SERVICE CONTRACT
THIS AGREEMENT made this 6th day of February, 1998 by and between North
American Scientific, Inc., a California corporation with a principal place of
business at 0000 Xxxxxxxxx Xxxxxx, Xxxxx Xxxxxxxxx, Xxxxxxxxxx 00000
("NASI"), and PracSys Corp., a Massachusetts corporation with a principal
place of business at 0X Xxxxxxxxxx Xxx, Xxxx 00, Xxxxx, Xxx Xxxxxxxxx 00000
("PracSys").
WITNESSETH THAT:
WHEREAS, PracSys is the exclusive worldwide licensee of a patented ion
accelerator device, the Nested High Voltage Generator ("NHVG-TM-"); and
WHEREAS, NASI is purchasing from PracSys under a separate purchase
contract of the even date (the "Purchase Contract") two isotope production
systems (the "Systems") embodying the NHVG-TM-, to be used for the production
of *** processed targets (the "Product") to be used as a raw material for
production of seeds for use in brachytherapy (the "Market"); and
WHEREAS, PracSys will, pursuant to the Purchase Contract, manufacture and
install the Systems at its Salem, New Hampshire facility (the "Production
Center") ready for isotope production, unless NASI shall otherwise direct the
installation site, and
WHEREAS, NASI wishes to have its Systems operated by PracSys for the
production of the Product for shipment to NASI for processing into seeds for
sale to the Market (the "Market Sales"); and
WHEREAS, NASI and PracSys have entered into a separate Exclusivity and
Purchase Agreement dated December 31, 1997, as amended as of the date hereof
(the "Exclusivity Agreement") for production of the Product and other
isotopes; and
WHEREAS, the Exclusivity Agreement between NASI and PracSys provides that
the parties will reduce to writing the terms of a Service Contract.
NOW THEREFORE, in consideration of the premises and of mutual promises
and undertakings hereinafter set forth, as well as other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged by
the parties hereto, it is agreed as follows:
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1. Scope
Acting upon the Monthly Production Estimate (defined in Section 2
below), subject to the provisions of Section 8 below, PracSys shall operate
and maintain the Systems to produce *** processed targets which comply with
the specifications set forth in Exhibit A. The processed targets shall be
prepared for shipment in accordance with the provisions of Section 7 below.
2. Requirements
Following installation and acceptance of the first system to be
purchased by NASI pursuant to the Purchase Contract, NASI will provide
PracSys with a monthly estimate of Curies (Ci) EOB, (as defined in Exhibit
B), per week of Product to be produced (the "Monthly Production Estimate").
The Monthly Production Estimate shall be provided no less than two weeks in
advance of the first day of the upcoming Production Month. The Production
Month is defined as the period ending with the last Friday of a calendar
month, with the subsequent Production Month commencing the next day. PracSys
will fill all Monthly Production Estimate requirements and use its best
efforts to accommodate changes to the weekly production requirements that may
be requested by NASI during the Production Month, except when prevented from
doing so by strikes, fires, riots, accidents, war, unavailability of raw
materials and other conditions over which PracSys has no reasonable control.
3. Payments
Payments to be made hereunder are for services (the "Services")
performed by PracSys to produce the Product in the PracSys Production Center,
utilizing the NASI owned Systems, for shipment to NASI. It is the intention
of the parties that the actual costs incurred by PracSys in providing the
Services will be reimbursed by NASI. These costs will include direct costs,
allocated costs, indirect costs, facility costs, general and administrative
costs and other reasonably allocated costs of doing business, but shall not
include a profit factor. In no event shall such costs include or reflect
obligations owing by PracSys at or prior to the date of this Agreement.
Payments will be calculated and invoiced as follows:
3.1 A services pricing formula is established as set forth in Exhibit
B with cost categories segregated by fixed, semi-variable, and
variable costs (the "Reimbursement Formula"). PracSys hereby
represents that the Reimbursement Formula, Pricing Adjustment
Factors, and Example Calculation set forth in Exhibit B accurately
reflects PracSys' current estimate of the cost of the Services,
and thereby the effective cost per Millicurie ("mCi") for the
provision of Product, and is a reasonable estimation thereof.
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3.2 Upon receipt of the Monthly Production Estimate setting forth the
estimated weekly requirements for the Production Month, PracSys
will calculate, using the Reimbursement Formula, the payment due
for the Production Month requirements and invoice the calculated
amount (the "Monthly Billing"). Payment is due upon receipt of
the invoice, but no later than the first day of the Production
Month. The Monthly Billing is subject to reasonable retrospective
adjustment to reflect the actual cost for Services in accordance
with Section 4 below.
4. Retrospective Payment Adjustments
PracSys will calculate at the end of each period of three Production
Months (the "Quarterly Accounting") the actual costs for Services for the
preceding three Production Months (the "Adjustment Period") utilizing the
Reimbursement Formula in Exhibit B and compare these actual costs to the
Monthly Xxxxxxxx for the Adjustment Period.
4.1 The Quarterly Accounting will be based upon the actual production
of Product shipped to NASI during the Adjustment Period; and
4.2 The Quarterly Accounting will also reflect the actual costs
incurred during the Adjustment Period for the elements of costs
identified in the Reimbursement Formula (the "Pricing Adjustment
Factors").
4.3 The actual costs for the Adjustment Period will be compared to the
total Monthly Xxxxxxxx during the Adjustment Period.
4.3.1 If the actual costs exceed the Monthly Xxxxxxxx, PracSys
will invoice NASI for the difference showing the calculation
supporting the amount. The amount shall be payable by NASI to
PracSys within 15 days after receipt of the invoice unless NASI
requests clarification of the amount invoiced, in which case the
amount would be payable 15 days after NASI's receipt of such
clarification. If during such 15 day period NASI shall dispute
the calculation of such adjustment, the parties shall act in good
faith to resolve such dispute and, in the absence of agreement
between them, shall refer such dispute to an independent certified
public accountant selected mutually by NASI and PracSys. The
costs associated therewith shall be borne equally by the parties
hereto.
4.3.2 If the actual costs are less than the Monthly Xxxxxxxx,
PracSys will apply such difference as a credit against the next
Monthly Billing, identifying the credit and providing the
calculation substantiating the amount. If there is no applicable
next Monthly Billing, the credit will be reimbursed promptly to
NASI.
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4.3.3 The Pricing Adjustment Factors values will be adjusted to
reflect the actual costs for the Quarterly Accounting. The list
of Pricing Adjustment Factors will be expanded or modified as
appropriate to reflect all elements of incurred costs. The
resulting modified Pricing Adjustment Factors will be used for
subsequent calculation of Monthly Xxxxxxxx. However, PracSys
hereby agrees that any pricing adjustment shall be subject to the
limitations set forth in Notes 1, 2, and 3 under Pricing
Adjustment Factors in Exhibit B.
5. Records, Cost Accounting, and Audit
PracSys will maintain separate cost accounting for the PracSys Services
provided at the Production Center and will record all direct labor and
material costs, as well as all indirect costs including indirect labor,
overhead, facility costs, and general and administrative costs that shall be
allocated on a consistent basis. The method of allocation will be shown on
such records and will be certified by the PracSys chief financial officer to
have been applied consistently. All direct costs are subject to audit by
NASI upon reasonable notice. All indirect costs and the method of allocation
may be audited by an independent certified public accountant selected
mutually by NASI and PracSys. The cost of such audit shall be borne equally
by the parties hereto.
6. Term
6.1 Unless sooner terminated as herein provided, this Agreement shall
be in force from the date hereof through the end of the second
Annual Period (the "Term"). The Annual Period is defined as a 12
month period beginning with the calendar date of the first day of
the calendar month following the calendar month in which the first
System at the Production Center is installed and ready for
production of the Product.
6.2 The Term shall be extended (the "Term Extension") by one year
annually subject to agreement of the parties to modification of
the Reimbursement Formula and other adjustment provisions for
prospective application. Any proposed adjustment shall be based
on actual costs incurred by PracSys during the current Annual
Period. The extension adjustments will be made at least 90 days
prior to the expiration of the Annual Period.
7. Shipping and Handling
Product shall be shipped FOB the Production Center in reusable certified
shipping containers provided by NASI. NASI will provide a quantity of
shipping containers to maintain a suitable inventory of containers for
shipments.
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8. Termination
This Agreement shall be terminated prior to its expiration under the
following conditions:
8.1 NASI may, upon written notice six (6) months in advance of the
expiration of any Annual Period, commencing with the second Annual
Period, elect not to extend the Term of this Agreement. NASI
shall be responsible for the removal of the Systems from the
Production Center at its expense before or at the end of the Term.
8.2 Additionally, NASI may, upon six (6) months written notice, elect
to relocate or sell the Systems and terminate this Agreement. In
the event of such termination, NASI shall pay a decommissioning
charge to PracSys in the amounts and at the times specified in
Section 9 below.
8.3 NASI may, upon 90 days written notice but no later than 90 days
prior to the scheduled first acceptance date, direct that the
Systems be delivered to a site other than the Production Center.
8.4 PracSys may terminate this Agreement in the event of default by
NASI's material breach of any of the provisions of this Agreement
or the Exclusivity Agreement, upon written notice by PracSys of
such an event of default and if such default is not cured by NASI
within 60 days after such notice.
8.5 NASI may terminate this Agreement if PracSys is unable to secure
the necessary licenses and permits prerequisite to providing the
services herein. PracSys shall provide to NASI a monthly report
of the status of such licenses and permits commencing 60 days
after the date hereof.
8.6 In the event of default by PracSys's material breach of any of the
provisions of this Agreement (including the failure by PracSys to
meet any Monthly Production Estimate) or the Exclusivity
Agreement, upon written notice by NASI of such an event of default
and if such default is not cured by PracSys within 60 days after
such notice, NASI may terminate the Service Contract for default
and, at its discretion, may perform the services herein with its
own supervisory and operating personnel (the "March In Rights")
paying all direct costs and reimbursing PracSys for allocated
facility costs until such time as NASI removes the Systems from
the Production Center. PracSys shall have the right to purchase
Product from a third party in order to meet the requirements of
any Monthly Production Estimate (the "Alternate Supply"). In the
event PracSys shall provide an Alternate Supply, NASI shall
reimburse PracSys for the Product at a per mCi price that would
have resulted from
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this Agreement based upon the volume of Product so purchased,
using the pricing factors set forth in Exhibit B hereof.
8.7 Should either party have reasonable grounds to believe the other
party is unable to pay its debts when due or is financially unable
to perform its obligations under this Agreement, or if either
party makes a general assignment for the benefit of creditors, or
institutes proceedings to be adjudicated a voluntary bankrupt, or
consents to the filing of a petition of bankruptcy against it, or
is adjudicated by a court of competent jurisdiction as bankrupt or
insolvent; or should either party seek reorganization under any
bankruptcy or similar act, or consent to the filing of a petition
seeking such petition; or should either party have a decree
entered against it by a court of competent jurisdiction appointing
a receiver, liquidator, trustee, or assignee in bankruptcy or in
insolvency or providing for the liquidator of such party's
property or business affairs; than the other party may, at its
option and without notice, terminate this Agreement effective
immediately.
9. Decommissioning Payment
9.1 In the event of termination pursuant to Section 8.2 above, NASI
shall pay to PracSys the following decommissioning payment:
9.1.1 An amount equal to the reasonable actual costs, including
but not limited to labor and materials for the removal of
the Systems, the preparation of the Systems for shipping
FOB the Production Center, and the restoration of the
facility to its configuration and condition prior to the
installation of the Systems. The removal costs will
include the cost of handling and disposal of any hazardous
materials. Payment will be made by NASI within 30 days
after receipt of invoice(s) submitted by PracSys that shall
be certified by the PracSys chief financial officer to be
true and actual costs.
9.1.2 NASI will pay to PracSys an amount equal to three (3)
months of service (the "Effective Period") under this
Agreement calculated in accordance with the Reimbursement
Formula for the fixed and semi-variable costs that would be
incurred without production of Product. The Effective
Period will commence with the last day of actual services
provided by PracSys which is the last day of the six month
notice period proscribed by Section 8.2 above. Payment is
due within 30 days after receipt of the invoice prepared by
PracSys which will show the calculation of the amount due.
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10. Risk of Loss
Title and risk of loss of the Product pass to NASI FOB the Production
Center.
11. Right to Inspect
NASI at its election and at its own expense may inspect the production
of the Product at the Production Center, with no less than one business day's
notice to PracSys, during normal business hours. Such inspection shall not
unreasonably interfere with or unreasonably interrupt the service activities.
NASI representatives must conform to all facility safety instructions and
license and permit provisions.
12. Equipment Markings
During the manufacture of the Systems at the Production Center and upon
installation of the Systems, the Systems or the work-in-progress thereof
shall be segregated from the rest of the facility by partitions or prominent
floor markings. A name plate with model and serial numbers will be clearly
affixed to each System identifying NASI ownership.
13. General Terms and Conditions
General Terms and Conditions are set forth in Exhibit C.
14. Indemnification
PracSys shall indemnify, defend and hold NASI harmless from and against
any liability, damage, claims, cost or expense (including reasonable
attorney's fees) arising out of any claim of infringement by any third party
of any patents or any claimed violation of any other intellectual property
right of any third party arising out of the use of the Systems pursuant to
this Agreement. NASI shall indemnify, defend and hold PracSys harmless from
and against any liability, damage, claims, cost or expense (including
reasonable attorney's fees) arising out of any claim of infringement by any
third party of any patents or any claimed violation of any other intellectual
property right of any third party arising out of the sale by NASI of products
incorporating the Product to be supplied by PracSys to NASI pursuant to this
Agreement. Provided, however, that NASI shall have no such obligation to the
extent such claim of infringement is based upon the Product incorporated into
such NASI product.
15. Confidentiality
NASI and PracSys shall hold in strict confidence and shall not disclose
to others or use, either before or after the expiration of termination of
this Agreement, any technical, financial, or
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business information, manufacturing technique, process, trade secret, or
other confidential information relating to each other's business. Upon
expiration or termination of this Agreement, NASI and PracSys shall return to
each other all documents containing any such information, shall delete and
purge from any of its electronic or mechanical storage systems all records
thereof, and shall certify to each other in writing that said steps have been
taken.
16. Arbitration
16.1 If a dispute arises out of or related to this Agreement, or
the breach thereof, and if the dispute cannot be settled
through negotiation, the parties agree first to try in good
faith to settle the dispute by mediation administered by
the American Arbitration Association under its Commercial
Mediation Rules before resorting to arbitration, litigation
or some other dispute resolution procedure.
16.2 All disputes, controversies or differences which may arise
between the parties, out of or in relation to or in
connection with this Agreement, or for the breach thereof,
shall be finally settled by arbitration proceedings held in
Boston, Massachusetts, and conducted in accordance with the
rules and procedures of the American Arbitration
Association. The award shall be final and binding on all
parties hereto. Judgment upon the award rendered may be
entered in any court having jurisdiction, or application
may be made to such court for judicial acceptance of the
award or order of enforcement as the case may be.
17. Construction
This Agreement shall be construed, and all rights, powers, and
liabilities of the parties hereunder shall be determined, in accordance with
the laws of The Commonwealth of Massachusetts. All amounts mentioned in this
Agreement are in the currency of the United States of America at exchange
rates in effect on the date when such payments shall become due and payable.
18. Waiver
No omission or delay of either party hereto in requiring due and
punctual fulfillment by the other party of the obligations of such other
party hereunder shall be deemed to constitute a waiver of its rights to
require such due and punctual fulfillment or of any of its remedies hereunder.
19. Notices
Any notice given by either party hereto to the other party shall be
deemed to have been sufficiently given if sent by the mailing thereof by
certified or registered mail, or by a recognized national overnight delivery
service, to the signatories herein to the address of such other party herein
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set forth, unless and until another addressee and or address shall have been
designated in writing by such other party for the purpose.
20. Agency
It is understood and agreed that the parties hereto are independent
contractors and are engaged in the operation their own respective businesses
and neither NASI nor PracSys shall be considered the agent of the other party
hereto for any purposes whatsoever, and neither NASI nor PracSys has the
authority to enter into any contracts or assume any obligation for the other
party hereto, and nothing in this Agreement shall be construed to establish a
relationship of partners or joint ventures between the parties hereto.
21. Captions
The captions and section numbers appearing in this Agreement are
inserted only as a matter of convenience and in no way define, limit or
construe the scope and intent of such sections nor in any way affect this
Agreement.
22. Assignment
Neither NASI nor PracSys may assign or license any of its rights or
obligations under this Agreement without the prior written consent of the
other party.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate, upon the date hereinabove set forth.
PracSys Corp. North American Scientific, Inc.
By: /s/ Xxxxx X. Xxxxxxx By:/s/ L. Xxxxxxx Xxxxxx
-------------------------- -----------------------------
Xxxxx X. Xxxxxxx L. Xxxxxxx Xxxxxx
President & CEO President & CEO
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EXHIBIT A
PRODUCT SPECIFICATION
***
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EXHIBIT B
REIMBURSEMENT FORMULA
***
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EXHIBIT C
GENERAL TERMS AND CONDITIONS
1. PracSys ("Seller") warrants that at the time of shipment, the Products
produced by it pursuant to this Agreement are free from defects in
material and workmanship and conform to the specification set out in
Exhibit A. SELLER MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED, WITH
RESPECT TO THE PRODUCTS INCLUDING ANY WARRANTY OF MERCHANTABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE. Notification of any breach of
warranty must be made within the half-life of the radioisotope contained
in the product, unless otherwise provided in writing by the Seller. No
claim shall be honored if NASI (the "Buyer") fails to notify the Seller
within the period specified. THE SOLE AND EXCLUSIVE REMEDY OF THE BUYER
FOR ANY LIABILITY OF SELLER OF ANY KIND INCLUDING LIABILITY BASED UPON
WARRANTY (EXPRESS OR IMPLIED WHETHER CONTAINED HEREIN OR ELSEWHERE),
STRICT LIABILITY, CONTRACT, OR OTHERWISE IS LIMITED TO THE REPLACEMENT
OF THE GOODS. SELLER SHALL NOT IN ANY CASE BE LIABLE FOR SPECIAL,
INCIDENTAL, OR CONSEQUENTIAL DAMAGES OF ANY KIND.
2. Seller shall not be responsible for any failure or delay in delivery of
services or goods because of any cause beyond Seller's reasonable
control. The Seller reserves the right to ship in one or more shipments.
3. The price of services and payment schedules are set forth in the
Agreement.
4. Any tax or governmental charge imposed upon the sale of services or
goods shall be paid by the Buyer, and the Buyer's failure to do so,
unless cured within 60 days after notice of such failure, shall be a
breach of this entire agreement. Prices on the specified services and
products are exclusive of all city, state and federal excise taxes,
including without limitation, taxes on manufacture, sales, receipts,
gross income, occupation, use and similar taxes.
5. No right to the use of any trade name or trademark of the Seller or
Buyer passes to the other party under this Agreement and the Buyer and
Seller agrees to refrain from using, either directly or indirectly, any
of the other parties trade names or trademarks unless specifically
authorized to do so in writing. Except as otherwise specifically agreed
in writing, all drawings, and specification produced by Seller and Buyer
pursuant to this Agreement, and all patent, copyright and other
intellectual property rights with respect to the goods sold hereunder,
shall be the sole and exclusive property of the originator and holder of
such rights.
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6. No modification of this Agreement shall be binding unless in writing and
signed by Buyer and Seller.
7. Waiver by Seller or Buyer of a breach by the other party of any
provision of this Agreement shall not be deemed a waiver of future
compliance therewith, and such provision, as well as all other
provisions hereunder, shall remain in full force and effect.
8. If any provision of this Agreement is or becomes, at any time and under
any law, rule or regulation, unenforceable or invalid, no other
provision of this Agreement shall be affected thereby, and the remaining
provisions of this Agreement shall continue with the same effect as if
such unenforceable or invalid provisions shall not have been inserted in
this Agreement.
9. Each party agrees to pay for all costs and expenses including attorney's
fees, incurred in the enforcement of this Agreement and the collection
of any amounts due the other party hereunder.
10. Each party hereby represents that such party is solvent and has the
financial resources sufficient to perform its obligations under this
Agreement, and that on each delivery this representation shall be deemed
renewed unless notice to the contrary is given in writing by such party
to the other party at or before delivery of the goods.
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