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                                                                   EXHIBIT 10.34


                   LICENSE, SUPPLY AND DISTRIBUTION AGREEMENT


        THIS LICENSE, SUPPLY AND DISTRIBUTION AGREEMENT (the "Agreement"), made
effective this 6th day of January, 1997 ("Effective Date"), by and between
SHERWOOD MEDICAL COMPANY, a corporation organized and existing under the laws of
the State of Delaware, doing business as Sherwood-Davis & Geck, having an office
at 1915 Olive Street, St. Louis, Missouri 63103 ("Sherwood") and INNERDYNE,
INC., a corporation organized and existing under the laws of the State of
Delaware, having an office at 1244 Reamwood Avenue, Sunnyvale, California 94089
("InnerDyne").

        WHEREAS, Sherwood manufactures and sells a variety of medical devices
including a line of enteral feeding products; and

        WHEREAS, InnerDyne manufactures and sells a variety of medical devices
including a line of radially expanding access devices (hereinafter R.E.A.D.s");
and

        WHEREAS, Sherwood desires to obtain a sole source for the supply of
R.E.A.D.s for resale in combination with certain of Sherwood's enteral feeding
tubes and other products in the form of kits, and InnerDyne desires to supply
such R.E.A.D.s to Sherwood; and

        WHEREAS, InnerDyne is willing to grant, and Sherwood desires to obtain,
certain license rights in order to market, sell and use R.E.A.D.s in the
gastrointestinal placement of its enteral feeding products;

        NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree as follows:

SECTION 1. DEFINITIONS

        As used in this Agreement, the following terms shall be deemed to have
the following meanings:

        1(a)   "Affiliate" means, for so long as one of the following
relationships is maintained, any corporation or other business entity controlled
by, controlling, or under common control with another entity, with "control"
meaning direct or indirect beneficial ownership of more than fifty percent (50%)
of the voting stock of such corporation, or more than a fifty percent (50%)
interest in the decision-making authority of such other business entity.

        1(b)   "Development Costs" means any costs or expenses incurred by
InnerDyne in the development, research and testing of any modification to an
InnerDyne Product made by InnerDyne to accommodate the assembly of the InnerDyne
Products with Sherwood Products into Kits and/or at the request of Sherwood.

        1(c)   "FDA" shall mean the United States Food and Drug Administration.

        1(d)   "Field" shall mean gastrointestinal placement of enteral feeding
products.


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        1(e)   "InnerDyne Products" shall mean the R.E.A.D.s listed in Exhibit A
attached hereto, any Modifications thereto, and any products manufactured by
InnerDyne which the parties may agree to include in Kits.

        1(f)   "Kit" shall mean any combination of Sherwood Products (including
one of Sherwood's enteral feeding tubes) and an InnerDyne Product for use in the
Field.

        1(g)   "Major Country" shall mean [*   *   *   *   *].

        1(h)   "Modifications" shall mean improvements, derivative works,
alterations or other modifications made by InnerDyne to InnerDyne Products or
Sherwood Products pursuant to this Agreement.

        1(i)   "Sherwood Products" shall mean Sherwood's enteral feeding tubes
and other products supplied by Sherwood and listed in Exhibit B attached hereto,
any Modifications thereto, and any products manufactured by Sherwood which the
parties may agree to include in Kits.

        1(k)   "Territory" shall mean the world.

SECTION 2. GRANT OF LICENSE

        2(a)   Grant of License. Subject to the terms and conditions of this
Agreement, and for the term of this Agreement, InnerDyne hereby grants to
Sherwood and its Affiliates an exclusive license in the Territory to import,
export, sublicense (as stated in Section 2(b)), distribute, market and sell the
InnerDyne Products and any Modifications thereto solely in combination with
Sherwood Products or Modifications thereto as part of a Kit for use in the Field
throughout the Territory. Sherwood shall also have the license to manufacture
InnerDyne Products for assembly with Sherwood Products into Kits, in the event
that:

               (i)    InnerDyne materially defaults in the performance of its
obligations under Section 5(b) of the Agreement and fails to cure such default
within ninety (90) days after receipt of written notice by Sherwood of such
material default, except if InnerDyne in good faith disputes the existence of
such material default, in which event the existence of such material default
shall be determined in accordance with the provisions of Section 13 hereto; or

               (ii)   InnerDyne becomes insolvent, is declared a bankrupt or
makes an assignment for the benefit of creditors.

        2(b)   Right to Sublicense. Subject to the terms and conditions of this
Agreement, Sherwood shall be entitled to grant sublicenses of its rights under
this Agreement to non-Affiliates solely upon prior written approval by
InnerDyne, which approval shall not unreasonably be withheld. Sherwood shall
deliver a complete copy of any sublicense agreement granted under this Agreement
to InnerDyne promptly upon execution of such sublicense agreement. Sherwood
shall have no other rights with respect to the InnerDyne Products or any
relationship with InnerDyne, except as specifically set forth in this Agreement.



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        2(c)   Independent Contractors. It is understood that both parties
hereto are independent contractors and are engaged in the operation of their own
businesses. Neither party hereto is to be considered the agent of the other
party for any purpose whatsoever, and neither party has any authority to enter
into any contracts or assume any obligations for the other party or make any
warranties or representations on behalf of the other party. Nothing in this
Agreement or in the activities of either party shall be deemed to create an
agency, partnership, or joint venture relationship.

SECTION 3. DILIGENCE; SUPPORT; OWNERSHIP

        3(a)   Promotion. Sherwood agrees to use reasonable efforts to promote
and sell the Kits, at its own expense, in Major Countries in the Territory as
soon as feasible after obtaining any necessary government approvals, using
generally the same channels and methods, exercising the same diligence and
adhering to the same standards which it employs with respect to its own
products.

        3(b)   Marketing. Sherwood shall maintain the financial capability to
perform its obligations under this Agreement and shall, at its own expense,
establish and maintain sales, marketing and distribution, organization and
personnel of sufficient size to adequately and effectively sell the Kits in the
Territory. Sherwood will be responsible for the market launch of the Kits in the
Territory during the term of the Agreement. InnerDyne shall provide Sherwood
with marketing and technical information concerning the InnerDyne Products as
well as reasonable quantities of brochures, instructional material, advertising
literature and other product data, provided that all such material will be
printed in the English language. InnerDyne shall be responsible for the accuracy
of all information so provided to Sherwood. Sherwood will produce, and obtain
InnerDyne's prior approval of, all materials relating to or otherwise describing
InnerDyne Products used to promote the Kits in the Territory. Each party agrees
to share with the other its marketing intelligence regarding the Kits by means
of quarterly meetings or business reports.

        3(c)   Sale to Qualified Individuals. Sherwood shall use its reasonable
commercial efforts to distribute and sell the Kits for use only by qualified
individuals, as appropriate in the Territory, in compliance with local laws and
regulations and good commercial practice and for uses and applications
reasonably approved by InnerDyne for the Kits.

        3(d)   Records and Reporting. Sherwood shall maintain adequate and
accurate books and records with respect to the sale or distribution of the Kits
during the term of the Agreement and for a minimum of three (3) years after its
termination. Upon prior notice, InnerDyne shall have the right during reasonable
business hours, to inspect the facilities of Sherwood which are used or provided
in connection with the manufacturing of components of and distribution of the
Kits.

        3(e)   Sole Supplier. Sherwood shall purchase or cause to be purchased
from InnerDyne all quantities of the Kits required by Sherwood to meet demand by
purchasers and potential purchasers of the Kits in the Territory, except as
otherwise contemplated by Section 2(a).



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        3(f)   Harmful Acts. Both InnerDyne and Sherwood understand, acknowledge
and agree that the maintenance of an image of excellence and high level ethical
marketing of the Kits is essential to the success of both parties. Both parties
agree that their respective sales, marketing, distribution, or advertising will
not knowingly reflect unfavorably on, or dilute in any way, the other party's
image of excellence and high level ethical marketing. Both parties agree that
they shall not do anything, directly or indirectly, to impair the current image
or to lower the prestige or quality of the other party's products or the Kits.
Sherwood shall not make any changes, alterations, modifications or additions to
the InnerDyne Products without prior written approval of InnerDyne.

        3(g)   Ownership. The parties hereto acknowledge and agree that, as
between InnerDyne and Sherwood, InnerDyne owns all right, title, and interest in
and to InnerDyne Products and Modifications to InnerDyne Products developed by
InnerDyne. In addition, the parties hereto acknowledge and agree that, as
between InnerDyne and Sherwood, Sherwood owns all right, title, and interest in
and to the Sherwood Products, and modifications to Sherwood Products developed
by Sherwood.

SECTION 4. ROYALTY AND MILESTONE PAYMENTS

        4(a)   Royalty. In exchange for the license granted pursuant to Section
2 of this Agreement, Sherwood agrees to make a [* * * * *], with [* *] due and
payable upon the execution of this Agreement and the remaining [* * * * * *] to
InnerDyne on the last day of each of the first three full calendar months
following the Effective Date of this Agreement.

        4(b)   Milestone Payments. Within seven (7) business days of the date of
InnerDyne's receipt of FDA clearance of a 510(k) pre-market notification of a
Kit, Sherwood shall make a payment to InnerDyne of [* * *].

SECTION 5. MANUFACTURING AND INNERDYNE PRODUCT DEVELOPMENT

        5(a)   Kit Development. The parties will cooperate to develop the
assembly of the Kits as deemed necessary by Sherwood and will negotiate in good
faith a budget for the Development Costs required for the development of any
Modifications to InnerDyne Products for their use with Sherwood Products and
their assembly in the Kits (the "Budget").

        5(b)   InnerDyne Manufacturing Rights. InnerDyne shall have the
exclusive right to manufacture Kits on behalf of Sherwood or its Affiliates for
use in the Field, and Sherwood hereby commits to purchase all of its
requirements of Kits from InnerDyne; except as otherwise provided in Section
2(a).

        5(c)   Supply of Sherwood Products. Sherwood shall manufacture and/or
supply, without charge to InnerDyne, InnerDyne's requirements of Sherwood
Products to meet Sherwood's requirements for Kits. [* * * * * *] of Sherwood
Products. Sherwood shall fill any and all requisition orders received from
InnerDyne for Sherwood Products, within [* * *] business days after receipt of
such requisition



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orders. InnerDyne shall only use Sherwood Products in the assembly of the Kits
and for no other purpose.

        5(d)   Manufacturing Requirements. The Kits will be assembled and the
InnerDyne Products will be manufactured by InnerDyne in accordance with the
requirements of the FDA's current Good Manufacturing Practices regulations and
ISO 9001 standards, at InnerDyne's cost. All Kits provided to Sherwood under
this Agreement shall be C.E. marked as soon as reasonably possible for immediate
sale.

        5(e)   Reimbursement of Development Costs. Sherwood shall reimburse
InnerDyne up to [** *] for its Development Costs in accordance with the Budget,
upon presentation of an invoice, for any Modifications to the InnerDyne Products
that are required for such InnerDyne Products to conform to the specifications
set forth in Exhibit A. The expense of registering the Kits for C.E. Marking
shall also be reimbursed by Sherwood in accordance with Exhibit D.

        5(f)   Machinery and Equipment. InnerDyne has or will obtain all
machinery and equipment needed to meet Sherwood's requirements for the Kits and
the InnerDyne Products. All machinery and equipment used in the assembly of the
Kits and the manufacture of the InnerDyne Products shall be and remain the sole
and exclusive property of InnerDyne. InnerDyne shall maintain the financial
capability to perform its obligations under this Agreement and shall at its own
expense (unless otherwise provided by this Agreement) establish and maintain a
manufacturing organization and personnel of sufficient size to adequately and
effectively assemble the Kits.

        5(g)   Supply of InnerDyne Products. Pursuant to the terms of this
Agreement, InnerDyne shall supply to Sherwood all of Sherwood's requirements for
Kits.

SECTION 6. PRICE AND PAYMENT TERMS

        6(a)   Prices.

               (i)    The initial purchase price of a Kit shall be [* * *] (the
"Initial Price"). [* * * * * * * *] The Adjusted Price as determined by
InnerDyne during the Adjustment Period shall become effective as of the date of
written notice thereof to Sherwood and shall continue in effect until the
subsequent Price Adjustment Date. If the Adjusted Price is not further adjusted
during the Adjustment Period following such subsequent Price Adjustment Date,
the Adjusted Price then in effect shall continue in effect until the next
subsequent Price Adjustment Date. Notwithstanding the foregoing, such revisions
in price shall not exceed InnerDyne's actual changes in its cost for labor and
materials directly related to the manufacture of the InnerDyne Products,
utilizing generally accepted accounting principles consistently applied, but in
no event will any price increase, cumulatively, be proportionately greater than
the increases, if any, of the Producer Price Index (unadjusted) of the United
States Bureau of Labor Statistics, Commodity Code 06-6 ("Plastic resins and
materials") for the preceding [* * *]. Sherwood shall have the right, at its
sole cost and expense, to review InnerDyne's records to verify InnerDyne's
costs, and InnerDyne shall make such records available to Sherwood at all
reasonable times for such purposes.



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               (ii)   All prices are calculated F.O.B. InnerDyne's manufacturing
facility, currently located in Salt Lake City, Utah. Customs, duties and
charges, if any, shall be borne by Sherwood. All import or export licenses,
approvals or both shall be obtained by Sherwood at its cost. Prices to Sherwood
do not include any federal, state or local taxes that may be applicable to
products. When InnerDyne has the legal obligation to collect such taxes, the
appropriate amount shall be added to Sherwood's invoice and paid by Sherwood
unless Sherwood provides InnerDyne with a valid tax exemption certificate
authorized by the appropriate taxing authority.

        6(b)   Payment. Full payment of the purchase price then in effect for a
Kit (including any freight, taxes or other applicable costs initially paid by
InnerDyne but to be borne by Sherwood) shall be in United States of America
dollars. All exchange, interest, banking, collection, and other charges shall be
at Sherwood's expense. Payment terms shall be net thirty (30) days, and payment
shall be made by wire transfer, check or other instrument approved by InnerDyne.
Any invoiced amount not paid when due shall be subject to a service charge at
the lower of the rate of one and one-half percent (1.5%) per month or the
maximum rate permitted by law. If Sherwood fails to make any payment to
InnerDyne when due, InnerDyne may, after written notice to Sherwood and without
affecting its rights under this Agreement, cancel or delay any future shipments
to Sherwood until such delinquent payment is made. In the event that Sherwood
shall contest an InnerDyne invoice in good faith and shall notify InnerDyne of
the reason(s) therefor, InnerDyne shall not impose a service charge and/or
discontinue any shipments except after first considering Sherwood's claim and
then notifying Sherwood in writing of any unfavorable disposition. Five (5) days
after the date of written notification from InnerDyne to Sherwood that
Sherwood's claim lacks merit, the service charge set forth in this Section 6(b)
shall be applied to the delinquent payment and shall start to accrue, and
InnerDyne may thereafter cancel or delay any future shipments to Sherwood until
the delinquent payment and related service charge is paid in full to InnerDyne.

SECTION 7. PURCHASING, DELIVERY, TITLE, RISK OF LOSS, RETURNS

        7(a)   Purchase Orders; Forecasts. Pursuant to this Agreement, Sherwood
will submit purchase orders for the Kits. Any terms and conditions included in
such purchase orders that conflict with the terms of this Agreement shall be of
no force or effect and shall form no part of this Agreement. Firm purchase
orders are to be placed by Sherwood at least [* * *] prior to the required
delivery date. From and after the date of FDA clearance of a 510(k) pre-market
notification (the "510(k)") and thereafter during the final quarter of each
calendar year during the term of this Agreement, Sherwood will provide InnerDyne
with an annual forecast of its anticipated needs of Kits for the following 
[* * *], and, beginning immediately upon the date of the 510(k), will maintain a
[* * *] rolling forecast of Kit requirements, updated monthly, of which [* * *]
will constitute a firm order. Notwithstanding the foregoing, InnerDyne shall
have no obligation to supply Kits to Sherwood prior to [* * *] after the
availability of the initial commercial production lot of Kits or during any
period for which any of Sherwood's payments due to InnerDyne hereunder are 
[* * *] or more past due in accordance with Section 6(b).

        7(b)   Minimum Purchase Commitments. Following the date of the
availability of the initial commercial production lot of Kits, Sherwood shall
purchase from InnerDyne the minimum



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quantity of Kits during each of the [* * * * * *] as set forth in Exhibit C
attached hereto. [* *] prior to the expiration of the [* * * *] and [* * *]
prior to the expiration of each subsequent [* * * *] (a "Subsequent Purchase
Period") during the term of this Agreement, Sherwood and InnerDyne 
[* * * * * * *]. The parties hereby agree that [* * * * * * * * * *]. In the
event that InnerDyne does not receive [* * * * * *], the minimum quantity of
Kits to be purchased by Sherwood during such Subsequent Purchase Period shall be
deemed to be [* * *].

        7(c)   Failure to Meet Annual Purchase Commitments. During the term of
this Agreement, and provided InnerDyne shall supply Kits to Sherwood according
to forecast, if Sherwood fails to purchase or order the minimum quantities of
Kits set forth above during any Twelve Month Purchase Period or Subsequent
Purchase Period, InnerDyne may, on [* * * *] prior written notice to Sherwood,
convert the license granted to Sherwood under Section 2 of this Agreement to a
non-exclusive license for the full remaining term of this Agreement, thereby
permitting InnerDyne to also market, sell or otherwise distribute InnerDyne
Products to third parties for use in the Field throughout the Territory. If the
License is converted to non-exclusive by InnerDyne, Sherwood [* * * * * *], and
the price of Kits sold to Sherwood for the remaining term of this Agreement
shall be [* * * * * *]. If InnerDyne converts the License to non-exclusive as a
result of Sherwood's failure to purchase or [* * * * * * *] Purchase Period or
Subsequent Purchase Period as required by Section 7(b), InnerDyne's conversion
of the License to non-exclusive shall be InnerDyne's sole remedy against
Sherwood for Sherwood's breach of its minimum annual purchase obligations under
Section 7(b) for that particular [* * * * *], as the case may be. However,
InnerDyne's conversion of the License to non-exclusive shall not be its sole
remedy for (i) a breach by Sherwood of any other term of this Agreement, whether
in the course of a breach by Sherwood of its obligations under Section 7(b) or
otherwise, (ii) a breach by Sherwood of its obligations under Section 7(b) 
[* * * * *], or (iii) a breach by Sherwood of its obligations under Section 7(b)
for any previous [* * * * * * * * * *]. In the event that Sherwood fails to sell
the Kit [* * * * * *], InnerDyne shall have the right, on written notice to
Sherwood, to convert the License to non-exclusive for that country and to
thereafter market, sell or otherwise distribute InnerDyne Products to third
parties for use in the Field in such country. For purposes of this Section 7(c),
if Sherwood cancels an order of Kits made during a [* * * * * *] after the
expiration of any such period, the number of Kits deemed to have been ordered by
Sherwood during any such period, as applicable, shall be reduced by such
cancellations.

        7(d)   Shipping . All Kits delivered pursuant to the terms of this
Agreement shall be suitably packed and marked for shipment at InnerDyne's
manufacturing facility to Sherwood's address set forth in this Agreement or such
other address as Sherwood may specify, and delivered to Sherwood or Sherwood's
carrier agent F.O.B. InnerDyne's manufacturing facility, at which time title to
such products and risk of loss shall pass to Sherwood. InnerDyne shall deliver
products to the carrier selected by Sherwood. In the event that Sherwood does
not provide written notice of such carrier, InnerDyne shall select the carrier.
Sherwood will obtain insurance sufficient to cover the value of each shipment.
Sherwood shall have the right to inspect each lot of Kits and to reject any lot
which in its reasonable opinion is defective.



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        7(e)   Returns. Sherwood will be responsible for receiving the initial
calls from customers regarding damaged or defective Kits through Sherwood's
sales and customer service forces and will work directly with such customers to
ensure the return and, if appropriate, replacement of such Kits. InnerDyne will
provide all reasonable assistance to Sherwood's sales and customer service
forces in connection with such efforts and shall designate a representative with
authority to coordinate the delivery of assistance. Sherwood will initially be
responsible for testing and determining the cause of all Kit malfunctions and
InnerDyne shall test and determine the cause of such malfunctions only upon the
reasonable request of Sherwood after Sherwood has conducted such initial
testing. InnerDyne will replace any defective Kit at its expense and will be
responsible for the return shipping and insurance charges for defective Kits
being returned if the defect is caused by or due to a defective InnerDyne
Product or InnerDyne's assembly of the Kits. To return a defective Kit, Sherwood
shall notify InnerDyne immediately and request a Material Return Authorization
("MRA") number. InnerDyne shall provide the MRA number to Sherwood within seven
(7) days of receipt of the request. Within seven (7) days of receipt of the MRA
number, Sherwood shall return to InnerDyne the rejected Kit with the MRA number
displayed on the outside of the carton. Sherwood shall be responsible for the
shipping and insurance charges of replacement Kits being shipped back to
Sherwood if the defect is not caused by or due to a defective InnerDyne Product
or InnerDyne's assembly of the Kits, and Sherwood shall also bear all of the
costs and expenses resulting from the return and replacement of any such
defective Kit or any recall of the Kits, to the extent that such recall is not
caused by or due to a defective InnerDyne Product or InnerDyne's assembly of the
Kits.

SECTION 8. GOVERNMENT REGULATIONS

        8(a)   Approvals and Registrations.

               (i)    InnerDyne agrees that it will use its commercially
reasonable efforts to obtain the 510(k) for the Kit. Upon InnerDyne's receipt of
the 510(k) and the payment required by Section 4(b) above, the 510(k) shall be
transferred to and placed in the name of Sherwood. InnerDyne also agrees that it
will use its commercially reasonable efforts to obtain C.E. marking for the Kit.
Sherwood shall reimburse InnerDyne on a mutually agreed upon schedule for all
costs and expenses incurred by InnerDyne in registering the Kits for C.E.
marking, which costs and expenses shall be included in the Budget for C.E.
Marking, attached hereto as Exhibit D. Sherwood shall have the right to
reference the 510(k) and such C.E. marking in any regulatory filings required
for Sherwood to market the Kits in the Territory.

               (ii)   InnerDyne agrees that [* * * *], secure any and all other
required United States regulatory approvals necessary for the implementation,
execution and performance of this Agreement. Sherwood agrees to cooperate fully
with InnerDyne in its pursuit of such approvals. To the extent permissible,
InnerDyne shall obtain such approvals in Sherwood's name. [* * * * * * * *].
InnerDyne shall obtain all documents or licenses and shall comply with all
applicable laws, including, if required, registration of the Agreement necessary
for the implementation, execution and performance of this Agreement. InnerDyne
shall notify Sherwood of all permits, approvals and registrations



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<PAGE>   9

obtained by it relating to Kits or this Agreement and shall provide Sherwood
with copies of all materials documents related thereto.

               (iii)  Sherwood agrees [* * * *], secure any and all required
regulatory approvals or registrations in each jurisdiction within the Territory
that is outside of the United States as soon as feasible after the date of this
Agreement necessary for the implementation, execution and performance of this
Agreement. InnerDyne agrees to cooperate fully with Sherwood in its pursuit of
applicable approvals or registrations. Sherwood shall obtain all necessary
documents or licenses and shall comply with all applicable laws, including, if
required, registration of the Agreement. Sherwood shall notify InnerDyne each
time it submits an application for a permit, approval or registration and shall
notify InnerDyne of all permits, approvals and registrations obtained by it.

               (iv)   Upon any expiration, cancellation, or termination of this
Agreement, the approvals obtained under subsections (i), (ii) and (iii) above
relating solely to InnerDyne Products shall promptly be transferred and
delivered to, and shall inure to the benefit of InnerDyne or its designee, to
the extent that this is permissible under applicable law, at no cost to
InnerDyne other than the direct costs of transferring such approvals. Within
seven (7) days of any such expiration, cancellation, or termination, Sherwood
shall provide to InnerDyne copies of all documentation necessary to have any
applicable regulatory approvals relating solely to InnerDyne Products in each
jurisdiction of the Territory not already in InnerDyne's name transferred to
InnerDyne.

        8(b)   Illegal Transfer. Sherwood agrees that it shall comply with all
applicable laws in the distribution of the Kits and that it shall not allow the
Kits, any trademarks or tradenames of InnerDyne, any proprietary information of
InnerDyne, or any direct product of such information, to be knowingly made
available, either directly or indirectly, or in any way to be knowingly given,
transferred, sold or re-exported to any country in violation of the laws or
export control regulations of such country or the European Union. United States
laws and export control regulations governing the exportability of technical
data and products to nations are subject to change. If any jurisdiction included
within the Territory shall, at the time of execution of the Agreement, or at any
time during the term of the Agreement, be placed in an excluded category by the
United States government for the receipt of either technical data or the
manufacture or sale of Kits or products such as those of InnerDyne and/or
Sherwood, Sherwood agrees that it shall take actions necessary to cease business
activity in the Kits in the excluded country.

SECTION 9. WARRANTIES, COVENANTS AND INDEMNIFICATION

        9(a)   Mutual. The parties represent and warrant that they have the full
right to enter into this Agreement and that this Agreement does not conflict
with any other agreements so long as the terms of this Agreement are met. The
parties represent and warrant that their respective products shall be
manufactured and produced in accordance with their respective product
specifications, in compliance with all applicable laws, and in accordance with
Good Manufacturing Practices ("GMP").

        9(b)   InnerDyne. InnerDyne represents and warrants that to its
knowledge it has the exclusive right to manufacture, sell and distribute the
InnerDyne Products and Modifications



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<PAGE>   10

used in the Kits, that the assembly of the InnerDyne Products and Modifications
into Kits with the Sherwood Products shall be in conformity with the Kit
specifications as embodied in Exhibits A and B, read together, and that to
InnerDyne's knowledge the use of any InnerDyne Product or Modification as
contemplated by this Agreement shall not infringe the intellectual property
rights of any third party.

        9(c)   Indemnification by Sherwood. Sherwood shall defend, indemnify and
hold InnerDyne harmless from and against any action brought against InnerDyne to
the extent such action is based on a claim (including, without limitation, a
claim for infringement or willful infringement, except to the extent that such
infringement has been caused by the action of InnerDyne, its employee or agents
or is based upon or arises out of the manufacture, importation, offer for sale,
sale or use of an InnerDyne Product as specifically authorized by InnerDyne)
made by any third party: (i) arising out of the negligent marketing, promotion,
distribution and sale of the Kits, where and to such extent the damages have
been caused by the action of Sherwood, its employees or agents; (ii) except as
set forth in 9(d), arising out of the use of a Kit; (iii) arising out of the use
of a Sherwood Product; or (iv) that any Sherwood Product (or any part thereof or
any intellectual property incorporated therein) or the use of any Sherwood
Product as contemplated by the parties under this Agreement infringes any
intellectual property right of any third party; provided, however, that
InnerDyne: (A) provides Sherwood with prompt notice of any such claim; (B)
allows Sherwood to direct the defense and settlement of such claims; (C)
provides Sherwood with the information and assistance necessary for such defense
and settlement of the claims; and (D) does not enter into any settlement with
respect to such claim. If a final injunction is obtained on an action based on
any such claim against InnerDyne's assembly of the Kits by reason of such
infringement, or if in Sherwood's reasonable opinion, such an injunction is
likely to be obtained, Sherwood may, at its sole option, either: (x) obtain for
InnerDyne the right to continue assembling the Kits; (y) replace or modify the
Kits so that such Kits become non-infringing; or (z) terminate this Agreement.
In the event of termination of this Agreement by Sherwood pursuant to (z) above
or if Sherwood otherwise terminates this Agreement because of a claim brought
against Sherwood or because Sherwood believes that any Sherwood Product (or any
part thereof or any intellectual property incorporated therein) or the use of
any Sherwood Product as contemplated by the parties under this Agreement
infringes any intellectual property right of any third party, Sherwood shall pay
InnerDyne the sum of [* * *], and the receipt of such payment shall be
InnerDyne's sole remedy for the termination of this Agreement by Sherwood;
provided, however, that Sherwood shall continue to be obligated to pay InnerDyne
for any amounts then due and payable to InnerDyne by Sherwood or its Affiliates
under this Agreement.

        9(d)   Indemnification by InnerDyne. InnerDyne shall defend, indemnify
and hold Sherwood harmless from and against any action brought against Sherwood
to the extent such action is based on a claim (including, without limitation, a
claim for infringement or willful infringement, except to the extent such
infringement has been caused by a modification or use of an InnerDyne Product
not specifically authorized by InnerDyne or is based upon or arises out of the
manufacture, importation, offer for sale, sale or use of a Sherwood Product)
made by any third party: (i) arising out of the manufacture of Kits by InnerDyne
where and to such extent the damages have been caused by the negligent action of
InnerDyne, its employees or agents; (ii) arising out of the use of any InnerDyne
Product; or (iii) that any InnerDyne Product (or any part



                                       10

                                                CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   11

thereof or any intellectual property incorporated therein) or the use of any
InnerDyne Product as contemplated by parties hereunder infringes any patent or
trade secret owned by any third party; provided, however, that Sherwood: (A)
provides InnerDyne with prompt notice of any such claim; (B) allows InnerDyne to
direct the defense and settlement of such claims; (C) provides InnerDyne with
the information and assistance necessary for such defense and settlement of the
claims; and (D) does not enter into any settlement with respect to such claim.
If a final injunction is obtained on an action based on any such claim against
Sherwood's promotion, sale, or use of the Kits by reason of such infringement,
or if in InnerDyne's reasonable opinion, such an injunction is likely to be
obtained, InnerDyne may, at its sole option, either: (x) obtain for Sherwood the
right to continue promoting, selling, or using the Kits; (y) replace or modify
the Kits so that such Kits become non-infringing; or (z) terminate this
Agreement. [* * * * * * * * * * *].

        9(e)   Combined Infringement. If as a result of a claim of infringement
of any intellectual property right of any third party, [* * * * * *] by reason
that the combination of the parties' respective products as contemplated by this
Agreement infringes the intellectual property rights of a third party, then
either of the parties upon written notice to the other, or both parties acting
jointly by mutual agreement, may (i) obtain the right for the parties to
continue their respective performance obligations under the Agreement, or (ii)
replace or so modify their respective products so that the combination of their
respective products as contemplated by this Agreement becomes non-infringing. 
[* * * * * * *]. Notwithstanding the foregoing, if the parties are unable to
reach agreement [* * * * *] to the dispute resolution process set forth in
Section 13 below. If as part of such dispute resolution process, 
[* * * * * * * *]. In the event that neither of the parties, either individually
or jointly, is, after the use of reasonable commercial efforts, able to
accomplish such replacement or modification or to obtain the right to continue
the manufacture, importation, offer for sale, sale and/or use of the combination
of the parties' respective products in the manner contemplated by this
Agreement, [* * * * *]. If the arbitrator determines [* * * * * * * * * *].

        9(f)   Limitation of Liability. THE PROVISIONS OF THIS ARTICLES 9 AND
7(e) SET FORTH THE ENTIRE LIABILITY OF INNERDYNE AND THE SOLE REMEDIES OF
SHERWOOD WITH RESPECT TO ANY THIRD-PARTY CLAIMS ARISING OUT OF INNERDYNE'S
MANUFACTURE OF THE KITS OR THE INNERDYNE PRODUCTS AND THE ENTIRE LIABILITY OF
SHERWOOD AND THE SOLE REMEDIES OF INNERDYNE WITH RESPECT TO THIRD-PARTY CLAIMS
ARISING OUT OF SHERWOOD'S MANUFACTURE OF THE SHERWOOD PRODUCTS AND ITS
MARKETING, PROMOTION, DISTRIBUTION AND SALE OF THE KITS. IN NO EVENT SHALL
INNERDYNE BE LIABLE WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER
ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY
FOR ANY DIRECT (EXCEPT AS OTHERWISE SET FORTH IN ARTICLES 9 AND 7(e) HERETO),
INDIRECT, CONSEQUENTIAL, PUNITIVE OR OTHER DAMAGES, INCLUDING COST OF
PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY OR SERVICES, SUFFERED BY SHERWOOD OR
ANY OF ITS CUSTOMERS ARISING OUT OF OR RELATED TO THE DISTRIBUTION, PROMOTION,
MARKETING, SALE OR USE OF THE KITS OR INNERDYNE PRODUCTS IN THE TERRITORY.



                                       11

                                                CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   12

        9(f)   Disclaimer of Warranty. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
THIS AGREEMENT, AND TO THE FULLEST EXTENT PERMITTED BY LAW, NEITHER PARTY MAKES
ANY WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, WITH RESPECT TO ITS
PRODUCTS OR THE KITS AND HEREBY DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND, IN THE
CASE OF INNERDYNE, NONINFRINGEMENT WITH RESPECT TO SUCH INNERDYNE PRODUCTS AND
KITS.

SECTION 10. USE OF TRADEMARKS; LABELING

        10(a)  Trademark License. The Kits shall bear Sherwood's trademarks
and/or tradenames. Sherwood hereby grants to InnerDyne the right to reproduce
Sherwood's trademarks and tradenames, whether registered or not, for use on the
Kits, solely in connection with sales of Kits by InnerDyne to Sherwood under
this Agreement. Except as otherwise stated herein, all right, title and interest
to Sherwood's trademarks and tradenames shall remain with Sherwood. Sherwood
shall have the right to reproduce InnerDyne trademarks and tradenames in
labeling, advertising and promoting the sale of the Kits for use in the Field in
the Territory, provided such trademarks and tradenames shall be identified as
the property of InnerDyne and used in accordance with InnerDyne's trademark use
guidelines.

        10(b)  Artwork/Labeling. Sherwood will solely be responsible for
providing the artwork for all over-labeling and/or outer packaging for
InnerDyne's prior approval, which will not be unreasonably withheld, at least
ninety (90) days prior to InnerDyne's first shipment of such Kits to Sherwood
hereunder. InnerDyne will perform the over-labeling and/or create the outer
packaging (as appropriate) on all Kits such that the Sherwood names and
trademarks are clearly visible and such labeling, and Kit markings generally,
comply with applicable regulatory requirements, which shall have been identified
by Sherwood and communicated in writing sufficiently in advance to InnerDyne.

        10(c)  Kits Labeling. Sherwood shall solely be responsible for providing
labeling in conformance with the requirements of any United States regulatory
agency, for C.E. marking, and the requirements of any regulatory agency in any
jurisdiction in the Territory that is outside of the United States. Sherwood
shall not modify or alter any labeling provided by InnerDyne for Kits without
prior written approval by InnerDyne. InnerDyne shall have the right to approve
to any labeling provided by Sherwood, which approval shall not unreasonably be
withheld.

SECTION 11. FACILITY AND RECORD AUDIT

        Upon giving reasonable notice to InnerDyne, Sherwood and any
representative thereof shall have the right to inspect, during normal business
hours, the manufacturing facility in which InnerDyne manufactures the InnerDyne
Products and assembles the Kits, and to review records of InnerDyne to assure
compliance with the terms of this Agreement. InnerDyne shall exert its
commercially reasonable efforts to obtain similar rights of inspection and
review at any subcontractors of InnerDyne involved in the manufacture of the
InnerDyne Products and the assembly of the Kits.



                                       12

                                                CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   13

SECTION 12. CONFIDENTIALITY AND DISCLOSURE

        12(a)  Confidentiality. Each party acknowledges that it has or will have
access to valuable proprietary information of the other party, including but not
limited to, technical data and customer and marketing information, all of which
are the property of the other party, have been maintained confidential, and are
used in the course of such other party's business. Each party shall not, either
during the term of this Agreement or thereafter, disclose the other party's
proprietary information to anyone other than those of its employees having a
need to know and shall refrain from use of such information other than in the
performance of this Agreement. In addition, the receiving party shall take all
reasonable precautions to protect the value and confidentiality of such
information to the originating party. All records, files, notes, drawings,
prints, samples, advertising material and the like relating to the business,
products or projects of the originating party and all copies made from such
documents, shall remain the sole and exclusive property of the originating party
and shall be returned to the originating party immediately upon written request
thereby. Each party agrees to continue to maintain all proprietary information
in confidence for a period of five (5) years following termination of this
Agreement, unless written authorization to disclose any such information is
first obtained from the originating party hereunder.

        12(b)  Exceptions. Neither party shall be obligated or required to
maintain in confidence any information that (A) it is required to disclose
information by order or regulation of a governmental agency or a court of
competent jurisdiction, provided that such party shall not make any such
disclosure (other than a filing of information or materials with the U.S.
Securities and Exchange Commission made with a request for confidential
treatment for portions of such material for which such treatment may reasonably
be expected to be granted or a similar filing of information or materials with
the National Association of Securities Dealers) without first notifying the
other party and allowing the other party a reasonable opportunity to seek
injunctive relief from (or protective order with respect to) the obligation to
make such disclosure or (B) it can demonstrate with written records: (i) is in
the public domain or known to the receiving party prior to disclosure by the
originating party, (ii) becomes known to the public after disclosure by the
originating party, other than through breach of this Agreement, (iii) becomes
known to the receiving party from a source other than the disclosing party
without breach of any obligation of confidence, or (iv) is or has been furnished
to a third party by the originating party without restriction on the third
party' s right to disclose.

SECTION 13. DISPUTE RESOLUTION

        13(a)  Pre-Arbitration. No arbitration with reference to this Agreement
shall arise until the following procedures have been satisfied. In the event a
disagreement or dispute under this Agreement is not resolved by the designated
representatives of each party by mutual agreement within thirty (30) days after
a meeting to discuss the disagreement, either party may at any time thereafter
provide the other written notice specifying the terms of such disagreement in
reasonable detail and the time sensitivity of such issue. Upon receipt of such
notice, the Chief Executive Officer of InnerDyne and the President of Sherwood
shall meet at a mutually agreed upon time, but no later than ten (10) days after
receipt of such notice, and location for the purpose of resolving such
disagreement. They will discuss the problems and/or negotiate for a period of up
to thirty (30) days, or shorter period as specified in the notice, in an



                                       13

                                                CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   14

effort to resolve the disagreement or negotiate an acceptable interpretation or
revision of the applicable portion of this Agreement mutually agreeable to both
parties, without the necessity of formal procedures relating thereto. During the
course of such negotiation, the parties will reasonably cooperate and provide
information that is not materially confidential in order that each of the
parties may be fully apprised of the issues in dispute. The institution of
arbitration to resolve the disagreement may occur only after the earlier of: (a)
the Chief Executive Officer and President mutually agreeing that resolution of
the disagreement through continued negotiation is not likely to occur, or (b)
following expiration of the thirty (30) days negotiation period.

        13(b)  Arbitration. Subject to Section 13(a), any claim, dispute or
controversy arising out of or in connection with or relating to this Agreement
or the breach or alleged breach thereof, except arising under Sections 3(g) or
12, shall be submitted by the parties to arbitration in accordance with the then
current commercial arbitration rules of the Center for Public Resources, Inc.
("CPR") except as otherwise provided herein. All proceedings shall be held in
English and a transcribed record prepared in English. The parties shall choose
one (1) arbitrator from a panel of five (5) arbitrators provided by CPR within
thirty (30) days of the establishment of the panel. Each party shall be entitled
to strike two (2) arbitrators from the panel. The arbitration shall be conducted
at a site designated by the arbitrator and that is mutually acceptable to the
parties. The parties hereby agree that any remedy or relief, whether legal or
equitable, that may be granted by such arbitrator shall not exceed the scope of
the agreement of the parties as set forth in this Agreement. The judgment
rendered by the arbitrator shall include costs of arbitration, reasonable
attorneys' fees and reasonable costs for expert and other witnesses, and
judgment on such award may be entered in any court having jurisdiction thereof.
Nothing in this Agreement shall be deemed as preventing either party from
seeking injunctive relief (or any other provisional remedy) from any court
having jurisdiction over the parties and the subject matter of the dispute as
necessary to protect either party's name, proprietary information, trade
secrets, know-how or any other proprietary rights. If the issues in dispute
involve scientific or technical matters, any arbitrator chosen hereunder shall
have educational training and/or experience sufficient to demonstrate a
reasonable level of relevant scientific or medical knowledge.

SECTION 14. TERM AND TERMINATION

        14(a)  Term of Agreement. This Agreement shall commence on the date
hereof and continue in full force and effect for a fixed term of [* * *] from
the date of receipt of the 510(k), unless terminated earlier under the
provisions of this Section 14 or other applicable termination provisions of this
Agreement. At the end of such fixed term, this Agreement may be renewed in
one-year increments provided that InnerDyne and Sherwood agree in writing prior
to the end of such fixed term, and each additional term, upon the terms and
conditions of such renewal, including, without limitation, any amendments to
this Agreement and the exhibits hereto and the term of such renewal period. If
such written agreement is not reached prior to the end of the then-current
contract term, then this Agreement shall terminate at the end of such current
contract term.

        14(b)  Termination For Cause. If either party defaults in the
performance of any provision of this Agreement, then the nondefaulting party
shall give written notice of the default to the defaulting party, and if the
default is not cured within sixty (60) days, the Agreement will



                                       14

                                                CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   15

be terminated; provided, however, if the default is such that it cannot
reasonably be cured within sixty (60) days, and the defaulting party shall
immediately and diligently undertake to cure the default after written notice
from the nondefaulting party during such sixty (60) day period, then the
Agreement shall not terminate at the end of the sixty (60) days period; provided
further, however, that if such default is not cured during the following thirty
(30) day period, then the Agreement shall automatically terminate at the end of
that thirty (30) day period.

        14(c)  Termination for Insolvency. Either party may terminate this
Agreement in the event that the other becomes insolvent, files a petition in
bankruptcy, or is declared bankrupt, or makes an assignment for benefit of
creditors, or there is reasonable evidence indicating the possibility of such
filing or assignment, during the term that this Agreement is in effect.
Termination under this provision shall be effective twenty (20) days following
written notice that this Agreement is being terminated for the reason stated in
this subject.

        14(d)  Effect of Termination; Limitation of Liability. In the event of
termination by either party in accordance with any of the provisions of this
Agreement, neither party shall be liable to the other, because of such
termination, for compensation, reimbursement or damages on account of the loss
of prospective profits or anticipated sales or on account of expenditures,
inventory, investments, leases or commitments in connection with the business or
goodwill of InnerDyne or Sherwood. Termination shall not, however, relieve
either party of obligations incurred prior to the termination or of any
obligations in this Agreement which by their terms survive termination
(including, without limitation, obligations of confidentiality and transfer of
regulatory approvals as set forth in Section 8(a)(iii) above, as discussed
herein, and the obligations of the parties set forth in Sections 9 and 13
above). Both InnerDyne and Sherwood shall be entitled to cancel all Purchase
Orders, to the extent Kits have not been delivered to Sherwood, which are
outstanding at the time of notice of termination, provided however that, subject
to payment in advance to InnerDyne, Sherwood shall be entitled to receive the
number of Kits necessary to fulfill valid and binding customer purchase orders
accepted by Sherwood prior to notification of termination of this Agreement.
Prior to filling such purchase orders, InnerDyne shall be entitled to request
and receive documentary evidence of all such outstanding purchase orders and an
accounting of Sherwood's existing inventory of Kits. InnerDyne shall return to
Sherwood any Sherwood Products still on hand, at Sherwood's expense.

        14(e)  Post-Termination Use of Materials. After termination of this
Agreement, neither party shall use any trademarks, tradenames, patents,
intellectual property, signs, equipment, advertising matter or material which
refer to or are related to the other and shall refrain from acts and omissions
that indicate or suggest a relationship with the other and shall immediately
discontinue use of all of the other's property, promotional material, and
proprietary information.

        14(f)  No Damages for Termination. NEITHER PARTY SHALL BE LIABLE TO THE
OTHER, INCLUDING DIRECT (OTHER THAN PURSUANT TO A TERMINATION UNDER SECTION
14(b) ABOVE), INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, ON ACCOUNT
OF THE TERMINATION OR EXPIRATION OF THIS AGREEMENT IN ACCORDANCE WITH THIS
ARTICLE 14. SHERWOOD WAIVES ANY RIGHTS IT MAY HAVE TO RECEIVE ANY COMPENSATION
OR REPARATIONS ON TERMINATION OR EXPIRATION OF THIS AGREEMENT UNDER THE LAW OF
ANY COUNTRY OUTSIDE THE



                                       15

                                                CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   16

UNITED STATES. Neither party shall be liable to the other on account of
termination or expiration of this Agreement for reimbursement or damages for the
loss of goodwill, prospective profits or anticipated income, or on account of
any expenditures, investments, leases or commitments made by the other or for
any other reason whatsoever. THE PARTIES ACKNOWLEDGE THAT THIS SECTION 14(f) HAS
BEEN INCLUDED AS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS
AGREEMENT AND THAT NEITHER PARTY WOULD HAVE ENTERED INTO THIS AGREEMENT BUT FOR
THE LIMITATIONS OF LIABILITY AS SET FORTH HEREIN.

SECTION 15. MISCELLANEOUS

        15(a)  Assignment. This Agreement may not be assigned by either party
without the prior written consent of the other, which consent shall not be
unreasonably withheld; provided, however, that either party may assign or
transfer its rights and obligations under this Agreement to a successor to all
or substantially all of its assets, whether by sale, merger, operation of law or
otherwise.

        15(b)  Entire Agreement; Amendment. This Agreement constitutes the
entire agreement between the parties hereto with respect to the within subject
matter and supersedes all previous agreements, whether written or oral. This
Agreement shall not be changed or modified orally, but only by an instrument in
writing signed by both parties.

        15(c)  Severability. If any provision of this Agreement is declared
invalid by a court of last resort or by any court from the decision of which an
appeal is not taken within the time provided by law, then and in such event,
this Agreement will be deemed to have been terminated only as to the portion
thereof which relates to the provision invalidated by that decision and only in
the relevant jurisdiction, but this Agreement, in all other respects and all
other jurisdictions, will remain in force; provided, however, that if the
provision so invalidated is essential to this Agreement as a whole, then the
parties shall negotiate in good faith to amend the terms hereof as nearly as
practical to carry out the original interest of the parties and, failing such
amendment, either party may submit the matter to arbitration for resolution
pursuant to Section 13(b).

        15(d)  Notices. All notices specified in this Agreement shall be given
in writing and shall be effective when either served by personal delivery or
facsimile transmission, or five (5) days after being addressed to the other
party at the address specified below and deposited in first class mail. Unless
otherwise specified in accordance with the provision of this Section, the
addresses of the parties shall be:

               InnerDyne, Inc.
               1244 Reamwood Avenue
               Sunnyvale, California 94089
               Attention: CEO or CFO
               Facsimile Number: 408/745-6570

               Sherwood Medical Company
               1915 Olive Street



                                       16

                                                CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   17

               St. Louis, Missouri 63103
               Attention: V.P. of Business Development
               Facsimile Number: 314/241-3127

        15(e)  Choice of Law. The validity, performance, construction, and
effect of this Agreement shall be governed by the laws of the State of
California which are applicable to contracts between California residents to be
performed wholly within California.

        15(f)  Waiver. The failure of either party to assert a right hereunder
or to insist upon compliance with any term or condition of this Agreement shall
not constitute a waiver of that right or excuse a similar subsequent failure to
perform any such term or condition by the other party. None of the terms,
covenants and conditions of this Agreement can be waived except by the written
consent of the party waiving compliance.

        15(g)  Force Majeure. If either party shall be delayed, interrupted in
or prevented from the performance of any obligation hereunder by reason of force
majeure including an act of God, fire, flood, earthquake, war (declared or
undeclared), public disaster, strike or labor differences, governmental
enactment, rule or regulation, or any other cause beyond such party's control,
such party shall not be liable to the other therefor; and the time for
performance of such obligation shall be extended for a period equal to the
duration of the contingency which occasioned the delay, interruption or
prevention, provided the party invoking such force majeure rights of this
subparagraph shall notify the other party of the force majeure as soon as
possible and exercises due diligence to remove the cause as soon as reasonably
practicable.

        15(h)  Publicity. InnerDyne and Sherwood shall agree upon the
publication time and date of any press release or other public statement
announcing this Agreement or any transaction contemplated under this Agreement.
Neither party shall make any public statement prior to the public release of
such press release except as may be required by law, judicial order or any
listing agreement with a national securities exchange or over-the-counter
trading system to which InnerDyne or Sherwood is a party. Except as permitted by
this Section 15(h) or except as required by law, judicial order or any listing
agreement with a national securities exchange or over-the-counter trading system
to which InnerDyne or Sherwood is a party, neither party shall disclose the
terms and conditions of this Agreement unless expressly authorized to do so by
the other party, which authorization shall not be unreasonably withheld;
provided that disclosure is expressly permitted by either party to its attorneys
and accountants on a confidential basis. Notwithstanding the foregoing,
InnerDyne may disclose on a confidential basis the terms and conditions of this
Agreement to potential underwriters in connection with any proposed public
offering by InnerDyne or to third parties interested in merging with or
acquiring or entering into a corporate partner transaction with InnerDyne.

        15(i)  Headings; Construction. The captions used herein are inserted for
convenience of reference only and shall not be construed to create obligations,
benefits, or limitations. No presumption shall operate in either party's favor
as a result of it or its counsel's role in drafting the terms and provisions
hereof.

        15(j)  Export. Each party acknowledges that the laws and regulations of
the United States restrict the export and re-export of commodities and technical
data of United States



                                       17

                                                CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   18

origin. Each party agrees that it will not export or re-export the technical
data of the other party in any form without any required United States and
foreign government licenses.

        15(k)  Counterparts. This Agreement may be executed in counterparts, all
of which taken together shall be regarded as one and the same instrument.
Execution and delivery of this Agreement by exchange of facsimile copies bearing
the facsimile signature of a party hereto shall constitute a valid and binding
execution and delivery of this Agreement by such party. Such facsimile copies
shall constitute enforceable original documents.










                                       18

                                                CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   19


        15(l)  Attorneys' Fees. If any action or proceeding shall be commenced
to enforce this Agreement or any right arising in connection with this
Agreement, the prevailing party in such action or proceeding shall be entitled
to recover from the other party, the reasonable attorneys' fees, costs and
expenses incurred by such prevailing party in connection with such action or
proceeding.


                            [Signature page follows.]













                                       19

                                                CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   20


        IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate originals by their duly authorized representatives.

INNERDYNE, INC.                        SHERWOOD MEDICAL COMPANY
                                       D/B/A SHERWOOD-DAVIS & GECK

By:    /s/ William G. Mavity           By:  /s/  D.G. Thomas
       --------------------------           ------------------------------------
             (Signature)                           (Signature)
       William G. Mavity                    D.G. Thomas
       --------------------------           ------------------------------------
             (Print Name)                          (Print Name)
Title: President / CEO                      VP Global Strategic Planning and R&D
       --------------------------           ------------------------------------

Date:  January 6, 1997                      January 6, 1997
       --------------------------           ------------------------------------















          SIGNATURE PAGE TO LICENSE, SUPPLY AND DISTRIBUTION AGREEMENT

                                                CONFIDENTIAL TREATMENT REQUESTED

<PAGE>   21



                                                                         SL-1992
                                                                        04/06/98

                                    EXHIBIT A

                               INNERDYNE PRODUCTS

                              PRODUCT SPECIFICATION
                     RADIALLY EXPANDING ACCESS DEVICE (READ)
                                   PRELIMINARY


        The Radially Expanding Access Device (READ) will consist of four
assemblies: Radially Expanding Sleeve, Needle, Cannula and Dilator.

System Requirements:

        [      *      *      *      *       *      *      *      *      *]

Radially Expanding Sleeve:
        [      *      *      *      *       *      *      *      *      *]

Cannula
        [      *      *      *      *       *      *      *      *      *]

Dilator
        [      *      *      *      *       *      *      *      *      *]

Needle
        [      *      *      *      *       *      *      *      *      *]













                                                CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   22



                                                                         SL-1992
                                                                        04/06/98

                                    EXHIBIT B

                                SHERWOOD PRODUCTS




               PRODUCT

        [      *      *      *      *       *      *      *      *      *]

        [      *      *      *      *       *      *      *      *      *]

        [      *      *      *      *       *      *      *      *      *]

        [      *      *      *      *       *      *      *      *      *]

        [      *      *      *      *       *      *      *      *      *]

        [      *      *      *      *       *      *      *      *      *]

        [      *      *      *      *       *      *      *      *      *]

        [      *      *      *      *       *      *      *      *      *]














                                                CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   23



                                                                         SL-1992
                                                                        04/06/98

                                    EXHIBIT C

                            MINIMUM ANNUAL QUANTITIES



        Year                                              Kits (Units)

        [      *      *      *      *       *      *      *      *      *]
        [      *      *      *      *       *      *      *      *      *]
        [      *      *      *      *       *      *      *      *      *]















                                                CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   24



                                                                         SL-1992
                                                                        04/06/98

                                    EXHIBIT D

                             BUDGET FOR C.E. MARKING

                    REGULATORY CE MARKING BUDGET FOR THE KIT




*    ANNUAL COSTS TO BE ADJUSTED AS NECESSARY IN THE EVENT OF CHANGE

       o Annual Certificate fee (including Project Management) [**]

       o Annual audit costs estimated to be [*     *]

       o Annual audit of Sherwood and Sherwood vendors [* *]

       o Annual maintenance cost for IDYN personnel 20 hours [*  *]




*    FIRST YEAR COSTS IN ADDITION TO THE ANNUAL COSTS

       o Kema-RQI one time audit fee estimated to be [*   *]

       o Cost for IDYN personnel 150 hours [*      *]










                                                CONFIDENTIAL TREATMENT REQUESTED