Exhibit 6(ii)
Letter Agreement
Strategic Alliance Between NovaMed Inc. and Inamed Corporation
1. Preamble. This document sets forth the principles governing the strategic
alliance between NovaMed Inc. ("NovaMed") and Inamed Corporation ("Inamed") with
respect to their mutual objectives of obtaining broader regulatory approval for,
and greater sales of, certain breast implant products which are currently
manufactured by NovaMed. Through this strategic alliance it is the parties'
intention to utilize NovaMed's product technology and its regulatory approvals
which are already in place in certain extensive sales and marketing network, to
enhance the sales and profitability of both parties. This document is meant to
provide a framework for the negotiation and execution of binding legal
agreements under which various aspects of the strategic alliance will be
implemented. In the absence of any such formal documentation, it is the parties'
intention to be governed by this statement of principles.
2. Products and Territories Covered. The products included within the strategic
alliance are XxxxXxx's NovaGold alternate fill breast implant and XxxxXxx's
pre-filled NovaSaline breast implant, including any improvements or
modifications to these products. Effective immediately, these NovaMed products
will be made available for exclusive marketing, distribution and sale by
Inamed's sales and marketing network on a worldwide basis, with the following
exceptions:
f. a. NovaMed has an existing sales network in Germany,
which will continue to be the exclusive seller of the
products. However, by December 31, 1999 the parties
will seek to discuss and, if possible, formalize a
mutually agreeable basis for transitioning this
NovaMed sales network into Inamed's sales subsidiary
in Germany.
g. b. NovaMed has distribution relationships with third
party sales representatives in certain territories
throughout the world. In order to avoid legal
liability, NovaMed can continue to supply those
representatives on a non-exclusive basis; it being
the parties' intention that NovaMed would terminate
all such third party arrangements by December 31,
2000. The names of such third party representatives
and their territories of operation will be furnished
to Inamed by April 30, 1999.
h. c. In certain countries where XxxxXxx currently does
business (e.g., Poland and Russia), as well as other
territories where Inamed does not wish to establish
or maintain a sales presence, NovaMed would continue
to sell its products. The parties will mutually agree
from time to time on the territories which fall under
this exception.
i. As used in this document, Inamed's sales and marketing network includes
both direct sales representatives who are employed by Inamed or its
subsidiaries and affiliates, as well as third party distributors with
whom Inamed (either directly or through its subsidiaries or affiliates)
has arranged for the exclusive sale of its products in certain
territories. A list with the names of such third party representatives
and their territories of operation will be furnished to NovaMed by
April 30, 1999; that list will be updated on an annual basis.
II 3. Term and Scope of the Strategic Alliance. The term of the strategic
alliance will be until the later of fifteen years from the date this
statement of principles is signed or the expiration of the last
significant patent for any of the NovaMed products. During the term of
the strategic alliance, so long as the minimum sales thresholds
required to maintain Inamed's exclusive sales and
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distribution rights are being met, neither party will discuss,
negotiate or enter into any agreement or understanding with any third
party for the manufacture, sale or distribution of either pre-filled
saline breast implant or an alternate fill breast implant (e.g., a
breast implant meant to contain a filler material that is not either
saline or silicone gel); except that either party can study and conduct
due diligence with respect to alternate fill material concepts pursuant
to existing arrangements, or proposals made by inventors of in the
ordinary course of business, or as an ancillary result of any potential
acquisition of a company for which the alternate fill breast implant
business is not a significant portion.
II 4. Pricing. The NovaMed products will be sold to the Inamed entities
(either directly or through its subsidiaries, affiliates or third party
distributors) on the following terms:
II a. With respect to the NovaGold product (except in the United States)
and pre-filled NovaSaline product, the price charged by NovaMed
will be on a cost plus basis which is designed to ensure that the
Inamed entities receive at least a 50% gross margin for their sales
to healthcare providers. Initially, the per unit (implant) price
will be $300 for NovaGold and $200 for pre-filled NovaSaline. The
parties will review these prices on an annual basis, beginning for
the year 2000, and make appropriate adjustments based on manufact-
uring costs, end-user pricing, the volume to be purchased, and the
competitive environment in the various major marketplaces.
II b. With respect to the NovaGold product in the nited States (which
for purposes of this document also includes Canada and Puerto
Rico), the parties will establish a joint venture entity so that
they can share on a 50/50 basis the profits and losses arising from
the sales of that product. The joint venture entity will contract
with its parents for manufacturing, administrative, regulatory
and sales and marketing services on a cost plus basis which will be
specified and negotiated by the parties prior to the receipt of FDA
approval of the PMA to sell the NovaGold product in the United
States. It is the present intention of the parties that the mark-up
above cost for such manufacturing, administrative, regulatory and
sales and marketing services would be 10%.
II Unless the parties agree otherwise with
respect to a specific product or territory,
all sales under the strategic alliance shall
be paid within 45 days of the invoice date.
The invoice date cannot be any earlier that
the shipment date.
II 5. Volume. The minimum volume of implant products which the Inamed
entities shall purchase under the strategic alliance in order to retain
exclusivity will be:
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a. With respect to NovaGold (except in the United States) and pre-filled
NovaSaline products, 12,000 units in year one, 18,000 units in year two,
and 24,000 units in year three. Thereafter, the minimum volume purchase
requirement will be based on a rolling annual average of the prior two
years' sales, but in no event less than 24,000 units per year.
b. With respect to NovaGold product in the United States, assuming that the
FDA approves PMAs for augmentation use of both silicone gel and NovaGold,
12,000 units in year one, 18,000 units in year two, and 24,000 units in
year three. Thereafter, the minimum purchase requirement will be based on a
rolling annual average of the prior two years' sales, but in no event less
than 24,000 units per year. In the event the FDA does not approve a PMA for
silicone gel for augmentation use, the minimum purchase requirements noted
above would be doubled starting in year two.
c. In the event of a failure to meet the minimum volume purchase threshold for
any given year, the Inamed entities shall have the right to make up such
deficiency by paying NovaMed $67.50 per implant needed to reach the minimum
volume level; except that in the event such deficiency payments represent
more that 25% of the target minimum volume (for years one or two), NovaMed
has the option of refusing to accept any deficiency payment and, instead,
terminating the exclusivity rights in the territory in question. From and
after year three, XxxxXxx's ability to terminate exclusivity rights in the
territory in question will arise if the deficiency payments represent more
than 20% of the target minimum volume for that year.
d. The failure to meet the minimum volume threshold under clause (a) or (b)
above will not affect the exclusivity rights of the Inamed entities under
the clause where the Inamed entities did meet the minimum volume threshold
(whether through actual purchases or through a deficiency payment under
clause (c)), or where the measuring period did not yet begin due to
regulatory issues.
e. For purposes of measuring the unit sales under this section, there will be
a four month ramp-up period from the later of the date of this document and
the receipt of all appropriate regulatory approvals which are necessary to
sell the product in all significant territories. Accordingly, the first
year of any annual measurement period will consist of sixteen months of
sales from the appropriate starting date.
6. Manufacturing. It is the intention of the parties that during the term of the
strategic alliance NovaMed will continue to manufacture the NovaGold and
pre-filled NovaSaline products. The parties will examine that decision from time
to time and mutually agree on the appropriate course of action, based on
NovaMed's manufacturing capacity, financial resources available to expand, and
any costing advantages which may be obtained by allowing the Inamed entities to
manufacture any of those products. In the event
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a change of manufacturer is made, the parties will mutually agree on new
financial terms which are consistent to the greatest extent feasible with the
objectives set forth in this document.
7. Joint Venture. No later than January 1, 2001 the parties will agree on the
form and governance of the joint venture entity which will mange the manufacture
and sale of NovaGold for the United States.
8. Regulatory. NovaMed will promptly take all appropriate steps to obtain 510(k)
clearance for the sale of pre-filled NovaSaline in the United States. NovaMed
and Inamed will fully cooperate in obtaining an IDE for NovaGold in the United
States, and following the signing of this document, Inamed will bear all of the
costs of obtaining such regulatory approval (including preparing the PMA and
conducting the clinical trials.) Based on estimates of the third party costs of
obtaining regulatory approval for NovaGold in the United States, the value of
Inamed's agreement to bear those costs is approximately $2 million.
9. Payments by Inamed. In addition to Inamed's payments to NovaMed for products,
and the assumption by Inamed of regulatory costs for NovaGold in the United
States, as outlined above, Inamed shall make the following payments to NovaMed
in consideration for the arrangements which constitute the strategic alliance
between them:
a. Within 10 days after the execution of this
document, Inamed shall pay $100,000 as
non-refundable "xxxxxxx money". In the event
Inamed elects to extend the due diligence
period referred to in Section 13 below,
Inamed would be obligated to pay an
additional $100,000 withing 10 days of
making that election, which would also be
non-refundable.
b. Once the FDA grants an IDE for NovaGold in
the United States, Inamed shall pay $2
million within 30 days after the clinical
trial is fully enrolled. Inamed shall
receive a credit against that first $2
million payment for all of the sums paid
under Section 9(a).
c. Within 30 days after the filing of the PMA
for NovaGold in the United States, Inamed
shall pay $2 million.
d. Within 30 days after the FDA approves the
PMA for NovaGold in the United States,
Inamed shall pay $2 million.
e. The parties shall consider the alternative
of Inamed making an equity investment for at
least 10% of NovaMed, under such terms as
the parties (and their respective investment
bankers) may agree. Such an investment may
take the place of the payments specified in
clauses (c) and (d) above.
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II 10. Inflatable NovaSaline Product. By May 30, 1999 Inamed will undertake
and complete a technical and marketplace evaluation of the inflatable
NovaSaline product, for which NovaMed has already filed a 510(k)
application with the FDA. By that date Inamed shall have a right of first
refusal to either (a) incorporate this product within the exclusive
distribution rights contemplated by Sections 4(a) and 5(a) of this document
(with minimum target volumes to be agreed upon), or (b) pay NovaMed
$275,000 to shelve the product. In the event Inamed does not exercise
either such right, XxxxXxx would be entitled to sell and distribute the
inflatable NovaSaline product as it chooses, including in competition with
Inamed's existing inflatable saline breast implant products.
II 11. Liability Insurance. NovaMed and the joint venture, as appropriate,
will carry at least $10 million of product liability insurance for the
NovaMed products which are included within the strategic alliance. Inamed
and XxxxXxx will be named as an insured party under any such insurance
policies and make such appropriate adjustments as they may mutually agree
upon.
II 12. Labeling on Packages; Intellectual Property. At Inamed's option, the
labeling on the packaging for the products which are included within the
strategic alliance shall include one or more brand names of the Inamed
entities, and will also include NovaMed's name. NovaMed will grant the
appropriate licenses to the Inamed entities to use its intellectual
property in order to carry out the objectives of this document, and will
indemnify Inamed against any third party claims due to manufacturing
defects.
II 13. Due Diligence and Cooperation. The parties agree to use their
respective best efforts to cooperate in implementing the terms of this
document, so that the strategic alliance can fully achieve its objectives.
Toward that end, promptly following the execution of this document, XxxxXxx
will afford the Inamed entities complete and full due diligence so that it
can become familiar with the current status of the scientific, technical
and regulatory aspects of the products which are included within the
strategic alliance; such initial due diligence period will be completed by
May 15, 1999 and the definitive documentation needed to formalize the first
aspects of the strategic alliance will be completed by June 30, 1999.
However, Inamed can elect to extend the initial due diligence period to
June 30, 1999 (and the deadline for formalizing the definitive
documentation to July 31, 1999), at its sole option, by making the second
payment described in Section 9(a). The confidentiality agreement between
the parties will govern all such discussions and exchanges of information.
XX Xxxxxx and accepted as of
II March 25, 1999
II Nova Med, Inc. Inamed Corporation
II ______________________ ________________________
II Xxxxxxxx Xxxxxxxx Xxxx Xxxxx
XX President President
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