EXHIBIT 10.1
FIRST AMENDMENT TO
EXCLUSIVE MARKETING AND
DISTRIBUTION AGREEMENT
BETWEEN
NORTH AMERICAN SCIENTIFIC, INC.
AND
MENTOR CORPORATION
FIRST AMENDMENT TO
EXCLUSIVE MARKETING AND DISTRIBUTION AGREEMENT
BETWEEN
NORTH AMERICAN SCIENTIFIC, INC.
AND
MENTOR CORPORATION
THIS FIRST AMENDMENT, dated for reference purposes as of February 24, 1999,
pertains to that certain Exclusive Marketing and Distribution Agreement (the
"Agreement"), dated for reference purposes as of June 16, 1997, between NORTH
AMERICAN SCIENTIFIC, INC., a Delaware corporation ("NAMS") and MENTOR
CORPORATION, a Minnesota corporation ("MENTOR") and is made with reference to
the following facts:
RECITALS
A. Sections 1.28 and 2.3 of the Agreement contemplate that, if and when
Pd-103 Sources become available, the Products covered by the Agreement will
include Pd-103 Sources subject to the agreement of the parties with respect to
certain terms related thereto.
B. NAMS has now obtained 510-K pre-marketing approval from the FDA to
market and sell Pd-103 Sources; and
C. Section 7.1.4 of the Agreement contemplates that, if NAMS requires
additional capital to create the manufacturing capacity necessary to produce
Pd-103 Sources, then NAMS shall offer MENTOR the opportunity to provide such
additional required capital on substantially the same terms and conditions as
the Agreement.
D. NAMS has estimated that the present capital cost required to create a
manufacturing capacity for ten thousand (10,000) Pd-103 Sources per week is
$1,500,000.
E. NAMS also estimates that, if an acceptable commercial supply, as
determined by NAMS, of the Pd-103 isotope (the radioactive source incorporated
into the Pd0-103 Source) cannot be obtained, it would presently require an
additional $2,500,000 for the purchase of linear accelerators that would enable
NAMS to produce the Pd-103 isotope for itself.
F. MENTOR is willing to supply so much of the capital as is necessary to
satisfy these capital requirements that NAMS is unable or unwilling to supply
from its own resources in order to preserve the exclusive marketing and
distribution rights for the Pd-103 Sources as contemplated by Section 7.1.4.A.
of the Agreement.
AGREEMENTS
NOW, THEREFORE, the parties hereto, intending to be legally bound, do
hereby agree as follows:
FIRST AMENDMENT TO MARKETING AGREEMENT: PAGE 1
1. DUTY OF NAMS TO CREATE PRODUCTION CAPACITY
1.1 NAMS covenants and agrees that as soon as practicable after the
execution of this Amendment, NAMS shall develop and maintain the production
capacity (other than the capacity to produce the Pd-103 isotope) necessary to
produce ten thousand (10,000) Pd-103 Sources per week (the "Development
Project").
1.2 Any subsequent increases in production capacity that are proposed to
be made with capital funding to be provided by MENTOR shall made in increments
of 10,000 Sources per week.
2. FUNDING OF DEVELOPMENT COSTS
2.1 FUNDING BY NAMS. NAMS shall have the right, but not the obligation, to
fund all or any portion of the costs of the Development Project, including any
incremental increases in production capacity.
2.2 FUNDING BY MENTOR. MENTOR shall have the obligation to supply to NAMS
any capital required to complete the Development Project (including the capacity
to produce the Pd-103 isotope if NAMS determines to do so) that NAMS is
unwilling or unable to contribute by purchasing shares of the common capital
stock of NAMS (the "Shares"), generally in accordance with the provisions of the
Stock Purchase Agreement between MENTOR and NAMS dated for reference purposes as
of June 16, 1997 and executed by NAMS and MENTOR simultaneously with their
execution of the Agreement (the "Stock Purchase Agreement"). Should MENTOR
provide all or a part of the additional capital required to fund the Development
Project, then:
2.2.1 PURCHASE OF CAPITAL STOCK. The additional capital contributed by
MENTOR hereunder shall be credited against the purchase price for shares of the
Common Stock of NAMS at a price that is equal to one hundred ten percent (110%)
of the average closing price of the shares of the common stock of NAMS as
reported in the Western Edition of the WALL STREET JOURNAL for the twenty (20)
trading days preceding the date on which NAMS gives a written request to a
MENTOR for such additional capital pursuant to Section 3.3, below.
2.2.2 WARRANTIES OF MENTOR. MENTOR shall be deemed to have made all of
the warranties and representations to NAMS set forth in Section 7 of the Stock
Purchase Agreement which shall be incorporated herein by reference as if made on
the date on which the Shares are issued to MENTOR.
2.2.3 WARRANTIES OF NAMS. NAMS shall be deemed to have made all of the
warranties and representations to MENTOR set forth in Section 6 of the Stock
Purchase Agreement, other than those warranties and representations contained in
Sections 6.3, 6.5, and Sections 6.11.1 through 6.11.3 and all such warranties
and representations not expressly excluded by this Section 2.2.4 are
incorporated herein by reference as if made on the date on which the Shares are
issued to MENTOR.
FIRST AMENDMENT TO MARKETING AGREEMENT: PAGE 2
3. DEVELOPMENT PROGRAM
Should NAMS request MENTOR to provide all or a part of the additional
capital required to fund the Development Project, then:
3.1 PREPARATION AND APPROVAL OF BUDGET. NAMS shall first prepare and
submit to MENTOR in writing a development plan (the "Development Plan")
containing (a) a line-item budget setting forth the estimated costs of the
Development Project (the "Project Budget") and (b) a schedule of milestones
reflecting the period of time over which the Development Project will be carried
out (the "Development Program").
3.2 COORDINATION WITH MENTOR. NAMS shall consult with MENTOR in the
preparation of the Development Program, and shall give reasonable consideration
to suggestions and requests made by MENTOR in connection therewith, but if NAMS
and MENTOR are unable to agree with respect to the budget, milestones or payment
schedules for the Development Program, then the decisions of NAMS shall be final
and binding on both parties.
3.3 TIME OF CONTRIBUTION. MENTOR shall contribute any capital required to
be contributed by it hereunder in cash or immediately available funds within
thirty (30) days after the date on which the Project Budget has been submitted
in accordance with Section 3.1, above, and NAMS shall issue and deliver to
MENTOR share certificates evidencing the Shares being purchased by MENTOR
concurrently with NAMS' receipt of payment therefor.
4. TERMS SHEET: PD-103 SOURCES
There is attached to the Agreement as Schedule 2 a Terms Sheet for Pd-103
Sources. NAMS shall supply the Pd-103 Sources to MENTOR, and MENTOR shall have
the exclusive right to market and distribute the Pd-103 Sources in accordance
with the terms and conditions of the Agreement and the Terms Sheet attached as
Schedule 2 to this First Amendment to the Agreement.
5. FULL FORCE AND EFFECT
Except as expressly modified by the provisions of this First Amendment the
terms and conditions of the Agreement shall continue in full force and effect.
(Signatures appear on the following page)
FIRST AMENDMENT TO MARKETING AGREEMENT: PAGE 3
IN WITNESS WHEREOF, both parties have executed this First Amendment to
Exclusive Marketing and Distribution Agreement to be duly executed on the dates
set forth below.
NAMS: MENTOR:
Date: February 24, 1999 Date: February 24, 1999
NORTH AMERICAN SCIENTIFIC INC. MENTOR CORPORATION,
a Delaware corporation a Minnesota corporation
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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Its President Its Chief Executive Officer
ADDRESS FOR NOTICES: ADDRESS FOR NOTICES:
North American Scientific, Inc. Mentor Corporation
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PH: (▇▇▇) ▇▇▇-▇▇▇▇ PH: (▇▇▇) ▇▇▇-▇▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇ FAX: (▇▇▇) ▇▇▇-▇▇▇▇
FIRST AMENDMENT TO MARKETING AGREEMENT: PAGE 4
*CONFIDENTIAL TREATMENT REQUESTED. THE REDACTED MATERIAL HAS
BEEN FILED SEPARATELY WITH THE COMMISSION.
SCHEDULE 2
TERMS SHEET
(NAMS Pd-103 Sources)
SCHEDULE 2
TERMS SHEET
(NAMS Pd-103 Sources)
1. DEFINITIONS. Capitalized words not defined in this Schedule but which are
defined in the Exclusive Marketing and Distribution Agreement (the "Agreement")
shall have the meanings ascribed to them in the Agreement. As used in this
schedule, the following words and phrases shall have the meanings set forth
below:
1.1 AT-RISK INVENTORY. Units of Pd-103 Sources that have been manufactured
without reference to a Committed Purchase Order and are therefore at risk of
decaying before they are sold.
1.2 BASE PRICE. The minimum price per unit for Pd-103 seeds based on the
weekly shipping volume, computed in accordance with the following table:
NUMBER OF UNITS
SHIPPED PER WEEK PRICE PER UNIT
[*] [*]
1.2 COMMENCEMENT DATE. January 1, 1999.
1.3 COMMITTED PURCHASE ORDERS.Customer orders received and accepted by
MENTOR and provided to NAMS at least four (4) weeks prior to the scheduled ship
date, including standing orders contemplating regular or recurring shipments on
specified days or at specified intervals.
1.4 DIRECT PRODUCTION COSTS. The direct costs of labor employed (based on
labor hours at the then prevailing standard rates) and amounts paid to
independent contractors and/or suppliers for supplies, materials, components and
services consumed or utilized in processing, inspecting and testing the Product
(including payroll taxes and employee benefits for direct labor), computed on a
per-unit basis exclusive of any overhead allocations, general or administrative
expense, or other indirect expense.
1.5 FIELD EVALUATION PERIOD. The period between the Commencement Date and
the Launch Date.
1.6 GROSS MARGIN. In the case of NAMS, the difference between the Transfer
Price per unit and the Direct Production Cost per unit. In the case of MENTOR,
the difference between the Transfer Price per unit and the Net Selling Price per
unit.
SCHEDULE 2: PAGE 1
*CONFIDENTIAL TREATMENT REQUESTED. THE REDACTED MATERIAL HAS
BEEN FILED SEPARATELY WITH THE COMMISSION.
1.7 LAUNCH DATE. April 1, 1999, or such later date as is mutually agreed
to by the parties in writing.
1.8 MARKET SHARE. The quotient obtained at any given time by dividing
MENTOR's weekly sales rate by the Market Size.
1.9 MARKET SIZE. The total number of Pd-103 seeds sold in the Geographic
Market Area per week, to be determined by [*].
1.10 TARGET MARKET SHARE. The Market Share that must be achieved for the
month preceding a given date, and maintained as a minimum thereafter in order
for MENTOR to maintain its exclusive rights with respect to the Pd-103 Sources.
2. TRANSFER PRICE PER UNIT. [*].
3. FIELD EVALUATION AND PRODUCT LAUNCH
3.1 FIELD EVALUATION PERIOD. MENTOR and NAMS agree that the Pd-103 sources
manufactured by NAMS will require field evaluation in clinical settings by
customers in order to obtain customer approvals and commitments to ongoing
purchases. Physicians will need to utilize the product in one or more patient
procedures in order to evaluate its suitability for their own practice. During
the Field Evaluation Period, NAMS will provide (a) reasonable technical
assistance and information including the relevant product performance
specifications and calibration references, and (b) sufficient quantities of
Pd-103 seeds at a price equal to or above NAMS' average cost per seed ( unless a
different price is agreed upon in writing) to allow the scheduling of patient
procedures, in order to permit reasonable evaluation by prospective customers.
3.1.1 Field Evaluation Period will begin on the Commencement Date and
will end on the Launch Date.
3.1.2 The parties contemplate that evaluations will be performed (a)
on groups of patients of varying sizes and (b) on not more than twenty (20)
patients in the aggregate.
3.1.3 If NAMS is unable to supply sufficient quantities of Pd-103
seeds to allow the scheduling of patient procedures prior to the Launch Date,
then the Launch Date shall be extended for a period of time equal to any period
during which NAMS is unable to supply sufficient quantities of Pd-103 seeds to
permit reasonable field evaluation.
3.2 PRODUCT LAUNCH. Beginning on the Launch Date, and subject to its
receipt of adequate prior notice, NAMS shall have the capacity to supply MENTOR
with up to 1,000 Pd-103 Sources per week. The Launch Date shall be extended to a
date mutually agreeable to the parties if on April 1, 1999 NAMS is unable to
begin producing Pd-103 Sources at a level of 1,000 seeds per week.
SCHEDULE 2: PAGE 2
*CONFIDENTIAL TREATMENT REQUESTED. THE REDACTED MATERIAL HAS
BEEN FILED SEPARATELY WITH THE COMMISSION.
4. TARGET MARKET SHARE AND SALES COMMITMENTS
4.1 MENTOR agrees to use its commercially reasonable best efforts on a
continuing basis to grow Market Share rapidly, notwithstanding that MENTOR may
have already attained its Target Market Share. As a requirement for maintaining
exclusive marketing rights in each Geographic Market Area. MENTOR shall achieve
the minimum Target Market Share percentages set forth below.
DATE TARGET MARKET SHARE
[*] [*]
4.2 Beginning on July 1, 1999, MENTOR and NAMS shall meet on a quarterly
basis within five (5) weeks after the beginning of each calendar quarter to
determine the Market Size by reviewing the relevant publicly available financial
information, and to evaluate whether MENTOR has achieved or maintained the
Target Market Share. If a quarterly review demonstrates that MENTOR's sales are
below the Target Market Share in a Geographic Market Area, then MENTOR must
attain the Target Market Share by the end of the calendar quarter immediately
preceding the next quarterly review, or forfeit its exclusive marketing rights
in that Geographic Market Area. MENTOR will retain the right to market on a
non-exclusive basis.
4.3 If NAMS becomes aware of an opportunity to sell Pd-103 sources in a
Geographic Market Area outside the United States that is not being served by
MENTOR, then NAMS will notify MENTOR in writing of the opportunity and the
identity of the Customer ( including any Customer who proposes to distribute the
Product in such Geographic Area).
4.3.1 NAMS will have the right to sell directly to such Customer if
MENTOR fails to do so within ninety (90) days following notification of the
opportunity except that, if the Customer is a Person who proposes to distribute
the Product in such Geographic Market Area, NAMS shall not be entitled and
MENTOR shall not be obligated to sell the Product to such Customer if MENTOR
commences sales of the Product in such Geographic Market Area within such ninety
(90) day period. Should MENTOR begin making sales in such Geographic, then
MENTOR shall use commercially reasonable best efforts on a continuing basis to
grow Market Share rapidly, notwithstanding that MENTOR may have already attained
its Target Market Share.
4.3.2 If NAMS becomes entitled to begin making sales in such
Geographic Market Area either directly or through another distributor pursuant
to this Section 4.3, then MENTOR will retain the right to initiate and maintain
marketing efforts in the Geographic Market Area on a non-exclusive basis. NAMS
agrees not to undercut MENTOR's marketing efforts by offering or selling Pd-103
Sources to end-user Customers at prices below MENTOR's Net Selling Price in the
Geographic Market Area or to distributors at prices below Mentor's Transfer
Price.
SCHEDULE 2: PAGE 3
*CONFIDENTIAL TREATMENT REQUESTED. THE REDACTED MATERIAL HAS
BEEN FILED SEPARATELY WITH THE COMMISSION.
5. ADVISORY FORECAST
MENTOR will use its best efforts to provide an accurate rolling three month
forecast by the 15th of each month following the launch of Pd-103 Seeds, to
serve as a ton-binding "advisory" of potential future demand.
6. SHARED COSTS AND RISKS
Sales of Pd-103 Sources shall be in two categories: (a) Committed Purchase
Orders and (b) At-Risk Inventory.
6.1 Both parties recognize the potential for gaining additional customers
by making available a limited number of Pd-103 Sources which have not been
assigned to Committed Purchase Orders.
6.2 At-Risk Inventory will be manufactured only in quantities both parties
agree to in writing prior to each production run. [*]. NAMS shall determine and
shall advise MENTOR of its Direct Production Costs in writing at the time it is
proposed to produce such At-Risk Inventory. [*]
6.3 Both NAMS and MENTOR recognize that events outside their control may
result in the cancellation of Committed Purchase Orders, or the failure of
customers to pay for products ordered and received but not used by them. Both
parties agree to share equally in the costs of these events. Costs will be
shared as follows:
6.3.1 If a Customer (a) refuses to accept delivery of a Product
shipped under a Committed Purchase Order, or (b) cancels a Committed Purchase
Order with less than four weeks notice, or (c) refuses to accept responsibility
for payment for a Product that was shipped but not used and was returned to NAMS
unopened, then in any such case MENTOR shall not be obligated to pay the Fixed
Price for the Product, but:
A. MENTOR will pay to NAMS one-half of the Direct Production
Costs as defined in Section 1.4, above; and
B. MENTOR will also endeavor to collect a reasonable
"restocking charge" from the Customer in an amount to be agreed upon by NAMS and
MENTOR prior to the Launch Date and will remit to NAMS one-half of any
restocking charges so collected.
6.3.2 Nothing in this Section 6.3 is limited to relieve MENTOR of the
risk of collection or the duty to pay the Transfer Price for Pd-103 Sources
shipped to and opened by the Customer
7. KITS
Should MENTOR elect to market and distribute the Pd-103 Product in the form
of kits containing both the Product and/or additional devices or materials
intended to facilitate the use of the Product, then the Transfer Price for the
Pd-103 sources shall be [*] and the Transfer Price for any additional devices,
materials or services supplied by NAMS for the kits shall be [*].
SCHEDULE 2: PAGE 4
*CONFIDENTIAL TREATMENT REQUESTED. THE REDACTED MATERIAL HAS
BEEN FILED SEPARATELY WITH THE COMMISSION.
8. TERM
The term of MENTOR's exclusive distribution rights shall expire on February
1, 2003, subject to the right of MENTOR to renew the term for an additional
three (3) years as provided by Section 4.2 of the Agreement.
9. FREEDOM TO EXIT MARKET
9.1 If NAMS' average Gross Margin on Pd-103 Sources falls below [*] for a
period of more than [*] months, then:
9.1.1 NAMS shall be entitled, at its election, either.
A. To discontinue supplying the Pd-103 Sources to MENTOR and to
begin making direct sales to Customers (other than distributors) by giving
MENTOR not less than sixty (60) days prior written notice of its intention to do
so and agreeing to pay MENTOR during the [*] period following the date on which
it discontinues supplying Pd-103 Sources to MENTOR a royalty in an amount
computed in accordance with the following schedule; but shall not extend beyond
2/1/2006.
PERIOD DURING WHICH ROYALTY IS PAID AMOUNT OF ROYALTY
First [*] months following discontinuation [*] of Net Selling Price per unit received by NAMS
Next [*] month period [*] of Net Selling Price per unit received by NAMS
Next [*] month period [*] of Net Selling Price per unit received by NAMS
Next [*] month period [*] of Net Selling Price per unit received by NAMS
B. To cease manufacturing Pd-103 Sources and exit the market
upon sixty (60) days prior written notice to MENTOR of its intention to do so.
9.1.2 If NAMS exercises its right to discontinue supplying the Pd-103
Product to MENTOR and to make direct sales to Customers instead, then:
A. The royalty payable pursuant to Section 9.1.1, above, shall
be paid [*], in arrears, within thirty (30) days after the end of each [*], and
shall be accompanied by a royalty report setting forth as of as of the last day
of such calendar quarter for (a) the number of units sold since the last report
and cumulatively from the date on which NAMS first began making direct sales to
Customers, (b) the Net Selling Price of each such unit, and (c) the aggregate
royalties paid with respect to such sales, including the royalty payment being
made at the time of such report. NAMS shall keep books and records in sufficient
detail to permit the computation and verification of the royalty payable by NAMS
hereunder and shall make all such books and records available for inspection and
copying by MENTOR at reasonable times and intervals during regular business
hours; and
B. MENTOR shall not directly or indirectly procure from another
supplier or manufacture or sell Pd-103 Sources during the [*] royalty period.
9.1.3 If NAMS exercise its right to discontinue manufacturing Pd-103
Seeds, then (a) NAMS shall not thereafter manufacture Pd-103 Seeds for a period
of [*] from the date on which it discontinues supplying the Pd-103 Product to
MENTOR pursuant to this Agreement, and (b) MENTOR shall have the right to
procure Pd-103 Sources from any other supplier and (c) MENTOR shall pay NAMS a
royalty of [*] of MENTOR's Net Selling Price for Pd-103 Sources sold by MENTOR
during the 365 day period following the date on which NAMS discontinued
supplying the Pd-103 Product to MENTOR, and (c) all other terms of this
Agreement will remain in effect.
SCHEDULE 2: PAGE 5
*CONFIDENTIAL TREATMENT REQUESTED. THE REDACTED MATERIAL HAS
BEEN FILED SEPARATELY WITH THE COMMISSION.
9.2 If MENTOR's average Gross Margin on Pd-103 sources falls below [*] for
a period of six consecutive months, or if its average Gross Margin falls below
[*] during any period of twelve consecutive months, then MENTOR shall be
entitled to cease marketing the Product and to exit the market upon sixty (60)
days prior written notice to NAMS of its intention to do so, and if MENTOR
exercises such right; then:
9.2.1 NAMS shall have the right, beginning on the effective date of
MENTOR's cessation of marketing and sale of the Product, to distribute the
Pd-103 Seeds either directly or through other distributors or agents; and
9.2.2 NAMS shall pay to MENTOR during the [*] period following the
date on which MENTOR discontinues selling Pd-103 Sources, but in no event
beyond February 1, 2006, a royalty in an amount computed in accordance with
the following schedule at the time and in the manner provided by Section
9.1.2, above.
PERIOD DURING WHICH ROYALTY IS PAID AMOUNT OF ROYALTY
First [*] months following discontinuation [*] of Net Selling Price per unit received by NAMS
Next [*] month period [*] of Net Selling Price per unit received by NAMS
Next [*] month period [*] of Net Selling Price per unit received by NAMS
Next [*] month period [*] of Net Selling Price per unit received by NAMS
SCHEDULE 2: PAGE 6