obtain and maintain Cygnus Intellectual
Property Rights, maintain the UC License Agreement, maintain the glucowatch.com
domain name and other website domain names having glucowatch.com therein and
owned by Cygnus, and obtain and maintain all Regulatory Approvals in the
Territory relating to the Product;


 


(c)                                  prepare
all Product labeling including patent marking, provided that Sankyo’s name and
corporate logo, in a size comparable to the size of Cygnus’ name and corporate
logo, will be added to the Product labeling as soon as practicable after Sankyo
assumes distribution pursuant to Section 3.1, and determine the Product name;


 


(d)                                 handle
warranty obligations for the Product, in accordance with the terms of the
product warranty provided with the Product;


 


(e)                                  provide
all customer support (wherein customer support is in the form of telephonic,
email and mail consultation to patients who have purchased the Product);


 


(f)                                    provide
technical information to Sankyo so that Sankyo can develop and produce
training, and sales and marketing materials;


 


(g)                                 provide
Sankyo with a copy of all reported AERs and provide Sankyo a monthly summary of
the customer service and technical support inquiries;


 


(h)                                 continue
to use its commercially reasonable efforts to develop and obtain Regulatory
Approval for additional indications and future Products;


 


(i)                                     take
and fulfill orders and receive payment for Product sold to third-party
customers pursuant to Section 2.1(i) until such time as Sankyo assumes
distribution pursuant to Section 3.1;


 


(j)                                     be
responsible for any advertising and promotional costs incurred by Cygnus, its
Affiliates, designees, licensees and/or sublicensees, in the event that Cygnus,
its Affiliates, designees, licensees and/or sublicensees promote the Product
pursuant to Section 2.1(ii), and such promotional costs will not be applied to
the Advertising and Promotional Amount. 
Furthermore, in such event, marketing direction for the Product will be
provided by Sankyo; and


 


(k)                                  reimburse
Sankyo for Sankyo’s Advertising and Promotion Amount for the 2002 calendar
year, wherein such reimbursement amount will not exceed  ten million dollars ($10,000,000) minus the
amount spent by Cygnus in 2002 for its “Promotional Amount” as defined in
Section 1.16 of the Co-Promotion Agreement of November 28, 2001.  Cygnus shall notify Sankyo in 2003 of such 


 


12

















 


Promotional
Amount spent by Cygnus in 2002, and Sankyo will then invoice Cygnus for the reimbursement
amount.


 


5.2                                 Regulatory
Notification to Sankyo.  During the Term
Cygnus will notify Sankyo promptly (and in any event within two (2) business
days) of its receipt of information from the FDA:


 


(a)                                  that
raises any material concerns regarding the safety or effectiveness of the
Product or would affect Product labeling;


 


(b)                                 that
indicates a material liability for either party arising in connection with the
Product;


 


(c)                                  that,
in Cygnus’ opinion, is reasonably likely to lead to a recall or market withdrawal
of the Product.  Information that shall
be disclosed pursuant to this Section 5.2 shall include, but not be limited to,
the items in Section 5.2(e) and (f);


 


(d)                                 of
any materially adverse action of the FDA or any other governmental or
regulatory authority in the Territory relating to:


 


(i)                                     inspections
of manufacturing, distribution or other related facilities;


 


(ii)                                  inquiries
concerning clinical investigation activities (including inquiries of
investigators, clinical monitoring organizations and other related parties);
and


 


(iii)                               any
communication specifically involving the manufacture, marketing, sale,  or distribution of the Product or any other
reviews or inquiries relating to the Product;


 


(e)                                  of
a receipt of a “Warning Letter” or other correspondence relating to the Product
from the FDA or any other governmental or regulatory authority in the
Territory; and


 


(f)                                    of
an initiation of any governmental or regulatory authority investigation,
detention, seizure or injunction concerning the Product in the Territory.


 


5.3                                 Recalls
or Other Corrective Action.  Cygnus
shall have sole responsibility and shall make all decisions in its sole
discretion with respect to any recall, market withdrawals or any other
corrective action related to the Product, including the right to cease all
sales of Product in the Territory or the sales and marketing of the Product in
the Territory.  Cygnus shall promptly
notify Sankyo of all recalls and all other decisions or notifications (including,
without limitation, notifications to or from the FDA) relating to recalls,
market withdrawals or other such corrective action relating to the
Product.  At Cygnus’ request, Sankyo
shall use its commercially reasonable efforts to assist Cygnus in conducting
such recall, market withdrawal or other corrective action, and any documented
out-of-pocket costs incurred by Sankyo with respect to participating in such
recall, market withdrawal or other corrective action shall be reimbursed by
Cygnus.  In the event that a Product
recall, market withdrawal or corrective action results in the situation where
there 


 


13

















 


are no Net Sales of any Product
due to Product recall, market withdrawal or corrective action, then the Term
will be extended for twice the number of days such recall, market withdrawal or
corrective action is in effect, however, the Advertising and Promotional Amount
set forth in Section 4.1(l) shall be suspended during the time period where
there are no Net Sales of any Product. 
In the event that there are no Net Sales of any Product for six (6)
months, then Sankyo may terminate this Agreement pursuant to Section 11.3.


 


5.4                                 Supply.


 


(a) Supply
Agreement. The parties will execute a supply agreement within thirty (30)
calendar days from the Effective Date of this Agreement containing the terms
and conditions set forth below and other such terms and conditions that are
customarily found in an agreement of this nature (the “Supply Agreement”).


 


(b) The price
at which Cygnus will sell the Product to Sankyo (the “Transfer Price”) will be,
for the first *** following the Product Launch, the greater of *** of the
published Wholesale Acquisition Cost or the amounts set forth in Exhibit C
hereto, for the subsequent ***, the greater of *** of the published Wholesale
Acquisition Costs or the amounts set forth in Exhibit C hereto, and thereafter
for the remaining Calendar Quarters in the initial Term, the greater of *** of
the published Wholesale Acquisition Cost or the amounts set forth in Exhibit C
hereto.  From time to time, the parties
may amend the amounts set forth in Exhibit C as mutually agreed. If this
Agreement is extended pursuant to Section 11.1, the parties will negotiate
in good faith the Transfer Price for subsequent periods.


 


(c) The price
at which Cygnus will sell the Product to Sankyo for use as professional samples
or as practice units will be Cygnus’ Product material and labor costs.


 


(d) Sankyo
will provide Cygnus rolling twelve (12)-month forecasts for the Product in the
Territory, which will be updated on a quarterly basis.  Such forecasts will take Cygnus’
manufacturing capacities into account, and will contain binding and non-binding
forecasts, to be set forth in the Supply Agreement.  Furthermore, to ensure that there is no interruption of supply to
Product customers, Sankyo will maintain a minimum of three (3) months inventory
during the first three (3) Sales Years and a minimum of two (2) months
inventory during the next three (3) Sales Years.  Sankyo will place orders at least one (1) Calendar Quarter in
advance, and Sankyo will pay Cygnus fifty percent (50%) of the Transfer Price
upon placement of such orders and will pay the remaining fifty percent (50%) of
the Transfer Price upon acceptance of shipment.


 


(e) In the
case of returned Product from patients under Cygnus’ warranty policy, Cygnus
will provide the Patient with either a replacement or repair.  In all other cases, the Supply Agreement
will set forth the terms and conditions of such returns.


 


(f) The
parties will enter into a mutually agreed upon Quality Agreement that will
contain provisions including but not limited to document retention, deviations
and out-of-specification 


 












*** Certain information on this
page has been omitted and filed separately with the Commission.  Confidential treatment has been requested
with respect to the omitted portions.


 


14

















 


results, audit and inspection
rights, Product acceptance/release/Certificate of Analysis requirements,
quality control, FDA reporting requirements, and the like.


 


 (g) Cygnus shall use its commercially
reasonable efforts to supply Product (for trade purposes, practice units and
samples) during the Term in sufficient quantities to meet forecasted amounts of
demand set forth in the Sales, Marketing and Distribution Plan.  Cygnus will, from time to time, at Sankyo’s
written request, promptly inform Sankyo of all material problems relating to
Cygnus’ inventory levels and ability to continue supply of the Product to meet
forecasted amounts of demand set forth in the Sales, Marketing and Distribution
Plan.


 


(h) Failure of
Supply. Option to Manufacture.  In the
event that for any reason (other than by a Force Majeure Act, as defined in
Section 15.10), (i) Cygnus is unable to supply on a timely basis at least
seventy-five percent (75%) of the volume of all-ordered Product during a
Calendar Quarter and (ii) such orders are not greater than the forecasted
Product requirements included in the then current Sales, Marketing and Distribution
Plan, then the Term will be extended for twice the number of days Cygnus is
unable to supply on a timely basis at least seventy-five percent (75%) of the
volume of all-ordered Product.  In the
event that the failure to supply continues for six (6) months, then Sankyo has
the option, at its sole discretion, to either terminate this Agreement pursuant
to Section 11.4 or exercise its right to manufacture or have manufactured the
Product for sale in the Territory during the Term pursuant to Section 2.1.  From time to time, the parties will exchange
information relating to orders, inventory levels and backlog.


 


6.                                      OBLIGATIONS
OF BOTH PARTIES


 


6.1                                 Records
and Audit Rights.  Each party shall keep
and maintain complete and accurate books and records reflecting all information
necessary or useful in verifying the accuracy of all reports delivered and
payments made under this Agreement and such books and records are proprietary
to that party.  Each party (the
“Auditing Party”) shall have the right to audit, or cause its independent
auditor to audit, the books and records of the other party (the “Audited
Party”) as they relate to such reports and payments, provided that any
accountant agrees in writing to keep all information confidential, except as
needed to disclose any discovered discrepancies and provided further that such
audit:


 


(a)                                  is
conducted during normal business hours;


 


(b)                                 is
conducted no more often than once per year (unless a discrepancy resulting in a
payment in excess of one hundred thousand dollars ($100,000) is discovered in
favor of the Auditing Party, in which case the audits may be conducted
semi-annually);


 


(c)                                  is
conducted only after the Auditing Party has given ten (10) calendar days prior
written notice to the Audited Party. The Auditing Party shall bear the full
cost and expense of such audit, unless a discrepancy resulting in a payment in
excess of the one hundred thousand dollars ($100,000) in favor of the Auditing
Party is discovered, in which event the Audited Party shall bear the full cost
and expense of such audit, however this amount shall not exceed fifty thousand
dollars ($50,000) and any costs or expenses in excess of this amount shall be
borne by the 


 


15

















 


Auditing
Party.  Regardless of the amount of
discrepancy discovered, all discrepancies (and interest thereon) shall be
immediately due and payable by the party found to have caused the discrepancy.
All books and records relating to either party’s obligations under this
Agreement shall be retained by such party for five (5) years after the Term;
and


 


(d)                                 in
the case of a dispute as to the alleged discrepancy found, the parties shall
hire an independent third-party accountant and shall bear equally the costs or
expenses of such independent third-party accountant.


 


6.2                                 Insurance.  During the Term and in the Territory, Cygnus
and Sankyo each will purchase and maintain in full force and effect, with a
responsible insurance carrier, the insurance coverage and amounts typical in
the medical devices industry for the type of activities performed by each of
the parties for similarly positioned and sized companies.  Specifically, Cygnus will be solely
responsible for insuring against product liability claims arising from, or
relating to, the Product in the Territory. 
Cygnus shall maintain product liability insurance throughout the Term in
an amount of at least *** on a “per occurrence” basis with an insurance company
rated at least A-3 by Best’s rating guide. Sankyo shall be added as an
additional insured on Cygnus’ product liability insurance policy.  Sankyo shall maintain all insurance
necessary for its obligations throughout the Term in the Territory in an amount
of at least *** on a “per occurrence” basis with an insurance company rated at
least A-3 by Best’s rating guide. 
Cygnus shall be added as an additional insured of Sankyo’s insurance
policy.  Each party shall provide the
other with a certificate of insurance and shall keep such policy current.  Each such insurance policy shall provide for
at least thirty (30) calendar days prior written notice to Cygnus and Sankyo of
the cancellation or any substantial modification of the terms of coverage.


 


6.3                                 Governmental
Approvals; Compliance with Law. Cygnus and Sankyo each shall make all filings
with government authorities as shall be required by applicable laws in
connection with this Agreement and the activities contemplated hereunder.  In fulfilling its obligations under this
Agreement, Cygnus and Sankyo each agrees to comply in all material respects
with all applicable laws.


 


6.4                                 Cooperation.  The parties will work together to perform
their obligations under this Agreement. Sankyo may, upon reasonable advance
notice, at Sankyo’s cost, visit facilities where the Product is being
manufactured, stored, tested or shipped during normal business hours.  Cygnus may, upon reasonable advance notice,
have its personnel accompany the Sankyo sales force in the field to observe
Sankyo’s field sales activities relating to the Product and Cygnus may, from
time to time, contact health care professionals to obtain feedback on the
Product.  During the transition period
prior to Sankyo’s exclusive distribution of Product, the parties will work
together to facilitate an orderly transition, to keep each other informed of possible
overlapping activities, and to enter channels of distribution other than
direct-to-patient as soon as practicable. 
Throughout the Term of this Agreement, each party will execute all
necessary 


 












*** Certain information on this
page has been omitted and filed separately with the Commission.  Confidential treatment has been requested
with respect to the omitted portions.


 


16

















 


consents or other required
documents to enable the other party to perform its obligations hereunder.


 


6.5                                 Responsibility.  Other than the payments specifically set
forth in this Agreement, there shall be no other payments made by the parties
to each other.  Neither party shall be responsible
for the costs and expenses, whether external or internal and whether direct or
indirect, including salaries and travel, of the other party.


 


7.                                      MANAGEMENT
OF RELATIONSHIP


 


7.1                                 Steering
Committee.  Within twenty (20) calendar
days from the Effective Date, the parties will form a Steering Committee
consisting of three (3) people from each party (the “Steering Committee”).  A representative from each party shall serve
as co-chairpersons of the Steering Committee. 
The Steering Committee may establish one or more subcommittees as
appropriate. The Steering Committee shall meet at least quarterly, and shall
document their meetings in written minutes, to:


 


(a)                                  review
the sales, marketing and distribution of the Product in the Territory,
including a review and update of the Sales, Marketing and Distribution Plan at
least annually;


 


(b)                                 discuss
actions to foster the attainment of sales objectives;


 


(c)                                  review
current marketing, distribution, sales and pricing strategies, including amount
and form of discount and rebate programs;


 


(d)                                 coordinate  activities between Sankyo and Cygnus, its
Affiliates, designees, licensees and/or its sublicensees who are promoting the
Product for Cygnus pursuant to Section 2.1(ii);


 


(e)                                  review
Sankyo’s efforts to develop and implement strategies of institutional,
governmental and managed care marketing and contracting;


 


(f)                                    review
Cygnus’ obligations under Section 5.1 and receive updates from Cygnus on other
significant activities relating to its obligations under Section 5.1, including
an annual review of Cygnus Intellectual Property Rights in the Territory;


 


(g)                                 review
Cygnus’ proposed product development as set forth in Section 5.1(h) in light of
marketing issues regarding the Product;


 


(h)                                 review
Sankyo’s obligations under Section 4.1;


 


(i)                                     review,
and if necessary, amend the schedule set forth in Exhibit C hereto;


 


(j)                                     resolve
any disputes pursuant to Section 7.1; and


 


(k)                                  agree
upon the initial Sales, Marketing and Distribution Plan.


 


17

















 


Each party may change its
members of the Steering Committee at any time upon written notice, and each
party will cause its members of the Steering Committee to act reasonably, in
good faith and consistent with the terms and conditions of this Agreement.  The Steering Committee may take action only
by the unanimous written consent of all members, as indicated by all members
signing the written minutes.  If an
issue remains unresolved after good faith consideration by the Steering
Committee for thirty (30) calendar days, any Steering Committee member may
submit it to the Executive Officers of the parties for resolution. The initial
Sales, Marketing and Distribution Plan shall be mutually agreed upon by Sankyo
and Cygnus.


 


7.2                                 Executive
Officers.  Each party shall designate an
“Executive Officer” of its company who will be available in the event of any
dispute that has not been resolved by the Steering Committee in accordance with
Section 7.1. The Executive Officer must be at least at the level of an officer
of the company.  The initial Executive Officers
shall be designated within twenty (20) calendar days of the Effective
Date.  The Executive Officers shall
attempt in good faith to resolve any issue presented to them by the Steering
Committee.  In the event that an issue
relates to Cygnus’ particular manner of implementing its responsibilities and
obligations under Section 5.1, the Executive Officer from Cygnus shall make the
final determination.  In the event that
an issue relates to Sankyo’s particular manner of implementing its
responsibilities and obligations under Section 4.1, the Executive Officer from
Sankyo shall make the final determination. 
Any other issue will be deemed not to be resolved if the Executive
Officers are unable to resolve it within thirty (30) calendar days after
attempting in good faith to do so.


 


8.                                      REPRESENTATIONS,
WARRANTIES AND COVENANTS


 


8.1                                 Mutual
Representations.  Each party represents,
warrants and covenants to the other as follows:


 


(a)                                  Existence
and Authority.  It is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has the corporate power and authority to
execute, deliver and perform this Agreement. 
The execution of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on its part and do not conflict with the terms or conditions of any contract,
agreement, arrangement or understanding to which such party is subject.


 


(b)                                 Enforceability.  This Agreement is a valid and binding
obligation of said party, enforceable against it in accordance with its terms.


 


(c)                                  Litigation.  There is no action, suit, proceeding or
investigation pending or, to its knowledge, threatened before any court or
administrative agency against said party which could, directly or indirectly,
reasonably be expected to materially affect its ability to perform its
obligations hereunder or the marketability of the Product.


 


(d)                                 Compliance
with Laws.  Each party shall fully
comply in all material respects with all applicable federal, state and local
laws, rules, regulations or ordinances with respect to its obligations
hereunder and shall obtain and maintain all licenses, 


 


18

















 


permits,
approvals and other authorizations applicable to it in order to enable it to
perform its obligations hereunder.


 


8.2                                 Cygnus’
Representations.  Cygnus hereby
represents, warrants and covenants to Sankyo as follows:


 


(a)                                  Product
Specifications.  All sample Product
delivered by or for Cygnus to Sankyo or distributed by or for Cygnus and
Product manufactured, distributed or sold by or for Cygnus during the Term will
comply in all material respects with the specifications for the Product; will
comply in all material respects with all requirements of the FDA and other
applicable laws, rules and regulations; will not be adulterated or misbranded
and will have been determined to be safe and effective by the FDA for the
Product’s intended use under the U.S. Food, Drug and Cosmetic Act and
regulations issued thereunder or other applicable laws; and will have been
manufactured in all material respects in accordance with current good
manufacturing practices as provided in the U.S. Food, Drug and Cosmetic Act and
regulations issued thereunder This representation does not apply to Product
that has been mishandled, mistreated or used or maintained or stored by Sankyo
other than in conformity with Cygnus’ written instructions.


 


(b)                                 Intellectual
Property.  As of the Effective Date,
Cygnus has received no credible or material notices, threats, or warnings,
orally or in writing, alleging infringement or violation of any intellectual
property right of another party with respect to the Product and that the
Exclusive License Agreement for Device for Iontophoretic Non-Invasive Sampling
or Delivery of Substances between Cygnus and the University of California,
effective January 1, 1995, and any amendments thereto (the “UC License
Agreement”), remains in full force and effect. Additionally, Cygnus is not
aware of any patents, trademarks, copyrights or other intellectual property
rights of third parties that the initial Products (i.e., GlucoWatch®
Biographer  and GlucoWatch® G2TM
Biographer) would infringe in the Territory. 
To the best of its knowledge, Cygnus owns or possesses all right, title
and interest in and to, or has licenses to, all patents, know-how, trademarks,
copyrights, trade secrets and all other intellectual property of any nature
whatsoever relating to the Product, including but not limited to Cygnus Patent
Rights, Cygnus Trademarks, Cygnus Copyrights and Cygnus Know-How, required to
make, use, sell or offer for sale the Product in the Territory (collectively,
“Cygnus Intellectual Property Rights”). 
Except for any security interest granted to Sankyo pursuant to Section
2.4, Cygnus owns or has licenses to the Cygnus Intellectual Property Rights
free and clear of all liens, claims and encumbrances and free of all royalty or
similar payment obligations to any third party except for the University of
California.  Cygnus has not received any
notice concerning the institution or possible institution of any interference,
opposition, re-examination or reissue involving any of Cygnus Patent Rights.


 


(c)                                  Information
Disclosure.  Cygnus represents and
warrants to Sankyo that, as of the Effective Date, all documents, materials,
representations and other information provided to Sankyo by Cygnus concerning
the Product, including, without 


 


19

















 


limitation, with
respect to the FDA’s determination of safety and effectiveness of the Product,
are materially accurate, and, taken as whole, do not contain any statement
which is false or misleading in any material respect, and that Cygnus has not
omitted or failed to state any fact that would materially adversely affect
Sankyo’s or Cygnus’ ability to perform its obligations under this Agreement.


 


(d)                                 Other
Agreements.  As of the Effective Date,
Cygnus has not entered into any agreement or other business arrangement with a
third party for the marketing, sales, or offer for sale of the Product in the
Territory other than the U.S. Market Research Agreement with Lifescan, dated
February 22, 2001, and any amendments thereto; the Warehouse Distribution
Contract with UPS Supply Chain Management, Inc., dated August 25, 2000, and
amendments thereto; and into the Services Agreement with Express-Med, Inc.,
dated May 7, 2002 and amendments thereto.


 


8.3                                 Sankyo’
Representations.  Sankyo hereby
represents, warrants and covenants to Cygnus as follows:


 


(a)                                  Sales
Misconduct. As of the Effective Date, Sankyo has not received any notices or
citations from the FDA relating to misconduct or illegal sales and marketing
activities of its sales force with regard to any product. During the Term,
Sankyo will comply with all applicable laws and regulations relating to the
conduct of its sales force.


 


(b)                                 Product
Claims. All sales presentations by Sankyo and sales and marketing materials
provided or distributed by Sankyo shall comply in all material respects with
all applicable laws and regulations.


 


9.                                      INTELLECTUAL
PROPERTY


 


9.1                                 Trademarks.  Cygnus has applied for and/or registered in
the Territory the trademark “GLUCOWATCH,” “G2,” “G3” and “CYGNUS” that Cygnus
may use on one or more of the Products, and in the future will register or
otherwise protect additional trademarks, service marks, logos and other
designations relating to the Product in the Territory (collectively, “Cygnus
Trademarks”).  Cygnus shall be the sole
owner of all Cygnus Trademarks, and Sankyo has not and will not apply for
and/or register any trademarks relating to the Product. Each party hereby
grants to the other a nonexclusive right and license to use any trademark of
the party to permit the other party to meet its obligations under this
Agreement during the Term in the Territory. 
In the event Cygnus decides to stop marking the Product in the Territory
as “GLUCOWATCH,” Cygnus will first consult with Sankyo prior to making its
decision.


 


9.2                                 Rights
in Trademarks, Trade Names, Logos or Designations.  Sankyo acknowledges that it has paid no consideration for the use
of Cygnus Trademarks, and nothing contained in this Agreement shall give Sankyo
any right, title or interest in or to any of Cygnus Trademarks.  Sankyo acknowledges that Cygnus retains all
proprietary rights in all of Cygnus Trademarks, and Sankyo agrees that it will
not at any time during or after the Term assert or claim any interest or do
anything that might adversely affect the validity or enforceability of any Cygnus
Trademarks.


 


20

















 


9.3                                 Copyrights.  Cygnus owns its copyrights in
Cygnus-developed software, sales and marketing materials, Product labeling, and
other copyrightable materials published in connection with the development,
sales and marketing of the Product (“Cygnus Copyrights”).  Sankyo owns its copyrights in
Sankyo-developed software, sales and marketing materials, and other
copyrightable materials published in connection with the sales, marketing and
distribution of the Product (“Sankyo Copyrights”).  Each party hereby grants to the other a nonexclusive right and
license to use any copyright of the party to permit the other party to meet its
obligations under this Agreement during the Term in the Territory.


 


9.4                                 glucowatch.com.
Cygnus retains ownership of its website domain name, glucowatch.com and any
other website domain names having glucowatch therein and owned by Cygnus, and
Cygnus grants Sankyo an exclusive license right and license to use such domain
names during the Term of this Agreement, after Cygnus transitions its United
Kingdom information to another domain name other than glucowatch.com or any
other website domain names having glucowatch therein and owned by Cygnus.  The parties will work together to facilitate
this transition and to provide U.K. customers with a gateway to U.K.
information in a legally compliant manner. After the transition, but in any
case no later than sixty (60) calendar days after the Effective Date, Sankyo
will assume control over such website domain 
contents pursuant to Section 4.1(j).


 


9.5                                 Ownership.  As between the parties and subject to the
exclusion set forth in this Section 9.5, each party will be the sole owner of
the intellectual property rights in any invention made during the Term of which
only its employees and its third-party contractors are inventors, and each
party will jointly own the intellectual property rights in all inventions made
during the Term of which both parties, employees or contractors are joint inventors.  In the case of solely owned intellectual
property rights, each party will bear the cost and responsibility of such
rights.  In the case of jointly owned
intellectual property rights, the parties will share the cost and
responsibility in filing, prosecuting and maintaining such jointly owned
rights, which may be exploited and non–exclusively licensed to third
parties by either party without accounting to or further approval of the other
party. Inventorship on patent applications will be determined by U.S. patent
law.  If Sankyo, during the Term through
its employees or its third-party contractors, is an owner of, or a licensee
with a right to sublicense, any intellectual property rights relating to
reverse iontophoresis glucose monitoring, Sankyo hereby grants Cygnus a
royalty-free, non-exclusive, perpetual license in such intellectual property to
Cygnus, however Sankyo shall bear the cost and responsibility of filing,
prosecuting and maintaining such intellectual property rights.


 


9.6                                 Claim
of Infringement.  If Sankyo or Cygnus
(“Receiving Party”) receives a claim that any of the Product infringe upon a
patent or copyright in the U.S., or that any Cygnus Trademarks employed with a
Product infringe upon a registered trademark, service mark, logo or protectable
trade–dress of a third party in the U.S., the Receiving Party will notify
the other party promptly in writing to ensure that Cygnus has all necessary
information and assistance and the authority to evaluate and defend such claim.  Cygnus, at its sole and absolute discretion,
shall determine what course of action it wishes to take in defending such a
claim including but not limited to litigation, license and the like.  Cygnus warrants and represents that it shall
use its commercially reasonable efforts to secure a right to continue using the
Product in the Territory during the Term free of liability for infringement of
any third-party patent, copyright, trademark or any other intellectual property
right.  Royalties and other payments
associated with such right shall be borne by Cygnus.  Cygnus shall indemnify, defend and hold harmless Sankyo, and its 


 


21

















 


officers, directors, employees
and agents with respect to such claims in accordance with the terms and
conditions of Section 12.1 and Section 12.3.


 


9.7                                 Infringement
by Third Parties.  Each party shall
notify the other party in writing promptly upon its becoming aware of any
infringement by a third party of Cygnus Intellectual Property Rights utilized
in manufacturing, using, developing, supplying, importing, exporting,
marketing, distributing, co-promoting, offering for sale or selling the Product
in the Territory during the Term. 
Cygnus shall have the right, but not the obligation, to file and maintain
lawsuits in its own name for infringement by third parties of any Cygnus
Intellectual Property Rights related to any Product in the Territory during the
Term.  Sankyo shall cooperate as
reasonably requested by Cygnus, at Cygnus’ expense, in any investigation or
action taken by Cygnus in respect of such infringement.  All sums obtained as a result of such suit
or proceeding, whether by judgment, award, decree or settlement, shall be the
property of Cygnus except, however, Cygnus shall pay to Sankyo *** of all sums
obtained after such sums are first applied to reimburse Cygnus for its
out-of-pocket costs incurred in connection therewith.  In the event that Cygnus chooses not to pursue legal action
against such infringing third party and the infringing product or products
subsequently obtains at least *** of the market share for the Product in the
Territory, wherein the market is defined as the Cygnus Product and the
infringing reverse iontophoresis glucose monitoring product or products, then
Cygnus shall treat the volume of the infringing reverse iontophoresis glucose
monitoring product or products as Net Sales during the period of
infringement.  In the case there is a
dispute between the parties as to whether a third party infringes Cygnus
Intellectual Property Rights, the parties shall request the opinion of a
mutually agreed upon third-party patent expert and shall equally bear the cost
of such expert.


 


9.8                                 No
Other Licenses. Cygnus agrees it will not assert against Sankyo any claim of
infringement under Cygnus Patent Rights based on Sankyo’s activities under this
Agreement in the Territory during the Term. No other rights or licenses,
whether express or implied, in Cygnus’ intellectual property are granted by
Cygnus to Sankyo, and Sankyo has no rights or licenses to Cygnus’ intellectual
property outside of the Territory.


 


10.                               CONFIDENTIALITY


 


10.1                           Confidentiality.  Each party agrees that any Proprietary
Information it obtains from the other party is the confidential property of the
disclosing party, and may not be used by the receiving party other than in
connection with the activities contemplated under this Agreement. Except as
expressly permitted in this Agreement, the receiving party will hold in
confidence and not use or disclose any Proprietary Information of the
disclosing party and shall obtain the prior written permission of the other
party before releasing such Proprietary Information to a third party. If such
permission is granted, the releasing party shall ensure that the third party is
bound to the same obligations of confidentiality. The restrictions on use and
disclosure of Proprietary Information imposed upon a receiving party under this
Section 10.1 shall continue in full force and effect during the Term and for a
period of five (5) years thereafter.


 












*** Certain information on this
page has been omitted and filed separately with the Commission.  Confidential treatment has been requested
with respect to the omitted portions.


 


22

















 


11.                               TERM
AND TERMINATION


 


11.1                           Term.
Termination. Unless terminated earlier as provided in Section 11.2,
Section 11.3, Section 11.4, Section 11.5, or Section 11.6,
or extended as provided in Section 5.3 or Section 5.4(h), this
Agreement will have an initial term of twelve (12) years from the Product
Launch Date (the “Term”).  The Term
shall automatically be extended for successive periods of one (1) year unless
either party gives written notice of termination to the other at least six (6)
months prior to the end of the Term or any one-year extension thereof.


 


11.2                           Termination
Due to Insufficient Sales.


 


(a)                                  Either
party may terminate this Agreement upon six (6) months prior written notice if,
after four (4) years from the Product Launch Date but during the initial Term of
the Agreement, the Net Sales of the Product are less than *** in the
immediately preceding twelve (12) month period.


 


(b)                                 In
the event Cygnus terminates this Agreement pursuant to Section 11.2(a), then
Cygnus shall pay to Sankyo for the remainder of the initial Term of this
Agreement, (i) payments of thirty-three percent (33%) of Net Sales for the
first seventy-five million dollars ($75,000,000) of cumulative Net Sales, such
payments made annually following termination until seventy-five million ($75,000,000)
dollars of cumulative Net Sales is met, and (ii) thereafter an annual payment
of *** of Net Sales.  The payments shall
be paid in accordance with the terms of Section 2.6.


 


(c)                                  In
the event Sankyo terminates this Agreement pursuant to Section 11.2(a), then
Cygnus shall pay to Sankyo *** of Net Sales for the remainder of the initial
Term.  The payments shall be paid in
accordance with the terms of Section 2.5 and Section 2.6.


 


11.3                           Termination
Due to Recall or Market Withdrawal.


 


(a)                                  In
the event the Product cannot be sold as a result of a recall, market withdrawal
or other corrective action under Section 5.3, and such inability to sell the
Product continues for a period of six (6) months, Sankyo shall have the right
to immediately terminate the Agreement.


 


(b)                                 In
the event Sankyo terminates this Agreement pursuant to Section 11.3(a) during
the first three (3) years from the Product Launch Date, then Cygnus shall pay
to Sankyo twenty-five million dollars ($25,000,000) to be paid out in equal
quarterly payments for four (4) years following termination.  The payments shall be paid in accordance
with the terms of Section 2.5 and Section 2.6.


 












*** Certain information on this
page has been omitted and filed separately with the Commission.  Confidential treatment has been requested
with respect to the omitted portions.


 


23

















 


(c)                                  In
the event the Product cannot be sold due to a recall or market withdrawal or
other corrective action under Section 5.3 for a continuous period of six (6)
months, such occurrence shall be deemed a material breach of the Agreement only
if such inability was due to Cygnus’ negligence.


 


11.4                           Termination
Due To Failure To Supply.


 


(a)                                  In
the event Cygnus shall be unable to supply on a timely basis in accordance with
the terms of Section 5.4(h) for a continuous period of six (6) months, Sankyo
shall have the right to immediately terminate the Agreement.


 


(b)                                 In
the event Sankyo terminates this Agreement pursuant to Section 11.4(a) during
the first three (3) years from the Product Launch Date, then Cygnus shall pay
to Sankyo twenty-five million dollars ($25,000,000) to be paid out on in equal
quarterly payments for four (4) years following termination.  The payments shall be paid in accordance with
the terms of Section 2.5 and Section 2.6.


 


(c)                                  Cygnus’
inability to supply the Product under Section 5.4(h) for a continuous period of
six (6) months shall be deemed a material breach of the Agreement only if such
failure to supply was due to Cygnus’ negligence.


 


11.5                           Right
of First Refusal; Termination as a Result of a Change of Control in Cygnus.


 


(a)                                  In
the event that a Change of Control as defined in Section 11.5(d) affecting
Cygnus is contemplated, Sankyo shall have an ongoing right of first refusal, at
the same or better terms as offered by a bona fide third party, to enter into a
transaction whereby Sankyo is the Person acquiring beneficial ownership as
described in Section 11.5(d)(i), is the Acquiring Corporation as described in
Section 11.5(d)(ii), or is the Person purchasing properties or assets as
described in Section 11.5(d)(iii).  
Sankyo shall have thirty (30) calendar days after notification by Cygnus
of the terms offered by a bona fide third party in which to offer the same or
better terms to Cygnus.  If Sankyo has
not made such an offer within such thirty (30)-day time period, then Cygnus
may, in its sole discretion, accept or reject such offer of a bona fide third
party.  In the event that a Change of
Control as defined in Section 11.5(d) affecting Cygnus takes place by a party
other than Sankyo or its Affiliates, Sankyo, Cygnus or Cygnus’ successor in
interest shall have the right, but not the obligation, to terminate the
Agreement by furnishing notice of such election to terminate within fifteen
(15) calendar days from execution of Change of Control documents, such
termination to be effective thirty (30) calendar days after Cygnus’ Change of
Control is effective and all regulatory and shareholder approvals, if any, are
obtained.  In the event that Sankyo,
Cygnus or Cygnus’ successor in interest exercises its rights of termination,
Cygnus or Cygnus’ successor in interest, as the case may be, shall purchase
Sankyo’s remaining rights under this Agreement.  The purchase price for such sale shall be as set forth in
Section 11.5(b) or Section 11.5(c).


 


24

















 


(b)                                 In
the event that a Change of Control affecting Cygnus takes place and Cygnus or
Cygnus’ successor in interest exercises its right of termination, then Cygnus
or Cygnus’ successor in interest, as the case may be, shall pay Sankyo as
follows:


 


(i)                                     in
the event that a Change of Control affecting Cygnus takes place during the
first *** from the Product Launch Date, (A) an amount equal to *** from the
Effective Date of the Co-Promotion Agreement until the date of termination of
this Agreement (including all milestone payments under this Agreement and the
Co-Promotion Agreement dated November 28, 2001 made by Sankyo to Cygnus and all
costs and expenses  incurred by Sankyo
to comply with its obligations under Section 4.1),  (B) *** for Sankyo discontinuing its activities under this
Agreement, and (C) either, at the sole option of Cygnus or Cygnus’ successor in
interest, as the case may be, (x) an annual payment of *** of Net Sales from
the date of termination of this Agreement through the end of the initial Term
(without regard to such termination) and such payments shall be made in
accordance with the terms of Section 2.5 and Section 2.6, or (y) the fair
market value of a cash flow stream of *** of Net Sales for a period of time
equal to the duration of time remaining in the initial Term (without regard to
termination). The parties agree to negotiate the fair market value in good
faith promptly following notice of termination pursuant to Section 11.5(a). In
the event no agreement upon fair market value has been reached within fifteen
(15) calendar days of such notice of termination, the parties agree that fair
market value shall be determined by a valuation expert within fifteen (15)
calendar days thereafter whose determination shall be binding and conclusive on
the parties and whose cost shall be borne equally by the parties.  Payment of fair market value shall be made
within fifteen (15) calendar days of its determination.


 


(ii)                                  in
the event that a Change of Control takes place after the first *** from the
Product Launch Date but during the initial Term of the Agreement, either, at
the sole option of Cygnus or Cygnus’ successor in interest, as the case may be,
(A) an annual payment of *** of Net Sales or *** of Net Sales if Net Sales
exceed *** in the Sales Year immediately preceding the Change of Control for
the number of years that would have remained under the initial Term but for
termination of this Agreement, minus the amount of costs that would have been
incurred under Section 4.1 but for termination of this Agreement (however, in
no event shall such costs be less than those costs of the Sales Year
immediately prior to termination) from the date of termination of this
Agreement through the end of the initial Term and such payments shall be made
in accordance with the terms of Section 2.5 and Section 2.6, or (B) the fair
market value of a cash 


 












*** Certain information on this
page has been omitted and filed separately with the Commission.  Confidential treatment has been requested
with respect to the omitted portions.


 


25

















 


flow stream of
*** of Net Sales or *** of Net Sales if Net Sales exceed *** in the Sales Year
immediately preceding the Change of Control for the number of years that would
have remained under the initial Term but for termination of this Agreement,
minus the amount of costs that would have been incurred under Section 4.1 but
for termination of this Agreement (however, in no event shall such costs be
less than those costs of the Sales Year immediately prior to termination) from
the date of termination of this Agreement through the end of the initial Term.
The parties agree to negotiate the fair market value in good faith promptly
following notice of termination pursuant to Section 11.5(a). In the event no
agreement upon fair market value has been reached within fifteen (15) calendar
days of such notice of termination, the parties agree that fair market value
shall be determined by a valuation expert within fifteen (15) calendar days
thereafter whose determination shall be binding and conclusive on the parties
and whose cost shall be borne equally by the parties.  Payment of fair market value shall be made within fifteen (15)
calendar days of its determination. 
However, in no event will Sankyo owe Cygnus payments under this
paragraph.


 


(c)                                  In
the event that a Change of Control affecting Cygnus takes place and Sankyo
exercises its right of termination, then Cygnus or Cygnus’ successor in
interest, as the case may be, shall pay Sankyo as follows:


 


(i)                                     in
the event that a Change of Control affecting Cygnus takes place during the
first *** from the Product Launch Date, (A) an amount equal to *** from the
Effective Date of the Co-Promotion Agreement until the date of termination of
this Agreement (including all milestone payments under this Agreement and the
Co-Promotion Agreement dated November 28, 2001 made by Sankyo to Cygnus and all
costs and expenses  incurred by Sankyo
to comply with its obligations under Section 4.1) minus *** of Net Sales for
the first Sales Year and minus *** thereafter through the date of termination
of this Agreement and (B) either, at the sole option of Cygnus or Cygnus’
successor in interest, as the case may be, (x) an annual payment of *** of Net
Sales from the date of termination of this Agreement through the end of the
initial Term (without regard to such termination) and such payments shall be
made in accordance with the terms of Section 2.5 and Section 2.6, or (y) the
fair market value of a cash flow stream of *** of Net Sales for a period of
time equal to the duration of time remaining in the initial Term (without
regard to termination). The parties agree to negotiate the fair market value in
good faith promptly following notice of termination pursuant to Section
11.5(a). In the event no agreement upon fair market value has been reached
within fifteen (15) calendar days of such notice of termination, the parties agree
that fair 


 












*** Certain information on this
page has been omitted and filed separately with the Commission.  Confidential treatment has been requested
with respect to the omitted portions.


 


26

















 


market value
shall be determined by a valuation expert within fifteen (15) calendar days
thereafter whose determination shall be binding and conclusive on the parties
and whose cost shall be borne equally by the parties.  Payment of fair market value shall be made within fifteen (15)
calendar days of its determination.


 


(ii)                                  in
the event that a Change of Control takes place after the first *** from the
Product Launch Date but during the initial Term of the Agreement, either, at
the sole option of Cygnus or Cygnus’ successor in interest, as the case may be,
(A) an annual payment equal to half of the following:   an annual payment of *** of Net Sales or *** of Net Sales if Net
Sales exceed *** in the Sales Year immediately preceding the Change of Control
for the number of years that would have remained under the initial Term but for
termination of this Agreement, minus the amount of costs that would have been
incurred under Section 4.1 but for termination of this Agreement (however, in
no event shall such costs be less than those costs of the Sales Year
immediately prior to termination) from the date of termination of this
Agreement through the end of the initial Term and such payments shall be made
in accordance with the terms of Section 2.5 and Section 2.6, or (B) half of the
fair market value of a cash flow stream of *** of Net Sales or *** of Net Sales
if Net Sales exceed *** in the Sales Year immediately preceding the Change of
Control for the number of years that would have remained under the initial Term
but for termination of this Agreement, minus the amount of costs that would
have been incurred under Section 4.1 but for termination of this Agreement
(however, in no event shall such costs be less than those costs of the Sales
Year immediately prior to termination) from the date of termination of this
Agreement through the end of the initial Term. The parties agree to negotiate
the fair market value in good faith promptly following notice of termination
pursuant to Section 11.5(a). In the event no agreement upon fair market value
has been reached within fifteen (15) calendar days of such notice of
termination, the parties agree that fair market value shall be determined by a
valuation expert within fifteen (15) calendar days thereafter whose
determination shall be binding and conclusive on the parties and whose cost
shall be borne equally by the parties. 
Payment of fair market value shall be made within fifteen (15) calendar
days of its determination. However, in no event will Sankyo owe Cygnus payments
under this paragraph.


 


(d)                                 For
purposes of Section 11.5, Section 13.1 and Exhibit D, Number 6, a “Change of
Control” shall mean an event where:


 


(i)                                     any
“Person(s)”, meaning any natural person(s), corporation(s), general
partnership(s), limited partnership(s), joint venture(s), proprietor-ship(s) or



 












*** Certain information on this
page has been omitted and filed separately with the Commission.  Confidential treatment has been requested
with respect to the omitted portions.


 


27

















 


business
organization(s), acquires beneficial ownership of capital stock of a party
entitling the holder(s) thereof to at least fifty-one percent (51%) of the
voting power of the then outstanding capital stock of Cygnus with respect to
the election of directors of Cygnus; or


 


(ii)                                  Cygnus
enters into a merger, consolidation or similar transaction with another Person
(the “Acquiring Corporation”) in which


 


(A)                              Cygnus
is not the surviving corporation in such transaction; or


 


(B)                                the
members of the Board of Directors of Cygnus prior to such transaction
constitute less than one-half of the members of the Board of Directors of the
Acquiring Corporation following such transaction; or


 


(C)                                at
least fifty-one percent (51%) of the voting power of the outstanding capital
stock of the Acquiring Corporation with respect to the election of directors
following such transaction is held by Persons who were shareholders of the
Acquiring Corporation prior to such transaction; or


 


(iii)                               Cygnus
sells to any Person(s) in one or more related transactions, properties or
assets representing at least fifty-one percent (51%) of Cygnus’ consolidated
total assets as reflected on its most recent Annual Report on Form 10-K or
Quarterly Report on Form 10-Q, provided that all or substantially all of the
properties and assets used in connection with Cygnus’ business are included in
such transaction(s).


 


11.6                           Termination
Due to Other Circumstances.


 


(a)                                  This
Agreement may be terminated as set forth below upon the occurrence of any of
the following events:


 


(i)                                     by
either party immediately, if the other ceases to do business, or otherwise
terminates its business operations;


 


(ii)                                  
by either party immediately, if the other shall fail to promptly secure or
renew any license, registration, permit, authorization or approval necessary
for the conduct of its business in the manner contemplated by this Agreement,
or if any such license, registration, permit, authorization or approval is
revoked or suspended and not reinstated within sixty (60) calendar days or
diligent efforts are not being made to effect such reinstatement;


 


(iii)                               by
either party immediately, if the other materially breaches any material
provision of this Agreement and fails to cure such breach within sixty (60)
calendar days of written notice describing the breach; or


 


28

















 


(iv)                              by
either party immediately, if the other shall seek voluntary protection under
any bankruptcy, receivership, trust deed, creditors’ arrangements, composition
or comparable proceeding, or if any such proceeding is instituted against the
other (and not dismissed within ninety (90) calendar days).


 


11.7                           Effect
of Termination


 


(a) Upon
termination of this Agreement, each party will within ninety (90) calendar days
cease all use of the trademarks, service marks, trade names, logos and
designations of the other party and Sankyo will not thereafter use, advertise
or display any name, mark or logo that is, or any part of which is, similar to
or confusing with any such designation associated with any Product.


 


(b) Upon
termination of this Agreement the parties will cooperate with each other to
wind down all supply, sales and marketing efforts under this Agreement,
including return of Product inventory purchased by Sankyo from Cygnus.


 


11.8                           Survival.  The following provisions shall survive the
termination of this Agreement: Section 2.5, Section 2.6, Section 6.1, Section
8, Section 9, Section 10, Section 11 and Section 12, as well as any applicable
definitions and general provisions. Remedies for breaches will also survive
termination of this Agreement.  Each
party will promptly return all tangible Proprietary Information of the other
(and all copies thereof) that it is not entitled to use under the surviving
terms and conditions of this Agreement, except for one copy, which may be
retained solely for legal, archival purposes. 
Upon termination, Sankyo will transfer ownership of the customer list
set forth in Section 1.16(d) to Cygnus.


 


12.                               INDEMNIFICATION


 


12.1                           Indemnification
by Cygnus.  Cygnus agrees to indemnify,
hold harmless and defend Sankyo, its Affiliates and their respective officers,
directors, employees, agents and representatives from and against any and all
liabilities, losses, suits, claims, damages and expenses (including, without
limitation, attorneys’ fees, expert fees and other disbursements)
(collectively, “Liabilities”) asserted against or incurred by Sankyo arising
out of or relating to (a) the use, distribution by Cygnus, marketing by Cygnus,
field sales activity by Cygnus, sale by Cygnus, repair or replacement,
manufacture and/or supply of the Product 
(including, without limitation, Liabilities relating to product
liability, product deficiencies and/or personal injury); (b) the breach by
Cygnus of any of its representations, warranties or other obligations under
this Agreement and/or the Supply Agreement; (c) a claim by a third party that
the marketing, sales, use, offer for sale or sale of the Product in the
Territory during the Term or use of sales and marketing material created by
Cygnus related to the Product in the Territory during the Term infringes any
patent, trademark, copyright or other intellectual property rights of such
third party; and/or (d) any negligence or willful misconduct of Cygnus; except
to the extent any such Liabilities set forth above result from the breach by
Sankyo of its representations, warranties or obligations under this Agreement
and/or the Supply Agreement or its negligence or willful misconduct, or its
sale, marketing or distribution of Product in a manner which is inconsistent
with the terms of this Agreement and/or the Supply Agreement.  THE INDEMNIFICATION 


 


29

















 


PROVIDED HEREBY SHALL NOT BE
DEEMED TO INCLUDE INDEMNIFICATION FOR LOST PROFITS OR INDIRECT OR CONSEQUENTIAL
DAMAGES OF SANKYO. Any indemnification hereunder shall be net of any insurance
proceeds recovered by Sankyo.


 


12.2                           Indemnification
by Sankyo.  Sankyo agrees to indemnify,
hold harmless and defend Cygnus, its Affiliates and their respective officers,
directors, employees, agents and representatives from and against any
Liabilities asserted against or incurred by Cygnus, arising out of or relating
to (a) the distribution by Sankyo, marketing by Sankyo, field sales activity by
Sankyo, sale by Sankyo of Product; (b) the breach by Sankyo of any of its
representations, warranties or other obligations under this Agreement and/or
the Supply Agreement; (c) a claim by a third party that use of sales and
marketing material created by Sankyo related to the Product in the Territory
during the Term infringes any patent, trademark, copyright or other
intellectual property rights of such third party; and/or (d) any
negligence or willful misconduct of Sankyo; except to the extent any such
Liabilities set forth above result from the breach by Cygnus of its
representations, warranties or obligations under this Agreement and/or the
Supply Agreement or its negligence or willful misconduct, or its sale,
marketing or distribution of Product in a manner which is inconsistent with the
terms of this Agreement and/or the Supply Agreement, or any actions that would
be indemnified against by Cygnus under Section 9.6.  THE INDEMNIFICATION PROVIDED HEREBY SHALL
NOT BE DEEMED TO INCLUDE INDEMNIFICATION FOR LOST PROFITS OR INDIRECT OR
CONSEQUENTIAL DAMAGES OF CYGNUS. Any indemnification hereunder shall be net of
any insurance proceeds recovered by Cygnus.


 


12.3                           Cooperation
in Connection with Indemnification.  Any
party entitled to indemnification pursuant to Section 12.1 or
Section 12.2 shall notify the indemnifying party promptly of any claim
that might give rise to a claim of indemnification, shall allow the
indemnifying party to handle the defense of the claim (provided the indemnifying
party acknowledges its obligation to indemnify hereunder), shall cooperate in
the defense of such claim and shall not settle such claim without the
indemnifying party’s written consent (which shall not be unreasonably withheld,
delayed or conditioned).  An indemnified
party shall have the right to participate in the defense of any matter as to
which indemnification is being provided with its own counsel and at its own
expense.  Where any indemnity is claimed
under this Agreement, the party claiming such indemnity shall take all
reasonable action at the request of the indemnifying party (the reasonable cost
of which shall be borne by the indemnifying party) to mitigate such
Liabilities.


 


13.                               NO SALE OR
LICENSE OF CYGNUS PATENT RIGHTS OR CERTAIN TRADEMARKS.  OPTION FOR CERTAIN COUNTRIES IN ASIA.


 


13.1                           During
the Term of this Agreement, Cygnus may not assign, sell or license any Cygnus
Patent Rights, or the trademarks “GLUCOWATCH” or “G2,” or the glucowatch.com
domain name to any third party who is not an Affiliate unless such assignment,
sale or license occurs in connection with a Change of Control.  Cygnus may, however license or sublicense
any Cygnus Patent Rights to a third party for products other than the Product
(as defined in Section 1.15). 
Notwithstanding the foregoing, Cygnus may encumber or pledge any Cygnus
Patent Rights and/or the above-mentioned trademarks pursuant to one or more
financing arrangements only after Cygnus has fully paid off the deferred
payments set forth in Section 2.4.


 


30

















 


13.2                           During
the Term of this Agreement, Cygnus grants Sankyo a right of first refusal for
the rights to sell, market and distribute the Product in Japan, China, Korea,
Thailand and/or Taiwan.  In the event
Sankyo exercises its right, the parties will negotiate in good faith the terms
and conditions of such an arrangement and may, if both parties reach agreement,
enter into a separate agreement for Japan and/or China.


 


14.                               ANTICIPATORY
BREACH


 


14.1                           During
the Term of this Agreement, Within fifteen (15) calendar days after the end of
each month, and within five (5) calendar days after the occurrence of any
adverse material event, during the Term of the Agreement Cygnus shall provide
Sankyo with a written report describing the aggregate amount of its cash and
investments, as permitted in Exhibit D, Number 3, as of the end of the month or
event.  If such aggregate amount is less
than the amount of Cygnus Cash Requirements, as defined below,  and both of the following conditions are
met: (a) Sankyo is not in breach of any material term of this Agreement,
including but in no way limited to breach of its sales, marketing and
distribution obligations under Section 4.1 or its supply payment obligations
under the Supply Agreement, and (b) Net Sales by Sankyo are greater than or
equal to ninety percent (90%) of the amounts set forth in Exhibit E for the
specified Calendar Years as prorated due to the calendar month in which this
event occurs, then Sankyo may declare, and such declaration must be in writing
and pursuant to Section 15.4, an “Anticipatory Breach.”  “Cygnus Cash Requirements” equals the amount
of any net decrease in cash and investments 
for the most recent Calendar Quarter, after eliminating the effect of
any material and non-recurring payments (including but not limited to payments
of deferred payments to Sankyo or material arbitration and debt obligations
existing as of the Effective Date), as reported on Cygnus’ most recent
quarterly (10-Q) or annual (10-K) reports filed with the U.S. Securities and
Exchange Commission for the most recent Calendar Quarter.


 


14.2                           In the
event that an Anticipatory Breach occurs, upon prior written notice Sankyo may
exercise any or all of the following rights as set forth in Section 14.2(a) and
(b):


 


(a)                                  the
right to purchase Cygnus’ Regulatory Approval submissions including but not
limited to its pre-market approval applications and any supplements thereto at
the fair market value, and contract with Cygnus to be Sankyo’s contract
regulatory organization and contract research and development organization for
the Product in the Territory during the Term. The parties agree to negotiate in
good faith the fair market value of Cygnus’ Regulatory Approval submissions
promptly following notification by Sankyo of its intent to exercise this
right.  In the event no agreement upon
fair market value has been reached within fifteen (15) calendar days of such
notice of exercise, the parties agree that fair market value shall be
determined by a valuation expert within fifteen (15) calendar days thereafter
whose determination shall be binding and conclusive on the parties and whose
cost shall be borne equally by the parties. 
Payment of fair market value shall be made within fifteen (15) calendar
days of its determination. 
Additionally, the parties will negotiate in good faith the terms and
conditions of the contract regulatory and contract research and development
contractual obligations. In the event that Cygnus cannot perform as a contract
regulatory organization and/or a contract research and development organization
for the Product in Territory during the Term, then Sankyo may contract with
third parties for these services. The parties will also negotiate in good faith
and amend the terms of this Agreement to reflect the changed obligations and 


 


31

















 


responsibilities between the
parties, however such amendments will not result in Sankyo receiving a less
favorable combination of Sales and Marketing Fees and Transfer Prices.


 


(b)                                 the
right to contract with Cygnus to be Sankyo’s contract manufacturing
organization for the Product in the Territory during the Term.  The parties will negotiate in good faith the
terms and conditions of the contract manufacturing contractual obligations. The
parties will also negotiate in good faith and amend the terms of this Agreement
to reflect the changed obligations and responsibilities between the parties,
however such amendments will not result in Sankyo receiving a less favorable
combination of Sales and Marketing Fees and Transfer Prices. Furthermore,
Cygnus will assign its manufacturing contracts with third parties to Sankyo;
and, only in the event that such manufacturing contracts with third parties are
not sufficient for manufacture of the Product, Sankyo may exercise its license
under Section 2.1 to manufacture or have a third-party manufacture the Product
in the Territory during the Term.


 


14.3                           Notwithstanding
the foregoing, if at any time during the Term of this Agreement after Sankyo
has declared Anticipatory Breach, the sum of Cygnus’ cash and investments,
excluding any proceeds received from Sankyo for the purchases and contracts set
forth in Section 14.2, is sufficient to meet Cygnus Cash Requirements for a
period of six (6) months, Cygnus may then have the option, at its sole
discretion, to do one or more of the following:


 


(a)                                  repurchase
Cygnus’ Regulatory Approval submissions, such as its pre-market approval
applications and any supplements thereto, at the then-current fair market value
and terminate any contract regulatory and contract research and development
contractual obligations made pursuant to Section 14.2(a). The parties agree to
negotiate the fair market value in good faith promptly following notification by
Cygnus of its intent to repurchase these submissions.  In the event no agreement upon fair market value has been reached
within fifteen (15) calendar days of such notice of repurchase, the parties
agree that fair market value shall be determined by a valuation expert within
fifteen (15) calendar days thereafter whose determination shall be binding and
conclusive on the parties and whose cost shall be borne equally by the
parties.  Payment of fair market value
shall be made within fifteen (15) calendar days of its determination. The
parties will negotiate in good faith and amend the terms of this Agreement to
reflect the changed obligations and responsibilities between the parties,
however such amendments will not result in Cygnus receiving a less favorable combination
of Sales and Marketing Fees and Transfer Prices than are present in this
Agreement, prior to any amendment pursuant to Section 14.2(a)


 


(b)                                 have
Sankyo re-assign the manufacturing contracts with third parties as set forth in
Section 14.2(b) to Cygnus; terminate any contract manufacturing contractual
obligations with Sankyo, and Sankyo will not manufacture or have a third-party
manufacture the Product for Sale in the Territory.  The parties will negotiate in good faith and amend the terms of
this Agreement to reflect the changed obligations and responsibilities between
the parties, however such amendments will not result in Cygnus paying a less
favorable combination of Sales and Marketing Fees and Transfer Prices than are
present in this Agreement, prior to any amendment pursuant to Section 14.2(b).


 


14.4                           The
parties will cooperate in good faith in negotiating the purchases, contracts
and repurchases set forth in Section 14.2 and Section 14.3, and will each
execute any and all 


 


32

















 


necessary documents to execute
such transactions.  Additionally, the
parties will work together to effectuate a smooth transition of such purchases,
contracts and repurchases.


 


15.                               GENERAL


 


15.1                           Amendment
and Waiver.  Except as otherwise
expressly provided herein, any provision of this Agreement may be amended and
the observance of any provision of this Agreement may be waived (either
generally or in any particular instance and either retroactively or
prospectively) only with the written consent of the parties.  The failure of either party to enforce its
rights under this Agreement at any time for any period shall not be construed
as a waiver of such rights.


 


15.2                           Governing
Law and Legal Actions.  This Agreement
shall be governed by and construed in accordance with the laws of the State  of  California,
as if executed and fully performed within California; any disputes under this
Agreement shall be subject to the exclusive jurisdiction and venue of the
federal courts located in California, and the parties hereby consent to the
personal and exclusive jurisdiction and venue of these courts.


 


15.3                           Headings.  Headings and captions are for convenience
only and are not to be used in the interpretation of this Agreement.


 


15.4                           Notices.  Notices under this Agreement shall be in
writing and shall be sufficient only if personally delivered, delivered by a
major commercial rapid delivery service or mailed by certified or registered
mail, return receipt requested to a party at its addresses first set forth
herein or as amended by notice pursuant to this Section 15.4, to the attention
of the President and Chief Executive Officer, with a copy to the General
Counsel, in the case of Cygnus, and to the attention of the President with a
copy to General Counsel in the case of Sankyo. 
Any notice shall be deemed received upon one (1) business day after
delivery to a major commercial rapid delivery service or, if delivered by U.S.
mail service other than Express Mail, upon receipt or, if not received sooner,
upon five (5) business days after deposit.


 


15.5                           Entire
Agreement.  This Agreement supersedes
all proposals, oral or written, all negotiations, conversations, or discussions
between or among parties relating to the subject matter of this Agreement and
all past dealing or industry custom, with the sole exception of any purchase
orders outstanding as of the Effective Date of this Agreement.  The Co-Promotion Agreement, dated November
28, 2001, is completely replaced and superseded as of the Effective Date set
forth in this Sales and Marketing Agreement.


 


15.6                           Severability.  If any provision of this Agreement is held
to be illegal or unenforceable, that provision shall be limited or eliminated
to the minimum extent necessary so that this Agreement shall otherwise remain
in full force and effect and enforceable.


 


15.7                           Relationship
of Parties.  The parties hereto
expressly understand and agree that the other is an independent contractor in
the performance of each and every part of this Agreement, and is solely
responsible for all of its employees and agents and its labor costs and
expenses arising in connection therewith. 
The parties expressly agree and acknowledge that no partnership or joint
venture exists between them.


 


33

















 


15.8                           Assignment.  This Agreement and the rights hereunder are
not transferable or assignable without the prior written consent of the parties
hereto except to a person or entity who acquires all or substantially all of the
assets or business of a party, whether by sale, merger or otherwise.


 


15.9                           Publicity
and Press Releases.  Except to the
extent necessary under applicable laws, the parties agree that no press
releases or other publicity relating to the substance of the matters contained
herein will be made without joint approval. 
Notwithstanding the previous sentence, the parties agree that a press
release announcing this Agreement will be jointly developed by the parties and
released promptly after the Effective Date of this Agreement, and the parties
recognize that Cygnus will need to file a copy of this Agreement, redacted to
the extent permissible, with the U.S. Securities and Exchange Commission.  Both parties will consult with each other
prior to issuing any future press release relating to this Agreement.


 


15.10                     Force
Majeure.  No liability or loss of rights
hereunder shall result to either party from delay or failure in performance
(other than payment of money) caused by governmental actions or restrictions
(provided that any such governmental action or restriction was not the result
of actions of a party to this Agreement), war, terrorist activities, civil
commotion, riots, strikes, power outages, lock outs and acts of God such as
fire, flood, earthquakes, lightning, drought or other similar or dissimilar
causes that are beyond the control of the parties (each, a “Force Majeure
Act”).


 


15.11                     Remedies.  Except as otherwise expressly stated in this
Agreement including but not limited to Section 11.2, Section 11.3, Section 11.4
and Section 11.5, the rights and remedies of a party set forth herein with
respect to failure of the other to comply with the terms and conditions of this
Agreement (including, without limitation, rights of full termination of this
Agreement) are not exclusive, the exercise thereof shall not constitute an
election of remedies, and the aggrieved party shall in all events be entitled
to seek whatever additional remedies may be available in law or in equity.


 


15.12                     Nonemployment.  During the Term and for a period one (1)
year thereafter, neither party will employ any current employee of the other
party unless agreed to in writing by the parties, except that Sankyo may in its
sole discretion seek to employ any member of Cygnus’ sales and marketing group
whose employment Cygnus intends to terminate.


 


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


 


15.14                     Interpretation.  The parties agree that the rule of
construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this Agreement
and that the terms and conditions of this Agreement shall be construed fairly
with respect to the parties hereto and shall not be construed in favor or
against any one party, regardless of which party was generally responsible for
the preparation of this Agreement.


 


34

















 


IN WITNESS WHEREOF,
the undersigned have caused this Agreement to be executed by their duly
authorized officers as of the date first written above.


 


 


	
  CYGNUS, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   /s/ John C Hodgman

  	
   

  
	
   

  	
   

  
	
  Name:

  	
  John C
  Hodgman

  	
   

  
	
   

  	
   

  
	
  Title:

  	
  Chairman,
  President & CEO

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  SANKYO
  PHARMA INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   /s/ J Pieroni

  	
   

  
	
   

  	
   

  
	
  Name:

  	
  Joseph
  Pieroni

  	
   

  
	
   

  	
   

  
	
  Title:

  	
  President

  	
   

  
					



 


35

















 


EXHIBIT A

U.S. PATENTS OWNED BY CYGNUS  SUBJECT TO
FIRST LIEN AND SECURITY INTEREST OF SANKYO PURSUANT TO SECTION 2.4


 


U.S. 5,735,273, “Chemical Signal-Impermeable Mask,” issued April 7,
1998


U.S. 5,771,890, “Device and Method for Sampling of Substances Using
Alternating Polarity,” issued June 30, 1998


U.S. 5,827,183, “Method of Measuring Chemical Concentration Iontophoretically
Using Impermeable Mask,” issued October 27, 1998


U.S. 5,954,685, “Electrochemical Sensor with Dual Purpose Electrode,”
issued September 21, 1999


U.S. 5,989,409, “Method for Glucose Sensing,” issued November 23, 1999


U.S. 6,023,629, “Method of Sampling Substances Using Alternating
Polarity of Iontophoretic Current,” issued February 8, 2000


U.S. 6,139,718, “Electrode with Improved Signal to Noise Ratio,” issued
October 31, 2000


U.S. 6,141,573, “Chemical Signal-Impermeable Mask,” issued October 31,
2000


U.S. 6,144,869, “Monitoring of Physiological Analytes,” issued November
7, 2000


U.S. 6,180,416, “Method and Device for Predicting Physiological
Values,” issued January 30, 2001


U.S. 6,201,979, “Chemical Signal-Impermeable Mask,” issued March 13, 2001


U.S. 6,233,471, “Signal Processing for Measurement of Physiological
Analysis,” issued May 15, 2001


U.S. 6,272,364, “Method and Device for Predicting Physiological
Values,” issued August 7, 2001


U.S. 6,284,126, “Electrode with Improved Signal to Noise Ratio,” issued
September 4, 2001


U.S. 6,298,254, “Device for Sampling Substances Using Alternating
Polarity of Iontophoretic Current,” issued October 2, 2001


U.S. 6,299,578, “Methods for Monitoring a Physiological Analyte,”
issued October 9, 2001


U.S. 6,309,351, “Methods for Monitoring a Physiological Analyte,”
issued October 30, 2001


U.S. 6,326,160, “Microprocessors for Use in a Device for Predicting
Physiological Values,” issued December 4, 2001


U.S. 6,341,232, “Methods for Producing Collection Assemblies,
Laminates, and AutoSensor Assemblies for Use in Transdermal Sampling Systems,”
issued January 22, 2002


U.S. 6,356,776, “Device for Monitoring Physiological Analytes,” issued
March 12, 2002


U.S. 6,370,410, “Method of Producing an Assembly for Use in a Monitoring
Device,” issued April 9, 2002


U.S. 6,391,643, “Kit and Method for Quality Control Testing of an
Iontophoretic Sampling System,” issued May 21, 2002


U.S. 6,393,318, “Collection Assemblies, Laminates, and AutoSensor
Assemblies for Use in Transdermal Sampling Systems,” issued May 21, 2002


U.S. 6,398,562, “Device and Methods for the Application of Mechanical
Force to a Gel/Sensor Assembly,” issued June 4, 2002


U.S. Des. 437,603, “Device for the Application of Mechanical Force to a
Gel/Sensor Assembly,” issued February 13, 2001


U.S. Des. 438,807, “Cover for Quality Control Testing of an
Iontophoretic Sampling System,” issued March 13, 2001


 


36

















 


EXHIBIT B

U.S. PATENTS OWNED BY CYGNUS OR LICENSED BY CYGNUS

(to be updated annually)


 


Cygnus:


 


U.S. 5,735,273, “Chemical Signal-Impermeable Mask,” issued April 7,
1998


U.S. 5,771,890, “Device and Method for Sampling of Substances Using
Alternating Polarity,” issued June 30, 1998


U.S. 5,827,183, “Method of Measuring Chemical Concentration
Iontophoretically Using Impermeable Mask,” issued October 27, 1998


U.S. 5,954,685, “Electrochemical Sensor with Dual Purpose Electrode,”
issued September 21, 1999


U.S. 5,989,409, “Method for Glucose Sensing,” issued November 23, 1999


U.S. 6,023,629, “Method of Sampling Substances Using Alternating
Polarity of Iontophoretic Current,” issued February 8, 2000


U.S. 6,139,718, “Electrode with Improved Signal to Noise Ratio,” issued
October 31, 2000


U.S. 6,141,573, “Chemical Signal-Impermeable Mask,” issued October 31,
2000


U.S. 6,144,869, “Monitoring of Physiological Analytes,” issued November
7, 2000


U.S. 6,180,416, “Method and Device for Predicting Physiological
Values,” issued January 30, 2001


U.S. 6,201,979, “Chemical Signal-Impermeable Mask,” issued March 13,
2001


U.S. 6,233,471, “Signal Processing for Measurement of Physiological
Analysis,” issued May 15, 2001


U.S. 6,272,364, “Method and Device for Predicting Physiological
Values,” issued August 7, 2001


U.S. 6,284,126, “Electrode with Improved Signal to Noise Ratio,” issued
September 4, 2001


U.S. 6,298,254, “Device for Sampling Substances Using Alternating
Polarity of Iontophoretic Current,” issued October 2, 2001


U.S. 6,299,578, “Methods for Monitoring a Physiological Analyte,”
issued October 9, 2001


U.S. 6,309,351, “Methods for Monitoring a Physiological Analyte,”
issued October 30, 2001


U.S. 6,326,160, “Microprocessors for Use in a Device for Predicting
Physiological Values,” issued December 4, 2001


U.S. 6,341,232, “Methods for Producing Collection Assemblies,
Laminates, and AutoSensor Assemblies for Use in Transdermal Sampling Systems,”
issued January 22, 2002


U.S. 6,356,776, “Device for Monitoring Physiological Analytes,” issued
March 12, 2002


U.S. 6,370,410, “Method of Producing an Assembly for Use in a
Monitoring Device,” issued April 9, 2002


U.S. 6,391,643, “Kit and Method for Quality Control Testing of an
Iontophoretic Sampling System,” issued May 21, 2002


U.S. 6,393,318, “Collection Assemblies, Laminates, and AutoSensor
Assemblies for Use in Transdermal Sampling Systems,” issued May 21, 2002


U.S. 6,398,562, “Device and Methods for the Application of Mechanical
Force to a Gel/Sensor Assembly,” issued June 4, 2002


 


37

















 


U.S. Des. 437,603, “Device for the Application of Mechanical Force to a
Gel/Sensor Assembly,” issued February 13, 2001


U.S. Des. 438,807, “Cover for Quality Control Testing of an
Iontophoretic Sampling System,” issued March 13, 2001


 


University of California:


 


U.S. 5,279,543, “Device for Iontophoretic Non-Invasive Sampling or
Delivery of Substances,” issued January 18, 1994


U.S. 5,362,307, “Method for the Iontophoretic
Non-Invasive-Determination of the In Vivo Concentration Level of an Inorganic
or Organic Substance,” issued November 8, 1994


U.S. 5,730,714, “Method for the Iontophoretic Non-Invasive
Determination of the In Vivo Concentration Level of Glucose,” issued March 24,
1998


 


38

















 


EXHIBIT C

MINIMUM AMOUNT OF CYGNUS’ TRANSFER PRICE


 


***


 












*** Certain information on this
page has been omitted and filed separately with the Commission.  Confidential treatment has been requested
with respect to the omitted portions.


 


39

















 


EXHIBIT D

NEGATIVE COVENANTS PURSUANT TO SECTION 2.4


 


As provided for in Section 2.4,
commencing upon the Effective Date and until such time as Cygnus has fully paid
all such deferred Sales and Marketing Fees, Cygnus shall abide by the Negative
Covenants set forth below.


 


1.                                       Cygnus
shall not pay or declare any cash or property dividends or otherwise make a
distribution of capital or income, or redeem, retire or repurchase any stock of
Cygnus.


 


2.                                       Cygnus
shall not pay or become obligated to pay in any one (1) year period, directly
in cash, by way of salary, bonus or otherwise, to any officer, director or
employee of Cygnus more than two (2) times their 2001 compensation.


 


3.                                       Cygnus
shall not make any investments, except for the following  investment obligations: (a) obligations of
or guaranteed by the United States of America, (b) obligations issued or
guaranteed by any instrumentality or agency of the United States of America,
(c) obligations issued or guaranteed by any state of the United States or the
District of Columbia, (d) repurchase agreements fully secured by the
obligations of the type set forth above in subparagraphs (a), (c) or (c) above;
(e) interest-bearing accounts, certificates of deposit, bankers acceptances, or
commercial paper of Sankyo, and (f) commercial paper other than specified in
subparagraph (e) above and that is rated at least “P-1” by Moody’s Investors
Services or at least “A-1” by Standard and Poor’s Corporation.


 


4.                                       Cygnus
shall not create, incur, assume or suffer to exist any lien of any nature upon
or with respect to the Cygnus U.S. Patents set forth on Exhibit A hereto except
liens in favor of Sankyo.


 


5.                                       Cygnus
shall not assume, guaranty, endorse, become a surety or otherwise become liable
for the debt or obligation of any individual or entity other than any officer,
director or employee of Cygnus, or make any advance or loan for the purpose of
paying or discharging such obligations.


 


6.                                       Cygnus
shall not consolidate with, merge with or acquire the stock or assets of any
person or entity unless such merger or acquisition occurs in Connection with a
Change of Control.


 


7.                                       Cygnus
shall not compromise, settle or adjust any claim in a material amount relating
to the Cygnus U.S. Patents set forth on Exhibit A hereto.


 


8.                                       Cygnus
shall only use funds received from, or deferred by, Sankyo for general
corporate purposes, and Cygnus shall not purchase any equity securities or all
or substantially all of the assets of any third party.


 


40

















 


EXHIBIT E

MINIMUM NET SALES BY SANKYO FOR PURPOSES OF SECTION 14.1


 


***


 












*** Certain information on this
page has been omitted and filed separately with the Commission.  Confidential treatment has been requested
with respect to the omitted portions.


 


41