CNS, INC. Exhibit 10.1 to Form 10-Q Dated: June 30, 2005





CERTAIN INFORMATION INDICATED BY [* *
*] HAS BEEN DELETED FROM THIS EXHIBIT AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT UNDER RULE 24b-2. 



Exhibit 10.1  



AMENDED AND RESTATED
SUPPLY AGREEMENT
WEBTEC CONVERTING, LLC  





        The
parties to this Agreement are CNS, Inc., (“CNS”), a Delaware Corporation,
headquartered in Eden Prairie, MN and WEBTEC CONVERTING, LLC, (“WEBTEC”) a
Tennessee limited liability company, with its headquarters in Knoxville, TN. The parties
have in the past concluded a supply agreement for the Breathe Right® nasal strips
marketed and sold by CNS (the “Product” or “Products,” as the case may
be, as further defined below). The parties later amended and extended that agreement; on
the basis of the promises set forth below, and intending to be legally bound, the parties
hereby enter into this Agreement to amend and restate in its entirety such previous
agreement, including its amendment. 




	1.  	  	Term.  






The term of this Agreement begins on
the date the last party signs this Agreement (the “Effective Date”) and will
continue for five (5) years. This Agreement supersedes any prior agreements. Both parties,
at the end of the five (5) years, agree to act in good faith to renegotiate pricing and
extend the Agreement for two more years. If agreement on pricing cannot be reached then
the Agreement will terminate at the end of the initial five (5) year term. 




	2.  	  	Exclusivity.  






WEBTEC will not supply finished
external nasal dilators or components for use in the manufacture of external nasal
dilators to any third party(s) other than CNS or its designee for the duration of this
Agreement and for a period of three (3) years thereafter. This exclusivity is deemed
necessary by the parties to protect CNS’s confidential information and other
proprietary rights. 




	3.  	  	Products;
Specifications and Related Price Changes.  






     	3.1. 	
          Products. The products covered by this Agreement (the
          “Products”) are (a) those being manufactured by WEBTEC at the time
          this Agreement is executed by the parties, including any changes to those items
          required or requested by CNS as provided herein; and (b) any other products or
          items that the parties add to this Agreement by explicit written amendment or
          agreement signed by both parties. 



          



     	3.2. 	
          Revision of Specifications. CNS has the right to revise Product
          specifications at any time and provide such amended specifications to WEBTEC.
          After only a commercially reasonable period for implementing changes, WEBTEC
          will manufacture Products to the most current revision level of the
          specifications provided by CNS and accepted by WEBTEC, which acceptance shall
          not be unreasonably withheld. A certificate of conformance shall accompany each
          shipment, confirming that the Product was produced to the most current revision
          level. Price changes will occur at the time of implementation of the changes. 



          



     	3.3. 	
          Planned Price Reductions Separate. Price changes according to this
          Section 3 are separate from and will have no effect on price changes provided
          for elsewhere in this agreement. WEBTEC in its notice to CNS of cost increases
          or decreases will also notify CNS of the time required to make the change, and
          upon CNS’s request the parties will confer on possible methods of
          shortening the required time. 



          







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     	3.4. 	
          WEBTEC-Initiated Changes That Terminate This Agreement. If WEBTEC brings
          to CNS a change of design, concept, or material, or other proposed modification
          of the Products that is substantially different (as determined in the sole
          discretion of CNS) from the attributes of the Products at the time when WEBTEC
          presents the modification, CNS will give WEBTEC a right of first refusal to
          manufacture the Products as changed, at prices at least as favorable to CNS as
          other suppliers’ prices. If WEBTEC cannot, or does not, accept the right of
          first refusal within a reasonable time period not to exceed one (1) month from
          when CNS first gives notice of the right of first refusal, CNS may find an
          alternative manufacturer of the Product(s) as changed and will give WEBTEC
          twelve (12) months’ notice of termination of its manufacture of the
          Product(s) as previously configured. CNS and WEBTEC will negotiate in good faith
          a fair and equitable agreement of licensing, royalty, or other compensation with
          respect to the proposed product. If WEBTEC can manufacture the proposed product
          then no such agreement will be implemented. 



          



     	3.5. 	
          Non-WEBTEC Initiated Changes that Terminate this Agreement. If CNS or a
          third party originates a change of design, concept, or material, or other
          proposed modification of the Products that is substantially different (as
          determined in the sole discretion of CNS) from the attributes of the Products at
          the time when CNS presents the modification, CNS will give WEBTEC a right of
          first refusal to manufacture the Products as changed, at prices at least as
          favorable to CNS as other suppliers’ prices. If WEBTEC cannot, or does not,
          accept the right of first refusal within a reasonable time period not to exceed
          one (1) month from when CNS first gives notice of the right of first refusal,
          CNS may find an alternative manufacturer of the Product(s) as changed and will
          give WEBTEC twelve (12) months’ notice of termination of its manufacture of
          the Product(s) as previously configured. In addition to the twelve (12) months
          notice CNS will also pay to WEBTEC four (4) months of profit margin for every
          year left on the contract. The profit margin will be based on the average profit
          margin of the first year of this contract. For example, if at the end of the
          first year CNS implements this option; CNS will give WEBTEC the twelve (12)
          months notice per the aforementioned duration and will pay the average profit
          margin from year one of the contract for twelve (12) additional months. If this
          clause is executed after year two CNS’s obligation will be for the twelve
          (12) month notice and pay the average profit margin from year one of this
          contract for an additional 8 months. 



          




	4.  	  	Quality;
WEBTEC Inspections.  






After a date to be agreed by the
parties, but no later than six months after the Effective Date, WEBTEC will conduct sample
inspections in and after the production process and will send to CNS prior to the shipment
arriving a copy of the certificate of conformance to ensure that the Products shipped to
CNS comply with the agreed specifications, with the goal of ultimately eliminating the
need for CNS’s incoming inspections. In the event that CNS identifies Product that is
not within specifications, WEBTEC will upon notice replace or refund the purchase price of
any Product that is shown not to conform to specifications. In addition, WEBTEC will incur
the cost of return freight and is responsible for the disposal of goods in a safe manner.
WEBTEC will pay reasonable costs for such disposal. 




	5. 	  	CNS
Duty to Inspect; Returns.  






	5.1  	Inspections.
CNS will direct its distribution center to promptly inspect, on a selective or sample
basis, any shipment of finished Product received from WEBTEC, but not necessarily all
shipments, and to notify WEBTEC promptly in writing of any defects. The notice must
specify the defects in detail.  







	5.2  	Acceptance
and Returns. Any goods not rejected within thirty (30) days of delivery are deemed
accepted, but CNS may inspect and return Products under warranty for credit at any time
up to twenty-four (24) months after CNS receives them from WEBTEC or at any time upon
their return from distribution channels or consumers for reasons of defects.  











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	6. 	  	Liability.  






	6.1  	WEBTEC
shall be liable to CNS for any and all claims, causes of action, suits, proceedings,
damages, demands, fees, expenses, fines, penalties and costs (including without
limitation, attorney’s fees, costs and disbursements), collectively “Adverse
Consequences,” arising from any injury or alleged injury to any person or business
for property damage, personal injury or incidental, special or consequential damages made
against CNS or WEBTEC for liability arising from or caused by the use of Products as a
result of negligence by WEBTEC in the production, handling or distribution of Products
prior to receipt by CNS or its customers. However, WEBTEC shall not be liable to CNS
under the proceeding sentence unless CNS shall have tendered to WEBTEC the defense of any
claim, cause of action, suit or proceeding encompassed within the preceding sentence,
promptly upon CNS’s awareness of the same; and in no event shall WEBTEC be liable
under the preceding sentence for Adverse Consequences attributable to defective design or
flaw in the specifications of Products.  







	6.2  	Insurance.
Webtec shall at all times maintain insurance to cover the liability provided in this
Section 6.2, in the amount of at least one million dollars per event and three million
dollars in the aggregate for any series of related events, and shall supply to CNS on an
annual basis a copy of their certificate of insurance.  








	7. 	  	Pricing/Quantity.  






	7.1  	Price
Sheets. WEBTEC is obligated to the pricing per Exhibit A and CNS agrees its purchases
of Products will be at the prices supplied on the price sheet provided by WEBTEC,
attached as Exhibit A, for the duration of the Agreement. The parties may agree to add
additional items to the price list. Prior to addition to the price list, both parties
must agree on the pricing for new items. The new price sheet shall become effective only
when representatives from CNS and WEBTEC sign and date the new price sheet.  







	7.2  	Production
and Volume. CNS will strive to smooth production such that downtime will be minimized
at WEBTEC and to the best of CNS’s ability production will occur in every month
subject to market and competitive conditions. The quantities to be purchased from WEBTEC
by CNS will be reviewed annually and will be based on market conditions.  








	8. 	  	Cost
Reductions.  






	8.1  	Committed
Initial and Annual Reductions. WEBTEC commits to regular reduction of its prices to
CNS. At a minimum, WEBTEC has agreed to reduce the prices [ * * * ] upon completion of
the transition of CNS’s business from another of CNS’s suppliers to WEBTEC as
described under XIV, and thereafter an additional [ * * * ] per year, effective on
anniversaries of the Effective Date. The parties recognize that half [ * * * ] of this
agreed reduction for the transition has already occurred. The remaining reduction will
occur when the transition is completed but no later than October 1, 2005.  







	8.2  	Increases
for Inflation. However, in the unlikely event that inflation-driven cost increases by
WEBTEC’s suppliers, after reasonable resistance by WEBTEC, unavoidably increase
WEBTEC’s costs, WEBTEC has the right to renegotiate the price, in an amount never to
exceed demonstrable increases in its overall cost due to such increases from suppliers,
and always subject to reduction or offset according to the provisions on cost reduction
in Section 8.3 and elsewhere in this Agreement.  







	8.3  	Continuing
Cost Reductions. In addition to the above-referenced price reductions, WEBTEC agrees
to aggressively continue its efforts to reduce its costs by for example improving
efficiencies, automating equipment, and controlling the cost of raw materials etc. CNS
agrees to assist WEBTEC in areas of cost reductions that are external to WEBTEC,
including but not limited to printing, packaging, corrugate and alternative material. CNS
will assist at its sole expense in evaluating these potential areas by participating in
creation and evaluation of cost-saving ideas through membership on a team of individuals
from the respective companies. It is expected that the cost reduction efforts will yield,
available to CNS [ * * * ], beginning on the first anniversary of the Effective Date and
[ * * * ] on the second, third, and fourth anniversaries. The operation team, consisting
of [ * * * ], will review the  











Page 3 












	  	actual savings
on an annual basis. In the event that the actual targeted cost reductions are not met
WEBTEC will not be responsible to pass on the targeted reductions for that year. If
actual savings achieved exceed the targeted savings then WEBTEC retains any amount in
excess of the targeted savings. Any reductions in materials costs (other than changes in
formulation or specification provided for above) will be [ * * * ] on a quarterly basis
by further reductions of prices to CNS, based on the above-mentioned quarterly reports,
and any initial costs required for implementation of those efficiencies (including but
not limited to consumer “HUT” testing) will also be [ * * * ].  








	9. 	  	Termination
for Cause.  






Upon default by either party in the
performance of any material obligation in this Agreement, either party may give notice in
writing by certified mail, to the other party and the defaulting party shall have thirty
(30) days from the date the notice is received to cure the default. In the event the
default is not cured within this thirty (30) day time period, the non-defaulting party may
terminate this Agreement by providing notice of termination, which shall take effect no
earlier than ten (10) days from the date of such notice. Termination under provisions of
this Section 9 shall not relieve either party of an obligation existing upon the date of
termination or relieve either party from liability for breach of this Agreement subject to
the terms of this Agreement. 




	10. 	  	Forecast/Planning.  







	10.1  	Annual
Forecast. CNS will provide to WEBTEC an annual forecast to be used by WEBTEC to
assist in capacity planning. This annual forecast is not a binding forecast and WEBTEC
will not hold CNS to this forecast.  







	10.2  	Three-Month
Forecast; Termination Coverage. CNS will also provide to WEBTEC production
requirements for a 3-month time period on a monthly basis. WEBTEC will use this
production requirement to plan production and to plan their material requirements. In the
event CNS cancels any orders, CNS will be responsible for reimbursing WEBTEC for the cost
of material in WEBTEC’s inventory or material that has been placed on order for
production requirements that fall within the 3-month timeframe so long as WEBTEC has not
begun production with respect to such materials. In the event that WEBTEC has begun
production on any order that is canceled by CNS that falls within the 3-month
requirements, CNS will be responsible for purchasing such strips at the prices indicated
on Exhibit A. CNS will not be responsible for material purchases or production that
exceeds production requirements for the 3-month timeframe, unless members of the CNS
operations group authorized such material purchases in writing. CNS will only be liable
for reimbursing WEBTEC for its material and labor costs as provided above but will in no
event be liable for any consequential, incidental or other damages for cancellation. CNS
will provide, on an ongoing basis, purchase orders for production requirements for the
aforementioned three-month period. These purchase orders are to be used by WEBTEC as a
finite scheduling format to plan production and material needs to meet the required dates
as mutually agreed to as outlined in Section 15.  







	10.3  	Capacity
Information. WEBTEC will provide CNS’s planning department with detailed
information concerning WEBTEC’s manufacturing capacity for its converting machines
for each strip type and for each cartoning machine for each strip configuration. Each
month, WEBTEC will supply to CNS’s planning department a summary of actual
production. WEBTEC will mark any written information concerning capacities and
production, which it intends to keep confidential as “CONFIDENTIAL.” CNS will
maintain the confidentiality except as disclosure is required by law, process of law or
to fulfill this Agreement.  








	11. 	  	Forecast
Planning Assumed by WEBTEC.  






Before the second anniversary
of the Effective Date, the forecasting of ongoing work load and production levels will be
transferred for efficiency from CNS to WEBTEC. CNS will make its relevant market
information available to WEBTEC, and WEBTEC will plan accordingly its own levels of
materials and labor supply and output of Product. 








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	12. 	  	Use
of Name and Trademarks; Confidentiality.






	12.1  	Neither
party will make any use whatsoever of the other party’s name without its written
permission. The decision to grant such permission is within the sole discretion of the
non-requesting party. Neither party will use or reproduce any of the other party’s
trademark or logos in any manner without prior written approval. To request this
approval, the requesting party must forward to the other party a complete and accurate
specimen copy of the proposed use. Each party agrees that, upon receiving such a request,
it will reply to the requesting party within ten (10) business days of receipt of such
proposed use. Any permitted use extends only to specifically authorized materials.  







	12.2  	WEBTEC
agrees to keep prices, forecast volumes, marketing plans, materials, quantity of
purchases and other material information related to this Agreement confidential during
the Term of this Agreement and for a period of three (3) years thereafter.  








	13. 	  	Events
of Excused Performance.






Neither WEBTEC or CNS shall be
considered in default or be liable to the other for any delay beyond the reasonable
control of such party, including, but not limited to, acts of God, explosion, earthquake,
fire, flood, war whether declared or not, accident, strikes, labor disturbances, inability
to procure from a third party supplier, sabotage, or order or decrees of any court or
action of a government authority. If such a delay continues for a period of more than ten
(10) consecutive days, CNS is relieved of its obligation to purchase from WEBTEC for the
period of WEBTEC’s inability to supply and such longer period as may be reasonably
necessary to secure a supply of similar products from a third party. WEBTEC agrees to use
reasonable efforts to help CNS identify such a supplier. 




	14. 	  	Recovery
Plan.  






WEBTEC will create and maintain a
catastrophic recovery plan for resumption or continuation of full performance and supply
under this Agreement if a disastrous event occurs that interrupts or for some period
prevents WEBTEC’s performance and supply under this Agreement. WEBTEC shall present
the plan promptly to CNS for approval. WEBTEC will be obligated to keep the catastrophic
recovery plan up to date based on changes at WEBTEC, this includes but not limited to,
equipment changes, location changes or process changes. In addition, WEBTEC will provide
to CNS on each anniversary date of this agreement an up to date copy of the plan and will
review said plan at that time. in an attempt to minimize as much as possible the
interruption in supply of Products as a result of such an event. 





	15. 	  	Delivery;
Safety Stock.  






	15.1  	Delivery;
Purchase Orders. CNS will provide to WEBTEC Purchase Orders for production
requirements as outlined in Section 12. WEBTEC shall, within forty-eight (48) business
hours, acknowledge the purchase orders for pricing, quantity and delivery. Upon
acceptance of CNS’ purchase order, WEBTEC will deliver Products as acknowledged as
to pricing, quantity and delivery. Pricing is as provided in Section 7. The purchase
order date will reflect the month in which production requirements are needed. Individual
dates will be mutually agreed upon by item/purchase order on a routine basis based on
market fluctuations and resulting orders by CNS. WEBTEC’s failure to meet a mutually
agreed upon date will be considered a material breach of this Agreement. WEBTEC will be
responsible to CNS for any additional costs incurred by CNS as a result of WEBTEC’s
late delivery. These costs may include but are not limited to expedited costs either from
WEBTEC or to CNS’ customers, late charges assessed by CNS’ customers, and
overtime costs. No terms or conditions on any purchase orders or acknowledgements or
similar sales documents shall be effective to add terms to or vary the terms of this
agreement.  










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	15.2  	Safety
Stock. To avoid any delay from production problems or unexpected volume requirements,
WEBTEC will maintain on hand at all times a “safety stock” (raw material
components) equivalent to three weeks of production under this Agreement. The parties
will meet on a quarterly basis to adjust the level of required safety stock based on
actual orders by CNS since the previous meeting for this purpose.  







	16. 	  	Account
Representation; Transition of Business from Another Supplier to WEBTEC.  






WEBTEC agrees during the term of this
Agreement to designate an individual as an Account Representative to represent WEBTEC and
be a primary contact person to CNS. The Account Representative’s responsibilities may
include, but are not limited to, development of new business opportunities, production
requirement submissions, material lead-time planning, delivery issues, quality issues, and
quantity issues. In connection with the transition of part of CNS’s production
requirements from another manufacturer to WEBTEC, the parties have agreed in Exhibit B to
further details of planning and cooperation, beginning before the Effective Date, hereby
formalized on the Effective Date, and in effect throughout the period described in Exhibit
B. Provisions of Exhibit B supersede and control any conflicting provisions elsewhere in
this Agreement, except such provisions as may be added by amendment after the Effective
Date. 



	17.  	  	Financial
Health.  






WEBTEC will make periodic proposals
for and will standardize in a measurable way its ongoing efforts to control its costs and
revenues so as to achieve and maintain financial health and stability, to the end of
providing a reliable source of products for CNS. WEBTEC’s first steps toward such
standardization will be a presentation of summary financial information, establishment of
reasonable financial goals and progress toward achievement of those goals, and WEBTEC will
make additional proposals of substantive nature semi-annually, supplying reports to CNS at
the same interval summarizing WEBTEC’s financial stability and efforts to improve or
stabilize its financial position. CNS will have the right from time to time, on reasonable
notice, to review the financial aspects of WEBTEC’s business related to production of
the Breathe Right® nasal strip. 



	18. 	  	Business
Continuity, Company Stability.  






	18.1  	Notice
of Interruption. WEBTEC must notify CNS promptly upon receiving knowledge of the
likelihood of occurrence (or if not previously recognized, the actual occurrence) of any
event that would normally be expected to have a significant negative impact on WEBTEC as
an ongoing entity or on its ability to perform the Contract, whether or not such
occurrence is a disaster under provisions of Section 14 above.  







	18.2  	Continuity
Planning for WEBTEC’s Business. Before July 31 (the “Confirmation Date”),
WEBTEC will provide CNS with a plan for continuing the operation of the business of
WEBTEC and full performance under this Agreement despite any unavailability, incapacity,
death, or removal of one or more of the Principals of WEBTEC (defined as the owners of
WEBTEC on the Effective Date), including also without limitation the sale or transfer of
all or a part of the interest in WEBTEC, whether assets, shares, or otherwise, on the
part of any such Principal(s) or WEBTEC itself, whether  










Page 6 












	  	through voluntary
or involuntary action. To the extent that WEBTEC is owned by another entity rather than
individuals, the foregoing provision concerning Principals refers to owners of such
entity on the Effective Date. Before the Confirmation Date WEBTEC will supply to CNS
agreements and other required documentation (such as but not limited to information on
corporate structures and ownership) to guarantee performance of the foregoing provisions
of this Section 18.2 and to provide to CNS a right of first refusal to acquire the shares
of any Principal that are to be sold or transferred as described above, such right to
apply to acquisition by CNS on terms at least as favorable as those on which transfer is
proposed in a bona fide transaction. In the event of transfer, or a conversion from joint
tenancy to other ownership, following death of a Principal, the right of first refusal
will be at an appraised value. Failure to supply the required information and
documentation under this Section is a material breach of this agreement.  







	18.3  	In
the event of a proposed change in ownership of WEBTEC or CNS, the affected company will
give the other at least nine (9) months’ notice (or as long a notice period as
possible, if the acquired company itself has less notice than nine (9) months or if, in
the case of CNS, legal advisors indicate a shorter period is required by the securities
laws and regulations), and WEBTEC hereby guarantees that any new owner(s) will observe
and perform the Agreement. In addition to the documentation required by Section 18.2
above, in the event of such a proposed change in ownership WEBTEC will upon request
provide adequate personal assurances of the current shareholders that any such new owners
will so observe and perform this Agreement. If during the term of the Agreement CNS is
acquired by another party, CNS will either continue to perform its obligations under this
Agreement or give WEBTEC twelve (12) months’ notice of termination hereof. CNS may
terminate during such period, however, for breach by WEBTEC. Because CNS is publicly
held, a “change of ownership” of CNS under provisions of this Section means
acquisition by one party of more than fifty percent (50%) of CNS’s common stock.  








	19. 	  	New
Equipment.  






If WEBTEC finds from time to time
that a significant investment in new equipment is required or advisable for continued or
more efficient performance of this Agreement, WEBTEC may discuss the matter with CNS on a
case-by-case basis to ascertain whether CNS in its sole discretion considers that a
sharing of the cost would be appropriate. In the event major equipment changes are
determined to be appropriate by both companies that require WEBTEC to outlay substantial
capital, then CNS and WEBTEC will agree on how to deal with the costs in a separate
document to be completed prior to the purchase of equipment. Generally, however, the cost
of manufacturing will be borne by WEBTEC. 




	20. 	  	Notice.  






To be effective, any notice permitted
or required under the terms of this Agreement must be in writing, addressed to the party
to be notified at the address shown in this Section 20, and hand delivered, delivered by
United States mail, or delivered by nationally recognized commercial courier service such
as but not limited to FedEx or UPS. Their parties may update their respective addresses
below from time to time by notice pursuant to this Section 20, specifying in each case a
bona fide new address for purposes of notice hereunder. Notices are effective upon receipt
by the party that is to be notified, except that notices of changes of address are
effective five (5) days after receipt. 



Addresses for notices are: 




		If to WEBTEC:
WEBTEC Converting, LLC

5900 Middle View Way
Knoxville TN 37909
Attention: Richard Perry
Facsimile: 865-584-8216	If to CNS:
CNS, Inc.
7615 Smetana Lane

Eden Prairie MN 55344
Attention: Purchasing Manager
Facsimile: (952) 229-1700







Page 7 












	21. 	  	No
assignment or delegation.  






Neither this Agreement nor any of the
rights and obligations of a party hereunder shall be assigned, delegated, sold,
transferred, sublicensed or otherwise, to any third party without the prior written
consent of the other party not to be unreasonably withheld; provided, however, that CNS
may, without such consent, assign this Agreement and its rights and obligations hereunder
in connection with the sale or disposition by merger or consolidation of all or
substantially all of its assets related to the sale of nasal dilators. 




	22.  	  	Entire
Agreement.  






This Agreement constitutes the entire
agreement between parties. All other previous and contemporaneous agreements, proposals,
negotiations, and understandings are void and superseded by this Agreement. No other
agreement not expressed in this Agreement shall have any force or effect, and no
modification, amendment or change of any kind to this Agreement shall be effective unless
it is in writing and signed by each of the parties to this Agreement. 




	23. 	  	Governing
Law/Arbitration.  






This Agreement shall be governed by
Minnesota law. Any controversy or claim arising out of or relating to this Agreement, its
formation or the breach thereof shall be settled by arbitration before a single arbitrator
in Minneapolis, Minnesota. The arbitration shall be administered by the American
Arbitration Association under its Commercial Arbitration Rules, and judgment on the award
rendered by the arbitrator may be entered in any court having jurisdiction thereof. 






	
	

	Marti Morfitt

President and CEO, CNS Inc	Randel B. Holmes

President and CEO, WEBTEC Converting LLC
	 
	 
	 
	
	

	Larry Muma
VP Operations, CNS Inc	Richard H. Perry, CPA

Chief Financial Officer, WEBTEC Converting LLC
	 
	 
	 
	
	
	Erik P. Switzer
Purchasing Manager, CNS Inc	










Page 8 












Exhibit A
To
WEBTEC Supply Agreement




		Guaranteed
Price Reduction	Continuing Cost Reduction
Section 8.3	Raw Materials Savings
	 
	Year 1	[ * * * ]	[ * * * ]	[ * * * ]
	 
	Year 2	[ * * * ]	[ * * * ]	[ * * * ]
	 
	Year 3	[ * * * ]	[ * * * ]	[ * * * ]
	 
	Year 4	[ * * * ]	[ * * * ]	[ * * * ]
	 
	Year 5	[ * * * ]	[ * * * ]	[ * * * ]










Page 9 











Exhibit B
To
WEBTEC Supply Agreement





With respect to the transition of a
major portion of manufacture of the Products from another supplier to WEBTEC, the parties
have agreed as follows, with respect to their relationship and the agreement of which this
Exhibit is a part (the “Agreement”): 



	1.  	  	Project
Managers.  Recognizing that approximately half of CNS’s requirements of
nasal strips are currently supplied by a third-party  company and that WEBTEC is
to assume full responsibility for that company’s  volume after a transition
period of approximately one year, the Parties hereby appoint specific  employees
to be managers  of the project of  transition  of  manufacturing  from the third
party to WEBTEC. 






	  	A.  	  	The
employees     appointed    to    manage    the    transition     project    (the
“Managers”) are [ * * * ] for WEBTEC and [ * * * ] for CNS, who
shall cooperate on behalf of their  respective  employers in order to manage the
transition  efficiently.  At the end of the  transition  [ * * * ] and [ * * * ]
will be  responsible  for managing  projects as agreed to between the companies.







	  	B.  	  	The
parties declare that the Managers bear delegated authority to make the necessary
business decisions to carry the transition through to completion. 






	  	C.  	  	WEBTEC
will retain [ * * * ] in its employ as a Manager  through the second year of the
initial five-year term of the Agreement.  During the period of transition WEBTEC
will assign [ * * * ] primarily to the task of transition of the  manufacturing,
assigning  other work from her  position to others  temporarily  or from time to
time as needed.  During the remaining term of this Agreement during which she is
employed by WEBTEC,  [ * * * ] shall be  assigned  primarily  to the  CNS-WEBTEC
relationship, with similar assignment of other work as needed. 






	2.  	  	Steering
Committee.  WEBTEC  and  CNS  have  by  joint  consent  established  a joint
committee (the “Steering  Committee”)  consisting of two
(2)  members  from  WEBTEC  and  one (1)  from  CNS,  as  well as a third  party
individual,  to enhance coordination and communication  between the Parties with
respect  to the  administration  of the  Agreement  and  achievement  of  agreed
objectives. The following will apply to the Steering Committee: 






	  	A. 	  	Third
Party Individual. The third party individual member of the Steering
Committee will be Libby Trader, and the cost of her services will be split
evenly between WEBTEC and CNS, with each paying invoices promptly upon
arrival.  






	  	B. 	  	Replacement.
If [ * * * ]  resigns  or is  recognized  by the  Parties  as  being  unable  to
participate  meaningfully  in the Steering  Committee,  the Parties jointly will
promptly select another third party to take her place in the Steering  Committee
or will decide that she is not to be replaced. 






	  	C. 	  	Meetings
and Actions.  The Steering Committee will meet at least quarterly,  but more
often if  reasonably  requested by a member from each Party.  Meetings may be in
person or by pre-arranged  phone or web  conference.  The Parties shall work out
reasonable  agendas and  procedures  by joint  agreement,  and  decisions of the
Steering Committee will be made by 










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	  		  	consensus
whenever possible.  When a decision is subjected to a vote, the decision will be
effective if passed by a majority of each Party’s delegates to the Steering
Committee.  In  the  event  of  an  ongoing  deadlock  on a  subject  reasonably
considered  by a majority of at least one  Party’s  members on the Steering
Committee  to be a vital  issue,  the  Parties  will  refer the  matter to their
respective  vice  presidents  in  charge of the  Agreement  for  discussion  and
settlement. 






	  	D. 	  	Tasks
and  Authorities.  The responsibility of the Steering Committee is to confer
on  opportunities  and solve  problems  that arise from time to time  during the
process  of  transitioning  manufacture  from the  third-party  manufacturer  to
WEBTEC.  The Steering  Committee’s  assigned tasks are to examine,  refine,
detail, and supplement the long-term goals as specified in this Exhibit B and as
indicated by agreement of the Parties from time to time to plan for  achievement
of the goals,  monitor  progress  toward that  achievement,  and ensure  ongoing
compliance with applicable regulations and with the Agreement. 






	  	E. 	  	Objectives.
Initial objectives for the Steering Committee are the following, and others will
be added from time to time by the  parties or at the  Steering  Committee’s
own initiative.  Initial details for these items that are incorporated  into the
body of the Agreement  may be modified by written  agreement of the parties as a
result of work of the Steering Committee. 






	  	  	(i)  	  	Cost:  	
cost containment, automation, and manufacturing efficiencies.  










	  	  	(ii)  	  	Quality:  	
specification   compliance,   incoming  inspection  performance,   and  consumer
complaints. 







	  	  	(iii)  	  	Service:	
case fill,  capacity  (meeting the finite  schedule),  raw material handling and
accounting, and invoice accuracy. 






	  	  	(iv)  	  	Audit:	
examination  and oversight of  WEBTEC’s  financial  health and stability as
provided in Sections 17 and 18 of the Agreement. This subject is to be an agenda
item addressed by the Steering Committee at least quarterly. CNS reserves
the right to audit WEBTEC annually. 






	3.  	  	Key
Personnel;  Succession.  The employees of WEBTEC listed below are considered
vital  to the  ongoing  relationship  of the  Parties  and  continuation  of the
Agreement,  and WEBTEC must notify CNS promptly  when it becomes known to WEBTEC
that any such person is likely to leave the company. 






		  	[ *
* * ] 






	  	
In
the case of top-level managers listed above, WEBTEC will notify CNS immediately when
WEBTEC considers it definite or likely that their duties are to change or that the
individuals are to be replaced, and WEBTEC will provide to CNS a plan no later than ten
(10) days before the expected change (or before their replacement, should they be
replaced) a complete and reasonably acceptable plan of succession to be implemented in the
event of their ceasing to act as executives for WEBTEC for any reason whatsoever. WEBTEC
must submit such a plan to CNS also for any successor of a top-level manager, at or before
the time of hiring that successor. 







Agreed by the parties (initialed) 


	WEBTEC____________	CNS___________________










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