Document:

exv10w38

Exhibit 10.38

DISTRIBUTION AGREEMENT

     This DISTRIBUTION AGREEMENT (it, together with any Schedules thereto, (the “Agreement”),
between Kips Bay Medical, Inc. (“Manufacturer”) with an address at 3405 Annapolis Lane, Suite 200,
Minneapolis, MN 55447 and Advanced Biomedical Pty Ltd., (“Distributor”) having a place of business
at 5 Vista Court, Ringwood East Victoria 31355, Australia.

RECITALS

WITNESSETH:

     WHEREAS, Manufacturer is engaged in the design, development, production and sale of the
Products listed on Schedule 1; and

     WHEREAS, Distributor is in the business of selling medical products within the Territory
listed in Section 2 and desires to distribute the Products within the Territory and to perform all
necessary and appropriate marketing and customer service functions in the Territory; and

     WHEREAS, Company and Representative wish to provide in writing for the terms and conditions
under which Distributor shall sell and market the Products in the Territory.

          NOW, THEREFORE, the parties hereto do hereby agree as follows:

1. DEFINITIONS

For purposes of this Agreement, the following words, terms and phrases, where written with an
initial capital letter, shall have the meanings assigned to them in this Section 1 unless the
context otherwise requires:

     1.1. “Change of Control” means (i) as to distributor, a change in the ownership
directly or indirectly of fifty percent (50%) or more of the voting rights in Distributor and (ii)
as to Manufacturer, the occurrence of the following: any person (within the meaning of the
Securities Exchange Act of 1934 as amended) is or becomes the beneficial owner (as defined in Rule
13d-3 under the Securities Exchange Act of 1934, as amended) directly or indirectly of securities
of Manufacturer (not including in the securities beneficially owned by such person, any securities
acquired directly from Manufacturer or its affiliates other than in connection with the acquisition
by Manufacturer or its affiliates of a business) representing fifty percent (50%) or more of the
combined voting power of Manufacturer’s then outstanding securities.

     1.2. “Customer” means those individual or entities licensed to provide or prescribe
medical devices in the Territory and that purchase Products through Distributor.

     1.3. “Effective Date” has the meaning ascribed to it in Section 2 herein.

					
	 	 	 	 	 
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     1.4. “Ex Works (Incoterms 2000)” means the Manufacturer’s delivers when the
Products are placed at the disposal of the buyer at the Manufacturer’s premises, which is currently
located in Minneapolis, MN, USA.

     1.5. “Field of Use” means surgery.

     1.6. “Products” means collectively, those products that are available to Distributor
under this Agreement and are listed under the heading “Products” in Schedule 1 hereto, as such
schedule may be revised from time to time upon the mutual written agreement of the Parties or in
accordance with the Section 4.1 herein.

     1.7. “Purchase Order” has the meaning ascribed to it in Section 3.4 herein.

     1.8. “Technical Documentation” means all documents prepared by Manufacturer in the
ordinary course of business that define the Product in terms of its intended use and Product
claims. Such documents may take the form of User Instruction, System Manuals, Product Updates,
Technical Bulletins but are not limited to such.

     1.9. “Territory” shall mean the geographic area specifically described in Section 2
herein, as may be amended from time to time by written agreement of the parties or in accordance
with the Section 4.1 herein.

     1.10. “Warranty” has the meaning ascribed to it in Section 9.2
herein.

TERMS OF AGREEMENT

2. APPOINTMENT AND TERRITORY

     2.1 Effective as of 1 July, 2010(the Effective Date), subject to the terms and conditions of
this Agreement, Manufacturer hereby appoints Distributor as its sole distributor within Australia
(the Territory) to resell the Products to Customers in the Field and the Territory, and Distributor
accepts such appointment. Distributor shall not solicit customers for the Products outside of the
Territory or the Field, or otherwise actively distribute, market or sell any Products outside of
the Territory or the Field without written permission from the CEO of the Manufacturer. Subject to
Distributor’s compliance with the terms and conditions hereof and during the Term, Manufacturer
shall not appoint another distributor for the resale of the Products to Customers in the Field and
the Territory.

     2.2 Manufacturer reserves the right to modify any of the Products and their specification and
to discontinue sale of any Product in accordance with Section 4.1 herein.

     2.3 Recognizing the end use of the Products in healthcare, Distributor agrees to resell the
Products only to Customers who have the technical skills and resources to use the Product in
accordance with applicable laws in the Territory and the standard of care that could be reasonably
expected in the healthcare industry.

     Distributor shall be an independent contractor, and no agency relationship, joint venture or
partnership between the parties is created or shall be implied hereby. Distributor shall have no
authority

					
	 	 	 	 	 
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to, and agrees not to, bind Manufacturer to any obligation whatsoever. Distributor
represents that it is competent under the laws of Territory to enter in to the Agreement and
to act hereunder.

3. TERMS AND CONDITIONS

     3.1 Prices. Manufacturer shall sell the Products to Distributor at the prices set
forth on Schedule 1. Manufacturer has the right to modify prices for any Products on sixty (60)
days prior written notice to Distributor but no more than once a year for the same Product. Within
thirty (30) days of receipt of this notice, Distributor may order, at the pre-notice price, up to
no more than the balance of the current year’s sales forecast as indicated in Schedule 3.

     3.2 Payment and Terms and Conditions. Prices quoted by Manufacturer shall be paid in
U.S. Dollars and are Ex Works (Incoterms 2000) Manufacturer’s production facility in the United
States. Distributor shall ensure that Products shipped are stored and handled in accordance with
the specifications Manufacturer shall from time to time provide. Additional payment terms and
conditions are set forth in Schedule 2 and may be modified by Manufacturer with a ninety (90) day
prior notice. Manufacturer reserves the right at any time to undertake legal proceedings to recover
overdue payments due from Distributor.

     3.3 Placement of Orders. Distributor shall place all orders with Manufacturer at
Manufacturer’s Principal Office by facsimile or e-mail. Manufacturer shall promptly notify
Distributor of any Purchase Orders (or parts of Purchaser Orders) accepted, rejected or delayed. No
Purchase Order shall be binding upon Manufacturer until accepted by Manufacturer. Distributor may
not modify any Purchase Orders after acceptance by Manufacturer of such Purchase Order without
Manufacturer’s prior consent. The terms of this agreement supersede any terms appearing on
Distributors purchase order form.

4. RESPONSIBILITIES OF MANUFACTURER

     4.1 Manufacture of Products. Manufacturer shall use commercially reasonable efforts to
maintain the necessary manufacturing capability to fill all orders for Products received from
Distributor and accepted pursuant to the provisions of this Agreement. In the event of a Product
shortage for any reason, Manufacturer shall have the right to allocate or apportion available
Products among its customers as Manufacturer, in the exercise of its discretion, and upon prior
consultation with Distributor, deems appropriate, without incurring any liability to Distributor.
Manufacturer may discontinue the manufacture or sale of any Products upon twelve (12) months’ prior
written notice to Distributor. Manufacturer may materially alter the performance of any or all of
the Products upon ninety (90) days prior notice to Distributor. Notwithstanding the foregoing,
Manufacturer may discontinue the manufacture and sale of any Product at anytime and without notice
to Distributor, if such discontinuance is required, directly or indirectly, by any regulatory
agency.

     4.2 Brochures, Bulletins, Etc. Manufacturer shall, without charge, furnish to
Distributor reasonable quantities of sales brochures and Technical Documents adequate to describe
the products in the English language, which quantities will be agreed upon by the Parties.

     4.3 Training. Manufacturer shall provide initial, comprehensive training to qualified
personnel of Distributor at the Manufacturer’s facilities, or at a location selected by
Manufacturer. There will be no charge for this training, or the training material, the contents of
which will be determined by

					
	 	 	 	 	 
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Manufacturer and Distributor. In connection with such initial, comprehensive training,
Distributor shall pay for its employees’ salaries and their travel and travel-related expenses,
including meals, lodging and other living expenses. In addition Manufacturer shall provide
additional, follow-up training, as mutually agreed by the Parties, at Distributor’s facility. In
connection with such follow-up training, Manufacturer shall pay for its own employees’ salaries
and their travel and travel-related expenses, including meals, lodging and other living expenses.
For training situations not covered by the above, both Parties agree to discuss how to equitably
share the travel and related expenses.

     4.4 Technical and Labeling for Regulatory Filings. Without prejudice to Section
5.9, as appropriate, Manufacturer shall provide all technical and labeling information it maintains
in the ordinary course of business that is necessary for regulatory filings in the Territory.
Manufacturer will provide updates as and when modifications are made to Products

5. RESPONSIBILITIES OF DISTRIBUTOR

     5.1. Best Efforts. Distributor shall devote its best efforts to the promotion, sale
and servicing of the Products to Customers in the Territory. Distributor shall, at its expense: (a)
include the Products in its appropriate catalogs, promotional mailings and like publications; (b)
develop, prepare and place advertising concerning the Products in appropriate media or through
direct mail; (c) exhibit the Products at appropriate trade shows and inform Manufacturer at least
30 days in advance of trade shows; (d) conduct appropriate market research as it deems necessary or
desirable, and (e) render other services customarily rendered by a distributor of medical products
or as reasonably requested by Manufacturer. Manufacturer shall have the right to prior review and
to approve (or not approve) any and all copy, layout or other advertising, promotional or other
distributed material, which shall not be used by Distributor prior to Manufacturer’s approval.
Distributor shall discuss strategy and Product positioning with Manufacturer and shall use its best
efforts to market and position the Products in accordance with the recommendations of Manufacturer.

     5.2. Modified and New Products. Distributor shall provide timely comprehensive
information to its Customers with respect to newly available Products, discontinuance of Products
and changes in existing Products, including, but not limited to, performance specification changes.

     5.3. Competitive Products. In furtherance of its best efforts duties, and in
recognition of the unique healthcare and related responsibilities in connection with the
distribution of the Products, during the Term of this Agreement and for six (6) months thereafter,
Distributor shall not anywhere in the Territory market or sell any product or material that
performs substantially the same function as, or competes with, the Products as defined in Schedule
1. During the Term and for three (3) years thereafter, Distributor shall not manufacture or
reproduce, or cause to be manufactured or reproduced, anywhere in the Territory any product or
material that performs substantially the same function as, or competes with, the Products, without
limitation on the exercise by Manufacturer of its industrial and intellectual property rights.

     5.4. Competence of Personnel. Distributor shall have an adequate number of
technically competent personnel for sales and after-sales service of the Products. Distributor
shall designate one person among its personnel who will be Manufacturer’s primary contact
person within Distributor’s organization. Distributor shall allocate the necessary resources
to the distribution of the Products, in

					
	 	 	 	 	 
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consideration of the market size, the market penetration over time and the Product sales
agreed upon by Distributor and Manufacturer in Schedule 3.

     5.5. Translation of Technical Documents. As required by local regulatory and for
marketing purposes, Distributor shall translate Technical Documents into the local language(s) of
Customers and shall revise such translation in accordance with the changes to the Technical
Documents that may be made from to time by Manufacturer. Such translation shall at a minimum meet
all regulatory requirements of the Territory (and any jurisdiction therein), be a literal
translation of documents provided in English, and be of a standard deemed appropriate for medical
products and comparable with that provided for other products sold into the health care market in
the Territory. Distributor will provide any documents translated into the local language to
Manufacturer for review and shall revise such translation according to Manufacturer’s comments.

     5.6. Training of Customers. Distributor shall, prior to shipment, provide to each
Customer, Product storage and use instructions, and shall provide its Customers with adequate
training and support within the first 15 days after delivery to a Customer of the first batch of
Products. Full use will be made of training material and Technical Documentation supplied by
Manufacturer.

     5.7. Inventory. Distributor shall maintain inventory at levels which will ensure
product availability to support sales targets as defined in Schedule 3. Distributor agrees to
exercise care over inventory while under its control. If any inventory is lost, damaged, or
otherwise found to be unsuitable for use, it’s disposal shall be reported back to Manufacturer and
records are maintained.

     5.8. Additional Labeling. Distributor is responsible for applying any additional
required label information to Product received from Manufacturer.

     5.9. Product Registration in Territory. Distributor shall be responsible for
registering the Products in the Territory (and any jurisdiction within the Territory, where
applicable) and bear all costs. At any time, the Manufacturer may hold the Product registration in
the Territory, in which case Manufacturer will reimburse Distributor for reasonable, out-of-pocket
costs incurred in obtaining the registration.

     5.10. Compliance Audit. Distributor may be subjected to quality and compliance audit
by mutual agreement with Manufacturer one time per year with minimum of 60 day notification by
letter, facsimile, or electronic mail. Manufacturer will provide an audit agenda at least 30 days
in advance of the audit activity. Distributor will have written procedures and specifications that
include assignments of responsibility for managing customer complaints, handling adverse events or
post market surveillance, and storage handling and shipping manufacturer’s products.

     5.11. Regulatory Compliance. Distributor shall advise Manufacturer promptly of all
government regulations affecting the importation, use, sale, record maintenance and disposal of the
Products and shall be responsible for compliance therewith. Without limiting the foregoing and
without prejudice to Section 5.12 herein, Distributor shall obtain from competent governmental
authorities such import permits, licenses, exemptions from customs duties and governmental
approvals and consents required in connection with the execution and performance of this Agreement.
[Note- exemption to this clause is explained in 5.9]. Distributor shall comply with all applicable
Territory laws, rules and regulations and

					
	 	 	 	 	 
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shall neither cause nor permit any activity that is illegal under, or would cause
Manufacturer to be in violation of any law, decree, rule or regulation in the Territory or in
the United States of America.

     5.12.
Customer Complaints, Inquiries/Technical Support. Distributor will be
responsible as the first point of contact for technical support with the Customer. Distributor will
further provide technical support on the usage of Products by the Customers based upon information
supplied by Manufacturer, at no cost to Manufacturer or to the Customers. Customer feedback, the
occurrence of incidents and/or serious public health threats will be reported, in writing, by
Distributor to Manufacturer with three (3) business days. Without prejudice to the preceding
sentence, if Distributor is obligated by Territory laws to report such occurrence to regulatory
authorities in the Territory, Distributor shall report the occurrence first or simultaneously to
Manufacturer. Distributor will also provide a direct line of communication with Manufacturer for
matters of vigilance and post-market surveillance (early warning) in accordance with the local
regulatory requirements of the Territory. Distributor shall provide Manufacturer with any desirable
assistance in relation to the suspension or withdrawal of a Product, which may be decided by
Manufacturer in its sole discretion or required by any competent authorities in the Territory. In
this respect, in accordance with Manufacturer’s instructions, Distributor shall, without
limitation, (i) recall any batch of products, (ii) reimburse its Customers for the price of the
Products recalled; (iii) hold, destroy or send back to Manufacturer the Products recalled; and (iv)
provide Manufacturer with a certificate of destruction or the Products recalled where applicable.
Manufacturer shall reimburse Distributor for Distributor’s reasonable, out-of-pockets costs arising
from a Product recall.

     5.13. Insurance. Distributor shall subscribe and maintain throughout the Term
insurance covering public liabilities that may arise out of the distribution of the Products in the
Territory. The extent and level of such insurance shall conform to local industry practice in the
medical device industry. Distributor shall provide Manufacturer, at any time upon Manufacturer’s
request, a copy of such insurance policy as well as an updated certificate of payment of the
insurance fee.

     5.14. Books and Records. On a permanent basis, Distributor shall keep at its principal
place of business, complete and accurate books, records and computerized data bases (with backup
copies to be made daily) in which shall be entered the name and address of each purchasing
Customer, the date and price of each such purchase, the lot number (and serial number) of such
Product and the expiration date of such Product as well as any other records required by Territory
laws from a distributor of the Products in the Territory. During business hours and upon reasonable
notice these books and records, and any other documents, reports or other records which relate to
Manufacturer’s business shall be open to examination, including inspection and copying, by
Manufacturer, in each case at Manufacturer’s request and expense.

     5.15. Proprietary Information and Trade Secrets. Distributor shall not use or disclose
any information provided to it by Manufacturer concerning the Products, technology, proposed new
products, marketing plans of Manufacturer that Manufacturer shall designate as “Confidential” or
“Proprietary,” except as specifically contemplated by this Agreement. For purpose of this
Agreement, all information that Manufacturer communicates to Distributor that is not intended to be
communicated to Customers, shall be deemed to be “Confidential” and “Proprietary.” Distributor
shall notify Manufacturer of any actual or suspected infringement or misappropriation of any of
Manufacturer’s patents, copyrights, proprietary information or trade and service marks and shall
fully cooperate with and assist Manufacturer in any legal action that Manufacturer elects to bring
to prevent or redress such violations of its rights.

					
	 	 	 	 	 
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     5.16. Catalog and Product Labels. Distributor may affix its label on catalogs and
products being distributed by Distributor in the Territory during the Term, provided that
Manufacturer shall have been provided with a catalog and product with Distributor’s label affixed
in the same manner in which the products will be distributed. In no way may these labels remove or
alter the identity of Manufacturer and relevant product information required by Government
Regulations. If Manufacturer shall reasonably object to the manner in which such label is affixed,
Distributor shall promptly cease any such use and change its use to comply with Manufacturer’s
requirements.

     5.17. Review of Practices. Periodically, and at least quarterly, Manufacturer and
Distributor shall review Distributor’s marketing and selling strategy, sales growth, training of
Customers, inventory, computer interfacing activities and other practices with a view toward
maximizing Customer use of and satisfaction with the Products. Distributor shall make all relevant
documents and records available to Manufacturer or its designee at Manufacturer’s request.

6. RIGHTS TO PROPERTY OF MANUFACTURER

     6.1. Marks. Manufacturer hereby authorizes Distributor to use, on a
nonexclusive basis for the Term, without cost to Distributor other than payment for the Products,
the trademark “eSVS Mesh” and any other trademarks, service marks or trade names (The Mesh) used by
Manufacturer to identify the Products, solely for Distributor’s distribution of Products and
related performance under this Agreement. The Marks and the goodwill associated with the Marks are
the exclusive property of Manufacturer. Distributor shall not (a) use the Marks as part of any
composite mark including any elements not approved in advance in writing by Manufacturer, (b)
challenge the validity or enforceability of the Marks during the Term or (c) acquire any
proprietary right in the Marks by reason of any activities under this Agreement or otherwise. All
uses of the Marks by Distributor and any additional goodwill created thereby shall inure to the
exclusive benefit of Manufacturer. Manufacturer shall, at all times during the Term on reasonable
notice, have the right to inspect the materials and services on or in connection with which the
Marks are used in order to assure Manufacturer that Manufacturer’s quality standards relating to
the Products and distributor’s servicing and other mark-pertinent provisions of this Agreement are
being observed. If Manufacturer shall at any time reasonably object to any use to which the Marks
are put, Distributor shall promptly cease any such use.

7. WARRRANTY AGAINST CORRUPT PRACTICES

     7.1. Distributor shall be bound by, abide by and strictly comply with both the letter and
spirit of the United States Foreign Corrupt Practices Act of 1977 and any amendments to that Act.
Distributor shall not make, or permit to be made, any payment to any official or employee of the
Government of their Territory, of any territory thereof or of any department or instrumentality
thereof to affect or influence any act or decision of any federal, state or local government or any
department, agency or instrumentality.

8. DURATION AND TERMINATION

     8.1. Term of Agreement. The initial term of this Agreement (the “Term”) shall
commence on the Effective Date noted in Section 2.1 and will continue for a period of five (5)
years thereafter, unless sooner terminated pursuant to Section 8.2. This Agreement will
automatically be renewed and extended for an additional three year term provided that Distributor
has met the sales forecast indicated in Schedule

					
	 	 	 	 	 
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3, as amended each year, and has maintained compliance with the terms and conditions of this
agreement throughout the initial term. Distributor will be deemed to have met the sales forecast
each year if Distributor attains sales levels agreed to in Schedule 3 and at least 75% of Product
purchased by Distributor has been sold to Customers during that year. In the event of any
extension, the Parties agree that new Products Sales Forecasts will be established for periods
after the current Term expires. If there shall be any delay in shipment due to the fault of
Manufacturer, the periods in which the Forecasted Sales must be met shall be extended for a
corresponding amount of time and the Parties shall amend Schedule 3 accordingly.

     8.2. Immediate termination. Either Party may terminate this Agreement immediately
upon occurrence of any one or more of the events contemplated in this Section 8.2.

     8.2.1. Failure to cure a default under this Agreement within thirty (30) days after the
other Party has given written notice of such default,

     8.2.2. Failure by Distributor to meet its Sales for the Territory as set forth in Schedule
3 (except if such failure is the result of Distributor’s not having received its supply of
Products from Manufacturer), and failure by Distributor to cure such default within sixty (60)
days following written notice from Manufacturer of such default.

     8.2.3. Immediately upon written notice by one Party to the other of such Party’s election
to terminate this Agreement as a result of the bankruptcy of insolvency of the other Party or
the appointment of a receiver or trustee for assets of the other Party.

     8.2.4. On the 30th day following written notice by Manufacturer to Distributor of
Distributor’s unauthorized assignments or transfer of this Agreement or unauthorized sales
to customers outside Distributor’s Territory.

     8.2.5. In the event of Manufacturer’s Change of Control, and Manufacturer’s beneficial
owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) desires
to terminate this Agreement, Manufacturer may terminate this Agreement upon ninety (90) days
prior notice and shall, within thirty (30) days following completion of all obligations of
Distributor in Section 8.3 pay to Distributor an amount equal to fifty (50%) of all accepted
Product order amounts by Distributor to Manufacturer during the final twelve (12) months of the
term of the Agreement.

     8.3. Actions Upon Termination. Upon the termination of this Agreement,
Distributor and Manufacturer, as indicated, shall comply with the requirements of this Section
8.3.

     8.3.1. Distributor shall pay in full any amounts due to Manufacturer.

     8.3.2. Distributor shall destroy any unsalable Product inventory and provide Manufacturer
with a certificate of destruction.

     8.3.3. Distributor shall also promptly discontinue Product sales and return to
Manufacturer or its nominee any and all (i) sales, use, safety and efficacy data (in such form
as it shall then exist); (ii) promotional, labeling and sales training material and (iii)
Technical Documents, then in Distributor’s possession.

					
	 	 	 	 	 
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     8.3.4. Distributor shall assign to Manufacturer and deliver to Manufacturer any
product registrations (as discussed in Section 5.9), import permits, health registrations,
licenses, exemptions from customs duties and governmental consents of any nature which
Distributor may have or retain directly or indirectly in connection with the Products imported,
sold and/or distributed under this Agreement. Manufacturer will pay any reasonable,
out-of-pocket costs incurred by Distributor in conjunction with these assignments.

     8.3.5. Distributor shall immediately cease to use the Marks and any confidential,
proprietary or secret information.

     8.4 Continuing Obligation. Following any termination of this Agreement, Distributor
shall provide such assistance to Manufacturer and any subsequent distributor as Manufacturer may
reasonably request in order to ensure the prompt and complete satisfaction of any Customer
requirements, preservation of books and records as discussed in Section 5.14 and compliance with
regulatory requirements.

     8.5 No Indemnity. Distributor shall not be entitled to any indemnity of any kind
whatsoever upon termination or expiration of this Agreement in accordance with its terms.

9. INDEMNIFICATION; WARRANTY; LIMITATION OF LIABILITY

     9.1. Indemnification. Manufacturer and Distributor shall each at all times indemnify
and hold the other Party and its stockholders, directors, officers, employees and agents harmless
from and against all liabilities, losses, claims, damages and expenses, including reasonable
attorneys’ fees and disbursements, arising out of or in connection with the breach of any covenant,
agreement, warranty or representation made by it herein. The other Party shall have the right to
participate in the defense, at its own expense, with counsel of its own choosing. In addition and
without prejudice to the preceding paragraph, absent a material breach by Manufacturer of its
obligation hereunder, Distributor shall indemnify Manufacturer and its stockholders, directors,
officers, employees and agents against, and hold them harmless from, all claims, losses, damages,
liabilities and expenses, including reasonable attorneys’ fees and disbursements incurred by
Manufacturer arising out of or in connection with any resale by Distributor of Products including,
without limitation, any representations, oral or written, made by Distributor or its stockholders,
directors, officers, employees or agents relating to the Products.

     9.2. Warranty. Manufacturer agrees to extend to Distributor and to Distributor’s
Customers Manufacturer’s standard Product warranties, as modified from time to time by
Manufacturer, the current version of which is attached as Schedule 4.

     9.3. Limitation of Liability. EXCEPT FOR THE WARRANTY PROVIDED FOR IN SECTION 9.2,
MANUFACTURER MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND AND THE WARRANTIES OF MANUFACTURER
ARE IN LIEU OF ALL OTHER WARRANTIES, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTY EXCEPT FOR
THE WARRANTY PROVIDED FOR IN SECTION 9.2, MANUFACTURER MAKES NO WARRANTY OF ANY KIND TO CUSTOMERS
OF DISTRIBUTOR HEREUNDER. UNDER NO CIRCUMSTANCES SHALL MANUFACTURER BE RESPONSIBLE FOR INDIRECT,
SPECIAL,

					
	 	 	 	 	 
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INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH THE PRODUCT.

10. MISCELLANEOUS.

     10.1. No implied Waivers. A failure by one of the Parties to assert its rights
for or upon any breach of this Agreement shall not be deemed to be a waiver of such rights,
nor shall such waiver be implied from the acceptance of any payment.

     10.2. Force Majeure. Neither Part shall be liable to the Party or in default hereunder
by reason of any delay or omission caused by epidemic, fire, labor disputes, governmental law or
regulations, executive or court order, act of God or public enemy, war, civil commotion,
earthquake, flood, accident or explosion.

     10.3. Notices. All notices given pursuant to this Agreement shall be in writing
in the English language and shall be deemed effective on the day they are received by
certified air mail or confirmed facsimile addressed to the other Party at the address or
facsimile number stated below.

	 	 	 	 	 

	 

	 	If to Distributor
	 	Advanced Biomedical Pty Ltd
	 

	 	 	 	5 Vista Court
	 

	 	 	 	Ringwood East Victoria 3135
	 

	 	 	 	Australia
	 

	 	 	 	PO Box 222
	 

	 	 	 	Ringwood East VIC 3135
	 

	 	 	 	Australia
	 
	 	 	 	 
	 

	 	If to Manufacturer
	 	Kips Bay Medical, Inc.
	 

	 	 	 	Attn: Chief Executive Officer
	 

	 	 	 	3405 Annapolis Lane, Suite 200
	 

	 	 	 	Minneapolis, MN 55447

     10.4.
Severability. If and for so long as any provision of this Agreement is deemed to
be judged invalid for any reason whatsoever, such invalidity shall not affect the validity or
operation of any other provision of Agreement except only so far as shall be necessary to give
effect to the construction of such invalidity, and any such invalid provision shall be deemed
severed from this Agreement without affecting the validity of the balance of this Agreement.

     10.5. Government Law and Consent to Jurisdiction. THIS AGREEMENT SHALL IN ALL RESPECTS
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS (AND NOT THE LAWS OF CONFLICTS)
OF THE STATE OF MINNESOTA, USA. Distributor hereby irrevocably agrees that the United States
District Court for the District of Minnesota has exclusive jurisdiction to the fullest extent
permitted by law to hear all claims and disputes which may arise out of or in connection with this
Agreement.

     10.6. Entire Agreement; Amendments. Except as otherwise expressly provided, no
agreement varying or extending the terms of this Agreement shall be binding on either Party
unless covered by an addendum signed by an authorized representative of each Party.

					
	 	 	 	 	 
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     10.7.
Assignability. Distributor shall not assign or transfer this Agreement
in whole or in part without the prior written consent of Manufacturer. Upon occurrence of a
Change of Control of Distributor, Manufacturer may immediately terminate this Agreement.
Manufacturer may assign this Agreement to an affiliate or any successor in interest of all or
substantially all of its business, or a business division, whether by merger, operation of
law, assignment, purchase or otherwise.

     10.8. Survival. All provisions needed to implement performance of duties owed
prior to termination of this Agreement, such as payment, maintenance of data and
confidentiality, shall survive the Term.

EXECUTION

The Parties have duly executed this Agreement through their duly authorized representatives on
the 22 date of July 2010, whereupon it enters into full force and effect in accordance with
its terms.

	 	 	 	 	 	 	 

	Kips Bay Medical, Inc.
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Date: 22 July 2010

Place of execution:

	 	By

Name:
	 	/s/ Manny Villafana
 

Manny Villafana
	 	 
	 

	 	Title:	 	Chairman & CEO	 	 
	 
	 	 	 	 	 	 
	Advanced Biomedical Pty Ltd
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Date 7th July 2010

Place of Execution

	 	By:

Name:
	 	/s/ John Clarke
 

John Clarke
	 	 
	Ringwood East VIC 

Australia
	 	Title:	 	Director	 	 

					
	 	 	 	 	 
	Kips Bay Medical. Inc.
	 	CONFIDENTIAL
	 	page. 11

 

 

SCHEDULE 1

PRODUCTS DEFINITION

The eSVS Mesh is a highly flexible, kink-resistant tubular prosthesis made of knitted nitinol
wire. It fits externally over the saphenous vein and is designed to provide strength and support
for improving graft patency.

Indications for Use:

The eSVS Mesh is indicated for improving saphenous vein bypass graft patency in patients undergoing
coronary artery bypass graft procedures utilizing autologous saphenous vein grafts with external
diameters from 3.6 mm to 7.0 mm and double wall thicknesses less than 1.4 mm.

Ordering Information:

	 	 	 	 	 	 	 	 	 
	 	 	Fits Saphenous Vein	 	 	 	 
	eSVS Mesh	 	Grafts Between:	 	Catalog Order	 	 
	Diameter	 	Minimum	 	Maximum	 	Number	 	Pricing
	3.5 mm
	 	3.6 mm	 	4.1 mm	 	eSVS 3.5	 	USD $2,000
	4.0 mm
	 	4.2 mm	 	5.4 mm	 	eSVS 4.0	 	USD $2,000
	4.5 mm
	 	5.5 mm	 	7.0 mm	 	eSVS 4.5	 	USD $2,000

Company Contact Information:

	 	 	 

	Kips Bay Medical, Inc.

	 	Phone: +1.763.235.3540
	3405 Annapolis Lane, Suite 200

	 	Fax: +1.763.235.3545
	Minneapolis, MN 55447 USA

	 	www. kipsbaymedical.com

					
	 	 	 	 	 
	Kips Bay Medical, Inc.
	 	CONFIDENTIAL
	 	page. 12

 

 

SCHEDULE 2 
PAYMENT TERMS

Payments

During the first twelve (12) months of the initial term of this agreement, payments are due
with each order or remitted by irrevocable documentary letter of credit issued per instructions provided by the Manufacturer, confirmed by Manufacturer’s
bank, currently US Bank National Association, and payable sixty (60) days from the ship date. Thereafter, payments are due net
sixty (60) days from the date of Manufacturer’s invoice.

	 	 	 	 	 	 	 
	Payments by Draft:	 	Payments by Wire:
	Payee:

	 	Kips Bay Medical, Inc.
	 	To the Account of:
	 	Kips Bay Medical, Inc.
	Address:

	 	3405 Annapolis Lane
	 	Account:	 	 
	 

	 	Suite 200
	 	Bank name:
	 	US Bank National Association
	 

	 	Minneapolis, MN 55447 USA
	 	SWIFT Number	 	 
	 

	 	 	 	ABA Routing Number	 	 
	 

	 	 	 	Bank Address:
	 	800 Nicollet Mall
	 

	 	 	 	 	 	Minneapolis, MN 55402

Manufacturer will not invoice prior to the actual shipment of the product. Any overdue amount may
result in termination of this Agreement per Section 8.2.

Shipping Terms

Products are shipped Ex Works (Incoterms 2000) Manufacturer’s shipping point in the United
States. Legal title, control of, right of possession and risk of loss of Products shall pass to
Distributor upon shipment from Manufacturer’s shipping point in the United States. Distributor
shall pay for each order the price of the Products, export packing and such shipping costs as may
be directly incurred by Manufacturer for such order. Distributor shall ensure that Products
shipped are stored and handled in accordance with the specifications Manufacturer shall from time
to time provide.

Returning Products

Authorization must be obtained from Manufacturer before the return of any product. A Returned
Material Authorization (RMA) number will be given to you. Any returned product packaging must be
clearly labeled with the RMA number.

Any Product delivered to the Distributor in a damaged, defective, or nonconforming condition may be
returned for full credit or replacement, upon approval of Manufacturer, within thirty (30) calendar
days from the date of receipt by the Distributor. Any product that has been opened or has broken
package seals becomes the property of the Distributor and may not be returned for credit or
replacement.

Contact Manufacturer for information about credit for or replacement of any purchased and unexpired
products that are still in the original packaging (unopened and undamaged). A restocking charge may
also apply.

					
	 	 	 	 	 
	Kips Bay Medical, Inc.
	 	CONFIDENTIAL
	 	page. 13

 

 

SCHEDULE 3

SALES FORECAST

The following table lists the sales forecast levels for the eSVS MESH devices which must be
achieved by Distributor as of the end of the first year of this agreement. The sales forecast for
the second and third years of this agreement shall be mutually agreed upon no later than the 360th
day from the effective date of this agreement.

	 	 	 	 	 
	Geographic Region	 	Sales Forecast
	Australia

	 	 	50	 

SCHEDULE 4

PRODUCT WARRANTY

LIMITED WARRANTY AND DISCLAIMER

KIPS BAY MEDICAL, Inc. warrants that reasonable care has been used in the design and manufacture of
this instrument. This warranty is in lieu of and excludes all other warranties not expressly set
forth herein, whether express or implied by operation of law or otherwise, including, but not
limited to, any implied warranties of merchantability of fitness for a particular purpose.
Handling, storage, cleaning and sterilization of this instrument as well as other factors relating
to the patient, diagnosis, treatment, surgical procedures, and other
matters beyond KIPS BAY
MEDICAL’s control directly affect the instrument and the results obtained from its use. KIPS BAY
MEDICAL’s obligation under this warranty is limited to the repair or replacement of this instrument
and KIPS BAY MEDICAL shall not be liable for any incidental or consequential loss, damage, or
expense directly or indirectly from the use of this instrument. KIPS BAY MEDICAL neither assumes,
nor authorizes any other person to assume for it, any other or additional liability or
responsibility in connection with this instrument. KIPS BAY MEDICAL assumes no liability with
respect to instruments reused, reprocessed or resterilized and makes no warranties, express or
implied, including but not limited to merchantability or fitness for a particular purpose, with
respect to the instrument.

					
	 	 	 	 	 
	Kips Bay Medical, Inc.
	 	CONFIDENTIAL
	 	page. 14exv10w39

Exhibit 10.39

DISTRIBUTION AGREEMENT

This DISTRIBUTION AGREEMENT (it, together with any Schedules thereto, (the “Agreement”), between
Kips Bay Medical, Inc. (“Manufacturer”) with an address at 3405 Annapolis Lane, Suite 200,
Minneapolis, MN 55447 and Biomed, S.A. (“Distributor”) having a place of business at Parque
Tecnologico de Madrid, C/Einstein Tres Cantos, 28760 Madrid, Spain.

RECITALS

WITNESSETH:

          WHEREAS, Manufacturer is engaged in the design, development, production and sale of the
Products listed on Schedule 1; and

          WHEREAS, Distributor is in the business of selling medical products within the Territory
listed in Section 2 and desires to distribute the Products within the Territory and to perform all
necessary and appropriate marketing and customer service functions in the Territory; and

          WHEREAS, Company and Representative wish to provide in writing for the terms and conditions
under which Distributor shall sell and market the Products in the Territory.

NOW, THEREFORE, the parties hereto do hereby agree as follows:

1. DEFINITIONS

For purposes of this Agreement, the following words, terms and phrases, where written with an
initial capital letter, shall have the meanings assigned to them in this Section 1 unless the
context otherwise requires:

          1.1. “Change of Control” means (i) as to distributor, a change in the ownership
directly or indirectly of fifty percent (50%) or more of the voting rights in Distributor and (ii)
as to Manufacturer, the occurrence of the following: any person (within the meaning of the
Securities Exchange Act of 1934 as amended) is or becomes the beneficial owner (as defined in Rule
13d-3 under the Securities Exchange Act of 1934, as amended) directly or indirectly of securities
of Manufacturer (not including in the securities beneficially owned by such person, any securities
acquired directly from Manufacturer or its affiliates other than in connection with the acquisition
by Manufacturer or its affiliates of a business) representing fifty percent (50%) or more of the
combined voting power of Manufacturer’s then outstanding securities.

          1.2. “Customer” means those individual or entities licensed to provide or prescribe
medical devices in the Territory and that purchase Products through Distributor.

          1.3. “Effective Date” has the meaning ascribed to it in Section 2 herein.

					
	 	 	 	 	 
	Kips Bay Medical, Inc.
	 	CONFIDENTIAL
	 	page. 1

 

 

          1.4. “Ex Works (Incoterms 2000)” means the Manufacturer’s delivers when the
Products are placed at the disposal of the buyer at the Manufacturer’s premises, which is currently
located in Minneapolis, MN, USA.

          1.5. “Field of Use” means surgery.

          1.6. “Products” means collectively, those products that are available to Distributor
under this Agreement and are listed under the heading “Products” in Schedule 1 hereto, as such
schedule may be revised from time to time upon the mutual written agreement of the Parties or in
accordance with the Section 4.1 herein.

          1.7. “Purchase Order” has the meaning ascribed to it in Section 3.4 herein.

          1.8. “Technical Documentation” means all documents prepared by Manufacturer in the
ordinary course of business that define the Product in terms of its intended use and Product
claims. Such documents may take the form of User Instruction, System Manuals, Product Updates,
Technical Bulletins but are not limited to such.

          1.9. “Territory” shall mean the geographic area specifically described in Section 2
herein, as may be amended from time to time by written agreement of the parties or in accordance
with the Section 4.1 herein.

          1.10. “Warranty” has the meaning ascribed to it in Section 9.2
herein.

TERMS OF AGREEMENT

2. APPOINTMENT AND TERRITORY

          2.1 Effective as of 1 July, 2010 (the Effective Date), subject to the terms and conditions of
this Agreement, Manufacturer hereby appoints Distributor as its sole distributor within Spain (the
Territory) to resell the Products to Customers in the Field and the Territory, and Distributor
accepts such appointment. Distributor shall not solicit customers for the Products outside of the
Territory or the Field, or otherwise actively distribute, market or sell any Products outside of
the Territory or the Field without written permission from the CEO of the Manufacturer. Subject to
Distributor’s compliance with the terms and conditions hereof and during the Term, Manufacturer
shall not appoint another distributor for the resale of the Products to Customers in the Field and
the Territory.

          2.2 Manufacturer reserves the right to modify any of the Products and their specification and
to discontinue sale of any Product in accordance with Section 4.1 herein.

          2.3
Recognizing the end use of the Products in healthcare, Distributor
agrees to resell the
Products only to Customers who have the technical skills and resources to use the Product in
accordance with applicable laws in the Territory and the standard of
care that could be reasonably
expected in the healthcare industry.

          Distributor shall be an independent contractor, and no agency relationship, joint venture or
partnership between the parties is created or shall be implied hereby. Distributor shall have no
authority

					
	 	 	 	 	 
	Kips Bay Medical, Inc.
	 	CONFIDENTIAL
	 	page. 2

 

 

to, and agrees not to, bind Manufacturer to any obligation whatsoever. Distributor
represents that it is competent under the laws of Territory to enter in to the Agreement and
to act hereunder.

3. TERMS AND CONDITIONS

          3.1 Prices. Manufacturer shall sell the Products to Distributor at the prices set
forth on Schedule 1. Manufacturer has the right to modify prices for any Products on sixty (60)
days prior written notice to Distributor but no more than once a year for the same Product. Within
thirty (30) days of receipt of this notice, Distributor may
order, at the pre-notice price, up to
no more than the balance of the current year’s sales forecast as indicated in Schedule 3.

          3.2 Payment and Terms and Conditions. Prices quoted by Manufacturer shall be paid in
U.S. Dollars and are Ex Works (Incoterms 2000) Manufacturer’s production facility in the United
States. Distributor shall ensure that Products shipped are stored and handled in accordance with
the specifications Manufacturer shall from time to time provide. Additional payment terms and
conditions are set forth in Schedule 2 and may be modified by Manufacturer with a ninety (90) day
prior notice. Manufacturer reserves the right at any time to undertake legal proceedings to recover
overdue payments due from Distributor.

          3.3 Placement of Orders. Distributor shall place all orders with Manufacturer at
Manufacturer’s Principal Office by facsimile or e-mail. Manufacturer shall promptly notify
Distributor of any Purchase Orders (or parts of Purchaser Orders) accepted, rejected or delayed. No
Purchase Order shall be binding upon Manufacturer until accepted by Manufacturer. Distributor may
not modify any Purchase Orders after acceptance by Manufacturer of such Purchase Order without
Manufacturer’s prior consent. The terms of this agreement supersede any terms appearing on
Distributors purchase order form.

4. RESPONSIBILITIES OF MANUFACTURER

          4.1 Manufacture of Products. Manufacturer shall use commercially reasonable efforts to
maintain the necessary manufacturing capability to fill all orders for Products received from
Distributor and accepted pursuant to the provisions of this Agreement. In the event of a Product
shortage for any reason, Manufacturer shall have the right to allocate or apportion available
Products among its customers as Manufacturer, in the exercise of its discretion, and upon prior
consultation with Distributor, deems appropriate, without incurring any liability to Distributor.
Manufacturer may discontinue the manufacture or sale of any Products upon twelve (12) months’ prior
written notice to Distributor. Manufacturer may materially alter the performance of any or all of
the Products upon ninety (90) days prior notice to Distributor. Notwithstanding the foregoing,
Manufacturer may discontinue the manufacture and sale of any Product at anytime and without notice
to Distributor, if such discontinuance is required, directly or indirectly, by any regulatory
agency.

          4.2
Brochures, Bulletins, Etc. Manufacturer shall, without charge, furnish to
Distributor reasonable quantities of sales brochures and Technical Documents adequate to describe
the products in the English language, which quantities will be agreed upon by the Parties.

          4.3 Training. Manufacturer shall provide initial, comprehensive training to qualified
personnel of Distributor at the Manufacturer’s facilities, or at a location selected by
Manufacturer. There will be no charge for this training, or the training material, the contents of
which will be determined by

					
	 	 	 	 	 
	Kips Bay Medical, Inc.
	 	CONFIDENTIAL
	 	page. 3

 

 

Manufacturer and Distributor. In connection with such initial, comprehensive training,
Distributor shall pay for its employees’ salaries and their travel and travel-related expenses,
including meals, lodging and other living expenses. In addition Manufacturer shall provide
additional, follow-up training, as mutually agreed by the Parties, at Distributor’s facility. In
connection with such follow-up training, Manufacturer shall pay for its own employees’ salaries
and their travel and travel-related expenses, including meals, lodging and other living expenses.
For training situations not covered by the above, both Parties agree to discuss how to equitably
share the travel and related expenses.

          4.4 Technical and Labeling for Regulatory Filings. Without prejudice to Section
5.9, as appropriate, Manufacturer shall provide all technical and labeling information it maintains
in the ordinary course of business that is necessary for regulatory filings in the Territory.
Manufacturer will provide updates as and when modifications are made
to Products.

5. RESPONSIBILITIES OF DISTRIBUTOR

          5.1. Best Efforts. Distributor shall devote its best efforts to the promotion, sale
and servicing of the Products to Customers in the Territory. Distributor shall, at its expense: (a)
include the Products in its appropriate catalogs, promotional mailings and like publications; (b)
develop, prepare and place advertising concerning the Products in appropriate media or through
direct mail; (c) exhibit the Products at appropriate trade shows and inform Manufacturer at least
30 days in advance of trade shows; (d) conduct appropriate market research as it deems necessary or
desirable, and (e) render other services customarily rendered by a distributor of medical products
or as reasonably requested by Manufacturer. Manufacturer shall have the right to prior review and
to approve (or not approve) any and all copy, layout or other advertising, promotional or other
distributed material, which shall not be used by Distributor prior to Manufacturer’s approval.
Distributor shall discuss strategy and Product positioning with Manufacturer and shall use its best
efforts to market and position the Products in accordance with the recommendations of Manufacturer.

          5.2. Modified and New Products. Distributor shall provide timely comprehensive
information to its Customers with respect to newly available Products, discontinuance of Products
and changes in existing Products, including, but not limited to, performance specification changes.

          5.3. Competitive Products. In furtherance of its best efforts duties, and in
recognition of the unique healthcare and related responsibilities in connection with the
distribution of the Products, during the Term of this Agreement and
for six (6) months thereafter, Distributor shall not anywhere in the Territory market or sell any product or material that
performs substantially the same function as, or competes with, the Products as defined in Schedule
1. During the Term and for five (5) years thereafter, Distributor shall not manufacture or
reproduce, or cause to be manufactured or reproduced, anywhere in the Territory any product or
material that performs substantially the same function as, or competes with, the Products, without
limitation on the exercise by Manufacturer of its industrial and intellectual property rights.

          5.4. Competence of Personnel. Distributor shall have an adequate number of
technically competent personnel for sales and after-sales service of the Products. Distributor
shall designate one person among its personnel who will be Manufacturer’s primary contact
person within Distributor’s organization. Distributor shall allocate the necessary resources
to the distribution of the Products, in

					
	 	 	 	 	 
	Kips Bay Medical, Inc.
	 	CONFIDENTIAL
	 	page. 4

 

 

consideration of the market size, the market penetration over time and the Product sales
agreed upon by Distributor and Manufacturer in Schedule 3.

          5.5. Translation of Technical Documents. As required by local regulatory and for
marketing purposes, Distributor shall translate Technical Documents
into the local language(s) of
Customers and shall revise such translation in accordance with the changes to the Technical
Documents that may be made from to time by Manufacturer. Such translation shall at a minimum meet
all regulatory requirements of the Territory (and any jurisdiction therein), be a literal
translation of documents provided in English, and be of a standard deemed appropriate for medical
products and comparable with that provided for other products sold into the health care market in
the Territory. Distributor will provide any documents translated into the local language to
Manufacturer for review and shall revise such translation according to Manufacturer’s comments.

          5.6. Training of Customers. Distributor shall, prior to shipment, provide to each
Customer, Product storage and use instructions, and shall provide its Customers with adequate
training and support within the first 15 days after delivery to a Customer of the first batch of
Products. Full use will be made of training material and Technical Documentation supplied by
Manufacturer.

          5.7. Inventory. Distributor shall maintain inventory at levels which will ensure
product availability to support sales targets as defined in Schedule 3. Distributor agrees to
exercise care over inventory while under its control. If any inventory is lost, damaged, or
otherwise found to be unsuitable for use, it’s disposal shall be reported back to Manufacturer and
records are maintained.

          5.8. Additional Labeling. Distributor is responsible for applying any additional
required label information to Product received from Manufacturer.

          5.9. Product Registration in Territory. Distributor shall be responsible for
registering the Products in the Territory (and any jurisdiction within the Territory, where
applicable) and bear all costs. At any time, the Manufacturer may hold the Product registration in
the Territory, in which case Manufacturer will reimburse Distributor for reasonable, out-of-pocket
costs incurred in obtaining the registration.

          5.10. Compliance Audit. Distributor may be subjected to quality and compliance audit
by mutual agreement with Manufacturer one time per year with minimum of 60 day notification by
letter, facsimile, or electronic mail. Manufacturer will provide an audit agenda at least 30 days
in advance of the audit activity. Distributor will have written procedures and specifications that
include assignments of responsibility for managing customer complaints, handling adverse events or
post market surveillance, and storage handling and shipping manufacturer’s products.

          5.11. Regulatory Compliance. Distributor shall advise Manufacturer promptly of all
government regulations affecting the importation, use, sale, record maintenance and disposal of the
Products and shall be responsible for compliance therewith. Without limiting the foregoing and
without prejudice to Section 5.12 herein, Distributor shall obtain from competent governmental
authorities such import permits, licenses, exemptions from customs duties and governmental
approvals and consents required in connection with the execution and performance of this Agreement.
[Note- exemption to this clause is explained in 5.9]. Distributor shall comply with all applicable
Territory laws, rules and regulations and

					
	 	 	 	 	 
	Kips Bay Medical, Inc.
	 	CONFIDENTIAL
	 	page. 5

 

 

shall neither cause nor permit any activity that is illegal under, or would cause
Manufacturer to be in violation of any law, decree, rule or regulation in the Territory or in
the United States of America.

          5.12. Customer Complaints, Inquiries/Technical Support. Distributor will be
responsible as the first point of contact for technical support with the Customer. Distributor will
further provide technical support on the usage of Products by the Customers based upon information
supplied by Manufacturer, at no cost to Manufacturer or to the Customers. Customer feedback, the
occurrence of incidents and/or serious public health threats will be reported, in writing, by
Distributor to Manufacturer with three (3) business days. Without prejudice to the preceding
sentence, if Distributor is obligated by Territory laws to report such occurrence to regulatory
authorities in the Territory, Distributor shall report the occurrence first or simultaneously to
Manufacturer. Distributor will also provide a direct line of communication with Manufacturer for
matters of vigilance and post-market surveillance (early warning) in accordance with the local
regulatory requirements of the Territory. Distributor shall provide Manufacturer with any desirable
assistance in relation to the suspension or withdrawal of a Product, which may be decided by
Manufacturer in its sole discretion or required by any competent authorities in the Territory. In
this respect, in accordance with Manufacturer’s instructions, Distributor shall, without
limitation, (i) recall any batch of products, (ii) reimburse its Customers for the price of the
Products recalled; (iii) hold, destroy or send back to Manufacturer the Products recalled; and (iv)
provide Manufacturer with a certificate of destruction or the Products recalled where applicable.
Manufacturer shall reimburse Distributor for Distributor’s reasonable, out-of-pockets costs arising
from a Product recall.

          5.13. Insurance. Distributor shall subscribe and maintain throughout the Term
insurance covering public liabilities that may arise out of the distribution of the Products in the
Territory. The extent and level of such insurance shall conform to local industry practice in the
medical device industry. Distributor shall provide Manufacturer, at any time upon Manufacturer’s
request, a copy of such insurance policy as well as an updated certificate of payment of the
insurance fee.

          5.14.
Books and Records. On a permanent basis, Distributor shall keep at its principal
place of business, complete and accurate books, records and computerized data bases (with backup
copies to be made daily) in which shall be entered the name and address of each purchasing
Customer, the date and price of each such purchase, the lot number (and serial number) of such
Product and the expiration date of such Product as well as any other records required by Territory
laws from a distributor of the Products in the Territory. During business hours and upon reasonable
notice these books and records, and any other documents, reports or other records which relate to
Manufacturer’s business shall be open to examination, including inspection and copying, by
Manufacturer, in each case at Manufacturer’s request and expense.

          5.15. Proprietary Information and Trade Secrets. Distributor shall not use or disclose
any information provided to it by Manufacturer concerning the Products, technology, proposed new
products, marketing plans of Manufacturer that Manufacturer shall designate as “Confidential’ or
“Proprietary,” except as specifically contemplated by this Agreement. For purpose of this
Agreement, all information that Manufacturer communicates to Distributor that is not intended to be
communicated to Customers, shall be deemed to be “Confidential” and “Proprietary.” Distributor
shall notify Manufacturer of any actual or suspected infringement or misappropriation of any of
Manufacturer’s patents, copyrights, proprietary information or trade and service marks and shall
fully cooperate with and assist Manufacturer in any legal action that Manufacturer elects to bring
to prevent or redress such violations of its rights.

					
	 	 	 	 	 
	Kips Bay Medical, Inc.
	 	CONFIDENTIAL
	 	page. 6

 

 

          5.16. Catalog and Product Labels. Distributor may affix its label on catalogs and
products being distributed by Distributor in the Territory during the Term, provided that
Manufacturer shall have been provided with a catalog and product with Distributor’s label affixed
in the same manner in which the products will be distributed. In no way may these labels remove or
alter the identity of Manufacturer and relevant product information required by Government
Regulations. If Manufacturer shall reasonably object to the manner in which such label is affixed,
Distributor shall promptly cease any such use and change its use to comply with Manufacturer’s
requirements.

          5.17.
Review of Practices. Periodically, and at least quarterly, Manufacturer and
Distributor shall review Distributor’s marketing and selling strategy, sales growth, training of
Customers, inventory, computer interfacing activities and other practices with a view toward
maximizing Customer use of and satisfaction with the Products. Distributor shall make all relevant
documents and records available to Manufacturer or its designee at Manufacturer’s request.

6. RIGHTS TO PROPERTY OF MANUFACTURER

          6.1. Marks. Manufacturer hereby authorizes Distributor to use, on a
nonexclusive basis for the Term, without cost to Distributor other than payment for the Products,
the trademark “eSVS Mesh” and any other trademarks, service marks or trade names (The Mesh) used by
Manufacturer to identify the Products, solely for Distributor’s distribution of Products and
related performance under this Agreement. The Marks and the goodwill associated with the Marks are
the exclusive property of Manufacturer. Distributor shall not (a) use the Marks as part of any
composite mark including any elements not approved in advance in writing by Manufacturer, (b)
challenge the validity or enforceability of the Marks during the Term or (c) acquire any
proprietary right in the Marks by reason of any activities under this Agreement or otherwise. All
uses of the Marks by Distributor and any additional goodwill created thereby shall inure to the
exclusive benefit of Manufacturer. Manufacturer shall, at all times during the Term on reasonable
notice, have the right to inspect the materials and services on or in connection with which the
Marks are used in order to assure Manufacturer that Manufacturer’s quality standards relating to
the Products and distributor’s servicing and other mark-pertinent provisions of this Agreement are
being observed. If Manufacturer shall at any time reasonably object to any use to which the Marks
are put, Distributor shall promptly cease any such use.

7. WARRRANTY AGAINST CORRUPT PRACTICES

          7.1. Distributor shall be bound by, abide by and strictly comply with both the letter and
spirit of the United States Foreign Corrupt Practices Act of 1977 and any amendments to that Act.
Distributor shall not make, or permit to be made, any payment to any official or employee of the
Government of their Territory, of any territory thereof or of any department or instrumentality
thereof to affect or influence any act or decision of any federal, state or local government or any
department, agency or instrumentality.

8. DURATION AND TERMINATION

          8.1. Term of Agreement. The initial term of this Agreement (the “Term”) shall
commence on the Effective Date noted in Section 2.1 and will continue for a period of five years (5
years) thereafter, unless sooner terminated pursuant to Section 8.2. This Agreement will
automatically be renewed and extended for an additional three year term provided that Distributor
has met the sales forecast indicated in

					
	 	 	 	 	 
	Kips Bay Medical, Inc.
	 	CONFIDENTIAL
	 	page. 7

 

 

Schedule 3, as amended each year, and has maintained compliance with the terms and conditions
of this agreement throughout the initial term. Distributor will be deemed to have met the sales
forecast each year if Distributor attains sales levels agreed to in Schedule 3 and at least 75% of
Product purchased by Distributor has been sold to Customers during that year. In the event of any
extension, the Parties agree that new Products Sales Forecasts will be established for periods
after the current Term expires. If there shall be any delay in shipment due to the fault of
Manufacturer, the periods in which the Forecasted Sales must be met shall be extended for a
corresponding amount of time and the Parties shall amend Schedule 3 accordingly.

          8.2. Immediate termination. Either Party may terminate this Agreement immediately
upon occurrence of any one or more of the events contemplated in this Section 8.2.

          8.2.1. Failure to cure a default under this Agreement within thirty (30) days after the
other Party has given written notice of such default,

          8.2.2. Failure by Distributor to meet its Sales for the Territory as set forth in Schedule
3 (except if such failure is the result of Distributor’s not having received its supply of
Products from Manufacturer), and failure by Distributor to cure such default within sixty (60)
days following written notice from Manufacturer of such default.

          8.2.3. Immediately upon written notice by one Party to the other of such Party’s election
to terminate this Agreement as a result of the bankruptcy of insolvency of the other Party or
the appointment of a receiver or trustee for assets of the other Party.

          8.2.4. On the 30th day following written notice by Manufacturer to Distributor of
Distributor’s unauthorized assignments or transfer of this Agreement or unauthorized sales
to customers outside Distributor’s Territory.

          8.2.5. In the event of Manufacturer’s Change of Control, and Manufacturer’s beneficial
owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) desires
to terminate this Agreement, Manufacturer may terminate this Agreement upon ninety (90) days
prior notice and shall, within thirty (30) days following completion of all obligations of
Distributor in Section 8.3 pay to Distributor an amount equal to fifty (50%) of all accepted
Product order amounts by Distributor to Manufacturer during the final twelve (12) months of the
term of the Agreement.

          8.3. Actions Upon Termination. Upon the termination of this Agreement,
Distributor and Manufacturer, as indicated, shall comply with the requirements of this Section
8.3.

          8.3.1. Distributor shall pay in full any amounts due to Manufacturer.

          8.3.2. Distributor shall destroy any unsalable Product inventory and provide Manufacturer
with a certificate of destruction.

          8.3.3. Distributor shall also promptly discontinue Product sales and return to
Manufacturer or its nominee any and all (i) sales, use, safety and efficacy data (in such form
as it shall then exist); (ii) promotional, labeling and sales training material and (iii)
Technical Documents, then in Distributor’s possession.

					
	 	 	 	 	 
	Kips Bay Medical, Inc.
	 	CONFIDENTIAL
	 	page. 8

 

 

          8.3.4. Distributor shall assign to Manufacturer and deliver to Manufacturer any
product registrations (as discussed in Section 5.9), import permits, health registrations,
licenses, exemptions from customs duties and governmental consents of any nature which
Distributor may have or retain directly or indirectly in connection with the Products imported,
sold and/or distributed under this Agreement. Manufacturer will pay any reasonable,
out-of-pocket costs incurred by Distributor in conjunction with these assignments.

          8.3.5. Distributor shall immediately cease to use the Marks and any confidential,
proprietary or secret information.

          8.4 Continuing Obligation. Following any termination of this Agreement, Distributor
shall provide such assistance to Manufacturer and any subsequent distributor as Manufacturer may
reasonably request in order to ensure the prompt and complete satisfaction of any Customer
requirements, preservation of books and records as discussed in Section 5.14 and compliance with
regulatory requirements.

          8.5 No Indemnity. Distributor shall not be entitled to any indemnity of any kind
whatsoever upon termination or expiration of this Agreement in accordance with its terms.

9. INDEMNIFICATION; WARRANTY; LIMITATION OF LIABILITY

          9.1. Indemnification. Manufacturer and Distributor shall each at all times indemnify
and hold the other Party and its stockholders, directors, officers, employees and agents harmless
from and against all liabilities, losses, claims, damages and expenses, including reasonable
attorneys’ fees and disbursements, arising out of or in connection with the breach of any covenant,
agreement, warranty or representation made by it herein. The other Party shall have the right to
participate in the defense, at its own expense, with counsel of its own choosing. In addition and
without prejudice to the preceding paragraph, absent a material breach by Manufacturer of its
obligation hereunder, Distributor shall indemnify Manufacturer and its stockholders, directors,
officers, employees and agents against, and hold them harmless from, all claims, losses, damages,
liabilities and expenses, including reasonable attorneys’ fees and disbursements incurred by
Manufacturer arising out of or in connection with any resale by Distributor of Products including,
without limitation, any representations, oral or written, made by Distributor or its stockholders,
directors, officers, employees or agents relating to the Products.

          9.2. Warranty. Manufacturer agrees to extend to Distributor and to Distributor’s
Customers Manufacturer’s standard Product warranties, as modified from time to time by
Manufacturer, the current version of which is attached as Schedule 4.

          9.3. Limitation of Liability. EXCEPT FOR THE WARRANTY PROVIDED FOR IN SECTION 9.2,
MANUFACTURER MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND AND THE WARRANTIES OF MANUFACTURER
ARE IN LIEU OF ALL OTHER WARRANTIES, INCLUDING BUT NOT LIMITED TO ANY
IMPLIED WARRANTY  EXCEPT FOR
THE WARRANTY PROVIDED FOR IN SECTION 9.2, MANUFACTURER MAKES NO WARRANTY OF ANY KIND TO CUSTOMERS
OF DISTRIBUTOR HEREUNDER. UNDER NO CIRCUMSTANCES SHALL MANUFACTURER BE RESPONSIBLE FOR INDIRECT,
SPECIAL,

					
	 	 	 	 	 
	Kips Bay Medical, Inc.
	 	CONFIDENTIAL
	 	page. 9

 

 

INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH THE PRODUCT.

10. MISCELLANEOUS.

          10.1. No implied Waivers. A failure by one of the Parties to assert its rights
for or upon any breach of this Agreement shall not be deemed to be a waiver of such rights,
nor shall such waiver be implied from the acceptance of any payment.

          10.2. Force Majeure. Neither Part shall be liable to the Party or in default hereunder
by reason of any delay or omission caused by epidemic, fire, labor disputes, governmental law or
regulations, executive or court order, act of God or public enemy, war, civil commotion,
earthquake, flood, accident or explosion.

          10.3. Notices. All notices given pursuant to this Agreement shall be in writing
in the English language and shall be deemed effective on the day they are received by
certified air mail or confirmed facsimile addressed to the other Party at the address or
facsimile number stated below.

			
	          If to Distributor     	 	Biomed, S.A.

Parque Tecnologico de Madrid

C/Einstein Tres Cantos

28760 Madrid

Spain

			
	          If to Manufacturer	 	Kips Bay Medical, Inc.

Attn: Chief Executive Officer

3405 Annapolis Lane, Suite 200

Minneapolis, MN 55447

          10.4. Severability. If and for so long as any provision of this Agreement is deemed to
be judged invalid for any reason whatsoever, such invalidity shall not affect the validity or
operation of any other provision of Agreement except only so far as shall be necessary to give
effect to the construction of such invalidity, and any such invalid provision shall be deemed
severed from this Agreement without affecting the validity of the balance of this Agreement.

          10.5. Government Law and Consent to Jurisdiction. THIS AGREEMENT SHALL IN ALL RESPECTS
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS (AND NOT THE LAWS OF CONFLICTS)
OF THE STATE OF MINNESOTA, USA. Distributor hereby irrevocably agrees that the United States
District Court for the District of Minnesota has exclusive jurisdiction to the fullest extent
permitted by law to hear all claims and disputes which may arise out of or in connection with this
Agreement.

					
	 	 	 	 	 
	Kips Bay Medical, Inc.
	 	CONFIDENTIAL
	 	page. 10

 

 

          10.6.
Entire Agreement; Amendments. Except as otherwise expressly provided, no
agreement varying or extending the terms of this Agreement shall be binding on either Party
unless covered by an addendum signed by an authorized representative of each Party.

          10.7. Assignability. Distributor shall not assign or transfer this Agreement in whole
or in part without the prior written consent of Manufacturer. Upon occurrence of a Change of
Control of Distributor, Manufacturer may immediately terminate this Agreement. Manufacturer may
assign this Agreement to an affiliate or any successor in interest of all or substantially all of
its business, or a business division, whether by merger, operation of law, assignment, purchase or
otherwise.

          10.8. Survival. All provisions needed to implement performance of duties owed prior to
termination of this Agreement, such as payment, maintenance of data and confidentiality, shall
survive the Term.

EXECUTION

The Parties have duly executed this Agreement through their duly authorized representatives on the
12th date of July 2010, whereupon it enters into full force and effect in accordance
with its terms.

	 	 	 	 	 	 	 	 	 

	Kips Bay Medical, Inc.

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Date: 12 July 2010

	 	 	 	By
	 	/s/ M.A. Villafana	 	 
	 

	 	 	 	 	 	 	 	 
	Place
of execution: Minneapolis, MN USA

	 	 	 	Name:	 	M.A. Villafana	 	 
	 

	 	 	 	Title:	 	Chairman & CEO	 	 
	 
	 	 	 	 	 	 	 	 
	Biomed, S.A.
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Date June 30TH, 2010

	 	 	 	By:
	 	/s/ Ricardo Moreno Moran	 	 
	 

	 	 	 	 	 	 	 	 
	Place of Execution Tres Cantos

	 	 	 	Name:
	 	Ricardo Moreno Moran	 	 
	 

	 	 	 	Title:
	 	General Manager	 	 

					
	 	 	 	 	 
	Kips Bay Medical, Inc.
	 	CONFIDENTIAL
	 	page. 11

 

 

SCHEDULE 1

PRODUCTS DEFINITION

The eSVS Mesh is a highly flexible, kink-resistant tubular prosthesis made of knitted nitinol wire.
It fits externally over the saphenous vein and is designed to provide strength and support for
improving graft patency.

Indications for Use:

The eSVS Mesh is indicated for improving saphenous vein bypass graft patency in patients undergoing
coronary artery bypass graft procedures utilizing autologous saphenous vein grafts with external
diameters from 3.6 mm to 7.0 mm and double wall thicknesses less than 1.4 mm.

Ordering Information:

	 	 	 	 	 	 	 	 	 
	 	 	Fits Saphenous Vein	 	 	 	 
	eSVS Mesh	 	Grafts Between:	 	Catalog Order	 	 
	Diameter	 	Minimum	 	Maximum	 	Number	 	Pricing
	3.5 mm

	 	3.6 mm
	 	4.1 mm
	 	eSVS 3.5
	 	USD $2,000
	4.0 mm

	 	4.2 mm
	 	5.4 mm
	 	eSVS 4.0
	 	USD $2,000
	4.5 mm

	 	5.5 mm
	 	7.0 mm
	 	eSVS 4.5
	 	USD $2,000

Company Contact Information:

	 	 	 

	Kips Bay Medical, Inc.
	 	Phone: +1.763.235.3540
	3405 Annapolis Lane, Suite 200
	 	Fax: +1.763.235.3545
	Minneapolis, MN 55447 USA
	 	www.kipsbaymedical.com

					
	 	 	 	 	 
	Kips Bay Medical, Inc.
	 	CONFIDENTIAL
	 	page. 12

 

 

SCHEDULE 2

PAYMENT TERMS

Payments

During the
first twelve (12) months of the initial term of this agreement,
payments are due with each order or remitted by irrevocable
documentary letter of credit issued per instructions provided by the
Manufacturer, confirmed by Manufacturer’s bank, currently US Bank
National Association, and payable sixty (60) days from the ship date. Thereafter, payments
are due net sixty (60) days from the date of Manufacturer’s invoice.

	 	 	 	 	 	 	 
	Payments by Draft:	 	Payments by Wire:
	Payee:

	 	Kips Bay Medical, Inc.
	 	To the Account of:
	 	Kips Bay Medical, Inc.
	Address:

	 	3405 Annapolis Lane
	 	Account:	 	 
	 

	 	Suite 200
	 	Bank name:
	 	US Bank National Association
	 

	 	Minneapolis, MN 55447 USA
	 	SWIFT Number	 	 
	 

	 	 	 	ABA Routing Number	 	 
	 

	 	 	 	Bank Address:
	 	800 Nicollet Mall
	 

	 	 	 	 	 	Minneapolis, MN 55402

Manufacturer will not invoice prior to the actual shipment of the product. Any overdue amount may
result in termination of this Agreement per Section 8.2.

Shipping Terms

Products are shipped Ex Works (Incoterms 2000) Manufacturer’s shipping point in the United
States. Legal title, control of, right of possession and risk of loss of Products shall pass to
Distributor upon shipment from Manufacturer’s shipping point in the United States. Distributor
shall pay for each order the price of the Products, export packing and such shipping costs as may
be directly incurred by Manufacturer for such order. Distributor shall ensure that Products
shipped are stored and handled in accordance with the specifications Manufacturer shall from time
to time provide.

Returning Products

Authorization must be obtained from Manufacturer before the return of any product. A Returned
Material Authorization (RMA) number will be given to you. Any returned product packaging must be
clearly labeled with the RMA number.

Any Product delivered to the Distributor in a damaged, defective, or nonconforming condition may be
returned for full credit or replacement, upon approval of Manufacturer, within thirty (30) calendar
days from the date of receipt by the Distributor. Any product that has been opened or has broken
package seals becomes the property of the Distributor and may not be returned for credit or
replacement.

Contact Manufacturer for information about credit for or replacement of any purchased and
unexpired products that are still in the original packaging (unopened and undamaged). A restocking
charge may also apply.

					
	 	 	 	 	 
	Kips Bay Medical, Inc.
	 	CONFIDENTIAL
	 	page. 13

 

 

SCHEDULE 3

SALES FORECAST

The following table lists the sales forecast levels for the eSVS MESH devices which must be
achieved by Distributor as of the first year of this agreement. The sales forecast for the second
and third years of this agreement shall be mutually agreed upon no
later than the 360th day from the
effective date of this agreement.

	 	 	 	 	 
	Geographic Region	 	Sales Forecast
	Spain
	 	 	30	 

SCHEDULE 4

PRODUCT WARRANTY

LIMITED WARRANTY AND DISCLAIMER

KIPS BAY MEDICAL, Inc. warrants that reasonable care has been used in the design and manufacture of
this instrument. This warranty is in lieu of and excludes all other warranties not expressly set
forth herein, whether express or implied by operation of law or otherwise, including, but not
limited to, any implied warranties of merchantability of fitness for a particular purpose.
Handling, storage, cleaning and sterilization of this instrument as well as other factors relating
to the patient, diagnosis, treatment, surgical procedures, and other matters beyond KIPS BAY
MEDICAL’s control directly affect the instrument and the results obtained from its use. KIPS BAY
MEDICAL’s obligation under this warranty is limited to the repair or replacement of this instrument
and KIPS BAY MEDICAL shall not be liable for any incidental or consequential loss, damage, or
expense directly or indirectly from the use of this instrument. KIPS BAY MEDICAL neither assumes,
nor authorizes any other person to assume for it, any other or additional liability or
responsibility in connection with this instrument. KIPS BAY MEDICAL assumes no liability with
respect to instruments reused, reprocessed or resterilized and makes no warranties, express or
implied, including but not limited to merchantability or fitness for a particular purpose, with
respect to the instrument.

					
	 	 	 	 	 
	Kips Bay Medical, Inc.
	 	CONFIDENTIAL
	 	page. 14

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