Manufacturing Agreement, Dated 06/01/2005

Exhibit 10.4


Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [*]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

ATRICURE-STELLARTECH MANUFACTURING AGREEMENT

THIS MANUFACTURING AGREEMENT (this " Agreement" ) is entered as of the first day of June 1, 2005 (the " Effective Date" ) by and between AtriCure, Inc., a Delaware corporation, with a place of business at West Chester, Ohio and Stellartech Research Corporation, a California corporation, with its principal place of business at 1346 Bordeaux Dr., Sunnyvale, California 94089 (" Stellartech" ).


RECITALS

A. AtriCure, Inc. is a developer and manufacturer of medical products and devices; in particular, electrosurgical devices used in general and thoracic surgery.

B. Stellartech is a contract developer and manufacturer of medical products, systems, and catheters and surgical tools; in particular, electronic hardware and software systems for interfacing with medical catheters, and catheters and surgical tools.

C. This Agreement describes the terms and conditions under which Stellartech shall manufacture such electronic hardware and software systems, and catheters and surgical tools, for AtriCure, Inc.


NOW, THEREFORE, in consideration of the mutual promises provided herein, the parties agree to the following.

1. DEFINITIONS. In addition to the other capitalized terms used throughout this Agreement, the following terms shall have these meanings ascribed to them:


1.1. " Acceptance Criteria" shall have the meaning set forth in Section 6.2.


1.2. " Confidential Information" shall mean any and all information, data, know-how, whether written, oral or computer readable, technical or non-technical, including without limitation, financial information, software, models, designs, devices, methods, and drawings or diagrams; provided that such information is labeled " Confidential" or " Proprietary" or words of similar import, or if provided orally, such information is disclosed as confidential at the time of disclosure.


1.3. " FDA" shall mean the U.S. Food and Drug Administration.


1.4. " Product" shall mean electronic hardware and software systems, as developed by Stellartech for AtriCure, Inc. under the Development Agreement dated September 15, 2001, including any derivative improvements or modifications that Stellartech may make thereto under this Agreement, and as manufactured by Stellartech in accordance with the Specifications hereunder.


1.5. " Intellectual Property" shall mean patents, copyrights, trade secrets, trade marks, trade names, applications or registrations for any of the foregoing and any other form of intellectual property as may be recognized in any jurisdiction in the world.


1.6. " Manufacturing License" shall mean the exclusive, nontransferable (except as provided in Section 13.8 below), worldwide, royalty-free license to use the Stellartech Technology (as defined in the Development Agreement) solely in connection with the use, sale and distribution of products manufactured by AtriCure, Inc., or manufactured for AtriCure, Inc. by Stellartech, as provided for in Section 3.1 below, for use in the field of Cardiac Arrhythmia Treatment. AtriCure, Inc. shall not otherwise be entitled to use, license or commercially exploit the Stellartech Technology without Stellartech' s prior written consent, which may be withheld at Stellartech' s sole discretion.


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1.7. " Parts" shall mean any component incorporated in or on, or constructed to work in conjunction with, a Product.


1.8. " Regulatory Body" shall mean the governing or controlling entity which regulates and/or approves the manufacture, sale, or use of Products in a given country, including for example the FDA in the United States.

1.9. " Second Source" shall mean AtriCure, Inc. or any third party other than Stellartech who manufactures and/or supplies Products to or for AtriCure, Inc.


1.10. " Specifications" shall mean the Product specifications developed by the parties under the Development Agreement and/or as may be modified by mutual agreement of the parties.

1.11. " Quality Systems Audit" shall mean a formal audit, performed by AtriCure, Inc.' s Supplier Quality Management department, of Stellartech' s quality systems for determining compliance with FDA and ISO regulations, and compliance with the requirements of an approved supplier. 2. PRODUCT DEVELOPMENT.

2.1. Development Conditions. The rights and obligations related to Stellartech' s manufacture and supply of Products under this Agreement are contingent upon the expiration or termination of the Development Agreement, subject to certain rights to terminate this Agreement under Section 11 below.

2.2. New Developments by Stellartech. During the term of this Agreement, Stellartech shall:


(a) Awareness of New Developments. Keep AtriCure, Inc. apprised of new developments in Stellartech products or technologies which Stellartech believes have potential application to the Products or Parts and which are not confidential to or subject to exclusive rights of any third party or parties, wherein Stellartech' s disclosures of such new developments shall be subject to the confidentiality provisions of Section 8; and


(b) Availability of New Developments to AtriCure, Inc, Make available such new developments for incorporation into the Products, subject to written agreement between AtriCure, Inc. and Stellartech as to such incorporation into the Products, and to commercially appropriate adjustments, if any, in the purchase price for the Products to AtriCure, Inc. as the parties may agree in writing.

3. MANUFACTURE AND SUPPLY OF PRODUCTS BY STELLARTECH.

3.1. Manufacture and Supply of Products by Stellartech. Subject to the terms and conditions hereof, Stellartech shall manufacture and supply Products to AtriCure, Inc. AtriCure, Inc. shall satisfy the following apportioned share of its requirements from Stellartech: (i) all of the first four hundred (400) Products required by AtriCure, Inc. subsequent to the manufacture of all Products under the Development Agreement; and (ii) no less than 75% of AtriCure, Inc.' s additional requirements for Products after completion of the first four hundred (400) Products, since January 2004, for the period of time up to and including twenty four (24) months after delivery of the 400 units (" Stellartech 75% Period" ). AtriCure, Inc. may manufacture or have manufactured, by Stellartech or otherwise, any and all Products beyond those allocated exclusively for Stellartech to manufacture under this Section, in any manner, and at AtriCure, Inc.' s sole discretion. Notwithstanding AtriCure, Inc.' s requirements allocation to Stellartech as provided for herein, nothing in this Section 3.1 shall be construed as requiring AtriCure, Inc. to have any Products manufactured or supplied, by Stellartech or otherwise. AtriCure, Inc. may buy out Stellartech' s right to manufacture Products at any time during the Stellartech 75% Period, after taking delivery of the first four hundred (400) Products, by paying Stellartech either [*]% of the gross margin Stellartech would have received if it had manufactured the Products during the Stellartech 75% Period, or $[*]. [*] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


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3.2. Repair and Replacement. (See Section 9.3 for Product Warranty) During the term hereof, and as may be reasonably required from time to time by AtriCure, Inc., its customers, agents, or transferee of AtriCure, Inc.' s rights hereunder, Stellartech shall perform any and all reasonable repairs to, or where necessary shall replace, any returned Products (including without limitation relevant Parts) that had been previously manufactured by Stellartech for or on behalf of AtriCure, Inc. Unless a returned Product falls under the product warranty provisions provided under Section 9, such repair and replacement by Stellartech shall be at AtriCure, Inc.' s expense according to rates for labor and materials not to exceed the rates charged by Stellartech for the labor and materials in the manufacture of such Products, per Exhibit A. The minimum charge for such repair and replacement shall be $[*]. At AtriCure, Inc.' s request, Stellartech shall furnish vendor and part number information for commercially available Parts. Responsibility for receiving and processing any complaints from AtriCure, Inc. customers or other end-users regarding the performance or use of any returned Products shall be as provided in Section 3.4 below. Stellartech will make a diligent effort to determine the root cause of failures found in units returned for repair and will provide a root cause report.


3.3. Manufacturing Standards. All Products ordered by AtriCure, Inc. hereunder from Stellartech shall be manufactured by Stellartech or by such regulatory-qualified subcontractor(s) as may be appointed by Stellartech. Such manufacture shall be conducted according to mutually agreed-upon standards and under applicable Regulatory Body standards, guidelines, or requirements, including without limitation applicable regulations of the FDA and of all other applicable U.S. agencies governing manufacturing of the Products for such sale within or export from the United States, in addition to any applicable CE regulations.

3.4. Regulatory Approval/Compliance. Stellartech shall diligently assist AtriCure, Inc. in obtaining and maintaining, to the extent required by law as to Products and Parts manufactured or sold under this Agreement, all regulatory approvals and/or market clearances as may be required by any Regulatory Body for the manufacture, sale, and use of Products and relevant Parts, including without limitation obtaining and maintaining compliance with related FDA and CE mark approvals. AtriCure, Inc. shall pay Stellartech for such regulatory assistance in accordance with standard " time and materials" rates as provided in EXHIBIT A. Stellartech shall maintain its facilities and operation for manufacturing Products and related Parts in full compliance with applicable regulatory standards (minimum US FDA QSR and ISO 13485 or 13488) as required by any such Regulatory Body. AtriCure, Inc. shall be responsible for receiving and processing any complaints from AtriCure, Inc. customers or other end-users regarding the performance or use of any Products. The parties shall as promptly as possible inform each other in writing with respect to, and shall furnish the other with a copy of, all such approvals, clearances, or other regulatory compliance information related to the manufacture and sale of Products and Parts. AtriCure, Inc. shall, to the extent lawfully permitted, supply promptly to Stellartech all AtriCure, Inc. information in AtriCure, Inc.' s possession, within a reasonable time after such information is requested by Stellartech in writing, as is necessary to enable Stellartech to perform its obligations hereunder including with respect to regulatory compliance.


3.5. AtriCure, Inc. Inspection/Audit of Stellartech Facilities/Operation; Right to Cure. AtriCure, Inc. shall have the right, but not the duty, to inspect any and all Stellartech facilities and/or operations manufacturing Products or related Parts, upon reasonable written notice provided to Stellartech. To the extent relevant to this Agreement, Stellartech shall make available any and all of its facilities, operations, and documents or other relevant information, in addition to at least one designated employee, contractor, or agent of Stellartech in order to assist AtriCure, Inc. in any such inspection. In the event that AtriCure, Inc. determines that Stellartech' s facilities or manufacturing operations do not comply with the terms of this Agreement, including but not limited to failing to comply with any applicable regulatory standard of a Regulatory Body, then AtriCure, Inc. shall promptly notify Stellartech as to the nature of such finding, including without limitation any specific defects discovered, and Stellartech shall have: fifteen (15) days to respond to such notice to AtriCure, Inc.; and thirty (30) days to cure any actual defect(s) and to provide a writing to AtriCure, Inc. identifying the steps taken to cure the defect(s) and attesting to Stellartech' s substantial compliance with this Agreement.

[*] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


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3.6. Product Marking/Trademark License. Products and Parts manufactured by Stellartech for AtriCure, Inc. under this Agreement shall be marked according to marking specifications provided by AtriCure, Inc. to Stellartech, which marking specifications shall be established at AtriCure, Inc.' s sole discretion; provided, however, that AtriCure, Inc. shall not unreasonably deny any Stellartech request to provide with or on any Product any mark identifying Stellartech or otherwise, such as for example, but not limited, to providing adequate warnings on or with Products, as is necessary to prevent Stellartech from incurring any liability arising from the manufacture, sale, or use of Products. AtriCure, Inc. grants to Stellartech a nonexclusive, royalty-free, non-transferable worldwide license during the term of this Agreement, revocable for the failure of Stellartech to perform its obligations under this Agreement, to use AtriCure, Inc.' s trademarks, which are to be described and provided by AtriCure, Inc. to Stellartech during the course of performing under this Agreement, which trademarks are to be used in accordance with usage guidelines as AtriCure, Inc. may provide from time to time and to the extent necessary for Stellartech to perform it' s obligations hereunder. Stellartech may apply AtriCure, Inc.' s trademarks only to Products and Parts, instruction manuals for Products and Parts, cartons for Products and Parts and other relevant documents and packaging provided by Stellartech to AtriCure, Inc., or to any third party designated by AtriCure, Inc. in its sole discretion, under the terms hereof or as may be otherwise authorized in writing by AtriCure, Inc. from time to time. AtriCure, Inc. may, at AtriCure, Inc.' s election, market the Products and/or Parts, as incorporated in AtriCure, Inc. products, or on a stand-alone basis, under AtriCure, Inc.' s own name and trademarks.

3.7. AtriCure, Inc.' s Manufacturing Rights. In addition to other rights hereunder this Agreement and the Development Agreement, and subject to AtriCure, Inc. first satisfying the requirements of Section 3.1 of this Agreement, Stellartech acknowledges and agrees that AtriCure, Inc. may manufacture, have manufactured and/or sublicense the manufacture of Products, and Stellartech shall not hinder, nor otherwise interfere with, AtriCure, Inc.' s rights with regards thereto. Stellartech shall use commercially reasonable efforts to effect any technology or information transfer associated with the Manufacturing License to AtriCure, Inc. (and/or its designees and sublicensees) as may be necessary in order for AtriCure, Inc. to fully exploit such Manufacturing License. AtriCure, Inc. shall pay Stellartech for such assistance in accordance with standard " time and materials" rates as provided in Exhibit A.


3.8. No Other License Rights. Other than the specific license rights granted herein and under the Development Agreement by the parties to each other, neither party shall have any express or implied license or other rights to any confidential or proprietary rights of the other. Other than those rights which are explicitly granted in this Agreement, this Agreement grants neither party any rights to use the other party' s trademarks, trade names or service marks. Neither party shall, nor shall attempt to, acquire the other' s names, marks, logos, symbols, or the like, or any that are confusingly similar thereto.

4. ORDER AND ACCEPTANCE.

4.1. AtriCure, Inc. Forecast. To facilitate Stellartech' s production scheduling, AtriCure, Inc. shall provide Stellartech with a quarterly rolling forecast of AtriCure, Inc' s. anticipated quarterly requirements of Products for the following twelve (12) month period commencing on the date of such forecast. This forecast shall be for Stellartech' s planning purposes only. It is understood that AtriCure, Inc. shall use reasonable efforts to make each forecast as accurate as possible.

4.2. Form of Purchase Orders. AtriCure, Inc. will submit written purchase orders for Products or spare parts to Stellartech with a lead time of at least ninety (90) days prior to the specified delivery date with respect to Products or Parts ordered therein, and Stellartech shall use best efforts to deliver any such Products or Parts in accordance with the terms of the corresponding purchase order. All orders for Products and Parts submitted by AtriCure, Inc. to Stellartech during the term hereof shall be subject to the terms and conditions of this Agreement, except as otherwise agreed to in a writing signed by both parties. In the event of a conflict between the terms of any AtriCure, Inc. purchase order or Stellartech acknowledgment and the terms of this Agreement, the terms of this Agreement shall control.


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4.3. Acceptance or Rejection of Orders By Stellartech. No purchase order placed by AtriCure, Inc. shall be binding upon Stellartech until accepted by Stellartech in writing, which may be by facsimile, and Stellartech shall have no liability to AtriCure, Inc. with respect to purchase orders, or portions thereof, that are not so accepted. Stellartech shall notify AtriCure, Inc. promptly of the acceptance or rejection by Stellartech of a AtriCure, Inc. purchase order, or portion thereof, and of the agreed assigned delivery date for accepted orders. Stellartech shall be deemed to have accepted a AtriCure, Inc. purchase order, or any portion thereof, to which Stellartech has not objected to AtriCure, Inc. in writing: (i) no later than fifteen (15) business days after the date of such AtriCure, Inc. purchase order, if sent first by AtriCure, Inc. by facsimile; or (ii) no later than twenty (20) business days after the date of such AtriCure, Inc. purchase order, if such purchase order is first sent by AtriCure, Inc. by airmail or courier.

4.4. Delivery Dates; Partial Shipments. Stellartech shall use best efforts to deliver Products and Parts on the dates specified in its written acceptance of AtriCure, Inc.' s purchase orders. Partial shipments shall be allowed only to the extent agreed in writing by AtriCure, Inc. before such partial shipment is shipped.


4.5. Assurances; Substitute Performance.

(a) Assurance of Performance. In the event that AtriCure, Inc. reasonably believes that Stellartech will not perform any obligation under this Agreement, including but not limited to its obligation to deliver compliant Products or Parts in accordance with any purchase order, AtriCure, Inc. shall have the right to demand reasonable assurances that Stellartech is ready, willing, and able to perform such obligation, including but not limited to delivering such compliant Products or Parts on the delivery date provided for under the respective purchase order (" Assurance of Performance" ).


(b) Substitute Performance; Second Source. In the event that Stellartech fails to provide adequate Assurance of Performance under Section 4.5(a), then AtriCure, Inc. shall have the right, but not the obligation, to use a Second Source in order to perform Stellartech' s obligations as to such purchase order (" Substitute Performance" ), in addition to performing any other Stellartech obligation under this Agreement as determined by AtriCure, Inc. in its sole discretion. Stellartech shall cooperate with AtriCure, Inc. in identifying, training, or transferring any information, documents, materials, products, processes or methods, or manufacturing and test equipment (to the extent specifically developed under this Agreement or under the Development Agreement) as may be necessary in order to enable such Second Source to provide the Substitute Performance of Stellartech' s relevant obligations; provided, however, that such Second Source shall be obligated to protect Stellartech' s Confidential Information in a manner consistent with this Agreement. AtriCure, Inc. shall pay Stellartech for such Second Source assistance in accordance with standard " time and materials" rates as provided in Exhibit A.


(c) Other Second Source Rights; Stellartech Assistance. Upon request from AtriCure, Inc. at any time during this Agreement, and at AtriCure, Inc.' s expense according to rates provided in Exhibit A, Stellartech shall assist AtriCure, Inc. in establis ...