Document:

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                                                                 Exhibit 10.26

                                 INNERDYNE, INC.

                             1996 STOCK OPTION PLAN

        1. Purposes of the Plan. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business.

        Options granted hereunder may be either Incentive Stock Options (as
defined under Section 422 of the Code) or Nonstatutory Stock Options, at the
discretion of the Board and as reflected in the terms of the written option
agreement.

        2. Definitions. As used herein, the following definitions shall apply:

        (a) "Administrator" shall mean the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.

        (b) "Affiliate" shall mean an entity other than a Subsidiary (as defined
below) in which the Company owns an equity interest.

        (c) "Applicable Laws" shall have the meaning set forth in Section 4(a)
below.

        (d) "Board" shall mean the Board of Directors of the Company.

        (e) "Code" shall mean the Internal Revenue Code of 1986, as amended.

        (f) "Committee" shall mean the Committee appointed by the Board of
Directors in accordance with Section 4(a) of the Plan, if one is appointed.

        (g) "Common Stock" shall mean the Common Stock of the Company.

        (h) "Company" shall mean Innerdyne, Inc., a Delaware corporation.

        (i) "Consultant" means any person, including an advisor, who is engaged
by the Company or any Parent or Subsidiary to render services and is compensated
for such services, and any director of the Company whether compensated for such
services or not; provided that the term Consultant shall not include directors
who are not compensated for their services or are paid only a director's fee by
the Company.

        (j) "Continuous Status as an Employee or Consultant" shall mean the
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave, military leave, or any other
leave of absence approved by the Administrator; provided that such leave is for
a period of not more than 90 days or reemployment upon the expiration of such
leave is guaranteed by contract or statute. For purposes of this Plan, a change
in status from an Employee to a Consultant or from a Consultant to an Employee
will not constitute a termination of employment.
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        (k) "Director" shall mean a member of the Board.

        (l) "Employee" shall mean any person (including any Named Executive,
Officer or Director) employed by the Company or any Parent, Subsidiary or
Affiliate of the Company. The payment by the Company of a director's fee to a
Director shall not be sufficient to constitute "employment" of such Director by
the Company.

        (m) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

        (n) "Fair Market Value" means, as of any date, the value of Common Stock
determined as follows:

             (i) If the Common Stock is listed on any established stock exchange
or a national market system including without limitation the National Market of
the National Association of Securities Dealers, Inc. Automated Quotation
("Nasdaq") System, its Fair Market Value shall be the closing sales price for
such stock as quoted on such system on the last market trading day prior to the
date of determination (if for a given day no sales were reported, the average of
the closing bid and asked prices on that day shall be used), as such price is
reported in The Wall Street Journal or such other source as the Administrator
deems reliable;

             (ii) If the Common Stock is quoted on the Nasdaq System (but not on
the National Market thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the bid and asked prices for the Common Stock or;

             (iii) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the
Administrator.

        (o) "Incentive Stock Option" shall mean an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable written option agreement.

        (p) "Named Executive" shall mean any individual who, on the last day of
the Company's fiscal year, is the chief executive officer of the Company (or is
acting in such capacity) or among the four highest compensated officers of the
Company (other than the chief executive officer). Such officer status shall be
determined pursuant to the executive compensation disclosure rules under the
Exchange Act.

        (q) "Nonstatutory Stock Option" shall mean an Option not intended to
qualify as an Incentive Stock Option, as designated in the applicable written
option agreement.

        (r) "Officer" shall mean a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.

        (s) "Option" shall mean a stock option granted pursuant to the Plan.

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        (t) "Optioned Stock" shall mean the Common Stock subject to an Option.

        (u) "Optionee" shall mean an Employee or Consultant who receives an
Option.

        (v) "Parent" shall mean a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.

        (w) "Plan" shall mean this 1996 Stock Option Plan.

        (x) "Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange
Act as the same may be amended from time to time, or any successor provision.

        (y) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 14 of the Plan.

        (z) "Subsidiary" shall mean a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.

   3. Stock Subject to the Plan. Subject to the provisions of Section 14 of
the Plan, the maximum aggregate number of shares that may be optioned and sold
under the Plan is 2,000,000 shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.

        If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares that were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan. Notwithstanding any other provision of the Plan,
shares issued under the Plan and later repurchased by the Company shall not
become available for future grant under the Plan.

    4. Administration of the Plan.

    (a) Composition of Administrator.

             (i) Multiple Administrative Bodies. If permitted by Rule 16b-3, and
by the legal requirements relating to the administration of incentive stock
option plans, if any, of applicable securities laws and the Code (collectively,
the "Applicable Laws"), the Plan may (but need not) be administered by different
administrative bodies with respect to Directors, Officers who are not directors
and Employees who are neither Directors nor Officers.

             (ii) Administration with respect to Directors and Officers. With
respect to grants of Options to Employees or Consultants who are also Officers
or Directors of the Company, the Plan shall be administered by (A) the Board, if
the Board may administer the Plan in compliance with Rule 16b-3 as it applies to
a plan intended to qualify thereunder as a discretionary plan and Section 162(m)
of the Code as it applies so as to qualify grants of Options to Named Executives
as performance-based compensation, or (B) a Committee designated by the Board to
administer the Plan, which Committee shall be constituted in such a manner as to
permit the Plan to comply with Rule 16b-3 as it applies to a plan intended to
qualify thereunder

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as a discretionary plan, to qualify grants of Options to Named Executives as
performance-based compensation under Section 162(m) of the Code and otherwise
so as to satisfy the Applicable Laws.

             (iii) Administration with respect to Other Persons. With respect to
grants of Options to Employees or Consultants who are neither Directors nor
Officers of the Company, the Plan shall be administered by (A) the Board or (B)
a Committee designated by the Board, which Committee shall be constituted in
such a manner as to satisfy the Applicable Laws. The Board or the Committee may
designate one or more of its members, the Non-Insider Option Committee, to grant
options to eligible employees pursuant to a set of guidelines approved by the
Board or the Committee.

             (iv) General. If a Committee has been appointed pursuant to
subsection (ii) or (iii) of this Section 4(a), such Committee shall continue to
serve in its designated capacity until otherwise directed by the Board. From
time to time the Board may increase the size of any Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies (however caused) and remove
all members of a Committee and thereafter directly administer the Plan, all to
the extent permitted by the Applicable Laws and, in the case of a Committee
appointed under subsection (ii), to the extent permitted by Rule 16b-3 as it
applies to a plan intended to qualify thereunder as a discretionary plan, and to
the extent required under Section 162(m) of the Code to qualify grants of
Options to Named Executives as performance-based compensation.

        (b) Powers of the Administrator. Subject to the provisions of the Plan
and in the case of a Committee, the specific duties delegated by the Board to
such Committee, the Administrator shall have the authority, in its discretion:

             (i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(m) of the Plan;

             (ii) to select the Employees and Consultants to whom Options may
from time to time be granted hereunder;

             (iii) to determine whether and to what extent Options are granted
hereunder;

             (iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;

             (v) to approve forms of agreement for use under the Plan;

             (vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder (including, but not
limited to, the share price and any restriction or limitation, or any vesting
acceleration or waiver of forfeiture restrictions regarding any Option and/or
the shares of Common Stock relating thereto, based in each case on such factors
as the Administrator shall determine, in its sole discretion);

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             (vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted.

        (c) Effect of Administrator's Decision. All decisions, determinations
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options.

        5. Eligibility.

        (a) Recipients of Grants. Nonstatutory Stock Options may be granted to
Employees and Consultants. Incentive Stock Options may be granted only to
Employees, provided, however, that Employees of an Affiliate shall not be
eligible to receive Incentive Stock Options. An Employee or Consultant who has
been granted an Option may, if he or she is otherwise eligible, be granted an
additional Option or Options.

        (b) Type of Option. Each Option shall be designated in the written
option agreement as either an Incentive Stock Option or a Nonstatutory Stock
Option. However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value of Shares with respect to which Incentive Stock
Options are exercisable for the first time by an Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
For purposes of this Section 5(b), Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the time the Option with respect to such
Shares is granted.

        (c) No Employment Rights. The Plan shall not confer upon any Optionee
any right with respect to continuation of employment or consulting relationship
with the Company, nor shall it interfere in any way with his or her right or the
Company's right to terminate his or her employment or consulting relationship at
any time, with or without cause.

    6. Term of Plan. The Plan shall become effective upon the earlier to occur
of its adoption by the Board or its approval by the stockholders of the Company
as described in Section 20 of the Plan. It shall continue in effect for a term
of ten (10) years unless sooner terminated under Section 16 of the Plan.

    7. Term of Option. The term of each Option shall be the term stated in the
Option Agreement; provided, however, that in the case of an Incentive Stock
Option, the term shall be no more than ten (10) years from the date of grant
thereof or such shorter term as may be provided in the Option Agreement.
However, in the case of an Incentive Stock Option granted to an Optionee who, at
the time the Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the term of the Option shall be five (5) years from the date of
grant thereof or such shorter term as may be provided in the Option Agreement.

    8. Limitation on Grants to Employees. Subject to adjustment as provided in
this Plan, the maximum number of Shares which may be subject to options granted
to any one Employee under this Plan for any fiscal year of the Company shall be
800,000.

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    9. Option Exercise Price and Consideration.

    (a) Exercise Price. The per Share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:

        (i) In the case of an Incentive Stock Option

             (1) granted to an Employee who, at the time of the grant of such
Incentive Stock Option, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant; or

             (2) granted to any other Employee, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the date of
grant.

        (ii) In the case of a Nonstatutory Stock Option

             (1) granted to a person who, at the time of the grant of such
Option, is a Named Executive of the Company, the per share Exercise Price shall
be no less than 100% of the Fair Market Value on the date of grant; or

             (2) granted to any person other than a Named Executive, the per
Share exercise price shall be no less than 85% of the Fair Market Value per
Share on the date of grant.

    (b) Permissible Consideration. The consideration to be paid for the Shares
to be issued upon exercise of an Option, including the method of payment, shall
be determined by the Administrator (and, in the case of an Incentive Stock
Option, shall be determined at the time of grant) and may consist entirely of
(1) cash, (2) check, (3) other Shares that (x) in the case of Shares acquired
upon exercise of an Option either have been owned by the Optionee for more than
six months on the date of surrender or were not acquired, directly or
indirectly, from the Company, and (y) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised, (4) authorization from the Company to retain from the
total number of Shares as to which the Option is exercised that number of Shares
having a Fair Market Value on the date of exercise equal to the exercise price
for the total number of Shares as to which the Option is exercised, (5) delivery
of a properly executed exercise notice together with irrevocable instructions to
a broker to deliver promptly to the Company the amount of sale or loan proceeds
required to pay the exercise price, (7) a combination any of the foregoing
methods of payment, (8) a combination of any of the foregoing methods of payment
at least equal in value to the stated capital represented by the Shares to be
issued, plus a promissory note for the balance of the exercise price, or (9)
such other consideration and method of payment for the issuance of Shares to the
extent permitted under Applicable Laws. In making its determination as to the
type of consideration to accept, the Administrator shall consider if acceptance
of such consideration may be reasonably expected to benefit the Company.

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        10. Exercise of Option.

               (a) Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan.

               An Option may not be exercised for a fraction of a Share.

               An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 9(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 14 of the Plan.

               Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.

               (b) Termination of Status as an Employee or Consultant. In the
event of termination of an Optionee's Continuous Status as an Employee or
Consultant, such Optionee may, but only within thirty (30) days (or such other
period of time, not exceeding three (3) months in the case of an Incentive Stock
Option or twelve (12) months in the case of a Nonstatutory Stock Option, as is
determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option) after the
date of such termination (but in no event later than the date of expiration of
the term of such Option as set forth in the Option Agreement), exercise his or
her Option to the extent that he or she was entitled to exercise it at the date
of such termination. To the extent that the Optionee was not entitled to
exercise the Option at the date of such termination, or if the optionee does not
exercise such Option (which he or she was entitled to exercise) within the time
specified herein, the Option shall terminate.

               (c) Disability of Optionee. Notwithstanding Section 10(b) above,
in the event of termination of an Optionee's Continuous Status as an Employee or
Consultant as a result of his or her total and permanent disability (as defined
in Section 22(e)(3) of the Code), he or she may, but only within six (6) months
(or such other period of time not exceeding twelve (12) months as is determined
by the Administrator, with such determination in the case of an Incentive Stock
Option being made at the time of grant of the Option) from the date of such
termination (but in no event later than the date of expiration of the term of
such Option as set forth in the Option Agreement), exercise his or her Option to
the extent he or she was entitled to exercise it at the date of such
termination. To the extent that he or she was not entitled to

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exercise the Option at the date of termination, or if he does not exercise such
Option (which he was entitled to exercise) within the time specified herein, the
Option shall terminate.

               (d) Death of Optionee. In the event of the death of an Optionee:

                 (i) during the term of the Option who is at the time of his
death an Employee or Consultant of the Company and who shall have been in
Continuous Status as an Employee or Consultant since the date of grant of the
Option, the Option may be exercised, at any time within six (6) months (or such
other period of time, not exceeding twelve (12) months, as is determined by the
Administrator, with such determination in the case of an Incentive Stock Option
being made at the time of grant of the Option) following the date of death (but
in no event later than the date of expiration of the term of such Option as set
forth in the Option Agreement), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance but only to
the extent of the right to exercise that would have accrued had the Optionee
continued living and remained in Continuous Status as an Employee or Consultant
three (3) months (or such other period of time as is determined by the
Administrator as provided above) after the date of death, subject to the
limitation set forth in Section 5(b); or

                 (ii) within thirty (30) days (or such other period of time not
exceeding three (3) months as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option) after the termination of Continuous Status as an Employee
or Consultant, the Option may be exercised, at any time within six (6) months
(or such other period of time, not exceeding twelve (12) months, as is
determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option) following
the date of death (but in no event later than the date of expiration of the term
of such Option as set forth in the Option Agreement), by the Optionee's estate
or by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to exercise that had accrued at
the date of termination.

               (e) Extension of Exercise Period. Notwithstanding the limitations
set forth in Sections 10(b), (c) and (d) above, the Administrator has full power
and authority to extend the period of time for which any Option granted under
the Plan is to remain exercisable following termination of an Optionee's
Continuous Status as an Employee or Consultant from the limited period set forth
in the written option agreement to such greater period of time as the
Administrator shall deem appropriate; provided, however, that in no event shall
such Option be exercisable after the specified expiration date of the Option
term.

               (f) Rule 16b-3. Options granted to persons subject to Section
16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.

    11. Withholding Taxes. As a condition to the exercise of Options granted
hereunder, the Optionee shall make such arrangements as the Administrator may
require for the satisfaction of any federal, state, local or foreign withholding
tax obligations that may arise in connection

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with the exercise, receipt or vesting of such Option. The Company shall not be
required to issue any Shares under the Plan until such obligations are
satisfied.

        12. Taxes.

        (a) As a condition of the exercise of an Option granted under the Plan,
the Participant (or in the case of the Participant's death, the person
exercising the Option) shall make such arrangements as the Administrator may
require for the satisfaction of any applicable federal, state, local or foreign
withholding tax obligations that may arise in connection with the exercise of
Option and the issuance of Shares. The Company shall not be required to issue
any Shares under the Plan until such obligations are satisfied.

        (b) In the case of an Employee and in the absence of any other
arrangement, the Employee shall be deemed to have directed the Company to
withhold or collect from his or her compensation an amount sufficient to satisfy
such tax obligations from the next payroll payment otherwise payable after the
date of an exercise of the Option.

        (c) This Section 12 (c) shall apply only after the date, if any, upon
which the Common Stock becomes a Listed Security. In the case of Participant
other than an Employee (or in the case of an Employee where the next payroll
payment is not sufficient to satisfy such tax obligations, with respect to any
remaining tax obligations), in the absence of any other arrangement and to the
extent permitted under the Applicable Laws, the Participant shall be deemed to
have elected to have the Company withhold from the Shares to be issued upon
exercise of the Option that number of Shares having a Fair Market Value
determined as of the applicable Tax Date (as defined below) equal to the minimum
statutory withholding rates for federal and state tax purposes, including
payroll taxes, applicable to the exercise. For purposes of this Section 12, the
Fair Market Value of the Shares to be withheld shall be determined on the date
that the amount of tax to be withheld is to be determined under the Applicable
Laws (the "Tax Date").

        (d) If permitted by the Administrator, in its discretion, a Participant
may satisfy his or her tax withholding obligations upon exercise of an Option by
surrendering to the Company Shares that (i) in the case of Shares previously
acquired from the Company, have been owned by the Participant for more than six
(6) months on the date of surrender, and (ii) have a Fair Market Value
determined as of the applicable Tax Date equal to the minimum statutory
withholding rates for federal and state tax purposes, including payroll taxes,
applicable to the exercise.

        (e) Any election or deemed election by a Participant to have Shares
withheld to satisfy tax withholding obligations under Section 12 (c) or (d)
above shall be irrevocable as to the particular Shares as to which the election
is made and shall be subject to the consent or disapproval of the Administrator.
Any election by a Participant under Section 12 (d) above must be made on or
prior to the applicable Tax Date.

        (f) In the event an election to have Shares withheld is made by a
Participant and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Participant shall receive
the full number of Shares with respect to

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which the Option is exercised but such Participant shall be unconditionally
obligated to tender back to the Company the proper number of Shares on the
applicable Tax Date.

        13. Non-Transferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution. The designation of a beneficiary
by an Optionee will not constitute a transfer. An Option may be exercised,
during the lifetime of the Optionee, only by the Optionee or a transferee
permitted by this Section 13.

        14. Adjustments Upon Changes in Capitalization; Corporate Transactions.

        (a) Adjustment. Subject to any required action by the stockholders of
the Company, the number of shares of Common Stock covered by each outstanding
Option, the number of shares of Common Stock that have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, the maximum number of shares of Common Stock for which Options may be
granted to any employee under Section 8 of the Plan, and the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Administrator, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option.

        (b) Corporate Transactions. In the event of the proposed dissolution or
liquidation of the Company, the Option will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the
Administrator. The Administrator may, in the exercise of its sole discretion in
such instances, declare that any Option shall terminate as of a date fixed by
the Administrator and give each Optionee the right to exercise his or her Option
as to all or any part of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, the Option shall be assumed or an
equivalent option shall be substituted by such successor corporation or a parent
or subsidiary of such successor corporation, unless the Administrator
determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the Optionee shall have the right to exercise
the Option as to some or all of the Optioned Stock, including Shares as to which
the Option would not otherwise be exercisable. If the Administrator makes an
Option exercisable in lieu of assumption or substitution in the event of a
merger or sale of assets, the Administrator shall notify the Optionee that the
Option shall be exercisable for a period of fifteen (15) days from the date of
such notice, and the Option will terminate upon the expiration of such period.

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        15. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option or such other date as is determined by the Administrator.
Notice of the determination shall be given to each Employee or Consultant to
whom an Option is so granted within a reasonable time after the date of such
grant.

        16. Amendment and Termination of the Plan.

        (a) Amendment and Termination. The Board may amend or terminate the Plan
from time to time in such respects as the Board may deem advisable; provided
that, the following revisions or amendments shall require approval of the
stockholders of the Company in the manner described in Section 20 of the Plan:

               (i) any increase in the number of Shares subject to the Plan,
other than an adjustment under Section 14 of the Plan;

               (ii) any change in the designation of the class of persons
eligible to be granted Options;

               (iii) any change in the limitation on grants to employees as
described in Section 8 of the Plan or other changes which would require
stockholder approval to qualify options granted hereunder as performance-based
compensation under Section 162(m) of the Code; or

               (iv) any revision or amendment requiring stockholder approval in
order to preserve the qualification of the Plan under Rule 16b-3.

        (b) Stockholder Approval. If any amendment requiring stockholder
approval under Section 13(a) of the Plan is made subsequent to the first
registration of any class of equity securities by the Company under Section 12
of the Exchange Act, such stockholder approval shall be solicited as described
in Section 20 of the Plan.

        (c) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.

    17. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant
to the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder, and
the requirements of any stock exchange upon which the Shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.

        As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares

                                       11
<PAGE>   12

are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required by any of the aforementioned relevant
provisions of law.

        18. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the Company
to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.

        19. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.

        20. Stockholder Approval.

        (a) Continuance of the Plan shall be subject to approval by the
stockholders of the Company within twelve (12) months before or after the date
the Plan is adopted. Such stockholder approval shall be obtained in the manner
and to the degree required under applicable federal and state law and the rules
of any stock exchange upon which the Shares are listed.

        (b) In the event that the Company registers any class of equity
securities pursuant to Section 12 of the Exchange Act, any required approval of
the stockholders of the Company obtained after such registration shall be
solicited substantially in accordance with Section 14(a) of the Exchange Act and
the rules and regulations promulgated thereunder.

        (c) If any required approval by the stockholders of the Plan itself or
of any amendment thereto is solicited at any time otherwise than in the manner
described in Section 20(b) hereof, then the Company shall, at or prior to the
first annual meeting of stockholders held subsequent to the later of (1) the
first registration of any class of equity securities of the Company under
Section 12 of the Exchange Act or (2) the granting of an Option hereunder to an
officer or director after such registration, do the following:

               (i) furnish in writing to the holders entitled to vote for the
Plan substantially the same information that would be required (if proxies to be
voted with respect to approval or disapproval of the Plan or amendment were then
being solicited) by the rules and regulations in effect under Section 14(a) of
the Exchange Act at the time such information is furnished; and

               (ii) file with, or mail for filing to, the Securities and
Exchange Commission four copies of the written information referred to in
subsection (i) hereof not later than the date on which such information is first
sent or given to stockholders.

                                     12<PAGE>   1
                                                                   EXHIBIT 10.47

CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.

                              DEVELOPMENT, LICENSE

                              AND SUPPLY AGREEMENT

                                     BETWEEN

                       GENESIS MEDICAL TECHNOLOGIES, INC.

                                       AND

                             INNERDYNE MEDICAL, INC.

<PAGE>   2

                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                           PAGE

<S>            <C>                                                                          <C>
ARTICLE 1         DEFINITIONS................................................................2
        1.1    "Affiliate"...................................................................2
        1.2    "Change of Control"...........................................................2
        1.3    "Development Costs"...........................................................2
        1.4    "Exclusive Field".............................................................2
        1.5    "FDA".........................................................................2
        1.6    "Genesis Technology"..........................................................2
        1.7    "Government Approval".........................................................2
        1.8    "InnerDyne Technology"........................................................3
        1.9    "Non-exclusive Field".........................................................3
        1.10   "Option Period"...............................................................3
        1.12   "Specifications"..............................................................3
        1.13   "Standard Costs"..............................................................3
        1.14   "System"......................................................................3
        1.15   "Territory"...................................................................3
ARTICLE 2         SPECIALIZED DEVICE DEVELOPMENT.............................................3
        2.1    Consultation Regarding Specialized Device.....................................3
        2.2    Specifications; Minimum Quantities; Ordering..................................4
        2.3    Free InnerDyne Devices........................................................5
        2.4    Reimbursement of Development Costs............................................5
        2.5    InnerDyne Determination.......................................................5
ARTICLE 3         MANUFACTURE AND SUPPLY OF SPECIALIZED DEVICES..............................6
        3.1    Obligations to Supply and Purchase............................................6
        3.2    Specifications................................................................6
        3.3    Manufacturing Practices.......................................................6
        3.4    Manufacture of Other System Components........................................7
ARTICLE 4         ORDERING AND FORECASTS.....................................................7
</TABLE>

                                       i

<PAGE>   3

                               TABLE OF CONTENTS
                                  (CONTINUED)
<TABLE>
<CAPTION>

                                                                                           PAGE
<S>            <C>                                                                         <C>
               (a)    7
        4.2    Delivery......................................................................8
        4.3    Acceptance....................................................................8
        4.4    Payment Terms.................................................................8
        4.6    Failure to Supply Specialized Device Forecasts................................9
ARTICLE 5         LICENSE; LICENSE FEES......................................................9
        5.1    Exclusive License Grant.......................................................9
        5.2    Non-Exclusive License Grant..................................................10
        5.3    Back-Up License Grant........................................................10
        5.4    License in the Event InnerDyne chooses not to Manufacture....................10
        5.5    Loss of Exclusivity..........................................................10
        5.6    Covenant Not to Sell InnerDyne Device in the Exclusive Field.................10
        5.7    License Fees.................................................................11
ARTICLE 6         REGULATORY MATTERS........................................................11
        6.1    Government Approval; InnerDyne Assistance....................................11
        6.2    Compliance...................................................................11
        6.3    Serious Injury Reporting.....................................................11
        6.4    Quality Systems Compliance...................................................12
        6.5    Product Recall...............................................................12
ARTICLE 7         TERM AND TERMINATION......................................................12
        7.1    Term.........................................................................12
        7.3    Material Breach..............................................................13
        7.4    Effect of Termination........................................................13
        7.5    Accrued Rights and Obligations...............................................13
        7.6    Confidential Information.....................................................13
        7.7    No Other Rights Upon Termination.............................................14
        7.8    Surviving Obligations........................................................14
</TABLE>

                                       ii
<PAGE>   4

                               TABLE OF CONTENTS
                                  (CONTINUED)
<TABLE>
<CAPTION>

                                                                                           PAGE
<S>            <C>                                                                         <C>
ARTICLE 8         SPECIALIZED DEVICE WARRANTIES; LIMITATIONS OF LIABILITY...................14
        8.1    Specialized Device Warranty..................................................14
        8.2    Limitation of Liability......................................................14
        8.3    Disclaimer of Warranties.....................................................14
ARTICLE 9         INDEMNIFICATION...........................................................14
        9.1    Indemnification by InnerDyne.................................................15
        9.2    Indemnification by Genesis...................................................15
        9.3    Indemnification Procedure....................................................15
ARTICLE 10        INTELLECTUAL PROPERTY.....................................................15
        10.1   Ownership of Intellectual Property...........................................15
        10.2   Third Party Patent Infringement..............................................16
        10.3   Infringement of InnerDyne Technology.........................................16
ARTICLE 11        Confidential Information..................................................16
        11.1   Definition...................................................................16
        11.2   Nondisclosure Obligations; Exceptions........................................17
        11.3   Authorized Disclosure........................................................18
        11.4   Parties' Acknowledgment......................................................18
ARTICLE 12        REPRESENTATIONS AND WARRANTIES............................................18
        12.1   Representation and Warranties of Genesis.....................................18
        12.2   Representations and Warranties of InnerDyne..................................19
ARTICLE 13        MISCELLANEOUS.............................................................19
        13.1   Assignment...................................................................19
        13.2   Benefits and Binding Nature of Agreement.....................................19
        13.3   Entire Agreement.............................................................19
        13.4   Force Majeure................................................................20
        13.5   Notice.......................................................................20
        13.6   Choice of Law; Venue.........................................................20
</TABLE>

                                       iii
<PAGE>   5
                               TABLE OF CONTENTS
                                  (CONTINUED)
<TABLE>
<CAPTION>

                                                                                           PAGE
<S>            <C>                                                                         <C>
        13.7   Waiver.......................................................................20
        13.8   Severability.................................................................20
        13.9   Rights and Remedies Cumulative...............................................20
        13.10  Independent Contractors......................................................21
        13.11  No Publicity.................................................................21
        13.12  Captions and Section References..............................................21
        13.13  Counterparts.................................................................21
</TABLE>

                                       iv

<PAGE>   6

                    DEVELOPMENT, LICENSE AND SUPPLY AGREEMENT

        This Development, License And Supply Agreement (the "Agreement") is made
as of the 11th day of February, 2000 (the "Effective Date"), by and between
Genesis Medical Technologies, Inc., a California corporation, with its principal
place of business at 655 Mariners Island Boulevard, Suite 303, San Mateo,
California 94404 ("Genesis") and InnerDyne, Inc., a Delaware corporation, with
its principal place of business at 1244 Reamwood Avenue, Sunnyvale, California,
94089 ("InnerDyne"). Genesis and InnerDyne may be referred to herein
individually as a "Party," and collectively, as "Parties."

                                    RECITALS

        WHEREAS, Genesis is in the business of developing, manufacturing and
marketing minimally invasive medical devices to improve [***]; and

        WHEREAS, InnerDyne is in the business of developing, manufacturing and
marketing minimally invasive surgical access products using radially expanding
dilation technology ("R.E.D. Technology"); and

        WHEREAS, InnerDyne has developed certain technologies including radially
expandable/dilatable access devices ("InnerDyne Devices") as part of its R.E.D.
Technology; and

        WHEREAS, Genesis and InnerDyne desire to collaborate in the development
of devices for [***], including radially expandable/dilatable access devices
("Specialized Devices") suitable for use with Genesis proprietary technology
("Genesis Technology," as further defined below); and

        WHEREAS, Genesis desires to potentially use the Specialized Devices with
other components and Genesis Technology to create a system useful in [***] (the
"System," as further defined below); and

        WHEREAS, in the event Genesis chooses to use such Specialized Devices to
include in a System, and in the event InnerDyne provides Genesis a competitive
quote for the manufacture of such Specialized Device, Genesis desires to
purchase Specialized Devices from InnerDyne; and

        WHEREAS, in such events InnerDyne desires to supply Specialized Devices
to Genesis;

        NOW, THEREFORE, in consideration of the foregoing premises and the
covenants set forth below, the Parties hereby agree as follows:

[***] Confidential material redacted and filed separately with the Commission.

                                       1
<PAGE>   7

                                    AGREEMENT

                                    ARTICLE 1

                                   DEFINITIONS

        As used herein, the following terms shall have the following meanings:

        1.1 "AFFILIATE" shall mean any entity that directly or indirectly Owns,
is Owned by or is under common Ownership with, a Party to this Agreement, where
"Own" or "Ownership" means direct or indirect possession of greater than fifty
percent (50%) of the outstanding voting securities of a corporation or a
comparable equity interest in any other type of entity.

        1.2 "CHANGE OF CONTROL" shall mean a merger or acquisition of a Party,
or sale of all or substantially all of a Party's assets.

        1.3 "DEVELOPMENT COSTS" shall mean InnerDyne's cost of materials,
equipment (including dedicated tools and fixtures) and labor dedicated
exclusively to developing Specialized Devices, and to assisting Genesis in the
preparation of materials for Government Approval. For the sake of this
definition, the cost of labor shall include the cost of all direct payroll
employees providing direct labor, including the cost of such employees' health
and dental insurance, 401K co-payments, paid time off, and applicable employee
taxes.

        1.4 "EXCLUSIVE FIELD" shall mean the use of the Specialized Devices
combined or not combined with other medical devices for: [***].

        1.5 "FDA" shall mean both the United States Food and Drug Administration
and the California state Food and Drug Administration.

        1.6 "GENESIS TECHNOLOGY" shall mean any and all patents, know-how,
technology, trade secrets, processes, data, methods and any physical, chemical
or biological material or other information which Genesis owns, controls or has
a license to, with the exception of InnerDyne Technology, relating to the
development and manufacture of Specialized Devices and the System.

        1.7 "GOVERNMENT APPROVAL" shall mean any approvals, licenses,
registrations or authorizations of any domestic or international federal, state
or local regulatory agency, department, bureau or other government entity,
necessary for the use, marketing, sale or distribution of the Specialized Device
in the Territory.

[***] Confidential material redacted and filed separately with the Commission.
1.8

                                       2
<PAGE>   8

        "INNERDYNE TECHNOLOGY" shall mean any and all patents, know-how,
technology, trade secrets, processes, data, methods and any physical, chemical
or biological material or other information which InnerDyne owns, controls or
has a license to relating to the R.E.D. Technology and the development and
manufacture of InnerDyne Devices.

        1.9 "NON-EXCLUSIVE FIELD" shall mean the use of a Specialized Device
for: [***].

        1.10 "OPTION PERIOD" shall mean a period of up to and including [***]
from the Effective Date during which: (a) the Parties shall work to develop a
Specialized Device; (b) InnerDyne shall determine if it wishes to manufacture
Specialized Devices for Genesis; and (c) Genesis shall decide whether or not to
purchase Specialized Devices from InnerDyne.

        1.11 "PURCHASE PRICE" shall mean the purchase price to be paid by
Genesis for the Specialized Devices from InnerDyne, which shall equal [***].

        1.12 "SPECIFICATIONS" shall mean the final manufacturing specifications
for the Specialized Device as provided by Genesis to InnerDyne and subsequently
appended hereto as Exhibit A.

        1.13 "STANDARD COSTS" shall mean the direct labor costs and direct
materials costs necessary to produce the Specialized Device, plus [***] of such
direct labor costs as overhead. Such direct costs shall be calculated consistent
with Generally Accepted Accounting Principles.

        1.14 "SYSTEM" shall mean Genesis' medical device(s) incorporating the
Specialized Device.

        1.15 "TERRITORY" shall mean [***].

                                    ARTICLE 2

                         SPECIALIZED DEVICE DEVELOPMENT

        2.1 CONSULTATION REGARDING SPECIALIZED DEVICE. Within thirty (30) days
from the Effective Date, the Parties shall meet to discuss Genesis' needs for a
Specialized Device, and InnerDyne's ability to supply such Specialized Device.
The Parties shall continue to discuss in good faith throughout the Option
Period, the required characteristics for the Specialized Device and potential
supply and demand of the Specialized Device, as appropriate.

[***] Confidential material redacted and filed separately with the Commission.

                                       3
<PAGE>   9

        2.2 SPECIFICATIONS; MINIMUM QUANTITIES; ORDERING.

               (a) At Genesis' request, InnerDyne shall develop and provide to
Genesis a prototype Specialized Device corresponding to the mutually agreed upon
characteristics and specifications of the Parties. Such prototype shall assist
the Parties in setting specifications for a final Specialized Device. Genesis
shall consult closely with InnerDyne concerning such specifications, but the
final determination as to the Specifications shall be made by Genesis. In any
event, the Specifications must be consistent with and provide for a Specialized
Device which is capable of being manufactured by InnerDyne's processes. The
Specifications shall be appended at Exhibit A and shall include, but not be
limited to, [***] of Specialized Devices, and may also include [***]. Genesis
shall provide InnerDyne with the Specifications soon after they are determined.

               (b) Concurrent with providing InnerDyne with the Specifications
(the "Submission Date"), Genesis shall submit to InnerDyne Genesis' minimum
Specialized Device needs for [***] (i.e., the minimum number of units Genesis
commits to purchase [***]) (the "Minimum Quantity"). InnerDyne shall have the
rights to accept or reject such Minimum Quantity in accordance with Section 2.5.

               (c) On the Submission Date Genesis will also deliver to InnerDyne
a purchase order for such number of units as Genesis desires be delivered in the
[***], along with a non-binding forecast of the numbers of units expected to be
delivered over the following [***]. By a date no later than thirty (30) days
before the second and each subsequent [***], Genesis will submit a purchase
order for such number of units as Genesis desires be delivered in the second, or
such subsequent, [***], in each case along with a non-binding forecast of the
numbers of units projected to be ordered in the following [***]. All such
purchase orders shall include price terms as provided in Section 1.11.

               (d) Prior to the first anniversary of the Submission Date the
parties shall meet and review the actual Standard Costs, as may be adjusted due
to any labor, material or other manufacturing cost decreases or overhead
absorption improvements to date, or which may reasonably be realized in the
following year. Immediately thereafter, Genesis shall submit to InnerDyne its
Minimum Quantity for the [***], and prior to the anniversary of [***] shall
submit its Minimum Quantity for each following [***]. InnerDyne then shall
either accept or reject such Minimum Quantity as provided in Section 2.5. Where
InnerDyne accepts such Minimum Quantity, Genesis will forecast and place
purchase orders as described in (c) above.

               (e) In the event InnerDyne does not choose to supply the
Specialized Devices as provided under Section 2.5(c), it nonetheless agrees to
supply the Specialized Devices in such amount forecasted and ordered by Genesis
for such period of time until Genesis, acting in good faith and with commercial
diligence, has qualified a second source of manufacture of such Specialized
Devices.

[***] Confidential material redacted and filed separately with the Commission.

                                       4
<PAGE>   10

        2.3 FREE INNERDYNE DEVICES. During the Option Period, InnerDyne shall
supply to Genesis up to [***] standard InnerDyne Devices free of charge for
Genesis' use in clinical trials. Genesis shall be responsible for all aspects of
regulatory approvals related to such InnerDyne Devices supplied by InnerDyne
under this sub-section for clinical trials. In addition, InnerDyne shall supply
Genesis with reasonable quantities of rejected InnerDyne Devices for use in
Genesis' product development process related to this Agreement.

        2.4 REIMBURSEMENT OF DEVELOPMENT COSTS. All development work on the
Specialized Device to be performed by InnerDyne during the Option Period shall
be mutually agreed upon in writing by the Parties and budgeted in advance.
Genesis shall reimburse InnerDyne's actual documented Development Costs expended
in developing the Specialized Device plus an additional amount equal to [***] of
such documented Development Costs less the costs of any dedicated tools and
fixtures, within thirty (30) days of delivery to Genesis of such documentation.

        2.5 INNERDYNE DETERMINATION.

               (a) Within ten (10) days of receiving the Specifications and
Minimum Quantity and first [***] purchase order from Genesis (or, with respect
to the second and any subsequent [***], the Minimum Quantity only), InnerDyne
shall notify Genesis in writing as to whether or not it wishes to manufacture
and supply the Specialized Devices meeting the Specifications and in quantities
equal to at least the Minimum Quantity ("InnerDyne Determination").

               (b) If InnerDyne does wish to so supply the Specialized Devices
for Genesis during the [***], it shall inform Genesis as to the Purchase Price
then in effect. Genesis shall thereafter review it and determine during the
Option Period if it wishes to engage InnerDyne to manufacture and supply
Specialized Devices for Genesis. In the event Genesis chooses to engage
InnerDyne to manufacture and supply Specialized Devices ("Affirmative
Determination"), it shall so notify InnerDyne in writing before the expiration
of the Option Period and the Parties shall begin the manufacturing and supply
activities pursuant to ARTICLE 3. Thereafter, if InnerDyne wishes to supply the
Specialized Devices for Genesis during the [***], based upon its determination
under Section 2.5(a), the Purchase Price will be reviewed and adjusted, where
appropriate, by the Parties in accordance with their determination of the
Standard Costs under Section 1.13 and in light of anticipated cost and overhead
absorption changes. Genesis shall thereafter review such Purchase Price
applicable to [***], and determine if it wishes to engage InnerDyne to
manufacture and supply the Specialized Devices for Genesis during [***]. In the
event Genesis chooses to engage InnerDyne to manufacture and supply Specialized
Devices ("Affirmative Determination"), it shall so notify InnerDyne promptly in
writing.

               (c) In the event Genesis chooses not to engage InnerDyne to
manufacture and supply Specialized Devices ("Negative Determination") for the
[***], it shall so promptly notify InnerDyne in writing. Within ten (10) days of
receipt of a Negative Determination, InnerDyne shall refund to Genesis the
amount of [***], provided such amount has previously been paid by Genesis to
InnerDyne pursuant to Section 5.7(b). This Agreement shall terminate within
thirty (30) days of any Negative Determination.

[***] Confidential material redacted and filed separately with the Commission.

                                       5
<PAGE>   11

               (d) If InnerDyne does not wish to supply the Specialized Devices
for Genesis meeting the Specifications and at the Minimum Quantity, and so
notifies Genesis, or if InnerDyne fails to make an InnerDyne Determination
within ten (10) days after receiving the Specifications and/or the Minimum
Quantity, then the license granted to Genesis pursuant to Section 5.4 shall
become immediately effective. InnerDyne shall also promptly instruct the escrow
agent to release all Escrow Information pursuant to Section 4.6, and provide to
Genesis or Genesis' designee sufficient information about raw materials,
know-how, methods of manufacture and compositions to permit someone skilled in
the art of manufacturing medical devices to practice the license granted herein.
Genesis shall have no further commitment to InnerDyne.

                                    ARTICLE 3

                  MANUFACTURE AND SUPPLY OF SPECIALIZED DEVICES

        3.1 OBLIGATIONS TO SUPPLY AND PURCHASE. In the event of an Affirmative
Determination, InnerDyne agrees to sell to Genesis, and Genesis agrees to buy
from InnerDyne, on [***] basis, Minimum Quantity of the Specialized Devices,
pursuant to purchase orders as issued in accordance with Section 2.2. Such [***]
Minimum Quantity obligations shall first be met [***] from FDA approval of
marketing the System in the U.S. InnerDyne shall allocate sufficient resources,
capital equipment, materials, tools and labor to enable it to supply the
Specialized Devices required by Genesis pursuant to its properly placed Purchase
Orders. Unless either of the licenses granted in Sections 5.3 or 5.4 has become
effective, Genesis shall have no right to manufacture or have manufactured
Specialized Devices, and Genesis shall purchase its full requirements of such
Specialized Devices solely from InnerDyne.

        3.2 SPECIFICATIONS. All Specialized Devices manufactured and supplied by
InnerDyne shall conform to the Specifications. The Parties acknowledge that the
Specifications may need to be refined and modified as the Parties gain
experience with the manufacture, testing and use of the Specialized Device.
Accordingly, the Parties agree to negotiate in good faith to modify Exhibit A
from time to time as the Parties' experience with the manufacture, testing and
use of the Specialized Device warrants. Each Specialized Device lot delivered to
Genesis under this Agreement shall be accompanied by appropriate quality control
documentation for such production lot, as required by applicable current FDA
Quality Systems Regulations ("QSR") and ISO regulations, and as specified by
Genesis and agreed to by the Parties.

        3.3 MANUFACTURING PRACTICES. All Specialized Devices shall be
manufactured in accordance with applicable current QSR standards promulgated by
the FDA, as well as in accordance with those promulgated by other regulatory
agencies in the Territory, including but not limited to, those of [***]. The
Specialized Devices shall be manufactured in a facility registered with and
approved for such purpose by the FDA, or in the case of jurisdictions outside
the United States, approved by the relevant regulatory agency. InnerDyne shall
not implement any change in the manufacturing process relating to the
Specialized Device which would materially and/or adversely affect the quality of
the Specialized Devices, or which would affect regulatory approval. Before
InnerDyne makes any such change in the manufacturing process, it must first
notify Genesis, and obtain Genesis' written approval. Genesis and its agents

[***] Confidential material redacted and filed separately with the Commission.

                                       6
<PAGE>   12

shall have the right to conduct audits during the term of this Agreement upon
reasonable notice of InnerDyne's manufacturing facilities to verify InnerDyne's
compliance with such QSR and other regulatory regulations; provided, however,
that such audits shall not occur more than [***] a twelve (12)-month period. In
the event of significant manufacturing problems, product complaints, quality
control problems or other problems affecting the quality or supply of
Specialized Devices, the frequency of such audits may be increased upon
reasonable notice to InnerDyne.

        3.4 MANUFACTURE OF OTHER SYSTEM COMPONENTS. Genesis shall manufacture or
have manufactured any components other than the Specialized Device comprising
the System. In the event Genesis desires InnerDyne to manufacture any such
components for Genesis, it shall notify InnerDyne, and InnerDyne shall consider
in good faith manufacturing such components for Genesis.

                                    ARTICLE 4

                             ORDERING AND FORECASTS

        4.1 ORDERS.

               (a) Subject to an Affirmative Determination by Genesis and the
receipt of FDA marketing approval of the System, before or within sixty (60)
days after Genesis' receipt of the FDA marketing approval, Genesis shall provide
to InnerDyne the initial purchase order for Specialized Devices under Section
2.2. InnerDyne agrees to use best commercial efforts to deliver such Specialized
Devices as soon as practicable thereafter, but in no event later than sixty (60)
days after the date of such order, or as otherwise agreed in writing between the
parties.

               (b) Purchase orders subsequent to the initial purchase order
shall be placed [***], in accordance with Section 2.2 (each a "Purchase Order").
InnerDyne will accept any Purchase Order from Genesis, or, in the event of
unanticipated difficulties, InnerDyne will negotiate with Genesis a new delivery
schedule for such Purchase Order and accept such revised Purchase Order, within
five (5) days after receipt of such Purchase Order at its principal place of
business. Notwithstanding the foregoing, following the acceptance of any
Purchase Order, Genesis may reduce or increase the number of Specialized Device
units requested in each [***] of such Purchase Order by up to [***] by notifying
InnerDyne in writing of the exact reduction or increase desired, no later than
sixty (60) days prior to the delivery date requested in the original Purchase
Order, provided, however, that by the end of the relevant [***] period, Genesis
will have nonetheless ordered the Minimum Quantity amount for such [***] period,
subject to Section 4.5.

        4.2 DELIVERY. InnerDyne shall use diligent efforts, consistent with its
other shipment obligations and manufacturing capacity, to ship all Specialized
Devices ordered by Genesis on or before the requested shipment date, to the
extent such date is at least sixty (60) days after the date InnerDyne accepts
the Purchase Order for such shipment. The shipping and packaging method used
will be at the discretion of InnerDyne, subject to written approval of Genesis,
but shall be sufficient to ensure that the Specialized Devices will meet the
Specifications after transit.

[***] Confidential material redacted and filed separately with the Commission.

                                       7
<PAGE>   13

Deliveries shall be made FCA InnerDyne's facility (ICC Incoterms 1990) and shall
be shipped to Genesis' address as set forth in this Agreement, or as otherwise
directed by Genesis in writing. All Specialized Devices will be shipped by
InnerDyne freight collect, or if prepaid, such freight will be subsequently
billed to Genesis. If required, InnerDyne will insure the shipments against
damage to or loss of Specialized Devices and will subsequently bill Genesis for
such shipping insurance. Genesis will reimburse InnerDyne for shipping and
insurance expenses, if any, within thirty (30) days after the date of such
invoices.

        4.3 ACCEPTANCE. The Parties agree that at such time as an inspection
protocol is mutually agreed upon (the "Inspection Protocol") it shall be
appended to this Agreement as Exhibit B. Genesis shall inspect, using the
Inspection Protocol, all Specialized Device shipments promptly upon receipt
thereof at the shipping destination and may reject any Specialized Device units
which fail to comply with the Specialized Device warranty set forth in Section
8.1. Specialized Device Units not rejected by written notification to InnerDyne
within thirty (30) days after receipt by Genesis shall be deemed to have been
accepted. Rejected goods shall be returned freight prepaid to InnerDyne within
ten (10) days after rejection. As promptly as possible after receipt by
InnerDyne of properly rejected goods, InnerDyne shall, at InnerDyne's option,
(i) replace the rejected goods at InnerDyne's expense, or (ii) grant Genesis a
credit for such rejected goods equal to the price paid therefor. The Party
shipping the goods pursuant to this Section 4.3 shall bear the entire risk of
loss for goods during shipment. Any insurance proceeds payable in respect of any
loss incurred shall be paid to the Party bearing the risk of loss for such goods
to the extent of the loss incurred thereof. For properly rejected goods,
InnerDyne will prepay transportation charges back to Genesis and shall reimburse
Genesis for any reasonable costs of transportation for returning such goods; for
all other goods, Genesis shall pay transportation charges in both directions.

        4.4 PAYMENT TERMS. Payments for each shipment of Specialized Devices
shall be due within thirty (30) days after the date of Genesis' receipt and
acceptance of the relevant shipment of Specialized Devices.

        4.5 FAILURE TO MEET SPECIALIZED DEVICE MINIMUMS. Any failure by Genesis
to purchase the agreed upon Minimum Quantity during the [***] period after the
FDA marketing approval of the System, and during any [***] period thereafter,
shall be deemed a material breach by Genesis, subject to Section 7.3(a);
provided, however, that where Genesis has purchased at least [***] of the
Minimum Quantity, or purchases up to that percentage during the sixty (60) day
cure period provided under Section 7.3(a), Genesis shall have the option to pay
to InnerDyne an amount equal to the "Foregone Gross Profit" for that percentage
of the Minimum Quantity which Genesis failed to purchase, which amount shall be
due to InnerDyne within thirty (30) days after the end of such sixty (60) day
cure period. "Foregone Gross Profit shall mean the product of: (a) the number of
Specialized Devices that Genesis would have had to purchase for the [***] to
meet the Minimum Quantity; and (b) the Purchase Price for such quantity, less
InnerDyne's Standard Costs.

        4.6 FAILURE TO SUPPLY SPECIALIZED DEVICE FORECASTS.

[***] Confidential material redacted and filed separately with the Commission.

                                       8
<PAGE>   14

               (a) Within ninety (90) days of an Affirmative Determination,
InnerDyne shall provide to a third party, who shall be a mutually acceptable
escrow agent, sufficient information about and documentation of raw materials,
know-how, methods of manufacture, compositions, relevant quality control
procedures, and regulatory documentation ("Escrow Information") to permit
someone skilled in the art of manufacturing medical devices to practice the
license granted in Section 5.3. From time to time InnerDyne shall deposit with
the escrow agent updated Escrow Information as such Escrow Information changes
or accumulates. The Parties shall enter into an agreement with such third party
escrow agent at Genesis' cost providing, among other things, that the Escrow
Materials be released to Genesis in the event that (a) InnerDyne elects not to
manufacture and supply under Section 2.5(c); or fails to supply pursuant to
Section 4.6(b) as provided below.

               (b) In the event InnerDyne is unable to supply Genesis' binding
forecasted Specialized Device Units by a shortfall of greater than [***], it
shall immediately notify Genesis. Such a failure shall be deemed a material
breach by InnerDyne. At such time, Genesis may, at its sole election, either:
(a) work with InnerDyne to find a mutually agreeable solution to the supply
shortfall; (b) immediately exercise the license in Section 5.3; or (c) terminate
this Agreement. In the event that Genesis elects to terminate this Agreement
pursuant to subsection 4.6(b)(c), and less than [***] has elapsed since the
Effective Date, InnerDyne shall return to Genesis the fee set forth under
Section 5.7(b) of [***]. In the event Genesis elects to exercise the license in
Section 5.3, InnerDyne shall promptly assist Genesis in fully transferring any
and all other information or technology relating to Specialized Device
manufacturing (that has not already been escrowed) to Genesis or to Genesis'
sublicensee or agent, as the case may be.

                                    ARTICLE 5

                              LICENSE; LICENSE FEES

        5.1 EXCLUSIVE LICENSE GRANT. Subject to the terms and conditions of this
Agreement, InnerDyne hereby grants to Genesis, an exclusive (subject to Section
5.5), even as to InnerDyne, royalty-free license under InnerDyne Technology, to
use, market, sell and distribute Specialized Devices in the Exclusive Field in
the Territory.

        5.2 NON-EXCLUSIVE LICENSE GRANT. Subject to the terms and conditions of
this Agreement, InnerDyne hereby grants to Genesis a non-exclusive, royalty-free
license under InnerDyne Technology to use, market, sell and distribute
Specialized Devices in the Non-Exclusive Field in the Territory.

        5.3 BACK-UP LICENSE GRANT. Subject to an Affirmative Determination, and
to Sections 3.1 and Section 4.6, InnerDyne hereby grants Genesis a worldwide,
royalty-bearing, perpetual license (with the right to sublicense) under the
InnerDyne Technology to make and have made Specialized Devices, exclusively for
the Exclusive Field and non-exclusively for the Non-Exclusive Field. Such
royalty shall not exceed [***] of Genesis' or Genesis' sublicensee's
fully-burdened cost of manufacturing the Specialized Device. In the event of a
Change of Control of InnerDyne, the royalty owed to InnerDyne by Genesis for
exercising the

[***] Confidential material redacted and filed separately with the Commission.

                                       9
<PAGE>   15

license under this Section 5.3, shall decrease to [***] of Genesis' or Genesis'
sublicensee's fully-burdened cost of manufacturing Specialized Devices. The
Parties agree that Genesis shall have the exclusive right to access and use the
Escrow Information deposited into escrow to practice the license granted
hereunder.

        5.4 LICENSE IN THE EVENT INNERDYNE CHOOSES NOT TO MANUFACTURE. In the
event InnerDyne chooses not to manufacture the Specialized Devices pursuant to
Section 2.5(d), InnerDyne hereby grants Genesis a worldwide, royalty-bearing
license (with the right to sublicense) under the InnerDyne Technology to make
and have made Specialized Devices exclusively for the Exclusive Field and
non-exclusively for the Non-Exclusive Field. Such royalty shall equal [***] of
Genesis' or Genesis' sublicensee's fully-burdened cost of manufacturing the
Specialized Device. In the event of a Change of Control of InnerDyne, the
royalty owed to InnerDyne by Genesis for exercising the license under this
Section 5.4, shall decrease to [***] of Genesis' or Genesis' sublicensee's
fully-burdened cost of manufacturing Specialized Devices.

        5.5 LOSS OF EXCLUSIVITY. In the event InnerDyne undergoes a Change of
Control, the license granted to Genesis in Section 5.1, shall become exclusive
to Genesis except as to the successor entity affecting the Change of Control.

        5.6 COVENANT NOT TO SELL INNERDYNE DEVICE IN THE EXCLUSIVE FIELD. During
the term of this Agreement, InnerDyne hereby covenants not to make, use, sell,
or distribute any InnerDyne Device in the Exclusive Field other than in the
event of an InnerDyne Change of Control, where InnerDyne or its successor may
make, use, sell, distribute or have made, have sold or have distributed an
InnerDyne Device in such Exclusive Field. InnerDyne hereby also covenants that
it shall not knowingly provide or enter into a contract to provide any InnerDyne
Device to any third party for commercial sale, distribution or use in the
Exclusive Field, with the proviso that Genesis shall have the burden of
notifying InnerDyne and providing InnerDyne with reasonably sufficient evidence
that an InnerDyne Device is being sold, distributed or used in the Exclusive
Field. Genesis shall waive any claim for damages against InnerDyne under this
provision to the extent that such damages have accrued prior to Genesis'
notification of InnerDyne of the unapproved sales or use of the InnerDyne Device
in the Exclusive Field.

        5.7 LICENSE FEES. In consideration for the licenses granted in this
Agreement, Genesis shall pay InnerDyne license fees as follows:

               (a) [***] upon the Effective Date;

               (b) [***] upon the earlier of the [***] anniversary of this
Agreement, or [***] after [***].

[***] Confidential material redacted and filed separately with the Commission.

                                       10
<PAGE>   16

In the event this Agreement is terminated prior to the expiration of the Option
Period, InnerDyne shall promptly refund to Genesis any and all license fee
amounts paid to InnerDyne over [***].

                                    ARTICLE 6

                               REGULATORY MATTERS

        6.1 GOVERNMENT APPROVAL; INNERDYNE ASSISTANCE. At any time before and up
to ninety (90) days after an Affirmative Determination, unless such ninety (90)
day limitation is not possible due to the requirement by the FDA of clinical
testing, or as otherwise agreed to in writing by both parties, Genesis shall
file with the Food and Drug Administration (the "FDA") a Premarket Notification
510(k), as well as file all other filings necessary to obtain Government
Approval for the intended marketing and sale of the Specialized Device as part
of the System in the Territory. InnerDyne will furnish Genesis with such
assistance and cooperation as may reasonably be requested in connection with
securing any such Government Approvals. Genesis shall reimburse InnerDyne the
actual documented Development Costs expended in assisting Genesis in connection
with obtaining any Governmental Approval at InnerDyne's documented Development
Costs plus an additional amount equal to [***] of such documented Development
Costs less the costs of any dedicated tools and fixtures .

        6.2 COMPLIANCE. InnerDyne shall conduct its efforts under this Agreement
in compliance with all applicable regulatory requirements governing the
development and manufacture of medical devices for each country in the
Territory. InnerDyne shall comply with Genesis' requests for the provision of
information necessary or useful for Genesis to comply with any medical device
reporting requirements in the Territory.

        6.3 SERIOUS INJURY REPORTING. Either Party shall advise the other Party,
by telephone or confirmed facsimile, immediately but not later than twenty-four
(24) hours after it becomes aware of any serious injury from the use of the
Specialized Device or malfunction of the Specialized Device. Such advising Party
shall provide the other Party with a written report delivered by confirmed
facsimile and U.S. mail of any reported serious injury or malfunction, stating
the full facts known to it, including, but not limited to, customer name,
address, telephone number and instrument, and lot or serial number, as
appropriate. Genesis, or as agreed in Section 6.4, shall investigate and confirm
any reported serious injury and shall be responsible for reporting and
compliance under applicable medical device reporting regulations.

        6.4 QUALITY SYSTEMS COMPLIANCE. In the event of an Affirmative
Determination, InnerDyne: (a) will manufacture the Specialized Device in
compliance with FDA Quality System Regulation (QSR) and other federal, state and
FDA requirements applicable to medical device manufacture; (b) will maintain
compliance with current ISO 9001 et seq. requirements and any future amendments;
(c) will maintain compliance with European Commission EN46000 et seq.
regulations applicable to the design and manufacture of medical devices; (d)
will comply with applicable requirements of any other regulatory bodies having
jurisdiction over the development and manufacture of the Specialized Device and
System. Within thirty (30) days of the Effective Date, the Parties shall
mutually agree upon a quality system matrix ("Quality System Matrix")

[***] Confidential material redacted and filed separately with the Commission.

                                       11
<PAGE>   17

allocating between the Parties individual responsibilities for the development
of the Specialized Device in compliance with quality system regulations. Within
thirty (30) days of an Affirmative Determination, the Parties shall mutually
agree upon a Quality System Matrix allocating between the Parties individual
responsibilities for the marketing and supply of the Specialized Device in
compliance with quality system regulations. Genesis, the FDA and other
regulatory authorities may inspect InnerDyne's facilities, procedures and
records relating to the manufacture of Specialized Devices at reasonable times
and upon reasonable notice.

        6.5 PRODUCT RECALL. If either Party believes or is notified that a
recall of any Specialized Device is desirable or required by law, it will
promptly notify the other Party. The Parties will then discuss reasonably and in
good faith whether such recall is appropriate or required and the manner in
which any mutually agreed recall shall be handled. This Section 6.5 shall not
limit the obligations of either Party under law with respect to recall of
Specialized Devices required by law or properly mandated by governmental
authority. In the event of a voluntary recall, the Party initiating the recall
shall bear the expenses incurred in connection with the voluntary recall. In the
event of a mandatory recall, the Party responsible for causing the recall shall
bear the expenses incurred in connection with the mandatory recall. InnerDyne
shall bear the expenses incurred for any failure of the Specialized Device to
meet Specifications due to manufacturing flaws.

                                    ARTICLE 7

                              TERM AND TERMINATION

        7.1 TERM. This Agreement shall commence on the Effective Date and shall
remain in full force and effect until any InnerDyne patents used in the
Specialized Devices have expired ("Term"), unless earlier terminated as provided
herein.

        7.2 EARLY TERMINATION BY GENESIS. Genesis may terminate this Agreement
during the Option Period for any or no reason, upon [***] days' prior written
notice to InnerDyne, in which case Genesis shall compensate InnerDyne for all
costs incurred through the effective date of termination as provided for in
Section 2.4.

        7.3 MATERIAL BREACH.

               (a) MATERIAL BREACH BY GENESIS.

                      (i) Except as provided in Section 4.5, any failure by
Genesis to purchase the applicable Minimum Quantity in a given [***] period
after FDA marketing approval of the System and Affirmative Determination, which
failure is not cured within the sixty (60)-day period following the end of such
[***] period, shall be deemed a material breach of this Agreement and InnerDyne
shall have the right to terminate this Agreement.

                      (ii) With respect to any material breach of any of the
terms of this Agreement by Genesis other than as described in Section 7.3(a)(i)
above, InnerDyne shall have

[***] Confidential material redacted and filed separately with the Commission.

                                       12
<PAGE>   18

the right to terminate this Agreement immediately upon written notice, or, in
the case of a breach capable of remedy, which such breach shall not have been
remedied within sixty (60) days after the receipt by Genesis of written notice
specifying the breach and requiring its remedy, upon expiration of such cure
period.

               (b) MATERIAL BREACH BY INNERDYNE. Genesis shall have the right to
terminate this Agreement immediately upon written notice if InnerDyne commits
any material breach of any of the terms of this Agreement which, in the case of
a breach capable of remedy, shall not have been remedied within sixty (60) days
after the receipt by InnerDyne of written notice specifying the breach and
requiring its remedy. All licenses granted pursuant to this Agreement shall
survive any such termination for the duration of the Term.

        7.4 EFFECT OF TERMINATION. Upon the termination of this Agreement, the
following shall occur:

               (a) TERMINATION OF LICENSES. Except as otherwise provided in
Section 7.3(b), the licenses set forth in ARTICLE 5 shall terminate and Genesis
shall immediately discontinue all marketing, sales and distribution of the
Specialized Device in the Territory. Notwithstanding the foregoing, Genesis
shall have the right to sell any Specialized Devices remaining in inventory.

        7.5 ACCRUED RIGHTS AND OBLIGATIONS. The rights of either Party which may
have accrued up to the date of such termination shall not be affected, and
Genesis shall not be relieved of any obligation for any sums due to InnerDyne
for development costs as per Section 2.4 and for Specialized Devices covered by
Purchase Orders accepted prior to termination and due to be delivered within the
ninety (90) day period following the effective date of such termination
(including any amount due but not yet paid, with all such amounts being
nonrefundable and not subject to any setoff or similar right).

        7.6 CONFIDENTIAL INFORMATION. Each Party shall return to the other or
destroy, at the other Party's instruction, all Confidential Information of the
other Party, with the exception of records required to be maintained to be in
compliance with FDA or other governmental regulations.

        7.7 NO OTHER RIGHTS UPON TERMINATION. Neither Party hereto shall be
responsible to the other for compensation, damages, or otherwise by reason of
termination of this Agreement, except for termination due to material breach
pursuant to Section 7.3, at any time, except as provided herein.

        7.8 SURVIVING OBLIGATIONS. Termination of this Agreement shall not
relieve either Party of its obligations under Sections ARTICLEs 8, 9, 10, 11 and
12 hereof.

                                    ARTICLE 8

             SPECIALIZED DEVICE WARRANTIES; LIMITATIONS OF LIABILITY

                                       13
<PAGE>   19

        8.1 SPECIALIZED DEVICE WARRANTY. InnerDyne warrants that the Specialized
Devices supplied by InnerDyne under this Agreement will be of merchantable
quality, will conform to the Specialized Device Specifications and will be
manufactured in accordance with QSRs, ISO 9001 et seq., EN46000 et seq. and
other applicable regulations. In no event shall InnerDyne be liable under this
Agreement for any failure of any Specialized Device to meet the Specialized
Device Specifications due to improper use, storage or shipment by Genesis or
anyone receiving the Specialized Device directly or indirectly from Genesis.

        8.2 LIMITATION OF LIABILITY. EXCEPT AS TO DAMAGES ARISING PURSUANT TO
SECTION 5.6, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT,
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING LOSS OF PROFITS,
REVENUE, DATA OR USE, INCURRED BY THE OTHER PARTY, WHETHER IN CONTRACT OR TORT
OR BASED ON A WARRANTY, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.

        8.3 DISCLAIMER OF WARRANTIES. EXCEPT AS EXPRESSLY PROVIDED FOR IN THIS
AGREEMENT, NEITHER PARTY MAKES ANY WARRANTIES TO THE OTHER OR TO ANY THIRD
PARTY, AND EACH PARTY EXPRESSLY DISCLAIMS ANY SUCH WARRANTIES, WHETHER EXPRESS
OR IMPLIED, RELATING TO THE SPECIALIZED DEVICES, THE PARTIES' RESPECTIVE
TECHNOLOGY, OR OTHERWISE RELATING TO THIS AGREEMENT, INCLUDING WITHOUT
LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, AND NONINFRINGEMENT.

                                    ARTICLE 9
                                 INDEMNIFICATION

        9.1 INDEMNIFICATION BY INNERDYNE. InnerDyne agrees to and hereby does
indemnify and hold Genesis harmless from and against all third-party claims,
damages, losses, costs and expenses, including reasonable attorney's fees, which
Genesis may incur by reason of any Specialized Devices sold or furnished by
InnerDyne which result in injury, illness or death of any person, to the extent
that such claims arise out of or result from the failure of the Specialized
Device to meet the Specialized Device warranty set forth in Section 8.1, or the
recklessness, gross negligence, or willful misconduct of InnerDyne or its
officers, employees or agents.

        9.2 INDEMNIFICATION BY GENESIS. Genesis agrees to and hereby does
indemnify and hold InnerDyne harmless from and against all third-party claims,
damages, losses, costs and expenses, including reasonable attorney's fees, which
InnerDyne may incur to the extent that such claims arise out of or result from
(i) the sale or other distribution of Specialized Devices by Genesis or use by
any purchasers, (ii) any representation made or warranty given by Genesis with
respect to the Specialized Device, (iii) the manufacture, sale or use of any
product which is not supplied by InnerDyne and which is sold or combined by
Genesis with a Specialized Device, or

                                       14
<PAGE>   20

(iv) the recklessness, gross negligence, or willful misconduct of Genesis or
Genesis' officers, employees or agents.

        9.3 INDEMNIFICATION PROCEDURE. The Party seeking indemnification under
this ARTICLE 9 (the "Indemnified Party") shall (i) give the other Party (the
"Indemnifying Party") notice of the relevant claim, (ii) cooperate with the
Indemnifying Party, at the Indemnifying Party's expense, in the defense of such
claim, and (iii) give the Indemnifying Party the right to control the defense
and settlement of any such claim, except that the Indemnifying Party shall not
enter into any settlement that affects the Indemnified Party's rights or
interest without the Indemnified Party's prior written approval. The Indemnified
Party shall have no authority to settle any claim on behalf of the Indemnifying
Party.

                                   ARTICLE 10
                              INTELLECTUAL PROPERTY

        10.1 OWNERSHIP OF INTELLECTUAL PROPERTY.

               (a) Genesis shall retain all of its rights, title and interest in
and to and ownership of all Genesis Technology. InnerDyne shall retain all of
its rights, title and interest in and to and ownership of all InnerDyne
Technology.

               (b) Any intellectual property, whether or not patentable,
developed by either Genesis or InnerDyne during the Option Period and the Term
of this Agreement related to Specialized Devices ("Specialized Device
Inventions") shall be promptly disclosed to the other Party. InnerDyne shall own
all such Specialized Device Inventions, provided however, that all such
Specialized Device Inventions are subject to the licenses granted to Genesis
under ARTICLE 5. Genesis hereby assigns all of its rights, title and interest in
and to such Specialized Device Inventions to InnerDyne.

        10.2 THIRD PARTY PATENT INFRINGEMENT.

               (a) INDEMNIFICATION AND SECURING CONTINUED RIGHTS. In the event a
System becomes the subject of a claim for patent or other proprietary right
infringement anywhere in the world by virtue of the incorporation of the
Specialized Device therein, the Parties shall promptly give notice to one
another. InnerDyne shall indemnify and hold Genesis harmless from and will
defend Genesis against any action brought against Genesis to the extent that the
action is based on a claim that the use or sale of the Specialized Device (as
such infringing portion of the Specialized Device corresponds to the InnerDyne
Device unmodified by the Parties under this Agreement) infringes any patent or
other proprietary rights of any third party, but in no event shall InnerDyne
indemnify Genesis for actions under this Section 10.2(a) in an aggregate of
[***]. In addition, in such event InnerDyne shall, either alone or with Genesis,
at Genesis' election, and at InnerDyne's sole expense: (a) engage in
negotiations with such third party with a view to settling any such infringement
suit; (b) obtain for Genesis all licenses and other rights to continue using and
selling the System incorporating the Specialized

[***] Confidential material redacted and filed separately with the Commission.

                                       15
<PAGE>   21
Device; or (c) otherwise assist Genesis in connection with resolving any such
infringement and securing Genesis' rights to use and sell the Specialized
Device.

               (b) NO MINIMUM OBLIGATIONS. Notwithstanding anything in this
Agreement to the contrary, Genesis shall be under no obligation to purchase the
Specialized Device for sale in the Territory if such Specialized Device has been
held to infringe a third party patent by a court or other tribunal of competent
jurisdiction in the Territory.

        10.3 INFRINGEMENT OF INNERDYNE TECHNOLOGY. In the event InnerDyne or
Genesis becomes aware of any actual or threatened infringement of any InnerDyne
Technology, that Party shall promptly notify the other. InnerDyne shall have the
first right to bring, at its own expense, any infringement action against any
person or entity infringing the InnerDyne Technology directly or contributorily.
Genesis shall cooperate with InnerDyne as reasonably requested, at InnerDyne's
expense. Any and all amounts recovered with respect to such an infringement
action shall be retained by InnerDyne. In the event InnerDyne is unable or
unwilling to commence an action against the alleged infringer within one-hundred
and twenty (120) days of the date of InnerDyne's becoming aware of such
infringement, Genesis may, but shall not be required to, prosecute the alleged
infringement or threatened infringement. In such event Genesis shall act in its
own name and at its own expense. In the event of such action by Genesis, any
recovery obtained shall be retained by Genesis.

                                   ARTICLE 11

                            CONFIDENTIAL INFORMATION

        11.1 DEFINITION. For purposes of this Agreement, "Confidential
Information" shall mean, subject to the limitations set forth in Section 11.2
below, all information received by one Party from the other Party during the
term of this Agreement. In particular, Confidential Information shall be deemed
to include, but not be limited to, any technology, know-how, processes, patent
application or drawing or potential patent claim disclosed by the other Party or
derived from information thus disclosed, and any trade secret, invention, idea,
process, formula or test data relating to any research project, work in process,
future development, engineering, manufacturing, regulatory, marketing,
servicing, financing or personnel matter relating to the disclosing Party, its
present or future products, sales, suppliers, clients, customers, employees,
investors or business, whether in oral, written, graphic or electronic form.

        11.2 NONDISCLOSURE OBLIGATIONS; EXCEPTIONS. During the term of this
Agreement, and for a period of five (5) years after termination thereof, each
Party will maintain all Confidential Information in trust and confidence and
will not disclose any Confidential Information to any third party or use any
Confidential Information for any unauthorized purpose. Each Party may use such
Confidential Information only to the extent required to accomplish the purposes
of this Agreement. Confidential Information shall not be used for any purpose or
in any manner that would constitute a violation of any laws or regulations,
including without limitation the export control laws of the United States.
Confidential Information shall not be reproduced in any form except as required
to accomplish the intent of this Agreement. No Confidential Information shall be
disclosed to any employee, agent, consultant, Affiliate, or sublicensee who does
not have a

                                       16
<PAGE>   22

need for such information. To the extent that disclosure is authorized by this
Agreement, the disclosing Party will obtain prior agreement from its employees,
agents, consultants, Affiliates or sublicensees to whom disclosure is to be made
to hold in confidence and not make use of such information for any purpose other
than those permitted by this Agreement. Each Party will use at least the same
standard of care as it uses to protect proprietary or confidential information
of its own to ensure that such employees, agents and consultants do not disclose
or make any unauthorized use of the Confidential Information. Each Party will
promptly notify the other upon discovery of any unauthorized use or disclosure
of the Confidential Information.

        Confidential Information shall not include any information which:

               (a) is now, or hereafter becomes, through no act or failure to
act on the part of the receiving Party, generally known or available;

               (b) is known by the receiving Party at the time of receiving such
information, as evidenced by its written records;

               (c) is hereafter furnished to the receiving Party by a third
Party, as a matter of right and without restriction on disclosure;

               (d) is independently developed by the receiving Party without any
breach of this Agreement; or

               (e) is the subject of a written permission to disclose provided
by the disclosing Party.

        The Parties agree that the material financial terms of the Agreement
will be considered Confidential Information of both Parties. The Parties also
agree that this Agreement will not be announced in any manner, except as
required by regulatory bodies.

        11.3 AUTHORIZED DISCLOSURE. Notwithstanding any other provision of this
Agreement, each Party may disclose Confidential Information if such disclosure:

               (a) is in response to a valid order of a court or other
governmental body of the United States or any political subdivision thereof;
provided, however, that the responding Party shall first have given notice to
the other Party hereto and shall have made a reasonable effort to obtain a
protective order requiring that the Confidential Information so disclosed be
used only for the purposes for which the order was issued;

               (b) is otherwise required by law; or

               (c) is otherwise necessary to file or prosecute patent
applications, prosecute or defend litigation or comply with applicable
governmental regulations or otherwise establish rights or enforce obligations
under this Agreement, but only to the extent that any such disclosure is
necessary.

                                       17
<PAGE>   23

               (d) is to a consultant or contractor of Genesis, where such
consultant or contractor is bound under a binder of confidentiality equivalent
in scope of ARTICLE 11 herein.

        11.4 PARTIES' ACKNOWLEDGMENT. The Parties hereby expressly acknowledge
that [***] was the inventor of [***] and has knowledge of [***] information that
was not obtained by disclosure of InnerDyne under this Agreement. The Parties
agree that such information is not governed by this ARTICLE 11.

                                   ARTICLE 12

                         REPRESENTATIONS AND WARRANTIES

        12.1 REPRESENTATION AND WARRANTIES OF GENESIS. Genesis hereby represents
and warrants as follows:

               (a) CORPORATE POWER. Genesis is duly organized and validly
existing under the laws of the state of California and has full corporate power
and authority to enter into this Agreement and to carry out the provisions
hereof.

               (b) DUE AUTHORIZATION. Genesis is duly authorized to execute and
deliver this Agreement and to perform its obligations hereunder.

               (c) BINDING AGREEMENT. This Agreement is a legal and valid
obligation binding upon Genesis and is enforceable in accordance with its terms.
The execution, delivery and performance of this Agreement by Genesis does not
conflict with any agreement, instrument or understanding, oral or written, to
which it is a Party or by which it may be bound, nor violate any law or
regulation of any court, governmental body or administrative or other agency
having authority over it.

        12.2 REPRESENTATIONS AND WARRANTIES OF INNERDYNE. InnerDyne hereby
represents and warrants as follows:

               (a) CORPORATE POWER. InnerDyne is duly organized and validly
existing under the laws of the state of Delaware and has full corporate power
and authority to enter into this Agreement and to carry out the provisions
hereof.

               (b) DUE AUTHORIZATION. InnerDyne is duly authorized to execute
and deliver this Agreement and to perform its obligations hereunder.

               (c) BINDING AGREEMENT. This Agreement is a legal and valid
obligation binding upon InnerDyne and is enforceable in accordance with its
terms. The execution, delivery and performance of this Agreement by InnerDyne
does not conflict with any agreement, instrument or understanding, oral or
written, to which it is a Party or by which it may be bound, nor violate any law
or regulation of any court, governmental body or administrative or other agency
having authority over it.

[***] Confidential material redacted and filed separately with the Commission.

                                       18
<PAGE>   24

                                   ARTICLE 13

                                  MISCELLANEOUS

        13.1 ASSIGNMENT. Except as otherwise provided herein, neither Party may
assign its rights or delegate its duties under this Agreement without the prior
written consent of the other; provided, however, that each Party may, without
such consent, assign this Agreement to any Affiliate or any successor by merger
or sale of substantially all of its business units to which this Agreement
relates. Any attempted assignment or delegation in contravention of the
foregoing shall be void and of no effect.

        13.2 BENEFITS AND BINDING NATURE OF AGREEMENT. In the case of any
permitted assignment of this Agreement, this Agreement or the relevant
provisions shall be binding upon, and inure to the benefit of, the successors,
executors, heirs, representatives, administrators and assigns of the Parties
hereto.

        13.3 ENTIRE AGREEMENT. This Agreement, together with the exhibits and
schedules attached and referenced herein, embodies the final, complete and
exclusive understanding between the Parties, and replaces and supersedes all
previous agreements, understandings or arrangements between the Parties with
respect to its subject matter. No modification or waiver of any terms or
conditions hereof, nor any representations or warranties shall be of any force
or effect unless such modification or waiver is in writing and signed by an
authorized officer of each Party hereto.

        13.4 FORCE MAJEURE. Neither Party shall be liable to the other for its
failure to perform any of its obligations under this Agreement, except for
payment obligations, during any period in which such performance is delayed
because of, or rendered impracticable or impossible due to, circumstances beyond
its reasonable control, provided that the Party experiencing the delay promptly
notifies the other of the delay.

        13.5 NOTICE. All notices concerning this Agreement shall be written in
the English language and shall be deemed to have been received (a) two (2) days
after being properly sent by commercial overnight courier, or (b) one (1) day
after being transmitted by confirmed facsimile, in each case addressed to the
address below:

               If to Genesis:
               Genesis Medical Technologies, Inc.
               655 Mariners Island Boulevard, Suite 303
               San Mateo, CA 94404
               Fax:

               If to InnerDyne:
               InnerDyne Medical, Inc.
               1244 Reamwood Avenue
               Sunnyvale, CA 94089

                                       19
<PAGE>   25

               Fax:

        13.6 CHOICE OF LAW; VENUE. This Agreement is made in accordance with and
shall be governed and construed under the laws of the State of California,
excluding its choice of law rules. Any claim or controversy arising out of or
related to this Agreement or any breach hereof shall be submitted to the
appropriate State Court or United States Federal Court in or for Santa Clara
County the State of California, and each Party hereby consents to the
jurisdiction and venue of such court.

        13.7 WAIVER. Any waiver (express or implied) by either Party of any
default or breach of this Agreement shall not constitute a waiver of any other
or subsequent default or breach.

        13.8 SEVERABILITY. In the event that any provision of this Agreement
shall be unenforceable or invalid under any applicable law or be so held by
applicable court decision, such enforceability or invalidity shall not render
this Agreement unenforceable or invalid as a whole, and, in such event, such
provision shall be changed and interpreted so as to best accomplish the
objectives of such unenforceable or invalid provision within the limits of
applicable law or applicable court decisions.

        13.9 RIGHTS AND REMEDIES CUMULATIVE. Except as expressly provided
herein, the rights and remedies provided in this Agreement shall be cumulative
and not exclusive of any other rights and remedies provided by law or otherwise.

        13.10 INDEPENDENT CONTRACTORS. Each Party shall act as an independent
contractor under the terms of this Agreement. Neither Party is, nor shall it be
deemed to be, an employee, agent, co-venturer or legal representative of the
other for any purpose. Neither Party shall be entitled to enter into any
contracts in the name of, or on behalf of the other, nor shall either Party be
entitled to pledge the credit of the other in any way or hold itself out as
having authority to do so.

        13.11 NO PUBLICITY. Neither Party shall disclose the terms or existence
of this Agreement, except as required by regulatory entities such as the FDA and
the Securities and Exchange Commission. If public disclosure of this Agreement
is judged to be required or desired by either of the Parties (other than as
required by regulatory entities), the Party wishing to make the public
disclosure shall notify the other Party ("Notified Party") and request its
approval. Within forty-eight (48) hours of such notification, the Parties shall
discuss the potential disclosure in good faith, and the Notified Party shall not
unreasonably withhold approval of such disclosure.

        13.12 CAPTIONS AND SECTION REFERENCES. The section headings appearing in
this Agreement are inserted only as a matter of convenience and in no way
define, limit, construe or describe the scope or extent of such section or in
any way affect such section.

        13.13 COUNTERPARTS. This Agreement may be executed in counterparts with
the same force and effect as if each of the signatories had executed the same
instrument.

                                       20
<PAGE>   26

        IN WITNESS WHEREOF, the Parties have each caused this Agreement to be
signed and delivered by their duly authorized representatives as of the date
first written above.

GENESIS MEDICAL                       INNERDYNE MEDICAL, INC.
TECHNOLOGIES, INC.

By:     /s/Paul W. Brown              By:    /s/ William G. Mavity
   ------------------------------        ------------------------------------

Title:  Chairman                                   Title: President and CEO

                                       21
<PAGE>   27

                                    EXHIBIT A

                        SPECIALIZED DEVICE SPECIFICATIONS

                                       1
<PAGE>   28

                                    EXHIBIT B

                               INSPECTION PROTOCOL

                                       2
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