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EXHIBIT 10.22
ZINC OXIDE SUPPLY AGREEMENT
This Zinc Oxide Supply Agreement (the "Agreement") is between [ * * * ]
("Purchaser") and Nanophase Technologies Corporation ("Nanophase") and is dated
as of September 16, 1999.
BACKGROUND
1. Purchaser markets and sells topical human sunscreen agents that
include zinc oxide for inclusion in consumer products.
2. Nanophase manufactures zinc oxide using certain proprietary
manufacturing technology.
3. Purchaser wishes to purchase zinc oxide from Nanophase, and
Nanophase wishes to sell zinc oxide to Purchaser, on the terms set forth in this
Agreement.
NOW, THEREFORE, Purchaser and Nanophase agree as follows.
I. PURCHASE AND SALE
1.1. Agreement to Purchase and Sell. On the terms and subject to the
conditions of this Agreement, Nanophase agrees to sell to Purchaser, and
Purchaser agrees to purchase from Nanophase, zinc oxide meeting the
specifications set forth in Exhibit A to this Agreement and manufactured in
accordance with Exhibit A (such zinc oxide being referred to as the "Product").
The terms of this Agreement apply only to the sale and use of the Product as a
topical human sunscreen agent (the "Field")
1.2. Forecasts. Purchaser will give Nanophase two months' notice of the
date and amount of Purchaser's first purchase order. Concurrent with the
delivery of Purchaser's first purchase order, Purchaser will deliver a forecast
within the capacity limits provided in Section 3.01 (including the additional
capacity referenced therein) of Purchaser's expected purchase orders with
Nanophase for the Product for each of the next six months (the "Initial
Forecast"). Purchaser's first purchase order will be for the amount of Product
set forth for the first two months covered by the Initial Forecast. Beginning on
the first day of the calendar quarter following the date of such purchase order,
and on the first day of each subsequent calendar quarter during the term of this
Agreement, Purchaser will deliver to Nanophase a forecast (a "Quarterly
Forecast") of Purchaser's expected purchase orders with Nanophase for the
Product for each of the next six months.
The amount set forth for each month in any Quarterly Forecast shall not exceed
the monthly capacity then required (or then requested to become effective) for
such month under Article III; provided that any such amount may include
inventory required to be maintained under Section 3.04. The Quarterly Forecasts
shall not themselves constitute purchase orders for Product (which will be made
as provided in Section 1.03), but failure to order quantities shown in a
Quarterly Forecast may result in price adjustments as set forth in Section 1.04.
* * * CONFIDENTIAL TREATMENT REQUESTED
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1.3. Orders. Each order for Product will be made by a written purchase
order signed by a representative of Purchaser that will set forth the amount of
Product ordered, the price initially payable, and the shipping date, which will
be no sooner than three business days after the date that Nanophase receives the
purchase order.
1.4. Price.
(a) The price payable per kilogram of Product ordered shall be
determined in accordance with the annual volume and price levels set
forth in Exhibit B. The price initially payable for each order of
Product shall be calculated based on the assumption that annual sales
volume will be two times the aggregate amount of Product forecasted to
be ordered for the six months covered by the Quarterly Forecast most
recently delivered by Purchaser as of the date of the order. Pricing
shall be subject to adjustment as set forth in subsections (b) and (c).
(b) If the aggregate amount of Product shipped in any two months
covered by the then most recent Quarterly Forecast is less than 80% of
the aggregate amount shown for such two month period in such Quarterly
Forecast, then Purchaser shall pay to Nanophase, as an additional
increment of the purchase price, an amount equal to (i) the price that
would be payable under Exhibit B for the Product actually ordered
during such two month period at the next higher annual price level than
the one initially applied pursuant to subsection (a) above, minus (ii)
the price initially payable for such Product as provided in subsection
(a). Any such additional increment shall be separately invoiced by
Nanophase, with calculation of the invoiced increment set forth in
reasonable detail. Purchaser will not be required to make any payment
under this subsection (b) if Nanophase has made available for shipment
as provided in this Agreement less Product than Purchaser has ordered
for shipment pursuant to the terms of this Agreement in the relevant
two month period.
(c) Within 30 days of the end of each calendar year during the
term of this Agreement, Nanophase will deliver to Purchaser a statement
setting forth (i) the amount of Product invoiced during the preceding
calendar year, (ii) the aggregate price initially paid for such Product
pursuant to subsection (a) (excluding any increments paid pursuant to
subsection (b) or Section 3.03), and (iii) the amount payable
calculated in accordance with Exhibit B based upon amounts actually
ordered during the relevant year. If the amount referred to in clause
(iii) of the preceding sentence exceeds the amount referred to in
clause (ii), Purchaser will, within 45 days of receipt of Nanophase's
statement, pay to Nanophase the amount of such excess. If the amount
referred to in clause (ii) exceeds the amount referred to in clause
(iii), Nanophase will, within 45 days of its delivery of the statement,
pay to Purchaser the amount of such excess. Purchaser will not be
required to make any payment under this subsection (c) if Nanophase has
provided and invoiced less Product than Purchaser has ordered for
shipment in the relevant calendar year.
(d) Nanophase and Purchaser will, upon the request of Purchaser,
negotiate in good faith with respect to discounted prices for Product
included in material sold by Purchaser to certain preferred Purchaser
customers.
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(e) Nanophase and Purchaser agree to negotiate in good faith
lower purchase prices for annual amounts of Product greater than
681,818 kilograms.
(f) The pricing set forth in Exhibit B will be subject to annual
increases or decreases based upon changes in labor costs, electricity
costs, and changes in the published price of zinc metal, all in
accordance with the calculation described in Exhibit C. The first such
adjustment will be made based on costs and prices as of January 1, 2001
and will be effective as soon thereafter as the statistics referred to
in Exhibit C become available for that date. The base from which
changes will calculated pursuant to Exhibit C will be the most recently
reported statistics as of the date of this Agreement. Prices calculated
pursuant to Exhibit C will be fixed without further adjustment for at
least -twelve months after they become effective.
1.5. Shipping Date. Nanophase will have Product available for shipment
F.O.B. its facility and will deliver Product to the carrier at the Nanophase
loading dock, packaged and labeled in accordance with Exhibit A, by the date set
forth in the relevant purchase order; provided that Nanophase shall not be
required to so ship in any month an amount of more than 120% of the amount shown
for such month in the then current Quarterly Forecast. Nanophase will also have
available and (if ordered) provide as set forth in this Section 1.05 an
additional amount of Product equal to the amount of inventory required to be on
hand pursuant to Section 3.04; provided that if such additional amount is
depleted by orders from Purchaser it shall only be required to be restored to
the extent provided in Section 3.04. Risk of loss or damage to Product will pass
to Purchaser upon shipment.
1.6. Warranty; Acceptance. Nanophase warrants that all Product shipped
under this Agreement will conform to the specifications set forth in Exhibit A
and will be manufactured in accordance with Exhibit A. Nanophase shall be
responsible for quality control prior to shipment. Purchaser shall have thirty
days from delivery of Product hereunder to inspect each shipment prior to
acceptance. Product shipped against a Purchaser purchase order shall be accepted
if the shipment conforms to Exhibit A and the full amount of such shipment is
timely shipped as provided this Agreement. With respect to any nonconforming,
late or incomplete shipment, Purchaser may, at any time prior to the expiration
of the thirty day acceptance period, reject any Product delivered and either (i)
cancel the relevant purchase order, upon which Nanophase will promptly refund in
full any amounts paid under such purchase order, or (ii) in the case of a
nonconforming shipment, require Nanophase to immediately ship Product in
conformity with the relevant purchase order and Exhibit A; provided that with
respect to any incomplete shipment Purchaser may not cancel the relevant
purchase order if Nanophase has made the balance of the order available for
shipment as provided herein within 5 days of the date due. Any rejected Product
will be returned to Nanophase at Nanophase's risk and expense. Incremental costs
incurred by Nanophase to replace non-conforming shipments will be borne by
Nanophase.
1.7. Payment. Payment of the initial purchase price for Product ordered
under this Agreement shall be due 60 days from date of invoice with payment due
on the 60th day. Product will be invoiced on or after shipment. Nanophase shall
retain title to Product until payment in full of the initial purchase price. If
for any reason this retention of title is ineffective, Purchaser grants to
Nanophase a purchase money security interest in ordered Product for payment in
full of the initial purchase price.
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1.8. Batch Size. Product sold under this Agreement will initially be
made in batches of 500 kilograms per batch. Beginning on the 60th day after the
end of the first period of two consecutive months in which Purchaser orders a
total of at least 33,000 kilograms of Product, the size of each batch will be
increased to 1000 kilograms or such other amount as may be mutually agreed upon.
II. EXCLUSIVITY; REQUIREMENTS
2.1. Nanophase Exclusivity. Nanophase covenants that, during the term
of this Agreement and for two years after effectiveness of any termination of
this Agreement, Nanophase will not, directly or indirectly, knowingly sell zinc
oxide to any person other than Purchaser for use in the Field or resale
(directly or indirectly) to any person for use in the Field.
2.2. Purchaser Requirements.
(a) Purchaser will deliver its first purchase order under this
Agreement not later than June 30, 2000. During the twelve month period
beginning on the date of delivery of Purchaser's first purchase order,
Purchaser will purchase at least 100,000 kilograms of Product under
this Agreement. If Purchaser does not order at least 100,000 kilograms
of Product during such twelve month period, then within 30 days of the
first anniversary of the date of delivery of Purchaser's first purchase
order, Purchaser will pay to Nanophase an amount equal to (i) the price
of 100,000 kilograms of Product, determined in accordance with Exhibit
B, minus (ii) the aggregate purchase price of Product ordered by
Purchaser during the twelve month period beginning on the date of
delivery of Purchaser's first purchase order; provided that no such
payment shall be due if Nanophase has failed to meet timely its
shipment obligations for any month during such year. Shipment will be
deemed timely for this purpose if made within two days of the date
required by Section 1.05.
(b) For each of the years beginning on the first and each
subsequent anniversary of the date of delivery of Purchaser's first
purchase order, Purchaser will purchase from Nanophase at least 70% of
its requirements of zinc oxide for use or resale in the Field. This
requirements commitment shall not be effective if Nanophase shall,
during the period up to and including the date on which this
requirements commitment would otherwise become effective, fail to ship
in a timely fashion at least 80% of the Product required to shipped in
any month, or at least 95% of the Product required to be shipped in any
three month period, in either case under purchase orders made by
Purchaser in accordance with this Agreement, with Product meeting the
specifications set forth in Exhibit A and manufactured in accordance
with Exhibit A.
III. CAPACITY
3.1. Initial Capacity. Nanophase represents and warrants that it has
and will have, on the date of this Agreement and throughout the term of this
Agreement, the capacity to manufacture and ship to Purchaser in conformity with
Exhibit A at least 15,200 kilograms of Product per month. Nanophase further
represents and warrants that it has and will have, on the date of this Agreement
and throughout the term of this Agreement, additional capacity to
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manufacture in conformity with Exhibit A at least 3,040 additional kilograms of
Product per month that can be made available on a timely basis to supplant or
supplement the capacity of 15,200 kilograms required by the preceding sentence.
3.2. Increases in Capacity. Purchaser may from time to time, by notice
to Nanophase, request increases in Nanophase's capacity to manufacture and ship
Product to Purchaser hereunder. Each requested increased level of capacity shall
be stated in kilograms per month. Nanophase agrees that it will implement any
request for which, after compliance with such request, total requested capacity
will be 26,500 kilograms per month or less. In the case of any request for
which, after compliance with such request, total requested capacity would be
more than 26,500 kilograms per month (a "Declinable Request"), Nanophase may,
within one month after the delivery of Purchaser's notice, deliver a response
stating that Nanophase declines to implement the requested increase in capacity,
in which case Purchaser shall have the rights set forth in Article V. No more
than one Declinable Request may be made in any calendar quarter, and the
incremental new capacity specified in any Declinable Request may not exceed
15,200 kilograms per month. Any increase requested by Purchaser pursuant to this
Section 3.02 (other than a Declinable Request declined as permitted by this
Section 3.02) shall be implemented within 180 days after the delivery of
Purchaser's request. Nanophase will at all times maintain actual capacity to
manufacture and ship Product of at least 120% of the requested capacity required
to be implemented from time to time pursuant to this Section 3.02.
3.3. Utilization of Increased Capacity. If a requested increase in
capacity is timely implemented and if in any period of three consecutive
calendar months beginning 12 months after Purchaser delivered the request for
such increase, average monthly orders by Purchaser for such three month period
are less than 80% of the total requested capacity, Purchaser will pay to
Nanophase, as an additional increment of the purchase price for Product ordered
during such three month period, an amount equal to (i) the price that would be
payable under Exhibit B for the Product actually ordered during such three month
period at the next higher annual price level than the one initially applied
pursuant to Section 1.04(a), minus (ii) the price initially payable for such
Product as provided in Section 1.04(a). Any such additional increment shall be
separately invoiced by Nanophase, with calculation of the invoiced increment set
forth in reasonable detail.
3.4. Inventory. Nanophase shall maintain inventory of manufactured
Product available to fill orders from Purchaser equal to two times the average
forecasted monthly orders as reflected in the then current Quarterly Forecast.
If this inventory is depleted by orders from Purchaser, Nanophase will restore
the required inventory level as soon as capacity in excess of Purchaser orders
permits. If Purchaser shall request an increase in the amount of inventory to be
maintained by Nanophase under this Agreement, Nanophase shall maintain such
increased inventory level subject to good faith negotiation regarding payment of
the costs of maintaining the increased level of inventory.
3.5. Allocation. The fulfillment of Nanophase's obligations to
Purchaser hereunder shall be the first priority of the relevant Nanophase
facilities as configured for the Product and other resources useable for
manufacture of the Product.
3.6. Initial Samples. Nanophase will propose to Purchaser a plan for
the continuous manufacture at the expense of Nanophase, in the machines and
facilities intended to be used to
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fulfill Nanophase's obligations for the year after the delivery of Purchaser's
first purchase order, of 4000 kilograms of Product. This Product will be for use
by Purchaser as qualification samples with Purchaser's customers during the
period beginning on October 1, 1999 and ending on June 30, 2000. Purchaser may
observe the manufacture and quality control procedures for the production of
this initial 4000 kilograms of Product. Successful completion of this initial
production shall be a condition precedent to the effectiveness of the
obligations of Purchaser and Nanophase under this Agreement; provided that
Purchaser may unilaterally waive this condition for both Purchaser and
Nanophase.
IV. TERM OF RIGHTS AND OBLIGATIONS
4.1. Term and Termination.
(a) The provisions of this Agreement shall remain in effect unless
and until terminated pursuant to this Section 4.01.
(b) At any time after delivery of Purchaser's first purchase order
for Product, either party may terminate this Agreement for any reason
by delivering two years' advance notice of termination to the other
party.
(c) Nanophase may terminate this Agreement by notice to Purchaser
if (i) Purchaser shall have materially breached this Agreement and
shall not have cured such breach within 90 days of delivery by
Nanophase of a notice describing such breach; or (ii) the board of
directors of Purchaser approves the dissolution or winding up of
Purchaser, a receiver is appointed for Purchaser or a substantial
portion of its assets, Purchaser shall make an assignment for the
benefit of creditors or commence any bankruptcy or insolvency
proceedings, or any bankruptcy or insolvency proceedings shall be
commenced against Purchaser which are not stayed or dismissed within 90
days.
(d) Purchaser may terminate this Agreement by notice to Nanophase
if (i) Nanophase shall have failed to ship in a timely fashion at least
80% of the Product required to shipped in any month, or at least 95% of
the Product required to be shipped in any three month period, in either
case under purchase orders made by Purchaser in accordance with this
Agreement, with Product meeting the specifications set forth in Exhibit
A and manufactured in accordance with Exhibit A; (ii) Nanophase shall
have otherwise materially breached this Agreement and shall not have
cured such breach within 90 days of delivery by Purchaser of a notice
describing such breach; or (iii) the board of directors of Nanophase
authorizes the dissolution or winding up of Nanophase, a receiver is
appointed for Nanophase or a substantial portion of its assets,
Nanophase shall make an assignment for the benefit of creditors or
commence any bankruptcy or insolvency proceedings, or any bankruptcy or
insolvency proceedings shall be commenced against Nanophase which are
not stayed or dismissed within 90 days.
4.2. Effect of Termination.
(a) If Nanophase shall deliver notice of termination under Section
4.01(b) on or before the first anniversary of the date of delivery of
Purchaser's first purchase order, Purchaser shall have no further
obligations under Section 2.02 after delivery of
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Nanophase's notice. If Nanophase shall deliver notice of termination
under Section 4.01(b) after the first anniversary of the date of
delivery of Purchaser's first purchase order, and Nanophase shall not
then be in breach of this Agreement, Purchaser shall be obligated to
purchase 50% of its requirements for the Product for the twelve month
period following delivery of notice of termination if Nanophase shall
continue to comply with its shipment and other obligations under this
Agreement. After twelve months from notice of termination by Nanophase
under Section 4.01(b), Purchaser will have no further obligations
under Section 2.02.
(b) If Purchaser shall deliver notice of termination under Section
4.01(b) on or before the first anniversary of the date of delivery of
Purchaser's first purchase order, then (i) Purchaser's obligations
under Section 2.02(a) shall continue in effect for their original term,
(ii) Purchaser shall be obligated to purchase at least 70% of its
requirements for the Product for the period from the earlier of (x) 180
days after delivery of notice of termination and (y) the first
anniversary of delivery of Purchaser's first purchase order until (in
either case) the first anniversary of notice of termination, and (iii)
Purchaser shall be obligated to purchase 50% of its requirements for
the Product for the period from the first anniversary of delivery of
notice of termination until the second anniversary of notice of
termination. If Purchaser shall deliver notice of termination under
Section 4.01(b) after the first anniversary of the date of delivery of
Purchaser's first purchase order, Purchaser shall be obligated to
purchase 70% of its requirements for the Product for the first year
after delivery of notice of termination, and Purchaser shall be
obligated to purchase 50% of its requirements for the Product for the
second year after delivery of notice of termination.
(c) If Nanophase shall terminate this Agreement under Section
4.01(c), Nanophase may, by an express election included in its notice
of termination, obligate Purchaser to purchase under this Agreement 70%
of its requirements for the Product for the first twelve months after
termination and 50% of its requirements for the Product for the second
twelve months after termination. If Nanophase makes such an election,
then for a period of twenty four months after termination Nanophase
shall be obligated to fill Purchaser's orders for Product, on the terms
set forth in Article I, to the extent of Nanophase's required capacity
as of the date of termination, as established as of such date pursuant
to the provisions of Article III (or, if higher, to the extent of the
amount that Purchaser is required to purchase). Purchaser's obligations
to purchase from Nanophase under this Section 4.02(c) will terminate if
Nanophase does not comply with its obligations to fill orders for
Product as provided in this Section 4.02(c).
(d) If Purchaser shall terminate this Agreement under Section
4.01(d), then for a period of two years after termination Nanophase
shall be obligated to fill Purchaser's orders for Product, on the terms
set forth in Article I, to the extent of Nanophase's required capacity
as of the date of termination, as established as of such date pursuant
to the provisions of Article III.
4.3. Survival of Additional Provisions. The obligations of the parties
to make any payments due but unpaid on the date of termination and the
provisions of Article V, Article VI, and Section 7.04 shall survive any
termination of this Agreement. The provisions of
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Section 2.01 shall survive termination of this Agreement for the period set
forth therein. The provisions of Article I shall survive termination with
respect to purchases and sales of Product made after termination.
V. TECHNOLOGY TRANSFER
5.1. Triggering Events. Upon the occurrence of any of the following
events (each a "Triggering Event"), Purchaser's rights to transfer of technology
under this Article V shall become effective:
(a) Nanophase shall deliver notice of termination of this
Agreement under Section 4.01(b).
(b) Purchaser shall terminate this Agreement under Section
4.01(d).
(c) Nanophase shall have failed to ship in a timely fashion at
least 80% of the Product required to be shipped in any month, or at
least 95% of the Product required to be shipped in any three month
period, in either case under purchase orders made by Purchaser in
accordance with this Agreement, with Product meeting the specifications
set forth in Exhibit A and manufactured in accordance with Exhibit A.
(d) Nanophase shall for any reason decline or otherwise fail to
implement in a timely fashion any increase in capacity requested by
Purchaser in compliance with Section 3.02.
(e) (i) Earnings of Nanophase for the twelve month period ending
on the date of Nanophase's most recent published quarterly financial
statements (calculated in accordance with generally accepted accounting
principles applied on a consistent basis) shall be less than $0 and
cash and cash equivalents of Nanophase at the end of such period
(calculated in accordance with generally accepted accounting principles
applied on a consistent basis) shall be less than $4,000,000; (ii) any
event or condition shall occur which results in the acceleration of any
debt of Nanophase having a principal amount of more than $ 10,000,000
or enables (or, with the giving of notice or lapse of time or both,
would enable) the holder of such debt or any person acting on the
holder's behalf to accelerate the maturity thereof; or (iii) Nanophase
shall admit in writing its insolvency or its inability to pay its debts
as they come due, or the board of directors of Nanophase shall
authorize any liquidation or winding up of Nanophase. Nanophase will
give Purchaser prompt notice of the occurrence of any event specified
in this Section 5.01(e). The events described in this Section 5.01(e)
shall cease to be Triggering Events (i) on the first date that
Nanophase shall have had six consecutive quarters of operating income
which in the aggregate exceeds $1,500,000, calculated in accordance
with generally accepted accounting principles applied on a consistent
basis or (ii) on the first date that Nanophase shall have been acquired
by or merged with an entity where the surviving entity has total
stockholders' equity in excess of $50,000,000.
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5.2. License.
(a) In recognition of Purchaser's investment in developing product
lines that include the Product and Purchaser's reliance on continued
availability, Nanophase grants to Purchaser, effective upon (and only
upon) a Triggering Event, a worldwide, exclusive license under U.S.
patent nos. 5,460,701; 5,514,349; and 5,874,684; and all corresponding
foreign patents and patent applications (the "Licensed Patents"), and
any other intellectual property included in the material referred to in
Section 5.03 or otherwise relevant to the manufacture of the Product
for use in the Field (including without limitation existing and future
patent applications or patents and any intellectual property licensed
from third parties), with the right to sublicense, to make, have made,
use, offer to sell, sell, import, lease or otherwise dispose of the
Product for use in the Field, and to practice and have practiced any
method(s) described and claimed in the Licensed Patents or other
intellectual property for such purpose. This license includes the right
of Purchaser: (a) to bring suit in its own name, or if required by law,
jointly with Nanophase, at its own expense and on its own behalf, for
infringement of the Licensed Patents; and (b) in any such suit to
enjoin infringement and to collect for its use, damages, profits and
awards of whatever nature recoverable, for such infringement. Nanophase
agrees to cooperate in the prosecution of any such proceedings,
including by execution of any documents that Purchaser determines to be
necessary or appropriate for such prosecution. In the event that the
validity or the priority of the Licensed Patents is challenged in a
legal proceeding, Purchaser shall have the initial right to defend the
same, at its own expense, whether the legal proceeding is brought
against Nanophase or Purchaser. Nanophase agrees to cooperate fully
with Purchaser in any such proceeding. This license shall have a term
equal to the remaining term of last to expire of the Licensed Patents.
(b) During the effectiveness of the license granted under
subsection (a) above, Purchaser will pay to Nanophase a royalty of [ *
* * ]. "Net Sales" shall mean (i) all sales of zinc oxide manufactured
by Purchaser or its sublicensees under the license and (ii) the amount
of zinc oxide included in other products sold by Purchaser or its
sublicensees and manufactured by Purchaser or its sublicensees under
the license (valued at the manufacturer's then current list price), in
either case less any returns, adjustments, allowances, taxes (other
than income taxes) and credits, and excluding sales of any zinc oxide
purchased from Nanophase. Purchaser will, on or before sixty days after
the end of each calendar quarter after effectiveness of the license,
deliver to Nanophase a statement setting forth in reasonable detail the
calculation of Net Sales and the royalty due for the preceding quarter.
Delivery of each statement shall be accompanied by payment of the
royalty due for the quarter covered by the statement. Nanophase may
request a third party audit, at Nanophase's expense, of Purchaser's and
Purchaser's sublicensees' records and supporting documents relating to
sales of products including zinc oxide manufactured by Purchaser or
Purchaser's licensees under the license. Audits will be made during
normal business hours by a nationally known independent auditor at the
place where the above records are kept. If an audit shows underpayment,
Purchaser will promptly pay Nanophase the amounts due.
* * * CONFIDENTIAL TREATMENT REQUESTED
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5.3. Escrow. Ninety days after Nanophase receives Purchaser's initial
purchase order pursuant to Section 1.02, Nanophase agrees to deposit with a
mutually agreed escrow agent, at Purchaser's expense, all information that would
be required by Purchaser to configure and operate a facility to manufacture the
Product using Nanophase's technology, including such blue prints and operating
instructions and other documentation as may be necessary to duplicate
Nanophase's manufacturing equipment. The Escrow Agreement under which the escrow
agent will hold such materials (the "Escrow Agreement") will provide that such
materials will be delivered to Purchaser upon notice of the occurrence of a
Triggering Event.
5.4. Equipment Purchase Option. Upon the occurrence of a Triggering
Event, Purchaser shall have the right, at its option, to purchase any or all of
the manufacturing, blending, control and packaging equipment associated with the
production of the Product (including operating manuals and instructions and
quality control records) in good working condition at 115% of such equipment's
net book value (as reflected on the books of Nanophase in accordance with
generally accepted accounting principles consistently applied), F.O.B.
Nanophase's manufacturing facility. Upon the occurrence of a Triggering Event,
Purchaser will also have the right, at its option, to purchase any or all of the
inventory of the Product, and work in process or raw materials for the Product,
held by Nanophase at a price equal to the cost of such materials, as shown on
the books of Nanophase in accordance with generally accepted accounting
principles applied on a consistent basis, F.O.B. Nanophase's manufacturing or
warehouse facility. Nanophase will provide 80 man hours of technology transfer
assistance without charge in connection with any such purchase, and will make
additional assistance available to Purchaser at a rate of $60.00 per man hour.
Nanophase will deliver equipment purchased under this Section 5.04 to its
loading dock in good condition and prepared for crating and transport by
Purchaser, and will provide access and cooperation to Purchaser during normal
business hours for removal of all assets purchased pursuant to this Section
5.04. Payment will be due from Purchaser within 30 days of the date on which
Purchaser takes possession.
5.5. Nature of Agreement. This Agreement is intended to be, and shall
be treated as, a contract under which Nanophase is a licensor of a right to
intellectual property within the meaning of Section 365(n) of the United States
Bankruptcy Code (or any successor provision), and the escrow agreement referred
to in Section 5.03 is intended to be, and shall be treated as, an agreement
supplementary to a contract under which Nanophase is a licensor of a right to
intellectual property within the meaning of such Section (or successor
provision).
VI. INTELLECTUAL PROPERTY
6.1. Ownership of Intellectual Property. Each of Nanophase and
Purchaser agree that, as between Nanophase and Purchaser, all patents,
trademarks, trade secrets, know-how and other intellectual property developed by
or registered in the name of either party shall remain the property of that
party. Neither party will, directly or indirectly, dispute the validity, scope
or enforceability of any patent, trademark, trade secret or other intellectual
property held by the other party, or assist or encourage any other person to do
so. Each party acknowledges and agrees that, except as expressly stated herein
and except for the implied license of Purchaser and its customers to use and
sell Product purchased from Nanophase, no license, implied or otherwise, is
granted hereby under any patent, trademark, trade secret, patent or trademark
application or any other intellectual property right. Nothing contained in this
Agreement shall
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(i) limit the right of Nanophase to enter into agreements from time to time
which grant rights under patents or patent applications for products other than
for the Product for use in the Field or (ii) affect rights granted to third
parties by Nanophase for products other than the Product for use in the Field.
6.2. Confidentiality. As used in this Agreement, "Confidential
Information" means (i) all confidential or proprietary information (including
without limitation financial information and business information such as
customer lists) that is or has been disclosed by Nanophase to Purchaser or by
Purchaser to Nanophase and (ii) all confidential information, trade secrets,
know-how, and all other intellectual property that is subject to the licenses
granted in this Agreement and in which proprietary rights would be adversely
affected by disclosure. Nanophase and Purchaser agree that they will not, and
will not permit their respective officers, employees, agents and representatives
to, without first obtaining the written consent of the other party, use, sell or
disclose any Confidential Information, except as expressly contemplated hereby
and except that Confidential Information may be disclosed by the party that owns
it unless such disclosure would adversely affect the proprietary nature of
Confidential Information subject to any of the licenses granted hereunder.
Either party may disclose Confidential Information to potential customers, and
to other third parties to the extent necessary to permit any such third party to
assist in manufacturing or marketing activities, provided that any such
potential customer or third party to whom Confidential Information is disclosed
shall execute a confidentiality agreement no less restrictive than this Section
6.02. "Confidential Information" does not include (i) information that is or
becomes (other than by disclosure in violation of this Agreement) generally
available to the public, (ii) information that the receiving party can show was
known to the receiving party prior to its disclosure by the other party, (iii)
information acquired by the receiving party from a third party without
continuing restriction on use or breach of any obligation to the other party to
this Agreement, (iv) information that a party can show by contemporaneous
written records was developed by that party without reference to the other
party's Confidential Information, or (v) information required to be disclosed by
law or regulation or by judicial process or administrative order, provided that
prompt notice and an opportunity to seek a protective order is given to the
other party prior to disclosure. Nanophase and Purchaser agree that this
Agreement and the Exhibits hereto are Confidential Information subject to this
Section 6.02. Purchaser consents to the disclosure of the relationship
contemplated by this Agreement in filings by Nanophase with the U.S. Securities
and Exchange Commission relating to publicly traded securities of Nanophase, and
the filing of this Agreement as a related exhibit; provided that Nanophase shall
diligently seek confidential treatment of all pricing information and the
identity of Purchaser. Nanophase consents to the disclosure of this Agreement to
shareholders, investors, and other third parties with whom Purchaser has
significant business relationships, provided that any party to whom Purchaser
makes disclosure shall agree to keep all pricing information confidential.
6.3. Representations. Nanophase represents to Purchaser that:
(i) Nanophase has full authority to enter into this
Agreement and grant the licenses and rights set forth herein.
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(ii) To the best of Nanophase's knowledge, the Licensed
Patents, the Product and the manufacture of the Product do not
infringe upon any patent, trade secret or other proprietary right
of any third party.
(iii) Nanophase is not aware of any claim of infringement of
any patent, trade secret or other proprietary right having been
made or pending against Nanophase relative to the Licensed
Patents, the Product or the manufacture of the Product.
6.4. Representations. Purchaser represents to Nanophase that:
(i) Purchaser has full authority to enter into this
Agreement.
(ii) To the best of Purchaser's knowledge, U.S. Patent
5,587,148 (the "Purchaser Patent") does not infringe upon any
patent, trade secret or other proprietary right of any third
party.
(iii) Purchaser is not aware of any claim of infringement of
any patent, trade secret or other proprietary right having been
made or pending against Purchaser relative to the Purchaser
Patent.
6.5. Indemnities.
(a) Nanophase will, at its expense, defend against, hold Purchaser
harmless from, and pay any final judgment against Purchaser or any
customer of Purchaser arising out of (1) any claim that the Licensed
Patents, the Product or the manufacture of the Product infringed a
patent, a trade secret or any other proprietary right (unless such
claim results from designs or specifications provided by Purchaser) or
(2) any claim arising out of the failure of any Product provided by
Nanophase to meet the specifications applicable under Exhibit A at the
time of shipment, or gross negligence or misconduct of Nanophase;
provided that (i) Purchaser notifies Nanophase in writing of such claim
or action, and (ii) Nanophase shall conduct the defense of such claim
or action subject to the effective participation of Purchaser. In
defending any claim or action referred to in clause (1) above,
Nanophase may, at its option, agree to any settlement in which
Nanophase shall either (x) procure, for the benefit of Purchaser, the
right to continue to make and have made, use and sell Product; or (y)
modify the Product or the method of manufacture thereof so that its
making, use and sale shall no longer infringe, to the extent that the
exercise of either such option does not result in a material adverse
change in the Product or its cost. If Nanophase shall fail to
diligently and effectively defend any such claim or action, Purchaser
shall have the right to assume the defense without diminishing
Nanophase's indemnity obligations hereunder.
(b) Purchaser will, at its expense, defend against, hold Nanophase
harmless from, and pay any final judgment against Nanophase arising out
of (1) any claim that modification of the Product by Purchaser or use
of the Product in the Field infringed a patent, a trade secret or any
other proprietary right (unless such claim results from infringements
by Nanophase against which Purchaser is indemnified in (a) above) or
(2) any claim by a third party arising out of the sale of products by
Purchaser (other than
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claims against which Purchaser is indemnified in (a) above); provided
that (i) Nanophase notifies Purchaser in writing of such claim or
action, and (ii) Purchaser shall conduct the defense of such claim or
action subject to the effective participation of Nanophase. If
Purchaser shall fail to diligently and effectively defend any such
claim or action, Nanophase shall have the right to assume the defense
without diminishing Purchaser's indemnity obligations hereunder.
VII. GENERAL.
7.1. Compliance With Law. Nanophase represents and warrants to
Purchaser that the manufacturing operations of Nanophase and the production and
shipment of the Product will at all times be in compliance with all applicable
laws and regulations, including without limitation laws and regulations relating
to the protection of the environment and to occupational health and safety.
7.2. Plant Visits. Upon reasonable notice to Nanophase, Purchaser shall
have the right to visit any Nanophase facility at which the Product is
manufactured or stored during normal business hours. Purchaser may identify
Nanophase as manufacturer of the Product to its customers and prospective
customers and may bring customers and prospective customers to Nanophase's
facilities to observe the manufacturing process, subject to the execution by
such customers of a confidentiality agreement no less restrictive than the
provisions of Section 6.02. Purchaser may review and copy all quality control
documentation; provided that all such documentation shall be deemed
"Confidential Information" subject to Section 6.02.
7.3. Force Majeure. Neither party will be liable hereunder for any
delay or failure to perform its obligations as a result of war, Act of God, Act
of State, fire, flood, earthquake, riot or political disturbance, strike,
transportation difficulties, or other similar unavoidable cause outside the
control of the affected party for so long as such cause is operative, provided
that the affected party shall promptly give notice of the occurrence of an event
of force majeure and shall use best efforts to remedy the situation as soon as
possible. For the duration of any event of force majeure affecting Nanophase,
Purchaser may purchase its requirements of zinc oxide (and such additional
quantities as Purchaser my contractually agree to in connection with obtaining
supply commitments) from sources other than Nanophase notwithstanding Section
2.02. If any failure or inability of Nanophase to ship Product in accordance
with this Agreement arising from an event of force majeure shall not have been
cured within 150 days after the first occurrence of such event, Purchaser may
then exercise its rights to terminate this Agreement under Section 4.01(d) and
to effect transfer of technology under Article V.
7.4. Limitation of Warranties. THE OBLIGATIONS OF NANOPHASE AND
PURCHASER EXPRESSLY STATED IN THIS AGREEMENT ARE IN LIEU OF ALL OTHER WARRANTIES
OR CONDITIONS EXPRESS OR IMPLIED. TO THE EXTENT ALLOWABLE BY LAW, THIS EXCLUSION
OF ALL OTHER WARRANTIES AND CONDITIONS EXTENDS TO IMPLIED WARRANTIES OR
CONDITIONS OF MERCHANTABLE QUALITY AND FITNESS FOR A PARTICULAR PURPOSE, AND
THOSE ARISING BY STATUTE OR OTHERWISE IN LAW, OR FROM A COURSE OF DEALING OR
USAGE OF TRADE.
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7.5. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
7.6. Assignment. Either party may assign its rights under this
Agreement to a party that has creditworthiness at least equal to that of the
assigning party as of the date of this Agreement and the capability to fulfill
the obligations of the assigning party hereunder. This Agreement shall be
binding upon, and inure to the benefit of, the successors and permitted assigns
of the parties. An assigning party will give prompt notice of assignment to the
other party.
7.7. Effect of Waiver. The waiver or failure of either party to
exercise in any respect any right provided for in this Agreement shall not be
deemed a waiver of any further or future right hereunder.
7.8. Headings. The headings used in this Agreement are for convenience
of reference only and are not to be used in interpreting the provisions of this
Agreement.
7.9. Complete Agreement. This Agreement is the exclusive statement of
the understanding between the parties with respect to its subject matter. It
supersedes all prior agreements, negotiations, representations and proposals,
written or oral, relating to the subject matter hereof. No provisions of this
Agreement may be changed or modified except by an agreement in writing signed by
the party to be bound. No provision of any purchase order or other instrument
issued by Purchaser or any invoice or other form issued by Nanophase that is
inconsistent with the provisions of this Agreement shall be binding or affect
this Agreement unless signed by both parties.
7.10. Severability. If any provision of this Agreement is invalid or
unenforceable in any particular case, such case shall not invalidate or render
unenforceable any other part of this Agreement. This Agreement shall be
construed as not containing the particular provision or provisions held to be
invalid or unenforceable to the extent of the particular case, and the rights
and obligations of the parties hereto shall be construed and enforced
accordingly.
7.11. Effectiveness of Agreement; Counterparts. Subject to the
satisfaction of the conditions set forth in the letter of even date with this
Agreement executed by Nanophase and Purchaser, this Agreement will be effective
when executed by both parties. This Agreement may be executed in counterparts,
each of which shall constitute one and the same instrument.
7.12. Notices. All notices provided for in this Agreement shall be in
writing or facsimile, addressed to the appropriate party at the respective
address set forth below or to such other then-current address as is specified by
notice, as follows:
to Nanophase :
Nanophase Technologies Corporation
453 Commerce Street
Burr Ridge, Illinois 60521
Facsimile:
Attention: Joseph E. Cross
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to Purchaser:
[ * * * ]
Notices sent by certified mail, return receipt requested to the address
specified pursuant to this Section 7.12 shall be effective three business days
after deposit in the U.S. Mail with postage prepaid. Notice delivered by any
other means shall be effective upon receipt.
7.13. No Agency. Nanophase and Purchaser are independent contractors
and separate legal entities and shall in no way be interpreted as partners,
joint venturers, agents, employees or legal representatives of each other for
any purposes. Neither party shall be responsible for or bound by any act of the
other party or the other party's agents, employees or any persons in any
capacity in its service.
7.14. Equitable Relief. Each party acknowledges that the other would be
irreparably harmed by any breach of Article II, Article III, Article IV or
Section 6.02, and that damages alone would be an inadequate remedy for any such
breach. Accordingly, the aggrieved party shall be entitled to equitable relief,
including without limitation an injunction for specific performance, with
respect to any such breach, without requirement of the posting of a bond or
other surety.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the first date set forth above.
NANOPHASE TECHNOLOGIES
CORPORATION [ * * * ]
By: /s/ Daniel S. Bilicki
-------------------------------
Name: Daniel S. Bilicki
Title: Vice President Sale and Marketing
* * * CONFIDENTIAL TREATMENT REQUESTED
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EXHIBIT A
Manufacturing Conditions
The product (non-coated zinc oxide) will be manufactured under GMP standards (as
defined in 21 Code of Federal Regulations Parts 210 and 211) and ISO 9000
standards as applicable and such other standards as the parties may mutually
agree from time to time.
Purity
The Product will meet USP, BP purity requirements At least 50% of the product
made will meet the JSCI standard for zinc oxide purity. The Product will be free
of foreign bodies.
Particle Size
It is the present intention of the parties that the specifications for particle
size applicable under this Agreement will be those set forth below. The parties
will conduct additional tests to validate such specifications. If the results of
validation testing are inconsistent with the specifications set forth below, the
parties will in good faith agree on changes to such specifications.
To be determined using a Brook Haven XDC or other instrument mutually agreed
upon.
The Product will have an average particle size (on a number basis) of less than
0.2 microns but greater than .05 microns. The product will have an average
particle size (on a mass basis) of less than 0.250 microns.
The Product will have at least 95% of its mass accounted for by particles with
diameters of less than 1.0 microns with no detectable particles greater than 1.5
microns.
From samples produced by Nanophase, a Reference Standard will be established and
inventoried for comparison and instrument calibration.
Packaging
The Product will be packaged in, at Purchaser's discretion, one or more of the
following containers: 18.18 kg plastic lined boxes, bins containing sixteen
individual 18-18 kg plastic bags or appropriately sized super-sacks.
No more than 25% of the product will packaged in said boxes.
Labeling: To be determined.
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EXHIBIT B
Indicated below is a pricing schedule for Product F.O.B. Nanophase's Plant.
[ * * * ]
* * * CONFIDENTIAL TREATMENT REQUESTED
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EXHIBIT C
Pricing set forth in Exhibit B shall be subject to changes in labor costs,
electricity costs and zinc metal prices as published in the Wall Street Journal
and indexed as follows.
[ * * * ]
* * * CONFIDENTIAL TREATMENT REQUESTED
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