Document:

Exhibit 10.211

 

“CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS,

INC.

 

SALES, MARKETING AND

DISTRIBUTION

AGREEMENT

 

BY AND BETWEEN

 

CYGNUS, INC.

 

AND

 

SANKYO PHARMA INC.

 

 

“CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS,

INC.

 

SALES, MARKETING AND

DISTRIBUTION AGREEMENT

 

THIS SALES,

MARKETING AND DISTRIBUTION AGREEMENT (the “Agreement”) is made and entered into

as of July 8, 2002, by and between CYGNUS, INC., a Delaware corporation with

its principal place of business at 400 Penobscot Drive, Redwood City, California

94063 (“Cygnus”) and SANKYO PHARMA INC., a Delaware corporation with its place

of business at Two Hilton Court, Parsippany, New Jersey 07054 (“Sankyo”).  Cygnus and Sankyo are referred to herein

individually as a “party” and collectively as the “parties.”

 

RECITALS

WHEREAS:

 

A.                                   The parties entered

into a Co-Promotion Agreement on November 28, 2001 relating to the sales and

marketing in the United States of Cygnus’ reverse iontophoresis glucose

monitoring products (the “Co-Promotion Agreement”);

 

B.                                     The parties now

wish to supersede and completely replace the Co-Promotion Agreement with this

Sales, Marketing and Distribution Agreement as of the date set forth above;

 

NOW, THEREFORE, for

good and valid consideration, the parties agree to the following terms and

conditions set forth herein:

 

1.             DEFINITIONS

 

Unless specifically provided

otherwise, capitalized terms used in this Agreement, whether used in the

singular or plural, shall have the meanings specified below.

 

1.1           “Advertising and Promotional Amount” [CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.]

 

1.2           “Affiliate” of a person, firm or entity means any entity

controlled by, under common control with, or controlling such person, firm or

entity.  For purposes of this Section

1.2, “control” shall mean direct or indirect beneficial ownership of fifty

percent (50%) or more of the voting stock or other voting interest, of a

corporation, partnership or other business organization, or the possession of

the power to direct the management and policies of a person, firm or entity,

whether through ownership of voting securities, by contract, or otherwise.

 

1.3           “Calendar Quarter” shall mean the respective periods of

three (3) consecutive calendar months ending in March 31, June 30, September 30

and December 31.

 

1.4            “Competitive Product” means any glucose monitoring

product of a party other than Cygnus.

 

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

9.3.

 

1.6           “Cygnus Intellectual Property Rights” has the meaning set

forth in Section 8.2(b).

 

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1.7           “Cygnus Know-How” shall mean all information and data,

technical information, trade secrets, specifications, instructions, processes,

formulae, materials, expertise and information (whether or not patentable)

relating to the Product, processes for its manufacture, its manufacture,

development, use or marketing or methods of using the Product known to Cygnus,

an Affiliate, designee, licensee or sublicensee thereof as of the Effective

Date or developed or acquired by Cygnus, an Affiliate, designee, licensee or

sublicensee thereof at any time during the Term.

 

1.8           “Cygnus Patent

Rights” shall mean all U.S. patent rights owned or controlled by or licensed to

Cygnus or an Affiliate thereof, as of the Effective Date or at any time during

the Term, relating to the Product, including, but not limited to, its

development, processes for its manufacture, use of the Product or methods of

using the Product as well as any improvements thereof.  Cygnus Patent Rights shall include all U.S.

patents and U.S. patent applications, all U.S. divisionals, U.S. continuations,

U.S. substitutions, U.S. continuations-in-part, U.S. re-examinations, U.S.

reissues, U.S. extensions, U.S. registrations and the like of the foregoing.  Cygnus Patent Rights shall also include

Cygnus’, or any Affiliate’s, share of any U.S. patent rights relating to the

Product jointly owned by Cygnus or such Affiliate of Cygnus.  Attached hereto as Exhibit B is a list of

U.S. patents owned by Cygnus or licensed by Cygnus relating to the Product as

of the Effective Date.  Cygnus will

update such U.S. patents relating to the Product on an annual basis during the

Term of the Agreement, which such updates shall replace Exhibit B hereto.  Cygnus Patent Rights shall not include any

patent rights outside of the United States.

 

1.9           “Cygnus Trademarks”

has the meaning set forth in Section 9.1.

 

1.10         “Effective Date” is

the date first set forth above in this Agreement.

 

1.11         “FDA” means the U.S.

Food and Drug Administration, and any successor United States governmental

agency or division thereof responsible for approving a Product in the

Territory.

 

1.12         “Net Sales by Cygnus”

[CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.]

 

(a)                                  [CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.];

 

(b)                                 [CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.];

 

(c)                                  [CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.]

 

(d)                                 [CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.]

 

(e)                                  [CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.]

 

1.13                           “Net Sales by Sankyo”

[CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.]

 

(a)                                  [CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.];

 

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(b)                                 [CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.]

 

(c)                                  [CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.]

 

For purposes of this Agreement, “Net Sales” not qualified by either “by

Cygnus” or “by Sankyo” shall refer to the aggregate of Net Sales by Cygnus and

Net Sales by Sankyo.

 

1.14         “Product Launch Date”

shall be defined as April 1, 2002.

 

1.15         “Product” means any

of Cygnus’ reverse iontophoresis (i.e., using electric current for sampling a

substance from a human) glucose monitoring products, including, but not limited

to, [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.]

 

1.16         “Proprietary

Information” of a party means

 

(a)                                  all inventions,

processes, materials, know–how and ideas of such party including but not

limited to Cygnus Intellectual Property Rights;

 

(b)           non–public

financial information concerning such party;

 

(c)                                  in the case of

Cygnus, among other information, Cygnus’ research and development and  new product plans, and, in the case of

Sankyo, among other information, Sankyo’s Sales, Marketing and Distribution

Plans, unless and until publicly announced;

 

(d)                                 in the case of Cygnus

until such time as Sankyo assumes distribution pursuant to Section 3.1, the

customer list of purchasers of the Product; and, in the case of Sankyo, the

list of health care professionals who are called on or targeted by Sankyo and

after such time as Sankyo assumes distribution pursuant to Section 3.1,the

customer list of purchasers of the Product; and

 

(e)                                  any other information

designated as confidential by such party in writing; provided that no oral or

visual communications shall be deemed confidential unless confirmed in writing

to be so within thirty (30) calendar days of the time such information is

orally or visually communicated (however such information shall be maintained

as confidential during this thirty (30) calendar day period), and provided further

that Proprietary Information shall not include any information that is:

 

(i)                                     already in the

possession of the receiving party at or before the time of disclosure hereunder

as shown by the receiving party’s files existing at the time of disclosure antedating

the date of disclosure; or

 

(ii)                                  now or hereafter

publicly known or otherwise known by the receiving party through no wrongful

act of the receiving party (provided that if Proprietary Information becomes

publicly known, this shall not excuse a prior disclosure by the receiving

party); or

 

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(iii)                               lawfully received by the

receiving party from a third party without obligation of confidence; or

 

(iv)                              developed by the

receiving party or its Affiliates independent of any disclosure made hereunder

as shown by the receiving party’s files; or

 

(v)                                 required by law to be

disclosed by the receiving party, provided that the disclosing party is given

ten (10) calendar days written notice of the legal requirement.

 

1.17         “Regulatory Approval”

of a Product means FDA approval to sell such Product in the Territory.

 

1.18         “Sales, Marketing and

Distribution Plan” shall mean, for any period, a written plan that has been

reviewed by the Steering Committee as defined in Section 7.1 and sets forth for

such period the plan and budget for the detail levels, advertising, marketing

and sale of the Product, including a Product sales forecast for the upcoming

year.  Sankyo will be responsible for

developing Sales, Marketing and Distribution Plans.

 

1.19         “Sales Year” shall

mean, with respect to the first Sales Year, the twelve (12) month period

commencing on the Product Launch Date and, with respect to subsequent Sales

Years, each successive twelve (12) month period thereafter.

 

1.20         “Sankyo Gross Profit”

[CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.]

 

1.21         “Term” has the

meaning set forth in Section 11.1.

 

1.22         “Territory” means the

United States and its territories and commonwealth possessions only and does

not include any other countries.

 

2.                                      RIGHT

OF SALES AND MARKETING

 

2.1           Appointment.  Cygnus hereby grants to Sankyo the exclusive

right to sell and market the Product in the Territory during the Term upon the

terms and conditions set forth herein. Cygnus also grants to Sankyo an

exclusive license under the Cygnus Intellectual Property Rights to offer for

sale and sell the Product in the Territory during the Term, and a non-exclusive

license under the Cygnus Intellectual Property Rights to use the Product in the

Territory during the Term, only as set forth under the terms and conditions of

this Agreement. Additionally, Cygnus grants to Sankyo a non-exclusive license

to manufacture or have a third-party manufacture the Product for sale in the

Territory during the Term, and a non-exclusive license under the Cygnus

Intellectual Property Rights to make and have made the Product for sale in the

Territory during the Term, provided however that Sankyo will only manufacture

or have a third-party manufacture the Product for sale in the Territory in the

event that either an Anticipatory Breach as defined in Section 14.1 has

occurred and the conditions of Section 14.2 have been met, or Sankyo exercises

its option to manufacture under Section 5.4(h).  Notwithstanding these rights granted to Sankyo, (i) Cygnus or its

designee shall continue to take and fulfill orders and receive payment for the

Product until such time as Sankyo assumes distribution responsibilities under

Section 3.1; and 

 

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(ii) Cygnus,

its Affiliates, designees, licensees and/or its sublicensees may promote the

Product in the Territory through the use of additional field sales personnel to

detail health care professionals.  In

the event that Cygnus utilizes the services of such Affiliates, designees,

licensees and/or sublicensees in the Territory, then Cygnus shall obtain the

prior written consent of Sankyo before entering into an agreement or other

business arrangement with such third party and, if such consent is obtained,

Cygnus shall provide Sankyo under confidentiality with the terms and conditions

of the agreement or other business relationship.  Sankyo’s consent shall not be unreasonably withheld, and Sankyo

shall have reasonable grounds to withhold consent in the event such third party

is a competitor of Sankyo. Any and all sales generated as a result of Cygnus

efforts under subparagraphs (i) and (ii) of this Section 2.1 [CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.]. 

Sankyo shall have no rights, whether explicit or implied, to the Product

outside of the Territory under any term or condition of this Agreement.

 

2.2           Consideration.  In consideration of Cygnus’ grants to Sankyo

of a right of sales and marketing, a right of distribution, and a right of

manufacture, all pursuant to Section 2.1, Sankyo shall pay to Cygnus milestone

payments totaling fifteen million dollars ($15,000,000) as follows: (i) twelve

and one-half million dollars ($12,500,000) within ten (10) calendar days of the

Effective Date of this Agreement, and (ii) 

two and one-half million dollars ($2,500,000) within ten (10) calendar

days of Cygnus’ supplemental PMA application (FDA number P990026/S08), for use

of the GlucoWatch® Biographer in children and adolescents (ages 7-17) being

approved by the FDA.

 

2.3           Payments.  In

consideration for Sankyo’s sales and marketing activities in the Territory

under Section 4.1 during the Term and commencing on the Product Launch Date,

Cygnus shall pay to Sankyo [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS,

INC.]  If this Agreement is extended

pursuant to Section 11.1, the parties will negotiate in good faith the Sales

and Marketing Fee for subsequent periods.

 

2.4           Deferral of Payments. [CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.]. 

Furthermore, commencing upon the Effective Date of this Agreement until

such time as Cygnus has fully paid all such deferred Sales and Marketing Fees

and Advertising and Promotion Amount reimbursement, Cygnus shall abide by the

Negative Covenants set forth in Exhibit D hereto. In the event that this

Agreement shall terminate under Section 11.1, Section 11.2, Section 11.3,

Section 11.4 and Section 11.5, and termination by Cygnus under Section 11.6,

any and all deferred Sales and Marketing Fees and Advertising and Promotion

Amount reimbursement shall become due and payable.   Within [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] Cygnus

files with the U.S. Securities and Exchange Commission its quarterly (10-Q)

financial report for the last Calendar Quarter within a given Sales Year,

Cygnus will report in writing to Sankyo as to the Cygnus Product Profit for the

previous Sales Year.

 

2.5           Reports and Payments. Until such time as Sankyo assumes

distribution pursuant to Section 3.1, within [CONFIDENTIAL TREATMENT REQUESTED

BY CYGNUS, INC.] of the end of each Calendar Quarter, Cygnus shall provide a

written statement to Sankyo of Net Sales by Cygnus of the Product in the

Territory during such Calendar Quarter. 

Thereafter, within [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] of

the end of

 

6

 

each Calendar Quarter, Sankyo

shall provide Cygnus a written statement of Net Sales by Sankyo of the Product

in the Territory during such Calendar Quarter. 

Such written statements shall include [CONFIDENTIAL TREATMENT REQUESTED

BY CYGNUS, INC.] of the Product and all itemized deductions and calculated Net

Sales as described in Section 1.12 and Section 1.13.  Such written statement shall also be signed by a duly authorized

representative of the party on behalf of that party and shall show such Net

Sales during such Calendar Quarter, and the amount due and payable to Sankyo

pursuant to Section 2.3.  Net Sales

shall be calculated as set forth in Section 1.12 and Section 1.13 and shall be

consistent with accounting methods used by Cygnus and/or Sankyo in preparing

and maintaining its books and records. 

Except as set forth in Section 2.4, Cygnus shall make the payments

specified in Section 2.3 to Sankyo on a [CONFIDENTIAL TREATMENT REQUESTED BY

CYGNUS, INC.] basis within [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.]

after the end of each Calendar Quarter if the payments are based on Net Sales

by Cygnus, and within [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] after

receipt of the written statement of Net Sales by Sankyo, during the Term with

respect to amounts that become due and payable during the preceding quarter.

 

2.6           Manner of Payment. 

All payments to Sankyo under Section 2.3 shall be made by wire transfer

in U.S. dollars.  Late payments shall

bear interest at the lower of (a) the prime rate as quoted from time to time by

Bank of America plus 1%, or (b) the maximum rate permitted by law.

 

3.             RIGHT

OF DISTRIBUTION

 

3.1           Appointment.[CONFIDENTIAL TREATMENT

REQUESTED BY CYGNUS, INC.].  In

addition, as of the date Sankyo provides written notice of its ability to

assume distribution responsibilities under this Agreement, [CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.]. 

Pursuant to Section 3.2 and Section 3.3, [CONFIDENTIAL TREATMENT

REQUESTED BY CYGNUS, INC.], Cygnus will grant to Sankyo the non-exclusive right

during the Term to distribute the Product in the Territory.  [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS,

INC.], such non-exclusive right shall become an exclusive right to distribute

the Product in the Territory during the Term under the terms and conditions

herein.

 

3.2           Subject to Section 3.1, [CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.] of written notice from Sankyo of Sankyo’s

ability to assume distribution responsibilities under this Agreement.

 

3.3           Subject to Section 3.1, Cygnus shall

attempt to make the [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.]

 

4.             RESPONSIBILITIES

AND OBLIGATIONS OF SANKYO

 

4.1           During the Term, and with respect to each Product in the

Territory for which Regulatory Approval has been obtained, Sankyo will at its

sole cost and expense:

 

(a)                                  use its commercially

reasonable efforts to market, sell and support (through education and training

of health care professionals and customers) the Product on a continuing basis;

 

7

 

(b)                                 comply with good

business practices and all applicable laws and regulations;

 

(c)                                  promptly notify

Cygnus or its designee of any Product complaints or adverse patient reactions

according to Section 4.3 and any actual or potential governmental actions

relevant to any Product;

 

(d)                                 not make any false

claims, representations, warranties or guarantees to any third party with

respect to the specifications, features, capabilities or intended use of the

Product;

 

(e)                                  deploy initially a

minimum of fifty (50) of its specialty sales representatives to sell the

Product and, by [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] and

thereafter, deploy a minimum of one hundred (100) of its specialty sales

representatives to sell the Product. 

These specialty sales representatives will target [CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.] physicians for the Product [CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.] and will deliver a minimum of

[CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] Product details to

[CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] physicians and associated

health care professionals in 2002 and [CONFIDENTIAL TREATMENT REQUESTED BY

CYGNUS, INC.] Product details annually thereafter;

 

(f)                                    commencing

[CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.], provide support in the

minimum form of [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] details

through its national primary care sales representatives (currently

approximately 450 primary care sales representatives, which approximate number

is to be maintained or increased during the Term of this Agreement unless

Sankyo provides a commercially reasonable basis for decreasing this number);

 

(g)                                 support

the sales forces set forth in Section 4.1(e) and Section 4.1(f) through its

sales operations and training programs, personnel and systems;

 

(h)                                 utilize

its managed care personnel (currently approximately 20 managed care

specialists, which approximate number is to be maintained or increased during

the Term of this Agreement unless Sankyo provides a commercially reasonable

basis for decreasing this number) to conduct and administer contracting and

pull-through programs within managed care accounts;

 

(i)                                     utilize

its medical manager group (currently approximately 20 personnel, which

approximate number is to be maintained or increased during the Term of this

Agreement unless Sankyo provides a commercially reasonable basis for decreasing

this number) to support the activities of the sales forces set forth in Section

4.1(e) and Section 4.1(f) as well as the managed care personnel set forth in

Section 4.1(h);

 

8

 

(j)                                     prepare

all marketing, sales, educational, training and communication materials,

graphical treatment of Product labeling (excluding the Patient Information

Sheet),  including Product websites

(e.g., glucowatch.com and other website domain names having glucowatch therein

and owned by Cygnus), subject to review by Cygnus through a designated person

who will participate in Sankyo’s review process, for marketing and sale of the

Product to consumers, third-party distributors, managed care organizations,

health care professionals,  (the “Sales

and Marketing Materials”). Sankyo shall include the trademarks and/or company

logos of Cygnus on such Sales and Marketing Materials;

 

(k)                                  develop

and produce sales force training materials for the Sankyo sales force;

 

(l)                                     spend

a minimum of [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] in Advertising

and Promotional Amount as defined in Section 1.1, and subject to Section

5.1(k), in the calendar year 2002. For the calendar year 2002, Cygnus’

“Promotional Amount” as defined in Section 1.16 of the Co-Promotion Agreement

of November 28, 2001, spent in 2002 will apply toward this minimum amount for

2002.[CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] ;

 

(m)          prepare a Sales,

Marketing and Distribution Plan as set forth in Section 1.18;

 

(n)                                 distribute the Product

in the Territory during the Term pursuant to Section 3.1, and shall enter into,

and administer, agreements with third-party distributors, including but not

limited to wholesale distributors, retail distributors and durable medical

equipment distributors;

 

(o)                                 keep for five (5)

years after termination of this Agreement records of information relating to

the Product; and

 

(p)                                 market, sell and

distribute the Products to the total and complete exclusion of any and all

Competitive Product.

 

4.2           Reports.  At least quarterly and whenever reasonably

requested by Cygnus, Sankyo will provide Cygnus with all current sales and

marketing information relating to the Product, including, without limitation, a

confidential written summary describing the number and type of details

performed, as well as any research and competitive analysis.  Sankyo will on a daily basis provide Cygnus

a copy of its daily sales report, which is generated by Sankyo in the ordinary

course of business.  In addition, upon

reasonable request by Cygnus, Sankyo will provide Cygnus with current confidential

information regarding potential medical professionals contacted by Sankyo.  All reports provided by Sankyo to Cygnus

shall be treated as Proprietary Information unless otherwise agreed to in

writing by Sankyo.

 

4.3           Adverse Event Reporting (“AER”). Sankyo shall report all

suspected AERs to Cygnus’ Regulatory Department or its designee, via telephone

at 1-866-GLWATCH or to such other number as Cygnus may designate, as soon as

possible but in no event later than two (2) business days of receipt of such information

by any employee of Sankyo. For the purposes of this Section 4.3, AER shall mean

any adverse medical event in or complaint by a patient who uses the

 

9

 

Product (as defined by Parts

803 and 820 of the U.S. Code of Federal Regulations Chapter 21 and any other

applicable definitions in regulations promulgated by the FDA) that require

reporting by Cygnus to the FDA.  If

requested, Sankyo will make reasonable efforts to assist Cygnus, or its

designee, in obtaining AER follow-up information from reporters initially

identified by Sankyo.  Cygnus shall

retain responsibility for all FDA reporting requirements, and Sankyo shall have

no responsibility to report any AER to the FDA.

 

5.             RESPONSIBILITIES

AND OBLIGATIONS OF CYGNUS

 

5.1           During the Term and with respect to

each Product in the Territory, Cygnus will at its sole cost and expense:

 

(a)                                  use its commercially

reasonable efforts to conduct all research, development, legal, clinical and

regulatory (including labeling) activities relating to the Product;

 

(b)                                 use its commercially

reasonable efforts to obtain and maintain Cygnus Intellectual Property Rights,

maintain the UC License Agreement, maintain the glucowatch.com domain name and

other website domain names having glucowatch.com therein and owned by Cygnus,

and obtain and maintain all Regulatory Approvals in the Territory relating to

the Product;

 

(c)                                  prepare all Product

labeling including patent marking, provided that Sankyo’s name and corporate

logo, in a size comparable to the size of Cygnus’ name and corporate logo, will

be added to the Product labeling as soon as practicable after Sankyo assumes

distribution pursuant to Section 3.1, and determine the Product name;

 

(d)                                 handle warranty

obligations for the Product, in accordance with the terms of the product

warranty provided with the Product;

 

(e)                                  provide all customer

support (wherein customer support is in the form of telephonic, email and mail

consultation to patients who have purchased the Product);

 

(f)                                    provide technical

information to Sankyo so that Sankyo can develop and produce training, and

sales and marketing materials;

 

(g)                                 provide Sankyo with a

copy of all reported AERs and provide Sankyo a monthly summary of the customer

service and technical support inquiries;

 

(h)                                 continue to use its

commercially reasonable efforts to develop and obtain Regulatory Approval for

additional indications and future Products;

 

(i)                                     take and fulfill

orders and receive payment for Product sold to third-party customers pursuant

to Section 2.1(i) until such time as Sankyo assumes distribution pursuant to

Section 3.1;

 

10

 

(j)                                     be responsible for

any advertising and promotional costs incurred by Cygnus, its Affiliates, designees,

licensees and/or sublicensees, in the event that Cygnus, its Affiliates,

designees, licensees and/or sublicensees promote the Product pursuant to

Section 2.1(ii), and such promotional costs will not be applied to the

Advertising and Promotional Amount. 

Furthermore, in such event, marketing direction for the Product will be

provided by Sankyo; and

 

(k)                                  reimburse Sankyo for

Sankyo’s Advertising and Promotion Amount for the 2002 calendar year, wherein

such reimbursement amount will not exceed 

ten million dollars ($10,000,000) minus the amount spent by Cygnus in

2002 for its “Promotional Amount” as defined in Section 1.16 of the

Co-Promotion Agreement of November 28, 2001. 

Cygnus shall notify Sankyo in 2003 of such Promotional Amount spent by

Cygnus in 2002, and Sankyo will then invoice Cygnus for the reimbursement

amount.

 

5.2           Regulatory

Notification to Sankyo.  During the Term

Cygnus will notify Sankyo promptly (and in any event within two (2) business

days) of its receipt of information from the FDA:

 

(a)                                  that raises any

material concerns regarding the safety or effectiveness of the Product or would

affect Product labeling;

 

(b)                                 that indicates a

material liability for either party arising in connection with the Product;

 

(c)                                  that, in Cygnus’

opinion, is reasonably likely to lead to a recall or market withdrawal of the

Product.  Information that shall be

disclosed pursuant to this Section 5.2 shall include, but not be limited to,

the items in Section 5.2(e) and (f);

 

(d)                                 of any materially

adverse action of the FDA or any other governmental or regulatory authority in

the Territory relating to:

 

(i)                                     inspections of

manufacturing, distribution or other related facilities;

 

(ii)                                  inquiries concerning

clinical investigation activities (including inquiries of investigators,

clinical monitoring organizations and other related parties); and

 

(iii)                               any communication

specifically involving the manufacture, marketing, sale,  or distribution of the Product or any other

reviews or inquiries relating to the Product;

 

(e)                                  of a receipt of a

“Warning Letter” or other correspondence relating to the Product from the FDA

or any other governmental or regulatory authority in the Territory; and

 

(f)                                    of an initiation of

any governmental or regulatory authority investigation, detention, seizure or

injunction concerning the Product in the Territory.

 

11

 

5.3           Recalls or Other Corrective Action.  Cygnus shall have sole responsibility and

shall make all decisions in its sole discretion with respect to any recall,

market withdrawals or any other corrective action related to the Product,

including the right to cease all sales of Product in the Territory or the sales

and marketing of the Product in the Territory. 

Cygnus shall promptly notify Sankyo of all recalls and all other

decisions or notifications (including, without limitation, notifications to or

from the FDA) relating to recalls, market withdrawals or other such corrective

action relating to the Product.  At

Cygnus’ request, Sankyo shall use its commercially reasonable efforts to assist

Cygnus in conducting such recall, market withdrawal or other corrective action,

and any documented out-of-pocket costs incurred by Sankyo with respect to

participating in such recall, market withdrawal or other corrective action

shall be reimbursed by Cygnus.  In the

event that a Product recall, market withdrawal or corrective action results in

the situation where there are no Net Sales of any Product due to Product

recall, market withdrawal or corrective action, then the Term will be extended

for [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] such recall, market

withdrawal or corrective action is in effect, however, the Advertising and

Promotional Amount set forth in Section 4.1(l) shall be suspended during the

time period where there are no Net Sales of any Product.  In the event that there are no Net Sales of

any Product for [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] , then

Sankyo may terminate this Agreement pursuant to Section 11.3.

 

5.4           Supply.

 

(a) Supply

Agreement. The parties will execute a supply agreement within [CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.] from the Effective Date of this Agreement

containing the terms and conditions set forth below and other such terms and

conditions that are customarily found in an agreement of this nature (the

“Supply Agreement”).

 

(b) The price

at which Cygnus will sell the Product to Sankyo (the “Transfer Price”) will be,

for the first [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] following the

Product Launch, [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.], for the

subsequent [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.], and thereafter

for the remaining Calendar Quarters in the initial Term, [CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.].  

From time to time, the parties may amend the amounts set forth in

Exhibit C as mutually agreed. If this Agreement is extended pursuant to Section

11.1, the parties will negotiate in good faith the Transfer Price for

subsequent periods.

 

(c) The price

at which Cygnus will sell the Product to Sankyo for use as professional samples

or as practice units will be [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS,

INC.].

 

(d) Sankyo

will provide Cygnus rolling [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.]

forecasts for the Product in the Territory, which will be updated on a

[CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] basis.  Such forecasts will take Cygnus’

manufacturing capacities into account, and will contain binding and non-binding

forecasts, to be set forth in the Supply Agreement.  Furthermore, to ensure that there is no interruption of supply to

Product customers, Sankyo will maintain a minimum of [CONFIDENTIAL TREATMENT

REQUESTED BY CYGNUS, INC.] inventory during the [CONFIDENTIAL TREATMENT

REQUESTED BY CYGNUS, INC.] Sales Years and a 

 

12

 

minimum of [CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.] inventory during the [CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.] Sales Years.  Sankyo will place orders at least [CONFIDENTIAL TREATMENT

REQUESTED BY CYGNUS, INC.] in advance, and Sankyo will pay Cygnus [CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.] of the Transfer Price upon placement of

such orders and will pay the remaining [CONFIDENTIAL TREATMENT REQUESTED BY

CYGNUS, INC.] of the Transfer Price upon acceptance of shipment.

 

(e) In the

case of returned Product from patients under Cygnus’ warranty policy, Cygnus

will provide the Patient with either a replacement or repair.  In all other cases, the Supply Agreement

will set forth the terms and conditions of such returns.

 

(f) The

parties will enter into a mutually agreed upon Quality Agreement that will

contain provisions including but not limited to document retention, deviations

and out-of-specification results, audit and inspection rights, Product

acceptance/release/Certificate of Analysis requirements, quality control, FDA

reporting requirements, and the like.

 

 (g) Cygnus shall use its commercially

reasonable efforts to supply Product (for trade purposes, practice units and

samples) during the Term in sufficient quantities to meet forecasted amounts of

demand set forth in the Sales, Marketing and Distribution Plan.  Cygnus will, from time to time, at Sankyo’s

written request, promptly inform Sankyo of all material problems relating to

Cygnus’ inventory levels and ability to continue supply of the Product to meet

forecasted amounts of demand set forth in the Sales, Marketing and Distribution

Plan.

 

(h) Failure of

Supply. Option to Manufacture.  In the

event that for any reason (other than by a Force Majeure Act, as defined in

Section 15.10), (i) Cygnus is unable to supply on a timely basis at least

[CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] of the volume of all-ordered

Product during a Calendar Quarter and (ii) such orders are not greater than the

forecasted Product requirements included in the then current Sales, Marketing

and Distribution Plan, then the Term will be extended for twice the number of

days Cygnus is unable to supply on a timely basis at least [CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.] of the volume of all-ordered Product.  In the event that the failure to supply

continues for [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] , then Sankyo

has the option, at its sole discretion, to either terminate this Agreement

pursuant to Section 11.4 or exercise its right to manufacture or have

manufactured the Product for sale in the Territory during the Term pursuant to

Section 2.1.  From time to time, the

parties will exchange information relating to orders, inventory levels and

backlog.

 

6.             OBLIGATIONS

OF BOTH PARTIES

 

6.1           Records and Audit Rights.  Each party shall keep and maintain complete

and accurate books and records reflecting all information necessary or useful

in verifying the accuracy of all reports delivered and payments made under this

Agreement and such books and records are proprietary to that party.  Each party (the “Auditing Party”) shall have

the right to audit, or cause its independent auditor to audit, the books and

records of the other party (the “Audited Party”) as they relate to such reports

and payments, provided that any accountant agrees in writing to keep

 

13

 

all

information confidential, except as needed to disclose any discovered

discrepancies and provided further that such audit:

 

(a)                                  is

conducted during normal business hours;

 

(b)                                 is

conducted no more often than once per year (unless a discrepancy resulting in a

payment in excess of one hundred thousand dollars ($100,000) is discovered in

favor of the Auditing Party, in which case the audits may be conducted

semi-annually);

 

(c)                                  is

conducted only after the Auditing Party has given ten (10) calendar days prior

written notice to the Audited Party. The Auditing Party shall bear the full

cost and expense of such audit, unless a discrepancy resulting in a payment in

excess of the one hundred thousand dollars ($100,000) in favor of the Auditing

Party is discovered, in which event the Audited Party shall bear the full cost

and expense of such audit, however this amount shall not exceed fifty thousand

dollars ($50,000) and any costs or expenses in excess of this amount shall be

borne by the Auditing Party.  Regardless

of the amount of discrepancy discovered, all discrepancies (and interest

thereon) shall be immediately due and payable by the party found to have caused

the discrepancy. All books and records relating to either party’s obligations

under this Agreement shall be retained by such party for five (5) years after

the Term; and

 

(d)                                 in

the case of a dispute as to the alleged discrepancy found, the parties shall

hire an independent third-party accountant and shall bear equally the costs or

expenses of such independent third-party accountant.

 

6.2           Insurance.  During

the Term and in the Territory, Cygnus and Sankyo each will purchase and

maintain in full force and effect, with a responsible insurance carrier, the

insurance coverage and amounts typical in the medical devices industry for the

type of activities performed by each of the parties for similarly positioned

and sized companies.  Specifically,

Cygnus will be solely responsible for insuring against product liability claims

arising from, or relating to, the Product in the Territory.  Cygnus shall maintain product liability

insurance throughout the Term in an amount of at least [CONFIDENTIAL TREATMENT

REQUESTED BY CYGNUS, INC.] on a “per occurrence” basis with an insurance

company rated at least A-3 by Best’s rating guide. Sankyo shall be added as an

additional insured on Cygnus’ product liability insurance policy.  Sankyo shall maintain all insurance

necessary for its obligations throughout the Term in the Territory in an amount

of at least [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] on a “per

occurrence” basis with an insurance company rated at least A-3 by Best’s rating

guide.  Cygnus shall be added as an

additional insured of Sankyo’s insurance policy.  Each party shall provide the other with a certificate of

insurance and shall keep such policy current. 

Each such insurance policy shall provide for at least thirty (30)

calendar days prior written notice to Cygnus and Sankyo of the cancellation or

any substantial modification of the terms of coverage.

 

6.3           Governmental Approvals; Compliance with Law. Cygnus and

Sankyo each shall make all filings with government authorities as shall be

required by applicable laws in connection with 

 

14

 

this Agreement and the

activities contemplated hereunder.  In

fulfilling its obligations under this Agreement, Cygnus and Sankyo each agrees

to comply in all material respects with all applicable laws.

 

6.4           Cooperation.  The

parties will work together to perform their obligations under this Agreement.

Sankyo may, upon reasonable advance notice, at Sankyo’s cost, visit facilities

where the Product is being manufactured, stored, tested or shipped during

normal business hours.  Cygnus may, upon

reasonable advance notice, have its personnel accompany the Sankyo sales force

in the field to observe Sankyo’s field sales activities relating to the Product

and Cygnus may, from time to time, contact health care professionals to obtain

feedback on the Product.  During the

transition period prior to Sankyo’s exclusive distribution of Product, the

parties will work together to facilitate an orderly transition, to keep each

other informed of possible overlapping activities, and to enter channels of

distribution other than direct-to-patient as soon as practicable.  Throughout the Term of this Agreement, each

party will execute all necessary consents or other required documents to enable

the other party to perform its obligations hereunder.

 

6.5           Responsibility.  Other than the payments specifically set

forth in this Agreement, there shall be no other payments made by the parties

to each other.  Neither party shall be

responsible for the costs and expenses, whether external or internal and

whether direct or indirect, including salaries and travel, of the other party.

 

7.             MANAGEMENT

OF RELATIONSHIP

 

7.1           Steering Committee. 

Within twenty (20) calendar days from the Effective Date, the parties

will form a Steering Committee consisting of three (3) people from each party

(the “Steering Committee”).  A

representative from each party shall serve as co-chairpersons of the Steering

Committee.  The Steering Committee may

establish one or more subcommittees as appropriate. The Steering Committee

shall meet at least quarterly, and shall document their meetings in written

minutes, to:

 

(a)                                  review the sales,

marketing and distribution of the Product in the Territory, including a review

and update of the Sales, Marketing and Distribution Plan at least annually;

 

(b)                                 discuss actions to

foster the attainment of sales objectives;

 

(c)                                  review current

marketing, distribution, sales and pricing strategies, including amount and

form of discount and rebate programs;

 

(d)                                 coordinate  activities between Sankyo and Cygnus, its

Affiliates, designees, licensees and/or its sublicensees who are promoting the

Product for Cygnus pursuant to Section 2.1(ii);

 

(e)                                  review Sankyo’s

efforts to develop and implement strategies of institutional, governmental and

managed care marketing and contracting;

 

15

 

(f)                                    review Cygnus’

obligations under Section 5.1 and receive updates from Cygnus on other

significant activities relating to its obligations under Section 5.1, including

an annual review of Cygnus Intellectual Property Rights in the Territory;

 

(g)                                 review Cygnus’

proposed product development as set forth in Section 5.1(h) in light of

marketing issues regarding the Product;

 

(h)                                 review Sankyo’s

obligations under Section 4.1;

 

(i)                                     review, and if

necessary, amend the schedule set forth in Exhibit C hereto;

 

(j)                                     resolve any disputes

pursuant to Section 7.1; and

 

(k)                                  agree upon the

initial Sales, Marketing and Distribution Plan.

 

Each party may change its

members of the Steering Committee at any time upon written notice, and each

party will cause its members of the Steering Committee to act reasonably, in

good faith and consistent with the terms and conditions of this Agreement.  The Steering Committee may take action only

by the unanimous written consent of all members, as indicated by all members

signing the written minutes.  If an

issue remains unresolved after good faith consideration by the Steering

Committee for thirty (30) calendar days, any Steering Committee member may

submit it to the Executive Officers of the parties for resolution. The initial

Sales, Marketing and Distribution Plan shall be mutually agreed upon by Sankyo

and Cygnus.

 

7.2           Executive Officers. 

Each party shall designate an “Executive Officer” of its company who

will be available in the event of any dispute that has not been resolved by the

Steering Committee in accordance with Section 7.1. The Executive Officer must

be at least at the level of an officer of the company.  The initial Executive Officers shall be

designated within twenty (20) calendar days of the Effective Date.  The Executive Officers shall attempt in good

faith to resolve any issue presented to them by the Steering Committee.  In the event that an issue relates to

Cygnus’ particular manner of implementing its responsibilities and obligations

under Section 5.1, the Executive Officer from Cygnus shall make the final

determination.  In the event that an

issue relates to Sankyo’s particular manner of implementing its

responsibilities and obligations under Section 4.1, the Executive Officer from

Sankyo shall make the final determination. 

Any other issue will be deemed not to be resolved if the Executive

Officers are unable to resolve it within thirty (30) calendar days after

attempting in good faith to do so.

 

8.             REPRESENTATIONS,

WARRANTIES AND COVENANTS

 

8.1           Mutual Representations. 

Each party represents, warrants and covenants to the other as follows:

 

(a)                                  Existence and

Authority.  It is a corporation duly

organized, validly existing and in good standing under the laws of its

jurisdiction of incorporation and has the corporate power and authority to

execute, deliver and perform this Agreement. 

The execution of this Agreement and the consummation of the transactions

contemplated hereby have been duly authorized by all necessary corporate action

 

16

 

on its part and do not conflict with the terms or conditions of any

contract, agreement, arrangement or understanding to which such party is

subject.

 

(b)                                 Enforceability.  This Agreement is a valid and binding

obligation of said party, enforceable against it in accordance with its terms.

 

(c)                                  Litigation.  There is no action, suit, proceeding or

investigation pending or, to its knowledge, threatened before any court or

administrative agency against said party which could, directly or indirectly,

reasonably be expected to materially affect its ability to perform its

obligations hereunder or the marketability of the Product.

 

(d)                                 Compliance with

Laws.  Each party shall fully comply in

all material respects with all applicable federal, state and local laws, rules,

regulations or ordinances with respect to its obligations hereunder and shall

obtain and maintain all licenses, permits, approvals and other authorizations

applicable to it in order to enable it to perform its obligations hereunder.

 

8.2           Cygnus’ Representations. 

Cygnus hereby represents, warrants and covenants to Sankyo as follows:

 

(a)                                  Product

Specifications.  All sample Product

delivered by or for Cygnus to Sankyo or distributed by or for Cygnus and

Product manufactured, distributed or sold by or for Cygnus during the Term will

comply in all material respects with the specifications for the Product; will

comply in all material respects with all requirements of the FDA and other

applicable laws, rules and regulations; will not be adulterated or misbranded

and will have been determined to be safe and effective by the FDA for the

Product’s intended use under the U.S. Food, Drug and Cosmetic Act and

regulations issued thereunder or other applicable laws; and will have been

manufactured in all material respects in accordance with current good

manufacturing practices as provided in the U.S. Food, Drug and Cosmetic Act and

regulations issued thereunder This representation does not apply to Product

that has been mishandled, mistreated or used or maintained or stored by Sankyo

other than in conformity with Cygnus’ written instructions.

 

(b)                                 Intellectual

Property.  As of the Effective Date,

Cygnus has received no credible or material notices, threats, or warnings,

orally or in writing, alleging infringement or violation of any intellectual

property right of another party with respect to the Product and that the

Exclusive License Agreement for Device for Iontophoretic Non-Invasive Sampling

or Delivery of Substances between Cygnus and the University of California, effective

January 1, 1995, and any amendments thereto (the “UC License Agreement”),

remains in full force and effect. Additionally, Cygnus is not aware of any

patents, trademarks, copyrights or other intellectual property rights of third

parties that the initial Products (i.e., GlucoWatch® Biographer  and GlucoWatch® G2TM Biographer)

would infringe in the Territory.  To the

best of its knowledge, Cygnus owns or possesses all right, title and interest

in and to, or has licenses to, all patents, know-how, trademarks,

 

17

 

copyrights, trade secrets and all other intellectual property of any

nature whatsoever relating to the Product, including but not limited to Cygnus

Patent Rights, Cygnus Trademarks, Cygnus Copyrights and Cygnus Know-How,

required to make, use, sell or offer for sale the Product in the Territory

(collectively, “Cygnus Intellectual Property Rights”).  Except for any security interest granted to

Sankyo pursuant to Section 2.4, Cygnus owns or has licenses to the Cygnus

Intellectual Property Rights free and clear of all liens, claims and

encumbrances and free of all royalty or similar payment obligations to any

third party except for the University of California.  Cygnus has not received any notice concerning the institution or

possible institution of any interference, opposition, re-examination or reissue

involving any of Cygnus Patent Rights.

 

(c)                                  Information

Disclosure.  Cygnus represents and

warrants to Sankyo that, as of the Effective Date, all documents, materials,

representations and other information provided to Sankyo by Cygnus concerning

the Product, including, without limitation, with respect to the FDA’s

determination of safety and effectiveness of the Product, are materially

accurate, and, taken as whole, do not contain any statement which is false or

misleading in any material respect, and that Cygnus has not omitted or failed

to state any fact that would materially adversely affect Sankyo’s or Cygnus’

ability to perform its obligations under this Agreement.

 

(d)                                 Other Agreements.  As of the Effective Date, Cygnus has not

entered into any agreement or other business arrangement with a third party for

the marketing, sales, or offer for sale of the Product in the Territory other

than the U.S. Market Research Agreement with Lifescan, dated February 22, 2001,

and any amendments thereto; the Warehouse Distribution Contract with UPS Supply

Chain Management, Inc., dated August 25, 2000, and amendments thereto; and into

the Services Agreement with [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.],

dated May 7, 2002 and amendments thereto.

 

8.3           Sankyo’ Representations.  Sankyo hereby represents, warrants and

covenants to Cygnus as follows:

 

(a)                                  Sales Misconduct. As

of the Effective Date, Sankyo has not received any notices or citations from

the FDA relating to misconduct or illegal sales and marketing activities of its

sales force with regard to any product. During the Term, Sankyo will comply

with all applicable laws and regulations relating to the conduct of its sales

force.

 

(b)                                 Product Claims. All

sales presentations by Sankyo and sales and marketing materials provided or

distributed by Sankyo shall comply in all material respects with all applicable

laws and regulations.

 

9.             INTELLECTUAL

PROPERTY

 

9.1           Trademarks.  Cygnus

has applied for and/or registered in the Territory the trademark “GLUCOWATCH,”

“G2,” “G3” and “CYGNUS” that Cygnus may use on one or more of the

 

18

 

Products, and in the future

will register or otherwise protect additional trademarks, service marks, logos

and other designations relating to the Product in the Territory (collectively,

“Cygnus Trademarks”).  Cygnus shall be

the sole owner of all Cygnus Trademarks, and Sankyo has not and will not apply

for and/or register any trademarks relating to the Product. Each party hereby

grants to the other a nonexclusive right and license to use any trademark of

the party to permit the other party to meet its obligations under this

Agreement during the Term in the Territory. 

In the event Cygnus decides to stop marking the Product in the Territory

as “GLUCOWATCH,” Cygnus will first consult with Sankyo prior to making its

decision.

 

9.2           Rights in

Trademarks, Trade Names, Logos or Designations.  Sankyo acknowledges that it has paid no consideration for the use

of Cygnus Trademarks, and nothing contained in this Agreement shall give Sankyo

any right, title or interest in or to any of Cygnus Trademarks.  Sankyo acknowledges that Cygnus retains all

proprietary rights in all of Cygnus Trademarks, and Sankyo agrees that it will

not at any time during or after the Term assert or claim any interest or do

anything that might adversely affect the validity or enforceability of any

Cygnus Trademarks.

 

9.3           Copyrights.  Cygnus owns its copyrights in

Cygnus-developed software, sales and marketing materials, Product labeling, and

other copyrightable materials published in connection with the development,

sales and marketing of the Product (“Cygnus Copyrights”).  Sankyo owns its copyrights in

Sankyo-developed software, sales and marketing materials, and other

copyrightable materials published in connection with the sales, marketing and

distribution of the Product (“Sankyo Copyrights”).  Each party hereby grants to the other a nonexclusive right and

license to use any copyright of the party to permit the other party to meet its

obligations under this Agreement during the Term in the Territory.

 

9.4           glucowatch.com.

Cygnus retains ownership of its website domain name, glucowatch.com and any

other website domain names having glucowatch therein and owned by Cygnus, and

Cygnus grants Sankyo an exclusive license right and license to use such domain

names during the Term of this Agreement, after Cygnus transitions its United

Kingdom information to another domain name other than glucowatch.com or any

other website domain names having glucowatch therein and owned by Cygnus.  The parties will work together to facilitate

this transition and to provide U.K. customers with a gateway to U.K.

information in a legally compliant manner. After the transition, but in any

case no later than sixty (60) calendar days after the Effective Date, Sankyo

will assume control over such website domain 

contents pursuant to Section 4.1(j).

 

9.5           Ownership.  As between the parties and subject to the

exclusion set forth in this Section 9.5, each party will be the sole owner of

the intellectual property rights in any invention made during the Term of which

only its employees and its third-party contractors are inventors, and each

party will jointly own the intellectual property rights in all inventions made

during the Term of which both parties, employees or contractors are joint

inventors.  In the case of solely owned

intellectual property rights, each party will bear the cost and responsibility

of such rights.  In the case of jointly

owned intellectual property rights, the parties will share the cost and

responsibility in filing, prosecuting and maintaining such jointly owned

rights, which may be exploited and non–exclusively licensed to third

parties by either party without accounting to or further approval of the other

party. Inventorship on patent applications will be determined by U.S. patent

law.  If Sankyo, during the Term through

its employees or its third-party contractors, is an owner of, or a licensee

with a right to sublicense, any intellectual property rights relating to

reverse

 

19

 

iontophoresis glucose monitoring, Sankyo hereby grants Cygnus a

royalty-free, non-exclusive, perpetual license in such intellectual property to

Cygnus, however Sankyo shall bear the cost and responsibility of filing,

prosecuting and maintaining such intellectual property rights.

 

9.6           Claim of

Infringement.  If Sankyo or Cygnus

(“Receiving Party”) receives a claim that any of the Product infringe upon a

patent or copyright in the U.S., or that any Cygnus Trademarks employed with a

Product infringe upon a registered trademark, service mark, logo or protectable

trade–dress of a third party in the U.S., the Receiving Party will notify

the other party promptly in writing to ensure that Cygnus has all necessary

information and assistance and the authority to evaluate and defend such

claim.  Cygnus, at its sole and absolute

discretion, shall determine what course of action it wishes to take in

defending such a claim including but not limited to litigation, license and the

like.  Cygnus warrants and represents

that it shall use its commercially reasonable efforts to secure a right to continue

using the Product in the Territory during the Term free of liability for

infringement of any third-party patent, copyright, trademark or any other

intellectual property right.  Royalties

and other payments associated with such right shall be borne by Cygnus.  Cygnus shall indemnify, defend and hold

harmless Sankyo, and its officers, directors, employees and agents with respect

to such claims in accordance with the terms and conditions of Section 12.1 and

Section 12.3.

 

9.7           Infringement by

Third Parties.  Each party shall notify

the other party in writing promptly upon its becoming aware of any infringement

by a third party of Cygnus Intellectual Property Rights utilized in

manufacturing, using, developing, supplying, importing, exporting, marketing,

distributing, co-promoting, offering for sale or selling the Product in the

Territory during the Term.  Cygnus shall

have the right, but not the obligation, to file and maintain lawsuits in its

own name for infringement by third parties of any Cygnus Intellectual Property

Rights related to any Product in the Territory during the Term.  Sankyo shall cooperate as reasonably

requested by Cygnus, at Cygnus’ expense, in any investigation or action taken

by Cygnus in respect of such infringement. 

All sums obtained as a result of such suit or proceeding, whether by

judgment, award, decree or settlement, shall be the property of Cygnus except,

however, Cygnus shall pay to Sankyo [CONFIDENTIAL TREATMENT REQUESTED BY

CYGNUS, INC.] of all sums obtained after such sums are first applied to

reimburse Cygnus for its out-of-pocket costs incurred in connection

therewith.  In the event that Cygnus

chooses not to pursue legal action against such infringing third party and the

infringing product or products subsequently obtains at least [CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.] of the market share for the Product in the

Territory, wherein the market is defined as the Cygnus Product and the

infringing reverse iontophoresis glucose monitoring product or products, then

Cygnus shall treat the volume of the infringing reverse iontophoresis glucose

monitoring product or products as Net Sales during the period of

infringement.  In the case there is a

dispute between the parties as to whether a third party infringes Cygnus Intellectual

Property Rights, the parties shall request the opinion of a mutually agreed

upon third-party patent expert and shall equally bear the cost of such expert.

 

9.8           No Other Licenses.

Cygnus agrees it will not assert against Sankyo any claim of infringement under

Cygnus Patent Rights based on Sankyo’s activities under this Agreement in the

Territory during the Term. No other rights or licenses, whether express or

implied, in Cygnus’ intellectual property are granted by Cygnus to Sankyo, and

Sankyo has no rights or licenses to Cygnus’ intellectual property outside of

the Territory.

 

20

 

10.          CONFIDENTIALITY

 

10.1         Confidentiality.  Each party agrees that any Proprietary

Information it obtains from the other party is the confidential property of the

disclosing party, and may not be used by the receiving party other than in

connection with the activities contemplated under this Agreement. Except as

expressly permitted in this Agreement, the receiving party will hold in

confidence and not use or disclose any Proprietary Information of the

disclosing party and shall obtain the prior written permission of the other

party before releasing such Proprietary Information to a third party. If such

permission is granted, the releasing party shall ensure that the third party is

bound to the same obligations of confidentiality. The restrictions on use and

disclosure of Proprietary Information imposed upon a receiving party under this

Section 10.1 shall continue in full force and effect during the Term and for a

period of five (5) years thereafter.

 

11.          TERM

AND TERMINATION

 

11.1         Term. Termination. Unless terminated earlier as provided in

Section 11.2, Section 11.3, Section 11.4, Section 11.5, or Section 11.6, or

extended as provided in Section 5.3 or Section 5.4(h), this Agreement will have

an initial term of twelve (12) years from the Product Launch Date (the

“Term”).  The Term shall automatically

be extended for successive periods of one (1) year unless either party gives

written notice of termination to the other at least [CONFIDENTIAL TREATMENT

REQUESTED BY CYGNUS, INC.] prior to the end of the Term or any one-year

extension thereof.

 

11.2         Termination Due to Insufficient Sales.

 

(a)                                  Either

party may terminate this Agreement upon [CONFIDENTIAL TREATMENT REQUESTED BY

CYGNUS, INC.] prior written notice if, after [CONFIDENTIAL TREATMENT REQUESTED

BY CYGNUS, INC.] from the Product Launch Date but during the initial Term of

the Agreement, the Net Sales of the Product are less than [CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.] in the immediately preceding twelve (12)

month period.

 

(b)                                 In the event Cygnus

terminates this Agreement pursuant to Section 11.2(a), then Cygnus shall pay to

Sankyo for the remainder of the initial Term of this Agreement, (i) payments of

[CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] of Net Sales for the first

[CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] of cumulative Net Sales,

such payments made annually following termination until [CONFIDENTIAL TREATMENT

REQUESTED BY CYGNUS, INC.] of cumulative Net Sales is met, and (ii) thereafter

an annual payment of [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] of Net

Sales.   The payments shall be paid in

accordance with the terms of Section 2.6.

 

(c)                                  In the event Sankyo

terminates this Agreement pursuant to Section 11.2(a), then Cygnus shall pay to

Sankyo [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] of Net Sales for the

remainder of the initial Term.  The

 

21

 

payments shall be paid in accordance with the terms of Section 2.5 and

Section 2.6.

 

11.3         Termination Due to Recall or Market

Withdrawal.

 

(a)                                  In

the event the Product cannot be sold as a result of a recall, market withdrawal

or other corrective action under Section 5.3, and such inability to sell the

Product continues for a period of [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS,

INC.], Sankyo shall have the right to immediately terminate the Agreement.

 

(b)                                 In the event Sankyo

terminates this Agreement pursuant to Section 11.3(a) during the [CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.] from the Product Launch Date, then Cygnus

shall pay to Sankyo [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] to be

paid out in equal quarterly payments for [CONFIDENTIAL TREATMENT REQUESTED BY

CYGNUS, INC.] following termination. 

The payments shall be paid in accordance with the terms of Section 2.5

and Section 2.6.

 

(c)                                  In

the event the Product cannot be sold due to a recall or market withdrawal or

other corrective action under Section 5.3 for a continuous period of

[CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.], such occurrence shall be

deemed a material breach of the Agreement only if such inability was due to

Cygnus’ negligence.

 

11.4         Termination Due To Failure To Supply.

 

(a)                                  In

the event Cygnus shall be unable to supply on a timely basis in accordance with

the terms of Section 5.4(h) for a continuous period of [CONFIDENTIAL TREATMENT

REQUESTED BY CYGNUS, INC.], Sankyo shall have the right to immediately

terminate the Agreement.

 

(b)                                 In the event Sankyo

terminates this Agreement pursuant to Section 11.4(a) during the [CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.] from the Product Launch Date, then Cygnus

shall pay to Sankyo [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] to be

paid out on in equal quarterly payments for [CONFIDENTIAL TREATMENT REQUESTED

BY CYGNUS, INC.] following termination. 

The payments shall be paid in accordance with the terms of Section 2.5

and Section 2.6.

 

(c)                                  Cygnus’

inability to supply the Product under Section 5.4(h) for a continuous period of

[CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] shall be deemed a material

breach of the Agreement only if such failure to supply was due to Cygnus’

negligence.

 

11.5         Right of First Refusal; Termination as a Result of a Change

of Control in Cygnus.

 

22

 

(a)                                  In the event that a

Change of Control as defined in Section 11.5(d) affecting Cygnus is

contemplated, Sankyo shall have an ongoing right of first refusal, at the same

or better terms as offered by a bona fide third party, to enter into a

transaction whereby Sankyo is the Person acquiring beneficial ownership as

described in Section 11.5(d)(i), is the Acquiring Corporation as described in

Section 11.5(d)(ii), or is the Person purchasing properties or assets as

described in Section 11.5(d)(iii).  

Sankyo shall have [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.]

after notification by Cygnus of the terms offered by a bona fide third party in

which to offer the same or better terms to Cygnus.  If Sankyo has not made such an offer within [CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.] period, then Cygnus may, in its sole

discretion, accept or reject such offer of a bona fide third party.  In the event that a Change of Control as

defined in Section 11.5(d) affecting Cygnus takes place by a party other than

Sankyo or its Affiliates, Sankyo, Cygnus or Cygnus’ successor in interest shall

have the right, but not the obligation, to terminate the Agreement by

furnishing notice of such election to terminate within [CONFIDENTIAL TREATMENT

REQUESTED BY CYGNUS, INC.] from execution of Change of Control documents, such

termination to be effective [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.]

after Cygnus’ Change of Control is effective and all regulatory and shareholder

approvals, if any, are obtained.  In the

event that Sankyo, Cygnus or Cygnus’ successor in interest exercises its rights

of termination, Cygnus or Cygnus’ successor in interest, as the case may be,

shall purchase Sankyo’s remaining rights under this Agreement.  The purchase price for such sale shall be as

set forth in Section 11.5(b) or Section 11.5(c).

 

(b)                                 In the event that a

Change of Control affecting Cygnus takes place and Cygnus or Cygnus’ successor

in interest exercises its right of termination, then Cygnus or Cygnus’

successor in interest, as the case may be, shall pay Sankyo as follows:

 

(i)                                     in the event that

a Change of Control affecting Cygnus takes place during the [CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.] from the Product Launch Date, (A) an

amount equal to [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] from the

Effective Date of the Co-Promotion Agreement until the date of termination of

this Agreement (including all milestone payments under this Agreement and the

Co-Promotion Agreement dated November 28, 2001 made by Sankyo to Cygnus and all

costs and expenses  incurred by Sankyo

to comply with its obligations under Section 4.1),  (B) [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] for Sankyo

discontinuing its activities under this Agreement, and (C) either, at the sole

option of Cygnus or Cygnus’ successor in interest, as the case may be, (x) an

annual payment of [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] of Net

Sales from the date of termination of this Agreement through the end of the

initial Term (without regard to such termination) and such payments shall be

made in accordance with the

 

23

 

terms of Section 2.5 and Section 2.6, or (y)

the fair market value of a cash flow stream of [CONFIDENTIAL TREATMENT

REQUESTED BY CYGNUS, INC.] of Net Sales for a period of time equal to the

duration of time remaining in the initial Term (without regard to termination).

The parties agree to negotiate the fair market value in good faith promptly

following notice of termination pursuant to Section 11.5(a). In the event no

agreement upon fair market value has been reached within fifteen (15) calendar

days of such notice of termination, the parties agree that fair market value

shall be determined by a valuation expert within fifteen (15) calendar days

thereafter whose determination shall be binding and conclusive on the parties

and whose cost shall be borne equally by the parties.  Payment of fair market value shall be made within fifteen (15)

calendar days of its determination.

 

(ii)                                  in the event that a

Change of Control takes place after the [CONFIDENTIAL TREATMENT REQUESTED BY

CYGNUS, INC.] from the Product Launch Date but during the initial Term of the

Agreement, either, at the sole option of Cygnus or Cygnus’ successor in

interest, as the case may be, (A) an annual payment of [CONFIDENTIAL TREATMENT

REQUESTED BY CYGNUS, INC.] of Net Sales or [CONFIDENTIAL TREATMENT REQUESTED BY

CYGNUS, INC.] of Net Sales if Net Sales exceed [CONFIDENTIAL TREATMENT

REQUESTED BY CYGNUS, INC.] in the Sales Year immediately preceding the Change

of Control for the number of years that would have remained under the initial

Term but for termination of this Agreement, minus the amount of costs that

would have been incurred under Section 4.1 but for termination of this

Agreement (however, in no event shall such costs be less than those costs of

the Sales Year immediately prior to termination) from the date of termination

of this Agreement through the end of the initial Term and such payments shall

be made in accordance with the terms of Section 2.5 and Section 2.6, or (B) the

fair market value of a cash flow stream of [CONFIDENTIAL TREATMENT REQUESTED BY

CYGNUS, INC.] of Net Sales or [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS,

INC.] of Net Sales if Net Sales exceed [CONFIDENTIAL TREATMENT REQUESTED BY

CYGNUS, INC.] in the Sales Year immediately preceding the Change of Control for

the number of years that would have remained under the initial Term but for

termination of this Agreement, minus the amount of costs that would have been

incurred under Section 4.1 but for termination of this Agreement (however, in

no event shall such costs be less than those costs of the Sales Year

immediately prior to termination) from the date of termination of this

Agreement through the end of the initial Term. The parties agree to negotiate

the fair market value in good faith promptly following notice of termination

pursuant to Section 11.5(a). In the event no agreement upon fair market value

has been reached within fifteen (15) calendar days of such notice of

termination, the parties agree that fair market value shall be 

 

24

 

determined by a valuation expert within

fifteen (15) calendar days thereafter whose determination shall be binding and

conclusive on the parties and whose cost shall be borne equally by the

parties.  Payment of fair market value

shall be made within fifteen (15) calendar days of its determination.  However, in no event will Sankyo owe Cygnus

payments under this paragraph.

 

(c)                                  In the event that a

Change of Control affecting Cygnus takes place and Sankyo exercises its right

of termination, then Cygnus or Cygnus’ successor in interest, as the case may

be, shall pay Sankyo as follows:

 

(i)                                     in the event that

a Change of Control affecting Cygnus takes place during the [CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.] from the Product Launch Date, (A) an

amount equal to [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] from the

Effective Date of the Co-Promotion Agreement until the date of termination of

this Agreement (including all milestone payments under this Agreement and the

Co-Promotion Agreement dated November 28, 2001 made by Sankyo to Cygnus and all

costs and expenses  incurred by Sankyo

to comply with its obligations under Section 4.1) minus [CONFIDENTIAL TREATMENT

REQUESTED BY CYGNUS, INC.] of Net Sales for the first Sales Year and minus

[CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] thereafter through the date

of termination of this Agreement and (B) either, at the sole option of Cygnus

or Cygnus’ successor in interest, as the case may be, (x) an annual payment of

[CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] from the date of termination

of this Agreement through the end of the initial Term (without regard to such

termination) and such payments shall be made in accordance with the terms of

Section 2.5 and Section 2.6, or (y) the fair market value of a cash flow stream

of [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] for a period of time

equal to the duration of time remaining in the initial Term (without regard to

termination). The parties agree to negotiate the fair market value in good

faith promptly following notice of termination pursuant to Section 11.5(a). In

the event no agreement upon fair market value has been reached within fifteen

(15) calendar days of such notice of termination, the parties agree that fair market

value shall be determined by a valuation expert within fifteen (15) calendar

days thereafter whose determination shall be binding and conclusive on the

parties and whose cost shall be borne equally by the parties.  Payment of fair market value shall be made

within fifteen (15) calendar days of its determination.

 

(ii)                                  in the event that a

Change of Control takes place after the [CONFIDENTIAL TREATMENT REQUESTED BY

CYGNUS, INC.] from the Product Launch Date but during the initial Term of the

Agreement, either, at the sole option of Cygnus or Cygnus’ successor in

interest, as the case may be, (A) an annual payment equal to half of the

 

25

 

following:  

an annual payment of [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.]

of Net Sales or [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] of Net Sales

if Net Sales exceed [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] in the

Sales Year immediately preceding the Change of Control for the number of years

that would have remained under the initial Term but for termination of this

Agreement, minus the amount of costs that would have been incurred under

Section 4.1 but for termination of this Agreement (however, in no event shall

such costs be less than those costs of the Sales Year immediately prior to

termination) from the date of termination of this Agreement through the end of

the initial Term and such payments shall be made in accordance with the terms

of Section 2.5 and Section 2.6, or (B) half of the fair market value of a cash

flow stream of [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] of Net Sales

or [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] of Net Sales if Net Sales

exceed [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.] in the Sales Year

immediately preceding the Change of Control for the number of years that would

have remained under the initial Term but for termination of this Agreement,

minus the amount of costs that would have been incurred under Section 4.1 but

for termination of this Agreement (however, in no event shall such costs be

less than those costs of the Sales Year immediately prior to termination) from

the date of termination of this Agreement through the end of the initial Term.

The parties agree to negotiate the fair market value in good faith promptly

following notice of termination pursuant to Section 11.5(a). In the event no

agreement upon fair market value has been reached within fifteen (15) calendar

days of such notice of termination, the parties agree that fair market value

shall be determined by a valuation expert within fifteen (15) calendar days

thereafter whose determination shall be binding and conclusive on the parties

and whose cost shall be borne equally by the parties.  Payment of fair market value shall be made within fifteen (15)

calendar days of its determination. However, in no event will Sankyo owe Cygnus

payments under this paragraph.

 

(d)           For purposes of

Section 11.5, Section 13.1 and Exhibit D, Number 6, a “Change of Control” shall

mean an event where:

 

(i)                                     any “Person(s)”,

meaning any natural person(s), corporation(s), general partnership(s), limited

partnership(s), joint venture(s), proprietor-ship(s) or business

organization(s), acquires beneficial ownership of capital stock of a party

entitling the holder(s) thereof to at least fifty-one percent (51%) of the

voting power of the then outstanding capital stock of Cygnus with respect to

the election of directors of Cygnus; or

 

(ii)                                  Cygnus enters into a

merger, consolidation or similar transaction with another Person (the

“Acquiring Corporation”) in which

 

26

 

(A)          Cygnus is not the

surviving corporation in such transaction; or

 

(B)                                the members of the

Board of Directors of Cygnus prior to such transaction constitute less than

one-half of the members of the Board of Directors of the Acquiring Corporation

following such transaction; or

 

(C)                                at least fifty-one

percent (51%) of the voting power of the outstanding capital stock of the

Acquiring Corporation with respect to the election of directors following such

transaction is held by Persons who were shareholders of the Acquiring

Corporation prior to such transaction; or

 

(iii)                               Cygnus sells to any

Person(s) in one or more related transactions, properties or assets

representing at least fifty-one percent (51%) of Cygnus’ consolidated total

assets as reflected on its most recent Annual Report on Form 10-K or Quarterly

Report on Form 10-Q, provided that all or substantially all of the properties

and assets used in connection with Cygnus’ business are included in such

transaction(s).

 

11.6         Termination Due to Other Circumstances.

 

(a)                                  This

Agreement may be terminated as set forth below upon the occurrence of any of

the following events:

 

(i)                                     by either party

immediately, if the other ceases to do business, or otherwise terminates its

business operations;

 

(ii)                                   by either party

immediately, if the other shall fail to promptly secure or renew any license,

registration, permit, authorization or approval necessary for the conduct of

its business in the manner contemplated by this Agreement, or if any such

license, registration, permit, authorization or approval is revoked or

suspended and not reinstated within sixty (60) calendar days or diligent

efforts are not being made to effect such reinstatement;

 

(iii)                               by either party

immediately, if the other materially breaches any material provision of this

Agreement and fails to cure such breach within sixty (60) calendar days of

written notice describing the breach; or

 

(iv)                              by either party

immediately, if the other shall seek voluntary protection under any bankruptcy,

receivership, trust deed, creditors’ arrangements, composition or comparable

proceeding, or if any such proceeding is instituted against the other (and not

dismissed within ninety (90) calendar days).

 

27

 

11.7                           Effect of Termination

 

(a) Upon

termination of this Agreement, each party will within ninety (90) calendar days

cease all use of the trademarks, service marks, trade names, logos and

designations of the other party and Sankyo will not thereafter use, advertise

or display any name, mark or logo that is, or any part of which is, similar to

or confusing with any such designation associated with any Product.

 

(b) Upon termination

of this Agreement the parties will cooperate with each other to wind down all

supply, sales and marketing efforts under this Agreement, including return of

Product inventory purchased by Sankyo from Cygnus.

 

11.8         Survival.  The following provisions shall survive the termination of this

Agreement: Section 2.5, Section 2.6, Section 6.1, Section 8, Section 9, Section

10, Section 11 and Section 12, as well as any applicable definitions and

general provisions. Remedies for breaches will also survive termination of this

Agreement.  Each party will promptly

return all tangible Proprietary Information of the other (and all copies

thereof) that it is not entitled to use under the surviving terms and

conditions of this Agreement, except for one copy, which may be retained solely

for legal, archival purposes.  Upon

termination, Sankyo will transfer ownership of the customer list set forth in

Section 1.16(d) to Cygnus.

 

12.          INDEMNIFICATION

 

12.1         Indemnification by Cygnus.  Cygnus agrees to indemnify, hold harmless

and defend Sankyo, its Affiliates and their respective officers, directors,

employees, agents and representatives from and against any and all liabilities,

losses, suits, claims, damages and expenses (including, without limitation,

attorneys’ fees, expert fees and other disbursements) (collectively,

“Liabilities”) asserted against or incurred by Sankyo arising out of or

relating to (a) the use, distribution by Cygnus, marketing by Cygnus, field

sales activity by Cygnus, sale by Cygnus, repair or replacement, manufacture

and/or supply of the Product 

(including, without limitation, Liabilities relating to product

liability, product deficiencies and/or personal injury); (b) the breach by

Cygnus of any of its representations, warranties or other obligations under

this Agreement and/or the Supply Agreement; (c) a claim by a third party that

the marketing, sales, use, offer for sale or sale of the Product in the

Territory during the Term or use of sales and marketing material created by

Cygnus related to the Product in the Territory during the Term infringes any

patent, trademark, copyright or other intellectual property rights of such

third party; and/or (d) any negligence or willful misconduct of Cygnus; except

to the extent any such Liabilities set forth above result from the breach by

Sankyo of its representations, warranties or obligations under this Agreement

and/or the Supply Agreement or its negligence or willful misconduct, or its

sale, marketing or distribution of Product in a manner which is inconsistent

with the terms of this Agreement and/or the Supply Agreement.  THE INDEMNIFICATION PROVIDED HEREBY SHALL

NOT BE DEEMED TO INCLUDE INDEMNIFICATION FOR LOST PROFITS OR INDIRECT OR

CONSEQUENTIAL DAMAGES OF SANKYO. Any indemnification hereunder shall be net of

any insurance proceeds recovered by Sankyo.

 

12.2         Indemnification by Sankyo. 

Sankyo agrees to indemnify, hold harmless and defend Cygnus, its

Affiliates and their respective officers, directors, employees, agents and

representatives from and against any Liabilities asserted against or incurred

by Cygnus, arising out of or relating to (a) the distribution by Sankyo,

marketing by Sankyo, field sales activity by 

 

28

 

Sankyo, sale by Sankyo of

Product; (b) the breach by Sankyo of any of its representations, warranties or

other obligations under this Agreement and/or the Supply Agreement; (c) a claim

by a third party that use of sales and marketing material created by Sankyo

related to the Product in the Territory during the Term infringes any patent,

trademark, copyright or other intellectual property rights of such third party;

and/or (d) any negligence or willful misconduct of Sankyo; except to the

extent any such Liabilities set forth above result from the breach by Cygnus of

its representations, warranties or obligations under this Agreement and/or the

Supply Agreement or its negligence or willful misconduct, or its sale,

marketing or distribution of Product in a manner which is inconsistent with the

terms of this Agreement and/or the Supply Agreement, or any actions that would

be indemnified against by Cygnus under Section 9.6.  THE INDEMNIFICATION PROVIDED HEREBY SHALL NOT BE DEEMED TO

INCLUDE INDEMNIFICATION FOR LOST PROFITS OR INDIRECT OR CONSEQUENTIAL DAMAGES

OF CYGNUS. Any indemnification hereunder shall be net of any insurance proceeds

recovered by Cygnus.

 

12.3         Cooperation in Connection with Indemnification.  Any party entitled to indemnification

pursuant to Section 12.1 or Section 12.2 shall notify the indemnifying party

promptly of any claim that might give rise to a claim of indemnification, shall

allow the indemnifying party to handle the defense of the claim (provided the

indemnifying party acknowledges its obligation to indemnify hereunder), shall

cooperate in the defense of such claim and shall not settle such claim without

the indemnifying party’s written consent (which shall not be unreasonably

withheld, delayed or conditioned).  An

indemnified party shall have the right to participate in the defense of any

matter as to which indemnification is being provided with its own counsel and

at its own expense.  Where any indemnity

is claimed under this Agreement, the party claiming such indemnity shall take all

reasonable action at the request of the indemnifying party (the reasonable cost

of which shall be borne by the indemnifying party) to mitigate such

Liabilities.

 

13.                               NO SALE OR

LICENSE OF CYGNUS PATENT RIGHTS OR CERTAIN TRADEMARKS.  OPTION FOR CERTAIN COUNTRIES IN ASIA.

 

13.1         During the Term of this Agreement,

Cygnus may not assign, sell or license any Cygnus Patent Rights, or the

trademarks “GLUCOWATCH” or “G2,” or the glucowatch.com domain name to any third

party who is not an Affiliate unless such assignment, sale or license occurs in

connection with a Change of Control. 

Cygnus may, however license or sublicense any Cygnus Patent Rights to a

third party for products other than the Product (as defined in Section

1.15).  Notwithstanding the foregoing,

Cygnus may encumber or pledge any Cygnus Patent Rights and/or the

above-mentioned trademarks pursuant to one or more financing arrangements only

after Cygnus has fully paid off the deferred payments set forth in Section 2.4.

 

13.2         During the Term of this Agreement,

Cygnus grants Sankyo a right of first refusal for the rights to sell, market

and distribute the Product in Japan, China, Korea, Thailand and/or Taiwan.  In the event Sankyo exercises its right, the

parties will negotiate in good faith the terms and conditions of such an

arrangement and may, if both parties reach agreement, enter into a separate

agreement for Japan and/or China.

 

29

 

14.                               ANTICIPATORY

BREACH

 

14.1         During the Term of this Agreement, Within fifteen (15)

calendar days after the end of each month, and within five (5) calendar days

after the occurrence of any adverse material event, during the Term of the

Agreement Cygnus shall provide Sankyo with a written report describing the

aggregate amount of its cash and investments, as permitted in Exhibit D, Number

3, as of the end of the month or event. 

If such aggregate amount is less than the amount of Cygnus Cash

Requirements, as defined below,  and

both of the following conditions are met: (a) Sankyo is not in breach of any

material term of this Agreement, including but in no way limited to breach of

its sales, marketing and distribution obligations under Section 4.1 or its

supply payment obligations under the Supply Agreement, and (b) Net Sales by

Sankyo are greater than or equal to [CONFIDENTIAL TREATMENT REQUESTED BY

CYGNUS, INC.] of the amounts set forth in Exhibit E for the specified Calendar

Years as prorated due to the calendar month in which this event occurs, then

Sankyo may declare, and such declaration must be in writing and pursuant to

Section 15.4, an “Anticipatory Breach.” 

“Cygnus Cash Requirements” equals [CONFIDENTIAL TREATMENT REQUESTED BY

CYGNUS, INC.] quarterly (10-Q) or annual (10-K) reports filed with the U.S.

Securities and Exchange Commission for the most recent Calendar Quarter.

 

14.2         In the event that an

Anticipatory Breach occurs, upon prior written notice Sankyo may exercise any

or all of the following rights as set forth in Section 14.2(a) and (b):

 

(a)           the right to purchase Cygnus’

Regulatory Approval submissions including but not limited to its pre-market

approval applications and any supplements thereto at the fair market value, and

contract with Cygnus to be Sankyo’s contract regulatory organization and

contract research and development organization for the Product in the Territory

during the Term. The parties agree to negotiate in good faith the fair market

value of Cygnus’ Regulatory Approval submissions promptly following

notification by Sankyo of its intent to exercise this right.  In the event no agreement upon fair market

value has been reached within fifteen (15) calendar days of such notice of

exercise, the parties agree that fair market value shall be determined by a

valuation expert within fifteen (15) calendar days thereafter whose

determination shall be binding and conclusive on the parties and whose cost

shall be borne equally by the parties. 

Payment of fair market value shall be made within fifteen (15) calendar

days of its determination. 

Additionally, the parties will negotiate in good faith the terms and

conditions of the contract regulatory and contract research and development

contractual obligations. In the event that Cygnus cannot perform as a contract

regulatory organization and/or a contract research and development organization

for the Product in Territory during the Term, then Sankyo may contract with

third parties for these services. The parties will also negotiate in good faith

and amend the terms of this Agreement to reflect the changed obligations and

responsibilities between the parties, however such amendments will not result

in Sankyo receiving a less favorable combination of Sales and Marketing Fees

and Transfer Prices.

 

(b)           the right to contract with Cygnus to

be Sankyo’s contract manufacturing organization for the Product in the

Territory during the Term.  The parties

will negotiate in good faith the terms and conditions of the contract

manufacturing contractual obligations. The parties will also negotiate in good

faith and amend the terms of this Agreement to reflect the changed obligations

and responsibilities between the parties, however such amendments will not

result in Sankyo receiving a less favorable combination of Sales and Marketing

Fees and Transfer Prices. Furthermore, Cygnus will assign its manufacturing

contracts with third parties to Sankyo; and, 

 

30

 

only in the event that such

manufacturing contracts with third parties are not sufficient for manufacture

of the Product, Sankyo may exercise its license under Section 2.1 to

manufacture or have a third-party manufacture the Product in the Territory

during the Term.

 

14.3         Notwithstanding the

foregoing, if at any time during the Term of this Agreement after Sankyo has

declared Anticipatory Breach, the sum of Cygnus’ cash and investments,

excluding any proceeds received from Sankyo for the purchases and contracts set

forth in Section 14.2, is sufficient to meet Cygnus Cash Requirements for a

period of [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.], Cygnus may then

have the option, at its sole discretion, to do one or more of the following:

 

(a)           repurchase Cygnus’ Regulatory

Approval submissions, such as its pre-market approval applications and any

supplements thereto, at the then-current fair market value and terminate any

contract regulatory and contract research and development contractual

obligations made pursuant to Section 14.2(a). The parties agree to negotiate

the fair market value in good faith promptly following notification by Cygnus

of its intent to repurchase these submissions. 

In the event no agreement upon fair market value has been reached within

fifteen (15) calendar days of such notice of repurchase, the parties agree that

fair market value shall be determined by a valuation expert within fifteen (15)

calendar days thereafter whose determination shall be binding and conclusive on

the parties and whose cost shall be borne equally by the parties.  Payment of fair market value shall be made

within fifteen (15) calendar days of its determination. The parties will

negotiate in good faith and amend the terms of this Agreement to reflect the

changed obligations and responsibilities between the parties, however such

amendments will not result in Cygnus receiving a less favorable combination of

Sales and Marketing Fees and Transfer Prices than are present in this

Agreement, prior to any amendment pursuant to Section 14.2(a)

 

(b)           have Sankyo re-assign the

manufacturing contracts with third parties as set forth in Section 14.2(b) to

Cygnus; terminate any contract manufacturing contractual obligations with

Sankyo, and Sankyo will not manufacture or have a third-party manufacture the

Product for Sale in the Territory.  The

parties will negotiate in good faith and amend the terms of this Agreement to

reflect the changed obligations and responsibilities between the parties,

however such amendments will not result in Cygnus paying a less favorable

combination of Sales and Marketing Fees and Transfer Prices than are present in

this Agreement, prior to any amendment pursuant to Section 14.2(b).

 

14.4         The parties will cooperate in good faith in negotiating the

purchases, contracts and repurchases set forth in Section 14.2 and Section

14.3, and will each execute any and all necessary documents to execute such

transactions.  Additionally, the parties

will work together to effectuate a smooth transition of such purchases,

contracts and repurchases.

 

15.          GENERAL

 

15.1         Amendment and Waiver. 

Except as otherwise expressly provided herein, any provision of this

Agreement may be amended and the observance of any provision of this Agreement

may be waived (either generally or in any particular instance and either

retroactively or prospectively)

 

31

 

only with the written consent

of the parties.  The failure of either

party to enforce its rights under this Agreement at any time for any period

shall not be construed as a waiver of such rights.

 

15.2         Governing Law and Legal Actions.  This Agreement shall be governed by and construed in accordance

with the laws of the State  of  California, as if executed and fully

performed within California; any disputes under this Agreement shall be subject

to the exclusive jurisdiction and venue of the federal courts located in

California, and the parties hereby consent to the personal and exclusive

jurisdiction and venue of these courts.

 

15.3         Headings.  Headings

and captions are for convenience only and are not to be used in the

interpretation of this Agreement.

 

15.4         Notices.  Notices

under this Agreement shall be in writing and shall be sufficient only if

personally delivered, delivered by a major commercial rapid delivery service or

mailed by certified or registered mail, return receipt requested to a party at

its addresses first set forth herein or as amended by notice pursuant to this

Section 15.4, to the attention of the President and Chief Executive Officer,

with a copy to the General Counsel, in the case of Cygnus, and to the attention

of the President with a copy to General Counsel in the case of Sankyo.  Any notice shall be deemed received upon one

(1) business day after delivery to a major commercial rapid delivery service

or, if delivered by U.S. mail service other than Express Mail, upon receipt or,

if not received sooner, upon five (5) business days after deposit.

 

15.5         Entire Agreement. 

This Agreement supersedes all proposals, oral or written, all

negotiations, conversations, or discussions between or among parties relating

to the subject matter of this Agreement and all past dealing or industry custom,

with the sole exception of any purchase orders outstanding as of the Effective

Date of this Agreement.  The

Co-Promotion Agreement, dated November 28, 2001, is completely replaced and

superseded as of the Effective Date set forth in this Sales and Marketing

Agreement.

 

15.6         Severability.  If any

provision of this Agreement is held to be illegal or unenforceable, that

provision shall be limited or eliminated to the minimum extent necessary so

that this Agreement shall otherwise remain in full force and effect and

enforceable.

 

15.7         Relationship of Parties. 

The parties hereto expressly understand and agree that the other is an

independent contractor in the performance of each and every part of this

Agreement, and is solely responsible for all of its employees and agents and

its labor costs and expenses arising in connection therewith.  The parties expressly agree and acknowledge

that no partnership or joint venture exists between them.

 

15.8         Assignment.  This

Agreement and the rights hereunder are not transferable or assignable without

the prior written consent of the parties hereto except to a person or entity

who acquires all or substantially all of the assets or business of a party,

whether by sale, merger or otherwise.

 

15.9         Publicity and Press Releases.  Except to the extent necessary under applicable laws, the parties

agree that no press releases or other publicity relating to the substance of

the matters contained herein will be made without joint approval.  Notwithstanding the previous sentence, the parties

agree that a press release announcing this Agreement will be jointly developed

by the parties and released promptly after the Effective Date of this

Agreement, and the parties

 

32

 

recognize that Cygnus will need

to file a copy of this Agreement, redacted to the extent permissible, with the

U.S. Securities and Exchange Commission. 

Both parties will consult with each other prior to issuing any future

press release relating to this Agreement.

 

15.10       Force Majeure.  No

liability or loss of rights hereunder shall result to either party from delay

or failure in performance (other than payment of money) caused by governmental

actions or restrictions (provided that any such governmental action or

restriction was not the result of actions of a party to this Agreement), war,

terrorist activities, civil commotion, riots, strikes, power outages, lock outs

and acts of God such as fire, flood, earthquakes, lightning, drought or other

similar or dissimilar causes that are beyond the control of the parties (each,

a “Force Majeure Act”).

 

15.11       Remedies.  Except as

otherwise expressly stated in this Agreement including but not limited to

Section 11.2, Section 11.3, Section 11.4 and Section 11.5, the rights and

remedies of a party set forth herein with respect to failure of the other to

comply with the terms and conditions of this Agreement (including, without

limitation, rights of full termination of this Agreement) are not exclusive,

the exercise thereof shall not constitute an election of remedies, and the

aggrieved party shall in all events be entitled to seek whatever additional

remedies may be available in law or in equity.

 

15.12       Nonemployment.  During

the Term and for a period [CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.]

thereafter, neither party will employ any current employee of the other party

unless agreed to in writing by the parties, except that Sankyo may in its sole

discretion seek to employ any member of Cygnus’ sales and marketing group whose

employment Cygnus intends to terminate.

 

15.13       Counterparts.  This

Agreement may be executed in two or more counterparts, each of which shall be

deemed an original, but all of which together shall constitute one and the same

instrument.

 

15.14       Interpretation.  The

parties agree that the rule of construction to the effect that any ambiguities

are resolved against the drafting party shall not be employed in the

interpretation of this Agreement and that the terms and conditions of this

Agreement shall be construed fairly with respect to the parties hereto and

shall not be construed in favor or against any one party, regardless of which

party was generally responsible for the preparation of this Agreement.

 

IN WITNESS WHEREOF,

the undersigned have caused this Agreement to be executed by their duly

authorized officers as of the date first written above.

 

	

  CYGNUS, INC.

  
	

   

  
	

  By:

  	

  /s/ John C Hodgman

  	

   

  
	

   

  
	

  Name:

  	

  John C

  Hodgman

  	

   

  
	

   

  	

   

  
	

  Title:

  	

  Chairman,

  President & CEO

  	

   

  
					

 

 

33

 

	

  SANKYO PHARMA

  INC.

  
	

   

  
	

  By:

  	

  /s/ J Pieroni

  	

   

  
	

   

  
	

  Name:

  	

  Joseph

  Pieroni

  	

   

  
	

   

  
	

  Title:

  	

  President

  	

   

  
					

 

34

 

EXHIBIT A

 

U.S. PATENTS OWNED BY CYGNUS 

SUBJECT TO FIRST LIEN AND SECURITY INTEREST OF SANKYO PURSUANT TO

SECTION 2.4

 

[CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.]

 

35

 

EXHIBIT B

 

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

(to be updated annually)

 

 

[CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.]

 

36

 

EXHIBIT C

 

MINIMUM AMOUNT

OF CYGNUS’ TRANSFER PRICE

 

 

[CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.]

 

37

 

EXHIBIT D

 

NEGATIVE

COVENANTS PURSUANT TO SECTION 2.4

 

[CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.]

 

38

 

EXHIBIT E

 

MINIMUM NET SALES BY SANKYO FOR PURPOSES OF SECTION 14.1

 

[CONFIDENTIAL TREATMENT REQUESTED BY CYGNUS, INC.]

 

	

  Calendar

  Year

  	

  Minimum Net

  Sales by Sankyo

  

 

39Exhibit 10.212

 

“CONFIDENTIAL TREATMENT

REQUESTEE BY CYGNUS, INC.

 

MUTUAL

TERMINATION OF

WAREHOUSE DISTRIBUTION CONTRACT

between

UPS SUPPLY CHAIN MANAGEMENT, INC.

and

CYGNUS,

INC.

Dated

August 25, 2000

 

This Mutual Termination (“Termination”), having an Effective

Date of September 10, 2002, of the Warehouse Distribution Contract

(“Contract”), having an effective date of August 25, 2000, and amended pursuant

to a First Amendment dated February 9, 2001, a Second Amendment dated March 1,

2001, a Third Amendment dated June 1, 2001, a Fourth Amendment dated February

18, 2002, a Fifth Amendment dated February 27, 2002, a Sixth Amendment dated

March 7, 2002, a Seventh Amendment dated May 23, 2002, and an Eighth Amendment

dated June 20, 2002, collectively the “Amendments,” is between UPS Supply Chain

Management, Inc. (hereinafter “SCM”), f/d/b/a Livingston Healthcare Services

Inc., having a principal place of business at 220 Lake Drive, Newark, DE 19702,

and Cygnus, Inc. (hereinafter “Client”), having its principal place of business

at 400 Penobscot Drive, Redwood City, CA 94063.

 

RECITALS

 

WHEREAS, SCM and Client now wish to mutually terminate the Contract and

its Amendments;

 

NOW, THEREFORE, in consideration of the mutual promises contained

herein, the parties hereby agree to terminate the Contract and its Amendments

as follows

 

1.               This Mutual

Termination is made according to Section 5.1 of the Contract.

 

2.               Commencing

September 1, 2002, the Logistics Fee Schedule will be as set forth on Exhibit

A.1 to this Termination.

 

 

3.               Within ten (10)

calendar days of the Effective Date of this Termination, Client will assume all

responsibilities for order processing, and for the month in which Client

assumes order processing responsibilities, SCM will bill Client on a pro-rated

basis for the monthly fee.

 

4.                On or before

October 31, 2002, Client will transfer the dispensing and warehousing services

currently provided by SCM to a third party distributor or its designee.  SCM will cooperate fully with Client and its

third-party distributor and any designee in this transfer. For the month in

which Client transfers dispensing and warehousing services, SCM will bill

Client on a pro-rated basis for the monthly fee.

 

5.               SCM will send in a

timely manner any prescriptions received after the date on which Client

transfers dispensing and warehousing services to Client’s third-party

distributor or its designee, provided that such third-party distributor or its

designee is licensed to dispense products into the state for which the prescription

was received.  In consideration for

performing this service, Client will pay SCM a one-time fee of [CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.]. 

SCM will maintain its facsimile machine in Rancho Cucamonga CA through

January 31, 2003 to receive any such prescriptions.

 

6.               On or before

October 31, 2002, Client will notify SCM where to ship all Products then in

SCM’s possession or control, all packaging, shipping and labeling materials

related thereto, all invoice forms, any equipment or property purchased by

Client, including the Dedicated Assets set forth on Exhibit C of the Contract,

as amended, and all customer and sales representative lists and other

confidential or proprietary information provided under the Contract by Client

or developed by SCM in relation to the Contract, and any information provided

in order that SCM may have obtained any government licenses and permits.  SCM shall be compensated at the accessorial

labor rate set forth in Exhibit A.1 to this Termination in returning property

of Client.

 

7.               As additional

consideration, Client will pay SCM a one-time payment of [CONFIDENTIAL

TREATMENT REQUESTED BY CYGNUS, INC.] to fully compensate SCM for its start-up

costs and ongoing services prior to September 1, 2002.  Such payment shall be made within thirty

(30) calendar days of receipt of an invoice in this amount from SCM.

 

2

 

8.               The parties

mutually release each other from any claims arising from or incident to the

Contract or this Termination of the Contract. 

The obligations to make the payments set forth in Paragraphs 2, 3, 5,

and 7 above, the obligations of both parties under Article IV of the Contract,

the rights and obligations of both parties under Article VII, and the

applicable definitions and general provisions set forth in Articles I and IX of

the Contract shall survive this Termination.

 

IN WITNESS WHEREOF, the parties have executed this Mutual Termination

to the Contract.

 

UPS SUPPLY CHAIN

MANAGEMENT, INC.

 

	

  By:

  	

  /s/ Peter Westerman

  	

   

  
	

  Name:

  	

  Peter Westerman

  	

   

  
	

  Title:

  	

  SVP BD

  	

   

  
	

  Dated:

  	

  9/12/02

  	

   

  

 

 

CYGNUS, INC.

 

	

  By:

  	

  /s/ John C Hodgman

  	

   

  
	

  Name:

  	

  John C Hodgman

  	

   

  
	

  Title:

  	

  Chairman,

  President & CEO

  	

   

  
	

  Dated:

  	

  Sept 9, 2002

  	

   

  

 

3

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