SUPPLY AND DISTRIBUTION AGREEMENT

Exhibit 10.6

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

SUPPLY AND DISTRIBUTION AGREEMENT

     This Agreement, dated as of February 1, 2001 (the “Effective Date”), is between Kawasumi Laboratories, Inc., a Japanese corporation with its offices at 3-28-15, Minami-Ohi, Shinagawa-ku, Tokyo 140-8555, Japan (“KL”) and Medisystems Corporation, a Washington corporation with its offices at 701 Pike Street, 16 ^th Floor, Seattle, Washington 98101, U.S.A (“MDS”). For purposes of this Agreement, KL and its subsidiaries shall be referred as “KL” and MDS and its subsidiaries shall be referred to as “MDS”. Reference should be made to Article 25 of this Agreement for definitions of capitalized terms used herein.

     In consideration of the mutual promises made herein and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows:

ARTICLE 1
BACKGROUND

     1.1 KL manufactures disposable medical products and MDS sells and markets the Products (as defined in Section 2.1) in the Territory (as described in Annex B).

     1.2 MDS manufactures disposable medical products and MDS sells bloodlines (“BTL”), fistula needles (“AVF”), needles, sets for subcutaneous access devices (“VN”) and tube/bags sets for NxStage equipment (“NX”) used in artificial kidney dialysis, as well as pheresis needles for pheresis (“PHE”) and other products. MDS also manufactures or purchases and sells components, some of which (“Components”) are designed by MDS to be used in the Products. Such Components will be sold or consigned to KL for incorporation into the Products in accordance with this Agreement, and under some conditions, certain Components may be used or resold by KL for its own products or markets.

     1.3 Pursuant to long-standing business relations, agreements and understandings, the Products KL sells to MDS are manufactured by KL to the MDS design specifications and the KL process specifications. It has been KL’s right and practice to delegate certain responsibilities to its subsidiary, Kawasumi Laboratories (Thailand) Co., Ltd. and KL may continue to so delegate. Such delegation shall not relieve KL of its responsibilities to assure each provision of this Agreement is complied with in full.

     1.4 MDS and KL desire to continue their relationship and to document in this Agreement the terms of their cooperation.

     1.5 In pursuance of this cooperation and in compliance with certain requirements of the U.S. Federal Food and Drug Administration (“FDA”), the parties have entered into a Quality Assurance Agreement, dated as of October 25, 1999 (the “QA Agreement”) which governs certain aspects of the design and manufacturing of the Products and the supply of Components.

ARTICLE 2
SPECIFICATIONS

     2.1 The Products, Codes and Components that are a subject of this Agreement are listed in Annex A hereto, and shall meet the specifications set forth in the QA Agreement and in accordance with the warranty set forth in Section 10.1, as such specifications may, in accordance with the terms of the QA Agreement, be amended or modified from time to time (the “Specifications”) with trade names and/or trademarks of MDS or others as set forth in the QA Agreement and are hereafter referred to individually as “Codes” and collectively as “Products”, or “Components” respectively.

     2.2 MDS shall provide KL with necessary materials for packaging and labeling of the Products such as artwork, negative films and so on.

ARTICLE 3
PURCHASES AND SHIPMENTS

     3.1 Subject to the terms and conditions of this Agreement, KL shall manufacture the Products, in quantities up to KL’s Supply Commitment, and all in accordance with the provisions of the QA Agreement, the Specifications and the KL process specifications, and shall sell the Products to MDS. MDS shall purchase the Products solely for resale in the Territory, provided that MDS, if it sources VN or NX from KL, may sell VN or NX anywhere in the World. MDS shall not purchase BTL, AVF or PHE or sub-assemblies thereof from any other third party other than KL except as provided in this Agreement. MDS shall not sell the Products (other than VN and/or NX) directly or indirectly to distributors or end-users for use or resale outside of the Territory without KL’s prior written consent. KL shall not sell BTL, AVF, VN, NX or PHE or sub-assemblies thereof directly or indirectly for use or resale in the United States of America without MDS’s prior written consent.

     3.2 Prior to the commencement of the twelve-month period commencing on February 1, 2001 and [**] months prior to each subsequent such twelve-month period (such initial period and each such subsequent period being hereinafter referred to as a “Contract Year”), KL and MDS shall discuss the purchase goals MDS hopes to achieve during the subsequent Contract Year based on MDS’s forecast of market conditions for such year (the “Goals”). The Goals for the first Contract Year are incorporated into Annex D. During the Term of this Agreement, as such Term may be renewed or extended from time to time, and subject to the other terms and conditions contained herein, MDS hereby agrees to purchase from KL an annual quantity of Products at least equal to [**]% of the Goals for BTL and [**]% of the Goals for AVF and PHE, such amount being hereinafter referred to as MDS’ “Purchase Commitment” for each such Contract Year and KL agrees to sell to MDS an annual quantity of Products up to at least equal to [**]% of the Goals, such amount being hereinafter referred to as KL’s “Supply Commitment” for each such Contract Year. If the parties cannot agree on new Goals [**] months prior to each new Contract Year, this Agreement shall terminate at the conclusion of such new Contract Year, provided, however, that if MDS offers to accept Goals for each new Contract Year equal at least to [**]% of the Goals for the then current Contract Year, this Agreement shall be renewed for the new Contract Year with Goals that equal those of the then current Contract Year. In the event MDS makes no such offer and the parties cannot otherwise agree on new Goals for the new

Contract Year, then, during the new Contract Year the Purchase Commitment and the Supply Commitment shall be reduced to [**]% of the quantity of the prior Contract Year and this Agreement shall terminate upon the conclusion of such new Contract Year.

     3.3 In order to facilitate the orderly forecasting of needs and the ordering, manufacturing and shipping of Products, the parties agree to follow the following procedures:

a.

On or prior to the [**] day of each month (“Forecast Date”) during the Term of this Agreement, MDS shall provide KL with the following:

	1.		a forecast (the “First MDS Forecast”) of MDS orders to be placed [**] days from the Forecast Date;
	2.		a revised forecast of MDS orders to be placed [**] days from the Forecast Date;
	3.		a further revised forecast (the “Final MDS Forecast”) of MDS orders to be placed by the [**] day of the subsequent month;

	b.		Based on the Final MDS Forecast the previous month, on or prior to the [**] day of each month during the Term of this Agreement, MDS shall provide KL with a firm shipment order (a “Shipment Order”) relating to the Purchase Commitment for the Codes MDS desires to be delivered on a date not earlier than [**] and not later than [**] days after the (i) date such Shipment Order is placed or (ii) the [**] day of such month, whichever is later (the “Shipment Period”).
	c.		Based on the foregoing, KL shall purchase or produce components (including the Components) necessary to manufacture and deliver the Products during the Shipment Period. On or prior to the Forecast Date during the Term of this Agreement, KL shall provide MDS with the foregoing:

	1.		a forecast (the “First KL Forecast”) of KL orders for Components to be place [**] days from the Forecast Date;
	2.		a revised forecast of KL orders to be place [**] days from the Forecast Date;
	3.		a further revised forecast (the “Final KL Forecast”) of KL orders to be placed by the [**] day of the subsequent month;

d.

Based on the Final KL Forecast the previous month, on or prior to the [**] day of each month during the Term of this Agreement, KL shall provide MDS with a firm shipment order (a “Shipment Order”) for the Components KL desires to be shipped on a date not earlier than [**] and not later than [**] days after the (i) date such Shipment Order is placed or

(ii) the [**] day of such month, whichever is later (the “Shipment Period”).

The parties recognize that some components (such as packaging/labeling) may become unusable if not incorporated into Products within a finite period of time (“Dead Stock”). Accordingly, if KL produces or purchases components based on the First MDS Forecast and such components are not, because Shipment Orders are less than the First MDS Forecast, timely incorporated in sold Products and become Dead Stock, KL shall invoice MDS and MDS shall pay KL for the cost of such Dead Stock. If KL does not ship a Shipment Order during the applicable Shipment Period, and such failure is not excused by an event described in Section 3.5, KL shall ship such Shipment Order as soon as possible, by airfreight at KL’s sole expense, if so requested by MDS. KL and MDS shall discuss and exchange additional forecasting and production scheduling information in order to minimize variances in KL’s production and MDS’s inventories throughout each Contract Year. The total quantity of Products in MDS’s Shipment Orders shall approximately equal the total quantity of Products in the relevant Final MDS Forecast unless a variance has been accepted by KL. Similarly, the total quantity of Components in KL’s Shipment Orders shall approximately equal the total quantity of Components in the relevant Final KL Forecast unless a variance has been accepted by MDS. KL may at its discretion supply Products to MDS in an amount exceeding its Supply Commitment during any Contract Year, but will have no obligation thereof under this Agreement.

     3.4 All sales of Products to MDS under this Agreement shall be subject to the provisions of this Agreement and shall not be subject to the terms and conditions contained in any Purchase Commitment or Shipment Order of MDS, or confirmation or invoice of KL, except insofar as any such Purchase Commitment, Shipment Order, confirmation or invoice establishes (a) the quantity of Codes committed to and ordered for shipment, and (b) the quantity of Codes to be delivered at each location (the “Locations”).

     3.5 KL assumes no liability and shall not be liable to MDS for any failure to fill or delay in filling Shipment Orders received from MDS to the extent of any cause beyond the control of or occurring without the fault of KL including but not limited to strikes, lockouts (but only if resulting from worker sabotage, vandalism or similar action), floods, fires, accidents, delays in the delivery of raw materials, parts or completed merchandise by the supplier thereof. For the purposes of this Section 3.5, FDA actions caused by the fault of KL are deemed to be within the control of KL. In the event of any delay caused by any of the foregoing, KL shall use reasonable commercial efforts to fulfill MDS’s orders in a timely fashion. KL shall notify MDS if it anticipates any potential delay in the filling of any of MDS’s Shipment Orders caused by any of the foregoing.

     3.6 MDS assumes no liability and shall not be liable to KL for any failure to place Shipment Orders, deliver Components or to fulfill any Purchase Commitment to the extent of any cause beyond the control of or occurring without the fault of MDS including but not limited to strikes, lockouts (but only if resulting from worker sabotage, vandalism or similar action) floods, fires, accidents, delays in the delivery of raw materials, parts or competed merchandise

by the supplier thereof. In the event of any delay caused by any of the above, MDS shall use reasonable commercial efforts to fulfill KL’s Component orders and/or to place Shipment Orders in a timely fashion. MDS shall notify KL if it anticipates any potential delay in the filling of any KL Component order or in placing Shipment Orders caused by any of the foregoing.

     3.7 Notwithstanding Sections 3.2 and 3.3, MDS may be relieved of its obligations with respect to any specific Shipment Order to Purchase Commitment in whole or in part, at MDS’s option, should KL be in material breach of this Agreement and if such breach is uncured within [**] days after KL receives notice from MDS of such breach, or should a delay under Section 3.5 occur and if such delay is uncured within [**] days after MDS receives notice from KL of such delay.

     3.8 Notwithstanding Sections 3.2 and 3.3 KL may be relieved of its obligations with respect to any specific Shipment Order or Supply Commitment in whole or in part, at KL’s option, should MDS be in material breach of this Agreement and if such breach is uncured within [**] days after MDS receives notice from KL of such breach, or should a delay under Section 3.6 occur and if such delay is uncured within [**] days after KL receives notice from MDS of such delay.

     3.9 MDS shall maintain and keep MDS inventories of the Products in accordance with then applicable Purchase Commitment and the Final MDS Forecast provided in Section 3.3.

     3.10 MDS shall submit to KL each calendar quarter a report about the market situation of the Products in the Territory including the tendency of the market, activities of third parties and other remarkable changes in the market.

ARTICLE 4
SHIPMENT OF THE PRODUCTS/COMPONENTS

     4.1 KL will ship the Products properly ordered in accordance with Article 3 to the Locations at the prices listed in Annex A. MDS will ship the Components to the Location and at the prices listed in Annex A.

     4.2 KL shall prepare and send by facsimile to MDS a packing list, invoice and bill of lading for each shipment of the Products. KL shall notify MDS if any shipment will not be made within the Shipment Period applicable to an MDS Shipment Order. MDS shall prepare and send to KL a packing list, invoice and bill of lading for each shipment of the Components.

ARTICLE 5
PRICES

     5.1 Except as otherwise specified herein, KL will sell the Products to MDS and MDS agrees to purchase the Products from KL, and MDS will sell the Components to KL and KL agrees to purchase the Components from MDS.

     5.2 It is expressly agreed that the prices for the Products and Components are listed in Annex A and include the cost of transportation and insurance to the Locations specified in the applicable MDS Shipment Order. However, it is also expressly agreed that MDS may order, and

if so ordered KL shall sell the Products FOB Bangkok. If MDS requests airfreight, and KL is not obliged to pay for such airfreight under the provisions of Section 3.3, 10.2, or 14.2, KL shall invoice MDS at the FOB Bangkok prices listed in Annex A, and MDS shall pay the airfreight. If KL is obliged to pay the airfreight under the provisions of Section 3.3, 10.2, or 14.2, KL shall pay such airfreight and invoice MDS at the Location prices applicable to the actual destination of such shipment.

ARTICLE 6
PAYMENT

     6.1 The terms of payment for the Products purchased by MDS and for the Components purchased by KL under this Agreement shall be D/A (Documents against Acceptance) at [**] days from KL’s or MDS’s bill of lading date. With respect to this Section 6.1, each party shall send all necessary documents for payment to the other party within [**] days from KL’s or MDS’s bill of lading date. Any amounts not paid within [**] days of the bill of lading date shall be subject to a service charge until paid equal to the lesser of [**] percent ([**]%) per month or the maximum rate allowed by law. If full payment is not received by KL or MDS within [**] days of KL’s or MDS’s bill of lading date, MDS or KL respectively shall be considered to be in material breach of this Agreement and subject to the provisions of Section 12.1.

     6.2 During the Term of this Agreement, Medisystems Corporation shall provide [**] to KL a letter substantially in the form of Annex C hereto, signed by the firm of public accountants that audit Medisystems Corporation’s books of account.

ARTICLE 7
MDS SUPPLIED COMPONENTS; PRODUCT CHANGES

     7.1 During the Term of this Agreement, MDS will sell and/or consign to KL the Components to be incorporated by KL, in accordance with its then current process specifications, into the Products. Except as expressly provided in Annex B or agreed by the parties, KL shall not incorporate any Components into any other product nor resell any of the Components for sale or resale by any third party.

     7.2 KL shall maintain and keep KL inventories of the Components in accordance with the First MDS Forecast provided by MDS in accordance with Section 3.3, but shall not produce or purchase components with respect to any prospective Shipment Order prior to receiving the First MDS Forecast in respect to such prospective Shipment Order.

     7.3 During the Term of this Agreement, MDS may require new BTL or AVF Product designs to meet the competitive requirements of its market and/or to meet its Purchase Commitment. MDS may design new Components, Codes and Products and cause changes to be made to the Specifications, in accordance with the provisions of the QA Agreement. KL will have the right, in good faith to reject such new Specifications based only on lack of capacity to produce such new Specifications. And, in any event, KL will have the right to adjust the price for Products based on such changed Specifications only to the extent that such changes increase or decrease KL’s true cost of production. KL will cooperate with MDS in incorporating such

new Components, Codes and Products and changes into the Specifications for the Products. To assist KL in production planning, MDS will meet at least [**] yearly with KL for the purpose of describing any current MDS design projects that, within the succeeding twelve months, are likely to produce a change in the Specifications and the introduction of new Components for the Products. During the Term of this Agreement, KL may make changes in its process specifications and/or components supplied by KL, all in accordance with the provisions of the QA Agreement. At least [**] yearly, KL shall advise MDS, in accordance with Section 5.3 of the QA Agreement, of any prospective KL process changes that, within the succeeding twelve months, are likely to produce a change in KL’s process specifications and/or of the components supplied by KL or to affect the quality of the Products.

     7.4 Whenever MDS adds a new Specifications for Components or Products, KL has a first right (prior to that of any third party) to bid on the supply of such Components. KL’s bid may be based on MDS’s design and/or KL’s alternative design, if any, but the content of the Specifications shall remain within the sole discretion of MDS. KL and MDS may negotiate which party shall supply such Components by taking into consideration cost, quality, quantity and patent issues. Nothing herein shall imply any license or obligation to license the patents of one party to the other and no license shall be granted unless the parties mutually so agree in a separate license agreement.

     7.5 At reasonable intervals, KL may, with prior notice to and with the prior consent of MDS which consent shall not unreasonably be withheld, send its representatives to MDS to audit the procedures or processes used in manufacturing the Components. At reasonable intervals, MDS may with prior notice to and with the prior consent of KL which consent shall not unreasonably be withheld send its representatives (including representatives of its customers) to KL to audit the procedures or processes used in manufacturing the Products.

ARTICLE 8
REGULATORY RESPONSIBILITY

     8.1 KL shall be responsible, at its expense, for complying with all of its obligations under the provisions of the QA Agreement. Failure to manufacture the Products in compliance with the QA Agreement shall be considered a breach of this Agreement by KL as to which MDS’s exclusive remedies shall be to terminate this Agreement under Section 12.1, to terminate any specified Shipment Order(s) under Section 3.7 and/or to reduce its outstanding Shipment Orders, any such termination or reduction to be credited on a unit basis toward the applicable Purchase Commitment.

     8.2 MDS shall be responsible, at its expense, for complying with all of its obligations under the provisions of the QA Agreement relating to the design, sale or use of the Products, including but not limited to obtaining authorization under Section 510(k) of the United States Federal Food, Drug and Cosmetic Act, as amended (the “Act”).

     8.3 Except as provided in this Agreement, MDS shall not use any trade name, trademark or logo owned or controlled by KL, or any trademark, trade name or logo confusingly similar therewith, during or after the Term of this Agreement. KL shall not use any trade name,

trademark or logo of MDS, or any trade name, trademark or logo confusingly similar therewith, without obtaining MDS’s prior written permission during or after the Term of this Agreement.

ARTICLE 9
GUARANTEE

     9.1 All Products sold to MDS under this Agreement are hereby guaranteed by KL, as of the time the title to the Products is transferred to MDS, to be not adulterated or misbranded within the meaning of the Act, and not an article which may not, under the provisions of Section 510(i) of the Act, be introduced into interstate commerce. If KL breaches this guarantee with respect to any lot of Product, MDS may immediately return to KL, at KL’s expense, any Products of such lot received by MDS. At MDS’s option, KL either will credit MDS for such Products, or pay to MDS any monies paid by MDS for the Products that breach this guarantee. If KL breaches this guarantee, then to the extent that MDS terminates or reduces Shipment Orders to allow for replacement products, such termination or reduction will be credited on a unit basis toward the applicable Purchase Commitment. The foregoing, along with Article 14, represents MDS’s sole and exclusive remedy for a KL breach of this guarantee. In no event will KL be deemed to be in breach of this guarantee to the extent KL’s failure to meet the guarantee is caused by KL’s adherence to the Specifications, proper use of the Components or compliance with MDS instructions regarding the Specifications or the Components. Notwithstanding the foregoing, KL shall in all events manufacture the Products in accordance with the KL process specifications.

ARTICLE 10
WARRANTY

     10.1 KL warrants the Products sold to MDS under this Agreement are, as of the time title is transferred to MDS, in compliance with the Specifications and the QA Agreement and made in accordance with the then applicable KL process specifications. KL warrants that its parts and process specifications are reasonably appropriate for the production of Products which insofar was they relate solely to said parts and process specifications (and not in any way related to the Specifications and/or the Components supplied by MDS to KL in connection with the production of the Products) are merchantable and fit for resale in the Territory (subject to the end-users’ proper usage thereof and assuming that the Products are used in connection with their intended purpose, e.g., for use in artificial kidney dialysis). MDS warrants that the Components sold to KL under this Agreement are, as of the time title is transferred to KL, in compliance with the Specifications and the QA Agreement and further the Components are reasonably appropriate for the production of the Products which insofar as they relate solely to said Components and the Specifications (and not in any way related to the process specifications and any parts supplied by KL in connection with the production of the Products) are merchantable and fit for resale in the Territory (subject to the end-users’ proper usage thereof and assuming that the Products are used in connection with their intended purpose, e.g., for use in artificial kidney dialysis).

     10.2 MDS acknowledges and agrees that, except for the provisions of Section 10.3, KL’s sole responsibility to MDS in the case of breach of the foregoing warranty shall be for KL, by mutual agreement of MDS and KL, to repair or replace the Products with respect to which such warranty is breached, or at MDS’s election for KL to return to MDS all payments made by

MDS to KL with respect to such Products or to credit MDS in the amount of all payments made by MDS to KL with respect to such Products. In no event shall KL be liable for MDS’s loss of profits, loss of use, or incidental, consequential or special damages of any kind even if KL has been advised by MDS of any possibility thereof.

     10.3 KL hereby indemnifies and agrees to hold MDS harmless from and against all claims, liability, damage, cost or expense of MDS, including its reasonable attorney’s fees paid to third parties arising out of, or in connection with, or as a result of, to the extent based upon the failure of any of the Products to meet the warranty set forth in Section 10.1 at the time of delivery to MDS and such failure is not due to any failure of a Component to meet the Specifications, provided MDS promptly notifies KL of any such claim, KL has control over the defense of such claim and MDS provides reasonable cooperation. In order to discharge KL’s obligations under this Section 10.3, KL and MDS agree that MDS shall obtain and keep in force during the Term of this Agreement, product liability insurance with a limit of liability for the Territory of not less than US$20 million, and shall name KL as an additional insured. KL shall reimburse MDS for the cost of such insurance at the rate of US$3.66 per US$1,000 of MDS purchases from KL.

     10.4 MDS shall indemnify and hold KL harmless from and against all claims, liability, damage, cost or expense of KL, including its reasonable attorney’s fees to the extent based upon: (a) any false or misleading product claims, representations, descriptions or other statements, whether oral or written, made or alleged to be made by MDS or its representatives in any advertising, publicity, promotion or sale of any of the Products, and (b) any product claim arising out of, based on, or caused by negligent handling of the Products by MDS.

     10.5 The KL warranties set forth herein (including without limitation the warranty set forth in Section 10.1 that the Products sold to MDS under this Agreement are, as of the time title is transferred to MDS, in compliance with KL’s then applicable process specifications) are exclusive and in lieu of all other warranties, whether express or implied, including the implied warranties of merchantability, infringement, and fitness for a particular purpose. The MDS warranties set forth herein are exclusive and in lieu of all other warranties, whether express or implied, including the implied warranties of merchantability, infringement, and fitness for a particular purpose.

ARTICLE 11
TERM OF AGREEMENT

     11.1 The term (“Term”) of this Agreement shall be for the seven (7) year period beginning on the Effective Date of this Agreement, provided that such Term shall automatically be renewed for subsequent periods of three (3) years unless either party gives notice of termination not less than one (1) year prior to the date on which this Agreement would otherwise terminate.

ARTICLE 12
TERMINATION

     12.1 Either party may terminate this Agreement for any material breach of it by the other party, by giving ninety (90) days written notice to the other party, if such breach shall, as of the expiration of [**] day period, remain uncured.

     12.2 Either party shall have the right at its option to terminate this Agreement effective immediately upon giving written notice to the other party in the event of:

	a.		appointment of a trustee, receiver or other custodian for all or substantially all of the property of such other party, or for any lesser portion of such property if the result is materially and adversely to affect the ability of such other party to fulfill its affirmative or negative obligations hereunder;
	b.		a judicial finding that such other party is insolvent or bankrupt;
	c.		the filing of a petition in bankruptcy for itself by such other party or a decision that bankruptcy proceedings will be instituted with respect to such other party based on a petition filed by a third party;
	d.		an assignment of a substantial part of the assets of such other party for the benefit of creditors;
	e.		an attachment of a substantial part of the assets of such other party for the benefit of creditors; or
	f.		the dissolution or liquidation of a party.

     12.3 If either party here suffers any event of the type enumerated in Section 12.2, it shall immediately notify the other party in writing of the occurrence of such event.

ARTICLE 13
EFFECT OF TERMINATION

     13.1 No termination of this Agreement, other than by reason of breach of this Agreement by MDS will relieve KL from its obligation to deliver all Products ordered by any properly placed Shipment Order of MDS, nor will any termination, other than by reason of breach of this Agreement by KL, relieve MDS from accepting and paying for all Products ordered by MDS under any properly placed Shipment Order issued by MDS or relieve MDS of its obligations pursuant to Section 3.3. The indemnification obligations under Article 10 shall survive the termination of this Agreement.

ARTICLE 14
PRODUCT RECALL

     14.1 In the event that it shall be deemed necessary by KL or MDS to recall any of the Products sold by MDS because the Products are believed to violate any provision of any law, the

guarantees provided in Section 9.1 or the warranties provided in Section 10.1, and if such Products have already been delivered to the Location, KL and MDS shall, subject to Section 14.4 below, share equally all out-of-pocket costs and expenses of such recall, including, without limitation, refunds to customers for recalled Products but only in an amount not to exceed the sum of the following items:

	a.		the purchase price paid by MDS to KL for the recalled Products;
	b.		the freight paid by MDS associated with the shipment of affected Products from the Locations;
	c.		the cost of notifying customers;
	d.		the costs associated with the shipment of recalled Products from customers to MDS; and
	e.		the cost of shipping replacement Products to customers.

     MDS may immediately return any recalled Products to KL for rework or credit.

     14.2 If Products have been recalled or placed under import detention by the FDA, MDS may place replacement Shipment Orders with KL and KL shall ship such Products by air shipment when required in MDS’s sole discretion, and shall continue air shipments until the effects of such recall or import detention have been completed or ended. To the extent MDS requires substitute products for recalled or detained Products, such substitutes will be credited on a unit basis toward the applicable Purchase Commitment and MDS shall submit KL proof of its substitutes from another supplier. In the event MDS or any of its distributors are prevented from operating as a result of a recall or FDA action MDS shall be relieved of its Purchase Commitment to the extent such recall or FDA action prevents the resale of the Products.

     14.3 In the event of such a recall of any of the Products sold by MDS, the parties will cooperate fully with each other in effecting such recall.

     14.4 In the event that KL or MDS determines that it will recall any Products sold by either of them because the Products are believed to violate any provision of any law, the guarantees of Section 9.1 or the warranties provided in Section 10.1, KL or MDS may, once the recall has been substantially completed, request an arbitrator, appointed by the American Arbitration Association, who shall determine whether KL’s or MDS’s determination to recall was necessary and reasonable. The arbitrator may require that KL or MDS bear all costs, damages and expenses of such recall or may apportion such costs and expenses between the parties as the arbitrator deems just under all of the circumstances.

     14.5 MDS shall bear all costs and expenses of a recall or import detention of the Products caused by the negligence of MDS. KL shall bear all costs and expenses of a recall or import detention of the P