Exclusive Distributor Agreement

EXCLUSIVE DISTRIBUTOR AGREEMENT


This EXCLUSIVE DISTRIBUTOR AGREEMENT, including the attached Exhibits (the "Agreement"), is made and entered into as of April 15, 1997 (the "Effective Date"), by and between ArthroCare Corporation, a Delaware corporation with offices at 595 North Pastoria Avenue, Sunnyvale, California 94086 ("ArthroCare"), and Arthrex GMBH, a corporation organized under the laws of Germany with offices at Liebigstrasse No. 13, 85757 Karsfeld, Munich, Germany ("Arthrex").


A. ArthroCare is engaged in the business of manufacturing, distributing, and selling Products (as defined below) and desires to engage an exclusive distributor in the Territory (as defined below);


B. Arthrex desires to solicit orders for Products from customers in the Territory, and desires to be ArthroCare's sole and exclusive distributor in the Territory for Products solely for use within the Field (as defined below); and


C. Arthrex desires to purchase, and ArthroCare desires to sell to Arthrex, such Products for the purpose of resale to customers in the Territory; and


NOW, THEREFORE, in consideration of the mutual promises contained herein, the parties agree as follows:


1. DEFINITIONS


1.1 "Electro-Surgical Products" means devices that use electricity to ablate and/or provide hemostasis or sealing of blood vessels.


1.2 "Field" means arthroscopic applications.


1.3 "House Accounts" means those accounts in the Territory on attached Exhibit A.


1.4 "Products" means those products listed in Exhibit B, as amended from time to time, and products marketed by ArthroCare during the Term (as defined in Section 9.1 below) for use in the Field.


1.5 "Territory" means the geographic area set forth in Exhibit C hereto, including any Territory and province under the direct governmental control of the government(s) of such geographic area.


2 2. GRANT OF DISTRIBUTION RIGHTS


2.1 Appointment. Subject to the terms and conditions of this Agreement, ArthroCare hereby grants to Arthrex the exclusive right to market, sell and distribute Products in the Territory solely for use in the Field. Arthrex agrees not to market, promote or distribute any Product for use outside the Field. Arthrex may sell, market, promote and distribute Product in other European countries outside the Territory where ArthroCare does not have another distributor. Notwithstanding anything herein to the contrary, Arthrex shall market, promote, sell, and otherwise distribute Products in accordance with all applicable law and regulations. Arthrex's sole authority shall be to purchase Products from ArthroCare and to promote, market and resell such Products for delivery to customers in accordance with the terms of this Agreement. ArthroCare reserves all rights not expressly granted herein.


2.2 No Rights Beyond Products. Nothing in this Agreement shall be deemed to grant to Arthrex rights in products or technology other than the Products; nor shall any provision of this Agreement be deemed to restrict ArthroCare's right to exploit Products, or patents or any other intellectual property rights, outside the Field, outside the Territory or in products other than Products.


2.3 Sale Conveys No Right to Manufacture, Copy or Reprocess and Reuse. The Products are offered for sale and are sold by ArthroCare subject in every case to the condition that such sale does not convey any license, expressly or by implication, to manufacture (notwithstanding anything herein to the contrary), duplicate or otherwise copy or reproduce any of the Products. Arthrex agrees that it shall not, and shall not authorize any third party to, reprocess or reuse any Products.


2.4 Conflict of Interest. Arthrex agrees that any efforts by Arthrex to sell competing Electro-Surgical Products in the Territory would constitute a conflict of interest with respect to Arthrex's obligations to market ArthroCare's Electro-Surgical Products, and Arthrex warrants to ArthroCare that it does not currently represent or promote any lines or products that compete with ArthroCare's Electro-Surgical Products. During the term of this Agreement, in the event that Arthrex represents, promotes or otherwise tries to sell within the Territory any Electro-Surgical products that, in ArthroCare's judgment, compete with either ArthroCare's Electro-Surgical Products covered by this Agreement, or other ArthroCare products in the Field, ArthroCare shall have the right to terminate this Agreement upon [*] prior written notice to Arthrex pursuant to Section 9.2 below.


2.5 Changes to Territory. ArthroCare reserves the right to appoint other authorized distributors or resellers outside the Territory without restriction as to number and location. ArthroCare grants to Arthrex the first chance to represent ArthoCare in European countries outside of the Territory. ArthroCare shall promptly notify Arthrex of each negotiation with a potential distributor in such countries, and Arthrex shall have [*] from the date it receives notice of such negotiations to excercise its first chance with respect to each such notification. If Arthrex elects to exercise its first chance, then such country will be included within the Territory as defined in Section 1.5 above. After the expiration of such [*] period, or any mutually agreed extension thereof, if Arthrex has not exercised its first chance, ArthroCare shall be free to enter into a distribution


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agreement with the potential distributor and shall have no further obligations to Arthrex with respect to such country.


2.6 Exclusivity. ArthroCare agrees that it will [*] in the Field in the Territory.


3. PRICE AND PAYMENT


3.1 Prices. The difference between Arthrex's transfer price and Arthrex's price to its customers shall be Arthrex's sole remuneration for the sale of the Products. The transfer price paid by Arthrex for each Product shall be as set forth in Exhibit D.


3.2 Payment Terms. Arthrex shall make payments to ArthroCare under this Agreement by wire transfer in United States dollars in immediately available funds to a bank account designated by ArthroCare. Except as provided in Section 4.2 below, payment for Products supplied hereunder shall be made net [*] after the date of shipment. Any payments due hereunder which are not paid on the date such payments are due shall bear interest at the lesser of one and one-half percent (1-1/2%) per month or the maximum rate permitted by California law, calculated on the number of days such payment is delinquent. In the event that Arthrex's payments due hereunder are delinquent for an additional [*], Arthrex shall provide ArthroCare with a letter of credit for all Product purchases thereafter. This Section 3.2 shall in no way limit any other remedies available to ArthroCare.


3.3 Taxes. Any and all amounts payable hereunder do not include any government taxes (including without limitation, withholding, sales, use, excise, and value added taxes) or duties imposed by any governmental agency that are applicable to the export, import, or purchase of the Products (other than taxes on the net income of ArthroCare), and Arthrex shall bear all such taxes and duties. When ArthroCare has the legal obligation to collect and/or pay such taxes, the appropriate amount shall be added to Arthrex's invoice and paid by Arthrex, unless Arthrex provides ArthroCare with a valid tax exemption certificate authorized by the appropriate taxing authority.


4. TERMS OF PURCHASE AND SALE


4.1 Terms and Conditions. All Product purchases hereunder shall be subject to the terms and conditions of this Agreement. Nothing contained in any purchase order submitted pursuant to this Agreement shall in any way modify or add any terms or conditions to said purchases, unless otherwise agreed in writing by the parties.


4.2 Initial Stocking Order. An initial stocking order placed by Arthrex on the Effective Date is attached hereto as Exhibit E. Such initial stocking order will be Arthrex's minimum performance requirements for the period from the Effective Date until one (1) year from the Effective Date. The delivery date for such initial stocking order will be as mutually agreed upon by the parties. Payments for such initial stocking order will be as follows: [*] of the transfer price for such order will be due and payable by Arthrex to ArthroCare upon the date of shipment, and the balance will be due


-3- 4 and payable by Arthrex to ArthroCare within [*] of the Shipment Date, with [*] of such balance due at the end of each [*] period starting on the [*] of such [*] period.


4.3 Forecasts. On or before the [*] day of each month, Arthrex shall provide to ArthroCare a good faith, monthly rolling written forecast of the number of units of each Product, on a Product-by-Product basis, that Arthrex expects to purchase over the following [*] ("Forecasts"). Athrex shall submit purchase orders for products in accordance with the number of units of Products forecasted in the first calendar month of the Forecast. The parties acknowledge that the last [*] included in each Forecast are for ArthroCare's planning purposes only and shall not be binding upon the parties.


4.4 Order and Acceptance. All orders shall be by means of signed written purchase orders by an agent designated by Arthrex to a ArthroCare employee designated by ArthroCare, sent to ArthroCare at ArthroCare's address for notice hereunder and requesting a delivery date that is consistent with the Forecasts. Orders shall be placed by a signed written purchase order which may be provided to ArthroCare by fax. ArthroCare shall use reasonable efforts to fulfill purchase orders submitted in accordance with ArthroCare's standard lead times, it being understood that no purchase order shall be binding upon ArthroCare until accepted by ArthroCare by fax or in writing.


4.5 Invoicing. ArthroCare shall submit an invoice to Arthrex upon shipment of each Product ordered by Arthrex. Each such invoice shall state Arthrex's aggregate and unit purchase price for Products in a given shipment, plus any freight, taxes or other costs incident to the purchase or shipment initially paid by ArthroCare but to be borne by Arthrex hereunder.


4.6 Shipping. All Products delivered pursuant to the terms of this Agreement shall be suitably packed for surface or air shipment, in Arthrex's discretion, in ArthroCare's standard shipping cartons, and delivered to Arthrex or its carrier agent F.O.B. the shipping location designated by ArthroCare, at which time risk of loss shall pass to Arthrex. ArthroCare shall ship Products using the carrier specified in Arthrex's purchase order provided that if Arthrex does not provide instructions with respect to the carrier to be used, ArthroCare shall select the carrier. All freight, insurance, and other shipping expenses, as well as any special packing expenses, shall be paid by Arthrex. Arthrex shall also bear all applicable taxes, duties and similar charges that may be assessed against the Products after delivery to the carrier F.O.B. the shipping location. All shipments and freight charges shall be deemed correct unless ArthroCare receives from Arthrex, no later than [*] after the shipping date of a given shipment, a written notice specifying the shipment, the purchase order number, and the exact nature of the discrepancy between the order and shipment or discrepancy in the freight cost, as applicable.


4.7 Product Returns. During the first calendar year following the Effective Date, Arthrex may exchange unopened and undamaged controllers in saleable condition with a return material authorization number which is used for tracking purposes only. Thereafter, except as set forth in Article 6 below, Arthrex may return unopened and undamaged controllers in saleable condition only with ArthroCare's returned material authorization and, when it's used for tracking purposes only and only within [*] of receipt by Arthrex. Controllers returned to ArthroCare other than under Article 6


-4- 5 shall be returned F.O.B. the destination point designated by ArthroCare and controllers returned more than [*] after receipt by Arthrex of such controllers shall be subject to a restocking fee in an amount equal to [*] of the transfer price paid by Arthrex to ArthroCare for such controllers.


5. ACCEPTANCE


Arthrex shall inspect all Products promptly upon receipt thereof and may reject any Product that fails to conform to the warranties set forth in Article 6 below at the time of delivery to Arthrex, provided that Arthrex complies with the provisions of Section 6.2 below. Except as set forth in Section 4.7, Article 5 and Article 6 below, Arthrex shall return Products to ArthroCare only with ArthroCare's prior written approval.


6. WARRANTY


6.1 Product Warranty. ArthroCare warrants to Arthrex that at the time of delivery to Arthrex the Products purchased by Arthrex shall (i) meet the specifications for the Products as the same may be amended from time to time, and (ii) be free from defects in materials or workmanship, all applicable laws in the place of manufacture. This warranty is contingent upon proper use of Products in the application for which they were intended as indicated in the Product label claims, and ArthroCare makes no warranty (express, implied, or statutory) for Products that are modified (except as expressly contemplated herein), or subjected to accident, misuse, neglect, unauthorized repair, or improper testing or storage.


6.2 Exclusive Remedy. In the event that any Product purchased by Arthrex from ArthroCare fails to conform to the warranty set forth in Section 6.1 above or is recalled pursuant to Section 7.9.2, ArthroCare's sole and exclusive liability and Arthrex's remedy shall be, at ArthroCare's sole election, to repair or replace the Product, or component thereof or credit Arthrex's account for the amount actually paid for any such Product, or component thereof, provided that (i) Arthrex promptly notifies ArthroCare in writing that such Product failed to conform and furnishes an explanation of any reported nonconformity and requests a return material authorization number; (ii) such Product is returned to ArthroCare by Arthrex F.O.B. the address designated by ArthroCare during the warranty period with the return material authorization number affixed prominently to the outside packaging; and (iii) the reported nonconformities actually exist and were not caused by accident, misuse, neglect, alteration, repair or improper testing or storage. If such Product fails to so conform, ArthroCare will reimburse Arthrex for shipment charges for return of the nonconforming Product.


6.3 Exclusion of Other Warranties. EXCEPT FOR THE LIMITED WARRANTIES PROVIDED IN SECTION 6.1 ABOVE, ARTHROCARE GRANTS NO OTHER WARRANTIES OR CONDITIONS, EXPRESS OR IMPLIED, BY STATUTE, IN ANY COMMUNICATION WITH ARTHREX OR ITS CUSTOMERS, OR OTHERWISE, REGARDING THE PRODUCTS OR VALIDITY OF ARTHROCARE TECHNOLOGY, AND ARTHROCARE SPECIFICALLY


-5- 6 DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND NONINFRINGEMENT OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS. ARTHROCARE NEITHER ASSUMES NOR AUTHORIZES ANY OTHER PERSON TO ASSUME ANY OTHER LIABILITIES ARISING OUT OF OR IN CONNECTION WITH THE SALE OR USE OF ANY ARTHROCARE PRODUCT.


7. Additional Obligations of Arthrex


7.1 Import-Export Approval. Arthrex shall be responsible, at their expense, for obtaining all approval and permits necessary for export and import of products. Arthrocare shall own all regulatory filings and shall have the right to obtain copies directly from Arthrex of, and to reference, for any purpose, any and all regulatory filings made by Arthrex with respect to Products. Arthrex shall be ArthroCare's registered agent in Europe for CE Mark requirements. In addition, Arthrex is responsible for all electrical approvals (UL, IEC, Etc.) including the CE Mark.


7.2 Minimum Performance Requirements. Arthrex shall use best efforts to (i) maximize Product sales for use in the Field in the Territory using at least the same efforts as Arthrex uses to maximize sales of its own products and (ii) ensure that ArthroCare gains appropriate market access in the Territory. During each calendar year Arthrex shall meet the minimum performance requirements set forth in Exhibit F (collectively, "Minimum Performance Requirements"). If Arthrex does not meet the mutually agreed upon Minimum Performance Requirements during [*] of the Term, (as defined in Section 9.1, below) ArthroCare shall have the right to terminate Arthrex's rights under this Agreement pursuant to Section 9.2 below. In the event that the parties are unable to agree upon the Minimum Performance Requirements for [*], either party may terminate this Agreement pursuant to Section 9.2 below. It is understood and agreed that notwithstanding any other provision of this Agreement, ArthroCare shall be under no obligation to continue the production of any Product.


7.3 Inventory. Arthrex shall maintain a quantity of each Product at all times during the Term of this Agreement as reasonably necessary in order to meet the demand of Arthrex's customers and potential customers.


7.4 Translation. Arthrex shall at its cost provide any and all resources necessary to translate all required manuals, instructions, literature, and package insert data sheets for use in the Territory, and shall provide ArthroCare and the applicable regulatory authorities sufficient quantities of such materials to meet governmental and/or regulatory, and market support requirements.


7.5 Reports. Arthrex shall provide ArthroCare, within [*] after the end of each calendar quarter, a general report of Product sales trends and analysis and marketing plans in the Territory during the previous calendar quarter.


7.6 Product Packaging and Labeling. Arthrex may repackage Products to meet applicable European and country regulations required for distribution of Products. In addition, Arthrex is responsible for sterilization under ISO 9001, CE Mark Standards and CGMP of the wands shipped to


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