PRODUCT SUPPLY AGREEMENT
between
CYGNUS, INC.
and
CONTRACT MANUFACTURING, INC.
PRODUCT SUPPLY AGREEMENT
This Agreement (the "Agreement") is made this 15th day of July 1997
("Effective Date"), by and between Cygnus, Inc., a Delaware
corporation("Cygnus"), and Contract Manufacturing, Inc. ("CMI"), a Michigan
corporation, and is made with reference to the following facts.
RECITALS
A. Cygnus is in the course of developing a product for the
non-invasive measurement of human blood glucose levels known as the
"Glucowatch", and
B. Two components of the Glucowatch are a Glucopad and a biosensor,
and
C. Cygnus desires to market to end users, packaged together, a
Glucopad, physically contained within rails, known as a "corral" and a
biosensor, and
D. CMI is willing to accept, from sources of Cygnus' selection,
supply of Glucopad material (supplied in rolls) and biosensors, and (i)
manufacture finished Glucopads by cutting the Glucopad material and inserting
the material into corrals which CMI would manufacture (ii) combine the pads and
biosensors protected by suitable release liner backings, and (iii) supply the
combination in final consumer protective packaging.
WHEREFORE, the parties do hereby agree as follows:
1. DEFINITIONS
1.1. "CONSUMER PACKAGE UNIT" shall mean a single package which
contains a Glucopad and a biosensor as more particularly
specified in Exhibit 1.
1.2. "GLUCOWATCH" shall mean Cygnus' Reverse Iontophoresis Product
currently under development for the measurement of human blood
glucose values and any modifications, improvements,
evolutions, and for future versions thereof.
1.3. "GLUCOPAD" shall mean laminate material, supplied in rolls cut
into pads and placed within a corral as more particularly
specified in Exhibit 1.
1.4. "MANUFACTURING COST" for a Consumer Package Unit means the
following costs (as determined in accordance with GAAP):
both direct and indirect costs specifically attributable to
the production of such components (excluding , freight
charges, sales taxes and duties). Direct costs are personnel,
supplies, materials purchased by CMI, contracted and outside
services costs specifically attributable to the applicable
materials or activities. Raw Materials are not part of
Manufacturing Cost. Indirect costs are (i) utility,
facility-related and machine maintenance expenses and (ii)
personnel, supplies and material expenses of internal services
from other departments (including general management and
administration), in each case, only to the extent specifically
attributable to the applicable materials or activities.
1.5. "TERM" shall mean the period beginning at the Effective Date
of this Agreement and ending five years after the date of the
first commercial sale of Consumer Package Units anywhere in
the world.
1.6. "RAW MATERIALS" shall mean those components required to build
a Consumer Package Unit as set forth in the bill of materials
specified in Exhibit 1.
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2. PURCHASE AND SALE
2.1. SUPPLY. For the Term hereof CMI agrees to supply Consumer
Package Units to Cygnus as provided in this Agreement.
2.2. PURCHASE PRICE. The purchase price for Consumer Package Units
shall be [CONFIDENTIAL TREATMENT REQUESTED]:
Annualized Production Volume: Maximum
Consumer Package Units/12 Month Period Price/Consumer Package Unit
-------------------------------------- ---------------------------
[CONFIDENTIAL TREATMENT REQUESTED] [CONFIDENTIAL TREATMENT REQUESTED]
2.3. COST REDUCTION. CMI and Cygnus will work to reduce the
cost of Consumer Package Units. Routine reductions in the
Manufacturing Cost due to things such as volume increases or
"learning curve" gains in efficiency will result in lower
pricing according to Section 2.2 above. If CMI, through it's
own effort, reduces the cost of the Consumer Package Units as
a result of a capital improvement to the Equipment (as defined
in Section 7.1 below), which proposal of such improvement
shall be submitted to Cygnus in writing and approved by Cygnus
in writing prior to implementation, the benefits from the cost
reduction effort will be shared equally. In such instance of
capital improvement to the Equipment, CMI's markup will be
increased while the maximum price will be reduced accordingly
in all annualized production volume ranges. All new pricing
resulting from cost reduction efforts shall be amended to this
Agreement.
2.4. MATERIAL WASTAGE. CMI agrees that material wastage shall not
exceed a maximum of [CONFIDENTIAL TREATMENT REQUESTED] for
each item of material at the commencement of supply and shall
not exceed a maximum of [CONFIDENTIAL TREATMENT REQUESTED]
commencing [CONFIDENTIAL TREATMENT REQUESTED] after the
commencement of supply. In the event wastage exceeds the
maxima specified in this Section, Cygnus shall be entitled to
a credit equal to the full cost of any wasted material in
excess of the maxima specified above. Material wastage shall
not include defective material supplied by vendors.
2.5. MANUFACTURING REPORTS. Within fifteen (15) days of the end of
each month, CMI shall provide Cygnus with a report, in an
electronic format compatible to Cygnus' system, indicating for
such month (i) the quantity of Consumer Package Units produced
and shipped, (ii) the Manufacturing Cost of such Consumer
Package Units (including quantity and cost for each component
of such Manufacturing Cost), (iii) the amount of material
wastage for each material, and (iv) such other information as
shall be requested by Cygnus from time to time. CMI and Cygnus
will work together to develop a method to transfer this
information electronically. CMI will use a system that is
compatible with Cygnus' system.
3. CONSUMER PACKAGE UNIT SPECIFICATIONS. Consumer Package Units shall
conform to the specifications set forth in Exhibit 1, as amended from
time to time ("Specifications"). Cygnus may modify the Specifications
in Exhibit 1, from time to time in its sole discretion. It shall give
written notice of any change in the Specifications to CMI, which change
shall become effective within forty-five (45) days of such notice. All
such changes shall be forwarded in writing by Cygnus to CMI to the
attention of the Production Manager and the Quality Assurance Manager.
Provided, however, if CMI in good faith determines that it would be
commercially unreasonable to supply Consumer Package Units meeting any
such changed Specification, it may give written notice of such
inability to supply to Cygnus within fifteen (15) days of the change
notice. Failure to give such notice within this fifteen (15) day period
shall be deemed to be acceptance of the
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Specification change. Upon giving of timely notice of such inability to
supply, CMI shall be relieved of its obligation to accept orders
according to the changed Specification.
4. PURCHASES AND PURCHASE ORDER PROCEDURE
4.1. ORDERS AND FORECASTS. With respect to Consumer Package Units
which Cygnus wishes to purchase from CMI, prior to the first
month in which annualized production volume reaches
[CONFIDENTIAL TREATMENT REQUESTED] Consumer Package Units per
year, Cygnus will order Consumer Package Units on a lot by
lot basis. Cygnus shall deliver to CMI at least two (2) full
months prior to the month in which it wishes to take
delivery, Cygnus' firm order (which firm orders must be in
writing) and requested delivery date ("Delivery Date") for a
lot of Consumer Package Units. Immediately following the
first month in which annualized production volume reaches
[CONFIDENTIAL TREATMENT REQUESTED] Consumer Package Units per
year, Cygnus shall deliver to CMI at least one (1) full month
prior to the month in which it wishes to take delivery,
Cygnus' firm order (which firm orders must be in writing) and
requested delivery dates ("Delivery Dates") for such Consumer
Package Units for the month and a forecast of its quantity
requirements for such Consumer Package Units for the
subsequent eleven (11) months. Thereafter, Cygnus shall
deliver to CMI within five (5) days after the beginning of
each calendar month, Cygnus' firm order and Delivery Dates
for such Consumer Package Units for the next month and a
forecast of its quantity requirements for such Consumer
Package Units for the subsequent eleven (11) months. If a
required forecast or order for a one (1) month period is not
timely submitted for Consumer Package Units, the immediately
preceding forecast for that month shall become the new
forecast or order; if there is no preceding forecast for a
month, the forecast or order for the immediately preceding
month shall become the forecast or order. All forecasts are
non-binding. All firm orders are binding.
4.2. DELIVERY DATE. CMI will provide a firm scheduled delivery
date and an order acknowledgment promptly after receipt of
Cygnus' firm order. CMI will meet each firm scheduled
delivery date, but will not be liable for failure to do so
due to an event of force majeure (as defined in Section 15.11
below) or Cygnus' firm order not being received according to
the provisions of 4.1 above. If an event of force majeure
occurs, CMI may not reduce production or shipment of Consumer
Package Units for Cygnus by any amount exceeding the amount
of reduction caused by the force majeure event. Other than in
the case of an event of force majeure or Cygnus' firm order
not being received according to the provisions of 4.1 above,
CMI shall be solely responsible for any costs associated with
expediting materials in order to meet the scheduled delivery
date for each firm order (including, without limitation,
overtime charges, fees required to expedite materials or
services used in manufacturing and incremental transportation
costs), provided that Cygnus has complied with the terms of
this Agreement in placing such order.
4.3. TITLE AND RISK OF LOSS: PAYMENT. All shipments shall be FOB
Origin, Prepaid and Charged Back. Title and risk of loss shall
remain with CMI until Consumer Package Units have been
delivered to a common carrier for shipment. All of CMI's costs
for transportation, shipping and transportation insurance
expenses shall be invoiced to and paid by Cygnus.
4.4. PAYMENT. Prior to the first month in which the annualized
production volume reaches [CONFIDENTIAL TREATMENT REQUESTED]
Consumer Package Units per year, CMI shall invoice Cygnus for
shipped Consumer Package Units, in accordance with Section 2.
The payment terms for these shipments shall be [CONFIDENTIAL
TREATMENT REQUESTED] upon receipt of CMI's order
acknowledgment and invoice and [CONFIDENTIAL TREATMENT
REQUESTED] within thirty (30) days of receipt of Consumer
Package Units.
Immediately following the first month in which annualized
production volume reaches [CONFIDENTIAL TREATMENT REQUESTED]
Consumer Package Units per year, CMI shall
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invoice Cygnus for shipped Consumer Package Units in
accordance with Section 2 within thirty (30) days of shipment.
Within thirty (30) days of receipt of Consumer Package Units,
Cygnus shall pay CMI's invoice for Consumer Package Units.
4.5. QUARTERLY RECONCILIATION. No later than ten (10) working days
after the end of each of Cygnus' fiscal quarters during the
Term hereof, CMI shall prepare a quarterly reconciliation of
all Manufacturing Costs and Consumer Package Units provided by
CMI to Cygnus. This information will be provided by CMI to
Cygnus in an electronic format that is compatible with Cygnus'
system.
4.6. REIMBURSEMENT OF COST BY CYGNUS. In the event Cygnus has not
provided CMI with any firm orders, as provided in Section
4.1, by [CONFIDENTIAL TREATMENT REQUESTED], Cygnus and CMI
will develop a plan to reimburse CMI for costs incurred in
order to maintain readiness of the manufacturing facility
for a period of time to be determined by Cygnus.
4.7. CONFLICTING TERMS. In ordering and delivering Consumer Package
Units, CMI and Cygnus may use their standard forms, but
nothing in such forms shall be construed to amend or modify
the terms of this Agreement.
5. QUALITY
5.1 QUALITY CONTROL. Prior to each shipment of Consumer Package
Units, CMI shall perform or cause to be performed quality
control procedures that are calculated to verify that the
units to be shipped conform with the Specifications for such
Consumer Package Units as determined under Section 3 hereof.
Each shipment of Consumer Package Units shall be accompanied
by a Quality Assurance Analytical Certificate of Conformance
("Q.A. Certificate of Conformance").
5.2. REJECTION. Cygnus shall have sixty (60) days following the
day on which it receives a shipment to reject same because
all or part of the shipment fails to conform to the
applicable Specifications or otherwise fails to conform to
the warranties given by CMI herein, by giving written
notice to CMI specifying the manner in which all or part of
such shipment fails to meet the foregoing requirements. If
Cygnus timely rejects all or part of a shipment, CMI is
responsible for replacing the defective units at its
expense. CMI will be solely responsible for any
transportation charges pertaining to the return and
reshipping of rejected Consumer Product Units.
5.3. LATENT DEFECTS. It is recognized that it is possible for a
shipment of Consumer Package Units to have defects ("defects"
meaning that such Consumer Package Units fail to conform to
the applicable Specifications or otherwise fail to conform to
the warranties given by CMI herein) which would not be
discoverable upon reasonable physical inspection or testing
(the "Latent Defects"). As soon as either party becomes aware
of a Latent Defect in any lot or batch of Consumer Package
Units, it shall immediately notify the other party and the lot
or batch involved, at Cygnus' election, shall be deemed
rejected as of the date of such notice. CMI shall be
responsible for replacing all defective units involved at its
expense and shall reimburse Cygnus for its costs of accepting
returns from its customers and shall be responsible for all
costs reasonably incurred by Cygnus in recalling the Consumer
Package Units having Latent Defects. At its election, Cygnus
may recover moneys to which it may become entitled under this
Section by deducting same from amounts then due or that may
subsequently become due to CMI from Cygnus hereunder.
5.4. ISO 9002; QUALITY CONTROL SYSTEM. CMI shall obtain IS0 9002
certification of the facility used to manufacture Consumer
Package Units no later than [CONFIDENTIAL TREATMENT
REQUESTED]. CMI shall, at all times during the performance of
its manufacturing and supply
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obligations under this Agreement, manufacture all Consumer
Package Units in compliance with, and maintain a quality
control system that meets the requirements of, ISO 9002 and
all applicable Good Manufacturing Practices which are in force
or hereinafter adopted by the FDA or any successor agency
thereto ("GMP"). CMI shall at all times take such additional
measures as are necessary to maintain a quality control system
designed to identify, correct and prevent quality deficiencies
in the Consumer Package Units. CMI shall establish and
maintain registration as a medical device manufacturer through
the United States Food and Drug Administration.
5.5. SUBCONTRACT MANUAL. In addition to ISO 9002 and GMP compliant
procedures, CMI shall comply with such other quality
requirements as may be set forth from time to time in Cygnus'
Subcontract Manual for the Glucowatch.
5.6. INSPECTION. Cygnus shall have the right to inspect the
manufacturing and testing facilities of CMI from time to time
during normal business hours in order to verify compliance
with this Agreement.
6. MINIMUM QUANTITIES
6.1. MINIMUM. [CONFIDENTIAL TREATMENT REQUESTED]
6.2. REMEDY FOR FAILURE TO PURCHASE. If in any Minimum Year,
Cygnus' firm orders shall require shipment of less than the
Minimum during the Minimum year, CMI shall be entitled to a
termination election ("Elective Termination") as provided
herein. No later than April 15 following the Minimum Year in
which the Minimum was not met, CMI may give written notice of
Elective Termination to Cygnus. CMI's right to give notice of
Elective Termination shall not extend beyond April 15 of any
year in which it shall be entitled to give notice and any
notice given untimely shall be void. Upon the giving of timely
notice of Elective Termination, Cygnus shall be relieved of
any requirements for firm orders under Section 4 hereof and
shall have thirty days after receipt of the notice of Elective
Termination to submit revised firm orders, which shall be
binding on both parties for the period from the date of notice
of Elective Termination through October 1 of that year.
6.3. EXCLUSIVENESS OF REMEDY. The sole remedy for CMI in the event
of a failure to fulfill Minimums in a Minimum Year, shall be
an election to terminate as provided in Section 6.2 above and,
more particularly, CMI shall have no remedy for monetary
damages of any kind, regardless of the cause of Cygnus'
failure to meet Minimums. This Section shall not be construed
to prevent CMI from recovering monetary damages on account of
other breaches of this contract by Cygnus.
7. SUPPLY SPECIFIC EQUIPMENT
7.1. EQUIPMENT. "Equipment" shall mean those items of manufacturing
equipment required to produce Consumer Package Units which
cannot be reasonably accomplished by CMI's general production
equipment.
7.2. INSTALLATION AND MAINTENANCE OF EQUIPMENT. In the event Cygnus
elects to provide such Equipment, it shall acquire the
Equipment or otherwise obtain the Equipment and provide for
shipping to CMI's facilities located at 4550 AIRWEST DR., SE.
SUITE A, GRAND RAPIDS, MI 49512-3950 ("CMI's Premises"). CMI
shall be obligated to bear all costs of tenant improvements,
installation, qualification and acceptance of the Equipment.
Thereafter, CMI shall be obligated to reasonably maintain the
Equipment in accordance with any requirements set forth in the
operating manuals for such Equipment. CMI shall be responsible
for any and all damage to the Equipment, apart from normal
wear and tear.
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7.3. TITLE: UCC FILINGS. Title to any Equipment provided by Cygnus
hereunder shall remain with Cygnus or any party with whom
Cygnus contracts to obtain the Equipment; CMI shall have no
ownership interest in any Supply Specific Equipment or any
replacement parts or components installed in the Equipment.
Cygnus may display notice of its ownership of the Equipment by
affixing to the Equipment an identifying label, or plate or
any other indication of ownership and CMI shall not alter or
remove any such identification. CMI shall cooperate with
Cygnus and shall execute any documents, including UCC filings
or other notices, as Cygnus may determine are advisable to
document Cygnus' or third-party ownership in the Equipment.
CMI shall cooperate with Cygnus to sign any and all security
agreements, financing statements, or otherwise, in order to
effectuate a bailment lien on the Equipment, and to file such
documents at the proper location or locations.
7.4. USE OF THE EQUIPMENT. CMI shall use Equipment provided by
Cygnus solely for production of Consumer Package Units for
Cygnus and for no other use. CMI is responsible for the
operation of the Equipment after its delivery to, and
installation at, CMI's Premises and the use of the Equipment
shall be restricted solely to CMI unless Cygnus instructs
otherwise in writing. CMI will use and operate the Equipment
in a careful manner, will comply with all governmental laws
and regulations related thereto, and will cause the Equipment
to be operated in accordance with the applicable operating
manuals. CMI will not make or authorize any change to the
Equipment without the prior written consent of Cygnus. CMI
shall only permit the Equipment to be operated by competent
and qualified employees and shall ensure that the Equipment is
not subject to careless or rough usage. The Equipment will not
be moved from CMI's Premises without Cygnus' prior written
consent.
7.5. REMOVAL OF EQUIPMENT. At the end of the Term or following any
termination, CMI shall provide Cygnus with reasonable access
to its facilities, as Cygnus requires, to remove all Equipment
from CMI's facilities. Cygnus shall have responsibility for
any damage to CMI's facility arising from the removal of such
Equipment.
7.6. TAXES; PERMITS; FEES. CMI shall secure any and all necessary
governmental or regulatory approvals or permits required by
any law or regulation for the possession or operation of the
Equipment. Cygnus is solely responsible for the payment of any
and all required taxes or governmental fees incurred with
respect to the Equipment during the Term. If any change is
required in the Equipment during the bailment term to bring
the Equipment into compliance with any new law or regulation
applicable to the Equipment, CMI shall be responsible for
implementing and Cygnus shall pay for the change required to
make the Equipment comply with such requirements. CMI shall
secure and pay for any necessary governmental or regulatory
approvals or permits required by any law or regulation for the
operation or maintenance of CMI's Premises. Taxes, Permits and
Fees relating to the operation and maintenance of CMI's
Premises are not to be included in the Manufacturing Cost.
7.7. NO WARRANTY, NO LIABILITY FOR EQUIPMENT. THE PARTIES HERETO
AGREE THAT THE EQUIPMENT IS LOANED WITHOUT ANY EXPRESS OR
IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO IMPLIED
WARRANTIES OF MERCHANTABILITY, NONINFRINGEMENT AND FITNESS FOR
A PARTICULAR PURPOSE. Cygnus shall not be liable for any loss
or damage, including third party losses or claims, claimed to
have resulted from the design, manufacture, testing,
installation, warning, possession, or use of the Equipment
regardless of the form of action, including, but not limited
to, those claims based upon strict liability or negligence.
Cygnus shall not be liable for loss of profit or other
consequential damages resulting from the theft, destruction,
breakdown, or disrepair of the Equipment or for the failure of
the Equipment to operate properly.
7.8. INSURANCE. During the Term, CMI shall maintain casualty, fire,
and theft insurance on the
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Equipment in amounts deemed appropriate by Cygnus. The
proceeds of any such insurance coverage with respect to the
Equipment shall be payable solely to Cygnus. CMI, at its own
expense, shall obtain such additional insurance coverage on
the Equipment or on CMI's Premises as CMI shall require. Upon
Cygnus' request, CMI shall deliver copies of the policies and
loss payable endorsements (in form satisfactory to Cygnus) to
Cygnus.
8. RAW MATERIALS.
8.1. Cygnus will negotiate agreements with suppliers of Cygnus'
choice for supply of Glucopad material (supplied in rolls) and
biosensors ( materials to be used in the manufacture of
Consumer Package Units ). Cygnus will provide CMI with a copy
of the relevant supply agreements ("Master Supply
Agreements"). CMI shall issue its own purchase orders directly
to such suppliers, with a copy to Cygnus, and will reference
the applicable Master Supply Agreements for terms and pricing.
8.2. For any such materials that are purchased to enable CMI to
fill firm orders, Cygnus shall pay CMI at least ten (10) days
prior to the date upon which CMI must pay the supplier for
such materials. If CMI acquires inventory in excess of the
materials needed for firm orders it shall bear sole
responsibility and risk with respect to such inventory,
including without limitation the risk that such inventory
could become obsolete. However, this paragraph shall not apply
to the extent that such excess material obtained by CMI is
pursuant to minimum requirements defined in a Master Supply
Agreement. CMI shall be solely responsible for any
transportation charges pertaining to the return and reshipping
of any rejected materials.
9. WARRANTY; INDEMNITY.
9.1. CMI warrants (i) Consumer Package Units, when shipped to
Cygnus, shall conform to the then in effect Specifications as
determined under Section 3; (ii) Consumer Package Units, when
shipped to Cygnus, shall conform with the information on the
Q. A. Certificate of Conformance sheet provided for the
particular shipment and not contain any Latent Defects or any
other defects in materials or workmanship; (iii) Consumer
Package Units shall have been manufactured, stored and shipped
in conformance with all applicable Good Manufacturing
Practices which are in force or hereinafter adopted by the FDA
or any successor agency thereto; (iv) Consumer Package Units
shall not have been adultered; and (v) title to all Consumer
Package Units shall be free of any security interest or
encumbrance. CMI makes no warranty, expressed or implied, with
respect to material supplied by vendors under the Master
Supply Agreements including the warranty of merchantability.
9.2. CMI agrees to defend Cygnus from, indemnify Cygnus and hold
Cygnus harmless from any claim, demand, action, cause of
action or suit (each a "Claim") related to or arising from any
breach of the warranty set forth in Section 9.1, negligence on
the part of CMI or defect in Consumer Package Units supplied
by CMI. Provided, however as an exception to the foregoing
right to defense and indemnity will be any claim, action or
cause of action arising from a defect in a Consumer Package
Unit, where such Consumer Package Unit, as supplied, was in
full conformance with the warranty set forth in Section 9.1.
CMI also agrees to defend Cygnus from, indemnify Cygnus and
hold Cygnus harmless from any Claim arising out of or
resulting from any injury to any person or damage to any
property caused by the Supply Specific Equipment as a result
of the testing , installation, insufficiency of any warnings
thereon or of CMI's improper use of the Equipment. In the
event Cygnus is served or is otherwise notified of any Claim
under this Section 9.2, it shall notify CMI thereof and tender
its defense to CMI who shall promptly undertake such defense
with counsel mutually acceptable to both parties. Either party
receiving an offer of settlement shall communicate such offer
as soon as reasonably practicable to the other. In the event
Cygnus enters into a settlement, without the prior consent of
CMI, it will be deemed to
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have waived its right under this Section to be indemnified
from any amounts it becomes obligated to pay under the terms
of the settlement agreement.
10. PATENT/INTELLECTUAL PROPERTY INDEMNITY.
10.1. CMI agrees to defend Cygnus from, indemnify Cygnus and hold
Cygnus harmless from any claim, demand, action, cause of
action or suit related to or arising from any claim that the
manufacturing processes used to produce Consumer Package Units
(apart from the materials supplied by Cygnus) supplied by CMI
infringe any patent or intellectual property right held by a
third party. In the event Cygnus is served or is otherwise
notified of any such claim, it shall notify CMI thereof and
tender its defense to CMI who shall promptly undertake such
defense with counsel mutually acceptable to both parties.
Either party receiving an offer of settlement shall
communicate such offer as soon as reasonably practicable to
the other. In the event Cygnus enters into a settlement,
without the prior consent of CMI, it shall be deemed to have
waived its right under this Section to be indemnified from any
amounts it becomes obligated to pay under the terms of such
settlement agreement.
11. SECONDARY FACILITIES.
11.1. The parties agree that Cygnus may establish one or more of its
own facilities ("Secondary Facilities") to produce Consumer
Package Units or components thereof. CMI hereby grants to
Cygnus a fully paid-up, royalty-free, worldwide, perpetual
license under its intellectual property rights in CMI
Technology (as defined below) for the purpose of making,
having made and marketing Consumer Package Units and
components thereof. For the purposes of this Section 11, "CMI
Technology" shall mean any invention (whether or not
patentable), idea, process, formula, know-how and/or software
owned, licensed or controlled by CMI during the term of this
Agreement, that is or will be necessary or useful to Cygnus in
the production of Consumer Package Units or components
thereof.
11.2. To carry out the physical transfer of CMI Technology from CMI
to Cygnus, CMI shall, as requested from time to time by
Cygnus, disclose to Cygnus in tangible form the CMI
Technology. To carry out the transfer of CMI Technology that
cannot be provided in tangible form (for instance, certain
"know-how"), CMI shall, as soon as reasonably practicable
after a request from Cygnus from time to time, disclose such
CMI Technology to employees and contractors of Cygnus through
consultation at Cygnus' Secondary Facilities. In connection
with such technology transfer, Cygnus shall compensate CMI for
time of its employees and for the reasonable direct costs of
travel to the Secondary Facilities, as approved in advance by
Cygnus.
12. INTELLECTUAL PROPERTY OWNERSHIP AND CONFIDENTIALITY.
12.1. OWNERSHIP. As between the parties, each party will be the sole
owner of the intellectual property rights in any invention of
which only its employees and its third party contractors are
inventors and each party will jointly own the intellectual
property rights in all inventions of which both parties'
employees or contractors are joint inventors, except that
intellectual property rights with respect to inventions which
claim or relate in any way to (i) [CONFIDENTIAL TREATMENT
REQUESTED], (ii) [CONFIDENTIAL TREATMENT REQUESTED], (iii)
[CONFIDENTIAL TREATMENT REQUESTED], (iii) [CONFIDENTIAL
TREATMENT REQUESTED], (iv) [CONFIDENTIAL TREATMENT REQUESTED],
will be solely owned by Cygnus. Any assignments necessary to
accomplish the foregoing are hereby made and each party will
execute such further documents as may be reasonably requested
by the other with respect thereto.
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12.2. CONFIDENTIALITY. Each party agrees that all inventions
(whether or not patentable), trade secrets, ideas, processes,
formulas, materials, chemicals, technology, know-how and all
other business, technical and financial information it obtains
from the other are the confidential property of the disclosing
party ("Proprietary Information" of the disclosing party).
Except as expressly allowed in this Agreement, the receiving
party will hold in confidence and not use or disclose any
Proprietary Information of the disclosing party during the
term of this Agreement and for a period of five (5) years
after the end of the Supply Terms of this Agreement, and its
employees shall be similarly bound. The receiving party shall
not be obligated under this Section with respect to any
information the receiving party can document:
a) Is or has become readily publicly
available through no fault of the
receiving party or its employees or
agents; or
b) Is received from a third party lawfully
in possession of such information and
lawfully empowered to disclose such
information and provided the receiving
party abides by all restrictions, if
any, imposed by such third party; or
c) Was rightfully in the possession of the
receiving party prior to its disclosure
by the other party provided the
receiving party abides by all
restrictions, if any, imposed on its
possession of such information; or
d) Was independently developed by
employees or consultants of the
receiving party without use of or
access to Proprietary Information of
the disclosing party; or
e) Is required to be disclosed to a
governmental entity or agency in
connection with seeking any
governmental or regulatory
registration, approval or license, or
pursuant to the lawful requirement or
request of a governmental entity or
agency, provided that reasonable
measures are taken to obtain
confidential treatment thereof and to
guard against further disclosure.
12.3. Nothing in Section 12.1 or 12.2 shall prevent Cygnus from
utilizing in the manufacture by Cygnus itself or with a
third-party of Consumer Package Units or any other product
using Proprietary Information which Cygnus learned, received
or otherwise acquired from CMI.
13. RECORDS AND AUDIT RIGHT. Both parties shall keep complete and accurate
books and records reflecting all information necessary or useful in
verifying the accuracy of any payment made hereunder. Each party shall
have the right to hire an independent certified public accountant to
inspect all such records so required to be kept by the other (which
accountant shall agree in writing to keep all information confidential
except as needed to disclose any discovered discrepancies); provided,
such audit (i) is conducted during normal business hours, (ii) is
conducted no more often than once per year (unless a discrepancy
greater than seven percent (7%) is discovered in favor of the auditing
party), and (iii) is conducted only after the auditing party has given
ten (10) days prior written notice to the audited party. The auditing
party shall bear the full cost and expense of such audit. Regardless of
the amount of discrepancy discovered, all discrepancies (and interest
thereon) shall be immediately due and payable by the party found to
have caused the discrepancy. All books and records relating to either
party's obligations under this Agreement shall be retained by such
party for five years after the Term has expired.
14. TERMINATION
14.1. TERMINATION. This Agreement may be terminated in its entirety
by a party immediately upon the
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occurrence of any of the following events:
14.1.1. If the other ceases to do business, or otherwise
terminates its business operations;
14.1.2. If the other shall fail to promptly secure or renew
any license, registration, permit, authorization or
approval necessary for the conduct of its business in
the manner contemplated by this Agreement, or if any
such license, registration, permit, authorization or
approval is revoked or suspended and not reinstated
within sixty (60) days or if reinstatement is not
possible within sixty (60) days, or if diligent
efforts are not being made to effect such
reinstatement;
14.1.3. If the other materially breaches any material
provision of this Agreement and fails to cure such
breach within sixty (60) days (except immediately in
the case of a breach of Section 12.2) of written
notice describing the breach; or
14.1.4. If the other shall seek protection under any
bankruptcy, receivership, trust deed, creditors
arrangement, composition or comparable proceeding, or
if any such proceeding is instituted against the
other (and not dismissed within one hundred and
twenty (120) days).
14.2. NO LIABILITY FOR TERMINATION. Neither party shall incur any
liability whatsoever for any damage, loss or expenses of any
kind suffered or incurred by the other (or for any
compensation to the other) arising from or incident to any
termination of this Agreement by such party which complies
with the terms of this Agreement, whether or not such party is
aware of any such damage, loss or expenses.
14.3. EFFECT OF TERMINATION. In addition to provisions that by their
terms survive termination, the following provisions shall
survive the termination of this Agreement: Sections 4.4, 7,
8.2, 9, 10, 12, 13 and 15. Remedies for all breaches hereunder
will also survive. Each party will promptly return all
Proprietary Information of the other (and all copies and
abstracts thereof, except that one (I) copy may be retained
and shall be kept in its legal archives for legal record
keeping purposes only) that it is not entitled to under the
surviving terms of this Agreement.
14.4. TERMINATION NOT SOLE REMEDY. Termination is not the sole
remedy under this Agreement and, whether or not termination is
effected, all other remedies will remain available.
15. GENERAL.
15.1. AMENDMENT AND WAIVER. Except as otherwise expressly provided
herein, any provision of this Agreement may be amended and the
observance of any provision of this Agreement may be waived
(either generally or in any particular instance and either
retroactively or prospectively) only with the written consent
of the parties. However, it is the intention of the parties
that this Agreement be controlling over additional or
different terms of any purchase order, confirmation, invoice
or similar document, even if accepted in writing by both
parties, and that waivers and amendments of any provision of
this Agreement shall be effective only if made by
non-pre-printed agreements signed by both parties and clearly
understood by both parties to be an amendment or waiver. The
failure of either party to enforce its rights under this
Agreement at any time for any period shall not be construed as
a waiver of such rights.
15.2. GOVERNING LAW AND LEGAL ACTIONS. This Agreement shall be
governed by and construed under the laws of the State of
California and the United States without regard to conflicts
of laws provisions thereof and without regard to the United
Nations Convention on Contracts for the International Sale of
Goods. The sole jurisdiction and venue for actions related to
the subject matter hereof
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shall be the state and U.S. federal courts located in San
Francisco, California. Both parties consent to the
jurisdiction of such courts and agree that process may be
served in the manner provided herein for giving of notices or
otherwise as allowed U.S. federal law or the laws of
California. In any action or proceeding to enforce rights
under this Agreement, the prevailing party shall be entitled
to recover costs and attorney's fees.
15.3. HEADINGS. Headings and captions are for convenience only and
are not to be used in the interpretation of this Agreement.
15.4. NOTICES. Any notice or other communication required or
permitted to be made or given to either party under this
Agreement shall be deemed sufficiently made or given on the
date of delivery if delivered in person or by overnight
commercial courier service with tracking capabilities with
costs prepaid, or three (3) days after the date of mailing if
sent by certified first class U.S. mail, return receipt
requested and postage prepaid, at the address of the parties
set forth below or such other address as may be given from
time to time under the terms of this notice provision:
If to CMI:
Contract Manufacturing, Inc.
4550 Airwest Dr., SE, Suite A
Grand Rapids, MI 49512-3950
Attention: Jack Sauer
If to Cygnus:
Cygnus, Inc.
400 Penobscot Drive
Redwood City, California 94063
Attention: Director, Materials
15.5. ENTIRE AGREEMENT. This Agreement (and all Exhibits hereto)
constitutes the entire understanding and agreement with
respect to the subject matter hereof and supersedes all
proposals, oral or written, all negotiations, conversations,
or discussions between or among parties relating to the
subject matter of this Agreement and all past dealing or
industry custom.
15.6. SEVERABILITY. If any provision of this Agreement is held to be
illegal or unenforceable, that provision shall be limited or
eliminated to the minimum extent necessary so that this
Agreement shall otherwise remain in full force and effect and
enforceable.
15.7. BASIS OF BARGAIN. Each party recognizes and agrees that the
warranty disclaimers and liability and remedy limitations in
this Agreement are material bargained for bases of this
Agreement and that they have been taken into account and
reflected in determining the consideration to be given by each
party under this Agreement and in the decision by each party
to enter into this Agreement.
15.8. RELATIONSHIP OF PARTIES. The parties hereto expressly
understand and agree that the other is an independent
contractor in the performance of each and every part of this
Agreement and is solely responsible for all of its employees
and agents and its labor costs and expenses arising in
connection therewith.
15.9. ASSIGNMENT. This Agreement and the rights and obligations
hereunder are not transferable or assignable by either party
without the prior written consent of the other party, except
for rights to
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payment and except to a person or entity who acquires all or
substantially all of a party's stock, assets or business to
which this Agreement pertains, whether by sale, merger,
acquisition or otherwise.
15.10. PUBLICITY AND PRESS RELEASES. Except to the extent necessary
under applicable laws or for ordinary marketing purposes, the
parties agree that no press releases or other publicity
relating to the substance of the matters contained herein will
be made without approval by both parties. A press release
announcing this Agreement will be jointly developed and
released by the parties.
15.11. FORCE MAJEURE. No liability or loss of rights hereunder shall
result to either party from delay or failure in performance
caused by an event of force majeure (that is, circumstances
beyond the reasonable control of the party affected thereby,
including, without limitation, acts of God, fire, flood, war,
government action, strikes, lockouts or other serious labor
disputes and vendors inability to supply material due to such
events.) for so long as such event of force majeure continues
in effect.
15.12. REMEDIES. Except as otherwise expressly stated in this
Agreement, the rights and remedies of a party set forth herein
with respect to failure of the other to comply with the terms
of this Agreement (including, without limitation, rights of
full termination of this Agreement) are not exclusive, the
exercise thereof shall not constitute an election of remedies
and the aggrieved party shall in all events be entitled to
seek whatever additional remedies may be available in law or
in equity.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
Effective Date.
CYGNUS, INC. CONTRACT MANUFACTURING, INC.
By: /s/ Gregory B. Lawless By: /s/ Jack Sauer
------------------------------- -------------------------------
Name: G.B. Lawless Name: Jack Sauer
------------------------------ -----------------------------
Title: President & CEO Title: President (CEO/COO)
----------------------------- ------------------------------
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EXHIBIT 1
[CONFIDENTIAL TREATMENT REQUESTED]
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