-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Veuyg0lH6RnMKHe6kHjbOoxzB6rzYG/XwTIlxJgEZGTWs507ycoIR5nZiEdZmAF4 4bcemcFV1V1wUl/F3Mq97g== 0000950123-98-007409.txt : 19980813 0000950123-98-007409.hdr.sgml : 19980813 ACCESSION NUMBER: 0000950123-98-007409 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980812 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERCK & CO INC CENTRAL INDEX KEY: 0000064978 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 221109110 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03305 FILM NUMBER: 98683476 BUSINESS ADDRESS: STREET 1: ONE MERCK DR STREET 2: P O BOX 100 CITY: WHITEHOUSE STATION STATE: NJ ZIP: 08889-0100 BUSINESS PHONE: 9084234044 MAIL ADDRESS: STREET 1: ONE MERCK DR STREET 2: PO BOX 100 WS3AB-05 CITY: WHITEHOUSE STATION STATE: NJ ZIP: 08889-0100 10-Q 1 MERCK & CO., INC. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------- ----------- Commission File No. 1-3305 MERCK & CO., INC. P. O. Box 100 One Merck Drive Whitehouse Station, N.J. 08889-0100 (908) 423-1000 Incorporated in New Jersey I.R.S. Employer Identification No. 22-1109110 The number of shares of common stock outstanding as of the close of business on July 31, 1998: Class Number of Shares Outstanding Common Stock 1,190,918,336 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / 2 Part I - Financial Information MERCK & CO., INC. AND SUBSIDIARIES INTERIM CONSOLIDATED STATEMENT OF INCOME THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997 ($ in millions except per share amounts)
Three Months Six Months Ended June 30 Ended June 30 ---------------------------- --------------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Sales $ 6,470.4 $ 5,909.2 $ 12,529.2 $ 11,477.1 ---------- ---------- ---------- ---------- Costs, Expenses and Other Materials and production 3,383.4 2,944.3 6,619.0 5,730.6 Marketing and administrative 1,058.8 1,044.2 2,054.0 2,104.8 Research and development 441.0 396.4 829.5 765.0 Equity income from affiliates (271.1) (122.8) (497.1) (273.8) Other (income) expense, net 32.2 14.8 62.5 54.8 ---------- ---------- ---------- ---------- 4,644.3 4,276.9 9,067.9 8,381.4 ---------- ---------- ---------- ---------- Income Before Taxes 1,826.1 1,632.3 3,461.3 3,095.7 Taxes on Income 510.0 477.9 980.8 921.0 ---------- ---------- ---------- ---------- Net Income $ 1,316.1 $ 1,154.4 $ 2,480.5 $ 2,174.7 ========== ========== ========== ========== Basic Earnings per Common Share $ 1.11 $ .96 $ 2.08 $ 1.80 Earnings per Common Share Assuming Dilution $ 1.07 $ .93 $ 2.02 $ 1.75 Dividends Declared per Common Share $ .45 $ .42 $ .90 $ .84
The accompanying notes are an integral part of this consolidated financial statement. - 1 - 3 MERCK & CO., INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET JUNE 30,1998 AND DECEMBER 31, 1997 ($ in millions)
June 30 December 31 1998 1997 --------- --------- ASSETS Current Assets Cash and cash equivalents $ 1,424.9 $ 1,125.1 Short-term investments 1,368.7 1,184.2 Accounts receivable 2,873.7 2,876.7 Inventories 2,328.6 2,145.1 Prepaid expenses and taxes 901.5 881.9 --------- --------- Total current assets 8,897.4 8,213.0 --------- --------- Investments 2,820.2 2,533.4 Property, Plant and Equipment, at cost, net of allowance for depreciation of $3,699.5 in 1998 and $3,423.2 in 1997 7,026.8 6,609.4 Goodwill and Other Intangibles, net of accumulated amortization of $934.2 in 1998 and $815.8 in 1997 6,664.2 6,780.5 Other Assets 2,085.4 1,675.6 --------- --------- $27,494.0 $25,811.9 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable and accrued liabilities $ 3,339.5 $ 3,268.9 Loans payable and current portion of long-term debt 1,550.7 902.5 Income taxes payable 572.5 859.6 Dividends payable 537.4 537.6 --------- --------- Total current liabilities 6,000.1 5,568.6 --------- --------- Long-Term Debt 1,344.1 1,346.5 --------- --------- Deferred Income Taxes and Noncurrent Liabilities 5,300.4 5,098.9 --------- --------- Minority Interests 1,185.8 1,184.4 --------- --------- Stockholders' Equity Common stock Authorized - 2,700,000,000 shares Issued - 1,483,925,990 shares 5,419.0 5,254.0 Retained earnings 18,696.4 17,291.5 Accumulated other comprehensive income 26.5 27.9 --------- --------- 24,141.9 22,573.4 Less treasury stock, at cost 289,501,137 shares - 1998 290,277,526 shares - 1997 10,478.3 9,959.9 --------- --------- Total stockholders' equity 13,663.6 12,613.5 --------- --------- $27,494.0 $25,811.9 ========= =========
The accompanying notes are an integral part of this consolidated financial statement. - 2 - 4 MERCK & CO., INC. AND SUBSIDIARIES INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 1998 AND 1997 ($ in millions)
Six Months Ended June 30 -------------------------- 1998 1997 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Income before taxes $ 3,461.3 $ 3,095.7 Adjustments to reconcile income before taxes to cash provided from operations before taxes: Other 186.1 569.7 Net changes in assets and liabilities (297.4) (312.3) --------- --------- CASH PROVIDED BY OPERATING ACTIVITIES BEFORE TAXES 3,350.0 3,353.1 INCOME TAXES PAID (772.1) (646.0) --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 2,577.9 2,707.1 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (772.7) (573.7) Purchase of securities, subsidiaries and other investments (10,855.5) (9,733.4) Proceeds from sale of securities, subsidiaries and other investments 10,426.6 8,963.3 Other (30.7) (11.1) --------- --------- NET CASH USED BY INVESTING ACTIVITIES (1,232.3) (1,354.9) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Net change in short-term borrowings 218.5 21.7 Proceeds from issuance of debt 499.1 603.1 Payments on debt (86.9) (146.3) Purchase of treasury stock (773.2) (748.2) Dividends paid to stockholders (1,075.8) (990.9) Other 215.6 189.4 --------- --------- NET CASH USED BY FINANCING ACTIVITIES (1,002.7) (1,071.2) --------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (43.1) (46.4) --------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS 299.8 234.6 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,125.1 1,352.4 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,424.9 $ 1,587.0 ========= =========
The accompanying notes are an integral part of this consolidated financial statement. Notes to Consolidated Financial Statements 1. The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and disclosures required by generally accepted accounting principles for complete financial statements are not included herein. The interim statements should be read in conjunction with the financial statements and notes thereto included in the Company's latest Annual Report on Form 10-K. Interim statements are subject to possible adjustments in connection with the annual audit of the Company's accounts for the full year 1998; in the Company's opinion, all adjustments necessary for a fair presentation of these interim statements have been included and are of a normal and recurring nature. - 3 - 5 Notes to Consolidated Financial Statements (continued) 2. Inventories consisted of:
($ in millions) -------------------------- June 30 December 31 1998 1997 -------- -------- Finished goods $1,347.0 $1,230.6 Raw materials and work in process 918.7 849.7 Supplies 62.9 64.8 -------- -------- Total (approximates current cost) 2,328.6 2,145.1 Reduction to LIFO cost -- -- -------- -------- $2,328.6 $2,145.1 ======== ========
3. In February 1998, the Company issued $500.0 million of 30-year senior notes under the 1997 shelf registration, bearing a coupon of 6.4% payable semiannually. The remaining capacity under the shelf is $1.2 billion. 4. The Company, along with numerous other defendants, is a party in several antitrust actions brought by retail pharmacies and consumers, alleging conspiracies in restraint of trade and challenging pricing and/or purchasing practices, one of which has been certified as a federal class action and a number of which have been certified as state class actions. In January 1996, the Company and several other defendants entered into an agreement, subject to court approval, to settle the federal class action alleging conspiracy, which represents the single largest group of retail pharmacy claims, pursuant to which the Company would pay $51.8 million, payable in four equal annual installments. The court approved an amended version of the settlement agreement, which incorporated revisions, unrelated to the monetary payment, to address concerns specified by the court. Following the dismissal of appeals brought by objectors, the approval became final in October 1997. The Company has not engaged in any conspiracy, and no admission of wrongdoing has been made or is included in the amended agreement, which was entered into in order to avoid the cost of litigation and the risk of an inaccurate adverse verdict by a jury presented with a case of this size and complexity. While it is not feasible to predict or determine the final outcome of these proceedings, management does not believe that they should result in a materially adverse effect on the Company's financial position, results of operations or liquidity. 5. Sales consisted of:
($ in millions) --------------------------------------------------------- Three Months Six Months Ended June 30 Ended June 30 ------------------------- ------------------------- 1998 1997 1998 1997 --------- --------- --------- --------- Elevated cholesterol $ 1,153.4 $ 1,150.4 $ 2,202.5 $ 2,233.5 Hypertension/heart failure 1,164.6 992.9 2,178.5 1,914.7 Anti-ulcerants 284.7 322.3 655.5 630.8 Vaccines/biologicals 217.7 183.1 403.1 334.1 Antibiotics 169.7 183.7 371.1 390.3 Osteoporosis 165.7 127.4 347.4 229.2 Human immunodeficiency virus (HIV) 183.7 140.6 335.0 264.0 Ophthalmologicals 151.4 160.9 301.7 316.7 Other Merck products 145.9 62.2 245.1 132.1 Merck-Medco 2,833.6 2,321.6 5,489.3 4,549.0 Animal health/crop protection -- 264.1 -- 482.7 --------- --------- --------- --------- $ 6,470.4 $ 5,909.2 $12,529.2 $11,477.1 ========= ========= ========= =========
In July 1997, the Company sold its crop protection business to Novartis. In August 1997, the Company and Rhone-Poulenc combined their animal health and poultry genetics businesses to form Merial Limited (Merial), a fully integrated, stand-alone joint venture, equally owned by each party. Other Merck products include sales of other human pharmaceuticals, continuing sales to divested businesses and, in 1998, supply sales to the Merial joint venture. Also included in this category are rebates and discounts on Merck pharmaceutical products. - 4 - 6 Notes to Consolidated Financial Statements (continued) 6. Other (income) expense, net, consisted of:
($ in millions) ------------------------------------------------ Three Months Six Months Ended June 30 Ended June 30 -------------------- -------------------- 1998 1997 1998 1997 ------ ------ ------ ------ Interest income $(63.8) $(54.1) $(125.6) $(105.4) Interest expense 42.6 30.9 81.8 56.0 Exchange gains (6.7) (7.5) (12.6) (13.1) Minority interests 22.7 29.9 65.2 72.6 Amortization of goodwill and other intangibles 48.3 48.3 96.5 96.1 Other, net (10.9) (32.7) (42.8) (51.4) ------ ------ ------ ------ $ 32.2 $ 14.8 $ 62.5 $ 54.8 ====== ====== ====== ======
Minority interests include third parties' share of exchange gains and losses arising from translation of the financial statements into U.S. dollars. Interest paid for the six-month periods ended June 30, 1998 and 1997 was $50.3 million and $34.3 million, respectively. 7. Income taxes paid for the six-month periods ended June 30, 1998 and 1997 were $772.1 million and $646.0 million, respectively. 8. The net income effect of dilutive securities was not significant to the Company's calculation of Earnings per common share assuming dilution. A reconciliation of weighted average common shares outstanding to weighted average common shares outstanding assuming dilution follows:
($ in millions) ------------------------------------------------- Three Months Six Months Ended June 30 Ended June 30 --------------------- --------------------- 1998 1997 1998 1997 ------- ------- ------- ------- Average common shares outstanding 1,194.9 1,207.9 1,194.9 1,208.3 Common shares issuable(1) 30.7 32.0 31.3 32.5 ------- ------- ------- ------- Average common shares outstanding assuming dilution 1,225.6 1,239.9 1,226.2 1,240.8 ======= ======= ======= ======= (1) Issuable primarily under stock option plans.
Stock options outstanding at June 30, 1998 to purchase 13.8 million shares of common stock were not included in the computation of Earnings per common share assuming dilution because the options' exercise prices were greater than the average market price of the common shares. 9. Effective January 1, 1998, the Company adopted the provisions of Statement No. 130, Reporting Comprehensive Income, which modifies the financial statement presentation of comprehensive income and its components. Upon adoption of this Statement, the accumulated net unrealized gain on the Company's available-for-sale investments of $27.9 million at December 31, 1997 was reclassified from Retained earnings to a separate component of Stockholders' equity. Adoption of this Statement had no effect on the Company's financial position or operating results. Comprehensive income for the three months ended June 30, 1998 and 1997, representing all changes in Stockholders' equity during the period other than changes resulting from the Company's stock, was $1,313.0 million and $1,171.9 million, respectively. Comprehensive income for the six months ended June 30, 1998 and 1997 was $2,479.1 and $2,179.1, respectively. 10. Legal proceedings to which the Company is a party are discussed in Part 1 Item 3, Legal Proceedings, in the Annual Report on Form 10-K. There were no material developments in the six-month period ended June 30, 1998. - 5 - 7 MANAGEMENT'S ANALYSIS OF INTERIM FINANCIAL INFORMATION Earnings per share (assuming dilution*) for the second quarter of 1998 were $1.07, an increase of 15% over the second quarter of 1997. Second quarter net income increased 14% to $1,316.1 million. Sales for the quarter were $6.5 billion, up 9% from the same period last year. For the first six months, earnings per share (assuming dilution*) were $2.02, an increase of 15% from the first six months of 1997. Net income was $2,480.5 million for the first six months of 1998, an increase of 14% from the first six months of 1997. Sales rose 9% to $12.5 billion. Sales growth for the quarter and the first half of 1998 was affected by the divestiture of the crop protection business and the formation of the Merial joint venture in the third quarter of 1997. Adjusting for these effects, sales for both the second quarter and the first half of 1998 increased 13%. Sales growth for the quarter and the first half of 1998 was led by the established major products and newer products, including those launched this year, as well as growth from the Merck-Medco Managed Care business. Solid unit volume gains in both domestic and international operations contributed to the second quarter results. Foreign exchange reduced the second quarter sales growth by two percentage points, the same effect as reported in the first quarter of 1998. Excluding exchange, sales of Merck human health products increased 10% for both the second quarter and six months. Sales outside the United States accounted for 25% of the first half of 1998 sales, compared with 28% for the same period last year. Income growth for the first six months was driven by solid unit volume gains. The unfavorable effects of inflation, net of price, and exchange were partially offset by cost controls and productivity improvements in manufacturing, selling and general and administrative expenses. The growth in pretax income for the second quarter and first six months was reduced by the Company's share of the increase in taxes related to the Astra Merck joint venture, the European vaccine joint venture with Pasteur Merieux Connaught and the international operations of the Merial joint venture. The reduction in pretax growth, however, was offset by a corresponding reduction in the Company's tax rate in 1998, resulting in no effect on net income growth. Results for the first six months were paced by sales volume gains of established products, including 'Zocor', 'Vasotec', 'Prinivil' and 'Proscar' and the newer products 'Fosamax', 'Cozaar'**, 'Hyzaar'**, 'Crixivan', 'Trusopt', 'Varivax' and 'Vaqta'. Also contributing to the volume growth were 'Singulair', 'Propecia', 'Aggrastat' and 'Cosopt', all launched in 1998. Prescription volume growth in the Merck-Medco Managed Care business also contributed to the sales increase for the first six months. 'Zocor' continues its strong volume growth and continues to be the most widely used cholesterol-lowering medicine worldwide. This month, the U.S. Food and Drug Administration (FDA) approved a new 80 mg tablet of 'Zocor', which lowered LDL ("bad") cholesterol in clinical studies by a mean of 47 percent. In addition, the official prescribing information for 'Zocor' in the United States has been changed to recommend the 20 mg tablet as the usual starting dose (although patients who require only moderate LDL reductions can still be started at 10 mg). 'Zocor' 20 mg was the starting dose in the landmark Scandinavian Simvastatin Survival Study, which demonstrated a 42% reduction in the risk of coronary death in people with high cholesterol and heart disease. Earlier this year, the FDA approved 'Zocor' to reduce the risk of stroke or transient ischemic attacks (mini-strokes) in patients with high cholesterol and heart disease. The reduction in strokes is consistent with the concept that atherosclerosis is a broad vascular disease that affects more than just the vessels in the heart. Together, 'Zocor' and 'Mevacor', Merck's other cholesterol-lowering medicine, hold more than a 40 percent share of the statin market worldwide. The cholesterol-lowering market continues to grow rapidly, driven primarily by growth of about 30 percent annually in the statin category. Yet today, even in the key U.S. market, only about one-third of potential patients are receiving treatment. *The calculations of basic earnings per share, consistent with the calculation of earnings per share reported in the second quarter and first half of 1997, were $1.11/+16% and $2.08/+16%, respectively. **'Cozaar' and 'Hyzaar' are registered trademarks of E.I. du Pont de Nemours and Company, Wilmington, DE, USA. - 6 - 8 MANAGEMENT'S ANALYSIS OF INTERIM FINANCIAL INFORMATION (continued) Merck's angiotensin converting enzyme (ACE) inhibitors, 'Vasotec' and 'Prinivil', continue to be among the world's most widely prescribed branded anti-hypertensives. Together, they hold about 30 percent of the worldwide market for ACE inhibitors. In the United States, 'Vasotec' is the leading ACE inhibitor and the only one indicated for high blood pressure, asymptomatic left ventricular dysfunction and heart failure. 'Vasotec' is also the only ACE inhibitor indicated to reduce deaths due to symptomatic heart failure, regardless of the underlying cause. 'Prinivil', with its convenient once daily dosing in hypertension, heart failure, and acute myocardial infarction, continues to demonstrate growth well above the overall ACE market. Prescriptions for 'Fosamax', Merck's medicine to treat and prevent postmenopausal osteoporosis and reduce the risk of fractures due to osteoporosis, continue to show strong growth. A new United States law requiring national, standard Medicare coverage for bone mass measurement tests -- the most reliable assessment of the risk of osteoporotic fracture -- went into effect July 1. The Bone Mass Measurement Standardization Act broadens access to bone mass measurement tests for many of the 20 million women in the United States at risk for osteoporosis. This law marks a significant event in the field of osteoporosis because it reflects the U.S. government's recognition that osteoporosis is a serious disease that afflicts a large population of Americans. Merck's oral angiotensin II antagonist, 'Cozaar', the first in this class of antihypertensive drugs, is now approved in 75 countries. Physicians continue to adopt 'Cozaar' faster than any new antihypertensive launched in this decade because of its excellent tolerability profile and proven efficacy in treating high blood pressure. 'Cozaar' and its companion agent, 'Hyzaar' ('Cozaar' in combination with the diuretic hydrochlorothiazide), have been prescribed for more than 3 million patients. 'Cozaar' also has received a new indication for heart failure in 10 countries, including Germany and Spain, and applications for this indication are pending in other countries outside the United States. 'Cozaar' is the only product in its class cleared for use in heart failure in any market. 'Crixivan', Merck's protease inhibitor for the treatment of HIV infection, remains the world's most widely prescribed protease inhibitor. It is sold in more than 80 countries. New two-year data from a study demonstrated sustained anti-HIV effects of 'Crixivan' in triple combination with AZT and 3TC in suppressing HIV to below the level of detection in 78 percent of patients (25/32). Early results released two years ago from the same study, which demonstrated the value of 'Crixivan' in triple combination therapy, helped revolutionize the treatment of HIV and marked a turning point in the battle against AIDS. 'Varivax', the first and only chickenpox vaccine available in the United States, continued its strong growth, with many states adopting requirements for vaccination prior to school and daycare entry. Sales of 'Vaqta', Merck's vaccine to help prevent hepatitis A, also continued to grow. 'Singulair', Merck's new once-a-day tablet to treat chronic asthma in adults and children aged six and older, has been launched in 20 countries, including the United States, United Kingdom, France and Germany. In addition, the medicine has received medical clearance in 19 countries. In clinical studies, 'Singulair' improved asthma control in many patients by significantly decreasing asthma attacks, helping to prevent day- and night-time asthma symptoms, and reducing reliance on bronchodilators. It also allowed many patients to gradually reduce their use of inhaled steroids. 'Propecia', the first and only tablet to treat male pattern baldness, was launched in January in the United States. The first phase of the direct to consumer campaign, which began in April, generated a significant increase in new prescriptions. In April, the FDA cleared Merck's combination product 'Cosopt' for the reduction of elevated intraocular pressure in patients with open-angle glaucoma or ocular hypertension who do not respond adequately to beta-blockers alone. 'Cosopt' is a combination of 'Timoptic' and 'Trusopt'; both Merck medicines are leading therapies in their product categories. The new medicine is also cleared for marketing in Denmark and Mexico. Merck's "platelet blocker" 'Aggrastat' was launched in the United States in May. It is the first drug in its class approved for the treatment of acute coronary syndrome, including patients presenting with unstable angina/non-Q-wave myocardial infarction who are managed medically and those undergoing angioplasty or atherectomy. 'Aggrastat' also has been launched in Switzerland and was approved by regulatory agencies in Germany and Mexico. - 7 - 9 MANAGEMENT'S ANALYSIS OF INTERIM FINANCIAL INFORMATION (continued) 'Maxalt', Merck's new acute treatment for migraine headache, has been launched in the United States, United Kingdom, the Netherlands and Mexico. In clinical studies, 'Maxalt' provided effective relief of the debilitating headache pain and other symptoms such as nausea and sensitivity to light and noise that often accompany a migraine attack. 'Maxalt' is the first and only migraine medicine available in both conventional tablets and convenient, rapidly dissolving wafers, which disintegrate within seconds on the tongue without liquids. On May 26, 1998, the Board of Directors declared a quarterly dividend of 45 cents per share of common stock for the third quarter of 1998. On July 28, 1998, the Board of Directors declared a quarterly dividend of 54 cents per share of common stock for the fourth quarter of 1998. The Company's total dividends paid during 1998 will be $1.89 per share, a 12% increase over the amount paid in 1997. In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. The Statement establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Statement No. 133 is effective for fiscal years beginning after June 15, 1999, however, application of the Statement is permitted as of the beginning of any fiscal quarter after issuance. The impact of adopting Statement No. 133 on the Company's financial statements has not yet been determined, nor has the timing or method of adoption. On July 1, 1998, the Company and Astra AB completed the restructuring of their 50-50 joint venture, Astra Merck, Inc. (AMI), whereby AMI's business was combined with Astra's wholly owned subsidiary, Astra USA Inc., to form a new U.S. limited partnership named Astra Pharmaceuticals LP. Merck will maintain a limited partner interest in the new partnership. The new agreement is accretive to Merck immediately and is expected to provide ongoing revenue and income for at least 10 years based on sales of current and pipeline AMI products and certain Astra USA products. Astra has the right to buy out Merck's interest in these products in 2008, 2012 or 2016, except that Merck's interest in the gastrointestinal medicines 'Prilosec' and perprazole may continue until 2017. Also on July 1, 1998, the Company sold its one-half interest in The DuPont Merck Pharmaceutical Company (DMPC) to DuPont for $2.6 billion in cash. DMPC was not significant to the Company's financial position or results of operations. On July 28, 1998, the Board of Directors approved a new $5 billion stock repurchase program to begin upon completion of the 1997 program. CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS This report and other written reports and oral statements made from time to time by the Company may contain so-called "forward-looking statements," all of which are subject to risks and uncertainties. One can identify these forward-looking statements by their use of words such as "expects," "plans," "will," "estimates," "forecasts," "projects," and other words of similar meaning. One can also identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address the Company's growth strategy, financial results, product approvals and development programs. One must carefully consider any such statement and should understand that many factors could cause actual results to differ from the Company's forward-looking statements. These factors include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed and actual future results may vary materially. The Company does not assume the obligation to update any forward-looking statement. One should carefully evaluate such statements in light of factors described in the Company's filings with the Securities and Exchange Commission, especially on Forms 10-K, 10-Q and 8-K (if any). In Item 1 of the Company's Annual Report on Form 10-K for the year ended December 31, 1997, as filed on March 25, 1998, the Company discusses in more detail various important factors that could cause actual results to differ from expected or historic results. The Company notes these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. One should understand that it is not possible to predict or identify all such factors. Consequently, the reader should not consider any such list to be a complete statement of all potential risks or uncertainties. - 8 - 10 Part II - Other Information Item 4. Submission of Matters to a Vote of Security Holders The following matters were voted upon at the Annual Meeting of Stockholders held on April 28, 1998, and received the votes set forth below: 1. All of the following persons nominated were elected to serve as directors and received the number of votes set opposite their respective names:
For Withheld --- -------- Sir Derek Birkin 970,577,651 17,279,139 William G. Bowen 973,294,245 14,562,545 Carolyne K. Davis 973,313,891 14,542,899 Lloyd C. Elam 973,037,425 14,819,365
2. A proposal to ratify the appointment of independent public accountants received 978,808,207 votes FOR and 1,704,550 votes AGAINST, with 7,344,033 abstentions. 3. A stockholder proposal concerning annual election of directors received 359,145,389 votes FOR and 415,966,999 votes AGAINST, with 26,380,136 abstentions and 186,364,266 broker non-votes. Item 5. Other Information Under rules recently adopted by the Securities and Exchange Commission, if a shareholder notifies the Company after February 2, 1999 of an intent to present a proposal at the Company's 1999 Annual Meeting, the Company will have the right to exercise its discretionary voting authority with respect to such proposal, if presented at the meeting, without including information regarding such proposal in its proxy materials. Stockholder proposals to be presented at the 1999 Annual Meeting must be received by the Company on or before November 19, 1998 for inclusion in the proxy statement and proxy card relating to that meeting. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits
Number Description Method of Filing 2.1 Master Restructuring Agreement dated as of Filed with this document June 19, 1998 between Astra AB, Merck & Co., Inc., Astra Merck Inc., Astra USA, Inc., KB USA, L.P., Astra Merck Enterprises Inc., KBI Sub Inc., Merck Holdings, Inc. and Astra Pharmaceuticals, L.P. (Portions of this Exhibit are subject to a request for confidential treatment filed with the Commission) 3(a) Restated Certificate of Incorporation of Incorporated by reference to Form Merck & Co., Inc. (May 6, 1992) 10-K Annual Report for the fiscal year ended December 31, 1992 3(b) By-Laws of Merck & Co., Inc. (as amended Incorporated by reference to Form effective February 25, 1997) 10-Q Quarterly Report for the period ended March 31, 1997 10.1 Amended and Restated License and Option Filed with this document Agreement dated as of July 1, 1998 between Astra AB and Astra Merck Inc. 10.2 KBI Shares Option Agreement dated as of Filed with this document July 1, 1998 by and among Astra AB, Merck & Co., Inc. and Merck Holdings, Inc.
- 9 - 11 Part II - Other Information (continued) Item 6. Exhibits and Reports on Form 8-K (continued) (a) Exhibits (continued)
Number Description Method of Filing 10.3 KBI-E Asset Option Agreement dated as of Filed with this document July 1, 1998 by and among Astra AB, Merck & Co., Inc., Astra Merck Inc. and Astra Merck Enterprises Inc. 10.4 KBI Supply Agreement dated as of July 1, Filed with this document 1998 between Astra Merck Inc. and Astra Pharmaceuticals, L.P. (Portions of this Exhibit are subject to a request for confidential treatment filed with the Commission) 10.5 Second Amended and Restated Manufacturing Filed with this document Agreement dated as of July 1, 1998 among Merck & Co., Inc., Astra AB, Astra Merck Inc. and Astra USA, Inc. 10.6 Limited Partnership Agreement dated as of July 1, Filed with this document 1998 between KB USA, L.P. and KBI Sub Inc. 10.7 Distribution Agreement dated as of July 1, 1998 Filed with this document between Astra Merck Enterprises Inc. and Astra Pharmaceuticals, L.P. 10.8 Agreement to Incorporate Defined Terms dated as Filed with this document of June 19, 1998 between Astra AB, Merck & Co., Inc., Astra Merck Inc., Astra USA, Inc., KB USA, L.P., Astra Merck Enterprises Inc., KBI Sub Inc., Merck Holdings, Inc. and Astra Pharmaceuticals, L.P. 12 Computation of Ratios of Earnings to Filed with this document Fixed Charges 27 Financial Data Schedule Filed with this document
In accordance with Item 601(b)(2) of Regulation S-K, certain of the schedules and exhibits referenced in exhibit 2.1 to this Form 10-Q have not been filed as part of such exhibit. The Registrant agrees to furnish supplementally a copy of such omitted schedules and exhibits to the Commission upon request. (b) Reports on Form 8-K During the three-month period ending June 30, 1998, the Company filed two Current Reports on Form 8-K under Item 5--Other Events: (i) In a report dated May 19, 1998 and filed May 28, 1998, the Company announced that it had reached an agreement with DuPont to sell its one-half interest in The DuPont Merck Pharmaceutical Company to DuPont for $2.6 billion in cash. (ii) In a report dated June 19, 1998 and filed June 24, 1998, the Company announced that it had signed a definitive agreement with Astra AB under which their 50-50 joint venture, Astra Merck Inc., will be restructured. - 10 - 12 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MERCK & CO., INC. Date: August 11, 1998 /s/ Mary M. McDonald -------------------- MARY M. MCDONALD Senior Vice President and General Counsel Date: August 11, 1998 /s/ Peter E. Nugent ------------------- PETER E. NUGENT Vice President, Controller - 11 - 13 EXHIBIT INDEX Exhibits Number Description 2.1 Master Restructuring Agreement dated as of June 19, 1998 between Astra AB, Merck & Co., Inc., Astra Merck Inc., Astra USA, Inc., KB USA, L.P., Astra Merck Enterprises Inc., KBI Sub Inc., Merck Holdings, Inc. and Astra Pharmaceuticals, L.P. (Portions of this Exhibit are subject to a request for confidential treatment filed with the Commission) 3(a) Restated Certificate of Incorporation of Merck & Co., Inc. (May 6, 1992) - Incorporated by reference to Form 10-K Annual Report for the fiscal year ended December 31, 1992 3(b) By-Laws of Merck & Co., Inc. (as amended effective February 25, 1997) - Incorporated by reference to Form 10-Q Quarterly Report for the period ended March 31, 1997 10.1 Amended and Restated License and Option Agreement dated as of July 1, 1998 between Astra AB and Astra Merck Inc. 10.2 KBI Shares Option Agreement dated as of July 1, 1998 by and among Astra AB, Merck & Co., Inc. and Merck Holdings, Inc. 10.3 KBI-E Asset Option Agreement dated as of July 1, 1998 by and among Astra AB, Merck & Co., Inc., Astra Merck Inc. and Astra Merck Enterprises Inc. 10.4 KBI Supply Agreement dated as of July 1, 1998 between Astra Merck Inc. and Astra Pharmaceuticals, L.P. (Portions of this Exhibit are subject to a request for confidential treatment filed with the Commission) 10.5 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. 10.6 Limited Partnership Agreement dated as of July 1, 1998 between KB USA, L.P. and KBI Sub Inc. 10.7 Distribution Agreement dated as of July 1, 1998 between Astra Merck Enterprises Inc. and Astra Pharmaceuticals, L.P. 10.8 Agreement to Incorporate Defined Terms dated as of June 19, 1998 between Astra AB, Merck & Co., Inc., Astra Merck Inc., Astra USA, Inc., KB USA, L.P., Astra Merck Enterprises Inc., KBI Sub Inc., Merck Holdings, Inc. and Astra Pharmaceuticals, L.P. 12 Computation of Ratios of Earnings to Fixed Charges 27 Financial Data Schedule In accordance with Item 601(b)(2) of Regulation S-K, certain of the schedules and exhibits referenced in exhibit 2.1 to this Form 10-Q have not been filed as part of such exhibit. The Registrant agrees to furnish supplementally a copy of such omitted schedules and exhibits to the Commission upon request. EX-2.1 2 MASTER RESTRUCTURING AGREEMENT 1 Exhibit 2.1 CONFORMED COMPOSITE COPY ================================================================================ MASTER RESTRUCTURING AGREEMENT Dated as of June 19, 1998 Between ASTRA AB, MERCK & CO., INC., ASTRA MERCK INC., ASTRA USA, INC., KB USA, L.P., ASTRA MERCK ENTERPRISES INC., KBI SUB INC., MERCK HOLDINGS, INC. and ASTRA PHARMACEUTICALS, L.P. ================================================================================ Confidential portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission with a request for confidential treatment pursuant to Rule 24b-2. The location of an omitted portion is indicated by an asterisk within brackets ("[*]"). 2 TABLE OF CONTENTS
PAGE ---- ARTICLE 1 CERTAIN DEFINITIONS......................................... 2 1.1 Definitions................................................. 2 ARTICLE 2 EXECUTION OF AGREEMENTS; PRE-CLOSING EVENTS; CLOSING..................................................... 30 2.1 Execution and Delivery of Initial Agreements................ 30 2.2 Other Pre-Closing Events.................................... 31 2.3 Closing..................................................... 32 2.4 Actions to be Taken at the Closing.......................... 32 2.5 Certain Adjustments......................................... 34 2.6 KBI Shared Liabilities...................................... 38 2.7 Other Actions............................................... 39 2.8 Termination of Certain Agreements........................... 39 ARTICLE 3 CERTAIN OPERATIONAL PROVISIONS.............................. 40 3.1 Exclusive Distributorship Agreement......................... 40 3.2 Competition................................................. 40 3.3 Ownership of KBI, KBLP and Other Affiliates................. 42 3.4 Use of Names................................................ 48 3.5 Put Option.................................................. 49 3.6 Outlicensing of Group D Compounds, KB USA Compounds and Group E Compounds............................. 50 3.6A Appointment of Subdistributors and Assignments of Rights with Respect to Licensed Compounds................ 57 3.7 Computation of Certain Contingent Amounts................... 62 3.8 Inflation Adjustment........................................ 66 3.9 Payments.................................................... 67 3.10 Maintenance and Access to Books and Records................. 67 3.11 Business of KBLP............................................ 67 3.12 Business of KBI Parties..................................... 68 3.13 Notice of Events of Bankruptcy.............................. 68 3.14 Certain Actions in Respect of Contingent Amounts............ 68 3.15 Trigger Event............................................... 69 3.16 [Intentionally Omitted]..................................... 79 3.17 KB Obligations in Respect of Certain Loans.................. 79 3.18 Other KB Outlet............................................. 80 3.19 Information Concerning Compounds............................ 80 3.20 Determination of Critical Compounds......................... 80 3.21 Preparation of Tax Returns and Financial Statements.................................................. 82 3.22 Co-promotions............................................... 82 3.23 Lexxel Agreements........................................... 83
(i) 3 TABLE OF CONTENTS (Continued)
PAGE ---- ARTICLE 4 CONFIDENTIALITY............................................. 83 4.1 Confidentiality............................................. 83 4.2 Exceptions.................................................. 84 4.3 Enalapril Confidentiality................................... 85 ARTICLE 5 REPRESENTATIONS AND WARRANTIES.............................. 85 5.1 Representations and Warranties of TR and TR Holdings.................................................... 85 5.2 Representations and Warranties of KB Parties................ 87 5.3 Representations Concerning KBI.............................. 90 ARTICLE 6 INTERIM COVENANTS........................................... 90 6.1 Filings; Consents........................................... 90 6.2 Notification of Certain Matters............................. 90 ARTICLE 7 CONDITIONS TO CLOSING....................................... 91 7.1 Condition to Obligations of KB Parties...................... 91 7.2 Condition to Obligations of TR Parties...................... 91 7.3 Additional Condition to Certain Obligations of TR Parties.................................................. 92 ARTICLE 8 GUARANTEES OF PERFORMANCE................................... 92 8.1 Guarantee by KB............................................. 92 8.2 Guarantee by TR............................................. 92 8.3 Definitions................................................. 93 8.4 Liability of Guarantor Unconditional........................ 93 8.5 Direct Action Against a Guarantor........................... 94 8.6 Continuing Guarantee........................................ 94 8.7 Subordination............................................... 94 8.8 Limits on Subrogation....................................... 95 8.9 Obligations Additional...................................... 95 8.10 Remedies Not Exclusive...................................... 95 8.11 Effect of Assignment........................................ 95 ARTICLE 9 ARBITRATION................................................. 96 9.1 Binding Arbitration; Rules.................................. 96 9.2 Venue; Language............................................. 96 9.3 Arbitrators................................................. 96 9.4 Interim Relief.............................................. 96 ARTICLE 10 INDEMNIFICATION............................................. 97 10.1 By the KB Parties........................................... 97 10.2 By TR....................................................... 97 10.3 Indemnification Procedures.................................. 97
(ii) 4 TABLE OF CONTENTS (Continued)
PAGE ---- 10.4 Subrogation................................................. 99 10.5 Survival.................................................... 99 10.6 Limitation on Damages....................................... 99 ARTICLE 11 TERM AND TERMINATION........................................ 100 11.1 Term........................................................ 100 11.2 Cut-Off Date................................................ 100 11.3 Exercise of KBI-E Asset Option and KBI Shares Option...................................................... 100 11.4 Survival.................................................... 100 11.5 Unilateral Termination...................................... 100 ARTICLE 12 MISCELLANEOUS............................................... 101 12.1 Entire Agreement; Waiver or Modification.................... 101 12.2 Third Party Beneficiaries................................... 101 12.3 Force Majeure............................................... 101 12.4 Miscellaneous............................................... 102 12.5 Binding Effect; Assignment.................................. 102 12.6 Further Assurances.......................................... 103 12.7 Affiliates.................................................. 103 12.8 Notices..................................................... 103 12.9 Governing Law............................................... 104 12.10 Severability................................................ 104 12.11 Remedies.................................................... 105 12.12 Expenses.................................................... 105 12.13 Execution................................................... 105 12.14 Publicity................................................... 105 12.15 Service of Process.......................................... 106
Schedule 1.1 Certain KB USA Products Schedule 1.2 Classification of Combinations Schedule 2.5 Closing Statements Schedule 3.2(b) TR Joint Ventures Schedule 3.7 Base Sales Weightings and Relative Sales Weightings Schedule 3.8 Example of Computation of Inflation Adjustments Schedule 3.15A Trigger Event: Certain Financial Calculations Schedule 3.15B Trigger Event: Qualified Persons Appendix I Ancillary Agreements Exhibit A Form of Amended and Restated KBI License Exhibit B Form of Distribution Agreement Exhibit C Form of Exclusive Distributorship Agreement (iii) 5 Exhibit D Form of KB USA Asset Contribution Agreement Exhibit E Form of KBI Asset Contribution Agreement Exhibit F Form of KBI License Assignment and Assumption Agreement Exhibit G Form of KBI Plan of Recapitalization Exhibit H Form of KBI Shares Option Agreement Exhibit I Form of KBI Sub Assignment and Assumption Agreement (#1) Exhibit J Form of KBI Sub Assignment and Assumption Agreement (#2) Exhibit K Form of KBI Supply Agreement Exhibit L Form of KBI-E Asset Contribution Agreement Exhibit M Form of KBI-E Asset Option Agreement Exhibit N Form of KBLP Assignment and Assumption Agreement Exhibit O Form of Manufacturing Agreement Exhibit P Form of Partnership Agreement Exhibit Q Form of Pledge Agreement Exhibit R Form of Selected Compounds Contribution Agreement Exhibit S Form of Trademark Rights Contribution Agreement Exhibits T-1-T-5 Form of Agreements re Permitted Transfers Exhibit U Form of Clinical Supply Agreement Exhibit V Form of KBI Sublicense Agreement Exhibits W Form of Security Agreement (iv) 6 MASTER RESTRUCTURING AGREEMENT MASTER RESTRUCTURING AGREEMENT, dated as of June 19, 1998, between ASTRA AB, a company limited by shares organized and existing under the laws of Sweden ("KB"), MERCK & CO., INC., a New Jersey corporation ("TR"), ASTRA MERCK INC., a Delaware corporation ("KBI"), ASTRA USA, INC., a New York corporation and an indirect wholly-owned subsidiary of KB ("KB USA"), KB USA, L.P., a Delaware limited partnership of which KB is the general partner and KB USA is the limited partner ("KBLP"), ASTRA MERCK ENTERPRISES INC., a Delaware corporation and a direct wholly-owned subsidiary of KBI ("KBI-E"), KBI SUB INC., a Delaware corporation and a direct wholly-owned subsidiary of KBI ("KBI Sub"), MERCK HOLDINGS, INC., a Delaware corporation and a direct wholly-owned subsidiary of TR ("TR Holdings"), and ASTRA PHARMACEUTICALS, L.P. (f/k/a KB Operating, L.P.), a Delaware limited partnership (the "Partnership"). WITNESSETH: WHEREAS, KB and TR Holdings own all the outstanding shares of KBI; WHEREAS, in the case of KB, such shares constitute (i) 50,000 shares of Class A Common Stock, par value $.01 per share ("Class A Common Stock"); (ii) one (1) share of Class C Common Stock, par value $.01 per share ("Class C Common Stock"); (iii) 187,500 shares of Class A Non-Voting Preferred Stock, par value $12,160 per share ("Class A Preferred Stock"); and (iv) 12,500 shares of Class C Voting Preferred Stock, par value $9,600 per share ("Class C Preferred Stock"); WHEREAS, in the case of TR Holdings, such shares constitute (i) 50,000 shares of Class B Common Stock, par value $.01 per share ("Class B Common Stock"); (ii) 187,500 shares of Class B Non-Voting Preferred Stock, par value $12,160 per share ("Class B Preferred Stock"); and (iii) 12,500 shares of Class D Voting Preferred Stock, par value $9,600 per share ("Class D Preferred Stock"); WHEREAS, KBI is a joint venture of KB and TR formed pursuant to that certain Agreement dated as of July 12, 1982, among TR, KB, KB USA and KBI, as amended by the Transfer Consummation Agreement dated as of November 1, 1994, among TR, KB, and KBI (such agreement, as so amended, being referred to herein as the "1982 JV Agreement"); WHEREAS, pursuant to a Limited Partnership Agreement, dated as of October 21, 1997 (the "Original Partnership Agreement"), the Partnership has been formed and, contemporaneously with the execution and delivery of this Agreement, the partnership interests therein are being acquired by KBLP, as general partner, and KB USA, as limited partner; WHEREAS, KB and TR desire to restructure their joint venture through the termination of the Original Partnership Agreement, the acquisition by KBI Sub of the limited partner's interest in the Partnership, including its status as limited partner, and the entry into the 7 2 Partnership Agreement (as defined below) by KBLP and KBI Sub (upon its acquisition of the limited partnership interest in the Partnership), the capitalization of the Partnership and the modification of certain other contractual arrangements, as provided in the Initial Agreements (as defined below), the Partnership Agreement and the Ancillary Agreements (as defined below), and, in furtherance thereof, the parties hereto are entering into this Agreement and the other Initial Agreements (as applicable) as of the date hereof; NOW, THEREFORE, in consideration of the premises and the representations, warranties and agreements contained herein and in the other Initial Agreements, the Partnership Agreement and the Ancillary Agreements, the parties hereto hereby agree as follows: ARTICLE 1 CERTAIN DEFINITIONS 1.1 Definitions. (a) Without limiting any other terms defined herein, as used in this Agreement the following terms shall have the following respective meanings: "ABCV Compound" shall mean the Parenteral Form of (i) any Licensed Compound which is a Group C Compound, (ii) any Group D Compound or (iii) any Group E Compound that, in any such case, also has other routes of administration or has an antibiotic, anticancer or antiviral use. "Accounting Procedures" shall have the meaning set forth in the Amended and Restated KBI License. "Acquisition of KB" shall have the meaning set forth in Section 3.15(b). "Actual Formula Price" shall mean the actual Formula Price determined in accordance with the KBI-E Asset Option Agreement. "Actual Formula Price Statement" shall have the meaning set forth in Section 3.15(f). "Additional KBLP GP" shall have the meaning set forth in Section 3.3(f). "Additional KBLP LP" shall have the meaning set forth in Section 3.3(f). "Adjusted Original Amount" shall have the meaning set forth in Section 3.8. "Adjustment Date" shall have the meaning set forth in Section 3.8. "Advance Amount" shall mean $2.8 billion. 8 3 "Affiliate" shall mean, with respect to any Person, any other Person controlling, controlled by or under common control with, such Person. For purposes of this definition, the term "control" of a Person shall mean direct or indirect ownership of more than 50% of the outstanding voting stock of a corporate Person or voting interest in a non-corporate Person. Notwithstanding the foregoing, (i) no KBI Party or TR Party (or any of their Affiliates) shall at any time be deemed to be an Affiliate of the Partnership or any KB Party (or any of their Affiliates) solely by virtue of its direct or indirect ownership interest in the Partnership, (ii) each KBI Party shall be deemed to be an Affiliate of TR from and after (but not before) the consummation of the share purchase referred to in Section 2.4(b) hereof, and (iii) the Partnership shall be deemed to be an Affiliate of KB, the General Partner and each of their Affiliates. "Agreed Cash Amount" shall mean the amount calculated in accordance with Section 2.5(b). "Amended and Restated KBI Certificate of Incorporation" shall mean the Amended and Restated Certificate of Incorporation of KBI in the form of Exhibit A to the KBI Plan of Recapitalization. "Amended and Restated KBI By-laws" shall mean the by-laws of KBI in the form of Exhibit B to the KBI Plan of Recapitalization. "Amended and Restated KBI License"(1) shall mean the KBI License, as amended and restated as of the Closing Date in the form of Exhibit A hereto, as such agreement is amended, modified, supplemented or restated from time to time. "Ancillary Agreements" shall mean, collectively, the Agreements listed in Appendix I hereto. When used in the singular, such term shall mean any of the foregoing Agreements. "ANDA" shall mean an abbreviated NDA. "Animal Health Use" shall have the meaning set forth in the Selected Compounds Contribution Agreement. "Announcement Date" shall mean with respect to a transaction or proposed transaction with a Qualified Person the date on which such transaction (or any part thereof) is first publicly announced by any party to such transaction; provided, however, that the restructuring of such transaction with such Qualified Person or an Affiliate thereof prior to the consummation thereof shall not affect or result in a change in the Announcement Date. - --------------- 1. This definition was modified by paragraph 3 of the letter agreement dated July 1, 1998, so that this definition refers to the form of the agreement executed and delivered at the Closing (as such agreement is amended, modified, supplemented or restated from time to time). 9 4 "Appraised Value" shall mean the net present value as of March 31, 2008 of the projected pre-tax amount of the sum of the KBI Products Contingent Amount and the Group E Products Contingent Amount as computed pursuant to Section 3.7 hereof (including amounts with respect to future KBI Products and future Group E Products containing Assignment Compounds (as defined in the KBI-E Asset Option Agreement)) without giving effect to the adjustment provided for in Section 3.7(c) hereof, as determined by the Appraiser pursuant to the terms of Section 3.15(f) hereof. "Appraiser" shall mean the appraiser selected in accordance with Section 3.15(f). "Assignment Payment" shall have the meaning set forth in the KBI-E Asset Option Agreement. "Assignment Right" shall have the meaning set forth in the KBI-E Asset Option Agreement. "Association" shall mean the American Arbitration Association. "Authorized Persons" shall have the meaning set forth in Section 4.1(c). "Bankruptcy" shall mean, with respect to any Person, any of the following events: (i) the Person (a) voluntarily consents to an order for relief under the Bankruptcy Code, (b) seeks, consents to, or does not contest the appointment of a receiver, custodian, or trustee for itself or for all or any material part of its property, (c) files a petition seeking relief under the bankruptcy, arrangement, reorganization, or other debtor relief laws of any country, state or other competent jurisdiction, (d) makes a general assignment for the benefit of its creditors, or (e) admits in writing that it is generally not paying its debts as they become due; or (ii) (a) any party files a petition against such Person seeking an order for relief under the Bankruptcy Code, or seeking relief under the bankruptcy, arrangement, reorganization, or other debtor relief laws of any country, state or other competent jurisdiction, or (b) a court of competent jurisdiction enters an order, judgment, or decree appointing a receiver, custodian, or trustee for such Person, or for all or any material part of its property, and such petition, order, judgment, or decree shall have continued undischarged or unstayed for a period of sixty (60) consecutive days after its entry; and, with respect to KBLP (or any Successor General Partner) and any Additional KBLP GP, shall also include the following additional events: (iii) the interest of any general partner thereof is seized or subject to a charging order by a creditor of such partner and such partner fails to contest the 10 5 same within sixty (60) days after the date of notice to such partner of such seizure or charging order; or (iv) the Bankruptcy (as determined under clauses (i) and (ii) above) of any general partner of KBLP (or, in the case of a Successor General Partner or Additional KBLP GP, any general partner or 25% or greater shareholder (or Person having comparable status in the case of any entity which is not a partnership or corporation) of such Successor General Partner or Additional KBLP GP, as the case may be); and, with respect to the Partnership, shall also include the following additional events: (v) the Interest of the General Partner is seized or subject to a charging order by a creditor of the General Partner and the General Partner fails to contest the same within sixty (60) days after the date of notice to the General Partner of such seizure or charging order; or (vi) the Bankruptcy (as determined under clauses (i), (ii), (iii), and (iv) above) of the General Partner or any Additional KBLP GP. "Bankruptcy Code" shall mean Title 11 of the U.S. Code, entitled "Bankruptcy", as now or hereafter in effect, or any successor statute. "Base Date" shall have the meaning set forth in Section 2.5(e)(i). "Base Date Working Capital" shall have the meaning set forth in Section 2.5(e)(i). "Base Sales Weighting" or "BSW" with respect to each category of Compounds or products listed in the table set forth in Part 2 of Schedule 3.7 hereto shall mean, for any Fiscal Year, the percentage set forth or described in such table across from such category. "Blocking Amount" shall be (i) prior to the KBI-E Asset Purchase, (A) $300,377,586, plus (B) if any of the events described in clause (i) of the definition of Put Option Event occurs, whether such event occurs before or after the occurrence of any other event that constitutes a Put Option Event, (x) for Blocking Payments made in any Fiscal Year from 1998 through 2002, $100 million ($100,000,000), (y) for Blocking Payments made in any Fiscal Year from 2003 through 2007, $150 million ($150,000,000) and (z) for Blocking Payments made in any Fiscal Year after 2007, 13% times the greater of (1) 15.5 times the average annual amount of the Fourth Tier Amount for the three Fiscal Years preceding the exercise of the Put Option (or if fewer than three full Fiscal Years have elapsed from the Closing Date to the exercise of the Put Option, the average annual amount of the Fourth Tier Amount for such Fiscal Years) or (2) $2.0 billion and (ii) after the KBI-E Asset Purchase, $217,577,586. "Blocking Payments" shall have the meaning set forth in Section 3.5(a). 11 6 "Bulk Chemical Manufacturing Stage" shall have the meaning set forth in the Manufacturing Agreement. "business day" shall mean any day other than a Saturday, a Sunday, or any day on which commercial banks in New York City are required or authorized to be closed. "Butterfly Loan Agreements" shall mean the following agreements: (i) the Loan Agreement dated as of February 15, 1995, by and between KBI and KBI-E, (ii) the Loan Agreement dated as of February 15, 1995, by and among KB, TR and KBI-E; and (iii) the Loan Agreement dated as of February 15, 1995 by and among KBI, KB US Holdings Corporation and TR and Company Incorporated. "Calculated Amount" shall have the meaning set forth in the definition of "True-Up Amount." "Capital Account" shall have the meaning set forth in the Partnership Agreement. "Cash and Short-term Investments" of a Person shall mean all of the cash, cash equivalents and securities owned by such Person that are readily convertible into or transferable for cash (in each case on a consolidated basis), including without limitation the items set forth on Part A of Schedule 3.15A hereto. "Class A Common Stock" shall have the meaning set forth in the Recitals. "Class B Common Stock" shall have the meaning set forth in the Recitals. "Class C Common Stock" shall have the meaning set forth in the Recitals. "Class A Preferred Stock" shall have the meaning set forth in the Recitals. "Class B Preferred Stock" shall have the meaning set forth in the Recitals. "Class C Preferred Stock" shall have the meaning set forth in the Recitals. "Class D Preferred Stock" shall have the meaning set forth in the Recitals. "Class E Preferred Stock" shall mean the Class E Non-Voting Convertible Participating Preferred Stock, par value $12,160 per share, of KBI. "Closing" and "Closing Date" shall have the respective meanings set forth in Section 2.3. "Closing Date Inventory Amount" shall mean the book value of the Inventory as of the Closing Date (determined in accordance with GAAP). "Closing Date Working Capital" shall have the meaning set forth in Section 2.5(e)(i). 12 7 "Closing Statements" shall have the meaning set forth in Section 2.5(e)(i). "Code" shall have the meaning set forth in the Partnership Agreement. "Combined Weighted Net Sales of Tiered Rate Products" shall mean the sum of the Weighted Net Sales for all Tiered Rate Products. "Common Stock" shall mean the Common Stock, par value $.01 per share, of KBI. "Comparable Companies" shall mean, as of the Measurement Date, the fifteen (15) largest publicly traded companies (based on the market value of their publicly traded shares) that report earnings in accordance with GAAP and have Pharmaceutical Sales (on a consolidated basis) that are at least 50% of their total sales. "Compound" shall mean any pharmaceutical compound, and the salts and esters thereof, which is suitable for use in human medicine. "Compound Intellectual Property" shall mean all patents (including reissues, divisions, continuations and extensions thereof), patent rights, registrations and applications for the foregoing, licenses and other contractual rights with respect to the foregoing. "Compound Technical Information" shall mean all scientific and technical information, data, and know-how relating to any manufacturing process. "Contingent Amount Gross-Up" shall have the meaning set forth in the Partnership Agreement. "Co-promotion Arrangement" shall mean any arrangement, other than with respect to a Covered Compound, between the Partnership, KB or any of their respective Affiliates, on the one hand (such Person, the "Co-promoter"), and any Third Party, on the other hand (such Person, the "Product Rights Owner"), pursuant to which the Co-promoter (x) has been granted any right by, or incurred any obligation to, the Product Rights Owner to participate in the promotion, marketing or selling effort with respect to any Patented Compound or any product containing any Patented Compound in the Territory and (y) has a financial interest in the sales of or income from such Patented Compound or product. "Covered Compound" shall mean any Group A Compound, Group B Compound, Group C Compound that is a Licensed Compound, Group D Compound, Group E Compound, or KB USA Compound. "Critical Compound" shall mean (i) each of the following Compounds: omeprazole, perprazole, budesonide (for the treatment of chronic lower respiratory diseases (J40-J42; J44-47), asthma (J45), rhinitis, allergic (from J30) and rhinitis, other (from J31)) and candesartan cilexetil, including without limitation formulations for OTC Products and any combination of any of the foregoing with any other Compound, but excluding formulations for 13 8 Selected Uses, and (ii) any Covered Compound (including formulations for OTC Products and any combination of the foregoing with any other Compound, but excluding formulations for Selected Uses) for which at the time of the proposed Outlicensing (A) the annual Net Sales of Ethical Pharmaceutical Products for use in humans containing such Covered Compound for the most recently completed fiscal year of the Partnership and, if applicable, any of its Affiliates in the Territory exceed the Critical Compound Threshold, or (B) the annual Net Sales of Ethical Pharmaceutical Products for use in humans containing such Covered Compound are reasonably expected to exceed the Critical Compound Threshold within five (5) years from the date of the First Commercial Sale thereof by the Partnership or, if applicable, any of its Affiliates in the Territory. "Critical Compound Threshold" shall mean $200 million ($200,000,000), adjusted for inflation pursuant to Section 3.8 hereof. "Disposition Threshold" shall mean $1.0 billion, increased annually as of January 1 of each year, commencing January 1, 1999, by the cumulative percentage growth in worldwide pharmaceutical sales during the immediately preceding year as reported by the Drug Report. For purposes of determining whether the Disposition Threshold has been exceeded, any amount reported in a currency other than Dollars shall be translated into Dollars based on the Noon Buying Rate for such currency on the Measurement Date. "Distribution Agreement"(2) shall mean the Distribution Agreement between KBI-E and the Partnership in the form of Exhibit B hereto, as such agreement is amended, modified, supplemented or restated from time to time. "Dollars" or "$" shall mean U.S. dollars. "Drug Report" shall mean World Review published by IMS Global Services or any successor publisher thereto; provided, however, that, if IMS Global Services or any such successor ceases operations, or otherwise ceases reporting the financial information necessary to make the calculations required by this Agreement, "Drug Report" shall mean such other database or reporting system reporting worldwide pharmaceutical sales most closely approximating World Review, as shall be agreed upon by KB and TR, except that if KB and TR are unable to so agree, such dispute shall be submitted to arbitration pursuant to Article 9. "Effective Rate in Respect of Tiered Rate Products" shall mean, with respect to any period, the percentage rate computed by dividing the Tiered Rate Products Amount for such period by the Combined Weighted Net Sales of Tiered Rate Products for such period. - -------------- 2. This definition was modified by paragraph 3 of the letter agreement dated July 1, 1998, so that this definition refers to the form of the agreement executed and delivered at the Closing (as such agreement is amended, modified, supplemented or restated from time to time). 14 9 "Effective Time" shall mean, in the case of the KBI Asset Contribution Agreement, the KBI-E Asset Contribution Agreement, the Trademark Rights Contribution Agreement and the KB USA Asset Contribution Agreement, (i) the time designated in writing by KBI Sub or KBLP (or their respective assignees), as the case may be, as the effective time of the transfer of assets and the assumption of liabilities thereunder, in accordance with the terms of the applicable agreement (which effective time shall be no later than the opening of business on the Closing Date), or (ii) if no such designation is made, the opening of business on the Closing Date. "Entocort" shall mean budesonide for the treatment of inflammatory bowel disease in humans (K50-K51). "Equity Securities" of a Person shall mean all securities characterized as equity securities on the most recent balance sheet of such Person released to shareholders on or prior to the Measurement Date, other than equity securities that are preferred and limited as to dividends. "Estimated Inventory Amount" shall have the meaning set forth in Section 2.5(b). "Estimated Working Capital Adjustment" shall have the meaning set forth in Section 2.5(b). "Ethical OTC Product" shall mean any OTC Product sold outside the Territory that cannot lawfully be advertised directly to consumers. "Ethical Pharmaceutical Product" shall mean with respect to any Person any pharmaceutical product for human use which may be sold lawfully in any of the Territory or Canada or any country of the European Union or in the country in which such Person is incorporated or organized only with a prescription or an order of a licensed practitioner, regardless of whether it may be sold elsewhere without a prescription or an order of a licensed practitioner. "Events of Force Majeure" shall have the meaning set forth in Section 12.3. "Excluded Transaction" shall have the meaning set forth in the proviso to the definition of "Outlicensing." "Exclusive Distributorship Agreement" shall mean the Exclusive Distributorship Agreement of even date herewith between KB and KB USA in the form of Exhibit C hereto, as such agreement is amended, modified, supplemented or restated from time to time. "FDA" shall mean the U.S. Food and Drug Administration (or any successor agency). "Firm Value" shall mean the amount calculated in accordance with Section 3.15(a)(v). 15 10 "First Commercial Sale" shall mean, with respect to any Person (the "Selling Person"), the first sale of a product in the Territory, following approval by the FDA of an NDA for such product, by (i) the Selling Person or any of its Affiliates, distributors, subdistributors, licensees or sublicensees, on the one hand, to (ii) any Person who is not an Affiliate, distributor, subdistributor, licensee or sublicensee of the Selling Person or of any other Person referred to in the preceding clause (i), on the other hand. "Fiscal Quarter" shall mean each of the three-month periods ending March 31, June 30, September 30 and December 31. "Fiscal Year" shall mean the twelve-month period ending December 31. "Formoterol" shall mean the Compound formoterol. "Formoterol Product" shall mean (i) any product containing Formoterol whether or not in combination with another therapeutically active ingredient or ingredients which is delivered in any dry powder inhaler, (ii) any product containing Formoterol as a monotherapy which is delivered in an inhaler other than a dry powder inhaler, and (iii) any product containing Formoterol in capsules or in tablets or in combination with another therapeutically active ingredient or ingredients (other than a Covered Compound) that competes with any existing Formoterol Product, but excluding combinations with any Licensed Compound, Group D Compound or Group E Compound. "Formulation Manufacturing Stage" shall have the meaning set forth in the Manufacturing Agreement. "Fourth Tier Amount" shall have the meaning set forth in the Partnership Agreement. "Future Agreement" shall mean a Future KB Agreement or a Future TR Agreement. "Future KB Agreement" shall mean any agreement relating to any Initial Agreement, the Partnership Agreement or any Ancillary Agreement, or any of the transactions contemplated thereby, that may be entered into after the Closing between (i) KB or any of its Affiliates (other than the Partnership), on the one hand, and (ii) the Partnership, TR or any Affiliate of TR, on the other hand. "Future TR Agreement" shall mean any agreement relating to any Initial Agreement, the Partnership Agreement or any Ancillary Agreement, or any of the transactions contemplated thereby, that may be entered into after the Closing between (i) TR or any of its Affiliates, on the one hand, and (ii) the Partnership, KB or any Affiliate of KB (other than the Partnership), on the other hand. "Future TR Joint Venture" shall mean any Person (other than any joint venture set forth on Schedule 3.2(b) hereto) in which TR directly or indirectly holds after the date of this 16 11 Agreement (i) 50% of the voting stock (in the case of a corporate Person) or other voting interests (in the case of a non-corporate Person) or (ii) if TR is prohibited by applicable law from acquiring such 50% interest, any Person in which TR directly or indirectly acquires 40% or more but not more than 50% of the voting stock (in the case of a corporate Person) or other voting interests (in the case of a non-corporate Person). "GAAP" shall mean U.S. generally accepted accounting principles, applied on a consistent basis. "General Partner" shall mean each Person that is a general partner of the Partnership as it may be constituted from time to time following the Closing, initially KBLP. "Generic Competition" shall mean, with respect to any Compound (the "Affected Compound"), that (i) the First Commercial Sale of a product containing the Affected Compound has been made pursuant to an ANDA or an NDA held by a non-Affiliate of the Partnership, and (ii) such product is used or approved for use in the same Therapeutic Category for which the Affected Compound is approved for use by the FDA under an NDA held by the Partnership or any of its Affiliates. "GP IIb/IIIa Compound" shall have the meaning set forth in the Selected Compounds Contribution Agreement. "Group A Compound" shall have the meaning set forth in the Amended and Restated KBI License. "Group B Compound" shall have the meaning set forth in the Amended and Restated KBI License. "Group C Compound" shall have the meaning set forth in the Amended and Restated KBI License. "Group D Compound" shall mean (A) any Patented Compound (i) which has been licensed to or acquired by the Partnership for the Territory (including without limitation any such Compound, rights to which are licensed to or acquired by KB or any of its Affiliates prior to the Effective Time), and (ii) as to which the Partnership has not been granted the right to sublicense to KBI or KBI-E in the Territory the right to make, have made, use and sell such Compound; provided, however, that the Group D Compounds shall not include (w) any Compound that will have only an intravenous route of administration and will not have an antibiotic, anticancer or antiviral use, (x) any Compound that is primarily for dental or anesthetic use, (y) any Group C Compound as to which KBI-E has rejected a license for such Compound pursuant to Section 2.3 of the Amended and Restated KBI License or as to which KBI has rejected a license for such Compound pursuant to Section 2.4 of the KBI License or (z) any rights, which at the time that KB or an Affiliate of KB (including the Partnership) first acquired the rights described in clause (A)(i) above, had previously been licensed or otherwise Transferred to a Third Party on an exclusive basis (or to Third Parties collectively having such exclusivity), if and only if such license or other Transfer was not entered into in anticipation of the acquisition by the Partnership 17 12 of the rights described in clause (A)(i) above; and (B) the Selected Compounds and the Selected Uses; provided, however, that in the case of any Selected Use, the applicable Compound shall be treated as a Group D Compound solely with respect to such Selected Use, unless such Compound is otherwise a "Group D Compound" as defined above. Group D Compounds include, without limitation, (i) the Compounds nicin, bucindolol and balsalazide and (ii) any Compound referred to in clause (A) of the preceding sentence whether such rights were acquired by KB or any Affiliate of KB prior to, or are acquired on or after, the date hereof provided that rights to such Compounds were acquired by KB or an Affiliate of KB prior to a Trigger Event. "Group E Compound" shall mean any Patented Compound (i) which has been licensed to or acquired by KB or any of its Affiliates (other than the Partnership) for the Territory (including without limitation any such Compound, rights to which are licensed to or acquired by KB or any of its Affiliates prior to the Effective Time), and (ii) as to which KB or any such Affiliate has not been granted the right to sublicense to KBI or KBI-E in the Territory the right to make, have made, use and sell such Compound; provided, however, that the Group E Compounds shall not include (w) any Compound that will have only an intravenous route of administration and will not have an antibiotic, anticancer or antiviral use, (x) any Compound that is primarily for dental or anesthetic use, (y) any Group C Compound as to which KBI-E has rejected a license for such Compound pursuant to Section 2.3 of the Amended and Restated KBI License or as to which KBI has rejected a license for such Compound pursuant to Section 2.4 of the KBI License or (z) any rights, which at the time that KB or any such Affiliate (excluding the Partnership) first acquired the rights described in clause (i) above, had previously been licensed or otherwise Transferred to a Third Party on an exclusive basis (or to Third Parties collectively having such exclusivity), if and only if such license or other Transfer was not entered into in anticipation of the acquisition by KB or any such Affiliate of the rights described in clause (i) above. Group E Compounds shall include any such Compounds whether such rights were acquired by KB or any such Affiliate of KB prior to, or are acquired on or after, the date hereof provided that rights to such Compounds were acquired by KB or any such Affiliate of KB prior to a Trigger Event. "Group A Product" shall mean, except as set forth on Schedule 1.2 with respect to combination products, (i) any Group A Compound or (ii) any product containing any Group A Compound. "Group B Product" shall mean, except as set forth on Schedule 1.2 with respect to combination products, (i) any Group B Compound or (ii) any product containing any Group B Compound. "Group C Product" shall mean, except as set forth on Schedule 1.2 with respect to combination products, (i) any Group C Compound that is a Licensed Compound, (ii) any product containing any Group C Compound that is a Licensed Compound, including without limitation, products containing candesartan cilexetil, (iii) Entocort, (iv) Ropivacaine IBD, or (v) any combination product classified as a Group C Product pursuant to Schedule 1.2. 18 13 "Group D Product" shall mean, except as set forth on Schedule 1.2 with respect to combination products, (i) any Group D Compound, (ii) any product containing any Group D Compound, (iii) any Group C Product which is not required to be supplied to the Partnership pursuant to the KBI Supply Agreement or (iv) any combination product classified as a Group D Product pursuant to Schedule 1.2. "Group D Products Contingent Amount" shall have the meaning set forth in Section 3.7(b)(v). "Group E Product" shall mean, except as set forth on Schedule 1.2 with respect to combination products, (i) any Group E Compound, (ii) any product containing any Group E Compound, or (iii) any combination product classified as a Group E Product pursuant to Schedule 1.2. "Group E Products Contingent Amount" shall have the meaning set forth in Section 3.7(b)(vi). "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Indemnified Party" and "Indemnifying Party" shall have the respective meanings set forth in Section 10.3. "Indemnity Losses" shall mean all losses, liabilities, damages and claims, and all reasonable costs and expenses related thereto (including any and all reasonable attorneys' fees and reasonable costs of investigation, litigation, settlement, judgment, interest and penalties). "Inflation Year" shall mean the twelve-month period commencing on October 1 of a year and ending on September 30 of the following year. "Initial Agreements" shall mean, collectively, this Agreement, the Exclusive Distributorship Agreement, the KB USA Asset Contribution Agreement, the KBI Asset Contribution Agreement, the Selected Compounds Contribution Agreement and the KBI-E Asset Contribution Agreement. When used in the singular, such term shall mean any of the foregoing agreements. "Inter-Affiliate License Agreement" shall mean the Limited Sublicense Agreement dated as of February 15, 1995, by and between KBI-E and KBI. "Interest" shall mean a Partner's interest in the Partnership. "Inventory" shall have the meaning set forth in the KBI Asset Contribution Agreement. "Inventory Adjustment" shall mean the amount equal to the difference between the Closing Date Inventory Amount and the Estimated Inventory Amount. 19 14 "Inventory Statement" shall have the meaning set forth in Section 2.5(e)(i). "KB Loan" shall have the meaning set forth in Section 2.4(e). "KB Parties" shall mean, collectively, KB, KBLP and KB USA and each other Affiliate of KB that is specified as a party to any Ancillary Agreement. When used in the singular, such term shall mean any of the foregoing entities. References in this Agreement to KBLP shall be deemed also to refer to any Successor General Partner as applicable. "KB Share Consideration" shall have the meaning set forth in Section 3.15(b). "KB USA Asset Contribution Agreement" shall mean the Asset Contribution Agreement of even date herewith between KB USA, KBLP, KB and TR in the form of Exhibit D hereto, as such agreement is amended, modified, supplemented or restated from time to time. "KB USA Compound" shall mean each of albuterol for the treatment of chronic lower respiratory diseases (J40-J42; J44-J47) and asthma (J45); budesonide for the treatment of chronic lower respiratory diseases (J40-J42; J44-J47), asthma (J45), rhinitis, allergic (from J30) and rhinitis, other (from J31); metoprolol succinate for the treatment of hypertensive diseases (I10-I15), angina pectoris (I20) and heart failure (I50); Formoterol; and the combination of felodipine and metoprolol succinate for the treatment of hypertensive diseases (I10-I15). "KB USA Product" shall mean, except as set forth on Schedule 1.2 with respect to combination products, any product containing any KB USA Compound, including without limitation the products identified (by Compound and trademark) on Schedule 1.1 hereto. "KB USA Products Contingent Amount" shall have the meaning set forth in Section 3.7(b)(iii). "KBI Adjustment" shall mean the amount equal to the difference between (i) the KBI Cash Amount and (ii) the KBI Adjustment Liabilities. "KBI Adjustment Liabilities" shall mean the sum of (i) the Tax Amount, and (ii) any dividends on the Preferred Stock that are accrued but unpaid, all as of the Closing Date. "KBI Asset Contribution Agreement" shall mean the Asset Contribution Agreement of even date herewith between KBI, KBI Sub, KB and TR in the form of Exhibit E hereto, as such agreement is amended, modified, supplemented or restated from time to time. "KBI Cash Amount" shall mean the aggregate amount of KBI's consolidated cash and short term investments immediately prior to the opening of business on the Closing Date, but following the payment of the KBI Common Stock Dividend. "KBI Cash Amount Statement" shall have the meaning set forth in Section 2.5(e)(i) hereof. 20 15 "KBI Closing Date Balance Sheet" shall mean the balance sheet prepared in accordance with Section 2.5(e)(i) hereof. "KBI Common Shares" shall mean the 50,000 outstanding shares of Class A Common Stock and one (1) outstanding share of Class C Common Stock. "KBI Common Stock Dividend" shall have the meaning set forth in Section 2.2(b). "KBI License" shall mean the License and Option Agreement made as of July 12, 1982, as amended, between KB and KBI, as in effect as of the date of this Agreement. "KBI License Assignment and Assumption Agreement"(3) shall mean the Assignment and Assumption of Amended and Restated License and Option Agreement between KBI and KBI-E in the form of Exhibit F hereto, as such agreement is amended, modified, supplemented or restated from time to time. "KBI Parties" shall mean, collectively, KBI, KBI Sub and KBI-E. When used in the singular, such term shall mean any of the foregoing entities. References in this Agreement to KBI Sub shall be deemed also to refer to any Successor Limited Partner as applicable. "KBI Plan of Recapitalization" shall mean the Plan of Recapitalization with respect to the capital stock of KBI in the form of Exhibit G hereto. "KBI Products" shall mean, except as set forth in Schedule 1.2 with respect to combination products (i) all products containing any Licensed Compound or (ii) any combination product classified as a KBI Product pursuant to Schedule 1.2, but excluding (x) Logimax and (y) products containing any of the Selected Compounds and (z) any of the Selected Uses of Licensed Compounds. "KBI Products Contingent Amount" shall have the meaning set forth in Section 3.7(b)(iv). "KBI Share Purchase Price" shall have the meaning set forth in Section 2.4(b). "KBI Shared Liabilities Tax Benefit" shall have the meaning set forth in Section 2.6. - ------------------ 3. This definition was modified by paragraph 3 of the letter agreement dated July 1, 1998, so that this definition refers to the form of the agreement executed and delivered at the Closing (as such agreement is amended, modified, supplemented or restated from time to time). 21 16 "KBI Shares Option Agreement"(4) shall mean the Shares Option Agreement between KB, TR and TR Holdings in the form of Exhibit H hereto, as such agreement is amended, modified, supplemented or restated from time to time. "KBI Statement" shall have the meaning set forth in Section 2.5(e)(i). "KBI Sub Assignment and Assumption Agreement (#1)"(5) shall mean the Assignment and Assumption Agreement (#1) between KBI Sub and the Partnership in the form of Exhibit I hereto, as such agreement is amended, modified, supplemented or restated from time to time. "KBI Sub Assignment and Assumption Agreement (#2)"(6) shall mean the Assignment and Assumption Agreement (#2) between KBI Sub and the Partnership in the form of Exhibit J hereto, as such agreement is amended, modified, supplemented or restated from time to time. "KBI Sub Shares" shall have the meaning set forth in Section 3.5(a). "KBI Sublicense" shall mean the KBI Sublicense Agreement between KBI-E and KBI dated as of the Closing Date, as such agreement is amended, modified, supplemented or restated from time to time. "KBI Supply Agreement"(7) shall mean the Supply Agreement between KBI and the Partnership in the form of Exhibit K hereto, as such agreement is amended, modified, supplemented or restated from time to time. "KBI-E Asset Contribution Agreement" shall mean the Contribution Agreement of even date herewith between KBI-E, KBI Sub, KB and TR in the form of Exhibit L hereof, as such agreement is amended, modified, supplemented or restated from time to time. - ------------------- 4. This definition was modified by paragraph 3 of the letter agreement dated July 1, 1998, so that this definition refers to the form of the agreement executed and delivered at the Closing (as such agreement is amended, modified, supplemented or restated from time to time). 5. This definition was modified by paragraph 3 of the letter agreement dated July 1, 1998, so that this definition refers to the form of the agreement executed and delivered at the Closing (as such agreement is amended, modified, supplemented or restated from time to time). 6. This definition was modified by paragraph 3 of the letter agreement dated July 1, 1998, so that this definition refers to the form of the agreement executed and delivered at the Closing (as such agreement is amended, modified, supplemented or restated from time to time). 7. This definition was modified by paragraph 3 of the letter agreement dated July 1, 1998, so that this definition refers to the form of the agreement executed and delivered at the Closing (as such agreement is amended, modified, supplemented or restated from time to time). 22 17 "KBI-E Asset Option" shall mean the option to purchase certain assets of KBI-E provided for in the KBI-E Asset Option Agreement. "KBI-E Asset Option Agreement"(8) shall mean the Asset Option Agreement between KB, TR, KBI and KBI-E in the form of Exhibit M hereto, as such agreement is amended, modified, supplemented or restated from time to time. "KBI-E Asset Purchase" shall mean the purchase of assets of KBI-E pursuant to the KBI-E Asset Option Agreement on the Assignment Date (as defined in the KBI-E Asset Option Agreement). "KBI-P" shall mean KBI Pharmaceuticals, Inc. "KBLP Assignment and Assumption Agreement"(9) shall mean the Assignment and Assumption Agreement between KBLP and the Partnership in the form of Exhibit N hereto, as such agreement is amended, modified, supplemented or restated from time to time. "KBLP Partnership Agreement" shall mean the Limited Partnership Agreement between KB and KB USA (as assignees of the original partners thereof), dated as of June 19, 1998, as such agreement is amended, modified, supplemented or restated from time to time. "LIBOR" shall mean the rate per annum equal to (i) the arithmetic average (rounded upwards or downwards, if necessary, to the nearest 1/16th of one percent with the midpoint being rounded upwards) of the offered rates for U.S. dollar deposits for the applicable LIBOR Period beginning on the first day of the applicable Fiscal Quarter or other applicable period (or the London banking day that is closest to the first day of such Fiscal Quarter or other applicable period) which appear on the LIBO page of the Reuters Monetary Money Rates Service (or such other page as may replace that page on that service for the purpose of displaying rates comparable to those displayed on the LIBO page) at approximately 11:00 A.M. (London Time) on the day that is two (2) London banking days prior to the first day of the applicable Fiscal Quarter or other applicable period or (ii) or if no such offered rates appear on the LIBO Page (or such other page as may replace that page on that service for the purpose of displaying rates comparable to those displayed on the LIBO page), the offered rate for U.S. dollar deposits for the applicable LIBOR Period which appears on the display page currently designated as page 3750 of the Dow Jones Telerate Service (or such other page as may replace that page on that - --------------------- 8. This definition was modified by paragraph 3 of the letter agreement dated July 1, 1998, so that this definition refers to the form of the agreement executed and delivered at the Closing (as such agreement is amended, modified, supplemented or restated from time to time). 9. This definition was modified by paragraph 3 of the letter agreement dated July 1, 1998, so that this definition refers to the form of the agreement executed and delivered at the Closing (as such agreement is amended, modified, supplemented or restated from time to time). 23 18 service for the purpose of displaying rates comparable to those displayed on page 3750) as of 11:00 A.M. (London time) on the day that is two (2) London banking days prior to the first day of such Fiscal Quarter. Any reference to "three-month LIBOR" or "one-year LIBOR" or "two-year LIBOR" shall mean LIBOR determined using a LIBOR Period of three months, one year and two years, respectively. "LIBOR Period" shall mean a period of three (3) months, one (1) year or two (2) years, as applicable. "Licensed Compound" shall mean any Compound that is a Licensed Compound, as defined in the Amended and Restated KBI License, and any such Compound shall continue to be a Licensed Compound notwithstanding the expiration of the patents licensed to KBI under the Amended and Restated KBI License, except to the extent that rights with respect to such Compound have reverted to KB pursuant to Section 16.2 of the Amended and Restated KBI License. "Lien" shall mean any lien, mortgage, security interest, pledge, charge, claim, restriction, reservation, security interest, encumbrance, charge, option, restraint on transfer, any title defect of any nature whatsoever or any interest or title of any vendor, lessor, lender, or other secured party under any conditional sale or other title retention agreement or capital lease, upon or with respect to any real property or asset. "Limited Partner" shall mean each Person that is a limited partner of the Partnership as it may be constituted from time to time following the Closing, initially KBI Sub. "Loan Amount" shall have the meaning set forth in Section 2.4(e). "Logimax" shall mean the product consisting of the combination of felodipine and metoprolol succinate for the treatment of hypertensive diseases (I10-I15). "Manufacturing Agreement"(10) shall mean the Second Amended and Restated Manufacturing Agreement between TR, KB and KBI in the form of Exhibit O hereto, as such agreement is amended, modified, supplemented or restated from time to time. "Market Capitalization" shall have the meaning set forth in Section 3.15(a). "Market Exclusivity" shall mean with respect to any Compound or any product containing any Compound, any period (i) during which there exists a patent or patent application (or division or continuation thereof) described in clause (i) or (ii) of the definition of Patented - ------------------------ 10. This definition was modified by paragraph 3 of the letter agreement dated July 1, 1998, so that this definition refers to the form of the agreement executed and delivered at the Closing (as such agreement is amended, modified, supplemented or restated from time to time). 24 19 Compound claiming such Compound or (ii) during which there exists a patent or patent application (or division or continuation thereof) claiming (A) the use thereof, if such compound is administered in a formulation that is unique to the patented use, i.e., the formulation is not useful for indications not covered by the use patent or (B) the formulation in which the Compound or product is sold or (iii) during which the holder of the NDA for such Compound or product containing such Compound applicable to the Territory has exclusive marketing rights or exclusive rights to sell generally or with respect to any application or applications under any statute (including without limitation the federal Food, Drug and Cosmetic Act and all amendments thereto) or any rules or regulations promulgated thereunder. "Measurement Date" shall mean the day that is 180 days prior to the Announcement Date for a transaction or integrally related transactions that may constitute a Trigger Event; provided, however, for purposes of determining the Market Capitalization of a Person, if such 180th day is not a trading day on the principal trading market for any security to be valued as of the Measurement Date, the Measurement Date with respect to such security shall be the next trading day on such principal trading market. "Merger of Equals" shall have the meaning set forth in Section 3.15(b). "NDA" shall have the meaning set forth in the Amended and Restated KBI License. "Net Income" of a Person shall mean such Person's net income (determined on a consolidated basis in accordance with GAAP), excluding (i) separately identified non-recurring items (including without limitation items identified in notes to financial statements) and (ii) the total of income (loss) from operations of a discontinued subsidiary, division or department or other identifiable business unit on the disposal or discontinuance thereof. "Net KBI Cash Amount" shall mean the amount equal to (i) the KBI Cash Amount minus (ii) the Agreed Cash Amount; provided, however, the Agreed Cash Amount shall be further adjusted pursuant to Section 2.5(c)(i) or Section 2.5(c)(ii) as the case may be. "Net Sales" shall mean for any period the total amount required to be recorded for such period by the Partnership and its Affiliates on its and their books and records plus the total amount required to be recorded for such period by each Outlicensee on its books and records, in each case in accordance with the Accounting Procedures, with respect to sales of Compounds, and products containing Compounds, in the Territory for any use (whether in human medicine or otherwise) to its and their non-Affiliates after deducting (if not already deducted in the amount recorded) trade discounts, rebates, returns and allowances, retroactive price reductions or adjustments, and 5% of the amount recorded to cover cash discounts ("fast pay"), sales or excise taxes, transportation, and insurance charges, except that Net Sales shall not include sales to a Person to the extent sales by such Person are included in Net Sales and have a Relative Sales Weighting greater than zero. Sales by a Person of products, the rights to which were acquired by such Person pursuant to an Excluded Transaction or Excluded Transactions with the Partnership or an Other KB Outlet or pursuant to Outlicenses to be treated as if they were Excluded Transactions pursuant to Section 3.6(a) or Section 3.6A(a), shall be considered Net Sales of the 25 20 Partnership or the Other KB Outlet, as the case may be, for purposes of computing Net Sales and Weighted Net Sales of the applicable Compound or product. "1982 JV Agreement" shall have the meaning set forth in the Recitals. "Non-Medical Use" shall have the meaning set forth in the Selected Compounds Contribution Agreement. "Non-Qualified Co-promotion Percentage" shall mean, with respect to a Fiscal Year, the quotient of the total number of details carried out during such Fiscal Year by the Partnership, KB and its Affiliates in the Territory with respect to all products covered by Co-promotion Arrangements other than Qualified Co-promotion Arrangements divided by the total number of details carried out in the Territory during such Fiscal Year with respect to such products by all Persons. "Noon Buying Rate" with respect to a non-U.S. currency shall mean the noon buying rate in New York City for cable transfers in such currency as certified for customs purposes by the Federal Reserve Bank of New York. "Omeprazole-for-Horses License" shall mean the License and Research Collaboration Agreement, effective as of November 20, 1996, by and among KBI, KBI-E, KB and TR. "Omeprazole Products" shall mean, except as set forth on Schedule 1.2 with respect to combination products, all products containing the Compound omeprazole as a monotherapy or in combination with any other therapeutically active ingredient or ingredients, but exclusive of any Selected Use of the Compound omeprazole. "Omeprazole Products Contingent Amount" shall have the meaning set forth in Section 3.7(b)(i). "Option Exercise Price" shall have the meaning set forth in the KBI Shares Option Agreement. "Original Amount" shall have the meaning set forth in Section 3.8. "Original Capital Contribution" shall have the meaning set forth in the Partnership Agreement. "Original Manufacturing Agreement" shall mean the Manufacturing Agreement among TR, KB and KBI made as of July 12, 1982, as amended by the Amendment to the Manufacturing Agreement dated as of November 1, 1994, and as Amended and Restated as of January 31, 1997. "Original Partnership Agreement" shall have the meaning set forth in the Recitals. 26 21 "OTC Product" shall mean a pharmaceutical product containing a therapeutically active ingredient for human use, sales of which product (i) are lawful in the Territory (or other applicable territory) without a prescription or an order of a licensed practitioner and (ii) require the approval of the FDA (or, if such product is sold outside the Territory, the equivalent regulatory agency). "Other A-II Compound" shall have the meaning set forth in the Selected Compounds Contribution Agreement. "Other KB Outlet" shall mean KB or such other Affiliate of KB that is a licensee with respect to, or has similar rights to use or sell, any Group E Compound. "Outlicense" or "Outlicensing" shall mean any grant by the Partnership or any Other KB Outlet to any Person of any right to sell in the Territory any Covered Compound and/or any product containing any Covered Compound, whether exclusive or nonexclusive and whether by sale, license, sublicense, co-marketing agreement, subdistribution arrangement, complete or partial assignment of contract rights, other dispositions, covenant not to sue or immunity from suit, or otherwise; provided, however, that the following matters (each, an "Excluded Transaction") shall not be considered an Outlicense or Outlicensing: (i) the co-promotion agreement, dated as of December 8, 1997, between KBI and The Procter & Gamble Distributing Co., (ii) any such grant pursuant to which, or in connection with which, KB, the Partnership or any other Affiliate or agent of KB provides or agrees to provide or cause the provision of marketing efforts to any Person or has any role in the setting of pricing or marketing strategy, and (iii) any such grant to KB or any Affiliate of KB. In the event that any grant included within the foregoing definition covers more than one (1) Covered Compound and/or product, then the grant with respect to each Covered Compound and/or each product shall be deemed to be a separate Outlicensing. "Outlicensed Compound" shall mean, with respect to any Outlicensing, the Covered Compound, or product containing any Covered Compound, which is the subject of such Outlicensing. If less than all rights with respect to a Compound are Outlicensed, "Outlicensed Compound" shall refer to that portion of the rights with respect to such Compound as have been Outlicensed. "Outlicensee" shall mean, with respect to any Outlicensing, the Person or Persons with whom the Partnership or Other KB Outlet enters into such Outlicensing and any Person holding rights derived directly or indirectly from such Outlicensing. "Parenteral Form" shall have the meaning set forth in the Amended and Restated KBI License. "Parents" shall mean KB (and its permitted successors pursuant to Section 3.3(b)(i) hereof) and TR (and its permitted successors pursuant to Section 3.3(b)(i) hereof). When used in the singular, such term shall mean either of the foregoing entities. 27 22 "Partner" shall mean each Person that is either a general partner or a limited partner of the Partnership. "Partnership" shall have the meaning set forth in the Preamble. "Partnership Agreement"(11) shall mean the Partnership Agreement between KBLP, as General Partner, and KBI Sub, as Limited Partner, in the form of Exhibit P hereto, as such agreement is amended, modified, supplemented or restated from time to time. "Partnership Compounds" shall have the meaning set forth in Section 3.6(b). "Patented Compound" shall mean any Compound as to which there exists at the time KB or any of its Affiliates acquires any rights to or with respect to such Compound (i) an unexpired U.S. patent claiming such Compound, any of its methods of use, or any composition containing it or (ii) an application (or any division or continuation thereof) for a U.S. patent claiming such Compound, any of its methods of use, or any composition containing it. "Permitted Business" shall have the meaning set forth in the Partnership Agreement. "Perprazole Cost" shall mean the Manufacturer's Cost (as defined in the KBI Supply Agreement) for Perprazole Products billed by KBI to the Partnership (excluding contingent amounts and royalties to KB) plus any royalties payable to Third Parties with respect to the sale of Perprazole Products or the Compound perprazole in the Territory. "Perprazole Percentage" shall have the meaning set forth in Section 3.7(b)(ii). "Perprazole Products" shall mean, except as set forth on Schedule 1.2 with respect to combination products, all products containing the Compound perprazole as a monotherapy or in combination with any other therapeutically active ingredient or ingredients, but exclusive of any Selected Uses of the Compound perprazole. "Perprazole Products Contingent Amount" shall have the meaning set forth in Section 3.7(b)(ii). "Person" shall mean any individual, partnership, corporation, business trust, joint stock company, trust, or other entity of a similar nature. "Pharmaceutical Sales" of a Person shall mean (i) sales of Ethical Pharmaceutical Products (determined on a consolidated basis in accordance with GAAP), including generic - --------------------- 11. This definition was modified by paragraph 3 of the letter agreement dated July 1, 1998, so that this definition refers to the form of the agreement executed and delivered at the Closing (as such agreement is amended, modified, supplemented or restated from time to time). 28 23 pharmaceutical products, and Ethical OTC Products (if such Person reports to its shareholders sales of Ethical OTC Products separately from sales of other OTC Products), plus (ii) an amount equal to the lesser of (A) 10% of the sales included in the foregoing clause (i) or (B) actual sales of OTC Products not included in the foregoing clause (i) (determined on a consolidated basis in accordance with GAAP), in each case for the most recent fiscal year of such Person completed on or prior to the Announcement Date and for which audited financial statements have been released by such Person. "Pledge Agreement"(12) shall mean the Pledge Agreement between KB and KBI in the form of Exhibit Q hereto, as such agreement is amended, modified, supplemented or restated from time to time. "Preferred Stock" shall mean, collectively, the Class A Preferred Stock, Class B Preferred Stock, Class C Preferred Stock and Class D Preferred Stock. "Price/Earnings Ratio" shall mean the ratio calculated in accordance with Section 3.15(a)(iv). "Price Index" shall mean the Producer Price Index - Drugs and Pharmaceuticals - Ethical Preparations (Prescriptions) or any successor thereto, as compiled and published by the U.S. Department of Labor, Bureau of Labor Statistics or any successor agency that assumes responsibility for the preparation of such index. "Put Option" shall have the meaning set forth in Section 3.5. "Put Option Event" shall mean the occurrence of any of the following: (i) the Bankruptcy of the Partnership, KBLP (or any Successor General Partner) or any Additional KBLP GP, (ii) in the event the Capital Account balance of KBLP in the Partnership is less than $0 as of the last day of any Fiscal Year, the failure of KBLP to contribute to the Partnership within ninety (90) days after the end of such Fiscal Year an amount of cash sufficient to increase such Capital Account to at least $0, (iii) the failure of the Accountants (as defined in the Partnership Agreement) to deliver, within five (5) months after the end of any Fiscal Year, the audited financial statements and accountants' opinion with respect thereto provided for in Sections 6.5(a)(i) and 6.5(a)(ii) of the Partnership Agreement, (iv) the withdrawal (or purported withdrawal) of the General Partner from the Partnership or the dissolution (or any event or circumstance that, but for the agreements set forth in Section 8.2 of the Partnership Agreement, would constitute dissolution) of the Partnership by the General Partner in contravention of the Partnership Agreement or (v) any breach of the obligations of KB, KBLP, KB USA or any Successor General Partner set forth in Section 3.3(f) hereof. - ------------------- 12. This definition was modified by paragraph 3 of the letter agreement dated July 1, 1998, so that this definition refers to the form of the agreement executed and delivered at the Closing (as such agreement is amended, modified, supplemented or restated from time to time). 29 24 "Put Option Exercise Period" shall mean the period ending six (6) months after: (i) in the case of any of the events described in clause (i) of the definition of Put Option Event, confirmation of a final plan of reorganization by the court having jurisdiction over such Bankruptcy; (ii) in the case of the event described in clause (ii) of the definition of Put Option Event, the receipt by TR of a certificate from the Accountants stating that, as of the date of such certificate, the Capital Account balance of KBLP in the Partnership is at least $0; (iii) in the case of the event described in clause (iii) of the definition of Put Option Event, the receipt by KBI Sub of the audited financial statements and Accountants' opinion referred to therein; (iv) in the case of any of the events described in clause (iv) of the definition of Put Option Event, (x) if the Partnership is liquidated and wound up, the date on which such liquidation and winding up is completed, or (y) if the Partnership is not liquidated and wound up, the date on which the damages of KBI Sub or any of its Affiliates for the breach of Section 8.1 by the General Partner are paid in full; and (v) in the case of any of the events described in clause (v) of the definition of Put Option Event, the later of the date on which (x) such breach is cured or (y) TR receives a certificate to such effect from the Chief Financial Officer of KB. "Put Option Price" shall have the meaning set forth in Section 3.5(b). "QP Financial Test" shall mean an amount equal to $3.25 billion, as increased annually as of January 1 of each year, commencing January 1, 1999, by the cumulative percentage growth in worldwide pharmaceutical sales over the immediately preceding year as reported by the Drug Report. For purposes of determining whether the QP Financial Test has been satisfied, any amount reported in a currency other than Dollars shall be translated into Dollars based on the Noon Buying Rate for such currency on the Measurement Date. "QP Share Consideration" shall have the meaning set forth in Section 3.15(b). "Qualified Co-promotion Arrangement" shall mean any Co-promotion Arrangement which satisfies each of the following conditions: (A) the Product Rights Owner (as defined in the definition of Co-promotion Arrangement) provides at least one-quarter of the details with respect to such Patented Compound or product in the Territory; (B) neither the Co-promoter (as defined in the definition of Co-promotion Arrangement) nor any of its Affiliates has any responsibility for regulatory submissions with respect to such Patented Compound or product in the Territory; (C) neither the Co-promoter nor any of its Affiliates at any time takes title to, or has risk of loss with respect to, such Patented Compound or product in the Territory; 30 25 (D) neither the Co-promoter nor any of its Affiliates owns, is a licensee or sublicensee of, or otherwise possesses or has the right to use in the European Union (other than Sweden, Denmark, Finland, Norway and Iceland), any Compound Intellectual Property or Compound Technical Information with respect to such Patented Compound or product; (E) the Co-promoter has paid or furnished no consideration of any type or nature to the Product Rights Owner for the right to participate in the arrangement; (F) the term of the arrangement, including options to extend, shall not exceed three years; (G) neither the Co-promoter nor any of its Affiliates has any role in the setting of pricing or any decisive role in marketing strategy with respect to such Compound or product in the Territory, and (H) such arrangement is effective no earlier than the earlier of July 1, 2000 and the date on which omeprazole loses Market Exclusivity in the Territory. "Qualified Co-promotion Percentage" shall mean, with respect to a Fiscal Year, the quotient of the total number of details carried out during such Fiscal Year by the Partnership, KB and its Affiliates in the Territory with respect to the products covered by Qualified Co-promotion Arrangements divided by the total number of details carried out in the Territory during such Fiscal Year with respect to such products by all Persons. "Qualified Person" shall mean: (i) any Person listed on Schedule 3.15B hereto, unless during any two (2) fiscal years of such Person ending prior to the time of the transaction, the status of which as a Trigger Event is to be determined (or during the twenty-four month period immediately preceding such transaction), such Person shall, directly or indirectly, have sold, exchanged or otherwise disposed of assets which, in the aggregate, accounted for an amount of Pharmaceutical Sales equal to or greater than the Disposition Threshold, and (ii) any Person, including any Person disqualified under clause (i) above, that has Pharmaceutical Sales equal to or greater than the QP Financial Test; and shall include a subsidiary or nominee company ("Newco") of the Qualified Person or KB (or of the Qualified Person and KB jointly) formed solely in order to effect a transaction which is a Trigger Event under Section 3.15(c) hereof; provided, however, that for purposes of applying the tests set forth in Section 3.15, the Qualified Person shall be the ultimate corporate parent of such Person. "Regulatory Assignment" shall mean any assignment by the Partnership of the Partnership's rights under the Distribution Agreement and the KBI Supply Agreement with respect to a Licensed Compound that is entered into in accordance with Section 3.6A(d) in order to eliminate objections by the U.S. Federal Trade Commission or Department of Justice (or any successor agency) to a proposed transaction by KB or any of its Affiliates. "Regulatory Outlicense" or "Regulatory Outlicensing" shall mean any Outlicensing of a Critical Compound that is entered into by the Partnership, KB or any other Affiliate of KB in order to eliminate objections to a proposed transaction by KB or any of its 31 26 Affiliates by the U.S. Federal Trade Commission or Department of Justice (or any successor agency) and shall include any Regulatory Assignment of a Critical Compound. "Related Person" shall mean, with respect to any Person, any other Person controlling, controlled by or under common control with, such Person. For purposes of this definition, the term "control" of a Person shall mean (i) direct or indirect ownership of 50% or more of the outstanding Voting Securities of a corporate Person or voting interest in a non-corporate Person or (ii) the possession, direct or indirect, of the power to elect or appoint directors or to direct or cause the direction of the management and policies of a Person. "Relative Sales Weighting" or "RSW" shall mean, for any Fiscal Year: either (i) with respect to each category of Net Sales of a Compound or product listed in the table set forth in Part 3 of Schedule 3.7 hereto the percentage listed in or computed in accordance with such table in respect of such category of Net Sales, (ii) if such table specifies the RSW as "To be agreed", the percentage agreed to by KB and TR in writing, or (iii) in all other cases, the Base Sales Weighting for the applicable Compound or product; provided, however, that in the event KB and TR agree in writing to any different RSW for a Compound, product or transaction, the RSW for such Compound, product or transaction shall be the percentage agreed to by KB and TR. "Residual KBI Cash Amount" shall mean the amount equal to the Net KBI Cash Amount minus the KBI Adjustment Liabilities. "Ropivacaine IBD" shall mean ropivacaine for the treatment in humans of inflammatory bowel disease (K50-K51). "Rules" shall mean the Commercial Arbitration Rules of the American Arbitration Association. "Section 10.1 Indemnitees" shall have the meaning set forth in Section 10.1. "Section 10.2 Indemnitees" shall have the meaning set forth in Section 10.2. "Selected Compounds" shall mean, collectively, the GP IIb/IIIa Compounds and the Other A-II Compounds. "Selected Compounds Contribution Agreement" shall mean the Contribution Agreement of even date herewith between KBI, KBI Sub, KB and TR in the form of Exhibit R hereto, as such agreement is amended, modified, supplemented or restated from time to time. "Selected Uses" shall mean, collectively, the Animal Health Uses of Covered Compounds (including without limitation use of the Compound omeprazole as contemplated by the Omeprazole-for-Horses License) and the Non-Medical Uses of Covered Compounds. "Special Case Outlicensings" shall have the meaning set forth in Section 3.6(g). 32 27 "Split Combination Product" shall mean any product that includes a Licensed Compound supplied to KBI pursuant to the Manufacturing Agreement in combination with a Group D Compound or KB USA Compound. "Successor General Partner" shall have the meaning set forth in Section 3.3(f). "Successor Limited Partner" shall have the meaning set forth in Section 3.3(g). "Supplemental Sales Weighting Table" shall mean the table set forth in Part 4 of Schedule 3.7 hereto. "Tax Amount" shall mean, as of the Closing Date, the difference between the amount of KBI's income taxes payable (determined in accordance with GAAP) and the amount of KBI's prepaid income taxes (determined in accordance with GAAP), excluding any reserves for tax deficiencies relating to prior years; provided, however, that such calculation shall not give effect to any transactions contemplated by this Agreement, any of the Initial Agreements, the Partnership Agreement or any of the Ancillary Agreements. "Territory" shall mean the United States of America, its territories and possessions. "Therapeutic Category" shall have the meaning set forth in the Amended and Restated KBI License. "Third Party" shall mean any Person other than (i) TR or any Affiliate of TR or (ii) KB, the Partnership or any other Affiliate of KB. "Tiered Rate Products" shall mean KB USA Products, KBI Products (other than Omeprazole Products and Perprazole Products), Group D Products and Group E Products. "Tiered Rate Products Amount" shall have the meaning set forth in Section 3.7(a). "Total Cash Outlicense" or "Total Cash Outlicensing" shall mean any Outlicense or Outlicensing of any Compound or product (other than a Licensed Compound or any product containing any Licensed Compound) which meets all of the following conditions: (i) the Partnership and its Affiliates or, with respect to Group E Products, the applicable Other KB Outlet and its Affiliates, dispose of all of their rights with respect to the Territory, including without limitation all patent, trademark and license rights and all rights or obligations to supply, and the Outlicensee (or a parent entity) assumes all of the Partnership's, such Other KB Outlet's and such Affiliates' obligations, with respect to the sale of the Outlicensed Compound, (ii) the consideration for such Outlicensing consists solely of cash, (iii) such consideration is paid in full by the Outlicensee to the Partnership or such Other KB Outlet no later than the effective date of such Outlicensing and (iv) neither KB, the Partnership nor any of KB's other Affiliates has any ownership interest in the Outlicensee or any of its Affiliates. Without limiting the generality of the foregoing, an Outlicensing shall not be a Total Cash Outlicensing if pursuant to, or in connection with, such Outlicensing, (x) the Partnership or such Other KB Outlet receives from 33 28 the Outlicensee or any other Person any nonmonetary consideration or (y) KB or any Affiliate of KB other than the Partnership (in the case of Partnership Compounds) or such Other KB Outlet (in the case of Group E Compounds) receives from the Outlicensee or any other Person any monetary or nonmonetary consideration, in any such case regardless of whether such consideration relates to the Outlicensed Compound in the Territory. "Total Debt" of a Person shall mean the sum of all items of such Person's balance sheet (determined in accordance with GAAP) (i) that represent debt obligations due more than one (1) year from the date of such balance sheet, including without limitation the items set forth on Part B of Schedule 3.15A hereto, and (ii) that represent debt obligations due not more than one (1) year from the date of such balance sheet, including without limitation the items set forth on Part C of Schedule 3.15A hereto. "TR Financial Assets" shall mean interest-bearing securities or interest-bearing financial instruments (including without limitation U.S. government securities and corporate bonds, debentures, notes, and commercial paper) that are non-convertible and non-exchangeable and do not bear any other rights to acquire any equity security or equity interest and (i) are senior unsubordinated obligations issued by TR, (ii) are Investment Grade Obligations (as defined in the Partnership Agreement), (iii) are senior unsubordinated obligations of the issuer that are fully guaranteed on a senior unsubordinated basis as to the payment of principal and interest by TR or by any entity whose outstanding unsecured debt securities or commercial paper are Investment Grade Obligations and would continue to be Investment Grade Obligations after the effectiveness of such guarantee or (iv) meet other creditworthiness standards satisfactory to KB in its sole discretion. "TR Parties" shall mean, collectively, TR, TR Holdings and each other Affiliate of TR that is specified as a party to any Ancillary Agreement and shall include, without limitation, from and after the Effective Time, KBI, KBI-E and KBI Sub. When used in the singular, such term shall mean any of the foregoing entities. "TR Promissory Note" shall have the meaning set forth in Section 2.4(e). "Trademark Rights Contribution Agreement"(13) shall mean the Contribution Agreement between TR, KB, KBI and KBI Sub in the form of Exhibit S hereto, as such agreement is amended, modified, supplemented or restated from time to time. "Transfer" shall mean, with respect to any shares or other property or asset (or any interest therein), when used as a verb, sell, assign, pledge, encumber, hypothecate, dispose of or - ------------------------- 13. This definition was modified by paragraph 3 of the letter agreement dated July 1, 1998, so that this definition refers to the form of the agreement executed and delivered at the Closing (as such agreement is amended, modified, supplemented or restated from time to time). 34 29 otherwise transfer, and when used as a noun, shall mean sale, assignment, pledge, encumbrance, hypothecation, disposition or other transfer. "Trigger Event" shall have the meaning set forth in Section 3.15(c). "Trigger Event R&D Expenses" of a Person shall mean the total research and development expenses (determined on a consolidated basis) of such Person for the applicable fiscal year with respect to Ethical Pharmaceutical Products (including generic products) and, if so reported, Ethical OTC Products ("Pharma R&D Expenses") as determined by the then currently engaged independent public accountants of TR in accordance with the policies and procedures used by such Person to calculate total research and development expenses for such fiscal year as reported by such Person in the audited financial statements included in its annual report to stockholders (such determination shall be reviewed by the independent public accountants of either the Qualified Person or KB, at the election of KB, and may then be disputed by KB and submitted for resolution of any dispute in accordance with procedures equivalent to those set forth in Section 2.5(e)(ii) and (iii)); provided, however, that if such Person has no research and development expenses other than Pharma R&D Expenses or if Pharma R&D Expenses are reported by such Person separately from other research and development expenses in the audited financial statements included in such Person's annual report to stockholders for such fiscal year, "Trigger Event R&D Expenses" shall mean such Person's Pharma R&D Expenses (determined on a consolidated basis) for the applicable fiscal year; it being understood that KB's Trigger Event R&D Expenses for 1997 shall include 50% of KBI's research and development expenses for 1997 and KB's Trigger Event R&D Expenses for 1998 shall include 50% of KBI's research and development expenses for the period of time from January 1, 1998 to the Closing Date. "True-Up Amount" shall mean the amount, if any, by which (i) the Actual Formula Price for 2008 plus (A) $162 million, minus (B) the sum of the Limited Partner Share of Agreed Value (as defined in the Partnership Agreement) and the Advance Amount (the amount determined pursuant to this clause (i) is referred to herein as the "Calculated Amount"), exceeds or is less than (ii) the Appraised Value ; provided, however, that if any of the events described in clause (i) of the definition of Put Option Event in this Agreement occurs prior to the purchase by KB of the shares of KBI Sub pursuant to the Put Option, whether such event occurs before or after the occurrence of any other event that constitutes a Put Option Event, and KB has purchased the shares of KBI Sub pursuant to the Put Option, then the term "True-Up Amount" shall mean the amount, if any, by which (i) the greater of (A) the Minimum Amount (as defined in the KBI-E Asset Option Agreement) plus the Assignment Lump Sum Amount (as defined in the KBI-E Asset Option Agreement) minus the Fourth Tier Component (as defined in the KBI-E Asset Option Agreement) plus the Factor Amount (as defined in the KBI-E Asset Option Agreement) and (B) the product of (x) the Average Annual KBI Products Contingent Amount (as defined in the KBI-E Asset Option Agreement) multiplied by (y) the applicable Multiple (as defined in the KBI-E Asset Option Agreement) plus the Assignment Lump Sum Amount plus the Factor Amount, minus (C) the Advance Amount, exceeds or is less than (ii) the Appraised Value; provided, further, that if none of the events described in clause (i) of the definition of Put Option Event in this Agreement has occurred prior to the purchase by KB of the shares of KBI Sub pursuant to the Put Option, whether before or after the occurrence of any other event that 35 30 constitutes a Put Option Event, and KB has purchased the shares of KBI Sub pursuant to the Put Option, then the term "True-Up Amount" shall mean the amount, if any, by which (i) the Actual Formula Price for 2008 plus (A) $162 million, minus (B) the Advance Amount, exceeds or is less than the Appraised Value. "Voting Security" of a Person shall mean any security currently entitling the owner or holder thereof to vote (other than on a temporary or contingent basis) with respect to matters required to be approved by shareholders generally, including election of directors of such Person. A specified percentage of the Voting Securities of a Person shall mean the percentage of the aggregate vote which the holder or holders thereof are entitled to cast. "Weighted Net Sales" of any category of Compounds or products shall mean the Net Sales thereof multiplied by the applicable Relative Sales Weighting for such category of Compounds or products; provided, however, that if different Relative Sales Weightings are applicable to different subcategories within such categories (e.g. Net Sales of prescription products, OTC Products, combinations, Net Sales of Outlicensees, etc.), as reflected in Part 3 of Schedule 3.7 hereto, the Weighted Net Sales for such category of Compounds or products shall be the sum of the Weighted Net Sales for all such subcategories. "Wholly-Owned Subsidiary" shall mean, as to any Person, any corporation, association or other business entity (i) in which such Person, individually or together with one or more of its Wholly-Owned Subsidiaries, owns all of the equity (or other ownership), voting and economic interests and (ii) as to which such Person, directly or indirectly, has full control over the management, operations, finances and other affairs and has not entered into any contract or arrangement the consummation of which would result in the loss of such full control. "Working Capital" shall mean, as of the Closing Date or as of the Base Date (as applicable), the net amount of the items of working capital set forth on Part A of Schedule 2.5 hereto (determined in accordance with GAAP). "Working Capital Adjustment" shall mean the difference between the Closing Date Working Capital and the Base Date Working Capital. "Working Capital Statement" shall have the meaning set forth in Section 2.5(e)(i). (b) The alphanumeric references in parentheses contained in the definitions of certain Compounds refer to the Therapeutic Categories set forth on Exhibit D to the Amended and Restated KBI License. ARTICLE 2 EXECUTION OF AGREEMENTS; PRE-CLOSING EVENTS; CLOSING 2.1 Execution and Delivery of Initial Agreements. Concurrently with the execution and delivery of this Agreement by the parties hereto: 36 31 (i) KBI, KBI Sub, KB and TR are executing and delivering the KBI Asset Contribution Agreement; (ii) KBI, KBI Sub, KB and TR are executing and delivering the Selected Compounds Contribution Agreement; (iii) KBI-E, KBI Sub, KB and TR are executing and delivering the KBI-E Asset Contribution Agreement; (iv) KB and KB USA are executing and delivering the Exclusive Distributorship Agreement; and (v) KB USA, KBLP, KB and TR are executing and delivering the KB USA Asset Contribution Agreement. 2.2 Other Pre-Closing Events. (a) Certain Actions.(14) Prior to the Closing Date, (i) all loans between KBI and KBI-E and all loans between (x) KBI or KBI-E and (y) KB or TR or any of their Affiliates shall be repaid and all notes evidencing such loans and all loan agreements (including without limitation the Butterfly Loan Agreements and the notes relating thereto) relating to such loans shall be canceled, (ii) all other intercompany accounts between KBI, on the one hand, and KB or any of its Affiliates, on the other hand, shall be netted against each other and KBI (if such amount is a net payable by KBI) or KB (if such amount is a net receivable to KBI) shall pay such amount to the other and (iii) all other intercompany accounts between KBI, on the one hand, and TR or any of its Affiliates, on the other hand, shall be netted against each other and KBI (if such amount is a net payable by KBI) or TR (if such amount is a net receivable to KBI) shall pay such amount to the other; provided, however, with respect to clause (iii) above, any intercompany accounts between Merck-Medco Managed Care, L.L.C., on the one hand, and KBI, on the other hand, shall be specifically excluded from such settlement and settled in the normal course by the Partnership. (b) KBI Common Stock Dividend. KBI shall declare a cash dividend (the "KBI Common Stock Dividend") on its outstanding shares of Class A Common Stock and Class B Common Stock, in the aggregate amount calculated as set forth below, with the record date for the determination of the holders of such shares entitled to receive such dividend to be - ---------------------- 14. Pursuant to paragraph 2 of the letter agreement dated July 1, 1998 (concerning the settlement of intercompany accounts) and notwithstanding anything to the contrary in this Agreement (including this Section 2.2(a)) or the KBI Asset Contribution Agreement, Parent Balances (as defined in Exhibit B to such letter agreement) (i) shall be settled in accordance with the procedures set forth in such Exhibit B and (ii) shall be deemed to be Excluded Assets or Excluded Liabilities, as the case may be, pursuant to the KBI Asset Contribution Agreement. 37 32 prior to the Closing Date. Such dividend shall be paid immediately prior to the Closing. The amount of such dividend shall be equal to the lesser of (i) the sum of a good faith estimate of the maximum amount which if distributed immediately prior to the Closing would constitute a "dividend" within the meaning of Section 316 of the Code and $157 million, and (ii) a good faith estimate of KBI's consolidated cash and short-term investments as of the opening of business on the Closing Date; provided, however, with respect to the foregoing clause (ii), KBI's consolidated cash and short-term investments shall exclude (x) any amounts received or paid by any KBI Party pursuant to Sections 2.4 and 2.5, and (y) amounts received by KBI upon the sale of Inventory to the Partnership pursuant to the KBI Supply Agreement (including any post-closing adjustment thereof). 2.3 Closing. Upon the terms and subject to the conditions set forth in this Agreement and the other Initial Agreements, a closing (the "Closing") shall be held at the offices of Winthrop, Stimson, Putnam & Roberts, One Battery Park Plaza, New York, New York at 10:00 A.M., Eastern Time, on July 1, 1998 or such other date (subject to Section 11.2) as shall be agreed to by the parties. The date on which the Closing occurs is referred to hereinafter as the "Closing Date." 2.4 Actions to be Taken at the Closing. Upon the terms and subject to the conditions set forth in this Agreement and the other Initial Agreements, at the Closing, the following actions shall be taken on the Closing Date, and shall be effective, in the order set forth below; provided, however, that the actions set forth in Sections 2.4(d)-2.4(h) shall be deemed to occur concurrently; and, provided, further, that if any of the actions set forth in Sections 2.4(a)-2.4(h) shall not occur, then all such actions that have occurred shall be automatically rescinded. (a) Partnership Agreement. KBI Sub shall purchase, for a cash payment of $1, the entire limited partnership interest in the Partnership. Immediately thereafter, KBLP and KBI Sub shall execute and deliver the Partnership Agreement, pursuant to which the Original Partnership Agreement shall be terminated. Immediately thereafter, KBI Sub and the Partnership shall execute and deliver the KBI Sub Assignment and Assumption Agreement (#1), pursuant to which KBI Sub shall make a portion of its Original Capital Contribution, consisting of KBI Sub's rights and obligations under the Selected Compounds Contribution Agreement. Such contribution shall be effective as of 12:01 A.M., Eastern Time, on the Closing Date. (b) Purchase of KBI Common Shares. TR Holdings shall purchase from KB, and KB shall sell to TR Holdings, all of the KBI Common Shares for an aggregate purchase price of $700 million in cash (the "KBI Share Purchase Price"), subject to adjustment after the Closing as provided in Sections 2.5(d) and 2.6 hereof. KB shall deliver to TR Holdings upon such purchase stock certificates representing all the KBI Common Shares, duly endorsed in blank or accompanied by appropriate stock powers, and with all applicable stock transfer stamps attached. The parties agree that KBI's books shall be closed as of the opening of business on the Closing Date and that none of KBI's business transactions taking place on the Closing Date shall be recorded on such books as of such date. 38 33 (c) Election of Directors and Recapitalization of KBI. TR Holdings and KB shall remove and elect (or cause the removal and election of) directors of KBI in accordance with the Certificate of Incorporation and By-Laws of KBI; TR and KB shall cause the holders of the Preferred Stock to give all necessary consents and approvals to the KBI Plan of Recapitalization and to the actions and transactions contemplated thereby; and immediately following such approval, TR shall cause the filing with the Secretary of State of the State of Delaware of the Amended and Restated KBI Certificate of Incorporation. Upon the effectiveness of the Amended and Restated KBI Certificate of Incorporation, (i) each share of Class B Preferred Stock shall automatically be exchanged for one (1) share of Class E Preferred Stock in accordance with the KBI Plan of Recapitalization and (ii) each share of Class A Common Stock, each share of Class B Common Stock and each share of Class C Common Stock shall automatically be exchanged for one (1) share of Common Stock in accordance with the KBI Plan of Recapitalization. KBI shall deliver to TR Holdings certificates representing all the shares of Class E Preferred Stock and Common Stock issued pursuant to the KBI Plan of Recapitalization bearing the legend set forth in Section 3.3(d) hereof, and TR Holdings shall deliver to KBI for cancellation certificates representing all the shares of Class B Preferred Stock, Class A Common Stock, Class B Common Stock and Class C Common Stock. TR Holdings and KB shall cause KBI to remove and elect directors of KBI-E and KBI-P, respectively, in accordance with the Certificate of Incorporation and By-Laws of each such company. If the KBI Amended and Restated By-laws were not adopted in connection with the foregoing, TR and KB shall promptly thereafter adopt them or cause them to be adopted. (d) Option Agreements. Immediately following the recapitalization described in Section 2.4(c) hereof, (i) KB and KBI-E shall execute and deliver the KBI-E Asset Option Agreement, pursuant to which KB shall pay to KBI-E at the Closing the amount of $443 million in cash as provided in the KBI-E Asset Option Agreement, and (ii) KB, TR and TR Holdings shall execute and deliver the KBI Shares Option Agreement. (e) Loan to TR. KB shall lend to TR the amount of $1,380,000,000 in cash (such loan being referred to herein as the "KB Loan" and the amount of such loan being referred to herein as the "Loan Amount"), and concurrently therewith TR shall execute and deliver to KB a term note in the original principal amount of the Loan Amount (the "TR Promissory Note") setting forth the terms of such loan. (f) Amended and Restated KBI License; Distribution Agreement. KB and KBI shall enter into the Amended and Restated KBI License, pursuant to which the KBI License shall be amended and restated effective as of the Closing Date; KBI and KBI Sub shall enter into the Trademark Rights Contribution Agreement, with respect to KBI's rights and obligations under the Amended and Restated KBI License related to Trademarks (as such term is defined in the Amended and Restated KBI License); and KBI and KBI-E shall enter into the KBI License Assignment and Assumption Agreement, with respect to KBI's other rights and obligations under the Amended and Restated KBI License. KBI-E and the Partnership shall enter into the Distribution Agreement, pursuant to which the Partnership shall be appointed the sole and exclusive distributor of certain products in the Territory effective as of the Closing Date and, in consideration of the rights granted to the Partnership thereunder, the Partnership shall pay 39 34 to KBI-E at the Closing a franchise fee of $230 million in cash as provided in the Distribution Agreement. (g) Additional Actions with Respect to the Partnership. At the Closing, KBLP shall contribute to the Partnership, as part of KBLP's Original Capital Contribution, cash in the amount of $400 million. KBLP and the Partnership shall execute and deliver the KBLP Assignment and Assumption Agreement, pursuant to which KBLP shall complete its Original Capital Contribution at the Closing. KBI Sub and the Partnership shall execute and deliver the KBI Sub Assignment and Assumption Agreement (#2), pursuant to which KBI Sub shall complete its Original Capital Contribution (including the contribution of cash described in Section 2.5(a) hereof) at the Closing. Each such contribution (other than the aforesaid cash contributions) shall be effective as of the Effective Time. (h) Pledge Agreement. KB and KBI shall enter into a Pledge Agreement, pursuant to which KB shall pledge its shares of Class A Preferred Stock and Class C Preferred Stock and the TR Promissory Note as security for KB's obligations, in the event that the Put Option is exercised, to purchase the KBI Sub Shares and pay the Put Option Price, pursuant to Section 3.5 hereof. (i) Other Ancillary Agreements. Each of the parties hereto shall execute and deliver, and TR shall cause each other TR Party to execute and deliver, and KB shall cause each other KB Party to execute and deliver, all Ancillary Agreements not executed pursuant to any of the preceding paragraphs of this Section 2.4 to which it or such other TR Party or KB Party is specified as a party. 2.5 Certain Adjustments. (a) KBI Sub Cash Contribution. At the Closing, KBI Sub shall contribute to the Partnership as part of its Original Capital Contribution cash in an amount equal to the sum of (i) the Agreed Cash Amount (determined in accordance with paragraph (b) below) and (ii) the Estimated Inventory Amount (determined in accordance with paragraph (b) below). (b) Certain Estimates. No less than two (2) business days prior to the Closing Date, KB and TR shall estimate the Working Capital Adjustment (the "Estimated Working Capital Adjustment") and the Closing Date Inventory Amount (the "Estimated Inventory Amount"). If KB and TR are unable to agree upon the Estimated Working Capital Adjustment, then the Estimated Working Capital Adjustment shall be the average of the amounts proposed by KB and TR. If KB and TR are unable to agree upon the Estimated Inventory Amount, then the Estimated Inventory Amount shall be the book value of the inventory reflected on KBI's unaudited balance sheet as of May 31, 1998. (i) In the event that the Estimated Working Capital Adjustment is a positive amount (i.e., Closing Date Working Capital is estimated to exceed Base Date Working Capital), then the Agreed Cash Amount shall equal $25 million minus the absolute value of the Estimated Working Capital Adjustment. 40 35 (ii) In the event that the Estimated Working Capital Adjustment is a negative amount (i.e., Closing Date Working Capital is estimated to be less than Base Date Working Capital), then the Agreed Cash Amount shall equal $25 million plus the absolute value of the Estimated Working Capital Adjustment. (c) Working Capital Adjustment; Inventory Adjustment. Following the Closing, the Working Capital Adjustment and the Inventory Adjustment shall be determined in accordance with paragraph (e) below. Within five (5) business days following such determination, KBI Sub or the Partnership, as the case may be, shall make any payments required by clauses (i) - (iv) below; provided, however, that any payments required to be made by a party pursuant to this Section 2.5(c) shall be netted against any payments to which such party is entitled under this Section 2.5(c). (i) In the event that the Working Capital Adjustment is greater than the Estimated Working Capital Adjustment, then the Partnership shall pay to KBI Sub the difference between such amounts. (ii) In the event that the Working Capital Adjustment is less than the Estimated Working Capital Adjustment, then KBI Sub shall pay to the Partnership the difference between such amounts. (iii) In the event that the Estimated Inventory Amount is greater than the Closing Date Inventory Amount, then the Partnership shall pay to KBI Sub the difference between such amounts. (iv) In the event that the Estimated Inventory Amount is less than the Closing Date Inventory Amount, then KBI Sub shall pay to the Partnership the difference between such amounts. (d) Residual KBI Cash Adjustment. Following the Closing, the Residual KBI Cash Amount shall be determined in accordance with paragraph (e) below. Within five (5) business days following such determination, TR Holdings or KB, as the case may be, shall make any payment required by clause (i) or (ii) below. (i) In the event that the Residual KBI Cash Amount is less than zero, then (x) the KBI Share Purchase Price shall be reduced by an amount equal to 50% of such amount and (y) KB shall pay to TR Holdings the absolute value of such amount. (ii) In the event that the Residual KBI Cash Amount is greater than zero, then (x) the KBI Share Purchase Price shall be increased by an amount equal to 50% of such amount and (y) TR Holdings shall pay to KB the absolute value of such amount. 41 36 (e) The Working Capital Adjustment, the Inventory Adjustment, the Tax Amount and the KBI Adjustment shall be determined, and the KBI Closing Date Balance Sheet shall be prepared, as follows: (i) Preparation of Closing Statements. As soon as reasonably possible after the Closing Date (but not later than thirty (30) days thereafter), TR shall cause KBI to engage Price Waterhouse LLP to prepare and deliver to KB, (u) a statement (the "KBI Cash Amount Statement") setting forth the KBI Cash Amount, in the form of Part B of Schedule 2.5 hereto, (v) a balance sheet of KBI as of the opening of business on the Closing Date, (w) a statement (the "Working Capital Statement") setting forth (A) the amount of the Working Capital (the "Closing Date Working Capital") contributed by KBI Sub to the Partnership pursuant to the KBI Asset Contribution Agreement and the KBI Sub Assignment and Assumption Agreement (#2), (B) the amount of KBI's Working Capital (the "Base Date Working Capital") as of the end of the Fiscal Quarter immediately preceding the Closing Date (the "Base Date") and (C) the amount of the Working Capital Adjustment, in the form of Part C of Schedule 2.5 hereto, (x) a statement (the "Inventory Statement") setting forth the (A) the Closing Date Inventory Amount and (B) the amount of the Inventory Adjustment, in the form of Part D of Schedule 2.5 hereto, (y) a statement (the "Tax Statement") setting forth the Tax Amount, in the form of Part E of Schedule 2.5 hereto, and (z) a statement (the "KBI Statement" and, collectively with the KBI Cash Amount Statement, the KBI Closing Date Balance Sheet, the Working Capital Statement, the Inventory Statement and the Tax Statement, the "Closing Statements") setting forth the Residual KBI Cash Amount in the form of Part F of Schedule 2.5 hereto. Each of the Closing Statements shall be prepared in accordance with GAAP except as otherwise provided in the applicable Part of Schedule 2.5 hereto and on a basis consistent with the policies, practices and procedures of KBI as applied prior to the date hereof. Without limiting the generality of the foregoing, (i) financial practices, policies and procedures relating to the closing of KBI's books as of the Closing Date (and, in the case of the Working Capital Adjustment, the Base Date) shall be those used for a year-end close of KBI's books applied on a consistent basis, (ii) during the Fiscal Quarter in which the Base Date occurs, the business of KBI shall be managed and operated in the ordinary course of business consistent with past practice, and (iii) the KBI Closing Date Balance Sheet (x) shall give effect to the transactions contemplated by the KBI Asset Contribution Agreement, the Selected Compounds Contribution Agreement, the Trademark Rights Contribution Agreement and the KBI-E Asset Contribution Agreement, and (y) shall not give effect to the sale of the Inventory by KBI to the Partnership pursuant to the KBI Supply Agreement. (ii) Notice of Dispute. Each Closing Statement shall be binding and conclusive upon, and deemed accepted by, KB and TR unless either party shall have notified the other party in writing, within thirty (30) days after receipt of such Closing Statement, that it (the "Objecting Party") disagrees with any amount 42 37 set forth thereon (including any disagreement with respect to relevant line items of such Closing Statement). Any such written notice shall specify in reasonable detail each item that the Objecting Party disputes, and a summary of the Objecting Party's reasons for such dispute. (iii) Resolution of Disputes. In the event the Objecting Party gives the other party timely written notice in accordance with paragraph (ii) above of a disagreement concerning any Closing Statement, the parties shall attempt to resolve such disagreement. However, if any such disagreement is not resolved by the parties within thirty (30) days after receipt of such notice, such disagreement shall be submitted to such accounting firm as shall be agreed on by KB and TR, for the resolution of such dispute. In the event that KB and TR cannot agree on such accounting firm, such firm shall be selected at random from the remaining so-called "Big Five" accounting firms. In connection with its engagement, such accounting firm shall be required to render its decision within sixty (60) days after receiving from KB and TR all relevant information it may request with respect to such dispute. The decision of such accounting firm shall be final and shall be binding and conclusive upon all of the parties hereto. (iv) Adjustment. Each Closing Statement shall be adjusted as applicable to reflect the resolution of any disagreement pursuant to paragraph (iii) above and, as so adjusted, shall be binding and conclusive upon all of the parties hereto. The relevant amount set forth on any Closing Statement (other than the KBI Closing Date Balance Sheet), as so adjusted, shall be used to make the determinations set forth in Section 2.5(c) or 2.5(d) hereof, as applicable. Without limiting the generality of the foregoing, in the event that the Tax Statement is adjusted pursuant to this paragraph (iv), the KBI Statement shall be adjusted as appropriate to reflect such adjustment in the Tax Statement. (v) Cooperation. KB and TR shall ensure that all records, working papers and other information as may reasonably be required by KB or TR for the purposes of this Section 2.5(e) shall be made available promptly upon request, and KB, KBLP, KB USA, the Partnership and TR shall generally render all reasonable assistance to each other necessary for the preparation and finalization of the Closing Statements. (vi) Expenses. TR and KB shall each bear one-half the fees and expenses of Price Waterhouse LLP in connection with the preparation of the Closing Statements. In the event of any disputes referred to in paragraph (iii) above, the Dollar amount of all such disputes shall be aggregated and the fees and expenses of any accounting firm engaged to resolve such disputes shall be paid by the party against whom the greater Dollar amount is resolved. 43 38 2.6 KBI Shared Liabilities. (a) Certain Adjustments. If, following the Closing, the TR Parties or any of their respective Affiliates incur an obligation to pay any of the KBI Shared Liabilities (as defined in the KBI Asset Contribution Agreement, (i) the KBI Share Purchase Price shall be reduced by an amount equal to 50% of the amount of such KBI Shared Liabilities (including any and all reasonable attorneys' fees (except as set forth in clause (i) of the proviso to the second sentence of Section 2.6(b) hereof) and reasonable costs of investigation, litigation, settlement, judgment, interest and penalties with respect thereto), (ii) KBI shall make a good faith estimate of the KBI Shared Liabilities Tax Benefit with respect to such reduction, and (iii) KB shall promptly refund and pay to TR Holdings the amount of such reduction less such estimate of the KBI Shared Liabilities Tax Benefit. If, following the Closing, KBI makes any indemnification payment to KB or its Affiliates, including the Partnership, with respect to the KBI Shared Liabilities pursuant to Section 8.4 of the KBI Asset Contribution Agreement, (i) the KBI Share Purchase Price shall be reduced by an amount equal to 50% of the amount of such indemnification payment less any KBI Shared Liabilities Tax Benefit and (ii) KB shall promptly refund and pay to TR Holdings the amount of such reduction using KBI's good faith estimate of KBI Shared Liabilities Tax Benefit. TR will promptly pay to KB any increase, and upon notice from TR of the amount thereof, KB will promptly pay to TR any decrease resulting from: (i) the true-up of any such estimate to the actual KBI Shared Liabilities Tax Benefit as reflected in the relevant income tax returns, and (ii) any subsequent change in the amount of any KBI Shared Liabilities Tax Benefit. For purposes of this Section 2.6, the term "KBI Shared Liabilities Tax Benefit" shall mean 50% of the amount by which (i) the federal income tax liability reported in the consolidated federal income tax return for the group of which KBI is a member and (ii) the state or local income tax liability reported in KBI's state and local income tax returns, is reduced by a deduction from taxable income claimed in such returns attributable to the recognition of the KBI Shared Liability plus or minus any subsequent change in such amount resulting from any amended tax return, administrative adjustment or judicial determination. (b) Procedures. Promptly after the occurrence of any KBI Third Party Claim (as defined below) or any other event which KB or TR asserts could result in a KBI Shared Liability, KB or TR, as the case may be, shall notify the other in writing, provided that no failure to provide such notice shall affect any party's rights or obligations under Section 2.6(a) hereof. In the event that the KBI Shared Liability involves any civil, administrative or investigative claim, action, suit or proceeding (actual or threatened) by a Third Party (a "KBI Third Party Claim"), then, (i) if the KBI Third Party Claim relates to the ongoing operations of the Partnership, KB shall be entitled to have sole control over the defense thereof and (ii) otherwise, TR shall be entitled to have sole control over the defense thereof (the party entitled to assume such defense is referred to herein as the "Defending Party" and the other party is referred to herein as the "Other Party"); provided, however, that if the Defending Party assumes the defense of such KBI Third Party Claim, (i) the Other Party shall be entitled to participate in the defense of such KBI Third Party Claim and to employ counsel at its own expense to assist in the handling of such KBI Third Party Claim (it being agreed that after written 44 39 notice by the Defending Party to the Other Party of its election to assume full control of the defense of such KBI Third Party Claim, the adjustment of the KBI Share Purchase Price provided for in Section 2.6(a) shall not take into account any legal expenses incurred by the Other Party in connection with the defense thereof), and (ii) the Defending Party shall obtain the prior written approval of the Other Party (not to be unreasonably withheld) before entering into any settlement of, or ceasing to defend against, such KBI Third Party Claim. If the Defending Party does not assume the defense of such KBI Third Party Claim within fifteen (15) days after the notice referred to in the first sentence of this Section 2.6(b) is given, the Other Party may assume the defense of such KBI Third Party Claim, provided that it shall obtain the prior written approval of the Defending Party (not to be unreasonably withheld) before entering into any settlement of, or ceasing to defend against, such KBI Third Party Claim. Without limiting the generality of the foregoing, the parties shall cooperate and consult with each other in connection with the defense and/or settlement of any KBI Third Party Claim. 2.7 Other Actions. The following additional actions shall be taken at the Closing: (a) KB shall deliver to TR a certificate, dated the Closing Date and signed by an authorized corporate officer of KB, certifying (x) attached copies of resolutions duly adopted by the Board of Directors of KB, approving the execution, delivery and performance by KB of the Initial Agreements and each Ancillary Agreement to which KB is a party and (y) the incumbency and signatures of the officers of KB signing the foregoing. (b) TR shall deliver to KB a certificate, dated the Closing Date and signed by an authorized corporate officer of TR, certifying (x) attached copies of resolutions duly adopted by the Board of Directors of TR, approving the execution, delivery and performance by TR of the Initial Agreements and each Ancillary Agreement to which TR is a party and (y) the incumbency and signatures of the officers of TR signing the foregoing. 2.8 Termination of Certain Agreements. Effective upon the Closing or as otherwise provided in this Section 2.8, and notwithstanding anything to the contrary in the 1982 JV Agreement, the Inter-Affiliate License Agreement that certain Supply Agreement, dated as of July 12, 1982 among KB, TR and KBI-E regarding the supply of products during the clinical evaluation of such products and in connection with the initial marketing efforts with respect to such products and the Side Agreement, dated November, 1997, among KBI, KBI-E, KB and TR in connection with the execution by KBI of the license agreement among KBI, KBI-E and The Procter & Gamble Co. regarding the supply of over the counter products containing omeprazole to be developed and marketed under said license agreement (the "Side Agreement") (such Agreements, the "Terminated Agreements"), all rights and obligations of the applicable parties under each of the Terminated Agreements shall automatically terminate and be of no further force and effect; provided, however, that (i) the effectiveness of any other agreement which incorporates definitions contained in the Terminated Agreements shall not be affected thereby and (ii) such termination shall not affect (x) any provision of the Terminated Agreements which by its terms survives such termination and (y) any obligations of any party to any of the Terminated Agreements which accrued prior to such termination (and any rights of any other 45 40 party to the Terminated Agreements arising out of, based upon or resulting from such obligations) or serve to eliminate liability arising out of conduct, events or circumstances prior to such termination; and, provided, further, that termination of the Side Agreement shall be effective on the later to occur of (i) the Closing and (ii) the completion of the transfer and assignment to the Partnership by KBI pursuant to the KBI Asset Contribution Agreement and the KBI Sub Assignment and Assumption Agreement (#2) and by KBI-E pursuant to the KBI-E Asset Contribution Agreement and the KBI Sub Assignment and Assumption Agreement (#2) of such parties respective rights and obligations under the P&G License (as defined in the Manufacturing Agreement). As used herein, "completion" shall mean receipt of written consent to such above said transfers and assignments from The Procter & Gamble Co. ARTICLE 3 CERTAIN OPERATIONAL PROVISIONS 3.1 Exclusive Distributorship Agreement. (a) Appointment of Distributor. Upon the terms and subject to the conditions set forth herein and in the Exclusive Distributorship Agreement, KB is irrevocably appointing the Partnership (as assignee of KBLP), effective as of the Effective Time, as KB's exclusive distributor of the KB USA Products in the Territory. (b) Supply of Compounds and Products. Upon the terms and subject to the conditions set forth in the Exclusive Distributorship Agreement, from and after the Effective Time, KB shall, and shall cause its Affiliates (other than the Partnership) to, supply or have supplied to the Partnership (as assignee of KBLP) all of the Partnership's requirements of KB USA Products to be sold in the Territory at such price as may be agreed between the Partnership and KB consistent with Section 3.2 of the Partnership Agreement. 3.2 Competition. (a) The parties acknowledge that certain conflicts of interest (including direct competition) may from time to time occur in connection with the pursuit by TR of its independent business. Accordingly, except as provided in paragraph (b) below, TR shall not be restricted from conducting its independent businesses in any manner chosen by it and shall not, and shall not be obligated to, present or offer to the Partnership any particular investment or business opportunity regardless of whether the Partnership could take advantage of such opportunity if it were presented to the Partnership, but may avail itself of any such opportunity for its own behalf; provided, however, that TR and its Affiliates may use the KB Confidential Information (as defined in Section 4.1(a) hereof) which is required to be maintained in confidence by it pursuant to Section 4.1 only in connection with the interests of TR and its Affiliates under this Agreement and the Ancillary Agreements and shall not use such information for any other purpose. Nothing herein shall be interpreted to excuse TR from complying with Section 4.1 hereof. 46 41 (b) Except as contemplated by this Agreement or any of the Ancillary Agreements, neither TR nor any of its Affiliates nor any Future TR Joint Venture shall, either directly or indirectly, manufacture for commercial sale in the Territory or sell, market or promote in the Territory any Covered Compound or any product containing any Covered Compound prior to: (i) in the case of a Licensed Compound, the later of (x) five (5) years after the date that TR or any of its Affiliates ceases to perform the Bulk Chemical Manufacturing Stage or Formulation Manufacturing Stage with respect to such Licensed Compound or products containing such Licensed Compound pursuant to the Manufacturing Agreement or (y) (A) in the case of Licensed Compounds other than omeprazole and perprazole, three (3) years following the consummation of the KBI-E Asset Purchase and (B) in the case of omeprazole and perprazole, three (3) years following the consummation of the purchase of the shares of KBI pursuant to the KBI Shares Option Agreement; or (ii) in the case of any Covered Compound other than a Licensed Compound, three (3) years following the consummation of the KBI-E Asset Purchase; provided, however, that the foregoing restrictions shall not apply to: (i) the pharmaceutical benefit management business or any other business of Merck-Medco Managed Care, L.L.C. ("Medco"), whether conducted by Medco or any Affiliate of TR that succeeds to substantially all of Medco's business, except that Medco or such Affiliate of TR may not manufacture any Covered Compound for commercial sale in the Territory or develop any Covered Compound for purposes of obtaining Marketing Approval (as such term is defined in the Distribution Agreement) in the Territory or sell, market or promote in the Territory any product containing any Covered Compound as to which Medco or such Affiliate of TR has rights under an ANDA, (ii) any joint venture set forth on Schedule 3.2(b) (whether in the form of a partnership, corporation or other entity or contractual joint venture) existing at the date of this Agreement in which TR or an Affiliate of TR is a party, (iii) any pharmaceutical product containing any Covered Compound as to which TR or any of its Affiliates has or shall have at any time on or after the date of this Agreement Market Exclusivity with respect to a Therapeutic Category other than the Therapeutic Categories for which any pharmaceutical product containing such Covered Compound is approved by the FDA under the NDA held by the Partnership or any of its Affiliates or subdistributors, only for such use as to which TR has Market Exclusivity, (iv) any pharmaceutical product that (A) contains a combination of a Covered Compound and any Compound as to which TR or any of its Affiliates has or shall have at any time on or after the date of this Agreement Market Exclusivity as to which combination TR or any of its Affiliates shall have at any time on or after the date of this Agreement Market Exclusivity and (B) is approved for use in a Therapeutic Category other than the Therapeutic Categories for which such Covered Compound is approved by the FDA under the NDA held by the Partnership or any of its Affiliates or subdistributors, only for such use as to which TR has Market Exclusivity, or (v) after December 31, 2010, any pharmaceutical product that contains a combination of a Covered Compound and any Compound as to which TR or any of its Affiliates has or shall have at any 47 42 time on or after the date of this Agreement Market Exclusivity as to which combination TR or any of its Affiliates shall have at any time on or after the date of this Agreement Market Exclusivity, only for such use as to which TR has Market Exclusivity. In addition, the foregoing restrictions shall not apply to any rights or obligations of TR or any of its Affiliates under the Omeprazole-for-Horses License. (c) Notwithstanding Section 3.2(b), neither TR nor any of its Affiliates shall be prohibited from purchasing securities of, or otherwise acquiring or merging with or into, any business that manufactures or sells any Covered Compound or from continuing to manufacture or sell such Covered Compound thereafter for a period of twelve (12) months after the date of such acquisition; provided, however, that the acquired business shall, prior to the expiration of such twelve-month period, cease the manufacture or sale of such Covered Compound that otherwise would be in violation of Section 3.2(b), whether by sale, divestiture or otherwise; and, provided, further, that rights with respect to such Covered Compound shall not be sold or transferred to any entity in which TR, directly or indirectly, controls, through share ownership or contract, the election of 30% or more of the board of directors or 30% or more of the voting power. (d) Nothing in this Section 3.2 shall be construed as the grant of any license by implication or otherwise with respect to any Covered Compound, any product containing any Covered Compound, any technical information or know-how, any trademarks or other intellectual property rights. 3.3 Ownership of KBI, KBLP and Other Affiliates. (a) Restrictions on Transferring Shares of KBI. No shares of capital stock of KBI are owned as of the date of this Agreement by an Affiliate of KB or an Affiliate of TR that is not a party hereto. Neither any Parent nor any Affiliate of such Parent shall sell or otherwise Transfer directly or indirectly any shares of capital stock of KBI, at any time owned by it, except (i) for the Transfer contemplated by Section 2.4(b) hereof, (ii) the Transfer contemplated by the KBI Shares Option Agreement, in the event that KB exercises its option thereunder, (iii) any Transfer of such shares to KBI, (iv) any other Transfer by one Parent (or its Affiliate) to the other Parent (or its Affiliate), (v) as expressly permitted by and in accordance with the provisions of Section 3.3(b) hereof or (vi) with the prior written consent of the other Parent. (b) Permitted Transfers. Without the consent of the Other Parent (as defined in paragraph (iv) below): (i) either Parent or any Affiliate of such Parent that is a party hereto may Transfer all (but not less than all) of its shares of KBI to any corporation which succeeds to all or substantially all of the Transferor Parent's (as defined in 48 43 paragraph (iv) below) business and properties; provided, however, that as a condition to and prior to the effectiveness of any such Transfer, (A) the transferee shall agree in writing, substantially in the form of Exhibit T-1 hereto(15), to be bound by the provisions of, and assume all liabilities and obligations of the Transferor Parent under, the Initial Agreements, the Ancillary Agreements and any Future Agreement to which it is a party as fully and to the same extent as though such transferee had originally executed the Initial Agreements, such Ancillary Agreements and any Future Agreement as the transferor and (B) the Transferor Parent shall deliver an executed copy of such agreement to the Other Parent; (ii) either Parent may Transfer all (but not less than all) of its shares of KBI to any subsidiary of the Transferor Parent which is a direct or indirect Wholly-Owned Subsidiary of the Transferor Parent; provided, however, that as conditions to and prior to the effectiveness of any such Transfer to any such Wholly-Owned Subsidiary (A) the transferee shall agree in writing, substantially in the form of Exhibit T-2 hereto,(16) to be bound by the provisions of, and assume all liabilities and obligations of the Transferor Parent as a stockholder of KBI under, this Agreement as fully and to the same extent as though such transferee had originally executed this Agreement, (B) the Transferor Parent shall agree in writing, substantially in the form of Exhibit T-3 hereto,(17) (1) that the Transferor Parent shall not be relieved of any of its liabilities or obligations under the Initial Agreements, any Ancillary Agreement and any Future Agreement to which it is a party, (2) that the Transferor Parent shall cause the transferee to satisfy the liabilities and obligations assumed by the transferee pursuant to clause (A) above and (3) that, prior to the time that the transferee ceases to be a direct or indirect Wholly-Owned Subsidiary of the Transferor Parent, the Transferor Parent shall cause the transferee to Transfer its shares of KBI in accordance with paragraph (iii) below and (C) the Transferor Parent shall deliver an executed copy of each of the agreements referred to in the foregoing clauses (A) and (B) to the Other Parent; or (iii) any Affiliate of a Parent that is a party hereto and any subsidiary referred to in paragraph (ii) above (such Affiliate or subsidiary, a "Qualifying - ----------------------- 15. Pursuant to paragraph 5 of the letter agreement dated July 1, 1998, Exhibit T-1, attached hereto, is in the form of Exhibit T-1 set forth in Exhibit C attached to such letter agreement. 16. Pursuant to paragraph 5 of the letter agreement dated July 1, 1998, Exhibit T-2, attached hereto, is in the form of Exhibit T-2 set forth in Exhibit C attached to such letter agreement. 17. Pursuant to paragraph 5 of the letter agreement dated July 1, 1998, Exhibit T-3, attached hereto, is in the form of Exhibit T-3 set forth in Exhibit C attached to such letter agreement. 49 44 Affiliate"), may Transfer all (but not less than all) of its shares of KBI to (x) the Parent of such Qualifying Affiliate or (y) any subsidiary of such Parent which is a direct or indirect Wholly-Owned Subsidiary of such Parent; provided, however, that as conditions to and prior to the effectiveness of any such Transfer to any such Wholly-Owned Subsidiary, (A) such Wholly-Owned Subsidiary shall agree in writing, substantially in the form of Exhibit T-4 hereto,(18) to be bound by the provisions of, and assume all liabilities and obligations of the Transferor Parent and the Qualifying Affiliate as a stockholder of KBI under, this Agreement as fully and to the same extent as though such Wholly-Owned Subsidiary had originally executed this Agreement and (B) the Transferor Parent shall agree in writing, substantially in the form of Exhibit T-5 hereto,(19) (1) that the Transferor Parent shall not be relieved of any of its liabilities or obligations under the Initial Agreements, any Ancillary Agreement or any Future Agreement to which it is a party, (2) that the Transferor Parent shall cause such Wholly-Owned Subsidiary to satisfy the liabilities and obligations assumed by such Wholly-Owned Subsidiary pursuant to clause (A) above and (3) that, prior to the time that such Wholly-Owned Subsidiary ceases to be a direct or indirect Wholly-Owned Subsidiary of the Transferor Parent, the Transferor Parent shall cause such Wholly-Owned Subsidiary to Transfer its shares of KBI to the Transferor Parent, and (C) the Transferor Parent shall deliver an executed copy of each of the agreements referred to in the foregoing clauses (A) and (B) to the Other Parent; (iv) As used herein, the term "Transferor Parent" shall mean the Parent that is effecting or seeking to effect, or whose Qualifying Affiliate is effecting or seeking to effect, a Transfer in accordance with paragraph (i), (ii) or (iii) above, as the case may be; and the term "Other Parent" shall mean the Parent that is not the Transferor Parent; (v) Neither KB nor any Affiliate of KB shall sell or otherwise Transfer any shares of capital stock of KBI unless such sale or Transfer is expressly subject to the Pledge Agreement. (c) Recordation of Transfer. KBI shall record the Transfer of its shares only if such Transfer is made in accordance with the terms of this Agreement. - -------------------- 18. Pursuant to paragraph 5 of the letter agreement dated July 1, 1998, Exhibit T-4, attached hereto, is in the form of Exhibit T-4 set forth in Exhibit C attached to such letter agreement. 19. Pursuant to paragraph 5 of the letter agreement dated July 1, 1998, Exhibit T-5, attached hereto, is in the form of Exhibit T-5 set forth in Exhibit C attached to such letter agreement. 50 45 (d) Legend. A copy of this Agreement shall be filed with KBI. From and after the Closing, each certificate representing shares of KBI shall be stamped or otherwise impressed with a legend in substantially the following form: "The sale, assignment, transfer, pledge or other disposition or encumbrance of the shares represented by this certificate may be made only when recorded on the books of KBI and in accordance with the terms of a certain Master Restructuring Agreement dated as of June __, 1998, between TR, KB, KBI and the other parties thereto (a copy of which is on file with KBI and may be inspected at its offices). Such agreement generally prohibits the transfer of any right, title or interest in or to the shares other than in certain specified events and provides that any such prohibited transfer shall not be effective to grant to the transferee any right, title or interest in or to the shares. All shares of Common Stock, Class D Preferred Stock and Class E Preferred Stock are also subject to a certain KBI Shares Option Agreement dated as of __________, 1998, between KB, TR and TR Holdings (a copy of which is on file with KBI and may be inspected at its offices). KBI will furnish without charge to each stockholder who so requests a statement of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof of KBI and the qualifications, limitations or restrictions of such preferences and/or rights." At the Closing, share certificates issued prior thereto representing shares outstanding at such date shall be surrendered to KBI in exchange for replacement certificates bearing the legend set forth above. (e) Ineffectiveness of Prohibited Transfer. Any attempted or purported Transfer of any shares of KBI, or any interest therein, in violation of any provisions of this Agreement or applicable law shall be void and shall not be effective to pass any right, title or interest therein. (f) KBLP; KB USA; Additional KBLP GPs; Additional KBLP LPs. (i) Any Person that becomes the general partner of the Partnership in accordance with Section 7.1(a) or 7.2 of the Partnership Agreement shall be referred to herein as a "Successor General Partner." (ii) KB agrees that it shall not, and shall not permit any of its Affiliates to, take any action which would result, or fail to take any action if such failure would result, in any Person other than a Permitted General Partner (as such term is defined below) (x) being a general partner of KBLP (or being a general partner or shareholder (or Person having comparable status in the case of any entity which is not a partnership or corporation) of any Successor General Partner) 51 46 or (y) being a general partner or shareholder (or Person having comparable status in the case of any entity which is not a partnership or corporation) of any Person (other than KB USA in its capacity as a Permitted Partner that is a limited partner of KBLP or any other Permitted Partner in its capacity as a limited partner that is an Additional KBLP LP) that directly or indirectly owns any ownership interest in KBLP (or any Successor General Partner). KB agrees to cause any Person that becomes a general partner, shareholder or acquires comparable status pursuant to clause (x) or (y) of the preceding sentence to at all times remain a Permitted General Partner. Any Person that becomes a general partner of KBLP (or a general partner or shareholder (or Person having comparable status in the case of an entity which is not a partnership or corporation) of any Successor General Partner) in accordance with this paragraph (ii) and, except in the case of KB USA in its capacity as a Permitted Partner that is a limited partner of KBLP, any other Permitted Partner in its capacity as a limited partner that is an Additional KBLP LP or any public shareholder of KB, a Qualified Person or a Qualified Parent, every Person that directly or indirectly owns any ownership interest in KBLP (or any Successor General Partner), shall be referred to herein as an "Additional KBLP GP." (iii) KB and KB USA each agrees that it shall not, and shall not permit any of its Affiliates to, take any action which would result, or fail to take any action if such failure would result, in any Person other than a Permitted Partner (as such term is defined below) (x) being a limited partner of KBLP (or being a limited partner (or Person having comparable status in the case of any entity which is not a partnership or corporation) of any Successor General Partner) or (y) being a limited partner or shareholder (or Person having comparable status in the case of any entity which is not a partnership or corporation) of any Person that directly or indirectly owns any ownership interest in KBLP (or any Successor General Partner). KB and KB USA agree (x) to cause any Person that becomes a limited partner, a shareholder or acquires comparable status pursuant to clause (x) or (y) of the preceding sentence to at all times remain a Permitted Partner and (y) not to, and not to permit KB USA or any Additional KBLP LP to, take any action to remove or to replace KB or any Additional KBLP GP as a general partner of KBLP (or any Successor General Partner) or any Additional KBLP GP with any Person that is not a Permitted General Partner. Any Person that becomes a limited partner of KBLP (or a limited partner (or Person having comparable status in the case of an entity which is not a partnership or corporation) of any Successor General Partner) in accordance with this paragraph (iii), and every Person that directly or indirectly owns any ownership interest in any limited partner of KBLP (or any limited partner (or Person having comparable status in the case of any entity which is not a partnership or corporation) of any Successor General Partner), shall be referred to herein as an "Additional KBLP LP." (iv) Notwithstanding anything herein to the contrary, KB and KB USA each agrees that (w) KB USA shall at all times remain a Qualified 52 47 Subsidiary, (x) it shall not take any action which would result, or fail to take any action if such failure would result, in any Person other than any Permitted General Partner having any control over the management, operations, finances or other affairs of KBLP (or any Successor General Partner) or any Additional KBLP GP and (y) it shall not pledge or otherwise encumber, and shall not permit to occur any pledge or other encumbrance upon, any of the ownership interests in KB USA, KBLP (or any Successor General Partner), any Additional KBLP GP (other than KB, any Qualified Person or any Qualified Parent) or any Additional KBLP LP. Notwithstanding anything herein to the contrary, KB and KB USA agree that, except for any failure to be in good standing resulting from the Bankruptcy of such entity, (x) KB USA shall at all times be in existence and in good standing as a corporation under the laws of its state of incorporation, (y) KBLP (and any Successor General Partner) shall at all times be in existence and in good standing as a limited partnership (or, in the case of any Successor General Partner, a partnership, corporation or other business entity) under the laws of its state of formation and (z) any Additional KBLP GP and any Additional KBLP LP shall at all times be in existence and in good standing as a partnership, corporation or other business entity under the laws of its state of formation. "Permitted General Partner" shall mean any Permitted Partner; provided, that, if such Permitted Partner is a Qualified Person, a Qualified Parent or a Qualified Subsidiary (other than KB or a Wholly-Owned Subsidiary of KB), the Qualified Person shall have agreed in writing to guarantee and assume the performance of the obligations of KB under the Initial Agreements, the Ancillary Agreements and any Future Agreement to which KB is a party (it being understood that KB shall not be released from any of such obligations) and a duly executed copy of such agreement shall have been delivered to TR. "Permitted Partner" shall mean KB or any Wholly-Owned Subsidiary of KB and, following a Trigger Event, a Qualified Person, a Qualified Subsidiary or a Qualified Parent. "Qualified Parent" means a Person which directly or indirectly owns all of the equity (or other ownership interest) of KB and a Qualified Person. "Qualified Subsidiary" means any Wholly-Owned Subsidiary of a Qualified Parent, a Qualified Person and/or KB. For purposes of this definition of "Qualified Subsidiary," references in the definition of Wholly-Owned Subsidiary to a "Person" shall be deemed to refer to all or any of such Qualified Parent, Qualified Person and/or KB either individually or in combination with any of said entities or any of their Wholly-Owned Subsidiaries, as the case may be. (g) KBI Sub; KBI-E; TR Holdings. Notwithstanding anything herein to the contrary, TR agrees that it shall not, and shall not permit any of its Affiliates to, (i) pledge or otherwise encumber any shares of capital stock of KBI Sub (or any shares of capital stock or other ownership interests in any other Affiliate of TR that shall at any time be the Limited Partner in accordance with the Partnership Agreement (a "Successor Limited Partner")) or 53 48 KBI-E, (ii) take any action which would result, or fail to take any action if such failure would result, in KBI Sub (or any Successor Limited Partner) or KBI-E not being a direct or indirect Wholly-Owned Subsidiary of KBI, except upon exercise of the Put Option, or (iii) pledge or otherwise encumber any shares of capital stock of TR Holdings or take any action which would result, or fail to take any action if such failure would result, in TR Holdings not being a direct or indirect Wholly-Owned Subsidiary of TR (or any permitted successor of TR pursuant to Section 3.3(b)(i)), unless prior to the taking of any such action with respect to TR Holdings, the shares of KBI held by TR Holdings are transferred in accordance with paragraph (iii) of Section 3.3(b) hereof. Except for any failure to be in good standing resulting from the Bankruptcy of such entity, (i) each of the KBI Parties (or, in the case of KBI Sub, any Successor Limited Partner) shall at all times be in existence and in good standing as a corporation (or, in the case of any Successor Limited Partner, a partnership, corporation or other business entity) under the laws of its state of incorporation (or, if applicable in the case of any Successor Limited Partner, its state of formation) and (ii) TR Holdings (or its transferee pursuant to clause (iii) of the preceding sentence) shall at all times be in existence and in good standing as a corporation (or, in the case of any such transferee, a partnership, corporation or other business entity) under the laws of its state of incorporation (or, if applicable in the case of any such transferee, its state of formation). (h) Information. Each of TR and KB shall, upon reasonable notice from the other, provide the other with such information and documents as are reasonably required to determine (i) in the case of a request by TR, the ownership of KBLP (or any Successor General Partner), KB USA, any Additional KBLP LP or any Additional KBLP GP, or (ii) in the case of a request by KB, the ownership of KBI Sub (or any Successor Limited Partner), KBI-E or TR Holdings. 3.4 Use of Names. (a) Neither the Partnership nor any other Affiliate of KB shall include in its name the word "TR" or any other word confusingly similar thereto or otherwise use the word "TR" or any such other word in the conduct of its business, except as and to the extent required by any law or the provisions (as in effect as of the Closing Date) of any Transferred Contract (as defined in the KBI Asset Contribution Agreement) included within the Original Capital Contribution of KBI Sub. Notwithstanding the foregoing, the Partnership shall be permitted to use existing stocks of finished goods, office supplies, signage, packaging and marketing materials and other similar supplies which include or contain the word "TR" or "KBI" for a period of one (1) year from the Closing Date. (b) No later than thirty (30) days after the Closing Date, KBI shall, and shall cause KBI-E and KBI-P to, amend their respective certificates of incorporation to delete the word "KB", and thereafter, neither KBI nor any Affiliate of KBI shall include in their respective names the word "KB" or any other word confusingly similar thereto. In no event shall TR or its Affiliates use the word "KB" or any other such word in the conduct of its business after the Closing Date. 54 49 3.5 Put Option. (a) KB shall give written notice to KBI of a Put Option Event not more than five (5) business days following the occurrence of such Put Option Event. From and after the occurrence of a Put Option Event, KBI shall have the right and option (the "Put Option") to require KB to purchase all the outstanding shares of KBI Sub (the "KBI Sub Shares") for a price equal to the Put Option Price (as defined below), payable in cash. KBI may exercise such option by giving written notice to KB (the "Exercise Notice") at any time during the Put Option Exercise Period of its election to exercise such option and designating a time and date, which shall be not less than five (5) business days following such notice, and place for the sale of such shares to KB, subject to Section 3.5(c) (the "Share Closing"). In the event of the exercise of such option, KB shall purchase such shares at the Share Closing and shall cause the purchase price therefor to be paid to KBI in the manner specified in Section 3.9, subject to the right of KB set forth in Section 3.5(c) to defer its obligation to purchase such shares by making certain cash payments to KBI as set forth in Section 3.5(c) ("Blocking Payments"). (b) As used herein, the "Put Option Price" shall mean (i) prior to the partial retirement of the Limited Partner's Interest as provided in Section 5.6 of the Partnership Agreement, the sum of (A) $5.78 billion, (B) the cumulative amount of the Contingent Amount Gross-Up not distributed by the Partnership to the Limited Partner, (C) the amount of any cash or other liquid assets held by KBI Sub at the time of the closing of the Put Option, and (D) if any of the events described in clause (i) of the definition of Put Option Event occurs, whether such event occurs before or after the occurrence of any other event that constitutes a Put Option Event, the greater of (x) 15.5 times the average annual amount of the Fourth Tier Amount for the three Fiscal Years preceding the exercise of the Put Option (or if fewer than three full Fiscal Years have elapsed from the Closing Date to the exercise of the Put Option, the average annual amount of the Fourth Tier Amount for such Fiscal Years), or (y) $2.0 billion, and (ii) after such partial retirement, the sum of (A) $3.4 billion, and (B) the amount of any cash or other liquid assets held by KBI Sub at the time of the closing of the purchase of the KBI Sub Shares pursuant to the exercise of the Put Option. (c) In the event KBI exercises the Put Option as provided in Section 3.5(a), KB shall be entitled to defer its obligation pursuant to Section 3.5(a) to purchase the KBI Sub Shares for so long as KB pays to KBI in cash Blocking Payments as set forth below. In the event KB elects to make Blocking Payments to KBI to defer its obligation to purchase the KBI Sub Shares, KB shall give written notice of such election to KBI prior to or contemporaneously with the payment of the first Blocking Payment. The right of KB to make Blocking Payments and to defer its obligation to purchase the KBI Sub Shares as provided in this Section 3.5(c) shall expire on December 31, 2016. The first Blocking Payment shall be due on the fifth business day after the effective date (in accordance with Section 12.8) of the Exercise Notice. The first Blocking Payment shall be in an amount equal to (w) one-fourth of the applicable Blocking Amount times the sum of the number of Fiscal Quarters elapsed in the current Fiscal Year plus one (1) plus (x) if such Blocking Payment is due in a Fiscal Year in which the Capital Account balance of the General Partner in the Partnership is not restored to at least $0 as described in clause (ii) of the definition of "Put Option Event", the Blocking Amount, plus (y) in the event the 55 50 Put Option Event is a Bankruptcy, one-fourth of the Blocking Amount times the number of Fiscal Quarters ending after the occurrence of any action or event described in clause (ii) of the definition "Bankruptcy" and before the current Fiscal Year less the amount payable pursuant to (x) above, plus (z) the amount of any funds or other assets (valued at fair market value) previously distributed to the Limited Partner or paid by or on behalf of the Partnership to TR or any Affiliate of TR that are returned by TR or any Affiliate of TR to the Partnership as a preference under the Bankruptcy Code or as a fraudulent conveyance or transfer under any fraudulent conveyance or transfer statute or under any similar law or requirement. Each subsequent Blocking Payment shall be in the amount of (i) one-fourth of the Blocking Amount plus (ii) the amount of any funds or other assets (valued at fair market value) previously distributed to the Limited Partner or paid by or on behalf of the Partnership to TR or any Affiliate of TR that are returned by TR or any Affiliate of TR to the Partnership as a preference under the Bankruptcy Code or as a fraudulent conveyance or transfer under any fraudulent conveyance or transfer statute or under any similar law or requirement (and have not been included in a prior Blocking Payment) and shall be due and payable prior to the first day of each Fiscal Quarter. All such payments shall be made to KBI in the manner specified in Section 3.9. In the event KB fails to make a Blocking Payment as and when required by this Section, TR may designate by written notice to KB a date, time and place for the Share Closing, and, in such event, KB shall purchase the KBI Sub Shares, which shall be delivered free and clear of all Liens, on such date at such time and place for the purchase price specified in Section 3.5(a), subject to Section 3.5(d). (d) In the event a notification is required under the HSR Act in connection with the purchase and sale of the KBI Sub Shares pursuant to the exercise of the Put Option, TR and KB shall cause all necessary filings to be made pursuant to the HSR Act, and the Share Closing shall occur on the third business day following the expiration or termination of all applicable waiting periods under the HSR Act. (e) If the KBI Sub Shares are sold pursuant to the Put Option, then following receipt by TR of the Put Option Price, (i) TR shall purchase from KB or its Affiliates, and KB or its Affiliates shall sell to TR, all shares of Class A Preferred Stock and Class C Preferred Stock of KBI for a price equal to the aggregate par value thereof and (ii) TR shall pay in full the TR Promissory Note. In such event KB or its Affiliates shall sell such shares to TR free and clear of all Liens at a time and place specified by TR in writing (but in no event after the expiration of ten (10) business days after the Share Closing) not less than five (5) business days prior to such time. 3.6 Outlicensing of Group D Compounds, KB USA Compounds and Group E Compounds. (a) General. The Partnership may not enter into any Outlicensing with respect to any Partnership Compound (as defined in Section 3.6(b) below) or any product containing any such Compound and no Other KB Outlet may enter into any Outlicensing with respect to any Group E Compound or Group E Product, except as permitted by this Section 3.6 or Section 3.20(d) hereof. In the event of any Outlicensing of a Critical Compound or a product 56 51 containing a Critical Compound in breach of this Section, such Outlicensing shall be treated as if such Outlicensing were an Excluded Transaction, the Net Sales of such Compound or product by or on behalf of the other party or parties to such Outlicensing or any Person holding rights derived from such Outlicensing with respect thereto directly or indirectly through such other party or parties shall be considered Net Sales of the Partnership or such Other KB Outlet with a Relative Sales Weighting equal to the Base Sales Weighting of such Compound or product for purposes of determining Weighted Net Sales of such Compound or product, and each of KBI, KBI-E and their respective Affiliates shall be entitled to all remedies available to them at law or in equity. (b) Group D Compounds, KB USA Compounds and Group E Compounds. The Partnership shall have the right to engage in Outlicensing of Group D Compounds and KB USA Compounds (collectively "Partnership Compounds") and products containing any Partnership Compounds, and any Other KB Outlet shall have the right to engage in Outlicensing of Group E Compounds and Group E Products, in each case on and subject to the terms and conditions set forth in this Agreement; provided, however, that, except for Regulatory Outlicensing and except as set forth in Section 3.20(d) hereof, neither the Partnership nor any Other KB Outlet shall enter into any Outlicense of a Critical Compound or any product containing a Critical Compound without the prior written consent of KBI Sub (in the case of a Partnership Compound that is a Critical Compound) or KBI-E (in the case of a Group E Compound that is a Critical Compound). (c) Treatment of Sales. Except as otherwise set forth in this Section 3.6 or Schedule 3.7, in the event that the Partnership enters into any Outlicensing of any Partnership Compound or any product containing any Partnership Compound, or any Other KB Outlet enters into any Outlicensing of any Group E Compound or Group E Product, the Outlicensee's Net Sales of such Compounds and products shall be included in Weighted Net Sales for the purpose of computing contingent amounts pursuant to Section 3.7, for purposes of computing the Assignment Payment pursuant to the KBI-E Asset Option Agreement and for purposes of computing the Limited Partner Share of Agreed Value for purposes of the retirement of a portion of the Limited Partner's Interest pursuant to Section 5.6 of the Partnership Agreement. In the event of any Excluded Transaction with respect to any Partnership Compound or Group E Compound or product containing any such Compound, the Net Sales of such Compound or product by or on behalf of the other party or parties to such Excluded Transaction or any Person holding rights derived from such Excluded Transaction with respect thereto directly or indirectly through such other party or parties shall be considered Net Sales of the Partnership or such Other KB Outlet with a Relative Sales Weighting equal to the Base Sales Weighting of such Compound or product for purposes of determining Weighted Net Sales of such Compound or product. (d) Procedures for Outlicensing (Other than Regulatory Outlicensing). (i) In the event that the Partnership or any Other KB Outlet desires to enter into any Outlicensing (other than a Regulatory Outlicensing) of a Partnership Compound that is a Critical Compound or a Group E Compound that 57 52 is a Critical Compound or any product (including any OTC Product) containing any such Compound (other than an Outlicense relating solely to a Selected Use), the Partnership or such Other KB Outlet, as the case may be, shall provide written notification (an "Outlicensing Notice") (i) in the case of a proposed Outlicensing by the Partnership, to KBI Sub (with a copy to TR), or (ii) in the case of a proposed Outlicensing by such Other KB Outlet, to KBI-E (with a copy to TR) (KBI Sub or KBI-E, as applicable, being referred to as the "Notice Party" for purposes of this Section 3.6(d)). The Notice Party shall notify the Partnership or such Other KB Outlet, as the case may be, within 60 days after receiving the Outlicensing Notice that the Notice Party consents or does not consent to the proposed Outlicensing; provided, however, that the failure of the Notice Party to give such notice by the end of such 60-day period shall in no event be construed as a consent. (ii) In the event that the Partnership or any Other KB Party desires to enter into any Outlicensing of a Partnership Compound that is a non-Critical Compound or a Group E Compound that is a non-Critical Compound or any product containing any such Compound, the Partnership or such Other KB Outlet, as the case may be, shall provide to the Notice Party promptly upon execution of the agreement regarding such Compound (or product containing such Compound) entered into between the Partnership or the Other KB Outlet and the Outlicensee (or any other Person, if applicable), a summary of such agreement, and shall provide a copy of such agreement to a law firm designated by the Notice Party for purposes of determining compliance with this Agreement. In the event that the Partnership or such Other KB Outlet enters into any Excluded Transaction, then the procedures set forth above in this paragraph (d)(ii) shall apply to such Excluded Transaction as if it were an Outlicensing. (e) Procedures for Regulatory Outlicensing. (i) In the event of any Regulatory Outlicensing of a Partnership Compound or Group E Compound or any product containing any such Compound, TR shall have a right of first offer (an "RFO") to acquire the Outlicensed Compound that is proposed to be included in such Regulatory Outlicensing; provided, however, that TR shall not have an RFO in respect of any Regulatory Outlicensing following the earlier of a Trigger Event that occurs after the year 2007 and the exercise of any Assignment Right or the occurrence of the Required Sale pursuant to the KBI-E Asset Option Agreement. The Partnership or such Other KB Outlet shall provide written notification to TR (an "RFO Notice") stating that the Partnership or such Other KB Outlet proposes to enter into a Regulatory Outlicensing and setting forth the following information: (x) the Outlicensed Compound and the nature and scope of the rights with respect thereto proposed to be included in such Outlicensing and (y) the terms on which the Partnership or such Other KB Outlet shall offer to enter into an Outlicense of such Outlicensed Compound with TR or any of its Affiliates, which terms shall 58 53 provide that all consideration payable to the Partnership or such Other KB Outlet for such Outlicense shall be in the form of cash (lump-sum payments or royalty) and shall otherwise contain only such terms with which TR could reasonably comply (the "Specified Terms"). (ii) TR shall have a period of sixty (60) days following receipt of the RFO Notice to notify the Partnership or such Other KB Outlet whether TR is exercising its RFO to enter into (or have an Affiliate enter into) an Outlicense with the Partnership or such Other KB Outlet on the Third Party Terms. If, within such 60-day period, TR notifies the Partnership or such Other KB Outlet that TR is exercising its RFO, then the Partnership or such Other KB Outlet shall enter into such Outlicense with TR (or its Affiliate) as promptly as practicable thereafter for a net consideration consisting of the lump sum and the stream of royalty payments, in each case multiplied by 1 - (BSW/2), in each instance, using the BSW applicable to the Outlicensed Compound or product; provided, however, that for this purpose the BSW of Type 1 Combination Products, Type 2 Combination Products, Type 1 Inhaler Products and Type 2 Inhaler Products shall be [*]%, [*]%, [*]% and [*]%, respectively. In such case, Net Sales of such Compounds or products by TR or its Affiliate shall not be included in Weighted Net Sales, and the Relative Sales Weighting for Net Sales by TR or its Affiliate shall be zero, as set forth in Part 3 of Schedule 3.7 hereto. (iii) If, within the 60-day period described in Section 3.6(e)(ii) hereof, TR notifies the Partnership or such Other KB Outlet that TR is not exercising its RFO (or fails to deliver any notice to the Partnership), then the Partnership or such Other KB Outlet shall have the right to engage in the Regulatory Outlicensing with any Third Party on terms (the "Third Party Terms") that are no less favorable to the Partnership or such Other KB Outlet than the Specified Terms. Prior to entering into any Outlicensing, the Partnership or such Other KB Outlet shall provide written notification to TR (a "Third Party Outlicensing Notice") setting forth the identity of the proposed Outlicensee and the Third Party Terms and stating whether or not, in the Partnership's or such Other KB Outlet's opinion, the Third Party Terms are less favorable to the Partnership or such Other KB Outlet than the Specified Terms. The Partnership or such Other KB Outlet shall provide to TR with the Third Party Outlicensing Notice a summary of the proposed Outlicensing Agreement, and shall provide a copy of such agreement, if then available, to a law firm designated by TR solely for purposes of determining compliance with this Agreement. The Outlicensing Agreement may be provided to such law firm in draft form, provided that the definitive version of the Outlicensing Agreement shall be provided to such law firm promptly after the Partnership or such Other KB Outlet and the Outlicensee (or other Person, if applicable) reach agreement on the terms thereof. In the event that the Third Party Outlicensing Notice does not state that, in the Partnership's or such Other KB Outlet's opinion, the Third Party Terms are no less favorable to the Partnership or such Other KB Outlet than the Specified Terms, TR shall again have an RFO to 59 54 enter into (or have an Affiliate enter into) an Outlicensing with the Partnership or such Other KB Outlet on the Third Party Terms and the procedures set forth in Section 3.6(e)(ii) hereof and in this Section 3.6(e)(iii) shall apply to such RFO (with the Third Party Outlicensing Notice being treated as the RFO Notice for purposes of Section 3.6(e)(ii) hereof), except that TR shall have a period of thirty (30) days following receipt of the RFO Notice to notify the Partnership or such Other KB Outlet whether TR is exercising its RFO to enter into (or have an Affiliate enter into) an Outlicense with the Partnership or such Other KB Outlet on the Third Party Terms. In the event that the Third Party Outlicensing Notice states that, in the Partnership's or such Other KB Outlet's opinion, the Third Party Terms are no less favorable to the Partnership or such Other KB Outlet than the Specified Terms, the Partnership or such Other KB Outlet shall not enter into the proposed Outlicensing until TR has had thirty (30) days to review the Third Party Terms and to discuss with the Partnership any disagreement TR may have with respect to the Partnership's or such Other KB Outlet's opinion set forth in the Third Party Outlicensing Notice, which disagreement shall be set forth in a written notice from TR to the Partnership or such Other KB Outlet, as the case may be, which shall be provided prior to the expiration of thirty (30) days following receipt of the Third Party Outlicensing Notice. If TR and the Partnership or such Other KB Outlet are unable to resolve any such dispute within thirty (30) days following receipt of TR's notice referred to in the preceding sentence (or such longer period as TR and the Partnership or such Other KB Outlet may agree in writing to discuss the matter), the Partnership or such Other KB Outlet may enter into the proposed Outlicensing, but such dispute shall be submitted to arbitration in accordance with Article 9 hereof no later than 30 days after the end of such 30-day period. In the event that such arbitration is resolved in favor of TR, TR's only remedy shall be for damages, which the parties agree shall equal the full amount of contingent payments that would have been paid to KBI and its Affiliates with respect to such Compound or product if such Outlicensing were treated for purposes of computing Net Sales and Weighted Net Sales as an Excluded Transaction, net of any payments already made to TR or its Affiliates in respect of such Outlicensing. Except for damages relating to the period prior to the decision of the arbitrators (which the arbitrators may award in a lump sum), the arbitrators shall be instructed by KB and TR upon their appointment that any damages awarded to TR as a result of the arbitration shall be payable at the same times as the applicable contingent payments would have been made to KBI Sub or any of its Affiliates under the provisions of this Agreement, the Partnership Agreement or any Ancillary Agreement (as applicable). (f) Total Cash Outlicensing. In the event of any Total Cash Outlicensing, (x) an amount equal to the economic benefits of such Total Cash Outlicensing to the Partnership (or the Other KB Outlet) and to KB and its other Affiliates multiplied by (BSW/2) in respect of any consideration payable with respect to the Outlicensed Compound or product, in each instance, using the BSW applicable to such Compound or product, shall be credited to the Fourth Tier Amount in accordance with the definition of "Fourth Tier Amount" 60 55 contained in Article 1 of the Partnership Agreement and (y) the Relative Sales Weighting for Net Sales by the Outlicensee of the Total Cash Outlicensing shall be zero, as set forth in Part 3 of Schedule 3.7 hereto; provided, however, that for purposes of clause (x) above, the BSW of Type 1 Combination Products, Type 2 Combination Products, Type 1 Inhaler Products and Type 2 Inhaler Products shall be [*]%, [*]%, [*]% and [*]%, respectively. In the event any Total Cash Outlicensing provides for the Outlicense of rights both inside and outside the Territory, the amount of cash relating to the Territory shall be based on the relative projected economic benefit from the Territory and jurisdictions outside the Territory covered by the Outlicensing. In the event that the parties cannot agree on such amount of cash related to the Territory, the dispute shall be submitted to arbitration in accordance with Article 9 hereof. (g) Special Cases, Product Swaps, etc. (i) In the case of the following types of Outlicensings of Partnership Compounds or Group E Compounds or any product containing any such Compound (such types of Outlicensings are referred to herein as "Special Case Outlicensings"): (A) a sublicense transaction with a sublicensee that has filed or has expressed its intention to file an ANDA in which the sublicense is effective no earlier than six (6) months preceding expiration of Market Exclusivity, (B) a Required Sublicense (as defined in the Amended and Restated KBI License), (C) an Outlicensing of such a Compound relating to a Selected Use, and (D) an Outlicensing of such a Compound to be used in combination with a Compound which is not a Covered Compound, an amount equal to the total economic benefits of such Outlicensing to the Partnership (or the Other KB Outlet) and to KB and its other Affiliates (including without limitation the value of any supply or similar rights) multiplied by [*]% in respect of any consideration payable with respect to KB USA Compounds or KB USA Products (other than Type 1 Combination Products and Type 1 Inhaler Products), [*]% in respect of any consideration payable with respect to Group D Compounds, Group E Compounds, Group D Products or Group E Products, or [*]% in respect of any consideration payable with respect to Formoterol or any Formoterol Product (other than Type 2 Combination Products and Type 2 Inhaler Products) or [*]% in respect of Type 1 Combination Products, [*]% in respect of Type 2 Combination Products, [*]% in respect of Type 1 Inhaler Products or [*]% in respect of Type 2 Inhaler Products shall be credited to the Fourth Tier Amount in accordance with the definition of "Fourth Tier Amount" contained in Article 1 of the Partnership Agreement. If the parties are unable to agree on the 61 56 amount or value of such economic benefits, the dispute shall be submitted to arbitration in accordance with Article 9 hereof. (ii) An amount equal to 50% of the license income received by the Partnership under the Omeprazole-for-Horses License shall be credited to the Fourth Tier Amount. (iii) In the event that a Partnership Compound or Group E Compound is Outlicensed in a transaction involving a "product swap" which does not involve the right to sell any product outside the Territory, KBI shall have the right to choose at the time of such Outlicensing whether the Weighted Net Sales in respect of such Outlicensed Compound shall be based on (x) the Net Sales of the Outlicensed Compound by the Outlicensee (with such sales having a Relative Sales Weighting equal to the Base Sales Weighting thereof) or (y) the Net Sales of the in-licensed Compound(s) (with the in-licensed Compound(s) having the same classification, e.g. KB USA Compound, Group D Compound or Group E Compound, and having a Relative Sales Weighting equal to the Base Sales Weighting of the Outlicensed Compound). (iv) In the event that a Partnership Compound or a Group E Compound is Outlicensed in a transaction involving a "product swap" that involves the right to sell any product outside the Territory or otherwise involves the right to sell any product both inside and outside the Territory, the Net Sales of the Outlicensed Compound by the Outlicensee in the Territory shall be included in Weighted Net Sales, with such Net Sales having a Relative Sales Weighting equal to the Base Sales Weighting of the Outlicensed Compound. (v) The parties acknowledge and agree that in the event that the Partnership proposes to enter into an Outlicensing in which the weighting of Net Sales by the Outlicensee as set forth in Column A in the Supplemental Sales Weighting Table in Part 4 of Schedule 3.7 is clearly incompatible with a fair sharing of economic benefits by the parties, the parties shall discuss in good faith appropriate adjustments to more properly reflect the sharing of benefits. If no agreement can be reached and the Partnership enters into such Outlicensing, the applicable Relative Sales Weighting of the Outlicensed Compound determined in accordance with Part 3 of Schedule 3.7 shall apply. (h) Agreements Concerning the Split of Economic Benefits. In the event the parties are required, as provided in this Agreement, to agree to the manner in which the economic benefits of an Outlicensing are to be divided (including without limitation any non-Regulatory Outlicensing of a Critical Compound), that portion of the economic benefit to be allocated to the Limited Partner shall be credited to the Fourth Tier Amount. 62 57 3.6A Appointment of Subdistributors and Assignments of Rights with Respect to Licensed Compounds. (a) Prohibition on Subdistributorships and Assignments Other than in Accordance with this Agreement. The Partnership may not appoint any subdistributor if such subdistributorship would constitute an Outlicensing of any Licensed Compound that is a Critical Compound or product containing any Licensed Compound that is a Critical Compound. In the event of any Outlicensing of a Critical Compound or a product containing a Critical Compound in breach of this Section, such Outlicensing shall be treated as if such Outlicensing were an Excluded Transaction, the Net Sales of such Compound or product by or on behalf of the other party or parties to such Outlicensing or any Person holding rights derived from such Outlicensing with respect thereto directly or indirectly through such other party or parties shall be considered Net Sales of the Partnership with a Relative Sales Weighting equal to the Base Sales Weighting of such Compound or product for purposes of determining Weighted Net Sales of such Compound or product, and each of KBI, KBI-E and their respective Affiliates shall be entitled to all remedies available to them at law or in equity. Subject to the foregoing, except for Regulatory Assignments, the Partnership may not assign any of its rights, and, except for any Regulatory Assignment or appointment of any subdistributor, the Partnership may not delegate any of its duties or obligations, under the Distribution Agreement without the prior written consent of KBI-E; provided, however, that the appointment of a subcontractor to perform developmental activities shall not be considered the delegation of any such duties or obligations and provided further that the Partnership shall be liable for any acts or omissions of any such subcontractor. In the event the Partnership shall notify KBI-E that the Partnership desires to make such an assignment or delegation, KBI-E shall notify the Partnership within 60 days after receiving such notification that KBI-E consents or does not consent to any such proposed assignment or delegation; provided, however, that the failure by KBI-E to give such notice by the end of such 60-day period shall in no event be construed as a consent. Any Regulatory Assignment shall be in accordance with Sections 3.6A(d) and (e). (b) Treatment of Sales. Except as otherwise set forth in this Section 3.6A or Schedule 3.7, in the event that the Partnership enters into any subdistributorship arrangement concerning any Licensed Compound or any product containing such Licensed Compound, the subdistributor's Net Sales of such Compounds and products shall be included in Weighted Net Sales as if such sales had been made by the Partnership for the purpose of computing contingent amounts pursuant to Section 3.7 and for purposes of computing the Assignment Payment pursuant to the KBI-E Asset Option Agreement. In the event of any Excluded Transaction with respect to any Licensed Compound or product containing such Licensed Compound, the Net Sales of such Compound or product by or on behalf of the other party or parties to such Excluded Transaction or any Person holding rights derived from such Excluded Transaction with respect thereto directly or indirectly through such other party or parties shall be considered Net Sales of the Partnership with a Relative Sales Weighting equal to the Base Sales Weighting of such Compound or product for purposes of determining Weighted Net Sales of such Compound or product. 63 58 (c) Subdistributorships. The Partnership may, at any time, appoint one or more subdistributorships with respect to any Licensed Compound that is a non-Critical Compound or product containing any Licensed Compound that is a non-Critical Compound for any or all uses and indications, provided that: (i) pursuant to the terms of the subdistributorship agreement, the rights of the subdistributor are subject to the terms of, and the rights of the Partnership and KBI-E under, the Distribution Agreement and the KBI Supply Agreement; (ii) the subdistributor is required to comply with the terms of the Distribution Agreement as if it were the Partnership, KBI-E has the right to enforce the subdistributorship agreement as a third party beneficiary and has the same rights to receive information and the same rights of audit and inspection with respect to the subdistributor as are applicable to the Partnership as distributor; and (iii) the Partnership shall promptly deliver to a law firm designated by KBI-E a fully executed copy of the subdistributor agreement and any and all amendments thereto solely for purposes of determining compliance with this Agreement. The appointment of any such subdistributor shall not relieve the Partnership of any obligation under the Distribution Agreement or any obligation under the KBI Supply Agreement to purchase its (and its subdistributor's) requirements of Licensed Compounds (and products containing Licensed Compounds) from KBI. (d) Regulatory Assignments of Critical Compounds. In the event the Partnership proposes to enter into any Regulatory Assignment of any Licensed Compound that is a Critical Compound or any product containing any Critical Compound, the parties shall comply with the following procedures; provided, however, that the Partnership shall not be required to comply with the following procedures with respect to candesartan cilexetil: (i) TR shall have a right of first offer (an "Assignment RFO") to acquire the rights of the Partnership under the Distribution Agreement and KBI Supply Agreement in respect of the Licensed Compound that is proposed to be included in such Regulatory Assignment; provided, however, that TR shall not have an Assignment RFO in respect of any Regulatory Outlicensing of any Compound following the earlier of a Trigger Event that occurs after the year 2007, and the exercise of any Assignment Right or the occurrence of the Required Sale pursuant to the KBI-E Asset Option Agreement, other than rights with respect to Assignment RFOs in respect of omeprazole and perprazole, which rights shall survive any such Trigger Event. The Partnership shall provide written notification to TR (an "Assignment RFO Notice") stating that the Partnership proposes to enter into a Regulatory Assignment and setting forth the following information: (x) the Licensed Compound and the nature and scope of the rights 64 59 with respect thereto proposed to be included in such Regulatory Assignment and (y) the terms on which the Partnership shall offer to enter into a Regulatory Assignment of such Licensed Compound with TR or any of its Affiliates, which terms shall provide that all consideration payable to the Partnership for such Assignment shall be in the form of cash (lump sum payment or royalty) and shall otherwise contain only such terms with which TR could reasonably comply (the "Assignment Specified Terms"); provided, however, that the Assignment Specified Terms shall incorporate the terms of the Distribution Agreement and the KBI Supply Agreement, as the terms of the KBI Supply Agreement are modified by Section 3.6A(d)(iv) hereof. (ii) TR shall have a period of sixty (60) days following receipt of the Assignment RFO Notice to notify the Partnership whether TR is exercising its Assignment RFO to enter into (or have an Affiliate enter into) an Assignment with the Partnership on the Assignment Specified Terms. If, within such 60-day period, TR notifies the Partnership that TR is exercising its Assignment RFO, then the Partnership shall enter into such Assignment with TR (or its Affiliate) as promptly as practicable thereafter for a net consideration equal to 100% of the value of the consideration provided in the Assignment Specified Terms. In such case, Net Sales of such Compounds or products by TR or its Affiliate shall be included in Weighted Net Sales as if such sales had been made by the Partnership, and such sales shall have a Relative Sales Weighting as set forth in Part 3 of Schedule 3.7 hereto. (iii) If, within the 60-day period described in Section 3.6A(d)(ii) hereof, TR notifies the Partnership that TR is not exercising its Assignment RFO (or fails to deliver any notice to the Partnership), then the Partnership shall have the right to engage in the Regulatory Assignment with any Third Party on terms (the "Assignment Third Party Terms") that are no less favorable to the Partnership than the Assignment Specified Terms; provided, however, that such Regulatory Assignment complies in all respects with the terms of Section 3.6A(d)(iv) hereof, Section K of the Distribution Agreement and Section 12.04 of the KBI Supply Agreement. The Partnership shall provide written notification to TR (a "Third Party Assignment Notice") setting forth the identity of the proposed assignee and the Assignment Third Party Terms and stating whether or not, in the Partnership's opinion, the Assignment Third Party Terms are less favorable to the Partnership than the Assignment Specified Terms. The Partnership shall provide to TR with the Third Party Assignment Notice a summary of the proposed agreement providing for such Regulatory Assignment (the "Assignment Agreement"), and shall provide a copy of such agreement, if then available, to a law firm designated by TR for purposes of determining compliance with this Agreement. The Assignment Agreement may be provided to such law firm in draft form, provided that the definitive version of such Assignment Agreement shall be provided to such law firm promptly after the Partnership and the Assignee (or other Person, if applicable) reach agreement on the terms thereof. In the event that the Third Party 65 60 Assignment Notice does not state that, in the Partnership's opinion, the Assignment Third Party Terms are no less favorable to the Partnership than the Assignment Specified Terms, TR shall again have an Assignment RFO to enter into (or have an Affiliate enter into) an Assignment with the Partnership on the Assignment Third Party Terms and the procedures set forth in Section 3.6A(d)(ii) hereof and in this Section 3.6A(d)(iii) shall apply to such Assignment RFO (with the Third Party Assignment Notice being treated as the Assignment RFO Notice for purposes of Section 3.6A(d)(ii) hereof), except that TR shall have a period of thirty (30) days following receipt of the Assignment RFO Notice to notify the Partnership whether TR is exercising its Assignment RFO to enter into (or have an Affiliate enter into) an Assignment with the Partnership on the Assignment Third Party Terms. In the event that the Third Party Assignment Notice states that, in the Partnership's opinion, the Assignment Third Party Terms are no less favorable to the Partnership than the Assignment Specified Terms, the Partnership shall not enter into the proposed Assignment until TR has had thirty (30) days to review the Assignment Third Party Terms and to discuss with the Partnership any disagreement TR may have with respect to the Partnership's opinion set forth in the Third Party Assignment Notice, which disagreement shall be set forth in a written notice from TR to the Partnership which shall be provided prior to the expiration of thirty (30) days following receipt of the Third Party Assignment Notice. If TR and the Partnership are unable to resolve any such dispute within thirty (30) days following receipt of TR's notice referred to in the preceding sentence (or such longer period as TR and the Partnership may agree to discuss the matter), the Partnership may enter into the proposed Assignment, but such dispute shall be submitted to arbitration in accordance with Article 9 hereof no later than 30 days after the end of such 30-day period. In the event that such arbitration is resolved in favor of TR, TR's only remedy shall be for damages, which the parties agree shall equal the full amount of contingent payments that would have been paid to KBI-E and its Affiliates with respect to such Licensed Compound if such Assignment were treated for purposes of computing Net Sales and Weighted Net Sales as an Excluded Transaction, net of any payments already made to TR or its Affiliates in respect of such Assignment. Except for damages relating to the period prior to the decision of the arbitrators (which the arbitrators may award in a lump sum) the arbitrators shall be instructed by KB and TR upon their appointment that any damages awarded to TR as a result of the arbitration shall be payable at the same times as the applicable contingent payments would have been made to KBI-E or any of its Affiliates under the provisions of this Agreement, the Partnership Agreement or any Ancillary Agreement (as applicable). (iv) Form of Regulatory Assignment. (A) In the event of any Regulatory Assignment, such Regulatory Assignment shall be in the form of an assignment (an "Assignment") of all of the Partnership's rights under the Distribution Agreement and the KBI 66 61 Supply Agreement with respect to the Licensed Compound, subject to such limitations as to time, territory or field of use as may be deemed appropriate by the Partnership. (B) The assignee under the Assignment (the "Assignee") shall assume (pursuant to an instrument of assumption in form and substance reasonably satisfactory to KBI-E, a copy of which shall be delivered to KBI-E) all of the duties and obligations of the Partnership with respect to the Licensed Compound under the Distribution Agreement and the KBI Supply Agreement, respectively, in respect of the rights with respect to the Licensed Compound (and products containing such Licensed Compound) transferred to the Assignee, except, that with respect to any Tiered Rate Product, the contingent amount component of the supply price under the KBI Supply Agreement shall be computed by multiplying the Weighted Net Sales of such product by the Assignee (determined in accordance with the definition of Weighted Net Sales) by the following percentages, as applicable during the time periods specified: 1. from the Closing Date through March 31, 2001, [*]%; 2. from April 1, 2001, through December 31, 2007, [*]%; 3. for Fiscal Years 2008 through 2011, [*]%; and 4. for Fiscal Years after 2011, [*]%. (C) Those portions of the Assignment Payment pursuant to the KBI-E Asset Option Agreement that are attributable to contingent amounts derived from Weighted Net Sales of the Assignee shall be calculated by reference to the contingent payments received by KBI from the Partnership, the Assignee, or TR (or its Affiliate), as applicable. (D) The Partnership shall receive all consideration paid by the Assignee for the Assignment of the Partnership's rights under the Distribution Agreement and the KBI Supply Agreement. (E) The Partnership shall deliver to KBI-E a fully executed copy of the Assignment Agreement and any and all amendments thereto. (e) Regulatory Assignments of Non-Critical Compounds. In the event the Partnership proposes to enter into a Regulatory Assignment of any non-Critical Compound or any product containing any non-Critical Compound, the Partnership shall provide KBI-E with (i) not less than thirty (30) days prior to the consummation of such Regulatory Assignment, a notice identifying the Compound or the product that is the subject of such Regulatory Assignment, and (ii) promptly upon execution of the agreement regarding such Compound or product entered into between the Partnership and the Assignee (or other Person, if applicable), a copy of such agreement. In the event that the Partnership desires to enter into any Excluded Transaction, then 67 \ 62 the procedures set forth above in this paragraph (e) shall apply to such Excluded Transaction as if it were an Outlicensing. (f) This Section 3.6A shall not apply to (i) any Outlicensing of any Selected Uses or of any products containing any Selected Compounds or (ii) any Outlicensing of any Compound solely with respect to a Selected Use. 3.7 Computation of Certain Contingent Amounts. The Partnership Agreement and certain Ancillary Agreements make reference to certain contingent amounts computed with respect to certain categories of products. This Section sets forth the method of computing such contingent amounts for purposes of such other agreements. Explanatory Note: The contingent amounts referred to in this section generally are computed by reference to the Relative Sales Weightings of particular categories of products and sales determined in accordance with the tables set forth in Schedule 3.7 hereto. Such Relative Sales Weightings are used to determine the Weighted Net Sales of specified categories of products which then are used to compute the contingent amounts referred to in this Section. (a) Tiered Rate Products Amount. "Tiered Rate Products Amount" shall mean with respect to the following periods, the amounts computed as set forth below: (A) For each Fiscal Year (or portion thereof) during the period from the Closing Date through March 31, 2001, the Tiered Rate Products Amount shall be [*]% multiplied by the Combined Weighted Net Sales of Tiered Rate Products in such Fiscal Year (or portion thereof). (B) For the nine (9) months from April 1, 2001, through December 31, 2001, the Tiered Rate Products Amount shall be the sum of the following amounts: [*]% multiplied by the first $[ * * ] (adjusted for inflation as provided in Section 3.8) of Combined Weighted Net Sales of Tiered Rate Products in such nine-month period, [*]% multiplied by the Combined Weighted Net Sales of Tiered Rate Products over $[ * ] to and including $[ * ] (adjusted for inflation as provided in Section 3.8) in such nine-month period, and [*]% multiplied by the Combined Weighted Net Sales of Tiered Rate Products over $[ * ] (adjusted for inflation as provided in Section 3.8) in such nine-month period. 68 63 (C) For each of the Fiscal Years 2002 through 2007, the Tiered Rate Products Amount shall be the sum of the following amounts: [*]% multiplied by the first $[ * * ] (adjusted for inflation as provided in Section 3.8) of Combined Weighted Net Sales of Tiered Rate Products in such Fiscal Year, [*]% multiplied by the Combined Weighted Net Sales of Tiered Rate Products over $[ * ] to and including $[ * ] (adjusted for inflation as provided in Section 3.8) in such Fiscal Year, and [*]% multiplied by the Combined Weighted Net Sales of Tiered Rate Products over $[ * ] (adjusted for inflation as provided in Section 3.8) in such Fiscal Year. (D) For each of the Fiscal Years 2008 through 2011, the Tiered Rate Products Amount shall be the sum of the following amounts: [*]% multiplied by the first $[ * * ] (adjusted for inflation as provided in Section 3.8) of Combined Weighted Net Sales of Tiered Rate Products in such Fiscal Year, [*]% multiplied by the Combined Weighted Net Sales of Tiered Rate Products over $[ * ] to and including $[ * ] (adjusted for inflation as provided in Section 3.8) in such Fiscal Year, and [*]% multiplied by the Combined Weighted Net Sales of Tiered Rate Products over $[ * ] (adjusted for inflation as provided in Section 3.8) in such Fiscal Year. (E) For each of the Fiscal Years after 2011, the Tiered Rate Products Amount shall be the sum of the following amounts: [*]% multiplied by the first $[ * * ] (adjusted for inflation as provided in Section 3.8) of Combined Weighted Net Sales of Tiered Rate Products in such Fiscal Year, [*]% multiplied by the Combined Weighted Net Sales of Tiered Rate Products over $[ * ] to and including $[ * ] (adjusted for inflation as provided in Section 3.8) in such Fiscal Year, and 69 64 [*]% multiplied by the Combined Weighted Net Sales of Tiered Rate Products over $[ * ] (adjusted for inflation as provided in Section 3.8) in such Fiscal Year. (b) Computation of Contingent Amounts. Contingent amounts shall be computed with respect to different product categories, as follows, subject to adjustment as provided in Section 3.7(c) for certain royalties and other payments: (i) Omeprazole Products. The "Omeprazole Products Contingent Amount" shall mean with respect to any fiscal period the amount computed by (A) multiplying the Weighted Net Sales of Omeprazole Products for such period by [*]% and (B) adding an amount equal to one-half of the aggregate amount of the Weighted Net Sales of all Split Combination Products that contain omeprazole multiplied by [*]%. (ii) Perprazole Products. The "Perprazole Products Contingent Amount" shall mean with respect to any fiscal period the amount computed by (A) multiplying the Weighted Net Sales of Perprazole Products for such period by [ * * * * * * * * ] and (B) adding an amount equal to one-half of the aggregate amount of the Weighted Net Sales of all Split Combination Products that contain perprazole multiplied by the Perprazole Percentage. "Perprazole Gross Profit Margin" shall mean (x) Net Sales of Perprazole Products that may be sold lawfully in the Territory only with a prescription or an order of a licensed practitioner minus the Perprazole Cost of such products divided by (y) Net Sales of such Perprazole Products in the Territory. The Perprazole Gross Profit Margin shall be recalculated for each Fiscal Year; provided, however, that after three full Fiscal Years of TR production the Perprazole Gross Profit Margin then in effect shall remain in effect and shall not thereafter be recalculated. (iii) KB USA Products. The "KB USA Products Contingent Amount" shall mean with respect to any fiscal period the amount computed by multiplying the Weighted Net Sales of KB USA Products for such period by the Effective Rate in Respect of Tiered Rate Products for such period. (iv) KBI Products (other than Omeprazole Products and Perprazole Products). The "KBI Products Contingent Amount" shall mean with respect to any fiscal period the amount computed by (A) multiplying the Weighted Net Sales of KBI Products (other than Omeprazole Products and Perprazole Products) for such period by the Effective Rate in Respect of Tiered Rate Products for such period and (B) adding an amount equal to one-half of the aggregate amount of the Weighted Net Sales of all Split Combination Products that do not contain 70 65 omeprazole or perprazole multiplied by the Effective Rate in Respect of Tiered Rate Products. (v) Group D Products. The "Group D Products Contingent Amount" shall mean with respect to any fiscal period the amount computed by (A) multiplying the Weighted Net Sales of Group D Products (including without limitation amounts deemed to be Net Sales of Group D Products pursuant to Section 3.22) for such period by the Effective Rate in Respect of Tiered Rate Products for such period and (B) subtracting an amount equal to one-half of the sum of (x) the aggregate amount of the Weighted Net Sales of all Split Combination Products that contain omeprazole multiplied by [*]%, (y) the aggregate amount of the Weighted Net Sales of all Split Combination Products that contain perprazole multiplied by the Perprazole Percentage and (z) the aggregate amount of the Weighted Net Sales of all Split Combination Products that do not contain omeprazole or perprazole multiplied by the Effective Rate in Respect of Tiered Rate Products. (vi) Group E Products. The "Group E Products Contingent Amount" shall mean with respect to any fiscal period the amount computed by multiplying the Weighted Net Sales of Group E Products for such period by the Effective Rate in Respect of Tiered Rate Products for such period. (c) Adjustment in Respect of Other Royalties and Payments. In the event KBI-E or KBI is required to pay any royalty or other payment to KB or any other Person in respect of sales of any Licensed Compound, the applicable contingent amounts computed pursuant to Section 3.7(b) shall be increased by the amount of such royalty; provided that the contingent amount with respect to the product consisting of the combination of enalapril and felodipine shall be increased by the amount of the royalty payable by TR or any of its Affiliates to Bayer AG, which is equal to [*]% of Net Sales. During the period in which the royalty on Group C Compounds (the "Group C Royalty") is applicable, the Perprazole Products Contingent Amount shall be increased by the amount payable under the Amended and Restated KBI License in respect of the Group C Royalty on sales of Perprazole Products and the KBI Products Contingent Amount shall be increased by the amount payable under the Amended and Restated KBI License in respect of the Group C Royalty on sales of KBI Products. (d) Annual Minimum Contingent Amounts in the Event of a Trigger Event. In the event a Trigger Event occurs, and the aggregate amount of the contingent amounts in respect of any Fiscal Year in the period 2002 through 2007 computed pursuant to paragraphs (iii) - (vi) of Section 3.7(b) is less than the amount specified for such Fiscal Year in the table set forth below (a "Contingent Payment Shortfall"), KB (or any Person designated by KB) shall pay, within ninety (90) days after the end of each such Fiscal Year, to KBI as damages for the failure to devote sufficient resources to achieve the minimum annual contingent amount specified in such table (the failure to achieve such minimum annual contingent amounts being conclusive evidence (solely for the purposes of this Section 3.7(d)) of the failure to devote sufficient resources), the difference between such minimum annual contingent amount and the aggregate 71 66 amount of contingent amounts referred to above; provided, however, that in the event that (i) the FDA requires that any single product be removed from the market for safety reasons, and (ii) such product accounted for more than 80% of the aggregate Net Sales of all Covered Compounds for the Fiscal Year most recently completed prior to such FDA action, then no payment in respect of the Contingent Payment Shortfall shall be required. KB may delegate to any other Person the obligation to make such payment, provided that no such delegation shall relieve KB of the obligation to make such payment.
MINIMUM ANNUAL FISCAL YEAR CONTINGENT AMOUNT 1998 - 2001 No minimum 2002 $[ * * * 2003 $ * * * 2004 $ * * * 2005 $ * * * 2006 $ * * * 2007 $ * * * ] After 2007 No minimum
3.8 Inflation Adjustment. Certain amounts contained in Sections 3.7 and 3.15 hereof as specified therein, in the definition of "Critical Compound" and in the Ancillary Agreements as specified therein, are to be adjusted for inflation pursuant to this Section 3.8. To the extent that any amount is to be adjusted for inflation pursuant to this Section 3.8 (the "Original Amount"), the Original Amount shall be adjusted (such adjusted amount being referred to as the "Adjusted Original Amount") as of December 31 of each year (the "Adjustment Date"), commencing December 31, 1999, as follows: (i) Periods through December 31, 2016. For periods through December 31, 2016, no adjustment shall be made to the Original Amount or the Adjusted Original Amount unless the annual percentage change ("Annual % Change") in the Price Index for the most recently completed Inflation Year, as such Price Index is last published in the year ending on the Adjustment Date, exceeds 4% (.04), with such change in excess of 4% (.04) being excess annual inflation ("Excess Annual Inflation"). The Pre-2016 Inflation Index ("Pre-2016 Inflation Index") as of the Adjustment Date is calculated by multiplying the sum of one (1) and Excess Annual Inflation for the year ending on the Adjustment Date by the Pre-2016 Inflation Index as of December 31 of the prior year. The Adjusted Original Amount for the year ending on the Adjustment Date shall be determined by multiplying the Original Amount by the Pre-2016 Inflation Index for such year. (See Schedule 3.8 hereto for an example of the computation of the inflation adjustment.) (ii) Periods Following December 31, 2016. If the KBI-E Asset Option has not been exercised, for periods following December 31, 2016, an adjustment 72 67 shall be made to the Original Amount as follows: Adjusted Original Amount as of December 31, 2007 multiplied by the Post-2016 Inflation Index. The Post-2016 Inflation Index shall be calculated by dividing the Price Index for the most recently completed Inflation Year, as such Price Index is last published in the year ending on the Adjustment Date, by the Price Index as of September 30, 2007. (See Schedule 3.8 hereto for an example of the computation of the inflation adjustment.) In the event the Price Index is revised, adjusted or corrected for any year, the Pre-2016 Inflation Index and Post-2016 Inflation Index computed above shall be recomputed on the basis of such revised, adjusted or corrected Price Index. 3.9 Payments. All payments required to be made pursuant to this Agreement, the other Initial Agreements, the Partnership Agreement and the Ancillary Agreements shall be made in accordance with this Section, unless otherwise agreed in writing or provided in the applicable agreement. All payments to TR or any Affiliate of TR 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 to KB or any Affiliate of KB shall be made by wire transfer to a bank account designated by KB at least two (2) 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 Dollars in immediately available funds. 3.10 Maintenance and Access to Books and Records. The Partnership and KB shall keep, and shall cause their Affiliates and Outlicensees to keep, true, accurate and complete records of the amount (and manner of computation or derivation) of the Weighted Net Sales of Omeprazole Products, Perprazole Products, KB USA Products, KBI Products (other than Omeprazole Products and Perprazole Products), Group D Products, Formoterol Products and Group E Products (recording separately for each product and each category of transaction for which the Relative Sales Weighting is less than 100% Net Sales and other information for Ethical Pharmaceutical Products and OTC Product formulations of such products) in sufficient detail to permit determination of the contingent amounts to be computed with respect thereto pursuant to this Agreement, the Partnership Agreement or any Ancillary Agreement and the audit thereof by the Limited Partner pursuant to Section 6.4 of the Partnership Agreement. At TR's request and expense, KB and its Affiliates shall afford such access to their respective books and records in order to verify any amounts payable pursuant to Section 3.6 or 3.6A hereof, or calculated pursuant to Section 3.7 hereof, as the Partnership is obligated to afford to the Limited Partner in respect of Partnership Compounds pursuant to Section 6.4 of the Partnership Agreement, subject to the same restrictions contained therein. 3.11 Business of KBLP. Without the prior written consent of TR, KBLP (or any Successor General Partner other than KB, a Qualified Person or a Qualified Parent) shall not conduct any business of any nature whatsoever other than (w) the ownership of its Interest, (x) in such capacity, the management of the business of the Partnership, (y) such other activities as are specifically permitted by the Initial Agreements, the Partnership Agreement and the Ancillary Agreements (as applicable) and (z) any Permitted Business. Without limiting the foregoing, 73 68 (i) any Additional KBLP GP and any Additional KBLP LP may contribute or otherwise Transfer to KBLP (or any Successor General Partner) the assets (together with liabilities related to such assets which are "qualified liabilities of a partner" as defined in Section 1.707-5(a)(6) of the Regulations (as defined in the Partnership Agreement)) of any business which is a Permitted Business and (ii) KBLP (or any Successor General Partner) may contribute such assets (and such liabilities) to the capital of the Partnership in accordance with Section 2.9(c) of the Partnership Agreement. Without the prior written consent of TR, each Additional KBLP GP (other than KB, a Qualified Person or a Qualified Parent) shall not conduct any business of any nature whatsoever other than any Permitted Business. 3.12 Business of KBI Parties. Without the prior written consent of KB, none of the KBI Parties shall conduct after the Closing any business of any nature whatsoever other than (i) the ownership by KBI of the outstanding stock of KBI Sub (or any Successor Limited Partner), KBI-E and KBI-P, (ii) the ownership by KBI Sub (or any Successor Limited Partner) of its Interest, (iii) the ownership by KBI-E of its rights, and the performance by KBI-E of its obligations, pursuant to the KBI License Assignment and Assumption Agreement; provided, however, that in the event that the Partnership's appointment as distributor with respect to a Compound shall be terminated or become non-exclusive pursuant to Section D of the Distribution Agreement, KBI-E shall sublicense or assign all of its rights and obligations with respect to such Compound to TR or any Affiliate of TR (other than a KBI Party); provided, further, however that such sublicense or assignment shall terminate upon the exercise of KB's right to purchase the rights to such Compound under Article V of the KBI-E Asset Option Agreement and, if KB shall determine not to exercise such right to purchase, KBI-E shall transfer the rights to such Compound to TR or any Affiliate of TR (other than a KBI Party) or any non-Affiliate of TR, (iv) the investment by each KBI Party of any amounts received by it pursuant to the Ancillary Agreements, provided such investments take the form of TR Financial Assets or loans (as described in clause (v)), (v) the distribution by each KBI Party of such cash or TR Financial Assets (as loans, dividends or otherwise) to TR or any of its Affiliates, and (vi) such other activities as are specifically permitted by the Initial Agreements, the Partnership Agreement and the Ancillary Agreements (as applicable). 3.13 Notice of Events of Bankruptcy. In the event of the Bankruptcy of KBLP (or any Successor General Partner) or any of the Persons described in Section 3.3(f) hereof, KB shall give prompt written notice thereof to KBI and TR. 3.14 Certain Actions in Respect of Contingent Amounts. Neither KB, nor the Partnership or any other Affiliate of KB, shall enter into any transaction, or take or fail to take any action, which transaction, action or failure to take action is intended to reduce the Weighted Net Sales of any product category or the contingent amounts that otherwise would be computed pursuant to Section 3.7 (or any other amount based on the amount of contingent payments) for any period; provided, however, that this Section 3.14 shall not be deemed to restrict the ability of the Partnership or any Other KB Outlet to enter into any Outlicense otherwise permitted by this Agreement, the Partnership Agreement and/or the Distribution Agreement, as applicable. 74 69 3.15 Trigger Event. (a) Market Capitalization. (i) Market Capitalization of Qualified Persons. "Market Capitalization", in the case of a Qualified Person, shall be determined as set forth below: (w) In the case of a Qualified Person all of the Equity Securities of which are publicly traded ("Public Equity Securities"), the Market Capitalization of such Qualified Person shall be an amount equal to the total market value (measured in Dollars) of all Classes (as defined below) of Equity Securities of which such Qualified Person is the issuer and which are publicly traded on at least one (1) securities exchange or other securities market. For purposes of this definition each class or series (a "Class") of Equity Securities that is separately traded on a securities exchange or market shall be valued separately from each other Class, and such value shall be determined by multiplying the average closing sale price of such Equity Security on the securities exchange or market which constitutes its principal trading market for the five (5) trading days ending on the Measurement Date (or if no sale takes place on a trading day, the average of the closing bid and asked prices on such day) by the number of such Equity Securities actually outstanding on the Measurement Date. Such value shall be translated into Dollars based on the Noon Buying Rate on the Measurement Date for the currency in which such Equity Security is traded in the principal trading market therefor. An exchange or market shall constitute the principal trading market for an Equity Security if the average daily trading volume for such Equity Securities on such exchange or market during the twelve (12) months ending on the last day of the month immediately preceding the month that includes the Measurement Date is larger than the average daily trading volume for such Equity Securities on any other exchange or market during such period. (x) In the case of a Qualified Person whose Equity Securities consist of one or more Classes of Public Equity Securities and one or more Classes of Equity Securities that are not publicly traded ("Non-Public Equity Securities"), if (a) the number of outstanding shares of Public Equity Securities represent at least 80% of the number of outstanding shares of such Qualified Person's Equity Securities, and (b) all of the Non-Public Equity Securities have identical liquidation rights as one or more Classes of Public Equity Securities (the "80% Test"), then the Market Capitalization of such Qualified Person shall be equal to the sum of (i) the amount determined using the method set forth in paragraph (w) above with respect to such Qualified Person's Public Equity Securities (the "Publicly Traded Amount"), and (ii) the sum of the values of each Class of the Non-Public Equity Securities. The value of each Class of Non-Public Equity Securities shall be determined by multiplying that portion of the Publicly Traded Amount attributable to Public Equity Securities having the same 75 70 liquidation rights as such Class of Non-Public Equity Securities by a fraction, the numerator of which is the number of shares of such Class of Non-Public Equity Securities and the denominator of which is the number of the shares of such Public Equity Securities. (y) In the case of a Qualified Person (i) all of whose Equity Securities are Non-Public Equity Securities or (ii) whose Equity Securities consist of Public Equity Securities and Non-Public Equity Securities, and the 80% Test is not met, if either such Qualified Person or the pharmaceutical business of such Qualified Person is acquired by KB in a transaction or integrally related transactions in which the consideration paid by KB consists solely of KB shares, marketable securities, cash or a combination thereof paid at the time of such acquisition (a "KB Cash/Share Purchase Transaction"), the Market Capitalization of such Qualified Person shall be equal to the total market value of the KB shares (valued as of the Measurement Date) and/or marketable securities (valued as of the Measurement Date or, if such marketable securities were not outstanding on the Measurement Date, on the closing date of such acquisition) paid or delivered as consideration plus the amount of cash paid by KB. (z) In the case of a transaction or integrally related transactions, other than a KB Cash/Share Purchase Transaction, with a Qualified Person (i) all of whose Equity Securities are Non-Public Equity Securities or (ii) whose Equity Securities consist of Public Equity Securities and Non-Public Equity Securities, and the 80% Test is not met, the Market Capitalization of such Qualified Person shall be equal to the average of the values (the "Synthetic Market Capitalization") determined by: (A) multiplying the Net Income of such Qualified Person for the most recent fiscal year of such Qualified Person completed on or prior to the Measurement Date and for which financial statements have been released by such Qualified Person by the median Price/Earnings Ratio (determined in accordance with paragraph (iv) below) of the Comparable Companies, and (B) multiplying the sales of such Qualified Person (determined in accordance with GAAP) for the most recent fiscal year of such Qualified Person completed on or prior to the Measurement Date and for which financial statements have been released by such Qualified Person by the median ratio of the Firm Value (determined in accordance with paragraph (v) below) to sales for the Comparable Companies and then subtracting the Total Debt and adding the Cash and Short-term Investments of such Qualified Person. Such ratio shall be determined for each Comparable Company based on the most recent fiscal year of such Comparable Company completed on or prior to the Measurement Date. 76 71 (zz) For purposes of Sections 3.15(c)(vi) and (viii) hereof, Synthetic Twin Head Market Capitalization shall be equal to the average of the values determined by: (A) multiplying (1) the earnings before interest, taxes, depreciation and amortization, including income from affiliates less income attributable to minority interest ("EBITDA") (as determined in accordance with GAAP), relating to the pharmaceutical assets of KB or the Qualified Person, as the case may be, that are proposed to be contributed or made subject to the profit sharing or profit equalization arrangements of the Synthetic Twin Head Business Combination for the most recent fiscal year of KB or such Qualified Person completed on or prior to the Measurement Date and for which financial statements have been released by KB or such Qualified Person by (2) the median ratio of Firm Value (determined in accordance with paragraph (v) below) to EBITDA for the Comparable Companies. Such ratio shall be determined for each Comparable Company based on the most recent fiscal year of such Comparable Company completed on or prior to the Measurement Date, and (B) multiplying (1) the sales (as determined in accordance with GAAP) relating to the pharmaceutical assets of KB or the Qualified Person, as the case may be, that are proposed to be contributed or made subject to the profit sharing or profit equalization arrangements of the Synthetic Twin Head Business Combination for the most recent fiscal year of KB or such Qualified Person completed on or prior to the Measurement Date and for which financial statements have been released by KB or such Qualified Person by (2) the median ratio of Firm Value (determined in accordance with paragraph (v) below) to sales for the Comparable Companies. Such ratio shall be determined for each Comparable Company based on the most recent fiscal year of such Comparable Company completed on or prior to the Measurement Date. Any Market Capitalization computed pursuant to paragraphs (w) - (z) above shall be adjusted for disposals after the Measurement Date of any Significant Non-pharmaceutical Assets (as defined below) prior to or as part of the applicable transaction or integrally related transactions; provided, however, that only (i) spin-offs, demergers, court approved schemes, plans of arrangement or corporate divisions providing for the disposition of businesses to shareholders, in any such case by means of a stock distribution (or other transactions having a substantially similar effect), or (ii) asset disposals accompanied by an extraordinary cash dividend to or stock repurchase or redemption from shareholders (or other transaction having a substantially similar effect), will result in such an adjustment. In such case, Market Capitalization shall be reduced by the value of the cash or stock or other securities so distributed or transferred to shareholders. A "Significant Non-pharmaceutical Asset" shall mean a non-pharmaceutical business that accounted for more than 15% of the Qualified Person's total operating profit or 25% of the Qualified Person's total 77 72 sales (in each case determined in accordance with GAAP) for the most recent fiscal year of such Qualified Person completed on or prior to the Measurement Date and for which audited financial statements have been included in such Qualified Person's annual report to stockholders. A Significant Non-pharmaceutical Asset shall be determined by the then currently engaged independent public accountants of TR in accordance with the policies and procedures used by such Qualified Person to calculate such profit and sales as reported in such Qualified Person's audited financial statements. Such determination shall be reviewed by the independent public accountants of the Qualified Person, and at the election of KB, may then be disputed by KB and submitted for resolution of any dispute using procedures substantially equivalent to the procedures set forth in Sections 2.5(e)(ii) and (iii) hereof. (ii) Market Capitalization of KB. "Market Capitalization", in the case of KB, shall be determined on the same basis as set forth in paragraphs (i)(w), (i)(x) and (i)(z) of this Section 3.15(a) (as applicable) with respect to a Qualified Person, except that for purposes of paragraph (i)(x) the applicable percentage shall be 50% (rather than 80%). (iii) Market Capitalization of Comparable Companies. "Market Capitalization", in the case of a Comparable Company, shall be determined on the same basis as set forth in paragraphs (i)(w) and (i)(x) of this Section 3.15(a) (as applicable) with respect to a Qualified Person. (iv) Price/Earnings Ratio of Comparable Companies. "Price/Earnings Ratio" of a Comparable Company shall be based on the Closing Stock Price and the last reported actual, fiscal Earnings Per Share of such Comparable Company, as reported by such Comparable Company, where: (w) "Closing Stock Price" shall mean the closing stock price of the ordinary or common shares of such Comparable Company on the Measurement Date on the securities exchange or market which constitutes such Comparable Company's principal trading market. (x) "Earnings Per Share" shall mean the Net Income of such Comparable Company for the relevant fiscal year divided by the weighted average number of ordinary or common shares of such Comparable Company outstanding for the relevant fiscal year (assuming dilution) calculated in accordance with Statement of Financial Accounting Standards 128. (v) Firm Value of Comparable Companies. "Firm Value" of a Comparable Company shall mean the Market Capitalization of such Comparable Company plus the Total Debt of such Comparable Company minus the Cash and Short-term Investments of such Comparable Company, in each case determined as of the Measurement Date. 78 73 (b) Definitions. "Acquisition of KB" shall mean any Trigger Event that is not a Merger of Equals. "Business Combination" is a transaction pursuant to which all or Substantially all of the pharmaceutical businesses or assets of KB and a Qualified Person shall be combined in a structure having the economic effect of combining the pharmaceutical business operations or equity ownership of the two entities, whether such combination is effected by purchase, exchange or other transfer of Equity Securities or assets, joint venture or joint ventures, recapitalization, reorganization, consolidation, amalgamation, scheme or plan of arrangement, profit or dividend equalization or sharing agreement, or any combination of the foregoing or other transaction or integrally related transactions having a substantially similar effect, provided that the total consideration, if any, paid to shareholders, consists of KB Share Consideration, QP Share Consideration or Newco Share Consideration. "KB Share Consideration" shall mean, in connection with any Trigger Event, total consideration at least 80% of which in value, determined as of the close of business on the closing date of such transaction based on the closing trading price of KB's Equity Securities on the principal trading market therefor, consists of Equity Securities which may, solely for these purposes, include equity securities of KB newly issued in connection with the Trigger Event. "Merger of Equals" shall mean a Trigger Event described in paragraph 3.15(c)(v)-(vi) below, whether or not such transaction is also a Trigger Event as defined in clauses (i)-(iv) of Section 3.15(c). "Newco Share Consideration" shall mean, in connection with any Trigger Event, total consideration at least 80% of which in value, determined as of the close of business on the closing date of such transaction based on the value of the KB shares exchanged therefor, is delivered to KB and QP shareholders in the form of Equity Securities of Newco. "QP Share Consideration" shall mean, in connection with any Trigger Event, total consideration at least 80% of which in value, as determined as of the close of business on the closing date of such transaction based on the closing trading price of the Qualified Person's Equity Securities on the principal trading market therefor, consists of Equity Securities which may, solely for these purposes, include equity securities of such Qualified Person newly issued in connection with the Trigger Event. "Simple Business Combination" is any Business Combination provided that it is not a Synthetic Twin Head Business Combination. "Twin Head Business Combination" is a Business Combination (i) in which not less than 80% of the Equity Securities of both KB and a Qualified Person continue to be publicly traded after the transaction has occurred, and (ii) any payments, payable at the time of the transaction or at any point in the future (the right to which is established at the time of the transaction), made in connection with the Business Combination (whether by dividend, distribution, redemption, stock repurchase or otherwise), paid to (x) the shareholders of KB will 79 74 not, in the aggregate, exceed 20% of the Market Capitalization of KB and (y) the shareholders of the Qualified Person, will not, in the aggregate, exceed 20% of the Market Capitalization of the Qualified Person, as the case may be (except that the Measurement Date with respect to Market Capitalization for these purposes will be ten business days prior to the announcement of the transaction). "Substantially all" of the pharmaceutical business of KB or a Qualified Person shall mean more than 80% of the pharmaceutical business, or assets producing more than 80% of the earnings of the pharmaceutical business, of KB or such Qualified Person, as the case may be, measured by the fair market value thereof. "Synthetic Twin Head Business Combination" is a Twin Head Business Combination; provided, however, that less than 80% of the total business or assets producing less than 80% of the earnings (in each case measured by the fair market value thereof) of either KB or the Qualified Person, respectively, are contributed or subjected to the profit sharing or profit equalization arrangement of the Synthetic Twin Head Business Combination. (c) Transactions Constituting a Trigger Event. "Trigger Event" shall mean any transaction pursuant to which: (i) a Qualified Person shall acquire more than 50% of the Voting Securities of KB so long as the Market Capitalization of KB is no more than 60% of the sum of the Market Capitalizations of KB and the Qualified Person; (ii) KB shall acquire more than 50% of the Voting Securities of a Qualified Person for KB Share Consideration; provided that the Market Capitalization of KB is less than 40% of the sum of the Market Capitalizations of KB and such Qualified Person; (iii) all or Substantially all of the pharmaceutical assets of KB (including without limitation KB's interest in the General Partner of the Partnership) shall be acquired by or otherwise transferred to any Qualified Person; provided that the Market Capitalization of KB is no more than 60% of the sum of the Market Capitalizations of KB and the Qualified Person; (iv) KB shall acquire all or Substantially all of the pharmaceutical assets of a Qualified Person for KB Share Consideration; provided that the Market Capitalization of KB is less than 40% of the sum of the Market Capitalizations of KB and such Qualified Person; (v) a Simple Business Combination is consummated, in which the Market Capitalization of KB is not less than 40% or more than 60% of the sum of the Market Capitalizations of KB and such Qualified Person; (vi) a Synthetic Twin Head Business Combination is consummated in which (x) the Market Capitalization of KB is not less than 40% or more than 60% 80 75 of the sum of the Market Capitalizations of KB and such Qualified Person, and (y) the synthetic market capitalization (determined using the procedures set forth in paragraph (zz) above ("Synthetic Twin Head Market Capitalization")) of KB is greater than 40% of the sum of the Synthetic Twin Head Market Capitalizations of KB and the Qualified Person; provided, however, that the Synthetic Twin Head Market Capitalization will be applied only to the pharmaceutical assets of KB and the Qualified Person that are contributed to or subject to the profit sharing or profit equalization arrangement of the Synthetic Twin Head Business Combination; provided, further, that if either party to the transaction contributes or subjects to the profit sharing or profit equalization arrangement of the Synthetic Twin Head Business Combination more than 80% of its total business or assets producing more than 80% of the earnings (in each case measured by the fair market value thereof) then the Market Capitalization to be utilized in the calculation will be its Market Capitalization and no Synthetic Twin Head Market Capitalization will be determined for such party; (vii) a Simple Business Combination or a Synthetic Twin Head Business Combination is consummated in which the Market Capitalization of KB is less than 40% of the sum of the Market Capitalizations of KB and such Qualified Person; (viii) a Synthetic Twin Head Business Combination is consummated in which (x) the Market Capitalization of KB is not less than 40% or more than 60% of the sum of the Market Capitalizations of KB and such Qualified Person, and (y) the Synthetic Twin Head Market Capitalization of KB is less than 40% of the sum of the Synthetic Twin Head Market Capitalizations of KB and the Qualified Person, provided, however, that the Synthetic Market Capitalization will be applied only to the pharmaceutical assets of KB and the Qualified Person that are included in the Business Combination; provided, further, that if either party to the transaction contributes or subjects to the profit sharing or profit equalization arrangement of the Synthetic Twin Head Business Combination more than 80% of its total business or assets producing more than 80% of the earnings (in each case measured by the fair market value thereof), then the Market Capitalization to be utilized in the calculation will be its Market Capitalization, and no Synthetic Twin Head Market Capitalization will be determined for such party; (ix) a Twin Head Business Combination or a Synthetic Twin Head Business Combination is consummated in which the Market Capitalization of KB is not more than 60% of the sum of the Market Capitalizations of KB and such Qualified Person; provided, however, that the condition set forth in clause (ii) of the definition of Twin Head Business Combination is not satisfied; or (x) a Qualified Person acquires more than 50% of the Voting Securities or all or Substantially all of the pharmaceutical assets of KB (including without limitation KB's interest in the General Partner of the Partnership) entirely 81 76 for cash, whether or not the Market Capitalization of KB is greater than 60% of the sum of the Market Capitalizations of KB and the Qualified Person; provided, however, no transaction or integrally related transactions shall constitute a Trigger Event if: (x) such Qualified Person is a Related Person of KB prior to such Trigger Event; or (y) KB or any Related Person of KB has, or within two (2) years after the date of such transaction or integrally related transactions acquires, any right to acquire, reacquire or obtain control over (or does acquire, re-acquire or obtain control over) all or Substantially all of the Voting Securities, assets or business, the transfer, acquisition or combination of which caused a Trigger Event to occur. (d) Transactions Not Constituting a Trigger Event Notwithstanding anything to the contrary herein, the following transactions shall not be considered Trigger Events and shall be deemed an acquisition by KB of the Qualified Person or other Person that is a party to the Transaction, and such Qualified Person or other Person shall be deemed an Affiliate of KB, for all purposes under the Amended and Restated KBI License and this Agreement: (i) Any transactions of the types described in Section 3.15(c) between KB and a Person(s) that is not a Qualified Person; (ii) Except as set forth in paragraph 3.15(c)(x), any transaction between KB and a Qualified Person in which the Market Capitalization of KB is more than 60% of the sum of the Market Capitalizations of KB and such Qualified Person (including any integrally related transactions with two or more Persons which are not Qualified Persons); (iii) Any transaction in which KB acquires either (x) more than 50% of the Voting Securities, or (y) all or Substantially all of the pharmaceutical assets, of a Qualified Person in which the consideration paid fails to consist of KB Share Consideration; provided, however, that clause (y) shall not apply to Twin Head Business Combinations or Synthetic Twin Head Business Combinations; (iv) Except as set forth in subparagraphs 3.15(c)(i), (iii), (ix) or (x), any Business Combination (other than a Twin Head Business Combination or a Synthetic Twin Head Business Combination), in which the consideration paid fails to consist of KB Share Consideration, QP Share Consideration or Newco Share Consideration; or (v) Any transaction in which less than Substantially all of the pharmaceutical assets or businesses of KB and a Qualified Person are contributed to or subjected to the transaction. 82 77 (e) Lump Sum Payment in the Event of a Trigger Event. Within fifteen (15) days after the closing of a transaction which is a Trigger Event, KB or KBLP shall pay to KBI-E in Dollars the amount of the Lump Sum Payment (as defined below) for the release of certain claims under the Amended and Restated KBI License. The "Lump Sum Payment" shall be computed as set forth below based on the Trigger Event R&D Expenses of KB and the Qualified Person which engaged in the Trigger Event: (i) The Lump Sum Payment shall be equal to 90% of the sum of (A) 75% of the Trigger Event R&D Expenses of such Qualified Person and (B) 25% of the Trigger Event R&D Expenses of KB, in each case for the last successive periods that total twelve (12) months of such Qualified Person and KB, respectively, for which financial results have been reported on or prior to the Announcement Date; provided, however, that the Lump Sum Payment computed pursuant to this paragraph (i) shall not exceed $1.5 billion in the case of an Acquisition of KB or $1.0 billion in the case of a Merger of Equals nor be less than $1.0 billion in the case of an Acquisition of KB nor be less than $675 million in the case of a Merger of Equals; and, provided, further, that the minimum and maximum amounts set forth in the preceding proviso shall be adjusted for inflation in accordance with Section 3.8 hereof. (ii) The Lump Sum Payment computed pursuant to paragraph (i) above in respect of a Trigger Event closing in any calendar year shall be adjusted by multiplying the amount so computed by the percentage set forth in the following table for such calendar year:
Percentage Applicable to a Trigger Event Calendar Year in such Calendar Year ------------- --------------------- 1998 100% 1999 100% 2000 100% 2001 100% 2002 90% 2003 70% 2004 50% 2005 40% 2006 35% 2007 35% After 2007 35%
83 78 (f) Certain Other Payments if Trigger Event Closes Prior to January 1, 2008. (i) Advance Amount. Within fifteen (15) days after the closing of a transaction which is a Trigger Event, provided such Trigger Event closes prior to January 1, 2008, KB shall pay to KBI-E in Dollars in immediately available funds in consideration for such assignment of rights under the Amended and Restated KBI License, the Advance Amount, with such amount being discounted at an annual rate of thirteen percent (13%) from January 1, 2008 to the date of payment of the Advance Amount. (ii) Calculation of Appraised Value. Promptly after the availability of the audited financial statements referred to in Section 6.5 of the Partnership Agreement for the Partnership's Fiscal Year ending December 31, 2007 (the "Audited Financial Statements"), KB shall prepare and deliver to KBI-E a statement (the "Actual Formula Price Statement") showing its calculation of the Actual Formula Price in accordance with the Audited Financial Statements. The Actual Formula Price Statement may be disputed by KBI-E and submitted for resolution of any dispute using procedures equivalent to the procedures set forth in Section 3.1(d) of the KBI-E Asset Option Agreement. In addition, no later than January 31, 2008, KBI-E and KB shall engage the Appraiser selected in accordance with Section 3.15(f)(v) hereof to determine the Appraised Value on the basis of discounted pre-tax cash flows. Promptly after the engagement of the Appraiser, KB shall cause the General Partner to provide to the Appraiser such information (including, without limitation, sales history, then current sales forecasts, patent status and expiration data and status reports concerning competitive products, and copies of financial statements of the Partnership, including, without limitation, the Audited Financial Statements promptly after they are available) as the Appraiser may request in order to determine the Appraised Value. Based on such information and such information as TR may make available to the Appraiser, the Appraiser shall determine the Appraised Value and deliver a report to KB and KBI-E no later than thirty (30) days after receipt of all the information referred to in the preceding sentence, showing its calculation of such Appraised Value (the "Appraisal Report"). Such determination by the Appraiser shall be binding and conclusive upon all of the parties hereto. (iii) True Up. Within fifteen (15) days after delivery of the Appraisal Report, KB (if the Calculated Amount exceeds the Appraised Value) or KBI-E (if the Calculated Amount is less than the Appraised Value), as the case may be, shall pay the True-Up Amount to the other in Dollars in immediately available funds plus interest at the rate of LIBOR, determined using a LIBOR Period of three (3) months, plus fifty (50) basis points from January 1, 2008 to the date of payment of the True-Up Amount. 84 79 (iv) Assignment Right. The payments and other actions provided for in this paragraph (f) shall be made or taken, as the case may be, whether or not KBI-E or KB exercises its Assignment Right pursuant to Section 4.1 of the KBI-E Asset Option Agreement. (v) Selection of the Appraiser. KB and KBI-E shall choose an appraisal firm of national reputation which is skilled in preparing appraisals of the future value of pharmaceutical products to perform the appraisal contemplated in paragraph (ii) above (the "Appraiser"). If the Partners are unable to agree on the Appraiser, then the Appraiser shall be selected by the American Arbitration Association. The parties shall instruct the Appraiser so retained to deliver a written opinion within sixty (60) days following the selection of such firm. The fees and expenses of the Appraiser shall, unless otherwise agreed by the parties, be borne equally by KB and KBI-E. (g) Assumption. In the event of a Trigger Event, the Qualified Person which engaged in such Trigger Event shall, at TR's option, assume in writing all of KB's obligations under the Initial Agreements, the Ancillary Agreements and each Future Agreement to which KB is a party (it being agreed that KB shall not be released from any such obligations) and a copy of such agreement shall be provided to TR. (h) Assignment of Options. Upon the occurrence of a Trigger Event, the option rights granted pursuant to Section 2.2 of the Amended and Restated KBI License shall be assigned to KB except option rights with respect to any Group C Compound as to which at the time of such Trigger Event there is (i) a United States patent owned by KB (or such of its Affiliates which were its Affiliates prior to the Trigger Event) or as to which KB (or any such Affiliate) has licensing rights in the Territory claiming such Compound, any of its methods of use or any composition containing it or (ii) an application (or any division or continuation thereof) for a United States patent filed by KB (or any such Affiliate) or as to which KB (or any such Affiliate) has licensing rights in the Territory claiming such Compound, any of its methods of use or any composition containing it. A Trigger Event shall not affect any license granted under the Amended and Restated KBI License prior to the occurrence of such Trigger Event or any right of KBI-E under the Amended and Restated KBI License with respect to omeprazole or perprazole. 3.16 [Intentionally Omitted]. 3.17 KB Obligations in Respect of Certain Loans. In the event an Allocation Default (as defined in the Partnership Agreement) occurs and, at the time of such Allocation Default, the Partnership has taken any of actions referred to in Section 3.2(b)(19) of the Partnership Agreement, KB shall, not later than three (3) business days after the written demand of the Limited Partner, either (i) purchase or repurchase from the Partnership for cash the note or other instrument evidencing each such loan or Debt (as defined in the Partnership Agreement) referred to in such Section at its principal amount, in the case of a loan, or the Partnership's cost, in the case of other Debt of KB or its Affiliates, plus accrued interest, or (ii) make a secured, 85 80 non-recourse loan of cash to the Partnership in the amount determined pursuant to the foregoing clause (i), with such note or other instrument evidencing such loan (as the case may be) being the sole security therefor. 3.18 Other KB Outlet. (a) In the event that any Other KB Outlet is a Person other than KB, KB shall not, and shall not permit any of its Affiliates to, take any action which would result, or fail to take any action if such failure would result, in such Other KB Outlet not being an Affiliate of KB, unless all of such Other KB Outlet's rights with respect to Group E Compounds and Group E Products are first transferred to any Other KB Outlet or the Partnership. (b) KB shall not, and KB shall cause any Other KB Outlet not to, directly or indirectly (i) grant to any non-Affiliate of KB any right to sell in the Territory any Group E Compound or Group E Product, whether exclusive or nonexclusive and whether by sale, license, sublicense, co-marketing agreement, subdistribution arrangement, complete or partial assignment of contract rights, other dispositions, covenants not to sue or immunity from suit, or otherwise, or (ii) license, sublicense, assign, or otherwise Transfer to any non-Affiliate of KB any trademark used in connection with any Group E Compound or Group E Product, in any such case other than in connection with any Outlicensing permitted by, and effected in compliance with, Sections 3.6 and 3.20 hereof. In the event that any Other KB Outlet is a Person other than KB, KB shall cause such Other KB Outlet to comply with and perform its obligations pursuant to Sections 3.6 and 3.20 hereof (including without limitation all provisions requiring the giving of notice by such Other KB Party) and Sections 2.2(c) and 7.3 of the Amended and Restated KBI License as though such Other KB Party were a party hereto and thereto. (c) With respect to each Group E Compound, if any, the Other KB Outlet shall be deemed to have duties equivalent to the fiduciary duties of the Partnership to the Limited Partner with respect to the Group D Compounds, and KB shall (if KB is the Other KB Outlet), and KB shall cause the Other KB Outlet (if the Other KB Outlet is a Person other than KB) to, comply with and perform any and all such duties. 3.19 Information Concerning Compounds. If at any time KB or any of its Affiliates proposes, directly or indirectly, to Transfer for use in the Territory any Compound having Market Exclusivity at the time of such Transfer (or any product containing any such Compound) that KB believes is not a Compound to which KBI-E is entitled to an option under the Amended and Restated KBI License, KB shall notify KBI-E of such proposal. Such notice shall identify the Compound (by generic name) and shall be given to KBI-E thirty (30) days prior to the date that KB or its Affiliate, as the case may be, proposes to consummate such Transfer. 3.20 Determination of Critical Compounds. (a) With respect to any Covered Compound which is not identified as a Critical Compound in clause (i) of the definition of Critical Compound, (i) if the Partnership desires that a determination be made as to whether any such Covered Compound (other than a Group E Compound) is a Critical Compound, the Partnership shall provide to KBI Sub (in the 86 81 case of any Group D Compound or KB USA Compound) or KBI-E (in the case of any Group A Compound, Group B Compound or Group C Compound), and (ii) if any Other KB Outlet desires that a determination be made as to whether any such Group E Compound is a Critical Compound, the Other KB Outlet shall provide to KBI-E (the Partnership or Other KB Outlet, as applicable, being the "Notice Provider" for purposes of this Section 3.20 and KBI Sub or KBI-E, as applicable, being the "Notice Recipient" for purposes of this Section 3.20) (x) a notice stating that the Notice Provider believes that such Covered Compound is or is not a Critical Compound (the "Initial Notice") and (y) all information, including any projections (and all assumptions underlying such projections), in the possession of the Notice Provider and its Affiliates relevant to projecting Net Sales of such Covered Compound and products containing such Covered Compound in the Territory. (b) Within sixty (60) days after receiving all of the information referred to in clause (y) of paragraph (a) above, the Notice Recipient shall notify the Notice Provider whether the Notice Recipient believes that such Covered Compound is or is not a Critical Compound. (i) If the Notice Recipient agrees with the characterization of such Covered Compound set forth in the Initial Notice, such characterization shall be valid and binding on the parties for a period of twelve (12) months from the date on which the Notice Provider received the Notice Recipient's response to the Initial Notice. (ii) If the Notice Recipient believes that such Covered Compound is a Critical Compound and the Initial Notice stated the Notice Provider's belief that such Covered Compound is not a Critical Compound, such dispute shall be submitted to arbitration in accordance with Article 9, and the decision of the arbitrators shall be valid and binding on the parties for a period of twelve (12) months from the date of such decision. The applicable twelve-month period determined pursuant to this subparagraph (ii) or subparagraph (i) above is referred to herein as the "Annual Period." (c) If, with respect to any Covered Compound, (x) there has been a determination that such Covered Compound is a non-Critical Compound in accordance with the procedures set forth in paragraphs (a) and (b) above (the "Initial Determination") and (y) the Partnership or, in the case of a Group E Compound or Group E Product, any Other KB Outlet desires to engage in any Outlicensing of such Covered Compound (or any product containing such Covered Compound) pursuant to, and in accordance with, Section 3.6 or 3.6A hereof during the period commencing on the first day of the seventh month of the Annual Period and ending on the last day of the twelfth month of the Annual Period, then the Notice Provider shall provide to the Notice Recipient not more than thirty (30) days and not less than fifteen (15) days prior to the effective date of such Outlicensing a certificate signed by its Chief Financial Officer (an "Outlicensing Certificate") stating that as of the date of the Outlicensing Certificate, the information on which the Initial Determination was based has not changed in any material respect and there is not any new information which would materially affect the projected Net 87 82 Sales of such Covered Compound and products containing such Covered Compound in the Territory. Notwithstanding any Initial Determination that a Covered Compound is a non-Critical Compound, if the Notice Provider enters into such Outlicensing during the six (6) month period referred to in the preceding sentence without delivering the Outlicensing Certificate to the Notice Recipient, then the Initial Determination shall be of no force or effect. (d) Notwithstanding anything to the contrary in this Agreement, the Partnership Agreement or any Ancillary Agreement, the Notice Provider may Outlicense the Selected Uses of any Critical Compound without the consent of the Notice Recipient (but otherwise in accordance with the procedures for non-Critical Compounds set forth in Section 3.6 hereof). (e) Notwithstanding anything to the contrary in this Agreement, the Partnership Agreement or the Distribution Agreement, in the event that KB or any of its Affiliates engages in any Outlicensing of any Covered Compound (or product containing any Covered Compound) without complying with the procedures set forth in this Section 3.20, neither TR nor any of its Affiliates may commence an arbitration or other proceeding asserting, at any time after the third anniversary of such Outlicensing that, at the time of such Outlicensing, such Compound constituted a Critical Compound. 3.21 Preparation of Tax Returns and Financial Statements. The Partnership and each of the Partners therein shall prepare and file their income tax returns consistently with the form of the transactions as set forth in this Agreement, each of the other Initial Agreements, the Partnership Agreement and the Ancillary Agreements; and each of the TR Parties, the Partnership and each of the Partners therein shall prepare their financial statements consistently with the form of the transactions as set forth in this Agreement, each of the other Initial Agreements, the Partnership Agreement and the Ancillary Agreements. 3.22 Co-promotions. (a) In the event that the total value of all consideration of any type or nature received anywhere in the world by the Partnership, KB and its Affiliates in respect of all Qualified Co-promotion Arrangements in the Territory in any Fiscal Year exceeds [*]% of the total revenues of the Partnership, KB and its other Affiliates from the sale of pharmaceutical products in the Territory for such Fiscal Year (said [*]% of total revenues, the "[*]% Amount"), an amount equal to the product of the Qualified Co-promotion Percentage times the net sales in the Territory by all Persons for all products covered by Qualified Co-promotion Arrangements in such Fiscal Year (such net sales amount to be computed for such Persons on a basis consistent with the definition of Net Sales), less the [*]% Amount, shall be treated as Net Sales by the Partnership of a Group D Product in such Fiscal Year for all purposes of this Agreement, the other Initial Agreements, the Partnership Agreement and the Ancillary Agreements. (b) An amount equal to the product of the Non-Qualified Co-promotion Percentage times the net sales in the Territory by all Persons for all products covered by Co-promotion Arrangements other than Qualified Co-promotion Arrangements in each Fiscal Year (such net sales amount to be computed for such Persons on a basis consistent with the 88 83 definition of Net Sales) shall be treated as Net Sales by the Partnership of a Group D Product in such Fiscal Year for all purposes of this Agreement, the other Initial Agreements, the Partnership Agreement and the Ancillary Agreements. (c) The provisions of (a) and (b) of this Section 3.22 shall not apply to any Co-promotion Arrangement that has been consented to in writing by KBI Sub. (d) In the event that KB seeks KBI Sub's consent prior to entering into a Co-Promotion Arrangement, (i) TR agrees to treat any information disclosed by KB in connection with seeking KBI Sub's consent to the proposed Co-Promotion Arrangement as KB Confidential Information subject to Section 4.1 and (ii) neither TR nor its Affiliates shall bid for or enter into a co-promotion arrangement or similar transaction for a period of three years from the date on which such consent is sought with the Product Rights Owner with respect to any Patented Compound that is the subject of the proposed Co-Promotion Arrangement as to which KBI Sub has not consented. In the event that KB shall notify KBI Sub that KB or an Affiliate desires to enter into such proposed Co-promotion Arrangement, KBI Sub shall notify KB within 60 days of receipt of such notification that KBI Sub consents or does not consent to such proposed Co-promotion Arrangement; provided, however, that the failure by KBI Sub to give such notice by the end of said 60-day period shall in no event be construed as a consent. 3.23 Lexxel Agreements. KBI agrees, without the prior written consent of the Partnership, not to amend, supplement, modify or terminate the Supply Agreement dated as of November 1, 1994 by and between TR and KBI (relating to Lexxel) (the "Lexxel Supply Agreement") or the License Agreement dated as of November 1, 1994 among TR and KBI (relating to Lexxel) in a manner that has an adverse effect on the Partnership. In addition, in the event that TR and KBI do not extend the term of the Lexxel Supply Agreement pursuant to Section 10.1 thereof, the Partnership shall have the right to exercise all of the rights of KBI referred to in the last sentence of such Section 10.1. ARTICLE 4 CONFIDENTIALITY 4.1 Confidentiality. (a) Subject to the provisions of Section 12.14 hereof, each of the TR Parties shall maintain in strict confidence (i) all proprietary technical, scientific, business and other data, processes, documents, samples, reports, analyses, studies or other information of a confidential nature relating to the subject matter of this Agreement, any other Initial Agreement, the Partnership Agreement or any Ancillary Agreement that has been or will be disclosed by any KB Party or any of its Affiliates and (ii) all written proprietary information of a confidential nature regarding (A) compounds and products under development, including information contained in INDs and NDAs, (B) marketing plans and strategies, (C) pricing of products and compounds or (D) manufacturing processes for compounds and products (other than manufacturing improvements developed by TR or its Affiliates), in each case only to the extent such information has been developed either jointly by any of the parties hereto or by any TR Party or KBI Party alone in connection with the operation of the business of KBI (including 89 84 such business as conducted by TR prior to the effectiveness of the Transfer Consummation Agreement by and among TR, KB and KBI dated as of November 1, 1994), it being understood that for purposes of Section 4.2 hereof, all such information described in this Section 4.1 (a)(ii) shall be deemed to have been disclosed by KB (all of the foregoing information described in clause (i) or (ii) of this Section 4.1(a) being referred to herein as the "KB Confidential Information"). (b) Subject to the provisions of Section 12.14 hereof, each of the KB Parties shall maintain in strict confidence all proprietary business and other data, documents, reports, analyses, studies or other information of a confidential nature relating to the subject matter of this Agreement, any other Initial Agreement, the Partnership Agreement or any Ancillary Agreement, other than any information described in Section 4.1(a) above, that has been or will be disclosed by any TR Party or any of its Affiliates (all of the foregoing being referred to herein as the "TR Confidential Information" and, together with the KB Confidential Information, as the "Confidential Information"). (c) Each TR Party hereto shall deal with such KB Confidential Information and each KB Party shall deal with such TR Confidential Information, so as to protect it from disclosure with a degree of care not less than that used by it in dealing with its own information intended to remain exclusively within its knowledge and shall take reasonable steps to minimize the risk of disclosure of such KB Confidential Information or TR Confidential Information, as the case may be, by ensuring that only its officers, directors and employees and the officers, directors and employees of its agents, consultants, representatives, Affiliates and sublicensees (and no other Persons) who have a "need to know" such KB Confidential Information or TR Confidential Information, as the case may be, for purposes permitted or contemplated hereby ("Authorized Persons") shall have access thereto, and such Authorized Persons shall treat such KB Confidential Information or TR Confidential Information, as the case may be, in strict confidence as provided herein. (d) The foregoing obligations under Sections 4.1(a), (b) and (c) above shall extend to copies, if any, of such Confidential Information and shall survive the expiration or termination of this Agreement. (e) The Notice Party (as defined in Section 3.6(d)(i)), TR or KBI-E, as the case may be, shall cause each law firm designated by it pursuant to Sections 3.6(d)(ii), 3.6(e)(iii), 3.6A(c)(iii) or 3.6A(d)(iii) not to disclose to TR or any of its Affiliates the draft or final agreements received by said law firm pursuant to said Sections 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. 4.2 Exceptions. Notwithstanding the foregoing, "Confidential Information" shall not include information which: (a) with respect to information described in Sections 4.1(a)(i) and 4.1(b) only, is legally in the possession of the receiving party or Authorized Person prior to 90 85 receipt thereof from any other party hereto (or any of its Affiliates), which fact of prior possession shall be provable only by documents prepared prior to such receipt; (b) enters the public domain through no fault of the party subject to the confidentiality obligation or Authorized Person subject to such obligation; (c) is disclosed to the party subject to the confidentiality obligation or Authorized Person subject to such obligation without restriction by a Person or governmental authority who or which has the right to make such disclosure; or (d) with respect to information described in Sections 4.1(a)(i) and 4.1(b) only, the party subject to the confidentiality obligation can demonstrate is independently developed by such party (or any of its Affiliates) without reliance on Confidential Information received from any other party. 4.3 Enalapril Confidentiality. For purposes of the confidentiality provisions of the Research Agreement dated as of November 1, 1994 among TR and KBI (regarding Lexxel), the Partnership shall not be deemed to be an Affiliate (as that term is defined in such Research Agreement) of KB or any of its other Affiliates. ARTICLE 5 REPRESENTATIONS AND WARRANTIES 5.1 Representations and Warranties of TR and TR Holdings. TR represents and warrants, as of the date of this Agreement and (except as specifically provided otherwise herein) as of the Closing Date, to each of KB, KBLP, KB USA and the Partnership (and TR Holdings so represents and warrants to the extent the following representations and warranties relate to TR Holdings) that: (a) Incorporation; Ownership; Business. (i) TR was incorporated and is validly existing as a corporation in good standing under the laws of the State of New Jersey, with the corporate power to own or lease and operate its properties and to carry on its business as now being conducted. Each of the other TR Parties was incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with the corporate power to own or lease and operate its properties and to carry on its business as now being conducted. (ii) TR Holdings is a Wholly-Owned Subsidiary of TR, and all of the outstanding shares of capital stock of TR Holdings are owned free and clear of all Liens. (iii) As of the date of this Agreement and as of the Closing Date (before giving effect to the transactions described in Section 2.4(c)), all of the outstanding 91 86 shares of Class B Common Stock, Class B Preferred Stock and Class D Preferred Stock are owned of record and beneficially solely by TR Holdings, free and clear of all Liens. (iv) KBI Sub (x) has no liabilities or obligations, other than its obligations pursuant the Initial Agreements, the Partnership Agreement and the Ancillary Agreements to which it is a party, and (y) since its formation has carried on no business, except in accordance with the Initial Agreements, the Partnership Agreement and the Ancillary Agreements to which it is a party. A true and complete copy of the Certificate of Incorporation and By-Laws of KBI Sub has been delivered to KB, including any and all amendments thereto. (b) Corporate Power, Etc. Each TR Party has the corporate power to execute, deliver and perform the Initial Agreements to which it is a party and, as of the Closing, each TR Party will have the corporate power to execute, deliver and perform the Partnership Agreement (in the case of KBI Sub) and each Ancillary Agreement to be entered into by it. The execution, delivery and performance by each TR Party of the Initial Agreements to which it is a party have been, and as of the Closing the execution, delivery and performance of the Partnership Agreement (in the case of KBI Sub) and each Ancillary Agreement to be entered into by any TR Party will have been, duly authorized by all necessary corporate action. The Initial Agreements have been, and as of the Closing the Partnership Agreement (in the case of KBI Sub) and each Ancillary Agreement to be entered into by any TR Party will have been, duly executed and delivered by each TR Party that is a party thereto. The Initial Agreements constitute, and as of the Closing the Partnership Agreement and each Ancillary Agreement to be entered into by any TR Party will constitute, the valid and binding agreements of each TR Party that is a party thereto enforceable against such TR Party in accordance with their terms, except that (i) such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and (ii) no representation or warranty is made as to the availability of any equitable remedy in connection with the enforcement of any term hereof or thereof. (c) No Conflict. The execution, delivery and performance by each TR Party of the Initial Agreements to which it is a party do not, and as of the Closing the execution, delivery and performance by each TR Party of the Partnership Agreement (in the case of KBI Sub) and each Ancillary Agreement to be entered into by any TR Party will not, (i) conflict with or contravene the Certificate of Incorporation or By-Laws (or comparable organizational documents) of any TR Party, (ii) conflict with, result in a breach of or entitle any party to terminate or call a default with respect to, any material agreement or instrument to which any TR Party (or any of its Affiliates) is a party or by which any TR Party (or any of its Affiliates) or any of its (or their) properties or assets are bound or (iii) result in any violation by any TR Party (or any of its Affiliates) of any judgment, injunction, order, writ, decree, law, rule, regulation, code or ordinance, except antitrust laws and regulations as to which no representation or warranty is made, applicable to any TR Party (or any of its Affiliates). 92 87 (d) Consents, Etc. No consent, license, permit, approval, order or authorization of, or registration, declaration, qualification or filing with (except for those which have been made or are described in Section 2.4(c)), any foreign, federal, state or local governmental authority or any Person is required to be obtained or made by any TR Party (or any of its Affiliates) on or prior to the date of this Agreement in connection with the execution, delivery or performance by each TR Party of the Initial Agreements to which it is a party. No consent, license, permit, approval, order or authorization of, or registration, declaration, qualification or filing with, any foreign, federal, state or local governmental authority or any Person will be required to be obtained or made by any TR Party (or any of its Affiliates) on or prior to the Closing Date in connection with the execution, delivery or performance by each TR Party of the Initial Agreements, the Partnership Agreement (in the case of KBI Sub) or any Ancillary Agreement to be entered into by such TR Party. (e) Absence of Litigation. There is no action, suit, litigation, claim, governmental or other proceeding or investigation pending or, to the best knowledge of TR and TR Holdings, threatened against any TR Party (or any of its Affiliates) which might materially affect the consummation of the transactions contemplated by the Initial Agreements, the Partnership Agreement or any Ancillary Agreement to be entered into by any TR Party or the full performance of the obligations of any TR Party hereunder or thereunder. 5.2 Representations and Warranties of KB Parties. KB represents and warrants, as of the date of this Agreement and (except as specifically provided otherwise herein) as of the Closing Date, to each of TR, the KBI Parties and the Partnership (and each of KBLP and KB USA so represents and warrants to the extent the following representations and warranties relate to it) that: (a) Incorporation; Ownership; Business. (i) KB was duly formed and registered and is validly existing as a company limited by shares in good standing under the laws of Sweden, with the corporate power to own or lease and operate its properties and to carry on its business as now being conducted. Each of the other KB Parties (other than the Partnership and KBLP) has been incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with the corporate power to own or lease and operate its properties and to carry on its business as now being conducted. Each of the Partnership and KBLP was duly organized and is validly existing as a limited partnership in good standing under the laws of the State of Delaware, with the partnership power to own or lease and operate its properties and to carry on its business as now being conducted or as contemplated to be conducted following the Closing under this Agreement, the Partnership Agreement and the Ancillary Agreements. (ii) (A) KB and KB USA are the sole partners of KBLP and own their respective partnership interests free and clear of all Liens; and no Person other than KB has any control over the management, operations, finances or other 93 88 affairs of KBLP; and no Person other than KB and KB USA owns any economic interest (present, future or contingent) in KBLP. KB USA is a Wholly-Owned Subsidiary of KB, and all of the outstanding shares of capital stock of KB USA are owned free and clear of all Liens. (B) KBLP and KB USA are the sole partners of the Partnership and own their respective partnership interests free and clear of all Liens; and no Person other than KBLP has any control over the management, operations, finances or other affairs of the Partnership; and no Person other than KBLP and KB USA owns any economic interest (present, future or contingent) in the Partnership. (iii) As of the date of this Agreement and as of the Closing Date (before giving effect to the transactions described in Section 2.4(b)), all of the outstanding shares of Class A Common Stock, Class C Common Stock, Class A Preferred Stock and Class C Preferred Stock are owned of record and beneficially solely by KB, free and clear of all Liens. (iv) The Partnership (x) has no liabilities or obligations, other than its obligations pursuant the Initial Agreements, the Partnership Agreement and the Ancillary Agreements to which it is a party, (y) since its formation has carried on no business, except in accordance with the Initial Agreements to which it is a party, the Partnership Agreement and the Ancillary Agreements to which it is a party and (z) has taken all actions required of it by applicable law, regulations, its certificate of limited partnership and its Partnership Agreement, as amended. A true and complete copy of the Partnership Agreement, dated as of October 21, 1997, between KBLP and KB USA (as assignees of the original partners thereof), has been delivered to TR, including any and all amendments thereto. (v) KBLP (x) has no liabilities or obligations, other than its obligations pursuant to the Initial Agreements, the Partnership Agreement and the Ancillary Agreements to which it is a party, (y) since its formation has carried on no business, except in accordance with the Initial Agreements to which it is a party, the Partnership Agreement and the Ancillary Agreements to which it is a party, and (z) has taken all actions required of it by applicable law, regulations, its certificate of limited partnership and its Partnership Agreement. A true and complete copy of the KBLP Partnership Agreement has been delivered to TR, including any and all amendments thereto. (vi) As of the Effective Time, upon consummation of the transactions contemplated by the KB USA Asset Contribution Agreement, no grounds will exist which would permit or require such transactions to be set aside, in whole or in part, under any fraudulent conveyance, insolvency or other law affecting the enforcement of creditors rights generally. 94 89 (vii) As of the date of this Agreement and the Closing Date, the definition of KB USA Compound includes all current and planned Therapeutic Categories for the KB USA Products. (b) Corporate Power, Etc. Each KB Party has the corporate power to execute, deliver and perform the Initial Agreements to which it is a party and, as of the Closing, each KB Party will have the corporate power to execute, deliver and perform the Partnership Agreement (in the case of KBLP) and each Ancillary Agreement to be entered into by it. The execution, delivery and performance by each KB Party of the Initial Agreements to which it is a party have been, and as of the Closing the execution, delivery and performance of the Partnership Agreement (in the case of KBLP) and each Ancillary Agreement to be entered into by any KB Party will have been, duly authorized by all necessary corporate action. The Initial Agreements have been, and as of the Closing the Partnership Agreement (in the case of KBLP) and each Ancillary Agreement to be entered into by any KB Party will have been, duly executed and delivered by each KB Party that is a party thereto. The Initial Agreements constitute, and as of the Closing the Partnership Agreement and each Ancillary Agreement to be entered into by any KB Party will constitute, the valid and binding agreements of each KB Party that is a party thereto, enforceable against such KB Party in accordance with their terms, except that (i) such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and (ii) no representation or warranty is made as to the availability of any equitable remedy in connection with the enforcement of any term hereof or thereof. (c) No Conflict. The execution, delivery and performance by each KB Party of the Initial Agreements to which it is a party do not, and as of the Closing the execution, delivery and performance by each KB Party of the Partnership Agreement (in the case of KBLP) and each Ancillary Agreement to be entered into by any KB Party will not, (i) conflict with or contravene the Articles of Association of KB or the Certificate of Incorporation or By-Laws (or comparable organizational documents) of any other KB Party, (ii) conflict with, result in a breach of or entitle any party to terminate or call a default with respect to, any material agreement or instrument to which any KB Party (or any of its Affiliates) is a party or by which any KB Party (or any of its Affiliates) or any of its (or their) properties or assets are bound or (iii) result in any violation by any KB Party (or any of its Affiliates) of any judgment, injunction, order, writ, decree, law, rule, regulation, code or ordinance, except antitrust laws and regulations as to which no representation or warranty is made, applicable to any KB Party (or any of its Affiliates). (d) Consents, Etc. No consent, license, permit, approval, order or authorization of, or registration, declaration, qualification or filing with (except for those which have been made), any foreign, federal, state or local governmental authority or any Person is required to be obtained or made by any KB Party (or any of its Affiliates) on or prior to the date of this Agreement in connection with the execution, delivery or performance by each KB Party of the Initial Agreements to which it is a party. No consent, license, permit, approval, order or authorization of, or registration, declaration, qualification or filing with, any foreign, federal, state or local governmental authority or any Person will be required to be obtained or made by 95 90 any KB Party (or any of its Affiliates) on or prior to the Closing Date in connection with the execution, delivery or performance by each KB Party of the Initial Agreements, the Partnership Agreement (in the case of KBLP) or any Ancillary Agreement to be entered into by such KB Party. (e) Absence of Litigation. There is no action, suit, litigation, claim, governmental or other proceeding or investigation pending or, to the best knowledge of the KB, KB USA and KBLP, threatened against any KB Party (or any of its Affiliates) which might materially affect the consummation of the transactions contemplated by the Initial Agreements, the Partnership Agreement or any Ancillary Agreement to be entered into by any KB Party (as applicable) or the full performance of the obligations of any KB Party hereunder or thereunder. (f) Title to KBI Common Shares. KB has, and shall deliver to TR at the Closing upon payment of the purchase price therefor as provided in Section 2.4(b) hereof, good title to all of the KBI Common Shares free and clear of all Liens, and with no restriction on the voting rights pertaining thereto. 5.3 Representations Concerning KBI. Notwithstanding anything to the contrary in this Agreement, including Section 5.1, neither TR nor KB makes any representation or warranty herein concerning KBI or KBI-E. ARTICLE 6 INTERIM COVENANTS 6.1 Filings; Consents. As promptly as practicable after the date hereof, the parties hereto shall (i) cooperate with each other to identify all notices, declarations, filings (other than filings which have been made prior to the date hereof) and registrations required to be filed with, and all consents, authorizations, approvals and waivers required to be obtained from, any Third Party or domestic or foreign governmental body or regulatory agency in connection with any of the transactions contemplated by the Initial Agreements, the Partnership Agreement and the Ancillary Agreements and (ii) cooperate with each another and take such actions as may be necessary to cause such notices, declarations, filings and registrations to be filed and such consents, authorizations, approvals and waivers to be obtained prior to the Closing or as promptly as practicable thereafter. 6.2 Notification of Certain Matters. Between the date hereof and the Closing: (a) KB. KB shall give prompt notice in writing to TR of (i) any information that indicates that any representation or warranty of any KB Party contained in any Initial Agreement was not true and correct as of the date hereof or will not be true and correct as of the Closing, (ii) the occurrence of any event which will result, or has a reasonable prospect of resulting, in the failure to satisfy the condition specified in Section 7.1 hereof, (iii) any notice or other communication from any Third Party alleging that the consent of such Third Party is or may be required in connection with any of the transactions contemplated by the Initial 96 91 Agreements, the Partnership Agreement and the Ancillary Agreements, and (iv) any emergency or other change in the normal course of business or in the operation of the business of KB USA and of any material governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated) or material adjudicatory proceedings involving the business of KB USA or any KB USA Product. (b) TR. TR shall give prompt notice in writing to KB of (i) any information that indicates that any representation or warranty of any TR Party contained in any Initial Agreement was not true and correct as of the date hereof or will not be true and correct as of the Closing, (ii) the occurrence of any event which will result, or has a reasonable prospect of resulting, in the failure to satisfy the condition specified in Section 7.2 hereof, or (iii) any notice or other communication from any Third Party alleging that the consent of such Third Party is or may be required in connection with any of the transactions contemplated by the Initial Agreements, the Partnership Agreement and the Ancillary Agreements. ARTICLE 7 CONDITIONS TO CLOSING 7.1 Condition to Obligations of KB Parties. The obligations of the KB Parties to consummate the transactions contemplated by this Agreement, the Partnership Agreement and the Ancillary Agreements are subject to the satisfaction, as of the Closing, of the sole condition that no action, suit or proceeding by a Third Party shall be pending before any court or any foreign, federal, state or local governmental or regulatory authority (or shall be threatened by any such governmental or regulatory authority), and no investigation of any governmental or regulatory authority shall have been commenced (and be pending), in each case seeking to restrain, enjoin, invalidate or delay (or questioning the validity or legality of) any of the transactions contemplated by the Initial Agreements, the Partnership Agreement and the Ancillary Agreements, or seeking material damages in connection therewith, which KB, in good faith and with the advice of counsel, believes make it undesirable to proceed with the consummation of the transactions contemplated hereby or thereby. 7.2 Condition to Obligations of TR Parties. Except as provided in Section 7.3 hereof, the obligations of the TR Parties to consummate the transactions contemplated by this Agreement, the Partnership Agreement and the Ancillary Agreements are subject to the satisfaction, as of the Closing, of the sole condition that no action, suit or proceeding by a Third Party shall be pending before any court or any foreign, federal, state or local governmental or regulatory authority (or shall be threatened by any such governmental or regulatory authority), and no investigation of any governmental or regulatory authority shall have been commenced (and be pending), in each case seeking to restrain, enjoin, invalidate or delay (or questioning the validity or legality of) any of the transactions contemplated by the Initial Agreements, the Partnership Agreement and the Ancillary Agreements, or seeking material damages in connection therewith, which TR, in good faith and with the advice of counsel, believes make it undesirable to proceed with the consummation of the transactions contemplated hereby or thereby. 97 92 7.3 Additional Condition to Certain Obligations of TR Parties. The obligations of the TR Parties to consummate the transactions contemplated by Section 2.4(d) - 2.4(h) of this Agreement shall be subject to the occurrence prior to December 31, 1998 of the transactions described in Section 2.4(c) of this Agreement. ARTICLE 8 GUARANTEES OF PERFORMANCE 8.1 Guarantee by KB. KB hereby unconditionally and irrevocably guarantees to TR, TR Holdings and the KBI Parties when due the punctual and complete payment, performance and observance of, and compliance with, the agreements, covenants, liabilities, and obligations of any Affiliate of KB contained in (i) any Initial Agreement, (ii) any Ancillary Agreement to which such Affiliate is a party, (iii) the Partnership Agreement (other than the obligation of the General Partner pursuant to Section 8.4(a) of the Partnership Agreement to eliminate any negative balance in its Capital Account upon the dissolution of the Partnership and the obligations of the Partnership pursuant to Articles 4 and 5 and Section 8.4(b) of the Partnership Agreement; but including the obligation of the General Partner set forth in Section 2.9(c) thereof to contribute cash in respect of items that will result in allocations pursuant to Section 4.3(q) thereof), and (iv) any Future KB Agreement; provided, however, that such guarantee shall not apply to the payment obligations of the Partnership under Section 4.01 of the KBI Supply Agreement; and provided, further, that nothing in this Section shall be construed to create any obligation of the General Partner at any time to restore its Capital Account (other than pursuant to Section 8.4(a) or Section 2.9(c) of the Partnership Agreement) or any obligation of the General Partner or the Partnership to achieve any specified amount of Profit (as defined in the Partnership Agreement), and nothing in this Section shall be construed as a guarantee by KB of any such obligation (other than the obligation of the General Partner to make contributions pursuant to Section 2.9(c) of the Partnership Agreement) or any obligation of the General Partner or the Partnership to achieve any specified amount of Profit (as defined in the Partnership Agreement). Any obligation of, or performance, compliance, observance or payment by, any such Affiliate now or hereafter owing, due, created, incurred, required, contracted or payable, whether matured or unmatured, whether absolute or contingent, under or out of any of the foregoing Agreements shall be referred to hereinafter as a "KB Guaranteed Obligation." Notwithstanding the foregoing, such guarantee shall be limited by any limitation on the amount or nature of damages or indemnities set forth in any Initial Agreement or any Ancillary Agreement applicable to the breach of the obligations guaranteed hereby, including without limitation any limitation as to consequential damages. 8.2 Guarantee by TR. TR hereby unconditionally and irrevocably guarantees to KB, KBLP and KB USA when due the punctual and complete payment, performance and observance of, and compliance with, the agreements, covenants, liabilities and obligations of any Affiliate of TR contained in (i) any Initial Agreement, (ii) any Ancillary Agreement to which such Affiliate is a party (including without limitation all agreements, covenants, liabilities and obligations of KBI-E under the Distribution Agreement), (iii) the Partnership Agreement and (iv) any Future TR Agreement. Any obligation of, or performance, compliance, observance or 98 93 payment by, any such Affiliate now or hereafter owing, due, created, incurred, required, contracted or payable, whether matured or unmatured, whether absolute or contingent, under or out of any of the foregoing Agreements shall be referred to hereinafter as a "TR Guaranteed Obligation." Notwithstanding the foregoing, such guarantee shall be limited by any limitation on the amount or nature of damages or indemnities set forth in any Initial Agreement or any Ancillary Agreement applicable to the breach of the obligations guaranteed hereby, including without limitation any limitation as to consequential damages. 8.3 Definitions. The term "Beneficiary" shall mean (as the context requires) (i) KB, KBLP, KB USA and any other Affiliate of KB that is a party to any Future TR Agreement with respect to the TR Guaranteed Obligations and (ii) TR, TR Holdings, the KBI Parties and any Affiliate of TR that is a party to any Future KB Agreement with respect to the KB Guaranteed Obligations. The term "Guaranteed Obligations" shall mean the KB Guaranteed Obligations or the TR Guaranteed Obligations (as the context requires). The term "Guarantor" shall mean (i) KB as guarantor of the KB Guaranteed Obligations and (ii) TR as guarantor of the TR Guaranteed Obligations. The term "Primary Obligor", with respect to TR, shall mean TR Holdings, the KBI Parties and any other Affiliate of TR that is the party to the applicable Initial Agreement, Ancillary Agreement, Future TR Agreement or the Partnership Agreement, and with respect to KB, shall mean KBLP, KB USA and the Partnership and any other Affiliate of KB that is the party to the applicable Initial Agreement, Ancillary Agreement, Future KB Agreement or the Partnership Agreement. 8.4 Liability of Guarantor Unconditional. The liability of a Guarantor shall be absolute and unconditional and shall not be limited, diminished, or affected by the happening from time to time of any event, including but not limited to any of the following, whether or not any such event occurs with notice to or with the consent of the Guarantor or once or more than once: (a) the waiver, surrender, compromise, settlement, discharge, release or termination of any or all of the applicable Guaranteed Obligations; (b) the failure to give any notice to the applicable Primary Obligor; (c) the extension of the time for payment or performance of any of the applicable Guaranteed Obligations; (d) the change (whether or not material) of the terms of any Initial Agreement, the Partnership Agreement, any Ancillary Agreement or any Future Agreement or any assignment by any party thereto of any rights or any delegation of duties thereunder; (e) the taking of or failure to take any action referred to in any Initial Agreement, the Partnership Agreement, any Ancillary Agreement or any Future Agreement; (f) the illegality, invalidity, unenforceability (including, but not limited to, by reason of any statute of limitations or automatic stay) or irregularity of any of the 99 94 applicable Guaranteed Obligations or any Initial Agreement, the Partnership Agreement, any Ancillary Agreement or any Future Agreement; (g) any failure, omission, delay or lack of diligence on the part of the Guarantor in the enforcement, assertion or exercise of any right, power or remedy conferred on the Guarantor under any Initial Agreement, the Partnership Agreement, any Ancillary Agreement or any Future Agreement, or the inability of the Guarantor to enforce any provision of any Initial Agreement, the Partnership Agreement, any Ancillary Agreement or any Future Agreement for any reason, or any other act or omission on the part of the Guarantor, including (but not limited to) failure by the Guarantor to perfect or protect any lien or security interest granted to the Guarantor, to commence and prosecute any action to collect the Guaranteed Obligations or to enforce or collect any judgment obtained by the Guarantor; (h) the dissolution or liquidation of the applicable Primary Obligor, the sale or other disposition of all or substantially all of the assets of the Primary Obligor, the Bankruptcy of the Primary Obligor; and (i) any other event, action or circumstance that would, in the absence of this Section 8.4 result in the release or discharge of the Guarantor from the performance or observance of any obligation or agreement contained in this Guarantee. 8.5 Direct Action Against a Guarantor. In the event that any Affiliate of a Guarantor shall default in the payment of or fail to perform or observe any of the Guaranteed Obligations when and as the same shall become due, any Beneficiary may, subject to the provisions of Article 9 hereof, proceed directly against the Guarantor under this Article 8. The obligations and liabilities of the Guarantor under this Article 8 shall not be conditioned or contingent upon the pursuit by any Beneficiary at any time of any right or remedy against any Affiliate of the Guarantor or against any other person which may be or become liable in respect of all or any part of the Guaranteed Obligations. Each Guarantor waives any and all notice of the creation, renewal, amendment, extension or accrual of any of the Guaranteed Obligations. 8.6 Continuing Guarantee. The liabilities and obligations of a Guarantor pursuant to this Article 8 constitute a continuing guarantee, shall not be discharged until performance and payment in full of all of the Guaranteed Obligations of the Guarantor, payment of all amounts payable by the Guarantor under this Article 8 and cancellation of the Guarantee by the Beneficiary and shall remain in full force and effect notwithstanding any increase or decrease (including a decrease to zero) from time to time in the amount of the Guaranteed Obligations. If demand for, or acceleration of the time for, payment by the Primary Obligor to the Beneficiary of the Guaranteed Obligations is stayed upon the Bankruptcy of the Primary Obligor, all Guaranteed Obligations of which payment or performance is stayed that would otherwise be subject to demand for payment or acceleration shall nonetheless be payable by the Guarantor immediately on demand by the Beneficiary. 8.7 Subordination. All indebtedness, obligations, Guaranteed Obligations and other amounts due, of whatever nature, of a Primary Obligor to a Guarantor (the "Subordinated Obligations"), whether now existing or hereafter incurred, whether created directly or acquired 100 95 by a Guarantor by assignment or otherwise, whether matured or unmatured, whether absolute or contingent, whether characterized as principal, premium, interest, additional interest, fees, expenses or otherwise and whether the Primary Obligor is bound alone or with any others or as principal or as surety, are hereby assigned to the Beneficiary and shall be subject and subordinate to the Guaranteed Obligations of the Primary Obligor to the Beneficiary. This subordination is independent of the applicable Guarantee and shall remain in full force and effect notwithstanding any termination of or decrease in the Guaranteed Obligations of the Guarantor with respect to the Beneficiary. This subordination shall not be limited, diminished or affected by the happening from time to time of any event, action or circumstance that would, in the absence of this sentence, result in the release or discharge of the Guarantor from its agreement of subordination. Assets of the Primary Obligor held by the Guarantor shall not at any time be set off against the Subordinated Obligations. The Guarantor hereby undertakes to execute such additional documents and to do such additional acts as may be reasonably requested by the Beneficiary in order to carry out, complete or perfect this subordination. 8.8 Limits on Subrogation. No payment by a Guarantor pursuant to any provision of this Article 8 or other satisfaction of the applicable Guaranteed Obligations shall entitle the Guarantor, by subrogation or otherwise, to any right or remedy against the applicable Primary Obligor until after the indefeasible payment in full of the Guaranteed Obligations of the Guarantor. 8.9 Obligations Additional. The liabilities and obligations of each Guarantor under this Article 8 are in addition to and not in substitution for any present or future obligation of such Guarantor or any other obligor to the applicable Beneficiary incurred otherwise than under this Article 8, whether the Guarantor or such other obligor is bound with or apart from the Primary Obligor. 8.10 Remedies Not Exclusive. No remedy conferred by this Article 8 is intended to be exclusive of any other available remedy or remedies, but, subject to the provisions of Article 9 hereof, each and every such remedy shall be cumulative and shall be in addition to every other remedy provided for in under each Initial Agreement, the Partnership Agreement, each Ancillary Agreement, and any Future Agreement whether now or hereafter existing at law or in equity or by statute. 8.11 Effect of Assignment. In the event that any Affiliate of a Guarantor shall assign any Initial Agreement, the Partnership Agreement (or its Interest as a Partner thereunder), any Ancillary Agreement, any Future Agreement or any of its obligations hereunder or thereunder, in accordance with the terms of this Agreement and of such other agreement, the liabilities and obligations of the applicable Guarantor set forth in this Article 8 shall remain in full force and effect, and shall extend to the performance of, and compliance with, all agreements, covenants and obligations, and the payment in full of all indebtedness, of the assignee or assignees hereunder or thereunder. Without limiting the generality of the foregoing, in the event that KBLP sells or otherwise transfers all or any part of its Interest in the Partnership to a Third Party, or a Third Party acquires KB USA or KBLP, in either case in accordance with this Agreement and the Partnership Agreement, the obligations of KB under this Article 8 shall 101 96 remain in full force and effect and such sale or other transfer shall not relieve KB of any of its obligations under this Article 8 with respect to any KB Guaranteed Obligation. Each Guarantor's guarantee is not intended for the benefit of any other parties (other than each Beneficiary) and is not assignable to, or enforceable by, any Person without the prior written consent of the Guarantor which consent may be granted or withheld in its sole discretion; provided, however, that in the event that a Partner shall assign any or all of its Interest in the Partnership to an Affiliate, in accordance with the Partnership Agreement, such Affiliate shall also be deemed a "Beneficiary" for all purposes of this Agreement and the other Initial Agreements, the Partnership Agreement, the Ancillary Agreements and all Future Agreements. ARTICLE 9 ARBITRATION 9.1 Binding Arbitration; Rules. Except as otherwise specifically provided herein, or in any other Initial Agreement, the Partnership Agreement or any Ancillary Agreement, subject to Section 9.4 hereof, any dispute, controversy or claim between TR and/or any of its Affiliates, on the one hand, and KB and/or any of its Affiliates, on the other hand, arising out of or relating to any Initial Agreement, the Partnership Agreement, any Ancillary Agreement or any Future Agreement, or the interpretation or breach hereof or thereof, shall be settled by arbitration before three arbitrators in accordance with the Rules and under the administration of the Association and the provisions of this Article 9, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The decision of the arbitrators shall be final and binding on the parties. 9.2 Venue; Language. All such arbitration proceedings shall be conducted in the English language in New York, New York. 9.3 Arbitrators. The arbitrators shall be selected as follows: The party initiating the arbitration proceeding shall, in its notice initiating such proceeding, name one arbitrator who is willing to serve; within thirty (30) days after the date of such notice, the Responding Party (as defined below) shall name one arbitrator who is willing to serve and notify the initiating party thereof; and within twenty (20) days after such notice by the Responding Party, such two arbitrators shall together select a third arbitrator who is willing to serve and who is a person with substantial commercial experience in the pharmaceutical industry. If the party not initiating the arbitration proceeding fails to name an arbitrator within the thirty-day period following the notice initiating the proceeding or if the two arbitrators selected by the parties are unable to agree on a third arbitrator with the requisite qualifications who is willing to serve, then such arbitrator or arbitrators, qualified as required hereunder, shall be selected by the American Arbitration Association in accordance with the Rules. As used herein, Responding Party shall mean (i) TR, if the arbitration is initiated by any KB Party or the Partnership, and (ii) KB, if the arbitration is initiated by TR or any KBI Party. 9.4 Interim Relief. This Article 9 shall not limit the right of any party to seek in any court of competent jurisdiction such interim relief, and only such interim relief, as may be 102 97 needed to maintain the status quo or otherwise protect the subject matter of the arbitration until the arbitrators shall have had an opportunity to act. ARTICLE 10 INDEMNIFICATION 10.1 By the KB Parties. The KB Parties shall jointly and severally defend, indemnify and hold harmless the TR Parties, the Partnership, each of their respective Affiliates (other than the KB Parties) and each of their respective officers, directors, employees and agents (collectively, the "Section 10.1 Indemnitees") from and against any and all Indemnity Losses (i) arising out of, based upon or resulting from any breach by KB or any Affiliate of KB of any of their respective representations, warranties, covenants or other obligations contained in or made pursuant to the Initial Agreements, the Amended and Restated KBI License or the Partnership Agreement, or (ii) resulting from the inaccuracy of any representation or warranty contained in Article 3 of the KB USA Asset Contribution Agreement which would arise if the phrase "to the best knowledge of KB" were disregarded each time it appears (except insofar, and only insofar, as such knowledge qualifications set forth in the third sentence of Section 3.5(a), in the first sentence of Section 3.7(a), in Section 3.7(b), Section 3.8(e) and the second sentence of Section 3.8(f) apply to threatened matters described therein); provided, however, KB's obligations under this Section 10.1 shall not include Indemnity Losses arising out of, based upon or resulting from any breach of the obligations of the Partnership pursuant to Articles 4 and 5 and Sections 8.4(a) and 8.4(b) of the Partnership Agreement. The indemnification of the Section 10.1 Indemnitees shall be on a net after-tax basis (determined pursuant to Section 10.3(d) hereof). 10.2 By TR. TR shall defend, indemnify and hold harmless the KB Parties, the Partnership, each of their respective Affiliates and each of their respective officers, directors, employees and agents (collectively, the "Section 10.2 Indemnitees") from and against any and all Indemnity Losses arising out of, based upon or resulting from any breach by TR or any Affiliate of TR of any of their respective representations, warranties, covenants or other obligations contained in or made pursuant to the Initial Agreements, the Amended and Restated KBI License, the Assignment and Assumption of Amended and Restated License and Option Agreement between KBI and KBI-E, the KBI Sublicense between KBI and KBI-E or the Partnership Agreement. The indemnification of the Section 10.2 Indemnitees shall be on a net after-tax basis (determined pursuant to Section 10.3(d) hereof). 10.3 Indemnification Procedures. (a) In the event of the occurrence of any event which any Person asserts is an indemnifiable event pursuant to any Initial Agreement, the Partnership Agreement or any Ancillary Agreement (the "Indemnified Party"), such Person shall notify the Person that is obligated to provide such indemnification (the "Indemnifying Party") thereof promptly in writing, provided that no failure to so notify the Indemnifying Party shall relieve it of its obligations hereunder except to the extent that it can demonstrate damages attributable to such 103 98 failure. If the claim for indemnification involves any civil, administrative or investigative claim, action, suit or proceeding (actual or threatened) by a Third Party, the Indemnifying Party shall be entitled to have sole control over the defense of such claim, provided that, within fifteen (15) business days of receipt of such written notice, the Indemnifying Party acknowledges responsibility therefor and notifies the Indemnified Party in writing of its election to so assume full control; provided, however, that: (i) the Indemnified Party shall be entitled to participate in the defense of such claim and to employ counsel at its own expense to assist in the handling of such claim; (ii) the Indemnifying Party shall obtain the prior written approval of the Indemnified Party (not to be unreasonably withheld) before entering into any settlement of such claim or ceasing to defend against such claim if, pursuant to or as a result of such settlement or cessation, injunctive or other relief would be imposed against the Indemnified Party; and (iii) the Indemnifying Party shall not consent to the entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by each claimant or plaintiff to each Indemnified Party of a release from all liability in respect of such claim. After written notice by the Indemnifying Party to the Indemnified Party of its election to assume full control of the defense of any such action, the Indemnifying Party shall not be liable to such Indemnified Party for any legal expenses incurred by such Indemnified Party in connection with the defense thereof. (b) Notwithstanding the foregoing, if the parties to such Third Party claim, action or proceeding includes the Indemnifying Party and the Indemnified Party has been advised by counsel that one or more legal defenses may be available to it which may not be available to the Indemnifying Party, the Indemnifying Party shall not be entitled to assume the defense of such claim, action, suit or proceeding, notwithstanding its obligation to bear the fees and expenses of such counsel. (c) If the Indemnifying Party does not assume sole control over the defense of such claim as provided in this Section 10.3, the Indemnifying Party may participate in such defense at its own expense and the Indemnified Party shall have the right to defend the claim in such manner as it may deem appropriate at the reasonable cost and expense of the Indemnifying Party, and the Indemnifying Party shall promptly reimburse the Indemnified Party therefor in accordance with the applicable Initial Agreement, the Partnership Agreement or the applicable Ancillary Agreement, as the case may be. In no event shall an Indemnifying Party be required to indemnify an Indemnified Party for any amount paid or payable by such Indemnified Party in the settlement of any such action, claim or proceeding agreed to without the written consent of the Indemnifying Party (not to be unreasonably withheld). 104 99 (d) The "net after-tax basis" of any indemnity payment to any Indemnified Party shall be calculated as follows: the amount of any indemnity payment shall be increased by the amount of all Taxes required to be paid by such Indemnified Party in respect of the receipt or accrual of the total payment (both indemnity payment and Taxes) and after consideration of any current tax savings of such Indemnified Party resulting by way of any deduction attributable to such indemnified amount. "Net after-tax basis" shall be calculated using the highest marginal U.S. federal corporate income tax rate in effect at the time of the payment and the effective state and local tax rate applied to the income of the Indemnified Party for its most recently completed taxable year. In the event that the Partnership is entitled to indemnification for any Indemnity Losses pursuant to Section 10.1 or Section 10.2 hereof, "net after-tax basis" shall be determined as if the Partnership were taxed as a corporation at such marginal corporate income tax rate and the effective state and local tax rate applied to the income of KBI Sub for its most recently completed taxable year. 10.4 Subrogation. In the event that any party shall be obligated to indemnify another party or its Affiliate pursuant to any Initial Agreement, the Partnership Agreement or any Ancillary Agreement, the Indemnifying Party shall, upon payment of such indemnity in full, be subrogated to all rights of the Indemnified Party with respect to the claims to which such indemnification relates. 10.5 Survival. Except as otherwise specified herein or therein, all representations, warranties, covenants, indemnities and agreements contained in or made pursuant to any Initial Agreement, the Partnership Agreement or any Ancillary Agreement (including any exhibit, schedule, appendix, certificate, document or statement delivered pursuant hereto) shall survive (and not be affected in any respect by) the Closing or any investigation conducted by any party or any information which any party may have from time to time, subject only to applicable statutes of limitations. 10.6 Limitation on Damages. Notwithstanding anything in any Initial Agreement, the Partnership Agreement or any Ancillary Agreement to the contrary, in no event shall any Indemnifying Party be liable for special, indirect, incidental or consequential damages ("Special Losses") pursuant to this Article 10 or the indemnification provisions of any other Initial Agreement, the Partnership Agreement or any Ancillary Agreement; provided, however, that the foregoing limitation shall not apply (i) in the case of willful misconduct or gross negligence by the Indemnifying Party or any of its Affiliates, (ii) to any Special Losses which are incurred by any Indemnified Party to any Third Party or (iii) to any breach of Section 3.12 hereof with respect to the business of KBI-E if (and only if) such breach results in the Bankruptcy of KBI-E and the rejection or material modification of the Distribution Agreement by the trustee in bankruptcy or debtor-in-possession; and provided, further, that the parties agree that Special Losses shall not include (w) any amounts payable by the Partnership to KBI Sub pursuant to Article 5 of the Partnership Agreement, (x) any amounts payable by KB to KBI-E pursuant to Section 2.2(c) of the Amended and Restated KBI License, (y) any amounts payable by KB or any of its Affiliates to KBI or any of its Affiliates pursuant to Section 4.01 of the KBI Supply Agreement, Sections 3.1(c), 4.1, 4.2 or 5.1(f) of the KBI-E Asset Option Agreement or Section 2.2 of the KBI Shares Option Agreement, and (z) in the event of any breach by KB or any of its 105 100 Affiliates of any of their respective covenants or other agreements contained in or made pursuant to any Initial Agreement, the Partnership Agreement or any Ancillary Agreement which breach has the effect, directly or indirectly, of reducing the amount of contingent payments (or any other amount based on the amount of contingent payments) to which KBI or any of its Affiliates would otherwise be entitled pursuant to any Initial Agreement, the Partnership Agreement or any Ancillary Agreement, the amount of such reduction. ARTICLE 11 TERM AND TERMINATION 11.1 Term. The term of this Agreement shall commence on the date hereof and shall continue until terminated pursuant to the provisions of Sections 11.2 or 11.3 hereof. 11.2 Cut-Off Date. This Agreement may be terminated by KB or TR if (without fault of the terminating party or any of its Affiliates) the Closing shall not have taken place on or prior to December 31, 1998. 11.3 Exercise of KBI-E Asset Option and KBI Shares Option. (a) This Agreement shall terminate (i) in respect of Section 3.6 hereof (except with respect to the Compounds omeprazole and perprazole and Group E Compounds and Group E Products) upon the occurrence of the Retirement Date (as defined in the Partnership Agreement), (ii) in respect of Section 3.6 hereof with respect to Group E Compounds and Group E Products upon the occurrence of the KBI-E Asset Purchase and (iii) in respect of Section 3.6A hereof (except with respect to Compounds omeprazole and perprazole) upon the occurrence of the KBI-E Asset Purchase. (b) This Agreement shall terminate automatically in the event of the exercise of the option to purchase the outstanding shares of KBI as provided for in the KBI Shares Option Agreement and the payment to TR of all amounts due thereunder. 11.4 Survival. The termination of this Agreement as specified herein shall not serve to eliminate any liability arising out of conduct, events or circumstances prior to the actual date of termination and any party hereto may, following such termination, pursue such remedies as may be available with respect to such liabilities. Without limiting the generality of the foregoing, the following provisions of this Agreement shall survive the termination hereof: Article 1; Section 2.6; Section 3.2; Section 3.21; Article 4; Article 5; Article 8; Article 9; Article 10; this Section 11.4; and Article 12. 11.5 Unilateral Termination. Notwithstanding anything to the contrary contained herein or therein, no party to this Agreement, any other Initial Agreement, the Partnership Agreement or any Ancillary Agreement shall have the right to unilaterally terminate such agreement because of any breach or breaches, material, fundamental or otherwise, of this Agreement, any other Initial Agreement, the Partnership Agreement or any Ancillary Agreement, by any other party hereto or thereto. 106 101 ARTICLE 12 MISCELLANEOUS 12.1 Entire Agreement; Waiver or Modification. The Initial Agreements, the Partnership Agreement and the Ancillary Agreements (and the Exhibits, Schedules and Appendices hereto and thereto and the other documents delivered pursuant hereto and thereto) constitute the entire agreement among the parties with respect to the subject matter hereof, notwithstanding any provision of any of such documents to the contrary. The Initial Agreements, the Partnership Agreement and the Ancillary Agreements may be amended, modified, or supplemented only by a written instrument duly executed by each party hereto or thereto (as the case may be), which instrument shall specifically indicate that it is the desire of the parties to amend, modify or supplement such Agreement, and similarly may be waived only by a written instrument duly executed by the waiving party. 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 or thereunder 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 or thereunder, whether similar or otherwise, or a waiver of any remedy it may have hereunder, thereunder or otherwise. 12.2 Third Party Beneficiaries. Except as otherwise provided expressly herein or therein, (i) nothing in any Initial Agreement, the Partnership Agreement or any Ancillary Agreement is intended to confer on any Person other than the parties hereto or thereto (as the case may be) or their respective successors or permitted assigns, any rights or obligations under or by reason of any Initial Agreement, the Partnership Agreement or any Ancillary Agreement (as the case may be) and (ii) there are no third party beneficiaries to any such agreements, except for the rights of Indemnified Parties pursuant to Article 10 hereof and the rights of Beneficiaries of the guarantees of KB and TR set forth in Article 8. Notwithstanding the foregoing, TR shall be a third party beneficiary of each representation, warranty, covenant, agreement and obligation of KB and its Affiliates contained in any Initial Agreement, the Partnership Agreement, any Ancillary Agreement or Future KB Agreement and shall be entitled to enforce each such representation, warranty, covenant, agreement and obligation. 12.3 Force Majeure. No party (or any of its Affiliates) shall be responsible or liable to any other party (or any of its Affiliates) for any failure to perform any of its covenants or obligations under any Initial Agreement or the Partnership 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; civil commotion; fire; explosion; earthquake, storm, flood or other act of God; 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; 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 107 102 any Initial Agreement or the Partnership Agreement, 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 in writing the other parties of such Event of Force Majeure and shall take all action that is reasonably possible to remove or avoid the consequences of 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. 12.4 Miscellaneous. The Article and Section headings in the Initial Agreements, the Partnership Agreement and the Ancillary Agreements are solely for the convenience and reference of the parties hereto and thereto and are not intended to be descriptive of the entire contents of, or to affect, any of the terms or provisions hereof or thereof. Any provision of any Initial Agreement, the Partnership Agreement or any Ancillary Agreement which provides that a party may not take a specified action without first obtaining the consent of another party shall be deemed to permit the party from whom consent is sought to give or withhold its consent in its sole discretion, unless such provision expressly sets forth a different standard. The word "including" when used in the Initial Agreements, the Partnership Agreement and the Ancillary Agreements shall mean "including without limitation" unless otherwise specified. 12.5 Binding Effect; Assignment. The Initial Agreements, the Partnership Agreement and the Ancillary Agreements shall inure to the benefit of and be binding upon each of the parties hereto or thereto (as the case may be) upon such party's execution and delivery hereof or thereof (as the case may be), and upon its successors and permitted assigns. Except as otherwise provided herein or therein, no party shall assign any Initial Agreement, the Partnership Agreement or any Ancillary Agreement or any of its rights or obligations hereunder or thereunder without the prior written consent of the other parties hereto or thereto (as the case may be). Notwithstanding the foregoing, KB or TR (the "Assignor") may assign any or all of its respective rights or obligations under this Agreement (other than its obligations under Article 8 and Article 10) to any Person who is a Permitted General Partner (in the case of KB) or a Wholly-Owned Subsidiary of TR (in the case of TR); provided, however, that (i) as conditions to and prior to the effectiveness of such assignment, the assignee or assignees shall expressly assume in writing the due and punctual performance of all obligations which are so assigned and the Assignor shall deliver a copy of such assignment (including any assumption agreement referred to above) to the other Parent, and (ii) the Assignor shall remain liable as a co-obligor, with the assignee or assignees thereof, with respect to all obligations which are so assigned; and provided, further, that such assignment with respect to any assignee shall automatically become void in the event that such assignee ceases to be a Person who is a Permitted General Partner or Wholly-Owned Subsidiary, as the case may be (and a provision to such effect shall be included in each assumption agreement entered into and delivered pursuant to the foregoing clause (i)). Any attempted or purported assignment of this Agreement, the Partnership Agreement or any Ancillary Agreement, or any interest herein or therein (as the case may be), in violation of any provisions of this Agreement or applicable law shall be void and shall not be effective to pass any right, title or interest herein or therein (as the case may be). 108 103 12.6 Further Assurances. Each party shall execute such deeds, assignments, endorsements and other instruments and evidences of transfer, give such further assurances and perform such acts as are or may become necessary or appropriate to effectuate and carry out the provisions of the Initial Agreements, the Partnership Agreement and the Ancillary Agreements. 12.7 Affiliates. Each party will cause its respective Affiliates to comply fully with the provisions of the Initial Agreements, the Partnership Agreement and the Ancillary Agreements being entered into by such party, to the extent such provisions relate, or are intended to relate, to such Affiliates, as though such Affiliates were expressly named as joint obligors hereunder or thereunder. 12.8 Notices. Any notice, request or other communication under or with respect to any Initial Agreement, the Partnership Agreement or any Ancillary Agreement shall be in writing and shall be deemed to have been duly given to any party upon receipt of: hand delivery, delivery by courier service, certified or registered mail (return receipt requested and postage prepaid), or telecopy transmission with confirmation of receipt, in each case to such party at its address or telecopy number set forth below: If to TR, TR Holdings, Inc., KBI, KBI SUB or KBI-E, to: TR One Merck Drive P.O. Box 100 Whitehouse Station, NJ 08889-0100 Attention: Corporate Secretary Telecopier: 908-735-1246 With a copy to: TR One Merck Drive P.O. Box 100 Whitehouse Station, NJ 08889-0100 Attention: General Counsel Telecopier: 908-735-1244 If to the Partnership, to: Astra Pharmaceuticals, L.P. 725 Chesterbrook Boulevard Wayne, Pennsylvania 19087-5677 Attention: General Counsel Telecopier: 610-889-1280 109 104 with copies to: Astra AB S-151 85 Sodertalje, Sweden Attention: General Counsel Telecopier: 011-46-8-553-288-12 If to KB, KB USA or KBLP, to: KB S-151 85 Sodertalje, SWEDEN Attention: General Counsel Telecopier: 011-46-8-553-288-12 With a copy to: Winthrop, Stimson, Putnam & Roberts One Battery Park Plaza New York, NY 10004 Attention: Frode Jensen Telecopier: 212-858-1500 Any of the addresses set forth above may be changed from time to time by written notice from the party requesting the change. Notice not given in writing shall be effective only if acknowledged in writing by a duly authorized representative of the party to whom it was given. 12.9 Governing Law. The Initial Agreements and the Ancillary Agreements shall be governed by and construed in accordance with the laws of the State of New York, and the Partnership Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, in each case without giving effect to such state's conflict of law rules other than Section 5-1401 of the New York General Obligations Law. 12.10 Severability. If any one or more of the provisions of any Initial Agreement, the Partnership Agreement or any Ancillary Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions hereof or thereof 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 or 110 105 thereof invalid, illegal or unenforceable in any respect. In the event any provision of any Initial Agreement, the Partnership Agreement or any Ancillary Agreement shall be held to be invalid, illegal or unenforceable the parties hereto or thereto (as the case may be) shall use reasonable efforts to substitute a valid, legal and enforceable provision which, insofar as practical, implements the purposes hereof. If any Initial Agreement, the Partnership Agreement or any Ancillary Agreement shall be held to be unenforceable against any KB Party or the Partnership, the enforceability of such agreement against any other KB Party that is a party thereto or a guarantor of any liabilities or obligations under or arising out of such agreement shall not in any way be affected or impaired thereby. If any Initial Agreement, the Partnership Agreement or any Ancillary Agreement shall be held to be unenforceable against any TR Party, the enforceability of such agreement against any other TR Party that is a party thereto or a guarantor of any liabilities or obligations arising out of such agreement shall not in any way be affected or impaired thereby. 12.11 Remedies. (a) Subject to the provisions of Article 9 hereof, all remedies provided for in this Agreement shall be cumulative and in addition to and not in lieu of any other remedies available to any party at law, in equity or otherwise. (b) KB and TR each acknowledge and agree that the remedy of damages for the failure by either of them or any of their respective Affiliates to perform their respective obligations under Section 2.1 through 2.4 of this Agreement would be inadequate and, provided that the board of directors of KBI approves the KBI Plan of Recapitalization and the actions and transactions contemplated thereby, that each of KB and TR shall have, in addition to all other legal remedies available to it, the right to seek to enforce the terms of such Sections 2.1 through 2.4 by a decree of specific performance and to obtain injunctive relief to the extent necessary in connection therewith. 12.12 Expenses. Except as otherwise expressly provided herein or therein, each party shall bear the costs and expenses incurred by it in negotiating, entering into and performing any of its obligations under any Initial Agreement, the Partnership Agreement or any Ancillary Agreement. 12.13 Execution. The Initial Agreements, the Partnership Agreement and the Ancillary Agreements may be executed in several counterparts, each of which shall be deemed to be an original. 12.14 Publicity. (a) Prior to the Closing, in the absence of specific written agreement between the parties, no party (or any Affiliate thereof) shall issue any press release or make any other public announcement or furnish any statement to any Person concerning the transactions contemplated by any Initial Agreement, the Partnership Agreement or any Ancillary Agreement (other than the joint press release of KB and TR being issued in connection with the execution of this Agreement (the "Joint Press Release")), except that KB and TR (after consultation with 111 106 counsel) may make such announcements and disclosures, if any, as may be required by applicable law, in which case the party making the announcement or disclosure will use its reasonable efforts to give advance notice to, and discuss such announcement or disclosure with, TR (if KB is the disclosing party) or KB (if TR is the disclosing party). (b) With respect to the Joint Press Release, each Parent (the "Indemnifying Parent") shall indemnify and hold harmless the other Parent (the "Indemnified Parent"), the Partnership, each of their respective Affiliates and each of their respective officers, directors, employees and agents from and against all Indemnity Losses arising out of, based upon, or resulting from any lawsuit brought by any shareholder of the Indemnifying Parent or any of its Affiliates against the Indemnified Parent or any of its Affiliates with respect to statements made or omitted to be made in the Joint Press Release. Any claim for indemnification pursuant to this Section 12.14(b) shall be on a net-after tax basis in accordance with, and shall be subject to the procedures set forth in, Section 10.3 hereof. 12.15 Service of Process. Subject to the provisions of Article 9 hereof, each party hereto irrevocably appoints CT Corporation System as its authorized agent upon which process may be served in any action, suit or proceeding arising out of or relating to the activities of the Partnership or the enforcement of any provision of any Initial Agreement, the Partnership Agreement or any Ancillary Agreement or Future Agreement and which may be instituted in any court or tribunal of or in the State of New York or Delaware by another party hereto, and irrevocably consents to the jurisdiction of any such court or tribunal for the purpose of any such action, suit or proceeding. Service of process by any party upon any other party for such purpose shall be effective in every respect twenty (20) days after service of process upon such authorized agent is made, and a copy of such service is mailed to the other party (and in the case of the KB Parties, Winthrop, Stimson, Putnam & Roberts, One Battery Park Plaza, New York, New York 10004) registered mail, return receipt requested, postage prepaid. Final judgment against any of the parties in any such action, suit or proceeding shall be conclusive and may be enforced in any other jurisdiction (to the extent permitted by such jurisdiction) by suit on the judgment, a certified or exemplified copy of which shall be conclusive evidence (to the extent permitted by such jurisdiction) of the fact and of the amount of the indebtedness arising from such judgment. 112 107 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. ASTRA AB MERCK & CO., INC. (publ) By /s/ Hakan Mogren By /s/ Judy C. Lewent ------------------------------------------------ ------------------------------ Name: Hakan Mogren Name: Judy C. Lewent Title: President and Chief Executive Officer Title: Senior Vice President and Chief Financial Officer ASTRA USA, INC. MERCK HOLDINGS, INC. By /s/ Carl-Gustaf Johansson By /s/ Peter E. Nugent ------------------------------------------------ ------------------------------ Name: Carl-Gustaf Johansson Name: Peter E. Nugent Title: Attorney-in-fact Title: President ASTRA MERCK INC. KBI SUB INC. By /s/ Judy C. Lewent By /s/ Peter E. Nugent ------------------------------------------------ ------------------------------ Name: Judy C. Lewent Name: Peter E. Nugent Title: Authorized Signatory Title: President By /s/ Carl-Gustaf Johansson ------------------------------------------------ Name: Carl-Gustaf Johansson Title: Authorized Signatory KB USA, L.P. ASTRA MERCK ENTERPRISES INC. By ASTRA AB, General Partner By /s/ Judy C. Lewent ------------------------------ Name: Judy C. Lewent Title: Authorized Signatory By /s/ Hakan Mogren By /s/ Carl-Gustaf Johansson ------------------------------------------------ ------------------------------ Name: Hakan Mogren Name: Carl-Gustaf Johansson Title: President and Chief Executive Title: Authorized Signatory Officer
113 108 ASTRA PHARMACEUTICALS, L.P. By KB USA, L.P., General Partner By /s/ Hakan Mogren ------------------------------------------------ Name: Hakan Mogren Title: President and Chief Executive Officer of its General Partner 114 SCHEDULE 1.1 TO MASTER RESTRUCTURING AGREEMENT CERTAIN KB USA PRODUCTS Compound Trademark metoprolol succinate Toprol-XL budesonide Pulmicort budesonide Rhinocort felodipine and metoprolol succinate Logimax 115 SCHEDULE 1.2 TO MASTER RESTRUCTURING AGREEMENT Classification of Combinations
- --------------------------------------------------------------------------------------------------------------------- Nature of the Combination Classification - --------------------------------------------------------------------------------------------------------------------- Group A, B or C Compound (other than omeprazole or perprazole) with Group C Product / KBI Product another Group A, B or C Compound (other than omeprazole or perprazole) - --------------------------------------------------------------------------------------------------------------------- Group A, B or C Compound (other than omeprazole or perprazole) with a KB USA Group D Product(1) Compound - --------------------------------------------------------------------------------------------------------------------- Group A, B or C Compound (other than omeprazole or perprazole) with a Group D Group D Product Compound - --------------------------------------------------------------------------------------------------------------------- Group A, B or C Compound (other than omeprazole or perprazole) with a Group E Group E Product Compound - --------------------------------------------------------------------------------------------------------------------- KB USA Compound with a Group D Compound Group D Product - --------------------------------------------------------------------------------------------------------------------- KB USA Compound with a Group E Compound Group E Product - --------------------------------------------------------------------------------------------------------------------- Group D Compound with a Group E Compound Group E Product - --------------------------------------------------------------------------------------------------------------------- Omeprazole with a Group A, B or C Compound Omeprazole Product - --------------------------------------------------------------------------------------------------------------------- Omeprazole with a KB USA Compound Group D Product(2) - --------------------------------------------------------------------------------------------------------------------- Omeprazole with a Group D Compound Group D Product(2) - --------------------------------------------------------------------------------------------------------------------- Omeprazole with a Group E Compound Group E Product(2) - --------------------------------------------------------------------------------------------------------------------- Perprazole with a Group A, B or C Compound Perprazole Product - --------------------------------------------------------------------------------------------------------------------- Perprazole with a KB USA Compound Group D Product(3) - --------------------------------------------------------------------------------------------------------------------- Perprazole with a Group D Compound Group D Product(3) - --------------------------------------------------------------------------------------------------------------------- Perprazole with a Group E Compound Group E Product(3) - --------------------------------------------------------------------------------------------------------------------- Logimax KB USA Product - --------------------------------------------------------------------------------------------------------------------- Enalapril with felodipine KBI Product - ---------------------------------------------------------------------------------------------------------------------
1. Will be considered a Group D Product for purposes of computing the Group D Products Contingent Amount and related distributions provided for in the Partnership Agreement and a Group C Compound for purposes of computing royalties payable under Article VII of the Amended and Restated KBI License. 2. "Omeprazole Product" for purposes of determining the amount of the applicable contingent amount pursuant to Section 3.7 and a "Licensed Compound" for purposes of Section 3.6A. 3. "Perprazole Product" for purposes of determining the amount of the applicable contingent amount pursuant to Section 3.7 and a "Licensed Compound" for purposes of Section 3.6A. 116 SCHEDULE 2.5 TO MASTER RESTRUCTURING AGREEMENT Closing Statements PART A: WORKING CAPITAL (+) Accounts Receivable, net of allowance for bad debts(2) (+) Other Receivables (excluding any amounts due from TR/KB) (+) Prepaid Expenses and Other Current Assets (excluding any amounts related to income taxes) (-) Accounts Payable and Accrued Expenses (excluding any amounts due to TR/KB)(1), (2) (-) Accrued Rebates and Returns(2) --- ------------------------------ (=) EQUALS NET WORKING CAPITAL === ========================== (1) Amounts should not give effect to reserves related to contingent liabilities that are being retained by KBI pursuant to Section 2.6(a) (2) Including amounts related to transactions between KBI and Merck-Medco Managed Care, LLC. PART B: CASH AMOUNT STATEMENT KBI Consolidated Cash & Short-term Investments $ -------------------- Less: KBI Common Stock Dividend -------------------- KBI CASH AMOUNT $ ==================== PART C: WORKING CAPITAL STATEMENT
- ------------------------------------------------------------------------------------------------------------- BASE ESTIMATED ACTUAL ($'s 000's) DATE CLOSING DATE CLOSING DATE - ------------------------------------------------------------------------------------------------------------- (+) Accounts Receivable - ------------------------------------------------------------------------------------------------------------- (+) Other Receivables - ------------------------------------------------------------------------------------------------------------- (+) Prepaid Expenses and Other Current Assets - ------------------------------------------------------------------------------------------------------------- (-) Accounts Payable and Accrued Expenses - ------------------------------------------------------------------------------------------------------------- (-) Accrued Rebates and Returns - ------------------------------------------------------------------------------------------------------------- (=) TOTAL WORKING CAPITAL - ------------------------------------------------------------------------------------------------------------- - --------------------------------------------------- -------------------------------------- WORKING CAPITAL ADJUSTMENT - --------------------------------------------------- --------------------------------------
117 2 PART D: INVENTORY STATEMENT Actual Closing Date Inventory $ -------------------- Less: Estimated Closing Date Inventory -------------------- INVENTORY ADJUSTMENT $ ==================== PART E: TAX STATEMENT (+) Prepaid Income Taxes $ (-) Income Taxes Payable -------------------- (=) NET INCOME TAXES PAYABLE $ (-) Reserves for Tax Deficiencies Relating to Prior Years -------------------- (=) TAX AMOUNT (2) $ ==================== (2) Excludes the effect to any transactions contemplated by this Agreement, any of the other Initial Agreements, the Partnership Agreement, or any of the Ancillary Agreements. PART F: RESIDUAL KBI CASH STATEMENT
- ----------------------------------------------------------------------------------------------- ESTIMATED ACTUAL ($'s 000's) CLOSING DATE CLOSING DATE - ----------------------------------------------------------------------------------------------- (+) KBI Cash Amount - ----------------------------------------------------------------------------------------------- (+) Working Capital Adjustment - ----------------------------------------------------------------------------------------------- (-) Base Cash Amount $25,000 $25,000 - ----------------------------------------------------------------------------------------------- (=) NET KBI CASH AMOUNT - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- (-) KBI ADJUSTMENT LIABILITIES - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- (=) RESIDUAL KBI CASH AMOUNT - -----------------------------------------------------------------------------------------------
118 SCHEDULE 3.7 TO MASTER RESTRUCTURING AGREEMENT BASE SALES WEIGHTINGS AND RELATIVE SALES WEIGHTINGS PART 1 "Column A Rate" shall mean with respect to a product containing a particular Compound for any Fiscal Year the percentage computed by (i) multiplying for each sales tier described in the Supplemental Sales Weighting Table the applicable amount of Net Sales in such Fiscal Year of products containing such Compound by the percentage set forth in Column A of the Supplemental Sales Weighting Table across from such sales tier, (ii) computing the sum of the amounts so computed for each of the respective sales tiers and (iii) dividing such sum by the total Net Sales of products containing such Compound during such Fiscal Year. "Column B Rate" shall mean with respect to a product containing a particular Compound for any Fiscal Year the percentage computed by (i) multiplying for each sales tier described in the Supplemental Sales Weighting Table the applicable amount of Net Sales in such Fiscal Year of products containing such Compound by the percentage set forth in Column B of the Supplemental Sales Weighting Table across from such sales tier, (ii) computing the sum of the amounts so computed for each of the respective sales tiers and (iii) dividing such sum by the total Net Sales of products containing such Compound during such Fiscal Year. "Column C Rate" shall mean with respect to a product containing a particular Compound for any Fiscal Year the percentage computed by (i) multiplying for each sales tier described in the Supplemental Sales Weighting Table the applicable amount of Net Sales in such Fiscal Year of products containing such Compound by the percentage set forth in Column C of the Supplemental Sales Weighting Table across from such sales tier, (ii) computing the sum of the amounts so computed for each of the respective sales tiers and (iii) dividing such sum by the total Net Sales of products containing such Compound during such Fiscal Year. "Column D Rate" shall mean with respect to a product containing a particular Compound for any Fiscal Year the percentage computed by (i) multiplying for each sales tier described in the Supplemental Sales Weighting Table the applicable amount of Net Sales in such Fiscal Year of products containing such Compound by the percentage set forth in Column D of the Supplemental Sales Weighting Table across from such sales tier, (ii) computing the sum of the amounts so computed for each of the respective sales tiers and (iii) dividing such sum by the total Net Sales of products containing such Compound during such Fiscal Year. "Type 1 Combination Product" shall mean a combination product consisting of a KB USA Compound (other than Formoterol) and any Compound other than a Covered Compound, which combination product, based on its approved indications, competes in the same Therapeutic Category with a KB USA Product. "Type 2 Combination Product" shall mean a combination product consisting of Formoterol and any Compound other than a Covered Compound, which combination product, 119 2 based on its approved indications, competes in the same Therapeutic Category with a Formoterol Product. "Type 3 Combination Product" shall mean a combination product containing (i) a KB USA Compound (other than Formoterol) and (ii) a Group A Compound, Group B Compound, Group C Compound, Group D Compound or Group E Compound. "Type 4 Combination Product" shall mean a combination product containing a KB USA Compound (other than Formoterol) and Formoterol. "Type 1 Inhaler Product" shall mean a product (other than Rhinocort) containing any KB USA Compound (other than Formoterol) as the sole active ingredient which is delivered in an inhaler other than a dry powder inhaler. "Type 2 Inhaler Product" shall mean a product containing Formoterol as the sole active ingredient which is delivered in an inhaler other than a dry powder inhaler. 120 PART 2 BASE SALES WEIGHTINGS FOR NET SALES OF COVERED COMPOUNDS AND PRODUCTS
- ---------------------------------------------------------------------------------------------------------------------------- TYPE OF COMPOUND OR PRODUCT BASE SALES WEIGHTING ("BSW") - ---------------------------------------------------------------------------------------------------------------------------- Omeprazole Products (including without limitation combinations [*]% with other Covered Compounds) - ---------------------------------------------------------------------------------------------------------------------------- Perprazole Products (including without limitation combinations [*]% with other Covered Compounds) - ---------------------------------------------------------------------------------------------------------------------------- Other Group A and Group B Products (including without limitation [*]% combinations with other Covered Compounds but excluding Perprazole Products) - ---------------------------------------------------------------------------------------------------------------------------- Group C Products (including without limitation combinations with [*]% ([*]% for ABCV Compounds) other Covered Compounds but excluding Perprazole Products) - ---------------------------------------------------------------------------------------------------------------------------- Formoterol Products (other than Type 1, 2, 3 and 4 Combination [*]% Products and Type 1 and 2 Inhaler Products) - ---------------------------------------------------------------------------------------------------------------------------- Group D Products (including without limitation combinations with [*]% ([*]% for ABCV Compounds) other Covered Compounds) - ---------------------------------------------------------------------------------------------------------------------------- KB USA Products (other than Type 1, 2, 3 and 4 Combination [*]% Products, Type 1 and 2 Inhaler Products and Formoterol Products) - ---------------------------------------------------------------------------------------------------------------------------- Group E Products (including without limitation combinations with [*]% ([*]% for ABCV Compounds) other Covered Compounds) - ---------------------------------------------------------------------------------------------------------------------------- Type 1 Combination Product Greater of [*]% or the percentage ("P") computed in accordance with the formula set forth in Note 1 below. - ---------------------------------------------------------------------------------------------------------------------------- Type 2 Combination Product Greater of [*]% or the percentage ("P") computed in accordance with the formula set forth in Note 2 below. - ----------------------------------------------------------------------------------------------------------------------------
121 2 - ---------------------------------------------------------------------------------------------------------------------------- Type 3 Combination Product [*]% - ---------------------------------------------------------------------------------------------------------------------------- Type 4 Combination Product [*]% - ---------------------------------------------------------------------------------------------------------------------------- Type 1 Inhaler Product Greater of [*]% or the percentage ("P") computed in accordance with the formula set forth in Note 3 below. - ---------------------------------------------------------------------------------------------------------------------------- Type 2 Inhaler Product Greater of [*]% or the percentage ("P") computed in accordance with the formula set forth in Note 4 below. - ----------------------------------------------------------------------------------------------------------------------------
Note 1: P = (([*] x Net Sales of the Type 1 Combination Product) - ([*]x Net Sales of the KB USA Product)) / Net Sales of the Type 1 Combination Product Note 2: P = (([*] x Net Sales of the Type 2 Combination Product) - ([*] x Net Sales of the Formoterol Product)) / Net Sales of the Type 2 Combination Product Note 3: P = (([*] x Net Sales of the Type 1 Inhaler Product) - ([*] x Net Sales of the KB USA Product delivered in all dry powder inhalers)) / Net Sales of the Type 1 Inhaler Product Note 4: P = (([*] x Net Sales of the Type 2 Inhaler Product) - ([*] x Net Sales of the Formoterol Product delivered in all dry powder inhalers)) / Net Sales of the Type 2 Inhaler Product 122 PART 3 RELATIVE SALES WEIGHTINGS FOR NET SALES OF COVERED COMPOUNDS AND PRODUCTS (including Outlicenses; provided, however, that this table shall not be construed as providing any authority or right to engage in Outlicensings not set forth in Sections 3.6 or 3.6A or in the Partnership Agreement or the Distribution Agreement)
- ------------------------------------- ---------------------- ----------------------------------------------------------------- PRODUCTS CONTAINING OMEPRAZOLE AND TYPE OF NET SALES PERPRAZOLE PRODUCTS OTHER THAN PRODUCTS CONTAINING OMEPRAZOLE AND PERPRAZOLE - ------------------------------------- ---------------------- ----------------------------------------------------------------- PRODUCTS CONTAINING CRITICAL COMPOUNDS - ------------------------------------- ---------------------- ----------------------------------------------------------------- PRODUCTS OTHER THAN KBI PRODUCTS KBI PRODUCTS - ------------------------------------- ---------------------- ---------------------- ----------------------------------------- NET SALES OTHER THAN NET SALES BY OUTLICENSEES - ------------------------------------- ---------------------- ---------------------- ----------------------------------------- Non-OTC Net Sales [*]% of applicable BSW [*]% of applicable BSW [*]% of applicable BSW - ------------------------------------- ---------------------- ---------------------- ----------------------------------------- OTC Net Sales [*]% of applicable BSW [*]% of applicable BSW [*]% of applicable BSW - ------------------------------------- ---------------------- ---------------------- ----------------------------------------- NET SALES BY OUTLICENSEES - ------------------------------------- ---------------------- ---------------------- ----------------------------------------- Regulatory Outlicenses (non-OTC Net Sales) - ------------------------------------- ---------------------- ---------------------- ----------------------------------------- Outlicenses to TR under TR's RFO pursuant to Sections 3.6 and 3.6A - ------------------------------------- ---------------------- ---------------------- ----------------------------------------- Net Sales after loss of Market Column D Rate Column D Rate [*]% Exclusivity with Generic multiplied by the multiplied by the Competition applicable BSW applicable BSW - ------------------------------------- ---------------------- ---------------------- ----------------------------------------- Net Sales before loss of Market Column B Rate Column B Rate [*]% Exclusivity or without Generic multiplied by the multiplied by the Competition applicable BSW applicable BSW - ------------------------------------- ---------------------- ---------------------- ----------------------------------------- Total Cash Outlicenses N/A N/A [*]% - ------------------------------------- ---------------------- ---------------------- -----------------------------------------
- ------------------------------------- ----------------------------------------------------------------- PRODUCTS OTHER THAN PRODUCTS CONTAINING OMEPRAZOLE AND PERPRAZOLE - ------------------------------------- ----------------------------------------------------------------- PRODUCTS NOT CONTAINING CRITICAL COMPOUNDS - ------------------------------------- ----------------------------------------------------------------- PRODUCTS OTHER THAN KBI PRODUCTS KBI PRODUCTS - ------------------------------------- ---------------------- ----------------------------------------- NET SALES OTHER THAN NET SALES BY OUTLICENSEES - ------------------------------------- ---------------------- ----------------------------------------- Non-OTC Net Sales [*]% of applicable BSW [*]% of applicable BSW - ------------------------------------- ---------------------- ----------------------------------------- OTC Net Sales [*]% of applicable BSW [*]% of applicable BSW - ------------------------------------- ---------------------- ----------------------------------------- NET SALES BY OUTLICENSEES - ------------------------------------- ---------------------- ----------------------------------------- Regulatory Outlicenses (non-OTC Net Sales) - ------------------------------------- ---------------------- ----------------------------------------- Outlicenses to TR under TR's RFO pursuant to Sections 3.6 and 3.6A - ------------------------------------- ---------------------- ----------------------------------------- Net Sales after loss of Market N/A N/A Exclusivity with Generic Competition - ------------------------------------- ---------------------- ---------------------------------------- Net Sales before loss of Market N/A N/A Exclusivity or without Generic Competition - ------------------------------------- ---------------------- ---------------------------------------- Total Cash Outlicenses N/A [*]% - ------------------------------------- ---------------------- ----------------------------------------
123 2
- ----------------------------------------------------------------------------------------------------- PRODUCTS CONTAINING PRODUCTS OTHER OMEPRAZOLE AND THAN PRODUCTS CONTAINING TYPE OF NET SALES PERPRAZOLE OMEPRAZOLE AND PERPRAZOLE - ----------------------------------------------------------------------------------------------------- PRODUCTS CONTAINING CRITICAL COMPOUNDS KBI PRODUCTS - ----------------------------------------------------------------------------------------------------- All other Regulatory Outlicenses - ----------------------------------------------------------------------------------------------------- Net Sales after loss of Market Column D Rate Column D Rate Exclusivity with Generic multiplied by the multiplied by the Competition applicable BSW applicable BSW - ----------------------------------------------------------------------------------------------------- Net Sales before loss of Market Column B Rate Column B Rate Exclusivity or without Generic multiplied by the multiplied by the Competition applicable BSW applicable BSW - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- Non-Regulatory Outlicenses (non-OTC Net Sales) - ----------------------------------------------------------------------------------------------------- Total Cash Outlicenses N/A N/A - ----------------------------------------------------------------------------------------------------- Special Case Outlicensings (except for N/A N/A Selected Uses) - ----------------------------------------------------------------------------------------------------- Selected Uses To be agreed To be agreed - ----------------------------------------------------------------------------------------------------- Omeprazole-for-Horses [*]% N/A - ----------------------------------------------------------------------------------------------------- Other Non-Regulatory Outlicenses - ----------------------------------------------------------------------------------------------------- Net Sales after loss of Market To be agreed To be agreed Exclusivity with Generic Competition - ----------------------------------------------------------------------------------------------------- Net Sales before loss of Market To be agreed To be agreed Exclusivity or without Generic Competition - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- OTC NET SALES BY OUTLICENSEES - ----------------------------------------------------------------------------------------------------- Omeprazole [*]% multiplied by the N/A applicable BSW - ----------------------------------------------------------------------------------------------------- Perprazole [*]% multiplied by N/A the applicable BSW - ----------------------------------------------------------------------------------------------------- Other N/A [*]% multiplied by the applicable BSW - -----------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------- PRODUCTS OTHER THAN PRODUCTS CONTAINING OMEPRAZOLE AND PERPRAZOLE - ------------------------------------------------------------------------------------------------------------------------- PRODUCTS CONTAINING PRODUCTS NOT CONTAINING CRITICAL COMPOUNDS CRITICAL COMPOUNDS - ------------------------------------------------------------------------------------------------------------------------- PRODUCTS OTHER THAN PRODUCTS OTHER THAN KBI PRODUCTS KBI PRODUCTS KBI PRODUCTS - ------------------------------------------------------------------------------------------------------------------------- All other Regulatory Outlicenses - ------------------------------------------------------------------------------------------------------------------------- Net Sales after loss of Market Column D Rate Column C Rate Column C Rate Exclusivity with Generic multiplied by the multiplied by the multiplied by the Competition applicable BSW applicable BSW applicable BSW - ------------------------------------------------------------------------------------------------------------------------- Net Sales before loss of Market Column B Rate Column A Rate Column A Rate Exclusivity or without Generic multiplied by the multiplied by the multiplied by the Competition applicable BSW applicable BSW applicable BSW - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- Non-Regulatory Outlicenses (non-OTC Net Sales) - ------------------------------------------------------------------------------------------------------------------------- Total Cash Outlicenses [*]% N/A [*]% - ------------------------------------------------------------------------------------------------------------------------- Special Case Outlicensings (except for To be agreed N/A To be agreed Selected Uses) - ------------------------------------------------------------------------------------------------------------------------- Selected Uses To be agreed To be agreed To be agreed - ------------------------------------------------------------------------------------------------------------------------- Omeprazole-for-Horses N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------- Other Non-Regulatory Outlicenses - ------------------------------------------------------------------------------------------------------------------------- Net Sales after loss of Market To be agreed Column C Rate Column C Rate Exclusivity with Generic multiplied by the multiplied by the Competition applicable BSW applicable BSW - ------------------------------------------------------------------------------------------------------------------------- Net Sales before loss of Market To be agreed Column A Rate Column A Rate Exclusivity or without Generic multiplied by the multiplied by the Competition applicable BSW applicable BSW - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- OTC NET SALES BY OUTLICENSEES - ------------------------------------------------------------------------------------------------------------------------- Omeprazole N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------- Perprazole N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------- Other [*]% multiplied by [*]% multiplied by [*]% multiplied by the applicable BSW the applicable BSW the applicable BSW - -------------------------------------------------------------------------------------------------------------------------
124 PART 4 SUPPLEMENTAL SALES WEIGHTING TABLE
- ----------------------------------------------------------------------------------------------------------------------------------- NET SALES OF THE COMPOUND IN A FISCAL YEAR COLUMN A COLUMN B COLUMN C COLUMN D (Outlicenses of (Regulatory (Outlicenses of (Regulatory Non-Critical Outlicenses of Non-Critical Outlicenses of Compounds with Critical Compounds without Critical Compounds Market Exclusivity) Compounds with Market Exclusivity without Market Market Exclusivity) and with Generic Exclusivity and Competition) with Generic Competition) - ----------------------------------------------------------------------------------------------------------------------------------- First $50 million of Net Sales [*]% [*]% [*]% [*]% - ----------------------------------------------------------------------------------------------------------------------------------- Net Sales from $50 million - $100 million [*]% [*]% [*]% [*]% - ----------------------------------------------------------------------------------------------------------------------------------- Net Sales from $100 million - $150 million [*]% [*]% [*]% [*]% - ----------------------------------------------------------------------------------------------------------------------------------- Net Sales from $150 million - $200 million [*]% [*]% [*]% [*]% - ----------------------------------------------------------------------------------------------------------------------------------- Net Sales over $200 million [*]% [*]% [*]% [*]% - -------------------------------------------------------------------------------
EXAMPLE OF THE COMPUTATION OF COLUMN A RATES, COLUMN B RATES, COLUMN C RATES AND COLUMN D RATES Assume that sales of products containing a Compound for which the Supplemental Sales Weighting Table is to be used to compute a Relative Sales Weighting are $45 million in each of the four Fiscal Quarters of a Fiscal Year. In the first Fiscal Quarter, the Column A Rate would be [*]% (reflecting $45 million of sales with a weighting of [*]% for weighted sales of $[ * ]). The Column A Rate in the second Fiscal Quarter would be [*]% (reflecting $5 million of sales at [*]% and $40 million of sales at [*]% for weighted sales of $[ * ]). The Column A Rate in the third Fiscal Quarter would be [*]% (reflecting $10 million of sales at [*]% and $35 million of sales with a weighting of [*]% for weighted sales of $[ * ]). The Column A Rate in the fourth Fiscal Quarter would be [*]% (reflecting $15 million of sales with a weighting of [*]% and $30 million of sales with a weighting of [*]% for weighted sales of $[ * ]). The Column A Rate for the Fiscal Year would be [*]% (reflecting weighted sales of $[ * ] and total sales of $180 million for the Fiscal Year). Column B Rates, Column C Rates and Column D Rates are computed in the same fashion using the percentages set forth in the applicable columns. 125 SCHEDULE 3.8 TO MASTER RESTRUCTURING AGREEMENT Example of the Computation of Inflation Adjustments pursuant to Section 3.8 using a Hypothetical Price Index - ------------------------------------------ Inflation Benchmark 4% - ------------------------------------------ Original Amount $ 1,000 - ------------------------------------------
------------------------------------------- ------------------------------ Before 12/31/2016 After 12/31/2016 - ---------------------------------------------------------------------------------------- ------------------------------ Excess Pre-2016 Adjusted Post-2016 Adjusted Price Annual % Annual Inflation Original Inflation Original Year Index* Change Inflation Index Amount Index Amount - ---------------------------------------------------------------------------------------- ------------------------------ 1997 1.0000 1.0000 - -------------------------------------------------------------------------------------------------------------------------- 1998 1.0500 5.0% 1.0% 1.0100 $ 1,010 - -------------------------------------------------------------------------------------------------------------------------- 1999 1.1025 5.0% 1.0% 1.0201 $ 1,020 - -------------------------------------------------------------------------------------------------------------------------- 2000 1.1576 5.0% 1.0% 1.0303 $ 1,030 - -------------------------------------------------------------------------------------------------------------------------- 2001 1.1692 1.0% 0.0% 1.0303 $ 1,030 - -------------------------------------------------------------------------------------------------------------------------- 2002 1.1809 1.0% 0.0% 1.0303 $ 1,030 - -------------------------------------------------------------------------------------------------------------------------- 2003 1.1927 1.0% 0.0% 1.0303 $ 1,030 - -------------------------------------------------------------------------------------------------------------------------- 2004 1.2404 4.0% 0.0% 1.0303 $ 1,030 - -------------------------------------------------------------------------------------------------------------------------- 2005 1.2900 4.0% 0.0% 1.0303 $ 1,030 - -------------------------------------------------------------------------------------------------------------------------- 2006 1.3416 4.0% 0.0% 1.0303 $ 1,030 - -------------------------------------------------------------------------------------------------------------------------- 2007 1.4355 7.0% 3.0% 1.0612 $ 1,061 - -------------------------------------------------------------------------------------------------------------------------- 2008 1.5360 7.0% 3.0% 1.0930 $ 1,093 1.0700 - -------------------------------------------------------------------------------------------------------------------------- 2009 1.6436 7.0% 3.0% 1.1258 $ 1,126 1.1449 - -------------------------------------------------------------------------------------------------------------------------- 2010 1.7586 7.0% 3.0% 1.1596 $ 1,160 1.2250 - -------------------------------------------------------------------------------------------------------------------------- 2011 1.8817 7.0% 3.0% 1.1944 $ 1,194 1.3108 - -------------------------------------------------------------------------------------------------------------------------- 2012 2.0134 7.0% 3.0% 1.2302 $ 1,230 1.4026 - -------------------------------------------------------------------------------------------------------------------------- 2013 2.1141 5.0% 1.0% 1.2425 $ 1,243 1.4727 - -------------------------------------------------------------------------------------------------------------------------- 2014 2.2198 5.0% 1.0% 1.2550 $ 1,255 1.5463 - -------------------------------------------------------------------------------------------------------------------------- 2015 2.3308 5.0% 1.0% 1.2675 $ 1,268 1.6236 - -------------------------------------------------------------------------------------------------------------------------- 2016 2.4473 5.0% 1.0% 1.2802 $ 1,280 1.7048 - -------------------------------------------------------------------------------------------------------------------------- 2017 2.5697 5.0% 1.7901 $ 1,900 - -------------------------------------------------------------------------------------------------------------------------- 2018 2.6982 5.0% 1.8796 $ 1,995 - -------------------------------------------------------------------------------------------------------------------------- 2019 2.8331 5.0% 1.9735 $ 2,094 - -------------------------------------------------------------------------------------------------------------------------- 2020 2.9747 5.0% 2.0722 $ 2,199 - --------------------------------------------------------------------------------------------------------------------------
* Hypothetical price index used for illustrative purposes only. To be based on an Inflation Year of 12 months ending September 30 of each year. 126 SCHEDULE 3.15A TO MASTER RESTRUCTURING AGREEMENT Trigger Event: Certain Financial Calculations Part A: Cash and Short-Term Investments 1. Accrued interest combined with short-term investments 2. Bank drafts 3. Bankers acceptances 4. Brokerage firms' good faith and clearing-house deposits 5 Cash 6. Cash in escrow 7. Cash segregated under federal and other regulations 8. Certificates of deposit included in cash by the company 9. Certificates of deposit included in short-term investments by the company 10. Certificates of deposit reported as a separate item in current assets 11. Checks (cashiers or certified) 12. Commercial paper 13. Demand certificates of deposit 14. Demand deposits 15. Government and other marketable securities (including stocks and bonds listed as short-term) 16. Letters of credit 17. Margin deposits on commodity futures contracts 18. Marketable securities 19. Money-market fund 20. Money orders 127 2 21. Other short-term investments 22. Real estate investment trusts shares of beneficial interest 23. Repurchase agreements shown as a current asset 24. Restricted cash shown as a current asset 25. Time deposits and time certificates of deposit (savings accounts shown in current assets) 26. Treasury bills listed as short-term Part B: Long-Term Debt 1. Advances to finance construction 2. Bonds, mortgages, and similar debt 3. ESOP loan guarantees 4. Gold and bullion loans 5. Indebtedness to affiliates 6. Industrial revenue bonds 7. Installment Obligations - nonrecourse 8. Loans 9. Loans on insurance policies 10. Long-term lease obligations (capitalized lease obligations) 11. Notes payable, due within one year to be refunded by long-term debt when carried as noncurrent liability 12. Obligations requiring interest payment that are not specified by type 13. Purchase obligations and payments to officers (when listed as long-term liabilities) 128 3 Part C: Short-Term Debt 1. Bank acceptances and overdrafts 2. Commercial paper 3. Current portion of any item defined as long-term debt 4. Debt in default and/or demand notes when reported either as a separate line item or as a component of the current portion of long-term debt and there is no long-term portion of debt in default or demand notes 5. Installments on a loan 6. Interest payable (when combined with notes payable) 7. Loans payable to officers of the company 8. Loans payable to parents, and consolidated and unconsolidated subsidiaries 9. Loans payable to stockholders 10. Notes payable to banks and others 11. Sinking fund payments 129 SCHEDULE 3.15B TO MASTER RESTRUCTURING AGREEMENT Trigger Event: Qualified Persons Glaxo Wellcome PLC Merck & Co., Inc. Novartis AG Bristol-Myers Squibb Company Hoechst Aktiengesellschaft Pfizer Inc. American Home Products Corporation SmithKline Beecham PLC Johnson & Johnson Roche Holding Ltd. Eli Lilly and Company Rhone-Poulenc S.A. Pharmacia & Upjohn, Inc. Schering-Plough Corporation Bayer AG Group Takeda Chemical Industries, Ltd. Sankyo Company Limited Zeneca Group PLC Schering AG Boehringer Ingelheim GmbH Yamanouchi Pharmaceutical Co. Ltd. Elf Aquitaine Abbott Laboratories Warner-Lambert Company 130 APPENDIX I TO MASTER RESTRUCTURING AGREEMENT Ancillary Agreements
- -------------------------------------------------------------------------------------------------------------------- NAME OF AGREEMENT PARTIES EXHIBIT - -------------------------------------------------------------------------------------------------------------------- A. Capitalization of the Partnership - -------------------------------------------------------------------------------------------------------------------- 1. KBLP Assignment and Assumption Agreement KBLP, Partnership N - -------------------------------------------------------------------------------------------------------------------- 2. KBI Sub Assignment and Assumption Agreement KBI Sub, Partnership I (#1) - -------------------------------------------------------------------------------------------------------------------- 3. Trademark Rights Contribution Agreement KBI, KBI Sub, TR, KB S - -------------------------------------------------------------------------------------------------------------------- 4. KBI Sub Assignment and Assumption Agreement KBI Sub, Partnership J (#2) - -------------------------------------------------------------------------------------------------------------------- 5. Assignment and Amendment to Limited Robert J. Rawn, Lori I. Partnership Agreement Zyskowski, Partnership, KBLP, KB USA - -------------------------------------------------------------------------------------------------------------------- 6. Assignment Agreement KBLP, KB USA, KBI Sub - -------------------------------------------------------------------------------------------------------------------- B. Option Agreements - -------------------------------------------------------------------------------------------------------------------- 1. KBI Shares Option Agreement KB, TR, TR Holdings H - -------------------------------------------------------------------------------------------------------------------- 2. KBI-E Asset Option Agreement KB, KBI-E, TR, KBI M - -------------------------------------------------------------------------------------------------------------------- C. Loan to TR - -------------------------------------------------------------------------------------------------------------------- 1. Term Note TR, [KB] - -------------------------------------------------------------------------------------------------------------------- D. Operational Agreements - -------------------------------------------------------------------------------------------------------------------- 1. Amended and Restated License and Option KB, KBI A Agreement - -------------------------------------------------------------------------------------------------------------------- 2. Assignment and Assumption of Amended and KBI, KBI-E F Restated License and Option Agreement - --------------------------------------------------------------------------------------------------------------------
131 2
- -------------------------------------------------------------------------------------------------------------------- NAME OF AGREEMENT PARTIES EXHIBIT - -------------------------------------------------------------------------------------------------------------------- 3. KBI Sublicense Agreement KBI-E, KBI V - -------------------------------------------------------------------------------------------------------------------- 4. Distribution Agreement KBI-E, Partnership B - -------------------------------------------------------------------------------------------------------------------- 5. Second Amended and Restated Manufacturing KB, KBI, TR, KB USA O Agreement - -------------------------------------------------------------------------------------------------------------------- 6. KBI Supply Agreement KBI, Partnership K - -------------------------------------------------------------------------------------------------------------------- 7. Clinical Supply Agreement KB, Partnership U - -------------------------------------------------------------------------------------------------------------------- E. Other - -------------------------------------------------------------------------------------------------------------------- 1. Letter Agreement regarding omeprazole and perprazole - -------------------------------------------------------------------------------------------------------------------- 3. Pledge Agreement KB, KBI Q - -------------------------------------------------------------------------------------------------------------------- 4. Security Agreement KBI, KBI-E, KB W - --------------------------------------------------------------------------------------------------------------------
EX-10.1 3 AMENDED AND RESTATED LICENSE & OPTION AGREEMENT 1 Exhibit 99.3 AS EXECUTED - CONFORMED AMENDED AND RESTATED LICENSE AND OPTION AGREEMENT BETWEEN ASTRA AB AND ASTRA MERCK INC. 2 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS..................................................... 2 ARTICLE II LICENSE GRANTS BY KB............................................ 11 Section 2.1 Group A and Group B Compounds................................ 11 Section 2.2 Group C Compounds............................................ 11 Section 2.3 Exercise of Option........................................... 13 Section 2.4 Provision for Assignment of Options.......................... 14 Section 2.5 Abandonment.................................................. 14 Section 2.6 Combinations................................................. 15 Section 2.7 Sublicense of Certain New Processes.......................... 15 Section 2.8 Licenses of Certain Rights Outside the Territory............. 16 ARTICLE III FDA APPROVAL; NEW CLAIMS; FURNISHING COMPOUNDS.................. 16 Section 3.1 FDA Approval................................................. 16 Section 3.2 New Claims or Formulations................................... 19 ARTICLE IV MARKETING AND MANUFACTURING..................................... 20 Section 4.1 Commencement; Continuation................................... 20 Section 4.2 Quality in Marketing......................................... 20 ARTICLE V [OMITTED]....................................................... 21 ARTICLE VI SUBLICENSES..................................................... 21 ARTICLE VII PAYMENTS........................................................ 21 Section 7.1 Royalties.................................................... 21 Section 7.2 Payment, Reports and Records................................. 22 Section 7.3 Group E Payments, Reports, Records and Forecasts............. 24 ARTICLE VIII GROUP A COMPOUNDS AND GROUP B COMPOUNDS........................ 26 ARTICLE IX PATENT APPLICATIONS; INFRINGEMENT............................... 26 Section 9.1 Applications................................................. 26 Section 9.2 Infringement................................................. 27 Section 9.3 Reexamination and Reissue.................................... 33 Section 9.4 Cooperation.................................................. 34
i 3 Section 9.5 Maintenance Fees............................................. 34 Section 9.6 Candesartan Cilexetil; Turbuhaler............................ 34 Section 9.7 Selected Compounds and Selected Uses......................... 35 ARTICLE X TECHNICAL INFORMATION; CONFIDENTIALITY.......................... 35 Section 10.1 Exchange of Information..................................... 35 Section 10.2 Confidentiality and Permitted Disclosure.................... 36 ARTICLE XI TRADEMARKS; IDENTIFICATION; INFRINGEMENT........................ 37 Section 11.1 Use ........................................................ 37 Section 11.2 Samples, Labels and Advertising Material.................... 37 Section 11.3 Infringement................................................ 37 ARTICLE XII DISCLAIMER AND LIMITATION OF LIABILITY.......................... 38 Section 12.1 Disclaimer.................................................. 38 Section 12.2 Limitation on Damages....................................... 38 ARTICLE XIII TERM AND RIGHTS UPON TERMINATION, REJECTION, OR ASSIGNMENT..... 38 Section 13.1 Term ....................................................... 38 Section 13.2 Rights of KB on Termination, Rejection or Assignment of Licenses or Options for Licenses............................. 39 Section 13.3 Return of Data.............................................. 39 Section 13.4 Effect of Termination....................................... 39 ARTICLE XIV ARBITRATION..................................................... 39 Section 14.1 Arbitration................................................. 39 ARTICLE XV GENERAL PROVISIONS.............................................. 39 Section 15.1 Entire Agreement............................................ 39 Section 15.2 Binding Effect; Assignment.................................. 40 Section 15.3 Applicable Law.............................................. 41 Section 15.4 Notices..................................................... 41 Section 15.5 Waiver or Modification...................................... 42 Section 15.6 Expenses.................................................... 42 Section 15.7 Enforceability.............................................. 42 Section 15.8 Section and Other Headings.................................. 42 Section 15.9 Reasonable Efforts.......................................... 43 Section 15.10 Further Assurances......................................... 43 Section 15.11 Affiliates................................................. 43 Section 15.12 No Agency, etc............................................. 43 Section 15.13 Events of Force Majeur..................................... 43
ii 4 ARTICLE XVI TERMINATION OF RIGHTS........................................... 44 Section 16.1 Termination of Rights and Reversion to Licensee............. 44 Section 16.2 Reversion to KB............................................. 46 Section 16.3 Compliance Certificate; Audit Rights........................ 48
iii 5 EXHIBIT A - APPROVED COUNSEL EXHIBIT B - EXCEPTED COMPOUNDS EXHIBIT C - LICENSED PATENTS EXHIBIT D - THERAPEUTIC CATEGORIES EXHIBIT E - RESTRICTIONS WITH RESPECT TO CERTAIN GROUP C COMPOUNDS EXHIBIT F - PRECLINICAL AND CLINICAL STUDIES EXHIBIT G - FORM OF COMMON AND JOINT INTEREST AGREEMENT EXHIBIT H - PRINCIPLES FOR COOPERATION ON PRILOSEC PATENT ISSUES iv 6 AMENDED AND RESTATED LICENSE AND OPTION AGREEMENT This Agreement made as of the 12th day of July, 1982, as amended and restated as of the 1st day of July, 1998, by and between Astra AB, a company limited by shares organized and existing under the laws of Sweden and formerly known as AB Astra ("KB"), and Astra Merck Inc., a corporation organized and existing under the laws of the State of Delaware and formerly known as Astra/Merck, Inc. ("KBI" or "Licensee"). R E C I T A L S WHEREAS, the Parties entered into that certain License and Option Agreement made as of July 12, 1982, as heretofore amended (the "Original Agreement"), pursuant to which KB granted and Licensee obtained licenses, and options for licenses, to make, have made, use and sell in the Territory under Licensed Patents, Technical Information and Trademarks certain pharmaceutical compounds which KB (or any of its Affiliates) has developed or acquired and certain other pharmaceutical compounds which KB (or any of its Affiliates) may discover, develop or acquire, all subject to the terms and conditions provided for and referred to in the Original Agreement, to the end that all such pharmaceutical compounds will be developed and marketed in the Territory; WHEREAS, the parties desire to amend and restate the Original Agreement; WHEREAS, KB, Licensee and certain of their respective Affiliates have entered into that certain Master Restructuring Agreement (as hereinafter defined), which provides for KB and Licensee to enter into this Amended and Restated License and Option Agreement; WHEREAS, it is contemplated by the parties hereto that certain rights under this Agreement relating to the Trademarks (as hereinafter defined), the Selected Compounds (as hereinafter defined) and the Selected Uses (as hereinafter defined) will be assigned by Licensee to KBI Sub (as hereinafter defined), a wholly-owned subsidiary of Licensee, and then further assigned by such subsidiary to the Partnership (as hereinafter defined); WHEREAS, it is contemplated by the parties hereto that the remaining rights of Licensee under this Agreement will be assigned to KBI-E (as hereinafter defined), a wholly-owned subsidiary of Licensee; WHEREAS, following such assignments, all references to "Licensee" hereunder shall mean, when referring to matters relating to the Trademarks, Selected Compounds and Selected Uses, the Partnership and, when referring to matters relating to all other Compounds and uses, KBI-E; WHEREAS, it is contemplated by the parties hereto that KBI-E will appoint the Partnership as its sole and exclusive distributor with respect to products containing Licensed Compounds to which KBI-E will have rights as the assignee of KBI, subject to certain exceptions to be set forth in the Distribution Agreement (as hereinafter defined); 7 WHEREAS, KBI-E proposes to contract with the Partnership, pursuant to the Distribution Agreement, for the Partnership to provide certain services on behalf of KBI-E which shall fulfill certain obligations of KBI-E, as assignee of KBI hereunder, and to exercise certain rights of KBI-E, as assignee of KBI hereunder; WHEREAS, KB and KBI-E desire that certain information concerning Distribution Compounds (as hereinafter defined) be provided directly to the Partnership and that certain information be provided by the Partnership directly to KB; WHEREAS, for the purpose of providing for the supply of Distribution Products (as defined in the Distribution Agreement) to the Partnership (or any permitted assignee) and Exclusive Second Look Products and Non-Exclusive Second Look Products (each as defined in the Manufacturing Agreement) to any permitted sublicensee or distributor of KBI-E, it is contemplated that KBI-E will grant to KBI the right to make and have made Distribution Products for the sole purposes of enabling KBI to supply Distribution Products to the Partnership (or such permitted assignee) and Exclusive Second Look Products and Non-Exclusive Second Look Products to any permitted sublicensee or distributor of KBI-E, and KBI is entering into the KBI Supply Agreement (as hereinafter defined) with the Partnership for the sole purpose of supplying Distribution Products and Distribution Compounds (as hereinafter defined) to the Partnership (or such assignee) in fulfillment of KBI-E's supply obligation to the Partnership under the Distribution Agreement; and WHEREAS, it is contemplated that KBI will enter into the Manufacturing Agreement (as hereinafter defined) for the purpose of establishing arrangements under which TR and KB will supply to KBI certain of KBI's requirements for Distribution Products for the sole purpose of satisfying KBI's obligations to the Partnership under the KBI Supply Agreement, and TR and KB are willing to perform such supply on the terms and subject to the conditions therein set forth. NOW, THEREFORE, in consideration of the premises and the covenants and conditions herein contained, the Parties hereby agree as follows: ARTICLE I DEFINITIONS Unless specifically set forth to the contrary herein, the following terms shall have their indicated meanings when used in this Agreement. Abandoned Compound shall have the meaning defined in Section 2.5. Accounting Procedures shall mean GAAP, including, without limitation, (i) accruing for reserves at the time of sale for estimated product returns, (ii) recording cash discounts as taken by customers and (iii) establishing reserves on an accrual basis for estimated managed care rebates/chargebacks at the time of product sale. 2 8 Active Development Program shall have the meaning defined in the Distribution Agreement. Actively Marketing shall have the meaning defined in the Distribution Agreement. Affiliate shall mean, with respect to any Person, any other Person controlling, controlled by, or under common control with, such Person. The term "control" of a Person shall mean direct or indirect ownership of more than 50% of the outstanding voting stock of a corporation or voting interest in a non-corporate Person. Alternate Producer shall have the meaning defined in the Manufacturing Agreement. Amendment and Restatement Date shall mean July 1, 1998. Ancillary Agreements shall have the meaning defined in the Master Restructuring Agreement. Approved Counsel shall mean any law firm listed on Exhibit A; provided, however, Licensee may remove from Exhibit A any law firm at any time and replace such law firm with any other law firm that has not represented TR within the three-year period prior to the commencement of any representation by such law firm of Licensee with regard to any matter described in Article IX, and that is not representing TR at the time of such representation of Licensee. Calendar Year shall mean each 12-month period commencing on January 1 and ending on December 31. Clinical Supply Agreement shall mean that certain Clinical Supply Agreement dated as of the Amendment and Restatement Date by and between KB and the Partnership, as such agreement is amended, modified, supplemented or restated from time to time. Combination shall mean any Licensed Compound in combination with one or more other therapeutically active ingredients (including any other Licensed Compound). Common and Joint Interest Agreement shall have the meaning defined in Section 9.2(b)(i). Compound shall mean any pharmaceutical compound, and the salts and esters thereof, which is suitable for use in human medicine. Confidential Information shall have the meaning defined in the Master Restructuring Agreement. Covered Compound shall mean any Licensed Compound, Group D Compound, Group E Compound and KB USA Product. De Minimis Infringement shall mean any infringement, potential infringement or 3 9 suspected infringement in the Territory with respect to any Licensed Patent where the economic effect, taken as a whole, of such infringement, potential infringement or suspected infringement on such Licensed Patent would be de minimis (for example, sales for laboratory or research purposes or sales of minimal commercial value). Discontinuation Notice shall have the meaning defined in Section 16.2(a). Discontinued Licensed Compound shall have the meaning defined in Section 16.2(a). Discretionary Compounds shall have the meaning defined in the KBI-E Asset Option Agreement. Distribution Agreement shall mean that certain Distribution Agreement dated as of the Amendment and Restatement Date by and between KBI-E and the Partnership, as such agreement is amended, modified, supplemented or restated from time to time. Distribution Compound shall have the meaning set forth in the Distribution Agreement; provided, however, that in the event that the Partnership's rights to a Distribution Compound under the Distribution Agreement are non-exclusive, "Distribution Compound" shall refer to such Compound to the extent of the Partnership's rights and obligations with respect thereto and shall not refer to such Compound to the extent of the rights and obligations of KBI-E with respect thereto. Events of Force Majeure shall have the meaning defined in Section 15.13. Excepted Compounds shall mean the Compounds listed on Exhibit B. Exempted Combination shall have the meaning defined in the Distribution Agreement. FDA shall mean the United States Food and Drug Administration and any successor agency having substantially the same functions. First Commercial Sale shall mean, with respect to any Person, the first sale of a Licensed Compound in the Territory by such Person (or any of its Affiliates) or any sublicensee or distributor of any of the foregoing to any Non-Affiliate or non-sublicensee or non-distributor thereof following approval by the FDA of an NDA for such Compound. Full Costs shall mean, in respect of any specific project, the sum of (a) the direct costs incurred solely for such project, (b) the expenses allocated to such project and (c) the costs of capital employed in connection with such project. Any calculation of costs or expenses referred to in clause (a) or (b) shall be made using the usual accounting system then employed by the Party performing such project and any calculation of costs of capital referred to in clause (c) shall be made, in respect of the costs of capital of KB or the Partnership, in accordance with the principles set forth in Exhibit IVA to the Manufacturing Agreement and, in respect of the costs of capital of KBI-E, in accordance with the principles set forth with respect to TR in Exhibit III to the Manufacturing Agreement. 4 10 GAAP shall have the meaning defined in the Master Restructuring Agreement. Generic Challenge Certification shall mean a Paragraph IV Certification filed by an applicant under 21 U.S.C. Section 355(b)(2)(A)(iv) for a 21 U.S.C. Section 355(b)(2) application, or a Paragraph IV Certification filed by an applicant under 21 U.S.C. Section 355(j)(2)(A)(vii)(IV) for a 21 U.S.C. Section 355(j)(1) application, in accordance with the applicable FDA regulations in connection therewith, including, but not limited to, 21 C.F.R. Section 314.50(i)(1)(A)(4) and 21 C.F.R. Section 314.94(a)(12)(i)(A)(4), as applicable, and any subsequent amendments to such statutes or regulations. Group A Compound shall mean the Compound tocainide. Group B Compounds shall mean the Compounds felodipine and omeprazole. Group C Compounds shall mean the Compounds rofleponide, remacemide, candesartan cilexetil, perprazole [H199/18], budesonide for the treatment of inflammatory bowel disease in humans (K50-51) and ropivacaine for the treatment of inflammatory bowel disease in humans (K50-51), and any Compound that as of the Amendment and Restatement Date has been, or hereafter is, discovered, developed or acquired by KB (or any of its Affiliates), including without limitation any acquired by license, other than (i) any Group A Compound, (ii) any Group B Compound, (iii) nisin, bucindolol and balsalazide, (iv) any KB USA Compound, (v) terbutaline sulphate, formoterol, foscarnet and bambuterol, and (vi) Compounds listed on Exhibit B as Excepted Compounds. Group D Compound shall have the meaning defined in the Master Restructuring Agreement. Group E Compound shall have the meaning defined in the Master Restructuring Agreement. Group E Product shall have the meaning defined in the Master Restructuring Agreement. Group E Products Contingent Amount shall have the meaning defined in the Master Restructuring Agreement. IND shall mean an Investigational New Drug Application made in accordance with applicable regulations and requirements of the FDA as from time to time in effect. Information Package shall have the meaning defined in Section 2.3(b). Initial Agreements shall have the meaning defined in the Master Restructuring Agreement. KB's Manufacturing Process shall mean in respect of any Licensed Compound 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 5 11 to Section 4.3(c) of the TR Licenses or Section 6.04(g) or 7.05(f) of the Manufacturing Agreement for manufacturing or preparing (i) such Licensed Compound (including any intermediate of such Licensed Compound and any dosage form of such Compound included in the initial NDA for such Compound), but excluding packaging except to the extent referred to in clause (ii) below, and (ii) any device for the administration of such Licensed Compound if such device is either unique to such Compound or is used by KB (or any of its Affiliates) in the marketing of such 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 or otherwise authorize the use thereof by Licensee 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, but except as specifically provided in the proviso in Section 16.1(d), KB shall not be obligated to provide Licensee 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 Sub shall mean KBI Sub Inc., a corporation organized and existing under the laws of the State of Delaware. KBI Supply Agreement shall mean that certain KBI Supply Agreement by and between KBI and the Partnership dated as of the Amendment and Restatement Date, as such agreement is amended, modified, supplemented or restated from time to time. KBI-E shall mean Astra Merck Enterprises Inc., a corporation organized and existing under the laws of the State of Delaware. KBI-E Asset Option Agreement shall mean that certain KBI-E Asset Option Agreement dated as of the Amendment and Restatement Date by and among KB, TR, KBI and KBI-E, as such agreement is amended, modified, supplemented or restated from time to time. KBLP shall mean KB USA, L.P., a limited partnership organized and existing under the laws of the State of Delaware. KB USA Compound shall have the meaning defined in the Master Restructuring Agreement. KB USA Product shall have the meaning defined in the Master Restructuring Agreement. Licensed Compound shall mean any (i) Group A Compound, (ii) Group B Compound, or (iii) Group C Compound licensed to Licensee under Article II. 6 12 Licensed Patents shall mean (A) those patent applications and any divisions or continuations thereof and unexpired United States patents set forth in Exhibit C; (B) any United States patent or patent application and any division or continuation thereof which during the term of this Agreement is owned by KB (or any of its Affiliates) or as to which KB (or any of its Affiliates) has licensing rights in the Territory and (i) which claims any Licensed Compound or compositions containing it or its methods of use, or intermediates employed in the manufacture or preparation of such Licensed Compound, or (ii) which claims any device for the administration of any Licensed Compound and which device is either unique to such Compound or is used by KB (or any of its Affiliates) in the marketing of such Compound anywhere in the world, or (iii) which claims any of KB's Manufacturing Processes; and (C) any reissue or extension of any of the foregoing patents. Manufacturing Agreement shall mean that certain Second Amended and Restated Manufacturing Agreement dated as of the Amendment and Restatement Date, as such agreement is amended, modified, supplemented or restated from time to time. Market Exclusivity shall have the meaning defined in the Master Restructuring Agreement. Master Restructuring Agreement shall mean that certain Master Restructuring Agreement dated as of June 19, 1998 among KB, TR, KBI, KB USA, Inc., a corporation organized and existing under the laws of the State of New York, KBLP, KBI-E, KBI Sub, TR Holdings, Inc., a corporation organized and existing under the laws of the State of Delaware, and the Partnership, as such agreement is amended, modified, supplemented or restated from time to time. NDA shall mean a New Drug Application made in accordance with applicable regulations and requirements of the FDA as from time to time in effect. Net Sales shall mean for any period the total amount required to be recorded for such period in the manner provided in Section 7.2(b) or Section 7.3(b) by Licensee and its Affiliates (or, in the case of Section 2.2(c), by KB and its Affiliates) and its and their sublicensees, distributors and subdistributors on its and their books and records, in each case in accordance with the Accounting Procedures, with respect to sales in the Territory of Compounds for any use (whether in human medicine or otherwise) to its and their Non-Affiliates, non-sublicensees, non-distributors and non-subdistributors after deducting (if not already deducted in the amount recorded) trade discounts, rebates, returns and allowances, retroactive price reductions or adjustments, and 5% of the amount recorded to cover cash discounts ("fast pay"), sales or excise taxes, transportation, and insurance charges; provided, however, that Net Sales shall not include sales by any sublicensee under any Required Sublicense. If a Licensed Compound is combined with one or more other Compounds, one hundred percent (100%) of Net Sales of such Combination shall be included. Net Sales shall not include sales to a Person to the extent sales by such Person are included in Net Sales. New Process shall mean 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 (including 7 13 any intermediate of such Licensed Compound or any dosage form of such 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 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 Section 6.04(g) or 7.05(f) of the Manufacturing Agreement; 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 Licensee is sublicensed with respect to such New Process pursuant to Section 2.7. Non-Affiliate shall mean, with respect to any Person, any other Person which is not an Affiliate of such Person. Non-Performance Notice shall have the meaning defined in Section 16.2(b). Original Execution Date shall mean July 12, 1982. Option Notice shall have the meaning defined in Section 2.3(a). Parenteral Form shall mean any route of administration of a Compound by injection, including without limitation intravenous, intramuscular, subcutaneous or intraspinal. Partnership shall mean Astra Pharmaceuticals, L.P., a limited partnership organized and existing under the laws of the State of Delaware. Partnership Agreement shall mean that certain Limited Partnership Agreement by and between KBLP, as General Partner, and KBI Sub, as Limited Partner, dated as of the Amendment and Restatement Date, as such agreement is amended, modified, supplemented or restated from time to time. Party shall mean KB or Licensee. Patent Committee shall mean a committee appointed by the Board of Directors of KBI-E consisting of between one and three officers of KBI-E. The members of the Patent Committee may be employees of TR, and KBI-E shall cause the head of patent litigation at TR to be a member of such committee; provided, however, that the Patent Committee will not include any representative of TR from TR's research and development or marketing departments. No designee or representative of KB may be a member of the Patent Committee. Patent Matter shall have the meaning defined in Section 9.2(a). Person shall mean an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture or other entity of a similar nature. Phase II Clinical Evaluation shall constitute, with respect to any Compound, all tests and studies in patients which are required by the FDA from time to time, pursuant to regulations, guidelines or otherwise, to obtain sufficient data to initiate Phase III Clinical Evaluation of such 8 14 Compound. Phase III Clinical Evaluation shall constitute, with respect to any Compound, all tests and studies using an extensive patient base which are required to provide substantial evidence of efficacy and safety to obtain FDA approval of an NDA for such Compound, including, but not limited to, all tests and studies which are currently required by the FDA, pursuant to regulations, guidelines or otherwise, as Phase III tests and studies for such Compound. Product Composition shall mean, with respect to any Licensed Compound, the quantitative and qualitative composition of the dosage forms, including both the active and inert ingredients, of such Licensed Compound. Product Definition shall mean the pharmaceutical dosage forms of a Licensed Compound for sale, including without limitation its color, size, shape and markings, as specified in Section 3.1(a)(i)(B). Regulatory Outlicense shall have the meaning defined in the Master Restructuring Agreement. Required Sublicense shall mean any sublicense of a Licensed Compound in the Territory, the grant of which by Licensee (or any of its Affiliates) is (x) ordered by any decision of any administrative body or court of competent jurisdiction which decision Licensee (or any such Affiliate) has determined not to appeal or seek judicial review of or (y) otherwise required by law; provided, however, any sublicense granted by Licensee (or any such Affiliate) pursuant to a consent decree or settlement agreement entered into by Licensee (or any such Affiliate) or pursuant to clause (y) above, without the prior consent of KB, which consent shall not be unreasonably withheld, shall not be deemed a Required Sublicense; provided, further, that any Regulatory Outlicense shall not be deemed a Required Sublicense. Selected Compounds shall have the meaning defined in the Selected Compounds Contribution Agreement. Selected Compounds Contribution Agreement shall have the meaning defined in the Master Restructuring Agreement. Selected Uses shall have the meaning defined in the Selected Compounds Contribution Agreement. Special Losses shall have the meaning defined in Section 12.2. SPL shall mean Swedish Pharmaceuticals Limited, a corporation organized and existing under the laws of the State of New York. Subsidiary shall have the meaning defined in the Partnership Agreement (other than the last sentence thereof). 9 15 Technical Information shall mean all scientific and technical information, data, and know-how possessed by KB (or any of its Affiliates) applicable to any Licensed Compound including, without limitation, (i) research and preclinical and clinical data; (ii) information, data and know-how relating to any device for the administration of a Licensed Compound which is unique to such Compound or which is used by KB (or any of its Affiliates) in the marketing of such Compound anywhere in the world; and (iii) information, data and know-how relating to any of KB's Manufacturing Processes. Territory shall mean the United States of America, its territories and possessions. Therapeutic Category shall mean each category of disease or disorder listed on Exhibit D. TR shall mean Merck & Co., Inc., a corporation organized and existing under the laws of the State of New Jersey. TR Licenses shall mean collectively (i) that certain License and Option Agreement between KB and SPL, made as of the Original Execution Date, and (ii) that certain License Agreement between TR and KB Pharmaceutical Products, Inc., a New York corporation now known as KB USA Inc., made as of the Original Execution Date. Trademarks shall mean trademarks with respect to any and all Licensed Compounds which have been, or currently or hereafter are, registered in the Territory or for which a United States trademark application with respect to any Licensed Compound is filed in the Territory and which during the term of this Agreement is owned by KB (or any of its Affiliates) or as to which KB (or any of its Affiliates) has licensing rights in the Territory. Such Trademarks include, without limitation, Prilosec(R), Losec(R), Lexxel(R), Tonocard(R), Plendil(R), Entocort(R), Ambicin(R), Atacand(R), Zelmid(R), Distrohaler(R), Hyprenan(R), Mistohaler(R), Roxiam(R) and Oxeze(R). Trigger Event shall have the meaning set forth in the Master Restructuring Agreement. Turbuhaler shall mean 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. 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 such Compounds. Weighted Net Sales shall have the meaning defined in the Master Restructuring Agreement. ARTICLE II 10 16 LICENSE GRANTS BY KB Section 2.1 Group A and Group B Compounds. KB hereby grants on behalf of itself and, with respect to the Compound tocainide, on behalf of KB USA, Inc., to Licensee an exclusive license under all Licensed Patents, Trademarks and Technical Information to make, have made, use and sell each Group A Compound and Group B Compound in any form in the Territory with the right to sublicense; provided, however, KB (and its Affiliates) shall retain the nonexclusive, licensable right to make, have made, use and sell any intermediate employed in the manufacture or preparation of any Group A or Group B Compound. Section 2.2 Group C Compounds. KB on behalf of itself and each of its Affiliates hereby grants Licensee an option to acquire an exclusive license under all Licensed Patents, Trademarks and Technical Information for each Group C Compound as to which there exists at any time after November 1, 1994 either (i) a United States patent, owned by KB (or any of its Affiliates), or as to which KB (or any of its Affiliates) has licensing rights in the Territory, claiming such Compound, any of its methods of use or any composition containing it or (ii) an application (or any division or continuation thereof) for a United States patent filed by KB (or any of its Affiliates) or as to which KB (or any of its Affiliates) has licensing rights in the Territory claiming such Compound, any of its methods of use or any composition containing it, to make, have made, use and sell such Compound in any form in the Territory with the right to sublicense, provided that: (a) If a Group C Compound will have only an intravenous route of administration and will not have an antibiotic, anticancer or antiviral use, Licensee will not have an option for a license for the Territory for such Group C Compound. (b) If a Group C Compound is primarily for dental or anesthetic use, Licensee will not have an option for a license for the Territory for such Group C Compound. (c) (i) In the case of (x) any Group C Compound acquired by or licensed to KB (or by or to any of its Affiliates) from any of its Non-Affiliates, including any Group C Compound acquired by (or the control of which is acquired by) or licensed to KB (or any of its Affiliates) by reason of the acquisition by KB (or any of its Affiliates) of a controlling interest in any Person, (y) any Group C Compound discovered by any Non-Affiliate of KB and jointly developed by KB (or any of its Affiliates) and such Non-Affiliate or (z) any Group C Compound covered by a joint research agreement entered into by KB (or any of its Affiliates) with any of its Non-Affiliates prior to April 28, 1981, Licensee's option for such Group C Compound will be only for such rights as KB (or any of its Affiliates) may, consistent with applicable law or the terms of any such acquisition, license or joint research or development agreement, grant to Licensee, and shall be subject to any obligation of KB and its Affiliates with respect to payments to Non-Affiliates of KB computed as a percentage of net sales in the Territory applicable to such rights. 11 17 (ii) In the event that KB (or such Affiliate) may not grant to Licensee the right to make and have made any such Group C Compound in the Territory, (A) such Compound shall be a Selected Compound as provided in the Selected Compounds Contribution Agreement, (B) KB shall grant (or cause to be granted) to the Partnership pursuant to this Agreement and the Selected Compounds Contribution Agreement such rights as KB may grant for such Compound in the Territory, in which case such Compound shall be deemed a Group D Compound as provided in the Master Restructuring Agreement, and such grant shall be subject to any payment and other obligations applicable to such rights, and (C) if such rights may not be granted to the Partnership, such Compound shall be deemed a Group E Compound asprovided in the Master Restructuring Agreement. (iii) In the event that any Compound is deemed a Group E Compound, KB (or such Affiliate) shall pay to Licensee the Group E Products Contingent Amount with respect to Net Sales by KB and its Affiliates of products containing such Group E Compound in the manner provided in Section 7.3; provided, however, if a Combination contains a Group E Compound, no Group E Product Contingent Amount shall be paid to the extent that KBI has received the Agreed Mark-Up (as defined in the KBI Supply Agreement) with respect to such Combination pursuant to KBI Supply Agreement. Subject to Section 3.14 of the Master Restructuring Agreement, Licensee shall have no other rights, claims or demands, in law or in equity, with respect to KB's inability to provide such rights to Licensee. (iv) KB shall give KBI-E written notice promptly after the acquisition or license of any such Group D Compound or Group E Compound and of the grant of such rights to the Partnership or another Affiliate of KB, as the case may be. Such notice shall be given no later than two months after the Phase II Clinical Evaluation for such Compound has been completed. With respect to any such Compound acquired by KB (or any of its Affiliates) as to which Phase II Clinical Evaluation has been completed, such notice shall be given no later than two months after such acquisition. (d) In the case of each Group C Compound, KB shall retain the nonexclusive, licensable right to make, have made, use and sell any intermediate employed in the manufacture or preparation of such Group C Compound. (e) If any Compound, other than a Licensed Compound or a Compound covered by any patent or patent application referred to in clause (i) or (ii) of this Section 2.2, is being marketed in the Territory by any Person or governmental entity for use in human medicine and thereafter a new use is discovered for such Compound and KB (or any of its Affiliates) owns, or obtains licensing rights under, any patent or patent application for such new use in the Territory, with the result that such Compound becomes subject to an option pursuant to this Section 2.2, the option for such Compound shall be limited to an option to acquire (x) an exclusive license (subject to the exceptions provided above) from KB (or any of its Affiliates) under such patent or patent application for such new use and (y) a nonexclusive license under Technical Information to make, 12 18 have made, use and sell such Compound for such new use in any form in the Territory with the right to sublicense. Prior to the Amendment and Restatement Date, KB granted Licensee licenses pursuant to the terms and conditions of this Agreement for the Group C Compounds rofleponide, remacemide, candesartan cilexetil, and perprazole (H199/18). KB hereby confirms that licenses hereunder for such Group C Compounds are in effect; provided, however, that the licenses for remacemide and candesartan cilexetil are subject to the limitations summarized in Exhibit E hereto. KB and Licensee hereby agree that the Compounds budesonide and ropivacaine, in both cases for the treatment of inflammatory bowel disease in humans (K50-51), are Group C Compounds and Licensed Compounds. Section 2.3 Exercise of Option. (a) KB shall notify Licensee of each Group C Compound with respect to which notification has not been given prior to the Amendment and Restatement Date as to which Licensee will have an option pursuant to Section 2.2 (an "Option Notice") no later than two months after the Phase II Clinical Evaluation for such Compound has been completed. With respect to any Group C Compound acquired by KB (or any of its Affiliates) as to which such Phase II Clinical Evaluation has been completed, such Option Notice shall be given no later than two months after such acquisition. The Option Notice shall identify such Compound by its generic name, its tentative indications and the patents relevant to such Compound. (b) Subject to Section 2.3(d), simultaneously with the giving of such Option Notice or prior thereto, KB will provide Licensee (or, at the election of KB in the case of Distribution Compounds, the Partnership) with all relevant information with respect to testing through the completion of Phase II Clinical Evaluation for such Compound excluding any information regarding KB's Manufacturing Process (the "Information Package"). (c) Subject to Section 2.3(d), from time to time after the giving of such Option Notice KB will provide Licensee (or, at the election of KB in the case of Distribution Compounds, the Partnership) with a reasonable quantity of samples of such Compound, and such additional scientific, technical, and other information in the possession of KB (or any of its Affiliates) relating to such Compound, as Licensee (or, in the case of Distribution Compounds, the Partnership) shall reasonably request in order to make a scientific, legal and business evaluation of the development and marketing potential in the Territory of such Compound; provided, however, that KB shall not be required to provide information regarding KB's Manufacturing Process. (d) Except as provided in the Distribution Agreement, KBI-E shall have neither access nor any other rights with respect to the Information Package or any samples and scientific, technical and other information made available to the Partnership pursuant to this Section 2.3 or otherwise with respect to any Group C Compound in the event the Partnership is the exclusive distributor of products containing such Compound. In the event, however, that the Partnership is 13 19 not the exclusive distributor of products containing such Compound because it does not wish to exercise its option to do so pursuant to Section C of the Distribution Agreement, KBI-E shall notify KB thereof and KB shall promptly thereafter deliver to KBI-E the Information Package, samples and other information specified in Sections 2.3(b) and 2.3(c). (e) Licensee shall be deemed to have exercised such option and accepted the license for such Group C Compound if Licensee does not notify KB within one hundred twenty (120) days of receipt of such Option Notice that it rejects a license for such Group C Compound. If Licensee provides KB with a notice that it rejects a license for such Group C Compound by the end of such one hundred twenty (120) day period, the option and the rights of Licensee under this Agreement shall terminate with respect to such Group C Compound. If Licensee exercises such option, such Compound will become a Licensed Compound subject to all of the terms and conditions of this Agreement. Section 2.4 Provision for Assignment of Options. If a Trigger Event occurs, certain options granted in Section 2.2 shall be assigned in accordance with Section 3.15(h) of the Master Restructuring Agreement. Section 2.5 Abandonment. (a) With respect to any Group C Compound covered by Section 2.2 as to which KB has given, or is required to give, Licensee the Option Notice provided in Section 2.3 and as to which Licensee has not yet exercised its option and obtained a license pursuant to Section 2.3, KB may, for any reason whatsoever at any time, decide that neither it nor any of its Affiliates will develop, continue to develop, or have developed for it such Group C Compound any place in the world (an "Abandoned Compound"). In such event, KB shall no later than 30 days after such decision notify Licensee of such decision and Licensee shall no longer have an option to acquire a license for such Compound. In the event KB (or any of its Affiliates) thereafter decides to institute or reinstitute a development program with respect to such Abandoned Compound, KB shall no later than 30 days following such decision notify Licensee of such decision and Licensee shall have an option to acquire a license therefor pursuant to Sections 2.2 and 2.3 as a Group C Compound. (b) With respect to any Group C Compound as to which KB has not given, and will not be required to give, Licensee the Option Notice provided in Section 2.3 (but not with respect to any Group C Compound excluded under Section 2.2), neither KB nor any of its Affiliates shall be under any obligation to Licensee to develop, continue to develop, or have developed for it, such Compound. In the event KB (or any of its Affiliates) decides to sell, license or transfer such an undeveloped Compound or any indication or use of such undeveloped Compound in the Territory to any of its Non-Affiliates, KB shall notify Licensee in writing of its intent to sell, license or transfer such undeveloped Compound or such indication or use and, within fifteen (15) days of receipt of such notice, Licensee shall notify KB whether or not it will consent to such sale, license or transfer of such undeveloped Compound or such indication or use in the Territory, such consent not to be unreasonably withheld. If Licensee consents to such sale, license or transfer of such undeveloped Compound or such indication or use, KB (or such Affiliate) and Licensee shall share equally in all proceeds received by KB (or such Affiliate) relating to the Territory in connection with such sale, license or transfer. If Licensee does not 14 20 consent to such sale, license or transfer of such undeveloped Compound or such indication or use, KB shall not proceed with such sale, license or transfer of such undeveloped Compound or such indication or use in the Territory. (c) Licensee (or, in the case of Distribution Compounds, the Partnership) may recall or effect a market withdrawal of a product containing a Licensed Compound at any time, after consultation with KB. In addition, KB, after consultation with Licensee (or, in the case of Distribution Compounds, the Partnership), may, at any time, demand a recall or market withdrawal of a product containing a Licensed Compound, and, if so requested, Licensee shall (or, in the case of Distribution Compounds, Licensee shall require the Partnership to) promptly effect such recall or market withdrawal. Licensee (or, in the case of Distribution Compounds, the Partnership) and, if applicable, KB (if KB has demanded such recall or market withdrawal), shall coordinate the recall or market withdrawal. The costs relating to a recall or market withdrawal shall be borne as set forth in the KBI Supply Agreement and the Manufacturing Agreement. Section 2.6 Combinations. Any Combination now or hereafter discovered, developed or acquired (including, without limitation, any acquired by license) by KB or Licensee (or any of their respective Affiliates) shall be treated as a Group C Compound; provided, however, that if such Combination contains a Covered Compound other than a Licensed Compound, such Combination shall be treated as a Group D Compound or a Group E Compound as provided in Schedule 1.2 to the Master Restructuring Agreement; provided, further, however, if a Combination containing a KB USA Compound, a Group D Compound or a Group E Compound contains a Licensed Compound, any royalties payable pursuant to Section 7.1 for the Licensed Compound contained in such Combination shall be payable with respect to such Combination. Such royalties shall not apply to Lexxel(R). For purposes of this Agreement, the Combination product Logimax(R) shall not be treated as a Group C Compound and shall be treated as a KB USA Product. Section 2.7 Sublicense of Certain New Processes. If KB (or any of its Affiliates) is offered a license for a New Process by a Non-Affiliate of KB and such Non-Affiliate is willing to extend rights in the Territory to Licensee, KB shall promptly notify Licensee of such offer and the proposed terms and conditions thereof and, to the extent applicable under the Manufacturing Agreement, shall provide Licensee with such information in the possession of KB (or any of its Affiliates) relating to such New Process which KB is permitted to disclose to Licensee by such Non-Affiliate. As promptly thereafter as practicable, Licensee shall advise KB of its interest in obtaining a sublicense to such New Process for the Territory. If such a sublicense is obtained, the royalties or other amounts payable by Licensee to KB (or any of its Affiliates) under any such sublicense, in addition to the amounts payable by Licensee to KB pursuant to Sections 7.1 and 7.2, shall be determined in the same manner and under the same formula as those payable by KB (or any of its Affiliates) to such Non-Affiliate with respect to the rights sublicensed to Licensee. Section 2.8 Licenses of Certain Rights Outside the Territory. If KB shall consent pursuant to Section 4.08 of the Manufacturing Agreement to the manufacture by TR or an 15 21 Alternate Producer (either directly or through their respective Affiliates or subcontractors) of a Product (as defined in the Manufacturing Agreement) outside the Territory, KB shall, to the extent required, grant (and shall cause its Affiliates to grant) to TR or such Alternate Producer, Affiliate or subcontractor a non-exclusive license to manufacture such Product in such country for the sole purpose of permitting TR or such Alternate Producer, Affiliate or subcontractor to exercise its rights under Section 4.08 of the Manufacturing Agreement solely in connection with performing its obligations under such Manufacturing Agreement, it being understood that the grant of such license will not imply that KB has any rights under any patents or other intellectual property of any Non-Affiliates of KB. Notwithstanding the foregoing, KB shall not be obligated, for purposes of permitting such manufacturing of any such Product in any country outside the Territory, to obtain for the benefit of Licensee or TR or any Alternate Producer, Affiliate or subcontractor, as the case may be, any intellectual property rights with respect to such country that are not then owned or held by KB or any of its Affiliates. ARTICLE III FDA APPROVAL; NEW CLAIMS; FURNISHING COMPOUNDS Section 3.1 FDA Approval. KB and Licensee shall (or, in the case of Distribution Compounds, Licensee shall require the Partnership to) use reasonable efforts to obtain and maintain FDA approval of an NDA for each Licensed Compound for use in human medicine. In furtherance thereof: (a) Evaluation. After receipt of appropriate documentation from KB, Licensee shall use (or, in the case of Distribution Compounds, shall require the Partnership to use) reasonable efforts to file an IND with the FDA at its sole cost in respect to each Licensed Compound. KB may, to the extent it deems required or advisable, also file an IND with the FDA at its sole cost in respect of any Licensed Compound. Each Party shall promptly notify the other of each IND and NDA it has filed and of each FDA approval of an NDA, in respect of each Licensed Compound; provided, however, in the case of Distribution Compounds, KB shall provide such notice to the Partnership (rather than Licensee). Each Party shall use reasonable efforts to complete as promptly as practicable its obligations set forth at subparagraphs (i) and (ii) below in a manner which complies with or exceeds FDA standards as from time to time in effect. (i) (A) KB shall use reasonable efforts to complete for each Licensed Compound (x) all tests, studies and other development activities specified in, or required to obtain the information specified in, Exhibit F hereto to the extent required by the FDA from time to time, (y) such other tests, studies and other development activities as may be required from time to time by the FDA pursuant to regulations, guidelines or otherwise which are of a similar nature to those specified in, or required to obtain the information specified in, Exhibit F hereto, and (z) any other tests, studies and other development activities which are of a similar nature to those specified in clause (x) or (y) above and which would in the 16 22 reasonable judgment of Licensee (or, in the case of Distribution Compounds, the Partnership), after consultation with KB, expedite materially FDA approval of an NDA for such Licensed Compound or are necessary or advisable to maintain such approval; provided, however, the total of all tests, studies, and other development activities under clause (z) shall not unreasonably exceed the tests, studies, and other development activities specified in clauses (x) and (y). If any tests, studies or other development activities to be performed by KB hereunder for such Licensed Compound are required by the FDA to be performed in the Territory, Licensee shall (or, in the case of Distribution Compounds, Licensee shall require the Partnership to), at the request of KB, use reasonable efforts to perform, or to contract for the performance of, such tests, studies or other development activities in the Territory, and KB shall reimburse Licensee (or, in the case of Distribution Compounds, the Partnership) for Licensee's (or any of its Affiliates') (or, in the case of the Distribution Compounds, the Partnership's or any of its Subsidiaries') out-of-pocket costs incurred in such performance. (B) KB shall notify Licensee (or, in the case of Distribution Compounds, the Partnership) of KB's Product Definition and Product Composition for such Licensed Compound as soon as reasonably available. If Licensee (or, in the case of Distribution Compounds, the Partnership) desires a Product Definition different from KB's Product Definition for such Licensed Compound, Licensee (or, in the case of Distribution Compounds, the Partnership) shall consult with KB and notify KB of Licensee's (or, in the case of Distribution Compounds, the Partnership's) Product Definition for such Licensed Compound, which shall be reasonably related to KB's Product Composition for such Licensed Compound. KB shall use reasonable efforts to develop Licensee's (or, in the case of Distribution Compounds, the Partnership's) Product Definition. Licensee shall (or, in the case of Distribution Compounds, Licensee shall require the Partnership to) reimburse KB for the Full Costs incurred by KB (and its Affiliates) in developing Licensee's (or, in the case of Distribution Compounds, the Partnership's) Product Definition for such Licensed Compound and in developing the Dosage Form Information specified in Exhibit F for Licensee's (or, in the case of Distribution Compounds, the Partnership's) Product Definition. (C) The Parties will consult as to whether any tests, studies or other development activities of the nature described at subparagraph (A) above are required to be performed with respect to any reference drug or placebo for such Licensed Compound; provided, however, in the case of Distribution Compounds, KB shall consult with the Partnership. KB will use reasonable efforts to perform such tests, studies or other development activities, and Licensee will pay (or, in the case of Distribution Compounds, Licensee will require the Partnership to pay) to KB the Full Costs incurred by KB (and its Affiliates) for such performance. (D) KB shall prepare and provide to Licensee (or, in the case of Distribution Compounds, the Partnership), at no charge to Licensee (or, in the 17 23 case of Distribution Compounds, the Partnership) (except as provided above), all appropriate documentation relating to the tests, studies and other development activities referred to in subparagraphs (A), (B) and (C) above for such Licensed Compound including, without limitation, the results of, and supporting data and information for, all such tests, studies and other development activities. Licensee (or, in the case of Distribution Compounds, the Partnership) shall be entitled to use such documentation and results, data and information to obtain or maintain FDA approval of an NDA for such Compound, and to incorporate such documentation and results, data and information in any filings with the FDA for such Compound. (ii) After Phase II Clinical Evaluation for a Licensed Compound has been completed, Licensee shall (or, in the case of Distribution Compounds, Licensee shall require the Partnership to) use reasonable efforts to complete, (x) all Phase III Clinical Evaluation and (y) all tests and studies in humans, other than those contemplated by Section 3.1(a)(i) above, necessary or advisable to obtain and maintain FDA approval of an NDA for such Compound. Licensee (or, in the case of Distribution Compounds, the Partnership) may, where special research and development expertise exists, after consultation with KB, conduct outside the Territory specific tests and studies which are required by the FDA to be performed for Phase III Clinical Evaluation of such Compound; in such event, KB shall agree with Licensee (or, in the case of Distribution Compounds, the Partnership) on the appropriate regulatory documentation required to permit such tests and studies. After the completion of all tests, studies and other development activities and the preparation of all data and other information, necessary or appropriate to obtain FDA approval of an NDA for such Compound, Licensee (or, in the case of Distribution Compounds, the Partnership) shall use reasonable efforts to obtain such approval. (iii) Licensee shall (or, in the case of Distribution Compounds, Licensee shall require the Partnership to) provide KB free-of-charge with such of the results of, and supporting data and information for, any tests and studies performed by Licensee (or any of its Affiliates) (or, in the case of Distribution Compounds, by the Partnership or any of its Subsidiaries on behalf of Licensee) pursuant to Section 3.1(a)(ii) hereof for any Licensed Compound which KB shall request after review with Licensee (or, in the case of Distribution Compounds, the Partnership) of the material available, with authority to KB, its Affiliates or any licensee or sublicensee thereof to use and make reference thereto. (iv) If, after manufacturing of any Licensed Compound has been commenced, there are changes in the method of synthesis, the final composition of dosage forms, or the Product Definition of such Licensed Compound such that the FDA requires any additional tests, studies or other development activities, then Licensee shall (or, in the case of Distribution Compounds, Licensee shall require the Partnership to) use reasonable efforts to perform, at its own expense, 18 24 such additional tests, studies or other development activities. (b) Regulatory Approval Cooperation. Licensee recognizes KB's interest in maintaining a consistent profiling of each Licensed Compound worldwide. In furtherance thereof, the Parties shall, in respect of all tests, studies and other development activities to be performed in accordance with Section 3.1(a) hereof, consult on product profiling; provided, however, in the case of Distribution Compounds, KB shall consult with the Partnership, and Licensee shall require the Partnership to consult with KB. In addition, to the extent legal and practicable, the Parties shall consult periodically to review the planning and the progress of all preclinical and clinical tests, studies and other development activities for each Licensed Compound; provided, however, in the case of Distribution Compounds, KB shall consult with the Partnership, and Licensee shall require the Partnership to consult with KB. Each Party shall (i) inform the other Party of all meetings with representatives of the FDA concerning any Licensed Compound, (ii) arrange for representatives of the other Party to attend such meetings as observers, and (iii) forward to the other Party summaries of such meetings and copies of other significant communications with representatives of the FDA concerning any Licensed Compound; provided, however, that in the case of Distribution Compounds, KB shall inform the Partnership (rather than Licensee) of such meetings and arrange for representatives of the Partnership (rather than Licensee) to attend such meetings and forward to the Partnership (rather than Licensee) such summaries and copies. Section 3.2 New Claims or Formulations. The Parties shall consult from time to time on an ad hoc basis regarding preclinical and clinical tests, studies and other development activities relating to additional claims or formulations for any Licensed Compound for which approval of a new or supplemental NDA will be sought from the FDA; provided, however, in the case of Distribution Compounds, KB shall consult with the Partnership, and Licensee shall require the Partnership to consult with KB. ARTICLE IV MARKETING AND MANUFACTURING Section 4.1 Commencement; Continuation. (a) Subject to the obligations of KB as provided in the Clinical Supply Agreement and of any Producer as provided in the Manufacturing Agreement, Licensee shall use reasonable efforts to cause to be commenced and continued the manufacture of each Licensed Compound. (b) Subject to the obligations of the Producers as provided in the Manufacturing Agreement, during the period of Market Exclusivity with respect to a Licensed Compound, Licensee shall use reasonable efforts to begin and to continue the marketing, distribution and sale of each such Licensed Compound in the Territory as promptly as practicable after the FDA has approved an NDA for such Licensed Compound; provided, however, that Licensee shall not be required to market a product containing a Licensed Compound if such product is discontinued for reasons of safety or efficacy. For purposes of this Section 4.1(b), (i) a Compound shall be 19 25 deemed to be in one or more Therapeutic Categories based on its approved indications, and (ii) subject to Section 15.9, reasonable efforts with respect to any Licensed Compound in a Therapeutic Category shall be satisfied if such efforts are used with respect to the totality of Covered Compounds (taken as a whole) in such Therapeutic Category. If the efforts employed by Licensee for the totality of Covered Compounds (taken as a whole) in a specific Therapeutic Category are reasonable in the aggregate, the requirement of reasonable efforts for each Licensed Compound in such Therapeutic Category will be deemed satisfied. Section 4.2 Quality in Marketing. Licensee shall (or, in the case of Distribution Compounds, Licensee shall require the Partnership to) maintain standards with respect to the quality of marketing and promotion of each Licensed Compound as follows: such standards shall be at least at a level equivalent to the standards then employed by KB with respect to its Compounds, as such standards may be set forth by KB by reasonable advance notice to Licensee (or, in the case of Distribution Compounds, the Partnership) from time to time. KB shall have the right to have the marketing and promotional standards of Licensee (or, in the case of Distribution Compounds, the Partnership) reviewed by a Non-Affiliate of KB of nationally-recognized standing (except a Non-Affiliate to whom Licensee (or, in the case of Distribution Compounds, the Partnership) has some reasonable objection) for the sole purpose of determining that this policy is followed. To the extent legal, Licensee shall (or, in the case of Distribution Compounds, Licensee shall require the Partnership to) furnish KB for each Licensed Compound with monthly sales reports by dosage form and strength and, to the extent requested by KB, copies of proposed labeling and package inserts, and copies or other representations of advertising and other promotional materials. ARTICLE V [OMITTED] ARTICLE VI SUBLICENSES The Partnership has been appointed the sole and exclusive distributor of the Distribution Compounds pursuant to the Distribution Agreement. Any sublicense or distribution arrangement granted hereunder shall refer to this Agreement and to the extent appropriate any such sublicense shall require the sublicensee to assume and comply with all of the obligations of Licensee hereunder. Any such sublicense or distribution arrangement shall be subject and subordinate to this Agreement and shall terminate automatically upon any termination of the license hereunder pursuant to which it is granted. Licensee shall require any such sublicensee or distributor to enter into an undertaking pursuant to which provisions in the same form as those contained in Section 10.2 and Article XII shall apply directly between such sublicensee or distributor and KB. Licensee shall furnish KB with any such undertaking and a copy of any such sublicense or distribution arrangement promptly upon executing same. Notwithstanding the above, Licensee 20 26 shall not be relieved of its obligation to perform its obligations hereunder fully and faithfully by reason of such sublicense or distribution arrangement. ARTICLE VII PAYMENTS Section 7.1 Royalties. (a) Royalty Period. Subject to the terms and conditions hereof, Licensee shall pay royalties with respect to sales of Licensed Compounds, at the rates and times and in the manner provided in this Section 7.1 and Section 7.2. Such royalties shall be payable with respect to sales of each such Licensed Compound during the longer of (x) such period as there is an unexpired, valid and enforceable United States patent (whenever issued, whether before or after First Commercial Sale of such Licensed Compound) owned by KB (or any of its Affiliates), or under which KB (or any of its Affiliates) has licensing rights in the Territory, which claims (i) such Licensed Compound, (ii) the composition in which such Compound is sold by Licensee, or (iii) the method of use for which such Compound is sold by Licensee, or any of its Affiliates, or its or their sublicensees or distributors; provided, however, that any such patent shall not be deemed unenforceable if such patent has been rendered unenforceable by reason of the misuse or misconduct of Licensee not involving misuse or misconduct by KB (or any of its Affiliates) as reflected by a final decision (including any appeal or judicial review) of any administrative body or court of competent jurisdiction, and (y) the seven year period following the First Commercial Sale of such Licensed Compound, as consideration for the Technical Information and Trademarks licensed by KB (and its Affiliates) hereunder, and (z) any period of Market Exclusivity with respect to any uses or indications for which such Licensed Compound has been approved by the FDA. (b) Amount. (i) (x) Licensee shall pay royalties solely with respect to Group C Compounds licensed pursuant to Article II for each Calendar Year in an amount equal to 10% of Net Sales of such Compounds during such Calendar Year, and (y) no royalties shall be payable with respect to Group A and Group B Compounds. (ii) For purposes of calculating royalties for each Calendar Year, Net Sales shall include only Net Sales of each Licensed Compound for such portion of such Calendar Year as the sales of such Licensed Compound are covered by clause (x) or (y) or (z) of paragraph (a) above. (c) Required Sublicenses. In addition to the royalties payable pursuant to paragraph (b) above, Licensee shall pay royalties to KB with respect to sales of any Licensed Compound by any sublicensee under a Required Sublicense during each portion of each Calendar Year that royalties would be payable by Licensee pursuant to paragraph (b) above with respect to such Licensed Compound assuming there were sales of such Licensed Compound by Licensee during such portion of such Calendar Year. Such royalties payable by Licensee for such Calendar Year shall equal 87-1/2 % of the amount received by Licensee (and its Affiliates) 21 27 from such sublicensee as royalties with respect to such Licensed Compound for such Calendar Year under such Required Sublicense. Section 7.2 Payment, Reports and Records. (a) Payment. After First Commercial Sale of any Licensed Compound for which royalties are payable hereunder, Licensee shall render to KB within 30 days after the end of each calendar quarter a royalty report for such quarter as to the royalty payments due under this Article VII for such quarter and concurrent therewith Licensee shall pay the royalty payment due for such quarter. The royalty report shall state, in reasonable detail, Net Sales of each Licensed Compound with respect to which royalties are payable and the amount of royalties due with respect to such quarter. The royalty payment due for each quarter of any Calendar Year shall be an amount equal to (x) the aggregate royalties due with respect to such Calendar Year through the end of such quarter less (y) the aggregate royalties theretofore paid with respect to such Calendar Year. All royalties payable pursuant to this Article VII shall be paid in the aggregate to KB or to a Person designated by KB as agent. All such royalty payments shall be made in United States dollars in immediately available funds and to such place in the Territory as KB may specify by notice to Licensee from time to time. If restrictions exist or are imposed which prevent payment or the transfer thereof in United States dollars, the Parties shall cooperate, at KB's expense, to eliminate such restrictions or otherwise to permit transfer of such dollars. If payment in such dollars shall not be lawful, then, at the request of KB, Licensee will, to the extent lawful and at KB's expense, deposit the amount thereof in an interest bearing account in the Territory designated by KB, make payments in Swedish kronor in the Territory at the then prevailing rate of exchange, or otherwise dispose of such dollars in the Territory in accordance with such request. If any royalty payments have been made for any period and it is subsequently determined that such royalty payments total less or more than the aggregate royalty payments required to be made pursuant to this Article VII, Licensee or KB shall pay promptly to the other such amount as will result in the aggregate royalties actually paid for such period equaling those required to be paid for such period. (b) Recordkeeping; Inspection. Licensee shall keep, and shall cause its Affiliates, sublicensees and distributors to keep, true, accurate and complete records of total quantities of Licensed Compounds sold and the Net Sales thereof in sufficient detail to permit determination of royalties payable hereunder. At the request and expense of KB, KB 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 Licensee and its Affiliates, sublicensees and distributors as may be necessary in such accountant's judgment to permit it to attest that the royalties paid or payable hereunder conform to the terms of this Agreement. Such rights of access, audit and inspection for any Calendar Year shall terminate two years after the close of each Calendar Year in respect of royalties paid or payable for such Calendar Year. KB shall enter into a written engagement with such accountants, a copy of which shall be provided to Licensee, providing that (i) the scope of the engagement with respect to such audit and examination is limited to the rights provided in this Section 7.2(b) and, if the audit is performed in connection with another audit permitted by any other agreement between an Affiliate, sublicensee or distributor of KB and Licensee, the rights of such Affiliate, sublicensee or distributor under such other agreement, (ii) such accountants agree to use 22 28 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 KB (or any of its Affiliates, sublicensees and distributors) any information other than information relating to the accuracy of such determination and the conformance of Licensee's computation of the royalties paid or payable hereunder with the terms of this Agreement and in no event shall quantities or prices or rebates to individual customers be disclosed to KB (or any of its Affiliates, sublicensees and distributors) or any other Person. Notwithstanding the foregoing, KB shall not, during the period from December 15 of any Calendar Year through January 31 of the following Calendar 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 Calendar Year, exercise such rights with respect to the activities of Licensee during the last calendar quarter of the prior Calendar Year. (c) Taxes. Any taxes which Licensee may be required to deduct or withhold under then applicable laws of the Territory on royalties payable hereunder may be so deducted or withheld and paid over by Licensee to the appropriate authorities. Insofar as practicable, Licensee shall advise KB in advance of such deduction or withholding and shall furnish KB with receipts and with other information reasonably requested by KB evidencing such deductions or withholdings. KB shall have the right at its expense to contest any such deduction or withholding in its own name or, with Licensee's consent, which consent shall not be unreasonably withheld, the name of Licensee. Section 7.3 Group E Payments, Reports, Records and Forecasts. (a) Payment. After First Commercial Sale by KB or any of its Affiliates or sublicensees or its or their distributors or subdistributors of any Group E Compound for which payments in respect of the Group E Products Contingent Amount are required pursuant to Section 2.2(c) ("Group E Payments"), KB shall render to KBI-E within 30 days after the end of each calendar quarter a payment report for such quarter as to the Group E Payments due under Section 2.2(c) for such quarter, and concurrent therewith KB shall pay the Group E Payment due for such quarter. Such report shall state, in reasonable detail, Net Sales of each such Group E Compound with respect to which Group E Payments are payable and the amount of Group E Payments due with respect to such quarter. The Group E Payments due for each quarter of any Calendar Year shall be an amount equal to (x) the aggregate Group E Payments due with respect to such Calendar Year through the end of such quarter less (y) the aggregate Group E Payments theretofore paid with respect to such Calendar Year. All such payments shall be made in United States dollars in immediately available funds and to such place in the Territory as KBI-E may specify by notice to KB from time to time. If any Group E Payments have been made for any period and it is subsequently determined that such Group E Payments total less or more than the aggregate Group E Payments required to be made pursuant to this Agreement, KBI-E or KB shall pay promptly to the other such amount as will result in the aggregate Group E Payments actually paid for such period equaling those required to be paid for such period (b) Recordkeeping; Inspection. KB shall keep, and shall cause its Affiliates, 23 29 sublicensees and distributors to keep, true, accurate and complete records of total quantities of Group E Compounds sold and the Net Sales thereof in sufficient detail to permit determination of Group E Payments payable hereunder. At the request and expense of KBI-E, KBI-E 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 KB and its Affiliates, sublicensees and distributors as may be necessary in such accountant's judgment to permit it to attest that the Group E Payments paid or payable hereunder conform to the terms of this Agreement. Such rights of access, audit and inspection for any Calendar Year shall terminate two years after the close of each Calendar Year in respect of Group E Payments paid or payable for such Calendar Year. KBI-E shall enter into a written engagement with such accountants, a copy of which shall be provided to KB, providing that (i) the scope of the engagement with respect to such audit and examination is limited to the rights provided in this Section 7.3(b) and, if the audit is performed in connection with another audit permitted by any other agreement between an Affiliate, sublicensee or distributor of KBI-E and KB, the rights of such Affiliate, sublicensee or distributor 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-E (or any of its Affiliates, sublicensees and distributors) any information other than information relating to the accuracy of such determination and the conformance of KB's computation of the Group E Payments with the terms of this Agreement and in no event shall quantities or prices or rebates to individual customers be disclosed to KBI-E (or any of its Affiliates, sublicensees and distributors) or any other Person. Notwithstanding the foregoing, KBI-E shall not, during the period from December 15 of any Calendar Year through January 31 of the following Calendar 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 Calendar Year, exercise such rights with respect to the activities of KB during the last calendar quarter of the prior Calendar Year. (c) Forecasts. KB shall prepare, or cause to be prepared, and deliver to KBI-E forecasts of aggregate Net Sales and Weighted Net Sales of Group E Products on March 1, June 1, September 1, and December 1 of each year; provided, however, that the foregoing requirements will be satisfied by the delivery of such forecasts that have been prepared no more than ninety (90) days prior to, and have been updated as of, each of March 1, June 1, September 1, and December 1, respectively, of the year in which they are delivered to KBI-E. Each such forecast shall include (i) a forecast for the calendar quarter in which such forecast is required to be delivered, each of the calendar quarters in the remainder of such Calendar Year and (except in the case of the March forecast) each of the four (4) calendar quarters in the next succeeding Calendar Year and (ii) forecasts of the aggregate Net Sales and the Combined Weighted Net Sales of Tiered Rate Products (as defined in the Master Restructuring Agreement) for each of such calendar quarters. 24 30 ARTICLE VIII GROUP A COMPOUNDS AND GROUP B COMPOUNDS With respect to the Group A Compounds set forth in Exhibit A to the Original Agreement, the Parties acknowledge that (i) the licenses for the Compounds foscarnet and budesonide were terminated and all rights in the Territory to such Compounds were returned to KB and (ii) KB confirms that the development of the Compound zimelidine was discontinued. With respect to the Group B Compounds set forth in Exhibit B to the Original Agreement, KB confirms that the license for prenalterol was terminated by TR and all rights in the Territory to such Compound were returned to KB, and that the development of the Compounds H38-03, enprofylline, alaproclate, FLA 336 and FLA 731 (remoxipride) was discontinued. ARTICLE IX PATENT APPLICATIONS; INFRINGEMENT Section 9.1 Applications. (a) KB will, at its expense, use reasonable efforts to prosecute (i) with respect to each Licensed Compound, all patent applications included within Licensed Patents, and (ii) with respect to each Group C Compound for which KB has given, or is required to give, Licensee an Option Notice under Section 2.3 hereof, all patent applications which would be included within Licensed Patents if such Group C Compound were a Licensed Compound. KB will use reasonable efforts to prosecute any interference proceedings involving such applications or patents issued on such applications. Such applications or proceedings will not be abandoned prior to a final decision of the Patent Office Board of Appeals or Patent Office Board of Interferences without consent of Licensee, which consent will not be unreasonably withheld taking into consideration, inter alia, the merits of the action of the United States Patent and Trademark Office, priority dates provable by any interference party (should an application or patent be involved in interference) and the technological and commercial importance of the subject matter of the claims of the application or patent. KB shall keep Licensee informed of developments and at the request of Licensee will furnish Licensee with copies of any such applications and papers filed in or by the Patent and Trademark Office relating thereto. Notwithstanding the foregoing, with respect to any Group C Compound as to which KB has notified Licensee in accordance with Section 2.3, and Licensee has failed to exercise its option within the period specified in Section 2.3 hereof, KB will have no further obligation to Licensee relating to the prosecution of any patent application relating thereto. (b) Licensee shall take any action necessary or appropriate to preserve its rights with respect to any Licensed Patent hereunder in connection with, and shall cooperate with KB in, the prosecution of any appeal of an adverse final decision of the Patent and Trademark Office pending before any judicial or administrative body which was initiated prior to November 1, 1994 with respect to any Licensed Patent. Within ninety (90) days of the Amendment and 25 31 Restatement Date, KB shall advise Licensee of any appeals of any adverse final decisions by the Patent and Trademark Office pending before any judicial or administrative body as of such date. KB and Licensee shall consult following an adverse final decision by the Patent and Trademark Office rendered after November 1, 1994 to determine whether or not to appeal such final decision to the courts. In the event that KB, in its sole judgment, concludes that an appeal is justified, KB shall prosecute such an appeal and bear all expenses of prosecuting it. In the event that KB determines not to prosecute an appeal, it shall give Licensee notice in time to permit Licensee, if it so elects, to prosecute an appeal, and in such event will execute (and will cause its Affiliates to execute) all papers necessary to permit Licensee to proceed with such an appeal either in the name of KB (or any of its Affiliates), in the name of the applicants, or in Licensee's own name. In the event that Licensee prosecutes an appeal in accordance with this Section 9.1, it will be reimbursed by KB for Licensee's expenses only if such appeal results in reversal, in whole or in substantial part, of the decision of the Patent and Trademark Office. (c) In connection with all matters governed by this Section 9.1, Licensee shall act solely through the Patent Committee and shall be represented solely by Approved Counsel. Approved Counsel will communicate with Licensee only through the Patent Committee. The Patent Committee shall be subject to a strict obligation of confidentiality not to transmit to TR or any other Person, and to prevent the transmission to TR or any other Person (except as permitted by Section 9.2(b)(iii)) of, confidential information obtained or provided to it in connection with any such matter, without the prior written consent of KB. The Patent Committee shall not disclose any confidential information obtained or provided to it in connection with any such matter to the Board of Directors of Licensee or to any officers of Licensee (other than those officers of Licensee who are also members of the Patent Committee) without the prior written consent of KB. The Patent Committee may provide summaries and analyses of information provided to it by KB to the Board of Directors of Licensee (which shall be subject to a strict obligation of confidentiality not to transmit to TR or any other Person, and to prevent the transmission to TR or any other Person, of confidential information provided to it) to the extent necessary for Licensee's Board of Directors to discharge its fiduciary duties. Section 9.2 Infringement. (a) Each Party shall give prompt notice to the other of any infringement, potential infringement or suspected infringement (including, without limitation, any Generic Challenge Certification) in the Territory with respect to any Licensed Patent (a "Patent Matter") that may come to such Party's attention; provided, however, that neither Party shall be obligated to notify the other Party of any De Minimis Infringement. Promptly thereafter, the Parties shall consult and cooperate fully to determine a course of action, including but not limited to the commencement of legal action by one or both Parties, with respect to any Patent Matter as to which notice shall have been given pursuant to the preceding sentence. The Parties will share equally in the costs of any agreed upon course of action to abate any Patent Matter, including the costs of any legal action commenced. Failing agreement on a course of action to abate such Patent Matter within sixty (60) days (thirty (30) days in the case of a Generic Challenge Certification or such shorter time period, if any, as may be necessary to satisfy any statutory or regulatory deadline) after such notice has been given to the other Party, either Party shall have the right (subject to the terms and provisions of this Article IX) at its own expense to initiate and prosecute an action against the third party infringer or to join in such an 26 32 action brought by the other Party if it elects to do so or if it is a necessary party. In the event either Party is unable to initiate and prosecute such an action solely in its own name, the other Party will join in the suit or will execute (and cause its Affiliates to execute) all documents necessary to permit the Party initiating such action to initiate and prosecute such action solely in its own name. Notwithstanding anything to the contrary contained herein, in pursuing any rights under this Article IX, Licensee shall give no consideration to its and its Affiliates' commercial interests other than its interests under this Agreement. (b) In connection with all Patent Matters, Licensee shall act solely through the Patent Committee and shall be represented solely by Approved Counsel. Approved Counsel will communicate with Licensee only through the Patent Committee. The Patent Committee shall be subject to a strict obligation of confidentiality not to transmit to TR or any other Person, and to prevent the transmission to TR or any other Person (except as permitted by Section 9.2(b)(iii)) of, confidential information obtained or provided to it in connection with any Patent Matter, without the prior written consent of KB. The Patent Committee shall not disclose any confidential information obtained or provided to it in connection with any Patent Matter to the Board of Directors of Licensee or to any officers of Licensee (other than those officers of Licensee who are also members of the Patent Committee) without the prior written consent of KB. The Patent Committee may provide summaries and analyses of information provided to it by KB to the Board of Directors of Licensee (which shall be subject to a strict obligation of confidentiality not to transmit to TR or any other Person, and to prevent the transmission to TR or any other Person, of confidential information provided to it) to the extent necessary for Licensee's Board of Directors to discharge its fiduciary duties. KBI-E agrees that no member of its Board of Directors shall have or be in research and development, sales or marketing functions at or for TR or any of its Affiliates, assignees or subcontractors. KB will supply information solely to the Patent Committee and Approved Counsel as follows: (i) To the extent Licensee initiates, joins or otherwise becomes a party to a patent enforcement suit to abate a Patent Matter, Approved Counsel (and, except as herein provided, no other Person) will have access to all relevant information in KB's or its Affiliates' possession or control, including privileged or work product-protected information, if KB and Licensee have entered into an agreement substantially in the form of Exhibit G reflecting their joint and common interest and setting forth the procedures for exchanging and protecting privileged and work product-protected information (the "Common and Joint Interest Agreement") which KB and Licensee agree to enter into in the event of a Patent Matter. All such information shall be deemed confidential under such a Common and Joint Interest Agreement. Information provided by KB to Approved Counsel will not be provided by Approved Counsel to the Patent Committee unless (A) such confidential information is contained in pleadings, produced in discovery or entered as evidence in connection with such patent enforcement suit and is not subject to an applicable protective order; provided, however, that KB shall use reasonable efforts to provide in any such protective order that such disclosure by Approved Counsel to the Patent Committee is permissible, or (B) Approved Counsel determines that such information is necessary for the Patent Committee to evaluate Licensee's rights or a potential settlement or to make strategic or tactical decisions concerning such suit. 27 33 Information related to such suit produced by third parties to KB or Licensee, by subpoena or otherwise, also shall be deemed confidential under either such a Common and Joint Interest Agreement or the confidentiality provisions of this Agreement, as applicable. All of the information referred to above may in no event be provided to TR (other than to employees of TR who are members of the Patent Committee). (ii) If Licensee determines not to initiate, join or otherwise become a party to such a suit, the Patent Committee and Approved Counsel will have the right to receive from KB copies of all pleadings and other filings and regular summaries of the status of any such suit commenced by KB and may meet with and discuss such suit with KB's counsel in such matter; provided, however, that Licensee shall have access to privileged or work product-protected information only if KB and Licensee have entered into a Common and Joint Interest Agreement which KB and Licensee agree to enter into in the event of a Patent Matter. The Patent Committee also will be entitled to receive from KB all information in KB's possession that Approved Counsel determines is reasonably necessary for the Patent Committee to evaluate any potential settlement. (iii) In addition to the information to be provided to the Patent Committee by KB as set forth herein, Approved Counsel and the Patent Committee may obtain such assistance, advice, expertise and other support as either of them deems appropriate from other Persons or experts who may be either (A) Persons unaffiliated with KB or TR or any of their respective Affiliates or (B) provided that there is no disclosure of confidential information without the prior written consent of KB, employees of TR or any of its Affiliates; provided, however, the Patent Committee may not consult any legal counsel other than Approved Counsel. (iv) Out-of-pocket costs incurred by KB in connection with its obligations under Sections 9.2(b)(i) and (ii) shall be borne by Licensee. (c) (i) To the extent KB initiates, joins or otherwise becomes a party to a patent enforcement suit to abate a Patent Matter, KB will have access to all relevant information in Licensee's or its Affiliates' possession or control, including privileged or work product-protected information, if KB and Licensee have entered into a Common and Joint Interest Agreement which KB and Licensee agree to enter into in the event of a Patent Matter. All such information shall be deemed confidential under such a Common and Joint Interest Agreement. Information related to such suit produced by third parties to KB or Licensee, by subpoena or otherwise, also shall be deemed confidential under either such a Common and Joint Interest Agreement or the confidentiality provisions of this Agreement, as applicable. (ii) If KB determines not to initiate, join or otherwise become a party to such a suit, KB will have the right to receive from Licensee copies of all pleadings and other filings and regular summaries of the status of any such suit commenced by Licensee and may meet with and discuss such suit with Licensee's counsel in such matter; provided, however, that KB shall have access to privileged or work product-protected 28 34 information only if KB and Licensee have entered into a Common and Joint Interest Agreement which KB and Licensee agree to enter into in the event of a Patent Matter. KB also will be entitled to receive from Licensee all information in Licensee's possession that KB determines is reasonably necessary for KB to evaluate any potential settlement. (iii) In addition to the information to be provided to KB by Licensee as set forth herein, KB may obtain such assistance, advice, expertise and other support as it deems appropriate from other Persons or experts. (iv) Out-of-pocket costs incurred by Licensee in connection with its obligations under Sections 9.2(c)(i) and (ii) shall be borne by KB. (d) Each Party will have the right to participate and join in actions initiated by the other Party to abate a Patent Matter; provided, however, that Licensee will defer to KB with respect to strategic and tactical matters in the conduct of such actions if Licensee determines in its sole discretion at the time of the litigation or dispute that its rights are being adequately protected by KB; provided, further, however, that (i) KB will have the exclusive right to control on behalf of Licensee patent infringement actions against TR or any of TR's Affiliates related to a Patent Matter and (ii) Licensee will have the exclusive right to control on behalf of Licensee patent infringement actions against KB or any of KB's Affiliates related to a Patent Matter. Solely for purposes of this Section 9.2(d), (i) the term "TR's Affiliates" shall mean all entities in which TR has a material financial interest; (ii) the term "KB's Affiliates" shall mean all entities in which KB has a material financial interest; and (iii) "material financial interest" shall mean an interest in any entity in which TR or KB, as applicable, directly or indirectly controls, through share ownership or contract, the election of 30% or more of the board of directors or 30% or more of the voting power. (e) Neither Party may enter into any settlement of any Patent Matter without the prior written consent of the other Party, which consent will not be unreasonably withheld, provided, however, that: (i) Subject to Sections 9.2(e)(iii) and (iv), KB may settle without Licensee's consent any Patent Matter (except for any action which Licensee has initiated or joined or to which it has otherwise become a party) involving a third party that owns or has licensing rights to non-United States pharmaceutical patents or patent applications (whether or not such non-United States pharmaceutical patents or patent applications are in controversy) if the settlement does not (A) impose injunctive relief or other restrictions on Licensee or any sublicensee, or (B) permit such third party to carry out in the Territory acts which could, absent permission from the proper owner of rights under a patent, be construed by Licensee in its reasonable judgment as constituting infringement of a Licensed Patent. Licensee may not initiate any action against such third party with respect to any matter settled pursuant to a settlement permitted by this Section 9.2(e)(i) subsequent to such settlement. (ii) Subject to Sections 9.2(e)(iii) and (iv), either Party may settle without 29 35 the other Party's consent any Patent Matter (except for any action which the other Party has initiated or joined or to which it has otherwise become a party) involving a third party that does not own or have licensing rights to non-United States pharmaceutical patents or patent applications if the settlement does not (A) impose injunctive relief or other restrictions on the non-consenting Party or any sublicensee, or (B) permit the third party to carry out in the Territory acts which could, absent permission from the proper owner of rights under a patent, be construed by the other Party in its reasonable judgment as constituting infringement of a Licensed Patent. The non-consenting Party may not initiate any action against such third party with respect to any matter settled pursuant to a settlement permitted by this Section 9.2(e)(ii) subsequent to such settlement. (iii) If a Party has not consented to the settlement of any Patent Matter that has been settled pursuant to Section 9.2(e)(i) or (ii), the other Party shall provide to such Party notice of the material terms of such settlement within sixty (60) days of such settlement. (iv) If a Party has not consented to the settlement of any Patent Matter that has been settled pursuant to and in accordance with Section 9.2(e)(i) or (ii), the non-consenting Party may submit, as its sole and exclusive remedy for any dispute or controversy arising from or related to such settlement, any such dispute or controversy to arbitration in accordance with Article XIV within 180 days of receipt of the notice provided pursuant to Section 9.2(e)(iii). Nothing in the immediately preceding sentence shall be deemed to limit either Party's right to consummate such a settlement, or the non-consenting Party's right to indemnification pursuant to Section 9.2(f)(ii). (f) (i) In connection with any settlement submitted to arbitration pursuant to Section 9.2(e)(iv), the arbitrators will determine the fairness of such settlement to the non-consenting Party, taking into account only the value and nature of the interest in the Territory of such non-consenting Party. The arbitrators may consider, but shall not be required to determine, whether infringement of a Licensed Patent or other patent has occurred or the validity of any Licensed Patent or other patent in reaching their decision. After considering the evidence presented by the Parties, the arbitrators will determine, subject to Section 12.2, whether the settlement is fair under the circumstances to the non-consenting Party. If the settlement is determined to be fair to the non-consenting Party, the arbitrators will enter an award setting forth that conclusion and stating that the non-consenting Party is not entitled to any adjustment to the benefits, if any, that it has received or will receive pursuant to the settlement. If the settlement is determined not to be fair to the non-consenting Party, the arbitrators will enter an award setting forth that conclusion and awarding the nonconsenting Party the difference between (i) the present value of benefits received or to be received by the non-consenting Party pursuant to the settlement and (ii) the present value of what the arbitrators determine the non-consenting Party should have received pursuant to such settlement in light of its interest in the Territory. If the arbitrators award additional value to the nonconsenting Party, the settling Party will pay that amount to the non-consenting Party within twenty (20) days of the final determination of such amount by the arbitrators. 30 36 (ii) Subject to Section 12.2 and notwithstanding anything to the contrary in Section 9.2(e), in the event either Party enters into a settlement pursuant to Section 9.2(e) without the consent of the other Party, the Party that settled such a dispute shall indemnify and hold the non-consenting Party harmless from and against any and all loss, cost or expense suffered by the non-consenting Party by reason of an action brought by a Non-Affiliate of the Parties against the non-consenting Party, if such action arises out of or is related to such settlement, provided, however, the non-consenting Party shall not be indemnified pursuant to this Section: (A) for any conduct or matter arising prior to the settlement, (B) other than in connection with a decision to withhold consent, for its or any of its Affiliates' gross negligence or willful misconduct, or (C) for any action taken by it or any of its Affiliates in contravention of the last sentence of Section 9.2(e)(i) or the last sentence of Section 9.2(e)(ii) which action the non-consenting Party has taken having had notice of a settlement entered into pursuant to Section 9.2(e). (g) Any recovery obtained by the Parties or either Party attributable to the Territory, net of the litigation costs and expenses incurred by either Party attributable to the Territory, in connection with or as a result of any action to abate a Patent Matter, by settlement or otherwise, shall be shared by the Parties, as follows: in the case of a Licensed Compound that is a Group C Compound, 20% shall be allocated to KB and 80% shall be allocated to Licensee and, in the case of any other Licensed Compound, 0% shall be allocated to KB and 100% shall be allocated to Licensee. (h) Notwithstanding anything to the contrary contained in this Section 9.2, the procedures set forth in Exhibit H shall apply to any Patent Matter with respect to the Compound omeprazole marketed under the trademark Prilosec(R). (i) The Parties acknowledge that P&G has certain rights to enforce intellectual property rights with respect to the Compound omeprazole pursuant to the P&G License (as defined in the Manufacturing Agreement). Section 9.3 Reexamination and Reissue. (a) KB will defend, at its expense, the Licensed Patents in any reexamination or reissue proceedings in the United States Patent and Trademark Office. KB shall have the sole right to initiate a reissue proceeding. Before KB initiates a reissue proceeding or either Party initiates a reexamination proceeding, KB and Licensee shall consult as to the desirability or necessity of such a proceeding. Such proceedings will not be abandoned prior to a final decision of the Patent Office Board of Appeals or Patent Office Board of Interference without the consent of the Party not initiating or defending such proceeding, which consent will not be unreasonably withheld taking into consideration, inter alia, the merits of the action of the Patent and Trademark Office, priority dates provable by any interference party (should an interference be involved), and the technological and commercial importance of the subject matter of the claims of the application or patents. (b) Licensee shall take any action necessary or appropriate to preserve its rights with respect to any Licensed Patent hereunder in connection with, and shall cooperate with KB in, the prosecution of any such appeal which was initiated by KB prior to November 1, 1994 with 31 37 respect to any Licensed Patent. Within ninety (90) days of the Amendment and Restatement Date, KB shall advise Licensee of any appeals of any adverse final decisions by the Patent and Trademark Office pending before any judicial or administrative body as of such date. KB and Licensee shall consult following any adverse final decision by the Patent and Trademark Office rendered after November 1, 1994 to determine whether or not to appeal such final decision to the courts. In the event that KB, in its sole judgment, concludes that an appeal is justified, KB shall prosecute such an appeal and bear all expenses of prosecuting it. In the event that KB determines not to prosecute an appeal, it shall give Licensee notice in time to permit Licensee, if it so elects, to prosecute an appeal and, in such event, will execute (and will cause its Affiliates to execute) all papers necessary to permit Licensee to proceed with such an appeal either in the name of KB (or any of its Affiliates), the name of the applicants, or in Licensee's own name. In the event that Licensee elects to prosecute an appeal, it will be reimbursed by KB for Licensee's expenses only if such appeal results in reversal, in whole or in substantial part, of the decision of the Patent and Trademark Office. (c) In connection with all matters governed by this Section 9.3, Licensee shall act solely through the Patent Committee and shall be represented solely by Approved Counsel. Approved Counsel will communicate with Licensee only through the Patent Committee. The Patent Committee shall be subject to a strict obligation of confidentiality not to transmit to TR or any other Person, and to prevent the transmission to TR or any other Person, except as permitted by Section 9.2(b)(iii), of, confidential information obtained or provided to it in connection with any such matter, without the prior written consent of KB. The Patent Committee shall not disclose any confidential information obtained or provided to it in connection with any such matter to the Board of Directors of Licensee or to any officers of Licensee (other than those officers of Licensee who are also members of the Patent Committee) without the prior written consent of KB. The Patent Committee may provide summaries and analyses of information provided to it by KB to the Board of Directors of Licensee (which shall be subject to a strict obligation of confidentiality not to transmit to TR or any other Person, and to prevent the transmission to TR or any other Person, of confidential information provided to it) to the extent necessary for Licensee's Board of Directors to discharge its fiduciary duties. Section 9.4 Cooperation. The Parties shall cooperate fully in connection with any action or proceeding referred to in this Article IX in a manner consistent with this Article IX. Section 9.5 Maintenance Fees. KB shall pay all fees and taxes necessary to maintain each Licensed Patent in full force and effect in the Territory during the term of each such Licensed Patent. Section 9.6 Candesartan Cilexetil; Turbuhaler. Notwithstanding anything to the contrary contained in this Agreement, Licensee shall have no rights under this Article IX with respect to the Licensed Compound candesartan cilexetil or to Turbuhaler and any Licensed Patents relating to that device. Section 9.7 Selected Compounds and Selected Uses. (a) Notwithstanding anything to the contrary contained in this Agreement, KBI-E shall have no rights under Sections 9.1, 9.2 32 38 and 9.3 with respect to any Selected Compounds. As to such Compounds, KB and the Partnership shall be jointly responsible for and shall agree, on an ad hoc basis, on their respective roles in discharging such responsibilities for any matter relating to a Selected Compound that might otherwise be governed by Sections 9.1, 9.2 or 9.3. (b) Notwithstanding anything to the contrary contained in this Agreement, if any matter governed by Section 9.1, 9.2 or 9.3 involves solely a Selected Use, the Partnership shall have full rights under Sections 9.1, 9.2 and 9.3. If such matter or its resolution involves or affects, or could potentially involve or affect, both a Selected Use and another use as to which KBI-E has rights under this Agreement, the provisions of Sections 9.1, 9.2 and 9.3 shall govern the rights of the Partnership; provided, however, that the Partnership shall be entitled to participate only to the extent necessary to preserve and protect its interests in the Selected Uses; provided, further, that the Partnership shall be entitled to 100% and KB will be entitled to 0% in the case of a Group A Compound or Group B Compound, and the Partnership shall be entitled to 80% and KB will be entitled to 20%, in the case of a Group C Compound, of any recovery obtained with respect to a Selected Use by KBI-E, KB or the Partnership or all of them together, attributable to the Territory, net of litigation costs and expenses incurred by such party attributable to the Territory, in connection with or as a result of any action to abate a Patent Matter, by settlement or otherwise. ARTICLE X TECHNICAL INFORMATION; CONFIDENTIALITY Section 10.1 Exchange of Information. To the extent legal and reasonable under the circumstances, KB from time to time, after request by Licensee (or, in the case of Distribution Compounds, the Partnership), shall provide Licensee (or, in the case of Distribution Compounds, the Partnership) with summaries of such Technical Information possessed by KB (or any of its Affiliates) regarding each Licensed Compound as the Parties after consultation deem necessary or advisable for use or application in connection with the use of any such Licensed Compound in the Territory; provided, however, (i) in the case of Distribution Compounds, KB shall consult with the Partnership and Licensee shall require the Partnership to consult with KB and (ii) KB shall not be obligated to provide Licensee with any Technical Information to the extent neither KB nor any of its Affiliates has the right to grant Licensee a license with respect thereto or otherwise authorize the use thereof by Licensee. Licensee may transfer such Technical Information provided to it only to a permitted sublicensee or distributor (and to no other Person, including without limitation any stockholder of Licensee (except as provided herein)), and may use such Technical Information solely in the Territory and only in furtherance of its rights and obligations hereunder. Each Party shall promptly, and in full accordance with FDA requirements, bring to the other Party's attention any unusual or unexpected reactions or side-effects with respect to each Licensed Compound and Combination; provided, however, that in the case of Distribution Compounds, KB shall bring such information to the attention of the Partnership. 33 39 In furtherance of and without limiting the foregoing and for the purpose of more effectively providing the Manufacturing Technical Information (as defined in the Manufacturing Agreement), Licensee hereby requests, and KB agrees, that KB shall provide such cooperation and information to KBI and the Producers (as defined in the Manufacturing Agreement) and shall engage in such consultations as may be provided for in Article VI of the Manufacturing Agreement, all in accordance with the terms of the Manufacturing Agreement. Section 10.2 Confidentiality and Permitted Disclosure. Subject to the provisions of Section 9.2, each 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: (a) KB may disclose such information (other than the privileged and work product-protected information referred to in Sections 9.2(b)(i) and 9.2(c)(i)) to any governmental agency or authority to the extent necessary to obtain the approval of any agency or authority to make, have made, use or sell any Compound; provided, further, however, to the extent permitted by applicable law, such disclosure shall be made on a confidential and restricted basis; (b) Licensee may disclose such information (other than the privileged and work product-protected information referred to in Sections 9.2(b)(i) and 9.2(c)(i)) to any governmental agency or authority to the extent necessary to obtain the approval of any agency or authority to make, have made, use or sell any Exclusive Second Look Product or Non-Exclusive Second Look Product; provided, further, however, to the extent permitted by applicable law, such disclosure shall be made on a confidential and restricted basis; and (c) Subject to Article VI, Licensee may disclose such information on a confidential and restricted basis to any manufacturer, producer or supplier to the extent necessary for the sole purpose of exercising its right to make or have made any Exclusive Second Look Product or any Non-Exclusive Second Look Product (each as defined in the Manufacturing Agreement), provided, however, that any such manufacturer, producer or supplier shall agree to assume and comply with all the obligations (including all confidentiality obligations) that a sublicensee or distributor must assume and comply with under Article VI and that any arrangement with any such manufacturer, producer or supplier shall comport with all of the requirements set forth in Article VI. ARTICLE XI TRADEMARKS; IDENTIFICATION; INFRINGEMENT Section 11.1 Use. (a) As to each Licensed Compound for which a Trademark has been used by Licensee prior to the Amendment and Restatement Date, Licensee shall continue the use of such Trademark unless in the reasonable business judgment of Licensee, after consultation with KB, Licensee determines such use would be inadvisable for legal, commercial, or other reasons. 34 40 (b) KB shall notify Licensee of each Trademark as promptly as practicable after an application for such Trademark is filed in the Territory. (c) Licensee shall not use any Trademark in any manner which would adversely affect the significance, distinctiveness or validity of such Trademark. In order to protect the goodwill associated with the Trademarks and to prevent any deception to the public, Licensee shall use the Trademarks only in connection with the manufacture, distribution, labeling, packaging, advertising, marketing, promotion and sale of Licensed Compounds meeting the standards and specifications, as from time to time are set by the Parties and which have been adopted by KB (or, if owned by any of its Affiliates, by such Affiliate). Section 11.2 Samples, Labels and Advertising Material. Licensee shall from time to time upon the request of KB furnish KB with specimens of all labels, and, to the extent practicable, advertising and any other materials on which any Trademark is used, or is to be used, by Licensee and with samples of the Licensed Compound on which such Trademark is used. Section 11.3 Infringement. KB and Licensee will promptly inform each other of any infringement, potential infringement or suspected infringement within the Territory of any Trademark used by Licensee (or any of its Affiliates). Promptly thereafter the Parties shall consult and cooperate fully to determine a course of action including the commencement of proceedings in the courts to cause such infringement, potential infringement or suspected infringement to be terminated. Failing prompt agreement on a course of action, KB shall have the right to initiate and prosecute an action against the infringer, at its expense. The prosecuting Party shall be entitled to retain all damages awarded. In connection with any action, the Parties shall cooperate fully, and the Party not instituting or prosecuting the action shall provide the prosecuting Party with such information and assistance as it may reasonably request. ARTICLE XII DISCLAIMER AND LIMITATION OF LIABILITY Section 12.1 Disclaimer. Except for the express representations and warranties set forth herein and in the Master Restructuring Agreement and in the other Ancillary Agreements, neither Party makes any representation or warranty of any kind, express or implied, written or oral, including, without limitation, any representation or warranty with respect to the value, adequacy, freedom from fault of, or the quality, efficiency, suitability, characteristics or usefulness of, or merchantability or fitness for a particular purpose of, any Compound, or of any Licensed Patents, Technical Information, Trademarks or other information, data or know-how relating in any way to any Compound; provided, however, nothing contained in this Section 12.1 shall be deemed a waiver of, or be deemed to limit, the obligations of each Party hereunder. Section 12.2 Limitation on Damages. In no event shall either Party be liable for special, indirect, incidental or consequential damages ("Special Losses") arising under or in connection with this Agreement, or the performance of, or failure to perform, any obligations 35 41 hereunder, whether in contract, warranty, negligence, tort, strict liability or otherwise; provided, however, that the foregoing shall not apply in the case of willful misconduct or gross negligence of any Party or any of its Affiliates, or to any Special Losses which are incurred by any Party or any of its Affiliates to any Non-Affiliate of such Party; and provided further that the Parties agree that Special Losses shall not include any amounts set forth in Section 10.6 (w), (x), (y) or (z) of the Master Restructuring Agreement. ARTICLE XIII TERM AND RIGHTS UPON TERMINATION, REJECTION, OR ASSIGNMENT Section 13.1 Term. This Agreement shall be effective as of the Amendment and Restatement Date. Section 13.2 Rights of KB on Termination, Rejection or Assignment of Licenses or Options for Licenses. Upon termination or rejection of any license or option or the assignment thereof pursuant to the fourth sentence of Section 15.2, KBI-E shall have no further rights hereunder with respect to the Compound for which the license or option is terminated, rejected or assigned, and KB (and its Affiliates) shall have the right to make, have made, use and sell such Compound in the Territory or to license any Person within the Territory in KB's sole discretion. Section 13.3 Return of Data. Upon termination or rejection of any license or option or the assignment thereof pursuant to the fourth sentence of Section 15.2, KBI-E shall, at KB's direction, to the extent legal and practicable, promptly transfer to KB or its designee at KBI-E's sole expense all IND's and NDA's, other registrations, licenses and regulatory approvals, samples (to the extent not consumed) and all originals of Technical Information and of other confidential information covered by Section 10.2 furnished by KB (or any of its Affiliates) to KBI-E (or its Affiliates), concerning each Compound for which the license or option is terminated, rejected or assigned. Section 13.4 Effect of Termination. Notwithstanding any termination of this Agreement, Articles X and XII and any obligations which have accrued prior to such termination shall survive such termination. ARTICLE XIV ARBITRATION Section 14.1 Arbitration. Subject to Section 9.4 of the Master Restructuring Agreement, any dispute, controversy or claim between KB and Licensee 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. 36 42 ARTICLE XV GENERAL PROVISIONS Section 15.1 Entire Agreement. This Agreement, the Partnership Agreement, the Initial Agreements, the Master Restructuring Agreement and the other Ancillary Agreements (and the Exhibits and Schedules hereto and thereto) constitute the entire agreement between the Parties with respect to the subject matter hereof. Section 15.2 Binding Effect; Assignment. This Agreement shall inure to the benefit of and be binding upon the Parties and their respective successors and permitted assigns. Except as provided below and except as expressly set forth in this Agreement, the other Ancillary Agreements, the Initial Agreements or the Partnership Agreement, neither Party shall assign this Agreement or any of its rights or obligations hereunder without the prior consent of the other Party. In the event of any permitted assignment, the 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 (except as provided below with respect to the Partnership); provided, however, that as a condition to and prior to the effectiveness of such assignment and assumption, the assigning Party shall deliver a copy of such assignment and assumption to the other Party. This Agreement shall be deemed to have been assigned by KBI-E to KB or its designee with respect to all Compounds, other than omeprazole and perprazole and any Discretionary Compounds that are not purchased if either KB or KBI-E exercises its Assignment Right (as such term is defined in the KBI-E Asset Option Agreement) or the Required Sale (as defined in the KBI-E Asset Option Agreement) occurs under the KBI-E Asset Option Agreement, in either case effective on the Assignment Date (as defined in the KBI-E Asset Option Agreement). 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; provided, however, that as a condition to and prior to the effectiveness of such assignment and assumption, KB or its Affiliates shall deliver a copy of such assignment and assumption to KBI. Notwithstanding the foregoing, KBI and its Affiliates may make the partial assignments of this Agreement and of its rights and obligations hereunder provided for in the KBI-E Asset Contribution Agreement (as defined in the Master Restructuring Agreement), the Selected Compounds Contribution Agreement, the Trademark Rights Contribution Agreement (as defined in the Master Restructuring Agreement), the KBI Sub Assignment and Assumption Agreement (#1) (as defined in the Master Restructuring Agreement), the KBI Sub Assignment and Assumption Agreement (#2) (as defined in the Master Restructuring Agreement) and the KBI License Assignment and Assumption Agreement (as defined in the Master Restructuring Agreement); provided, however, that as a condition to and prior to the effectiveness of such assignment and assumption, KBI or its Affiliate shall deliver a copy of such assignment and assumption to KB. KBI and its Affiliates shall be released from such obligations to the extent such obligations are assumed by the Partnership pursuant to such agreements. KB hereby consents to such assignments and to the delegations of duties provided for in such agreements and in the Distribution Agreement. This Agreement and the rights of Licensee hereunder may not be further assigned without compliance with Section 6.3 of the KBI-E Asset Option Agreement or, with respect to the Selected 37 43 Compounds, Section 3.6 of the Master Restructuring Agreement. Nothing in this Agreement, express or implied, 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. Section 15.3 Applicable Law. This Agreement shall be construed and governed in accordance with the laws of the State of New York without regard to any choice of law rules other than Section 5-1401 of the New York General Obligations Law. Section 15.4 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 if delivered personally, sent by telefax with confirmation of receipt, or sent by internationally-recognized courier service to either Party at its address as specified below. If to KB, to: Astra AB S-151 85 Sodertalje, Sweden Attention: General Counsel Telefax: 011-46-8-553-288-12 If to Licensee, 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: General Counsel Copy to: Corporate Secretary Telefax: (908) 735-1246 If to the Partnership, to: Astra Pharmaceuticals, L.P. 725 Chesterbrook Avenue Wayne, PA 19087-5677 Attention: General Counsel Telefax: (610) 695-1280 Or such other address as the Partnership may specify to KB from time to time. Either Party by written notice to the other in accordance with the above may change the address to which such notices, requests or other communications to it shall be directed. 38 44 Section 15.5 Waiver or Modification. 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 either Party in requiring the due and punctual fulfillment by the other 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 15.6 Expenses. Each of the Parties shall pay the fees and expenses of its respective counsel and other experts, and all other expenses, except as otherwise expressly provided herein, incurred by such Party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. Section 15.7 Enforceability. 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 reasonable 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 15.8 Section and Other Headings. The Article and Section headings herein are for the convenience and reference of the Parties and shall not affect the meaning or interpretation hereof. References in the text hereof to Articles, Sections, Paragraphs, Clauses and Exhibits mean the Articles, Sections, Paragraphs, Clauses and Exhibits in this Agreement, respectively, unless otherwise specifically stated. Section 15.9 Reasonable Efforts. Wherever it is provided in this Agreement that a Party shall use reasonable efforts for any purpose, such Party shall be required only to use such efforts, if any, as are commercially reasonable in the circumstances and as 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 (and the Exhibits hereto) in a manner reasonably consistent with that employed by such Party in connection with its other pharmaceutical products of comparable commercial potential. Any obligation of Licensee to use reasonable efforts hereunder in respect of any Distribution Compound shall be deemed to be satisfied by causing the Partnership to enter into an agreement obligating the Partnership to use its reasonable efforts to satisfy such obligation. Section 15.10 Further Assurances. Each Party shall execute such other instruments, give such further assurances and perform such acts which are or may become necessary or appropriate to effectuate and carry out the provisions of this Agreement. Section 15.11 Affiliates. Each Party will cause its respective Affiliates to comply fully with the provisions of this Agreement to the extent such provisions relate, or are intended to 39 45 relate, to such Affiliates, as if such Affiliates were expressly named as joint obligors hereunder. Without limiting the foregoing, to the extent reasonably requested by either Party, the other Party will cause any such Affiliate to execute any and all instruments, give such assurances and perform such acts which are or may become appropriate to effectuate and carry out the intent of the Parties as reflected in this Agreement. Section 15.12 No Agency, etc. Neither Party hereto shall be deemed to be an agent, employee or legal representative of the other for any purpose. Each Party shall conduct itself under this Agreement as an independent contractor and all persons employed by a Party shall be employees of that Party and not the other and all costs and obligations incurred by reason of any such employment shall be for the account and expense of that Party (although any such Party may be reimbursed therefor, directly or indirectly, to the extent provided herein). Section 15.13 Events of Force Majeure. No Party shall be responsible or liable to the other Party, nor shall Licensee's rights to any Licensed Compound and any product containing a Licensed Compound terminate and revert to KB pursuant to Section 16.2, for any failure or inability to perform any of such Party's covenants or obligations under this Agreement, or, in the case of Licensee, for neither conducting an Active Development Program for a Licensed Compound nor Actively Marketing any product containing such Licensed Compound, if such failure or inability 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 a Party from obtaining the funds sufficient to make any payment required to be made by it pursuant to this Agreement, but shall include any such event or circumstance which prevents a Party from transferring such funds to the other Party to effect such payment. The Party failing or unable to perform as a result of an Event of Force Majeure shall promptly notify the other Party 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 a Party on terms unsatisfactory to it. ARTICLE XVI TERMINATION OF RIGHTS Section 16.1 Termination of Rights and Reversion to Licensee. It is understood by the Parties that, as of the Amendment and Restatement Date, Licensee shall assign certain rights 40 46 under this Agreement to KBI-E and KBI-E, as such assignee, shall simultaneously enter into the Distribution Agreement with the Partnership. In the event that, pursuant to Section C or D of the Distribution Agreement, the Partnership does not become or ceases to be the distributor with respect to a Licensed Compound and any products containing such Licensed Compound or if the Partnership's rights under the Distribution Agreement become non-exclusive under the Distribution Agreement with respect to a Licensed Compound and any products containing such Licensed Compound: (a) KB shall provide to KBI-E the Information Package and any additional relevant information with respect to such Licensed Compound and any products containing such Licensed Compound then in the possession of KB and its Affiliates developed or acquired by KB or such Affiliates subsequent to the delivery of such Information Package to the Partnership but prior to the date on which the Partnership is no longer the exclusive distributor of any products containing such Licensed Compound; provided, however, that this subsection (a) shall be applicable only if the Compound ceases to be a Distribution Compound or only if the rights of the Partnership under the Distribution Agreement with respect to such Compound become non-exclusive; (b) KB shall no longer be subject to its obligations set forth in Sections 2.7, 3.1, 3.2 and 10.1 (except as set forth in Section 2.3(d), the last sentence of Section 10.1(a) and Section 16.1(a)) with respect to such Licensed Compound; provided, however, that KBI-E shall be obligated to perform all of KB's obligations set forth in such Sections at its own expense and KBI-E shall provide KB with such of the results of, and supporting data and information for, any tests and studies performed by KBI-E (or any of its Affiliates) pursuant thereto for any Licensed Compound which KB shall request after review with KBI-E of the material available, with authority to KB, its Affiliates or any licensee or sublicensee thereof to use and make reference thereto; provided, further, however, that this subsection (b) shall be applicable only if such Compound ceases to be a Distribution Compound. (c) If such Licensed Compound is a Group C Compound and will have intravenous and other routes of administration or will have an antibiotic, anticancer or antiviral use, KB (and its Affiliates) shall be granted the nonexclusive, nonlicensable right to make, have made, use and sell such Group C Compound in the Territory in all Parenteral Forms; and (d) KB shall provide KBI-E with all information, data and know-how then in the possession of KB or any of its Affiliates with respect to such Licensed Compound to which KBI-E would be entitled under the Manufacturing Agreement as if KBI-E were the Producer (as such term is defined in the Manufacturing Agreement) of products containing such Licensed Compound pursuant to the Manufacturing Agreement but shall not have any obligation to provide KBI-E with any additional information, data or know-how later developed or acquired by KB or any of its Affiliates; provided, however, that with respect to products containing such Licensed Compound delivered through the Turbuhaler, KB may, in its sole discretion, (i) provide to KBI-E the information, data and 41 47 know-how referred to in this subsection 16.1(d) or (ii) manufacture such products for, and supply such products to, KBI-E in accordance with terms of the Manufacturing Agreement. (e) KBI-E 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 KBI-E, or any of its Affiliates, or as to which KBI-E, or any of its Affiliates, has licensing rights) as relate uniquely to manufacturing or preparing any Licensed Compound (including any intermediate of such Licensed Compound) and are now or hereafter possessed by KBI-E (or any of its Affiliates). KBI-E 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, KBI-E shall not be obligated to provide KB with any such information, data or know-how to the extent neither KBI-E 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, KBI-E shall, to the extent legal, use its reasonable 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. KB shall pay KBI-E such reasonable consideration, if any, as KBI-E and KB shall agree for such information, data and know-how requested by KB and as to which KBI-E 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 KBI-E 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 Article XIV. (f) KBI-E shall not enter into any sublicense or distribution arrangement under this Agreement with any Non-Affiliate of KBI-E with respect to any Discretionary Compound; provided, however, that on and after the Assignment Date KBI-E may enter into any such sublicense or distribution arrangement with respect to any Discretionary Compounds that are not purchased if either KB or KBI-E exercises its Assignment Right or the Required Sale occurs under the KBI-E Asset Option Agreement and provided, further, that any sublicense or distribution arrangement entered into with an Affiliate of KBI-E with respect to any Discretionary Compound prior to the KBI-E Asset Purchase (as defined in the Master Restructuring Agreement) shall terminate upon the exercise of KB's right to purchase the rights to such Compound under Article V of the KBI-E Asset Option Agreement. Section 16.2 Reversion to KB. With respect to each Licensed Compound as to which, pursuant to Section C or D of the Distribution Agreement, the Partnership does not become or ceases to be the distributor with respect to such Licensed Compound and any products containing such Licensed Compound or if the Partnership's rights under the Distribution Agreement become non-exclusive under the Distribution Agreement with respect to a Licensed Compound and any products containing such Compound: 42 48 (a) At any time after KBI-E shall have determined (i) that it is neither (A) currently conducting or planning to conduct an Active Development Program for such Licensed Compound nor (B) Actively Marketing or planning to Actively Market any product containing such Licensed Compound or (ii) to discontinue the development of a Licensed Compound and any product containing such Licensed Compound, KBI-E may deliver to KB a written notice (a "Discontinuation Notice") identifying such Compound and products containing such Compound, if any (collectively, the "Discontinued Licensed Compound"). Upon KB's receipt of a Discontinuation Notice and without any further action by KBI-E or KB, the license with respect to such Discontinued Licensed Compound shall automatically terminate, all rights granted thereunder shall revert to KB (including any rights with respect to Trademarks and the good will associated therewith) and the provisions of Section 13.2 shall apply. (b) (i) After the Amendment and Restatement Date, KB may deliver to KBI-E a written notice (a "Non-Performance Notice") with respect to such Licensed Compound setting forth its contention that KBI-E is neither (A) conducting an Active Development Program for such Licensed Compound nor (B) Actively Marketing any product containing such Licensed Compound; provided, however, that if such Non-Performance Notice has not been delivered by KB within six (6) months after the end of the Calendar Year in which the facts which form the basis of KB's contention have occurred, KB's rights under this Section 16.2(b) shall terminate, for such Calendar Year. (ii) Within ninety (90) days of receipt of a Non-Performance Notice, KBI-E shall deliver to KB a written notice that either (A) confirms KB's claim as set forth in subparagraph (b)(i) or (B) disputes KB's claim. If KBI-E confirms that it is neither (A) conducting an Active Development Program for such Licensed Compound nor (B) Actively Marketing any product containing such Licensed Compound, then, without any further action by KBI-E or KB, the license with respect to such Licensed Compound and any products containing such Licensed Compound shall automatically terminate, all rights granted thereunder shall revert to KB (including any rights with respect to Trademarks and the good will associated therewith) and the provisions of Section 13.2 shall apply. If KBI-E does not deliver such notice to KB within such ninety-day period, KBI-E shall be deemed to have confirmed KB's claim as set forth in subparagraph (b)(i). (iii) If, in the notice provided to KB pursuant to subparagraph (b)(ii) above, KBI-E disputes a Non-Performance Notice, such dispute shall be resolved by arbitration pursuant to Article XIV. Such arbitration shall be initiated by KB within ninety (90) days after receipt by KB of such notice. If the arbitrators determine that KBI-E is conducting an Active Development Program for such Licensed Compound or is Actively Marketing any product containing such Licensed Compound, KBI-E shall retain all rights with respect to such Licensed Compound granted hereunder. If the arbitrators determine that KBI-E is neither conducting an Active Development Program for such Licensed Compound nor Actively Marketing any product containing such Licensed Compound, without any further action by KBI-E or KB, the license with respect to such Licensed Compound and any products containing such Licensed Compound shall automatically 43 49 terminate, all rights granted thereunder shall revert to KB (including any rights with respect to Trademarks and the good will associated therewith) and the provisions of Section 13.2 shall apply. (iv) Notwithstanding the foregoing, KB may deliver a Non-Performance Notice to KBI-E with respect to any given Licensed Compound (and seek resolution of any dispute arising therefrom pursuant to subparagraph (b)(iii) above) only once during the development of such Licensed Compound and only once during the marketing of a product containing such Licensed Compound. (c) If the license with respect to a Discontinued Licensed Compound or a Licensed Compound, as the case may be, is terminated pursuant to this Section 16.2, KBI-E shall require any sublicensee or distributor to transfer to KB all rights which such sublicensee or distributor shall have with respect to any uses of such Licensed Compound or Discontinued Licensed Compound, as the case may be, so that KB shall be in possession of all rights with respect to such Licensed Compound, including the Selected Uses of such Licensed Compound and any Exempted Combinations thereof. Section 16.3 Compliance Certificate; Audit Rights. With respect to each Licensed Compound as to which, pursuant to Section C or D of the Distribution Agreement, the Partnership does not become or ceases to be the distributor with respect to such Licensed Compound and any products containing such Licensed Compound or if the Partnership's rights under the Distribution Agreement become non-exclusive under the Distribution Agreement with respect to a Licensed Compound and any products containing such Compound: (a) KBI-E shall deliver to KB within sixty (60) days after the end of each Calendar Year a certificate, executed by the chief executive officer or other senior officer of KBI-E, certifying as to each such Licensed Compound whether or not KBI-E as of the end of such Calendar Year is then conducting an Active Development Program for such Licensed Compound and Actively Marketing products containing such Licensed Compound (an "Annual Certificate"), which certificate may be a combined certificate with respect to all such Licensed Compounds. Such certificate shall (A) identify each such Licensed Compound and product, (B) certify whether the amount of KBI-E's (and its Affiliates') development expenditures for such Calendar Year in respect of such Licensed Compound exceed the $1 million and $3 million amounts for the applicable development phase described in the definition of "Active Development Program," and (C) identify the applicable development phase for such Compound. In the event such certificate does not certify that KBI-E is either (i) conducting an Active Development Program for such Licensed Compound or (ii) Actively Marketing products containing such Licensed Compound, the delivery of such certificate shall be deemed to be the delivery of a Discontinuation Notice with respect to such Licensed Compound; provided, however, that if such certificate omits the certification with respect to any Licensed Compound, the failure to deliver such certificate shall not constitute the delivery of a Discontinuation Notice unless KBI-E fails to deliver such certification 44 50 within thirty (30) days after the delivery to KBI-E of notice of such omission. In the event KBI-E fails to deliver to KB within the 60-day period referred to in this Section 16.3(a) an Annual Certificate with respect to each such Licensed Compound and fails to deliver such Annual Certificate within thirty (30) days after written notice from KB of such failure to deliver or if the Annual Certificate with respect to a year was prepared with reckless disregard for the accuracy or inaccuracy of the information contained therein, KBI-E shall reimburse KB for the Full Costs of any audit by KB's accountants pursuant to Section 16.3(b) with respect to such Calendar Year. (b) KBI-E shall keep, and shall cause its Affiliates and sublicensees and distributors to keep, true, accurate and complete records of the development and marketing expenditures and commitments therefor in respect of each Licensed Compound and each product (and the Licensed Compound contained therein) in sufficient detail to permit the verification of the information contained in the certificate provided to KB pursuant to subsection (a) of this Section 16.3. Upon KB's request, KBI-E shall permit an independent certified public accountant selected and paid by KB (except one to whom KBI-E has some reasonable objection) to have reasonable access during ordinary business hours to such of KBI-E's and its Affiliates' and sublicensees' and distributors' records as may be necessary in such accountant's judgment to confirm to its reasonable satisfaction the accuracy of any certificate delivered to KB pursuant to this Section 16.3. This right to request a review for any Calendar Year shall be effective only with respect to the immediately preceding Calendar Year and shall terminate six (6) months after the end of such Calendar Year. Such accountant shall keep its findings confidential and shall not disclose to KB (or any of its Affiliates) any information except that it shall report to KB (i) its findings and any other information relating to the accuracy of the certificate delivered under this Section 16.3, (ii) interpretations of the terms of this Agreement applied by KBI-E to the information contained in such certificate, and (iii) any restrictions on access to KBI-E's and its Affiliates' and sublicensees' and distributors' data which the accountant deems to be a restriction of scope with respect to its engagement. 45 51 IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their officers thereunto duly authorized as of the Amendment and Restatement Date. ASTRA AB (publ) By: /s/ Goran Lerenius ------------------------------------- Name: Goran Lerenius Title: Authorized Signatory ASTRA MERCK INC. By: /s/ Peter E. Nugent ------------------------------------- Name: Peter E. Nugent Title: President Acknowledged and consented to with respect to the Selected Compounds and the Selected Uses of the Licensed Compounds: ASTRA PHARMACEUTICALS, L.P. By: KB USA, L.P., its General Partner By: Astra AB, its General Partner (publ) By: /s/ Christian Onfelt ------------------------------------- Name: Christian Onfelt Title: Authorized Signatory 52 EXHIBIT A APPROVED COUNSEL Connolly, Bove, Lodge & Hutz 1220 Market Street Wilmington, DE 19801 Morgan & Finnegan 345 Park Avenue New York, NY 10154 Hale & Dorr 60 State Street Boston, MA 02109 53 EXHIBIT B The following Compounds are "Excepted Compounds" and are excepted from Group C Compounds: (a) Alprenolol Bacampicillin Bacmecillinam Etidocaine Glucoferron Metoprolol Ritodrine Hydrochloride (b) KB shall treat any salt or ester of any Compound listed in subparagraph (a) above and any analogue, homologue or derivative thereof as a Group C Compound to the extent that KB (or any of its Affiliates), at April 28, 1981, had not licensed (other than in accordance with understandings made prior to that date) or had not committed, or otherwise undertaken, to license such salt, ester, analogue, homologue or derivative to any Non-Affiliate of KB (other than Licensee); it being represented and warranted by KB that no such license, commitment or undertaking exists, at the Original Execution Date (x) in respect of the Compounds Etidocaine, Glucoferron and Ritodrine Hydrochloride; and (y) in respect of any analogue, homologue or derivative of the Compounds Metoprolol and Alprenolol, except as to any analogue, homologue or derivative claimed by any United States, Swedish or Swiss patent or patent application owned by KB (or its Affiliates), or as to which KB (or any of its Affiliates) had licensing rights, in each case, as at April 28, 1981. 54 EXHIBIT C LICENSED PATENTS PRILOSEC (OMEPRAZOLE)
PATENT NUMBER PATENT EXPIRES TYPE OF PATENT ------------- -------------- -------------- 4,255,431 April 05, 2001 (inc. PTE) Drug product and method of use ("compound patent") 4,620,008 October 28, 2003 Process and intermediate 4,786,505 April 20, 2007 Drug product and method of use ("formulation patent") 5,093,342 Feb. 02, 2010 Use 4,544,750 Aug. 26, 2003 Intermediate 4,853,230 April 20, 2007 Formulation 4,636,499 May 30, 2005 Sulphenamide compound 5,599,794 Feb. 04, 2014 Combination, Formulation 5,386,032 Jan. 31, 2012 Process 5,629,305 Feb. 04, 2014 Combination, Formulation
PATENT APPLICATIONS FILING DATE ------------------- ----------- 08/776 222 Dec. 05, 1996 Process - (No appeals)
55 H199/18 (PERPRAZOLE) In addition to the patents covering omeprazole, the following:
PATENT NUMBER PATENT EXPIRES TYPE OF PATENT ------------- -------------- -------------- 4,738,974 April 19, 2005 Product 5,714,504 February 03, 2015 Formulation 5,693,818 December 02, 2014 Process
PATENT APPLICATIONS FILING DATE ------------------- ----------- .08/492,087 July 05, 1995 Process - (No appeals) .08/491,939 July 03, 1995 Process - (No appeals) .08/313,342 July 08, 1994 Specific crystallinity - (No appeals) 08/833962 April 11, 1997 Use - (No appeals) 08/899931 July 24, 1997 Formulation - (No appeals)
C-2 56 REMACEMIDE
PATENT NUMBER PATENT EXPIRES TYPE OF PATENT ------------- -------------- -------------- 5,331,007 Mar. 03, 2009 (PTE Product possible) 5,650,443 July 22, 2014 Combination, Formulation
PATENT APPLICATIONS FILING DATE TYPE OF PATENT ------------------- ----------- -------------- PCT/SE97/02092 (US Dec. 12, 1997 Process - (No appeals) number not yet received)
C-3 57 TONOCARD (TOCAINIDE HCl)
PATENT NUMBER PATENT EXPIRES TYPE OF PATENT ------------- -------------- -------------- 4,210,670 June 23, 1998 Use 4,237,068 Nov. 09, 1998 Product
C-4 58 ROFLEPONIDE
PATENT NUMBER PATENT EXPIRES TYPE OF PATENT ------------- -------------- -------------- 5,674,861 October 07, 2014 Compound 5,614,514 March 25, 2015 Compound 4,693,999 July 03, 2005 Formulations
PENDING APPLICATIONS FILING DATE TYPE OF PATENT -------------------- ----------- -------------- 08/944676 (cont.-in part of 5,674,861) October 7,1997` Process (No appeals) 08/493733 (cont.-in part of 5,614,514) June 22, 1995 Compound* 08/617918 December 20, 1995 Compound
*Appeal on the basis of lack of inventive step. C-5 59 PLENDIL (FELODIPINE)
PATENT NUMBER PATENT EXPIRES TYPE OF PATENT ------------- -------------- -------------- 4,264,611 June 19, 2001 (inc. PTE) Product 4,803,081 April 03, 2007 Formulation 4,942,040 Sep. 29, 2008 Logimax (Product)
PATENT APPLICATIONS FILING DATE TYPE OF PATENT ------------------- ----------- -------------- 08/648000 May 08, 1996 Felo cerebral (use) - (No appeals) 08/750933 Dec. 13, 1996 Process - (No appeals)
C-6 60 ROPIVACAINE FOR THE TREATMENT OF INFLAMMATORY BOWEL DISEASE IN HUMANS
PATENT NUMBER PATENT EXPIRES TYPE OF PATENT ------------- -------------- -------------- 4,695,576 April 26, 2005 Substance 4,870,086 November 24, 2006 Substance (Application for PTE is pending) 5,670,524 September 23, 2014 Use
PATENT APPLICATIONS FILING DATE TYPE OF PATENT ------------------- ----------- -------------- 08/647994 April 30, 1996 Process (No appeals)
C-7 61 BUDESONIDE FOR THE TREATMENT OF INFLAMMATORY BOWEL DISEASE IN HUMANS
PATENT NUMBER PATENT EXPIRES TYPE OF PATENT ------------- -------------- -------------- 5,643,602 July 1, 2014 Composition, 2nd medical use
PATENT APPLICATIONS FILING DATE TYPE OF PATENT ------------------- ----------- -------------- 08/853 142 May 8, 1997 Composition, use (No appeals) 08/764 985 December 13, 1996 Prodrug, composition (No appeals)
C-8 62 ATACAND (CANDESARTAN CILEXETIL) (Patents owned by Takeda Chemical Industries, Ltd.)
PATENT NUMBER PATENT EXPIRES TYPE OF PATENT ------------- -------------- -------------- 5,196,444 April 18, 2011(PTE possible) Product 5,705,517 April 18, 2011 Product (general) 5,703,110 April 18, 2011 Metabolite 5,534,534 July 9, 2013 Formulation
C-9 63 EXHIBIT D THERAPEUTIC CATEGORIES All lettered/numbered references in this Exhibit D are to the International Classification of Diseases - 10th Edition (ICD-10) as issued by the World Health Organization. Intestinal infectious diseases (A00-A07; A09) Viral and other specified intestinal infections (A08) Tuberculosis (A15-A19) Certain zoonotic bacterial diseases (A20-A28) Other bacterial diseases (A30-A49). Includes both prevention and treatment of susceptible bacterial diseases. Gonococcal infection (A54) Sexually transmitted chlamydial diseases (A55-A56) Anogenital herpesviral [herpes simplex] infections (A60) Other Infections with a predominantly sexual mode of transmission (A50-A53; A57-A59; A63-A64) Other spirochaetal diseases (A65-A69) Other diseases caused by chlamydiae (A70-A74) Rickettsioses (A75-A79) Acute poliomyelitis (A80) Other Viral Infections of the central nervous system (A81-A89) Arthropod-borne viral fevers and viral haemorrhagic fevers (A90-A99) Viral infections characterized by skin and mucous membrane lesions (B00-B09). Includes both prevention and treatment of susceptible viral infections in group. Acute hepatitis A (B15) Acute hepatitis B (B16) Acute hepatitis C (New from B17) Other Viral hepatitis (B17-B19) HIV disease and AIDS (B24; Z21) Other viral diseases (B24-B34). Includes both prevention and treatment of susceptible viral diseases in group. Mycoses (B35-B36; B38-B43; B46-B49) Candidiasis (B37) Aspergillosis (B44) Cryptococcosis (B45) Protozoal disease (B50-B58; B60-B64) Pneumocystosis (B59) Helminthiases (B65-B72; B74-B83) Onchocerciasis (B73) Pediculosis, acariasis and other infestations (B85-B89) Sequelae of infectious and parasitic diseases (B90-B94) 64 Malignant neoplasms of lip, oral cavity and pharynx (C00-C14) Malignant neoplasm of oesophagus (C15) Malignant neoplasm of stomach (C16) Malignant neoplasm of colon/rectum (C18-C20) Malignant neoplasm of liver and intraheptic bile ducts (C22) Other Malignant neoplasms of digestive organs (C17; C21; C23-C24; C26) Malignant neoplasm of pancreas (C25) Malignant neoplasms of respiratory and intrathoracic organs (C30-C33; C37-C39) Malignant neoplasm of bronchus and lung (C34) Malignant neoplasms of bone and articular cartilage (C40-C41) Melanoma and other malignant neoplasms of skin (C43-C44) Malignant neoplasms of mesothelial and soft tissue (C45-C49) Malignant neoplasm of breast (C50) Malignant neoplasms of female genital organs (C51-C52; C57-C58) Malignant neoplasm of cervix/uterus (C53-C55) Malignant neoplasm of ovary (C56) Malignant neoplasms of male genital organs (C60; C62-C63) Malignant neoplasm of prostate (C61) Malignant neoplasms of urinary tract (C66; C68) Malignant neoplasm of kidney (C64-C65) Malignant neoplasm of bladder (C67) Malignant neoplasms of eye, brain and other parts of central nervous systems (C69-C72) Malignant neoplasms of thyroid and other endocrine glands (C73-C75) Malignant neoplasms of ill-defined, secondary and unspecified sites (C76-C80) Malignant neoplasms of lymphoid, haematopoietic and related tissue (C81-C96) Malignant neoplasms of independent (primary) multiple sites (C97) In situ neoplasms (D00-D09 Benign neoplasms (D10-D36) Neoplasms of uncertain or unknown behaviour (D37-D48) Nutritional anaemias (D50-D53) Haemolytic anaemias (D55-D59) Aplastic and other anaemias (D60-D64) Disseminated intravascular coagulation [defibrination syndrome] (D65) Hereditary factor VIII deficiency (D66) Hereditary factor IX deficiency (D67) Factor X (from D68) Other Coagulation defects, purpura and other haemorragic conditions (Part D68-D69) Other diseases of blood and blood-forming organs (D70-D77) Certain disorders involving the immune mechanism (D80-D89) Disorders of thyroid gland (E00-E07) Insulin-dependent diabetes mellitus (E10) D-2 65 Non-insulin-dependent diabetes mellitus (E11) Other Diabetes mellitus (E12-E14) Other disorders of glucose regulation and pancreatic internal secretion (E15-E16) Disorder of other endocrine glands (E20-E27; E30-E35) Ovarian dysfunction (E28) Testicular dysfunction (E29) Short stature (from E34) Malnutrition (E40-E46) Other nutritional deficiencies (E50-E64) Other hyperallmentation (E65; E67-E68) Obesity (E66) Metabolic disorders (E70-E77; E79-E90) Disorders of lipoprotein metabolism and other lipidaemias (E78) Dementia in Alzheimer's disease (F00) Other dementia (F01-F03) Organic, including symptomatic, mental disorders (F04-F05; F09) Other mental disorders due to brain damage an dysfunction and to physical disease (F06) Personality and behavioural disorders due to brain disease, damage and dysfunction (F07) Mental and behavioural disorders due to psychoactive substance use (F10-F19) Schizophrenia (F20-F21; F25) Delusional and psychotic disorders (F22-24; F28-F29) Manic episode (F30) Bipolar affective disorder (F31) Depression (F32-F33) Other mood [affective] disorders (F34-F39) Anxiety disorders (F40-F41) Obsessive-compulsive disorder (F42) Other neurotic, stress-related and somatoform disorders (F43-F48) Eating disorders (F50) Nonorganic sleep disorders (F51) Sexual dysfunction, not caused by organic disorder or disease (F52) Other behavioural syndromes associated with physiological disturbances and physical factors (F53-F59) Personality disorders (F60-F62) Other disorders of adult personality and behaviour (F63-F69) Mental retardation (F70-F79) Disorders of psychological development (F80-F89) Hyperkinetic disorders (F90) Other behavioural and emotional disorders with onset usually occurring in childhood and adolescence (F91-F98) Inflammatory diseases of the central nervous system (G00-G09) Systemic atrophies primarily affecting the central nervous system (G10-G13) D-3 66 Parkinsonism (G20-G22) Dystonia (G24) Other extrapyramidal and movement disorders (G23; G25-G26) Alzheimer's disease (G30) Other degenerative diseases of the nervous system (G31-G32) Multiple sclerosis (G35) Other demyelinating diseases of the central nervous system (G36-G37) Epilepsy (G40-G41) Migraine (G43) Other headache syndromes (G44) Transient cerebral ischaemic attacks and related syndromes (G45) Vascular syndromes of brain in cerebrovascular diseases (G46) Sleep disorders (G47) Nerve, nerve root and plexus disorders (G50-G59) Polyneuropathies and other disorders of the peripheral nervous system (G60-G64) Diseases of myoneural junction and muscel (G70-G73) Cerebral palsy and other paralytic syndromes (G80-G83) Other disorders of the nervous system (G90-G99) Disorders of eyelid, lacrimal system and orbit (H00-H06) Disorders of conjunctiva (H10-H13) Other disorders of sclera, cornea, iris and ciliary body (H15; H17-H22) Keratitis (H16) Cataract (H25-H26; H28) Other disorders of lens (H27) Disorders of choroid and retina except retinopathy (H30-H36) Retinopathy (from H35/H36) Glaucoma (H40-H42) Disorders of vitreous body and globe (H43-H45) Disorders of optic nerve and visual pathways (H46-H48) Disorders of ocular muscles, binocular movement, accommodation and refraction excluding myopia (H49-H52) Myopia (from H52) Visual disturbances and blindness (H53-H54) Other disorders of eye and adnexa (H55-H59) Diseases of external ear (H60-H62) Otitis media (H65-H67) Other diseases of middle ear and mastoid (H68-H75) Diseases of inner ear (H80-H83) Other disorders of ear (H90-H95) Acute rheumatic fever (I00-I02) Chronic rheumatic heart diseases (I05-I09) Hypertensive diseases (I10-I15) D-4 67 Angina pectoris (I20) Myocardial infarction (I21-I23) Other acute ischaemic heart disease (I24) Chronic ischaemic heart disease (I25) Pulmonary embolism and diseases of pulmonary circulation (I26; I28) Other pulmonary heart diseases (I27) Acute and subacute endocarditis (I33) Cardiomyopathy (I42-I43) Cardiac arrhythmias (I44-I49) Heart failure (I50) Other forms of heart disease (I30-I32; I34-I41; I51-I52) Cerebrovascular haemorrhege (I60-I62) Cerebral infarction and occlusion (I63; I65-I66) Other cerebrovascular diseases (I64; I67-I69) Atherosclerosis (I70) Aneurysm (I71-I72) Other peripheral vascular diseases (I73) Arterial embolism and thrombosis (I74) Other diseases of arteries, arterioles and capillaries (I77-I79) Venous thrombosis (I81-I82) Other diseases of veins, lymphatic vessels and lymph nodes, not elsewhere classified (I80; I83-I89) Other and unspecified disorders of the circulatory system (I95-I99) Acute upper respiratory infections (J00-J06) Viral influenza (J10-J11) Viral pneumonia, not elsewhere classified (J12) Bacterial pneumonia (J13-J15) Pneumonia, other (J16-J18) Other acute lower respiratory infections (J20-J22) Rhinitis, allergic (from J30) Rhinitis, other (from J31) Other diseases of upper respiratory tract (J30-J39) Chronic lower respiratory diseases (J40-J42; J44-J47) Emphysema (J43) Asthma (J45) Lung diseases due to external agents (J60-J70) Adult respiratory distress syndrome (J80) Other respiratory diseases principally affecting the interstitium (J81-J84) Suppurative and necrotic conditions of lower respiratory tract (J85-J86) Other diseases of pleura (J90-J94) Other diseases of the respiratory system (J95-J99) Diseases of oral cavity, salivary glands and jaws (K00-K14) D-5 68 Diseases of oesophagus (K20-K23) Peptic ulcer (K25-K28) Other diseases of stomach and duodenum (K29-K31) Diseases of appendix (K35-K38) Hernia (K40-K46) Inflammatory bowel disease (K50-K51) Other noninfective gastroenteritis and colitis (K52) Other diseases of intestines (K55-K57; K59-K63) Irritable bowel syndrome (K58) Diseases of peritoneum (K65-K67) Diseases of liver (K70-K77) Disorders of gallbladder, biliary tract and pancreas (K80-K87) Other diseases of the digestive system (K90-K93) Infections of the skin and subcutaneous tissue (L00-L08) Bullous disorders (L10-L14) Dermatitis and eczema (L20-L30) Psoriasis (L40) Other papulosquamous disorders (L41-L45) Urticaria (L50) Erythema (L51-L54) Skin changes due to chronic exposure to nonionizing radiation (L57) Other radiation-related disorders of the skin and subcutaneous tissue (L55-L56; L58-L59) Other disorders of skin appendages (L60-L62; L67-L68; L71-L75) Alopecia and hair loss (L63-L66) Acne (L70) Other disorders of the skin and subcutaneous tissue (L80-L99) Infectious Arthropathis (M00-M03) Arthritis (M05-M09; M13) Other inflammatory polyarthropathies (M10-M12; M14) Arthrosis (M15-M19) Other joint disorders (M20-M25) Systemic lupus erythematosus (M32) Other systemic connective tissue disorders (M30-M31; M33-M36) Deforming dorsopathies (M40-M43) Spondylopathies (M45-M49) Other dorsopathies (M50-M54) Disorders of muscles (M60-M63) Disorders of synovium and tendon (M65-M68) Bursitis (from M70-M71; M73 - M76) Tendinitis (from M75-M76) Other soft tissue disorders (M70-M79) Osteoporosis (M80-M82) D-6 69 Other disorders of bone density and structure (M83-M85) Paget's disease of bone [osteitis deformans] (M88) Other osteopathies (M86-M87; M89-M90) Chondropathies (M91-M94) Other disorders of the musculoskeletal system and connective tissue (M95-M99) Glomerular diseases (N00-N08) Renal tubulo-interstitial diseases (N10-N16) Renal failure (N17-N19) Urolithiasis (N20-N23) Other disorders of kidney and ureter (N25-N29) Other diseases of the urinary system (N30-N39) Hyperplasia of prostate (N40) Inflammatory diseases of prostate (N41) Other diseases of male genital organs (N42-N49) Disorders of breast (N60-N64) Endometriosis (N80) Inflammatory diseases of female pelvic organs (N70-N77) Other noninflammatory disorders of female genital tract (N81-N93; N96-N98) Pain and other conditions associated with female genital organs and menstrual cycle (N94) Menopausal and other perimenopausal disorders (N95) Other disorders of the genitourinary system (N99) Pregnancy with abortive outcome (O00-O08) Oedema, proteinuria and hypertensive disorders in pregnancy, childbirth and the puerperium (O10-O16) Other maternal disorders predominantly related to pregnancy (O20-O29) Maternal care related to the fetus and amniotic cavity and possible delivery problems (O30-O48) Preterm delivery (O60) Other complications of labour and delivery (O61-O75) Delivery (O80-O84) Complications predominantly related to the puerperium (O85-092) Other obstetric conditions, not elsewhere classified (O95-O99) Fetus and newborn affected by maternal factors and by complications of pregnancy, labour and delivery (P00-P04) Disorders related to length of gestation and fetal growth (P05-P08) Birth trauma (P10-P15) Respiratory and cardiovascular disorders specific to the perinatal period (P20-P29) Infections specific to the perinatal period (P35-P39) Haemorrhagic and haematological disorders of fetus and newborn (P50-P61) Transitory endocrine and metabolic disorders specific to fetus and newborn (P70-P74) Digestive system disorders of fetus and newborn (P75-P78) Conditions involving the integument and temperature regulation of fetus and newborn (P80-P83) D-7 70 Other disorders originating in the perinatal period (P90-P96) Congenital malformations (Q00-Q99) Cough (R05) Other symptoms and signs involving the circulatory and respiratory systems (R00-R04; R06-R09) Other symptoms and signs involving the digestive system and abdomen (R10; R13-R19) Nausea and vomiting (R11) Heartburn (R12 in GI segment) Symptoms and signs involving the skin and subcutaneous tissue (R20-R23) Symptoms and signs involving the nervous and musculoskeletal systems (R25-R29) Unspecified urinary incontinence (R32) Other symptoms and signs involving the urinary system (R30-R31; R33-R39) Symptoms and signs involving cognition, perception, emotional state and behaviour (R40-R46) Symptoms and signs involving speech and voices (R47-R49) General symptoms and signs (R50-R63; R68-R69) Cachexia (R64 in "B" Section) Abnormal findings on examination of blood, without diagnosis (R70-R79) Abnormal findings on examination of urine, without diagnosis (R80-R82) Abnormal findings on examination of other body fluids, substances and tissues, without diagnosis (R83-R89) Abnormal findings on diagnostic imaging and in function studies, without diagnosis (R90-R94) Ill-defined and unknown causes of mortality (R95-R99) D-8 71 EXHIBIT E 1. KB's acquisition of remacemide from Fisons Corporation (now Rhone Poulenc Rorer and referred to herein as "Fisons") did not include rights to make, have made, use or sell remacemide for any ophthalmic indication for glaucoma and other related pathologies of the anterior and/or posterior chamber and optic nerve and retinal ischemic and non-ischemic neural degeneration, an option for the rights to such indications having been previously committed to Alcon by Fisons. In addition, if KB discontinues research and development of remacemide, KB has an obligation to return such Compound to Fisons. There is a 6% royalty payable on Net Sales of remacemide by a member of the Astra Group (as such terms are defined in the Fisons acquisition agreement). 2. KB's acquisition of rights to candesartan cilexitil ("candesartan") from Takeda Chemical Industries, Ltd. ("Takeda") does not include rights to manufacture candesartan substance unless specifically authorized by Takeda. The development of candesartan is subject to agreement between Takeda and KB, and KB and its subsidiaries may not proceed with development activities without such agreement. KB has an obligation to pay Takeda 28% of the Net Selling Price as such term is defined in the license KB obtained from Takeda. KB may grant only subdistribution rights to KBI. 72 EXHIBIT F PRECLINICAL AND CLINICAL STUDIES SAFETY ASSESSMENT PREAMBLE: All safety assessment protocols should be consistent with the current standards of the Food and Drug Administration and should be in compliance with Good Laboratory Practices. 1. Acute toxicity - 2 species (2 rodents), both sexes, by two routes of administration. 2. Ames test 3. Depending on test compound and proposed clinical program, a 2-week, 4-week, 3-month, 6-month, 12-month, or 24-month toxicity study, or combination of one or more of these, would be done in one rodent and one non-rodent species, using both sexes. 4. Ocular, topical and/or parenteral irritation studies, where required, in appropriate species. 5. Teratology studies (Segment II) in rats and rabbits. 6. Reproduction studies (Segments I and III) in rats. 7. Carcinogenicity studies which include range finding to establish maximum tolerated dose. 2 species of rodents. 8 The carcinogenicity study in rat can be combined with the 12-month toxicity study. PHARMACOKINETICS A. Pre-clinical 1. Metabolism and disposition of the compound in a rodent and non-rodent species that have undergone safety assessment. If similar studies were done in other species, this information should be included. 2. Identification of metabolites 3. Evidence of metabolite activity 4. Tissue distribution 5. Protein binding 73 6. Where appropriate, evidence of drug or metabolite transport into the CNS (spinal fluid), breast milk, or across the placenta. 7. Evidence of possible induction or inhibition of drug metabolism. 8. Relevant in-vitro data on biotransformation. B. Clinical: Reports, summaries and case report forms of all studies concerning 1. Metabolism and disposition in man 2. Pharmacokinetics, including possible dose dependencies within the therapeutic range. 3. Bioavailability of final formulations intended for the market. 4. Bioequivalence among formulations used in pivotal clinical trials of efficacy and safety and linking them to the final formulations. 5. Other relevant data, e.g., drug interaction, effects of diseases. C. Analytical Methods 1. Detailed procedures of methods used in pre-clinical and clinical studies. 2. Documentation on assay specificity, sensitivity, linearity, and reproducibility. 3. Quality assurance procedures in keeping with Good Clinical Practices. Conduct of Sections B and C should be consistent with FDA guidelines and in compliance with Good Clinical Practices. GENERAL PHARMACOLOGY Methods of pharmacological studies will vary with the type of compound under investigation. Evaluation of compound concerning: 1. Studies of activities related to the primary therapeutic activity. 2. Studies of activities related to secondary therapeutic activity, e.g. a. CNS b. Autonomic system c. Cardiovascular system F-2 74 d. Respiratory system e. Gastro-intestinal system f. Other systems, where relevant, such as ? liver function ? kidney function ? endocrine functions. CLINICAL Phase I (Clinical Pharmacology) includes those tests and studies required as such by the FDA from time to time. Phase I (Clinical Pharmacology) is intended to include the initial introduction of a drug into man. It may be in the usual "normal" volunteer subjects to determine levels of toxicity, and be followed by early dose-ranging studies in patients for safety and in some cases early efficacy. Alternatively, with some new drugs, for ethical or scientific consideration the initial introduction into man is more properly done in selected patients. The number of subjects and patients in Phase I will, of course, vary with the drug but may generally be stated to be in the range of 20-80 on drug. Drug dynamic and metabolic studies, in whichever stage of investigation they are performed, are considered to be Phase I clinical pharmacological studies. While some, such as absorption studies, are performed in the early stages, others, such as efforts to identify metabolites, may not be performed until later in the investigations. Phase II (Clinical Investigation) includes those tests and studies required as such by the FDA from time to time. Phase II (Clinical Investigation) is intended to include early clinical controlled trials designed to demonstrate effectiveness and relative safety. Normally, these are performed on closely monitored patients of limited number. As a rule this phase will include 50-200 patients on drug. F-3 75 NDA - CONTROL & MANUFACTURING DATA REQUIREMENTS DRUG SUBSTANCE INFORMATION A. Nomenclature 1. Structural and empirical formula and molecular weight 2. Names a. Chemical names (including chemical abstracts, KB laboratory identification) b. Proprietary names (including generic and trade marks) B. Physical and chemical properties 1. Description: Appearance, color, odor and form 2. Physical properties, e.g. a. Thermal behavior b. Solubilities: water, selected organic solvents of analytical and pharmaceutical interest. Aqueous solubility as a function of pH. c. Specific rotation d. Index of refraction (liquids) e. pKa f. Partition coefficient g. Hygroscopicity h. Dehydration ? desolvation behavior i. Density 3. Discussion of physico-chemical properties of particular interest; e.g. solvates, polymorphs, powder technological aspects 4. Evidence of chemical structure a. A scientific discussion of the chemistry of the molecule on synthetic route F-4 76 b. Spectral data such as UV, IR, NMR, MS and interpretation c. Optical rotation in the case of D- or L-isomers 5. Chromatographic behavior (TLC, GLC, LC) 6. Purity (impurities arising from synthetic process) a. Potential and actual products b. Methods for quantification and information on separation characteristics, sensitivity etc. 7. Stability a. Potential and actual degradates b. Methods description and justification of suitability c. Stability evaluation of compound in solid state when exposed to various temperatures, humidities and light d. Stability evaluation of compound in solution F-5 77 NDA - CONTROL & MANUFACTURING DATA REQUIREMENTS BULK CHEMICAL INFORMATION A. Synthesis information 1. Chemical raw materials used in the synthesis with acceptance tests, methods and limits 2. Chemical process description a. Flow diagram b. Description of synthesis on a 1 mole basis (provides limits under which the production scale must operate) c. Description of synthesis for a typical production lot (more specific than b. and is not intended as a commitment for all future production batches) 3. In-process material specifications and test methods for each synthetic step to demonstrate suitability for next step 4. Description of hypothetical and actual impurities resulting from the process 5. Purchased synthetic intermediates that are not items of commerce will require information under A1, A2a and B1. B. Bulk chemical specifications and test methods 1. Basic specifications and test methods consistent with compendial monographs for similar substances (identity, purity, strength, etc.) 2. Report on analytical development describing rationale for selection of methods, precision and accuracy of assay methods, etc. 3. Reference standard a. Method of preparation, isolation and purification of lot b. Analytical characterization (1) Spectral data, e.g., UV, IR, 1[SUBSCRIPT H], and 13[SUBSCRIPT C], NMR, MS and interpretation (2) Chromatographic data, e.g. TLC, LC (3) Other, e.g., phase solubility F-6 78 c. Certificate of analysis demonstrating conformance to bulk chemical specification C. Facilities information (if compound is to be imported for commercial use) A description of the site performing the commercial scale process and quality control of the new drug substance (conforming to current FDA drug master file guidelines). A statement identifying local environmental regulations to which the facility conforms. F-7 79 NDA -- CONTROL & MANUFACTURING DATA REQUIREMENTS DOSAGE FORM INFORMATION A. Composition (KBI Product Definition) 1. Formula (mg/dosage unit or mass/volume of each component for a typical production batch) 2. Specifications and test methods for components. USP/NF if possible 3. Detailed description of production B. Packaging Packaging components supplied by KBI may be preferred for use in stability studies and commercial production for the USA. If other components are used they should be characterized in a suitable way, e.g. by the USP physicochemical tests for plastic or high density polyethylene containers. C. Dosage form testing 1. Finished product test methods and specifications a. Specifications and test methods consistent with USP specifications associated with the dosage form b. Dissolution methods, specifications and rationale for the selection of the medium c. Assay method is specific and stability indicating. In case degradation of the active ingredient might occur during production and shelf life, suitable tests and limits are included. Report of methods suitability is provided. d. Automated methods for content uniformity and dissolution procedures should be validated against manual procedures e. Additional test procedures and specifications as necessary to assure control of specific dosage forms and compounds 2. In-process tests and specifications 3. Stability testing (KBI Product Definition) a. Stability study protocols jointly approved by KBI and KB prior to the initiation of studies F-8 80 b. Test methods and information on accuracy, precision, selectivity, sensitivity c. Report on the stability characteristics of the product D. Samples 1. Bulk drug and finished product samples (4 times the quantity required to perform all test procedures contained in the NDA) and analytical data 2. Referenced standard samples (in duplicate) and analytical characterization data 3. Samples of isolated intermediates from the synthetic process, in-process impurities and when possible product degradates (in duplicate) E. Facilities Information (If commercial dosage form to be imported) A description of the site performing commercial dosage form production and quality control (conforming to current FDA Drug Master File guidelines). A statement identifying local environmental regulations to which the facility conforms. F-9 81 EXHIBIT G FORM OF COMMON AND JOINT INTEREST AGREEMENT COMMON AND JOINT INTEREST AGREEMENT, dated as of ___________, by and among [ASTRA AB, a company limited by shares organized and existing under the laws of Sweden KB, ("KB"), ASTRA MERCK ENTERPRISES INC., a corporation organized and existing under the laws of the State of Delaware ("KBI-E"), ASTRA MERCK INC., a corporation organized and existing under the laws of the State of Delaware ("KBI"), ASTRA PHARMACEUTICALS, L.P., a limited partnership organized and existing under the laws of the State of Delaware ("the Partnership"), and MERCK & CO., INC., a corporation organized and existing under the laws of the State of New Jersey ("TR")] (the "Agreement"). [Add or delete parties as appropriate] WHEREAS, KB and KBI entered into that certain Amended and Restated License and Option Agreement made as of July 12, 1982, as amended and restated as of July 1, 1998 (the "KBI License") relating to the development and marketing of certain pharmaceutical compounds; WHEREAS, KBI has assigned its rights and delegated its obligations under the KBI License to KBI-E, other than KBI's rights and obligations with respect to Trademarks (as defined in the KBI License), Selected Compounds (as defined in the KBI License) and the Selected Uses (as defined in the KBI license) for Licensed Compounds (as defined in the KBI License); WHEREAS, KB, KBI-E, KBI, TR, the Partnership and the other entities noted therein are parties to that certain Master Restructuring Agreement dated as of June 19, 1998 (the "Master Restructuring Agreement"); [Insert additional WHEREAS clauses including, if appropriate, those bracketed in the following form] [WHEREAS, ____ is the holder of the New Drug Applications ("NDAs") for certain compounds, including _________, and has listed certain patents relating to _________ with the Food and Drug Administration (the "FDA") pursuant to the Waxman-Hatch Act;] [WHEREAS, KB and _________, a wholly-owned subsidiary of KB, own the patents listed with the FDA and other patents relating to ______________ (the "Patents");] [WHEREAS, pursuant to the above-described agreements, the parties hereto have worked jointly and cooperatively in connection with the [licensing, development, marketing and sale] in the Territory of certain compounds, including ___________, and have exchanged and communicated information related to the Patents and Proceedings (as hereafter defined);] [WHEREAS, the parties anticipate disputes, litigation, or other proceedings 82 concerning, inter alia, (i) the validity, enforceability or coverage of the Patents, or (ii) the filing of abbreviated new drug applications ("ANDAs"), or other efforts by third parties, including filings with or proceedings before the FDA relating to the approval of ____________ (collectively, "Proceedings");] [WHEREAS, in anticipation of the Proceedings, the parties expect to continue to exchange or communicate information relating to such Proceedings by, between or among themselves;] [WHEREAS, the parties now understand that one or more ANDAs have been or are likely to be filed in the near future, and that certain Proceedings relating to the Patents or other matters related to ______________ may be filed in connection therewith;] WHEREAS, in connection with and in anticipation of the Proceedings, the parties want to ensure the continued protection of: (i) advice, attorney-client information, mental impressions, conclusions, opinions, legal theories, witness statements, trial preparation, trial strategy, trial tactics, and other notes, memoranda and work product of counsel, the identity and work product of consulting experts retained to advise a party regarding the proper analysis of the underlying facts, and other privileged information or information protected by the work product doctrine relating to the Patents and Proceedings ("Privileged Information/Work Product"); as well as (ii) client confidences, trade secrets, and other proprietary, business or technical information ("Confidential Information"); while at the same time being able to exchange certain information and cooperate in certain joint and common efforts relating to the Patents and Proceedings, in order that each may obtain an accurate appraisal of the facts underlying the Proceedings, and present the most appropriate positions with respect thereto; WHEREAS, the parties have had and continue to have a common interest relating to ___________ and the Patents; WHEREAS, the parties have been and continue to be of the opinion that it is in their best interests to exchange information and to cooperate in furtherance of their common interest relating to ____________ and the Patents relating to ____________; and WHEREAS, this Agreement confirms and reduces to writing the bases for the continuing exchange of Privileged Information/Work Product and Confidential Information in furtherance of the parties' common interest in ______________ and the Patents and in anticipation of Proceedings, such that the exchange of Privileged Information/Work Product and Confidential Information has not and will not defeat claims of privilege or work product protection, or impair the confidentiality of such Privileged Information/Work Product and G-2 83 Confidential Information.] NOW, THEREFORE, in order to accomplish the goals set forth above, [KB, KBI, KBI-E the Partnership, TR] and [add or delete parties as appropriate] hereby agree as follows: 1. Pursuant to their common and joint interests in the Patents and Proceedings and in connection with and anticipation of Proceedings, the parties have and will cooperate with each other in connection with such Patents and Proceedings, and will further cooperate to protect all Privileged Information/Work Product and Confidential Information to the maximum extent permitted by law. 2. In connection with any actual or potential Proceedings, Privileged Information/Work Product and Confidential Information heretofore and hereafter exchanged by, between or among the parties, and the parties' respective employees, counsel and agents, shall retain all privileges and protections (including, but not limited to, the attorney-client privilege and the protection of the work product doctrine) as if the parties were one party. The exchange of Privileged Information/Work Product and Confidential Information between or among the parties, and the parties' respective employees, counsel and agents, in connection with any actual or potential Proceedings, shall not be deemed a waiver of any privilege by the disclosing party with respect to any information or subject matter. Each party to this Agreement shall retain the right to assert any and all privileges and protections against non-parties to this Agreement with respect to shared Privileged Information/Work Product and Confidential Information that originated from it. 3. The parties do not intend by this Agreement to compel the disclosure to each other of any materials or information that any party believes should be kept confidential to itself, and nothing in this Agreement shall require the disclosure among the parties of any such information. Nonetheless, each party agrees to share Privileged Information/Work Product and Confidential Information with the other parties, to the maximum extent such sharing is, in its sole judgment, consistent with such party's protection of its own interests. 4. Any Privileged Information/Work Product and Confidential Information exchanged or communicated in the past or future by, between or among the parties or their counsel concerning the Patents and in contemplation or anticipation of Proceedings shall be deemed subject to this Agreement. 5. All oral, written, pictorial, electronic, and physical Privileged Information/Work Product and Confidential Information communicated by, between and among the parties relating to the Proceedings shall be covered by this Agreement. 6. Each party shall take appropriate steps to ensure the confidentiality of all Privileged Information/Work Product and Confidential Information received by it. Privileged Information/Work Product and Confidential Information may be disclosed by a receiving party only to persons with whom such a communication would be privileged or protected by the work product doctrine or attorney-client privilege. Except as stated in the preceding sentence, each G-3 84 party agrees that all Privileged Information/Work Product and Confidential Information received from another party shall be held in strictest confidence and shall not be given, shown, made available, communicated or otherwise disclosed in any way to anyone without the express consent of the party from whom the Privileged Information/Work Product and Confidential Information was received. It shall be the duty of each party to inform all persons to whom disclosures are made pursuant to this Agreement that all such disclosures are to be kept confidential. 7. Privileged Information/Work Product and Confidential Information exchanged or communicated by, between or among the parties may be used by the party to whom such Privileged Information/Work Product and Confidential Information is given for the purposes set forth in this Agreement and for no other purpose. However, each party shall retain the right to use all Privileged Information/Work Product and Confidential Information it has furnished to other parties for any purpose. 8. Notwithstanding any provision of this Agreement, the confidentiality, use or disclosure of any Confidential Information that a party received and is or was entitled to receive under any other agreement shall be governed entirely by the terms and conditions of that other agreement, and shall not be subject to any higher level of confidentiality or greater restriction by reason of this Agreement. 9. If any non-party to this Agreement requests that any party to this Agreement disclose any Privileged Information/Work Product and Confidential Information supplied by another party, the party receiving the disclosure request shall (a) notify the party from whom the materials originated that the request for disclosure has been made, and (b) shall provide the party from whom the materials originated with an opportunity to assert a claim of privilege or work-product protection or otherwise seek relief to prevent disclosure of Privileged Information/Work Product and Confidential Information. In addition, at the request and expense of the party from whom the materials originated, the party receiving the disclosure request shall seek a protective order or other relief from a court in order to prevent the disclosure of said materials. 10. Nothing in this Agreement or the exchange of Privileged Information/Work Product and Confidential Information pursuant to this Agreement shall create an attorney-client relationship between any counsel and any party to this Agreement, or affect any existing attorney-client relationship between any counsel and any party to this Agreement. Except as set forth in Paragraph 9 above, each party shall be responsible for the payment of the fees and expenses of its own counsel related to any Proceedings. 11. Any party to this Agreement can withdraw from participation herein by notifying the other parties in writing on fifteen (15) days' notice. Such withdrawal does not affect the obligations relating to maintenance of the confidentiality of Privileged Information/Work Product and Confidential Information received by such withdrawing party which existed pursuant to this Agreement prior to any such withdrawal. Any party which withdraws from participation in this Agreement must continue to assert the privileges and work G-4 85 product protections with respect to all Privileged Information/Work Product and Confidential Information received by such party prior to such party's withdrawal unless and until such privileges and protections are expressly waived by the remaining parties hereto, and shall continue to abide by the provisions of Paragraph 9 in the event that any third party requests that the withdrawing party disclose any Privileged Information/Work Product and Confidential Information materials subject to this Agreement. Upon request by the party or parties from which Privileged Information/Work Product and Confidential Information originated, the withdrawing party shall return all physical copies of such Privileged Information/Work Product and Confidential Information to such party or parties. 12. This Agreement shall be governed by the substantive laws of the State of New York, without regard to that state's conflict of laws rules. 13. The parties agree that there exists no adequate remedy or law for breach of this Agreement and that specific performance and or injunctive relief are appropriate remedies to compel performance hereunder. 14. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. G-5 86 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. [MERCK & CO., INC. [ASTRA AB By: ____________________________ By:__________________________________ Name: Name: Title:] Title:] [ASTRA MERCK ENTERPRISES INC. [ASTRA MERCK INC. By: ____________________________ By:__________________________________ Name: Name: Title:] Title:] [ASTRA PHARMACEUTICALS, L.P. [ADD OR DELETE PARTIES AS APPROPRIATE] By: KB USA, L.P., its General Partner By: Astra AB, its General Partner By:__________________________________ Name: Title:] G-6 87 EXHIBIT H PRINCIPLES FOR COOPERATION ON PRILOSEC PATENT ISSUES 1. Full cooperation and communication between KB and TR on ANDAs, other infringements and other patent issues related to Prilosec. 2. TR will have full representation on the KB Prilosec patent working group and will be entitled to full disclosure of information. 3. Decision making by the working group will be by consensus. 4. If the working group cannot reach consensus the issue will ultimately be decided by a committee consisting of one executive from each of KB and TR. The working group and/or executives may seek the advice of a liaison committee consisting of a high level representative from each of KB and TR. Astra has appointed Cege Johansson and Merck has appointed Judy Lewent. Appointed for the liaison committee are M. Parup (for KB) and P. Matukatis (for TR). 5. The working group will establish procedures for operation consistent with the principles set forth herein. 6. Merck shall be permitted to have outside counsel representation. KB will accept Fitzpatrick, Cella, Harper & Scinto as Merck's representative. 88 EXHIBIT H (cont'd) [KAYE, SCHOLER, FIERMAN, HAYS & HANDLER, LLP LETTERHEAD] June 12, 1998 VIA FACSIMILE Robert L. Baechtold, Esq. Fitzpatrick, Cella, Harper & Scinto 277 Park Avenue New York, New York 10172 Re: Possible Patent Litigation against Abbreviated New Drug Application Filers Dear Bob: In furtherance of our clients' common legal interests and strategies with respect to the PRILOSEC(R) product, we have been working together for some time, together with our respective clients and other lawyers, to prepare for anticipated litigations on the patents listed in the Orange Book relating to that product. This letter will confirm the cooperation and communication arrangements you and I have agreed upon to assist us in preparing for these prospective litigations and for cooperation in the litigations now commenced. Kaye, Scholer and Fitzpatrick, Cella will be trial counsel, representing their respective clients, Astra and Hassle, on the one hand, and Astra Merck Enterprises and Astra Merck on the other. We have also been consulting with other counsel for our clients, both outside and inside counsel, including, regulatory, patent and antitrust counsel. The coordination system upon which we have agreed is that each of our clients have in-house attorneys assigned to this matter: Annika Ryberg for Astra and Hassle, William Krovatin for Merck, and Tom McCaffrey for AMEI and AMI. We have had, and will continue to have, joint meetings between counsel, including client representatives when appropriate. Pursuant to the Common and Joint Interest Agreement entered into by our respective clients, documents have been and will continue to be exchanged between the various 89 [KAYE, SCHOLER, FIERMAN, HAYS & HANDLER, LLP LETTERHEAD] Robert L. Baechtold, Esq. 2 June 12, 1998 parties as appropriate to prepare for anticipated litigations and for coordination in the litigations now commenced. If anything I have set forth herein is not accurate, please contact me. Very truly yours, /s/ Thomas L. Creel Thomas L. Creel TLC: mts cc: Annika Ryberg, Esq. William Krovatin, Esq. Thomas F. McCaffery, III, Esq. Thomas F. Clauss, Jr., Esq. Surton Keany, Esq. Bruce Kuhlik, Esq. William Vodra, Esq. Paul R. Regensdorf, Esq. EX-10.2 4 KBI SHARES OPTION AGREEMENT 1 Exhibit 99.10 AS EXECUTED - CONFORMED ================================================================================ KBI SHARES OPTION AGREEMENT DATED AS OF JULY 1, 1998 BY AND AMONG ASTRA AB, MERCK & CO., INC. AND MERCK HOLDINGS, INC. ================================================================================ 2 TABLE OF CONTENTS
PAGE ARTICLE I GRANT OF OPTION........................................................................................... 1 1.1 Option........................................................................................... 1 ARTICLE II EXERCISE OF OPTION........................................................................................ 2 2.1 Option Exercise Price............................................................................ 2 2.2 Exercise of Option............................................................................... 4 2.3 Transition Manufacturing......................................................................... 8 ARTICLE III REPRESENTATIONS AND WARRANTIES OF TR AND TR HOLDINGS...................................................... 11 3.1 Ownership of Shares.............................................................................. 11 ARTICLE IV COVENANTS AND AGREEMENTS OF TR AND TR HOLDINGS REGARDING THE KBI BUSINESS ............................... 11 4.1 Preservation of Corporate Existence; Operation of KBI and its Subsidiaries ...................... 11 4.2 Payment of State and Local Taxes................................................................. 12 4.3 Financial Statements; Books and Records.......................................................... 12 4.4 Limitation on Transfer of License Rights......................................................... 12 4.5 Compliance with Laws............................................................................. 13 4.6 Cash............................................................................................. 13
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PAGE ARTICLE V ADDITIONAL COVENANTS AND AGREEMENTS OF THE PARTIES........................................................ 13 5.1 Reasonable Efforts; Further Assurances........................................................... 13 5.2 HSR Act.......................................................................................... 13 5.3 Payment of Federal Income Taxes.................................................................. 14 5.4 Consents......................................................................................... 14 5.5 Non-Contravention................................................................................ 14 ARTICLE VI INDEMNIFICATION........................................................................................... 14 ARTICLE VII ARBITRATION............................................................................................... 15 ARTICLE VIII TERMINATION............................................................................................... 15 ARTICLE IX MISCELLANEOUS............................................................................................. 15 9.1 Expenses......................................................................................... 15 9.2 Assignment....................................................................................... 15 9.3 No Third Party Beneficiaries..................................................................... 16 9.4 Notices.......................................................................................... 16 9.5 Governing Law.................................................................................... 16 9.6 Entire Agreement; Amendments and Waivers......................................................... 17 9.7 Counterparts..................................................................................... 17 9.8 Invalidity....................................................................................... 17
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PAGE 9.9 Headings......................................................................................... 17 9.10 Remedies......................................................................................... 17 9.11 Gender and Number................................................................................ 17 9.12 No Consent to Section 338 Tax Election........................................................... 17
iii 5 KBI SHARES OPTION AGREEMENT This KBI SHARES OPTION AGREEMENT (this "Agreement") is made and entered into as of July 1, 1998 by and among Astra AB, a company limited by shares organized and existing under the laws of Sweden ("KB"), Merck & Co., Inc., a corporation organized and existing under the laws of the State of New Jersey ("TR"), and Merck Holdings, Inc., a corporation organized and existing under the laws of the State of Delaware and a wholly-owned subsidiary of TR ("TR Holdings"). Capitalized terms used but not defined in this Agreement shall have the meanings ascribed to such terms in the Master Restructuring Agreement dated as of June 19, 1998 between KB, TR, Astra Merck Inc., a Delaware corporation ("KBI"), Astra USA, Inc., a New York corporation ("KB USA"), KB USA, L.P., a Delaware limited partnership, Astra Merck Enterprises Inc., a Delaware corporation ("KBI-E"), KBI Sub Inc., a Delaware corporation ("KBI Sub"), TR Holdings and Astra Pharmaceuticals, L.P., a Delaware limited partnership (the "Partnership") (the "Master Restructuring Agreement"). W I T N E S S E T H: WHEREAS, TR Holdings is the holder of all of the issued and outstanding shares of common stock of KBI, and all of the issued and outstanding shares of Class D Voting Preferred Stock (the "Class D Preferred Stock") and Class E Non-Voting Convertible Participating Preferred Stock (the "Class E Preferred Stock") of KBI; and WHEREAS, KB is the holder of all of the issued and outstanding shares of Class A Non-Voting Preferred Stock (the "Class A Preferred Stock") and Class C Voting Preferred Stock (the "Class C Preferred Stock") of KBI; and WHEREAS, TR Holdings wishes to grant to KB and KB wishes to acquire from TR Holdings an option to acquire complete ownership of KBI under certain circumstances as hereinafter described; and WHEREAS, TR desires that the foregoing option grant be effected. NOW, THEREFORE, in consideration of the foregoing premises and the mutual representations, warranties, covenants and agreements hereinafter set forth, the parties hereto, intending to be legally bound, hereby agree as follows: ARTICLE I GRANT OF OPTION 1.1 Option (a) On the terms and subject to the conditions of this Agreement and in reliance upon the representations, warranties, covenants and agreements contained herein, TR Holdings 6 hereby grants to KB and KB hereby acquires from TR Holdings an option (the "Option") to acquire from TR Holdings all of the outstanding shares of capital stock of KBI of whatever classes or series not owned by KB or its Affiliates or successors or assigns (the "KBI Shares") through the exercise of the Option on an Option Closing Date (as such term is defined in Section 2.2(d) hereof) at the Option Exercise Price (as such term is defined in Section 2.1 hereof). (b) If requested by KB prior to the exercise of the Option, TR Holdings agrees to cooperate in good faith with KB to structure the transaction contemplated by the Option in another manner mutually agreeable to the parties; KB acknowledges, however, that TR Holdings has no obligation to enter into any such other transaction. KB agrees that in connection with any such mutually agreed upon restructuring, KB would give TR Holdings a "hold harmless" indemnity acceptable to TR Holdings. As of the date of this Agreement, KB believes that either of the following transactions is considered to achieve the objective of preserving KB's cost basis of the KBI-E assets (for U.S. Federal income tax purposes) to the fullest extent possible: (i) KB contributes cash to KBI in an amount equal to the Option Exercise Price, and TR Holdings will then cause KBI to redeem all of the KBI Shares, and (ii) KB contributes cash in an amount equal to the Option Exercise Price to a wholly-owned US corporation ("USCO"), and TR will then cause KBI to merge with USCO in a transaction pursuant to which KB shall acquire complete ownership of the stock of KBI. The exercise of the Option by KB by means of KB's purchase of the KBI Shares or any of the foregoing means shall hereinafter be referred to as the "KBI Acquisition." ARTICLE II EXERCISE OF OPTION 2.1 Option Exercise Price. (a) For purposes of this Agreement, the "Option Exercise Price" shall be the price payable by KB to TR Holdings upon the exercise of the Option as determined in accordance with the formula set forth in Section 2.1(b) below (subject to adjustment pursuant to the provisions of Sections 2.2(g) and 2.2(h) hereof). For purposes of calculating the Option Exercise Price, the following terms shall have the following meanings: (i) "Fourth Tier and Group E NPV" shall mean the sum of (A) the net present value of the projected pre-tax amounts that would otherwise be allocated after the Option Closing Date to the Limited Partner for the Fourth Tier Amount pursuant to the Partnership Agreement, which amount shall be determined assuming that the Partnership will in each Fiscal Year have sufficient Profits (as defined in the Partnership Agreement) to make allocations to the Limited Partner pursuant to Section 4.1(h) of the Partnership Agreement, and (B) the net present value of the projected pre-tax amounts of the payments to which KBI-E would otherwise be entitled after the Option Closing Date pursuant to Section 7.3 of the Amended and Restated KBI License, in each case as such net present value is determined pursuant to Section 2.2 hereof. 2 7 (ii) "Omeprazole NPV and Perprazole NPV" shall mean the net present value of the projected consolidated net pre-tax cash flows of KBI and its subsidiaries determined by taking into account only payments that would otherwise be received by KBI after the Option Closing Date for sales of Omeprazole Products and Perprazole Products to the Partnership (whether such sales occur before or after the Option Closing Date) under the KBI Supply Agreement, less (A) payments that would otherwise be made by KBI after the Option Closing Date to TR, KB or an Alternate Producer (as defined in the Manufacturing Agreement) for the purchase of Omeprazole Products and Perprazole Products (whether such purchases occur before or after the Option Closing Date) and (B) royalties that would otherwise be paid to KB after the Option Closing Date with respect to Perprazole Net Sales (whether such sales occur before or after the Option Closing Date) under the Amended and Restated KBI License, as such net present value is determined pursuant to Section 2.2 hereof. (iii) "Omeprazole Net Sales" shall mean Net Sales of Omeprazole Products as defined in the Master Restructuring Agreement. (iv) "Perprazole Net Sales" shall mean Net Sales of Perprazole Products as defined in the Master Restructuring Agreement. (b) The Option Exercise Price shall be calculated as follows: OEP = [ONPV + PNPV + FTGENPV] + [13 x LPI] + LP2 where: OEP means the Option Exercise Price ONPV + PNPV means Omeprazole NPV and Perprazole NPV FTGENPV means Fourth Tier and Group E NPV LPI means the average annual amount of Profits allocated to the Limited Partner of the Partnership pursuant to Section 4.1(h) of the Partnership Agreement, if any, for the last three (3) Fiscal Years ending prior to the year of the Option Closing Date. LP2 means the amount determined as of the Option Closing Date equal to the sum of (i)(A) the amount of cash and cash equivalents of KBI and its consolidated subsidiaries, (B) the amount that would be required to be distributed to the Limited Partner by the Partnership if (1) the taxable year of the Partnership had closed as of the Option Closing Date, (2) the Priority Return (as defined in the Partnership Agreement) for the Fiscal Quarter including the Option Closing Date was determined by pro-rating on a daily basis, and (3) all distributions required to be made for the partial year and 3 8 all prior Fiscal Years (and not previously distributed) were distributed, assuming that the Partnership has sufficient Profits to satisfy all allocation tiers through Section 4.1(e) of the Partnership Agreement in such partial year, less (ii)(A) the amount of all accrued dividends (whether or not declared and determined by pro-rating on a daily basis) on the outstanding shares of preferred stock of KBI not held by TR Holdings or its successors and assigns, and (B) taxes (other than Federal Income Taxes) of KBI and its consolidated subsidiaries accrued in accordance with GAAP. 2.2 Exercise of Option. (a) Provided that (i) the KBI-E Asset Purchase shall have occurred, (ii) no Allocation Shortfall or Allocation Default (each as defined in the Partnership Agreement) shall have occurred and remain uncured and (iii) no Put Option Event shall have occurred, KB shall have the right at any time during any Option Notice Period (as hereinafter defined) to give a written and dated notice (a "Notice of Exercise") to TR Holdings of its election to exercise the Option. (b) For purposes of this Section 2.2, each of the following shall constitute an "Option Notice Period": (i) if the event described in (iii) of this subsection (b) shall not have occurred, the period from January 1 through June 30, 2017; (ii) in the event that (x)(A) there shall have been no Allocation Shortfall or Allocation Default or (B) such Allocation Shortfall or Allocation Default shall have been cured, (y) KBI shall be Past Due (as defined in the Amended and Restated Certificate of Incorporation of KBI) on the payment of any dividend to the holder(s) of the Class A Preferred Stock or Class C Preferred Stock and (z) such shares shall be accruing dividends at the 7.00% annual rate set forth in the Amended and Restated Certificate of Incorporation of KBI, and, in the case of the foregoing clause (x)(A), with at least fifteen (15) days having expired after written notice from such holder(s) to KBI of non-receipt of such dividend with such dividend continuing to be Past Due, any time after such fifteen (15) day period shall have expired (in the case of the foregoing clause (x)(A)) or such 7.00% dividend rate shall have become effective (in the case of the foregoing clause (x)(b)), (iii) in the event that a notice of exercise in respect of the Assignment Right shall have been delivered pursuant to the KBI-E Asset Option Agreement in the year 2016, the six-month period commencing on the second anniversary of the Assignment Date (as defined in the KBI-E Asset Option Agreement of even date herewith by and among TR, KBI, KB and KBI-E (the "KBI-E Asset Option Agreement"), (iv) in the event that (A) a Trigger Event has occurred and the Assignment Right shall have been exercised or (B) the Required Sale shall have occurred, the six-month period commencing on the second anniversary of the Assignment Date; and (v) in the event that the aggregate amount of Omeprazole Net Sales and Perprazole Net Sales for any period of twelve (12) consecutive months commencing after the Assignment Date (as defined in the KBI-E Asset Option Agreement) (a "Measuring Period") is less than or equal to $200 million, the six-month period commencing on the first day of the second month following the expiration of such Measuring Period. (c) Upon KB's delivery of the Notice of Exercise pursuant to Section 2.2(a) above, the parties and each of their respective Affiliates agree to cooperate in good faith in 4 9 preparing and making any filing ("HSR Filing") that may be required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (or any successor statute) ("HSR Act"), within thirty (30) days after the date of delivery of such Notice of Exercise. Promptly after KB's delivery of the Notice of Exercise, but in no event later than thirty (30) days after such delivery, each of KB and TR Holdings shall engage an appraiser independent of it and its Affiliates that is skilled in preparing appraisals of the future value of pharmaceutical products (the "Appraisers" and each, an "Appraiser") to determine the Omeprazole NPV, and Perprazole NPV and the Fourth Tier and Group E NPV (the "KB Appraised Value"and the "TR Holdings Appraised Value," respectively), each as of the Option Closing Date. Each of KB and TR Holdings shall bear all costs and expenses of the Appraiser it engages. After KB and TR Holdings have selected the Appraisers, KB shall cause the General Partner of the Partnership to afford the Appraisers such access to the books and records of the Partnership, including, without limitation, sales forecasts, patent status and expiration data, and status reports concerning competitive products (collectively, "Partnership Data") and furnish to the Appraisers copies of such financial statements of the Partnership as they may request, and TR Holdings may, in its discretion, furnish the Appraisers with sales forecasts and other information ("TR Data"), in order for the Appraisers to determine the KB Appraised Value and the TR Holdings Appraised Value. Based on such information, each of the Appraisers shall deliver a report to KB and TR Holdings showing its calculations. The average of the KB Appraised Value and the TR Holdings Appraised Value shall be the "Appraised Value." Upon the determination of the Appraised Value, KB and TR Holdings shall prepare a statement (the "Option Exercise Statement") showing their good faith calculation of the Option Exercise Price in accordance with the provisions of Section 2.1 hereof and, to the extent applicable, based on the Appraised Value, it being understood for purposes of such Option Exercise Statement that KB shall calculate item LPI of the Option Exercise Price and shall estimate item (i)(B) of the LP2 component of the Option Exercise Price and TR Holdings shall calculate items (i)(A) and (ii)(A) of the LP2 component of the Option Exercise Price and shall estimate item (ii)(B) of the LP2 component of the Option Exercise Price (the sum of each of the estimated items of LP2 referred to above being referred to herein as the "LP2 Estimated Amount"). Subject to the provisions of Sections 2.2(g) and (i) hereof, the Option Exercise Statement shall be binding and conclusive upon, and deemed accepted by, each of TR Holdings and KB unless TR Holdings or KB shall have notified the other in writing of any objections to any of the items calculated by the other party within sixty (60) days after the date of the Option Exercise Statement. A notice under this Section 2.2(c) shall specify in reasonable detail each item on the Option Exercise Statement which is being disputed and a summary of the reasons for such dispute, it being understood that only the calculation of the components LPI and items (i)(A) and (ii)(A) of the component LP2 of the Option Exercise Price reflected on the Option Exercise Statement may be so disputed. Any such dispute shall be resolved pursuant to the provisions of Section 2.2(h) hereof, but the pendency of such dispute shall not delay the Option Closing Date. (d) KB shall pay the Option Exercise Price reflected on the Option Exercise Statement prepared in accordance with Section 2.2(c) on the date (the "Option Closing Date") that shall be the later of (i) the last day of the month immediately following the end of the month in which the date of the Option Exercise Statement occurs (or if such date is not a business day, 5 10 then the next business day thereafter) and (ii) five (5) business days after the date on which any applicable waiting period under the HSR Act shall have expired or been terminated. (e) On the Option Closing Date, as consideration for the KBI Acquisition, KB shall pay to TR Holdings the Option Exercise Price specified in the Option Exercise Statement, all of which shall be payable to TR Holdings by wire transfer in Dollars of immediately available funds to an account of TR Holdings in the United States which shall be designated by TR Holdings in writing at least one (1) week prior to the Option Closing Date. (f) On the Option Closing Date, TR Holdings and KB shall execute and deliver such agreements, endorsements, certificates of title, stock powers, assignments and other good and sufficient instruments of conveyance and take such other actions as shall be necessary to effect the KBI Acquisition. TR Holdings further agrees that, from and after the Option Closing Date, it will execute and deliver to KB such additional instruments and documents and take such further action as KB may reasonably require in order to complete the KBI Acquisition. (g) As soon as reasonably possible after the Option Closing Date (but not later than thirty (30) days thereafter) KB and TR Holdings shall engage a mutually acceptable independent accounting firm to determine the actual amount of the components of the Option Exercise Price comprising the LP2 Estimated Amount (the "LP2 Final Amount"). In the event that KB and TR Holdings cannot agree on such accounting firm, such firm shall be selected at random from the "Big Five" accounting firms. In the event that such accounting firm determines that the LP2 Final Amount is greater than or less than the LP2 Estimated Amount, KB shall pay to TR Holdings the amount of such increase or TR Holdings shall pay to KB the amount of such decrease, as the case may be, within ten (10) business days after such determination, together with interest at the rate of LIBOR determined using a LIBOR Period of three (3) months for the period from the Option Closing Date through the date of such payment. (h) In the event that TR Holdings gives KB timely written notice in accordance with Section 2.2(c) above of a dispute concerning the LPI component of the Option Exercise Price reflected on the Option Exercise Statement or KB gives TR Holdings timely written notice in accordance with Section 2.2(c) above of a dispute concerning item (i)(A) and/or (ii)(A) of the LP2 component of the Option Exercise Price reflected on the Option Exercise Statement, the parties shall attempt to resolve such disagreement. However, if any such disagreement is not resolved by the parties within thirty (30) days after receipt of such notice, such disagreement shall be submitted to the accounting firm selected pursuant to Section 2.2(c) above for the resolution of such dispute. The decision of such accounting firm shall be final and shall be binding and conclusive upon all of the parties hereto. In the event that such accounting firm determines that the Option Exercise Price reflected on the Option Exercise Statement should be increased or decreased due to an adjustment to the calculation of any of the foregoing components, then KB shall pay to TR Holdings the amount of such increase or TR Holdings shall pay to KB the amount of such decrease, as the case may be, within ten (10) business days after such determination, together with interest at the rate of LIBOR determined using a LIBOR Period of three (3) months for the period from the Option Closing Date through the date of such payment. In the event of any disputes resolved under this Section 2.2(h), the Dollar amount of 6 11 all such disputes shall be aggregated and the fees and expenses of the accounting firm engaged to resolve such disputes shall be paid by the party against whom the greater Dollar amount is resolved. (i) In the event that the lower of the TR Holdings Appraised Value and the KB Appraised Value is less than 75% of the value of the higher of the two, then promptly after the expiration of twelve (12) full calendar quarterly periods after the first day of the calendar quarter in which the Option Closing Date occurs, KB and TR Holdings shall choose an appraisal firm of national reputation which is skilled in preparing appraisals of the future value of pharmaceutical products (the "Reviewing Appraiser") to review the original Appraised Values utilized in determining the Option Exercise Price as set forth in the Option Exercise Statement. After KB and TR Holdings have selected the Reviewing Appraiser, KB shall cause the General Partner of the Partnership to afford the Reviewing Appraiser such access to the books and records of the Partnership (including, without limitation, Partnership Data), and furnish to the Reviewing Appraiser copies of such financial statements of the Partnership as it may request, and TR Holdings may, in its discretion, furnish the Reviewing Appraiser with TR Data, in order for the Reviewing Appraiser to review the original Appraised Value. The Reviewing Appraiser shall review the Partnership Data, the TR Data and the actual Omeprazole Net Sales, Perprazole Net Sales, Fourth Tier Amount and Net Sales of Group E Products for the twelve (12) full calendar quarterly periods from and after the first day of the calendar quarter in which the Option Closing Date occurs and shall revise the Appraised Values as necessary to more accurately reflect the Omeprazole and Perprazole NPV and FTGENPV as of the original Option Closing Date (the "Revised Appraised Value") and deliver a report to KB and TR Holdings showing its calculation of the Revised Appraised Value. If the Revised Appraised Value is less than the Appraised Value, then TR Holdings shall pay to KB the amount of the difference. If the Revised Appraised Value is greater than the Appraised Value, then KB shall pay to TR Holdings the amount of the difference. The party responsible for paying the difference shall pay such amount to the other party within ten (10) business days of the determination of the difference (the "Difference Payment Date"), together with interest thereon at the rate of LIBOR, determined using a LIBOR Period of two (2) years for the period from the Option Closing Date through the Difference Payment Date. KB and TR Holdings shall share equally the costs and expenses of the Reviewing Appraiser. 2.3 Transition Manufacturing. (a) For purposes of this Section 2.3, the following terms shall have the following meanings: (i) "Alternate Producer" has the meaning ascribed to such term in the Manufacturing Agreement. (ii) "Bulk Chemical Form" has the meaning ascribed to such term in the Manufacturing Agreement. (iii) "Exit Two License" means any grant by KB or any Affiliate of KB to any Person of any right to sell in the Territory the Compound omeprazole or perprazole or any Omeprazole Product or Perprazole Product, whether exclusive or non-exclusive 7 12 and whether by sale, license, sublicense, co-marketing agreement, subdistribution arrangement, complete or partial assignment of contract rights, other dispositions, covenant not to sue or immunity from suit, or otherwise. (iv) "Exit Two Licensee" means a Person receiving a grant under an Exit Two License. (v) "Finished Dosage Form" has the meaning ascribed to such term in the Manufacturing Agreement. (vi) "Formulation Manufacturing Stage" has the meaning ascribed to such term in the Manufacturing Agreement. (vii) "Intermediate Form" has the meaning ascribed to such term in the Manufacturing Agreement. (viii) "Manufacturing Stage" has the meaning ascribed to such term in the Manufacturing Agreement. (ix) "Packaging Manufacturing Stage" has the meaning ascribed to such term in the Manufacturing Agreement. (x) "Primary Manufacturing Stage" has the meaning ascribed to such term in the Manufacturing Agreement. (xi) "Producer" has the meaning ascribed to such term in the Manufacturing Agreement. (xii) "Transfer Price" has the meaning ascribed to such term in the Manufacturing Agreement. (xiii) "Transition Period" means, with respect to any Transition Product, if KB delivers a Notice of Exercise pursuant to the terms of Section 2.2 hereof prior to January 1, 2017, the period starting with the Option Closing Date and ending on the earlier of (a) two (2) years after the Option Closing Date and (b) December 31, 2017. (xiv) "Transition Product" means any Omeprazole Product or Perprazole Product for which TR or an Alternate Producer has been allocated responsibility as the Producer for any Manufacturing Stage (or an Intermediate Form of any such product). (xv) "Transition Requirements" means all of the requirements of KB, any Affiliate of KB and any Exit Two Licensee for Transition Product for sale or promotion within the Territory. (b) Upon the occurrence of the Option Closing Date for each Transition Product during its Transition Period, if any: 8 13 (i) If TR is the Producer of the Packaging Manufacturing Stage, TR shall toll package Transition Product for all Transition Requirements for KB or a Person designated by KB at the Transfer Price. If an Alternate Producer is the Producer of the Packaging Manufacturing Stage, the Alternate Producer shall toll package Transition Product for all Transition Requirements under contract with KBI for KB or such Person at the Transfer Price determined in accordance with the terms of Article V of the Manufacturing Agreement, which will be payable by KB to KBI. (ii) If TR or an Alternate Producer is the Producer of a Primary Manufacturing Stage, KB or a Person designated by KB shall purchase from TR or, in the case of an Alternate Producer, KBI at the Transfer Price Transition Product for all Transition Requirements as follows: (x) if TR or an Alternate Producer is the Producer of the Formulation Manufacturing Stage, in the Finished Dosage Form at the cumulative Transfer Price and (y) if KB is the Producer of the Formulation Manufacturing Stage and TR or an Alternate Producer is the Producer of the Bulk Chemical Manufacturing Stage, in the Bulk Chemical Form at the Transfer Price. (iii) KB, KB USA and TR shall retain their full rights and obligations as Producers under the Manufacturing Agreement. (iv) Neither KB nor any Affiliate of KB shall grant an Exit Two License that includes the right to make or have made a Transition Product during its Transition Period. ARTICLE III REPRESENTATIONS AND WARRANTIES OF TR AND TR HOLDINGS Each of TR and TR Holdings, jointly and severally, hereby represents and warrants to KB as of the date hereof that: 3.1 Ownership of Shares. TR and its Wholly-Owned Subsidiaries own of record and beneficially all of the issued and outstanding shares of capital stock of TR Holdings, free and clear of any claim, hypothecation, deed of trust, mortgage, lien, pledge, option, charge, security interest or encumbrance of any kind or character (collectively, "Encumbrances"). TR Holdings owns of record and beneficially all of the KBI Shares, free and clear of all Encumbrances (other than the Option). KBI owns of record and beneficially all of the issued and outstanding shares of capital stock of KBI-E, KBI Sub and Astra Merck Pharmaceuticals, Inc., a Delaware corporation ("KBI-P"), in each case free and clear of all Encumbrances other than encumbrances existing as of the date of this Agreement or arising as a result of any Initial Agreement or any Ancillary Agreement. 9 14 ARTICLE IV COVENANTS AND AGREEMENTS OF TR AND TR HOLDINGS REGARDING THE KBI BUSINESS TR and TR Holdings hereby covenant and agree with KB to cause KBI and, where applicable, each Subsidiary (as defined in the Partnership Agreement) of KBI, to comply with the following obligations, from and after the date hereof and until the Option Closing Date, if any: 4.1 Preservation of Corporate Existence; Operation of KBI and its Subsidiaries. KBI shall, and shall cause each of its Subsidiaries to, preserve its present corporate organization and existence, maintain its full corporate power and authority to conduct its business and remain in good standing under the laws of its state of incorporation. Each of KBI, KBI Sub, KBI-E, KBI-P and any other Subsidiary of KBI shall not incur any material liabilities of any nature whatsoever other than obligations under any Initial Agreement, Ancillary Agreement or the Partnership Agreement or as expressly contemplated thereby or liabilities as to which any KB Party has agreed to indemnify any TR Party pursuant to the terms of any Initial Agreement or Ancillary Agreement. Notwithstanding the foregoing terms of this Section 4.1, a liquidation or dissolution of KBI-P shall be deemed not to violate the provisions of this Section. 4.2 Payment of State and Local Taxes. KBI shall, and shall cause each of its Subsidiaries to, file on a timely basis all state and local tax returns required to be filed by it and pay all such taxes due and payable with respect to the periods covered by such tax returns (whether or not reflected thereon). 4.3 Financial Statements; Books and Records. (a) KBI shall, and shall cause each of its Subsidiaries to, deliver to KB (i) as soon as practicable after the end of each fiscal year of KBI, and in any event within 90 days thereafter, an unaudited consolidated balance sheet of KBI as of the end of such year and an unaudited consolidated income statement of KBI for such year (collectively, the "Financial Statements") and (ii) within five (5) business days after the end of each fiscal quarter of KBI, a certificate in the form set forth as Exhibit 4.3(a) hereto executed by the chief financial officer of KBI, certifying compliance with the provisions of this Article IV and Section 3.12 of the Master Restructuring Agreement. Notwithstanding the foregoing, in the event that there shall have been no Allocation Shortfall or Allocation Default or such Allocation Shortfall or Allocation Default shall have been cured and KBI shall be Past Due on the payment of any dividend to the holder(s) of the Class A Preferred Stock or Class C Preferred Stock, the Financial Statements required to be delivered pursuant to clause (i) of this Section 4.3(a) shall be audited. (b) The Financial Statements shall (i) be in accordance with the books and records of KBI and its consolidated Subsidiaries, (ii) fairly present the financial position of KBI as of the dates and for the periods indicated therein in accordance with GAAP, except for (i) the recognition of the revaluation of the net assets of KBI (the "Asset Revaluation") effected in connection with the declaration and payment of a stock dividend to KB and TR Holdings in 10 15 November, 1997 and (ii) the non-recognition of the purchase accounting consequences of TR Holdings' purchase of the KBI Common Shares at the Closing. (c) KBI shall, and shall cause each of its Subsidiaries to, maintain true, correct and complete books, records and accounts in accordance with GAAP (except for the treatment of the Asset Revaluation and TR Holdings' purchase of the KBI Common Shares). 4.4 Limitation on Transfer of License Rights. Except as approved in writing by KB or as expressly permitted or required by this Agreement, any Initial Agreement or any other Ancillary Agreement, neither KBI nor any of its Subsidiaries shall sell, transfer, pledge or otherwise encumber, assign or otherwise dispose of any rights relating to any Licensed Compound. 4.5 Compliance with Laws. Each of KBI and each of it Subsidiaries shall conduct its respective business in compliance in all material respects with all applicable laws, rules and regulations and in compliance with all applicable orders, rules, writs, judgments, injunctions, decrees and ordinances. 4.6 Cash. TR shall use reasonable efforts to keep the cash in KBI to a reasonable minimum, taking into account the GAAP net worth of KBI and the fair market value of its assets and liabilities and TR's objective that KBI and its subsidiaries remain part of TR's consolidated group for U.S. federal income tax purposes. ARTICLE V ADDITIONAL COVENANTS AND AGREEMENTS OF THE PARTIES 5.1 Reasonable Efforts; Further Assurances. Subject to the terms and conditions of this Agreement, each of KB, TR and TR Holdings shall use reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things reasonably necessary to consummate the transactions contemplated hereby, including, without limitation, to effect the KBI Acquisition. Each of KB, TR and TR Holdings agrees to execute and deliver promptly such other documents, certificates, agreements or instruments (including any amendments or supplements thereto) and to take, or cause to be taken, such other actions as may be reasonably necessary in order to consummate or implement expeditiously the transactions contemplated hereby. TR hereby covenants and agrees that it shall take all actions necessary to ensure that TR Holdings complies with its obligations hereunder. TR Holdings covenants and agrees that it shall take all actions necessary to ensure that KBI complies with its obligations hereunder. Each party hereto covenants and agrees that all instruments of conveyance and other agreements, documents and instruments to be executed and delivered by such party in connection herewith shall constitute the legal, valid and binding obligations of such party, enforceable against it in accordance with its terms. 11 16 5.2 HSR Act. In connection with any filing that may be required under the HSR Act as contemplated by Section 2.2(c) hereof, the parties hereto agree to cooperate in good faith to respond promptly to all inquiries made by governmental authorities. 5.3 Payment of Federal Income Taxes. TR hereby covenants and agrees with KB to file on a timely basis all Federal income tax returns of the TR consolidated group that includes KBI and each of its Subsidiaries required to be filed by TR for each year from and after the year of this Agreement through the year of the Option Closing Date, if any, and to pay all such taxes due and payable with respect to the periods covered by such tax returns (whether or not reflected thereon). 5.4 Consents. TR and TR Holdings hereby covenant and agree that they shall not (and shall cause KBI not to) take any action that would result in the consent of any third party being required in connection with TR's or TR Holdings' performance of its obligations under this Agreement and all other documents and instruments to be executed and delivered by it in connection with the KBI Acquisition (collectively, including this Agreement, the "Option Documents"). 5.5 Non-Contravention. TR and TR Holdings hereby covenant and agree that they shall not (and shall cause KBI not to) take any action that would result in the consummation of the transactions contemplated by the Option Documents violating, conflicting with or resulting in a breach of any provision of: (i) any mortgage, deed of trust, lease, note, shareholders' agreement, bond, indenture, other instrument or agreement, license, sublicense, permit, trust, custodianship, or other restriction with any third party to which TR, TR Holdings or KBI is a party; or (ii) the certificate of incorporation or by-laws (each amended) of TR, TR Holdings or KBI. ARTICLE VI INDEMNIFICATION TR and TR Holdings agree to defend, indemnify and hold harmless KB and its Affiliates and each of their respective officers, directors, employees and agents from and against any and all Indemnity Losses arising out of, based upon or resulting from any liabilities or obligations of KBI of any nature whatsoever other than (i) liabilities or obligations under any Initial Agreement or Ancillary Agreement arising from and after the Option Closing Date, (ii) liabilities for which any KB Party has agreed to indemnify any TR Party pursuant to the terms of any Initial Agreement or Ancillary Agreement and (iii) liabilities or obligations incurred by KBI in connection with KB's operation of KBI from and after the Option Closing Date. Any claim for indemnification hereunder shall be on a net after-tax basis in accordance with, and shall be subject to the procedures set forth in, Section 10.3 of the Master Restructuring Agreement. 12 17 ARTICLE VII ARBITRATION Subject to the provisions of Sections 2.2(g) and 2.2(h) hereof and Section 9.4 of the Master Restructuring Agreement, any dispute, controversy or claim between KB, on the one hand, and TR and TR Holdings on the other hand, 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. ARTICLE VIII TERMINATION This Agreement may be terminated at any time by the written mutual consent of each of the parties hereto. In the event that this Agreement is terminated as aforesaid, this Agreement shall be of no further force or effect and no party shall have any liability to any other party hereto; provided, however, that the termination of this Agreement will not relieve any party of any liability for breach of any covenant or agreement hereunder occurring prior to such termination and the terms of Article 4 of the Master Restructuring Agreement (relating to confidentiality) shall remain in full force and effect in accordance with its terms. ARTICLE IX MISCELLANEOUS 9.1 Expenses. Each of the parties to this Agreement shall bear all the expenses incurred by it in connection with the negotiation and preparation of this Agreement and the consummation of the transactions contemplated by this Agreement regardless of whether this Agreement shall be terminated. 9.2 Assignment. Neither this Agreement nor any of the rights or obligations hereunder may be assigned by any party without the prior written consent of the other parties; provided, however, that KB may, without the consent of the other parties hereto, assign its rights and obligations under this Agreement to any of its Affiliates; and provided, further, that TR Holdings may assign its rights and obligations under this Agreement to any permitted transferee of the KBI Shares under Section 3.3 of the Master Restructuring Agreement. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, successors, heirs and assigns. 13 18 9.3 No Third Party Beneficiaries. Nothing in this Agreement, expressed or implied, is intended or shall be construed to confer upon or give to any person, firm, corporation or legal entity, other than the parties hereto and their respective Affiliates, or their respective successors and permitted assigns, any rights, remedies or other benefits or any obligations or liabilities under or by reason of this Agreement. 9.4 Notices. Unless otherwise provided herein, any notice, request, instruction, other document or other communication under or with respect to this Agreement or the Option Documents shall be in writing and shall be deemed to have been duly given if delivered personally, sent by telefax with confirmation of receipt, or sent by internationally-recognized courier service to any party hereto at its address as specified below. If to KB: S-151 85 Sodertalje SWEDEN Attention: General Counsel Telefax No.: 011-46-8-553-288-12 If to TR, TR Holdings or KBI: One Merck Drive P.O. Box 100 Whitehouse Station, NJ 08889-0100 Attention: Corporate Secretary Telefax No.: 908-735-1246 With a copy to: Merck & Co., Inc. One Merck Drive P.O. Box 100 Whitehouse Station, NJ 08889-0100 Attention: General Counsel Telefax No.: 908-735-1244 Any party hereto by written notice to the other parties hereto in accordance with the above may change the address to which such notices, requests, instructions, other documents or other communications to it shall be directed. 9.5 Governing Law. This Agreement shall be construed and governed in accordance with the laws of the State of New York without regard to any choice of law rules other than Section 5-1401 of the New York General Obligations Law. 9.6 Entire Agreement; Amendments and Waivers. This Agreement, together with all exhibits and schedules hereto and the other documents referred to herein, constitutes the entire agreement between the parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties. 14 19 No supplement, amendment, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. 9.7 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 9.8 Invalidity. In the event that any one or more of the provisions contained in this Agreement or in any other instrument referred to herein, shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any other such instrument. 9.9 Headings. The headings of the Articles and Sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 9.10 Remedies. Notwithstanding anything to the contrary contained in this Agreement, each of the parties to this Agreement is entitled to all remedies in the event of breach provided at law or in equity, specifically including, but not limited to, specific performance. 9.11 Gender and Number. All pronouns used herein shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity or number of the person, persons, entity or entities may require. 9.12 No Consent to Section 338 Tax Election. Nothing in this Agreement or any Ancillary Agreement shall be construed to constitute the consent (or an agreement to give the consent) of TR or any member of the TR affiliated group to an election under Section 338(h)(10) of the Internal Revenue Code of 1986, or any successor provision, with respect to the effecting of the KBI Acquisition. * * * 15 20 IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or have caused this Agreement to be duly executed on their respective behalf by their respective officers thereunto duly authorized, as of the day and year first above written. ASTRA AB (publ) By: /s/ Goran Lerenius ----------------------------- Name: Goran Lerenius Title: Authorized Signatory MERCK & CO., INC. By: Judy C. Lewent ----------------------------- Name: Judy C. Lewent Title: Senior Vice President and Chief Financial Officer MERCK HOLDINGS, INC. By: /s/ Peter E. Nugent ----------------------------- Name: Peter E. Nugent Title: President 16 21 Exhibit 4.3(a) Form of Certificate of Chief Financial Officer of KBI The undersigned, the duly elected and acting Chief Financial Officer of KBI, a Delaware corporation ("KBI"), hereby certifies to KB, a company limited by shares organized and existing under the laws of Sweden ("KB"), pursuant to Section 4.3(a) of the KBI Shares Option Agreement (the "KBI Shares Option Agreement"), dated as of July __, 1998 by and among KB, TR, a New Jersey corporation ("TR"), and TR Holdings, a Delaware corporation ("TR Holdings"), as follows (with capitalized terms used herein and not otherwise defined herein having the meanings ascribed to such terms in that certain Master Restructuring Agreement dated as of June 19, 1998 between KB, TR, KBI, [KB] USA, Inc., a New York corporation, KB USA, L.P., a Delaware limited partnership, [KB TR] Enterprises Inc., a Delaware corporation, [KBI SUB], a Delaware corporation, TR Holdings and [KB] Pharmaceuticals, L.P., a Delaware limited partnership (the "Master Restructuring Agreement")): 1. At all times during the fiscal quarter ended [Insert Date], KBI and each of its Subsidiaries were in compliance with all provisions, covenants, agreements, obligations and restrictions set forth in Article IV of the KBI Shares Option Agreement with which KBI and each of its Subsidiaries were required to be in compliance. 2. At all times during the fiscal quarter ended [Insert Date], all of the KBI Parties were in compliance with all provisions, covenants, agreements, obligations and restrictions set forth in Section 3.12 of the Master Restructuring Agreement with which the KBI Parties were required to be in compliance. IN WITNESS WHEREOF, the undersigned has duly executed this Certificate as of the ____ day of _______, ____. [KBI] By:_________________________________ Name: Title: Chief Financial Officer EX-10.3 5 KBI-E ASSET OPTION AGREEMENT 1 Exhibit 99.9 AS EXECUTED - CONFORMED ================================================================================ KBI-E ASSET OPTION AGREEMENT DATED AS OF JULY 1, 1998 BY AND AMONG ASTRA AB, MERCK & CO., INC., ASTRA MERCK INC. AND ASTRA MERCK ENTERPRISES INC. ================================================================================ 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINITIONS............................................... 2 ARTICLE II LICENSE ASSIGNMENT RIGHTS................................. 9 2.1 License Assignment Rights................................. 9 2.2 Assignment of KBI License Assignment and Assumption Agreement, Amended and Restated KBI License and Other Agreements in Respect of Assignment Compounds............. 9 2.3 Assumed Liabilities....................................... 9 2.4 Inventory on Hand......................................... 10 2.5 Transition Products....................................... 10 2.6 Enalapril/Felodipine Combination Products................. 10 ARTICLE III EXERCISE OF KB ASSIGNMENT RIGHT........................... 11 3.1 Exercise Procedure........................................ 11 ARTICLE IV EXERCISE OF KB ASSIGNMENT RIGHT AND KBI-E ASSIGNMENT RIGHT FOLLOWING A PRE-2008 TRIGGER EVENT AND REQUIRED SALE FOLLOWING A POST-2007 TRIGGER EVENT....................... 12 4.1 Pre-2008 Trigger Event.................................... 12 ARTICLE V EXERCISE OF DISCRETIONARY COMPOUNDS OPTION................ 13 5.1 Discretionary Compounds Option............................ 13 5.2 Assignment of Rights in Respect of Discretionary Compounds 15 5.3 Assumed Liabilities....................................... 15 5.4 Inventory................................................. 15 5.5 No Further Option......................................... 16 ARTICLE VI CERTAIN COVENANTS AND AGREEMENTS OF THE PARTIES........... 16 6.1 Reasonable Efforts; Further Assurances.................... 16 6.2 HSR Act................................................... 16 6.3 Limitations on Transfer of License Rights................. 16 ARTICLE VII INDEMNIFICATION........................................... 16 ARTICLE VIII ARBITRATION............................................... 17 ARTICLE IX TERMINATION............................................... 17 ARTICLE X MISCELLANEOUS............................................. 17 10.1 Expenses.................................................. 17 10.2 Assignment................................................ 17 10.3 No Third Party Beneficiaries.............................. 18
3 TABLE OF CONTENTS (CONTINUED)
PAGE ---- 10.4 Notices................................................... 18 10.5 Governing Law............................................. 18 10.6 Entire Agreement; Amendments and Waivers.................. 18 10.7 Counterparts.............................................. 19 10.8 Invalidity................................................ 19 10.9 Headings.................................................. 19 10.10 Remedies.................................................. 19 10.11 Gender and Number......................................... 19
ii 4 KBI-E ASSET OPTION AGREEMENT This KBI-E ASSET OPTION AGREEMENT (this "Agreement") is made and entered into as of July 1, 1998 by and among Astra AB, a company limited by shares organized and existing under the laws of Sweden ("KB"), Merck & Co., Inc., a corporation organized and existing under the laws of the State of New Jersey ("TR"), Astra Merck Inc., a corporation organized and existing under the laws of the State of Delaware ("KBI"), and Astra Merck Enterprises Inc., a corporation organized and existing under the laws of the State of Delaware ("KBI-E"). Capitalized terms used but not defined in this Agreement shall have the meanings ascribed to such terms in the Master Restructuring Agreement dated as of June 19, 1998 between KB, TR, KBI, Astra USA, Inc., a New York corporation ("KB USA"), KB USA, L.P., a Delaware limited partnership, KBI-E, KBI Sub Inc., a Delaware corporation, Merck Holdings, Inc., a Delaware corporation ("TR Holdings") and Astra Pharmaceuticals, L.P., a Delaware limited partnership (the "Partnership") (the "Master Restructuring Agreement"). W I T N E S S E T H: WHEREAS, KB and KBI are parties to the Amended and Restated License and Option Agreement dated as of the date hereof (the "Amended and Restated KBI License"); and WHEREAS, pursuant to the terms of that certain Assignment and Assumption of Amended and Restated License and Option Agreement dated as of the date hereof by and between KBI and KBI-E (the "KBI License Assignment and Assumption Agreement"), KBI has assigned to KBI-E all of its rights to Licensed Compounds under the Amended and Restated KBI License, other than KBI's rights to the Selected Compounds and the Selected Uses and all trademarks covered by the Trademark Rights Contribution Agreement; and WHEREAS, KBI-E wishes to grant to KB and KB wishes to acquire from KBI-E an option to purchase all of the intangible assets of KBI-E, including, without limitation, KBI-E's rights to all such Licensed Compounds and all rights to future Compounds under the Amended and Restated KBI License, but excluding any such rights to any Discretionary Compounds (as hereinafter defined) and to the Compounds omeprazole and perprazole (all of the foregoing intangible assets, subject to such exclusions, being referred to herein collectively as the "Assignment Compounds"); and WHEREAS, KB wishes to grant to KBI-E an option to require KB to purchase such rights to the Assignment Compounds under certain circumstances and the parties hereto wish to provide herein for KB to be required to purchase, and KBI-E to be required to sell, such rights to the Assignment Compounds under certain other circumstances; and WHEREAS, KBI-E wishes to grant KB and KB wishes to acquire from KBI-E a separate option to purchase all of KBI-E's rights to any or all (i) Licensed Compounds (as defined in the Amended and Restated KBI License) (A) as to which the Partnership's rights as distributor under the Distribution Agreement have become non-exclusive or have terminated pursuant to Section D thereof and as to which the Partnership has not been reappointed as distributor pursuant to Section F thereof; and (B) the rights to which have not reverted to KB pursuant to Section 16.2 5 of the Amended and Restated KBI License and (ii) Compounds as to which KBI-E has exercised its rights under Section 2.3(e) of the Amended and Restated KBI License as to which the Distribution Rights Option (as defined in the Distribution Agreement) expires or terminates without being exercised and which have not reverted to KB pursuant to Section 16.2 of the Amended and Restated KBI License (all of the foregoing Compounds being referred to herein collectively as the "Discretionary Compounds"); and WHEREAS, the parties hereto wish to provide herein for any purchase by KB of KBI-E's rights to the Assignment Compounds and any Discretionary Compounds to be effected by the assignment to KB of certain rights and obligations under the Amended and Restated KBI License and certain other agreements, all in respect of the Assignment Compounds and any such Discretionary Compounds, all upon the terms and conditions as hereinafter set forth. NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and agreements hereinafter set forth, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS Unless otherwise specifically indicated herein, the following terms shall have the following respective meanings when used in this Agreement: "Aggregate Contingent Amount" shall mean the sum of the KBI Products Contingent Amount (excluding from the calculation thereof the Weighted Net Sales of all Discretionary Compounds other than the Weighted Net Sales by the Partnership and its Affiliates of any such Compounds as to which the Partnership's rights as distributor under the Distribution Agreement have become non-exclusive pursuant to Section D thereof), the KB USA Products Contingent Amount, the Group D Products Contingent Amount and the Group E Products Contingent Amount as computed pursuant to Section 3.7 of the Master Restructuring Agreement, without giving effect to the adjustment provided for in Section 3.7(c) of the Master Restructuring Agreement. "Alternate Producer" has the meaning ascribed to such term in the Manufacturing Agreement. "Assignment Compounds" has the meaning ascribed to such term in the preamble to this Agreement. "Assignment Date" means the KB Assignment Date or the KBI-E Assignment Date, as applicable; provided, however, that for purposes of Section 4.2 hereof, the term "Assignment Date" shall mean the date that is the later of (A) the last day of the third month following the end of the month in which the Trigger Event occurs and (B) five (5) business days after the date on which any applicable waiting period under the HSR Act shall have expired or been terminated. 2 6 "Assignment Date Statement" means, for purposes of Section 3.1 hereof, a statement prepared by KB and delivered to KBI-E reflecting KB's good faith calculation of the Assignment Payment, which statement is subject to adjustment pursuant to the provisions of Section 3.1(d), and, for purposes of Section 4.2 hereof, a statement prepared by the accounting firm selected in accordance with the provisions of Section 4.2(b)(i) and delivered to KB and KBI-E reflecting the Assignment Payment. "Assignment Lump Sum Amount" means, for purposes of calculating the Assignment Payment payable pursuant to (i) Section 3.1 hereof, the amount set forth below corresponding to the relevant Exercise Year and (ii) Section 4.2 hereof, the amount set forth below corresponding to the relevant Trigger Event Year:
Year Assignment Lump Sum Amount ---- -------------------------- 2008 $162 million 2009 $120 million 2010 $ 77 million 2011 $ 35 million 2012 $ 0 2013 $ 2 million 2014 $ 11 million 2015 $ 20 million 2016 and after $ 29 million
"Assignment Payment" means, for purposes of Sections 3.1 and 4.2 hereof, an amount equal to the sum of (i) the Formula Price plus (ii) the Assignment Lump Sum Amount, less (iii) the Limited Partner Share of Agreed Value; provided, however, that if any of the events described in clause (i) of the definition of Put Option Event in the Master Restructuring Agreement occurs prior to the purchase by KB of the shares of KBI Sub pursuant to the Put Option (as defined in the Master Restructuring Agreement), whether such event occurs before or after the occurrence of any other event that constitutes a Put Option Event, and KB has purchased the shares of KBI Sub pursuant to the Put Option, then the term "Assignment Payment" means an amount equal to the greater of (A) the Minimum Amount plus the Assignment Lump Sum Amount minus the Fourth Tier Component plus the Factor Amount and (B) the product of (i) the Average Annual KBI Products Contingent Amount multiplied by (ii) the applicable Multiple plus the Assignment Lump Sum Amount plus the Factor Amount; provided, further, that if none of the events described in clause (i) of the definition of Put Option Event set forth in the Master Restructuring Agreement has occurred prior to the purchase by KB of the shares of KBI Sub pursuant to the Put Option, whether before or after the occurrence of any other event that constitutes a Put Option Event, and KB has purchased the shares of KBI Sub pursuant to the Put Option, then the term "Assignment Payment" shall mean the sum of the Formula Price and the Assignment Lump Sum Amount; and further provided that, the term "Assignment Payment" means, for purposes of Section 4.1 hereof, an amount equal to the Appraised Value. "Assignment Right" means the KB Assignment Right or the KBI-E Assignment Right, as applicable. 3 7 "Audited Financial Statements" means the audited financial statements of the Partnership required to be delivered to KBI Sub pursuant to Sections 6.5(a) (i) and (ii) of the Partnership Agreement. "Average Annual Contingent Amounts" means the average of the Aggregate Contingent Amounts for the three (3) fiscal years immediately preceding the Assignment Date; provided, however, that for purposes of calculating the Assignment Payment payable pursuant to Section 4.2 hereof, the term "Average Annual Contingent Amounts" shall mean the average of the Aggregate Contingent Amounts for the three (3) periods of twelve (12) consecutive months during the thirty-six (36) full calendar months immediately preceding the Trigger Event. "Average Annual KBI Products Contingent Amount" means the average of the KBI Products Contingent Amount (excluding from the calculation thereof the Weighted Net Sales of any Discretionary Compounds other than the Weighted Net Sales by the Partnership and its Affiliates of any such Compounds as to which the Partnership's rights as distributor under the Distribution Agreement have become non-exclusive pursuant to Section D thereof), as computed pursuant to Section 3.7 of the Master Restructuring Agreement, without giving effect to the adjustment provided for in Section 3.7(c) of the Master Restructuring Agreement, for the three (3) fiscal years immediately preceding the Assignment Date or, for purposes of Section 4.2 hereof, for the three (3) periods of twelve (12) consecutive months during the thirty-six (36) full calendar months immediately preceding the Trigger Event. "Average Combined Weighted Net Sales of Tiered Rate Products" means the average annual Combined Weighted Net Sales of Tiered Rate Products (excluding from the calculation thereof the Weighted Net Sales of any Discretionary Compounds other than the Weighted Net Sales by the Partnership and its Affiliates of any such Compounds as to which the Partnership's rights as distributor under the Distribution Agreement have become non-exclusive pursuant to Section D thereof) for the three (3) fiscal years immediately preceding the Exercise Year; provided, however, that for purposes of calculating the Assignment Payment payable pursuant to Section 4.2 hereof, the term "Average Combined Weighted Net Sales of Tiered Rate Products" shall mean the average of the Combined Weighted Net Sales of Tiered Rate Products for the three (3) periods of twelve (12) consecutive months during the thirty-six (36) full calendar months immediately preceding the Trigger Event. "Bulk Chemical Form" has the meaning ascribed to such term in the Manufacturing Agreement. "Conversion" has the meaning set forth in Section 3.1(a) hereof. "Discretionary Compounds" has the meaning ascribed to such term in the preamble to this Agreement. "Discretionary Compounds Price" means, with respect to any Discretionary Compound the rights to which KB elects to purchase from KBI-E pursuant to Article V of this Agreement, the greater of (x) the fair market value of KBI-E's rights with respect to products containing such Discretionary Compound (taking into consideration all such possible products and all indications 4 8 for which such products may potentially be used) and (y) the Full Costs (as defined in the Amended and Restated KBI License) incurred by KBI-E and its Affiliates in connection with any investigative or development work previously undertaken by KBI-E and its Affiliates with respect to such Compound, compounding capitalized amounts at the pre-tax cost of capital; provided, however, that for purposes of computing the cost of capital component of such Full Costs, all investigative, research and development expenses incurred by KBI-E or any of its Affiliates in connection with such Compound shall be capitalized. For purposes of this definition, the "fair market value" of KBI-E's rights shall be the net present value of projected pre-tax cash flows determined by the appraiser selected pursuant to Section 5.1(e) hereof. "Enalapril/Felodipine Combination Products Supply Agreement" means 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 (as defined in the Manufacturing Agreement). "Excluded Amount" means, for the Exercise Year 2008 or the Trigger Event Year 2008, an amount equal to $1.0 billion, and for any Trigger Event Year from 2009 through 2012, the following amount corresponding to the relevant Trigger Event Year: 2009, $1.1 billion; 2010, $1.2 billion; 2011, $1.3 billion; and 2012, $1.4 billion. "Exercise Year" means the KB Exercise Year, the KBI-E Exercise Year or the Required Sale Year, as applicable. "Exit One License" means any grant by KB or any Affiliate of KB to any Person of any right to sell in the Territory any Assignment Compound, any Discretionary Compound purchased by KB or any Affiliate of KB pursuant to Article V hereof, or any product containing an Assignment Compound or any such Discretionary Compound, whether exclusive or non-exclusive and whether by sale, license, sublicense, co-marketing agreement, subdistribution arrangement, complete or partial assignment of contract rights, other disposition, covenant not to sue or immunity from suit, or otherwise. "Exit One Licensee" means a Person receiving a grant under an Exit One License. "Factor Amount" means the amount set forth below corresponding to the relevant Exercise Year or, for purposes of Section 4.2, the Trigger Event Year.
Year Factor Amount ---- ------------- 2008 $750 million 2009 $750 million 2010 $750 million 2011 $750 million 2012 $750 million 2013 $675 million 2014 $600 million 2015 $525 million 2016 and after $450 million
5 9 "Finished Dosage Form" has the meaning ascribed to such term in the Manufacturing Agreement. "Formula Price" means the sum of the Factor Amount plus the greater of (i) the product of (x) the Average Annual Contingent Amounts multiplied by (y) the applicable Multiple and (ii) the Minimum Amount. "Formulation Manufacturing Stage" has the meaning ascribed to such term in the Manufacturing Agreement. "Fourth Tier Component" means the greater of (A) 15.5 times the average annual amount of the Fourth Tier Amount for the three Fiscal Years preceding the exercise of the Put Option (or if fewer than three full Fiscal Years have elapsed from the Closing Date to the exercise of the Put Option, the average annual amount of the Fourth Tier Amount for such Fiscal Years) or (B) $2.00 billion. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (or any successor statute). "Intermediate Form" has the meaning ascribed to such term in the Manufacturing Agreement. "KB Assignment Date" means the date in the given KB Exercise Year that is the later of (i) April 30 (or if April 30 is not a business day, then the next business day after April 30) and (ii) five (5) business days after the date on which any applicable waiting period under the HSR Act shall have expired or been terminated, provided, however, that in the event any applicable waiting period under the HSR Act does not expire or terminate until after the end of the KB Exercise Year, then the KB Assignment Date shall be five (5) business days after the date of such expiration or termination. "KB Assignment Right" means the right of KB to purchase KBI-E's rights in the Assignment Compounds by means of the assignment to KB of KBI-E's rights under the Amended and Restated KBI License, the Distribution Agreement, the KBI License Assignment and Assumption Agreement and the KBI Sublicense, in respect of the Assignment Compounds. "KB Exercise Year" means, if a Trigger Event has not occurred, each of the years 2008, 2012 and 2016, and if a Trigger Event shall occur prior to January 1, 2008, the year 2010. "KBI-E Assignment Date" means, the date in the KBI-E Exercise Year that is the later of (A) April 30 (or if April 30 is not a business day, then the next business day after April 30) and (B) five (5) business days after the date on which any applicable waiting period under the HSR Act shall have expired or been terminated, provided, however, that in the event any applicable waiting period under the HSR Act does not expire or terminate until after the end of the KBI-E Exercise Year, then the KBI-E Assignment Date shall be five (5) business days after the date of such expiration or termination. 6 10 "KBI-E Assignment Right" means the right of KBI-E to require KB to purchase KBI-E's rights in the Assignment Compounds by means of the assignment to KB of KBI-E's rights under the Amended and Restated KBI License, the Distribution Agreement, the KBI License Assignment and Assumption Agreement and the KBI Sublicense, in respect of the Assignment Compounds. "KBI-E Exercise Year" means the year 2008. "Limited Partner Share of Agreed Value" shall have the meaning ascribed to such term in the Partnership Agreement. "Manufacturer's Cost" has the meaning ascribed to such term in the KBI Supply Agreement. "Manufacturing Stage" has the meaning ascribed to such term in the Manufacturing Agreement. "Minimum Amount" means $5.4 billion for the KB Exercise Year 2008 and $0 for the KB Exercise Years 2012 and 2016; provided, however, that if (i) a Trigger Event shall have occurred prior to January 1, 2008, the term "Minimum Amount" shall mean, if the Trigger Event is a Merger of Equals, $6.565 billion or if the Trigger Event is an Acquisition of KB, $7.0 billion and (ii) a Trigger Event shall have occurred from and after January 1, 2008, the term "Minimum Amount" shall mean, if the Trigger Event is a Merger of Equals, $6.565 billion for payments made with respect to the Trigger Event Year 2008, $6.477 billion for payments made with respect to the Trigger Event Year 2009, $6.388 billion for payments made with respect to the Trigger Event Year 2010, $6.30 billion for payments made with respect to the Trigger Event Year 2011 and $0 thereafter or, if the Trigger Event is an Acquisition of KB, $7.0 billion for payments made with respect to the Trigger Event Year 2008, $6.77 billion for payments made with respect to the Trigger Event Year 2009, $6.54 billion for payments made with respect to the Trigger Event Year 2010, $6.30 billion for payments made with respect to the Trigger Event Year 2011 and $0 thereafter. The Minimum Amount less the applicable Excluded Amount shall be subject to adjustment for certain changes in the rate of inflation pursuant to the provisions of Section 3.8 of the Master Restructuring Agreement; provided, however, that for any Exercise Year or Trigger Event Year in which the Minimum Amount is $0, such amount shall in no event be subject to any such adjustment. "Multiple" means the multiple calculated in accordance with Schedule I hereto for the relevant Exercise Year, for purposes of Section 3.1 hereof, or the relevant Trigger Event Year, for purposes of Section 4.2 hereof. "Notice of Exercise" means a written and dated notice of exercise delivered by KB to TR and KBI-E stating KB's election to exercise the KB Assignment Right or a written and dated notice of exercise delivered by KBI-E to KB stating KBI-E's election to exercise the KBI-E Assignment Right, as the case may be. 7 11 "Packaging Manufacturing Stage" has the meaning ascribed to such term in the Manufacturing Agreement. "Primary Manufacturing Stage" has the meaning ascribed to such term in the Manufacturing Agreement. "Producer" has the meaning ascribed to such term in the Manufacturing Agreement. "Product" has the meaning ascribed to such term in the Manufacturing Agreement. "Required Sale Year" means if a Trigger Event shall occur from and after January 1, 2008, the year in which the Assignment Date for the Required Sale occurs. "Required Sale" means the purchase by KB and the sale by KBI-E of all of KBI-E's rights to the Assignment Compounds pursuant to the provisions of Section 4.2 hereof. "Transfer Price" has the meaning ascribed to such term in the Manufacturing Agreement. "Transition Period" means (i) with respect to a Transition Product containing an Assignment Compound, the period starting with the Assignment Date and ending on the later of (a) the expiration of Market Exclusivity or (b) two years from the Assignment Date and (ii) with respect to a Transition Product containing a Discretionary Compound, the period starting with the Discretionary Compounds Purchase Date and ending on the later of (a) the expiration of Market Exclusivity or (b) two years from the Discretionary Compounds Purchase Date. "Transition Product" means a Product containing an Assignment Compound the rights to which KB has purchased on the applicable Assignment Date pursuant to Article III or Article IV hereof or a Discretionary Compound the rights to which KB has purchased on the Discretionary Compounds Purchase Date pursuant to Article V hereof, in either case for which TR or an Alternate Producer has been allocated responsibility as the Producer for any Manufacturing Stage (or an Intermediate Form of any such Product). "Transition Requirements" means all of the requirements of KB, any Affiliate of KB and any Exit One Licensee for Transition Product for sale or promotion within the Territory. "Trigger Event Notice" has the meaning set forth in Section 4.2(a) hereof. "Trigger Event Year" means the year in which a Trigger Event occurs. 8 12 ARTICLE II LICENSE ASSIGNMENT RIGHTS 2.1 License Assignment Rights. (a) KB Assignment Right. Upon proper notice to KBI-E as provided in Section 3.1(a) or 4.1(b)(i) hereof and provided that the KBI-E Assignment Right has not been exercised and otherwise upon the terms and subject to the conditions of this Agreement, KB shall have the right to exercise the KB Assignment Right as of any KB Assignment Date; provided, however, that if a Trigger Event shall occur before KB shall have given a Notice of Exercise of the KB Assignment Right, the KB Assignment Right shall be exercisable only as provided in Article IV hereof. (b) KBI-E Assignment Right If Pre-2008 Trigger Event. Provided that a Trigger Event shall have occurred prior to January 1, 2008 and upon proper notice to KB as provided in Section 4.1(b)(i) and otherwise upon the terms and subject to the conditions of this Agreement, KBI-E shall have the right to exercise the KBI-E Assignment Right as of the applicable KBI-E Assignment Date. (c) Required Sale If Post-2007 Trigger Event. If a Trigger Event shall have occurred from and after January 1, 2008 and before KB shall have given a Notice of Exercise of the KB Assignment Right pursuant to the provisions of Article III hereof, the Required Sale shall occur on the Assignment Date pursuant to the provisions of Section 4.2 hereof. (d) KB Assignment Right Initial Payment. As additional consideration for the granting of the KB Assignment Right to KB as provided herein, KB hereby agrees to pay to KBI-E on the Closing Date by wire transfer to an account of KBI-E in the United States designated by KBI-E in writing at least one (1) week prior to such date the sum of $443 million. 2.2 Assignment of KBI License Assignment and Assumption Agreement, Amended and Restated KBI License and Other Agreements in Respect of Assignment Compounds. On the applicable Assignment Date, (i) all of KBI-E's rights with respect to the Assignment Compounds under the Amended and Restated KBI License, the KBI License Assignment and Assumption Agreement, and the Distribution Agreement shall be assigned to KB and (ii) certain rights of KBI-E with respect to the Assignment Compounds under the Manufacturing Agreement and the KBI Supply Agreement shall be assigned to KB as provided therein (all of the foregoing Agreements under which such rights of KBI-E are assigned to KB being referred to herein collectively as the "Assigned Contracts"). On the applicable Assignment Date, all rights of KBI-E to receive Group E Compounds Contingent Amounts shall also be assigned to KB. 2.3 Assumed Liabilities. In the event KB purchases from KBI-E all of KBI-E's rights to the Assignment Compounds pursuant to the terms of this Agreement, KB shall assume and be responsible for the obligations and liabilities of KBI-E with respect to the Assignment Compounds arising from and after the Assignment Date under the Assigned Contracts and only such obligations and liabilities. KB shall not assume any other obligations or liabilities of KBI-E 9 13 of any nature whatsoever, whether arising before or after the Assignment Date, with respect to the Assignment Compounds or otherwise, whether past, current or future, whether accrued, contingent, known or unknown. 2.4 Inventory on Hand. In the event KB purchases from KBI-E all of KBI-E's rights to the Assignment Compounds pursuant to the terms of this Agreement, KBI shall assign to KB an amount of receivables from the Partnership or an assignee of the Partnership's distribution rights under the Distribution Agreement equal to the Standard Mark-up (calculated without regard to Section 3.7(c) of the Master Agreement) included in the Supply Price (as defined in the KBI Supply Agreement) for trade inventory of Assignment Compounds held by the Partnership or such assignee on the Assignment Date. 2.5 Transition Products. Upon the occurrence of the applicable Assignment Date or Discretionary Compounds Purchase Date, as the case may be, for each Transition Product during its Transition Period: (a) If TR is the Producer of the Packaging Manufacturing Stage, TR shall toll package Transition Product for all Transition Requirements for KB or a Person designated by KB at the Transfer Price. If an Alternate Producer is the Producer of the Packaging Manufacturing Stage, the Alternate Producer shall toll package Transition Product for all Transition Requirements under contract with KBI for KB or such Person at the Transfer Price determined in accordance with the terms of Article V of the Manufacturing Agreement, which will be payable by KB to KBI. (b) If TR or an Alternate Producer is the Producer of a Primary Manufacturing Stage, KB or a Person designated by KB shall purchase from TR or, in the case of an Alternate Producer, KBI at the Transfer Price Transition Product for all Transition Requirements as follows: (i) if TR or an Alternate Producer is the Producer of the Formulation Manufacturing Stage, in the Finished Dosage Form at the cumulative Transfer Price and (ii) if KB is the Producer of the Formulation Manufacturing Stage and TR or an Alternate Producer is the Producer of the Bulk Chemical Manufacturing Stage, in the Bulk Chemical Form at the Transfer Price. (c) KB, KB USA and TR shall retain their full rights and obligations as Producers under the Manufacturing Agreement. (d) Neither KB nor any Affiliate of KB shall grant an Exit One License that includes the right to make or have made a Transition Product during its Transition Period. 2.6 Enalapril/Felodipine Combination Products. On the applicable Assignment Date, all of KBI's rights under the Enalapril/Felodipine Combination Products Supply Agreement shall be assigned to KB. KB shall assume and be responsible for the obligations and liabilities of KBI arising from and after the Assignment Date under the Enalapril/Felodipine Combination Products Supply Agreement. KB shall not assume any other obligations or liabilities of KBI of any nature whatsoever under the Enalapril/Felodipine Combination Products Supply Agreement, whether past, current or future, whether accrued, contingent, known or unknown. 10 14 ARTICLE III EXERCISE OF KB ASSIGNMENT RIGHT 3.1 Exercise Procedure. (a) Notice of Exercise; Conversion. Subject to the provisions of Section 3.1(b) and, in the event of a Trigger Event, the provisions of Article IV hereof, KB may exercise the KB Assignment Right in any KB Exercise Year by delivering a Notice of Exercise at any time during the period from January 1 through February 29 of the Exercise Year. In the event that KB exercises the KB Assignment Right, 7,291.67 shares of Class C Voting Preferred Stock, par value $9,600 per share, of KBI (the "Class C Preferred Stock"), held by KB shall be converted on the Assignment Date (less any number of shares of Class C Preferred Stock previously converted prior to such date) into shares of Class A Non-Voting Preferred Stock, par value $12,160 per share, of KBI, pursuant to the terms of the Amended and Restated Certificate of Incorporation of KBI, such that no more than 5,208.33 shares of the Class C Preferred Stock are outstanding on the KB Assignment Date (the "Conversion"). (b) HSR Filing; Preparation of Assignment Date Statement. Upon KB's delivery of a Notice of Exercise pursuant to Section 3.1(a), the parties agree to cooperate in good faith in preparing and making any filing ("HSR Filing") that may be required under the HSR Act, within thirty (30) days after the date of delivery of such Notice of Exercise. Promptly after any delivery of any such Notice of Exercise (or, in the event such Notice of Exercise is delivered prior to the availability of the Audited Financial Statements for the year preceding the given Exercise Year, as soon as practicable after the availability of such Audited Financial Statements), KB shall prepare and deliver to KBI-E the Assignment Date Statement. The Assignment Date Statement shall be binding and conclusive upon, and deemed accepted by, KBI-E unless KBI-E shall have notified KB in writing of any objections thereto within sixty (60) days after receipt of the Assignment Date Statement. A notice under this Section 3.1(b) shall specify in reasonable detail each item on the Assignment Date Statement that is being disputed and a summary of the reasons for such dispute. Any such dispute shall be resolved pursuant to the provisions of Section 3.1(d) hereof, but the pendency of such dispute shall not delay the Assignment Date. (c) Making of Assignment Payment. On the KB Assignment Date, KB shall pay to KBI-E the Assignment Payment specified in the Assignment Date Statement, all of which shall be payable to KBI-E by wire transfer in Dollars of immediately available funds to an account of KBI-E in the United States which shall be designated by KBI-E in writing at least one (1) week prior to the Assignment Date. (d) Resolution of Disputes. In the event that KBI-E gives KB timely written notice in accordance with Section 3.1(b) above of a dispute concerning the Assignment Date Statement, the parties shall attempt to resolve such disagreement. However, if any such disagreement is not resolved by the parties within thirty (30) days after receipt of such notice, such disagreement shall be submitted to such accounting firm as shall be agreed on by KB and 11 15 KBI-E for the resolution of such dispute. In the event that KB and TR cannot agree on such accounting firm, such firm shall be selected at random from the remaining "Big Five" accounting firms. The decision of such accounting firm shall be final and shall be binding and conclusive upon all of the parties hereto. In the event that such accounting firm determines that the Assignment Payment reflected on the Assignment Date Statement should be increased or decreased, then the Assignment Date Statement shall be adjusted as applicable and, as so adjusted, shall be binding and conclusive upon all of the parties hereto. KB shall pay to KBI-E the amount of any such increase or KBI-E shall pay to KB the amount of any such decrease, as the case may be, within ten (10) Business Days after such determination, together with interest at the rate of LIBOR determined using a LIBOR Period of three (3) months for the period from the Assignment Date through the date of such payment. In the event of any disputes resolved under this Section 2.2(d), the fees and expenses of any accounting firm engaged to resolve such disputes shall be paid by the party against whom the greater Dollar amount is resolved. ARTICLE IV EXERCISE OF KB ASSIGNMENT RIGHT AND KBI-E ASSIGNMENT RIGHT FOLLOWING A PRE-2008 TRIGGER EVENT AND REQUIRED SALE FOLLOWING A POST-2007 TRIGGER EVENT 4.1 Pre-2008 Trigger Event. (a) Notification. Upon the occurrence of a Trigger Event prior to January 1, 2008, KB shall promptly notify KBI-E of such occurrence and, notwithstanding the provisions of Article III hereof, the terms of the KB Assignment Right and the KBI-E Assignment Right shall be governed by this Section 4.1. (b) Exercise Procedure. (i) Notice of Exercise; Conversion. KBI-E may exercise the KBI-E Assignment Right, and KB may exercise the KB Assignment Right, by delivering a Notice of Exercise at any time during the period from January 1 through the last day of February in the Exercise Year. In the event that either KB or KBI-E exercises its Assignment Right, the Conversion shall be effected on the Assignment Date pursuant to the terms of the Amended and Restated Certificate of Incorporation of KBI. (ii) HSR Filing. Upon KBI-E's or KB's delivery of a Notice of Exercise pursuant to Section 4.1(b)(i) above, the parties agree to cooperate in good faith in preparing and making any HSR Filing that may be required under the HSR Act within thirty (30) days after the date of delivery of such Notice of Exercise. (iii) Making of Assignment Payment. On the Assignment Date, KB shall pay to KBI-E the Assignment Payment by wire transfer in Dollars of immediately available funds to an account of KBI-E in the United States which shall be designated by KBI-E in writing at least one (1) week prior to the Assignment Date. 4.2 Trigger Event From and After 2008. (a) Notification. Upon the occurrence of a Trigger Event from and after January 1, 2008, unless KB shall have already given a Notice of Exercise of the KB Assignment Right pursuant to the provisions of Article III hereof, KB shall 12 16 promptly notify KBI-E of such occurrence (the "Trigger Event Notice") and, notwithstanding the provisions of Article III hereof, the Required Sale shall occur on the Assignment Date. The Conversion shall be effected by the Assignment Date pursuant to the terms of the Amended and Restated Certificate of Incorporation of KBI. (b) Exercise Procedure. (i)Audit. Within one (1) month after KB's delivery of the Trigger Event Notice, KB and KBI-E shall engage a mutually acceptable independent accounting firm to audit the Average Combined Weighted Net Sales of Tiered Rate Products and Aggregate Contingent Amounts for the three (3) periods of twelve (12) consecutive months during the thirty-six (36) full calendar months immediately preceding the Trigger Event for purposes of determining the Average Annual Contingent Amounts. In the event that KB and KBI-E cannot agree on such accounting firm, such firm shall be selected at random from the remaining "Big Five" accounting firms. KB and KBI-E agree that the Average Combined Weighted Net Sales of Tiered Rate Products and Average Annual Contingent Amounts as determined by such independent accounting firm shall be final and binding on the parties hereto and shall be used in the calculation by such accounting firm of the Assignment Payment as reflected on the Assignment Date Statement. (ii) HSR Filing; Preparation of Assignment Date Statement. Upon KB's delivery of a Trigger Event Notice pursuant to Section 4.2(a), the parties agree to cooperate in good faith in preparing and making any HSR Filing that may be required hereunder under the HSR Act within thirty (30) days after the date of delivery of such Trigger Event Notice. Promptly after the accounting firm's determination of the Average Combined Weighted Net Sales of Tiered Rate Products and Average Annual Contingent Amounts pursuant to the terms of Section 4.2(b)(i) above, such accounting firm shall prepare and deliver to KB and KBI-E an Assignment Date Statement showing its calculation of the Assignment Payment, which Assignment Date Statement shall be final and binding on the parties hereto. (iii) Making of Assignment Payment. On the Assignment Date, KB shall pay to KBI-E the Assignment Payment by wire transfer in Dollars of immediately available funds to an account of KBI-E in the United States which shall be designated by KBI-E in writing at least one (1) week prior to the Assignment Date. ARTICLE V EXERCISE OF DISCRETIONARY COMPOUNDS OPTION 5.1 Discretionary Compounds Option. (a) In connection with the exercise of the KB Assignment Right, the KBI-E Assignment Right or the Required Sale, KB shall have the right and option, in its discretion, upon the terms and conditions as hereinafter provided in this Section 5.1, to purchase all of KBI-E's rights to any and all of the Discretionary Compounds. At the time of delivery of a Notice of 13 17 Exercise pursuant to either Section 3.1 or Section 4.1 hereof, or of a Trigger Event Notice pursuant to Section 4.2 hereof, as the case may be, KB shall notify TR and KBI-E (the "Discretionary Compounds Information Notice") whether or not it elects to obtain the Discretionary Compounds Information (as hereinafter defined). (b) In the event that the Discretionary Compounds Information Notice indicates that KB does elect to obtain the Discretionary Compounds Information, TR and KBI-E shall have sixty (60) days from their receipt of the Discretionary Compounds Information Notice to provide KB with all information regarding the Discretionary Compounds reasonably requested by KB and necessary to evaluate which, if any, of the Discretionary Compounds to which it intends to purchase KBI-E's rights. Such information shall include, without limitation, (i) the total quantities of Discretionary Compounds sold, the net sales thereof and the Manufacturer's Cost therefor during the three (3) most recent Fiscal Years ending prior to the date of the Discretionary Compounds Information Notice; (ii) sales forecasts for the Discretionary Compounds; (iii) summaries of the Technical Information (as defined in the Amended and Restated KBI License) regarding each Discretionary Compound; and (iv) the Full Costs incurred by KBI-E and its Affiliates in connection with any investigation or development work previously undertaken by KBI-E and its Affiliates with respect to such Compounds, (all of the information set forth in clauses (i), (ii) and (iii) above and any other information reasonably necessary for KB to make such determination being collectively referred to herein as the "Discretionary Compounds Information"). (c) KBI-E shall keep, and shall cause its Affiliates to keep, true, accurate and complete records of the development and marketing expenditures and commitments therefor in respect of each Discretionary Compound and each product containing a Discretionary Compound in sufficient detail to permit the verification of the Discretionary Compounds Information. Upon KB's request, KBI-E shall permit an independent certified public accountant selected and paid by KB (except one to whom KBI-E has some reasonable objection) to have reasonable access during ordinary business hours to such of KBI-E's and its Affiliates' records regarding the Discretionary Compounds as may be necessary in such accountant's judgment to confirm to its reasonable satisfaction the accuracy of any Discretionary Compounds Information delivered to KB pursuant to this Section 5.1. Such accountant shall keep its findings confidential and shall not disclose to KB (or any of its Affiliates) any information except that it shall report to KB (i) its findings and any other information relating to the accuracy of the Discretionary Compounds Information delivered under this Section 5.1 and (ii) any restrictions on access to KBI-E's and its Affiliates' data which the accountant deems to be a restriction of scope with respect to its engagement. (d) Within sixty (60) days after KB shall have received all of the Discretionary Compounds Information, KB shall identify in a notice delivered to TR and KBI-E which, if any, of the Discretionary Compounds to which KB elects to seek an appraisal as to the fair market value of the rights thereto (the "Discretionary Compounds Appraisal Notice"). (e) Upon delivery of the Discretionary Compounds Appraisal Notice, if such notice indicates that KB elects to seek an appraisal as to one or more Discretionary Compounds, 14 18 KB and KBI-E shall, at the sole cost and expense of KB, engage an appraisal firm of national reputation which is skilled in preparing appraisals of the future value of pharmaceutical products to determine the "fair market value" of KBI-E's rights with respect to the Discretionary Compounds that KB shall have identified pursuant to Section 5.1(d) hereof for purposes of determining the Discretionary Compounds Price. If the parties are unable to agree on an appraiser, then the appraiser shall be selected by the American Arbitration Association. Within thirty (30) days after the appraiser shall have determined such fair market value and the Discretionary Compounds Price shall have been determined for each such Discretionary Compound, KB shall notify TR and KBI-E whether, in its sole discretion, it shall purchase all of KBI-E's rights to any or all of the Discretionary Compounds. (f) On the later of five (5) business days thereafter and the applicable Assignment Date, KB shall pay to KBI-E an amount equal to the sum of the Discretionary Compounds Prices for each of the Discretionary Compounds, the rights to which it shall have elected to purchase pursuant to Section 5.1(e) (the "Discretionary Compounds Payment"). The Discretionary Compounds Payment shall be payable to KBI-E by wire transfer in Dollars of immediately available funds to an account designated in writing by KBI-E. The date on which the Discretionary Compounds Payment shall be made shall be referred to hereinafter as the "Discretionary Compounds Purchase Date." 5.2 Assignment of Rights in Respect of Discretionary Compounds. On the Discretionary Compounds Purchase Date, all of KBI-E's rights under the Assigned Contracts with respect to the Discretionary Compounds that KB has purchased shall be assigned to KB and the INDs and NDAs (each as defined in the Amended and Restated KBI License) for each such Discretionary Compound registered in the name of KBI-E (or any of its Affiliates) shall, as promptly as practicable thereafter, be transferred, to the extent permitted by applicable law and regulations and requirements of the FDA, to KB. 5.3 Assumed Liabilities. In the event KB purchases from KBI-E all of KBI-E's rights to any of the Discretionary Compounds pursuant to the terms of this Agreement, KB shall assume and be responsible for only those obligations and liabilities of KBI-E with respect to such Discretionary Compounds arising from and after the Discretionary Compounds Purchase Date, under the Assigned Contracts. KB shall not assume any other obligations or liabilities of KBI-E of any nature whatsoever, whether arising before or after the Discretionary Compounds Purchase Date with respect to the Discretionary Compounds, or otherwise, whether past, current or future, whether accrued, contingent, known or unknown. 5.4 Inventory. On the Discretionary Compounds Purchase Date, KB shall purchase from KBI-E and its Affiliates all inventories of Discretionary Compounds as to which rights are purchased on such date (including raw materials, work in process and finished goods) at Manufacturer's Cost. Notwithstanding the terms of Section 3.4 of the Master Restructuring Agreement, KB or its designee shall be permitted to use such acquired finished goods which include or contain the words "TR," "KBI" or "KBI-E" for a period of one (1) year from the Discretionary Compounds Purchase Date. 15 19 5.5 No Further Option. KB shall have no further option to purchase the rights to any Discretionary Compounds as to which KB does not purchase rights pursuant to this Article V. ARTICLE VI CERTAIN COVENANTS AND AGREEMENTS OF THE PARTIES 6.1 Reasonable Efforts; Further Assurances. Subject to the terms and conditions of this Agreement, each of KB, TR, KBI and KBI-E shall use its reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things reasonably necessary to consummate the transactions contemplated hereby. Each of KB, TR, KBI and KBI-E agrees to execute and deliver promptly such other documents, certificates, agreements or instruments (including any amendments or supplements thereto) and to take, or cause to be taken, such other actions as may be reasonably necessary in order to consummate or implement expeditiously the transactions contemplated hereby. 6.2 HSR Act. In connection with any HSR Filing that may be required under the HSR Act as contemplated by this Agreement, the parties hereto agree to cooperate in good faith to respond promptly to all inquiries made by governmental authorities. 6.3 Limitations on Transfer of License Rights. Except as approved in writing by KB or as expressly permitted or required by this Agreement, any Initial Agreement or any other Ancillary Agreement, neither KBI nor KBI-E shall sell, transfer, pledge or otherwise encumber, assign or otherwise dispose of any license or other rights under any of the foregoing Agreements. ARTICLE VII INDEMNIFICATION TR, KBI and KBI-E agree to defend, indemnify and hold harmless KB and its Affiliates and each of their respective officers, directors, employees and agents from and against any and all Indemnity Losses arising out of, based upon or resulting from any liabilities or obligations of KBI-E of any nature whatsoever that are not expressly assumed by KB and its Affiliates under this Agreement other than any liabilities for which any KB Party has agreed to indemnify any TR Party pursuant to the terms of any Initial Agreement or Ancillary Agreement. KB and its Affiliates agree to defend, indemnify and hold harmless TR and TR Holdings and each of their respective officers, directors, employees and agents from and against all Indemnity Losses arising out of, based upon or resulting from any liabilities or obligations of KBI-E expressly assumed by KB under this Agreement. Any claim for indemnification hereunder shall be on a net after-tax basis in accordance with, and shall be subject to the procedures set forth in, Section 10.3 of the Master Restructuring Agreement. 16 20 ARTICLE VIII ARBITRATION Subject to the provisions of Section 3.1(d) hereof and Section 9.4 of the Master Restructuring Agreement, any dispute, controversy or claim between KB, on the one hand, and TR, KBI and KBI-E on the other hand, 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. ARTICLE IX TERMINATION This Agreement may be terminated at any time by the written mutual consent of each of the parties hereto. In the event that this Agreement is terminated as aforesaid, this Agreement shall be of no further force or effect and no party shall have any liability to any other party hereto; provided, however, that the termination of this Agreement will not relieve any party of any liability for breach of any covenant or agreement hereunder occurring prior to such termination and the terms of Article 4 of the Master Restructuring Agreement (relating to confidentiality) shall remain in full force and effect in accordance with its terms. ARTICLE X MISCELLANEOUS 10.1 Expenses. Unless otherwise provided herein, each of the parties to this Agreement shall bear all the expenses incurred by it in connection with the negotiation and preparation of this Agreement and the consummation of the transactions contemplated by this Agreement regardless of whether this Agreement shall be terminated. 10.2 Assignment. Neither this Agreement nor any of the rights or obligations hereunder may be assigned by any party without the prior written consent of other parties; provided, however, that KB may, without the consent of the other parties hereto, assign its rights under this Agreement to any of its Affiliates or any successor to all or substantially all of KB's business and assets; provided, further, however, that (i) as conditions to and prior to the effectiveness of such assignment, the assignee or assignees shall expressly assume in writing the due and punctual performance of all obligations which are so assigned and the assignor shall deliver a copy of such assignment (including any assumption agreement referred to above) to the other Parent, and (ii) the assignor shall remain liable as a co-obligor, with the assignee or assignees thereof, with respect to all obligations which are so assigned; and provided, further, that no such assignment shall release such party from its obligations hereunder without the written consent of the other parties. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, successors, heirs and assigns. Any attempted or purported assignment of this Agreement or any 17 21 interest in this Agreement (as the case may be) in violation of any provisions of this Agreement or applicable law shall be void and shall not be effective to pass any right, title or interest in this Agreement (as the case may be). 10.3 No Third Party Beneficiaries. Nothing in this Agreement, expressed or implied, is intended or shall be construed to confer upon or give to any person, firm, corporation or legal entity, other than the parties hereto and their respective Affiliates, or their respective successors and permitted assigns, any rights, remedies or other benefits or any obligations or liabilities under or by reason of this Agreement. 10.4 Notices. Unless otherwise provided herein, any notice, request, instruction, other document or other communication under or with respect to this Agreement shall be in writing and shall be deemed to have been duly given if delivered personally, sent by telefax with confirmation of receipt, or sent by internationally-recognized courier service to any party hereto at its address as specified below. If to KB: S-151 85 Sodertalje, Sweden Attention: General Counsel Telefax No.: 011-46-8-553-288-12 If to TR, KBI or KBI-E: One Merck Drive P.O. Box 100 Whitehouse Station, NJ 08889-0100 Attention: Corporate Secretary Telefax No.: 908-735-1246 Any party hereto by written notice to the other parties hereto in accordance with the above may change the address to which such notices, requests, instructions, other documents or other communications to it shall be directed. 10.5 Governing Law. This Agreement shall be construed and governed in accordance with the laws of the State of New York without regard to any choice of law rules other than Section 5-1401 of the New York General Obligations Law. 10.6 Entire Agreement; Amendments and Waivers. This Agreement, together with all exhibits and schedules hereto, the Initial Agreements, the Partnership Agreement, the Other Ancillary Agreements and the other documents referred to herein, constitutes the entire agreement between the parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties. No supplement, amendment, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or 18 22 not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. 10.7 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.8 Invalidity. In the event that any one or more of the provisions contained in this Agreement or in any other instrument referred to herein, shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any other such instrument. 10.9 Headings. The headings of the Articles and Sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 10.10 Remedies. Notwithstanding anything to the contrary contained in this Agreement, each of the parties to this Agreement is entitled to all remedies in the event of breach provided at law or in equity, specifically including, but not limited to specific performance. 10.11 Gender and Number. All pronouns used herein shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity or number of the person, persons, entity or entities may require. * * * 19 23 IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or have caused this Agreement to be duly executed on their respective behalf by their respective officers thereunto duly authorized, as of the day and year first above written. ASTRA AB (publ) By: /s/ Goran Lerenius ------------------------------------ Name: Goran Lerenius Title: Authorized Signatory MERCK & CO., INC. By: /s/ Judy C. Lewent ------------------------------------ Name: Judy C. Lewent Title: Senior Vice President and Chief Financial Officer ASTRA MERCK INC. By: /s/ Peter E. Nugent ------------------------------------ Name: Peter E. Nugent Title: President ASTRA MERCK ENTERPRISES INC. By: /s/ Peter E. Nugent ------------------------------------ Name: Peter E. Nugent Title: President 20 24 Schedule I Calculation of Multiple Based Upon Combined Weighted Net Sales of Tiered Rate Products and Exercise Year / Trigger Event Year The Multiple for use in determining the Formula Price shall be determined as follows: I. For Years 2008 and 2012 (if a Trigger Event has occurred prior to January 1, 2008 or if no Trigger Event has occurred) (a) If Average Combined Weighted Net Sales of Tiered Rate Products is less than or equal to $1.5 billion multiplied by the Pre-2016 Inflation Index, the Multiple is 18. (b) If Average Combined Weighted Net Sales of Tiered Rate Products is greater than $1.5 billion multiplied by the Pre-2016 Inflation Index and less than $3.0 billion multiplied by the Pre- 2016 Inflation Index, the Multiple shall be calculated by using the relevant variables set forth in Section IV below and each of the formulas set forth as follows: (i) Formula I M2 - ((M2 - M1) x (ACWNSTRP - (S1 x Index))/((S2-S1) x Index)) (ii) Formula II ((V1 x Index) + ((V2-V1) x Index)/((S2 - S1) x Index)x(ACWNSTRP - (S1 x Index))) - -------------------------------------------------------------------------------- Average Annual Contingent Amounts (iii) Multiple Formula FormulaI + FormulaII -------------------- Multiple = 2 (c) If Average Combined Weighted Net Sales of Tiered Rate Products is greater than or equal to $3.0 billion multiplied by the Pre-2016 Inflation Index, the Multiple is 13. II. For Years 2008 Through 2015 If A Trigger Event Has Occurred On or After January 1, 2008 (a) If Average Combined Weighted Net Sales of Tiered Rate Products is less than or equal to $1.5 billion multiplied by the Pre-2016 Inflation Index, the Multiple is 18. (b) If a Trigger Event occurs in the years 2008 through 2015, and Average Combined Weighted Net Sales of Tiered Rate Products is greater than $1.5 billion multiplied by the Pre-2016 Inflation Index and less than $3.0 billion multiplied by the Pre-2016 Inflation Index, the Multiple shall be calculated using the Formulas set forth below: 25 (i) Using Table I (in Section V), obtain the values for each of the variables "V1", "V2", "M1" and "M2" for the Fiscal Year in which the Trigger Event has occurred, e.g., if a Trigger Event occurs in July 2010, the TE year is 2010 ("TE Year"). (ii) Using Table I (in Section V), obtain the values for each of the variables "V1", "V2", "M1" and "M2" for the Fiscal Year immediately following the Trigger Event year, e.g., if a Trigger Event occurs in July 2010, the next year is 2011 ("Next Year"). (iii) Subtract the "Next Year" variables (from II(b)(ii)) from the "TE Year" variables (from II(b)(i)) to obtain the "Variable Differential". (iv) Obtain a value for each of "V1", "V2", "M1" and "M2" using this formula: TE Year variable - (Variable Differential x (# of Months/12)) (v) Input the values for "V1", "V2", "M1" and "M2" obtained in II(b)(iv) into the formulas described in Section I(b) above. (c) If Average Combined Weighted Net Sales of Tiered Rate Products is greater than or equal to $3.0 billion multiplied by the Pre-2016 Inflation Index, the Multiple is 13. III. For Years after 2015 (a) The Multiple shall be 13. IV. Variables (a) "ACWNSTRP" = Average Combined Weighted Net Sales of Tiered Rate Products. (b) "Index" = Pre-2016 Inflation Index determined pursuant to Section 3.8 of the Master Restructuring Agreement. (c) "# of Months" = Number of full months that have elapsed since January 1st, during the Fiscal Year in which the Trigger Event has occurred; but, never more than 12 (e.g., if Trigger Event occurs on July 10th, 2010, then the # of Months is seven). (d) "M1" = See Table I. (e) "M2" = See Table I. (f) "S1" = $1.5 billion. (g) "S2" = $3.0 billion. (h) "V1" = See Table I. (i) "V2" = See Table I. 2 26 V. Table I
- -------------------------------------------------------------------------------- YEAR "V1"(1) "V2"(1) "M1" "M2" - -------------------------------------------------------------------------------- 2008 $5,400 $8,288 13 18 - -------------------------------------------------------------------------------- 2009 $5,175 $7,963 13 18 - -------------------------------------------------------------------------------- 2010 $4,950 $7,638 13 18 - -------------------------------------------------------------------------------- 2011 $4,725 $7,313 13 18 - -------------------------------------------------------------------------------- 2012 $4,725 $7,313 13 18 - -------------------------------------------------------------------------------- 2013 $4,188 $7,150 13 16.75 - -------------------------------------------------------------------------------- 2014 $3,681 $6,988 13 15.50 - -------------------------------------------------------------------------------- 2015 $3,206 $6,825 13 14.25 - -------------------------------------------------------------------------------- 2016 or after $2,925 $6,825 13 13 - --------------------------------------------------------------------------------
- -------- (1) Amounts in US Dollars millions. 3 EX-10.4 6 KBI SUPPLY AGREEMENT 1 Exhibit 99.7 AS EXECUTED - CONFORMED KBI SUPPLY AGREEMENT Dated as of July 1, 1998 Between ASTRA MERCK INC and ASTRA PHARMACEUTICALS, L.P 2
TABLE OF CONTENTS Page ARTICLE I DEFINITIONS.................................................................................. 2 ARTICLE II PRODUCTS; TERMS AND CONDITIONS OF SUPPLY..................................................... 8 Section 2.01 Obligation to Supply Distribution Products....................................................8 Section 2.02 Product Form..................................................................................9 Section 2.03 Drug Product Specifications..................................................................10 ARTICLE III ORDERS AND SHIPMENTS; PRODUCTION PLANNING................................................... 10 Section 3.01 Estimated Quantities.........................................................................10 Section 3.02 Firm Orders..................................................................................11 Section 3.03 Manufacturing and Supply Committee; Production Planning......................................11 Section 3.04 Title and Risk of Loss.......................................................................12 Section 3.05 Shipment.....................................................................................12 Section 3.06 Modification of Specifications and C & M Data; Consultations Concerning NDAs and Regulatory Matters..................................................................12 Section 3.07 Manufacturing Sites..........................................................................13 Section 3.08 Termination Materials........................................................................13 ARTICLE IV SUPPLY PRICE, OTHER CHARGES AND PAYMENT..................................................... 14 Section 4.01 Supply Price.................................................................................14 Section 4.02 Exclusion of Inter-Affiliate Mark-Ups and Profits............................................14 Section 4.03 Costs and Expenses of Delivery...............................................................14 Section 4.04 Invoices, Time of Payment and Year-End Adjustments...........................................15 Section 4.05 Manner of Payment............................................................................16 Section 4.06 Estimates....................................................................................17 Section 4.07 Minimum Capital Charge.......................................................................17 Section 4.08 Other Costs..................................................................................18 Section 4.09 Approval of Alternate Producer Pricing.......................................................18 ARTICLE V [OMITTED]................................................................................... 18 ARTICLE VI WARRANTIES; QUALITY CONTROL; QUALITY ASSURANCE; REGULATORY FUNCTION; CLAIMS FOR DEFECTIVE PRODUCTS; RECALLS AND MARKET WITHDRAWALS.................................. 18 Section 6.01 Warranties; Sample Retention.................................................................18 Section 6.02 Quality Control..............................................................................19 Section 6.03 Inspections and Audits.......................................................................19 Section 6.04 Observations and Conclusions.................................................................19
i 3 Section 6.05 The Partnership's Regulatory Compliance Responsibility.......................................20 Section 6.06 Regulatory Compliance........................................................................20 Section 6.07 Certificates of Analysis.....................................................................20 Section 6.08 Notice of Claims; Replacement Quantities.....................................................21 Section 6.09 Recalls and Market Withdrawals...............................................................21 ARTICLE VII CLAIMS AND DISCLAIMERS...................................................................... 22 Section 7.01 Indemnification by the Partnership...........................................................22 Section 7.02 Indemnification by KBI.......................................................................22 Section 7.03 Indemnification Procedures...................................................................23 Section 7.04 Disclaimers..................................................................................23 Section 7.05 Limitation of Damages........................................................................23 ARTICLE VIII TERM AND TERMINATION........................................................................ 24 Section 8.01 Termination of Agreement.....................................................................24 Section 8.02 Termination as to Particular Products; Effect of Assignment..................................24 Section 8.03 Effect of Termination........................................................................25 Section 8.04 No Termination for Breach....................................................................25 ARTICLE IX SUBCONTRACTING.............................................................................. 25 Section 9.01 Right to Subcontract.........................................................................25 ARTICLE X RECORDS..................................................................................... 25 Section 10.01 KBI Records..............................................................................25 Section 10.02 Partnership Records......................................................................26 ARTICLE XI CONFIDENTIALITY............................................................................. 27 Section 11.01 Confidentiality..........................................................................27 ARTICLE XII MISCELLANEOUS PROVISIONS.................................................................... 27 Section 12.01 Amendments; Waiver.......................................................................27 Section 12.02 Best Efforts; Performance................................................................27 Section 12.03 Headings.................................................................................28 Section 12.04 Successors; Third Parties; Assignment....................................................28 Section 12.05 Notices..................................................................................28 Section 12.06 Force Majeure............................................................................28 Section 12.07 Severability.............................................................................29 Section 12.08 Governing Law............................................................................29 Section 12.09 Arbitration..............................................................................29 Section 12.10 Counterparts.............................................................................29 -ii-
4 KBI SUPPLY AGREEMENT This KBI SUPPLY AGREEMENT ("Agreement"), dated as of July 1, 1998, between Astra Merck Inc., a corporation organized and existing under the laws of the State of Delaware ("KBI"), and Astra Pharmaceuticals, L.P., a limited partnership organized and existing under the laws of the State of Delaware (the "Partnership"). W I T N E S S E T H: WHEREAS, Astra AB, a company limited by shares organized and existing under the laws of Sweden ("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 that certain Amended and Restated License and Option Agreement made as of July 12, 1982, as amended and restated as of the date hereof, between KB and KBI, as such agreement is amended, modified, supplemented or restated from time to time (the "KBI License"); WHEREAS, KBI has assigned its rights and delegated its obligations under the KBI License to Astra Merck Enterprises Inc., a corporation organized and existing under the laws of the State of Delaware ("KBI-E"), other than KBI's rights and obligations with respect to Trademarks (as hereinafter defined), Selected Compounds (as hereinafter defined) and the Selected Uses (as hereinafter defined) for Licensed Compounds (as hereinafter defined); WHEREAS, KBI-E has entered into the Distribution Agreement (as hereinafter defined) with the Partnership, 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; WHEREAS, the parties hereto desire to establish arrangements under which KBI will supply to the Partnership the Partnership's requirements for products for the purpose of satisfying KBI-E's obligations to the Partnership under the Distribution Agreement and KBI is willing to perform such supply on the terms and subject to the conditions hereinafter set forth; and WHEREAS, KBI shall obtain such supply pursuant to the Second Amended and Restated Manufacturing Agreement among KBI, KB, Astra USA, Inc., a corporation organized and existing under the laws of the State of New York ("KB USA"), and Merck & Co., Inc., a corporation organized and existing under the laws of the State of New Jersey ("TR"), dated as of the date hereof, as such agreement is amended, modified, supplemented or restated from time to 5 time (the "Manufacturing Agreement"), and, in the case of the Enalapril/Felodipine Combination Product (as hereinafter defined), pursuant to the Enalapril/Felodipine Supply Agreement (as hereinafter defined). NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the Parties (as hereinafter defined) 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. Affiliate: With respect to any Person, any other Person controlling, controlled by, or under common control with, such Person. The term "control" of a Person shall mean direct or indirect ownership of more than 50% of the outstanding voting stock of a corporation or voting interest in a non-corporate Person. Agreed Mark-Up: Agreed Mark-Up as defined in Exhibit I. Agreement: This Agreement as defined in the Preamble. Alternate Producer: Alternate Producer as defined in the Manufacturing Agreement. Ancillary Agreements: The Ancillary Agreements as defined in the Master Restructuring Agreement. Bid Procedure: Bid Procedure as defined in the Manufacturing Agreement. Bidding Parties: Bidding Parties as defined in the Manufacturing Agreement. Bulk Chemical or Bulk Chemical Form: Bulk pharmaceutical Compound for which Formulation has not commenced. 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 3.06. Claims: Claims as defined in Section 7.01. Clinical Quantities: Clinical Quantities as defined in the Manufacturing Agreement. Closing Date: The Closing Date as defined in the Master Restructuring Agreement. Combined Weighted Net Sales of Tiered Rate Products: Combined Weighted Net Sales of Tiered Rate Products as defined in the Master Restructuring Agreement. 2 6 Complete Commercial Process: Those processes for manufacturing or preparing any Manufacturing Agreement Product which, together with raw materials and intermediates commercially available to KBI (or any of its Affiliates or subcontractors), are suitable for use at KBI's (or any of its Affiliates' or subcontractors') manufacturing facilities designated in the NDA for such Manufacturing Agreement Product and are capable of completing such manufacturing 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 Manufacturing Agreement 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. Costs and Expenses of Delivery: The Costs and Expenses of Delivery as defined in Section 4.03. Covered Compounds: Covered Compounds as defined in the KBI License. Distribution Agreement: That certain Distribution Agreement dated as of the date hereof by and between KBI-E and the Partnership, as such agreement is amended, modified, supplemented or restated from time to time. Distribution Product: Distribution Product as defined in the Distribution Agreement; provided, however, that, for purposes of this Agreement, "Distribution Product" shall not include Non-Exclusive Second Look Products supplied to a Person other than the Partnership; provided, further, that for purposes of this Agreement, "Distribution Product" shall include the Bulk Chemical Form of a Licensed Compound ordered by the Partnership for purposes of inclusion in a Special Combination Product. Drug Product Specifications: For each Distribution Product, the following information: (i) the active ingredient or ingredients contained therein, (ii) the type of formulation and, if applicable, any devices for the administration thereof, (iii) packaging design and configuration specifications, (iv) package material specifications and artwork required for packaging, and (v) the specifications that the Distribution Product must meet upon completion of the Formulation and the Packaging Manufacturing Stages that would be included in a certificate of analysis. Earlier Stage Producer: Earlier Stage Producer as defined in the Manufacturing Agreement. Effective Rate in Respect of Tiered Rate Products: Effective Rate in Respect of Tiered Rate Products as defined in the Master Restructuring Agreement. Enalapril/Felodipine Combination Product: A "Combination Product" as defined in the Enalapril/Felodipine Supply Agreement. 3 7 Enalapril/Felodipine Supply Agreement: That certain Supply Agreement dated as of November 1, 1994 between TR and KBI governing the supply of Enalapril/Felodipine Combination Products, as such agreement may be amended, modified, supplemented or restated from time to time. Estimated Effective Rate: Estimated Effective Rate as defined in Section 4.06(a). Estimated Quantities: The written estimates for each Quarter of the quantities of Distribution Products which the Partnership expects to require. Events of Force Majeure: Events of Force Majeure as defined in Section 12.06. Exclusive Second Look Product: Exclusive Second Look Product as defined in the Manufacturing Agreement. 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 Firm Order as defined in Section 3.02. 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: Formulation as defined in the Manufacturing Agreement. General Partner: The General Partner as defined in the Partnership Agreement. GMP: Current Good Manufacturing Practices as such term is defined from time to time by the FDA pursuant to regulations, guidelines or otherwise. IND: An IND as defined in the Manufacturing Agreement. Initial Agreements: Initial Agreements as defined in the Master Restructuring Agreement. Intermediate Form: Intermediate Form as defined in the Manufacturing Agreement. KB: KB as defined in the Recitals. KB Pipeline Product: KB Pipeline Product as defined in the Manufacturing Agreement. KB USA: KB USA as defined in the Recitals. 4 8 KBI: KBI as defined in the Preamble. KBI Cost: KBI Cost as defined in Exhibit I. KBI-E: KBI-E as defined in the Recitals. KBI Contract Indemnitee: KBI Contract Indemnitee as defined in Section 7.02(b). KBI Indemnitee: A KBI Indemnitee as defined in Section 7.02(a). KBI License: The KBI License as defined in the Recitals. KBI Products Contingent Amount: KBI Products Contingent Amount as defined in the Master Restructuring Agreement. KBI Shares: KBI Shares as defined in the KBI Shares Option Agreement. 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 Limited 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. KBI-E Asset Option Agreement: KBI-E Asset Option Agreement as defined in the Master Restructuring Agreement. Licensed Compound: Licensed Compound as defined in the KBI License, except that as used herein, "Licensed Compound" shall not include any Selected Compounds or any rights with respect to the Selected Uses of any Licensed Compound. Losses: Losses as defined in Section 7.01. Manufacturer's Cost: Manufacturer's Cost as defined in Exhibit I. Manufacturing Agreement: The Manufacturing Agreement as defined in the Recitals. Manufacturing Agreement Product: Any Product as defined in the Manufacturing Agreement. "Manufacturing Agreement Product" does not include Enalapril/Felodipine Combination Product. Manufacturing and Supply Committee: Manufacturing and Supply Committee as defined in the Manufacturing Agreement. 5 9 Manufacturing Stage: A Manufacturing Stage as defined in the Manufacturing Agreement. Market Exclusivity: Market Exclusivity as defined in the Master Restructuring Agreement. Master Restructuring Agreement: The Master Restructuring Agreement as defined in the KBI License. Minimum Capital Charge: Minimum Capital Charge as defined in the Manufacturing Agreement. Minimum Capital Charge Estimate: An estimate of the Minimum Capital Charge submitted by KBI to the Partnership pursuant to Section 4.07. NDA: A New Drug Application made in accordance with applicable regulations and requirements of the FDA as from time to time in effect. Net Sales: Net Sales as defined in the Master Restructuring Agreement. Non-Affiliate: With respect to any Person, any other Person which is not an Affiliate of such Person. Non-Exclusive Second Look Product: Non-Exclusive Second Look Product as defined in the Manufacturing Agreement. Omeprazole Products: Omeprazole Products as defined in the Master Restructuring Agreement. Omeprazole Products Contingent Amount: Omeprazole Products Contingent Amount as defined in the Master Restructuring Agreement. P&G OTC Products: P&G OTC Products as defined in the Manufacturing Agreement. Package or Packaging: Package or Packaging as defined in the Manufacturing Agreement. Packaging Manufacturing Stage: Packaging Manufacturing Stage as defined in the Manufacturing Agreement. Parties: The Partnership and KBI. Partnership: The Partnership as defined in the Preamble. Partnership Agreement: The Partnership Agreement as defined in the KBI License. 6 10 Partnership Contract Indemnitee: Partnership Contract Indemnitee as defined in Section 7.01(b). Partnership Indemnitee: A Partnership Indemnitee as defined in Section 7.01(a). Perprazole Products: Perprazole Products as defined in the Master Restructuring Agreement. Person: An individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, or other entity of a similar nature. Primary Manufacturing Stages: Primary Manufacturing Stages as defined in the Manufacturing Agreement. Producer: Producer as defined in the Manufacturing Agreement, and, in the case of Enalapril/Felodipine Combination Product, TR or its permitted assignees under the Enalapril/Felodipine Supply Agreement. Product Cost: Product Cost as defined in the Manufacturing Agreement. 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: Request for Bids as defined in the Manufacturing Agreement. Selected Compounds: Selected Compounds as defined in the Selected Compounds Contribution Agreement. Selected Compounds Contribution Agreement: That certain 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. 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. SKU: A stock-keeping unit of a Distribution Product, defined as to the unit of Bulk Chemical (in the case of Special Combination Products) and the specific Finished Dosage Form and packaging configuration. Special Combination Product: Special Combination Product as defined in the Manufacturing Agreement. 7 11 Specifications: Specifications as defined in the Manufacturing Agreement. Standard Mark-Up: Standard Mark-Up as defined in Section 4.06(a). Subsequent Producer: Subsequent Producer as defined in the Manufacturing Agreement. Supply Price: The price to be paid to KBI for Distribution Products as determined in accordance with Article IV hereof. Termination Materials: The Termination Materials as defined in Section 3.08. Territory: The United States of America, its territories and possessions. Tiered Rate Products Amount: Tiered Rate Products Amount as defined in the Master Restructuring Agreement. TR: TR as defined in the Recitals. Trademarks: Trademarks as defined in the KBI License. Transfer Price: Transfer Price as defined in the Manufacturing Agreement. Transition Date: The Transition Date as defined in the Manufacturing Agreement. Turbuhaler: Turbuhaler as defined in the Manufacturing Agreement. Unrecovered Capitalized Amount: Unrecovered Capitalized Amount as defined in the Manufacturing Agreement. Weighted Net Sales: Weighted Net Sales as defined in the Master Restructuring Agreement. 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). Capitalized terms used but not defined in this Agreement shall have the definitions set forth in the KBI License. ARTICLE II PRODUCTS; TERMS AND CONDITIONS OF SUPPLY Section 2.01 Obligation to Supply Distribution Products. (a) Prior to the Transition Date for a Manufacturing Agreement Product, the Partnership shall purchase from KBI, 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, KBI shall use its best 8 12 efforts to supply to the Partnership, all of the Partnership's requirements for such Manufacturing Agreement Product, including launch quantities and samples; provided, however, that KBI's obligation to supply such Manufacturing Agreement Product is subject to KB (or any of its Affiliates or subcontractors) having or having obtained a Complete Commercial Process for such Manufacturing Agreement Product; provided, further, that KBI shall not be obligated under this Agreement to supply any Clinical Quantities of any Manufacturing Agreement Product. (b) Commencing on the Transition Date for each Manufacturing Agreement Product, KBI shall use its best efforts to supply to the Partnership, and the Partnership shall purchase from KBI, all of the Partnership's requirements for such Manufacturing Agreement Product for as long as this Agreement shall be in effect with respect to such Manufacturing Agreement Product; provided, however, that KBI's obligation to supply such Manufacturing Agreement Product is subject to the Producer(s) of such Manufacturing Agreement Products under the Manufacturing Agreement having or having obtained a Complete Commercial Process for such Manufacturing Agreement Product; provided, further, that KBI shall not be obligated under this Agreement to supply any Clinical Quantities of any Manufacturing Agreement Product. (c) In the case of Enalapril/Felodipine Combination Product, KBI shall use its best efforts to supply to the Partnership, and the Partnership shall purchase from KBI, all of the Partnership's requirements for Enalapril/Felodipine Combination Product for as long as this Agreement shall be in effect with respect to such Enalapril/Felodipine Combination Product. (d) Notwithstanding anything to the contrary contained in this Agreement, on the Closing Date or, at the option of KBI, prior to the opening of business on the day following the Closing Date, the Partnership shall purchase from KBI, and KBI shall supply to the Partnership, all inventory of Distribution Products owned by KBI as of the Closing Date; provided, however, that payment by the Partnership to KBI for such Distribution Products at the Supply Price determined pursuant to Section 4.01 shall be made in accordance with the provisions set forth in Section 4.04(a). (e) Notwithstanding anything to the contrary contained herein, (i) KBI shall not be in breach of this Agreement for any failure to supply any Distribution Product or quantities of a Distribution Product to the Partnership if such failure to supply is due to an Event of Force Majeure which prevents a Producer of such Distribution Product from delivering any quantities of such Distribution Product to KBI (or to supply any Intermediate Form thereof to any Subsequent Producer); and (ii) KBI shall not be in breach of this Agreement for any failure to supply the Enalapril/Felodipine Combination Product if such failure to supply is due to KBI's receipt of prorated quantities of such Product from TR pursuant to Section 4.4 of the Enalapril/Felodipine Supply Agreement. Section 2.02 Product Form. The Distribution Products to be supplied by KBI under this Agreement shall be supplied in finished packaged pharmaceutical form and shall be in such trade and sample packages as ordered by the Partnership, except that the Bulk Chemical Form of a Licensed Compound may be ordered by the Partnership and supplied by KBI solely for purposes 9 13 of permitting the Partnership to have made Special Combination Products which include such Licensed Compound as one of their active ingredients. The P&G OTC Products shall be supplied to the Partnership in Finished Dosage Form. Section 2.03 Drug Product Specifications. (a) Twenty-one (21) months prior to the commencement of a Quarter in which the Partnership may first require KBI to supply a Distribution Product, the Partnership shall provide KBI with the information required by the Drug Product Specifications for such Distribution Product to the extent such information is available, and the Partnership shall provide the balance of such information as soon thereafter as such information is available to the Partnership or its Affiliates. Except as specifically set forth in the Manufacturing Agreement and the Enalapril/Felodipine Supply Agreement and in this Section 2.03, KBI shall not be entitled to any additional information with respect to such Distribution Product. (b) If, pursuant to the Manufacturing Agreement, the responsibility for performing a Manufacturing Stage with respect to a KB Pipeline Product is to be determined pursuant to the Bid Procedure, the Partnership shall use its best efforts to cooperate fully with KBI, KB and TR and each other Bidding Party, if any, towards the end that the Bidding Parties will have the information specified in Section 7.01 of the Manufacturing Agreement so as to permit the preparation and submission of bids for such Manufacturing Stage of such KB Pipeline Product. (c) After the responsibility for each Manufacturing Stage of a KB Pipeline Product has been determined pursuant to the Manufacturing Agreement, the Partnership shall use its best efforts to cooperate fully towards the end that each Producer under the Manufacturing Agreement 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 the Manufacturing 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. (d) The Partnership shall prepare and supply to KBI the information provided for in Part III of Schedule A to the Manufacturing Agreement for inclusion in any Request for Bids. ARTICLE III ORDERS AND SHIPMENTS; PRODUCTION PLANNING Section 3.01 Estimated Quantities. (a) At least 21 months prior to the commencement of each Quarter, the Partnership shall give KBI and each Producer of a Distribution Product notice of the Estimated Quantity of such Distribution Product which it expects to require for such Quarter. The Partnership 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 10 14 such Quarter pursuant to Section 3.02. On an annual basis, the Partnership shall provide to KBI (i) a five-year forecast setting forth annual sales, in the aggregate, of all Distribution Products, including Net Sales, Weighted Net Sales, Standard Mark-Up, and Standard Mark-Up excluding royalties paid pursuant to Section 3.7(c) of the Master Restructuring Agreement, (ii) a three-year forecast detailing annual sales with respect to each Distribution Product, including Net Sales, Weighted Net Sales, Standard Mark-Up, and Standard Mark-Up excluding royalties paid pursuant to Section 3.7(c) of the Master Restructuring Agreement and (iii) for each Distribution Product for which TR is responsible for any Manufacturing Stage, a five-year forecast detailing production requirements. (b) If KB determines not to perform the Bulk Chemical Manufacturing Stage or the Formulation Manufacturing Stage for a Manufacturing Agreement Product pursuant to the terms of Section 3.01(c)(ii) of the Manufacturing Agreement and such Manufacturing Stage or Stages will be performed by a Producer other than KB pursuant to Section 3.01(c) of the Manufacturing Agreement, the Partnership shall provide to KBI as soon as possible after notice of such determination by KB is provided to KBI, with a copy to the Partnership, its estimated requirements for such Manufacturing Agreement Product over the full life cycle of the Manufacturing Agreement Product, the projected Transition Date of such Manufacturing Agreement Product and the projected period of Market Exclusivity for such Manufacturing Agreement Product, in order to permit KBI to submit an estimate of the Minimum Capital Charge for such Manufacturing Agreement Product pursuant to Section 4.07. Section 3.02 Firm Orders. At least four months prior to the commencement of each Quarter, the Partnership shall submit to KBI, with a copy to each Producer that performs any Manufacturing Stage for a Distribution Product, a purchase order on such form as KBI and the Partnership shall agree from time to time for its requirements of such Distribution Product for such Quarter. Each such purchase order by the Partnership is referred to herein as a "Firm Order." 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 Distribution Product shall not be less than 75% nor more than 125% of the Estimated Quantity for such Distribution Product for such Quarter as last updated pursuant to Section 3.01. However, for each Distribution 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 Distribution Product occurs, KBI and the Partnership 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 the Partnership shall state, after consultation with KBI, a reasonable delivery schedule for each Distribution Product to be delivered in that Quarter. KBI shall use best efforts to meet such delivery schedule. Section 3.03 Manufacturing and Supply Committee; Production Planning. (a) The Partnership and KBI hereby agree, and KBI shall cause TR and KB to agree that the Partnership shall be entitled to participate in the Manufacturing and Supply Committee established pursuant to Section 4.03 of the Manufacturing Agreement. The Partnership agrees to participate in such committee in accordance with the terms of said Section 4.03 of the Manufacturing Agreement. 11 15 (b) KBI shall (i) provide to the Partnership 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 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. Section 3.04 Title and Risk of Loss. Legal title and risk of loss with respect to Distribution Products furnished to the Partnership by KBI pursuant to a Firm Order shall pass to the Partnership upon delivery which shall be F.O.B. the place of destination designated by the Partnership pursuant to Section 3.05. Section 3.05 Shipment. KBI shall cause to be shipped each order of a Distribution Product in such manner and to such place or places within the Territory as the Partnership specifies reasonably in advance of the shipment date. Section 3.06 Modification of Specifications and C & M Data; Consultations Concerning NDAs and Regulatory Matters. (a) The Partnership and KBI hereby agree, and KBI shall cause each Producer to agree, that: (i) The Specifications and C & M Data for any Distribution 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 any Producer or KB, KBI shall cause such Producer or KB not to unreasonably withhold such approval. (ii) In the event of any change in the Specifications or C & M Data for any Distribution Product, the Partnership shall (x) amend the NDA for such Distribution 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 to the Manufacturing Agreement other than the Producer or is required by the FDA or by law, reimburse KBI or the Producer for costs actually incurred by KBI or the Producer (or any of their 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 the cost incurred by KBI, except that finished goods inventory will be valued at Manufacturer's Cost plus KBI Cost, unless, in the case of Distribution Products (or Intermediate Forms thereof) for which the Transfer Price is determined in accordance with Exhibit III or Exhibit IVA and Exhibit IVB of the Manufacturing Agreement, such costs are included in the computation of the Transfer Price pursuant to such exhibit; 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 12 16 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 Distribution Product to KBI or sells and delivers Intermediate Forms to another Producer. (b) The Partnership shall consult (i) with KB from time to time, and (ii) with each of the Producers of a Distribution 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. KBI shall cause each Producer conducting meetings with the FDA with respect to a Distribution Product, except for meetings relating solely to INDs and NDAs filed by KB pursuant to Section 3.1(a) of the KBI License, to 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 Distribution Product, to be present as observers at all significant meetings with FDA personnel during which the Specifications or C & M Data concerning Distribution 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. The Partnership shall use its best efforts to arrange for representatives of the Producer responsible for the Packaging Manufacturing Stage for a Distribution 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 Distribution Product. Notwithstanding anything to the contrary contained herein, the Partnership shall not be entitled to information or to participate in discussions with the FDA relating to Enalapril/Felodipine Combination Products, except to the extent that KBI (or its assignee thereunder) is so entitled to participate in such discussions pursuant to the terms of the Enalapril/Felodipine Supply Agreement. The rights of KBI and TR to attend such meetings with the FDA (other than with regard to the Enalapril/Felodipine Combination Product) are solely as set forth in this Section 3.06(b). Section 3.07 Manufacturing Sites. KBI shall require each Producer to in good faith apply such manufacturing, financial and other criteria in the selection of a manufacturing Site for each Distribution Product as are applied by such Producer in the selection of manufacturing Sites for its and their own products; provided, however, that this Section shall not require KBI (or any of its Affiliates) to permit KB or any of its Affiliates or subcontractors, or KB USA, to perform in the Territory any Manufacturing Stage except as specifically set forth in the Manufacturing Agreement. Section 3.08 Termination Materials. (a) If this Agreement shall terminate for any reason in its entirety or in respect of any Distribution Product or in the event the Partnership should otherwise decide not to launch or to discontinue the sale of any Distribution Product, KBI shall, as soon as practicable after the date of termination or after notice of the Partnership's decision not to launch or to discontinue the sale of such Product, sell and deliver to the 13 17 Partnership or its designee or to such location as the Partnership may reasonably designate, and the Partnership or such designee shall purchase and accept from KBI, such raw materials, goods-in-process, packaging materials and supplies, reworkable finished goods and finished Distribution Products, which are specifically intended for use in the manufacture of the terminated Distribution Product or Distribution Products or for use in meeting the Partnership's requirements of such terminated Distribution Product or Distribution Products, are in any Producer's 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) and which are purchased by KBI from such Producers pursuant to Section 4.11 of the Manufacturing Agreement (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; provided, further, however, that KBI shall not be obligated to sell to the Partnership, and the Partnership shall not be obligated to purchase, any Termination Materials relating to any Non-Exclusive Second Look Product or Exclusive Second Look Product. Alternatively, the Partnership may instruct KBI to dispose of Termination Materials in an appropriate manner, and the Partnership shall reimburse KBI for the costs of such disposal. 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 KBI, which shall include amounts paid by KBI pursuant to Section 4.11 of the Manufacturing Agreement and Article X of the Enalapril/Felodipine Supply Agreement, except that finished goods inventory at the time of such termination will be valued at Manufacturer's Cost otherwise applicable herein, shall be made by the Partnership or its designee in accordance with Section 4.05 concurrently with the acceptance of such Termination Materials by the Partnership. (b) Reimbursement of Minimum Capital Charge Payments. If this Agreement shall terminate for any reason in its entirety or in respect of any Distribution Product, or in the event the Partnership should otherwise decide not to launch or to discontinue the sale of any Distribution Product, the Partnership shall promptly notify KBI thereof and shall reimburse KBI for any Unrecovered Capitalized Amount paid to a Producer of such Distribution Product pursuant to 5.03(c) of the Manufacturing Agreement. ARTICLE IV SUPPLY PRICE, OTHER CHARGES AND PAYMENT Section 4.01 Supply Price. The Supply Price for each Distribution Product shall be computed and invoiced as set forth in Exhibit I hereto. The Supply Price for SKUs labeled as samples shall be equal to Manufacturer's Cost computed according to Exhibit I. Section 4.02 Exclusion of Inter-Affiliate Mark-Ups and Profits. The Supply Price computed in accordance with Exhibit I shall at all times exclude inter-Affiliate mark-ups and inter-Affiliate profits. The preceding sentence shall not preclude the inclusion of Cost of Capital 14 18 (as defined in Exhibit III of the Manufacturing Agreement), Period Cost (as defined in Exhibit III of the Manufacturing Agreement), Costs and Expenses of Delivery and the Sub-Contracting Premium (as defined in Exhibit III of the Manufacturing Agreement) in the Transfer Price for Distribution Products sold by TR to KBI and taken into account in determining Manufacturer's Cost. Section 4.03 Costs and Expenses of Delivery. KBI will be responsible for all shipping and delivery charges, insurance, taxes (other than income taxes), customs and other duties and other similar charges and expenses ("Costs and Expenses of Delivery") for the Distribution Products to the extent not included in Manufacturer's Cost. Section 4.04 Invoices, Time of Payment and Year-End Adjustments. (a) Payment by the Partnership to KBI for Distribution Products shall be made by the Partnership in accordance with Section 4.05 within 90 days after the last day of the Quarter in which delivery of such Distribution Products has been made to the Partnership; provided, however, that payment by the Partnership for the Distribution Products sold pursuant to Section 2.01(d) shall be made on September 30, 1998. The amount of such payment shall be equal to the Supply Price as reflected in the invoices for such Distribution Products delivered by KBI to the Partnership during such Quarter. Such invoices shall be based on the estimates of the appropriate Supply Price provided pursuant to Section 4.06. Such invoices shall not include amounts to be borne by the Partnership pursuant to Section 3.08 or any other provision hereof. (b) All amounts to be borne by the Partnership pursuant to Section 3.08 or 4.07(b) or any other provision hereof other than Section 4.01 to and including Section 4.04(a) shall be submitted directly to the Partnership in a separate invoice by KBI and the Partnership shall pay such amounts directly to KBI in accordance with Section 4.05 within 30 days after the date of KBI's invoice therefor. (c) (i) Within 90 days after the end of each Year, the Manufacturer's Cost and the KBI Cost components of the Supply Price that were estimated pursuant to Section 4.06(b) shall be adjusted to reflect actual amounts based upon KBI's determination of actual KBI Costs and actual Transfer Prices received from each Producer pursuant to Section 5.04(e) of the Manufacturing Agreement. KBI or the Partnership, as the case may be, shall within 45 days after such adjustment pay directly to the other in accordance with Section 4.05 the amount required by such adjustments. (ii) Within 45 days after the end of each Quarter in which Distribution Products are sold by the Partnership, the Partnership shall furnish to KBI a statement of the actual Net Sales and Weighted Net Sales of Distribution Products by SKU for such Quarter and the number of SKUs of such Distribution Product sold by the Partnership during such Quarter. With respect to the fourth Quarter, the Partnership shall furnish, in addition to the regular quarterly information described above, a statement of (i) the actual Net Sales and Weighted Net Sales of Distribution Products by SKU for the full Year, (ii) the number of units of SKUs of such Distribution Product sold by the Partnership for the full Year, and (iii) the actual Effective Rate in Respect of Tiered Rate Products applicable for the entire Year and the full computation 15 19 thereof, including all necessary details with respect to all Covered Compounds. In order to determine actual Net Sales by SKU, the Partnership shall allocate amounts required to adjust gross sales (at catalog selling price) to Net Sales of a particular Distribution Product in proportion to gross sales of each such SKU of such Distribution Product to total Net Sales of the particular Distribution Product. (iii) KBI shall adjust the Supply Price with respect to Agreed Mark-Up as follows: (x) The Agreed Mark-Up shall be adjusted for Distribution Products sold by the Partnership during such Quarter in accordance with the statement received for such Quarter and the calculation of such adjustment shall be equal to the difference between (A) the actual Agreed Mark-Up for Distribution Products sold by the Partnership in such Quarter based on the actual Weighted Net Sales and units sold for each SKU in such Quarter, and (B) the Standard Mark-Up contained in the Supply Price previously invoiced by KBI to the Partnership for the Distribution Products sold by the Partnership in such Quarter, calculated on a first-in, first-out (FIFO) basis. The calculation of Agreed Mark-Up based on the actual Weighted Net Sales shall be determined using the principles set forth in Section 3.7 of the Master Restructuring Agreement, and where applicable for the first, second and third Quarters using an Estimated Effective Rate; and (y) The foregoing adjustments shall be further adjusted to reflect a credit to the Partnership in the amount of any Agreed Mark-Up paid for Distribution Products that are recalled, withdrawn, not saleable due to product expiration, and trade SKUs used as samples (excluding in all cases any Distribution Product returned to the Partnership, the sale of which was previously included in Net Sales). An example of such calculations is attached as Exhibit II. (iv) Based on the information received for the full Year, KBI shall calculate the Agreed Mark-Up for all Distribution Products sold during the Year using the actual Effective Rate in Respect of Tiered Rate Products for the Year. The full Year adjustment shall be equal to the difference between such Agreed Mark-Up and the Standard Mark-Up for all Distribution Products sold during the Year, revised to take into account adjustments calculated pursuant to Section 4.04(c)(iii)(x) for the first, second and third Quarters. (v) KBI or the Partnership, as the case may be, shall within 90 days after the end of such Quarter or Year pay directly to the other in accordance with Section 4.05 the amount required by all such adjustments. (d) In the event any payment required to be made pursuant to this Agreement is paid after the date due herein, KBI or the Partnership, 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. 16 20 Section 4.05 Manner of Payment. All payments required to be made pursuant to this Agreement to KBI shall be made by wire transfer to a bank account designated by KBI at least four (4) business days prior to the date of payment. All payments required to be made pursuant to this Agreement to the Partnership shall be made by wire transfer to a bank account designated by the Partnership 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 4.06 Estimates. (a) By November 15th preceding any Year in which the Partnership expects KBI to supply the Partnership with any Distribution Products, the Partnership shall provide KBI with its good faith estimates of (i) the Net Sales, (ii) the Weighted Net Sales, (iii) the Agreed Mark-Up, and (iv) the unit volume of each SKU of each Distribution Product for such year. The Partnership shall also provide a good faith estimate of the Effective Rate in Respect of Tiered Rate Products for such year based on an estimate of both the Tiered Rate Products Amount and the Combined Weighted Net Sales of Tiered Rate Products ("Estimated Effective Rate"). In addition, the Partnership shall provide KBI with the appropriate percentage point increase to be added to the Agreed Mark-Up per SKU related to any royalties or other payments to KB or any other Person in respect of any Licensed Compounds pursuant to Section 3.7(c) of the Master Restructuring Agreement. All such estimates shall be reasonable and shall be based on the annual budget/profit plan that has been approved by the General Partner of the Partnership. Such Agreed Mark-Up, until adjusted pursuant to subparagraph (d), shall be the "Standard Mark-Up." By October 15th preceding such Year, the Partnership shall provide KBI with preliminary estimates of the information required to be provided pursuant to the first three sentences of this Section 4.06. (b) By November 30th preceding any Year in which KBI expects to supply the Partnership with any Distribution Products, KBI shall advise the Partnership of its estimates of the Supply Price, including Manufacturer's Cost, KBI Cost, and Standard Mark-Up. (c) Within 30 days after the end of any Quarter in which KBI has supplied the Partnership with any Distribution Products, KBI shall provide the Partnership with an estimate of the cumulative adjustment to the Supply Price (with respect to the Manufacturer's Cost component of the Supply Price) for each such Distribution Product for the Year that will be required pursuant to Section 4.04(c)(i). (d) No later than 15 days prior to the end of the first, second and third Quarters, the Partnership shall advise KBI if there is a material change (i.e., 10% or more differential) between the estimated Agreed Mark-Up and the Standard Mark-Up for the Year by SKU. If there is such a change, the Standard Mark-Up and the Supply Price shall be changed as of the start of the following Quarter. (e) In case of the sale by KBI of an SKU of a Distribution Product for which there has been no Supply Price determined pursuant to subparagraphs (a) and (b), KBI and the Partnership shall agree on estimated Manufacturer's Cost, KBI Cost and Standard Mark-Up, 17 21 adding up to a total estimated Supply Price to be used until adjusted pursuant to subparagraph (d). Section 4.07 Minimum Capital Charge. (a) Pursuant to and in accordance with Section 3.01(c)(vi) of the Manufacturing Agreement, KBI may submit to the Partnership a Minimum Capital Charge Estimate with respect to the Bulk Chemical Manufacturing Stage (as defined in the Manufacturing Agreement) or the Formulation Manufacturing Stage (as defined in the Manufacturing Agreement) for a Distribution Product. If KBI submits such an estimate, it shall be submitted to the Partnership within six months after the last of the following to occur: (i) KB has provided all relevant available information regarding its manufacturing process with respect to the relevant Manufacturing Stage or Stages pursuant to Section 7.05 of the Manufacturing Agreement; and (ii) the Partnership has notified KBI pursuant to Section 3.01(b) of its estimated requirements for a Distribution Product over the full life cycle of such Distribution Product, the launch date for such Distribution Product, and the Market Exclusivity for such Distribution Product. The Minimum Capital Charge shall be computed as set forth in the Manufacturing Agreement. (b) The Partnership shall reimburse KBI for all Minimum Capital Charge payments made by KBI pursuant to Section 5.03(b) of the Manufacturing Agreement. (c) Pursuant to the terms of Section 3.08(b), the Partnership also shall reimburse KBI for any Unrecovered Capitalized Amount paid to a Producer. (d) The Partnership shall reimburse KBI for all payments that KBI is required to make to TR pursuant to Section 10.3 of the Enalapril/Felodipine Supply Agreement upon termination of such agreement; provided such termination has not been made in breach of Section 3.23 of the Master Restructuring Agreement. Section 4.08. Other Costs. The Partnership shall reimburse KBI for any costs paid to a Producer pursuant to the terms of Section 5.07 of the Manufacturing Agreement. Section 4.09 Approval of Alternate Producer Pricing. KBI shall request the Partnership's approval of the pricing proposed by any Alternate Producer pursuant to and in accordance with the terms of the Manufacturing Agreement. Depending on the Partnership's approval or disapproval thereof, the relevant consequences set forth in the Manufacturing Agreement shall apply. ARTICLE V [OMITTED] 18 22 ARTICLE VI WARRANTIES; QUALITY CONTROL; QUALITY ASSURANCE; REGULATORY FUNCTION; CLAIMS FOR DEFECTIVE PRODUCTS; RECALLS AND MARKET WITHDRAWALS Section 6.01 Warranties; Sample Retention. (a) (i) KBI warrants to the Partnership that all Distribution Products supplied by an Alternate Producer, its Affiliates or its subcontractors and all facilities and processes used in the manufacture of such Distribution Products, 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 Alternate Producer, its Affiliates and its subcontractors shall employ GMP in the manufacture of all Distribution Products. (ii) KBI agrees to extend all warranties set forth in Section 9.01(a) of the Manufacturing Agreement, and any other possible warranties extended by KB and TR, and for such purposes agrees to take all actions necessary or advisable, including but not limited to causing such Producers to execute all documents, to enable the Partnership to effectively invoke and enjoy such warranties against such Producers to the effect that the Partnership shall be in the same position as KBI in respect thereof. In case KBI for any reason should fail to perform the obligations set forth in the preceding sentence, KBI shall be fully responsible against the Partnership for breach of such warranties. (b) In addition to the obligations set forth elsewhere in this Article, KBI shall cause the Producer(s) of each Distribution Product to 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 such Distribution Product specifying the dates of manufacture and Packaging and maintain production records and quality control reports regarding such Distribution Product. Section 6.02 Quality Control. (a) Except as otherwise provided in this Agreement, KBI shall cause each of the Producer(s) of a Distribution Product to be responsible for quality control for each Manufacturing Stage performed by such Producer or its Affiliates or subcontractors for such Distribution Product. (b) While the Partnership shall have final quality control release responsibility for all Distribution Products, KBI shall cause each Producer to perform quality control release testing in support of such quality control release for each Manufacturing Stage performed by such Producer. Section 6.03 Inspections and Audits. KBI shall cause each Producer to permit one or more qualified technical quality specialists of the Partnership to conduct inspections and audits at all reasonable times of the facility where the Distribution 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 Distribution Products, including, without limitation, the review of all documents specified in Exhibit V of the Manufacturing Agreement, subject to such Producer's 19 23 (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; provided, however, that in the case of Enalapril/Felodipine Combination Product, the Partnership shall have no inspection rights or rights to information under this Agreement to any greater extent than KBI has pursuant to the Enalapril/Felodipine Supply Agreement. Section 6.04 Observations and Conclusions. Observations and conclusions of the Partnership's audits or inspections of a Producer (or its Affiliates or subcontractors) will be issued to and promptly discussed with the Producer (and KBI hereby agrees to cause such Producer to participate in such discussions) and reasonable corrective action, if needed (as determined by agreement between such Producer and the Partnership), shall be implemented by the Producer at its own expense (and KBI hereby agrees to cause such Producer to implement such action and pay such amounts). Section 6.05 The Partnership's Regulatory Compliance Responsibility. Except as otherwise provided herein, the Partnership will have primary regulatory compliance responsibility for all Distribution Products, and shall coordinate and interface directly with each Producer as to their specific functional responsibilities for such Distribution Products. For purposes of this Article VI, "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 Producer performing such functions. Section 6.06 Regulatory Compliance. KBI shall cause each Producer to 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, KBI shall cause each Producer to 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 regulatory compliance functions for Turbuhaler systems incorporating Distribution Products; provided, further, however, that the Partnership 20 24 shall have no rights or obligations regarding Enalapril/Felodipine Combination Product relating to regulatory compliance to any greater extent than KBI has pursuant to the Enalapril/Felodipine Supply Agreement. Section 6.07 Certificates of Analysis. Each shipment of Distribution Product furnished to the Partnership shall be accompanied by a certificate of analysis related to each batch of the Distribution Product included in such shipment certifying that the Distribution Product conforms to Specifications and the C & M Data and was manufactured in accordance with GMP. A copy of such certificate of analysis shall be provided to KBI together with the invoice relating to such shipment. Section 6.08 Notice of Claims; Replacement Quantities. Unless the Partnership gives notice to KBI to the contrary within 60 days of delivery by KBI to the Partnership of a quantity of such Distribution Product, such quantity of Distribution Product shall be deemed to be satisfactory to the Partnership, subject thereafter only to claims based on or arising as of the failure of such Distribution Product to be manufactured in accordance with Section 6.01; provided, however, the foregoing shall not limit anything contained in Article VII. If the Partnership notifies KBI within such 60 days that any quantities of a Distribution Product delivered by KBI do not conform to the Specifications or C & M Data, or were not manufactured in accordance with GMP, KBI shall have 30 days to reexamine the same to determine whether it agrees with the Partnership. If it agrees, KBI shall deliver as promptly as practicable new quantities of the Distribution Product for the replacement of the defective quantities at no additional cost to the Partnership, and the Partnership within 60 days thereafter shall notify KBI of its acceptance or rejection of such replacement quantities. If KBI disagrees that the original quantities of such Distribution Product are nonconforming, or if the Partnership rejects KBI's replacement Distribution Product as non-conforming, the matter will be referred to an independent laboratory acceptable to KBI and the Partnership. Testing by the laboratory will be in accordance with NDA procedures. The Partnership and KBI shall accept the laboratory's opinion and its charges shall be borne equally by the Partnership and KBI. If the laboratory's opinion is that such Distribution Product is nonconforming, KBI shall deliver as promptly as practicable new quantities of the Distribution Product. Section 6.09 Recalls and Market Withdrawals. The Partnership may recall or effect a market withdrawal of a Distribution Product at any time, after consultation with KB and each Producer with respect to such Distribution Product. In addition, KB, after consultation with the Partnership, may, at any time, demand a recall or market withdrawal of a Distribution 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 Distribution 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 Distribution 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 21 25 Partnership and, if applicable, the party to the Manufacturing Agreement 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 Distribution 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 KBI will cause such Producer to 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 KBI will cause KB to bear the costs relating to the recall or market withdrawal. The Partnership shall have no rights or obligations regarding the recall or market withdrawal of Enalapril/Felodipine Combination Product to any greater extent than KBI has pursuant to the Enalapril/ Felodipine Supply Agreement. The rights of the Parties to recall or effect a market withdrawal of a Distribution Product shall be limited to those set forth in this Section 6.09, the KBI Supply Agreement, the KBI License and in the Enalapril/Felodipine Supply Agreement. ARTICLE VII CLAIMS AND DISCLAIMERS Section 7.01 Indemnification by the Partnership. (a) The Partnership shall indemnify and hold harmless KBI, and each of its Affiliates, and each of its, and its Affiliates', respective officers, directors, employees and agents (each, a "Partnership 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 Partnership Indemnitee by any Non- Affiliate of the Parties based on or arising out of the manufacture, use or sale of any Distribution Product sold hereunder, including, without limitation, any investigation by any governmental agency with respect to the quality of such Distribution Product, or any claim for death or personal injury or property damage asserted by any user of such Distribution Product; provided, however, that the Partnership shall not be obligated to indemnify and hold harmless KBI or any of its Affiliates or any officer, director, employee or agent of KBI 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 KBI is obligated to indemnify and hold harmless the Partnership pursuant to Section 7.02. (b) The Partnership shall indemnify and hold harmless KBI and its officers, directors, employees and agents (each, a "Partnership Contract Indemnitee") from and against any and all Losses in connection with any and all Claims that may be brought or instituted against any Partnership Contract Indemnitee by KB or any Non- Affiliate of KBI based upon or arising out of any breach of or failure to perform any of the provisions of this Agreement by the Partnership or any of its Affiliates or subcontractors. Section 7.02 Indemnification by KBI. (a) KBI shall indemnify and hold harmless the Partnership, each of its Affiliates, and each of its, and its Affiliates', respective partners, officers, 22 26 directors, employees and agents (each, a "KBI Indemnitee") from and against any and all Losses in connection with any and all Claims that may be brought or instituted against any KBI Indemnitee by any Non-Affiliate of the Parties based on or arising out of the failure of KBI or any of its Affiliates or subcontractors to manufacture any Distribution Product hereunder in accordance with the Specifications, C & M Data or GMP, except to the extent that such Claims were caused by the failure of the Partnership to perform its quality assurance or regulatory compliance responsibilities pursuant to Sections 6.02(b) and 6.05 with reasonable diligence and care. (b) KBI shall indemnify and hold harmless the Partnership and its 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 TR or any Non-Affiliate of the Partnership based upon or arising out of any breach of or failure to perform any of the provisions of this Agreement by KBI or any of its Affiliates or subcontractors. Section 7.03 Indemnification Procedures. As promptly as practicable after any indemnitee referred to in Section 7.01 or 7.02 obtains knowledge of any action, suit, claim or demand as to which it will or may be entitled to indemnity under Section 7.01 or 7.02, such indemnitee shall give notice to the indemnifying Party. The indemnifying Party 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 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 7.04 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) OR (y) ANY DISTRIBUTION PRODUCTS 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 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 23 27 RESPECT TO ANY DISTRIBUTION 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 KBI AND THE PARTNERSHIP AND BY EACH OF THEM ON BEHALF OF THEIR RESPECTIVE AFFILIATES; PROVIDED, HOWEVER, THAT NOTHING CONTAINED IN THIS SECTION 7.04 SHALL BE DEEMED A WAIVER OF, OR BE DEEMED TO LIMIT, THE OBLIGATIONS OF ANY PARTY HEREUNDER. Section 7.05 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 DISTRIBUTION PRODUCT SOLD HEREUNDER, 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 7.05 SHALL ACT TO LIMIT THE INDEMNIFICATION PROVIDED IN SECTION 7.01 OR SECTION 7.02. ARTICLE VIII TERM AND TERMINATION Section 8.01 Termination of Agreement. (a) In case the Partnership shall no longer have the right pursuant to the Distribution Agreement to use and sell Distribution Products, this Agreement will be automatically terminated in its entirety. (b) In case KBI shall no longer have any right pursuant to the KBI Sublicense to make and have made any Distribution Products for the purpose of supplying Distribution Products to the Partnership for use and sale by the Partnership in the Territory, this Agreement will be automatically terminated in its entirety. (c) 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 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. (d) 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 24 28 KBI-E Asset Option Agreement or the KBI Shares Option Agreement) with respect to any Distribution Product. Section 8.02 Termination as to Particular Products; Effect of Assignment. (a) In case the Partnership shall no longer have the right pursuant to the Distribution Agreement to use and sell any particular Distribution Product, this Agreement shall terminate with respect to such Distribution Product. In the event the Manufacturing Agreement terminates with respect to any particular Manufacturing Agreement Product pursuant to Section 11.02 of the Manufacturing Agreement, this Agreement shall terminate with respect to such Manufacturing Agreement Product as and when the Manufacturing Agreement terminates with respect to such Manufacturing Agreement Product. In the event the Manufacturing Agreement is assigned pursuant to Section 11.02 thereof, this Agreement shall be assigned by KBI to the same Person, in the same manner, and for the same Manufacturing Agreement Products. In the event the Enalapril/Felodipine Supply Agreement terminates pursuant to Article X of the Enalapril/Felodipine Supply Agreement, this Agreement shall terminate with respect to such Enalapril/Felodipine Combination Product as and when the Enalapril/Felodipine Supply Agreement terminates. Section 8.03 Effect of Termination. Upon termination of this Agreement in whole or in part, KBI shall promptly return, and cause each of the Producers to return, to the extent legal and practicable, to the Partnership at KBI's sole expense all originals and copies of confidential information covered by Article XI received by KBI (or any of its Affiliates or subcontractors) regarding the Distribution Product or Distribution 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 3.08 and 4.07 and Articles VI, VII, VIII, X and XI and any obligations which have accrued prior to such termination shall survive such termination. Section 8.04 No Termination for Breach. In accordance with Section 11.5 of the Master Restructuring Agreement, neither Party can terminate this Agreement due to a breach hereof by the other Party hereto. ARTICLE IX SUBCONTRACTING Section 9.01 Right to Subcontract. KBI has subcontracted with KB, KB USA and TR the manufacture of the Manufacturing Agreement Products pursuant to the terms of the Manufacturing Agreement. No such subcontract shall release KBI from any of its obligations under this Agreement except to the extent they are performed by such subcontractor; provided, further, that KBI will not permit an Alternate Producer to subcontract any manufacturing without the prior written consent of KBI and the Partnership. 25 29 ARTICLE X RECORDS Section 10.01 KBI Records. KBI shall keep, and shall cause its Affiliates and its subcontractors to keep, true, accurate, and complete records of manufacturing costs, expenses, and capital in sufficient detail to permit the determination of the Supply Price for each Distribution Product manufactured by it or its Affiliates or subcontractors. At the request and expense of the Partnership, the Partnership 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 KBI and its Affiliates and its subcontractors as may be necessary in such accountant's judgment to permit it to attest that the segments of the Supply Price charged to the Partnership conform to the terms of this Agreement. Such rights of access, audit and inspection for any Year shall terminate two years after the Partnership's receipt of KBI's final invoice with respect to such Year. The Partnership shall enter into a written engagement with such accountants, a copy of which shall be provided to KBI, providing that (i) the scope of the engagement with respect to such audit and examination is limited to the rights provided in this Section 10.01 and, if the audit is performed in connection with another audit permitted by any other agreement between an Affiliate of the Partnership 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 the Partnership (or any of its Affiliates) any information other than information relating to the accuracy of such determination and the conformance of KBI's computation of the Supply Price with the terms of this Agreement and in no event shall quantities or prices or rebates to individual customers be disclosed to the Partnership (or any of its Affiliates) or any other Person. Notwithstanding the foregoing, the Partnership 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 KBI during the last Quarter of the prior Year. Section 10.02 Partnership Records. The Partnership shall keep, and shall cause its Affiliates and subdistributors to keep, true, accurate and complete records of total quantities of Distribution Products sold for which the Supply Price is payable hereunder and the Net Sales thereof and details of Distribution Products recalled, withdrawn, returned, not saleable due to product expiration, and trade SKUs used as samples, in sufficient detail to permit determination of the Agreed Mark-Up component of the Supply Price payable hereunder. 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 the Partnership and its Affiliates and subdistributors as may be necessary in such accountant's judgment to permit it to attest that the Agreed Mark-Up component of the 26 30 Supply Price paid or payable hereunder conform to the terms of this Agreement. Such rights of access, audit and inspection for any Year shall terminate two years after the close of each Year in respect of the Supply Price paid or payable for such Year. KBI shall enter into a written engagement with such accountants, a copy of which shall be provided to the Partnership, providing that (i) the scope of the engagement with respect to such audit and examination is limited to the rights provided in this Section 10.02 and, if the audit is performed in connection with another audit permitted by any other agreement between an Affiliate of KBI and the Partnership, 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 accuracy of such determination and the conformance of the Partnership's computation of the Agreed Mark-Up component of Supply 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 Partnership during the last Quarter of the prior Year. ARTICLE XI CONFIDENTIALITY Section 11.01 Confidentiality. Subject to the provisions of Section 9.2 of the KBI License, each 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 (i) KBI may disclose such information (other than any privileged or work product-protected information that may have been shared with the other Party pursuant to any common and 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 Distribution 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 and (ii) the Partnership 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 use and sell Distribution Products pursuant to the terms and conditions of the Distribution Agreement; provided, further, however, to the extent permitted by applicable law, such disclosure shall be made on a confidential and restricted basis. 27 31 ARTICLE XII MISCELLANEOUS PROVISIONS Section 12.01 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 a Party in requiring the due and punctual fulfillment by the other 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 12.02 Best Efforts; Performance. The obligation of a 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 Distribution 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 12.03 Headings. The Article and Section headings in this Agreement are solely for the convenience and reference of the Parties and shall not affect the meaning or interpretation hereof. References in the text hereof to Articles, Sections and paragraphs mean the Articles, Sections and paragraphs in this Agreement, respectively, unless otherwise specifically stated. Section 12.04 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, neither Party shall assign this Agreement nor any of its rights or obligations hereunder without the prior consent of the other Party, provided that any 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 12.05 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 the Party at its address set forth below: 28 32 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 If to the Partnership, to: Astra Pharmaceuticals, L.P. 725 Chesterbrook Avenue Wayne, Pa 19087-5677 U.S.A. Attention: General Counsel Telecopier: (610) 889-1280 Either Party by written notice to the other Party in accordance with the above may change the address to which such notices, requests or other communications to it shall be directed. Section 12.06 Force Majeure. Neither Party shall be responsible or liable to the 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 a Party from obtaining the funds sufficient to make any payment required to be made by it pursuant to this Agreement, but shall include any such event or circumstance which prevents a Party from transferring such funds to the 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 Party 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 a Party on terms unsatisfactory to it. Section 12.07 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 29 33 (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 12.08 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 choice of law rules other than Section 5-1401 of the New York General Obligations Law. Section 12.09 Arbitration. Subject to Section 9.4 of the Master Restructuring Agreement, any dispute, controversy or claim between KBI and the Partnership 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 12.10 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 same instrument. 30 34 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the day and year first above written. ASTRA MERCK INC. By: /s/ Peter E. Nugent Name: Peter E. Nugent Title: President ASTRA PHARMACEUTICALS, L.P. By: KB USA, L.P., its General Partner By: Astra AB, its General Partner (publ) By: /s / Goran Lerenius Name: Goran Lerenius Title: Authorized Signatory 35 EXHIBIT I SUPPLY PRICE The Supply Price for Distribution Products supplied by KBI will be the sum of the following three segments: 1. Manufacturer's Cost 2. KBI Cost 3. Agreed Mark-Up The estimated Supply Price by SKU, as provided in Section 4.06 (a) and (b) or 4.06 (e), will be used for invoicing Distribution Products shipped to the Partnership. The Supply Price will be changed during the Year as provided in Section 4.06(d). The cumulative Supply Price will be adjusted quarterly and annually as provided in Section 4.04 (c) (i) and (ii). 1. Manufacturer's Cost shall be the sum of the cumulative Transfer Price for each Distribution Product, determined in accordance with Sections 5.01, 5.02 and 5.03 of the Manufacturing Agreement. 2. KBI Cost will include the Cost of Capital on the Average Inventory (as defined in Exhibit III of the Manufacturing Agreement, except that as used in such definition, "KBI-Related Production" shall consist of the toll packaging of Distribution Products for supply to the Partnership), Period Costs relating to auditing of toll Packagers (as defined in Exhibit III of the Manufacturing Agreement, except that as used in such definition, "KBI-Related Production" shall consist of the toll packaging of Distribution Products for supply to the Partnership), and Costs and Expenses of Delivery, each as incurred by KBI due to KBI's purchase of the Finished Dosage Form of any Distribution Product, during the Packaging Manufacturing Stage and through shipment of the finished packaged Distribution Product to the Partnership. 3. Agreed Mark-Up will be determined as follows: (i) For Distribution Products (other than Omeprazole Products and Perprazole Products and Distribution Products for which the contingent amount component of the Supply Price is determined pursuant to Section 3.6A(d)(iv)(B) of the Master Restructuring Agreement) supplied pursuant to this Agreement, the Agreed Mark-Up for each SKU shall be equal to the KBI Products Contingent Amount in respect of Net Sales of such products, adjusted for royalties as provided in Section 3.7(c) of the Master Restructuring Agreement; (ii) For Distribution Products for which the contingent amount component of the Supply Price is determined pursuant to Section 3.6A(d)(iv)(B) of the Master Restructuring Agreement, the Agreed Mark-Up for each SKU shall be equal to the I-1 36 contingent amount component of the Supply Price determined pursuant to Section 3.6A(d)(iv)(B) in respect of Net Sales of such products for the applicable period shall be as specified therein, adjusted for royalties as provided in Section 3.7(c) of the Master Restructuring Agreement; (iii) For Omeprazole Products supplied to the Partnership by KBI pursuant to this Agreement, the Agreed Mark-Up for each SKU shall be equal to the Omeprazole Products Contingent Amount in respect of Net Sales of such products, adjusted for royalties as provided in Section 3.7(c) of the Master Restructuring Agreement; and (iv) For Perprazole Products supplied to the Partnership by KBI pursuant to this Agreement, the Agreed Mark-Up for each SKU shall be equal to the Perprazole Products Contingent Amount in respect of Net Sales of such products, adjusted for royalties as provided in Section 3.7(c) of the Master Restructuring Agreement. I-2 37 EXHIBIT II SUPPLY PRICE MECHANICS EXAMPLE [ Confidential portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission with a request for confidential treatment pursuant to Rule 24b-2. ] II-1 EX-10.5 7 SECOND AMENDED & RESTATED MANUFACTURING AGREEMENT 1 Exhibit 99.8 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. 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
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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
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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 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 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- 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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. 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 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 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 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 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 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 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 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 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 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 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 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 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 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. 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 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 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 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 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 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 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 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 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 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 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 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. 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 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 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 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 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 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 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 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) 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) 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 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 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 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 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 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 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 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) 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 98 - - Reserve Samples Annual Inspection Reports. - - Regulatory Authority GMP Inspection Reports (e.g., FDA-483's, Warning Letters, Swedish authorities, etc.). V-2 EX-10.6 8 LIMITED PARTNERSHIP AGREEMENT 1 Exhibit 99.2 AS EXECUTED - CONFORMED ================================================================================ LIMITED PARTNERSHIP AGREEMENT Dated as of July 1, 1998 between KB USA, L.P. and KBI SUB INC. ================================================================================ 2 TABLE OF CONTENTS
PAGE ARTICLE 1 CERTAIN DEFINITIONS....................................................................... 1 ARTICLE 2 THE PARTNERSHIP........................................................................... 17 2.1 Formation; Termination of Original Partnership Agreement.................................. 17 2.2 Partners.................................................................................. 17 2.3 Name...................................................................................... 17 2.4 Registered Office; Registered Agent....................................................... 18 2.5 Principal Office.......................................................................... 18 2.6 Purpose................................................................................... 18 2.7 Duration.................................................................................. 19 2.8 Property Ownership; Subsidiaries.......................................................... 19 2.9 Capital Contributions..................................................................... 20 2.10 Other Agreements.......................................................................... 21 2.11 Liability of the Limited Partner.......................................................... 21 ARTICLE 3 MANAGEMENT OF THE PARTNERSHIP............................................................. 22 3.1 Management by the General Partner......................................................... 22 3.2 Limitations on General Partner's Authority................................................ 27 3.3 Persons Dealing with the Partnership...................................................... 30 3.4 Enforcement of Certain Rights............................................................. 31 3.5 Certain Guarantees by KB.................................................................. 31 3.6 Allocation Shortfalls and Allocation Defaults............................................. 31 3.7 Compliance Certificate.................................................................... 34 3.8 Valuation of Certain Contributions and Distributions...................................... 35 3.9 Partnership Opportunities................................................................. 35 ARTICLE 4 ALLOCATIONS............................................................................... 35 4.1 Profits................................................................................... 35 4.2 Losses.................................................................................... 37 4.3 Special Allocations....................................................................... 37 4.4 Curative Allocations...................................................................... 41 4.5 Other Allocation Rules.................................................................... 42 4.6 Tax Allocations: Section 704(c) of the Code.............................................. 42 ARTICLE 5 DISTRIBUTIONS; PARTIAL RETIREMENT OF LIMITED PARTNER'S INTEREST.................................................................................. 43 5.1 General................................................................................... 43 5.2 Distribution Policy....................................................................... 43
(i) 3 TABLE OF CONTENTS (Continued)
PAGE 5.3 Insufficient or Excess Distributions...................................................... 45 5.4 Certain Limitations....................................................................... 46 5.5 Liquidating Distributions................................................................. 46 5.6 Partial Retirement of the Limited Partner's Interest...................................... 46 5.7 No Interest............................................................................... 46 5.8 Loans to KB and Its Affiliates............................................................ 47 5.9 Payment of Fees and Expenses.............................................................. 47 5.10 Distributions of Trademarks in Certain Circumstances...................................... 47 ARTICLE 6 ACCOUNTING AND TAXATION................................................................... 47 6.1 Fiscal Year............................................................................... 47 6.2 Accountants............................................................................... 47 6.3 Maintenance of Books, Records and Accounts................................................ 48 6.4 Access to Books and Records............................................................... 48 6.5 Financial Statements...................................................................... 49 6.6 Taxation.................................................................................. 52 ARTICLE 7 TRANSFER OF PARTNERSHIP INTERESTS......................................................... 53 7.1 Limitation on Right to Transfer Partner's Interest........................................ 53 7.2 Transfer to an Affiliate.................................................................. 55 7.3 Transfers in Breach of Agreement Void..................................................... 55 ARTICLE 8 DISSOLUTION OF THE PARTNERSHIP............................................................ 55 8.1 No Dissolution............................................................................ 55 8.2 Waiver of Right to Dissolve............................................................... 55 8.3 No Payment in Certain Circumstances....................................................... 56 8.4 Effect of Dissolution; Distribution of Assets............................................. 56 8.5 Termination of the Partnership............................................................ 57 8.6 Survival of Obligations; Damages.......................................................... 57 ARTICLE 9 INDEMNIFICATION........................................................................... 57 9.1 Indemnification for Breach................................................................ 57 9.2 Indemnification of General Partner........................................................ 57 9.3 Indemnification of Limited Partner........................................................ 58 ARTICLE 10 WAIVER OF PARTITION....................................................................... 58 ARTICLE 11 RELATED PROVISIONS........................................................................ 58
(ii) 4 TABLE OF CONTENTS (Continued) Schedule 3.1(c)(i) Powers and Actions Reserved to the Chief Executive Officer, subject to the Direction of the Limited Partner Schedule 3.1(c)(ii) Powers and Actions Reserved to the Chief Financial Officer, subject to the Direction of the Limited Partner Exhibit 3.7 Form of Compliance Certificate Exhibit 6.5 Form of Section 6.5 Financial Statements (iii) 5 LIMITED PARTNERSHIP AGREEMENT LIMITED PARTNERSHIP AGREEMENT, dated as of July 1, 1998, between KB USA, L.P., a limited partnership organized and existing under the laws of Delaware ("KBLP"), and KBI SUB INC., a corporation organized and existing under the laws of Delaware ("KBI Sub"). KBLP and KBI Sub are sometimes referred to herein individually as a "Partner" and collectively as the "Partners". WITNESSETH: WHEREAS, the Partners own in the aggregate one hundred percent (100%) of the partnership interests in a limited partnership (the "Partnership") which was formed under the Delaware Revised Uniform Limited Partnership Law (6 Del. C. Section 17-101 et seq.), as amended from time to time (the "Act"), by the filing on October 21, 1997, of a certificate of limited partnership and the execution of a limited partnership agreement dated as of October 21, 1997 (the "Original Partnership Agreement") for the purpose of engaging in, among other things, the research, development, registration, distribution, marketing and sale of pharmaceutical products; WHEREAS, the Partners desire to terminate the Original Partnership Agreement and to adopt this Agreement as the limited partnership agreement of the Partnership; WHEREAS, Astra AB, a company limited by shares organized and existing under the laws of Sweden ("KB"), Merck Co., Inc., a New Jersey corporation ("TR"), Astra Merck Inc., a Delaware corporation ("KBI"), Astra USA, Inc., a New York corporation ("KB USA"), KBLP, KBI Sub and certain other parties have entered into the Master Restructuring Agreement (as defined hereinafter), which provides, among other things, for the execution of this Agreement (which is in the form of Exhibit P to the Master Restructuring Agreement) by the Partners; and WHEREAS, the Partnership shall be operated in accordance with the terms of the Act, this Agreement, the Master Restructuring Agreement and the Ancillary Agreements (as hereinafter defined); NOW, THEREFORE, in consideration of the premises and the agreements contained herein, the Partners hereby agree as follows: ARTICLE 1 CERTAIN DEFINITIONS Without limiting any other terms defined herein, as used in this Agreement the following terms shall have the following respective meanings. "Accountants" shall mean such firm of independent auditors of the Partnership as may be selected and approved in accordance with Section 3.2 from time to time. 6 2 "Act" shall have the meaning set forth in the premises of this Agreement. "Adjusted Capital Account Deficit" shall mean, with respect to the Limited Partner, the deficit balance, if any, in the Limited Partner's Capital Account as of the end of the relevant Allocation Year, after giving effect to the following adjustments: (i) there shall be credited to such Capital Account any amounts which such Limited Partner is obligated to restore pursuant to any provision of this Agreement or is deemed to be obligated to restore pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations; and (ii) there shall be debited to such Capital Account the items described in Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6) of the Regulations. The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently therewith. "Affiliate" shall have the meaning set forth in the Master Restructuring Agreement. "Allocation Default" shall have the meaning set forth in Section 3.6. "Allocation Shortfall" shall have the meaning set forth in Section 3.6. "Allocation Year" shall mean (i) the period commencing on the Closing Date and ending on December 31, 1998, (ii) any subsequent period commencing on January 1 and ending on the following December 31, or (iii) any portion of the period described in clause (ii) for which the Partnership is required to allocate Profits, Losses and other items of Partnership income, gain, loss or deduction pursuant to Article 4. "Ancillary Agreements" shall have the meaning set forth in the Master Restructuring Agreement. "Animal Health Uses" shall have the meaning set forth in the Selected Compounds Contribution Agreement. "Applicable Rounded Federal Tax Rate" for a year shall mean the Federal Tax Rate in effect for such year; provided, however, that if such Federal Tax Rate (expressed as a percentage) includes an amount which is a fraction of a percentage point (e.g., 33-1/4%), such rate shall be rounded to the next highest whole percentage rate (e.g., 34%). "Average PGM" shall mean the average selling margin of a product for the two most recent Fiscal Years following the first anniversary of the First Commercial Sale of such product, computed as: (i) the total Net Sales of such product by the Partnership, less the sum of (A) the Partnership's cost of goods sold and (B) the amount of any royalty with respect to such 7 3 sales payable by the Partnership and not otherwise included in the cost of goods sold, divided by (ii) the total Net Sales of such product by the Partnership. "Bankruptcy" shall have the meaning set forth in the Master Restructuring Agreement. "Capital Account" shall mean, with respect to any Partner, the Capital Account maintained for such Partner in accordance with the following provisions: (i) To each Partner's Capital Account there shall be credited such Partner's Capital Contributions, such Partner's distributive share of Profits and any items in the nature of income or gain which are specially allocated pursuant to Section 4.3 or Section 4.4, and the amount of any Partnership liabilities assumed by such Partner or which are secured by any property distributed to such Partner. (ii) To each Partner's Capital Account there shall be debited the amount of cash and the Gross Asset Value of any property distributed to such Partner pursuant to any provision of this Agreement, such Partner's distributive share of Losses and any items in the nature of expenses or losses which are specially allocated pursuant to Section 4.3 or Section 4.4, and the amount of any liabilities of such Partner assumed by the Partnership or which are secured by any property contributed by such Partner to the Partnership. (iii) In the event all or a portion of an Interest is transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent that such Capital Account relates to the transferred Interest. The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Section 1.704-1(b) of the Regulations, and shall be interpreted and applied in a manner consistent with such Regulations. In the event the General Partner shall determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto (including, without limitation, debits or credits relating to liabilities which are secured by contributed or distributed property or which are assumed by the Partnership or any Partner), are computed in order to comply with such Regulations, the General Partner may make such modification, provided, however, that it is not likely to have a material adverse effect on the amounts distributable to any Partner pursuant to Section 8.4 upon the dissolution and liquidation of the Partnership. The General Partner also shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Partners and the amount of Partnership capital reflected on the Partnership's balance sheet, as computed for book purposes, in accordance with Section 1.704-1(b)(2)(iv)(q) of the Regulations, and (ii) make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Section 1.704-1(b) of the Regulations, provided, however, that, to the extent that any such adjustment is inconsistent with other provisions of this Agreement and would have a material adverse effect on the Limited Partner, such adjustment shall require the Consent of the Limited Partner. 8 4 "Capital Contribution" shall mean, with respect to any Partner, the amount of money and the initial Gross Asset Value of any property (other than money) contributed to the Partnership by such Partner (or its predecessors in Interest) with respect to the Interest held by such Partner. The principal amount of a promissory note which is not readily traded on an established securities market and which is contributed to the Partnership by the maker of the note (or a Partner related to the maker of the note within the meaning of Section 1.704-1(b)(2)(ii)(c) of the Regulations) shall not be included in the Capital Account of any Partner until the Partnership makes a taxable disposition of the note or until (and to the extent) principal payments are made on the note, all in accordance with Section 1.704-1(b)(2)(iv)(d)(2) of the Regulations. "Certificate of Limited Partnership" shall mean the certificate of limited partnership and any and all amendments thereto and restatements thereof filed on behalf of the Partnership with the office of the Secretary of State of the State of Delaware. "Closing Date" shall have the meaning set forth in the Master Restructuring Agreement. "Code" shall mean the Internal Revenue Code of 1986, as amended, as in effect on the date of this Agreement. "Compound" shall have the meaning set forth in the Master Restructuring Agreement. "Consent of the Limited Partner" shall mean the written consent or approval in writing of the Limited Partner. "Contingent Amount Gross-Up" shall mean, for each Fiscal Quarter ending prior to July 1, 2000, the product of (A) the Fourth Tier Amount for such Fiscal Quarter multiplied by (B) LIBOR using a LIBOR Period of one (1) year, compounded quarterly from the last day of such Fiscal Quarter through the date of distribution of such amount to the Limited Partner pursuant to Section 5.2. For purposes of the foregoing, LIBOR using said one (1) year LIBOR Period shall be determined on the Closing Date and each anniversary thereof. "Covered Compound" shall have the meaning set forth in the Master Restructuring Agreement. "Debt" shall mean, with respect to any Person, the following liabilities and obligations, whether incurred by such Person, directly or indirectly, without duplication: (i) its liabilities for borrowed money; (ii) its liabilities for the deferred purchase price of property acquired by it (excluding accounts payable arising in the ordinary course of business but including, without limitation, all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property); 9 5 (iii) the amount of the obligation of such Person as the lessee under any Capital Lease that would, in accordance with GAAP, appear as a liability on a balance sheet of such Person ("Capital Lease" meaning, at any time, a lease with respect to which such Person, as lessee, is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP); (iv) amounts secured by any Lien with respect to any property owned by such Person (whether or not it has assumed or otherwise become liable for such amounts); (v) all of its liabilities in respect of letters of credit or instruments serving a similar function issued or accepted for its account by banks or other financial institutions (whether or not representing obligations for borrowed money); (vi) payment obligations with respect to interest rate swaps, currency swaps and similar obligations obligating such Person to make payments, whether periodically or upon the happening of a contingency, or any other financial transaction in which such Person and another Person agree to exchange streams of payments over time according to a predetermined formula ("Swaps"); for the purposes of this clause (vi), the amount of the obligation under any Swap shall be the amount determined in respect thereof as of the end of the then most recently ended fiscal quarter of such Person, based on the assumption that such Swap had terminated at the end of such fiscal quarter, and in making such determination, if any agreement relating to such Swap provides for the netting of amounts payable by and to such Person thereunder or if any such agreement provides for the simultaneous payment of amounts by and to such Person, then in each such case, the amount of such obligation shall be the net amount so determined; (vii) any Guarantee of such Person with respect to liabilities or obligations of any Person of the character described in any of the clauses described in (i) through (vi) above ("Guarantee" meaning, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any indebtedness, dividend or other Debt or obligation of any other Person in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by such Person); (viii) all liabilities and obligations of any Subsidiary of such Person of the character described in clauses (i) through (vii) above; and (ix) all liabilities and obligations of the character described in clauses (i) through (viii) above with respect to which, and to the extent that, such Person remains legally liable, notwithstanding that such liability or obligation is deemed extinguished under GAAP; provided, however, that Debt of any Person shall not include liabilities for taxes, assessments and governmental charges or levies, claims for labor, material and supplies or unsecured current debt 10 6 incurred in the ordinary course of business and not as a result of borrowing or in respect of obligations of others, and Debt for any Subsidiary of the Partnership shall not include any liabilities or obligations of the character described in clauses (i) through (vii) that are owing to the Partnership. "Depreciation" shall mean, for each Allocation Year, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable for federal income tax purposes with respect to an asset for such Allocation Year, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such Allocation Year, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such Allocation Year bears to such beginning adjusted tax basis; provided, however, that if the adjusted basis for federal income tax purposes of an asset at the beginning of such Allocation Year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the General Partner, provided further, that all intangible property (including goodwill) contributed to the Partnership whose tax basis is zero at the time of contribution (or at the time of adjustment to Gross Asset Value as a result of the partial retirement of the Limited Partner's Interest pursuant to Section 5.6) shall be amortized on a straight line basis over 15 years. "Distribution Agreement" shall have the meaning set forth in the Master Restructuring Agreement. "Dollars" shall have the meaning set forth in the Master Restructuring Agreement. "FDA" shall have the meaning set forth in the Master Restructuring Agreement. "Federal Tax Rate" shall mean the highest marginal U.S. federal corporate income tax rate as in effect from time to time. "Financial Assets" shall mean interest-bearing securities or interest-bearing financial instruments (including without limitation U.S. government securities and corporate bonds, debentures, notes, and commercial paper) that are non-convertible and non-exchangeable and do not bear any other rights to acquire any equity security or equity interest and (i) are senior unsubordinated obligations issued by KB, or (ii) are Investment Grade Obligations, or (iii) are senior unsubordinated obligations of the issuer that are fully guaranteed on a senior unsubordinated basis as to the payment of principal and interest by KB or by any entity whose outstanding unsecured debt securities or commercial paper are Investment Grade Obligations and would continue to be Investment Grade Obligations after the effectiveness of such guarantee or (iv) meet other creditworthiness standards satisfactory to the Limited Partner in its sole discretion. "First Commercial Sale" shall have the meaning set forth in the Master Restructuring Agreement. 11 7 "Fiscal Quarter" shall have the meaning set forth in the Master Restructuring Agreement. "Fiscal Year" shall have the meaning set forth in Section 6.1. "Fourth Tier Amount" shall mean, with respect to any period, the sum of: (i) the KB USA Products Contingent Amount, (ii) the Group D Products Contingent Amount, (iii) (A) 43.75% of any recovery received by the Partnership pursuant to Section 9.2(g) of the Amended and Restated KBI License (as defined in the Master Restructuring Agreement) in respect of a Selected Compound that is a Group C Compound or received pursuant to Section 9.7(b) of the Amended and Restated KBI License (as defined in the Master Restructuring Agreement) in respect of a Selected Use of a Group C Compound or (B) 45% of any such recovery in respect of a Selected Compound that is a Group A Compound or a Group B Compound or in respect of a Selected Use of a Group A Compound or a Group B Compound, (iv) that portion of the consideration received in such period which is to be credited to KBI Sub or included in the Fourth Tier Amount in respect of (in all cases disregarding any amounts taken into account in calculating contingent amounts) (A) any Total Cash Outlicensing pursuant to Section 3.6(f) of the Master Restructuring Agreement, (B) any Special Case Outlicensings pursuant to Section 3.6(g)(i) of the Master Restructuring Agreement, (C) the Outlicense of omeprazole described in Section 3.6(g)(ii)of the Master Restructuring Agreement or (D) any amounts agreed by the parties to be Fourth Tier Amounts (x) pursuant to Section 3.6(g)(v) or Section 3.6(h) of the Master Restructuring Agreement or otherwise or (y) in connection with any consent which may be given by KBI Sub pursuant to Section 3.6 of the Master Restructuring Agreement and (v) one percent (1%) of the sum of the following product for all Fiscal Quarters: (A) LIBOR using a LIBOR Period of three (3) months plus 50 basis points times (B) the sum of the cost basis to the Partnership of all equity interests held by the Partnership from time to time during such Fiscal Quarter in KB Affiliates that are not Pass-Through Entities; provided, however, that the "Fourth Tier Amount" for the Allocation Year which includes the Retirement Date and all subsequent Allocation Years shall not include any amounts in respect of any Total Cash Outlicensing occurring after the end of the three Fiscal Years or thirty-six (36) full calendar months used to compute the Limited Partner Share of Agreed Value; and provided, further, that with respect to the period following the Retirement Date, "Fourth Tier Amount" shall not include the KB USA Products Contingent Amount or the Group D Products Contingent Amount other than the Group D Products Contingent Amount, if any, in respect of Animal Health Uses and Non-Medical Uses of omeprazole and perprazole. The Allocation Year which includes the Retirement Date shall be divided into a period up to and including the Retirement Date and a second period following the Retirement Date for purposes of determining the Fourth Tier Amount for such Allocation Year. For purposes of the foregoing, LIBOR using said three (3) month LIBOR Period shall be determined for each Fiscal Quarter. "GAAP" shall mean U.S. generally accepted accounting principles, applied on a consistent basis. "General Partner" shall mean KBLP and any successor general partner of the Partnership pursuant to the provisions of this Agreement. 12 8 "Gross Asset Value" shall mean, with respect to any asset, the asset's adjusted basis for federal income tax purposes, except as follows: (i) The initial Gross Asset Value of any asset contributed by a Partner to the Partnership shall be the gross fair market value of such asset; provided, however, that the initial Gross Asset Values of the assets contributed to the Partnership pursuant to Section 2.9(a) and (b) shall be as set forth in Section 2.9(a) or (b), as applicable, and the initial Gross Asset Values of assets otherwise contributed to the Partnership shall be determined in accordance with Section 3.8. (ii) The Gross Asset Values of all Partnership assets shall be adjusted to equal their respective gross fair market values, as determined by the Partners, only as of the following times: (A) the distribution by the Partnership to the Limited Partner in retirement of a portion of its Interest pursuant to Section 5.6 and (B) the liquidation of the Partnership within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations. (iii) The Gross Asset Value of any Partnership asset distributed to any Partner shall be adjusted to equal the gross fair market value of such asset on the date of distribution as determined in accordance with Section 3.8. (iv) The Gross Asset Values of Partnership assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Section 734(b) or Section 743(b) of the Code, but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Section 1.704-1(b)(2)(iv)(m) of the Regulations and subparagraph (vi) of the definition of "Profits" and "Losses" in Article 1 or Section 4.3(g); provided, however, that Gross Asset Values shall not be adjusted pursuant to this subparagraph (iv) to the extent the General Partner determines that an adjustment pursuant to subparagraph (ii) is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subparagraph (iv). If the Gross Asset Value of an asset has been determined or adjusted pursuant to subparagraphs (i), (ii), or (iv), such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of Article 4. "Group D Product" shall have the meaning set forth in the Master Restructuring Agreement. "Group D Products Contingent Amount" shall have the meaning set forth in the Master Restructuring Agreement. "IAS" shall mean International Accounting Standards, applied on a consistent basis. "Indemnity Losses" shall have the meaning set forth in the Master Restructuring Agreement. 13 9 "Initial Agreements" shall have the meaning set forth in the Master Restructuring Agreement. "Interest" shall mean a Partner's interest in the Partnership. "Investment Grade Obligations" shall mean obligations rated BBB or higher by Standard and Poor's or rated in an equivalent category by any other rating agency nationally recognized in the United States or obligations that are senior to or rank pari passu with long-term securities or financial instruments of the same issuer that are so rated. "KB USA Asset Contribution Agreement" shall have the meaning set forth in the Master Restructuring Agreement. "KB USA Bundled Group" shall mean any group of products or Compounds contributed to the Partnership pursuant to the KB USA Asset Contribution Agreement which the Partnership in the ordinary course of business typically offers and sells together or collectively as a group of bundled products or Compounds, which products or Compounds have directly related uses, and the effect of which is to cause sales of certain products or Compounds within such group to be sold at a higher profit margin than otherwise attainable if sold separately. No product or Compound shall be included in a KB USA Bundled Group if more than twenty percent (20%) of its total unit volume sales is from sales independent of a KB USA Bundled Group (without giving effect to the limitation in this sentence). For purposes of the foregoing, a KB USA Bundled Group may include the same products and Compounds sold in various strengths and types or packaged in different containers (such as glass vials, glass ampules or pre-filled syringes), or may include different products and Compounds (possibly in various strengths and/or packaged in different containers), which have directly related uses. "KB USA Bundled Product" shall mean any product or Compound which is part of a KB USA Bundled Group. "KB USA Product" shall have the meaning set forth in the Master Restructuring Agreement. "KB USA Products Contingent Amount" shall have the meaning set forth in the Master Restructuring Agreement. "KBI Asset Contribution Agreement" shall have the meaning set forth in the Master Restructuring Agreement. "KBI Shares Option" shall mean KB's option to acquire all the outstanding shares of common stock of KBI upon the terms and subject to the conditions set forth in the KBI Shares Option Agreement. "KBI Shares Option Agreement" shall have the meaning set forth in the Master Restructuring Agreement. 14 10 "KBI-E" shall mean Astra Merck Enterprises, Inc., a Delaware corporation. "KBI-E Asset Contribution Agreement" shall have the meaning set forth in the Master Restructuring Agreement. "KBI-E Asset Option Agreement" shall have the meaning set forth in the Master Restructuring Agreement. "KBI-E Asset Purchase" shall have the meaning set forth in the Master Restructuring Agreement. "LIBOR" shall have the meaning set forth in the Master Restructuring Agreement. "LIBOR Period" shall have the meaning set forth in the Master Restructuring Agreement. "Lien" shall have the meaning set forth in the Master Restructuring Agreement. "Limited Partner" shall mean KBI Sub and any successor limited partner of the Partnership pursuant to the provisions of this Agreement. "Limited Partner Share of Agreed Value" shall mean, as of the Retirement Date, (A) the Multiple (as defined in the KBI-E Asset Option Agreement) times the average annual KB USA Products Contingent Amount and the average annual Group D Products Contingent Amount for the three (3) Fiscal Years immediately preceding the applicable Exercise Year (as defined in the KBI-E Asset Option Agreement) (or, in the event the Required Sale (as defined in the KBI-E Asset Option Agreement) occurs pursuant to Section 4.2 of the KBI-E Asset Option Agreement, for the three (3) periods of twelve (12) consecutive full calendar months during the thirty-six (36) consecutive full calendar months immediately preceding the Trigger Event (as defined in the Master Restructuring Agreement)), excluding that portion of such average annual KB USA Products Contingent Amount and Group D Products Contingent Amount that is attributable to Weighted Net Sales of KB USA Products and Group D Products that have been disposed of by the Partnership pursuant to a Total Cash Outlicensing that is consummated during the three (3) Fiscal Years immediately preceding the Exercise Year (or, in the event the Required Sale occurs pursuant to Section 4.2 of the KBI-E Asset Option Agreement, during the thirty-six (36) months immediately preceding the Trigger Event), plus (B) the Factor Amount (as defined in the KBI-E Asset Option Agreement). "Loss" and "Losses" shall have the meaning set forth in the definition of "Profits" and "Losses". "Manufacturing Agreement" shall have the meaning set forth in the Master Restructuring Agreement. "Master Restructuring Agreement" shall mean the Master Restructuring Agreement, dated as of June 19, 1998, between KB, TR, KBI, KBLP, KB USA, KBI Sub, KBI- 15 11 E, Merck Holdings, Inc., and the Partnership, as such agreement is amended, modified, supplemented or restated from time to time. "Net Investment Income" for any period means the excess of the investment income of the Partnership, excluding any investment income attributable to Qualifying Financial Assets, for such period over all expenses, charges, fees, commissions, or the like for such period attributable to Debt of the Partnership. "Net Sales" shall have the meaning set forth in the Master Restructuring Agreement. "Non-Controlled Entity" shall mean any Person in which the Partnership owns any equity interest but does not own, directly or indirectly, more than fifty percent (50%) of the outstanding voting interests. "Non-Medical Uses" shall have the meaning set forth in the Selected Compounds Contribution Agreement. "Nonrecourse Deductions" shall have the meaning set forth in Section 1.704-2(b)(1) and 1.704-2(c) of the Regulations. "Nonrecourse Liability" shall have the meaning set forth in Section 1.704-2(b)(3) of the Regulations. "Original Capital Contribution" shall mean, with respect to KBLP, the business and assets contributed to the Partnership as KBLP's initial Capital Contribution pursuant to Section 2.9(a), and with respect to KBI Sub, the business and assets contributed to the Partnership as KBI Sub's initial Capital Contribution pursuant to Section 2.9(b). "Other Life Sciences Businesses" shall have the meaning set forth in Section 2.6. "Outlicensing" shall have the meaning set forth in the Master Restructuring Agreement. "Partial Retirement" shall have the meaning set forth in Section 5.6. "Partner" shall mean each person or entity that is a partner of the Partnership as it may be constituted from time to time from and after the date hereof, initially KBLP and KBI Sub. "Partner Nonrecourse Debt" shall have the same meaning as the term "partner nonrecourse debt" set forth in Section 1.704-2(b)(4) of the Regulations. "Partner Nonrecourse Debt Minimum Gain" shall mean an amount, with respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Section 1.704-2(i)(3) of the Regulations. 16 12 "Partner Nonrecourse Deductions" shall have the same meaning as the term "partner nonrecourse deductions" set forth in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations. "Partnership" shall have the meaning set forth in the premises of this Agreement. "Partnership Minimum Gain" shall have the meaning set forth in Sections 1.704-2(b)(2) and 1.704-2(d) of the Regulations. "Pass-Through Entity" shall mean any entity which, for U.S. federal income tax purposes, is treated as a partnership or as an entity that is disregarded as being separate from its owner. "Permitted Businesses" shall have the meaning set forth in Section 2.6. "Person" shall have the meaning set forth in the Master Restructuring Agreement. "Primary Business" shall have the meaning set forth in Section 2.6. "Priority Return" shall mean an amount equal to: (i) for every Fiscal Quarter beginning after June 30, 1998 and ending on or before the Retirement Date, the amount set forth in Column A of the following table, minus, for Fiscal Quarters beginning after December 31, 2009, the amount set forth in Column C of the table set forth below, in each case as set forth opposite the Applicable Rounded Federal Tax Rate; (ii) for every Fiscal Quarter beginning on or after the Retirement Date, the amount set forth in Column B of the following table, minus, for Fiscal Quarters beginning after December 31, 2009, the amount set forth in Column C of the table set forth below, in each case as set forth opposite the Applicable Rounded Federal Tax Rate; and (iii) for the Fiscal Quarter that includes the Retirement Date, if such Retirement Date is neither the first nor the last day of such Fiscal Quarter, the sum of (A) the product of multiplying the Priority Return for the Fiscal Quarter next preceding such Fiscal Quarter by a fraction the numerator of which is the number of days in such Fiscal Quarter preceding and including the Retirement Date, and the denominator of which is the total number of days in such Fiscal Quarter, plus (B) the product of multiplying the Priority Return for the Fiscal Quarter next following such Fiscal Quarter by a fraction the numerator of which is the number of days in such Fiscal Quarter following the Retirement Date and the denominator of which is the total number of days in such Fiscal Quarter. For purposes of this clause (iii), fractions shall be converted to decimal numbers rounded to five (5) places. 17 13 TABLE FOR COMPUTATION OF PRIORITY RETURN - -------------------------------------------------------------------------------- PRIORITY RETURN FOR APPLICABLE ROUNDED FEDERAL TAX RATES (QUARTERLY AMOUNT) - --------------------------------------------------------------------------------
COLUMN A: COLUMN B: COLUMN C: --------- --------- --------- REDUCTION FOR FISCAL ON OR PRIOR TO THE AFTER THE QUARTERS COMMENCING RETIREMENT DATE RETIREMENT DATE AFTER 2009 --------------- --------------- ---------- PRIORITY RETURN FOR APPLICABLE ROUNDED FEDERAL TAX RATES OF: 35% or more......... $75,094,397 $54,394,397 $2,670,259 34%................. $74,214,368 $53,514,368 $2,573,929 33%................. $73,360,609 $52,660,609 $2,480,475 32%................. $72,531,960 $51,831,960 $2,389,769 31%................. $71,727,330 $51,027,330 $2,301,693 30%................. $70,945,690 $50,245,690 $2,216,133 29%................. $70,186,067 $49,486,067 $2,132,983 28% or less......... $69,447,545 $48,747,545 $2,052,143
The Priority Return shall be cumulative, and all amounts thereof due but not distributed shall be increased from the last day of the Fiscal Quarter with respect to which such amount is due by an amount equal to nine and three one hundredths percent (9.03%) per annum, compounded quarterly until paid. "Profits" and "Losses" shall mean, for each Allocation Year, an amount equal to the Partnership's taxable income or loss for such Allocation Year, determined in accordance with Section 703(a) of the Code (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code shall be included in taxable income or loss), with the following adjustments: (i) Any income of the Partnership that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this definition of "Profits" and "Losses" shall be added to such taxable income or loss. (ii) Any expenditures of the Partnership described in Section 705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) expenditures pursuant to Section 1.704-1(b)(2)(iv)(i) of the Regulations, and not otherwise taken into account in computing Profits or Losses pursuant to this definition of "Profits" and "Losses", shall be subtracted from such taxable income or loss. (iii) In the event the Gross Asset Value of any Partnership asset is adjusted pursuant to subparagraphs (ii) or (iii) of the definition of "Gross Asset Value", 18 14 the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Profits or Losses. (iv) Gain or loss resulting from any disposition of property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value. (v) In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Allocation Year, computed in accordance with the definition of "Depreciation". (vi) To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Section 734(b) of the Code is required pursuant to Section 1.704-1(b)(2)(iv)(m)(4) of the Regulations to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Partner's Interest, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Profits or Losses. (vii) Any items which are specially allocated pursuant to Section 4.3 or Section 4.4 shall not be taken into account in computing Profits or Losses. The amounts of the items of Partnership income, gain, loss, expense or deduction available to be specially allocated pursuant to Sections 4.3 and 4.4 shall be determined by applying rules analogous to those set forth in subparagraphs (i) through (vi) above. "Put Option Event" shall have the meaning set forth in the Master Restructuring Agreement. "Qualifying Financial Asset" shall mean any Financial Asset which is designated by the General Partner in writing to the Limited Partner as being a Qualifying Financial Asset. A Qualifying Financial Asset may not be redesignated a non-Qualifying Financial Asset unless at the time of such redesignation such asset could be distributed to the General Partner in accordance with Section 5.2(c). "R&D Expenses" shall mean research and development expenses of the Partnership including, without limitation, expenses related to the following: (i) discovering, developing, registering and testing Compounds or products for commercial sale; (ii) developing new or alternative dosage forms, new claims, new indications or line extensions of existing Compounds and products, whether such 19 15 expenses are incurred prior to or following approval by the FDA ("FDA Approval") of such Compound or product; and (iii) conducting clinical studies of Compounds or products, whether or not such expenses are incurred prior to or following FDA Approval of such Compounds or products. Without limiting the generality of the foregoing, R&D Expenses shall include all research and development expenses of the Partnership relating to its Primary Business or any other Permitted Business. R&D Expenses also shall include research and development expenses of any Wholly-Owned Subsidiary that is a Pass-Through Entity but shall not include any distributive share of the Partnership of research and development expenses of a Pass-Through Entity that is not a Wholly-Owned Subsidiary. Depreciation shall not be included in R&D Expenses. "Regulations" shall mean the income tax regulations, including temporary regulations, promulgated under the Code, as such regulations may be amended, modified or supplemented through the Closing Date, except that "Regulations under Section 704" shall mean the Regulations under Section 704 of the Code or under the applicable subsection thereof, as such Regulations may be amended, modified or supplemented from time to time. "Regulatory Allocations" shall have the meaning set forth in Section 4.4. "Retirement Date" shall have the meaning set forth in Section 5.6. "Select Officers" shall mean the chief executive officer, chief financial officer, chief operating officer, general counsel, vice president of marketing, vice president of human resources and vice president of manufacturing, if any, of the Partnership. "Selected Compounds Contribution Agreement" shall have the meaning set forth in the Master Restructuring Agreement. "SG&A Expenses" shall mean the selling, general and administrative expenses of the Partnership, including, without limitation, the following: (i) expenses related to selling, promoting, marketing and advertising products (including samples); (ii) expenses related to general and corporate administrative expenses, including, but not limited to finance, legal, human resources, public and governmental affairs, executive and computer resources; (iii) expenses related to procurement, planning and logistics; (iv) royalties payable to Persons who are not Affiliates; and (v) management or similar charges or fees paid to the General Partner or any of its Affiliates; 20 16 but specifically excluding, without limitation, Depreciation, interest expense, losses from sales of financial assets, and including without limitation securities, capital assets, settlements of judgments, and foreign exchange losses. Without limiting the generality of the foregoing, SG&A Expenses shall include all such selling, general and administrative expenses of the Partnership relating to its Primary Business or any other Permitted Business. SG&A Expenses also shall include selling, general and administrative expenses of any Wholly-Owned Subsidiary that is a Pass-Through Entity but shall not include any distributive share of the Partnership of selling, general and administrative expenses of a Pass-Through Entity that is not a Wholly-Owned Subsidiary. "Special Case Outlicensings" shall have the meaning set forth in the Master Restructuring Agreement. "Subsidiary" means, as to any Person, any corporation, association or other business entity in which such Person, individually or together with one or more of its Subsidiaries, owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such entity, and any partnership or joint venture if more than a fifty percent (50%) interest in the profits or capital thereof is owned by such Person and/or one or more of its Subsidiaries. Unless the context otherwise clearly requires, any reference to a "Subsidiary" is a reference to a Subsidiary of the Partnership. "Tax Matters Partner" shall have the meaning set forth in Section 6.6(c). "Threshold Amount" shall mean $2 billion for the first two (2) Allocation Years of the Partnership and shall be reduced by $284 million in each Allocation Year thereafter, but shall not be reduced below $1 billion. "Total Cash Outlicensing" shall have the meaning set forth in the Master Restructuring Agreement. "TR Non-Controlled Entity" shall mean any entity in which TR, directly or indirectly, controls, through share ownership or contract, the election of 30% or more of the board of directors or 30% or more of the voting power. "Trademark Rights Contribution Agreement" shall have the meaning set forth in the Master Restructuring Agreement. "Transfer", when used as a verb, shall mean, with respect to any property or asset (or any interest therein) sell, assign, pledge, encumber, hypothecate, dispose of or otherwise transfer, and when used as a noun, shall mean sale, assignment, pledge, encumbrance, hypothecation, disposition or other transfer. "Weighted Average PGM" with respect to any KB USA Bundled Group shall mean the sum of the total of the Average PGMs for all KB USA Bundled Products for the most 21 17 recently completed two Fiscal Years divided by the total Net Sales for all such KB USA Bundled Products for the most recently completed two Fiscal Years. "Weighted Net Sales" shall have the meaning set forth in the Master Restructuring Agreement. "Wholly-Owned Subsidiary" shall have the meaning set forth in the Master Restructuring Agreement. Capitalized terms used and not defined herein shall have the respective meanings set forth in the Master Restructuring Agreement. ARTICLE 2 THE PARTNERSHIP 2.1 Formation; Termination of Original Partnership Agreement. The Partners, having acquired in the aggregate one hundred percent (100%) of the ownership interests in the Partnership from the owners thereof and having been substituted for such owners as the general partner and limited partner of the Partnership, respectively, hereby terminate the Original Partnership Agreement and all rights and obligations thereunder and adopt this Agreement in substitution therefor as the limited partnership agreement of the Partnership. 2.2 Partners. (a) Initially, KBLP shall be the general partner of the Partnership, and KBI Sub shall be the limited partner of the Partnership. (b) Except as specifically altered by the express terms of this Agreement, the Master Restructuring Agreement and the Ancillary Agreements, the rights and obligations of the parties as Partners of the Partnership shall be as set forth in the Act. 2.3 Name. The name of the Partnership shall be "Astra Pharmaceuticals, L.P." The Partnership's business may be conducted under the name of the Partnership, which may be changed by the General Partner, or any other name or names deemed advisable by the General Partner; provided, however, that (i) such name shall not include the word "Merck" or any word confusingly similar thereto, (ii) such name shall include the words "Limited Partnership" or the initials "L.P." or "LP" and (iii) in the case of a change of the name of the Partnership, the General Partner shall cause an appropriate amendment to the Certificate of Limited Partnership to be filed as required by the Act and a certified copy thereof to be provided to the Limited Partner. The General Partner shall promptly notify the Limited Partner in writing of each change in the name of the Partnership and shall notify the Limited Partner in writing not less than annually of each name, fictitious business name, "d/b/a" or other name (exclusive of product trademarks) used by the Partnership or entities under its control in the conduct of any business, regardless of the form or ownership of such business. 22 18 2.4 Registered Office; Registered Agent. The Partnership shall maintain a registered office and registered agent for service of process in the State of Delaware to the extent required by the Act, which office and agent may be designated by the General Partner. Initially, the registered office in the State of Delaware shall be c/o The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. Initially, the name and address of the Partnership's registered agent in the State of Delaware shall be The Corporation Trust Company, whose address is Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. 2.5 Principal Office. The principal office of the Partnership shall be located at 725 Chesterbrook Blvd., Wayne, PA 19087-5677, or such other location within the United States as may be specified from time to time by the General Partner with prompt written notice to the Limited Partner. The books and records of the Partnership shall be kept and maintained at the Partnership's principal office. 2.6 Purpose. (a) The purpose of the Partnership and its Subsidiaries, if any, shall be to conduct (i) the business consisting of the research, development, registration, manufacture, marketing, distribution and sale of (A) pharmaceutical products described by the Standard Industrial Classification (SIC) for Industry Group No. 283-Drugs in the U.S. Office of Management and Budget Standard Industrial Classification Manual (1987), including without limitation, products used to administer pharmaceutical products, (B) biotechnology products for human health uses, (C) other medical therapies used to treat human medical conditions, and (D) chemical components of pharmaceuticals, (ii) any business that is included as a Primary Business with the Consent of the Limited Partner (the businesses described in clauses (i) and (ii) being referred to herein, collectively, as the "Primary Business"), and (iii) Other Life Sciences Businesses. As used in this Agreement, "Other Life Sciences Businesses" shall mean the businesses consisting of the research, development, registration, manufacture, marketing, distribution and sale of (i) medical and hospital equipment and supplies, (ii) diagnostic equipment and products, (iii) healthcare management products and services, (iv) animal health products, (v) agricultural sciences, (vi) any business reasonably related to the Primary Business or to the businesses described in clauses (i) through (v) of this sentence and (vii) any business that is included as an Other Life Sciences Business with the Consent of the Limited Partner. The Primary Business and the Other Life Sciences Businesses are referred to in this Agreement collectively as the "Permitted Businesses." (b) The Partnership shall not engage, at any time, directly or indirectly in any business other than one or more Permitted Businesses. Prior to the Retirement Date, neither the Partnership nor any Subsidiary of the Partnership shall, directly or indirectly, without the Consent of the Limited Partner, in any Fiscal Year (i) purchase or otherwise acquire any business, business entity, assets or any interest in any of the foregoing (other than routine purchases in the ordinary course of business), (ii) make any distribution to the General Partner of any business, business entity, assets or any interest in any of the foregoing, (iii) make any sale or divestiture of any business, business entity, assets or any interest in any of the foregoing or (iv) make any contribution to the Partnership of any business, business entity, assets or any interest in any of the foregoing, unless: 23 19 (A) the revenues of the Partnership for the four most recently completed Fiscal Quarters (determined on a consolidated basis in accordance with GAAP) derived from the Primary Business would be, on a pro forma basis after giving effect to such purchase, acquisition, distribution, sale, divestiture or contribution, at least 65% of the Partnership's total revenues for such four Fiscal Quarters (determined on a consolidated basis in accordance with GAAP), or (B) if the revenues of the Partnership for the four most recently completed Fiscal Quarters (determined on a consolidated basis in accordance with GAAP) derived from the Primary Business were less than 65% of the Partnership's total revenues for such four Fiscal Quarters (determined on a consolidated basis in accordance with GAAP), such purchase, acquisition, distribution, sale, divestiture or contribution would not result, on a pro forma basis, in a decrease in the proportion of the total revenues of the Partnership (determined on a consolidated basis in accordance with GAAP) that are derived from the Primary Business for such four Fiscal Quarters. 2.7 Duration. The term of the Partnership shall commence on the date hereof and shall continue for a term expiring on December 31, 2072, which term shall be renewed automatically for additional consecutive terms of seventy-five (75) years each unless either Partner gives written notice to the other Partner of its desire not to renew such term at least one year prior to the expiration of any such term. 2.8 Property Ownership; Subsidiaries. (a) All assets and other property, whether real, personal, or mixed, tangible or intangible, of the Partnership shall be held and recorded in the name of the Partnership, except to the extent required by any applicable law. All such assets and other property shall be deemed to be owned by the Partnership as an entity, and no Partner, individually or collectively, shall have any ownership interest in such property or any portion thereof. Unless the Partnership receives the Consent of the Limited Partner or except as required by law, the Partnership shall hold or own the business and assets conveyed to the Partnership pursuant to the KB USA Asset Contribution Agreement, the KBI Asset Contribution Agreement, the Trademark Rights Contribution Agreement, the Selected Compounds Contribution Agreement or the KBI-E Asset Contribution Agreement directly or through a Subsidiary that (i) is a Pass-Through Entity, (ii) is a Wholly-Owned Subsidiary of the Partnership and (iii) executes and delivers to the Limited Partner an agreement (the performance of which is guaranteed by KB) in form and substance satisfactory to the Limited Partner undertaking to comply with the provisions of Section 3.2(b) as if it were the Partnership and to comply with all other terms of this Agreement and the Master Restructuring Agreement in respect of such assets and the business conducted by it as if it were the Partnership. The business of the Partnership shall be conducted exclusively by the Partnership and one or more such Subsidiaries, and the Partnership may not Transfer any interest in any such Subsidiary without the Consent of the Limited Partner; provided, however, that this sentence shall not prevent the Partnership from purchasing or otherwise acquiring from any Person that is not an Affiliate of KB, in a transaction not otherwise prohibited by this Agreement, 24 20 and as an incidental part thereof, any business that includes a pre-existing subsidiary not otherwise permitted by this sentence. The General Partner represents, warrants and agrees that any assets of the Partnership for which legal title is held in the name of the General Partner or any such Subsidiary shall be held in trust by the General Partner or such Subsidiary for the sole use and benefit of the Partnership in accordance with the terms and provisions of this Agreement, and no Partnership assets may be used or possessed by the General Partner or such Subsidiary other than for a Partnership purpose. All assets of the Partnership or such Subsidiary shall be recorded as the property of the Partnership or such Subsidiary on its books and records, irrespective of the name in which legal title to such assets is held. (b) The Partnership shall not, and shall not permit its Subsidiaries to, establish, enter into, maintain or permit to exist any agreement or arrangement, formal or informal, including but not limited to any voting trust, shareholder agreement, or charter or by-law provisions, which would hinder, delay or impede in any material respect the ability of the Limited Partner to exercise control over the management, operations, finances or other affairs of any Subsidiary in the exercise by the Limited Partner of its rights pursuant to Section 3.1(c) or which could result in any Subsidiary that holds any of the assets described in the third sentence of Section 2.8(a) ceasing to be a Wholly-Owned Subsidiary of the Partnership; provided, however, that this Section 2.8(b) shall not be construed as conferring on the Limited Partner any greater rights or powers with respect to the management, operations, finances or other affairs of any such Subsidiary than the rights and powers described in Section 3.2(c). (c) A Partner's Interest shall be personal property for all purposes. 2.9 Capital Contributions. (a) Initial Capital Contribution by KBLP. KBLP shall contribute as an initial Capital Contribution to the Partnership (i) cash of $400 million ($400,000,000) and (ii) the business and assets described in the KB USA Asset Contribution Agreement (subject to certain liabilities to be assumed or borne by the Partnership as provided in such agreement), such contribution to be effective as of the time provided for in the Master Restructuring Agreement, and to be credited as set forth in the definition of "Capital Account." The Partners agree that (i) KBLP's initial Capital Contribution has a value of $1 billion and (ii) the portion of such initial Capital Contribution represented by the KB USA Asset Contribution Agreement has a value of $600 million ($600,000,000). (b) Initial Capital Contribution by KBI Sub. KBI Sub shall contribute as an initial Capital Contribution to the Partnership the business and assets of KBI described in the KBI Asset Contribution Agreement, the Selected Compounds Contribution Agreement, the KBI-E Asset Contribution Agreement, and the Trademark Rights Contribution Agreement (subject to certain liabilities to be assumed or borne by the Partnership as provided in such agreements), such contribution to be effective as of the time provided in the Master Restructuring Agreement, and to be credited as set forth in the definition of "Capital Account" herein. The Partners agree that (i) KBI Sub's initial Capital Contribution has a total value of $3.4 billion and, 25 21 (ii) the portion of such initial Capital Contribution represented by the Selected Compounds Contribution Agreement has a value of $1 million. (c) Subsequent Capital Contributions by KBLP. Subject to Section 2.9(d), KBLP may make additional voluntary contributions to its Capital Account at any time, including without limitation contributions for the purpose of providing income-producing financial assets for the purpose of avoiding or curing any Allocation Shortfall; provided, however, that the assets contributed shall consist solely of (i) cash, (ii) Financial Assets, (iii) any other securities or financial instruments (subject to Sections 2.6 and 2.9(d)), (iv) other assets intended to be used in the conduct of the Permitted Business of the Partnership, or (v) any combination of the foregoing. The Partnership may not assume or take subject to any liabilities in connection with any such contribution other than liabilities related to the contributed assets which are "qualified liabilities of a partner" as defined in Section 1.707-5(a)(6) of the Regulations. The General Partner shall contribute to its Capital Account in cash, not later than ten (10) days after the end of each Fiscal Quarter an amount equal to the aggregate amount of all items paid by the Partnership in such Fiscal Quarter that will result or has resulted in an allocation to the General Partner pursuant to Section 4.3(q). (d) Prohibition Against and Ineffectiveness of Certain Contributions. Notwithstanding any other provision of this Agreement, under no circumstances shall the General Partner or any Affiliate of the General Partner at any time contribute or transfer any securities of TR, KB or any of their respective Affiliates (other than equity securities of a Subsidiary that after the contribution or transfer is a Wholly-Owned Subsidiary that is a Pass-Through Entity) to the Partnership as a Capital Contribution or otherwise, and any such attempted contribution or transfer shall be void. 2.10 Other Agreements. (a) Pursuant to terms of the Master Restructuring Agreement, the Partnership shall execute and deliver to the other parties thereto such of the Initial Agreements and Ancillary Agreements as contemplate the Partnership as a party. (b) Any amendment or waiver by the Partnership of any right under the Master Restructuring Agreement or any other Initial Agreement or Ancillary Agreement shall require the Consent of the Limited Partner as provided in Section 3.2 hereof. 2.11 Liability of the Limited Partner. The Limited Partner shall not have any liability for the debts, liabilities, contracts or other obligations of the Partnership. The failure of the Partnership to observe any formalities or requirements relating to the exercise of its powers or the management of its business or affairs under this Agreement or the Act shall not be grounds for imposing personal liability on the Limited Partner for liabilities of the Partnership. The General Partner shall, with the prior Consent of the Limited Partner, file or cause to be filed all such documents as are consistent with this Agreement in each jurisdiction where the Partnership conducts business or maintains an office and as may be necessary to protect and preserve the limited liability of the Limited Partner. The General Partner shall provide copies of each such document to the Limited Partner promptly after the filing thereof. It is the intent of the parties 26 22 hereto that no distribution to the Limited Partner shall be deemed a return of any money or other property in violation of the Act. The payment of any such money or distribution of any such property to the Limited Partner shall be deemed to be a compromise within the meaning of Section 17-502(b) of the Act, and the Limited Partner shall not be required to return any such money or property to any Person, the Partnership or any creditor of the Partnership. ARTICLE 3 MANAGEMENT OF THE PARTNERSHIP 3.1 Management by the General Partner. (a) Except as otherwise provided in this Agreement or the Master Restructuring Agreement, including without limitation Section 3.1(b) and Section 3.1(c) of this Agreement, the management, operation and policy of the Partnership shall be vested in the General Partner, which shall have the power by itself and shall be authorized and empowered on behalf and in the name of the Partnership to carry out any and all of the objects and purposes of the Partnership and to perform all acts and enter into and perform all contracts and other undertakings that it may in its sole discretion deem necessary or advisable or incidental thereto, all in accordance with and subject to the other terms of this Agreement and the Master Restructuring Agreement and subject to the fiduciary duties, whether created by statute or common law, of the General Partner to the Limited Partner. Except as otherwise provided in this Agreement or the Master Restructuring Agreement, including without limitation Section 3.1(b) and Section 3.1(c) of this Agreement, the General Partner shall have, and shall have full authority in its discretion to exercise on behalf of and in the name of the Partnership, all rights and powers of a general partner of a limited partnership under the Act necessary or convenient to carry out the purposes of the Partnership. (b) The Partnership shall have a chief executive officer and a chief financial officer, each of whom, shall be a natural person and, except as provided in Section 3.1(c), shall be appointed by the General Partner. Subject to Section 3.1(c), the chief executive officer and chief financial officer shall have the duties and powers customarily exercised by persons in similar businesses holding such titles, with such limitations and modifications as the General Partner shall deem necessary or appropriate, and shall have such other powers and such other authority to act for and on behalf of the Partnership as the General Partner may designate in writing. Subject to Section 3.1(c), the General Partner is hereby authorized in its sole discretion to delegate to such other officers of the Partnership as may be designated in writing by the General Partner the power and authority to act for and on behalf of the Partnership with respect to such matters as the General Partner may designate in writing. Any one person may hold more than one office of the Partnership, except that the same person may not serve as both the chief executive officer and the chief financial officer. All acts and omissions of each officer of the Partnership (and any other Person, employee or agent to whom the power or authority of the General Partner may be further delegated) shall be deemed the acts and omissions of the General Partner and each such officer, Person, employee and agent shall be subject to the fiduciary duties and other obligations of the General Partner to the Limited Partner. Neither any such delegation 27 23 of power and authority to the chief executive officer, the chief financial officer or any other officer of the Partnership as set forth or provided for above nor any further delegation by such delegates or by the General Partner of power or authority to one or more other Persons, officers, employees or agents of the Partnership shall relieve the General Partner of its responsibility for any actions taken by any such Person, officer, employee, or agent on behalf of the General Partner or on behalf of the Partnership. The General Partner shall promptly notify the Limited Partner of the appointment and of any termination, removal or resignation of the chief executive officer, chief financial officer and each other Select Officer and of their respective business addresses and any changes therein. (c) Notwithstanding anything to the contrary in this Agreement, in the event of an Allocation Default and until such time as such Allocation Default is cured as provided in Section 3.6(e): (i) the chief executive officer (including any chief executive officer appointed by the Limited Partner pursuant to clause (iii) below) is hereby authorized and empowered to exercise any or all of the powers set forth in Schedule 3.1(c)(i) and shall have the full power and authority to take or cause to be taken any or all of the actions set forth in such Schedule, subject to the right of the Limited Partner to direct the chief executive officer to take or cause to be taken (or to refrain from taking) any or all of such actions as provided in paragraph (iii) below; (ii) the chief financial officer (including any chief financial officer appointed by the Limited Partner pursuant to clause (iii) below) is hereby authorized and empowered to exercise any or all of the powers set forth in Schedule 3.1(c)(ii) and shall have the full power and authority to take or cause to be taken any or all of the actions set forth in such Schedule, subject to the right of the Limited Partner to direct the chief financial officer to take or cause to be taken (or to refrain from taking) any or all of such actions as provided in paragraph (iii) below; and (iii) the Limited Partner shall have, and hereby is authorized and empowered to, and may at its option, exercise by itself and in its sole discretion, any or all of, the following rights, powers and authorities on behalf of and in the name of the Partnership: (A) to direct the chief executive officer of the Partnership to take or cause to be taken any or all of the actions described in Schedule 3.1(c)(i) hereto; (B) if the chief executive officer fails to promptly take or cause to be taken any action directed by the Limited Partner pursuant to paragraph (A) above (which failure shall be determined by the Limited Partner in its sole discretion) after notice from the Limited Partner to the chief executive officer and the General Partner (which notice may be given with respect to all directions then and thereafter given by the Limited Partner and need not be given subsequently as to any particular direction and shall indicate that the failure promptly to take or 28 24 cause to be taken such actions may result in the removal, discharge and replacement of the chief executive officer) to remove from office, discharge from the employment of the Partnership and replace the chief executive officer with its own appointee by the giving of a further notice to that effect to the chief executive officer and the General Partner, in which event such removal or discharge shall automatically be effective five (5) days after the giving of such further notice, but the chief executive officer shall have no further powers or authority with respect to the Partnership effective automatically upon the giving of such further notice; provided, however, with respect to the first notice provided for in this subparagraph (B), such notice may be given from time to time but shall only be valid for a period of three months unless sooner modified or rescinded by a further notice from the Limited Partner to the chief executive officer and the General Partner; (C) to direct the chief financial officer of the Partnership to take or cause to be taken any or all of the actions described in Schedule 3.1(c)(ii) hereto; (D) to remove from office, discharge from the employment of the Partnership and replace the chief financial officer with its own appointee at any time; and (E) to direct the chief operating officer, the general counsel, the vice president of human resources, the vice president of marketing and the vice president of manufacturing, if any, to take or cause to be taken any or all of the actions within their areas of responsibility that are described in Schedule 3.1(c)(i) or Schedule 3.1(c)(ii), and, if such officer fails to promptly take or cause to be taken any action directed by the Limited Partner (or directed by the chief executive officer or chief financial officer permitted by Schedule 3.1(c)(i) or Schedule 3.1(c)(ii)), to remove from office, discharge from the employment of the Partnership and replace such officer with its own appointee at any time and such removal or discharge shall automatically be effective immediately upon the giving of notice to such officer and the General Partner. The Limited Partner shall give written notice to the General Partner of the exercise of its election to exercise its rights under paragraphs (A)-(E) above. Neither the failure of the Limited Partner to exercise any of the rights, powers and authorities provided for herein nor the relinquishment by the Limited Partner of any such right, power or authority shall constitute a waiver or otherwise prejudice the right of the Limited Partner to exercise any such right, power or authority hereunder at any other time during the continuance of such Allocation Default or upon the occurrence of any subsequent Allocation Default. The Limited Partner shall not become or be deemed a general partner of the Partnership by virtue of exercising its rights under this Section. 29 25 In the exercise of its rights pursuant to this Section 3.1(c), the Limited Partner shall have no right to direct the taking of any action not authorized by this Section 3.1(c) and shall have no right to direct the taking of any action enumerated in Section 3.2(b), other than clause (15) of Section 3.2(b) to the extent permitted by Schedule 3.1(c)(ii)(3), and no appointee of the Limited Partner shall have the authority to take any such action, without the prior written consent of the General Partner. In applying the foregoing restrictions for purposes of this paragraph, all references contained in Section 3.2(b) to KB shall be deemed to be references to TR, and all requirements to obtain the Consent of the Limited Partner shall be deemed the requirement to obtain the prior written consent or approval in writing of the General Partner. In the event the Limited Partner elects to exercise any of the rights, powers and authorities provided in this Section 3.1(c), (i) the rights, powers and authorities so exercised by the Limited Partner shall belong exclusively to the Limited Partner, (ii) the rights, powers and authorities specified in paragraphs (A) and (C) above shall be vested solely in the chief executive officer and chief financial officer, respectively, subject to the right of the Limited Partner to direct the taking of any action referred to in such paragraphs, and (iii) the General Partner shall not have any power or authority with respect thereto prior to the cure of the Allocation Default. The General Partner shall not take or omit, or direct or permit any director, officer, employee or agent of the Partnership or any of its Subsidiaries to take or omit to take any action that would hinder, impede, delay, interfere with or frustrate any action taken or, if known by the General Partner or any such director, officer, employee or agent, proposed to be taken by or at the direction of the Limited Partner pursuant to the provisions of this Section 3.1(c). The General Partner further agrees, upon request from the Limited Partner, to execute all documents and to take all actions reasonably required to effectuate any action the Limited Partner is authorized and elects to take pursuant to the provisions of this Section 3.1(c). In the event the Limited Partner elects to exercise any of its rights or powers pursuant to this Section 3.1(c), (i) the chief executive officer of the Partnership shall have, in addition to the power and authority specified in Schedule 3.1(c)(i), the power and authority to conduct the business of the Partnership in the ordinary course, subject to the rights and powers of the Limited Partner specified in this Section, (ii) each Select Officer shall have such rights, powers and authorities as were theretofore possessed by said officer, including without limitation rights to compensation and participation in benefit plans of the Partnership. As provided in Section 3.1(b), the General Partner shall retain, subject to the rights and powers of the Limited Partner set forth in this Section 3.1(c) and the limitations on the powers of the General Partner set forth in this Agreement, the power to direct the actions of the chief executive officer and other officers and employees of the Partnership with respect to actions to be taken by the Partnership other than actions described in Schedule 3.1(c)(i) or Schedule 3.1(c)(ii). The Limited Partner shall be entitled in its sole discretion and at its sole expense to supplement the compensation and employee benefits of any person appointed by it to be a Select Officer pursuant to this Section 3.1(c) and to provide to any such person such indemnities as it may deem appropriate, and the provision or receipt of any such compensation or benefits or 30 26 indemnities shall not be a breach of any duty or obligation of any such person or of the Limited Partner to the Partnership or the General Partner. Any person appointed a Select Officer by the Limited Partner (i) prior to the cure, as defined in Section 3.6(e), of such Allocation Default, may be removed from office or discharged from the employment of the Partnership only by the Limited Partner, (ii) after the cure, as defined in Section 3.6(e), of such Allocation Default, may be removed from office and discharged from the employment of the Partnership at any time by the General Partner with no severance obligation of the Partnership or the General Partner, (iii) may not, nor may any other employee of the Partnership hired at the direction of the Limited Partner or by a chief executive officer appointed by the Limited Partner, until the cure, as defined in Section 3.6(e), of such Allocation Default, be an employee of, or consultant for, or otherwise perform any other services for the Limited Partner or any of its Affiliates during his or her tenure as such officer or employee of the Partnership except as contemplated by this Section 3.1 and (iv) shall be subject to the provisions of Article 4 of the Master Restructuring Agreement. Any action that the Limited Partner directs a Select Officer to take pursuant to the provisions of this Section 3.1(c) shall, in the business judgment of the Limited Partner, contribute, directly or indirectly, to the purpose of curing the Allocation Default, improving the short-term or long-term profitability of the Partnership or reducing the risk of future Allocation Shortfalls or Allocation Defaults. No action taken or omitted by the Limited Partner in accordance with this Section 3.1(c) (including, without limitation the termination of any officer or employee which gives rise to severance or other termination obligations) shall be deemed a breach of any fiduciary or other duty to the Partnership or the General Partner or any other Person, including any transferee of any right or interest in the Partnership, or to be a breach of this Agreement, if, in the business judgment of the Limited Partner such action or omission contributes directly or indirectly to such purpose. No person appointed a Select Officer by the Limited Partner shall be deemed to have breached any fiduciary or other duty to the General Partner, nor shall any such person have any liability to the General Partner or to any other Person, as a result of implementing any direction of the Limited Partner pursuant to this Section 3.1(c). Any dispute, controversy or claim concerning any action taken or omitted by the Limited Partner pursuant to this Section 3.1(c) or concerning the interpretation of this Section 3.1(c) shall be settled by binding arbitration pursuant to the principles and procedures set forth in Article 9 of the Master Restructuring Agreement; provided, however, that notwithstanding any other provision of this Agreement or the Master Restructuring Agreement (i) the right, power and authority of the Limited Partner to take any action provided for in this Section 3.1(c) or for a Select Officer to exercise, subject to the direction of the Limited Partner, any of the powers and authorities conferred on them by this Section 3.1(c) shall not be conditioned upon the resolution of any such dispute, controversy or claim or the completion of any such arbitration proceeding or the decision of the arbitrator and (ii) neither the General Partner nor any Affiliate of the General Partner nor a Select Officer shall have any right to seek or obtain temporary, preliminary or permanent injunctive relief or other interim or equitable relief prior to the completion of such arbitration proceeding and the decision of the arbitrator 31 27 with respect to any of the rights of the Limited Partner to remove, discharge or replace Select Officers provided for in Section 3.1(c)(iii). (d) The Limited Partner shall have no authority on behalf of the Partnership to take or authorize the taking of any act prohibited by law or in contravention of the terms of this Agreement, Master Restructuring Agreement or any Ancillary Agreement. 3.2 Limitations on General Partner's Authority. (a) The General Partner shall have no authority on behalf of the Partnership to take or authorize the taking of any act prohibited by law or in contravention of the terms of this Agreement, the Master Restructuring Agreement or any Ancillary Agreement. (b) Without the Consent of the Limited Partner, the General Partner shall not have authority to take any of the following actions on behalf of the Partnership, and the Partnership shall not: (1) except as expressly provided herein, admit new general or limited partners; (2) amend this Partnership Agreement; (3) appoint Accountants other than an internationally recognized independent accounting firm to which the Limited Partner has no reasonable objection; (4) amend the Certificate of Limited Partnership, other than amendments for the sole purpose of changing the name or the registered office or address of the Partnership consistent with Section 2.3; (5) enter into any contract or agreement with KB or any of its Affiliates that may not be terminated by the Partnership at any time without penalty pursuant to the terms of Section 3.1(c) and Schedule 3.1(c)(i); (6) (i) agree to or enter into any merger or consolidation of the Partnership with another entity in which the Partnership is not the surviving entity or which results in any breach of this Agreement, the Master Restructuring Agreement or any Ancillary Agreement, (ii) agree to or make any Transfer, in any transaction or series of transactions, of all or substantially all of the assets of the Partnership or (iii) agree to or make any Transfer, in any transaction or series of transactions, of any asset or assets, the absence of which, singly or in the aggregate, would materially diminish or impair the Partnership's Primary Business or the Partnership's ability to conduct its Primary Business; (7) effect any transfer of the Partnership to, or any domestication or continuance of the Partnership in, any jurisdiction other than Delaware; or effect any 32 28 conversion of the Partnership into any other form of entity; or take any other action that would cause the Partnership to cease to be a limited partnership under the Act; (8) take any action causing or reasonably leading to liquidation or dissolution of the Partnership or its termination within the meaning of Section 8.4 or Section 8.5 of this Agreement; (9) conduct any business other than the Permitted Businesses; (10) enter into any agreement or transaction (other than any Initial Agreement or Ancillary Agreement) with or for the benefit of KB, the General Partner or any of their Affiliates on terms that are less favorable to the Partnership than arm's-length terms; (11) enter into any amendment to, or waive any material right under, the Exclusive Distributorship Agreement (as defined in the Master Restructuring Agreement) or the Clinical Supply Agreement (an Ancillary Agreement); (12) guarantee, or suffer any Lien to exist securing any liability or obligation of KB, the General Partner or any of their Affiliates other than guarantees of collection with respect to Debt (including interest thereon) of KB or any of its Affiliates not exceeding $100 million in the aggregate; (13) settle any claim, lawsuit, litigation or other proceeding that would result in the imposition of injunctive or other equitable relief against the Limited Partner or that would prohibit, restrict or limit any allocation provided for in Section 4.1 or 4.3(l) or prohibit, restrict or limit any distribution provided for in Section 5.2(a) or 5.6, it being understood that any such settlement entered into with a Person other than KB or any of its Affiliates shall not be considered to prohibit, restrict or limit any such allocation or distribution solely because it results in a reduction of Profits or a reduction of cash; (14) make or change any tax election of the Partnership that may reasonably be expected to have any adverse tax consequences to the Limited Partner; (15) take any action which would result in the Partnership, individually or together with its Subsidiaries, if any, having, at any time, (i) Debt (together with the amount of any accrued interest thereon) in excess of $1 billion in the aggregate, which is not guaranteed by KB in accordance with Section 3.5 hereof (provided, however, such guarantee shall not be required as long as KB is personally liable for the full amount of all liabilities of the Partnership) or (ii) any non-recourse Debt; (16) enter into, prior to the Retirement Date, any "golden parachute" or other severance agreement or any other agreement or arrangement that obligates the Partnership, directly or indirectly, to pay in respect of any employee of the Partnership severance or similar benefits in excess of three (3) times the employee's annual cash compensation as the result of the exercise by the Limited Partner of its rights pursuant to 33 29 Section 3.1(c)(iii), but the Limited Partner agrees not to unreasonably withhold consent with respect thereto; (17) make any distribution other than those specifically permitted by this Agreement; (18) make any distribution in property other than cash, except as permitted by Section 5.2(c), or in any currency other than Dollars; provided, however, that (i) the Limited Partner shall not unreasonably withhold its consent to any in-kind distribution to the General Partner, and (ii) rights with respect to trademarks shall be distributed in kind as required by Section 5.10; (19) lend funds to, or own Debt of, KB or any of its Affiliates other than as set forth in Section 5.8; (20) (x) prior to the Retirement Date, with respect to any Covered Compound or any product containing any Covered Compound the Outlicensing of which is prohibited or restricted by Section 3.6 of the Master Restructuring Agreement, directly or indirectly grant any license or sublicense or otherwise Transfer any rights with respect to (i) any such Covered Compound or any products containing any such Covered Compound, except as permitted by Section 3.6 of the Master Restructuring Agreement or (ii) except as permitted by Section 5.10, any trademark used in connection with any Covered Compound or any product referred to in clause (i) above, other than in connection with any Outlicensing permitted by Section 3.6 of the Master Restructuring Agreement, (y) prior to the KBI-E Asset Purchase, with respect to any Covered Compound or any product containing any Covered Compound the Outlicensing of which is prohibited or restricted by Section 3.6A of the Master Restructuring Agreement, directly or indirectly grant any license or sublicense or otherwise Transfer any rights with respect to (i) any such Covered Compound or any products containing any such Covered Compound, except as permitted by Section 3.6A of the Master Restructuring Agreement or (ii) except as permitted by Section 5.10, any trademark used in connection with any such Covered Compound or any product containing any such Covered Compound, other than in connection with any Outlicensing permitted by Section 3.6A of the Master Restructuring Agreement and (z) on and after the Retirement Date, directly or indirectly, grant any Outlicense or otherwise Transfer any rights with respect to any Compound that is or, but for the KBI-E Asset Purchase, would have been a Covered Compound (or any product containing any such Compound) if such action, individually or in the aggregate, would materially adversely affect the Partnership's ability to actively conduct the Primary Business as theretofore conducted; (21) subject to Section 2.8, establish any subsidiary or foreign branch of the Partnership, establish, own or acquire any equity interest in, or capitalize, any entity other than (i) a Wholly-Owned Subsidiary that is a Pass-Through Entity or (ii) a Non-Controlled Entity, or enter into or permit any transaction that would result in the Partnership ceasing to control, or ceasing to own all the outstanding equity or voting 34 30 securities or interests in any Wholly-Owned Subsidiary; provided, however, that this paragraph shall not prevent the Partnership from purchasing or otherwise acquiring from any Person that is not an Affiliate of KB, in a transaction not otherwise prohibited by this Agreement, and as an incidental part thereof, any business that includes a pre-existing subsidiary or foreign branch; (22) agree with the Internal Revenue Service or any state, local or foreign tax authority to extend any period of limitations with regard to any tax matter; (23) assign any value to any asset (other than cash) contributed to the Partnership for purposes of crediting value to the Capital Account of any Partner or for purposes of making any adjustment to the Capital Account of any Partner in respect of any in-kind distribution, except as provided in Section 3.8; and (24) sell or dispose, by any transaction that is of a type that would result in the recovery of basis for federal tax purposes, of any asset contributed to the Partnership pursuant to the KBI Asset Contribution Agreement, the Selected Compounds Contribution Agreement, the KBI-E Asset Contribution Agreement or the Trademark Rights Contribution Agreement so long as the books of the Partnership record any differential between the basis of such asset for federal income tax purposes and its Gross Asset Value (as determined without regard to any adjustment described in clause (ii) of the definition of Gross Asset Value). (c) Without the Consent of the Limited Partner, the General Partner shall not have authority to take and the Partnership shall not take any action, or fail to take any action, if such action or failure to act would require the Consent of the Limited Partner pursuant to the definition of "Capital Account" in Article 1 or pursuant to Sections 2.6(b), 2.8(a), 2.10(b), 2.11, 6.3, 7.1(a) or 8.2 or pursuant to any other provision hereof that requires the Consent of the Limited Partner. (d) Any action taken in contravention of Section 3.2(b) or 3.2(c) shall be voidable at the option of the Limited Partner. 3.3 Persons Dealing with the Partnership. No person (other than an Affiliate of a Partner) dealing with the Partnership or the General Partner shall be required to determine, and any such person may conclusively assume and rely upon, the authority of the General Partner to execute any instrument or make any undertaking on behalf of the Partnership. No person (other than an Affiliate of a Partner) dealing with the Partnership or the General Partner shall be required to determine any facts or circumstances bearing upon the existence of such authority. Without limitation of the foregoing, any person (other than an Affiliate of a Partner) dealing with the Partnership or the General Partner is entitled to rely upon a certificate signed by the General Partner as to: (i) the identity of any Partner; 35 31 (ii) the existence or non-existence of any fact or facts that constitute a condition precedent to acts by the General Partner or are in any other manner germane to the affairs of the Partnership; (iii) the identity of persons who are authorized to execute and deliver any instrument or document of or on behalf of the Partnership; or (iv) any act or failure to act by the Partnership or any other matter whatsoever involving the Partnership or any Partner. 3.4 Enforcement of Certain Rights. In the event that KB or any of its Affiliates may have any liability or obligation to the Partnership pursuant to or in connection with any Initial Agreement or Ancillary Agreement between the Partnership and KB or such Affiliate, the Limited Partner, after consulting with the Partnership and unless the Partnership actively enforces such liability or obligation, may (subject to the requirements of Article 9 of the Master Restructuring Agreement) take such action as may be necessary to enforce such liability or obligation, including initiating an arbitration pursuant to Article 9 of the Master Restructuring Agreement or bringing an action on behalf and in the right of the Partnership against such Partner or Affiliate to enforce an arbitration award or to obtain interim relief pursuant to Section 9.4 of the Master Restructuring Agreement. The Limited Partner shall have sole and exclusive control over such arbitration or litigation, and the expenses of such arbitration or litigation shall be borne by the Limited Partner, except that if the Limited Partner is successful in enforcing such liability or obligation and such success results in a material benefit to the Partnership, the Limited Partner shall be entitled to reimbursement by the Partnership for the reasonable costs and expenses incurred by the Limited Partner in enforcing such liability or obligation. 3.5 Certain Guarantees by KB. All guarantees required to be given by KB pursuant to clause (15) of Section 3.2(b) or Section 5.8(a) of this Agreement shall be unconditional and irrevocable guarantees of payment and performance in form and substance satisfactory to the Limited Partner. 3.6 Allocation Shortfalls and Allocation Defaults. (a) Definitions. The following terms used in this Section shall have the following respective meanings: "Allocation Default" shall mean the occurrence of any of the following: (i) the failure of the Partnership to distribute to the Limited Partner the full amounts specified in Section 5.2(a) within fifteen (15) days after written notice from the Limited Partner (effective in accordance with Section 12.8 of the Master Restructuring Agreement) of non-receipt of such distribution with respect to any Fiscal Quarter as and when due pursuant to this Agreement; or (ii) the occurrence of an Allocation Shortfall with respect to any Fiscal Year if (A) the General Partner shall fail to provide to the Limited Partner (with a copy to TR) by the end of the second Fiscal Quarter in the succeeding Fiscal Year a written projection (the reasonableness of which is certified by the chief financial officer of KB) showing sufficient Profits in such succeeding Fiscal Year to avoid an Allocation Shortfall with respect to such succeeding Fiscal Year, or (B) the 36 32 Partnership shall have suffered an Allocation Shortfall with respect to either of the two (2) Fiscal Years immediately preceding the Fiscal Year in which such Allocation Shortfall occurs; or (iii) any event that is deemed to be an Allocation Default pursuant to Section 3.6(b). The existence of an Allocation Default is subject to Section 3.6(b) below. An "Allocation Shortfall" shall exist with respect to any Fiscal Year if: (i) the Profits of the Partnership for such Fiscal Year are not sufficient to (A) make the full amount of the allocations specified in Sections 4.1(b) through 4.1(e) with respect to such Fiscal Year, and (B) cure any Allocation Shortfall with respect to any prior Fiscal Year; or (ii) the Partnership fails to deliver to the Limited Partner the financial statements for such Fiscal Year and Accountant's opinion with respect thereto provided for in Section 6.5(a)(i) and 6.5(a)(ii) within four (4) months after the end of such Fiscal Year or, if an Allocation Shortfall shall have occurred with respect to either of the two (2) Fiscal Years immediately preceding such Fiscal Year or the Partnership shall have failed to make timely delivery to the Limited Partner in accordance with Section 3.7 the Compliance Certificate (as defined in Section 3.7) for each Fiscal Quarter in such Fiscal Year, the Partnership fails to deliver to the Limited Partner unaudited financial statements, prepared in accordance with GAAP, for such Fiscal Year of the type described in Section 6.5(a)(i) and Section 6.5(a)(ii) within twenty-one (21) days after the end of such Fiscal Year and the audited financial statements for such Fiscal Year provided for in Section 6.5(a)(i) and 6.5(a)(ii) within two (2) months after the end of such Fiscal Year; or (iii) any event that is deemed to be an Allocation Shortfall pursuant to Section 3.6(b) occurs. The existence of an Allocation Shortfall is subject to Section 3.6(b) below. (b) Certain Disputes Concerning the Amount of Required Allocations and Distributions. In the event there is a good faith dispute between the Limited Partner and the General Partner concerning the amount of allocations required to be made to the Capital Account of, or to be distributed to, the Limited Partner (including without limitation any dispute concerning the computation of the Fourth Tier Amount or the amount required to be allocated to the Limited Partner pursuant to Section 4.1(e) or Section 4.1(h)) or the accuracy and correctness of the financial statements and Accountant's opinion(s) described in Section 6.5(a)(i) and 6.5(a)(ii)), the Partners agree to submit such dispute to arbitration pursuant to the provision of Article 9 of the Master Restructuring Agreement and to furnish the arbitrators within three (3) months after the appointment of the arbitrators with all documents, records and other information as is reasonably necessary for the arbitrators to review in order to reach a determination. Prior to such determination, an Allocation Shortfall or Allocation Default shall not be deemed to exist solely by reason of the failure to make allocations or distributions with respect to the disputed amount provided that timely allocations and distributions are made in the undisputed amount. In the event it is determined by agreement of the parties, arbitration or otherwise that the required amount of allocations or distributions to the Limited Partner is in excess of the allocations or distributions actually made to the Limited Partner, an Allocation Shortfall and an Allocation Default shall exist with respect to the Fiscal Year to which such dispute relates (and shall be deemed to have existed commencing as of the end of such Fiscal Year) unless the Partnership makes the allocations and distributions in the required amount within fifteen (15) days after the date of such determination. In the event the General Partner has failed to furnish the arbitrators with the required information within three (3) months after the appointment of the arbitrators and 37 33 the determination of the arbitrators is not made within six (6) months after the appointment of the arbitrators, an Allocation Shortfall or Allocation Default, as applicable, shall be deemed to exist for the period in question (the amount of the Allocation Shortfall or Allocation Default being deemed to be equal to the difference between the amount of the allocations or distributions actually made and the amount of allocations or distributions claimed by the Limited Partner to be required). The agreement engaging the arbitrators shall require the arbitrators to render their decision within three (3) months after the receipt by the arbitrators of all required information. The parties shall cooperate and use all reasonable efforts to cause any arbitration proceeding referred to above to be completed and the decision of the arbitrators to be delivered within the three-month period referred to in the immediately preceding sentence. (c) Actions in the Event of an Allocation Shortfall. In the event of the occurrence of an Allocation Shortfall or in the event the Partnership fails to deliver in accordance with Section 3.7 for any Fiscal Quarter a Compliance Certificate certifying that the estimated Profits for the Fiscal Year will be sufficient to avoid an Allocation Shortfall for the Fiscal Year, KB shall provide to TR within sixty (60) days after the date such Compliance Certificate is required to be delivered or within thirty (30) days after the due date for the delivery of the financial statements described in Sections 6.5(a)(i) and 6.5(a)(ii) with respect to the Fiscal Year in which the Allocation Shortfall occurs, as applicable, a written plan setting forth in reasonable detail the measures to be undertaken by KB and/or the Partnership to cure such Allocation Shortfall and avoid any Allocation Shortfall in future periods, together with a proposed budget and forecast reflecting the implementation of such plan. Such plan may include among other things, operational and financial changes with respect to the Partnership, consistent with this Agreement and the Master Restructuring Agreement, and/or the contribution or designation of Qualifying Financial Assets to the Partnership to generate Profits sufficient to cure the Allocation Shortfall and avoid future Allocation Shortfalls. (d) Cure of Allocation Shortfalls. An Allocation Shortfall resulting from the insufficiency of the Profits of the Partnership shall be considered to be cured only if and when (i) sufficient additional Profit is allocated to the Limited Partner to eliminate the Allocation Shortfall, (ii) such additional Profit is distributed to the Limited Partner, (iii) the Partnership has sufficient Profits in the most recently completed Fiscal Year following the Fiscal Year in which an Allocation Shortfall occurred so that there would have been no Allocation Shortfall in such most recently completed Fiscal Year if no effect had been given to the special allocation of 100% of R&D Expenses set forth in Section 4.3(i), if any, and (iv) good faith budgets and forecasts prepared by KB and delivered to the Limited Partner (the reasonableness of which are certified by the chief financial officer of KB) show (without giving effect to the special 100% allocation of R&D Expenses set forth in Section 4.3(i)) the absence of further Allocation Shortfalls for a period of not less than two (2) Fiscal Years. An Allocation Shortfall resulting from the failure to make timely delivery of the financial statements referred to in clause (ii) of the definition of "Allocation Shortfall" shall be considered to be cured only upon the delivery of such financial statements. (e) Cure of Allocation Defaults. An Allocation Default that results solely from the failure to make distributions to the Limited Partner shall be considered to be cured only 38 34 upon the expiration of four (4) Fiscal Quarters following the end of the Fiscal Quarter in which such distributions are made in full; provided that no other Allocation Shortfall or Allocation Default shall have occurred. An Allocation Default that results from the occurrence of Allocation Shortfalls shall be considered to be cured only upon the expiration of four (4) Fiscal Quarters following the end of the Fiscal Year in which all such Allocation Shortfalls are cured; provided that no other Allocation Shortfall or Allocation Default shall have occurred; except that an Allocation Default that results solely from two or more Allocation Shortfalls of the type described in clause (i) of the definition of Allocation Shortfall shall be deemed to be cured upon the expiration of two (2) Fiscal Quarters following the end of the Fiscal Year in which all such Allocation Shortfalls are cured if, for each such Fiscal Quarter, the Limited Partner has timely received a Compliance Certificate certifying that the Partnership has Profits for the portion of the Fiscal Year through the end of such Fiscal Quarter (Profits being calculated for such purpose as if the taxable year of the Partnership had been such Fiscal Quarter or Fiscal Quarters) which, together with the amount of their estimates (certified to be reasonable) of Profits for the remainder of the Fiscal Year, are sufficient to avoid an Allocation Shortfall for the Fiscal Year, and such Compliance Certificates are executed by both the chief financial officer of the Partnership and the chief financial officer of KB and otherwise comply with Section 3.7. 3.7 Compliance Certificate. The Partnership shall deliver to the Limited Partner within five (5) business days after the end of each Fiscal Quarter a certificate in the form set forth as Exhibit 3.7 hereto executed by the chief financial officer of the Partnership (a "Compliance Certificate") certifying (i) whether or not the Partnership has Profits for the portion of the Fiscal Year through the end of such Fiscal Quarter (Profits being calculated for such purpose as if the taxable year of the Partnership had been such Fiscal Quarter or Fiscal Quarters) which, together with the amount of their estimates (certified to be reasonable) of Profits for the remainder of the Fiscal Year, are sufficient to avoid an Allocation Shortfall for the Fiscal Year, (ii) if the amount of such actual and estimated Profits are not sufficient to avoid an Allocation Shortfall for the Fiscal Year, the estimated amount of such Allocation Shortfall and (iii) whether or not a Put Option Event has occurred (and if a Put Option Event has occurred, setting forth a description in reasonable detail of such Put Option Event); provided, however, that if the Compliance Certificate does not certify that such actual Profits and estimated Profits are sufficient to avoid an Allocation Shortfall for the Fiscal Year (or if any Compliance Certificate delivered in respect of any of the previous four (4) Fiscal Quarters shall have failed to so certify) or certifies that a Put Option Event has occurred (or if any Compliance Certificate delivered in respect of any of the previous four (4) Fiscal Quarters shall have so certified) or if an Allocation Shortfall shall have occurred with respect to either of the two (2) most recently completed Fiscal Years, then such Compliance Certificate shall be executed by both the chief financial officer of the Partnership and the chief financial officer of KB. For purposes of the definition of the term "Allocation Shortfall" contained in Section 3.6(a), the Partnership shall be deemed to have "failed to make timely delivery to the Limited Partner" of any Compliance Certificate only if it has both (i) failed to deliver such Compliance Certificate to the Limited Partner within five (5) business days after the end of the applicable Fiscal Quarter and (ii) has failed to deliver such Compliance Certificate to the Limited Partner within five (5) business days after written notice of non-receipt of such Compliance Certificate from the Limited Partner (effective in accordance with Section 12.8 of the Master Restructuring Agreement). 39 35 3.8 Valuation of Certain Contributions and Distributions. In the event that any contribution to or distribution in respect of the Capital Account of a Partner is to be made in property rather than in cash in Dollars (other than contributions pursuant to Section 2.9(a) or (b)), the gross fair market value of such property shall be determined as set forth below at the time of or prior to such contribution or distribution. In the event such property shall consist of publicly traded securities for which market quotations are readily available, the value of such securities shall be the average closing price for such securities for the three (3) most recent trading days in the principal market for such securities immediately prior to the contribution or distribution. With respect to all other property (other than cash), the General Partner and the Limited Partner, acting in good faith, shall attempt to agree on the gross fair market value of the property. If the Partners are not able to reach agreement as to the gross fair market value of such property on or prior to the date on which such contribution or distribution is proposed to be made, the parties shall choose an appraiser who shall then determine the gross fair market value of the property and whose valuation shall be final and binding on the parties. If the Partners are unable to agree on an appraiser, each Partner shall select an appraiser of national standing and the two (2) appraisers so chosen shall, in good faith, choose a third appraiser of national standing. If the two (2) appraisers cannot agree on a third appraiser within ten (10) business days, then the third appraiser shall be selected by the American Arbitration Association. The three (3) appraisers so appointed shall jointly determine the gross fair market value, provided that if such appraisers are unable to agree upon the gross fair market value, each appraiser shall individually propose a gross fair market value, and the gross fair market value shall be deemed to be the average of the two (2) proposed values which are closest together. If either the General Partner or the Limited Partner fails to select an appraiser within ten (10) business days after receipt of a notice specifying such failure from the other party, such other party may select an appraiser in its sole discretion to determine the gross fair market value, which determination shall be final and binding on the parties. The parties shall instruct each appraiser so retained to deliver a written opinion within sixty (60) days following the selection of such firm. The fees and expenses of such appraisers shall, unless otherwise agreed by the parties, be borne by the Partner making the capital contribution or receiving the distribution, as the case may be. Liabilities shall be valued using federal tax accounting principles. 3.9 Partnership Opportunities. Neither the General Partner (or any of its Affiliates) nor the Limited Partner (or any of its Affiliates) shall, as a result of its position or status as a Partner in the Partnership, have any obligation to offer to the Partnership any interest in any business conducted or to be acquired by such Partner (or any such Affiliate) or to permit the Partnership or the other Partner to participate in any such business. This Section 3.9 shall not affect or limit any obligation of either Partner (or any of its Affiliates) under any other agreement. ARTICLE 4 ALLOCATIONS 4.1 Profits. After giving effect to the special allocations set forth in Sections 4.3 and 4.4, Profits for any Allocation Year shall be allocated in the following order and priority: 40 36 (a) first, one hundred percent (100%) to the General Partner in an amount equal to the remainder, if any, of (i) the cumulative Losses allocated pursuant to Section 4.2(c) for all prior Allocation Years, minus (ii) the sum of (A) the cumulative Profits allocated pursuant to this Section 4.1(a) for all prior Allocation Years, plus (B) the gain allocated pursuant to Section 4.3(l)(vi); (b) second, ninety-five percent (95%) to the Limited Partner and five percent (5%) to the General Partner until the Limited Partner has been allocated an amount equal to the remainder, if any, of (i) the cumulative Priority Return from the commencement of the Partnership through the last day of such Allocation Year, minus (ii) the sum of (A) the cumulative Profits allocated to the Limited Partner pursuant to this Section 4.1(b) for all prior Allocation Years, plus (B) the gain allocated to the Limited Partner pursuant to Section 4.3(l)(iii); (c) third, ninety-nine percent (99%) to the Limited Partner and one percent (1%) to the General Partner until the Limited Partner has been allocated an amount equal to the remainder, if any, of (i) the cumulative items of expense allocated to the Limited Partner pursuant to Sections 4.3(i), 4.3(j), and 4.3(k) (other than Depreciation attributable to the gross positive adjustments pursuant to the Partial Retirement to the Gross Asset Values of assets contributed by the Limited Partner pursuant to Section 2.9(b)) for the current and all prior Allocation Years, minus (ii) the sum of (A) the cumulative Profits allocated to the Limited Partner pursuant to this Section 4.1(c) for all prior Allocation Years, plus (B) the gain allocated to the Limited Partner pursuant to Section 4.3(l)(ii); (d) fourth, ninety-five percent (95%) to the Limited Partner and five percent (5%) to the General Partner until an amount has been allocated equal to the product of (i) 100/95, times (ii) the remainder, if any, of (A) the sum of (1) the cumulative Fourth Tier Amount from the commencement of the Partnership through the last day of such Allocation Year and (2) the cumulative Contingent Amount Gross-Up for each Fiscal Quarter ending prior to July 1, 2000, minus (B) the sum of (x) the cumulative Profits allocated to the Limited Partner pursuant to this Section 4.1(d) for all prior Allocation Years plus (y) the gain allocated pursuant to Section 4.3(l)(i)(y); (e) fifth, one hundred percent (100%) to the Limited Partner in an amount equal to the remainder, if any, of (i) the sum of the following product for all Fiscal Quarters: 2.258% multiplied by the excess (greater than zero) of $1 billion over the weighted average for the Fiscal Quarter of the daily dollar amount of the General Partner's Capital Account balance, such balance to be determined without regard to allocations under this Article 4 for the current Allocation Year, minus (ii) the cumulative Profits allocated under this Section 4.1(e) for all prior Allocation Years; (f) sixth, one percent (1%) to the Limited Partner and ninety-nine percent (99%) to the General Partner in an amount equal to the remainder, if any, of (i) the cumulative Losses allocated pursuant to Section 4.2(b) for all prior Allocation Years, minus (ii) the sum of 41 37 (A) the cumulative Profits allocated pursuant to this Section 4.1(f) for all prior Allocation Years, plus (B) the gain allocated pursuant to Section 4.3(l)(v); (g) seventh, one hundred percent (100%) to the General Partner until the General Partner has been allocated an amount equal to the remainder, if any, of (i) the cumulative items of expense allocated to the General Partner pursuant to Sections 4.3(i), 4.3(j) and 4.3(k) for the current and all prior Allocation Years, minus (ii) the sum of (A) the cumulative Profits allocated to the General Partner pursuant to Section 4.1(c) for the current and all prior Allocation Years, plus (B) the cumulative Profits allocated pursuant to this Section 4.1(g) for all prior Allocation Years, plus (C) the gain allocated pursuant to Section 4.3(l)(vii); and (h) the balance, if any, one percent (1%) to the Limited Partner and ninety-nine percent (99%) to the General Partner. 4.2 Losses. After giving effect to the special allocations set forth in Sections 4.3 and 4.4, Losses for any Allocation Year shall be allocated in the following order and priority: (a) first, one percent (1%) to the Limited Partner and ninety-nine percent (99%) to the General Partner in an amount equal to the remainder, if any, of (i) the cumulative Profits allocated pursuant to Section 4.1(h) for all prior Allocation Years, minus (ii) the sum of (A) the losses allocated pursuant to Section 4.3(m)(ii), plus (B) the cumulative Losses allocated pursuant to this Section 4.2(a) for all prior Allocation Years; (b) second, one percent (1%) to the Limited Partner and ninety-nine percent (99%) to the General Partner until the Capital Account of the Limited Partner is reduced to zero; and (c) the balance, if any, one hundred percent (100%) to the General Partner. 4.3 Special Allocations. The following special allocations shall be made: (a) Minimum Gain Chargeback. Except as otherwise provided in Section 1.704-2(f) of the Regulations, notwithstanding any other provision of this Article 4, if there is a net decrease in Partnership Minimum Gain during any Allocation Year, each Partner shall be specially allocated items of Partnership income and gain for such Allocation Year (and, if necessary, subsequent Allocation Years) in an amount equal to such Partner's share of the net decrease in Partnership Minimum Gain, determined in accordance with Section 1.704-2(g) of the Regulations. Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Partner pursuant thereto. The items to be so allocated shall be determined in accordance with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of the Regulations. This Section 4.3(a) is intended to comply with the minimum gain chargeback requirement in Section 1.704-2(f) of the Regulations and shall be interpreted consistently therewith. (b) Partner Minimum Gain Chargeback. Except as otherwise provided in Section 1.704-2(i)(4) of the Regulations, notwithstanding any other provision of this Article 4, if 42 38 there is a net decrease in Partner Nonrecourse Debt Minimum Gain attributable to a Partner Nonrecourse Debt during any Allocation Year, each Partner who has a share of the Partner Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(5) of the Regulations, shall be specially allocated items of Partnership income and gain for such Allocation Year (and, if necessary, subsequent Allocation Years) in an amount equal to such Partner's share of the net decrease in Partner Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(4) of the Regulations. Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Partner pursuant thereto. The items to be so allocated shall be determined in accordance with Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations. This Section 4.3(b) is intended to comply with the minimum gain chargeback requirement in Section 1.704-2(i)(4) of the Regulations and shall be interpreted consistently therewith. (c) Qualified Income Offset. In the event the Limited Partner unexpectedly receives any adjustments, allocations, or distributions described in Section 1.704-1(b)(2)(ii)(d)(4), Section 1.704-1(b)(2)(ii)(d)(5), or Section 1.704-1(b)(2)(ii)(d)(6) of the Regulations, items of Partnership income and gain shall be specially allocated to the Limited Partner in an amount and manner sufficient to eliminate, to the extent required by the Regulations, the Adjusted Capital Account Deficit of the Limited Partner as quickly as possible, provided that an allocation pursuant to this Section 4.3(c) shall be made only if and to the extent that the Limited Partner would have an Adjusted Capital Account Deficit after all other allocations provided for in this Article 4 have been tentatively made as if this Section 4.3(c) were not in the Agreement. (d) Gross Income Allocation. In the event the Limited Partner has a deficit Capital Account at the end of any Allocation Year which is in excess of the sum of (i) the amount the Limited Partner is obligated to restore pursuant to any provision of this Agreement, and (ii) the amount the Limited Partner is deemed to be obligated to restore pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations, the Limited Partner shall be specially allocated items of Partnership income and gain in the amount of such excess as quickly as possible, provided that an allocation pursuant to this Section 4.3(d) shall be made only if and to the extent that the Limited Partner would have a deficit Capital Account in excess of such sum after all other allocations provided for in this Article 4 have been made as if Section 4.3(c) and this Section 4.3(d) were not in the Agreement. (e) Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions for any Allocation Year shall be specially allocated to the Partner who bears the economic risk of loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable in accordance with Section 1.704-2(i)(1) of the Regulations. (f) Nonrecourse Deductions. Nonrecourse Deductions for any Allocation Year shall be specially allocated among the Partners one percent (1%) to the Limited Partner and ninety-nine percent (99%) to the General Partner. 43 39 (g) Section 754 Adjustments. To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Section 734(b) or Section 743(b) of the Code is required pursuant to Section 1.704-1(b)(2)(iv)(m)(2) of the Regulations or Section 1.704-1(b)(2)(iv)(m)(4) of the Regulations to be taken into account in determining Capital Accounts as the result of a distribution to a Partner in complete liquidation of its Interest, the amount of such adjustment to Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Partners in accordance with their interests in the Partnership in the event Section 1.704-1(b)(2)(iv)(m)(2) of the Regulations applies, or to the Partner to whom such distribution was made in the event Section 1.704-1(b)(2)(iv)(m)(4) of the Regulations applies. (h) Allocations Relating to Taxable Issuance of Partnership Interests. Any income, gain, loss, or deduction realized as a direct or indirect result of the issuance of an Interest by the Partnership to a Partner (the "Issuance Items") shall be allocated among the Partners so that, to the extent possible, the net amount of such Issuance Items, together with all other allocations under this Agreement to each Partner, shall be equal to the net amount that would have been allocated to each such Partner if the Issuance Items had not been realized. (i) Research and Development Expenses. R&D Expenses for each Allocation Year shall be specially allocated twenty-five percent (25%) to the Limited Partner and seventy-five percent (75%) to the General Partner; provided, however, that in the event of an Allocation Default and if the General Partner so elects, which election shall be irrevocable until such Allocation Default is cured, R&D Expenses for each Allocation Year shall be specially allocated 100% to the General Partner. (j) Selling, General and Administrative Expenses. SG&A Expenses for each Allocation Year shall be specially allocated twenty-five percent (25%) to the Limited Partner and seventy-five percent (75%) to the General Partner. (k) Depreciation. Items of Depreciation attributable to goodwill and other intangible property contributed to the Partnership pursuant to Section 2.9 shall be specially allocated five percent (5%) to the Limited Partner and ninety-five percent (95%) to the General Partner. (l) Mark-to-Market Gain. In the event that the Partnership is deemed to realize gain as a result of the adjustment to the Gross Asset Value of any Partnership asset in connection with the retirement of a portion of the Limited Partner's Interest pursuant to Section 5.6, such gain shall be specially allocated in the following order and priority: (i) first, ninety-nine percent (99%) to the Limited Partner and one percent (1%) to the General Partner until the Limited Partner has been allocated an amount equal to (x) first, the Limited Partner Share of Agreed Value, then (y) the remainder, if any, of the sum of the cumulative Fourth Tier Amount and the cumulative Contingent Amount Gross-Up for all prior Allocation Years, minus the cumulative Profits allocated to the Limited Partner pursuant to Section 4.1(d) for all prior Allocation years; 44 40 (ii) second, ninety-nine percent (99%) to the Limited Partner and one percent (1%) to the General Partner until the Limited Partner has been allocated an amount equal to the remainder, if any, of (i) the cumulative items of expense allocated to the Limited Partner pursuant to Sections 4.3(i), 4.3(j) and 4.3(k) for the current and all prior Allocation Years, minus (ii) the cumulative Profits allocated to the Limited Partner pursuant to Section 4.1(c) for all prior Allocation Years; (iii) third, ninety-five percent (95%) to the Limited Partner and five percent (5%) to the General Partner until the Limited Partner has been allocated an amount equal to the remainder, if any, of (i) the cumulative Priority Return from the commencement of the Partnership through the last day of the Allocation Year, minus (ii) the cumulative Profits allocated to the Limited Partner pursuant to Section 4.1(b) for all prior Allocation Years; (iv) fourth, one hundred percent (100%) to the Limited Partner until the Limited Partner has been allocated an amount equal to five percent (5%) of the sum of all gross positive adjustments that are made in connection with the Partial Retirement to the Gross Asset Values of the assets contributed by the Limited Partner pursuant to Section 2.9(b); (v) fifth, one percent (1%) to the Limited Partner and ninety-nine percent (99%) to the General Partner in an amount equal to the remainder, if any, of (i) the cumulative Losses allocated pursuant to Section 4.2(b) for all prior Allocation Years, minus (ii) the cumulative Profits allocated pursuant to Section 4.1(f) for all prior Allocation Years; (vi) sixth, one hundred percent (100%) to the General Partner in an amount equal to the remainder, if any, of (i) the cumulative Losses allocated pursuant to Section 4.2(c) for all prior Allocation Years, minus (ii) the cumulative Profits allocated pursuant to Section 4.1(a) for all prior Allocation Years; (vii) seventh, one hundred percent (100%) to the General Partner until the General Partner has been allocated an amount equal to the remainder, if any, of (i) the cumulative items of expense allocated to the General Partner pursuant to Sections 4.3(i), 4.3(j), and 4.3(k) for the current and all prior Allocation Years, minus (ii) the sum of (A) the cumulative Profits allocated to the General Partner pursuant to Section 4.1(c) for all prior Allocation Years, plus (B) the cumulative Profits allocated pursuant to Section 4.1(g) for all prior Allocation Years; and (viii) eighth, the balance, if any, one percent (1%) to the Limited Partner and ninety-nine percent (99%) to the General Partner. (m) Mark-to-Market Loss. In the event that the Partnership is deemed to realize loss as a result of the adjustment to the Gross Asset Value of any Partnership asset in connection with the retirement of a portion of the Limited Partner's Interest pursuant to Section 5.6, such loss shall be specially allocated in the following order and priority: 45 41 (i) first, one percent (1%) to the Limited Partner and ninety-nine percent (99%) to the General Partner in an amount equal to the cumulative gain allocated pursuant to Section 4.3(l)(viii) for the current and all prior Allocation Years; (ii) second, one percent (1%) to the Limited Partner and ninety-nine percent (99%) to the General Partner in an amount equal to the remainder, if any, of (i) the cumulative Profits allocated pursuant to Section 4.1(h) for all prior Allocation Years, minus (ii) the cumulative Losses allocated pursuant to Section 4.2(a) for all prior Allocation Years; (iii) third, one percent (1%) to the Limited Partner and ninety-nine percent (99%) percent to the General Partner until the Capital Account of the Limited Partner is reduced to zero; and (iv) fourth, the balance, if any, one hundred percent (100%) to the General Partner. (n) Excess Investment Income. In any Allocation Year in which the average daily Capital Account of the General Partner exceeds the Threshold Amount, Net Investment Income in excess of $69,000,000 that is accrued by the Partnership shall be specially allocated one percent (1%) to the Limited Partner and ninety-nine percent (99%) to the General Partner. (o) Losses from Certain Non-Wholly-Owned Subsidiaries. All distributive shares of the Partnership from any Person that is not a Wholly-Owned Subsidiary and which is a Pass-Through Entity and which, if aggregated would be less than zero (i.e. would yield an overall loss), shall be allocated one hundred percent (100%) to the General Partner. (p) Gain or Loss on Certain Distributions. In the event the Partnership makes a distribution pursuant to Section 5.10, any deemed gain or loss resulting from the adjustment to the Gross Asset Value of any distributed trademark shall be allocated one hundred percent (100%) to the Limited Partner. (q) KB USA Liabilities. All items of deduction and loss arising from the liabilities of KB USA assumed by the Partnership pursuant to the KB USA Asset Contribution Agreement or otherwise with respect to the matters that are described on Schedule 2.5(f) to the KB USA Asset Contribution Agreement, shall be specifically allocated one hundred percent (100%) to the General Partner. 4.4 Curative Allocations. The allocations set forth in Sections 4.3(a), 4.3(b), 4.3(c), 4.3(d), 4.3(e), 4.3(f), and 4.3(g) (the "Regulatory Allocations") are intended to comply with certain requirements of the Regulations. It is the intent of the Partners that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Partnership income, gain, loss, or deduction pursuant to this Section 4.4. Therefore, notwithstanding any other provision of this Article 4 (other than the Regulatory Allocations), the General Partner shall make such offsetting special allocations of Partnership income, gain, loss, or deduction in whatever manner it determines appropriate so 46 42 that, after such offsetting allocations are made, each Partner's Capital Account balance is, to the extent possible, equal to the Capital Account balance such Partner would have had if the Regulatory Allocations were not part of the Agreement and all Partnership items were allocated pursuant to Sections 4.1, 4.2, 4.3(i), 4.3(j), 4.3(k), 4.3(l), 4.3(m) and 4.3(n). In exercising its discretion under this Section 4.4, the General Partner shall take into account future Regulatory Allocations under Sections 4.3(a) and 4.3(b) that, although not yet made, are likely to offset other Regulatory Allocations previously made under Sections 4.3(e) and 4.3(f). 4.5 Other Allocation Rules. (a) Profits, Losses and any other items of income, gain, loss or deduction shall be allocated to the Partners pursuant to this Article 4 as of the last day of each Fiscal Year, provided that Profits, Losses and such other items shall also be allocated at such times as the Gross Asset Values of Partnership property are adjusted pursuant to subparagraph (ii) of the definition of Gross Asset Value in Article 1. (b) For purposes of determining the Profits, Losses, or any other items allocable to any period, Profits, Losses, and any such other items shall be determined on a daily, monthly, or other basis, as determined by the General Partner using any permissible method under Section 706 of the Code and the Regulations thereunder. (c) The Partners are aware of the income tax consequences of the allocations made by this Article 4 and hereby agree to be bound by the provisions of this Article 4 in reporting their shares of Partnership income and loss for income tax purposes, except to the extent otherwise required by law. (d) Solely for purposes of determining a Partner's proportionate share of the "excess nonrecourse liabilities" of the Partnership within the meaning of Section 1.752-3(a)(3) of the Regulations, the Partners' interests in Partnership profits are one percent (1%) to the Limited Partner and ninety-nine percent (99%) to the General Partner. (e) To the extent permitted by Section 1.704-2(h)(3) of the Regulations, the General Partner shall endeavor to treat distributions as having been made from the proceeds of a Nonrecourse Liability or a Partner Nonrecourse Debt only to the extent that such distributions would cause or increase an Adjusted Capital Account Deficit for the Limited Partner. 4.6 Tax Allocations: Section 704(c) of the Code. In accordance with Section 704(c) of the Code and the Regulations thereunder, income, gain, loss, and deduction with respect to any property contributed to the capital of the Partnership shall, solely for tax purposes, be allocated among the Partners so as to take account of any variation between the adjusted basis of such property to the Partnership for federal income tax purposes and its initial Gross Asset Value (computed in accordance with subparagraph (i) of the definition of "Gross Asset Value" in Article 1). In the event the Gross Asset Value of any Partnership asset is adjusted pursuant to subparagraph (ii) of the definition of "Gross Asset Value" in Article 1, subsequent allocations of 47 43 income, gain, loss, and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Section 704(c) of the Code and the Regulations thereunder. Any elections or other decisions relating to such allocations shall be made by the General Partner in any manner that reasonably reflects the purpose and intention of this Agreement, provided that the Partnership shall elect to apply the traditional method pursuant to the Regulations under Section 704(c) with respect to property contributed to the Partnership by the Limited Partner pursuant to Section 2.9(b) (and any adjustments to the Gross Asset Value thereof) and the remedial allocation method under Section 1.704-3(d) of the Regulations with respect to all other property. In applying the remedial allocation method to adjustments to the Gross Asset Value of property acquired by the Partnership after the Effective Time (as defined in the Master Restructuring Agreement), the General Partner shall be treated as the contributing partner under Section 1.704-3(d) of the Regulations. Allocations pursuant to this Section 4.6 are solely for purposes of federal, state, and local taxes and shall not affect, or in any way be taken into account in computing, any Partner's Capital Account or share of Profits, Losses, other items, or distributions pursuant to any other provision of this Agreement. Except as otherwise provided in this Agreement, all items of Partnership income, gain, loss, deduction, and any other allocations not otherwise provided for shall be divided among the Partners in the same proportions as they share Profits or Losses, as the case may be, for the Allocation Year. ARTICLE 5 DISTRIBUTIONS; PARTIAL RETIREMENT OF LIMITED PARTNER'S INTEREST 5.1 General. Neither Partner shall have the right to withdraw or demand distribution of any amount from its Capital Account, except as expressly provided herein or with the prior approval of the other Partner. All distributions shall be paid in cash unless otherwise expressly permitted by Section 5.2(c) or Section 5.10. 5.2 Distribution Policy. Distributions provided in this Section shall be made in the following order and priority, subject to the terms, restrictions and conditions provided in this Agreement: (a) The Partnership shall distribute to the Limited Partner: (i) On the last day of every Fiscal Quarter ending after July 1, 1998, the Priority Return; (ii) During the first Fiscal Quarter beginning after June 30, 2000, an amount equal to the sum of the Fourth Tier Amount and the Contingent Amount Gross-Up for all prior Fiscal Quarters; 48 44 (iii) Within thirty (30) days after the last day of each Fiscal Quarter beginning after June 30, 2000, the Fourth Tier Amount for such Fiscal Quarter; and (iv) Within three (3) months after the end of every Fiscal Year beginning after December 31, 1999, the amount by which the cumulative allocations of Profits to the Capital Account of the Limited Partner for such Fiscal Year pursuant to Sections 4.1(d), (e), and (h), and allocations pursuant to Sections 4.3(l)(i)(y), and Section 4.3(n) exceed the sum of (A) distributions made during such Fiscal Year pursuant to paragraph (iii) of this Section, plus (B) allocations of losses to such Capital Account for such Fiscal Year pursuant to Section 4.3(m)(ii). (b) Subject to the limitations of this Section and Sections 5.1 and 5.4, and at the discretion of the General Partner, the Partnership may distribute to the General Partner: (i) During the first Fiscal Quarter beginning after June 30, 2000, an amount equal to the excess, if any, of (A) the sum of the value of the Original Capital Contribution of the General Partner plus the Profits and minus the Losses and items of expense allocated to the Capital Account of the General Partner under Article 4 through December 31, 1999, over (B) $2 billion; (ii) On the last day of every Fiscal Quarter ending after July 1, 2000, the General Partner Quarterly Income Distribution, as defined below, for such Fiscal Quarter; and (iii) Within three (3) months after the end of every Fiscal Year ending after January 1, 2000 and before January 1, 2009, $284,000,000; provided, however, that no such distribution shall be made at a time when the General Partner's Capital Account balance is less than, or to the extent that such a distribution would reduce the General Partner's Capital Account balance to less than, $1 billion; and provided further that no distribution for any Fiscal Year pursuant to this clause (iii) shall be made until after the final determination of Profits and Losses for such Fiscal Year; and, provided further, that any distribution pursuant to this clause (iii) shall be reduced by the excess, if any, of (A) the sum of the Losses, losses and items of expense allocated to the Capital Account of the General Partner pursuant to Article 4 for such Fiscal Year over (B) the Profits allocated to the Capital Account of the General Partner for such Fiscal Year. For purposes of this subsection, the "General Partner Quarterly Income Distribution" shall mean an amount equal to one-fourth of the General Partner's estimate, for the Fiscal Year in which the Fiscal Quarter occurs, of the excess of (A) the Profits allocations that will be made to the Capital Account of the General Partner pursuant to Section 4.1 (exclusive of allocations pursuant to Section 4.1(a) and 4.1(f)) plus Section 4.3(n) over (B) expense allocations that will be made to such Capital Account pursuant to Sections 4.3(i), 4.3(j) and 4.3(k). The General Partner shall make such estimate each Fiscal Quarter and shall take into account operating results of the Partnership through the end of the Fiscal Quarter and reasonably anticipated operating results for the remainder of the Fiscal Year. 49 45 No distribution shall be made pursuant to clause (i) of this Section 5.2(b) for any Fiscal Quarter to the extent that such distribution would exceed an amount equal to (A) the product of the General Partner Quarterly Income Distribution times the number of completed Fiscal Quarters in the Fiscal Year including such Fiscal Quarter, minus (B) amounts previously distributed as General Partner Quarterly Income Distributions for such Fiscal Year. (c) The Partnership may distribute to the General Partner an amount equal to the book value, calculated in accordance with Section 704(b) of the Code, of any property contributed to the Capital Account of the General Partner pursuant to Section 2.9(c) if: (i) the Capital Account of the General Partner immediately after such distribution is at least $1 billion, (ii) during each of the two (2) Fiscal Years immediately preceding such distribution the Profits of the Partnership (exclusive of the Profits derived from such property or any property acquired in whole or in part in exchange for or with proceeds from such property) were sufficient so that no Allocation Shortfall would have occurred and (iii) the Partnership delivers to the Limited Partner a written projection (the reasonableness of which is certified by the chief financial officer of KB) showing sufficient Profits for the Fiscal Year in which such distribution occurs and for the next succeeding Fiscal Year to avoid an Allocation Shortfall with respect to each of such Fiscal Years; provided, however, that such certification shall not be required in the case of distributions which, together with all prior distributions in such Fiscal Year pursuant to this Section 5.2(c), if any, do not exceed $50 million ($50,000,000). Such distribution may be paid in property other than cash if (and only if) such property does not include (i) any assets contributed to the Partnership pursuant to the KB USA Asset Contribution Agreement, the KBI Asset Contribution Agreement, the Selected Compounds Contribution Agreement, the KBI-E Asset Contribution Agreement or the Trademark Rights Contribution Agreement, (ii) any rights relating to any Covered Compound or product containing any Covered Compound (including without limitation any rights under or with respect to any Outlicensing thereof), or (iii) any asset or assets, the absence of which, singly or in the aggregate, would materially diminish or impair the Partnership's ability to conduct its Primary Business. 5.3 Insufficient or Excess Distributions. (a) Subject to the exceptions provided in subsection (b), if, for any Fiscal Year, the Partnership distributes to either Partner an amount that exceeds the excess of (i) the allocations of Profits for such Fiscal Year to the Capital Account of such Partner (excluding, with respect to the Limited Partner, allocations pursuant to Sections 4.1(b) and 4.3(l)(iii)) over (ii) the allocations of expenses pursuant to Sections 4.3(i), 4.3(j), and 4.3(k) (other than, with respect to the Limited Partner, Depreciation attributable to adjustments to Gross Asset Value pursuant to the partial retirement of the Limited Partner pursuant to Section 5.6) for such Fiscal Year to the Capital Account of such Partner (such excess being referred to as the "Excess Distribution"), the following actions shall occur: (1) The General Partner shall notify the Limited Partner of the amount of the Excess Distribution within thirty (30) days after completion of the final accounting of Profits and Losses for such Fiscal Year, but in all events before any distribution has been made of Profits with respect to the last Fiscal Quarter of such Fiscal Year. 50 46 (2) The Partner receiving the Excess Distribution shall make a contribution to its Capital Account in the amount of the excess within fifteen (15) days of such notification by the General Partner. (3) Notwithstanding any other provision of this Agreement, upon the failure by either Partner to make a contribution required by paragraph (a)(2), above, the General Partner shall (A) suspend further distributions to such Partner pursuant to this Section and (B) treat such amounts as would have been distributed to such Partner as deemed contributions to the Capital Account of such Partner until the Capital Account of such Partner has been restored to the Capital Account balance that would have existed if such Partner had made the contribution required by paragraph (a)(2). (b) In determining whether an Excess Distribution exists, the following distributions shall not be considered: (i) distributions to the Limited Partner pursuant to Sections 5.2(a)(i), 5.2(a)(ii) or 5.6; or (ii) distributions to the General Partner pursuant to Section 5.2(b)(i). (c) In the event revised statements are issued, or required to be issued, pursuant to Section 6.5(a)(ii), the General Partner shall notify the Limited Partner of the amount of any resulting insufficient or excess distribution, and, within fifteen (15) days after receipt of such notice, the Partner having received the excess distribution shall contribute to the Partnership the amount of any such excess distribution and the Partnership shall distribute to the Partner having received the insufficient distribution the amount of the insufficiency. 5.4 Certain Limitations. No distribution of Partnership funds shall be made to the extent that such distribution would render the Partnership unable to meet its obligations, including future distributions pursuant to Section 5.2(a), as they become due. No distribution of Partnership funds shall be made to the General Partner (i) to the extent such distribution would cause the Partnership to be in violation of or default under any agreement to which it is a party or (ii) in the event any Allocation Shortfall has occurred and remains uncured. 5.5 Liquidating Distributions. Distributions to the Partners upon the winding up of the Partnership shall be made in accordance with Section 8.4(b) hereof. 5.6 Partial Retirement of the Limited Partner's Interest. In the event of the KBI-E Asset Purchase, the Partnership shall retire a portion of the Limited Partner's Interest (such retirement being referred to herein as the "Partial Retirement"). On the day of the KBI-E Asset Purchase, the General Partner shall distribute and deliver to the Limited Partner an amount equal to the Limited Partner Share of Agreed Value (the date of such delivery being referred to herein as the "Retirement Date"); provided, however, that in the event that a Trigger Event occurs prior to January 1, 2008, the Partial Retirement and the "Retirement Date" shall occur on the date the True-Up Amount (as defined in the Master Restructuring Agreement) is paid. 5.7 No Interest. Except as specifically provided herein, no interest shall be payable to the Partners in respect of their respective capital contributions or Capital Accounts. 51 47 5.8 Loans to KB and Its Affiliates. (a) The Partnership may lend to KB and its Affiliates accumulated cash of the Partnership that is in excess of reasonable working capital needs of the Partnership. Any such loan shall (i) have a term of not greater than five (5) years, (ii) be at a market rate of interest and otherwise on commercially reasonable terms and (iii) be payable immediately upon demand, without penalty, at any time by the Partnership. Any such loan made to an Affiliate of KB shall be fully guaranteed by KB in accordance with Section 3.5 hereof. (b) If either Partner shall advance any funds to the Partnership in excess of its capital contribution, the amount of such advance shall neither increase its Capital Account nor entitle it to any increase in its share of the distributions of the Partnership. The amount of any such advance shall be a debt obligation of the Partnership to such Partner and shall be repaid to it by the Partnership with such interest and upon such other terms and conditions as shall be mutually determined by such Partner and the Partnership. No person who makes any nonrecourse loan to the Partnership shall have or acquire, as a result of making such loan, any direct or indirect interest in the profits, capital, or property of the Partnership, other than as a creditor. 5.9 Payment of Fees and Expenses. Neither the General Partner nor any of its Affiliates shall be reimbursed for any overhead or general or administrative expenses or receive any fees, commissions or other compensation or any increase in distributions or any allocations with respect to its Capital Account for discharging its stewardship responsibilities to its shareholders or to the shareholders of KB or contractual or fiduciary responsibilities as General Partner hereunder. This Section shall not prohibit any agreement between the Partnership and KB or any Affiliate of KB pursuant to which KB or such Affiliate provides bona fide management services to the Partnership, provided that any agreement for the provision of such services and the payment of any fees, commissions or other compensation to the General Partner or any of its Affiliates shall be in writing and may be entered into only in accordance with Section 3.2 hereof. 5.10 Distributions of Trademarks in Certain Circumstances. In the event of the termination of the Partnership's rights as distributor with respect to a Compound pursuant to the Distribution Agreement, the Partnership shall distribute to the Limited Partner all the Partnership's right, title and interest in and to any and all trademarks used or held for use by the Partnership in connection with such Compound or any product containing such Compound. ARTICLE 6 ACCOUNTING AND TAXATION 6.1 Fiscal Year. The fiscal year of the Partnership (the "Fiscal Year") shall begin on January 1 and end on December 31. 6.2 Accountants. The financial statements and internal control systems used on behalf of the Partnership shall be audited annually by the Accountants. Promptly following 52 48 any resignation or removal of the Accountants, new Accountants shall be appointed by the General Partner in accordance with Section 3.2. 6.3 Maintenance of Books, Records and Accounts. At all times during the continuance of the Partnership, the Partnership shall make and keep at its principal offices, full, true and complete books, records and accounts which, in reasonable detail, shall fully, accurately and fairly reflect each transaction of the Partnership, shall permit the computation of the allocations and distributions contemplated by this agreement and provide sufficient information and detail to permit the preparation of the financial statements, reports and other information required by this Article 6. Such books, records and accounts shall be kept on an accrual basis in accordance with IAS (and in a manner that will permit the preparation of accounts in accordance with GAAP, the calculation of Net Sales in accordance with GAAP and the preparation of the financial statements, information and reports provided for in Section 6.5) and such other accounting policies as may be specified herein or adopted with the Consent of the Limited Partner. In addition, the Partnership shall devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions of the Partnership and its subsidiaries are executed in accordance with the general or specific authorization of the management of the Partnership and in a manner consistent with the provisions of this Agreement; (ii) transactions of the Partnership are recorded in such form and manner as will (A) permit preparation of federal, state, local and foreign income, sales and value added tax returns, information returns and other applicable returns in accordance with this Agreement and as required by law, (B) permit preparation of the Partnership's financial statements in conformity with IAS and GAAP, and (C) maintain accountability for the Partnership's assets; and (iii) access to assets is permitted only in accordance with the general or specific authorization of the management of the Partnership. 6.4 Access to Books and Records. At the request and expense of the Limited Partner, the Limited Partner shall have the right for its then currently engaged independent accountants to have access, at all reasonable times upon reasonable prior notice during normal business hours, to audit and examine, and make copies or extracts of or from the books, records and accounts of the Partnership and its Subsidiaries, if any, in order to verify the accuracy of the allocations and distributions made pursuant to Articles 4 and 5 and the financial statements, reports and information required to be provided pursuant to Section 6.5(a) and the compliance of the Partnership and the General Partner with the terms of this Agreement. Such rights of access, audit and inspection shall terminate three (3) years after the close of each Fiscal Year to which such financial statements, reports and information, as the case may be, relate. The Limited Partner shall enter into a written engagement with such accountants, a copy of which shall be provided to the General Partner, providing that (i) the scope of the engagement with respect to such audit and examination is limited to the rights provided in this Section 6.4 and, if the audit is performed in connection with another audit permitted by any other agreement between an 53 49 Affiliate of the Limited Partner and the Partnership, 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 the Limited Partner (or any of its Affiliates) any information other than information relating to the accuracy of such allocations, distributions, financial statements, reports and information, as the case may be, and the compliance of the Partnership and the General Partner with the terms of this Agreement and in no event shall quantities or prices or rebates to individual customers be disclosed to the Limited Partner (or any of its Affiliates) or any other Person. Notwithstanding the foregoing, provided no Allocation Shortfall has occurred and remains uncured, the Limited Partner shall not, during each period from December 15 of any Fiscal Year through January 31 of the following Fiscal 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 Fiscal Year, exercise such rights with respect to the activities of the Partnership during the last Fiscal Quarter of the prior Fiscal Year. 6.5 Financial Statements. (a) Reporting Requirements. The Partnership shall provide the following documents to the Limited Partner at the times set forth below: (i) Within two (2) months after the end of each Fiscal Year, the following financial statements (including appropriate footnotes thereto), examined and certified by the Accountants and accompanied by the Accountant's opinion, prepared in accordance with Generally Accepted Auditing Standards ("GAAS") with no qualification as to scope, stating that such financial statements were prepared in accordance with GAAP: (A) the balance sheet of the Partnership as of the beginning and close of such Fiscal Year; (B) the statement of income of the Partnership for such Fiscal Year; and (C) the statement of Partnership cash flow for such Fiscal Year. (ii) Within two (2) months after the end of each Fiscal Year, (or, in the event of any error in any financial statements previously delivered pursuant to this Section 6.5(a)(ii), within two (2) months after the later of the discovery or determination, whether by agreement of the parties, arbitration or otherwise, of such error), the following financial statements (including appropriate footnotes thereto) examined and certified by the Accountants and accompanied by the Accountant's opinion, prepared in accordance with GAAS with no qualification as to scope, stating that such financial statements were prepared using an "other comprehensive basis of accounting" consisting of the relevant provisions of this Agreement (principally Articles 4 and 5 and the definitions of "Profits" 54 50 and "Losses") and the Section 704(b) Regulations, containing, at a minimum, substantially the level of detail as set forth in the respective forms attached hereto as Exhibit 6.5: (A) a statement of the Profits and Losses of the Partnership and all items of Partnership income, gain, loss or deduction available to be specially allocated pursuant to Sections 4.3 and 4.4 for such Fiscal Quarter and for the Fiscal Year through the end of such Fiscal Quarter; and for the comparable periods of the prior Fiscal Year; (B) the distributive share of each Partner of Profits and Losses and each such item; (C) the Capital Account balance of each Partner as of the beginning of the period; (D) a summary of the contributions, distributions and allocations of distributive shares debited and credited to each Partner's Capital Account; and (E) the Capital Account balance of each Partner as of the end of the period. Such statements shall be audited and accompanied by the unqualified report of the Accountants with respect thereto. (iii) Within two (2) months after the end of each Fiscal Year (or, in the circumstances specified in clause (ii) of the definition of "Allocation Shortfall", within one (1) month after the end of the Fiscal Year), a statement indicating each Partner's share of each item of Partnership income, gain, loss, deduction, expense or credit for such Fiscal Year for income tax purposes. (iv) Within one (1) month after the filing of any federal, state or local income tax return by the Partnership, a copy of such income tax return. (v) Within one (1) month after the end of each Fiscal Quarter (including the fourth Fiscal Quarter), the following financial statements, prepared in accordance with GAAP, and documents: (A) the balance sheet of the Partnership as of the beginning and close of such Fiscal Quarter and as of the close of the comparable Fiscal Quarter of the preceding year; (B) the statement of income of the Partnership for such Fiscal Quarter and for the Fiscal Year through the end of such Fiscal Quarter and for the comparable periods of the prior Fiscal Year; 55 51 (C) a statement setting forth the Net Sales of each product of the Partnership for such Fiscal Quarter and for the Fiscal Year through the end of such Fiscal Quarter. (vi) Within one (1) month after the end of each Fiscal Quarter (including the fourth Fiscal Quarter), the following financial statements prepared using an "other comprehensive basis of accounting" consisting of the relevant provisions of this Agreement (principally Articles 4 and 5 and the definitions of "Profits" and "Losses") and the Section 704(b) Regulations, containing, at a minimum, substantially the level of detail as set forth in the respective forms attached hereto as Exhibit 6.5: (A) a statement of the Profits and Losses of the Partnership and all items of Partnership income, gain, loss or deduction available to be specially allocated pursuant to Sections 4.3 and 4.4 for such Fiscal Quarter and for the Fiscal Year through the end of such Fiscal Quarter and for the comparable periods of the prior Fiscal Year; (B) the distributive share of each Partner of Profits and Losses and each such item; (C) the Capital Account balance of each Partner as of the beginning of the period; (D) a summary of the contributions, distributions and allocations of distributive shares debited and credited to each Partner's Capital Account for such Fiscal Quarter and for the Fiscal Year through the end of such Fiscal Quarter and a detailed description of the computation of all allocations and distributions; and (E) the Capital Account balance of each Partner as of the end of the period. (vii) Within six (6) business days after the end of each month, a statement identifying all items with respect to such month that will be used to determine the Fourth Tier Amount and the estimated (or actual, if available) amount of each such item. (viii) Within ten (10) days after the end of each Fiscal Quarter, a statement identifying and explaining all items that will result in an allocation to the General Partner pursuant to Section 4.3(q). In addition to the foregoing, in the event of any change in any disclosure or external financial reporting requirement applicable to TR (including without limitation (i) any change in applicable law or regulation, (ii) any change in GAAP and (iii) any new interpretation or any change in the interpretation of GAAP or of any applicable law or regulation or other disclosure or external financial reporting requirement, the Partnership shall provide such other or additional financial or 56 52 other information to the Limited Partner at such times as is required for TR to comply with such disclosure or external financial reporting requirements. In addition to the foregoing, in the event of any change in the internal reporting requirements of TR that are the result of any of the matters in clauses (i), (ii) or (iii) of the preceding sentence, the Partnership shall provide such other or additional financial or other information to the Limited Partner at such times as is required for TR to comply with such internal reporting requirements. In addition to the foregoing, in the event of any other change in the internal reporting requirements of TR that are applicable generally to TR's own operations, the Partnership shall provide such financial or other information to the Limited Partner at such times as is reasonably requested, provided that (i) such information is available or accessible at reasonable cost and the Limited Partner agrees to reimburse the Partnership for such reasonable cost and (ii) such information can be provided to the Limited Partner without reprogramming of the Partnership's information systems (except that the programming of information system or database queries or other similar queries and reports shall not be considered reprogramming for purposes of this sentence); and provided, further, that the Partnership shall not be required to provide pursuant to this sentence information of a commercially sensitive nature that it is not otherwise required to provide to the Limited Partner under this Agreement or to any Affiliate of the Limited Partner under any other agreement between any such Affiliate and the Partnership. (b) Forecasts. The Partnership shall prepare, or cause to be prepared, and deliver to the Limited Partner forecasts of aggregate Net Sales and Weighted Net Sales of KB USA Products and aggregate Net Sales and Weighted Net Sales of Group D Products on March 1, June 1, September 1 and December 1 of each year; provided, however, that the foregoing requirements will be satisfied by the delivery of such forecasts that have been prepared no more than ninety (90) days prior to, and have been updated as of, each of March 1, June 1, September 1 and December 1, respectively, of the year in which they are delivered to the Limited Partner. Each such forecast shall include (i) a forecast for the Fiscal Quarter in which such forecast is required to be delivered, each of the Fiscal Quarters in the remainder of such Fiscal Year and (except in the case of the March forecast) each of the four (4) Fiscal Quarters in the next succeeding Fiscal Year and (ii) forecasts of the aggregate Net Sales and the Combined Weighted Net Sales (as defined in the Master Restructuring Agreement) by category of each of the following categories: KB USA Products and Group D Products, for each of such Fiscal Quarters. The Partnership also shall provide to the Partners not later than June 15 of each year a five-year forecast, showing for each Fiscal Year, the estimated amount of the Fourth Tier Amount for such Fiscal Year. 6.6 Taxation. (a) Partnership Treatment; Preparation of Tax Returns. The Partners intend that the Partnership shall be treated as a "partnership" for U.S. federal, state, local and foreign income and franchise tax purposes. The Partnership shall take all action necessary and appropriate to elect and preserve partnership treatment. (b) Review of Tax Returns. The U.S. federal, state, local and foreign income tax returns shall be filed only after the Partners have had at least fifteen business days to review 57 53 such returns. The Partners shall communicate their comments on such returns directly to the Tax Matters Partner. Either Partner shall have the right to cause any or all of such tax returns to be reviewed by the Partnership's independent public accountants prior to the filing thereof. The Partner requesting such review shall pay or reimburse the Partnership for the fees of such accountants with respect to such review. (c) Tax Matters Partner. Each Partner does hereby appoint and designate the General Partner as "Tax Matters Partner" of the Partnership as such term is defined in Section 6231(a)(7) of the Code but shall otherwise be considered to have retained such rights (and obligations, if any) as are provided for under the Code with respect to any examination, proposed adjustment or proceeding relating to Partnership items. The General Partner shall notify the Limited Partner, (i) within ten (10) business days after it receives notices from the Internal Revenue Service (or any foreign tax authority), of all administrative proceedings with respect to an examination of, or proposed adjustments to, Partnership items and (ii) within ten (10) business days after it receives notices from any state or local tax authority, of any material matter with respect to the Partnership. The General Partner shall take such action as may be reasonably necessary to constitute the Limited Partner a "notice partner" as that term is defined in Section 6231 of the Code and shall keep the Limited Partner fully informed as to any tax audits of the Partnership, including promptly providing the Limited Partner with copies of any correspondence from any taxing authority and permitting the Limited Partner to participate in any conferences or meetings with any taxing authority and in any subsequent administrative or judicial proceedings. The Limited Partner may notify the Tax Matters Partner of such Partner's intention to represent itself, or to cause independent tax counsel or accountants to represent it, in connection with any such examination, proceeding or proposed adjustment. The General Partner agrees to supply the Limited Partner and its tax counsel or accountants, as the case may be, with copies of all written communications received by the General Partner with respect to any examination, proceeding or proposed adjustment, together with such other information as may be reasonably requested in connection herewith. The General Partner further agrees, in the event the Limited Partner notifies the Tax Matters Partner of its intention to represent itself, or to cause independent tax counsel or accountants to represent it in connection with any such examination, proceeding or adjustment, to cooperate with the Limited Partner and its tax counsel or accountants, as the case may be, in connection with such separate representation, to the extent reasonably practicable. In addition to the foregoing, the General Partner shall notify the Limited Partner prior to submitting a request for administrative adjustment on behalf of the Partnership. ARTICLE 7 TRANSFER OF PARTNERSHIP INTERESTS 7.1 Limitation on Right to Transfer Partner's Interest. (a) Prior to the exercise of the KBI Shares Option and the consummation of the transactions contemplated thereby and except as provided in Section 7.2, the General Partner may not Transfer in any manner all or any part of, or any right with respect to, its Interest without the prior Consent of the Limited Partner, which Consent may be withheld for any reason 58 54 in the sole discretion of the Limited Partner. In the event such Consent is obtained, the transferee of such Interest shall not be entitled to exercise or receive any of the rights, powers or benefits of a general partner other than the right to receive distributions to which the General Partner would be entitled, unless the transferee is admitted as a substituted general partner. A permitted transferee of all but not less than all of the Interest of the General Partner shall be admitted to the Partnership as the general partner of the Partnership only if (i) the General Partner designates, in a written instrument delivered to the Limited Partner, its transferee to become a substituted general partner, (ii) the specific Consent of the Limited Partner to such admission is obtained and (iii) such transferee executes an instrument reasonably satisfactory to the Limited Partner accepting and adopting the terms and provisions of this Agreement, including a counterpart signature page to this Agreement. No such Transfer in compliance with this Agreement shall cause a dissolution of the Partnership for purposes of the Act. If such conditions are satisfied, such admission shall be effective upon the filing of an amendment to the Certificate of Limited Partnership with the Secretary of State of the State of Delaware which indicates that such transferee has been admitted to the Partnership as the general partner of the Partnership, and shall occur, and for all purposes shall be deemed to have occurred, immediately prior to the time the transferor ceases to be the general partner of the Partnership. Such successor General Partner is hereby authorized to and shall continue the Partnership without dissolution. Upon the filing of an amendment to the Certificate of Limited Partnership with the Secretary of State of the State of Delaware which indicates that the General Partner is no longer a general partner of the Partnership, the General Partner shall at that time cease to be a general partner of the Partnership. (b) Prior to the exercise of the KBI Shares Option and the consummation of the transactions contemplated thereby and except as provided in Section 7.2, the Limited Partner may not Transfer in any manner all or any part of, or any right with respect to, its Interest without the prior consent of the General Partner, which consent may be withheld for any reason in the sole discretion of the General Partner. In the event such consent is obtained, the transferee of such Interest shall not be entitled to exercise or receive any of the rights, powers or benefits of a limited partner other than the right to receive distributions to which the Limited Partner would be entitled, unless the transferee is admitted as a substituted limited partner. A permitted transferee of all but not less than all of the Interest of the Limited Partner shall be admitted to the Partnership as a limited partner of the Partnership only if (i) the Limited Partner designates, in a written instrument delivered to the General Partner, its transferee to become a substituted limited partner, (ii) the specific consent of the General Partner to such admission is obtained and (iii) such transferee executes an instrument reasonably satisfactory to the General Partner accepting and adopting the terms and provisions of this Agreement, including a counterpart signature page to this Agreement. No such Transfer in compliance with this Agreement shall cause a dissolution of the Partnership for purposes of the Act. If such conditions are satisfied, the transferee shall be admitted to the Partnership as the limited partner of the Partnership upon the effectiveness of such Transfer. Any valid Transfer of the Limited Partner's Interest, or part thereof, pursuant to the foregoing provisions shall be effective as of the close of business on the last day of the calendar month in which the General Partner gives its written consent to such Transfer (or the last day of the calendar month in which such Transfer occurs, if later). 59 55 (c) The Partnership shall, from the effective date of any valid Transfer of a Partner's Interest (or part thereof), thereafter pay all further distributions on account of the Partnership Interest (or part thereof) so Transferred, to the transferee of such Interest, or part thereof. As between any Partner and its transferee, Profits and Losses for the Fiscal Year of the Partnership in which such Transfer occurs shall be apportioned for federal income tax purposes in accordance with any manner permitted under Section 706(d) of the Code as such Partner and its transferee may agree. 7.2 Transfer to an Affiliate. Either Partner may, with the prior written consent of the other Partner (which shall not be unreasonably withheld) Transfer all (and not less than all) of its Interest to any of its Affiliates; provided, however, that, in the case of KBI Sub, such Affiliate is a Wholly-Owned Subsidiary (as defined in the Master Restructuring Agreement) of TR and, in the case of KBLP, such Affiliate is a Wholly-Owned Subsidiary of KB. It shall be a condition to any such Transfer that the Affiliate to which such Transfer is made shall have assumed by written agreement delivered, and in form and substance satisfactory, to the other Partner all of the obligations of the transferor under this Agreement. Such Transfer shall become effective and the transferee shall be admitted as a substitute general partner or limited partner, as the case may be, in accordance with the provisions of Section 7.1(a) or (b), as applicable, except that the provisions of Section 7.1 requiring the consent of either Partner thereunder shall not apply to Transfers made pursuant to this Section 7.2. No such Transfer shall release the transferor from such obligations except to the extent they are performed by such Affiliate. No such Transfer shall release either KB or TR from its obligations pursuant to Article 8 of the Master Restructuring Agreement. 7.3 Transfers in Breach of Agreement Void. Any Transfer (or any purported Transfer) of all or any part of, or any rights with respect to, a Partner's Interest in contravention of this Agreement shall be void and shall not be recognized by the Partnership or the General Partner for any purpose, including but not limited to making distributions pursuant to any Section of Article 5 with respect to such Partnership Interest or part thereof. ARTICLE 8 DISSOLUTION OF THE PARTNERSHIP 8.1 No Dissolution. The Partnership shall not be dissolved by the admission of a substitute general partner or substitute limited partner in accordance with the terms of this Agreement. The Bankruptcy, dissolution or other cessation of existence as a legal entity of a Partner shall not dissolve the Partnership. 8.2 Waiver of Right to Dissolve. The Partnership may be dissolved only (i) upon the expiration of the term of the Partnership as set forth in Section 2.7 or (ii) with the written approval of the General Partner and the Consent of the Limited Partner. Each Partner expressly waives and relinquishes its right voluntarily to withdraw from or dissolve the Partnership and agrees that any such withdrawal (or purported withdrawal) or dissolution (or event or circumstance that, but for the agreements set forth in this Section 8.2, would constitute dissolution) by unilateral action of a Partner (except for Transfers permitted by Article 7 hereof) 60 56 shall be deemed to be a breach of such Partner's obligations under this Agreement for all purposes (including, without limitation, Article 10 of the Master Restructuring Agreement). Without limiting the preceding two (2) sentences, upon the happening of any event of withdrawal of the General Partner referred to in Section 17-402 of the Act, (i) the Partnership shall not be dissolved and its affairs shall not be wound up and (ii) the business of the Partnership shall continue, with the Limited Partner appointing one or more new General Partners as appropriate. 8.3 No Payment in Certain Circumstances. Except as may otherwise be expressly provided in this Agreement, no Partner shall be entitled to receive any payment described in Section 17-604 of the Act. 8.4 Effect of Dissolution; Distribution of Assets. (a) Effect of Dissolution. In the event the Partnership is "liquidated" within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations, (i) if the General Partner's Capital Account has a deficit balance (after giving effect to all contributions, distributions, and allocations for all taxable years, including the taxable year during which such liquidation occurs), such General Partner shall contribute to the capital of the Partnership the amount necessary to restore such deficit balance to zero in compliance with Section 1.704-1(b)(2)(ii)(b)(3) of the Regulations; and (ii) if the Limited Partner has a deficit balance in its Capital Account (after giving effect to all contributions, distributions, and allocations for all taxable years, including the taxable year during which such liquidation occurs), the Limited Partner shall have no obligation to make any contribution to the capital of the Partnership with respect to such deficit, and such deficit shall not be considered a debt owed to the Partnership or to any other Person for any purpose whatsoever. (b) Distribution of Assets. Upon the dissolution and liquidation of the Partnership or the adoption by the Partners of a plan of dissolution, the following steps shall be taken consistent with the Regulations under Section 704: (i) The proceeds of the liquidation of the Partnership's business and assets shall be applied and/or distributed in the following order and priority: (A) to creditors of the Partnership in satisfaction of the debts, liabilities and obligations of the Partnership (whether by payment or the making or provision therefor, including a reserve for any contingent or unforeseen liabilities or obligations), other than debts, liabilities and obligations to any Partner or debts, liabilities and obligations to be assumed by a Partner in connection with the winding up of the Partnership; and (B) to the satisfaction of any debts, liabilities and obligations of the Partnership to the Partners (whether by payment or the making or provision therefor, including a reserve for any contingent or unforeseen liabilities or obligations). 61 57 (ii) The balance of the proceeds described in clause (i) above, if any, (after the restoration of any Capital Account deficit provided for in Section (a) above) shall be distributed, after Capital Accounts have been adjusted as provided in Article 4 hereof, only to Partners having positive balances in their respective Capital Accounts in proportion to the positive balances in their respective Capital Accounts. 8.5 Termination of the Partnership. The Partnership shall terminate when all of the assets of the Partnership, after payment of, or due provision for, all debts, liabilities and obligations of the Partnership, shall have been distributed to the Partners in the manner provided for in this Article 8 and the Certificate of Limited Partnership shall have been canceled in the manner required by the Act. 8.6 Survival of Obligations; Damages. Dissolution of the Partnership for any cause shall not release either Partner or any Affiliate thereof from any liability which at the time of dissolution had already accrued to the other Partner or any Affiliate thereof or which thereafter may accrue in respect of any act or omission prior to completion of the winding up process. The rights and obligations of the Partners set forth in Article 10 of the Master Restructuring Agreement shall survive any termination or dissolution of the Partnership. ARTICLE 9 INDEMNIFICATION 9.1 Indemnification for Breach. The Partners acknowledge that the rights and obligations of the Partners, the Partnership and their respective Affiliates with respect to indemnification in connection with any breach of this Agreement shall be as set forth in Article 9 and Article 10 of the Master Restructuring Agreement. 9.2 Indemnification of General Partner. To the fullest extent permitted by law, the Partnership shall indemnify and hold harmless the General Partner and its Affiliates and each of their respective officers, directors, employees and agents against any and all liabilities or obligations to Third Parties and all reasonable costs and expenses related thereto (including any and all reasonable attorneys' fees and reasonable costs of investigation, litigation, settlement, judgment, interest and penalties) incurred by the General Partner or any other such Person as a result of the General Partner's capacity as the general partner of the Partnership and arising out of, based upon or in connection with the affairs of the Partnership or the performance by any such Person of any of the General Partner's responsibilities or the exercise of any of its rights hereunder; provided that any such Person shall be entitled to indemnification hereunder only to the extent that the Indemnity Losses are not a result of, and do not arise out of, conduct of such Person or any of its Affiliates that constituted fraud, bad faith, willful misconduct, gross negligence, breach of fiduciary duty, or a material breach of this Agreement or any Initial Agreement or Ancillary Agreement or any other agreement between the Partnership and KB or any of its Affiliates. Any claim for indemnification hereunder shall be on a net after-tax basis in accordance with, and shall be subject to the procedures set forth in, Section 10.3 of the Master Restructuring Agreement. 62 58 9.3 Indemnification of Limited Partner. To the fullest extent permitted by law, the Partnership shall indemnify and hold harmless the Limited Partner and its Affiliates and each of their respective officers, directors, employees and agents against any and all liabilities or obligations to Third Parties and all reasonable costs and expenses related thereto (including any and all reasonable attorneys' fees and reasonable costs of investigation, litigation, settlement, judgment, interest and penalties) incurred by the Limited Partner or any other such Person as a result of the Limited Partner's capacity as a partner of the Partnership and arising out of, based upon or in connection with the affairs of the Partnership or the performance by any such Person of any of the Limited Partner's responsibilities or the exercise of any of its rights hereunder; provided that any such Person shall be entitled to indemnification hereunder only to the extent that the Indemnity Losses are not a result of conduct of such Person or any of its Affiliates that constituted fraud, bad faith, willful misconduct, gross negligence, breach of fiduciary duty, or a material breach of this Agreement or any Initial Agreement or Ancillary Agreement or any other agreement between the Partnership and TR or any of its Affiliates. Any claim for indemnification hereunder shall be on a net after-tax basis in accordance with, and shall be subject to the procedures set forth in, Section 10.3 of the Master Restructuring Agreement. ARTICLE 10 WAIVER OF PARTITION Except as otherwise provided in this Agreement, the Master Restructuring Agreement or any Ancillary Agreement, no Partner shall, either directly or indirectly, take any action to require partition, file a bill for appraisement of the Partnership or of any of its assets or properties. Notwithstanding any provision of applicable law to the contrary, each Partner, on its own behalf and on behalf of its shareholders, partners, members, successors and assigns, if any, hereby irrevocably renounces, waives and forfeits any and all rights, whether arising under contract or statute or by operation of law, it may have to seek, bring or maintain any action in any court of law or equity for partition of the Partnership or any asset of the Partnership, or any interest which is considered to be Partnership property, provided that title to such property is held in a manner consistent with this Agreement. Any examination of the books and records of the Partnership to which the Limited Partner may be entitled in connection with any action for Partnership accounting shall be made through the independent accountants of the Limited Partner, and all such information shall be subject to the confidentiality requirements of Section 6.4. ARTICLE 11 RELATED PROVISIONS This Agreement is subject to Article 12 of the Master Restructuring Agreement. Reference is made to the Master Restructuring Agreement for certain additional provisions that are applicable to this Agreement. 63 59 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. KB USA, L.P., General Partner By: ASTRA AB, General Partner (publ) By: /s/ Goran Lerenius ---------------------------------- Name: Goran Lerenius Title: Authorized Signatory KBI SUB INC., Limited Partner By: /s/ Peter E. Nugent ---------------------------------- Name: Peter E. Nugent Title: President 64 SCHEDULE 3.1(c)(i) POWERS AND ACTIONS RESERVED TO THE CHIEF EXECUTIVE OFFICER, SUBJECT TO THE DIRECTION OF THE LIMITED PARTNER 1. to hire, discharge from the employment of the Partnership and specify the duties, powers and responsibilities, and direct the actions, of all officers, employees and agents of the Partnership (other than, if the General Partner elects to take a one hundred percent (100%) allocation of R&D Expenses pursuant to Section 4.3(i), persons employed in a research and development capacity whose employment costs are included entirely within R&D Expenses), except that the chief operating officer, the general counsel, the vice president of human resources, the vice president of marketing and the vice president of manufacturing, if any, may be removed by the Limited Partner (or by the chief executive officer) only as permitted by Section 3.1(c)(iii). 2. to sell, transfer or otherwise dispose of any or all assets of the Partnership other than assets identified in Section 3.2(b)(20); provided that (A) if the General Partner so requests, prior to disposing of any asset, the Limited Partner shall cause an appraisal of such asset to be performed at the expense of the Partnership by an appraiser of national reputation selected by the Limited Partner in its sole discretion, (B) the chief executive officer shall cause the Partnership to offer to sell such asset to the General Partner (or any Affiliate designated by the General Partner) at the value thereof as determined by such appraiser, and (C) if the General Partner or such Affiliate of the General Partner fails to purchase such asset at such price, the chief executive officer shall be free, subject to the direction of the Limited Partner to cause the Partnership to sell such asset to any other Person at any price not less than the most recent appraised value of the asset and on any terms as may be approved by the Limited Partner in its sole discretion, except that the Partnership, without the written consent of the General Partner, may not sell any such asset to TR, any Affiliate of TR or to any TR Non-Controlled Entity. 3. to terminate without penalty any contracts or agreements between the Partnership and KB (or any of its Affiliates), other than any Initial Agreement or any Ancillary Agreement; provided, however, that in the case of the Exclusive Distributorship Agreement (as defined in the Master Restructuring Agreement) if the Limited Partner can obtain supplies of any product supplied under any such agreement from another source at a more favorable price or on more favorable terms to the Partnership, the chief executive officer may terminate without penalty such agreement as to any such product; 4. to discontinue, with the consent of KBI-E, the sale of any product having an Average PGM of less than 25% with respect to pharmaceutical products (other than products marketed solely to hospitals) described in Section 2.6 and 20% for other products (including those marketed solely to hospitals), except for (A) products licensed from any Person other than KB or an Affiliate of KB if such discontinuance would result in a breach of any agreement between the Partnership and such Person, (B) products included in the same Therapeutic Category (as defined in the Master Restructuring 65 2 Agreement) as products sold in the Territory by TR or an Affiliate of TR and (C) the sale of a KB USA Bundled Product as part of the sale of all of the products in a KB USA Bundled Group, so long as the KB USA Bundled Group of which such KB USA Bundled Product is sold as a part has a Weighted Average PGM of greater than or equal to 20%; provided that upon such discontinuance, the Partnership may transfer to KB all of the Partnership's right to sell such discontinued product; 5. to (i) pursue, settle and compromise any claims against any Person, other than TR and its Affiliates, including without limitation claims of the Partnership against KB and its Affiliates, (ii) defend, settle and compromise claims brought against the Partnership by any Person, other than TR and its Affiliates, including without limitation claims by KB and its Affiliates, except that a claim against the Partnership may not be settled pursuant to this paragraph if KB defends, indemnifies and holds the Partnership harmless against such claim; 6. to exercise the aforementioned rights in respect of any Subsidiary of the Partnership and to exercise such of the Partnership's rights and powers with respect to any such Subsidiary as may be necessary in furtherance of such rights or the rights and powers set forth in Schedule 3.1(c)(ii); 7. to vote and exercise any other rights with respect to any shares of stock or other equity interests held by the Partnership, including without limitation vote the stock and designate the board of directors or equivalent governing body of any Subsidiary, or other entity owned by, the Partnership in order to effect the exercise of the foregoing rights or the rights set forth in Schedule 3.1(c)(ii) with respect to such Subsidiary or entity; 8. to cause dividends or distributions to be paid by any such subsidiary or entity; and any other actions, which in the determination of the chief executive officer or the Limited Partner, are substantially related to and in furtherance of any of the foregoing enumerated actions. 66 SCHEDULE 3.1(c)(ii) POWERS AND ACTIONS RESERVED TO THE CHIEF FINANCIAL OFFICER, SUBJECT TO THE DIRECTION OF THE LIMITED PARTNER 1. to develop, establish, specify, approve, modify and cause to be implemented the Partnership's budgets, including without limitation, marketing and capital expenditure budgets but excluding, if the General Partner elects to take a one hundred percent (100%) allocation of R&D Expenses pursuant to Section 4.3(i), the budget for R&D Expenses; 2. to (A) call any loan made by the Partnership to KB or any of its Affiliates, (B) cause KB to purchase any note or other evidence of indebtedness of KB or any of its Affiliates to the Partnership for a price equal to the Partnership's cost thereof, or (C) cause KB to lend funds to the Partnership on a secured non-recourse basis at an interest rate equal to the effective interest rate of the obligation constituting the security therefor in an amount, equal to the principal value thereof plus any accrued interest; provided, however, that the General Partner may determine in its sole discretion which of the three (3) foregoing alternatives shall be taken; 3. (i) to incur additional Debt for the purpose of funding (A) pre-existing capital projects, (B) working capital requirements, (C) distributions required to be made under this Agreement, and (D) other routine capital needs in the ordinary course of the Partnership's business and (ii) to refinance any Debt of the Partnership; 4. to exercise the aforementioned rights in respect of any Subsidiary of the Partnership; and any other actions, which in the determination of the chief financial officer or the Limited Partner, are substantially related to and in furtherance of any of the foregoing enumerated actions. 67 EXHIBIT 3.7 FORM OF COMPLIANCE CERTIFICATE Each of the undersigned, being the chief financial officer of KB and the chief financial officer of [_____] (the "Partnership"), respectively, hereby certifies the following: 1. I am familiar with the financial affairs of the Partnership. 2. There has been no withdrawal by the General Partner or any dissolution (or event or circumstance that, but for the agreements set forth in Section 8.2 of the Partnership Agreement between KBLP and KBI Sub dated as of [__________], 1998 (the "Partnership Agreement"), would constitute dissolution) of the Partnership within the meaning of the Delaware Revised Uniform Limited Partnership Law (6 Del. C. Section 17-101 et seq.) as amended. 3. No Put Option Event (as defined in the Master Restructuring Agreement) has occurred. 4. The Profits of the Partnership, taking into account the results of the Partnership for the portion of the Fiscal Year through the end of the Fiscal Quarter ending [__] (Profits being calculated for such purpose as if the taxable year of the Partnership had been such Fiscal Quarter or Fiscal Quarters), together with our reasonable, good faith estimates of the Profits of the Partnership for the remainder of the Fiscal Year of which such Fiscal Quarter is a part, [ARE] [ARE NOT] [USE ONE OF THE FOREGOING] sufficient so that there will not be any Allocation Shortfall for such Fiscal Year. [INCLUDE THE FOLLOWING SENTENCE IF AN ALLOCATION SHORTFALL MAY OCCUR: THE ESTIMATED AMOUNT OF THE ALLOCATION SHORTFALL FOR SUCH FISCAL YEAR IS $ _________ .] 5. All capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in the Partnership Agreement. Date: ____________
[KB]* [PARTNERSHIP] By _______________________________________________ By ________________________________________________ [NAME] [NAME] Chief Financial Officer Chief Financial Officer
* Signature of the Chief Financial Officer of KB is required as provided in Sections 3.6(e) and 3.7. 68 EXHIBIT 6.5
PARTNERSHIP INCOME AND LOSS (1) Partnership taxable income __________ (2) Total adjustments:(1) __________ (i) Exempt Income __________ (ii) 705(a)(2)(B) expenditures (__________) (iii) Asset value adjustments ______(net) gain_______ (loss)_____ (iv) Disposition of property ______(net) gain________ (loss)______ (v) Depreciation/amortization __________ (vi) 734(b) adjustments __________ (3) Partnership book income or (loss) [(1) PLUS (2)] ========== (4) Specially allocated items (total GP & LP) __________
SPECIAL ALLOCATIONS PER SECTIONS 4.3 AND 4.4 INCOME OR GAIN (DEDUCTION, EXPENSE OR LOSS)
Subsection(2) General Partner Limited Partner ------------- --------------- --------------- _________________________ ________________________ _________________________ _________________________ ________________________ _________________________ _________________________ ________________________ _________________________ _________________________ ________________________ _________________________ Totals ======================== =========================
__________________ 1. In accordance with clauses (i) through (vi) of the definition of "Profits and Losses". 2. Separately state specially allocated items for each subsection 4.3(a) through 4.3(q) and Section 4.4. 69 2 PARTNERSHIP INCOME AND LOSS (5) Profits and Losses [(3) LESS (4)] -----------
PROFITS ALLOCATIONS PER SECTION 4.1 Subsection(1) General Partner Limited Partner - --------------------------- ------------------------ ------------------------ 4.1(a) ------------------------ ------------------------ 4.1(b) ------------------------ ------------------------ 4.1(c) ------------------------ ------------------------ 4.1(d) ------------------------ ------------------------ 4.1(e) ------------------------ ------------------------ 4.1(f) ------------------------ ------------------------ 4.1(g) ------------------------ ------------------------ 4.1(h) ------------------------ ------------------------ Totals ======================== ========================
LOSSES ALLOCATIONS PER SECTION 4.1 Subsection(1) General Partner Limited Partner - --------------------------- ------------------------ ------------------------ 4.2(a) ------------------------ ------------------------ 4.2(b) ------------------------ ------------------------ 4.2(c) ------------------------ ------------------------ Totals ======================== ========================
(6) Allocation of Partnership book income or loss in total (specially allocated items and allocated Profits or Losses) General Partner ------------------------ Limited Partner ------------------- 70 3 CAPITAL ACCOUNT BALANCE
General Partner Limited Partner -------------------- ------------------------ Opening Balance -------------------- ------------------------ Contributions -------------------- ------------------------ Distributions -------------------- ------------------------ Distributive Share of Partnership Book Income or Loss -------------------- ------------------------ Ending Balance ==================== ========================
EX-10.7 9 DISTRIBUTION AGREEMENT 1 Exhibit 99.6 AS EXECUTED - CONFORMED ================================================================================ DISTRIBUTION AGREEMENT Dated as of July 1, 1998 between ASTRA MERCK ENTERPRISES INC. and ASTRA PHARMACEUTICALS, L.P. ================================================================================ 2 TABLE OF CONTENTS Page A. DEFINITIONS........................................................ 2 B. DISTRIBUTORSHIP.................................................... 8 1. Appointment of the Partnership as Distributor................ 8 2. Fee.......................................................... 10 B-1. OPERATIONAL MATTERS................................................ 10 C. OPTION WITH RESPECT TO COMPOUNDS................................... 14 D. REVERSION AND TERMINATION OF RIGHTS WITH RESPECT TO DISTRIBUTION COMPOUNDS............................................. 15 E. INDS AND NDAS...................................................... 20 F. REAPPOINTMENT OF PARTNERSHIP AS DISTRIBUTOR........................ 21 G. DEVELOPMENT COSTS.................................................. 22 H. TRADEMARKS......................................................... 23 I. INFRINGEMENT....................................................... 23 J. COMPLIANCE CERTIFICATE; AUDIT RIGHTS............................... 23 K. SUBDISTRIBUTION AND ASSIGNMENT..................................... 25 L. [OMITTED].......................................................... 26 M. TERM AND TERMINATION............................................... 26 N. CONFIDENTIALITY AND PERMITTED DISCLOSURE EXCEPTIONS................ 26 O. INDEMNIFICATION; DISCLAIMER; LIMITATION ON DAMAGES................. 26 P. [OMITTED].......................................................... 29 Q. ARBITRATION........................................................ 29 R. MISCELLANEOUS...................................................... 30 3 DISTRIBUTION AGREEMENT This DISTRIBUTION AGREEMENT ("Agreement") is made as of July 1, 1998 by and between ASTRA MERCK ENTERPRISES INC., a corporation organized and existing under the laws of the State of Delaware ("KBI-E"), and ASTRA PHARMACEUTICALS, L.P., a limited partnership organized and existing under the laws of the State of Delaware (the "Partnership"). RECITALS WHEREAS, Astra AB, a company limited by shares organized and existing under the laws of Sweden ("KB" or the "Licensor"), and Astra Merck Inc., a corporation organized and existing under the laws of the State of Delaware ("KBI"), have entered into that certain 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 (the "Amended and Restated KBI License"), pursuant to which KB has licensed to KBI the right under certain Licensed Patents, Trademarks and Technical Information to make, have made, use and sell certain Licensed Compounds in the Territory and has granted to KBI options to obtain licenses with respect to certain Compounds; WHEREAS, pursuant to the Trademark Rights Contribution Agreement (as defined in the Master Restructuring Agreement) and the Selected Compounds Contribution Agreement (as defined in the Master Restructuring Agreement), respectively, KBI has assigned to KBI Sub all of its rights with respect to Trademarks (as defined in the Amended and Restated KBI License) and all of its rights with respect to the Selected Compounds (as defined in the Selected Compounds Contribution Agreement) and to the Selected Uses (as defined in the Selected Compounds Contribution Agreement) for Licensed Compounds other than, in the case of Selected Uses, the right to exercise options with respect to Compounds and other than certain rights with respect to omeprazole and Felodipine, and KBI Sub has assigned such rights to the Partnership; WHEREAS, pursuant to that certain Assignment and Assumption of Amended and Restated License and Option Agreement (the "KBI-E Assignment") dated as of the date hereof by and between KBI-E and KBI, KBI has assigned to KBI-E all of KBI's rights and obligations under the Amended and Restated KBI License other than rights with respect to Trademarks, Selected Compounds and the Selected Uses for Licensed Compounds; WHEREAS, pursuant to the KBI-E Asset Contribution Agreement (as defined in the Master Restructuring Agreement), KBI-E has assigned to KBI Sub and KBI Sub has assigned to the Partnership all of its rights with respect to the Omeprazole-for-Horses License (as such term is defined in the KBI-E Asset Contribution Agreement); WHEREAS, KBI has assigned to KBI-E all of KBI's rights to and under the License Agreement dated as of November 1, 1994 among TR and KBI (the "Lexxel License"); 4 WHEREAS, KBI and KBI-E have previously granted to The Procter & Gamble Co. certain rights with respect to omeprazole for sale in the OTC market pursuant to the P&G Agreements and have transferred and assigned to the Partnership their respective rights and obligations under such agreements; WHEREAS, KBI-E and the Partnership desire that the Partnership be appointed as the sole and exclusive distributor of the Distribution Products in the Territory (as such terms are defined below), other than Non-Exclusive Second Look Products (as defined below), as to which the Partnership's rights shall be non-exclusive, pursuant and subject to the terms of this Agreement; and WHEREAS, the parties desire to arrange for the supply of Distribution Products (as such term is defined below) to the Partnership, and KBI-E has designated KBI as the exclusive supplier of Distribution Products to the Partnership in order to satisfy KBI-E's obligation set forth in this Agreement to supply or cause to be supplied Distribution Products to the Partnership; NOW, THEREFORE, in consideration of the premises and the covenants and conditions herein contained, the parties hereby agree as follows: A. DEFINITIONS Without limiting any other terms defined herein, as used in this Agreement the following terms shall have the following respective meanings: "Active Development Program" shall mean, with respect to any Compound, (i) the use of reasonable efforts in the investigation, evaluation or development of such Compound for purposes of obtaining Marketing Approval in the Territory, (ii) the expenditure of $3 million or more (determined on the basis of expense accruals in accordance with GAAP) in each full Fiscal Year after Phase III Clinical Evaluation has begun on Phase III Clinical Evaluation for such Compound or (iii) the expenditure of $1 million or more (determined on the basis of expense accruals in accordance with GAAP) in each full Fiscal Year on Phase I safety studies or Phase II Clinical Evaluation for such Compound (including any Phase I safety studies or Phase II Clinical Evaluation performed if, having commenced Phase III Clinical Evaluation, additional testing and studies under Phase I or Phase II Clinical Evaluation are required or deemed necessary or appropriate); provided, however, that the foregoing amounts are subject to adjustment for inflation in the manner provided in Section 3.8 of the Master Restructuring Agreement and shall include all amounts expended (internally or externally) by such party and its Affiliates worldwide with respect to such Compound (including, without limitation, expenditures in respect of Combinations containing such Compound), as long as such development program is directed at least in part toward obtaining Marketing Approval in the Territory; provided, further, that compliance with any applicable FDA regulatory waiting period, filing or other regulatory requirements shall constitute conducting an Active Development Program; and provided, further, that the amounts set forth in clauses (ii) and (iii) above shall be pro rated for partial years. 2 5 "Actively Marketing" shall mean with respect to any Compound the use by the Partnership of reasonable efforts in the Territory with respect to promotion, marketing and sale of products containing such Compound after the launch thereof and during the period of Market Exclusivity; provided, however, that (i) reasonable efforts with respect to any Compound in a Therapeutic Category shall be satisfied if such efforts are used with respect to the totality of Covered Compounds (taken as a whole) in such Therapeutic Category and (ii) if the efforts employed by the Partnership for the totality of the Covered Compounds (taken as a whole) in a specific Therapeutic Category are reasonable in the aggregate, the requirement of reasonable efforts for each Distribution Compound in such Therapeutic Category will be deemed satisfied; and provided, further, that: (i) the Partnership shall not be deemed to have failed to Actively Market any Compound unless it has used efforts and applied resources with respect to the promotion, marketing and sale of products containing such Compound (and products containing any Competing Compound) that taken as a whole, under the circumstances, are materially less than the efforts and resources that would reasonably be expected to be applied consistent with generally prevailing standards and practices in the pharmaceutical industry in the Territory, taking into account competition, the properties of the Compound, the approved claim structure for the Compound, the sales and profit potential of products containing such Compound (and Competing Compounds), and the nature and extent of market exclusivity; (ii) the Partnership shall not be deemed to have failed to Actively Market any Compound: (A) with respect to the first thirty-six months following the First Commercial Sale thereof if, on a cumulative basis during such thirty-six month period, the Partnership's expenditures for the marketing and promotion of products containing such Compound (including any costs incurred in preparation for launch and determined on the basis of expense accruals in accordance with GAAP), exceed the sum of (1) 50% of the Partnership's Net Sales of such products during the first 12-month period following such First Commercial Sale or $10 million, whichever is greater, (2) 40% of the Partnership's Net Sales of such products during the second 12-month period following such First Commercial Sale and (3) 30% of the Partnership's Net Sales of such products during the third 12-month period following such First Commercial Sale; and (B) with respect to any 12-month period beginning on an anniversary of the date of such First Commercial Sale, commencing with the third such anniversary, if the Partnership's expenditures for the marketing and promotion of products containing such Compound (determined on the basis of expense accruals in accordance with GAAP), with respect to such 12-month period exceed (1) 20% of the Partnership's Net Sales of such products, in the case of the fourth 12-month period following such First Commercial Sale, (2) 10% of the Partnership's Net 3 6 Sales of such products, in the case of the fifth 12-month period following such First Commercial Sale or (3) 5% of the Partnership's Net Sales of such products, in the case of any such 12-month period thereafter; and (iii) the Partnership shall not be deemed to have failed to Actively Market any Distribution Product containing such Distribution Compound if the Partnership (and its Affiliates) have discontinued marketing Distribution Products containing such Distribution Compound or a product containing a Competing Compound on a global basis due to reasons of safety or efficacy so long as the Partnership continues to conduct an Active Development Program with respect to such Distribution Compound or a Competing Compound. "Adverse Drug Experience" shall mean "adverse drug experience" as used in applicable regulations promulgated from time to time by the FDA. "Agreement" shall have the meaning set forth in the Preamble. "Amended and Restated KBI License" shall have the meaning set forth in the Recitals. "Annual Certificate" shall have the meaning set forth in Section J.1. "Claims" shall have the meaning set forth in Section O.1. "Clinical Quantities" shall have the meaning set forth in the Manufacturing Agreement. "Combination" shall have the meaning set forth in the Amended and Restated KBI License. "Competing Compound", with respect to any Distribution Compound, shall mean any Covered Compound having an approved indication within the same Therapeutic Category as such Distribution Compound. "Competing Product" shall mean a product containing a Competing Compound. "Compound" shall have the meaning set forth in the Amended and Restated KBI License. "De Minimis Infringement" shall have the meaning set forth in the Amended and Restated KBI License. "Development Non-Performance Notice" shall have the meaning set forth in Section D.2(a). "Discontinuation Notice" shall have the meaning set forth in Section D.1(a) hereof. "Distribution Compound" shall mean (i) each and every Compound that is a Licensed Compound as of the date of this Agreement, (ii) each other Licensed Compound with respect to 4 7 which the Partnership exercises its right under Section C or Section F hereof to become KBI-E's exclusive distributor and (iii) the Combination of enalapril and felodipine, but shall not include (w) the Selected Compounds and the Selected Uses of Licensed Compounds, (x) Compounds as to which the Partnership has delivered a Rejection Notice, (y) other Compounds as to which the Partnership's rights as distributor hereunder have terminated pursuant to Section D hereof and as to which the Partnership has not been reappointed pursuant to Section F hereof or (z) enalapril as a monotherapy. "Distribution Product" shall mean any pharmaceutical product that contains any Distribution Compound, but shall not include any product to the extent such product is sold exclusively for a Selected Use. "Distribution Rights Option" shall have the meaning set forth in Section C.1(a) hereof. "Events of Force Majeure" shall have the meaning set forth in Section R.7. "Exclusive Second Look Product" shall have the meaning set forth in the Manufacturing Agreement. "Exempted Combination" shall mean any Combination that is not a Licensed Compound. "Fee" shall have the meaning set forth in Section B.2 hereof. "First Commercial Sale" shall have the meaning set forth in the Amended and Restated KBI License. "Fiscal Year" shall have the meaning set forth in the Partnership Agreement. "Full Costs" shall have the meaning set forth in the Amended and Restated KBI License. "Group C Compounds" shall have the meaning set forth in the Amended and Restated KBI License. "IND" shall have the meaning set forth in the Amended and Restated KBI License. "Information Package" shall have the meaning set forth in the Amended and Restated KBI License. "Intermediate Form" shall have the meaning set forth in the KBI Supply Agreement. "KB" shall have the meaning set forth in the Recitals. "KBI" shall have the meaning set forth in the Recitals. "KBI Asset Contribution Agreement" shall have the meaning set forth in the Master Restructuring Agreement. 5 8 "KBI Sublicense" shall mean that certain KBI Limited 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. "KBI Supply Agreement" shall mean that certain KBI Supply Agreement dated as of the date hereof, between KBI and the Partnership, as such agreement is amended, modified, supplemented or restated from time to time. "KBI-E" shall have the meaning set forth in the Preamble. "KBI-E Asset Contribution Agreement" shall have the meaning set forth in the Master Restructuring Agreement. "KBI-E Asset Option Agreement" shall have the meaning set forth in the Master Restructuring Agreement. "KBI-E Asset Purchase" shall have the meaning set forth in the Master Restructuring Agreement. "KBI-E Assignment" shall have the meaning set forth in the Recitals. "KBI-E Indemnitee" shall have the meaning set forth in Section O.2. "Licensed Compound" shall have the meaning set forth in the Amended and Restated KBI License. "Licensed Patents" shall have the meaning set forth in the Amended and Restated KBI License, except that as used herein "Licensed Patents" shall not include any Licensed Patent that does not relate to the Distribution Compounds. "Losses" shall have the meaning set forth in Section O.1. "Manufacturing Agreement" shall have the meaning set forth in the Master Restructuring Agreement. "Market Exclusivity" shall have the meaning set forth in the Master Restructuring Agreement. "Marketing Approval" shall mean with respect to a Distribution Compound or Distribution Product the approval by the FDA of an NDA with respect to such Distribution Compound or Distribution Product and any other regulatory or other governmental approvals, clearances, registrations and permits required for the commercial marketing and sale of such Distribution Compound or Distribution Product in the Territory. "Marketing Non-Performance Notice" shall have the meaning set forth in Section D.2(b). 6 9 "Master Restructuring Agreement" shall mean the Master Restructuring Agreement dated as of June 19, 1998, among KB, TR, KBI, KBI-E, the Partnership and certain related parties, as such agreement is amended, modified, supplemented or restated from time to time. "NDA" shall have the meaning set forth in the Amended and Restated KBI License. "Net Sales" shall have the meaning set forth in the Master Restructuring Agreement. "Non-Affiliate" shall have the meaning set forth in the Amended and Restated KBI License. "Non-Exclusive Second Look Product" shall have the meaning set forth in the Manufacturing Agreement. "Non-Performance Notice" shall have the meaning set forth in Section D.2 hereof. "Option Exercise Period" shall have the meaning set forth in Section C.1 hereof. "Option Notice" shall have the meaning set forth in the Amended and Restated KBI License. "Partnership" shall have the meaning set forth in the Preamble. "Partnership Agreement" shall have the meaning set forth in the Master Restructuring Agreement. "Partnership Indemnitee" shall have the meaning set forth in Section O.1. "P&G Agreements" shall have the meaning set forth in the KBI Asset Contribution Agreement. "Rejection Notice" shall have the meaning set forth in Section C.1 hereof. "Selected Compounds" shall have the meaning set forth in the Selected Compounds Contribution Agreement. "Selected Compounds Contribution Agreement" shall have the meaning set forth in the Master Restructuring Agreement. "sNDA" shall mean a supplemental New Drug Application made in accordance with applicable regulations and requirements of the FDA as from time to time in effect. "Subsidiary" shall have the meaning set forth in the Partnership Agreement. "Technical Information" shall have the meaning set forth in the Amended and Restated KBI License. 7 10 "Territory" shall have the meaning set forth in the Amended and Restated KBI License. "Therapeutic Category" shall mean each category of disease or disorder listed on Exhibit D to the Amended and Restated KBI License. A Compound shall be deemed to be in one or more Therapeutic Categories based on its approved indications. "Trademarks" shall have the meaning set forth in the Amended and Restated KBI License. "Transfer" shall have the meaning set forth in the Master Restructuring Agreement. "Trigger Event" shall have the meaning set forth in the Master Restructuring Agreement. Capitalized terms used but not defined in this Agreement shall have the definitions set forth in the Amended and Restated KBI License. B. DISTRIBUTORSHIP Notwithstanding any other provision of this Agreement, this Agreement and the rights of the Partnership hereunder are subordinate to, subject to and limited by (i) the rights (and the limitations thereon) of KBI-E (as assignee of KBI) as Licensee under the Amended and Restated KBI License, and the Lexxel License, (ii) any Required Sublicense (as defined in the Amended and Restated KBI License) and (iii) the rights previously granted by KBI and KBI-E pursuant to the P&G Agreements. 1. Appointment of the Partnership as Distributor (a) Appointment. Subject to the provisions of Sections C, D and E hereof, KBI-E hereby appoints the Partnership as KBI-E's sole and exclusive distributor of Distribution Products in the Territory with the sole and exclusive right to promote, distribute, market and sell Distribution Products in the Territory during the term of this Agreement, and all the rights granted to KBI-E under the Amended and Restated KBI License with respect to development of Distribution Compounds (other than Selected Uses thereof), and the right to obtain clinical supplies therefor, subject to the rights of KBI-E pursuant to Sections D and E; provided, however, that the foregoing shall not be construed to prohibit the supply of Distribution Products and Distribution Compounds to the Partnership pursuant to Section B-1.1(e) hereof and pursuant to the KBI Supply Agreement or the supply of Distribution Products (and Intermediate Forms thereof) and Distribution Compounds to KBI and other Producers pursuant to the Manufacturing Agreement. Subject to Sections C, D and F hereof, such appointment shall be effective on the date hereof with respect to each Compound that is a Licensed Compound under the Amended and Restated KBI License on the date hereof and, with respect to each Compound that thereafter becomes a Distribution Compound, on the date that such Compound becomes a Licensed Compound or, in the case of Section F hereof, on the date that the Partnership notifies KBI-E that it desires to acquire or reacquire distribution rights hereunder and makes any payment required under such section. The Partnership hereby accepts such appointment as distributor. 8 11 (b) No Implied Rights. The Partnership acknowledges that except as expressly provided herein, the Partnership shall not have or acquire by virtue of this Agreement any right, title, interest or license in, to or under the Licensed Patents or Technical Information or any other intellectual property rights in the Distribution Compounds, and in no event shall this Agreement be deemed to be a license or sublicense of any rights under the Amended and Restated KBI License with respect to any Licensed Patents or Technical Information or any other intellectual property rights in the Distribution Compounds. (c) Relationship of the Parties. Nothing in this Agreement shall be deemed to create a partnership, joint venture or relationship of principal and agent between the parties hereto. Nothing in this Agreement shall be deemed to authorize either party hereto to make any representations or warranties on behalf of or otherwise to act for, represent or bind the other party hereto or any of its respective Affiliates in any manner whatsoever. (d) Marketing Obligation. Subject to the obligations of KBI as provided in the KBI Supply Agreement and of the Producers as provided in the Manufacturing Agreement, during the period of Market Exclusivity with respect to a Distribution Compound, the Partnership shall use reasonable efforts to begin and to continue the marketing, distribution and sale of each such Distribution Compound in the Territory as promptly as practicable after the FDA has approved an NDA for such Distribution Compound. Following a Trigger Event, (i) reasonable efforts shall be determined by taking into account competition, the properties of the Distribution Compound, the approved claim structure for the Compound, the sales and profit potential of products containing such Distribution Compound (and Competing Compounds) and the nature and extent of market exclusivity and (ii) the amounts of marketing and promotional expenditures with respect to such Distribution Compound (and Competing Compounds) prior to the Trigger Event and other relevant factors also may be considered. The Partnership shall not, however, be required to market a Distribution Product if such Product is discontinued for reasons of safety or efficacy. For purposes of this Section B(1)(d), (i) a Compound shall be deemed to be in one or more Therapeutic Categories based on its approved indications, and (ii) subject to Section R.8, reasonable efforts with respect to any Distribution Compound in a Therapeutic Category shall be satisfied if such efforts are used with respect to the totality of Covered Compounds (taken as a whole) in such Therapeutic Category. If the efforts employed by the Partnership for the totality of the Covered Compounds (taken as a whole) in a specific Therapeutic Category are reasonable in the aggregate, the requirement of reasonable efforts for each Distribution Compound in such Therapeutic Category will be deemed satisfied. The parties acknowledge and agree that neither the definition of "Actively Marketing" nor the satisfaction of the tests set forth therein (including, without limitation, clause (ii) thereof) shall have any import or effect with respect to the determination of whether the Partnership has used reasonable efforts with respect to the marketing, distribution and sale of Distribution Compounds as required by this Section B.1(d). 9 12 2. Fee In connection with the appointment of the Partnership as KBI-E's distributor hereunder, the Partnership shall pay KBI-E on the Closing Date (as defined in the Master Restructuring Agreement) a one-time nonrefundable franchise fee of Two Hundred Thirty Million U.S. Dollars (US$230,000,000.00) (the "Fee"), which Fee represents the full, final and complete consideration payable by the Partnership to KBI-E in consideration for the distribution rights granted hereunder. The Fee shall be payable by the Partnership to KBI-E by wire transfer to an account of KBI-E. B-1. OPERATIONAL MATTERS 1. (a) FDA Approval. The Partnership shall use reasonable efforts to obtain and maintain FDA approval of an NDA for each Distribution Compound for use in human medicine. In furtherance thereof: (b) Evaluation. After receipt of appropriate documentation from the Licensor, the Partnership shall use reasonable efforts to file an IND with the FDA at its sole cost in respect to each Distribution Compound. The Partnership acknowledges that under the terms of the Amended and Restated KBI License, the Licensor may, to the extent it deems required or advisable, also file an IND with the FDA at its sole cost in respect of any Distribution Compound. The Partnership shall promptly notify the Licensor of each IND and NDA the Partnership has filed and of each FDA approval of an NDA in respect of each Distribution Compound. The Partnership shall use reasonable efforts to complete as promptly as practicable its obligations set forth at subparagraphs (i) and (ii) below in a manner which complies with or exceeds FDA standards as from time to time in effect. (i) (A) If any tests, studies or other development activities to be performed by the Licensor pursuant to Section 3.1(a)(i) of the Amended and Restated KBI License for any Distribution Compound are required by the FDA to be performed in the Territory, the Partnership, at the request of the Licensor, shall use reasonable efforts to perform, or to contract for the performance of, such tests, studies or other development activities in the Territory, and KBI-E shall reimburse the Partnership for the Partnership's (or any of its Subsidiaries') out-of-pocket costs incurred in such performance to the extent not reimbursed by the Licensor directly pursuant to Section 3.1(a)(i) of the Amended and Restated KBI License. (B) The Amended and Restated KBI License provides that KB shall notify the Partnership of KB's Product Definition and Product Composition for such Distribution Compound as soon as reasonably available. If the Partnership desires a Product Definition different from the Licensor's Product Definition for such Distribution Compound, the Partnership shall consult with the Licensor and notify the Licensor of the Partnership's Product Definition for such Distribution Compound, which shall be reasonably related to the Licensor's Product Composition for such Distribution Compound. The Partnership shall reimburse 10 13 KBI-E for (or, at the Partnership's option, pay directly to the Licensor) any amount that KBI-E is required to reimburse to the Licensor pursuant to Section 3.1(a)(i)(B) of the Amended and Restated KBI License in respect of the development of the Partnership's Product Definition for such Distribution Compound and in the development of the Dosage Form Information for such Product Definition (as such terms are defined in the Amended and Restated KBI License). (C) The Partnership will consult with the Licensor as to whether any tests, studies or other development activities of the nature described at subparagraph (A) above are required to be performed with respect to any reference drug or placebo for such Distribution Compound. The Partnership shall reimburse KBI-E for (or, at the Partnership's option, pay directly to the Licensor) any amount that KBI-E is required to pay to the Licensor pursuant to Section 3.1(a)(i)(C) of the Amended and Restated KBI License. (D) The Amended and Restated KBI License provides that the Licensor shall provide to the Partnership all appropriate documentation relating to the tests, studies and other development activities referred to in subparagraphs (A), (B) and (C) of Section 3.1(a) of the Amended and Restated KBI License for such Distribution Compound, including, without limitation, the results of, and supporting data and information for, all such tests, studies and other development activities. The Partnership shall be entitled to use such documentation and results, data and information to obtain or maintain FDA approval of an NDA for such Compound, and to incorporate such documentation and results, data and information in any filings with the FDA for such Compound. (ii) After Phase II Clinical Evaluation for a Distribution Compound has been completed, the Partnership shall use reasonable efforts to complete, (x) all Phase III Clinical Evaluation and (y) all tests and studies in humans, other than those contemplated by Section 3.1(a)(i) of the Amended and Restated KBI License, necessary or advisable to obtain and maintain FDA approval of an NDA for such Compound. The Partnership may, where special research and development expertise exists, after consultation with the Licensor, conduct outside the Territory specific tests and studies which are required by the FDA to be performed for Phase III Clinical Evaluation of such Compound; in such event, the Partnership shall agree with the Licensor on the appropriate regulatory documentation required to permit such tests and studies. After the completion of all tests, studies and other development activities and the preparation of all data and other information, necessary or appropriate to obtain FDA approval of an NDA for such Compound, the Partnership shall use reasonable efforts to obtain such approval. (iii) The Partnership shall provide the Licensor free-of-charge with such of the results of, and supporting data and information for, any tests and studies performed by 11 14 the Partnership (or any of its Subsidiaries) pursuant to Section B-1(b)(ii) hereof for any Distribution Compound which the Licensor shall request after review with the Partnership of the material available, with authority to the Licensor, its Affiliates or any licensee or sublicensee thereof to use and make reference thereto. (iv) If, after manufacturing of any Distribution Compound has been commenced, there are changes in the method of synthesis, the final composition of dosage forms, or the Product Definition of such Distribution Compound such that the FDA requires any additional tests, studies or other development activities, then the Partnership shall use reasonable efforts to perform, at its own expense, such additional tests, studies or other development activities. (c) Regulatory Approval Cooperation. The Partnership recognizes the Licensor's interest in maintaining a consistent profiling of each Distribution Compound worldwide and acknowledges KBI-E's obligations under Section 3.1(b) of the Amended and Restated KBI License in respect thereof. In furtherance thereof, the Partnership shall, in respect of all tests, studies and other development activities to be performed in accordance with Section 3.1(a) of the Amended and Restated KBI License, consult with the Licensor on product profiling. In addition, to the extent legal and practicable, the Partnership shall consult with the Licensor periodically to review the planning and the progress of all preclinical and clinical tests, studies and other development activities for each Distribution Compound. The Partnership shall (i) inform the Licensor of all meetings with representatives of the FDA concerning any Distribution Compound, (ii) arrange for representatives of the Licensor to attend such meetings as observers, and (iii) forward to the Licensor summaries of such meetings and copies of other significant communications with representatives of the FDA concerning any Distribution Compound. The Amended and Restated KBI License provides that the Partnership shall be entitled to participate in such meetings between the Licensor and representatives of the FDA concerning any Distribution Compound to the extent required by the Amended and Restated KBI License. (d) New Claims and Formulations. The Partnership shall consult with the Licensor from time to time on an ad hoc basis regarding preclinical and clinical tests, studies and other development activities relating to additional claims or formulations for any Distribution Compound for which approval of a new or supplemental NDA will be sought from the FDA. (e) Supply of Distribution Compounds and Distribution Products. KBI-E shall cause Distribution Products and, solely for the purpose of permitting the Partnership to have made Special Combination Products (as defined in the Manufacturing Agreement), Distribution Compounds to be supplied to the Partnership by KBI on the terms and conditions and subject to the limitations set forth in the KBI Supply Agreement (the form of which, as to be entered into at the Closing, being attached hereto as Exhibit A), and, as hereinafter provided, the Partnership shall purchase from KBI all of the Partnership's requirements of each Distribution Product and such Distribution Compound in accordance with the terms and conditions of the KBI Supply Agreement, other than the Partnership's requirements for Clinical Quantities of Distribution 12 15 Compounds and Distribution Products. The Partnership shall enter into the KBI Supply Agreement with KBI, and KBI-E shall cause KBI to enter into the KBI Supply Agreement with the Partnership. KBI-E shall sublicense to KBI on a non-exclusive basis such rights as may be held by KBI-E under the Amended and Restated KBI License from time to time as may be required to make or have made the Distribution Products and Distribution Compounds for supply to the Partnership under the KBI Supply Agreement, subject to the limitations set forth in the KBI Supply Agreement. KBI-E shall not be deemed to be in breach of its obligations under this subsection (e) unless KBI is in breach of its obligations under the KBI Supply Agreement. Notwithstanding the foregoing, KBI-E shall not have any obligation to provide for the supply of any Compound or any product containing any Compound (other than candesartan cilexitil and the Combination of felodipine and enalapril) if KBI-E does not have the right under the KBI Sublicense to make or have made such Compound or product. (f) Quality in Marketing. The Partnership shall maintain standards with respect to the quality of marketing and promotion of each Distribution Compound as follows: such standards shall be at least at a level equivalent to the standards then employed by the Licensor with respect to its Compounds, as such standards may be set forth by the Licensor by reasonable advance notice to the Partnership from time to time. The Partnership shall permit the Licensor to have the marketing and promotional standards of the Partnership reviewed by a Non-Affiliate of the Licensor of nationally-recognized standing (except a Non-Affiliate to whom the Partnership has some reasonable objection) for the sole purpose of determining that this policy is followed. To the extent legal, the Partnership shall furnish the Licensor for each Distribution Compound with monthly sales reports by dosage form and strength and, to the extent requested by the Licensor, copies of proposed labeling and package inserts, and copies or other representations of advertising and other promotional materials. (g) Reports; Recordkeeping; Inspection. After the First Commercial Sale of any Distribution Compound for which royalties are payable to the Licensor under Article VII of the Amended and Restated KBI License, the Partnership shall render to KBI-E and to the Licensor on behalf of KBI-E within 20 days after the end of each calendar quarter a report for such quarter, which shall state, in reasonable detail, Net Sales of each Distribution Compound with respect to which such royalties are payable and such other information as may be required to compute the amount of royalties due with respect to such quarter. The Partnership shall keep, and shall cause its assignees and subdistributors to keep, true, accurate and complete records of total quantities of Distribution Compounds sold and the Net Sales thereof in sufficient detail to permit determination of royalties payable under the Amended and Restated KBI License. At the request and expense of KBI-E, KBI-E 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 the Partnership and its Subsidiaries and subdistributors as may be necessary in such accountants' judgment to permit them to attest that the royalties paid or payable to the Licensor by KBI-E conform to the terms of the Amended and Restated KBI Agreement. Such rights of access, audit and inspection for any Fiscal Year shall terminate three years after the close of each Fiscal Year in respect of royalties paid or payable for such Fiscal 13 16 Year. KBI-E shall enter into a written engagement with such accountants, a copy of which shall be provided to the Partnership, providing that (i) the scope of the engagement with respect to such audit and examination is limited to the rights provided in this Section B-1.1(g) and, if the audit is performed in connection with another audit permitted by any other agreement between an Affiliate of KBI-E and the Partnership, 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-E or the Licensor (or any of their respective Affiliates) any information other than information relating to the conformance of the Partnership's computation of Net Sales of each Distribution Compound with the terms of this Agreement and in no event shall quantities or prices or rebates to individual customers be disclosed to KBI-E or the Licensor (or any of their respective Affiliates) or any other Person. Notwithstanding the foregoing, KBI-E shall not, during the period from December 15 of any Fiscal Year through January 31 of the following Fiscal 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 Fiscal Year, exercise such rights with respect to the activities of the Partnership during the last fiscal quarter of the prior Fiscal Year. (h) Transfer of Technical Information; Reactions. In the event that the Licensor provides the Partnership with summaries of Technical Information possessed by Licensor (or any of its Affiliates) regarding a Distribution Compound as contemplated by Article X of the Amended and Restated KBI License, the Partnership may transfer such Technical Information provided to it only to a subdistributor (and to no other Person except as provided herein), and may use such Technical Information solely in the Territory and only in furtherance of its rights and obligations hereunder. The Partnership shall promptly, and in full accordance with FDA requirements, bring to the attention of the Licensor any unusual or unexpected reactions or side-effects with respect to each Distribution Compound and Combination containing any such Compound and to KBI-E in the use of any Compound which has ceased to be a Distribution Compound or as to which the Partnership's rights under this Agreement have become non-exclusive. (i) Regulatory Responsibility. Except as set forth in the Manufacturing Agreement and the KBI Supply Agreement, the Partnership shall have responsibility for compliance with all FDA and other regulatory requirements relating to the manufacturing, marketing, sale, distribution, promotion and development of the Distribution Compounds and Distribution Products and for all communications with the FDA and other government agencies concerning the Products. C. OPTION WITH RESPECT TO GROUP C COMPOUNDS 1. (a) In the event the Licensor provides KBI-E with an Option Notice with respect to a Group C Compound, KBI-E shall, upon receipt, promptly provide the Partnership 14 17 with a copy thereof, and the Partnership shall have an option, exerciseable as set forth below, to cause such Compound to become a Distribution Compound and to become the sole and exclusive distributor with respect to Distribution Products containing such Distribution Compound as provided in this Agreement (the "Distribution Rights Option"). The Partnership shall have thirty (30) days from receipt of such Option Notice from KBI-E (the "Option Exercise Period") in which to determine whether to exercise the Distribution Rights Option. (b) In the event the Partnership delivers to KBI-E written notice prior to the expiration of the Option Exercise Period that it does not wish to exercise the Distribution Rights Option with respect to such Compound (a "Rejection Notice"), such Compound shall not become a Distribution Compound, and the Partnership shall not be the distributor of, or have any other rights or any obligations under this Agreement with respect to, such Compound or products containing such Compound. In such event, KBI-E may determine in its sole discretion whether or not to exercise the option with respect to which the Option Notice was given. In the event the Partnership does not deliver to KBI-E a Rejection Notice prior to the expiration of the Option Exercise Period, KBI-E shall cause the option with respect to such Compound under Section 2.3 of the Amended and Restated KBI License to be exercised. Upon such Compound becoming a Licensed Compound, such Compound shall be a Distribution Compound, and the Partnership shall, without any further action by KBI-E or the Partnership, be KBI-E's sole and exclusive distributor with respect to Distribution Products containing such Compound as and to the extent provided in Section B.1. KBI-E shall not have any right to obtain from the Partnership, nor shall it have any other rights hereunder with respect to, the Information Package or any samples and scientific, technical and other information made available to the Partnership pursuant to Section 2.3 of the Amended and Restated KBI License, this Section C.1 or otherwise with respect to such Compound. D. REVERSION AND TERMINATION OF RIGHTS WITH RESPECT TO DISTRIBUTION COMPOUNDS 1. (a) At any time after the Partnership shall have determined (i) that it is neither (A) currently conducting or planning to conduct an Active Development Program for a Distribution Compound or a Competing Compound nor (B) Actively Marketing or planning to Actively Market any Distribution Product containing such Distribution Compound or any product containing a Competing Compound or (ii) to discontinue the development or marketing of such Distribution Compound and any Distribution Product containing such Distribution Compound, the Partnership may deliver to KBI-E a written notice (a "Discontinuation Notice") identifying such Distribution Compound and Distribution Products containing such Distribution Compound, if any, but excluding any Exempted Combination. Upon delivery of a Discontinuation Notice with respect to such Distribution Compound (i) if such delivery is prior to the First Commercial Sale of any Distribution Product containing such Distribution Compound, such Distribution Compound shall cease to be a Distribution Compound, and (ii) if such delivery is subsequent to the First Commercial Sale of any Distribution Product containing such Distribution Compound, the rights of the Partnership with respect to such Distribution 15 18 Compound and Distribution Products containing such Distribution Compound shall become non-exclusive. (b) In the event KB notifies KBI pursuant to Section 3.01(c)(iv) of the Manufacturing Agreement that it declines to perform the Manufacturing Stages referred to in Section 3.01(c)(i)(A)(1) or (2) of the Manufacturing Agreement with respect to any KB Pipeline Product of the Manufacturing Agreement, and does not thereafter become the Producer with respect to such Manufacturing Stage or Stages for such KB Pipeline Product by giving notice of its election to become the Producer with respect thereto and agreeing to match the pricing of the Alternate Producer and to reimburse KBI and its Affiliates for the reasonable out-of-pocket costs of KBI and its Affiliates associated with retaining such Alternate Producer in accordance with Section 3.01(c)(iv) of the Manufacturing Agreement, such Distribution Compound shall cease to be a Distribution Compound. 2. (a) At any time after the first anniversary of the date that a Compound becomes a Distribution Compound (excluding any Exempted Combination) and prior to the First Commercial Sale thereof, KBI-E may deliver to the Partnership a written notice with respect to such Distribution Compound setting forth its contention that the Partnership was not during the most recent Fiscal Year ended prior to such notice (or, in the event that the Partnership has provided to KBI-E pursuant to Section J hereof an Annual Certificate that was materially inaccurate and was prepared with reckless disregard for the accuracy or inaccuracy of the information contained therein, the two most recently completed Fiscal Years) conducting an Active Development Program for such Distribution Compound or a Competing Compound (a "Development Non-Performance Notice"); provided, however, that for the Fiscal Year during which a Compound becomes a Distribution Compound the requirements for the Active Development Program in respect of such Distribution Compound shall be pro rated in relation to the portion of such calendar year during which the Compound was a Distribution Compound. (b) At any time after the expiration of 33 months following the date of the First Commercial Sale of any Distribution Product containing a Distribution Compound, KBI-E may deliver to the Partnership a written notice with respect to such Distribution Compound setting forth its contention that the Partnership was not during the most recent Fiscal Year completed prior to such notice (or, in the event that the Partnership has provided to KBI-E pursuant to Section J hereof an Annual Certificate that was materially inaccurate and was prepared with reckless disregard for the accuracy or inaccuracy of the information contained therein, the two most recently completed Fiscal Years) Actively Marketing any Distribution Product containing such Distribution Compound or any product containing a Competing Compound (a "Marketing Non-Performance Notice"). (c) As used herein, "Non-Performance Notice" shall mean a Development Non-Performance Notice or a Marketing Non-Performance Notice. Any Fiscal Year with respect to which KBI-E is permitted to give a Non-Performance Notice pursuant to subsection (a) or (b) above may be designated at the election of KBI-E in its Non-Performance Notice or otherwise in writing as a "Measurement Year." In the event that KBI-E has exercised its right of audit with 16 19 respect to any Fiscal Year pursuant to Section J.2, any Non-Performance Notice with respect to such Fiscal Year must be delivered within 30 days after the completion of such audit and the delivery of the auditors' report with respect thereto. Any Non-Performance Notice delivered after such 30-day period shall be of no effect. (d) Within ninety (90) days after receipt of a Non-Performance Notice, the Partnership shall deliver to KBI-E a written notice that either (i) confirms KBI-E's claim as set forth in such Non-Performance Notice or (ii) disputes KBI-E's claim (a "Dispute Notice"). If KBI-E has delivered a Development Non-Performance Notice and (i) the Partnership does not deliver a Dispute Notice with respect thereto to KBI-E within such ninety-day period, or (ii) the Partnership confirms that during the applicable Measurement Year it was neither conducting an Active Development Program for such Distribution Compound or a Competing Compound nor Actively Marketing any Distribution Product containing such Distribution Compound or a Competing Compound, such Distribution Compound shall cease to be a Distribution Compound. If KBI-E has delivered a Marketing Non-Performance Notice and (i) the Partnership does not deliver a Dispute Notice with respect thereto to KBI-E within such ninety-day period, or (ii) the Partnership confirms that during the applicable Measurement Year it was neither conducting an Active Development Program for such Distribution Compound or a Competing Compound nor Actively Marketing such Distribution Compound or a Competing Compound, the rights of the Partnership with respect to such Distribution Compound and Distribution Products containing such Distribution Compound shall become non-exclusive. (e) In the event the Partnership shall have delivered a Dispute Notice, the parties shall co-operate in good faith to resolve such dispute. If, in the case of a Development Non-Performance Notice, the parties are unable to resolve the dispute set forth in the Dispute Notice within 30 days after the delivery of such Dispute Notice, such dispute shall be resolved by arbitration pursuant to Section Q. Such arbitration shall be initiated by KBI-E within thirty (30) days after receipt by KBI-E of such notice. If, in the case of a Marketing Non-Performance Notice, the parties are unable to resolve the dispute set forth in the Dispute Notice within 180 days after the delivery of such Dispute Notice, such dispute shall be resolved by arbitration pursuant to Section Q. Such arbitration shall be initiated by KBI-E no earlier than 180 days and no later than 210 days after receipt by KBI-E of such Dispute Notice. (f) With respect to a dispute concerning a Development Non-Performance Notice, if the arbitrators determine that the Partnership was during the applicable Measurement Year conducting an Active Development Program for such Distribution Compound or a Competing Compound or was Actively Marketing any Distribution Product containing such Distribution Compound or any product containing a Competing Compound, the rights of the Partnership under this Agreement with respect to such Distribution Compound shall continue to be exclusive. If the arbitrators determine that during the applicable Measurement Year the Partnership was neither conducting an Active Development Program for such Distribution Compound or a Competing Compound nor Actively Marketing any Distribution Product containing such Distribution Compound or any product containing a Competing Compound, such Distribution Compound shall cease to be a Distribution Compound. 17 20 (g) If a Marketing Non-Performance Notice is given with respect to a Distribution Compound during the first 15 months following the expiration of the thirty-three month period referred to in Section D.2(b), the rights of the Partnership with respect to such Distribution Compound and products containing such Distribution Compound shall become non-exclusive if the arbitrators determine that (i) during the thirty-six month period referred to in clause (ii) of the definition of "Actively Marketing" the Partnership was not Actively Marketing Distribution Products containing such Distribution Compound or products containing a Competing Compound, (ii) the Partnership was not during the Measurement Year conducting an Active Development Program for such Distribution Compound or a Competing Compound and (iii) at the time the notice of initiation of the arbitration proceeding was given by KBI-E the Partnership was neither conducting an Active Development Program for such Distribution Compound or a Competing Compound nor Actively Marketing Distribution Products containing such Distribution Compound or products containing a Competing Compound. If a Marketing Non-Performance Notice is given with respect to a Distribution Compound at any other time thereafter, the rights of the Partnership with respect to such Distribution Compound and products containing such Distribution Compound shall become non-exclusive if the arbitrators determine that at the time the notice of initiation of the arbitration proceeding was given by KBI-E, the Partnership was not Actively Marketing Distribution Products containing such Distribution Compound or products containing a Competing Compound and during the Measurement Year the Partnership was not conducting an Active Development Program for such Distribution Compound or a Competing Compound and was not Actively Marketing Distribution Products containing such Distribution Compound or products containing a Competing Compound. (h) KBI-E may deliver a Non-Performance Notice to the Partnership with respect to any given Distribution Compound (and seek resolution of any dispute arising therefrom pursuant to subparagraph (e) above) only once during the development of such Distribution Compound and only once during the marketing of a Distribution Product containing such Distribution Compound. (i) The rights of KBI-E pursuant to Section D shall not apply to (A) remacemide with respect to the conduct of an Active Development Program or to candesartan cilexitil or (B) any Group C Compound in-licensed or acquired by KB or any of its Affiliates (other than the Partnership) in the event that the applicable license or acquisition agreement contains (x) payment obligations other than payments computed as a percentage of Net Sales in the Territory, or relating to the supply, purchase or delivery of Distribution Compound or Distribution Product for sale in the Territory (an example of such payment obligation is a lump sum payment triggered by filings, approvals or other events or development activities in the Territory) or (y) obligations that may require the licensee, sublicensee, distributor or subdistributor to grant back to any Non-Affiliate of KB from which the Compound has been acquired or licensed (or to any of its Affiliates), any right, title or interest in Compound Intellectual Property (as defined in the Master Restructuring Agreement), Compound Technical Information (as defined in the Master Restructuring Agreement), NDAs, INDs, sNDAs or any other technology, improvements, intellectual property or processes relating to such Distribution Compound or Distribution Product. 18 21 3. (a) In the event a Compound ceases to be a Distribution Compound or the Partnership's rights hereunder become non-exclusive with respect to a Distribution Compound, KBI-E shall be free to develop such Compound for its own benefit and to market, sell and promote any products containing such Compound for its own benefit under any trademark of its choosing, subject to the terms of the Amended and Restated KBI License, (except that, without the consent of the Partnership, KBI-E shall not use any trademark used by the Partnership or any of its Affiliates in respect of any such product or any trademark confusingly similar thereto) or to appoint one or more other distributors with respect to such Compound and products containing such Compound or to grant one or more sublicenses of all its rights with respect thereto; provided, however, that any agreement appointing such distributor or granting any such sublicense with respect to such Compound (other than agreements relating to omeprazole or perprazole) shall be terminable at the option of KB if such Compound is purchased as a "Discretionary Compound" in connection with the consummation of the KBI-E Asset Purchase; and provided, further, that prior to the KBI-E Asset Purchase, KBI-E shall not appoint any such distributor or grant any such sublicense to any person that is not an Affiliate of KBI-E. (b) If a Compound ceases to be a Distribution Compound, (i) the Partnership shall, subject to the provisions of Section E, as promptly as practicable following the date on which such Compound ceases to be a Distribution Compound, transfer to KBI-E the items specified in Section 13.3 of the Amended and Restated KBI License with respect to such Compound and (ii) upon the demand of KBI-E, the Partnership shall deliver to KBI-E (A) samples of such Compound and products, if any, containing such Compound and such scientific, technical and other information in the Partnership's possession relating to such Compound and such products and (B) copies of all promotional materials, marketing plans, marketing studies, product samples, product development studies and other information with respect to such Compound or products. (c) If the rights of the Partnership with respect to a Distribution Compound become non-exclusive pursuant to this Section D, (i) the Partnership shall, subject to the provisions of Section E, as promptly as practicable following the date on which such rights become non-exclusive, transfer to KBI-E copies of all Technical Information and of other confidential information covered by Section 10.2 of the Amended and Restated KBI License furnished by the Licensor or any of its Affiliates to the Partnership concerning such Distribution Compound and (ii) upon the demand of KBI-E, the Partnership shall deliver to KBI-E samples of such Compound and products, if any, containing such Compound and such scientific, technical and other information in the Partnership's possession relating to such Compound and such products. (d) In the event the Partnership and its Affiliates transfer to KBI-E all applicable INDs and NDAs with respect to a Compound pursuant to Section E.2, such Compound shall cease to be a Distribution Compound, and the rights of the Partnership with respect to such Compound shall terminate. 19 22 4. If a Compound ceases to be a Distribution Compound, KBI-E shall, not later than 30 days after such rights terminate, purchase from the Partnership at the Partnership's cost, such of the Partnership's inventory of finished goods of products containing such Compound (including samples) as is in good and saleable condition and in a quantity that, assuming annual sales equal to the average annual sales of such products for the three most recent Fiscal Years of the Partnership, would be sold prior to the expiry date thereof. KBI-E (or any Affiliate that KBI-E may appoint as a distributor or sublicensee with respect thereto) shall be entitled to continue to use the existing packaging and trade dress of such Distribution Products (including the name of the Partnership set forth therein) until the final disposition of such inventory. Payment shall be made concurrently with the acceptance of such Distribution Products by KBI-E. 5. If the rights of the Partnership with respect to a Distribution Compound become non-exclusive pursuant to this Section D or if a Compound ceases to be a Distribution Compound but the Partnership retains rights with respect to any Exempted Combination, each party shall report to the other all Adverse Drug Experiences that come to its attention or the attention of any of its Affiliates and shall furnish the other party with copies of all reports to the FDA made by it or any of its Affiliates with respect to such Licensed Compound. 6. If a Compound ceases to be a Distribution Compound, the Partnership's rights under this Agreement with respect to such Compound shall terminate and the Partnership shall cease to be the distributor hereunder with respect to such Compound or products containing such Compound. 7. If the license with respect to a Discontinued Licensed Compound or Licensed Compound (as such terms are defined in the Amended and Restated KBI License) is terminated pursuant to Section 16.2 of the Amended and Restated KBI License, the Partnership shall transfer to KB all rights which the Partnership shall have with respect to any uses of such Licensed Compound or Discontinued Licensed Compound, as the case may be, so that KB shall be in possession of all rights with respect to such Licensed Compound, including the Selected Uses of such Licensed Compound and any Exempted Combinations thereof. E. INDS AND NDAS 1. If a Compound ceases to be a Distribution Compound, the Partnership shall, as promptly as practicable following the occurrence of any such event, transfer, or cause to be transferred, to the extent permitted by applicable law and regulations and requirements of the FDA, to KBI-E the INDs and NDAs for such Compound registered in the Partnership's name; provided, however, that notwithstanding the foregoing, the Partnership and its subdistributors, if any, shall be entitled to a right of reference with respect to the NDA and the drug master file for any such Compound which has been transferred to KBI-E in accordance with this Agreement in order to enable the Partnership and its subdistributors to make, have made, use and sell the Selected Uses of such Compound and develop and market any Exempted Combination. 2. In the event the Partnership's rights hereunder become non-exclusive with respect to a Distribution Compound, the Partnership shall, at the request of KBI-E, appoint KBI-E or its 20 23 designee as a distributor under all NDAs for such Compound and products containing such Compound. In addition, KBI-E shall have the right of reference to such NDAs and the Partnership's drug master file with respect to such Compound and shall have all such other rights under such NDAs and other regulatory filings of the Partnership and its Affiliates with respect to such Compound as may be necessary or convenient to KBI-E or its other distributor or sublicensee in connection with the development, marketing, promotion or sale of such Compound or products containing such Compound. At the Partnership's sole discretion, the Partnership shall, to the extent permitted by applicable law and regulations and requirements of the FDA, either (i) keep such NDAs in full force and effect or (ii) transfer or cause to be transferred to KBI-E the INDs and NDAs for such Compound registered in the name of the Partnership or any Affiliate of the Partnership. In the event the Partnership and its Affiliates transfer to KBI-E all applicable INDs and NDAs with respect to a Compound pursuant to this Section E.2, Section D.3(d) shall apply with respect to such Compound. 3. Prior to delivery of a Discontinuation Notice by the Partnership to KBI-E pursuant to Section D.1 for a Compound or delivery of a Non-Performance Notice to the Partnership by KBI-E, the Partnership may withdraw any INDs or NDAs with respect to any such Compounds at any time. After delivery of a Discontinuation Notice by the Partnership to KBI-E pursuant to Section D.1 for a Compound or delivery of a Non-Performance Notice by KBI-E to the Partnership with respect to a Compound and before the time, if any, when such Compound ceases to be a Distribution Compound or the rights of the Partnership hereunder with respect to such Compound become non-exclusive, the Partnership may withdraw such INDs or NDAs only (x) for safety concerns, (y) for liability concerns with respect to which external legal counsel has advised the Partnership that there is a reasonable likelihood that it would be subject to potential liability if it did not withdraw such INDs or NDAs or (z) pursuant to a recommendation of the FDA. F. REAPPOINTMENT OF PARTNERSHIP AS DISTRIBUTOR 1. (a) In the event (i) a Compound ceases to be a Distribution Compound and the rights of the Partnership with respect to such Distribution Compound terminate pursuant to Section D prior to the First Commercial Sale of Distribution Products containing such Compound and (ii) KBI-E or an Affiliate of KBI-E subsequently develops such Compound, KBI-E shall offer the Partnership an option to reacquire exclusive distribution rights with respect to such Compound and Distribution Products containing such Compound in accordance with Section B.1. Such offer shall be made by written notice to the Partnership (x) promptly following the completion of the design of the Phase III Clinical Evaluation with respect to such Compound and (y) immediately prior to the filing of an NDA for such Compound. In the case of (x) and (y) above, KBI-E shall simultaneously make available to the Partnership such samples of such Compound and Distribution Products containing such Compound and such scientific, technical and other information in KBI-E's (or any of its Affiliates') possession relating to such Compound and Distribution Products containing such Compound for the sole purpose of allowing the Partnership to determine whether to exercise the option pursuant to this Section with respect to such Compound and Distribution Products containing such Compound and, in the 21 24 case of (y) above, KBI-E shall simultaneously make available to the Partnership the IND or NDA for such Compound in the form in which KBI-E proposes to file such IND or NDA with the FDA. (b) In the event the Partnership notifies KBI-E in writing not later than sixty (60) days after the receipt of such notice from KBI-E that the Partnership wishes to reacquire such distribution rights and pays to KBI-E the Reappointment Payment (as defined in paragraph (c) below), the Partnership shall, without any further action by KBI-E or the Partnership, be KBI-E's sole and exclusive distributor hereunder in accordance with Section B.1 with respect to such Licensed Compound and any Distribution Products containing such Compound. In the event the Partnership gives such notice and pays to KBI-E the Reappointment Payment, (i) such Licensed Compound shall be deemed a Distribution Compound and such Distribution Compound and any Distribution Products containing such Distribution Compound shall be deemed to be subject to the terms of this Distribution Agreement; (ii) the INDs and NDAs for such Distribution Compound registered in the name of KBI-E (or any of its Affiliates) shall, as promptly as practicable following the occurrence of any such event, be transferred, to the extent permitted by applicable law and regulations and requirements of the FDA, to the Partnership. (c) The Reappointment Payment shall be the greater of (x) the fair market value of the distribution rights with respect to Distribution Products containing such Distribution Compound and (y) the Full Costs incurred by KBI-E and its Affiliates in connection with any development work previously undertaken by KBI-E and its Affiliates with respect to such Compound, compounding capitalized amounts at the pre-tax cost of capital; provided, however, that for purposes of computing the cost of capital component of such Full Costs, all investigative, research and development expenses incurred by KBI-E or any of its Affiliates in connection with such Compound shall be capitalized. For purposes of this Section F, the "fair market value" of such distribution rights shall mean the net present value of the future pre-tax cash flows of such Distribution Compound and any Distribution Products containing such Compound as if KBI-E had continued to develop and sell such Compound and Distribution Products itself, less the net present value of the Agreed Mark Up (as defined in the KBI Supply Agreement) relating to such Distribution Products to be paid by the Partnership to KBI under the KBI Supply Agreement after the distribution rights with respect to such Distribution Products are reacquired by the Partnership. Such net present value shall be determined by an appraiser (selected in accordance with Section 3.15(f) of the Master Restructuring Agreement) using the prevailing pre-tax cost of capital (as determined by such appraiser) for leading United States pharmaceutical companies. (d) Section D shall not apply to any Compound for which the Partnership has been reappointed as distributor pursuant to this Section F. G. DEVELOPMENT COSTS In the event KBI-E obtains rights to any Distribution Compound and any Distribution Products containing such Distribution Compound pursuant to the terms set forth in Section C or D, KBI-E will not be required to reimburse the Partnership for any development or other similar costs associated with such Distribution Compound or any such Distribution Product. 22 25 H. TRADEMARKS In the event that (i) a Compound ceases to be a Distribution Compound and the rights of the Partnership with respect to such Distribution Compound terminate, (ii) the Partnership's rights under the Amended and Restated KBI License with respect to any Trademark used or associated with such Distribution Compound or any other Trademark used or associated with such Distribution Compound have been distributed by the Partnership to the Limited Partner of the Partnership pursuant to Section 5.10 of the Partnership Agreement, and (iii) the Partnership reacquires distribution rights with respect to any such Compound and Distribution Products containing such Compound pursuant to Section F, such rights under the Amended and Restated KBI License to such Trademarks relating to such Compound and Distribution Products shall be assigned to the Partnership and the corresponding obligations thereunder relating to such Trademarks shall be assumed by the Partnership pursuant to an instrument of assignment and assumption substantially in the form set forth as Exhibit A hereto. I. INFRINGEMENT 1. The Partnership shall give prompt notice to KBI-E of any infringement, potential infringement or suspected infringement with respect to any Licensed Patent, except for any De Minimis Infringement, that may come to the Partnership's attention. The Partnership shall reimburse KBI-E for 50% of the out-of-pocket expenses incurred by it in connection with the performance by it of any actions required to be taken by it pursuant to Section 9.1(b) of the Amended and Restated KBI License, to the extent not reimbursed by the Licensor. 2. If KBI-E receives any recovery pursuant to Section 9.2(g) of the Amended and Restated KBI License with respect to a Distribution Compound, (i) in the event KBI-E has been reimbursed for its expenses in connection with the matter to which such recovery relates pursuant to Section 9.2(g) of the Amended and Restated KBI License, that portion of the recovery that is not allocated to the Licensor pursuant to the Amended and Restated KBI License shall be allocated between KBI-E and the Partnership as follows: 56.25% shall be allocated to the Partnership in the case of matters relating to a Group C Compound (55% in the case of matters relating to a Group A Compound or Group B Compound) and 43.75% shall be allocated to KBI-E in the case of matters relating to a Group C Compound (45% in the case of matters relating to a Group A or Group B Compound); or (ii) in the event KBI-E has not been reimbursed for its expenses in connection with such matter, such recovery (net of KBI-E's expenses in connection with such matter) shall be allocated between KBI-E and the Partnership as follows: 56.25% shall be allocated to the Partnership in the case of matters relating to a Group C Compound (55% in the case of matters relating to a Group A Compound or Group B Compound) and 43.75% shall be allocated to KBI-E in the case of matters relating to a Group C Compound (45% in the case of matters relating to a Group A or Group B Compound). J. COMPLIANCE CERTIFICATE; AUDIT RIGHTS 1. The Partnership shall deliver to KBI-E in accordance with Section R.4 hereof, within sixty (60) days after the end of each Fiscal Year of the Partnership a certificate executed 23 26 by the chief executive officer or other senior executive officer of the Partnership or by the general partner of the Partnership certifying as to each Distribution Compound whether or not the Partnership, as of the end of such Fiscal Year, is (A) conducting an Active Development Program for such Distribution Compound or a Competing Compound and (B) Actively Marketing Distribution Products containing such Distribution Compound or products containing a Competing Compound (an "Annual Certificate"), which certificate may be a combined certificate with respect to all Distribution Compounds. Such certificate shall (A) identify each such Distribution Compound, Distribution Product, Competing Compound and Competing Product, (B) certify whether the amount of the Partnership's (and its Affiliates') development expenditures for such Fiscal Year in respect of such Distribution Compound exceed the $1 million and $3 million amounts for the applicable development phase described in the definition of "Active Development Program," (C) identify the applicable development phase for such Compound and (D) in the case of a Distribution Compound for which the Partnership is not conducting an Active Development Program and a Distribution Product that is not being Actively Marketed by the Partnership, identify any Competing Compound or Competing Product, the applicable Therapeutic Categories therefor, for which the Partnership is conducting an Active Development Program or which the Partnership is Actively Marketing. In the event such certificate does not certify that the Partnership is either (i) conducting an Active Development Program for such Distribution Compound or a Competing Compound or (ii) Actively Marketing Distribution Products containing such Distribution Compound or a Competing Compound, the delivery of such certificate shall be deemed to be the delivery of a Discontinuation Notice with respect to such Distribution Compound provided, however, that if such certificate omits the certification with respect to any Compound the failure to deliver such certificate shall not constitute the delivery of a Discontinuation Notice unless the Partnership fails to deliver such certification within thirty (30) days after the delivery to the Partnership of notice of such omission. In the event the Partnership fails to deliver to KBI-E within the 60-day period referred to in this Section J.1 an Annual Certificate with respect to each Distribution Compound and fails to deliver such Annual Certificate within thirty (30) days after written notice from KBI-E of such failure to deliver or if the Annual Certificate with respect to a year was prepared with reckless disregard for the accuracy or inaccuracy of the information contained therein, the Partnership shall reimburse KBI-E for the Full Cost of any audit by KBI-E's accountants pursuant to Section J.2 with respect to such Fiscal Year. 2. The Partnership shall keep, and shall cause its Affiliates and subdistributors to keep, true, accurate and complete records of the development and marketing expenditures and commitments therefor in respect of each Distribution Compound and Competing Compound and each Distribution Product (and the Distribution Compound contained therein) or product containing a Competing Compound (and the Competing Compound contained therein) in sufficient detail to permit the verification of the information contained or required to be contained in the certificate provided to KBI-E pursuant to Section J.1. Upon KBI-E's request, the Partnership shall permit (and shall cause its Affiliates and subdistributors to permit) an independent certified public accountant selected and paid by KBI-E (except one to whom the Partnership has some reasonable objection) to have reasonable access to, examine and copy 24 27 during ordinary business hours such of the Partnership's and its Affiliates' and subdistributors' books and records as may be necessary or advisable in such accountant's judgment to confirm to its reasonable satisfaction and attest the accuracy of any certificate delivered to KBI-E pursuant to this Section J. This right to request a review for any Fiscal Year shall be effective only with respect to the immediately preceding Fiscal Year and shall terminate one (1) year after the end of such Fiscal Year, unless it is determined by arbitration that the Annual Certificate for a Fiscal Year was prepared with reckless disregard for the accuracy or inaccuracy of the information contained therein, in which case, such right of review shall be effective for the two (2) preceding Fiscal Years. Such examination may commence with respect to a Fiscal Year only after the earlier of the delivery of the Annual Certificate with respect to such Fiscal Year or the due date for such Annual Certificate. KBI-E shall enter into a written engagement with such accountants, a copy of which shall be provided to the Partnership, providing that (i) the scope of the engagement with respect to such audit and examination is limited to the rights provided in this Section J and, if the audit is performed in connection with another audit permitted by any other agreement between an Affiliate of KBI-E and the Partnership, 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 its findings confidential and shall not disclose to KBI-E (or any of its Affiliates) any information except that it shall report to KBI-E (i) its findings and any other information relating to the accuracy of the certificate delivered under this Section J and the conformance of such certificate to the terms of this Agreement, (ii) interpretations of the terms of this Agreement applied by the Partnership to the information contained in and the preparation of such certificate, and (iii) and any restrictions on access to the Partnership's and its Affiliates' and subdistributors' books, records and data which the accountant deems to be a restriction of scope with respect to its engagement. K. SUBDISTRIBUTION AND ASSIGNMENT The Partnership may not assign or otherwise Transfer any of its rights to or under this Agreement or enter into any subdistributorships with respect to any Distribution Compound or any Distribution Product, except as specifically permitted by Section 3.6A of the Master Restructuring Agreement and Section 3.2(b)(20) and clause (iii) of Section 3.2(b)(6) of the Partnership Agreement. Any assignment or Transfer or subdistributorship or purported assignment, Transfer or subdistributorship not in strict compliance with Section 3.6A of the Master Restructuring Agreement and Section 3.2(b)(20) and clause (iii) of Section 3.2(b)(6) of the Partnership Agreement shall be void. Any subdistributorship granted by the Partnership shall be subject to, subordinate to and limited by the rights of the Partnership to this Agreement. The Partnership shall require any assignee or transferee of any of the Partnership's rights under this Agreement and any subdistributor appointed hereunder to enter into an undertaking pursuant to which provisions in the same form as those contained in Section N hereof shall apply directly between such assignee, transferee or subdistributor and KBI-E. 25 28 Notwithstanding the foregoing, 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-E shall assign to KB or a Person designated by KB all of KBI-E's rights and delegate all of KBI-E's obligations under this Agreement with respect to all Products (other than Products containing omeprazole or perprazole); provided, however, that KB or its designee shall expressly assume in writing the due and punctual performance of all obligations which are so assigned or delegated; provided, further, that as a condition to the effectiveness of such assignment, KBI-E shall be released from such obligations, except that KBI-E shall not be released from any obligations arising out of any breach of this Agreement by KBI-E or its Affiliates or subcontractors prior to such assignment. L. [OMITTED] M. TERM AND TERMINATION 1. This Agreement shall be co-extensive in duration to the Amended and Restated KBI License, and shall automatically terminate upon any termination of the Amended and Restated KBI License, for any reason; provided, however, that upon any termination of the license or option for any Compound subject to the Amended and Restated KBI License, this Agreement shall terminate only to the extent of such termination of the Amended and Restated KBI License. 2. If this Agreement shall terminate with respect to any Compound or Distribution Product as provided in Section M.1 hereof, the Partnership shall as promptly as practicable following the date of such termination transfer to KB the items specified in Section 13.3 of the Amended and Restated KBI License. N. CONFIDENTIALITY AND PERMITTED DISCLOSURE EXCEPTIONS Subject to the provisions of Section 9.2 of the Amended and Restated KBI License, each 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 (i) the Partnership may disclose such information to any governmental agency or authority to the extent necessary to obtain the approval of any agency or authority to make, have made, use or sell any Distribution Compound and (ii) KBI-E may disclose such information to any governmental agency or authority to the extent necessary to obtain the approval of any agency or authority to make, have made, use and sell any Exclusive Second Look Compound or any Non-Exclusive Second Look Product; provided, further, however, to the extent permitted by applicable law, such disclosure shall be made on a confidential and restricted basis. O. INDEMNIFICATION; DISCLAIMER; LIMITATION ON DAMAGES 1. The Partnership shall indemnify and hold harmless KBI-E, and each of its Affiliates, and each of its, and its Affiliates', respective officers, directors, employees and agents (each, a "Partnership Indemnitee") from and against any and all losses, damages, liabilities or 26 29 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 Partnership Indemnitee (i) based upon or arising out of any breach of this Agreement by the Partnership or (ii) by any Non-Affiliate of the parties based on or arising out of (A) the clinical testing or development of any Distribution Compound or any Distribution Product by the Partnership or any of its Affiliates, (B) the promotion, marketing, sale or distribution, labeling, testing, storage, handling or delivery of any Distribution Product by the Partnership or any of its Affiliates, (C) any implied or express claims of efficacy or safety of any Distribution Compound or Distribution Product by the Partnership or any of its Affiliates, (D) the failure to provide adequate disclosure of contraindications, warnings, precautions and adverse reactions in Distribution Product packaging, labels or related physician circulars by the Partnership or any of its Affiliates, (E) the training or improper training of physicians in the use of any Distribution Product, (F) the activities of the Partnership under this Agreement including without limitation any product liability or similar claim by the Partnership or any of its Affiliates or (G) any other liability arising out of the business of the Partnership; provided, however, that the Partnership shall not be obligated to indemnify and hold harmless KBI-E or any of its Affiliates or any officer, director, employee or agent of KBI-E 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 KBI-E or any of its Affiliates is obligated to indemnify and hold harmless the Partnership pursuant to Section O.2 or any other agreement. 2. KBI-E shall indemnify and hold harmless the Partnership, and each of its Subsidiaries, and each of its, and its Subsidiaries' respective partners, officers, directors, employees and agents (each, a "KBI-E Indemnitee") from and against any and all Losses in connection with any and all Claims that may be brought or instituted against any KBI-E Indemnitee (i) based upon or arising out of any breach of this Agreement by KBI-E or (ii) by any Non-Affiliate of the parties based on or arising out of (A) the clinical testing or development by KBI-E or any of its Affiliates, distributors or licensees of any Compound as to which the rights of the Partnership hereunder have terminated or become non-exclusive or any product containing such Compound, (B) the promotion, marketing, sale or distribution, labeling, testing, storage, handling or delivery of any such Compound or product by KBI-E or any of its Affiliates, distributors or licensees, (C) any implied or express claims of efficacy or safety of any such Compound or product by KBI-E or any of its Affiliates, distributors or licensees, (D) the failure to provide adequate disclosure of contraindications, warnings, precautions and adverse reactions in the packaging, labels or related physician circulars relating to such product by KBI-E or any of its Affiliates, distributors or licensees, (E) the training or improper training of physicians in the use of any such product, (F) the activities of KBI-E under this Agreement, including without limitation any product liability or similar claim by KBI-E or any of its Affiliates, distributors or licensees or (G) any other liability arising out of the business of KBI-E; provided, however, that KBI-E shall not be obligated to indemnify and hold harmless the Partnership or any of its Affiliates or any officer, director, employee or agent of the Partnership 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 the Partnership or any of its Affiliates is obligated to indemnify and hold harmless KBI-E pursuant to Section O.1 or any other agreement. 27 30 3. As promptly as practicable after any indemnitee referred to in Section O.1 or O.2 obtains knowledge of any action, suit, claim or demand as to which it will or may be entitled to indemnity under Section O.1 or O.2, such indemnitee shall give notice to the indemnifying party. If such matter involves an action, suit, claim or demand of a third party, the indemnifying party 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 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. 4. THE PARTIES ACKNOWLEDGE THAT KBI-E MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, WRITTEN OR ORAL, NOR SHALL KBI-E (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) OR (y) ANY DISTRIBUTION COMPOUNDS OR ANY DISTRIBUTION PRODUCTS MANUFACTURED, USED OR SOLD PURSUANT TO THIS AGREEMENT OR THE KBI SUPPLY AGREEMENT OR (z) ANY LICENSED PATENTS, TECHNICAL INFORMATION OR OTHER INFORMATION, DATA OR KNOW-HOW RELATING IN ANY WAY TO ANY DISTRIBUTION COMPOUND, INCLUDING, WITHOUT LIMITATION: (i) ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE; (ii) ANY IMPLIED WARRANTIES ARISING FROM 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 KBI AND BY IT ON BEHALF OF ITS AFFILIATES; PROVIDED, HOWEVER, THAT NOTHING CONTAINED IN THIS SECTION SHALL BE DEEMED A WAIVER OF, OR BE DEEMED TO LIMIT, THE OBLIGATIONS OF ANY PARTY HEREUNDER. 5. THE PARTIES ACKNOWLEDGE THAT THE PARTNERSHIP MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, WRITTEN OR ORAL, INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE VALUE, ADEQUACY, FREEDOM FROM FAULT 28 31 OF, OR THE QUALITY, EFFICIENCY, SUITABILITY, CHARACTERISTICS OR USEFULNESS OF, OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF, ANY LICENSED COMPOUND, OR OF ANY LICENSED PATENT, TECHNICAL INFORMATION OR OTHER INFORMATION, DATA OR KNOW-HOW RELATING IN ANY WAY TO ANY LICENSED COMPOUND AS TO WHICH THE PARTNERSHIP'S RIGHTS TERMINATE OR BECOME NON-EXCLUSIVE PURSUANT TO SECTION D. 6. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE KBI-E ASSIGNMENT OR THE AMENDED AND RESTATED KBI LICENSE, OR THE PERFORMANCE OF, OR FAILURE TO PERFORM, ANY OBLIGATIONS HEREUNDER OR THEREUNDER, WHETHER IN CONTRACT, WARRANTY, NEGLIGENCE, TORT, STRICT LIABILITY OR OTHERWISE; PROVIDED, HOWEVER, THAT THE FOREGOING SHALL NOT APPLY IN THE CASE OF WILLFUL MISCONDUCT OR GROSS NEGLIGENCE; PROVIDED, FURTHER, THAT THE PARTIES AGREE THAT CONSEQUENTIAL DAMAGES SHALL NOT INCLUDE ANY LOSS INCURRED BY KBI-E ARISING OUT OF THE AMENDED AND RESTATED KBI LICENSE AS A RESULT OF ANY BREACH OF THIS AGREEMENT BY THE PARTNERSHIP OR ANY LOSS INCURRED BY THE PARTNERSHIP IN THE EVENT (i) OF A BANKRUPTCY (AS DEFINED IN THE MASTER RESTRUCTURING AGREEMENT) OF KBI-E THAT IS CAUSED PRIMARILY BY THE BREACH BY KBI-E OR KBI OF THE COVENANTS SET FORTH IN SECTION 3.12 OF THE MASTER RESTRUCTURING AGREEMENT AND (ii) THE REJECTION OF THIS AGREEMENT BY THE TRUSTEE IN BANKRUPTCY OR DEBTOR-IN-POSSESSION. 7. In no event shall the Partnership be liable to KBI-E for damages with respect to any Licensed Compound for breach of Section 4.1(b) of the Amended and Restated KBI License for any period after the Partnership has delivered a Discontinuation Notice pursuant to Section D.1 or the Partnership's rights in connection with such Licensed Compound and the Distribution Products containing such Licensed Compound have terminated and reverted to KBI-E pursuant to Section D.2. P. [OMITTED] Q. ARBITRATION Subject to Section 9.4 of the Master Restructuring Agreement, any dispute, controversy or claim between KBI-E and the Partnership 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. 29 32 R. MISCELLANEOUS 1. The Partnership acknowledges and agrees that the provisions of Section 10.2 and Article XII of the Amended and Restated KBI License shall apply directly between KB and the Partnership as if the Partnership were the Licensee or a Party thereto. 2. This Agreement shall inure to the benefit of and be binding upon the parties and their respective successors and permitted assigns. This Agreement may be assigned only (i) as permitted by Section K and (ii) as required pursuant to the KBI-E Asset Option. 3. This Agreement shall be construed and governed in accordance with the laws of the State of New York without regard to any choice of law rules other than Section 5-1401 of the New York General Obligations Law. 4. 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 if delivered personally, sent by telecopy transmission with confirmation of receipt, or sent by internationally recognized overnight courier service to either Party at its address or telecopier number set forth below: If to KBI-E, to: Astra Merck Enterprises, Inc. c/o Merck & Co., Inc. One Merck Drive P.O. Box 100 Whitehouse Station, New Jersey 08889-0100 USA Attention: Corporate Secretary Telecopier: 908-735-1246 with a copy to: Merck & Co., Inc. P.O. Box 100 One Merck Drive Whitehouse Station, New Jersey 08889-0100 USA Attention: General Counsel Telecopier: 908-735-1244 If to the Partnership, to: Astra Pharmaceuticals, L.P. 725 Chesterbrook Boulevard Wayne, Pennsylvania 19087-5677 Attention: General Counsel Telecopier: 610-889-1280 30 33 with copies to: Astra AB S-151 85 Sodertalje, Sweden Attention: General Counsel Telecopier: 011-46-8-553-288-12 Winthrop, Stimson, Putnam & Roberts One Battery Park Plaza New York, New York 10004 Attention: Frode Jensen Telecopier: 212-858-1500 ; provided, however, that any Dispute Notice, Rejection Notice, Discontinuation Notice or Non-Compliance Notice shall be sent by internationally recognized overnight courier service. Either party by written notice to the other in accordance with the above may change the address or telecopier number to which such notices, requests or other communications to it shall be directed. 5. 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. Notwithstanding anything to the contrary contained herein or therein no party to this Agreement shall have the right to unilaterally terminate this Agreement because of any breach or breaches, material, fundamental or otherwise, of this Agreement by any other party hereto. 6. No omission or delay on the part of either party in requiring the due and punctual fulfillment by the other 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. 7. No party shall be responsible or liable to the other party, nor shall the Partnership's rights with respect to any Distribution Compound and any Distribution Product containing a Distribution Compound terminate and revert to KBI-E pursuant to Section D, for any failure or inability to perform any of such party's covenants or obligations under this Agreement, or, in the case of the Partnership, for neither conducting an Active Development Program for a Distribution Compound or a Competing Compound nor Actively Marketing any Distribution Product containing such Distribution Compound or any product containing a Competing Compound, if such failure or inability 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; explosion; unavoidable accident; 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 31 34 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 a party from obtaining the funds sufficient to make any payment required to be made by it pursuant to this Agreement, but shall include any such event or circumstance which prevents a party from transferring such funds to the other party to effect such payment. The party failing or unable to perform as a result of an Event of Force Majeure shall promptly notify the other party 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 a party on terms unsatisfactory to it. 8. Reasonable Efforts. Wherever it is provided in this Agreement that a party shall use reasonable efforts for any purpose, such party shall be required only to use such efforts, if any, as are commercially reasonable in the circumstances and as are consistent with the policies and practices utilized by it and their Affiliates in conducting their own businesses. Without limiting any other provisions hereof, each party will perform its respective obligations under this Agreement in a manner reasonably consistent with that employed by such party in connection with its other pharmaceutical products of comparable commercial potential. The parties acknowledge and agree that neither the definition of "reasonable efforts" contained in this Section R.8 nor the satisfaction of the standards set forth in this Section R.8 shall have any import or effect with respect to (i) the determination of whether the Partnership has used reasonable efforts with respect to the marketing, distribution and sale of Distribution Compounds as required by Section B.1(d) following a Trigger Event or (ii) the use of reasonable efforts for purposes of the definition of "Actively Marketing" or "Active Development Program." 32 35 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ASTRA MERCK ENTERPRISES INC. By: /s/ Peter E. Nugent ------------------------------- Name: Peter E. Nugent Title President ASTRA PHARMACEUTICALS, L.P. By: KB USA, L.P., General Partner By: ASTRA AB, General Partner (publ) By: /s/ Christian Onfelt ------------------------------- Name: Christian Onfelt Title: Authorized Signatory 36 Exhibit B Form of Trademark Assignment This ASSIGNMENT is made on ___________, 19__, by ____________, a [corporation/limited partnership] organized and existing under the laws of [jurisdiction] ("Assignor"), whose address is ________________, to ______________, a [corporation/limited partnership] organized and existing under the laws of [jurisdiction] ("Assignee"), whose address is [U.S. address]. WHEREAS, Assignor has adopted, used and is using the following marks which are registered in the United States Patent and Trademark Office: Registration No. Date of Registration (collectively, the "Assigned Marks"); and WHEREAS, Assignee desires to acquire the Assigned Marks pursuant to [name of agreement]; NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, Assignor does hereby assign unto Assignee all right, title, interest and goodwill in and to such Assigned Marks, together with the above-identified registrations of the Assigned Marks and applications to register the same, any renewals that may be granted thereon, and past common law causes of action. [Assignor] By:_____________________________ Name: Title: State of ____________ ) ) ss: County of __________ ) On this _____ day of __________, before me appeared ____________, the person who signed this instrument, who acknowledged that he/she signed it on behalf of Assignor with authority to do so. EX-10.8 10 AGREEMENT TO INCORPORATE DEFINED TERMS 1 Exhibit 10.8 AS EXECUTED - CONFORMED AGREEMENT TO INCORPORATE DEFINED TERMS AGREEMENT TO INCORPORATE DEFINED TERMS, dated as of June 19, 1998, between ASTRA AB, a company limited by shares organized and existing under the laws of Sweden ("Astra"), MERCK & CO., INC., a New Jersey corporation ("Merck"), ASTRA MERCK INC., a Delaware corporation ("AMI"), ASTRA USA, INC., a New York corporation and an indirect wholly-owned subsidiary of Astra ("Astra USA"), KB USA, L.P., a Delaware limited partnership of which Astra is the general partner and Astra USA is the limited partner ("KBUSALP"), ASTRA MERCK ENTERPRISES INC., a Delaware corporation and a direct wholly-owned subsidiary of AMI ("Enterprises"), KBI SUB INC., a Delaware corporation and a wholly-owned subsidiary of AMI ("KBI Sub"), MERCK HOLDINGS, INC., a Delaware corporation and a wholly-owned subsidiary of Merck ("Merck Holdings"), and ASTRA PHARMACEUTICALS, L.P., a Delaware limited partnership (the "Partnership"). WITNESSETH: WHEREAS, Astra and Merck desire to restructure their joint venture through the entry into the Partnership Agreement by KBUSALP and KBI Sub and the modification and making of certain other contractual arrangements, as provided in the Initial Agreements, the Ancillary Agreements and the Partnership Agreement (such agreements being herein referred to as the "Agreements") and, in furtherance thereof, the parties hereto are entering into this agreement as of the date hereof; WHEREAS, in order to insure the confidentiality of the negotiations between the parties, the Agreements have been prepared using certain code words as defined terms to disguise the true identity of the parties; WHEREAS, in order to expedite the preparation of execution copies of the Agreements, such code words and related defined terms have been retained in such execution copies; and WHEREAS, Astra, Merck, AMI, Astra USA, KBUSALP, Enterprises, KBI Sub, Merck Holdings and the Partnership wish to sign such execution copies of the Agreements and intend to give them binding effect and in connection therewith have agreed to enter into this agreement which identifies the code words used as defined terms in the Agreements and provides for the incorporation by reference herein of such defined terms in each of the Agreements. NOW, THEREFORE, in consideration of the premises and the representations, warranties and agreements contained in the Agreements, Astra, Merck, AMI, Astra USA, KBUSALP, Enterprises, KBI Sub, Merck Holdings and the Partnership hereto hereby agree as follows: 1. The following defined terms used in the Agreements have the following meanings: "KB" means "Astra" or "Astra AB", as appropriate under the circumstances. 2 "TR" means "Merck" or "Merck & Co., Inc.", as appropriate under the circumstances. "KBI", "KB TR Inc." or "KBI TR Inc." means "Astra Merck" or "Astra Merck Inc.", as appropriate under the circumstances "KB USA" means "Astra USA" or "Astra USA, Inc." as appropriate under the circumstances. "KBI Sub" means "KBI Sub Inc." "KBLP" means "KB USA, L.P." "KBI-E", "KBI TR E" or "KB TR Enterprises Inc." means "Astra Merck Enterprises" or "Astra Merck Enterprises Inc.", as appropriate under the circumstances "TR Holdings" means "Merck Holdings" or "Merck Holdings, Inc.", as appropriate under the circumstances. "KBI-P" means "Astra Merck Pharmaceuticals" or "Astra Merck Pharmaceuticals, Inc.", as appropriate under the circumstances "KB Pharmaceuticals, L.P.", the "Partnership" or "LP" means "Astra Pharmaceuticals, L.P." Notwithstanding anything to the contrary herein, references to "KB USA, L.P." shall mean "KB USA, L.P." 2. The foregoing defined terms shall be deemed incorporated by reference in each of the Agreements. 3. Terms used herein which are not defined shall have the meanings set forth in the Master Restructuring Agreement dated as of the date hereof among the parties hereto. 4. The references on the signature pages of the Agreements to the various parties thereto shall be deemed to mean the legal entities as herein identified and by their execution of the Agreements and this agreement intend to be fully legally bound thereby. 2 3 IN WITNESS WHEREOF, the parties have caused this agreement to be duly executed as of the date first above written. ASTRA AB MERCK & CO., INC. (publ) By /s/ Goran Lerenius By /s/ Judy C. Lewent Name: Goran Lerenius Name: Judy C. Lewent Title: Authorized Signatory Title: Senior Vice President and Chief Financial Officer ASTRA USA, INC. MERCK HOLDINGS, INC. By /s/ Christian Onfelt By /s/ Peter E. Nugent Name: Christian Onfelt Name: Peter E. Nugent Title:Vice President Title: Authorized Signatory ASTRA MERCK INC. KBI SUB INC. By /s/ Peter E. Nugent By /s/ Peter E. Nugent Name: Peter E. Nugent Name: Peter E. Nugent Title: President Title: President KB USA, L.P. ASTRA MERCK ENTERPRISES INC. By: ASTRA AB, its General Partner (publ) By /s/ Peter E. Nugent Name: Peter E. Nugent /s/ Christian Onfelt Title: President Name: Christian Onfelt Title: Authorized Signatory ASTRA PHARMACEUTICALS, L.P. By: KB USA, L.P., its General Partner By: ASTRA AB, its General Partner (publ) /s/ Goran Lerenius Name: Goran Lerenius Title: Authorized Signatory EX-12 11 COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES 1 Exhibit 12 MERCK & CO., INC. AND SUBSIDIARIES Computation Of Ratios Of Earnings To Fixed Charges (In millions except ratio data)
Six Months Ended Years Ended December 31 June 30 -------------------------------------------------------------------- 1998 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- -------- Income Before Taxes $3,461.3 $6,462.3 $5,540.8 $4,797.2 $4,415.2 $3,102.7 Add: One-third of rents 28.2 47.0 41.0 28.1 36.0 35.0 Interest expense, net 58.4 98.2 103.2 60.3 96.0 48.0 Preferred stock dividends .8 49.6 70.0 2.1 -- -- -------- -------- -------- -------- -------- -------- Earnings $3,548.7 $6,657.1 $5,755.0 $4,887.7 $4,547.2 $3,185.7 ======== ======== ======== ======== ======== ======== One-third of rents $ 28.2 $ 47.0 $ 41.0 $ 28.1 $ 36.0 $ 35.0 Interest expense 81.8 129.5 138.6 98.7 124.4 84.7 Preferred stock dividends .8 49.6 70.0 2.1 -- -- -------- -------- -------- -------- -------- -------- Fixed Charges $ 110.8 $ 226.1 $ 249.6 $ 128.9 $ 160.4 $ 119.7 ======== ======== ======== ======== ======== ======== Ratio of Earnings to Fixed Charges 32 29 23 38 28 27 ======== ======== ======== ======== ======== ========
For purposes of computing these ratios, "earnings" consist of income before taxes, one-third of rents (deemed by the Company to be representative of the interest factor inherent in rents), interest expense, net of amounts capitalized, and dividends on preferred stock of subsidiary companies. "Fixed charges" consist of one-third of rents, interest expense as reported in the Company's consolidated financial statements and dividends on preferred stock of subsidiary companies. EX-27 12 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND THE CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 6-MOS DEC-31-1998 JUN-30-1998 1,425 1,369 2,874 0 2,329 8,897 10,726 (3,700) 27,494 6,000 1,344 0 0 5,419 8,245 27,494 12,529 12,529 6,619 6,619 830 0 82 3,461 981 2,480 0 0 0 2,480 2.08 2.02 NOT MATERIAL TO THE CONSOLIDATED FINANCIAL STATEMENTS.
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