Confidential Materials omitted and
filed separately with the
Securities and Exchange Commission. Asterisks denote
omissions.
SUPPLY AND DISTRIBUTION
AGREEMENT
This Supply and
Distribution Agreement (this “Agreement”), dated as of
May 6, 2008, is between Kawasumi Laboratories, Inc., a
Japanese corporation with its offices at 3-28-15, Minami-Ohi,
Shinagawa-ku, Tokyo 140-8555, Japan and Medisystems Corporation, a
Washington corporation with its offices at 439 South Union Street,
5 th
Floor, Lawrence, Massachusetts
01843, U.S.A. Reference should be made to Article 27 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:
1.1 KL
manufactures disposable medical products and MDS sells and markets
the Products in the Territory (as described in Annex B).
1.2 MDS
manufactures disposable medical products and MDS sells BTL, AVF,
BH, VN and NX used in artificial kidney dialysis, as well as PHE
and other products. MDS also manufactures or purchases and sells
Components, some of which 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 KL and MDS
have entered into a certain Supply and Distribution Agreement dated
as of February 1, 2001, as amended on January 31, 2007,
February 9, 2007, June 27, 2007, July 31, 2007,
August 30, 2007, September 26, 2007, October, 30, 2007,
November 30, 2007, December 27, 2007, January 30,
2008, February 29, 2008, March 31, 2008, and
April 28, 2008 (collectively, the “2001
Agreement”). KL and MDS agree to have this Agreement
supersede the 2001 Agreement with respect to the supply and
distribution of BTL and NX between the parties; provided, however,
that the 2001 Agreement shall continue to be in full force and
effect with respect to AVF, BH, VN and PHE, and shall govern the
supply and distribution thereof between the parties.
1.5 In pursuance
of this cooperation and in compliance with certain requirements of
the FDA, the parties have entered into the QA Agreement which
governs certain aspects of the design and manufacturing of the
Products and the supply of Components.
2.1 The Products
and Components shall meet the Specifications and shall be subject
to the warranties 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. MDS shall have
the right to add or replace the Codes set forth in Annex A hereto;
provided that (a) the Product Price applicable to the Codes to
be added or replaced pursuant to the foregoing shall be agreed to
by the parties through good faith discussions prior to the
placement of the first Shipment Order for such Codes by MDS; and
(b) MDS agrees that KL shall have no obligation to supply more
than [**] Codes of Streamline BTL at any given time during the
Term. For clarification purposes, the aggregate number of
Streamline BTL Codes set forth in Annex A may exceed [**] Codes
over the course of the Term, but shall not exceed [**] Codes at any
particular point in time during the Term.
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 NX from
KL, may sell NX anywhere in the World. MDS shall not purchase BTL
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 NX) directly or indirectly to distributors or
end-users for use or resale outside of the Territory without
KL’s prior written consent. Except for the sale of Products
from KL to MDS pursuant to the terms and conditions of this
Agreement, KL shall not (a) sell BTL or sub-assemblies
thereof, directly or indirectly, for use or resale in the U.S. to
any party other than MDS without MDS’ prior written consent,
or (b) sell Streamline BTL or NX worldwide to any party other
than MDS.
3.2 MDS’
purchasing goal and purchasing commitments for BTL and NX during
the Term shall be as set forth in this Section 3.2.
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a.
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MDS’ total purchasing goal for
Products during the Initial Term is [**] units of Products
(“Initial Goal”). During the Initial Term, and subject
to the other terms and conditions contained herein, MDS hereby
agrees to purchase from KL a total quantity of Products at least
equal to [**] percent ([**]%) of the Initial Goal (i.e., [**] units
of Products) (such amount shall be referred to herein as
“Initial Purchase Commitment”).
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b.
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In
the event MDS fails to place Shipment Orders for Products during
the Initial Term sufficient to meet its Initial Purchase
Commitment, upon expiration of the Initial Term, (i) KL may
ship to MDS the quantity of
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Products short
of the Initial Purchase Commitment (calculated by subtracting the
quantity of Products set forth in the Shipment Orders placed by MDS
during the Initial Term from the Initial Purchase Commitment) (the
quantity of Products of such shortfall shall be referred to herein
as “Initial Shortfall” and the shipments thereof by KL
shall be referred to as “Initial Shortfall Shipments”),
and (ii) MDS shall accept and pay for the Products shipped in
such Initial Shortfall Shipments. KL shall notify MDS upon the
expiration of the Initial Term in the event the Initial Purchase
Commitment is not met and of the amount of the Initial Shortfall.
In such notice, KL shall also request MDS to provide KL with the
Codes of Products and quantities thereof to be shipped in the
Initial Shortfall Shipment; provided, however, that the aggregate
unit of Products set forth in such notice shall be no less than the
Initial Shortfall. MDS shall have [**] business days following its
receipt of such notice to provide such information to KL, subject
to Sections 3.2c and 3.2e. If MDS fails to provide such
information within such [**] business day period, or to the extent
the aggregate quantity of Products set forth in such information
provided by MDS is less than the Initial Shortfall, KL may, at its
sole discretion, select the Codes of Products and the quantities
thereof to be shipped in the Initial Shortfall Shipment up to the
Initial Shortfall. The Initial Shortfall Shipments shall be made in
[**] equal monthly installments during the [**]-month period
immediately following the expiration of the Initial Term, with each
shipment constituting [**] of the Initial Shortfall. For the
avoidance of doubt, (x) MDS shall supply KL with the
Components necessary for KL to manufacture the Products to be
shipped in the Initial Shortfall Shipments if KL places Component
Orders for such Products in accordance with the terms and
conditions of this Agreement, and (y) any termination or
expiration of this Agreement shall not terminate KL’s right
to make the Initial Shortfall Shipments and receive payment
therefor from MDS, or relieve MDS of its obligation to accept such
Initial Shortfall Shipments and pay KL for such Initial Shortfall
Shipments.
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c.
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Notwithstanding the Initial Purchase
Commitment, MDS shall place Shipment Orders for Streamline BTL to
KL for an amount at least equal to the amount calculated pursuant
to the following (the “Initial Streamline Purchase
Commitment”): (i) if the aggregate amount of Streamline
BTL sold to [**] during the Initial Term is equal to or more than
[**] units, the Initial Streamline Purchase Commitment shall be
[**] units; and (ii) if the aggregate amount of Streamline BTL
sold to [**] during the Initial Term is less than [**] units, the
Initial Streamline Purchase Commitment shall be [**] percent
([**]%) of the aggregate amount of Streamline BTL sold to [**]
during the Initial Term. For clarification purposes, any Shipment
Orders for Streamline BTL units used for the purposes of confirming
MDS’ compliance with the Initial Streamline Purchase
Commitment shall also be counted towards the Initial Purchase
Commitment and the unit
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amount of the
Initial Streamline Purchase Commitment is not additive to the unit
amount of the Initial Purchase Commitment.
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d.
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Upon request from KL, MDS shall
disclose to KL information regarding the Codes and respective
quantities of Streamline BTL sold to [**] during the Initial Term.
MDS shall keep and maintain complete and accurate books, records
and accounts relating to its sale of Streamline BTL to [**], and KL
shall have the right, from time to time, to have an independent
auditor audit such books, records and accounts of MDS to verify
MDS’ compliance with the terms and conditions of this
Section 3.2d. Any such audit shall be conducted during the
regular business hours of MDS, in such a manner so as not to
interfere with the normal business activities of MDS, and shall be
at KL’s expense; provided, however, that, if such audit
reveals any material discrepancies between the actual figures and
reported figures of the Streamline Products sold to [**] during the
Initial Term, the cost of such audit shall be borne by MDS. KL
shall cause its independent auditor not to disclose any information
discovered in connection with this audit to any third party
(including KL) other than the information related to MDS’
sales of Products which may be disclosed to KL hereunder consistent
with the terms hereof.
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e.
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In
the event (i) MDS fails to place Shipment Orders for
Streamline BTL during the Initial Term (or the Revised Initial
Commitment Term, if the Initial Streamline Purchase Commitment is
revised pursuant to Section 3.2f) sufficient to meet its Initial
Streamline Purchase Commitment, or (ii) the audit set forth in
Section 3.2d reveals any non-compliance with the Initial
Streamline Purchase Commitment, KL shall have the right to include
the quantity of Streamline BTL short of the Initial Streamline
Purchase Commitment (calculated by subtracting the quantity of
Streamline BTL set forth in the Shipment Orders placed by MDS
during the Initial Term (or the Revised Initial Commitment Term, if
the Initial Streamline Purchase Commitment is revised pursuant to
Section 3.2f) from the Initial Streamline Purchase Commitment)
in the Initial Shortfall Shipments set forth in
Section 3.2b.
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f.
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Notwithstanding anything set forth
herein to the contrary, KL agrees that, if MDS fails to renew its
supply agreement for BTL with [**] despite good faith efforts to
negotiate such renewal, subject to Section 3.2j and upon
written notice to KL, MDS shall have the right, but not the
obligation, to revise its Initial Purchase Commitment and Initial
Streamline Purchase Commitment to an amount equal to the original
Initial Purchase Commitment and the original Initial Streamline
Purchase Commitment multiplied by the ratio of the period from the
Effective Date until the end of the [**] calendar month following
the month in which such notice is received by KL (the
“Revised Initial Commitment Term”) to the Initial Term.
MDS shall fulfill such revised Initial Purchase Commitment and
revised Initial Streamline Purchase Commitment, by the
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expiration of
the Revised Initial Commitment Term. In the event MDS fails to
place Shipment Orders for Products during the Revised Initial
Commitment Term sufficient to meet its revised Initial Purchase
Commitment and/or its revised Initial Streamline Purchase
Commitment, upon expiration of the Revised Initial Commitment Term,
KL may ship to MDS the quantity of Products short of the revised
Initial Purchase Commitment and/or the revised Initial Streamline
Purchase Commitment in accordance with Sections 3.2b and 3.2e;
provided however, any reference to the Initial Term therein shall
be automatically deemed to be replaced with reference to the
Revised Initial Commitment Term, and any reference to the Initial
Purchase Commitment and the Initial Streamline Purchase Commitment
therein shall automatically mean, respectively, the Initial
Purchase Commitment and the Initial Streamline Purchase Commitment
as revised pursuant to this Section 3.2f. In addition, in the
event MDS elects to exercise its rights pursuant to this
Section 3.2f to revise the Initial Purchase Commitment and the
Initial Streamline Purchase Commitment:
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1.
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immediately upon the issuance of the
notice by MDS set forth in this Section 3.2f, any and all
references to the Initial Purchase Commitment and/or the Initial
Streamline Purchase Commitment contained in this Agreement shall
mean respectively, the Initial Purchase Commitment and the Initial
Streamline Purchase Commitment as revised pursuant to this
Section 3.2f;
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2.
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all
obligations of KL related to the Supply Commitment shall terminate
as of the expiration of the Revised Initial Commitment
Term;
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3.
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notwithstanding Section 3.1,
any restriction on KL regarding the sale of BTL (including
subassemblies thereof) in the U.S., directly or indirectly, for use
or resale in the U.S. shall be terminated as of the expiration of
the Revised Initial Commitment Term;
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4.
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for
any BTL which is a work-in-progress as of the date on which KL
receives the notice by MDS set forth in this Section 3.2f, in
accordance with the other terms and conditions of this Agreement,
(i) KL shall complete the manufacture of such BTL within [**]
months of such notice and deliver such BTL to MDS, (ii) MDS
shall supply KL with the Components necessary for KL to complete
the manufacture of such BTL, (iii) MDS shall accept and pay
for such BTL, and (iv) any termination or expiration of this
Agreement shall not terminate the rights and obligations of KL and
MDS under this Section 3.2f.4, including, without limitation,
KL’s right to receive payment for such BTL from MDS;
and
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5.
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this Agreement shall terminate upon
the expiration of the Initial Term.
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g.
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The
parties shall discuss in good faith and agree to MDS’ total
purchasing goal for Products during each Renewal Term (the
“Renewal Goal”) no later than [**] months prior to the
expiration of the Term then in effect. During each Renewal Term,
and subject to the other terms and conditions contained herein, MDS
hereby agrees to purchase from KL a total quantity of Products at
least equal to [**] percent ([**]%) of the Renewal Goal (such
amount shall be referred to herein as the “Renewal Purchase
Commitment”).
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h.
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In
the event MDS fails to place Shipment Orders for Products during
the applicable Renewal Term sufficient to meet its Renewal Purchase
Commitment, upon expiration of the Applicable Renewal Term,
(i) KL may ship to MDS the quantity of Products short of the
Renewal Purchase Commitment (calculated by subtracting the quantity
of Products set forth in the Shipment Orders placed by MDS during
such Renewal Term from the Renewal Purchase Commitment) (the
quantity of Products of such shortfall shall be referred to herein
as the “Renewal Shortfall” and the shipments thereof by
KL shall be referred to as the “Renewal Shortfall
Shipments”), and (ii) MDS shall accept and pay for the
Products shipped in such Renewal Shortfall Shipments. KL shall
notify MDS upon the expiration of the applicable Renewal Term in
the event the Renewal Purchase Commitment is not met and of the
amount of the Renewal Shortfall. In such notice, KL shall also
request MDS to provide KL with the Codes of Products and quantities
thereof to be shipped in the Renewal Shortfall Shipment; provided,
however, that the aggregate unit of Products set forth in such
notice shall be no less than the Renewal Shortfall. MDS shall have
[**] business days following its receipt of such notice to provide
such information to KL. If MDS fails to provide such information
within such [**] business day period, or to the extent the
aggregate quantity of Products set forth in such information
provided by MDS is less than the Renewal Shortfall, KL may, at its
sole discretion, select the Codes of Products and the quantities
thereof to be shipped in the Renewal Shortfall Shipment up to the
Renewal Shortfall. The Renewal Shortfall Shipments shall be made in
[**] equal monthly installments during the [**]-months period
immediately following the expiration of the applicable Renewal
Term, with each shipment constituting [**] of the Renewal
Shortfall. For the avoidance of doubt, (x) MDS shall supply KL
with the Components necessary for KL to manufacture the Products to
be shipped in the Renewal Shortfall Shipments if KL places
Component Orders for such Products in accordance with the terms and
conditions of this Agreement, and (y) any termination or
expiration of this Agreement shall not terminate KL’s right
to make the Renewal Shortfall Shipments and receive payment
therefor from MDS, or relieve MDS of its obligation to
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accept such
Renewal Shortfall Shipments and pay KL for such Renewal Shortfall
Shipments.
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i.
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If
the parties cannot agree on a Renewal Goal for the Renewal Term
immediately following the expiration of the Term then in effect
(the “Following Renewal Term”) no later than [**]
months prior to the expiration of the Term then in effect, the
Renewal Goal for the Following Renewal Term shall be determined in
accordance with the following terms and conditions of this
Section 3.2i. If MDS agrees to accept a Renewal Goal for the
Following Renewal Term which is equal to or more than (x) [**]
percent ([**]%) of the Initial Goal, if the Following Renewal Term
is the first Renewal Term under this Agreement, or (y) [**] percent
([**]%) of the Renewal Goal of the then current Renewal Term, if
the Following Renewal Term is the second or any subsequent Renewal
Term, such figure shall become the Renewal Goal for the Following
Renewal Term. If MDS does not accept the Renewal Goal set forth in
the foregoing sentence, then the Renewal Goal for the Following
Renewal Term shall be reduced to [**] percent ([**]%) of the
Renewal Goal then in effect; provided, however, in such event, this
Agreement shall terminate upon the expiration of such Following
Renewal Term.
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j.
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In
any given consecutive [**] month period during the Initial Term,
MDS agrees to place monthly Shipment Orders that, in the aggregate,
will comprise no less than [**] percent ([**]%) and no more than
[**] percent ([**]%) of the Initial Goal (the “Initial
Maximum Order Quantity”). By way of example only, if the
Initial Goal for Products is [**] units of Products, MDS shall
place [**] consecutive monthly Shipment Orders, in any given [**]
month period during the Initial Term, that, in the aggregate, is no
less than [**] units of Products or more than [**] units of
Products. Notwithstanding the foregoing, KL agrees that, if MDS
provides notice of the quantity to be ordered in a particular
calendar month no later than [**] months prior to the beginning of
such calendar month, MDS may exceed the Initial Maximum Order
Quantity for such calendar month, and KL shall use commercially
reasonable efforts to supply the quantity in excess of the Initial
Maximum Order Quantity set forth in such notice.
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k.
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In
any given consecutive [**] month period during any Renewal Term,
MDS agrees to place monthly Shipment Orders that, in the aggregate,
will comprise no less than [**] percent ([**]%) and no more than
[**] percent ([**]%) of the Renewal Goal for such Renewal Term (the
“Renewal Maximum Order Quantity”). By way of example
only, if the Renewal Goal for Products is [**] units of Products,
MDS shall place [**] consecutive monthly Shipment Orders, in any
given [**] month period during the applicable Renewal Term, that,
in the aggregate, is no less than [**] units of Products or more
than [**] units of Products. Notwithstanding the foregoing, KL
agrees that, if MDS provides notice of the quantity to be ordered
in a particular calendar month no later than [**]
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months prior to the beginning of
such calendar month, MDS may exceed the Renewal Maximum Order
Quantity for such calendar month and KL shall use commercially
reasonable efforts to supply the quantity in excess of the Renewal
Maximum Order Quantity set forth in such notice.
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l.
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KL
agrees to sell to MDS a total quantity of Products no less than
[**] percent ([**]%) of the Initial Goal and any Renewal Goal
(“Supply Commitment”).
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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:
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a.
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On
or prior to the [**] day of each month (“Forecast
Date”) during the Term, MDS shall provide KL with the
following:
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1.
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a
forecast (the “First MDS Forecast”) of MDS orders to be
placed [**] days from the Forecast Date;
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2.
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a
revised forecast of MDS orders to be placed [**] days from the
Forecast Date; and
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3.
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a
further revised forecast (the “Final MDS Forecast”) of
MDS orders to be placed by the [**] day of the subsequent
month.
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b.
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Based on the Final MDS Forecast the
previous month, on or prior to the [**] day of each month during
the Term, MDS shall provide KL with a Shipment Order consistent
with the Purchase Commitments and Sections 3.2j and 3.2k. The
Shipment Order shall set forth requested delivery dates for the
Products of, (i) in the case where the seaport of entry into
the U.S. set forth in the Shipment Order is located on the west
coast of the U.S., no earlier than [**] days after the Shipment
Order Date and no later than [**] days after the Shipment Order
Date, and (ii) in the case where the seaport of entry into the
U.S. set forth in the Shipment Order is not located on the west
coast of the U.S., no earlier than [**] days after the Shipment
Order Date and no later than [**] days after the Shipment Order
Date (the duration between the earliest and latest date on which
the requested delivery date may be set forth in the Shipment Order
shall be referred to herein as the “Shipment Period”).
For purposes of this Agreement, the “Shipment Order
Date” means the date the applicable Shipment Order is placed
by MDS, or the [**] day of the month on which the Shipment Order is
placed, whichever is later.
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c.
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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, KL shall provide
MDS with the foregoing:
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1.
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a
forecast (the “First KL Forecast”) of KL orders for
Components to be placed [**] days from the Forecast
Date;
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2.
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a
revised forecast of KL orders to be placed [**] days from the
Forecast Date; and
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3.
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a
further revised forecast (the “Final KL Forecast”) of
KL orders to be placed by the [**] day of the subsequent
month.
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d.
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Based on the Final KL Forecast the
previous month, on or prior to the [**] day of each month during
the Term, KL shall provide MDS with its Component Order for such
month. The Component Order shall set forth requested delivery dates
for the Components of no earlier than [**] days after the Component
Order Date and no later than [**] days after the Component Order
Date. For purposes of this Agreement, the “Component Order
Date” means the date the applicable Component Order is placed
by KL, or the [**] day of the month on which the Component Order is
placed, whichever is later.
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The parties
recognize that some Components (including packaging and 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 the Products ordered in the
Shipment Orders are less than the First MDS Forecast, timely
incorporated in the 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 Products during the applicable Shipment Period,
and such failure is not excused by an event described in Section
3.5, KL shall ship such Products 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’ inventories throughout the Term. The
total quantity of Products in MDS’ 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 Component
Orders shall approximately equal the total quantity of Components
in the relevant Final KL Forecast unless a variance has been
accepted by MDS.
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 Shipment Order of MDS, or
confirmation or invoice of KL, except insofar as any such Shipment
Order, confirmation or invoice establishes (a) the quantity of
Products ordered for shipment, and (b) the locations in the
U.S. to which such Products shall be delivered (the
“Locations”) and the seaport of entry into the U.S. for
such Product shipments.
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 or to fulfill
any Supply Commitment 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, earthquakes, 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 de
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