Exhibit 10.13
SUPPLY AND DISTRIBUTION AGREEMENT
THIS AGREEMENT is made and effective the 25th day of October,
2004
("Effective Date") between Valley Forge
Scientific Corp., a Pennsylvania
corporation, ("VFS"), and Stryker
Instruments Division of Stryker Corporation, a
Michigan corporation ("Distributor").
WITNESSETH
WHEREAS, VFS designs, develops, manufactures and sells bipolar
electronic systems and stimulators;
WHEREAS, Distributor designs, develops, manufactures and
markets
medical devices, including devices for the
treatment of chronic pain;
WHEREAS, VFS and Distributor entered into a certain Development
Agreement dated as of September 6, 2002
(the "Development Agreement") pursuant
to which they collaborated to determine the
feasibility of the commercialization
of certain products, which Development
Agreement has terminated in accordance
with its terms;
WHEREAS, as a result of the collaboration under the Development
Agreement, VFS desires to manufacture and
supply to Distributor certain
products, which are more fully described in
Schedule A, as the same may be
amended or supplemented from time to time
by an instrument executed on behalf of
each of VFS and Distributor (the
"Products"), all in accordance with the terms
and conditions set forth herein; and
WHEREAS, Distributor desires to purchase Products from VFS and
distribute the Products throughout the
world for use solely in connection with
the percutaneous treatment of pain (the
"Field").
NOW, THEREFORE, in consideration of the foregoing and the
mutual
covenants and agreements contained herein
and intending to be legally bound, the
parties agree as follows:
SECTION I
SUPPLY AGREEMENT
1.
Supply Requirements.
1.1
Distributor agrees to purchase from VFS and VFS agrees to sell
to Distributor the Products on the terms
set forth in this Agreement solely for
use in the Field.
1.2 (a)
VFS shall
deliver to Distributor, for Distributor's
inspection, a reasonable number of
preproduction quality samples of each of the
Products ("Inspection Samples") as agreed
upon by the parties which conform to
the specifications, consisting in the case
of the Products designated as the
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Generator Product thereon (the "Generator
Product") of the relevant
manufacturing specifications and subsidiary
detail specifications, as set forth
in Schedule A, and drawings agreed upon by
Distributor and VFS
("Specifications"), including reports
documenting that the Products have been
inspected and tested.
(b)
Distributor shall provide to VFS any objections it has
concerning the conformance of the
Inspection Samples to the Specifications
within thirty (30) days after receipt of
the Inspection Samples (the "Inspection
Period") and VFS shall make such changes to
Products prior to production. If no
objections are received by Distributor
during the Inspection Period, the
Inspection Samples shall be deemed
acceptable by Distributor. The Inspection
Period for the Inspection Samples of the
initial Products covered by this
Agreement that are listed in Schedule A on
the Effective Date shall be known as
the "Initial Inspection Period".
1.3 On or
prior to the end of the Initial Inspection Period,
Distributor shall deliver to VFS a forecast
of Distributor's requirements for
Products during the initial six-month
period after the Initial Inspection
Period. On or before the last day of each
month after the Initial Inspection
Period and during the Term, Distributor
shall deliver to VFS a six-month rolling
forecast of Distributor's requirements for
Products. Each forecast shall specify
the quantities of each Product and the
projected shipment dates therefor. The
first three months of the initial six-month
forecast shall represent
Distributor's binding purchase order for
the quantities of Products specified
therein. For each six-month rolling
forecast thereafter, the third month of such
rolling forecast shall be Distributor's
binding purchase order for the
quantities specified therein. VFS shall not
be obligated to supply quantities of
Products in excess of those quantities
subject to binding purchase orders. VFS,
however, shall use its commercially
reasonable efforts to deliver to
Distributor, pursuant to purchase orders,
quantities of Products even if
Distributor has modified a projection of
Product requirements for such
quantities. Three (3) months prior to the
end of each Agreement Year (as defined
below) during the term of this Agreement,
Distributor and VFS shall meet to
review the projected quantity mix of
Products for purchase during the next
Agreement Year for manufacturing planning
purposes.
1.4 It is
understood that the terms of this Agreement shall
supersede any conflicting terms of purchase
orders for all purchases of
Products.
1.5
Distributor and VFS have agreed upon the following minimum
purchase requirements (the "Initial
Products Minimum") for the first three (3)
Agreement Years for the Generator
Product:
Initial
Agreement Year
Products Minimum
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----------------
1
*
2
*
3
*
2
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For purposes of this Agreement, the term
"Agreement Year" shall mean the period
beginning on the date of the first
acceptance by Distributor of a Generator
Product delivered by VFS to Distributor as
ready for commercial sale
(Distributor shall diligently and in good
faith promptly evaluate the "readiness
for commercial sale" of the Generator
Product that VFS has delivered to
Distributor) and ending on the last day of
the calendar quarter in which the
first anniversary date of such date occurs,
unless such anniversary date is the
first day of a calendar quarter, in which
case the first Agreement Year shall
end on the last day of the preceding
calendar quarter, and each successive
twelve (12)-month period thereafter. On or
before the beginning of the last
calendar quarter of the third Agreement
Year and each Agreement Year thereafter,
VFS and Distributor shall conduct good
faith negotiations regarding the Initial
Products Minimum for the next Agreement
Year. In the event that one or more new
products have been added to Schedule A as
contemplated by Section I, Paragraph
1.6(a), a separate minimum purchase
requirement shall be agreed for each Product
that is a New Field Product ("New Product
Minimum"). Notwithstanding the
foregoing, the minimum purchase
requirements shall be reduced for each Agreement
Year to the extent that (i) VFS shall fail
to deliver Products, subject to
binding purchase orders with a projected
shipment date during such Agreement
Year, within thirty (30) days after the
projected shipment date but, in any
event, during such Agreement Year, and/or
(ii) VFS has been advised by
Distributor in writing and in timely manner
that Products delivered during such
Agreement Year do not conform to the
requirements of Section I, Paragraph 4
(which writing shall specify in reasonable
detail how the Products do not
conform to the requirements of Section I,
Paragraph 4) and, if it is determined
that such Products do not conform to the
requirements of Section I, Paragraph 4,
replacements conforming to the requirements
of Section I, Paragraph 4 have not
been delivered during such Agreement
Year.
1.6 (a) If
during the term of this Agreement, VFS develops or
acquires rights to any new product
indicated for use in the Field ("New Field
Product") then, prior to offering such New
Field Product to a third party for
use in the Field, VFS shall offer
Distributor the right of first refusal to
market the New Field Product in the Field
under the terms of this Agreement", by
giving Distributor a written notice ("New
Field Product Notice") of the product
specifications, intended use, projected
availability, Distributor's purchase
price for the New Field Product, the
applicable New Product Minimum, and other
terms, after which Distributor shall have
thirty (30) days ("First New Field
Product Decision Period") to inform VFS in
writing of its interest to market
such product under the terms proposed,
subject to satisfactory review of a
"Field Ready Prototype" of such New Field
Product; provided, however, that
Distributor shall have no rights to any new
product for which the idea was
initially brought to VFS by a third party
unless VFS in writing seeks
Distributor's input in connection with the
development thereof, in which case
the parties shall agree in advance as to
Distributor's rights. During the First
New Field Product Decision Period, VFS
shall provide to Distributor such
information reasonably available to VFS,
which Distributor reasonably requires
regarding the new product, subject to
confidentiality and non-disclosure
provisions in this Agreement. The term
"Field Ready Prototype" shall mean a
prototype functionally ready to be used in
the indicated clinical testing
applications, except for complying with
applicable government regulations
related to such testing, which shall be the
sole responsibility of Distributor.
In the event Distributor gives written notice to VFS of its
decision
not to exercise its right of first refusal
during the First New Field Product
Decision Period, or fails to give written
notice to VFS of its decision to
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exercise its right of first refusal within
said First New Field Product Decision
Period, then, notwithstanding anything in
this Agreement to the contrary, VFS
may pursue other distribution opportunities
for the New Field Product in the
Field, on terms that are, in the aggregate,
not less favorable to VFS than the
terms specified by VFS in the New Field
Product Notice or contained in the last
subsequent proposal by VFS to Distributor,
if any, and, in the event that VFS
desires to pursue such less favorable
distribution opportunities, then VFS shall
be required (each time such situation
arises) to give a new notice to
Distributor pursuant to this Paragraph
1.6(a) and comply with the right of first
refusal set forth herein for an additional
thirty (30)-day period following the
receipt of such new notice by
Distributor.
In the event Distributor gives written notice to VFS of its
decision to
exercise its right of first refusal during
the First New Field Product Decision
Period, VFS shall provide to Distributor a
Field Ready Prototype of the New
Field Product when such prototype is
available, after which Distributor shall
have ninety (90) days to determine whether
the Field Ready Prototype is
acceptable to Distributor ("Second New
Field Product Decision Period") and to
agree in writing to have the New Field
Product be added to Schedule A of this
Distribution Agreement under the terms set
forth in the New Field Product
Notice, whereupon the parties shall agree
upon the initial production run
purchases and add such New Field Product to
Schedule A. Notwithstanding the
foregoing, the Second New Field Product
Decision Period shall be extended to
forty-five (45) days after receipt of the
necessary government approvals, if
any, for the clinical testing of the Field
Ready Prototype of the New Field
Product provided that Distributor has in
good faith commenced the effort to
obtain such approvals promptly after giving
written notice of its decision
during the First New Field Product Decision
Period to exercise its right of
first refusal with respect to such New
Field Product and using commercially
reasonable efforts has diligently pursued
the obtaining of such approvals until
such approvals are obtained. During the
Second New Field Product Decision
Period, VFS shall provide to Distributor
such information reasonably available
to VFS, which Distributor reasonably
requires regarding the new product, subject
to confidentiality and non-disclosure
provisions in this Agreement. In the event
Distributor gives written notice to VFS of
its decision not to exercise its
right of first refusal during the Second
New Field Product Decision Period, or
fails to give written notice to VFS of its
decision to exercise its right of
first refusal within said Second New
Product Decision Period, then,
notwithstanding anything in this Agreement
to the contrary, VFS may pursue other
distribution opportunities in the Field,
for the New Field Product on terms that
are, in the aggregate, not less favorable
to VFS than the terms specified by VFS
in the New Field Product Notice or
contained in the last subsequent proposal by
VFS to Distributor, if any, and, in the
event that VFS desires to pursue such
less favorable distribution opportunities,
then VFS shall be required (each time
such situation arises) to give a new notice
to Distributor pursuant to this
Paragraph 1.6(a) and comply with the right
of first refusal set forth herein for
an additional thirty (30)-day period
following the receipt of such new notice by
Distributor.
(b) During the
term of this Agreement, prior to offering a new
product indicated for use in
lesion/ablation applications in conjunction with
generator products with the same features
and technical specifications as the
Generator Product ("New Outside Product")
to a third party distributor to
distribute or sell the New Outside Product
for use in the field of orthopedic
surgery, ENT, craniomaxillofacial surgery
or head and neck surgery (individually
an "Expanded Field" and collectively
"Expanded Fields"), VFS shall offer
Distributor the right of first refusal to
market the New Outside Product by
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giving Distributor a written notice ("New
Outside Product Notice") of the
minimum purchase requirements, the
particular Expanded Fields where the New
Outside Product is indicated for use,
Distributor's purchase price for the New
Outside Product, product features and
benefits, general specifications and other
terms, after which Distributor shall have a
period of thirty (30) days after
delivery of a Field Ready Prototype of such
New Outside Product ("New Outside
Product Decision Period") to enter into a
distribution agreement for the New
Outside Product under the terms set forth
in the New Product Notice that VFS
plans to offer such New Outside Product to
a third party distributor ("New
Distribution Agreement").
In the event the Distributor (i) gives written notice to VFS of
its
decision not to exercise its right of first
refusal during the New Outside
Product Decision Period, or (ii) if
Distributor fails to enter into a New
Distribution Agreement with VFS during the
New Outside Product Decision Period,
then, notwithstanding anything in this
Agreement to the contrary, VFS may pursue
other distribution opportunities for the
New Outside Product in the Expanded
Field(s) designated in the New Outside
Product Notice, on terms that are, in the
aggregate, not less favorable to Valley
Forge than the terms specified by VFS in
the New Outside Product Notice or contained
in the last subsequent proposal by
VFS to Distributor, if any, and, in the
event that VFS desires to pursue such
less favorable distribution opportunities,
then VFS shall be required (each time
such situation arises during the term of
this Agreement) to give a new notice to
Distributor pursuant to this Paragraph
1.6(b) and comply with the right of first
refusal set forth herein for an additional
thirty (30)-day period following the
receipt of such new notice by
Distributor.
Notwithstanding anything in this Agreement to the contrary, the
right
of first refusal in this Paragraph 1.6(b)
shall not apply to (i) the marketing
or sale by VFS (including a Permitted
Assignee as defined in Section III,
Paragraph 8.3) or its subsidiaries or other
affiliates of any product through
its own sales force or through independent
sales representatives and (ii) any
neurocranial or neurospinal application of
any product.
(c)
Notwithstanding anything in this Agreement to the contrary,
the rights of first refusal set forth in
this Paragraph 1.6 shall terminate upon
the earlier of (i) the termination of this
Agreement or (ii) upon the failure of
Distributor to satisfy the Initial Products
Minimum or a New Product Minimum, as
the case may be, for any Product or New
Field Product as set forth in Section I,
Paragraph 1.5, herein.
1.7 (a) If
Distributor does not meet the Initial Products Minimum
and/or a New Product Minimum for an
Agreement Year, Distributor may, at its
option, nevertheless be deemed to have
fulfilled such obligation by paying VFS
an amount (the "shortfall amount") equal to
fifty percent (50%) of the
difference between (A) the amount
Distributor would have paid to VFS had it
fulfilled such minimum purchase requirement
for such Agreement Year and (B) the
amount Distributor has paid (or will pay)
for the applicable Product or Products
actually purchased during such Agreement
Year. Such payment, if made, shall be
due within thirty (30) days following the
end of the such Agreement Year in
which Distributor did not fulfill its
minimum purchase requirement.
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(b) If
Distributor does not meet the Initial Products Minimum
and/or a New Product Minimum (or pay the
applicable shortfall amount pursuant to
Paragraph 1.7 (a)) during an Agreement
Year, VFS shall have the right to
terminate this Agreement, with respect only
to the Products that are listed on
Schedule A on the Effective Date if the
failure relates to the Initial Products
Minimum and/or with respect only to the
applicable New Field Product if the
failure relates to one or more New Product
Minimums, upon ninety (90) days prior
written notice to Distributor, such notice
to be given not later than fifteen
(15) business days after the expiration of
the 30-day period referred to in
Paragraph 1.7(a). The parties agree that,
notwithstanding anything to the
contrary in this Agreement, if they
mutually agree that material changes in
market conditions have occurred, then they
will in good faith renegotiate the
Initial Product Minimums and/or the
applicable New Product Minimums rather than
terminate this Agreement.
2.
Prices and Payment.
2.1 During the
first Agreement Year, pricing of Products shall be
according to the terms set forth in
Schedule B attached hereto.
2.2 Upon the
request of either party, the parties shall negotiate
in good faith during the first two months
of the fourth quarter of each
Agreement Year with respect to changes in
the pricing of Products to be
effective on the first day of the second
Agreement Year and of each Agreement
Year thereafter. Such negotiations shall
take into account, among other things,
the competitive market conditions then
existing, the cost of materials and
labor, quantities of Products to be
purchased by Distributor and economic
conditions. The price in effect for any
Product for any Agreement Year shall,
however, not increase by more than three
percent (3%) over the price in effect
for the preceding Agreement Year. Price
increases resulting from improvements or
changes in a particular Product shall be
negotiated in good faith by both
parties prior to the delivery of the
improved or changed Product and shall not
be subject to the foregoing limitation on
the amount of increase.
2.3 Payment to
VFS for Products shall be made forty-five (45) days
following the date of the invoice from VFS
(which shall be no earlier than the
date of shipment) for Products specified in
purchase orders and not rejected by
Distributor for nonconformance pursuant to
Section I, Paragraph 4.1. All
payments to VFS under this Agreement shall
be made in U.S. dollars. All payments
due under this Agreement not made on their
due date shall bear interest at the
lesser of (i) one and one-half percent
(1.5%) per month and (ii) the maximum
lawful interest rate permitted under
applicable law.
3.
Shipment.
3.1 All sales
of Products shall be F.O.B. VFS's factory at the
prices set forth in Schedule B, which
prices shall be exclusive of freight,
insurance and taxes. VFS shall, at
Distributor's cost, ship the Products to any
location chosen by Distributor, utilizing
carriers chosen by Distributor. Title
and risk of loss or damage to the Products
shall pass to Distributor at the time
they are loaded on to the carrier specified
by Distributor.
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3.2 Unless
otherwise agreed in advance, all Products, inclusive of
operating and service manuals and complete
standard sets of accessories, shall
be packed, labeled, marked and otherwise
prepared for shipment by VFS in such a
way as to be acceptable to carriers and in
accordance with good commercial
practice, so as to minimize risk of loss or
damage in transit. An itemized
packing list and Product inspection report
in the form set forth in Schedule C
attached hereto shall accompany each
shipment.
4.
Specifications, Testing, and Warranty.
4.1
VFS agrees to sell the
Products to Distributor for use in the
Field, for the term of this Agreement and
warrants that such Products will meet
the Specifications or such modified
specifications as may be agreed upon in
writing by Distributor and VFS. Distributor
shall have a period of thirty (30)
days from date of receipt of Products to
inspect and accept Products that
conform to the Specifications or reject
Products that do not conform to the
Specifications. Rejection of non-conforming
Products by Distributor shall not
excuse VFS from its obligations to deliver
Products pursuant to this Agreement.
4.2 VFS
reserves the right to make engineering changes that do not
affect the form, fit, function, performance
or appearance of the Products and
that do not require regulatory approval
without the prior approval of
Distributor; provided, however, that VFS
shall provide Distributor with notice
of such change as promptly as practical
after VFS's final internal approval of
such change. With regard to all other
material changes to the Products, VFS
agrees to give Distributor written notice
and to simultaneously provide
Distributor with Specifications for the
changes. No changes relating to the
form, fit, function, performance or
appearance will be made to any Products
supplied to Distributor at any time without
the prior written approval or deemed
approval as provided below of Distributor.
Distributor agrees to inform VFS of
its approval or disapproval of changes
relating to the form, fit, function,
performance or appearance of the Products
within thirty (30) days after
receiving notice of any such proposed
changes. If Distributor does not respond
to VFS within said thirty (30)-day period,
the change will be deemed to have
been approved.
4.3
Distributor may request, in writing, that VFS change the
Specifications or otherwise incorporate
changes into the Products and/or develop
customized Products for Distributor. Such
request will include a description of
the proposed changes that will reasonably
permit VFS to evaluate the cost and
feasibility. Within forty-five (45) days
after receiving such a request from
Distributor, VFS will advise Distributor
whether it is reasonably able to make
such changes and, if so, the timetable and
terms and conditions under which it
would make such changes, and any resulting
increase or decrease in prices
hereunder. VFS's evaluation shall be in
writing and, if it is reasonably able to
make the change, it shall also state the
impact on delivery schedules for
Products covered by pending purchase orders
hereunder. If, after good faith
negotiations, Valley Forge and Distributor
agree upon the terms of the changes,
then this Agreement, the Specifications,
delivery schedules and pricing schedule
will be amended accordingly.
i.
Unless otherwise agreed to in writing by VFS and Distributor,
purchases by Distributor of more customized products shall not
be
credited to Distributor in meeting the dollar amount of the
minimum
purchase requirement pursuant to Section I, Paragraph 1.5.
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ii VFS
shall not unreasonably refuse to incorporate the changes
or develop a more customized product when requested by Distributor
.
4.4 Within the
times specified in this Paragraph 4.4, Distributor
shall have the right to return to VFS, for
full credit/refund plus cost of
freight, any Product that is defective or
fails to comply with the
Specifications, provided, however, that
such defect or failure is in no way the
result of any modification to the Product,
improper repair, or of any damage
(assuming proper packaging for
transportation by VFS) to the Product after
loaded on to the carrier specified by
Distributor. Notwithstanding failure of
Distributor to inspect and/or return any
shipment, or its acceptance of any
shipment, Distributor shall be entitled to
return to VFS, for either repair,
free of charge, credit/refund or exchange,
at VFS's option, any Product that is
defective or fails to comply with the
Specifications if returned by Distributor
within one (1) year after shipment of
Generator Product by Distributor to its
end user or ninety (90) days after shipment
of any other Product by Distributor
to its end user. Notwithstanding anything
in this Agreement to the contrary, the
use of any instrument other than one
approved by VFS for use with the Generator
Product shall void all warranties contained
in this Agreement with regard to the
Generator Product.
4.5
In the event it
is discovered by Distributor, and VFS is
notified by Distributor within the time
periods stated in Section I., Paragraph
4.4 hereof, that a Product is defective or
fails to comply with the
Specifications, Distributor shall return
the Product to VFS and specify in
writing the alleged complaint, Product
code, serial number, if there is one, and
the return address of Distributor or the
end user if the Product is to be drop
shipped to the end user. VFS will, at its
option and at its expense, either
repair or replace such defective Product
within fifteen (15) business days after
its return by Distributor, freight prepaid
to VFS at its repair facility, and
receipt by VFS at such facility. If VFS
determines that the returned Product has
been abused by the end user, VFS shall
provide Distributor with a quote for
repair of the Product and Distributor shall
either agree to pay for the repair,
parts, labor and calibration or instruct
VFS to return the Product to
Distributor without repairs. In either
case, Distributor shall pay the freight
for return of the Product to Distributor.
VFS shall charge Distributor for any
such repair, parts, labor and calibration
as set forth in Section I,
Paragraph.4.6 hereof.
4.6 VFS agrees
to provide repair, maintenance, modification and
other services on a timely basis on units
of the Generator Product purchased by
Distributor or its end user at $125.00/hour
(as increased by the percentage
increase (if any)in the Consumer Price
Index (CPI), as defined by the U.S.
Department of Labor, Bureau of Labor
Statistics measured as of the ninth month
of the then current Agreement Year as
compared to the CPI measured as of
December 2002), plus the charges for repair
parts. Notwithstanding the foregoing
sentence, the hourly rate that VFS charges
Distributor for such services shall
not exceed the lowest rate that VFS charges
any other customer for similar
services. Upon request by Distributor, VFS
shall provide to Distributor its then
current price list for spare or replacement
parts for Generator Products. VFS
agrees to maintain an inventory of spare
and replacement parts for the Generator
Product if and when production ceases for a
period of at least five (5) years
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following the last delivery date of a
Generator Product to Distributor. VFS
agrees to refurbish Generator Products at a
cost agreed upon annually by VFS and
Distributor.
4.7 VFS MAKES
NO WARRANTY OTHER THAN THOSE EXPRESSLY MADE HEREIN,
EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION, ANY WARRANTY OF
MERCHANTABILITY OR OF FITNESS FOR ANY
PARTICULAR PURPOSE.
5.
Compliance With Laws and Regulations.
5.1 VFS
represents and warrants that it is and, during the term of
this Agreement, will continue to be (i) a
Domestic Device Establishment,
registered with the FDA and (ii) ISO 9001
and EN 46001 certified. VFS further
represents and warrants that all Products
sold and delivered to Distributor
under this Agreement shall be manufactured
in ac
