This Supply Agreement involves
Title: DEVELOPMENT, SUPPLY AND DISTRIBUTION AGREEMENT
Governing Law: New York Date: 2/22/2010
Industry: Medical Equipment and Supplies Law Firm: Nutter McClennen Sector: Healthcare
[***] A CONFIDENTIAL PORTION OF THIS EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
DEVELOPMENT, SUPPLY AND DISTRIBUTION AGREEMENT
THIS DEVELOPMENT, SUPPLY AND DISTRIBUTION AGREEMENT (this "Agreement" ) is made effective as of June 22, 2009 (the "Effective Date" ) between Cambridge Heart, Inc. ( "CHI" ), a Delaware corporation having its principal place of business at 100 Ames Pond Road, Tewksbury, MA 01876, and Cardiac Science Corporation (the "Distributor" ), a Delaware corporation having its principal place of business at 3303 Monte Villa Parkway, Bothell, WA, 98021. CHI and Distributor are each referred to individually as a "Party" and together as the "Parties . "
WHEREAS, Distributor is engaged in the design, development, manufacture and sale of a cardiac stress test system known as the Stress System (the "Stress System" );
WHEREAS, CHI is engaged in the design, development, manufacture and sale of medical devices, equipment, related hardware, software and accessories used to perform CHI’s Analytic Spectral Method, a proprietary Microvolt T-Wave Alternans ( "MTWA" ) test for the purpose of identifying patients at risk for Sudden Cardiac Arrest (the "MTWA Test" );
WHEREAS, Distributor desires to sell CHI’s MTWA Test initially as a stand-alone module for use in connection with Distributor’s Stress System and, upon completion of the Integrated ASM Development Plan (as defined below) and receipt of any and all applicable regulatory approvals and clearances, as an integrated component of Distributor’s Stress MTWA System, and Distributor desires to obtain from CHI a supply of the software, related hardware and Sensor Test Kits necessary to conduct a MTWA Test with the Stress MTWA System; and
WHEREAS, CHI desires to supply to Distributor such software, related hardware and Sensor Test Kits pursuant to the terms and conditions set forth herein;
NOW, THEREFORE, CHI and Distributor, intending to be legally bound, hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following capitalized terms shall have the following meanings:
(a) "Act" means the United States Food, Drug and Cosmetic Act and the regulations promulgated thereunder, as amended from time to time.
(b) "Analytic Spectral Method Software" means CHI’s MTWA measurement software application using CHI’s proprietary Analytical Spectral Method for the purpose of identifying patients at risk for Sudden Cardiac Arrest, CHI’s proprietary data formats, and CHI’s methods for unpacking data from CHI’s proprietary data formats.
(c) "Annual Forecast Report" shall have the meaning ascribed thereto in Section 3(a).
(d) "ASM Software" means the Analytic Spectral Method Software as customized pursuant to the terms of this Agreement for installation on and use with the Stress MTWA System. ASM Software also includes all modifications, derivative works, changes and improvements made to the ASM Software by CHI, including all error corrections, bug fixes, new versions, releases, updates, and upgrades thereto.
(e) "Business Day" means any day other than a Saturday, Sunday, or other day on which most or all commercial banks are closed in New York, New York.
(f) "CHI Intellectual Property" means the Intellectual Property rights of CHI used by CHI in the development, manufacture, distribution or sale of the Products.
(g) "Cost of Goods Sold" means the cost of goods sold recognized by Distributor from the sale of Products to Stress MTWA System Purchasers in accordance with the terms of this Agreement, calculated in accordance with GAAP, except, however, that cost of goods for the purposes of Section 3(j) will include any third party distribution costs Distributor may incur in the sale of Products.
(h) "Development Work" means the development work carried out pursuant to the Non-Integrated Product Development Plan or the Integrated ASM Development Plan, as the case may be.
(i) "Event of Bankruptcy" shall have the meaning ascribed thereto in Section 14(c).
(j) "FDA" means the Food and Drug Administration of the United States Department of Health and Human Services, or any successor thereto having administrative authority to regulate the marketing of medical devices in the United States of America.
(k) " FDA Approval" means clearance for marketing by the FDA under Section 510(k) of the Act, 21 U.S.C. §360(k), and 21 C.F.R. Part 807, Subpart E, or FDA premarket approval granted in accordance with 21 U.S.C. § 360e and 21 C.F.R. Part 814.
(l) "Field" means cardiac stress testing, including without limitation, exercise, pharmacology, nuclear and pacing.
(m) "Gross Profit" means Net Sales minus Cost of Good Sold.
(n) "Installation Training Service" shall have the meaning ascribed thereto in Section 8(c).
(o) "Integrated ASM Development Plan" shall have the meaning ascribed to such term in Section 2(e).
(p) "Intellectual Property" means any U.S. or foreign patents and patent applications (including any substitutions, extensions, reissues, renewals, divisionals, or
continuations); trademarks, service marks and registrations thereof and applications therefore; copyrights and copyright registrations and applications; mask works and registrations thereof; all discoveries, innovations, ideas, inventions, technology, techniques, methods, know-how, trade secrets, processes, formulas, specifications, drawings and designs, computer programs or software, including all amendments, modifications, and improvements to any of the foregoing, and any other proprietary information.
(q) "MTWA Test Module" means all components necessary to use CHI’s MTWA Test with Distributor’s Stress System as a stand-alone or integrated component, as the case may be, including the Patient Cable, the PDAM and the ASM Software but excluding the Sensors.
(r) " NDA" means that certain non-disclosure agreement between CHI and Distributor dated as of September 5, 2008.
(s) "Net Sales" means the invoiced sales price charged for the Products sold by Distributor to end-users of MTWA Test Modules sold by Distributor in accordance with the terms of this Agreement, minus allowances, returns, refunds, rebates, credits, discounts, taxes, tariffs and duties, and non-reimbursable shipping and handling charges. For the avoidance of doubt, "Net Sales" shall accrue no earlier than the date that the customer’s payment of the invoiced amount clears to Distributor’s bank account. In cases where Products are bundled or integrated with other products or services, "Net Sales" shall be the proportionate contribution of the Products to the total invoiced sales price for the bundled or integrated offering.
(t) "Non-Integrated Product Development Plan" means the document attached hereto as Appendix B .
(u) "Patient Cable" means the Sensor connector cabling used to acquire the electrocardiogram (" ECG ") and other signals from the Sensors and to transmit the signals to the PDAM.
(v) " PDAM" means the active patient data acquisition module used to record the ECG and other signals of patients for measurement of MTWA and to send the signal to the host cardiac stress test system via an integrated data cable.
(w) "Products" means the MTWA Test Module, Sensor Test Kits and any other product that can be ordered by Distributor as listed in Appendix A (CHI Products and Purchase Prices).
(x) "Product Launch Date" means the date on which Distributor introduces the MTWA Test Module on the Stress MTWA System for purchase generally by end-user customers.
(y) "Purchase Order" means a purchase order released by Distributor for Products, including the MTWA Test Module and Sensor Test Kits.
(z) "Purchase Prices" shall have the meaning ascribed thereto in Section 4(a).
(aa) "Quarterly Forecast Amount" shall have the meaning ascribed thereto in Section 3(a).
(bb) "Sensor" means a single-use disposable Micro-V Alternans sensor for the surface recording of a patient’s ECG and other signals and used with the MTWA Test Module.
(cc) "Sensor Test Kit" means a package of Sensors and related accessories developed and manufactured by or for CHI for use in a single MTWA Test.
(dd) "Shipping Point" means (i) the common carrier designated by Distributor in the Purchase Order or (ii) if CHI does not use Distributor’s designated carrier, Distributor’s facility at the address set forth in the Purchase Order.
(ee) "Specifications" means the product uses, characteristics, design requirements, processing, labeling and packaging requirements, protocols and standards pertaining to the manufacture, supply or use of the MTWA Test Module contained in the Non-Integrated Product Development Plan or the Integrated ASM Development Plan, as the case may be, in each case as may be modified and supplemented from time to time by the mutual written agreement of the Parties.
(ff) "Starter Test Kit" means a package of ten (10) Sensor Test Kits.
(gg) "Steering Committee" shall have the meaning ascribed thereto in Section 2(c).
(hh) "Stress MTWA System" means the version of Distributor’s Stress System or alternative, derivative or successor stress system that includes the MTWA Test Module.
(ii) "Stress MTWA System Purchasers" means end-user customers who purchase a Stress MTWA System and/or a MTWA Test Module from Distributor, its distributors or sub-distributors in accordance with the terms of this Agreement.
(jj) "Territory" means worldwide.
2. PROJECT DEVELOPMENT.
(a) CHI Responsibilities . CHI shall use its commercially reasonable efforts (i) to design, develop, and test the MTWA Test Module according to the Specifications and on the development schedule set forth in the Non-Integrated Product Development Plan, (ii) to carry out the other activities assigned to CHI in the Non-Integrated Product Development Plan and (iii) upon the Parties’ mutual execution of the Integrated ASM Development Plan, to meet CHI’s obligations under the Integrated ASM Development Plan on the development schedule set forth in the Integrated ASM Development Plan.
(b) Distributor Responsibilities . Distributor shall use its commercially reasonable efforts (i) to assist CHI in performing its activities under the Non-Integrated Product Development Plan, and (ii) to furnish to CHI in accordance with the schedule set forth in the Non-Integrated Product Development Plan, the design requirements and other data as may be necessary to allow CHI to develop the MTWA Test Module and to interface the MTWA Test
Module with the Stress System, (iii) to carry out the other activities assigned to Distributor in the Non-Integrated Product Development Plan, and (iv) upon the Parties’ mutual execution of the Integrated ASM Development Plan, to meet Distributor’s obligations under the Integrated ASM Development Plan on the development schedule set forth in the Integrated ASM Development Plan.
(c) Steering Committee. The Parties shall establish a Steering Committee consisting of two (2) members, one representative designated by each Party. The proposed initial representatives are Ali Haghighi-Mood (CHI) and Bob Odell (Distributor). The Steering Committee shall, unless agreed otherwise in writing by the Parties, be responsible for: (i) updating or modifying by mutual written agreement, as may be required from time to time, the Non-Integrated Product Development Plan, including the Specifications contained therein, and the Integrated ASM Non-Integrated Product Development Plan, including the Specifications contained therein; (ii) monitoring the conduct of the Development Work and the progress and results according to the Non-Integrated Product Development Plan and the Integrated ASM Development Plan; (iii) mutually agreeing in writing to corrections or modifications to the Specifications; (iv) deciding other issues of importance on behalf of each of the Parties relating to the Development Work under the Non-Integrated Product Development Plan or the Integrated ASM Development Plan. The Steering Committee shall meet regularly based on the project needs and status of the Development Work to discuss and resolve any issues or problems. These meetings may be held in person or by teleconference. Each Party shall bear its own communication and travel costs in connection with the Development Work.
(d) Product Launch . It is estimated that the Development Work under the Non-Integrated Product Development Plan will be completed and the Product Launch Date will take place on or before September 30, 2010.
(e) Integrated ASM Development Plan. Following the Product Launch Date and subject to Distributor’s determination of the market need and customer demand, the Parties will work together in good faith to prepare a mutually agreeable plan for the development of an alternative version of the ASM Software that will be fully integrated with the Stress MTWA System software platform (the "Integrated ASM Development Plan" ). Distributor will have primary responsibility, with reasonable assistance from CHI, for the development of a software interface between the ASM Software and the Stress MTWA System allowing for the integration of the ASM Software with the Stress MTWA System. The Integrated ASM Development Plan in the form approved and signed by the Parties will be attached to this Agreement as Appendix C . Until such time, this appendix shall remain empty other than the Appendix title page. In the event that the Parties are unable to reach an agreement regarding the terms of the Integrated ASM Development Plan, the remaining terms of this Agreement shall continue in full force and effect without change. The Parties contemplate that the Integrated ASM Development Plan will, among other things:
(i) define the responsibilities of each of the Parties in developing the integrated ASM Software and the schedule for performing such activities, including timing, milestone schedules, scope of work, specifications, allocation of development costs, general quality and regulatory requirements and other relevant terms and information, including the Parties respective ownership rights in the work product contemplated by the Integrated ASM Development Plan;
(ii) specify the obligations of CHI to provide Distributor with access to the ASM Software source code necessary to create the user interfaces to the Stress MTWA System (excluding the formulaic algorithm code contained in the ASM Software);
(iii) specify the obligations of CHI to provide technical support during the development of the integrated ASM Software, including at least two trips to Distributor’s development center and two man-weeks of onsite engineering support if reasonably requested by Distributor; and
(iv) specify the obligations of CHI to provide a reasonable number of MTWA Test Modules necessary to facilitate Distributor’s development efforts under the Integrated ASM Development Plan.
(f) Escrow. The Parties shall enter into a technology escrow agreement (the " Escrow Agreement ") within ninety (90) days of the Effective Date with a mutually acceptable independent escrow agent in the United States. The Escrow Agreement shall require CHI to deposit and maintain a complete and current copy of the following deposit materials (the "Deposit Materials" ): (i) the formulaic algorithm code (in object and source code form) contained in the ASM Software and (ii) the specifications and Intellectual Property related to the Sensors (in each case suitable to enable Distributor to manufacture or have manufactured the Products) in the escrow semiannually. The following events shall be triggering events with respect to the release of the Deposit Materials under the Escrow Agreement (a "Triggering Event" ):
(i) CHI ceases to do business and no successor has agreed to assume CHI’s obligations to Distributor,
(ii) CHI is in material breach of any of the Product manufacturing, supply, or warranty provisions of Sections 3(b) or 7 of this Agreement and fails to cure that breach within sixty (60) days after written notice thereof,
(iii) CHI files for liquidation under the U.S. Bankruptcy Code or other similar legislation in another jurisdiction, or
(iv) CHI files for reorganization under the U.S. Bankruptcy Code or other similar legislation in another jurisdiction and does not remain debtor in possession or trustee of the estate.
If a Triggering Event occurs and there is a release of Deposit Materials to Distributor in accordance with the terms and conditions of the Escrow Agreement, Distributor shall have the right to use the Deposit Materials solely in accordance with the terms and conditions of Section 3(i) of this Agreement and Distributor agrees not to exercise its rights under Section 3(i) of this Agreement unless and until the occurrence of a Triggering Event.
(g) Development Expenses . Except as otherwise set forth in this Agreement, including the Development Plan and the Integrated ASM Development Plan, each Party shall bear its own expenses with respect to the Development Work.
3. PURCHASE AND SALE OBLIGATIONS.
(a) Forecasts . At least 60 days before the Product Launch Date and thereafter at least 60 days before each calendar quarter, Distributor shall provide to CHI a rolling forecast of its anticipated Product needs for the next year (the "Annual Forecast Report" ), including Distributor’s forecast for the next calendar quarter and each of the subsequent three (3) calendar quarters. The Annual Forecast Report shall not create any binding obligation on the part of Distributor to purchase the amount of Product forecast in such report. In any calendar quarter, CHI shall not be required to supply hereunder more than the lower of (i) the quantity of Products for the calendar quarter forecast in the most recent Annual Forecast Report delivered at least 60 days before such calendar quarter and (ii) 125% of the quantity of such Products purchased by Distributor in the preceding quarter (the "Quarterly Forecast Amount" ).
(b) Manufacture and Supply. Upon completion of the Development Work under the Non-Integrated Product Development Plan, subject to the terms and conditions of this Agreement, CHI agrees to manufacture (or have manufactured on its behalf) and supply to Distributor the Products. Lead times for the Products are set forth in Appendix A .
(c) Third Party Manufacturers. CHI may use a third party manufacturer to manufacture any Product, with or without the approval of Distributor. If CHI uses a third party manufacturer to manufacture any Product, CHI shall enter into a binding written agreement with such manufacturer (a " Third Party Agreement ") prior to the provision of any Distributor Confidential Information to such third party. Such Third Party Agreement shall (i) provide for the protection of any Distributor Confidential Information provided to such third party manufacturer on substantially equivalent terms to those contained in this Agreement and (ii) provide limitations on the disclosure and use of such Distributor Confidential Information that are substantially equivalent to those contained in this Agreement. CHI shall be responsible for any acts or omissions of such third parties in breach of CHI’s representations, warranties and obligations under this Agreement to the same extent as if CHI had committed the breach itself. CHI shall use commercially reasonable efforts to monitor and enforce its Third Party Agreements as required to ensure the adequate protection of Distributor’s rights and Distributor’s Confidential Information and shall promptly notify Distributor of any actual or suspected breach thereof.
(d) Resale of Products. Distributor may resell the Products in accordance with the terms of this Agreement through both its direct sales force and through its distributors and sub-distributors in its distribution network. Distributor shall only sell CHI approved parts (i.e., cables, sensors, etc.) for use in connection with any MTWA Test Module.
(e) Commitment to Purchase. Distributor’s commitment to purchase Products from CHI shall be limited to Purchase Orders released by Distributor and accepted by CHI pursuant to Section 5. Unless agreed otherwise in writing by the Parties, Distributor shall not be responsible or in any way liable to CHI or any third party with respect to any material commitments or production arrangements in excess of the amounts or in advance of the times necessary to meet Distributor’s delivery schedules set forth in its accepted Purchase Orders.
(f) Field and Territory. The MTWA Test Module and the components thereof purchased by Distributor from CHI under this Agreement shall only be used or sold by Distributor as components in, incorporated into, or integrated with Distributor’s Stress Systems for use in the Field by end-user customers in the Territory. Distributor shall use commercially reasonable efforts to ensure that the MTWA Test Module and the components thereof shall only be resold, leased, rented, licensed or otherwise transferred by Distributor, its distributors or its sub-distributors to end-user customers located in the Territory for use as part of a Stress System. The MTWA Test Module may be sold by Distributor, its distributors or its sub-distributors separately in the form of an upgrade to Stress Systems that have previously been installed with end-user customers or as a component of a new Stress MTWA System. Distributor shall use commercially reasonable efforts to ensure that the Sensor Test Kits shall only be sold or otherwise transferred to Stress MTWA System Purchasers. For the avoidance of doubt, nothing in this Agreement or this Section shall be construed as a limitation on the market segment or customer type to whom Distributor is permitted to sell Products. Distributor is expressly authorized hereby to sell Products to any customer located in the Territory that has or is purchasing a Stress System.
(g) CHI Distribution Rights. Distributor acknowledges and agrees that its right to resell CHI’s MTWA Test Modules pursuant to the terms and conditions of this Agreement is non-exclusive and that CHI may, whether through its direct sales force, distributors and/or sub-distributors or otherwise, sell, distribute and license to other third parties both generic and customized versions of CHI’s MTWA Test Modules (including CHI’s Analytic Spectral Method Software, PDAM, Patient Cables and Sensors) to meet the needs of other OEM customers and end-users. Nothing in this Agreement shall prohibit CHI from continuing to sell, distribute or license these products or components thereof to distributors or customers other than Distributor. CHI shall not sell Sensors or Sensor Test Kits for use with a Stress System.
(h) Sensors. Sensor Test Kits sold by CHI to Distributor for use with MTWA Test Modules and Stress MTWA Systems shall bear the name of both CHI and Distributor on the packaging and shall be marked with a unique part number for sales tracking purposes. The Sensor Test Kits sold by CHI to Distributor hereunder shall be customized such that the Sensors in any Sensor Test Kit only function when used for or conjunction with the components of a Distributor Stress System. Other sensors produced or sold for or by CHI that are not intended for use with Stress MTWA System must be engineered and sold in a form or configuration that will not function when used for or in conjunction with the MTWA Test Modules sold to Distributor under this Agreement for use with a Stress MTWA System.
(i) Alternative Manufacture and Supply . In the event that a Triggering Event occurs and there is a release of Deposit Materials to Distributor in accordance with the terms and conditions of the Escrow Agreement, then (A) Distributor may elect to purchase Products directly from any third party manufacturer of the Products in lieu of purchasing them from CHI hereunder, (B) at Distributor’s request, CHI shall provide Distributor with the Specifications relating to the Products and any Intellectual Property in CHI’s possession or control necessary to manufacture the Products, and (C) CHI automatically grants to Distributor a non-exclusive,
non-transferable license to use any CHI Intellectual Property necessary to manufacture or have manufactured the Products solely for the purpose of manufacturing, selling, servicing and repairing the Products for Stress MTWA System Purchasers in the Territory, in each case, subject to the payment by Distributor to CHI of the commissions set forth in Section 3(j). Except with respect to the manufacture and sale of the Sensors and Sensor Test Kits, Distributor’s rights under this Section 3(i) shall terminate upon the expiration or termination of this Agreement or (y) the expiration of the Initial Term (whichever occurs later). Distributor shall treat the Deposit Materials and any other CHI Intellectual Property provided to Distributor under this Section 3(i) as CHI Confidential Information in accordance with the terms of Section 16 of this Agreement.
(j) CHI Sensor Commission. To the extent that Distributor exercises its right pursuant to Section 3(i) to manufacture or have manufactured any Products for sale to Stress MTWA System Purchasers in the Territory, Distributor shall pay CHI a commission equal to [***] percent ([***]%) of the Gross Profit realized by Distributor for such Products. Distributor shall pay such commissions to CHI on a calendar quarterly basis. With such quarterly payments, Distributor shall provide to CHI a list of Distributor customers to which such sales were made, the number of Sensors and Sensor Test Kits and other Products sold in that quarter, and the calculation of the Gross Profit realized from the sale of Sensors and Sensor Test Kits and other Products by Distributor. All such information shall be treated as Distributor Confidential Information in accordance with the terms of this Agreement. This quarterly payment shall be provided to CHI no later than 30 days following the end of each calendar quarter. Distributor shall keep full and accurate records and books of account containing all necessary information to calculate the commission due hereunder. Distributor shall permit an independent certified public accountant selected by the mutual agreement of the Parties to examine its records and books of account for the two (2) year period prior to the date of the audit to determine compliance with Section 3(j). Any examination shall be at the expense of CHI, shall occur during regular business hours at Distributor’s offices after reasonable notice, and shall not interfere unreasonably with Distributor’s regular activities. Distributor agrees to pay to CHI any amounts owing as a result of Distributor’s non-compliance with the payment provisions of Section 3(j), and CHI shall return any amounts overpaid by Distributor, within thirty (30) days of the date of the examination report, which details such non-compliance. In the event the amount owed by Distributor to CHI during the audited period exceeds five percent (5%) of total commissions due, Distributor shall pay the reasonable out of pocket costs of such examination.
(k) Branding. All Products sold to Distributor hereunder shall be packaged, labeled and branded in accordance with the Specifications contained in the Non-Integrated Product Development Plan or the Integrated ASM Development Plan, as the case may be.
(a) Purchase Prices. The prices of the Products purchased by Distributor hereunder (the "Purchase Prices" ) shall be as set forth in Appendix A . The Purchase Price for the MTWA Test Module set forth in Appendix A includes the Installation Training Service and Starter Test Kit described in Section 8(c). The Purchase Prices are exclusive of any shipping charges or any tax, duties, excise or governmental charges that CHI may be required to collect or pay upon shipment or delivery of the Products, which shall appear as a separate line item on CHI’s invoice for the Products.
(b) Purchase Price Changes. The Purchase Prices set forth in Appendix A shall be reviewed twelve (12) months following the first delivery of Products by CHI hereunder (" First Delivery Date ") and annually thereafter. Except as expressly provided herein, any price adjustment shall become effective only upon the mutual agreement of the Parties. Twelve (12) months after the First Delivery Date, and annually thereafter during the Term, CHI shall furnish to Distributor a schedule of its costs associated with the production and delivery of each Product as of the date of the schedule (the " Cost Schedule "), the accuracy and completion of which shall be certified by an officer of CHI. CHI shall be available to meet with Distributor and discuss matters related to the Cost Schedule promptly following Distributor’s request. The parties agree that the Purchase Price for each Product shall be reduced or increased by 50% of the dollar value of CHI’s reduced or increased cost, if any, relating to each such Product, as shown by comparing the then-current Cost Schedule with the previous Cost Schedule. Any such Purchase Price reductions or increases shall be effective as of the first day of the next calendar month. For example, cost reductions or increases reflected in the first Cost Schedule delivered on June 30, 2010 and the second Cost Schedule delivered on June 30, 2011 shall change the Purchase Prices of Products effective July 1, 2011. If the parties are unable to mutually agree on such pricing adjustments, the supply of Products shall continue unabated at the then-current Purchase Prices and any pricing adjustment shall be resolved in accordance with the dispute resolution provisions contained in this Agreement.
(c) CHI Software License. The Purchase Price for the Products includes a perpetual, paid-up, non-exclusive license to Distributor and its distributors, sub-distributors and end-users of the Products, or Distributor’s products containing the Products, to use in the operation of the Products any software and/or firmware supplied by CHI to Distributor or incorporated into the Products, including the ASM Software. CHI hereby grants to Distributor license rights required to sell the Products in accordance with the terms of this Agreement. All rights granted hereunder shall survive any termination of this Agreement as long as the applicable party remains in compliance with the terms for use of such Products. Title to and ownership of any and all proprietary rights in or related to such software and firmware shall at all times remain with CHI or its licensor(s). Nothing in this Agreement shall be construed as a sale of any rights in such software or firmware, including ASM Software or the related documentation. Distributor shall not disassemble, decompile or otherwise reverse engineer the software or any part thereof, except if CHI is required under applicable law to permit such reverse engineering. In such event, Distributor may reverse engineer the software but only to the extent CHI is required to permit such reverse engineering. Distributor shall retain and shall not alter or obscure any notices, markings or other insignia affixed to the ASM Software, the documentation related thereto or any part thereof at the time it receives such ASM Software or related documentation (so long as such notices, markings or other insignia are not inconsistent with the branding specifications set forth in the Non-Integrated Product Development Plan or Integrated ASM Development Plan, as applicable).
5. PURCHASE ORDERS AND TERMS OF SALE.
(a) Order Contents. Purchase Orders released by Distributor to CHI shall be in the form attached hereto as Appendix D and shall include (i) reference to this Agreement, (ii) identification of Products ordered, (ii) quantity of each Product, (iii) requested delivery date consistent with the lead times specified in Appendix A , and (iv) shipping instructions and shipping address.
(b) Order Acceptance. CHI shall accept Purchase Orders if they are placed by Distributor under agreed prices and other conditions of this Agreement. CHI may reject any Purchase Order of Distributor if the requested delivery time is shorter than the agreed upon lead time, the quantity ordered exceeds the Quarterly Forecast Amount or the Purchase Order is not otherwise in compliance with this Agreement. Purchase Orders shall be acknowledged by CHI within five (5) days after receipt of the Purchase Order, provided that the Purchase Order is technically correct and that the requested delivery time is within the agreed lead time and the Quarterly Forecast Amount. The terms and conditions of this Agreement shall govern and supersede any additional or contrary terms set forth in Distributor’s purchase order or any CHI acceptance, acknowledgment, invoice or other document, unless the specific additional or contrary terms are stated in writing and duly signed by an officer of Distributor and an officer of CHI.
(c) Modification of Orders. Upon acceptance by CHI, no Purchase Order may be modified or canceled except upon the mutual agreement of the Parties. Mutually agreed change orders shall be subject to all of the provisions of this Agreement, whether or not the changed Purchase Order so states.
(d) Content of Invoice. CHI’s invoices shall contain the Purchase Order release number, invoice quantity by Product, Product unit price, total invoice amount, name of CHI, phone number, address to which remittance should be sent, shipping, insurance and tax charges, if any (separately itemized), and such other information as may reasonably be required by Distributor.
(e) Payment. Unless otherwise agreed in writing, payment for all Products shall be made by Distributor in the currency specified in Appendix A within 30 days after the date of Distributor’s receipt of CHI’s correct and undisputed invoice, provided that the quantity and quality of the Products delivered conforms to this Agreement and the respective Purchase Order. Any late payments of undisputed amounts shall bear interest at one percent (1.5%) per month.
(f) Shipment. All Products sold by CHI to Distributor shall be shipped by CHI free on board (F.O.B.) the Shipping Point. CHI shall be responsible for ensuring that Products are packaged in accordance with industry standard practices and in a manner reasonably calculated to ensure that they arrive in undamaged condition. CHI shall bear all risk of loss prior to CHI’s delivery of the Products, in good condition, to the Shipping Point and shall have no further risk of loss for the Products after it has delivered the Products to the Shipping Point. Distributor assumes all risk of loss upon CHI’s delivery of the Products to the Shipping Point. Distributor shall pay all shipping, insurance, taxes, and all other similar charges applicable to the Products after they are delivered by CHI to the common carrier. All such charges shall be passed along by CHI without markup or premium, and no additional handling or packaging or similar charges shall be assessed by CHI in connection with any order. All shipping insurance shall name Distributor as the sole loss beneficiary in the event that the risk of loss has been assumed by Distributor (i.e., CHI ships the Products using Distributor’s designated carrier) and shall name CHI as the sole loss beneficiary in the event that risk of loss has not been assumed by Distributor (i.e., CHI ships the Products using a carrier other than that designated by Distributor). Any claims for shipping damage shall be submitted by Party that is the named loss beneficiary to the common carrier, and upon request the other Party will provide reasonable assistance in filing claims with the carrier.
(g) Inspection; Returns . CHI shall test or qualify Products (including all component parts where such parts are subject to separate authorization or qualification) to meet all applicable Specifications prior to shipment. All Products are subject to inspection and acceptance at destination, notwithstanding any prior payments or inspection. Distributor shall be deemed to have accepted the Products only in the event that Distributor: (A) fails to accept or reject the Products within ten (10) Business Days of delivery to Distributor; (B) explicitly accepts the Products in writing; or (C) delivers the Products to any customer.
(i) Distributor may perform such tests it deems necessary to determine if the Products are acceptable. If, upon inspection, Distributor reasonably determines that the Products are defective or otherwise fail to comply with the Specifications, Distributor may reject an entire lot based upon a sampling or inspect all units of the lot. Any such lot may be returned to CHI for one hundred percent (100%) retesting or requalification within five (5) days of delivery at CHI’s cost. After the retesting or requalification by CHI, the lot may be re-inspected by Distributor.
(ii) Distributor’s acceptance of any Products shall in no way be construed as a representation by Distributor that Distributor has completely tested the Products or that such Products comply with their Specifications or conform to any other warranties made by CHI under this Agreement. Distributor’s acceptance of any Product shall in no way negate any warranty provided under this Agreement or affect any other provision of this Agreement. Acceptance is only to be used to determine whether CHI is entitled to receive payment for the Products.
(h) Quarterly Sales Report. Within thirty (30) days following the end of each calendar quarter, Distributor shall provide to CHI a report indicating the number of Stress MTWA Systems and/or MTWA Test Modules and the number of Sensor Test Kits sold during the calendar quarter, including the name and location of the customer to which the system, modules or kits were sold, the shipment and installation dates, the purchase price for the MTWA Test Module and/or Stress MTWA System (including the resale price attributable to the MTWA Test Module) or the Sensor Test Kits, the serial numbers for each of the components included in the MTWA Test Module. All such information shall be treated as Distributor Confidential Information in accordance with the terms of this Agreement. CHI acknowledges that some Products will be sold by Distributor via third-party distributors and that Distributor will not be responsible for the accuracy of information provided to CHI by Distributor under this Section 5(h) based upon reports from such third-party distributors.
(a) Product Documentation. CHI agrees to provide Distributor with such product literature, operations and maintenance manuals, and other information as is reasonably necessary to enable Distributor to properly sell and maintain Products, provided that in no event shall the source code of any software of CHI be required to be disclosed or provided by CHI to
Distributor pursuant to this Section 6(a). CHI shall be responsible for ensuring that all shipments of Product to Distributor include the applicable product literature, warranties, licenses, operations and maintenance manuals, and other documentation for the customer’s use as set forth in the Specifications in the Non-Integrated Development Plan or the Integrated ASM Development Plan, as applicable. CHI hereby grants to Distributor the right to use or reproduce its user documentation for incorporation into Distributor’s documentation (excluding source code as previously mentioned) without charge. Such documentation shall be provided in electronic format. CHI shall be given the opportunity to review and approve Distributor documentation that incorporates CHI documentation prior to publication.
(b) Changes to Documentation. If any change in the Product or change in agency or regulatory requirement requires a change in the documentation, CHI shall promptly notify Distributor of the change and provide a revised copy of such documentation without charge.
7. PRODUCT WARRANTY.
(a) General. CHI warrants solely to Distributor that the Products (including the ASM Software) delivered hereunder (i) shall perform substantially in accordance with the applicable Specifications and all other applicable product specifications as published by CHI in effect at the time of delivery of such Product (including the ASM Software), (ii) shall be free from defects in design, materials and workmanship, when given normal, proper and intended usage thirteen (13) months from the date of in-service of the MTWA Test Module at Distributor’s end-user customer’s site, and (iii) shall not infringe or violate any third party’s Intellectual Property rights. The warranty set forth in clauses (i) and (ii) above shall not apply to disposable items such as a Sensor or Sensor Test Kit after the expiration date marked on the Sensor or Sensor Test Kit packaging. The warranty set forth in clause (iii) above shall not apply to any infringement or violation of any third party’s intellectual property rights by Distributor Products (as defined below), if such infringement or violation would not have occurred in the absence of such combination. CHI shall not have any obligation under this Agreement to make repairs or replacements that are required by normal wear and tear, or which result, in whole or in part, from catastrophe, fault or negligence of Distributor, or anyone claiming through or on behalf of Distributor, or from improper or unauthorized use of the Products, or use of the Products in a manner for which they were not designed, or by causes external to the Products such as, but not limited to, power surges or failure.
(b) Warranty Procedures.
(i) Stress MTWA System Purchasers shall be directed to contact Distributor or its distributors, as the case may be, for initial warranty support.
(ii) Distributor shall notify CHI of any Products that it believes to be defective or nonconforming during the applicable warranty period and that are covered by the warranties set forth in Sections 7(a)(i) or (ii). At CHI’s option, such Products shall be returned by Distributor to CHI’s designated facility for examination and testing, or may be repaired on site by CHI. CHI shall either repair or replace within thirty (30) days of receipt by CHI, any such Product found to be defective and promptly return such Products to Distributor without cost (including shipping and insurance) to Distributor.
Should CHI’s examination and testing not disclose any defect covered by the foregoing warranty, CHI shall so advise Distributor and dispose of or return the Product in accordance with Distributor’s instructions and at Distributor’s sole expense, and Distributor shall reimburse CHI for its reasonable out of pocket shipping and insurance costs without premium or markup.
(iii) Distributor shall notify CHI of any Products that it believes to be covered by the warranty set forth in Section 7(a)(iii). In the event that it is reasonably likely that the Products infringe or violate any third party’s Intellectual Property rights, CHI shall as expeditiously as reasonably practicable and at its sole expense: (i) obtain a license that allows the continued use, manufacture, import, support, sale and distri