DISTRIBUTION AGREEMENT

EXHIBIT 10.1

 

Portions of this Exhibit were omitted and filed separately with the Secretary of the Commission pursuant to an application for confidential treatment filed with the Commission pursuant to Rule 406 under the Securities Act of 1933. Such omissions are designated as ***.

 

Execution Copy

 

DISTRIBUTION AGREEMENT

 

THIS DISTRIBUTION AGREEMENT (this “Agreement”) is made and entered into this 1st day of June 2005, by and between SSL International plc, a limited liability company organized under the laws of England with principal offices at Venus, No. 1 Old Park Lane, Manchester England M41 7HA (“Distributor”), and OraSure Technologies, Inc., a corporation organized under the laws of the State of Delaware, U.S.A., with principal offices at 220 East First Street, Bethlehem, Pennsylvania 18015-1360 (“OSUR”).

 

BACKGROUND

 

OSUR has exclusive rights to develop, manufacture, market, sell and distribute the Product (as defined below) for the treatment of ordinary warts and plantar warts (verrucas) by means of a refrigerant. OSUR desires to grant to Distributor the right to import, market, sell and distribute the Product under the Distributor Trademarks (as defined below) on an exclusive basis in certain markets within certain geographic territories, and Distributor desires to accept such rights, all in accordance with the terms and subject to the conditions contained in this Agreement.

 

NOW, THEREFORE, in consideration of the foregoing, and of the mutual promises and covenants contained in this Agreement, OSUR and Distributor, intending to be legally bound, hereby agree as follows:

 

1. DEFINITIONS .

 

1.1. “Affiliate” means, when used with reference to either Distributor or OSUR, any person or entity directly or indirectly controlling, controlled by or under common control with Distributor or OSUR, as the case may be. For purposes of this Agreement, “control” (including with correlative meanings “controlling,” “controlled by,” or “under common control with”) means: (a) the direct or indirect ownership, in the aggregate, of at least 50% of the outstanding voting securities of an entity; (b) the right to receive directly or indirectly, in the aggregate, at least 50% of the profits or earnings of an entity; or (c) the right or power, directly or indirectly, to direct or cause the direction of the policy decisions of an entity, whether by ownership of voting securities, contract or otherwise.

 

1.2. “Assembly Contractor” means the contractors designated by OSUR to manufacture and assemble the Product purchased hereunder.

1.3. “Business Day” means any day other than a Saturday, Sunday or day on which the Federal Reserve Bank of Philadelphia, Pennsylvania, U.S.A., is closed, or which constitutes a national holiday in the United Kingdom.

 

1.4. “Competing Product” shall have the meaning set forth in Section 3.1.5(a).

 

1.5. “Claims” shall have the meaning set forth in Section 9.2.1.

 

1.6. “Contract Year” means, with respect to the first Contract Year, the period beginning on the Effective Date and ending on December 31, 2005 and, with respect to each subsequent Contract Year, the calendar year beginning on the date immediately following the end of the preceding Contract Year.

 

1.7. “Country” means any of the countries within the Territory, as listed in Exhibit A.

 

1.8. “Distributor Components” shall have the meaning set forth in Section 4.2.

 

1.9. “Effective Date” means the date first written above.

 

1.10. “Improved Product” shall have the meaning set forth in Section 4.4.4(b).

 

1.11. “Index” shall have the meaning set forth in Section 4.4.2.

 

1.12. “Initial Term” shall have the meaning set forth in Section 12.1.

 

1.13. “ISO Standards” shall have the meaning set forth in Section 4.8.2.

 

1.14. “Losses” shall have the meaning set forth in Section 9.2.1.

 

1.15. “Medical Device Directive” shall have the meaning set forth in Section 6.1.

 

1.16. “OTC Market” means the over-the-counter or consumer market within the Territory for selling Product through retail outlets or wholesalers serving such retail outlets, in the Territory solely for ultimate purchase and home use by consumers in the Territory without any prescription from, a medical professional or health care practitioner.

 

1.17. “Passive Sales” shall have the meaning set forth in Section 2.2.

 

1.18. “Price” shall have the meaning set forth in Section 4.4.1.

 

1.19. “Price Adjustment Notice” shall have the meaning set forth in Section 4.4.2.

 

1.20. “Product” means the patented cryosurgical removal system that is developed, assembled, manufactured, marketed and sold by OSUR or its Affiliates or designees pursuant to this Agreement, for the purpose of treating ordinary warts and plantar warts, and meets the Specifications.

 

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1.21. “Prohibited Entity” shall have the meaning set forth in Section 12.2.5.

 

1.22. “Purchase Order” shall have the meaning set forth in Section 4.5.

 

1.23. “QSR” shall have the meaning set forth in Section 4.8.2.

 

1.24. “Quarterly Period” means each successive period of three (3) months in a Contract Year with the first such three (3) month period beginning on the first day of such Contract Year.

 

1.25. “Renewal Term” shall have the meaning set forth in Section 12.1.

 

1.26. “Replacement Product” shall have the meaning set forth in Section 4.9.

 

1.27. “Specifications” means the Product specifications set forth in Exhibit B to this Agreement, as such specifications may be modified or amended pursuant to Section 4.4.4 of this Agreement.

 

1.28. “Term” shall have the meaning set forth in Section 12.1.

 

1.29. “Territory” means all of the Countries listed in Exhibit A to this Agreement.

 

1.30. “Territory A Countries” means the ***.

 

1.31. “Territory A Minimum Quantity” means, with respect to each Contract Year, the quantity of Units of Product for each of the Territory A Countries as set forth in Exhibit C, which are required to be purchased by Distributor during such Contract Year.

 

1.32. “Territory B Countries” means all Countries in the Territory except for the Territory A Countries.

 

1.33. “Third Party Supplier” shall have the meaning set forth in Section 4.9.

 

1.34. “Total Territory Minimum Quantity” means, with respect to each Contract Year, the aggregate quantity of Units of Product for all Countries in the Territory as set forth in Exhibit C, which are required to be purchased by Distributor during such Contract Year.

 

1.35. “Total Territory B Minimum Quantity” means, with respect to each Contract Year, the aggregate quantity of Units of Product for all Territory B Countries as set forth in Exhibit C, which are required to be purchased by Distributor during such Contract Year.

 

1.36. “Unit” means a single unit of Product as described in the Specifications.

 

1.37. “United Kingdom” means England, Scotland, Wales and Northern Ireland.

 

1.38. “Warranty Period” shall have the meaning set forth in Section 8.1.

 

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2. APPOINTMENT .

 

2.1. Distribution Rights . In accordance with the terms and subject to the conditions contained in this Agreement, OSUR hereby grants to Distributor, on an exclusive basis during the Term, the right to market, promote, import, sell and distribute the Product solely in the OTC Market in the Territory, and Distributor hereby accepts such rights.

 

2.2. Reservation of Rights . OSUR expressly reserves to itself the exclusive right to import, market, promote, use, sell or distribute the Product, directly or indirectly, outside the Territory and in any market other than the OTC Market, including without limitation to physicians and other medical or healthcare professionals (the “Professional Market”) within the Territory. Furthermore, Distributor acknowledges and agrees that nothing in this Agreement shall preclude OSUR from manufacturing or assembling the Product, or having the Product manufactured or assembled, in any jurisdiction either within or outside of the Territory. The parties acknowledge that OSUR currently manufactures and imports, markets, sells and distributes its Histofreezer ^® cryosurgical removal product to the Professional Market in the Territory and elsewhere, and nothing in this Agreement shall preclude OSUR from importing, marketing, manufacturing, promoting, using, selling or distributing its Histofreezer ^® product, either directly or indirectly through one or more distributors, sub-distributors or agents, in the Professional Market in any Country or other territory or in any market outside of the OTC Market. OSUR will not sell any Product to any third party that OSUR knows or has reason to believe intends actively to sell the Product to the OTC Market in the Territory. Notwithstanding the foregoing, Distributor acknowledges that nothing in this Agreement is intended to preclude Passive Sales (as defined below) of the Product or the Histofreezer ^® products by OSUR, to the OTC Market in the European Union, within the meaning of Commission Regulation (EC) No. 2790/1999 of 22 December 1999 on the application of Article 81(3) of the Treaty to Categories of Vertical Agreements and Concerted Practices. For purposes of this Agreement, “Passive Sales” shall mean responding to unsolicited requests from individual customers for Product, such sales of Product to be made without actively approaching individual customers by for instance direct mail or visits, or through advertisements in media or other promotions specifically targeted at such customers, or by establishing a warehouse or distribution outlet in the territory in which such customers are located.

 

2.3. Sub-distributors . In exercising its rights hereunder, Distributor may engage sub-distributors or agents as provided in this Section 2.3. Distributor shall enter a written agreement with each sub-distributor or agent, requiring the sub-distributor or agent to comply with Distributor’s obligations under this Agreement with respect to distribution of the Product in the OTC Market in the Territory, including, without limitation, Sections 3.1.2, 3.1.4, 5.1 and 5.2. Upon request, Distributor shall provide a copy of the sub-distributor or agent agreement to OSUR. Distributor’s use of sub-distributors or agents does not relieve Distributor of any obligations under this Agreement.

 

2.4. Distributor’s Compensation . Distributor has no right to any compensation from OSUR. Distributor’s compensation, if any, will come from the margin between the Price it pays OSUR for the Product and the price at which it sells the Product under this Agreement into the OTC Market.

 

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2.5. Independent Contractor . Distributor is an independent business and has no power, right, or authority to bind OSUR or to assume or to create any obligation or responsibility, express or implied, on behalf of OSUR. Distributor shall not take any action that could lead a third party to believe it has such authority. Nothing stated in this Agreement shall be construed as creating relationships of partners, employer and employee, franchiser and franchisee, or principal and agent between the parties.

 

2.6. Conversion to Non-Exclusive Rights . To the extent Distributor’s rights to the Product hereunder are converted from exclusive to non-exclusive rights, OSUR shall be permitted to market, promote, import, sell and distribute the Product in the OTC Market in the Territory, directly or indirectly through one or more distributors, sub-distributors or agents.

 

3. OBLIGATIONS .

 

3.1. By Distributor .

 

3.1.1. Level of Effort . Distributor shall use all commercially reasonable efforts to market, promote, sell and distribute the Product in the OTC Market. In connection therewith, Distributor shall maintain, at its own expense and subject to OSUR’s obligations under Section 3.2.2, an adequately trained staff to enable Distributor to fulfill its obligations under this Agreement.

 

3.1.2. Customer and Territorial Obligations . Distributor and OSUR acknowledge and agree that distribution of Product requires strict measures to ensure the proper identification, storage, tracking and transportation of the Product through its life cycle and significant commitments on the part of Distributor. For this reason, Distributor may market, promote and solicit sales of Product only to customers within the OTC Market in the Territory and to sub-distributors or agents who are licensed and contractually permitted, pursuant to the terms of this Agreement, to distribute Product in the OTC Market in the Territory. Distributor shall not sell the Product to customers who Distributor knows or has reason to believe intend to resell Products outside the OTC Market or Territory or whom OSUR or Distributor reasonably believes are facilitating such resale. Notwithstanding the above, OSUR acknowledges that nothing herein shall prohibit Passive Sales to non-OTC Market customers in the European Union, within the meaning of Commission Regulation (EC) No. 2790/1999 of 22 December 1999 on the application of Article 81(3) of the Treaty to Categories of Vertical Agreements and Concerted Practices. Distributor shall notify OSUR of any sale, order, resale or use of Product or other occurrence that violates this Section 3.1.2 promptly upon learning thereof.

 

3.1.3. Sales Leads Outside of the Territory or OTC Market .

 

(a) Without prejudice to Distributor’s rights under Section 5.3 with respect to Distributor Trademarks and under Section 3.1.2 with respect to Passive Sales, Distributor shall

 

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refer to OSUR all sales leads that come to its attention with respect to the sale or use of the Product outside of the Territory or OTC Market and, as soon as reasonably possible, inform OSUR of the identity of such sales lead. Distributor shall not be entitled to any commission, referral or finder fee or other remuneration for these referrals.

 

(b) Without prejudice to OSUR’s rights under Section 2.2 with respect to Passive Sales, OSUR shall refer to Distributor all sales leads that come to OSUR’s attention with respect to the sale or use of the Product in the OTC Market in the Territory and, as soon as reasonably possible, shall inform Distributor of the identity of such leads.

 

3.1.4. Compliance with Laws . Distributor shall comply with all applicable treaties, laws, rules and regulations in connection with its promotion, marketing, use, sale, import or distribution of the Product in the OTC Market, its supply of the Distributor Components hereunder and its performance of its obligations under this Agreement. Without limiting the generality of the foregoing, Distributor shall comply with all applicable regulatory approvals, clearances or registrations obtained for the import, promotion, marketing, sale or distribution of the Product in the OTC Market.

 

3.1.5. Exclusive Supply .

 

(a) During the period commencing on the Effective Date and ending on the last day of the sixth Contract Year and, subject to Section 3.1.5(b) below, during each subsequent Contract Year during the Term, Distributor and its Affiliates shall not, directly or indirectly, (a) import, market, manufacture, use, promote, sell, distribute or purchase any cryosurgical wart or lesion removal product that directly competes with the Product (a “Competing Product”) or (b) engage in, provide services for or acquire or hold a controlling (as defined in Section 1.1) interest in any company, entity or business (as owner, stockholder, partner, co-venturer, director, officer, employee, consultant or otherwise) that imports, manufactures, markets, promotes, sells or distributes a Competing Product. If any provision of this Section 3.1.5 shall be held unenforceable because of scope, duration or area of its applicability, it shall be deemed modified to the extent necessary to make it enforceable, while preserving its intent.

 

(b) The obligations of Section 3.1.5(a), above, shall automatically renew and continue in full force and effect on an annual basis for successive Contract Years after the sixth Contract Year, unless Distributor elects to terminate such obligations in accordance with this Section 3.1.5(b). Effective on the first day of any Contract Year after the sixth Contract Year, Distributor shall have the right to terminate its obligations under Section 3.1.5(a) by giving OSUR written notice of its election to terminate not less than twelve (12) months prior to the effective date of termination. In the event Distributor exercises its right to terminate its obligations under Section 3.1.5(a) as provided above, OSUR may, either (i) terminate this Agreement or (ii) convert Distributor’s rights hereunder to the Product from exclusive to non-exclusive rights, in each case effective as of the date Distributor’s obligations under Section 3.1.5(a) are terminated. In order to exercise its right to terminate this Agreement or convert Distributor’s rights, OSUR shall provide Distributor with written notice of such election within

 

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sixty (60) days after receipt of Distributor’s notice to terminate its obligations under Section 3.5.1(a). Notwithstanding anything to the contrary in this Agreement, if OSUR elects to terminate or convert Distributor’s rights hereunder pursuant to this Section 3.1.5(b), nothing in this Agreement shall preclude OSUR from preparing to sell the Product, either directly or indirectly, into the OTC Market after this Agreement is terminated or Distributor’s rights are converted, including without limitation conducting negotiations with new distributors and preparing marketing and promotional materials and plans. If OSUR elects to terminate this Agreement pursuant to this Section 3.1.5(b), Distributor shall pay OSUR a royalty which shall start at *** per unit of Competing Product sold by Distributor in the OTC Market in the Territory during the *** after the termination and shall be reduced by *** per unit for Competing Product sold during *** thereafter (i.e. the royalty rate shall be *** per unit during the *** period, *** per unit during the *** period, etc.); provided that Distributor shall no longer have any royalty obligation hereunder for any Competing Product sold after ***.

 

3.1.6. Marketing Plan . Distributor shall develop for each Contract Year a written annual plan for the marketing and sale of the Product in the OTC Market in each Country in the Territory. Distributor shall deliver such plan to OSUR for the first Contract Year within thirty (30) days after the Effective Date. Thereafter, Distributor shall deliver such a plan to OSUR for each subsequent Contract Year by September 1 of the preceding Contract Year. Additionally, Distributor shall provide OSUR with monthly updates of Distributor’s sales of Product by Country and all marketing and promotional activities for each month. Distributor shall consult with OSUR in the preparation of each annual sales and marketing plan. In addition, Distributor shall provide OSUR with access to all market, sales and customer research and data obtained by Distributor which relates to the Product or the OTC Market.

 

3.1.7. Training . Distributor shall establish reasonable procedures to ensure that all new customers and sub-distributors or agents authorized hereunder in the OTC Market in the Territory are shown how to make proper use of the Product, in accordance with Product labeling, package inserts and instructions and applicable regulatory approvals in the Territory.

 

3.1.8. Technical Agreement . Distributor shall enter into and comply with a Technical Agreement with OSUR substantially in the form of attached Exhibit E, which is incorporated herein by reference.

 

3.2. By OSUR .

 

3.2.1. Compliance with Laws . OSUR shall comply with all applicable treaties, laws, rules and regulations in connection with its provision of the Product to Distributor and its performance of its obligations under this Agreement.

 

3.2.2. Training . OSUR shall provide technical support and training to Distributor in the use and performance of the Product at a level comparable to the support and training customarily provided by OSUR in the ordinary course of business to its distributors, which training shall be at times and places and for durations mutually agreed to by the parties.

 

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3.2.3. Technical Support . OSUR shall provide and maintain, at its own expense, adequate support services and a staff properly trained in all aspects of the Product to provide Distributor with such levels of technical support during the Term that are commercially reasonable in light of the then current and reasonably anticipated sales volumes of the Product in the OTC Market.

 

3.2.4. Competition . Except as permitted by Section 2.2, during the Term OSUR shall not, directly or indirectly, import, market, manufacture, use, promote, actively sell or distribute any cryosurgical wart or lesion removal product that directly competes with the Product in the OTC Market in the Territory. Notwithstanding the foregoing, OSUR shall be released of its obligation to comply with this Section 3.2.4 in each Country where Distributor’s rights to the Product are converted from exclusive to non-exclusive rights under this Agreement. If the provision of this Section 3.2.4 shall be held unenforceable because of scope, duration or area of its applicability, it shall be deemed modified to the extent necessary to make it enforceable, while preserving its intent.

 

3.2.5. Technical Agreement . OSUR shall enter into and comply with a Technical Agreement with Distributor substantially in the form of attached Exhibit E, which is incorporated herein by reference.

 

4. SUPPLY; ORDERING AND DELIVERY.

 

4.1. Requirements . In accordance with the terms and subject to the conditions contained in this Agreement, OSUR shall assemble (or cause to be assembled) and sell to Distributor, and Distributor shall purchase from OSUR, all of Distributor’s requirements for the Product to be imported, marketed, sold, used or distributed in the OTC Market in the Territory. OSUR’s obligation to assemble and supply Product to Distributor shall be subject to Distributor’s compliance with its obligation to supply Distributor Components as set forth in Section 4.2 below.

 

4.2. Supply of Distributor Components . In accordance with the terms of this Section 4.2, Distributor shall supply, at its sole cost, the following components and deliver such components, or cause such components to be delivered, to the Assembly Contractor for use in packaging and assembling Products purchased hereunder (the “Distributor Components”):

 

(i) Four-sided box (with glued ends, tear strip and hook) in 6 colors for each Unit of Product, with labeling approved by OSUR;

 

(ii) One-color package insert or instructions for each Unit of Product, in form approved by OSUR;

 

(iii) Security detection devices (Checkpoint or SensorMatic), if required;

 

(iv) One shipper box; and

 

(v) One shipper label.

 

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OSUR shall assist Distributor in selecting third-party vendors located in the United States for the manufacture and supply of the Distributor Components. Once such a vendor(s) have been selected by OSUR and approved by Distributor (which approval shall not be unreasonably withheld, delayed or conditioned), Distributor shall order Distributor Components directly from such vendor(s) and OSUR shall assist Distributor in placing such orders to ensure timely delivery of Distributor Components to the Assembly Contractor. Distributor Components shall be supplied with sufficient lead-times and in sufficient quantities as directed by OSUR to permit the packaging and assembly of Product purchased hereunder and delivery of such Product to Distributor in accordance with Distributor’s Purchase Orders. Distributor shall directly pay each vendor for the Distributor Components supplied by such vendor. OSUR shall assist Distributor in ensuring that all Distributor Components are manufactured, stored and supplied in accordance with the Specifications and all applicable treaties, laws, rules and regulations within the Territory.

 

4.3. Terms and Conditions . The terms and conditions of this Agreement shall control all sales of Product by OSUR to Distributor. No different or additional terms and conditions on any purchase order, acknowledgment or other transmittal, whether a standard business form or otherwise, utilized by Distributor or OSUR in connection with the sale by OSUR of Product to Distributor shall be construed or deemed to be an amendment of or supplement to this Agreement or otherwise binding on either Distributor or OSUR.

 

4.4. Prices .

 

4.4.1. Product Price . Subject to Sections 4.4.2 and 4.4.4, below, Distributor shall pay OSUR the applicable price set forth in or determined pursuant to Exhibit D hereto, for each Unit purchased hereunder (the “Price”). The Price includes all costs of OSUR associated with the manufacture and packaging of the Products including raw materials and labor but excluding the cost of the Distributor Components. It is recognized that Products having different SKU or Part Numbers may be needed to reflect the use of language clusters for Product labeling and packaging and may result in different Prices for each separate SKU or Part Number. The need for separate SKU or Part Numbers and the appropriate Price therefore shall be determined by the parties and added to Exhibit D hereto. If Distributor requests, and OSUR agrees to provide, non-standard packaging for Product supplied hereunder, Distributor shall pay OSUR an additional fee for such packaging in accordance with OSUR’s then existing pricing policies.

 

4.4.2. Price Increases . The applicable Price payable by Distributor for Product may be adjusted, at either party’s option, at the beginning of *** and each *** thereafter during the Term, to an amount equal to the applicable Price then in effect, plus or minus the cumulative percentage increase or decrease, as the case may be, in the Index (as defined below) during the most recently completed 12-month period prior to delivery of the applicable Price Adjustment Notice (as defined below) for which the Index data (preliminary or final) is available. By December 1 of ***, the party desiring to exercise its right to adjust the Price hereunder will give the other party notice of any adjustment in the Price (the “Price Adjustment Notice”) for Product to be purchased during ***. For purposes of this Agreement, “Index” shall mean the Consumer

 

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Price Index of the Bureau of Labor Statistics of the U.S. Department of Labor for Urban Wage Earners and Clerical Workers (Base Year 1982-84=100) for All Urban Areas. In the event that the compilation and/or publication of the Index shall be transferred to any other governmental department, bureau, or agency, or shall be discontinued, then the index most nearly the same as the Index shall be used.

 

4.4.3. Taxes; Freight; Duties; Etc. Prices for Product are EX WORKS (Incoterms 2000) the Assembly Contractor’s facilities and are exclusive of all sales, use, ad valorem and other similar taxes, customs, duties and other similar imports, fees and governmental charges, and freight, shipping and insurance charges. Any such charges shall be the sole responsibility of Distributor.

 

4.4.4. Product Improvement or Modification .

 

(a) Pending Modification . Distributor acknowledges that OSUR is currently developing a modified form of the Product. Based on the proposed design of such modified Product provided by OSUR to Distributor, it is agreed that it would be desirable to distribute the modified form of the Product, when available, into the OTC Market. Once the modified form of the Product is available, ***. The Specifications shall also be amended to reflect the foregoing modification. ***.

 

(b) Other Changes . OSUR may also, from time to time, without the prior consent of the Distributor, further improve any feature of the Product or change in any manner the technical specifications, features, design or performance of the Product (an “Improved Product”). OSUR shall not be obliged to make any improvement or modification to any Product or to make any Improved Product available for purchase by Distributor, except pursuant to Subsections (i) – (iii) below.

 

(i) Distributor shall have the right to submit suggested design changes and improvements for the Product to OSUR from time to time. OSUR shall consider such changes and improvements in good faith. In the event Distributor proposes any change or modification to the Product and OSUR is willing to make such change or modification, the parties shall determine in good faith appropriate changes to the Specifications, a sharing of costs to develop such change or modification if appropriate and a revised Price for the Product as so changed or modified. If the parties reach agreement on the foregoing matters with respect to an Improved Product, OSUR shall supply the Improved Product to the Distributor hereunder. It is recognized that Distributor has suggested that a modification be made to the Product. If such modification is warranted, OSUR agrees to use commercially reasonable efforts to develop the Product with such modification, subject to the foregoing provisions of this Section 4.4.4(b)(i). Notwithstanding the foregoing, any failure by OSUR to successfully develop or implement any change or improvement to the Product shall not constitute a breach of this Agreement or otherwise entitle Distributor to any compensation as a result thereof.

 

(ii) In the event that OSUR desires to make or makes a change or modification to the Product and desires to make such Improved Product available for purchase

 

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by Distributor hereunder, OSUR shall notify Distributor of such change or modification and any proposed changes to the Price, the Specifications and the other terms and conditions of this Agreement required thereby. The Distributor shall have a period of not less than thirty (30) days from receipt of the foregoing notice from OSUR to decide whether or not to accept the Improved Product and the proposed changes to the Price, Specifications and other terms or conditions of this Agreement proposed by OSUR. If Distributor agrees to the foregoing, or the parties otherwise agree to include the Improved Product in this Agreement, then OSUR shall supply the Improved Product to the Distributor hereunder.

 

(iii) In the event that Distributor does not agree to an Improved Product proposed under Subsection (ii) above, and the parties otherwise fail to agree to include the Improved Product herein, OSUR may nevertheless supply the Distributor with such Improved Product hereunder, at the Price and under the other terms and conditions of this Agreement then in effect, so long as the improvement or change made to the Product in order to create such Improved Product is required for safety reasons or in order to comply with any applicable legal or regulatory requirements. The Specifications shall be modified to reflect such Improved Product.

 

(c) Effect of Changed Product . In the case of the modified Product under Section 4.4.4(a) or any Improved Product under Sections 4.4.4(b)(i), (ii) or (iii), any changes to the Price, Specifications or other terms and conditions of this Agreement related thereto shall be set forth in an amendment to this Agreement or other written instrument executed by the parties and shall thereafter be deemed to be the applicable Price, Specifications and other terms and conditions hereunder and such modified or Improved Product shall be deemed to be the Product hereunder. Once the modified or Improved Product is available, OSUR shall not be obliged to manufacture or supply the prior form of Product and the supply of such modified or Improved Product to Distributor shall satisfy in full OSUR’s supply obligations hereunder. Notwithstanding the foregoing, OSUR and Distributor shall cooperate in determining a reasonable timing for launching the modified or Improved Product into the OTC Market in the Territory. Distributor shall be responsible for obtaining, at its cost, all regulatory approvals, clearances or registrations required in the OTC Market in the Territory, including a CE mark, that are required as a result of any modified or Improved Product, and OSUR shall cooperate with Distributor in such efforts, except that OSUR shall pay the costs of obtaining the approvals for the modified Product described in Section 4.4.4(a) and any Improved Product described in Section 4.4.4(b)(iii).

 

4.5. Purchases of Product .

 

(a) Distributor shall order Product by issuing binding purchase orders (each, a “Purchase Order”) to OSUR pursuant to the terms of this Agreement. Each Purchase Order shall be subject to Section 4.3 and shall state the quantity and SKU or Part Number for the Product to be purchased, delivery date(s), routing instructions, destination(s) and confirmation of the applicable Price hereunder. OSUR shall indicate its acceptance or rejection of a Purchase Order within five (5) Business Days after receipt; provided that OSUR may reject a Purchase Order, in

 

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whole or in part, only if: (i) the Purchase Order fails to comply with the terms and conditions of this Agreement; (ii) the delivery date or dates in such Purchase Order are less than ninety (90) days from the date of OSUR’s receipt of the Purchase Order; (iii) Distributor shall have failed to forecast a sufficient quantity of canisters with sufficient lead times, as required under Section 4.5(b), to enable OSUR to assemble the Product covered by the Purchase Order; or (iv) the volume under the Purchase Order and all other accepted Purchase Orders covering the same period exceeds the volume in Distributor’s then current forecast (delivered pursuant to Section 4.6) for such period by more than fifty percent (50%). If requested by Distributor following Distributor’s receipt of OSUR’s rejection notice under clause (iv) above, OSUR will use commercially reasonable efforts to deliver the excess volume of Product on the delivery dates specified in the rejected Purchase Order, but OSUR’s failure to so deliver the excess volume shall not be a breach of this Agreement. In no event shall OSUR be liable to any third party for OSUR’s failure to deliver Product to Distributor by any delivery due date set forth in any Purchase Order. Each Purchase Order shall be for a minimum of *** Units of Product and Distributor shall order not less than *** Units of any Product with a single or the same SKU or Part Number.

 

(b) In each monthly forecast delivered pursuant to Section 4.6, Distributor shall provide OSUR with the monthly quantity of canisters needed to fill all Purchase Orders issued under Section 4.5(a); provided that Distributor shall provide OSUR with a forecast for canisters needed to assemble the Units of Product to be purchased under each such Purchase Order at least *** (***) days in advance of the applicable delivery date or dates for such Units of Product. In the event this Agreement terminates or expires and OSUR has remaining inventory of canisters ordered in reliance on a forecast received from Distributor, the disposition of such excess canisters shall be governed by Section 12.3.4 hereof.

 

4.6. Forecasts . Within thirty (30) days after the Effective Date, Distributor shall provide to OSUR a written forecast of Distributor’s anticipated monthly requirements for Product during the first Contract Year. Thereafter, by the fifteenth (15th) day of each month during the Term, Distributor shall provide OSUR with an additional, written forecast of Distributor’s anticipated monthly requirements for the Product during the subsequent twelve (12) month period beginning with the next full month, including a forecast of the monthly quantities of canisters required to fill Purchase Orders issued by Distributor in accordance with Section 4.5(b). Subject to Section 4.5(b), each forecast required to be delivered by Distributor under this Section 4.6 shall be nonbinding except for the first three (3) months of such forecast, which shall constitute a binding commitment to purchase by Distributor.

 

4.7. Shipment . OSUR shall ship Products EX WORKS (Incoterms 2000) the Assembly Contractor’s facilities. OSUR shall fill Purchase Orders that comply and are accepted in accordance with Section 4.5. All risk of loss, damage, spoilage, improper storage, mishandling and negligence for all Product shall pass to Distributor at the time of delivery to the shipper at the Assembly Contractor’s facilities. At Distributor’s request made in its Purchase Order, OSUR may, on Distributor’s behalf, choose a carrier, arrange for transportation of the Product to Distributor or Distributor’s customers, insure the Product during shipment, and pay any export or

 

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import duties or other charges. OSUR shall charge Distributor for all such expenditures in addition to the Price of the Product. OSUR shall ensure that all Products are suitably packed for shipment in OSUR standard containers. OSUR shall provide to Distributor, not less than three (3) Business Days in advance of each shipment, all necessary information relating to such shipment, including without limitation, the number of Units, cases, pallets and lot numbers.

 

4.8. Records .

 

4.8.1. By Distributor . Distributor shall maintain accurate and complete records of each sale of the Product, including without limitation, the name and address of the purchaser, the date of purchase, quantity, type, batch numbers and SKU or Part Number of Product sold in each Country, total volume of Product sold in the Territory and in each Country, and information regarding other products that compete with any of the Products in the Territory known to Distributor. Distributor shall maintain such records for at least three years from the date of sale, or such longer period as reasonably requested by OSUR. In addition to the foregoing, Distributor shall comply with all record-keeping requirements imposed by regulatory or governmental authorities in each Country in the Territory. Upon request, Distributor shall provide OSUR with copies of any records required to be maintained under this Section 4.8.1, including such records as may be necessary for OSUR to comply with all regulatory approvals related to the import, marketing, sale, use or distribution of the Products in the Territory and any other requirements of any regulatory or governmental authority.

 

4.8.2. By OSUR . OSUR shall maintain accurate and complete records with respect to its performance under this Agreement with respect to the manufacture, supply and quality control of the Product necessary to comply with the Quality System Regulation as promulgated by the U.S. Food and Drug Administration (“QSR”), the Medical Device Directive and the requirements of the International Standards Organization (“ISO Standards”). OSUR shall maintain such records for at least three (3) years, or such longer period as may be required by the QSR, Medical Device Directive or ISO Standards. In addition, upon reasonable advance notice by Distributor, OSUR’s records shall, upon request but in no event on more than one occasion during any Contract Year, be made available during normal business hours for inspection by Distributor. OSUR shall also use commercially reasonable efforts to cause the Assemb