Exhibit 10.6
DISTRIBUTION SERVICES
AGREEMENT
This
Distribution Services Agreement (“Agreement”) is entered into as of
March 9, 2005 (“Execution Date”) by and between Xxxxxxx Pharmaceuticals,
Inc., a Delaware corporation with its principal place of business located at
000 Xxxxx 00 Xxxx, Xxxxxxxxx, Xxx Xxxxxx 00000 (“Customer”), and Cardinal
Health* with its principal place of business located at 0000 Xxxxxxxx
Xxxxx, Xxxxxx, Xxxx 00000 (“Service Supplier”).
RECITALS
WHEREAS,
Service Supplier provides services including but not limited to logistics and inventory
management services, administrative services, and financial services; and, Customer
wishes to purchase such services from Service Supplier; and
WHEREAS,
Service Supplier is willing to provide and Customer desires certain additional services
to Customer as needed and agreed upon by both parties.
WHEREAS,
Customer and Service Supplier desire to assure adequate availability of supply and
inventory management of Products.
NOW
THEREFORE, in consideration of the foregoing, the mutual representations, warranties and
covenants contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
ARTICLE 1
Definitions
| 1.1. |
“Products” means
all current and future ethical pharmaceutical products, bearing Customer’s label
and packaging, which Customer sells to wholesale customers in the United States (see
current price list). |
| 1.2. |
“Aggregate
Inventory” means, at any given time, the total of Products in units that
Service Supplier has on hand at all of its storage and/or distribution
facilities and that Service Supplier has on order from Customer. |
| 1.3. |
“Confidential
Information” means the confidential information described in Section 4.2. |
| 1.4. |
“Providers” means
the purchaser(s) of Products from Service Supplier in the United States. |
| 1.5. |
“Average
Weekly Movement” means, at any given time, the total quantity of Products
in units (by NDC number) sold by Service Supplier to Providers over the immediately
preceding *** weeks divided by ***. |
| 1.6. |
“Effective
Date” means July 1, 2004. |
| 1.7. |
“Inventory
and Sales Reports” means the reports described in Sections 2.3. |
| *** | | Portion
for which confidential treatment requested. |
| 1.8. |
“New
Price”means the wholesale acquisition cost (“WAC”) charged by
Customer after the effective date and time of a price change instituted by
Customer at any time following the Effective Date of this Agreement. |
| 1.9. |
“Old
Price” means the WAC charged by Customer immediately preceding the
institution of a New Price. |
| 1.10 |
“Brokerage”
means bulk shipments via crossdock and drop shipment to Service Supplier’s warehousing
chain customers. |
ARTICLE 2
Services
General – Customer agrees
to compensate Service Supplier for each of the services described below (collectively, the
“Base Services Fee”) in accordance with the fee structure contained on Schedule
A.
| 2.1. |
Base
Distribution Services. |
| |
1. |
Sophisticated
ordering technology |
| |
2. |
Daily
consolidated deliveries to providers |
| |
3. |
Emergency
shipments to providers 24/7/365 |
| |
4. |
Consolidated
accounts receivable management |
| |
5. |
Contract
and Chargeback administration |
| |
6. |
Returns
and Recall processing |
| |
7. |
Customer
Service support |
| |
8. |
Adequate
working inventories to meet customer needs and service levels |
| |
9. |
Licensed,
environmentally controlled, PDMA compliant, secure facilities |
| 2.2 |
Inventory
Management Services. |
| |
1. |
Inventory
Levels. During the term of this Agreement, Service Supplier will use best
efforts to maintain on hand inventory levels of *** weeks or less on all
Products. |
| |
2. |
Purchase
Limits. Customer agrees to ship all Service Supplier purchase orders in full.
Customer has the right to question any orders that exceed 150% of Service
Supplier’s Average Weekly Movement and has the right to cancel any
quantities that Service Supplier is not able to provide reasonable
justifications and/or explanations. |
| |
3. |
Product
Availability. Service Supplier and Customer will jointly use best efforts to
minimize product shortages and maximize product availability by agreeing to the
following: |
|
• |
|
Service
Supplier will institute an automated balancing system on Customer Products in order to
optimize the use of existing inventories across the entire Service Supplier network,
including brokerage. |
|
• |
|
During
backorder situations and limited product availability and upon Customer’s request,
Service Supplier will implement more frequent order and receiving cycles to help reduce
inventory requirements. |
| *** | | Portion
for which confidential treatment requested. |
| 2.3 |
Data / Reporting Services. Service Supplier shall prepare inventory reports
detailing the status of its Aggregate Inventory of Products (“Inventory
Reports”) and movement of Products (“Sales Reports”) by NDC number for the
duration of this Agreement. Service Supplier shall provide Customer with such Inventory
Reports weekly and Sales Reports monthly. All such Inventory and Sales Reports shall be
transmitted in EDI 852 and EDI 867 formats, respectively and shall include such
information as reasonably requested by Customer, including but not limited to the
following: |
| |
(a) |
On
hand inventory level by distribution center; and |
| |
(b) |
On
order inventory level by distribution center; and |
| |
(c) |
Sales
out by distribution center |
| |
Service
Supplier may, due to contractual requirements, be required to block certain data in the
867‘s that discloses Provider identity. This may include Provider name and DEA
number, and any other data that would identify a Provider. |
| |
Within
thirty (30) days after entering into this Agreement, the parties shall examine and test
the capability of their respective EDI systems and complete implementation of a mutually
agreeable system whereby transfers of information can be made effectively on a consistent
basis. In the event that critical internal support systems and electronic communication
links including EDI, are not available for 5 business days, the parties will cooperate to
promptly implement substitute procedures to document the information customarily sent by
EDI and prevent interruptions to each other’s business. |
| 2.4 |
Service
Level. Service Supplier agrees to use its best commercial efforts to service provider
orders for Products at a 98% service level. Service Level will be calculated according to
Service Supplier’s then current, standard adjusted service level report. In
addition, Service Supplier will allow Customer the opportunity, with advanced written
notice, to add up to *** additional weeks of temporary inventory beyond the inventory
levels defined in Section 2.2.1 in order to ensure maximum service levels. Customer will
be entitled to this opportunity one time per quarter. |
| 2.5 |
Provider
Order Monitoring. During the term of this agreement Service Supplier will implement
processes and procedures to monitor Provider order patterns. Service Supplier and
Customer will agree upon parameters which may represent speculative buy activity. Any
orders that meet the agreed upon parameters will be investigated by Service Supplier and
the outcome reported to Customer. If it is determined that a Provider is speculating,
additional steps will be implemented to limit Provider purchases to reasonable levels. |
| 2.6 |
New
Product Launch Support. Service Supplier will provide guaranteed support for future
Customer new product launches. Support will consist of the following: |
| |
a. |
Stocking
each distribution center with quantities as reasonably determined by Customer,
in no case to exceed *** days of anticipated demand. |
| |
b. |
Providing
daily sales out reports for the first 60 days of product launch |
| |
c. |
Providing
automatic distribution to participating or targeted pharmacies on qualified
products through Service Supplier’s First Script Program. |
| *** | | Portion
for which confidential treatment requested. |
ARTICLE 3
Term and Termination;
Remedies
| 3.1. |
Term and
Termination. This Agreement shall remain in full force and effect from
the Effective Date, July 1, 2004, and for a period of three (3) years or
until terminated by either Customer and/or Service Supplier, as the case
may be, upon the earlier of (a) the mutual written agreement of Customer
and Service Supplier; or (b) a breach by Customer or Service Supplier of
any of the terms of this Agreement that is not cured within thirty (30)days
of written notification thereof by the non-breaching party; or (c) the institution
(whether voluntarily or involuntarily) of bankruptcy, insolvency, liquidation
or similar proceedings by or against Customer or Service Supplier, or the
assignment of Customer’s or Service Supplier’s assets for the
benefit of creditors. |
ARTICLE 4
Miscellaneous
| 4.1. |
Nature
of Relationship. The relationship between Customer and Service Supplier is that
of service buyer-seller, and no agency, franchise, partnership, joint venture
or other relationship shall be construed to exist between the parties. Nothing
contained in this Agreement shall be construed as giving Service Supplier any
exclusive rights as a wholesaler of Products, whether in any territory or with
respect to any class of customers for Products. Customer reserves the right to
appoint additional distribution service suppliers and to sell directly to
customers, including without limitation, the U.S. Government (including any
agencies, departments or services thereof), qualifying tax-supported and
non-profit institutions, mail service and other retail providers, and such
other accounts as Customer deems appropriate. |
| 4.2. |
Confidentiality.
During the term of this Agreement, each party, its respective agents, employees
and representatives (collectively, the “receiving party”) may receive
or have access to confidential materials and information of the other party
(the “disclosing party”). All such materials and information
(including, but not limited to the terms of this Agreement, Products
information, operations, methods, strategies, formulas, price lists, discount
programs, incentives, rebates, records of unit movement for Products, shipping
and warehousing, and confidential proprietary information from third parties),
are collectively referred to herein as “Confidential Information” and
constitute the property of the disclosing party. During the term hereof and for
a period of one (1) year thereafter the receiving party shall not use or
disclose to third persons any such Confidential Information without the
disclosing party’s prior written consent, excepting those (a) disclosures
made on a confidential basis to and use by the directors, officers, employees,
and agents of the receiving party who have a reasonable need to know such
information in connection with the receiving party’s performance of this
Agreement, (b) disclosures which are required by law, as reasonably determined
by the receiving party or its legal counsel, or are made on a confidential
basis to the receiving party’s attorneys, accountants, and other
professional advisors in connection with matters relating to this Agreement,
and (c) routine disclosures in the normal course of business, including to
IMS/DDD or similar organizations. |
| |
Upon
termination of this Agreement (for any reason) each party will promptly: (i) return to
the other party all documentation and other materials (including copies of original
documentation or other materials) containing any confidential information of the other
party; |
| |
or
(ii) certify to the other party, pursuant to a certificate in form and substance
reasonably satisfactory to the other party, as to the destruction of all such
documentation and other materials. |
| 4.3. |
Assignment
and Delegation. Neither party may assign this Agreement without the prior
written consent of the other party; provided, however, that either party may
assign this Agreement without such consent to an Affiliate. For the purpose of
this Section 4.3, an Affiliate shall be defined to include any company
controlling, controlled by, or under common control with Service Supplier or
Customer as the case may be through stock ownership, direct or indirect. This
Agreement shall be binding upon and shall inure to the benefit of the
successors and assigns of the parties. |
| 4.4. |
Governing
Law. Agreement shall be interpreted in accordance with, and governed by, the
laws of the State of Ohio, without regard to any conflicts of laws’ rules. |
| 4.5. |
Severability;
Waiver. The invalidity of all or part of any provision of this Agreement shall
not affect the validity of any other provision of this Agreement or the
remaining portion of the applicable provision. Either party’s failure to
insist on compliance or enforcement of any provision of this Agreement shall
not affect its validity or enforceability or constitute a waiver of future
enforcement of that provision or of any other provision of this Agreement. |
| 4.6. |
Statute
of Frauds. All EDI transmissions made pursuant to this Agreement shall be
deemed by the parties to be the same as written communication for all purposes,
and for all applications of law and statutes, including but not limited to, the
Statue of Frauds under the State of the Ohio Uniform Commercial Code. |
| 4.7. |
Force
Majeure. Neither party shall be liable for delay in delivery or nonperformance
in whole or in part nor shall the other party have the right to terminate this
Agreement where delivery or performance has been affected by a condition of
force majeure. For purposes of this Agreement, force majeure means a condition
which results from causes beyond a party’s reasonable control, including,
but not limited to, acts of God, acts of the other party, shortages, fires,
labor disputes, strikes, floods, epidemics, quarantines, war, riot, delay in
transportation, compliance with any applicable governmental regulation or
order, whether or not it later proves to be invalid, or inability to obtain
labor, materials or manufacturing facilities. If either party is affected by a
force majeure event, such party shall, within 10 days of its occurrence, give
notice to the other party stating the nature of the event, its anticipated
duration and any action being taken to avoid or minimize its effect. The
suspension of performance shall be of no greater scope and no longer duration
than is reasonably required and the non-performing party shall use its best
efforts to remedy its inability to perform. |
| 4.8. |
Notices.
All notices to either party (each a “Notice”) shall be in writing,
shall refer specifically to this Agreement and shall be hand delivered or sent
by express courier service, costs prepaid, or by facsimile to the respective
addresses specified below (or to such other address as may be specified by
Notice to the other party): |
| If to Service
Supplier, to: |
Cardinal Health,
Inc
0000 Xxxxxxxx Xxxxx
Xxxxxx, XX 00000
Attention: General Counsel
Telecopier No.: 000-000-0000 |
| If to Customer,
to: |
Xxxxxxx Pharmaceuticals,
Inc.
000 Xxxxx 00 Xxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxxx Xxxxxxxx, President
Telecopier: 000-000-0000 |
| 4.9. |
Entire
Agreement. This Agreement may not be amended except in writing signed
by authorized representatives of the parties hereto. |
IN WITNESS WHEREOF, the parties
hereto have duly executed this Agreement as of the day first above written.
| Xxxxxxx Pharmaceuticals, Inc. |
|
Cardinal Health* |
|
| |
By: /s/ Xxxxxx Xxxxxxxx
|
|
By: /s/ Xxx Xxxxx
|
|
| Name: Xxxxxx Xxxxxxxx |
|
Name: Xxx Xxxxx |
|
| Title: President and CEO | |
Title: SVP, Purchasing |
|
| |
| EDI Contact Person: |
|
EDI Contact Person: | |
| Name: Xxxxx Xxxxxxxx | |
Name: Xxxxxx Xxxx |
|
| E-mail: xxxxxxxxx@xxxxxxxxx.xxx | |
E-Mail: xxxxxx.xxxx@xxxxxxxx.xxx |
|
| Phone: 973-882-1505 ext. 316 | |
Phone: 000-000-0000 |
|
* The term “Cardinal Health”
shall include the following affiliated operating companies: Cardinal Health 110, Inc.,
formerly known as Xxxxxxxx Distribution Corporation, a Delaware corporation (Folsom,
California); Cardinal Health 106, Inc., formerly known as Xxxxx X. Xxxx, Inc., a
Massachusetts corporation (Peabody, Massachusetts); Cardinal Health 103, Inc., formerly
known as Cardinal Southeast, Inc., a Mississippi corporation (Richland, Mississippi);
Cardinal Health 100, Inc., formerly known as Bindley Western Industries, Inc., an Indiana
corporation (Indianapolis, Indiana); Cardinal Health 104, LP f/k/a Service Supplier
Distribution, L.P., an Ohio limited partnership (Dublin, Ohio) Cardinal Health 107, Inc.,
formerly known as National Pharmpak Services, Inc., an Ohio corporation, and any other
subsidiary of Cardinal Health, Inc., an Ohio corporation (“CHI”), as may be
designated by CHI.
SCHEDULE A
Service Fee: A
Service Fee, as outlined below, will be calculated and paid quarterly based on the total
volume of all Products purchased by Service Supplier, including Brokerage, from Customer
during that quarter valued at the Customers list price at the time the Product was
purchased. Customer shall pay such fees no later than thirty (30) days after the end of
each calendar quarter. For purposes of this Agreement a “calendar quarter” shall
mean the following consecutive three calendar month periods: January 1 – March 31,
April 1 – June 30, July 1 – September 30 and October 1 – December 31
| July 1, 2004 - June 30, 2005 |
|
Base Services Fee |
|
*** |
|
| |
|
*** |
|
*** |
|
| |
|
|
|
|
|
| July 1, 2005 - June 30, 2006 |
|
Base Services Fee |
|
*** |
|
| |
|
*** |
|
*** |
|
| |
|
|
|
|
|
| July 1, 2006 - June 30, 2007 |
|
Base Services Fee |
|
*** |
|
| |
|
*** |
|
*** |
|
| |
|
|
|
|
|
Customer is not, and does not,
guarantee the economic or other terms governing Service Supplier’s resale of
Customer’s products to Service Supplier’s customers.
Service Fee Credits:
Customer will receive credit towards Service Fee for the following items:
| |
a. |
Price
Appreciation on inventory on hand after a Customer pricing action. |
| |
b. |
Margin
earned on quarterly promotions, deals, off-invoice allowances, or any other
method, excluding those that are intended for Service Supplier’s
Providers. |
| *** | | Portion
for which confidential treatment requested. |
