EXHIBIT 10.16
SUPPLY AGREEMENT
SUPPLY AGREEMENT, dated as of March 21, 2000, by and between JOHNSON &
JOHNSON CONSUMER PRODUCTS COMPANY, a Division of Johnson & Johnson Consumer
Companies, Inc., a company with its principal offices at 199 Grandview Road,
Skillman, New Jersey 08558-9481 and NEUTROGENA CORPORATION, a company with its
principal offices at 5760 West 96th Street, Los Angeles, California 90045
(collectively designated as ("Buyer"), and LECTEC Corporation, a Minnesota
corporation with its principal offices at 10701 Red Circle Drive, Minnetonka,
Minnesota 55343("Seller").
WHEREAS, Seller is in the business of making and selling the Product (as
defined below), and Buyer would like to purchase the Product from Seller
pursuant to the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
As used throughout this Agreement, each of the following terms shall have
the respective meaning set forth below:
1.01 "Product" shall mean a hydrogel patch containing ( * ) for use
in the treatment of acne, as more fully described on Schedule 1.01 to this
Agreement, manufactured and packaged in accordance with the Specifications
(hereinafter defined), along with any
* Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
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Improvements thereto. Reference to Product in this Agreement shall include a
reference to Product A and B, as defined in Schedule 1.02 attached hereto.
1.02 "Specifications" shall mean the specifications for the design,
composition, product safety assurance, manufacture, packaging, and/or quality
control of the Product, as set forth on Schedule 1.02 attached hereto and made a
part hereof, as the same may hereafter be modified by mutual agreement of the
parties in writing.
1.03 "Raw Materials" shall mean the materials, components, and
packaging required to manufacture and package the Product in accordance with the
Specifications.
1.04 "Improvement" shall mean any change, improvement, modification
or development to the Product, the Specifications, the Raw Materials or the
method or process of manufacture or production of the Product.
1.05 "Territory" shall mean worldwide.
1.06 "Supply Year" shall mean each consecutive 365-day period (or
366-day period in the event of a leap year) during the term hereof, commencing
on the date on which Seller first delivers Product to Buyer under this
Agreement.
1.07 "Affiliate" of a party shall mean any entity which directly or
indirectly controls, is controlled by or is under common control with such
entity.
1.08 "First Commercial Sale" shall mean the date on which Buyer
sells the first Product to a third party pursuant to this Agreement.
ARTICLE 2
SUPPLY OF PRODUCT
During the term of this Agreement, Seller shall supply Buyer with
those quantities of Product A and Product B as ordered by Buyer pursuant to this
Agreement, subject to the
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ordering procedures set forth in Article 4 below. Each Product sold
hereunder will conform to the Specifications for such Product. Buyer shall
purchase a minimum purchase quantity of the Products the ("Minimum Purchase
Quantities") in each Supply Year of the term of this Agreement, as specified in
Schedule 2.00 in this Agreement. Purchases of Products, if any, by Buyer during
the four (4) months prior to the date of First Commercial Sale shall be counted
towards these Minimum Purchase Quantities. ( * ) Buyer shall not be considered
as having failed to meet the Minimum Purchase Quantities in the event such
failure is a result of Seller's failure to supply Product, or in the event of a
recall or government initiated action with respect to a Product, or in the event
an infringement claim or suit is lodged with respect to the Product in an
applicable territory.
ARTICLE 3
PRICES FOR PRODUCT
3.01 Transfer Prices. The prices for Product A and B shipped by
Seller during the term of this Agreement shall be as set forth on the price list
that appears as Schedule 3.01 to this Agreement, subject to adjustment only as
expressly provided herein. The prices charged by Seller to Buyer as set forth on
such Schedule, or as may subsequently be determined, are F.C.A. Seller's
manufacturing facility in Minnetonka or Edina, Minnesota and shall exclude all
delivery
* Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
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costs. Buyer shall provide Seller with a list of required carriers and shall pay
the associated product freight charges directly to these carriers.
3.02 ( * )
3.03 ( * )
3.04 Payment Terms. Payment terms on all orders shall be thirty (30)
days net of invoice date.
3.05 ( * )
3.06 ( * )
* Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
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( * )
ARTICLE 4
FORECASTS, ORDERS
4.01 Forecasts. Two months prior to the start of each Supply Year
during the term of this Agreement, Buyer shall provide Seller with a non-binding
written forecast of Buyer's expected requirements for Product during the
following Supply Year, and shall thereafter update such forecast on a rolling
monthly basis.
4.02 Orders. Buyer shall place any binding orders for Product by
written or electronic purchase order (or by any other means agreed to by the
parties) to Seller, which shall be placed at least 90 days prior to the desired
date of delivery. The parties acknowledge that Buyer is not obligated to buy any
specific amount of Product under this Agreement, except for the Minimum Purchase
Quantities and such quantities which Buyer shall actually order through such
binding purchase orders.
4.03 Obligations. Buyer shall at all times be obligated to purchase
the quantity of the Products ordered in such purchase orders. Seller shall be
obligated to supply such Products as ordered by Buyer to the extent the purchase
orders are, collectively, no greater than ( * ) of the
* Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
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monthly forecast provided pursuant to Section 4.01 no less than ninety (90) days
prior to delivery of such purchase order provided, however, that Seller shall
not be deemed to be in breach of this Agreement as long as it supplies at least
( * ) of each particular Product which is ordered by Buyer for each calendar
quarter in accordance with this Agreement. Failure of Seller to deliver at least
( * ) of any Product which is ordered by Buyer for each calendar quarter in
accordance with this Agreement shall be considered an Event of Default pursuant
to this Agreement, the occurrence of which shall entitle Buyer to the remedies
set out in Section 8.03.
4.04. Conflicts. To the extent of any conflict or inconsistency
between this Agreement and any purchase order, purchase order release,
confirmation, acceptance or any similar document, the terms of this Agreement
shall govern. Parties agree that purchase orders shall contain the Year 2000
Compliance provision. The term "Year 2000 Compliant" shall mean the services
will be scheduled and performed in a timely manner without interruptions caused
by the date in time on which the product is ordered or is actually delivered or
the services are scheduled or actually performed under normal procedures in the
ordinary course, whether before, on or after January 1, 2000.
ARTICLE 5
ADDITIONAL UNDERSTANDINGS OF THE PARTIES
5.01 Most Favored Customer. In consideration of the arrangements
provided in this Agreement for the Buyer to purchase Product from Seller, Seller
agrees that Buyer shall be treated with "most favored nation" status in
connection with pricing and allocation of Product, and Seller shall not provide
any other customer (which customer is similarly situated or purchases equivalent
or less volume of products from Seller than Buyer in the aggregate) with
* Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
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preferential or more favorable treatment with respect to pricing or allocation
of Product.
5.02 Other Affiliates. If any other Affiliate of Buyer desires to
purchase the Product from Seller under the terms of this Agreement, then, upon
the execution of a copy of this Agreement by such Affiliate, Seller shall accord
such Affiliate all of the benefits hereof and treat such affiliate as a "Buyer"
for the purposes of this Agreement. Any of Buyer's non-U.S. Affiliates must
order Products in economical run transaction sizes and reimburse Seller for
Quality System Development and regulatory support required on a time and
materials basis. Lead times for such runs are ninety (90) days from vendor ready
artwork. Product is subject to minimum run sizes, and J&J affiliate orders will
be batched together to satisfy minimum run quantities. Each Product will have a
unique packaging specification and part number.
5.03 Exclusive Rights. During the term of this Agreement, provided
that Buyer is purchasing the Minimum Purchase Quantities and is commercializing
the Product, Seller shall supply Buyer, on an exclusive basis, with the Product
for sale in the Territory and neither Seller nor any of its Affiliates shall
market, sell or distribute, or allow the marketing, sale or distribution by any
third party of, the Product (or any improvement or Product line extension or any
other product using the same technology (hereinafter "Technology", i.e., a
hydrogel coated ( * ) within the Territory.
5.04 Right of First Negotiation. During the term of this Agreement,
Seller hereby grants Buyer (and its Affiliates) the right of first negotiation
as to any new acne products, product ideas or inventions making use of the same
Technology (a hydrogel coated ( * ) which are developed, designed or invented by
or on behalf of Seller (collectively, "New Products"). Buyer shall have sixty
(60) days from the time it receives from Seller material information about any
* Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
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New Product to notify Seller in writing if it is interested in discussing terms
for Buyer to purchase, license or otherwise have access to such New Product. If
Buyer so notifies Seller of its interest in any New Product, it shall negotiate
in good faith with Seller with respect to an appropriate agreement to access
such New Product. The Buyer shall have a period of nine (9) months to complete
this agreement ("Negotiation Period"), unless extended by mutual consent. During
this Negotiation Period, in no event shall Seller enter into an agreement with a
third party to sell, assign, license, transfer or otherwise make available such
New Product. If the parties fail to agree on the terms of such an agreement by
the end of the Negotiation Period. Seller shall have the right to enter into an
agreement with a third party with respect to such new Products, provided that
the terms of such agreement are not, in the aggregate, materially more favorable
to such third party than such material terms and conditions which Seller last
offered in good faith to Buyer in connection therewith.
5.05 Equipment. In the event that Buyer has, or will, make available
certain equipment, tools or dies for Seller to use in manufacturing or otherwise
producing Product, reference is made to Appendix 4.00, annexed hereto and made a
part hereof.
5.06 Competing Products. Seller recognizes and acknowledges that
Buyer and its Affiliates have been, and will continue to be, actively involved
in the field in which the Product is sold. Seller acknowledges that Buyer and
its Affiliates market, sell and distribute products which compete directly with
the Product, and may continue to market, sell and distribute these and other
competing products throughout the term of this Agreement.
ARTICLE 6
IMPROVEMENTS AND CHANGES TO THE PRODUCT
6.01 Improvements. From time to time during the term of this
Agreement, either
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party may submit to the other written proposals for the adoption, implementation
or development of any change, improvement or modification to the Product. In no
event shall any such change, improvement or modification (or any change or
modification to the Specifications) be implemented or made without the prior
written approval of the Buyer. If the parties agree on any such change,
improvement or modification, they shall modify the Specifications to reflect the
same and shall revise the price to be charged for the Product, subject to the
terms of Article 3 [and this Article 6]. In the event the Seller is unable to
supply Product that meets any changes to the Specifications proposed by Buyer,
and agreed to by the Seller then Buyer shall have the right to terminate this
Agreement, upon 90 day's prior written notice, without payment of any penalty or
other amount, except for those amounts due and owing to Seller at such time.
Seller further agrees that no significant changes or modifications to the method
or process of manufacture or production of the Product or the Raw Materials
shall be made without prior written notification to and approval of Buyer and
any such change or modification shall be made at Seller's sole cost and expense;
and in no event shall any change or modification be made to the method or
process of manufacture or production of the Product or the Raw Materials, which
change or modification shall have the effect of modifying or changing the
Specifications, without the express written consent of Buyer. In the event of
any change, each Buyer shall establish an appropriate qualification protocol,
and Buyer and Seller shall determine an appropriate inventory level for the
pre-change Product in order to cover on-going requirements during the
qualification process.
6.02 Buyer Initiated. Buyer may at any time suggest Improvements,
which shall be approved by the Seller and implemented by the Seller as soon as
reasonably possible; provided that (a) none of such Improvements give rise to
any claim of infringement of any third party patent or other proprietary right
and (b) it is reasonably feasible for Seller to affect such Improvements without
requiring any capital investment or major process changes on the part of
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Seller. Cost and expenses are to be prepaid by the Buyer. If ( * ).
6.03 Seller Initiated. ( * ).
6.04 Specifications. Seller shall make no changes to the
Specifications or to the Products without the prior written approval of Buyer.
In addition, any changes to the Product, the Specifications or the manufacturing
process which may require the submission of any amendment, filing or other
documentation with any regulatory authority shall be identified, reviewed and
require the approval of Buyer through a document control system. To the extent
reasonably practicable, Buyer shall provide a response to any such proposed
change within five (5) business days after receipt.
ARTICLE 7
TERM
7.01 Initial Term. The initial term of this Agreement (the "Initial
Term") shall commence on the date hereof and remain in effect for a period of
two (2) years from the date of the first purchase order issued by Buyer, unless
sooner terminated as expressly provided under the term of this Agreement.
7.02 Optional Extension. Buyer, at its sole option, may extend this
Agreement for up to two (2) additional one-year terms after the expiration of
the Initial Term by giving Seller at least 90 days' prior written notice for
each such additional term, ( * )
* Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
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( * ).
ARTICLE 8
TERMINATION
8.01 Termination. Notwithstanding anything to the contrary in
Article 7 above, Buyer may terminate this Agreement at any time during the
additional one year terms mentioned in Article 7 or any date thereafter, by
giving Seller 6 months prior written notice thereof. Any of the aforementioned
extensions or terminations (in Article 7 and 8.01) can be for either Product A
or B or both.
8.02 Breach. This Agreement may be terminated for either Product A
or Product B or both, as applicable, prior to the expiration of its term, by
either party by giving written notice of its intent to terminate and stating the
grounds therefor if the other party or parties, as applicable shall materially
breach or materially fail in the observance or performance of any
representation, warranty, guarantee, covenant or obligation under this
Agreement. The party receiving the notice shall have 60 days from the date of
receipt thereof to cure the breach or failure. In the event such breach or
failure is cured, the notice shall be of no effect. In the event the Agreement
is terminated only with respect to one party of the Buyer, all obligations under
this Agreement can be amended and/or revised as mutually agreed upon (including
with respect to Minimum Purchase, pricing, and exclusivity). If the remaining
Buyer and Seller cannot agree on acceptable amendment or revision, the remaining
Buyer or Seller can terminate this agreement without further obligation.
* Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
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8.03 Certain Rights After a Breach. In addition to those rights
which may be available at law or equity, the following additional rights shall
be available upon the occurrence of a breach under this Agreement:
(a) If the breach is caused by Buyer or one of the parties of Buyer and
upon termination of this Agreement by Seller, Buyer or the party of Buyer
affected by the termination shall have one hundred eighty (180) days in
which to sell out its stock of any Products it possesses or has committed
to purchase under this Agreement. (b) If the breach is caused by Seller,
Buyer may, in its discretion, either (A) terminate this Agreement in its
entirety or (B) terminate its purchase obligations and any related
obligations of this Agreement, in which event (1) Buyer shall be entitled
to manufacture or have manufactured the Products under a ( * ), the terms
to which shall be mutually agreed in writing. Buyer shall have all rights
to use the process descriptions and any other relevant data and know-how
in Seller's possession, and (2) Seller shall provide such assistance and
other information as shall be necessary in order for Buyer to manufacture
or have manufactured the Products.
8.04 Insolvency, Etc. This Agreement may be terminated, prior to the
expiration of its term, upon fifteen (15) days written notice by either party:
(i) in the event that the other party hereto shall (1) apply for or consent to
the appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its property,
(2) make a general assignment for the benefit of its creditors, (3) commence a
voluntary case under the United States Bankruptcy Code, as now or hereafter in
effect (the "Bankruptcy Code"), (4) file a petition seeking to take advantage of
any law (the "Bankruptcy Laws") relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or readjustment of debts, (5) fail to
controvert in a timely and appropriate manner, or acquiesce in writing to, any
petition filed
* Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
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against it in any involuntary case under the Bankruptcy Code, or (6) take any
corporate action for the purpose of effecting any of the foregoing; or (ii) if a
proceeding or case shall be commenced against the other party hereto in any
court of competent jurisdiction, seeking (1) its liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of its debts, (2)
the appointment of a trustee, receiver, custodian, liquidator or the like of the
party or of all or any substantial part of its assets, or (3) similar relief
under any Bankruptcy Laws, or an order, judgment or decree approving any of the
foregoing shall be entered and continue unstayed for a period of 60 days; or an
order for relief against the other party hereto shall be entered in an
involuntary case under the Bankruptcy Code.
8.05 Effect of Termination Not withstanding the termination of the
Agreement for any reason, each party hereto shall be entitled to recover any and
all Damages which such party shall have sustained by reason of the breach by the
other party hereto of any of the terms of this Agreement, subject to Section
20.12 with respect to Seller and subject to the same limits with regard to the
Buyer's liability as are applicable to Seller's liability at any point in time
during this Agreement. Termination of this Agreement for any reason shall not
release either party hereto from any liability which at such time has already
accrued or which thereafter accrues from a breach or default prior to such
expiration or termination, nor affect in any way the survival of any other
right, duty or obligation of either party hereto which is expressly stated
elsewhere in this Agreement to survive such termination.
8.06 Upon termination or expiration of the Agreement, Seller shall
have the right to commercialize a product using the same Technology for acne
treatment provided: (i) Seller does not make use of any of the confidential
information provided by Buyer and its Affiliates and (ii) the product attributes
in terms of shape and color shall be "different" from those of Product. In terms
of product attributes, "different" means that ( * )
* Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
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( * )
ARTICLE 9
DELIVERY; INVENTORY.
9.01 Delivery. Charges for transportation to point of delivery are
not included in the transfer price unless otherwise agreed to by the parties.
All shipments must be accompanied by a packing slip which describes the
articles, states the purchase order number and shows the shipment's destination.
Seller agrees to promptly forward the original bill of lading or other shipping
receipt for each shipment in accordance with Buyer's instructions. Seller
further agrees to promptly render, after delivery of goods or performance of
services, correct and complete invoices to Buyer, and to accept payment by check
or at Buyer's discretion, other cash equivalent (including electronic transfer
of funds).
9.02 Title and Risk of Loss. Title and risk of loss for all Product
shall pass to Buyer upon delivery of the Product to Buyer 's designated carrier.
All freight charges and all subsequent storage, handling, insurance and other
charges relating to the Product so sold shall be for the account of Buyer.
9.03 Inventory. Seller will maintain inventory of Products on a
first-in, first-out basis. Seller and Buyer agree to cooperate to improve the
process for ordering Product with the mutual objectives of expediting the supply
process to a just-in-time process and reducing inventory costs.
* Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
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ARTICLE 10
INSPECTION
Seller shall manufacture Products in facilities known and approved
by Buyer. Any subcontracting of the manufacturing of Products or part thereof
shall be subject to the prior written approval of Buyer. Buyer shall have the
right, upon reasonable notice to Seller (not less than three weeks for routine
audits and 48 hours for audits relating to non-compliance, such as, but not
limited to, FDA concerns, consumer complaints, etc.) and during regular business
hours, to inspect and audit the facilities being used by Seller (or any third
party approved by Buyer) for production and storage of the Product to assure
compliance by Seller(and its suppliers) with GMP and applicable FDA and other
rules and regulations and with other provisions of this Agreement to the extent
that any cost review applies to Sections 3.02 and 3.03. Seller shall within
thirty (30) days remedy or cause the remedy of any deficiencies which may be
noted in any such audit or, if any such deficiencies can not reasonably be
remedied within such thirty (30) day period, present to Buyer a written plan to
remedy such deficiencies as soon as possible; and the failure by Seller to
remedy or cause the remedy of any such deficiencies within such thirty (30) day
period or to present such a plan within such thirty (30) day period and then use
its best efforts to remedy or cause the remedy of such deficiencies in
accordance with such written plan, as the case may be, shall be deemed a
material breach of this Agreement. Seller acknowledges that the provisions of
this Article 10 granting Buyer certain audit rights shall in no way relieve
Seller of any of its obligations under this Agreement, nor shall such provisions
require Buyer to conduct any such audits.
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ARTICLE 11
QUALITY/DEFECTIVE PRODUCT/INSPECTIONS/TESTING
11.01 Product Warranty. Seller warrants to Buyer that the Product
sold to Buyer hereunder shall (a) comply in all respects with the Specifications
therefor and b) be manufactured in accordance with all applicable laws,
ordinances and regulations relating to the manufacture and supply of the Product
being supplied hereunder, including without limitation, those enforced by the
United States Food and Drug Administration (including compliance with good
manufacturing practices) and International Standards Organization Rules 9,000 et
seq.
11.02 Disposition of Defective Product. Within thirty (30) days of
receipt by Buyer of any shipment of Product hereunder (or if later, within
thirty (30) days after discovery of any latent defect by Buyer), Buyer shall
inspect such Product and shall notify Seller of any Product that does not comply
with the warranty set forth in Section 11.01. At Seller's option, Buyer shall
ship the defective Product to Seller, or shall dispose of such Product in
accordance with Seller's instructions. Seller shall reimburse the shipping or
disposition costs incurred by Buyer. Seller shall replace at its own cost and
expense Product that fails to comply with the warranty set forth in Section
11.01 or shall refund the amounts paid by Buyer for such Product, at Seller's
option. Such replacement or refund constitutes Buyer's sole remedy, and Seller's
sole obligation with respect to such defective Product. Seller shall have a
reasonable opportunity, not to exceed fourteen (14) days from receipt of
notification from Buyer to inspect such defective Product and provide Buyer with
detailed written instructions to return or dispose of such defective Product.
Buyer shall have no obligation to pay for any Product that does not comply with
the warranty set
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forth in Section 11.01. If Seller fails to so inspect and instruct Buyer as to
the disposition of such defective Product, Buyer may dispose of such defective
Product as it sees fit and Seller shall promptly (1) reimburse Buyer for all
direct, out-of-pocket costs incurred by Buyer in such disposition (not to exceed
$100,000 without Sellers agreement), and (2) replace such defective Product at
its own cost and expense. If the cost exceeds $100,000, Seller remains
responsible to take back the defective Product.
11.03 Independent Testing. If, after Seller's inspections of such
Product, the parties disagree as to the Product's conformance to the warranty,
either party may deliver the Product to an independent third-party laboratory,
mutually and reasonably acceptable to both parties, for analytical testing to
confirm the Product's conformance to the warranty. All costs associated with
such third-party testing shall be at Buyer's expense unless the tested Product
is deemed by such third-party to be defective or not in compliance with the
Specifications, in which case all such costs, including reimbursement of freight
and disposition costs, shall be promptly paid by Seller. No inspection or
testing of or payment for Product by Buyer or any third-party agent of Buyer
shall constitute acceptance by Buyer thereof, nor shall any such inspection or
testing be in lieu or substitution of any obligation of Seller for testing,
inspection and quality control as provided in the Specifications or under
applicable local, state, or federal laws, rules, regulations, standards, codes
or statutes.
11.04 Corrective Action. In the event any governmental agency having
jurisdiction shall request or order, or if Buyer shall determine to undertake,
any corrective action with respect to any Product (or any finished product
containing or contained in any Product), including any recall, corrective action
or market action, and the cause or basis of such recall or action is
attributable to a breach by Seller of any of its warranties, guarantees,
representations, obligations or covenants contained herein, then Seller shall be
liable, and shall reimburse Buyer for the
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reasonable costs of such action including the cost of any Product (or any
finished product containing or contained in any Product) which is affected
thereby whether or not such particular Product shall be established to be in
breach of any warranty by Seller hereunder. Notwithstanding the foregoing,
Seller's liability hereunder shall be limited to the replacement of product,
credit for purchased product, or out of pocket expenses limited to $100,000.
11.05 DISCLAIMER. SELLER MAKES NO WARRANTIES EXCEPT FOR THOSE
EXPRESSLY SET FORTH IN SECTION 11.01 AND 17.01. ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, ARE HEREBY DISCLAIMED AND EXCLUDED BY SELLER, INCLUDING WITHOUT
LIMITATION ANY WARRNATY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE.
11.06 Quality System and Regulatory Affairs Control System
Maintenance: Buyer will be charged a fee for any services required which are not
part of product processing activities. Seller will identify the fees for this
service and Buyer will agree in writing to the fee for service.
ARTICLE 12
FAILURE TO SUPPLY; FORCE MAJEURE
12.01 Failure to Supply. In the event that Seller shall be unable or
unwilling or shall fail to supply any Product in such quantities as Buyer shall
request and in compliance with the delivery periods set forth in Section 4.02,
and has failed to cure such failure within sixty (60) days of written notice
from Buyer, then Buyer may and shall be permitted (with no obligation or
liability to Seller) to obtain such Product from another supplier pursuant to
( * ). Such inability, unwillingness or failure shall be deemed a material
breach of this Agreement.
* Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
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12.02 Force Majeure Events. If either party is prevented from
performing any of its obligations hereunder due to any cause which is beyond the
non-performing party's reasonable control, including fire, explosion, flood, or
other acts of God; acts, regulations, or laws of any government; war or civil
commotion; strike, lock-out or labor disturbances; or failure of public
utilities or common carriers (a "Force Majeure Event"), such non-performing
party shall not be liable for breach of this Agreement with respect to such
non-performance to the extent any such non-performance is due to a Force Majeure
Event. Such non-performance will be excused for three months or as long as such
event shall be continuing (whichever occurs sooner), provided that the
non-performing party gives immediate written notice to the other party of the
Force Majeure Event. Such non-performing party shall exercise all reasonable
efforts to eliminate the Force Majeure Event and to resume performance of its
affected obligations as soon as practicable.
12.03 Other Arrangements. Notwithstanding the provisions of Section
12.02, in the event that due to the occurrence of a Force Majeure Event, Seller
shall be unable to supply any Product in such quantities as Buyer shall request
and in compliance with the delivery periods set forth in Section 4.02 and in the
event such Force Majeure Event continues for at least sixty (60) days, then
Buyer shall be permitted (with no obligation or liability to Seller) to obtain
such Product from another supplier and/or to manufacture Products itself under
( * ). In the event Buyer shall so obtain Product from another Supplier pursuant
to this Section 12.03 or Section 12.01, then Buyer shall thereafter have no
obligation to purchase Products from Seller until any contractual obligations
that Buyer has assumed in connection with obtaining a substitute supply of
Products shall have terminated. Buyer shall have no obligation
* Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
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to affirmatively terminate any such contractual arrangements. In ( * ).
ARTICLE 13
INSURANCE
Seller agrees to procure and maintain in full force and effect
during the term of this Agreement valid and collectible insurance policies in
connection with its activities as contemplated hereby which policies shall
provide for appropriate insurance in a reasonable amount of coverage. Upon
Buyer's request, Seller shall provide to Buyer a certificate of coverage or
other written evidence reasonably satisfactory to Buyer of such insurance
coverage.
ARTICLE 14
LABELING; ARTWORK; PROPRIETARY RIGHTS
14.01 Packaging. Buyer shall have the right to determine the
appearance and text of any labeling and packaging used in connection with the
Product or any finished product containing or contained in the Product.
14.02 Intellectual Property. Seller acknowledges that Buyer is the
exclusive owner of and has all rights and owns and will own all goodwill
relating to the trademarks, tradedress, copyrights, slogans, artwork and all
other intellectual property that appear on or are otherwise used in connection
with the sale and use of the Product within the Territory.
* Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
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ARTICLE 15
CONFIDENTIALITY
As used herein, "Confidential Information" shall include all
confidential or proprietary information given to one party by the other party,
or otherwise acquired by such party in its performance of this Agreement,
relating to such other party or any of its Affiliates, including information
regarding any of the products of such other party or any of its Affiliates,
information regarding its advertising, distribution, marketing or strategic
plans or information regarding its costs, productivity, manufacturing processes
or technological advances. Neither party shall use or disclose to third parties
any Confidential Information of the other (except to comply with its obligations
under this Agreement) and each party shall insure that its and its Affiliates'
employees, officers, representatives and agents shall not use or disclose to
third parties any Confidential Information and upon the termination of this
Agreement shall return to the other or destroy all Confidential Information in
written form. Confidential Information shall not include information that (i)
was already known to receiving party at the time of its receipt thereof or is
independently developed by receiving party, as evidenced by its written records,
(ii) is disclosed to receiving party after its receipt thereof by a third party
who, receiving party in good faith believes, has a right to make such disclosure
without violating any obligation of confidentiality or (iii) is or becomes part
of the public domain through no fault of receiving party.
ARTICLE 16
PUBLIC ANNOUNCEMENTS
16.01 Publicity. The parties hereto covenant and agree that, except
as provided for herein below, each will not from and after the date hereof make,
issue or release any public announcement, press release, statement or
acknowledgment of the existence of, or reveal
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publicly the terms, conditions and status of, the transactions contemplated
herein, without the prior written consent of the other party as to the content
and time of release of and the media in which such statement or announcement is
to be made; provided, however, that in the case of announcements, statements,
acknowledgments or revelations which either party is required by law to make,
issue or release, the making, issuing or releasing of any such announcement,
statement, acknowledgment or revelation by the party so required to do so by law
shall not constitute a breach of this Agreement if such party shall have given,
to the extent reasonably possible, at least seven (7) business days prior notice
to the other party, and shall have attempted, to the extent reasonably possible,
to clear such announcement, statement, acknowledgment or revelation with the
other party. Seller shall not use the name of Buyer or any of its Affiliates for
advertising or promotional purposes without the prior written consent of Buyer.
In furtherance of the foregoing, Seller shall not originate any publicity or
other announcement, written or oral, whether to the public, the press, the
trade, Buyer's or Seller's customers or otherwise, relating to this Agreement or
the existence of an arrangement between the parties, without the prior written
approval of Buyer, except as expressly provided in this Section 16.01.
ARTICLE 17
REPRESENTATIONS AND WARRANTIES
17.01 Execution and Performance of Agreement. Seller and Buyer each
represents to the other that it has full right, power and authority to enter
into and perform its obligations under this Agreement. Seller further represents
and warrants to Buyer that the performance of Buyer's obligations under this
Agreement will not result in a violation or breach of any patent or other
intellectual property right of Seller or third party, and will not conflict with
or constitute a default under any agreement, contract, commitment or obligation
to which Seller or any of its
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Affiliates is a party or by which it is bound.
ARTICLE 18
COMPLIANCE
18.01 Compliance with Certain Laws & Policies. Seller agrees to
comply with the applicable provisions of any Federal or state law and all
executive orders, rules and regulations issued thereunder, whether now or
hereafter in force, including Executive Order 11246, as amended, Chapter 60 of
Title 41 of the Code of Federal Regulations, as amended, prohibiting
discrimination against any employee or applicant for employment because of race,
color, religion, sex or national origin; Section 60-741.1 of Chapter 60 of 41
Code of Federal Regulations, as amended, prohibiting discrimination against any
employee or applicant for employment because of physical or mental handicap;
Section 60.250.4 of Chapter 60 of 41 Code of Federal Regulations, as amended,
providing for the employment of disabled veterans and veterans of the Vietnam
era; Chapter 1 of Title 48 of the Code of Federal Regulations, as Amended,
Federal Acquisition Regulations; Sections 6, 7 and 12 of the Fair Labor
Standards Act, as amended, and the regulations and orders of the United States
Department of Labor promulgated in connection therewith; and any provisions,
representations or agreements required thereby to be included in this Agreement
are hereby incorporated by reference. If any Product is ordered by Buyer under
U.S. government contracts, Seller agrees that all applicable federal statutes
and regulations applying to Buyer as a contractor are accepted and binding upon
Seller insofar as Seller may be deemed a subcontractor. Seller shall comply with
the J&J Child Labor Policies, as applicable, copy of which Seller declares to
have received.
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ARTICLE 19
INDEMNIFICATION
19.01 Indemnification by Seller. Seller shall indemnify and hold
harmless Buyer (and its Affiliates) from and against any and all damages,
liabilities, claims, costs, charges, judgments and expenses (including
reasonable attorneys' fees) (collectively "Damages") that may be sustained,
suffered or incurred by Buyer (or its Affiliates), resulting from a third party
claim arising directly from or by reason of the breach by Seller of any
warranty, representation, covenant or agreement made by Seller in this Agreement
or any third party claim that any Product purchased from Seller hereunder or the
use or sale thereof infringes any patent of any third party; provided that
Seller shall not be liable for any product liability or personal injury claims
by third parties arising from the sale, distribution or use of any Product which
meets the Specifications and is not otherwise defective.
19.02 Indemnification by Buyer. Buyer shall indemnify and hold
harmless Seller (and its Affiliates) from and against any and all Damages, that
may be sustained, suffered or incurred by Seller (or its Affiliates) arising
directly from or by reason of the breach by Buyer of any warranty,
representation, covenant or agreement made by Buyer in this Agreement.
19.03 Claims. Each indemnified party agrees to give the indemnifying
party prompt written notice of any matter upon which such indemnified party
intends to base a claim for indemnification (an "Indemnity Claim") under this
Article 19. The indemnifying party shall have the right to participate jointly
with the indemnified party in the indemnified party's defense, settlement or
other disposition of any Indemnity Claim. With respect to any Indemnity Claim
relating solely to the payment of money damages and which could not result in
the indemnified party's becoming subject to injunctive or other equitable relief
or otherwise adversely affect the business of the indemnified party in any
manner, and as to which the indemnifying party shall
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have acknowledged in writing the obligation to indemnify the indemnified party
hereunder, the indemnifying party shall have the sole right to defend, settle or
otherwise dispose of such Indemnity Claim, on such terms as the indemnifying
party, in its sole discretion, shall deem appropriate; provided that the
indemnifying party shall provide reasonable evidence of its ability to pay any
damages claimed and with respect to any such settlement shall obtain the written
release of the indemnified party from the Indemnity Claim. The indemnifying
party shall obtain the written consent of the indemnified party prior to ceasing
to defend, settling or otherwise disposing of any Indemnity Claim if as a result
thereof the indemnified party would become subject to injunctive or other
equitable relief or the business of the indemnified party would be adversely
affected in any manner.
ARTICLE 20
MISCELLANEOUS
Controversies and differences between the parties arising directly
or indirectly from this Agreement or any transaction contemplated hereby or
thereby or in connection herewith or therewith shall be resolved by arbitration.
Arbitration shall be held before three arbitrators in New York, New York
pursuant to the Commercial Arbitration Rules then obtaining of the American
Arbitration Association, which arbitration shall be binding on all parties and
shall constitute the final resolution of such dispute. No party shall commence
any action against another to resolve any such dispute in any court except to
confirm such an arbitrators' award. Judgment upon any such award rendered may be
entered by any court having jurisdiction thereof. The arbitrators (i) shall not
have any power or authority to add to, alter, amend or modify the terms of this
Agreement; (ii) shall interpret and construe this Agreement in accordance with,
and shall be bound by, the laws of the State of New York (except that this
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Section shall be governed by the Federal Arbitration Act); (iii) shall have no
power or authority to grant or award punitive damages; (iv) shall establish and
enforce appropriate rules to ensure that the proceedings, including the
decision, be kept confidential and that all Confidential Information of the
parties be kept confidential and be used for no purpose other than the
arbitration and (v) shall have the power to enforce specifically this Agreement
and the terms and conditions hereof in addition to any other remedies at law or
in equity. The parties shall be deemed to have waived any rights to punitive
damages. (The parties consent to the exclusive jurisdiction of the Federal and
State courts located in the State of New York for the resolution of any dispute
or controversies between the parties hereto which are not subject to the
arbitration provisions of this Section.)
20.02. Relationship of the Parties. The relationship of Buyer and
Seller established by this Agreement is that of independent contractors, and
nothing contained herein shall be construed to (i) give either party any right
or authority to create or assume any obligation of any kind on behalf of the
other or (ii) constitute the parties as partners, joint venturers, co-owners or
otherwise as participants in a joint or common undertaking.
20.03 Entire Agreement. It is the mutual desire and intent of the
parties to provide certainty as to their respective future rights and remedies
against each other by defining the extent of their mutual undertakings as
provided herein. The parties have, in this Agreement, incorporated all
representations, warranties, covenants, commitments and understandings on which
they have relied in entering into this Agreement, and, except as provided for
herein, neither party makes any covenant or other commitment to the other
concerning its future action. Accordingly, this Agreement (i) constitutes the
entire agreement and understanding between the parties with respect to the
subject matter hereof and there are no promises, representations, conditions,
provisions or terms related thereto other than those set forth in this Agreement
and
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(ii) supersedes all previous understandings, agreements and representations
between the parties, written or oral. No modification, change or amendment to
this Agreement shall be effective unless in writing signed by each of the
parties hereto.
20.04 Headings. The Article and Section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning and interpretation of this Agreement.
20.05 Notices. All notices and other communications hereunder shall
be in writing. All notices hereunder of an Indemnity Claim, a Force Majeure
Event, default or breach hereunder, or, if applicable, termination or renewal of
the term hereof, or any other notice of any event or development material to
this Agreement taken as a whole, shall be delivered personally, or sent by
national overnight delivery service or postage pre-paid registered or certified
U.S. mail, and shall be deemed given: when delivered, if by personal delivery or
overnight delivery service; or if so sent by U.S. mail, three business days
after deposit in the mail, and shall be addressed:
If to Seller: President
LecTec Corporation
10701 Red Circle Drive
Minnetonka, MN 55343
If to Buyer: President
Johnson & Johnson Consumer Products Company
199 Grandview Road
Skillman, New Jersey 08558-9418
President
Neutrogena Corporation
5760 West 96th Street
Los Angeles, California 90045
With a copy to: Johnson & Johnson
Office of General Counsel
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One Johnson & Johnson Plaza
New Brunswick, NJ 08933
or to such other place as either party may designate by written notice to the
other in accordance with the terms hereof.
20.06 Failure to Exercise. The failure of either party to enforce at
any time for any period any provision hereof shall not be construed to be a
waiver of such provision or of the right of such party thereafter to enforce
each such provision, nor shall any single or partial exercise of any right or
remedy hereunder preclude any other or further exercise thereof or the exercise
of any other right or remedy. Except as expressly provided herein, remedies
provided herein are cumulative and not exclusive of any remedies provided at
law.
20.07 Assignment. This Agreement may not be assigned by either party
without the prior written consent of the other, except that either party may
assign its rights and/or obligations hereunder to any of its Affiliates or to a
successor to its business. Subject to the foregoing sentence, this Agreement
shall bind and inure to the benefit of the parties hereto and their respective
successors and assigns. If as a result of such assignment by Seller, there is an
increase in the cost to Buyer with regard to the supply, transport, sale,
distribution or any other activity of Buyer under this Agreement, such increase
in cost shall be for the account of Seller.
20.08 Severability. In the event that any one or more of the
provisions (or any part thereof) contained in this Agreement or in any other
instrument referred to herein, shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, then to the maximum extent permitted by
law, such invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement or any other such instrument. Any term or provision
of this Agreement which is invalid, illegal or unenforceable in any jurisdiction
shall, to the extent the
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economic benefits conferred by this Agreement to both parties remain
substantially unimpaired, not affect the validity, legality or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction.
20.09 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20.10 Expenses. Each party shall pay all of its own fees and
expenses (including all legal, accounting and other advisory fees) incurred in
connection with the negotiation and execution of this Agreement and the
arrangements contemplated hereby.
20.11 Survival. Sections 8.05, 20.01 20.11 and 20.12and Articles 14,
15, 16 and 19 shall survive the termination of this Agreement in accordance with
the respective terms thereof.
20.12 LIMITATION ON LIABILITY. IN NO EVENT SHALLTHE SELLER BE LIABLE
TO BUYER UNDER THIS AGREEMENT FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL LOSS OR DAMAGES. UNLESS CAUSED BY INTENTIONAL MISCONDUCT OR GROSS
NEGLIGENCE, IN NO EVENT SHALL SELLER'S LIABILITY HEREUNDER EXCEED THE LIMITS OF
THE SELLER'S LIABILITY INSURANCE POLICIES, WHICH POLICIES SHALL MAINTAIN
COVERAGE AMOUNTS OF AT LEAST $1,000,000.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective representatives as of the day and
year first above written.
LECTEC CORPORATION
By: /s/ Rodney A. Young Date 3/20/00
------------------------------- ---------------------
Name: Rodney A. Young
Title: Chairman, CEO, and President
JOHNSON & JOHNSON CONSUMER PRODUCTS COMPANY,
a Division of Johnson & Johnson Consumer Companies, Inc.
By: /s/ Sharon D'Agostino Date 4/5/00
------------------------------- ---------------------
Name: Sharon D'Agostino
Title: President Adult Skin Care
NEUTROGENA CORPORATION
By: /s/ Manuel Scates Date 4/4/00
------------------------------- ---------------------
Name: Manuel Scates
Title: Director, Contract Site Management
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SCHEDULE 1.01
PRODUCT
The patches are composed of a hydrogel on a ( * ) that is worn on a pimple
overnight. The hydrogel contains a water-based adhesive and the active
ingredient ( * ), along with excipient ingredients. The hydrogel composition is
covered under the following patents:
US Patent Number 5,536,263
Canadian Patent Numbers 1,206,095 and 2,133,598
European Patents 0,072,251 and PCT Number 0674,913A2
Mexican Patent Number 187,839
Australian Patent Number 676,623
* Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
<PAGE>
Schedule 2.00
MINIMUM PURCHASE QUANTITIES
Minimum Purchase Quantities for each contract year shall be as follows:
( * )
( * )
* Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
<PAGE>
Schedule 3.01
INITIAL TRANSFER PRICES
Pricing for Product A: Clean and Clear Bulk Packed Product
----------------------------------------------------------
Minimum Order Size ( * )
Price per pouch: ( * )
Pricing for Product B: Neutrogena Product Pure Buy
--------------------------------------------------
Minimum Order size ( * )
Price per pouch: ( * )
This pricing assumes LecTec inspection and AQL levels are accepted.
Orders of smaller quantities are subject to a set up charges of ( * ) per run.
The smallest run size is ( * ) pouches.
Different languages ( * ) plate charge and ( * ) charge for printer set up for
the foil. Minimum Run of ( * ) pouches and ( * ) set up charge.
* Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
