Document:

exv10w6

 

 

[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

Exhibit 10.6

Distribution Agreement

by and between

Cardica, Inc.

a Delaware Corporation

and

Century Medical, Inc.

a Japanese Corporation

Dated as of June 16, 2003

 

 

Table of Contents

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	1.	 	DEFINITION OF TERMS	 	 	1	 
	 
	 	1.1	 	“Competing Products”	 	 	1	 
	 
	 	1.2	 	“Contract Year”	 	 	1	 
	 
	 	1.3	 	“First Commercial Sale”	 	 	1	 
	 
	 	1.4	 	“Initial Term”	 	 	1	 
	 
	 	1.5	 	“Party” or “Parties”	 	 	1	 
	 
	 	1.6	 	“Premarketing Term”	 	 	2	 
	 
	 	1.7	 	“Products”	 	 	2	 
	 
	 	1.8	 	“Territory”	 	 	2	 
	2.	 	APPOINTMENT OF DISTRIBUTOR	 	 	2	 
	 
	 	2.1	 	Appointment as DISTRIBUTOR by COMPANY	 	 	2	 
	 
	 	2.2	 	Subdistributors	 	 	3	 
	3.	 	TERM OF DISTRIBUTORSHIP	 	 	3	 
	4.	 	DUTIES OF DISTRIBUTOR	 	 	3	 
	 
	 	4.1	 	Duties of DISTRIBUTOR	 	 	3	 
	 
	 	4.2	 	Product Approvals	 	 	4	 
	5.	 	DUTIES OF COMPANY	 	 	5	 
	 
	 	5.1	 	Duties of COMPANY	 	 	5	 
	6.	 	EXPENSES	 	 	6	 
	 
	 	6.1	 	DISTRIBUTOR’s Expenses	 	 	6	 
	 
	 	6.2	 	COMPANY’s Expenses	 	 	6	 
	7.	 	RECORDS AND REPORTS	 	 	6	 
	 
	 	7.1	 	Records and Reports	 	 	6	 
	 
	 	7.2	 	Adverse Experience Reporting	 	 	7	 
	 
	 	7.3	 	Updating/Revising Agreement	 	 	7	 
	 
	 	7.4	 	Recall	 	 	7	 
	8.	 	SALES OF PRODUCT TO DISTRIBUTOR	 	 	7	 
	 
	 	8.1	 	Purchase Prices and Terms	 	 	7	 
	 
	 	8.2	 	Risk of Loss, Deliveries	 	 	8	 
	 
	 	8.3	 	Acceptance and Cancellation of Orders	 	 	8	 

-i-

 

Table of Contents

(continued)

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 
	 	8.4	 	Product Specifications	 	 	8	 
	 
	 	8.5	 	Taxes	 	 	9	 
	 
	 	8.6	 	Purchase Levels	 	 	9	 
	9.	 	PRODUCT LIABILITY	 	 	11	 
	 
	 	9.1	 	Claim, Suit or Action	 	 	11	 
	 
	 	9.2	 	Product Liability Insurance	 	 	11	 
	10.	 	WARRANTY POLICY	 	 	12	 
	 
	 	10.1	 	Warranties	 	 	12	 
	 
	 	10.2	 	Rejection of Products	 	 	13	 
	11.	 	PATENTS, TRADEMARKS, COPYRIGHTS; PROPRIETARY AND CONFIDENTIAL INFORMATION	 	 	13	 
	 
	 	11.1	 	Trademark License	 	 	13	 
	 
	 	11.2	 	Duty to Preserve Confidentiality	 	 	14	 
	 
	 	11.3	 	Proprietary	 	 	14	 
	12.	 	INDEMNITIES	 	 	14	 
	 
	 	12.1	 	Indemnity	 	 	14	 
	 
	 	12.2	 	Infringing Products	 	 	15	 
	13.	 	TERMINATION	 	 	15	 
	 
	 	13.1	 	Cancellation for Cause	 	 	15	 
	 
	 	13.2	 	Obligations upon Cancellation or Termination	 	 	16	 
	14.	 	GENERAL PROVISIONS	 	 	18	 
	 
	 	14.1	 	Force Majeure	 	 	18	 
	 
	 	14.2	 	Relationship Between Parties	 	 	18	 
	 
	 	14.3	 	Successors, Nonassignability	 	 	19	 
	 
	 	14.4	 	Survival of Obligations	 	 	19	 
	 
	 	14.5	 	Remedies	 	 	19	 
	 
	 	14.6	 	Notices	 	 	19	 
	 
	 	14.7	 	Disputes	 	 	20	 
	 
	 	14.8	 	Unenforceable Terms	 	 	20	 
	 
	 	14.9	 	Waivers	 	 	20	 

-ii-

 

Table of Contents

(continued)

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 
	 	14.10	 	Governing Law; Headings	 	 	20	 
	 
	 	14.11	 	Entire Agreement, Modification	 	 	21	 
	 
	 	14.12	 	Further Assurances	 	 	21	 
	 
	 	14.13	 	Schedules	 	 	21	 
	 
	 	14.14	 	Counterparts	 	 	21	 
	SCHEDULE 1.	 	Products and Prices	 	 	22	 
	SCHEDULE 2.	 	Memorandum of Compliance	 	 	23	 
	SCHEDULE 3.	 	Reporting for Product Defects,
Adverse Events, Overseas Corrective Action Reports and Research
Reports	 	 	25	 

-iii-

 

DISTRIBUTION AGREEMENT

This DISTRIBUTION AGREEMENT (“Agreement”) is made this 16th day of June, 2003 (“Effective Date”),
by and between Cardica, Inc., a Delaware corporation with its principal place of business located
at 171 Jefferson Drive, Menlo Park, CA 94025, USA (hereinafter referred to as “COMPANY”) and
Century Medical, Inc., a Japanese Corporation with its principal place of business located at 1-6-4
Ohsaki, Shinagawa-Ku, Tokyo, 141-8588, Japan (hereinafter referred to as “DISTRIBUTOR”) in
consideration of the mutual covenants and conditions hereinafter stated.

1. DEFINITION OF TERMS

1.1 “Competing Products”

“Competing Products” shall mean automated anastomosis products that seal coronary artery bypass
grafts to accomplish surgical anastomosis except for and excluding hemostasis products that, as of
the Effective Date, DISTRIBUTOR distributes in the Territory that are manufactured by CryoLife,
Inc. (BioGlueTM), which shall not be considered Competing Products or other anastomosis devices that
create a surgical anastomosis outside the coronary area of the body.

1.2 “Contract Year”

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

1.3 “First Commercial Sale”

“First Commercial Sale” shall mean the first sale of any Product with the intended maximum shelf
life of twelve (12) months or more by DISTRIBUTOR to a third party in the Territory with all
medical device approvals required to market and sell such Product (“Shonin” or “Lui Betsu Kyoka”)
from The Japanese Ministry of Health, Labour and Welfare (“MHLW”) and all import permits from the
appropriate government authorities (“Hinmoku Kyoka”). COMPANY hereby represents and warrants that,
as of the Effective Date, COMPANY has obtained conditional CE Mark approval for the “Proximal
Device” Product and the Proximal Device Product is a commercially available Product to DISTRIBUTOR
to begin the device approval process stated above.

1.4 “Initial Term”

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

1.5 “Party” or “Parties”

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

[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

1.

 

1.6 “Premarketing Term”

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

1.7 “Products”

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

1.8 “Territory”

“Territory” shall mean Japan.

2. APPOINTMENT OF DISTRIBUTOR

2.1 Appointment as DISTRIBUTOR by COMPANY.

COMPANY hereby appoints DISTRIBUTOR as its exclusive importer and distributor of COMPANY’s Products
for the Territory in consideration of COMPANY’s issuance of a promissory note (the “Note”),
concurrent with the execution of that certain Subordinated Convertible Note Agreement in the amount
of three million U.S. dollars ($3,000,000.00), and DISTRIBUTOR hereby accepts such appointment on
the terms and conditions set forth in this Agreement. Under no circumstances shall DISTRIBUTOR have
authority to sell or distribute any Products outside the Territory. COMPANY shall also grant to
DISTRIBUTOR a right of first negotiation for the import and distribution in the Territory of all
new and future products with all line extensions, modifications and improvements thereto,
manufactured and sold by COMPANY or products acquired by COMPANY or its affiliates for distribution
by COMPANY. Such distribution shall be in accordance with the terms and conditions of this
Agreement, with a per unit purchase price and minimum purchase levels (“MPL”) mutually agreeable to
COMPANY and DISTRIBUTOR. If within thirty (30) days of COMPANY’s first written proposal to
DISTRIBUTOR, COMPANY and DISTRIBUTOR cannot agree upon a per unit purchase price and MPL for such
new products or if DISTRIBUTOR declines to distribute such products, then COMPANY will be permitted
to distribute or cause to distribute by alternate means only such products as were first offered to
DISTRIBUTOR for distribution in the Territory; provided, however, that COMPANY’s
distribution of said products by alternate means shall be upon terms and conditions (including the
per unit purchase price and MPL) to such alternate distributor no more favorable than the terms and
conditions under which such products were last offered to DISTRIBUTOR for distribution.

[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

2.

 

2.2 Subdistributors.

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

3. TERM OF DISTRIBUTORSHIP

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

4. DUTIES OF DISTRIBUTOR

4.1 Duties of DISTRIBUTOR.

DISTRIBUTOR covenants and agrees to do each of the following:

               (i) DISTRIBUTOR shall use commercially reasonable efforts to promote and sell the Products in
the Territory;

               (ii) DISTRIBUTOR shall send one person from its sales and marketing organization to COMPANY
for training prior to the First Commercial Sale of the Products in the Territory for a period of
time mutually agreed upon by the Parties;

               (iii) DISTRIBUTOR shall maintain a commercially reasonable stock of the Products in order to
promote the Products in the Territory;

               (iv) DISTRIBUTOR shall exhibit Products at industry meetings in the Territory;

               (v) DISTRIBUTOR shall create and develop a training program for end-user physician customers
in the Territory in cooperation with COMPANY; DISTRIBUTOR shall not sell Products to any end-users
who have not been trained in the use of the Products.

               (vi) DISTRIBUTOR shall confer with COMPANY, from time to time, upon the written request of
COMPANY, on matters relating to the marketing and promotion of the Products in the Territory;

               (vii) DISTRIBUTOR shall keep COMPANY informed regarding regulatory requirements in the
Territory and shall, from time to time, provide COMPANY with updated amendments to Schedule
2 attached hereto;

[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

3.

 

               (viii) DISTRIBUTOR shall not solicit the sale of, promote the sale of, sell, exhibit for sale,
distribute or manufacture any Competing Products in the Territory;

               (ix) DISTRIBUTOR shall translate Product literature into the Japanese language when necessary;
and

               (x) during the term of this Agreement, and for a period of [*] years from the expiration or
termination of this Agreement, DISTRIBUTOR, its affiliates, successors and assigns shall not
directly solicit or indirectly solicit for employment or hire in any capacity any personnel
employed by COMPANY or any affiliate of COMPANY.

4.2 Product Approvals.

DISTRIBUTOR shall use its commercially reasonable efforts to obtain, at its own expense (except as
otherwise provided herein), all “Lui Betsu Kyoka,” “Me-too” or “Kairyo Iryoyogu” Shonin (as defined
below) from the MHLW needed to market the Products in the Territory. DISTRIBUTOR shall be under no
obligation to conduct or perform any clinical trial for purposes of obtaining any Shonin or
marketing the Products in the Territory. For the purposes of this section, “Lui Betsu Kyoka,”
“Me-too” and “Kairyo Iryoyogu” Shonin shall mean those Shonins approved without conducting any
clinical trials in the Territory. Lui Betsu Kyoka approval is not expected to exceed six (6) months
from the Effective Date, subject to DISTRIBUTOR’s receipt of all necessary information from COMPANY
required to prepare and file for the Lui Betsu Kyoka. COMPANY and DISTRIBUTOR recognize that
competitive devices already on the market in the Territory have been classified as Lui Betsu Kyoka
qualified devices; the easiest category to register a Product in the Territory. In the event that
the MHLW requires a more formal Shonin application, either a “Me-too” or “Kairyo Iryoyogu” Shonin
or “Shin Iryoyogu,” COMPANY and DISTRIBUTOR will diligently and in good faith apply for a Shonin in
the appropriate category. “Shin Iryoyogu” shall mean the Shonin approved based on clinical trials
or utilizing foreign clinical study data obtained for the purpose of seeking regulatory approval.
In the event that the Parties agree to conduct any clinical trials in the Territory with a
reasonable number of clinical cases for obtaining Shonin approval, COMPANY shall, at no charge to
DISTRIBUTOR, supply DISTRIBUTOR with all necessary Products. All other costs associated with any
clinical trials conducted in the Territory shall be borne by DISTRIBUTOR. COMPANY shall support any
clinical trial activity in the Territory with all information available at its disposal. COMPANY
reserves the right to approve any study design (protocol) related to clinical trials in the
Territory, which approval shall not be unreasonably withheld.

In the event that DISTRIBUTOR is unable, within five (5) years of the Effective Date of this
Agreement, to obtain First Commercial Sale, COMPANY shall have the sole and exclusive right to
terminate this Agreement with immediate effect.

[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

4.

 

5. DUTIES OF COMPANY

5.1 Duties of COMPANY.

COMPANY covenants and agrees to do each of the following:

               (i) COMPANY shall use its commercially reasonable efforts to research and respond to Product
improvement needs of end-users in the Territory;

               (ii) COMPANY shall not, (a) appoint any other distributor or importer of the Products in the
Territory during the term of this Agreement or (b) make sales, directly or indirectly, of any of
the Products to any person in the Territory other than DISTRIBUTOR or to any customer outside the
Territory who is known to COMPANY, or who COMPANY should reasonably know, intends to introduce,
directly or indirectly, the Products into the Territory. Further, subject to Section 2.1, COMPANY
shall not, directly or indirectly, import, manufacture, sell, market or otherwise distribute in the
Territory (except pursuant to this Agreement) the Products or any products directly competitive
with the Products;

               (iii) COMPANY shall provide DISTRIBUTOR with all materials necessary to obtain and maintain
Shonin or Lui Betsu Kyoka for the import and sale of Products within the Territory by promptly
furnishing to DISTRIBUTOR, at COMPANY’s cost, such technical descriptions, specifications, data,
drawings, information, service manuals, quality control audits, facility inspection reports issued
by governmental regulators or international quality control auditors, and so forth regarding the
Products, in the English language, as DISTRIBUTOR may reasonably request;

               (iv) COMPANY shall provide DISTRIBUTOR, at no cost, all Products necessary for DISTRIBUTOR to
fulfill its obligations under Section 4.2 however, the number of Products supplied at no charge to
DISTRIBUTOR shall not exceed ten (10) units of sterile Products per non Shin Iryoyogu Shonin
application. The number of units of sterile Products necessary for a Shin Iryoyogu Shonin shall be
determined by the number of patients required by the clinical protocol;

               (v) COMPANY shall provide DISTRIBUTOR with the information, documentation, data and
certificates listed in Schedule 2, as amended from time to time, necessary for DISTRIBUTOR
to remain in compliance with the Good Manufacturing Practices for Importers laws and regulations of
the Territory;

               (vi) COMPANY shall inform DISTRIBUTOR, from time to time, of technical and other developments
regarding the Products as they may occur;

               (vii) COMPANY shall furnish to DISTRIBUTOR on an on-going basis, at COMPANY’s cost, with a
reasonable quantity of such technical, advertising and selling information and other promotional
literature in the English language regarding the Products;

               (viii) COMPANY shall provide Product training to personnel of DISTRIBUTOR at times and places
mutually agreed upon by both Parties, with each Party bearing its own expenses for attending such
training;

[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

5.

 

               (ix) COMPANY shall provide DISTRIBUTOR a reasonable amount of non-sterile functional Products
for demonstration purposes at [*] percent ([*]%) of the sterile Products price. The total number of
non-sterile functional Products sold to DISTRIBUTOR at the discounted price shall be determined at
COMPANY’s sole discretion. The total number of non-sterile non-functional Products given to
DISTRIBUTOR at no charge shall initially be twenty (20) units and any additional quantities shall
be provided at COMPANY’s sole discretion. All such non-sterile Products shall be used for
demonstration purposes only and may not be used for any other commercial activity (e.g., sale;
lease; loaner; etc.) or implanted; and

               (x) during the term of this Agreement and for a period of [*] ([*]) years from the expiration
or termination of this Agreement, COMPANY, its affiliates, successors and assigns shall not
directly solicit or indirectly solicit for employment or hire in any capacity any personnel
employed by DISTRIBUTOR or any affiliate of DISTRIBUTOR.

6. EXPENSES

6.1 DISTRIBUTOR’s Expenses.

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

6.2 COMPANY’s Expenses.

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

7. RECORDS and REPORTS

7.1 Records and Reports.

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

DISTRIBUTOR and COMPANY each shall, for tracking purposes, maintain accurate delivery, receiving
and shipping records including model and lot numbers of the Products.

[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

6.

 

7.2 Adverse Experience Reporting.

COMPANY and DISTRIBUTOR shall follow the guidelines contained in Schedule 3 regarding
adverse events associated with the Products.

7.3 Updating/Revising Agreement.

The Parties shall amend this Agreement from time to time to the extent necessary to incorporate
changes to Schedule 3 reflecting changes in the regulatory requirements applicable to
adverse events within their respective territories.

7.4 Recall.

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

8. SALES OF PRODUCT TO DISTRIBUTOR

8.1 Purchase Prices and Terms.

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

[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

7.

 

8.2 Risk of Loss, Deliveries.

DISTRIBUTOR shall purchase the Products from COMPANY FCA (as defined under Incoterms 2000 of the
International Chamber of Commerce) place of manufacture with risk of loss passing to DISTRIBUTOR
upon delivery of the Products to the carrier. DISTRIBUTOR shall be responsible for taxes (other
than any taxes on COMPANY’s income) and import duties imposed in the Territory and for shipping
fees. COMPANY shall deliver accepted orders within the acknowledged time of shipment stated in
COMPANY’s acceptance of the order. All Products shall be packed for shipment and storage in
accordance with COMPANY’s standard commercial practices, unless DISTRIBUTOR notifies COMPANY of
special packaging requirements, in which event COMPANY shall be entitled to charge DISTRIBUTOR for
any additional costs approved in advance by DISTRIBUTOR.

8.3 Acceptance and Cancellation of Orders.

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

8.4 Product Specifications.

COMPANY shall be obligated to deliver Products of the specifications and quality standards in
effect at the time and made known to DISTRIBUTOR and which contain a minimum shelf life of the
greater of [*] months or [*] percent ([*]%) of the intended maximum shelf life for such Product at
the time COMPANY delivers an order. COMPANY shall use reasonable efforts to extend the intended
maximum shelf life of Products to [*] months or more by December 31, 2003 and [*] months or more
for such Products during 2004. COMPANY reserves the right to change the design or specifications of
any of the Products at any time with ninety (90) days prior written notice to DISTRIBUTOR. COMPANY
also reserves the right to discontinue the manufacture and distribution of any of the Products at
any time, with ninety (90) days prior written notice to DISTRIBUTOR and, without substitution, in
COMPANY’s sole discretion;

[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

8.

 

provided that a discontinuation or cancellation of a Product or Product line for the purpose of
transfer to a third party or to an affiliate of the COMPANY shall be deemed an assignment of the
COMPANY’s rights and obligations of this Agreement with respect to such Products, and COMPANY shall
ensure that such transferee shall be bound by the terms and conditions of this Agreement to the
same extent as the COMPANY with respect to any such Products. COMPANY acknowledges and understands
that a substantial lead time is required to obtain Shonin for Product specification changes and
COMPANY will use its commercially reasonable efforts to give DISTRIBUTOR as much advance
notification as possible in excess of ninety (90) days concerning Product specification changes. In
the event COMPANY discontinues the manufacture or distribution of any Product or in the event of a
Product specification change or in the event of COMPANY’s refusal to or failure to accept or fill
any bona fide purchase orders for Products, DISTRIBUTOR’s MPL under Section 8.6 herein shall be
amended and adjusted accordingly.

8.5 Taxes.

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

8.6 Purchase Levels.

DISTRIBUTOR’s right to maintain its exclusive distributorship as set forth in Section 2.1, herein,
shall be subject to the following:

               (i) The MPL for Contract Years 1 through 3 shall be the following sales goals that, if not
met, are non-breach, non-termination events:

	 	 	 
	Proximal Device	 	Distal Device
	Contract Year 1 : [*] units ([*]% market share)

	 	Year 1: [*] ([*]% market share)
	 
	 	 
	Contract Year 2 : [*] units ([*]% market share)

	 	Year 2: [*] ([*]% market share)
	 
	 	 
	Contract Year 3 : [*] units ([*]% market share)

	 	Year 3: [*] ([*]% market share)

               Contract Year 1 for “Distal Device” shall commence when (1) DISTRIBUTOR has obtained all
necessary regulatory approvals for this Product in accordance with Section 4.2 of this Agreement
and (2) COMPANY has extended the intended maximum shelf life of this Product to twelve (12) months
or more in accordance with Section 8.4 of this Agreement.

               (ii) Contract Year 4 and thereafter: DISTRIBUTOR and COMPANY shall prepare and agree upon an
MPL ninety (90) days prior to the anticipated beginning of the Contract Year 4 of the Initial Term
and ninety (90) days prior to the beginning of each

[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

9.

 

subsequent Contract Year thereafter during the term of this Agreement and any subsequent
Renewal Periods. With respect to Product line extensions, the Parties shall make MPL adjustments as
mutually agreed upon, commensurate with the expanded total available market opportunity associated
with the expanded Product offerings. If after exhausting all reasonable efforts COMPANY and
DISTRIBUTOR are unable to mutually agree upon an MPL ten (10) days prior to the beginning of a
subsequent Contract Year, then the default MPL for the subsequent Contract Year shall be the
product of the actual purchases by DISTRIBUTOR during the Contract Year immediately preceding the
subsequent Contract Year times [*] for Contract Year 4 and [*] for any subsequent Contract Year
after Contract Year 4.

               (iii) For thirty (30) days following the conclusion of any Contract Year of the Agreement in
which DISTRIBUTOR has not purchased the MPL for that Contract Year, DISTRIBUTOR shall have the
discretionary right but not the obligation to purchase additional Products from COMPANY at the then
applicable purchase prices in order to satisfy DISTRIBUTOR’s MPL for the prior Contract Year. Any
purchases credited towards the prior Contract Year’s MPL in accordance with the immediately
preceding sentence shall not be credited towards the then current Contract Year’s MPL.

               (iv) Except as described in Section 8.6(iii) above, for purposes of this Section 8.6, a
Product shall be deemed purchased during a designated Contract Year when a firm purchase order has
been received and accepted by COMPANY during such Contract Year, and which order calls for delivery
of Products within that Contract Year.

               (v) Notwithstanding any other provision of this Agreement to the contrary, any MPL then in
effect shall be adjusted accordingly to reflect the effect of any new Products and any Product line
extensions, any Product recall, any discontinuation of a Product or Product line, any change in
design or specifications of any Product which has a material adverse impact on DISTRIBUTOR’s
ability to market or sell such Product, any transfer to a third party or affiliate of COMPANY of
any Product as described in Section 8.4 that has a material adverse impact on DISTRIBUTOR’s ability
to market or sell such Product, any termination of this Agreement with respect to a Product as
described in Section 12.2, any refusal or failure by COMPANY to satisfy a bona fide purchase order
made in accordance with the terms of Section 8.3, or any relevant event of force majeure as set
forth in Section 14.1.

               (vi) COMPANY shall have the right but not the obligation to terminate this Agreement in the
event that DISTRIBUTOR has not purchased the MPL for Contract Year 4 and any Contract Year
thereafter during the term of this Agreement.

               (vii) Notwithstanding any provision of this Agreement to the contrary, the MPL has been and
will be established solely for the purpose of providing COMPANY with a contingent right to
terminate the exclusive distributorship granted to DISTRIBUTOR under Section 2.1, in Contract Year
4 and any Contract Year thereafter. COMPANY agrees that its sole remedy for any failure of
DISTRIBUTOR to achieve the MPL for Contract Year 4 and any Contract Year thereafter shall be the
termination of DISTRIBUTOR’s exclusive distributorship rights hereunder without any rights to claim
against DISTRIBUTOR for any alleged losses or damages of any kind, for reimbursement of any costs
of any kind, including attorneys’ fees, or for payment of any other kind; provided,
however, that the obligations between DISTRIBUTOR

[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

10.

 

and COMPANY under Section 13.2, which may include payments, shall survive a termination for
failure of DISTRIBUTOR to fulfill the MPL. This Section 8.6(vii) is not intended to, and shall not
be construed to, create any obligation on the part of DISTRIBUTOR to purchase, or any right on the
part of COMPANY to cause DISTRIBUTOR to purchase, Products in quantities necessary to satisfy any
MPL for any Contract Year.

9. PRODUCT LIABILITY

9.1 Claim, Suit or Action.

If any claim is made or any suit or action is instituted against DISTRIBUTOR arising out of or
otherwise in connection with any defect or alleged defect in the Products sold by COMPANY to
DISTRIBUTOR under this Agreement, COMPANY shall, without limiting the general indemnity provided by
Section 12.1 of this Agreement, at its own expense and upon request by DISTRIBUTOR:

               (i) investigate or research the causes of accidents, occurrences, injuries or losses affecting
any person or property as a result of the manner in which the Products are designed, manufactured,
treated, packaged, labeled, delivered, sold or used, and use its best efforts to correct or
eliminate such causes within a reasonable period; and

               (ii) provide to DISTRIBUTOR any and all assistance (including, without limitation, technical
and other information, documents, data, materials and witnesses) which are, in the opinion of
DISTRIBUTOR or its counsel, necessary or useful for DISTRIBUTOR’s defense to such claim, suit or
action in relation to the Products sold by COMPANY to DISTRIBUTOR hereunder.

9.2 Product Liability Insurance.

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

[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

11.

 

10. WARRANTY POLICY

10.1 Warranties.

COMPANY warrants that the Products sold to DISTRIBUTOR shall be (1) free from any defects in
material, design, workmanship, manufacture, treatment, packing, instruction manuals, labeling,
warning or otherwise until the use before date (“UBD”) for sterile Products, (2) substantially in
conformance with the written specifications maintained by COMPANY at the date of delivery of such
Products, and (3) in compliance at all times with the requirements of and regulations adopted
pursuant to the U.S. Federal Food, Drug and Cosmetic Act and applicable Japanese law. COMPANY
further warrants that it will convey good title to all Products delivered to DISTRIBUTOR free from
any security interest, liens or other encumbrance. COMPANY will provide, when requested by
DISTRIBUTOR, certification that, to the best of its knowledge, it is in compliance with U.S. and
applicable Japanese laws, statutes, rules, and regulations and relevant orders relating to the
manufacture, use, distribution and sale of the Products. COMPANY’S SOLE OBLIGATION UNDER THE
FOREGOING WARRANTY SHALL BE, AT COMPANY’S SOLE ELECTION, TO EITHER REPLACE THE RELEVANT PRODUCT OR
REFUND DISTRIBUTOR’S FULLY-LANDED PURCHASE PRICE FOR SUCH PRODUCT. Such obligation shall be subject
to COMPANY being granted the reasonable opportunity to inspect, at COMPANY’s expense, the defective
Product at the location of its use or storage and, upon request in accordance with COMPANY’s
instruction, return of the Product to COMPANY at COMPANY’s cost. Any such replacement of Products
may be made by substitution of any similar Product meeting substantially identical quality
specifications and payment by the COMPANY of all freight, handling and duty charges or taxes
incident to the delivery of such replacement Products. Upon request by COMPANY, in accordance with
COMPANY’S instruction, DISTRIBUTOR shall return the Product to COMPANY at COMPANY’s cost;
provided, however, that IN THE EVENT THAT THE RETURN OF A PRODUCT POSES A HEALTH
RISK, DUE TO THE POSSIBILITY THAT SUCH PRODUCT HAS BEEN EXPOSED TO AN INFECTIOUS DISEASE OR
OTHERWISE, COMPANY, DISTRIBUTOR AND THE END-USER SHALL DETERMINE A MUTUALLY SATISFACTORY METHOD FOR
COMPANY TO INSPECT OR OTHERWISE OBTAIN ADDITIONAL INFORMATION ABOUT THE PRODUCT IN ORDER FOR
COMPANY TO DETERMINE ITS OBLIGATION UNDER THE FOREGOING WARRANTY. NOTWITHSTANDING THE FOREGOING,
COMPANY MAKES NO WARRANTY, NOR SHALL IT HAVE ANY OTHER OBLIGATION TO DISTRIBUTOR WITH RESPECT TO
ANY PRODUCT SOLD HEREUNDER, TO THE EXTENT THAT, PRIOR TO USE, SUCH PRODUCT HAS EXCEEDED ITS UBD
ACCORDING TO THE PRODUCT’S LABEL OR HAS NOT BEEN USED, HANDLED OR STORED IN ACCORDANCE WITH COMPANY
GUIDELINES AS COMMUNICATED BY COMPANY TO DISTRIBUTOR.

Without limiting the generality of the foregoing, and except as provided in Section 12.1,
DISTRIBUTOR shall not purport to give, or assume on behalf of COMPANY, any other or different
guarantee, warranty, obligation or liability whatsoever, including without limitation liability for
loss or damage to person or property resulting from default or defect in design, workmanship or
material or goods of any kind, other than stipulated in such warranties as COMPANY may specify from
time to time. Furthermore, DISTRIBUTOR shall only give such warranties as specified in this Section
10.1 or as specified by COMPANY from time to time on

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COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

12.

 

its own behalf and shall not give such other or different warranties or guarantees on its own
behalf unless DISTRIBUTOR obtains the prior written consent of COMPANY on each such occasion.

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

10.2 Rejection of Products.

               (i) DISTRIBUTOR shall inspect all Products promptly upon receipt thereof and may reject any
Product that fails in any material way to meet the then-current specifications for such Product.
Any Product not properly rejected within [*] days of receipt of such Product by DISTRIBUTOR (the
“Rejection Period”) shall be deemed accepted. To reject a Product, DISTRIBUTOR shall, within the
Rejection Period, notify COMPANY of its rejection and request a Material Return Authorization
(“MRA”) number. COMPANY shall provide the MRA number to DISTRIBUTOR within seven (7) days of
receipt of the request. Within seven (7) days of receipt of the MRA number, DISTRIBUTOR shall
return to COMPANY the rejected Product, freight collect, with the MRA number displayed on the
outside of the carton. COMPANY reserves the right to refuse to accept any rejected Products that do
not bear an MRA number on the outside of the carton. As promptly as possible but no later than [*]
working days after receipt of properly rejected Products, COMPANY shall, at its option and expense,
either replace the Products or refund DISTRIBUTOR’s original fully landed purchase price for the
Products. COMPANY shall pay the cost of shipping charges incurred by DISTRIBUTOR for properly
rejected products.

               (ii) Notwithstanding the foregoing, Products which are found to be defective for failure to
conform to COMPANY’s specifications at an end-user’s site shall be initially replaced by
DISTRIBUTOR. COMPANY shall then replace such defective Products with Products meeting
specifications within [*] days of (1) receipt of the defective Products, or (2) confirmation by
DISTRIBUTOR that such defective Products have been disposed of by an end-user and receipt of a
completed customer complaint form. The final good faith determination concerning non-conformance of
any Product shall rest solely with COMPANY.

11. PATENTS, TRADEMARKS, COPYRIGHTS;

PROPRIETARY AND CONFIDENTIAL INFORMATION

11.1 Trademark License.

COMPANY hereby grants to DISTRIBUTOR a non-exclusive, royalty-free right and license (with right of
sub-license to sub-distributors appointed under Section 2.2) to use the trademarks, trade names,
copyrights, and other intellectual property (except patents which are expressly excluded from this
Agreement) of COMPANY as communicated to DISTRIBUTOR from time to time (hereinafter referred to as
the “Trademarks”) in connection with the sale or other distribution, promotion, advertising and
maintenance of the Products under this Agreement.

[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

13.

 

DISTRIBUTOR may indicate in its advertising and promotion and on its stationery that it is an
“authorized exclusive distributor” of the Products for the Territory. DISTRIBUTOR has no permission
to and will not adopt, use or register as a trademark, trade name, business name, or corporate name
or part thereof, whether during the term of this Agreement or after its termination, any word, or
symbol confusingly similar to any Trademarks. Furthermore, upon request and at COMPANY’s expense,
DISTRIBUTOR shall discontinue or cancel the registration of any and all Trademarks utilized and
registered by DISTRIBUTOR in connection with the Products prior to or after the execution of this
Agreement, except as provided in Section 13.2(iii).

11.2 Duty to Preserve Confidentiality.

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

11.3 Proprietary.

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

12. INDEMNITIES

12.1 Indemnity.

COMPANY shall, at its own expense, defend, indemnify and hold harmless DISTRIBUTOR, its officers,
directors, employees, agents, successors and assigns (the “Indemnified Parties”) against any and
all liabilities, claims, actions, suits, fines, penalties, losses, settlements, costs and expenses
(including, without limitation, reasonable attorneys’ fees and expenses) (collectively “Losses”)
relating to or arising out of any suit, claim or proceeding instituted against any of the

[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

14.

 

Indemnified Parties by any third party or incurred in connection therewith, alleging that: (i) any
patent, trademark or any other intellectual property right of COMPANY infringes the intellectual
property rights of such third party; or (ii) any defect in the Products or their design or
manufacture caused bodily injury or death to any person or damage to any property. Notwithstanding
the foregoing, COMPANY shall not be responsible for such Losses as set forth in this section to the
extent that: (a) such Product has been altered, modified or tampered with by DISTRIBUTOR directly
resulting in such Product defect; or (b) such Product has been misused as a result of DISTRIBUTOR’s
unauthorized representation about the Product directly resulting in such Losses; or (c) such Losses
arise directly out of any negligence, recklessness or willful misconduct by DISTRIBUTOR or any of
its employees; or (d) DISTRIBUTOR fails to give COMPANY reasonable written notice of any such claim
as soon as is reasonably practicable. COMPANY shall have the sole control of the defense and/or
settlement of any claim subject to indemnification under this Section 12.1; provided, however, that
COMPANY shall not control or settle any such claim without prior consultation with DISTRIBUTOR.

12.2 Infringing Products.

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

13. TERMINATION

13.1 Cancellation for Cause.

COMPANY or DISTRIBUTOR, as the non-defaulting Party, may cancel this Agreement, immediately by
providing written notice to the other Party, upon the occurrence of any of the following events:

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COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

15.

 

               (i) The other Party becomes insolvent or is unable to pay its debts as they mature or ceases
to pay in the ordinary course of business its debts as they mature; or the other Party makes an
assignment for the benefit of its creditors; or a receiver, liquidator, custodian, trustee or the
like is appointed for the other Party or its property; or the other Party commences a voluntary
case under any applicable bankruptcy or insolvency law or consents to the entry of an order for
relief in any involuntary case, or a court with jurisdiction enters a decree for relief in any
involuntary case involving the other Party.

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

13.2 Obligations upon Cancellation or Termination.

Upon the expiration of this Agreement or its termination in accordance with Section 8.6(vi),
Section 12.2 or Section 13.1 above, and after the allowance for any applicable cure periods,
DISTRIBUTOR and COMPANY each promise to do the following immediately:

               (i) DISTRIBUTOR shall pay to COMPANY all amounts which are then due and payable by DISTRIBUTOR
to COMPANY under this Agreement less any such amounts which reasonably may be set-off by
DISTRIBUTOR based on a dispute or otherwise arising out of or related to this Agreement.

               (ii) Each Party shall return to the other Party all Confidential Information of the other
Party in its possession or under its control, together with a statement signed by an officer or
duly authorized representative of the Party to the effect that all of the Confidential Information
has been returned to the other Party.

               (iii) Except to the extent that DISTRIBUTOR requires use of the Trademarks in order to
exercise DISTRIBUTOR’s right to sell any existing inventories of Products upon the expiration or
termination of this Agreement, as provided for in Section 13.2(iv), DISTRIBUTOR shall cease to use
any of the Trademarks and return to COMPANY all materials supplied to DISTRIBUTOR by COMPANY which
contain any of the Trademarks. Furthermore, upon receipt of written notice from COMPANY,
DISTRIBUTOR shall dispose of all packaging, labels, brochures, lists, and other similar materials
containing any of the Trademarks in accordance with COMPANY’s instructions, except for those
materials necessary for DISTRIBUTOR’s continuing sale of existing inventories of Products provided
for in Section 13.2(iv). COMPANY shall reimburse DISTRIBUTOR for the direct costs (exclusive of
overhead) and disposal costs of such materials.

               (iv) COMPANY or its successor (A) shall repurchase all sterile Products with a UBD at the date
of termination or expiration of this Agreement of [*]% of the intended maximum shelf life remaining
or greater at DISTRIBUTOR’s original landed cost plus any consumption tax applicable in the
Territory to sales or deliveries of Products to a third party in the Territory; provided,
however, that any Products with [*]% or more of the UBD remaining but less than [*]% of the
UBD remaining shall be subject to a [*] percent ([*]%) restocking fee to be charged by COMPANY, and
(B) shall pay DISTRIBUTOR for all documented out of pocket

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COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

16.

 

expenses directly related to all Shonin then held by DISTRIBUTOR; provided,
however, that DISTRIBUTOR shall have the absolute right to continue to sell any such
Products not repurchased by COMPANY, in accordance with this Section 13.2(iv). All payments by
COMPANY under this Section 13.2(iv) shall be made by wire transfer to an account to be specified by
DISTRIBUTOR on or prior to thirty (30) days after DISTRIBUTOR has delivered the Products and
provided COMPANY with an invoice.

For purposes of this Section 13.2(iv), “out of pocket expenses” shall include any Product costs,
documentation, Product testing fees, and any clinical trial related expenses, etc. Specifically
excluded from “out of pocket expenses” are DISTRIBUTOR overhead, salary, travel expenses and other
expenses, which derive from the operation of DISTRIBUTOR’s business as an ongoing business concern
in the Territory.

               (v) Subject to payment by COMPANY to DISTRIBUTOR of all out of pocket expenses, as detailed in
Section 13.2(iv) above, DISTRIBUTOR shall diligently and expediently take the necessary steps to
transfer any Shonin held by DISTRIBUTOR for the Products to a third-party affiliated with COMPANY,
and located and organized under the law of the Territory, that is authorized and legally entitled
to hold the Shonin.

               (vi) During the period that the Shonin are in the process of being transferred, DISTRIBUTOR
shall otherwise cooperate with COMPANY by importing and reselling the Products to COMPANY’S next
authorized distributor at DISTRIBUTOR’s fully landed cost for the Products plus a mark-up of [*]
percent ([*]%) and any applicable consumption tax. The general purchase and sales terms of this
Agreement will govern the sale of Products during this transfer period. COMPANY expressly agrees to
indemnify DISTRIBUTOR for any non-payment by COMPANY’s next distributor for Products so resold by
DISTRIBUTOR or for any other non-performance of DISTRIBUTOR out of DISTRIBUTOR’s immediate control
during such transfer period.

               (vii) In the event that COMPANY or its successor exercises its right to terminate this
Agreement pursuant to Section 14.3(ii) below, COMPANY shall be obligated to pay DISTRIBUTOR a
termination fee which shall be calculated in accordance with the following table (the “Change of
Control Termination Fee”):

	 	 	 	 	 
	If Change of Control	 	Then the Change of Control	 	 
	termination occurs during:	 	Termination Fee shall be equal to:	 	Multiplied by a factor of
	[*]

	 	[*]
	 	[*]
	 
	 	 	 	 
	[*]

	 	[*]
	 	[*]
	 
	 	 	 	 
	[*]

	 	[*]
	 	[*]
	 
	 	 	 	 
	[*]

	 	[*]
	 	[*]

Gross profit shall mean net sales in YEN of the Products less the price of the Products paid by
DISTRIBUTOR to COMPANY in YEN.

[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

17.

 

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

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

14. GENERAL PROVISIONS

14.1 Force Majeure.

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

14.2 Relationship Between Parties.

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

14.3 Successors, Nonassignability.

               (i) This Agreement and each and every covenant, term and condition hereof is binding upon and
inures to the benefit of the Parties hereto and their respective successors and permitted assigns.
Except as provided in Section 2.2 above, neither this Agreement nor any rights hereunder may be
assigned by DISTRIBUTOR directly, indirectly, voluntarily or by operation of law, without first
receiving the prior written consent of COMPANY. In the event of (A) any consolidation of COMPANY
with or merger of COMPANY with or into another entity, or (B) any sale, transfer or lease of all or
substantially all the Product related assets of

[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

18.

 

COMPANY, or (C) any event in which any person or group of persons acting in concert acquire
more than 50% of the voting stock of COMPANY (each, a “Change in Control”), COMPANY shall to such
extent assign its rights and obligations under this Agreement to such acquirer of COMPANY’s stock
or assets. COMPANY shall further provide DISTRIBUTOR with prior written notice of such assignment
accompanied by a written undertaking of the assignee that the assignee shall be bound by this
Agreement and assume all obligations of COMPANY under this Agreement.

               (ii) Provided that such Change in Control occurs, COMPANY or COMPANY’s successor shall have
ninety (90) days from the date of such a Change in Control to notify DISTRIBUTOR in writing of its
intention either to terminate this Agreement or to accept the assignment of and assume all rights
and obligations of COMPANY under the terms and conditions of this Agreement. In the event that the
COMPANY or COMPANY’s successor notifies DISTRIBUTOR within ninety (90) days of the Change of
Control that it has chosen to terminate this Agreement (the “Change of Control Termination Event”),
then COMPANY shall promptly pay to DISTRIBUTOR by wire transfer to an account to be specified by
DISTRIBUTOR the Change of Control Termination Fee set forth in Section 13.2(vii).

14.4 Survival of Obligations.

Both Parties agree that the obligations described in Sections 4.1(x), 5.1(x), 7.2, 7.3, 7.4, 8.5,
10.1, 13.2 and Articles 9, 11, 12 and 14 of this Agreement shall survive any termination,
cancellation, or expiration of this Agreement.

14.5 Remedies.

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

14.6 Notices.

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

14.7 Disputes.

In the event there arises a dispute between the Parties as to the performance or interpretation of
any of the provisions of this Agreement, or as to matters related to but not covered by this
Agreement, the Parties shall first attempt to find a mutually agreeable solution by consultation in
good faith. If the matter has not been resolved within thirty (30) days of their first meeting to
resolve a dispute, then any such dispute shall be determined finally by final and binding
arbitration in accordance with the International Arbitration Rules of the American Arbitration
Association. The place of arbitration shall be either (a) Menlo Park, California, U.S.A. if
initiated

[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

19.

 

and brought by DISTRIBUTOR or (b) Tokyo, Japan if initiated and brought by COMPANY and the language
of the arbitration shall be English. The arbitral tribunal shall consist of a single arbitrator. If
the Parties shall not have agreed upon an arbitrator within thirty (30) days of the notice of
arbitration, then the Administrator of the American Arbitration Association shall appoint one. At
minimum, the arbitral tribunal shall be experienced in cross-border transactions in the area of
medical devices. The unsuccessful Party in an arbitration shall pay and discharge all reasonable
costs and expenses (including reasonable attorneys’ fees) which are incurred by the other Party in
enforcing this Agreement.

Judgment upon the award of the arbitrator may be entered in any court having jurisdiction thereof.
The Parties acknowledge that this Agreement and any award rendered pursuant to it shall be governed
by the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Award.

Pending the submission to arbitrators and thereafter until the single arbitrator renders the award,
the Parties shall, except in the event of termination, continue to perform all their obligations
under this Agreement without prejudice to a final adjustment in accordance with the award.

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

14.8 Unenforceable Terms.

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

14.9 Waivers.

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

14.10 Governing Law; Headings.

This Agreement shall be governed by and construed in accordance with the substantive law of the
State of California, U.S.A. excluding that body of law applicable to choice or conflicts of law.
The headings to the paragraphs of this Agreement are for convenience of reference only, do not form
a part of this Agreement, and shall not in any way affect the interpretation hereof.

14.11 Entire Agreement, Modification.

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

[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

20.

 

14.12 Further Assurances.

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

14.13 Schedules.

The schedules attached hereto are incorporated herein by this reference and expressly made a part
hereof as fully as though completely set forth herein.

14.14 Counterparts.

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

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

	 	 	 	 	 	 
	 	CARDICA, INC.	 	 
	 	 
	 	 	 	 
	 	By:

	 	/s/ Bernard Hausen	 	 
	 	 

	 	 	 	 
	 	Name:

Title:

	 	Bernard Hausen, MD

President & CEO	 	 
	 	 
	 	 	 	 
	 	CENTURY MEDICAL, INC.	 	 
	 	 
	 	 	 	 
	 	By:

	 	/s/ Yasuo Kyotani	 	 
	 	 

	 	 	 	 
	 	Name:

	 	Yasuo Kyotani	 	 
	 	Title:

	 	President and CEO	 	 

[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

21.

 

Schedule 1. Products and Prices

$[*] per Proximal Device FCA.

$[*] per Distal Device FCA.

If the selling price to Distributor exceeds [*]% of COMPANY’s average U.S. selling price, then
DISTRIBUTOR shall have the right to discuss pricing matters with COMPANY. COMPANY shall reasonably
disclose its average U.S. selling price to Distributor upon written request by DISTRIBUTOR.

COMPANY shall on a case by case basis prepare price quotations for custom made Products based upon
DISTRIBUTOR’s specific inquiry, taking into consideration expected purchase volumes.

[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

22.

 

Schedule 2. Memorandum of Compliance

In order to comply with the request from Century Medical, Inc. (“CMI”), Cardica, Inc (“We” or “we”)
shall implement and undertake the following:

1. QC Certificate

We shall include a Quality Control Certificate in every shipment to CMI. Such Quality Control
Certificate shall be specific as to lots or Serial Number and the date of manufacture, and indicate
that the Product shipped is within Product specifications (inspection & test record). In case the
Products are sterilized by ETO, we shall also include an ethylene oxide residual analysis report.

2. Sterilization Validation Data

We shall provide CMI with the latest Sterilization Validation Data at least once a year and when
validated.

3. Certificate to Foreign Government and Standard Operating Procedure (SOP), etc.

We shall provide CMI with the up-dated “Certificate to Foreign Government” issued by the FDA
relating to our manufacturing plant or a copy of the certificate certifying compliance to ISO13485,
EN 46001 or successor regulations.

We shall provide CMI the following information at least once every two years for CMI to confirm
that the Product specifications conform to the contents of the Japanese Regulatory Approvals
document: copies of the (i) up-dated version of the Product specification sheet; (ii) production
flow chart; and (iii) SOP of quality control testing protocol; and (iv) other necessary documents
in order to maintain GQP, GVP and GMP, and keep CMI updated when these documents are amended or
modified. In addition, we shall allow CMI personnel to visit our facility, with reasonable notice,
to actually confirm these points at the manufacturing plant.

4. Advance Notice of Product Modifications and/or Improvements

We shall keep CMI informed in writing regarding any and all modifications and/or improvements of
the Products, change in method of sterilization, change in packaging, change in facility or factory
location, changes in test standards and change in quality control method for transportation and
delivery of the Products. Product modifications that might reasonably be expected to affect the
validity of the regulatory status of the Products will be discussed with CMI prior to
implementation of such changes.

5. Facility Inspections, Product Recalls

We shall promptly notify CMI of any actions taken with respect to our business or the Products by
regulators in other jurisdictions, including (i) any facility inspection resulting in any notice of
infraction, warning or other action, (ii) voluntary or mandatory recalls or withdrawal of Products,
(iii) administrative or court proceedings regarding the Products, (iv) MDR, (v) information on
proceedings taken to avoid occurrence or enlargement of health/hygiene danger and (vi) any

[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

23.

 

similar matters. We will promptly provide CMI with copies of any correspondence with regulators
regarding any of the foregoing.

6. Transmitting Information Method and Person Responsible

Concerning the events specified in items 4 and 5 above, both Parties will notify the other of the
primary (preferred) method of transmitting information and the name and position title of the
person responsible for sending and/or receiving these transmissions. Both parties will settle the
detail of information transmission method, including mailing address, phone and fax numbers and
e-mail address of person in charge, and promptly inform the other Party in case of change.

7. Packaging

We shall provide for the Products to be suitably packaged and packed for export.

8. Product Complaint Handling

We shall provide CM with a written report of our findings, in a reasonably timely manner, in
response to any Product complaint report submitted by CMI. Where a Product complaint involves a
Product failure that resulted in bodily injury or death, we shall expedite and place the highest
priority possible to investigating and reporting in writing our findings to CMI.

9. On-site investigation of Compliance with GMP (ISO 13485;2003) by regulator

In order to register each manufacturing site(s) related to compliance with GMP (ISO 13485;2003), we
shall allow regulator’s personnel, with reasonable notice, (i) to visit our manufacturing site(s)
and (ii) to investigate such compliance.

10. Addition or amendment to this Memorandum

When any addition or amendment to this Memorandum is required in compliance with GQP, GVP and GMP,
we agree to discuss them with CMI in good faith.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Cardica, Inc.	 	 	 	Century Medical, Inc.	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	Date:
	 	2-16-05
	 	 	 	Date:
	 	February 22, 2005	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	Signature:
	 	/s/ Bernard Hausen
	 	 	 	Signature:
	 	/s/ Yasuo Kyotani	 	 	 	 
	 

	 	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	Name:
	 	Bernard Hausen, MD, PhD
	 	 	 	Name:
	 	Yasuo Kyotani	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	Title:
	 	President and CEO
	 	 	 	Title:
	 	President and CEO	 	 	 	 

[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

24.

 

Schedule 3 Reporting for Product Defects, Adverse Events, Overseas Corrective Action Reports and Research
Reports.

The language used for all communications under this Schedule 3 shall be English. The attached
Decision Trees delineate (i) what Product defects or Adverse Events are reportable or
non-reportable to MHLW under the Japanese Regulatory Affairs Law along with the time limit for
DISTRIBUTOR to report such matters after DISTRIBUTOR becomes aware of those and (ii) definitions of
the technical terms used in this Schedule 3. In any event, DISTRIBUTOR is obligated to report
Overseas Corrective Action Reports and Research Reports.

FDA Reportable Events by COMPANY means the following (see 21 C.F.R. §803 for further details
regarding reporting requirements and time frames):

	 	a.	 	Medical Device Report (MDR) is required whenever COMPANY becomes aware of information
suggesting that one of its marketed devices (i) may have caused or contributed to a death or
serious injury, or (ii) has malfunctioned and this malfunction is likely to cause or
contribute to a death or serious injury if it recurs.
	 
	 	b.	 	Adverse Event or Serious injury/(Serious Illness) is an injury or illness that:
	 
	 	 	 	Is life threatening, even if temporary in nature; or
	 
	 	 	 	Results in permanent impairment of a body function or permanent damage to a body structure;
or
	 
	 	 	 	Necessitates medical or surgical intervention to preclude permanent impairment of a body
function or permanent damage to a body structure.
	 
	 	(i)	 	Regulatory Reporting Requirements. COMPANY and DISTRIBUTOR each will be responsible for
regulatory reporting and for responding to regulatory inquiries within their respective
territories. DISTRIBUTOR and COMPANY each shall use their best efforts to notify the other,
by telephone, facsimile or email within forty-eight (48) hours (but in any event such
notification shall occur within seventy-two (72) hours) after either Party becomes aware of
any matter which must be reported to the MHLW or FDA. The Party which becomes aware of any
such matter will use its best efforts to provide to the other Party within five (5) calendar
days of first becoming aware of such matter (but in any event no later than within five (5)
business days), with a detailed written report, by facsimile regarding the event. COMPANY
shall supply DISTRIBUTOR with a copy of its medical device report filed with the FDA in
accordance with the Medical Device Reporting Regulation (21 C.F.R. § 803 (2001) within
twenty-four (24) hours of supplying such a report to FDA. DISTRIBUTOR shall supply COMPANY
with a copy of its report filed with the MHLW within twenty-four (24) hours of supplying such
a report to the MHLW. Follow-up reports to the initial report will be submitted using the
same procedures and timelines.
	 
	 	(ii)	 	Non-reportable Product Defects or Non-Reportable Adverse Events. DISTRIBUTOR will notify
COMPANY of non-reportable Product defects or non-reportable Adverse Events within ten (10)
calendar days after it becomes aware of any such Product defects or Adverse Events.

[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

25.

 

Decision Trees

First check “Device Defect Report” decision tree, as attached hereto. After checking the
“Device Defect Report” decision tree, as attached hereto, cheek also the “Adverse Events Reports”
decision tree, as attached hereto, in case a patient’s death or injury has occurred.

Definition of the technical terms:

	 	1.	 	Serious

	 	(1)	 	Death.
	 
	 	(2)	 	Disability.
	 
	 	(3)	 	Cases which might be related to death or disability.
	 
	 	(4)	 	Cases which require admission or prolongation of the period of admission to a
hospital or clinic for treatment. (excluding cases in (3))
	 
	 	(5)	 	Severe cases which might be related to death or injury.
	 
	 	(6)	 	Congenital diseases or abnormalities in subsequent generations.

	 	2.	 	Moderate
	 
	 	 	 	Incidents neither Serious nor Slight.
	 
	 	3.	 	Slight
	 
	 	 	 	Symptoms caused by incidents are slight and easily cured.
	 
	 	4.	 	Level of seriousness of a case which might have occurred.
	 
	 	 	 	This is to be determined by judging how serious (in the worst case) a health hazard caused
by the case has been, assuming the case occurs again; even if the patient or user was not
deceased or injured, or a serious health hazard was avoided due to the intervention of a
doctor, in spite of a device defect.
	 
	 	5.	 	Prediction of the tendency of occurrence
	 
	 	 	 	This is to be determined by judging whether number, frequency, conditions, etc. relating to
occurrence of an incident is clearly written in the device’s Instructions for Use (“IFU”)
package insert. In order to be judged as predictable, it must be assured that not only
manufacturer (importer) but also users such as doctors and nurses can predict the tendency
of occurrence of the incident. Such case is categorized as a “known-incident.”
	 
	 	6.	 	Prediction of occurrence
	 
	 	 	 	This is to be determined by judging whether occurrence of an incident is clearly written in
the device’s IFU package insert. In order to be judged as predictable, it must be assured
that not only manufacturer (importer) but also users such as doctors and nurses can predict
the occurrence of the incident. Such case is categorized as a “known-incident.” For
purposes of clarity, it is not to be determined as a “known-incident” where an incident has
occurred under conditions other than those written in the IFU package insert.

[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

26.

 

Device Defect Reports

(in case Patient’s death or injury simultaneously occurs, check “Adverse Event Report” flowchart also.)

[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

27.

 

Adverse Events Reports (with Patient’s death or injury)

[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

28.

 

Overseas Corrective Action Reports and Resarch Reports

[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

29.exv10w7

 

[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

Exhibit 10.7

SUBORDINATED CONVERTIBLE NOTE AGREEMENT

 

 

Table of Contents

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	1.	 	DESCRIPTION OF NOTE AND COMMITMENT	 	 	1	 
	 
	 	1.1	 	Procedure for Loan	 	 	1	 
	 
	 	1.2	 	Interest	 	 	1	 
	 
	 	1.3	 	Maximum Interest Rate	 	 	2	 
	 
	 	1.4	 	Payments	 	 	2	 
	 
	 	1.5	 	Post-Maturity and Penalty Interest	 	 	2	 
	 
	 	1.6	 	Note	 	 	2	 
	 
	 	1.7	 	Delivery of Note; Closing	 	 	3	 
	 
	 	1.8	 	Place of Payment	 	 	3	 
	 
	 	1.9	 	Home Office Payment	 	 	3	 
	2.	 	INTERPRETATION OF AGREEMENT; DEFINITIONS	 	 	3	 
	 
	 	2.1	 	Definitions	 	 	3	 
	 
	 	2.2	 	Accounting Principles	 	 	6	 
	 
	 	2.3	 	Directly or Indirectly	 	 	6	 
	 
	 	2.4	 	Legal Holidays	 	 	6	 
	3.	 	REPRESENTATIONS AND WARRANTIES OF THE COMPANY	 	 	6	 
	 
	 	3.1	 	Corporate Organization and Authority	 	 	6	 
	 
	 	3.2	 	Subsidiaries	 	 	7	 
	 
	 	3.3	 	Authority	 	 	7	 
	 
	 	3.4	 	Financial Statements	 	 	7	 
	 
	 	3.5	 	Business Changes	 	 	7	 
	 
	 	3.6	 	Litigation	 	 	9	 
	 
	 	3.7	 	Compliance with Laws and Other Instruments	 	 	9	 
	 
	 	3.8	 	Title to Properties; Leases	 	 	9	 
	 
	 	3.9	 	Licenses, etc	 	 	9	 
	 
	 	3.10	 	Proprietary Rights	 	 	10	 
	 
	 	3.11	 	Taxes	 	 	10	 
	 
	 	3.12	 	Private Offering	 	 	11	 
	 
	 	3.13	 	Full Disclosure	 	 	11	 
	4.	 	REPRESENTATIONS AND WARRANTIES OF CENTURY	 	 	11	 

-i-

 

Table of Contents

(continued)

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 
	 	4.1	 	Corporate Organization	 	 	11	 
	 
	 	4.2	 	Authority	 	 	11	 
	 
	 	4.3	 	Restricted Note	 	 	12	 
	 
	 	4.4	 	Disclosure of Information	 	 	12	 
	 
	 	4.5	 	Investment Experience	 	 	12	 
	 
	 	4.6	 	Accredited Investor	 	 	12	 
	 
	 	4.7	 	Rule 144	 	 	13	 
	5.	 	CONDITIONS PRECEDENT	 	 	13	 
	 
	 	5.1	 	Disbursement	 	 	13	 
	 
	 	5.2	 	Conditions to Obligations of the Company	 	 	13	 
	6.	 	COVENANTS OF THE COMPANY	 	 	14	 
	 
	 	6.1	 	Corporate Existence	 	 	14	 
	 
	 	6.2	 	Maintenance of Properties	 	 	14	 
	 
	 	6.3	 	Merger; Acquisitions	 	 	14	 
	 
	 	6.4	 	Sale or Lease of Assets; Dispositions	 	 	14	 
	 
	 	6.5	 	Indebtedness	 	 	14	 
	 
	 	6.6	 	Notice of Claims and Litigation	 	 	15	 
	 
	 	6.7	 	Notice of Default	 	 	15	 
	7.	 	EVENTS OF DEFAULT	 	 	15	 
	 
	 	7.1	 	Payments	 	 	15	 
	 
	 	7.2	 	Bankruptcy	 	 	15	 
	 
	 	7.3	 	Commencement of an Action	 	 	15	 
	 
	 	7.4	 	Default of Indebtedness	 	 	16	 
	 
	 	7.5	 	Covenants and Agreements	 	 	16	 
	 
	 	7.6	 	Certain Occurrences Under Distribution Agreement	 	 	16	 
	 
	 	7.7	 	Other Remedies	 	 	16	 
	8.	 	SUBORDINATION AND SECURITY INTEREST OF CENTURY	 	 	16	 
	 
	 	8.1	 	Default on Senior Indebtedness	 	 	16	 
	 
	 	8.2	 	Effect of Subordination	 	 	17	 
	 
	 	8.3	 	Subrogation	 	 	17	 

-ii-

 

Table of Contents

(continued)

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 
	 	8.4	 	Undertaking	 	 	17	 
	 
	 	8.5	 	Subordination of Future Debt	 	 	17	 
	 
	 	8.6	 	Security Interest	 	 	17	 
	 
	 	8.7	 	Financing Statements and Other Actions	 	 	18	 
	9.	 	CONVERSION OF NOTE	 	 	18	 
	 
	 	9.1	 	Conversion Right	 	 	18	 
	 
	 	9.2	 	Conversion Price	 	 	18	 
	 
	 	9.3	 	Exercise of Conversion Privilege	 	 	18	 
	 
	 	9.4	 	Fractions of Shares	 	 	19	 
	 
	 	9.5	 	Notice of Certain Corporate Action	 	 	19	 
	 
	 	9.6	 	Company to Reserve Common Stock	 	 	20	 
	 
	 	9.7	 	Covenant as to Common Stock	 	 	20	 
	 
	 	9.8	 	Change of Control	 	 	20	 
	 
	 	9.9	 	Issue Tax	 	 	20	 
	 
	 	9.10	 	Transfer and Exchange of the Note	 	 	20	 
	 
	 	9.11	 	Loss, Theft, Mutilation or Destruction of a Note	 	 	20	 
	 
	 	9.12	 	Expenses, Stamp Tax Indemnity	 	 	21	 
	 
	 	9.13	 	Cancellation of Converted Note	 	 	21	 
	10.	 	REGISTRATION RIGHTS	 	 	21	 
	11.	 	MISCELLANEOUS	 	 	21	 
	 
	 	11.1	 	Powers and Rights Not Waived; Remedies Cumulative	 	 	21	 
	 
	 	11.2	 	Notice	 	 	21	 
	 
	 	11.3	 	Successors and Assigns	 	 	22	 
	 
	 	11.4	 	Survival of Representations and Warranties	 	 	22	 
	 
	 	11.5	 	Severability	 	 	22	 
	 
	 	11.6	 	Waiver of Conditions	 	 	23	 
	 
	 	11.7	 	Counterparts	 	 	23	 
	 
	 	11.8	 	Governing Law	 	 	23	 
	 
	 	11.9	 	Captions	 	 	23	 
	 
	 	11.10	 	Dispute Resolution	 	 	23	 

-iii-

 

Table of Contents

(continued)

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 
	 	11.11	 	Survival	 	 	24	 
	 
	 	11.12	 	Term; Termination	 	 	24	 
	 
	 	11.13	 	Entire Agreement; Amendment and Modification	 	 	24	 

-iv-

 

[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

SUBORDINATED CONVERTIBLE NOTE AGREEMENT

     This Subordinated Convertible Note Agreement (this “Agreement”), is entered into
as of the 16th day of June 2003, by and between Century Medical, Inc. a Japanese
corporation, and Cardica, Inc., a Delaware corporation.

Recitals

     A. The Company and Century desire to enter into an exclusive Distribution Agreement of equal
date herewith in the form attached hereto as Exhibit A.

     B. Upon the execution of this Agreement and the Distribution Agreement and upon the Company’s
completion of certain milestones, Company, as borrower, desires to borrow from Century, as lender,
Three Million Dollars (US$3,000,000), for which a certain Subordinated 5% Convertible Note with a
maturity of five (5) years from the date of issuance, in the form attached hereto as Exhibit
B, shall be issued to Century by the Company, all as more fully described below, on the terms
and conditions set forth herein.

     C. The Company and Century desire to make certain representations, warranties, covenants and
agreements in connection with the issuance of the Note and desire to prescribe certain conditions
precedent to such issuance.

     D. The Company and Century desire to make certain representations, warranties, covenants and
agreements in connection with entering into this Agreement and desire to prescribe certain
conditions precedent to the Agreement.

Agreement

     Now, Therefore, in consideration of the promises and of the mutual provisions,
agreements and covenants contained herein, the Company and Century hereby agree as follows:

     1. Description of Note and Commitment.

          1.1 Procedure for Loan. Subject to the terms and conditions of this Agreement, Century agrees
that upon the execution of this Agreement and the Distribution Agreement (the “Effective Date”),
Century shall make a loan (the “Loan”) to the Company in a principal amount of Three Million
Dollars (US$3,000,000) to be governed by the terms and conditions of, and repaid in accordance
with, this Agreement. Any amount repaid may not be reborrowed.

          1.2 Interest.

               (a) Interest. The Loan shall bear interest from the relevant Disbursement Date on the unpaid
principal amount thereof until the earlier of an Event of

 

 

Default which results in Century declaring the entire principal and accrued interest
immediately due and payable or the Maturity Date, at a rate per annum equal to five percent (5.0%).

               (b) Accrual and Computation of Interest. Interest shall be computed on the basis of a year of
365 days for the actual number of days elapsed.

          1.3 Maximum Interest Rate. Nothing in this Agreement shall require the Company to pay
interest at a rate exceeding the maximum amount permitted by applicable law to be charged by
Century; provided, that in any event the Company shall pay the lesser of such maximum permissible
rate and the rate provided herein.

          1.4 Payments.

               (a) Interest Payments. On the last day of each quarter (i.e. January 31, April 30, July 31
and October 31), payable in arrears, commencing with the quarter of the first Disbursement Date and
ending with final payment on the Maturity Date of the Note, the Company shall pay Century all
interest then accrued.

               (b) Loan Payment. The Company shall repay the entire outstanding principal amount of the Loan
in full on the applicable Maturity Date without presentment, demand, protest or any other notice of
any kind, all of which are hereby expressly waived; provided that the Note has not been converted
to shares of Common Stock, in accordance with Article 9, prior to such repayment.

               (c) Optional Prepayment. The Company may at any time prepay the entire outstanding principal
amount of the Loan or any portion thereof without penalty.

               (d) Subordination. Notwithstanding the foregoing, the payment of principal of the Note will
be subordinated in right of payment to the prior payment in full of all Senior Indebtedness (as
defined in Section 2.1 below), whether outstanding on the date hereof or hereafter incurred, on the
terms set forth in Article 8; provided, however, that, except as limited under Section 8.1, the
Company shall pay interest to Century on Interest Payment Dates and outstanding principal, plus any
accumulated interest amounts, on either (i) the Stated Maturity of the Note or (ii) acceleration of
the Note under Article 7 or Section 9.8 hereunder.

          1.5 Post-Maturity and Penalty Interest. Commencing upon the earlier of an Event of Default or
the Maturity Date, any outstanding principal balance of the Loan plus accrued but unpaid interest,
shall begin bearing interest, payable on demand, at a rate per annum equal to twelve percent (12%),
subject to Section 1.3 hereof. This rate shall also apply to any overdue and accumulated interest
amounts.

          1.6 Note. The Loan made by Century pursuant to this Agreement shall be evidenced by a Note,
in the form attached hereto as Exhibit B, or several Notes, resulting from a Permitted
Transfer, as described in Section 9.10 (the “Note” or “Notes”), and shall be payable to Century on
the Maturity Date or an Event of Default of the Loan. The Company hereby authorizes Century or the
Registered Holder to indicate upon a schedule attached to the Note all payments of principal and interest thereon. Absent manifest error, such notations
shall be

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presumptive as to the aggregate unpaid principal amount of the Loan, and interest due
thereon, but any failure by Century or the Registered Holder to make such notations or the
inaccuracy or incompleteness of any such notations shall not affect the obligations of the Company
hereunder or under the Note.

               1.7 Delivery of Note; Closing. The delivery of the Note by the Company shall occur at the
offices of O’Melveny & Myers LLP, Embarcadero Center West, 275 Battery Street, 26th Floor, San
Francisco, CA 94111-3305, at 11:00 a.m., Pacific Standard Time, on the Disbursement Date or such
later Business Day as shall be mutually agreed upon by the Company and Century (the “Closing
Date”). The Note for the Loan, delivered to Century on the Effective Date, will be delivered to
Century in the form of a single Note, in the form attached hereto as Exhibit B; in a
principal amount equal to the full principal amount of the Loan, against delivery by Century to the
Company of immediately available funds: in the full amount equal to the principal amount of the
Loan, by wire transfer for the account of the Company in accordance with the following:

	 	 	 	 	 
	 

	 	Chase Manhattan Bank	 	 
	 

	 	ABA# [*]	 	 
	 
	 	 	 	 
	 

	 	Fahnestock & Co. Inc.	 	 
	 

	 	Account # [*]	 	 
	 

	 	For Final Credit of:
	 	Cardica, Inc.
	 

	 	Final Credit Account #:
	 	[*]

          1.8 Place of Payment. Subject to Section 1.9, payments of principal and interest becoming due
and payable on the Note shall be made in the State of California at the principal office of the
Company in such jurisdiction. The Company may at any time, by notice to Century, change the place
of payment of the Note so long as the place of payment shall be either the principal office of the
Company in such jurisdiction or the principal office of a bank or trust company in such
jurisdiction.

          1.9 Home Office Payment. Notwithstanding Section 1.8, so long as Century is the holder of the
Note, the Company shall pay all sums becoming due on such Note for principal and interest by wire
transfer of immediately available funds for the account of Century to account number [*] at
Sumitomo Mitsui Banking Corporation, Shibuya-Ekimae Branch, 1-2-2 Dogenzaka, Shibuya-ku, Tokyo
150-0043, Japan, or by such other method or at such other location as Century shall specify from
time to time in writing to Company, without presentation or surrender of the Note or the making of
any notation thereon.

     2. Interpretation of Agreement; Definitions.

          2.1 Definitions. Unless the context otherwise requires, the terms hereinafter set forth when
used herein shall have the following meanings and the following definitions shall be equally
applicable to both the singular and plural forms of any of the terms herein defined:

          “Affiliate” shall mean any Person (i) which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common control with, the

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Company, (ii)
which beneficially owns or holds fifty percent (50%) or more of any class of the Voting Stock of
the Company or (iii) fifty percent (50%) or more of the Voting Stock (or in the case of a Person
which is not a corporation, fifty percent (50%) or more of the equity interest) of which is
beneficially owned or held by the Company. The term “control” means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of Voting Stock, by contract or otherwise.

          “Agreement” shall have the meaning set forth in the opening paragraph of this document.

          “Business Day” shall mean any day other than a Saturday, Sunday, legal holiday or other day on
which commercial banks located in San Francisco, California or Tokyo, Japan are authorized or
required by law to be closed.

          “Century” shall mean Century Medical, Inc., a Japanese corporation, and any Person who
succeeds to all, or substantially all, of the assets or business of Century Medical, Inc. and shall
include any Permitted Transferee, as such term is defined in Section 9.10 hereof.

          “Change of Control” shall mean any change in control of the Company which includes any
consolidation of the Company with, or merger of the Company into, any other Person, any merger of
another Person into the Company (other than a merger which does not result in any reclassification,
conversion, exchange or cancellation of outstanding shares of Common Stock), any acquisition of at
least a majority of the Voting Stock of the Company or any sale or transfer of all or substantially
all of the business or assets of the Company.

          “Closing Date” shall have the meaning specified in Section 1.7 hereof.

          “Common Stock” shall mean the Common Stock, par value $0.001 per share, of the Company.

          “Company” shall mean Cardica, Inc., a Delaware corporation, and any Person who in accordance
with the terms of this Agreement succeeds to all, or substantially all, of the assets or business
of Cardica, Inc.

          “Conversion Price” shall have the meaning specified in Section 9.2 hereof “Disbursement Date”
shall mean any date on which the disbursement of the Loan is made; provided, however, that Century
shall not be required to make any disbursement if the conditions contained in Article 5, herein,
are not satisfied.

          “Distribution Agreement” shall mean that certain exclusive distribution agreement, a form of
which is attached hereto as Exhibit A, entered into by and between the Company and Century.

          “Disclosure Schedule” shall have the meaning specified in Article 3 hereof.

          “Effective Date” shall have the meaning specified in Section 1.1 hereof.

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          “Event of Default” shall have the meaning specified in Article 7 hereof or as provided in
Section 9.8 hereof.

          “Financial Statements” shall have the meaning specified in Section 3.4 hereof.

          “GAAP” shall mean generally accepted accounting principles at the time in the United States.

          “Indebtedness” shall mean indebtedness for borrowed money evidenced by a promissory note or
other similar agreement that provides for payment of interest based on a principal amount and
includes the acceleration of payment of such principal amount upon certain events of default.

          “Interest Payment Date” shall mean the Stated Maturity of an installment of interest on the
Note.

          “Lien” shall mean any interest in property securing an obligation owed to, or a claim by, a
Person other than the owner of the property, whether such interest is based on the common law,
statute or contract, and including but not limited to the security interest lien arising from a
mortgage, encumbrance, pledge, conditional sale or trust receipt or a lease, consignment or
bailment for security purposes. The term “Lien” shall include reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other
title exceptions and encumbrances (including, with respect to stock, stockholder agreements, voting
trust agreements, buy-back agreements and all similar arrangements) affecting property. For
purposes of this Agreement, the Company shall be deemed to be the owner of any property which it
has acquired or holds subject to a conditional sale agreement, capitalized lease or other
arrangement pursuant to which title to the property has been retained by or vested in some other
Person for security purposes and such retention or vesting shall constitute a Lien.

          “Loan” shall have the meaning specified in Section 1 .1 hereof.

          “Material Adverse Effect” shall mean any event, act or failure to act which would have a
material adverse effect on the Company’s assets, business (as presently conducted or as proposed to
be conducted), properties, financial condition or operating results, or on the Company’s ability to
enter into and perform its obligations under this Agreement, the Note or the Distribution
Agreement.

          “Maturity Date” shall mean the date that is five (5) years from the Disbursement Date of the
Loan, or any other earlier date on which the Note becomes due and payable, whether as stated or by
virtue of an Event of Default or otherwise.

          “Note” or “Notes” shall have the meaning specified in Section 1.6 hereof.

          “Person” shall mean an individual, partnership, corporation, limited liability company, trust
or unincorporated organization, and a government or agency or political subdivision thereof.

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          “Registered Holders” shall mean any holder of the Note or, in the case of a Permitted Transfer
under Section 9.10, any holders of the Notes, as reflected in the records of the Company.

          “SEC” shall mean the Securities and Exchange Commission, or successor regulatory entity.

          “Securities Act” shall mean the Securities Act of 1933, as amended.

          “Senior Indebtedness” shall mean any and all Indebtedness, fees, costs, expenses, liabilities
or other amounts owed, owing or to be owed by the Company to (i) Venture Lending & Leasing II, Inc.
(“VLL2”), Venture Lending & Leasing III, Inc. (“VLL3” and together with VLL2, “VLL”) or their
respective successors or assigns pursuant to those certain Loan and Security Agreements dated March
17, 2000 and July 5, 2001, as they may be amended or supplemented from time to time (the “VLL Loan
Agreements”), or (ii) Guidant Investment (“Guidant”), so long as Guidant or its successor owns,
five percent (5%) or more of the issued and outstanding shares of the Company; provided that Senior
Indebtedness shall be limited to a maximum aggregate outstanding amount of [*] dollars ($[*]) and
any amount incurred in excess of such maximum amount shall not constitute Senior Indebtedness.

          “Stated Maturity,” when used with respect to the Note or any installment of interest thereon,
shall mean the date specified in such Note as the fixed date on which the principal of such Note,
or any installment of interest thereon, is due and payable.

          “Voting Stock” shall mean securities of any class or classes, the holders of which are
ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate
directors (or Persons performing similar functions).

          2.2 Accounting Principles. Where the character or amount of any asset or liability or item of
income or expense is required to be determined or any consolidation or other accounting computation
is required to be made for the purposes of this Agreement, the same shall be done in accordance
with GAAP, to the extent applicable, except where such principles are inconsistent with the
requirements of this Agreement.

          2.3 Directly or Indirectly. Where any provision in this Agreement refers to action to be
taken by any Person, or which such Person is prohibited from taking, such provision shall be
applicable whether the action in question is taken directly or indirectly by such Person.

          2.4 Legal Holidays. In any case where any Interest Payment Date or Stated Maturity of the
Note or the last date on which Century has the right to convert the Note shall not be a Business
Day, then (notwithstanding any other provision of this Agreement or of the Note) payment of
interest or principal or conversion of the Note, as the case may be, shall be made on the next
succeeding Business Day with the same force and effect as if made on the Interest Payment Date, or
at the Stated Maturity, or on such last day for conversion.

     3. Representations and Warranties of the Company.

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          Except as otherwise specifically set forth in the Disclosure Schedule attached hereto as
Exhibit C (the “Disclosure Schedule”) or in any document expressly referenced in the
Disclosure Schedule which has been provided to Century, the Company represents and warrants to
Century as of the date hereof as follows:

          3.1 Corporate Organization and Authority. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware and has all requisite
corporate power and authority and all necessary licenses and permits to own and operate its
properties and to carry on its business as now conducted and as presently and proposed to be
conducted, and to carry out the transactions contemplated in this Agreement and any other agreement
to which the Company is a party, the execution and delivery of which is contemplated hereby. The
Company is duly licensed and qualified to transact business and is in good standing in each
jurisdiction in which the failure to so qualify would have a Material Adverse Effect.

          3.2 Subsidiaries. The Company does not own or control any equity security or other interest
of any other corporation, limited partnership or other business entity. The Company is not a
participant in any joint venture, partnership or similar arrangement.

          3.3 Authority. All corporate action on the part of the Company, its officers, directors and
stockholders necessary for the authorization, execution and delivery of this Agreement, the
performance of all obligations of the Company hereunder and thereunder and the authorization,
execution, issuance (or reservation for issuance) and delivery of the Note has been taken or will
be taken prior to the issuance of the Note. This Agreement constitutes upon execution, and the Note
will constitute upon issuance, a legal, valid and binding obligation of the Company, enforceable in
accordance with its respective terms, subject to the effect of applicable bankruptcy, insolvency,
reorganization, moratorium or other similar federal or state laws affecting the rights of creditors
and the effect of rules of law governing specific performance, injunctive relief or other equitable
remedies.

          No consent, approval or authorization of or designation, declaration or filing with any
governmental authority on the part of the Company is required in connection with the valid
execution and delivery of this Agreement or the issuance of the Note except qualification (or
taking such action as may be necessary to secure an exemption from qualification, if available) of
the offer and issuance of the Note under applicable federal and state securities law, which filings
and qualifications, if required, will he accomplished by the Company in a timely manner.

          3.4 Financial Statements. The Company has made available to Century its audited financial
statements of June 30, 2002 (“Audited Financials”) and its unaudited financial statements as of
February 28, 2003 (the “Balance Sheet” and, together with the Audited Financials, the “Financial
Statements”). The Financial Statements have been prepared in accordance with GAAP applied on a
consistent basis; provided, however, that the Balance Sheet does not contain footnotes required
under GAAP. The Financial Statements present fairly in all material respects the financial
condition of the Company as of the date, indicated therein, subject to normal year-end audit
adjustments in substantial conformity with GAAP.

          3.5 Business Changes. Since February 28, 2003, there has not been:

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               (a) any change in the assets, liabilities, financial condition or operating results of the
Company from that reflected in the Balance Sheet, except changes in the ordinary course of business
that have not, in the aggregate, had a Material Adverse Effect;

               (b) any damage, destruction or loss, whether or not covered by insurance, having a Material
Adverse Effect;

               (c) any waiver or compromise by the Company of a material debt owed to it;

               (d) any satisfaction or discharge of any lien, claim, or encumbrance or payment of any
obligation by the Company, except in the ordinary course of business and not having a Material
Adverse Effect;

               (e) any material change to a material contract or agreement by which the Company or any of its
assets is bound or subject having a Material Adverse Effect;

               (f) any material change in any compensation agreement or agreement with any employee, officer,
director or stockholder;

               (g) any sale, assignment or transfer of any patents, trademarks, copyrights, trade secrets or
other intangible assets;

               (h) any resignation or termination of employment of any officer or key employee of the
Company;

               (i) any mortgage, pledge, transfer of a security interest on or lien, created by the Company,
with respect to any of its material properties or assets, except liens for taxes not yet due or
payable and those incurred in the ordinary course of business that do not have a Material Adverse
Effect;

               (j) any loans or guarantees made by the Company to or for the benefit of its employees,
officers or directors or any members of their immediate families, other than travel advances and
other advances made in the ordinary course of business;

               (k) any declaration, setting aside or payment or other distribution in respect to any of the
Company’s capital stock, or any direct or indirect redemption, purchase, or other acquisition of
any of such capital stock by the Company, except (x) the repurchase of shares of Common Stock
issued or held by employees, consultants, directors or service providers of or to the Company upon
termination of their employment or services pursuant to agreements providing for the right of such
repurchase between the Company and such persons, and (y) the repurchase of shares of Common Stock
in connection with the exercise of the right of fist refusal pursuant to agreements providing for
the right of first refusal between the Company and any of its stockholders;

               (l) any material change in the accounting methods or practices followed by the Company; or

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               (m) to the Company’s knowledge, any other event or condition that might reasonably be expected
to have a Material Adverse Effect; or

               (n) any arrangement or commitment to do any of the things described in this Section 3.5.

          3.6 Litigation. There is no dispute, action, suit, proceeding or investigation pending or
currently threatened in writing against the Company which questions the validity of this Agreement
or the Note, or the right of the Company to enter into each such agreement, or to consummate the
transactions contemplated hereby or thereby or that would have, either individually or in the
aggregate, a Material Adverse Effect. The foregoing includes, without limitation, actions pending
or threatened involving the prior employment of any of the Company’s employees, the use in
connection with the Company’s business of any information or techniques allegedly proprietary to
any of the Company’s former employers, or the Company’s obligations under any agreements with prior
employers. The Company is not a party to, or subject to the provisions of, any order, writ,
injunction, judgment or decree of any court or government agency or instrumentality. There is no
action, suit, proceeding or investigation by the Company currently pending or which the Company
intends to initiate.

          3.7 Compliance with Laws and Other Instruments.

               (a) The Company is not in violation or default of any provisions of its Restated Certificate
or Bylaws or of any instrument, judgment, order, writ, decree, or contract to which it is a party
or by which it is bound or, to its knowledge, of any applicable statute, rule, regulation, order or
restriction of any domestic or foreign government or any instrumentality or agency thereof in
respect of the conduct of its business or the ownership of its properties, the violation of which
would result in a Material Adverse Effect. The execution, delivery, and performance of this
Agreement, and the issuance of the Note, and the consummation of the transactions contemplated
hereby and thereby will not result in any such violation or be in conflict with or constitute, with
or without the passage of time and giving of notice, a default under (i) any such provision of the
Restated Certificate or the Company’s Bylaws, (ii) any such instrument, judgment, order, writ,
decree or contract, or (iii) any statute, rule or governmental regulation applicable to the
Company, nor an event which results in the creation of any lien, charge, or encumbrance upon any
assets of the Company.

               (b) The Company has not performed any act which would result in the Company’s loss or
impairment of any right granted under any license, distribution or other agreement, the loss or
impairment of which would have a Material Adverse Effect.

          3.8 Title to Properties; Leases. The Company owns its property and assets (other than
properties or assets it leases) free and clear of all mortgages, liens, loans, and encumbrances,
except such encumbrances and liens, which arise in the ordinary course of business and do not
impair the Company’s ownership or use of such property or assets. With respect to the property and
assets it leases, the Company is in compliance with all terms of such leases, except where the failure of Company would not have a Material Adverse Effect, and
holds a valid leasehold interest free of any liens, claims or encumbrances.

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          3.9 Licenses, etc. The Company has all franchises, permits, and licenses and any similar
authority necessary for the conduct of its business (“Licenses”) and is not in default under any
such License, except where a default or failure to hold such License would not have a Material
Adverse Effect.

          3.10 Proprietary Rights. The Company has sufficient title and ownership, without any known
conflict with or infringement of the rights of others, of patents, trademarks, service marks, trade
names, copyrights, trade secrets, information, and proprietary rights and processes necessary for
its business as now conducted and as proposed to be conducted in the future, except for those which
the failure to have such sufficient title and ownership would not result in a Material Adverse
Effect to such business. There are no outstanding options, licenses, or agreements relating to the
foregoing, nor is the Company bound by or a party to any options, licenses, or agreements of any
kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade
secrets, licenses, information, proprietary rights and processes of any other person or entity,
other than such licenses or agreements arising from the purchase of “off the shelf” or standard
products or licenses incidental to consulting agreements or with independent contractors. To its
knowledge, the Company has not violated nor, by conducting its business as proposed, would violate
any of the patents, trademarks, service marks, trade names, copyrights, or trade secrets or other
proprietary rights of any other person or entity and the Company has not received any communication
alleging such a violation or alleging that the conduct of the business as proposed to be conducted,
would constitute such a violation. The Company has a valuable body of trade secrets, including
know-how, concepts, computer programs and other technical data and proprietary rights and processes
(the “Proprietary Information”) for the development, manufacture and sale of its products. To its
knowledge, the Company has the right to use the Proprietary Information free and clear of any
rights, liens, encumbrances or claims of others, except that the possibility exists that other
persons may have independently developed trade secrets or technical information similar or
identical to those of the Company. Since its organization, the Company has taken reasonable
measures to protect the value (and, to the extent applicable, the confidentiality and security) of
all Proprietary Information. The Company is not aware of any such independent development or of
any misappropriation of its Proprietary Information. The Company is not aware that any of its
employees is obligated under any contract (including licenses, covenants or commitments of any
nature) or other agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of his or her best efforts to promote the
interests of the Company or that would conflict with the Company’s business as proposed to be
conducted. Neither the execution nor delivery of this Agreement nor the Note nor the carrying on
of the Company’s business by the employees of the Company, nor the conduct of the Company’s
business as proposed, will, to the Company’s knowledge, conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such employees is now obligated. The Company does not believe it is
or will be necessary to utilize any inventions of any of its employees (or people it currently
intends to hire) made prior to their employment by the Company except for those inventions that have been assigned to the Company.
Set forth in Exhibit C is a list of all patents, trademarks and licenses of the Company.

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          3.11 Taxes. The Company has timely filed all tax returns and reports as required by law. The
Company has paid all taxes and other assessments due, except those contested by it in good faith
that are listed in Exhibit C. To the Company’s knowledge, the income tax returns of the
Company have never been audited by local, state or federal authorities, and the Company has not
been advised that any of its returns are presently being audited. To the Company’s knowledge no
material special charges, penalties, fines, liens, or similar encumbrances have been asserted
against the Company with respect to the payment or failure to pay any taxes, which have not been
paid or received without further liability to the Company. Proper and accurate amounts have been
withheld by the Company from its employees for all periods in compliance with the withholding
provisions of applicable federal, state and local tax laws.

          3.12 Private Offering. Neither the Company nor anyone acting on its behalf will offer the
Note or any similar securities for issuance or sale to, or solicit any offering to acquire any of
the same from, any Person so as to make the sale and issuance of the Note subject to the
registration requirements of section 5 of the Securities Act. Assuming the accuracy of the
representations and warranties of Century contained in Article 4 hereof, the offer, sale, and
issuance of the Note will be exempt from the registration requirements of the Securities Act and
will have been registered or qualified (or are exempt from registration and qualification) under
the registration, permit, or qualification requirements of all applicable state securities laws.

          3.13 Full Disclosure. The Company has provided Century with all documents, contracts, filings
and other information provided to the holders of the Company’s Series D Preferred Stock (the
“Series D Stockholders”) prior to the purchase by the Series D Stockholders of the Series D
Preferred Stock. To the Company’s knowledge, neither this Agreement, the exhibits hereto, nor the
Distribution Agreement and Note to be entered into contemporaneously with this Agreement, contain
any untrue statement of a material fact nor, to the Company’s knowledge, omit to state a material
fact necessary in order to make the statements contained herein or therein not misleading.

     4. Representations and Warranties of Century. Except as contemplated by this
Agreement, Century represents and warrants to the Company as of the date hereof as follows:

          4.1 Corporate Organization. Century is a corporation duly incorporated and validly existing
under the laws of Japan. Century is duly qualified to do business in Japan. Century is duly
licensed or qualified and is in good standing as a foreign corporation in each jurisdiction in
which such licensing or qualification is required by law or wherein the nature of the business
transacted by it or the nature of the property owned or leased by it otherwise makes such licensing
or qualification necessary, other than to the extent that failure to obtain such licensing or
qualification, either individually or in the aggregate, would not have a material adverse effect on
Century. Century has all requisite power and authority to own, lease and operate its properties and
to carry on its business as now being conducted, and possesses all licenses, franchises, rights and
privileges material to the conduct of its business.

          4.2 Authority. Century has all requisite corporate power and authority to enter into this
Agreement and the related agreements contemplated herein, and, subject to

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 11.

 

satisfaction of the
conditions set forth herein, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Century. This Agreement has been
duly executed and delivered by Century and constitutes the valid and binding obligation of Century
enforceable in accordance with its terms, subject to the effect of applicable bankruptcy,
insolvency, reorganization or other similar federal or state laws affecting the rights of creditors
and the effect or availability of rules of law governing specific performance, injunctive relief or
other equitable remedies. Provided the conditions set forth in Article 6 are satisfied, the
execution and delivery of this Agreement does not, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of or default (with or
without notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation under (a) any provision of the Articles of
Incorporation or Bylaws of Century, or (b) any material agreement or instrument, permit, license,
judgment, order, statute, law, ordinance, rule or regulation applicable to Century or its
properties or assets, other than any such conflicts, violations, defaults, terminations,
cancellations or accelerations which individually or in the aggregate would not have a material
adverse effect on Century.

     Except as noted in Schedule 4.2, no consent, approval, order or authorization of, or
registration, declaration or filing with, any Japanese governmental authority is required by or
with respect to Century in connection with the execution and delivery of this Agreement by Century
or the consummation by Century of the transactions contemplated hereby or thereby.

          4.3 Restricted Note. Century represents and agrees that, upon the issuance of the Note, (a)
Century will acquire such Note for Century’s own account, and for the purpose of investment and not
with a view to the distribution thereof, and that Century has no present intention of selling,
negotiating or otherwise disposing of such Note; it being understood, however, that the disposition
of Century’s property shall at all times be, and shall at all times remain, within its control, and
(b) the Note has not been registered under section 5 of the Securities Act and that Century will
only re-offer or resell the Note purchased by Century under this Agreement pursuant to an effective
registration statement under the Securities Act or in accordance with an available exemption from
the requirements of section 5 of the Securities Act, except under circumstances where neither such
registration nor such an exemption from registration is required by law.

          4.4 Disclosure of Information. Century believes it has received all the information it
considers necessary or appropriate for deciding whether to enter into this Agreement and purchase
the Note. Century further represents that it has had an opportunity to ask questions and receive
answers from the Company regarding the terms and conditions of this Agreement and the issuance of
the Note. The foregoing, however, does not in any way limit or modify the representations and
warranties of the Company in Article 3 of this Agreement, nor the right of Century to rely thereon.

          4.5 Investment Experience. Century is an investor in securities of companies in the
development stage and acknowledges that it is able to fend for itself, and bear the economic risk of its investment and has such knowledge and experience in financial or
business matters that it is capable of evaluating the merits and risks of this Agreement and the

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issuance of the Note. Century represents that it has not been organized for the purpose of
acquiring the Note.

          4.6 Accredited Investor. Century is an “accredited investor” as defined in Section 501 of
Regulation D as promulgated by the SEC under the Securities Act and shall submit to the Company
such further assurances of such status as may be requested by the Company.

          4.7 Rule 144. Century acknowledges that the Common Stock issuable upon conversion of the Note
must be held indefinitely unless subsequently registered under the Securities Act or unless an
exemption from such registration is available. Century is aware of the provisions of Rule 144
promulgated under the Securities Act which permit limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions, including, among other things, the
existence of a public market for the Common Stock issuable upon conversion of the Note, the
availability of certain current public information about the Company, the resale occurring not less
than one year after a party has purchased and paid for the security to be sold, the sale being
effected through a “broker’s transaction” or in transactions directly with a “market maker” and the
number of shares being sold during any three-month period not exceeding specified limitations.

     5. Conditions Precedent.

          5.1 Disbursement. The obligation of Century to make any disbursement of the Loan shall be
subject to the prior or contemporaneous satisfaction of each of the following conditions, unless
waived by Century:

               (a) Representations and Warranties. The representations and warranties of the Company set
forth in this Agreement shall be true and correct in all material respects on the relevant
Disbursement Date with the same effect as though made on and as of such date; and the Company shall
have performed and complied with all agreements, covenants and conditions required by this
Agreement to be performed or complied with by the Company on or prior to such Disbursement Date.

               (b) No Existing Default. No Event of Default, as defined in Article 7, or event, which, upon
the lapse of time or the giving of notice or both, would constitute an Event of Default by the
Company shall exist on or prior to the Disbursement Date.

               (c) Distribution Agreement. The Company and Century shall have entered into a Distribution
Agreement substantially in the form attached hereto as Exhibit A and such Distribution
Agreement shall be in full force and effect, and the Company shall not be in breach or default of
any material covenant, condition or other provision thereof beyond the applicable grace period, if
any, specified therein.

               (d) Officer’s Certificate. The Company shall have delivered to Century a certificate signed by
the Chief Executive Officer of the Company and dated as of the relevant Disbursement Date certifying that the conditions specified in Sections 5.l(a) and (b)
have been satisfied.

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          5.2 Conditions to Obligations of the Company. The obligations of the Company to consummate
the transactions contemplated hereby are subject to the satisfaction on or prior to the relevant
Disbursement Date of the following conditions, unless waived by the Company:

               (a) Representations and Warranties. The representations and warranties of Century set forth
in this Agreement shall be true and correct in all material respects as of the date of this
Agreement and as if made at and as of the relevant Disbursement Date, except as otherwise
contemplated by this Agreement.

               (b) Performance of Obligations of Century. Century shall have performed in all material
respects all obligations required to be performed by it under this Agreement prior to the relevant
Disbursement Date.

               (c) Distribution Agreement. The Company and Century shall have entered into a Distribution
Agreement substantially in the form attached hereto as Exhibit A and such Distribution
Agreement shall be in full force and effect.

     6. Covenants of the Company. From and after the Effective Date and continuing so
long as any amount remains unpaid on the Note, the Company covenants and agrees with Century that:

          6.1 Corporate Existence. The Company shall do or cause to be done all things necessary to
preserve and keep in full force and effect the existence, rights and franchises of the Company.

          6.2 Maintenance of Properties. The Company will maintain, preserve and keep its material
properties which are used or useful in the conduct of its business (whether owned in fee or a
leasehold interest) in good repair and working order and from time to time will make all necessary
repairs, replacements, renewals and additions so that at all times the efficiency thereof shall be
maintained in all material respects.

          6.3 Merger; Acquisitions. Except with notice to Century as set forth below, the Company shall
not (a) consolidate with or merge into any other Person, (b) convey, transfer or lease all or
substantially all of its assets in a single transaction or series of related transactions to any
Person, (c) acquire or agree to acquire by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any business or any Person or
division thereof, or (d) otherwise acquire or agree to acquire any assets which are material to the
Company except in the ordinary course of business consistent with prior practice. Such notice shall
be given no earlier than contemporaneously with public disclosure of the occurrence of such an
event.

          6.4 Sale or Lease of Assets; Dispositions. Except with contemporaneous notice to Century, the
Company shall not sell, lease, transfer or otherwise dispose of any of its assets, except in the ordinary course of business, as it may exist from
time to time. In the event that such transfer also constitutes a Change of Control, the Company
shall transfer to such successor entity this Agreement, the Note and the Distribution Agreement,
including without

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limitation any post-termination obligations contained therein, provided that in
the event the Company transfers less than all or substantially all of its assets to a purchaser,
such agreements, instruments and obligations shall be so transferred only to the extent the assets
transferred are subject thereto.

          6.5 Indebtedness. Except with five (5) days’ prior notice to Century, the Company shall not
incur any Indebtedness other than Senior Indebtedness or guarantee any such Indebtedness or issue
or sell any debt securities of the Company other than Senior Indebtedness or guarantee any debt
securities of others.

          6.6 Notice of Claims and Litigation. The Company will give prompt notice to Century of any
claim or action at law or in equity, or before any governmental, administrative or regulatory body
or arbitration panel instituted against the Company, or disputes that have a high probability of
resulting in a suit of significance against the Company involving a claim against the Company, for
damages in excess of Five Hundred Thousand Dollars ($500,000) or which, if concluded adversely to
the Company, could be reasonably expected to have a Material Adverse Effect.

          6.7 Notice of Default. The Company shall promptly give written notice to Century of any known
default or breach by the Company of any of its obligations or commitments set forth in this
Agreement, the Distribution Agreement or the Note, or otherwise of any default or other occurrence
that, with lapse of time and/or giving of notice, would constitute an Event of Default.

     7. Events of Default. If any of the events specified in this Article 7 shall occur
(herein individually referred to as an “Event of Default”), Century shall have the right, so long
as such condition exists and so long as such Note has not been converted in accordance with Article
9 hereof, to declare the entire principal and unpaid accrued interest thereon immediately due and
payable, by notice in writing to the Company:

          7.1 Payments. Default in the payment of the principal or unpaid accrued interest of the Note
when due and payable if such default is not cured by the Company within ten (10) calendar days
after Century has given the Company written notice of such default.

          7.2 Bankruptcy. The institution by the Company of proceedings to be adjudicated as bankrupt
or insolvent, or the consent by it to institution of bankruptcy or insolvency proceedings against
it or the filing by it of a petition or answer or consent seeking reorganization or relief under
the United States Federal Bankruptcy Code, or any other applicable federal or state law, or the
consent by it to the filing of any such petition or the appointment of a receiver, liquidator,
assignee, trustee or other similar official of the Company, or of any substantial part of its
property, or the making by it of an assignment for the benefit of creditors, or the taking of
corporate action by the Company in furtherance of any such action.

          7.3 Commencement of an Action. If, within sixty (60) days after the commencement of an action
against the Company (and service of process in connection therewith on the Company) seeking any
bankruptcy, insolvency, reorganization, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, such action

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shall not have been resolved in favor of
the Company or all orders or proceedings thereunder affecting the operations or the business of the
Company stayed, or if the stay of any such order or proceeding shall thereafter be set aside, or
if, within sixty (60) days after the appointment without the consent or acquiescence of the Company
of any trustee, receiver or liquidator of the Company or of all or any substantial part of the
properties of the Company, such appointment shall not have been vacated.

          7.4 Default of Indebtedness. Any declared default of the Company under any Indebtedness that
gives the holder thereof the right to accelerate the principal and all accumulated interest amounts
thereon, and the entire amount of such principal and interest amounts are in fact accelerated by
the holder thereof.

          7.5 Covenants and Agreements. The Company shall default in the performance of any of its
material covenants and agreements set forth in any provision of this Agreement and the continuance
of such default for thirty (30) days after Century has given the Company written notice of such
default, or any of the representations or warranties by the Company set forth in this Agreement
shall not be true and correct in all material respects as and when made.

          7.6 Certain Occurrences Under Distribution Agreement. The Company (i) breaches or defaults on
any material covenant, condition or other provision of the Distribution Agreement and such breach,
default or acceleration continues after the applicable grace period, if any, specified therein, but
in no event more than thirty (30) days after Century has given the Company written notice of such
breach, default or acceleration, or (ii) the Distribution Agreement terminates in accordance with
Section 12.2 of the Distribution Agreement.

          7.7 Other Remedies. If any Event of Default shall occur and be continuing, Century shall
have, in addition to the remedies set forth in Article 7 hereof, all other remedies otherwise
available at law and equity.

     8. Subordination and Security Interest of Century. The Indebtedness evidenced by the Note is
hereby expressly subordinated to the extent and in the manner hereinafter set forth, in right of
payment to the prior payment in full of the Senior Indebtedness.

          8.1 Default on Senior Indebtedness. If there should occur any receivership, insolvency,
assignment for the benefit of creditors, bankruptcy, reorganization or arrangements with creditors
(whether or not pursuant to bankruptcy or other insolvency laws), sale of all or substantially all
of the assets, dissolution, liquidation or any other marshalling of the assets and liabilities of
the Company, then no amount shall be paid by the Company in respect of the principal of or interest
on the Notes at the time outstanding, unless and until the principal of and interest on the Senior
Indebtedness then outstanding shall be paid in full. If there occurs an event of default that has
been declared in writing to the Registered Holders with respect to any Senior Indebtedness, or in the instrument under which any Senior Indebtedness is outstanding,
permitting the holder of such Senior Indebtedness to accelerate the maturity thereof, no payment
shall be made in respect of the principal of or interest on the Notes, unless (i) such event of
default shall have been cured or waived by the Senior Indebtedness or shall have ceased to exist,
or (ii) payment of all Senior Indebtedness shall have been accelerated and all Senior

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Indebtedness
shall have been paid in full, or (iii) within three (3) months after the happening of such event of
default (a “Payment Blockage Period”), the maturity of such Senior Indebtedness shall not have been
accelerated. Notwithstanding anything contained herein to the contrary, payments by the Company of
principal and interest on the Notes to the Registered Holders shall be halted under Section
8.l(iii) for only one (1) Payment Blockage Period during any twelve (12) month consecutive period.

          8.2 Effect of Subordination. Subject to the rights, if any, of the holders of Senior
Indebtedness under this Article 8 to receive cash, securities or other properties otherwise payable
or deliverable to the Registered Holder, nothing contained in this Article 8 shall impair, as
between the Company and the Registered Holder, the obligation of the Company, subject to the terms
and conditions hereof, to pay to the Registered Holder the principal hereof and interest hereon as
and when the same become due and payable, or shall prevent the Registered Holder, upon default
hereunder, from exercising all rights, powers and remedies otherwise provided herein or by
applicable law, except as limited under Section 8.1 above.

          8.3 Subrogation. After payment in full of all Senior Indebtedness, the Registered Holder shall
he subrogated to the rights of the holders of Senior Indebtedness (to the extent of payments or
distributions previously made to such holders of Senior Indebtedness that would, except for this
Article 8, have been payable to the Registered Holders) to receive payments or distributions of
assets of the Company applicable to the Senior Indebtedness until the payment in full of the Notes.
No payments or distributions to the holders of Senior Indebtedness to which the Registered Holder
would be entitled except for the provisions of this Article 8 shall, as between the Company and its
creditors, other than the holders of Senior Indebtedness and the Registered Holder, be deemed to be
a payment by the Company to the Senior Indebtedness or on account of the Senior Indebtedness.

          8.4 Undertaking. By its acceptance of the Note, the Registered Holder agrees to execute and
deliver such documents as may be reasonably requested from time to time by the Company or the
lender of any Senior Indebtedness in order to implement the foregoing provisions of this Article 8.

          8.5 Subordination of Future Debt. During the term of this Agreement and until the performance
of all obligations to Century, the Company shall not incur or permit to exist any Indebtedness,
excluding Senior Indebtedness, unless (i) approved by Century in its sole discretion in writing, or
(ii) the holder’s right to repayment of such Indebtedness, the priority of any Lien securing the
same, and the rights of the holder thereof to enforce remedies against the Company following
default have been made subordinate to the Liens of Century and the prior payment of the obligations
to Century under the loan documents pursuant to a written subordination agreement satisfactory to
Century, which agreement may provide that regularly scheduled payments of accrued interest on such
subordinated Indebtedness may be paid by the Company and retained by the holder so long as no Event
of Default has occurred.

          8.6 Security Interest. Subject to the continuing security interest of VLL, in accordance with
the VLL Loan Agreements, to secure the prompt payment of the Loan when amounts thereunder are due
and payable, the Company hereby grants a continuing security interest to Century in all personal
property and assets of the Company, including without

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limitation, all of the Company’s right, title
and interest in and to all equipment, general intangibles, intellectual property, inventory,
investment property, receivables, fixtures, deposit accounts and other goods and personal property,
whether tangible or intangible, whether now owned or hereafter acquired and wherever located, all
proceeds of each of the foregoing and all accessions to, substitutions and replacements for, and
rents, profits and products of each of the foregoing (“Collateral”). Within ten (10) calendar days
of the Effective Date, Company (a) will prepare and file all documents as directed by Century
necessary for registering and perfecting Century’s continuing security interest, all such documents
to be approved by Century in writing prior to any such filing by Company (the “Security
Documents”), and (b) will bear all costs of preparing and filing the Security Documents with the
appropriate governmental authorities.

          8.7 Financing Statements and Other Actions. With respect to Collateral, the Company covenants:

               (a) to execute and deliver to Century all financing statements, notices and other documents
from time to time reasonably requested by Century to maintain a perfected security interest in the
Collateral in favor of Century; perform such other acts as directed by Century, and execute and
deliver to Century such additional conveyances, assignments, agreements and instruments, as Century
may at any time reasonably request in connection with the administration and enforcement of this
Agreement or Century’s rights, powers and remedies hereunder;

               (b) other than with respect to Senior Indebtedness, not to sign or authorize the signing of
any financing statement or other document naming the Company as debtor or obligor, or acquiesce or
cooperate in the issuance of any bill of lading, warehouse receipt or other document or instrument
of title with respect to any Collateral, except those negotiated to Century, or those naming
Century as secured party, or with Century’s prior written consent which shall not be unreasonably
withheld; and

               (c) not to sell, transfer, lease or otherwise dispose of any Collateral, except for fair
consideration and in the ordinary course of the Company’s business.

     9. Conversion of Note.

          9.1 Conversion Right. Upon and for a period of one hundred eighty (180) days following a
Qualified Public Offering (as hereinafter defined) (the “Conversion Period”), provided that such
Conversion Period occurs prior to the Stated Maturity of the Note, and prior to an acceleration of
payment as described in Article 7 and Section 9.8 hereof, Century shall have the option, and at
Century’s sole discretion to convert the Note at the principal amount thereof, into fully paid and
nonassessable shares of Common Stock at the Conversion Price (as defined herein), in effect at the
time of such conversion. Such conversion right shall expire as to the Note at the close of business
on the fifth anniversary of the Note’s Disbursement Date. For purposes of this Article 9,
“Qualified Public Offering” shall mean the first bona fide firm commitment underwritten public offering of the Company’s Common Stock registered under the
Securities Act on Form S-1 for any successor form designated by the Securities and Exchange
Commission) with an aggregate offering price of at least Five Million Dollars (US$5,000,000).

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          9.2 Conversion Price. The “Conversion Price” shall be the per share offering price of the
Qualified Public Offering.

          9.3 Exercise of Conversion Privilege. Upon receipt of notice from Century of the exercise of
its conversion privilege substantially in the form attached to Exhibit B, Century shall
surrender the Note duly endorsed or assigned to the Company or in blank, at the office or agency of
the Company maintained for that purpose. Upon conversion, the Company shall pay interest accrued
but unpaid on the Note surrendered for conversion through the date of such conversion.

     The Note shall be deemed to have been converted as of such date as may be specified in the
notice from Century (which in no event shall be earlier than ten (10) days from the receipt of
notice by the Company), and at such time, the rights of Century under the Note shall cease and the
Person or Persons entitled to receive the Common Stock issuable upon conversion shall be treated
for all purposes as the record holder or holders of such Common Stock at such time. As promptly as
practicable, on or after the conversion date, the Company shall issue and deliver at such office or
agency, a certificate or certificates for the number of duly authorized, validly issued, fully paid
and nonassessable shares of Common Stock issuable upon conversion, together with payment in lieu of
any fraction of a share, as provided in Section 9.4 hereof.

          9.4 Fractions of Shares. No fractional shares of Common Stock shall be issued upon conversion
of the Note. Instead of any fractional share of Common Stock, which would otherwise be issuable
upon the conversion of the Note, the Company shall pay a cash adjustment in respect of such
fraction of a share of Common Stock in an amount equal to the remaining amount, which is not
converted by reason of this Section 9.4.

          9.5 Notice of Certain Corporate Action. In, case:

               (a) the Company shall declare a dividend (or any other distribution) on its Common Stock
payable otherwise than in cash out of its earned surplus; or

               (b) the Company shall authorize the granting to the holders of its Common Stock of rights or
warrants to subscribe for or purchase any shares of capital stock of any class or of any other
rights (other than grants of securities or options, warrants or rights for securities, granted to
officers, directors, employees, consultants or licensors of the Company); or

               (c) of any reclassification of the Common Stock of the Company (other than a subdivision or
combination of its outstanding shares of Common Stock), or of any consolidation merger or share
exchange to which the Company is a party and for which approval of any stockholders of the Company
is required, or of the sale or transfer of all or substantially all of the assets of the Company;
or

               (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company;

then the Company shall cause to be filed at the offices of the Company, and shall cause to be
mailed to Century at its last addresses, as provided in Section 11.2 hereof; at least twenty (20)

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days (or ten (10) days in any case specified in clause (a) or (b) of this Section 9.5) prior to the
applicable record or effective date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution, rights or warrants, or, if a
record is not to be taken, the date as of which the holders of Common Stock of record are to be
entitled to such dividend, distribution, rights or warrants are to be determined, or (y) the date
on which such reclassification, consolidation, merger, share exchange, sale, transfer, dissolution,
liquidation or winding up is expected to become effective, and the date as of which it is expected
that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock
for securities, cash or other property deliverable upon such reclassification, consolidation,
merger, share exchange, sale, transfer, dissolution, liquidation or winding up. Neither the
failure to give such notice nor any defect therein shall affect the legality or validity of the
proceedings described in clauses (a) through (d) of this Section 9.5.

                    9.6 Company to Reserve Common Stock. Upon the closing of the Qualified Public Offering, the
Company shall take all reasonable steps so as to ensure that at all times during the Conversion
Period the Company has reserved and kept available out of its authorized but unissued Common Stock,
for the purpose of effecting the conversion of the Note, the full number of shares of Common Stock
then issuable upon the conversion of the Note.

                    9.7 Covenant as to Common Stock. The Company covenants that all shares of Common Stock which
may be issued upon conversion of the Note will upon such conversion and issuance be fully paid and
nonassessable.

                    9.8 Change of Control. In the event of any Change of Control of the Company, the Company shall
notify Century at least thirty (30) days prior to the closing of the transaction that will effect
the Change of Control, and Century shall have the right to declare the entire principal and unpaid
accrued interest thereon immediately due and payable, by notice in writing to the Company, and
terminate this Agreement.

                    9.9 Issue Tax. The issuance of certificates for shares of Common Stock upon conversion of the
Note shall be made without charge to Century for any issue tax in respect thereof; provided,
however, that the Company shall not be required to pay any tax which may be payable with respect of
any transfer involved in the issuance and delivery of any Common Stock certificate in a name other
than that of Century.

                    9.10 Transfer and Exchange of the Note. The Note may not be transferred or assigned by Century
without the express written consent of the Company, which consent may be granted or withheld in the
Company’s sole discretion; provided, however, that Century shall have the option of transferring or
assigning the whole or any part of the Note to an Affiliate at any time, at the sole discretion of
Century (a “Permitted Transfer”). Any such Permitted Transfer shall be made in accordance with
applicable federal and state securities laws. At any time and from time to time, upon not less than
ten (10) days notice to that effect given by Century, the right to receive principal and/or interest payments on such Note may be assigned
or transferred in a Permitted Transfer by surrender of such Note to the Company and either (a)
reissuance by the Company of such Note to the new registered holder (such holder a “Permitted
Transferee”) or (b) issuance by the Company of a new Note to the Permitted Transferee. The Company
shall at all times maintain a book entry system, which shall reflect ownership of the

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Note. The
Company shall also change its records to reflect each such transfer or reissuance. Century shall
pay any stamp tax or governmental charge imposed in Japan upon such exchange or transfer and
Company shall pay any stamp tax or governmental charge imposed in the United States upon such
exchange or transfer.

                    9.11 Loss, Theft, Mutilation or Destruction of a Note. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, mutilation or destruction of the Note, the Company
will make and deliver without expense to Century thereof, a new Note, of like tenor: in lieu of
such lost, stolen, mutilated or destroyed Note.

                    9.12 Expenses, Stamp Tax Indemnity. The Company agrees to pay duplicating and printing costs
and charges for shipping the Note, adequately insured to Century’s home office or at such other
place as Century may designate, and all reasonable expenses of Century (including, without
limitation, the reasonable fees and expenses of any financial advisor to Century) relating to any
proposed or actual amendment, waivers or consents pursuant to the provisions hereof, including,
without limitation, any proposed or actual amendments, waivers, or consents resulting from any
work-out, re-negotiations or restructuring relating to the performance by the Company of its
obligations under this Agreement and the Note. The Company also agrees that it will pay and hold
Century harmless against any and all liabilities with respect to stamp and other taxes, if any,
which may be payable or which may be determined to be payable in connection with the execution and
delivery of this Agreement or the Note, whether or not such Note is then outstanding. The Company
agrees to protect and indemnify Century against any liability for any and all brokerage fees and
commissions payable or claimed to be payable to any Person (other than any Person engaged by the
Registered Holder) in connection with the transactions contemplated by this Agreement.

                    9.13 Cancellation of Converted Note. The Note delivered for conversion shall be canceled by or
at the direction of the Company.

          10. Registration Rights. Century shall be permitted to become a party to that certain Amended
and Restated Investors Rights Agreement, by and among the Company and certain of the Company’s
stockholders dated June 13, 2002 (the “IRA”), by delivering a counterpart signature page to the IRA
in accordance with and pursuant Sections 2.12, 5.11(a) and 4.6(h) of the IRA. Century shall be an
“Investor” as such term is defined in the IRA with all rights appurtenant to being an “Investor”
thereunder upon execution and delivery of such counterpart signature page. Company shall ensure
that the “Schedule of Investors” to the IRA shall be appropriately amended to include Century and
the definition of “Registrable Securities” shall be amended to include the Common Stock issuable
upon conversion of the Note.

          11. Miscellaneous.

                    11.1 Powers and Rights Not Waived; Remedies Cumulative. No delay or failure on the part of
Century in the exercise of any power or right shall operate as a waiver thereof; nor shall any
single or partial exercise of the same preclude any other or further exercise thereof, or the
exercise of any other power or right, and the rights and remedies of Century are cumulative to, and
are not exclusive of, any rights or remedies Century would otherwise have.

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          11.2 Notice. Except as otherwise expressly provided herein, any notice, consent or document
required or permitted hereunder shall be given in writing and it or any certificates or other
documents delivered hereunder shall be deemed effectively given or delivered (as the case may be)
upon personal delivery (professional courier permissible) or when mailed by receipted certified
mail delivery, or five (5) business days after deposit in the mail, or three (3) business days
after deposit with an internationally recognized overnight courier. Such certificates, documents or
notice may be personally delivered to an authorized representative of the Company or Century (as
the case may be) at any address where such authorized representative is present, such other address
as such party may designate by twenty (20) days advance written notice to the other party, and
otherwise shall be sent to the following address:

	 	 	 	 	 
	 

	 	If to the Company:
	 	Cardica, Inc.
	 

	 	 	 	171 Jefferson Drive
	 

	 	 	 	Menlo Park, CA 94025
	 

	 	 	 	Attention: Bernard Hausen
	 

	 	 	 	Telecopy No.: (650) 326-5655
	 
	 	 	 	 
	 

	 	With a copy to:
	 	Nancy H. Wojtas, Esq.
	 

	 	 	 	Cooley Godward LLP
	 

	 	 	 	Five Palo Alto Square
	 

	 	 	 	3000 El Camino Real
	 

	 	 	 	Palo Alto, CA 94306
	 

	 	 	 	Telecopy No.: (650) 849-7400
	 
	 	 	 	 
	 

	 	If to Century:
	 	Century Medical, Inc.
	 

	 	 	 	1-6-4 Osaki, Shinagawa-ku
	 

	 	 	 	Tokyo 141-8588 Japan
	 

	 	 	 	Attention: Shunzo Saegusa
	 

	 	 	 	Telecopy No.: (03) 3491-0577
	 
	 	 	 	 
	 

	 	With a copy to:
	 	O’Melveny & Myers LLP
	 

	 	 	 	Akasaka Twin Tower, East 14F
	 

	 	 	 	2-17-22 Akasaka, Minato-ku
	 

	 	 	 	Tokyo 107-0052
	 

	 	 	 	Attention: Dale Araki, Esq.
	 

	 	 	 	Telecopy No.:(03) 5575-3840

          11.3 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of
the Company and its successors and assigns and shall be binding upon and inure to the benefit of
Century and its successors and assigns; provided, however, that, subject to Section 9.10 hereof,
neither the Company nor Century shall assign this Agreement, the Note or any of its rights, duties or obligations hereunder or thereunder without the prior
written consent of the other party which consent shall not be unreasonably withheld, conditioned,
or delayed.

          11.4 Survival of Representations and Warranties. All representations and warranties made by
the Company herein and in any certificates delivered pursuant hereto,

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whether or not in connection
with the Closing Date, shall survive the closing and the delivery of this Agreement and the Note.

          11.5 Severability. Should any part of this Agreement for any reason be declared invalid or
unenforceable, such decision shall not affect the validity or enforceability of any remaining
portion, which remaining portion shall remain in force and effect as if this Agreement had been
executed with the invalid or unenforceable portion thereof eliminated and it is hereby declared the
intention of the parties hereto that they would have executed the remaining portion of this
Agreement without including therein any such part, parts or portion which may, for any reason, be
hereafter declared invalid or unenforceable.

          11.6 Waiver of Conditions. If on the Closing Date, either party hereto fails to fulfill each
of the conditions specified in Article 5 hereof, the other party may thereupon elect to be relieved
of all further obligations under this Agreement. Without limiting the foregoing, if the conditions
specified in Article 5 have not been fulfilled, the other party may waive compliance by such party
with any such condition to such extent as such party may in its sole discretion determine. Nothing
in this Section 11.6 shall operate to relieve either party of any obligations hereunder or to waive
any of the other party’s rights against such party.

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

          11.8 Governing Law. This Agreement and the Note issued and sold hereunder shall be governed by
and construed in accordance with the law of the State of California, without regard to the conflict
of laws provisions thereof.

          11.9 Captions. The descriptive headings of the various sections or part of this Agreement are
for convenience only and shall not affect the meaning or construction of any of the provisions
hereof.

          11.10 Dispute Resolution. In the event there arises a dispute between the Parties as to the
performance or interpretation of any of the provisions of this Agreement, or as to matters related
to but not covered by this Agreement, the Parties shall first attempt to find a mutually agreeable
solution by consultation in good faith. If the matter has not been resolved within thirty (30) days
of their first meeting to resolve a dispute, then any such dispute shall be determined finally by
final and binding arbitration in accordance with the International Arbitration Rules of the
American Arbitration Association. The place of arbitration shall be either (a) Menlo Park,
California, U.S.A. if initiated and brought by DISTRIBUTOR or (b) Tokyo, Japan if initiated and
brought by COMPANY and the language of the arbitration shall be English. The arbitral tribunal
shall consist of a single arbitrator. If the Parties shall not have agreed upon an arbitrator within thirty (30) days of the notice of arbitration, then the
Administrator of the American Arbitration Association shall appoint one. At minimum, the arbitral
tribunal shall be experienced in cross-border transactions in the area of medical devices. The
unsuccessful Party in an arbitration shall pay and discharge all reasonable costs and expenses
(including reasonable attorneys’ fees) which are incurred by the other Party in enforcing this
Agreement.

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     Judgment upon the award of the arbitrator may be entered in any court having jurisdiction
thereof. The Parties acknowledge that this Agreement and any award rendered pursuant to it shall be
governed by the 1958 United Nations Convention on the Recognition and Enforcement of Foreign
Arbitral Award.

     Pending the submission to arbitrators and thereafter until the single arbitrator renders the
award, the Parties shall, except in the event of termination, continue to perform all their
obligations under this Agreement without prejudice to a final adjustment in accordance with the
award.

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

          11.11 Survival. The obligations of the Company under Sections 1.2 — 1.6, 1.8, 1.9 and Articles
2, 6, 7, 8, 9, 10 and 11 hereof shall survive (a) a Permitted Transfer, (b) the enforcement,
amendment or waiver of this Agreement or the Note and, (c) provided that the Note or any part
thereof remains outstanding, the termination of this Agreement.

          11.12 Term; Termination. Subject to Sections 11.1 and 11.11, this Agreement shall terminate
upon the earlier of (1) full and final payment of all amounts owed by the Company to Century under
the Note or (2) conversion of the Note into Common Stock of the Company, in accordance with Article
9.

          11.13 Entire Agreement; Amendment and Modification. This Agreement, together with Distribution
Agreement and the Note, constitutes the entire and final agreement between the parties hereto with
respect to the subject matter hereof and supersedes any and all prior oral or written agreements or
discussions on the subject matter hereof. Neither this agreement nor any of the other documents or
instruments delivered herewith or executed pursuant hereto may be modified or amended in any
respect except in a writing signed by both parties expressly setting forth such modification or
amendment.

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     In Witness Whereof, the Company and Century by their duly authorized officers have
each caused this Agreement to be executed as of the date first written above.

	 	 	 	 	 
	 

	 	CENTURY:	 	 
	 
	 	 	 	 
	 

	 	Century Medical, Inc.	 	 
	 
	 	 	 	 
	 

	 	     /s/ Yasuo Kyotani	 	 
	 

	 	 	 	 
	 

	 	By: Yasuo Kyotani	 	 
	 

	 	Title: President & CEO	 	 
	 
	 	 	 	 
	 

	 	COMPANY:	 	 
	 
	 	 	 	 
	 

	 	Cardica, Inc. 	 	 
	 
	 	 	 	 
	 

	 	     /s/ Bernard Hausen	 	 
	 

	 	 	 	 
	 

	 	By: Bernard Hausen	 	 
	 

	 	Title: President & CEO	 	 

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Exhibit A

FORM OF EXCLUSIVE DISTRIBUTION AGREEMENT

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Exhibit B

FORM OF SUBORDINATED 5% CONVERTIBLE NOTE

CARDICA, INC.

5% Convertible Note, due [June -, 2008]

	 	 	 
	       No. CSN-1

       $3,000,000
	 	Menlo Park, CA

June ___, 2003

     Cardica, Inc., a corporation duly organized and existing under the laws of the State of
Delaware (the “Company”), for value received, hereby promises to pay to Century Medical, Inc., a
Japanese corporation (“Century”), or its registered assigns (Century or its assigns being the
“Registered Holder”), the principal sum of THREE MILLION DOLLARS (US$3,000,000) on [June ___, 2008]
(the “Maturity”), and to pay interest (computed on the basis of the actual number of days elapsed
and a year of 365 days) (i) on the unpaid principal balance thereof from the date of this Note at
the rate of five percent (5%) per annum from the date hereof, payable quarterly in arrears on
January 31, April 30, July 31 and October 31 of each year (each, an “Interest Payment Date”)
(commencing [July 31, 2003]) until such unpaid principal balance shall become due and payable
(whether at Maturity, or by declaration, acceleration or otherwise) and (ii) to the extent
permitted by applicable law on each overdue payment of principal or any overdue payment of
interest, at a rate per annum equal to twelve percent (12.0%) (computed on the basis of the actual
number of days elapsed and a year of 365 days) payable quarterly as aforesaid.

     The interest and principal payments payable with respect to this Note, on any Interest Payment
Date, at Maturity or by declaration, acceleration or otherwise, pursuant to the Note Agreement (as
defined herein), shall be paid to Century in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private debts. Such interest
and principal payments shall be made to Century in accordance with the provisions of the Note
Agreement.

     This 5% Convertible Note is the Note due [June ___, 2008] of the Company issued in an aggregate
principal amount of Three Million Dollars ($3,000,000) pursuant to the Subordinated Convertible
Note Agreement, dated [June ___, 2003], by and between the Company and Century (the “Note
Agreement”). The Registered Holder of this Note is entitled to the benefits of the Note Agreement,
and may enforce the Note Agreement and exercise the remedies provided for thereby or otherwise
available in respect thereof.

     This Note may be transferred or assigned by Century or Registered Holder as provided in the
Note Agreement, provided that the right to receive principal and/or interest payments on this Note
may be assigned or transferred only in one of the following methods: (1) by surrender of this Note
to the Company and (a) reissuance by the Company of this Note to the new Registered Holder or (b)
issuance by the Company of a new note to the new Registered Holder; or (2) by notification to the
Company of the transfer and a change by the Company in the Company’s

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books identifying the new owner of an interest in principal or interest on this Note. The
Company shall at all times maintain a book entry system, which shall reflect ownership of this
Note, and interests therein. In the event the first method of transfer is used, the Company shall
also change its records to reflect such transfer or reissuance. The method of transfer, as detailed
above, will be determined by mutual agreement of Century and Registered Holder.

     In the case of an Event of Default (as defined in the Note Agreement), the principal of this
Note in certain circumstances may be declared or otherwise become due and payable in the manner and
with the effect provided in the Note Agreement, without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived.

     This Note is subject to conversion into Common Stock pursuant to the terms and conditions of
the Note Agreement and conversion shall be evidenced by a Notice of Conversion as attached hereto.

     The Indebtedness evidenced by this Note is, to the extent provided in the Note Agreement,
subordinate and subject in right of payment to the Senior Indebtedness (as defined in the Note
Agreement), and this Note is issued subject to the provisions of the Note Agreement with respect
thereto. Each Registered Holder of this Note, by accepting the same, agrees to and shall be bound
by such provisions.

     No reference herein to the Note Agreement and no provision of this Note or of the Note
Agreement shall alter or impair the obligation of the Company, which is absolute and unconditional,
to pay the principal of (and premium, if any) and interest on this Note at the times, place and
rate, and in the coin or currency, herein prescribed or to convert this Note as provided in the
Note Agreement.

     All terms used in this Note, which are defined in the Note Agreement, shall have the meanings
assigned to them in the Note Agreement.

     This Note has been delivered to Century in Menlo Park, California, and the Note and the Note
Agreement are governed by and shall be construed and enforced in accordance with and the rights of
the parties shall be governed by the law of the State of California excluding choice-of-law
principles.

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     In Witness Whereof, the Company has caused this instrument to be duly executed under
its corporate seal.

Dated: June __, 2003

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Cardica, Inc.	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Its:	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Attest:	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Its:
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 

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NOTICE OF CONVERSION TO 5 % CONVERTIBLE NOTE

     Registered Holder, as defined in the certain Subordinated Convertible Note Agreement, dated
June ___, 2003 (the “Note Agreement”) hereby irrevocably exercises the option to convert this 5%
Convertible Note, or that portion hereof below designated, into shares of Common Stock in
accordance with the terms of the Note Agreement, and represents that the shares issuable and
deliverable upon such conversion, together with written confirmation of transmittal of a wire
transfer to Registered Holder in payment for any fractional shares and in payment of accrued but
unpaid interest on the Note or portion of the Note to be convened, and any 5% Convertible Note
representing any unconverted principal mount hereof, will be issued and delivered to the current
Registered Holder of the 5% Convertible Note.

     Principal amount to be converted (if less than all): $                    

	 	 	 	 	 
	 	 	REGISTERED HOLDER
	 
	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	Its:	 	 
	 

	 	 	 	 

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EXHIBIT C

DISCLOSURE SCHEDULES

OF

CARDICA, INC.

TO

SUBORDINATED CONVERTIBLE NOTE AGREEMENT

BY AND BETWEEN

CENTURY MEDICAL, INC.

AND

THE COMPANY

DATED AS OF JUNE 16, 2003

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SCHEDULE OF EXCEPTIONS

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DISCLOSURE SCHEDULE

OF

CENTURY MEDICAL. INC.

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AMENDMENT NO. 1 TO

SUBORDINATED CONVERTIBLE NOTE AGREEMENT

     This Amendment No. 1 (this “Amendment No. 1”) to the Subordinated Convertible Note Agreement,
dated as of June 16, 2003, by and between Cardica, Inc., a Delaware corporation (the “Company”) and
Century Medical, Inc., a Japan corporation (“CMI”) (collectively, the “Agreement”) is made as of
August 6, 2003, by and between the Company and CMI.

Recitals

     Whereas, Section 11.13 of the Agreement provides that the Agreement may be amended with the
written consent of the Company and CMI; and

     Whereas, the Company and CMI desire to amend the Agreement as provided below.

Agreement

     In consideration of the foregoing premises and the mutual covenants and conditions set forth
below, and for other good and valuable consideration, the receipt of which is hereby acknowledged,
the parties to this Amendment No. 1, intending to be legally bound, agree as follows (capitalized
terms used in this Amendment No. 1 but not defined herein shall have the meaning assigned to them
in the Agreement);

1. Default on Senior Indebtedness. Section 8.1 of the Agreement is hereby amended and restated in
its entirety to read as follows:

“8.1 Default on Senior Indebtedness. If there should occur any receivership, insolvency,
assignment for the benefit of creditors, bankruptcy, reorganization or arrangements with creditors
(whether or not pursuant to bankruptcy or other insolvency laws), sale of all or substantially all
of the assets, dissolution, liquidation or any other marshalling of the assets and liabilities of
the Company, then no amount shall be paid by the Company in respect of the principal of or interest
on the Notes at the time outstanding, unless and until the principal of and interest on the Senior
Indebtedness then outstanding shall be paid in full. If there occurs an event of default that has
been declared in writing to the Registered Holders with respect to any Senior Indebtedness, or in
the instrument under which any Senior Indebtedness is outstanding, permitting the holder of such
Senior Indebtedness to accelerate the maturity thereof, no payment shall be made in respect of the
principal of or interest on the Notes, and no litigation, bankruptcy proceeding, foreclosure,
set-off or action to take possession of Collateral shall be commenced by Century to enforce any of
its remedies under the Notes, unless (i) such event of default shall have been cured or waived by
the holder of such Senior Indebtedness or shall have ceased to exist, or (ii) payment of all Senior
Indebtedness shall have been accelerated and all Senior Indebtedness shall have been paid in full,
or (iii) within three (3) months after the happening of such event of default (a “Payment Blockage
Period”), the maturity of such Senior Indebtedness shall not have been accelerated, or (iv) the
holder of any Indebtedness other than Senior Indebtedness shall have commenced any litigation,
bankruptcy proceeding, foreclosure, set-off or action to take possession of Collateral to enforce
its remedies at law, in equity or under the relevant loan

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agreement. Notwithstanding anything
contained herein to the contrary, payments by the Company of principal and interest on the Notes to
the Registered Holders shall be halted under Section 8.1(iii) for only one (1) Payment Blockage
Period during any twelve (12) month consecutive period.”

2. Security Interest. Section 8.6 of the Agreement is hereby amended and restated in its
entirety to read as follows:

“8.6 Security Interest. Subject to the continuing security interest of any holder
of Senior Indebtedness, and pursuant to and limited to the amount of such holder’s
Senior Indebtedness, to secure the prompt payment of the Loan when amounts
thereunder are due and payable, the Company hereby grants a continuing security
interest to Century in all personal property and assets of the Company, including
without limitation, all of the Company’s right, title and interest in and to all
equipment, general intangibles, intellectual property, inventory, investment
property, receivables, fixtures, deposit accounts and other goods and personal
property, whether tangible or intangible, whether now owned or hereafter acquired
and wherever located, all proceeds of each of the foregoing and all accessions to,
substitutions and replacements for, and rents, profits and products of each of the
foregoing (“Collateral”). Within ten (10) calendar days of the Effective Date,
Company (a) will prepare and file all documents as directed by Century necessary for
registering and perfecting Century’s continuing security interest, all such
documents to be approved by Century in writing prior to any such filing by Company
(the “Security Documents”), and (b) will bear all costs of preparing and filing the
Security Documents with the appropriate governmental authorities. Any security
interest on the Collateral granted to Century pursuant to this Agreement or the
Security Documents shall be subordinate to all liens or security interests now or
hereafter granted to a holder of Senior Indebtedness by Company or by law, pursuant
to and limited to the amount of such holder’s Senior Indebtedness, notwithstanding
the date, order or method of attachment or perfection of any such lien or security
interest or the provisions of any applicable law.”

3. No Other Amendment. Except as modified by this Amendment No. 1, the Agreement shall remain in
full force and effect in all respects without any modification. By executing this Amendment No. 1
below, the Company and CMI certify that this Amendment No. 1 has been executed and delivered in
compliance with the terms of Section 11.13 of the Agreement. This Amendment No. 1 shall become
effective when executed and delivered by the Company and CMI as provided under Section 11.13 of the
Agreement.

3. Counterparts. This Amendment No. 1 may be executed in counterparts, each of which shall
constitute an original and all of which, when taken together, shall constitute one agreement.

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     In Witness Whereof, the parties hereto have executed this Amendment No.
1 To Subordinated Convertible Note Agreement as of the date set forth in the
first paragraph hereof.

	 	 	 
	Cardica, Inc.

	 	Century Medical, Inc.
	 
	 	 
	By: /s/ Bernard Hausen

	 	By: /s/ Yasuo Kyotani
	 

	 	 
	Bernard Hausen, M.D.

	 	Yasuo Kyotani
	President and Chief Executive Officer

	 	President and Chief Executive Officer

Amendment No. 1 To Subordinated Convertible Note Agreement

Signature Page

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