MANUFACTURING, SUPPLY, AND LICENSE AGREEMENT

 

2.10          “Scheduling Agreement” shall mean an order by Intuitive, communicated via electronic data transfer, email or other means , to purchase Products, Components, or other materials, at a stated unit price, for a total quantity to be delivered within a delivery date range.  Delivery due date will be determined based upon Kanban Signal and the Replenishment Lead Time.

 

2.11          “Specifications” are as set forth in Exhibit B.

 

2.12          “Sterilization” shall refer to both EtO (ethylene oxide) and Gamma (radiation isotope) sterilization methods.

 

2.13          “Replenishment Lead Time” is the agreed upon time to delivery from the Kanban Signal. Intuitive will provide the Replenishment Lead Time.

 

2.14          “Licensed Patents” shall mean all worldwide patents issued as of the date of this Agreement (including any and all patents issuing or claiming priority from the above patents and patent applications, including non-provisionals, continuations, continuations in part, divisionals, re-examinations, reissues, and foreign counterparts thereof), owned or licensed by Encision, necessary to develop, use, make, have made, promote, offer for sale, sell, import, export, and otherwise commercialize Intuitive Instruments that are enabled to function with Products, within the Field.

 

2.15          “Encision’s Intellectual Property” shall mean the Licensed Patents and any and all now known or hereafter existing (a) copyrights, moral rights, and mask works, (b) trade secret rights, (c) designs, algorithms, and other industrial property rights, (d) trademark and trade name rights, (e) other intellectual and industrial property and proprietary rights, whether arising by operation of law, by contract or license, or otherwise, and (f) all registrations, applications, renewals, extensions, combinations, divisions, or reissues of the foregoing.

 

2.16          “Encision Inventions” shall mean Encision´s inventions, whether patentable or not, patents, patent applications, know-how, technical information, test results, and other intellectual property rights conceived or reduced to practice solely by representatives of Encision in the performance of this Agreement.

 

2.17          “Intuitive Inventions” shall mean Intuitive´s inventions, whether patentable or not, patents, patent applications, know-how, technical information, test results, and other intellectual property rights conceived or reduced to practice solely by representatives of Intuitive in the performance of this Agreement.

 

2.18          “Joint Inventions” shall mean any inventions whether patentable or not, patents, patent applications, know-how, technical information, test results and any other intellectual property rights conceived or reduced to practice jointly by representatives of Encision and Intuitive in the performance of this Agreement.

 

2.19          “Purpose” shall mean the supply, design, installation, adaptation, and certification of Products and Intuitive Instruments for use in or with Robotic Systems solely within the Field.

 

2.20          “Intuitive Instruments” shall mean any instrument that is used, in connection with Products, in or with a Robotic System.

 

3.              Forecast .

 

3.1            Intuitive shall provide Encision with a non-binding nine (9) to twelve (12) month rolling forecast of Intuitive’s delivery requirements.

 

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3.2            This Agreement is not an authorization for Encision to perform manufacturing services or to manufacture the Products. Intuitive will place Scheduling Agreements or purchase orders with Encision in such a manner that will provide Encision with Intuitive’s delivery requirements.

 

3.3            Intuitive may issue Scheduling Agreements or purchase orders for a minimum of the first 90 days of the required deliveries. Each Scheduling Agreement or purchase order shall include a description of the Product(s) to be purchased, quantity, routing instructions, requested delivery date, destination and price. Thereafter, Intuitive will place Scheduling Agreements or purchase orders with Encision based on agreed upon lead times and needed delivery dates.

 

4.              Purchasing, Pricing and Payment Terms .

 

4.1            Purchase Order or Scheduling Agreement Acknowledgement .  Encision shall acknowledge in writing purchase orders or Scheduling Agreements submitted by Intuitive within seven (7) calendar days from Encision receipt. In the event an acknowledgment is not received within (7) calendar days, Intuitive may, at is option, cancel such purchase orders or Scheduling Agreements with zero (0) financial liability to Intuitive. Encision must submit in writing to Intuitive at the time of Scheduling Agreement or purchase order acknowledgment any minimum order quantity purchases or non-cancelable non-returnable’s (NCNR’s) that will result in excess inventory.

 

4.2            Material Liability .  Encision is financially liable for any item on order, including NCNR’s, unless Encision has received Intuitive’s written pre-approval.

 

Intuitive shall be liable for the following:

 

(i)            Finished goods: thirty (30) calendar days of demand*.

 

4.3            Flexibility. Intuitive may make changes to shipping instructions, quantities or requested delivery dates/schedules specified in any Scheduling Agreement or purchase order, as needed throughout the duration of this Agreement, in conformance with Table 1.0 below, unless otherwise mutually agreed upon in writing by the parties.

 

Table 1.0

 

Calendar days from notice		% change
0 - 30		+/- [*]
31 - 60		+/- [*]
61 - 120		+/- [*]
121+		+/- [*]

 

4.5            Product Price and License Fees.

 

4.5.1         Price of Products .  The intent of the parties is for Encision to make [*] ([*]%) gross margin on the sale of Products to Intuitive, plus a license fee as defined below in Section 4.5.2.  The prices set forth in Exhibit A, which shall be the prices as of the Effective Date of this Agreement, reflect a [*]% gross margin for Encision. The parties agree to negotiate a commercially reasonable annual price adjustment (up or down), bearing in mind the agreed intention to maintain a [*]% gross margin for Encision. Failure to agree on the pricing for the Products shall be deemed an event of mutual default, and shall give either Party the right to terminate this Agreement as provided in the Term and Termination Section of this Agreement. Given the intention for a [*]% gross margin, the annual price shall be computed as Encision’s Cost of Goods Sold for the Product divided by [*]%.  “Cost of Goods Sold” or COGS” shall mean the

 

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sum of (i) direct materials cost (per the bill of materials), (ii) direct labor cost (for the time to build the Product), (iii) burden cost (applied at standard burden rate), and (iv) subcontract cost (if applicable, from bill of materials on Products sent out for an outside operation), all to be determined consistent with current US Generally Accepted Accounting Principles and consistent with Encision’s practice for products of similar complexity with Products.

 

4.5.2         License Fee .  In addition to the Price of Products set forth in Exhibit A and as defined in Section 4.5.1, Intuitive shall pay a one time up front License Fee to Encision of [*] within 45 days of signing this Agreement.

 

4.5.3         Cord Development Costs.   Intuitive shall also reimburse Encision for the following costs associated (to the extent there are any and in an amount not to exceed [*]) with the Intuitive branded 12 foot cord product.

 

(a)            Sterilization Validation

(b)            Package Validation

(c)            Shipping Tests

(d)            Additional Dose Audits

(e)            Validation for three (3) years

 

4.6            Price of Products purchased hereunder shall include, without limitation, the following:

 

(i)	Inspection of all components.
(ii)	Packing and crating, as required.
(iii)	Pre-shipment testing.
(iv)	Complete Device History Record (“DHR”) paperwork to be maintained by Encision.
(v)	CE or other regulatory labeling as required. The cost of any translation requested by Intuitive will be paid by Intuitive, provided the cost is pre-approved by Intuitive.

 

4.7            Payment. Intuitive will make payment upon receipt of a valid and undisputed invoice. Payment for Products received shall be due net forty-five (45) days from the date of Encision’s invoice.

 

4.8            Kanban Replenishment .  Intuitive’s Kanban replenishment program requires the Encision to ship an exact quantity of items to Intuitive within a specified number of days after Kanban Signal to Encision.  Encision will be provided access to an internet portal that shows all open Kanban Signals to be delivered to Intuitive. This portal will display all parts that are to be shipped by Kanban scan number, Kanban quantity, and due date. Encision is required to deliver in full Kanban quantities only, unless otherwise approved in advance by Intuitive.

 

As feasible and consistent with Encision infrastructure and business processes, Encision will drive lean manufacturing concepts and best practices with Encision’s vendors to maximize the effectiveness of the Kanban replenishment program for Intuitive. Encision will also maximize its internal quality assurance efforts to ensure that full Kanban stocking levels can be built and shipped to Intuitive, with zero defect quality levels.

 

Encision and Intuitive will define and agree on finished goods, work in process and raw material liabilities to enable the Kanban replenishment program to be successful and supportive of Intuitive needs. At a minimum, Encision shall always have a minimum of one (1) Kanban bin in ready to ship, finished goods status.

 

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4.9            Certificate of Conformance.  At Intuitive’s request, Encision shall provide a Certificate of Conformance to Intuitive.

 

4.10          Audit.  Encision agrees to make and maintain complete and accurate records of its manufacturing costs underlying its accounting statements provided to Intuitive, and shall allow Intuitive, or its representative, a certified public accountant mutually acceptable to Encision and Intuitive, during office hours and at reasonable intervals, no more than once a year, to inspect and make extracts or copies of such records solely for the purpose of ascertaining the correctness of such statements, COGS and Product per unit prices. If any such examination and audit shall disclose an overpayment of five percent (5%) or more, Encision shall pay, in addition to such overpayment, the reasonable costs of such examination and audit.  All books of account and records with respect to Products shall be kept available for at least five (5) years after end of the Term.

 

5.              Branding and Training .

 

5.1            Active Electrode Monitor (AEM) Branding .  Product may be Encision branded, provided Intuitive shall have the right to determine the size and placement of the Encision branding, with input from Encision.  Intuitive approves the current Encision branding of the AEM. Any changes to the branding of the AEM Product shall require Intuitive’s approval.

 

5.2            Cord Branding .  The cord Product shall be Intuitive branded, with attribution provided to Encision.  Intuitive will determine the messaging, size and placement of the branding and attribution, with input from Encision consistent with the parties’ respective intellectual property rights.  Intuitive will pay for the cost of branding the cord Intuitive.

 

5.3            Training .  Encision shall provide training to Intuitive personnel on use and operation of Products and attendant safety measures as reasonably required and upon request of Intuitive

 

5.4            No Other Purpose .  Encision shall not nor shall Encision enable or cause any other person to use or utilize the Products for any purpose other than for Robotic Systems used within the Field for which Intuitive would have sold the Products.  For the avoidance of doubt, nothing in this Section or Agreement shall be construed to preclude Encision from selling any of its products, other than the Intuitive branded cord Product, to other parties.

 

6.              Product Changes .

 

6.1            Product Changes.  Intuitive may, upon advance written notice to Encision, submit Engineering Changes for incorporation into the Product(s). It is important that this notification include documentation of the change to effectively support an investigation of the Engineering Change (EC) impact. Encision shall, within a period not to exceed twenty-five (25) calendar days from EC notification from Intuitive, evaluate the feasibility of the EC and respond completely to Intuitive in writing with the potential impact of the EC, including but not limited to, current on-hand or on-order inventory, work-in-progress, the delivery schedule, price, Product quality performance, and any other information with respect to the EC requested by Intuitive. Encision’s response will be considered by Intuitive to complete and release the EC and Encision will be notified of actual EC through a change in Scheduling Agreement or purchase order for the given Product(s) incorporating the EC change based upon a mutually agreed upon switch-over date..

 

Encision shall not make any changes to any Component (including manufacturing process), or to the Product Specification process that may affect the performance of the Product or the Product’s compatibility with Intuitive’s Robotic Systems unless approved by Intuitive in writing before implementation.

 

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Encision will provide Intuitive with detailed information of any proposed change in Product labels and instructions for use that affect any sale or use of Products prior to its implementation. Any proposed changes to Product labels and instructions for use are subject to Intuitive’s review and approval.

 

6.2               Discontinued Products and Components. Should Encision or any authorized supplier provide notice that a Component used in the manufacturing of the Products is to be discontinued, Encision will promptly notify Intuitive in writing of the Products or Component being discontinued, the last date available for placement of orders, the effective date the Product or Component will be discontinued, and any last buy instructions or other applicable information or documentation necessary for Intuitive to make an informed decision regarding any end of life purchases for Products. Notwithstanding the above, no Product or Component shall be discontinued without providing a minimum six (6) month notice period in order to allow Intuitive the time to source replacement products and/or components.

 

6.3            Obsolescence .   Encision agrees to provide sustaining engineering support, repair and Component replacement of Product for a period of seven (7) years from the date of Product obsolescence or discontinuation.  Field replacement units (FRU’s) shall be of either new or like new product.

 

7.              Taxes .

 

7.1            Encision agrees to cooperate in a reasonable manner with Intuitive in order to minimize all taxes that are to be paid directly or indirectly by Intuitive. Encision agrees to use reasonable efforts to notify Intuitive’s tax department of notice of any audit or assessment which may affect the sales, use, excise, or property taxes which may be assessed on a Product or Products, within fifteen (15) calendar days of receiving such notice.

 

7.2            Intuitive has provided to Encision and Encision hereby acknowledges having received Intuitive’s resale license/certificate.

 

8.              Delivery .

 

8.1            Encision shall deliver Products in accordance with Intuitive’s instructions as specified in each purchase order or Scheduling Agreement. Delivery will be FCA Encision’s dock (Incoterms 2000). All Products will be shipped to Intuitive with freight and insurance to be paid by Intuitive.

 

8.2            Title and risk of loss will pass to Intuitive upon shipment from Encision’s dock .

 

8.3            A complete packing list must accompany all shipments. The following information shall be included in each packing list: Scheduling Agreement or purchase order number, Intuitive’s part number and revision level, the Kanban scan number, quantity, delivery date, and lot or serial number. This information shall also be entered on the packing list in human readable barcodes.

 

8.4            If Encision uses transportation agents other than its own resources, Encision is fully responsible and liable to ensure these transportation agents support on time delivery requirements for the Kanban replenishment program in accordance with Section 4.8 of this Agreement.

 

8.5            Intuitive shall have the right to approve packaging and labeling.

 

8.6            In the event special transportation and storage conditions are required for Products, Encision will provide Intuitive with appropriate instructions in advance.

 

8.7            In the event Intuitive’s account number will be used for freight, Encision will be subject to freight invoice audits on an ongoing basis. Encision shall reimburse Intuitive for freight charges not related to Intuitive’s shipping.

 

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9.              Acceptance .

 

9.1            Intuitive shall have thirty (30) days from the date of delivery to perform acceptance testing on Products received from Encision and, shall have the right to return to Encision, for replacement, any Product that fails such acceptance testing. Intuitive agrees to comply with Encision’s reasonable return material authorization (“RMA”) procedures, including the procurement of RMA numbers applicable to each Product return to Encision.

 

10.            Delays .

 

10.1          Time is of the essence for Products ordered pursuant to this Agreement and delivery shall be strictly in accordance with the schedule set forth within the relevant Scheduling Agreement or purchase order. Encision shall use its best efforts to minimize any delay that may prevent its timely compliance with one or more requirements of this Agreement. Whenever the delivery of Products shall be delayed for any reason, including any delays caused by circumstances as set forth in Section 20 entitled “Force Majeure”, Encision shall promptly notify Intuitive of Encision’s plan to remedy the delay, including the anticipated length of the delay, the cause of the delay, any measures proposed or taken to prevent or minimize the delay, and the timetable for implementation of such measures. Should any delay continue for a period more than eighteen (18) days, Intuitive shall be entitled, with written notice to Encision, to terminate this Agreement without further obligation, excluding payment for Products already delivered or in transit as of the date of termination.

 

11.            Reserved for future use .

 

12.            Incoming Inspection and Process Control .

 

12.1          Incoming Inspections. Encision shall perform incoming quality control inspections on all Components and will keep sufficient records such that the source and raw material specification of such Components may be readily determined. All records required under this Section 12.1, shall be maintained by Encision for a period of five (5) years and/or provided to Intuitive following termination of this Agreement.

 

12.2          Process Control . Encision shall follow documented processes during assembly of the Products and keep written records of all assembly and tests performed as determined by Encision’s Quality Systems Procedures.

 

13.           Quality/Regulatory .

 

13.1          Encision agrees to maintain a quality system that is in substantial compliance with USA FDA Quality System Regulations, Canadian Medical Device Regulations, European Union Medical Devices Directives, ISO 13485: 2003 and Japan GQP (Good Quality Practices).  Intuitive understands that Japan GQP is currently in process but not completed.

 

13.2          Encision agrees to share with Intuitive any FDA 483 observations or notified body non-conformities that affect Intuitive and to allow Intuitive to participate in the resolution of the citation.

 

13.3          Encision agrees to notify Intuitive of any potential changes to the device license or registration that could affect availability of the Product.

 

13.4          Encision agrees to manufacture Product in compliance with the device master record established by Intuitive and Encision.

 

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13.5          Each party will notify the other party of any FDA regulatory actions, any FDA 483 observations or Warning Letters that were issued, in addition to any pending or ongoing FDA investigations or inspections that may involve the Encision or Intuitive six (6) months prior to the Effective Date of this Agreement, and during the term of this Agreement. Encision’s obligation is limited to Products as listed on Exhibit A.

 

13.6           Encision shall place the Product on hold and notify Intuitive within two (2) business days if:

 

(i)              A Product does not meet Intuitive quality requirements and has been either certified for shipment via DHR review and release (still held at Encision) or has already shipped.

 

(ii)             A finished device meets Intuitive quality requirements, but an identified quality issue exists which is not currently defined by Intuitive.

 

(iii)            Encision is notified of any supplier-related quality issue that may affect the form-fit-or-function of finished products.

 

13.7          All Products provided to Intuitive under this Agreement shall be manufactured in accordance with the Specifications, and applicable to the relevant clauses of quality system regulations including: FDA 21 CFR 820, ISO 13485: 2003, and Japan GQP.

 

Encision will exercise its appropriate control over the quality of the output from its subcontractors, when applicable, and will maintain its own QMS covering such control.

 

13.8        Inspection Rights/Subcontracting . Intuitive shall have the right to have its representatives present at the Encision plants and production facilities relating to or used in connection with the manufacture of the Products during normal business hours to conduct an initial inspection and periodic inspections of such plants and facilities and the manufacturing procedures, the Product Specifications and Intuitive quality assurance requirements and to inspect Encision’s inventory of Products, work-in-process, raw materials to be used for the Products, production records and such other matters or records as may be necessary to proper quality assurance of the Products to be delivered hereunder. Intuitive agrees to give Encision a minimum of two (2) business days’ prior notice of any such inspection, whenever possible.

 

Encision shall promptly use its best efforts to take such action as is required to correct any deficiencies identified by Intuitive relating to the production of any Product listed in Exhibit A.

 

13.9    Regulatory Matters .  Encision shall mai