-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HK/cE+Sl5wN9+r8Y3wC+s3/6kmTfl27LVvaDeJdT/T11XnxkYGK/Sx3BMcY77B2x uQIt2pyXkSXMTVOi0XyTBw== 0000950148-98-002489.txt : 19981116 0000950148-98-002489.hdr.sgml : 19981116 ACCESSION NUMBER: 0000950148-98-002489 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981002 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MINIMED INC CENTRAL INDEX KEY: 0000945801 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 954408171 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26268 FILM NUMBER: 98747986 BUSINESS ADDRESS: STREET 1: 12744 SAN FERNANDO RD CITY: SYLMAR STATE: CA ZIP: 91342 BUSINESS PHONE: 8183625958 MAIL ADDRESS: STREET 1: 12744 SAN FERNANDO RD CITY: SYLMAR STATE: CA ZIP: 91342 10-Q 1 FORM 10-Q 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 10-Q --------------- (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 2, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____to______ Commission file number 0-26268 MINIMED INC. (Exact Name of Registrant as Specified in its Charter) --------------- Delaware 95-4408171 (State or other jurisdiction of (I.R.S. Employer incorporated or organization) Identification No.) 12744 SAN FERNANDO ROAD, SYLMAR, CA 91342 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (818) 362-5958 --------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: TITLE OF EACH CLASS OUTSTANDING AT NOVEMBER 3, 1998 Common Stock, $.01 par value 13,486,090 ================================================================================ 2 INDEX MINIMED INC.
PAGE NUMBER ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) 3 Consolidated Balance Sheets (Unaudited) - January 2, 1998 and October 2, 1998 3 Consolidated Statements of Income (Unaudited) -- Three months and nine months ended September 26, 1997 and October 2, 1998 4 Consolidated Statements of Cash Flows (Unaudited) -- Nine months ended September 26, 1997 and October 2, 1998 5 Notes to Consolidated Financial Statements (Unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 17 PART II. OTHER INFORMATION 17 Item 1. Legal Proceedings 17 Item 2. Changes in Securities and Use of Proceeds 17 Item 3. Defaults Upon Senior Securities 17 Item 4. Submission of Matters to a Vote of Security Holders 17 Item 5. Other Information 17 Item 6. Exhibits and Reports on Form 8-K 17 SIGNATURE 18 INDEX TO EXHIBITS 19
2 3 PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS AND NOTES MINIMED INC. CONSOLIDATED BALANCE SHEETS JANUARY 2, 1998 AND OCTOBER 2, 1998
ASSETS 1997 1998 ------------- ------------- (Unaudited) CURRENT ASSETS: Cash and cash equivalents ................................................... $ 22,282,000 $ 14,336,000 Short-term investments ...................................................... 18,713,000 2,239,000 Accounts receivable, net of allowance for doubtful accounts of $6,250,000 and $5,693,000 at January 2, 1998 and October 2, 1998, respectively ........... 24,661,000 28,813,000 Inventories ................................................................. 10,672,000 15,055,000 Deferred income taxes ....................................................... 5,803,000 8,611,000 Prepaid expenses and other current assets ................................... 1,279,000 3,379,000 ------------- ------------- Total current assets ............................................ 83,410,000 72,433,000 LONG-TERM INVESTMENTS ......................................................... 4,118,000 1,569,000 NOTE RECEIVABLE FROM MRG ...................................................... -- 3,600,000 OTHER ASSETS .................................................................. 1,348,000 4,211,000 ------------- ------------- LAND, BUILDINGS, PROPERTY AND EQUIPMENT - Net ................................. 16,943,000 28,538,000 ------------- ------------- TOTAL ........................................................................ $ 105,819,000 $ 110,351,000 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of notes payable ............................................ $ 2,453,000 $ 275,000 Accounts payable ............................................................ 4,371,000 3,361,000 Accrued salaries and related benefits ....................................... 3,719,000 3,795,000 Accrued sales commissions ................................................... 1,943,000 1,038,000 Accrued warranties .......................................................... 3,498,000 3,558,000 Income taxes payable ........................................................ 276,000 188,000 Other accrued expenses ...................................................... 3,741,000 859,000 ------------- ------------- Total current liabilities ........................................ 20,001,000 13,074,000 ------------- ------------- Deferred tax liabilities .................................................... 2,007,000 2,282,000 Notes payable ............................................................... 728,000 -- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, par value $.01; 40,000,000 shares authorized; 13,260,240 and 13,476,890 shares issued and outstanding as of January 2, 1998 and October 2, 1998, respectively ........................................ 135,000 137,000 Additional capital ......................................................... 73,806,000 78,989,000 Cumulative foreign currency translation .................................... (312,000) (275,000) Unrealized gain (loss) on marketable securities ............................ 1,371,000 (209,000) Retained earnings .......................................................... 8,083,000 16,353,000 ------------- ------------- Total stockholders' equity ...................................... 83,083,000 94,995,000 ------------- ------------- TOTAL ......................................................................... $ 105,819,000 $ 110,351,000 ============= =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3 4 MINIMED INC. CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED NINE MONTHS ENDED ---------------------------- ---------------------------- SEPTEMBER 26, OCTOBER 2, SEPTEMBER 26, OCTOBER 2, 1997 1998 1997 1998 ------------ ------------ ------------ ------------ (Unaudited) NET SALES ................................. $ 25,038,000 $ 34,897,000 $ 67,121,000 $ 92,979,000 COST OF SALES ............................. 9,547,000 13,071,000 26,628,000 36,511,000 ------------ ------------ ------------ ------------ GROSS PROFIT .............................. 15,491,000 21,826,000 40,493,000 56,468,000 OPERATING EXPENSES: Selling, general and administrative ..... 10,669,000 14,643,000 28,334,000 37,963,000 Research and development ................ 2,424,000 3,892,000 6,357,000 10,946,000 Research and development contract income -- (1,500,000) -- (4,500,000) ------------ ------------ ------------ ------------ Total operating expenses ...... 13,093,000 17,035,000 34,691,000 44,409,000 ------------ ------------ ------------ ------------ OPERATING INCOME .......................... 2,398,000 4,791,000 5,802,000 12,059,000 OTHER INCOME, Including interest income ... 467,000 446,000 983,000 1,172,000 ------------ ------------ ------------ ------------ INCOME BEFORE INCOME TAXES ............... 2,865,000 5,237,000 6,785,000 13,231,000 PROVISION FOR INCOME TAXES ................ 986,000 2,020,000 2,349,000 4,961,000 ------------ ------------ ------------ ------------ NET INCOME ................................ $ 1,879,000 $ 3,217,000 $ 4,436,000 $ 8,270,000 ============ ============ ============ ============ BASIC EARNINGS PER SHARE .................. $ 0.14 $ 0.24 $ 0.35 $ 0.62 ============ ============ ============ ============ BASIC WEIGHTED AVERAGE SHARES OUTSTANDING . 13,193,000 13,416,000 12,787,000 13,337,000 ============ ============ ============ ============ DILUTED EARNINGS PER SHARE ................ $ 0.14 $ 0.23 $ 0.33 $ 0.59 ============ ============ ============ ============ DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 13,771,000 14,158,000 13,419,000 14,046,000 ============ ============ ============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4 5 MINIMED INC. CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 26, 1997 AND NINE MONTHS ENDED OCTOBER 2, 1998
1997 1998 ------------ ------------ (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income .............................................. $ 4,436,000 $ 8,270,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation .......................................... 2,057,000 2,723,000 Deferred income taxes ................................. (2,259,000) (1,564,000) Changes in operating assets and liabilities: Accounts receivable, net ............................ 465,000 (4,152,000) Inventories ......................................... (3,169,000) (7,407,000) Prepaid expenses and other current assets ........... 145,000 (2,100,000) Other assets ........................................ (1,309,000) 902,000 Accounts payable .................................... 672,000 (1,010,000) Income taxes payable ................................ 450,000 3,409,000 Accrued expenses .................................... 684,000 (3,651,000) ------------ ------------ Net cash provided by (used in) operating activities . $ 2,172,000 $ (4,580,000) ============ ============ CASH FLOWS FROM INVESTING ACTIVITIES - Short-term investments .............................. (5,706,000) 16,473,000 Long-term investments ............................... (2,000,000) -- Acquisition of Dartec A.B ........................... -- (2,625,000) Issuance of notes receivable ........................ -- (1,140,000) Purchase of land, buildings, property and equipment . (4,153,000) (14,899,000) ------------ ------------ Net cash used in investing activities ............... $(11,859,000) $ (2,191,000) ============ ============ CASH FLOWS FROM FINANCING ACTIVITIES - Repayment of notes payable .......................... -- (2,905,000) Issuance of notes payable ........................... 768,000 -- Proceeds from public offering, net of expenses ...... 22,169,000 -- Proceeds from exercises of warrants ................. 2,600,000 -- Proceeds from stock option exercises ................ 212,000 1,226,000 Proceeds from issuance of common stock under employee stock plan ....................................... 280,000 467,000 ------------ ------------ Net cash provided by (used in) financing activities $ 26,029,000 $ (1,212,000) ============ ============ Effect of cumulative foreign currency translation adjustment on cash and equivalents ................ (275,000) 37,000 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ......................................... 16,067,000 (7,946,000) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .............................................. 10,405,000 22,282,000 ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD .............................................. $ 26,472,000 $ 14,336,000 ============ ============ SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the period for: Interest .............................................. $ 167,000 $ 49,000 Income taxes .......................................... $ 3,596,000 $ 5,421,000
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITY - During the nine months ended October 2, 1998, the Company recorded an unrealized holding loss of $1,580,000, net of estimated taxes, on marketable securities classified as long-term investments available for sale. The Company has recognized a reduction in income taxes payable of $623,000 and $3,497,000 during the nine months ended September 26, 1997 and October 2, 1998, respectively, related to the exercise of nonqualified stock options. On September 1, 1998, the Company accepted a $3.6 million note receivable from a related party in conjunction with the sale of $3.0 million of net implantable pump inventory components and $600,000 of net implantable pump fixed assets. SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5 6 MINIMED INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 26, 1997 AND NINE MONTHS ENDED OCTOBER 2, 1998 The fiscal years referenced herein are as follows:
FISCAL YEAR YEAR ENDED ----------- ---------- 1998 January 1, 1999 1997 January 2, 1998
NOTE 1. BASIS OF PRESENTATION The accompanying unaudited financial statements of MiniMed Inc. ("MiniMed" or the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal, recurring adjustments considered necessary for a fair presentation have been included. The financial statements should be read in conjunction with the audited financial statements included in the Annual Report of MiniMed Inc. filed on Form 10-K with the Securities and Exchange Commission for the year ended January 2, 1998. The results of operations for the nine months ended October 2, 1998 are not necessarily indicative of the results that may be expected for the fiscal year ending January 1, 1999. NOTE 2. INCOME TAXES Net income and earnings per share reflect income taxes which have been recorded at the Company's estimated effective tax rate for the year. This estimated income tax rate has been determined by giving consideration to the pretax earnings and losses applicable to foreign and domestic tax jurisdictions. NOTE 3. WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING In accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128), basic earnings per share for the three and nine months ended September 26, 1997 and October 2, 1998, were computed by dividing net income by weighted average common shares outstanding during the periods presented. Diluted earnings per share for the periods presented were computed by dividing net income by weighted average common and common equivalent shares outstanding, computed in accordance with the treasury stock method. The computation of basic and diluted EPS is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED --------------------------- --------------------------- SEPTEMBER 26, OCTOBER 2, SEPTEMBER 26, OCTOBER 2, 1997 1998 1997 1998 ------------- ----------- ------------- ----------- (Unaudited) BASIC EPS COMPUTATION Numerator: Net income applicable to common stock ............ $ 1,879,000 $ 3,217,000 $ 4,436,000 $ 8,270,000 ----------- ----------- ----------- ----------- Denominator: Weighted average common shares outstanding ....... 13,193,000 13,416,000 12,787,000 13,337,000 ----------- ----------- ----------- ----------- Basic earnings per share ......................... $ 0.14 $ 0.24 $ 0.35 $ 0.62 =========== =========== =========== =========== DILUTED EPS COMPUTATION Numerator: Net income applicable to common stock ............ $ 1,879,000 $ 3,217,000 $ 4,436,000 $ 8,270,000 ----------- ----------- ----------- ----------- Denominator: Weighted average common shares outstanding ....... 13,193,000 13,416,000 12,787,000 13,337,000 Effect of dilutive securities Stock options ............................... 578,000 742,000 632,000 709,000 ----------- ----------- ----------- ----------- Diluted weighted average shares outstanding ...... 13,771,000 14,158,000 13,419,000 14,046,000 ----------- ----------- ----------- ----------- Diluted earnings per share ....................... $ 0.14 $ 0.23 $ 0.33 $ 0.59 =========== =========== =========== ===========
6 7 MINIMED INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 26, 1997 AND NINE MONTHS ENDED OCTOBER 2, 1998 NOTE 4. CONSOLIDATED BALANCE SHEET COMPONENTS Certain balance sheet components are as follows:
JANUARY 2, OCTOBER 2, 1998 1998 ------------ ------------ (Unaudited) Inventories: Raw materials ............... $ 5,152,000 $ 4,792,000 Work-in-progress ............ 1,819,000 2,295,000 Finished goods .............. 3,701,000 7,968,000 ------------ ------------ Total ....................... $ 10,672,000 $ 15,055,000 ============ ============ Property, plant and equipment: Land, buildings and improvements .............. $ 10,625,000 $ 12,733,000 Machinery and equipment ..... 8,533,000 16,964,000 Tooling and molds ........... 2,493,000 2,205,000 Furniture and fixtures ...... 1,948,000 4,511,000 ------------ ------------ 23,599,000 36,413,000 Less accumulated depreciation (6,656,000) (7,875,000) ------------ ------------ Total ....................... $ 16,943,000 $ 28,538,000 ============ ============ Other assets: Technology license .......... $ 197,000 $ 158,000 Inventory components, non current .................. 999,000 -- Dartec A.B. goodwill ........ -- 2,625,000 Notes receivable ............ -- 1,140,000 Other ....................... 152,000 288,000 ------------ ------------ Total ....................... $ 1,348,000 $ 4,211,000 ============ ============
7 8 MINIMED INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 26, 1997 AND NINE MONTHS ENDED OCTOBER 2, 1998 NOTE 5. COMPREHENSIVE INCOME The Company's total comprehensive income was as follows:
THREE MONTHS ENDED NINE MONTHS ENDED --------------------------- ---------------------------- SEPTEMBER 26, OCTOBER 2, SEPTEMBER 26, OCTOBER 2, 1997 1998 1997 1998 ------------- ----------- ------------- ----------- (Unaudited) Net income $ 1,879,000 $ 3,217,000 $ 4,436,000 $ 8,270,000 Other comprehensive income (loss): Foreign currency translation adjustments 2,000 35,000 (275,000) 37,000 Unrealized loss on securities -- (676,000) -- (2,549,000) ----------- ----------- ----------- ----------- Other comprehensive income (loss), before tax 2,000 (641,000) (275,000) (2,512,000) Income tax expense related to items of other comprehensive income -- 258,000 -- 969,000 ----------- ----------- ----------- ----------- Other comprehensive income (loss) 2,000 (383,000) (275,000) (1,543,000) ----------- ----------- ----------- ----------- Total comprehensive income $ 1,881,000 $ 2,834,000 $ 4,161,000 $ 6,727,000 =========== =========== =========== ===========
NOTE 6. SALE OF IMPLANTABLE INSULIN PUMP ASSETS On September 1, 1998, the Company sold assets and transferred technology related to its implantable pump program to Medical Research Group, LLC ("MRG") and entered into a series of related transactions. MRG was founded by Alfred E. Mann, founder, Chairman, CEO and largest stockholder of MiniMed. Mr. Mann continues to hold a substantial equity interest in MRG. MiniMed sold assets, consisting primarily of inventories and equipment, to MRG in exchange for a note receivable of approximately $3.6 million. No gain or loss has been recognized on the sale of these assets. The note receivable is due and payable in full on December 31, 2003, and accrued interest is payable on December 31 of each year prior to maturity. The note bears interest at a rate of 7.0% annually. The note is secured by the assets sold to MRG. The Company has also leased facilities and improvements to MRG at which MRG will carry out its activities. The obligations of MRG under such lease are guaranteed by Mr. Mann. Certain employees of the Company involved in the manufacturing operations and research and development activities related to the implantable pump product line have become employees of MRG. The Company has been granted exclusive distribution rights to the implantable pump product line for specific medical conditions. Pursuant to the distribution agreement, MiniMed will purchase implantable pump units from MRG at negotiated transfer prices, and must purchase minimum quantities in order to preserve exclusivity of such rights. The Company is also responsible for pursuing regulatory approval of the implantable pump for the treatment of diabetes. The Company has also provided MRG with a working capital line of credit of $3.0 million, which will bear interest at 7.0% annually. Any amounts borrowed under the line of credit are due on or before December 31, 2001 and will be secured by a pledge of MiniMed common stock owned by Mr. Mann. To date, MRG has not borrowed any funds under this line of credit. As part of this transaction MRG has also granted MiniMed an option to acquire exclusive world-wide distribution rights to MRG's long-term glucose sensor, currently under development, for $30.0 million. The option is exercisable upon MRG's achievement of certain development milestones. MRG is attempting to integrate its long-term glucose technology with the implantable pump. MRG has also agreed to pursue the development of certain improvements to the electronic design of the implantable pump. 8 9 MINIMED INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 26, 1997 AND NINE MONTHS ENDED OCTOBER 2, 1998 NOTE 7. CONTINGENCIES On September 11, 1996, the Company filed an action against Fimed, Inc. ("Fimed") seeking rescission of a product distribution contract. Subsequent to the filing of this action, Fimed filed a counterclaim seeking compensatory damages of approximately $400 million, plus punitive damages. The Company believes that it has meritorious defenses to the counterclaim asserted by Fimed. Fact discovery pertaining to the litigation has been largely completed, and trial has been set to commence May 1999. The Company has been pursuing its claims and defending against Fimed's claims vigorously. During 1998, the Company has been undertaking the integration of the operations of Home Medical Supply, Inc. and its affiliated companies ("HMS") which the Company acquired in January 1998. In connection with these activities, the Company discovered certain business practices, relating to charges billed to the State of Florida for health care services provided through an affiliated pharmacy, which were implemented by HMS' prior owners and which may potentially result in liability to the Company. The Company has received no notice of any action which is pending or threatened against it in connection therewith. The Company has corrected such practices, notified the State of Florida authorities of its findings, initiated legal action against the prior owners to seek indemnification for any such liability and is pursuing other legal remedies. The amount of liability to the Company, if any, cannot be determined at this time, although the Company believes that indemnification for such liability would be available from HMS' prior owners. The Company has initiated a plan to address the year 2000 issue. Management estimates that the implementation of the entire plan will be completed prior to the year 2000, and will cost approximately $500,000. Management believes that the Company has adequate working capital to fund the program. During the normal course of business, the Company may be subject to litigation involving various business matters. Management believes that an adverse outcome of any such known matters would not have a material adverse impact on the Company. NOTE 8. SUBSEQUENT EVENTS On October 31, 1998, the Company acquired Diabetes Support Systems, Inc. ("DSS"), a distributor of diabetes products, including the Company's products, located in South Florida. The Company purchased substantially all of the net assets of DSS, with the exclusion of certain liabilities and contingencies, for $3.2 million in cash and notes payable totaling $1.8 million. The notes payable bear interest at 6.0% and are due and payable $800,000 on October 31, 1999 and $1.0 million on October 31, 2000. The Company intends to integrate DSS with its Florida operations. On November 5, 1998, the Company and an affiliate of Medtronic, Inc. ("Medtronic") entered into an agreement under which Medtronic is to purchase up to $30.0 million of MiniMed common stock at $60.00 per share. Under the arrangement, Medtronic purchased 233,334 shares on November 5, 1998, for approximately $14.0 million and entered into a second agreement to purchase 266,666 shares for approximately $16.0 million, subject to compliance with the Hart-Scott-Rodino Antitrust Improvements Act. 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the financial condition and results of operations of MiniMed should be read in conjunction with the consolidated financial statements and the related notes thereto incorporated by reference herein. Any statements released by the Company that are forward looking, including statements relating to future operating results, product development and research activities, pharmaceutical product sales, pharmacy restructuring, regulatory approvals, the impact on the Company of the sale of its implantable pump assets to MRG, the benefits to be derived from the DSS acquisition, the ability of the Company to obtain indemnification from HMS' prior owners, the Company's plans to exercise its option to purchase marketing rights to the MRG long-term glucose sensor, research and development expenditures, adequacy of working capital and cash requirements, litigation and other contingencies, capital expenditures and requirements, manufacturing trends, product and service offerings, financing of new facilities and Year 2000 compliance issues are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements involve risks and uncertainties which may affect the Company's business and prospects, including changes in economic and market conditions, healthcare legislation, the ability to obtain licensing and regulatory approvals, progress in MiniMed's alliances with pharmaceutical companies, the development of competing drug delivery systems, management of growth, the effective integration of HMS and DSS into the Company, MRG's ability to effectively develop implantable pumps and its long-term glucose sensor, the outcome of certain litigation, and other factors discussed in the Company's filings with the Securities and Exchange Commission. GENERAL Product development has focused upon four product lines: external insulin pumps and related disposables, implantable insulin pumps, continuous glucose monitoring systems, and therapy delivery systems for other chronic medical conditions. Sales and profits to date have been generated primarily through the sale of external pumps and disposable products used to deliver insulin for the intensive management of diabetes. With its acquisition of HMS effective January 2, 1998, the Company's consolidated operating results also include sales related to the distribution of other diabetes supplies and pharmaceutical products. RESULTS OF OPERATIONS The following table sets forth, for the three and nine month periods ended October 2, 1998, and September 26, 1997, the percentage relationship to net sales of certain items in the Company's consolidated statements of income and the percentage change in the dollar amount of such items on a comparative basis.
PERCENTAGE OF NET SALES ------------------------------------------------------------------------ THREE MONTHS ENDED NINE MONTHS ENDED ----------------------------------- ----------------------------------- OCTOBER 2, SEPTEMBER 26, % INCREASE OCTOBER 2, SEPTEMBER 26, % INCREASE 1998 1997 (DECREASE) 1998 1997 (DECREASE) ---------- ------------- ---------- ---------- ------------- ---------- (Unaudited) Net sales 100.0% 100.0% 39.4% 100.0% 100.0% 38.5% Cost of sales 37.5 38.1 36.9 39.3 39.7 37.1 ----- ----- ----- ----- ----- ----- Gross profit 62.5 61.9 40.9 60.7 60.3 39.5 Operating expenses: Selling, general and administrative 41.9 42.6 37.2 40.8 42.2 34.0 Research and development 11.2 9.7 60.6 11.8 9.5 72.2 Research and development contract (4.3) 0.0 n/a (4.8) 0.0 n/a ----- ----- ----- ----- ----- ----- Total operating expenses 48.8 52.3 30.1 47.8 51.7 28.0 ----- ----- ----- ----- ----- ----- Operating income 13.7% 9.6% 99.8% 12.9% 8.6% 107.8% ===== ===== ===== ===== ===== =====
10 11 The following table sets forth domestic and international net sales and gross profits related to the Company's primary product lines for the three and nine month periods ended September 26, 1997 and October 2, 1998.
DOLLARS IN THOUSANDS % OF NET SALES ----------------------------------------------- ---------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED THREE MONTHS ENDED NINE MONTHS ENDED --------------------- --------------------- ------------------ ----------------- OCT 2, SEPT 26, OCT 2, SEPT 26, OCT 2, SEPT 26, OCT 2, SEPT 26, 1998 1997 1998 1997 1998 1997 1998 1997 -------- -------- -------- -------- ----- ----- ----- ----- (Unaudited) DOMESTIC AND INTERNATIONAL NET SALES External pumps and related disposables Domestic $ 28,637 $ 18,627 $ 72,965 $ 48,476 82.1% 74.4% 78.5% 72.2% International 2,688 1,740 7,644 4,820 7.7 6.9 8.2 7.2 -------- -------- -------- -------- ----- ----- ----- ----- Subtotal 31,325 20,367 80,609 53,296 89.8 81.3 86.7 79.4 Other diabetes supplies 1,364 714 4,334 3,960 3.9 2.9 4.7 5.9 Pharmaceutical products 2,065 3,681 7,554 9,203 5.9 14.7 8.1 13.7 Implantable Pumps 143 276 482 662 0.4 1.1 0.5 1.0 -------- -------- -------- -------- ----- ----- ----- ----- Net Sales $ 34,897 $ 25,038 $ 92,979 $ 67,121 100.0% 100.0% 100.0% 100.0% ======== ======== ======== ======== ===== ===== ===== ===== GROSS PROFITS External pumps and related disposables $ 21,577 $ 14,999 $ 55,544 $ 38,510 61.8% 59.9% 59.7% 57.4% Other diabetes supplies 481 264 1,655 1,702 1.4 1.1 1.8 2.5 Pharmaceutical products 62 552 925 1,381 0.2 2.2 1.0 2.1 Implantable pumps (294) (324) (1,656) (1,100) (0.8) (1.3) (1.8) (1.6) -------- -------- -------- -------- ----- ----- ----- ----- Total $ 21,826 $ 15,491 $ 56,468 $ 40,493 62.6% 61.9% 60.7% 60.4% ======== ======== ======== ======== ===== ===== ===== =====
NET SALES Net sales increased 39.4% during the three months ended October 2, 1998 over the three months ended September 26, 1997 to $34,897,000 from $25,038,000, and 38.5% to $92,979,000 from $67,121,000 from the first nine months of 1997 to the first nine months of 1998. This sales growth is principally the result of an increase of 53.8%, or $10,958,000, in the sales volume of external pumps and related disposables for the third quarter of 1998 over the third quarter of 1997, with sales of these products increasing $27,313,000 or 51.2% for the first nine months of 1998 over the corresponding period of 1997. Domestic sales of these products grew 53.7% or $10,010,000 in the third quarter of 1998 compared to the third quarter of 1997, while international sales increased 54.5% or $948,000 during the same period. For the first nine months of 1998, domestic and foreign sales of external pumps and related disposable products increased by 50.5% and 58.6%, respectively, over the comparable period of 1997. Domestic net sales growth resulted primarily from increased volume of external pumps and related disposables, with some of the domestic sales growth attributable to an increase in the average realized sales price of external pumps. The effective price increase is generally the result of a continued shift of external pump sales from independent dealers to internal sales, thus eliminating the discount given to such dealers. International sales of external pumps and related disposable products grew primarily due to greater sales volumes of external pumps. The Company has realized a slight decrease in the average sales price realized on international pump sales as the Company is expanding its presence in several countries. Domestic and international pricing for disposable products did not change materially from the first nine months of 1997 to the first nine months of 1998. Pharmaceutical product sales decreased 43.9% or $1,616,000 to $2,065,000 in the third quarter of 1998 compared to $3,681,000 in the third quarter of 1997 and decreased 17.9% or $1,649,000 to $7,554,000 in the first nine months of 1998 compared to $9,203,000 in the first nine months of 1997. Pharmacy sales will continue to be lower than 1997 sales as the pharmacy operations are being restructured to better serve MiniMed's diabetes business. Such restructuring includes the discontinuation of certain product lines previously offered by the pharmacy. Sales of other diabetes supplies increased 91.0% or $650,000 to $1,364,000 for the third quarter of 1998 compared to $714,000 in the 1997 third quarter and have increased by 9.4% or $374,000 to $4,334,000 during the first nine months of 1998 compared to $3,960,000 in the comparable period of 1997. The increase in sales of other diabetes supplies for both the three and nine months ended October 2, 1998 was primarily attributable to sales from the Company's subsidiary in Sweden. Domestic sales 11 12 volumes of other diabetes supplies have increased, however, gross profits on these products have decreased due to pricing pressures. On October 31, 1998, the Company acquired Diabetes Support Systems, Inc. ("DSS"), a distributor of the Company's products and other diabetes supplies located in South Florida (see notes to consolidated financial statements). The Company believes that the acquisition of DSS will enhance its internal distribution channels to a broader patient base and provide more support for sales growth of its core business products and other diabetes supplies. Sales of implantable pumps decreased from the third quarter of 1997 to the third quarter of 1998 and have decreased for the first nine months of 1998 compared to the first nine months of 1997. Regulatory approval for the implantable pump and special insulin utilized in the implantable system is still pending. Although the Company received certification for the implantable pump under the applicable directives issued by the European Union (the "EU") and received the CE Mark in March 1995 (permitting commercial sale throughout the EU), separate approval from the EU is required for commercial sale of the insulin and no assurance can be given as to when such approval will be received, if at all. The implantable pump and the special insulin remain subject to regulatory review and approval in the United States. No assurance can be given when such approvals will be received, if at all. OPERATING RESULTS Cost of Sales and Gross Profits--Cost of sales increased 36.9% during the three months ended October 2, 1998 as compared to the three months ended September 26, 1997 to $13,071,000 from $9,547,000, and increased 37.1% to $36,511,000 from $26,628,000 for the nine months ended October 2, 1998 as compared to the nine months ended September 26, 1997. As a percentage of net sales, cost of sales in the 1998 third quarter decreased to 37.5% from 38.1% in the comparable period of 1997, while cost of sales as a percentage of net sales for the first nine months of 1998 decreased to 39.3% from 39.7% for comparable period of 1997. Gross margins on external pumps and disposables decreased to 68.9% of such sales during the 1998 third quarter, compared to 73.6% for this product line during the 1997 third quarter. For the first nine months of 1998 gross margins on external pumps and disposables decreased to 68.9% of such sales compared to 72.3% for the comparable period in 1997. Year-to-date and quarterly gross margins on these products were affected by several factors. The Company has added a disposable product line which is not manufactured in-house, therefore resulting in lower margins. The Company intends to continue to purchase and sell various disposable products manufactured by third party manufacturers and expects to achieve better margins on these products when certain purchase volumes have been met. In an effort to seed international growth, the Company has realized a reduction in average external pump sales prices outside of the United States. Gross margins as a percentage of corresponding product line sales in 1998 have also decreased for the pharmaceutical products and other diabetes supplies product lines for the third quarter of 1998 and on a year-to-date basis as compared to the third quarter and first nine months of 1997. The reduction in pharmaceutical products gross margins is the result of the restructuring of the pharmacy operations and discontinuation of certain pharmaceutical product lines. Other diabetes supplies gross margins have decreased due to the lower domestic average sales prices described above. The Company's gross profits have been adversely impacted by the implantable pump product line during the nine months ended October 2, 1998 due to continued limited sales prior to such product's full commercial release. Such limited sales have inhibited the Company's ability to realize manufacturing efficiencies on this product line and have caused unfavorable manufacturing variances. On September 1, 1998, the Company sold assets and transferred technology related to its implantable pump business to MRG. MRG was founded by Alfred E. Mann, the Company's founder, Chairman, CEO and largest stockholder. Mr. Mann continues to hold a substantial equity position in MRG. MRG will assume all manufacturing and development activity related to the implantable pump (see notes to consolidated financial statements). Operating Expenses--Selling, general and administrative expenses increased 37.2% during the three months ended October 2, 1998 as compared to the three months ended September 26, 1997 to $14,643,000 from $10,669,000. For the nine months ended October 2, 1998, selling, general and administrative expenses 12 13 grew 34.0% to $37,963,000 from $28,334,000 for the nine months ended September 26, 1997. As a percentage of net sales, these expenses decreased to 41.9% and 40.8% during the three and nine month periods ended October 2, 1998 compared to 42.6% and 42.2% for the comparable three and nine month periods ended September 26, 1997. These expenses have decreased as a percentage of sales primarily due to the Company's increased sales volumes. The overall increase in spending is also related primarily to the increase in sales activities during such periods. Research and development expenses grew 60.6% during the three months ended October 2, 1998 over the three months ended September 26, 1997 to $3,892,000 from $2,424,000, with research and development expenses increasing 72.2% to $10,946,000 for the first nine months of 1998 compared to $6,357,000 for the first nine months of 1997. As a percentage of sales, research and development expenses increased to 11.2% during the three months ended October 2, 1998 from 9.7% during the comparable period in 1997, and increased to 11.8% from 9.5% of net sales during the first nine months of 1998 as compared to the first nine months of 1997. The 1998 increase in research and development costs resulted from greater resources directed to the development of continuous glucose monitoring systems, start-up manufacturing operations of the continuous glucose monitoring systems, future generation external insulin pumps and disposable products, data communication capabilities for external pumps and continuous glucose monitoring systems and the Company's joint development project with Roche Diagnostics/Boehringer Mannheim Corporation. The Company will realize a reduction in research and development expenses in future periods due to the sale of assets related to the implantable pump program to MRG (see notes to consolidated financial statements). However, on an overall basis, research and development expenses will continue to increase during the fourth quarter of 1998 and during 1999. Future increases in research and development spending are expected for various continuous glucose monitoring systems and future generation external pumps and related disposable products for the treatment of diabetes and other medical conditions as well as other new activities. The Company filed an application with the Food and Drug Administration ("FDA") for 510(k) clearance for the first continuous glucose monitoring system for ambulatory use during the fourth quarter of 1997. This application has been converted to an application for premarket approval which required additional documentation to be submitted by the Company to the FDA prior to approval of the first generation of continuous glucose monitoring systems. Substantially all of such documentation has been submitted to the FDA. The FDA has granted the Company expedited review status on this product and has completed an audit of the statistical results obtained in clinical studies and an inspection of the Company's continuous glucose monitoring systems manufacturing facilities. Future research and development costs on the continuous glucose monitoring systems relate to continued refinement of the products prior to regulatory approval, continued investment in a continuous glucose monitoring systems manufacturing operation and development of the next generation of continuous glucose monitoring systems. The Company anticipates that research and development expenditures for future periods will increase as more of its new technological innovations approach commercialization. The Company achieved the necessary milestone on its research and development contract with American Medical Instruments, Inc., a member of The Marmon Group of Companies, ("AMI"), and appropriately recognized $1.5 million in research and development contract revenues during the quarter, recorded as a reduction of operating expenses. The Company from time to time invests in new and developing technologies that may provide improvements to the Company's core technology or that may provide additional applications for the Company's existing technologies and products. These investments may be in the form of equity investments, loans, research and development agreements, and strategic alliance or cooperation agreements. No assurance can be given as to when such investments will provide useful new technologies or applications, if at all. Such investments may result in losses that could adversely affect the Company's future earnings and results of operations. Other--Other income during the three and nine months ended October 2, 1998 and during the three and nine months ended September 26, 1997 consists primarily of interest income generated from the Company's cash, cash equivalents, and short-term investment balances. Other income will fluctuate in future periods based upon the funds available to the Company for investment. 13 14 The Company's effective tax rate during the first nine months of 1998 and 1997 has been computed giving consideration to the pretax earnings and losses applicable to the Company's foreign and domestic tax jurisdictions. Inflation has not significantly impacted the Company's results of operations for the past two years. LIQUIDITY AND CAPITAL RESOURCES During the nine months ended October 2, 1998, the Company used cash in operations of $4,580,000 compared to $2,172,000 provided by operations in the comparable period in 1997. Cash used in operations increased primarily due to increased receivables related to sales growth, increased inventory levels required to support planned sales growth, product introductions and payment of several current liabilities, including the payment of fiscal 1997 accrued compensation and the retirement of trade debt owed to several significant vendors associated with HMS operations. The Company also used $2.6 million of cash to complete its acquisition of Dartec A.B., a Scandinavian distributor during the first quarter of 1998. The increase in capital expenditures to $14,899,000 during the first nine months of 1998 compared to $4,153,000 spent during the comparable period in 1997, resulted primarily from building continuous glucose monitoring systems manufacturing capacity, as well as other building improvements, to support growth, manufacturing expansion, research and development engineering equipment and information systems requirements. The Company anticipates that future capital expenditures will continue to increase to support the Company's new product activities and to build the infrastructure necessary to accommodate the Company's anticipated growth. The Company also used cash of $2.9 million to retire bank debt related to HMS operations, with $275,000 of debt remaining outstanding as of October 2, 1998. There were no significant equity transactions during the first nine months of 1998. On November 5, 1998, the Company and Medtronic entered into an agreement under which Medtronic is to purchase up to $30.0 million of MiniMed common stock at $60.00 per share. Under the arrangement, on November 5, 1998, Medtronic purchased 233,334 shares for approximately $14.0 million and entered into a second agreement to purchase 266,666 shares for approximately $16.0 million, subject to compliance with the Hart-Scott-Rodino Antitrust Improvements Act. The Company maintains an unsecured line of credit which enables the Company to borrow up to $10.0 million through January 31, 1999. The Company has not drawn any funds under such line of credit. The line of credit, if used, bears interest at an adjustable rate equal to the 30-day commercial paper rate plus 2.15% (7.2% as of October 29, 1998). The Company is also required to maintain certain cash, net worth and debt covenants under the provisions of this line of credit. The Company is currently in compliance with all of these covenants. In the process of integrating certain HMS operations, the Company discovered certain business practices relating to charges billed to the State of Florida which were implemented by prior ownership and that may potentially result in liability. Such billing activities were related to health care services provided through an affiliated pharmacy. The Company has received no notice of any action which is pending or threatened against it in connection therewith. The Company has corrected such practices, notified the State of Florida of its findings and initiated legal action against the prior owners to seek indemnification for any such liability. The amount of liability to the Company, if any, cannot be determined at this time, although the Company believes that indemnification for such liability would be available from such prior owners. The Company also is involved in certain other litigation, the financial impact of which is uncertain. (see notes to consolidated financial statements.) Under terms of its research and development contract with AMI, the Company received $4.5 million during the first nine months of 1998. The Company also has the right to purchase the technologies developed at prices ranging from an aggregate of $13.5 million to $19.0 million during certain periods through July 30, 2002. The Company may alternatively elect to pay royalties on sales of these products in lieu of purchasing the technologies. The Company has entered into an agreement by which, among other transactions, the Company has acquired an option to purchase the exclusive world-wide marketing rights to a long-term glucose sensor developed by MRG for $30.0 million (see notes to consolidated financial statements). The Company does not anticipate exercising this option prior to 2000. In the event that the Company pursues either of these opportunities, additional capital resources will be required. 14 15 On October 31, 1998, the Company acquired DSS, a distributor of the Company's products and other diabetes supplies located in South Florida. The Company paid $5.0 million consisting of $3.2 million in cash and $1.8 million in notes payable, $800,000 due in 1999 and $1,000,000 in 2000 for substantially all of the net assets of DSS. In connection with this acquisition, the Company will also retire approximately $2.0 million in short-term and long-term debt of DSS during the 1998 fourth quarter. The Company plans to develop a new corporate headquarters in Southern California, not far from the current Sylmar location. Substantial capital resources will be required to construct and equip this facility, and the Company is pursuing alternative financing sources in connection therewith. The Company anticipates that the construction of this facility will be financed under a synthetic lease, with a separate operating lease on the land for 40-years plus renewal opportunities. Management believes that the Company's current level of cash and cash equivalents, combined with the Company's existing line of credit, will be sufficient to meet its needs for working capital and capital expenditures for the next twelve to twenty-four months. However, the requirements for additional capital and working capital are subject to change and will depend upon numerous factors, including the level of capital expenditures, research and development activities and results, competitive and technological developments, health care reimbursement trends, and the availability for acquisition by the Company of complementary additional distribution channels, products, and technologies. During future periods, the Company may require significant amounts of cash to pursue opportunities and promote continued growth and expansion. YEAR 2000 COMPLIANCE The Year 2000 problem ("Y2K") refers to the potential of all electronic devices containing microprocessors to improperly calculate dates in and beyond the year 2000. In the second quarter of 1998, the Company formed a Year 2000 Oversight Committee (the "Committee") to evaluate the company's position regarding Y2K. The Committee consists of members representing all of the major operating and administrative departments within the Company including information technology, facilities, manufacturing, research and development, regulatory, quality assurance, materials, finance and accounting and legal. The Committee established an Action Plan Program (the "Plan") to facilitate the Company's Y2K compliance and minimize the potential effects of Y2K on the Company's operations. The components of the plan include the following steps: (1) Assess Y2K compliance of the Company's products; (2) Inventory Company equipment and software and prioritize according to critical business functions; (3) Implement Y2K compliance testing and remediation according to priorities developed; (4) Assess vendor and health care payor compliance; (5) Develop and implement policies to maintain Y2K compliance going forward; and (6) Establish contingency plans. A timetable for the completion of each of these action steps contained in the Plan has been developed by the Committee. The Committee meets regularly to assess the Company's efforts to comply with the Plan and to address any outstanding Y2K issues. The Committee is also responsible for coordinating all communications and responding to all inquiries relating to Y2K. The Company has completed its evaluation of all of its current product offerings. Such evaluation has shown that Y2K will not pose operating problems for such products. The Company is currently in the process of creating a master inventory of all equipment and software vulnerable to Y2K and is identifying the equipment and software attendant to critical business processes. Once this process is complete, the Company will be in a position to implement remediation programs to address potential problems that are identified. The Company currently believes that it will be able to modify, replace, or mitigate its affected systems in time to avoid any material impact on its operations. The Company has initiated formal communication with its vendors to assess their compliance with Y2K. Questionnaires have been developed and are being distributed to vendors with on site evaluations to be conducted at the most critical vendors' sites of operations. The Company suspects that its greatest Y2K risk will be vendor compliance. The Company relies on its vendors to supply it with its requirements of critical components necessary for the manufacture of its products. A program to assess the Y2K compliance of insurance companies, management service organizations, and other third party payors is also being implemented. The Company is also initiating discussion with its strategic business partners regarding the 15 16 state of their Y2K readiness. Once both the internal and external reviews described above are completed, the Company will be able to design a contingency plan to address its areas of greatest exposure. The failure to correct a material Y2K problem could result in an interruption in, or failure of certain normal business activities. Such failures or interruptions could materially impact the Company's results of operations, liquidity and financial position. Due to the general uncertainty inherent in the Y2K problem, resulting primarily from the uncertainty of the Y2K readiness of the Company's vendors and suppliers, the Company is unable to determine at this time whether the consequences of Y2K failures will have a material adverse impact on the Company. The Plan, implemented by the Committee, is expected to significantly reduce both the Company's level of uncertainty about the Y2K problem and the possibility of significant interruptions to the normal operations. Management currently believes that the cost of Y2K assessment and remediation will not be material. The Company estimates that the implementation of the Plan and remediation activities related to the Company's internal systems and equipment will cost approximately $500,000. Management currently believes that the Company has adequate working capital to fund these activities. Readers are cautioned that forward looking statements contained in this Year 2000 Compliance section should be read in conjunction with the Company's cautionary language in the first paragraph of Management's Discussion and Analysis of Financial Condition and Results of Operations on page 10. 16 17 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not Applicable ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS Not Applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
Exhibit No. Exhibit - ----------- -------------------------------------------------------------- 3(ii).1 Amendment to Bylaws of MiniMed Inc. 10.1 Agreement Regarding Implantable Pump Business dated September 1, 1998, by and between Medical Research Group, LLC, a California limited liability company and MiniMed Inc., a Delaware corporation. 10.2 Implantable Pump License and Distribution Agreement dated September 1, 1998, by and between Medical Research Group, LLC, a California limited liability company and MiniMed Inc., a Delaware corporation. 10.3 Glucose Sensor Option Agreement dated September 1, 1998, by and between Medical Research Group, LLC, a California limited liability company and MiniMed Inc., a Delaware corporation. 10.4 Guarantee of Alfred E. Mann dated September 1, 1998. 27.1 Financial data schedule
(b) Reports on Form 8-K None. 17 18 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MiniMed Inc. Date: November 13, 1998 /s/ KEVIN R. SAYER ---------------------------------- Kevin R. Sayer Senior Vice President, Finance & Chief Financial Officer 18 19 INDEX TO EXHIBITS
Exhibit No. Exhibit - ----------- -------------------------------------------------------------- 3(ii).1 Amendment to Bylaws of MiniMed Inc. 10.1 Agreement Regarding Implantable Pump Business dated September 1, 1998, by and between Medical Research Group, LLC, a California limited liability company and MiniMed Inc., a Delaware corporation. 10.2 Implantable Pump License and Distribution Agreement dated September 1, 1998, by and between Medical Research Group, LLC, a California limited liability company and MiniMed Inc., a Delaware corporation. 10.3 Glucose Sensor Option Agreement dated September 1, 1998, by and between Medical Research Group, LLC, a California limited liability company and MiniMed Inc., a Delaware corporation. 10.4 Guarantee of Alfred E. Mann dated September 1, 1998. 27.1 Financial data schedule
19 EX-3.(II).1 2 EXHIBIT 3(II).1 1 Exhibit 3(ii).1 MINIMED INC. AMENDMENT TO BYLAWS ADOPTED AUGUST 19, 1998 Section 3.02. Number, Term of Office and Qualifications. The number of directors shall be eight (8). Directors need not be stockholders. Each of the Directors of the corporation shall hold office until his successor shall have been duly elected and shall qualify or until he shall resign or have been removed in the manner hereafter provided. EX-10.1 3 EXHIBIT 10.1 1 Exhibit 10.1 AGREEMENT RE IMPLANTABLE PUMP BUSINESS This Agreement Re Implantable Pump Business (this "Agreement") is entered into as of this 1st day of September 1998, between MiniMed Inc. a Delaware corporation ("MiniMed"), and Medical Research Group, LLC, a California limited liability company ("MRG"). R E C I T A L S MiniMed has developed implantable pump systems used for the infusion of insulin and potentially other drugs in the treatment of diabetes and other conditions (the "Implantable Pump Business"). The parties now desire that MiniMed grant to MRG certain rights with respect to the Implantable Pump Business on the terms set forth in this Agreement. A G R E E M E N T 1. LICENSE OF TECHNOLOGY. Concurrently with the execution and delivery of this Agreement, MiniMed and MRG are entering into an Implantable Pump License and Distribution Agreement by which MiniMed is licensing to MRG technology relating to the Implantable Pump Business and MRG is granting to MiniMed certain distribution rights with respect to implantable pump systems. 2. LEASE OF MACHINERY AND EQUIPMENT. 2.1. LEASE. MiniMed hereby leases to MRG, and MRG hereby leases from MiniMed and acknowledges delivery and acceptance of, the machinery and equipment related to the Implantable Pump Business more particularly described in Schedule 2.1 attached to this Agreement. (Such machinery and equipment are collectively referred to herein as the "Equipment", and the provisions of Sections 2.1 through 2.11 are referred to herein as the "Equipment Lease.") 2.2. TERM. The term of the Equipment Lease will commence on the date of this Agreement and continue through December 31, 2008. If the Equipment is not returned to MiniMed upon the expiration of the term of the Equipment Lease, the Lease shall be deemed to have been extended on a month-to-month basis at the rent in effect at the end of the term unless either party has notified the other in writing thirty (30) days prior to the expiration of the term or of any monthly period thereafter of its election to terminate the Equipment Lease. 2.3. RENT. MRG agrees to pay to MiniMed as rent for the Equipment the amounts set forth in Schedule 2.3. Said rents shall be payable monthly in advance, on or before 2 the first day of each calendar month, and rent for any fractional month commencing on the date of this Agreement shall be paid with the rent for the first full calendar month. 3 2.4. PURCHASE OF EQUIPMENT. MiniMed will have the right and option (but not the obligation) to cause MRG to purchase the Equipment exercisable at any time from July 1, 1998 through December 31, 1999. The purchase price of the Equipment shall be the amount set forth in Schedule 2.4(A) for the period in which the purchase is consummated. MiniMed may only exercise its right to cause the Equipment to be purchased by MRG by delivering written notice to MRG of its election to do so. Thereafter the purchase and sale of the Equipment shall be consummated at the principal offices of MiniMed at the time and on the date specified in the notice given by MiniMed, which in no event shall be less than 30, nor more than 90 days, after the delivery of the notice of exercise and in no event shall the time of the consummation of the transaction be other than during normal business hours on a normal business day. The purchase price for the Equipment and the inventory to be purchased pursuant to Section 3.3 shall be paid pursuant to a Secured Promissory Note in the form of Schedule 2.4(B) attached to this Agreement, which provides for interest at the rate of 7% per annum, principal due in a lump sum on or before December 31, 2003, and all accrued interest payable annually in arrears commencing December 31, 1998. MRG shall also deliver to MiniMed concurrently with the Secured Promissory Note its check in the amount of any sales tax payable with respect to the sale of the Equipment to MRG. The Secured Promissory Note will be secured by a security interest in the equipment purchased and all replacements thereof pursuant to a Security Agreement in the form of Schedule 2.4(C) attached to this Agreement. Against delivery of such Secured Promissory Note and Security Agreement, MiniMed will deliver to MRG a bill of sale with respect to the Equipment in the form of Schedule 2.4(D), attached to this Agreement. 2.5. OBLIGATIONS OF MRG WITH RESPECT TO EQUIPMENT. At all times during the term of the Equipment Lease, MRG shall, at its own cost and expense, (i) pay all charges and expenses in connection with the operation of the Equipment and keep the Equipment free and clear of all liens, claims and encumbrances of any kind; (ii) comply with all laws, ordinances, regulations, requirements and rules with respect to the use, maintenance and operation of the Equipment and (iii) make all repairs and replacements and perform all maintenance required to maintain the Equipment in good condition, reasonable wear and tear excepted. At all times during the term of the Equipment Lease, MRG shall use the Equipment properly and only for the purpose for which it was manufactured, shall not alter or modify the Equipment in any way that will decrease its value, shall not remove the Equipment from its present location, part with possession or control of the Equipment or sell, pledge, mortgage or otherwise encumber the Equipment. 2.6. ABSENCE OF WARRANTIES. MRG ACKNOWLEDGES THAT IT HAS INSPECTED THE EQUIPMENT, THAT MINIMED MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, AS TO THE SUITABILITY, DURABILITY, FITNESS FOR USE, MERCHANTABILITY, CONDITION, QUALITY OR OTHERWISE OF THE EQUIPMENT AND THAT MRG IS LEASING THE EQUIPMENT AND, IF MINIMED EXERCISES ITS RIGHT UNDER SECTION 2.4, MRG WILL BE PURCHASING THE EQUIPMENT "AS IS." MINIMED SHALL HAVE NO OBLIGATION TO INSTALL, ERECT, TEST, ADJUST OR 4 SERVICE THE EQUIPMENT. NO DEFECT OR UNFITNESS OF THE EQUIPMENT SHALL RELEASE MRG OF THE OBLIGATION TO PAY RENT OR OF ANY OTHER OBLIGATION UNDER THIS AGREEMENT. 2.7. LOSS, DAMAGE OR DESTRUCTION. MRG shall bear all risk of loss, damage or destruction of the Equipment during the term of the Equipment Lease. In the event any of the Equipment is damaged beyond repair, the amount of rent payable pursuant to Section 2.3 and the amount of the purchase price referred to in Section 2.4 will remain unchanged. 2.8. INSURANCE. MRG shall during the term of the Lease keep the Equipment insured against loss or damage by fire, perils commonly covered under the extended coverage endorsement, malicious mischief and sprinkler leakage to the extent of the full replacement cost thereof as such cost may vary from time to time. Unless MiniMed has exercised the right and option to cause MRG to purchase the equipment pursuant to Section 2.4, such insurance shall be carried for the mutual benefit and protection of MiniMed and MRG. MRG will have no obligation pursuant to Section 2.4 to purchase any equipment which is destroyed prior to such purchase. Amounts collected from such insurance for destruction of equipment shall be paid to MiniMed who shall be entitled to the portion thereof equal to MiniMed's book value of the equipment which was destroyed at the time of its destruction, and MiniMed shall pay the balance of the amount collected to MRG. In addition, the principal amount of the Secured Promissory Note referred to in Section 2.4 will be reduced by the amount of such insurance proceeds retained by MiniMed.. Amounts collected for damage to equipment, at the option of MRG, will be used by MiniMed to promptly repair the damage or will be delivered to MRG and MRG will promptly repair the damage, in each case regardless of whether the insurance proceeds are adequate. Any excess insurance proceeds paid for damaged equipment and not needed to repair the damage shall be the property of MRG, and if MiniMed repairs the damage, MiniMed shall promptly pay such excess to MRG after the repairs have been completed. During the term of the Equipment Lease, MRG shall also maintain in force for the joint benefit of MiniMed and MRG property damage and personal liability insurance in customary form in the amount of $1 million for property damage and $1 million for death or personal injury in any one accident and $3 million for all accidents in any one calendar year. MRG shall deliver to MiniMed the policies of insurance or copies thereof or other evidence satisfactory to MiniMed of such coverage. Each insurer under such policies shall agree by endorsement upon the policies issued or by independent instrument to MiniMed that it will give MiniMed 30 days prior written notice of the effective date of any alteration or cancellation of any such policy. 2.9. PAYMENT OF TAXES. In addition to the rentals provided for in Section 2.3, MRG shall pay all sales, use, excise, personal property and ad valorem taxes on the Equipment. All such taxes shall be paid not later than 30 days prior to the delinquency date thereof. All personal property taxes payable with respect to the Equipment shall be pro rated between MiniMed and MRG on the basis of the tax fiscal year of the Government authority collecting such taxes. 5 2.10. RETURN AND SURRENDER OF EQUIPMENT. Upon the expiration of the term of the Lease without the Equipment having been purchased by MRG pursuant to Section 2.5, MRG will surrender possession of the Equipment to MiniMed at its current location or, if the Equipment is moved, at such location in Los Angeles County as MiniMed may designate. 2.11. MINIMED RIGHT TO PAY CLAIMS. In the event MRG shall fail to pay and discharge or cause to be paid and discharged, when due and payable, any tax, assessment, or other charge on, or in connection with, the Equipment, or any lien or claim for labor or material used in, or any claim for damages arising out of, the maintenance, repair, restoration, replacement or use of the Equipment or any judgment, lien or claim, MiniMed may, at its option, pay any such tax, assessment, insurance expense, lien, claim, charge or demand or sever or discharge any action therefor, or judgment thereon. All costs, expenses, reasonable attorneys' fees and other sums so incurred or paid by MiniMed shall be paid by MRG to MiniMed upon demand together with interest thereon at the rate of 7% per annum from the date incurred or paid. Section 3. SALE OF INVENTORY. 3.1. PURCHASE OF INVENTORY FROM TIME TO TIME. MiniMed will sell to MRG from time to time as needed during the period from the date of this Agreement through December 31, 2008 all components for MiniMed's current models of the implantable pump system which MiniMed presently has in inventory. Such purchases will be at the prices set forth in Schedule 3.1 attached to this Agreement and will be payable within 30 days after such components are transferred from the stockroom or warehouse facilities where they are stored. At the end of each fiscal month of MiniMed, MiniMed will invoice MRG for inventory components actually transferred during any such month, and payment therefor shall be due within 30 days after the issuance of the invoice. 3.2. MANAGEMENT OF INVENTORY. Within 30 days after the date of this Agreement, MiniMed will establish in its stockroom/warehouse facilities space dedicated to the implantable pump system inventory. When such space has been established, MiniMed will notify MRG, and thereafter MRG will manage the physical inventory and will bear the entire risk of loss thereof. MiniMed will also provide MRG with access to certain joint use common areas, including receiving inspection. MRG will insure the inventory against loss or damage by fire, perils commonly covered by the extended coverage endorsement, malicious mischief and sprinkler damage to the extent of the full replacement cost thereof and will carry such insurance for the mutual benefit and protection of MiniMed and MRG. MRG shall deliver to MiniMed the policies of insurance or copies thereof or other evidence satisfactory to MiniMed of such coverage. Each insurer under such policies shall agree by endorsement on the policies issued or by independent instrument to MiniMed that it will give MiniMed 30 days prior written notice of the effective date of any alternation or cancellation of any such policy. The obligations of the parties under this paragraph shall terminate upon termination or expiration of the term of the Lease entered into pursuant to Section 5, except that MRG's obligations with respect to insurance shall terminate as such earlier date as MiniMed exercises its option to 6 cause MRG to purchase the Equipment pursuant to Section 2.4 and the inventory pursuant to Section 3.3. MiniMed will provide MRG with such assistance as MRG may reasonably request in establishing an inventory tracking system. The parties acknowledge their understanding and agreement that any such system will be established in a manner which maintains the independent integrity of MiniMed's information systems and does not afford MRG personnel access to those systems. All direct out-of-pocket costs and expenses and a proportional portion of personnel costs and expenses incurred by MiniMed in connection with assisting MRG to establish the inventory tracking system will be reimbursed by MRG promptly upon delivery of written request accompanied by appropriate documentation with respect to the costs and expenses. 3.3. PURCHASE OF INVENTORY. In the event MiniMed exercises its right pursuant to Section 2.5 to cause MRG to purchase the Equipment, MRG will also purchase all of MiniMed's then remaining inventory relating to the implantable pump system for an amount equal to MiniMed's cost of such inventory, as reflected in the perpetual inventory system maintained by MiniMed, less a reserve that the parties have agreed upon for excess and obsolescence equal to $1 million. The purchase price for the inventory shall be paid in the manner provided in Section 2.4. 3.4 ABSENCE OF WARRANTIES. MRG ACKNOWLEDGES THAT MINIMED MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, AS TO THE SUITABILITY, DURABILITY, FITNESS FOR ANY PURPOSE, MERCHANTABILITY, CONDITION, QUALITY OR OTHERWISE OF THE INVENTORY AND THAT MRG IS PURCHASING THE INVENTORY "AS IS." EXCEPT AS PROVIDED IN THIS SECTION 3.4 BELOW, MINIMED SHALL HAVE NO OBLIGATION TO INSTALL, ERECT, TEST, ADJUST, REPAIR OR TAKE BACK ANY OF THE INVENTORY. EXCEPT AS PROVIDED IN THIS SECTION 3.4 BELOW, NO DEFECT, LACK OF MERCHANTABILITY OR SUITABILITY, UNFITNESS FOR ANY PURPOSE OR OTHER CONDITION OR QUALIY OF THE INVENTORY SHALL RELEASE MRG OF THE OBLIGATION TO PAY ANY AMOUNT OR PERFORM ANY OBLIGATION UNDER THIS AGREEMENT. MiniMed will afford MRG the opportunity at all reasonable times during the 30 calendar days after the date of this Agreement to inspect the implantable pump inventory. Any items of inventory which are defective or damaged and as to which such defect or damage is discovered during said 30 day period will be excluded from any purchase pursuant to Section 3.1 or 3.3. In the event of a purchase pursuant to Section 3.3 the purchase price will be reduced by the carrying value of the damaged or defective inventory on the books of MiniMed immediately prior to the consummation of any such purchase. If the purchase price has already been consummated at the time the 30 day period expires, the adjustment shall be made in the balance of the promissory note delivered pursuant to Section 2.4, effective as of the date of the note, and MiniMed will sign such acknowledgement or agreement as to the reduction in the principal balance of the note as MRG may reasonably request. 7 4. WORKING CAPITAL LOANS. 4.1. LINE OF CREDIT AVAILABLE. MiniMed will make available to MRG from and after the date of this Agreement a line of credit under which MRG will have the right to borrow from MiniMed up to an aggregate of $3 million. Such loans will be made from time to time during the period from the date of this Agreement through December 31, 2001 provided that MRG is not in material default under this Agreement as provided in Section 17, none of the Events of Default referred to the Line of Credit Note (as defined below) has occurred and sufficient collateral for the loans to be made has been pledged pursuant to the Pledge Agreement referred to in Section 4.2. Any such requests from MRG shall specify the amount to be borrowed, which shall be designated in an amount rounded to the nearest $1,000 and shall not be less than $100,000, and MiniMed shall cause the funds being borrowed to be wire transferred to MRG's bank account within three business days after receipt of the written request for the loan in accordance with wire transfer instructions provided by MRG at or prior to the time it requested the loan. In no event shall such requests be made more frequently than once in any one calendar week or twice in any one calendar month. 4.2. LINE OF CREDIT NOTE. The loans made by MiniMed pursuant to Section 4.1 shall be evidenced by a promissory note of MRG in the form of Schedule 4.2(A) hereto (the "Line of Credit Note"), which shall be executed and delivered by MRG to MiniMed prior to MRG's requesting any loans pursuant to Section 4.1. The Line of Credit Note provides for such loans to bear interest at the rate of 7% per annum with all principal and interest being due December 31, 2001 in a single, lump-sum payment. MiniMed is hereby authorized to record in its books and records and in the schedule annexed to the Line of Credit Note the date and amount of each loan made by MiniMed. The Line of Credit Note will be guaranteed by Alfred E. Mann pursuant to a Guarantee in the form of Schedule 4.2(B) hereto (the Guarantee"), which MRG will cause to be executed and delivered to MiniMed prior to MRG's requesting any loan pursuant to Section 4.1. The guarantee of Mr. Mann will be secured by a pledge of outstanding shares of Common Stock of MiniMed pursuant to a Pledge Agreement in the form of Schedule 4.2(C) hereto which MRG will cause to be executed and delivered to MiniMed with the Guarantee. The Pledge Agreement provides that prior to the date any loan is to be made by MiniMed pursuant to Section 4.1, Mr. Mann will deliver to MiniMed, duly endorsed in blank or accompanied by stock powers duly endorsed in blank, certificates evidencing shares of MiniMed Common Stock having a market value at least equal to 150% of the aggregate amount then being borrowed plus all interest which would accrue thereon through December 31, 2001. For this purpose, "market value" shall mean the average of the closing prices of MiniMed Common Stock on the first 7 of the last 10 trading days next preceding the date of the loan requested by MRG pursuant to Section 4.1. Unless such stock certificates are delivered by Mr. Mann, MiniMed will have no obligation pursuant to Section 4.1 to make any such loan. MRG will not use the proceeds of any such loan to purchase or carry any "margin stock" within the meaning of Regulation G of the Board of Governors of the Federal Reserve System. 8 5. LEASE. Concurrently with the execution and delivery of this Agreement, MiniMed and MRG are entering into a lease with respect to certain space in MiniMed's principal facility that is presently being used for the Implantable Pump Business. At MRG's request and cost MiniMed will provide maintenance services for this space. The obligations of MRG under the Lease will be guaranteed by Mr. Mann pursuant to the Guarantee. 6. TRANSITION. Effective on the first business day after the date of this Agreement, or on any day within 10 business days thereafter at MiniMed's option, MiniMed will terminate the employ of all of the employees listed in Schedule 5 to this Agreement, constituting all of MiniMed's employees who are working full-time in the Implantable Pump Business. Also effective on that date, MRG will offer employment to all said employees at the same compensation levels and will give such employees credit for years in service under MRG's compensation and benefit programs for the period such employees were employed by MiniMed. All accumulated vacation and ECTO time will be credited to the employee by MRG; MiniMed will pay MRG a lump sum equal to the value of the accumulated vacation and ECTO time at the employees' current hourly rate or salary rate, as the case may be. All stock options granted by MiniMed to such employees shall be amended within 10 days after the date of this Agreement to provide that the options shall remain in full force and effect notwithstanding such termination of employment and will become exercisable at the same times and with respect to the same numbers of shares as is presently provided in said agreements, except that all previously existing provisions relating to the termination of the options in connection with termination of employment of the employee with MiniMed will be amended to provide that such termination provisions apply to the termination of employment of the employee with MRG. MiniMed also agrees, at MiniMed's sole expense, to continue the health insurance benefits of these employees for a period of at least 30 days beyond the date of transfer. MiniMed will also make available for a period of six months after the date of this Agreement the services of its supervisorial personnel for shipping, receiving, manufacturing, engineering, stockrooms, materials management, purchasing, quality assurance and document control, all at no cost to MRG. During said six-month period, MiniMed will also provide at no cost to MRG transitional support for the Implantable Pump Business consisting of accounting, finance, information systems, legal (limited to contractual and related matters with third parties as they relate to the transferred activities and business relationship) and payroll. MRG will be responsible for establishing, at its own cost and expense, information systems for its employees separate and apart from, and not compromising the separate integrity of, MiniMed's information systems. If employees currently performing Reliability and Quality Engineering functions do not transfer to MRG then, to the extent such employees remain with MiniMed, MiniMed will provide transitional support for these functions equivalent to 75% of full time of two employees for the two functions for a period of three months after the date of this Agreement followed by 25% of full time of two employees for the functions for the next three months. MRG will reimburse MiniMed monthly in arrears on the last day of each calendar month for the 9 portion of the salary of such employees that is proportional to the time to be spent (75% or 25%) plus 27 % of such salary. MiniMed will allow MRG employees to participate in MiniMed's corporate training program known as "MiniMed University" courses if, as and when offered by MiniMed, on a basis which does not interfere with the implementation of the program for MiniMed employees and MiniMed's program with the State of California Educational Training Panel. MRG shall reimburse MiniMed for that portion of any costs directly related to these courses that equals the proportion of the number of MRG employees attending to all employees attending. 7. REPRESENTATIONS AND WARRANTIES OF MINIMED. MiniMed hereby represents and warrants to MRG as follows: 7.1. POWER AND AUTHORITY. MiniMed is a corporation duly organized, existing and in good standing under the laws of the State of Delaware and has full corporate power and authority to enter into and carry out the terms of this Agreement and every other agreement and document specifically referred to herein to be entered into by it. The execution, performance and delivery of this Agreement and of such other agreements and documents will not violate or constitute an event of default (with or without the giving of notice and/or passage of time) under the terms and provisions of any agreement, document or instrument to which MiniMed is a party or by which MiniMed is bound or a violation of any provision of law or any order, judgment or decree to which MiniMed is subject or by which it is bound. All corporate proceedings required to be taken by or on behalf of MiniMed to authorize it to enter into this Agreement and the other agreements and documents specifically referred to herein have been duly and properly taken. No further consent of any person or entity is required in connection with the execution and delivery of, or the performance by MiniMed of its obligations under, this Agreement or any other agreement or document specifically referred to herein to be entered into by MiniMed. 7.2. TITLE TO EQUIPMENT AND INVENTORY. MiniMed has good and marketable title to the Equipment and will have, at the time of sale pursuant to Section 3, good and marketable title to the inventory referred to in Section 3. 8. REPRESENTATIONS AND WARRANTIES OF MRG. MRG hereby represents and warrants to MiniMed that MRG is a limited liability company duly formed, existing and in good standing under the laws of the State of California. MRG has the requisite power and authority to enter into and carry out the terms of this Agreement and every other agreement and document specifically referred to herein to be entered into by MRG. The execution, performance and delivery of this Agreement and of such other agreements and documents will not violate or constitute an event of default (with or without the giving of notice and/or passage of time) under the terms and provisions of any agreement, document or instrument to which MRG is a party or by which MRG is bound or a violation of any provision of law or any order, judgment or decree to which MRG is subject or by which it is bound. All proceedings required to be taken by or on behalf of MRG to authorize it to enter into this Agreement and the other 10 agreements and documents specifically referred to herein have been duly and properly taken. No further consent of any person or entity is required in connection with the execution and delivery of, and the performance by MRG of its obligations under, this Agreement or any other agreement or documents specifically referred to herein to be entered into by MRG. 9. NO SOLICITATION OF EMPLOYEES Except as provided in Section 6, for a period of five years after the date of this Agreement neither MiniMed nor MRG will actively solicit or induce any employee of the other party to terminate his or her employment by the other party while such employee is employed by the other party or within one year after the termination of the employment of the employee with the other party, whether by the employee or by the other party. Unless agreed to in writing by the other Party hereto, in the event that either MiniMed or MRG receives, without solicitation, an application from an employee of the other party for an open position and the party receiving said application hires said employee the party hiring the employee will pay the other party a fee equal to 25% of the employee's annual salary. 10. NOTICES Any notice, request, demand or other communication required or permitted hereunder shall be in writing and shall be deemed to have been given (a) if personally delivered, when so delivered, (b) if mailed, seventy-two (72) hours after having been placed in the United States mail, registered or certified, postage prepaid, addressed to the party to whom it is directed at the address set forth below or (c) if given by telex or telecopier, when such notice or other communication is transmitted to the telex or telecopier number specified below and the appropriate answer back or telephonic confirmation is received: If to MiniMed: MiniMed Inc. 12744 San Fernando Road Sylmar, California 91342 Attention: General Counsel Telephone No.: (818) 362-5958 Telecopier No: (818) 367-1460 With a copy to: Gibson, Dunn and Crutcher LLP 333 South Grand Avenue Los Angeles, CA 90071 Attention: Roy J. Schmidt Telephone No.: (213) 229-7000 Telecopier No.: (213) 229-7520 If to Medical Research Group, LLC: Medical Research Group, LLC 12744 San Fernando Road Sylmar, California 91342 Attention: President 11 Telephone No.: (818) 362-8084 Telecopier No: (818) 364-2647 12 With a copy to: Lyon & Lyon LLP 633 W. Fifth Street, Suite 4700 Los Angeles, California 90071-2066 Attention: Roy L. Anderson, Esq. Telephone No.: (213) 955-0304 Telecopier No: (213) 955-0440 11. ASSIGNMENT. Neither party shall be entitled to assign its rights or to delegate its duties under this Agreement, whether by law or otherwise, without the express written consent of the other party except that either party may assign this Agreement to (a) a wholly owned subsidiary of said party, or (b) a third party who acquires either party by merger or acquisition of 80% or more of the outstanding capital stock of said party, or (c) a third party who acquires all or substantially all of the assets of either party, so long as the assignee agrees to assume all of the obligations of said party under this Agreement. 12. SEVERABILITY. The provisions of this Agreement are severable, and if any one or more provisions may be determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions, and any partially unenforceable provisions to the extent enforceable, shall nevertheless be binding and enforceable. 13. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All representations, warranties and agreements made by MiniMed or MRG in this Agreement shall survive the date hereof and any investigations, inspections, examinations or audits made by or on behalf of any party hereto. 14. ENTIRETY. This Agreement constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof, and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, relating to the subject matter of this Agreement, except the Mutual Nondisclosure Agreement between the parties with an effective date of January 2, 1996 and the Implantable Pump License and Distribution Agreement and the License Option and Exclusive Marketing Agreement between the parties both dated the date as this Agreement. 15. AMENDMENT; WAIVER. This Agreement may be amended, modified, superseded or canceled, and any of the terms and conditions hereof may be modified, only by a written instrument executed by the parties or, in the case of a waiver, by the party waiving compliance. No supplement, modification, waiver or termination of this Agreement shall be valid unless it has been reduced to writing and executed by the party to be bound thereby. The failure of a party at any time or from time to time to require performance of any provision hereof shall in no manner affect the right of such party at a later time to enforce the same, and no waiver of any nature, whether by conduct or otherwise, in any one or more instances, shall be deemed to be or considered as a further or continuing waiver of any other provision of this Agreement. 13 16. SETTLEMENT OF DISPUTES. 16.1 DISPUTES AND ARBITRATION. Unless the relief sought requires the granting of equitable relief pursuant to Section 16.1.1, below, any dispute or controversy (whether based upon the law of torts or of contracts) arising in connection with this Agreement, including (a) disputes relating to the formation of this Agreement or the performance, interpretation, enforcement, application or validity of its provisions, and (b) issues that may be based upon or arise out of disputes that MRG or MiniMed has with third parties, shall upon the demand of either party hereto be resolved by arbitration held at Los Angeles, California, in accordance with the arbitration procedures established by the Rules of Commercial Arbitration of the American Arbitration Association, except as otherwise provided herein. 16.1.1 INTERIM COURT RELIEF. If in connection with any such dispute or controversy either party seeks the issuance of a temporary restraining order or the granting of preliminary injunctive relief, the court shall have the right and power to grant the requested relief on a temporary basis pending the resolution of factual issues by arbitration in accordance with Section 16.1.2, and to thereafter enforce any award made in such arbitration proceedings. 16.1.2 CONDUCT OF ARBITRATION. The following principles and conditions will apply in all arbitration proceedings conducted pursuant to this Agreement: A. During the thirty (30) days following the date that the written notice is given by either party demanding the submission of the dispute to arbitration, MRG and MiniMed will endeavor to select three independent arbitrators having no substantial economic or other material relationship with either MRG or MiniMed. If the issue in dispute involves matters of patents, licensing or technology, the arbitration panel shall include at least two persons who are knowledgeable in such matters. If the parties cannot mutually agree on the three arbitrators within such thirty (30)-day period, then each party will, within seven (7) days after the expiration of such thirty (30)-day period, select one independent arbitrator and those two arbitrators shall select the third independent arbitrator. B. Discovery of evidence shall be conducted expeditiously by the parties and in accordance with the general principles embodied in the California Civil Discovery Act. To the extent that it is necessary, either party may apply to a court of competent jurisdiction for assistance in obtaining discovery of evidence for presentation to the arbitrators. C. The arbitrators shall issue findings of fact and conclusions of law. D. The arbitration will be conducted as a case would be represented to a trial court without a jury. The arbitrators in their discretion may hear any type of evidence, including hearsay evidence. The arbitrators shall render a written decision, setting forth their findings of fact and the principles upon which they relied in making their award and that decision will be final and binding on the parties. 14 16.1.3 AWARD BECOMING FINAL. An arbitration award from which an appeal is not taken within such thirty (30) day period shall be conclusive and binding on each party and may be enforced by a court of competent jurisdiction. 16.2 COSTS OF ENFORCEMENT. Should any action or proceeding be necessary to construe or enforce this Agreement or any arbitration award made pursuant to Section 16.1, above, then the party prevailing in any such action or proceeding shall be entitled to recover all court costs and reasonable attorneys' fees, to be fixed by the court and taxed as part of any judgment entered therein, and the costs and fees incurred in enforcing or collecting any such judgment. 17. EFFECT OF DEFAULT. No misrepresentation or breach of warranty or covenant by either party under this Agreement shall excuse the performance of any obligation of the other party or give the other party the right to terminate this Agreement unless such default is material to the Agreement taken as a whole. For this purpose any failure to pay money shall be deemed material if and only if: (a) the money is not paid when due and such failure to pay is not cured within 30 days after delivery of written notice from the other party of the default; and (b) the amount involved exceeds $25,000. For this purpose the Implantable Pump License and Distribution Agreement referred to in Section 1, the Lease referred to in Section 5 of this Agreement and the License Option and Contingent Exclusive Marketing Agreement between the parties dates as of the same date as this Agreement shall be considered completely separate agreements. No default under any such other documents shall affect the rights and obligations of the parties under this Agreement, and no default under this Agreement shall affect the rights and obligations of the parties under those other documents. Nothing in this Section 17 is intended to amend or affect in any way the terms of the Secured Promissory Note referred to in Section 2.4 or the Line of Credit Note. 18. GOVERNING LAW. The validity, construction and interpretation of this Agreement shall be governed in all respects by the laws of the State of California applicable to contracts made between residents of that State and to be performed wholly within that State. 19. HEADINGS. Section and subsection headings are not to be considered part of this Agreement and are included solely for convenience and reference and in no way define, limit or describe the scope of this Agreement or the intent of any provisions hereof. 20. THIRD PARTIES. Nothing in this Agreement, expressed or implied, is intended to confer upon any person other than MiniMed or MRG any rights or remedies under or by reason of this Agreement. 15 21. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each one of which shall be deemed an original, but all of which shall constitute one and the same instrument. 22. JURISDICTION. 22.1 ACCEPTANCE OF JURISDICTION. Each party hereto irrevocably submits to the exclusive jurisdiction of any court of the State of California or the United States of America sitting in the City of Los Angeles over any suit, action or proceeding arising out of or relating to this Agreement. Any arbitration proceedings according to Section 16.1 shall be conducted in the City of Los Angeles. To the fullest extent it may effectively do so under applicable law, each party irrevocably waives and agrees not to assert, by way of motion, as a defense or otherwise, any objection that it may now or hereafter have to the establishment of the venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. 22.2 ENFORCEMENT OF JUDGMENT. Each party hereto agrees, to the fullest extent it may effectively do so under applicable law, that a judgment in any suit, action or proceeding of the nature referred to hereinabove brought in any such court shall be conclusive and binding upon such person and its successors and assigns and may be enforced in the courts of the United States of America or the State of California (or any other courts to the jurisdiction of which such person is or may be subject) by a suit upon such judgment. 22.3 EFFECT ON ARBITRATION. Nothing in this Section 22 shall be construed to limit the force or effect of Section 16. 23. ATTORNEYS' FEES. In the event of any litigation or arbitration arising out of or relating to this Agreement, the prevailing party shall be entitled to recover its court costs and reasonable attorneys' fees, including such costs and fees incurred in connection with any appeal or other similar proceeding. MEDICAL RESEARCH GROUP, LLC, MINIMED INC. a California limited liability company By AEM MiniMed Corp., its Managing Member By: /s/ TERRANCE H. GREGG ------------------------------------- Terrance H. Gregg By: /s/ ALFRED E. MANN President and Chief Operating Officer -------------------------------- Alfred E. Mann President By: /s/ ERIC S. KENTOR ------------------------------------- Eric S. Kentor By: /s/ RONALD LEBEL Senior Vice President and --------------------------------- General Counsel Ronald Lebel President, MRG, LLC
EX-10.2 4 EXHIBIT 10.2 1 Exhibit 10.2 IMPLANTABLE PUMP LICENSE AND DISTRIBUTION AGREEMENT This IMPLANTABLE PUMP LICENSE AND DISTRIBUTION AGREEMENT ("Agreement") is made as of this 1st day of September, 1998 by and between MINIMED INC. ("MiniMed"), a Delaware corporation, and MEDICAL RESEARCH GROUP, LLC ("MRG"), a California limited liability company, with respect to the following facts: RECITALS A. MiniMed has developed and holds available for license or sub-license programmable implantable insulin pump system technology based, in part, on technology described and claimed in certain invention disclosures, patent applications and issued patents owned by MiniMed, Wilson Greatbatch Ltd. and The Johns Hopkins University, including technology relating to MiniMed's MIP 2001 pump. Some of this technology has been licensed to MiniMed by Wilson Greatbatch Ltd. and The Johns Hopkins University. MiniMed also has development activities in process relative to the development of a constant flow implantable pump. B. MRG is developing and holds available for license or sub-license that certain long-term glucose sensor system technology based, in part, on technology described and claimed in certain invention disclosures, patent applications and issued patents owned by MRG, the Regents of the University of California and the Alfred E. Mann Foundation (the "Mann Foundation"). Some of this technology has been licensed or sublicensed to MRG by the Regents of the University of California and the Mann Foundation. C. MRG has a staff of professionals experienced in the development of medical devices and has facilities for the development and testing of such devices. D. MRG is developing electronic enhancements for the pump system. E. MRG has granted MiniMed an option to acquire exclusive marketing rights in MRG's long-term glucose sensor system technology in the Glucose Sensor Option Agreement between them dated the same date as this Agreement. F. MRG desires to obtain certain rights with respect to MiniMed's implantable pump system business pursuant to an Agreement Re Implantable Pump Business dated the same date as this Agreement. NOW, THEREFORE, in consideration of the foregoing premises, and the representations, warranties and covenants contained herein, and for other good and valuable 2 consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. DEFINITIONS 1.1 AFFILIATE. A Person, including Subsidiaries, that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with, the designated Party, but only for as long as such control relationship exists. For purposes of this definition, "control" shall include (a) in the case of a corporation, ownership of more than fifty percent (50%) of the shares of stock entitled to vote for the election of directors, and (b) in the case of any other business entity, ownership of more than fifty percent (50%) of the beneficial interest in capital or profits. 1.2 CONFIDENTIAL INFORMATION. All information of MRG or MiniMed that (a) is generally not available from public sources, although information shall not cease to be Confidential Information if it becomes publicly available as a result of a breach of this Agreement, and (b) is either designated as Confidential Information or, is of such nature or is disclosed in such manner that the fact that it is not publicly available would be obvious to a reasonable person under the circumstances. 1.3 COVERED APPLICATIONS. Applications of Licensed Products for which MRG appoints MiniMed as a distributor. These applications may specify the use of a particular drug, the treatment of a particular condition and/or the use of drugs manufactured by a particular company. As provided in this Agreement Covered Applications may be modified from time to time and may be exclusive or non-exclusive. 1.4 EFFECTIVE DATE. The Effective Date shall be the date of this Agreement. 1.5 ENHANCED PUMP. An apparatus or system which utilizes Pump Technology for diabetes or non-diabetes applications or both in conjunction with Enhancement Technology. 1.6 ENHANCEMENT TECHNOLOGY. Electronic enhancements for Pump Technology that MRG develops as set forth in Section 4 and any subsequent Improvements thereto. 1.7 EXCLUDED APPLICATIONS. Applications of Licensed Products expressly excluded from the Covered Applications pursuant to Section 5.1 and applications which become Excluded Applications in accordance with the terms of this Agreement. These applications may specify the use of a particular drug, the treatment of a particular condition and/or the use of drugs manufactured by a particular company. 1.8 FDA. The United States Food and Drug Administration or any successor agency having substantially the same authority. Page 2 of 40 3 1.9 GLUCOSE CONTROLLER. An apparatus or system which utilizes Glucose Sensing Technology to control an insulin infusion device in a human or in an animal. 1.10 GLUCOSE MONITOR. Any monitor product utilizing Glucose Sensing Technology to provide indications of glucose concentration or changes in glucose concentration in a human or in an animal. 1.11 GLUCOSE SENSING TECHNOLOGY. Technology relating to implantable glucose sensors intended to be used in vivo in humans or in animals for a period of at least forty-five days before replacement, including Improvements thereto. 1.12 GLUCOSE SENSOR OPTION AGREEMENT. The Glucose Sensor Option Agreement dated the same date as this Agreement by and between MiniMed and MRG. 1.13 IDE. Approval from the FDA to conduct a clinical trial of a medical device in humans under the Investigational Device Exemption regulations adopted by the FDA. 1.14 IMPROVEMENT. Any change, addition or deletion in the design, configuration, formulation, ingredients, components, or software of an apparatus or system, or in the formulas, processes, procedures, methods or techniques used in its manufacture, production or assembly that enhances the performance of an apparatus or system or that makes it quicker, easier or less expensive to manufacture, assemble, distribute, store, use or dispose of. 1.15 JOHNS HOPKINS RIGHTS. All rights which MiniMed now has to Technical Information as a result of or relating to any contract or agreement with The Johns Hopkins University, including but not limited to a License Agreement which The Johns Hopkins University and Pacesetter Systems, Inc. entered into on February 13, 1980, the Addenda thereto executed December 1, 1981 and December 8, 1982, the Agreement Constituting Consent to Assignment dated February 28, 1995, the Amendment to the 1980 License Agreement dated March 8, 1990 and the Novation Agreement made April 29, 1992, by and between The Applied Physics Laboratories of The Johns Hopkins University and Pacesetter Systems, Inc. and its successors, Pacesetter Infusion, Ltd. and MiniMed Technologies, Ltd. 1.16 LICENSED PRODUCTS. Implantable microinfusion pump systems intended for in vivo use in humans or in animals, including all accessories, utilizing in whole or in part MiniMed's Pump Technology and/or Improvements thereof and any Enhancement Technology and/or other technology developed by MRG and/or Improvements of either of the foregoing that is incorporated into such Products. Glucose Controllers, Glucose Monitors, Long-Term Glucose Sensors and the abdominal lead that connects the implantable pump to a Long-Term Glucose Sensor are not Licensed Products. 1.17 LICENSED PUMP RIGHTS. MiniMed's rights to any patent or Technology included within MiniMed's Pump Technology. 1.18 LICENSED PUMP SALES. The U.S. dollar amount of gross revenues from sales of the Licensed Products to Third Parties who are not Affiliates of MiniMed by MRG or Page 3 of 40 4 any of its Affiliates, excluding any amount paid to MRG or its Affiliates by the Third Party for transportation; shipping and mailing costs; sales, use or excise taxes; custom duties; tariffs or insurance and reduced by all amounts refunded, allowed, credited or discounted with respect to such sales, whether or not the sale occurred in the same accounting period. 1.19 LIST PRICE The price generally published from time to time for a product offered for sale in a particular market and in particular quantities to Third Parties unrelated to either Party who are not sales agents, sales representatives, dealers or distributors, but instead utilize the product for themselves or in providing medical care to unrelated persons. 1.20 LONG-TERM GLUCOSE SENSOR. Any sensor, the principal purpose of which is to detect the presence of, or to measure the quantity of, or any change in the quantity of, glucose in the body of a human or animal subject that is intended to be used in vivo with a Licensed Product for at least 45 days before replacement, including Improvements thereto. 1.21 MANN FOUNDATION RIGHTS. All rights which MRG now has to Technical Information as a result of or relating to any contract or agreement involving the Mann Foundation, including but not limited to all rights under a License Agreement dated February 6, 1996 between MRG and the Mann Foundation, as amended April 17, 1998. 1.22 MRG'S GLUCOSE SENSING TECHNOLOGY. All rights which MRG now has and hereafter develops or acquires to Glucose Sensing Technology, including but not limited to, Mann Foundation Rights and UC Rights as such rights relate to Glucose Sensing Technology. MRG's Glucose Sensing Technology shall not include any glucose sensing technology under development, developed or licensed by MiniMed. 1.23 MINIMED'S PUMP TECHNOLOGY. All rights which MiniMed has to Pump Technology, including but not limited to, Johns Hopkins Rights and Wilson Greatbatch Rights, as such rights relate to Pump Technology. 1.24 OPTION. The option granted by MRG to MiniMed to purchase marketing rights to the Long-Term Glucose Sensor granted pursuant to Section 5.1 of the Glucose Sensor Option Agreement. 1.25 OTHER APPLICATIONS. Applications of Licensed Products which are not Covered Applications or Excluded Applications. As provided in this Agreement Other Applications may be modified from time to time. 1.26 PARTY. Either entity that is a signatory to this Agreement. 1.27 PMA. Approval from the FDA to commercially distribute a medical device under the Pre Market Approval regulations. 1.28 PERSON. Any individual, partnership, association, joint stock company, joint venture, limited liability company, corporation, trust, unincorporated organization, other entity or government, or agency or political subdivision, economic unit or entity thereof, Page 4 of 40 5 including without limitation, each of the Parties to this Agreement and their respective Affiliates. 1.29 PUMP TECHNOLOGY. Technology relating to implantable infusion pumps developed or sold by MiniMed, as of the date of this Agreement, including (i) MiniMed's MIP 2001 pump and successor products, and any subsequent Improvements thereto, including accessories thereto, and (ii) a constant flow pump under development by MiniMed. 1.30 REGULATORY APPROVAL. Approval by appropriate authorities to allow commercial sale of any Licensed Products in a certain country or countries, for example the FDA PMA or 510(k) approval in the United States. 1.31 RETAINED PHARMACEUTICAL COMPANIES. Those companies listed on Exhibit 1.31. 1.32 SUBSIDIARIES. Means entities of which a designated Party owns the equity interests specified in 1.1(a) or (b), either directly or indirectly through other entities so owned. 1.33 TECHNICAL INFORMATION. Any information reasonably relevant to the Licensed Products or otherwise pertaining to the design, manufacture, assembly, production, operation, performance or use of the Licensed Products or any component of Licensed Products, including but not limited to invention disclosures, patent applications, issued patents, feasibility study information, testing and reliability information, specifications, documentation, drawings, computer programs, software, prototypes, and the like. 1.34 TECHNOLOGY. Any invention, development or Improvement, and any trade secret, "know-how", manufacturing formula, process, procedure, method or technique, whether or not patentable, copyrightable or otherwise protectable by law. 1.35 THIRD PARTY. Any Person other than the legal entities that are Parties to this Agreement. 1.36 TRANSFER PRICE. The price charged for any product by MRG to MiniMed. 1.37 UC RIGHTS. All rights which MRG now has to Technical Information as a result of or relating to any contract or agreement involving the Regents of the University of California, including the Exclusive License Agreement for Glucose Sensors and Systems, effective February 28, 1990, U.C. Agreement Control No. 90-04-0104. 1.38 WILSON GREATBATCH RIGHTS. All rights which MiniMed now has to Technical Information as a result of or relating to any contract or agreement involving Wilson Greatbatch Ltd., including but not limited to a License Agreement and a Supply Agreement, each made as of the 1st day of October, 1993, and any amendments thereto. Page 5 of 40 6 2. CONFIDENTIAL INFORMATION 2.1 TREATMENT OF CONFIDENTIAL INFORMATION. MiniMed and MRG shall maintain all Confidential Information disclosed by the other Party pursuant to or during the performance of this Agreement in strict secrecy and confidence, and not disclose such Confidential Information to any Third Party, nor make any use of such Information for its own benefit or gain except as is mutually agreed between the Parties or is otherwise provided for and permitted under this Agreement and the Glucose Sensor Option Agreement. No Confidential Information or materials pertaining to Licensed Products or MiniMed's Pump Technology will be disclosed to any other Person other than those approved in writing by MiniMed with respect to Confidential Information disclosed by it to MRG and by MRG with respect to Confidential Information disclosed by it to MiniMed, except disclosure to sublicensees, potential distributors and contractors with a need to know and bound by confidentiality agreements and to the FDA and similar regulatory agencies of information relative to obtaining regulatory approval. Nothing in this Section 2.1 shall apply, however, to any disclosure of Confidential Information that may be required by applicable law, including without limitation disclosures (to the extent they may be legally required) in documents filed with the Securities and Exchange Commission and private placement memoranda used in connection with the sale of securities. MRG acknowledges its understanding and agreement that as a public company MiniMed has responsibilities to disclose certain information about its affairs and will be required to publicly disclose the existence of this Agreement and its material terms as well as future developments in the portion of its business to which this Agreement relates. MiniMed likewise acknowledges its understanding and agreement that MRG may be required to make similar disclosure in connection with its capital raising efforts. 2.2 REQUESTED DISCLOSURE OF CONFIDENTIAL INFORMATION. In the event either Party is requested pursuant to, or required by, applicable law or regulation or by legal process to make any disclosure otherwise prohibited hereunder, the Party that is required to make disclosure (the "Disclosing Party") shall, to the extent reasonably practicable, provide the other Party with prompt notice of such requests or requirements prior to disclosure so that (a) the other Party may seek an appropriate protective order or other remedy and/or (b) the Disclosing Party and the other Party can seek in good faith to consult with the Disclosing Party on the appropriate scope and approach to disclosure. In the event that such protective order or other remedy is not obtained, the Disclosing Party shall furnish only that portion of the Confidential Information which the Disclosing Party reasonably believes may be legally required and, to the extent reasonably practicable, use reasonable efforts to obtain confidential treatment for the Confidential Information disclosed. 2.3 LIMITED RELEASE. MiniMed and MRG shall be released from the obligations of Sections 2.1 and 2.2 to the extent that any of the disclosed information: (a) was already part of the public domain at the time of the disclosure by the other Party or (b) becomes publicly available through no fault of the receiving Party (but only after and only to the extent that it becomes publicly available. Page 6 of 40 7 2.4 TERM OF CONFIDENTIALITY. The obligation of MiniMed and MRG to receive and hold information disclosed by the other Party in confidence, as required by Section 2.1, shall terminate three (3) years after termination of this Agreement or ten years after the Effective Date of this Agreement, whichever is later, except that such obligations shall not terminate as to Technical Information which constitutes a trade secret until such time as that information has become publicly available. 3. LICENSE OF PATENT RIGHTS AND MINIMED'S PUMP TECHNOLOGY 3.1 GRANT OF LICENSE. Subject to Section 3.2, MiniMed hereby grants to MRG and MRG hereby accepts from MiniMed, the worldwide right to manufacture, cause to be manufactured, promote, sell, market, distribute and use the Pump Technology, whether or not in conjunction with the Long-Term Glucose Sensor. The rights granted MRG shall be exclusive except (a) to the extent MiniMed's rights to the Pump Technology depend upon licenses which do not give MiniMed exclusive rights, (b) nothing herein shall limit the rights of MiniMed with respect to any Technology or to license others with respect to Technology insofar as such rights relate to external infusion pumps or any other application not constituting an implantable infusion pump and (c) nothing herein is intended to limit the rights of MiniMed under Section 5 or 8. Notwithstanding the foregoing, the Wilson Greatbatch Rights are being assigned to MRG pursuant to the Assignment and Assumption Agreement being executed concurrently with this Agreement. 3.2 MINIMED'S DISTRIBUTION AND MANUFACTURING RIGHTS. Notwithstanding anything to the contrary set forth in Section 3.1, MRG agrees not to engage in any commercial distribution or commercial exploitation of the Pump Technology or to manufacture any Licensed Product that would violate this Agreement or MiniMed's rights under Section 5 of this Agreement. 3.3 PROVIDING OF INFORMATION. MiniMed shall provide to MRG access to all documentation relating to the design, manufacture, testing and regulatory approval of its implantable pumps. 3.4 ROYALTIES. The license granted pursuant to Section 3.1 shall be a fully paid-up license with no obligation on the part of MRG to pay royalties to MiniMed except as follows: 3.4.1 ROYALTIES FOR INSULIN APPLICATIONS. If MiniMed does not exercise its Option to acquire the worldwide marketing rights to MRG's Long-Term Glucose Sensor pursuant to the Glucose Sensor Option Agreement or those rights of MiniMed expire or terminate for any reason or MRG converts MiniMed's rights under Section 5.1 to Covered Applications to a non-exclusive basis pursuant to Section 7, then thereafter MRG will pay to MiniMed a royalty of ten percent (10%) of Licensed Pump Sales from the sale, lease, sublicensing or other commercial exploitation of Licensed Products that are for the delivery of insulin during the term of this Agreement until aggregate royalties in the amount of $5 million Page 7 of 40 8 have been paid and thereafter a royalty equal to three percent (3%) of such Licensed Pump Sales. For purposes of this Section 3.4.1 Licensed Products do not include the abdominal lead connecting MRG's Long-Term Glucose Sensor to an implantable pump. Notwithstanding the foregoing, in the event the Licensed Products include the Enhancement Technology, the applicable royalty rates pursuant to the preceding sentence will be reduced to five percent (5%) of Licensed Pump Sales instead of ten percent (10%) and two percent (2%) of Licensed Pump Sales instead of three percent (3%). Whether or not MRG establishes separate prices for the Licensed Products and the Long-Term Glucose Sensor, for purposes of this Section 3.4.1 the portion of total revenues from Licensed Products distributed together with MRG's Long-Term Glucose Sensor shall be equal to: (a) if MiniMed then has List Prices for the Licensed Product, then MiniMed's applicable List Price; (b) if (a) does not apply and MRG is then regularly publishing List Prices for the Licensed Product, then MRG's applicable List Price but not less than manufacturing cost plus 30% thereof; (c) whether or not (a) or (b) applies, if MRG sells any Licensed Product directly to those who utilize the Licensed Products themselves or in providing medical care to an unrelated person, then the actual sale prices of such Licensed Products but in no event less than the manufacturing cost plus 50% thereof. In no event, however, shall more than 70% of the aggregate revenues received for the Licensed Product and the Long-Term Glucose Sensor be allocated to the Licensed Product for purposes of this Section 3.4.1. 3.4.2. ROYALTIES ON EXCLUDED APPLICATIONS. If MRG pursues commercial development of Licensed Products for any Excluded Applications or for the Covered Applications referred to in Section 5.1 other than the delivery of insulin, then MRG will pay to MiniMed a royalty of three percent (3%) of Licensed Pump Sales during the term of this Agreement from such applications if the Licensed Products are programmable implantable pump systems that do not use the Enhancement Technology, two percent (2%) if the Licensed Products are programmable implantable pump systems that use the Enhancement Technology and one and one-half percent (1.5%) of such Licensed Pump Sales from Licensed Products that are constant flow implantable pump systems. 3.4.3 ROYALTIES TO JOHNS HOPKINS AND WILSON GREATBATCH. In addition to the royalties provided for in Section 3.4.1 MRG shall pay to MiniMed all royalties relating to all applications payable by MiniMed pursuant to the agreements relating to the Johns Hopkins Rights and the Wilson Greatbatch Rights not less than five (5) days prior to the date MiniMed is obligated to pay such payments to the licensor under those agreements. In addition, MRG will perform on behalf of MiniMed all of MiniMed's obligations under the agreements, addenda and amendment evidencing the Johns Hopkins Rights and the Wilson Greatbatch Rights arising after the date of this Agreement except as otherwise agreed to in Page 8 of 40 9 writing and will not take any action or omit to take any action which would constitute a default under any such agreement, addendum or amendment. 3.5 EXCLUSIONS. Notwithstanding anything to the contrary contained in this Section 3.5, in the event any tax is imposed on MRG with respect to the payment of any royalty set forth in Section 3.4, MRG shall, at its sole expense, have the right to withhold from such royalty the amount of such tax actually paid by it; provided, however, that MRG shall execute and deliver such documents and take such other actions as MiniMed reasonably may request in connection with disputing such tax or obtaining a credit or refund thereof. 3.6 PAYMENT 3.6.1 DATES OF PAYMENT. The royalties payable by MRG to MiniMed pursuant to Section 3.4 shall be paid on or before the forty-fifth (45th) day following the end of each calendar quarter and shall be computed with respect to all Licensed Pump Sales during such quarterly period. 3.6.2 DOCUMENTATION. MRG shall deliver to MiniMed, together with each payment of royalties payable by MRG to MiniMed under Section 3.4, a written statement, verified as to correctness by the Manager or the Chief Financial Officer of MRG, setting forth for each Licensed Product a detailed calculation of the amount of royalties then due to MiniMed and such information as MiniMed reasonably shall require to verify the accuracy of such computation. 3.6.3 CURRENCY OF PAYMENT. All amounts payable by MRG under Section 3.4 shall be paid in United States dollars; provided, however, that any such amounts payable with respect to Licensed Products invoiced by MRG in a currency other than United States dollars shall be converted into United States dollars at the selling price for such foreign currency published by Citibank N.A. as the Selling Price for Bank Transfers in the United States for Payment Abroad at the close of business on the last business day of the calendar quarter with respect to which such royalty relates. 3.7 LATE FEE. In the event any payment payable by MRG to MiniMed pursuant to Section 3.4 shall not be paid promptly when due, the unpaid balance thereof shall bear interest at the lesser of (a) the prime rate of Citibank N.A. from time to time in effect plus 1% or (b) the maximum rate permitted by applicable law. 3.8 BOOKS AND RECORDS. MRG shall establish and maintain at its principal places of business in the United States, or at such other place as to which MiniMed may consent in writing, true and complete books of account, records and other data, containing all particulars necessary for an exact determination of the royalties payable by MRG to MiniMed pursuant to Section 3.4. During the term of this Agreement, and for three (3) years thereafter, MRG and its employees and agents, including but not limited to, accountants and attorneys, shall have the right, during normal business hours, on forty-eight (48) hours prior written notice, to inspect, copy and make extracts from all such books of account, records and other data to verify the accuracy of any royalties paid pursuant to Section 3.4, or any statements furnished in accordance with Section 3.6.2. In the event any examination by MiniMed of MRG's books and records discloses underpayments to MiniMed of the royalties theretofore Page 9 of 40 10 actually paid by MRG with respect to such quarter, MRG shall pay to MiniMed such deficiency plus interest pursuant to Section 3.7, and, if the deficiency exceeds five percent (5%) for the relevant calendar quarter, MRG shall further reimburse MiniMed on demand for all of MiniMed's reasonable and documented out-of-pocket costs and expenses, including, but not limited to, all professional fees, incurred in connection with any such examination. 4. DEVELOPMENT OF ENHANCEMENT TECHNOLOGY 4.1 SCOPE OF DEVELOPMENT 4.1.1 MRG is developing and shall make commercially reasonable efforts to complete the development of the Enhancement Technology contemplated by the specifications referred to in Section 4.1.2 and to incorporate it into the programmable implantable pump between the Effective Date and April 30, 1999 (the "Performance Period") in accordance with the terms and conditions as set forth herein (the "Enhancement Technology Development"). 4.1.2 MRG has delivered to MiniMed revised specifications for the Enhancement Technology. 4.1.3 MRG shall make commercially reasonable efforts to develop, by January 1, 1999, at MRG's sole expense, a battery in accordance with the specifications referred to in Section 4.1.2 to this Agreement. 4.1.4 MRG shall perform the Enhancement Technology Development consistent with MiniMed's design control requirements under ISO 9001 and EN 46001. 4.2 OVERSIGHT COMMITTEE. Upon execution of this Agreement, MiniMed and MRG shall establish a committee (the "Oversight Committee") consisting of 4 members comprised of an equal number of representatives from each of MiniMed and MRG, which representatives shall be subject to the approval of the other party and such approval will not be unreasonably withheld or delayed by the other Party. The Oversight Committee shall have the general responsibility for monitoring the progress of the Enhancement Technology Development and ensuring that such Development is completed satisfactorily and that the time set forth herein for completion of the Development is met. The parties acknowledge and agree, however, that MRG is responsible for using commercially reasonable efforts to complete the Enhancement Technology and to incorporate it into the programmable implantable pump in accordance with the terms of this Agreement. 4.3 REGULATORY APPROVAL. MRG shall make commercially reasonable efforts to deliver, by April 30, 1999 to MiniMed all information necessary to comply with FDA regulatory requirements, and the regulatory requirements of any foreign jurisdiction designated by MiniMed. MiniMed shall use commercially reasonable efforts to obtain Regulatory Approval of an implantable pump for insulin delivery incorporating the Enhancement Technology. MRG shall reasonably cooperate with MiniMed in obtaining such approvals, including cooperation in connection with clinical trials. Page 10 of 40 11 4.4 REPORTING OF DEVELOPMENT PROGRESS TO THE OVERSIGHT COMMITTEE. MRG shall inform the Oversight Committee of the progress of the Enhancement Technology Development in the following manner: (a) By informal verbal reports to all members of the Oversight Committee, monthly; (b) By providing written reports at the reasonable request of MiniMed, which in no event shall be required to be delivered more frequently than every three (3) months. 4.5 OWNERSHIP OF DEVELOPED TECHNOLOGY. 4.5.1 IMPROVEMENTS BY MRG. The Enhancement Technology and any other Improvements to the Technology, Technical Information or Confidential Information developed by MRG relating to the Licensed Products during the term of this Agreement are, as between MRG and MiniMed, owned by MRG. MiniMed may make use and sell these Improvements without additional royalty to the extent that they are incorporated into a Licensed Product MiniMed has the right to make, use or sell under this Agreement. 4.5.2 IMPROVEMENTS BY MINIMED. Any Improvements developed by MiniMed to the Enhancement Technology or any other Improvements to the Technology, Technical Information or Confidential Information relating to the Licensed Products shall be owned by MiniMed; however, MRG will have the right to make, use and sell the Improvements, and sublicense others to do so, subject to payment by MRG to MiniMed of a reasonable royalty to be agreed upon by the parties or, if the Parties cannot agree within a reasonable time, by arbitration pursuant to Section 28. No such royalty shall be payable, however, with respect to any Licensed Products including such Improvements sold by MRG to MiniMed. 4.5.3 JOINT IMPROVEMENTS. Any patented Improvement jointly owned by the Parties shall not be licensed to any Third Party without the written consent of both parties. 4.5.4 TERM OF LICENSES. Any licenses granted under Sections 4.5.1 through 4.5.3 will survive until the last of the patents on the Improvements, if any, which are the subject of the license, which may be a date after the termination of this Agreement. If there are not such patents or when the last of such patents expires, any such license will continue for as long as is legally permissible. MiniMed agrees to assist MRG in filing any patent applications and obtaining any patents (including execution of assignments and other documents and instruments necessary or proper) to carry out the provisions of these Sections. 4.5.5 UNITED STATES PATENT PROTECTION. Should any Enhancement Technology or the Improvements referred to in Section 4.5.1 through 4.5.3 of this Agreement be reasonably deemed to be suitable for protection under the patent laws of the United States, then the Party developing the Improvements shall prepare and file patent application(s) on the Page 11 of 40 12 invention(s) in the United States, and shall bear all of the costs and expenses associated with obtaining and maintaining such patents. The Party developing the Improvement shall be identified as the owner in any such patent applications. In the event the developing Party elects not to seek patent protection on any invention, the other Party shall have the right to prepare and file patent application(s) for which all the costs and expenses associated with obtaining and maintaining such patents shall be borne by such Party and such patents shall be jointly owned by both Parties. 4.5.6 FOREIGN COUNTRY PATENT PROTECTION. Neither Party developing Improvements shall be obligated to file for or to obtain patent protection for any Enhancement Technology or any Improvements referred to in Section 4.5.1 through 4.5.3 in any foreign country, but if the developing party does file for or obtain any such patent protection, the developing Party shall bear all of the costs and expenses associated with obtaining and maintaining such patent protection. If the developing Party elects not to file for or to obtain patent protection for any Enhancement Technology or any such Improvements in any foreign country, then the other Party may elect to file for or to obtain patent protection for such Enhancement Technology or Improvement, at its sole expense, and any such patent application or patent obtained therefrom shall be jointly owned by both parties. 4.5.7 USE OF ENHANCEMENT TECHNOLOGY. Subject to Section 7 and notwithstanding any other provision of this Section 4, MRG has not and will not license any Enhancement Technology for use in implantable pumps to any Third Party during the term of this Agreement for a Covered Applications, unless MiniMed's rights to Covered Applications cease to be exclusive as provided herein. 5. APPOINTMENT OF MINIMED AS DISTRIBUTOR. 5.1 APPLICATIONS. As of the Effective Date, Covered Applications will include the use of Licensed Products for delivery of insulin or any other compound for the treatment of diabetes and for the treatment of HIV and/or AIDS. Covered Applications shall also include the delivery of medications, pharmaceuticals or other compounds manufactured, developed or distributed by any of the Retained Pharmaceutical Companies, except for the treatment of pain, spasticity, cardiovascular, or otological conditions. As of the Effective Date, Excluded Applications will include the use of Licensed Products for the treatment of pain, spasticity, cardiovascular or otological conditions. If MiniMed's Option to acquire the distribution rights to MRG's Long-Term Glucose Sensor expires without being exercised, then the use of the Licensed Products with MRG's Long-Term Glucose Sensor shall cease to be a Covered Application and shall become an Excluded Application but MiniMed will nonetheless be entitled to payment of the royalty contemplated by Section 3.4.1. Nothing in this Agreement shall limit the right of MiniMed to distribute the Licensed Products with Long-Term Glucose Sensors or any other products offered by parties other than MRG for the treatment of diabetes or any other Covered Application. 5.2 APPOINTMENT. MRG hereby appoints MiniMed as its exclusive distributor throughout the world of all Licensed Products now or hereafter owned, acquired or Page 12 of 40 13 developed by MRG to be used for a Covered Application. Nothing in this Agreement shall give MiniMed the right to distribute implantable pump systems for any other application. 5.3 EXCLUSIVITY. During the term set forth in Section 5.5 MRG will not (a) appoint any other distributor for the Licensed Products to be used for the Covered Applications, (b) sell, lease or otherwise transfer for consideration the Licensed Products to any Third Party for distribution for Covered Applications or (c) itself sell, lease or otherwise commercially exploit the Licensed Products for Covered Applications (other than pursuant to this Agreement). During the term of this Agreement MRG will forward to MiniMed all inquiries received from potential purchasers of the Licensed Products for the Covered Applications. MRG shall expressly restrict by contract all of its sales agents, distributors and other third parties from participating in the commercial distribution of the Licensed Products for the Covered Applications. If MRG terminates the exclusivity of MiniMed's rights to Covered Applications pursuant to Section 7, this paragraph will no longer apply. 5.4 SUBDISTRIBUTORS. MiniMed may appoint subdistributors, dealers or agents for itself with respect to the sale of the Licensed Products for the Covered Applications. Such subdistributors, dealers or agents of MiniMed shall have no rights against MRG under this Agreement, and MiniMed shall continue to be in all respects responsible for compliance with the terms and conditions of this Agreement with respect to all activities and sales made by any subdistributors and dealers. 5.5 TERM. The term of MiniMed's rights as distributor of the Licensed Products (the "Term of the Distribution Rights") will commence on the date hereof and will continue until December 31, 2003 and shall be deemed to be extended automatically thereafter on a year-to-year basis unless MiniMed terminates the Term of the Distribution Rights effective at the end of the initial term or any time thereafter by giving not less than six (6) months' prior written notice to MRG. This Agreement is also subject to premature termination as provided in Section 11. 6. PRICE AND TERMS OF SALE TO MINIMED. 6.1 PRICES UNTIL DECEMBER 31, 2000. From time to time during the Term of the Distribution Rights, MiniMed will purchase Licensed Products from MRG by placing written orders therefor using a purchase order in the form of Exhibit 6(A) attached to this Agreement. For the period from the date of this Agreement through December 31, 1998, the Transfer Price payable by MiniMed for the Licensed Products ordered will be $10,800 for a complete implantable pump system (including a program communicator unit). During the period from January 1, 1999 through December 31, 2000 the Transfer Price payable by MiniMed shall be MiniMed's List Price (as established by MiniMed) for the Licensed Products less 20%. 6.2 PRICES AFTER DECEMBER 31, 2000. For Licensed Products ordered after December 31, 2000, the Transfer Price will be equal to the average of MRG's manufacturing cost (determined in accordance with generally accepted accounting principles consistently Page 13 of 40 14 applied) and MiniMed's List Price (as established by MiniMed) at the time the Licensed Products are ordered. In no event, however, will the Transfer Price exceed MiniMed's List Price less 15% thereof or be less than MRG's manufacturing cost plus 30%. If no Transfer Price satisfies the foregoing requirements, the price shall be determined by arbitration in accordance with Section 6.3. For Licensed Products intended for use with MRG's Long-Term Glucose Sensor, the price of Licensed Products shall include the related Glucose Controller, Glucose Monitor and the abdominal lead connecting the sensor to the pump. Abdominal leads sold separately from Licensed Products as replacements shall have a Transfer Price to be established by MRG that will not exceed the greater of $1,000 or 25% of the Transfer Price of the Long-Term Glucose Sensor. Each of the Parties will afford the other the right to examine its books and records and cause an audit thereof (at the cost of the examining party) in order to verify List Price and cost figures. The Parties anticipate that MRG will have achieved reductions in its manufacturing cost as a result of economies of scale and reduced costs of components no later than December 31, 2000 and that the Parties will be better able to project at that time the increase in sales volumes that is expected to occur. As a result, the Transfer Prices of the Licensed Products are expected to be substantially less for systems ordered after December 31, 2000 than the price applicable to systems ordered prior to that date. 6.3 ADJUSTMENT IN PRICES. If at anytime after December 31, 2000 either Party believes that the Transfer Price arrangement is materially unfair to it, the Parties will meet and seek in good faith to agree on revised prices that are agreeable to both Parties and approximate pricing structures that are customary for other comparable distribution arrangements involving high technology products. If the Parties are unable to agree on price, the matter shall be resolved by arbitration in accordance with Section 28. 6.4 DELIVERY AND PAYMENT. The prices payable by MiniMed shall be F.O.B. MRG's place of manufacture with export packing to be furnished at MRG's expense. Payment will be made by MiniMed in United States dollars within thirty (30) days after shipment. If any invoice is not paid by MiniMed in accordance with its terms and within thirty (30) days of notice of late payment, MRG may cancel or delay further shipments until such payment is made. In the event any payment payable by MiniMed to MRG shall not be paid promptly when due, the unpaid balance thereof shall bear interest at the lesser of (a) the prime rate of Citibank N.A. from time to time in effect plus 1% or (b) the maximum rate permitted by applicable law. All sales will be final, and no returns will be allowed except as set forth below in Section 12 for products not complying with MRG's warranty or the inspection specifications. MiniMed shall be responsible for clearing all Licensed Products through customs and shall pay any and all taxes or duties imposed by any governmental authority on importation or sale of the Licensed Products. 6.5 TIME FOR DELIVERY. MiniMed and MRG will cooperate to ensure that MiniMed receives the quantities of pumps that it requires throughout the term referred to in Section 11.1. MiniMed will place a firm purchase order with MRG for the quantity of pumps it requires over the next six month period following the Effective Date within ten (10) days after the Effective Date. Promptly after delivery of that purchase order, MiniMed and MRG will meet to review and agree to MiniMed's initial requirements. Thereafter, commencing on the Page 14 of 40 15 first day of the third full calendar month commencing after the Effective Date MiniMed will provide supplemental purchase orders periodically, but at least every two months, specifying the quantity of pumps MiniMed will require over the next six month period. MRG will have the right to refuse any purchase order that would exceed MRG's manufacturing capacity; however MRG may not refuse a purchase order for a monthly requirement of 10% or less of MiniMed's minimum annual purchases required to maintain exclusivity as provided in section 7. If MiniMed's requirements for pumps increase or decrease such that MiniMed would like to amend these purchase orders MRG will attempt to accommodate those changes, but MRG may request additional payment from MiniMed beyond the agreed Transfer Prices if changes to purchase orders increase MRG's costs. Such additional payment will equal MRG's reasonably estimated additional cost and will be requested, if at all, within thirty (30) days of MRG's receipt of any such change. In the event of any disagreement as to whether the additional charges reflect MRG's costs, the matter shall be settled by arbitration pursuant to Section 28. 6.6 ADDITIONAL OBLIGATIONS OF MRG. Throughout the term of this Agreement, MRG will do each of the following: (a) provide such technical training for MiniMed's personnel as MiniMed may reasonably request together with copies of all manuals, product specifications and performance data and other materials as MiniMed may reasonably request, at MRG's cost and expense (except for travel cost); (b) provide all current packaging material for the Licensed Products; (c) provide necessary documentation to assist MiniMed in meeting requirements to register Licensed Products in various jurisdictions where they are to be sold and to comply with all laws and regulations applicable to the Licensed Products; and (d) provide MiniMed with copies of all correspondence with the FDA and other regulatory authorities after the date of this Agreement pertaining to the Licensed Products. 6.7 ADDITIONAL OBLIGATIONS OF MINIMED. MiniMed will do each of the following: (a) provide to MRG, all current packaging material for the Licensed Products in MiniMed's possession on the date of this Agreement or delivered to MiniMed after the date of this Agreement pursuant to orders placed before the date of this Agreement; (b) throughout the term of this Agreement provide MRG with copies of all correspondence with the FDA and other regulatory authorities after the date of this Agreement pertaining to the Licensed Products, and Page 15 of 40 16 (c) produce, at MiniMed's expense, the English language version of all required labeling of implantable pumps using the Enhancement Technology, including patient and clinician instruction manuals. 7. MINIMUM PURCHASE REQUIREMENTS. 7.1 REQUIRED MINIMUM PURCHASES. MiniMed agrees to purchase the following minimum quantities of programmable implantable pump systems for the calendar year as specified:
Systems Purchased During No. of Systems ------------------------ -------------- 1998 and 1999 433 2000 600 2001 117.5% of the amount of programmable implantable pump systems purchased during 2000
7.2 MINIMUM PURCHASES NECESSARY TO KEEP EXCLUSIVE RIGHTS. In furtherance of the sales and distribution, the Parties agree that if MiniMed purchases the following minimum quantities of programmable implantable insulin pump systems in each of the respective calendar years (the "Minimum Sales Quotas"), its exclusive distribution rights will not be subject to termination as provided below:
Year Minimum Sales Quotas ---- -------------------- 2002 10% of external insulin pumps actually sold by MiniMed during 2001 2003 15% of external insulin pumps actually sold by MiniMed during 2002 2004 and following years 20% of external insulin pumps actually sold by MiniMed during the preceding year
7.3 DATES WHEN PUMP SYSTEMS DEEMED PURCHASED. For purposes of this Section 7, programmable implantable pump systems will be deemed to have been purchased when they are delivered by MRG to MiniMed or its designee, except that Licensed Products delivered by MRG at a date later than the delivery date specified in MiniMed's order will be deemed, solely for purposes of this Section 7, to have been purchased when they should have been delivered. If MiniMed does not accept any Licensed Products delivered to it in accordance with its right to do so under this Agreement, such products shall be deemed to have been purchased for purposes of this Section 7 but MiniMed shall be obligated to accept delivery Page 16 of 40 17 of substitute Licensed Products if the Licensed Products not accepted were necessary to meet the minimum purchase requirements set forth above, provided that MiniMed's obligation to accept such substitute Licensed Products is subject to the condition that MRG deliver such Licensed Products meeting the requirements of this Agreement within 90 days after the date MiniMed has declined acceptance of the Licensed Products previously delivered. 7.4 TERMINATION OF EXCLUSIVE DISTRIBUTION RIGHTS. If MiniMed fails to purchase the applicable Minimum Sales Quota during the period after December 31, 2001, MRG's sole and exclusive remedy shall be to terminate the exclusivity feature of MiniMed's distribution rights under Section 5.1 of this Agreement (subject to MiniMed's right to pursue arbitration set forth below) by delivering written notice of its election to do so to MiniMed within one hundred eighty (180) days after the end of any calendar year in which MiniMed has failed to purchase the required number of pump systems. 7.4.1 Notwithstanding the preceding paragraph, MiniMed's exclusive distribution rights shall not be terminated for any calendar year or longer period referred to below prior to the date (the "One-Year Expiration Date") of expiration of one year after the first Regulatory Approval in the U.S. or the EU (by obtaining the CE Mark) of a system in which an MRG fully implanted Long-Term Glucose Sensor provides a significant portion of the control of insulin delivery by the Licensed Products if: (i) MiniMed has purchased one-half of the applicable Minimum Sales Quota during the year in question or longer period referred to below, except that for 2002 said one-half amount shall be deemed to be 1,200 and (ii) MiniMed has used commercially reasonable efforts during the year in question to promote and sell the Licensed Products. 7.4.2 For the calendar year in which the One-Year Expiration Date occurs, the Minimum Sales Quota shall be divided by 365 (rounded to the nearest one-thousandth) to establish a daily average, and the Minimum Sales Quota for the fractional calendar year prior to the One-Year Expiration Date (the daily average multiplied by the number of days in the year prior to the One Year Expiration Date) shall be added to the Minimum Sales Quota for the prior calendar year. MRG shall have the right to terminate MiniMed's exclusive distribution rights for the failure to purchase the Minimum Sales Quota for such fractional year only if MiniMed has failed to purchase one-half of the combined Minimum Sales Quota for the combined period as contemplated by 7.4.1(i) above and it has not used commercially reasonable efforts during the combined period to promote and sell the Licensed Products as contemplated by 7.4.1(ii) above. 7.4.3 The determination of whether or not MiniMed used such efforts as required by 7.4.1(ii) above shall be made by arbitration commenced by MiniMed in accordance with Section 28 except that discovery shall be limited to 60 days. MiniMed may only commence such an arbitration if it does so within thirty (30) days after receipt of MRG's written notice of termination of exclusivity. In the arbitration the arbitrators will determine whether or not the requirement of 7.4.1(ii) has been met. Pending a final determination, MiniMed's distribution rights shall continue to be exclusive. Page 17 of 40 18 7.4.4 If MiniMed does not commence such an arbitration or if the arbitrators determine that the requirement of 7.4.1(ii) above has not been met, (A) MRG will have the right to distribute pumps through its own sales organization or to designate other parties as distributors of the Licensed Products for the Covered Applications on a non-exclusive basis, (B) MiniMed will have the right to continue to purchase Licensed Products for any Covered Applications on the terms set forth above and to distribute them throughout the world on a non-exclusive basis during the balance of the Term of the Distribution Rights, including any extension thereof, with no minimum purchase obligations and (C) MiniMed will have right to manufacture the Licensed Products for the Covered Applications or contract with others to do so provided that it gives MRG written notice of its intention to do so at least two years before it commences manufacturing Licensed Products for commercial distribution. If MiniMed commences manufacturing Licensed Products as provided above, it will be obligated to pay the royalties as provided in Section 8.1.2 and it will have the right to use the Technology relating to the Licensed Products as provided in Section 8.1.2. 7.5 ADJUSTMENTS IN MINIMUM SALES QUOTAS. 7.5.1 If MRG fails to establish the capability to manufacture Licensed Products in accordance with MiniMed's quality specifications, meeting the inspection requirements and warranty set forth in Section 12 and in the quantities and within the delivery times contemplated by Section 6.5, the Minimum Sales Quotas shall be adjusted so that they begin to apply for the first full 12 calendar month period when such capability is established as if that had been 1998 and shall progress as provided above substituting each such successive twelve calendar month period for each full calendar year referred to above. In such event, the Minimum Sales Quota for 1998 shall be deemed to be 250 for the full calendar year. For example, if MRG's manufacturing capability is not established until August 15, 1999, the first performance period would be the twelve months ended August 31, 2000 and the Minimum Sales Quota for that period would be 250. The Minimum Sales Quotas for the twelve months ended August 31, 2001 and 2002 would be 350 and 600, and the pattern would continue. Minimum Sales Quotas which depend upon the amount of implantable or external pump systems purchased in particular years shall be determined based upon the years specified above even though the twelve calendar month periods for which they will constitute the Minimum Sales Quotas may be substantially later. For example, if there is a delay of exactly 24 months, in establishing manufacturing capability, the Minimum Sales Quota for 2003 would be 117.5% of the amount of programmable implantable pump systems purchased in 2000. Likewise, if MRG loses said manufacturing capability the obligation to meet Minimum Sales Quotas shall be suspended until such time as either MRG or MiniMed or a Third Party with whom either of them contracts begins manufacturing and the Minimum Sales Quota for the first twelve calendar month period thereafter shall be the same as the Minimum Sales Quota for the calendar year in which MRG lost the manufacturing capability. The Minimum Sales Quotas for subsequent 12 calendar month periods shall be equal to the Minimum Sales Quotas for the calendar years subsequent to the year in which manufacturing capability was lost. Page 18 of 40 19 7.5.2 Likewise, if MRG loses said manufacturing capability or if MRG fails to deliver, or MiniMed is unable to manufacture or distribute Licensed Products as a result of an injunction obtained by a Third Party asserting any right to the Technology associated with the Licensed Products, then the obligation to meet the Minimum Sales Quota shall be suspended until such time as either MRG or MiniMed or a Third Party with whom either of them contracts begins manufacturing or, in the case of the assertion of Third Party rights to the Technology, the inability of MRG to deliver or MiniMed to manufacture or distribute Licensed Products is eliminated (as a result of legal proceedings or otherwise) and such delivery, manufacturing or distribution, as the case may be, begins. The Minimum Sales Quota for the first twelve calendar month period commencing thereafter shall be the same as the Minimum Sales Quota for the calendar year in which Minimum Sales Quotas were suspended. The Minimum Sales Quota for each subsequent twelve calendar month period shall be equal to the Minimum Sales Quota for the calendar years subsequent to the year in which Minimum Sales Quotas were suspended. 7.5.3 If during any calendar year (a) MRG fails to deliver to MiniMed within the times required by this Agreement, all of the Licensed Products (determined without regard to the doctrine of substantial performance and without regard to the 10% requirement set forth in Section 6.5) ordered by MiniMed for delivery during that year in accordance with the terms of this Agreement, or not ordered in accordance with the terms of this Agreement but as to which MRG accepts the order (the "Number of Units Ordered") or (b) any such Licensed Products delivered during the calendar year fail to meet all of the requirements of this Agreement (including without limitation those set forth in Sections 12.1, 12.2 and 14.2), then the Minimum Sales Quota for that calendar year will be reduced by the number of Licensed Products which are not so delivered plus those that do not meet such requirements (the "Shortfall"). In addition, the Minimum Sales Quota for each subsequent calendar year will be reduced by the percentage that the Shortfall represents of the Number of Units Ordered. Such reduction shall be made whether or not the Number of Units Ordered exceeds the 10% limitation set forth in Section 6.5. 7.5.4 In no event shall MiniMed's marketing rights be converted to non-exclusive rights pursuant to Section 7.4, if the failure of MiniMed to meet the Minimum Sales Quota for any calendar year is caused by (a) the failure of MRG to deliver, in accordance with the terms of this Agreement (and without regard to the doctrine of substantial performance and to the 10% limitations set forth in Section 6.5), the Number of Units Ordered or (b) the failure of MRG to establish or maintain the capability to manufacture Licensed Products or continuously maintain that capability or (c) MiniMed's inability to manufacture or distribute as a result of an injunction obtained by a Third Party asserting rights in the Technology associated with the Licensed Products. The parties acknowledge that in the case of (b) or (c) MiniMed will not be obligated to place orders for Licensed Products and therefore (b) and (c) will apply even if (a) does not. 7.5.5 Notwithstanding anything to the contrary above, if MRG has not developed the Enhancement Technology and incorporated it into Licensed Products that are available for commercial distribution in the US or the EU by January 1, 2000, the Minimum Page 19 of 40 20 Sales Quota for 2001 and all calendar years thereafter until that requirement is met shall be the lesser of the amount set forth in Section 7.1 (as adjusted pursuant to Section 7.5) or 750. Commencing with the first full twelve calendar month period after that requirement is met the Minimum Sales Quotas shall be reinstated except that the Minimum Sales Quotas set forth above for 2000 shall apply to the first 12 calendar month period after the requirement is met and the Minimum Sales Quotas for 2001 and subsequent years set forth above shall apply to the second and subsequent 12 calendar month periods. As provided above, Minimum Sales Quotas which depend upon the amount of implantable or external pump systems purchased in particular years shall be determined based upon the amounts for the years specified above even though the 12 calendar month periods for which those members will constitute Minimum Sales Quotas may be substantially later. 7.6 MRG'S REGULATORY ACCESS AND INSULIN RIGHTS. In the event MRG has the right to sell implantable pump systems for insulin, MiniMed shall make commercially reasonable efforts to allow MRG to make sell and use Licensed Products under any PMA or similar authority that MiniMed may have, including access to appropriate clinical data, and shall provide MRG with reference rights to any PMA or similar approval. MiniMed will also use commercially reasonable efforts to allow MRG the ability to purchase insulin from MiniMed for implantable pump use for resale to the extent MiniMed itself has such rights, either directly from Third Parties or from MiniMed. If MiniMed sells insulin to MRG the price will be set to be the average of MiniMed's manufacturing or acquisition cost plus 35%. MRG will reimburse MiniMed for all direct out-of-pocket costs and expenses incurred pursuant to this Section 7.6. 8. MANUFACTURING AND RIGHTS TO OTHER APPLICATIONS. 8.1 MANUFACTURE OF LICENSED PRODUCTS. 8.1.1 From the date of execution of this Agreement, MRG shall have the capability to manufacture Licensed Products in accordance with MiniMed's quality specifications meeting the inspection, requirements and warranty set forth in Section 12, in the quantities and within the delivery times contemplated by Section 6.5. If MRG fails to establish the capability to manufacture Licensed Products in accordance with the requirements of the preceding sentence or thereafter loses that capability or fails to manufacture the Licensed Products to be sold to MiniMed as contemplated by this Agreement, MiniMed will have the right, in addition to all other rights and remedies MiniMed may have under applicable law, to itself undertake the manufacture of the Licensed Products for the Covered Applications or contract with others to do so. Such right may only be exercised by giving written notice to MRG of MiniMed's intention to do so, and thereafter MRG will have 360 days in which to cure its failure to perform. Such cure shall be deemed effective only if MRG manufactures and delivers to MiniMed 80% of the number of units of Licensed Products which MiniMed had ordered and MRG had failed to deliver and at least that number of units meets the inspection requirements and warranty referred to in Section 12. If, however, MRG fails to deliver in any three-year period (based on the number of days elapsed, not calendar years) 80% or more of the number of units ordered by MiniMed which meet the inspection requirements and warranty Page 20 of 40 21 referred to in Section 12, then there shall be no right to cure and MiniMed may exercise its right to undertake manufacturing the Licensed Products or contract with others to do so as provided above. 8.1.2 If MiniMed undertakes to manufacture the Licensed Products as provided in Section 8.1.1 or Section 7 as a result of its distribution rights becoming nonexclusive, it will have the right to do so thereafter throughout the balance of the Term of the Distribution Rights. MiniMed will, however, pay a royalty to MRG equal to 6% of MiniMed Licensed Pump Sales from the sale, lease or other commercial exploitation of the Licensed Products manufactured by it. If, however, at the time MiniMed begins manufacturing, MRG has not developed the Enhancement Technology and incorporated it into a commercially available Licensed Product, MiniMed shall not be obligated to pay the royalty provided above. If MiniMed incorporates any Technology developed by MRG, including Enhancement Technology which is not commercially available when MiniMed begins manufacturing, MiniMed will pay MRG a reasonable royalty but in no event to exceed 6% of MiniMed Licensed Pump Sales for all such Technology in the aggregate. "MiniMed Licensed Pump Sales" for this purpose shall have the same meaning as Licensed Pump Sales except that it will apply to sales by MiniMed and its Affiliates. If MiniMed elects to exercise the right to manufacture the Licensed Products pursuant to this Agreement, MiniMed will have the right to use all Technology owned by or licensed to MRG relating to the Licensed Products for the purpose of manufacturing, distributing and selling Licensed Products (provided that MiniMed complies with any requisite obligations owed by MRG under any license to a Third Party), and MRG will cooperate with MiniMed in providing such technical information and assistance as MiniMed may reasonably require. 8.1.3 Nothing in this Section 8.1 shall limit or otherwise affect the rights of MiniMed to recover damages or seek any other right or remedy MiniMed has against MRG for its failure to manufacture and sell Licensed Products to MiniMed as provided in this Agreement. In no event shall any failure or delay in the development or FDA approval of a solution to the existing compliant catheter problem be considered to be a failure of MRG to establish manufacturing capability for purposes of this Agreement. 8.2 RIGHTS OF MINIMED TO OTHER APPLICATIONS. At such time as MRG is ready to commit to pursue the development or evaluation of the Licensed Products for any Other Application either through a Third Party or its own direct distribution organization, it will first notify MiniMed in writing and will not enter into any agreement with any Third Party for any such distribution or itself undertake any distribution activities for a period of 45 days after sending such notice. If MRG and MiniMed do not enter into an agreement for MiniMed to distribute the Licensed Products for the Other Application within the said 45-day period, MRG shall be completely free to proceed with such distribution, either through a Third Party or its own direct distribution organization, and said application shall become an Excluded Application. If, however, MRG has not entered into a definitive distribution agreement with a third party or spent or contracted to spend at least $250,000 in establishing its own distribution organization within six months after the expiration of the 45-day period, MRG will not enter into any distribution agreement with any third party or commence distribution through its own Page 21 of 40 22 distribution organization without first notifying MiniMed again of its intention to do so pursuant to this Section 8.2 in order to afford another opportunity for MiniMed to negotiate an agreement to become the distributor of the Licensed Products for the Other Applications. 8.2.1 OTHER RIGHTS OF MINIMED TO OTHER APPLICATIONS MiniMed may, at any time, request that MRG enter into an exclusive or non-exclusive agreement to distribute pumps for any Other Application that MiniMed does not have rights to, and MRG agrees to negotiate in good faith to establish an equitable agreement in regard to such Other Application under which MRG would be an OEM manufacturer for MiniMed. 8.2.2 OTHER RIGHTS OF MINIMED TO EXCLUDED APPLICATIONS. MiniMed may, at any time, request that MRG enter into an exclusive or non-exclusive agreement to distribute pumps for any Excluded Application, and MRG may, at its sole discretion, negotiate to establish an equitable agreement in regard to such Excluded Application under which MRG would be an OEM manufacturer for MiniMed. 8.2.3 TERMINATION OF RIGHTS TO OTHER APPLICATIONS. If MiniMed's rights to Covered Applications are reduced to non-exclusive rights, MiniMed's rights under Section 8.2 to be notified with respect to Other Applications will terminate. 9. TRADEMARKS, TRADENAMES AND COPYRIGHTS. 9.1 LIMITED RIGHT TO USE TRADEMARKS AND TRADENAMES. All trademarks and tradenames developed during the term of this Agreement shall remain the sole property of the developing Party. MiniMed will have the right to use its own trademarks and tradenames in connection with the advertising, promotion, distribution and sale of the Licensed Products and MRG will incorporate such trademarks and tradenames into the Licensed Products and the packaging therefor as reasonably requested by MiniMed. During the term of this Agreement, MiniMed may, in its sole and absolute discretion, use the trademarks and tradenames of MRG applicable to the Licensed Products, but only in connection with the advertising, promotion, distribution and sale of the Licensed Products for the Covered Applications that it purchases from MRG and provided that it properly uses such trademarks and tradenames. Such use of MRG's trademarks and tradenames will not give rise to any rights of MiniMed therein. The design and printing of the packaging will be determined by MiniMed, and MiniMed will have the responsibility to be sure that all legal requirements with respect thereto are satisfied. The right to use the MiniMed trademarks and tradenames by MRG will be only with the written consent of MiniMed and for Licensed Products for Covered Applications. Upon termination of the exclusivity of MiniMed's distribution rights, the limited right of MRG to use MiniMed trademarks and tradenames shall be limited to use in connection with Licensed Products sold to MiniMed. 9.2 COPYRIGHTS. Any technical manuals relating to the Licensed Products translated into a language other than English and printed by MiniMed shall be copyrighted in the name and ownership of MiniMed, with the cost of such translation and printing to be paid by MiniMed. Page 22 of 40 23 10. REPORTS AND RECORDS. 10.1 MONTHLY REPORTS. On or before the 15th day of each calendar month during the term of this Agreement, commencing with the first full calendar month after the month in which this Agreement is executed and delivered, MiniMed will deliver to MRG a written report setting forth the following: (a) net sales of Licensed Products in units and MiniMed's Licensed Pump Sales for the preceding calendar month, and the fiscal year through end of such preceding months; (b) the amount of remaining inventory of the Licensed Products, if any; (c) any material changes in government regulations known to MiniMed affecting the importation, sale or use of the Licensed Products in any jurisdiction where MiniMed is selling the Licensed Products which has not previously been reported to MRG or is not known to MRG; and (d) a brief description of any litigation against MiniMed relating to the Licensed Products and not previously disclosed to MRG as well as any material developments in litigation previously disclosed. For purposes of this Section 10.1, all references to "fiscal year" refer to the then fiscal year of MiniMed. Net sales and units shall be those sales invoiced by MiniMed net of returns credited by MiniMed during the period. 10.2 RECORDS. MiniMed will retain a copy of each invoice substantiating a sale as well as complete and accurate books of account and records relating to purchases and sales of the Licensed Products. MiniMed will provide MRG with such summaries and reports of such information as MRG may reasonably request that MiniMed prepares for its own purposes. MiniMed shall retain all invoices, books of account and records relating to purchases, sales and inventories of the Licensed Products for a period of at least three years or such longer periods as may be required by law. If MRG so requests, MiniMed shall offer the records to MRG at no cost prior to disposing of them, except that MRG will pay the actual costs necessary to retrieve and transport such records. 11. TERM AND TERMINATION 11.1 TERM. Unless otherwise terminated in accordance with Section 11.2, the term of the rights granted by MiniMed to MRG under Section 3.1 shall continue until the expiration of the last of the patents on the MiniMed Pump Technology. Thereafter MRG will have a fully paid-up, perpetual license and the right to sublicense the MiniMed Pump Technology in the expired patents to the extent MiniMed owns or has the right to license such Technology. In addition MRG will have the right to continue to have the right to use the MiniMed Pump Technology and make, use and sell Licensed Products to the extent such Page 23 of 40 24 Technology is patented under other unexpired patents or constitutes a trade secret, know how or other proprietary Technology and to the extent MiniMed owns or has the right to license such Technology, provided that MRG pays to MiniMed a reasonable royalty agreed to by the Parties (which shall not exceed the royalty rate applicable pursuant to Section 3.4), or, failing such an agreement within a reasonable time, by arbitration pursuant to Section 28. In determining the amount of the reasonable royalty the parties acknowledge that the following facts should be considered: (a) most of the value of the MiniMed Pump Technology consists of Technology that is not patented, (b) MiniMed and its predecessors have made very substantial investments in the development of the Technology over many years and (c) significant value arises from the research and clinical data relating to the MiniMed Pump Technology which either cannot be re-produced at all or cannot be re-produced without significant expense and the passage of a number of years. Nothing in this Section 11.1 shall limit or otherwise affect the rights of MRG under Section 4.5.2 or 4.5.3. 11.2 TERMINATION FOR CAUSE. Either Party will have the right to terminate this Agreement upon the occurrence of any of the events specified in Sections 11.2.1 or 11.2.2. Any such termination may only be made by delivering notice of intention to terminate to the other party specifying the effective date of the termination, which shall be not less than thirty (30) days after the delivery of the notice. Said thirty (30) day period shall be in addition to any of the cure periods specified in Section 11.2.1. 11.2.1 MATERIAL DEFAULT. The other Party (the "defaulting party") has failed to perform any material term, condition or obligation to be performed by it under any of Sections 3 through 16 of this Agreement and such failure remains uncured after written notice of default, specifying the nature thereof in reasonable detail, has been given to the defaulting party unless, in the case of default that does not involve the payment of money, prior to the expiration of the applicable cure period, the defaulting party has commenced and thereafter pursues and completes with due diligence those actions necessary to cure such default within the applicable cure period. The applicable period for the failure to make any payment due under this Agreement shall be thirty (30) days, and the applicable cure period for any other default shall be sixty (60) days but said 60 day cure period shall be subject to extension for a reasonable period of time if the default is of such nature that it cannot reasonably be cured with due diligence within sixty (60) days. A default in the payment of money shall not be deemed material unless the amount thereof exceeds $100,000 and the non-performing Party believes in good faith that it is not legally obligated to make the payment. 11.2.2 BANKRUPTCY OR INSOLVENCY. The other Party (an "insolvent party") becomes bankrupt or insolvent or a receiver is appointed for the business and/or assets of such other Party or an assignment is made by such other Party for the benefit of its creditors, in each case whether by the voluntary act or otherwise and, in the case of any such proceeding that is involuntary, if such proceeding is not terminated within sixty (60) days thereafter. Page 24 of 40 25 11.3 RIGHTS AND DUTIES UPON TERMINATION. The termination of this Agreement for any reason shall be without prejudice to the right of either Party to receive any payments accrued under any provision of this Agreement prior to the effective date of termination. 11.3.1 SALE OF INVENTORY. In the event of termination of this Agreement, MRG shall nonetheless have the right for one year after the effective date of termination to sell the inventory of Licensed Products in its possession at the time of termination, except, however, that MiniMed shall have the right but not the obligation to repurchase the Licensed Products in MRG's inventory, if any, at the Transfer Price then in effect pursuant to Section 6. 11.3.2 EFFECT OF TERMINATION. The termination of this Agreement for cause shall be without prejudice to (a) the rights of either Party under Sections 2, 12.2, 14.5 through 14.9, 17, 22, 27, 28 and 33, all of which shall survive such termination, or (b) any rights or remedies with respect to defaults arising before such termination. 11.4 RIGHT TO RECOVER DAMAGES. Nothing in this Section 11 is intended to limit the right of a Party to recover damages for any default of the other Party, whether or not the nature of the default permits termination of this Agreement pursuant to this Section 11. 11.5 SEPARATE AGREEMENTS. The Glucose Sensor Option Agreement, the Agreement Re Implantable Pump Business between the Parties dated the same date as this Agreement and the Secured Promissory Note and Security Agreement referred to in Section 2.4, the Line of Credit Note referred to in Section 4.2 and the Lease referred to in Section 5 of the Agreement Re Implantable Pump Business shall be considered completely separate from this Agreement and not a part hereof. No default under such other documents shall affect the rights and obligations of the Parties under this Agreement, and no default under this Agreement shall affect the rights and obligations of the Parties under those other documents. 12. INSPECTION, WARRANTY, REMEDIES 12.1 INSPECTION OF LICENSED PRODUCT. MiniMed shall have the right but not the obligation to conduct inspection tests of Licensed Products to be shipped to MiniMed at MRG's facility. Licensed Products reasonably rejected by MiniMed as a result of such inspection shall not be shipped. In the event of any shortage, damage or discrepancy in or to a shipment of Licensed Products or in the event any Licensed Product fails to comply with the then current specification for the Licensed Product, MiniMed will make a written claim within two months from the date of delivery of the Licensed Products for problems that are patent (i.e. readily discoverable from a customary physical inspection of the shipment or MRG's manufacturing records maintained in accordance with applicable regulatory requirements) and as promptly as practicable after discovery for latent defects. MiniMed's claim will detail such shortage, damage or discrepancy or failure and furnish such written evidence or other documentation as MRG reasonably may deem appropriate. If such shortage, damage or discrepancy or non-conformity with specifications existed at the time of delivery of Licensed Page 25 of 40 26 Product at the F.O.B. point, MiniMed may return the Licensed Product to MRG at MRG's expense except that in no event shall MiniMed be entitled to return any Licensed Product beyond the expiration date for its use if MRG could have corrected the problem had it been discovered within two months after delivery. Upon such return of a Licensed Product and, except as otherwise provided in Section 7, MRG shall at MiniMed's option, either (a) promptly deliver a substitute Licensed Product of the same or another acceptable design to MiniMed in accordance with the delivery procedures set forth herein or (b) refund to MiniMed MiniMed's cost of the Licensed Product including all costs of shipping, handling, insurance, import and export taxes and other similar expenses incurred by MiniMed. In no event shall the provisions of this Section 12.1 limit or otherwise affect MRG's liability for any breach of the warranty set forth in Section 12.2 or for indemnification pursuant to Section 14.7 with respect to any Licensed Product sold or otherwise distributed by MiniMed without knowledge of any defect, failure to meet specifications, damage or other similar problem. MRG shall have no liability for incidental or consequential damages, but in no event shall bodily injury, death or property damage caused by a Licensed Product be deemed to be incidental or consequential damages. 12.2 LIMITED WARRANTY. MRG warrants to MiniMed that Licensed Products sold by MRG to MiniMed under this Agreement shall be in conformance with applicable specifications and shall be free from defects at the time of delivery of said Licensed Products at the F.O.B. point except that no such warranty is made with respect to any defect in design of MiniMed's current model of its implantable pump systems. 12.3 DESIGN DEFECTS In the event that design defects exist in the MiniMed implantable pump Model 2001, MiniMed and MRG will cooperate to resolve any such defects. MRG will manage such efforts (if so requested by MiniMed) at no cost, but MiniMed will pay any direct costs related to such efforts except with respect to any further changes in design or improvements made by MRG after the date of this Agreement and unrelated to defects in the current design, if any. 13. DEFENSE OF TECHNOLOGY 13.1 NOTICE. In the event either Party hereto discovers or becomes aware of any infringement or possible infringement of, or attack or threatened attack on, any of the Licensed Pump Rights or rights to the MRG Enhancement Technology, such Party immediately shall notify the other Party in reasonable detail of such infringement, possible infringement, attack or threatened attack. Promptly after such notification, the Parties will consult with each other as to the course of action to be taken. 13.2 DEFENSE. MiniMed, in its sole discretion and at its sole cost and expense and with counsel reasonably satisfactory to MRG, shall take any and all appropriate legal action to defend the Licensed Pump Rights against any suspected infringement or from any attack or threatened attack; provided, however, that MRG at all times shall have the right to participate fully in any such action at its own expense. In the event MiniMed fails within a reasonable time to initiate appropriate action in connection with any such suspected infringement, attack or threatened attack which in the reasonable judgment of MRG adversely affects or might Page 26 of 40 27 adversely affect MRG's rights in, to or under the Licensed Pump Rights, or fails to pursue such action vigorously once commenced, MRG upon notice to MiniMed shall have the right, but not the obligation, to initiate or pursue any such appropriate action in MiniMed's name but at MRG's risk and expense, and MiniMed shall cooperate fully in any such action. Any judgment, damages, settlement or award which results from any such action shall be allocated (a) first, to MiniMed and MRG in proportion and to the extent of the actual costs incurred by each in connection therewith and (b) thereafter to MiniMed and MRG in proportion to their actual damages. 13.3 LICENSES OF CONFLICTING TECHNOLOGY. In the event of the occurrence of any claim that any of the rights granted pursuant to Section 3.1 by MiniMed to MRG conflict with any patent, copyright or other proprietary right of any Third Party, the Parties hereto shall consult with each other regarding such claim and the avoidance of the same. In the event the Parties mutually determine that it is necessary or appropriate that MRG obtain a license from such Third Party in order for MRG to exercise the rights granted to it hereunder, the Parties shall use commercially reasonable efforts to obtain such license on the most favorable terms practicable to MRG. In the event MRG is required by the terms of such license to pay royalties to such Third Party, MRG shall have the right to a refund of a portion of the royalties paid hereunder by MRG in an amount equal to half the royalties paid to such Third Party not exceeding half the royalties paid to MiniMed under Section 3. 13.4 MRG ENHANCED TECHNOLOGY. MiniMed and MRG shall have rights with respect to each other that are reciprocal to those specified in Sections 13.2 and 13.3 in the event of any attack or threatened attack of the kind referred to in those sections against any MRG Enhancement Technology incorporated into a Licensed Product. 14. MISCELLANEOUS 14.1 QUALITY CONTROL. MiniMed shall follow reasonable quality control standards with respect to the storage, preservation and use of Licensed Products purchased under this Agreement. 14.2 GOOD MANUFACTURING PROCEDURES. Licensed Products shall be manufactured and tested by MRG in accordance with (a) all applicable U.S. laws and FDA regulations, including but not limited to the FDA's Good Manufacturing Practice and Quality System regulations in effect at the time of such manufacture or testing and (b) MiniMed's quality standards and systems from time to time in effect and applied by MiniMed to all of MiniMed's products which are of a comparable nature. MiniMed shall have the right, at its expense, to conduct quality audits of MRG and of the Licensed Products and MRG shall fully cooperate in all such audits. Each Party shall notify the other Party of any FDA inspection of its production facilities used to manufacture any Licensed Products and shall furnish the other Party with copies of any FDA Form 483 or similar report to the extent that they apply to any Licensed Products or Long-Term Glucose Sensors. Page 27 of 40 28 14.3 RECORDS AND TRACEABILITY. Each of the Parties hereby covenants and agrees that during the Term of the Distribution Rights, including any extensions thereof, and for a minimum period of seven (7) years thereafter, it shall maintain complete and accurate traceability records for all Licensed Products that are manufactured and sold under this Agreement, including pertinent data, research reports, test results, and know-how data, as required under all applicable FDA regulations and other U.S. or other applicable laws or regulations then in effect. Each of the Parties hereby covenants, during the term of this Agreement and for a minimum period of three (3) years thereafter or such longer period as any regulatory authority may require, to maintain adequate business and sales records regarding the distribution of all Licensed Products that are manufactured and sold under this Agreement, including pertinent data, research reports, test results, and know-how data to meet or exceed all applicable FDA and other U.S. or other applicable laws or regulations then in effect. MRG and MiniMed shall give each other access to these records in the event of an FDA recall or other remedial actions with respect to any product subject to this Agreement, or for other purposes of the Parties in complying with applicable regulatory requirements. 14.4 COMPLIANCE WITH LAW. MiniMed and MRG shall each comply with all federal, state and local laws (and the laws of any foreign jurisdictions in which the Licensed Products are manufactured or sold) applicable to the manufacture, sale and/or distribution of the Licensed Products. 14.5 PATENT IDENTIFICATION. MRG will, and will cause its Affiliates, its sublicensees and their Affiliates to, apply to all Licensed Products proper patent notice in accordance with U.S. and any foreign statutes relating to the marking of patented articles. 14.6 MRG'S LIABILITY INSURANCE. Beginning on the earlier of the date on which the first sale of a Licensed Product manufactured by MRG or an Affiliate or distributor of MRG is made by MiniMed or an Affiliate or distributor of MiniMed or the date that any clinical trial sponsored by MiniMed and using a Licensed Product begins and continuing until the expiration of ten (10) years from the date on which the last sale by MiniMed of a Licensed Product occurs, MiniMed shall maintain product liability insurance for the benefit of MiniMed and MRG as named insureds (containing a Products Contractual Liability Endorsement covering MRG's obligations under Sections 14.7) on such Licensed Product in amounts that are consistent with the amount of products liability insurance that are maintained by MiniMed on similar products sold by MiniMed for similar or related purposes, but in no event less than Fifteen Million Dollars ($15,000,000). In the event the cost of the products liability insurance (including the Products Contractual Liability Endorsement) exceeds a reasonable amount as a result of claims made for bodily injury, death, or property damage actually or allegedly caused by a Licensed Product, MRG will pay the incremental cost of the insurance in excess of said reasonable amount (notwithstanding the first sentence of this Section 14.6). If MiniMed ceases to be the exclusive distributor of Licensed Products for the Covered Applications for any reason, the amount of insurance required to be maintained by MiniMed shall be appropriately reduced to reflect the risk for Licensed Products sold and to be sold by MiniMed. In the event MiniMed cannot obtain the insurance required by this Section 14.6 because MiniMed is not the Page 28 of 40 29 manufacturer of the Licensed Products or for any other reason, MRG shall obtain and maintain such insurance for the benefit of MRG and MiniMed at the cost of MRG. 14.7 INDEMNITY. MRG shall indemnify, defend and hold harmless MiniMed and its directors, officers, and employees from, and shall pay any and all damages, costs, attorneys' fees or fines in excess of the amounts MiniMed actually recovers under the insurance policy referred to in Section 14.6 or any other policy maintained by MiniMed or MRG resulting from all claims or liability for bodily injury, death and/or property damage arising out of any actually or allegedly defective products sold to MiniMed pursuant to this Agreement or any actual or alleged negligence or willful misconduct of MRG in carrying out the terms of this Agreement and shall bear all costs and expenses of defending such claims (including attorney's fees incurred by MiniMed or the allocable cost of MiniMed's in-house counsel) in excess of such insurance proceeds. As used in this Section 14.7 a "defective product" means a product that, at the time of delivery to MiniMed at the F.O.B. point, does not conform to applicable specifications or is damaged or has a defect in materials or workmanship or has a defect in design that does not exist on the date of this Agreement. This indemnity does not extend to any claim or loss which results from a Licensed Product causing any other component, device or thing to fail (other than a Glucose Controller or Glucose Monitor incorporated into an implantable pump and other than the abdominal lead or the Long-Term Glucose Sensor) or a Licensed Product failing as a result of use with any such other component, device, thing, or technology; nor does this indemnity extend to failure of any such other component, device, thing, or technology to work caused by a Licensed Product which is properly manufactured. 14.8 INDEMNITY. MiniMed shall indemnify, defend and hold harmless MRG, its manager and their respective directors, officers and employees from, and shall pay any and all damages, costs and attorneys fees or fines in excess of the amounts MRG actually receives under the liability insurance referred to in Section 14.6 or any policy maintained by MiniMed or MRG resulting from any claims or liability for bodily injury, death and/or property damage arising out of the activities, services or other involvement of MiniMed with respect to any sale or delivery of products sold or otherwise provided by MiniMed and resulting from or caused by the actual or alleged negligent or willful misconduct of MiniMed and shall bear all costs of defending such claims (including attorneys' fees incurred by MRG) as contemplated by Section 14.9. 14.9 THIRD PARTY CLAIMS. The Party indemnified hereunder (the "Indemnitee") shall promptly notify the indemnifying Party (the "Indemnitor") of the existence of any claim, demand or other matter involving liabilities to a Third Party to which the Indemnitor's indemnification obligations would apply and shall give the Indemnitor a reasonable opportunity to defend the same at its own expense and with counsel of its own selection (who shall be approved by the Indemnitee, which approval shall not be unreasonably withheld); provided, however, that the Indemnitee at all times shall have the right to fully participate in the defense at its own expense. If the Indemnitor shall fail to defend within a reasonable time after such notice, the Indemnitee shall have the right, but not the obligation, to undertake the defense of, and to compromise or settle (exercising reasonable business judgment), the claim or other matter on behalf, for the account and at the risk and expense of the Indemnitor. Except as provided in the preceding sentence, the Indemnitee shall not compromise or settle the claim or other matter without the prior written consent of the Indemnitor in each instance. If the claim is Page 29 of 40 30 one that cannot by its nature be defended solely by the Indemnitor, the Indemnitee shall make available all information and assistance that the Indemnitor reasonably may request; provided, however, that any associated expenses shall be paid by the Indemnitor. 15. FDA APPROVAL AND CLINICAL TRIALS 15.1 PMA/NDA FOR DIABETES. MiniMed will use commercially reasonable efforts to cause a combined PMA and New Drug Approval application ("PMA/NDA") to be filed with the FDA with respect to the Licensed Products and any related special insulin and to obtain approval of both the Licensed Products and the related insulin for commercial distribution in the United States. In that connection, MiniMed will also use commercially reasonable efforts to conduct all clinical trials reasonably required by the FDA for such approval. MiniMed will pay all reasonable costs and expenses of obtaining approval of the PMA/NDA from the FDA, including the cost of the clinical trials, except that MRG will provide at its expense the number of programmable insulin pump systems reasonably required for such trials, up to a maximum of 100 as well as Licensed Product support activities. If MiniMed obtains reimbursement for any such implantable pump systems provided by MRG, the amount of such reimbursement shall be allocated equally between MiniMed and MRG. If MiniMed believes that the scope of any required clinical trials or any other requirements imposed by the FDA are not commercially reasonable to pursue, MiniMed will have the right to notify MRG of such determination, and thereafter the parties will consult in good faith as to the extent to which MRG is willing to bear a portion of the costs. If such consultation with MRG does not result in an amendment to this Agreement satisfactory to MiniMed, either Party will have the right to have the matter resolved by arbitration pursuant to Section 28. The arbitrator(s) shall determine whether the requirements of the FDA are commercially unreasonable to pursue and the portion of the cost that is unreasonable. Upon such determination, MRG shall pay the portion of the cost determined to be unreasonable as each item of cost is incurred and upon the presentation of reasonable documentation from MiniMed. 15.2 HIV/AIDS; RETAINED PHARMACEUTICAL COMPANIES. MiniMed will have the right (but not the obligation) to prepare and file all applications for approval by the FDA for the commercial distribution of the Licensed Products for the treatment of HIV and/or for AIDS and for the delivery of any medications, pharmaceuticals and other compounds developed, manufactured or distributed by any of the Retained Pharmaceutical Companies, including any clinical trials relating thereto. MiniMed will pay all reasonable costs and expenses of obtaining such approvals except that MRG will provide at MRG's expense the number of programmable insulin pump systems reasonably required for such trials, up to a maximum of 100 in connection with seeking approval of such applications in the aggregate. If MiniMed obtains reimbursement for any such implantable pump systems provided by MRG, MiniMed will pay over to MRG one-half of the amounts reimbursed promptly after receipt thereof. 15.3 OTHER APPLICATIONS. If MRG and MiniMed do not enter into an agreement with respect to the distribution by MiniMed of Other Applications (including neurological and otological applications), then MiniMed will cooperate with MRG in connection with obtaining FDA approval and comparable approval from the European Union Page 30 of 40 31 for such Other Applications, including clinical trials, and will provide such information as is available to MiniMed as MRG reasonably requests. MRG will reimburse MiniMed for its direct out-of-pocket expenses incurred in providing such cooperation and/or information. If MRG and MiniMed do enter into an agreement with respect to Other Applications, their respective obligations with respect to obtaining FDA and other regulatory approvals will be as set forth in that agreement. 15.4 TERMINATION OF OBLIGATIONS. MiniMed's obligations under this Section 15 shall terminate at such time as MiniMed's distribution rights with respect to Licensed Products are converted to non-exclusive rights. 16. REPRESENTATIONS AND WARRANTIES 16.1 REPRESENTATIONS AND WARRANTIES OF MRG. MRG hereby represents and warrants to MiniMed that the statements set forth in Sections 16.1 through 16.1.4 hereof are true and correct. 16.1.1 ORGANIZATION AND STANDING. MRG is duly organized, validly existing and in good standing under the laws of the state of its organization, with full power and authority to own its property and carry on its business as now conducted. 16.1.2 AUTHORITY AND ENFORCEABILITY. MRG has the right, power and authority required for the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby; all authorizations and approvals have been secured by MRG which are necessary to authorize the execution, delivery and performance of this Agreement; and this Agreement upon being duly executed constitutes a legal, valid and binding agreement of MRG and is enforceable against it in accordance with its terms, excepting only to the extent that such enforceability may be limited by bankruptcy law or other laws of general application relating to creditor's rights and subject to the availability of equitable remedies. The list of record and beneficial owners of the outstanding equity interests in MRG and the number of units owned by each is as previously disclosed in writing to MiniMed. 16.1.3 COMPLIANCE WITH THE LAW AND OTHER INSTRUMENTS. The execution and delivery of this Agreement, and the consummation of the transactions contemplated hereby, will not result in the breach of any term or provision of, or constitute a default under, the Articles of Organization or Operating Agreement of MRG, as amended to the date hereof, or any statute, order, judgment, writ, injunction, decree, license, permit, rule or regulation of any governmental or regulatory body or court, or any indenture, mortgage, deed of trust or other agreement or instrument to which MRG is a party or by which it is bound. The execution, delivery and performance of this Agreement by MRG will not subject MiniMed to any lien, charge or encumbrance nor any tax or penalty (other than normal income, property and sales and use taxes) arising as a result of MRG's financial condition, status, previously incurred obligations, ownership or relationship with other parties. Page 31 of 40 32 16.1.4 INTELLECTUAL PROPERTY RIGHTS. The Enhancement Technology is not and will not be subject to any encumbrance, lien or claim of ownership by any Third Party, except for rights that MRG has licensed or intends to license from Third Parties, for which MRG has (or will have at the time of sale of Licensed Products to MiniMed) rights to utilize such technology as required hereunder. To the extent that MRG has licensed or intends to license Intellectual Property from Third Parties MRG will be responsible for all costs and obligations related to such licenses. To the best of MRG's knowledge but without having conducted a patent infringement search, the manufacture, use or sale of products incorporating the Enhancement Technology will not infringe any intellectual property rights of any Third Party, except for certain patents and copyrights that MRG has licensed or will license from third parties and which MRG has or will have the right to use. 16.2 REPRESENTATIONS AND WARRANTIES OF MINIMED. MiniMed hereby represents and warrants to MRG that the statements set forth in Section 16.2.1 through 16.2.4 hereof are true and correct. 16.2.1 ORGANIZATION AND STANDING. MiniMed is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation, with full corporate power and authority to own its property and carry on its business as now conducted. 16.2.2 AUTHORITY AND ENFORCEABILITY. MiniMed has the right, power and authority required for the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby; all authorizations and approvals have been secured by MiniMed which are necessary to authorize the execution, delivery and performance of this Agreement; and upon being duly executed this Agreement constitutes a legal, valid and binding agreement of MiniMed and is enforceable against it in accordance with its terms, excepting only to the extent that such enforceability may be limited by bankruptcy law or other laws of general application relating to creditor's rights and subject to the availability of equitable remedies. 16.2.3 COMPLIANCE WITH THE LAW AND OTHER INSTRUMENTS. The execution and delivery of this Agreement, and the consummation of the transactions contemplated hereby, will not result in the breach of any term or provision of, or constitute a default under, the Certificate of Incorporation or Bylaws of MiniMed, as amended to the date hereof, or any statute, order, judgment, writ, injunction, decree, license, permit, rule or regulation of any governmental or regulatory body or court, or any indenture, mortgage, deed of trust or other agreement or instrument to which MiniMed is a party or by which it is bound. 16.2.4 INTELLECTUAL PROPERTY RIGHTS. MiniMed's Pump Technology is not and will not be subject to any encumbrance, lien or claim of ownership of any Third Party except for the rights of the licensor of the Johns Hopkins Rights and the Wilson Greatbatch Rights. To the best of MiniMed's knowledge but without having conducted a patent infringement search, the manufacture, use or sale of MiniMed's Pump Technology will not Page 32 of 40 33 infringe any intellectual property rights of any Third Party. MiniMed has not licensed MiniMed's Pump Technology to any Third Party. 16.2.5 JOHNS HOPKINS AND WILSON GREATBATCH CONTRACTS. MiniMed's existing agreements with The Johns Hopkins University and the Applied Physics Laboratories of The Johns Hopkins University with respect to the Johns Hopkins Rights and its existing agreements with Wilson Greatbatch Ltd with respect to the Wilson Greatbatch Rights are binding obligations of the parties and continue to be in effect except as otherwise disclosed by MiniMed to MRG in writing prior to the execution and delivery of this Agreement; MiniMed has no actual knowledge of any default by either party to any such agreements in the performance of its obligations thereunder; to MiniMed's actual knowledge, the royalty rate payable with respect to the Johns Hopkins Rights is 3.5%. MRG acknowledges that it has received copies of all such agreements and has had an opportunity to make such review and perform such inquiry as it considers to be necessary or desirable with respect to such agreements. 17. LIMITATIONS ON WARRANTIES AND REMEDIES 17.1 LIMITATIONS ON WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH IN SECTIONS 12.2 AND 16.1.4, MRG MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE LICENSED PRODUCTS OR MINIMED'S PUMP TECHNOLOGY, INCLUDING BUT NOT LIMITED TO (a) THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, OR (b) ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE VALIDITY OR SCOPE OF ANY RIGHTS TO TECHNOLOGY, OR (c) ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE OWNERSHIP OF ANY TECHNOLOGY, THE LICENSED PRODUCTS OR MINIMED'S PUMP TECHNOLOGY OR THE INFRINGEMENT BY THE SAME OF ANY PATENT, COPYRIGHT OR OTHER PROPRIETARY RIGHT OF ANY THIRD PARTY, OR (d) ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE ABSENCE OF ANY DEFECT IN THE LICENSED PRODUCTS. 17.2 LIMITATIONS ON REMEDIES. EXCEPT AS SET FORTH IN SECTION 14.7 AND 16.1.4 IN NO EVENT SHALL MRG BE LIABLE TO MINIMED FOR ANY DAMAGES FOR LOST PROFITS, LOST SAVINGS OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH MRG'S MANUFACTURE OF THE LICENSED PRODUCTS EVEN IF MRG HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. DAMAGES FOR PHYSICAL INJURY, DEATH OR PERSONAL INJURY SHALL NOT CONSTITUTE CONSEQUENTIAL DAMAGES. THE PROVISIONS OF THIS 17.2 SHALL NOT APPLY TO DAMAGES FOR THE INACCURACY OF ANY REPRESENTATION OR WARRANTY SET FORTH IN SECTIONS 16.1.1` THROUGH 16.1.4. 17.3 REMEDY FOR BREACHES COVERED BY SECTION 17.2. Notwithstanding Section 17.2, if (a) MRG breaches any obligation under this Agreement for Page 33 of 40 34 which lost profits, lost savings or consequential damages would have been available but for Section 17.2, (b) such breach is material, (c) MRG did not use commercially reasonable efforts to perform that obligation and (d) MRG failed to actually and fully perform the obligation in default within 30 days after MiniMed delivers written notice of the breach to MRG, then MiniMed will have the right to undertake to manufacture the Licensed Products for the Covered Applications or contract with others to do so after asserting such right in a written notice delivered to MRG. Either Party shall have the right to commence an arbitration in accordance with Section 28 to determine whether MiniMed has that right under this Section 17.3. The decision of the arbitrator or arbitrators will be final and binding on the parties. Pending the arbitration, MiniMed will not be entitled to undertake manufacturing or contract with others to do so and MRG will continue to have all of its obligations under this Agrement. If neither party commences an arbitration within 30 days after MiniMed's written notice referred to above is delivered, MiniMed will be deemed to have the right to undertake to manufacture the Licensed Products or contract with others to do so. If MiniMed undertakes to manufacture Licensed Products or contract with others to do so pursuant to this Section 17.3, MiniMed shall have no further obligation to purchase Licensed Products from MRG and the provisions of Section 8.1.2 shall apply. 18. INDEPENDENT CONTRACTORS 18.1 The relationship between MiniMed and MRG under this Agreement is solely that of independent contractors. 18.2 Neither Party shall have the right to bind the other or to incur obligations on the other's behalf without the other's prior written consent in each instance. 19. CONDITION PRECEDENT The obligation of each of MiniMed and MRG to consummate the transactions contemplated by this Agreement is conditioned upon, on or prior to the date of execution of this Agreement, the execution by MiniMed and MRG of the License Agreement and the Agreement Re Implantable Pump Business referred to in the Recitals to this Agreement. 20. FORCE MAJEURE Any Party's delay or failure in performing its obligation under this Agreement shall be excused to the extent caused by forces beyond that Party's reasonable control, including, without limitation, the following: war, floods, earthquakes, other acts of God, industrial disputes, civil disobedience, strikes, fire, mobilization, changes in governmental regulation or interpretation, requisition, embargo, restriction and shortage of transport facilities, fuel, energy or supplies. The unavailability of funds to any Party to perform any obligation under this Agreement shall not excuse performance under this Agreement regardless of the reason therefor. Each Party claiming the benefit of such an excuse agrees to notify the other promptly in writing of any such delay or failure in performance, and to resume performance as soon as is reasonably practicable. Page 34 of 40 35 21. NOTICES Any notice, request, demand or other communication required or permitted hereunder shall be in writing and shall be deemed to have been given (a) if personally delivered, when so delivered, (b) if mailed, seventy-two (72) hours after having been placed in the United States mail, registered or certified, postage prepaid, addressed to the Party to whom it is directed at the address set forth below or (c) if given by telex or telecopier, when such notice or other communication Is transmitted to the telex or telecopier number specified below and the appropriate answer back or telephonic, confirmation is received: If to MiniMed: MiniMed Inc. 12744 San Fernando Road Sylmar, California 91342 Attention: General Counsel Telephone No.: (818) 362-5958 Telecopier No: (818) 367-1460 With a copy to: Gibson, Dunn & Crutcher LLP 333 South Grand Avenue Los Angeles, California 90071 Attention: Roy J. Schmidt Telephone No.: (213) 229-7000 Telecopier No.: (213) 229-7520 If to Medical Research Group, LLC: Medical Research Group, LLC 12744 San Fernando Road Sylmar, California 91342 Attention: President Telephone No.: (818) 362-8084 Telecopier No: (818) 364-2647 With a copy to: Lyon & Lyon LLP 633 W. Fifth Street, Suite 4700 Los Angeles, California 90071-2066 Attention: Roy L. Anderson, Esq. Telephone No.: (213) 955-0304 Telecopier No: (213) 955-0440 Page 35 of 40 36 22. ASSIGNMENT Neither Party shall be entitled to assign its rights or to delegate its duties under this Agreement, whether by law or otherwise, without the express written consent of the other Party except that either Party may assign this Agreement to (a) a wholly-owned subsidiary of such Party, or (b) a Third Party who acquires either Party by merger or consolidation or acquisition of 80% or more of the outstanding equity interests of said Party (although no change in the ownership of equity interests of a Party shall be deemed to constitute an assignment of this Agreement), or (c) a Third Party who acquires all or substantially all of the assets of either Party relating to the Licensed Products, so long as the assignee agrees to assume all of the obligations of said Party under this Agreement. In the event of such an assignment, the party making the assignment shall remain fully liable for the performance of its obligations hereunder. 23. SEVERABILITY The provisions of this Agreement are severable, and if any one or more provisions may be determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions, and any partially unenforceable provisions to the extent enforceable, shall nevertheless be binding and enforceable. 24. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS All representations, warranties and agreements made by MiniMed or MRG in this Agreement shall survive the date hereof and any investigations, inspections, examinations or audits made by or on behalf of any Party hereto. 25. ENTIRETY This Agreement constitutes the entire agreement between the Parties hereto pertaining to the subject matter hereof, and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, relating to the subject matter of this Agreement, except the Mutual Nondisclosure Agreement between the Parties with an effective date of January 2, 1996, the Glucose Sensor Option Agreement and the Agreement Re Implantable Pump Business referred to in the Recitals to this Agreement. 26. AMENDMENT; WAIVER This Agreement may be amended, modified, superseded or canceled, and any of the terms and conditions hereof may be modified, only by a written instrument executed by the Parties or, in the case of a waiver, by the Party waiving compliance. No supplement, modification, waiver or termination of this Agreement shall be valid unless it has been reduced to writing and executed by the Party to be bound thereby. The failure of a Party at any time or from time to time to require performance of any provision hereof shall in no manner affect the right of such Party at a later time to enforce the same, and no waiver of any nature, whether by Page 36 of 40 37 conduct or otherwise, in any one or more instances, shall be deemed to be or considered as a further or continuing waiver of any other provision of this Agreement. Subject to the restrictions on modification in this Section 26, to the extent that any provision of this Agreement purports to grant rights or create obligations that are inconsistent with either: (1) MRG's Mann Foundation Rights or UC Rights, or (2) MiniMed's Johns Hopkins' Rights or Wilson Greatbatch Rights (collectively, the "Rights"), the Parties shall meet and confer to bring such provision in conformity with such Rights. 27. USE OF NAME Except as provided in Section 9 with respect to trademarks and tradenames, neither MiniMed nor MRG shall use the name of the other Party or of any staff member or employee of the other Party or any adaptation thereof in any advertising, promotion or sales literature in a manner which would constitute an express or implied endorsement by the other Party or of any staff member or employee thereof for any commercial product without the prior written consent of the other Party in each instance. 28. SETTLEMENT OF DISPUTES 28.1 DISPUTES AND ARBITRATION. Unless the relief sought requires the granting of equitable relief as contemplated by Section 28.1.1, below, any dispute or controversy (whether or not based upon the law of contracts) arising between the Parties in connection with this Agreement, including (a) disputes relating to the formation of this Agreement or the performance, interpretation, enforcement, application or validity of its provisions, and (b) issues that may be based upon or arise out of disputes that MRG or MiniMed has with Third Parties, shall upon the demand of either Party be resolved by arbitration held at Los Angeles, California, in accordance with the arbitration procedures established by the Rules of Commercial Arbitration of the American Arbitration Association, except as otherwise provided herein. 28.1.1 If in connection with any such dispute or controversy either Party seeks the issuance of a temporary restraining order or the granting of preliminary injunctive relief, the court shall have the right and power to grant the requested relief on a temporary basis pending the resolution of factual issues by arbitration in accordance with Section 28.1.2, and to thereafter enforce any award made in such arbitration proceedings. 28.1.2 The following principles and conditions will apply in all arbitration proceedings conducted pursuant to this Agreement: A. During the thirty (30) days following the date that the written notice is given by either Party demanding the submission of the dispute to arbitration, MRG and MiniMed will endeavor to select three independent arbitrators having no substantial economic or other material relationship with either MRG or MiniMed. If the issue in dispute involves matters of patents, licensing or technology, the arbitration panel shall include at least two persons who are knowledgeable in such matters. If the Parties cannot mutually agree on Page 37 of 40 38 the three arbitrators within such thirty (30) day period, then each Party will, within seven (7) days after the expiration of such thirty (30) day period, select one independent arbitrator and those two arbitrators shall select the third independent arbitrator within seven (7) days after the selections of the later of the two to be selected. B. Discovery of evidence shall be conducted expeditiously by the Parties and in accordance with the general principles embodied in the California Civil Discovery Act. To the extent that it is necessary, either Party may apply to a court of competent jurisdiction for assistance in obtaining discovery of evidence for presentation to the arbitrators. C. Except as provided in Section 28.1.3, the arbitrators shall issue findings of fact and conclusions of law. D. Except as provided in Section 28.1.3, the arbitration will be conducted as a case would be represented to a trial court without a jury. The arbitrators in their discretion may hear any type of evidence, including hearsay evidence. The arbitrators shall decide the dispute in accordance with applicable law and shall render a written decision, setting forth their findings of fact and the conclusions of law upon which they relied in making their award. The decision of the arbitrators shall be final and binding on the Parties. 28.1.3 In the case of an arbitration to determine the adjustment in prices referred to in Section 6.3, the arbitrators shall permit each of the Parties to submit written and oral information and argument, shall decide the matter in accordance with the standard set forth in Section 6.3 and shall issue a written opinion explaining in reasonable detail the basis for their decision on the adjustment in prices. The decision of the arbitrators will be final and binding on the Parties. 28.2 COSTS OF ENFORCEMENT. Should any action or proceeding be necessary to construe or enforce this Agreement, including an arbitration pursuant to Section 28.1, or any arbitration award made pursuant to Section 28.1, above, then the Party prevailing in any such action or proceeding shall be entitled to recover all court costs and reasonable attorneys' fees, to be fixed by the court and taxed as part of any judgment entered therein, and the costs and fees incurred in enforcing or collecting any such judgment. 29. GOVERNING LAW The validity, construction and interpretation of this Agreement shall be governed in all respects by the laws of the State of California applicable to contracts made by residents of that state and to be performed wholly within that state. 30. HEADINGS Section and subsection headings are not to be considered part of this Agreement and are included solely for convenience and reference and in no way define, limit or describe the scope of this Agreement or the intent of any provisions hereof. Page 38 of 40 39 31. THIRD PARTIES Nothing in this Agreement, expressed or implied, is intended to confer upon any Person other than MiniMed or MRG any rights or remedies under or by reason of this Agreement. 32. COUNTERPARTS This Agreement may be executed in two or more counterparts, each one of which shall be deemed an original, but all of which shall constitute one and the same instrument. 33. JURISDICTION 33.1 Each Party hereto irrevocably submits to the exclusive jurisdiction of any court of the State of California or the United States of America sitting in the City of Los Angeles over any suit, action or proceeding arising out of or relating to this Agreement. Any arbitration proceedings according to Section 28.1 shall be conducted in the County of Los Angeles. To the fullest extent it may effectively do so under applicable law, each party irrevocably waives and agrees not to assert, by way of motion, as a defense or otherwise, any objection that it may now or hereafter have to the establishment of the venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. 33.2 Each Party hereto agrees, to the fullest extent it may effectively do so under applicable law, that a judgment in any suit, action or proceeding of the nature referred to hereinabove brought in any such court shall be conclusive and binding upon such Person and its successors and assigns and may be enforced in the courts of the United States of America or the State of California (or any other courts to the jurisdiction of which such Person is or may be subject) by a suit upon such judgment. 33.3 Nothing in this Section 33 shall be construed to limit the force or effect of Section 28. (Signature Page, located on page 40) Page 39 of 40 40 IN WITNESS WHEREOF, the: Parties hereto have caused this Agreement to be executed as of the date and year first set forth. above. MINIMED INC., a Delaware MEDICAL RESEARCH GROUP, LLC, a corporation California limited liability company By AEM MiniMed Corp., its Managing Member By: /s/ TERRANCE H. GREGG By: /s/ ALFRED E. MANN ----------------------------- ------------------------------- Terrance H. Gregg Alfred E. Mann President and Chief Operating President Officer By: /s/ ERIC S. KENTOR By: /s/ RONALD LEBEL ----------------------------- ------------------------------- Eric S. Kentor Ronald Lebel Senior Vice President and President, MRG, LLC General Counsel Page 40 of 40 EX-10.3 5 EXHIBIT 10.3 1 EXHIBIT 10.3 GLUCOSE SENSOR OPTION AGREEMENT THIS GLUCOSE SENSOR OPTION AGREEMENT ("Agreement") is made as of this 1st day of September, 1998 by and between MINIMED INC. ("MiniMed"), a Delaware corporation, and MEDICAL RESEARCH GROUP, LLC ("MRG"), a California limited liability company, with respect to the following facts: RECITALS A. MRG is developing and holds available for license or sub-license certain long-term glucose sensor system technology based, in part, on technology described and claimed in certain invention disclosures, patent applications and issued patents owned by MRG, the Regents of the University of California and the Alfred E. Mann Foundation for Scientific Research (the "Mann Foundation"). Some of this technology has been licensed to MRG by the Regents of the University of California and the Mann Foundation. B. MiniMed desires to obtain an option to purchase the worldwide distribution rights with respect to the long-term glucose sensor technology upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing premises, and the representations, warranties and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. DEFINITIONS 1.1 AFFILIATE. A Person or entity, including Subsidiaries, that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with, the designated party, but only for as long as such control relationship exists. For purposes of this definition, "control" shall include (a) in the case of a corporation, ownership of more than fifty percent (50%) of the shares of stock entitled to vote for the election of directors, and (b) in the case of any other business entity, ownership of more than fifty percent (50%) of the beneficial interest in capital or profits. 1.2 CLOSED LOOP SYSTEM. A system that includes an implantable insulin pump and Long-Term Glucose Sensor in which the Long-Term Glucose Sensor fully and automatically controls insulin delivery except for possible patient intervention to indicate a meal. 1.3 CONFIDENTIAL INFORMATION. All information of MRG or MiniMed that (a) is not generally available from public sources, although information shall not cease to be Confidential Information if it becomes publicly available as a result of a breach of this Agreement, and (b) is either designated as Confidential Information or is of such nature or is 2 disclosed in such manner that the fact that it is not publicly available would be obvious to a reasonable person under the circumstance. 1.4 EFFECTIVE DATE. The Effective Date shall be the date of this Agreement. 1.5 FDA. The United States Food and Drug Administration or any successor entity having substantially the same authority. 1.6 GLUCOSE CONTROLLER. An apparatus or system which utilizes Glucose Sensing Technology to control an insulin infusion device in a human or in an animal. 1.7 GLUCOSE MONITOR. Any monitor product utilizing Glucose Sensing Technology to provide indications of glucose concentration or changes in glucose concentration in a human or in an animal. 1.8 GLUCOSE SENSING TECHNOLOGY. Technology relating to implantable glucose sensors intended to be used in vivo in humans or in animals for a period of at least forty-five days before replacement, including Improvements thereto. 1.9 IMPROVEMENT. Any change, addition or deletion in the design, configuration, formulation, ingredients, components, or software of an apparatus or system, or in the formulas, processes, procedures, methods or techniques used in its manufacture, production or assembly, that enhances the performance of an apparatus or system or that makes it quicker, easier or less expensive to manufacture, assemble, distribute, store, use or dispose of. 1.10 THE IMPLANTABLE PUMP LICENSE AND DISTRIBUTION AGREEMENT. The Implantable Pump License and Distribution Agreement dated the same date hereof by and between MiniMed and MRG. 1.11 JOHNS HOPKINS RIGHTS. All rights which MiniMed now has to Technical Information as a result of or relating to any contract or agreement involving The Johns Hopkins University, including but not limited to a License Agreement which The Johns Hopkins University and Pacesetter Systems, Inc. entered into on February 13, 1980, any Addendum or Amendment to said License Agreement and the Novation Agreement made April 29, 1992, by and between the Applied Physics Laboratories of The Johns Hopkins University, Pacesetter Infusion, Ltd. and MiniMed Technologies, Ltd. 1.12 LICENSED PRODUCTS. A Target Product which utilizes MRG's Glucose Sensing Technology, including all accessories therefor and the Long-Term Glucose Sensor itself. Glucose Controllers and Glucose Monitors used with Long-Term Glucose Sensors are Licensed Products. They are expected to be incorporated into the implantable insulin pump, but for purposes of this Agreement, the implantable pump itself (excluding the Glucose Controller and Glucose Monitor) is not a Licensed Product. 1.13 LICENSED SENSOR RIGHTS. MRG's rights to any patent or Technology included within MRG's Glucose Sensing Technology. Page 2 of 34 3 1.14 LIST PRICE The price generally published from time to time for a product offered for sale in a particular market in particular quantities to Third Parties unrelated to either Party who are not sales agents, sales representatives, dealer or distributors, but instead utilize the product for themselves or in providing medical care to unrelated persons. 1.15 LONG-TERM GLUCOSE SENSOR. Any sensor using MRG's Glucose Sensor Technology, the principal purpose of which is to detect the presence of, or to measure the quantity of, or any change in the quantity of, glucose in the body of a human or animal subject that is intended to be used in vivo with an implantable microinfusion pump system for at least forty-five days before replacement, including Improvements and all accessories and components of the sensor. The lead connecting the Long-Term Glucose Sensor to an implantable pump is not an accessory or component of the Long-Term Glucose Sensor but is a part of the implantable pump system. 1.16 MANN FOUNDATION RIGHTS. All rights which MRG now has to Technical Information as a result of or relating to any contract or agreement involving the Mann Foundation, including but not limited to all rights under a License Agreement dated February 6, 1996 between MRG and the Mann Foundation, as amended April 17, 1998. 1.17 MRG'S GLUCOSE SENSING TECHNOLOGY. All rights which MRG has and hereafter develops or acquires to Glucose Sensing Technology and Licensed Products, including but not limited to, Mann Foundation Rights and UC Rights as such rights relate to Glucose Sensing Technology. MRG's Glucose Sensing Technology shall not include any glucose sensing technology under development, developed or licensed by MiniMed. 1.18 PARTY. Either entity that is a signatory to this Agreement. 1.19 PMA. Approval from the FDA to commercially distribute a medical device under the Pre Market Approval regulations. 1.20 PERSON. Any individual, partnership, association, joint stock company, joint venture, limited liability company, corporation, trust, unincorporated organization, other entity or government, or agency or political subdivision, economic unit or entity thereof, including, without limitation, either party to this Agreement and their respective Affiliates. 1.21 REGULATORY APPROVAL. Approval by appropriate authorities to allow commercial sale of any Licensed Product in a certain country or countries, for example the FDA PMA approval in the United States. 1.22 TARGET PRODUCT. A Glucose Controller or a Glucose Monitor utilizing an implantable glucose sensor suitable for use in vivo in humans or animals for a period of at least forty-five days before replacement. 1.23 TECHNICAL INFORMATION. Any information reasonably relevant to the Licensed Products or otherwise pertaining to the design, manufacture, assembly, production, operation, performance or use of the Licensed Products or any component of Licensed Products, including but not limited to invention disclosures, patent applications, issued patents, Page 3 of 34 4 feasibility study information, testing and reliability information, specifications, documentation, drawings, computer programs, software, prototypes, and the like. 1.24 TECHNOLOGY. Any invention, development or Improvement, and any trade secret, "know-how", manufacturing formula, process, procedure, method or technique, whether or not patentable, copyrightable or otherwise protectable by law. 1.25 THIRD PARTY. Any Person other than the legal entities that are Parties to this Agreement. 1.26 TRANSFER PRICE. The price charged for any product by MRG to MiniMed. 1.27 UC RIGHTS. All rights which MRG now has to Technical Information as a result of or relating to any contract or agreement involving the Regents of the University of California, including the Exclusive License Agreement for Glucose Sensors and Systems, effective February 28, 1990, U.C. Agreement Control No. 90-04-0104. 1.28 WILSON GREATBATCH RIGHTS. All rights which MiniMed now has to Technical Information as a result of or relating to any contract or agreement involving Wilson Greatbatch Ltd., including but not limited to a License Agreement and a Supply Agreement, each made as of the 1st day of October, 1993, and any amendments thereto. 2. DEVELOPMENT OF LONG TERM GLUCOSE SENSOR 2.1 Promptly after the execution and delivery of this Agreement MRG will continue to use commercially reasonable efforts to diligently pursue the development of the Long-Term Glucose Sensor, including without limitations (a) all pre-clinical activity necessary to obtain approval from the FDA to conduct a clinical trial with respect to a fully implanted version of MRG's Long-Term Glucose Sensor in humans under the Investigational Device Exemption regulations adopted by the FDA (with commercially reasonable support from MiniMed's regulatory personnel), and (b) commencement of such a study in humans by the earliest reasonable date (the "Long-Term Glucose Sensor Development"). The period from the Effective Date until the commencement of the clinical trial is referred to herein as the Performance Period. 2.2 MONITORING OF DEVELOPMENT. Promptly after the execution and delivery of this Agreement MiniMed and MRG will each designate two representatives who will meet at least monthly so that MiniMed can monitor the development of the Long-Term Glucose Sensor. MRG will cooperate with the MiniMed representatives in good faith and will provide all information regarding the status of the development of the Long-Term Glucose Sensor as MiniMed may reasonably request, whether at the meetings of the representatives referred to above and at any other time. Page 4 of 34 5 3. CONFIDENTIAL INFORMATION 3.1 TREATMENT OF CONFIDENTIAL INFORMATION. MiniMed and MRG shall maintain all Confidential Information disclosed by the other Party pursuant to or during the performance of this Agreement in strict secrecy and confidence, and not disclose such Confidential Information to any Third Party, nor make any use of such information and Technology for its own benefit or gain except as is mutually agreed between the Parties or as otherwise provided for and permitted under this Agreement or the Implantable Pump License and Distribution Agreement. No Confidential Information or materials pertaining to Licensed Products, MRG's Glucose Sensing Technology or MiniMed's Pump Technology will be supplied to any other Person other than those approved in writing by MiniMed with respect to MiniMed's Confidential Information and by MRG with respect to MRG's Confidential Information, except disclosure to sublicensees, and contractors with a need to know and bound by confidentiality agreements, and to the FDA and similar regulatory agencies of information relative to obtaining regulatory approval. Confidential Information may also be supplied by MRG to proposed distributors if the Option expires without being exercised, if MiniMed repudiates the Option before it expires or if the Option is exercised and thereafter MRG reasonably believes, based on the quantity of Licensed Products ordered or purchased by MiniMed, that MRG will have the right to convert MiniMed's distribution rights to non-exclusive rights pursuant to Section 6.6.2 or terminate them pursuant to Section 6.6.3. Nothing in this Section 3 shall apply, however, to any disclosure that may be required by applicable law, including without limitation disclosures in documents filed with the Securities and Exchange Commission and in private placement memoranda used in connection with the sale of securities. MRG acknowledges its understanding and agreement that as a public company MiniMed has responsibilities to disclose certain information about its affairs and will be required to publicly disclose the existence of this Agreement and its material terms as well as future developments in the portion of its business to which this Agreement relates. MiniMed likewise acknowledges its understanding and agreement that MRG may be required to make similar disclosure in connection with its capital raising efforts. 3.2 REQUESTED DISCLOSURE OF CONFIDENTIAL INFORMATION. In the event either Party is requested pursuant to, or required by, applicable law or regulation or by legal process to make any disclosure otherwise prohibited hereunder, the Party that is required to make disclosure (the "Disclosing Party") shall, to the extent reasonably practicable, provide the other Party with prompt notice of such requests or requirements prior to disclosure so that (a) the other Party may seek an appropriate protective order or other remedy and/or (b) the Disclosing Party and the other Party can seek in good faith to consult with the Disclosing Party on the appropriate scope and approach to disclosure. In the event that such protective order or other remedy is not obtained, the Disclosing Party shall furnish only that portion of the Confidential Information which the Disclosing Party reasonably believes may be legally required to disclose and, to the extent reasonably practicable, to use reasonable efforts to obtain confidential treatment for the Confidential Information disclosed. Page 5 of 34 6 3.3 LIMITED RELEASE. MiniMed and MRG shall be released from the obligations of Section 3.1 to the extent that any of the disclosed information: (a) was already publicly available at the time of the disclosure by the other Party or (b) becomes publicly available through no fault of the receiving Party (but only after and only to the extent that it becomes publicly available). 3.4 TERM OF CONFIDENTIALITY. The obligation of MiniMed and MRG to receive and hold information disclosed by the other Party in confidence, as required by Section 3.1, shall terminate three (3) years after termination of this Agreement or ten years after the Effective Date of this Agreement, whichever is later, except that such obligations shall not terminate as to Technical Information which constitutes a trade secret until such time as that information has become publicly available. 4. [INTENTIONALLY OMITTED] 5. OPTION FOR EXCLUSIVE MARKETING AGREEMENT 5.1 GRANT OF OPTION. MRG hereby grants MiniMed the right and option (the "Option") to purchase the exclusive worldwide distribution rights with respect to the Long-Term Glucose Sensor and all other Licensed Products pursuant to the terms and conditions set forth in Section 6 (the "Exclusive Marketing Agreement"). The Option shall only be exercisable within 90 days after any fully implantable version of the Long-Term Glucose Sensor is first successfully implanted in human patients under an approved Investigational Device Exemption granted by the FDA or under approval of the relevant regulatory authority for the European Union. The Long-Term Glucose Sensor will be deemed to have been successfully implanted if for a period of at least thirty days it works continuously as designed, is not subject to being explanted and produces data that correlates to plasma glucose levels determined using accepted laboratory instruments or capillary glucose levels determined using conventional monitors, in either case, to the extent of at least 85%. The 90-day period within which the option must be exercised shall commence with the date of implant and shall include the thirty days referred to above. Said 90-day period to exercise the Option shall be extended by one day for each day after any such implant until MRG notifies MiniMed of the implant and one day for each day after the thirty days referred to above before MRG reports to MiniMed in writing on the results relevant to determining that the implant was successful. The fact that MiniMed's exclusive rights to distribute implantable pump systems may have become non exclusive under the Implantable Pump License and Distribution Agreement shall not affect MiniMed's right to exercise the Option and obtain the exclusive distribution rights referred to above. 5.2 EXERCISE OF OPTION. The Option may be exercised by MiniMed only by delivering written notice of its election to exercise within the 90 day period referred to in Section 5.1 (as that period may be extended pursuant to Section 5.1). 5.3 PURCHASE PRICE. The purchase price payable for the exclusive worldwide distribution rights with respect to the Long-Term Glucose Sensor and all the Licensed Products Page 6 of 34 7 will be $30 million. The purchase price shall be payable within thirty (30) days after delivery of the notice of exercise pursuant to Section 5.2. 5.4 AVAILABILITY OF INFORMATION. MRG shall make reasonable efforts to keep MiniMed informed on a current basis of all facts and events relating to the Long-Term Glucose Sensor specifications, schedules and trial results which would be regarded as important to a reasonable and prudent person holding the right to exercise the Option in deciding whether or not to exercise (although not necessarily determinative in that decision). 5.5 PROHIBITION ON GRANTING LICENSES TO LICENSED SENSOR RIGHTS DURING OPTION. MRG shall not license any of the Licensed Sensor Rights to any Third Party prior to the expiration of the Option without it having been exercised or after exercise of the Option, except that MRG may grant licenses to utilize the Licensed Sensor Rights after MiniMed's distribution rights are converted to non-exclusive rights pursuant to Section 6.6.2, such rights are terminated pursuant to Section 6.6.3 or to the extent consented to in writing by MiniMed prior to the date of this Agreement. 5.6 EFFECTIVE DATE OF EXCLUSIVE MARKETING AGREEMENT. Section 6 shall not become effective if the notice of exercise is not given by MiniMed prior to the expiration of the Option or if MiniMed fails to pay the purchase price as required by Section 5.3. 6. CONTINGENT EXCLUSIVE MARKETING AGREEMENT The provisions of this Section 6 shall commence to apply if and when the Option is exercised and MiniMed pays the purchase price to MRG. 6.1 CONTINGENT GRANT OF MARKETING RIGHTS. Subject to the foregoing condition, MRG hereby grants to MiniMed the exclusive worldwide marketing rights to promote, sell, market, distribute and use the Long-Term Glucose Sensor and all other Licensed Products for the Exclusive Marketing Agreement Term, subject to a limited reversion to non-exclusivity or termination pursuant to Section 6.6 of this Agreement. 6.2 THE EXCLUSIVE MARKETING AGREEMENT TERM. The "Exclusive Marketing Agreement Term" shall begin when and if MRG receives written notification of MiniMed's exercise of the Option as provided in Section 5.2 and payment of the purchase price as provided in Section 5.3, and shall continue perpetually thereafter unless terminated. 6.3 EXCLUSIVITY. Except as provided in Sections 6.6.2 and 6.6.3 of this Agreement, MRG shall have no right to grant to any Third Party the right to promote, sell, market, distribute or use the Long-Term Glucose Sensor or any other Licensed Product anywhere in the world during the Exclusive Marketing Agreement Term, and, except as provided in Sections 6.6.2 and 6.6.3, MRG will not sell or distribute the Long-Term Glucose Sensor or any other Licensed Product during the Exclusive Marketing Agreement Term except so as to fulfill its obligations to MiniMed under this Agreement. Page 7 of 34 8 6.4 PURCHASE OF LONG-TERM GLUCOSE SENSORS. 6.4.1 TRANSFER PRICES. Once the Long-Term Glucose Sensor is ready for production and MRG can lawfully sell such a device to MiniMed, MRG shall sell to MiniMed Long-Term Glucose Sensors at a Transfer Price equal to (a) for sales to customers located in the U.S., the greater of the US Minimum Transfer Price established by MRG or sixty-five percent (65%) of the List Price of such Long-Term Glucose Sensors as determined by MiniMed and (b) for sales to customers located in each respective market outside of the U.S., the greater of the OUS Minimum Transfer Price established by MRG or fifty-five percent (55%) of the List Price of such Long-Term Glucose Sensors as determined by MiniMed and upon such other terms and conditions as are customary and mutually agreed upon. Until 24 months after regulatory approval for sale in the US, the US Minimum Transfer Price shall not exceed Twenty Six Hundred Dollars ($2,600.00). Until 24 months after regulatory approval for sale in the EU or any other OUS jurisdiction reasonably agreeable to MRG and MiniMed the OUS Minimum Transfer Price shall not exceed Twenty Five Hundred Dollars ($2,500.00). Glucose Controllers and Glucose Monitors are not included in the Transfer Price of the Long-Term Glucose Sensors and are included in the Transfer Price of implantable insulin pump systems pursuant to the Implantable Pump License and Distribution Agreement. The lead connecting the Long-Term Glucose Sensor to an implantable pump likewise is not included in the Transfer Price of the Long-Term Glucose Sensor, is included in the price of the implantable pump system when sold with that system and is priced separately when sold separately as provided in the Implantable Pump License and Distribution Agreement. 6.4.2 MANUFACTURING. Within a reasonable time after MiniMed obtains Regulatory Approval for a Licensed Product from the FDA or any regulatory authorities of another jurisdiction approved by MiniMed, MRG will establish the capability to manufacture the Long-Term Glucose Sensor and the other Licensed Products meeting the then current specifications and the warranty set forth in Section 6.19 in the quantities and within the delivery times contemplated by this Agreement. If MRG fails to establish the capability to manufacture the Long-Term Glucose Sensor or any of the other Licensed Products in accordance with the requirements of the preceding sentence or thereafter loses that capability or fails to manufacture the Long-Term Glucose Sensors or the Licensed Products to be sold to MiniMed as contemplated by Section 6.4.2.1, then MiniMed shall have the right, in accordance with Section 6.4.3, to itself undertake the manufacture of the Long-Term Glucose Sensor and the other Licensed Products or contract with others to do so. Such right may only be exercised by giving written notice to MRG of MiniMed's intention to do so, and thereafter MRG will have 180 days in which to cure its failure to perform. Such cure shall be deemed effective only if MRG manufactures and delivers to MiniMed in accordance with the requirements of this Agreement that number of Long-Term Glucose Sensors and other Licensed Products which Page 8 of 34 9 MiniMed has ordered and MRG has failed to deliver and at least 80% of such products that meet the specification and warranty requirements referred to above. 6.4.2.1 ORDERS FOR LICENSED PRODUCTS. MiniMed and MRG will cooperate to ensure that MiniMed receives the quantities of Long-Term Glucose Sensors and other Licensed Products that it requires. Immediately upon obtaining the first regulatory approval referred to in Section 6.4.2 (or before, at MiniMed's option) MiniMed will place a firm purchase order with MRG for the quantity of Long-Term Glucose Sensors and other Licensed Products it requires over the next six month period. MiniMed and MRG will meet to review and agree to MiniMed's initial requirements. Thereafter, MiniMed will provide supplemental purchase orders periodically, but at least every two months, specifying the quantity of Long-Term Glucose Sensors and other Licensed Products MiniMed will require over the next six month period. MRG will have the right to refuse any purchase order that would exceed MRG's manufacturing capacity if that order exceeds, for any given six month period, more that 115% of the number of Long-Term Glucose Sensors or other Licensed Products purchased in the previous six month period. If MiniMed's requirements for Long-Term Glucose Sensors or other Licensed Products change such that MiniMed would like to amend these purchase orders MRG will attempt to accommodate those changes, but MRG may request additional payment from MiniMed beyond the agreed Transfer Prices to reflect any actual increases in MRG's costs. In the event of any disagreement as to whether the additional charges reflect actual increases in MRG's costs, the matter shall be settled by arbitration pursuant to Section 18. 6.4.3. MANUFACTURE BY MINIMED. If MiniMed undertakes to manufacture the Long-Term Glucose Sensor and other Licensed Products under the provisions of Section 6.4.2, it will have the right to do so thereafter throughout the Exclusive Marketing Agreement Term provided that it complies with the following conditions: (1) MiniMed shall be required to pay a royalty to MRG equal to 8% of MiniMed's Long-Term Glucose Sensor sales from the sale, lease or other commercial exploitation of the Long-Term Glucose Sensors manufactured by it; (2) MiniMed shall be required to comply with all requisite obligations of a sublicensee arising after MiniMed undertakes to manufacture under the Exclusive License Agreement for Glucose Sensors and Systems with the Regents of the University of California effective February 28, 1990, U.C. Agreement Control No. 90-04-0104 and the License Agreement dated February 6, 1996 between MRG and the Mann Foundation, including the payment of any royalties or other compensation with respect to Long-Term Glucose Sensors manufactured by MiniMed under the present terms of such licenses or any revised terms agreed upon after the date hereof which are more favorable to MiniMed and (3) MiniMed shall not take any action or omit to take any action which would constitute a default of a sublicense under any such agreement. "Long-Term Glucose Sensor Sales" for this purpose shall mean the U.S. dollar amount of gross sales of Long-Term Glucose Sensors and other Licensed Products of MiniMed or any of its Affiliates, excluding amounts collected for any transportation, shipping and mailing costs; sales, use or excise taxes; customs, duties, tariffs or insurance and after subtracting all amounts refunded, allowed, credited or discounted with respect to Long-Term Glucose Sensors. If MiniMed elects to exercise the right to manufacture the Long-Term Glucose Sensors and other Licensed Products pursuant to this Agreement, MiniMed will have the right to use all Technology owned or licensed by MRG relating to the Long-Term Glucose Page 9 of 34 10 Sensor and the other Licensed Products for the purpose of manufacturing, distributing and selling Long-Term Glucose Sensors and the other Licensed Products provided that MiniMed complies with the requirements of (2) above and any requisite obligations owed by MRG under any other license to a Third Party, including the payment of any royalties. MRG will cooperate with MiniMed in providing technical information and assistance as MiniMed may reasonably require to manufacture Long-Term Glucose Sensors and other Licensed Products. If MiniMed manufactures the Long-Term Glucose Sensor and other Licensed Products the provisions of Sections 6.5 and 6.6 will continue to apply. 6.5 ABILITY TO SET LIST PRICE. MiniMed shall have the sole authority to establish List Prices for the Long Term Glucose Sensor. 6.5.1 ADJUSTMENT IN PRICES. If at anytime after December 31, 2000 either Party believes that the Transfer Price arrangement for the Long-Term Glucose Sensor is materially unfair to it, the Parties will meet and seek in good faith to agree on revised prices that are agreeable to both Parties and approximate pricing structures that are customary for other comparable distribution arrangements involving high technology products. If the Parties are unable to agree on price, the matter shall be resolved by arbitration in accordance with Section 18. 6.6 PERFORMANCE REQUIREMENTS. For MiniMed to maintain exclusivity of its marketing rights granted under this Exclusive Marketing Agreement for the two separate geographic segments of (a) sales to customers located in the United States and (b) sales to customers located in any country other than the United States ("OUS"), MiniMed must satisfy both of the following requirements: (i) MiniMed shall satisfy the minimum purchase requirements set forth in Section 7.1 of the Implantable Pump License and Distribution Agreement (but only to the extent required to preserve its exclusive distribution rights thereunder) for each full calendar year commencing after it exercises the Option, whether or not its exclusive distribution rights under that Agreement have become non-exclusive, and (ii) After the Long-Term Glucose Sensor and the other related Licensed Products are commercially available as part of a Closed Loop System, MiniMed must purchase that number of Long-Term Glucose Sensors in each calendar year equal to the combined total of the US and the OUS "Minimum Purchase Requirements" determined as provided below. The Minimum Purchase Requirement for each of the US and the OUS shall be determined by multiplying the number of implantable pump systems sold by MiniMed in the relevant jurisdiction (US or OUS) in each Annual Period by the applicable percentage in the table below for that Annual Period. The Minimum Purchase Requirements will be determined separately for the US and the OUS but the two separate amounts shall be combined for purposes of (ii) above. Long-Term Glucose Sensors that are sold as replacements for patients already having implanted pumps with sensors will count towards the Minimum Purchase Requirements. Page 10 of 34 11 Each Annual Period in the table below is measured for sales to customers located in the U. S. from the first day of the month following the latest of the date the Exclusive Marketing Agreement becomes effective, the end of the Performance Period (as defined in Section 2.1) or the date of the first Regulatory Approval of a Long-Term Glucose Sensor and the other related Licensed Products for use with an approved implantable pump system in a Closed Loop System for sales to customers located in the US. Each Annual Period in the following table is measured for OUS sales from the first day of the month following the latest of the date the Exclusive Marketing Agreement becomes effective, the end of the Performance Period referred to above or the date of first Regulatory Approval of a Long-Term Glucose Sensor and the other related Licensed Products for use with an approved implantable pump system in a Closed Loop System in the EU. Each such year referred to in the following table, whether applicable to sales in the United States or OUS sales, is referred to in this Agreement as an "Annual Period."
MINIMUM PERCENTAGE ANNUAL PERIOD FOR U.S. AND OUS ------------- ------------------ First Year 40% Second Year 50% Third Year 60% Fourth Year 70% Fifth Year 80% Each Year Thereafter 90%
6.6.1 DETERMINATION OF PURCHASE REQUIREMENTS. The Minimum Purchase Requirements will be measured at the end of each relevant calendar year as follows: (a) Because the Annual Periods in the table in Section 6.6 are intended to be 365-day periods from the date of Regulatory Approval (366 days for leap years), which will not necessarily be calendar years, an "Average Annual Percentage" for each calendar year will be determined based on the average monthly percentage for each Annual Period in the table. The average monthly percentage for each Annual Period will be calculated by dividing the applicable Minimum Percentage in the table by 12. Thus the average monthly percentage for the first Annual Period (the First Year in the table in Section 6.6) will be 3.33% and the average monthly percentage for the second Annual Period (the Second Year in the table) will be 4.167%. If Regulatory Approval is obtained on any day other than the first day of a calendar month, the first Annual Period will be deemed to commence on the first day of the next full calendar month. (b) For each calendar year the Average Annual Percentage will be equal to the sum of the monthly average percentages for each month of the calendar year calculated as provided in (a) above. For example, if the first Regulatory Approval referred to in Section 6.6 is obtained in the US on March 20, 2005, the period from March 20, 2005 to March 31, 2005 will be disregarded and the average monthly percentage for the months from April 2005 through March 2006 will be 3.33%. The Page 11 of 34 12 average monthly percentage for the months from April 2006 to March 2007 will be 4.167%. Therefore the Average Annual Percentage for calendar year 2006 will be the sum of the average monthly percentages for January through March 2006 at 3.33% per month plus the average monthly percentages for April through December 2006 at 4.167%, or a total of 47.5%. (c) The total number of pump systems sold in the US or the OUS, as the case may be, during each calendar year (both those which include and do not include Long-Term Glucose Sensors) will then be multiplied by the Average Annual Percentage for that calendar year, and the resulting product will be the Minimum Purchase Requirement for the US or the OUS, as the case may be, for that calendar year. (d) There will be no Minimum Purchase Requirement for any fractional calendar year after the first Regulatory Approval in the US or for any fractional calendar year after the first Regulatory Approval in the first jurisdiction in the OUS where Regulatory Approval is obtained. For example, if the first Regulatory Approval in the US is obtained on April 1, 2005, there will be no Minimum Purchase Requirement for the US for the calendar year 2005 and the Minimum Purchase Requirement for 2006 will be 47.5% calculated as provided in (c) above. (e) Although any fractional calendar year after the first Regulatory Approval in the first jurisdiction in the OUS where Regulatory Approval is obtained will be disregarded, fractional years after the first Regulatory Approval in any other OUS jurisdictions will not be disregarded. Moreover, pump systems sold in those subsequent OUS jurisdictions will be included in the calculation of the Minimum Purchase Requirement for the OUS commencing with the first day of the first full calendar month after Regulatory Approval is obtained in each such jurisdiction (or commencing on the day Regulatory Approval is obtained if it is obtained on the first day of a calendar month). (f) The Average Annual Percentage applicable to the OUS will depend upon the date of the first Regulatory Approval in the first OUS jurisdiction where such approval is obtained as provided in (d) above notwithstanding the fact that Regulatory Approval for other jurisdictions may be obtained in subsequent years. For example, if Regulatory Approval in the EU is obtained on April 1, 2005 and Regulatory Approval for Japan is obtained on July 1, 2007, pump systems sold in Japan on and after July 1, 2007 will be included in the calculation of the Minimum Purchase Requirement for the OUS for calendar year 2007 and subsequent years and the Average Annual Percentage applicable to all pump sales in the EU and Japan combined for calendar year 2007 would be 57.5%, the same Average Annual Percentage determined pursuant to (b) above that would apply to the OUS if Regulatory Approval had not been obtained in Japan. (g) In calculating the Minimum Percentage Requirement for the OUS, sales of pump systems in all OUS jurisdictions for which the first Regulatory Approval described in Section 6.6 has not been obtained will be disregarded. Thus, in the Page 12 of 34 13 calculation in (c) above sales of implantable pumps (both those which include and do not include a Long-Term Glucose Sensor) in OUS jurisdictions other than the EU and Japan would be disregarded (assuming Regulatory Approval in any such other jurisdiction has not been obtained). (h) The EU shall be treated as a single jurisdiction for purposes of calculating OUS Minimum Purchase Requirements unless at some future date countries then having a majority of the population of all countries presently constituting the EU do not accept the concept of a single Regulatory Approval for all such countries. (i) If Regulatory Approval is obtained and then suspended or revoked in any jurisdiction, pump systems sold to customers located in that jurisdiction, both those which include and do not include a Long-Term Glucose Sensor, will be disregarded in the calculation of Minimum Purchase Requirements until Regulatory Approval is reinstated. If Regulatory Approval is suspended or revoked in the US, (A) there shall be no Minimum Purchase Requirement for the US until Regulatory Approval is reinstated, (B) the calculation of that Minimum Purchase Requirement for the period after reinstatement shall be made in the manner contemplated by (c) above and (C) the Minimum Percentages in the table in Section 6.6 used to calculate the Average Annual Percentage will be based upon the date of obtaining the first Regulatory Approval without regard to any such suspension or revocation unless the period of suspension or revocation exceeds six months. In that event (X) the Minimum Percentage used for calculating the Average Annual Percentage for the calendar year in which reinstatement occurs will be the Minimum Percentage that was in effect for the Annual Period during which the suspension or revocation occurred, (Y) such Minimum Percentage shall remain in effect for 12 full calendar months after Regulatory Approval is reinstated and (Z) all increases in the Minimum Percentage shall occur at the beginning of the next succeeding 12 calendar month periods. (j) Likewise, if Regulatory Approval in the EU is suspended or revoked, the Minimum Purchase Requirements for the OUS will be suspended and reinstated in the manner contemplated by (i) above. If Regulatory Approval is suspended or revoked for any OUS jurisdiction other than the EU, there shall be no effect on the Minimum Purchase Requirement for the OUS except that sales of pump systems, both those including and not including Long-Term Glucose Sensors, to customers located in that jurisdiction will be disregarded in the calculation until Regulatory Approval is reinstated. An example of the application of Section 6.6 and this Section 6.6.1 is attached to this Agreement. 6.6.2 LOSS OF EXCLUSIVE RIGHTS. If during the Exclusive Marketing Agreement Term purchases made in any calendar year by MiniMed from MRG for the U.S. and OUS combined do not equal at least the combined Minimum Purchase Requirements for the US and the OUS specified in Section 6.6 and 6.6.1 for such calendar year and provided MRG can continue to supply the quantities of Long-Term Glucose Sensors and the other related Licensed Products set forth in Section 6.6.1 and is not otherwise in material default of this Agreement, MRG shall have the absolute right to convert MiniMed's marketing rights to a non-exclusive basis, unless within thirty (30) days after the end of such Annual Period MiniMed pays to MRG such sum as is representative of one-half of the Transfer Price of the quantity of Long-Term Glucose Sensors which would need to be purchased by MiniMed to bring the total minimum quantity for such calendar year up to at least such combined Minimum Purchase Requirements for the US and the OUS. In no event shall MiniMed's marketing rights be converted to a non-exclusive basis or terminated if the failure of MiniMed to purchase the required number of Long-Term Glucose Sensors is caused by the failure of MRG to provide, in accordance with the requirements of this Agreement (determined without regard to the doctrine of substantial Page 13 of 34 14 performance and without regard to the 115% limitation set forth in Section 6.4.2.1), Long-Term Glucose Sensors or other Licensed Products which have been ordered by MiniMed. If MRG fails to establish the capability to manufacture Licensed Products and MiniMed exercises its right set forth in Section 6.4.2 to itself undertake such manufacture or contract with others to do so, the Minimum Purchase Requirements set forth in Section 6.6.1 shall be adjusted so that they begin to apply for the first twelve calendar month period commencing after such capability is established as if that had been the First Year in the table set forth in Section 6.6 and shall progress as provided in the table substituting each such successive twelve calendar month period for each calendar year referred to in Section 6.6.1. Likewise, if MRG loses said manufacturing capability or if MRG fails to deliver or MiniMed is unable to manufacture or distribute Long-Term Glucose Sensors as a result of the assertion by a Third Party of any right to the Technology associated with the Long-Term Glucose Sensor, then the obligation to meet the Minimum Purchase Requirements shall be suspended until such time as either MRG or MiniMed or a Third Party with whom either of them contracts begins manufacturing or, in the case of the assertion of Third Party rights to the Technology, the inability of MRG to deliver or MiniMed to manufacture or distribute Long-Term Glucose Sensors is eliminated (as a result of legal proceedings or otherwise) and such delivery, manufacturing or distribution, as the case may be, begins. The Minimum Purchase Requirements for the first twelve calendar month period commencing thereafter shall be the same as the Minimum Purchase Requirements for the calendar year in which any such suspension occurred. The Minimum Purchase Requirements for each subsequent twelve calendar month period shall be equal to the Minimum Purchase Requirement for the calendar years subsequent to the year in which any such suspension occurred. If during any calendar year (a) MRG fails to deliver to MiniMed within the times required by this Agreement, all of the Long-Term Glucose Sensors (determined without regard to the 115% limitation set forth in Section 6.4.2.1 and the doctrine of substantial performance) ordered by MiniMed for delivery during that calendar year in accordance with the terms of this Agreement, or not ordered in accordance with the terms of this Agreement but as to which MRG accepts the order (the "Number of Sensors Ordered") or (b) any such sensors delivered during the calendar year fail to meet all of the requirements of this Agreement (including without limitation those set forth in Sections 6.12, 6.18 and 6.19), then the Minimum Purchase Requirement for that calendar year will be reduced by the number of Long-Term Glucose Sensors which are not so delivered plus those that do not meet such requirements (the "Shortfall"). In addition, the Minimum Purchase Requirement for each subsequent calendar year will be reduced by the percentage that the Shortfall represents of the Number of Sensors Ordered. Such reduction shall be made whether or not the Number of Sensors Ordered exceeds the 115% limitation set forth in Section 6.4.2.1. In no event shall MiniMed's marketing rights be converted to non-exclusive rights pursuant to this Section 6.6.2, nor shall such rights be terminated pursuant to Section 6.6.3 if the failure of MiniMed to meet the Minimum Purchase Requirement for any calendar year is caused by (a) the failure of MRG to deliver, in accordance with the terms of this Agreement (and without regard to the 115% limitation set forth in Section 6.4.2.1 and Page 14 of 34 15 determined without regard to the doctrine of substantial performance), the Number of Sensors Ordered or (b) the failure of MRG to establish or maintain the capability to manufacture Long-Term Glucose Sensors or continuously maintain that capability or (c) the assertion of Third Party rights in the Technology associated with the Long-Term Glucose Sensor. The parties acknowledge that in the case of (b) or (c) MiniMed will not be obligated to place orders for Long-Term Glucose Sensors and therefore (b) and (c) will apply even if (a) does not. 6.6.3 TERMINATION OF RIGHTS. If during the Exclusive Marketing Agreement Term purchases made in any two consecutive calendar years by MiniMed from MRG for each market segment have not met or exceeded the combined Minimum Purchase Requirements for the US and the OUS, or if MiniMed shall sell any Target Product that does not include a Long-Term Glucose Sensor purchased from MRG, MRG shall have the absolute right to terminate the Exclusive Marketing Agreement by payment to MiniMed of the amount of one-half of the purchase price set forth in Section 5.3 less one-half of any amount previously paid to MiniMed under Section 6.9.3. 6.6.4 SATISFACTION OF MINIMUM PURCHASE REQUIREMENTS. If during the Exclusive Marketing Agreement Term purchases made in any calendar year by MiniMed from MRG for the U.S. and OUS geographic segments equal or exceed the combined Minimum Purchase Requirements for those segments specified in the above table for such Annual Period, MiniMed shall be deemed to have satisfied its obligations under Sections 6.6 and 6. 1 for such calendar year. 6.6.5 RIGHT TO SELL INVENTORY. In the event of termination of the marketing rights under this Agreement pursuant to Section 6.6.3, MiniMed shall nonetheless have the right for one year from the effective date of termination to sell the inventory of Long Term Sensors and other Licensed Products in its possession at the time of termination, except, however, that MRG shall have the right but not the obligation to repurchase the Long Term Sensors and other Licensed Products in MiniMed's inventory at the price paid by MiniMed to MRG for purchase of such products. 6.6.6 NOTICE OF TERMINATION. To be effective MRG may exercise its right to terminate the Exclusive Marketing Agreement or its exclusivity only if it elects to do so by delivering written notice to MiniMed within one hundred eighty (180) days after the end of the calendar year for which the required combined Minimum Purchase Requirements for the US and the OUS have not been met and MiniMed has failed to pay the amounts necessary to avoid any such termination. 6.6.7 OBLIGATIONS AFTER TERMINATION. In the event of termination of the Exclusive Marketing Rights or the reduction of marketing rights to non-exclusive rights under this Agreement, MiniMed shall make commercially reasonable efforts to allow MRG to make and sell Licensed Products and/or implantable insulin pumps for use with a Long-Term Glucose Sensor under any PMA or similar authority that MiniMed may have, including access to appropriate clinical data, and shall provide MRG with reference rights to any PMA or similar approval. Page 15 of 34 16 6.7 PAYMENT. The purchase price payable by MiniMed to MRG pursuant to Section 6.4 shall be F.O.B. MRG's place of manufacture. Payment will be made by MiniMed in United States dollars within thirty (30) days after shipment. If any invoice is not paid by MiniMed in accordance with its terms and within thirty (30) days of notice of late payment, MRG may cancel or delay further shipments until such payment is made. All sales will be final, and no returns will be allowed except as set forth below in Section 6.18 for products not complying with MRG's warranty or the inspection specifications. In the event any payment payable by MiniMed to MRG pursuant to Section 6.4 shall not be paid promptly when due, the unpaid balance thereof shall bear interest at the lesser of (a) prime lending rate of Citibank N.A. from time to time in effect plus 1% or (b) maximum rate permitted by applicable law. 6.8 [INTENTIONALLY OMITTED] 6.9 DEFENSE OF TECHNOLOGY. 6.9.1 In the event either Party hereto discovers or becomes aware of any infringement or possible infringement of, or attack or threatened attack on, any of the Licensed Sensor Rights, such Party immediately shall notify the other Party of the details of such infringement, possible infringement, attack or threatened attack. Promptly after such notification, the Parties will consult with each other as to the course of action to be taken. 6.9.2 MRG, in its sole discretion and at its sole cost and expense and with counsel, reasonably satisfactory to MiniMed, shall take any and all appropriate legal action to defend the Licensed Sensor Rights against any suspected infringement or from any attack or threatened attack; provided, however, that MiniMed at all times shall have the right to participate fully in any such action at its own expense. In the event MRG fails within a reasonable time to initiate appropriate action in connection with any such suspected infringement, attack or threatened attack which in the reasonable judgment of MiniMed adversely affects or might adversely affect MiniMed's rights in, to or under the Licensed Sensor Rights, or fails to pursue such action vigorously once commenced, MiniMed upon notice to MRG shall have the right, but not the obligation, to initiate or pursue any such appropriate action in MRG's name but at MiniMed's risk and expense and MRG shall cooperate fully in any such action. Any judgment, damages, settlement or award which results from any such action shall be allocated (a) first, to MRG and MiniMed in proportion and to the extent of the actual costs incurred by each in connection therewith, and (b) thereafter, to MRG and MiniMed in proportion to their actual damages. 6.9.3 In the event of the occurrence of any claim that any of the rights granted hereunder by MRG to MiniMed conflict with any patent, copyright or other proprietary right of any Third Party, the Parties hereto shall consult with each other regarding such claim and the avoidance of the same. In the event the Parties mutually determine that it is necessary or appropriate that MiniMed obtain a license from such Third Party in order for MiniMed to exercise the rights granted to it hereunder, the Parties shall use their best efforts to obtain such license on the most favorable terms practicable to MiniMed. In the event MiniMed is required by the terms of such license to pay royalties to such Third Party, MiniMed shall have the right Page 16 of 34 17 to a refund of a portion of the Purchase Price paid hereunder by MiniMed in an amount equal to one half of the royalties paid to such Third Party up to a maximum of fifteen million dollars. 6.10 QUALITY CONTROL. MiniMed shall follow reasonable quality control standards established by MRG with respect to the storage, preservation and use of the Long-Term Glucose Sensors purchased under this Agreement. 6.11 FDA APPROVAL AND CLINICAL TRIALS. 6.11.1 MiniMed will use commercially reasonable efforts to cause an appropriate application to be filed with the FDA for approval of the Long-Term Glucose Sensor and other Licensed Products for commercial distribution and to obtain such approval in the United States. In that connection, MiniMed will also use commercially reasonable efforts to conduct all clinical trials reasonably required by the FDA for such approval. The cost of obtaining and maintaining such regulatory approvals shall be borne equally by MiniMed and MRG. The results of these efforts shall be made available to MRG to the extent reasonably practicable and at MRG's expense. MRG shall reimburse MiniMed for its share of such cost from time to time within 30 days of each request for reimbursement by MiniMed accompanied by reasonable documentation of the costs to be reimbursed. Any amount not paid within the thirty (30) day period will bear interest at the lesser of (a) prime rate of Citibank N.A. from time to time in effect plus one percent or (b) the maximum rate permitted by applicable law. The value (determined at the established Transfer Prices) of implantable pumps, Long-Term Glucose Sensors and accessories and other Licensed Products provided by MRG for the support of the regulatory approvals will be credited towards MRG's share of the regulatory costs. MRG will cooperate with MiniMed in connection with obtaining FDA approval of the Long-Term Glucose Sensor and other Licensed Products, including cooperation with clinical trials and will provide to MiniMed such information as it possesses and MiniMed reasonably requests in connection with obtaining FDA approval on such clinical trials or both. 6.11.2 MiniMed will also have the right at its own expense to apply for and obtain regulatory approval for commercial distribution of the Long-Term Glucose Sensor and other Licensed Products in foreign countries, and MRG will cooperate in such efforts. 6.11.3 MiniMed will provide MRG information on the protocols and results obtained in MiniMed's trials of MiniMed's glucose sensors; such information will constitute MiniMed's Confidential Information pursuant to this Agreement. 6.11.4 MiniMed's obligations under this Section 6.11 shall terminate at such time as MiniMed's marketing rights with respect to the Long-Term Glucose Sensor are converted to non-exclusive rights pursuant to Section 6.6.2 or are terminated pursuant to Section 6.6.3 without first being converted to non-exclusive rights. 6.12 GOOD MANUFACTURING PROCEDURES. Long-Term Glucose Sensors and other Licensed Products shall be manufactured and tested by MRG in accordance with all applicable U.S. laws and FDA regulations, including but not limited to the FDA's Good Manufacturing Practice and Quality System regulations in effect at the time of such manufacture or testing and MiniMed's quality standards from time to time in effect. MiniMed Page 17 of 34 18 shall have the right, at its expense, to conduct quality audits of MRG and of the Licensed Products, and MRG shall fully cooperate in all such activities. MRG shall notify MiniMed of any FDA inspection of its production facilities used to manufacture any Long-Term Glucose Sensors or other Licensed Products and shall furnish MiniMed with copies of any FDA Form 483 or similar report to the extent that they apply to any or Long Term Glucose Sensors or other Licensed Products. 6.13 RECORDS AND TRACEABILITY. Each of the Parties hereby covenants and agrees that during the Exclusive Marketing Agreement Term and any renewals thereof, and for a minimum period of seven years thereafter, it shall each maintain complete and accurate traceability records for all Long-Term Glucose Sensors and other Licensed Products that are manufactured and sold under this Exclusive Marketing Agreement, including pertinent data, research reports, test results, and know-how data, as required under all applicable FDA regulations and other U.S. or other applicable laws or regulations then in effect. Each of the Parties hereby covenants during the term of this Exclusive Marketing Agreement and any renewals thereof and for a minimum period of three (3) years thereafter or such longer period as may be required by law, to maintain adequate business and sales records regarding the distribution of all Long-Term Glucose Sensors and other Licensed Products, including pertinent data, research reports, test results, and know-how data to meet or exceed all applicable FDA and other U.S. or other applicable laws or regulations then in effect. MRG and MiniMed each shall give each other access to these records in the event of an FDA recall of any product subject to this Exclusive Marketing Agreement, or for other purposes of the Parties in complying with applicable Regulatory requirements. 6.14 COMPLIANCE WITH LAW. MiniMed and MRG shall each comply with all federal, state and local laws (and the laws of any foreign jurisdictions in which the Licensed Products are manufactured or sold) applicable to the manufacture, sale and/or distribution of the Licensed Products to the extent that each of them engages in any such activities. MiniMed shall procure and maintain all necessary permits, consents, and qualifications necessary for it to market and distribute the Licensed Products. 6.15 MiniMed warrants and covenants to MRG that: 6.15.1 MARKETING ACTIVITIES. MiniMed shall (a) maintain adequate warehouses, inventory and other facilities and (b) shall train and equip sufficient staff to promote, sell and distribute the Licensed Products in a commercially reasonable manner. 6.15.2 MARKET INTRODUCTION AND TRADE PRESENTATIONS. MiniMed shall be responsible for and shall bear the cost and expense of all advertising, trade show exhibits, advertising and user training with respect to the marketing of the Licensed Products. 6.15.3 PATENT IDENTIFICATION. MiniMed will, and will cause its Affiliates, its sublicensees and their Affiliates to apply to all Licensed Products proper patent notice in accordance with U.S. and any foreign statutes relating to the marking of patented articles. Page 18 of 34 19 6.15.4 MINIMED'S LIABILITY INSURANCE. Beginning on the date on which the first sale of a Licensed Product is made by MiniMed or an Affiliate or distributor of MiniMed and continuing until the expiration of ten (10) years from the date on which the last sale of a Licensed Product occurs, MiniMed shall maintain product liability insurance (containing a Products Contractual Liability Endorsement covering MiniMed's obligations under Section 6.15.5) on such Licensed Product in amounts that are consistent with the amount of products liability insurance that are maintained by MiniMed on similar products sold by MiniMed for similar or related purposes, but in no event less than Fifteen Million Dollars ($15,000,000). MRG shall be named as an additional insured in each policy of insurance required to be maintained by MiniMed hereunder. In the event the cost of the products liability insurance (including the Products Contractual Liability Endorsement) exceeds a reasonable amount as a result of claims made relating to any failure of the Long-Term Glucose Sensor to perform in accordance with applicable specifications (whether as a result of a defect or otherwise), MRG will pay the incremental cost of the insurance in excess of said reasonable amount (notwithstanding the first sentence of this Section 6.15.4). If MiniMed ceases to be the exclusive distributor of Licensed Products for any reason, the amount and coverage of insurance required to be maintained by MiniMed shall be appropriately reduced to cover and reflect the risk for Licensed Products sold and to be sold by MiniMed. In the event MiniMed cannot obtain the insurance required by this Section 6.15.4 because MiniMed is not the manufacturer of the Licensed Products or for any other reason not involving fault by MiniMed, MRG shall obtain and maintain such insurance for the benefit of MRG and MiniMed at the cost of MRG. 6.15.5 INDEMNITY. MiniMed shall indemnify, defend and hold harmless MRG and its manager, directors, officers, and employees from, and shall pay any and all damages, costs, attorneys' fees or fines in excess of the amounts MRG actually recovers under the insurance policy referred to in Section 6.15.4 or any other policy maintained by MiniMed or MRG resulting from all claims or liability for bodily injury, death and/or property damage arising out of the activities, services, or other involvement of MiniMed with respect to any sale or delivery of products sold or otherwise provided by MRG resulting from or caused by the actual or alleged negligence or willful misconduct of MiniMed and shall bear all costs and expenses of defending such claims (including attorney's fees incurred by MRG as contemplated by Section 6.17). 6.15.6 REGULATORY APPROVALS. MiniMed shall use commercially reasonable efforts to (a) obtain all Regulatory Approvals necessary to market the Licensed Products at the earliest reasonable date inside United States, in the European Union and in such other jurisdictions as MiniMed may reasonably determine, in exercise of its business discretion and, (b) as soon as it is legally permitted to do so, to promote, market, sell and distribute the Licensed Products during the Exclusive Marketing Agreement Term; provided, however, that, notwithstanding anything contained in this Agreement to the contrary, MRG's sole remedy for breach of MiniMed's obligations under (b) above shall be conversion of MiniMed's marketing rights to a non-exclusive basis or termination of said marketing rights as elsewhere provided. MiniMed's obligations under this Section 6.15 shall terminate at such time as MiniMed's marketing rights with respect to the Long-Term Glucose Sensor are converted to non-exclusive rights pursuant to Section 6.6.2. Page 19 of 34 20 6.16 INDEMNITY. MRG shall indemnify, defend and hold harmless MiniMed and its directors, officers and employees from, and shall pay any and all damages, costs and attorneys fees in excess of the amounts MiniMed actually recovers under the liability insurance required by Section 6.15.4 or any other policy maintained by MiniMed or MRG, resulting from all claims and liability for bodily injury, death and/or property damage arising out of any actually or allegedly defective products sold to MiniMed pursuant to this Agreement or any actual or alleged negligence or misconduct of MRG in carrying out the terms of this Agreement and shall bear all costs and expenses of defending such claims (including attorneys' fees incurred by MiniMed or the allocable cost of MiniMed's in-house counsel). This indemnity does not extend to any claim or loss which results from the Long Term Glucose Sensor causing any other component, device or thing (other than an implantable pump system or other Licensed Product sold by MRG) to fail or the Long Term Glucose Sensor failing as a result of use with any such other component, device, thing, or technology; nor does this indemnity extend to failure of any other such component, device, thing, or technology to work caused by a Long Term Glucose Sensor which is not improperly manufactured. As used in this Section 6.16 "defective product" means the product does not conform to applicable specifications or has a defect in materials or workmanship or design or is damaged at the time of delivery to MiniMed at the F.O.B. point. This indemnity does not extend to any claim or loss which results from a Licensed Product causing any other component, device or thing to fail (other than another Licensed Product or any component thereof and other than the implantable pump system or any component thereof for which the Licensed Product was designed) or a Licensed Product failing as a result of use with any such other component, device, thing or technology, nor does this indemnity extend to failure of any such other component, device or thing or technology to work caused by a Licensed Product which is properly manufactured. 6.17 THIRD PARTY CLAIMS. The Party indemnified hereunder (the "Indemnitee") shall promptly notify the indemnifying Party (the "Indemnitor") of the existence of any claim, demand or other matter involving liabilities to a Third Party to which the Indemnitor's indemnification obligations would apply and shall give the Indemnitor a reasonable opportunity to defend the same at its own expense and with counsel of its own selection (who shall be approved by the Indemnitee, which approval shall not be unreasonably withheld); provided, however, that the Indemnitee at all times shall have the right to fully participate in the defense at its own expense. If the Indemnitor shall fail to defend within a reasonable time after such notice, the Indemnitee shall have the right, but not the obligation, to undertake the defense of, and to compromise or settle (exercising reasonable business judgment), the claim or other matter on behalf, for the account and at the risk and expense of the Indemnitor. Except as provided in the preceding sentence, the Indemnitee shall not compromise or settle the claim or other matter without the prior written consent of the Indemnitor in each instance. If the claim is one that cannot by its nature be defended solely by the Indemnitor, the Indemnitee shall make available all information and assistance that the Indemnitor reasonably may request; provided, however, that any associated expenses shall be paid by the Indemnitor. 6.18 INSPECTION OF LONG-TERM GLUCOSE SENSORS. MiniMed shall conduct any incoming inspection tests not later than forty-five (45) days from the date of receipt of the Licensed Products at the shipping address to which MiniMed has requested delivery of such Page 20 of 34 21 Licensed Products. Licensed Products not rejected by MiniMed by written notice to MRG within such period shall be deemed accepted, with the exception of Licensed Products with latent defects that are not readily observable by MiniMed. In the event of any shortage, damage or discrepancy in or to a shipment of Licensed Products or in the event any Licensed Products fail to comply with the then current specifications for the Licensed Products, MiniMed shall report promptly such shortage, damage or discrepancy or failure to MRG and furnish such written evidence or other documentation as MRG reasonably may deem appropriate. If such shortage, damage or discrepancy or non-conformity with specifications existed at the time of delivery of Licensed Products at the F.O.B. point, MiniMed may return the Licensed Products to MRG at MRG's expense, and MRG shall at MRG's option either (a) promptly deliver substitute Licensed Products of the same or another acceptable design to MiniMed in accordance with the delivery procedures set forth herein, or (b) refund to MiniMed the cost of the Licensed Products, including all costs of shipping, handling, insurance, import and export taxes and other similar costs incurred by MiniMed. 6.19 WARRANTY. MRG warrants to MiniMed that Licensed Products sold by MRG to MiniMed under this Agreement shall be in conformance with applicable specifications and shall be free from defects at the time of delivery at the F.O.B. point. 6.20 REMEDIES FOR BREACH OF WARRANTY. In the event that any Licensed Product manufactured or sold by MRG to MiniMed under this Agreement fails to comply with the limited warranty provided for in Section 6.19 and MiniMed delivers notice of such noncompliance to MRG, within six (6) months of the delivery of such Licensed Product to MiniMed or within six (6) months of MiniMed's discovery of any latent defects in a Licensed Product that are not readily observable by MiniMed, MRG will, unless the Licensed Product defect is the result of any act of MiniMed, at MRG's option, either (a) correct such failure by suitable repair or replacement at its own expense or (b) refund to MiniMed the cost of the Licensed Product, including all costs of shipping, handling, insurance, import and export taxes and other similar costs incurred by MiniMed; however, MRG shall have no liability whatsoever for incidental or consequential damages but in no event shall bodily injury, death or property damage caused by a Licensed Product be deemed to be incidental or consequential damages. 6.21 REPRESENTATIONS REGARDING INTELLECTUAL PROPERTY RIGHTS. MRG represents that MRG's Glucose Sensing Technology is not and will not be subject to any encumbrance, lien or claim of ownership of any Third Party except for the rights of the licensors of the Mann Foundation Rights and the UC Rights. To the best of MRG's knowledge but without having conducted a patent infringement search, the manufacture, use or sale of MRG's Glucose Sensing Technology will not infringe any intellectual property rights of any Third Party. MRG has not licensed MRG's Glucose Sensing Technology to any Third Party. The agreements giving rise to the Mann Foundation Rights and the UC Rights are in full force and effect except as previously described by MRG to MiniMed in writing. MRG will indemnify, defend and hold harmless MiniMed and its directors, officers and employees from, and shall pay one half of any and all damages, costs and attorneys' fees (including allocable costs of in house counsel) arising out of or relating to, any claim that any of the Licensed Products infringes any patent, trade secret or other proprietary right of a Third Party except that Page 21 of 34 22 in no event shall MRG be obligated to pay more than $15,000,000 in the aggregate for all such indemnification, including any payments by MRG under Section 6.9.3. 6.21.1 MINIMED'S INTELLECTUAL PROPERTY RIGHTS. If the present design of any part of a Licensed Product infringes any current or future MiniMed patent, trade secret or other proprietary rights, MiniMed hereby grants to MRG a non-exclusive, fully paid, royalty free license to use those patent rights in the manufacture, sale and use of Licensed Products except for such rights as are licensed to MiniMed by a Third Party. If the present design of any MiniMed product now being commercially distributed or in development, including without limitation MiniMed's short-term glucose sensor, infringes any MRG current or future patents, trade secret or other proprietary right, MRG hereby grants to MiniMed a non-exclusive, fully paid, royalty-fee license to use those rights in the manufacture, sale and use of such products except for such rights as are licensed to MRG by a Third Party. 6.22 LIMITATIONS ON WARRANTIES AND REMEDIES 6.22.1 LIMITATIONS ON WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH IN SECTION 6.19 or 6.21, MRG MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE LICENSED PRODUCTS, INCLUDING, BUT NOT LIMITED TO, (a) THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, OR (b) ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE VALIDITY OR SCOPE OF ANY PATENT RIGHTS, OR (c) ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE OWNERSHIP OF ANY TECHNOLOGY OR THE LICENSED PRODUCTS OR THE INFRINGEMENT BY THE SAME OF THE PATENT, COPYRIGHT OR OTHER PROPRIETARY RIGHT OF ANY THIRD PARTY, OR (d) ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE ABSENCE OF ANY DEFECT IN THE LICENSED PRODUCTS. 6.22.2 LIMITATIONS ON REMEDIES. EXCEPT AS SET FORTH IN SECTION 6.16 and 6.21, IN NO EVENT SHALL MRG BE LIABLE TO MINIMED FOR ANY DAMAGES FOR LOST PROFITS, LOST SAVINGS OR OTHER CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH MRG'S MANUFACTURE OF THE LICENSED PRODUCTS, EVEN IF MRG HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. DAMAGES FOR PHYSICAL INJURY, DEATH OR PERSONAL INJURY SHALL NOT CONSTITUTE CONSEQUENTIAL DAMAGES. THE PROVISIONS OF THIS 6.22.2 SHALL NOT APPLY TO DAMAGES FOR THE INACCURACY OF ANY REPRESENTATION OR WARRANTY SET FORTH IN SECTIONS 13.1.1 THROUGH 13.1.3. 6.22.3 REMEDY FOR BREACHES COVERED BY SECTION 6.22.2. Notwithstanding Section 6.22.2, if (a) MRG breaches any obligation under this Agreement for which lost profits, lost savings or consequential damages would have been available but for Section 6.22.2, (b) such breach is material, (c) MRG did not use commercially reasonable efforts to perform that obligation and (d) MRG failed to actually and fully perform the obligation in default within 30 days after MiniMed delivered written notice of the breach to Page 22 of 34 23 MRG, then MiniMed will have the right to undertake to manufacture the Licensed Products or contract with others to do so after asserting such right in a written notice delivered to MRG. Either party will have the right to commence an arbitration in accordance with Section 18 to determine whether MiniMed has that right under this Section 6.22.3. The decision of the arbitrator or arbitrators will be final and binding on the parties. Pending the arbitration, MiniMed will not be entitled to undertake manufacturing or contract with others to do so and MRG will continue to have all of its obligations under this Agreement. If neither party commences an arbitration within 30 days after MiniMed's written notice referred to above is delivered, MiniMed will be deemed to have the right to undertake to manufacture the Licensed Products or contract with others to do so. If MiniMed undertakes to manufacture Licensed Products pursuant to this Section 6.22.3, MiniMed shall have no further obligation to purchase Licensed Products from MRG and the provisions of Section 6.4.3 shall apply. 6.23 TERMINATION. MiniMed may terminate the Exclusive Marketing Agreement or Section 6.3 with respect to exclusivity at its sole discretion by giving MRG written notice of its intention to terminate, specifying the date of termination. The Exclusive Marketing Agreement shall be subject to termination by MRG only as provided in Sections 6.6.2, 6.6.3 or 8. 6.24 TRADEMARKS. All trademarks and tradenames developed during the terms of this Agreement shall remain the sole property of the developing Party. MiniMed will have the right to use its own trademarks and tradenames in connection with the advertising, promotion, distribution and sale of the Licensed Products. MRG will incorporate such trademarks and tradenames into the Licensed Products and the packaging therefor as reasonably requested by MiniMed. During the term of this Agreement MiniMed may, in its sole and absolute discretion, use the trademarks and tradenames of MRG applicable to the Licensed Products, but only in connection with the advertising, promotion and sale of the Licensed Products that it purchases from MRG and provided that it properly uses such trademarks and tradenames. Such use of MRG's trademarks and tradenames will not give rise to any rights of MiniMed therein. The design and printing of the packaging will be determined by MiniMed, and MiniMed will have the responsibility to be sure that all legal requirements with respect thereto are satisfied. The right to use the MiniMed trademarks and tradenames by MRG will be only with the written consent of MiniMed and for Licensed Products. Upon termination of the exclusivity of MiniMed Distribution Rights, the limited right of MRG to use MiniMed's trademarks and tradenames shall be limited to use in connection with Licensed Products sold to MiniMed. 6.25 IMPROVEMENTS TO INTELLECTUAL PROPERTY. 6.25.1 IMPROVEMENTS BY MRG. Any Improvements to the Technology, Technical Information or Confidential Information developed by MRG related to the Licensed Products during the term of this Agreement are, as between MRG and MiniMed, owned by MRG. 6.25.2. IMPROVEMENTS BY MINIMED. Any Improvements to the Technology, Technical Information or Confidential Information developed by MiniMed Page 23 of 34 24 relating to Licensed Products shall be owned by MiniMed; however, MRG will have the right to make, use and sell the Improvements and sublicense others to do so, subject to the payment by MRG to MiniMed of a reasonable royalty to be agreed upon by the parties or, if the parties cannot agree within a reasonable time, by arbitration pursuant to Section 18. 6.25.3 JOINT IMPROVEMENTS. Any patented Improvement jointly owned by the Parties shall not be licensed to any Third Party without the written consent of both parties. 6.25.4 TERM OF LICENSES; PATENTS. Any licenses granted under Sections 6.25.1 through 6.25.3 shall survive until the last to expire of the patents on the Improvements, if any, which are the subject of the license, which may be a date after the termination of this Agreement. If there are no such patents or when the last of any such patents expires, any such license will continue for as long as is legally permissible. MiniMed agrees to assist MRG in filing any patent applications and obtaining any patents (including execution of assignments and other documents and instruments necessary and proper) to carry out the provisions of these sections. 7. INDEPENDENT CONTRACTORS 7.1 The relationship between MiniMed and MRG under this Agreement is solely that of independent contractors. 7.2 Neither Party shall have the right to bind the other or to incur obligations on the other's behalf without the other's prior written consent in each instance. 8. TERMINATION 8.1 TERMINATION FOR CAUSE. Either Party will have the right to terminate this Agreement upon the occurrence of any of the events specified in Sections 8.1.1 through 8.1.3. Any such termination may only be made by delivering notice of intention to terminate to the other Party specifying the effective date of the termination which shall be not less than thirty (30) days after delivery of the notice. Said thirty (30) days shall be in addition to any of the cure periods specified in Sections 8.2.1: 8.1.1 MATERIAL DEFAULT. The other Party (herein, a "defaulting party") has failed to perform any material term, condition or obligation to be performed by it under Section 5 or 6 of this Agreement and such failure remains uncured after written notice of default, specifying the nature thereof in reasonable detail, has been given to the defaulting party unless, in the case of a default that does not involve the payment of money, prior to the expiration of the applicable cure period, the defaulting party has commenced and thereafter pursues and completes with due diligence those actions necessary to cure such default within the applicable cure period. The applicable cure period for the failure to pay money shall be thirty (30) days and the applicable cure period for any other default shall be sixty (60) days, but said 60-day period shall be subject to extension for a reasonable period of time if the default is of such nature that it cannot reasonably be cured with due diligence with sixty (60) days. A default in the payment of money shall not be deemed material unless the amount thereof Page 24 of 34 25 exceeds $100,000. In the event of a default under any provision of this Agreement other than Sections 5 and 6, the Agreement may not be terminated as a remedy therefor, but the non-defaulting Party will have all other rights and remedies under applicable law, including without limitation the recovery of damages. 8.1.2 EARLY TERMINATION OF IMPLANTABLE PUMP LICENSE AND DISTRIBUTION AGREEMENT. Prior to MiniMed's exercise of the Option pursuant to Section 6.1 of this Agreement, MRG shall be entitled to terminate this Agreement if the Implantable Pump License and Distribution Agreement is not or is no longer effective or ceases to be legally binding or enforceable as to MiniMed, except as a result of termination by MiniMed in accordance with the Implantable Pump License and Distribution Agreement. 8.1.3 BANKRUPTCY OR INSOLVENCY. The other Party (an "insolvent party") becomes bankrupt or insolvent or a receiver is appointed for the business and/or assets of such other Party or an assignment is made by such other Party for the benefit of its creditors, in each case whether by the voluntary act or otherwise and, in the case of any such proceeding that is involuntary, if such proceeding is not terminated within sixty (60) days thereafter. 8.2 RIGHTS AND DUTIES UPON TERMINATION. The termination of this Agreement for any reason shall be without prejudice to the right of either Party to receive any payments accrued under any provision of this Agreement prior to the effective date of termination. 8.2.1 SURVIVAL OF CERTAIN OBLIGATIONS. The termination of this Agreement for cause shall be without prejudice to (a) the rights of either Party under Sections 3, 6.13, 6.15.5, 6.16, 6.17, 6.19, 6.20, 6.21, 6.21.1, 6.24, 6.25, 8.2, 11, 17, 18, and 23 or (b) any remedies which such Party may then or thereafter acquire. 8.3 SEPARATE AGREEMENTS. The Implantable Pump License and Distribution Agreement, the Agreement Re Implantable Pump Business between the Parties dated the same date as this Agreement and the Secured Promissory Note and Security Agreement referred to in Section 2.4, the Line of Credit Note referred to in Section 4.2 and the Lease referred to in Section 5 of the Agreement Re Implantable Pump Business shall be considered completely separate from this Agreement and not a part hereof. No default under such other documents shall affect the rights and obligations of the Parties under this Agreement, and no default under this Agreement shall affect the rights and obligations of the Parties under those other documents, except as provided in Section 8.1.2. 9. FORCE MAJEURE 9.1 Any Party's delay or failure in performing its obligation under this Agreement shall be excused to the extent caused by forces beyond that Party's reasonable control, including, without limitation, the following: war, floods, earthquakes, other acts of God, industrial disputes, civil disobedience, strikes, fire, mobilization, changes in governmental regulation or interpretation, requisition, embargo, restriction and shortage of transport facilities, fuel, energy or supplies. The unavailability of funds to any Party to perform any obligation under this Agreement shall not excuse performance under this Agreement regardless of the reason therefor. 9.2 Each Party claiming the benefit of such an excuse agrees to notify the other promptly in writing of any such delay or failure in performance, and to resume performance as soon as is reasonably practicable. Page 25 of 34 26 10. NOTICES Any notice, request, demand or other communication required or permitted hereunder shall be in writing and shall be deemed to have been given (a) if personally delivered, when so delivered, (b) if mailed, seventy-two (72) hours after having been placed in the United States mail, registered or certified, postage prepaid, addressed to the Party to whom it is directed at the address set forth below or (c) if given by telex or telecopier, when such notice or other communication is transmitted to the telex or telecopier number specified below and the appropriate answer back or telephonic confirmation is received: If to MiniMed: MiniMed Inc. 12744 San Fernando Road Sylmar, California 91342 Attention: General Counsel Telephone No.: (818) 362-5958 Telecopier No: (818) 367-1460 With a copy to: Gibson, Dunn & Crutcher LLP 333 South Grand Avenue Los Angeles, California 91423 Attention: Roy J. Schmidt Telephone No.: (213) 229-7000 Telecopier No: (213) 229-7520 If to Medical Research Group, LLC: Medical Research Group, LLC 12744 San Fernando Road Sylmar, California 91342 Attention: President Telephone No.: (818) 362-8084 Telecopier No: (818) 364-2647 With a copy to: Lyon & Lyon LLP 633 W. Fifth Street, Suite 4700 Los Angeles, California 90071-2066 Attention: Roy L. Anderson, Esq. Telephone No.: (213) 955-0304 Telecopier No: (213) 955-0440 Page 26 of 34 27 11. ASSIGNMENT Neither Party shall be entitled to assign its rights or to delegate its duties under this Agreement, whether by law or otherwise, without the express written consent of the other Party except that either Party may assign this Agreement to (a) a wholly owned subsidiary of said Party, or (b) a Third Party who acquires either Party by merger or acquisition of 80% or more of the outstanding capital stock of said Party (although no change in the ownership of equity interests of said Party shall be deemed to constitute an assignment of this Agreement), or (c) a Third Party who acquires all or substantially all of the assets of either Party, so long as the assignee agrees to assume all of the obligations of said Party under this Agreement. In the event of such an assignment the Party making the assignment shall remain fully liable for the performance of its obligations hereunder. 12. SEVERABILITY The provisions of this Agreement are severable, and if any one or more provisions may be determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions, and any partially unenforceable provisions to the extent enforceable, shall nevertheless be binding and enforceable. 13. REPRESENTATIONS AND WARRANTIES 13.1 REPRESENTATIONS AND WARRANTIES OF MRG. MRG hereby represents and warrants to MiniMed that the statements set forth in Sections 13.1.1 through 13.1.3 hereof are true and correct. 13.1.1 ORGANIZATION AND STANDING. MRG is duly organized, validly existing and in good standing under the laws of the state of its organization, with full power and authority to own its property and carry on its business as now conducted. 13.1.2 AUTHORITY AND ENFORCEABILITY. MRG has the right, power and authority required for the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby; all authorizations and approvals have been secured by MRG which are necessary to authorize the execution, delivery and performance of this Agreement; and this Agreement upon being duly executed constitutes a legal, valid and binding agreement of MRG and is enforceable against it in accordance with its terms, excepting only to the extent that such enforceability may be limited by bankruptcy law or other laws of general application relating to creditor's rights and subject to the availability of equitable remedies. 13.1.3 COMPLIANCE WITH THE LAW AND OTHER INSTRUMENTS. The execution and delivery of this Agreement, and the consummation of the transactions contemplated hereby, will not result in the breach of any term or provision of, or constitute a default under, the Articles of Organization or Operating Agreement of MRG amended to the date hereof, or any statute, order, judgment, writ, injunction, decree, license, permit, rule or regulation of any governmental or regulatory body, or any mortgage, deed of trust or other agreement or instrument to which MRG is a party or by which it is bound. The execution, delivery and performance of this Agreement by MRG will not subject MiniMed to any lien, Page 27 of 34 28 charge or encumbrance nor any tax or penalty (other than normal income, property and sales and use taxes) arising as a result of MRG's financial condition, status, previously incurred obligations, ownership or relationship with other parties. 13.2 REPRESENTATIONS AND WARRANTIES OF MINIMED. MiniMed hereby represents and warrants to MRG that the statements set forth in Sections 13.2.1 through 13.2.3 hereof are true and correct. 13.2.1 ORGANIZATION AND STANDING. MiniMed is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation, with full corporate power and authority (corporate and other) to own its property and carry on its business as now conducted. 13.2.2 AUTHORITY AND ENFORCEABILITY. MiniMed has the right, power and authority required for the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby; all authorizations and approvals (corporate and other) have been secured by MiniMed which are necessary to authorize the execution, delivery and performance of this Agreement; and upon being duly executed this Agreement constitutes a legal, valid and binding agreement of MiniMed and is enforceable against it in accordance with its terms, excepting only to the extent that such enforceability may be limited by bankruptcy law or other laws of general application relating to creditor's rights and subject to the availability of equitable remedies. 13.2.3 COMPLIANCE WITH THE LAW AND OTHER INSTRUMENTS. The execution and delivery of this Agreement, and the consummation of the transactions contemplated hereby, will not result in the breach of any term or provision of, or constitute a default under, the Certificate of Incorporation or Bylaws of MiniMed, as amended to the date hereof, or any statute, order, judgment, writ, injunction, decree, license, permit, rule or regulation of any governmental or regulatory body, or any indenture, mortgage, deed of trust or other agreement or instrument to which MiniMed is a party or by which it is bound. 14. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS All representations, warranties and agreements made by MiniMed or MRG in this Agreement shall survive the date hereof and any investigations, inspections, examinations or audits made by or on behalf of any Party hereto. 15. ENTIRETY This Agreement constitutes the entire agreement between the Parties hereto pertaining to the subject matter hereof, and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, relating to the subject matter of this Agreement, except the Mutual Nondisclosure Agreement between the Parties with an effective date of January 2, 1996, the Implantable Pump License and Distribution Agreement and the Agreement Re Implantable Pump Business between the Parties dated the same day as this Agreement. Page 28 of 34 29 16. AMENDMENT; WAIVER This Agreement may be amended, modified, superseded or canceled, and any of the terms and conditions hereof may be modified, only by a written instrument executed by the Parties or, in the case of a waiver, by the Party waiving compliance. No supplement, modification, waiver or termination of this Agreement shall be valid unless it has been reduced to writing and executed by the Party to be bound thereby. The failure of a Party at any time or from time to time to require performance of any provision hereof shall in no manner affect the right of such Party at a later time to enforce the same, and no waiver of any nature, whether by conduct or otherwise, in any one or more instances, shall be deemed to be or considered as a further or continuing waiver of any other provision of this Agreement. Subject to the restrictions on modification in this Section 16, to the extent that any provision of this Agreement purports to grant rights or create obligations that are inconsistent with either: (1) MRG's Mann Foundation Rights or UC Rights, or (2) MiniMed's Johns Hopkins' Rights or Wilson Greatbatch Rights (collectively, the "Rights"), the Parties shall meet and confer to bring such provision in conformity with such Rights. 17. USE OF NAME Except as provided in Section 6.24, neither MiniMed nor MRG shall use the name of the other Party or of any staff member or employee of the other Party or any adaptation thereof in any advertising, promotion or sales literature in a manner which would constitute an express or implied endorsement by the other Party or of any staff member or employee thereof for any commercial product without the prior written consent of the other Party in each instance. 18. SETTLEMENT OF DISPUTES 18.1 DISPUTES AND ARBITRATION. Unless the relief sought requires the granting of equitable relief pursuant to Section 18.1.1, below, any dispute or controversy (whether based upon the law of torts or of contracts) arising in connection with this Agreement, including (a) disputes relating to the formation of this Agreement or the performance, interpretation, enforcement, application or validity of its provisions, and (b) issues that may be based upon or arise out of disputes that MRG or MiniMed has with Third Parties, shall upon the demand of either Party be resolved by arbitration held at Los Angeles, California, in accordance with the arbitration procedures established by the Rules of Commercial Arbitration of the American Arbitration Association, except as otherwise provided herein. 18.1.1 If in connection with any such dispute or controversy either Party seeks the issuance of a temporary restraining order or the granting of preliminary injunctive relief, the court shall have the right and power to grant the requested relief on a temporary basis pending the resolution of factual issues by arbitration in accordance with Section 18.1.2, and to thereafter enforce any award made in such arbitration proceedings. 18.1.2 The following principles and conditions will apply in all arbitration proceedings conducted pursuant to this Agreement: Page 29 of 34 30 A. During the thirty (30) days following the date that the written notice is given by either Party demanding the submission of the dispute to arbitration, MRG and MiniMed will endeavor to select three independent arbitrators having no substantial economic or other material relationship with either MRG or MiniMed. If the issue in dispute involves matters of patents, licensing or technology, the arbitration panel shall include at least two persons who are knowledgeable in such matters. If the Parties cannot mutually agree on the three arbitrators within such thirty (30)-day period, then each Party will, within seven (7) days after the expiration of such thirty (30)-day period, select one independent arbitrator and those two arbitrators shall select the third independent arbitrator. B. Discovery of evidence shall be conducted expeditiously by the Parties and in accordance with the general principles embodied in the California Civil Discovery Act. To the extent that it is necessary, either Party may apply to a court of competent jurisdiction for assistance in obtaining discovery of evidence for presentation to the arbitrators. C. Except as provided in Section 6.5.1, the arbitrators shall issue findings of fact and conclusions of law. D. The arbitration will be conducted as a case would be represented to a trial court without a jury. The arbitrators in their discretion may hear any type of evidence, including hearsay evidence. The arbitrators shall decide the dispute in accordance with applicable law and render a written decision, setting forth their findings of fact and the principles upon which they relied in making their award. The decision of the arbitrators shall be final and binding on the Parties. 18.1.3 In the case of an arbitration to determine the adjustment on prices referred to in Section 6.5.1, the arbitrators shall permit each of the Parties to submit written and oral information and argument, shall decide the matter in accordance with the standard set forth in Section 6.5.1 and shall issue a written opinion explaining in reasonable detail the basis for their decision on the adjustment in prices. The decision of the arbitrators shall be final and binding on the Parties. 18.2 COSTS OF ENFORCEMENT. Should any action or proceeding be necessary to construe or enforce this Agreement or any arbitration award made pursuant to Section 18.1, above, then the Party prevailing in any such action or proceeding shall be entitled to recover all court costs and reasonable attorneys' fees, to be fixed by the court and taxed as part of any judgment entered therein, and the costs and fees incurred in enforcing or collecting any such judgment. 19. GOVERNING LAW The validity, construction and interpretation of this Agreement shall be governed in all respects by the laws of the State of California applicable to contracts made and to be performed wholly within that State. Page 30 of 34 31 20. HEADINGS Section and subSection headings are not to be considered part of this Agreement and are included solely for convenience and reference and in no way define, limit or describe the scope of this Agreement or the intent of any provisions hereof. 21. THIRD PARTIES Nothing in this Agreement, expressed or implied, is intended to confer upon any Person other than MiniMed or MRG any rights or remedies under or by reason of this Agreement. 22. COUNTERPARTS This Agreement may be executed simultaneously in two or more counterparts, each one of which shall be deemed an original, but all of which shall constitute one and the same instrument. 23. JURISDICTION 23.1 Each Party hereto irrevocably submits to the exclusive jurisdiction of any court of the State of California or the United States of America sitting in the City of Los Angeles over any suit, action or proceeding arising out of or relating to this Agreement. Any arbitration proceedings according to Section 18.1 shall be conducted in the City of Los Angeles. To the fullest extent it may effectively do so under applicable law, each Party irrevocably waives and agrees not to assert, by way of motion, as a defense or otherwise, any objection that it may now or hereafter have to the establishment of the venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. 23.2 Each Party hereto agrees, to the fullest extent it may effectively do so under applicable law, that a judgment in any suit, action or proceeding of the nature referred to hereinabove brought in any such court shall be conclusive and binding upon such Person and its successors and assigns and may be enforced in the courts of the United States of America or the State of California (or any other courts to the jurisdiction of which such Person is or may be subject) by a suit upon such judgment. 23.4 Nothing in this Section 23 shall be construed to limit the force or effect of Section 18. Page 31 of 34 32 IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed as of the date and year first set forth above. MINIMED INC., a Delaware MEDICAL RESEARCH GROUP, LLC, a California corporation limited liability company By AEM MiniMed Corp., its Managing Member By: /s/ TERRANCE H. GREGG By: /s/ ALFRED E. MANN ------------------------------- ---------------------------------- Terrance H. Gregg Alfred E. Mann President and Chief President Operating Officer By: /s/ ERIC S. KENTOR By: /s/ RONALD LEBEL ------------------------------- ---------------------------------- Eric S. Kentor Ronald Lebel Senior Vice President and President, MRG, LLC General Counsel Page 32 of 34 33 EXAMPLE OF APPLICATION OF SECTIONS 6.6 AND 6.6.1 1. Assume the first Regulatory Approval referred to in Section 6.6 outside of the United States is obtained in the EU on November 20, 2003. This means that the First Year in the table in Section 6.6 for the OUS begins December 1, 2003 and ends November 30, 2004. 2. Assume that the first Regulatory Approval referred to in Section 6.6 in the United States occurs on March 7, 2005. This means that the First Year in the table in Section 6.6 for the US begins April 1, 2005 and ends March 31, 2006. 3. Assume the first Regulatory Approval in Japan is obtained on July 1, 2007. Assume that no Regulatory Approvals are obtained in any other jurisdiction and no Regulatory Approvals are suspended or revoked. 4. Since the period from November 20, 2003 to December 31, 2003 is less than a full year, there shall be no Minimum Purchase Requirement for the OUS for calendar year 2003. Likewise there will be no Minimum Purchase Requirement for the US for calendar years 2003 through 2005. 5. The Average Annual Percentage for the OUS for calendar year 2004 will be equal to the sum of (i) 3.33% (the average monthly percentage for the period from December 2003 through November 2004) multiplied by 11 plus (ii) 4.167% (the average monthly percentage for December 2004, or 40.83%. The Minimum Purchase Requirement for the OUS for calendar year 2004 will equal 40.83% of the total number of pump systems sold to customers located in the EU during that calendar year. Only pump systems sold to customers in the EU (with and without Long-Term Glucose Sensors) are included in the calculation. 6. The Average Annual Percentage for calendar year 2005 for the OUS will be 50.83% calculated as provided in 5 above. The Minimum Purchase Requirement for the OUS for calendar year 2005 will equal 50.83% of the total number of pump systems sold in the EU during that calendar year. 7. The Average Annual Percentage for the OUS for the calendar year 2006 will be 60.83% calculated as provided in 5 above. The Minimum Purchase Requirement for the OUS for calendar year 2006 will equal 60.83% of the number of total number of pump systems sold in the EU during that calendar year. The Average Annual Percentage for the US for calendar year 2006 will be 47.50% calculated as provided in 5 above. The Minimum Purchase Requirement for the US for calendar 2006 will equal 47.5% of the total number of pump systems sold in the US during that calendar year. Page 33 of 34 34 8. The Average Annual Percentage for the OUS for calendar year 2007 will be 70.83%. The Minimum Purchase Requirement for the OUS for calendar year 2007 will equal 70.83% of the total number of pump systems sold in the EU during the full calendar year plus the number of pump systems sold in Japan for the period from July 1, 2007 to December 31, 2007. The Average Annual Percentage for the US for calendar year 2007 will be 57.5%, and the Minimum Purchase Requirement for that calendar year will equal 57.5% of the total number of pump systems sold in the US during that calendar year. Page 34 of 34 EX-10.4 6 EXHIBIT 10.4 1 EXHIBIT 10.4 GUARANTY THIS GUARANTY, dated as of 1st day of September, 1998 (as amended from time to time, the "Guaranty"), is entered into by ALFRED E. MANN, an individual ("Guarantor"), in favor of MINIMED INC., a Delaware corporation ("Beneficiary"). R E C I T A L S A. Beneficiary intends to enter into a Master Agreement (the "Master Agreement") with Medical Research Group, LLC , a California limited liability company (the "Obligor") providing for Beneficiary and Obligor to execute an Agreement Re Implantable Pump Business, an Implantable Pump License and Distribution Agreement and a Glucose Sensor Option Agreement, all relating to the transfer of Beneficiary's business activities relating to implantable pump systems to Obligor (the "Implantable Pump Documents"). B. Guarantor is the owner of a substantial equity interest in Obligor and is entering into this Guaranty at the request of the Obligor as an inducement to Beneficiary to enter into the Master Agreement and the Implantable Pump Documents. A G R E E M E N T 1. Guaranty. Guarantor unconditionally guaranties the performance in full of all of the following (the "Obligations"): 1.1 the obligations of Obligor pursuant to the representations and warranties set forth in the last sentence of Section 16.1.3 of the Implantable Pump License and Distribution Agreement and Section 13.3 of the Glucose Sensor Option Agreement, as well as the obligations of Obligor to compensate Beneficiary for any loss, cost, liability, obligation or expense (including reasonable attorney's fees) arising out of or relating to the inaccuracy of those representations and warranties, and 1.2 the payment of all amounts and the performance of all obligations of Obligor under and in connection with the Lease of facilities to be entered into by Obligor with Beneficiary pursuant to Section 5 of the Agreement Re Implantable Pump Business concurrently with the execution and delivery of that Agreement (the "Lease"), and 1.3 the payment of all losses, costs, liabilities, obligations and expenses (including court costs and reasonable attorneys' fees) arising out of or relating to the failure of the Obligor to perform any such obligations in 1.1 and 1.2, including interest that would have accrued on any amount referred to in 1.1, 1.2 or this 1.3. but for the commencement of a case under Title 11 of the United States Code or any successor statute (the "Bankruptcy Code") or any other law governing insolvency, bankruptcy, reorganization, liquidation or similar proceeding. Beneficiary hereby accepts this Guaranty, and this Guaranty shall constitute notice to Guarantor of such acceptance. 2 All payments under this Guaranty shall be made free and clear of any and all deductions, withholdings and setoffs. All references to the Obligor in this Guarantee shall include (a) Medical Research Group, LLC, whether acting on behalf of itself or any estate created by the commencement of a case under Title 11 of the United Sates Code or any successor statute (the "Bankruptcy Code") or any other insolvency, bankruptcy, reorganization or liquidation proceeding and (b) any trustee under the Bankruptcy Code, liquidator, sequestrator or receivor of Medical Research Group, LLC or any other Obligor referred to in this sentence of any or their respective properties and (c) any similar person appointed pursuant to any law generally governing insolvency, bankruptcy, reorganization, liquidation or like proceeding and (d) any other person or entity who becomes obligated to perform any of the Obligations for any reason, including without limitation, assignment or assumption of the Obligations or any merger or other reorganization or dissolution of Medical Research Group, LLC. 2. Nature of Guaranty. This is an unconditional guaranty of the Obligations, including any and all Obligations which are modified, renewed, comprised or restructured from time to time. This Guaranty may not be revoked and shall not otherwise terminate unless and until all of the Obligations have been indefeasibly paid and performed in full. The parties acknowledge and agree that the liability of Guarantor hereunder is independent of and not in consideration of or contingent upon the liability of the Obligor or any other guarantor and a separate action or actions may be brought and prosecuted against any guarantor, whether or not any action is brought or prosecuted against the Obligor or any guarantor or whether the Obligor or any other guarantor is joined in any such action or actions. To the extent that performance of this Guaranty or the Obligations requires the payment of money, this Guaranty shall be construed as a guaranty of payment (and not merely of collection). By this Guaranty the Guarantor guaranties the performance and payment of the Obligations without regard to: 2.1 the legality, validity or enforceability of the Master Agreement, the Implantable Pump Documents or the Lease or any other document entered into in connection therewith, any of the Obligations or the obligations of Guarantor under this Guaranty; 2.2 any defense (other than performance), set-off or counterclaim that may at any time be available to the Obligor or Guarantor against the Beneficiary; or 2.3 any other circumstance whatsoever (with or without notice to or knowledge of Guarantor or the Obligor), whether or not similar to any of the foregoing, that constitutes, or might be construed to constitute, an equitable or legal discharge of the Obligor or Guarantor, in bankruptcy or in any other instance. Any payment by the Obligor or any other guarantor or other circumstance that operates to toll any statute of limitations applicable to such party shall also operate to toll the statute of limitations applicable to the Guarantor. When making any demand hereunder (including by commencement or continuance of any legal proceeding), the Beneficiary may, but shall be under no obligation to, make a similar demand on the Obligor and all or any of any other guarantors, and any failure by the Beneficiary to make any such demand shall not relieve Guarantor of his obligations hereunder. Beneficiary may bring and prosecute a separate action against Guarantor to enforce its liabilities under this Guaranty, whether or not any action is brought against the 2 3 Obligor or any other person and whether or not the Obligor or any other person is joined in any such action or actions. Nothing shall prohibit Beneficiary from exercising its rights against Guarantor, the Obligor, the security, if any, for the Obligations, and any other persons simultaneously, jointly and/or severally. Guarantor shall be bound by each and every ruling, order and judgment obtained by Beneficiary against the Obligor in respect of the Obligations, whether or not Guarantor is a party to the action or proceeding in which such ruling or judgment is issued or rendered. 3. Authorization. Guarantor authorizes Beneficiary, without notice to or further assent by Guarantor, and without affecting Guarantor's liability hereunder (regardless of whether any subrogation, reimbursement, indemnification or other similar right that Guarantor may have or any other right or remedy of Guarantor is extinguished or impaired as a result), from time to time to: 3.1 permit the Obligor to increase or create Obligations, or terminate, release, compromise, subordinate, extend, accelerate or otherwise change the Obligations or any part thereof, or otherwise amend the terms and conditions of the Master Agreement, the Implantable Pump Documents or the Lease or any related document or any provision thereof; 3.2 declare a default in respect of any of the Obligations and exercise in such manner and order as it elects in its sole discretion, fail to exercise, waive, suspend, terminate or suffer expiration of, any of the remedies or rights of the Beneficiary against the Obligor or Guarantor in respect of any Obligations; 3.3 foreclose or enforce or realize upon (pursuant to judicial foreclosure, power of sale or any other means) any security for any of the Obligations even though (a) recourse may not thereafter be had against the Obligor for any deficiency or (b) Beneficiary fails to pursue any such recourse which might otherwise be available or by way of deficiency judgment following judicial foreclosure or otherwise; 3.4 release or settle with the Obligor and/or Guarantor in respect of this Guaranty or the Obligations; 3.5 accept partial payments on the Obligations and apply any and all payments or recoveries from the Obligor to such of the Obligations as the Beneficiary may elect in its sole discretion, whether or not such Obligations are secured or guaranteed; 3.6 refund at any time, at Beneficiary's sole discretion, any payments or recoveries received by Beneficiary in respect of any Obligations; and 3.7 otherwise deal with the Obligor or any other Guarantor as Beneficiary may elect in its sole discretion. 4. Certain Waivers. Guarantor waives: 4.1 the right arising under California Civil Code Sections 2845 and 2849 or otherwise to require the Beneficiary to proceed against the Obligor or any other guarantor, to proceed against or exhaust security for the Obligations, or to pursue any other remedy in the Beneficiary's power whatsoever and the right to have 3 4 property of the Obligor or any other guarantor first applied to the discharge of the Obligations or applied in any particular order; 4.2 all rights and benefits under Section 2809 of the California Civil Code and any other provision of applicable law purporting to reduce a guarantor's obligations in proportion to the obligation of the principal or providing that the obligation of a surety or guarantor must neither be larger nor in other respects more burdensome than that of the principal; 4.3 the benefit of any statute of limitations affecting the Obligations or Guarantor's liability hereunder and of Section 359.5 of the California Code of Civil Procedure; 4.4 any requirement of marshaling or any other principle of election of remedies and all rights and defenses arising out of an election of remedies by Beneficiary. 4.5 any right to assert against Beneficiary any defense (legal or equitable), set-off, counterclaim and other right that Guarantor may now or any time hereafter have against the Obligor or any other Obligor; 4.6 presentment, demand for payment or performance (including diligence in making demands hereunder), notice of dishonor or nonperformance, protest, acceptance and notice of acceptance of this Guaranty, and all other notices of any kind, including (i) notice of the existence, creation or incurrence of new or additional Obligations, (ii) notice of any action taken or omitted by Beneficiary in reliance hereon, (iii) notice of any default by the Obligor in the performance or payment of any of the Obligations (including without limitation under the circumstances contemplated by California Civil Code Section 2808 when such notice might otherwise be required), notice of any default by Guarantor in the performance or payment of obligations under this Guarantee and notice of any other default by the Obligor or Guarantor whatsoever, (iv) notice that any portion of the Obligations is due, (iv) notice of any action against the Obligor or any other Obligor, or any enforcement or other action with respect to any Collateral, or the assertion of any right of Beneficiary hereunder; 4.7 all defenses that at any time may be available to Guarantor by virtue of any valuation, stay, moratorium or other law now or hereafter in effect; 4.8 any rights, defenses and other benefits Guarantor may have under Section 2810 of the California Civil Code or any other provision of applicable law purporting to limit or eliminate the liability of Guarantor if the Obligor is not liable (as a result of physical disability or otherwise) at the time of the execution of the Master Agreement, the Implantable Pump Documents, the Lease or this Guaranty and/or the incurrence of any other Obligations, or the liability of the Obligor thereafter ceases for any reason other than performance and payment in full of the Obligations. 4.9 any rights, defenses and other benefits Guarantor may have under Section 2839 of the California Civil Code or any other provision of applicable law purporting to exonerate Guarantor for anything other than performance or payment in full of all of the Obligations. 4 5 4.10 without limiting the generality of the foregoing or any other provision hereof, all rights and benefits under California Civil Code Sections 2810, 2819, 2839, 2845, 2848, 2849, 2850 or 3433. Without limiting the generality of any other provision of this Guaranty, Guarantor waives all rights and defenses arising out of an election of remedies even though that election of remedies, such as nonjudicial foreclosure with respect to security for the Obligations or any of them, has destroyed Guarantor's rights of subrogation and reimbursement against the Obligor by operation of Section 580d of the Code of Civil Procedure or otherwise. 5. Subrogation; Certain Agreements. 5.1 GUARANTOR WAIVES ANY AND ALL RIGHTS OF SUBROGATION, INDEMNITY, CONTRIBUTION OR REIMBURSEMENT, AND ANY AND ALL BENEFITS OF AND RIGHTS TO ENFORCE ANY POWER, RIGHT OR REMEDY THAT BENEFICIARY MAY NOW OR HEREAFTER HAVE IN RESPECT OF THE OBLIGATIONS AGAINST THE OBLIGOR AND ANY AND ALL OTHER RIGHTS AND CLAIMS (AS DEFINED IN THE BANKRUPTCY CODE) GUARANTOR MAY HAVE AGAINST THE OBLIGOR, UNDER APPLICABLE LAW OR OTHERWISE, AT LAW OR IN EQUITY, BY REASON OF ANY PERFORMANCE OR ANY PAYMENT HEREUNDER, UNLESS AND UNTIL THE OBLIGATIONS SHALL HAVE BEEN PERFORMED OR PAID IN FULL. Without limitation, Guarantor shall exercise no voting rights, shall file no claim, and shall not participate or appear in any bankruptcy or insolvency case involving the Obligor with respect to the Obligations unless and until all the Obligations shall have been performed or paid in full. If, notwithstanding the foregoing, any amount shall be paid to Guarantor on account of any such rights at any time, such amount shall be held in trust for the benefit of the Beneficiary and shall forthwith be paid to the Beneficiary to be applied to the Obligations, whether matured, unmatured, absolute or contingent. 5.2 Guarantor assumes the responsibility for being and keeping himself informed of the financial condition of the Obligor and any other guarantor and of all other circumstances bearing upon the risk of nonpayment of the Obligations that diligent inquiry would reveal, and agrees that Beneficiary shall have no duty to advise Guarantor of information regarding such condition or any such circumstances. 6. Bankruptcy No Discharge. 6.1 Without limiting Section 2, this Guaranty shall not be discharged or otherwise affected by any bankruptcy, reorganization or similar proceeding commenced by or against the Obligor or any other guarantor, including (i) any discharge of, or bar or stay against enforcing, all or any part of the Obligations in or as a result of any such proceeding, whether or not assented to by Beneficiary, (ii) any disallowance of all or any portion of Beneficiary's claim for repayment of the Obligations, (iii) any use of cash or other collateral in any such proceeding, (iv) any agreement or stipulation as to adequate protection in any such proceeding, (v) any failure by Beneficiary to file or enforce a claim against the Obligor or any other guarantor or his estate in any bankruptcy or reorganization case, (vi) any amendment, modification, stay or cure of the Beneficiary's rights that may occur in any such proceeding, (vii) any election by Beneficiary under Section 1111(b)(2) of the 5 6 Bankruptcy Code, or (viii) any borrowing or grant of a lien under Section 364 of the Bankruptcy Code. Guarantor understands and acknowledges that by virtue of this Guaranty, it has specifically assumed any and all risks of any such proceeding with respect to the Obligor and any other guarantor. 6.2 Notwithstanding anything to the contrary herein contained, this Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any performance or payment, or any part thereof, of any or all of the Obligations is rescinded, invalidated, declared to be fraudulent or preferential or otherwise required to be restored or returned by Beneficiary in connection with any bankruptcy, reorganization or similar proceeding involving the Obligor, Guarantor or otherwise, if the proceeds of any collateral are required to be returned by Beneficiary under any such circumstances, or if Beneficiary elects to return any such payment or proceeds or any part thereof in its sole discretion, all as though such payment had not been made or such proceeds not been received. Without limiting the generality of the foregoing, if prior to any such rescission, invalidation, declaration, restoration or return, this Guaranty shall have been canceled or surrendered, this Guaranty shall be reinstated in full force and effect, and such prior cancellation or surrender shall not diminish, discharge or otherwise affect the obligations of Guarantor in respect of the amount of the affected payment or application of proceeds (or such lien or collateral). 7. Subordination. 7.1 Guarantor hereby absolutely subordinates, both in right of payment and in time of payment, any and all present or future obligations and liabilities of the Obligor to Guarantor ("Subordinated Debt") to the prior performance and payment in full of the Obligations, whether or not such Subordinated Debt constitutes or arises out of any subrogation, reimbursement, contribution, indemnity or similar right attributable to this Guaranty. If, whether or not at Beneficiary's request, Guarantor shall receive, prior to performance or payment in full of all Obligations, payment of any sum from the Obligor upon any Subordinated Debt, any such sum shall be received by Guarantor as trustee for Beneficiary and shall forthwith be paid over to Beneficiary on account of the Obligations, without reducing or affecting in any manner the liability of Guarantor under this Guaranty. 7.2 Guarantor shall file in any bankruptcy or reorganization or similar proceeding in which the filing of claims is required by any provision of applicable law, all claims that Guarantor may have against the Obligor relating to any Subordinated Debt. If Guarantor does not file any such claim, Beneficiary (or its nominee) as attorney-in-fact for Guarantor is hereby authorized to do so in the name of Guarantor. Guarantor agrees that, in connection with any such proceeding, he shall not contest or oppose the treatment of claims of the Beneficiary in any plan of reorganization or otherwise and he shall vote any claims that exist by virtue of this Guaranty or the Subordinated Debt in connection with any plans of reorganization or otherwise, as may be requested by the Beneficiary. 7.3 Guarantor hereby grants Beneficiary a power of attorney for the purposes set forth in this Section 7. Such power of attorney is coupled with an interest and cannot be revoked. 6 7 8. Representations and Warranties. Guarantor makes the following representations and warranties, all of which shall survive until termination of this Guaranty pursuant to Section 2. 8.1 Binding Effect, No Conflict, Etc. This Guaranty has been duly executed and delivered by Guarantor and is the legal, valid and binding obligation of Guarantor, enforceable against him in accordance with its terms, except as enforcement may be limited by equitable principles and by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to creditors' rights generally. The execution, delivery and performance by Guarantor of this Guaranty and the consummation of the transactions contemplated hereby, do not and will not conflict with, result in a breach of or constitute (or, with the giving of notice or lapse of time, or both, would constitute) a default under, or require the approval or consent of any person or entity (including any governmental entity) pursuant to, any contractual obligation of the Guarantor or violate any provision of applicable law binding on the Guarantor. No approval, consent, permit or other authorization is required by any governmental agency or court in connection with the execution, delivery and performance by the Guarantor of this Guaranty or the consummation of transactions contemplated hereby or to ensure the legality, validity or enforceability hereof or thereof. 8.2 Financial Benefit. Guarantor hereby acknowledges and warrants that he has derived or expects to derive a financial advantage from the execution and delivery of the Master Agreement, the Implantable Pump Documents and the Lease and that the execution and delivery of this Guaranty is intended to, and does, constitute an inducement to Beneficiary to enter into the those Documents. 8.3 Review of Documents; Understanding with Respect to Waivers. Guarantor hereby acknowledges that he has copies of and is fully familiar with the Master Agreement, the Implantable Pump Documents and the Lease and each other document entered into by Obligor in connection therewith. Guarantor warrants and agrees that each waiver set forth in this Guaranty is made with Guarantor's full knowledge of its significance and consequences and after opportunity to consult with counsel of its own choosing and that, under the circumstances, each such waiver is reasonable and should not be found contrary to public policy or law. 9. Expenses. Guarantor shall pay to the Beneficiary any and all costs and expenses (including reasonable attorneys' fees and expenses), that Beneficiary may incur in connection with the exercise or enforcement of any of the rights, powers or remedies of Beneficiary under this Guaranty or applicable law. All such amounts and all other amounts payable hereunder shall be payable on demand, together with interest at a rate equal to the lesser of (i) the Citibank N.A. prime rate from time to time in effect plus 1% (based on a year of 365 or 366 days, as the case may be), or (ii) the maximum rate allowed by applicable law, from and including the due date to and excluding the date of payment. 10. Amendments and Other Modifications. No amendment of any provision of this Guaranty (including a waiver thereof or consent relating thereto) shall be effective unless the same shall be in writing and signed by Beneficiary. Any waiver or consent relating to any provision of this Guaranty shall be effective only in the specific instance and for the specific purpose for which given. No notice to or demand on Guarantor in any case shall entitle Guarantor to any other or further notice or demand in similar or other circumstances. 7 8 11. Cumulative Remedies; Failure or Delay. The rights and remedies provided for under this Guaranty are cumulative and are not exclusive of any rights and remedies that may be available to Beneficiary under applicable law or otherwise. No failure or delay on the part of Beneficiary in the exercise of any power, right or remedy under this Guaranty shall impair such power, right or remedy or shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or remedy preclude other or further exercise of such or any other power, right or remedy. 12. Notices, Etc. All notices and other communications under this Guaranty shall be in writing and shall be personally delivered or sent by prepaid courier, by overnight, registered or certified mail (postage prepaid), or by telecopy or telegram, and shall be deemed given when received by the intended recipient thereof. Unless otherwise specified in a notice given in accordance with the foregoing provisions of this Section, all notices and other communications shall be given to the parties hereto at their respective addresses (or to their respective or telecopier numbers) indicated on Schedule 13. 13. Successors and Assigns. This Guaranty and each amendment hereof shall be binding upon and, subject to the next sentence, inure to the benefit of Guarantor, Beneficiary and their respective successors and assigns and the executor, administrator or other personal representative of Guarantor and his heirs and other successors as a result of his death. The benefit of this Guaranty shall automatically pass with any assignment by Beneficiary of the Obligations (or any portion thereof), to the extent of such assignment. In connection with any assignment Beneficiary may disclose to any person or entity all documents and information that Beneficiary has relating to Guarantor and this Guaranty, whether furnished by Obligor, Guarantor or otherwise. Guarantor further agrees that Beneficiary may disclose such documents and information to the Obligor and any other guarantors of the Obligations. 14. Execution in Counterparts. This Guaranty may be executed in any number of counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Guaranty. 15. Complete Agreement. This Guaranty, together with the schedule hereto, is intended by the parties as the final expression of their agreement regarding the subject matter hereof and as a complete and exclusive statement of the terms and conditions of such agreement, superseding all prior discussions, negotiations, understandings and agreements. IN WITNESS WHEREOF, the parties hereto have duly executed this Guaranty as of the date set forth above. By: /s/ ALFRED E. MANN ------------------------------- Alfred E. Mann 8 EX-27.1 7 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS JAN-01-1999 JAN-03-1998 OCT-02-1998 14,336 3,808 34,506 5,693 15,055 72,433 36,413 7,875 110,351 13,074 0 0 0 137 94,858 110,351 92,979 94,193 36,511 80,920 0 (557) 42 13,231 4,961 8,270 0 0 0 8,270 0.62 0.59
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