Manufacturing Agreement - Merck & Co. Inc., Astra AB, Astra Merck Inc. and Astra USA Inc.
AS EXECUTED - CONFORMED
SECOND AMENDED AND RESTATED
MANUFACTURING AGREEMENT
Dated as of July 1, 1998
among
MERCK & CO., INC.
ASTRA AB
ASTRA MERCK INC.
and
ASTRA USA, INC.
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS.................................................................................2
ARTICLE II PRODUCTS; TERMS AND CONDITIONS OF SUPPLY...................................................14
Section 2.01 Obligation to Supply.......................................................................14
Section 2.02 Product Form...............................................................................15
ARTICLE III ALLOCATION OF MANUFACTURING RESPONSIBILITY.................................................15
Section 3.01 Allocation of Manufacturing Responsibility.................................................15
ARTICLE IV ORDERS AND SHIPMENTS; PRODUCTION PLANNING..................................................21
Section 4.01 Estimated Quantities.......................................................................21
Section 4.02 Firm Orders................................................................................22
Section 4.03 Manufacturing and Supply Committee; Production Planning....................................22
Section 4.04 Title and Risk of Loss.....................................................................24
Section 4.05 Shipment...................................................................................24
Section 4.06 Inability to Supply........................................................................25
Section 4.07 Modification of Specifications and C & M Data..............................................25
Section 4.08 Manufacture by TR or an Alternate Producer Outside the Territory...........................26
Section 4.09 Manufacture by KB Inside or Outside the Territory..........................................27
Section 4.10 Manufacturing Sites........................................................................28
Section 4.11 Termination Materials......................................................................28
ARTICLE V TRANSFER PRICE, OTHER CHARGES AND PAYMENT..................................................29
Section 5.01 Transfer Price.............................................................................29
Section 5.02 Exclusion of Inter-Affiliate Mark-Ups and Profits..........................................30
Section 5.03 Minimum Capital Charge.....................................................................31
Section 5.04 Invoices, Time of Payment and Year-End Adjustments.........................................31
Section 5.05 Manner of Payment..........................................................................33
Section 5.06 Cost Estimate..............................................................................33
Section 5.07 Additional Costs...........................................................................33
ARTICLE VI MANUFACTURING PROCESSES, DATA AND KNOW-HOW FOR IN-LINE PRODUCTS............................34
Section 6.01 Cooperation................................................................................34
Section 6.02 Meetings Concerning In-Line Products.......................................................34
Section 6.03 Consultations Concerning NDAs and Regulatory Matters.......................................34
Section 6.04 Exchange of Information Concerning New In-Line Products....................................35
i
<PAGE> 3
Section 6.05 Improvements and New Processes.............................................................37
Section 6.06 Exceptions in Respect of In-Line Products..................................................37
Section 6.07 Disclosure of Safety and Environmental Issues and Process Experience.......................38
Section 6.08 Limitation on Use of KB's Manufacturing Processes and Manufacturing
Technical Information......................................................................38
Section 6.09 Delivery of Information Summaries..........................................................38
Section 6.10 Consultations Concerning Manufacturing Development.........................................39
ARTICLE VII MANUFACTURING PROCESSES, DATA AND KNOW-HOW CONCERNING KB PIPELINE PRODUCTS.................39
Section 7.01 Pre-bid Information About Manufacturing Processes, Data and Know-How
Concerning KB Pipeline Products............................................................39
Section 7.02 Cooperation................................................................................41
Section 7.03 Meetings Concerning KB Pipeline Products...................................................41
Section 7.04 Consultations Concerning NDAs and Regulatory Matters.......................................42
Section 7.05 Exchange of Information Concerning KB Pipeline Products....................................43
Section 7.06 Exceptions in Respect of KB Pipeline Products..............................................45
Section 7.07 Disclosure of Safety and Environmental Issues and Process Experience......................46
Section 7.08 Limitation on Use of KB's Manufacturing Processes and Manufacturing
Technical Information......................................................................47
Section 7.09 Delivery of Information Summaries..........................................................47
ARTICLE VIII ALLOCATION OF REGULATORY FUNCTIONS.........................................................48
Section 8.01 Regulatory Compliance Functions............................................................48
ARTICLE IX WARRANTIES; QUALITY CONTROL; QUALITY ASSURANCE; CLAIMS FOR DEFECTIVE
PRODUCTS...................................................................................48
Section 9.01 Warranties; Sample Retention...............................................................48
Section 9.02 Producer's Quality Assurance/Quality Control Function......................................49
Section 9.03 Access to Records; Inspections; Audits.....................................................49
Section 9.04 Inspections and Audits.....................................................................50
Section 9.05 Observations and Conclusions...............................................................50
Section 9.06 Certificates of Analysis...................................................................50
Section 9.07 Notice of Claims; Replacement Quantities...................................................50
ARTICLE X CLAIMS AND DISCLAIMERS.....................................................................51
Section 10.01 Indemnification by KBI.....................................................................51
Section 10.02 Indemnification by TR and KB and Each Producer.............................................52
Section 10.03 Indemnification Procedures.................................................................53
Section 10.04 Disclaimers................................................................................53
Section 10.05 Limitation of Damages......................................................................54
ii
<PAGE> 4
ARTICLE XI TERM AND TERMINATION.......................................................................54
Section 11.01 Termination of Agreement...................................................................54
Section 11.02 Termination as to Particular Products; Effect of Assignment................................55
Section 11.03 Effect of Termination......................................................................55
Section 11.04 No Termination for Breach..................................................................56
ARTICLE XII RECALLS....................................................................................56
Section 12.01 Recalls and Market Withdrawals.............................................................56
ARTICLE XIII SUBCONTRACTING.............................................................................56
Section 13.01 Right to Subcontract.......................................................................56
Section 13.02 Subcontracting to Another Party............................................................57
ARTICLE XIV RECORDS....................................................................................57
ARTICLE XV CONFIDENTIALITY............................................................................58
Section 15.01 Confidentiality............................................................................58
ARTICLE XVI MISCELLANEOUS PROVISIONS...................................................................59
Section 16.01 Amendments; Waiver.........................................................................59
Section 16.02 Best Efforts; Performance..................................................................59
Section 16.03 Headings...................................................................................59
Section 16.04 Successors; Third Parties; Assignment......................................................59
Section 16.05 Notices....................................................................................60
Section 16.06 Force Majeure..............................................................................60
Section 16.07 Obligations of Producers other than KB, TR or KB USA.......................................61
Section 16.08 [Omitted]..................................................................................61
Section 16.09 Severability...............................................................................61
Section 16.10 Governing Law..............................................................................61
Section 16.11 Arbitration................................................................................61
Section 16.12 Counterparts...............................................................................62
iii
<PAGE> 5
SCHEDULE A - BID PROCEDURE
EXHIBIT I - PROCESS MANUAL FOR BULK CHEMICAL SYNTHESIS
EXHIBIT II - PROCESS AND PRODUCT INFORMATION SUMMARY (PPIS) CONTENTS
EXHIBIT III - TRANSFER PRICE
EXHIBIT IVA - TRANSFER PRICE
EXHIBIT IVB - TRANSFER PRICE
EXHIBIT V - QUALITY DOCUMENTATION REQUIREMENTS
iv
<PAGE> 6
SECOND AMENDED AND RESTATED MANUFACTURING AGREEMENT
SECOND AMENDED AND RESTATED MANUFACTURING AGREEMENT, dated as of July
1, 1998, among Merck & Co., Inc., a corporation organized and existing under the
laws of the State of New Jersey ("TR"), Astra AB, a company limited by shares
organized and existing under the laws of Sweden ("KB"), Astra Merck Inc., a
corporation organized and existing under the laws of the State of Delaware
("KBI"), and Astra USA, Inc., a corporation organized and existing under the
laws of the State of New York ("KB USA").
This Agreement amends and restates the Amended and Restated
Manufacturing Agreement dated as of January 31, 1997, among TR, KB and KBI as
amended by the Side Agreement dated as of November 20, 1997, among KB, TR, KBI
and Astra Merck Enterprises Inc., a corporation organized and existing under the
laws of the State of Delaware ("KBI-E").
W I T N E S S E T H :
WHEREAS, KB has granted licenses and options for licenses to KBI to,
among other things, manufacture certain pharmaceutical compounds using KB's (and
its Affiliates' (as hereinafter defined)) manufacturing know-how relative to
such pharmaceutical compounds pursuant to the KBI License (as hereinafter
defined);
WHEREAS, KBI has assigned certain rights and delegated certain
obligations under the KBI License to KBI-E;
WHEREAS, KBI-E has entered into the Distribution Agreement (as
hereinafter defined) with the Partnership (as hereinafter defined) pursuant to
which KBI-E has appointed the Partnership its sole and exclusive distributor of
certain products;
WHEREAS, pursuant to the Distribution Agreement, KBI-E is obligated to
supply to the Partnership, or cause the Partnership to be supplied with, such
products;
WHEREAS, for the purpose of providing for the supply of such products
to the Partnership, KBI-E has granted to KBI certain rights under the KBI
License and KBI is entering into that certain KBI Supply Agreement dated as of
the date first above written, between KBI and the Partnership, as such agreement
is amended, modified, supplemented or restated from time to time (the "KBI
Supply Agreement"), for the sole purpose of supplying Distribution Products (as
defined in the Distribution Agreement) to the Partnership in fulfillment of
KBI-E's supply obligation to the Partnership under the Distribution Agreement;
WHEREAS, the parties hereto desire to establish arrangements under
which TR, KB and KB USA or an Alternate Producer will manufacture for or supply
to KBI certain of KBI's requirements for Distribution Products for the sole
purposes of satisfying KBI's obligations to the Partnership under the KBI Supply
Agreement and satisfying certain of the requirements of KBI and its Affiliates
for Exclusive Second Look Products (as hereinafter defined) and Non-
<PAGE> 7
Exclusive Second Look Products (as hereinafter defined) as set forth herein, and
TR, KB and KB USA are willing to perform such manufacture or supply on the terms
and subject to the conditions hereinafter set forth;
WHEREAS, the parties contemplate that KBI-E shall, pursuant to the KBI
Sublicense (as hereinafter defined), instruct KBI to either designate KB USA as
the Producer with respect to the Packaging Manufacturing Stage on terms mutually
agreeable to KBI-E, KBI and KB USA or submit the Packaging Manufacturing Stage
to the Bid Procedure;
WHEREAS, KB is obligated under the KBI License to provide certain
information and assistance to KBI or Persons that act as Producers under this
Agreement as set forth herein; and
WHEREAS, in furtherance of such obligations and in order to more
effectively implement such assistance and to more effectively provide such
information, the Parties desire to provide for certain consultations,
cooperation, provision of information and assistance as set forth in this
Agreement in connection with the manufacture and supply of Products.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Without limiting any other terms defined herein, as used in this
Agreement the following terms shall have the following respective meanings.
Acquired Compound: Any Licensed Compound (i) which has been acquired by
KB or any of its Affiliates by means of the acquisition of any entity or
business and (ii) the manufacture of which (A) is being performed in the
Territory at the time of such acquisition; or (B) is planned to be performed in
the Territory at the time of such acquisition and either (1) capital has been
expended in furtherance thereof at such time; or (2) a binding contractual
commitment to expend such capital has been made in furtherance thereof at such
time.
Affiliate: An Affiliate as defined in the KBI License.
Alternate Producer: A Person other than TR (or any of its Affiliates)
or KB (or any of its Affiliates) that is retained by KBI in accordance with the
terms of this Agreement to perform one or more of the Manufacturing Stages for a
KB Pipeline Product and that is reasonably qualified to perform such
Manufacturing Stage.
ANDA: An Abbreviated New Drug Application made in accordance with
applicable regulations and requirements of the FDA as from time to time in
effect.
Amount Attributable to Bulk Chemical: The Amount Attributable to Bulk
Chemical as defined in Section 5.04.
2
<PAGE> 8
Ancillary Agreements: The Ancillary Agreements as defined in the Master
Restructuring Agreement.
Bid Price: The Bid Price as defined in paragraph I.A.6 of Schedule A.
Bid Procedure: The Bid Procedure referred to in Section 3.01 and
described in Schedule A hereto.
Bidding Parties: TR, KB, KB USA and any other Person to the extent that
any of such Persons is permitted to bid under this Agreement.
Bulk Chemical or Bulk Chemical Form: Bulk pharmaceutical Compound for
which Formulation has not commenced.
Bulk Chemical Manufacturing Stage: The Manufacturing Stage in which
Bulk Chemical synthesis occurs.
Bulk Chemical Transfer Point: The Bulk Chemical Transfer Point as
defined in Section 4.04(b).
C & M Data: The control and manufacturing data required by applicable
law and regulations for inclusion in an NDA as from time to time amended or
supplemented in accordance with Section 4.07.
Capital Expenditures: Capital Expenditures as defined in the definition
of "Minimum Capital Charge."
Capitalized Amount: The sum of the compounded Capital Expenditure
amounts described in clause (ii) of the definition of "Minimum Capital Charge."
Claims: Claims as defined in Section 10.01(a).
Clinical Quantities: Quantities of Products supplied solely for
purposes of conducting tests and clinical trials undertaken for the purpose of
(i) obtaining approval of an NDA, an sNDA or an ANDA, including without
limitation Products required under the Partnership's written plan for the
clinical development of the Licensed Compound included in such Products, or (ii)
post-marketing phase IV studies undertaken by the Partnership in connection with
obtaining an approved NDA, sNDA or ANDA.
Committee Participants: Committee Participants as defined in Section
4.03(a).
Complete Commercial Process: Those processes for manufacturing or
preparing any Product which, together with raw materials and intermediates
commercially available to a Producer (or any of its Affiliates or
subcontractors), are suitable for use at such Producer's (or any of its
Affiliates' or subcontractors') manufacturing facilities designated in the NDA
for the relevant Manufacturing Stage or Stages of such Product and are capable
of completing such
3
<PAGE> 9
Manufacturing Stage or Stages and disposing of all waste products in a practical
manner, conforming to GMP, in accordance with the Specifications and the C & M
Data for such Product.
Compound: Any pharmaceutical compound, and the salts and esters
thereof, which is suitable for use in human medicine.
Confidential Information: Confidential Information as defined in the
Master Restructuring Agreement.
Cost of Capital: The Cost of Capital as defined in Exhibit III (for
purposes of such Exhibit) or Exhibits IVA and IVB (for purposes of such
Exhibits).
Costs and Expenses of Delivery: All shipping and delivery charges,
insurance, taxes (other than income taxes), customs and other duties and other
similar charges and expenses.
Development Non-Performance Notice: A Development Non-Performance
Notice as defined in the Distribution Agreement.
Distribution Agreement: The Distribution Agreement dated as of the date
first above written, between the Partnership and KBI-E, as such agreement is
amended, modified, supplemented or restated from time to time.
Earlier Stage Producer: Each Producer performing an earlier
Manufacturing Stage with respect to a Product.
Enalapril/Felodipine Combination Product: A "Combination Product" as
defined in that certain supply agreement dated as of November 1, 1994 between TR
and KBI, as amended, modified, supplemented or restated from time to time,
governing the supply of Enalapril/Felodipine Combination Products.
Entocort: Entocort as defined in the Master Restructuring Agreement.
Estimated Quantities: The written estimates for each Quarter of the
quantities of Products (or Intermediate Forms thereof) which KBI or a Producer
expects to require, including separate written estimates for each Intermediate
Form thereof to the extent responsibility for different Manufacturing Stages of
a Product is allocated to different Producers.
Events of Force Majeure: Events of Force Majeure as defined in Section
16.06.
Excluded Compounds: All of the following Compounds: (i) enalapril, (ii)
Compounds licensed to KBI by TR or any of its Affiliates for which TR or any of
its Affiliates has retained the right to supply KBI with its requirements of
such Compound, (iii) Compounds as to which KBI has no manufacturing rights
(including Packaging rights) and (iv) other Compounds that the Parties hereto
agree will be treated as Excluded Compounds.
4
<PAGE> 10
Excluded Process: A Manufacturing Stage or manufacturing process to
which KBI does not have manufacturing rights and any other Manufacturing Stage
or manufacturing process that the Parties hereto agree will be treated as an
Excluded Process.
Excluded Products: All of the following Products: (i)
Enalapril/Felodipine Combination Products (including, without limitation,
LEXXEL), (ii) other Products as to which KBI has no manufacturing rights, (iii)
Products containing any Licensed Compound for which the rights of the
Partnership have terminated (a) pursuant to Section C of the Distribution
Agreement, (b) pursuant to Section D.1 of the Distribution Agreement, (c)
pursuant to a Development Non-Performance Notice under Section D of the
Distribution Agreement and as to which the Partnership has not been reappointed
distributor pursuant to Section F of the Distribution Agreement or (d) pursuant
to Section D.3(d) of the Distribution Agreement, and (iv) other Products that
the Parties hereto agree will be treated as Excluded Products. A Product shall
not be an Excluded Product solely because it includes or incorporates an
Excluded Compound if KBI has manufacturing rights with respect to Manufacturing
Stages for such Product other than the Bulk Chemical Manufacturing Stage for
such Excluded Compound and has a source of supply for such Excluded Compound. A
Product shall not be an Excluded Product solely because it includes or
incorporates an Excluded Process if KBI has manufacturing rights with respect to
other Manufacturing Stages or processes used in the manufacture of such Product.
Exclusive Second Look Product: Any Product as to which (i) the
Partnership's right to exclusivity has terminated pursuant to a Marketing
Non-Performance Notice under Section D of the Distribution Agreement, (ii) the
Partnership has elected to transfer the INDs and NDAs for such Compound to KBI-E
pursuant to Section E.2 of the Distribution Agreement and (iii) KBI-E's rights
under the KBI License have not terminated.
FDA: The United States Food and Drug Administration and any successor
agency having substantially the same functions.
Finished Dosage Form: Unpackaged pharmaceutical Compound which has been
Formulated into a dosage form ready for use.
Firm Order: A binding purchase order for Product as set forth in
Section 4.02.
First Commercial Sale: First Commercial Sale as defined in the Master
Restructuring Agreement where the "Selling Person" (as used therein) is the
Partnership or any permitted assignee of the Partnership.
F.O.B.: F.O.B. as defined in the New York Uniform Commercial Code.
Formulation or Formulate: The manufacture of Finished Dosage Form of
Products from the Bulk Chemical which, in the case of Licensed Compounds
administered through any device, includes the filling of such device and, with
respect to Licensed Compounds administered in liquid form, includes the filling
of the containers (e.g., vials and cartridges) in which each such Licensed
Compound is contained.
5
<PAGE> 11
Formulation Manufacturing Stage: The Manufacturing Stage in which
Formulation occurs.
Formulator: The Producer performing the Formulation Manufacturing Stage
of a Product.
GMP: Current Good Manufacturing Practices as such term is defined from
time to time by the FDA pursuant to regulations, guidelines or otherwise.
Group C Compound: A Group C Compound as defined in the KBI License.
IND: An Investigational New Drug Application made in accordance with
applicable regulations and requirements of the FDA as from time to time in
effect.
Index: The unadjusted Producer Price Index for pharmaceutical
preparations, ethical (prescription), as published by the Bureau of Labor
Statistics or any successor organization, or such other price index as the
Parties may mutually agree. Any adjustment of a Bid Price based on the Index
which is effective as of January 1 of any year shall be based on changes in the
unadjusted Index as of August 31 of the year immediately preceding such January
1 as published on or prior to the September 30 immediately following such August
31 or if not published on or before such date, as first published thereafter.
In-Line Products: Products containing any of the Licensed Compounds
omeprazole (including the PRILOSEC formulation of omeprazole), felodipine
(including the PLENDIL formulation of felodipine) and tocainide (including the
TONOCARD formulation of tocainide) and all future formulations and applications
(including OTC applications) of, and combinations containing, any of the
foregoing and including without limitation tablet formulations of the Licensed
Compound omeprazole produced using the Multi-Unit Pellet System ("MUPS")
Technology; provided, however, that In-Line Products shall not include any
Excluded Products.
Intermediate Form: The Bulk Chemical Form of a Compound or the Finished
Dosage Form of a Product as at the completion of the applicable Manufacturing
Stage.
KB Contract Indemnitee: KB Contract Indemnitee as defined in Section
10.02(d)(i).
KB Indemnitee: A KB Indemnitee defined in Section 10.02(b).
KB Pipeline Products: Products that are not In-Line Products; provided,
however, that KB Pipeline Products shall not include any Excluded Products.
Separate dosage forms of a Compound (i.e., separate delivery systems using the
same Compound) shall be considered separate KB Pipeline Products. Separate
dosage levels of a Compound which have the same delivery system and do not
differ significantly in the manufacturing processes shall be considered the same
KB Pipeline Product.
KB's Manufacturing Process: In respect of any Product, any process (or
step thereof) used (or planned to be used) by KB (or any of its Affiliates or
subcontractors) prior to or on the date such process has been satisfactorily
demonstrated pursuant to Section 4.3(c) of the TR
6
<PAGE> 12
Licenses or pursuant to Section 6.04(g) or 7.05(f) hereof for manufacturing or
preparing (i) the Licensed Compound included in such Product (including any
intermediate of such Licensed Compound and any dosage form of such Licensed
Compound included in the initial NDA for such Licensed Compound), but excluding
Packaging except to the extent referred to in clause (ii) below, and (ii) any
device for the administration of the Licensed Compound included in such Product
if such device is either unique to such Licensed Compound or is used by KB (or
any of its Affiliates) in the marketing of such Licensed Compound anywhere in
the world; and any improvements or New Processes thereafter used by KB (or any
of its Affiliates) in respect of the manufacture or preparation of such Licensed
Compound or device; provided, however, that KB's Manufacturing Process shall not
include any process or improvement (x) to the extent KB (or any of its
Affiliates) does not have access to such process or improvement or may not
license such process or improvement to, or otherwise authorize the use thereof
by, KBI, TR or an Alternate Producer or (y) which is both (1) not so used at the
principal facility for the manufacture or preparation for KB (or any of its
Affiliates) of such Licensed Compound (or such intermediate or dosage form) or
device and (2) not material to such manufacture or preparation; provided,
further, that notwithstanding anything to the contrary contained in this
Agreement, KB shall not be obligated to provide KBI or any Producer with any
information, data or know-how relating to the Formulation of quantities of
Licensed Compounds delivered through the Turbuhaler or to the filling or
Packaging of the Turbuhaler device, including, without limitation, technologies
or information relating to the Turbuhaler itself.
KBI-E Asset Option Agreement: The KBI-E Asset Option Agreement as
defined in the Master Restructuring Agreement.
KBI-E Asset Purchase: KBI-E Asset Purchase as defined in the Master
Restructuring Agreement.
KBI Contract Indemnitee: KBI Contract Indemnitee as defined in Section
10.01(b).
KBI Indemnitee: A KBI Indemnitee as defined in Section 10.01(a).
KBI License: The Amended and Restated License and Option Agreement made
as of July 12, 1982 and amended and restated as of the date hereof, as such
agreement is amended, modified, supplemented or restated from time to time.
KBI Shares Option Agreement: The KBI Shares Option Agreement as defined
in the Master Restructuring Agreement.
KBI Sub: KBI Sub Inc., a corporation organized and existing under the
laws of the State of Delaware.
KBI Sublicense: That certain KBI Sublicense Agreement dated as of the
date hereof between KBI-E and KBI, as such agreement is amended, modified,
supplemented or restated from time to time.
7
<PAGE> 13
Licensed Compounds: The Licensed Compounds as defined in the KBI
License, except that as used herein, "Licensed Compounds" shall not include any
Selected Compounds or any rights with respect to the Selected Uses of any
Licensed Compounds.
Losses: Losses as defined in Section 10.01(a).
Manufacturer's Cost: Manufacturer's Cost as defined in the KBI Supply
Agreement.
Manufacturing and Supply Committee: The Manufacturing and Supply
Committee as defined in Section 4.03(a).
Manufacturing Stage: Any of the following stages in the manufacture of
a Product: (i) manufacture/synthesis of the Bulk Chemical Form of the applicable
Compound or Compounds, (ii) Formulation and (iii) the Packaging of the Finished
Dosage Form.
Manufacturing Technical Information: All scientific and technical
information, data and know-how possessed by KB (or any of its Affiliates or
subcontractors) relating to KB's Manufacturing Process for any Product.
Market Exclusivity: Market Exclusivity as defined in the Master
Restructuring Agreement.
Marketing Non-Performance Notice: A Marketing Non-Performance Notice as
defined in the Distribution Agreement.
Master Restructuring Agreement: The Master Restructuring Agreement as
defined in the KBI License.
Minimum Capital Charge: A monthly amount calculated by (i) accumulating
the incremental capital expenditures (including construction-in-progress and
start-up expenses) ("Capital Expenditures") incurred by an Alternate Producer,
TR or a subcontractor or Affiliate of TR in order to meet the Partnership's
requirements for a Product, measured from the last day of the calendar month in
which any such Capital Expenditure was paid through the last day of the calendar
month preceding the month which includes the projected Transition Date for such
Product (as notified to KBI by the Partnership pursuant to Section 3.01(b) of
the KBI Supply Agreement), (ii) compounding each such Capital Expenditure at an
annual pre-tax rate of 22% from the last day of the month in which each Capital
Expenditure was paid through the last day of the calendar month preceding the
month which includes such projected Transition Date, and summing each of the
compounded Capital Expenditure amounts (the "Capitalized Amount"), and (iii)
expressing such Capitalized Amount as a level annuity over the projected period
of Market Exclusivity (as notified to KBI pursuant to Section 3.01(b) of the KBI
Supply Agreement) as set forth in the following annuity formula:
TermInMonths
Capitalized Amount x (1 + Rate)
------------------------------------------------------
TermInMonths
( (1 + Rate) - 1 ) / Rate
8
<PAGE> 14
Where:
"Rate" = An annual rate of 22% divided by 12 (or 1.83333% per
month), and
"Term in Months" = An exponent equal to the projected period of Market
Exclusivity, expressed in full months
The Capitalized Amount shall be adjusted to the extent that a change in
Specifications or an increase in requirements for Product causes an increase in
incremental Capital Expenditures by the Producer. The adjusted Capitalized
Amount will then be amortized using the annuity formula and a 22 percent annual
rate over the remaining Term in Months. Subject to the foregoing, the Minimum
Capital Charge shall not exceed 110 percent of the Minimum Capital Charge
Estimate.
Minimum Capital Charge Estimate: A reasonable estimate of the Minimum
Capital Charge submitted by KBI to the Partnership pursuant to Section 4.07 of
the KBI Supply Agreement.
NDA: A New Drug Application made in accordance with applicable
regulations and requirements of the FDA as from time to time in effect.
New In-Line Product: An In-Line Product containing any of the Licensed
Compounds omeprazole, felodipine and tocainide for which a new NDA will be filed
after the date hereof, provided, however, that a Product will be a New In-Line
Product only until the filing of the NDA for such Product.
New Process: Any process (or step thereof) developed or acquired by KB
(or any of its Affiliates) for the manufacture or preparation of (i) any
Licensed Compound included in any Product (including any intermediate of such
Licensed Compound or any dosage form of such Licensed Compound) or (ii) any
device for the administration thereof which is either unique to such Licensed
Compound or is used by KB (or any of its Affiliates) in the marketing of such
Licensed Compound anywhere in the world, after the date KB's Manufacturing
Process for such Licensed Compound has been satisfactorily demonstrated pursuant
to Section 4.3(c) of the TR Licenses or pursuant to Section 6.04(g) or 7.05(f)
hereof; provided, however, New Process shall not include any such process which
is licensed to KB (or any of its Affiliates) from any of KB's Non-Affiliates,
unless KBI is sublicensed with respect to such New Process pursuant to the KBI
License; provided, further, that notwithstanding anything to the contrary
contained in this Agreement, KB shall not be obligated to provide KBI with any
information, data or know-how relating to the Formulation of quantities of
Licensed Compounds delivered through the Turbuhaler or to the filling or
Packaging of the Turbuhaler device, including, without limitation, technologies
or information relating to the Turbuhaler itself.
9
<PAGE> 15
Non-Affiliate: A Non-Affiliate defined in the KBI License.
Non-Exclusive Second Look Product: Any Product as to which (i) the
Partnership's right to exclusivity has terminated pursuant to a Marketing
Non-Performance Notice under Section D of the Distribution Agreement, (ii) the
Partnership has not elected to transfer the INDs and NDAs for such Compound to
KBI-E pursuant to Section E.2 of the Distribution Agreement, and (iii) KBI-E's
rights under the KBI License have not terminated.
Non-Performing Producer: A Non-Performing Producer as defined in
Section 4.06.
Option: The Option as defined in Section 3.01(c)(i).
P&G License: The License Agreement dated as of November 20, 1997, among
KBI, KBI-E and The Procter & Gamble Co., an Ohio corporation, as such agreement
is amended, modified, supplemented or restated from time to time.
P&G OTC Products: Non-prescription Products containing the Compound
omeprazole licensed to The Procter & Gamble Co. pursuant to the P&G License.
Package or Packaging: The manufacture of Finished Dosage Form into
trade and sample units approved under the NDA. Packaging does not include any
Manufacturing Stage which is part of Formulation.
Packaging Manufacturing Stage: The Manufacturing Stage in which
Packaging occurs.
Packaging Transfer Point: The Packaging Transfer Point as defined in
Section 4.04(b).
Parties: TR, KB, KB USA and KBI.
Partnership: Astra Pharmaceuticals, L.P., a limited partnership
organized and existing under the laws of the State of Delaware.
Period Cost: A Period Cost as defined in Exhibit III.
Person: A Person as defined in the KBI License.
Phase II Clinical Evaluation: Phase II Clinical Evaluation as defined
in the KBI License.
Phase III Clinical Evaluation: Phase III Clinical Evaluation as defined
in the KBI License.
PPIS: A Process and Product Information Summary as updated from time to
time containing such data, information and know-how as specified in Exhibit II,
relating to the Formulation portion of KB's Manufacturing Process for any
Product. Each PPIS shall contain the information listed in Exhibit II hereto.
10
<PAGE> 16
Preliminary Process Report: A report containing such data and
information of the nature set forth in Exhibits I and II as may reasonably
assist TR and/or KB in preparing bids (if applicable) and as may reasonably
assist a Producer in evaluating plans for the preliminary design and preliminary
selection of facilities for, and for the analysis of the costs involved in, the
manufacturing process for any Product.
Primary Manufacturing Stages: The Bulk Chemical Manufacturing Stage and
the Formulation Manufacturing Stage for a Product.
Process Manual: A manual as updated from time to time containing such
data, information and know-how as specified in Exhibit I, relating to the Bulk
Chemical portion of KB's Manufacturing Process for any Product.
Producer: A Producer with respect to a Product means (i) TR, if and to
the extent that TR has responsibility for any Manufacturing Stage of such
Product, or (ii) KB, if and to the extent that KB has responsibility for the
Bulk Chemical Manufacturing Stage or the Formulation Manufacturing Stage of such
Product, or (iii) an Alternate Producer, if and to the extent such Alternate
Producer has responsibility for any Manufacturing Stage of such Product, or (iv)
KB USA, if and to the extent that KB USA has responsibility for the Packaging
Manufacturing Stage for such Product. A Producer may be a Producer with respect
to one or more Manufacturing Stages without being a Producer with respect to any
other Manufacturing Stage, as determined in accordance with Article III.
Product: A Finished Dosage Form, including Packaging and devices for
the administration thereof, of any Licensed Compound. Products comprise KB
Pipeline Products and In-Line Products; provided, however, that "Product" shall
include the Bulk Chemical Form of a Licensed Compound ordered by the Partnership
from KBI for purposes of inclusion in a Special Combination Product.
Product Cost: Product Cost as defined in Exhibit III (for purposes of
such Exhibit) or Exhibits IVA and IVB (for purposes of such Exhibits).
Quarter: Each calendar quarter of a Year (or in the case of the first
or last Quarter during which this Agreement shall be in effect, the portion of
such Quarter during which this Agreement shall be in effect).
Request for Bids: A Request for Bids as defined in Schedule A.
Ropivacaine IBD: Ropivacaine IBD as defined in the Master Restructuring
Agreement.
Selected Compounds: Selected Compounds as defined in the Selected
Compounds Contribution Agreement.
Selected Compounds Contribution Agreement: The Selected Compounds
Contribution Agreement dated as of June 19, 1998 among KB, TR, KBI and KBI Sub,
as such agreement is amended, modified, supplemented or restated from time to
time.
11
<PAGE> 17
Selected Uses: Selected Uses as defined in the Selected Compounds
Contribution Agreement.
Site: A single location, or group of locations which are in reasonable
geographic proximity to each other, are used for the same operational purpose,
and share management, staff and equipment.
sNDA: A Supplemental New Drug Application made in accordance with
applicable regulations and requirements of the FDA as from time to time in
effect.
Special Combination Product: A Product which is a combination
containing (i) a Distribution Compound (as defined in the Distribution
Agreement) and (ii) a KB USA Compound (as defined in the Master Restructuring
Agreement), a Group D Compound (as defined in the Master Restructuring
Agreement) or a Group E Compound (as defined in the Master Restructuring
Agreement).
Specifications: The written specifications required by applicable law
and regulations for inclusion in an NDA for the Bulk Chemical and for the
Formulation, Packaging and labeling of a Product and any additional
specifications approved in accordance with Section 4.07.
Subsequent Producer: Each Producer performing a subsequent
Manufacturing Stage with respect to a Product.
Subsequent Producer Indemnitee: A Subsequent Producer Indemnitee as
defined in Section 10.02(c).
Technology Owner: A Technology Owner as defined in Section 3.01(c)(v).
Termination Materials: The Termination Materials as defined in Section
4.11.
Territory: The United States of America, its territories and
possessions.
TR Contract Indemnitee: TR Contract Indemnitee as defined in Section
10.02(d)(ii).
TR Indemnitee: A TR Indemnitee as defined in Section 10.02(a).
TR Licenses: The TR Licenses as defined in the KBI License.
Transfer Price: The price to be paid to a Producer for Products (or
Intermediate Forms thereof) as determined in accordance with Article V hereof.
Transition Date: In the case of any Licensed Compound for which TR or
any Non-Affiliate of KB will perform the Bulk Chemical Manufacturing Stage or
the Formulation Manufacturing Stage pursuant to Article III, the earlier of (x)
the date that is six months following the date on which KB's Manufacturing
Process for such Licensed Compound is satisfactorily demonstrated for such
Manufacturing Stage pursuant to Section 6.04(g) or 7.05(f) or (y) such date as
TR or such Non-Affiliate of KB shall specify, on at least five months' notice
12
<PAGE> 18
to KBI, that TR or such Non-Affiliate of KB shall commence fulfilling its
obligations under Section 2.01(b) and, in the case of any Licensed Compound for
which KB will perform the Bulk Chemical Manufacturing Stage and the Formulation
Manufacturing Stage pursuant to Article III, the date of First Commercial Sale
of such Licensed Compound.
Transition Period: Transition Period as defined in the KBI-E Asset
Option Agreement.
Transition Product: Transition Product as defined in the KBI-E Asset
Option Agreement.
Turbuhaler: The dry powder delivery systems commonly known as the
Turbuhaler(R) system, as the same may be renamed from time to time, which
systems are primarily used for inhalation or nasal administration of Compounds,
and any modifications or variations or improvements thereto or thereof, and the
quantities of any Compound or the composition thereof contained in, delivered or
administered through such systems. Except as otherwise provided in this
Agreement, any reference to the manufacture of Turbuhaler or Turbuhaler systems
shall include the manufacture of the dry powder delivery device, the Formulation
of the quantities of the Compounds for use in the Turbuhaler(R) system from the
Bulk Chemical Form of such Compounds and the filling and finishing of such
devices and the Packaging of such systems but it shall not include the
manufacture of such Bulk Chemical Form of In-Line Products unless so agreed.
Unrecovered Capitalized Amount: An amount determined as of the end of
any calendar month in accordance with the following formula:
1 1
Minimum Capital Charge x ( ------ - --------------------------------------- )
Rate (Remaining Months of
Market Exclusivity)
Rate x (1+Rate)
Where:
"Rate" = An annual rate of return of 22% divided by 12 (or
1.83333% per month), and
"Remaining Months of Market Exclusivity" = An exponent equal
to the number of full calendar months of Market Exclusivity
remaining as of the end of the month in which the payment
pursuant to Section 5.03(c) is made.
Year: Each calendar year during which this Agreement shall be in effect
(or, in the case of the first or last Year during which this Agreement shall be
in effect, the portion of such calendar year during which this Agreement shall
be in effect).
13
<PAGE> 19
ARTICLE II
PRODUCTS; TERMS AND CONDITIONS OF SUPPLY
Section 2.01 Obligation to Supply. (a) Prior to the Transition Date for
a Product, KBI shall purchase from KB, and, to the extent that KB (or any of its
Affiliates or subcontractors), consistent with its (and their) other
manufacturing requirements, has capacity for producing such requirements, KB
shall use its best efforts to supply to KBI, all of KBI's requirements for such
Product, including launch quantities and samples; provided, however, that KB's
obligation to supply such Product is subject to KB (or any of its Affiliates or
subcontractors) having or having obtained a Complete Commercial Process for such
Product; provided, further, that KB shall not be obligated under this Agreement
to supply any Clinical Quantities of any Product. Notwithstanding anything to
the contrary contained in this Agreement, (i) KB may subcontract to a
Non-Affiliate of KB the Formulation Manufacturing Stage of any such Product
supplied pursuant to this Section 2.01(a); provided, however, that, except as
provided in Section 3.01(c)(v), such Formulation Manufacturing Stage shall be
performed only outside the Territory; and (ii) the Packaging Manufacturing Stage
may be performed inside or outside the Territory.
(b) Commencing on the Transition Date for each Product, each
Producer shall use its best efforts to supply to KBI or the applicable
Subsequent Producer, and KBI or the applicable Subsequent Producer shall
purchase from such Producer, all of KBI's or such Subsequent Producer's
requirements for such Product (or the Intermediate Form thereof) for which such
Producer has manufacturing responsibility (determined in accordance with Article
III hereof) for as long as this Agreement shall be in effect with respect to
such Product (or Intermediate Form) and such Producer; provided, however, that
each Producer's obligation to supply a Product is subject to such Producer
having or having obtained a Complete Commercial Process for the relevant
Manufacturing Stage of such Product; provided, further, that no Producer shall
be obligated under this Section 2.01(b) to supply any Clinical Quantities of any
Product; provided, further, that no Producer shall be obligated under this
Agreement to supply any quantities of any Product other than those required to
supply the Partnership (or any assignee of the Partnership) with its
requirements for such Product pursuant to the KBI Supply Agreement (except as
provided below with respect to the Exclusive Second Look Products and
Non-Exclusive Second Look Products); provided, further, that any quantities of
any Product (or the Intermediate Form thereof) to be manufactured under this
Agreement are solely (i) for supply by KBI to the Partnership pursuant to the
KBI Supply Agreement, (ii) for supply by KBI to an assignee of the Partnership
under the Distribution Agreement pursuant to the provisions of Section 3.6A of
the Master Restructuring Agreement; (iii) if KBI-E elects to appoint another
distributor or sublicensee with respect to such Product in accordance with
Section 16.1(f) of the KBI License, for the satisfaction of the requirements of
such distributor or sublicensee with respect to such Product as hereinafter
provided. If KBI-E elects to appoint
14
<PAGE> 20
another distributor or sublicensee for a Non-Exclusive Second Look Product in
accordance with Section 16.1(f) of the KBI License, each of KB and KB USA shall
continue to perform the Manufacturing Stages for such Non-Exclusive Second Look
Product for which it is then a Producer and shall continue to supply to any
Subsequent Producer or to KBI such Finished Dosage Forms or Intermediate Forms
of such Non-Exclusive Second Look Product for which it is then a Producer to
meet KBI's requirements for Product, on a priority basis over the requirements
of the Partnership, to the extent that KB and KB USA, respectively (consistent
with their respective other manufacturing requirements), have the capacity for
producing such requirements for such Products, for the remaining period of
Market Exclusivity. If KBI-E elects to appoint another distributor or
sublicensee for an Exclusive Second Look Product in accordance with Section
16.1(f) of the KBI License, each of KB and KB USA shall continue to perform the
Manufacturing Stages for such Exclusive Second Look Product for which it is then
a Producer and shall continue to supply to any Subsequent Producer such Finished
Dosage Forms or Intermediate Forms of such Product for which it is then a
Producer to meet KBI's requirements, to the extent KB and KB USA, respectively
(consistent with their respective other manufacturing requirements), have the
capacity for producing such requirements for such Product, for a period of three
(3) years from the date such Product becomes an Exclusive Second Look Product
pursuant to the terms of Section D of the Distribution Agreement. For purposes
of this Agreement, a Subsequent Producer's requirements of an Intermediate Form
shall include only such quantities of the Intermediate Form as are used by such
Subsequent Producer (and/or its Affiliates or subcontractors) to supply KBI's
requirements of the applicable Product, including the manufacture of inventory
of such Product or Intermediate Form thereof for ultimate sale to KBI or a
Subsequent Producer.
Section 2.02 Product Form. The Products shall be in such trade and
sample packages and Finished Dosage Forms as ordered by KBI, and the Bulk
Chemical Forms thereof shall be as ordered by the Subsequent Producer performing
the Formulation Manufacturing Stage or (in the case of Special Combination
Products) by KBI, in each case consistent with the allocation of manufacturing
responsibilities pursuant to Article III and the Specifications therefor.
ARTICLE III
ALLOCATION OF MANUFACTURING RESPONSIBILITY
Section 3.01 Allocation of Manufacturing Responsibility. The responsibility
for manufacturing Products for KBI hereunder pursuant to Section 2.01(b) shall
be allocated as set forth in this Section 3.01. Notwithstanding anything to the
contrary herein, this Agreement shall not apply to any Excluded Product,
Excluded Compound or Excluded Process, and nothing herein shall grant any Party
any right to manufacture any Excluded Product (or any Intermediate Form thereof)
or Excluded Compound or to perform any Excluded Process or grant any other
rights or impose any obligations with respect to any Excluded Product, Excluded
Compound or Excluded Process, except to the extent provided for under Sections
2.01(b) and 3.01(e)(vi).
15
<PAGE> 21
(a) In-Line Products. Except as provided in Section 3.01(b)
and Section 3.01(e), TR will have sole responsibility for all Manufacturing
Stages for In-Line Products and shall be the sole Producer of such Products.
(b) Turbuhaler Systems. Notwithstanding any other provision of
this Agreement, KB will have sole responsibility for manufacturing, and shall be
the sole Producer of, Turbuhaler systems incorporating In-Line Products and KB
Pipeline Products, except that TR will have responsibility for manufacture of
the Bulk Chemical for quantities of In-Line Products included in a Turbuhaler
system. Nothing in this Agreement shall grant to KBI any greater rights with
respect to the Turbuhaler device than are granted under the KBI License.
(c) Bulk Chemical and Formulation Manufacturing Stages for KB
Pipeline Products. (i) Except as provided in Section 3.01(b) and Section
3.01(e), with respect to any KB Pipeline Product, KB shall have the right, at
KB's sole option (the "Option"), (A) to perform either (1) the Bulk Chemical
Manufacturing Stage and the Formulation Manufacturing Stage for such KB Pipeline
Product or (2) only the Bulk Chemical Manufacturing Stage for such KB Pipeline
Product or (B) to decline to perform the Manufacturing Stages for such KB
Pipeline Product referred to in Sections 3.01(c)(i)(A)(1) and (2); provided,
however, that, notwithstanding the foregoing, if one of the Manufacturing Stages
referred to in Section 3.01(c)(i)(A)(1) or (2) is an Excluded Process, KB shall
nonetheless have the Option to perform the remainder of such Manufacturing
Stages.
(ii) Within thirty (30) days after the exercise by the
Partnership of the option referred to in Section C.1 of the
Distribution Agreement for any Group C Compound contained in a KB
Pipeline Product, and within thirty (30) days after the commencement of
Phase III Clinical Evaluation for any additional KB Pipeline Product
containing such Licensed Compound, KB shall provide written notice to
KBI, with a copy to the Partnership, indicating the Manufacturing
Stages, if any, for which it chooses to be responsible (in accordance
with subsection (c)(i) above) with respect to each such KB Pipeline
Product; provided, however, that with respect to Products containing
the Compound rofleponide, such notice shall be provided within thirty
(30) days after the resumption of Phase III Clinical Evaluation for
such Product. Upon delivery of such notice to KBI, KB shall be deemed
the Producer of such Product for all such Manufacturing Stages
indicated in such notice. KB's decision upon exercise of the Option in
accordance with subsection (c)(i) shall be irrevocable.
(iii) If KB desires at any time, either before or after it
notifies KBI that it intends to exercise its Option to perform the
Manufacturing Stages referred to in Section 3.01(c)(i)(A)(1), to
subcontract the Formulation Manufacturing Stage of a KB Pipeline
Product to a Non-Affiliate of KB, the Producer of the Formulation
Manufacturing Stage shall, if KBI does not consent to such subcontract,
be determined in accordance with the Bid Procedure. After receipt of
such a request to subcontract from KB, KBI shall notify KB within 30
days of its consent to allow KB to subcontract or its decision to
initiate the Bid Procedure. If KBI decides to initiate the Bid
Procedure, it shall promptly solicit bids in accordance with the Bid
Procedure from KB and either TR or an Alternate Producer.
16
<PAGE> 22
If KB submits the winning bid pursuant to the Bid Procedure with
respect to such KB Pipeline Product, KB shall be the Producer for the
Formulation Manufacturing Stage for such Product, and KB may
subcontract the Formulation Manufacturing Stage pursuant to Section
13.01 of this Agreement. If TR or an Alternate Producer submits the
winning bid pursuant to the Bid Procedure with respect to such KB
Pipeline Product, TR or the Alternate Producer, as the case may be,
shall be the Producer for the Formulation Manufacturing Stage of such
Product and KB shall be the Producer for the Bulk Chemical
Manufacturing Stage for such Product.
(iv) If KB notifies KBI that it declines to perform the
Manufacturing Stages referred to in Sections 3.01(c)(i)(A)(1) or (2)
with respect to any KB Pipeline Product, KBI shall, subject to Section
3.01(c)(v), 3.01(c)(vi) and 3.01(c)(vii), retain TR or an Alternate
Producer to perform the Manufacturing Stages for which KB has not
exercised the Option for such KB Pipeline Product, and TR or such
Alternate Producer, as the case may be, shall be deemed the Producer of
such Product for the Manufacturing Stages for which it is retained by
KBI; provided, however, that the proposed pricing of such Alternate
Producer shall be subject to the prior approval of the Partnership. If
the Partnership does not disapprove of the pricing of such Alternate
Producer by giving written notice of such disapproval to KBI within 60
days after the submission of such proposed pricing to the Partnership,
such Alternate Producer shall be the Producer with respect to such
Manufacturing Stage. If the Partnership does disapprove of such
proposed pricing within such 60 day period, KB shall be entitled to
become the Producer of such Product for such Manufacturing Stage or
Stages by notifying KBI in writing of its election to become the
Producer with respect thereto simultaneously with the giving of the
notice of such disapproval by the Partnership and agreeing to match
such pricing and to reimburse KBI for the reasonable out-of-pocket
costs of KBI and its Affiliates associated with retaining such
Alternate Producer. If KB does not (i) give such notice, (ii) match
such pricing and (iii) reimburse KBI for such out-of-pocket costs, such
Product shall become subject to Section D of the Distribution Agreement
and shall be an Excluded Product for purposes of this Agreement. If TR
or such Alternate Producer is retained as the Producer, the Transfer
Price with respect to such Manufacturing Stage or Stages for such
Product shall be determined in accordance with Section 5.01(c).
(v) Notwithstanding anything to the contrary contained
in Section 3.01(c)(iii) hereof, if KB notifies KBI pursuant to Section
3.01(c)(i) that it intends to perform the Manufacturing Stages referred
to in Section 3.01(c)(i)(A)(1), KB may appoint a subcontractor to
perform the Formulation Manufacturing Stage for such Product either
inside or outside the Territory without KBI's consent and without the
responsibility for the Formulation of such Product being determined
pursuant to the Bid Procedure if the Formulation of such KB Pipeline
Product requires proprietary technology owned or controlled by a
Non-Affiliate of KB (a "Technology Owner") which neither KB nor any
Affiliate of KB has the right to use for purposes of performing such
Formulation Manufacturing Stage and (A) KB appoints such Technology
Owner as its subcontractor to perform the Formulation Manufacturing
Stage for such Product or (B)
17
<PAGE> 23
KB appoints such Technology Owner's subcontractor to perform the
Formulation Manufacturing Stage for such Product for KB.
(vi) If KB notifies KBI that it elects not to perform the
Bulk Chemical Manufacturing Stage or (in the case of a dosage form not
then being manufactured by KBI or an Affiliate of KBI) the Formulation
Manufacturing Stage for a Product, KBI may submit to the Partnership
pursuant to Section 4.07 of the KBI Supply Agreement (with a copy to
KB) a Minimum Capital Charge Estimate with respect to such Bulk
Chemical Manufacturing Stage or Formulation Manufacturing Stage. If KBI
submits such a Minimum Capital Charge Estimate, it shall be submitted
to the Partnership within six months after the last of the following to
occur: (a) KB has provided all relevant available information regarding
KB's Manufacturing Process pursuant to Section 7.05 of this Agreement
and (b) the Partnership has notified KBI pursuant to Section 3.01(b) of
the KBI Supply Agreement of its estimated requirements for Product over
the full life cycle of the Product, the projected Transition Date for
the Product, and the projected period of Market Exclusivity for the
Product.
(vii) If KBI submits a Minimum Capital Charge Estimate to
the Partnership pursuant to Section 3.01(c)(vi) for a Product, KB shall
have the right, within 30 days after such submission, to notify KBI
that it elects to perform such Manufacturing Stage for such Product. If
KB so elects (a) to manufacture such Product and (b) to reimburse KBI
for reasonable out-of-pocket costs incurred by KBI in the preparation
of the Minimum Capital Charge Estimate for such Product, up to a
maximum of $100,000, KB shall thereafter be the Producer with regard to
that Manufacturing Stage for such Product and shall be entitled to the
Minimum Capital Charge as set forth in Section 5.03, and the Transfer
Price shall be determined as set forth in Exhibit IVA or Exhibit IVB,
as applicable. If KB does not make such election to so manufacture, TR
or the Alternate Producer selected by KBI shall be the Producer of such
Manufacturing Stage, and shall be entitled to the Transfer Price set
forth in Exhibit III, including the Minimum Capital Charge as set forth
in Section 5.03.
(viii) Notwithstanding anything to the contrary contained in
this Section 3.01, if a subcontractor appointed by KB to perform any of
the Manufacturing Stages with respect to a Product is terminated for
any reason, KB shall be responsible for such Manufacturing Stage.
(d) Packaging of KB Pipeline Products. Except as set forth in
Section 3.01(e), KBI shall arrange for the toll manufacture of the Packaging
Manufacturing Stage for any KB Pipeline Product as follows:
(i) If KBI-E so instructs KBI, KBI shall request
that KB USA enter into an exclusive toll manufacturing arrangement
relating to the Packaging Manufacturing Stage with KBI on terms
mutually agreeable to KBI-E, KBI and KB USA. Any such request shall be
made within thirty (30) days after the exercise by the Partnership of
the option referred to in Section C.1 of the Distribution Agreement for
any
18
<PAGE> 24
Group C Compound contained in such KB Pipeline Product, and within
thirty (30) days after the commencement of Phase III Clinical
Evaluation for any additional KB Pipeline Product containing such
Licensed Compound. If KBI-E, KBI and KB USA enter into such an
arrangement, KB USA shall be the Producer for such Packaging
Manufacturing Stage pursuant to the agreed-upon terms, subject to
Sections 5.01 and 5.02.
(ii) If KBI does not enter into an arrangement with KB USA
pursuant to Section 3.01(d)(i) within sixty (60) days after such
request is made, on the last day of such sixty (60) day period (or, if
no request is made, within thirty (30) days after the exercise by the
Partnership of the option referred to in Section C.1 of the
Distribution Agreement for any Group C Compound contained in such KB
Pipeline Product, and within thirty (30) days after the commencement of
Phase III Clinical Evaluation for any additional KB Pipeline Product
containing such Licensed Compound), a Bid Procedure shall be initiated
and the Producer of the Packaging Manufacturing Stage shall be
determined according to such Bid Procedure. KB USA, TR and, at KBI's
election, any other Person reasonably qualified to perform such
Packaging Manufacturing Stage, may submit bids for the toll manufacture
of such Packaging Manufacturing Stage. The Bidding Party that submits
the winning bid shall be the Producer of such Packaging Manufacturing
Stage.
(iii) If no bid is submitted pursuant to Section 3.01(d)(ii),
KBI shall promptly thereafter make arrangements for the performance of
the Packaging Manufacturing Stage with TR or an Alternate Producer.
Upon entering into such an arrangement, TR or the Alternate Producer
shall be the Producer of such Packaging Manufacturing Stage, and the
Transfer Price shall be determined according to Sections 5.01 and 5.02;
provided, however, that the proposed pricing of such Alternate Producer
shall be subject to the prior approval of the Partnership. If the
Partnership does not disapprove of the pricing of such Alternate
Producer by giving written notice of such disapproval to KBI within 60
days after the submission of such proposed pricing to the Partnership,
such Alternate Producer shall be the Producer with respect to the
Packaging Manufacturing Stage for such Product. If the Partnership does
disapprove of such proposed pricing within such 60-day period, TR shall
be the Producer of such Product for the Packaging Manufacturing Stage
at the Transfer Price computed in accordance with Exhibit III.
(iv) The Producer determined in accordance with Section
3.01(d)(i), (ii) or (iii) shall perform its services in the Territory,
and shall be a toll manufacturer acting on behalf of KBI. KBI shall not
be deemed a Producer under this Agreement. KBI shall own the Finished
Dosage Form of the Product through the entire toll manufacturing
process and, subject to the arrangements made with such Producer, shall
bear the risk of loss for such Product.
(v) Notwithstanding anything to the contrary contained in this
Section 3.01(d), but subject to Section 3.01(d)(iv), KB USA shall be
the Producer of the Packaging Manufacturing Stage for any Acquired
Compound.
19
<PAGE> 25
(e) Other Exceptions. (i) Notwithstanding paragraph (c) of
this Section, but subject to the obligations of KB under Sections
2.2(c), 2.7 and 10.1 of the KBI License, the parties recognize that
licenses with respect to KB Pipeline Products may impose geographical
or other limitations on the manufacturing rights of KBI with respect to
such Products. In the event any such limitation prevents either TR or
KB from performing a Manufacturing Stage allocated to it pursuant to
this Article, the other Party may elect to perform such Manufacturing
Stage with the Transfer Price therefor to be determined in accordance
with Exhibit III or Exhibit IVA and Exhibit IVB, as applicable;
provided, however, that nothing herein shall grant to KB or any third
party the right to manufacture Compounds which have been licensed to
KBI by TR or grant to TR or any third party the right to manufacture
the Turbuhaler or to fill or finish the Turbuhaler.
(ii) The obligation of TR to perform the Formulation or
Packaging Manufacturing Stage with respect to a Product is subject to
the right of TR to perform quality audits (as provided in Article IX)
of the immediately preceding Manufacturing Stage for such Product.
(iii) The obligation of KB to perform the Formulation and
Packaging Manufacturing Stage with respect to the P&G OTC Products or
an In-Line Product administered through the Turbuhaler is subject to
the right of KB to perform quality audits (as provided in Article IX)
of the immediately preceding Manufacturing Stage for such Product.
(iv) Notwithstanding Sections 3.01(a), 4.09 and 13.01, KB
shall have sole responsibility for the Formulation Manufacturing Stage
and the Packaging Manufacturing Stage of the P&G OTC Products to be
developed and marketed pursuant to the P&G License, with the right for
KB to appoint one or more subcontractors that are Affiliates or
Non-Affiliates to perform one or more of the above said Manufacturing
Stages or parts thereof in accordance with Article XIII hereof and the
right to subcontract such Formulation and Packaging inside or outside
the Territory. TR shall have sole responsibility for the Bulk Chemical
Manufacturing Stage for the Compound omeprazole for such P&G OTC
Products (including, without limitation, the synthesis of omeprazole
magnesium).
(v) Notwithstanding paragraph (c) of this Section, TR shall
have sole responsibility for (A) the Bulk Chemical Manufacturing Stage
for all Products containing the Compound perprazole, and (B) the
Formulation Manufacturing Stage and the Packaging Manufacturing Stage
for the Products containing the Compound perprazole that have entered
Phase III Clinical Evaluation as of the date hereof.
(vi) Notwithstanding Section 3.01(a), KB shall have sole
responsibility for the Bulk Chemical Manufacturing Stage for Products
containing the Compound felodipine.
(vii) Notwithstanding paragraph (a) of this Section, KB will
have sole responsibility for the Bulk Chemical Manufacturing Stage, and
TR shall have sole
20
<PAGE> 26
responsibility for the Formulation and Packaging Manufacturing Stages,
for the Compound tocainide, until such time as TR obtains FDA approval
for a subcontract manufacturer of the Bulk Chemical Manufacturing Stage
for tocainide and enters into a subcontract for such subcontractor to
perform the Bulk Chemical Manufacturing Stage for tocainide in
accordance with Article XIII, at which time TR shall have sole
responsibility for all three Manufacturing Stages for tocainide.
(viii) Notwithstanding paragraphs (c) and (d) of this
Section, TR shall have sole responsibility for the Packaging
Manufacturing Stage for Products containing the Compounds candesartan
cilexitil or remacemide that have entered Phase III Clinical Evaluation
as of the date hereof, and KB shall have sole responsibility for the
Bulk Chemical and Formulation Manufacturing Stages of all Products
containing the Compounds candesartan cilexitil or remacemide. The
Parties recognize that the right to perform the Bulk Chemical
Manufacturing Stage for candesartan cilexitil has been retained by
Takeda Chemical Industries, Ltd.
(ix) Notwithstanding paragraphs (c) and (d) of this Section,
KB shall have sole responsibility for all Manufacturing Stages for
Entocort and for Ropivacaine IBD.
(f) Notwithstanding the right or obligation of a Party to be
the sole Producer of a Product or to be the Producer with respect to a
particular Manufacturing Stage of such Product hereunder, neither KB nor TR
shall be limited in their right to subcontract all or a portion of such
manufacture or to purchase Intermediate Forms and other intermediates thereof
from other persons or Parties, except as set forth in and subject to Article
XIII hereof and subject to the obligations of each Producer hereunder to provide
information required for quality control and regulatory purposes; provided,
however, that no such subcontracting or purchase of Intermediate Forms or other
intermediates shall relieve a Producer of any regulatory responsibilities that
it may have pursuant to Article VIII hereof.
ARTICLE IV
ORDERS AND SHIPMENTS; PRODUCTION PLANNING
Section 4.01 Estimated Quantities. At least 21 months prior to the
commencement of each Quarter, KBI shall give (or cause to be given) to each
Producer for a Product notice of the Estimated Quantity of such Product which it
expects to require for such Quarter, and at least 20 months prior to the
commencement of each Quarter, each Producer of such Product shall give each
Earlier Stage Producer notice of the Estimated Quantity of the Intermediate
Forms which it expects to require for such Quarter. KBI and each such Producer
shall update the Estimated Quantities for each Quarter on a monthly basis until
the earlier of six months prior to such Quarter or the submission of a Firm
Order for such Quarter pursuant to Section 4.02.
Section 4.02 Firm Orders. At least four months prior to the
commencement of each Quarter, KBI shall submit (or cause to be submitted) to
each Producer that performs the Packaging Manufacturing Stage for a Product and,
in the case of Special Combination Products, the Producer that performs the Bulk
Chemical Manufacturing Stage, a Firm Order on such form
21
<PAGE> 27
as such Producer and KBI shall agree from time to time for its requirements of
such Product for such Quarter. Each Producer of the Packaging Manufacturing
Stage shall submit to KBI, with a copy to the Producer of the Formulation
Manufacturing Stage, a delivery order of its requirements for Finished Dosage
Forms of such Product. KBI shall submit a Firm Order confirming such delivery
order for such Finished Dosage Forms of Product to the Producer of the
Formulation Manufacturing Stage, and each Producer performing the Formulation
Manufacturing Stage shall submit to the Earlier Stage Producer for the Bulk
Chemical Manufacturing Stage a Firm Order within the lead time and on such form
as such Producer and Earlier Stage Producer shall agree from time to time for
its requirements of Intermediate Forms of such Product. In the event of a
conflict between the terms of any such purchase order and the terms of this
Agreement, the terms of this Agreement shall control. Each Firm Order for a
Product (or Intermediate Form thereof) shall not be less than 75% nor more than
125% of the Estimated Quantity for such Product (or Intermediate Form) for such
Quarter as last updated pursuant to Section 4.01. However, for each Product
required during the four Quarters before and the four Quarters after the Quarter
in which the First Commercial Sale by the Partnership of such Product occurs,
the Manufacturing and Supply Committee may agree upon a reasonable forecast
system encompassing larger deviations between last updated Estimated Quantities
and Firm Orders. In each Firm Order for any Quarter KBI or the Producer
submitting such Firm Order shall state, after consultation with the supplying
Producer, a reasonable delivery Schedule for each Product (or Intermediate Form
thereof) to be delivered in that Quarter. Each Producer shall use best efforts
to meet such delivery schedule.
Section 4.03 Manufacturing and Supply Committee; Production Planning.
(a) The Parties shall appoint, and shall permit the Partnership to participate
in, a Manufacturing and Supply Committee as follows:
(i) A standing committee consisting of one manufacturing
representative and one finance representative from each of KB, TR, KBI
and the Partnership (the "Manufacturing and Supply Committee") shall
be appointed. Each of KB, TR, KBI and the Partnership (the "Committee
Participants") shall appoint and may remove its representatives to the
Manufacturing and Supply Committee (and may designate alternates that
may attend and vote in the absence of a representative appointed by
such Committee Participant). The Manufacturing and Supply Committee
(A) shall serve as a forum for discussion and resolution of
manufacturing and supply issues, (B) may make recommendations to the
Partnership, KBI, KB and TR, (C) may make such decisions and
determinations as are specifically delegated to such Committee by this
Agreement, and (D) may make such decisions and determinations relating
to the matters described in Section 4.03(a)(ii) as the Manufacturing
and Supply Committee may deem appropriate. Notwithstanding anything to
the contrary contained in this Agreement, the Manufacturing and Supply
Committee will function solely with respect to the Manufacturing
Stages for those Products for which TR or any subcontractor appointed
by TR or any Alternate Producer performs such Manufacturing Stage for
a Product. All actions, decisions and determinations of the
Manufacturing and Supply Committee shall require the unanimous
approval of all members thereof (or, in their absence, their
alternates), which approval shall be given in writing. Any such
actions, decisions and
22
<PAGE> 28
determinations will be binding on the Parties hereto. All actions,
decisions and determinations of the Manufacturing and Supply Committee
shall be recorded in writing, and copies of such written records shall
be provided to each member of the Manufacturing and Supply Committee.
Meetings of the Manufacturing and Supply Committee may be called at any
time by any of the Committee Participants (or their representatives on
such committee) upon reasonable prior notice. The confidentiality
provisions set forth in Article XV shall apply to all meetings of the
Manufacturing and Supply Committee. The members of the Manufacturing
and Supply Committee shall adopt procedural rules to govern the
meetings and other activities of such Committee; provided, however,
that in the event of any conflict between such rules and the terms and
conditions of this Agreement, this Agreement shall control.
(ii) Subject to the limitations set forth in the fourth
sentence of Section 4.03(a)(i), the Manufacturing and Supply Committee
(A) shall meet at least semiannually to review the Estimated Quantities
and Firm Orders then outstanding and to consult on manufacturing and
supply issues, including bid procedures, the scheduling of manufacture
and delivery of the Products and Intermediate Forms thereof, the
coordination of manufacture and delivery of Intermediate Forms of each
Product to Subsequent Producers, possible bottlenecks and limitations
on supply and the adequacy of notice requirements for Estimated
Quantities and Firm Orders; and (B) shall discuss and consult
concerning future manufacturing and supply needs and requirements of
KBI and the Partnership and the extent to which KBI's and the
Partnership's sourcing needs are being adequately addressed.
(b) TR shall (i) provide to KBI for use by the Partnership an
electronic interface for the checking of outstanding order status and for the
submission of orders, forecasts, and special instructions relating to such
orders, and (ii) continue to make available to KBI for use by the Partnership
TR's current computerized integrated production planning system on a basis
consistent with TR's past practice for a sufficient period to allow an orderly
transition to the electronic interface described herein, such period not to
exceed 36 months from the date of this Agreement.
(c) On an annual basis, KBI shall provide to each Producer of
a Product: (i) a five-year forecast setting forth annual sales, in the
aggregate, of all Products, and (ii) a three-year forecast detailing annual
sales with respect to each Product. On an annual basis, KBI shall provide to TR
for each Product for which TR is responsible for any Manufacturing Stage, a
five-year forecast detailing production requirements.
Section 4.04 Title and Risk of Loss. (a) Legal title and risk of loss
with respect to any Bulk Chemical Form shipped by the Producer thereof to KBI
(in the case of Special Combination Products) or to a Subsequent Producer
hereunder shall pass to KBI (in such case) or such Subsequent Producer upon
delivery which shall be F.O.B. such shipping Producer's (or its Affiliate's or
subcontractor's) point of manufacture. Legal title and risk of loss with respect
to any Finished Dosage Form shall pass to KBI upon delivery which shall be
F.O.B. such shipping Producer's (or its Affiliate's or subcontractor's) point of
manufacture. Delivery of Packaged
23
<PAGE> 29
Finished Dosage Form shall be made by the Packager directly to the Partnership
and legal title and risk of loss with respect thereto shall pass from KBI to the
Partnership upon delivery, which shall be F.O.B. such shipping Producer's (or
its Affiliate's or subcontractor's) point of manufacture. All Costs and Expenses
of Delivery with respect to Bulk Chemical Forms or Finished Dosage Forms shipped
to KBI or such Subsequent Producer shall be charged to KBI or such Subsequent
Producer, as the case may be, unless such Costs and Expenses of Delivery are
included in the computation of the Transfer Price.
(b) In the case of a Producer performing two consecutive
Manufacturing Stages for a Product, the transfer of an Intermediate Form from
the first such Manufacturing Stage to the next such Manufacturing Stage shall be
deemed to occur as follows:
(i) In the event a Producer performs the Bulk Chemical and
Formulation Manufacturing Stages, completed Bulk Chemical shall be
deemed to be transferred to the Formulation Manufacturing Stage upon
delivery of the Bulk Chemical by such Producer to a location (the "Bulk
Chemical Transfer Point") designated by such Producer for the receipt
or storage of Bulk Chemical ready for Formulation.
(ii) In the event a Producer performs the Formulation and
Packaging Manufacturing Stages, the Finished Dosage Forms shall be
deemed to be transferred to the Packaging Manufacturing Stage upon
delivery of the Finished Dosage Forms by such Producer to a location
(the "Packaging Transfer Point") designated by such Producer for the
receipt or storage of Finished Dosage Forms ready for Packaging.
The foregoing principles shall be applied for the purposes of (i) allocating
risk of loss and Costs and Expenses of Delivery and (ii) identifying inventory
to a particular Manufacturing Stage for purposes of Exhibit III and Exhibits IVA
and IVB, as if such transfers were between two separate parties.
Section 4.05 Shipment. The Producer shall ship each order of a Product
(or Intermediate Form thereof) in such manner and to such place or places as KBI
or the Producer submitting the Firm Order specifies reasonably in advance of the
shipment date, subject, if applicable, in the case of a Producer performing a
Manufacturing Stage of a KB Pipeline Product whose responsibility therefor was
determined pursuant to the Bid Procedure, to the rights of such Producer
pursuant to the provisions of the Bid Procedure concerning Requested Performance
that Deviates from Bid Request.
Section 4.06 Inability to Supply. If the Producer is unable despite
best efforts to supply KBI or a Subsequent Producer with its requirements of any
Product (or Intermediate Form thereof) for any reason, including without
limitation an Event of Force Majeure, the Producer shall promptly notify KBI,
each Subsequent Producer of that Product and TR and KB of such inability and of
the date such inability is expected to end, and KBI shall (without affecting any
right of recourse which KBI or such Subsequent Producer may have if the
Producer's inability does not result from an Event of Force Majeure) offer to KB
(if TR or an Alternate Producer is the Producer) or TR (if KB or KB USA is the
Producer), as the case may be, the option to assume (with the right to appoint
one or more subcontractors that may or may not be Non-
24
<PAGE> 30
Affiliates), from and after the date of such notice, all or any part of the
manufacturing responsibilities previously allocated to the Producer who is
unable to supply such requirements (the "Non-Performing Producer") with the
Transfer Price therefor to be determined in accordance with Exhibit III or
Exhibit IVA and Exhibit IVB, as applicable; provided, however, that TR shall not
have the option to assume such responsibilities with respect to any Turbuhaler
systems incorporating Products. KB shall promptly upon request deliver to TR (if
TR assumes manufacturing responsibilities previously allocated to KB) such
information relating to the Manufacturing Stage or Stages for which such
Producer shall be responsible as KB is otherwise obligated to provide to a
Producer pursuant to Article VII hereof. Notwithstanding the foregoing, KB shall
not be obligated to provide any information to KBI or TR with respect to any
Manufacturing Stage or Stages of a KB Pipeline Product to the extent KB is
responsible for such Manufacturing Stage or Stages, except as set forth in
Section 9.02. If neither KB nor TR, as the case may be, exercises the option to
assume the manufacturing responsibilities of the Non-Performing Producer, KBI
may decide to manufacture, have manufactured or obtain from any supplier, any or
all of its requirements for such Product (or Intermediate Form). Within 90 days
of notice from the Non-Performing Producer that it is able to resume the supply
of KBI's or the Subsequent Producer's requirements for such Product (or
Intermediate Form), KBI or such Subsequent Producer, as the case may be, shall
resume obtaining all of its requirements of such Product (or Intermediate Form)
from such Non-Performing Producer, subject to any commitments of KBI or such
Subsequent Producer to suppliers for a period not extending more than 12 months
beyond the date of the notice referred to in this sentence and KBI's or such
Subsequent Producer's use of its existing inventories, if any.
Section 4.07 Modification of Specifications and C & M Data. The Parties
hereby agree, and KBI shall cause the Partnership to agree, that:
(a) The Specifications and C & M Data for any Product shall be
amended or supplemented to comply with applicable laws and regulations from time
to time in effect in the Territory and may be amended or supplemented with the
approval of the Producer, the Partnership and KB, which approval, if requested
by such Producer, KB or the Partnership, shall not be unreasonably withheld by
the others; provided, however, in the case of the Partnership, KBI shall cause
the Partnership not to unreasonably withhold such approval.
(b) In the event of any change in the Specifications or C & M
Data for any Product, KBI shall require the Partnership to (x) amend the NDA for
such Product, if required, to reflect such change, (y) use best efforts to
obtain any required FDA approval of such amended NDA, and (z) if the change is
requested by a Party other than the Producer or is required by the FDA or by
law, reimburse the Producer for costs actually incurred by the Producer (or any
of its Affiliates) in connection with such change, including without limitation
one-time development costs specifically related to such change, costs of
obsolescence of raw materials, goods-in-process, packaging materials and
supplies, and finished goods, which shall be valued at Product Cost, except that
finished goods inventory will be valued at the Transfer Price otherwise
applicable herein, unless, in the case of Products (or Intermediate Forms
thereof) for which the Transfer Price is determined in accordance with Exhibit
III or Exhibit IVA and Exhibit IVB, such costs are included in the computation
of the Transfer Price pursuant to such exhibit;
25
<PAGE> 31
provided, however, that such raw materials, goods-in-process, materials,
supplies and finished goods are not suitable, in the Producer's reasonable
judgment, for use in the business or operations of the Producer (or any of its
Affiliates); provided, however, that the inventory levels of such items shall be
limited to those which are customary generally for the Producer's pharmaceutical
manufacturing operations. This right of reimbursement shall apply to each
Producer of a Product regardless of whether such Producer sells and delivers
Product to KBI or sells and delivers Intermediate Forms to another Producer.
Section 4.08 Manufacture by TR or an Alternate Producer Outside the
Territory. (a) While TR intends to manufacture In-Line Products within the
Territory, if in TR's reasonable judgment it becomes economically advantageous
to manufacture an In-Line Product outside the Territory (either directly or
through its Affiliates or subcontractors), TR may do so with KB's consent, which
consent shall not be unreasonably withheld taking into consideration including,
without limitation, KB's (and its Affiliates') existing and contemplated
arrangements with its Non-Affiliates with respect to manufacturing and marketing
such In-Line Product in the particular country outside the Territory. If such
consent is given, KB shall, to the extent required, as contemplated by the KBI
License, grant (and shall cause its Affiliates to grant) to TR a nonexclusive
license to manufacture such In-Line Product in such country for the sole purpose
of satisfying TR's obligations under this Agreement, it being understood that
such consent will not imply that KB has any rights under any patents or other
intellectual property of any Non-Affiliates of KB.
(b) If TR wishes to manufacture (either directly or through
its Affiliates or subcontractors) outside the Territory any KB Pipeline Product
for which it has manufacturing responsibility for the Bulk Chemical or the
Formulation Manufacturing Stage for such KB Pipeline Product, TR may do so with
KB's consent, which consent shall not be withheld unless such manufacture would
be prohibited by applicable law or by an existing agreement between KB (or any
of its Affiliates) and a Non-Affiliate of KB. If KB withholds its consent as set
forth in this paragraph (b), either or both of KBI or TR may require that a copy
of such agreement be delivered to a law firm designated by TR solely for
purposes of confirming whether the terms of such agreement prohibit KB from
consenting to TR's wishes to manufacture outside the Territory. If such consent
is given, KB shall, to the extent required, as contemplated by the KBI License,
grant (and shall cause its Affiliates to grant) to TR (or such Affiliate or
subcontractor) a nonexclusive license to manufacture such KB Pipeline Product in
such country for the sole purpose of satisfying TR's obligations under this
Agreement, it being understood that such consent will not imply that KB has any
rights under any patents or other intellectual property of any Non-Affiliates of
KB.
(c) If any Alternate Producer wishes to manufacture (either
directly or through its Affiliates or subcontractors) outside the Territory any
KB Pipeline Product for which it has manufacturing responsibility for the Bulk
Chemical or the Formulation Manufacturing Stage for such KB Pipeline Product,
such Alternate Producer may do so with KB's consent, which consent shall not be
withheld unless such manufacture would be prohibited by applicable law or by an
existing agreement between KB (or any of its Affiliates) and a Non-Affiliate of
KB. If KB withholds its consent as set forth in this paragraph (c), KBI may
require that a copy of such
26
<PAGE> 32
agreement be delivered to a law firm designated by KBI solely for purposes of
confirming whether the terms of such agreement prohibit KB from consenting to
such Alternate Producer's wishes to manufacture outside the Territory. If such
consent is given, KB shall, to the extent required, as contemplated by the KBI
License, grant (and shall cause its Affiliates to grant) to any such Alternate
Producer (or such Affiliate or subcontractor) a non-exclusive license to
manufacture such KB Pipeline Product in such country for the sole purpose of
satisfying such Alternate Producer's obligations under this Agreement, it being
understood that such consent will not imply that KB has any rights under any
patents or other intellectual property of any Non-Affiliates of KB.
(d) If KBI wishes to arrange for the toll manufacture (either
directly or through its Affiliates or subcontractors) of the Packaging
Manufacturing Stage of any KB Pipeline Product outside the Territory, KBI may do
so with KB's consent, given in KB's sole discretion. If such consent is given,
KB shall, to the extent required, as contemplated by the KBI License, grant (and
shall cause its Affiliates to grant) to KBI a nonexclusive license to
manufacture such KB Pipeline Product in such country for the sole purpose of
satisfying its obligations under this Agreement, it being understood that such
consent will not imply that KB has any rights under any patents or other
intellectual property of any Non-Affiliate of KB.
(e) If the agreements referred to in paragraphs (b) or (c)
above are delivered to a law firm designated by TR or KBI, as the case may be,
TR or KBI, as the case may be, shall cause such law firm designated by it
pursuant to paragraph (b) or (c) not to disclose to TR or to KBI (or any of
their respective Affiliates), as the case may be, the agreements received by
said law firm pursuant to said paragraphs and not to disclose the information
contained therein other than such information that is reasonably necessary for
purposes of determining compliance with the provisions of this Agreement.
Section 4.09 Manufacture by KB Inside or Outside the Territory. Except
as specifically set forth in this Agreement, (i) neither KB nor any of its
Affiliates or subcontractors shall perform in the Territory any Manufacturing
Stage (other than toll Packaging by KB USA (or any of its Affiliates) as the
Producer for the Packaging Manufacturing Stage pursuant to Section 3.01(d)) with
respect to any Product without the prior written consent of KBI-E, as
contemplated by the KBI Sublicense, which consent may be given or withheld in
KBI-E's sole discretion, and (ii) neither KB USA nor any of its subcontractors
may perform the Packaging Manufacturing Stage with respect to any Product
outside the Territory without the prior written consent of KBI-E as contemplated
by the KBI Sublicense, which consent may be given or withheld in KBI-E's sole
discretion; provided, however, that KB (and its Affiliates) may continue to
perform any Manufacturing Stage in the Territory with respect to an Acquired
Compound.
Section 4.10 Manufacturing Sites. Subject to Sections 2.01(a), 3.01(d)
and 4.09, each Producer shall in good faith apply such manufacturing, financial
and other criteria in the selection of a manufacturing Site for each
Manufacturing Stage for which it is a Producer as are applied by such Producer
in the selection of manufacturing Sites for its own products.
27
<PAGE> 33
Section 4.11 Termination Materials. If this Agreement shall terminate
with respect to a Producer for any reason in its entirety or in respect of any
Product (or Intermediate Form thereof), or in the event the Partnership should
otherwise decide to discontinue the sale of, or not to launch, any Product, the
Producer of such Product shall, as soon as practicable after the date of
termination or after notice from KBI or the Partnership of the Partnership's
decision to discontinue the sale of, or not to launch, such Product, sell and
deliver to KBI or to such location as KBI may reasonably designate, and KBI
shall purchase and accept from such Producer, such raw materials,
goods-in-process, packaging materials and supplies, reworkable finished goods
and finished Products (or completed Intermediate Forms), which are specifically
intended for use in the manufacture of the terminated Product or Products or for
use in meeting KBI's requirements of such terminated Product or Products, are in
such Producer's (or any of its Affiliates' or subcontractors') possession on the
date of termination and are not suitable, in such Producer's reasonable
judgment, for use in the business or operations of such Producer (or any of its
Affiliates) by such Producer (or any of its Affiliates or subcontractors)
(collectively, the "Termination Materials"); provided, however, that the
inventory levels of such Termination Materials shall be limited to those which
are customary generally for such Producer's (and its Affiliates') pharmaceutical
manufacturing operations. Alternatively, KBI may instruct such Producer to
dispose of Termination Materials in an appropriate manner, and KBI shall
reimburse such Producer for the costs of such disposal. Notwithstanding the
foregoing, should the Partnership decide not to launch or to discontinue the
sale of any Product due to a default by a Producer, KBI or its designee shall
purchase and accept from such Producer only such Termination Materials as KBI
can reasonably be expected to use in its business and operations and KBI shall
not be obligated to reimburse such Producer for disposal costs with respect to
any Termination Materials. All Termination Materials shall be in good and
marketable condition, in conformance, to the extent applicable, with the
Specifications and C & M Data, and free and clear of all liens, encumbrances,
security interests and the like. Payment for the Termination Materials in an
amount equal to their cost to the Producer (and its Affiliates), which shall be
valued at Product Cost, except that Bulk Chemical, Finished Dosage Form and
finished goods inventory at the time of such termination will be valued at the
Transfer Price otherwise applicable herein, shall be made by KBI in accordance
with Section 5.05 concurrently with the acceptance of such Termination Materials
by KBI.
ARTICLE V
TRANSFER PRICE, OTHER CHARGES AND PAYMENT
Section 5.01 Transfer Price. The Transfer Price for each Product (or
for the applicable Intermediate Form thereof) shall be determined as set forth
in this Section 5.01.
(a) In-Line Products Sold in 1998 - 2000. Except as set forth
in Sections 5.01(d) and (e), the Transfer Price for In-Line Products sold by TR
(or its Affiliates or subcontractors) in the years 1998 through 2000 shall be
equal to the Product Cost thereof (determined in accordance with Exhibit III
hereto) multiplied by two and seven/tenths (2.7). Notwithstanding the foregoing,
in the event TR obtains some or all of its requirements of any In-Line Product
(or any Intermediate Form thereof) from KB by means of purchase or
subcontracting the
28
<PAGE> 34
manufacture thereof, the Transfer Price payable by KBI to TR for such In-Line
Product in the years 1998 through 2000 shall be equal to the sum of (i) the
Product Cost thereof (determined in accordance with Exhibit III hereto, but
exclusive of amounts paid to KB or other subcontractors for such Product or
Intermediate Form) multiplied by 2.7, (ii) the amount paid to KB or other
subcontractors for such Product or Intermediate Form and (iii) a subcontracting
premium referred to in Exhibit III attributable to subcontractors other than KB.
(b) In-Line Products Sold after 2000. Except as set forth in
Sections 5.01(d) and (e), the Transfer Price for In-Line Products sold by TR (or
its Affiliates or subcontractors) after the year 2000 shall be computed as set
forth in Exhibit III hereto.
(c) KB Pipeline Products and Turbuhaler Systems. The Transfer
Price for completed Bulk Chemical for KB Pipeline Products containing the
Compound perprazole supplied to KBI or a Subsequent Producer by TR (or its
Affiliates or subcontractors) under this Agreement shall be computed as set
forth in Exhibit III hereto. The Transfer Price for the Formulation of KB
Pipeline Products that have entered Phase III Clinical Evaluation containing the
Compound perprazole supplied to KBI by TR (or its Affiliates or subcontractors)
under this Agreement shall be TR's Bid Price as set forth in the letter with
respect thereto from KBI to KB and TR dated April 29, 1998, and shall be subject
to the terms of Schedule A. The Transfer Price for the toll Packaging of KB
Pipeline Products that have entered Phase III Clinical Evaluation containing the
Compound perprazole for KBI by TR (or its Affiliates or subcontractors) under
this Agreement shall be computed as set forth in Exhibit III hereto. The
Transfer Price for other KB Pipeline Products and Intermediate Forms thereof
supplied to KBI or a Subsequent Producer by TR (or its Affiliates or
subcontractors) under this Agreement shall be computed as set forth in Exhibit
III hereto. The Transfer Price for other KB Pipeline Products and Turbuhaler
systems and Intermediate Forms thereof produced in pilot or laboratory scale
production and supplied to KBI or a Subsequent Producer by KB (or its Affiliates
or subcontractors) under this Agreement shall be computed as set forth in
Exhibit IVA hereto. The Transfer Price for other KB Pipeline Products and
Intermediate Forms thereof supplied to KBI or a Subsequent Producer by an
Alternate Producer (or its Affiliates or subcontractors) under this Agreement
shall be as agreed between KBI and such Alternate Producer; provided that the
pricing contained in any proposed agreement with such Alternate Producer shall
be subject to the Partnership's approval thereof. If KB becomes the Producer for
a Manufacturing Stage of a Product pursuant to Section 3.01(c)(iv), the Transfer
Price paid to KB for such KB Pipeline Product or Intermediate Forms thereof
shall be the lower of the Transfer Price matched by KB or the Transfer Price
computed pursuant to Exhibit IVA or IVB, as applicable. In all other cases the
Transfer Price for KB Pipeline Products and Turbuhaler systems and Intermediate
Forms thereof supplied to KBI or a Subsequent Producer by KB (or its Affiliates
or subcontractors) under this Agreement shall be computed as set forth in
Exhibit IVB hereto. If KB USA becomes the Producer for the Packaging
Manufacturing Stage pursuant to Section 3.01(d)(i), the Transfer Price shall be
the lower of the price agreed upon by KB USA and KBI or the Transfer Price
computed pursuant to Exhibit IVA or IVB, as applicable. Notwithstanding the
foregoing, in the event the responsibility for manufacturing a Product (or
Intermediate Form thereof) is determined in accordance with the Bid Procedure
provided for in Section 3.01 hereof, the Transfer Price therefor shall be
determined in accordance with the Bid Procedure; provided, further, however,
29
<PAGE> 35
that if KB submits the winning bid pursuant to such Bid Procedure and the
subcontractor appointed by KB is terminated for any reason, the Transfer Price
for such Product shall be computed as set forth in Exhibits IVA and IVB.
(d) P&G OTC Products. Notwithstanding anything to the contrary
contained in this Agreement, the Transfer Price for the Formulation and
Packaging Manufacturing Stages to be performed by KB for the P&G OTC Products
shall be computed as set forth in Exhibits IVA and IVB hereto, and the Transfer
Price for the Bulk Chemical Manufacturing Stage to be performed by TR for the
Compound omeprazole contained in the P&G OTC Products shall be computed as set
forth in Exhibit III hereto.
(e) Notwithstanding anything to the contrary contained in this
Agreement, (i) the Transfer Price for the completed Bulk Chemical for In-Line
Products containing the Compound felodipine supplied to KBI or a Subsequent
Producer by KB (or its Affiliates or subcontractors) under this Agreement shall
be computed as set forth in Exhibit IVA and IVB hereto; (ii) the Transfer Price
for the completed Bulk Chemical for In-Line Products containing the Compound
tocainide supplied to KBI or a Subsequent Producer by KB (or its Affiliates or
subcontractors) under this Agreement during such period as KB has responsibility
for such Manufacturing Stage pursuant to Section 3.01(e)(vii) shall be computed
as set forth in Exhibits IVA and IVB hereto; and (iii) the Transfer Price for
any In-Line Product supplied by KB pursuant to Section 2.01(a) shall be computed
as set forth in Exhibits IVA and IVB hereto.
Section 5.02 Exclusion of Inter-Affiliate Mark-Ups and Profits. Except
as expressly provided in this Agreement, including Exhibit III, the Transfer
Price computed in accordance with Exhibit III or Exhibit IVA and Exhibit IVB
shall at all times exclude inter-Affiliate mark-ups and inter-Affiliate profits.
Section 5.03 Minimum Capital Charge. (a) To the extent that a Minimum
Capital Charge is payable pursuant to Section 3.01(c)(vii), KBI shall pay KB or
TR, to the extent that KB or TR is a Producer, and, may pay an Alternate
Producer, the Minimum Capital Charge. Such Minimum Capital Charge shall be
included in the Cost of Capital component of the Exhibit III or Exhibit IVA or
IVB Transfer Price commencing on the projected Transition Date of the Product as
KBI is notified by the Partnership, through the expiration of Market Exclusivity
for the Product.
(b) If there are no purchases of such Product in any one Year
during the period beginning on the projected Transition Date and ending on the
expiration of the period of Market Exclusivity as the Partnership notifies KBI
pursuant to Section 3.01(b) of the KBI Supply Agreement, then KBI shall pay to
such Producer the Minimum Capital Charge for each month in such Year (with
interest at an annual rate of 22% through the date of payment) regardless of the
fact that no Transfer Price is paid for such Product during such Year.
(c) If this Agreement shall terminate in its entirety or in
respect of any Product to which a Minimum Capital Charge applies, or in the
event the Partnership should otherwise decide not to launch or to discontinue
the sale of any Product as to which a Minimum
30
<PAGE> 36
Capital Charge applies, and the Partnership so notifies KBI pursuant to Section
3.08(b) of the KBI Supply Agreement, KBI shall pay to the Producer performing
the Manufacturing Stage for such Product as to which a Minimum Capital Charge
applies the Unrecovered Capitalized Amount for such Product. Such payment shall
be made within one month after the month in which such notice was given. Any
Minimum Capital Charge payable pursuant to Section 5.03(a) or (b) and applicable
to such Product shall terminate at the time of such payment.
Section 5.04 Invoices, Time of Payment and Year-End Adjustments. (a)
Payment by KBI to a Producer performing the Formulation Manufacturing Stage for
a Product or the Bulk Chemical Manufacturing Stage for a Special Combination
Product shall be made by KBI in accordance with Section 5.05 within 45 days
after the date of the invoice therefor. Each Producer performing such
Manufacturing Stage shall provide to KBI a copy of the related certificate of
analysis as provided in Section 9.06. Payment by a Subsequent Producer to an
Earlier Stage Producer performing the Bulk Chemical Manufacturing Stage shall be
made by such Subsequent Producer in accordance with Section 5.05 within 45 days
after the date of such Earlier Stage Producer's invoice therefor. Each Earlier
Stage Producer shall provide to KBI a copy of its invoice to such Subsequent
Producer. Any such invoices shall be based on the unitized estimates of the
appropriate Transfer Price, if applicable, provided pursuant to Section 5.06 or
a statement of the Bid Price and a separate statement, in the case of a Producer
performing the Formulation Manufacturing Stage pursuant to the Bid Procedure, of
the Amount Attributable to Bulk Chemical, as defined below (showing the
computation of such amount). Such invoices from an Earlier Stage Producer to a
Subsequent Producer shall not include amounts to be borne by KBI pursuant to
Sections 4.07 and 4.11 or any other provision hereof.
As used in this Agreement, the Amount Attributable to Bulk Chemical
means, with respect to a Product or Intermediate Form for which the Transfer
Price is based on a Bid Price established pursuant to the Bid Procedure, the
amount chargeable in the Transfer Price for such Product or Intermediate Form in
respect of Bulk Chemical (including, if the Bulk Chemical Producer is the same
as the Formulator, the amount chargeable under Exhibit III or Exhibit IVA and
Exhibit IVB or under the Bid Procedure, as applicable, in respect of the amount
of Bulk Chemical) incorporated in the Finished Dosage Form, in each case based
on the estimated unitized price or the Bid Price. The Amount Attributable to
Bulk Chemical shall be computed as follows:
31
<PAGE> 37
AABC = Bulk Chemical Value x (1 / (1 - Yield Loss Allowance))
where:
AABC = The Amount Attributable to Bulk Chemical
Bulk Chemical Value = Unitized value of the amount of Bulk Chemical
incorporated in the Finished Dosage Form
Yield Loss Allowance = The yield loss allowance specified in the
Request for Bids for such Product, expressed
as a decimal fraction rather than as a
percentage
(b) Payment for toll manufacturing by KBI to the Producer
performing Packaging shall be made by KBI in accordance with Section 5.05 within
45 days after the date of such Producer's invoice therefor. Such invoice shall
be based on the agreed terms of such toll manufacturing. Such invoices shall not
include amounts to be borne by KBI pursuant to Sections 4.07 and 4.11 or any
other provision hereof. Such invoice shall be accompanied by the related
certificate of analysis as provided in Section 9.06.
(c) In the event of any dispute between KBI and a Producer
regarding a Transfer Price or any other amount charged by such Producer to a
Subsequent Producer and paid by such Subsequent Producer, KBI shall remain
obligated to pay all amounts invoiced pursuant to Section 5.04(b) (except the
Transfer Price with respect to Packaging if the disputed amount is such Transfer
Price), and KBI shall indemnify and hold each other Producer harmless against
any Losses incurred in connection with such dispute or the matters giving rise
to such dispute.
(d) All amounts to be borne by KBI pursuant to Sections 4.07
and 4.11 or any other provision hereof shall be submitted directly to KBI in a
separate invoice by the relevant Producer and KBI shall pay such amounts
directly to such Producer in accordance with Section 5.05 within 45 days after
the date of such Producer's invoice therefor.
(e) As provided in Exhibit III and Exhibits IVA and IVB,
certain components of the Transfer Price computed in accordance with such
exhibits shall be adjusted within 90 days after the end of each Year, and as
provided in the Bid Procedure, the Bid Prices paid to a Producer pursuant to the
Bid Procedure (if such Producer has submitted the winning bid) may not exceed
the amounts that would have been payable under Exhibit III or Exhibit IVA and
IVB, as applicable, net of the amount paid to an Earlier Stage Producer. The
applicable Producer or KBI, as the case may be, shall within 45 days after such
adjustment pay directly to the other in accordance with Section 5.05 the amount
required by such adjustments.
32
<PAGE> 38
(f) In the event any payment required to be made pursuant to
this Agreement is paid after the date due herein, the Producer or KBI, as the
case may be, shall pay to the counterparty interest on the amount overdue
calculated at a rate per annum equal to the lesser of 110% of the prime rate of
interest (or its equivalent) charged by Morgan Guaranty Trust Company of New
York, in New York, New York from time to time, or the highest rate allowed by
applicable law, from the date such payment became due until it is paid in full.
Section 5.05 Manner of Payment. All payments to TR or KBI shall be made
by wire transfer to a bank account designated by TR at least four (4) business
days prior to the date of payment. All payments required to be made pursuant to
this Agreement to KB or KB USA shall be made by wire transfer to a bank account
designated by KB at least four (4) business days prior to the date of payment.
If any payment is due on a day that is not a business day, such payment instead
shall be made on the next succeeding business day. All payments shall be made in
United States dollars.
Section 5.06 Cost Estimate. By the November 15th preceding any Year in
which TR or KB expects to supply KBI or any other Party with any Products (or
Intermediate Forms thereof), TR or KB, as the case may be, shall advise KBI and
the other Party of its estimates of the unitized Transfer Prices for such Year.
In addition, within 30 days after the end of any Quarter in which TR or KB has
supplied KBI or any other Party with any Products (or Intermediate Forms
thereof), TR or KB, as the case may be, shall provide KBI with an estimate of
the cumulative adjustment to the Transfer Price for each such Product or
Intermediate Form for the Year that will be required pursuant to Section
5.04(e).
Section 5.07 Additional Costs. Each Producer shall be paid for any
additional work requested by the Partnership in writing through KBI regarding
support of KB Pipeline Products, provided that such work is not otherwise part
of the Producer's responsibilities as set forth in this Agreement for which such
Producer is to be paid through the Transfer Price. KBI will be invoiced for the
actual costs incurred, including manpower support at departmental charge-out
rate (this includes all costs of the area supporting the project except payroll
and benefits of senior directors and administrators), cost of raw materials,
inventory discards and third party charges. No specific overhead allocation will
be invoiced.
ARTICLE VI
MANUFACTURING PROCESSES,
DATA AND KNOW-HOW FOR IN-LINE PRODUCTS
Section 6.01 Cooperation. TR and KB shall use best efforts to
cooperate fully with each other and with KBI and the Partnership, and KBI shall
require the Partnership to cooperate fully with TR and KB, towards the end that
TR will have the capability, through manufacturing by it, its Affiliates and
subcontractors and through the acquisition of raw materials and intermediates
from subcontractors or suppliers, to supply the In-Line Products (or
Intermediate Forms thereof) for which TR is responsible in accordance with the
terms of this Agreement and to supply the New In-Line Products (or Intermediate
Forms thereof) for which TR is responsible
33
<PAGE> 39
in accordance with the terms of this Agreement, in sufficient time to permit
timely market introduction, as determined by the Partnership, of such New
In-Line Product in the Territory by the Partnership.
Section 6.02 Meetings Concerning In-Line Products. The Parties shall
meet at least semi-annually to review the status of all In-Line Products. At
such meetings, which shall be subject to the confidentiality provisions in
Article XV, (a) KB shall provide TR and KBI with such Manufacturing Technical
Information relating to all In-Line Products as TR or KBI shall reasonably
request, and information necessary to alert TR of special requirements relating
to facilities, environment, health and other hazards and extraordinary cost
levels for New In-Line Products and concerning environmental, health and other
hazards concerning other In-Line Products and (b) the Parties will discuss and
exchange technical ideas and concepts relating to the information specified in
clause (a) above; provided, however, that KB shall not be obligated to provide
KBI or TR with any such Manufacturing Technical Information or other
information, data and know-how to the extent that neither KB nor any of its
Affiliates has the right to authorize the use thereof by such other Party, but
KB, to the extent lawful, shall use its best efforts (which shall not require
payments to its Non-Affiliates) to make available to the other Parties the
broadest rights to such Manufacturing Technical Information and other
information, data and know-how. Notwithstanding the foregoing, TR shall not be
obligated to provide KB with any information, data or know-how relating uniquely
to Compounds licensed to KBI by TR. At the first meeting of each Year, KBI shall
provide TR with a five-year sales forecast for each In-Line Product then being
manufactured pursuant to this Agreement or for which Phase III Clinical
Evaluation has commenced for which TR is responsible for any Manufacturing
Stage.
Section 6.03 Consultations Concerning NDAs and Regulatory Matters. KBI
shall require the Partnership to consult with TR and KB from time to time
concerning the preparation and submission of the Specifications and C & M Data
for those In-Line Products for which an NDA will be filed or amended by the
Partnership. Each Party conducting meetings with the FDA with respect to an
In-Line Product, except for meetings relating solely to INDs and NDAs filed by
KB pursuant to Section 3.1(a) of the KBI License, shall use its best efforts to
arrange for representatives of the Partnership to participate, and for TR and KB
to be present as observers, at all significant meetings with FDA personnel
during which the Specifications or C & M Data concerning any In-Line Product are
discussed. Notwithstanding the foregoing, the Partnership shall not be required
to consult with TR regarding the preparation and submission of Specifications
and C & M Data relating uniquely to the Turbuhaler or to the Formulation and
Packaging Manufacturing Stages of P&G OTC Products and TR shall not attend
meetings with FDA personnel during which Specifications and C & M Data for the
Formulation and Packaging Manufacturing Stages of P&G OTC Products or the
Turbuhaler are discussed. KBI shall not be required to consult with KB or allow
KB to attend meetings with FDA personnel during which information relating
uniquely to Compounds licensed to KBI by TR or an Affiliate of TR is discussed.
Section 6.04 Exchange of Information Concerning New In-Line Products.
With respect to each New In-Line Product for which TR is responsible for any
Manufacturing Stage:
34
<PAGE> 40
(a) KB shall consult (and shall cause its Affiliates to
consult) with TR and KBI during the development of KB's Manufacturing Process
for such New In-Line Product to facilitate TR's ability to manufacture such New
In-Line Product economically and efficiently for KBI. At TR's request and
expense, KB shall use its best efforts to make reasonable adaptations to KB's
Manufacturing Process for such New In-Line Product to make such Manufacturing
Process commercially suitable in TR's (or any of its Affiliates' or
subcontractors' selected by TR) manufacturing facilities.
(b) To the extent legal and practicable, KB shall consult (and
shall cause its Affiliates to consult) with KBI and TR prior to arranging with
any of KB's Non-Affiliates for the development of any process (or any step of
such process) for the manufacture or preparation of such New In-Line Product, or
any intermediate or raw material thereof, or the supply of such New In-Line
Product, or any such intermediate or raw material; provided, however, such
consultation relating to intermediates, raw materials and processes (or steps
thereof) shall not include (x) those intermediates and raw materials
commercially available in sufficient quantities for their anticipated commercial
uses or (y) those intermediates, raw materials or processes (or steps thereof)
intended at the time only for developmental use. Nothing contained herein shall
limit KB's discretion in making any such arrangement.
(c) As soon as available, and in any event within 60 days
following the completion of Phase II Clinical Evaluation for such New In-Line
Product, KB shall provide KBI and TR with a Preliminary Process Report for such
New In-Line Product for the Formulation and Packaging Manufacturing Stages for
such New In-Line Product and for the Bulk Chemical Manufacturing Stage if the
manufacturing process for the Bulk Chemical Manufacturing Stage is modified for
such New In-Line Product.
(d) As soon as available, and in any event not later than one
year after the commencement of Phase III Clinical Evaluation for such New
In-Line Product, KB shall use best efforts to provide KBI and TR with a Process
Manual for such New In-Line Product and from time to time thereafter KB shall
provide KBI and TR with updated sections of such Process Manual if the
manufacturing process for the Bulk Chemical Manufacturing Stage is modified for
such New In-Line Product.
(e) As soon as available, and in any event not later than 18
months after the commencement of Phase III Clinical Evaluation for such New
In-Line Product, KB shall use best efforts to provide KBI and TR with a PPIS for
such New In-Line Product and will update such PPIS from time to time up to
approval of the NDA.
(f) Upon reasonable notice to KB from TR, KB shall arrange for
a reasonable number of TR employees to visit the manufacturing facilities of KB
(including pilot and commercial scale facilities and testing laboratories) (or
the facilities of any of its Affiliates which KB, in its sole discretion, may
choose) during the regular working hours of KB (or any of such Affiliates) to
observe KB's Manufacturing Process in operation for such New In-Line Product,
subject to facility availability and strict compliance with and observance of
KB's instructions and procedures in respect to confidentiality and security. KB
also shall use its best efforts, upon
35
<PAGE> 41
reasonable notice from TR, to obtain the right for TR employees to make such
visits to manufacturing facilities of its subcontractors.
(g) KB shall provide TR with assistance in satisfactorily
demonstrating in the facilities of TR (or any of its Affiliates or
subcontractors selected by TR) KB's Manufacturing Process for such New In-Line
Product (including, without limitation, analytical methods validation) as
follows:
(i) For the Bulk Chemical portion of such Manufacturing
Process for a New In-Line Product, such demonstration shall be made
after the completion by KB (or any of its Affiliates) of production on
a commercial scale of a sufficient number of batches of such New
In-Line Product as KB deems appropriate, but, in any event, KB shall
use its best efforts to assist TR in making a satisfactory
demonstration of such Manufacturing Process as soon as practicable and
consistent with the FD s pre-approval inspection timing. The
demonstration provided for in this paragraph shall be required only if
the manufacturing process for the Bulk Chemical Manufacturing Stage is
modified for such New In-Line Product.
(ii) For the Finished Dosage Form portion of such
Manufacturing Process, such demonstration shall be made as soon as
practicable, but, in any event, KB shall use its best efforts to assist
TR in making a satisfactory demonstration of such Manufacturing Process
consistent with the FDA's pre-approval inspection timing.
KB's Manufacturing Process will be deemed to be satisfactorily demonstrated if
three New In-Line Product batches are consecutively produced in Bulk Chemical
Form and three full-scale New In-Line Product batches are consecutively produced
in Finished Dosage Form, applying GMP, at TR's (or any such Affiliate's or
subcontractor's) manufacturing facilities, and if such Licensed Product batches
conform with the Specifications and C & M Data and validation protocol
requirements and, in the case of the New In-Line Product batches in Bulk
Chemical Form, are produced in yields, within time cycles and at quality levels
specified in the most recent Process Manual and, in the case of New In-Line
Product batches in Finished Dosage Form, are produced in yields, within time
cycles and at quality levels specified in the most recent PPIS. During such
demonstrations KB shall provide full-shift coverage of technical operations;
provided, however, KB's role in such demonstrations shall be limited to the
provision of engineering and technical advice and direction to TR relating to
KB's Manufacturing Process on a best efforts basis in order that such
demonstrations achieve the yields, time cycles and quality levels referred to
above. TR shall use its best efforts to provide such equipment as is required to
accommodate KB's Manufacturing Process for such New In-Line Product and in
participating in such demonstrations.
(h) KB shall provide TR reasonable assistance in the
preparation of demonstration reports for such New In-Line Product, describing
the demonstrations for such New In-Line Product referred to in Section 6.04(g)
above. Each such report shall be issued within two months of the satisfactory
completion of the respective demonstration.
36
<PAGE> 42
(i) During the 12-month period following satisfactory
demonstration of KB's Manufacturing Process for such New In-Line Product in
accordance with Section 6.04(g) above, KB shall provide TR with reasonable
engineering advice and technical assistance relating to such Manufacturing
Process as is necessary or appropriate for troubleshooting.
Section 6.05 Improvements and New Processes. KB shall use its best
efforts to consult (and to cause its Affiliates to consult) with TR and KBI
regarding any improvement or New Process included in KB's Manufacturing Process
for such In-Line Product as far in advance of KB's (or any of its Affiliates')
use of such improvement or New Process as is practicable, taking into
consideration KB's program for incorporating such improvement or New Process
into its Manufacturing Process. With respect to any such improvement or New
Process, TR shall have the same rights with respect to visiting the
manufacturing facilities of KB (and its Affiliates and subcontractors) as are
contemplated in Section 6.04(f) above and, to the extent practicable, the same
rights with respect to prior consultation as contemplated in Section 6.04(b)
above. In addition, at TR's expense, KB shall provide such Process Manual and
PPIS information for improvements and New Processes included in KB's
Manufacturing Process and shall assist in the demonstration thereof at TR's (or
any of its Affiliates' or subcontractors') facilities and shall render such
engineering advice and technical assistance as are contemplated in Section
6.04(i) above as is reasonable under the circumstances. KB shall not be
obligated to develop any such improvement or New Process.
Section 6.06 Exceptions in Respect of In-Line Products. Notwithstanding
anything to the contrary contained in this Agreement, (w) except as expressly
provided in the second sentence of Section 6.04(a), KB shall not be obligated to
perform any development work, including, without limitation, any improvement,
with respect to KB's Manufacturing Process or to develop any new process for the
manufacture or preparation of any In-Line Product (or any intermediate of such
In-Line Product), (x) in the case of any In-Line Product which is licensed to KB
(or any of its Affiliates) by any of KB's Non-Affiliates, KB's obligations under
Section 6.04 shall be limited to those activities which KB (or any of its
Affiliates) is itself performing in order to manufacture such In-Line Product,
(y) KB is not obligated to provide KBI, TR or any other Producer with any
information, data or know-how relating uniquely to the Formulation and Packaging
of P&G OTC Products and (z) KB is not obligated to provide KBI, TR or any other
Producer with any information, data or know-how relating uniquely to the
Formulation of quantities of Products delivered through the Turbuhaler or to the
filling or Packaging of the Turbuhaler device, including, without limitation,
technologies or information relating uniquely to the Turbuhaler itself.
Notwithstanding anything to the contrary contained in this Agreement, KBI shall
not, under any circumstances, disclose to TR, any other Producer (other than KB)
or any third party (other than the FDA), and TR and any other Producer (other
than KB) shall not be entitled under any circumstances to, any information, data
or know-how relating uniquely to (i) the Formulation of the quantities of
In-Line Products delivered through the Turbuhaler or the filling or Packaging of
the Turbuhaler device, including, without limitation, technologies or
information relating uniquely to the Turbuhaler itself or (ii) the Formulation
and Packaging Manufacturing Stages of P&G OTC Products.
37
<PAGE> 43
Section 6.07 Disclosure of Safety and Environmental Issues and Process
Experience. TR and KB shall each promptly advise the other of any safety and
environmental results in its possession which are gained from its (or any of its
Affiliates' or subcontractors') experience in utilizing a manufacturing process
in connection with the manufacture of any In-Line Product including any health
or environmental hazards relating to a Compound contained in the In-Line
Product, but excluding safety and environmental issues relating uniquely to a
Manufacturing Stage of which such other Party is not a Producer. TR and KB shall
each periodically provide the other with summaries of process performance gained
from its (or any of its Affiliates' or subcontractors') experience in utilizing
a manufacturing process in connection with the manufacture of any In-Line
Product.
Section 6.08 Limitation on Use of KB's Manufacturing Processes and
Manufacturing Technical Information. All information, data and know-how,
including without limitation, KB's Manufacturing Processes and Manufacturing
Technical Information, transferred to or received by any Party (or any of its
Affiliates or subcontractors) under or pursuant to this Agreement (i) shall be
used by the receiving Party (and its Affiliates and subcontractors) only for the
purposes contemplated by this Agreement, the Master Restructuring Agreement and
the other Ancillary Agreements and (ii) shall be subject to the confidentiality
provisions in Article XV.
Section 6.09 Delivery of Information Summaries. Without limiting the
obligations of TR under any other provision of this Agreement, TR from time to
time, and in any event as promptly as practicable after any request by another
Party, shall provide such other Party with summaries of such information, data
and know-how (including without limitation any such information, data and
know-how covered by patents owned by TR, or any of its Affiliates, or as to
which TR, or any of its Affiliates, has licensing rights) as relate uniquely to
manufacturing or preparing any In-Line Product (including any intermediate of
such In-Line Product) and are now or hereafter possessed by TR (or any of its
Affiliates), except that TR shall not be obligated to provide information, data
or know-how relating uniquely to Compounds licensed to KBI by TR. TR shall
provide such other Party with such of the foregoing information, data and
know-how, referred to in any such summary, as such other Party shall request;
provided, however, TR shall not be obligated to provide such other Party with
any such information, data or know-how to the extent neither TR nor any of its
Affiliates has the right to grant such other Party a license with respect
thereto or otherwise authorize the use thereof by such other Party; provided,
further, TR shall, to the extent legal, use its best efforts (which shall not
require payments to its Non-Affiliates) to make available to such other Party
the broadest rights to such information, data and know-how. Such other Party
shall pay TR such reasonable consideration as TR and the other Party shall agree
for such information, data and know-how requested by such other Party and as to
which TR has notified the other Party it expects to be compensated (which notice
shall be given in advance of providing such information, data and know-how); but
failure to agree upon such consideration shall not prevent or delay the
provision of such information, data and know-how to such other Party. If such
consideration is not agreed to by TR and the other Party within 180 days of the
request by such other Party for such information, data and know-how, then such
consideration shall be set by arbitration in accordance with the procedures set
forth in Article 9 of the Master Restructuring Agreement.
38
<PAGE> 44
Section 6.10 Consultations Concerning Manufacturing Development. The
Parties shall consult on an ad hoc basis with respect to the manufacturing
development (including, without limitation, demonstration responsibilities) of
dosage forms for any In-Line Product not included in the initial or then current
NDA for such In-Line Product.
ARTICLE VII
MANUFACTURING PROCESSES, DATA
AND KNOW-HOW CONCERNING KB PIPELINE PRODUCTS
Section 7.01 Pre-bid Information About Manufacturing Processes, Data
and Know-How Concerning KB Pipeline Products. (a) If the responsibility for
performing a Manufacturing Stage with respect to a KB Pipeline Product is to be
determined pursuant to the Bid Procedure as provided for in Section 3.01(c) or
3.01(d), KBI, KB, KB USA and TR shall, and KBI shall require the Partnership to,
use their best efforts to cooperate fully towards the end that the Bidding
Parties will have the information specified below so as to permit the
preparation and submission of bids for such Manufacturing Stage of such KB
Pipeline Product.
(b) The Manufacturing and Supply Committee shall meet as
necessary to review the status of those KB Pipeline Products for which a
Producer for a Manufacturing Stage will be determined pursuant to the Bid
Procedure. At such meetings, which shall be subject to the confidentiality
provisions in Article XV, (i) KB shall provide KBI and any Bidding Party then in
the process of preparing a bid with such Manufacturing Technical Information
relating to the Formulation or Packaging, as the case may be, of such KB
Pipeline Products, including, without limitation, preliminary information of the
type set forth in Part III or Part IV of Schedule A hereto (which information
shall be provided in such reasonable detail as may be available at such time and
shall be updated and provided to KBI and such Bidding Parties at least
semi-annually thereafter until such time as the Producer of such Product is
determined pursuant to the Bid Procedure), as KBI or such Bidding Party shall
reasonably request, and information necessary to alert such Bidding Party of
special requirements relating to facilities, environment, health and other
hazards and extraordinary cost levels associated with the Formulation or
Packaging, as the case may be, and transport (including transport of the Bulk
Chemical Form) of such KB Pipeline Products; and (ii) such Bidding Parties will
discuss and exchange technical ideas and concepts relating to the information
specified in clause (i) above; provided, however, that no Party shall be
obligated to provide any Bidding Party with any such Manufacturing Technical
Information or other information, data and know-how to the extent that neither
any such Party nor any of its Affiliates has the right to authorize the use
thereof by any Bidding Party, but KB, to the extent lawful, shall use its best
efforts (which shall not require payments to its Non-Affiliates) to make
available to the other Bidding Parties the broadest rights to such Manufacturing
Technical Information and other information, data and know-how.
(c) With respect to each KB Pipeline Product referred to in
Section 7.01(b):
(i) KB shall consult (and shall cause its Affiliates to
consult) with such Bidding Parties and KBI during the development of
the relevant Manufacturing
39
<PAGE> 45
Stage of KB's Manufacturing Process for such KB Pipeline Product to
facilitate TR's ability to Formulate or Package such KB Pipeline
Product economically and efficiently for KBI. Notwithstanding the
foregoing, KB shall not be obligated to consult with the Bidding
Parties or KBI concerning the Bulk Chemical Manufacturing Stage or the
Packaging Manufacturing Stage of KB's Manufacturing Process for any KB
Pipeline Product.
(ii) To the extent legal and practicable, KB shall consult
(and shall cause its Affiliates to consult) with KBI and such Bidding
Parties prior to arranging with any of KB's Non-Affiliates for the
development of any process (or any step of such process) for the
Formulation of such KB Pipeline Product or any intermediate or raw
material thereof; provided, however, such consultation relating to
intermediates, raw materials and processes (or steps thereof) shall not
include (x) those intermediates and raw materials commercially
available in sufficient quantities for their anticipated commercial
uses or (y) those intermediates, raw materials or processes (or steps
thereof) intended at the time only for developmental use. Nothing
contained herein shall limit KB's discretion in making any such
arrangement.
(iii) KBI shall require the Partnership to consult with such
Bidding Parties from time to time concerning the preparation and
submission of the Specifications and C & M Data for the Formulation
Manufacturing Stage of such KB Pipeline Products for which an NDA will
be filed by the Partnership.
(d) Notwithstanding anything to the contrary contained herein,
(x) KB shall not be obligated to perform any development work, including,
without limitation, any improvement, with respect to KB's Manufacturing Process
or to develop any new process for the manufacture or preparation of any KB
Pipeline Product (or any intermediate of such KB Pipeline Product), (y) in the
case of any KB Pipeline Product which is licensed to KB (or any of its
Affiliates) by any of KB's Non-Affiliates, KB s obligations under Section
7.01(c) shall be limited to those activities which KB (or any of its Affiliates)
is itself performing in order to manufacture such KB Pipeline Product and (z) KB
is not obligated to provide KBI or any of the Bidding Parties with any
information, data or know-how relating uniquely to the Formulation of quantities
of Products delivered through the Turbuhaler or to the filling or Packaging of
the Turbuhaler device, including, without limitation, technologies or
information relating uniquely to the Turbuhaler itself. Notwithstanding anything
to the contrary contained in this Agreement, KBI and the Bidding Parties shall
not be entitled under any circumstances to, any information, data or know-how
relating uniquely to the Formulation of the quantities of Products delivered
through the Turbuhaler or the filling or Packaging of the Turbuhaler device,
including, without limitation, technologies or information relating uniquely to
the Turbuhaler itself.
(e) All information, data and know-how, including, without
limitation, KB's Manufacturing Processes and Manufacturing Technical
Information, transferred to or received by any Party (or any of its Affiliates
or subcontractors) or Bidding Party under or pursuant to this Agreement (a)
shall be used by the receiving Party (and its Affiliates and subcontractors) or
Bidding Party only for the purposes contemplated by this Agreement, the Master
Restructuring
40
<PAGE> 46
Agreement and the other Ancillary Agreements and (b) shall be subject to the
confidentiality provisions in Article XV.
Section 7.02 Cooperation. After the responsibility for each
Manufacturing Stage of a KB Pipeline Product has been determined, each Producer
of such Product and KB shall, and KBI shall require the Partnership to, use best
efforts to cooperate fully towards the end that such Producer will have the
capability, through manufacturing by it, its Affiliates and subcontractors and
through the acquisition of raw materials and intermediates from subcontractors
or suppliers, to supply such KB Pipeline Product (or Intermediate Form thereof)
manufactured or to be manufactured by such Producer for KBI, in accordance with
the terms of this Agreement, in sufficient time to permit timely market
introduction, as determined by the Partnership, of such KB Pipeline Product in
the Territory by the Partnership; provided, however, that KB shall not be
required to provide any information, data or know-how to TR, KBI or any other
Producer other than as provided in this Agreement.
Section 7.03 Meetings Concerning KB Pipeline Products. KB and KBI shall
meet at least semi-annually to review the status of all KB Pipeline Products for
which KB and its Affiliates, collectively, are not responsible for all
Manufacturing Stages. Any other Producer shall also be entitled to attend such
meetings to the extent that such Producer is responsible for one or more of the
Manufacturing Stages for any KB Pipeline Product and the matters to be discussed
will affect such Producer's responsibilities with respect to such Manufacturing
Stage or Stages. At such meetings, KB shall provide (i) the Producer or
Producers, as the case may be, who are responsible for the Primary Manufacturing
Stages with respect to a KB Pipeline Product with such Manufacturing Technical
Information relating to such Manufacturing Stage or Stages for such KB Pipeline
Products as such Producer or Producers shall reasonably request in order to
perform such Manufacturing Stage or Stages, and information necessary to alert
such Producer or Producers of special requirements relating to facilities,
environment, health and other hazards and extraordinary cost levels for the
Primary Manufacturing Stages for such KB Pipeline Products for which such
Producer or Producers are responsible, and (ii) KBI with such Manufacturing
Technical Information relating to all Manufacturing Stages of KB Pipeline
Products for which KB is not responsible as KBI shall reasonably request. KB
shall also provide the Producer responsible for the Packaging Manufacturing
Stage for a KB Pipeline Product with such information as such Producer shall
reasonably request relating to matters affecting such Producer's
responsibilities with respect to Packaging such KB Pipeline Product. At such
meetings, the Parties and any other Producer or Producers of a KB Pipeline
Product will discuss and exchange technical ideas and concepts relating to the
information specified above (to the extent that each such Party or Producer has
a right to such information); provided, however, that KB shall not be obligated
to provide any other Party or Producer with any Manufacturing Technical
Information or other information, data and know-how (a) if KB is responsible for
all Manufacturing Stages with respect to such KB Pipeline Product or (b) to the
extent that neither KB nor any of its Affiliates has the right to authorize the
use thereof by such other Party or such Producer, but KB, to the extent lawful,
shall use its best efforts (which shall not require payments to its
non-Affiliates) to make available to the other Parties and the Producer or
Producers, as the case may be, the broadest rights to such Manufacturing
Technical Information and other information, data and know-how. Notwithstanding
the foregoing, TR shall not be obligated to
41
<PAGE> 47
provide such information, data or know-how relating uniquely to Compounds
licensed to KBI by TR.
Section 7.04 Consultations Concerning NDAs and Regulatory Matters. KBI
shall cause the Partnership to consult (i) with KB from time to time, and (ii)
with each of the Producers of a KB Pipeline Product with respect to the
Manufacturing Stages for which each such Producer is responsible, concerning the
preparation and submission of the Specifications and C & M Data therefor for
which an NDA will be filed or amended by the Partnership. Each Party or
Producer, as the case may be, conducting meetings with the FDA with respect to a
KB Pipeline Product, except for meetings relating solely to INDs and NDAs filed
by KB pursuant to Section 3.1(a) of the KBI License, shall use its best efforts
to arrange for representatives of the Partnership to participate, and for KB and
each Producer who is responsible for any of the Primary Manufacturing Stages for
such KB Pipeline Product, to be present as observers at all significant meetings
with FDA personnel during which the Specifications or C & M Data concerning KB
Pipeline Products are discussed; provided, however, that such Producer or
Producers, as the case may be, shall only be entitled to attend such meetings to
the extent the matters being discussed relate specifically to the Primary
Manufacturing Stages for which each such Producer is responsible; provided,
further, that KBI shall not be entitled to attend such meetings. KBI shall
require the Partnership to use its best efforts to arrange for representatives
of the Producer responsible for the Packaging Manufacturing Stage for a KB
Pipeline Product to be present at such meetings to the extent that the matters
to be discussed will affect such Producer's responsibilities with respect to
Packaging such KB Pipeline Product. KBI shall not be entitled to attend any such
meeting without the consent of the Partnership.
Section 7.05 Exchange of Information Concerning KB Pipeline Products.
With respect to each KB Pipeline Product (or Intermediate Form thereof) for
which KB and its Affiliates are not the Producers responsible for all
Manufacturing Stages:
(a) KB shall consult (and shall cause its Affiliates to
consult) (i) with KBI, and (ii) with the Producer or Producers responsible for a
Primary Manufacturing Stage for such KB Pipeline Product (other than KB or any
of its Affiliates), during the development of KB's Manufacturing Process for
such KB Pipeline Product or such Intermediate Form thereof, to facilitate such
Producer's ability to perform its Manufacturing Stage economically and
efficiently for KBI. At the request and expense of any Producer responsible for
a Primary Manufacturing Stage for a KB Pipeline Product, KB shall use its best
efforts to make reasonable adaptations to KB's Manufacturing Process for such
Product as relates to the Manufacturing Stages for which such Producer is
responsible to make such Manufacturing Process commercially suitable in such
Producer's (or any of its Affiliates' or subcontractors' selected by such
Producer) manufacturing facilities.
(b) To the extent legal and practicable, KB shall consult (and
shall cause its Affiliates to consult) (i) with KBI, and (ii) with the Producer
or Producers responsible for a Primary Manufacturing Stage for such KB Pipeline
Product (other than KB or any of its Affiliates), prior to arranging with any of
KB's Non-Affiliates for the development of any process (or any step of such
process) for the manufacture or preparation of such KB Pipeline
42
<PAGE> 48
Product, or any intermediate or raw material thereof, or the supply of such KB
Pipeline Product, or any such intermediate or raw material, if and to the extent
that such process relates to the Manufacturing Stages for which such Producer is
responsible; provided, however, such consultation relating to intermediates, raw
materials and processes (or steps thereof) shall not include (x) those
intermediates and raw materials commercially available in sufficient quantities
for their anticipated commercial uses or (y) those intermediates, raw materials
or processes (or steps thereof) intended at the time only for developmental use.
Nothing contained herein shall limit KB's discretion in making any such
arrangement.
(c) As soon as available, KB shall use best efforts to provide
a Preliminary Process Report for such KB Pipeline Product to (i) KBI and (ii)
the Producer of such KB Pipeline Product (other than KB or any of its
Affiliates) if and to the extent such Preliminary Process Report relates to the
Manufacturing Stages for which such Producer is responsible with respect to such
KB Pipeline Product.
(d) As soon as available, KB shall use best efforts to provide
(i) a Process Manual for such KB Pipeline Product to KBI and to the Producer
performing the Bulk Chemical Manufacturing Stage for such KB Pipeline Product
(other than KB or any of its Affiliates) and (ii) a PPIS for such KB Pipeline
Product to KBI and to the Producer performing the Formulation Manufacturing
Stage for such KB Pipeline Product (other than KB or any of its Affiliates), in
each case if and to the extent such Process Manual or PPIS relates to the
Manufacturing Stages for which such Producer is responsible, and KB shall update
such PPIS from time to time prior to approval of the NDA.
(e) If a Producer is responsible for a Primary Manufacturing
Stage for a KB Pipeline Product, upon reasonable notice to KB from such
Producer, KB shall arrange for a reasonable number of such Producer's employees
to visit the manufacturing facilities of KB (including pilot and commercial
scale facilities and testing laboratories) (or the facilities of any of its
Affiliates which KB, in its sole discretion, may choose) during the regular
working hours of KB (or any of such Affiliates) to observe KB's Manufacturing
Process in operation for such KB Pipeline Product solely as relates to those
Primary Manufacturing Stages for which such Producer is responsible, subject to
facility availability and strict compliance with and observance of KB's
instructions and procedures in respect to confidentiality and security. KB also
shall use its best efforts, upon reasonable notice from a Producer (if such
Producer is responsible for a Primary Manufacturing Stage for a KB Pipeline
Product), to obtain the right for such Producer's employees to make such visits
to manufacturing facilities of KB's subcontractors as relates solely to those
Primary Manufacturing Stages for which such Producer is responsible.
(f) KB shall provide the Producer responsible for a Primary
Manufacturing Stage for a KB Pipeline Product, with assistance in satisfactorily
demonstrating in the facilities of such Producer (or any of its Affiliates or
subcontractors selected by such Producer) KB's Manufacturing Process for such
Manufacturing Stage set forth in the NDA (including, without limitation,
analytical methods validation). Such demonstration shall be made as soon as
practicable, but, in any event, KB shall use its best efforts to assist such
Producer in making a satisfactory demonstration of the portion of such
Manufacturing Process for which such Producer
43
<PAGE> 49
is responsible consistent with the FDA's preapproval inspection timing. KB's
Manufacturing Process will be deemed to be satisfactorily demonstrated to the
Producer responsible for the Bulk Chemical Manufacturing Stage if three KB
Pipeline Product batches are consecutively produced in Bulk Chemical Form. KB's
Manufacturing Process will be deemed to be satisfactorily demonstrated to the
Formulator if three full-scale KB Pipeline Product batches are consecutively
produced in Finished Dosage Form, applying GMP, at such Producer's (or any such
Affiliate's or subcontractor's) manufacturing facilities, and if such KB
Pipeline Product batches conform with the Specifications and C & M Data and
validation protocol requirements and, in the case of KB Pipeline Product batches
in Finished Dosage Form, are produced in yields, within time cycles and at
quality levels specified in the most recent PPIS. During such demonstrations KB
shall provide full-shift coverage of technical operations; provided, however,
KB's role in such demonstrations shall be limited to the provision of
engineering and technical advice and direction to such Producer relating to KB's
Manufacturing Process on a best efforts basis in order that such demonstrations
achieve the yields, time cycles and quality levels referred to above. Such
Producer shall use its best efforts to provide such equipment as is required to
accommodate KB's Manufacturing Process for such KB Pipeline Product and in
participating in such demonstrations.
(g) KB shall provide the Producer responsible for Formulation
of a KB Pipeline Product with reasonable assistance in the preparation of a
demonstration report for the Finished Dosage Form for any such KB Pipeline
Product, describing the applicable demonstrations for any such KB Pipeline
Product referred to in subparagraph (f) above. Such report shall be issued
within two months of the satisfactory completion of the respective
demonstration.
(h) During the 12-month period following satisfactory
demonstration of KB's Manufacturing Process with respect to any KB Pipeline
Product in accordance with subparagraph (f) above, KB shall provide such
Producer with reasonable engineering advice and technical assistance relating to
the applicable Primary Manufacturing Stages for which such Producer is
responsible as is necessary or appropriate for troubleshooting.
(i) KB shall use its best efforts to consult (and to cause its
Affiliates to consult) (i) with KBI, and (ii) with each Producer responsible for
any of the Primary Manufacturing Stages for a KB Pipeline Product (other than KB
or any of its Affiliates), regarding any improvement or New Process included in
KB's Manufacturing Process for such KB Pipeline Product to the extent such
improvement or New Process relates to such Manufacturing Stages as far in
advance of KB's (or any of its Affiliates') use of such improvement or New
Process as is practicable, taking into consideration KB's program for
incorporating such improvement or New Process into its Manufacturing Process.
Implementation by a Producer or KB of any improvement or New Process for any KB
Pipeline Product must be consistent with quality control/quality assurance and
regulatory compliance requirements set forth in Article VIII and Article IX.
With respect to any such improvement or New Process, such Producer shall have
the same rights with respect to visiting the manufacturing facilities of KB (and
its Affiliates and subcontractors) as are contemplated in subparagraph (e) above
and, to the extent practicable, the same rights with respect to prior
consultation as contemplated in subparagraph (b) above. In addition, at such
Producer's expense, KB shall
44
<PAGE> 50
provide such PPIS information for improvements and New Processes included in
KB's Manufacturing Process to the extent related to a Manufacturing Stage for
such KB Pipeline Product for which such Producer is responsible and shall assist
in the demonstration thereof at such Producer's (or any of its Affiliates' or
subcontractors') facilities and shall render such engineering advice and
technical assistance as are contemplated in subparagraph (h) above as is
reasonable under the circumstances. KB shall not be obligated to develop any
such improvement or New Process.
Section 7.06 Exceptions in Respect of KB Pipeline Products.
Notwithstanding anything to the contrary contained in this Agreement, (v) except
as expressly provided in the second sentence of Section 7.05(a), KB shall not be
obligated to perform any development work, including, without limitation, any
improvement, with respect to KB's Manufacturing Process or to develop any new
process for the manufacture or preparation of any KB Pipeline Product (or any
intermediate of such KB Pipeline Product), (w) in the case of any KB Pipeline
Product which is licensed to KB (or any of its Affiliates) by any of KB's
Non-Affiliates, KB's obligations under Section 7.05 shall be limited to those
activities which KB (or any of its Affiliates) is itself performing in order to
manufacture such KB Pipeline Product, (x) if KB or KB USA is responsible for one
or more Manufacturing Stages with respect to a KB Pipeline Product, neither KB
nor any of its Affiliates shall be obligated to provide KBI or any Producer with
any information, data or know-how relating uniquely to the Manufacturing Stages
for which KB or KB USA is responsible; provided, however, that TR shall be
entitled to perform quality audits (as provided in Article IX) of the
immediately preceding Manufacturing Stage for any Product for which TR performs
the Formulation or Packaging Manufacturing Stage; provided, further, however,
that KB or KB USA shall make available to KBI or any Producer the information,
data or know-how required by this Article VII with respect to the Manufacturing
Stages for which KB or KB USA is responsible with respect to a KB Pipeline
Product, if it is required so to do due to a change in applicable law or
regulations, (y) neither KB nor any of its Affiliates is obligated to provide
KBI or any Producer with any information, data or know-how relating to any Group
C Compound or Licensed Compound or Products containing such Licensed Compound
for which the rights of the Partnership pursuant to the KBI License have
terminated pursuant to Section C or D of the Distribution Agreement (except as
specifically provided in the KBI License), and (z) KB is not obligated to
provide KBI or any Producer with any information, data or know-how relating
uniquely to the Formulation of the quantities of KB Pipeline Products delivered
through the Turbuhaler or to the filling or Packaging of the Turbuhaler device,
including, without limitation, technologies or information relating uniquely to
the Turbuhaler itself. Notwithstanding anything to the contrary contained in
this Agreement, except as provided in Section 16.1(d) of the KBI License,
neither any Producer (other than KB) nor KBI shall be entitled under any
circumstances to, any information, data or know-how relating uniquely to the
Formulation of the quantities of KB Pipeline Products delivered through the
Turbuhaler or to the filling or Packaging of the Turbuhaler device, including,
without limitation, technologies or information relating uniquely to the
Turbuhaler itself. Notwithstanding anything to the contrary contained in this
Agreement, except as specifically set forth in this Agreement, KBI shall not,
under any circumstances, disclose to a Producer (other than KB or KB USA) or any
third party (other than the FDA), and no Producer (other than KB and KB USA)
shall be entitled under any circumstances to, any information, data or know-how
relating uniquely to any
45
<PAGE> 51
of the Manufacturing Stages for which KB or KB USA is responsible with respect
to a KB Pipeline Product.
Section 7.07 Disclosure of Safety and Environmental Issues and Process
Experience. Each Producer who is responsible for one or more of the
Manufacturing Stages with respect to a KB Pipeline Product and KB shall each
promptly advise the other of any safety and environmental results in its
possession which are gained from its (or any of its Affiliates' or
subcontractors') experience in utilizing a manufacturing process relating to a
KB Pipeline Product including any health or environmental hazards relating to a
Compound contained in the KB Pipeline Product, but excluding safety and
environmental issues relating uniquely to a Manufacturing Stage for which such
Producer is not responsible. If a Producer is responsible for a Primary
Manufacturing Stage for a KB Pipeline Product, such Producer and KB shall each
periodically provide the other with summaries of process performance gained from
its (or any of its Affiliates' or subcontractors') experience in utilizing KB's
Manufacturing Process for such Manufacturing Stage, and such Producer and KB
shall each periodically provide the other with summaries of process performance
gained from experience in Packaging KB Pipeline Products.
Section 7.08 Limitation on Use of KB's Manufacturing Processes and
Manufacturing Technical Information. All information, data and know-how,
including without limitation, KB's Manufacturing Processes and Manufacturing
Technical Information, transferred to or received by any Party (or any of its
Affiliates or subcontractors) or Producer under or pursuant to this Agreement
(a) shall be used by the receiving Party (and its Affiliates and subcontractors)
or Producer only for the purposes contemplated by this Agreement, the Master
Restructuring Agreement and the other Ancillary Agreements and (b) shall be
subject to the confidentiality provisions in Article XV.
Section 7.09 Delivery of Information Summaries. Without limiting the
obligations of a Producer (other than KB) under any other provision of this
Agreement, such Producer (if such Producer is responsible for any of the
Manufacturing Stages for a KB Pipeline Product) from time to time, and in any
event as promptly as practicable after any request by KB, shall provide KB with
summaries of such information, data and know-how (including without limitation
any such information, data and know-how covered by patents owned by such
Producer, or any of its Affiliates, or as to which such Producer, or any of its
Affiliates, has licensing rights) as relate uniquely to any of the Manufacturing
Stages for any KB Pipeline Product (including any Intermediate Form of such KB
Pipeline Product) as to which such Producer is responsible and are now or
hereafter possessed by such Producer (or any of its Affiliates), except that TR
shall not be obligated to provide information, data or know-how relating
uniquely to Compounds licensed to KBI by TR. Any Producer who is responsible for
any of the Manufacturing Stages for a KB Pipeline Product shall provide KB with
such of the foregoing information, data and know-how, referred to in any such
summary, as KB shall request; provided, however, such Producer shall not be
obligated to provide KB with any such information, data or know-how to the
extent neither such Producer nor any of its Affiliates has the right to grant KB
a license with respect thereto or otherwise authorize the use thereof by KB;
provided, further, such Producer shall, to the extent legal, use its best
efforts (which shall not require payments to its Non-Affiliates) to make
available to KB the broadest rights to such information, data and know-how.
46
<PAGE> 52
KB shall pay such Producer such reasonable consideration as such Producer and KB
shall agree for such information, data and know-how requested by KB and as to
which such Producer has notified KB it expects to be compensated (which notice
shall be given in advance of providing such information, data and know-how); but
failure to agree upon such consideration shall not prevent or delay the
provision of such information, data and know-how to KB. If such consideration is
not agreed to by a Producer and KB within 180 days of the request by KB for such
information, data and know-how, then such consideration shall be set by
arbitration in accordance with the procedures set forth in Article 9 of the
Master Restructuring Agreement.
ARTICLE VIII
ALLOCATION OF REGULATORY FUNCTIONS
Section 8.01 Regulatory Compliance Functions. Pursuant to the KBI
Supply Agreement, the Partnership has the primary responsibility for performing
and coordinating regulatory compliance functions for Products, and each Producer
shall prepare and provide such information relating to Manufacturing Stages
performed by such Producer as necessary to allow the Partnership to perform its
regulatory responsibilities. In addition, each Producer shall perform and bear
the cost of performing regulatory compliance functions on behalf of the
Partnership for the Manufacturing Stages for which it is responsible; provided,
however, that KB shall perform all regulatory compliance functions for
Turbuhaler systems incorporating Products. Each Producer shall take into account
the cost of performing such functions in establishing the Producer's Bid Price
pursuant to the Bid Procedure, if applicable. For purposes of this Article VIII,
"regulatory compliance functions" shall include the following:
(i) Review of all appropriate sections of the NDA submission.
(ii) Preparation of manufacturing process descriptions for
conformance to NDA or other regulatory filing.
(iii) Preparation of supporting data for NDA supplements for
changes, as required by the FDA pursuant to regulations, guidelines or
otherwise.
(iv) Performance of chemical and/or product annual reviews,
including annual examination of retention samples.
(v) Preparation of regulatory annual report submissions,
including updated manufacturing descriptions and stability data.
(vi) Other appropriate and reasonable services relating to
regulatory compliance, as specifically set forth by KBI in its bid
solicitations (if applicable) or as otherwise agreed between the
Partnership and the Party performing such functions.
47
<PAGE> 53
ARTICLE IX
WARRANTIES; QUALITY CONTROL; QUALITY
ASSURANCE; CLAIMS FOR DEFECTIVE PRODUCTS
Section 9.01 Warranties; Sample Retention. (a) Each Producer warrants
to KBI and KB (and to each Subsequent Producer, if any, for the same Product)
that all Products and Intermediate Forms thereof supplied by it, its Affiliates
or its subcontractors and all facilities and processes used in the manufacture
of such Products or Intermediate Forms, shall conform to the Specifications and
C & M Data, and such facilities shall be approved by the FDA to the extent
required by law; and such Producer, its Affiliates and its subcontractors shall
employ GMP in the manufacture of all Products and Intermediate Forms; provided,
however, that no Producer makes any warranty with respect to any Manufacturing
Stage or process not performed by it, its Affiliates or subcontractors.
(b) In addition to the obligations set forth elsewhere in this
Article, and notwithstanding anything to the contrary contained in Sections 6.09
and 7.09, each Producer will take and retain, for such period as may be required
by the FDA pursuant to regulations, guidelines or otherwise, samples of raw
materials and intermediates of each Product specifying the dates of manufacture
and Packaging and maintain production records and quality control reports
regarding such Product.
(c) KB and TR agree that KBI may extend warranties under this
Agreement to the Partnership or to any assignee of the Partnership's rights
under the Distribution Agreement.
Section 9.02 Producer's Quality Assurance/Quality Control Function. (a)
Except as otherwise provided in this Agreement, each Producer will be
responsible for quality control only for the Manufacturing Stage performed by it
or its Affiliates and subcontractors. Furthermore, each Producer shall perform
quality control, including confirmatory testing, of Intermediate Forms supplied
to it by the immediately preceding Earlier Stage Producer (or its Affiliates or
subcontractors) as such Producer shall deem appropriate or as required by the
FDA.
(b) Where a Producer performs only the Packaging and/or
Formulation function for a Product, the Producer's obligations to perform such
functions are contingent upon its having access to the information to which it
would be entitled under Section 9.03, including without limitation, the
documents and information in Exhibit V, with respect to the immediately
preceding Manufacturing Stage (i.e., Bulk Chemical synthesis, in the case of a
Producer performing the Formulation Manufacturing Stage, or Formulation, in the
case of a Producer performing the Packaging Manufacturing Stage).
(c) While the Partnership shall have final quality control
release responsibility for each Product, each Producer shall perform quality
control release testing in support of such quality control release.
<PAGE> 54
Section 9.03 Access to Records; Inspections; Audits. For the purpose of
the quality assurance functions contemplated in Section 9.02, each Producer
will, with respect to each Product and Intermediate Form manufactured by it or
its Affiliates or subcontractors:
(i) upon request by the Subsequent Producer performing the
next Manufacturing Stage, provide copies of the relevant batch
manufacturing records, relevant quality control records and relevant
certificates of analysis for raw materials used by such Producer; and
(ii) permit one or more qualified technical specialists of
such Subsequent Producer to conduct, at all reasonable times, quality
audits of the facility of such Producer (or its Affiliates or
subcontractors) where the Products or any Intermediate Forms thereof are
manufactured by such Producer (or its Affiliates or subcontractors) and of
any other facility which is proposed to be used for such manufacture and
of the process of manufacturing and quality control of Products,
including, without limitation, the review of all documents specified in
Exhibit V, provided, however, that such audit rights shall apply only to
the Manufacturing Stage (i.e. the Bulk Chemical or Formulation
Manufacturing Stage) immediately preceding the Manufacturing Stage
performed by such Subsequent Producer and are subject to such Producer's
(or its Affiliate's or subcontractor's) facility availability and strict
compliance with and observance of instructions and procedures in respect
of confidentiality and security, in order to ensure compliance with this
Article.
Section 9.04 Inspections and Audits. Each Producer shall further permit
one or more qualified technical quality specialists of the Partnership and KB,
to conduct inspections and audits at all reasonable times of the facility where
the Products or any Intermediate Forms thereof are manufactured by such Producer
(or its Affiliates or subcontractors) and any other facility which is proposed
to be used for such manufacture and of the process of manufacturing and quality
control of Products, including, without limitation, the review of all documents
specified in Exhibit V, subject to such Producer's (or its Affiliate's or
subcontractor's) facility availability and strict compliance with and observance
of instructions and procedures in respect of confidentiality and security, in
order to ensure compliance with this Article.
Section 9.05 Observations and Conclusions. Observations and conclusions of
the Partnership's, KB's and any Producer's audits or inspections of a Producer
(or its Affiliates or subcontractors) will be issued to and promptly discussed
with the Producer and reasonable corrective action, if needed (as determined by
agreement between such Producer in consultation with the Partnership), shall be
implemented by the Producer at its own expense.
Section 9.06 Certificates of Analysis. Each shipment of Product or
Intermediate Form by a Producer (or its Affiliates or subcontractors) shall be
accompanied by a certificate of analysis related to each batch of the
Intermediate Form of the Product included in such shipment certifying that such
shipment conforms to Specifications. Such certificate of analysis shall certify
that the Product conforms to Specifications and the C & M Data, and that the
Product was manufactured in accordance with GMP. A copy of such certificate of
analysis shall also be
49
<PAGE> 55
delivered to KBI contemporaneously with the delivery by such Producer to KBI of
its invoice for such Product.
Section 9.07 Notice of Claims; Replacement Quantities. Unless KBI (or a
Subsequent Producer) gives notice to the Producer of a Product (or Intermediate
Form) to the contrary within 60 days of delivery by such Producer to KBI (or
such other Producer) of a quantity of such Product (or Intermediate Form), such
quantity of Product (or Intermediate Form) shall be deemed to be satisfactory to
KBI (or such other Producer), subject thereafter only to claims based on or
arising from the failure of such Product (or Intermediate Form) to be
manufactured in accordance with Section 9.01; provided, however, the foregoing
shall not limit anything contained in Article X. If KBI (or such other Producer)
notifies the Producer within such 60 days that any quantities of a Product (or
Intermediate Form) delivered by the Producer do not conform to the
Specifications or C & M Data, or were not manufactured in accordance with GMP,
the Producer shall have 30 days to reexamine the same to determine whether it
agrees with KBI (or such other Producer). If it agrees, the Producer shall
deliver as promptly as practicable new quantities of the Product (or
Intermediate Form) for the replacement of the defective quantities at no
additional cost to KBI or the Subsequent Producer, and KBI (or such Subsequent
Producer) within 60 days thereafter shall notify the Producer of its acceptance
or rejection of such replacement quantities. If the Producer disagrees that the
original quantities of such Product (or Intermediate Form) are nonconforming, or
if KBI (or the other Producer) rejects the Producer's replacement Product (or
Intermediate Form) as non-conforming, the matter will be referred to an
independent laboratory acceptable to the Producer and KBI (or the other
Producer). Testing by the laboratory will be in accordance with NDA procedures.
The Producer and KBI (or the other Producer) shall accept the laboratory's
opinion and its charges shall be borne equally by the Producer and KBI (or the
other Producer). If the laboratory's opinion is that such Product (or
Intermediate Form) is nonconforming, the Producer shall deliver as promptly as
practicable new quantities of the Product (or Intermediate Form).
ARTICLE X
CLAIMS AND DISCLAIMERS
Section 10.01 Indemnification by KBI. (a) KBI shall indemnify and hold
harmless TR, KB, and each of their respective Affiliates, and each of their, and
their Affiliates', respective officers, directors, employees and agents (each a
"KBI Indemnitee") from and against any and all losses, damages, liabilities or
expenses (including reasonable attorney's fees and other costs of defense)
(collectively, "Losses") in connection with any and all actions, suits, claims
or demands (collectively "Claims") that may be brought or instituted against any
KBI Indemnitee by any Non-Affiliate of all the Parties based on or arising out
of the manufacture, use or sale of any Product sold hereunder, including,
without limitation, any investigation by any governmental agency with respect to
the quality of such Product, or any claim for death or personal injury or
property damage asserted by any user of such Product; provided, however, that
(i) KBI shall not be obligated to indemnify and hold harmless TR or any of its
Affiliates or any officer, director, employee or agent of TR or any of its
Affiliates from any Losses in connection with any Claim based on or arising out
of any event or circumstance with respect to which TR is obligated to
50
<PAGE> 56
indemnify and hold harmless KBI pursuant to Section 10.02(a); and (ii) KBI shall
not be obligated to indemnify and hold harmless KB or any of its Affiliates or
any officer, director, employee or agent of KB or any of its Affiliates from any
Losses in connection with any Claim based on or arising out of any event or
circumstance with respect to which KB is obligated to indemnify and hold
harmless KBI pursuant to Section 10.02(b).
(b) KBI shall indemnify and hold harmless TR, KB, and each of
their respective officers, directors, employees and agents (each a "KBI Contract
Indemnitee") from and against any and all Losses in connection with any and all
Claims that may be brought or instituted against any KBI Contract Indemnitee by
any Non-Affiliate of all the Parties based upon or arising out of any breach or
failure to perform any of the provisions of this Agreement by KBI or any of its
Affiliates or subcontractors.
Section 10.02 Indemnification by TR and KB and Each Producer. (a) TR shall
indemnify and hold harmless KBI, KB, each of their Affiliates, and each of
their, and their Affiliates', respective officers, directors, employees and
agents (each a "TR Indemnitee") from and against any and all Losses in
connection with any and all Claims that may be brought or instituted against any
TR Indemnitee by any Non-Affiliate of all the Parties based on or arising out of
the failure of TR or any of its Affiliates or subcontractors to manufacture any
Product or Intermediate Form hereunder in accordance with the Specifications, C
& M Data or GMP; provided, however, that TR shall not have any obligation to
indemnify and hold harmless any Person for any Losses arising out of Claims
based on or arising out of any Product defect resulting from any defect in any
Intermediate Form supplied by KBI or another Producer or occurring in connection
with any Manufacturing Stage performed by any Person other than TR or its
Affiliates or subcontractors.
(b) KB shall indemnify and hold harmless KBI, TR, each of
their Affiliates, and each of their, and their Affiliates', respective officers,
directors, employees and agents (each a "KB Indemnitee") from and against any
and all Losses in connection with any and all Claims that may be brought or
instituted against any KB Indemnitee by any Non-Affiliate of all the Parties
based on or arising out of the failure of KB or any of its Affiliates or
subcontractors to manufacture any Product or Intermediate Form hereunder in
accordance with the Specifications, C & M Data or GMP; provided, however, that
KB shall not have any obligation to indemnify and hold harmless any Person for
any Losses arising out of Claims based on or arising out of any Product defect
resulting from any defect in any Intermediate Form supplied by KBI or another
Producer or occurring in connection with any Manufacturing Stage performed by
any Person other than KB or its Affiliates or subcontractors.
(c) Each Producer of a Product shall indemnify and hold
harmless KBI and each Subsequent Producer and each of their, and their
Affiliates', respective officers, directors, employees and agents (each a
"Subsequent Producer Indemnitee") from and against any and all Losses arising
out of property damage (including without limitation damage to equipment and
machinery and loss, contamination of or defects in such Product or any raw
material or Intermediate Form) resulting from or arising out of the negligence
of such Producer or any of its Affiliates or subcontractors or the failure of
such Producer or any of its Affiliates or
51
<PAGE> 57
subcontractors to manufacture any Intermediate Form of such Product delivered to
such Subsequent Producer in accordance with the Specifications, C & M Data or
GMP.
(d) (i) KB shall indemnify and hold harmless KBI and its
officers, directors, employees and agents (each a "KB Contract Indemnitee") from
and against any and all Losses in connection with any and all Claims that may be
brought or instituted against any KB Contract Indemnitee by the Partnership or
any Non-Affiliate of all the Parties based upon or arising out of any breach of
or failure to perform any of the provisions of this Agreement by KB or any of
its Affiliates or subcontractors.
(ii) TR shall indemnify and hold harmless KBI and its
officers, directors, employees and agents (each a "TR Contract Indemnitee") from
and against any and all Losses in connection with any and all Claims that may be
brought or instituted against any TR Contract Indemnitee by the Partnership or
any Non-Affiliate of all the Parties based upon or arising out of any breach of
or failure to perform any of the provisions of this Agreement by TR or any of
its Affiliates or subcontractors.
Section 10.03 Indemnification Procedures. As promptly as practicable after
any indemnitee referred to in Section 10.01 or 10.02 obtains knowledge of any
action, suit, claim or demand as to which it will or may be entitled to
indemnity under Section 10.01 or 10.02, such indemnitee shall give notice to KBI
and the indemnifying Party or Parties. If such matter involves an action, suit,
claim or demand of a third party, the indemnifying Party or Parties shall be
entitled to assume control of the defense or settlement of such action, suit,
claim or demand, provided, however, that (i) the indemnitee shall be entitled to
participate in the defense of such matter and to employ counsel of its own
choosing and at its own expense to assist in the handling of such matter, and
(ii) the indemnifying Party or Parties shall obtain the prior written approval
of the indemnitee, which approval shall not be unreasonably withheld or delayed,
before entering into any settlement of such matter or ceasing to defend against
such matter.
Section 10.04 Disclaimers. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT,
THERE ARE NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED,
WRITTEN OR ORAL, BY ANY PARTY (OR ANY OF ITS AFFILIATES), NOR SHALL ANY PARTY
(OR ANY OF ITS AFFILIATES) HAVE ANY LIABILITY OF ANY NATURE, WITH REGARD TO THE
VALUE, ADEQUACY, FREEDOM FROM FAULT OR INFRINGEMENT, QUALITY, EFFICIENCY,
SUITABILITY, CHARACTERISTICS OR USEFULNESS OF (x) ANY MANUFACTURING PROCESSES,
PRODUCTION METHODS, MANUFACTURING PATENTS, MANUFACTURING DATA, MANUFACTURING
INFORMATION OR MANUFACTURING KNOW-HOW (INCLUDING, WITHOUT LIMITATION, ANY OF
KB'S MANUFACTURING PROCESSES OR MANUFACTURING TECHNICAL INFORMATION FURNISHED
HEREUNDER OR UNDER THE MASTER RESTRUCTURING AGREEMENT OR ANY OTHER ANCILLARY
AGREEMENT) OR (y) ANY PRODUCTS (OR INTERMEDIATE FORMS THEREOF) MANUFACTURED,
USED OR SOLD HEREUNDER, INCLUDING, WITHOUT LIMITATION: (i) ANY IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE; (ii) ANY
IMPLIED WARRANTIES ARISING FROM
52
<PAGE> 58
COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE IN THE TRADE; (iii) ANY
WARRANTY OF DESCRIPTION OR OTHERWISE CREATED BY ANY AFFIRMATION OF FACT OR
PROMISE OR SAMPLE OR MODEL; OR (iv) ANY CLAIMS BASED ON ALLEGATIONS OF
INFRINGEMENT OR UNFAIR COMPETITION WITH RESPECT TO ANY PRODUCT OR ANY SUCH
PROCESSES, PRODUCTION METHODS, PATENTS, DATA, INFORMATION OR KNOW-HOW; AND ALL
SUCH REPRESENTATIONS, WARRANTIES AND LIABILITIES, WHETHER IN CONTRACT, WARRANTY,
NEGLIGENCE, TORT, STRICT LIABILITY OR OTHERWISE, ARE HEREBY DISCLAIMED BY KB,
KBI, TR AND EACH ALTERNATE PRODUCER AND BY EACH OF THEM ON BEHALF OF THEIR
RESPECTIVE AFFILIATES; PROVIDED, HOWEVER, THAT NOTHING CONTAINED IN THIS SECTION
10.04 SHALL BE DEEMED A WAIVER OF, OR BE DEEMED TO LIMIT, THE OBLIGATIONS OF ANY
PARTY HEREUNDER.
Section 10.05 Limitation of Damages. IN NO EVENT SHALL ANY PARTY (OR ANY
OF ITS AFFILIATES OR SUBCONTRACTORS) BE LIABLE FOR SPECIAL, INDIRECT, INCIDENTAL
OR CONSEQUENTIAL DAMAGES, WHETHER IN CONTRACT, WARRANTY, NEGLIGENCE, TORT,
STRICT LIABILITY OR OTHERWISE, ARISING (x) OUT OF THE FURNISHING OR USE OF ANY
MANUFACTURING PROCESSES, PRODUCTION METHODS, PATENTS, DATA, KNOW-HOW OR OTHER
INFORMATION (INCLUDING, WITHOUT LIMITATION, ANY OF KB'S MANUFACTURING PROCESSES
OR MANUFACTURING TECHNICAL INFORMATION), OR (y) OUT OF THE MANUFACTURE, USE OR
SALE OF ANY PRODUCT SOLD HEREUNDER (OR ANY INTERMEDIATE FORM THEREOF), OR (z)
OUT OF ANY BREACH OF OR FAILURE TO PERFORM ANY OF THE PROVISIONS OF THIS
AGREEMENT; PROVIDED, HOWEVER, NOTHING CONTAINED IN THIS SECTION 10.05 SHALL ACT
TO LIMIT ANY INDEMNIFICATION PROVIDED IN SECTION 10.01, SECTION 10.02(a),
SECTION 10.02(b) OR SECTION 10.02(d).
ARTICLE XI
TERM AND TERMINATION
Section 11.01 Termination of Agreement. (a) In case KBI shall no longer
have any right pursuant to the KBI Sublicense to make and have made any
Products, this Agreement will be automatically terminated in its entirety.
(b) This Agreement shall terminate in its entirety upon the
exercise of the Option (as defined in the KBI Shares Option Agreement ) and the
purchase and sale of the KBI Shares (as defined in the KBI Shares Option
Agreement) contemplated thereby; provided, however, that if the Notice of
Exercise (as defined in the KBI Shares Option Agreement) is delivered prior to
2017, this Agreement shall terminate in its entirety two (2) years after the
Option Closing Date (as defined in the KBI Shares Option Agreement) but no later
than December 31, 2017.
53
<PAGE> 59
(c) Notwithstanding any other provision of this Agreement,
this Agreement shall not terminate so long as there is any unexpired Transition
Period (as such term is defined in the KBI-E Asset Option Agreement or the KBI
Shares Option Agreement).
Section 11.02 Termination as to Particular Products; Effect of Assignment.
(a) In the event of the exercise of an Assignment Right or the occurrence of a
Required Sale (each as defined in the KBI-E Asset Option Agreement), as of the
Assignment Date (as defined in the KBI-E Asset Option Agreement) KBI shall
assign to KBI-E all of KBI's rights and delegate all of KBI's obligations under
this Agreement with respect to all Products (other than Products containing
omeprazole or perprazole) (the "Retained Responsibilities"), and KBI-E shall
simultaneously with such assignment and delegation assign such rights and
delegate such obligations with respect to the Retained Responsibilities to KB;
provided, however, that each of KBI-E and KB shall expressly assume the due and
punctual performance of all obligations which are so assigned or delegated;
provided, further, however, that the assignments and delegations provided for
herein shall not release KBI or KBI-E, as the case may be, from the obligations
so assigned or delegated except to the extent such obligations are performed by
the applicable assignee.
(b) Except as provided in Section 2.01(b) with respect to
Non-Exclusive Second Look Products and Exclusive Second Look Products, upon the
exercise of an Assignment Right or the occurrence of a Required Sale, this
Agreement shall terminate with respect to any Products (other than Products
containing omeprazole or perprazole) upon the later of (i) the expiration of
Market Exclusivity with respect thereto and (ii) two (2) years from the
Assignment Date.
(c) Immediately upon the date of the KBI-E Asset Purchase: (i)
TR's rights and obligations under this Agreement shall terminate with respect to
any Product for which it has not been allocated responsibility as a Producer as
of the date of the KBI-E Asset Purchase; (ii) to the extent that TR has been
allocated the responsibility for any Manufacturing Stage for a Transition
Product, TR shall perform its obligations pursuant to Section 2.01(b) with
regard to such Transition Product until the end of the Transition Period; and
(iii) notwithstanding the foregoing, for a Non-Exclusive Second Look Product or
an Exclusive Second Look Product for which the option pursuant to Section 5.1 of
the KBI-E Asset Option Agreement is not exercised, KB shall supply any such
Product for which it is then the Producer in accordance with the terms of
Section 2.01(b) to TR or its designee at Manufacturer's Cost.
Section 11.03 Effect of Termination. Upon termination of this Agreement in
whole or in part with respect to a Producer, such Producer shall promptly
return, to the extent legal and practicable, to KB at such Producer's sole
expense, all originals and copies of Manufacturing Technical Information and of
other confidential information covered by Article XV received by such Producer
(or any of its Affiliates or subcontractors) regarding the Product or Products
to which the termination relates; provided, however, such copies need not be
returned to the extent necessary to satisfy applicable statutory or regulatory
requirements or, if a lawsuit is pending or threatened, to the extent such
information could be relevant to such lawsuit. Notwithstanding any such
termination, Sections 4.11, 5.03, 6.08 and 7.08 and Articles IX, X, XI, XII, XIV
and
54
<PAGE> 60
XV and any obligations which have accrued prior to such termination shall
survive such termination.
Section 11.04 No Termination for Breach. In accordance with Section 11.5 of
the Master Restructuring Agreement, no Party can terminate this Agreement due to
a breach hereof by any other Party hereto.
ARTICLE XII
RECALLS
Section 12.01 Recalls and Market Withdrawals. The Partnership may recall
or effect a market withdrawal of a Product at any time, after consultation with
KB and each Producer with respect to such Product. In addition, KB, after
consultation with the Partnership, may, at any time, demand a recall or market
withdrawal of a Product of which it (or any of its Affiliates) is the licensor,
and, if so requested, the Partnership shall promptly effect such recall or
market withdrawal. Furthermore, any Producer, after consultation with the
Partnership, may, at any time, demand a recall or market withdrawal of a
particular lot of Product of which it or any of its Affiliates is a Producer if
it is demonstrated that the recall or market withdrawal of such lot of Product
is due to the failure of such Producer (or its Affiliates or subcontractors) or
an Earlier Stage Producer of such lot to manufacture such lot according to the
Specifications therefor, C&M Data or GMP or for any other reason within the
primary quality control responsibility of such Producer, and, if so requested,
the Partnership shall promptly effect such recall or market withdrawal. The
Partnership and, if applicable, the Party demanding the recall or market
withdrawal, shall coordinate the recall or market withdrawal. The Partnership
shall bear all costs relating to the recall or market withdrawal unless (i) it
is demonstrated that the recall or market withdrawal is due to the failure of a
Producer (or its Affiliates or subcontractors) to manufacture such Product
according to the Specifications therefor, C & M Data or GMP or for any other
reason within the primary quality control responsibility of such Producer, in
which case such Producer shall bear the costs relating to the recall or market
withdrawal or (ii) such recall or market withdrawal is demanded by KB for a
reason other than a reason set forth in (i) above, in which case KB shall bear
the costs relating to the recall or market withdrawal. The rights of the Parties
to recall or effect a market withdrawal of a Product shall be limited to those
set forth in this Section 12.01, the KBI Supply Agreement and the KBI License.
ARTICLE XIII
SUBCONTRACTING
Section 13.01 Right to Subcontract. Subject to Sections 3.01(c), 3.01(e),
4.08 and 4.09, and after informing KBI, any Producer may subcontract the
manufacture of any Product or intermediate thereof; provided, however, that any
such subcontract shall be subject to the applicable terms and conditions of this
Agreement, including, without limitation, the provisions of Sections 6.08, 7.08,
10.04 and 10.05 and Article XV, and, upon KBI's or KB's request, such Producer
shall require such subcontractor to enter into an undertaking, pursuant to which
such
55
<PAGE> 61
provisions shall apply directly between such subcontractor and KBI or KB or TR,
as the case may be, prior to disclosing to such subcontractor any confidential
information of KBI, KB or TR; provided, further, no such subcontract shall
release such Producer from any of its obligations under this Agreement except to
the extent they are performed by such subcontractor; provided, further, that an
Alternate Producer may not subcontract such manufacture without the prior
written consent of KBI and the Partnership; provided, further, that other than
as provided in Sections 3.01(c)(iii), 3.01(c)(v) and 4.06, KB may not
subcontract the Formulation Manufacturing Stage of any KB Pipeline Products to a
Non-Affiliate of KB; and provided, further, that KB USA may not subcontract the
Packaging Manufacturing Stage to a Non-Affiliate of KB USA.
A Producer performing the Bulk Chemical Manufacturing Stage shall as
promptly as practicable inform KBI and the Formulator of any subcontract entered
into by it with respect to the Bulk Chemical Manufacturing Stage, and a Producer
performing the Formulation Manufacturing Stage shall as promptly as practicable
inform KBI and the packager of any subcontract entered into by it with respect
to the Formulation Manufacturing Stage. If the Transfer Price of a subcontracted
Product is calculated in accordance with Exhibit III, Exhibit IVA or Exhibit IVB
hereof, subcontracting premium will be charged to KBI only if (i) the Producer
delivers or causes to be delivered to the subcontractor an Intermediate Form of
such Product or manufacturing process know-how necessary for the production of
such Product and (ii) the Producer provides supervisory oversight or other
related services with respect to the subcontractor.
Section 13.02 Subcontracting to Another Party. TR and KB may agree that
some or all of a Manufacturing Stage for a Product may be subcontracted to the
other Party. In such an event, KB or TR, as the case may be, in its capacity as
subcontractor shall be entitled to receive from the other Party as payment for
performing such subcontract an amount equal to the Transfer Price that would
have been paid therefor under Exhibit III, in the case of TR, or Exhibit IVA and
Exhibit IVB, as applicable, in the case of KB. The other terms and conditions of
any such arrangement shall be set forth in a separate agreement between KB and
TR. No such subcontract shall affect the allocation of manufacturing
responsibilities set forth in Article III of this Agreement or release a
Producer from any of its obligations under this Agreement.
ARTICLE XIV
RECORDS
Each Producer shall keep, and shall cause its Affiliates to keep, true,
accurate, and complete records of manufacturing costs, expenses, and capital in
sufficient detail to permit the determination of the Transfer Price for each
Product (or Intermediate Form) manufactured by it or its Affiliates or
subcontractors. At the request and expense of KBI, KBI shall have the right for
its then currently engaged independent accountants to have reasonable access at
all reasonable times upon reasonable prior notice during normal business hours,
to audit and examine, and make copies or extracts of and from, the books,
records and accounts of such Producer and its Affiliates as may be necessary in
such accountant's judgment to permit it to
56
<PAGE> 62
attest that the segments of the Transfer Price charged to KBI by such Producer
conform to the terms of this Agreement and, in the event that TR has submitted
the winning bid for a Product, that the Bid Price for such Product or
Intermediate Form thereof, as adjusted by the Index as provided in the Bid
Procedure, will not exceed the price paid or payable based on the Transfer Price
computations set forth in Exhibit III, net of the amount paid to an Earlier
Stage Producer for the Bulk Chemical included in the Finished Dosage Form. Such
rights of access, audit and inspection for any Year shall terminate two years
after KBI's receipt of such Producer's final invoice with respect to such Year
or, in the case of a bid Product, two years after KBI's receipt of TR's formal
notice that the Bid Prices charged by it have not exceeded the Transfer Price
for such services under the terms of Exhibit III, net of the amount paid to an
Earlier Stage Producer for the Bulk Chemical included in the Finished Dosage
Form. KBI shall enter into a written engagement with such accountants, a copy of
which shall be provided to the Producer, providing that (i) the scope of the
engagement with respect to such audit and examination is limited to the rights
provided in this Article XIV and, if the audit is performed in connection with
another audit permitted by any other agreement between an Affiliate of such
Producer and KBI, the rights of such Affiliate under such other agreement, (ii)
such accountants agree to use reasonable efforts, consistent with their
professional responsibility, the availability of materials and information and
the level of assistance received, to conclude the audit and examination within a
reasonable period of time, and (iii) such accountants agree to keep any such
information to which they have access pursuant to the foregoing confidential and
not to disclose to KBI (or any of its Affiliates) any information other than
information relating to the conformance of the Producer's computation of
Transfer Price with the terms of this Agreement, and in no event shall
quantities or prices or rebates to individual customers be disclosed to KBI (or
any of its Affiliates) or any other Person. Notwithstanding the foregoing, KBI
shall not, during the period from December 15 of any Year through January 31 of
the following Year, exercise its rights of access, audit and inspection under
this Section and, during the period from February 1 through the last day of
February of any Year, exercise such rights with respect to the activities of the
Producer during the last Quarter of the prior Year.
ARTICLE XV
CONFIDENTIALITY
Section 15.01 Confidentiality. Subject to the provisions of Section 9.2 of
the KBI License, each Party and each Alternate Producer (as if such Alternate
Producer were a TR Party) shall maintain in strict confidence all Confidential
Information pursuant to and in accordance with Sections 4.1 and 4.2 of the
Master Restructuring Agreement, provided, however, that any Party may disclose
such information (other than any privileged or work product-protected
information that may have been shared with another Party pursuant to any common
or joint interest agreement) to any governmental agency or authority to the
extent necessary to obtain the approval of any agency or authority to make and
have made Products pursuant to the terms and conditions of this Agreement;
provided, further, however, to the extent permitted by applicable law, such
disclosure shall be made on a confidential and restricted basis.
57
<PAGE> 63
ARTICLE XVI
MISCELLANEOUS PROVISIONS
Section 16.01 Amendments; Waiver. This Agreement may be amended, modified,
or supplemented only by a written instrument duly executed by each Party, and
may be waived only by a written instrument duly executed by the Party to be
bound. No omission or delay on the part of any Party in requiring the due and
punctual fulfillment by another Party of any of its obligations hereunder shall
constitute a waiver by the omitting or delaying Party of any of its rights to
require such due and punctual fulfillment of any obligation hereunder, whether
similar or otherwise, or a waiver of any remedy it may have hereunder or
otherwise.
Section 16.02 Best Efforts; Performance. The obligation of any Party to
use its best efforts in any connection shall only require such Party to use such
efforts which are reasonable in the circumstances and are consistent with the
policies and practices utilized by it in conducting its own business. Without
limiting any other provision hereof, each Party will perform its respective
obligations under this Agreement with respect to any Product as promptly as
practicable in a manner reasonably consistent with that employed by such Party
or its Affiliates in connection with its other pharmaceutical products.
Section 16.03 Headings. The Article and Section headings in this Agreement
are solely for the convenience and reference of the Parties and are not intended
to be descriptive of the entire contents of, or to affect, any of the terms or
provisions hereof.
Section 16.04 Successors; Third Parties; Assignment. This Agreement shall
inure to the benefit of and be binding upon the Parties and their respective
successors and permitted assigns. Except as expressly otherwise provided herein,
nothing in this Agreement is intended to confer on any Person other than the
Parties and their respective Affiliates, or their respective successors or
permitted assigns, any rights or obligations under or by reason of this
Agreement. Except as otherwise provided herein or in any other Ancillary
Agreement or in any Initial Agreement, no Party shall assign this Agreement nor
any of its rights or obligations hereunder without the prior consent of the
other Parties. KB may assign any or all of its rights or obligations hereunder
to any of its Affiliates or to a successor to all or substantially all of its
business. In the event of any permitted assignment, such assignee or assignees
shall expressly assume the due and punctual performance of all obligations which
are so assigned, and any such assignment shall not release the assignor from
such obligations except to the extent that they are performed by the assignee or
assignees.
Section 16.05 Notices. Any notice, request or other communication under or
with respect to this Agreement shall be in writing and shall be deemed to have
been duly given upon receipt of: hand delivery; certified or registered mail,
return receipt requested; or telecopy transmission with confirmation of receipt
to any Party at its address set forth below (except that the notice address with
respect to communications contemplated in the Bid Procedure shall be as set
forth in or pursuant to Part II of Schedule A):
58
<PAGE> 64
If to TR, to: Merck & Co., Inc.
P.O. Box 100
One Merck Drive
Whitehouse Station, New Jersey 08889-0100
U.S.A.
Attention: Secretary
Telecopier: (908) 735-1246
If to KB, to: Astra AB
S-151 85
Sodertalje, Sweden
Attention: General Counsel
Telecopier: 011-46-8-55328812
If to KB USA, to: Astra USA, Inc.
50 Otis Street
P.O. Box 4500
Westborough, MA 01581-4500
Attention: President
Telecopier: (508) 366-7406
If to KBI, to: Astra Merck Inc.
c/o Merck & Co., Inc.
One Merck Drive
P.O. Box 100
Whitehouse Station, New Jersey 08889-0100
U.S.A.
Attention: Secretary
Telecopier: (908) 735-1246
Any Party by written notice to the other Parties in accordance with the
above may change the address to which such notices, requests or other
communications to it shall be directed.
Section 16.06 Force Majeure. No Party shall be responsible or liable to
any other Party for any failure to perform any of its covenants or obligations
under this Agreement if such failure results from events or circumstances
reasonably beyond the control of such Party (collectively "Events of Force
Majeure"). Events of Force Majeure shall include, without limitation, any order,
decree, law or regulation of any nature whatsoever of any court or governmental
authority; war (whether or not declared); embargo; strike, lockout or other
labor difficulty; riot; epidemic; disease; unavoidable accident; explosion; act
of God; civil commotion; fire; earthquake; storm; flood; failure of public
utilities or common carriers; unavailability of, or material reduction in the
supply of, raw materials or intermediates, labor, fuel, electricity, water or
transport; and any other circumstances whatsoever whether similar to the above
causes or not; provided, however, that the foregoing shall not include any event
or circumstance which prevents any Party from obtaining the funds sufficient to
make any payment required to be made by it pursuant to this Agreement,
59
<PAGE> 65
but shall include any such event or circumstance which prevents any Party from
transferring such funds to any other Party to effect such payment. The Party
failing to perform as a result of an Event of Force Majeure shall promptly
notify the other Parties of such Event of Force Majeure and shall take all
action as is reasonably possible to remove such Event of Force Majeure;
provided, however, that nothing contained herein shall require the settlement of
any strike, lockout or other labor difficulty, or of any investigation or
proceeding by any governmental authority or of any litigation, by any Party on
terms unsatisfactory to it.
Section 16.07 Obligations of Producers other than KB, TR or KB USA. To the
extent this Agreement refers to an obligation of a Producer other than KB, TR or
KB USA, KBI shall cause such Producer to enter into an undertaking pursuant to
which the provisions of this Agreement shall apply directly between such
Producer and KBI, TR, KB and KB USA. Any such undertaking shall be entered into
prior to any such Producer participating in a Bid Procedure.
Section 16.08 [Omitted].
Section 16.09 Severability. If any one or more of the provisions of this
Agreement shall be held to be invalid, illegal or unenforceable, the validity,
legality or enforceability of the remaining provisions hereof shall not in any
way be affected or impaired thereby. To the extent permitted by applicable law,
each Party waives any provision of law which renders any provision hereof
invalid, illegal or unenforceable in any respect. In the event any provision of
this Agreement shall be held to be invalid, illegal or unenforceable the Parties
shall use best efforts (which shall not require payments to its Non-Affiliates)
to substitute a valid, legal and enforceable provision which, insofar as
practical, implements the purposes hereof.
Section 16.10 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to its conflict of law rules other than Section 5-1401 of the New York
General Obligations Law.
Section 16.11 Arbitration. Subject to Section 9.4 of the Master
Restructuring Agreement, any dispute, controversy or claim among the Parties
arising out of or related to this Agreement, or the interpretation or breach
hereof, shall be settled by binding arbitration pursuant to the principles and
procedures set forth in Article 9 of the Master Restructuring Agreement.
Section 16.12 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
60
<PAGE> 66
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the day and year first above written.
MERCK & CO., INC.
By: /s/ Judy C. Lewent
-----------------------------------
Name: Judy C. Lewent
Title: Senior Vice President and
Chief Financial Officer
ASTRA AB
(publ)
By: /s/ Goran Lerenius
-----------------------------------
Name: Goran Lerenius
Title: Authorized Signatory
ASTRA USA, INC.
By: /s/ Christian Onfelt
-----------------------------------
Name: Christian Onfelt
Title: Vice President
ASTRA MERCK INC.
By: /s/ Peter E. Nugent
-----------------------------------
Name: Peter E. Nugent
Title: President
61
<PAGE> 67
SCHEDULE A
BID PROCEDURE
For purposes of this Schedule A, separate dosage forms of a Compound
(i.e., separate delivery systems using the same Compound) shall be considered
separate Products. Separate dosage levels of a Compound which have the same
delivery system and do not differ significantly in the manufacturing processes
shall be considered the same Product and may be included in a single bid
request.
I. BIDS IN RESPECT OF FORMULATION OR PACKAGING OF KB PIPELINE PRODUCTS
In the event that the responsibility for the Formulation Manufacturing
Stage or the Packaging Manufacturing Stage for a Product is required pursuant to
Section 3.01 to be determined in accordance with the Bid Procedure, such
responsibility shall be determined by the following procedure on a
Product-by-Product basis.
A. Initial Bids
1. Information and Timetable. KB shall provide information to KBI and the
Bidding Parties in accordance with Section 7.01. In addition, KB shall provide
the Product and Process Information specified in Part III.A of Schedule A
("Product and Process Information") or the Packaging Information specified in
Part IV.A of Schedule A ("Packaging Information"), as the case may be, to KBI
and such Bidding Parties and will provide to KBI and such Bidding Parties such
additional information related thereto as may be reasonably requested by any of
the Bidding Parties to permit such Bidding Parties to prepare a bid in a timely
and efficient manner; provided, however, that KB shall not be required to
provide information concerning the prices paid to vendors for inputs and
supplies and other commercial conditions pertaining to such vendors. KB shall
inform KBI and such Bidding Parties of the expected date of the delivery of such
Product and Process Information. The Parties will use their best efforts to work
expeditiously so that Bid Requests (as defined below) can be delivered to the
Bidding Parties not less than 28 months prior to the anticipated date of filing
of the NDA with respect to such Product.
2. Preliminary Bid Information. Not more than 15 days after the receipt of such
Product and Process Information or such Packaging Information, as the case may
be, the Partnership will prepare a preliminary bid request containing the
information specified in paragraph I.A.3 below in scope and detail comparable to
that expected to be included in the formal Request for Bids delivered pursuant
to such paragraph, to the extent available, and shall deliver such preliminary
bid request to the Bidding Parties as provided in Part II of this Schedule
below. The Bidding Parties shall have a reasonable period of time (not less than
15 days) to review such preliminary bid request. The Partnership and KB shall
use their best efforts to respond to any reasonable inquiries of any Bidding
Party concerning the information and the bid specifications and requirements
contained therein.
<PAGE> 68
Prior to the delivery of the Request for Bids for the Formulation
Manufacturing Stage, TR or an Alternate Producer may waive its right to submit a
bid pursuant to the Bid Procedure by delivering written notice of such waiver to
KBI in the manner provided in Section 16.05. In such event, KB may elect to
perform the Formulation Manufacturing Stage itself or by means of the
appointment of a subcontractor as if KB had won the bid pursuant to Section
3.01(c)(iii), and the Transfer Price therefor will be computed in accordance
with Exhibits IVA and IVB, as applicable. If KB does not elect to perform the
Formulation Manufacturing Stage within 90 days after being notified by KBI that
TR or such Alternate Producer has waived its right to submit a bid, paragraph
I.A.7 below shall apply. Prior to the delivery of the Request for Bids, KB may
waive its right to submit a bid pursuant to the Bid Procedure by delivering
written notice of such waiver to KBI in the manner provided in Section 16.05. In
such event, paragraph I.A.7 below shall apply.
Prior to the delivery of the Request for Bids for the Packaging
Manufacturing Stage, TR and any other Person selected by KBI may waive its right
to submit a bid pursuant to the Bid Procedure by delivering written notice of
such waiver to KBI in the manner provided in Section 16.05. In such event, KB
USA may elect to perform the Packaging Manufacturing Stage, and the Transfer
Price therefor will be computed in accordance with Exhibit IVB. If KB USA does
not elect to perform the Packaging Manufacturing Stage within 90 days after
being notified by KBI that TR and such Person has waived its right to submit a
bid, paragraph I.A.7 below shall apply. Prior to the delivery of the Request for
Bids, KB USA may waive its right to submit a bid pursuant to the Bid Procedure
by delivering written notice of such waiver to KBI in the manner provided in
Section 16.05. In such event, paragraph I.A.7 below shall apply.
3. Request for Bids. As soon as practicable, but no later than 15 days after the
expiration of the preliminary bid request review period provided pursuant to
paragraph I.A.2 above, KBI shall invite such Bidding Parties to submit bids to
perform the Formulation Manufacturing Stage of the Product or the Packaging
Manufacturing Stage of such Product, as the case may be, by delivering to each
of such Bidding Parties a formal request for bids (the "Request for Bids")
prepared by the Partnership in accordance with Part II of this Schedule A below.
Such Request for Bids may include multiple dosage levels of a Product and shall
contain the applicable information specified in Part III or Part IV of this
Schedule A below and such additional information, reasonable performance
standards and other reasonable bid requirements as the Partnership shall
determine following consultation with such Bidding Parties, including, without
limitation, such additional information that may have been reasonably requested
by such Bidding Parties following their receipt of the preliminary bid request.
Notwithstanding the foregoing, the Request for Bids shall not impose any
obligations on a successful bidder that are inconsistent with any other
provision of this Agreement.
4. Bid Preparation. Bids shall be submitted to KBI in conformity with the
Request for Bids not later than 90 days after the date of the Request for Bids.
Any questions concerning the Request for Bids shall be directed to the
Partnership in writing (with a copy to the other Bidding Parties) as provided in
Part II below within 60 days following receipt of the Request for Bids. The
Partnership shall respond to such questions in writing (with a copy to the other
Party) as soon as practicable following the receipt of such questions but not
later than 15 days prior to the deadline
A-2
<PAGE> 69
for submission of bids. Notwithstanding the foregoing, each of such Bidding
Parties shall be entitled to employ a manufacturing process that differs from
the process specified in the Request for Bids, provided that such bidder
warrants equivalence.
5. Opening and Determination of Winning Bid. No information contained in a bid
submitted by a Party shall be disclosed to the other Bidding Parties prior to
the determination of the winning bid. In furtherance of this requirement, bids
shall be opened simultaneously by KBI at or promptly after the deadline for
receipt of bids.
In the event a bid covers Formulation of multiple dosage levels of a
Product, the winning bid shall be determined on the basis of the lowest
volume-weighted average Bid Price, based on volume estimates set forth in the
Request for Bids.
Not later than 30 days after the deadline for submission of bids, the
winning bid will be determined by KBI based on the Bid Price and whether or not
such bid meets the requirements set forth in the Request for Bids and KBI shall
promptly notify the Bidding Parties of its decision in the manner specified in
Part II of this Schedule A and shall include in such notice the Bid Prices of
the competing bids. If any of the Bidding Parties contends that the winning bid
was not the lowest bid or did not meet the requirements set forth in the Request
for Bids, such matter shall be submitted to arbitration in accordance with
Section 16.11.
Each Bidding Party that does not submit the winning bid agrees to return
to the Partnership any information provided to such Bidding Party pursuant to
the Bid Procedure (and any copies thereof) and shall continue to be bound by the
provisions of Article XV.
6. Transfer Price; Adjustments to Bid/Transfer Price. The Bidding Party that
submits the winning bid for the Formulation or Packaging, as the case may be, of
a Product shall be the Producer of that Product with respect to such
Manufacturing Stage, and the Transfer Price for such Manufacturing Stage for
that Product will be the sum of (i) the fixed bid price, as adjusted annually on
January 1 to reflect any increase or decrease in the Index through August 31 of
the year immediately preceding such January 1 (whether or not the bid
specifically provides for such an inflation/deflation adjustment) (the "Bid
Price"), and (ii) in the case of the Formulation Manufacturing Stage, the Amount
Attributable to Bulk Chemical; provided, however, that in no event shall the Bid
Price payable to such Producer, as so adjusted, exceed the price that KBI would
pay to such Producer based on the Transfer Price computations set forth in
Exhibit III (with respect to TR) and Exhibit IVA and IVB (with respect to KB or
KB USA), net of the amount paid to an Earlier Stage Producer for the Bulk
Chemical included in the Finished Dosage Form (in the case of the Formulation
Manufacturing Stage); and provided, further, that for Formulation of a new
dosage level of a Product (i.e., a dosage level not covered by a previous bid
hereunder) where there is no change in the delivery system or significant change
in the manufacturing process, (i) if TR is the current Formulator of such
Product, such Producer also shall Formulate such new dosage level, and the
Transfer Price payable to TR shall be the Transfer Price as calculated in
accordance with Exhibit III and not the Bid Price, as adjusted, (ii) if KB is
the current Formulator of such Product, the Producer of such Product shall
thereafter be determined in accordance with Section 3.01(c), and (iii) if an
Alternate Producer is the current
A-3
<PAGE> 70
Formulator of such Product, the Alternate Producer also shall Formulate such new
dosage level, and the Transfer Price payable to such Alternate Producer shall be
the price agreed upon between KBI and such Alternate Producer, subject to the
approval of the Partnership as set forth in Section 5.01(c). The Bidding Party
that submits the winning bid shall be responsible for paying out of the Bid
Price (as so adjusted) the Costs and Expenses of Delivery to the extent so
required pursuant to Section 4.04.
Within 90 days following the end of each Year, the Producer under a
winning bid shall certify to KBI and the Partnership that the Bid Price, as so
adjusted, does not exceed the price that KBI or the Subsequent Producer would
pay to it based on the Transfer Price computations set forth in Exhibit III
(with respect to TR or an Alternate Producer), and Exhibits IVA and IVB (with
respect to KB or KB USA), net of the amount paid to an Earlier Stage Producer
for the Bulk Chemical included in the Finished Dosage Form (in the case of the
Formulation Manufacturing Stage). KBI and the Partnership shall have the right
to cause such computations and certification to be audited as provided in
Article XIV.
7. No Bids Submitted. If (a) KB or KB USA waives its right to submit a bid
pursuant to Section I.A.2 or (b) TR waives such right and KB or KB USA, as the
case may be, does not elect to perform the relevant Manufacturing Stage, and (c)
no other conforming bids are received, subject to the provisions of Section
3.01(d)(iii), KBI shall secure a Producer for such Manufacturing Stage and the
Transfer Price for the relevant Manufacturing Stage of that Product will be
computed as provided in Section 5.01(c).
B. Subsequent Changes
1. Requested Performance that Deviates from Bid Request. In the event the
Bidding Party winning the bid is requested to perform in a manner that deviates
from the parameters set forth in the Request for Bids or otherwise perform in a
manner not contemplated in the Request for Bids, KBI shall reimburse such
Producer for the additional costs incurred in performing in accordance with such
requests. Examples of such deviations include, among other things, requests to
bear shipping costs to or from a location different from that specified in the
Request for Bids or to ship Product in a manner different from that specified in
the Request for Bids or a change in the Specifications. Such Producer shall
provide such documentation as is reasonably available to substantiate such
additional costs.
2. Initiation of New Bidding Process. If TR submits the winning bid for a
Product and determines at a subsequent date that it is unwilling to continue to
supply the Product at the then current price, as determined above, TR shall
notify KBI thereof and the Producer for such Product shall thereafter be
determined in accordance with Section 3.01(c); provided, however, that TR may
take the foregoing actions prior to the date which is three years after the date
upon which it commenced performing the Formulation or Packaging of such Product,
as the case may be, pursuant to this Agreement.
A-4
<PAGE> 71
II. ADDRESSES FOR DELIVERY OF BIDS AND REQUESTS FOR BIDS
All invitations or requests for bids shall be delivered to TR, KB and KB
USA in the manner provided for in Section 16.05 to their respective addresses
set forth below:
TR, to: Merck & Co., Inc.
P.O. Box 100
One Merck Drive
Whitehouse Station, New Jersey 08889-0100
U.S.A.
Attention: Executive Director, MMD Business Affairs
Telecopier: (908) 735-1169
with copies to: Merck & Co., Inc.
P.O. Box 100
One Merck Drive
Whitehouse Station, New Jersey 08889-0100
U.S.A.
Attention: Senior Counsel, MMD
Telecopier: (908) 423-1501
and
Merck & Co., Inc.
P.O. Box 100
One Merck Drive
Whitehouse Station, New Jersey 08889-0100
U.S.A.
Attention: Executive Director, JV/MVD Financial
Services
Telecopier: (908) 423-1660
If to KB, to: Astra Production Tablets AB
S-151 85
Sodertalje, Sweden
Attention: Director, Material Management
Telecopier: 011-46-8-553-288-74
A-5
<PAGE> 72
If to KB USA, to: Astra USA, Inc.
50 Otis Street
P.O. Box 4500
Westborough, MA 01581-4500
Attention: President
Telecopier: (508) 366-7406
All responses to invitations or requests for bids shall be delivered to
KBI in the manner provided for in Section 16.05 to KBI's address set forth below
and to such other address as may be specified in such invitation or request for
bids:
If to KBI, to: Astra Merck Inc.
c/o Merck & Co., Inc.
P.O. Box 100
One Merck Drive
Whitehouse Station, New Jersey 08889-0100
U.S.A.
Attention: Secretary
Telecopier: (908) 735-1246
Any Party or Bidding Party by written notice to the other Parties or
Bidding Parties in accordance with the above may change the address to which
such notices, requests or other communications to it shall be directed.
A-6
<PAGE> 73
III. INFORMATION, SPECIFICATIONS AND REQUIREMENTS TO BE INCLUDED IN REQUESTS
FOR FORMULATION BIDS
The following information shall be included concerning each Formulation,
dosage form, dosage level and packaged stock keeping unit (SKU) covered by the
Request for Bid. Additional information and requirements not inconsistent with
this Agreement may be included at the discretion of the Partnership.
A. Product and Process Information
1. Product and process specifications for the relevant manufacturing
stage, including without limitation the following:
(a) Composition (formula) with a narrative description for each
product strength and each ingredient, quantity (per unit) and
quantity per standard lot size.
(b) A brief summary of the manufacturing procedure.
(c) Manufacturing method (including in-process testing) describing
in detail step-by-step the manufacturing procedure.
(d) Product specifications (tentative).
(e) Yield loss allowance, expressed as a decimal fraction.
2. Comments and descriptions regarding specific manufacturing and
testing equipment - if any.
3. Testing Methods
(a) Finished product
(b) Raw material
4. Safety, health and environmental issues information on any special
safeguards to be used in production. Includes information such as
toxicity data for eye contact, skin contact, inhalation and
ingestion, dust explosion data and reactivity data. Special
environmental considerations.
5. Any unique characteristics that influence the production of the
dosage form.
A-7
<PAGE> 74
B. Regulatory matters
1. Quality assurance standards to be adhered to by the bidder,
including inspection, audits, tests to be performed by the bidder
and related documentation to be provided by the bidder.
2. Documentation to be maintained concerning quality control and
related matters.
C. Commercial assumptions and requirements
1. Manner of presenting the Bid Price.
(Comment: As specified in paragraph I.A.6 of this Schedule A, the
Bid Price will be a fixed price bid per unit of Product or
Intermediate Form covering all activities specified in the Request
for Bids, to the extent consistent with this Agreement. The Bid
Price will be adjusted annually to reflect increases or decreases in
the Index as provided in this Agreement. The Transfer Price for the
applicable Manufacturing Stage will be equal to the Bid Price, as so
adjusted, plus, in the case of a bid for the Formulation
Manufacturing Stage, the Amount Attributable to Bulk Chemical.)
2. Five-year forecast of volumes.
3. Required service and performance standards.
4. Listing of appropriate raw material suppliers.
5. Assumptions concerning shipment and delivery.
(a) The location from which bulk chemical will be shipped, in the
case of bids for the Formulation manufacturing stage.
(b) The location to which the Product or Intermediate Form will be
shipped by the bidder.
(c) The manner of shipment and any special requirements or other
performance requirements concerning transport.
6. Costs and expenses to be covered by the bidder.
7. Contractual prohibitions on territory, quality control/assurance
activities or information available to produce in regard to licenses
from a third party.
A-8
<PAGE> 75
D. Other Service and Performance Standards
1. Other service and performance standards not inconsistent with this
Agreement.
E. Other Matters
1. Other matters not inconsistent with this Agreement.
F. Licensor Requirements
Limitations imposed by a third party licensor such as
1. Territory for manufacturing.
2. Limitations on quality control/regulatory activities as regards
Earlier Stage Producer.
3. Limitations on information from Earlier Stage Producer.
A-9
<PAGE> 76
IV. INFORMATION, SPECIFICATIONS AND REQUIREMENTS TO BE INCLUDED IN REQUESTS
FOR PACKAGING BIDS
The following information shall be included concerning each Formulation,
dosage form, dosage level and packaged stock keeping unit (SKU) covered by the
Request for Bid. Additional information and requirements not inconsistent with
this Agreement may be included at the discretion of the Partnership.
A. Packaging Information
1. Packaging specifications for the Packaging Manufacturing Stage,
including without limitation the following:
(a) A narrative description for each product strength, size and
finish and each quantity (per unit) and quantity per standard
lot size.
(b) A brief summary of the manufacturing procedure.
(c) Manufacturing method (including in-process testing) describing
in detail step-by-step the manufacturing procedure.
(d) Product specifications (tentative).
(e) Yield loss allowance, expressed as a decimal fraction.
(f) Packaging design and configuration specifications.
(g) Packaging material specifications.
2. Comments and descriptions regarding specific manufacturing and
testing equipment - if any.
3. Testing Methods
(a) Finished product
(b) Finished Dosage Form
4. Safety, health and environmental issues information on any special
safeguards to be used in production. Includes information such as
toxicity data for eye contact, skin contact, inhalation and
ingestion, dust explosion data and reactivity data. Special
environmental considerations.
A-10
<PAGE> 77
B. Regulatory matters
1. Quality assurance standards to be adhered to by the bidder,
including inspection, audits, tests to be performed by the bidder
and related documentation to be provided by the bidder.
2. Documentation to be maintained concerning quality control and
related matters.
C. Commercial assumptions and requirements
1. Manner of presenting the Bid Price.
(Comment: As specified in paragraph I.A.6 of this Schedule A, the
Bid Price will be a fixed price bid per package of Product covering
all activities specified in the Request for Bids, to the extent
consistent with this Agreement. The Bid Price will be adjusted
annually to reflect increases or decreases in the Index as provided
in this Agreement. The Transfer Price for the applicable
Manufacturing Stage will be equal to the Bid Price, as so adjusted.)
2. Five-year forecast of volumes.
3. Required service and performance standards.
4. Listing of appropriate packaging material suppliers.
5. The manner of shipment and any special requirements or other
performance requirements concerning transport.
6. Costs and expenses to be covered by the bidder.
7. Contractual prohibitions on territory, quality control/assurance
activities or information available to produce in regard to licenses
from a third party.
A-11
<PAGE> 78
D. Other Service and Performance Standards
1. Other service and performance standards not inconsistent with this
Agreement.
E. Other Matters
1. Other matters not inconsistent with this Agreement.
F. Licensor Requirements
Limitations imposed by a third party licensor such as
1. Territory for manufacturing.
2. Limitations on quality control/regulatory activities as regards
Earlier Stage Producer.
3. Limitations on information from Earlier Stage Producer.
A-12
<PAGE> 79
EXHIBIT I
PROCESS MANUAL FOR
BULK CHEMICAL SYNTHESIS
CONTENTS
A. CHEMISTRY AND PROCESS SUMMARY
(For each step)
1. Reaction sequence with equations, structures, molecular weights and
yield.
2. A table indicating material requirements (quantity and grade) on a
common basis, i.e., so much intermediate and raw materials per kilo
of drug product.
Recoverable materials indicated by gross and net amounts.
3. A brief summary of the procedure with significant conditions.
4. Major waste streams with qualitative and quantitative data.
Disposition of each stream.
5. Developmental studies in progress, if any, which could affect
process.
B. PILOT OR FACTORY PROCESS
(For each step)
1. Chemical Requirements - weight or volume, grade.
2. Equipment list indicating size, material of construction (acceptable
alternatives), utility services to unit, agitation type and power,
etc.
3. Flow diagram with material balances.
4. Operating Procedure - Operations listed in prose discussion with
notes explaining:
a) Special points such as gas evolution, etc.
b) Allowable limits on variables, with consequences of exceeding.
c) Heats of reactions, special heat transfer data.
d) Safety highlights.
e) Time cycles.
f) Recovery or reuse of solvents.
<PAGE> 80
g) Stability of intermediates.
h) Quality of intermediates.
i) Rework procedures.
5. Chart of results of demonstration or other batches with batch
number, yields, quality.
C. APPENDIX
1. Toxicity Data
Known chemical, use literature information on acute and systemic
toxicities. Intermediates, etc. - Industrial Hygiene Sheet with
data.
2. Safety Data
Stepwise breakdown of tests on reaction mixtures and isolated
intermediates; including DTA, DSC, calorimetry and, if applicable,
shock sensitivity, detonation velocity, etc., compatible with
current TR practices (if TR is the Producer).
3. Batch Sheets
For each step, including cleanout, solvent recovery, in-process
waste disposal, etc. All in accordance with GMP.
4. Assay Procedures - In-process and intermediates.
5. Corrosion Data for materials of construction, compatible with
current TR practices (if TR is the Producer).
6. Process utility requirements.
7. Supporting individual reports by developmental organic and
analytical chemists giving total developmental background.
I-2
<PAGE> 81
EXHIBIT II
PROCESS AND PRODUCT INFORMATION SUMMARY (PPIS) CONTENTS
1. Summary - a brief summary of the manufacturing procedure.
2. Process Flow Chart
3. Formula - a narrative description for each product strength. Also
includes a table on the composition of each product strength
including each ingredient, quantity per tablet (unit) and quantity
per standard lot size.
3.A Final Market Composition
3.B Clinical Trial Formulae
3.C Development Pharmaceutics
4. Manufacturing Procedure - a detailed step-by-step description of the
manufacturing procedure.
4.A Outline of process
4.B Detailed Process Description for largest batches manufactured
to date
5. Comments on Manufacture - comments regarding significant parameters
to be monitored during production and any other information that
would be of significance to the manufacturing area.
6. Stability Summary, Packaging Recommendations and Safety Assessment -
a short summary of stability data and safety assessment results.
Includes recommended packaging components based on stability data
and cleaning information.
7. Safety and Health Data - information on any special safeguards to be
used in production. Includes information such as toxicity data for
eye contact, skin contact, inhalation and ingestion, dust explosion
data and reactivity data.
8. Raw Material Specifications- includes detailed description of all
active ingredient and other ingredient testing methods and names and
addresses of suppliers.
9. In-Process Controls
10. Finished Product Specifications - includes tentative specification
and test methods and historical batch analyses.
11. Punch and Die Drawing - if tabletted product.
12. Summary of Pharmacological/Bioavailability Data
<PAGE> 82
EXHIBIT III
TRANSFER PRICE
The Transfer Price for Products and Intermediate Forms thereof produced by TR
will be the sum of five segments:
1. Product Cost
2. Period Cost
3. Cost of Capital
4. Subcontracting Premium
5. Costs and Expenses of Delivery
Based upon the TR Profit Plan estimates of these five segments (excluding any
segment which is billed separately or directly to KBI) a unitized estimate of
the Transfer Price will be developed each Year and will be used for invoicing
Products shipped to KBI. Invoices will be based on the unitized estimate of the
Transfer Price, and the Period Cost and Cost of Capital components of unitized
Transfer Price will be adjusted after the end of each Year in accordance with
the annual Year-End settlement procedure contained in Section 5.04 to reflect
actual amounts.
For purposes of this Exhibit III, KBI-Related Production shall consist of
manufacturing of all Products (and Intermediate Forms thereof) for which the
Transfer Price is calculated in accordance with this Exhibit III.
1. Product Cost (also known as TR Standard Inventory Cost) will be determined
in accordance with TR's usual method of accounting for products made for
use as samples or sale. It shall include materials, labor, subcontracting
costs and overhead utilized in the factory level production of the
chemical entity and for the conversion of that entity to finished packaged
pharmaceutical forms. Specific costs will be determined for each
individual entity and for each of the various finished forms. These costs
will be used for valuing all inventory movements, as Product flows through
TR into KBI, in the same manner as such costs are utilized by TR in the
development of its financial statements and controls. Attachment A hereto
illustrates without limitation, specific items included in such costs.
The Products held in TR's inventory for eventual sale to KBI (raw
materials, work in process, finished goods and packaging materials) will
be revalued effective each January 1st to reflect the revised standard
costs applied by TR to its inventory. Within 60 days after each January
1st, TR shall calculate and advise KBI of the total amount of such
revaluation as a net increase or decrease to the total standard costs
applicable to such Products in inventory at the preceding December 3lst.
Within 30 days of such notice, an amount equal to the total amount of such
revaluation shall be remitted, in the same manner as provided in Article V
for payments for Products, by TR to KBI if such amount is an increase, and
by KBI to TR if such amount is a decrease. The calculation and settlement
provided for in the preceding two sentences shall be separate from and
shall
<PAGE> 83
not affect the Year end adjustment of Period Cost and Cost of Capital
referred to in Article V and this Exhibit III.
2. Period Cost, the components of which are illustrated without limitation in
Attachment B, will also be determined in accordance with TR's usual method
of accounting, with the following exceptions: (a) standard revisions
amounts representing the change in standard costs of finished goods, work
in process, raw materials and packaging materials from one fiscal period
to the next fiscal period will not be included in Period Cost; and (b)
depreciation will not be included in Period Cost. In addition, only Period
Costs of the TR manufacturing Sites where KBI products are produced, as
well as an appropriate allocation of period cost at non-manufacturing
Sites where manufacturing support activities are conducted, will be
included in determining the allocation of period costs to KBI-Related
Production.
Period Cost chargeable to KBI will be the sum of individual calculations
of Period Cost chargeable for each manufacturing Site involved in
KBI-Related Production and an appropriate allocation of Period Costs from
non-manufacturing Sites where manufacturing support activities are
conducted utilizing the formula as detailed below. This basis for
allocating period costs is known as the "plant specific" methodology. As a
part of the calculation of Period Cost chargeable to KBI-Related
Production for each manufacturing Site, material variances, discards, and
purchase price variances (PPV) will be specifically identified for
KBI-Related Production rather than being allocated. Accordingly, material
variances, discards, and purchase price variances (PPV) for all products
at the Site will be excluded from the Period Cost eligible for allocation.
Period Costs at non-manufacturing Sites where manufacturing support
activities are conducted will be allocated to KBI-Related Production
utilizing the following approach. First, period costs relating to
manufacturing support activities will be identified. Once identified, a
fair share of these support costs will be allocated to each manufacturing
Site involved in KBI-Related Production. Generally, this identification
and allocation process will use methodologies previously established or
adopted in the future to support TR's internal reporting. In cases where a
specific method does not exist, headcount will be utilized to allocate
period cost. Lastly, the period cost allocated to KBI-Related Production
for each of the manufacturing Sites will be determined based on the
respective percentage of KBI-Related Production at the Site. These
percentages will be derived based on the relationship of Site labor and
overhead for KBI-Related Production to total Site labor and overhead, both
valued at standard cost.
PC = A/B X (C-D) + E + A/B X (C-D) + E + ... + A/B X (C-D) + E + F
(mfg Site 1) (mfg Site 2) (mfg Site n)
where "n" represents the number of manufacturing Sites where KBI-Related
Production occurs. A, B, C, D, E and F in the formula shall be calculated in
accordance with the same principles described above. The elements of the formula
include the following amounts determined for the Year.
III-2
<PAGE> 84
PC = Period Cost charged to KBI by TR.
A = Site labor and overhead for KBI-Related Production valued at standard
cost.
B = Total Site labor and overhead valued at standard cost.
C = Total Site period costs.
D = Total material variances, discards, and purchase price variances
(PPV).
E = Material variances, discards, and purchase price variances (PPV)
specific to KBI-Related Production.
F = Total period costs allocated to KBI-Related Production from
non-manufacturing Sites where manufacturing support activities are
conducted.
3. Cost of Capital will be as follows: The annual Cost of Capital shall be the
greater of (i) the Minimum Capital Charge multiplied by the number of months in
such Year that are within the projected period of Market Exclusivity used to
compute such Minimum Capital Charge or (ii) the Total Capital Charge. The Total
Capital Charge will be the Total Average Assets Employed for KBI-Related
Production for the Year multiplied by a pre-tax cost of capital rate of 22%. The
Total Average Assets Employed for KBI-Related Production for the Year will be
determined by the following formula:
--------------------------------------------------------------------------------
Total Average Assets Employed Average Inventory (defined below) plus
for KBI-Related Production for the Average Gross Properties, Plant and
Year = Equipment (defined below) plus Cash
(defined below) plus accounts receivable
(1/12 of sum of 12 month net accounts
receivable balances due TR from KBI) for
KBI-Related Production.
--------------------------------------------------------------------------------
Average Inventory = 1/12 of (the sum of 12 months ending
inventory of product cost of chemical
entities and finished and packaged
pharmaceutical forms for KBI-Related
Production + the sum of 12 months ending
inventory of related raw materials and
work in process for KBI-Related
Production)
--------------------------------------------------------------------------------
Cash = 1/12 of (Product Cost charged to KBI for
KBI-Related Production + Ending TR
inventory of KBI chemical entities and
finished and packaged pharmaceutical
forms for KBI-Related
Production-Beginning TR inventory of KBI
chemical entities and finished and
packaged pharmaceutical forms for
KBI-Related Production)
--------------------------------------------------------------------------------
III-3
<PAGE> 85
As with period costs, only gross property, plant and equipment of the TR
manufacturing Sites where KBI-Related Production occurs, as well as an
appropriate allocation of gross property, plant and equipment at
non-manufacturing Sites where manufacturing support activities are conducted and
gross property, plant and equipment related to manufacturing or manufacturing
support at mixed Sites, will be included in determining the average gross
property, plant and equipment for KBI-Related Production.
Similar to Period Cost, Average Gross Properties, Plant and Equipment will be
the sum of individual calculations of Average Gross Properties, Plant and
Equipment utilizing the formula as detailed below. This basis for allocating
Average Gross Properties, Plant and Equipment is known as the "plant specific"
methodology. Average Gross Properties, Plant and Equipment at non-manufacturing
Sites where manufacturing support activities are conducted will be allocated
based on the same methodologies identified to allocate Period Cost for
non-manufacturing Sites where manufacturing support activities are conducted,
except that assets located at TR Corporate Headquarters in Whitehouse Station,
New Jersey will be excluded. Average gross property, plant and equipment at
mixed Sites (i.e., Sites where research, manufacturing or marketing activities
are conducted) will include only assets associated with manufacturing or
manufacturing support activities.
Average Gross A/B x G(1) + G(2) + A/B x G(1) + G(2) +...+ A/B x G(1) + G(2) + H
Properties, Plant ----------- ----------- -----------
and Equipment = 2 2 2
(Mfg. Site 1) (Mfg. Site 2) (Mfg. Site n)
where "n" represents the number of manufacturing Sites where KBI-Related
Production occurs.
G(1) = Gross Properties, Plant and Equipment at manufacturing Site at the
beginning of Year.
G(2) = Gross Properties, Plant and Equipment at manufacturing Site at the
end of Year.
H = Average Gross Properties, Plant and Equipment allocated to
KBI-Related Production from non-manufacturing Sites where
manufacturing support activities are conducted (exclusive of Gross
Property, Plant and Equipment located at TR Corporate Headquarters
in Whitehouse Station, New Jersey.)
4. Subcontracting premium will be 10% of subcontracting costs included in
Product Cost incurred by TR for KBI-Related Production. Subcontracting
premium will be charged only if (i) TR delivers or causes to be delivered
to the subcontractor an Intermediate Form of the relevant Product or
manufacturing process know-how necessary for the production of such
Product and (ii) TR provides supervisory oversight or other related
services with respect to the subcontractor.
III-4
<PAGE> 86
All manufacturing including Packaging by a third party of intermediates
after and including the steps in which the active drug is formed shall be
considered as subcontracting. In cases where KB or an Affiliate of TR is
chosen as a subcontractor, no subcontracting premium will apply.
5. Costs and Expenses of Delivery associated with KBI-Related Production,
consistent with Section 5.03, shall be invoiced to KBI or the Subsequent
Producer (either separately or as part of the Transfer Price) unless they are
paid directly by KBI or the Subsequent Producer.
SPECIAL PROVISION CONCERNING ENALAPRIL/FELODIPINE COMBINATION PRODUCTS
The Transfer Price for Enalapril/Felodipine Combination Products for purposes of
the Supply Agreement dated as of November 1, 1994 between TR and KBI, as
amended, governing the supply of Enalapril/Felodipine Combination Products shall
be computed in the same manner as the Transfer Price hereunder for In-Line
Products as set forth in paragraph (a) of Section 5.01 of this Agreement for
Enalapril/Felodipine Combination Product sold in the years 1998 through 2000 and
as set forth in paragraph (b) of Section 5.01 of this Agreement for
Enalapril/Felodipine Combination Product sold after the year 2000.
III-5
<PAGE> 87
ATTACHMENT A
PRODUCT COST
Material (raw materials, filling and packaging supplies)
Subcontracting Costs
Labor (direct labor)
Overhead (indirect labor/supervision, operating supplies, testing charges, waste
disposal charges, maintenance expense and utilities, and all other expenses
related to factory production)
<PAGE> 88
ATTACHMENT B
PERIOD COST
Period costs in TR's usual method of accounting includes standard revision and
depreciation, however, these costs will be excluded from the total period cost
allocated to KBI.
Material variances, discards, and purchase price variances (PPV) related to KBI
products will be specifically identified and charged to KBI. Therefore, these
categories of variances for all products will be excluded from the period cost
base allocated to KBI. All other classes of variances will be included in period
costs allocated to KBI.
Unused Capacity Expenses (fixed expenses not absorbed into inventory and
relating to the underutilization of the production of such items as steam, heat
and power)
Materials Management Expenses (expenses for the purchasing department,
production control and warehouses)
Quality Control Expenses
Real Estate Taxes
Insurance
General Services (administration and all other expenses related to production
but not included in Product Cost)
<PAGE> 89
EXHIBIT IVA
TRANSFER PRICE
The Transfer Price for Products and Intermediate Forms thereof produced by KB in
pilot or laboratory scale production ("KBI-Related Pilot Production") will be
the sum of four segments:
1. Product Cost
2. Site Overhead
3. Cost of Capital
4. Costs and Expenses of Delivery
The Transfer Price will be calculated separately for each Manufacturing Stage.
Based upon the annual KB Budget estimates of these four segments (excluding any
segment which is billed separately or directly to KBI), a unitized estimate of
the Transfer Price will be developed each Year and will be used for invoicing
Products shipped to KBI or any Producer. Invoices will be based on the unitized
estimate of the Transfer Price and the unitized Transfer Price will be adjusted
after the end of each Year in accordance with the annual Year-End settlement
procedure contained in Section 5.04.
1. Product Cost will include all costs related to KBI-Related Pilot
Production in KB's departments of Pharmaceutical Development, or its successor
or comparable function, including subcontracting costs. These allocated costs,
however, will not include the expenses of Clinical R&D, or Pre-Clinical R&D. The
Product Cost shall be determined in accordance with KB's usual method of
accounting for internal projects, where the following costs are reasonably
allocated to the Product:
a) Project related external costs (consultants, license fees, supplies,
etc.). Also included here are variable charges from KB's Chemical
Development department.
b) Multi-project related external costs (as above but related to more
than one project).
c) Direct project workers, e.g. employment cost (salary and
salary-related costs), consumables, travel, education,
subscriptions, etc. Direct project workers are those with 10% or
more of the man-year of each such worker devoted to a project. A
man-year is defined as a full-time employee (FTE) with 220 working
days (gross) per year (giving approximately 180 days net efficient
time). A cross-functional average man-year cost per company is to be
used in the budget process. The data is updated annually by KB's
Control department.
d) Common scientific costs include non-project scientific workers
devoting less than 10% of the man-year of each such worker to a
project, as well as other
IVA-1
<PAGE> 90
administrative staff in the pharmaceutical function. These costs are
not shown at project level, only as a total overhead cost within
each category.
Depreciation shall be excluded.
2. Site Overhead is made up of the on-site service functions not performed
by the Pharmaceutical Development Departments. This includes but is not limited
to company management, finance, human resources, information service and
technology, legal and information, library, office service, security, site
services, utilities, repairs and maintenance. KB corporate headquarters
functions and marketing and manufacturing activities are not part of Site
Overhead. The Site Overhead shall be allocated to the Products by way of the
number of FTES included in the Product Cost.
3. Cost of Capital will be charged using a pre-tax cost of capital rate of
22%. For purposes of calculating the Cost of Capital charge, the pre-tax cost of
capital rate will be applied to the Total Average Assets Employed for
KBI-Related Pilot Production for each Year. KB corporate headquarters functions
are not part of the Cost of Capital. The Total Average Assets Employed for
KBI-Related Pilot Production for the Year shall be determined by the following
formula, applied to each Site:
Total Average Assets = Average Inventory (defined below), plus
Employed for KBI-Related Cash (defined below), plus Average Gross
Pilot Production for the Fixed Assets (defined below) plus Accounts
Year Receivable (defined below).
Average Inventory = 1/12 of (the sum of 12 months ending
inventory of Product Cost of chemical
entities and finished and packaged
pharmaceutical forms produced by KB for
KBI-Related Pilot Production + the sum of 12
months ending inventory of related raw
materials and work in process for
KBI-Related Pilot Production)
Cash = 1/12 of Product Cost charged to KBI for
KBI-Related Pilot Production
Only gross fixed assets of the KB Sites where KBI-Related Pilot Production
occurs will be included in determining the average gross fixed assets for
KBI-Related Pilot Production.
Average Gross Fixed = The average of opening and closing
Assets balances of gross fixed assets used for
KBI-Related Pilot Production. The fixed
assets used for KBI-Related Pilot
Production shall be calculated as a share of
the Pharmaceutical Development department
fixed assets, proportionate to the share of
KBI-Related Pilot Production time or cost
related to the total time or cost of the
Pharmaceutical Development department, plus
a share of the
IVA-2
<PAGE> 91
fixed assets used for Site Overhead,
allocated by way of occupied floor area,
number of employees or other fair allocation
method to reflect use of resources.
Accounts Receivable = 1/12 of the sum of 12 months' net accounts
receivable balances due KB from KBI for
KBI-Related Pilot Production
4. Costs and Expenses of Delivery, associated with KBI-Related Pilot
Production, consistent with Section 5.03, will be invoiced to KBI or the
Subsequent Producer (either separately or as part of the Transfer Price) unless
they are paid directly by KBI or the Subsequent Producer.
Conversion to United States dollars from Swedish Krona at the average of
the twelve monthly average exchange rates for the Year used by KB for financial
reporting.
IVA-3
<PAGE> 92
EXHIBIT IVB
TRANSFER PRICE
The Transfer Price for Products and Intermediate Forms thereof produced by KB
other than in pilot or laboratory scale production ("KBI-Related Commercial
Production") will be the sum of four segments:
1. Product Cost
2. Cost of Capital
3. Manufacturing Support Costs
4. Costs and Expenses of Delivery
The Transfer Price will be calculated separately for each Manufacturing Stage.
Based upon the annual KB Budget estimates of these four segments (excluding any
segment which is billed separately or directly to KBI), a unitized estimate of
the Transfer Price will be developed each Year and will be used for invoicing
Products shipped to KBI or any Producer. Invoices will be based on the unitized
estimate of the Transfer Price and the unitized Transfer Price will be adjusted
after the end of each Year in accordance with the annual Year-End settlement
procedure contained in Section 5.04 and in the Section entitled "Pre-Calculated
Transfer Price and Actual Transfer Price" in this Exhibit IVB.
For purposes of this Exhibit IVB, KBI-Related Commercial Production shall
consist of manufacturing of all Products (and Intermediate Forms thereof) for
which the Transfer Price is calculated in accordance with this Exhibit IVB.
1. Product Cost will equal KB Factory Cost less depreciation. KB
Factory Cost will be determined in accordance with KB's usual method of
accounting for products made for use as samples or sale. It shall include
materials, labor, subcontracting costs, license fees (excluding royalties
which have been taken into account under Section 3.7(c) of the Master
Restructuring Agreement) and overhead utilized in the factory level
production of the chemical entity and for the conversion of that entity to
finished packaged pharmaceutical forms. Specific costs will be determined
for each individual entity and for each of the various finished forms.
Attachment A hereto illustrates, without limitation, specific items
included in such costs.
Depreciation is included in different activities. It will be excluded by
using the following formula, applied to each manufacturing Site. The
intent of applying the following formula is to approximate the result that
would have been obtained if depreciation were not included.
IVB-1
<PAGE> 93
B/C x A
Where:
A = total depreciation of the manufacturing Site
B = total Factory Costs (other than materials consumption) as above
for KBI-Related Commercial Production
C = total Factory Costs (other than materials consumption) as above of
the manufacturing Site
2. Cost of Capital. The annual Cost of Capital shall be the greater
of (i) the Minimum Capital Charge multiplied by the number of months in
such Year that are within the projected period of Market Exclusivity used
to compute such Minimum Capital Charge or (ii) the Total Capital Charge.
For purposes of calculating the Total Capital charge, the pre-tax cost of
capital rate 22% will be applied to the Total Average Assets Employed for
KBI-Commercial Production for the Year. Cost of Capital will be charged as
a portion of the unitized estimates of the Transfer Price based on the
annual KB Budget. Astra corporate headquarters functions are not part of
Cost of Capital. The Total Average Assets Employed for KBI-Related
Commercial Production for the Year will be determined by the following
formula, applied to each manufacturing Site:
Total Average Assets Employed for Average Inventory (defined below) plus
KBI-Related Commercial Average Gross Fixed Assets (defined below)
Production for the Year = plus Cash (defined below) plus accounts
receivable (1/12 of sum of 12 month net
accounts receivable balances due KB from KBI
or any Producer for KBI-Related Commercial
Production)
Average Inventory = 1/12 of (the sum of 12 months ending
inventory of Product Cost of chemical
entities and finished and packaged
pharmaceutical forms produced by KB for
KBI-Related Commercial Production + the sum
of 12 months ending inventory of related raw
materials and work in process for
KBI-Related Commercial Production)
Cash = 1/12 of (Product Cost charged to KBI for
KBI-Related Commercial Production + Ending
KB inventory of KBI chemical entities and
finished and packaged pharmaceutical forms
for KBI-Related Commercial Production -
Beginning KB inventory of KBI chemical
entities and finished and packaged
pharmaceutical forms for KBI- Related
Commercial Production)
IVB-2
<PAGE> 94
Only gross fixed assets of the KB manufacturing Sites where KBI-Related
Commercial Production occurs will be included in determining the average gross
fixed assets for KBI-Related Commercial Production.
Average Gross Fixed Assets = The average of opening and closing
balances of gross fixed assets used for
KBI-Related Commercial Production. The
assets at the manufacturing Site shall be
allocated to products and finished packaged
forms by the same method as depreciation
above.
3. Manufacturing Support Costs are costs for activities conducted within
the Manufacturing & Logistics organization (or its successor) and not at the
manufacturing Sites. It includes without limitation activities regarding
construction and facilities for which costs are not capitalized, environmental
affairs, logistics, purchasing coordination and quality management.
In case these costs are not allocated to factories or manufacturing Sites within
KB's internal reporting, headcount will be utilized to allocate these costs. The
manufacturing support costs allocated to each Site will be further allocated to
KBI-Related Commercial Production using the following formula: K x H/J, where
K = share of manufacturing support costs for Site
H = total Factory Costs (other than materials consumption) at
pre-calculated price for actual volume of KBI-Related Commercial
Production at Site.
J = total Factory Costs (other than materials consumption) at
pre-calculated price for total volume at Site.
4. Costs and Expenses of Delivery associated with KBI-Related Commercial
Production, consistent with Section 5.03, shall be invoiced to KBI or the
Subsequent Producer (either separately or as part of the Transfer Price) unless
they are paid directly by KBI or the Subsequent Producer.
PRE-CALCULATED TRANSFER PRICE AND ACTUAL TRANSFER PRICE
An estimated unit price per item, the Pre-Calculated Transfer Price, based
on KB's standard cost and budget assumptions, will be communicated to KBI by
October 15th each Year, according to Article XVI. This price will be used as a
preliminary Transfer Price for the following year.
The Pre-Calculated Transfer Price will be adjusted according to Section
5.04 according to the following method:
- Material variances, discards and purchase price variances will be
specifically identified for KBI-Related Commercial Production.
IVB-3
<PAGE> 95
- Cost of capital will be calculated based on actual volume, average
accounts receivable, Average Inventory and Average Gross Fixed
Assets.
- Calculation difference (G), computed as follows:
G = D- E - F will be determined, where
D = actual Product Cost for actual volume at Site.
E = total material variances, discards and purchase price variations at
Site.
F = Product Cost at pre-calculated price for actual volume at Site.
The calculation difference will be allocated to the KBI-Related Commercial
Production from each Site using the following formula: G x H / J where
G = the calculation difference as defined above
H = total Factory Costs (other than materials consumption) at
pre-calculated price for actual volume of KBI-Related Production at
Site.
J = total Factory Costs (other than materials consumption) at
pre-calculated price for total volume at Site.
Conversion to United States dollars from Swedish Krona at the average of
the twelve monthly average exchange rates for the Year used by KB for financial
reporting.
IVB-4
<PAGE> 96
ATTACHMENT A
FACTORY COST
Factory cost in KB's usual method of accounting includes depreciation, however
depreciation will be excluded from the total costs allocated to KBI.
Materials Consumption (including raw materials, packaging materials,
sub-contracting)
Materials Management and Handling (including planning and purchasing, inspection
of goods received, warehousing, dispensing)
Manufacturing (including processing, order handling, in-process quality control,
product quality control, regulatory compliance)
Administration (including management, production staff, real estate tax)
<PAGE> 97
EXHIBIT V
QUALITY DOCUMENTATION REQUIREMENTS
- Batch Production Records for all manufacturing and packaging operations.
- Labeling batch records.
- Certificates of Analysis.
- Certificates of Conformance (to GMP and regulatory application)
- Incoming receiving and test records for active and inactive materials.
- Incoming receiving and test records for primary packaging components.
- In-process and finished product QA inspection records.
- In-process and finished product QC test records.
- Deviations from approved batch records, SOPs, specifications and/or equipment
operation and cleaning procedures.
- Formal investigation reports for Out of Specification (OOS) results.
- Temperature and humidity monitoring charts.
- Label/labeling specifications and specimens.
- Environmental monitoring reports.
- Master Production Records.
- Specifications for active and inactive materials and primary packaging
components.
- Specifications for intermediates, and finished bulk and packaged
finished product.
- Analytical methods.
- Process validation protocols and final reports.
- Equipment cleaning validation protocols and final reports.
- Facility cleaning validation protocols and final reports.
- Analytical method validation protocols and reports.
- Utility (e.g., HVAC, water) validation protocols and reports.
- Equipment installation qualification and operational qualification protocols
and reports.
- Audit reports for suppliers of active, critical intermediates, inactive
materials, and primary packing components.
- Audit reports for contract testing facilities, packagers/labelers, etc.
- Trend analysis reports.
- Customer complaint records and investigation reports.
- GMP Annual Product Reviews.
- Analytical method and process technology transfer reports.
- Standard Operating Procedures.
- Stability protocols and reports for bulk active, intermediates, bulk finished
and packaged product.
- Shipping study protocols and reports.
- In vitro dissolution profiles.
- Calibration Records.
- Change Control records and reports (process, equipment, facility, etc.).
V-1
<PAGE> 98
- Reserve Samples Annual Inspection Reports.
- Regulatory Authority GMP Inspection Reports (e.g., FDA-483's, Warning Letters,
Swedish authorities, etc.).
V-2