Exhibit 10.19
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
PRODUCTION AGREEMENT
NXSTAGE MEDICAL, INC. &
KMC SYSTEMS, INC.
JUNE, 2005
PRODUCTION AGREEMENT
THIS PRODUCTION AGREEMENT (the "AGREEMENT"), effective as of June 27, 2005
(the "EFFECTIVE DATE"), by and between NXSTAGE MEDICAL, INC., a Delaware
corporation, having a principal place of business at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ("NX") and KMC SYSTEMS, INC., a Delaware corporation,
having a principal place of business at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇ ("KMC").
WHEREAS, NX is the owner of certain proprietary technology and expertise
in the field of dialysis;
WHEREAS, KMC has expertise in the design, development and manufacture of
medical instrumentation and equipment; and
WHEREAS, NX desires to appoint KMC, and KMC desires to accept NX's
appointment, as NX's manufacturer of the Instrument (as defined below) on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual representations, warranties
and covenants contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. DEFINITIONS
As used in this Agreement:
1.1 "ATP" shall mean the Acceptance Test Procedures developed by KMC
and approved by NX, a copy of which is annexed hereto as Attachment 1.
1.2 "▇▇▇▇ OF MATERIALS" shall mean all materials necessary for the
production of the Instrument, as specified in Attachment 2 annexed hereto, as
may be amended from time to time by KMC.
1.3 "BUSINESS DAY" shall mean a day that is not Saturday, Sunday or
a federal or New Hampshire holiday on which commercial banks are closed for
business in New Hampshire.
1.4 "DOLLARS" or "$" shall mean United States dollars.
1.5 "ECO" shall mean an Engineering Change Order, a standard KMC
document used to control incorporation of changes in the TDP.
1.6 "EFFECTIVE DATE" shall have the meaning set forth in the title
to this Agreement.
1.7 "EXTENSION TERM" shall have the meaning set forth in Section
12.1 hereof.
1.8 "FDA" shall mean the United States Food and Drug Administration
or any successor agency thereof.
1.9 "FORECAST" shall have the meaning set forth in Section 6.4
hereof.
1.10 "INITIAL TERM" shall have the meaning set forth in Section 12.1
hereof.
1.11 "INSTRUMENT" shall mean a commercial production unit of the
NxStage System One Cycler((TM)) as, described further in Attachment 3 annexed
hereto, together with all future upgrades, modifications and derivatives
thereof.
1.12 "INTELLECTUAL PROPERTY" shall mean
(a) all patents, patent applications, patent rights and
inventions, discoveries, improvements and invention disclosures (whether
or not patentable);
(b) all trade names, trade dress, logos, registered and
unregistered trademarks and service marks and applications and all related
goodwill;
(c) all copyrights in both published and unpublished works,
including without limitation all compilations, databases and computer
programs, and all copyright registrations and applications, and all
derivatives, translations, adaptations and combinations of the above; and
(d) all know-how, trade secrets, confidential or proprietary
information, research in progress, algorithms, data, designs, processes,
formulae, drawings, schematics, blueprints, flow charts, models,
prototypes and techniques and results,
all of which are developed and paid for by NX under this Agreement with respect
to the Instrument.
1.13 "ISO" shall mean maintaining a quality system certified by a
notified body to the International Standards Organization Quality System
Standard ISO 13485: 1996, Medical Devices Quality Management Systems.
1.14 "KMC WORK PRODUCT" shall have the meaning set forth in Section
13.2 hereof.
1.15 "ORIGINAL AGREEMENT" shall mean that certain Development and
Production Agreement NX and KMC dated as of October 6, 1999, as amended on May
9, 2000, February 2, 2001, February 22, 2002 and August 10, 2004.
1.16 "QSR" shall mean the Quality System Regulation 21 of the Code
of Federal Regulations, part 820, for the development and manufacture of medical
devices and in-vitro diagnostic products.
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1.17 "QUALITY PLAN" shall mean the KMC Manufacturing Quality Plan
prepared by KMC and approved by NX, annexed hereto as Attachment 4, which
defines the procedures, practices and requirements for the manufacture of the
Instrument by KMC.
1.18 "SKU" shall mean the stock keeping unit designated for a
particular Instrument.
1.19 "TDP" shall mean the technical data package for the Instrument
which includes, without limitation, detailed mechanical drawings, assembly
drawings, component specification drawings, ▇▇▇▇ of materials, schematic and
assembly drawings, specifications relating to all of the foregoing, and the ATP.
1.20 "TERM" shall mean the Initial Term and any Extension Term
pursuant to Section 12.1 hereof.
1.21 "UNITED TRANSFER PRICE" shall have the meaning set forth in
Section 7.1 hereof.
1.22 "WORK PRODUCT" shall have the meaning set forth in Section 13.1
hereof.
1.23 "WORK REQUEST" shall mean a written document proposing changes,
or additions of work scope to the then existing agreed upon scope of services
and work to be performed by KMC. A Work Request will state the reason or basis
of the request, an estimate of the anticipated costs associated with such
changes or additions and an estimate of the impact on the schedule and the Unit
Transfer Price.
2. EXCLUSIVITY
2.1 NX (including its affiliates and their respective licensees)
shall, directly and indirectly, throughout the Initial Term, purchase all of the
world-wide requirements for the Instrument exclusively from KMC, and KMC shall
produce for and sell to NX (including its affiliates and their respective
licensees) all of their world-wide requirements for the Instrument, all on the
terms and conditions of this Agreement. Notwithstanding anything to the contrary
in this Section 2.1, NX shall have the right to manufacture the Instrument
itself and to assemble its products that include the Instrument.
2.2 At any time during the Initial Term, NX shall have the right to
change KMC's exclusive manufacturing rights hereunder to non-exclusive rights by
providing KMC with not less than [**] prior written notice thereof and paying to
KMC an amount equal to [**] percent ([**]%) of the Unit Transfer Price for each
Instrument manufactured by any other party during the Initial Term up to the
aggregate amount of $[**] Dollars). The foregoing amount shall be paid to KMC by
NX on a monthly basis, accompanied by a statement setting forth the number of
Instruments manufactured by such other parties. KMC shall have the right, upon
[**] notice, to audit the underlying records supporting such statements. The
foregoing fee shall not be payable by NX with respect to units of the Instrument
manufactured by a second source as a result of NX's exercise of its rights under
Section 2.2 hereof, or with respect to units of the
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Instrument manufactured by NX as a result of NX's exercise of its rights under
Section 2.1 hereof.
2.3 Notwithstanding the provisions of Section 2.1 hereof, in the
event that during the Initial Term KMC is unable, due solely to acts or
omissions by it or any of its suppliers to fulfill [**] percent ([**]%) of its
Delivery Commitment under Section 6 hereof for [**] then, and only in such event
(except as otherwise provided in Section 2.1 hereof), NX shall have the right to
appoint and use a second source of supply for the Instruments. Any such
appointment must be made upon written notice provided to KMC not later than [**]
following KMC's failure to meet the delivery commitment for the [**].
2.4 In the event of the appointment of a second source manufacturer
pursuant to Sections 2.2 or 2.3 hereof, or in the event of NX manufacturing the
Instrument itself pursuant to Section 2.1 hereof, KMC shall (at NX's expense)
cooperate in the transfer of technical data in its possession in order to assist
such second source, or NX, in producing the Instrument.
3. REGULATORY RESPONSIBILITY
3.1 NX shall be responsible for all submissions in connection with
and obtaining all necessary regulatory approvals to market, distribute and sell
the Instruments. NX shall also be responsible for all follow-up communication
and actions with regulatory agencies related to the Instrument, including but
not limited to any import and export regulations, device tracking requirements
and medical device reporting. KMC shall assist and support these efforts as
reasonably required by NX and at NX's expense.
3.2 KMC will be responsible for maintaining an FDA registered
medical device manufacturing facility, in compliance with current QSR
regulations. If at any time during the Term, KMC is found to be non-compliant
with applicable QSR requirements, it shall immediately notify NX and promptly
provide and implement a corrective action plan. In addition, KMC shall take such
remedial action (at its expense, and after prior consultation and agreement with
NX, which agreement shall not be unreasonably withheld or delayed) which may be
mandated by the FDA with regard to the Instruments, if any, shipped during
non-compliance with QSR regulations.
3.3 KMC will be responsible for maintaining an ISO registered
medical device manufacturing facility, in compliance with current regulations.
If at any time during the Term, KMC is found to be non-compliant with applicable
ISO requirements, it shall immediately notify NX and promptly provide and
implement a corrective action plan.
4. TOOLING AND TEST EQUIPMENT
KMC will purchase, with NX's approval and at NX's expense in accordance
with Section 9.1 hereof, or NX will supply at its expense, all additional
necessary tooling and test equipment for the build, test and delivery of the
Instrument that has not already been purchased or supplied under the Original
Agreement. All such tooling and test equipment paid for (or supplied) by NX in
accordance with the provisions of this Agreement or the Original Agreement
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shall remain the property of NX. KMC shall safeguard and maintain such tooling
and test equipment in the same manner as it does its own tooling and equipment,
provided that NX shall be responsible for all maintenance beyond ordinary and
routine maintenance and for refurbishment and/or replacement of such tooling and
test equipment, except where the refurbishment and/or replacement is caused by
the negligence or willful misconduct of KMC. All tooling and test equipment
developed and owned by KMC prior to this Agreement and all tooling and test
equipment not paid for (or supplied) by NX shall remain the property of KMC. KMC
shall not use any such tooling and test equipment paid for or supplied by NX to
manufacture or test products for anyone other than NX.
5. PRODUCTION OF INSTRUMENTS
5.1 Upon receipt of the purchase orders for the Instruments from NX
which are accepted in accordance with Section 6.2 hereof, KMC will build, test,
label and ship the Instruments in accordance with applicable QSR regulations and
the TDP.
5.2 Instruments manufactured by KMC shall be subjected to the ATP
prior to shipment. Instruments shall be shipped after meeting the requirements
of the ATP, as confirmed by KMC's written certification provided to NX. NX shall
only accept Instruments which meet the requirements of the ATP as so certified
by KMC, subject to the F.O.B. conditions specified within Section 10.1. Any
claims for defects in the Instruments must thereafter be made pursuant to the
warranty provisions of Article 11 hereof
5.3 NX will supply to KMC at NX's expense any NX proprietary
disposables required to complete the ATP.
5.4 The Instruments shall contain such trademarks, tradenames and
logos, and patent markings as NX may designate from time to time.
5.5 KMC and NX shall each identify an individual who has the primary
responsibility for maintaining contact and communication with the other.
5.6 NX may elect to have KMC provide post-production services in
support of the Instrument. These services may include, without limitation:
management of spare parts/sub-assembly inventory (including shipments to field
service sites), development of test equipment and procedures for testing of
spare parts/sub-assemblies and/or post-warranty repair and refurbishment
services. The parties shall negotiate a separate agreement to cover such support
services.
6. FORECASTS AND PURCHASE ORDER.
6.1 NX shall submit by registered mail, telefax or email, addressed
to the attention of the KMC Contract Administration Department, firm, binding
and irrevocable written purchase orders authorizing KMC to manufacture the
Instruments under the purchase order and obligating NX to purchase such
Instruments. In addition, KMC is authorized by such purchase orders to purchase
the materials required to produce the Instruments under the purchase orders.
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Each purchase order will contain an express reference to this Agreement and will
state (i) the desired quantity and SKU of Instruments to be produced under such
purchase order, and (ii) shipment instructions for such Instruments. With the
exception of such quantity and shipping instructions, all other terms and
conditions of any purchase order shall be void and of no force or effect.
Notwithstanding the forgoing, each purchase order under the Agreement shall
specify the first requested delivery date under the purchase order, which shall
be no earlier than [**] from the date of the purchase order, and no later than
[**] from the date of such purchase order.
6.2 KMC shall accept all NX purchase orders, with respect to
quantities ordered, and will provide written acknowledgement of its acceptance
to NX within [**] of KMC's receipt of such purchase order. If KMC fails to
respond to NX within said [**], the purchase order shall be deemed accepted by
KMC as issued by NX with respect to (i) and (ii) in Section 6.1 hereof. The
first requested delivery date under the first purchase order under this
agreement shall also be accepted by KMC so long as it falls within the timelines
set forth in section 6.1 above. All terms and conditions of any acknowledgement
in addition or contrary to the provisions of this Agreement shall be void and of
no force or effect.
6.3 Each purchase order under this Agreement shall be in increments
of [**] units of the Instrument and shall be provided by NX to KMC no later than
[**] prior to the scheduled delivery of the last unit of Instrument under the
Original Agreement or the previous purchase order under this Agreement (as the
case may be). NX shall submit purchase orders in accordance with the applicable
Forecast.
6.4 No later than [**] prior to the first delivery requested under
the first purchase order under the Agreement, NX shall provide to KMC a good
faith forecast of its anticipated Instrument delivery requirements for the [**]
period commencing [**] from the date of such forecast (the "Initial Forecast").
No later than [**] prior to the first delivery under the Initial Forecast, NX
shall provide to KMC a good faith forecast of its anticipated Instrument
delivery requirements for the [**] period commencing [**] from the date of such
forecast (the "Second Forecast"). At the first day of the calendar month of the
first delivery under the Second Forecast, and at the start of each calendar
month thereafter, NX shall provide to KMC a good faith rolling forecast of its
anticipated Instrument delivery requirements for the [**] period commencing with
the date of such forecast (the "Rolling Forecast", collectively with the Initial
Forecast and the Second Forecast, the "Forecast").
6.5 The [**] of each Forecast shall constitute a firm, binding and
irrevocable commitment by KMC to deliver the specified quantity of Instruments
and by NX to accept such Instruments, provided, however, that the delivery
request for the first month of each Forecast may not vary from the delivery
request for that month under the immediately preceding Forecast, and that the
delivery request for the second month of each Forecast may not be in excess of
[**] percent ([**]%) of the delivery requests for that month under the
immediately preceding Forecast ("Delivery Commitment"). Except as otherwise
provided hereunder, delivery requests for the remainder of the Forecast shall be
non-binding.
6.6 If the quantity of Instruments requested to be delivered under
the [**] of any Forecast is in excess of the Delivery Commitment, KMC shall use
its reasonable commercial
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efforts to deliver all such excess delivery requests by NX. KMC shall promptly
advise NX in writing whether KMC will satisfy the excess delivery requests by
NX. The parties hereby acknowledge and agree that in any event, KMC shall not be
in breach of its obligations hereunder for not satisfying delivery requests that
are in excess of the Delivery Commitment.
6.7 In the event that any Delivery Commitment is [**], then KMC
reserves the right to [**]. Such [**] with any such [**], and which such [**].
KMC will apply best efforts to avoid and/or minimize such [**] arrangements
[**]. [**] materials will be [**] delivered against open purchase orders on a
pro-rata basis.
6.8 Extensions due to Materials. The arrangement presented under
this Agreement for delivery scheduling, and the timing of purchase order
authorizations by NX and actual manufacture of Instruments by KMC, is predicated
upon a maximum material lead-time of less than [**] and the delivery schedule
under the forecasts. In the event that material is identified for the Instrument
that requires a longer lead-time, or KMC identifies that its material purchase
orders may not suffice due to its delivery of Instruments in excess of its
Delivery Commitment, KMC and NX will make appropriate arrangements, including if
necessary for advance material procurement authorizations, as needed to preserve
KMC's ability to meet its Delivery Commitment under this Agreement.
7. UNIT TRANSFER PRICE FOR COMMERCIAL PRODUCT UNITS
7.1 Unit Transfer Price. Except as set forth in the next sentence,
the unit transfer price for each Instrument manufactured hereunder by KMC (the
"UNIT TRANSFER PRICE") during the Initial Term is set forth in Attachment 5. The
Unit Transfer Price for any purchase order that includes the [**] units of the
Initial Term, and for purchase orders to be provided during any Extension Term,
shall be negotiated in good faith between the parties. Such good faith
negotiations shall commence not later than [**] prior to such purchase order
during the Initial Term and any Extension Team.
7.2 Adjustments to Unit Transfer Price. For each purchase order
hereunder:
(a) Within [**] of a request by NX, KMC shall provide to NX a
current costed ▇▇▇▇ of Materials for the Instrument.
(b) KMC shall have the right to adjust the Unit Transfer Price
to reflect increases in its costed ▇▇▇▇ of Materials for the Instrument,
provided that any such adjustments shall be limited to an amount equal to
the product of the increase in Material Cost [**].
(c) In the event the cost of raw materials is decreased for
any reason, the then Unit Transfer Price shall be decreased by KMC by an
amount equal to [**] of the product obtained by multiplying the reduction
in the cost of raw materials and [**].
(d) The parties acknowledge and agree that the Unit Transfer
Price takes into account the cost of labor for the continuous production
of units of the
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Instrument at a minimum consecutive monthly run-rate of [**] units. In the
event such agreed upon minimum number of units per month is not produced
in each month of any [**] due to NX's decision, action or omission, then
the Unit Transfer Price shall be increased to reflect the additional
direct or indirect costs incurred by KMC, which increase shall be mutually
agreed upon by the parties in good faith.
(e) Notwithstanding anything to the contrary, the Unit
Transfer Price may not be increased pursuant to Sections 7.2(b) and 7.2(d)
to reflect increases in the Material Cost or the cost of labor, if a
production delay charge has been paid by NX pursuant to Section 6.7, and
such increase in the Material Cost or to the cost of labor is due to the
same production delay.
7.3 Disposition of Spare Parts and Obsolete Materials.
(a) All materials consumed by NX as spare parts shall be
purchased by NX from KMC at the following ▇▇▇▇-up structure:
Spare Part Cost = Total Cost [**];
Total Cost = (Manufacturing Cost + Material Cost) [**];
Manufacturing Cost = Direct Manufacturing Cost (actual labor cost
incurred by KMC)[**]; and
Material Cost = Direct Material Cost (actual raw material cost
incurred by KMC)[**].
(b) Any pre-paid materials that have become obsolete shall be
returned to NX. Within [**] of such return NX shall pay for such obsolete
materials according to the following ▇▇▇▇-up structure: ((Material Cost
[**]).
8. WORK SCOPE CHANGES AND ECOS
8.1 Work Scope Changes. Either NX or KMC may, from time to time,
propose a change in, or an addition to, the work scope in accordance with this
Section. Such proposed change or addition may be a change in the TDP or
additional work that is required or recommended to satisfy the overall goals and
requirements of NX.
8.2 Process for Work Scope Changes. If NX proposes such change or
elects to proceed with consideration of any proposed change by KMC, KMC will
prepare and submit to NX a written Work Request. After its receipt of the Work
Request, NX, in its sole discretion, will determine whether or not to approve
the Work Request. If NX determines to proceed with the changes detailed in the
Work Request, then within [**] after its receipt of the Work Request, NX will
notify KMC of that determination by signing and returning to KMC the subject
Work Request. Failure to respond to KMC within such [**] shall constitute a
rejection of the Work Request. KMC will implement changes approved by NX in
accordance with the Work Request
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and the provisions of Section 8.3 below. All changes to TDP will be affected by
ECO prepared by KMC and approved by NX.
8.3 Invoicing for Services Rendered under Work Request. Unless
otherwise stated on the Work Request, KMC will submit invoices to NX on a
monthly basis for actual expenses incurred, and for services rendered by KMC, in
implementing an approved Work Request. If the Work Request results in a change
in the Unit Transfer Price, once the change has been implemented, the change in
Unit Transfer Price will be reflected by amendment to the applicable NX purchase
orders and all subsequent invoices issued by KMC will reflect the amended Unit
Transfer Price.
8.4 Reimbursement for Unapproved Work Requests. If NX requests KMC
to prepare a Work Request that is expected to require an unusually large amount
of estimating effort, then KMC may ask NX to agree to reimburse KMC for the
actual cost of the estimating effort in the event that the Work Request is not
approved by NX. KMC may also ask NX to agree to reimburse KMC for the actual
costs associated with preparing routine estimates for NX solicited and
unapproved Work Requests if NX has requested and disapproved more than one such
Work Request per calendar quarter. Absent any such agreement by NX, KMC shall
not be obligated to prepare such Work Request.
8.5 Processing of ECOs. At the request of NX, KMC shall absorb the
cost of and not charge NX for non recurring work for processing ECOs up to the
aggregate amount of [**] Dollars ($[**]) per calendar year (calculated based on
KMC's rates as provided in Attachment 6). Any non recurring work required for
the processing of ECOs after KMC has absorbed the aggregate cost of [**] Dollars
($[**]) per calendar year, shall be billed by KMC to NX at KMC's rates as
provided in Attachment 6 and invoiced on a monthly basis. Notwithstanding the
foregoing, NX may at times request that a particular ECO not be absorbed by KMC
as part of the above [**] Dollars ($[**]), but shall be billed by KMC to NX at
KMC's rates as provided in Attachment 6.
9. INVOICING
9.1 Invoicing.
(a) KMC shall invoice NX for the Instruments manufactured
hereunder upon shipment thereof, at the then Unit Transfer Price.
(b) Upon placement of orders approved by NX for tooling and
test equipment, NX shall pay KMC an amount equal to [**] percent ([**]%)
of the submitted order to the suppler. The balance of the purchase price
for such tooling and test equipment shall be paid to KMC, together with a
material handling charge equal to [**] percent ([**]%) of the purchase
price, upon KMC's receipt of the subject tooling and test equipment.
(c) If during the Initial Term the available cash on hand of
NX should ever fall below $[**] Dollars) including, for these purposes,
monies immediately
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available under any existing NX revolving credit facility, as reflected in
the books and records of NX, maintained in accordance with GAAP,
consistently applied, then NX shall immediately provide KMC with written
notice of such event and within [**] of written notice from KMC, either
(at NX's option) (i) pay for all production materials on order with
vendors, as well as any such materials already received by KMC but not yet
paid for, or (ii) provide KMC with an irrevocable letter of credit to
secure payment for such materials, issued by a U.S. commercial bank, in
such amount and in such form and substance reasonably acceptable to KMC.
Without limiting the generality of the foregoing, during the Initial Term,
NX shall provide to KMC, promptly following its availability, its balance
sheet for each calendar quarter of the Initial Term. NX shall provide to
KMC audited versions of such balance sheets if and when available, and if
so requested by KMC. KMC shall credit amounts paid by NX for production
materials to its invoices for the Instruments using such production
materials on a pro-rata basis.
9.2 Payment. All invoices shall be paid by NX, in full, within [**]
of the date of invoice. Failure to make full payment of KMC invoices within a
[**] period shall constitute a material breach by NX. Furthermore, KMC may
assess NX interest at the rate of one percent (1%) per month for the maximum
rate allowed by applicable law, whichever is lower, on any past due amount,
together with its costs of collection (including, without limitation, attorneys'
fees and expenses). All invoices shall be payable to KMC in Dollars to a bank in
the United States designated by KMC.
9.3 Dispute of Invoices. If NX disputes all or any part of an
invoice, NX shall provide KMC a notice of the dispute within [**] of its receipt
of such invoice, and shall timely pay any undisputed portion of the invoice. NX
and KMC agree to use all commercially reasonable efforts to resolve any disputes
concerning the payment of invoices under Section 9.1 hereof within [**] after NX
has provided such notice of dispute. If the parties are unable to resolve or to
compromise such dispute within such [**] period, each of NX and KMC agrees to
submit the dispute to be settled by expedited, binding arbitration with
J.A.M.S./Endispute in Boston, Massachusetts before a single arbitrator, in
accordance with the rules of such entity. The fees and expenses of the
arbitrator, as between KMC and NX, shall be borne by them in such proportions as
shall be determined by the arbitrator, or if there is no such determination,
then such fees and expenses shall be borne equally by KMC and NX.
9.4 Taxes. NX shall pay all taxes, fees and duties or other amounts,
however designated, including any value added taxes, which are levied or based
upon the fees and other amounts charged by KMC to NX under this Agreement;
provided that the foregoing shall not obligate NX to pay any taxes based on the
income, gross receipts or property of KMC.
10. SHIPMENT & TRANSPORTATION
10.1 F.O.B. Point. All provides are F.O.B. KMC's shipping dock. NX
shall be responsible for the payment of all transportation charges incurred in
connection with this Agreement, except as otherwise provided under Section 11.2.
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10.2 Shipping Instructions. Normally KMC will ship in accordance
with NX's shipping instructions, including, if requested by NX, drop shipments
to its designated customers. In the absence of specific instructions, KMC
reserves the right to ship by the method it reasonably deems most appropriate to
the NX facility.
10.3 Damage Claims. All claims for loss or breakage and damage,
whether concealed or obvious, must be made to the carrier by NX within a
reasonable time after receipt of the shipment, but in no event shall KMC be
responsible for any such loss, breakage or damage, unless due to KMC's
negligence.
10.4 Shipping of Additional Equipment. If NX wishes KMC to ship NX
equipment together with the Instrument under KMC's drop shipments to NX's
designated customers, the parties shall negotiate a payment by NX to KMC for
such services.
11. WARRANTY OF KMC
11.1 Warranty. KMC warrants to NX that the Instrument manufactured
hereunder will be free, under normal use and maintenance, from defects in
material and workmanship for the period of twelve (12) months from the date of
shipment by KMC. Any materials provided by NX from a third party vendor or as
customer furnished materials are excluded from this warranty, and shall be the
responsibility of NX. Any defects caused by the misuse or faulty maintenance of
the Instrument by NX, its customers or any other person or entity other than KMC
are also excluded from this warranty and shall be the responsibility of NX.
Upgrades, reconfigurations, testing, repairs, maintenance and integration of an
Instrument by or for NX shall not void any such warranty, provided that any such
work is performed in a workmanlike manner consistent with industry standards. It
is further understood and agreed that NX shall be solely responsible for any and
all regulatory submissions to and approvals by the applicable regulatory
agencies arising out of or related to the aforementioned work.
11.2 Sole and Exclusive Remedy. Subject to Section 11.4, as NX's
sole and exclusive remedy for any defects in the Instrument, KMC will, at is
option, repair or replace without charge, any Instrument manufactured by it,
which is found by KMC to be so defective; provided, however, that (a) the
Instrument, subassembly or part involved is returned by transportation
designated by KMC to a location designated by KMC; and (b) KMC is notified by NX
in writing of the defect within the warranty period set forth in Section 11.1
hereof. Except as otherwise provided in Sections 11.1 and 11.4 hereof, no
allowance will be made for repairs or replacements made without KMC's written
consent. KMC will pay transportation charges from NX to KMC for the returned
Instrument, and from KMC to NX for the repaired Instrument or its replacement.
11.3 Disclaimer. OTHER THAN THE WARRANTY SPECIFIED ABOVE, KMC MAKES
NO OTHER WARRANTIES OF ANY KIND WHATSOEVER, EXPRESSED OR IMPLIED, AND ALL
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE HEREBY
DISCLAIMED BY KMC AND EXCLUDED FROM THE TERMS OF THIS AGREEMENT.
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11.4 On-Site Warranty Program. In addition to the options for
repairing Instruments set forth above in Sections 11.1 and 11.2 hereof, NX shall
have the right to perform an on-site warranty repair program for the Instruments
in a manner consistent with the standards to be set forth in an Exhibit to be
discussed in good faith and mutually agreed upon by the parties on or about
August 15, 2005. Such Exhibit shall provide that KMC's warranty under Section
11.1 hereof shall remain in full force and effect.
12. TERM AND TERMINATION
12.1 Term of Agreement. This Agreement will commence as of the
Effective Date and, unless sooner terminated as herein provided, will continue
in effect until the delivery of the [**] unit of the Instrument ordered under
this Agreement (the "INITIAL TERM"). The Term shall automatically extend for
additional one (1) year periods ("EXTENSION TERM(S)") unless either party
provides the other party with written notice of termination not later than [**]
prior to the end of the Initial Term or any Extension Term. KMC's exclusive
manufacturing rights shall only apply during the Initial Term, subject to the
limitations set forth herein. KMC shall have no exclusive manufacturing rights
during any Extension Term.
12.2 Termination by Either Party. This Agreement may be terminated
at any time by notice in writing to the other party upon the occurrence of one
or more of the following events:
(a) In the event of a material breach hereunder, then the
non-breaching party may terminate this Agreement upon not less than [**]
prior written notice, setting forth the alleged breach, unless the breach
is cured prior to the expiration of such notice period.
(b) In the event that NX and its affiliates permanently
discontinue the marketing of the Instrument, NX shall have the right to
terminate this Agreement upon not less than [**] prior written notice to
KMC; provided, however, if the marketing of the Instrument is reinstated
by NX or any of its affiliates prior to delivery of the [**] unit of the
Instrument ordered under this Agreement, then KMC shall have the right to
have this Agreement reinstated. If KMC shall elect to so reinstate this
Agreement after such termination, then the Initial Term shall continue
until the [**] unit is delivered under this Agreement.
(c) If either party shall file a petition in bankruptcy, or
shall be adjudicated bankrupt, or shall take advantage of the insolvency
law of any state or country, or shall make an assignment for the benefit
of creditors, or shall have a receiver, trustee or other court officer
appointed for its property, then the other party may terminate this
Agreement upon written notice to the other.
12.3 Termination by KMC.
(a) In the event KMC's production activities under this
agreement are interrupted and/or delayed due to NX's decision, action or
omission for any continuous
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period in excess of six (6) months such that there is no Instrument
production during such six (6) months, then KMC shall have the right to
terminate this Agreement.
(b) In the event of the appointment of a second source
manufacturer for the Instruments pursuant to Section 2.4 hereof, and
following KMC's verification that it can timely supply the Instruments
hereunder, if NX purchases from KMC less than [**] percent ([**]%) of its
requirements for the Instruments during [**], KMC shall be the right to
terminate this Agreement with [**] prior written notice.
(c) In the event NX exercises its right to manufacture the
Instrument itself pursuant to Section 2.1 hereof and if NX purchases from
KMC less than [**]percent ([**]%) of its requirements for the Instruments
during [**], KMC shall have the right to terminate this Agreement with
[**] prior written notice.
(d) In the event that during any Extension Term NX purchases
from KMC less than [**] percent ([**]%) of its requirements for the
Instruments during [**], KMC shall have the right to terminate this
Agreement with [**] prior written notice.
12.4 Termination by NX. In the event of a termination due to KMC's
material breach, KMC's exclusive manufacturing rights will terminate also.
Without limiting the foregoing, if KMC is found to be non-compliant with
applicable QSR and ISO requirements and its corrective action plan is not
accepted by the FDA, or applicable regulatory agency, within [**] of notice of
non-compliance, then KMC shall be deemed to be in material breach of this
Agreement.
12.5 Obligations Upon Termination.
(a) Neither termination nor expiration of this Agreement shall
release any party from fulfilling any obligations which it may have
incurred prior to any such termination or expiration. In the event of any
termination of this Agreement, unless otherwise directed by NX (in the
event of termination hereunder by NX) or unless such termination is by
KMC, KMC will complete the outstanding activity.
(b) In addition to any other amounts due under this Agreement,
NX shall pay KMC for all expenses incurred by KMC due to non-cancelable
material and labor commitments made by KMC prior to receipt by KMC of a
written notice of termination from NX or KMC's issuance of a written
notice of termination to NX. These expenses may include, but are not
limited to, completed but uncompensated production labor hours expended,
inventory and work-in-progress, and materials ordered and not returnable
or subject to cancellation, actual cancellation charges, restocking fees
and other similar charges incurred by KMC, all at KMC's then current sell
rates less advance payments, if any, made by NX to KMC toward such
expenses. KMC will use its commercially reasonable efforts to minimize
such termination expenses.
(c) Upon payment of all amounts due to KMC under this
Agreement, including but not limited to outstanding invoices and
termination expenses, KMC shall
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promptly deliver to NX, upon NX's request, the TDP, all tooling and test
equipment and such other materials paid for by NX, unless NX requests that
any such materials be destroyed.
(d) Any termination under this Section 12 shall be in addition
to such rights and remedies available to the terminating party under this
Agreement, at law, in equity or otherwise.
(e) Termination of this Agreement will not relieve the parties
hereto of their respective obligations of confidentiality,
non-solicitation, or of any other obligations or liability accrued
hereunder prior to such termination.
13. INTELLECTUAL PROPERTY
13.1 NX and KMC agree that except for the KMC Work Product, all
inventions, know-how, formulae, designs, trade secrets, manufacturing and secret
processes, works of authorship, and other technical information pertaining to
the Instrument, and any other Intellectual Property, including any and all
improvements or modifications made to the Instrument and any and all rights
related thereto under the patent, copyright, trademark, trade secret or similar
laws of any jurisdiction, all of which are developed solely by KMC or jointly by
KMC and NX in the course of their performance of this Agreement and paid for by
NX (the "WORK PRODUCT"), shall be and remain at all times the property of NX.
The forgoing shall also include all work performed under Section 8.5,
"Processing of ECOs". KMC shall cooperate with NX, at NX's expense, in taking
any action necessary or appropriate in NX's sole discretion to establish,
confirm and defend NX's rights herein, including, without limitation, the
preparation, filing and prosecution of patent, copyright or trademark
applications and the offering of testimony and other support in connection with
any legal proceedings brought by or against NX relating to such rights. To the
extent that title to any such rights do not vest immediately in NX, KMC agrees
to, and does hereby, assign to NX all right, title and interest therein
effective as of the date hereof or, if later, the date of creation of such
rights. In particular, without limitation of the foregoing, and except for the
KMC Work Product, KMC hereby assigns to NX all right, title and interest in any
inventions, patent applications, patents, works of authorship or any other
Intellectual Property developed solely by KMC or jointly by KMC and NX in the
course of their performance of this Agreement, and any renewals or extensions
thereof or subsidiary, derivative, divisional, continuation or successor patents
or applications therefore. KMC agrees to execute and deliver any additional
documents necessary or appropriate to effect and confirm such assignment.
13.2 KMC shall retain ownership of that portion of the Work Product
that is related to manufacturing processes (the "KMC WORK PRODUCT"). KMC hereby
grants to NX (and its affiliates) a non-exclusive, irrevocable, perpetual,
transferable, royalty-free license (with the right to sublicense) under any
patent, copyright, design or other intellectual property rights owned or
controlled by KMC in or to the KMC Work Product to make, have made, use, sell,
have sold, offer to sell and import any such KMC Work Product solely for the
manufacture, use or sale of the Instrument.
-14-
14. INFRINGEMENT
Each party hereto shall use its best efforts to not, with actual
knowledge, incorporate into the Instrument any proprietary or confidential
technical information of any third party. Each party shall be obligated to
promptly notify the other party of any claims or circumstances concerning
infringements, misappropriations, imitation or unauthorized possession,
knowledge or use of technology used in the design or manufacture of the
Instrument.
15. NON-SOLICITATION
During the Term and for a period of [**] thereafter, neither KMC nor NX
shall solicit directly or indirectly (whether for its own account or for the
account of any other person or entity) for employment any employees of the
other.
16. REPRESENTATIONS & WARRANTIES
Each of the parties hereto represents and warrants to the other party
hereto that: (a) the execution, delivery and performance of this Agreement (i)
has been duly authorized and represents its legal, valid and binding obligation,
enforceable in accordance with its terms and (ii) does not contravene any
contractual obligation or restriction binding upon or affecting such party; (b)
it has the corporate authority to enter into this Agreement and to perform its
obligations hereunder; and (c) it has not and will not enter into agreements or
commitments that conflict with the rights granted to the other party under this
Agreement.
17. INSURANCE COVERAGE.
17.1 Insurance Obligation of KMC. KMC represents and warrants that
it maintains, and shall maintain in good standing throughout the Term,
comprehensive general liability insurance in an amount of at least $2,000,000.
Upon written request by NX, KMC shall deliver to NX a certificate of insurance
verifying such insurance coverage.
17.2 Insurance Obligation of NX. NX represents and warrants that it
maintains, and shall maintain in good standing throughout the Term,
comprehensive general liability insurance in an amount of at least $2,000,000.
Upon written request by KMC, NX shall deliver to KMC a certificate of insurance
verifying such insurance coverage.
18. INDEMNITY
18.1 By NX. NX agrees to indemnify and hold KMC, its affiliated
entities, and their respective officers, directors, employees and agents
(collectively "KMC Indemnitees"), harmless from and against all claims, losses,
damages (excluding incidental or consequential damages suffered or incurred by
the KMC Indemnitees directly [as opposed to incidental or consequential damages
suffered or incurred by third parties who are, in turn, seeking the same from an
KMC Indemnitee, which shall be covered by this indemnity]), liability and
expenses (including, without limitation, attorney's fees and expenses) paid or
payable by an KMC Indemnitee to a third party that relates to or arises in
connection with a claim, suit or proceeding
-15-
made or brought by a third party against the KMC Indemnitee on account of (a)
any injury to persons or damage to property arising out of or in any way
connected with the Instrument, NX's acts or omissions, or the services provided
by KMC hereunder, except to the extent that same results from the negligence or
willful misconduct of KMC; (b) an infringement or alleged infringement of a
patent, copyright or any other proprietary rights of third parties by the
Instrument and/or services under this Agreement; or (c) non-compliance by NX
with applicable FDA and ISO requirements. In the event any claim is asserted or
any suit is filed against a KMC Indemnitee for which NX may be required to
indemnify KMC under this provision, KMC shall give NX prompt written notice of
same. KMC shall cooperate with NX, at NX's cost and expense, in the defense of
any such claim. NX shall have the sole right to defend and/or settle such a
claim, including selecting counsel of its choice.
18.2 By KMC. KMC agrees to indemnify and hold NX, its affiliated
entities, and their respective officers, directors, employees and agents
(collectively "NX INDEMNITEES"), harmless from and against all claims, losses,
damages (excluding incidental or consequential damages suffered or incurred by
the NX Indemnitees directly [as opposed to incidental or consequential damages
suffered or incurred by third parties who are, in turn, seeking the same from an
NX Indemnitee, which shall be covered by this indemnity]) liability and expenses
(including, without limitation, attorneys' fees and expenses) paid or payable by
an NX Indemnitee to a third party that relates to or arises in connection with a
claim, suit or proceeding made or brought by a third party against the NX
Indemnitee on account of (a) any injury to persons or damage to property arising
out of or in any way connected with the Instrument or the services provided by
KMC hereunder, provided the same results solely and directly from the negligence
or willful misconduct of KMC; or (b) non-compliance by KMC with applicable FDA
and ISO requirements. In the event any claim is asserted or any suit is filed
against an NX Indemnitee for which KMC may be required to indemnify NX under
this provision, NX shall give KMC prompt written notice of same and shall
cooperate with KMC, at KMC's cost and expense, in the defense of any such claim.
KMC shall have the sole right to defend and/or settle such a claim, including
selecting counsel of its choice.
19. LIMITATION OF LIABILITY
19.1 Waiver of Consequential Damages. Except with regard to claims
of third parties pursuant to the indemnification obligations under Section 18
hereof or as otherwise expressly provided in this Agreement, neither party shall
be liable to the other in contract, tort or otherwise for special, indirect,
incidental or consequential damages of any kind or nature.
19.2 Limitation on Liability. Except with regard to each Party's
respective indemnification obligations under Section 18 hereof:
-16-
(a) KMC's liability on any claim of any kind, including
negligence, for any loss or damage arising out of, connected with, or
resulting from this Agreement or performance or breach thereof, shall in
no single case, or in the aggregate, exceed the aggregate Dollar amount
paid or payable by NX to KMC under this Agreement
(b) NX's liability on any claim of any kind, including
negligence, for any loss or damage arising out of, connected with, or
resulting from this Agreement or performance or breach thereof, shall in
no single case, or in the aggregate, exceed the aggregate Dollar amount
paid or payable by NX to KMC under this Agreement.
20. FORCE MAJEURE
Neither party hereto shall be responsible to the other for failure to
perform any of the obligations imposed by this Agreement (other than the
obligation to make timely payments hereunder), provided such party has made good
faith efforts to remedy any failure to perform and that such failure shall be
occasioned by a cause beyond the party's control, including, but not limited to,
government regulations, strikes, acts of God, acts or omissions of the other
party, acts of civil or military authority, failure or destruction, in whole or
in part, of machinery or equipment or failure of supply of materials,
discontinuance in the supply of power. It is incumbent upon each party to inform
the other within a reasonable period of time of such an occurrence.
Should performance of any obligation be delayed or prevented because such
force majeure conditions apply, the parties shall consult with each other
regarding the future implementation of the Agreement.
21. ASSIGNMENT
This Agreement shall inure to the benefit of and bind the parties hereto
and their respective successors and permitted assigns. It is specifically
agreed, however, that neither party may assign its rights or duties pursuant to
this Agreement without the written consent of the other party, except that
either party may, without the other party's consent, assign or transfer any
right, title or interest under this Agreement to an entity with which the
assigning party may merge or consolidate, which acquires all or substantially
all of its business, or which controls, is controlled by or is under common
control with the assigning party. Any attempted transfer or assignment contrary
to the terms of the provision shall be null and void.
22. AMENDMENTS
This Agreement may only be amended, modified, changed or assigned by a
writing duly executed by KMC and NX. The terms of any NX purchase order or other
document contrary or in addition to the terms of this Agreement shall be of no
force or effect.
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23. ENTIRE AGREEMENT
This Agreement, along with its Attachments, constitute the entire
understanding between the parties with respect to the subject matter hereof and
shall supersede and nullify all prior or contemporaneous agreements, whether
written or oral, relating thereto, including but not limited to those provisions
of the Original Agreement respecting production by KMC; provided, however, that
the parties shall continue to be bound by the Confidential Disclosure Agreement
executed by the parties, dated as of May 3, 1999, which continues to be in full
force and effect in accordance with its terms.
24. NOTICES
Any notice required by the Agreement shall be sent by certified mail,
postage prepaid, return receipt requested, or by prepaid courier delivery, or by
facsimile, and shall be forwarded to the respective addresses set forth below
unless subsequently changed by written notice to the other party. Such notice,
if received, shall be deemed to have been received, if by first class mail, on
the tenth (10th) calendar day after posting; if by express courier, on the date
of delivery by the courier; and if by telefax, upon transmission with
confirmation of receipt.
For NX:
NxStage, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Senior Vice President & Chief Operating
Officer
Fax No.: ▇▇▇-▇▇▇-▇▇▇▇
With a copy to:
Senior Vice President & General Counsel
(Same address as above)
For KMC:
KMC Systems, Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: President
Fax No.: ▇▇▇-▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
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Attention: ▇▇▇ ▇▇▇▇▇▇▇▇
Fax No.: ▇▇▇-▇▇▇-▇▇▇▇
25. GOVERNING LAW
This Agreement shall be governed, interpreted and construed in accordance
with the internal laws of the State of New Hampshire, USA, without the
application of its conflict of laws provisions. The parties hereby submit to the
exclusive jurisdiction of the State and Federal Courts situated in Concord or
Manchester, New Hampshire, with regard to any disputes or claims under, arising
out of or in connection with this Agreement
26. RELATIONSHIP OF PARTIES
The parties to this Agreement are independent contractors and not joint
venturers or partners. Neither party shall be deemed to be an agent of the other
party as a result of any transaction under or related to this Agreement nor
shall in any way pledge the other party's credit or incur any obligation on
behalf of the other party.
27. WAIVER
The failure of either party to insist upon strict compliance with any of
the terms, covenants, or conditions herein shall not be deemed a waiver by such
party of such terms, covenants or conditions, nor shall any waiver or
relinquishment of any right at any one or more times be deemed a waiver or
relinquishment of such right at any other times, nor shall any single or partial
exercise of any right or remedy hereunder preclude any other or a future
exercise thereof or the exercise of any other right or remedy granted hereby or
by any related document or by law.
28. SEVERABILITY
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of any other provision. Any provision
declared invalid or unenforceable by a court of competent jurisdiction shall be
deleted and the remaining terms and conditions of this Agreement shall remain in
full force and effect.
29. FEES AND EXPENSES
Except as otherwise expressly provided in this Agreement, each of the
parties hereto shall pay its own fees and expenses (including, without
limitation, the fees of any attorneys, accountants, or other representatives)
incurred in connection with this Agreement and the transactions contemplated
hereunder, whether or not such transactions are consummated.
30. COUNTERPARTS
This Agreement may be folly executed in two (2) original counterparts,
each of which shall be deemed an original.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
NXSTAGE MEDICAL, INC.
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 6/28/05
------------------------------------------
By: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President and CEO
KMC SYSTEMS, INC.
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 6/23/05
------------------------------------------
By: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President
-20-
Attachment 1
Acceptance Test Procedures
NXSTAGE Test Log TPO195-02
Cycler ATP
SW 4.X Test Log
Cycler CYC-D2E [ ] Serial No.___ For Engineering Use Only
TR # ___________________
Cycler CYC-A1 [ ] Serial No.___ PWR-200 Serial No.____ DCO# ___________________
Chronic [ ] Acute [ ] Software Version No. ______
22 pages of Confidential Materials omitted and filed separately with
the Securities and Exchange Commission.
Attachment 2
▇▇▇▇ of Materials
17 pages of Confidential Materials omitted and filed separately with
the Securities and Exchange Commission.
-3-
Attachment 3
Produce Market Requirement: MR0001
44 pages of Confidential Materials omitted and filed separately with
the Securities and Exchange Commission.
-4-
KMC Systems, Inc. Document # 920-00102ACR Rev C
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Attachment 4
MANUFACTURING PROGRAM/QUALITY PLAN
FOR THE
NXSTAGE SYSTEM ONE CYCLER
Prepared for:
NxStage Medical, Inc.
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▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
FOR REFERENCE ONLY-THIS DOCUMENT WILL NOT BE UPDATED
DOCUMENT #: 920-00102ACR ISSUED DATE: 9/7/2001
REVISION: C
APPROVALS
▇▇▇▇ ▇▇▇▇▇▇▇▇ 1/20/05
----------------------------------------------------- ----------------
KMC Systems, Mfg. Team Leader Date
▇▇▇▇ ▇▇▇▇▇▇▇ 1/23/05
----------------------------------------------------- ----------------
KMC Systems, Director Quality Assurance Date
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
----------------------------------------------------- ________________
NxStage Medical, Inc. Date
Page 1 of 16
KMC Systems, Inc. Document # 920-00102ACR Rev C
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TABLE OF CONTENTS
1.0 Purpose................................................................................................. 5
2.0 Scope................................................................................................... 5
3.0 Product Description..................................................................................... 5
4.0 Product Qualification & Release to Production........................................................... 5
5.0 Production Planning..................................................................................... 5
5.1 Production Requirements.................................................................... 6
5.2 Resource Requirements...................................................................... 6
5.3 Customer Interface......................................................................... 6
5.4 Changes in Scope........................................................................... 6
5.5 Management Review.......................................................................... 6
5.6 Regulatory/Quality Standards............................................................... 6
5.7 Documentation Control...................................................................... 7
5.8 Electronic Records/Software Control........................................................ 8
5.9 Procurement Control........................................................................ 8
5.10 Receiving Inspection....................................................................... 9
5.11 Disposition of Non-conforming Material..................................................... 10
5.12 Product Quality Reviews.................................................................... 10
5.13 Corrective and Preventive Action........................................................... 11
5.14 Temporary Deviations....................................................................... 11
5.15 Training - Production Personnel............................................................ 11
5.16 Product Audits............................................................................. 12
5.17 Internal Audits (Manufacturing Process).................................................... 13
Page 2 of 16
KMC Systems, Inc. Document # 920-00102ACR Rev C
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5.18 Equipment - Inspection/In-Process/Test - Calibration & Maintenance......................... 13
5.19 Return Material Procedure.................................................................. 14
5.20 Product Release Procedure.................................................................. 14
5.21 Device Master Record Index................................................................. 15
5.22 Device History Records..................................................................... 15
5.23 Record Retention........................................................................... 16
Page 3 of 16
KMC Systems, Inc. Document # 920-00102ACR Rev C
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Revision History
REVISION REVISED PARAGRAPH REMARKS APPROVAL DATE
-------- ----------------- ------- -------------
A _________________ Initial Release per ECO 168214 9/25/01 DLL
B _________________ SEE ECO 168687 FOR CHGS 6/26/02 DLL
C _________________ See ECO 169665 for changes 1/27/05 DLL/
______ _________________ _______________________________ ____________
______ _________________ _______________________________ ____________
______ _________________ _______________________________ ____________
Page 4 of 16
KMC Systems, Inc. Document # 920-00102ACR Rev C
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1.0 PURPOSE
1.1 The purpose of this document is to establish a Manufacturing
Program/Quality Plan for the NxStage System One Cycler, developed by
KMC Systems, Inc. in conjunction with NxStage Medical, Inc. The
NxStage System One Cycler will be manufactured and tested by KMC
Systems in compliance with the requirements of the KMC Systems
Quality System, and in accordance with NxStage Design
Specifications.
2.0 SCOPE
2.1 This Manufacturing Program/Quality Plan includes the elements
necessary to initiate the manufacturing process at KMC. NxStage has
assumed design control of the program for the next phase of
manufacturing at KMC. All ECO packages will be supplied by NxStage
to KMC and subsequently released into the KMC system per standard
procedures. For these ECO documents that have been directed by
NxStage, no customer signature will be required.
2.2 This Plan will assure that the NxStage System One Cycler will be
built and tested to fully conform to the current Device Master
Record.
3.0 PRODUCT DESCRIPTION
3.1 The NxStage System One Cycler is an instrument that removes waste
fluid containing urea and other toxins from the patient and replaces
it with sterile solution to maintain the patient's electrolyte and
acid / base balance. This Manufacturing Program/Quality Plan applies
to the NxStage System One Cycler, P/N 002-00034ACR.
4.0 PRODUCT QUALIFICATION & RELEASE TO PRODUCTION
4.1 KMC Temporary Deviation Control procedure, 781-03007, will be used
to document actions and shipments prior to full ECO release and
completed Manufacturing Readiness Review (MRR). All deviations will
be signed by NxStage prior to implementation.
4.2 KMC will conduct a MRR prior to building Production units as defined
by KMC. The intent of this MRR is to ensure that all action items
have been addressed and completed before proceeding. At this time,
all appropriate documentation for Production must be released.
4.3 Refer to current contract for System warranty information.
5.0 PRODUCTION PLANNING
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KMC Systems, Inc. Document # 920-00102ACR Rev C
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5.1 Production Requirements
5.1.1 NxStage will provide a [**] rolling forecast for instruments
and spares, to KMC for scheduling purposes.
5.2 Resource Requirements
5.2.1 KMC will assign a Manufacturing Team Leader, Quality Assurance
Engineer, and Buyer/Planner for the production of this
product. The Team Leader will provide technical leadership to
the manufacturing team and will be responsible for the
Manufacturing Project File. Additional technical resources
will be added as required based on the manufacturing forecast.
5.3 Customer Interface
5.3.1 The KMC Manufacturing Team Leader will be the point of contact
with the customer. Interface with NxStage will be through the
designated NxStage representative.
5.4 Changes in Scope
5.4.1 Any activities outside the scope of the pre-existing Work
Orders will not be done without prior customer approval and
authorization. The mechanism for authorizing additional work
will be a Work Request generated by KMC and provided to
NxStage for approval.
5.5 Management Review
5.5.1 Monthly program reviews of production objectives will be held
with KMC Management. The Team Leader will report to the
President and his staff on the progress/status of the program
to date. The reviews will be documented and the reports filed
in the Manufacturing Project File.
5.6 Regulatory/Quality Standards
5.6.1 ISO 13485 in conjunction with KMC Systems Inc. Quality Manual,
780-03001.
5.6.2 Program Plan, Document #731-00021ACR
5.6.3 FDA, Quality System Regulation (QSR), 21 CFR, Part 820
5.6.4 International Standards
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5.6.4.1 IEC 60601-1: 1988 including A. 1:1991 and Am.
2:1995; Medical Electrical Equipment - Part 1:
General Requirements for Safety
5.6.4.2 EN ▇▇▇▇▇-▇-▇: 1993, 1st Ed.; Medical Electrical
Equipment - Part 1: General Requirements for Safety
- 2. Collateral Standard: Electromagnetic
compatibility - Requirements and tests
5.6.4.3 IEC ▇▇▇▇▇-▇-▇: 2000 and Am. 1:2000; Medical
Electrical Equipment - Part 1: General Requirements
for Safety - 4. Collateral Standard: Programmable
electrical medical systems.
5.6.4.4 UL 2601-1:1997 including IEC 60601-1 Am. 1:1991 and
Am. 2:1995; Medical Electrical Equipment, Part 1:
General Requirements for Safety
5.6.4.5 CAN/CSA International-C22.2 No. 601.1-M90 including
supplement No. 1-94; Medical Electrical Equipment,
Part 1: General Requirements for Safety
5.6.4.6 IEC 60601-2-16:1998; Medical electrical equipment -
Part 2-16: Particular requirements for the safety of
hemodialysis, hemodiafiltration and hemofiltration
equipment
5.6.4.7 IEC 60529:1989, Degree of protection provided by
enclosures (IP code) only for IPX1
5.7 Documentation Control
5.7.1 KMC Systems Documents
5.7.1.1 781-02003: Control of Assembly Work Instructions
5.7.1.2 781-01002: Approval and Control of Documents
5.7.1.3 781-03006: Document Change Orders
5.7.1.4 FDA Quality System Regulation (QSR), 21 CFR Part
820.181 Device Master Record
5.7.2 NxStage has complete design control of the program. KMC
Systems is responsible for maintaining and updating KMC
generated documentation, referred to as the production
Technical Data Package (TDP), which includes, detail drawings,
component specifications, ▇▇▇▇ of Material
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(BOM), electrical schematics, PCB artwork, assembly, and
subassembly drawings. The TDP will be the fundamental element
of the Device Master Record for the NxStage System One Cycler.
All ECO packages will be supplied by NxStage to KMC and
subsequently released into the KMC system per standard
procedures. For these ECO documents that have been directed by
NxStage, no customer signature will be required.
A note will be made on the KMC ECO referencing NxStages' ECO
for risk, validation, and verification.
5.7.3 Requests for changes to the TDP via the Engineering Change
Order (ECO) may be initiated by KMC Systems or NxStage
Medical. Requests for Changes originating at KMC Systems will
be presented to NxStage for review.
5.7.4 Upon receipt of the information, NxStage will initiate the ECO
process as required and direct KMC of changes via their ECO
process.
5.7.5 Changes to Assembly Work Instructions will be processed in
accordance with 781-02003; Control of Assembly Work
Instructions. Assembly Work Instructions will be included in
the Manufacturing BOM (MBOM) and the Device Master Record.
They will be under configuration control in accordance with
KMC procedure 781-03006; Document Configuration Management.
NxStage approval is required for all changes to Assembly Work
Instructions except for clerical corrections.
5.8 Electronic Records/Software Control
There are no electronic records generated that reside on KMC network
drives while using program specific software.
5.9 Procurement Control
5.9.1 KMC Systems Documents
5.9.1.1 781-06001: Supplier Section, Approval Quality Rating
5.9.1.2 781-06003: Purchase Orders
5.9.2 Quality Assurance will be responsible for reviewing all
purchased item specifications and Purchase Requisitions for
materials or services as referenced in KMC procedure
781-06003.
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5.9.3 The determination of approved sources will be the joint
responsibility of KMC Systems Purchasing and Quality
Assurance. NxStage approval is required for all source
controlled items.
5.9.4 Suppliers of parts and/or assemblies will be approved in
accordance with KMC procedure 781-06001: Supplier Selection
and Approval, prior to the placement of an order. Suppliers of
source material chosen by NxStage may be evaluated by KMC
Systems, but will be considered the responsibility of NxStage
Medical. At the request of NxStage, KMC Systems Quality
Assurance may assist in an audit of these suppliers.
5.9.5 KMC Systems Supplier Quality Assurance will act as the liaison
between the program and suppliers on all quality related
issues.
5.10 Receiving Inspection
5.10.1 KMC Systems Documents
5.10.1.1 781-03015: Controlled Release of Material
5.10.1.2 781-03019: Disposition of Non-Conforming Material
5.10.1.3 781-03014: Acceptance of Purchased Material
5.10.2 Purchased items for the NxStage System One Cycler will be
subject to inspection upon arrival at KMC Systems, in
accordance with KMC procedure 781-03014: Acceptance of
Purchased Material.
5.10.3 Off-the-shelf items will be inspected against the component
specification drawings for the source and correct
manufacturers part number unless otherwise specified on the
specification drawing. Dimensions will be considered as
reference and will be used for identification only.
5.10.4 Customer Furnished Material (CFM) may be inspected and/or
tested in accordance with established procedures provided by
NxStage. Equipment and training may also be provided by
NxStage as required.
5.10.5 Fabricated (build-to-print) parts received from a supplier
for the first time will be subjected to First Article
Inspection. First Article Inspection will consist of
inspecting the first piece 100% for all attributes of the part
per drawing. Once First Article Inspection has been performed
and the parts are accepted, subsequent lots will be inspected
per the inspection criteria defined in the drawing or
inspection instructions for the part in accordance with
sampling plans per KMC procedure 781-03014.
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5.10.6 Acceptance of Purchased Material.
5.10.6.1 Off-the-shelf parts may be eligible for a Skip-lot
inspection m in accordance with KMC procedure
781-03014. Custom fabricated assemblies and
component parts will not be eligible for skip lot
Inspection.
5.10.6.2 Source inspections may be performed as required to
assure complete compliance with specifications.
Incoming material that has been subjected to source
inspection will be checked for shipping damage and
evidence that source inspection was performed.
5.10.6.3 KMC Systems Quality Assurance may elect to release
partial lots of material when necessary to satisfy
urgent production requirements, prior to complete
inspection of the lot in accordance with KMC
procedure 781-03015: Controlled Release of Material.
This material will be identified and recalled if a
non-conformance is detected during the inspection of
the remainder of the lot.
5.10.6.4 Subassemblies manufactured with material under
Controlled Release will be marked and segregated,
pending formal acceptance by Quality Assurance.
Finished product will not be released for shipment
until formal acceptance of the Controlled Material.
5.11 Disposition of Non-conforming Material
5.11.1 Upon completion of inspection, non-conforming material will
be documented and processed in accordance with KMC procedure
781-03019: Disposition of Non-Conforming Material. KMC
Systems, through the Material Review Committee (MRC), will be
responsible for the disposition of any discrepant material.
NxStage approval is required for all material dispositioned by
KMC as Use-As-is (UAI), or Repair (RPR). Rational or
justification of UAI will be documented.
5.11.2 Quality ratings of suppliers will be periodically compiled
and used in the selection and retention of qualified suppliers
in accordance with KMC procedure 781-06001: Supplier
Selection, Approval and Quality Rating.
5.12 Product Quality Reviews
5.12.1 Monthly program reviews of production objectives will be held
with KMC Management. The Team Leader will report to the
President and his staff on
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the progress/status of the program to date. Data for review of
the program is supplied by Quality, monthly to Team Leaders.
Data supplied for analysis may include NCMR/Failure reporting,
RMA, SCAR, Shipment Performance, Deviations, and
Corrective/Preventive Actions.
5.13 Corrective and Preventive Action
5.13.1 KMC Systems Documents
5.13.1.1 781-03021: Request for Corrective and Preventive
Action
5.13.1.2 781-03022: Customer Complaint Process
5.13.2 During production, formal requests for Corrective Action may
be initiated in accordance with KMC procedure 781-03021:
Request for Corrective and Preventive Action. A formal request
may be generated when:
5.13.2.1 The Quality System or Manufacturing Process Audits
reveal that previous corrective action plans were
ineffective or not implemented as planned.
5.13.2.2 Trend analyses of MRC/MRB activities, customer
complaints, or audits indicate a system-wide
breakdown or failure in a Quality System requirement
affecting quality of product.
5.13.2.3 In accordance with KMC procedure 781-03021, Supplier
Quality Assurance may issue a Supplier Corrective
Action (SCAR), following the disposition of
non-conforming material, dispositioned on NCMRs, and
after MRC/MRB, in order to address material problems
with a particular supplier.
5.13.2.4 In the event that a complaint is received from
NxStage, it will be processed through KMC Systems
Quality Assurance in accordance with 781-03022:
Customer Complaint Process.
5.14 Temporary Deviations
5.14.1 Temporary Deviation Control procedure 781-03007 will be used
for the control and documentation of any temporary deviation
related to material or procedures released through
Configuration Management NxStage Quality Assurance will be
required to approve temporary deviations, prior to
implementation.
5.15 Training - Production Personnel
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5.15.1 KMC Systems Documents 782-02002: Training for Production
Assembly/Test Personnel.
5.15.2 Prior to, and during production of, the NxStage System One
Cycler, each member of the Manufacturing Team involved in
assembling and/or testing the unit, will be properly trained.
A qualified individual will perform and schedule training in
accordance with KMC Systems Document 782-02002.
5.15.3 If Assembly Work Instructions are revised, the Manufacturing
Team Leader or other qualified individual will conduct and
document appropriate retraining of manufacturing team
personnel.
5.16 Product Audits
5.16.1 Product Audit is performed as identified in this procedure.
KMC has no high level procedure to govern Product Audits.
5.16.2 As part of the release for shipment process, Quality
Assurance will perform a product audit on each System One
Cycler, in accordance With Product Audit Procedure,
921-00004ACR.
5.16.3 The Quality Assurance Auditor will document all defects noted
during the audit in the Device History Record and the FRS
database (if in use), and immediately notify the applicable
Manufacturing Team Leader of discrepancies found. Product
Audit Procedures will include, but will not be limited to, the
following:
5.16.3.1 Inspection of the Acceptance Test Procedure data
sheet results for completeness and accuracy.
5.16.3.2 Inspection of the unit for cosmetic defects or
damages such as paint chips/scratches, sheet metal
dents and the overall fit of mating parts.
5.16.3.3 Inspection of the unit for loose hardware, cable
connections, etc. including presents of accessory
items.
5.16.3.4 A copy of the Serial Number label will be kept in
the Device History Record for each unit.
5.16.4 The Manufacturing Team Leader will be notified of any
discrepancies and will be responsible for implementing
corrective action. Discrepancies noted during the Product
Audits will be reviewed by Quality Assurance,
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monthly, to assure that any trends or patterns are addressed
and to prevent recurrences.
5.16.5 The Quality sign off of the ATP indicates that Quality
Assurance has reviewed all documented troubleshooting efforts
and retest activities performed in the course of manufacturing
and testing of the instrument, evaluated the potential for
adverse effects, and the unit meets all criteria for shipment.
5.17 Internal Audits (Manufacturing Process)
5.17.1 KMC Systems Document: 781-03026: Internal Audits
5.17.2 Manufacturing Process audits will be performed in the
manufacturing cell by Quality Assurance to evaluate elements
essential to satisfying applicable regulatory requirements,
product specifications, and the manufacturing procedures for
producing the NxStage System One Cycler to the highest
reliability and quality.
5.17.3 If deficiencies are found during the audit process, they will
be noted in the audit report. The Manufacturing Team will be
responsible for initiating appropriate corrective action in
accordance with a documented corrective action plan.
5.17.4 Quality Assurance will be notified by the ECO/DCO procedure
when a change occurs in the manufacture of the unit. When a
change occurs, Quality Assurance may adjust the audit plan as
required to insure that product quality will not be
compromised by the change.
5.17.5 NxStage will have the prerogative to perform a quality audit
at any time.
5.17.5.1 If NxStage wishes to perform a quality audit, it is
requested that they provide KMC Systems with a
minimum of five (5) working days notice so KMC
Systems personnel can be present for the audit.
5.17.5.2 NxStage will provide an audit agenda at least two
(2) working days prior to conducting the audit.
NxStage will submit a written report of audits
performed. KMC shall submit a corrective and
preventive action report if discrepancies are noted.
5.18 Equipment - Inspection/In-Process/Test - Calibration & Maintenance
5.18.1 Any in-process fixtures used for alignment or special test
equipment that have been provided to KMC for use in the
manufacturing process will be
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verified by NxStage to meet design criteria. Calibration of
any equipment supplied by NxStage for the production of units
will be the responsibility of NxStage to control, perform
recall for calibration, and document any actions taken on
equipment. Equipment supplied to KMC must have a control or
identification number marked or tagged on the piece of
equipment as well as calibration due date as applicable.
Although the equipment is controlled by NxStage, it will be
entered into the recall system at KMC as a means of internal
notification when equipment is due for calibration.
5.18.2 Procedures will be provided to KMC for any other in-process
calibrations/verifications that are required to be performed
by KMC on a regular basis.
5.18.3 KMC Systems Documents: 781-03017: Control and Maintenance of
Inspection, Measuring, and Test Equipment and Tool Control
781-03007 will be used as required for any equipment not
controlled by NxStage.
5.19 Return Material Procedure
5.19.1 KMC Systems Documents: 781 -02008: Control of Returned
Item/Product will be used to control and document returns to
KMC. Warranty information will be defined in the contract
between KMC and NxStage. The Manufacturing Team Leader will
supply a RMA number at NxStages's request for a return.
5.20 Product Release Procedure
5.20.1 KMC Systems Documents: 781-03013: Product Audit/Release for
Shipment.
5.20.2 After the successful completion of testing, accepted units
will be submitted to Quality for Product Audit.
5.20.3 The Quality acceptance for the "release for shipment"
(acceptance of unit to be moved to packaging/shipping) of each
NxStage System One Cycler will be based upon successful
completion of processing, testing, and labeling per the Device
Master Record. This will include but is not limited to passing
the latest revision of the Acceptance Test Procedures (ATP),
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ # ▇▇▇▇▇▇ along with Quality acceptance after
completion of the Product Audit, procedure 921-00004ACR.
5.20.4 Spares may be supplied to NxStage as requested. For value
added spare assemblies KMC Quality inspection is required as
defined in 781-03013, Product Audit/Release for Shipment.
Non-value added spares, parts
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supplied as received by KMC with no alteration after
inspection and acceptance by the receiving inspection, will be
shipped, no additional Quality inspection required. Non-value
added spares will be defined as part of the Release for
Shipment database under routing exceptions.
5.21 Device Master Record Index
5.21.1 KMC Systems Documents: 781-03005: Device Master Record Index.
5.21.2 The Device Master Record is a compilation of records
containing the procedures and specifications for the finished
device (from FDA, Quality System Regulation (QSR), 21 CFR Part
820.3).
5.21.3 A Device Master Record Index (DMRI) will list the location of
the specifications and procedures required in the manufacture
of the device. The DMRI for the NxStage System One Cycler,
Document 800-00041ACR, will be maintained at KMC Systems.
5.21.4 A copy will be provided to NxStage Medical.
5.21.5 The Device Master Record Index will require the approval by
the Director, Quality Assurance of KMC Systems.
5.21.6 The Device Master Record Index will be placed under ECO
control and administered by the Configuration Control group.
5.22 Device History Records
5.22.1 KMC Systems Documents
5.22.1.1 781-03018: Device History Record
5.22.1.2 FDA, Quality System Regulation (QSR), 21 CFR Part
820,184
5.22.1.3 FDA Quality System Regulation (QSR), 21 CFR Part
820.181
5.22.2 A Device History Record will be established for each NxStage
System One Cycler manufactured at KMC.
5.22.3 The contents of the Device History Record (DHR) may include,
but are not limited to, the following:
5.22.3.1 Configuration Control Record, TP0195-01
5.22.3.2 Acceptance Test Procedure Log sheets, TP0195-02
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5.22.3.3 Build cards for serialized subassemblies, Form
990-118 and Document 928-00018ACR Spares Acceptance
Test Log Sheet as applicable.
5.22.3.4 Activities for documented rework/retest will be kept
as part of the ATP Log sheets, TP0195-02 and
electronically kept as part of the Lotus Notes FRS
database.
5.22.3.5 Copy of the unit Serial Number label.
5.22.3.6 Any deviation associated with the unit
5.22.3.7 A copy of all the associated paperwork within the
DHR will be forwarded with each unit shipped to
NxStage Medical, Inc.
5.23 Record Retention
5.23.1 KMC Systems Documents: 781-03024 Archiving of Quality Records
and Documents.
5.23.2 Device Master Record documentation related to the manufacture
of the NxStage System One Cycler will be retained for a
minimum of 2 years, after the last device has been shipped per
the released schedule/Purchase Order. After such time, the DMR
will be forwarded to NxStage Medical, Inc.
5.23.3 A Device History Record folder will be maintained in Quality
Assurance or Records Retention for all serialized NxStage
System One Cycler units shipped from KMC Systems.
5.23.4 Device History Records for the NxStage System One Cycler will
be retained for 7 years after the last device has been shipped
per the released schedule/Purchase Order. The retention period
may be extended, if deemed necessary. KMC Systems will ship
the Device History Records to NxStage Medical Inc. at the end
of the retention period.
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ATTACHMENT 5
UNIT TRANSFER PRICE
DESCRIPTION QUALITY MATERIAL COST UNIT TRANSFER PRICE
----------- ------- ------------- -------------------
NX1000-1 [**] $[**] $[**]
Chronic
NX1000-1 [**] $[**] $[**]
Chronic
NX1000-2 [**] $[**] $[**]
Acute
NX1000-2 [**] $[**] $[**]
Acute
ATTACHMENT 6
KMC STANDARD SELL RATES
EFFECTIVE PERIOD: TWO YEARS FROM THE DATE OF THE AGREEMENT
2005
$/HOUR
------
ENGINEERING STAFF SUPPORT RATES:
1U Consulting Engineer [**]
1R Principal Engineer [**]
1K Senior Staff Engineer [**]
1F Staff Engineer [**]
1Y Engineering Technician [**]
13 Drafting [**]
MANUFACTURING STAFF SUPPORT RATES
4C Quality Assurance Engineer [**]
4R Manufacturing Engineer [**]
4H Test Technician [**]
4F Buyer/Planner [**]
4Y Assembler [**]
MANAGEMENT SUPPORT RATES
1X Engineering Program Management [**]
4W Manufacturing Program Management [**]
4G Manufacturing Quality Management [**]
4S Manufacturing Team Leader Management [**]
MATERIAL
All material will be invoiced at actual total cost plus fee.
OUTSIDE SERVICES
These costs will be invoiced at actual total cost plus fee.
VENDOR TOOLING
Tooling will be invoiced at actual cost plus factor of [**]
TRAVEL
Actual Cost to KMC