EXHIBIT 10.2
SUPPLY AGREEMENT
SUPPLY AGREEMENT, dated as of November 3, 2000, between CARRINGTON
LABORATORIES, INC., a Texas corporation ("Carrington"), and MEDLINE
INDUSTRIES, INC., an Illinois corporation ("Medline").
WHEREAS, Medline and Carrington have today entered into a
Distributor and License Agreement (the "Distributor and License Agreement"),
pursuant to which Medline has become an exclusive distributor of
Carrington's dermal management products and Carrington has licensed certain
of its trademarks to Medline effective December 1, 2000;
WHEREAS, Medline desires that Carrington manufacture or contract
for the manufacture of Medline brand dermal management products upon the
terms and subject to the conditions set forth in this Agreement and
Carrington is willing to do so; and
WHEREAS, Medline desires that certain dermal management products
presently sold under the Medline brand be also sold under the Carrington
brand, and Carrington is willing to license certain Carrington trademarks
for such purpose.
NOW, THEREFORE, the parties hereto agree as follows:
1. Agreement to Supply.
1.1. Manufacture and Supply of Medline Products. Subject to
Carrington being able to supply at a delivered price less than or equal to
Medline's current cost of the dermal management products listed (together
with Medline's current cost including any delivery or insurance charges) on
Exhibit A (the "Medline Products"), Carrington's acceptance of purchase
orders pursuant to Section 2.2 and the conditions set forth in Section 1.2,
Carrington agrees to supply, and Medline agrees to purchase from Carrington,
the majority of Medline Products (after exhaustion of such inventories as
may exist at the time Carrington takes over responsibility for any Medline
Product), the specifications for or samples of which have previously been
delivered to Carrington, which Carrington is willing and able to supply at
such prices. The provisions of this Section 1 shall apply to any dermal
management products Medline may have manufactured for it in the future,
which shall thereupon become Medline Products for the purpose of this
Agreement. Carrington may either manufacture or outsource the Medline
Products.
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1.2. Validation of Medline Products. In the case of
outsourced Medline Products, Carrington will obtain a manufacturer (subject
to Medline's approval, which shall not be unreasonably delayed or withheld),
inspect its facilities and, subject to Medline's agreement, provide all
necessary or required quality control and quality assurance. With respect
to each Medline Product, the obligations of Carrington to supply and Medline
to purchase shall take effect only when Carrington has, to Medline's
satisfaction, demonstrated its ability to supply the Medline Product,
validated its manufacturing process or obtained suppliers of outsourced
Medline Products, as the case may be, and obtained any necessary regulatory
approvals, and Medline has verified the acceptability to its customers of
each Medline Product manufactured or outsourced by Carrington. Given the
lack of complete formulae for many or all of the Medline Products,
Carrington acknowledges the partially subjective and customer driven nature
of the validation process. With respect to those Medline Products that it
manufactures, Carrington will compile a complete formula, specifications for
raw materials and a process handbook (together, the "Process") which, after
validation, will provide an objective test of quality. The parties will
cooperate in developing an appropriate transition plan.
1.3. Changes in Medline Products. Carrington will not change
the Process for any Medline Products it manufactures without prior
notification to and the approval of Medline, which may require revalidation
of the Medline Product in the event of such change. Carrington will impose
similar restrictions on manufacturers of outsourced Medline Products.
1.4. Prices and Terms. (a) All Medline Products manufactured
by Carrington will be sold by Carrington to Medline and purchased by Medline
from Carrington at the unit prices listed on Exhibit A. Exhibit A will be
amended from time to time as additional Medline Products are added. Prices
are firm for two years, then are subject to re-negotiation. Except where
the current supplier does not include freight and insurance in its price,
all prices include freight and insurance to a Medline distribution center,
provided, that Carrington will bill Medline, and Medline will pay Carrington
for, freight and insurance if Medline's order requests shipments of Medline
Products with a value of less than $5,000 to any address.
(b) If Carrington can save Medline money over the
prices Medline now pays to its manufacturers of the Medline Products, the
parties will share the savings. This concept shall work in practice as
follows: All Medline Products supplied by but not manufactured by
Carrington will be sold by Carrington and purchased by Medline at a price
equal to the sum of (i) the actual cost of manufacturing and packaging each
outsourced Medline Product paid to the supplier thereof, and (ii) one-half
of the amount, if any, by which such cost is less than the amount currently
paid by Medline, as set forth on Exhibit A . In addition, Medline will pay
shipping and insurance costs if not included in the amount billed to
Carrington by the manufacturer.
(c) Medline will pay Carrington for all Medline
Products not later than 30 days after date of invoice.
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2. Forecasts and Orders.
2.1. Forecasts. Promptly after the execution of this
Agreement, Carrington and Medline will meet to establish forecasting and
order procedures so as to give Carrington sufficient advance notice of
Medline's requirements to allow it to satisfy such requirements and Medline
the flexibility it needs in obtaining Medline Products. Carrington and
Medline will also establish how long in advance of desired delivery dates
Medline must give Carrington purchase orders to allow Carrington to obtain
supplies and manufacture the Medline Products, the parties anticipating that
purchase orders will normally be given three to five months in advance of
desired delivery dates.
2.2. Purchase Orders. Subject to the foregoing provisions of
this Section 2, Medline will from time to time submit definitive purchase
orders to Carrington setting forth the quantities of each Medline Product to
be supplied, desired delivery dates and shipping instructions. Carrington
will promptly accept such purchase orders or reject the purchase order by
informing Medline that it cannot in whole or in part fill a purchase order.
Carrington's rejection of a purchase order shall not be a breach of this
Agreement but Medline shall have the right to obtain any quantity of any
Medline Product that Carrington cannot supply from another source. Any
accepted purchase order shall be a binding obligation of Carrington to
supply and Medline to purchase the Medline Products ordered on the dates
specified in such purchase order.
2.3. Late Deliveries. Delivery of Medline Products within 15
days of the date specified on the purchase order therefor shall be deemed
timely. Delivery more than 15 days after the date specified, or
cancellation of an order or portion thereof less than four months before the
delivery date, shall subject Carrington to liquidated damages, in lieu of
any other damages available at law or equity, of 30 percent of the normal
invoice prices for the Medline Products delivered late, unless Carrington
gives Medline at least four months advance notice that it will not be able
to make timely delivery, in which case Medline, at its election, may cancel
the purchase order and obtain the Medline Products elsewhere or revise the
purchase order to reflect the date Carrington is willing to commit to
delivering the Medline Products on.
3. Acceptance of Medline Products. All shipments of Medline
Products shall be subject to acceptance by Medline. Any Medline Products
manufactured by Carrington that conform to a Process that correctly reflects
the validation procedures set forth above shall be deemed acceptable. All
outsourced Medline Products shall be subject to acceptance or rejection by
Medline in its reasonable discretion. Medline can at any time request
changes to any Medline Product to reflect customer preferences or regulatory
requirements and any such request shall, after resolution of any applicable
regulatory requirements and agreement on appropriate pricing changes to
reflect any increased cost of manufacture and revalidation, require
Carrington to validate the modified Medline Product in accordance with the
procedures outlined in Section 1.2.
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4. Carrington Warranties.
(a) Carrington warrants that, at the time of shipment
by Carrington, all Medline Products manufactured by Carrington sold and
delivered pursuant to this Agreement will conform to the Process therefor
and the "look and feel" and quality of the Medline Product validated
pursuant to Section 1.2.
(b) Carrington warrants that all Medline Products
manufactured by Carrington and sold and shipped to Medline pursuant to this
Agreement will, at the time of such shipment, not be adulterated or
misbranded within the meaning of any applicable federal, state or municipal
law, as such laws are constituted and effective at the time of shipment and
that no such Product or Medline Product will be an article which may not be
introduced into interstate commerce under the provisions of any applicable
federal, state or municipal law.
(c) Carrington further warrants that, at the time of
shipment, all Medline Products manufactured by Carrington and sold and
shipped to Medline pursuant to this Agreement will be in compliance with all
applicable governmental regulations and will have been manufactured in
accordance with applicable current good manufacturing practices ("cGMP")
regulations as set forth in 21 CFR 210, as then in effect, in a facility
that is ISO 9000 certified.
(d) All outsourced Medline Products shall be subject
only to the warranty of the manufacturer thereof , but Carrington shall
obtain warranties from such manufacturers no less extensive than those
contained herein and either (i) provide in the contracts or purchase orders
with such manufacturers that Medline is a third party beneficiary of such
warranties or (ii) in case of a warranty claim, either assign its warranty
rights to Medline or enforce such warranties on Medline's behalf at
Medline's expense.. No other warranty is given by Carrington with respect to
outsourced Medline Products.
(e) THE WARRANTIES SET FORTH IN THIS SECTION 4 OR
OTHERWISE EXPLICITLY SET FORTH IN THIS AGREEMENT ARE EXPRESSLY IN LIEU OF,
AND CARRINGTON EXPRESSLY DISCLAIMS AND NEGATES, ALL OTHER WARRANTIES,
EXPRESSED OR IMPLIED, ARISING BY OPERATION OF LAW OR OTHERWISE, INCLUDING
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
5. Indemnification.
5.1. By Carrington. Carrington agrees to indemnify and hold
harmless Medline and its employees, officers, directors, stockholders,
successors and assigns from and against any and all losses, damages, costs
and expenses, including reasonable legal fees and expenses incident thereto,
arising from any suit, claim or demand of any third party relating to any
design or manufacturing defect in any Medline Product manufactured by
Carrington (other than the design of any Medline Product as to which Medline
has provided Carrington with written specifications or samples to which the
Medline Product supplied by Carrington complies) or a failure of Carrington
to properly control the quality of any outsourced Medline Product for which
Carrington has assumed responsibility for quality control.
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5.2. By Medline. Medline agrees to indemnify and hold
harmless Carrington and its employees, officers, directors, stockholders,
successors and assigns from and against any and all losses, damages, costs
and expenses, including reasonable legal fees and expenses incident thereto,
arising from any suit, claim or demand of any third party relating to (a)
any design defect in any Medline Product manufactured by Carrington as to
which Medline has provided Carrington with written specifications or samples
to which the Medline Product supplied by Carrington complies, (b) any design
defect in any Medline Product not manufactured by Carrington, (c) any
manufacturing defect in a Medline Product not manufactured by Carrington,
(d) any statement on any labeling of or literature for any Medline Product
that is false or violates any law or regulation of the United States or any
agency, state or locality thereof, and (e) any infringement by any Medline
Product, any labeling, packaging or product literature for any Medline
Product or any labeling, packaging or literature for any Carrington Product
not furnished or approved by Carrington of any patent, trademark,
copyright, design or other intellectual property right of any third party
(other than the use of any Trademark (as such term is defined in Section 6)
on any Medline Product pursuant to the terms of the Distributor and License
Agreement.
6. Use of Carrington Trademarks. As more fully set forth in the
Distributor and License Agreement, Carrington has licensed the use of
certain Carrington Trademarks (the "Trademarks") to Medline for use in the
manufacture, marketing, advertisement, promotion and distribution of any of
the Medline Products which Carrington and Medline agree are appropriately to
be sold under the Trademarks and such additional dermal management products
as Carrington and Medline may from time to time agree to. Such license is
subject to the terms and conditions set forth in the Distributor and License
Agreement and shall terminate upon the termination of the Distributor and
License Agreement.
7. Term. The term of this Agreement (the "Term") shall commence
on the date hereof and shall continue until November 30, 2005.
8. Termination.
8.1. Termination for Cause. This Agreement may be terminated
on 30 days' written notification under any one of the below conditions:
(a) By either Carrington or Medline, if the other party
attempts to assign this Agreement without its prior
written consent;
(b) By Carrington, if Medline discontinues its dermal
management product business;
(c) By either Medline or Carrington, if the other party
files for or is petitioned into bankruptcy, insolvency,
liquidation or dissolution of assets;
(d) By either Medline or Carrington, if the other party
fails generally to pay its debts and obligations in
accordance with their terms;
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(e) By Carrington, if Medline fails to make timely
payment of any Carrington invoice (other than amounts
disputed in good faith) and such failure continues for
10 days after notice thereof;
(f) By either Medline or Carrington, if the other party
materially breaches any term or condition of this
Agreement (other than payment of invoices) and such
breach is not corrected within 45 days of notification
of such breach by the other party; and
(g) By either Medline or Carrington if the other party
fails to materially perform its obligations hereunder
for any reason set forth in Section 11 and such failure
continues for 180 days or more.
8.2. Termination Without Cause. This Agreement may be
terminated by Carrington without cause upon one year's written notice to
Medline, either in its entirety or with respect only to those Medline
Products listed in the notice of termination.
9. Confidentiality. The Confidential Disclosure Agreement,
dated December 24, 1997 (the "Confidentiality Agreement"), between
Carrington and Medline, shall continue in effect during the Term and may not
be terminated except by an instrument executed by both Carrington and
Medline, notwithstanding anything set forth in the Confidentiality Agreement
to the contrary.
10. No Agency. It is expressly agreed and acknowledged by the
parties hereto that Medline is an independent contractor selling entirely
for its own account. Medline is solely responsible for all of its expenses
and costs, including costs of invoicing, collection and credit, and
delivery. Nothing contained herein shall be construed to create a
partnership, joint venture or the relationship of employer and employee or
principal and agent of any kind on behalf of Carrington, or grant Medline
authority to bind Carrington in any respect whatsoever. Medline shall be
responsible for any representation it makes with respect to the Products
that are not set forth in Carrington's own Product literature.
11. Force Majeure. Neither Carrington nor Medline shall be
liable for any failure to perform hereunder (other than payment of invoices
and royalties when due) due, in whole or in part, to any contingency or
cause beyond its reasonable control, including without limitation fire,
explosion, earthquake, storm, flood, drought, or other adverse weather
conditions, accident, crop failure, breakdown of machinery, transportation
or handling difficulties, strike, lockout, or other labor difficulties (from
whatever cause arising, and whether or not the demands of employees are
reasonable or within its power to grant), war, insurrection, riot, act of
God or the public enemy, any law, act, order, proclamation, decree,
regulation, ordinance, instruction, or request of any governmental or other
public authority, any order, judgement or decree of any court, delay or
failure of carriers or contractors, labor shortage, or inability to obtain
transportation equipment, raw materials, fuel, power, plant equipment or
materials required for maintenance or repairs.
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12. No Waiver. The failure by either Carrington or Medline to
enforce, at any time, any of the provisions of this Agreement, or to
exercise any option which is herein provided, or to require at any time
performance of any of the provisions herein, shall in no way be construed to
be a waiver of such provisions, nor in any way to affect the validity of
this Agreement or any part thereof, or the right of Carrington or Medline,
as the case may be, to thereafter enforce each and every such provision.
13. Notices. All notices hereunder shall be in writing and shall
be sent by (a) telecopier with confirmation of receipt, (b) prepaid
overnight delivery through a nationally recognized courier service, or (c)
prepaid certified or registered mail, return receipt requested:
If to Carrington, to:
Carrington Laboratories, Inc.
2001 Walnut Hill Lane
Irving, Texas 75038
Attention: President
If to Medline, to:
Medline Industries, Inc.
One Medline Place
Mundelein, Illinois 60060-4486
Attention: President
14. Miscellaneous. This Agreement, together with the exhibits
hereto and the Distributor and License Agreement, constitutes the entire
agreement and understanding between the parties hereto and supersedes all
prior agreements and understandings relating to the subject matter hereof,
except for the Confidentiality Agreement. This Agreement is not assignable
by either party without the prior written consent of the other party hereto
and any attempted assignment not so consented shall be void and of no legal
effect. This Agreement is binding upon and inures to the benefit of the
parties hereto and their respective successors and permitted assigns. This
Agreement may not be amended, nor may the provisions of this agreement be
waived, except by a written instrument signed by both parties, and no
modification of this Agreement or waiver of the terms or conditions thereof
shall be effected by the acknowledgment or acceptance of any purchase order,
shipping or other forms containing other or different terms or conditions.
This Agreement may be executed in several counterparts, each of which is an
original but all of which together shall constitute one instrument. This
Agreement shall be construed in accordance with and governed by the laws of
the State of Illinois without giving effect to its choice of law rules.
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IN WITNESS WHEREOF, the parties hereto have caused this Medline
Agreement to be executed by their duly authorized representatives.
CARRINGTON LABORATORIES, INC.
By: /s/ Carlton E. Turner
-------------------------
Title:President & CEO
MEDLINE INDUSTRIES, INC.
By: /s/ Andy Mills
------------------
Title:President
Exhibit A - Medline Products and Prices
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EXHIBIT A
CARRINGTON/MEDLINE
SUPPLY AGREEMENT
EXHIBIT A
This Exhibit has been excluded pursuant to a request for confidential
treatment submitted by the registrant to the Securities and Exchange
Commission and has been filed separately with the Securities and Exchange
Commission.
