CERTAIN INFORMATION INDICATED BY
[* * *] HAS BEEN DELETED FROM THIS EXHIBIT AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT UNDER RULE 24b-2.
Exhibit 10.1
AMENDED AND RESTATED SUPPLY AGREEMENT
WEBTEC CONVERTING, LLC
The
parties to this Agreement are CNS, Inc., (“CNS”), a
Delaware Corporation, headquartered in Eden Prairie, MN and WEBTEC
CONVERTING, LLC, (“WEBTEC”) a Tennessee limited
liability company, with its headquarters in Knoxville, TN. The
parties have in the past concluded a supply agreement for the
Breathe Right® nasal strips marketed and sold by CNS (the
“Product” or “Products,” as the case may
be, as further defined below). The parties later amended and
extended that agreement; on the basis of the promises set forth
below, and intending to be legally bound, the parties hereby enter
into this Agreement to amend and restate in its entirety such
previous agreement, including its amendment.
The term of this Agreement begins
on the date the last party signs this Agreement (the
“Effective Date”) and will continue for five (5) years.
This Agreement supersedes any prior agreements. Both parties, at
the end of the five (5) years, agree to act in good faith to
renegotiate pricing and extend the Agreement for two more years. If
agreement on pricing cannot be reached then the Agreement will
terminate at the end of the initial five (5) year term.
WEBTEC will not supply finished
external nasal dilators or components for use in the manufacture of
external nasal dilators to any third party(s) other than CNS or its
designee for the duration of this Agreement and for a period of
three (3) years thereafter. This exclusivity is deemed necessary by
the parties to protect CNS’s confidential information and
other proprietary rights.
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3.
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Products;
Specifications and Related Price Changes .
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3.1.
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Products
. The products covered by this
Agreement (the “Products”) are (a) those being
manufactured by WEBTEC at the time this Agreement is executed by
the parties, including any changes to those items required or
requested by CNS as provided herein; and (b) any other products or
items that the parties add to this Agreement by explicit written
amendment or agreement signed by both parties.
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3.2.
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Revision of
Specifications . CNS has
the right to revise Product specifications at any time and provide
such amended specifications to WEBTEC. After only a commercially
reasonable period for implementing changes, WEBTEC will manufacture
Products to the most current revision level of the specifications
provided by CNS and accepted by WEBTEC, which acceptance shall not
be unreasonably withheld. A certificate of conformance shall
accompany each shipment, confirming that the Product was produced
to the most current revision level. Price changes will occur at the
time of implementation of the changes.
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3.3.
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Planned Price Reductions
Separate . Price changes
according to this Section 3 are separate from and will have no
effect on price changes provided for elsewhere in this agreement.
WEBTEC in its notice to CNS of cost increases or decreases will
also notify CNS of the time required to make the change, and upon
CNS’s request the parties will confer on possible methods of
shortening the required time.
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3.4.
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WEBTEC-Initiated Changes That
Terminate This Agreement . If WEBTEC brings to CNS a change of design,
concept, or material, or other proposed modification of the
Products that is substantially different (as determined in the sole
discretion of CNS) from the attributes of the Products at the time
when WEBTEC presents the modification, CNS will give WEBTEC a right
of first refusal to manufacture the Products as changed, at prices
at least as favorable to CNS as other suppliers’ prices. If
WEBTEC cannot, or does not, accept the right of first refusal
within a reasonable time period not to exceed one (1) month from
when CNS first gives notice of the right of first refusal, CNS may
find an alternative manufacturer of the Product(s) as changed and
will give WEBTEC twelve (12) months’ notice of termination of
its manufacture of the Product(s) as previously configured. CNS and
WEBTEC will negotiate in good faith a fair and equitable agreement
of licensing, royalty, or other compensation with respect to the
proposed product. If WEBTEC can manufacture the proposed product
then no such agreement will be implemented.
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3.5.
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Non-WEBTEC Initiated Changes
that Terminate this Agreement . If CNS or a third party originates a change of
design, concept, or material, or other proposed modification of the
Products that is substantially different (as determined in the sole
discretion of CNS) from the attributes of the Products at the time
when CNS presents the modification, CNS will give WEBTEC a right of
first refusal to manufacture the Products as changed, at prices at
least as favorable to CNS as other suppliers’ prices. If
WEBTEC cannot, or does not, accept the right of first refusal
within a reasonable time period not to exceed one (1) month from
when CNS first gives notice of the right of first refusal, CNS may
find an alternative manufacturer of the Product(s) as changed and
will give WEBTEC twelve (12) months’ notice of termination of
its manufacture of the Product(s) as previously configured. In
addition to the twelve (12) months notice CNS will also pay to
WEBTEC four (4) months of profit margin for every year left on the
contract. The profit margin will be based on the average profit
margin of the first year of this contract. For example, if at the
end of the first year CNS implements this option; CNS will give
WEBTEC the twelve (12) months notice per the aforementioned
duration and will pay the average profit margin from year one of
the contract for twelve (12) additional months. If this clause is
executed after year two CNS’s obligation will be for the
twelve (12) month notice and pay the average profit margin from
year one of this contract for an additional 8 months.
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4.
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Quality;
WEBTEC Inspections .
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After a date to be agreed by the
parties, but no later than six months after the Effective Date,
WEBTEC will conduct sample inspections in and after the production
process and will send to CNS prior to the shipment arriving a copy
of the certificate of conformance to ensure that the Products
shipped to CNS comply with the agreed specifications, with the goal
of ultimately eliminating the need for CNS’s incoming
inspections. In the event that CNS identifies Product that is not
within specifications, WEBTEC will upon notice replace or refund
the purchase price of any Product that is shown not to conform to
specifications. In addition, WEBTEC will incur the cost of return
freight and is responsible for the disposal of goods in a safe
manner. WEBTEC will pay reasonable costs for such
disposal.
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5.
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CNS Duty to
Inspect; Returns .
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5.1
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Inspections
. CNS will direct its distribution
center to promptly inspect, on a selective or sample basis, any
shipment of finished Product received from WEBTEC, but not
necessarily all shipments, and to notify WEBTEC promptly in writing
of any defects. The notice must specify the defects in
detail.
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5.2
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Acceptance and
Returns . Any goods not
rejected within thirty (30) days of delivery are deemed accepted,
but CNS may inspect and return Products under warranty for credit
at any time up to twenty-four (24) months after CNS receives them
from WEBTEC or at any time upon their return from distribution
channels or consumers for reasons of defects.
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6.1
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WEBTEC shall be liable to CNS for
any and all claims, causes of action, suits, proceedings, damages,
demands, fees, expenses, fines, penalties and costs (including
without limitation, attorney’s fees, costs and
disbursements), collectively “Adverse Consequences,”
arising from any injury or alleged injury to any person or business
for property damage, personal injury or incidental, special or
consequential damages made against CNS or WEBTEC for liability
arising from or caused by the use of Products as a result of
negligence by WEBTEC in the production, handling or distribution of
Products prior to receipt by CNS or its customers. However, WEBTEC
shall not be liable to CNS under the proceeding sentence unless CNS
shall have tendered to WEBTEC the defense of any claim, cause of
action, suit or proceeding encompassed within the preceding
sentence, promptly upon CNS’s awareness of the same; and in
no event shall WEBTEC be liable under the preceding sentence for
Adverse Consequences attributable to defective design or flaw in
the specifications of Products.
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6.2
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Insurance
. Webtec shall at all times maintain
insurance to cover the liability provided in this Section 6.2, in
the amount of at least one million dollars per event and three
million dollars in the aggregate for any series of related events,
and shall supply to CNS on an annual basis a copy of their
certificate of insurance.
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7.1
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Price Sheets
. WEBTEC is obligated to the pricing
per Exhibit A and CNS agrees its purchases of Products will be at
the prices supplied on the price sheet provided by WEBTEC, attached
as Exhibit A, for the duration of the Agreement. The parties may
agree to add additional items to the price list. Prior to addition
to the price list, both parties must agree on the pricing for new
items. The new price sheet shall become effective only when
representatives from CNS and WEBTEC sign and date the new price
sheet.
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7.2
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Production and
Volume . CNS will strive
to smooth production such that downtime will be minimized at WEBTEC
and to the best of CNS’s ability production will occur in
every month subject to market and competitive conditions. The
quantities to be purchased from WEBTEC by CNS will be reviewed
annually and will be based on market conditions.
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8.1
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Committed Initial and Annual
Reductions . WEBTEC
commits to regular reduction of its prices to CNS. At a minimum,
WEBTEC has agreed to reduce the prices [ * * * ] upon completion of
the transition of CNS’s business from another of CNS’s
suppliers to WEBTEC as described under XIV, and thereafter an
additional [ * * * ] per year, effective on anniversaries of the
Effective Date. The parties recognize that half [ * * * ] of this
agreed reduction for the transition has already occurred. The
remaining reduction will occur when the transition is completed but
no later than October 1, 2005.
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8.2
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Increases for
Inflation . However, in
the unlikely event that inflation-driven cost increases by
WEBTEC’s suppliers, after reasonable resistance by WEBTEC,
unavoidably increase WEBTEC’s costs, WEBTEC has the right to
renegotiate the price, in an amount never to exceed demonstrable
increases in its overall cost due to such increases from suppliers,
and always subject to reduction or offset according to the
provisions on cost reduction in Section 8.3 and elsewhere in this
Agreement.
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8.3
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Continuing Cost
Reductions . In addition
to the above-referenced price reductions, WEBTEC agrees to
aggressively continue its efforts to reduce its costs by for
example improving efficiencies, automating equipment, and
controlling the cost of raw materials etc. CNS agrees to assist
WEBTEC in areas of cost reductions that are external to WEBTEC,
including but not limited to printing, packaging, corrugate and
alternative material. CNS will assist at its sole expense in
evaluating these potential areas by participating in creation and
evaluation of cost-saving ideas through membership on a team of
individuals from the respective companies. It is expected that the
cost reduction efforts will yield, available to CNS [ * * * ],
beginning on the first anniversary of the Effective Date and [ * *
* ] on the second, third, and fourth anniversaries. The operation
team, consisting of [ * * * ], will review the
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actual savings on an annual
basis. In the event that the actual targeted cost reductions are
not met WEBTEC will not be responsible to pass on the targeted
reductions for that year. If actual savings achieved exceed the
targeted savings then WEBTEC retains any amount in excess of the
targeted savings. Any reductions in materials costs (other than
changes in formulation or specification provided for above) will be
[ * * * ] on a quarterly basis by further reductions of prices to
CNS, based on the above-mentioned quarterly reports, and any
initial costs required for implementation of those efficiencies
(including but not limited to consumer “HUT” testing)
will also be [ * * * ].
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9.
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Termination
for Cause .
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Upon default by either party in
the performance of any material obligation in this Agreement,
either party may give notice in writing by certified mail, to the
other party and the defaulting party shall have thirty (30) days
from the date the notice is received to cure the default. In the
event the default is not cured within this thirty (30) day time
period, the non-defaulting party may terminate this Agreement by
providing notice of termination, which shall take effect no earlier
than ten (10) days from the date of such notice. Termination under
provisions of this Section 9 shall not relieve either party of an
obligation existing upon the date of termination or relieve either
party from liability for breach of this Agreement subject to the
terms of this Agreement.
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10.1
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Annual Forecast
. CNS will provide to WEBTEC an
annual forecast to be used by WEBTEC to assist in capacity
planning. This annual forecast is not a binding forecast and WEBTEC
will not hold CNS to this forecast.
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10.2
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Three-Month Forecast;
Termination Coverage .
CNS will also provide to WEBTEC production requirements for a
3-month time period on a monthly basis. WEBTEC will use this
production requirement to plan production and to plan their
material requirements. In the event CNS cancels any orders, CNS
will be responsible for reimbursing WEBTEC for the cost of material
in WEBTEC’s inventory or material that has been placed on
order for production requirements that fall within the 3-month
timeframe so long as WEBTEC has not begun production with respect
to such materials. In the event that WEBTEC has begun production on
any order that is canceled by CNS that falls within the 3-month
requirements, CNS will be responsible for purchasing such strips at
the prices indicated on Exhibit A. CNS will n
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