UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2010
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 0-31271
RTI BIOLOGICS, INC.
Delaware | 59-3466543 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
11621 Research Circle
Alachua, Florida 32615
(386) 418-8888
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) 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 by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that registrant was required to submit and post such files.) Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer | ¨ | Accelerated Filer | x | |||
Non-Accelerated Filer | ¨ | Smaller Reporting Company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ¨ No x
Shares of common stock, $0.001 par value, outstanding on October 30, 2010: 54,806,762
FORM 10-Q For the Quarter Ended September 30, 2010
Index
Page # | ||||||
Part I Financial Information |
||||||
Item 1 |
1 15 | |||||
Item 2 |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
16 23 | ||||
Item 3 |
24 | |||||
Item 4 |
24 | |||||
Item 1 |
25 | |||||
Item 1A |
25 | |||||
Item 2 |
25 | |||||
Item 3 |
25 | |||||
Item 6 |
25 |
RTI BIOLOGICS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
Assets | ||||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 15,548 | $ | 17,382 | ||||
Accounts receivable - less allowances of $1,479 at September 30, 2010 and $1,296 at December 31, 2009 |
21,450 | 22,228 | ||||||
Inventories - net |
89,626 | 93,935 | ||||||
Prepaid and other current assets |
3,093 | 2,066 | ||||||
Exclusivity fees receivable |
17,000 | | ||||||
Deferred tax assets - net |
16,909 | 17,331 | ||||||
Total current assets |
163,626 | 152,942 | ||||||
Property, plant and equipment - net |
44,537 | 46,562 | ||||||
Deferred tax assets - net |
7,652 | 7,007 | ||||||
Goodwill |
| 134,681 | ||||||
Other intangible assets - net |
16,158 | 12,301 | ||||||
Other assets - net |
889 | 1,014 | ||||||
Total assets |
$ | 232,862 | $ | 354,507 | ||||
Liabilities and Stockholders Equity | ||||||||
Current Liabilities: |
||||||||
Accounts payable |
$ | 11,906 | $ | 19,844 | ||||
Accrued expenses |
14,535 | 11,707 | ||||||
Short-term obligations |
1,080 | 2,101 | ||||||
Deferred tax liabilities |
715 | 839 | ||||||
Current portion of deferred revenue |
4,082 | 1,645 | ||||||
Current portion of long-term obligations |
1,423 | 1,862 | ||||||
Total current liabilities |
33,741 | 37,998 | ||||||
Long-term obligations - less current portion |
11,053 | 11,029 | ||||||
Other long-term liabilities |
5,200 | 5,104 | ||||||
Deferred tax liabilities |
185 | 106 | ||||||
Deferred revenue |
23,554 | 10,381 | ||||||
Total liabilities |
73,733 | 64,618 | ||||||
Stockholders equity: |
||||||||
Common stock, $.001 par value: 150,000,000 shares authorized; 54,806,762 and 54,553,062 shares issued and outstanding, respectively |
55 | 55 | ||||||
Additional paid-in capital |
408,382 | 406,339 | ||||||
Accumulated other comprehensive loss |
(1,012 | ) | (374 | ) | ||||
Accumulated deficit |
(248,282 | ) | (116,117 | ) | ||||
Less treasury stock, 133,296 shares, at cost |
(14 | ) | (14 | ) | ||||
Total stockholders equity |
159,129 | 289,889 | ||||||
Total liabilities and stockholders equity |
$ | 232,862 | $ | 354,507 | ||||
See notes to condensed consolidated financial statements.
1
RTI BIOLOGICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except share and per share data)
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues: |
||||||||||||||||
Fees from tissue distribution |
$ | 40,793 | $ | 41,556 | $ | 117,899 | $ | 118,961 | ||||||||
Other revenues |
1,043 | 1,257 | 2,896 | 3,606 | ||||||||||||
Total revenues |
41,836 | 42,813 | 120,795 | 122,567 | ||||||||||||
Costs of processing and distribution |
21,950 | 22,199 | 64,994 | 65,003 | ||||||||||||
Gross profit |
19,886 | 20,614 | 55,801 | 57,564 | ||||||||||||
Expenses: |
||||||||||||||||
Marketing, general and administrative |
15,630 | 14,812 | 44,935 | 44,876 | ||||||||||||
Research and development |
2,076 | 2,187 | 7,010 | 5,843 | ||||||||||||
Goodwill impairment |
134,681 | | 134,681 | | ||||||||||||
Restructuring charges |
| | | 42 | ||||||||||||
Asset abandonments |
3 | 125 | 18 | 208 | ||||||||||||
Total expenses |
152,390 | 17,124 | 186,644 | 50,969 | ||||||||||||
Operating (loss) income |
(132,504 | ) | 3,490 | (130,843 | ) | 6,595 | ||||||||||
Other (expense) income: |
||||||||||||||||
Interest expense |
(129 | ) | (138 | ) | (436 | ) | (391 | ) | ||||||||
Interest income |
22 | 20 | 85 | 218 | ||||||||||||
Foreign exchange loss |
(61 | ) | (221 | ) | (13 | ) | (258 | ) | ||||||||
Total other expense - net |
(168 | ) | (339 | ) | (364 | ) | (431 | ) | ||||||||
(Loss) income before income tax provision |
(132,672 | ) | 3,151 | (131,207 | ) | 6,164 | ||||||||||
Income tax provision |
(387 | ) | (838 | ) | (958 | ) | (1,798 | ) | ||||||||
Net (loss) income |
$ | (133,059 | ) | $ | 2,313 | $ | (132,165 | ) | $ | 4,366 | ||||||
Net (loss) income per common share - basic |
$ | (2.43 | ) | $ | 0.04 | $ | (2.42 | ) | $ | 0.08 | ||||||
Net (loss) income per common share - diluted |
$ | (2.43 | ) | $ | 0.04 | $ | (2.42 | ) | $ | 0.08 | ||||||
Weighted average shares outstanding - basic |
54,806,262 | 54,386,604 | 54,703,890 | 54,287,007 | ||||||||||||
Weighted average shares outstanding - diluted |
54,806,262 | 54,954,665 | 54,703,890 | 54,729,147 | ||||||||||||
See notes to condensed consolidated financial statements.
2
RTI BIOLOGICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Cash flows from operating activities: |
||||||||||||||||
Net (loss) income |
$ | (133,059 | ) | $ | 2,313 | $ | (132,165 | ) | $ | 4,366 | ||||||
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: |
||||||||||||||||
Depreciation and amortization expense |
1,886 | 1,734 | 5,529 | 5,415 | ||||||||||||
Amortization of deferred financing costs |
21 | 19 | 59 | 54 | ||||||||||||
Provision for bad debts and product returns |
10 | 27 | 193 | 157 | ||||||||||||
Provision for inventory write-downs |
468 | 1,077 | 1,669 | 1,764 | ||||||||||||
Amortization of deferred revenue |
(569 | ) | (770 | ) | (1,372 | ) | (1,852 | ) | ||||||||
Deferred income tax (benefit) provision |
(167 | ) | 974 | (245 | ) | 841 | ||||||||||
Stock-based compensation |
479 | 423 | 1,290 | 1,259 | ||||||||||||
Tax benefit attributable from exercise of stock options |
| 183 | | 211 | ||||||||||||
Excess tax benefit from exercise of stock options |
| (176 | ) | | (186 | ) | ||||||||||
Goodwill impairment |
134,681 | | 134,681 | | ||||||||||||
Loss on asset abandonments |
3 | 125 | 18 | 208 | ||||||||||||
Change in assets and liabilities: |
||||||||||||||||
Accounts receivable |
(2,170 | ) | (570 | ) | 403 | (1,452 | ) | |||||||||
Inventories |
1,422 | (4,265 | ) | 2,387 | (18,598 | ) | ||||||||||
Prepaid and other current assets |
665 | 124 | (1,045 | ) | (744 | ) | ||||||||||
Other long-term assets |
1 | 10 | 55 | (427 | ) | |||||||||||
Accounts payable |
(4,560 | ) | (3,250 | ) | (7,535 | ) | 4,267 | |||||||||
Accrued expenses |
834 | (462 | ) | 918 | (2,600 | ) | ||||||||||
Other long-term liabilities |
(776 | ) | 21 | (1,895 | ) | 692 | ||||||||||
Deferred revenue |
| 8,000 | | 8,000 | ||||||||||||
Net cash (used in) provided by operating activities |
(831 | ) | 5,537 | 2,945 | 1,375 | |||||||||||
Cash flows from investing activities: |
||||||||||||||||
Purchases of property, plant and equipment |
(1,727 | ) | (1,138 | ) | (2,388 | ) | (3,046 | ) | ||||||||
Proceeds from sale of property, plant and equipment |
| | | 18 | ||||||||||||
Patent and acquired intangible asset costs |
(1,060 | ) | (99 | ) | (1,283 | ) | (323 | ) | ||||||||
Net cash used in investing activities |
(2,787 | ) | (1,237 | ) | (3,671 | ) | (3,351 | ) | ||||||||
Cash flows from financing activities: |
||||||||||||||||
Proceeds from exercise of common stock options |
19 | 416 | 764 | 515 | ||||||||||||
Excess tax benefit from exercise of common stock options |
| 176 | | 186 | ||||||||||||
Net proceeds (payments) on short-term obligations |
163 | 445 | (886 | ) | (2,437 | ) | ||||||||||
Proceeds from long-term obligations |
5,500 | 3,029 | 9,750 | 8,578 | ||||||||||||
Payments on long-term obligations |
(4,274 | ) | (2,162 | ) | (10,713 | ) | (4,590 | ) | ||||||||
Net cash provided by (used in) financing activities |
1,408 | 1,904 | (1,085 | ) | 2,252 | |||||||||||
Effect of exchange rate changes on cash and cash equivalents |
29 | 72 | (23 | ) | 91 | |||||||||||
Net (decrease) increase in cash and cash equivalents |
(2,181 | ) | 6,276 | (1,834 | ) | 367 | ||||||||||
Cash and cash equivalents, beginning of period |
17,729 | 14,167 | 17,382 | 20,076 | ||||||||||||
Cash and cash equivalents, end of period |
$ | 15,548 | $ | 20,443 | $ | 15,548 | $ | 20,443 | ||||||||
See notes to condensed consolidated financial statements.
3
RTI BIOLOGICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders Equity
For the Nine Months Ended September 30, 2010
(In thousands)
(Unaudited)
Common
Stock |
Additional
Paid-In Capital |
Accumulated
Other Comprehensive Loss |
Accumulated
Deficit |
Treasury
Stock |
Total | |||||||||||||||||||
Balance, December 31, 2009 |
$ | 55 | $ | 406,339 | $ | (374 | ) | $ | (116,117 | ) | $ | (14 | ) | $ | 289,889 | |||||||||
Net loss |
| | | (132,165 | ) | | (132,165 | ) | ||||||||||||||||
Foreign currency translation adjustment |
| | (638 | ) | | | (638 | ) | ||||||||||||||||
Comprehensive loss for the nine months ended September 30, 2010 |
| | (638 | ) | (132,165 | ) | | (132,803 | ) | |||||||||||||||
Exercise of common stock options |
| 764 | | | | 764 | ||||||||||||||||||
Stock-based compensation |
| 1,290 | | | | 1,290 | ||||||||||||||||||
Change in tax benefit from stock-based compensation |
| (11 | ) | | | | (11 | ) | ||||||||||||||||
Balance, September 30, 2010 |
$ | 55 | $ | 408,382 | $ | (1,012 | ) | $ | (248,282 | ) | $ | (14 | ) | $ | 159,129 | |||||||||
See notes to condensed consolidated financial statements.
4
RTI BIOLOGICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)
1. | Operations and Organization |
We are a leader in the use of natural tissues and innovative technologies to produce orthopedic and other surgical implants that repair and promote the natural healing of human bone and other human tissues and improve surgical outcomes. We process human musculoskeletal and other tissue, including bone, cartilage, tendon, ligament, fascia lata, pericardium, sclera and dermal tissue, and bovine animal tissue in producing allograft and xenograft implants utilizing proprietary BIOCLEANSE® and TUTOPLAST® sterilization processes, for distribution to hospitals and surgeons. We process at two facilities in Alachua, Florida and one facility in Neunkirchen, Germany and distribute our products and services in all 50 states and in over 31 countries worldwide.
2. | Basis of Presentation |
The accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring accruals, which the Company considers necessary for a fair presentation of the results of operations for the periods shown. The condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes necessary for a fair presentation of consolidated financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America. All intercompany balances and transactions have been eliminated in consolidation. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year. For further information, refer to the consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2009.
The condensed consolidated financial statements include the accounts of RTI Biologics, Inc. (RTI) and its wholly owned subsidiaries, Tutogen Medical, Inc. (TMI), RTI Biologics, Inc. Cardiovascular (inactive), Biological Recovery Group (inactive), and RTI Services, Inc. The condensed consolidated financial statements also include the accounts of RTI Donor Services, Inc. (RTIDS), which is a controlled entity. The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
3. | Summary of Significant Accounting Policies |
In June 2009, the Financial Accounting Standards Board (FASB) issued authoritative guidance serving as the single source of authoritative non-governmental accounting principles generally accepted in the United States of America (the Codification). The codification changes the referencing of financial standards and is effective for interim or annual financial periods ending after September 15, 2009. The Company adopted the codification during the three months ended September 30, 2009 with no impact to its condensed consolidated financial statements.
In May 2009, the FASB issued authoritative guidance that provides general standards of accounting for, and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The Company adopted this guidance as required in the second quarter of 2009 with no impact to its consolidated financial statements. The Company evaluated subsequent events as of the issuance date of the financial statements, November 8, 2010.
5
4. | Other Intangible Assets |
Other intangible assets are as follows:
September 30, 2010 | December 31, 2009 | |||||||||||||||
Gross | Gross | |||||||||||||||
Carrying | Accumulated | Carrying | Accumulated | |||||||||||||
Amount | Amortization | Amount | Amortization | |||||||||||||
Patents |
$ | 4,450 | $ | 983 | $ | 4,433 | $ | 879 | ||||||||
Acquired exclusivity rights |
2,941 | 1,578 | 2,941 | 1,300 | ||||||||||||
Acquired licensing rights |
10,850 | 1,389 | 5,850 | 758 | ||||||||||||
Procurement contracts |
1,755 | 387 | 1,755 | 331 | ||||||||||||
Selling and marketing relationships |
500 | 220 | 500 | 170 | ||||||||||||
Customer lists |
385 | 362 | 406 | 364 | ||||||||||||
Non-compete agreements |
275 | 103 | 275 | 83 | ||||||||||||
Trademarks |
58 | 34 | 58 | 32 | ||||||||||||
Total |
$ | 21,214 | $ | 5,056 | $ | 16,218 | $ | 3,917 | ||||||||
Amortization expense of other intangible assets for the three months ended September 30, 2010 and 2009 was $427 and $359, respectively, and for the nine months ended September 30, 2010 and 2009 was $1,207 and $1,135, respectively. Management estimates amortization expense of $2,100 per year for the next five years.
On September 10, 2010, the Company entered into an Exclusive License Agreement (the Exclusive License) with Athersys Inc. (Athersys), pursuant to which Athersys will provide RTI access to its Mulitpotent Adult Progenitor Cell (MAPC) technologies to develop and commercialize MAPC technology-based biologic implants for certain orthopedic applications. In consideration for the Exclusive License, the Company will pay Athersys the following: 1) a non-refundable $3,000 license fee, payable in three time-based $1,000 installments, the first of which was paid upon execution of the agreement, and the remaining two payments expected within the next 18 months, 2) payment of $2,000 contingent upon successful achievement of certain development milestones which the Company believes is reasonably probable, and 3) up to $32,500 contingent upon achievement of certain cumulative revenue milestones in future years. In addition, the Company will pay Athersys royalties from the distribution of implants under a tiered royalty structure based on achievement of certain cumulative revenue milestones. The term of the Exclusive License Agreement is the longer of five years, or the remaining life of any patent or trade secret.
5. | Stock-Based Compensation |
The Company has five stock-based compensation plans under which employees, consultants and outside directors have received stock options and other equity-based awards. At September 30, 2010, awards relating to 6,412,637 shares were outstanding, and 5,165,521 shares remained available for grant of awards under our plans. For the three and nine months ended September 30, 2010, 25,000 and 1,049,000 stock options, respectively, were granted under the plans. Stock options are granted with an exercise price equal to 100% of the market value of a share of common stock on the date of the grant, generally have ten-year contractual terms, and vest over a one to five year period from the date of grant.
2010 Equity Incentive Plan On April 20, 2010, the Companys stockholders approved and adopted the 2010 Equity Incentive Plan, (the 2010 Plan). The 2010 Plan provides for the grant of incentive and nonqualified stock options and restricted stock to key employees, including officers and directors of the Company, and consultants and advisors. The option price per share may not be less than 100% of the fair market value of such shares on the date granted. The 2010 Plan allows for up to 5,000,000 shares of common stock to be issued with respect to awards granted. Awards or shares which are forfeited, surrendered or otherwise terminated are available for further awards; provided, however, that any such shares that are surrendered in connection with any award or that are otherwise forfeited after issuance shall not be available for purchase pursuant to incentive stock options intended to qualify under Internal Revenue Service (IRS) Code Section 422.
6
1998 Stock Option Plan and 2004 Equity Incentive Plan The Company adopted equity incentive plans in 1998 (the 1998 Plan) and 2004 (the 2004 Plan), which provide for the grant of incentive and nonqualified stock options and restricted stock to key employees, including officers and directors of the Company, and consultants and advisors. The option price per share may not be less than 100% of the fair market value of such shares on the date granted. The 1998 and 2004 Plans allow for up to 4,406,400 and 2,000,000 shares, respectively, of common stock to be issued with respect to awards granted. Under the 2004 Plan, awards or shares which are forfeited, surrendered or otherwise terminated are available for further awards; provided, however, that any such shares that are surrendered in connection with any award or that are otherwise forfeited after issuance shall not be available for purchase pursuant to incentive stock options intended to qualify under IRS Code Section 422. New stock options may no longer be awarded under the 1998 Plan.
TMI 1996 Stock Option Plan and TMI 2006 Incentive and Non-Statutory Stock Option Plan In connection with the merger with TMI, the Company assumed the TMI 1996 Stock Option Plan and the TMI 2006 Incentive and Non-Statutory Stock Option Plan (TMI Plans). The TMI Plans allow for 4,880,000 and 1,830,000 shares of common stock, respectively, which may be issued with respect to stock options granted to former TMI employees or employees of the Company hired subsequent to the TMI acquisition. New stock options may no longer be awarded under the TMI 1996 Stock Option Plan.
Stock options outstanding, exercisable and available for grant at September 30, 2010 are summarized as follows:
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Number of | Exercise | Contractual | Intrinsic | |||||||||||||
Shares | Price | Life (Years) | Value | |||||||||||||
Outstanding at January 1, 2010 |
6,259,952 | $ | 6.20 | |||||||||||||
Granted |
1,049,000 | 4.04 | ||||||||||||||
Exercised |
(253,700 | ) | 3.02 | |||||||||||||
Forfeited or expired |
(642,615 | ) | 7.85 | |||||||||||||
Outstanding at September 30, 2010 |
6,412,637 | $ | 5.80 | 5.35 | $ | 238 | ||||||||||
Vested or expected to vest at September 30, 2010 |
6,143,265 | $ | 5.88 | 5.18 | $ | 238 | ||||||||||
Exercisable at September 30, 2010 |
4,542,837 | $ | 6.39 | 3.95 | $ | 238 | ||||||||||
Available for grant at September 30, 2010 |
5,165,521 | |||||||||||||||
Outstanding options under all option plans vest over a one to five year period. Options expire ten years from the date of grant. The weighted-average grant-date fair value of options granted for the nine months ended September 30, 2010 and 2009 was $2.56 and $1.83, respectively. The total intrinsic value of options exercised for the nine months ended September 30, 2010 and 2009 was $242 and $856, respectively. The intrinsic value of a stock option is the amount by which the fair value of the underlying stock exceeds the exercise price of the stock option. This amount changes based on the fair market value of the Companys stock. Cash received from option exercises for the nine months ended September 30, 2010 was $764.
As of September 30, 2010, there was $3,510 of total unrecognized stock-based compensation related to non-vested stock options. That cost is expected to be recognized over a weighted-average period of 3.3 years.
7
For the three and nine months ended September 30, 2010 and 2009, the Company recognized stock-based compensation as follows:
Three Months Ended | Nine Months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Stock-based compensation: |
||||||||||||||||
Costs of processing and distribution |
$ | 38 | $ | 72 | $ | 115 | $ | 216 | ||||||||
Marketing, general and administrative |
411 | 326 | 1,085 | 968 | ||||||||||||
Research and development |
30 | 25 | 90 | 75 | ||||||||||||
Total |
$ | 479 | $ | 423 | $ | 1,290 | $ | 1,259 | ||||||||
6. | Earnings Per Share |
A reconciliation of the number of shares of common stock used in the calculation of basic and diluted earnings per share (EPS) is presented below:
Three Months Ended | Nine Months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Basic shares |
54,806,262 | 54,386,604 | 54,703,890 | 54,287,007 | ||||||||||||
Effect of dilutive securities: |
||||||||||||||||
Stock options |
| 568,061 | | 442,140 | ||||||||||||
Diluted shares |
54,806,262 | 54,954,665 | 54,703,890 | 54,729,147 | ||||||||||||
For the three months ended September 30, 2010 and 2009, approximately 5,924,000 and 5,189,000, respectively, and for the nine months ended September 30, 2010 and 2009, approximately 5,490,000 and 5,508,000, respectively, of issued stock options were not included in the computation of diluted EPS because they were anti-dilutive since their exercise price exceeded their market price. For the three and nine months ended September 30, 2010, options to purchase 80,770 and 262,610 shares of common stock, respectively, were not included in the computation of diluted EPS because dilutive shares are not factored into the calculation of EPS when a loss from continuing operations is reported. Additionally, for the three and nine months ended September 30, 2009 options to purchase 568,061 and 442,140 shares of common stock, respectively, were included in the computation of diluted EPS because dilutive shares are factored into the calculation of EPS when income from continuing operations is reported.
8
7. | Inventories |
Inventories by stage of completion are as follows:
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
Unprocessed donor tissue |
$ | 24,736 | $ | 26,986 | ||||
Tissue in process |
34,434 | 40,821 | ||||||
Implantable donor tissue |
28,758 | 24,641 | ||||||
Supplies |
1,698 | 1,487 | ||||||
$ | 89,626 | $ | 93,935 | |||||
For the three months ended September 30, 2010 and 2009, the Company had inventory write-downs of $468 and $1,077, respectively, and for the nine months ended September 30, 2010 and 2009, the Company had inventory write-downs of $1,669 and $1,764, respectively, relating primarily to product obsolescence.
8. | Property, Plant and Equipment |
Property, plant and equipment are as follows:
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
Land |
$ | 1,843 | $ | 1,898 | ||||
Buildings and improvements |
44,454 | 44,713 | ||||||
Processing equipment |
29,313 | 28,919 | ||||||
Office equipment, furniture and fixtures |
2,676 | 2,351 | ||||||
Computer equipment and software |
3,776 | 3,823 | ||||||
Construction in process |
233 | 233 | ||||||
Equipment under capital leases: |
||||||||
Processing equipment |
285 | 285 | ||||||
Computer equipment and software |
744 | | ||||||
83,324 | 82,222 | |||||||
Less accumulated depreciation and amortization |
(38,787 | ) | (35,660 | ) | ||||
$ | 44,537 | $ | 46,562 | |||||
Depreciation and amortization expense of property, plant and equipment including amortization of assets held under capital leases, was $1,459 and $1,375 for the three months ended September 30, 2010 and 2009, respectively, and $4,322 and $4,280 for the nine months ended September, 30, 2010 and 2009, respectively.
9. | Goodwill |
The changes in the carrying amount of goodwill for the period ended September 30, 2010, are as follows:
Balance January 1, 2010 |
$ | 134,681 | ||
Impairment losses |
(134,681 | ) | ||
Balance September 30, 2010 |
| |||
The carrying value of goodwill was $0 and $134,681 at September 30, 2010 and December 31, 2009.
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Goodwill includes the excess of the TMI purchase price over the sum of the amounts assigned to assets acquired less liabilities assumed.
Based on the current economic environment and the severe decline in the Companys stock price beginning late in the second quarter of 2010 and sustained through the date of this filing, which created a significant gap between the book and market value of the Companys equity, the Company concluded that there were sufficient indicators to require an interim goodwill impairment analysis as of September 30, 2010. For purposes of this analysis, estimates of fair value were based on a combination of the income approach, which estimates the fair value of the Companys reporting unit based on future discounted cash flows, and the market approach, which estimates the fair value of the Companys reporting unit on comparable market prices. As of this filing, the Company has not completed this analysis, due to the complexities involved in determining the implied fair value of the goodwill of the reporting unit. However, based on the work performed to date, the Company has concluded that an impairment loss is probable and can be reasonably estimated. Accordingly, the Company recorded a $134,681 goodwill impairment charge for the entire remaining balance, representing the Companys best estimate of the impairment loss, during the three months ended September 30, 2010. The goodwill impairment charge does not affect the Companys liquidity, nor does it affect any financial covenants of the Companys credit agreements.
10. | Accrued Expenses |
Accrued expenses are as follows:
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
Accrued compensation |
$ | 2,761 | $ | 2,783 | ||||
Accrued donor recovery fees |
1,300 | 2,001 | ||||||
Accrued distributor fees and marketing commissions |
1,262 | 1,237 | ||||||
Accrued severance |
144 | 517 | ||||||
Accrued licensing fees |
3,492 | 1,550 | ||||||
Accrued taxes |
506 | 184 | ||||||
Accrued professional service fees |
504 | 246 | ||||||
Other |
4,566 | 3,189 | ||||||
$ | 14,535 | $ | 11,707 | |||||
The Company accrues for the estimated donor recovery fees due to third party recovery agencies as tissue is received.
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11. | Short and Long-Term Obligations |
Short and long-term obligations are as follows:
Current | ||||||||||||||||||||||||
Interest | Maturity | September 30, | December 31, | |||||||||||||||||||||
Rate | Date | 2010 | 2009 | |||||||||||||||||||||
(Euro) | (US Dollar) | (Euro) | (US Dollar) | |||||||||||||||||||||
Short-term obligations |
||||||||||||||||||||||||
Germany |
||||||||||||||||||||||||
Credit facilities: |
||||||||||||||||||||||||
Line of credit - 1 |
5.25 | %(1) | None | | 343 | $ | 468 | | 779 | $ | 1,117 | |||||||||||||
Line of credit - 2 |
3.15 | %(1) | None | 450 | 612 | 492 | 705 | |||||||||||||||||
Line of credit - 3 |
6.18 | %(1) | None | | | 195 | 279 | |||||||||||||||||
Total short-term obligations |
| 793 | $ | 1,080 | | 1,466 | $ | 2,101 | ||||||||||||||||
Long-term obligations |
||||||||||||||||||||||||
United States |
||||||||||||||||||||||||
Credit facility |
2.75 | %(3) | 7/2012 | $ | 8,505 | $ | 8,004 | |||||||||||||||||
Term loan - 1 |
3.25 | %(4) | 2/2011 | | 500 | |||||||||||||||||||
Term loan - 2 |
4.55 | %(5) | 6/2013 | 583 | 741 | |||||||||||||||||||
Germany |
||||||||||||||||||||||||
Term loans: |
||||||||||||||||||||||||
Senior debt |
5.00 | %(2) | 6/2011 | | 72 | 98 | | 147 | 211 | |||||||||||||||
Construction I |
5.15 | %(2) | 3/2012 | 375 | 510 | 563 | 807 | |||||||||||||||||
Construction II |
5.60 | %(2) | 12/2016 | 715 | 973 | 770 | 1,104 | |||||||||||||||||
Construction III |
5.75 | %(2) | 9/2012 | 104 | 142 | 143 | 205 | |||||||||||||||||
Construction IV |
4.95 | %(2) | 6/2014 | 675 | 919 | 810 | 1,161 | |||||||||||||||||
Capital leases |
5.00% - 8.46 | % | 5/2010 - 5/2013 | | 746 | | 158 | |||||||||||||||||
Total long-term obligations |
| 1,941 | $ | 12,476 | | 2,433 | $ | 12,891 | ||||||||||||||||
Less current portion |
(1,423 | ) | (1,862 | ) | ||||||||||||||||||||
Long-term portion |
$ | 11,053 | $ | 11,029 | ||||||||||||||||||||
(1) | Fixed interest rate is negotiated periodically for terms no less than six months |
(2) | Fixed interest rates |
(3) | LIBOR plus 2.5% to 3.5% |
(4) | LIBOR plus 3.0% |
(5) | Prime plus 1.3% |
Under the terms of the revolving credit facilities with three German banks, the Company may borrow up to 1,700 Euros, or approximately $2,075 for working capital needs. The 1,000 Euro revolving credit facility is secured by a mortgage on the Companys German facility and a 4,000 Euro guarantee by the Company. The 500 Euro revolving credit facility is secured by accounts receivable of the Companys German subsidiary.
On July 21, 2010, the Company entered into an amended credit agreement with Mercantile Bank, a division of Carolina First Bank. Under the amended agreement, 1) the revolving credit facility was increased from $10,000 to $15,000, available based on levels of accounts receivable and inventories, 2) the revolving credit facilitys maturity date was extended from February 3, 2011 to July 21, 2012, and accordingly the debt is classified as long-term on the balance sheet, and 3) a $5,000 compensating balance requirement was eliminated. The revolving credit facility with
11
a U.S. bank contains various restrictive covenants which limit, among other things, indebtedness and liens. Under the agreement, the credit facility and term loans are secured by the Companys domestic accounts receivable, inventory and certain processing equipment. On June 11, 2009, the Company entered into an amended credit agreement with Mercantile Bank, a division of Carolina First Bank. The amended agreement provided for an additional term loan to finance certain equipment of $848 maturing on June 11, 2013, subject to acceleration upon the occurrence of an event of default, including but not limited to a failure to maintain certain financial ratios. The additional term loan is payable monthly at $18 plus interest at prime rate plus 1.3%.
The Company was in compliance with all covenants related to its credit facilities and term loans as of September 30, 2010.
At September 30, 2010, the Company had an outstanding interest rate swap agreement relating to the German term loan of 375 Euro, or $510 maturing March 31, 2012. Under this agreement, the Company pays a fixed interest rate of 5.15%. Payments or receipts on the agreement are recorded as adjustments to interest expense. Such adjustments have not been significant.
As of September 30, 2010, contractual maturities of long-term obligations are as follows:
Term
Loans |
Capital
Leases |
Credit
Facilities |
Total | |||||||||||||
2010 |
$ | 416 | $ | 66 | $ | | $ | 482 | ||||||||
2011 |
1,010 | 286 | | 1,296 | ||||||||||||
2012 |
737 | 276 | 8,505 | 9,518 | ||||||||||||
2013 |
478 | 118 | | 596 | ||||||||||||
2014 and beyond |
584 | | | 584 | ||||||||||||
$ | 3,225 | $ | 746 | $ | 8,505 | $ | 12,476 | |||||||||
12. | Income Taxes |
As of September 30, 2010, the Company has federal net operating loss carryforwards of $1,319 that will expire in 2028, as well as state net operating loss carryforwards of $10,875 that will expire in the years 2021 through 2027.
As of September 30, 2010, the Company has research tax credit carryforwards of $4,471 that will expire in years 2018 through 2028, as well as alternative minimum tax credit carryforwards of $948 that are carried forward indefinitely.
The Company expects the domestic net deferred tax assets of approximately $24,841, net of a valuation allowance at September 30, 2010 of $1,137, to be realized through the generation of future taxable income and the reversal of existing taxable temporary differences. Valuation allowances have been recorded for certain state tax loss carryforwards as the Company does not believe that it will have future income in the state to utilize the tax loss carryforwards.
United States income taxes have not been provided on the undistributed earnings of the Companys German subsidiary. It is not practicable to estimate the amount of tax that might be payable. The Companys intention is to reinvest these earnings permanently.
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13. | Supplemental Disclosures of Cash Flow and Noncash Investing and Financing Activities |
Selected cash payments, receipts, and noncash activities are as follows:
Three Months Ended | Nine Months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Cash paid for interest |
$ | 121 | $ | 189 | $ | 381 | $ | 380 | ||||||||
Income taxes paid |
128 | 84 | 300 | 242 | ||||||||||||
Purchases of property, plant and equipment financed through capital leases |
| | 744 | 264 | ||||||||||||
Payable for acquired licensing rights |
4,000 | | 4,000 | | ||||||||||||
Payable for purchases of property, plant and equipment |
562 | 822 | 562 | 822 | ||||||||||||
Income tax effect from non-qualified stock option exercises |
| 183 | | 211 |
14. | Segment Data |
The Company processes human and bovine animal tissue and distributes the tissue through various distribution channels. The Companys one line of business is comprised primarily of five product categories: sports medicine, spine, dental, surgical specialties, and BGS and general orthopedic. The following table presents revenues from tissue distribution and other revenues:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Fees from tissue distribution: |
||||||||||||||||
Sports medicine |
$ | 10,887 | $ | 9,493 | $ | 32,751 | $ | 29,211 | ||||||||
Spine |
9,743 | 10,857 | 24,474 | 31,527 | ||||||||||||
Dental |
7,714 | 6,969 | 22,061 | 21,584 | ||||||||||||
Surgical specialties |
6,800 | 8,422 | 18,885 | 19,638 | ||||||||||||
BGS and General Orthopedic |
5,649 | 5,815 | 19,728 | 17,001 | ||||||||||||
Other revenues |
1,043 | 1,257 | 2,896 | 3,606 | ||||||||||||
Total revenues |
$ | 41,836 | $ | 42,813 | $ | 120,795 | $ | 122,567 | ||||||||
Domestic revenues |
37,632 | 37,384 | 106,830 | 105,385 | ||||||||||||
International revenues |
4,204 | 5,429 | 13,965 | 17,182 | ||||||||||||
Total revenues |
$ | 41,836 | $ | 42,813 | $ | 120,795 | $ | 122,567 | ||||||||
For the three months ended September 30, 2010 and 2009, the Company derived approximately 22% and 23%, respectively, and for the nine months ended September 30, 2010 and 2009, the Company derived approximately 18% and 22%, respectively, of its total revenues from Medtronic, Inc.
For the three months ended September 30, 2010 and 2009, the Company derived approximately 19% and 18%, respectively, and for the nine months ended September 30, 2010 and 2009, the Company derived approximately 21% and 22%, respectively, of its total revenues from Zimmer, Inc.
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For the three months ended September 30, 2010 and 2009, the Company derived approximately 10% and 13%, respectively, and for the nine months ended September 30, 2010 and 2009 the Company derived approximately 12% and 14%, respectively, of its total revenues from foreign distribution.
As of September 30, 2010, the Company had $33,239 of property, plant and equipment located domestically, and $11,298 of property, plant and equipment located at its processing facility in Germany.
15. | Commitments and Contingencies |
On September 3, 2010, the Company and Zimmer Dental Inc. (Zimmer), a subsidiary of Zimmer, Inc. entered into a new exclusive distribution agreement (the Agreement), with an effective date of September 30, 2010. The Agreement has an initial term of ten years. Under the terms of the Agreement, the Company will supply sterilized allograft and xenograft implants (the Implants) at an agreed upon transfer price, and Zimmer will be the exclusive distributor of the Implants for dental and oral applications worldwide (except the Ukraine), subject to certain Company obligations under an existing distribution agreement with a third party with respect to certain implants for the dental market. In consideration for Zimmers exclusive distribution rights, Zimmer agreed to the following: 1) payment to the Company of $13,000 within ten days of the effective date (the Upfront Payment), 2) annual exclusivity fees (Annual Exclusivity Fees) paid annually for the term of the contract to be paid at the beginning of each calendar year, the first of which is payable prior to January 11, 2011 in the amount of $4,000 (the Initial Annual Exclusivity Fee), and, 3) escalating annual purchase minimums to maintain exclusivity. Upon occurrence of certain negotiated events that materially and adversely affect Zimmers ability to distribute the Implants, Zimmer may be entitled to certain refund rights with respect to the Upfront Payment and the then current Annual Exclusivity Fee, where such refund would be in an amount limited by a formula specified in the Agreement that is based substantially on the number of days from the occurrence of such event to the date that it is cured by the Company to the satisfaction of Zimmer. Both the Upfront Payment and the Initial Annual Exclusivity Fee have been deferred and are being recognized as other revenues based on Zimmers anticipated annual purchases over the term of the agreement.
On September 10, 2010, the Company entered into an Exclusive License Agreement (the Exclusive License) with Athersys, pursuant to which Athersys will provide RTI access to its Mulitpotent Adult Progenitor Cell (MAPC) technologies to develop and commercialize MAPC technology-based biologic implants for the certain orthopedic applications. In consideration for the Exclusive License, the Company will pay Athersys the following: 1) a non-refundable $3,000 license fee, payable in three time-based $1,000 installments, the first of which was paid upon execution of the agreement, and the remaining two payments expected within the next 18 months, 2) payment of $2,000 contingent upon successful achievement of certain development milestones which the Company believes is reasonably probable, and 3) up to $32,500 contingent upon achievement of certain cumulative revenue milestones in future years. In addition, the Company will pay Athersys royalties from the distribution of implants under a tiered royalty structure based on achievement of certain cumulative revenue milestones. The term of the Exclusive License Agreement is the longer of five years, or the remaining life of any patent or trade secret.
In 2008, the Company was audited by the German value added tax (VAT) authorities and received an assessment for 600 Euros, or $846, for the year ended December 31, 2008. The Company previously estimated an additional potential assessment of 1,580 Euros, or $2,265, for the year ended December 31, 2009. Subsequently, the Company received the actual assessment for the year ended December 31, 2009, in the third quarter of 2010 for 1,069 Euros, or $1,455. The Company estimates an additional potential assessment of 754 Euros, or $1,026, for the nine months ended September 30, 2010. The Company has not accrued a liability for this contingency. The Company does not believe that it is probable that it will ultimately be required to pay the assessment to the German VAT authorities.
14
The Company leases certain facilities, items of office equipment and vehicles under non-cancelable operating lease arrangements expiring on various dates through 2016. The facility leases generally contain renewal options and escalation clauses based upon increases in the lessors operating expenses and other charges. The Company anticipates that most of these leases will be renewed or replaced upon expiration. Future minimum lease commitments under non-cancelable operating leases as of September 30, 2010 are as follows:
Operating
Leases |
||||
2010 |
$ | 429 | ||
2011 |
1,174 | |||
2012 |
767 | |||
2013 |
352 | |||
After 2013 |
134 | |||
$ | 2,856 | |||
The Company is, from time to time, involved in litigation relating to claims arising out of its operations in the ordinary course of business. The Company believes that none of these claims outstanding as of September 30, 2010 will have a material adverse impact on its financial position or results of operations.
The Companys accounting policy is to accrue for legal costs as they are incurred.
15
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Cautionary Statement Relating to Forward Looking Statements
Information contained in this filing contains forward-looking statements which can be identified by the use of forward-looking terminology such as believes, expects, may, will, should, anticipates or comparable terminology, or by discussions of strategy. We cannot assure you that the future results covered by these forward-looking statements will be achieved. Some of the matters described in the Risk Factors section of our Form 10-K constitute cautionary statements which identify factors regarding these forward-looking statements, including certain risks and uncertainties, that could cause actual results to vary materially from the future results indicated in these forward-looking statements. Other factors could also cause actual results to vary materially from the future results indicated in such forward-looking statements.
Management Overview
Given the macroeconomic climate we are not seeing growth in elective surgeries in most of our markets which is impacting the performance in several of our revenue categories.
Our principal goals for 2010 are to build on our competitive strengths in the marketplace to increase revenues, profitability and cash flow as we focus on improved operational efficiency, productivity and asset management.
During 2010 we will maintain our commitment to research and development and introduce new strategically targeted allograft and xenograft implants and focus clinical efforts to support their market acceptance.
16
Three and Nine Months Ended September 30, 2010 Compared With Three and Nine Months Ended September 30, 2009
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(In Thousands) | ||||||||||||||||
Fees from tissue distribution: |
||||||||||||||||
Sports medicine |
$ | 10,887 | $ | 9,493 | $ | 32,751 | $ | 29,211 | ||||||||
Spine |
9,743 | 10,857 | 24,474 | 31,527 | ||||||||||||
Dental |
7,714 | 6,969 | 22,061 | 21,584 | ||||||||||||
Surgical specialties |
6,800 | 8,422 | 18,885 | 19,638 | ||||||||||||
BGS and General Orthopedic |
5,649 | 5,815 | 19,728 | 17,001 | ||||||||||||
Other revenues |
1,043 | 1,257 | 2,896 | 3,606 | ||||||||||||
Total revenues |
$ | 41,836 | $ | 42,813 | $ | 120,795 | $ | 122,567 | ||||||||
Domestic revenues |
37,632 | 37,384 | 106,830 | 105,385 | ||||||||||||
International revenues |
4,204 | 5,429 | 13,965 | 17,182 | ||||||||||||
Total revenues |
$ | 41,836 | $ | 42,813 | $ | 120,795 | $ | 122,567 | ||||||||
Three Months Ended September 30, 2010 Compared With Three Months Ended September 30, 2009
Revenues. Our total revenues decreased $1.0 million, or 2.3%, to $41.8 million for the three months ended September 30, 2010 compared to $42.8 million for the three months ended September 30, 2009.
Sports Medicine - Revenues from sports medicine allografts increased $1.4 million, or 14.7%, to $10.9 million for the three months ended September 30, 2010 compared to $9.5 million for the three months ended September 30, 2009. Sports medicine revenues increased primarily as a result of higher unit volumes of 8.4%, and higher average revenue per unit of 5.8% due primarily to changes in product mix.
Spine - Revenues from spinal allografts decreased $1.1 million, or 10.3%, to $9.7 million for the three months ended September 30, 2010 compared to $10.9 million for the three months ended September 30, 2009. Spine revenues decreased primarily as a result of lower unit volumes of 4.3%, and lower average revenue per unit of 6.2% due primarily to changes in product mix.
Dental - Revenues from dental allografts increased $745,000, or 10.7%, to $7.7 million for the three months ended September 30, 2010 compared to the $7.0 million for three months ended September 30, 2009. Dental revenues increased primarily as a result of entering into a new exclusive distribution agreement with our dental distributor, which included a $1.0 million stocking order leading to higher unit volumes of 42.9% for the third quarter of 2010. This was partially offset by lower average revenue per unit of 22.5% due to the $1.0 million stocking order at transfer fees under the new exclusive distribution agreement. Excluding the $1.0 million stocking order, revenue from dental allografts decreased $255,000.
Surgical Specialties - Revenues from surgical specialty allografts decreased $1.6 million, or 19.3%, to $6.8 million for the three months ended September 30, 2010 compared to $8.4 million for the three months ended September 30, 2009. Surgical specialties revenues decreased as a result of lower unit volumes of 4.4%, and a decrease in average revenue per unit of 15.5% due primarily to changes in product mix. In addition, a new agreement with the Davol division of CR Bard during the third quarter of 2009 included orders of inventory in conjunction with their entry into the breast reconstruction market and to support growth in their hernia business, which resulted in higher revenues from surgical specialty allografts in the third quarter of 2009.
17
Bone Graft Substitutes (BGS) and General Orthopedic - Revenues from BGS and general orthopedic allografts decreased $166,000, or 2.9%, to $5.6 million for the three months ended September 30, 2010 compared to $5.8 million for the three months ended September 30, 2009. BGS and general orthopedic revenues decreased primarily due to lower average revenues per unit of 20.9% due to changes in product mix and increases in unit volumes of 22.8% due to growth in unit volumes from new products introduced in the last eighteen months, increased distributor orders and increased market penetration through our direct distribution force both domestically and internationally.
Other Revenues - Revenues from other sources, consisting of tissue recovery fees, biomedical laboratory fees, deferred revenues, shipping fees and distribution of reproductions of our allografts to distributors for demonstration purposes and restocking fees, decreased by $214,000 to $1.0 million for the three months ended September 30, 2010 compared to $1.3 million for the three months ended September 30, 2009.
Foreign Currency Fluctuations - For the three months ended September 30, 2010, foreign currency exchange fluctuations resulted in a decrease in total revenues of $376,000 due to a 9.7% increase in the value of the U.S. dollar versus the Euro, as compared to the prior year period.
Costs of Processing and Distribution. Costs of processing and distribution decreased $249,000, or 1.1%, to $22.0 million for the three months ended September 30, 2010 compared to $22.2 million for the three months ended September 30, 2009. As a percentage of revenues, costs of processing and distribution increased from 51.9% for the three months ended September 30, 2009 to 52.5% for the three months ended September 30, 2010.
Marketing, General and Administrative Expenses. Marketing, general and administrative expenses increased by $818,000, or 5.5%, to $15.6 million for the three months ended September 30, 2010 from $14.8 million for the three months ended September 30, 2009. Marketing, general and administrative expenses increased as a percentage of revenues from 34.6% for the three months ended September 30, 2009 to 37.4% for the three months ended September 30, 2010. The increase was primarily due to an increase in distributor commissions primarily attributable to higher sports medicine revenue, and payroll expenses of 656,000.
Research and Development Expenses. Research and development expenses decreased by $111,000, or 5.1%, to $2.1 million for the three months ended September 30, 2010 from $2.2 million for the three months ended September 30, 2009. As a percentage of revenues, research and development expenses decreased from 5.1% for the three months ended September 30, 2009 to 5.0% for the three months ended September 30, 2010. The decrease was primarily due to lower studies expense of $126,000.
Asset Impairments and Abandonments . We recognized a $134.7 million loss on asset impairment and abandonments during the three months ended September 30, 2010 as compared to $125,000 for the three months ended September 30, 2009. The other than temporary asset impairment charge of $134.7 million was charged against our goodwill.
Based on the current economic environment and the severe decline in our stock price beginning late in the second quarter of 2010 and sustained through the date of this filing, which created a significant gap between the book and market value of our equity, we concluded that there were sufficient indicators to require an interim goodwill impairment analysis as of September 30, 2010. For purposes of this analysis, estimates of fair value were based on a combination of the income approach, which estimates the fair value of our reporting unit based on future discounted cash flows, and the market approach, which estimates the fair value of our reporting unit on comparable market prices. As of this filing, we have not completed this analysis, due to the complexities involved in determining the implied fair value of the goodwill of the reporting unit. However, based on the work performed to date, we have concluded that an impairment loss is probable and can be reasonably estimated. Accordingly, we recorded a $134,681 goodwill impairment charge for the entire remaining balance, representing our best estimate of the impairment loss, during the three months ended September 30, 2010. The goodwill impairment charge does not affect our liquidity, nor does it affect any financial covenants of our credit agreements.
18
Net Other Expense. Net other expense was $168,000 for the three months ended September 30, 2010 compared to $339,000 for the three months ended September 30, 2009. Interest expense decreased for the three months ended September 30, 2010 to $129,000 from $138,000 for the three months ended September 30, 2009 due to lower interest paid on long-term obligations. Interest income for the three months ended September 30, 2010 of $22,000 was comparable to the prior year period. Foreign exchange loss was $61,000 for the three months ended September 30, 2010 compared to a foreign exchange loss of $221,000 for the three months ended September 30, 2009 due to changes in the value of the U.S. dollar versus the Euro and the timing of payments on foreign currency liabilities.
Income Tax Provision. Income tax provision for the three months ended September 30, 2010 was $387,000 compared to $838,000 for the three months ended September 30, 2009. Our effective tax rate for the three months ended September 30, 2010 and 2009 was 0.3% and 26.6%, respectively. Our effective tax rate for the three months ended September 30, 2010 as compared to 2009 was negatively impacted by the non-deductible goodwill impairment.
Nine Months Ended September 30, 2010 Compared With Nine Months Ended September 30, 2009
Revenues. Our total revenues decreased $1.8 million, or 1.4%, to $120.8 million for the nine months ended September 30, 2010 compared to $122.6 million for the nine months ended September 30, 2009.
Sports Medicine - Revenues from sports medicine allografts increased $3.5 million, or 12.1%, to $32.8 million for the nine months ended September 30, 2010 compared to $29.2 million for the nine months ended September 30, 2009. Sports medicine revenues increased primarily as a result of higher unit volumes of 6.7%, and higher average revenue per unit of 5.1% due primarily to changes in product mix.
Spine - Revenues from spinal allografts decreased $7.1 million, or 22.4%, to $24.5 million for the nine months ended September 30, 2010 compared to $31.5 million for the nine months ended September 30, 2009. Spine revenues decreased primarily as a result of unit volume decreases of 21.5% due to an inventory reduction of approximately $6.0 million in the first half of 2010 from our largest spine distributor.
Dental - Revenues from dental allografts increased $477,000, or 2.2%, to $22.1 million for the nine months ended September 30, 2010 compared to $21.6 million for the nine months ended September 30, 2009. Dental revenues increased primarily as a result of entering into a new exclusive distribution agreement with our dental distributor, which included a $1.0 million stocking order, leading to an increase in unit volumes of 14.4%. This was partially offset by a decrease in average revenue per unit of 10.7% due to the $1.0 million stocking order at transfer fees under the new exclusive distribution agreement. Excluding the $1.0 million stocking order, revenue from dental allografts decreased $523,000, which is primarily the result of elective dental surgeries being negatively impacted by the global economic slowdown as patients continue to defer procedures as a result of the lack of medical insurance reimbursements in this area.
Surgical Specialties - Revenues from surgical specialty allografts decreased $753,000, or 3.8%, to $18.9 million for the nine months ended September 30, 2010 compared to $19.6 million for the nine months ended September 30, 2009. Surgical specialties revenues decreased as a result of lower average revenue per unit of 3.6%, due to changes in product mix. In July 2009, the Company entered into an arrangement with Davol, whereby they are distributing our allografts for breast reconstruction procedures in addition to allografts for hernia repair, which resulted in higher revenues from surgical specialties in the nine months ended September 30, 2009.
Bone Graft Substitutes (BGS) and General Orthopedic - Revenues from BGS and general orthopedic allografts increased by $2.7 million, or 16.0%, to $19.7 million for the nine months ended September 30, 2010 compared to $17.0 million for the nine months ended September 30, 2009. BGS and general orthopedic revenues increased primarily due to an increase in unit volumes of 13.0% and higher average revenues per unit of 2.9% due to changes in product mix. Growth in unit volumes resulted from new products introduced in the last eighteen months, increased distributor orders and increased market penetration through our direct distribution force both domestically and internationally.
19
Other Revenues - Revenues from other sources, consisting of tissue recovery fees, biomedical laboratory fees, deferred revenues, shipping fees and distribution of reproductions of our allografts to distributors for demonstration purposes and restocking fees, decreased by $710,000 to $2.9 million for the nine months ended September 30, 2010 compared to $3.6 million for the nine months ended September 30, 2009. Other Revenues decreased primarily as a result of lower deferred revenue amortization and soft tissue recovery fees.
Foreign Currency Fluctuations - For the nine months ended September 30, 2010, foreign currency exchange fluctuations resulted in a decrease in total revenues of $419,000 due to a 1.0% increase in the value of the U.S. dollar versus the Euro, as compared to the prior year period.
Costs of Processing and Distribution. Costs of processing and distribution decreased by $9,000, or 0.01%, to $65.0 million for the nine months ended September 30, 2010, from $65.0 million for the nine months ended September 30, 2009. As a percentage of revenues, costs of processing and distribution increased from 53.0% for the nine months ended September 30, 2009 to 53.8% for the nine months ended September 30, 2010
Marketing, General and Administrative Expenses. Marketing, general and administrative expenses increased by $59,000, or 0.1%, to $44.9 million for the nine months ended September 30, 2010 from $44.9 million for the nine months ended September 30, 2009. Marketing, general and administrative expenses increased as a percentage of revenues from 36.6% for the nine months ended September 30, 2009 to 37.2% for the nine months ended September 30, 2010. The increase was primarily due to higher distributor commissions and payroll expenses of $1.3 million offset by lower legal expenses of $1.2 million.
Research and Development Expenses. Research and development expenses increased by $1.2 million, or 20.0%, to $7.0 million for the nine months ended September 30, 2010 from $5.8 million for the nine months ended September 30, 2009. As a percentage of revenues, research and development expenses increased from 4.8% for the nine months ended September 30, 2009 to 5.8% for the nine months ended September 30, 2010. The increase was primarily due to higher research compensation, legal, and research supplies expense of $1.2 million.
Asset Impairments and Abandonments . We recognized a $134.7 million loss on asset impairment and abandonments during the nine months ended September 30, 2010 as compared to $208,000 for the nine months ended September 30, 2009. The other than temporary asset impairment charge of $134.7 million was charged against our goodwill.
Based on the current economic environment and the severe decline in our stock price beginning late in the second quarter of 2010 and sustained through the date of this filing, which created a significant gap between the book and market value of our equity, we concluded that there were sufficient indicators to require an interim goodwill impairment analysis as of September 30, 2010. For purposes of this analysis, estimates of fair value were based on a combination of the income approach, which estimates the fair value of our reporting unit based on future discounted cash flows, and the market approach, which estimates the fair value of our reporting unit on comparable market prices. As of this filing, we have not completed this analysis, due to the complexities involved in determining the implied fair value of the goodwill of the reporting unit. However, based on the work performed to date, we have concluded that an impairment loss is probable and can be reasonably estimated. Accordingly, we recorded a $134,681 goodwill impairment charge for the entire remaining balance, representing our best estimate of the impairment loss, during the three months ended September 30, 2010. The goodwill impairment charge does not affect our liquidity, nor does it affect any financial covenants of our credit agreements.
Net Other Expense. Net other expense was $364,000 for the nine months ended September 30, 2010 compared to $431,000 for the nine months ended September 30, 2009. Interest expense increased for the nine months ended September 30, 2010 to $436,000 from $391,000 for the nine months ended September 30, 2009 due to higher interest paid on long-term obligations. Interest income decreased for the nine months ended September 30, 2010 to $85,000 from $218,000 for the nine months ended September 30, 2009 due to the lower interest earned on
20
the investment of excess cash in interest bearing cash equivalents than the comparable prior year period. Foreign exchange loss was $13,000 for the nine months ended September 30, 2010 compared to a foreign exchange loss of $258,000 for the nine months ended September 30, 2009 due to changes in the value of the U.S. dollar versus the Euro and the timing of payments on foreign currency liabilities.
Income Tax Provision. Income tax provision for the nine months ended September 30, 2010 was $1.0 million compared to $1.8 million for the nine months ended September 30, 2009. Our effective tax rate for the nine months ended September 30, 2010 and 2009 was 0.7% and 29.2%, respectively. Our effective tax rate for the nine months ended September 30, 2010 as compared to 2009 was negatively impacted by the non-deductible goodwill impairment.
Liquidity and Capital Resources
Cash Flows - Three Months Ended September 30, 2010 Compared With Three Months Ended September 30, 2009.
Our cash used in operating activities was $831,000 for the three months ended September 30, 2010, compared to cash provided by operating activities of $5.5 million for the three months ended September 30, 2009. The cash used in operating activities in 2010 was primarily due to the timing of payments to certain vendors partially offset by $1.4 million of inventory distributions in excess of tissue procurement and production costs, while 2009 cash provided was primarily a result of the receipt of $8.0 million in fees for exclusive distribution rights.
At September 30, 2010, we had 48 days of revenues outstanding in trade accounts receivable, a decrease of 1 day compared to December 31, 2009. The decrease was due to higher cash receipts from customers than shipments to customers in the third quarter of 2010. At September 30, 2010, we had 378 days of inventory on hand, a decrease of 8 days compared to December 31, 2009.
Our cash used in investing activities was $2.8 million for the three months ended September 30, 2010, compared to $1.2 million for the three months ended September 30, 2009. Our investing activities for the three months ended September 30, 2010 consisted of purchases of property, plant and equipment of $1.7 million, purchases of licensing rights of $1.0 million, and patent costs of $60,000. Our investing activities for the three months ended September 30, 2009 consisted primarily of purchases of property, plant and equipment of $1.1 million and patent costs of $99,000. The increase in purchases of property, plant and equipment was due to timing of payments to certain vendors and the timing of purchases under our annual capital acquisition plan.
Our cash provided by financing activities was $1.4 million for the three months ended September 30, 2010 compared to $1.9 million for the three months ended September 30, 2009. Cash provided by financing activities for the three months ended September 30, 2010 consisted primarily of net proceeds from short-term obligations of $163,000, proceeds from long-term obligations of $5.5 million, and proceeds from exercise of common stock options of $19,000, partially offset by payments on long-term obligations of $4.3 million.
Cash Flows - Nine Months Ended September 30, 2010 Compared With Nine Months Ended September 30, 2009.
Our cash provided by operating activities was $2.9 million for the nine months ended September 30, 2010, compared to $1.4 million for the nine months ended September 30, 2009. The cash provided by operating activities was primarily due to $2.4 million of inventory distributions in excess of tissue procurement and production costs. Cash provided by operating activities in 2009 related to an increase in inventories of human dermis tissue to support the growing surgical specialties business, partially offset by the timing of payments to certain vendors.
At September 30, 2010, we had 48 days of revenues outstanding in trade accounts receivable, a decrease of 1 day compared to December 31, 2009. The decrease was due to higher cash receipts from customers than shipments to customers for the nine months ended September 30, 2010. At September 30, 2010, we had 378 days of inventory on hand, a decrease of 8 days compared to December 31, 2009.
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Our cash used in investing activities was $3.7 million for the nine months ended September 30, 2010, compared to $3.4 million for the nine months ended September 30, 2009. Our investing activities for the nine months ended September 30, 2010 consisted of purchases of property, plant and equipment of $2.4 million, purchases of licensing rights of $1.0 million, and patent costs of $283,000. Our investing activities for the nine months ended September 30, 2009 consisted primarily of purchases of property, plant and equipment of $3.0 million and patent costs of $323,000. The decrease in purchases of property, plant and equipment was due to timing of payments to certain vendors and the timing of purchases under our annual capital acquisition plan.
Our cash used in financing activities was $1.1 million for the nine months ended September 30, 2010 compared to cash provided by financing activities of $2.3 million for the nine months ended September 30, 2009. Cash used in financing activities for the nine months ended September 30, 2010 consisted primarily of net payments on short-term obligations of $886,000 and payments on long-term obligations of $10.7 million partially offset by proceeds from long-term obligations of $9.8 million, and proceeds from exercise of common stock options of $764,000.
Liquidity.
As of September 30, 2010, we had $15.5 million of cash and cash equivalents. On October 14, 2010, we received $13.0 million of the $17.0 million receivable for exclusive distribution fees in connection with the new exclusive distribution agreement with Zimmer. We believe that our working capital as of September 30, 2010, together with our borrowing ability under our revolving credit facilities, will be adequate to fund our on-going operations for the next twelve months.
Certain Commitments.
The Companys short-term and long-term obligations and availability of credit as of September 30, 2010 are as follows:
Outstanding
Balance |
Available
Credit |
|||||||
(In thousands) | ||||||||
Short-term obligations: |
||||||||
Credit facilities |
$ | 1,080 | $ | 1,234 | ||||
Total short-term obligations |
1,080 | 1,234 | ||||||
Long-term obligations: |
||||||||
Credit facility |
8,505 | 4,832 | ||||||
Long-term obligations |
3,225 | | ||||||
Capital leases |
746 | | ||||||
Total long-term obligations |
12,476 | 4,832 | ||||||
Total obligations |
$ | 13,556 | $ | 6,066 | ||||
The following table provides a summary of our debt obligations, operating lease obligations, and other significant obligations as of September 30, 2010.
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Contractual Obligations Due by Period | ||||||||||||||||||||||||
Total | 2010 | 2011 | 2012 | 2013 | After 2013 | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Debt obligations |
$ | 13,556 | $ | 1,562 | $ | 1,296 | $ | 9,518 | $ | 596 | $ | 584 | ||||||||||||
Operating leases |
2,856 | 429 | 1,174 | 767 | 352 | 134 | ||||||||||||||||||
Other significant obligations (1) |
7,630 | 2,270 | 3,120 | 2,110 | 130 | | ||||||||||||||||||
Total |
$ | 24,042 | $ | 4,261 | $ | 5,590 | $ | 12,395 | $ | 1,078 | $ | 718 | ||||||||||||
(1) | These amounts consist of contractual obligations for tissue recovery, development grants and licensing fees. |
The Company was in compliance with all covenants related to its credit facilities and term loans as of September 30, 2010.
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
We are subject to market risk from exposure to changes in interest rates based upon our financing, investing and cash management activities. We do not expect changes in interest rates to have a material adverse effect on our income or our cash flows in 2010. However, we cannot assure that interest rates will not significantly change in the future.
In the United States and Germany, the Company is exposed to interest rate risk. Changes in interest rates affect interest income earned on cash and cash equivalents and interest expense on revolving credit arrangements. Except for an interest rate swap associated with 375,000 Euros (or $510,000) of long-term debt over six years that was started March 31, 2006, the Company does not enter into derivative transactions related to cash and cash equivalents or debt. Accordingly, the Company is subject to changes in interest rates. Based on September 30, 2010 outstanding intercompany balances, a 1% change in interest rates would have had a de-minimis impact on our results of operations.
The value of the U.S. dollar compared to the Euro affects our financial results. Changes in exchange rates may positively or negatively affect revenues, gross margins, operating expenses and net income. The international operation currently transacts business primarily in the Euro. Assets and liabilities of foreign subsidiaries are translated at the period end exchange rate while revenues and expenses are translated at the average exchange rate for the period. Intercompany transactions are translated from the Euro to the U.S. dollar. Based on September 30, 2010 outstanding intercompany balances, a 1% change in currency rates would have had a de-minimis impact on our results of operations.
Item 4. | Controls and Procedures |
As of the end of the period covered by this report, an evaluation was performed on the effectiveness of the design and operation of our disclosure controls and procedures under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Disclosure controls and procedures include controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commissions rules and forms, and accumulated and communicated to the Companys management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were effective as of the end of the period covered by this report.
There have been no changes in the Companys internal control over financial reporting during the Companys last fiscal quarter that materially affected, or are reasonably likely to materially affect the Companys internal control over financial reporting.
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Item 1. | Legal Proceedings |
We refer you to Part I, Item 1, note 15 entitled Commitments and Contingencies to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a description of current legal proceedings.
Item 1A. | Risk Factors |
There has been no material change in our risk factors as previously disclosed in Part I, Item 1.A., Risk Factors , of our Annual Report on Form 10-K for the year ended December 31, 2009, as filed with the SEC on March 1, 2010, as updated by Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, as filed with the SEC on August 9, 2010.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
Item 3. | Defaults Upon Senior Securities |
Not applicable.
Item 6. | Exhibits |
10.1 | Exclusive Distribution Agreement between RTI Biologics, Inc. and Zimmer Dental Inc., dated as of September 3, 2010 and effective as of September 30, 2010. | |
31.1 | Certification of the Chief Executive Officer Under Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of the Executive Vice President and Chief Financial Officer Under Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of Periodic Financial Report by Chief Executive Officer Under Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification of Periodic Financial Report by Executive Vice President and Chief Financial Officer Under Section 906 of the Sarbanes-Oxley Act of 2002. |
|
Confidential treatment requested as to certain portions, which portions were omitted and filed separately with the Commission. |
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SIGNATURES
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.
RTI BIOLOGICS, INC. (Registrant) | ||
By: |
/s/ Brian K. Hutchison |
|
Brian K. Hutchison Chairman and Chief Executive Officer |
||
By: |
/s/ Robert P. Jordheim |
|
Robert P. Jordheim Executive Vice President and Chief Financial Officer |
Date: November 8, 2010
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Exhibit 10.1
Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions.
EXCLUSIVE DISTRIBUTION AGREEMENT
This Exclusive Distribution Agreement (this Agreement ) is made and entered into as of September 30, 2010 (the Effective Date ), by and between Zimmer Dental, Inc., a Delaware corporation ( Zimmer ), and RTI Biologics, Inc., a Delaware corporation ( RTI ).
Recitals
A. RTI prepares allograft and xenograft biologic implants for tissue and bone repair and other surgical solutions, including the Implants (as defined below).
B. Zimmer distributes a variety of dental products manufactured by itself and others.
C. Tutogen Medical, Inc. (a Florida corporation and subsidiary of RTI Biologics, Inc.) and Zimmer (as a permitted successor to Sulzer Calcitek, Inc.) are currently parties to the U.S. Service Agreement dated September 29, 2000, as amended ( U.S. Agreement ); Tutogen Medical GmbH and Zimmer (as a permitted successor to Sulzer Calcitek, Inc.) are currently parties to the Xenograft Distribution Agreement dated September 29, 2000, as amended ( Xenograft Agreement ) and the Processed Tissue Development and License Agreement dated September 29, 2000 ( Development Agreement ); Zimmer Dental Corp. and Tutogen Medical GmbH are currently parties to the Canadian Distribution Agreement dated August 1, 2004, as amended ( Canada Agreement ); and Zimmer and Tutogen Medical, Inc. are currently parties to the Distribution Agreement dated August 17, 2007, as amended ( International Agreement ).
D. RTI desires to appoint Zimmer as the exclusive distributor of the Implants throughout the Territory for use in the Field (each as defined below), and Zimmer desires to accept such appointment, in accordance with the terms and conditions of this Agreement; and
E. Tutogen Medical, Inc., Zimmer and/or their appropriate respective Affiliates have executed separate acknowledgements that the U.S. Agreement, Xenograft Agreement, Development Agreement, Canada Agreement and International Agreement will each be superseded and replaced by this Agreement as of the Effective Date.
Agreement
In consideration of the mutual covenants contained in this Agreement, Zimmer and RTI agree as follows:
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
1.1. Definitions.
(a) Terms Defined in this Article. For purposes of this Agreement, including the Recitals above, the following terms shall have the following meanings:
Adverse Event means any adverse health event to which an Implant has or may have contributed. The term is generally limited to those events that would be reportable to a Regulatory Authority; e.g. , applicable reporting through MedWatch to the FDA (U.S.) or Adverse Reaction/Vigilance Reporting to Competent Authorities (EU).
1
Affiliate means, with respect to an entity (including either Party), a Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the entity. For this purpose, control of an entity means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of the entity, whether through the ownership of at least fifty percent (50%) of the voting interest, including securities, by contract or otherwise.
Agreement means this Exclusive Distribution Agreement including its Exhibits attached hereto as such may be amended from time to time.
Applicable Industry Standards means all applicable standards, requirements, rules and codes of the American Association of Tissue Banks, Advanced Medical Technology Association and other industry organizations recognized by the Parties as authoritative bodies governing the conduct addressed in this Agreement.
Applicable Laws means all applicable common law, statutes, ordinances, rules, regulations or orders of any Governmental Authority, including Regulatory Laws.
Business Day means any day other than a Saturday, a Sunday or a day on which the Federal Reserve Bank of New York is authorized or obligated by law or executive order to remain closed.
Change of Control means, with respect to an entity, a transaction or series of related transactions as a result of which a Person or group of Persons acting in concert directly or indirectly acquires, after the Effective Date, control of the entity such that he, she, or it would either (i) meet the definition of an Affiliate or (ii) acquires ownership of all or substantially all of said entitys assets. With respect to RTI, a Change of Control shall also include such a transaction that transfers ownership of its product line for the Implants to another Person or group of Persons. The transaction(s) may be in any form or combination of forms, including an issuance of voting securities, a grant of one or more proxies, a merger (whether or not the entity survives), a consolidation, a share exchange, a reorganization or an asset sale. For this purpose, control of an entity means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of the entity, whether through the ownership of at least fifty percent (50%) of the voting interests, including securities, by contract or otherwise.
CPI means the consumer price index for all urban consumers, U.S. city average for all items, as published by the United States Department of Labor, Bureau of Labor Statistics.
DBM Agreement means the Exclusive License and Distribution Agreement dated May 14, 2007, as amended, between Zimmer, Inc. and Regeneration Technologies, Inc., pursuant to which Zimmer, Inc. has an exclusive license to distribute products developed from certain licensed technology involving human demineralized bone matrix (DBM) bone paste products.
2
End User means the health care provider who acquires the Implants from Zimmer (or its Marketing Partner) for implantation or administration to a patient.
FDA means the United States Food and Drug Administration or any successor agency having the administrative authority to grant Marketing Approval in the United States.
Fees means the tissue transfer fees (transfer pricing) to be paid by Zimmer to RTI for the Implants.
Field means any and all dental and oral applications, including adjacent relevant anatomy reasonably or commonly grafted, augmented, or reconstructed during dental and oral rehabilitation procedures, and expressly excludes ear, nose, throat and neurosurgical applications.
Field Action means any recall, product withdrawal, correction or removal action with respect to any Implants by Zimmer or RTI due to safety, efficacy, quality or regulatory compliance concerns, including actions to recover title to or possession of, or to halt distribution of, Implants that previously have been shipped to customers.
cGTPs means current good tissue practices as specified in the Regulatory Laws of the applicable Regulatory Authority, as such Regulatory Laws are in effect at the time of manufacturing, including without limitation, Section 361 of the Public Health Services (PHS) Act (42 U.S.C. §264), as amended from time to time, and FDA tissue regulations, including 21 C.F.R. Part 1271, Subparts C and D, as revised from time to time.
Governmental Authority means any country in which the Implants are recovered, processed, sterilized, stored, packaged, marketed, tested, investigated or otherwise regulated, and all states or other political subdivisions thereof and supranational bodies applicable thereto, including the European Union, and all agencies, commissions, officials, courts or other instrumentalities of the foregoing.
Implants means the implants listed and described on Exhibit A to this Agreement and all allograft and xenograft tissue-based bio-implants that constitute improvements, modifications, additions of new features and processing refinements, including new or improved tissue sterilization methods, to any Implants, and line extensions. The term Implants shall not include human demineralized bone matrix (DBM) bone paste products.
Insolvency Event means that the Party has (i) commenced a voluntary proceeding under any insolvency law, (ii) had an involuntary proceeding commenced against it under any insolvency law which has continued undismissed or unstayed for 60 consecutive days, (iii) had a receiver, trustee or similar official appointed for it or for any substantial part of its property, (iv) made an assignment for the benefit of creditors or (v) had an order for relief entered with respect to it by a court of competent jurisdiction under any insolvency law. For purposes hereof, the term insolvency law means any applicable bankruptcy, insolvency or other similar law now or hereafter in effect.
3
Intellectual Property means (i) discoveries, inventions, improvements, concepts and ideas, whether or not patentable, (ii) works of authorship fixed in a tangible medium of expression, (iii) Trademarks, (iv) trade secrets and know-how and (v) all proprietary rights relating thereto, including all applications, registrations and renewals in connection therewith.
Label means the display of written, printed or graphic matter either upon the immediate container of any article ( i.e. , on the outside container or wrapper, if any, of the retail package of the article) or that is easily legible through the outside container or wrapper.
Manufacture means all operations necessary or appropriate to process, test, package, store, sterilize, label, release and ship an Implant in accordance with industry standards, cGTPs, ISO requirements, Applicable Laws and the applicable Specifications.
Marketing Approval means, with respect to any country or jurisdiction, the act of the applicable Regulatory Authority that is necessary under applicable Regulatory Laws for the Manufacture, marketing, transfer, sale and/or Distribution of an implant or product in that country or jurisdiction, and satisfaction of all applicable regulatory and notification requirements.
Marketing Partner means a Third Party that promotes, markets, sells and/or distributes a Partys implants or products under a contractual arrangement with that Party (use of the term Marketing Partner shall not imply the existence of a partnership or any other type of agency relationship).
Package Inserts/Instructions for Use (IFU) means information supplied by the manufacturer of an implant or product that includes all the information needed to use it safely. Specifications for Package Insert/IFU content vary with regulatory jurisdiction, but typically include operating instructions, warnings and/or precautions, indications, contraindications, information relative to sterilization, instructions in the event of damage to sterile packaging, cleaning, disinfection information, etc. The Package Insert/IFU must accompany the implant or product in most jurisdictions, except in the U.S. where electronic provision is an alternative.
Parties means Zimmer and RTI.
Party means Zimmer or RTI, as the context requires.
Person means any individual, group or entity, including Governmental Authorities.
Point of Destination means the location within the Territory for shipment of the Implants as designated by Zimmer in the applicable Firm Order.
Regulatory Authority means, with respect to any country or jurisdiction, any Governmental Authority involved in granting Marketing Approval or in administering Regulatory Laws in that country or jurisdiction.
4
Regulatory Laws means all Applicable Laws governing (i) the import, export, design, testing, investigation, Manufacture, sterilization, storage, distribution, marketing, transfer or sale of an implant, (ii) establishing recordkeeping or reporting obligations for Third-Party Complaints or Adverse Events, (iii) Field Actions or (iv) similar regulatory matters.
RTI IP means all Intellectual Property that is subject as of the Effective Date, or becomes subject during the Term, to RTIs control and that is necessary or useful for the Manufacture, testing, use, promotion, marketing, distribution or transfer of the Implants. For this purpose, RTI shall be considered to control Intellectual Property if RTI owns or has a license to it and also has the right to sublicense marketing and distribution rights to Zimmer.
Specifications means, with respect to each Implant, (i) RTIs design, functionality, processing, storing, packaging, shipping, sterilizing and labeling specifications relating to the Implant, (ii) any design, functionality, processing, storing, packaging, shipping, sterilizing or labeling specifications described in RTIs promotional literature and other Implant documentation made available to Zimmer and (iii) any specifications for processing, testing, storing, packaging, shipping, sterilizing or labeling the Implant set forth in any approved application for Marketing Approval and any supplements and amendments thereto.
Supply Shortfall means a failure of RTI to supply at least eighty-five percent (85%) of the Firm Orders submitted by Zimmer under this Agreement for a specific category of Implants (as designated on Exhibit A ) for three (3) months in any consecutive rolling nine-month period.
Territory means the entire world with the exception of the country(ies) specifically listed on Exhibit B to this Agreement.
Third Party means any Person other than the Parties and their Affiliates.
Third Party Complaint means any expression by a Third Party of dissatisfaction relating to the identity, durability, reliability, safety, efficacy or performance of the Implants, including actual or suspected implant tampering, contamination, mislabeling or misformulation.
Trademarks means all trademarks, service marks, trade dress, logos and trade names, together with all translations, adaptations, derivations and combinations thereof (including all goodwill associated therewith), and all applications, registrations and renewals in connection therewith.
United States or U.S. means the United States of America, including its territories, commonwealths and possessions.
(b) Terms Defined Elsewhere. Capitalized terms not defined in Section 1.1(a) shall have the meanings specified elsewhere in the text of this Agreement. Those terms include the following:
Term |
Section |
|
Agreement | Opening paragraph |
5
Term |
Section |
|
Additional Order | 3.4 | |
Annual Exclusivity Payments | 4.1 | |
Canada Agreement | Recitals | |
Cancellation Notice | 12.1 | |
Claim | 8.1(c) | |
Commercialization License | 8.3 | |
Confidential Information | 7.1(a) | |
******* |
10.1 | |
******* |
2.6(b) | |
******* |
2.6(a) | |
Development Agreement | Recitals | |
Distribute | 2.1 | |
Distribution Rights Payment | 4.1 | |
DRP Meeting | 6.2 | |
Effective Date | Opening paragraph | |
Existing Agreement Implants | 2.2 | |
Existing Distribution Agreement | 2.2 | |
Firm Order | 3.6 | |
Forecasted Firm Order | 3.2 | |
******* |
3.9(e) | |
Initial Term | 12.1 | |
International Agreement | Recitals | |
Material Adverse Market Change | 4.6 | |
******* |
3.9(e)(i) | |
Minimum Requirements | 3.9 | |
Non-Solicitation Period | 13.3 | |
Professional Liability Claim | 11.1(a) | |
QA/RA Agreement | 4.3 | |
Refunds | 4.1(d) | |
******* |
2.3 | |
Rolling Forecast | 3.1 | |
RTI | Opening paragraph | |
RTI New Implant | 2.8(a) | |
RTI Notice | 2.7(b) | |
******* |
10.2 | |
Supply Shortfall Period | 2.4(b) | |
Term | 12.1 | |
Transition Services Agreement | 3.5 | |
U.S. Agreement | Recitals | |
Xenograft Agreement | Recitals | |
Zimmer | Opening paragraph | |
Zimmer New Implant | 2.7(a) | |
Zimmer Notice | 2.8(b) |
6
1.2. Rules of Construction.
(a) Elements of this Agreement. When a reference is made in this Agreement to a Recital, an Article, a Section, or an Exhibit, such reference is to a Recital, Article or Section of, or an Exhibit to, this Agreement, unless otherwise indicated.
(b) Meaning of Include and Variations Thereof. Whenever the words include, included, includes or including are used in this Agreement, they shall be understood to be followed by the words without limitation.
(c) Use of Pronouns. Pronouns, including he, she and it, when used in reference to any Person, shall be deemed applicable to entities or individuals, male or female, as appropriate in any given case.
(d) Headings. Article, Section and other headings contained in this Agreement are for reference purposes only and are not intended to describe, interpret, define or limit the scope, extent or intent of any provision of this Agreement.
(e) Variation on Terms. Standard variations on defined terms (such as the plural form of a term defined in the singular form, and the past tense of a term defined in the present tense) shall be deemed to have meanings that correlate to the meanings of the defined terms.
(f) Currency. The symbol $ means United States dollars.
ARTICLE II
DISTRIBUTION OF THE IMPLANTS
2.1. Distribution Rights. RTI hereby grants to Zimmer and its Affiliates, and Zimmer hereby accepts, the exclusive right to promote, market, transfer and distribute and/or sell (collectively, Distribute or Distribution ) the Implants throughout the Territory for all uses and applications in the Field. Zimmer shall have the right to appoint its Marketing Partners to participate in the Distribution of the Implants in the Territory. Subject to Section 2.2 below, RTI shall not (i) directly or indirectly, Distribute, or permit Distribution of, any allograft or xenograft implants anywhere in the Territory for any uses or applications in the Field, either on its own behalf or through any Affiliate or Third Party or (ii) license any of its proprietary tissue processing technology to any Third Party for use with allograft or xenograft implants for applications in the Field. Except as provided for in Section 2.2, in the event RTI learns that one of its Marketing Partners is Distributing any RTI Manufactured allograft or xenograft implants anywhere in the Territory for any uses or applications in the Field, RTI will take prompt action, including any necessary legal or equitable relief, to force such Third Party to cease such activity.
2.2. Existing Distribution Agreement. Zimmer acknowledges that RTI currently processes certain implants (including bone paste products containing a gelatin carrier and an osteoconductive and/or osteoinductive substance) described and listed in Exhibit C (the Existing Agreement Implants ) for distribution by and through Exactech in the Field pursuant to the terms and conditions of an existing agreement between RTI and Exactech (the Existing Distribution Agreement ). The Parties acknowledge and agree that such activity, limited to the
7
Existing Agreement Implants, shall not be a violation of this Agreement by RTI; provided that RTI shall not, directly or indirectly, permit any Third Party other than Exactech and Exactechs marketing partners (as authorized by the Existing Distribution Agreement) to Distribute the Existing Agreement Implants anywhere in the Territory for any uses or applications in the Field, ********.
2.3. Marketing and Distribution Activities. Zimmer shall have sole control and authority over its marketing activities for the Implants. Zimmers marketing and distribution efforts may include development of collateral marketing materials, surgical training, attendance at professional tradeshows, and pre-clinical and clinical studies, at Zimmers cost. Zimmer shall provide RTI with a reasonable opportunity to review and approve all marketing and collateral materials relating to the Implants solely for purposes of compliance with Regulatory Laws and to ensure the accurate description of RTIs Manufacturing processes, which approval shall not be unreasonably withheld or delayed. Zimmer shall have sole discretion to establish the transfer fee terms and other terms and conditions in connection with the Distribution of the Implants to Zimmers customers. *******
2.4. Sole Source Provider.
(a) RTI shall be Zimmers sole source provider for allograft-based tissue implants (i) comprised of the same material, (ii) having the same application, and (iii) *******, provided RTI has the capability or capacity to meet Zimmers demand, failing which the provision of Section 2.4(b) shall apply. The Parties agree that RTIs sole source provider designation shall in no way limit or modify RTIs obligation under this Agreement to fulfill in a timely manner all Firm Orders for Implants submitted by Zimmer in accordance with Section 3.2 and subject to Section 3.3. For clarification purposes, the Parties further agree that the sole source provider designation shall not apply to (i) any (w) synthetic products and (x) xenograft products (other than those which are Implants), that are currently Distributed by Zimmer, and any improvements to these products, (ii) any synthetic or collagen based products that are intended to complement or expand Zimmers existing portfolio of products and do not compete directly with any Implant, (iii) any allograft or xenograft paste products, and (iv) any product Distributed by Zimmer currently or during the Term of this Agreement in the Field that is (y) currently Distributed by an Affiliate of Zimmer and any improvements to these products, or (z) intended to complement or expand the existing portfolio of products of an Affiliate of Zimmer.
(b) In the event of a Supply Shortfall with respect to a category of Implants, Zimmer shall have the right to utilize Third Party suppliers for the purpose of filling its shortfall with respect to such category of Implants until such time as RTI has established, to RTIs satisfaction and Zimmers satisfaction, which shall not be unreasonably withheld, RTIs ability to meet and maintain for the foreseeable future, capacity sufficient to meet Zimmers demand for such category of Implants, but in no event less than one year (the Supply Shortfall Period ). In addition, Zimmer shall have a reasonable period of no less than twelve (12) months following the Supply Shortfall Period during which to wind down its supply arrangement with any Third Party supplier utilized during the Supply Shortfall Period. Zimmers exercise of its rights under this Section during the Supply Shortfall Period will not reduce or eliminate RTIs obligations to Zimmer with respect to, or the resulting consequences of, an Impeding Event in accordance with Sections 3.9 and 4.1 of this Agreement.
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(c) On or after January 1, 2016, nothing in this Agreement shall prohibit or limit Zimmer from developing internally or by or through a Third Party, substantially similar implants to those in Exhibit A for purposes of Zimmers continuity of supply upon expiration or termination of this Agreement.
2.5. Branding. The Implants shall be branded as directed by Zimmer. Zimmer shall have sole responsibility for obtaining legal protection of Zimmer private label brand names, which shall be proprietary to Zimmer. RTI shall cooperate as reasonably requested by Zimmer to obtain approval of such brand names as may be required by Regulatory Laws (in RTIs and/or Zimmers name, as determined by Zimmer). Packaging materials will utilize designs suited to RTIs production capabilities and RTI shall maintain records of packaging specifications. Within the physical limitations imposed by the previous sentence, packaging graphics and labeling for the Implants will be adapted by RTI as instructed by Zimmer to meet Zimmers branding standards.
2.6. RTI Support of Marketing Effort.
(a) U.S. and Canada. In the U.S. and Canada, ********. All educational events and trade shows shall be conducted in accordance with Applicable Laws and AdvaMed guidelines. *******
(b) Europe, Middle East and Africa (EMEA). In EMEA, *******. All educational events and trade shows shall be conducted in accordance with Applicable Laws. *******
(c) Expenses. RTI and its Affiliate(s) shall be responsible for their own costs and expenses incurred in connection with the marketing and distribution support activities described in this Section; provided that, Zimmer will reimburse RTI for the reasonable lodging, meals and transportation expenses of RTIs or RTIs Affiliate(s) personnel that are necessarily incurred for travel requested by Zimmer in accordance with Zimmers travel policies. RTI will provide Zimmer with all documentation in support of such travel expenses as Zimmer may reasonably require. Notwithstanding the foregoing, the Parties agree that Zimmer will not be obligated to reimburse RTIs travel expenses relating to regular business reviews or meetings required in the normal course of business in managing the Zimmer relationship.
(d) Samples. RTI shall provide Zimmer and its Affiliates and Marketing Partners with sterile and non-sterile Implant samples (with the mix of Implants determined by Zimmer) for education and for demonstration purposes at trade shows, promotional activities, training classes and similar uses *******
(e) Implants for Research. On an annual basis, the Parties shall discuss and agree upon an annual needs assessment for research projects relating to the Implants and/or new implants or indications. RTI shall provide Implants to Zimmer for research purposes for a fee to be negotiated by the Parties on a per research project basis.
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2.7. RTIs Right of First Negotiation.
(a) Scope. RTI shall have the right of first negotiation, on the terms set forth in this Section, if Zimmer seeks to develop and/or distribute any new allograft or xenograft implant for use within the Field (a Zimmer New Implant ). Notwithstanding the foregoing, the Parties acknowledge and agree that the term Zimmer New Implant specifically excludes, and RTIs right of first negotiation under this Section shall not apply to, (i) any (w) synthetic products and (x) xenograft products (other than those which are Implants), that are currently Distributed by Zimmer, and any improvements to these products, (ii) any synthetic or collagen based products that are intended to complement or expand Zimmers existing portfolio of products and do not compete directly with any Implant, (iii) any allograft or xenograft paste products, and (iv) any product Distributed by Zimmer currently or during the Term of this Agreement in the Field that is (y) currently Distributed by an Affiliate of Zimmer and any improvements to these products, or (z) intended to complement or expand the existing portfolio of products of an Affiliate of Zimmer.
(b) Disclosure to RTI. Prior to seeking development or supply of the Zimmer New Implant from any Third Party, Zimmer shall give RTI written notice of such Zimmer New Implant request ( RTI Notice ).
(c) Response and Negotiations. Within ninety (90) days after it receives the RTI Notice, RTI shall notify Zimmer in writing whether it is interested in pursuing a development and/or supply arrangement with Zimmer for the Zimmer New Implant. If RTI desires to develop and/or supply the Zimmer New Implant, the Parties shall begin good faith negotiations on the terms of the development and/or supply arrangement. During the negotiations, Zimmer will continue to provide RTI with any relevant information regarding the Zimmer New Implant that RTI reasonably requests, so long as disclosure will not cause Zimmer to breach any confidentiality obligations and Zimmer has or can acquire the requested information without unreasonable effort or expense.
(d) Termination of Right. If RTI notifies Zimmer that it is not interested in pursuing a development and/or supply arrangement for the Zimmer New Implant, or if Zimmer and RTI have not agreed upon terms within ninety (90) days after Zimmer receives RTIs written response to the RTI Notice, and if throughout that period Zimmer shall have negotiated and responded to information requests in good faith, then RTIs right of first negotiation shall be terminated and Zimmer shall be free to reach an agreement with a Third Party; provided that the terms and conditions agreed upon with the Third Party are not equivalent or more favorable to the Third Party than the last written offer exchanged in the negotiations between Zimmer and RTI.
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2.8. Zimmers Right of First Negotiation.
(a) Scope. Zimmer shall have the right of first negotiation, on the terms set forth in this Section, for any new allograft or xenograft implants developed by RTI (excluding any Existing Agreement Implants covered under Section 2.2) with applications in the Field ( RTI New Implant ).
(b) Disclosure to Zimmer. Subject to Section 2.2 of this Agreement, prior to offering the RTI New Implant for distribution by or through any Third Party, RTI shall first notify Zimmer by written notice ( Zimmer Notice ).
(c) Response and Negotiations. Within ninety (90) days after it receives the Zimmer Notice, Zimmer shall notify RTI in writing whether it is interested in pursuing an distribution arrangement with RTI for the RTI New Implant. If Zimmer desires to Distribute the RTI New Implant, the Parties shall begin good faith negotiations on the terms of the distribution arrangement. During the negotiations, RTI will continue to provide Zimmer with any relevant information that Zimmer reasonably requests, so long as disclosure will not cause RTI to breach any confidentiality obligations and RTI has or can acquire the requested information without unreasonable effort or expense.
(d) Termination of Right. If Zimmer notifies RTI that it is not interested in pursuing a distribution arrangement for the RTI New Implant, or if Zimmer and RTI have not agreed upon terms within ninety (90) days after RTIs receipt of Zimmers response to the Zimmer Notice, and if throughout that period RTI shall have negotiated and responded to information requests in good faith, then Zimmers right of first negotiation shall be terminated and RTI shall be free to reach an agreement with a Third Party; provided that the terms and conditions agreed upon with the Third Party are not equivalent or more favorable to the Third Party than the last written offer exchanged in the negotiations between Zimmer and RTI.
ARTICLE III
TISSUE TRANSFER ORDERS
3.1. Forecasts and Distribution Summaries. Zimmer shall use commercially reasonable efforts to provide to RTI rolling forecasts, broken down by Implant code, of the anticipated quantities of the Implants that Zimmer expects to order (the Rolling Forecast ). The Rolling Forecasts will be updated monthly on or before the fifth (5 th ) Business Day of each month and will show anticipated monthly orders for a period of at least twelve (12) consecutive calendar months, with the first month of each Rolling Forecast being the first full calendar month subsequent to the date on which the then current Rolling Forecast is due, e.g. a Rolling Forecast due by February 5 shall begin with the month of March. The Rolling Forecasts will be non-binding and for planning purposes only. In addition, Zimmer will provide RTI with a monthly summary of the number of Implants distributed by Zimmer and its Affiliates and Marketing Partners in the prior month.
3.2. Firm Orders. On or before the fifth (5 th ) Business Day of each month, Zimmer shall place binding firm tissue transfer orders with RTI for the Implants covering ****** of Zimmers Rolling Forecast, with requested delivery dates no less than the lead time set forth on
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Exhibit A for the applicable Implants (each, a Forecasted Firm Order ). In the event there is a discrepancy between the submitted Rolling Forecast and the Forecasted Firm Order for the ****** of the Rolling Forecast, the Forecasted Firm Order will supersede the Rolling Forecast. Orders for months contained in a Forecasted Firm Order that roll over into the following months Forecasted Firm Order will not change . RTI shall accept all Forecasted Firm Orders placed by Zimmer and provide a written confirmation of its acceptance within five (5) Business Days after receipt of the Forecasted Firm Order. If any Firm Order (as defined below) or confirmation conflicts with any term in this Agreement, the term in this Agreement shall govern and control.
3.3. Fulfillment of Orders. RTI shall fulfill in a timely manner all Forecasted Firm Orders for the Implants submitted by Zimmer in accordance with Section 3.2. RTI shall deliver the Implants to Zimmer no later than the delivery date set forth in the applicable Forecasted Firm Order except to the extent that the aggregate number of Implants ordered for any given month exceeds ******* of the amount of the last Rolling Forecast for such month prior to the submission of the Forecasted Firm Order for such month, in which case RTI shall deliver the portion of the Forecasted Firm Order that does not exceed ******* of the amount of the last such Rolling Forecast no later than the requested delivery date and will use commercially reasonable efforts to deliver the excess Implants to Zimmer on the requested delivery date or as soon as commercially practicable thereafter. In the event that RTI is not able to timely deliver an entire Forecasted Firm Order, RTI will deliver as much of the Forecasted Firm Order as possible and provide immediate written notice to Zimmer of the anticipated supply shortfall by Implant, which notice will specify the cause for the delay and estimated delivery date for the remaining Implants.
3.4. Additional Orders. In addition to Forecasted Firm Orders, Zimmer may submit additional orders for Implants (each, an Additional Order ). RTI agrees to respond in writing to each Additional Order within ten (10) Business Days of receipt, specifying the volumes accepted for production and the estimated date(s) by which said Implants could be delivered. Zimmer will respond to RTI within five (5) Business Days indicating the types and amount of Implants confirmed for production and delivery. Subject to the availability of tissue, RTI agrees to utilize commercially reasonable efforts to accept the Additional Order(s) and to timely fulfill all Additional Orders accepted by RTI within the agreed upon delivery date(s). If RTI becomes aware that it will be unable to ship any Implant in response to an Additional Order, RTI will notify Zimmer in writing within five (5) Business Days after becoming aware of such fact, which notice will specify the cause for the delay or failure to ship and the new delivery date.
3.5. Initial Stocking Order. On the Effective Date, Zimmer will submit to RTI a binding initial stocking order for Implants ******* and the quantity and mix of Implants to be determined by Zimmer. The Parties agree that the initial stocking order will be shipped and invoiced in partial shipments in accordance with the requirements of this Section 3.5. Unless approved by RTI ******* and shipment of the full initial stocking order will be completed within six (6) months of the Effective Date. With respect to the initial stocking order, Zimmer will not be required to receive and be invoiced for more than ******* of Implants in any calendar month and will not be required to take delivery and be invoiced for the full order over less than three (3) consecutive calendar months. Implants ordered in accordance with this Section 3.5 shall not be counted toward the Minimum Requirements of Section 3.9. Contemporaneously with the execution of this Agreement, the Parties will execute an agreement addressing additional detailed procedures with respect to the transition of the fulfillment of orders for Implants (the Transition Services Agreement ) in substantially the form attached to this Agreement as Exhibit D .
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3.6. Orders by Zimmer Affiliates and Subsidiaries. Notwithstanding any provision to the contrary in this Agreement, the Parties agree that any Affiliate of Zimmer that is appropriately approved or licensed to distribute the Implants as required by Applicable Laws (including but not limited to Zimmer (Memphis), Zimmer Dental Corp. (Canada), Zimmer Dental GmbH (Germany)) may place Forecasted Firm Orders and/or Additional Orders (collectively, Forecasted Firm Orders and Additional Orders are referred to in this Agreement as Firm Orders ) directly with RTI under the terms and conditions of this Agreement, and RTI agrees to ship and invoice such Firm Orders directly to the Zimmer Affiliate placing the Firm Order in accordance with the terms and conditions of this Agreement. Inherent with the placing of Firm Orders in accordance with this Section 3.6 shall be the obligation of the Zimmer Affiliate(s) to adhere to the Rolling Forecast requirements of Section 3.1. Zimmer hereby guarantees (i) payment to RTI of invoices for such Firm Orders, and (ii) the Zimmer Affiliate(s) adherence to any other applicable provision of this Agreement as necessary to carry out the scope and intent of this Agreement.
3.7. Shipping. RTI shall package, label, store and ship the Implants in compliance with Applicable Laws (including cGTPs), all applicable Specifications and in accordance with good commercial and industry practice. RTI shall package the Implants suitably for export and appropriately to prevent damage during shipment. The packing slip/delivery note shall state the implant number, Firm Order number and delivery quantity. The Implants shall be shipped F.O.B. RTIs facilities in either Neunkirchen, Germany or Alachua, Florida. At Zimmers expense, RTI shall ship the Implants to the Point of Destination designated by Zimmer in the applicable Firm Order. Zimmer shall bear risk of loss during transport and shall be responsible for the costs of freight and insurance to the Point of Destination, unless RTI is unable to fulfill an entire Firm Order in one shipment or RTI makes multiple shipments for a single Firm Order for any other reason (unless requested by Zimmer or if the order is greater than the ******* of the amount of the most recent Rolling Forecast), in which case RTI shall bear the shipping costs and expenses for the additional shipments. All shipments shall be made by such carrier(s) as are designated in writing by Zimmer.
3.8. Nonconforming Implants. Zimmer, its Marketing Partners and/or the End Users of the Implants, shall have a reasonable right of inspection to verify that the Implants conform to the applicable Firm Order and the terms of this Agreement. Within fifteen (15) days of initial receipt of a Firm Order, Zimmer, its Marketing Partners and/or the End Users of the Implants, whichever first receives the Implants from RTI, shall inform RTI of any claim that a shipment contains a shortage of the Implants or that a shipment fails to conform to the applicable Firm Order. If such notice is not provided to RTI within the prescribed time frame, Zimmer shall be deemed to have accepted the shipment of the Implants for the limited purposes of confirming that the shipment is complete and conforming to the number and type of Implant specified in the Firm Order. With respect to a defect in an Implant that is detected by Zimmer, its Marketing Partners and/or the End Users of the Implants, Zimmer will notify RTI of its warranty claim pursuant to Section 5.8 of this Agreement. RTI shall bear all costs of return (including freight and insurance) for defective and non-conforming Implants and shall either replace the defective or nonconforming Implant without charge (including payment of freight and insurance for delivery
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of the replacement Implant) or, alternatively, provide a refund or credit to Zimmer for the entire amount paid (including tax, freight and insurance) in connection with the defective or nonconforming Implant. Nothing in this Section, including the exercise of rights hereunder, shall be construed as a waiver of Zimmers indemnification rights, its warranty rights or any other common law or statutory remedies.
3.9. Minimum Order Volume. The exclusive Distribution rights for the Implants granted under this Agreement shall become non-exclusive at the option of RTI in the event that Zimmer fails to submit, during the calendar years set forth below, Firm Orders for the Implants with aggregate Fees in the minimum amounts set forth in the following schedule ( Minimum Requirements ):
Calendar Year |
Minimum Aggregate Fees |
|
2011 | ******** | |
2012 | ******** | |
2013 | ******** | |
2014 | ******** | |
2015 | ******** | |
2016 | ******** | |
2017 | ******** | |
2018 | ******** | |
2019 | ******** | |
2020 | ******** |
(a) Notice and Opportunity to Cure. In order to exercise its rights pursuant to this Section, RTI must notify Zimmer in writing of any failure to meet the foregoing Minimum Requirements within thirty (30) days of the end of the particular calendar year deadline noted above for the achievement of stated Minimum Requirements. Zimmer shall be entitled to an opportunity to cure such failure and retain its exclusive Distribution rights by delivering to RTI, within thirty (30) days of its receipt of RTIs notice, (a) one or more Additional Order(s) with aggregate Fees sufficient to satisfy the shortfall in the applicable Minimum Requirements, or (b) a cash payment equal to *******. Any Additional Order(s) submitted by Zimmer pursuant to (a) above to satisfy the shortfall in Minimum Requirements will be applied to the previous calendar year period (the shortfall period) and not the calendar year in which it is submitted for purposes of determining Zimmers compliance with the Minimum Requirements.
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(b) Loss of Exclusivity. In the event that Zimmer does not timely cure any failure to achieve the applicable Minimum Requirements for a calendar year after notice is given by RTI in accordance with the time periods required in this Section, then RTI will have the option to convert Zimmers exclusive Distribution rights for the Implants to non-exclusive Distribution rights for the remainder of the Term by notifying Zimmer in writing of its election to do so within thirty (30) days after the expiration of the applicable cure period. The conversion to non-exclusive will be immediately effective upon expiration of the thirty (30) day notice period. For clarification purposes, RTIs exclusive remedy for Zimmers failure to meet the Minimum Requirements in this Section is to render the Distribution rights non-exclusive.
(c) Carry-forward of Excess Fees. In the event that the aggregate Fees for Zimmers Firm Orders during any calendar year exceed the applicable Minimum Requirement for such calendar year by more than *******, Zimmer shall have the right to carry forward and apply the excess Fees to the immediately subsequent calendar year for purposes of determining Zimmers compliance with the Minimum Requirements for the subsequent calendar year. Excess Fees in one calendar year shall not carry over to any additional subsequent periods beyond the immediately subsequent calendar year.
(d) Exchange Rates. In the case of Fees paid in Euros for EMEA Implant transfers, the rate of exchange to be used in computing achievement of the Minimum Requirement shall be calculated quarterly at the end of each calendar quarter based on the average of the daily exchange rates published by the European Central Bank during the applicable calendar quarter.
(e) ********
ARTICLE IV
PAYMENTS AND FEES
4.1. Payments. In partial consideration for the Distribution rights granted to Zimmer under this Agreement, Zimmer shall make the following payments to RTI: (i) a payment of thirteen million dollars ($13,000,000) for Distribution rights during the Term payable within ten (10) Business Days after the Effective Date of this Agreement (the Distribution Rights Payment ) and (ii) annual exclusivity maintenance payments set out in the table below ( Annual Exclusivity Payments ).
Calendar Year |
Annual Exclusivity Payment |
|
2011 | $4,000,000 | |
2012 | ******* | |
2013 | ******* | |
2014 | ******* | |
2015 | ******* |
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Calendar Year |
Annual Exclusivity Payment |
|
2016 | ******* | |
2017 | ******* | |
2018 | ******* | |
2019 | ******* | |
2020 | ******* |
(a) Annual Exclusivity Payments are payable within ten (10) Business Days following January 1 of each calendar year during the Term, beginning in 2011, for so long as Zimmer maintains the exclusive Distribution rights for Implants granted by RTI under this Agreement; provided that (i) any Annual Exclusivity Payment that falls due during an Impeding Event shall not be payable until the Impeding Event has been successfully cured or favorably resolved by RTI to the reasonable satisfaction of Zimmer and the applicable refund has been determined and paid in accordance with this Section 4.1, and (ii) any Annual Exclusivity Payment that falls due after Zimmer has failed to meet the Minimum Requirements shall not be payable until such failure has been cured by Zimmer. In the event that Zimmer fails to meet the Minimum Requirements and fails to cure the shortfall in accordance with the cure procedures outlined in this Agreement and, as a result, RTI converts Zimmers exclusive Distributions rights under this Agreement to non-exclusive rights, then (x) any Annual Exclusivity Payment made by Zimmer for the then current calendar year, i.e. the calendar year immediately subsequent to the calendar year in which Zimmer failed to meet the Minimum Requirements, shall be refunded to Zimmer, (y) Zimmer will have no further obligation to pay the Annual Exclusivity Payments to RTI, and (z) Zimmers obligation to use RTI as its sole source provider pursuant to Section 2.3 shall terminate.
(b) Upon the occurrence of an Impeding Event with a duration that is greater than twenty (20) Business Days during the Term of this Agreement, and without limiting the indemnification provisions of this Agreement, Zimmer shall be entitled to a prorated refund of the Distribution Rights Payment and the current year Annual Exclusivity Payment received by RTI prior to the Impeding Event in an amount equal to the sum of (i) the total amount of the Distribution Rights Payment multiplied by a fraction, the numerator of which is the number of Business Days from the occurrence of the Impeding Event to the date that it is successfully cured or favorably resolved by RTI to the reasonable satisfaction of Zimmer and the denominator of which is 2500, and (ii) the current year Annual Exclusivity Payment received by RTI prior to the Impeding Event multiplied by a fraction, the numerator of which is the number of Business Days from the occurrence of the Impeding Event to the date that it is successfully cured or favorably resolved by RTI to the commercially reasonable satisfaction of Zimmer and the denominator of which is 250.
(c) Notwithstanding the foregoing, and without limiting the indemnification provisions of this Agreement, if the duration of the Impeding Event is greater than sixty (60)
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Business Days and the Impeding Event is successfully cured or favorably resolved by RTI to the commercially reasonable satisfaction of Zimmer within a commercially reasonable time, not to exceed six (6) months unless otherwise agreed by the Parties, in lieu of the prorated refund of the Distribution Rights Payment and the current year Annual Exclusivity Payment as set forth above, the Parties agree to negotiate in good faith to calculate a more significant refund that would take into account the material impact of the Impeding Event on future Distribution of the Implants by Zimmer and the significantly reduced value of the remaining business to Zimmer under the Distribution rights for the remainder of the Term of this Agreement, which refund shall be no less than three (3) times the amounts that would be calculated using the prorated refund formula in this Section.
(d) Notwithstanding the foregoing, and without limiting the indemnification provisions of this Agreement, in the event that RTI is unable to successfully cure or favorably resolve an Impeding Event to the commercially reasonable satisfaction of Zimmer within a commercially reasonable time, not to exceed twelve (12) months unless otherwise agreed by the Parties, failing which Zimmer shall be entitled to: (i) a refund of the full current year Annual Exclusivity Payment received by RTI prior to the Impeding Event, (ii) a refund of a prorated portion of the Distribution Rights Payments calculated based upon the occurrence date of the Impeding Event through the end of the Term (the refunds of (i) and (ii) being collectively referred to as the Refunds ) , and (iii) Zimmer will have no further obligation to make Annual Exclusivity Payments under this Section for the remainder of the Term of this Agreement. Upon Zimmers receipt of the Refunds from RTI pursuant to this Section, Zimmers exclusive Distribution Rights for the Implants shall become non-exclusive. Notwithstanding the foregoing, Zimmer may elect to maintain its exclusive Distribution rights for the remainder of the Term of this Agreement, in which event Zimmer will continue to pay Annual Exclusivity Payments; provided that the Parties will negotiate in good faith to establish revised lower Annual Exclusivity Payments for the remainder of the Term of this Agreement, which revised Annual Exclusivity Payments shall be no greater than eighty percent (80%) of the amounts that would be payable for the applicable remaining calendar years as set forth in subsection (a) above.
(e) RTI shall make any refund payment due to Zimmer under subsection (b) or (c) above in cash or immediately available funds within ninety (90) days after resolution of the Impeding Event. Any refund payment due to Zimmer under subsection (d) above shall be paid by RTI in cash or immediately available funds within fifteen (15) months after the occurrence of the Impeding Event.
(f) When reasonably requested by RTI, Zimmer agrees to cooperate with RTI in connection with RTIs efforts to cure any Impeding Event. Any expenses to be incurred by Zimmer for such cooperation outside of the ordinary course of its performance under this Agreement will be estimated by Zimmer and submitted to RTI for pre-approval prior to Zimmer incurring any such expense. Approved expenses will be payable to Zimmer by RTI within thirty (30) days after Zimmer submits documentation of the expenses to RTI for reimbursement.
4.2. Fees for Implants.
(a) The initial Fees for Implants ordered by Zimmer under this Agreement are specified in Exhibit A and those Fees shall be firm through December 31, 2011.
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(b) For the 2012 calendar year and each calendar year thereafter, ********
(c) If the Parties are unable to agree on the Fees before the commencement of any calendar year, then the Fees for such calendar year shall be equal to the Fees for the previous calendar year increased by *******.
(d) Zimmer shall have the right to review and audit RTIs documentation and records ******** upon thirty (30) days advanced written notice to RTI and at Zimmers expense.
4.3. ********
4.4. Taxes. Zimmer shall pay, in addition to the Fees, any tax imposed on the transfer and/or distribution of the Implants from RTI to Zimmer.
4.5. Payment Terms. Zimmer shall pay RTI for undisputed Fees invoiced for Implants within thirty (30) days after Zimmers receipt of the applicable RTI invoice. *******
4.6. Material Adverse Market Change. For purposes of this Section, the Parties agree that a Material Adverse Market Change means a change in the End User market for Implants in the Field that is continuing for more than twelve (12) consecutive months during the Term and materially and adversely affects Zimmer such that the total value of Implants transferred to End Users in the Field by Zimmer decreases year over year by at least ******* because of any combination of End User transfer fees and quantity of Implants transferred; provided that such decrease in total value of Implants is driven by market forces and not by Zimmers failure to perform its obligations under the Agreement in a commercially reasonable manner consistent with past practices. Upon the occurrence of a Material Adverse Market Change, Zimmer will notify RTI in writing that it wishes to renegotiate certain terms related to the Annual Exclusivity Payments and the Minimum Requirements. For a period of sixty (60) days, the Parties shall negotiate in good faith to determine adjusted Annual Exclusivity Payments and Minimum Requirements for the remainder of the Term taking such Material Adverse Market Change into consideration. If the Parties cannot reach agreement within sixty (60) days, Zimmer may, at its discretion, convert its exclusive Distribution rights under this Agreement to non-exclusive Distribution rights by providing written notice of such election to RTI. If Zimmer elects to convert its Distribution rights under this Agreement to non-exclusive Distribution rights, then within thirty (30) days of its election, Zimmer shall pay to RTI an amount equal to the Annual Exclusivity Payment for calendar year immediately subsequent to the year of Zimmers election, and Zimmer shall have no further obligation to maintain the Minimum Requirements, to pay the Annual Exclusivity Payments or to utilize RTI as its sole source provider pursuant to Section 2.4.
ARTICLE V
PROCESSING AND SUPPLY
5.1. Capacity. RTI shall maintain sufficient processing capacity (including appropriate processing, storage and distribution facilities and qualified personnel) to meet Zimmers forecasted demand for the Implants.
5.2. Inventory. *******
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5.3. ********
5.4. Processing. RTI will recover, screen, Manufacture and release all Implants in accordance with the Specifications and with all Applicable Laws. RTI shall maintain throughout the Term and for the specified shelf life of the Implant (or for such longer period as may be required by Applicable Laws) accurate and complete records relating to its procurement, screening, Manufacture and release of the Implants, including all records required under Applicable Laws and Applicable Industry Standards. RTI shall allow Zimmer reasonable access to such records upon request.
5.5. Implant Modifications. RTI will notify Zimmer in writing in advance of any Specification changes with respect to the Implants. Any material change in any Specification for the Implants or in RTIs tissue processing procedures or quality controls which might affect commercial claims or collateral or professional liability claims shall require the prior written consent of Zimmer, which consent will not be unreasonably delayed or withheld.
5.6. Subcontracting. RTI will be responsible in all respects for Manufacturing and supplying the Implants under this Agreement. RTI will not engage subcontractors to Manufacture the Implants in any respect, without Zimmers prior written consent, which consent will not be unreasonably withheld. RTI shall comply with all Applicable Laws related to suppliers, subcontractors and vendors, and RTI shall require that all of its suppliers, subcontractors and vendors providing services or products in relation to the Implants are in compliance with all Applicable Laws with regard to such services and products. Notwithstanding Zimmers consent to RTIs use of any subcontracting arrangements, RTI shall remain primarily responsible for performance of its obligations hereunder, including obligations relating to Implant quality assurance, compliance with Applicable Laws and confidential information, regardless of whether any of RTIs obligations are undertaken by a subcontractor.
5.7. Implant Shelf-Life. RTI covenants that all Implants delivered to Zimmer under this Agreement shall have a remaining shelf-life, as measured from the date of receipt by Zimmer, of at least the minimum shelf life for the applicable Implant set forth on Exhibit A .
5.8. Implant Warranty. RTI warrants to Zimmer, its Marketing Partners and the End Users that the Implants, when delivered in accordance with the applicable Firm Order, will (i) conform to the applicable Specifications, (ii) have been recovered, screened, Manufactured and released in compliance with Applicable Laws (including cGTPs) and Applicable Industry Standards and (iii) be free of defects in design, Manufacture, fabrication, workmanship, labeling (including Label warnings) and Package Inserts / IFU. The foregoing warranties shall be in effect with respect to each Implant for the labeled shelf life of the Implant. RTI further warrants to Zimmer that the Implants, when delivered, shall be free and clear of any liens, security interests or encumbrances of any nature whatsoever. RTI DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
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ARTICLE VI
REGULATORY MATTERS
6.1. Compliance with Applicable Laws and Industry Standards. Each Party shall comply in all material respects with all Applicable Laws and Applicable Industry Standards that pertain to its activities under this Agreement and, except as otherwise provided for herein, shall bear the entire cost and expense of such compliance. For avoidance of doubt, and without limiting the generality of the foregoing, each Party shall be responsible for costs and expenses incurred by such Party in order to maintain quality systems and applicable certifications in compliance with United States quality systems regulations, MDD, AATB and ISO 13485.
6.2. Development and Regulatory Planning Meetings. RTI and Zimmer will use commercially reasonable efforts to meet quarterly to discuss regulatory strategies and to agree upon Implant development requirements and priorities. The Parties agree that the fourth quarter meeting in each calendar year will focus on the plans and expectations for new implants in the following calendar year, including new registrations and the relative priority of such registrations, and any new indications or claims for Implants planned for the following calendar year. The Parties will keep written minutes of each development and regulatory planning meeting ( DRP Meeting ).
6.3. Marketing Approvals.
(a) RTI represents and warrants to Zimmer that it has applied for and received Marketing Approval for certain Implants in the countries and jurisdictions specified in Exhibit E-1 and Exhibit E-2 to this Agreement, and that, to the knowledge of RTI, such approvals are in good standing. RTI will be responsible for all costs and expenses relating to the maintenance of Marketing Approvals specified in Exhibit E-1 and shall have primary responsibility for all communications, submissions and interactions with Regulatory Authorities for the purpose of maintaining such approvals. Zimmer will be responsible for all costs and expenses relating to the maintenance of Marketing Approvals specified in Exhibit E-2 and shall have primary responsibility for all communications, submissions and interactions with Regulatory Authorities for the purpose of maintaining such approvals. RTI agrees to cooperate with Zimmer and provide any necessary regulatory assistance as reasonably required by Zimmer in connection with the maintenance of the Marketing Approvals specified on Exhibit E-2 at no cost to Zimmer and agrees that such assistance shall not be counted toward time allotted for assistance to Zimmer in Section 6.4(d).
(b) The Parties acknowledge that existing Marketing Approvals may need to be modified or supplemented in certain countries in order to permit the rebranding and Distribution of the Implants by Zimmer. Zimmer will be responsible for obtaining and maintaining such Marketing Approvals for Zimmer to market and distribute the Implants in the Territory, and for new implants and new indications for Implants as agreed by the Parties. Zimmer will have primary responsibility for all communications, submissions and interactions with the applicable Regulatory Authorities for the purpose of obtaining and maintaining such modified, supplemented or new Marketing Approvals.
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(c) To the extent permitted under Applicable Laws, RTI hereby grants to Zimmer the fully paid-up right to use any and all regulatory approvals and clearances related to the Implants in the Territory for applications in the Field owned by or licensed to RTI and existing as of the Effective Date or obtained during the Term.
6.4. Regulatory Assistance from RTI.
(a) At the request of Zimmer, RTI will provide assistance in creating regulatory master files to develop summary technical documents (STEDs), or documents in similar format for HCT/Ps, for purposes of obtaining and maintaining Marketing Approvals outside the United States for the distribution of the Implants by Zimmer. RTI will update such files at least annually, or as otherwise required by applicable Regulatory Laws and to reflect updates to RTIs quality system.
(b) If a specific Regulatory Authority requires that the tissue processor (or the device manufacturer in the case of Implants that are medical devices) obtain Marketing Approval for the Distribution of the Implants, RTI will use commercially reasonable efforts to obtain and maintain such Marketing Approval, at Zimmers request and expense. In such event, prior to incurring any costs or expenses in connection with such Marketing Approval, RTI shall submit to Zimmer a written budget showing in reasonable detail the anticipated costs and expenses to be incurred by RTI in connection with obtaining and maintaining such Marketing Approval and will obtain Zimmers written approval of such budget before beginning any activities related to obtaining the Marketing Approval. Zimmer will not be required to reimburse RTI for any costs or expenses in excess of the aggregate budgeted costs and expenses, unless RTI obtains Zimmers prior approval for the excess costs and expenses. Any activity in connection with such Marketing Approval will be subject to prioritization by RTI within its regulatory department but will be completed by RTI within a commercially reasonable timeframe.
(c) RTI will provide ongoing regulatory consulting support to Zimmer consisting of a monthly conference call to be scheduled as needed by Zimmer and completion of reasonable follow-up items and issues raised on the monthly call.
(d) ********
6.5. Cooperation. RTI and Zimmer agree to respond to one another regarding regulatory and quality assurance matters in a timely manner, specifically when such responses are subject to deadlines of Regulatory Authorities. As part of the DRP Meeting in the fourth quarter of each calendar year, the Parties will discuss, prioritize and agree upon a plan for regulatory activity related to new country registrations, new indications and/or new implant registrations planned for the following calendar year that may require support from RTI so that the appropriate resource plans can be developed.
6.6. Quality Assurance / Regulatory Affairs Document. Contemporaneously with the execution of this Agreement, the Parties will execute an agreement addressing additional detailed procedures with respect to quality assurance and regulatory affairs matters relating to the Implants (the QA/RA Agreement ) in substantially the form attached to this Agreement as Exhibit F . To the extent that any term in the QA/RA Agreement conflicts with any term of this Agreement, this Agreement shall govern and control.
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6.7. Tissue Compliance. RTI shall provide tissue to Zimmer under this Agreement that has been recovered, screened and tested for donor eligibility and released for distribution, and processed/handled in accordance with all applicable American Associate of Tissue Banks standards and FDA requirements (including, but not limited to, 21 C.F.R. Part 1271, Subparts C and D), as revised from time to time.
6.8. Registrations and Licenses. RTI and Zimmer shall maintain appropriate federal, state, local and foreign registrations, certifications and licenses as required by Applicable Laws for their respective duties under this Agreement.
6.9. Actions by Regulatory Authorities. RTI shall be responsible to Regulatory Authorities throughout the Territory as the manufacturer of the Implants. If either Party receives notice of an actual or threatened inspection, investigation, inquiry, import or export ban, implant seizure, enforcement proceeding or similar action by a Regulatory Authority with respect to any Implant or a Partys activities in connection with any Implant, it will notify the other Party, within forty-eight (48) hours after its receipt of notice, of the action and will deliver to the other Party, within a further twenty-four (24) hours, copies of all relevant documents received from the Regulatory Authority. The Parties shall cooperate in response to the action, including providing information and documentation as requested by the Regulatory Authority (with copies of any such information and documentation to be provided to the other Party). If the action primarily concerns Zimmers activities, then Zimmer shall have primary responsibility to respond to the Regulatory Authority; otherwise, RTI shall have primary responsibility to respond. In either case, upon request of the responding Party, the other Party shall provide consulting advice and assistance with the response.
6.10. Inspections. Zimmer shall have the right, upon reasonable prior notice to RTI, to inspect and audit RTIs facilities and operations for the purpose of verifying RTIs compliance with its obligations under this Agreement and satisfying all Zimmer quality system requirements, including the right to (a) inspect and take samples of the Implants, (b) observe Manufacturing and related operations, procedures and methods, (c) review documentation and (d) conduct quality assurance, quality system and regulatory compliance audits. Audits will be scheduled at mutually convenient times, such scheduling not being subject to unreasonable delay or hindrance.
6.11. Labeling. RTI shall have sole responsibility for obtaining all necessary labeling and for negotiating the language of the Labels and Package Inserts/IFU for the Implants with the Regulatory Authorities in the Territory; however, RTI shall not agree to specific content after the Effective Date without Zimmers prior approval. Zimmer shall bear the cost of all necessary translations for the Labels and Package Inserts/IFU. Prior to incurring any such cost, RTI will submit to Zimmer a written budget showing in reasonable detail the anticipated costs to be incurred for translations and will obtain Zimmers written approval of such budget before incurring such costs. Zimmer will not be required to reimburse RTI for any translation costs in excess of the budget unless RTI obtains Zimmers prior approval for the excess costs.
6.12. Third Party Complaints and Reports. The Parties each shall collect and record Third Party Complaints (and any other events required to be recorded under Applicable Laws) in
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accordance with Applicable Laws and their standard procedures and policies in effect from time to time. Each Party shall provide to the other Party reports of such complaints or events within seventy-two (72) hours after receipt. RTI shall be responsible for investigating all Third Party Complaints and Adverse Events and reporting to Zimmer and the End User, as appropriate. RTI shall be responsible for submitting to the Regulatory Authorities all required reports and other materials, including annual reports, distribution reports and safety reports. Each Party shall immediately notify the other Party of any material information it learns concerning the safety or efficacy of the Implant, regardless of whether formal reporting to any Regulatory Authority is required. Zimmer will cooperate with RTI by supplying information and reports as reasonably requested by RTI to assist RTIs investigation and submissions.
6.13. Traceability. With respect to the Implants, RTI shall maintain manufacturing and traceability records, including records by tissue number; and Zimmer shall maintain storage and distribution records by tissue number, as required by Applicable Laws and Applicable Industry Standards.
6.14. Field Actions. If the Parties determine to conduct any correction, recall, removal or other Field Action involving an Implant (whether or not required by a Regulatory Authority), RTI shall have primary responsibility to carry it out in accordance with Regulatory Laws and Zimmer shall provide reasonable support in connection therewith. If it was caused primarily by the negligent (or more culpable) action (including misstatements) or omission by Zimmer or one of its Affiliates or Marketing Partners, then Zimmer shall bear the related expense; otherwise, RTI shall reimburse Zimmer for Zimmers reasonable expenses and either replace the affected Implants free of charge or, at Zimmers election, refund to Zimmer the entire Fee paid for the affected Implants. RTI shall be responsible for any required reporting to Regulatory Authorities.
6.15. Survival. The provisions of Sections 6.1, 6.9, 6.12, 6.13 and 6.14 of this Article shall survive any termination or expiration of this Agreement with regard to the Implants distributed pursuant to this Agreement.
ARTICLE VII
CONFIDENTIALITY
7.1. Confidentiality. In the course of their activities pursuant to this Agreement, the Parties anticipate that they may disclose Confidential Information to one another and that either Party may, from time to time, be either the disclosing Party or the recipient of Confidential Information. The Parties wish to protect such Confidential Information in accordance with this Section 7.1. The provisions of this Section shall apply to disclosures furnished to or received by a Party and its agents and representatives (which may include agents and representatives of its Affiliates and Marketing Partners). Each Party shall advise its agents and representatives of the requirements of this Section and shall be responsible to ensure their compliance with such provisions.
(a) Definition of Confidential Information. For purposes hereof, Confidential Information with respect to a disclosing Party means all information, in any form or media, concerning the disclosing Party (including patient and donor information) that the disclosing Party furnishes to the recipient, whether furnished before or after the Effective Date,
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and includes all notes, analyses, compilations, studies and other materials, whether prepared by the recipient or others, that contain or reflect such information; provided, however, that Confidential Information does not include information that (i) is or hereafter becomes generally available to the public other than as a result of a disclosure by the recipient, (ii) was already known to the recipient prior to receipt from the disclosing Party as evidenced by prior written documents in its possession not subject to an existing confidentiality obligation to the disclosing Party, (iii) is disclosed to the recipient on a non-confidential basis by a person who is not in default of any confidentiality obligation to the disclosing Party or (iv) is developed by or on behalf of the recipient without reliance on confidential information received under this Agreement. The contents of this Agreement shall be deemed to be Confidential Information of each Party.
(b) Treatment of Confidential Information. The recipient of Confidential Information will (i) maintain its confidentiality using efforts and precautions at least as great as those it uses and takes to protect its own confidential information and trade secrets, but no less than reasonable care, (ii) use such Confidential Information solely in connection with the discharge of its obligations under this Agreement and (iii) not disclose such Confidential Information to any person other than those of its agents and representatives who need to know such Confidential Information in order to accomplish the objectives for which it was disclosed. Notwithstanding the foregoing, the recipient of Confidential Information may disclose it to the extent reasonably necessary to comply with Applicable Laws or with an order issued by a court or regulatory body with competent jurisdiction; provided that, in connection with such disclosure, the recipient uses commercially reasonable efforts to obtain confidential treatment or an appropriate protective order, to the extent available, with respect to such Confidential Information. The recipient will provide notice to the disclosing Party immediately upon recipients receipt of notification that such disclosure of Confidential Information is being requested pursuant to Applicable Laws, court or regulatory body order.
(c) Return and Destruction. Upon request of the disclosing Party, the recipient of Confidential Information will promptly redeliver within a commercially reasonable time to the disclosing Party all Confidential Information provided to the recipient in tangible form, and the recipient will not retain any copies, extracts or other reproductions, in whole or in part, of such Confidential Information. All notes, computer files or other work product prepared by the recipient based upon or incorporating Confidential Information of the disclosing Party shall be destroyed, and such destruction shall be certified in writing to the disclosing Party by an authorized representative of the recipient who supervised such destruction. Notwithstanding the foregoing, legal counsel to the recipient shall be permitted to retain in its files one copy of all Confidential Information to evidence the scope of and to enforce the Partys obligation of confidentiality.
(d) Term of Obligation. The obligations under this Section shall remain in effect from the Effective Date through the fifth anniversary of the expiration or termination of this Agreement.
(e) Indemnification and Remedies. The recipient of Confidential Information shall indemnify and hold harmless the disclosing Party from any damage, loss, cost or liability (including reasonable attorneys fees) arising out of any breach by the recipient (or its
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agents or representatives) of its obligations under this Section. In addition to any other remedies available in law or equity, the disclosing Party shall be entitled to temporary and permanent injunctive relief in the event of a breach (or threatened breach) under this Section.
(f) Prior Agreements. The provisions of this Section shall supersede and replace any prior agreements between the Parties relating to Confidential Information covered hereby.
7.2. Publicity. Neither RTI nor Zimmer shall issue any press release or otherwise publicize the subject matter of this Agreement without the prior written approval of the other Party, except to the extent that such press release or other public announcement is required by the rules governing a securities exchange on which the releasing Partys stock is listed, by law in the opinion of legal counsel to the releasing Party, or the substance thereof has been previously reviewed and released by the other Party or is in the public domain through no fault of the releasing Party. In the event of a required press release or other public announcement, the releasing Party shall provide the other Party with a copy of the proposed text prior to such announcement. The Parties agree that if either Party is required to file this Agreement with any Governmental Authority, the releasing Party shall redact the financial terms of this Agreement to the extent possible in order to keep the financial terms of this Agreement confidential.
ARTICLE VIII
INTELLECTUAL PROPERTY
8.1. IP Representations. RTI hereby represents and warrants to, and covenants with, Zimmer as follows:
(a) RTI owns or holds valid and enforceable rights to use and license (to the extent a license is required), without infringing, misappropriating or violating the rights of any Person, any Intellectual Property that is necessary for (i) RTI to Manufacture and supply the Implants, (ii) Zimmer to Distribute the Implants as contemplated by this Agreement and (iii) RTI to grant to Zimmer and its Affiliates and Marketing Partners the Distribution rights under this Agreement.
(b) RTI has not previously granted any license, covenant not to sue or other right currently in effect that would be inconsistent with or conflict with the grant of the Distribution rights under this Agreement.
(c) No Person has asserted a claim, suit, proceeding, action or demand (a Claim ) with respect to any of the RTI IP, which Claim (i) challenges the validity of RTIs interest in the RTI IP, (ii) alleges that RTIs use or practice of the RTI IP infringes, misappropriates or violates the rights of any Person or (iii) seeks to enjoin or restrain RTIs use or practice of the RTI IP in any manner that would interfere with the transactions contemplated by this Agreement. RTI has no knowledge that any Person intends to assert such a Claim.
8.2. Trademarks. Zimmer and its Affiliates and Marketing Partners shall have the right to use RTIs Trademarks associated with the Implants (including but not limited to Tutoplast ® and Cancelle SP) as required by applicable Regulatory laws or as otherwise necessary in connection with Zimmers distribution of the Implants. Zimmer and its Affiliates and
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Marketing Partners shall comply with the reasonable quality control instructions of RTI as to the form and manner in which such Trademarks shall be used. Any Trademarks developed by Zimmer for the Implant shall be owned exclusively by Zimmer; provided, however, that if Zimmer determines that it is necessary or prudent for regulatory purposes to register any of its Trademarks in the name of RTI in any jurisdiction, then Zimmer shall be permitted to assign such Trademarks to RTI and RTI shall file any registration applications or other comparable filings for such Trademarks as requested by Zimmer at Zimmers expense. Upon the expiration or termination of this Agreement, RTI hereby assigns all right, title and interest in and to any such Trademarks back to Zimmer, and RTI shall take such other actions as may be reasonably requested by Zimmer to vest and protect its right, title and interest in and to such Trademarks. Other than as expressly provided herein, no Party shall acquire or have any right to use the name or Trademarks of the other Party without its prior written consent. Zimmer hereby grants such reciprocal rights in its Trademarks to RTI as reasonably necessary for RTI to carry out the scope and intent of its obligations pursuant to this Agreement.
8.3. Commercialization License. During the Term of this Agreement, RTI hereby grants to Zimmer a royalty-free license and right, with the right to sublicense to its Affiliates and Marketing Partners, under the RTI IP and all improvements and future developments with respect thereto, to use, Distribute and import/export the Implants in the Field throughout the Territory (the Commercialization License ). The Commercialization License shall be exclusive for the Territory, subject to Section 3.4(b). The Commercialization License shall be deemed to be, for purposes of Section 365(n) of the United States Bankruptcy Code, a license to rights to intellectual property as defined therein. Zimmer, as licensee of such rights, shall have the rights and elections with respect thereto as specified in the United States Bankruptcy Code. This Agreement shall be deemed to be an agreement supplemental to the Commercialization License for purposes of Section 365(n) of the United States Bankruptcy Code.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES
9.1. Each Party hereby represents and warrants to, and covenants with, the other Party that:
(a) Due Organization, Good Standing and Power. It is a corporation or other entity duly organized, validly existing and, if relevant in its jurisdiction of organization, in good standing under the laws of its jurisdiction of organization and has the power and authority to own, lease and operate its assets and to conduct the business now being conducted by it. It has all requisite power and authority to enter into this Agreement and to perform its obligations hereunder.
(b) Authorization and Validity of Agreement. The execution, delivery and performance by it of this Agreement and the consummation by it of the transactions contemplated hereby have been duly authorized and approved by all necessary corporate or equivalent action on its part. This Agreement has been duly executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting creditors rights generally and by general equity principles.
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(c) Absence of Conflicts. The execution, delivery and performance by it of this Agreement and the consummation by it of the transactions contemplated hereby do not and will not: (i) violate any Applicable Laws; (ii) conflict with, or result in the breach of any provision of, its certificate or articles of incorporation, bylaws or equivalent organizational documents; (iii) result in the creation of any lien or encumbrance of any nature upon any property being transferred or licensed by it pursuant to this Agreement or (iv) violate, conflict with, result in the breach or termination of, or constitute a default under (or event which, with notice, lapse of time or both, would constitute a default under), any permit, contract or agreement to which it is a party or by which any of its properties or businesses are bound.
(d) Consents. No authorization, consent or approval of, or notice to or filing with, any Governmental Authority is required for the execution, delivery and performance by it of this Agreement, other than regulatory approvals that have not been obtained prior to the Effective Date.
ARTICLE X
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ARTICLE XI
INDEMNIFICATION AND INSURANCE
11.1. Indemnification by RTI.
(a) Scope. RTI shall indemnify and hold harmless Zimmer and its Affiliates and Marketing Partners and their respective shareholders, directors, officers, employees and agents from and against any and all liabilities, damages, losses, penalties, fines, costs and expenses, including reasonable attorneys fees and litigation costs, paid or incurred by them in connection with any Claim based upon or arising from: (i) any bodily injury, death or property damage resulting from any defect in the design, material, Manufacture, fabrication, workmanship, labeling (including Label warnings) and Package Inserts / IFU of the Implants or from the failure of such Implant to conform to the applicable Specifications therefor (a Professional Liability Claim ); (ii) any infringement or violation of a Third-Partys Intellectual Property as a result of the use, Manufacture or Distribution of the Implants (except to the extent that any such alleged infringement or violation is attributed to Zimmer marks; (iii) any facts or circumstances that would constitute a breach by RTI of any of its representations, warranties or obligations under this Agreement; (iv) any violation by RTI of Applicable Laws or (v) any negligent or more culpable act (including misstatements) or omission of RTI or its Affiliates or subcontractors or any of their respective employees or agents relating to the activities subject to this Agreement.
(b) Defense. Zimmer shall give RTI prompt written notice of any Claim with respect to which RTIs indemnification obligations may apply, but any delay or failure of such notice shall not excuse RTIs indemnification obligations except to the extent that RTIs legal position is prejudiced thereby. RTI shall have the right to assume and control the defense and settlement of any such Claim; except that Zimmer shall have the right to assume and control, at RTIs expense, the defense and settlement of any such Claim if: (i) Zimmer reasonably determines that there is a conflict of interest between Zimmer and RTI with respect to such Claim; (ii) RTI fails to employ counsel reasonably satisfactory to Zimmer to represent Zimmer within a reasonable time after RTIs receipt of notice of the Claim or (iii) in the reasonable opinion of counsel to Zimmer, the Claim could result in Zimmer becoming subject to injunctive or other non-monetary relief that could have a material adverse effect on Zimmers ongoing business. The Party not controlling the defense shall have the right to participate in the Claim at its own expense, but in any event shall cooperate with the controlling Party in the investigation and defense of the Claim.
(c) Settlement. If RTI is entitled to, and does, assume and control the defense and settlement of any Claim with respect to which its indemnification obligations apply, then RTI shall not settle such Claim without Zimmers prior written consent (which consent shall not be unreasonably withheld or delayed), unless (i) the sole relief provided in such settlement is monetary in nature and shall be paid in full by RTI and (ii) such settlement does not include any finding or admission of a violation by Zimmer of any Applicable Laws or Third-Partys rights. Whenever Zimmer assumes and controls the defense and settlement of a Claim with respect to
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which RTIs indemnification obligations apply, RTI shall not be liable for any settlement thereof effected by Zimmer unless Zimmer shall have obtained RTIs prior written consent to the proposed settlement (which consent shall not be unreasonably withheld or delayed).
(d) Insurance. RTI shall maintain, from the Effective Date through the fifth anniversary of the expiration date of the Term, a policy of insurance for Professional Liability Claims. Such policy shall (i) have a per occurrence limit of at least ******* and an annual aggregate limit of at least *******, (ii) name Zimmer as an additional insured and (iii) provide for at least thirty (30) days advance written notice to Zimmer of cancellation or material change in coverage. RTI shall provide evidence of such coverage to Zimmer promptly following execution of this Agreement and annually thereafter. If RTI breaches its obligation to maintain insurance, (x) Zimmer shall have the right to obtain coverage as required on RTIs behalf and at RTIs expense, (y) Zimmer shall have the right to set-off the cost of such coverage against any payment owed to RTI for Implants supplied under this Agreement and (z) RTI shall indemnify Zimmer from and against all costs and expenses associated with obtaining such coverage.
11.2. Indemnification by Zimmer.
(a) Scope. Zimmer shall indemnify and hold harmless RTI and its Affiliates and their respective shareholders, directors, officers, employees and agents from and against any and all liabilities, damages, losses, penalties, fines, costs and expenses, including reasonable attorneys fees and litigation costs, paid or incurred by them in connection with any Claim based upon or arising from: (i) any facts or circumstances that would constitute a breach by Zimmer of any of its representations, warranties or obligations under this Agreement; (ii) any violation by Zimmer of Applicable Laws, (iii) any infringement or violation of a Third Partys Intellectual Property as a result of the use, Manufacture or Distribution of the Implants to the extent that such alleged infringement or violation is attributed to Zimmer marks; or (iv) any negligent or more culpable act (including misstatements) or omission of Zimmer or its Affiliates or Marketing Partners or any of their respective employees or agents relating to the activities subject to this Agreement.
(b) Defense. RTI shall give Zimmer prompt written notice of any Claim with respect to which Zimmers indemnification obligations may apply, but any delay or failure of such notice shall not excuse Zimmers indemnification obligations except to the extent that Zimmers legal position is prejudiced thereby. Zimmer shall have the right to assume and control the defense and settlement of any such Claim; except that RTI shall have the right to assume and control, at Zimmers expense, the defense and settlement of any such Claim if: (i) RTI reasonably determines that there is a conflict of interest between Zimmer and RTI with respect to such Claim; (ii) Zimmer fails to employ counsel reasonably satisfactory to RTI to represent RTI within a reasonable time after Zimmers receipt of notice of the Claim or (iii) in the reasonable opinion of counsel to RTI, the Claim could result in RTI becoming subject to injunctive or other non-monetary relief that could have a material adverse effect on RTIs ongoing business. The Party not controlling the defense shall have the right to participate in the Claim at its own expense, but in any event shall cooperate with the controlling Party in the investigation and defense of the Claim.
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(c) Settlement. If Zimmer is entitled to, and does, assume and control the defense and settlement of any Claim with respect to which its indemnification obligations apply, then Zimmer shall not settle such Claim without RTIs prior written consent (which consent shall not be unreasonably withheld or delayed), unless (i) the sole relief provided in such settlement is monetary in nature and shall be paid in full by Zimmer and (ii) such settlement does not include any finding or admission of a violation by RTI of any Applicable Laws or Third-Partys rights. Whenever RTI assumes and controls the defense and settlement of a Claim with respect to which Zimmers indemnification obligations apply, Zimmer shall not be liable for any settlement thereof effected by RTI unless RTI shall have obtained Zimmers prior written consent to the proposed settlement (which consent shall not be unreasonably withheld or delayed).
11.3. Combined Obligations. To the extent that Zimmer and RTI have indemnification obligations to one another in connection with a single Claim, Zimmer and RTI shall contribute to the aggregate damages arising from such Claim in such proportion as is appropriate to reflect their relative responsibilities for such damages, as well as any other relevant equitable considerations. The amount paid or payable by Zimmer or RTI for purposes of apportioning the aggregate damages shall be deemed to include all reasonable legal fees and expenses incurred by such Party in connection with investigating, preparing for or defending against such Claim.
11.4. Survival; Waiver. The provisions of this Article shall survive any termination or expiration of this Agreement. Any waiver by an indemnified Party of its rights under this Article must be set forth expressly and in writing in order to be effective.
ARTICLE XII
TERM AND TERMINATION
12.1. Term. This Agreement shall become effective on the Effective Date and shall continue in effect until December 31, 2020 (the Initial Term ). The Initial Term will be renewed automatically thereafter for successive two-year periods provided that Zimmer gives RTI written notice of its intent to renew the Agreement at least 365 days prior to the expiration of the Initial Term or the applicable renewal term. The Parties agree that the Minimum Requirements for each renewal term will be equal to ******** of the Minimum Requirements for the final calendar year of the Initial Term or the prior renewal term, as applicable, and that the Annual Exclusivity Payment for the renewal term will be equal to ******** of the Annual Exclusivity Payment for the final calendar year of the Initial Term or the prior renewal term, as applicable. This Agreement may be terminated before expiration of the Initial Term or any renewal term only by agreement of the Parties or in accordance with Section 12.2. The period from the Effective Date through the date of expiration or termination of this Agreement shall be referred to as the Term .
12.2. Termination.
(a) Dissolution or Insolvency Event. If a Party is dissolved under applicable corporate law or becomes subject to an Insolvency Event, the other Party may terminate this Agreement by delivering written notice of its decision to do so within six (6) months after actual knowledge of the dissolution or the Insolvency Event.
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(b) Default. If either Party believes the other is in default of any of its material obligations under this Agreement, it may give notice to the other Party describing the default with reasonable specificity. The defaulting Party shall have sixty (60) days in which to remedy such default. Such cure period shall be extended in the case of a default not reasonably capable of being remedied in such 60-day period so long as the defaulting Party uses diligent efforts to remedy such default and is pursuing a course of action that, if successful, will effect such a remedy. If such alleged default is not remedied in the time period set forth above, the Party alleging default shall refer the matter to senior executive officers of each Party, who shall meet and confer within fifteen (15) days after notice from the non-defaulting Party of its desire for such a meeting. If the Parties are unable to resolve any dispute in such meeting, the non-defaulting Party may terminate this Agreement upon delivery to the defaulting Party of a written notice of termination at any time within six (6) months after the meeting but before such default is remedied. The non-defaulting Partys right to terminate this Agreement shall not be construed as an exclusive remedy.
(c) Change of Control. If a Party is subject to a Change of Control and the acquiring Person is, in the other Partys reasonable judgment, a direct competitor to the other Party, the Party that is not subject to the Change of Control may terminate this Agreement effective immediately upon delivery of written notice of termination within six (6) months after consummation of the Change of Control.
(d) Force Majeure. Either Party may terminate this Agreement in accordance with the terms of Section 13.2.
12.3. Consequences of Termination.
(a) General. Termination or expiration of this Agreement shall not relieve any Party of any obligations that are expressly indicated to survive termination or expiration and, accordingly, any provision of this Agreement required for the interpretation or enforcement of any such obligation will survive the expiration or termination of this Agreement. Termination or expiration of this Agreement for any reason shall be without prejudice to any rights that shall have accrued to the benefit of any Party prior to such termination or expiration.
(b) Inventory. Upon the expiration or termination of this Agreement, (i) at Zimmers request, RTI shall continue to process and deliver to Zimmer all Implants that are the subject of a Firm Order from Zimmer as of the date of expiration or termination and (ii) Zimmer shall be permitted to distribute any remaining inventory of the Implants until depleted, including any Implants delivered pursuant to clause (i) above (and for such purpose Zimmer Distributions rights under this Agreement shall continue in effect).
(c) No Additional Payments Due. In the event that Zimmer elects to terminate this Agreement pursuant to Section 12.2, Zimmer shall have no further obligation to make payments under this Agreement other than outstanding payments for invoiced Implants, or Implants subject to a Firm Order as stated in Section 12.3(b).
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ARTICLE XIII
MISCELLANEOUS
13.1. Agency. The Parties are independent contractors. No employee or agent of one Party is, nor shall be deemed to be, based on performance of this Agreement, an employee, agent, partner or legal representative of the other Party for any purpose. Neither Party shall have the right, power or authority to enter into any contracts in the name of, or on behalf of, the other Party, nor shall either Party have the right, power or authority to pledge the credit of the other Party in any way or hold itself out as having the authority to do so.
13.2. Force Majeure. If the performance of any obligation under this Agreement is prevented, restricted or interfered with by reason of war, revolution, civil commotion, acts of terrorism, blockade, embargo, strikes, government acts (generally prohibiting or limiting allograft or xenograft tissue transfer and not directed specifically at RTI or the Implants), natural disasters or similar event which is beyond the reasonable control of the Party affected, then the Party so affected shall, upon giving prior written notice to the other Party, be excused from such performance to the extent of such prevention, restriction, or interference, provided that the Party so affected shall use commercially reasonable efforts to avoid or remove such causes of nonperformance, and shall continue performance hereunder with reasonable dispatch whenever such causes are removed. If such conditions inhibiting complete performance shall continue in excess of ninety (90) days, the Parties shall attempt to arrive at a mutually acceptable compromise within the spirit and intent of this Agreement. If the Parties fail to reach a mutually acceptable compromise within ninety (90) days following the initial attempt to negotiate the same, then the Party who is not affected by the force majeure event shall have the option, by delivery of written notice of termination to the affected Party, to terminate this Agreement. The Parties agree that issues or problems with tissue supply will not constitute a force majeure event.
13.3. Non-Solicitation. During the Term of this Agreement and for a period of one (1) year thereafter (the Non-Solicitation Period ), Zimmer will not, directly or indirectly, actively solicit for employment or employ any employee of RTI involved in RTIs performance of this Agreement, without the prior written consent of RTI. Notwithstanding the foregoing, nothing in this Section will limit or prohibit Zimmer from its ability to make generalized searches for employees by the use of advertisements in the media (including trade media) or by engaging search firms to engage in searches that are not specifically directed by Zimmer to target such RTI employees. In the event that a RTI employee involved in RTIs performance of this Agreement voluntarily leaves his or her position at RTI during the Non-Solicitation Period, Zimmer will not employ such former RTI employee until at least six (6) months after the end of his or her employment with RTI. If a RTI employee involved in RTIs performance of this Agreement is terminated involuntarily by RTI during the Non-Solicitation Period, Zimmer may employ such former RTI employee immediately.
13.4. Entire Agreement; Amendments. This Agreement, together with the QA/RA Agreement and the Transition Services Agreement, constitutes the entire agreement between the Parties hereto concerning its subject matter and supersedes all previous negotiations, agreements and commitments with respect thereto. This Agreement specifically supersedes and replaces the U.S. Agreement, the Xenograft Agreement, the Development Agreement, the Canada Agreement and the International Agreement previously entered into by the Parties and/or their Affiliates with
32
regard to the distribution of certain Implants. This Agreement does not supersede the DBM Agreement, which shall remain in full force and effect in accordance with its terms. This Agreement shall not be released, discharged, amended or modified in any manner except by a written instrument signed by duly authorized officers or representatives of each of the Parties hereto.
13.5. Governing Law. This Agreement shall be governed by and interpreted in accordance with the substantive laws of the State of Illinois, without regard to its choice of law rules. The Parties agree that any legal action relating to this Agreement shall be commenced and maintained before any appropriate state court of record in Cook County, Illinois, or, if necessary, the United States District Court for the Northern District of Illinois, and the Parties hereby submit to the jurisdiction of such courts and waive any right to challenge or otherwise raise questions of personal jurisdiction or venue in any action commenced or maintained in such courts.
13.6. Partial Illegality. If any provision of this Agreement, or the application thereof to any Party or circumstances, shall be declared void, illegal or unenforceable, the remainder of this Agreement shall be valid and enforceable to the extent permitted by Applicable Laws. In such event, the Parties shall use their best efforts to replace the invalid or unenforceable provision by a provision that, to the extent permitted by Applicable Laws, achieves the purposes intended under the invalid or unenforceable provision. Any deviation by either Party from the terms and provisions of this Agreement in order to comply with Applicable Laws shall not be considered a breach of this Agreement.
13.7. Waiver of Compliance. No provision of this Agreement shall be waived by any act, omission or knowledge of a Party or its agents or employees, except by an instrument in writing expressly waiving such provision and signed by a duly authorized officer of the waiving Party, which waiver shall be effective only with respect to the specific obligation and instance described therein.
13.8. Notices. All notices and other communications in connection with this Agreement shall be in writing and shall be sent to the respective Parties at the following addresses, or to such other addresses as may be designated by the Parties in writing from time to time in accordance with this Section, by registered or certified mail, postage prepaid, or by express courier service, service fee prepaid, or by facsimile with a hard copy to follow via mail or express courier service in accordance with this Section.
TO RTI: |
RTI Biologics, Inc. |
11621 Research Circle |
Alachua, FL 32615 |
Attn: Chief Financial Officer |
Fax No.: (386) 462-3821 |
33
With copy to: |
Corporate Counsel |
RTI Biologics, Inc. |
11621 Research Circle |
Alachua, FL 32615 |
Facsimile: (386) 418-5157 |
TO ZIMMER: |
Zimmer Dental, Inc. |
1900 Aston Avenue |
Carlsbad, California 92008 |
Attn: President |
Fax No.: (760) 431-9753 |
With a copy to: |
Zimmer Legal Department |
345 East Main Street |
Warsaw, IN 46580 |
Attn: Assistant General Counsel |
Fax No.: (574) 371-8591 |
Zimmer Dental, Inc. |
1900 Aston Avenue |
Carlsbad, California 92008 |
Attn: Division General Counsel |
Fax No.: (760) 431-9753 |
All notices shall be deemed given and received (i) if delivered by hand, immediately, (ii) if sent by mail, three (3) Business Days after posting, (iii) if delivered by express courier service, the next Business Day in the jurisdiction of the recipient or (iv) if sent by fax, at the time shown in the confirmed electronic receipt, or on the first Business day thereafter if the notice is not sent on a Business Day.
13.9. Counterparts and Facsimile/Electronic. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. A manual signature on this Agreement or any document executed in connection with this Agreement, the image of which is transmitted electronically (including facsimile or e-mail), shall constitute an original signature for purposes of this Agreement.
13.10. Limitation on Liability. Except with respect to the Parties indemnification obligations, neither Party shall be liable to the other for indirect, incidental, consequential, punitive or special damages, including but not limited to lost profits, arising from or relating to any breach of this Agreement, regardless of any notice of the possibility of such damages.
13.11. Further Actions. Each Party agrees, subsequent to the execution and delivery of this Agreement and without any additional consideration, to execute, acknowledge and deliver such further documents and instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.
34
13.12. Assignment. Except as otherwise provided herein, neither Party shall have the right to assign any of its rights or obligations under this Agreement without the prior written consent of the other Party. Without limiting the termination rights set forth in Section 12.2(c), either Party, without any need for consent from the other Party, may assign this Agreement or any of its rights and/or obligations hereunder to an Affiliate or in connection with a merger or other business combination or the sale of substantially all of the assets of such assigning Party; provided, however, that such assignment shall not relieve the assigning Party of its obligations hereunder. If and to the extent that a Party assigns any of its rights and/or obligations hereunder in accordance with this Section, then this Agreement shall be binding upon the assignee to the same extent as if it were a Party hereto and each reference herein to the name of the assigning Party shall be deemed to include the assignee. Any assignment not in accordance with this Section shall be void.
13.13. Jointly Prepared. This Agreement has been prepared jointly and shall not be strictly construed against either Party.
13.14. Third-Party Rights. Except as expressly provided herein, this Agreement is not intended to confer any benefits upon, or create any rights in favor of, any Person other than the Parties and, where expressly provided, their Affiliates and Marketing Partners and the Persons entitled to indemnification.
13.15. Expenses. Except as otherwise expressly provided in this Agreement, each Party shall be responsible for its own expenses incurred in connection with this Agreement and the transactions contemplated hereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURES APPEAR ON FOLLOWING PAGE]
35
IN WITNESS WHEREOF, each Party has caused this Agreement to be executed by its respective duly authorized representative as of the Effective Date.
RTI BIOLOGICS, INC. |
By: |
/s/ Robert P. Jordheim |
Name: |
Robert P. Jordheim |
Title: |
Executive Vice President / CFO |
|
ZIMMER DENTAL, INC. |
By: |
/s/ David C. Dvorak |
Name: |
David C. Dvorak |
Title: |
President and CEO |
36
EXHIBIT A
IMPLANTS
Part Numbers: US, LA, APR, CAN |
Brand / Product Description |
Transfer Fee US/LA/APR/CN |
Lead time
|
Label
Life |
Minimum
|
|||||
Bovine Membranes | ||||||||||
7778 97004 |
CopiOs Pericardium Membrane 30x40mm |
******* | ******* | ******* | ******* | |||||
7777 97003 |
CopiOs Pericardium Membrane 20x30mm |
******* | ******* | ******* | ******* | |||||
7776 97002 |
CopiOs Pericardium Membrane 15x20mm |
******* | ******* | ******* | ******* | |||||
Human Bone Allograft | ||||||||||
8210R 8210z 67210 68210 |
PUROS CANCELLOUS Particulate ø 0,25-1mm, 0,5cc |
******* | ******* | ******* | ******* | |||||
8211R 8211z 67211 68211 |
PUROS CANCELLOUS Particulate ø 0,25-1mm, 1cc |
******* | ******* | ******* | ******* | |||||
8209R 8209Z 67209 68209 |
PUROS CANCELLOUS Particulate ø 0,25-1mm, 2cc |
******* | ******* | ******* | ******* | |||||
8212R 8212Z 67212 68212 |
PUROS CANCELLOUS Particulate ø 1-2mm, 0,5cc |
******* | ******* | ******* | ******* | |||||
8213R 8213Z 67213 68213 |
PUROS CANCELLOUS Particulate ø 1-2mm, 1cc |
******* | ******* | ******* | ******* | |||||
8214R 8214Z 67214 68214 |
PUROS CANCELLOUS Particulate ø 1-2mm, 2cc |
******* | ******* | ******* | ******* | |||||
67215 68215 |
PUROS CANCELLOUS Particulate ø 1-2mm, 3cc |
******* | ******* | ******* | ******* |
EXHIBIT A - Continued
Part Numbers: US, LA, APR, CAN |
Brand / Product Description |
Transfer Fee US/LA/APR/CN |
Lead time
|
Label
Life |
Minimum
|
|||||
67216 68216 |
PUROS CANCELLOUS Particulate ø 2-4mm, 3cc |
******* | ******* | ******* | ******* | |||||
8276R 8276Z 67276 68276 |
PUROS Cortical Particulate ø 1-2mm, 2cc |
******* | ******* | ******* | ******* | |||||
8275R 8275Z 67275 68275 |
PUROS Cortical Particulate ø 1-2mm, 1cc |
******* | ******* | ******* | ******* | |||||
8274R 8274Z 67274 68274 |
PUROS Cortical Particulate ø 1-2mm, 0,5cc |
******* | ******* | ******* | ******* | |||||
8273R 8273Z 67273 68273 |
PUROS Cortical Particulate ø 0,25-1mm, 2cc |
******* | ******* | ******* | ******* | |||||
8272R 8272Z 67272 68272 |
PUROS Cortical Particulate ø 0,25-1mm, 1cc |
******* | ******* | ******* | ******* | |||||
8271R 8271Z 67271 68271 |
PUROS Cortical Particulate ø 0,25-1mm, 0,5cc |
******* | ******* | ******* | ******* | |||||
67220 |
PUROS Block 15x10x9mm P-Block Design |
******* | ******* | ******* | ******* | |||||
68737 |
Tutoplast Spongiosa block P 15x10x9mm |
******* | ******* | ******* | ******* | |||||
68220 8220Z 8220R |
Puros Block J-Block Design 10mm |
******* | ******* | ******* | ******* | |||||
68221 8221Z 8221R |
Puros Block J-Block Design 15mm |
******* | ******* | ******* | ******* | |||||
67221 |
PUROS Corticospongiosa Block 15x15x9mm P-Block |
******* | ******* | ******* | ******* | |||||
68736 |
Tutoplast Spongiosa Block-P 15x15x9mm |
******* | ******* | ******* | ******* |
EXHIBIT A - Continued
Part Numbers: US, LA, APR, CAN |
Brand / Product Description |
Transfer Fee US/LA/APR/CN |
Lead time
|
Label
Life |
Minimum
|
|||||
Allograft Membrane | ||||||||||
8790R 8790Z 68790 |
Puros Dermis Dental Membrane 0.8-1.8mm, 10 x 20 mm |
****** | ****** | ****** | ****** | |||||
8791R 8791Z 68791 |
Puros Dermis Dental Membrane 0.8-1.8mm, 10 x 40 mm |
****** | ****** | ****** | ****** | |||||
8792R 8792Z 68792 |
Puros Dermis Dental Membrane, 0.8-1.8mm, 20 x 40 mm |
****** | ****** | ****** | ****** | |||||
8793R 8793Z 68793 |
Puros Dermis Dental Membrane 0.8-1.8mm, 10 x 10 mm |
****** | ****** | ****** | ****** | |||||
8794R 8794Z 68794 |
Puros Dermis Allograft 0.3-0.8 mm 10 x 10 mm |
****** | ****** | ****** | ****** | |||||
8795R 8795Z 68795 |
Puros Dermis Allograft 0.3-0.8 mm 10 x 20 mm |
****** | ****** | ****** | ****** | |||||
8796R 8796Z 68796 |
Puros Dermis Allograft 0.3-0.8 mm 10 x 40 mm |
****** | ****** | ****** | ****** | |||||
8797R 8797Z 68797 |
Puros Dermis Allograft 0.3-0.8 mm 20 x 40 mm |
****** | ****** | ****** | ****** | |||||
Allograft Pericardium | ||||||||||
8770R 8770Z 68770 |
15 X 20 Puros Pericardium |
****** | ****** | ****** | ****** | |||||
8771R 8771Z 68771 |
20 X 30 Puros Pericardium |
****** | ****** | ****** | ****** | |||||
8772R 8772Z 68772 |
30 X 40 Puros Pericardium |
****** | ****** | ****** | ****** |
EXHIBIT A - Continued
Part Numbers: US, LA, APR, CAN |
Brand / Product Description |
Transfer Fee US/LA/APR/CN |
Lead time
|
Label
Life |
Minimum
|
|||||
Bovine Bone | ||||||||||
90101 |
Tutodent Block 10x10x20 |
****** | ****** | ****** | ****** | |||||
97101 |
CopiOs Block 10x10x20mm |
****** | ****** | ****** | ****** | |||||
90280 |
Tutodent CS - Block 15mm x 10mm x 5,5mm |
****** | ****** | ****** | ****** | |||||
97280 |
CopiOs CS Block 15x10x5.5mm |
****** | ****** | ****** | ****** | |||||
90282 |
Tutodent CS - Block 15mm x 15mm x 5,5mm |
****** | ****** | ****** | ****** | |||||
97282 |
CopiOs CS Block 15x15x5.5 |
****** | ****** | ****** | ****** | |||||
90200 |
Tutodent .5cc - .25-1mm |
****** | ****** | ****** | ****** | |||||
97200 |
CopiOs Cancellous .5cc - .25-1mm |
****** | ****** | ****** | ****** | |||||
90201 |
Tutodent 1.0cc - .25-1mm |
****** | ****** | ****** | ****** | |||||
97201 |
CopiOs Cancellous 1.0cc - .25-1mm |
****** | ****** | ****** | ****** | |||||
90202 |
Tutodent 2.0cc - .25 - 1mm |
****** | ****** | ****** | ****** | |||||
97202 |
CopiOs Cancellous 2.0cc - .25 - 1mm |
****** | ****** | ****** | ****** | |||||
90210 |
Tutodent .5cc - 1-2mm |
****** | ****** | ****** | ****** | |||||
97210 |
CopiOs Cancellous.5cc - 1-2mm |
****** | ****** | ****** | ****** | |||||
90211 |
Tutodent 1.0cc - 1-2mm |
****** | ****** | ****** | ****** | |||||
97211 |
CopiOs Cancellous 1.0cc - 1-2mm |
****** | ****** | ****** | ****** | |||||
90212 |
Tutodent 2.0cc - 1-2mm |
****** | ****** | ****** | ****** | |||||
97212 |
CopiOs Cancellous 2.0cc - 1-2mm |
****** | ****** | ****** | ****** | |||||
Product Demo Samples (unsterile) | ||||||||||
97941 |
CopiOs Membrane 15 x 20 mm Non Packaged Demo Sample |
****** | ****** | ****** | ****** | |||||
97942 |
CopiOs Membrane 20 x 30 mm Non Packaged Demo Sample |
****** | ****** | ****** | ****** | |||||
97943 |
CopiOs Membrane 30x40 mm Non Packaged Demo Sample |
****** | ****** | ****** | ****** | |||||
97901 |
Bovine Cancellous Microchips .25 -1mmm, 1cc Demo Sample in Vials |
****** | ****** | ****** | ****** | |||||
97902 |
Bovine Cancellous Microchips 1-2 mm, 1cc Demo Sample in Vials |
****** | ****** | ****** | ****** | |||||
97911 |
Bovine Cortical Microchips 0.25-1mm, 1cc Demo Sample in vials |
****** | ****** | ****** | ****** | |||||
97912 |
Bovine Cortical Microchips 1-2mm, 1cc Demo Sample in vials |
****** | ****** | ****** | ****** | |||||
97922 |
Bovine Cancellous Block 10mmx10mmx10mm Demo Sample |
****** | ****** | ****** | ****** | |||||
97002 |
CopiOs Membrane 15 x 20 mm Packaged Demo Sample |
****** | ****** | ****** | ****** | |||||
97003 |
CopiOs Membrane 20 x 30 mm Packaged Demo Sample |
****** | ****** | ****** | ****** | |||||
97004 |
CopiOs Membrane 30x40 mm Packaged Demo Sample |
****** | ****** | ****** | ****** | |||||
97201 |
Bovine Cancellous Microchips .25 -1mmm, 1cc Demo Sample packaged |
****** | ****** | ****** | ****** | |||||
90211 |
Bovine Cancellous Microchips 1-2 mm, 1cc Demo Sample packaged |
****** | ****** | ****** | ****** |
EXHIBIT A - Continued
EMEA
|
Brand / Product Description |
Transfer Fee
|
Lead time
|
Label
|
Minimum
|
|||||
Bovine Pericardium | ||||||||||
90004 |
TUTODENT Membrane 30x40mm |
****** | ****** | ****** | ****** | |||||
97004 |
CopiOs Pericardium Membrane 30x40mm |
****** | ****** | ****** | ****** | |||||
90003 |
TUTODENT Membrane 20x30mm |
****** | ****** | ****** | ****** | |||||
97003 |
CopiOs Pericardium Membrane 20x30mm |
****** | ****** | ****** | ****** | |||||
90002 |
TUTODENT Membrane 15x20mm |
****** | ****** | ****** | ****** | |||||
97002 |
CopiOs Pericardium Membrane 15x20mm |
****** | ****** | ****** | ****** | |||||
Human Bone Allograft | ||||||||||
L10377 |
TUTOPLAST Spongiosa Particulate ø 0,25-1mm, 0,5cc |
****** | ****** | ****** | ****** | |||||
68710 |
TUTOPLAST Spongiosa Particulate ø 0,25-1mm, 0,5cc |
****** | ****** | ****** | ****** | |||||
67210 |
PUROS CANCELLOUS Particulate ø 0,25-1mm, 0,5cc |
****** | ****** | ****** | ****** | |||||
68210 |
PUROS CANCELLOUS Particulate ø 0,25-1mm, 0,5cc (US) |
****** | ****** | ****** | ****** | |||||
L20308 |
PUROS CANCELLOUS Particulate ø 0,25-1mm, 0,5cc |
****** | ****** | ****** | ****** | |||||
L10378 |
TUTOPLASTSpongiosa Particulate ø 0,25-1mm, 1cc |
****** | ****** | ****** | ****** | |||||
68711 |
TUTOPLASTSpongiosa Particulate ø 0,25-1mm, 1cc |
****** | ****** | ****** | ****** | |||||
67211 |
PUROS CANCELLOUS Particulate ø 0,25-1mm, 1cc |
****** | ****** | ****** | ****** | |||||
68211 |
PUROS CANCELLOUS Particulate ø 0,25-1mm, 1cc (US) |
****** | ****** | ****** | ****** | |||||
L20309 |
PUROS CANCELLOUS Particulate ø 0,25-1mm, 1cc |
****** | ****** | ****** | ****** | |||||
68712 |
TUTOPLAST Spongiosa Particulate ø 0,25-1mm, 2cc |
****** | ****** | ****** | ****** | |||||
67209 |
PUROS CANCELLOUS Particulate ø 0,25-1mm, 2cc |
****** | ****** | ****** | ****** | |||||
68209 |
PUROS CANCELLOUS Particulate ø 0,25-1mm, 2cc (US) |
****** | ****** | ****** | ****** | |||||
L10379 |
TUTOPLAST Spongiosa Particulate ø 1-2mm, 0,5cc |
****** | ****** | ****** | ****** | |||||
68713 |
TUTOPLAST Spongiosa Particulate ø 1-2mm, 0,5cc |
****** | ****** | ****** | ****** | |||||
67212 |
PUROS CANCELLOUS Particulate ø 1-2mm, 0,5cc |
****** | ****** | ****** | ****** | |||||
68212 |
PUROS CANCELLOUS Particulate ø 1-2mm, 0,5cc (US) |
****** | ****** | ****** | ****** | |||||
L20410 |
PUROS CANCELLOUS Particulate ø 1-2mm, 0,5cc |
****** | ****** | ****** | ****** | |||||
L10380 |
TUTOPLAST Spongiosa Particulate ø 1-2mm, 1cc |
****** | ****** | ****** | ****** | |||||
68714 |
TUTOPLAST Spongiosa Particulate ø 1-2mm, 1cc |
****** | ****** | ****** | ****** | |||||
67213 |
PUROS CANCELLOUS Particulate ø 1-2mm, 1cc |
****** | ****** | ****** | ****** | |||||
68213 |
PUROS CANCELLOUS Particulate ø 1-2mm, 1cc (US) |
****** | ****** | ****** | ****** | |||||
L20411 |
PUROS CANCELLOUS Particulate ø 1-2mm, 1cc |
****** | ****** | ****** | ****** | |||||
L10381 |
TUTOPLAST Spongiosa Particulate ø 1-2mm, 2cc |
****** | ****** | ****** | ****** | |||||
68715 |
TUTOPLAST Spongiosa Particulate ø 1-2mm, 2cc |
****** | ****** | ****** | ****** | |||||
67214 |
PUROS CANCELLOUS Particulate ø 1-2mm, 2cc |
****** | ****** | ****** | ****** | |||||
68214 |
PUROS CANCELLOUS Particulate ø 1-2mm, 2cc (US) |
****** | ****** | ****** | ****** |
EXHIBIT A - Continued
EMEA
|
Brand / Product Description |
Transfer Fee
|
Lead time
|
Label
|
Minimum
|
|||||
L10319 |
TUTOPLAST CANCELLOUS Particulate ø 1-2mm, 3cc |
****** | ****** | ****** | ****** | |||||
67215 |
PUROS CANCELLOUS Particulate ø 1-2mm, 3cc |
****** | ****** | ****** | ****** | |||||
L10382 |
TUTOPLAST CANCELLOUS Particulate ø 2-4mm, 3cc |
****** | ****** | ****** | ****** | |||||
67216 |
PUROS CANCELLOUS Particulate ø 2-4mm, 3cc |
****** | ****** | ****** | ****** | |||||
68716 |
TUTOPLAST CANCELLOUS Particulate ø 2-4mm, 3cc |
****** | ****** | ****** | ****** | |||||
68735 |
TUTOPLAST Cortical Particulate ø 1-2mm, 2cc |
****** | ****** | ****** | ****** | |||||
67276 |
PUROS Cortical Particulate ø 1-2mm, 2cc |
****** | ****** | ****** | ****** | |||||
68276 |
PUROS Cortical Particulate ø 1-2mm, 2cc (US) |
****** | ****** | ****** | ****** | |||||
68734 |
TUTOPLAST Cortical Particulate ø 1-2mm, 1cc |
****** | ****** | ****** | ****** | |||||
67275 |
PUROS Cortical Particulate ø 1-2mm, 1cc |
****** | ****** | ****** | ****** | |||||
68275 |
PUROS Cortical Particulate ø 1-2mm, 1cc (US) |
****** | ****** | ****** | ****** | |||||
68733 |
TUTOPLAST Cortical Particulate ø 1-2mm, 0,5cc |
****** | ****** | ****** | ****** | |||||
67274 |
PUROS Cortical Particulate ø 1-2mm, 0,5cc |
****** | ****** | ****** | ****** | |||||
68274 |
PUROS Cortical Particulate ø 1-2mm, 0,5cc (US) |
****** | ****** | ****** | ****** | |||||
68732 |
TUTOPLAST Cortical Particulate ø 0,25-1mm, 2cc |
****** | ****** | ****** | ****** | |||||
67273 |
PUROS Cortical Particulate ø 0,25-1mm, 2cc |
****** | ****** | ****** | ****** | |||||
68273 |
PUROS Cortical Particulate ø 0,25-1mm, 2cc (US) |
****** | ****** | ****** | ****** | |||||
68731 |
TUTOPLAST Cortical Particulate ø 0,25-1mm, 1cc |
****** | ****** | ****** | ****** | |||||
67272 |
PUROS Cortical Particulate ø 0,25-1mm, 1cc |
****** | ****** | ****** | ****** | |||||
68272 |
PUROS Cortical Particulate ø 0,25-1mm, 1cc (US) |
****** | ****** | ****** | ****** | |||||
68730 |
TUTOPLAST Cortical Particulate ø 0,25-1mm, 0,5cc |
****** | ****** | ****** | ****** | |||||
67271 |
PUROS Cortical Particulate ø 0,25-1mm, 0,5cc |
****** | ****** | ****** | ****** | |||||
68271 |
PUROS Cortical Particulate ø 0,25-1mm, 0,5cc (US) |
****** | ****** | ****** | ****** | |||||
L10386 |
TUTOPLAST Spongiosa Block-P 15x10x9mm |
****** | ****** | ****** | ****** | |||||
68737 |
TUTOPLAST Spongiosa Block-P15x10x9mm |
****** | ****** | ****** | ****** | |||||
67220 |
PUROS Corticospongiosa Block 15x10x9mm |
****** | ****** | ****** | ****** | |||||
68220 |
Puros Block US Design |
****** | ****** | ****** | ****** | |||||
L10385 |
TUTOPLAST Spongiosa Block-P 15x15x9mm |
****** | ****** | ****** | ****** | |||||
68736 |
TUTOPLAST Spongiosa Block-P 15x15x9mm |
****** | ****** | ****** | ****** | |||||
67221 |
PUROS Corticospongiosa Block 15x15x9mm |
****** | ****** | ****** | ****** | |||||
68221 |
Puros Block US Design |
****** | ****** | ****** | ****** | |||||
L10384 |
Tutoplast Spongiasa Dowel ø 7mm, L14-18mm |
****** | ****** | ****** | ****** | |||||
67225 |
Puros Cancellous Dowel ø 7mm, L14-18mm |
****** | ****** | ****** | ****** |
EXHIBIT A - Continued
EMEA
|
Brand / Product Description |
Transfer Fee
|
Lead time
|
Label
|
Minimum
|
|||||
L10383 |
Tutoplast Spongiasa Block, 8x8x8mm |
****** | ****** | ****** | ****** | |||||
67222 |
Puros Cancellous Block, 8x8x8mm |
****** | ****** | ****** | ****** | |||||
L10367 |
Tutoplast Spongiasa Dowel ø 10mm, L16-20mm |
****** | ****** | ****** | ****** | |||||
67226 |
Puros Cancellous Dowel ø 10mm, L 16-20mm |
****** | ****** | ****** | ****** | |||||
L10365 |
Tutoplast Spongiosa block 10x10x20mm |
****** | ****** | ****** | ****** | |||||
67223 |
PUROS cancellous block 10x10x20mm |
****** | ****** | ****** | ****** | |||||
L10302 |
Tutoplast Spongiasa Block 10x20x20mm |
****** | ****** | ****** | ****** | |||||
67224 |
Puros Cancellous Block 10x20x20mm |
****** | ****** | ****** | ****** | |||||
Allograft Membranes | ||||||||||
68700 |
Tutodent Dermis 1,5 x 2 cm |
****** | ****** | ****** | ****** | |||||
68701 |
Tutodent Dermis 2 x 3 cm |
****** | ****** | ****** | ****** | |||||
68702 |
Tutodent Dermis 3 x 4 cm |
****** | ****** | ****** | ****** | |||||
67790 |
Puros Dermis Dental Membrane 10 x 20 mm |
****** | ****** | ****** | ****** | |||||
67791 |
Puros Dermis Dental Membrane 10 x 40 mm |
****** | ****** | ****** | ****** | |||||
67792 |
Puros Dermis Dental Membrane 20 x 40 mm |
****** | ****** | ****** | ****** | |||||
67793 |
Puros Dermis Dental Membrane 10 x 10 mm |
****** | ****** | ****** | ****** | |||||
67794 |
Puros Dermis Allograft 0.3-0.8 mm 10 x 10 mm |
****** | ****** | ****** | ****** | |||||
67795 |
Puros Dermis Allograft 0.3-0.8 mm 10 x 20 mm |
****** | ****** | ****** | ****** | |||||
67796 |
Puros Dermis Allograft 0.3-0.8 mm 10 x 40 mm |
****** | ****** | ****** | ****** | |||||
67797 |
Puros Dermis Allograft 0.3-0.8 mm 20 x 40 mm |
****** | ****** | ****** | ****** | |||||
68770 |
15 X 20 mm Puros Pericardium |
****** | ****** | ****** | ****** | |||||
68771 |
20 X 30 mm Puros Pericardium |
****** | ****** | ****** | ****** | |||||
68772 |
30 X 40 mm Puros Pericardium |
****** | ****** | ****** | ****** | |||||
Bovine Bone | ||||||||||
90101 |
Tutodent Block 10x10x20 |
****** | ****** | ****** | ****** | |||||
90280 |
Tutodent CS - Block 15mm x 10mm x 5,5mm |
****** | ****** | ****** | ****** | |||||
90282 |
Tutodent CS - Block 15mm x 15mm x 5,5mm |
****** | ****** | ****** | ****** | |||||
90200 |
Tutodent .5cc - .25-1mm (CopiOs Cancellous Particulate) |
****** | ****** | ****** | ****** | |||||
90201 |
Tutodent 1.0cc - .25-1mm (CopiOs CancellouS Particulate) |
****** | ****** | ****** | ****** | |||||
90202 |
Tutodent 2.0cc - .25 - 1mm (CopiOs Cancellous Particulate) |
****** | ****** | ****** | ****** | |||||
90210 |
Tutodent .5cc - 1-2mm (CopiOs Cancellous Particulate) |
****** | ****** | ****** | ****** | |||||
90211 |
Tutodent 1.0cc - 1-2mm (CopiOs Cancellous Particulate) |
****** | ****** | ****** | ****** | |||||
90212 |
Tutodent 2.0cc - 1-2mm (CopiOS Cancellous Particulate) |
****** | ****** | ****** | ****** |
EXHIBIT A - Continued
EMEA
|
Brand / Product Description |
Transfer Fee
|
Lead time
|
Label
|
Minimum
|
|||||
Product Demo Samples (unsterile) | ||||||||||
97941 |
CopiOs Membrane 15 x 20 mm Non Packaged Demo Sample | ****** | ****** | ****** | ****** | |||||
97942 |
CopiOs Membrane 20 x 30 mm Non Packaged Demo Sample | ****** | ****** | ****** | ****** | |||||
97943 |
CopiOs Membrane 30x40 mm Non Packaged Demo Sample | ****** | ****** | ****** | ****** | |||||
97901 |
Bovine Cancellous Microchips ø .25 -1mmm, 1cc Demo Sample in Vials | ****** | ****** | ****** | ****** | |||||
97902 |
Bovine Cancellous Microchips ø 1-2 mm, 1cc Demo Sample in Vials | ****** | ****** | ****** | ****** | |||||
97911 |
Bovine Cortical Microchips ø 0.25-1mm, 1cc Demo Sample in vials | ****** | ****** | ****** | ****** | |||||
97912 |
Bovine Cortical Microchips ø 1-2mm, 1cc Demo Sample in vials | ****** | ****** | ****** | ****** | |||||
97922 |
Bovine Cancellous Block 10mmx10mmx10mm Demo Sample | ****** | ****** | ****** | ****** | |||||
CopiOs Membrane 15 x 20 mm Packaged Demo Sample | ****** | ****** | ****** | ****** | ||||||
CopiOs Membrane 20 x 30 mm Packaged Demo Sample | ****** | ****** | ****** | ****** | ||||||
CopiOs Membrane 30 x 40 mm Packaged Demo Sample | ****** | ****** | ****** | ****** | ||||||
Bovine Cancellous Microchips ø .25 -1mmm, 1cc Demo Sample packaged | ****** | ****** | ****** | ****** | ||||||
Bovine Cancellous Microchips ø 1-2 mm, 1cc Demo Sample packaged | ****** | ****** | ****** | ****** | ||||||
Bovine Cortical Microchips ø 0.25-1mm, 1cc Demo Sample Packaged | ****** | ****** | ****** | ****** | ||||||
Bovine Cortical Microchips ø 1-2mm, 1cc Demo Sample Packaged | ****** | ****** | ****** | ****** |
RTI agrees to consolidate part numbers upon Zimmers request to simplify part numbers into two sets:
1. | EMEA (current EMEA Part Numbers) |
2. | All Other Areas (current US Part Numbers) |
RTI and Zimmer will in good faith endeavor to develop a plan to consolidate Part Numbers within ninety (90) days of the expiration or earlier termination of the Transition Services Agreement, Exhibit D. RTI will be allowed to run out existing labeled inventory during the transition.
EXHIBIT B
Territory
Ukraine
** The Parties acknowledge and agree that within five (5) Business Days after execution of this Agreement, RTI shall deliver notice of termination for any and all agreements with third party distributors (******) in ****** in order to terminate such agreements as soon as possible in accordance with the terms of the notice provisions of the respective agreements.
EXHIBIT C
Existing Agreement Implants
Class | Subclass | Description | Preservation | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** |
****** | ****** | ****** | |||
****** | ****** | ****** |
EXHIBIT D
TRANSITION SERVICES AGREEMENT
This Transition Services Agreement (this Agreement ) is made and entered into as of September 30, 2010 (the Effective Date ), by and between Zimmer Dental, Inc., a Delaware corporation ( Zimmer ), and RTI Biologics, Inc., a Delaware corporation ( RTI ).
Recitals
A. Contemporaneously with the execution of this Agreement, Zimmer and RTI are entering into an Exclusive Distribution Agreement (the Distribution Agreement ) for the distribution by Zimmer of certain allograft and xenograft biologic implants prepared and processed by RTI (as specifically defined in the Distribution Agreement, the Implants ). The Distribution Agreement supersedes and replaces certain prior agreements between the parties and/or their Affiliates for the distribution of the Implants, including the U.S. Agreement , as further described in the Distribution Agreement.
B. In connection with the implementation of the Distribution Agreement, Zimmer desires to engage RTI to provide certain transition services, and RTI is willing to provide such services pursuant to this Agreement.
C. Unless otherwise defined herein, capitalized terms used in this Agreement shall have the meanings given to them in the Distribution Agreement.
Agreement
In consideration of the mutual covenants contained in this Agreement, Zimmer and RTI agree as follows:
1. Consignment of Implants . Pursuant to Section 3.5 of the Distribution Agreement, Zimmer will submit to RTI a binding initial stocking order for Implants upon execution of the Distribution Agreement. The initial stocking order will be fulfilled by RTI in partial shipments in accordance with the terms of the order and the Distribution Agreement. In addition, during the Transition Period (as defined below) and prior to October 15, 2010, Zimmer will use commercially reasonable efforts to submit Forecasted Firm Orders and/or Additional Orders to RTI in an amount reasonably estimated by Zimmer (based on trailing six (6) months of Implant sales) to be sufficient to result in Zimmer holding an inventory of Implants with aggregate Fees in an amount no less than ****** USD on or prior to December 31, 2010. Except for Implants shipped at Zimmers request to its facility in Memphis, Tennessee for purposes of building inventory in preparation for assuming the full scope of its responsibilities under the Distribution Agreement, each partial shipment of the Implants subject to the initial stocking order and each Forecasted Firm Order and Additional Orders, if any, placed by Zimmer during the Transition Period will be consigned to RTI and held during the Transition Period at RTIs facility in Alachua, Florida, pursuant to the terms and conditions of this Agreement. Within ten (10) Business Days following the expiration or earlier termination of the Transition Period, Zimmer will accept shipment of all consigned Implants held by RTI.
2. Transition Services . During the Transition Period, RTI shall provide the following transition services ( Services ) to Zimmer:
(a) RTI shall receive and fulfill customer orders for Implants placed by Zimmers U.S. customers, in a manner consistent with the services provided by RTIs Affiliate under the U.S. Agreement as in effect immediately prior to the Effective Date.
(b) RTI shall ship the Implants to Zimmers customers from the consigned inventory of Implants held by RTI, pursuant to the applicable customer orders and in a manner consistent with the services provided by RTIs Affiliate under the U.S. Agreement as in effect immediately prior to the Effective Date.
(c) RTI shall invoice Zimmers customers and collect fees for the transfer of the Implants to Zimmers customers ( Customer Fees ) in a manner consistent with the services provided by RTIs Affiliate under the U.S. Agreement as in effect immediately prior to the Effective Date. RTI shall remit such Customer Fees to Zimmer, less any shipping costs and credit card service fees. RTI shall remit such payments on the first and fifteenth day of each calendar month during the Transition Period (or the next Business Day following such date(s) if such date(s) are not Business Days). Upon the expiration or earlier termination of the Transition Period, Zimmer will assume responsibility for collecting all outstanding receivables incurred after the Effective Date for Implants ordered by Zimmers customers.
(d) RTI shall provide written reports to Zimmer on the first and fifteenth day of each calendar month during the Transition Period (or the next Business Day following such date(s) if such date(s) are not Business Days). The specific schedule and deadlines for such reports are summarized on Exhibit A attached to this Agreement. RTI shall keep accurate records in sufficient detail to enable the Customer Fees due to Zimmer to be determined. During the Transition Period and for a period of one (1) calendar year after the termination of the Transition Period, Zimmer shall have the right to inspect RTIs records from the Transition Period for the purpose of determining the accuracy of Customer Fees paid to Zimmer.
(e) RTI shall provide Zimmer access to the Alachua, Florida facility, at mutually agreeable times and with reasonable prior notice, for the purpose of inspecting the Implants held in consignment for reconciliation to the initial stocking order and applicable Forecasted Firm Orders within a reasonable period of time after each shipment of Implants is consigned to RTI during the Transition Period. Zimmers obligations to inspect shipments for shortage and nonconformance with the applicable order under the Distribution Agreement will be modified during the Transition Period to allow Zimmer a reasonable period of time to complete such inspection at the Alachua, Florida facility.
To the extent that the terms of Section 1 of this Agreement are inconsistent with the terms of Sections 3.3, 3.4, 3.5, 3.6, 3.7, and 3.8 of the Distribution Agreement, the terms of Section 1 of this Agreement shall govern and control during the Transition Period.
3. Compensation . As consideration for its performance of the Services: (i) from the Effective Date through January 1, 2011, RTI shall be entitled to a fixed monthly fee equal to ****** (USD) per month (prorated for any partial month); and (ii) after January 1, 2011 and through the remainder of the Transition Period, RTI shall be entitled to a fixed monthly fee equal ****** (USD) per month (prorated for any partial month) (the Service Fee) Zimmer shall pay the Service Fee to RTI within ten (10) Business Days following the end of the month in which such Services were provided. In the event that RTI is unable to ship ****** so that Zimmer may assume its full scope of responsibilities under the Distribution Agreement, RTI shall not be entitled the then applicable Service Fee (prorated for any partial month).
4. Transition Period . The initial term of this Agreement shall commence on the Effective Date and shall expire on June 30, 2011 (the Initial Transition Period). Upon mutual written agreement, the parties may extend the term of this Agreement beyond the Initial Transition Period (the Extended Transition Period). The Initial Transition Period and the Extended Transition Period are collectively referred to herein as the Transition Period. Zimmer may terminate this Transition Services Agreement prior to the expiration of the Transition Period, provided that Zimmer shall deliver to RTI a written termination notice no less than ten (10) Business Days prior to the desired effective date of such termination. Zimmer will use commercially reasonable efforts to assume its full scope of responsibilities under the Distribution Agreement by January 1, 2011, or as soon as reasonably practicable thereafter. RTI will use commercially reasonable efforts to assist Zimmer to assume its full scope of responsibilities under the Distribution Agreement by January 1, 2011.
5. Title and Risk of Loss . All Implants consigned to RTI pursuant to this Agreement will be owned by Zimmer and, Zimmer will have title to all such Implants until transfer to Zimmers customers. (As used in this Agreement with respect to allograft based Implants, the terms owned and title, including word variations thereof, shall refer to such legal or equitable rights of possession or control as allowed by law). RTI will be responsible for storing the Implants consigned to RTI in a manner consistent with Specifications, Applicable Industry Standards and Applicable Laws and shall take commercially reasonable efforts to protect such Implants from all losses resulting from theft, damage to or destruction of the Implants from the time of consignment until transfer to Zimmers customers. RTI will be responsible for all losses resulting from theft, damage to or destruction of the consigned Implants caused by the intentional misconduct or negligence of RTI or any of its employees. RTI may not transfer ownership of the consigned Implants as collateral or security, nor as a mortgage nor encumber the consigned Implants in any other way in favor of Third Parties. RTI shall take such action and execute and deliver such documents as Zimmer may reasonably request to protect, and maintain the protection of, Zimmers rights in the consigned Implants, including filing financing and other similar statements as may be required to protect Zimmers ownership in any applicable jurisdiction.
6. Confidentiality . The provisions in Article 7 of the Distribution Agreement shall apply to any information disclosed in connection with this Agreement.
7. Agency . The Parties are independent contractors. Neither Party is, nor shall be deemed to be, an employee, agent, partner or legal representative of the other Party for any
purpose. Neither Party, nor its affiliates, employees, officers or agents, shall have the right, power or authority to enter into any contracts in the name of, or on behalf of, the other Party, nor shall either Party, nor its affiliates, employees, officers or agents, have the right, power or authority to pledge the credit of the other Party in any way or hold itself out as having the authority to do so.
8. Entire Agreement; Amendments . This Agreement constitutes the entire agreement between the Parties hereto concerning its subject matter and supersedes all previous negotiations, agreements and commitments with respect thereto. This Agreement shall not be released, discharged, amended or modified in any manner except by a written instrument signed by duly authorized officers or representatives of each of the Parties hereto.
9. Governing Law . This Agreement shall be governed by and interpreted in accordance with the substantive laws of the State of Illinois, without regard to its choice of law rules.
10. Waiver of Compliance . No provision of this Agreement shall be waived by any act, omission or knowledge of a Party or its agents or employees, except by an instrument in writing expressly waiving such provision and signed by a duly authorized officer of the waiving Party, which waiver shall be effective only with respect to the specific obligation and instance described therein.
11. Notices . All notices and other communications in connection with this Agreement shall be in writing and shall be sent to the respective Parties at their addresses set forth in the Distribution Agreement. All notices shall be deemed given and received (i) if delivered by hand, immediately, (ii) if sent by mail, three (3) Business Days after posting, (iii) if delivered by express courier service, the next Business Day in the jurisdiction of the recipient or (iv) if sent by fax, at the time shown in the confirmed electronic receipt, or on the first Business day thereafter if the notice is not sent on a Business Day.
12. Counterparts and Facsimile/Electronic Delivery . This Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. A manual signature on this Agreement or any document executed in connection with this Agreement, the image of which is transmitted electronically (including facsimile or e-mail), shall constitute an original signature for purposes of this Agreement.
13. Assignment . Neither Party shall have the right to assign any of its rights or obligations under this Agreement without the prior written consent of the other Party. Any assignment not in accordance with this Section 13 shall be void.
[SIGNATURES ON FOLLOWING PAGE;
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, each Party has caused this Agreement to be executed by its respective duly authorized representative as of the Effective Date.
RTI BIOLOGICS, INC. |
By: |
|
Name: |
|
Title: |
|
ZIMMER DENTAL, INC. |
By: |
|
Name: |
|
Title: |
|
EXHIBIT A to Transition Services Agreement
Data and Reports to Be Provided to Zimmer
(All days are in Business Days)
Description | Timing | Due Date | ||
Detailed Sales Report (in the format provided by Zimmer) |
Monthly |
1st day of the month by 10:00 a.m. (E.S.T.) |
||
Accounts Receivable Aging Report by Customer by Invoice |
Monthly |
1st day of the month by 10:00 a.m. (E.S.T.) |
||
Cash Receipts Report by Customer, by Invoice | Monthly |
1st day of the month by 10:00 a.m. (E.S.T.) |
||
Inventory Report by SKU | Monthly |
1st day of the month by 5:00 p.m. (E.S.T.) |
||
Inventory Report by SKU | Initial Purchase |
Upon Delivery to consigned RTI location |
EXHIBIT E-1
Marketing Approvals
********
EXHIBIT E-2
Puros brand Implants:
Country
********
EXHIBIT E-2 Continued
CopiOs brand Implants:
********
EXHIBIT F
QUALITY AGREEMENT
1.0 | PURPOSE |
This Quality Agreement is an Exhibit to the Exclusive Distribution Agreement, dated September 30, 2010, by and between Zimmer Dental, Inc. and RTI Biologics, Inc. ( Exclusive Distribution Agreement ). This Quality Agreement defines and documents the responsibilities of Zimmer Dental, Inc. (referred to herein as Zimmer ) and RTI Biologics, Inc. (referred to herein as RTI ) wherein Zimmer is the Distributor and RTI is the Manufacturer (or Original Equipment Manufacturer ( OEM )), as defined below, of the Complete and Finished Medical Implants. Zimmer and RTI shall hereinafter be referred to collectively as the Parties and individually as the Party .
2.0 | DEFINITIONS |
Defined terms not defined herein shall have the meaning set forth in the Exclusive Distribution Agreement.
2.1 | Complete and Finished Medical Implant Any medical implant, biologic, tissue implant, or combination implant that is suitable for use, capable of functioning and is in its final distributable form (i.e. cleaned, labeled, sterilized, etc.), as received by Zimmer. In the context of this Quality Agreement, Implant shall refer to those components as set forth in Exhibit A of the Exclusive Distribution Agreement. |
2.2 | Interface Document A document that captures the key attributes of an implant, for the purpose of providing Zimmer personnel with critical information about the implant without the need to create and maintain comprehensive drawings or specifications. The interface document may be in the form of a drawing, implant specification, and/or other format. |
2.3 | Manufacturer The entity who designs, manufactures, fabricates, assembles, or processes a complete and finished medical Implant, including but not limited to those who perform the functions of contract sterilization, installation, relabeling, remanufacturing, repacking, or specifications development, and initial distributors of foreign entities performing these functions, and who is responsible for it on the market, as displayed on the labeling. For the Implants, RTI is the legal Manufacturer, and will be identified as such on the labeling. |
2.4 |
Major Change A major change is any change that may affect the safety or intended use of the finished implant, including but not limited to |
changes in design, materials, Product Code Number, cleaning, sterilization, and the manufacturing process. A major change will usually affect the Interface Document. |
2.5 | Quality Agreement A document (referred to herein as the QA Agreement ) defining the activities that need to be accomplished, who is responsible for completing the activities, and in some circumstances the method of accomplishing those activities, in order for Zimmer and the RTI to achieve the shared goals of the two businesses. |
3.0 | QUALITY AGREEMENT PERIOD |
3.1 | This QA Agreement is valid for so long as the Exclusive Distribution Agreement is in effect. This Agreement may be revised by the written consent of the Parties at anytime during the validity period. |
4.0 | DESIGN OF IMPLANT |
4.1 | RTI is the legal Manufacturer of the Implants, and is responsible for all aspects of design control. |
4.2 | RTI shall maintain appropriate and required documentation to support design control and document change control activities. |
4.3 | RTI shall be responsible for all design control and process control activities relative to the Implants, including but not limited to, design assurance and product and process validations, as required by the cGTP, Quality System Regulations ( QSR ), International Standards Organization ( ISO Standards ), and Applicable Laws. |
5.0 | DOCUMENT CHANGE CONTROL |
5.1 | RTI shall be responsible for managing an effective document change control system relative to the design, manufacture, and labeling of the Implants. |
6.0 | VALIDATION |
6.1 | RTI shall be responsible for managing an effective product and process validation system relative to the design and manufacture of the Implants. |
6.2 | RTI shall develop and implement validations or qualification protocols for significant processes, equipment, and computer systems. |
7.0 | PROCESS CONTROLS |
7.1 | RTI shall maintain appropriate documented procedures. |
8.0 | HANDLING, STORAGE AND DISTRIBUTION |
8.1 | Manufacturer shall deliver Implants to the Point of Destination designated by Zimmer using documented procedures for the handling, storage, packaging, preservation, and delivery of the Implants. The shipping container shall be qualified to ensure that the safety and integrity of the Implant is maintained during transit. |
8.2 | Zimmer shall deliver Implants to its customers using documented procedures for handling, storage, packing, preservation, and delivery of the Implants. |
8.3 | Zimmer shall store and distribute Implants to its customers using documented procedures for handling, storage and distribution that are appropriate to the environmental limitation of the Implant. Zimmers tissue bank facility will be qualified to ensure proper storage conditions are maintained. |
9.0 | LOT CONTROL AND TRACEABILITY |
9.1 | RTI shall establish and maintain procedures for identifying and tracking each Implant by suitable means from donor through all stages of production and to final consignee or final disposition. |
9.2 | Zimmer shall establish and maintain procedures for identifying and tracking the Implant from receipt from RTI through distribution to the final consignee. |
9.3 | RTI will provide a Tissue Utilization Record (TUR) with each human tissue implant. The attending surgeon shall be instructed to complete and return the TUR to RTI. |
9.4 | The Parties shall use reasonable efforts to assist the other in maintaining respective donor lot traceability. |
9.5 | Zimmer shall provide to RTI information regarding disposition of Implant destroyed by Zimmer, upon request, and will submit destruction records to RTI. |
10.0 | PACKAGING AND LABELING |
10.1 | RTI shall be responsible for validating that the packaging system maintains the integrity of the Implant for its labeled shelf life, when stored under labeled conditions. |
10.2 | RTI shall ensure that the packaging and labeling of the finished medical implant conforms to Specifications and to Applicable Laws. |
10.3 | Implant labeling, including instructions for use and other accompanying documents, will be reviewed and approved by required Zimmer functional areas (per applicable SOP) prior to release of final Implant labeling. |
10.4 | RTI shall be responsible for obtaining all local language labeling (translations) required for distribution in the Territory as requested by Zimmer. Zimmer shall bear the cost of all necessary translation services associated with the translations. Prior to incurring any such cost, RTI will submit to Zimmer a written budget showing in reasonable detail the anticipated costs to be incurred for translation services and will obtain Zimmers written approval of such budget before incurring such costs. Zimmer will not be required to reimburse RTI for any translation services costs in excess of the budget unless RTI obtains Zimmers prior approval for the excess costs. |
10.5 | Zimmer shall not modify the labels, inserts or accompanying documentation without written approval of RTI Regulatory Affairs. |
10.6 | Promotional materials created by Zimmer shall be approved by RTI Regulatory Affairs for compliance with Applicable Laws. RTI Regulatory Affairs shall provide comments or approval to Zimmer within ten (10) Business Days of receipt of the promotional material. |
11.0 | STERILITY ASSURANCE |
11.1 | For all sterile Implants, RTI will maintain documentation that sterilization of the Implant conforms to the Applicable Laws and ISO Standards. As applicable, RTI will provide certification of irradiation for each shipment received at Zimmer. |
11.2 | RTI will assure that all sterilization process validations and subsequent quarterly dose audits follow AAMI/ISO guidelines. |
11.3 | RTI will notify Zimmer in writing of any dose audit failure and/or deviations from validated sterilization processes relevant to the Implants. |
12.0 | MANUFACTURING AND QUALITY CONTROL |
12.1 | RTI shall establish and maintain a quality system for all stages of manufacture of the Implants, including donor eligibility and procurement of tissue, in compliance with Applicable Laws and Applicable Industry Standards, such as 21 CFR 1271, parts 820 and ISO 13485. |
12.2 | RTI shall establish and maintain an effective product and process validation system relative to all aspects of quality, e.g., design, sterilization and packaging. |
12.3 | RTI shall manage an effective document change control system relative to all aspects of the design, manufacture, storage, and distribution of the Implants. |
12.3.1 | Prior to making a Major Change to an Implant, RTI will submit written notice of the Major Change to Zimmers Director of RA/QA, via fax or email. This notice shall include a full description of the Major Change with adequate information to determine its impact on the finished Implant Specifications and regulatory status. |
12.3.2 | Zimmer will review and respond to RTI within fifteen (15) Business Days of receipt of Major Change notice. If the Major Change is being implemented to improve the safety of the Implant, RTI will implement the change as soon as reasonably possible without prior approval by Zimmer. |
12.4 | RTI shall ensure that its tissue procurement organization and contract suppliers maintain a quality program/system, in compliance with Applicable Laws and Applicable Industry Standards e.g., 21 CFR 1271, United States Department of Agriculture (USDA) , EN 12442, as appropriate for the materials and components e.g., bovine bone, bovine tissue, human bone, human tissue. |
12.5 | Zimmer shall establish and maintain a quality system in compliance with applicable sections of Applicable Laws, e.g., 21 CFR 1271, 820 and ISO 13485. |
13.0 | COMMUNICATION AND NOTIFICATION OF QUALITY AND REGULATORY MATTERS |
13.1 | Zimmer Regulatory Affairs and RTI Regulatory Affairs will notify the other in writing, of quality and regulatory issues applicable to Implants acquired by Zimmer customers, including but not limited to: |
13.1.1 | Regulatory actions by Governmental Authorities e.g., issuance of Form 483, retention/destruction/recall of implant, against Zimmer, RTI or its tissue procurement organization which are relevant to the Implants. |
13.1.2 | Implant/component non-conformances or manufacturing deviations. |
13.2 | The Parties shall cooperate in response to any issue, including providing information and documentation as requested by the Regulatory Authority (with copies of any such information and documentation to be provided to the other Party). If the issue primarily concerns Zimmers activities, then Zimmer shall have primary responsibility to respond to the Regulatory Authority; otherwise, RTI shall have primary responsibility to respond. In either case, upon request of the responding Party, the other Party shall provide consulting advice and assistance with the response. |
14.0 | POSTMARKET SURVEILLANCE |
14.1 | Any Zimmer representative or employee who first receives knowledge of a Third Party Complaint or Adverse Event shall notify the Compliance / Postmarket Surveillance function of Zimmer in accordance with established procedures. |
14.2 | The Compliance / Postmarket Surveillance department or appropriate functional area of Zimmer will initiate a report form for each complaint received, according to established procedures. |
14.3 | The Zimmer Carlsbad Compliance / Postmarket Surveillance department will file the information received and will notify RTIs Quality Systems group within RTIs Quality Assurance department of the Third Party Complaint or Adverse Event within seventy-two (72) hours of receipt of such information by Zimmer Carlsbad Compliance/ Postmarket Surveillance department, except for an Adverse Event that is fatal, results in serious injury, or necessitates medical intervention in order to prevent permanent injury or impairment, for which a report will be sent to RTI within twenty-four (24) hours of receipt of such information. |
14.4 | RTIs Quality Systems group will investigate the complaint / event and report it to the FDA and/or other Regulatory Authority if required. RTI will send a copy of the completed investigation to Zimmer Compliance / Postmarket Surveillance for Zimmers files. |
14.5 | RTI shall notify Zimmer Regulatory Compliance in writing of any legal and regulatory matter relating to the Implants, including: |
14.5.1 | Any regulatory actions by Governmental Authorities (e.g., inspection citations, warning letters, or other non-conformance notices). |
14.5.2 | Regulatory enforcement action such as injunctions or seizures. |
14.5.3 | FDA registration activity (e.g., non-conformance notices, hold points). |
14.5.4 | Complaints received from Zimmers customers that have not been processed through Zimmers complaint handling system. |
14.5.5 | Adverse incidents relating to Zimmers customers (e.g., MedWatch reports). |
14.6 | Zimmer and RTI will inform each other as soon as reasonably possible about all clinical findings regarding safe and effective use of the Implants. |
14.7 | Returns of Implants will be processed in accordance with the procedures set forth on Schedule B. Complaints will be registered with Zimmer and Zimmers customer will return the Implants to Zimmer. Prior to returning any Implant to RTI, Zimmer will acquire the return authorization number from RTI. |
15.0 | FIELD ACTIONS |
15.1 | RTI will be responsible for the initiation of any Field Actions related to the Implants. |
15.2 |
RTI will notify Zimmer Regulatory Compliance to request cooperation with any Field Action that affect an Implant Distributed by Zimmer. RTI will ensure that any Field Actions comply with the requirements of the FDA and/or applicable international Regulatory Authorities. If it was caused primarily by the negligent (or more culpable) action (including misstatements) or omission by Zimmer or one of its Affiliates or Marketing Partners, then Zimmer shall bear the related expense; otherwise, RTI shall reimburse Zimmer for Zimmers reasonable expenses |
and either replace the affected Implants free of charge or, at Zimmers election, refund to Zimmer the entire Fee paid for the affected Implants. RTI shall be responsible for any required reporting to Regulatory Authorities. |
15.3 | Zimmer will comply with any recall or general corrective actions initiated by RTI involving the Implants, provided such recalls or general corrective actions do not, in the opinion of Zimmer, violate or cause Zimmer to violate the laws of any jurisdiction affected by the recalls or corrective actions. |
16.0 | AUDITS |
16.1 | Zimmer shall have the right, upon reasonable prior notice to RTI, to inspect and audit RTIs facilities and operations for the purpose of verifying RTIs compliance with its obligations under this Agreement and satisfying all Zimmer quality system requirements, including the right to (a) inspect and take samples of the Implants, (b) observe Manufacturing and related operations, procedures and methods, (c) review documentation and (d) conduct quality assurance, quality system and regulatory compliance audits. Audits will be scheduled at mutually convenient times, such schedule not being subject to unreasonable delay or hindrance. During audits of RTI, Zimmer will only have access to the physical areas and procedures pertinent to the Implants. Zimmer will copy RTI on any written audit report within thirty (30) days of report completion. RTI will develop and provide a written corrective/preventive action plan for any non-conformances cited within sixty (60) days of written notification by Zimmer. |
16.2 | RTI shall have the right, upon reasonable prior notice to Zimmer, to inspect and audit Zimmers tissue bank facilities and operations for the purpose of verifying Zimmers compliance with its obligations under this Agreement and satisfying all RTI quality system requirements, including the right to (a) review documentation and (b) conduct quality assurance, quality system and regulatory compliance audits. Audits will be scheduled at mutually convenient times, such schedule not being subject to unreasonable delay or hindrance. During audits of Zimmer, RTI will only have access to the physical areas and procedures pertinent to the Implants. RTI will copy Zimmer on any written audit report within thirty (30) days of report completion. Zimmer will develop and provide a written corrective/preventive action plan for any non-conformances cited with sixty (60) days of written notification by RTI. |
16.3 | Zimmer and RTI will inform the other as soon as practicable of any negative outcomes resulting from an audit by a Regulatory Authority or accreditation authority relating to Implants under this QA Agreement. |
17.0 | LOT TEST, LOT RELEASE AND ACCEPTANCE REQUIREMENTS |
17.1 | RTI shall establish and maintain documented procedures for acceptance criteria and release testing for incoming material and finished Implants to ensure that each lot of Implants delivered to Zimmer conforms to the Specifications and regulatory approvals. |
17.2 | Zimmer, upon receipt, shall inspect or otherwise verify that finished Implants conform to Specifications. If any Implant is deemed not to meet Specifications, Zimmer shall return the Implant to RTI. |
17.3 | RTI will provide a Certificate of Conformance and any needed shipping documents for each product lot, in a format agreed upon by both Parties, to the Zimmer tissue facility stating that the Implants shipped conform to the Specifications. |
18.0 | RECORD RETENTION REQUIREMENTS |
18.1 | The Parties shall retain all applicable records e.g., implant master record, complaint files, for at least the minimum of time required by Applicable Laws. |
19.0 | REGULATORY ACTIVITIES |
19.1 | RTI Regulatory Affairs shall notify Zimmer Regulatory Affairs of information regarding changes to the regulatory status of any Implant. |
19.2 | RTI Regulatory Affairs shall submit and maintain the required establishment registration and implant listing information as required under the Exclusive Distribution Agreement. |
20. | COMPLIANCE WITH LAWS |
20.1 | RTI and Zimmer shall each comply in all material respects with all Applicable Laws and Applicable Industry Standards that pertain to its activities under the Exclusive Distribution Agreement and, except as otherwise provided for herein, shall bear the entire cost and expense of such compliance. For avoidance of doubt, and without limiting the generality of the foregoing, each Party shall be responsible for costs and expenses incurred by such Party in order to maintain quality systems and applicable certifications in compliance with United States quality systems regulations, Medical Device Directives ( MDD ), AATB and ISO 13485. |
In witness whereof, the Parties have each caused this QA Agreement to be signed and delivered by their duly authorized representatives on the dates set forth below in duplicate, each of which will be treated for all purposes as an original.
RTI Biologics, Inc. | Zimmer Dental, Inc. |
By: |
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By: |
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Name/Title: |
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Schedule A
Contact information for responsibilities listed in this Quality Agreement
Zimmer Function |
Phone Number |
RTI Function |
Phone Number |
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Regulatory Affairs | 760-929-4110 | Regulatory Affairs | 386-418-8888 | |||
MarComm | 760-929-4300 | Quality Systems | 386-418-8888 |
Schedule B
Return Procedures
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For any Implant return, contact the RTI Customer Service Department at + 1 386-418-8888 to receive a Return Authorization Number. |
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All returns require the following: |
(a) | the 7 digit serial Identification number(s) (Note: If the number is unknown, all possible numbers that could be applicable to the returned item(s) must be provided); |
(b) | the original packaging; and |
(c) | a detailed explanation of the reason for the return. |
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T he Return Authorization Number must be marked on the outside of the shipping package before shipping to RTI. |
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All opened Implant(s) must be treated as potential biohazards and must be shipped according to applicable shipping guidelines. The items must be placed in a doubled leak-proof bag labeled and designed for biohazardous material. The outer (second) bag should be protected from potential contamination. The double-bagged items should then be placed into a sturdy outer package of corrugated fiberwood, wood, metal or rigid plastic of a minimum size of 7x4x2. This can be a plain cardboard box or FedEx Clinical Pack. |
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Any opened Implant(s) that have been exposed to a known infectious disease will need to be packaged in conjunction with IATA, DOT, FAA, OSHA and CDC packing instruction guidelines for shipping known infectious disease substances, and this information must be conveyed to customer service. |
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULE 13a-14(a) AND 15d-14(a) UNDER THE
SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Brian K. Hutchison, certify that:
(1) | I have reviewed this quarterly report on Form 10-Q of RTI Biologics, Inc.; |
(2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
(3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
(4) | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
(5) | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls over financial reporting. |
/s/ Brian K. Hutchison |
Dated: November 8, 2010 | |
Brian K Hutchison | ||
Chairman and Chief Executive Officer |
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Exhibit 31.2
CERTIFICATION PURSUANT TO
RULE 13a-14(a) AND 15d-14(a) UNDER THE
SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert P. Jordheim, certify that:
(1) | I have reviewed this quarterly report on Form 10-Q of RTI Biologics, Inc.; |
(2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
(3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
(4) | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
(5) | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls over financial reporting. |
/s/ Robert P. Jordheim |
Dated: November 8, 2010 | |
Robert P. Jordheim | ||
Executive Vice President and Chief Financial Officer |
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Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of RTI Biologics, Inc. (the Company) on Form 10-Q for the quarter ended September 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Brian K. Hutchison, Chairman and Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Brian K. Hutchison |
Dated: November 8, 2010 | |
Brian K Hutchison | ||
Chairman and Chief Executive Officer |
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of this Report or as a separate disclosure document. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
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Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of RTI Biologics, Inc. (the Company) on Form 10-Q for the quarter ended September 30 2010 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Robert P. Jordheim, Vice President and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Robert P. Jordheim |
Dated: November 8, 2010 | |
Robert P. Jordheim | ||
Executive Vice President and Chief Financial Officer |
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of this Report or as a separate disclosure document. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
30