Exhibit 10.51
LETTER OF AGREEMENT
4/22/98
1. CP&S will provide the following services under the Food and Drug
Administration QSR guidelines:
Raw material purchasing, receipt and approval based on Life Medical
Sciences specifications (to be provided), product assembly and release per
Life Medical Sciences specifications (to be provided), maintaining
manufacturing and quality records and documentation, inventory management
and pick and ship distribution.
2. Product Pricing per product quotation. Prices are FOB CP&S. Pricing will be
re-negotiated annually to respond to changes in labor and overhead costs.
Changes in specifications and/or requirements could result in an immediate
price increase.
3. The initial term of this AGREEMENT is one year. The AGREEMENT is
"evergreen", which means it will automatically be renewed annually unless
terminated by either party with a four months advance notice.
4. CP&S will invoice Life Medical Sciences for assembly cost (raw materials,
labor, sales unit packaging and administrative cost reimbursement per item
#12) upon product assembly. CP&S will invoice Life Medical Sciences for
pick-n-ship cost (accessories [e.g. box of net or roll of tape], labor,
shipping materials and outbound shipping costs) upon pick-n-ship. The
Clinicel cushions will be purchased by Life Medical Sciences and not
included in the assembly cost Life Medical Sciences must pay CP&S net 30
days or sooner if suppliers selected by Life Medical Sciences require less
than 45 day terms. Invoices for freight must be paid in 10 days.
5. Raw material costs and subsequent supplier cost increases are a straight
pass through to Life Medical Sciences.
6. Life Medical Sciences will provide CP&S with a firm 1 month forecast and 4
month rolling forecast for each product SKU on a monthly basis.
7. Life Medical Sciences and CP&S will negotiate in good faith costs associated
with new products not detailed here.
8. Life Medical Sciences is responsible for all capital purchases or
significant purchases (over $100) including testing equipment and retains
ownership for equipment provided. Machine preventive maintenance, where
applicable, is the responsibility of CP&S. Major machine repair/parts (over
$200) is the responsibility of Life Medical Sciences.
9. If business were to grow significantly beyond forecast requiring CP&S to
work extended overtime periods. Life Medical Sciences is responsible to pay
the increased overtime rate or the increased cost associated with temporary
labor, if required. Limited overtime (1-2 days) and resource allocation to
cover special requests or unusual short term spikes in demand, will be
covered by CP&S.
10. CP&S is not responsible for any components or raw materials which are
not connected with a CP&S purchase order (i.e., if component or raw material
suppliers maintain inventory). Life Medical Sciences will fund the initial
raw material inventory purchases made by CP&S, the total value of these
purchases represent a working capital load to CP&S. This loan amount may
need to be adjusted upward to cover significant spike increases in order
volume. This "loan" will be repaid to Life Medical Sciences by CP&S at the
end of the agreement. Life Medical Sciences is financially responsible for
any raw materials CP&S maintains with suppliers at the minimum forecast
levels agreed to by both parties and reviewed quarterly.
11. Initial transfer of equipment (where applicable), and any component raw
material or finished goods inventories to CP&S is at Life Medical Sciences
expense.
12. Reimbursement for CP&S administrative costs will be through a 2.5% upcharge
on assembled component costs (raw material excluding Clinicel cushions and
direct labor) on product invoiced to Life Medical Sciences through 8/15/98.
For the remaining 8 months of the initial term and on future annual
revisions the recovery factor will be determined as follows: x% = O.H.
budget allocations / (F/C units X average assembled cost)
1.
LETTER OF AGREEMENT
4/22/98
13. CP&S is a re-packager and will be held completely harmless for product
liability for any reason other than product damage which occurs in the
-------------------------
assembly, storage and/or packaging at CP&S, including if someone sues CP&S
due to lack of product performance. In the event that any product does not
conform as aforesaid, Life Medical Sciences sole remedy shall be the repair
or replacement (at CP&S' option) of such non-conforming product within a
reasonable period of time.
14. Life Medical Sciences will be financially responsible for the "out of
pocket" costs incurred by CP&S in preparation for this AGREEMENT if Life
Medical Sciences decides not to complete the transfer of
packaging/manufacture to CP&S. Up front costs are not to exceed $10,000.
CP&S will obtain Life Medical Sciences' prior written approval on any
expenditure in excess of $ 1,000.
15. Components and raw materials will be stored in CP&S' warehouse. Life
Medical Sciences agrees that no special storage conditions are necessary.
16. Manufacturing of Life Medical Sciences products will be conducted in CP&S'
current manufacturing facility environment. Life Medical Sciences agrees
that no special environmental conditions are necessary. Life Medical
Sciences agrees that no employee protective wear is necessary in the
manufacture of their product. Life Medical Sciences will supply CP&S with
the Clinicel Material Safety Data Sheet (MSDS) prior to manufacture.
17. Changes in component part suppliers would only be made with Life Medical
Sciences' prior written approval. However, if the change results in a per
unit cost reduction for comparable order quantities, then savings would be
shared evenly between CP&S and Life Medical Sciences, after qualification
costs incurred by CP&S are covered.
18. After May 15, 1998, the quantity of daily orders must exceed 50. Life
Medical Sciences will be charged a $2.00 fee per order for the difference
between actual daily orders shipped and 50 orders,
i.e. 50 - 20 (actual orders shipped) = 30 x $2.00 = $60.00
19. Assumptions listed in CP&S' 3/25/98 letter and Price Quote dated 3/27/98 to
Xxxxxx Xxxxxx also apply to this Letter of Agreement.
20. Although the initial term of this AGREEMENT is one year, the parties agree
to reassess operational cost and facility related aspects on or about
8/15/98 or four (4) months after start of assembly. At that point, initial
EOQ standards will be established for each component.
ACCEPTED BY: ACCEPTED BY:
/s/ Xxxxxx X. Xxxxxx /s/ Xxxxxxxx Xxxxxxxxx
-------------------------------------- -------------------------
Xxxxxx X. Xxxxxx Xxxxxxxx Xxxxxxxxx
President and Chief Executive Officer President
LIFE MEDICAL SCIENCES CONSOLIDATED PRODUCTS &
SERVICES, INC.
4/27/98 4/24/98
---------------- ----------------------
Date Revision II Date Revision II
2.
