EXHIBIT 12
STRATEGIC ALLIANCE AGREEMENT
This Strategic Alliance Agreement is entered into as of DECEMBER 1st, 1994
between The MedTech Group, Inc. a New Jersey corporation whose principal offices
are at 6 Century Road, South Plainfield, NJ 07080-1396 ("MedTech") and MedChem
Products, Inc., a Massachusetts corporation whose principal offices are at 232
West Cummings Park, Woburn, MA 01801 ("MedChem").
BACKGROUND
On July 29, 1994, MedChem acquired substantially all of the assets of Life
Medical Sciences, Inc. ("LMS") relating to LMS' Sure-Closure mechanical skin-
stretching system. From July 1, 1993 until July 29, 1994, LMS had an oral
arrangement with MedTech whereby MedTech using its technical manufacturing
expertise in the manufacture of complete disposable medical devices manufactured
PRODUCTS (as defined below).
NOW, THEREFORE, in consideration of the mutual covenants contained herein and
for other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
I. Products
PRODUCTS refers to the disposable skin stretching devices and other molded
plastic medical devices which are listed on Exhibit A. Exhibit A may be
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amended from time to time to add additional PRODUCTS upon the mutual
written agreement of both parties. It is MedChem's intention to work with
MedTech to develop products in the range of Appropriate Technology (as
defined in Section III) and to add additional products to Exhibit A as and
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when appropriate terms with respect to the manufacture of such products
are agreed upon by both parties.
II. Engagement of MedTech
MedChem hereby engages MedTech as its exclusive, worldwide manufacturer of
PRODUCTS in accordance with the terms and conditions of this Agreement,
subject to Section V below. In furtherance of this engagement, MedChem
hereby grants to MedTech during the term of this Agreement, a limited,
exclusive license to manufacture PRODUCTS in accordance with the
specifications and procedures set forth in Exhibits A, B, C, and D.
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MedTech shall have no other intellectual property rights in or to the
PRODUCTS, their design, method of operation, or proprietary process of
manufacture as
described in Section XVIII below, except for the manufacturing license
granted herein. Such manufacturing license shall terminate upon the
termination or expiration of this Agreement for any reason. The license
granted herein is for manufacture only and does not include a license or
right to sell or resell these PRODUCTS except as directed by MedChem in
writing.
III. Appropriate Technology
The scope of this Agreement is limited to products for which MedTech has
demonstrated appropriate technology, skills and resources. MedTech's
technology, skills and resources at this time are in the area of molding,
assembly and packaging of complete, disposable, plastic medical devices.
IV. Mutual Cooperation
As part of the strategic alliance, both companies will be flexible in
satisfying each other's requirements and will cooperate to meet the needs
of the final customer. MedTech and MedChem shall establish a team
consisting of appropriate members of both companies who will be
responsible for establishing milestones, reporting delays, and smoothing
the transition to the development and manufacture of PRODUCTS.
V. Ancillary Agreements
The parties acknowledge that MedChem is obligated, under certain
circumstances, to have PRODUCTS manufactured in Israel in accordance with
the terms of the Agreement dated June 20, 1992 between The Technion
Research and Development Foundation, Ltd. ("Technion") and LMS modified by
the letter agreement dated March 2, 1994 between Technion, Dimotech, Ltd.
("Dimotech") and LMS, the letter agreement dated March 13, 1994 between
the Ministry of Industry Trade/Office of the Chief Scientist and Technion
and the letter agreement dated April 21, 1984 between Technion, Dimotech
and LMS (collectively, the "Israel Agreement"), which Israel Agreement was
assigned by LMS to MedChem. In such event, MedChem may terminate the
exclusivity of its engagement of MedTech immediately in the event that
MedTech fails to comply with MedChem's request to manufacture (or arrange
for the manufacture of) PRODUCTS in Israel. MedChem will make every
reasonable effort to provide the longest possible advance notice of such
requirements to MedTech, and will provide every reasonable assistance to
MedTech in complying therewith. In the event that MedTech is unable to
comply,
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MedChem shall be free to engage any other party to manufacture PRODUCTS in
Israel in compliance with the Israel Agreement.
VI. Competitive Standards
It is the intent of this Agreement to seek mutual profitability of both
parties. This Agreement, therefore, is predicated on the ability of
MedTech to remain competitive with industry standards in its manufacturing
procedures and pricing structure. If MedChem demonstrates through
reference to competitive technology or price quotes from other
manufacturers that MedTech has become non-competitive, then MedChem and
MedTech will work in good faith to resolve such non-competitiveness,
including without limitation amending any terms of this Agreement, while
recognizing that MedTech may have invested in product development and may
therefore have a reasonable expectation of recovering such investment
within a reasonable time. If the non-competitiveness of MedTech cannot be
resolved to the satisfaction of MedChem, then the non-competitiveness of
MedTech shall be deemed non-performance by MedTech with respect to Section
XX and accordingly MedChem shall have the right to terminate this
Agreement as provided therein.
VII. Product Specifications and Manufacturing Procedures
MedChem and MedTech will cooperate in the development and/or modification
of the detailed Product Specifications and Manufacturing Procedures for
PRODUCTS set forth on Exhibits A and B attached hereto. The Product
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Specifications and Manufacturing Procedures may be amended from time to
time by either party with the prior written approval of the other (which
approval shall not be unreasonably withheld or delayed); provided that in
the event the parties cannot agree to any amendments to such Product
Specifications and Manufacturing Procedures, this Agreement may be
terminated in accordance with the provisions of Section XX. Any mutually
approved amendments or additions to the Product Specifications and
Manufacturing Procedures shall be attached as exhibits hereto and
considered incorporated herein.
A. Product Specifications. MedTech shall manufacture each PRODUCT in
accordance with the applicable specifications ("Specifications") for
such PRODUCT as set forth in the appropriate part of Exhibit A
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attached hereto.
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B. Manufacturing Procedures. MedTech shall comply with the engineering,
manufacturing, testing, warehousing and shipping procedures set forth
in Exhibit B attached hereto. The procedures set forth in Exhibit B
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shall apply to the manufacture, testing, storage and shipping of all
PRODUCTS unless specifically otherwise stated in Exhibit A.
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C. Quality Assurance. MedTech shall be responsible for ensuring that the
quality of the PRODUCTS is at all times consistent with the
applicable Specifications. MedTech shall develop and implement
quality assurance procedures and shall incorporate in such procedures
any elements reasonably requested by MedChem.
D. Customer Complaints and Returned PRODUCTS. MedTech and MedChem shall
comply with the procedures set forth in Exhibit C with respect to
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responding to customer complaints and handling returned PRODUCTS.
VIII. Forecasts and Orders
A. Upon execution of this agreement, MedChem shall provide to MedTech a
non-binding forecast of its requirements for PRODUCTS for the
following twelve (12) months and a purchase order with quantities and
delivery dates for the initial three months of such 12-month period.
Thereafter, MedChem will provide by the first day of each month, a
non-binding rolling three (3) month forecast of PRODUCT requirements
and a binding purchase order for the third month. MedChem and MedTech
may mutually agree to adjust purchase orders if required.
B. MedChem shall submit purchase orders in writing to MedTech at the
address set forth above. Purchase orders may be submitted by
telecopy. MedChem shall use best efforts to submit purchase orders as
far in advance in practicable.
C. In recognition of the forecast variability associated with new
PRODUCTS, MedTech shall maintain a 20% surge capacity at all times
and shall maintain adequate safety stocks of critical components to
ensure uninterrupted supply of PRODUCTS in the event that MedChem's
requirements exceed its forecast by up to 50%. Critical components
will be specifically identified by MedChem, and MedChem will bear the
cost of safety stock for these components.
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D. MedTech shall have two months after receiving a written purchase
order to deliver PRODUCTS in accordance with such purchase order and
Section X. Within 14 days after such delivery, MedTech shall deliver
an invoice to MedChem stating in reasonable detail the manufacturing
lot identification, quantity, model and price (per Exhibit D) of
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PRODUCTS delivered along with a Finished Device History Checklist and
a Certificate of Compliance with respect to such delivery in
accordance with the terms of Exhibit C attached hereto (the
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"Delivery Invoice").
E. Whenever MedTech's performance is delayed or prevented, MedTech shall
promptly notify MedChem and provide an updated schedule of delivery.
Any delay in PRODUCT delivery, except for a delay covered by
paragraph E of Section XXI, shall entitle MedChem to delay payment
for such PRODUCT by a period of time equal to the delivery delay.
Repeated delays in PRODUCT delivery shall be grounds for the
termination of this Agreement in accordance with Section XX below. In
the event that MedChem's requirements exceed the current delivery
schedule at any time, MedChem may request delivery of such PRODUCTS
in less than two months, and MedTech shall make all reasonable
efforts to meet MedChem's requirements.
IX. Pricing and Payment
A. Pricing. In consideration of the full range of services described
herein, and recognizing that MedTech may have invested in product
development, MedChem shall pay to MedTech the per unit purchase price
for each PRODUCT determined in accordance with the price list set
forth on Exhibit D attached hereto. The price list set forth on
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Exhibit D shall remain in effect for one year following its effective
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date. For each year thereafter during the term of this Agreement, the
parties shall negotiate in good faith and agree on a new price list
and Exhibit D shall be modified accordingly. Failure to agree on a
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new price list shall constitute grounds for termination of the
Agreement pursuant to Section XX below.
In the event that either party demonstrates extraordinary and precipitous
changes in the business environment of either MedTech or MedChem, either party
may request that the price list be renegotiated at any time. In such
circumstances, failure to agree on a new price list within 60 days shall
constitute grounds for termination of the Agreement pursuant to Section XX
below.
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B. Payment. MedChem shall make payments of the purchase price for
PRODUCTS within 30 days following the delivery by MedTech to MedChem
of the Delivery Invoice.
X. Delivery
A. All PRODUCTS shall be packaged, marked and otherwise prepared for
shipment by MedTech in suitable containers in accordance with sound
commercial practices. MedTech shall mark on containers all necessary
handling, loading and shipping instructions. An itemized packing list
and bills of lading shall be included with each shipment.
B. All sales of PRODUCTS are F.O.B. MedTech's premises in South
Plainfield, New Jersey. Title to and risk of loss for PRODUCTS
purchased shall pass to MedChem upon the earlier of delivery to
MedChem or delivery to a carrier for shipment to MedChem.
C. All PRODUCTS shall be received subject to MedChem's inspection,
testing, approval and acceptance at its premises, notwithstanding any
inspection or testing at MedTech's premises or any prior payment for
such PRODUCTS. PRODUCTS rejected as not conforming may be returned to
MedTech at MedTech's risk and expense and shall be replaced by
MedTech upon such terms as are agreed to by MedTech and MedChem.
XI. Returned Goods
A. MedChem shall establish and maintain a returned goods policy and
protocol for PRODUCTS sold to MedChem's customers as set forth in
Exhibit C attached hereto. MedTech assumes no responsibility or
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authority to respond to customer requests or inquiries regarding
PRODUCTS and will forward all such inquiries to MedChem.
B. MedTech will evaluate returned goods at the request of MedChem and
will determine whether such returned goods can be safely returned to
inventory.
C. MedChem shall promptly notify MedTech of any return of defective
PRODUCTS so that any appropriate remedial actions can be initiated.
Likewise, MedTech shall promptly notify MedChem of any return of any
defective PRODUCTS.
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XII. Quality Assurance and Customer Complaints
A. MedTech has agreed that the PRODUCTS shall meet the Specifications as
set forth in Exhibits A, B and C.
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B. MedChem shall be responsible for responding to and maintaining
documentation of field complaints of PRODUCTS in accordance with the
policies set forth on Exhibit C. MedChem shall promptly notify
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MedTech of any field complaints so that any appropriate actions can
be initiated.
C. MedTech shall forward to MedChem copies of any complaints,
expressions of dissatisfaction, or other similar information about
which MedTech becomes aware with respect to PRODUCTS in accordance
with the policies set forth on Exhibit C. MedTech, at its expense,
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shall assist MedChem in investigating such complaints and related
matters, and shall provide necessary information with respect to such
matters to MedChem.
D. Although MedChem is responsible for responding to and maintaining
documentation of field complaints for PRODUCTS, a file containing all
complaints and other information required by the Food and Drug
Administration's ("FDA's") Good Manufacturing Practices ("GMPs") with
respect to complaints must be kept at MedTech per section 820.198 of
the GMP regulation.
E. MedChem shall implement and maintain an appropriate Medical Device
Reporting system in accordance with the policies set forth on Exhibit
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C. Preparation, submission, and documentation of Medical Device
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Reports ("MDRs") shall be the sole responsibility of MedChem. MedTech
shall assist MedChem as necessary in the conduct of any
investigations, evaluations or corrective actions associated with
MDRs.
XIII. Regulatory Compliance
A. MedTech shall fully comply with the FDA's Good Manufacturing
Practices regulation, 21 CFR 820, as presently in effect, as well as
with any future changes thereto.
B. MedTech will implement a quality control system no later than
November 1995 that will be consistent with ISO9002 requirements and
with the European Medical Devices Directive [93-42 EEC], particularly
the Product Vigilance provisions thereof. In addition, MedTech will
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fully support MedChem in the preparation of all foreign and domestic
regulatory applications. The quality control system will be subject
to inspection and certification by a European Notified Body to be
selected by MedChem.
C. In order to assure that MedTech is satisfying its regulatory
responsibilities, MedChem shall have the right to audit, with at
least one week's advance notice provided to MedTech, those
manufacturing and other operations related to PRODUCTS. Additionally,
MedTech shall provide notice to MedChem of any inspection by the FDA
that involves MedTech operations with respect to these PRODUCTS.
MedTech shall provide to MedChem a copy of any FDA communications
that relate to PRODUCTS or the manufacture of PRODUCTS.
MedTech agrees that it will meet any reasonable foreign manufacturing
obligations that apply to PRODUCTS made by MedTech for MedChem that
are intended to be sold outside the United States.
XIV. Tooling
A. Capital equipment purchased by MedTech to manufacture PRODUCTS is the
property of MedTech. MedChem may elect to purchase through MedTech
certain capital equipment necessary for the manufacture of PRODUCTS.
B. All tools, dies, molds, patterns, jigs, masks and other equipment and
materials furnished by MedChem to MedTech or paid for by MedChem,
directly or indirectly, and any replacements, shall remain MedChem's
property. MedTech shall plainly identify such property as MedChem's
property and shall not use such property except in performing this
Agreement.
C. Any capital equipment purchased through MedTech must be authorized in
writing by MedChem. MedChem shall reimburse MedTech for such
purchases as follows: 50% downpayment, 25% upon first piece
inspection, and 25% upon final approval by MedChem of molded parts or
assemblies.
D. Before accepting plastic injection molds owned by MedChem, MedTech
will perform validation procedures to ensure acceptability. MedChem
shall pay for necessary modifications to the mold to ensure that
acceptable
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parts are produced. No such modifications will be performed without a
written purchase order authorization from MedChem.
XV. Sharing Information
It is in the interest of both parties to reduce the manufacturing cost of
PRODUCTS manufactured by MedTech for MedChem and to share in the benefits of
such cost reductions. To that end, MedChem agrees to continue to invest in
design effort and tooling expenses to reduce cost, and MedTech agrees to make
available to MedChem information related to PRODUCTS which MedChem needs to
analyze or evaluate manufacturing costs or return on investment.
XVI. Product Warranty and Indemnity
A. Product Warranty MedTech warrants that PRODUCTS shall be
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manufactured in conformance with the Specifications and Procedures
attached hereto as Exhibits A, B and C and shall be free of liens
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and encumbrances. These warranties shall survive any delivery,
inspection, acceptance, payment or resale of PRODUCTS and shall
extend to MedChem and its customers. In the event of the breach of
this warranty, MedTech shall replace non-conforming PRODUCTS, at its
expense, or refund the purchase and freight price for same. The
product warranty set forth herein is in lieu of all other warranties
and representations, whether express or implied, including without
limitation, implied warranties of merchantability and fitness for a
particular purpose.
B. Indemnification. MedTech shall indemnify and hold harmless MedChem
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from and against all actual and direct damages, costs, and expenses
(including reasonable attorney's fees and disbursements) incurred by
MedChem resulting from any negligence, willful misconduct, or
material breach of this Agreement by MedTech, subject to an overall
limit of $1,000,000.
C. Limitation of MedTech Liability. MedTech shall not under any
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circumstances be liable to MedChem for any special, indirect,
punitive, or consequential damages of any nature whatsoever,
including, without limitation, any lost revenues or profits of
MedChem or any other party resulting or arising out of the sale or
use of PRODUCTS.
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D. Notice of Complaints. Each of MedTech and MedChem shall promptly
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notify the other of any PRODUCT deficiencies or field complaints, of
which it has knowledge, regarding any MedTech related work.
XVII. Insurance
A. Each party agrees to maintain at least $1,000,000 of product
liability insurance and to provide the other of evidence with
coverage upon request.
B. MedTech will insure all MedChem property located on MedTech's
premises against loss or damage for an amount equal to its
replacement cost and with MedChem named as loss payee, including but
not limited to molds, fixtures, tooling, critical component safety
stock and inventory.
C. MedTech agrees that all MedChem property located on MedTech's
premises shall be held at MedTech's risk and, to the extent furnished
by MedChem to MedTech or paid for by MedChem, directly or indirectly,
or a replacement thereof, shall be returned to MedChem or its
designee upon the earlier of MedChem's request or the termination or
completion of this Agreement.
XVIII. Confidentiality and Intellectual Property
A. MedTech and MedChem shall at all times maintain each other's
CONFIDENTIAL INFORMATION in strict confidence. MedTech shall also
maintain any CONFIDENTIAL INFORMATION provided to it by LMS on or
after November 1992 and prior to July 29, 1994 in strict confidence
in accordance with the terms of this Agreement. Neither party shall
use or disclose CONFIDENTIAL INFORMATION to any person or entity
outside of its organization without prior written consent of the
other party. The Providing Party shall disclose CONFIDENTIAL
INFORMATION received by it under this Agreement only to persons
within its organization who have a need to know such CONFIDENTIAL
INFORMATION in the course of the performance of their duties and who
are bound to protect the confidentiality of such CONFIDENTIAL
INFORMATION. It shall be a condition of granting the consent that any
third party to whom CONFIDENTIAL INFORMATION is to be disclosed must
agree in advance in writing to maintain such CONFIDENTIAL INFORMATION
in strict confidence and not to release or disclose such CONFIDENTIAL
INFORMATION to any other party without the prior written consent of
the Providing Party (as defined below).
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B. "CONFIDENTIAL INFORMATION" means information or data provided by
either MedTech, MedChem (or in the case of LMS, prior to July 29,
1994) (the "Providing Party") to the other (the "Receiving Party")
that concerns the discoveries, designs, inventions, improvements,
know-how, and ideas of the Providing Party, except to the extent that
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any such CONFIDENTIAL INFORMATION (a) is known or becomes known to
the general public other than as a result of unauthorized disclosure
by the Receiving Party or by persons to whom the Receiving Party has
made such information available; or (b) is received by the Receiving
Party on a non-confidential basis from a third party who to the best
knowledge of the Receiving Party, lawfully possessed and disclosed
such information.
C. MedTech acknowledges and agrees that, as between the parties hereto,
MedChem is the owner of all right and title to (a) the design of
PRODUCTS, including patent rights, trade secrets and similar rights
and interests, and (b) the PRODUCT trademarks as specified in Exhibit
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A and (c) the PRODUCT SPECIFICATIONS (collectively, the "MedChem
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Proprietary Rights"). MedTech agrees (a) not to contest or challenge
in any way the MedChem Proprietary Rights, (b) to reproduce on the
PRODUCTS (or their packaging) any proprietary notice designated by
MedChem with respect to the MedChem Proprietary Rights, and (c) to
cooperate in good faith with MedChem in safeguarding and protecting
the MedChem Proprietary Rights. MedTech further agrees that MedChem
shall be the sole owner of any improvements to or new models of
PRODUCTS and MedTech shall execute and deliver to MedChem any
documents and instruments requested by MedChem to convey to MedChem
any rights that MedTech may have in any such improvements or new
models.
D. MedChem represents and warrants to MedTech that it has sufficient
right, title and interest in and to the PRODUCTS to grant to MedTech
the licenses and rights contained in this Agreement, and that, to the
best of MedChem's knowledge, the manufacture and sale to MedChem by
MedTech of PRODUCTS pursuant to this agreement shall not infringe any
patent, trademark, copyright, trade secret or other proprietary
rights of any third party. MedChem shall indemnify and hold MedTech
harmless from and against any and all claims, damages, judgements,
expenses and losses (including reasonable attorney's fees) arising
from claims by any third party alleging that MedTech's manufacture or
sale to MedChem of PRODUCTS in accordance with this agreement
infringes such third party's proprietary rights.
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E. The parties acknowledge that proprietary manufacturing processes used
in connection with PRODUCTS will in some cases be jointly developed
by both parties and in other cases be developed individually. All
manufacturing processes that are (i) jointly developed or (ii)
individually developed by MedTech and funded in any substantial
manner by MedChem will be jointly owned by both parties and both
parties shall have full rights to the use thereof except that MedTech
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shall not use such processes in the manufacture of any competing
products.
XIX. Term
This Agreement shall be effective as of the date set forth above and shall
remain in effect through November 1, 1999. Thereafter, the term of this
Agreement shall automatically renew for successive one year terms (or such
longer renewal terms as the parties might agree in writing) each
commencing July 1 unless (i) this Agreement is earlier terminated pursuant
to Section XX below or (ii) either party shall have notified the other in
writing, no later than 180 days prior to the expiration of the initial
term or the then current renewal term, as the case may be, if it's intent
not to renew.
XX. Termination
A. Either party may terminate this agreement for cause in the event of a
material breach of this Agreement or non-performance by the other
party where such breach or non-performance is not cured within 30
days after written notice of such breach is delivered by the
terminating party to the breaching party or in the event that the
parties cannot agree as to any amendments or modifications to any of
the Exhibits attached hereto. In the event that MedChem is the
terminating party, or this Agreement is being terminated pursuant to
Section IX.A above, MedChem may elect to defer the effective date
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of termination for up to 180 days by so notifying MedTech in writing,
and during such extension period this Agreement shall remain in
effect and the price list set forth in Exhibit D may be increased by
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MedTech as it deems reasonably necessary but not more than 15% above
the last mutually approved price list.
B. In the event of termination resulting from the event of non-
performance on the part of MedChem, MedTech shall be reimbursed for
its reasonable and accountable costs of raw material, work-in-
progress, and finished goods upon termination and these shall become
the property of
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