Exhibit 10.6
MANUFACTURING AGREEMENT
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This Manufacturing Agreement ("Agreement") effective as of the 23rd day of January, 1996 (the "Effective Date") is made by and between AKSYS, Ltd., a Delaware corporation having its principal place of business at 1113 S. Milwaukee Avenue, Suite 300, Libertyville, IL 60048 ("AKSYS"), and TEXAS MEDICAL PRODUCTS, INC., a Texas corporation doing business as SURGIMEDICS/TMP ("TMP"), having its principal place of business at 2828 N. Crescent Ridge Drive, The Woodlands, Texas 77381.
WHEREAS, AKSYS is the developer of medical devices that require tubing sets and related disposable devices (hereafter referred to individually as the "Set" and collectively as the "Sets");
WHEREAS, AKSYS desires to utilize a subcontractor that is capable of manufacturing and assembling the Sets; and
WHEREAS, TMP is in the business of manufacturing and assembling custom tubing sets for third parties and possesses the expertise and facilities necessary to manufacture and assemble the Sets for AKSYS;
NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties agree as follows:
1. DEFINITIONS
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In addition to the terms defined elsewhere in this Agreement, the following terms shall have the meanings set forth below:
"Acceptance Specifications" shall have the meaning set forth in Section 4.7.
"AKSYS Materials" shall mean the Materials purchased by AKSYS pursuant to Section 8.2.
"AKSYS Component P.O." shall mean any AKSYS pre-printed and numbered purchase order delivered upon request to TMP for use by TMP in purchasing AKSYS Materials in accordance herewith.
"AKSYS Equipment P.O." shall mean any AKSYS pre-printed and numbered purchase order delivered upon request to TMP for use by TMP in purchasing AKSYS Equipment in accordance herewith.
"AKSYS Finished Goods P.O." shall mean a purchase order issued by AKSYS for Sets, pursuant to the terms hereto.
"Approved Vendors" shall mean those vendors of Materials approved and qualified pursuant to Section 8.1. As so approved and qualified, Approved Vendors may include TMP.
"Confidential Information" shall mean the confidential and proprietary business information of the disclosing party and shall be deemed to include: (i) any and all information disclosed by one party to the other pursuant to this Agreement that relates to the business affairs or operations of the disclosing party, including, but not limited to, information concerning the disclosing party's customers and sales information relating thereto, other than information that is generally publicly available; (ii) any and all information relating to product development or other research and development of the disclosing party; and (iii) any and all information, technique, knowledge, skill, procedure, know- how, trade secrets, formulas, inventions, technology, regulatory information, customer data, marketing data and other information related to the Sets, including, without limitation, the Design Specifications.
"Design Specifications" shall mean those specifications for the Sets provided by AKSYS through the Technical Data Package.
"Domestic" shall mean the United States and Canada and their respective territories and possessions.
"Engineering Change Order" shall mean the document used to communicate and implement changes to the Technical Data Package or Design Specifications.
"Engineering Change Request" or "ECR" shall mean the document used by TMP to communicate the estimated NRE and the effect on the recurring costs of a proposed Engineering Change Order.
"Equipment" shall mean those fixtures, production equipment, computer software, computer hardware, assembly aids, operating and maintenance manuals, operating procedures, validation protocols, data and reports, schematics, wiring diagrams, drawings, and etc., that will be required by TMP or its suppliers for TMP to fulfill its obligations under this Agreement.
"FDA" shall mean the United States Food and Drug Administration.
"FDA Regulations" shall mean the United States Food, Drug and Cosmetic Act, as amended, and any regulation, ruling, guideline or notice promulgated pursuant thereto by the FDA.
"Foreign Regulations" shall mean any law, statute, regulation, ruling, guideline or notice adopted or promulgated by any foreign governmental entity concerning the design, manufacture, sterilization, sale and marketing of medical devices.
"GMPs" shall mean the current Good Manufacturing Practices under the FDA Regulations.
"Labeling" shall mean all labels and other written, printed or graphic matter including bar codes (1) upon any Set or any of its containers or wrappers, corrugate cases and pallets and/or (2) accompanying such Set including pamphlets, booklets, brochures, and instructions.
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"Materials" shall mean the raw materials, components, packaging materials, labeling materials, or other materials to be used in the manufacture and assembly of the Sets, as specified in the Design Specifications.
"Non-Recurring Effort" or "NRE" shall mean the non-recurring labor and expense to be expended by TMP in developing and building the Equipment or processes necessary to manufacture and assemble the Sets as estimated and set forth in Exhibit B. The parties agree that the Exhibit B attached hereto may be incomplete as of the date of execution of this Agreement and that additional items and estimated amounts may be added to the Exhibit B from time to time by the mutual consent of the parties. Any such amended Exhibit B shall be incorporated herein and shall be deemed to replace and supersede the Exhibit B then attached hereto.
"Pre-Production Phase" shall mean the period of time commencing with at the execution of this Agreement and ending upon the receipt by AKSYS at a designated location of the first production released saleable product.
"Requested Delivery Forecast" shall have the meaning set forth in Section 10.1.
"Set Purchase Price" shall have the meaning set forth in Section 12.3.
"Technical Data Package" shall mean the materials used to communicate all the information about the Sets that is necessary for manufacture and will include, but not be limited to, component specifications, raw material specifications, process assembly and manufacturing specifications, bill of material, vendor lists, equipment specifications, testing specifications, packaging specifications, labeling, and shipping requirements.
"Tests Systems" means the collection of procedures, validation protocols, data and reports, software, equipment, supplies and other assorted documentation required to implement Set production. These tests, including cleaning and validation testing, will be fully documented by TMP, as required by the GMPs.
"TMP Materials" shall mean the Materials purchased by TMP pursuant to Section 8.8.
"UCC/EAN" shall mean Uniform Code Council/European Article Number and standards for bar coding.
2. SPECIFICATIONS AND OWNERSHIP OF INTELLECTUAL PROPERTY
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2.1 Upon receipt of the Technical Data Package, or any portion thereof, TMP shall maintain the Technical Data Package as part of its device master record for the Sets.
2.2 All Confidential Information, including but not limited to the Design Specifications, submitted by AKSYS as part of the Technical Data Package, shall remain the sole and exclusive property of AKSYS. AKSYS hereby grants to TMP a license to manufacture and
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assemble the Sets in accordance with the Technical Data Package, including the Design Specifications, pursuant to the terms of this Agreement.
2.3 No rights are granted hereunder by either party to the other to utilize any Confidential Information, patents, trade secrets, business information, copyrights, trademarks, trade name, or other proprietary rights, except as may be required to manufacture, assemble, use, test and supply the Sets for AKSYS pursuant to the terms of this Agreement.
2.4 The right, title and interest in and to any discoveries, improvements, inventions and trade secrets made or developed in the performance of this Agreement by TMP personnel relating to or derived from the Design Specifications shall be the sole and exclusive property of AKSYS, subject to any relevant license granted herein to TMP, and AKSYS shall retain any and all rights to file any patent applications thereon.
2.5 The right, title and interest in and to any discoveries, improvements, inventions and trade secrets made or developed in the performance of this Agreement by TMP personnel relating to or involving solely the manufacturing, assembly, packaging or sterilization processes employed generally by TMP in connection with its manufacturing operations shall be jointly owned by TMP and AKSYS, and each shall grant to the other a perpetual, royalty-free license to any such discoveries, improvements, inventions and trade secrets.
3. MILESTONES
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The parties agree that the timely completion of the specific milestones set forth in Exhibit A is essential for the successful production of the Sets. Each party hereby assumes its respective responsibility for completing the milestones in a timely manner. Agreement of both parties is required for the completion of a milestone.
4. PRE-PRODUCTION PHASE
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During the Pre-Production Phase, the following shall occur:
4.1 TMP will review the Technical Design Package and Design Specifications to ensure that TMP's manufacturing practices for assembling the Sets pursuant to the Technical Design Package and Design Specifications will comply with the GMPs.
4.2 TMP will designate a manager for the Pre-Production Phase, who will serve as TMP's primary contact person for this phase.
4.3 AKSYS will designate a manager for the Pre-Production Phase, who will serve as AKSYS' primary contact person for this phase.
4.4 TMP will complete the Non-Recurring Effort, subject to the provisions of Section 15.2.
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4.5 AKSYS, with TMP's assistance, will select, qualify and approve the Approved Vendors for the AKSYS Materials. TMP, with AKSYS' assistance, will select, qualify and approve the Approved Vendors for the TMP Materials.
4.6 AKSYS, with TMP's assistance, will develop packaging specifications.
4.7 AKSYS, with TMP's assistance, will develop the acceptance test requirements for the Sets ("Acceptance Specifications"). In accordance with the Acceptance Specifications, TMP shall develop the acceptance test systems. Any Equipment required by the acceptance test systems shall be purchased pursuant to the provisions of Section 6.
4.8 Once the Pre-Production Phase is complete, each of the parties will designate a production team leader for the production of the Sets, who will serve as such party's primary contact person during the production of the Sets.
5. ENGINEERING CHANGE ORDERS
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5.1 Changes to the Technical Data Package and the Design Specifications will only be effective when made in accordance with the provisions of this Agreement. All changes to the Technical Data Package and the Design Specifications must be made using an Engineering Change Order.
5.2 Engineering Change Orders may be generated by either TMP or AKSYS, but may not be implemented by TMP without the written authorization of AKSYS.
5.3 Any Engineering Change Order generated by either AKSYS or TMP that is to be implemented by TMP will not be implemented until TMP has submitted to AKSYS for AKSYS' review and approval an ECR that includes an estimate of the NRE and attendant costs, the recurring costs, and the impact on the Set Purchase Price that will result from such Engineering Change Request. If the ECR is approved in writing by AKSYS, Exhibit B shall be deemed amended to reflect such ECR, TMP will implement the Engineering Change Request and invoice AKSYS for the actual NRE costs pursuant to Section 15.1. All Engineering Change Orders shall be maintained as part of TMP's device master record for the Sets and will form the basis for an engineering change notice within TMP's manufacturing process. At its sole discretion, AKSYS may waive any of the above requirements for review of estimates of the NRE and attendant costs, recurring costs and the impact on the Set Purchase Price resulting from an ECR; provided, however, that in the event AKSYS waives any such requirement, TMP shall be entitled to invoice AKSYS for such actual NRE costs pursuant to Section 15.1 as if Exhibit B had been amended by AKSYS' waiver thereof.
5.4 During the Pre-Production Phase and thereafter during the term of this Agreement, within 10 days after the end of any month in which NRE costs are incurred, TMP will deliver to AKSYS a report of such actual NRE costs, together with an estimate of anticipated NRE costs for the current month, if any.
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6. EQUIPMENT AND TOOLING
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6.1 During the Pre-Production Phase and thereafter during the term of this Agreement as necessary, TMP will obtain recommendations and written cost estimates for any Equipment required to manufacture the Sets hereunder, and will submit the recommendations and estimates to AKSYS for its review and approval. Upon receipt of AKSYS' written authorization to purchase the Equipment, TMP shall order, on behalf of AKSYS and using an AKSYS Equipment P.O., such authorized Equipment. AKSYS shall pay for such equipment in accordance with the AKSYS Equipment P.O.
6.2 Any Equipment ordered in accordance with Section 6.1 shall be paid for by AKSYS and shall become the property of AKSYS upon payment in full of the purchase price specified in the applicable AKSYS Equipment P.O. Upon payment in full of the purchase price, any Equipment purchased pursuant hereto shall be referred to herein as the "AKSYS Equipment". All AKSYS Equipment, whether in the possession of TMP or third party suppliers to TMP, will be identified and labeled as belonging solely to AKSYS and will be maintained by the party in physical possession of the Equipment at the point of use for a period not to exceed the reasonable expected life of said Equipment. The party in physical possession of the Equipment will be responsible for maintaining general liability insurance coverage for said Equipment. Upon termination of this Agreement, all AKSYS Equipment, equipment drawings and/or data bases, software programs, operation and repair manuals, copies of original purchase orders, operating procedures, maintenance records, electrical schematics, spare parts, cleaning procedures, calibration records, process capability studies and validation protocols, records and reports applicable to each piece of AKSYS Equipment will be returned to AKSYS, at AKSYS' expense.
6.3 During the Pre-Production Phase and thereafter during the term of this Agreement as necessary, TMP and its third party suppliers will perform acceptance procedures which may include installation qualification and documentation, performance qualification and documentation, and process validation, each as deemed appropriate by both AKSYS and TMP.
6.4 Final approval of Equipment design is the responsibility of AKSYS. Overall management of Equipment procurement activity, including vendor selection and performance, shall be TMP's responsibility.
6.5 AKSYS will develop specifications for any custom tooling necessary for the manufacture and assembly of the Sets. AKSYS will contract directly with any third parties necessary to build such custom tooling, and will qualify and approve all custom tooling prior to releasing such custom tooling to TMP. Any custom tooling developed and built by AKSYS pursuant to this Section 6.5 shall be considered AKSYS Equipment for all purposes of this Agreement.
7. QUALITY INSPECTIONS AND DOCUMENTATION
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During the term hereof, AKSYS shall have the right to inspect at reasonable times, during normal business hours and on reasonable prior notice, the operations and facilities of TMP wherein
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the Sets are being manufactured, assembled, tested, labeled and stored for shipping. TMP shall make available for AKSYS' review during any such inspection the drawings, assembly instructions, standard operating procedures, regulatory compliance control system and materials management system used in the manufacture and assembly of the Sets. AKSYS shall have the right, but no obligation, to validate TMP's manufacturing processes of the Sets.
8. MATERIALS QUALIFICATION AND PURCHASING
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8.1 During the Pre-Production Phase and thereafter during the term of this Agreement as necessary, AKSYS, with TMP's assistance, will select, qualify and approve the Approved Vendors for the AKSYS Materials; and TMP, with AKSYS' assistance, will select, qualify and approve the Approved Vendors for the TMP Materials.
8.2 Based on the Requested Delivery Forecast, TMP shall timely prepare AKSYS Component P.O. for sufficient quantities of AKSYS Materials. Each AKSYS Component P.O. shall provide that the AKSYS Materials be shipped directly to TMP and that the invoices therefor be sent directly to AKSYS.
8.3 All AKSYS Materials ordered pursuant to Section 8.2 will be shipped to TMP. On behalf of AKSYS, TMP will receive and, within 5 business days of receipt, inspect AKSYS Materials in accordance with Acceptance Specifications. Within five business days of proper acceptance by TMP of such AKSYS Materials, TMP shall forward to AKSYS an acknowledgment of acceptance for the AKSYS Materials. AKSYS shall pay the invoice amount directly in accordance with the terms of the applicable AKSYS Component P.O.
8.4 All claims for breakage and damage whether concealed or obvious must be made to the carrier by the receiving party within 15 days after receipt of the shipment.
8.5 If TMP identifies AKSYS Materials that do not conform to the Acceptance Specifications, TMP shall notify AKSYS prior to notifying the vendor of the non-conforming AKSYS Materials. AKSYS and TMP will jointly resolve all issues involving non-conforming Materials.
8.6 All AKSYS Materials received by TMP pursuant to an AKSYS Component P.O. shall be the property of AKSYS and AKSYS shall be solely responsible for the payment of the purchase price thereof. TMP shall be responsible for identifying such Materials as AKSYS property, and providing suitable storage therefor.
8.7 In the course of developing or cost reducing the Sets, AKSYS may purchase from TMP preproduction Sets or special assembly for evaluation, testing or patient trials. For the purpose of developing or cost reducing the assembly, testing, packaging or sterilization techniques, TMP may purchase Materials from AKSYS or the Approved Vendors. The cost of any preproduction Sets shall be the Set Purchase Price. The cost of special sets or assemblies shall be negotiated at the time of purchase.
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8.8 TMP shall purchase the TMP Materials on its own purchase order and all TMP Materials shall be the property of TMP and TMP shall be solely responsible for the payment of the purchase price thereof.
8.9 All finished Sets shall be warehoused by TMP until shipment.
8.10 TMP shall be responsible for maintaining general liability insurance coverage on all Materials and any finished Sets present at TMP's facilities. Subject to the provisions of Sections 12.4 and 12.5, until shipment of the finished Sets TMP shall be responsible for any loss of Materials or finished Sets.
9. LABELING
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9.1 During the Pre-Production Phase, AKSYS shall deliver to TMP specifications for the labeling of the Sets as part of the Technical Data Package. AKSYS will be solely responsible for the drafting, designing and approval of labeling for the Sets. Any revisions or modifications to labeling specifications for the Sets will be implemented by means of an Engineering Change Order pursuant to Section 5.
9.2 All first article labeling or changed label copy will be approved by both AKSYS and TMP. All other labeling will be inspected by TMP in accordance with specifications developed by AKSYS. TMP will store unreleased labeling material in a properly quarantined area, segregate released labeling from unreleased labeling, and follow other GMPs for control of labeling.
9.3 Labeling may include UCC/EAN bar coding or the equivalent on Set package, cases and pallets.
10. FORECASTING/DELIVERY SCHEDULES
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10.1 Prior to the completion of the Pre-Production Phase, AKSYS will deliver to TMP the first "Requested Delivery Forecast" for saleable units of the Sets, covering the first twelve-month production period. The first three-month period of the forecast will be a firm production schedule commitment request and will be a ...
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