. f case 3:09-cv-01380-L Document 3-3 Filed 07/24/09 Page 1 of 19 PageiD 89

------ -- ------ - -- --------------- -- --- ------- --- - · - ···- ----- - -- ------ - -- -

Exhibit "A"

- ---- --- - ----- · --- - - - -- . - ---- .. --- - ·- - -- --- -·- --- -- . -- - ·- --·-

- -- ---- -- ----- - - · - . - -- - ·- -·. ----- -- - - . . -- - - -- ------- - --- - -- - -· · - - . -

~~ EXHIBI J

Case 3:09-cv-01380-L Document 3-3 Filed 07/24/09 Page 2 of 19 Pagelocgo

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

CHARLES REDDEN, CHRISTOPHER BROOKS, BRAD KESSLER, and REDDEN AND ASSOCIATES, INC.,

Plaintiffs,

§ § § § § § Cause No. 3:09-CV-1380-L

-- - - ~!_ ____ _ - -- - - -·- ---- - - .L -- -- - --------- - ---------- --· · §

S:MITH & NEPHEW, INC., § § § Defendant.

DECLARATION OF ELIZABETH M. BEDELL IN SUPPORT OF DEFENDANT'S MOTION TO DIS:MISS

I, Elizabeth M. Bedell, do hereby state and declare as follows:

1. I am an associate in the law firm Fish & Richardson P.C. and am an attorney at

law in the State of Texas. It is in that capacity that I have knowledge about the matters set forth

herein and would testify competently to the matters set forth herein if called upon to do so.

2. Attached hereto as Exhibit 1 is a true and correct copy of the agreement between

Smith & Nephew and Christopher Brooks, dated as effective April 26, 2004, incorporated by

reference in the Petition.

I declare under penalty of perjury that the foregoing is true and correct.

Executed on July 24, 2009. w--- -- ----·~DJJiL

- - ·Elizabeth M. Beaen· · ·--

DECLARATION OF ELIZABETH M. BEDELL IN SUPPORT OF DEFENDANT'S MOTION TO DISMISS Page 1

Def. App. 001

Case 3:09-cv-01380-L Document 3-3 Filed 07/24/09 Page 3 of 19 PageiD 91

Exhibit ''1''

Def. App. 002

' ' ' Case 3:09-cv-01380-L Document 3-3 Filed 07/24/09 Page 4 of 19 PageiD 92

(

SALES REPRESENTATIVE AGREEMENT

THIS AGREEMENT is effective April26, 2004 ("the Effective Date,), and is by and between Smith & Nephew, Inc., Orthopaedic Division, 1450 Brooks Road, Memphis, Tennessee 38116 ("S&N"), and Christopher Brooks, 8610 Southwestern Blvd., Dallas, TX 75206 ("Sales Rep").

S&N manufactures, distributes and/or supplies orthopaedic medical devices, including instruments, implants and supplies, to the medical trade; and Sales Rep is in the business of soliciting

· sales of those products to the medical trade. In consideration of the covenants herein contained, the _____ ____ . ___ parties..hereto.agree..as.follows:___ _____ __ -·:.... _ __ __ __ __ __. ______ . ________ _

1. Appointment of Sales Rep. S&N hereby engages and Sales Rep desires to be engaged as the independent representative of S&N for the solicitation of sales of Products (as herein defined) for the territory designated herein. Sales Rep shall not sell or solicit sales of products or otherwise represent companies selling or otherwise distributing orthopaedic products compe·titive to S&N's orthopaedic products without prior written approval from S&N. Subject to the tenns of this Agreement, Sales Rep is free to engage in any other activities he wishes.

S&N reserves the right to sell directly to national, regional or governmental accounts. '

S&N may pay Sales Rep a reduced commission ("servicing commission") in lieu of a regular corrunission for directly sold products, specialty products or in other circumstances determined by S&N. Typically, S&N will invoke its right to pay a "servicing commission'' where S&N incurs additional expense in servicing the customer, supporting the product line in question, or where significant discounts are given. ·

2. Territory and Products. The term "Products" as used in this Agreement refers to the orthopaedic product lines identified in Appendix 1 hereto (hereinafter "Products"). S&N may add and/or delete items from such Appendix to reflect changes to the lines of Products offered .for sale generally by S&N. S&N may add item~ to such Appendix at its sole discretion.

. . The territory within which the Sales Rep shall solicit sales of Products shall be the geographical area and/or account listing shown in Appendix 2 hereto (hereinafter "Territory"); provided, however, that S&N reserves the right to reasonably revise th~ Territory as necessary, subject to giving reasonable advance notice to Sales Rep.

3. Sales Rep's Duties and Obligations.

. . - - - - . . a. - . -Sales- Rep-shall-promote -Preduets. and-solicit -orders .. for ..sales .. of Products-within. the­Territory.

b. Sales Rep shall ensure the filing of all appro.PJjate business registrations, and compliance with the requirements of tax withholding and reporting.

c. In order to comply with applicable law and to protect S&N from claims and liabilities, Sales Rep's communications and representations to customers shall be true, accurate, complete and consistent with the labeling of Products. Sales Rep shall in no

Dallas Rep Agreement_ C. Brooks.doc

Def. App. 003

_,

' ' Case 3:09-cv-01380-L Document 3-3 Filed 07/24/09 . Page 5 of 19 PageiD 93

I

d.

e.

f.

circumstances modifY, repackage, adulterate, misbrand, alter or add. labels to or remove labels from any Products. Sales Rep shall take no action or issue any statement which is or could be detrimental to the reputation and goodwill ofS&N. ·

All advertising and all participation by Sales Rep in public exhibitions, relating to Products and the use of S&N's name and trademarks, shall be subject to prior written

· consent of S&N, which consent shall not be unreasonably withheld.

. Except as otherwise agreed, Sales Rep shall be responsible for providing his own equipment, offices, working facilities, and such other facilities and services as may be

~-required -at-his --own--expense; -provided; however,-tfiaf Sales Rei> shal! maintain- ·an-inventory ·of demonstration equipment, deliverable Products ·and instrument kits (hereinafter "Inventory") to promote and solicit orders for Products. Sales Rep shall be responsible for the risk of loss or' damage of such Inventory owned by S&N whether or not held at Sales Rep's business location. Upon termination of this Agreement, Inventory shall be returned to S&N. Sales Rep shall pay his own expenses, including but not limited to courier fees, postage and freight.

S'ales Rep shall indemnifY and hold harmless S&N and its affiliates and their respective agents and employees from and against all claims, damages, losses, and expenses, including legal expenses and attorneys' fees, arising out of any breach of this

· Agreement, any negligence, · or any other misconduct, on the part of Sales Rep or jts

agents or employees.

4. S&N's Duties and Obligations.

a. S&N shall sell Products on orders solicited by Sales Rep in accordance with published price lists. Written notice of changes to the price lists shall be given by S&N to each Sales. Rep at least thirty (30) days in advance of the implementation of such ·changes. S&N may accept or refuse any order for Products and will not be bound by any order until it is fmally accepted by S&N. S&N shall not be liable for any loss or damage caused by non-acceptance of orders or delays in making shipments.

b. S&N shall pay to Sales Rep a conunission at the percentages shown on Appendix 3 on orders solicited within and delivered to the Territory, beginning on the Effective Date.

_ _ __ _ _ __ ___ ______ QQ.~i~ions~hall b~ deemed earned by Sales Rep upon invoicing of Product sales by S&N to customers. Commissions- eamecf'bi Sales -Rep ·shill be -computed-on tlie net -~ amount of the invoices rendered (less . credit memos) in accordance with publish~d price

_ _ _ _ _ _ ~ . _ _ __ . -~ts_w e,ac!t_9Kcl~ __ otp~_Q.fan Qr@~, tf¥;~1Ul}iv~ 9~ ~lJ _fteig!l! ~?. !fan~I'~rtation costs (including insurance), normal an<i recurring bona fide trade discounts having S&N's prior approval and any applicable sales or similar.taxes. IfExogen products are included in this Agreement (see Appendix 3). the net amount of the invoice for Exogen sales means the amount shown on the invoice as due from the customer, after giving effect to quantity or other discounts, sales allowances and adjustments for ·bad debt. Presently, invoices are reduced by twenty five percent.(25%) for bad debt. In the case ofbad debts (except for bad debt related to Exogen sales), S&N shall charge the Sales Rep back for the commissions previously paid provided that S&N shall make a good faith effort to collect monies owed on invoices from orders solicited by Sales Rep. In the event that

Dallas Rep Agreement_ C. Brooks.doc 2

Def. App. 004

Case 3:09-cv-01380-L Document 3-3 Filed 07/24/09 ' ' Page 6 of 19 PageiD 94

I

'

Sales Rep continues to deliver order Product to an account on credit hold, S&N will reserve the right to charge back against Sales Rep's commission the entire amoupt of the unpaid invoice.

c. S&N shall deduct from the conunissions otherwise due the Sales Rep an administrative fee, as indicated in Appendix 3. The fee will be utilized to defray administrative expenses in conjunction with S&N's business operations with respect to the Terr:itory.

d. S&N shall indemnify Sales Rep against any and all third party claims and demands for ____ - · ______ _ 19.E~~sLd~age~~d in.h!_r!~! i!I~_luP!lgJ~g_a1 ~?Cp~nses and attorneys' fees, arising out of

any claim of a defect in the manufacture or design o{a -Product or wntten representation-­or omission in S&N' s promotional literature concerning the Product. This indemnity shall not extend to any malfeasance or nonfeasance of Sales Rep, or Sales Rep's agents or employees. Except as otherwise expressly provided, Sales Rep is liable for all of Sales Rep's own expenses and all claims made against Sales Rep.

5. Confidentiality, Improvements, Patents, and Trademarks.

a. Sales Rep acknowledges that he will be exposed to and learn of proprietary_ and other confidential information of S&N and agrees to take all reasonable steps to ensure that such confidential information relating to the business of S&N, including customer lists, information and business records and sales information and training materials, is not disclosed, published or made use of outside the business of Sales Rep and S&N; provided, however, that the foregoing shall not apply to information (a) which be can shown to be in writing and known to Sales Rep prior to disclosure by S&N; (b) ·which is or becomes public knowiedge through no fault of Sales Rep; or (c) which is disclosed to Sales Rep by a third party with the lawful right to make such disclosure.

b. Sales Rep shall submit to S&N all ideas concerning Products which Sales Rep receives from customers during the term of this Agreement. Further, because S&N has provided Sales Rep with special knowledge and haS placed Sales Rep in a position to formulate ideas concerning Products, all product ideas developed or discovered by Sales Rep are and shall remain the sole property of S&N. Sales R~p prospectively assigns such ideas to S&N and hereafter shall acquire no right or interest in such ideas: Within ~ reasonable time, not to exceed one (1) year, S&N shall evaluate the idea and shall

__ . _______ .- ..r.eassign __ ri_ghts_to _th~ _ ic;J.ea_t_o_ .S~e~. R~p,_at S~~s_R~Jis.Jeg_1;1est., if S&N elects not to . d~velop the idea commercially. - ·-- - -- -- . --- - · - - -

. e-. - .. :Saks. Rep aclmQ\¥1~~-t.h&-~ and.Jll! _ _gf. _the_ ~- s.~cr~!S1 __ig~~- ~d i:qfof!_Dati_QQ.,_ research, methods, improvements, customer lists, sales information, training materials, patented or copyrighted material relating to present or future ·Products or S&N's business, and the goodwill associated with them, are owned by S&N, are provided or revealed to Sales Rep in trust and confidence, and are and shall remain the sole and exclusive property of S&N. All such information and knowledge about S&N and the products, services, customer lists, sales information, training materials, standards, specifications, procedures and techniques which are not in the public domain or generally known in the industry and such other information and material as S&N may desig:Il!ite as conijdential shall be deemed confidential for · the purposes of this

'Dallas Rep Agreement_ C. Brooks.doc 3

De£. App. 005

' . Case 3:09-cv-01380-L Document 3-3 Filed 07/24/09 Page 7 of 19 PageiD 95

r

Agreement. Sales Rep shall not, during and after the termination of this Agreement, copy or disclose to any other person, or use for any purpose other than as contemplated by this Agreement, any of the confidential infom1ation or trade secrets, and all such · confidential information and trade secrets shall be returned to· S&N by Sales Rep immediately upon termination of this Agreement.

d. The above provisions ofth.is Section 5 shall survive the tennination of this Agreement

e. . S&N hereby grants Sales Rep a royalty-free right to use S&N's trademarks and identification on and in connection with the solicitation of orders for Products during

--- - - ·· ~ · . - ·----- -- ·--the terr!lo{tlris AgreemenT -Sales-Rep ·shal1-discontinue -the lli£of all -such trademarks _ _ _

upon the termination of this Agreement All goodwill generated hereunder in the use of such trademarks shall accrue to the benefit of S&N and Sales Rep hereby disclaims any rights in S&N's trademarks and identification other than the aforementioned license.

6. Term of Agreement. This Agreement shall commence on the Effective Date and continue in full force and effect until December 31, li_~. Thereafter, this Agreement shall automatically renew for successive additional terms of twelve (12) months each, if S&N fails to notify Sales Rep of its intention not to renew this Agreement by December 1 prior to the expiration of the then-current term hereof

7. Termiriation.

a. The following actions by·or events involving Sales Rep shall each constitute a mat~rial breach of this Agreement and give S&N an immediate right to terminate tlris Agreement:

(i) Conviction of Sales Rep of a felony; or

(ii) Involuntary bankruptcy which is not terminated within sixty (60) days, insolvency or voluntary bankruptcy; or

(iii) Sales activities in violation of applicable ·law, misrepresentation, misbranding or adulteration of any of S&N's products, misrepresentation, violation of any S&N policy (including but not limited to Appendix 4 hereto) or any action or

~ ___ _ _____ .§.t~teme!!_t yy}p~!I _is_ or_ ~o_!.lld b_e _4etr!n:tel!t~l _!_o_ -~~ !_ep~t~on _£1!1~- ~o_o~ ~ll o_f _ S&N; or ·

_ _ _ _ .. JiY) -~ell i vg Q.(_in~Qigillg_ S&~ -R~OclURt.$ ~q~s.W!_g_ Qr_ g~q_l!irin~-c~~t<?m~r_pa~~n~ _to _ the Sales Rep; or ·

(v) Selling Company products to parties who use, resell or distribute such products outside the United States; or

(vi) Failure to retrieve Product as called for during product retrievals; or

(vii) Engaging in the sale of products, or the solicitation of orders for products, competitive to those of the Company.

Dallas Rep Agreement_ C. Brooks. doc 4

De£. App. 006

Case 3:09-cv-01380-L Document 3-3 Filed 07/24/09 Page 8 of 19 PageiD 96

b. Either party may terminate this Agreement, with or without cause, by giving the other party written notice of its desire to terminate.

8. Force Majeure. Obligations of either party to perform under this Agreement shall . be excused

during such period of delay caused by matters such as strikes, shortages of power or raw materials, government orders, or Acts of God, which are reasonably beyond the control of the party obligated

to perform.

2. Notices,_ AJ).y _noJ!9.eJ~guired_Qy thi~~gre~.!!_le!?-t~hal!_b~Ae~med sufficient if sent by a) hand delivery, b) certified mail, postage prepaid, c) by Federal Express. or -oilier-siinilar -nationally ­

recognized overnight delivery service providing proof of delivery, to the party to be notified at the

address set forth below, until a different address is supplied in writing.

a. In the case of S&N, such notice shall be sent to:

Smith & Nephew, Inc. · · 1450 Brooks Road Memphis, Tennessee 38116 Attn: Vice President, U.S. Sales

with an additional copy to: Attn: General Counsel

b. · In the case of Sales Rep, such notice shall be sent to the address shown on the first page

of this Agreement.

10. Entire Agreement. This document and the incorporated references represent the entire agreement

between the parties hereto, and supersede all prior agreements regardless of their terms or

cancellation provisions, and this Agreement shall be inodi.fied only by a written agreement signed

by S&N and the Sales Rep.

11. Applicable Law and Venue. This Agreement shall be governed by the laws of th~ State ·of

Tennessee as applicable to contracts made and ·to be performed in that state. Exclusive jurisdiction

and venue for any claims or matters related to or arising from this agreement shall be in the state

and/or federal courts located in the State ofTennessee.

-- -- ---- . ·---- - ------ ---- - . ------ - -- ----- -- - - --12. Assignability. This Agreement shall not be assigned either by the parties or by operation of law

without the prior written consent of the. other party; however, in the case of S&N, S&N may,

-without. obtaining the.. .cons.enL of th.e _sm . .R_~_assigg its . rig!lt~_. 'WA. g_l:tl_ig@.-ti.QWi _ und~r tiP:s _· _

Agreement to any corporation with which S&N may merge or consolidate or to which S&N may

trarisfer substantially all of its assets.

13. Severability. If a court of competent jurisdiction finds any provision of this Agreement invalid or unenforceable, such provision shall not affect the remainder of the Agreement which shall

otherwise remain in full force· and effect.

14. Non-Compete. Sales Rep agrees that, during the term of this Agreement, he shall serve the

customers of S&N in a representative capacity only, and shall not act on behalf of any competitor of

Dallas Rep Agreement_ C. Brooks.doc 5

Def. App. 007

Case 3:09-cv-01380-L Document 3-3 Filed 07/24/09 Page 9 of 19 PageiD 97

S&N, and that on termination, expiration, or nonrenewal of this Agreement for any cause or reason

whatsoever, or without cause, Sales Representative shall not, for a period of twelve (12) months

thereafter:

a. Call upon, solicit, or initiate efforts to divert in any way customers served by Sales Rep

on behalf of S&N in the Territory pursuant to this Agreement; or

b. Engage in or be employed by any other person or company for purposes of the sale or

solicitation of sales in the Territory of orthopaedic medical devices of the type described

··- __ _____ _!n_~pp~n~x _I: ___ _____ _ _____________ _ __ --· _______ __ _ _

Sales Rep agrees that the limitations impos~d iri this paragraph 14 are reasonable and ~o bro~der than necessary to protect the legitimate business interests of S&N and to preserve the integrity of

proprietary and other confidential information dis~losed to Sales Rep pursuant to this Agreement.

15. Compliance.

a. Sales Rep shall (i) comply with all applicable fraud and abuse laws and with the policies

of Smith & Nephew, Inc., including but not limited to Appendix 4 hereto, as it may be

amended from time to time; (ii) indemnify S&N for any damages S&N suffers due ~

Sales Rep's violation of the policies of S&N; and (iii) cooperate in S&N's

investigations relating to sales representative activities, including investigations relating

to fraud and abuse issues.

b. Sales Rep shall also comply with the policy of Smith & Nephew, Inc. attached as

Appendix 5, as it may be amended from time to time.

16. Relationship. This Agreement shall not be constiued to create between the parties hereto the

relationship of principal and agent, joint venturers, partners, employer and employee, franchisor

and franchisee, manufacturer and distributor, or any other similar relationship, the existence of

which is hereby expressly denied by each party. This Agreement does not establish a franchise of

any type. The parties hereto agree that the Agreement shall not be subject to and expressly waive

application of any franchise laws that may exist in any jurisdiction. Neither party shall have any

authority to bind the other, and neither party shall be liable to any third party in any way for. any

engagement, obligation, contract, representation or transaction. Sales Rep is an independent

_ - ·-· _ _____ contray!or:. .e.n,g~g<!~_i.Q_i_!s_Qwn ~~ en!!r:_~ly separate business. . - - - - -·- -- ~- --- -- -- ·- - - - ·- -- --·-- -- --

17. Non-Disclosure. Sales Rep shall not disclose to any thii:d party the terms of this Agreement, except

_ _______ . _ (~)..with_~ _express .wior _wi!t~n _QQ~~t__,~( ~~N~_:~ _ep) ~ ~~- b~ reg,uired by court order of a

court of competent jurisdiction, in which event the contents of any proposed disclosure- shall be ·

discussed with S&N before release.

18. Representation and Warranty of Sales Rep. Sales Rep expressly represents and warrants that he is

presently subject to no contract or agreement with. any person, fum or corporation which would

prevent, restrict or hinder him in the performance of his duties or obligations under this Agreement.

Sales Rep agrees not to make any agreement or commitment any person, finn or corporation that

would prevent, restrict or hinder him in the performance of his duties or obligations under this

Agreement.

Dallas Rep Agreement_ C. Brooks. doc 6

Def. App. 008

Case 3 : 09-cv-01380~L Document 3-3 Filed 07/24/09 Page 10 of 19 PageiD 98

IN WI1NESS WHEREOF, the parties hereto have executed this Agreement effective as of the date first above written. · ·

SMITH & NEPHEW ORTHOPAEDICS CHRISTOPHER BROOKS a division of

SMITII & NEPHE I\ 0 ·-· ·-- •By:._- · =------~--~~-=-'=-· -_----_-·-_·--_- ---u ----~~-- _ __ nn- __ _

Date:_---+b /---'-ll +--' bj__.____ __

Appendices: l. .

2. 3. 4. 5.

Products Territory Commission Schedule Fraud and Abuse Surgery Role

---- -'-- - - --·-- • r -- -

Dallas Rep Agreement_ C. Brooks.doc

Date:._6~~~~~-\--, _

7

De£. App. 009

. . Case 3:09-cv-01380-L Document 3-3 Filed 07/24/09 Page 11 of 19 PageiD 99

I

APPENDIX I

PRODUCTS

Orthopaedic Product Lines:_

-·-- ------- --x----- T-rauma

X Hips

X Knees

X Cement I Shoulder

Def. App. 010

Case 3:09-cv-01380-L Document 3-3 Filed 07/24/09

APPENDIX2

TERRITORY

. . Page 12 of 19 PageiD 100 I

- -·- - -- --The Orthop-aediC (and.Exogen ·an.d/or-supartzif app'licable)'fe~oryis-defi!.led by-the~foUowing --- ---. -

account listing:

. - - ·- - ------- - ----- - ·-- -

Acct# 100249 104942 105020 108038 108384 108389 113053 113112 113947 222200 230372

Account Name Denton Community Hospital

Doctors Hospital Las Colinas Medical Center

Mesquite Community Hospital

Mesquite Medical Center

Charlton Methodist Hospital Baylor Medical Center Denton Regional Medical Center

Medical Center of Lewisville Waxahachie· Surgery Pavilion

Surgery Center of Lewisville

--- - - - - --- -- - ---- -- - - --- - - -· - - - - - - -------

Def. App. 011

Case 3:09-cv-01380-L Document 3-3 Filed 07/24/09 Page 13 of 19 PageiD 101 I,

APPENDIX3

COMMISSION SCHEDULE

The Sales Rep will be paid in accordance to the following commission schedule.

For Period 04, 2004 the prorated minimum monthly commission will be_ :JiJ. Then for Period 5, 2004 through Period 10, 2004 the minimum monthly commissions will be ~i@ per period.

Beginning Period 11, 2004 the corrunission plan will be as l?elow.

Bonus Rate Base on Sales

Period 111 2004 - Period 041 2005 Rate · Growth Trauma, Hips, Knees, Cement & Shoulders 25% Oo/o

Period 051 2005 - Period 04, 2006 Trauma, Hips, Knees, Cement & Shoulders 20% 0%

Period 05, 2006 - Period 04, 2007 Trauma, Hips, Knees, Cement & Shoulders 15% 0%

Period 05, 2007 and Bey:ond Trauma, Hips, Knees, Cemel}t & Shoulders 10% 3%

The continuation of this plan is predicated upon the Sales Representative having perfonned in accordance with the tenns and conditions of the Sales Representative Agreement, and having achieved the sales targets in accordance with the timetables as outlined below. If the sales targets (expected net sales) are met or exceeded, this plan will continue, subject only to the tennination rights of the parties set forth in Section 7 of the Agreement If the Sales Representative' s sales performance is less than expected for any twelve-month period detailed below, Smith & Nephew, Inc. will have the right to adjust the plan (in addition to any other rights Smith & Nephew, Inc. may have under the terms of the Sales Representative Agreement).

Each period, no later than the 20th day after period close, the Sales Rep will be paid commissions due.

*Commission rates for newly introduced or newly added products will be detennined at S&N's sole discretion. Commission rates stated above for Trauma, Hips, Knees, and Cement/Shoulder are valid for the initial term of this

- ----- --- - Agreemeht,ourm·ayberevisedbyS&NwithtespecttoanyrenewctJterm.- - - - -- - - - - - -- ·- · ·--- - - -

**Sales coverage for Exogen and Supartz are in a aeveloping and changing phase; therefore, the Exogen and Supartz ---coil'l:filisslon .rates. to:.Sales. Rep .are subjecr.to.ch~ upon. written notice. . _ __ . _ . . . . _ _ _ _ ·- . __

Brooks (Dallas)

Def. App. 012

. . Case 3:09-cv-01380:L Document 3-3 Filed 07/24/09 Page 14 of 19 PageiD 102

APPENDIX4

SALES, MARKETING AND PROMOTIONAL PRACTICES POLICY FOR

SMITH & NEPHEW COMPANIES IN THE UNITED STATES

Revised 11/ 15/96

INTRODUCTION A sales, marketing and promotional practices policy has been adopted for all Smith & Nephew

- ---. ----companies-fn-tile uniteOStates-(coltectively -referred-to· as-the ''Company"}. -T-his-policy,--Which-iS- -- -

effective immediately, applies to all employees and agents of the Company, including

distributors and their sales representatives. The purpose of this policy is to assist employees and

agents in their day~to-day dealings with customers and potential customers by summarizing the

existing ethical standards to which the Company and its employees and agents are subject. Violation

of the policy will result in appropriate disciplinary action, which may include termination of the

employment or agent relationship with the Company.

GIFTS AND BUSINESS COURTESIES Gifts and business courtesies to health care providers are not permitted unless the gift or business

courtesy . .

1. has a value of less than $1 00; and

2. either entails a benefit to patients, serves a genuine educational function, or is related to the

recipient's work.

Employees and agents are expected to use discretion and exercise-good judgment in determining the

frequency of providing gifts and business courtesies to health care providers. Excessive use of gifts

and business courtesies is not permitted. .

No gifts or business courtesies may be given with an explicit or implicit requirement to use products

sold by the Company. Cash payments may not be given under any circumstances.

PRODUCT TRAINING ___ _ __ __ The_C_omp~ym~y_s_Ronsor_p_I~~~s_d_esigned to train physicians and other health care professionals

in the safe and effective use of the -company's -products~ - --Health--care- professionals -may- be - -

reimbursed for actual travel expenses incurred in attending these programs provided that

- - --·- - --- -- . -· -- -- -- ·- --. - - --1. the travel expenses are modest and fimitecf to transportation, lodging -arid. mears

2. the program is limited to conveying information on the safe and effective use of one or more of

the Company's products; and

3. no continuing medical education credits are available for the professionals ending the program.

Def. App. 013

Case 3:09-cv-01380~L Document 3-3 Filed 07/24/09 Page 15 of 19 PagelD 103

Revised 11115196

SALES, MARKETING AND PROMOTIONAL PRACTICES POLICY continued

Attendees at product training programs may not be compensated for their time in attending the

programs. The Company may not pay for· recreational activities and entertainment offered in

connection with these prograz:ns.

-·---- --·coNTINUING-MEDICA:!J EDU€A1'10N------- ------------ --·- _

The Company may underwrite the cost of continuing medical education conferenc-es or professional

meetings provided that '

1. no subsidies or other payments are provided directly to attendees. of the conference; and

2. the organization sponsoring the conference has responsibility for, and control over, the

curriculum, educational methods, materials, faculty and invitees of the conference.

Attendees at continuing medical education conferences or professional meetings may not be

reimbursed for travel expenses incurred in attending the conferences or meetings, nor may they be

compensated for their time. The Company may underwrite ·the cost of meals and social events at

conferences or meetings prov!ded that the meals and social events are modest and do not compete

with or take precedence over the educational portions of the conference. The costs of recreational

excursions and lavish entertainment may not be paid for in whole or in part by the Compan~.

The Company may pay reasonable honoraria and reimbursement for mpdest transportation, lodging

and meal expense to faculty and· consultants who provide actual and necessary services for a

conference. Token consulting or advisory arrangements, however,_ are not permitted.

Scholarships or other special funds to permit medical students, .residents and fellows to attend

medical conferences with special educational value may be provided so long as the grants are

coordinated through an educational or scientific department within the Company (e.g., Scientific

Affairs or Research and Development). In addition, the selection of the recipients must be made

solely by the academic or training institution with which the attendees are associated.

- - ---·- - GOVERNMENTOFFICIALS: --- - - -- - ---- - -- -- - - - . -

Notwithstanding the other provisions of this policy, nothing of value may be given to a civilian or

_ I!!_ilit<¥Y Efficial or employee of the u: S. Government (referred to l;l.S "Officials") except that an

Official may. be reiffiburs ed. for modest ana reasonable traver· expenses- if wrlttel:t itppr-oval is- obtai-ned­

from the Official's agency in advance. Under no circumstances should honoraria be paid to

Officials.

Communications announcing any program or inviting an Official to a program must note that there

may be provisions of law requiring U. S. Government approval of an Official's participation in the

program. Invitees should be advised to consult with their agency's ethics official or legal counsel

prior to attending any program.

Def. App. 014

Case 3:09-cv-01380~L Do'cument 3-3 Filed 07/24/09 Page 16 of 19 PageiD 104 l

Revised 11/15196

SALES, MAJU(ETING AND PROMOTIONAL PRACTICES POLICY continued

OBSERVANCE OF APPLICABLE LAWS AND OTHER CODES OF CONDUCT

Employees and agents of the Company are expected to become familiar with the laws applicable to

their areas of responsibility and the codes of conduct and ethical guidelines that govern the behavior

of the health care providers with whom they have contact. Employees and agents may not engage in

· -- ·-- ·- --a.ny activities-that-would-result in-viclatien-ofthe·law-or-in-a health care-pr..o:vider:-Y.iolating_a.code_Qf_ __ _

conduct or ethical guideline.

QUESTIONS AND ANSWERS

Q: I am a sales representative for the Company. I occasionaiJy invite customers to dinner and

pick up the tab. Is this permitted by the Company's policy?

. A: Inviting a customer to dinner and picking up the tab is generally permitted provided the

ctistomer's tab is less than $100 and business is discussed a:t dinner. There are, however,

some circwnstances under which invitations of this sort would not be appropriate, such as

when the customer is a government employee or when · this activity would violate the

customer's code of ethics. Sales representatives are expected to familiarize themselves with

the laws applicable to their areas of responsibility and with the code of ethics of their

customers.

Q: Why does the Company's policy place a limit of $100 on the value of gifts and business

courtesies?

A: The $100 limit is based on the American Academy of Orthopaedic Surgeons' Opinion on

Ethics and is consistent with guidelines published by the Health Industry Manufacturers

Asso~iation, the American Medical Association and other indwitry organizations. ·

Q: As a sales representative for the Company, I sometimes give physicians free equipment or

medical texts. Is this permitted by the Company's policy?

---- - --A: Yes,-{f the equipment oz.-mediCaTtexChas -a Value of tes~nhan -tiOO-ancMhe gift-does-not -

violate the recipient's code of ethics. If the value of the equipment or text is more than $100,

. ___ __ ~eJ.0! Y'~til~ ~iolate Company policy and is not permitted. - - . . - .. - . . . - -- . ~ - -

Q: Can the Company or a distributor invite its five largest customers to a weekend fishing trip

paid for by the Company or the distributor? .

A: No. A weekend fishing trip paid for by the Company or the distributor would clearly be

excessive and would violate the Company's policy of gifts and business courtesies.

De£. App .. 015

Case 3:09-cv-01380-L Document 3-3 Filed 07/24/09 Page 17 of 19 PageJD 105

Revised 11/15/96

SALES, MARKET1NG AND PROMOTIONAL PRACTICES POLICY continued

QUESTIONS AND ANSWERS .

Q: Why does the polic·y permit attendees at product training (non CME courses) to be

reimbursed for modest travel expenses but does not permit attendees at continuing medical

- ----·---··- - - -·education conferences1o-be reimbursed-formodest-travel:-expenses?----· - - - ---------- _.

A: This difference is based on the HIMA Code of Ethics and other industry guidelines, which

permit reimbursement of travel expenses only for product training (non-CME) courses. The

rationale for this difference is that product training (non-CME) courses are offered primarily

for the benefit of manufacturers to ensure the safe and effective use of their products. In

contrast, continuing medical education conferences are viewed as primarily benefiting

physicians, who receive CME credits for ·attending thes.e conferences.

Q: Can the Company or a distributor reimburse a physician for travel expenses incurred in

attending a continuing medi-eal education seminar that included a session on the safe and

effective use of one of the Company's products?

A: No. Neither the Company nor a distributor can provide reimbursement for travel expenses

incurred in attending a conference for which continuing medical education credit is awarded,

regardless of whether or not the seminar includes a session on the safe and effective use of

the Company's products.

Q: Can the Company or a distributor provide physicians with certificates ~at can be used to

reduce the registration fee of a continuing medical _education conference? ·

A: No. No payments, whether in the form of cash or certificates, may be provided directly to

health care professionals in connection with attending a continuing medical education

conference. ·

Q: . Can the Company or a distributor pick up the tab for a golf outing off~red in connection with

- - - - - ---- · - a product training (non·CME:)program?- - -- - -- ----------- -- ------ -- ___ . __ __ __ _

A: No. Although the Company of distributor can reimburse attenO.ees at product training

· programs -ror ·modest"travet-expenses~· -recreati-onal ·aetivities arnJ.. -entertainment-may .not be _

paid for by the Company or any of its representative in connection with this type of program.

Q: The Company plans to sponsor a reception for the attendees at a continuing medical

education conference. ·Js this permitted by the Company's policy?

A: Yes, provided the reception is modest in nature and does not compete with or take

precedence over the educational portions of the conference.

Def. App. 016

Case 3:09-cv-01380-L Document 3-3 Filed 07/24/09 Page 18 of 19 PagelD 106 I

Revised 11115/96

SALES, MARKETING AND PROMOTIONAL PRACTICES POLICY continued

QUESTIONS AND ANSWERS

Q : The policy allows the Company to underwrite the cost of "modest" meals and social events

provided in connection with medical conferences. What does "modest'' mean?

------ -- -- -·--------- ~- --- --

;\: ln interpreting words such as "modest," you should consider how a proposed activity would

appear to a modestly paid government official. If the proposed activity could be viewed by a

government official as anything more than a simple business courtesy, then you should not engage in it.

Q: Can I reimburse a civilian physician who works for a military hospital for travel expenses incurred by the physician in attending a CME course?

A: You can reimburse physicians employed by the government only if you have requested and

received written approval in advance from the relevant government agency. Only modest and

reasonable expenses can be reimbursed.

Q : A physician recently requested reimbursement for travel expenses incurred in attending a

product (non-CME) training program sponsored by the Company. The physicians expenses

included a first class airline ticket and a ticket for a Broadway show. Can the company or a

distributor reimburse him for these expenses?

A: No. The Company or the distributor should make it clear before any expenses are incurred

that only modest transportation, lodging and meal expenses w.fll be· reimbursed in connection

with attending a product training (non-CME) course. This mearis that in the case of airline

tickets, only coach fares will be covered. Costs of attending shows and other entertainment

cannot be reimbursed by the Company or a distributor in connection with a product training

course.

Q: What will happen if an employee or agent of the company violates the Company's policy? ·- --- - - - -- -~ - - -- -­ - ------- --- ------ ---- -

A: The consequences of violating the policy will depend, of course, upon the severity of the violation;. however, violation of the policy may resUlt in tennination of the employment or

--agent relationship with the· Cmnpany; - - ·- - ·· ·- · - - - - -

Def. App. 017

Case 3:09-cv-.01380-L Document 3-3 Filed 07/24/09 I

APPENDIXS

Page 19 of 19 PageiD 107 !

POLICY OF SMITH & NEPHEW ORTHOPAEDICS

ROLE OF SALES REP IN SURGERY ---- ~ --- - ----- ----..,.--

S&N product may only be used and applied by professionally trained physicians and surgeons.

Territory Managers and Sales Representatives are not authorized to act as a surgical advisor or to use

any products on a patient, nor may Territory Managers or Sales Representatives act in any manner as a

professional trained technician. The role of the Territory Manager and/or Sales Representative is

exclusively that of a solicitor of sales of the product of S&N: While Territory Managers and Sales

Representatives are periodically requested to attend surgery, it is strongly advised that 1he Territory

Managers or Sales Representatives never touch a patient or suggest a medical treatment or surgical

procedure. The Territory Manager or Sales Representative should only advise as to technical questions

of assembly and operational performance of S&N products.

--~a---- - -- ---• •• -- - - •-- ---------·

De£. App. 018