edX - TXT1x Data
-----BEGIN PRIVACY-ENHANCED MESSAGE-----1Proc-Type: 2001,MIC-CLEAR2Originator-Name: [email protected]3Originator-Key-Asymmetric:4MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen5TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB6MIC-Info: RSA-MD5,RSA,7QfUvRcwpyKbGNiKfO4ZaDEfFKKPqXDYdzmlGKI996UfnB/WQhq0yT3duls5cmD7O8JZj1gsUxW4fke7cJ6RjQbQ==910<SEC-DOCUMENT>/in/edgar/work/0000897101-00-000959/0000897101-00-000959.txt : 2000100911<SEC-HEADER>0000897101-00-000959.hdr.sgml : 2000100912ACCESSION NUMBER: 0000897101-00-00095913CONFORMED SUBMISSION TYPE: 10-K/A14PUBLIC DOCUMENT COUNT: 215CONFORMED PERIOD OF REPORT: 2000063016FILED AS OF DATE: 200010061718FILER:1920COMPANY DATA:21COMPANY CONFORMED NAME: LECTEC CORP /MN/22CENTRAL INDEX KEY: 000080592823STANDARD INDUSTRIAL CLASSIFICATION: [384524] IRS NUMBER: 43130187825STATE OF INCORPORATION: MN26FISCAL YEAR END: 063027</COMPANY-DATA>2829FILING VALUES:30FORM TYPE: 10-K/A31SEC ACT:32SEC FILE NUMBER: 333-7256933FILM NUMBER: 73617134</FILING-VALUES>3536BUSINESS ADDRESS:37STREET 1: 10701 RED CIRCLE DR38CITY: MINNETONKA39STATE: MN40ZIP: 5534341BUSINESS PHONE: 612933229142</BUSINESS-ADDRESS>4344MAIL ADDRESS:45STREET 1: 10701 RED CIRCLE DRIVE46STREET 2: 10701 RED CIRCLE DRIVE47CITY: MINNETONKA48STATE: MN49ZIP: 5534350</MAIL-ADDRESS>51</FILER>52</SEC-HEADER>53<DOCUMENT>54<TYPE>10-K/A55<SEQUENCE>156<FILENAME>0001.txt57<TEXT>58596061UNITED STATES SECURITIES AND EXCHANGE COMMISSION62WASHINGTON, D.C. 205496364-------------6566FORM 10-K/A-16768-------------6970(Mark One)71/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES72EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2000.7374/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES75EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______.7677Commission File Number: 0-161597879LECTEC CORPORATION80(Exact name of registrant as specified in its charter)8182MINNESOTA 41-130187883(State or other jurisdiction of (I.R.S. Employer Identification No.)84incorporation or organization)858610701 RED CIRCLE DRIVE, MINNETONKA, MINNESOTA 5534387(Address of principal executive offices) (Zip Code)8889Registrant's telephone number, including area code: (952) 933-22919091-------------9293Securities registered pursuant to Section 12(b) of the Act: None9495Securities registered pursuant to Section 12(g) of the Act: Common Stock, par96value $0.01 per97share.9899-------------100101Indicate by check mark whether the Registrant (1) has filed all reports102required to be filed by Section 13 or 15(d) of the Securities Exchange Act of1031934 during the preceding 12 months (or for such shorter period that the104Registrant was required to file such reports), and (2) has been subject to such105filing requirements for the past 90 days. Yes [X] No [ ]106107Indicate by check mark if disclosure of delinquent filers pursuant to108Item 405 of Regulation S-K is not contained herein; and will not be contained,109to the best of the Registrant's knowledge, in the definitive proxy statement110incorporated by reference in Part III of this Form 10-K, or any amendment to111this Form 10-K. [ ]112113The aggregate market value of the Common Stock held by non-affiliates114of the Registrant as of September 20, 2000 was $6,513,235 based upon the last115reported sale price of the Common Stock at that date by the Nasdaq Stock Market.116117The number of shares outstanding of the Registrant's Common Stock as of118September 20, 2000 was 3,904,465 shares.119120----------------------------121122DOCUMENTS INCORPORATED BY REFERENCE123124Part III of this Annual Report on Form 10-K incorporates by reference125information from the Registrant's Proxy Statement for its Annual Meeting of126Shareholders to be held November 16, 2000.127128<PAGE>129130131On September 28, 2000, LecTec Corporation (the "Company") filed its132Annual Report on Form 10-K for the Fiscal Year Ended June 30, 2000 (the "Form13310-K"). The sole purpose of this Amendment 10-K/A-1 is to file an additional134Exhibit 10.16.135136ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K137138(a) Financial Statements, Schedules and Exhibits1391401. Financial Statements141142The following consolidated financial statements of the Company143and its subsidiaries are filed as a part of this Form 10-K in144Part II, Item 8:145146(i) Report of Independent Certified Public Accountants147(ii) Consolidated Balance Sheets at June 30, 2000 and 1999148(iii) Consolidated Statements of Operations for the years149ended June 30, 2000, 1999 and 1998150(iv) Consolidated Statements of Comprehensive Loss for the151years ended June 30, 2000, 1999 and 1998152(v) Consolidated Statements of Shareholders' Equity for153the years ended June 30, 2000, 1999 and 1998154(vi) Consolidated Statements of Cash Flows for the years155ended June 30, 2000, 1999 and 1998156(vii) Notes to the Consolidated Financial Statements1571582. Financial Statement Schedules159160(i) Schedule II - Valuation and Qualifying Accounts, for161each of the three years in the period ended June 30,1622000163164(ii) Other Schedules - All other schedules have been165omitted because of the absence of the conditions166under which they are required or because the required167information is included in the financial statements168or the notes thereto.1691703. Exhibits171172Method of173Filing174---------1751763.01 Articles of Incorporation of Registrant, as177amended (1)1781793.02 By-laws of Registrant (1)18018110.01 Service Agreement dated July 1, 1986,182between LecTec International, Inc., a U.S.183Virgin Islands corporation, and LecTec184Corporation, relating to the sale, lease or185rental of certain property outside the186United States (1)18718810.02 Distribution and Commission Agreement dated189July 1, 1986, between LecTec International,190Inc., a U.S. Virgin Islands corporation,191and LecTec Corporation, relating to the192sale, lease or rental of certain property193outside the United States (1)194195196-1-197<PAGE>19819920020110.03 Certificate of Secretary pertaining to202Resolution of Board of Directors of LecTec203Corporation, dated October 30, 1986,204implementing a Profit Sharing Bonus Plan (1)205206**10.04 LecTec Corporation 1989 Stock Option Plan (2)207208**10.05 LecTec Corporation 1991 Directors' Stock209Option Plan (2)21021110.06 Building lease dated May 24, 1991 between212LecTec Corporation and Sierra Development213Co. for the lease of the manufacturing and214warehouse facility located in Edina,215Minnesota (2)21621710.07 First amendment dated May 5, 1997 between218LecTec Corporation and Rushmore Plaza219Partners Limited Partnership for the220extension of the previous lease of the221manufacturing and warehouse facility222located in Edina, Minnesota (2)22322410.08 Articles of Merger of Pharmadyne225Corporation into LecTec Corporation dated226December 31, 1997, whereby Pharmadyne, a227wholly-owned subsidiary, is merged into228LecTec Corporation (3)229230**10.09 Change In Control Termination Pay Plan231adopted May 27, 1998, for the benefit of232certain employees of LecTec Corporation in233the event of a Change in Control (3)234235**10.10 LecTec Corporation Employee Stock Purchase236Plan (4)237238**10.11 LecTec Corporation 1998 Stock Option Plan (5)23924010.12 LecTec Corporation 1998 Directors' Stock241Option Plan (5)24224310.13 Letter of Intent dated April 19, 1999244between LecTec Corporation and Johnson &245Johnson Consumer Companies, Inc., whereby246the parties agree to certain milestones247leading to the development of a skin care248product (6)24925010.14 Credit and Security Agreement by and251between LecTec Corporation and Wells Fargo252business Credit, Inc. dated November 22,2531999 and First Amendment To Credit and254Security Agreement and Waiver of Defaults255dated February 9, 2000, whereby the parties256agree to the terms and amended terms257regarding a line of credit (7)258259*10.15 Supply Agreement dated as of May 15, 2000260by and between LecTec Corporation and261Novartis Consumer Health, Inc., whereby the262parties agree to terms for the sale of263product from LecTec Corporation to Novartis264Consumer Health, Inc. (8)265266*10.16 Supply Agreement dated as of March 21, 2000267by and between LecTec Corporation and268Johnson & Johnson Consumer Companies, Inc.269and Neutrogena Corporation, whereby the270parties agree to terms for the sale of271product from LecTec Corporation to Johnson272& Johnson Consumer Companies, Inc. and273Neutrogena Corporation (9)274275276-2-277<PAGE>27827928021.01 Subsidiaries of the Company (8)28128223.01 Consent of Grant Thornton LLP (8)28328427.01 Financial Data Schedule (8)285286- -------------------------------------------------------287288* Confidential treatment has been requested for portions of this289Exhibit pursuant to Rule 24b-2 under the Securities Exchange290Act of 1934 as amended. The confidential portions have been291deleted and filed separately with the United States Securities292and Exchange Commission together with a confidential treatment293request.294295** Management contract or compensatory plan or arrangment296required to be filed as an exhibit to this Form 10-K.297298299(1) Incorporated herein by reference to the Company's Form S-18300Registration Statement (file number 33-9774C) filed on October30131, 1986 and amended on December 12, 1986.302303(2) Incorporated herein by reference to the Company's Annual304Report on Form 10-K for the year ended June 30, 1997.305306(3) Incorporated herein by reference to the Company's Annual307Report on Form 10-K for the year ended June 30, 1998.308309(4) Incorporated herein by reference to the Company's Registration310Statement on Form S-8 (file number 333-72571) filed on311February 18, 1999.312313(5) Incorporated herein by reference to the Company's Registration314Statement on Form S-8 (file number 333-72569) filed on315February 18, 1999.316317(6) Incorporated herein by reference to the Company's Annual318Report on Form 10-K for the year ended June 30, 1999.319320(7) Incorporated herein by reference to the Company's Quarterly321Report on Form 10-Q for the quarter ended December 31, 1999.322323(8) Incorporated herein by reference to the Company's Annual324Report on Form 10-K previously filed for the year ended June32530, 2000.326327(9) Filed herewith.328329330(b) 1. Reports on Form 8-K.331332None.333334335-3-336<PAGE>337338339SIGNATURES340341Pursuant to the requirements of Section 13 or 15(d) of the Securities342Exchange Act of 1934, the Registrant has duly caused this amendment to its343annual report on Form 10-K to be signed on its behalf by the undersigned,344thereunto duly authorized, on the 6th day of October, 2000.345346347LECTEC CORPORATION348349350351/s/ Rodney A. Young352--------------------------------------------353Rodney A. Young354Chairman, Chief Executive Officer and President355(Principal Executive Officer)356357358-4-359<PAGE>360361362EXHIBIT INDEX363364Exhibits365- --------3663673.01 Articles of Incorporation of Registrant, as amended (Note 1).3683693.02 By-laws of Registrant (Note 1).37037110.01 Service Agreement dated July 1, 1986, between LecTec International,372Inc., a U.S. Virgin Islands corporation, and LecTec Corporation,373relating to the sale, lease or rental of certain property outside374the United States (Note 1).37537610.02 Distribution and Commission Agreement dated July 1, 1986, between377LecTec International, Inc., a U.S. Virgin Islands corporation, and378LecTec Corporation, relating to the sale, lease or rental of certain379property outside the United States (Note 1).38038110.03 Certificate of Secretary pertaining to Resolution of Board of382Directors of LecTec Corporation, dated October 30, 1986,383implementing a Profit Sharing Bonus Plan (Note 1).384385**10.04 LecTec Corporation 1989 Stock Option Plan (Note 2).386387**10.05 LecTec Corporation 1991 Directors' Stock Option Plan (Note 2).38838910.06 Building lease dated May 24, 1991 between LecTec Corporation and390Sierra Development Co. for the lease of the manufacturing and391warehouse facility located in Edina, Minnesota (Note 2).39239310.07 First amendment dated May 5, 1997 between LecTec Corporation and394Rushmore Plaza Partners Limited Partnership for the extension of the395previous lease of the manufacturing and warehouse facility located396in Edina, Minnesota (Note 2).39739810.08 Articles of Merger of Pharmadyne Corporation into LecTec Corporation399dated December 31, 1997 , whereby Pharmadyne, a wholly-owned400subsidiary, is merged into LecTec Corporation (Note 3).401402**10.09 Change In Control Termination Pay Plan adopted May 27, 1998, for the403benefit of certain employees of LecTec Corporation in the event of a404Change in Control (Note 3).405406**10.10 LecTec Corporation Employee Stock Purchase Plan (Note 4).407408**10.11 LecTec Corporation 1998 Stock Option Plan (Note 5).409410**10.12 LecTec Corporation 1998 Directors' Stock Option Plan (Note 5).41141210.13 Letter of Intent dated April 19, 1999 between LecTec Corporation and413Johnson & Johnson Consumer Companies, Inc., whereby the parties414agree to certain milestones leading to the development of a skin415care product (Note 6).41641710.14 Credit and Security Agreement by and between LecTec Corporation and418Wells Fargo business Credit, Inc. dated November 22, 1999 and First419Amendment To Credit and Security Agreement and Waiver of Defaults420dated February 9, 2000, whereby the parties agree to the terms and421amended terms regarding a line of credit (Note 7).422423424-5-425<PAGE>426427428*10.15 Supply Agreement dated as of May 15, 2000 by and between LecTec429Corporation and Novartis Consumer Health, Inc., whereby the parties430agree to terms for the sale of product from LecTec Corporation to431Novartis Consumer Health, Inc (Note 8).432433*10.16 Supply Agreement dated as of March 21, 2000 by and between LecTec434Corporation and Johnson & Johnson Consumer Companies, Inc. and435Neutrogena Corporation, whereby the parties agree to terms for the436sale of product from LecTec Corporation to Johnson & Johnson437Consumer Companies, Inc. and Neutrogena Corporation . . . . . . .43843921.01 Subsidiaries of the Company (Note 8).44044123.01 Consent of Grant Thornton LLP (Note 8).44244327.01 Financial Data Schedule (Note 8).444445446447NOTES:448449* Confidential treatment has been requested for portions of this450Exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of4511934 as amended. The confidential portions have been deleted and452filed separately with the United States Securities and Exchange453Commission together with a confidential treatment request.454455** Management contract or compensatory plan or arrangment required to456be filed as an exhibit to this Form 10-K.457458(1) Incorporated herein by reference to the Company's Form S-18459Registration Statement (file number 33-9774C) filed on October 31,4601986 and amended on December 12, 1986.461462(2) Incorporated herein by reference to the Company's Annual Report on463Form 10-K for the year ended June 30, 1997.464465(3) Incorporated herein by reference to the Company's Annual Report on466Form 10-K for the year ended June 30, 1998.467468(4) Incorporated herein by reference to the Company's Registration469Statement on Form S-8 (file number 333-72571) filed on February 18,4701999.471472(5) Incorporated herein by reference to the Company's Registration473Statement on Form S-8 (file number 333-72569) filed on February 18,4741999.475476(6) Incorporated herein by reference to the Company's Annual Report on477Form 10-K for the year ended June 30, 1999.478479(7) Incorporated herein by reference to the Company's Quarterly Report480on Form 10-Q for the quarter ended December 31, 1999.481482(8) Incorporated herein by reference to the Company's Annual Report on483Form 10-K previously filed for the year ended June 30, 2000.484485486-6-487488</TEXT>489</DOCUMENT>490<DOCUMENT>491<TYPE>EX-10.16492<SEQUENCE>2493<FILENAME>0002.txt494<DESCRIPTION>SUPPLY AGREEMENT495<TEXT>496497498EXHIBIT 10.16499500501SUPPLY AGREEMENT502503SUPPLY AGREEMENT, dated as of March 21, 2000, by and between JOHNSON &504JOHNSON CONSUMER PRODUCTS COMPANY, a Division of Johnson & Johnson Consumer505Companies, Inc., a company with its principal offices at 199 Grandview Road,506Skillman, New Jersey 08558-9481 and NEUTROGENA CORPORATION, a company with its507principal offices at 5760 West 96th Street, Los Angeles, California 90045508(collectively designated as ("Buyer"), and LECTEC Corporation, a Minnesota509corporation with its principal offices at 10701 Red Circle Drive, Minnetonka,510Minnesota 55343("Seller").511512WHEREAS, Seller is in the business of making and selling the Product (as513defined below), and Buyer would like to purchase the Product from Seller514pursuant to the terms of this Agreement;515516NOW, THEREFORE, in consideration of the mutual promises, covenants and517agreements hereinafter set forth, the parties hereto agree as follows:518519ARTICLE 1520521DEFINITIONS522523As used throughout this Agreement, each of the following terms shall have524the respective meaning set forth below:5255261.01 "Product" shall mean a hydrogel patch containing ( * ) for use527in the treatment of acne, as more fully described on Schedule 1.01 to this528Agreement, manufactured and packaged in accordance with the Specifications529(hereinafter defined), along with any530531532533* Denotes confidential information that has been omitted from the exhibit and534filed separately, accompanied by a confidential treatment request, with the535Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities536Exchange Act of 1934.5375385391540<PAGE>541542543Improvements thereto. Reference to Product in this Agreement shall include a544reference to Product A and B, as defined in Schedule 1.02 attached hereto.5455461.02 "Specifications" shall mean the specifications for the design,547composition, product safety assurance, manufacture, packaging, and/or quality548control of the Product, as set forth on Schedule 1.02 attached hereto and made a549part hereof, as the same may hereafter be modified by mutual agreement of the550parties in writing.5515521.03 "Raw Materials" shall mean the materials, components, and553packaging required to manufacture and package the Product in accordance with the554Specifications.5555561.04 "Improvement" shall mean any change, improvement, modification557or development to the Product, the Specifications, the Raw Materials or the558method or process of manufacture or production of the Product.5595601.05 "Territory" shall mean worldwide.5615621.06 "Supply Year" shall mean each consecutive 365-day period (or563366-day period in the event of a leap year) during the term hereof, commencing564on the date on which Seller first delivers Product to Buyer under this565Agreement.5665671.07 "Affiliate" of a party shall mean any entity which directly or568indirectly controls, is controlled by or is under common control with such569entity.5705711.08 "First Commercial Sale" shall mean the date on which Buyer572sells the first Product to a third party pursuant to this Agreement.573574ARTICLE 2575576SUPPLY OF PRODUCT577578During the term of this Agreement, Seller shall supply Buyer with579those quantities of Product A and Product B as ordered by Buyer pursuant to this580Agreement, subject to the5815825832584<PAGE>585586587ordering procedures set forth in Article 4 below. Each Product sold588hereunder will conform to the Specifications for such Product. Buyer shall589purchase a minimum purchase quantity of the Products the ("Minimum Purchase590Quantities") in each Supply Year of the term of this Agreement, as specified in591Schedule 2.00 in this Agreement. Purchases of Products, if any, by Buyer during592the four (4) months prior to the date of First Commercial Sale shall be counted593towards these Minimum Purchase Quantities. ( * ) Buyer shall not be considered594as having failed to meet the Minimum Purchase Quantities in the event such595failure is a result of Seller's failure to supply Product, or in the event of a596recall or government initiated action with respect to a Product, or in the event597an infringement claim or suit is lodged with respect to the Product in an598applicable territory.599600ARTICLE 3601602PRICES FOR PRODUCT6036043.01 Transfer Prices. The prices for Product A and B shipped by605Seller during the term of this Agreement shall be as set forth on the price list606that appears as Schedule 3.01 to this Agreement, subject to adjustment only as607expressly provided herein. The prices charged by Seller to Buyer as set forth on608such Schedule, or as may subsequently be determined, are F.C.A. Seller's609manufacturing facility in Minnetonka or Edina, Minnesota and shall exclude all610delivery611612613614* Denotes confidential information that has been omitted from the exhibit and615filed separately, accompanied by a confidential treatment request, with the616Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities617Exchange Act of 1934.6186196203621<PAGE>622623624costs. Buyer shall provide Seller with a list of required carriers and shall pay625the associated product freight charges directly to these carriers.6266273.02 ( * )6286293.03 ( * )6306313.04 Payment Terms. Payment terms on all orders shall be thirty (30)632days net of invoice date.6336343.05 ( * )6356363.06 ( * )637638639640641* Denotes confidential information that has been omitted from the exhibit and642filed separately, accompanied by a confidential treatment request, with the643Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities644Exchange Act of 1934.6456466474648<PAGE>649650651( * )652653ARTICLE 4654655FORECASTS, ORDERS6566574.01 Forecasts. Two months prior to the start of each Supply Year658during the term of this Agreement, Buyer shall provide Seller with a non-binding659written forecast of Buyer's expected requirements for Product during the660following Supply Year, and shall thereafter update such forecast on a rolling661monthly basis.6626634.02 Orders. Buyer shall place any binding orders for Product by664written or electronic purchase order (or by any other means agreed to by the665parties) to Seller, which shall be placed at least 90 days prior to the desired666date of delivery. The parties acknowledge that Buyer is not obligated to buy any667specific amount of Product under this Agreement, except for the Minimum Purchase668Quantities and such quantities which Buyer shall actually order through such669binding purchase orders.6706714.03 Obligations. Buyer shall at all times be obligated to purchase672the quantity of the Products ordered in such purchase orders. Seller shall be673obligated to supply such Products as ordered by Buyer to the extent the purchase674orders are, collectively, no greater than ( * ) of the675676677678679* Denotes confidential information that has been omitted from the exhibit and680filed separately, accompanied by a confidential treatment request, with the681Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities682Exchange Act of 1934.6836846855686<PAGE>687688689monthly forecast provided pursuant to Section 4.01 no less than ninety (90) days690prior to delivery of such purchase order provided, however, that Seller shall691not be deemed to be in breach of this Agreement as long as it supplies at least692( * ) of each particular Product which is ordered by Buyer for each calendar693quarter in accordance with this Agreement. Failure of Seller to deliver at least694( * ) of any Product which is ordered by Buyer for each calendar quarter in695accordance with this Agreement shall be considered an Event of Default pursuant696to this Agreement, the occurrence of which shall entitle Buyer to the remedies697set out in Section 8.03.6986994.04. Conflicts. To the extent of any conflict or inconsistency700between this Agreement and any purchase order, purchase order release,701confirmation, acceptance or any similar document, the terms of this Agreement702shall govern. Parties agree that purchase orders shall contain the Year 2000703Compliance provision. The term "Year 2000 Compliant" shall mean the services704will be scheduled and performed in a timely manner without interruptions caused705by the date in time on which the product is ordered or is actually delivered or706the services are scheduled or actually performed under normal procedures in the707ordinary course, whether before, on or after January 1, 2000.708709ARTICLE 5710711ADDITIONAL UNDERSTANDINGS OF THE PARTIES7127135.01 Most Favored Customer. In consideration of the arrangements714provided in this Agreement for the Buyer to purchase Product from Seller, Seller715agrees that Buyer shall be treated with "most favored nation" status in716connection with pricing and allocation of Product, and Seller shall not provide717any other customer (which customer is similarly situated or purchases equivalent718or less volume of products from Seller than Buyer in the aggregate) with719720721722723* Denotes confidential information that has been omitted from the exhibit and724filed separately, accompanied by a confidential treatment request, with the725Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities726Exchange Act of 1934.7277287296730<PAGE>731732733preferential or more favorable treatment with respect to pricing or allocation734of Product.7357365.02 Other Affiliates. If any other Affiliate of Buyer desires to737purchase the Product from Seller under the terms of this Agreement, then, upon738the execution of a copy of this Agreement by such Affiliate, Seller shall accord739such Affiliate all of the benefits hereof and treat such affiliate as a "Buyer"740for the purposes of this Agreement. Any of Buyer's non-U.S. Affiliates must741order Products in economical run transaction sizes and reimburse Seller for742Quality System Development and regulatory support required on a time and743materials basis. Lead times for such runs are ninety (90) days from vendor ready744artwork. Product is subject to minimum run sizes, and J&J affiliate orders will745be batched together to satisfy minimum run quantities. Each Product will have a746unique packaging specification and part number.7477485.03 Exclusive Rights. During the term of this Agreement, provided749that Buyer is purchasing the Minimum Purchase Quantities and is commercializing750the Product, Seller shall supply Buyer, on an exclusive basis, with the Product751for sale in the Territory and neither Seller nor any of its Affiliates shall752market, sell or distribute, or allow the marketing, sale or distribution by any753third party of, the Product (or any improvement or Product line extension or any754other product using the same technology (hereinafter "Technology", i.e., a755hydrogel coated ( * ) within the Territory.7567575.04 Right of First Negotiation. During the term of this Agreement,758Seller hereby grants Buyer (and its Affiliates) the right of first negotiation759as to any new acne products, product ideas or inventions making use of the same760Technology (a hydrogel coated ( * ) which are developed, designed or invented by761or on behalf of Seller (collectively, "New Products"). Buyer shall have sixty762(60) days from the time it receives from Seller material information about any763764765766* Denotes confidential information that has been omitted from the exhibit and767filed separately, accompanied by a confidential treatment request, with the768Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities769Exchange Act of 1934.7707717727773<PAGE>774775776New Product to notify Seller in writing if it is interested in discussing terms777for Buyer to purchase, license or otherwise have access to such New Product. If778Buyer so notifies Seller of its interest in any New Product, it shall negotiate779in good faith with Seller with respect to an appropriate agreement to access780such New Product. The Buyer shall have a period of nine (9) months to complete781this agreement ("Negotiation Period"), unless extended by mutual consent. During782this Negotiation Period, in no event shall Seller enter into an agreement with a783third party to sell, assign, license, transfer or otherwise make available such784New Product. If the parties fail to agree on the terms of such an agreement by785the end of the Negotiation Period. Seller shall have the right to enter into an786agreement with a third party with respect to such new Products, provided that787the terms of such agreement are not, in the aggregate, materially more favorable788to such third party than such material terms and conditions which Seller last789offered in good faith to Buyer in connection therewith.7907915.05 Equipment. In the event that Buyer has, or will, make available792certain equipment, tools or dies for Seller to use in manufacturing or otherwise793producing Product, reference is made to Appendix 4.00, annexed hereto and made a794part hereof.7957965.06 Competing Products. Seller recognizes and acknowledges that797Buyer and its Affiliates have been, and will continue to be, actively involved798in the field in which the Product is sold. Seller acknowledges that Buyer and799its Affiliates market, sell and distribute products which compete directly with800the Product, and may continue to market, sell and distribute these and other801competing products throughout the term of this Agreement.802803ARTICLE 6804805IMPROVEMENTS AND CHANGES TO THE PRODUCT8068076.01 Improvements. From time to time during the term of this808Agreement, either8098108118812<PAGE>813814815party may submit to the other written proposals for the adoption, implementation816or development of any change, improvement or modification to the Product. In no817event shall any such change, improvement or modification (or any change or818modification to the Specifications) be implemented or made without the prior819written approval of the Buyer. If the parties agree on any such change,820improvement or modification, they shall modify the Specifications to reflect the821same and shall revise the price to be charged for the Product, subject to the822terms of Article 3 [and this Article 6]. In the event the Seller is unable to823supply Product that meets any changes to the Specifications proposed by Buyer,824and agreed to by the Seller then Buyer shall have the right to terminate this825Agreement, upon 90 day's prior written notice, without payment of any penalty or826other amount, except for those amounts due and owing to Seller at such time.827Seller further agrees that no significant changes or modifications to the method828or process of manufacture or production of the Product or the Raw Materials829shall be made without prior written notification to and approval of Buyer and830any such change or modification shall be made at Seller's sole cost and expense;831and in no event shall any change or modification be made to the method or832process of manufacture or production of the Product or the Raw Materials, which833change or modification shall have the effect of modifying or changing the834Specifications, without the express written consent of Buyer. In the event of835any change, each Buyer shall establish an appropriate qualification protocol,836and Buyer and Seller shall determine an appropriate inventory level for the837pre-change Product in order to cover on-going requirements during the838qualification process.8398406.02 Buyer Initiated. Buyer may at any time suggest Improvements,841which shall be approved by the Seller and implemented by the Seller as soon as842reasonably possible; provided that (a) none of such Improvements give rise to843any claim of infringement of any third party patent or other proprietary right844and (b) it is reasonably feasible for Seller to affect such Improvements without845requiring any capital investment or major process changes on the part of8468478489849<PAGE>850851852Seller. Cost and expenses are to be prepaid by the Buyer. If ( * ).8538546.03 Seller Initiated. ( * ).8558566.04 Specifications. Seller shall make no changes to the857Specifications or to the Products without the prior written approval of Buyer.858In addition, any changes to the Product, the Specifications or the manufacturing859process which may require the submission of any amendment, filing or other860documentation with any regulatory authority shall be identified, reviewed and861require the approval of Buyer through a document control system. To the extent862reasonably practicable, Buyer shall provide a response to any such proposed863change within five (5) business days after receipt.864865ARTICLE 7866867TERM8688697.01 Initial Term. The initial term of this Agreement (the "Initial870Term") shall commence on the date hereof and remain in effect for a period of871two (2) years from the date of the first purchase order issued by Buyer, unless872sooner terminated as expressly provided under the term of this Agreement.8738747.02 Optional Extension. Buyer, at its sole option, may extend this875Agreement for up to two (2) additional one-year terms after the expiration of876the Initial Term by giving Seller at least 90 days' prior written notice for877each such additional term, ( * )878879880881882* Denotes confidential information that has been omitted from the exhibit and883filed separately, accompanied by a confidential treatment request, with the884Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities885Exchange Act of 1934.88688788810889<PAGE>890891892( * ).893894ARTICLE 8895896TERMINATION8978988.01 Termination. Notwithstanding anything to the contrary in899Article 7 above, Buyer may terminate this Agreement at any time during the900additional one year terms mentioned in Article 7 or any date thereafter, by901giving Seller 6 months prior written notice thereof. Any of the aforementioned902extensions or terminations (in Article 7 and 8.01) can be for either Product A903or B or both.9049058.02 Breach. This Agreement may be terminated for either Product A906or Product B or both, as applicable, prior to the expiration of its term, by907either party by giving written notice of its intent to terminate and stating the908grounds therefor if the other party or parties, as applicable shall materially909breach or materially fail in the observance or performance of any910representation, warranty, guarantee, covenant or obligation under this911Agreement. The party receiving the notice shall have 60 days from the date of912receipt thereof to cure the breach or failure. In the event such breach or913failure is cured, the notice shall be of no effect. In the event the Agreement914is terminated only with respect to one party of the Buyer, all obligations under915this Agreement can be amended and/or revised as mutually agreed upon (including916with respect to Minimum Purchase, pricing, and exclusivity). If the remaining917Buyer and Seller cannot agree on acceptable amendment or revision, the remaining918Buyer or Seller can terminate this agreement without further obligation.919920921922923* Denotes confidential information that has been omitted from the exhibit and924filed separately, accompanied by a confidential treatment request, with the925Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities926Exchange Act of 1934.92792892911930<PAGE>9319329338.03 Certain Rights After a Breach. In addition to those rights934which may be available at law or equity, the following additional rights shall935be available upon the occurrence of a breach under this Agreement:936937(a) If the breach is caused by Buyer or one of the parties of Buyer and938upon termination of this Agreement by Seller, Buyer or the party of Buyer939affected by the termination shall have one hundred eighty (180) days in940which to sell out its stock of any Products it possesses or has committed941to purchase under this Agreement. (b) If the breach is caused by Seller,942Buyer may, in its discretion, either (A) terminate this Agreement in its943entirety or (B) terminate its purchase obligations and any related944obligations of this Agreement, in which event (1) Buyer shall be entitled945to manufacture or have manufactured the Products under a ( * ), the terms946to which shall be mutually agreed in writing. Buyer shall have all rights947to use the process descriptions and any other relevant data and know-how948in Seller's possession, and (2) Seller shall provide such assistance and949other information as shall be necessary in order for Buyer to manufacture950or have manufactured the Products.9519528.04 Insolvency, Etc. This Agreement may be terminated, prior to the953expiration of its term, upon fifteen (15) days written notice by either party:954(i) in the event that the other party hereto shall (1) apply for or consent to955the appointment of, or the taking of possession by, a receiver, custodian,956trustee or liquidator of itself or of all or a substantial part of its property,957(2) make a general assignment for the benefit of its creditors, (3) commence a958voluntary case under the United States Bankruptcy Code, as now or hereafter in959effect (the "Bankruptcy Code"), (4) file a petition seeking to take advantage of960any law (the "Bankruptcy Laws") relating to bankruptcy, insolvency,961reorganization, winding-up, or composition or readjustment of debts, (5) fail to962controvert in a timely and appropriate manner, or acquiesce in writing to, any963petition filed964965966967* Denotes confidential information that has been omitted from the exhibit and968filed separately, accompanied by a confidential treatment request, with the969Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities970Exchange Act of 1934.97197297312974<PAGE>975976977against it in any involuntary case under the Bankruptcy Code, or (6) take any978corporate action for the purpose of effecting any of the foregoing; or (ii) if a979proceeding or case shall be commenced against the other party hereto in any980court of competent jurisdiction, seeking (1) its liquidation, reorganization,981dissolution or winding-up, or the composition or readjustment of its debts, (2)982the appointment of a trustee, receiver, custodian, liquidator or the like of the983party or of all or any substantial part of its assets, or (3) similar relief984under any Bankruptcy Laws, or an order, judgment or decree approving any of the985foregoing shall be entered and continue unstayed for a period of 60 days; or an986order for relief against the other party hereto shall be entered in an987involuntary case under the Bankruptcy Code.9889898.05 Effect of Termination Not withstanding the termination of the990Agreement for any reason, each party hereto shall be entitled to recover any and991all Damages which such party shall have sustained by reason of the breach by the992other party hereto of any of the terms of this Agreement, subject to Section99320.12 with respect to Seller and subject to the same limits with regard to the994Buyer's liability as are applicable to Seller's liability at any point in time995during this Agreement. Termination of this Agreement for any reason shall not996release either party hereto from any liability which at such time has already997accrued or which thereafter accrues from a breach or default prior to such998expiration or termination, nor affect in any way the survival of any other999right, duty or obligation of either party hereto which is expressly stated1000elsewhere in this Agreement to survive such termination.100110028.06 Upon termination or expiration of the Agreement, Seller shall1003have the right to commercialize a product using the same Technology for acne1004treatment provided: (i) Seller does not make use of any of the confidential1005information provided by Buyer and its Affiliates and (ii) the product attributes1006in terms of shape and color shall be "different" from those of Product. In terms1007of product attributes, "different" means that ( * )1008100910101011* Denotes confidential information that has been omitted from the exhibit and1012filed separately, accompanied by a confidential treatment request, with the1013Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities1014Exchange Act of 1934.101510161017131018<PAGE>101910201021( * )10221023ARTICLE 910241025DELIVERY; INVENTORY.102610279.01 Delivery. Charges for transportation to point of delivery are1028not included in the transfer price unless otherwise agreed to by the parties.1029All shipments must be accompanied by a packing slip which describes the1030articles, states the purchase order number and shows the shipment's destination.1031Seller agrees to promptly forward the original bill of lading or other shipping1032receipt for each shipment in accordance with Buyer's instructions. Seller1033further agrees to promptly render, after delivery of goods or performance of1034services, correct and complete invoices to Buyer, and to accept payment by check1035or at Buyer's discretion, other cash equivalent (including electronic transfer1036of funds).103710389.02 Title and Risk of Loss. Title and risk of loss for all Product1039shall pass to Buyer upon delivery of the Product to Buyer 's designated carrier.1040All freight charges and all subsequent storage, handling, insurance and other1041charges relating to the Product so sold shall be for the account of Buyer.104210439.03 Inventory. Seller will maintain inventory of Products on a1044first-in, first-out basis. Seller and Buyer agree to cooperate to improve the1045process for ordering Product with the mutual objectives of expediting the supply1046process to a just-in-time process and reducing inventory costs.1047104810491050* Denotes confidential information that has been omitted from the exhibit and1051filed separately, accompanied by a confidential treatment request, with the1052Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities1053Exchange Act of 1934.105410551056141057<PAGE>105810591060ARTICLE 1010611062INSPECTION10631064Seller shall manufacture Products in facilities known and approved1065by Buyer. Any subcontracting of the manufacturing of Products or part thereof1066shall be subject to the prior written approval of Buyer. Buyer shall have the1067right, upon reasonable notice to Seller (not less than three weeks for routine1068audits and 48 hours for audits relating to non-compliance, such as, but not1069limited to, FDA concerns, consumer complaints, etc.) and during regular business1070hours, to inspect and audit the facilities being used by Seller (or any third1071party approved by Buyer) for production and storage of the Product to assure1072compliance by Seller(and its suppliers) with GMP and applicable FDA and other1073rules and regulations and with other provisions of this Agreement to the extent1074that any cost review applies to Sections 3.02 and 3.03. Seller shall within1075thirty (30) days remedy or cause the remedy of any deficiencies which may be1076noted in any such audit or, if any such deficiencies can not reasonably be1077remedied within such thirty (30) day period, present to Buyer a written plan to1078remedy such deficiencies as soon as possible; and the failure by Seller to1079remedy or cause the remedy of any such deficiencies within such thirty (30) day1080period or to present such a plan within such thirty (30) day period and then use1081its best efforts to remedy or cause the remedy of such deficiencies in1082accordance with such written plan, as the case may be, shall be deemed a1083material breach of this Agreement. Seller acknowledges that the provisions of1084this Article 10 granting Buyer certain audit rights shall in no way relieve1085Seller of any of its obligations under this Agreement, nor shall such provisions1086require Buyer to conduct any such audits.108710881089151090<PAGE>109110921093ARTICLE 1110941095QUALITY/DEFECTIVE PRODUCT/INSPECTIONS/TESTING1096109711.01 Product Warranty. Seller warrants to Buyer that the Product1098sold to Buyer hereunder shall (a) comply in all respects with the Specifications1099therefor and b) be manufactured in accordance with all applicable laws,1100ordinances and regulations relating to the manufacture and supply of the Product1101being supplied hereunder, including without limitation, those enforced by the1102United States Food and Drug Administration (including compliance with good1103manufacturing practices) and International Standards Organization Rules 9,000 et1104seq.1105110611.02 Disposition of Defective Product. Within thirty (30) days of1107receipt by Buyer of any shipment of Product hereunder (or if later, within1108thirty (30) days after discovery of any latent defect by Buyer), Buyer shall1109inspect such Product and shall notify Seller of any Product that does not comply1110with the warranty set forth in Section 11.01. At Seller's option, Buyer shall1111ship the defective Product to Seller, or shall dispose of such Product in1112accordance with Seller's instructions. Seller shall reimburse the shipping or1113disposition costs incurred by Buyer. Seller shall replace at its own cost and1114expense Product that fails to comply with the warranty set forth in Section111511.01 or shall refund the amounts paid by Buyer for such Product, at Seller's1116option. Such replacement or refund constitutes Buyer's sole remedy, and Seller's1117sole obligation with respect to such defective Product. Seller shall have a1118reasonable opportunity, not to exceed fourteen (14) days from receipt of1119notification from Buyer to inspect such defective Product and provide Buyer with1120detailed written instructions to return or dispose of such defective Product.1121Buyer shall have no obligation to pay for any Product that does not comply with1122the warranty set112311241125161126<PAGE>112711281129forth in Section 11.01. If Seller fails to so inspect and instruct Buyer as to1130the disposition of such defective Product, Buyer may dispose of such defective1131Product as it sees fit and Seller shall promptly (1) reimburse Buyer for all1132direct, out-of-pocket costs incurred by Buyer in such disposition (not to exceed1133$100,000 without Sellers agreement), and (2) replace such defective Product at1134its own cost and expense. If the cost exceeds $100,000, Seller remains1135responsible to take back the defective Product.1136113711.03 Independent Testing. If, after Seller's inspections of such1138Product, the parties disagree as to the Product's conformance to the warranty,1139either party may deliver the Product to an independent third-party laboratory,1140mutually and reasonably acceptable to both parties, for analytical testing to1141confirm the Product's conformance to the warranty. All costs associated with1142such third-party testing shall be at Buyer's expense unless the tested Product1143is deemed by such third-party to be defective or not in compliance with the1144Specifications, in which case all such costs, including reimbursement of freight1145and disposition costs, shall be promptly paid by Seller. No inspection or1146testing of or payment for Product by Buyer or any third-party agent of Buyer1147shall constitute acceptance by Buyer thereof, nor shall any such inspection or1148testing be in lieu or substitution of any obligation of Seller for testing,1149inspection and quality control as provided in the Specifications or under1150applicable local, state, or federal laws, rules, regulations, standards, codes1151or statutes.1152115311.04 Corrective Action. In the event any governmental agency having1154jurisdiction shall request or order, or if Buyer shall determine to undertake,1155any corrective action with respect to any Product (or any finished product1156containing or contained in any Product), including any recall, corrective action1157or market action, and the cause or basis of such recall or action is1158attributable to a breach by Seller of any of its warranties, guarantees,1159representations, obligations or covenants contained herein, then Seller shall be1160liable, and shall reimburse Buyer for the116111621163171164<PAGE>116511661167reasonable costs of such action including the cost of any Product (or any1168finished product containing or contained in any Product) which is affected1169thereby whether or not such particular Product shall be established to be in1170breach of any warranty by Seller hereunder. Notwithstanding the foregoing,1171Seller's liability hereunder shall be limited to the replacement of product,1172credit for purchased product, or out of pocket expenses limited to $100,000.1173117411.05 DISCLAIMER. SELLER MAKES NO WARRANTIES EXCEPT FOR THOSE1175EXPRESSLY SET FORTH IN SECTION 11.01 AND 17.01. ALL OTHER WARRANTIES, EXPRESS OR1176IMPLIED, ARE HEREBY DISCLAIMED AND EXCLUDED BY SELLER, INCLUDING WITHOUT1177LIMITATION ANY WARRNATY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE1178OR USE.1179118011.06 Quality System and Regulatory Affairs Control System1181Maintenance: Buyer will be charged a fee for any services required which are not1182part of product processing activities. Seller will identify the fees for this1183service and Buyer will agree in writing to the fee for service.11841185ARTICLE 1211861187FAILURE TO SUPPLY; FORCE MAJEURE1188118912.01 Failure to Supply. In the event that Seller shall be unable or1190unwilling or shall fail to supply any Product in such quantities as Buyer shall1191request and in compliance with the delivery periods set forth in Section 4.02,1192and has failed to cure such failure within sixty (60) days of written notice1193from Buyer, then Buyer may and shall be permitted (with no obligation or1194liability to Seller) to obtain such Product from another supplier pursuant to1195( * ). Such inability, unwillingness or failure shall be deemed a material1196breach of this Agreement.1197119811991200* Denotes confidential information that has been omitted from the exhibit and1201filed separately, accompanied by a confidential treatment request, with the1202Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities1203Exchange Act of 1934.120412051206181207<PAGE>12081209121012.02 Force Majeure Events. If either party is prevented from1211performing any of its obligations hereunder due to any cause which is beyond the1212non-performing party's reasonable control, including fire, explosion, flood, or1213other acts of God; acts, regulations, or laws of any government; war or civil1214commotion; strike, lock-out or labor disturbances; or failure of public1215utilities or common carriers (a "Force Majeure Event"), such non-performing1216party shall not be liable for breach of this Agreement with respect to such1217non-performance to the extent any such non-performance is due to a Force Majeure1218Event. Such non-performance will be excused for three months or as long as such1219event shall be continuing (whichever occurs sooner), provided that the1220non-performing party gives immediate written notice to the other party of the1221Force Majeure Event. Such non-performing party shall exercise all reasonable1222efforts to eliminate the Force Majeure Event and to resume performance of its1223affected obligations as soon as practicable.1224122512.03 Other Arrangements. Notwithstanding the provisions of Section122612.02, in the event that due to the occurrence of a Force Majeure Event, Seller1227shall be unable to supply any Product in such quantities as Buyer shall request1228and in compliance with the delivery periods set forth in Section 4.02 and in the1229event such Force Majeure Event continues for at least sixty (60) days, then1230Buyer shall be permitted (with no obligation or liability to Seller) to obtain1231such Product from another supplier and/or to manufacture Products itself under1232( * ). In the event Buyer shall so obtain Product from another Supplier pursuant1233to this Section 12.03 or Section 12.01, then Buyer shall thereafter have no1234obligation to purchase Products from Seller until any contractual obligations1235that Buyer has assumed in connection with obtaining a substitute supply of1236Products shall have terminated. Buyer shall have no obligation1237123812391240* Denotes confidential information that has been omitted from the exhibit and1241filed separately, accompanied by a confidential treatment request, with the1242Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities1243Exchange Act of 1934.124412451246191247<PAGE>124812491250to affirmatively terminate any such contractual arrangements. In ( * ).12511252ARTICLE 1312531254INSURANCE12551256Seller agrees to procure and maintain in full force and effect1257during the term of this Agreement valid and collectible insurance policies in1258connection with its activities as contemplated hereby which policies shall1259provide for appropriate insurance in a reasonable amount of coverage. Upon1260Buyer's request, Seller shall provide to Buyer a certificate of coverage or1261other written evidence reasonably satisfactory to Buyer of such insurance1262coverage.12631264ARTICLE 1412651266LABELING; ARTWORK; PROPRIETARY RIGHTS1267126814.01 Packaging. Buyer shall have the right to determine the1269appearance and text of any labeling and packaging used in connection with the1270Product or any finished product containing or contained in the Product.1271127214.02 Intellectual Property. Seller acknowledges that Buyer is the1273exclusive owner of and has all rights and owns and will own all goodwill1274relating to the trademarks, tradedress, copyrights, slogans, artwork and all1275other intellectual property that appear on or are otherwise used in connection1276with the sale and use of the Product within the Territory.12771278127912801281* Denotes confidential information that has been omitted from the exhibit and1282filed separately, accompanied by a confidential treatment request, with the1283Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities1284Exchange Act of 1934.128512861287201288<PAGE>128912901291ARTICLE 1512921293CONFIDENTIALITY12941295As used herein, "Confidential Information" shall include all1296confidential or proprietary information given to one party by the other party,1297or otherwise acquired by such party in its performance of this Agreement,1298relating to such other party or any of its Affiliates, including information1299regarding any of the products of such other party or any of its Affiliates,1300information regarding its advertising, distribution, marketing or strategic1301plans or information regarding its costs, productivity, manufacturing processes1302or technological advances. Neither party shall use or disclose to third parties1303any Confidential Information of the other (except to comply with its obligations1304under this Agreement) and each party shall insure that its and its Affiliates'1305employees, officers, representatives and agents shall not use or disclose to1306third parties any Confidential Information and upon the termination of this1307Agreement shall return to the other or destroy all Confidential Information in1308written form. Confidential Information shall not include information that (i)1309was already known to receiving party at the time of its receipt thereof or is1310independently developed by receiving party, as evidenced by its written records,1311(ii) is disclosed to receiving party after its receipt thereof by a third party1312who, receiving party in good faith believes, has a right to make such disclosure1313without violating any obligation of confidentiality or (iii) is or becomes part1314of the public domain through no fault of receiving party.13151316ARTICLE 1613171318PUBLIC ANNOUNCEMENTS1319132016.01 Publicity. The parties hereto covenant and agree that, except1321as provided for herein below, each will not from and after the date hereof make,1322issue or release any public announcement, press release, statement or1323acknowledgment of the existence of, or reveal132413251326211327<PAGE>132813291330publicly the terms, conditions and status of, the transactions contemplated1331herein, without the prior written consent of the other party as to the content1332and time of release of and the media in which such statement or announcement is1333to be made; provided, however, that in the case of announcements, statements,1334acknowledgments or revelations which either party is required by law to make,1335issue or release, the making, issuing or releasing of any such announcement,1336statement, acknowledgment or revelation by the party so required to do so by law1337shall not constitute a breach of this Agreement if such party shall have given,1338to the extent reasonably possible, at least seven (7) business days prior notice1339to the other party, and shall have attempted, to the extent reasonably possible,1340to clear such announcement, statement, acknowledgment or revelation with the1341other party. Seller shall not use the name of Buyer or any of its Affiliates for1342advertising or promotional purposes without the prior written consent of Buyer.1343In furtherance of the foregoing, Seller shall not originate any publicity or1344other announcement, written or oral, whether to the public, the press, the1345trade, Buyer's or Seller's customers or otherwise, relating to this Agreement or1346the existence of an arrangement between the parties, without the prior written1347approval of Buyer, except as expressly provided in this Section 16.01.13481349ARTICLE 1713501351REPRESENTATIONS AND WARRANTIES1352135317.01 Execution and Performance of Agreement. Seller and Buyer each1354represents to the other that it has full right, power and authority to enter1355into and perform its obligations under this Agreement. Seller further represents1356and warrants to Buyer that the performance of Buyer's obligations under this1357Agreement will not result in a violation or breach of any patent or other1358intellectual property right of Seller or third party, and will not conflict with1359or constitute a default under any agreement, contract, commitment or obligation1360to which Seller or any of its136113621363221364<PAGE>136513661367Affiliates is a party or by which it is bound.13681369ARTICLE 1813701371COMPLIANCE1372137318.01 Compliance with Certain Laws & Policies. Seller agrees to1374comply with the applicable provisions of any Federal or state law and all1375executive orders, rules and regulations issued thereunder, whether now or1376hereafter in force, including Executive Order 11246, as amended, Chapter 60 of1377Title 41 of the Code of Federal Regulations, as amended, prohibiting1378discrimination against any employee or applicant for employment because of race,1379color, religion, sex or national origin; Section 60-741.1 of Chapter 60 of 411380Code of Federal Regulations, as amended, prohibiting discrimination against any1381employee or applicant for employment because of physical or mental handicap;1382Section 60.250.4 of Chapter 60 of 41 Code of Federal Regulations, as amended,1383providing for the employment of disabled veterans and veterans of the Vietnam1384era; Chapter 1 of Title 48 of the Code of Federal Regulations, as Amended,1385Federal Acquisition Regulations; Sections 6, 7 and 12 of the Fair Labor1386Standards Act, as amended, and the regulations and orders of the United States1387Department of Labor promulgated in connection therewith; and any provisions,1388representations or agreements required thereby to be included in this Agreement1389are hereby incorporated by reference. If any Product is ordered by Buyer under1390U.S. government contracts, Seller agrees that all applicable federal statutes1391and regulations applying to Buyer as a contractor are accepted and binding upon1392Seller insofar as Seller may be deemed a subcontractor. Seller shall comply with1393the J&J Child Labor Policies, as applicable, copy of which Seller declares to1394have received.139513961397231398<PAGE>139914001401ARTICLE 1914021403INDEMNIFICATION1404140519.01 Indemnification by Seller. Seller shall indemnify and hold1406harmless Buyer (and its Affiliates) from and against any and all damages,1407liabilities, claims, costs, charges, judgments and expenses (including1408reasonable attorneys' fees) (collectively "Damages") that may be sustained,1409suffered or incurred by Buyer (or its Affiliates), resulting from a third party1410claim arising directly from or by reason of the breach by Seller of any1411warranty, representation, covenant or agreement made by Seller in this Agreement1412or any third party claim that any Product purchased from Seller hereunder or the1413use or sale thereof infringes any patent of any third party; provided that1414Seller shall not be liable for any product liability or personal injury claims1415by third parties arising from the sale, distribution or use of any Product which1416meets the Specifications and is not otherwise defective.1417141819.02 Indemnification by Buyer. Buyer shall indemnify and hold1419harmless Seller (and its Affiliates) from and against any and all Damages, that1420may be sustained, suffered or incurred by Seller (or its Affiliates) arising1421directly from or by reason of the breach by Buyer of any warranty,1422representation, covenant or agreement made by Buyer in this Agreement.1423142419.03 Claims. Each indemnified party agrees to give the indemnifying1425party prompt written notice of any matter upon which such indemnified party1426intends to base a claim for indemnification (an "Indemnity Claim") under this1427Article 19. The indemnifying party shall have the right to participate jointly1428with the indemnified party in the indemnified party's defense, settlement or1429other disposition of any Indemnity Claim. With respect to any Indemnity Claim1430relating solely to the payment of money damages and which could not result in1431the indemnified party's becoming subject to injunctive or other equitable relief1432or otherwise adversely affect the business of the indemnified party in any1433manner, and as to which the indemnifying party shall143414351436241437<PAGE>143814391440have acknowledged in writing the obligation to indemnify the indemnified party1441hereunder, the indemnifying party shall have the sole right to defend, settle or1442otherwise dispose of such Indemnity Claim, on such terms as the indemnifying1443party, in its sole discretion, shall deem appropriate; provided that the1444indemnifying party shall provide reasonable evidence of its ability to pay any1445damages claimed and with respect to any such settlement shall obtain the written1446release of the indemnified party from the Indemnity Claim. The indemnifying1447party shall obtain the written consent of the indemnified party prior to ceasing1448to defend, settling or otherwise disposing of any Indemnity Claim if as a result1449thereof the indemnified party would become subject to injunctive or other1450equitable relief or the business of the indemnified party would be adversely1451affected in any manner.14521453ARTICLE 2014541455MISCELLANEOUS14561457Controversies and differences between the parties arising directly1458or indirectly from this Agreement or any transaction contemplated hereby or1459thereby or in connection herewith or therewith shall be resolved by arbitration.1460Arbitration shall be held before three arbitrators in New York, New York1461pursuant to the Commercial Arbitration Rules then obtaining of the American1462Arbitration Association, which arbitration shall be binding on all parties and1463shall constitute the final resolution of such dispute. No party shall commence1464any action against another to resolve any such dispute in any court except to1465confirm such an arbitrators' award. Judgment upon any such award rendered may be1466entered by any court having jurisdiction thereof. The arbitrators (i) shall not1467have any power or authority to add to, alter, amend or modify the terms of this1468Agreement; (ii) shall interpret and construe this Agreement in accordance with,1469and shall be bound by, the laws of the State of New York (except that this147014711472251473<PAGE>147414751476Section shall be governed by the Federal Arbitration Act); (iii) shall have no1477power or authority to grant or award punitive damages; (iv) shall establish and1478enforce appropriate rules to ensure that the proceedings, including the1479decision, be kept confidential and that all Confidential Information of the1480parties be kept confidential and be used for no purpose other than the1481arbitration and (v) shall have the power to enforce specifically this Agreement1482and the terms and conditions hereof in addition to any other remedies at law or1483in equity. The parties shall be deemed to have waived any rights to punitive1484damages. (The parties consent to the exclusive jurisdiction of the Federal and1485State courts located in the State of New York for the resolution of any dispute1486or controversies between the parties hereto which are not subject to the1487arbitration provisions of this Section.)1488148920.02. Relationship of the Parties. The relationship of Buyer and1490Seller established by this Agreement is that of independent contractors, and1491nothing contained herein shall be construed to (i) give either party any right1492or authority to create or assume any obligation of any kind on behalf of the1493other or (ii) constitute the parties as partners, joint venturers, co-owners or1494otherwise as participants in a joint or common undertaking.1495149620.03 Entire Agreement. It is the mutual desire and intent of the1497parties to provide certainty as to their respective future rights and remedies1498against each other by defining the extent of their mutual undertakings as1499provided herein. The parties have, in this Agreement, incorporated all1500representations, warranties, covenants, commitments and understandings on which1501they have relied in entering into this Agreement, and, except as provided for1502herein, neither party makes any covenant or other commitment to the other1503concerning its future action. Accordingly, this Agreement (i) constitutes the1504entire agreement and understanding between the parties with respect to the1505subject matter hereof and there are no promises, representations, conditions,1506provisions or terms related thereto other than those set forth in this Agreement1507and150815091510261511<PAGE>151215131514(ii) supersedes all previous understandings, agreements and representations1515between the parties, written or oral. No modification, change or amendment to1516this Agreement shall be effective unless in writing signed by each of the1517parties hereto.1518151920.04 Headings. The Article and Section headings contained in this1520Agreement are for reference purposes only and shall not affect in any way the1521meaning and interpretation of this Agreement.1522152320.05 Notices. All notices and other communications hereunder shall1524be in writing. All notices hereunder of an Indemnity Claim, a Force Majeure1525Event, default or breach hereunder, or, if applicable, termination or renewal of1526the term hereof, or any other notice of any event or development material to1527this Agreement taken as a whole, shall be delivered personally, or sent by1528national overnight delivery service or postage pre-paid registered or certified1529U.S. mail, and shall be deemed given: when delivered, if by personal delivery or1530overnight delivery service; or if so sent by U.S. mail, three business days1531after deposit in the mail, and shall be addressed:15321533If to Seller: President1534LecTec Corporation153510701 Red Circle Drive1536Minnetonka, MN 5534315371538If to Buyer: President1539Johnson & Johnson Consumer Products Company1540199 Grandview Road1541Skillman, New Jersey 08558-941815421543President1544Neutrogena Corporation15455760 West 96th Street1546Los Angeles, California 9004515471548With a copy to: Johnson & Johnson1549Office of General Counsel155015511552271553<PAGE>155415551556One Johnson & Johnson Plaza1557New Brunswick, NJ 0893315581559or to such other place as either party may designate by written notice to the1560other in accordance with the terms hereof.1561156220.06 Failure to Exercise. The failure of either party to enforce at1563any time for any period any provision hereof shall not be construed to be a1564waiver of such provision or of the right of such party thereafter to enforce1565each such provision, nor shall any single or partial exercise of any right or1566remedy hereunder preclude any other or further exercise thereof or the exercise1567of any other right or remedy. Except as expressly provided herein, remedies1568provided herein are cumulative and not exclusive of any remedies provided at1569law.1570157120.07 Assignment. This Agreement may not be assigned by either party1572without the prior written consent of the other, except that either party may1573assign its rights and/or obligations hereunder to any of its Affiliates or to a1574successor to its business. Subject to the foregoing sentence, this Agreement1575shall bind and inure to the benefit of the parties hereto and their respective1576successors and assigns. If as a result of such assignment by Seller, there is an1577increase in the cost to Buyer with regard to the supply, transport, sale,1578distribution or any other activity of Buyer under this Agreement, such increase1579in cost shall be for the account of Seller.1580158120.08 Severability. In the event that any one or more of the1582provisions (or any part thereof) contained in this Agreement or in any other1583instrument referred to herein, shall, for any reason, be held to be invalid,1584illegal or unenforceable in any respect, then to the maximum extent permitted by1585law, such invalidity, illegality or unenforceability shall not affect any other1586provision of this Agreement or any other such instrument. Any term or provision1587of this Agreement which is invalid, illegal or unenforceable in any jurisdiction1588shall, to the extent the158915901591281592<PAGE>159315941595economic benefits conferred by this Agreement to both parties remain1596substantially unimpaired, not affect the validity, legality or enforceability of1597any of the terms or provisions of this Agreement in any other jurisdiction.1598159920.09 Counterparts. This Agreement may be executed in one or more1600counterparts, each of which shall be deemed an original, but all of which1601together shall constitute one and the same instrument.1602160320.10 Expenses. Each party shall pay all of its own fees and1604expenses (including all legal, accounting and other advisory fees) incurred in1605connection with the negotiation and execution of this Agreement and the1606arrangements contemplated hereby.1607160820.11 Survival. Sections 8.05, 20.01 20.11 and 20.12and Articles 14,160915, 16 and 19 shall survive the termination of this Agreement in accordance with1610the respective terms thereof.1611161220.12 LIMITATION ON LIABILITY. IN NO EVENT SHALLTHE SELLER BE LIABLE1613TO BUYER UNDER THIS AGREEMENT FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR1614CONSEQUENTIAL LOSS OR DAMAGES. UNLESS CAUSED BY INTENTIONAL MISCONDUCT OR GROSS1615NEGLIGENCE, IN NO EVENT SHALL SELLER'S LIABILITY HEREUNDER EXCEED THE LIMITS OF1616THE SELLER'S LIABILITY INSURANCE POLICIES, WHICH POLICIES SHALL MAINTAIN1617COVERAGE AMOUNTS OF AT LEAST $1,000,000.161816191620291621<PAGE>162216231624IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be1625executed by their duly authorized respective representatives as of the day and1626year first above written.162716281629LECTEC CORPORATION163016311632By: /s/ Rodney A. Young Date 3/20/001633------------------------------- ---------------------1634Name: Rodney A. Young1635Title: Chairman, CEO, and President16361637163816391640JOHNSON & JOHNSON CONSUMER PRODUCTS COMPANY,1641a Division of Johnson & Johnson Consumer Companies, Inc.164216431644By: /s/ Sharon D'Agostino Date 4/5/001645------------------------------- ---------------------1646Name: Sharon D'Agostino1647Title: President Adult Skin Care16481649165016511652NEUTROGENA CORPORATION16531654By: /s/ Manuel Scates Date 4/4/001655------------------------------- ---------------------1656Name: Manuel Scates1657Title: Director, Contract Site Management165816591660301661<PAGE>166216631664SCHEDULE 1.011665PRODUCT166616671668The patches are composed of a hydrogel on a ( * ) that is worn on a pimple1669overnight. The hydrogel contains a water-based adhesive and the active1670ingredient ( * ), along with excipient ingredients. The hydrogel composition is1671covered under the following patents:16721673US Patent Number 5,536,2631674Canadian Patent Numbers 1,206,095 and 2,133,5981675European Patents 0,072,251 and PCT Number 0674,913A21676Mexican Patent Number 187,8391677Australian Patent Number 676,6231678167916801681* Denotes confidential information that has been omitted from the exhibit and1682filed separately, accompanied by a confidential treatment request, with the1683Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities1684Exchange Act of 1934.168516861687<PAGE>168816891690Schedule 2.001691MINIMUM PURCHASE QUANTITIES169216931694Minimum Purchase Quantities for each contract year shall be as follows:16951696( * )16971698( * )169917001701170217031704* Denotes confidential information that has been omitted from the exhibit and1705filed separately, accompanied by a confidential treatment request, with the1706Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities1707Exchange Act of 1934.17081709<PAGE>171017111712Schedule 3.011713INITIAL TRANSFER PRICES171417151716Pricing for Product A: Clean and Clear Bulk Packed Product1717- ----------------------------------------------------------17181719Minimum Order Size ( * )17201721Price per pouch: ( * )172217231724Pricing for Product B: Neutrogena Product Pure Buy1725- --------------------------------------------------17261727Minimum Order size ( * )17281729Price per pouch: ( * )1730173117321733This pricing assumes LecTec inspection and AQL levels are accepted.17341735Orders of smaller quantities are subject to a set up charges of ( * ) per run.1736The smallest run size is ( * ) pouches.17371738Different languages ( * ) plate charge and ( * ) charge for printer set up for1739the foil. Minimum Run of ( * ) pouches and ( * ) set up charge.17401741174217431744* Denotes confidential information that has been omitted from the exhibit and1745filed separately, accompanied by a confidential treatment request, with the1746Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities1747Exchange Act of 1934.17481749</TEXT>1750</DOCUMENT>1751</SEC-DOCUMENT>1752-----END PRIVACY-ENHANCED MESSAGE-----175317541755