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EXHIBIT 10.3
SUPPLY AGREEMENT
Dated as of June 30, 1999
Between
DonJoy, L.L.C.
And
Smith & Nephew, Inc.
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SUPPLY AGREEMENT (this "Agreement"), dated as of June 30, 1999
between DonJoy, L.L.C., a Delaware limited liability company ("DonJoy, L.L.C.")
and Smith & Nephew, Inc., a Delaware corporation ("S&N").
WHEREAS, pursuant to a Recapitalization Agreement dated April
29, 1999 (the "Recapitalization Agreement") among DonJoy, L.L.C., S&N and Chase
DJ Partners, LLC ("Investor"), DonJoy, L.L.C. is selling Investor 645,500
Common Units of DonJoy, L.L.C. and DonJoy, L.L.C. is redeeming 2,000,000 Common
Units from S&N, such that upon consummation of the transactions contemplated by
the Recapitalization Agreement, Investor will own approximately a ninety
percent (90%) membership interest in DonJoy, L.L.C.;
WHEREAS, it is a condition to Investor's obligations under the
Recapitalization Agreement that S&N and DonJoy, L.L.C. enter into this
Agreement;
WHEREAS, any term not otherwise defined herein shall have the
meaning ascribed to such term in the Recapitalization Agreement; and
WHEREAS, the parties wish to provide for the continued supply to
S&N by DonJoy, L.L.C. of certain products of the Business to be hereafter
manufactured or sourced from third-party vendors and sold by DonJoy, L.L.C.;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
DonJoy, L.L.C. and S&N hereby agree as follows:
1. PURCHASE AND SALE OF PRODUCTS. From time to time during the
term of this Agreement, DonJoy, L.L.C. will sell to S&N and S&N will purchase
from DonJoy, L.L.C. the health care products listed on Schedule 1 attached
hereto, or such other products as may be mutually agreed by the parties, under
brand names to be mutually agreed upon by the parties (the "Products").
2. PRICES AND TERM OF SALE.
(a) The prices for the Products to be sold by DonJoy, L.L.C. to
S&N pursuant to Section 1 shall be the prices currently being charged by
DonJoy, L.L.C. as of the date first set forth above (the "Effective Date").
Such prices shall remain firm until December 31, 1999. No later than 90 days
prior to the end of the current calendar year, DonJoy, L.L.C. shall inform S&N
of its best distributor prices (including discounts and rebates offered to
distributors by DonJoy, L.L.C.) for the next calendar year, which prices shall
go into effect on January 1 of such calendar year if and to the extent agreed
to in writing by S&N. All invoices from DonJoy, L.L.C. to S&N will be due and
payable net within sixty (60) days. All shipments shall be FOB factory, all
shipping charges shall be paid by S&N, and the title and risk of loss shall
pass to S&N on delivery of the products to the common carrier designated by
S&N. S&N shall be responsible for the payment of
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taxes assessed in respect of the sale and insurance relating to Products
purchased from DonJoy, L.L.C.
(b) To place an order for the Products hereunder, S&N shall
deliver to DonJoy, L.L.C. purchase orders specifying the type and quantities of
the Products to be purchased together with an example of the brand name and
associated artwork, which purchase orders shall provide for the delivery date
for the shipment. DonJoy, L.L.C. shall use commercially reasonable efforts to
fill such purchase order within the time period set forth therein or, if such
purchase order is for a quantity of Products that is substantially in excess of
the quantity forecast by S&N pursuant to Section 3(b) for the applicable
period, such other reasonable period of time as customarily required by DonJoy,
L.L.C. to fill an order of such Products. For a period of forty-five (45) days
following receipt of a shipment by S&N at the address specified in the
applicable purchase order, S&N shall have the right of inspection and may
reject any Product which (i) fails to meet specifications, (ii) was not
Processed (as hereafter defined), Packaged (as hereafter defined) or shipped in
compliance with applicable governmental or regulatory requirements or the
provisions of this Agreement, (iii) which is defective in material or
workmanship, (iv) otherwise fails to comply with the requirements of this
Agreement or (v) which was damaged in transit. Any notice of rejection must be
given on or before the forty-fifth (45th) day following receipt of the
particular shipment of the Products by S&N, and any failure to give such notice
shall be deemed to constitute acceptance of delivery; provided, however, that
notices of rejection based on latent or otherwise unapparent defects in the
Products may be given at any time following receipt of the particular shipment
of the Products by S&N. If any defective or damaged Products are timely
rejected by S&N, DonJoy, L.L.C. shall credit the account of S&N for the portion
of the invoiced amount that relates to such defective or damaged Products, such
credit to be applied against the invoice relating to such defective or damaged
Products if not previously paid by S&N or, if such invoice has been paid by
S&N, against future purchases of S&N under this Agreement. If, in lieu of such
credit, S&N requests in its rejection notice that it desires to receive
replacement Products, DonJoy, L.L.C. shall ship such replacement Products at
DonJoy, L.L.C.'s expense within ten (10) days after receipt of, or as otherwise
provided in, the notice of rejection hereunder. If requested by DonJoy, L.L.C.,
S&N shall return such defective or damaged Products to DonJoy, L.L.C. at
DonJoy, L.L.C.'s expense. For purposes of this Agreement, the term "Packaged"
shall mean the procedure whereby the Products, or any part thereof, were
inspected, labeled, packaged and packed in accordance with the requisite
specifications. The term "Processed" shall mean the procedures involved in the
manufacture and preparation of the Products or any part thereof in accordance
with the requisite specifications.
3. QUANTITIES. (a) S&N shall have no obligation to purchase any
specific or minimum quantities of Products; provided, however, that S&N shall
not purchase any of the Products listed on Schedule 2 (the "Competing
Products") from any Person other than DonJoy, L.L.C. without the prior written
consent of DonJoy, L.L.C. Notwithstanding the preceding sentence, in the event
that DonJoy, L.L.C. does not, or informs S&N that it will not, deliver such
Competing Products to S&N on the terms set forth in the applicable purchase
order and in accordance with this Agreement, then S&N may purchase such
Competing Products from suppliers other than DonJoy, L.L.C.
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("Third Party Suppliers") upon 10 days' prior notice to DonJoy, L.L.C.;
provided that S&N shall not be entitled to purchase Competing Products from
Third Party Suppliers if the sole reason for DonJoy, L.L.C.'s failure to
deliver is S&N's refusal to pay the best distributor price for such Competing
Products as set forth in Section 2(a). If S&N is entitled to purchase Competing
Products from a Third Party Supplier it may do so for the period and on the
terms reasonably required by such Third Party Supplier. No purchase by S&N of
Competing Products from a Third Party Supplier in accordance with this Section
3(a) shall violate the noncompetition provisions of Section 8.5(a) of the
Recapitalization Agreement. In addition, and by way of clarification, S&N may
purchase Products other than the Competing Products (the "Noncompeting
Products") from suppliers other than DonJoy, L.L.C. and may manufacture
Noncompeting Products.
(b) S&N shall give DonJoy, L.L.C. a 30 day forecast at the beginning of
each month of its requirements for such month.
4. SPECIFICATIONS AND QUALITY CONTROL.
(a) DonJoy, L.L.C. warrants that the Products sold pursuant to
this Agreement (i) shall be Processed and Packaged in strict accordance with
the specifications and quality control standards in effect immediately prior to
the Effective Date (the "Specifications"); (ii) will be Processed and Packaged
in accordance with all applicable laws, rules, orders and regulations,
including good manufacturing practice, ISO and CE Marking requirements; (iii)
will be free from defects in materials and workmanship; (iv) are merchantable
and fit for the purposes for which the products were manufactured; (v) will be
free of all liens and encumbrances; and (vi) will not be adulterated or
misbranded within the meaning of the United States Food, Drug and Cosmetic Act
or of any other applicable law, rule, order or regulation.
(b) DonJoy, L.L.C. warrants that it shall maintain all material
permits, registrations, licenses and any other approvals necessary to Package,
Process and supply the Products under this Agreement.
5. TERM.
(a) This Agreement shall remain in full force and effect until
June 18, 2004 (the "Term") and shall be renewed or extended only on the formal
written agreement of the parties.
(b) Without waiving any other rights or remedies which may be
available for breach or default of this Agreement, a party hereto may terminate
this Agreement on thirty (30) days' written notice to the other party if:
(i) The other party makes an assignment for the
benefit of creditors.
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(ii) A receiver shall be appointed to take over
all or a substantial part of the other party's business or
property and such receivership shall not have been vacated or
stayed within thirty (30) days.
(iii) The other party commences any proceeding
relating to itself under any bankruptcy, insolvency, and
readjustment of debt, arrangement with creditors, dissolution,
liquidation or similar laws of any jurisdiction now or hereafter
in effect.
(iv) The other party is adjudicated insolvent or
an order for relief is entered against such party under
applicable bankruptcy law.
(v) The other party materially fails to perform
any part of this Agreement or the Recapitalization Agreement or
any other agreement contemplated thereby and, upon written
notice of such failure by the other party, fails to remedy the
same within thirty (30) days of such notice.
6. CONFIDENTIALITY. During the term hereof and for a period of
five (5) years thereafter, the parties agree that they will maintain in
confidence all Confidential Information of the other party, and will not
disclose such Confidential Information to any third party. As used herein, the
term "Confidential Information" means technical, business, customer, marketing,
financial, corporate or any other information of a party, or of its
subsidiaries, affiliates or parent companies, which, whether or not pursuant to
this Agreement, is disclosed orally or in writing or which another party
obtains by any other means, excluding information which (i) is or becomes
available to such party from a source other than such party, (ii) is or becomes
available to the public other than as a result of disclosure by such party or
its agents, or (iii) is required to be disclosed under applicable law or
judicial process, but only to the extent it must be disclosed.
7. INDEMNIFICATION AND INSURANCE.
(a) DonJoy, L.L.C. will indemnify and hold S&N and its officers
and affiliates harmless from and against any liability, damage, claims, cost or
expense (including reasonable attorney's fees) ("Losses") arising out of (i)
any injury, death or property damage arising out of the negligence or willful
misconduct of DonJoy, L.L.C. or its employees or agents (except to the extent
that such injury, death or damage was caused by the negligent act or willful
misconduct of S&N) in any action or proceeding brought by any third party
respecting such claim; (ii) DonJoy, L.L.C.'s negligent act or omission; (iii)
DonJoy, L.L.C.'s misstatements or false claims with respect to the Products;
(iv) any product liability claims relating to the Products (other than those
resulting from S&N's or any third party's fault which do not give rise to an
indemnifiable claim against DonJoy, L.L.C. by S&N under the Recapitalization
Agreement); (v) any governmentally-required recall of Products (other than
those resulting from S&N's or a third party's fault which do not give rise to
an indemnifiable claim against DonJoy, L.L.C. by S&N under the Recapitalization
Agreement); (vi) DonJoy, L.L.C.'s failure to
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comply with DonJoy, L.L.C.'s obligations, covenants, and representations and
warranties under this Agreement; and (vii) any claim of infringement by any
third party of any patents or any claimed violation of any other intellectual
property right of any third party arising in connection with the sale or
distribution of Products pursuant hereto; provided, however, that in no event
will S&N have any right to claim indemnity under this Section 7 if the events,
facts or circumstances giving rise to such claim constitute a breach of any of
the obligations, covenants, and representations and warranties of S&N contained
in the Recapitalization Agreement, or otherwise give rise to an indemnifiable
claim against S&N by DonJoy, L.L.C. thereunder. In order to ensure DonJoy,
L.L.C.'s performance, DonJoy, L.L.C. shall obtain and maintain during the term
of this Agreement at least Three Million Dollars ($3 million) of product
liability and general public liability insurance with a deductible or
self-insurance of no more than One Hundred Thousand Dollars ($100,000). DonJoy,
L.L.C. shall name S&N as an additional insured party on such insurance and
shall provide S&N with a certificate evidencing such coverage.
(b) S&N will indemnify and hold DonJoy, L.L.C. and DonJoy,
L.L.C.'s officers, managers, equity holders and affiliates harmless from and
against any and all Losses arising out of (i) any injury, death or property
damage arising out of the negligence or willful misconduct of S&N or its
employees or agents (except to the extent that such injury, death or damage was
caused by the negligent act or willful misconduct of DonJoy, L.L.C.) in any
action or proceeding brought by any third party respecting such claim; (ii)
S&N's negligent act or omission; (iii) S&N's misstatements or false claims with
respect to the Products; (iv) S&N's misuse of the Product literature; and (v)
S&N's failure to comply with its obligations, covenants, and representations
and warranties hereunder.
(c) Indemnification Procedures
Each party shall be entitled to the indemnify described in
paragraphs (a) and (b) of this Section provided the following conditions are
met; the party obliged to provide indemnification is referred to as the
"Indemnifying Party", and the party entitled to be indemnified is referred to
as the "Indemnified Party":
(i) Promptly upon learning of any claim for which
indemnification is sought from the Indemnifying Party, the
Indemnified Party shall notify the Indemnifying Party of such
claim and shall furnish to the Indemnifying Party all
information known and available to the Indemnified Party related
to such claim.
(ii) In the event of the commencement of
litigation on the basis of such claim, the Indemnified Party
shall tender the defense of such litigation to the Indemnifying
Party.
(iii) The Indemnified Party shall comply with any
such reasonable instructions received from the Indemnifying
Party relating to
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settlement of such claim (unless settlement of the claim would
establish an adverse precedent for other similar claims in the
future), if any, to the extent that it lies within the power of
the Indemnified Party to comply with any such instructions,
excluding any instruction that requires the Indemnified Party to
license or otherwise make available technology or other
confidential information to a third party.
(iv) If the Indemnifying Party undertakes defense
of such litigation, the Indemnifying Party shall be entitled to
appoint its attorneys to defend the case in the name of the
Indemnified Party, and the Indemnified Party shall cooperate
fully with the Indemnifying Party and its chosen attorneys in
the defense of such litigation. The Indemnified Party shall be
free to appoint its own attorneys in the same litigation, at its
sole expense, although all decisions with respect to the conduct
or settlement of such litigation shall remain solely with the
Indemnifying Party.
8. INDEPENDENT CONTRACTORS. Each party shall be treated for all
purposes as an independent contractor and not as an agent or representative of
the other party. Each party shall be responsible for complying with laws and
regulations applicable to its business, for obtaining required licenses and
permits, for the payment of applicable taxes, and for the conduct and
compensation of its own employees.
9. NOTICES. All notices or other communications required or
permitted hereunder shall be in writing and shall be deemed given or delivered
when delivered personally or when sent by registered or certified mail or by
private courier addressed as follows:
If to DonJoy, L.L.C., to:
DonJoy, L.L.C.
2985 Scott Street
Vista, California 92083-8339
Attention: President
If to S&N, to:
Smith & Nephew, Inc.
1450 Brooks Road
Memphis, Tennessee 38116
Attention: General Counsel
or to such other address as such party may indicate by a notice delivered to
the other party hereto.
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10. SUCCESSORS AND ASSIGNS. This Agreement shall not be
assignable by either party without the written consent of the other party;
provided, however, that DonJoy, L.L.C. may assign its rights and obligations
under this Agreement to any of its affiliates or subsidiaries (including DJ
Orthopedics, LLC) without the consent of S&N; provided further, that neither
party hereto shall be released from any of its obligations hereunder by reason
of any such assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their successors and permitted assigns.
11. ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the
entire understanding of the parties hereto with regard to the subject matter
contained herein and supersedes all prior agreements, understandings or letters
of intent between or among any of the parties hereto. Contrary provisions in
any purchase order, invoice or other commercial documentation shall be of no
force and effect. This Agreement shall not be amended, modified or supplemented
except by a written instrument signed by an authorized representative of each
of the parties hereto.
12. INTERPRETATION. Headings to sections herein are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.
13. WAIVERS. Any term or provision of this Agreement may be
waived, or the time for its performance may be extended, by the party or
parties entitled to the benefit thereof. Any such waiver shall be validly and
sufficiently authorized for the purposes of this Agreement if it is authorized
in writing by the other party. The failure of any party hereto to enforce at
any time any provision of this Agreement shall not be construed to be a waiver
of such provision, nor in any way to affect the validity of this Agreement or
any part hereof or the right of any party thereafter to enforce each and every
such provision. No waiver of any breach of this Agreement shall be held to
constitute a waiver of any other or subsequent breach.
14. FORCE MAJEURE. The obligations and performance of a party
hereto shall be excused if made impossible by strikes, riots, fire, inability
to obtain or shortages of labor, materials, equipment or transportation, war,
acts of God, natural disasters or other causes beyond the reasonable control of
the party and acts in compliance with applicable law, regulation or order
(whether valid or invalid of any governmental body).
15. PARTIAL INVALIDITY. Wherever possible, each provision hereof
shall be interpreted in such manner as to be effective and valid under
applicable law, but in case any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such provision shall be ineffective to the extent, but only to the
extent, of such invalidity, illegality or unenforceability without invalidating
the remainder of such invalid, illegal or unenforceable provision or provisions
or any other provisions hereof, unless such a construction would be
unreasonable.
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16. EXECUTION IN COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall be considered an original
instrument, but all of which shall be considered one and the same agreement,
and shall become binding when one or more counterparts have been signed by each
of the parties hereto and delivered to each of DonJoy, L.L.C. and S&N. An
executed copy hereof delivered by facsimile shall be deemed an original
instrument.
17. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws (as opposed to the conflicts of
law provisions) of the State of Delaware.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed the day and year first above written.
DONJOY, L.L.C.
By: /s/ Leslie H. Cross
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Name: Leslie H. Cross
Title: President and CEO
SMITH & NEPHEW, INC.
By: /s/ Clifford K. Lomax
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Name: Clifford K. Lomax
Title: Treasurer
[SIGNATURE PAGE TO SUPPLY AGREEMENT]
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SCHEDULE 1
PRODUCT LISTING
1. All ProCare line products (including ProCare OEM products).
2. All DonJoy products listed in the Rehabilitation Division, Smith &
Nephew, Inc. 1999 Catalog for the United States (including DonJoy OEM
products) and any replacement and substitutions therefor and
improvement thereto; provided that S&N shall not export any such
products from the United States after March 31, 2000.
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SCHEDULE 2
Schedule 8.5(a)(ii) to the Recapitalization Agreement and the
provisions of Section 8.7 of the Recapitalization Agreement relating to high
tech hinged knee braces incorporating technology covered by the Victoria
Patents (as defined in the Recapitalization Agreement) are incorporated by
reference herein.