Document:

Exhibit 10.17

 

DSM PTG and Sunshine Heart License Supply & Manufacturing Agreement

 

LICENSE, SUPPLY & MANUFACTURING AGREEMENT

 

THIS LICENSE, SUPPLY and MANUFACTURING AGREEMENT (“Agreement”), dated as of the 26, day of April 2010 (the “Effective Date”) by and between DSM PTG, Inc., a DSM Biomedical company, with its principal place of business at 2810 Seventh St., Berkeley, CA 94710 (“DSM PTG”) on the one hand, and Sunshine Heart, Inc. a Delaware Corporation and its subsidiary Sunshine Heart Company, Pty Ltd (collectively “SHC”) with its principal place of business at 7651 Anagram Drive Eden Prairie, MN 55344 on the other hand, (together, the “Parties”).

 

RECITALS

 

WHEREAS, DSM PTG is the owner of the Subject Technology, as defined below; and

 

WHEREAS, SHC desires to obtain an exclusive license to and under the Subject Technology for use in the manufacture and sale of Assemblies and Licensed Products in the Field; and

 

WHEREAS, DSM PTG is willing to grant an exclusive license to and under the Subject Technology to SHC subject to the terms set forth herein; and

 

WHEREAS, DSM PTG desires to supply and manufacture Assemblies using Subject Technology to meet SHC’s requirements.

 

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises contained in this Agreement, the Parties agree as follows:

 

AGREEMENT

 

In addition to the Agreement itself this Agreement includes the following Exhibits:

 

Exhibit “A” Related DSM PTG Patents

 

Exhibit “B” Price Model and Payment Schedule ***

 

Exhibit “C” List of SHC Products

 

Exhibit “D” Initial12 Month Rolling Forecast

 

Exhibit “E” Approved Vendor List- Initial

 

Exhibit “F” Intentionally Left Blank

 

*** Portions of this page have been omitted pursuant to a request for confidential treatment filed separately with the commission.

 

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Exhibit “G” DMRs for SHC Products

 

Exhibit “H” Industry Standards

 

Exhibit “I” SHC Owned Equipment-Initial

 

Exhibit “J” Material Model

 

Exhibit “K” Intentionally Left Blank

 

Exhibit “L” Intentionally Left Blank

 

Exhibit “M” Sunshine Heart Quality Agreement (separate Agreement incorporated herein by reference but not attached)

 

Exhibit ‘‘N” Form Certificate of Compliance

 

Exhibits A through N shall form a part of this Agreement as if set forth at length herein.

 

1.                                      DEFINITIONS OF TERMS

 

As used in this Agreement the following terms shall have the following meanings:

 

“Affiliate” of a person or entity means any individual, sole proprietorship, firm, partnership, corporation, trust, joint venture or other entity, which directly or indirectly controls, is controlled by or is under common control with such person or entity. As used in this definition, “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the policies and management of a person or entity, whether by the ownership of stock, by contract or otherwise.

 

“Approved Vendor List (AVL)” shall collectively mean all suppliers as have or shall be selected by SHC or DSM PTG and approved by SHC with respect to any Materials and Services used in Assemblies. They are the manufacturers or service providers approved to supply Materials and Services in the Approved Vendor List.

 

“Assembly or Assemblies” shall mean components and mechanical systems that DSM PTG will manufacture for SHC as specified in Attachment 4 to Exhibit M, for inclusion by SHC in a Licensed Product.

 

“Bill of Materials” shall mean all Material, materials, assembly aids, packaging materials etc required to complete the Assembly as it is provided by DSM PTG and approved by SHC.

 

“Components” shall mean any and all Material, material, assembly aids, packaging materials, etc used in the manufacture of Assemblies.

 

“Confidential Information” shall mean any and all information, both technical and non-technical, relating to a Party’s and its Affiliates’ respective businesses and affairs, finances, sales, Assemblies, customers, processes, strategies, techniques, trade secrets, research, development, inventions, testing procedures and marketing that has been or hereafter may be provided or

 

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shown to the one Party (the receiving Party) by the other party (the disclosing Party), irrespective of the form of the communication, and also includes all notes, analyses, compilations, studies, summaries and other materials prepared by the receiving Party containing, or based or derived, in whole or in part, on or from, any information of the disclosing Party included in the foregoing. Confidential Information includes samples and other materials and the results of any testing or analysis thereof.

 

“Defect” means that an Assembly does not meet Specifications.

 

“DHR” means Device History Record. An FDA term pertaining to the entire manufacturing record of a device, a comprehensive listing of all materials, processes and inspections performed during manufacture and assembly that are required for the subject (device). As used herein this term shall only refer to the manufacturing history of the component to be manufactured by DSM PTG defined herein as an “Assembly.”

 

“DSM PTG Materials” or “Material” shall mean DSM PTG’s proprietary Materials comprised of Bionate® 90A UR PCU Part FP 70062, Bionate® 75A UR PCU Part FP70064 and BioSpan® SPU Part FP70001 for use in Assemblies and Licensed Products.

 

“ECN” means a direction in the form of an engineering change order to make a change to an Assembly including a change to the design, manufacture or test procedure for an Assembly or a component or Material.

 

“Effective Date” shall mean the date designated as such in the preamble to this Agreement.

 

“Field” shall mean the manufacture, sale and use of SHC’s C-Pulse Cuff Devices for the field of Cardiac Assistance.

 

“Forecast” shall mean a rolling, written or electronic forecast that sets forth the quantities of the Assemblies and that SHC, in good faith, estimates it will order during the 12-month period beginning on the Effective Date and updated on a rolling quarterly basis.

 

“Invoice” shall mean any invoice delivered by DSM PTG to SHC in accordance with this Agreement.

 

“Licensed Product(s) or “Products” shall mean all Products of SHC for use in the Field that incorporate, or are made with DSM PTG Materials and Assemblies as set forth in Exhibit C.

 

“Manufacturing Discontinuance” If either SHC or DSM PTG stops the manufacturing of a Material, Assembly or Product.

 

“Order Acknowledgment” shall mean a written or electronic notice delivered by DSM PTG to SHC in accordance with this Agreement to the effect that DSM PTG has received and accepted a Purchase Order.

 

“Purchase Order” shall mean any written or electronic purchase order delivered by SHC to DSM PTG in accordance with this Agreement.

 

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“Quarterly Business Review (QBR)” shall mean a strategic business meeting between DSM PTG and SHC for the purpose of discussing current business issues and opportunities.

 

“SHC Owned Equipment” shall mean the manufacturing, assembly, or test equipment described on Exhibit “I”

 

“SHC” or SHI or Sunshine Heart shall have the same meaning in the Purpose of this Agreement as Sunshine Heart, Inc.

 

“Specifications” shall mean, with respect to any Assembly, all specifications and requirements as documented by DSM PTG or SHC and approved by SHC as drawings, designs and manufacturing and test specifications for the Assembly, as approved in writing by both Parties and set forth in a separate Quality Agreement referenced as Exhibit M.

 

“Subject Technology” shall mean all inventions, compounds, know-how, methods, and, materials necessary to make or use DSM PTG Materials which were developed as of the Effective Date and which include but are not limited to all inventions which are covered by any claim of any of the patents identified on Exhibit A hereto together all pending and issued reissues, re-examinations, divisions, continuations, continuations-in-part, renewals, extensions and additions thereto, and all foreign counterparts and applications for foreign counterparts of the foregoing (collectively, the “Patents”).

 

“Supplier” shall mean any vendor, including SHC that provides Components or Services to DSM PTG.

 

“Term” shall mean the period commencing with the Effective Date and ending at the time prescribed by Section 17 hereof.

 

2.                                       GRANT OF LICENSE

 

2.1                                 License Grant. DSM PTG hereby grants to SHC for the Term of this Agreement, unless terminated as provided herein, an exclusive, worldwide, right and license in and to the Subject Technology to make, have made, use, market, sell and offer for sale Licensed Products solely in the Field during the Term. SHC shall not use or permit anyone else to use the Subject Technology or any DSM PTG Materials for any other purpose.

 

2.2                                 No Implied Rights. DSM PTG shall retain all other rights to the Subject Technology. Except as is expressly provided in this Agreement, neither Party shall be deemed to have granted to the other, and there shall not arise by implication or otherwise, any rights whatsoever by reason of the execution or performance of this Agreement.

 

2.3                                 Access to Master Files. Upon SHC’s request at any time during the term of this Agreement, DSM PTG shall authorize SHC’s approved regulatory body to have access to, at no charge other than the fees specifically provided for herein, DSM PTG’s material master files maintained by regulatory authorities to support any approval applications submitted by the SHC for Licensed Products or as otherwise reasonably necessary to exercise SHC’s rights hereunder.

 

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3.                                       PAYMENTS ***

 

3.1                                 Grant of License. As consideration for the rights conveyed by DSM PTG under this Agreement, SHC shall pay DSM PTG *** according to the schedule of payments described in Exhibit “B” which shall include but not be limited to fees associated with the license granted herein, certain services, and other consideration afforded SHC by DSM. ***.

 

3.2                                 No Implied Rights. DSM PTG shall retain all other rights to the Subject Technology. Except as is expressly provided in this Agreement, neither Party shall be deemed to have granted to the other, and there shall not arise by implication or otherwise, any rights whatsoever by reason of the execution or performance of this Agreement.

 

4.                                       SUBLICENSES

 

4.1                                 SHC shall have no sub-license rights, but shall have the conditional rights, if any, granted under the terms below hereto.

 

4.2                                 Should DSM PTG be unable to satisfy at least seventy five percent (75%) set forth in SHC’s or its Affiliates of Purchase Orders (as defined herein) as SHC (hereinafter “SHC”) for Assemblies made with Materials for six (6) consecutive months, as defined in this Agreement, in accordance with the Purchase Orders, SHC shall have the right to terminate the Agreement upon thirty (30) days notice to DSM PTG and DSM PTG shall to the extent of its authority to do so, license SHC, for the term of this Agreement, to the limited extent necessary to enable SHC to make or procure its requirements for such Materials to make Assemblies, use and sell Licensed Products for use in the Field from other sources without otherwise adversely affecting DSM PTG’s rights. Should SHC necessarily make or procure its requirements for Assemblies using Materials from a source other than DSM PTG, SHC shall continue to make *** payments to DSM PTG according to Exhibit “B ‘, and DSM PTG shall make all required processes and/or formulations available to SHC so that SHC’s requirement for Assemblies made with Materials can be satisfied, provided that SHC and such source execute and deliver to DSM PTG a confidentiality agreement in such form as DSM PTG may reasonably request.

 

5.                                       PURCHASE ORDERS

 

5.1                                 Purchase Orders. Upon the terms and subject to the conditions set forth in this Agreement, DSM PTG shall manufacture and sell to SHC the Assemblies that SHC orders by the delivery of a Purchase Order, and SHC shall purchase those Assemblies from DSM PTG. Such purchase orders shall be binding in terms of and shall set forth the SHC part number, price, quantity and delivery date (“Purchase Order”) and shall be provided to DSM PTG on the first business day of each calendar quarter. On the Effective Date, SHC shall provide DSM PTG with firm and binding Purchase Orders for the first two (2) calendar quarters. Thereafter, SHC shall provide firm and binding Purchase Orders on a rolling quarterly basis such that DSM PTG shall always have two (2) binding quarterly Purchase Orders to be filled. By way of explanation; SHC shall provide binding Purchase Orders for Q1 and Q2. Upon delivery of Assemblies pursuant to the Q1 Purchase Order, SHC shall provide DSM PTG with a firm and binding Purchase Order for Q3.

 

*** Portions of this page have been omitted pursuant to a request for confidential treatment filed separately with the commission.

 

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DSM PTG shall accept each Purchase Order by the delivery to SHC of an Order Acknowledgment prior to the close of business on the fifth business day after the receipt of the Purchase Order. Neither SHC nor DSM PTG shall have any rights or obligations with respect to any Purchase Order unless and until DSM PTG has accepted the Purchase Order.

 

6.                                       FORECASTS, COMMITMENTS

 

6.1                                 Forecasts. (a) Periodically (but no less frequently than Quarterly), SHC shall deliver to DSM PTG a twelve month rolling Forecast. The initial twelve month rolling Forecast is set forth on Exhibit “D”. SHC may modify any Forecast at any time by the delivery to DSM PTG of notice to such effect. Within thirty (30) business days after receipt of a rolling Forecast, or otherwise promptly, DSM PTG shall notify SHC of any prospective problems that DSM PTG is aware of that is likely to prevent DSM PTG from meeting SHC’s forecasted requirements.

 

7.                                       Intentionally Left Blank

 

8.                                       MANUFACTURING

 

8.1                                 Specifications. Materials and Approved Vendors. DSM PTG shall manufacture each Assembly in accordance with the Specifications for the Assembly as defined herein. DSM PTG shall uniquely identify the Materials to distinguish the Materials from any materials held by DSM PTG to incorporate into other DSM PTG products. DSM PTG shall purchase the materials for Assembly manufacturing only from (i) SHC or (ii) Approved Vendors for the Materials. DSM PTG agrees to supply SHC with Assemblies manufactured in compliance with ISO 13485. DSM PTG further agrees to provide SHC with non-sterile samples of Assemblies as set forth in Exhibit B.

 

8.2                                 Upon the receipt of a copy of the current version of the Approved Vendor List (“AVL”), or an ECN changing a supplier on the Approved Vendor List DSM PTG shall acknowledge receipt thereof. SHC shall use reasonable commercial efforts to approve DSM PTG as an Approved Vendor for any materials for which DSM PTG is not already an Approved Vendor in accordance with SHC’s standard approval procedures. Exhibit “E” Approved Vendor List provides the now current list of Approved Vendors. SHC may from time to time change the AVL in its sole discretion by providing a revised AVL or ECN to DSM PTG. If DSM PTG wishes to revise the AVL a written request shall be provided to SHC for consideration. Acceptance shall be indicated by revision of the AVL or ECN. DSM PTG shall not be responsible for any supply issues, or the consequences thereof, that arise as a result of any delay, negligence or other action or inaction by any vendor on the AVL, or the inability of a vendor on the AVL to meet DSM PTG’s requirements. DSM PTG shall provide prompt notice to SHY of any event that is likely to lead to a delay in the shipment of Assemblies.

 

8.3                                 Manufacturing Sites. (a) DSM PTG shall manufacture each Assembly only at manufacturing sites approved by SHC for the manufacture of the Assembly in accordance with SHC’s standard approval procedures. If DSM PTG proposes to manufacture any Assembly at any manufacturing site not approved by SHC for the manufacture of the Assembly, then DSM PTG shall deliver to SHC notice to such effect. Within 90 calendar days after the receipt of such notice, SHC shall (i) evaluate the proposed manufacturing site in accordance with SHC’s

 

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standard approval procedures and (ii) deliver to DSM PTG a notice that sets forth (A) SHC’s approval of the proposal or (B) SHC’s rejection of the proposal and the reasons therefore. If SHC rejects any such proposal, then SHC and DSM PTG shall jointly review the reasons therefore. SHC hereby approves the manufacture of its Assemblies at the Berkeley CA Facility, subject to the final satisfaction of SHC’s standard approval procedures. SHC shall use reasonable commercial efforts to complete such procedures with respect to the Berkeley CA Facility as promptly as practicable after the date hereof.

 

8.4                                 Certifications. DSM PTG shall maintain applicable certifications specially: ISO 13485 - 2003 as listed in Exhibit “H”.

 

(a)                                  Certificate of Compliance. Each delivery of Licensed Product shall be accompanied by DSM PTG’s certificate of compliance in the form attached hereto as Exhibit N, as mutually agreed to by the Parties.

 

(b)                                 Rejection. Except as provided herein, SHC shall accept all Licensed Product delivered in accordance with the terms and conditions of this Agreement. SHC (a) may reject any portion of any shipment of Licensed Product if such shipment (i) was not manufactured in material compliance with ISO 13485 and/or (ii) does not conform in all material respects with the product Specifications. In order to reject a shipment, SHC must give DSM PTG, within thirty (30) days of receipt of shipment, a reasonably detailed statement of its reasons for rejection and Licensed Product samples demonstrating the purported nonconformance and requesting that DSM PTG either remedy or provide a reasonable plan to promptly remedy such nonconformance. If no such statement is received by DSM PTG then SHC shall be deemed to have accepted the shipment of Licensed Product. In the event of timely rejection by SHC, DSM PTG shall, within thirty (30) business days after receipt thereof, notify SHC of whether it accepts SHC’s notice of nonconformity or it shall be deemed to accept such notice.

 

(c)                                  Disagreement. If DSM PTG disagrees with any purported nonconformity issue raised by SHC, then both parties agree to cooperate in good faith and make every reasonable effort to resolve the disagreement. If DSM PTG confirms SHC’s rejection under (i) or (ii) above in Section 8.4(b), or if SHC’s rejection is otherwise due to (iii) above in Section 8.4(b), then DSM PTG shall, at its sole expense and option, and in a reasonably prompt manner, but in no event more than sixty (60) days after receipt of SHC’s rejection statement, either replace the nonconforming Licensed Product with conforming Licensed Product or refund to SHC the purchase price thereof or credit such amounts if not already paid. Licensed Product shall not be returned to DSM PTG without DSM PTG’s prior permission, and then only in a manner and to the destination prescribed by DSMPTG.

 

(d)                                 Dispute Resolutions. If the parties hereto fail to agree as to whether a delivered quantity of Licensed Product meets its agreed product Specifications, then the parties shall cooperate to have the Licensed Product in dispute analyzed by a qualified independent testing laboratory selected by DSM PTG to which SHC does not have reasonable objection. The following provisions shall apply with respect to the results indicated by such independent laboratory:

 

(i)                                     If the Licensed Product is determined to have met its product

 

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Specifications, then SHC shall bear the costs of the independent laboratory testing and shall accept the shipment of such Licensed Product and promptly pay for such Licensed Product if not yet paid; or

 

(ii)                                  If the Licensed Product is determined not to meet its product Specifications, then DSM PTG promptly shall bear the cost to replace the affected quantity, or refund amounts paid or credit such amounts if not yet paid, as outlined in Section 8.4(b) and DSM PTG shall bear the costs of the independent laboratory testing.

 

(e)                                  Regulatory Audit. In the event of a regulatory audit at SHC, which involves any Licensed Product, SHC shall notify DSM PTG of such audit promptly after receiving notice thereof but no less than within one week thereof. Pursuant to such notice of audit, DSM PTG shall supply SHC with documents required to be reviewed as part of a regulatory audit, related to the Licensed Product, within three business days from a request by SHC (or alternatively, DSM PTG shall agree to provide any proprietary information directly to such agency or body within ten business days, and shall respond to any inquiries regarding such information with such agency or body).

 

(f)                                    Plant Inspection. DSM PTG shall promptly notify SHC whenever a request for a plant inspection is received from the FDA that relates in any way to Licensed Product, and shall promptly advise SHC of any scheduled or unscheduled FDA inspection and the results thereof. A copy of Form 483 observations or other applicable reports, which apply to Licensed Product and redacted as deemed necessary by DSM PTG to protect proprietary information, shall be supplied to SHC upon its request, within ten business days of the request. DSM PTG shall promptly take steps to remedy any valid deficiencies found by the FDA inspectors relating to the manufacture, sterilization and packaging of Licensed Product, and to respond in writing to the Form 483 observations. DSM PTG shall provide SHC with a copy of its responses to any Form 483 observations relating to the Licensed Product in advance of their submission to FDA, redacted of any proprietary information, and shall notify SHC of the date such responses are filed with the FDA.

 

(g)                                 Recall. In the event that SHC determines that a recall of any one or more Licensed Products is necessary for any reason, DSM PTG shall reasonably cooperate in such recall efforts. DSM PTG’s liability with respect to any recall shall be limited as set forth in this Agreement.

 

(h)                                 Access. DSM PTG shall provide SHC access to its sites and quality system records for the purpose of auditing the sites for compliance with the requirements of Section 8.1. Any information obtained by SHC as a result of such access shall be subject to the provisions of Section 18 hereof. To the extent that DSM PTG reasonably believes that providing SHC with access to such sites would compromise DSM PTG’s obligations of confidentiality to third parties or require the disclosure of trade secrets, DSM PTG shall grant such access to an independent third party designated by SHC in its reasonable discretion, and reasonably acceptable to DSM PTG, to conduct such audit. Any report furnished by such third party to SHC shall be subject to the provisions of Section 18 herein and DSM PTG shall have the right to review any such report and delete any information it deems a trade secret or the disclosure of which would violate such confidentiality obligations, prior to the release of said report to SHC.

 

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(i)                                     Cooperation. DSM PTG shall cooperate with SHC to provide any authorizations, documents or information in DSM PTG’s possession, or take such other actions, which SHC may reasonably request in order to obtain or maintain any registration, approval, clearance, certification or other authorization with or from any federal, state, local or foreign government agency or any self-regulatory body (or alternatively, DSM PTG shall agree to provide any proprietary information directly to such agency or body in the form of a master file or comparable document, and shall respond directly to any inquiries regarding such information with such agency or body).

 

(j)                                     Records. Each Party shall keep and maintain complete and accurate records necessary for regulatory compliance for a period of at least five (5) years after the expected life of the Licensed Product or ten (10) years from the date of creation (whichever is less), including all records that ensure the ability to perform complete lot tracing of Licensed Product

 

8.5                                 Quality-Assurance Program. DSM PTG shall implement and maintain a comprehensive process and quality-assurance program in accordance with a Quality Agreement as referenced in Exhibit M and included as part of this Agreement. DSM PTG shall deliver or make available to SHC any documentation with respect to DSM PTG’s Quality-Assurance Program and the DHRs generated by DSM PTG as is outlined in Exhibit “G” that SHC reasonably requests to verify compliance therewith. Upon the written request of SHC on at least ten business days notice, DSM PTG shall define a mutually agreeable date for SHC to have access during normal business hours to the facilities of DSM PTG and the records of its subcontractors for the purpose of inspecting DSM PTG’s quality-assurance-program compliance, and DSM PTG shall reasonably cooperate with SHC in connection therewith. Upon the request of DSM PTG in connection with any such inspection, SHC shall cause its directors, officers, employees and agents to execute and deliver to DSM PTG an appropriate nondisclosure agreement.

 

8.6                                 Tooling and SHC Owned Equipment

 

(a)                                  All tooling produced or obtained by DSM PTG for the Assemblies to be delivered hereunder have been or shall be provided for by SHC. Tooling shall become and remain the property of SHC at the time payment in full is received by DSM PTG. SHC may also consign tooling to DSM PTG for the manufacture of the Assemblies.

 

(b)                                 All SHC Owned Equipment shall be used by DSM PTG only for the benefit of SHC, and shall be delivered to SHC upon request. DSM PTG will not cause to occur any lien or encumbrance on any such SHC Owned Equipment in DSM PTG possession. DSM PTG will insure any SHC Owned Equipment in DSM PTG possession at the replacement value thereof under the terms of DSM PTG’s then current insurance policies. Upon reasonable notice and written request, DSM PTG shall provide SHC with certificate(s) of insurance, which name SHC as loss payee, as proof of all such risk insurance for the SHC Owned Equipment at DSM PTG. Such certificate(s) shall be endorsed to contain a provision requiring the insurers to endeavor to provide SHC with thirty (30) days written notice of any cancellation in such insurance.

 

(c)                                  DSM PTG shall maintain all SHC Owned Equipment according to a mutually agreed maintenance schedule and repair, calibrate, or upgrade SHC Owned Equipment; provided, however, SHC shall not be responsible for any repair or replacement of any SHC Owned

 

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Equipment that is damaged as a result of DSM PTG’s misuse. SHC will pay for any such services on a time and materials basis. Labor charges will be billed at DSM PTG’s then current billing rate. Replacement parts for SHC owned equipment will be charged at DSM PTG cost plus 10%.

 

(i)                                     (d)                                 If SHC requests the return of any SHC Owned Equipment from DSM PTG and the return of such SHC Owned Equipment prevents DSM PTG from providing Assemblies to SBC, then DSM PTG shall be relieved of such obligations. In the event that SHC Owned Equipment requires replacement, or additional tooling or equipment is required to manufacture Assemblies; DSM PTG shall provide SHC written notice of such requirement with an estimate of the costs of such new equipment which must be approved by SHC in writing prior to DSM PTG’s replacement. SHC shall provide such equipment or tooling, or authorization to DSM PTG to purchase such equipment or tooling at SHC’s expense, within thirty (30) days of the date of such written notice. If failure to acquire such tooling or equipment is due to SHC’s failure to supply or approve the purchase of same; and the consequence is that DSM PTG cannot meet Purchase Orders for Assemblies, DSM PTG shall be relived of such obligation. If the parties hereto fail to agree as to whether a such new equipment is required, then the parties shall cooperate to have the issue as to whether new equipment is required analyzed by a qualified independent organization selected by DSM PTG to which SHC does not have reasonable objection to obtain and independent opinion as to whether new equipment is required. The cost of this independent evaluation shall be borne equally by both parties.

 

(e)                                  All SHC Owned Equipment are listed on Exhibit “I”. If SHC delivers to DSM PTG any new assembly or test equipment, then (i) attachment shall automatically be amended to include the new equipment, and (ii) SHC shall promptly deliver to DSM PTG a copy of the amended Schedule.

 

(f)                                    SHC hereby grants to DSM PTG a non-exclusive, fully paid-up license to use any loaned software solely with the SHC Owned Equipment in the Field. Notwithstanding any provision of this Agreement to the contrary, DSM PTG may make copies of any such Software only to the extent reasonably necessary for backup and archival purposes. DSM PTG shall not disassemble, reverse compile or reverse engineer any such Software. Upon the request of SHC, DSM PTG shall deliver to SHC all copies of any such Software in accordance with SHC’s instructions.

 

(g)                                 Discontinuance of Manufacturing If SHC decides to End-of-Life any Product, then SHC shall deliver to DSM PTG a notice that sets forth the expected discontinuation date in advance of at least nine (9) months, If DSM PTG decides to stop the manufacturing any of the Material or Assemblies, DSM PTG will inform SHC at least nine (9) months prior to the date of Manufacturing Discontinuance of the Material or Assembly in order to give SHC a chance to place art end-of life order before the discontinuation.

 

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10.                                INVENTORY MANAGEMENT

 

10.1                          Change Consequences on Inventory. Should SHC make any changes to the

 

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Specifications, Quality Agreement, or Approved Vendor List; SHC shall reimburse DSM PTG for the cost and expense associated with any materials or services that are excess or obsolete as a consequence of such change including those in inventory as well as those on order. DSM PTG shall use reasonable efforts to mitigate the cost and expense associated with such change.

 

11.                               SUPPLY-CHAINMANAGEMENT

 

11.1                         AVL Changes. If SHC modifies the Approved Vendor List or an Approved Vendor, then SHC shall promptly deliver to DSM PTG a copy of the Modified Exhibit “E” or other Specification that identifies vendors. If DSM PTG proposes to modify the Approved Vendor List, then DSM PTG shall deliver to SHC a proposal that describes the modification in detail and sets forth any change in the purchase price or delivery schedule of any Assembly. If SHC desires to accept any such proposal, then within thirty (30) calendar days after the receipt of the proposal, SHC shall deliver to DSM PTG notice to such effect and a copy of the modified Approved Vendor List. If SHC fails to deliver to DSM PTG such a notice within such 30-calendar-day period, then SHC shall be deemed to have rejected the proposal. DSM PTG shall not implement any proposal to modify the Approved Vendor List unless and until SHC has accepted the proposal.

 

11.2                         Other Services. Upon the request of SHC, DSM PTG shall perform testing and other mutually agreed services with respect to any materials of SHC (other than the Assemblies) upon mutually agreed prices, terms and conditions.

 

12.                             PURCHASE AND SALE

 

12.1                         Prices.

 

(a)                                The initial purchase price of each SHC Assembly is set forth on Exhibit “B”. All prices are exclusive of freight and exclusive of foreign and domestic federal, state and local excise, sales, use and similar taxes. Such taxes, when applicable, will be billed as separate, additional items on DSM PIG’s invoices. ***

 

(b)                               Payment. Upon the shipment of any Assembly, DSM PTG shall deliver to SHC an Invoice that sets forth the date, the name and address of DSM PTG, the related Purchase Order number, a detailed description of the Assemblies shipped (including the SHC part number and description) and, the quantity shipped, the delivery destination, the method of shipment, the purchase price in effect on the shipping date (including an itemization of all applicable freight, insurance, packing and other charges), the payment terms, the country of origin, the number of packages, the way bill number and a reference to this Agreement. Payment shall be due within

 

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thirty (30) days of the shipment date.

 

(c)                                         Delivery and Shipping. All shipments shall be F.O.B. DSM PIG’s shipping dock. SHC’s Purchase Orders shall specify the carrier or means of transportation or routing, and DSM PTG shall comply with SHC’s instructions. If SHC fails to provide shipping instructions, DSM PTG will make the selection. DSM PTG will make delivery within five (5) business days of the date set forth in the Purchase Order for all deliveries to US locations. DSM PTG will make no representation or warranty as to delivery date for any shipment outside the US. DSM PTG may make deliveries in installments. Partial shipments will be billed as made, and payments therefore are subject to the terms of payment set forth herein. All delivery indications are estimates and are dependent upon prompt receipt of all necessary information to service an order. DSM PTG reserves the right to allocate inventories and production when such allocation becomes necessary. DSM PTG’s obligations under this Agreement are subject to the export administration and control laws and regulations of the U.S. Government. SHC shall comply fully with such laws and regulations in the export, resale or disposition of Assemblies.

 

(d)                                 Title, Risk of Loss and Reserved Security Interest. Title and risk of loss or damage to the Assemblies shall pass to SHC at the time DSM PTG delivers possession thereof to the carrier. Notwithstanding passage of title, DSM PTG reserves, and SHC grants, a security interest in, and right of repossession of, all Assemblies to secure all of SHC’s payment obligations under this Agreement. SHC agrees to execute additional documents and papers in furtherance of this right if requested by DSM PTG.

 

(e)                                  Packaging. DSM PTG shall package or cause to be packaged each Assembly in accordance with SHC’s packaging specifications. DSM PTG shall provide a certification of compliance with each shipment in accordance with Section 8.4(a).

 

(f)                                    Inspection and Acceptance. Prior to the delivery of any Assembly to SHC, DSM PTG shall inspect and test the Assembly in accordance with a test plan approved by SHC and referenced as Exhibit M. Upon the request of SHC, DSM PTG shall deliver or make available to SHC the DHR with respect to any Assembly to verify compliance with requirement. Upon at least ten business days notice from SHC, DSM PTG shall permit SHC to have access during normal business hours to the facilities of DSM PTG for the purpose of inspecting any Assembly, and DSM PTG shall reasonably cooperate with SHC in connection therewith.

 

(g)                                 Warranty. DSM PTG warrants that all Assemblies sold to SHC will be in compliance with the Specifications established under this Agreement and defined in Exhibit M. The warranties contained herein extend only to SHC, and SHC shall affirmatively disclaim all liability of DSM PTG to any end users of Products, which disclaimer shall be satisfactory to DSM PTG in its sole discretion. The sole and exclusive remedy for any breach of warranty or certification of compliance with respect to any Assembly shall be replacement of that Assembly or refund of the payment price of such Assembly. The warranty contained herein shall not be deemed to have failed of its essential purpose so long as DSM PTG is making good faith efforts to correct defects under the terms of the warranty, or has made the replacements provided for.

 

EXCEPT AS SET FORTH HEREIN, NO OTHER WARRANTIES, EXPRESS OR IMPLIED, BY OPERATION OF LAW OR OTHERWISE, INCLUDING WITHOUT LIMITATION THE

 

12

 

WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND INFRINGEMENT, ARE MADE BY DSM PTG, UNDER THIS AGREEMENT AND ALL SUCH OTHER WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED. THE PARTIES ACKNOWLEDGE THAT SHC PROVIDED OR DETERMINED THE SPECIFICATIONS FOR THE COMPOSTION OF THE MATERIAL, ASSEMBLIES, VENDOR APPROVAL, AND PRODUCTS AND THE PERFORMANCE AND OTHER SPECIFICATIONS THEREFOR, AND THAT DSM PTG HAS NO RESPONSIBILITY FOR SHC’S DETERMINATION TO USE THE MATERIALS OR ASSEMBLIES IN THE PRODUCTS.

 

(i)                                     Limitation of Liability. Neither Party will be liable for a delay in performance of or failure to perform an obligation under this Agreement where such failure to perform any duty or obligation has been directly or indirectly caused by any act of God, fire, war, or any other cause outside the reasonable control of that party, and occurring without its fault or negligence, including without limitation, strikes, lock-outs or other industrial disturbances; acts of terrorists or other public enemies; orders of any civil or military authority; insurrection; civil disturbances, sabotage; epidemics; seismic or meteorological events and their consequences; fires or explosions; partial or entire failure of utilities; fuel shortage or unavailability of supplies. NEITHER PARTY SHALL BE LIABLE TO THE OTHER OR TO THE OTHER’S AFFILIATES FOR INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES ARISING OUT OF THIS AGREEMENT OR ITS TERMINATION, OR ANY OTHER CAUSE OF ACTION WHETHER LIABILITY IS ASSERTED IN TORT OR CONTRACT, AND IRRESPECTIVE OF WHETHER THE PARTIES HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. ALL MONETARY REMEDIES OF THE PARTIES SHALL BE LIMITED TO DIRECT DAMAGES.

 

13.                               RELATIONSHIP MANAGEMENT

 

13.1                         Meetings.

 

(a)                                SHC and DSM PTG shall cause their respective employees to hold Quarterly Business Reviews (QBR) to review and discuss strategic issues such as but not limited to: business trends effecting both the SHC and DSM PTG, price increase, forecasted quantity requirements, delivery performance, quality performance, payment performance, Assembly pricing, manufacturing capacity, compliance issues, and any other matter relating to the business relationship of the parties.

 

(b)                                 Other Recurring Communications. SHC shall permit its cross-functional team to communicate directly with DSM PTG’s program management team, and DSM PTG shall permit its program management team to communicate directly with SHC’s cross-functional team, with respect to quality, MRP, operations, purchasing, engineering, and any other matters relating to the transactions contemplated by this Agreement. SHC shall cause its operations, purchasing, engineering, and other applicable personnel to communicate as directly as reasonably possible with their respective counterparts at DSM PTG, and DSM PTG shall cause its MRP, operations, purchasing, engineering, and other applicable personnel to communicate as directly as reasonably possible with their respective counterparts at SHC.

 

13

 

14.                             ASSEMBLY MANAGEMENT

 

(a)                                Assembly Changes: If SHC desires to modify the Specifications or Bill of Materials for any Assembly, then SHC shall work with DSM PTG and deliver or cause to deliver to DSM PTG either an Engineering Change Notice in writing that describes the modification in detail or a revision of the affected Document that includes the changes as set forth at Exhibit M. However; DSM PTG shall determine the effects of such Change at the time of submission and provide notice to SHC of such effects thereof. If SHC desires to implement any such modification, then within 30 calendar days after the receipt of the related notice, SHC shall deliver the signed and approved Engineering Change Notice to DSM PTG for execution. If SHC fails to deliver to DSM PTG such notice within such 30-calendar-day period, then SHC shall be deemed to have elected not to implement the modification. DSM PTG shall implement any such modification approved by SHC in accordance with a mutually agreed schedule.

 

(b)                                 If DSM PTG proposes to modify the Specifications or Bill of Materials for any Assembly, then DSM PTG shall deliver to SHC a proposed Engineering Change Notice that describes the modification in detail and sets forth (i) any change in the purchase price or delivery schedule of the related Assembly and (ii) a description of any Materials relating to the Assembly that will be rendered obsolete as a result of the implementation of such modification and DSM PTG’s standard material cost therefore. If SHC desires to accept any such proposal, then within 30 calendar days after the receipt of the proposed Engineering Change Notice, SHC shall deliver to DSM PTG notice to such effect. If SHC fails to deliver to DSM PTG such notice within such 30-calendar-day period, then SHC shall be deemed to have rejected the proposal. If SHC rejects any such proposal, then SHC and DSM PTG shall jointly review the reasons therefore. DSM PTG shall not implement any proposal to modify the Specifications or Bill of Materials for any Assembly unless and until SHC has accepted the proposal.

 

15.                               INSURANCE AND INDEMNIFICATION

 

15.1                         Insurance and Indemnification. SHC shall cause DSM PTG and its Affiliates, and their respective agents, employees, officers, employees, shareholders and contractors (“Indemnitees”), to be named as additional insureds on policies of general commercial liability and Assemblies liability insurance covering SHC, which coverage shall have limits of liability which are commercially reasonable. Within five (5) days of the beginning of each policy period SHC shall supply DSM PTG with a certificate evidencing the coverage required hereby and the amount thereof. Such coverage shall be maintained for not less than five (5) years following termination of this Agreement, or, if such coverage is of the “claims made” type, for ten (10) years following termination of this Agreement. SHC shall indemnity, defend and hold harmless DSM PTG and the other Indemnitees from and against all losses, liabilities, claims, causes of action, and expenses (including attorneys’ fees and litigation costs), resulting from bodily injury (including death), or property damage arising out of or related to, or asserted to arise from, any Material or Assembly which is the subject of this Agreement, unless it is determined in a court of competent jurisdiction that the loss, damage or claim is the consequence of the negligence or willful act of DSM PTG. DSM PTG shall defend, indemnity and hold harmless SHC against all loss, damages or claims caused by the negligence or willful acts of DSM PTG with total aggregate indemnification obligations of DSM PTG capped at one (1) times annual sales to SHC in the initial year of this Agreement. The insurance referred to above shall provide contractual liability

 

14

 

coverage covering SHC’s obligations under the preceding sentence.

 

16.                               PATENTS AND INFRINGEMENT

 

16.1                          Patents. DSM PTG may, but shall have no obligation to, prosecute applications and maintain patents covering Subject Technology or DSM PTG Materials. If it elects to do so, DSM PTG shall be responsible for any of its expenses, including attorney’s fees that DSM PTG incurs in order to obtain or maintain the patent(s).

 

16.2                           Notice of lnfringement. SHC shall promptly inform DSM PTG of any suspected infringement of any claims in any Patent or misuse, misappropriation, theft or breach of confidence of other proprietary rights in the Subject Technology or any DSM PTG Materials by a third party.

 

16.3                           Warranty. DSM PTG warrants that, to the best of its knowledge, the DSM PTG Materials, components thereof and their materials and manufacturing processes and the Subject Technology, as the same may exist as of the Effective Date, do not infringe any third party patents or other intellectual property rights, and each party shall reasonably cooperate with the other in any investigations undertaken to determine any potential infringement.

 

16.4                           Remedy. In the event of a breach of the warranty given by DSM PTG in Section 16.3, DSM PTG shall take any one or more of the following actions, simultaneously or sequentially: (a) attempt to redesign the allegedly infringing Assembly so as to make it non-infringing, and (b) if such redesign is impossible or impracticable, attempt to obtain for itself and the benefit of SHC a license to manufacture and sell the allegedly infringing Assembly, or (c) only after attempting, in good faith, to take the aforementioned actions and failing, terminate this Agreement, including without limitation, all licenses granted hereunder and all payment obligations of SHC hereunder.

 

16.5                           Invalidity. DSM PTG warrants to SHC that: (a) it is unaware of any prior art which would render any of the patents under the Subject Technology invalid; (b) it has not received a third party claim of invalidity or unenforceability of any of the Patents under the Subject Technology; (c) it is unaware of any third party allegations of misappropriation of third party trade secrets by DSM PTG; and (d) that it is unaware of any third party claim of ownership of or invalidity of any of the Subject Technology. To the best of DSM PIG’s knowledge, the license of the Subject Technology hereunder by DSM PTG to SHC pursuant to this Agreement will not violate any right of any third party and DSM PTG has the right and authority to enter into this Agreement and to grant the license granted herein.

 

17.                               TERMANDTERMINATION

 

17.1                          Term. The Term of this Agreement shall commence on the Effective Date and terminate on the third (3rd) anniversary of the Effective Date upon receipt of ninety (90) days written notice from either Party of their intent to terminate. After the third anniversary of the Effective Date, this Agreement shall continue on a year to year basis until terminated by written notice as set forth above. This Agreement may also be terminated pursuant to its terms, including under section 4.2, 17.2 or 17.3 of this Agreement. SHC shall ***, despite any expiry of a Patent listed on Exhibit A, in which case the License granted under Section 3.1 shall be a license in and to all Subject Technology except the

 

*** Portions of this page have been omitted pursuant to a request for confidential treatment filed separately with the commission.

 

15

 

Patent. ***

 

17.2                           Termination by Consent or for Breach. This Agreement may be terminated at any time by the mutual written agreement of the Parties. In addition, either Party may terminate the Agreement, after providing written notice and sixty (60) days’ opportunity to cure, if the other Party breaches a material provision of this Agreement. DSM PTG shall have the right, at its option, to cancel and terminate this Agreement in the event that SHC shall (i) cease to purchase all its requirements of Assemblies meeting the description and Specifications set forth at Exhibit M, or (ii) become involved in insolvency, dissolution, bankruptcy or receivership proceedings affecting the operation of its business or (iii) make an assignment of all or substantially all of its assets for the benefit of creditors, or in the event that (iv) a receiver or trustee is appointed for SHC and SHC shall, after the expiration of thirty (30) days following any of the events enumerated above, have been unable to secure a dismissal, stay or other suspension of such proceedings. The failure of any party to exercise any right of termination or other right shall not be deemed to be a waiver of any right such party might have to exercise or enforce that right, upon any subsequent breach.

 

17.3                           Effect of Termination. Any termination of this Agreement shall automatically terminate all licenses granted hereunder unless otherwise set forth herein. Termination of this Agreement shall not, however, terminate the rights and obligations of the Parties under Sections 3, 12, 15, 17 and 18 hereof.

 

18.                               CONFIDENTIAL INFORMATION

 

18.1                          Protection of Information. In the performance of this Agreement DSM PTG and SHC may exchange certain Confidential Information. The Parties shall use such information of the other only for the purposes of this Agreement. A party shall disclose the Confidential Information of the other only to those of its employees, directors, agents or associates who have a reasonable need for such Confidential Information in connection with the permitted use of such Confidential Information. The receiving Party of Confidential Information shall inform, its employees, directors, agents or associates who receive such Confidential Information of the terms of this Agreement , and shall take all necessary and appropriate actions to preserve the confidentiality of such Confidential Information, including, without limitation, placing suitable confidentiality legends on all Confidential Information so disclosed and using the same degree of care receiving Party exercises to protect its own proprietary or confidential information (but which in any event shall be not less than a reasonable standard of care). All documents, discs and other materials containing Confidential Information shall remain the sole property of the disclosing Party. The receiving Party shall promptly return all such materials on request, but such return shall not affect the continuing obligations of the receiving Party hereunder. The provisions of this Section 18 are in addition to, and not in lieu of, the obligations of the Parties under the Mutual Confidentiality Agreement dated December 16,2009 executed by the Parties or their Affiliates, the terms of which shall remain in effect.

 

18.2                           Permitted Use. Nothing contained in this Agreement shall in any way restrict either Party’s right to use, disclose or otherwise deal with any Confidential Information which: (a) at the time of disclosure is generally available to the public, or thereafter becomes generally

 

*** Portions of this page have been omitted pursuant to a request for confidential treatment filed separately with the commission.

 

16

 

available to the public through no act of the receiving Party in violation of this Agreement; (b) was in the possession of the receiving Party prior to the time of disclosure and such possession is documented by written evidence in existence at the time of such disclosure and was not acquired, directly or indirectly, from the disclosing Party; (c) is independently made available as a matter of right to the receiving Party by a third party lawfully entitled to possess such Confidential Information, provided such third party did not violate any legal obligation to the disclosing Party or any other person or acquire such Confidential Information directly or indirectly from the disclosing Party, or (d) the receiving Party is required to disclose under applicable laws or regulations or a court or other governmental order, provided that (i) except where impracticable, the receiving Party provides the disclosing Party with reasonable advance notice of such disclosure requirement and affords the disclosing Party opportunity to oppose or limit, secure confidential treatment for, such required disclosure, and (ii) the recipient discloses only that portion of the Confidential Information that the receiving Party is legally required to disclose.

 

19.                               GENERAL

 

19.1                          Governing Law. This Agreement shall be governed by the laws of the State of New York without regard to conflicts of law principles. The Parties also agree that the United Nations Convention on Contracts for the International Sale of Goods does not apply to this Agreement.

 

19.2                           Complete Agreement; Modification; Waiver. This Agreement, including its Exhibits, which are hereby incorporated by reference, and any other agreement or Mutual Confidentiality Agreement referred to herein are intended as the complete, final and exclusive statement of the terms of the agreement between the Parties with regard to the subject matter hereof, and supersedes any and all agreements between them relating to the subject matter hereof. No modification, change, or amendment to this Agreement, or any waiver of any rights in respect hereto, shall be effective unless in writing signed by the Party to be charged. The waiver of any breach or default hereunder shall not constitute the waiver of any subsequent breach or default.

 

19.3                           Notices. Any notice or report required or permitted by this Agreement shall be deemed given if delivered personally or if sent by either Party to the other by registered or certified mail, postage prepaid, or internationally recognized courier, for overnight delivery, or by electronic transmission (e.g. E-mail or facsimile). If by personal delivery or by courier, delivery shall be effective on receipt. If by electronic transmission, delivery shall be effective on the day after transmission. If by mail, delivery shall be effective on the third business day after mailing. Notices shall be transmitted as follows:

 

If to DSM PTG:

 

President /  CEO DSM PTG

2810 7th Street, Berkeley, California 94710 USA

Attn: Robert S. Ward

Phone 510 841 8800

Fax: (510) 841-7800

 

If to SHC:

 

17

 

Sunshine Heart, Inc. Attn: Dave Rosa, CEO

14413 Westridge Drive

Eden Prairie, Minnesota 55347

 

19.4                           Assignment and Successors. Neither Party shall assign this Agreement or any rights hereunder, or delegate any obligations hereunder, without the prior written consent of the other Party, except as expressly permitted hereby. Either Party shall be entitled to assign its interest in this Agreement and to delegate its obligations under this Agreement, in whole but not in part, in connection with a merger or other business combination in which it is not the surviving entity or to a party which acquires substantially all of the business and assets of the transferring Party which are related to the line of business which is the subject of this Agreement and which assumes in writing the transferring Party’s obligations hereunder. Such assignment or delegation shall not relieve the transferring Party of its obligations hereunder, and such Party shall remain secondarily liable therefore. Subject to the foregoing, this Agreement shall bind and inure to the benefit of the Parties and their respective successors and assigns.

 

19.5                           Severability. In the event any provision of this Agreement is found to be invalid, illegal, or unenforceable, the validity, legality, and enforceability of any of the remaining provisions shall not in any way be affected or impaired thereby.

 

19.6                                   Arbitration. Any dispute arising under or relating to this Agreement shall be decided by binding arbitration as follows. The Parties shall use all reasonable efforts to resolve the dispute through direct discussions within 30 days of written notice that there is such a dispute. If no amicable settlement is reached as a result of the discussions, the matter shall be finally settled by arbitration conducted expeditiously by a single neutral arbitrator in accordance with the applicable rules of the American Arbitration Association. No arbitrator may serve who has had at any time a material personal or financial relationship with any participant to the dispute or any Affiliate of any such participant. The place of arbitration shall be in the county in which is located the principal place of business of the respondent. The arbitrator is not empowered to modify the terms of this Agreement. The arbitrator shall award costs and attorneys’ fees to the prevailing Party. The dispute resolution proceedings contemplated by this provision shall be as confidential and private as permitted by law. To that end, the Parties shall not disclose the existence, content or results of any proceedings conducted in accordance with this provision, and materials submitted in connection with such proceedings shall not be admissible in any other proceeding; provided, however, that this confidentiality provision shall not prevent a petition to vacate or enforce an arbitral award, and shall not bar disclosures required by law. The Parties agree that any decision or award resulting from proceedings in accordance with this dispute resolution provision shall have no preclusive effect in any other matter involving third parties. Notwithstanding the foregoing, if the enforcement of any right under this Agreement reasonably requires recourse to the equitable remedies provided by a court, due to the immediacy or nature of the remedy sought (for example, a preliminary injunction or a temporary restraining order), then either Party may pursue such equitable remedies in a court of competent jurisdiction if otherwise permissible by law pending submission of the matter to arbitration.

 

19.7                           Compliance with Laws. SHC shall at all times during the term of this Agreement and for

 

18

 

so long as it shall sell Licensed Products comply with all laws and regulations that apply to import, export, manufacture, use, sale, marketing, distribution and other commercial exploitation of Licensed Products or any other activity undertaken pursuant to this Agreement.

 

19.8                           Non-Waiver. The parties covenant and agree that if a party fails or neglects for any reason to take advantage of any of the terms provided for the termination of this Agreement or if a party, having the right to declare this Agreement terminated, shall fail to do so, any such failure or neglect by such party shall not be a waiver or be deemed or be construed to be a waiver of any cause for the termination of this Agreement subsequently arising, or as a waiver of any of the terms, covenants or conditions of this Agreement or of the performance thereof. None of the terms, covenants and conditions of this Agreement may be waived by a party except by its written consent.

 

19.9                           Independent Contractors. The Parties hereby acknowledge and agree that each is an independent contractor and that neither Party shall be considered to be the agent, representative, master or servant of the other Party for any purpose whatsoever, and that neither Party has any authority to enter into a contract, to assume any obligation, or to give warranties or representations on behalf of the other party. Nothing in this relationship shall be construed to create a relationship of joint venture, partnership, fiduciary or other similar relationship between the Parties.

 

19.10                     Publicity. During the Term and thereafter, except as required by applicable law, neither Party shall, without securing the prior written consent of the other Party, release the terms of this Agreement to any third party, publicly announce the terms of this Agreement or otherwise use the name of the other Party in any website, publication or press release without the prior written consent of the other Party.

 

Remainder of page Intentionally Left Blank — Signature Page Follows

 

19

 

IN WITNESS WHEREOF, the Parties hereby execute this Agreement effective as of the Effective Date.

 

DSM PTG, INC.

 

	
Name:
    	
 
    	
Rob   Evans
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Title:
    	
 
    	
Vice   President Global Sales & Marketing
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Signature:
    	
 
    	
/s/   Rob Evans
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Date:
    	
 
    	
4/22/10
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Name:
    	
 
    	
Robert   Ward
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Title:
    	
 
    	
President
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Signature:
    	
 
    	
/s/   Robert S. Ward
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Date:
    	
 
    	
4/26/10
    	
 
    
	
 
    	
 
    	
 
    
	
SUNSHINE   HEART, INC.
    	
 
    
	
 
    	
 
    	
 
    
	
Name:
    	
 
    	
Dave   Rosa
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Title:
    	
 
    	
CEO
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Signature:
    	
 
    	
/s/   Dave Rosa
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Date:
    	
 
    	
4/14/10
    	
 
    

 

20

 

EXHIBIT “A”

 

RELATED DSM PTG PATENTS

 

Patents covering Bionate materials

 

·                  Patent entitled “Crack- Resistant Polycarbonate Urethane Polymer Prostheses” U.S. Patent Serial No. 5,133,742 granted July 28, 1992

 

·                  Patent entitled “Crack-Resistant Polycarbonate Urethane Polymer Prostheses, and the Like, U.S. Patent Serial No. 5,229,431 granted July 20, 1993

 

Applications related to the foregoing two patents:

 

·                  Canada- Application No. 2,038,605

 

·                  Europe- Application No. 0461375

 

·                  Germany -Application No. 9117117

 

·                  Spain- Application No. 2077104

 

·                  Japan- Application No. 4226119

 

Patent entitled “Surface-Modifying End Groups for Biomedical Polymers, Ward et al U.S. Patent Serial No. 5,589,563_December 31, 1996

 

“Self-Assembling Monomers and Oligomers as Surface Modifying End-groups for polymers”

 

International application number: PCT/US2006/046586, filing date: 7 December 2006

 

Related Sunshine Heart Patents

 

US Patents covering the Heart Assist Field include Devices, Systems and Methods. Sunshine has a number of applications pending for worldwide coverage in the areas related to our research and development. Listed below are only the US patents and applications, the complete portfolio of patents and applications is considered included in this contract. There is a specific type of device known as an Actuator which includes the inflatable Balloon and Wrap.

 

·                  A patent titled “Heart Assist Devices Systems and Methods” US Patent Number 6,808,484

 

·                  A patent titled “Heart Assist Devices Systems and Methods” US Patent Number 7,357,771

 

·                  A patent titled “Heart Assist Device utilising Aortic Deformation” US Patent Number 7,347,8111

 

21

 

Applications pending but not yet approved

 

·                  A patent titled “Heart Assist Devices Systems and Methods” US Application 12/035,247

 

·                  A patent titled “Heart Assist Device utilising Aortic Deformation” US Application 12/044,853

 

·                  A patent titled “Actuator for a heart assist device” US Application 10/595605

 

·                  A patent titled “A wrap” US Application 10/595602

 

Remainder of page intentional blank

 

22

 

Exhibit “B”

 

PAYMENT SCHEDULE OF LICENSE FEES

 

***

 

*** Two pages have been omitted pursuant to a request for confidential treatment filed separately with the commission.

 

23

 

 

Exhibit “C”

 

List of SHC Products

 

	
Catalog number
    	
 
    	
Description
    
	
 
    	
 
    	
 
    
	
93020
    	
 
    	
C-Pulse   Cuff, Small
    
	
 
    	
 
    	
 
    
	
93021
    	
 
    	
C-Pulse   Cuff, Small Not for Human Use
    
	
 
    	
 
    	
 
    
	
94020
    	
 
    	
C-Pulse   Cuff, Medium
    
	
 
    	
 
    	
 
    
	
94021
    	
 
    	
C-Pulse   Cuff, Medium Not for Human Use
    
	
 
    	
 
    	
 
    
	
95020
    	
 
    	
C-Pulse   Cuff, Large
    
	
 
    	
 
    	
 
    
	
95021
    	
 
    	
C-Pulse   Cuff, Large Not for Human Use
    

 

25

 

Exhibit “D”

 

Initial Twelve Month Rolling Forecast

 

Forecast to be provided within 45 days of the Effective date.

 

26

 

Exhibit “E”

 

Initial Approved Vendor List

 

Suppliers for the program are identified on the Bill of Materials (BOM) document(s) which are provided as part of the requirements and specifications constitute the AVL.

 

Number FRM-061-A Approved Vendor List

 

 

27

 

Exhibit “F”

 

Intentionally Left Blank

 

To be jointly created by SHC & DSM PTG

 

28

 

Exhibit “G”

 

DMR documents for SHC Products

 

DMR (Device Master Record) documents are listed below for the Assemblies covered by this agreement. The revision of each DMR shall be the latest version not necessarily the revision cited below. The DMR includes all subordinate documents contained therein.

 

	
DMR Number & Rev
    	
 
    	
Title
    
	
DMR   93020-G
    	
 
    	
C-Pulse   Cuff, Small
    
	
DMR   94020-H
    	
 
    	
C-Pulse   Cuff, Medium
    
	
DMR   95030-H
    	
 
    	
C-Pulse   Cuff, Large
    

 

DHR document types

 

A DHR typically consist of one or more of the following document types. The list may not be inclusive or use identical terminology for all Vendors

 

Work Order Templates

Travelers

Procedures for Manufacturing, Assembly, Test, Inspection, etc.

Certificate of Compliance or Analysis (CofC) templates

Inspection results/forms

Test Data sheets/forms

etc

 

29

 

Exhibit “H”

 

Industry Standards and Certifications

 

CERTIFICATIONS

 

ISO 13485

 

ISO 9001

 

and all successor standards to ISO 13485 and ISO 9001.

 

30

 

Exhibit “I”

 

SHC Provided and Owned Equipment, Tooling, and Material

 

Equipment and Tooling

 

	
Qty
    	
 
    	
Part#
    	
 
    	
Rev
    	
 
    	
Description
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
BALLON   MANDRELS AND J HOOKS
    
	
5
    	
 
    	
01338
    	
 
    	
 
    	
 
    	
Mandrel,   Balloon, EABe, Small
    
	
5
    	
 
    	
01340
    	
 
    	
 
    	
 
    	
Mandrel,   Balloon, EABe, Medium
    
	
5
    	
 
    	
01342
    	
 
    	
 
    	
 
    	
Mandrel,   Balloon, EABe, Large
    
	
5
    	
 
    	
01346
    	
 
    	
 
    	
 
    	
Assembly   J-Hook, Dipping
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
1
    	
 
    	
?
    	
 
    	
 
    	
 
    	
Dispensing   Robot (BFD)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
4
    	
 
    	
01684
    	
 
    	
A
    	
 
    	
Balloon   Bushing Bonding Jig (See below for individual items)
    
	
1
    	
 
    	
 
    	
 
    	
 
    	
 
    	
Stand   for Balloon Bushing bonding (01703 & 01704)
    
	
1
    	
 
    	
01703
    	
 
    	
A
    	
 
    	
Stand   Bushing Bonding plate
    
	
3
    	
 
    	
01704
    	
 
    	
A
    	
 
    	
Post,   Bushing Balloon Bonding
    
	
3
    	
 
    	
01712
    	
 
    	
A
    	
 
    	
Guide   Post , Bushing Balloon Bonding Jig
    
	
4
    	
 
    	
01688
    	
 
    	
A
    	
 
    	
Base,   Bushing Balloon bonding jig
    
	
2
    	
 
    	
01685
    	
 
    	
B
    	
 
    	
Bushing   Balloon bonding clamp plate, Small
    
	
2
    	
 
    	
01708
    	
 
    	
B
    	
 
    	
Bushing   Balloon bonding clamp plate, Medium
    
	
8
    	
 
    	
01699
    	
 
    	
A
    	
 
    	
Slider   plate, Bushing Balloon bonding
    
	
24
    	
 
    	
 
    	
 
    	
-
    	
 
    	
Screws   for assembly (M4 thumbscrews x9, M6x12, M4x3)
    
	
2
    	
 
    	
01684
    	
 
    	
A
    	
 
    	
Balloon   Bushing Bonding Jig (See below for individual items)
    
	
2
    	
 
    	
01688
    	
 
    	
A
    	
 
    	
Base,   Bushing Balloon bonding jig
    
	
4
    	
 
    	
01699
    	
 
    	
A
    	
 
    	
Slider   plate, Bushing Balloon bonding
    
	
2
    	
 
    	
01709
    	
 
    	
B
    	
 
    	
Bushing   Balloon bonding clamp plate, Large
    
	
14
    	
 
    	
------
    	
 
    	
-
    	
 
    	
Screws   for assembly and spares (M4 thumbscrews x6, M6 x8)
    
	
3
    	
 
    	
01556
    	
 
    	
 
    	
 
    	
Hot   Knife Tip
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
HELIX   CUTTING TEMPLATES
    
	
1
    	
 
    	
01400
    	
 
    	
 
    	
 
    	
Cutting   Template, Upper, Bard Tube, 38
    
	
1
    	
 
    	
01401
    	
 
    	
 
    	
 
    	
Cutting   Template, Inner, Bard Tube, 38
    
	
1
    	
 
    	
01402
    	
 
    	
 
    	
 
    	
Cutting   Template, Lower, Bard Tube, 38
    
	
2
    	
 
    	
01582
    	
 
    	
 
    	
 
    	
Baseplate,   Clamp, 1 with SS Spring Pin
    
	
2
    	
 
    	
01583
    	
 
    	
 
    	
 
    	
Lockplate,   Clamp
    
	
4
    	
 
    	
01584
    	
 
    	
 
    	
 
    	
Pin,   Clamp
    
	
1
    	
 
    	
01588
    	
 
    	
 
    	
 
    	
Cutting   Template, Upper, Bard Tube, 36
    
	
1
    	
 
    	
01586
    	
 
    	
 
    	
 
    	
Cutting   Template, Inner, Bard Tube, 36
    
	
1
    	
 
    	
01587
    	
 
    	
 
    	
 
    	
Cutting   Template, Lower, Bard Tube, 36
    
	
2
    	
 
    	
01582
    	
 
    	
 
    	
 
    	
Baseplate,   Clamp, 1 with SS Spring Pin
    
	
2
    	
 
    	
01583
    	
 
    	
 
    	
 
    	
Lockplate,   Clamp
    
	
4
    	
 
    	
01584
    	
 
    	
 
    	
 
    	
Pin,   Clamp
    
	
multiple
    	
 
    	
01585
    	
 
    	
 
    	
 
    	
Center   Support
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
WRAP   PATTERN CUTTING TEMPLATES
    
	
1
    	
 
    	
01514
    	
 
    	
 
    	
 
    	
Wrap,   EABe Cutting Template, Small
    
	
1
    	
 
    	
01351
    	
 
    	
 
    	
 
    	
Wrap_,   EABe, Cutting Template, Medium
    
	
1
    	
 
    	
01352
    	
 
    	
 
    	
 
    	
Wrap,   EABe, Cutting Template, Large
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
TAIL   GLUING JIGS CENTRAL
    
	
1
    	
 
    	
01678
    	
 
    	
 
    	
 
    	
Glue   Template, Wrap Center, Small
    

 

31

 

	
1
    	
 
    	
01679
    	
 
    	
 
    	
 
    	
Glue   Template, Wrap Center, Medium
    
	
1
    	
 
    	
01680
    	
 
    	
 
    	
 
    	
Glue   Template, Wrap Center, Large
    
	
1
    	
 
    	
01692
    	
 
    	
 
    	
 
    	
Central   Tail Glue Jig
    
	
2
    	
 
    	
(CL-51-TC)
    	
 
    	
 
    	
 
    	
Toggle   Clamp with Fasteners
    
	
8
    	
 
    	
 
    	
 
    	
 
    	
 
    	
M4x10   SS Pan Head (Philips)
    
	
1
    	
 
    	
01693
    	
 
    	
 
    	
 
    	
Clamp   Disk
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
TAIL   GLUING JIGS SIDE
    
	
1
    	
 
    	
01681
    	
 
    	
 
    	
 
    	
Glue   Template, Wrap Tail
    
	
1
    	
 
    	
01690
    	
 
    	
 
    	
 
    	
Glue   Clamp, Wrap Tail
    
	
1
    	
 
    	
01691
    	
 
    	
 
    	
 
    	
Base   Plate, Gluing WrapTail
    
	
4
    	
 
    	
{CL-250HTC-S)
    	
 
    	
 
    	
 
    	
Toggle   Clamp with Fasteners
    
	
16
    	
 
    	
 
    	
 
    	
 
    	
 
    	
M4x10   SS Pan Head (Philips)
    
	
multiple
    	
 
    	
01693
    	
 
    	
 
    	
 
    	
Clamp   Disk
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
WRAP   HEAT SHAPING
    
	
1
    	
 
    	
01659
    	
 
    	
 
    	
 
    	
Baseplate,   Heat Shaper Nests
    
	
2
    	
 
    	
 
    	
 
    	
 
    	
 
    	
M4x20mm   SS Countersunk Screw
    
	
1
    	
 
    	
01615
    	
 
    	
 
    	
 
    	
Heat   Shaping Arbor, Small
    
	
1
    	
 
    	
01616
    	
 
    	
 
    	
 
    	
Heat   Shaping, Nest, Small
    
	
1
    	
 
    	
01657
    	
 
    	
 
    	
 
    	
Clamp,   Heat Shaping Nest, Small
    
	
2
    	
 
    	
 
    	
 
    	
 
    	
 
    	
M4x12mm   SS Socket Head Cap Screw
    
	
2
    	
 
    	
01617
    	
 
    	
 
    	
 
    	
Arbor   Clip
    
	
4
    	
 
    	
 
    	
 
    	
 
    	
 
    	
M4x10mm   SS Socket Head Cap Screw
    
	
1
    	
 
    	
01659
    	
 
    	
 
    	
 
    	
Baseplate,   Heat Shaper Nests
    
	
2
    	
 
    	
 
    	
 
    	
 
    	
 
    	
M4x20mm   SS Countersunk Screw
    
	
1
    	
 
    	
01628
    	
 
    	
 
    	
 
    	
Heat   Shaping Arbor, Medium
    
	
1
    	
 
    	
01629
    	
 
    	
 
    	
 
    	
Heat   Shaping, Nest, Medium
    
	
1
    	
 
    	
01626
    	
 
    	
 
    	
 
    	
Clamp,   Heat Shaping Nest, Medium
    
	
2
    	
 
    	
 
    	
 
    	
 
    	
 
    	
M4x12mm   SS Socket Head Cap Screw
    
	
2
    	
 
    	
01617
    	
 
    	
 
    	
 
    	
Arbor   Clip
    
	
4
    	
 
    	
 
    	
 
    	
 
    	
 
    	
M4x10mm   SS Socket Head Cap Screw
    
	
1
    	
 
    	
01659
    	
 
    	
 
    	
 
    	
Baseplate,   Heat Shaper Nests
    
	
2
    	
 
    	
 
    	
 
    	
 
    	
 
    	
M4x20mm   SS Counter Sunk
    
	
1
    	
 
    	
01631
    	
 
    	
 
    	
 
    	
Heat   Shaping Arbor, Large
    
	
1
    	
 
    	
01632
    	
 
    	
 
    	
 
    	
Heat   Shaping, Nest, Large
    
	
1
    	
 
    	
01658
    	
 
    	
 
    	
 
    	
Clamp,   Heat Shaping Nest, Large
    
	
2
    	
 
    	
 
    	
 
    	
 
    	
 
    	
M4xl2mm   SS Socket Head Cap Screw
    
	
2
    	
 
    	
01617
    	
 
    	
 
    	
 
    	
Arbor   Clip
    
	
4
    	
 
    	
 
    	
 
    	
 
    	
 
    	
M4x10mm   SS Socket Head Cap Screw
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
PORT   GLUING JIGS
    
	
1
    	
 
    	
01635
    	
 
    	
 
    	
 
    	
Clamp,   Base, Small
    
	
1
    	
 
    	
01636
    	
 
    	
 
    	
 
    	
Clamp,   Top, Small
    
	
1
    	
 
    	
 
    	
 
    	
 
    	
 
    	
M4x10mm   SS Thumb Screw
    
	
1
    	
 
    	
01638
    	
 
    	
 
    	
 
    	
Clamp,   Base, Medium
    
	
1
    	
 
    	
01639
    	
 
    	
 
    	
 
    	
Clamp,   Top, Medium
    
	
1
    	
 
    	
 
    	
 
    	
 
    	
 
    	
M4x10mm   SS Thumb Screw
    
	
1
    	
 
    	
01641
    	
 
    	
 
    	
 
    	
Port   Glue Clamp, Base, Large
    
	
1
    	
 
    	
01642
    	
 
    	
 
    	
 
    	
Port   Glue Clamp, Top, Large
    
	
1
    	
 
    	
 
    	
 
    	
 
    	
 
    	
M4x10mm   SS Thumb Screw
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
BUCKLE   CLEANING AND ATTACHMENT
    
	
1
    	
 
    	
01697
    	
 
    	
 
    	
 
    	
Buckle   Location Template
    
	
1
    	
 
    	
(8464A63)
    	
 
    	
 
    	
 
    	
Multi-position   vice
    
	
1
    	
 
    	
01800
    	
 
    	
 
    	
 
    	
Buckle   Template Clamp Base
    
	
1
    	
 
    	
01801
    	
 
    	
 
    	
 
    	
Buckle   Template Clamp Brace
    

 

32

 

	
1
    	
 
    	
01802
    	
 
    	
 
    	
 
    	
Buckle   Template Clamp Bushing
    
	
1
    	
 
    	
 
    	
 
    	
 
    	
 
    	
MS   Wingnut
    
	
2
    	
 
    	
 
    	
 
    	
 
    	
 
    	
M5x14   Phillips CSK Screw
    
	
1
    	
 
    	
 
    	
 
    	
 
    	
 
    	
M5x16   Phillips CSK Screw
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
IN-PROCESS   TAG
    
	
1
    	
 
    	
01702
    	
 
    	
 
    	
 
    	
Cutting   Template, In-Process Label
    

 

Inventory Items

 

	
Part#
    	
 
    	
Description
    	
 
    	
Quantity
    
	
044938
    	
 
    	
Bard   woven polyester tubing (wrap material) 38mm wide
    	
 
    	
35
    
	
01425-E
    	
 
    	
C-Pulse   Buckle
    	
 
    	
330
    
	
N/A
    	
 
    	
Completed   Wraps
    	
 
    	
1 tray
    
	
N/A
    	
 
    	
In   process cuff wrap tails
    	
 
    	
1 bag
    
	
N/A
    	
 
    	
Sterilization   pouches - assorted
    	
 
    	
1 bag
    
	
SPM   01330-B
    	
 
    	
Prolene   suture
    	
 
    	
1 bag
    
	
SPM   01707-A
    	
 
    	
Ethibond   polyester Suture, 4-0
    	
 
    	
1 bag
    
	
SPM   01330-A
    	
 
    	
Prolene   Suture
    	
 
    	
1 bag
    
	
01425-E
    	
 
    	
Buckle,   C-Pulse
    	
 
    	
1 bag
    

 

Miscellaneous Items - Instruments Consumables Etc.

 

	
Description
    	
 
    	
Quantity
    
	
various   wrap offcuts
    	
 
    	
1 bag
    
	
 
    	
 
    	
 
    
	
Folder   containing various labels
    	
 
    	
1 folder
    
	
 
    	
 
    	
 
    
	
1   Box of forceps, tools for cutting wrap, and

1   Box of cutting tools with divider

Incl:

·      Dividers

 

·      Spatula

 

·      No.3 scapel

 

·      Size 11 blades

 

·      Rule 150mm

 

·      Razor blades

 

·      Needle drivers

 

·      Tweezers

 

·      Babcock Tissue Forceps

 

·      Pen
    	
 
    	
2 boxes
    
	
 
    	
 
    	
 
    
	
Box   ofEFD dispensing accessories kit Incl:

·      NPT to Barrel elbows (907P) multiple

 

·      3cc barrel reservoirs (5109LL-B) multiple

 

·      White pistons for 3cc barrels (5109PE-B) multiple

 

·      Snap tight cap for 3cc reservoirs multiple (51 09EC-B)

 

·      Orange Tip Caps (5113-B) multiple

 

·      Dispenser tips green smooth flow (5118TT-B) multiple
    	
 
    	
1 box with multiple parts
    

 

33

 

Exhibit “M”

 

Quality Agreement

 

Specifications Inspection Documents:

 

Balloon:

 

QCT 40079 REV E     QCT 40080 REV E     QCT 40081 REV E

 

Subassembly:

 

QCT 40094 REV E     QCT 40095 REV E     QCT40096 REV E

 

Final Assembly:

 

QCT 90042 REV B     QCT 90043 REV B     QCT 90044 REV B

 

34

 

Exhibit ‘‘N’’

 

Form of Certification of Compliance

 

Print on DSM PTG Letterhead

 

CERTIFICATE OF COMPLIANCE

 

To:          Sunshine Heart Company P/L

                

                

                

Purchase Order No.:

 

	
DSM   PTG Part No.:
    	
 
    	
Revision:
    
	
 
    	
 
    	
 
    
	
SHC   Part No.:
    	
 
    	
Revision:
    
	
 
    	
 
    	
 
    
	
Description:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Quantity:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
DSM   PTG Lot Number:
    	
 
    	
 
    

 

DSM PTG Date of Manufacture:

 

DSM PTG hereby certifies that products completed under the above purchase order were produced in conformance to requirements contained in the DSM PTG-SHC Quality Documentation. It is further certified that all manufacturing records are on file and readily available for review at DSM PTG upon request.

 

	
Authorized   Signature:
    	
 
    	
 
    	
Date:
    	
 
    
	
 
    	
DSMPTG
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Printed   Name:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Title   of Signature:
    	
 
    	
 
    	
 
    
							

 

35Exhibit 10.1

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (the “Agreement”) is entered into by and between HERITAGE COMMERCE CORP, a California bank holding company (the “Company”), HERITAGE BANK OF COMMERCE, a California banking corporation (the “Bank”), and MICHAEL BENITO, an individual (the “Executive”) as of February 1, 2012 (the “Effective Date”).  This Agreement replaces any previous agreements between the parties and makes such previous agreements null and void.

 

RECITALS

 

WHEREAS, the Company is a California corporation and a bank holding Company registered under the Bank Holding Company Act of 1956, as amended, subject to the supervision and regulation of the Board of Governors of the Federal Reserve System,

 

WHEREAS, the Company is the parent holding company for the Bank, which is a California banking association, subject to the supervision and regulation of the California Department of Financial Institution and the Federal Reserve Board,

 

WHEREAS, the Board of Directors of the Company and the Bank has approved and authorized the entry into this Agreement with the Executive; and

 

WHEREAS, the parties desire to enter into this Agreement to set forth the terms and conditions for the employment relationship of the Executive with the Company and the Bank.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the promises and mutual covenants and agreements herein contained and intending to be legally bound hereby, the Company, the Bank and the Executive hereby agree as follows:

 

1.                                       Employment.

 

1.1                                 Title.  The Executive is employed as Executive Vice President/Business Banking Division Manager of the Bank.  In this capacity, the Executive shall have such duties and responsibilities as may be designated to him by the President of the Bank and in accordance with the objectives or policies of the Board of Directors, from time to time, in connection with the business activities of the Bank.

 

1.2                                 Devotion to Bank Business.  The Executive shall devote his full business time, ability, and attention to the business of the Bank during the term of this Agreement and shall not during the term of this Agreement engage in any other business activities, duties, or pursuits whatsoever, or directly or indirectly render any services of a business, commercial, or professional nature to any other person or organization, whether for compensation or otherwise, without the prior written consent of the Board of Directors of the Bank.  It shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly

 

1

 

interfere with the performance of the Executive’s responsibilities as an employee of the Bank in accordance with this Agreement.  Nothing in this Agreement shall be interpreted to prohibit the Executive from making passive personal investments.  However, the Executive shall not directly or indirectly acquire, hold, or retain any interest in any business competing with or similar in nature to the business of the Bank and the Company, except as permitted by Company policies or authorized by the Chief Executive Officer of the Company.

 

1.3                                 Standard.  The Executive will set a high standard of professional conduct given his role with the Bank and his responsibility relative to the Bank’s presence and stature in the community.  The Executive will, at all times, emulate this high professional standard of conduct in order to develop and enhance the Bank’s reputation and image.  The Executive’s and his family’s eligibility and all other terms and conditions of the Executive’s participation in the Bank’s or Company’s benefit, insurance and disability plans and programs will be governed by the official plan documents which may change from year-to-year.  Notwithstanding the foregoing, at a minimum the Executive shall be entitled to the same benefits as all other executives in comparable positions with the Bank.  The Executive will comply with all applicable rules, policies and procedures of the Bank and any of its subsidiaries and all pertinent regulatory standards as may affect the Bank and the Company.

 

1.4                                 Location.  The Executive shall provide services for the Bank at its principal executive offices located in San Jose, California.  The Executive agrees that the Executive will be regularly present at the Bank’s principal executive offices and that the Executive may be required to travel from time to time in the course of performing the Executive’s duties for the Bank.

 

1.5                                 No Breach of Contract.   The Executive hereby represents to the Company and the Bank that:  (i) the execution and delivery of this Agreement by the Executive and the performance by the Executive of the Executive’s duties hereunder shall not constitute a breach of, or otherwise contravene, the terms of any other agreement or policy to which the Executive is a party or by which he is otherwise bound; (ii) that the Executive has no information (including, without limitation, confidential information or trade secrets) of any other person or entity which the Executive is not legally and contractually free to disclose the Bank; and (iii) that the Executive is not bound by any confidentiality, trade secret or similar agreement (other than this Agreement) with any other person or entity.

 

2.                                       Term.  The term of this Agreement shall be a period of one (1) year from the Effective Date, subject to the termination provisions of Section 6.  Upon the occurrence of the first annual anniversary of the Effective Date, and on each anniversary date thereafter, the term of this Agreement shall be deemed automatically extended for an additional one (1) year term, subject to the termination provisions of Section 6.

 

3.                                       Compensation.

 

3.1                                 Salary.  The Executive shall receive a salary at an annual rate of $230,000 which will be paid in accordance with the Bank’s normal payroll procedures including applicable adjustments for withholding taxes.  The Executive shall receive such annual increases in salary, if any, as may be determined by the Company’s Board of Directors annual review of the Executive’s compensation each year during the term of this Agreement.  Participation in deferred

 

2

 

compensation, discretionary or performance bonus, retirement, stock option and other employee benefit plans and in fringe benefits shall not reduce the annual rate.

 

3.2                                 Incentive Compensation.  The Executive shall be entitled to receive an annual incentive compensation payment pursuant to the terms of the Heritage Commerce Corp Management Incentive Plan in effect at the date of this Agreement and as amended at any future date or pursuant to any successor incentive plan or arrangement adopted by the Bank or the Company for its officers (the “Incentive Plan”).  Notwithstanding any terms of the Incentive Plan to the contrary, an annual payment under the Incentive Plan for a fiscal year shall be paid to the Executive no later than the 15th day of the third month following the end of the calendar year in which the annual incentive compensation payment is no longer subject to a substantial risk of forfeiture.  Except as set forth in the Incentive Plan or this Agreement, or in any successor incentive plan or arrangement, no incentive compensation payments shall be prorated for a partial year during the year Executive terminates his employment and the Executive shall not be entitled to receive incentive compensation payments for any year during the term of this Agreement in which Executive was not employed by the Bank or the Company for the full fiscal year (not including his initial year of employment).

 

3.3                                 Automobile Allowance.  The Bank or the Company will pay to the Executive an automobile allowance in the amount of $700 per month plus gas reimbursement during the term of this Agreement.  The Executive shall obtain and maintain public liability insurance and property damage insurance policies with insurer(s) acceptable to the Bank and the Company with such coverages in such amounts which may be acceptable to the Bank and the Company from time to time.

 

3.4                                 Other Benefits.  The Executive shall be entitled to those benefits adopted by the Bank and the Company for all officers of the Bank, subject to applicable qualification requirements and regulatory approval requirements, if any.  To the extent that the level of such benefits is based on seniority or compensation levels, the Company and the Bank shall make appropriate and proportionate adjustments to the Executive’s benefits.  The Executive shall be further entitled to the following additional benefits which shall supplement or replace, to the extent duplicative of any part or all of the general officer benefits, the benefits otherwise provided to the Executive:

 

(a)                                  Vacation.  The Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Bank as in effect for the Executive or for other executives in comparable positions with the Bank; provided, however, that the Executive shall be entitled to earn paid vacation at the rate of not less than 25 days vacation days for each calendar year (reduced pro rata for any partial year), of which at least 10 days (reduced pro rata for any partial year) must be taken consecutively.  Vacation may be accrued in accordance with the Company’s policy.  The date or dates of vacation shall be determined by the Executive and the Bank’s President, and will be subject to the Bank’s business requirements.

 

(b)                                 Insurance.  The Bank or the Company shall provide during the term of this Agreement at no cost to the Executive group life, health (including medical, dental, vision and hospitalization), accident and disability insurance coverage for the Executive and his dependents through a policy or policies provided by the insurer(s) selected by the Bank or the Company in

 

3

 

their sole discretion on the same basis as all other executives in comparable positions with the Bank.

 

(c)                                  401(k).  The Company maintains a 401(k) plan for its eligible employees.  Subject to the terms and conditions set forth in the official plan documents, the Executive will be eligible to participate in the 401(k) plan, and shall receive a matching contribution in accordance with the terms of the 401(k) plan from the Company.

 

3.5                                 Business Expenses.  The Executive shall be entitled to incur and be reimbursed for all reasonable business expenses.  The Bank agrees that it will reimburse the Executive for all such expenses upon the presentation by the Executive, from time to time, of an itemized account of such expenditures setting forth the date, the purposes for which incurred, and the amounts thereof, together with such receipts showing payments in conformity with the Bank’s established policies.  Reimbursement shall be made within a reasonable period after the Executive’s submission of an itemized account in accordance with the Bank’s policies.

 

4.                                       Indemnity.  The Bank and the Company shall indemnify and hold the Executive harmless from any cost, expense or liability arising out of or relating to any acts or decisions made by the Executive on behalf of or in the course of performing services for the Bank to the same extent the Bank and the Company indemnifies and holds harmless other executive officers and directors of the Bank and in accordance with the articles of incorporation, bylaws and established policies of the Bank and the Company.

 

5.                                       Certain Terms Defined.  For purposes of this Agreement:

 

5.1                                 “Accrued Obligations” means the sum of the Executive’s Base Salary and accrued vacation through the Date of Termination to the extent not theretofore paid, outstanding expense reimbursements and any compensation previously deferred by the Executive to the extent not theretofore paid.

 

5.2                                 “Average Annual Bonus” shall mean the average annual bonus or incentive compensation amount paid to (or earned by) the Executive during the three (3) fiscal years (or in any shorter number of years if the length of employment of the Executive is less than three (3) years) immediately preceding the termination.

 

5.3                                 “Base Salary” means, as of any Date of Termination of employment, the current annual salary of the Executive.

 

5.4                                 “Cause” shall mean (i) the Executive willfully breaches or habitually neglects the duties which the Executive is required to perform under this Agreement; (ii) the Executive commits an intentional act of moral turpitude that has a material detrimental effect on the reputation or business of the Bank or the Company; (iii) the Executive is convicted of a felony or commits any material and actionable act of dishonesty, fraud, or intentional material misrepresentation in the performance of the Executive’s duties under this Agreement; (iv) the Executive engages in an unauthorized disclosure or use of inside information, trade secrets or other confidential information; or (v) the Executive willfully breaches a fiduciary duty, or violates any law, rule or regulation, which breach or violation results in a material adverse effect on the Company and the Bank (taken as a whole).  If the Bank decides to terminate the Executive’s employment for Cause, the Bank will provide the Executive with notice specifying

 

4

 

the grounds for termination, accompanied by a brief written statement stating the relevant facts supporting such grounds.

 

5.5                                 “Change of Control” shall mean, subject to the limitations of Section 409A of the Code, set forth in Section 7 of this Agreement, the earliest occurrence of one of the following events:

 

(a)                                  the acquisition (or acquisition during the 12 month period ending on the date of the most recent acquisition) by any individual, entity, or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 40% or more of either (i) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (“Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control; (i) any acquisition directly from the Company, (ii) any acquisition by the Company that reduces the number of shares issued and outstanding through a stock repurchase program or otherwise, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or the Bank or any corporation controlled by the Company or the Bank or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 5.5; or

 

(b)                                 individuals who, as of the Effective Date, constitute the Board of Directors of the Company (the “Incumbent Board”) cease for any reason other than resignation, death or disability to constitute at least a majority of the Company’s Board of Directors during any 12 month period; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Company’s Board of Directors; or

 

(c)                                  consummation of a reorganization, merger or consolidation of the Company or the Bank, or sale or other disposition (in one transaction or a series of transactions) of any assets of the Bank or the Company having a total fair market value equal to, or more than, 40% of the total gross fair market value of all of the assets of the Bank or the Company immediately prior to such acquisition or acquisitions (a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Common Stock and Outstanding Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns all or substantially all of the Company’s or Bank’s assets either directly

 

5

 

or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Common Stock and Outstanding Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or the Bank or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Company’s Board of Directors at the time of the execution of the initial agreement, or of the action of the Company’s Board of Directors, providing for such Business Combination; or

 

(d)                                 approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

 

5.6                                 “Code” means the Internal Revenue Code of 1986, as amended and any successor provisions to such sections.

 

5.7                                 “Change of Control Period” shall mean the period of time (a) commencing on the earlier of (i) 120 days before the date the Change of Control occurs, or if earlier, 120 days before a definitive agreement is executed by the Company or the Bank for a transaction described in Section 5.4(c) (provided, however, that in the event of this subsection (a)(i) the Executive reasonably demonstrates that his termination of employment should it occur was either (x) at the request of a third party who has taken steps reasonably calculated to effect a change in control, or (y) otherwise arose in connection with a Change in Control), or (ii) the date the Change of Control occurs, and (b) ending on the last day of the 24th calendar month immediately following the month the Change of Control occurred.

 

5.8                                 “Date of Termination” means (i) if the Executive’s employment is terminated due to the Executive’s death, the Date of Termination shall be the date of death; (ii) if the Executive’s employment is terminated due to Disability, the Date of Termination is the Disability Effective Date; (iii) if the Executive’s employment is terminated by the Bank or the Company for Cause, the Date of Termination is the date on which the Bank or the Company gives notice to the Executive of such termination; (iv) if the Executive’s employment is terminated by the Bank or the Company without Cause or voluntarily by the Executive, the Date of Termination shall be the date specified in the notice of termination; and (v) if the Executive’s employment terminates for any other reason, the Date of Termination shall be the Executive’s final date of employment.

 

5.9                                 “Disability” shall mean a physical or mental condition of the Executive which occurs and persists and which, in the written opinion of a physician selected by the Bank or its insurers and acceptable to the Executive or the Executive’s legal representative, and, in the written opinion of such physician, the condition will render the Executive unable to return to his duties for an indefinite period of not less than 180 days.

 

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6.                                       Termination.

 

6.1                                 This Agreement may be terminated for the following reasons:

 

(a)                                  Death.  This Agreement shall terminate automatically upon the Executive’s death.

 

(b)                                 Disability.  In the event of the Executive’s Disability, the Bank may give the Executive a notice of termination.  In such event, the Executive’s employment with the Bank and this Agreement shall terminate without further act of the parties effective on the 30th day after receipt of such notice by the Executive (the “Disability Effective Date”) provided, however, that within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive’ duties.  Unless otherwise agreed in writing between the Executive, the Bank and the Company, the Executive shall immediately cease performing and discharging the duties and responsibilities of his positions and remove himself and his personal belongings from the Bank’s and the Company’s premises.  All rights and obligations accruing to the Executive under this Agreement shall cease at such termination, except that such termination shall not prejudice the Executive’s rights regarding employment benefits which shall have accrued prior to such termination, and any other remedy which the Executive may have at law, in equity or under this Agreement, which remedy accrued prior to such termination.

 

(c)                                  Cause.    The Bank or the Company may terminate the Executive’s employment and this Agreement for Cause.  Unless otherwise agreed in writing between the Executive, the Bank and the Company, the Executive shall immediately cease performing and discharging the duties and responsibilities of his positions and remove himself and his personal belongings from the Bank’s and the Company’s premises.  All rights and obligations accruing to the Executive under this Agreement shall cease at such termination, except that such termination shall not prejudice the Executive’s rights regarding employment benefits which shall have accrued prior to such termination, and any other remedy which the Executive may have at law, in equity or under this Agreement, which remedy accrued prior to such termination.

 

(d)                                 Termination by Bank or the Company without Cause.  The Bank or the Company may, at its election and in its sole discretion, terminate the Executive’s employment and this Agreement at any time and for any reason or for no reason, upon 30 days prior written notice to the Executive, without prejudice to any other remedy to which the Bank or the Company may be entitled either at law, in equity or under this Agreement.  Unless otherwise agreed in writing between the Executive, the Bank and the Company, the Executive shall immediately cease performing and discharging the duties and responsibilities of his positions and remove himself and his personal belongings from the Bank’s and the Company’s premises.  All rights and obligations accruing to the Executive under this Agreement shall cease at such termination, except that such termination shall not prejudice the Executive’s rights regarding employment benefits which shall have accrued prior to such termination, including the right to receive the severance benefits specified in Section 6.2(a) or 6.2(b) below, and any other remedy which the Executive may have at law, in equity or under this Agreement, which remedy accrued prior to such termination.

 

(e)                                  Voluntary Termination by Executive.  The Executive may terminate his employment and this Agreement at any time and for any reason or no reason, upon 30 days prior

 

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written notice to the Bank and the Company.  Unless otherwise agreed in writing between the Executive, the Bank and the Company, the Executive shall immediately cease performing and discharging the duties and responsibilities of his positions and remove himself and his personal belongings from the Bank’s and the Company’s premises. All rights and obligations accruing to the Executive under this Agreement shall cease at such termination, except that such termination shall not prejudice the Executive’s rights regarding employment benefits which shall have accrued prior to such termination and any other remedy which the Executive may have at law, in equity or under this Agreement, which remedy accrued prior to such termination.

 

6.2                                 Certain Benefits upon Termination.

 

(a)                                  Termination without Cause.  In the event this Agreement is terminated based on Section 6.1(d) (termination without Cause), then in such case, the Executive shall receive the Accrued Obligations on the Date of Termination, and severance benefits constituting of:

 

(i)                                     cash payment in the amount equal to one (1) times the sum of the Executive’s (A) Base Salary and (B) the Average Annual Bonus payable in a lump sum within 30 days of the Date of Termination, and

 

(ii)                                  continuation of group insurance coverages specified in Section 3.4(b) of this Agreement on terms at least equal to those if the Executive’s employment had not been terminated, but not less favorable than that provided to other executives in comparable positions with the Bank, for a period of 12 months from the Date of Termination, including, continuation of medical coverage for the Executive and his dependents pursuant to The Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), or under applicable California law pursuant to Assembly Bill No. 1401 (“Cal COBRA”), with one hundred percent (100%) of premiums for the insurance coverages payable by the Bank or the Company monthly to the Executive for a period of 12 months from the Date of Termination.  After expiration of the 12 month period, the Executive and his dependents shall have such rights to continue to participate under the Bank’s or the Company’s group insurance coverages specified in Section 3.4(b) of this Agreement at the Executive’s expense to the extent available under the terms of the plan or benefit.  The Executive agrees to notify the Bank or the Company as soon as practicable, but not less than 10 business days in advance of the commencement of comparable insurance coverages with another employer.  The Bank’s obligation for the 12 month period specified herein with respect to the foregoing benefits shall be limited to the extent that the Executive obtains any such benefits pursuant to a subsequent employer’s benefit plans, in which case the Bank may reduce the coverage of any benefits it is required to provide the Executive hereunder so long as the aggregate coverages and benefits of the combined benefit plans of the new employer are not substantially less favorable to the Executive than the coverages and benefits required to be provided hereunder.

 

Notwithstanding the foregoing or any other provision of this Agreement, if any part or all of the severance benefits is subject to taxation under Section 409A of the Code, as determined by the Bank or the Company, with the advice of its independent accounting firm or other tax advisors, then the severance benefits shall be subject to modification as set forth in Section 7 of this Agreement.

 

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Notwithstanding the foregoing, when the Executive is entitled to the severance benefits provided in Section 6.2(b), then Executive shall not be entitled to the severance benefits pursuant to this Section 6.2(a).

 

The Executive acknowledges and agrees that severance benefits pursuant to this Section 6.2(a) are in lieu of all damages, payments and liabilities on account of the early termination of this Agreement and are the sole and exclusive remedy for the Executive for a termination specified in Section 6.1(d).

 

(b)                                 Termination and Change in Control.  In the event of a Change in Control and at any time during the Change of Control Period (x) the Executive’s employment is terminated, or (y) without Executive’s written consent there occurs any material adverse change in the nature and scope of the Executive’s position, responsibilities, duties, or a change of 30 miles or more in the Executive’s location of employment, or any material reduction in Executive’s compensation or benefits and Executive voluntarily terminates his employment, then the Executive shall receive the Accrued Obligations on the Date of Termination, and the severance benefits consisting of:

 

(i)                                     cash payment in the amount equal to two (2) times the sum of the Executive’s (A) Base Salary and (B) the Average Annual Bonus, payable in a lump sum within 30 days of the Date of Termination, and

 

(ii)                                  continuation of group insurance coverages specified in Section 3.4(b) of this Agreement on terms at least equal to those if the Executive’s employment had not been terminated, but not less favorable than that provided to other executives in comparable positions with the Bank or the Company, for a period of 24 months from the Date of Termination, including continuation of medical coverage for the Executive and his dependents pursuant to Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), or under applicable California law pursuant to Assembly Bill No. 1401 (“Cal COBRA”), with one hundred percent (100%) of premiums for the insurance coverages payable by the Bank or the Company monthly to the Executive for a period of 24 months from the Date of Termination.  After such expiration of the 24 month period, the Executive and his dependents shall have such rights to continue to participate under the Bank’s or the Company’s group insurance coverages specified in Section 3.4(b) of this Agreement at the Executive’s expense to the extent available under the terms of the plan or benefit.  The Executive agrees to notify the Bank or the Company as soon as practicable, but not less than 10 business days in advance of the commencement of comparable insurance coverages with another insurance carrier.  The Bank’s or the Company’s obligation for the 24 month period specified herein with respect to the foregoing benefits shall be limited to the extent that the Executive obtains any such benefits pursuant to a subsequent employer’s benefit plans, in which case the Bank or the Company may reduce the coverage of any benefits it is required to provide the Executive hereunder so long as the aggregate coverages and benefits of the combined benefit plans of the new employer are not substantially less favorable to the Executive than the coverages and benefits required to be provided hereunder.

 

Notwithstanding the foregoing or any other provision of this Agreement, if any part or all of the severance benefits is subject to taxation under Section 409A of the Code, as determined by the Bank or the Company, with the advice of its independent accounting firm or

 

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other tax advisors, then the severance payment shall be subject to modification as set forth hereafter in Section 7 of this Agreement.

 

The Executive acknowledges and agrees that severance benefits pursuant to this Section 6.2(b) are in lieu of all damages, payments and liabilities on account of the events described above for which such severance benefits may be due the Executive under Section 6.2(b) of this Agreement.  This Section 6.2(b) shall be binding upon and inure to the benefit of the Bank and the Company and their respective successors and assigns.

 

Notwithstanding the foregoing, the Executive shall not be entitled to receive severance benefits pursuant to this Section 6.2(b) in the event his termination of employment results from an occurrence described in Sections 6.1(a), 6.1(b) or 6.1(c).

 

(c)                                  Death.    If the Executive’s employment terminates by reason of the Executive’s death, this Agreement shall terminate without further obligations to the Executive’s legal representatives under this Agreement, other than for payment of Accrued Obligations and any incentive compensation for the year in which the death occurred prorated through the Date of Termination.  Accrued Obligations shall be paid to the Executive’s estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination; provided, however, that payment may be deferred until the Executive’s executor or personal representative has been appointed and qualified pursuant to the laws in effect in the Executive’s jurisdiction of residence at the time of the Executive’s death.  The Executive’s estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Bank to the estate and beneficiaries of other executives in comparable positions with the Bank under such plans, programs, practices and policies relating to death benefits, if any, as in effect on the date of the Executive’s death.

 

(d)                                 Disability.  If the Executive’s employment terminates during the Term by reason of the Executive’s Disability, this Agreement shall terminate without further obligations to the Executive under this Agreement, other than for payment of Accrued Obligations, and any incentive compensation for the year in which the termination occurs prorated through the Date of Termination and any benefits under such plans, programs, practices and policies relating to disability benefits, if any, as in effect on the Date of Termination.

 

(e)                                  Cause/Voluntary Termination.  If the Executive’s employment terminates for Cause, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive the Accrued Obligations.  If the Executive’s employment terminates due to the Executive’s voluntarily termination, except as provided in clause (y) of the first paragraph of Section 6.2(b), this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive the Accrued Obligations.

 

(f)                                    Single Trigger Event.    The provisions for payments contained in this Section 6.2 may be triggered only once during the term of this Agreement, so that, for example, should the Executive be terminated because of a Disability and should there thereafter be a Change of Control, then the Executive would be entitled to be paid only under Section 6.2(d) and not under Section 6.2(b), as well. In addition, the Executive shall not be entitled to receive severance benefits of any kind from any parent, wholly owned subsidiary or other affiliated

 

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entity of the Bank or the Company if in connection with the same event of series of events the payments provided for in this Section 6.2 has been triggered.

 

7.                                       Section 409A Limitation.  It is the intention of the Bank, the Company and the Executive that the severance benefits payable to the Executive under Section 6.2 either be exempt from, or otherwise comply with, Section 409A (“Section 409A”) of the Code.

 

Notwithstanding any other term or provision of this Agreement, to the extent that any provision of this Agreement is determined by the Bank or the Company, with the advice of its independent accounting firm or other tax advisors, to be subject to and not in compliance with Section 409A, including, without limitation, the definition of Change in Control or the timing of commencement and completion of severance benefits and/or other benefit payments to the Executive hereunder, or the amount of any such payments, such provisions shall be interpreted in the manner required to exempt the benefits from or to comply with Section 409A.  The Company, the Bank and the Executive acknowledge and agree that such interpretation could, among other matters, (i) limit the circumstances or events that constitute a “change in control;” (ii) delay for a period of 6 months or more, or otherwise modify the commencement of severance and/or other benefit payments; (iii) modify the completion date of severance and/or (iv) other benefit payments and/or reduce the amount of the benefit otherwise provided.

 

The Company, Bank and the Executive further acknowledge and agree that if, in the judgment of the Bank or the Company, with the advice of its independent accounting firm or other tax advisors, amendment of this Agreement is necessary to exempt the benefits from or to comply with Section 409A, the Bank, the Company and the Executive will negotiate reasonably and in good faith to amend the terms of this Agreement to the extent necessary so that it exempts the benefits from or to comply with Section 409A (with the most limited possible economic effect on the Bank, the Company and the Executive).  For example, if this Agreement is subject to Section 409A and Section 409A requires that severance and/or other benefit payments must be delayed until at least 6 months after the Executive terminates employment, then the Bank, the Company and the Executive shall delay payments and/or promptly seek a written amendment to this Agreement that would, if permissible under Section 409A, eliminate any such payments otherwise payable during the first 6 months following the Executive’s termination of employment and substitute therefore a lump sum payment or an initial installment payment, as applicable, at the beginning of the 7th month following the Executive’s termination of employment which, in the case of an initial installment payment, would be equal in the aggregate to the amount of all such payments thus eliminated.  Notwithstanding the foregoing, (a) the Executive and his dependents shall not be denied access to and participation in any health or medical insurance coverage and benefits, for any period of time the Executive and his dependants are otherwise eligible, and (b) the Executive acknowledges and agrees that the Company or the Bank shall have the exclusive authority to determine whether the Executive is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i).

 

8.                                       Gross Up Of Section 280G and 409A Tax.  If all or any portion of the amounts payable to the Executive under this Agreement, either alone or together with other payments or benefits which the Executive has the right to receive from the Bank or the Company, constitute “excess parachute payments” within the meaning of Section 280G of the Code, that are subject to the excise tax imposed by section 4999 of the Code (or similar tax and/or assessment), or any tax is imposed on the Executive under Section 409A, the Bank or the Company (and its successor)

 

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shall increase the amount payable under this Agreement to the extent necessary to afford the Executive substantially the same economic benefit under this Agreement as the Executive would have received had no such excise tax under Section 280G or tax under Section 409A been imposed on the payments due the Executive under this Agreement.  The determination of the amount of any such taxes shall be made by the independent accounting firm employed by the Bank or the Company, immediately prior to the Change in Control, or such other independent accounting firm or advisor as may be mutually agreeable to the Bank or the Company (and their respective successor), and the Executive in the exercise of their reasonable good faith judgment.  If, at a later date, it is determined (pursuant to final regulations or published rulings of the Internal Revenue Service, final judgment of a court of competent jurisdiction, or otherwise) that the amount of any such taxes payable to the Executive is greater than the amount initially so determined, then the Bank or the Company (or its successor) shall pay to the Executive an amount equal to the sum of such additional taxes and any interest, fines and penalties resulting from such underpayment, plus an amount necessary to reimburse the Executive substantially for any income, excise or other taxes payable by the Executive with respect to such amounts.  All gross-up payments made hereunder, shall be paid within the period specified by Treasury Regulation Section 1.409A-3(i)(1)(v) so that the gross-up payment shall qualify as providing for payment at a specified time or on a fixed schedule.

 

9.                                       Assignment.  This Agreement will inure to the benefit of and be binding upon the Bank and the Company and any of their respective successors and assigns.  In view of the personal nature of the services to be performed under this Agreement by the Executive, the Executive will not have the right to assign or transfer any of his rights, obligations or benefits under this Agreement.  The Bank and the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Bank or the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Bank and the Company would be required to perform it if no such succession had taken place.  As used in this Agreement, “Bank” or “the Company” shall mean the Bank or the Company, as applicable, as hereinbefore defined and any successor to the Company’s or Bank’s business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

 

10.                                 Specific Performance.  The Executive hereby represents and agrees that the services to be performed under the terms of this Agreement are of a special, unique, unusual, extraordinary, and intellectual character that gives them a peculiar value, the loss of which cannot be reasonably or adequately compensated in damages in an action at law.  The Executive therefore expressly agrees that the Bank and the Company, in addition to any other rights or remedies that the Bank and the Company may possess, shall be entitled to injunctive and other equitable relief to prevent or remedy a breach of this Agreement by the Executive.

 

11.                                 Noncompetition, No solicitation And Nondisclosure By The Executive.

 

(a)                                  Definitions.  The term “Trade Secrets” shall be given its broadest possible interpretation and shall mean any information, including formulas, patterns, compilations, reports, records, programs, devices, methods, know-how, negative know-how, techniques, raw material properties and specifications, formulations, discoveries, ideas, concepts, designs, technical information, drawings, data, customer and supplier lists, information regarding customers, buyers and suppliers, distribution techniques, production processes, research and

 

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development projects, marketing plans, general financial information and financial information concerning customers, the Company’s or the Bank’s legal, business and financial structure and operations, and other confidential and proprietary information or processes which (i) derive independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use and (ii) are the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

 

The term “Proprietary Information” shall also be given its broadest possible interpretation and shall mean any and all information disclosed or made available by the Bank to the Executive including, without limitation, any information which is not publicly known or available and upon which the Bank’s business or success depends.

 

(b)                                 The Executive shall not, during the term of this Agreement, directly or indirectly, either as an employee, employer, consultant, agent, principal, stockholder (except as permitted in Section 1.2  of this Agreement), officer, director, or in any other individual or representative capacity, engage or participate in any competitive banking or financial services business without the prior written consent of the Board of Directors of the Bank or the Company.

 

(c)                                  Following termination of this Agreement and the Executive’s employment hereunder, the Executive shall not use any Trade Secret or Proprietary Information of the Bank or the Company or their affiliates and subsidiaries to solicit, encourage or assist, directly, indirectly or in any manner whatsoever, (i) any employees of the Bank, the Company or their affiliates and subsidiaries (including any former employees who voluntarily terminated employment with the Bank or the Company within a 12 month period prior to the Executive’s termination of employment) to resign or to apply for or accept employment with any other competitive banking or financial services business within the counties in California in which the Bank has located its headquarters or branch offices; or (ii) any customer, person or entity that has a business relationship with the Bank during the 12 month period prior to the Executive’s termination of employment with the Bank, or was engaged in a business relationship with the Bank, to terminate such business relationship and engage in a business relationship with any other competitive banking or financial services business within the counties in California in which the Bank has located its headquarters or branch offices.

 

(d)                                 In addition and not as any limitation on the provisions of this Section 11, following termination of this Agreement and the Executive’s employment hereunder and for 12 months thereafter, the Executive shall not directly or indirectly, individually or as a consultant to, or as an employee, officer, stockholder, director or other owner of or participant in any business entity that engages in or seeks to engage in any banking or financial services business, solicit (or assist in soliciting) any person who is, or at any time within 1 month prior to the Executive’s termination of employment was, an employee of the Company or the Bank who earned $25,000 on an annual rate or more as an employee of the Company or the Bank to work for (as an employee, consultant or otherwise) any business, individual, partnership, firm, corporation, or other entity whether or not engaged in competitive business with the Bank or the Company.

 

12.                                 Disclosure of Information.  The Executive shall not, at any time or in any manner, directly or indirectly, either before or after termination of this Agreement, without the prior written consent of the Board of Directors of the Company or except as required by law to comply with legal process including, without limitation, by oral questions, interrogatories, requests for

 

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information or documents, subpoena, civil investigative demand or similar process, use for his own benefit or the benefit of any other person or entity, or otherwise disclose or communicate to any person or entity including, without limitation, the media or by way of the World Wide Web, any information concerning any Trade Secret or Proprietary Information of the Company or the Bank.  The Executive further recognizes and acknowledges that any Trade Secrets concerning any customers of the Bank or the Company and their respective affiliates and subsidiaries, as it may exist from time to time, is strictly confidential and is a valuable, special and unique asset of the Bank’s and the Company’s business.  In the event the Executive is required by law to disclose Trade Secrets or Proprietary Information, the Executive will provide the Bank and the Company, and their counsel with immediate notice of such request so that they may consider seeking a protective order.  If, in the absence of a protective order or the receipt of a waiver hereunder, the Executive is nonetheless, in the written opinion of knowledgeable counsel, compelled to disclose Trade Secrets or Proprietary Information to any tribunal or any other party or else stand liable for contempt or suffer other material censure or material penalty, then the Executive may disclose (on an “as needed” basis only) such information to such tribunal or other party without liability hereunder.  Notwithstanding the foregoing, the Executive may disclose Trade Secrets or Proprietary Information as may be required by any regulatory agency having jurisdiction over the operations of the Bank or the Company in connection with an examination of the Bank or the Company or other proceeding conducted by such regulatory agency.

 

13.                                 Written, Printed or Electronic Material.  All written, printed or electronic material, notebooks and records including, without limitation, computer disks, Blackberry (or similar devices), or lap top used by the Executive in performing duties for the Bank or the Company, other than the Executive’s personal address lists, telephone lists, notes and diaries, are and shall remain the sole property of the Bank and the Company.  Upon termination of employment, the Executive shall promptly return all such material (including all copies, extracts and summaries thereof) to the Bank.

 

14.                                 Emergency Economic Stabilization Act of 2008 and American Recovery and Reinvestment Act of 2009.  Notwithstanding any provisions in this Agreement to the contrary, as long as the U.S. Treasure own any stock or assets of the Bank or the Company pursuant to the Emergency Economic Stabilization Act of 2008 (the “EESA”) and/or the Troubled Asset Relief Program established by EESA and the American Recovery and Reinvestment Act of 2009 (“ARRA”), in the event that any payment or benefit to Executive pursuant to the terms of this Agreement or otherwise in connection with the Executive’s termination of employment or contingent upon a change in ownership or control pursuant to any plan or arrangement or other agreement with the Bank or the Company (or any affiliate) would constitute a “parachute payment” or any other prohibited payment within the meaning of EESA or ARRA, then the payments and benefits payable or to be received by the Executive shall not be payable or shall be reduced to the minimum extent necessary to comply with EESA and ARRA and any rules and regulations promulgated thereunder by the United States Department of Treasury.  This Section 14 shall no longer be in effect after such time as the United States Treasury does not own any equity or debt interest in the Company.

 

15.                                 Miscellaneous.

 

15.1                           Notice.  For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given

 

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when personally delivered or 3 days after the date of mailing by United States mail, certified or registered, return receipt requested, postage prepaid, addressed to the respective addresses set forth below, or to such other addresses as either party may have furnished to the other in writing in accordance herewith, except that notice of a change of address shall be effective only upon actual receipt:

 

	
Company:
    	
 
    	
HERITAGE   COMMERCE CORP

150   Almaden Blvd.

San   Jose, CA 95113

Attn:   Chief Executive Officer
    
	
 
    	
 
    	
 
    
	
Bank:
    	
 
    	
HERITAGE   BANK OF COMMERCE

150   Almaden Blvd.

San Jose, CA 95113

Attn: President
    
	
 
    	
 
    	
 
    
	
with   a copy to:
    	
 
    	
Buchalter   Nemer

1000   Wilshire Boulevard, Suite 1500

Los Angeles, CA 90017-2457

Attn: Mark A. Bonenfant, Esq.
    
	
 
    	
 
    	
 
    
	
Executive:
    	
 
    	
Michael   Benito

150   Almaden Boulevard

San   Jose, CA 95113
    

 

15.2                           Amendments or Additions.  No amendment, modification or additions to this Agreement shall be binding unless in writing and signed by the parties hereto.

 

15.3                           Section Headings.  The section headings used in this Agreement are included solely for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement.

 

15.4                           Severability.  The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.

 

15.5                           Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but both of which together will constitute one and the same instrument.

 

15.6                           Mediation.  Prior to engaging in any legal or equitable litigation or other dispute resolution process, regarding any of the terms and conditions of this Agreement between the parties, or concerning the subject matter of the Agreement between the parties, each party specifically agrees to engage in good faith, in a mediation process at the expense of the Bank or the Company, complying with the procedures provided for under California Evidence Code Sections 1115 through and including 1125, as then currently in effect.  The parties further and specifically agree to use their best efforts to reach a mutually agreeable resolution of the matter.  The parties understand and specifically agree that should any party to this Agreement refuse to

 

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participate in mediation for any reason, the other party will be entitled to seek a court order to enforce this provision in any court of appropriate jurisdiction requiring the dissenting party to attend, participate, and to make a good faith effort in the mediation process to reach a mutually agreeable resolution of the matter.

 

15.7                           Arbitration.  To the extent not resolved through mediation as provided in Section 15.6, all claims, disputes and other matters in question arising out of or relating to this Agreement, any termination of the Executive’s employment, the enforcement or interpretation of this Agreement, or because of an alleged breach, default, or misrepresentation in connection with any of the provisions of this Agreement, including (without limitation) any state or federal statutory claims, shall be resolved by binding arbitration in Santa Clara County, California, before a sole arbitrator (the “Arbitrator”) mutually selected by the parties from Judicial Arbitration and Mediation Services (“JAMS”) in accordance with the rules and procedures of JAMS then in effect.  If JAMS is no longer able to supply the arbitrator, such arbitrator shall be mutually selected from the American Arbitration Association (“AAA”).  The obligation of the parties to arbitrate pursuant to this clause shall be specifically enforced in accordance with, and shall be conducted consistently with the provisions of Title 9 of Part 3 of the California Code of Civil Procedure as the exclusive remedy of such dispute; provided, however, that provisional injunctive relief may, but need not, be sought in a court of law while arbitration proceedings are pending, and any provisional injunctive relief granted by such court shall remain effective until the matter is finally determined by the Arbitrator.  Final resolution of any dispute through arbitration may include any remedy or relief that the Arbitrator deems just and equitable, including any and all remedies provided by applicable state or federal statutes.  At the conclusion of the arbitration, the Arbitrator shall issue a written decision that sets forth the essential findings and conclusions upon which the Arbitrator’s award or decision is based.  Any award or relief granted by the Arbitrator hereunder shall be final and binding on the parties hereto and may be enforced by any court of competent jurisdiction.

 

15.8                           Attorneys Fees.  In the event of litigation, arbitration or any other action or proceeding between the parties to interpret or enforce this Agreement, or any part thereof or relating to this Agreement, the prevailing party shall be entitled to recover its costs related to such action or proceeding and its reasonable fees of attorneys, accountants and expert witnesses incurred by such party in connection with any such action or proceedings.  The prevailing party shall be deemed to be the party which obtains substantially the relief sought by final resolution, compromise or settlement, or as may otherwise be determined by order of a court of competent jurisdiction in the event of litigation, an award or decision of an arbitrator in the event of arbitration.

 

15.9                           Entire Agreement.  This Agreement supersedes any and all agreements, either oral or in writing, between the parties with respect to the employment of the Executive by the Bank and the Company and contains all of the covenants and agreements between the parties with respect to the employment of the Executive by the Bank and the Company; provided, however, that, this Agreement does not supersede or replace the rights and benefits under any stock option agreement between the Company and the Executive.  Each party to this Agreement acknowledges that no other representations, inducements, promises, or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not set forth herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding on either party.

 

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15.10                     Waiver.  The failure of a party to insist on strict compliance with any of the terms, provisions, covenants, or conditions of this Agreement by another party shall not be deemed a waiver of any term, provision, covenant, or condition, individually or in the aggregate, unless such waiver is in writing, nor shall any waiver or relinquishment of any right or power at any one time or times be deemed a waiver or relinquishment of that right or power for all or any other times.

 

15.11                     Severability.  If any provision in this Agreement is held by a court of competent jurisdiction or arbitrator to be invalid, void, or unenforceable, the remaining provisions shall nevertheless continue in full force and effect without being impaired or invalidated in any way.  Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.

 

15.12                     Interpretation.  This Agreement shall be construed without regard to the party responsible for the preparation of the Agreement and shall be deemed to have been prepared jointly by the parties.  Any ambiguity or uncertainty existing in this Agreement shall not be interpreted against any party, but according to the application of other rules of contract interpretation, if an ambiguity or uncertainty exists.

 

15.13                     Governing Law and Venue.  The laws of the State of California, other than those laws denominated choice of law rules, shall govern the validity, construction and effect of this Agreement.  Any action which in any way involves the rights, duties and obligations of the parties hereunder and is not resolved by binding arbitration shall be brought in the courts of the State of California and venue for any action or proceeding shall be in Santa Clara County or in the United States District Court for the Northern District of California, and the parties hereby submit to the personal jurisdiction of said courts.

 

15.14                     Payments Due Deceased Executive.  If the Executive dies prior to the expiration of the term of his employment (except termination resulting from such death), any payments that may be due the Executive from the Bank or the Company under this Agreement as of the date of death shall be paid to the Executive’s heirs, beneficiaries, successors, permitted assigns or transferees, executors, administrators, trustees, or any other legal or personal representatives.

 

15.15                     Effect of Termination on Certain Provisions.  Upon the termination of this Agreement, the obligations of the Bank, the Company and the Executive hereunder shall cease except to the extent of the Bank’s or the Company’s obligation to make payments, if any, to or for the benefit of the Executive following termination, and provided that Sections 4, 6.2, 7, 8, 9, 10, 11, 12, 13, 14, 15.1, 15.3, 15.4, 15.6, 15.7, 15.8, 15.9, 15.10, 15.11, 15.12, 15.13, 15.14, and 15.15 shall remain in full force and effect.

 

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15.16                     Advice of Counsel and Advisors.  The Executive acknowledges and agrees that he has read and understands the terms and provisions of this Agreement and prior to signing this Agreement, he has had the advice of counsel and/or such other advisors as he deemed appropriate in connection with his review and analysis of such terms and provisions of this Agreement.

 

IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement on the date first indicated above.

 

	
 
    	
“COMPANY”
    
	
 
    	
 
    
	
 
    	
HERITAGE   COMMERCE CORP,
    
	
 
    	
a   California bank holding company
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Walter Kaczmarek
    
	
 
    	
 
    	
Walter   Kaczmarek,
    
	
 
    	
 
    	
Chief   Executive Officer
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
“BANK”
    
	
 
    	
 
    
	
 
    	
HERITAGE   BANK OF COMMERCE,
    
	
 
    	
a   California banking corporation
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Walter Kaczmarek
    
	
 
    	
 
    	
Walter   Kaczmarek,
    
	
 
    	
 
    	
President
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
“EXECUTIVE”
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Michael Benito
    
	
 
    	
 
    	
Michael   Benito
    

 

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