Case 12-04 Hemo-Tech Inc. Part I Hemo-Tech Inc. (“Hemo”) manufactures and sells specialized medical equipment and services to physicians and hospitals. The equipment is used to extract and store blood samples from patients. Hemo is currently marketing its latest equipment model, BIO-07, which includes Hemo’s new patented technology that significantly improves sample collection efficiency and reduces contamination risk to a low level. Hemo is the only company in the United States that sells this type of equipment with the next-generation technology. Hemo’s domestic competitors sell equipment that is largely the same as Hemo’s older equipment model, BIO-02. Hemo entered into a contractual arrangement with Extract Co. (“Extract”). Extract operates several hospitals in Region X. Below is a term sheet that summarizes the arrangement, which also includes various excerpts from the sales agreement.
Equipment and Services Agreement This agreement is effective as of July 1, 20X1 (the “Effective Date”), by Hemo-Tech Inc. (“Hemo”) and Extract Co. (“Extract”). Whereas, Hemo manufactures and sells equipment, model BIO-07, used for extracting and storing blood samples; whereas, Hemo sells related supplies and services; whereas, Hemo agrees to provide such products and services as specified in Article 1 on an exclusive basis to Extract within Region X for a term of five years; and whereas, Extract desires to purchase such products and services in exchange for compensation as specified in Article 2. Article 1: Products and Services 1.1 Equipment. Hemo will deliver five units of BIO-07 (the “Equipment”) to Extract no later than 15 days after the Effective Date. Extract may purchase additional units subject to separately negotiated purchase orders. Each unit will be delivered with five detailed product manuals. 1.2 Equipment Supplies. Hemo will deliver 50 boxes of supplies with the Equipment. Extract may purchase additional boxes at a discount of 33 percent off the list price for a period of three years after the Effective Date. 1.3 Monitor and Test Services. Hemo will monitor and test the Equipment on a weekly basis to ensure that each unit is operating as outlined in the product manual and in accordance with FDA safety guidelines for a period of one year. Extract has the option to extend these services on an annual basis over each of the remaining four years of the original term.
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Case 12-04c: Hemo-Tech Inc.
1.4 Screen and Report Services. Hemo will screen and report results on all of Extract’s blood samples for a period of three years. Hemo will maintain a duplicate copy of such results for a period of one year after screening. Article 2: Compensation 2.1 Initial Payment. Extract shall pay to Hemo the sum of $4.5 million upon execution of this agreement. 2.2 Annual Payment. Extract shall pay to Hemo the sum of $1 million per year for screen and report services. 2.3 Optional Payment. In the event Extract renews the monitor and test services, Extract shall pay to Hemo the sum of $600,000 upon each annual renewal. 2.4 Optional Payment. Extract shall pay to Hemo the sum of $2,000 for each box of supplies ordered by Extract in excess of the 50 boxes initially delivered. Article 3: Responsibilities 3.1 Installation. Hemo will install the Equipment no later than 15 days after delivery. 3.2 Technology Improvements. Hemo will replace the digital monitors included in the Equipment if and when improved technology is available for a period of five years after the Effective Date. Hemo has no obligation to further develop or improve the technology. Article 4: Warranties and Representations 4.1 Warranty. Hemo warrants that the Equipment will operate in all material respects in conformity with the specifications outlined in the product manual for a period of one year following installation. In the event the Equipment does not operate accordingly, Hemo will repair or replace...
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