Contract Manufacturing Agreement - Advanced Electronics Inc. and NeuroMetrix Inc.
CONTRACT
MANUFACTURING
AGREEMENT
BETWEEN
ADVANCED ELECTRONICS, INC
12 CHANNEL STREET
BOSTON, MA 02210
AND
NEUROMETRIX
62 FOURTH AVE
WALTHAM, MA 02451
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MANUFACTURING AGREEMENT
Agreement made this 20th day of NOVEMBER 2002, and between
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NEUROMETRIX, INC. (Buyer) a
Corporation, with its principal place of business at
62 FOURTH AVE.
WALTHAM, MA 02451
AND
Advanced Electronics, Inc., with a principal place of business located at 12
Channel Street, Boston, MA 02210 ("AEI") sets forth the terms and conditions
under which AEI will perform certain production work on behalf of the Buyer.
1.0 GENERAL
1.1 LIABILITY
Except as otherwise provided in this Agreement, neither party shall be
liable for special, indirect, incidental or consequential damages
arising out of or in connection with claims brought by third parties,
or any indemnifications granted by either party in connection with this
Agreement.
1.2 SEVERABILITY
If any provision of this Agreement is held to be invalid or
unenforceable, such invalidity of unenforceability shall not affect the
enforceability of any other provisions of this Agreement not held to be
invalid.
1.3 AMENDMENTS
Modification of this Agreement must be made in writing, signed by a
duly authorized Corporate Officer of each party. No Amendment shall be
deemed effective, until a duplicate original of such Amendment is
received by each party.
1.4 COMPLIANCE WITH TH LAWS
Both parties agree to comply with all applicable laws, rules and
regulations with regard to the performance of its obligations under the
Agreement and indemnify and hold the other party harmless from any loss
resulting from its failure to obey all such laws, rules and
regulations. This Agreement is made in, governed by, and shall be
construed in
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accordance with the laws of The Commonwealth of Massachusetts
including, unless provided otherwise herein, the Uniform Commercial
Code as implemented in Massachusetts General Laws.
1.5 WAIVER
Either party's failure to exercise, in whole or in part, or delay in
exercising any right under this Agreement will not preclude any future
exercise of the same right or the exercise of any other right
hereunder.
1.6 All notices pertaining to this Agreement shall be in writing, delivered
to the party at this address set forth below.
To: Advanced Electronics, Inc To: (Buyer): NEUROMetrix, Inc.
12 Channel St 62 Fourth Ave.
Boston, MA 02111 Waltham MA 02451
Attn: Ms. Ching-Wah Wong Attn: Mr. Charles Fendrock
1.7 FORCE MAJEURE
Neither party will be liable nor deemed to be in default for delay or
failure in performance or interruption of service hereunder resulting
directly or indirectly from acts of God, wars, floods, riots, labor
strikes, worldwide parts shortages, or transportation shortages,
provided, however, the provisions of this section shall not apply to
obligations to make payments when due. The time for performance so
affected or delayed will be deemed extended for the period of such
delay. The party claiming excuse for failure to perform due to force
majeure shall notify the other party in writing within five (5) days of
the existence of the force majeure cause and its expected duration.
1.8 PROPRIETARY INFORMATION
Each party hereby agrees for a period of three (3) years from the
Effective Date that all information in writing or other physical form
delivered to it by the other party which is designated to be
proprietary and confidential will be safeguarded in the same manner the
receiving party safeguards its own proprietary and confidential
information or like character, and will not be divulged to their
parties. Information which is initially orally or visually submitted
and identified at the time of initial disclosure as proprietary shall
be safeguarded by the receiving party only if the submitting party
notifies the receiving party in writing within ten (10) business days
of such initial oral or visual disclosure, with a specific
identification of the proprietary information contained in such initial
oral or visual disclosure.
This Agreement shall not impose any obligation upon the receiving party
with respect to any portion of the received information with (I) is
now, or which hereafter, through no act or failure to act on the party
of the receiving party, becomes generally known or available, (II) is
known to the receiving party at the time of receiving such information,
(III) is furnished by the disclosing party to others without
restriction on disclosure, (IV) is hereafter
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furnished to the receiving party by a third party, as a manner or right
and without restriction on disclosure, (V) is independently developed
by the receiving party, or (VI) more than three (3) years after such
information is disclosed to the receiving party, or (VII) is authorized
in writing for release by the disclosing party.
1.9 AUTHORITY
Buyer warrants that it has the unqualified right to enter this
Agreement, that it is the owner of or has the right to transfer all
rights and licenses to all technology, intellectual property and other
deliverables under the terms of this Agreement, and that it has the
right to perform all obligations under this Agreement.
1.10 ASSIGNMENT
Neither party may assign or otherwise transfer its rights and
obligations under this Agreement without the prior written consent of
the other party, which consent shall not be unreasonably withheld.
1.11 ENTIRE AGREEMENT
This Agreement sets forth the entire agreement and understanding
between the parties with respect to the subject matter hereof and
merges all prior discussions and negotiations between them. There are
no oral representations or inducements pertaining thereto which are not
contained herein; and neither of the parties hereto shall be bound by
any conditions, warranties, understandings to representations with
respect to such subject matter other than as expressly provided herein.
1.12 NON-LICENSING
The parties understand that except as may be otherwise expressly stated
herein, the terms and conditions of the Agreement shall not be
considered in any way as a grant of any license whatsoever under either
party's present or future trademarks, trade secrets, or other
proprietary rights, nor is any such license granted by implication, or
otherwise.
2.0 WORK SCOPE
During the term of this Agreement, AEI will supply product that meets
all assembly, test, quality and documentation requirements at a cost
provided in the quotation for the product, and on a delivery schedule
guided by the purchase order. Assembly & test, labeling and production
records must meet all applicable FDA QSR regulations and ISO medical
product standards. Product is assembled, tested and labeled per
customer specifications. Customer has responsibility to ensure their
specifications meet applicable regulatory requirements and effectively
communicate requirements to AEI.
AEI shall manufacture, sell and deliver product, listed on Exhibit A,
exclusively to Buyer under the terms and conditions of this Agreement.
All parts and components purchased and inventory used in the
construction of the Product, shall be sourced from the Buyer's AVL
(Approved Vendor List). Parts and components NOT listed on the
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Buyer's AVL shall NOT be used unless approved by the Buyer. Any
modifications to the Buyer AVL must be approved, in writing, by the
Buyer, through the ECO process, as defined in Paragraph 7.0 AEI shall
provide manufacturing and testing for the products in accordance with
the Buyer's specifications.
3.0 AGREEMENT TERMS AND ORDERING
The terms and conditions of this agreement shall apply to all products
listed on Exhibit A and other future products to be manufactured by AEI
for Buyer.
The Contract Manufacturing Agreement is good until otherwise modified
or terminated by mutual written Agreement.
3.1 TERM OF AGREEMENT
The Initial Term of this Agreement is twelve (12) months.
Upon the effective date, and at each subsequent renewal date, Buyer
will provide AEI with a twelve (12) month rolling forecast of the
product to be ordered for the succeeding twelve (12) month period, and
thereafter, in the first week of each succeeding quarter, Buyer will
update the twelve (12) month forecast. The Initial twelve (12) month
forecast will be the base used for setting yearly volumes and
determining pricing.
Unless terminated earlier as provided in Section 10.0, the Agreement is
automatically renewed at twelve (12) months increments, unless either
party gives written notice to the other party not to renew with not
less than 90 days of notice.
3.2 PURCHASE ORDERS/FORECASTS
Buyer will issue a purchase order for the initial Term, with specific
release schedules for the first three (3) months and with sufficient
time to permit AEI to obtain the long lead-time components. Thereafter,
Buyer will maintain a three (3) month window of release schedules and
will provide a rolling twelve (12) month forecast, which will include
the three (3) months firm release.
Buyer's purchase orders ("Orders") must be in writing and with the
following information: (I) identification of the Products by quantity,
model number, revision and description; (II) shipment instructions,
including requested shipment date, and (III) price. All orders must
incorporate by reference the terms and conditions of this Agreement.
The terms and conditions of this Agreement shall supersede all terms
and conditions contained in Buyer's purchase orders. All requirements
shall be scheduled per the Order, and all scheduled dates shall be
regarded as dates of shipment from AEI's facilities.
AEI will utilize the forecast to secure long lead-time components (i.e.
components that exceed 8 weeks lead-time.) on behalf of the Buyer. AEI
will only procure material based on the available lead time plus the
manufacturing offset time.
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3.3 RESCHEDULING
Buyer may make changes and reschedule the individual assembly to be
manufactured and delivered in accordance with the following;
The order for product in the nearest 3-month period will be
non-cancelable, and any orders beyond 3 months may be increased or
decreased by an amount agreed to by AEI.
The starting day of the remaining lead-time is defined as the first day
of the following month, after the written schedule change notices
received by AEI.
3.4 In the case of cancellation, Buyer is responsible for any undamaged
material, at quoted standard cost inventoried by AEI in support of
Buyers' Purchase Order (s) that is not reusable by AEI or returnable to
the supplier. Additionally, Buyer is responsible for any cancellation
charges, restocking charges, or any noncancelable commitments incurred
by AEI for such material. Such inventory items will be identified upon
the initial execution of this Agreement, and as they become otherwise
identified during the course of this Agreement.
3.5 If there is an increase in forecasted requirements, AEI shall make
reasonable efforts to service the increase and shall advise Buyers of
its efforts to service the increased requirements. Buyer and AEI shall
jointly work with suppliers of the long-lead items to ensure that an
adequate supply of critical components is available at all times. Buyer
will be liable for the material cost plus the quoted material mark-up
on long lead items and minimum buy components with AEI has procured
either to meet Buyer's forecasts or as a result of written
authorization from Buyer.
3.6 In the event that AEI is required to maintain a significant excess
inventory as a result of the above (3.4) provision, reductions of the
forecast, engineering changes or other Buyer actions, the parties agree
to a monthly carrying charge of l 1/2% or full prepayment to cover the
costs associated with maintaining this inventory. This carrying charge
is in addition to Buyer's material liability stated above.
3.7 CONTRACT CANCELLATION CHARGES
For the convenience of the Buyers, and if agreed to by AEI, Buyer may
cancel the remaining orders under the following conditions:
a. Buyer pays for all goods already shipped.
b. Buyer pays for all finished goods and work-in-process still at
AEI.
c. Buyer pays for all raw materials in AEI inventory that cannot
be returned to Vendor for credit.
d. Buyer pays for all non-cancelable materials ordered that are
still at Vendors's.
e. Buyer pays for all the cancellation charges incurred by AEI
and, once the materials are used or processed or received by
AEI, the handling charges incurred by AEI shall apply.
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3.8 END OF CONTRACT INVENTORY
Buyer will be responsible for all undamaged material, at quoted
standard cost, inventoried by AEI in support of Buyer's Purchase Order
that is not reusable by AEI or returnable to the supplier.
Additionally, Buyer is responsible for any cancellation charges,
restocking charges, or any non-cancelable commitments incurred by AEI
for such material. Such items will be identified upon the initial
execution of this Agreement, and as they become otherwise identified
during the course of this Agreement.
4.0 TOOLING, FIXTURES AND PROGRAMS
Tooling, fixtures and set up charges shall be acquired and maintained
by AEI, and invoiced to Buyer. Title to fixtures and tools will pass to
Buyer upon receipt of payment to AEI. Neurometrix will be responsible
for providing AEI with complete current documentation, documentation
changes, special test fixtures, and technical support as needed to
build and test product.
5.0 QUALITY ASSURANCE
Printed circuit assemblies will be manufactured in accordance with
IPC-A-610A Class 2. All assemblies will comply with Buyer's
specifications and drawings. Neurometrix will provide assistance and
guidance to AEI to ensure that the manufacturing, labeling, and
production records are in compliance with all applicable FDA QSR and
ISO regulations and standards. Production cannot commence until
Neurolnetrix provides AEI with a written notice that it is in
compliance.
6.0 WARRANTY
6.1 WARRANTY PERIOD
Under the condition that AEI's product conforms to Buyer's AVL and
applicable specification, AEI warrants its product, for a period of
twelve (12) months from the date of shipment.
a. to be free from material and workmanship defects in the case
of turn-key project.
b. to be free from workmanship defects in the case of consignment
project.
6.2 WARRANTY LIMITATION
This warranty is limited to replacement or repair, at AEI'S option of
defective units and does not apply to Units which have been. abused or
improperly stored, modified, or repaired. AEI will respond to warranty
repair claims and, if unable to respond in a timely fashion, agrees to
allow the Buyer to repair or have repaired the defective Products, at
AEI equivalent time and materials charge-backs to AEI.
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AEI's warranty obligations hereunder do not extend to damage caused by
improper use of the Product, accident, or operation of the Product
outside of the specified environment conditions, by parties other than
AEI, its subcontractors, or agents.
The express warranties set forth in this Paragraph are the only
warranties given by AEI with respect to any Product furnished
hereunder.
6.3 WARRANTY CLAIMS
Warranty claims by Buyer shall state the specific nature of the defect,
unit, part number, serial number and date the unit was discovered to be
defective and shall be verified within thirty (30) working days of
receipt by AEI. Products returned to AEI under warranty shall be
repaired or replaced at AEI's option. AEI shall pay one way
transportation cost for the return of such Products from domestic
locations. Prior to return of any warranty materials Buyer must contact
AEI to receive a Return of Materials Authorization (RMA) number.
6.4 OUT-OF-WARRANTY REPAIRS
AEI shall perform all required out-of-warranty repairs for assemblies
returned by the Buyer on a time and materials basis. AEI shall provide
the Buyer with a written quotation for each repair prior to
commencement of any such work.
7.0 ENGINEERING CHANGES/TEST FALL-OUT
7.1 Engineering changes (EC's) may be initiated by either party, under the
following terms:
a. Buyer gives advance written notice to AEI of any EC requested
by Buyer. If the EC is identified as critical by Buyer, AEI
will respond to the EC within (forty eight) 48 hours of
receipt of such notice. Implementation of the requested EC is
contingent upon material availability. All other EC
implementation schedules will be per mutual agreement,
b. AEI shall provide a written assessment on an ECO summary sheet
of the anticipated effects of EC's on AEI's schedule and
manufacturing costs (including costs associated with scrap and
rework, retooling, fixtures, and any changes to the recurring
product price). AEI and Buyer shall negotiate in good faith on
the costs associated with processing and implementing those
EC's.
7.2 For EC's proposed by AEI; AEI shall give advance written notice to
Buyer on an ECO summary sheet. No EC shall be implemented without
Buyer's prior written consent.
AEI shall provide a written assessment of the anticipated effects of
any EC on AEI's schedule and manufacturing costs (including costs
associated with scrap and rework). AEI and Buyer shall negotiate the
costs associated with processing and implementing those engineering
changes.
7.3 Buyer will reimburse AEI for the reasonable cost as a result of any EC
of any parts and/or material or forecast, long lead components and
minimum buy components that
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cannot be used by AEI to produce Products; such cost includes the
contract pricing and material mark-ups. In the case of parts and
materials not yet delivered by the suppliers, the cancellation charges
or other liabilities incurred by AEI in canceling such parts and
materials shall be borne by Buyer. Neurometrix will be responsible for
all rework or scrap costs incurred by AEI that result from, design,
test, component or material changes made by Neurometrix. AEI shall use
reasonable effort to minimize Buyer's liability.
7.4 TEST FALL-OUT
If despite repeated attempts at test and repair, the assemblies fail to
pass expectations, such assemblies shall be afforded to the Buyer for
engineering evaluation. AEI will be fully reimbursed for the entire
units, if the assemblies have failed because of a design problem. AEI
will not be reimbursed if the assemblies have failed because of faulty
material or workmanship.
8.0 PRICES/TITLE
8.1
a. Unit pricing listed in Exhibit A and shall be specific to the
revision level of the assembly.
b. Except as provided in 8.le.below pricing cannot be changed
without written approval by both parties, which shall not be
unreasonably withheld.
c. All prices are FOB AEI's facility in Boston, Massachusetts.
Buyer shall be responsible for and pay all shipping and
insurance costs for Products.
d. All taxes will be borne by Buyer. If sales to buyer are exempt
from any taxes, Buyer shall furnish to AEI a Certificate of
Exemption from the application taxing authority.
e. Initial Term pricing shall remain fixed for a minimum of
(twelve) 12 months. Successive years negotiated prices will be
firm, for each one (1) year period. If there is a volume
change in excess of +/-10% of any forecast, engineering
changes, or if there are substantial variations in material
cost; e.g., memory prices, the parties agree to analyze the
pricing involved and make appropriate adjustments if
necessary.
8.2 Title of the Products shall be passed to Buyer upon shipment from AEI,
Boston, Massachusetts.
9.0 PAYMENT TERMS
Initial Payment terms are to be agreed upon between AEI and
NEUROMetrix. Once credit performance is established, the standard
payment terms is net thirty (30) days from the date of invoice from
AEI. AEI reserves the right to change payment terms and credit
arrangements at any time if Buyer's financial condition or previous
payment record so warrants.
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10.0 TERMINATION CLAUSE
10.1 If either party breaches a material provision of these Agreements and
the breach is not cured within sixty (60) days after receipt of written
notice from the other party specifying the nature of the breach or if a
plan is not in place to expeditiously cure such breach, the
non-breaching party may terminate the Agreement by written notice to
the party in breach.
10.2 Either party may terminate this Agreement by written notice upon the
concurrence of any of the following events, unless such event is
eliminated or cured within sixty (60) days of notice therefore.
a. the filing by the other party of a petition in bankruptcy or
insolvency; or
b. any adjudication that the other party is bankrupt or
insolvent; or
c. the filing by the other party of any petition or answer
seeking reorganization, readjustment, or rearrangement of the
business under any law relating to bankruptcy or insolvency;
or
d. the appointment of a receiver for all or substantially all of
the property of other party, or
e. the making by the other party of any assignment or attempted
assignment of the benefit of creditors; or
f. the institution of any proceedings for the liquidation or
winding up of the business or for the termination of the
corporate charter of the other party.
10.3 Termination of this Agreement shall not affect the survival of any
rights or obligations hereunder which by their nature are to survive
and be effective following termination of this Agreement.
11.0 INDEMNIFICATION
Buyer shall settle or defend, at Buyer's expense, and pay all costs,
fines, attorney fees and damages resulting from all proceedings or
claims against AEI and its Subsidiaries for infringement or alleged
infringement by the units furnished under this Agreement, or any part
or use thereof of copyrights, patents, or intellectual property rights
now or thereafter existing in the United States or in any other country
where Buyer, its Subsidiaries of affiliates heretofore have furnished
or furnish similar Units. Buyer shall notify AEI if it is or becomes
aware of any right of, or protection afforded to, a third party as set
forth above that might affect AEI's ability to provide units under this
Agreement. AEI shall provide written notice to Buyer of any such
proceeding or claim of which it becomes aware. Buyer will, at AEI's
request, identify the countries in which Buyer, its Subsidiaries or
affiliates hereto have furnished similar items. The provision states
the entire rights and obligations of Buyer and AEI regarding
infringement of copyrights, patents, or intellectual property rights
now or hereafter existing in the United States or in any other country
and shall survive expiration or termination of this Agreement.
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SIGNATURE PAGE
ADVANCE ELECRONICS, INC. BUYER
/s/ CHING-WAH WONG /s/ CHARLES FENDROCK
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Ching-Wah Wong, Charles Fendrock
President & Vice President
Chief Executive Officer Of Manufacturing
Date: September 26, 2003 Date: October 2, 2003
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*** Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as [***]. A complete version of this exhibit
has been filed separately with the Securities and Exchange Commission.
EXHIBIT A
YEARLY
ASSEMBLY NO. DESCRIPTION QUANTITY UNIT PRICING
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NC-STAT2 NC-122 System *** ***
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