Exhibit 10.39
Xxxxxxx X. Xxxxx
President and CEO
Osteotech, Inc.
00 Xxxxxxxx
Xxxxxxxxx, XX 00000 October 27, 2002
American Red Cross-Tissue Services
National Headquarters
Attn: Xxxxx Xxxxxx, Chief Executive Officer
0000 Xxxxx Xxxx Xx.
Xxxxxxxxx, XX 00000
Re: Letter agreement to amend, modify and restate certain provisions of the
processing agreement (the "Amendment")
Ladies and Gentlemen:
Reference is made herein to that certain Agreement dated December 10, 1996 by
and between the American Red Cross, operating through the Tissue Services unit
of its Biomedical Services division ("ARC"), and Osteotech, Inc. ("Osteotech"),
as amended (the "Agreement"). Unless otherwise defined herein, initially
capitalized terms used herein shall have the meaning ascribed to them in the
Agreement.
Pursuant to Section 13 of the Agreement, we submit this letter to you for your
review and consent to the following amended and restated provisions which shall
apply in full force and effect until the earlier of (i) the expiration or
termination of the Agreement, or (ii) the execution of a new definitive
processing agreement between ARC and Osteotech:
1. The following terms used in this Amendment shall have the following
definitions:
(a) "Donor" shall mean a Standard Donor or Non-Standard Donor from whom
Tissue is to be (or has been) procured and
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delivered by ARC in accordance with the provisions of this Agreement.
(b) "Proprietary Products" shall mean those products which exist as of the
date of this Amendment, are processed by Osteotech from Tissue and are
covered by patents owned or licensed by Osteotech or are otherwise
produced by Osteotech using its trade secrets or other proprietary
information. For purposes of this Agreement, the Proprietary Products in
existence as of the date of this Amendment are all forms of Osteotech's
Grafton(R) DBM, Grafton Plus(TM) and Graftech(TM) Bioimplant products.
Additional Proprietary Products may be added to the Agreement from time to
time upon the mutual agreement of Osteotech and ARC.
(c) "Standard Donor" shall mean: (i) a human male not less than *** years
of age and not greater than *** years of age at date of death; or (ii) a
human female not less than *** years of age and not greater than *** years
of age at date of death. "Non-Standard Donor" shall mean: (i) a human male
not less than *** years of age and not greater than *** years of age at
date of death; or (ii) a human female not less than *** years of age and
not greater than *** years of age at date of death.
2. The third recital following the introductory paragraph of the Agreement
shall be amended and restated in its entirety to read as follows:
"WHEREAS, ARC wishes to ensure its ability to obtain processing services
as well as distribution, education and marketing and, from time to time,
other services and Osteotech desires to perform such services and to
process Tissue for ARC."
*** Indicates the omission of confidential material pursuant to a request for
confidential treatment made in accordance with Rule 24b-2 under the Securities
Exchange Act of 1934, as amended. The confidential material is being filed
separately with the Secretary to the Securities and Exchange Commission.
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3. Section 1.1.1 shall be amended and restated in its entirety to read as
follows:
"(a) Commencing as of January 1, 2003 and through the remaining term of
the Agreement, ARC shall not be required to supply all of the Tissue that
it procures to Osteotech for Processing, but will instead exercise its
best efforts to provide to Osteotech for Processing no less than the
minimum number of Standard Donors and Non-Standard Donors set forth below
during each month of the time periods set forth below (the "Minimum Donor
Requirement")".
MONTHLY MINIMUM NUMBER
----------------------
TIME PERIOD STANDARD DONORS NON-STANDARD DONORS
----------- --------------- -------------------
1/1/03 through 12/31/03 *** ***
1/1/04 through 12/31/04 *** ***
1/1/05 through 12/31/05 *** ***
1/1/06 through 12/31/06 *** ***
(b) No later than the fifteenth (15th) business day of each of January
2003, 2004, 2005 and 2006 an authorized officer of ARC shall deliver to
Osteotech a certification of the Average Donor Profile (as defined below)
of all of the Standard Donors and all of the Non-Standard Donors (as
independent groups) procured by ARC during the immediately preceding
calendar year, provided that the Average Donor Profile to be delivered in
January 2003 shall be based upon the Donors delivered by ARC to Osteotech
during the twelve (12) months ended August 31, 2002. The "Average Donor
Profile" shall mean that certain description of the average number and
types of Tissue procured, the average age of the Donors and the male to
female ratio of the Donors procured by ARC.
*** Indicates the omission of confidential material pursuant to a request for
confidential treatment made in accordance with Rule 24b-2 under the Securities
Exchange Act of 1934, as amended. The confidential material is being filed
separately with the Secretary to the Securities and Exchange Commission.
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The Donors delivered by ARC to Osteotech during each of the
remaining years of the Agreement in order to satisfy the
Minimum Donor Requirement shall conform to the Average Donor
Profile delivered by ARC to Osteotech during the January of
that year. Osteotech shall receive all of the Tissue procured
from each Donor that is delivered by ARC to Osteotech in order
to satisfy the Minimum Donor Requirement and ARC shall use its
best efforts to ensure that the Donors it delivers to
Osteotech shall come proportionally from geographic regions
which are consistent with the proportion of releasable Donors
procured in geographic regions ARC procures Donors from.
(c) Notwithstanding anything to the contrary contained in the
Agreement, for the year commencing January 1, 2003, ARC shall
be responsible for planning Donors for Processing that are
delivered by ARC to Osteotech and shall plan such Donors in a
manner and method (which is generally understood to be the
Donor master production plan) which is consistent with the
manner in which ARC planned Donors it delivered to Osteotech
during 2002. Notwithstanding anything to the contrary
contained in the Agreement, commencing January 1, 2004 and for
the remaining term of the Agreement, Osteotech shall be
responsible for planning Donors for Processing that are
delivered by ARC to Osteotech in order to satisfy the Minimum
Donor Requirement, as needed to produce Proprietary Products.
Such planning shall be based upon Osteotech's forecasted
market needs solely with respect to Donors delivered in
accordance with the Minimum Donor Requirement, and such plans
shall be provided to ARC in good faith and on a quarterly
basis thirty (30) days prior to the quarter in which such
forecast shall apply. ARC acknowledges that such planning by
Osteotech shall be prepared with a priority on meeting the
forecasted market demand of Proprietary Products first, with
base Tissue products or non-proprietary products a secondary
consideration. Unless and until another agreement is mutually
agreed to between the parties, once the Minimum Donor
Requirement threshold is satisfied, for each Donor that is
delivered to Osteotech that exceeds such requirement,
Osteotech shall use its best efforts to follow the Donor
master production plan submitted by ARC with respect to any
such Donor(s) with the goal of prioritizing its efforts so
that such Donors shall be processed into
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base Tissue or non-proprietary products first, and Proprietary
Products second; and provided, further that the average yield
of Tissue products processed from such Donors in each of the
years 2003, 2004, 2005 and 2006 shall not differ from the
average yield of the same received by ARC during the
immediately preceding year (except that for 2003 the required
yield shall be based on the 12 months ended August 31, 2002),
provided, further, that such Donors comply with the Average
Donor Profile for the immediately preceding year (except that
for 2003 the Average Donor Profile shall be based on the 12
months ended August 31, 2002).
(d) Osteotech shall use its best efforts to process the soft
Tissue associated with any and all Donors delivered to
Osteotech in accordance with specifications for such soft
Tissue that are in place as of the date of this Amendment
based upon the donor master production plan submitted by ARC
to Osteotech. In the event any such specifications are changed
in a manner which would cause Osteotech to incur additional
processing expenses that are reasonably considered to be
material, Osteotech will not be required to process soft
Tissue in accordance with such changed specifications unless
ARC shall reimburse Osteotech for such additional processing
expenses, plus a reasonable profit.
(e) ARC may, at its option, deliver to Osteotech for
Processing more Standard Donors or more Non-Standard Donors
than it is required to deliver to meet the Minimum Donor
Requirement, provided that commencing as of January 1, 2003
and for the remaining term of the Agreement, the number of
such additional Non-Standard Donors delivered in any month
shall not exceed *** of the number of Non-Standard Donors
required to be delivered in such month in order to satisfy the
Minimum Donor Requirement for Non-Standard Donors in such
month.
*** Indicates the omission of confidential material pursuant to a request for
confidential treatment made in accordance with Rule 24b-2 under the Securities
Exchange Act of 1934, as amended. The confidential material is being filed
separately with the Secretary to the Securities and Exchange Commission.
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Notwithstanding anything to the contrary contained herein, the
number of Donors required to be delivered by ARC to Osteotech
in order to satisfy the Minimum Donor Requirement in any month
may be reduced in the event an authorized officer of ARC
provides a written certification to Osteotech that ARC was
unable to procure the number of Donors required to be
delivered to Osteotech in such month in order to satisfy the
Minimum Donor Requirement for such month. Such certification
must be delivered no later than the end of the third month
after any such shortfall in Donors shall occur and shall
certify (i) that the number of Donors available for Processing
was insufficient to satisfy the Minimum Donor Requirement for
such month, (ii) that the ratio of the number of Donors being
provided to Osteotech for Processing compared to the total
number of donors procured by ARC is no less than the ratio of
Donors provided to Osteotech for Processing compared to the
total number of donors procured by ARC during the preceding
six (6) months and (iii) the reasons why ARC was unable to
procure a number of Donors sufficient to satisfy the Minimum
Donor Requirement. In addition, in the event ARC is unable to
satisfy the Minimum Donor Requirement as a result of Osteotech
or any of Osteotech's affiliates, as defined in the Securities
Exchange Act of 1934, as amended, (but not including any
processing customer of Osteotech) obtaining Donors directly
from any of ARC's donor accounts existing as of the date of
this Amendment as set forth in a letter which will be provided
by ARC to Osteotech within 30 days after the date of this
Agreement (the "Existing Account Letter"), the number of
Donors required to be delivered by ARC each month in order to
satisfy the Minimum Donor Requirement shall be reduced by the
number of Donors procured by Osteotech from any such existing
donor account(s) during such month. Within 30 days of its
receipt of the Existing Account Letter Osteotech shall advise
ARC in writing of those accounts on the Existing Account
Letter with which Osteotech has an existing arrangement to
receive donors. Within 30 days of its receipt of such written
notice from Osteotech, ARC shall revise the Existing Account
Letter to set forth the minimum monthly or annual, as the case
may be, number of donors ARC is entitled to receive, from such
accounts with which Osteotech has an existing relationship, in
accordance with any contract ARC may have with such accounts.
If ARC's contract with any of the accounts listed
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on the Existing Account Letter shall terminate and not be
renewed, ARC shall so advise Osteotech in writing and such
account shall be removed from the Existing Account Letter.
Osteotech shall have the right to audit ARC's donor
procurement activities to determine the accuracy of any such
certification provided to it by ARC. The Existing Account
Letter shall be treated as Confidential Information under the
Agreement.
(g) ARC shall pay Osteotech the Processing fees set forth in
Exhibits 3.1, and 3.2 of the Agreement and all applicable
pricing amendments to the Agreement with respect to all Donors
delivered by ARC to Osteotech and Processed by Osteotech and
for all Proprietary Products Processed from Donors delivered
by ARC to Osteotech. The fee payable for "Base Donor Charge (7
or greater tissues)" on Exhibit 3.1 shall be the fee payable
for Processing Standard Donors and the fee payable for
"Exception Donor Charge" on Exhibit 3.1 shall be the fee
payable for Processing Non-Standard Donors. If any new
Proprietary Products are added to the Agreement the Processing
fees for such products will be agreed upon by the parties. ***
Notwithstanding anything to the contrary contained in this
Amendment or the Agreement, including without limitation,
Exhibit 3.1 thereof, as amended, Osteotech shall be entitled
to increase the base Tissue Processing fees set forth in
Exhibit 3.1, as amended, charged to ARC by up to *** on each
of January 1, 2003, 2004, 2005 and 2006 and notes 1, 2 and 3
of Exhibit 3.1 are hereby deleted.
*** Indicates the omission of confidential material pursuant to a request for
confidential treatment made in accordance with Rule 24b-2 under the Securities
Exchange Act of 1934, as amended. The confidential material is being filed
separately with the Secretary to the Securities and Exchange Commission.
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(h) The Donors shall be delivered to Osteotech, at ARC's
expense. The Tissue from such Donors delivered by ARC and
processed by Osteotech shall conform to all standards,
guidelines, rules, regulations and laws of (i) the United
States Food and Drug Administration (FDA); (ii) the American
Association of Tissue Banks (AATB); (iii) other applicable
U.S. federal, state and local government agencies; (iv) any
non-U.S. jurisdiction where Tissue may be procured or
distributed for purposes of this Agreement; (v) ARC's standard
operating procedures ("SOPs") as may be amended from time to
time by ARC; (vi) Osteotech's processing standards as
specified in Osteotech's SOPs, as may be amended from time to
time by Osteotech (collectively, the foregoing is hereinafter
referred to as the "Processing Standards"). If interpretation
of the Processing Standards is required, or if there is a
disagreement about the interpretation of the Processing
Standards, ARC and Osteotech will enter into good faith
negotiations to resolve such issues with thirty (30) days of
notice by one party to the other. If such issues are not
resolved within the thirty (30) day period, within five (5)
business days thereafter, an independent third party will be
mutually selected from a list of six (6) with three (3)
provided by ARC and three (3) provided by Osteotech and such
third party will assist the parties in arriving at a
resolution. In the event no resolution is reached within sixty
(60) days after such third party is appointed, either party
may seek relief from the courts or as otherwise mutually
agreed. "Recovery Standards" shall mean all applicable laws,
standards, rules, regulations, procedures and guidelines
related to the donation, recovery and suitability
determination of Tissue, including donor referral, informed
consent, tissue recovery, pre-processing storage, packaging
and shipping and all records, activities and standards related
to obtaining, testing, documenting and evaluating serological
test results, medical history and lifestyle data; and related
organizational, management and quality assurance activities.
(i) ARC and Osteotech shall provide each other a copy of its
SOPs and copies of any amendments to its SOPs promptly after
such amendments are adopted; provided, however, that doing so
will not require such party to disclose any trade secrets,
technical know how or unpublished scientific data or technical
art. Upon reasonable notice and at its own expense, each of
Osteotech and ARC shall have the right to conduct an annual
audit of the other party's facilities and records related to
regulatory compliance. Upon
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reasonable notice and at its own expense, each of Osteotech
and ARC shall have the right to conduct additional audits of
the other party's facilities and records related to regulatory
compliance in the event there are repeated significant defects
in such other party's SOPs, or in such other party's
compliance with its SOPs or any applicable Processing
Standards."
ARC shall reimburse Osteotech on a monthly basis for all of
Osteotech's direct costs, including without limitation, rent
and utilities, related to the use of Osteotech's facilities by
ARC personnel.
3. With regard to Section 1.1.2(c) we hereby agree to strike and
delete the following sentence which is the last sentence of
such subsection so that it shall have no further force or
effect:
"If the parties cannot agree upon a forecast for any month,
the forecast for such month shall be the average of the
forecasts of the parties for the immediately preceding three
months."
4. With regard to Section 1.1.3 we hereby agree to strike and
delete the following two sentences which are the last two
sentences of the first paragraph of Section 1.1.3 so that it
shall have no further force or effect:
"ARC shall provide to Osteotech, within 15 days of the end of
each calendar quarter, data on the tissue procurement activity
of ARC occurring during the quarter. Osteotech shall have the
right to audit ARC Tissue donor data upon reasonable prior
written notice to ARC."
5. With regard to Section 1.2.2(b) we hereby agree that the
second sentence of Section 1.2.2(b) shall be amended and
restated in its entirety as follows:
"In the event either party is unable or unwilling to implement
such changes, the other party shall have the remedy set forth
in Section 6.5"
6. With regard to Section 3.1(c) we hereby agree to strike and
delete the entire provision so that it shall have no further
force or effect.
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7. With regard to Section 6.5 we hereby agree that the following
shall be added to the end of Section 6.5:
"and Osteotech may terminate this Agreement at any time upon
30 days prior written notice to ARC if ARC is unwilling or
unable to comply with the provisions of Section 1.2.2(b)."
8. Section 8 shall be amended and restated in its entirety to
read as follows:
Neither party shall be responsible to the other for
nonperformance or delayed performance of the terms and
conditions hereof due to acts of God, acts of government,
wars, riots, major accidents involving lines of
transportation, fuel or material shortages, or other causes
(except strikes), in the nature of force majeure which is
beyond the affected party's control. Notwithstanding such
force majeure event, to the extent Osteotech is unable to
perform Processing of ARC's Tissue due to a force majeure
event for more than *** successive *** or *** in the aggregate
during any *** period, Osteotech may arrange, with ARC's
approval, or in the alternative, ARC may arrange, for ARC's
base Tissue to be processed by another processor within *** of
such event. In no event shall ARC have the right to cause any
Proprietary Product to be processed by any other processor.
*** Indicates the omission of confidential material pursuant to a request for
confidential treatment made in accordance with Rule 24b-2 under the Securities
Exchange Act of 1934, as amended. The confidential material is being filed
separately with the Secretary to the Securities and Exchange Commission.
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Once notice is given that the force majeure event has ended
all base Tissue Processing which is being performed by any
other processor as a result of such force majeure event shall
promptly revert back to Osteotech for Processing; provided
that, ARC may require Osteotech to reimburse ARC for the
difference between the Processing Fees, shipping and packaging
costs that would have been payable by ARC to Osteotech under
the Agreement for Tissue processed by such other processor and
the actual costs incurred by ARC to obtain substantially
similar services from an alternate processor, provided further
that Osteotech shall in no event be responsible to pay to ARC
an amount which is in excess of *** of such fees and costs in
the aggregate that would have otherwise been payable to
Osteotech by ARC
The Agreement shall continue in full force and effect in accordance with its
terms except as specifically amended in this Amendment. To the extent you are in
agreement with the foregoing amendments and modifications to the Agreement,
please acknowledge your consent by signing in the signature block provided
below. This Amendment may be signed in one or more counterparts, each of which
shall be deemed an original, but all of such counterparts when brought together
shall constitute one Amendment and agreement to the same.
Sincerely, ACKNOWLEDGED AND AGREED:
Osteotech, Inc. American Red Cross-Tissue Services
By: _____________________ By: ___________________________
Xxxxxxx X. Xxxxx Xxxxx Xxxxxx
President and Chief Executive Chief Executive Officer
Officer
*** Indicates the omission of confidential material pursuant to a request for
confidential treatment made in accordance with Rule 24b-2 under the Securities
Exchange Act of 1934, as amended. The confidential material is being filed
separately with the Secretary to the Securities and Exchange Commission.
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