EXHIBIT 10.13
MANUFACTURING AGREEMENT
AGREEMENT, made as of this 26th day of September, 1996, between MIT
DEVELOPMENT CORPORATION, a corporation organized and existing under the laws of
the State of Delaware, United States of America ("MIT"), and CHRONIMED, INC., a
corporation with a principal place of business at 13911 Ridgedale Drive, Suite
250, Minnetonka, Minnesota 55305 ("CHRONIMED").
WHEREAS, CHRONIMED desires MIT to manufacture these certain blood
glucose meters known as the CHRONIMED Supreme II System (including subsequent
revisions of the Supreme II System) subject to the terms and conditions set
forth herein; and
WHEREAS, MIT is in the business of manufacturing certain blood glucose
meters; and
NOW THEREFORE, in consideration of the foregoing premises and the
mutual covenants set forth below, the parties hereto agree as follows:
SECTIONS 1: DEFINITIONS
When used in this Agreement, the following terms will have the respective
meanings stated below:
1.1 "Product(s)" means the CHRONIMED Supreme II System (including
subsequent revisions of the Supreme II System) designed to read certain
strips and determine blood glucose levels, to be manufactured by MIT or
its subcontractors in accordance with the design developed by MIT and
CHRONIMED.
1.2 "Dollar or $" means U.S. dollars, unless specifically indicated
otherwise.
1.3 "Specifications" are attached as Amendment II
SECTION II: MANUFACTURE SALE AND DESIGN
2.1 CHRONIMED hereby retains MIT as its exclusive manufacturer of the
Product during the Term of this agreement. During the term of this
Agreement and subject to the terms and conditions hereof, MIT agrees to
manufacture and sell to CHRONIMED and CHRONIMED agrees to purchase from
MIT, such Products as CHRONIMED may order pursuant to this Agreement.
2.2 MIT shall manufacture all Products in a good and workmanlike manner in
accordance with the Specifications, and consistent with all applicable
guidelines, laws, ordinances, rules, and regulations including, without
limitation, those relating to Good Manufacturing Practices by the
United States Food and Drug Administration (FDA). CHRONIMED shall have
the full right to review MIT compliance with such applicable
guidelines, laws, ordinances, rules, and regulations.
<PAGE>
2.3 MIT shall maintain records in accordance with the applicable
guidelines, laws, rules, and regulations of the FDA relative to the
manufacture, storage, and shipping of the Product, and any batch
processing of the Products or Product components for a period of not
less than two (2) years after the date of manufacture of the applicable
Product or component
2.4 MIT shall not implement any change in the Products, components
therefor, processes for producing Products or components, or design
thereof without the prior written consent of CHRONIMED. In the case of
immaterial changes or the substitution of components with equivalent or
better performance, CHRONIMED's consent shall not be unreasonably
withheld or delayed. In all other cases, CHRONIMED can withhold its
consent in its sole discretion. To implement this Section, MIT shall
inform CHRONIMED in writing of any change it desires to make involving
the Product. CHRONIMED accept or reject such change and shall notify
MIT of its decision within thirty (30) days of receipt of such
notification. Failure to so inform MIT within forty-five (45) days of
request shall constitute a default approval on behalf of CHRONIMED.
2.5 MIT shall be responsible for procuring, purchasing, and inventorying
all such raw material, components, and spare parts and for inventorying
Products produced therefrom, provided however that MIT shall not be
held responsible for shortages of components from MIT vendors
occasioned by circumstances beyond MIT control.
2.6 The design of the Product is a derivative of a design by MIT of several
commercially available blood glucose meters not exclusive to CHRONIMED
but proprietary to MIT. The algorithms as they relate to the look up of
CHRONIMED standard curves are exclusive to CHRONIMED and owned by
CHRONIMED. The case design as embodied in the Supreme II System
(including subsequent revisions of the Supreme II System) and as
detailed in the case drawings is owned by CHRONIMED. The tools owned by
CHRONIMED are on the attached Appendix I. CHRONIMED shall be entitled
to obtain the tools that it owns upon CHRONIMED's written request. In
the event that the tools are not delivered to CHRONIMED within thirty
(30) days of such request, CHRONIMED shall have the right to withhold
royalties as described in Section 11.2, unless both parties agree that
best efforts have been made to secure the tools and have been
unsuccessful, or if both parties mutually agree that the related wear
of the tools make the retrieval of such, financially unnecessary. The
algorithms, the case design and any other aspects of the Supreme II
System which are proprietary to CHRONIMED, as well as CHRONIMED's
tooling, shall not be provided to or disclosed to any third party or
used on behalf of any third party without the consent of CHRONIMED.
SECTION III: PURCHASE PRICE
3.1 The purchase price for the first XXXXXX (XXX) Products will be built
with OTP versions of the microprocessor and the purchase price will be
XXX and XX/100 Dollars ($XXX) each. The next XXXXXX (XXX) Units
purchased will have the purchase price of XXX and XX/100 ($XXX)
provided that for these XXXXXX (XXX) units CHRONIMED orders at least
XXXXXX (XXX) units per month.
<PAGE>
3.2 Provided that CHRONIMED gives orders sufficient to maintain an average
monthly volume of at least XXXXX (XXX) Units per month, any units after
the initial purchase of the aforementioned (Section 3.1) XXXXXX (XXX)
units will be purchased at XXX and XX/100 Dollars ($XXX). If the Unit
Volume is less than the XXXXXX (XXX) Units per month, then MIT and
CHRONIMED will negotiate a price for applicable units above XXXXXXX
(XXX) units based upon the estimated unit volume of the product to be
manufactured. If the annual volume (using the calendar year) exceeds
XXXXXX (XXX) Units per year, MIT and CHRONIMED will negotiate a new
price reflecting a larger discount based upon the higher volume for
future production forecasts and schedules.
3.3 In the event MIT and CHRONIMED are unable to reach an agreement in
connection with any revised pricing, then the parties agree to be bound
by arbitration as set forth in Section Twenty Two (XXII) of this
agreement.
3.4 Notwithstanding the above, however, prices may be increased or
decreased on a semi annual basis, based upon MIT or its subcontractors
substantiated documentation of actual increase or decrease in
materials, labor and overhead costs at the end of any given six months
(6) period over the prices of the previous six months (6) period,
provided, however, that in no event shall prices increase more than ten
percent (10%) during any 12-month period. The parties will commence
discussions for any such pricing increase or decrease within the thirty
(30) day period preceding the end of the appropriate period.
SECTION IV: DELIVERY
4.1 MIT will deliver Products to a carrier on CHRONIMED's behalf, F.O.B.
XXXXX, within thirty (30) days after the end of the month forecasted in
CHRONIMED's relevant forecast set forth in Section VII. MIT will give
CHRONIMED not less than twenty-four (24) hours prior notice of the date
of each delivery of Products hereunder. MIT will also use its best
commercially reasonable efforts to make weekly, or biweekly or monthly
shipments of Products as requested by CHRONIMED.
4.2 MIT will, if requested by CHRONIMED, procure insurance on all shipments
of Product to CHRONIMED and may, at its option, bill CHRONIMED
separately or add the insurance to CHRONIMED's invoice. CHRONIMED shall
pay all charges for shipping, freight, tariff, import duties, and
delivery in the manner set forth in Section 6.1 a.
SECTION V: OUALITY ASSURANCE
5.1 MIT shall deliver to CHRONIMED, with each shipment of the Product,
written certification that it has tested such shipment for Product
compliance with Specifications and that each unit included in such
shipment complies with such Specifications. CHRONIMED shall have thirty
(30) calendar days from the date of receipt of each shipment of the
Product to confirm conformity with the design and operating
specifications. Any notice of rejection of any shipment of the Product
or portion thereof must by given in writing and received by MIT within
said thirty (30) day period or such shipment will be deemed to have
been accepted.
5.3 In the event that any Product supplied is determined by or on behalf of
CHRONIMED to fail to conform to the design per specifications in
Amendment II, or to be in breach of the
<PAGE>
warranty of Section 8.1, MIT agrees to provide CHRONIMED, at its
discretion, with the following options to resolve the breach of
warranty: non-payment for portion of shipment determined to be
non-conforming, a credit on the next invoice for such defective
Product, or to replace an equal amount of Product in the next shipment.
5.4 CHRONIMED agrees to comply with the disposition of Product as described
in Section 5.3 at the advise and expense of MIT.
SECTION VI: PAYMENT
6.1 The purchase price referred to herein shall be due and payable in U.S.
dollars to MIT within thirty (30) days after receipt of the Product
shipment at CHRONIMED's Eden Prairie, MN distribution center. All
amounts due past the due date shall carry interest at the rate of one
percent (1%) per month. Failure to pay amounts due within ninety (90)
days after the first due date shall constitute a material breach of
this Agreement. In the event CHRONIMED fails to make any payment in
accordance with this agreement, then CHRONIMED shall be responsible for
all collections costs, including reasonable attorney fees.
SECTION VII: FORECASTS AND PRODUCTION TERMINATION
7.1 CHRONIMED shall provide MIT monthly with a rolling six (6) month pro
forma forecast of its expected orders of Product for purposes of XXX
inventory control. It is understood, and agreed to by CHRONIMED that
subsequent monthly forecasts may change previously stated six (6) month
forecasts. The aforementioned six month pro forma forecasts shall
constitute a firm purchase order. All pro forma forecasts will be
formalized sixty (60) days prior to execution date of the purchase
order.
7.2 CHRONIMED reserves the right to cancel or stop production for any
reason during the term of this Agreement provided CHRONIMED shall be
responsible for the actual cost of all inventory, including components
and sub-assemblies, fully assembled units, and for parts on order that
cannot be terminated, unless the reason for termination of the
Agreement is a result of the incoming quality control (IQC) production
quality level (not field returns) being received by CHRONIMED. The IQC
production quality control is a measure of the quality of received new
product from MIT.
SECTION VIII: WARRANTY
8.1 MIT warrants that all Products will strictly conform to the design
specifications, be free of defects, be in compliance with all
applicable legal requirements and approvals, and be in good operating
condition for a period of fifteen (15) months from the date of product
receipt at CHRONIMED's distribution facility, and that CHRONIMED will
receive good title thereto, free of all liens and encumbrances of any
kind. This warranty will survive any delivery, acceptance, inspection
or payment by CHRONIMED.
MIT will replace defective Products or credit CHRONIMED for units which
are defective and returned within the warranty period. In addition, MIT
warrants that the facility and processes and other aspects of the
manufacture of the Products now meet FDA's Good Manufacturing Practices
(GMP) and will continue to fulfill FDA's GMP throughout the
<PAGE>
term of this Agreement.
SUPPLIER HEREBY DISCLAIMS ANY OTHER WARRANTIES. EXPRESS OR IMPLIED,
WITH RESPECT TO THE QUALITY OF PRODUCT, INCLUDING WARRANTIES AS TO ITS
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. XXX SHALL NOT BE
RESPONSIBLE FOR ANY CONSEQUENTIAL DAMAGES IN CONNECTION WITH THE USE OF
THE PRODUCTS.
SECTION IX: RISK OF LOSS
9.1 CHRONIMED will bear the risk of damage or deterioration loss of
Products from the time Products are properly delivered by MIT into the
possession of a carrier on CHRONIMED's behalf, F.O.B. Taiwan.
SECTION X: TERM AND EFFECTIVE DATE
10.1 This agreement is effective as of the date first above written and
shall apply only to Products manufactured and shipped to CHRONIMED
after its effective date. Unless earlier terminated in accordance with
Section VII or XI, this Agreement will continue in effect for a term of
three (3) years from the date hereof, and will automatically renew
annually, unless notification of termination is provided by either side
not less than forty-five (45) days before this Agreement would
otherwise expire. In the event CHRONIMED terminates production in
accordance with Section VII hereof, MIT's rights as exclusive
manufacturer shall continue for the balance of the three (3) year term
should CHRONIMED desire to purchase or have manufactured additional
products.
SECTION XI: BREACH
11.1 Either party may terminate this agreement upon written notice to the
other party if such other party fails to cure a material breach hereof
within thirty (30) days after written notice thereof. or if said breach
cannot be reasonably cured within thirty (30) days in which event the
defaulting party shall have commenced to cure within such thirty (30)
day period and shall diligently pursue such cure thereafter, the
defaulting party shall have such additional time as me be reasonably
required to cure such default. If CHRONIMED terminates this Agreement
pursuant to this Section, CHRONIMED will be entitled to cancel all
other orders for Products outstanding as of the date of termination
upon notice to MIT provided, however, CHRONIMED shall be responsible
for the actual cost for all inventory, components and sub-assemblies,
fully assembled units, components and for parts on order that cannot be
terminated unless MIT has materially breached this Agreement by
providing CHRONIMED with Product that does not meet IQC production
quality level, and fails to correct or resolve production performance
issues in an appropriate period of time as agreed upon by both parties.
11.2 In the event of a termination of this Agreement, CHRONIMED may at its
option, manufacture or have manufactured by a third party, the Supreme
II product or a derivative thereof. In such event, CHRONIMED agrees to
pay MIT a royalty of XXX Dollars ($XXX) per unit for the first XXX
years after termination, and then XXX dollars ($XXX) in the XXX year,
XXX dollars ($XXX) in the XXX year, XXX dollars ($XXX) in the XXX year,
XXX dollars ($XXX) in the XXX year and XXX dollars ($XXX) per unit
royalty thereafter.
<PAGE>
Under the conditions expressed in Section 2.6, MIT will transfer all
tool and assembly techniques to CHRONIMED.
SECTION XII: SUPPORT
12.1 MIT will provide CHRONIMED with two (2) Calibrations Stations free of
charge. These Calibrations Stations will consist of a test platform and
conditioning electronics. CHRONIMED must supply the personal computers
to operate the calibrators. MIT will also supply calibration equipment
as described above to large customers of CHRONIMED when agreed upon
between MIT and CHRONIMED.
SECTION XIII: SURVIVAL OF OBLIGATIONS
13.1 The expiration or earlier termination of this agreement will not
operate to release either party hereto from any liability which has
already accrued to the other party as of the date of expiration or
termination or which may thereafter accrue in respect of an act or
omission occurring prior to expiration or termination.
SECTION XIV: INDEMNIFICATION
14.1 CHRONIMED agrees to indemnify, defend and hold harmless MIT, its
successors, assigns, subcontractors, agents, employees, stockholders,
officers, directors, affiliates and subsidiary corporations
(collectively the "Indemnified Parties") from and against any and all
claims, costs, demands, liabilities, judgments, losses, damages
(including consequential damages) and expenses of whatever nature,
whether brought against MIT, CHRONIMED or both, including reasonable
attorney's fees arising out of CHRONIMED's sale, use manufacture,
assembly, use or application of the Product, except in the event of
litigation against CHRONIMED concerning the Product, then MIT will
provide to CHRONIMED expert witness testimony, documentation and such
support, as may be reasonably within MIT's control.
Without limiting the foregoing, CHRONIMED's indemnity shall include any
types of actions brought, whether against MIT or CHRONIMED, including
any product liability claims, patent or similar type infringement
claims or for violation of any Federal, State or local law, statute or
regulation, including those yet to be enacted, relative to the Supreme
II product or a derivative thereof.
14.2 MIT agrees to indemnify, defend and hold harmless CHRONIMED, its
successors, subcontractors, agents, employees, officers and directors,
from and against any and all claims, costs, demands, liabilities,
losses, damages (including consequential damages) and expenses of
whatever nature, including reasonable attorney's fees {collectively
"Losses") arising out of or due to latent defects of the Product which
MIT knowingly manufactured for financial gain, or other reasons.
SECTION XV: FORCE MAJEURE
15.1 No party hereto will be liable to any other party for any failure or
delay of performance or other consequence which is due to any act of
God, act of government, war, civil disturbance or other cause beyond
such party's reasonable control and power to remedy, or any strike or
labor dispute or disruption of transportation, whether or not such
party is capable of resolving the problem by the payment of money.
<PAGE>
SECTION XVI: NON-WAIVER
16.1 The waiver, express or implied, by either party of any right hereunder,
will not constitute a waiver of any other right.
SECTION XVII: AMENDMENT
17.1 No amendment of this agreement will be effective unless reduced to a
writing executed by the duly authorized representatives of both parties
hereto.
SECTION XVIIL ASSIGNMENT
18.1 The rights and liabilities of the parties shall bind and inure to the
benefit of their respective successors and assigns provided, however,
MIT may not assign its rights or delegate its obligations hereunder
without the prior consent of CHRONIMED (which consent shall not be
unreasonably withheld) and any such purported assignment or delegation,
in the absence of such consent, will be void and without effect.
CHRONIMED agrees, however, that the assembly or manufacture of the
Product may be performed by subcontractors of MIT provided that any
such subcontractors must meet all GMP standards, and design
specifications as set forth in Amendment II.
SECTION IXX: SEVERABILITY
19.1 Any provision of this agreement which is finally determined by a
competent court or governmental agency to be prohibited or
unenforceable in any jurisdiction will, as to such provision and
jurisdiction only, be deemed severed to the extent of such prohibition
and unenforceability and, subject to such severance, this agreement
will continue in effect in accordance with its other terms and
conditions.
SECTION XX: NOTICES
20.1 Any notice or other communications required or permitted hereunder
shall be sufficiently given if delivered in person or sent by facsimile
transmission or telex (promptly confirmed by registered or certified
mail as provided herein) or by registered or certified mail, postage
prepaid, addressed as follows:
If to CHRONIMED:
---------------
13911 Ridgedale Drive
Suite 250
Minnetonka, Minnesota 55305
Attention: Medical Products Division - Sr. Vice President
Fax No.: (612) 541-4969
If to MIT:
---------
MIT Development Corporation
131 Danbury Road
Wilton, Connecticut 06897
<PAGE>
Attention: President Fax No.: (203)846-4003
or such address as shall be furnished in writing by any such
party, and such notice or communication shall be deemed to
have been given as of the date so delivered, sent by facsimile
transmission or telex and shall be deemed to have been given
on the date so mailed.
SECTION XXI: GOVERNING LAW
21.1 The validity, construction and performance of this agreement will be
governed by and interpreted in accordance with the laws of the State of
Connecticut, United States of America (excluding its law of conflict of
laws).
SECTION XXII: ARBITRATION
22.1 Any controversy or claim arising out of or relating to this agreement
or any claimed breach thereof shall be settled by arbitration in
accordance with the rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrators may be entered by
any court having jurisdiction thereof. The arbitration proceedings
shall take place in the State of Connecticut, United States of America.
SECTION XXIII: RELATIONSHIP OF PARTIES
23.1 MIT is an independent contractor and has and shall have no power to
bind CHRONIMED or to assume or create any obligation or responsibility,
express or implied, on behalf of CHRONIMED or in its name. Nothing
herein contained shall be construed as constituting, either party the
agent, partner or co-venturer of the other party.
SECTION XXIV: ENTIRE AGREEMENT
24.1 This agreement and its Exhibits incorporates all prior oral and written
communications between the parties with respect to the subject matter
hereof and, as such, supersedes all such prior oral and written
communications concerning, and constitutes the sole and exclusive
understanding between the parties with respect to, the subject matter
hereof, except to the extent that the First Manufacturing Agreement
applies to Products shipped before the effective date hereof.
IN WITNESS WHEREOF, CHRONIMED and MIT have caused this agreement to be
executed by their duly authorized representatives as of the date first
above written.
MIT Development Corporation CHRONIMED INC.
By By
Its Its
Date Date
