Exhibit 10.31
PORTIONS OF THIS EXHIBIT MARKED
“[* * *]” HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AND THE OMITTED PORTIONS HAVE
BEEN FILED SEPARATELY IN PAPER FORM WITH THE SECURITIES AND
EXCHANGE COMMISSION.
SUPPLY AND CO-MARKETING
AGREEMENT
This Supply and Co-Marketing
Agreement is effective as of November 26, 2008 (“
Effective Date ”), between Cardinal Health 200, Inc.,
a Delaware corporation (“ Cardinal Health ”),
and SRI/Surgical Express, Inc., a Florida corporation (“
SRI ”) (Cardinal Health and SRI are collectively
referred to in this Agreement as the “ parties
”).
BACKGROUND
Cardinal Health is a manufacturer
and distributor of healthcare products and disposable kitting
solutions. SRI provides reusable and disposable kitting solutions
to healthcare providers. Cardinal Health desires to appoint SRI as
a distributor of the Products (as defined below), and SRI desires
to accept such appointment. In addition, the parties desire that
SRI consolidate and package the Hybrid Kits (as defined below) to
be jointly developed, produced and marketed by the
parties.
OPERATIVE
TERMS
Cardinal Health and SRI agree as
follows:
“ Billing Party ”
has the meaning set forth in Section 3.5.
“ Cardinal Health
Components ” means the disposable surgical component
products provided by Cardinal Health that comprise the disposable
sub-assemblies used in the Hybrid Kits.
“ Cardinal Health
Presource/Convertors Legacy Customer ” means any customer
of Cardinal Health as of the date of this Agreement.
“ Change of Control
” means the occurrence of any of the following:
(i) any person or entity, or group
thereof acting in concert (a “ Person ”), being
or becoming the “beneficial owner” (as such term is
defined in Securities and Exchange Commission (“ SEC
”) Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the “ Exchange Act ”)), directly or
indirectly, of securities of SRI which, together with securities
previously owned, confer upon such Person or group the combined
voting power, on any matters brought to a vote of shareholders, of
fifty-one percent (51%) or more of the then outstanding shares
of voting securities of SRI;
(ii) the direct or indirect sale,
lease, assignment, conveyance, transfer or other disposition of
assets of SRI or any of its subsidiary or subsidiaries, in a
transaction or series of transactions, if the aggregate
consideration received or to be received by SRI or any such
subsidiary in connection with such sale, lease, assignment,
conveyance, transfer or other disposition is greater than fifty-one
percent (51%) of the book value, determined by SRI in
accordance with generally accepted accounting principles, of
SRI’s assets determined on a consolidated basis immediately
before such transaction or the first of such
transactions;
(iii) the merger, consolidation,
share exchange or reorganization of SRI (or one or more direct or
indirect subsidiaries of SRI) as a result of which the holders of
all of the shares of capital stock of SRI as a group would receive
less than fifty-one percent (51%) of the combined voting power
of the voting securities of SRI or such surviving or resulting
entity or any parent thereof immediately after such merger,
consolidation, share exchange or reorganization;
(iv) the adoption of a plan relating
to SRI’s liquidation or the approval of the dissolution of
SRI;
(v) the commencement (within the
meaning of SEC Rule 13e-4 under the Exchange Act) of a tender or
exchange offer which, if successful, would result in a Change of
Control of SRI; or
(vi) the first day on which a
majority of the members of SRI’s board of directors are not
Continuing Directors.
“ Competing Products
” means “green” alternative or reusable products
other than the Hybrid Kits and any disposable or reusable component
products.
“ Component Products
” means the Cardinal Health Components and the SRI
Components.
“ Continuing Director
” means, as of any date of determination, any member of
SRI’s board of directors who (i) was a member of such
board of directors on the Effective Date or (ii) was nominated
for election, elected or appoint to such board of directors with
the approval of the majority of the Continuing Directors who were
members of such board of directors at the time of such nomination,
election or appointment (either by a specific vote or by approval
of SRI’s proxy statement in which such member was name a
nominee for election as a director, without objection to such
nomination).
“ Customer Agreement
” means an agreement between a Customer and SRI or Cardinal
Health, as the case may be, to provide the Hybrid Program to the
Customer.
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“ Customers ”
means the hospitals, surgery centers and other customers that
execute Customer Agreements and participate in the Hybrid
Program.
“ Disposable Products
” means the disposable products manufactured, sourced or
supplied by Cardinal Health that a SRI Legacy Customer desires to
purchase from SRI, including without limitation all disposable
products that are purchased by a SRI Legacy Customer as of the
Effective Date and, in the case of such disposable products that
are not manufactured, sourced or supplied by Cardinal Health, all
comparable products manufactured, sourced or supplied by Cardinal
Health.
“ FDA ” means the
United States Food and Drug Administration.
“ Hybrid Kits ”
means hybrid kits consisting of disposable and reusable components
that the parties jointly develop.
“ Hybrid Program
” means the assembly, delivery to Customers and retrieval
from Customers of the Hybrid Kits and the reprocessing of the SRI
Components.
“ Intellectual Property
” has the meaning set forth in Section 4.1.
“ Management Committee
” has the meaning set forth in Section 9.2.
“ Margin Percentage
” has the meaning set forth in Section 2.3.
“ Measurement Date
” means the second anniversary of the Effective Date and each
anniversary thereafter.
“ Non-Billing Party
” has the meaning set forth in Section 3.5.
“ Operating Committee
” has the meaning set forth in Section 9.3.
“ Products ”
means the Component Products and the Disposable
Products.
“ Recall ” has
the meaning set forth in Section 2.9(f).
“ Restricted
Information ” has the meaning set forth in
Section 8.
“ SRI Components
” means the reusable surgical component products provided by
SRI that comprise the reusable sub-assemblies used in the Hybrid
Kits.
“ SRI Legacy Customer
” means any customer of SRI as of the Effective
Date.
“ SRI Marks ” has
the meaning set forth in Section 9.6.
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“ SRI Services ”
means the delivery, retrieval and reprocessing and other services
provided by SRI under the Hybrid Program.
“ Territory ”
means the United States.
“ Total Revenues
” means, for each annual period during the term of this
Agreement, the amount equal to the gross revenues generated by
sales under the Hybrid Program, less the aggregate amount of
product returns under the Hybrid Program, during that annual
period.
“ Total Revenue Target
” means, for each annual period, an amount equal to one
hundred and eight percent (108%) of the Total Revenues for the
immediately prior annual period.
2.1 Products Covered by this
Article . The
products covered by this Article are the Disposable Products. There
are no volume or purchase commitments of any kind under this
Article.
2.2 Grant of Distributorship;
Exclusive Supplier . Cardinal Health hereby appoints SRI as a
non-exclusive distributor of the Disposable Products in the
Territory and SRI accepts such grant for the term and on the
conditions stated in this Agreement. Subject to the following
sentence, (a) during the term of this Agreement, SRI hereby
appoints Cardinal Health as the exclusive supplier of the
Disposable Products in the Territory and Cardinal Health accepts
such appointment and (b) SRI shall not purchase Disposable
Products from any party other than Cardinal Health without Cardinal
Health’s prior written consent. Notwithstanding the foregoing
sentence, if on any Measurement Date, the amount of Total Revenues
for the annual period ending on the Measurement Date are less than
the Total Revenue Target for such period, SRI may, upon prior
written notice to Cardinal Health, elect that Cardinal Health shall
be a non-exclusive supplier of the Disposable Products for use in
the Hybrid Kits and SRI shall be permitted to purchase Disposable
Products for use in the Hybrid Kits from any party. For the
avoidance of doubt, Cardinal Health shall, during the term of this
Agreement, remain SRI’s exclusive supplier of the Disposable
Products for sale to the SRI Legacy Customers regardless of the
amount of Total Revenues. If the failure to satisfy the Total
Revenue Target is a result of unforeseeable and extenuating
circumstances (including significant market deterioration), SRI
agrees that, prior to electing to purchase Disposable Products from
any party other than Cardinal Health, SRI shall first discuss its
election with the Management Committee.
2.3 SRI Legacy Customer
Pricing .
(a) The price for each SRI Legacy
Customer Disposable Product ordered by SRI shall be an amount that
results in the Margin Percentage being equal to [* * *] percent ([*
* *]%) for all orders made prior to the first anniversary of the
date that Cardinal Health delivers the first Disposable Product to
SRI pursuant to this Agreement and [* * *] percent ([* * *]%)
thereafter. For purposes of this Agreement, the “
Margin
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Percentage
” shall be the quotient of
(i) the difference between (A) the price charged to
SRI’s customer for such Disposable Product (excluding any
delivery or transportation fees charged to SRI customers)
less (B) the price charged to SRI under this Agreement
for such Disposable Product divided by (ii) the price
charged to SRI’s customer for such Disposable Product
(excluding any delivery or transportation fees). For the avoidance
of doubt, revenue and billing charges to SRI customers for SRI
products, including without limitation reusable component products,
instruments and service offerings, shall be excluded from the
calculation of the Margin Percentage.
(b) Terms of payment shall be net 45
days from date of invoice.
2.4 Labeling .
The Disposable Products shall be
labeled with a co-branded label mutually agreed to by the parties
and substantially in the form attached hereto as Annex A
.
2.5 Delivery; Risk of Loss
. Title and risk of loss
or damage to the Disposable Products pass to SRI when the
Disposable Products are unloaded at SRI’s place of delivery
and accepted by SRI. Unless agreed to by SRI in advance, Cardinal
Health shall not deliver any partial orders. In addition, SRI may
refuse to accept, and may return to Cardinal Health, freight
collect, at Cardinal Health’s risk, any Disposable Products
that are not ordered by SRI.
2.6 Nonconforming Products
. SRI may reject delivery
of Disposable Products up to 72 hours after delivery if such
Disposable Products are nonconforming. If SRI properly rejects any
Disposable Products as nonconforming, Cardinal Health, at its sole
cost and expense, as soon as practicable after the effective date
of SRI’s notice of rejection, shall either (a) cause the
rejected Disposable Products to conform or (b) deliver to SRI
new Disposable Products that conform to the order. Cardinal Health
acknowledges that Disposable Products are also subject to
acceptance or rejection by Customers, and will promptly following
any Customer rejection, (i) cause the rejected Disposable
Products to conform or (ii) deliver to SRI new Disposable
Products that conform to the order.
2.7 Inspection
. With respect to those
Disposable Products manufactured by Cardinal Health, Cardinal
Health shall permit SRI or its agents or representatives to inspect
and observe finished Disposable Products in the process of
manufacture, at any reasonable time during Cardinal Health’s
normal business hours, and shall provide adequate space and
facilities necessary for SRI’s agents or representatives to
conduct an inspection or observation upon reasonable advance notice
to Cardinal Health.
2.8 SRI’s Duties
Regarding Disposable Products . With respect to the Disposable Products, SRI
shall:
(a) Submit its order for Disposable
Products via an electronic data interchange (EDI) or Cardinal
Health’s Web-based ordering system, such as
www.Cardinal.com.
(b) Pay for such orders in
accordance with the payment terms specified in
Section 2.3.
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(c) Maintain complete and accurate
records for such periods as may be required by applicable law, of
all the Disposable Products sold by it.
(d) Provide the staff it deems
reasonably necessary to accept orders from the SRI Legacy Customers
for Disposable Products and to provide other customer service
support.
(e) Provide billing, collection and
related administrative services for the Customers purchasing
Disposable Products through the SRI channel.
(f) Reasonably assist Cardinal
Health in carrying out any Recall at Cardinal Health’s
request, cost and expense.
(g) Communicate all complaints to
Cardinal Health on Disposable Products in a timely
fashion.
(h) Make all claims for any
discrepancies in shipping, unpaid invoices, rebate requests, or any
other discrepancy resulting in receivable discrepancy in writing
within one (1) year of the date of the discrepancy. Cardinal
Health shall not be obligated to make payments for, or investigate
claims which are dated more than one (1) year prior to
SRI’s written claim or request for investigation.
(i) Accept and implement a
Continuous Replenishment Process (“ CRP ”) with
Cardinal Health on purchase orders for all Cardinal Health
Component Products within sixty (60) days of the Effective
Date. If SRI does not implement an operational CRP process on
Cardinal Health Component Products by the date set forth above and
does not cure such failure within thirty (30) days after
notice from Cardinal Health, then Cardinal Health may charge SRI a
handling fee of five percent (5%) on all orders of Cardinal
Health Component Products by SRI until such time as the CRP process
is in place.
(j) Use its reasonable efforts to
report any shipping discrepancies within seventy-two
(72) hours of delivery of the Cardinal Health Component
Products to Cardinal Health customer service
representatives.
2.9 Cardinal Health’s
Duties Regarding Disposable Products . With respect to the Disposable Products,
Cardinal Health shall:
(a) Timely ship all Disposable
Products F.O.B. destination to the SRI facilities designated by SRI
in the applicable purchase order.
(b) Within five (5) business
days after the end of each month and receipt of customer purchase
data from SRI, pay to SRI a tracing fee of [* * *]% of Cardinal
Health’s gross revenues with respect to the Disposable
Products and a prompt pay fee of [* * *]% 15, net 45.
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(c) Maintain 98% Disposable Product
Fill Rate (as defined below) for Disposable Products. “
Disposable Product Fill Rate ” is defined as
(i) the quantity of Disposable Products meeting the warranty
requirements set forth in Section 4.1 actually shipped as of
the delivery date set forth in SRI’s purchase order,
divided by (ii) the quantity of Disposable Products
that should have been shipped in accordance with that purchase
order. SRI will measure the Disposable Product Fill Rate on a
quarterly basis with respect to all of the purchase orders
submitted by SRI to Cardinal Health for such calendar quarter. If
Cardinal Health fails to meet the Disposable Product Fill Rate with
respect to any calendar quarter and, after notice of such failure
by SRI, fails to maintain the Disposable Product Fill Rate for the
immediately following calendar quarter, SRI may invoice and collect
from Cardinal Health an amount equal to 10% of the value of the
Disposable Product for each 1% the Disposable Product Fill Rate was
below 98% with respect to the purchase orders for any calendar
month for which the Disposable Product Fill Rate was below 98%. SRI
acknowledges that Cardinal Health’s ability to comply with
the foregoing requirements depends on its timely receipt of
accurate and complete forecasts and ordering information from SRI
via an electronic data interchange (EDI) or Cardinal Health’s
Web-based ordering system, such as www.Cardinal.com.
(d) Take all necessary action to
comply with applicable FDA and other federal, state and local
requirements in connection with the manufacture, sale, distribution
and provision of the Disposable Products. These obligations include
without limitation compliance with the applicable sections of the
Quality System Regulation (21 C.F.R. Part 820). Each party shall
possess a Quality Assurance System that adheres to applicable laws,
rules, and regulations, including without limitation the practices
and regulations of the FDA (including without limitation the
applicable sections of the current Quality System Regulations as
expressed in 21 C.F.R. Part 820 and Pre-Market Notification
Procedures of 21 C.F.R. Part 807, Subpart E).
(e) Notify SRI and the appropriate
federal, state and local authorities of any customer complaints or
other occurrences regarding the Disposable Products which are
required to be so reported or that may render all or any of the
Disposable Products in violation of a law or regulation, evaluating
all complaints and responding to SRI in writing on the resolution
of any complaints from SRI or its customers. SRI and Cardinal
Health shall provide each other with any information it receives
regarding such occurrences. Cardinal Health shall be responsible
for evaluating all complaints and for responding to SRI in
writing.
(f) In the event that any defect in
a Disposable Product or any regulatory or government action
requires that all or part of a Disposable Product be recalled,
destroyed, withheld from the market, or subjected to field
corrective action (a “ Recall ”), Cardinal
Health shall immediately notify SRI of the same and bear the entire
responsibility of the Recall, at no cost to SRI, and shall
reimburse SRI for all reasonable and direct costs associated with
all Recalls, except those Recalls that result from negligence, or
reckless disregard or the acts or omissions on the part of SRI or
any of its employees.
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(g) Upon request, provide SRI with
the following records for the Disposable Products: (i) product
specifications; (ii) if the Disposable Products are not
manufactured directly by Cardinal Health, the name and address of
the actual manufacturer of the Disposable Products and the
location(s) where the Disposable Products are manufactured;
(iii) quality control specifications to include testing
methods, sampling procedures, and acceptance levels; and
(iv) sterilization records. To the extent that the Disposable
Products are manufactured, assembled or labeled by Cardinal Health,
Cardinal Health will not make any change in the manufacture,
assembly, or labeling process of the Disposable Products which
could affect the quality of the Disposable Products and/or the
location where Disposable Products are manufactured without
SRI’s prior written consent, which shall not be unreasonably
withheld.
(h) Provide primary sales support
for the Disposable Products to SRI’s customers and timely
respond to all requests from SRI’s customers relating to
substitutions and expansions of the Disposable Products.
(i) Cardinal shall actively work to
increase the kit size and value of SRI’s disposable accessory
pack business with the SRI Legacy Customers.
2.10 Purchase of SRI Disposable Products by
Cardinal Health . Within sixty (60) days after the
Effective Date, Cardinal Health shall purchase from SRI all of
SRI’s raw materials inventory of disposable products (other
than the Disposable Products purchased by SRI pursuant to this
Agreement and components that are not actively tied to SRI Legacy
Customer bills of materials on the date of such purchase) for a
purchase price equal to SRI’s actual cost of such products.
Notwithstanding the foregoing, Cardinal Health shall not be
required to purchase any products with less than nine
(9) months left prior to their expiration. In addition, to
assist SRI with the reduction of any excess raw material inventory
held by SRI, Cardinal Health shall have the option to purchase from
SRI any raw materials that are not tied to bills of materials on
the purchase date for an amount equal to Cardinal Health’s
acquisition cost. Cardinal Health shall be responsible for all
freight and other transportation charges relating to the delivery
of such disposable products to Cardinal Health or its designee. SRI
represents and warrants to Cardinal Health, as of the date of such
sale, that all such disposable products sold to Suppler will be of
good and merchantable quality, not adulterated, and will conform to
and perform in accordance with specifications, fit for their
particular purpose, and free from all defects in material and
workmanship.
2.11 Payments to GPOs
. SRI shall be
responsible to continue to make any required payments to GPOs, if
any, in connection with SRI Legacy Customers. For sales of the
Hybrid Kits, Cardinal Health will be responsible to make payments
to GPOs, if any, with respect to the Cardinal Health Components and
SRI will be responsible to make payments to GPOs, if any, with
respect to the SRI Components. The terms of this Section 2.11
shall apply with respect to the Disposable Products covered by this
Section 2 as well as the Component Products covered by
Section 3.
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3.1 Products Covered by this
Article . The
products covered by this Article are the Component Products. There
are no volume or purchase commitments of any kind under this
Article.
3.2 Grant of Distributorship;
Marketing and Promotion . Cardinal Health appoints SRI as the exclusive
distributor of the Cardinal Health Components to the Customers in
the Territory, provided such Cardinal Health Components are only
distributed as a part of the Hybrid Kits, and SRI accepts such
grant for the term and on the conditions stated in this Agreement.
SRI and Cardinal Health will engage in marketing and promotional
activities as specified in Exhibit A to this Agreement. The
parties will share marketing and promotional expenses as follows:
SRI: 70%; Cardinal Health: 30%.
3.3 Pricing .
Cardinal Health shall provide the
Cardinal Health Components to SRI in exchange for the amount
otherwise payable to it pursuant to the revenue sharing arrangement
set forth in Section 3.4. No separate consideration for the
Cardinal Health Components shall be payable by SRI under this
Agreement. The parties shall mutually agree regarding the Hybrid
Kit prices to be charged to each Customer pursuant to each Customer
Agreement, or set a mutually agreeable range for those prices.
These prices might be different for each Customer, depending on
market conditions and changes in the component products provided as
part of the Hybrid Kit. The parties shall not add charges of any
kind without discussion with the Operating Committee, including
charges for packaging, labeling, taxes, storage, insurance, boxing,
crating, and shipping. For the avoidance of doubt, SRI may charge a
delivery fee.
3.4 Revenue Sharing
. Unless the parties
agree otherwise in writing, for each Hybrid Kit sold to a Customer,
the Non-Billing Party shall be entitled to receive from the Billing
Party a fixed margin reconciled quarterly to the actual margin in
accordance with this Section 3.4 as follows: for each Hybrid
Kit sold to a Customer, the Non-Billing Party shall be entitled to
receive from the Billing Party an amount equal to the product of
(i) the price of the Hybrid Product (as billed to the
Customer) multiplied by (ii) the quotient of
(A) the aggregate cost (as approved by the Operating
Committee) of the Non-Billing Party’s component products used
in such Hybrid Kit divided by the aggregate cost (as
approved by the Operating Committee) of all component products used
in such Hybrid Kit. For example, if the parties sell to a Customer
a Hybrid Kit having a total component cost of $100 (comprised of
components of the Non-Billing Party with a cost of $70 and
components of the Billing Party with a cost of $30) for a price of
$200, the Non-Billing Party shall be entitled to receive $140 from
the Billing Party. For the avoidance of doubt, each party shall be
responsible for all sale commissions payable to such party’s
sales personnel.
3.5 Billing and Collection . For each
Customer, the parties shall mutually determine which party shall
provide billing, collection and related administrative services for
such Customer (the “ Billing Party ”). The
Billing Party shall invoice Customers for any taxes required to be
paid by the Customers. Within fifteen (15) days after the
Billing Party actually receives
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payment from a Customer, the Billing Party shall
pay to the other party (the “ Non-Billing Party
”) the amount determined in accordance with Section 3.4,
less any sales or excise taxes that the Billing Party bills,
collects, and pays to taxing authorities. The Billing Party shall
provide along with the payment described in this Section 3.5 a
detailed listing (by Customer) of the total amount billed for each
Hybrid Kit and an itemization of Hybrid Kits purchased and
component parts with respect to such bill. With respect to
Customers for which Cardinal Health is the Billing Party, SRI shall
transmit to Cardinal Health on a daily basis all delivery documents
and other information reasonably requested by Cardinal
Health.
3.6 Order Processing . For each
Customer or prospective Customer, the parties shall mutually
determine which party shall provide the staff it deems reasonably
necessary to accept orders from such Customer, negotiate the
Customer Agreement and provide other client service
support.
3.7 Customer Agreements . The parties
shall evidence supply arrangements with the Customers with Customer
Agreements. The parties shall cooperate to develop a form Customer
Agreement to use in selling the Hybrid Program, which will describe
the products and services to be provided, delivery and payment
arrangements, and other terms and conditions. Each party may enter
into Customer Agreements without approval by the other party,
unless the Customer Agreement materially differs from the form
agreement. If the Customer Agreement materially differs from the
form agreement, such alterations must be approved by both parties.
Promptly after a party enters into a Customer Agreement, such party
shall provide an executed copy of the Customer Agreement to the
other party.
3.8 Customer Service . With respect to
each Customer, the Billing Party shall be primarily responsible for
providing collection and related administrative services for such
Customer, including receiving Customer service requests and
complaints. If such requests or complaints primarily relate to the
Non-Billing Party’s products or services, the Billing Party
shall notify the Non-Billing Party of such requests or complaints.
Each party shall use its reasonable efforts to resolve and respond
to any Customer request or complaint that is primarily related to
its products or services.
3.9 Delivery, Risk of Loss
. The Cardinal Health Components shall be held by SRI on a
consignment basis. The relationship between SRI and Cardinal Health
with respect to the Cardinal Health Components shall be that of a
consignor and consignee in which consignor (Cardinal Health)
deposits the Cardinal Health Components with consignee (SRI) for
the purpose of producing the Hybrid Kits sold to SRI’s and
Cardinal Health’s customers. Title and risk of loss shall
remain with Cardinal Health until delivery to the Customer at which
time title and risk of loss will pass to Customer. SRI shall be
responsible for risk of loss or damage to the Cardinal Health
Components while at SRI’s facilities. Unless agreed to by SRI
in advance, Cardinal Health shall not deliver any partial orders.
In addition, SRI may refuse to accept, and may return to Cardinal
Health, freight collect, at Cardinal Health’s risk, any
Cardinal Health Components that are not ordered by
SRI.
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3.10 Nonconforming Products . SRI may
reject a delivery of Cardinal Health Components up to 72 hours
after delivery if such Cardinal Health Components are
nonconforming. If SRI properly rejects any Cardinal Health
Components as nonconforming, Cardinal Health, at its sole cost and
expense, as soon as practicable after the effective date of
SRI’s notice of rejection, shall either (a) cause the
rejected Cardinal Health Components to conform or (b) deliver
to SRI new Cardinal Health Components that conform to the order.
Cardinal Health acknowledges that Disposable Products are also
subject to acceptance or rejection by Customers, and will promptly
following any Customer rejection, (i) cause the rejected
Disposable Products to conform or (ii) deliver to SRI new
Disposable Products that conform to the order.
3.11 Inspection . With respect to those
Cardinal Health Components manufactured by Cardinal Health,
Cardinal Health shall permit SRI or its agents or representatives
to inspect and observe finished Cardinal Health Components in the
process of manufacture, at any reasonable time during Cardinal
Health’s normal business hours, and shall provide adequate
space and facilities necessary for SRI’s agents or
representatives to conduct an inspection or observation upon
reasonable advance notice to Cardinal Health.
3.12 SRI’s Duties Regarding the SRI
Components and Cardinal Health Components . With respect to
the Component Products and SRI Components, SRI shall:
(a) Submit its order for Cardinal
Health Components via an electronic data interchange (EDI) or
Cardinal Health’s Web-based ordering system, such as
www.Cardinal.com.
(b) Maintain 98% SRI Component Fill
Rate (as defined below) for SRI Components. “ SRI
Component Fill Rate ” is defined as (i) the quantity
of the SRI Components meeting the warranty requirements set forth
in Section 4.1 actually delivered to the Customer as of the
delivery date set forth in the Customer Agreement (ii)
divided by the quantity of SRI Components that should have
been delivered by SRI to the Customer in accordance with the
applicable Customer Agreement. Cardinal Health will measure the SRI
Component Fill Rate on a quarterly basis with respect to all of
Hybrid Kits delivered to Customers for such calendar quarter. If
SRI fails to meet the SRI Component Fill Rate with respect to any
calendar quarter and, after notice of such failure by Cardinal
Health, fails to maintain the SRI Component Fill Rate for the
immediately following calendar quarter, Cardinal Health may invoice
and collect from SRI an amount equal to 10% of the value of the SRI
Components for each 1% the SRI Component Fill Rate was below 98%
with respect to the Hybrid Kits delivered for any calendar quarter
for which the SRI Component Fill Rate was below 98%. Cardinal
Health acknowledges that SRI’s ability to comply with the
foregoing requirements depends on its timely receipt of
(A) the Cardinal Health Components and (B) accurate and
complete forecasts and ordering information from SRI via an
electronic data interchange (EDI) or Cardinal Health’s
Web-based ordering system, such as www.Cardinal.com.
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(c) Maintain complete and accurate
records for such periods as may be required by applicable law, of
all the Component Products and SRI Components sold by it as part of
the Hybrid Kits.
(d) Notify Cardinal Health and the
appropriate federal, state and local authorities of any customer
complaints or other occurrences regarding the SRI Components which
are required to be so reported or that may render all or any of the
SRI Components in violation of a law or regulation, evaluating all
complaints and responding to Cardinal Health in writing on the
resolution of any complaints from Cardinal Health or its customers.
SRI and Cardinal Health shall provide each other with any
information it receives regarding such occurrences. SRI shall be
responsible for evaluating all complaints relating to the SRI
Components and for responding to Cardinal Health in
writing.
(e) In the event that any defect in
a SRI Component or any regulatory or government action requires
that all or part of a SRI Component be recalled, destroyed,
withheld from the market, or be subjected to a Recall, SRI shall
immediately notify Cardinal Health of the same and bear the entire
responsibility of the Recall, at no cost to Cardinal Health, and
shall reimburse Cardinal Health for all reasonable and direct costs
associated with all Recalls, except those Recalls that result from
negligence or reckless disregard or the acts or omissions on the
part of Cardinal Health or any of its employees.
(f) Upon request, provide Cardinal
Health with the following records for the SRI Components:
(i) product specifications; (ii) if the SRI Components
are not manufactured directly by SRI, the name and address of the
actual manufacturer of the SRI Components and the location(s) where
the SRI Components are manufactured; (iii) quality control
specifications to include testing methods, sampling procedures, and
acceptance levels; and (iv) sterilization records. To the
extent that the SRI Components are manufactured, assembled or
labeled by SRI, SRI will not make any change in the manufacture,
assembly, or labeling process of the SRI Compon
