Certain confidential portions of this Exhibit have been deleted and filed
separately with the Securities and Exchange Commission. An asterisk (*) denotes
confidential information that has been omitted from the Exhibit and filed
separately, accompanied by a confidential treatment request, with the Securities
and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934.
DISTRIBUTION AGREEMENT
This Distribution Agreement ("Agreement") is entered into and is
effective this 12th day of March, 1996, by and among LecTec Corporation, a
Minnesota corporation having its principal place of business at 00000 Xxx Xxxxxx
Xxxxx, Xxxxxxxxxx, Xxxxxxxxx ("LecTec"), Natus Corporation, a Minnesota
corporation having its principal place of business at 00000 Xxx Xxxxxx Xxxxx,
Xxxxxxxxxx, Xxxxxxxxx ("Old Natus") and Natus, L.L.C., an Arizona limited
liability company having its principal place of business at 0000 Xxxx Xxxxxxxxx
Xxxx, Xxxxx 000, Xxxxxxx, Xxxxxxx 00000 ("New Natus").
WHEREAS, LecTec is in the business of manufacturing Patches (as defined
below) for marketing, distribution and sale to the general public; and
WHEREAS, Old Natus is in the business of distributing Patches
manufactured by LecTec through means other than multi-level (network) direct
sales marketing and distribution; and
WHEREAS, LecTec owns a majority of the outstanding shares of Old Natus;
and
WHEREAS, New Natus is in the business of multi-level (network) direct
sales marketing and distribution of products such as the Patches and desires to
purchase the Patches for resale to in its multi-level (network) direct sales
marketing and distribution business under Natus trademarks, utilizing Natus
packaging and Natus promotional material; and
WHEREAS, LecTec has the capacity to manufacture or have manufactured
New Natus's requirements of such products; and
WHEREAS LecTec is willing to sell the Patches to Old Natus for
distribution to New Natus, and Old Natus is willing to distribute the Patches to
New Natus, for the multi-level (network) direct sales marketing and distribution
in the Exclusive Market (as defined below);
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and promises expressed herein, LecTec and New Natus agree as follows:
1. Definitions. As used herein, the following terms shall have the
following meanings:
1.1 "Agreement" shall mean this Distribution Agreement,
including any future written amendments, modifications, or supplements made in
accordance herewith.
1.2 "Effective Date" shall have the meaning set forth in
Section 3.
1.3 "Exclusive Market" shall mean the world-wide
person-to-person multi-level network marketing and distribution of Patches, and
specifically does not include institutional, retail, direct response infomercial
or commercial spots, electronic retailing (such as HSN or QVC), marketing and
distribution of Patches. It is expressly understood that this Agreement does not
grant marketing and distribution rights outside the Exclusive Market.
1.4 "FDA" shall have the meaning set forth in Section 13.1(B).
1.5 "LecTec" shall mean LecTec Corporation, a Minnesota
corporation.
1.6 "Old Natus" shall mean Natus Corporation, a Minnesota
corporation.
1.7 "Monthly Forecast" shall have the meaning set forth in
Section 9.2.
1.8 "New Natus" shall mean Natus, L.L.C., an Arizona limited
liability company.
1.9 "Patches" shall mean analgesic patches which meet the
criteria set forth in the United States Food and Drug Administration monograph
on external analgesic drug products for over-the-counter human use which contain
the active ingredients methyl salicylate, menthol and camphor.
1.10 "Re-Commencing Party" shall have the meaning set forth in
Section 19.5.
1.11 "Restricted Period" shall have the meaning set forth in
Section 19.5.
1.12 "Termination Notice" shall have the meaning set forth in
Section 19.4.
2. Engagement. Old Natus hereby engages New Natus, and New Natus hereby
accepts such engagement, to act as the distributor for Old Natus in the
Exclusive Market on the terms and conditions as set forth in this Agreement.
3. Term. The initial term of this Agreement shall begin on the date
first set forth above ("Effective Date") and shall end on February 28, 2001.
This Agreement shall be renewable for successive five (5) year terms thereafter
provided that the parties have, prior to the end of each preceding term, reached
an agreement on the price per Patch and minimum annual purchase amounts
applicable to such renewal term. The parties shall, beginning not later than one
year prior to the expiration of the initial term and each renewal term
thereafter, negotiate in good faith with the object of reaching agreement on the
price per Patch and the minimum annual purchase amount to be applied to the
subsequent renewal term.
4. Limited Exclusivity. New Natus shall be the exclusive distributor of
Patches in the Exclusive Market during the term of this Agreement, including any
renewals hereof. New Natus shall not market Patches in or for resale in any
other markets except the Exclusive Market. Neither LecTec nor Old Natus shall
sell Patches to any other person or entity in or for resale in the Exclusive
Market.
5. Right of First Offer for Other Analgesic Patches. Neither LecTec nor
Old Natus may offer analgesic patches other than the Patches for distribution,
sale or resale, whether directly or through a distributor, in the Exclusive
Market unless LecTec or Old Natus, as the case may be, first offers the right to
distribute such other analgesic patches to New Natus, specifying the terms of
such distribution relationship, and New Natus does not accept such offer. If New
Natus does not accept such offer to distribute such other analgesic patches on
the terms so offered within thirty (30) days of such offer, LecTec or Old Natus,
as the case may be, may offer such other analgesic patches for distribution,
sale or resale in the Exclusive Market, but only through a distributor and only
on such terms as are no more favorable to such distributor than the terms
offered to New Natus pursuant to this Section 5.
6. Order; Minimum Purchase. New Natus shall order Patches by submitting
a purchase order for the quantity of Patches desired to Old Natus. New Natus may
order and purchase Patches in any quantity so long as the quantity equals or
exceeds (*) Patches per order, and so long as the aggregate of all orders
purchased exceeds the minimum annual purchase amounts as set forth on Schedule
A, attached hereto and incorporated by this reference, for each year set forth
in Schedule A. For the purposes of calculating the aggregate orders purchased by
New Natus within the first year of this Agreement, all Patches contributed by
Old Natus to New Natus pursuant to the Contribution Agreement dated March 12th,
1996, shall be deemed to have been purchased by New Natus pursuant to this
Agreement.
7. Price. The purchase price to New Natus for the Patches meeting the
specifications set forth in Schedule B, attached hereto and incorporated by this
reference, shall be (*) per Patch purchased (other than those Patches deemed to
have been purchased pursuant to the last sentence of Section 6). In the event
that New Natus desires to purchase Patches other than Patches meeting the
specifications set forth in Schedule B, New Natus and Old Natus will negotiate
in good faith in an attempt to agree on a price for such Patches. In no event
shall Old Natus's charges to New Natus for Patches, whether meeting the
specifications set forth in Schedule B or otherwise, be in excess of LecTec's or
Old Natus' usual and customary charges for Patches of the same specifications to
distributors in markets other than the Exclusive Market, and if LecTec or Old
Natus offers a distributor in another market a lower price per Patch of the same
specifications, New Natus shall be permitted to purchase Patches on the same
terms as such other distributor.
8. Payment for Orders. New Natus shall pay to Old Natus the purchase
price for Patches ordered from Old Natus within 30 days after such order is
received by New Natus by payment to Old Natus.
9. Duties of New Natus.
9.1 New Natus shall devote the amount of time and effort on
the part of its personnel required to promote, market and distribute the
Patches.
9.2 On or before April 1, 1996, and at the beginning of each
calendar month thereafter during the term hereof, New Natus shall provide Old
Natus with an estimate of New Natus' requirements for Patches for the next
ninety (90) days (the "Monthly Forecast").
9.3 New Natus shall comply with all United States Food and
Drug Administration regulations applicable to New Natus' distribution of the
Patches, including but not limited to storage, distribution and the handling of
customer complaints. New Natus shall not misrepresent the nature of indications
for use of the Patches and will not alter the Patches.
9.4 New Natus shall take such reasonable actions as are
reasonably necessary (including cutting off supplies of Patches to or
terminating distributors) to prevent any domestic or foreign entity from
distributing or selling, directly or indirectly, outside the Exclusive Market
any Patches sold to New Natus hereunder.
10. Duties of LecTec.
10.1 LecTec shall devote the amount of time and effort on the
part of its personnel required to manufacture, produce and timely deliver all
Patches ordered by New Natus. LecTec shall fill and ship all orders placed by
New Natus within thirty (30) days after receipt of the corresponding purchase
order provided that the quantity of Patches in such order does not exceed the
estimate of New Natus' requirements for Patches contained in the Monthly
Forecast. Any orders for quantities of Patches in excess of the foregoing limits
shall be filled and shipped (i) to the extent of the foregoing limits, within
thirty (30) days after receipt of the corresponding purchase order and, (ii) to
the extent in excess of the foregoing limits, within sixty (60) days after
receipt of the corresponding purchase order.
10.2 LecTec and Old Natus shall notify New Natus of any
applications made or proposed (unless such notification is expressly prohibited
by the third party, if any, making or proposing such application) for regulatory
approval in any country or territory for the marketing or sale to the public of
the Patch and any other analgesic patch for which New Natus is the distributor
in the Exclusive Market, promptly upon LecTec or Old Natus obtaining knowledge
of such applications. LecTec and Old Natus will, on a quarterly basis, notify
New Natus of the status of any such applications made or proposed, unless such
notification is expressly prohibited by the third party, if any, making or
proposing such application. At the request of New Natus, LecTec and Old Natus
shall cooperate with New Natus to the extent necessary to include in such
applications a request for regulatory approval for the distribution and
marketing within the Exclusive Market of Patches and any other analgesic patches
for which New Natus is the distributor in the Exclusive Market unless such
inclusion is expressly prohibited by the third party, if any, making such
application. New Natus shall reimburse LecTec and Old Natus for any additional
cost to LecTec and Old Natus directly associated with, and reasonably incurred
as a result of, securing such additional regulatory approval for distribution
and marketing in the Exclusive Market, if such additional regulatory approval is
requested by New Natus.
11. Duties of Old Natus. Old Natus will timely forward any or all
purchase orders and Monthly Forecasts received by it to LecTec. The failure of
Old Natus to timely forward any or all purchase orders or Monthly Forecasts to
LecTec shall not excuse LecTec from the timely performance of its obligations
hereunder, including, without limitation, the obligation to timely fill and ship
orders pursuant to Section 10 hereof.
12. Shipping. All shipping and handling costs; demurrage; storage
costs; transportation insurance; sales or use taxes; and/or duties associated
with any order placed by New Natus shall be paid by New Natus; provided,
however, that any such costs associated with replacement shipments for defective
products shipped by LecTec shall be paid by LecTec. The method and route of
shipment shall be at New Natus's discretion.
13. Representations and Warranties of LecTec and Old Natus.
13.1 LecTec and Old Natus represent and warrant that:
(A) All Patches, their formulations and the
methodology used in their manufacture are owned or controlled by LecTec or Old
Natus and do not infringe upon any formulations or methodology not owned or
controlled by LecTec or Old Natus.
(B) All Patches are produced in conformity
with the United States Food and Drug Administration ("FDA") Tentative Final
Monograph on External Analgesic Drug Products and are permitted to be marketed
in the United States under a deferral letter from the FDA. It is expressly
understood, however, that no representations or warranties are made as to the
existence or likelihood of obtaining final regulatory approval for the marketing
of the Patches in the United States or regulatory approval in any country
outside of the United States for marketing of the Patches.
(C) Old Natus is the authorized distributor
of the Patches in the Exclusive Market and has the right to enter into this
Agreement relating to the distribution of the Patches in the Exclusive Market
pursuant to the terms hereof.
13.2 LecTec represents and warrants that all Patches will meet
LecTec's written quality and quantity specifications and are free from defects
in materials and workmanship.
14. Indemnification of New Natus. LecTec and Old Natus, jointly and
severally, shall indemnify, defend and hold New Natus harmless from and against
any and all demands, penalties, liabilities, claims and expenses, including
without limitation any attorneys' fees and costs, arising out of or relating to
(1) any breach by LecTec or Old Natus of the representations and warranties
contained in Section 13 hereof, or (2) any defects in the formulation,
ingredients, materials, packaging, labeling or printed materials supplied by
LecTec (including, but not limited to, instructions or indications for use) with
respect to the Patches, provided such defect is not directly caused by
negligence on the part of New Natus.
15. Indemnification of LecTec and Old Natus. New Natus shall indemnify,
defend and hold LecTec and Old Natus harmless from and against any and all
demands, penalties, liabilities, claims and expenses, including without
limitation any attorneys' fees and costs, arising out of or relating to any
claims by distributors or customers of New Natus with respect to the Patches,
including, without limitation, false or deceptive advertising or claims of the
Patches, except as set forth in Section 14 hereof, or the breach by New Natus of
Section 9.3 hereof.
16. Insurance. LecTec and New Natus shall each secure and maintain
product liability insurance in the amount of not less than $1,000,000.00 and
will cause the other and Old Natus to be named as an additional insured party as
its interest bears under their respective policies. LecTec and New Natus shall
each provide the other and Old Natus with a certificate of insurance evidencing
the requisite coverage as well as any revisions or changes subsequently made
thereto.
17. Force Majeure. Neither LecTec nor Old Natus shall be responsible or
liable for any loss, damage, detention or delay caused by fire, civil or
military authority, insurrection, riot, or railroad, air or port embargoes.
18. Survival. The covenants and agreements of the parties contained in
Sections 9.3, 14, 15 and 16 hereof shall survive the termination of this
Agreement and for a period of three (3) years following the termination.
Notwithstanding the foregoing, in the event that any party has given notice of a
claim for indemnification within the foregoing time limit, specifying in
reasonable detail the nature and, to the extent then known, the amount of the
claim, such claim shall survive until resolved.
19. Termination.
19.1 Either LecTec and Old Natus, jointly, or New Natus may
terminate this Agreement for cause during its term in the event of a material
default by the other party in its performance of any of the terms and conditions
or covenants of this Agreement, which material default is not cured within
thirty (30) days after receipt of a written notice to the defaulting party from
the nondefaulting party specifying the nature of such default.
19.2 If New Natus fails to make payments in accordance with
Section 8 hereof for Patches delivered to it by LecTec or Old Natus, LecTec and
Old Natus may cease production and delivery of Patches against any then current
and outstanding purchase order placed by New Natus with Old Natus under this
Agreement until New Natus's account is brought current and such action by LecTec
or Old Natus shall not constitute a breach under this Agreement.
19.3 Either LecTec and Old Natus, jointly, or New Natus may
terminate this Agreement at any time if the other party, or (solely with respect
to New Natus' right to terminate) Old Natus, initiates any voluntary proceeding
or becomes the subject of any voluntary proceeding under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, receivership,
dissolution, or liquidation law or statute of any jurisdiction, whether now or
hereafter in effect; is adjudicated insolvent or bankrupt by a decree of a court
of competent jurisdiction; petitions or applies for, acquiesces in or consents
to, the appointment of any receiver or trustee of such party or for all or a
substantial part of the property of the party; makes an assignment for the
benefit of creditors; or admits in writing its inability to pay its debts as
they mature.
19.4 New Natus may terminate this Agreement upon ninety (90)
days notice (the "Termination Notice") to LecTec and Old Natus if it determines
it is not in its best interests to continue to distribute the Patches. If New
Natus wishes to obtain Patches for sale in the Exclusive Market within the
period beginning on the date of the termination of this Agreement pursuant to
this Section 19.4 and ending on the earlier of (i) two (2) years from the date
of termination of this Agreement pursuant to this Section 19.4, or (ii) the date
upon which this Agreement would otherwise have expired pursuant to Section 3
hereof, New Natus shall offer to obtain such Patches from LecTec and Old Natus,
specifying the terms upon which New Natus proposes to obtain such Patches. If
LecTec and Old Natus do not accept such offer on the terms so offered within
thirty (30) days of such offer, New Natus may obtain such Patches from any other
supplier or suppliers, provided New Natus obtains such Patches only on such
terms as are no less favorable to New Natus than those terms offered to LecTec
and Old Natus. Upon the termination of this Agreement pursuant to this Section
19.4, New Natus shall purchase, upon the terms and conditions set forth herein,
all unpurchased Patches manufactured prior to receipt by LecTec of the
Termination Notice in reasonable reliance upon the Monthly Forecast and shall
purchase (at LecTec's actual cost) all unused packaging materials ordered by
LecTec prior to the Termination Notice in reasonable reliance on the Monthly
Forecast.
19.5 LecTec and Old Natus, jointly, may terminate this
Agreement upon ninety (90) days notice to New Natus if they determine it is not
in their best interests to continue to manufacture the Patches. Under such a
termination, neither LecTec nor Old Natus may supply Patches to any other
distributor in the Exclusive Market or any other market during the period (the
"Restricted Period") beginning on the date of the termination of this Agreement
pursuant to this Section 19.5 and ending on the earlier of (i) two (2) years
from the date of termination of this Agreement pursuant to this Section 19.5 or
(ii) the date upon which this Agreement would otherwise have expired pursuant to
Section 3 hereof. If LecTec or Old Natus wishes to supply Patches to any other
distributor in the Exclusive Market or any other market during the Restricted
Period, LecTec or Old Natus, as the case may be, (the "Re-Commencing Party")
shall first offer to New Natus the right to distribute such Patches, specifying
the terms of such distribution relationship. If New Natus does not accept such
offer on the terms so offered within thirty (30) days of such offer, the
Re-Commencing Party may offer such Patches for distribution, sale or resale, but
only through a distributor and only on such terms as are no more favorable to
such distributor than the terms offered to New Natus pursuant to this Section
19.5.
19.6 LecTec and Old Natus, jointly, may terminate this
Agreement within the notice period permitted by the FDA if the United States
Food and Drug Administration forbids production or distribution of the Patches.
19.7 Notwithstanding anything in any agreement between Old
Natus and LecTec to the contrary, in the event of the termination of Old Natus'
right to distribute the Patches for any reason, this Agreement shall not thereby
be terminated. In the event of any such termination, this Agreement shall
continue in full force and effect and New Natus shall continue to be the
distributor of Patches in the Exclusive Market.
20. Miscellaneous.
20.1 At all times during the term of this Agreement, LecTec,
Old Natus and New Natus shall be deemed to be independent parties, and neither
shall have any right or authority to (a) act for the other; (b) incur, assume or
create any obligation, liability or responsibility, express or impled, in the
name or on behalf of the other; or (c) bind the other in any manner whatsoever.
No agency, joint venture, partnership or other representative or fiduciary
relationship between or among any of New Natus, LecTec and Old Natus is created
by, or may be inferred from, this Agreement or the parties' performance
hereunder.
20.2 Neither this Agreement nor any right or obligation
hereunder shall be assigned or otherwise transferred, in whole or in part, by
any party hereto (whether by operation of law or otherwise, without the prior
written consent of each other party. Any assignment or transfer contrary to the
terms hereof shall be null and void and of no force or effect.
20.3 This Agreement is to be governed by and construed and
enforced in accordance with the laws of the State of Arizona without regard to
its internal laws respecting conflicts. The venue for any dispute arising
hereunder shall be Maricopa County, Arizona.
20.4 The prevailing party in any legal proceedings arising out
of this Agreement shall be entitled to recover, in addition to all other legal
or equitable remedies available to it, reasonable attorneys' fees and costs from
the other party.
20.5 All notices, requests, demands and other communications
pursuant to this Agreement shall be in writing and shall be delivered personally
or sent by certified or registered mail, return receipt requested, or by
telefacsimile, with receipt confirmed by telephone and hard copy mailed, to the
parties at the addresses set forth below:
LecTec Corporation
00000 Xxx Xxxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxxxx 00000
Fax: (000) 000-0000
Attention:
Natus Corporation
00000 Xxx Xxxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxxxx 00000
Fax: (000) 000-0000
Attention:
Natus, L.L.C.
0000 Xxxx Xxxxxxxxx Xxxx
Xxxxxxx, Xxxxxxx 00000
Fax: (000) 000-0000
Attention: President
Any such notice, request, demand or other communication shall be deemed
to have been given as of the date delivered or sent by telefacsimile, or three
(3) days after deposit in the U.S. mails. A party may change the address to
which notices, requests, demands and other communications hereunder are sent, by
giving written notice of said change of address to the other parties in the
manner above stated.
20.6 Section headings of this Agreement are solely for
convenience and shall not be used in any way in the interpretation of this
Agreement or otherwise be given any legal effect.
20.7 This Agreement, including all of the schedules attached
hereto, together with the Operating Agreement of New Natus dated March 12th,
1996, and the Contribution Agreement by and among Old Natus and ACM Investments,
L.L.C., dated March 12th, 1996, constitute the entire understanding and
agreement between the parties and supersede all previous negotiations,
representations and agreements made by the parties with respect to the subject
matter hereof. There are no understandings or agreements relative hereto which
are not fully expressed herein; no amendments hereof shall be valid unless in
writing and signed by all parties; no waiver or discharge thereof shall be valid
unless in writing and signed by the party or parties whose rights are adversely
affected thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
duplicate, each of which shall for all purposes be deemed an original, effective
as of the Effective Date.
"LECTEC" "NEW NATUS"
LECTEC CORPORATION Natus, L.L.C.
/s/Xxxxxx X. Xxxxxxxx /s/ Xxxxxxx X. Xxxxxxxx
President and CEO Xxxxxxx X. Xxxxxxxx, President
"OLD NATUS"
NATUS CORPORATION
/s/Xxxxxxxx X. Xxxxxxxx
President
SCHEDULE A--MINIMUM ANNUAL PURCHASE
Year Minimum Number of Patches
March 1, 1996 to February 28, 1997 (*)
March 1, 1997 to February 28, 1998 (*)
March 1, 1998 to February 28, 1999 (*)
March 1, 1999 to February 29, 2000 (*)
March 1, 2000 to February 28, 2001 (*)
SCHEDULE B--PATCH SPECIFICATIONS
Individually wrapped patches of a 2 inch by 3 inch dimension, packaged in
boxes of 20 patches each.
