EXCLUSIVE SALES AND DISTRIBUTION AGREEMENT
This Exclusive Sales and Distribution Agreement is made and entered into as of the latest date set forth on the signature lines below (the “Effective Date”) by and between Oculus Innovative Sciences, Inc., a Delaware corporation having a place of business at 1129 North McDowell Boulevard, Petaluma, California, USA 94954 (“Oculus”); and Quinnova Pharmaceuticals, Inc., a Delaware corporation having a place of business at 411 South State Street, Newtown, Pennsylvania 18940 (“Quinnova”).
WHEREAS Oculus has developed proprietary technology and know-how (“Oculus Technology”) which Oculus distributes and sells in the form of certain liquid and gel products (“Product”) in the dermatology and podiatry market; and
WHEREAS Quinnova has a robust sales force in the focused on dermatology customer call points and will be operating as a sales agent for Oculus, handling certain sales and marketing function for Oculus in dermatology; and
NOW THEREFORE in consideration of the mutual promises and undertakings of the parties hereto, the parties agree as follows:
1. Definitions .
1.1.1 “Confidential Information” means information of a party, which information is conspicuously marked with “Confidential”, or “Proprietary” or other similar legend. If Confidential Information is orally disclosed or it is observed, it shall be identified as such at the time of disclosure or observation and a brief written description and confirmation of the confidential nature of the information shall be sent to the recipient within thirty (30) days after the disclosure. The Product, the Quinnova products, quantities, schedules and pricing, projections and business plans shall be considered Confidential Information hereunder whether disclosed orally or in writing, or whether or not marked “Confidential” or “Proprietary”.
1.2 Calendar Year means each twelve (12) month period beginning on January 1 st and ending on December 31 st .
1.3 “Contract Year” means each twelve (12) month period following and having as its anniversary on the Effective Date during the term of the Agreement.
1.4 “FDA” means the United States Food and Drug Administration or any successor agency.
1.5 “Field of Use” means the sale or distribution of the Products in the prescription dermatology market.
1.6 Financial terms are defined as follows:
(a) “GAAP” means U.S. generally accepted accounting principles.
(b) “Gross Sales” means the total amount of revenue recognized for the Products on a GAAP basis by Oculus. It is calculated by multiplying the number of units sold times the price per unit.
(c) “Net Sales” is the Gross Sales minus the typical GAAP deductions including normal and customary trade discounts, cash and quantity discounts, sales returns allowances, charge backs, rebates, wholesale distributor charges and bad debts.
(d) “Cost of Goods Sold” means Oculus’ manufacturing unit cost shown on Exhibit A multiplied by the number of units sold.
(e) “Gross Margins” means Net Sales minus Cost of Goods Sold.
(f) “Oculus Gross Profit” is Gross Margins times [ ]*%.
1.7 “Future Device Products” means all future products in the Field of Use in the Territory approved or cleared by the US FDA as a 510K medical device.
1.8 “Intellectual Property Rights” means all intellectual property rights worldwide arising under statutory or common law or by contract and whether or not perfected, now existing or hereafter filed, issued, or acquired, including all (a) patent rights; (b) rights associated with works of authorship including copyrights and mask work rights; (c) trademarks, service marks, trade dress and trade names; (d) rights relating to the protection of trade secrets and confidential information; and (e) any right analogous to those set forth herein and any other proprietary rights relating to intangible property.
1.9 “Kit” means the combination of a certain Oculus product with an OTC Drug Monograph products combined into one package to be used as a one step, two step product (example: impetigo kit which will contain an Oculus HydroGel plus and OTC Drug Monograph triple action antibiotic), but shall specifically exclude any combination product granted to [ ]* pursuant to the terms of that certain Co-Packaging, Revenue Sharing Distribution Agreement dated November 2, 2010 by and between Oculus and [ ]*.
1.10 “Label,” “Labeled” or “Labeling” shall mean all labels and other written, printed or graphic matter upon (i) the Product or any contained or wrapper utilized with the Product, and/or (ii) any written material accompanying the Product, including, without limitation, package inserts.
1.11 “Minimum Sales Performance for Exclusivity” means the minimum number of units of Product that Quinnova must purchase from Oculus each Calendar Year as specified on Exhibit B to maintain the exclusive status of the Agreement. If Quinnova fails to achieve unit sales of the Product in any Calendar Year that are equal or greater than the Minimum Sales Performance for such Calendar Year, then Quinnova shall have the right and option to pay to Oculus within [ ]* days of the end of such Calendar Year an amount equal to the difference between the Oculus Gross Profit and Cost of Goods Sold that would have been generated by the Minimum Sales Performance and the actual Oculus Gross Profit and Cost of Goods Sold payments for such Calendar Year (“Sales Performance Payment”), provided, however that Quinnova may remedy the Cost of Goods shortfall by purchasing additional inventory in the amount of such shortfall within thirty (30) days of the close of the Calendar Year. For the first Calendar Year (2011), the Minimum Sales Performance shall be prorated from the date of launch (first commercial sale to an unrelated third party) through the end of such Calendar Year.
* Confidential material redacted and separately filed with the Commission.
1.12 “Minimum Units for Termination” means the minimum number of units of Product that Quinnova must purchase from Oculus each Calendar Year as specified in Exhibit B which if Quinnova fails to achieve Oculus shall have the right and option to terminate this Agreement pursuant to section 9.2(b) subject to the limitations outlined in section 9.2(b)(ii). For the first Calendar Year (2011), the Minimum Units for Termination shall be prorated from the date of launch (first commercial sale to an unrelated third party) through the end of such Calendar Year.
1.13 “Packaging” means all primary containers, including tubes, cartons, shipping cases or any other like matter used in packaging or accompanying the Product.
1.14 “Products” means the products listed on Exhibit A.
1.15 “Regulatory Approvals” means any and all approvals, applications, registrations, licenses, certifications and other requirements imposed by any governmental agency or other entity exercising any regulatory or other governmental or quasi-governmental authority.
1.16 “Territory” shall mean the United States of America, its territories and possessions, and Canada.
2 Purchases and Product .
2.1 General . This Agreement establishes the terms and conditions on which Oculus will sell to Quinnova the Products, Future Device Products and Kits, and the terms and conditions on which Quinnova shall have the right to sell the Products, Future Device Products and Kits. This Agreement shall not be modified, supplemented or interpreted by any trade usage or prior course of dealing not made a part of this Agreement by its express terms.
2.2 Exclusivity . Subject to all the terms and conditions of this Agreement, Oculus hereby appoints Quinnova for the Term of this Agreement as an exclusive distributor of the Products, only within the Field of Use and only within the Territory. Quinnova may distribute the Products only to persons and entities located and taking delivery within the Territory. In order to maintain exclusivity of this Agreement, Quinnova must attain the Minimum Sales Performance for Exclusivity set forth on Exhibit B for the applicable Calendar Year. If Quinnova fails to achieve the Minimum Sales Performance for Exclusivity in any Calendar Year, then Quinnova shall have the right and option to pay to Oculus within [ ]* days the Sales Performance Payment, in which event the exclusive nature of the Agreement shall continue for an additional Calendar Year. For each additional Future Device Product or Kit, Quinnova will develop a sales and marketing plan, which will minimally contain a forecast. Once Quinnova and Oculus mutually agree on the minimums of the forecasted sales units during the Term for each Future Device Product and/or Kit to be determined within three (3) months after Oculus’ receipt of FDA clearance, each new Future Device Product and/or Kit will be added to this Agreement under the same terms and conditions.
* confidential material redacted and separately filed with the commission
2.3 Forecast . On a quarterly basis, Quinnova shall provide a non-binding, rolling forecast of purchases of the Products for the next six (6) months.
2.4 Purchase Orders . All purchase orders to be fulfilled by Oculus shall contain pricing, requested shipment schedule, delivery address, requested carrier and quantity terms. Oculus will be receiving purchase orders, fulfilling and shipping orders from Petaluma, California. Quinnova’s orders shall be filled on a first priority basis. When acknowledgement of receipt and acceptance of a purchase order or a requested delivery schedule is made by Oculus (either by written notice or by shipment of the ordered Product), the purchase order or delivery schedule shall be deemed a commitment to purchase and sell the Product pursuant to the terms of this Agreement.
2.5 Manufacturing .
(a) Oculus will manufacture the Products and samples and provide such Products and samples in sufficient quantities and on the agreed upon timeline, in accordance with Good Manufacturing Practices and in compliance with all applicable state and federal laws and regulations. All Product supplied by Oculus to Quinnova under this Agreement shall conform to the specifications for the Product;
(b) The Parties will enter into a quality agreement to address additional regulatory, operational and quality obligations and responsibilities (the “Quality Agreement”) in form and substance mutually acceptable to the parties. If there is any conflict or inconsistency between the terms of the quality Agreement and the terms of this Agreement, then the terms of this Agreement shall control;
(c) All Product that Oculus delivers to Quinnova shall be accompanied by a customary certificate of compliance. Each such certificate of compliance shall provide statements of manufacture under cGMP conditions and completed review and approval of all manufacturing records by Oculus quality assurance and shall include all appropriate references to batch numbers.
2.6 Packaging and Labeling . Oculus and Quinnova shall jointly work to develop the Labeling for each Product. Oculus shall provide Labeling and shall be responsible for ensuring the accuracy of all information contained on all artwork for Labels, Labeling and advertising and promotional material for each Product and for the compliance of all such Labels, Labeling and advertising and promotional material with all Applicable Laws and the Regulatory Approvals. All Labeling shall only include Quinnova as the distributor of Product. All Labels, Labeling and Packaging shall be subject to Quinnova’s reasonable review and approval. Quinnova shall provide Oculus with Quinnova’s requirements for Packaging, which shall conform with all Applicable Laws and the Regulatory Approval for the Products. Should Quinnova desire or be required to make any change in any such Label, Labeling, or Packaging, Quinnova shall be responsible for the updating of all artwork and text associated with such change and providing such changes to Oculus at Quinnova’s sole cost and expense. Nothing in this Section is intended, nor shall it be construed, to relieve Oculus of responsibility for any damage or other defect arising from Oculus’ affixation of the Label, Labeling or Packaging to the Product, to the extent caused by Oculus’ negligent acts or omissions or breach of any duty under this Agreement.
2.7 Invoicing . Quinnova will invoice customers for sales of Products, collect the receivables from the customers and assume the credit risk.
2.8 Shipping and Inventory . Oculus will ship Products to Quinnova, or directly to the customers and retain title to inventories until shipped to Quinnova or the customers.
2.9 Pricing . Quinnova will recommend prices of Products, Future Device Products and Kits to Oculus, Oculus will review and approve, with such approval not to be unreasonably withheld.
2.10 Payment . Payments and terms to Oculus or Quinnova are as follows:
2.10.1 Within four (4) business days of the execution of this Agreement, Quinnova will pay Oculus Five Hundred Thousand ($500,000) Dollars as an advanced payment for the first Five Hundred Thousand ($500,000) Dollars worth of Product purchased by Quinnova, calculated at Oculus’ Cost of Goods Sold.
2.10.2 In addition, for each and every Future Device Product that Oculus receives in the Field of Use in the Territory, Quinnova will pay a one-time non-refundable upfront payment of [ ]* Dollars with five (5) business days of receipt of the FDA clearance for the right to exclusively market and sell the Future Device Product during the Term.
2.10.3 Quinnova will further pay to Oculus the following:
(a) the Oculus Gross Profit, which shall be payable within forty five (45) days after the end of the month.
(b) the Cost of Goods sold for Product and samples, which shall be payable within thirty (30) days of invoicing. The advanced payment referenced in section 1.9.1 shall be credited against the first $500,000 as a payment against the cost of goods sold for the Products.
(c) Quinnova will provide monthly sales reports to Oculus, indicating the Sales price and number of units for each SKU by the fifth (5th) day after the end of the month.
2.11 Branding of Product . Quinnova shall have the right to market and brand the Products in the Territory in the Field of Use under a trademark filed by Quinnova, which shall be owned by Quinnova, provided, however, if Quinnova selects a trademark owned by Oculus (but not currently used by Oculus with respect to any product), Oculus shall license such trademark exclusively to Quinnova for use in connection with the marketing and sale of the Product in the Field.
3 Delivery and Acceptance .
3.1 Delivery of Product . Cost of transportation from Oculus to Quinnova’s designated warehouse will be borne by Quinnova.
* Confidential material redacted and separately filed with the Commission.
3.2 Packaging . Oculus shall package the Products for shipment to Quinnova in packaging sizes to be mutually agreed upon by Oculus and Quinnova unless Quinnova requires different packaging specifications, in which case any such different packaging shall be at Quinnova’s expense.
3.3 Risk of Loss or Damage . Title and risk of loss shall be borne by Quinnova after shipment from Oculus’ facility.
3.4 Cancellation; Rescheduling. Quinnova may not cancel any shipment under a purchase order once the purchase order is accepted by Oculus. Quinnova may reschedule such shipment as long as notice is provided fifteen (15) days prior to the scheduled manufacturing of the batch. Such rescheduling shall be for no longer than sixty (60) days.
3.5 Force Majeure . Neither party shall be liable for nonperformance or delay in performance (other than of obligations regarding payment of money or confidentiality) caused by any event reasonably beyond the control of such party including, but not limited to wars, hostilities, revolutions, riots, civil commotion, national emergency, strikes, lockouts, epidemics, fire, flood, earthquake, force of nature, explosion, embargo, or any other Act of God, or any law, proclamation, regulation, ordinance, or other act or order of any court, government or governmental agency. Notwithstanding the foregoing, if such event causes a delay in performance of more than thirty (30) days, the unaffected party shall have the right to terminate this Agreement without penalty upon written notice at any time prior to the affected party’s resumption of performance.
4 Certain Obligations .
4.1 Quinnova Efforts . Quinnova shall be responsible for all sales, marketing and clinical activity associated with the Products, Future Device Products and Kits, including trade efforts, wholesalers, managed care activities, marketing support, sales activity, clinical support, etc. Quinnova shall use reasonable efforts to successfully market the Products, Future Device Products and Kits in the Field of Use in the Territory on a continuing basis and to comply with good business practices and all laws and regulations relevant to this Agreement or the subject matter hereof.
4.2 Oculus’ Efforts . Oculus shall: (a) maintain all appropriate regulatory filings to support the marketing and distribution of the Products, (b) conduct initial Product training with the Quinnova marketing and sales training teams consistent with Oculus’s quality system manual, (c) provide all current Products sales materials and marketing literature for use by Quinnova in developing promotional material, (d) provide final approval on any and all new promotional materials or portions of materials specific to the Products developed by Quinnova, (e) manufacture or shall ensure the manufacture of the Products in compliance and accordance with current Good Manufacturing Practices, and (f) notify Quinnova and/or provide any information, including but not limited to any regulat