-----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, EwvvVFYkRODTXz3FGf2lRecKUyrJ79U9d2qW5xxCBRZn/OuUcReFpVPuMnybwWWL ZrY17lcWi+QMYNdb2hoyeg== 0000950144-98-006352.txt : 19980518 0000950144-98-006352.hdr.sgml : 19980518 ACCESSION NUMBER: 0000950144-98-006352 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NOVEN PHARMACEUTICALS INC CENTRAL INDEX KEY: 0000815838 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 592767632 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-17254 FILM NUMBER: 98622591 BUSINESS ADDRESS: STREET 1: 11960 SW 144TH ST CITY: MIAMI STATE: FL ZIP: 33186 BUSINESS PHONE: 3052535099 MAIL ADDRESS: STREET 1: 11960 SW 144TH STREET CITY: MIAMI STATE: FL ZIP: 33185 10-Q 1 NOVEN PHARMACEUTICALS, INC. FORM 10-Q 03/31/98 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the quarterly period ended MARCH 31, 1998 --------------- or [ ] Transition Report Pursuant to Section 13 of the Securities Exchange Act of 1934 For the transition period from ____________ to_____________ Commission file number 0-17254 NOVEN PHARMACEUTICALS, INC. ------------------------------------------------------ (Exact name of Registrant as specified in its charter) STATE OF DELAWARE 59-2767632 ------------------------------ ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 11960 S.W. 144TH STREET, MIAMI, FL 33186 - --------------------------------------- ---------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (305) 253-5099 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 . ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the last practicable date. CLASS OUTSTANDING AT APRIL 30, 1998 ----- ----------------------------- Common stock $.0001 par value 20,475,531 2 NOVEN PHARMACEUTICALS, INC. INDEX TO FORM 10-Q
PAGE NO. -------- PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Statements of Operations and Accumulated Deficit for the three months ended March 31, 1998 and 1997 3 Balance Sheets as of March 31, 1998 and December 31, 1997 4 Statements of Cash Flows for the three months ended March 31, 1998 and 1997 5 Notes to Financial Statements 6 - 7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 11 PART II - OTHER INFORMATION Item 5 - Other Information 11 - 12 Item 6 - Exhibits and Reports on Form 8-K 12 SIGNATURES 13
Page 2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NOVEN PHARMACEUTICALS, INC. STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
THREE MONTHS ENDED ------------------------------- MARCH 31, MARCH 31, 1998 1997 ------------ ------------ REVENUES: Product sales $ 2,488,572 $ 1,346,521 License revenue 58,999 81,499 Interest income 190,151 221,934 Other income -- 31,325 ------------ ------------ Total revenues 2,737,722 1,681,279 ------------ ------------ EXPENSES: Cost of products sold 1,032,768 593,256 Research and development 2,000,497 1,948,898 Marketing, general and administrative 2,980,857 1,898,734 ------------ ------------ Total expenses 6,014,122 4,440,888 ------------ ------------ NET LOSS FOR THE PERIOD (3,276,400) (2,759,609) ACCUMULATED DEFICIT BEGINNING OF PERIOD (33,603,817) (24,047,315) ------------ ------------ ACCUMULATED DEFICIT END OF PERIOD $(36,880,217) $(26,806,924) ============ ============ NET LOSS PER SHARE $ (0.16) $ (0.14) ============ ============ WEIGHTED AVERAGE SHARES OF COMMON STOCK AND COMMON STOCK EQUIVALENTS 20,475,531 19,883,435 ============ ============
The accompanying notes are an integral part of this statement. Page 3 4 NOVEN PHARMACEUTICALS, INC. BALANCE SHEETS
MARCH 31, DECEMBER 31, 1998 1997 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 12,544,680 $ 11,267,555 Securities held to maturity 979,198 5,880,430 Accounts receivable 989,637 1,224,492 Inventories 3,205,558 2,500,660 Prepaid and other current assets 437,764 282,472 ------------ ------------ Total current assets 18,156,837 21,155,609 ------------ ------------ PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation and amortization of $3,993,570 at March 31, 1998 and $3,746,846 at December 31, 1997 15,199,440 15,243,267 ------------ ------------ OTHER ASSETS: Patent development costs, net 1,781,921 1,761,122 Deposits and other assets 58,220 64,053 ------------ ------------ Total other assets 1,840,141 1,825,175 ------------ ------------ TOTAL $ 35,196,418 $ 38,224,051 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued liabilities $ 2,778,241 $ 2,472,975 ------------ ------------ DEFERRED LICENSE REVENUE 5,813,520 5,870,019 ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock - authorized 100,000 shares of $.01 par value; no shares issued or outstanding Common stock - authorized 40,000,000 shares, par value $.0001 per share; issued and outstanding 20,475,531 shares at March 31, 1998 and at December 31, 1997 2,048 2,048 Additional paid-in capital 64,146,061 64,146,061 Accumulated deficit (36,880,217) (33,603,817) Treasury stock, 97,100 shares at cost (663,235) (663,235) ------------ ------------ Total stockholders' equity 26,604,657 29,881,057 ------------ ------------ TOTAL $ 35,196,418 $ 38,224,051 ============ ============
The accompanying notes are an integral part of this statement. Page 4 5 NOVEN PHARMACEUTICALS, INC. STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED ------------------------------- MARCH 31, MARCH 31, 1998 1997 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (3,276,400) $ (2,759,609) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 298,600 272,659 Decrease in accounts receivable 234,855 55,672 Increase in inventories (704,898) (389,749) Increase in prepaid and other current assets (155,292) (25,209) Increase (decrease) in accounts payable and accrued liabilities 305,266 (589,933) Decrease in deferred license revenue (56,499) (56,499) ------------ ------------ Cash flows used in operating activities (3,354,368) (3,492,668) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Maturity of securities, net 4,901,232 11,725,007 Purchase of fixed assets, net (202,897) (163,862) (Payments) reimbursements for patent development costs, net (72,675) 106,131 Refund of deposits 5,833 1,059 ------------ ------------ Cash flows provided by investing activities 4,631,493 11,668,335 ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Sale of common stock -- 3,850 ------------ ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS 1,277,125 8,179,517 CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 11,267,555 5,456,826 ------------ ------------ CASH AND CASH EQUIVALENTS - END OF PERIOD $ 12,544,680 $ 13,636,343 ============ ============
The accompanying notes are an integral part of this statement. Page 5 6 NOTES TO FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The financial statements of Noven Pharmaceuticals, Inc. (the "Company"), included herein, do not include all footnote disclosures normally included in annual financial statements and, therefore, should be read in conjunction with the Company's financial statements and notes thereto for each of the three years in the period ended December 31, 1997 included in the Company's annual report on Form 10-K. The interim financial statements for the three months ended March 31, 1998 are unaudited and, in the opinion of management, reflect all adjustments (consisting only of normal recurring accruals) necessary for fair presentation of the balance sheets, statements of operations and cash flows of the Company. The statement of operations for the three months ended March 31, 1998 is not necessarily indicative of the results to be expected for the year ending December 31, 1998. 2. SUMMARY OF ACCOUNTING POLICIES The following is a summary of the significant accounting policies consistently applied in the preparation of the Company's financial statements: INVENTORIES - Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value. Inventories at March 31, 1998 are related primarily to the Company's transdermal and transoral delivery systems. To date the Company has not experienced and does not anticipate in the future, any difficulty acquiring materials necessary to manufacture its transdermal and transoral systems. The following are the major classes of inventory: March 31, December 31, 1998 1997 ---------- ---------- Finished goods $1,780,225 $ 857,219 Work in process 310,631 335,650 Raw materials 1,114,702 1,307,791 ---------- ---------- Total $3,205,558 $2,500,660 ========== ========== PROPERTY AND EQUIPMENT - Property and equipment is recorded at cost. Depreciation is provided over the estimated useful lives of the assets. Leasehold improvements are amortized over the life of the lease or the service life of the improvements, whichever is shorter. The straight-line method of depreciation is primarily followed for financial purposes. PATENT DEVELOPMENT COST - Costs, principally legal fees related to the development of patents, are capitalized and amortized over the lesser of their estimated economic useful lives or their remaining legal lives. Page 6 7 NOTES TO FINANCIAL STATEMENTS (CONTINUED) LOSS PER SHARE - The Company adopted SFAS No. 128, EARNINGS PER SHARE, for fiscal year 1997. Under SFAS No. 128, basic loss per share excludes dilution and is computed based on the average number of common shares outstanding and diluted loss per share is computed based on the average number of common and common equivalent shares outstanding. Under the treasury stock method, common equivalent shares are not included in the per share calculations where the effect of their inclusion would be antidilutive. SFAS No. 128 required the restatement of all prior-period earnings per share data. For purposes of the financial statements herein net loss per share represents basic and diluted loss per share. NEW ACCOUNTING STANDARDS - In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information", ("SFAS No. 131"). SFAS No. 131, establishes standards for the way that public companies report selected information about operating segments in annual financial statements and requires that those companies report selected information about segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. SFAS No. 131 is effective for financial statements for the periods beginning after December 15, 1997. The Company does not believe that SFAS No. 131 will have an impact on its disclosures to the financial statements. RECLASSIFICATION - Certain amounts in the 1997 financial statements have been reclassified to conform with the 1998 presentation. 3. SUBSEQUENT EVENTS On May 1, 1998, the Company entered into a joint venture with Novartis Pharmaceuticals Corporation one of its licensing partners, for the commercialization of women's healthcare products, including Vivelle(R). Noven contributed $7.5 million dollars in return for a 49% equity interest in Vivelle Ventures LLC, the joint venture. On May 7, 1998, Novartis exercised a common stock warrant and purchased 966,184 shares of Noven Common Stock for a total consideration of approximately $2,500,000. Page 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL From inception (1987) through 1994, the Company primarily engaged in the research and development of transdermal drug delivery systems. During this period, the Company's revenues were principally generated by license fees, milestone payments pursuant to various license agreements and interest earned on funds raised through the sale of its common stock. In 1995, due to the receipt of regulatory approvals for its transdermal estrogen delivery system, a significant portion of the Company's revenues were derived from the sale of this product to the Company's two licensing partners, Novartis Pharmaceuticals Corporation ("Novartis") and Rhone-Poulenc Rorer ("RPR"). In 1996, revenues from the sale of these products increased substantially as the Company's licensing partners purchased product to supply their distribution channels and build their own inventory positions. Although in-market sales on Noven's estrogen delivery systems continue to increase on a global basis, Noven experienced lower product sales during 1997 as compared to 1996 as the inventory levels of its licensee partners and distribution channels diminished without resupply. Noven anticipates increased product sales in 1998; however, losses are expected for 1998 due to the fact that product sales still will not be sufficient to offset operating costs, which will include significant research and development expenditures. During calendar year 1996, the Company commenced the marketing of its DentiPatch(R) system on a regional basis. The product was launched nationally in the second quarter of 1997, with the first national advertising program commencing at the beginning of the fourth quarter of 1997. Revenues from this product are anticipated to increase during 1998. As detailed in Item 5 herein, Noven has entered into a joint venture with Novartis for the commercialization of women's healthcare products, and in particular, Vivelle(R). The structure of the joint venture gives Noven the opportunity to develop and implement a comprehensive marketing plan. The financial results of this joint venture will have a material impact on Noven's sales and earnings. RESULTS OF OPERATIONS Total revenues increased approximately $1,056,000 or 63% for the three month period ended March 31, 1998 from the same period in the prior year. This increase in revenues was primarily the result of the increase in product sales of the Company's estrogen delivery system, its DentiPatch(R) system and the initial shipments of its combination estrogen/progestogen delivery system to its licensing partner. Royalties from the estrogen delivery system are included in product sales. Interest income decreased approximately $32,000 or 14% for the three month period ended March 31, 1998 from the same period in the prior year primarily due to lower balances in securities. Page 8 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Cost of product sold increased approximately $440,000 or 74% for the three month period ended March 31, 1998 from the same period in the prior year. The gross margin percentage was 58% for the three month period of 1998 as compared to 56% for the same period of the prior year. The gross margins vary depending on the amount of product sold to each licensing partner and manufacturing efficiencies including those relating to production volumes and in the first quarter of 1998 were favorably impacted by the sale of the DentiPatch(R) product. Research and development increased approximately $52,000 or 3% for the three month period ended March 31, 1998 from the same period in the prior year. New product development included work related to transdermal delivery systems for hormone replacement, central nervous system, cardiovascular drugs, nonsteriodal anti-inflammatory agents and transoral delivery systems for dental therapeutics. Marketing, general and administrative expenses increased approximately $1,082,000 or 57% for the three month period ended March 31, 1998 from the same period in the prior year. The increase in marketing, general and administrative expenses is primarily due to marketing and sales expenses to support the launch of the DentiPatch(R) system, increases in staffing and associated office expenses. LIQUIDITY AND CAPITAL RESOURCES The Company has historically financed its operations through public offerings of common stock, including the exercise of warrants issued in connection with the first such offerings, private placements of its equity securities, license and contract revenues, and interest income. However, since the launch of its first commercial product in 1995, the Company's operations have been principally financed increasingly by revenues from the sale of its transdermal and transoral delivery systems. The Company has neither utilized debt nor has it engaged in significant commercial lease transactions to finance its operations. Net cash used in operating activities for the three months ended March 31, 1998, was approximately $3,354,000. This funded the net loss of approximately $3,276,000; increases in inventories of approximately $705,000 and in prepaid and other current assets of approximately $155,000, partially offset increases in accounts payable and other accrued liabilities of approximately $305,000 and decreases in accounts receivable of approximately $235,000. For the same period in 1997, net cash used was approximately $3,493,000 to fund the net operating loss of approximately $2,760,000 along with decreases in accounts payable and other accrued liabilities and increases in inventories. During the three months ended March 31, 1998, the Company's investing activities provided approximately $4,630,000 compared to approximately $11,668,000 in the same period of the prior year. In 1998, net cash provided resulted primarily from the maturity of securities partially offset by capital expenditures for commercial manufacturing equipment and investment in patents. In 1997, net cash provided resulted from the maturity of securities and reimbursement of patent costs partially offset by capital expenditures for commercial manufacturing equipment and improvements at the new manufacturing site. As of March 31, 1998 the Company had commitments for capital expenditures of approximately $61,000. Net cash provided by financing activities of approximately $4,000 for the three months ended March 31, 1997 resulted from the exercise of options in the employee stock option plan. Page 9 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Company expects to incur additional operating losses in 1998. In addition, on May 1, 1998, the Company entered into a joint venture with Novartis Pharmaceuticals Corporation ("Novartis") one of its licensing partners, for the commercialization of women's healthcare products, including Vivelle(R). Noven contributed $7.5 million dollars in return for a 49% equity interest in Vivelle Ventures LLC ("Ventures") the joint venture. Due to these factors, the Company will be required to raise additional funds to support its operations during 1998 and into 1999. The Company is presently exploring various alternatives, including the sale of equity securities. It is also likely that Noven will seek to raise capital for the longer term to support continued research and product development. The time and extent of these future capital raising activities will depend, to a great degree, upon the Company's performance, including the performance of the joint venture, as well as general market conditions. FORWARD LOOKING STATEMENTS From time to time, Noven may publish forward looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, usage and development activities and some other matters. The words "may", "will", "expect", "anticipate", "continue", "estimate", "project", "intend" and similar expressions are intended to identify such forward looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward looking statements. In order to comply with the terms of the safe harbor, Noven notes that a variety of factors could cause its actual results and experience to differ materially from anticipated results and other expectations expressed by Noven's forward looking statements. The risks and uncertainties that may effect the operations, performance, development and results of Noven's business, include the following: 1. The ability of Ventures to market and sell Vivelle(R) and to operate profitably. 2. Dependence upon RPR, its licensing partner, with respect to (i) the marketing of MENOREST, and the commercialization of Estalis(TM) (combination estrogen/progestogen transdermal delivery system), and (ii) obtaining regulatory approval of certain other transdermal hormonal products. 3. Uncertainties regarding (i) the market share for Noven's transdermal hormonal products which can be captured by RPR and Ventures, and (ii) the market for the DentiPatch(R) product and Noven's ability to successfully establish and effectuate a marketing program. 4. Uncertainties affecting Noven's ability to secure additional capital including general market conditions. 5. Competition from other entities engaged in transdermal and/or transoral research, development, manufacturing and marketing, as well as other entities engaged in alternative drug delivery technologies. 6. Difficulties associated with (i) identifying appropriate licensing partners capable of meeting the financial requirements of research and development and/or marketing new products, and (ii) consummating satisfactory licensing agreements. Page 10 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 7. The time required to obtain regulatory approval of products and its associated expenses. 8. Unanticipated difficulties associated with the manufacturing process of MENOREST and Vivelle(R) for its licensing partners as well as the DentiPatch(R) product, that could result in delays in delivery and shortage of product. 9. The possible exposure to product liability suits in excess of insurance policy limits or excluded from insurance coverage. Readers are cautioned not to place undue reliance on forward looking statements when made, which speak only as of the date made. Noven undertakes no obligation to publicly release the results of any revision of these forward looking statements to reflect events or circumstances after the date they are made or to reflect the occurrence of unanticipated events. Also, unless expressly stated, Noven does not adopt projections, forecasts or other forward looking statements which may be disseminated from time to time by analysts and others. PART II - OTHER INFORMATION ITEM 5. OTHER INFORMATION The Company and Novartis entered into a joint venture effective May 1, 1998, through the formation of Vivelle Venture LLC, a Delaware limited liability company ("Ventures"). Ventures' purpose is to market and sell women's healthcare products, including Vivelle(R).. The Company contributed $7.5 million in return for a 49% equity interest; Novartis contributed its rights to Vivelle(R) in the United States under existing license and supply agreements with Noven and also licensed the right to use the Vivelle(R), trademark, for a 51% equity interest. Pursuant to agreements Noven will perform marketing and sales and promotional activities and Novartis will perform distribution (including certain marketing services to the managed care sector), administrative and technical services for Ventures. Noven will continue to manufacture Vivelle(R) for Ventures and will continue to receive royalty payments on sales of Vivelle(R). Ventures will be managed by a committee consisting of five members, three of which are appointed by Novartis and two by the Company; the Company's President, Robert C. Strauss, will serve as President of Ventures. The Operating Agreement provides for a super majority vote of the management committee in connection with various acts, including the approval of the budget, amendments to any of the operative agreements, admission of new members, the acquisition or sale of assets in excess of $500,000 and the creation of debt in excess of $1 million dollars. Ventures will distribute income quarterly to Novartis and the Company according to an established formula. This formula provides for an annual preferred return of $6.1 million to Novartis and then an allocation of income between Novartis and the Company depending upon various product sales levels attained. Noven's allocable share of income increases as product sales increase. Page 11 12 PART II - OTHER INFORMATION (CONTINUED ) The Operating Agreement also has a buy/sell provision that is effective May 1, 2000 which allows each party to compel either the purchase of the other party's interest in Ventures, or the sale of its own interest in Ventures. In addition, Ventures can be dissolved for, among other reasons, (i) the expiration of the later of ten years or the Restated License Agreement between Noven and Novartis dated as of November 15, 1991; (ii) at the second and third anniversary of the joint venture in the event sales do not meet the lesser of $20 million or 90% of the annual budgeted sales; or in the event Novartis is not paid its annual preferred return of $6.1 million (which Noven has the right to cure). Dissolution can also result from a change in control of Noven within the first two years of the joint venture, or at any time thereafter if the acquirer is a top ten pharmaceutical company (as measured by annual dollar sales), or if during the first two years of the joint venture, Mr. Strauss is terminated by Noven "without cause" or leaves due to "good cause", all as defined in his Employment Agreement dated as of December 12, 1997. Upon dissolution, Novartis would reacquire the rights to Vivelle(R), and all other assets would be liquidated and distributed to the parties in accordance with their equity interests. The Operating Agreement provides for dispute resolutions through direct negotiation between the chief executive officers of Novartis and the Company, mediation and ultimately arbitration. On May 7, 1998, Novartis exercised a common stock warrant and purchased 966,184 shares of Noven Common Stock for a total consideration of approximately $2,500,000. Noven is required to file with the Securities and Exchange Commission a registration statement on Form S-3 with respect to these shares within 30 days of such exercise. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10.32 Formation Agreement by and between Novartis Pharmaceuticals Corporation and the Company dated as of May 1, 1998. 10.33 Operating Agreement of Vivelle Ventures LLC (a Delaware limited liability company) dated as of May 1, 1998. 10.34 Marketing and Promotional Agreement by and between the Company and Vivelle Ventures LLC dated as of May 1, 1998. 10.35 Sublicense Agreement by and among Novartis Pharmaceuticals Corporation, the Company and Vivelle Ventures LLC dated as of May 1, 1998. 10.36 Limited Assignment Agreement by and among Novartis Pharmaceuticals Corporation, the, Company and Vivelle Ventures LLC dated as of May 1, 1998. Page 12 13 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. NOVEN PHARMACEUTICALS, INC . (Registrant ) Date: May 14, 1998 By: /s/ Robert C. Strauss ------------------- --------------------------------------- Robert C. Strauss President and Chief Executive Officer By: /s/ William A. Pecora --------------------------------------- William A. Pecora Vice President of Finance and Chief Financial Officer Page 13 EX-10.32 2 FORMATION AGREEMENT 1 EXHIBIT 10.32 ================================================================================ FORMATION AGREEMENT By and Between NOVARTIS PHARMACEUTICALS CORPORATION AND NOVEN PHARMACEUTICALS, INC. Dated as of May 1, 1998 ================================================================================ 2 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS AND PRINCIPLES OF CONSTRUCTION...................................2 Section 1.1 Definitions................................................2 Section 1.2 Monetary Terms.............................................3 Section 1.3 Hereof.....................................................3 Section 1.4 Plural and Singular........................................3 Section 1.5 Including..................................................3 ARTICLE II FORMATION OF THE JOINT VENTURE...............................................3 Section 2.1 Formation..................................................3 Section 2.2 Ownership..................................................3 Section 2.3 Governance of the Company..................................3 ARTICLE III CONTRIBUTIONS TO THE COMPANY.................................................3 Section 3.1 Novartis Contribution......................................3 Section 3.2 Novens Contribution........................................4 Section 3.3 Closing....................................................4 Section 3.4 Actions at the Closing.....................................4 Section 3.5 Additional Deliveries......................................4 Section 3.6 Simultaneous Transactions..................................5 Section 3.7 Public Announcements.......................................5 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF NOVARTIS...................................6 Section 4.1 Organization and Standing..................................6 Section 4.2 Authority..................................................6 Section 4.3 Consents and Approvals; No Violation.......................6 Section 4.4 No Brokers or Finders......................................6
3
Page ---- ARTICLE V REPRESENTATIONS AND WARRANTIES OF NOVEN......................................7 Section 5.1 Organization and Standing..................................7 Section 5.2 Authority..................................................7 Section 5.3 Consents and Approvals; No Violation.......................7 Section 5.4 No Brokers or Finders......................................8 ARTICLE V MISCELLANEOUS................................................................8 Section 6.1 Notices....................................................8 Section 6.2 Entire Agreement; Assignment...............................9 Section 6.3 Parties in Interest........................................9 Section 6.4 Law Governing Agreement...................................10 Section 6.5 Expenses..................................................10 Section 6.6 Headings..................................................10 Section 6.7 Counterparts..............................................10 Section 6.8 Mutual Drafting Acknowledgment............................10 Section 6.9 Amendment and Modification................................10
(ii) 4 FORMATION AGREEMENT (this "Agreement"), dated as of May 1, 1998, by and between Novartis Pharmaceuticals Corporation, a Delaware corporation ("Novartis"), as the successor-in-interest to the Pharmaceuticals Division of Ciba-Geigy Corporation, a New York corporation ("Ciba") and Noven Pharmaceuticals, Inc., a Delaware corporation ("Noven"). Novartis and Noven are each sometimes referred to individually as a "Party" and collectively as the "Parties." WITNESSETH: WHEREAS, Novartis, as the licensee successor-in-interest to Ciba, and Noven as the licensor are each parties to a License and Supply Agreement (which agreements are more particularly described below); WHEREAS, the Parties desire to form a joint venture (the "Joint Venture") for the purpose of creating a platform to maintain and grow a franchise in women's health, focusing initially on the manufacture, marketing and sale of the 17(beta)-estradiol single active ingredient product in a matrix currently being marketed by Novartis under the trademark "Vivelle" pursuant to the License Agreement; WHEREAS, in connection with the formation of the Joint Venture and upon the terms of this Agreement, Novartis shall, as its contribution to the Joint Venture, (i) grant an exclusive sublicense to the Joint Venture of the License Agreement for a term coextensive with the term of the Joint Venture (such agreement granting the sublicense in the form of Exhibit A hereto, the "Sublicense Agreement"), (ii) assign to the Joint Venture certain of its rights and obligations under the Supply Agreement for a term coextensive with the term of the Joint Venture (such agreement assigning certain of its rights and obligations in the form of Exhibit B hereto, the "Limited Assignment Agreement"), and (iii) grant an exclusive royalty free license to the Joint Venture of the Vivelle trademark, permitting use of the trademark in connection with the manufacture, marketing and sale of the Joint Venture's products for a term coextensive with the term of the Joint Venture (such license in the form of Exhibit C hereto, the "Trademark License"); WHEREAS, in connection with the formation of the Joint Venture and upon the terms of this Agreement, Noven shall, as its contribution to the Joint Venture, pay by wire transfer to the account of the Joint Venture in immediately available funds cash in the amount of $7,500,000; WHEREAS, the Parties have agreed that to support the business and operations of the Joint Venture (i) Novartis shall enter into an agreement with the Joint Venture to provide distribution, administrative and marketing services to the Joint Venture (such agreement in the form of Exhibit D hereto, the "Distribution and Services Agreement") and (ii) Noven shall enter into an agreement with the Joint Venture to provide marketing and promotional services to the 5 Joint Venture (such agreement in the form of Exhibit E hereto, the "Marketing and Promotional Services Agreement"). NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements contained herein, and intending to be legally bound hereby, the parties agree as follows: ARTICLE I DEFINITIONS AND PRINCIPLES OF CONSTRUCTION Section 1.1 Definitions. For purposes of this Agreement, the following terms shall be defined as follows: "Affiliate" shall mean as to any Person any other Person that directly or indirectly controls, is controlled by, or is under common control with such first Person. A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management, policies and/or decision making of such other Person, whether through the ownership of voting securities, by contract or otherwise. "Consent" shall mean any approval, waiver or authorization of, or filing or registration with, or notification to, any Person. "Governmental Authority" shall mean any court, agency or commission or other governmental authority or instrumentality, whether domestic or foreign. "License Agreement" shall mean that certain Restated License Agreement dated as of November 15, 1991, by and between Noven, as licensor, and Ciba, as licensee, the rights and obligations of Ciba pursuant to which Novartis has assumed as the successor-in-interest to Ciba. "Mutual Release" shall mean the Mutual Release to be executed by the Parties hereto at Closing, which shall be in substantially the form attached hereto as Exhibit I. "Person" shall mean any individual, firm, corporation, partnership or other entity. "Supply Agreement" shall mean that certain Supply Agreement by and between Noven and Ciba dated as of August 31, 1995, the rights and obligations of Ciba pursuant to which Novartis has assumed as the successor-in-interest to Ciba. "Vivelle" shall mean the 17(beta)-estradiol single active ingredient product in a matrix which Novartis has been marketing and will continue to market up through the Closing Date under the trademark Vivelle pursuant to the License Agreement. "Vivelle II" shall mean the second generation product of Vivelle which has been designated by Noven as G2E2. 2 6 Section 1.2 Monetary Terms. All monetary terms set forth herein are expressed in U.S. dollars. Section 1.3 Hereof. The words "hereof," "herein," "hereto," "hereunder" and "hereinafter" and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Section 1.4 Plural and Singular. The terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa. Section 1.5 Including. The word "including" shall mean including, without limitation, and the words include and "includes" shall have corresponding meanings. ARTICLE III FORMATION OF THE JOINT VENTURE Section 2.1 Formation. On the Closing Date (as hereinafter defined), the Parties shall effect the formation of the Joint Venture through the formation of a company (the "Company") which shall be organized as a limited liability company under the laws of the State of Delaware. Prior to the Closing Date, the Parties shall have taken all actions necessary to cause the Certificate of Formation of the Company, in the form of Exhibit F hereto (the "Certificate of Formation"), to be filed with the Secretary of State of the State of Delaware in compliance with the Delaware Limited Liability Company Act, as amended. Section 2.2 Ownership. The capital interests of the Company shall be owned initially 51% by Novartis and 49% by Noven. Except as may otherwise be agreed by the Parties, the Company shall have no authorized equity securities other than the interests to be owned by Novartis and Noven. Section 2.3 Governance of the Company. The organization, governance and affairs of the Company, including the rights, duties and obligations of the Parties as members of the Company, shall be governed by the terms of the Operating Agreement between the Parties, dated the Closing Date, in the form of Exhibit G hereto (the "Operating Agreement"). The initial sales and marketing plan of the Company, as agreed by the Parties, is attached hereto as Exhibit H. ARTICLE III CONTRIBUTIONS TO THE COMPANY Section 3.1 Novartis' Contribution. Upon the terms of this Agreement, as of the Closing Date, Novartis, as a contribution to capital of the Company, (i) executes and delivers the 3 7 Sublicense Agreement, (ii) executes and delivers the Assignment Agreement, and (iii) executes and delivers the Trademark License (collectively, the "Novartis Contributed Assets"). Section 3.2 Noven's Contribution. Upon the terms of this Agreement, as of the Closing Date, Noven, as an initial contribution to capital of the Company, pays by wire transfer to the account of the Company in immediately available funds the sum of $7,500,000 (the "Noven Contributed Assets"). Section 3.3 Closing. The consummation of the transactions contemplated by this Agreement and the Operating Agreement as set forth in Sections 3.4, 3.5, 3.6 and 3.7 (the "Closing") shall take place on the date hereof (the "Closing Date") at the offices of White & Case LLP, 1155 Avenue of the Americas, New York, New York, 10036. The transactions contemplated by this Agreement and the Operating Agreement shall be deemed for all purposes to become effective as of the Closing Date. Section 3.4 Actions at the Closing. The following actions shall be taken at the Closing: (a) Execution of this Agreement and the Operating Agreement. Novartis and Noven shall execute and deliver an original counterpart of this Agreement and the Operating Agreement. (b) Execution of the Sublicense Agreement, Limited Assignment Agreement, Trademark License and Distribution and Services Agreement. Novartis shall execute and deliver and each of Novartis and Noven shall cause the Company to execute and deliver an original counterpart of the Sublicense Agreement, Limited Assignment Agreement, Trademark License and Distribution and Services Agreement. (c) Execution of the Marketing and Promotional Services Agreement. Noven shall execute and deliver and each of Novartis and Noven shall cause the Company to execute and deliver an original counterpart of the Marketing and Promotional Services Agreement. (d) Payment of Cash Contribution. Noven shall instruct its bank to wire from its account to the account of the Company the sum of $7,500,000. Section 3.5 Additional Deliveries. (a) Additional Deliveries by Both Parties. At the Closing, each of the Parties shall execute and deliver the Mutual Release in the form attached hereto as Exhibit I. (b) Additional Deliveries by Novartis. At the Closing Novartis shall deliver to Noven the following, in each case of a document, then duly executed or otherwise in proper form: (i) Secretary's Certificate. A certificate of the Secretary of Novartis (A) certifying that Novartis is authorized to enter into this agreement and consummate the transactions contemplated by this Agreement; and (B) certifying the incumbency of the officers of Novartis duly authorized to execute and deliver any and all documents to be executed and 4 8 delivered by Novartis pursuant to the terms hereof, the signatures of which officers shall appear on the face of such certificate and be so certified by such Secretary. (ii) Other Documents. Such other documents and certificates as may be required to be delivered by Novartis at or prior to the Closing pursuant to the terms of this Agreement or otherwise reasonably required in connection herewith. (c) Additional Deliveries by Noven. At the Closing Noven shall deliver to Novartis the following, in each case of a document, then duly executed or otherwise in proper form: (i) Secretary's Certificate. A certificate of the Secretary of Noven (A) certifying and attaching true and correct copies of the resolutions, in full force and effect as of the Closing Date, of the Board of Directors of Noven authorizing and approving this Agreement and the consummation of the transactions contemplated by this Agreement; and (B) certifying the incumbency of the officers of Noven duly authorized to execute and deliver any and all documents to be executed and delivered by Noven pursuant to the terms hereof, the signatures of which officers shall appear on the face of such certificate and be so certified by such Secretary. (ii) Other Documents. Such other documents and certificates as may be required to be delivered by Noven at or prior to the Closing pursuant to the terms of this Agreement or otherwise reasonably required in connection herewith. Section 3.6 Simultaneous Transactions. All of the deliveries contemplated by this Agreement to be made at the Closing shall be deemed to be made simultaneously, and no such transaction shall be deemed to have been consummated until all such transactions have been consummated. Section 3.7 Public Announcements. Neither Novartis nor Noven nor any of their Affiliates shall issue any public report, statement or press release or otherwise make any public statement with respect to this Agreement and the Operating Agreement and the transactions contemplated hereby and thereby prior to the Closing Date without prior consultation with and approval of the other Party (which approval shall not be unreasonably withheld or delayed), except as may be required by law or securities exchange regulations applicable to any such Party, in which case such Party shall advise the other Party and discuss the contents of the disclosure before issuing any such report, statement or press release. In addition, neither Novartis nor Noven nor any of their Affiliates shall make any general communication to suppliers, lenders, creditors, distributors, employees, customers or others having business or financial relationships with Novartis, Noven or any of their Affiliates pertaining to this Agreement and the Operating Agreement and the transactions contemplated hereby and thereby, without the prior written approval of the other Party (which approval will not be unreasonably withheld or delayed). Prior to the Closing Date, each Party shall prepare a press release concerning the execution of this Agreement and the Operating Agreement and the transactions contemplated hereby and thereby; and shall submit such press release to the other Party for its review and consent. 5 9 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF NOVARTIS Novartis makes the following representations and warranties to Noven, each of which is true and correct on the date hereof: Section 4.1 Organization and Standing. Novartis is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware Section 4.2 Authority. Novartis has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and the other documents and instruments to be executed and delivered by Novartis pursuant hereto and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the other documents and instruments to be executed and delivered by Novartis pursuant hereto and the consummation of the transactions contemplated hereby and thereby have been duly authorized by the Board of Directors of Novartis. No other or further corporate act or proceeding on the part of Novartis or its shareholders is necessary to authorize this Agreement or the other documents and instruments to be executed and delivered by Novartis pursuant hereto or the consummation of the transactions contemplated hereby and thereby. This Agreement and the other documents and instruments to be executed and delivered by Novartis pursuant to this Agreement will, upon such execution and delivery, constitute valid and binding agreements of Novartis, enforceable in accordance with their respective terms, except as such may be limited by bankruptcy, insolvency, reorganization or other laws affecting creditors' rights generally, and by general equitable principles. Section 4.3 Consents and Approvals; No Violation. (a) Neither the execution and delivery of this Agreement or the other documents and instruments to be executed and delivered by Novartis pursuant hereto, nor the consummation by Novartis of the transactions contemplated hereby and thereby require Novartis to obtain any Consent of any Governmental Authority, or any third party. (b) Neither the execution or delivery of this Agreement or the other documents and instruments to be executed and delivered by Novartis, nor the consummation by Novartis of the transactions contemplated hereby or thereby, nor compliance by Novartis with any of the provisions hereof or thereof will (i) conflict with any provision of Novartis' Certificates of Incorporation or By-Laws, (ii) result in a material breach of, or default under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, agreement, lease or other instrument or obligation to which Novartis is a party, or by which Novartis may be bound, or (iii) violate in any material respect any order, judgment, writ, injunction, decree, statute, rule or regulation applicable to Novartis or any of its assets or properties. Section 4.4 No Brokers or Finders. No broker, finder, investment banker, financial advisor or other Person is entitled to any brokerage fees, commissions, finder's fees or financial advisory fees in connection with this Agreement, or the transactions contemplated 6 10 hereby, by reason of any action taken by or on behalf of Novartis or any of its officers, directors, representatives or agents. ARTICLE V REPRESENTATIONS AND WARRANTIES OF NOVEN Noven makes the following representations and warranties to Novartis, each of which is true and correct on the date hereof: Section 5.1 Organization and Standing. Noven is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware Section 5.2 Authority. Noven has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and the other documents and instruments to be executed and delivered by Noven pursuant hereto and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the other documents and instruments to be executed and delivered by Noven pursuant hereto and the consummation of the transactions contemplated hereby and thereby have been duly authorized by the Board of Directors of Noven. No other or further corporate act or proceeding on the part of Noven or its shareholders is necessary to authorize this Agreement or the other documents and instruments to be executed and delivered by Noven pursuant hereto or the consummation of the transactions contemplated hereby and thereby. This Agreement and the other documents and instruments to be executed and delivered by Noven pursuant to this Agreement will, upon such execution and delivery, constitute valid and binding agreements of Noven, enforceable in accordance with their respective terms, except as such may be limited by bankruptcy, insolvency, reorganization or other laws affecting creditors' rights generally, and by general equitable principles. Section 5.3 Consents and Approvals; No Violation. (a) Neither the execution and delivery of this Agreement or the other documents and instruments to be executed and delivered by Noven pursuant hereto, nor the consummation by Noven of the transactions contemplated hereby and thereby require Noven to obtain any Consent of any Governmental Authority, or any third party. (b) Neither the execution or delivery of this Agreement or the other documents and instruments to be executed and delivered by Noven, nor the consummation by Noven of the transactions contemplated hereby or thereby, nor compliance by Noven with any of the provisions hereof or thereof will (i) conflict with any provision of Noven's Certificates of Incorporation or By-Laws, (ii) result in a material breach of, or default under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, agreement, lease or other instrument or obligation to which Noven is a party, or by which Noven may be bound, or (iii) violate in any 7 11 material respect any order, judgment, writ, injunction, decree, statute, rule or regulation applicable to Noven or any of its assets or properties. Section 5.4 No Brokers or Finders. Except for Salomon Smith Barney Inc., no broker, finder, investment banker, financial advisor or other Person is entitled to any brokerage fees, commissions, finder's fees or financial advisory fees in connection with this Agreement, or the transactions contemplated hereby, by reason of any action taken by or on behalf of Noven or any of its officers, directors, representatives or agents. ARTICLE VI MISCELLANEOUS Section 6.1 Notices. All notices, requests, demands and other communications hereunder shall be given in writing and shall be: (a) personally delivered; (b) sent by telecopier, facsimile transmission or other electronic means of transmitting written documents; or (c) sent to the Parties at their respective addresses indicated herein by registered or certified U.S. mail, return receipt requested and postage prepaid, or by private overnight mail courier service. The respective addresses to be used for all such notices, demands or requests are as follows: (a) If to Noven, to: Noven Pharmaceuticals, Inc. 11960 S.W. 144th Street Miami, FL 33186 Attention: Mr. Robert C. Strauss, President and Chief Executive Officer Telephone: (305) 253-5099 Facsimile: (305) 232-1836 with a copy to: Foley & Lardner 3000 K Street, N.W. Suite 500 Washington, D.C. 20007 Attention: Sybil Meloy, Esq. or to such other person or address as Noven shall furnish to Novartis in writing. (b) If to Novartis, to: Novartis Pharmaceuticals Corporation 59 Route 10 East Hanover, NJ 07936 Attention: Office of the CEO Telephone: (973) 781-8005 Facsimile: (973) 781-7036 8 12 with copies to: Novartis Pharmaceuticals Corporation 59 Route 10 East Hanover, NJ 07936 Attention: Thomas Kendris, Esq., Legal Department Telephone: (973) 781-5234 Facsimile: (973) 781-6477 and White & Case LLP 1155 Avenue of the Americas New York, NY 10036 Attention: William F. Wynne, Jr., Esq. Telephone: (212) 819-8200 Facsimile: (212) 354-8113 or to such other person or address as Novartis shall furnish to Noven in writing. If personally delivered, such communication shall be deemed delivered upon actual receipt; if electronically transmitted pursuant to this paragraph, such communication shall be deemed delivered on the day transmitted unless it is received after 5:00 p.m., New York time, or on a day which is not a business day, in which case it shall be deemed delivered on the next business day after transmission (and sender shall bear the burden of proof of delivery); if sent by overnight courier pursuant to this paragraph, such communication shall be deemed delivered upon receipt; and if sent by U.S. mail pursuant to this paragraph, such communication shall be deemed delivered as of the date of delivery indicated on the receipt issued by the relevant postal service, or, if the addressee fails or refuses to accept delivery, as of the date of such failure or refusal. Any Party may change its address for the purposes of this Agreement by giving notice thereof in accordance with this Section. Section 6.2 Entire Agreement; Assignment. This Agreement, including the exhibits hereto and the documents, schedules, certificates and instruments referred to herein constitute the entire agreement, and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. This Agreement shall not be assigned by operation of law or otherwise. Section 6.3 Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each Party hereto, and nothing in this Agreement shall be deemed to confer upon any other Person any right or remedy under or by reason of this Agreement. 9 13 Section 6.4 Law Governing Agreement. This Agreement shall be construed and interpreted according to the internal laws of the State of New York, excluding any choice of law rules that may direct the application of the laws of another jurisdiction. Section 6.5 Expenses. Each of the Parties shall bear its own expenses and the expenses of its counsel and other agents in connection with the transactions contemplated hereby. Section 6.6 Headings. The headings in this Agreement are inserted for convenience only and shall not constitute a part hereof. Section 6.7 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. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be as effective as delivery of a manually executed counterpart of this Agreement. Section 6.8 Mutual Drafting Acknowledgment. This Agreement is the result of the joint efforts of the Parties hereto and each provision hereof has been subject to the mutual consultation, negotiation and agreement of the parties and their counsel, and there shall be no construction against any Party based upon any presumption of that Party's involvement in the drafting hereof. Section 6.9 Amendment and Modification. This Agreement may be amended, modified and supplemented only in a writing executed by the parties hereto. 10 14 IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement as of the date and year first above written. NOVARTIS PHARMACEUTICALS CORPORATION By: /s/ Wayne P. Yetter ------------------------------------------------ Title: President and Chief Executive Officer NOVEN PHARMACEUTICALS, INC. By: /s/ Robert C. Strauss ----------------------------------------------- Title: President and Chief Executive Officer EX-10.33 3 OPERATING AGREEMENT 1 EXHIBIT 10.33 ================================================================================ OPERATING AGREEMENT OF VIVELLE VENTURES LLC (A DELAWARE LIMITED LIABILITY COMPANY) DATED AS OF MAY 1, 1998 ================================================================================ 2 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS..............................................................................1 Section 1.1 Definitions........................................................1 ARTICLE II GENERAL PROVISIONS.......................................................................7 Section 2.1 Formation..........................................................7 Section 2.2 Name...............................................................7 Section 2.3 Place of Registered Office; Registered Agent.......................7 Section 2.4 Place of Business..................................................7 Section 2.5 Purpose............................................................7 Section 2.6 Limitations on Company Powers......................................7 Section 2.7 Ancillary Agreements...............................................7 Section 2.8 Term...............................................................8 ARTICLE III CAPITAL CONTRIBUTIONS....................................................................8 Section 3.1 Initial Capital Contributions......................................8 Section 3.2 Percentage Ownership Interest......................................9 Section 3.3 Additional Capital Contributions...................................9 Section 3.4 Return of Capital Contribution....................................10 Section 3.5 Capital Accounts..................................................10 Section 3.6 New Members.......................................................11 ARTICLE IV MEMBERS.................................................................................11 Section 4.1 Members...........................................................11 Section 4.2 Admission of New Members..........................................11
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Page ---- Section 4.3 Voting............................................................11 Section 4.4 Liability of Members..............................................11 Section 4.5 Access to and Confidentiality of Information; Records.............11 Section 4.6 Limitation on Actions of Members; Binding Authority...............12 ARTICLE V MANAGEMENT..............................................................................13 Section 5.1 Determination by Members..........................................13 Section 5.2 President.........................................................13 Section 5.3 Management Committee..............................................13 Section 5.4 Matters Requiring Supermajority Management Committee Approval.....14 Section 5.5 Delegation of Authority...........................................15 Section 5.6 Obligations of Members............................................16 Section 5.7 Other Activities..................................................16 Section 5.8 Power to Bind Company.............................................16 ARTICLE VI ALLOCATIONS.............................................................................16 Section 6.1 General Rule......................................................16 Section 6.2 Limitation on Loss Allocation.....................................18 Section 6.3 Special Allocations...............................................18 Section 6.4 Allocation with Respect to Transferred Interests..................19 Section 6.5 Section 704(c) Allocations........................................20 ARTICLE VII DISTRIBUTIONS...........................................................................20 Section 7.1 Distribution of Distributable Funds...............................20 Section 7.2 Year End True-Up..................................................21 Section 7.3 Guaranteed Payment to Novartis....................................21 ARTICLE VIII BOOKS, RECORDS, TAX MATTERS AND BANK ACCOUNTS...........................................21 Section 8.1 Books and Records.................................................21 Section 8.2 Tax Matters Member................................................21 Section 8.3 Bank Accounts.....................................................22 Section 8.4 Accounting Method.................................................22
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Page ---- ARTICLE IX SALE, ASSIGNMENT, TRANSFER OR OTHER DISPOSITION.........................................22 Section 9.1 General Restriction...............................................22 Section 9.2 Permitted Transfers...............................................22 Section 9.3 Admission of Transferee...........................................22 Section 9.4 Withdrawals.......................................................22 Section 9.5 Buy/Sell..........................................................22 ARTICLE X DISSOLUTION.............................................................................24 Section 10.1 Limitations......................................................24 Section 10.2 Dissolution Events...............................................24 Section 10.3 Liquidation......................................................25 Section 10.4 Termination of Licenses and Know-How.............................26 ARTICLE XI EXCULPATION AND INDEMNIFICATION.........................................................26 Section 11.1 Exculpation of Members...........................................26 Section 11.2 Indemnification by Company.......................................27 ARTICLE XII DISPUTE RESOLUTION......................................................................27 Section 12.1 Dispute Settlement...............................................27 Section 12.2 Mediation........................................................27 Section 12.3 Arbitration......................................................28 ARTICLE XII MISCELLANEOUS...........................................................................30 Section 13.1 Notices.........................................................30 Section 13.2 Governing Law...................................................31 Section 13.3 Successors......................................................31 Section 13.4 Construction....................................................31 Section 13.5 Table of Contents and Captions Not Part of Agreement............32
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Page ---- Section 13.6 Severability....................................................32 Section 13.7 Counterparts....................................................32 Section 13.8 Entire Agreement and Amendment..................................32 Section 13.9 Further Assurances..............................................32 Section 13.10 No Third Party Rights...........................................32 Section 13.11 Incorporation by Reference......................................32 Section 13.12 Limitation on Liability.........................................32 Section 13.13 Remedies Cumulative.............................................33 Section 13.14 No Waiver.......................................................33 Section 13.15 Investment Representations......................................33
(iv) 6 LIMITED LIABILITY COMPANY OPERATING AGREEMENT LIMITED LIABILITY COMPANY OPERATING AGREEMENT dated as of May 1, 1998 (this "Agreement"), of Vivelle Ventures LLC (the "Company"), by and between Novartis Pharmaceuticals Corporation, a Delaware corporation ("Novartis"), as the successor-in-interest to the Pharmaceuticals Division of Ciba-Geigy Corporation, a New York corporation ("Ciba") and Noven Pharmaceuticals, Inc., a Delaware corporation ("Noven"), as members of the Company (the "Members"). All capitalized terms used herein shall have the respective meanings given to such terms in Article I hereto. WITNESSETH: WHEREAS, the Company was formed on April 29, 1998, pursuant to the Act; WHEREAS, the Members desire to participate in the Company for the purpose of creating a platform to maintain and grow a franchise in women's health, focusing initially on the manufacture, marketing and sale of the 17(beta)-estradiol single active ingredient product in a matrix currently being marketed by Novartis under the trademark "Vivelle" pursuant to the License Agreement (the "Vivelle Business"); WHEREAS, the Members have concluded that such business may be conducted by them most effectively in the form of a limited liability company in accordance with the terms and conditions hereinafter set forth. NOW THEREFORE, in consideration of the agreements and covenants set forth above and herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS Section 1.1 Definitions. As used in this Agreement: "AAA" shall have the meaning provided in Section 12.2. "Act" shall mean the Delaware Limited Liability Company Act (currently Chapter 18 of Title 6 of the Delaware Code), as amended from time to time. "Adjusted Capital Account Deficit" shall mean, with respect to any Member, the deficit balance, if any, in such Member's Capital Account as of the end of the applicable Fiscal Year after (i) crediting such Capital Account with any amounts which such Member is, or is 7 deemed to be, obligated to restore pursuant to Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5) and (ii) debiting such Capital Account by the amount of the items described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6). The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith. "Affiliate" shall mean as to any Person any other Person that directly or indirectly controls, is controlled by, or is under common control with such first Person. A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management, policies and/or decision making of such other Person, whether through the ownership of voting securities, by contract or otherwise. "Agreement" shall have the meaning provided in the first paragraph of this Agreement. "Ancillary Agreements" shall have the meaning provided in Section 2.7. "Annual Plan" shall have the meaning provided in Section 5.4(i). "Capital Account" shall have the meaning provided in Section 3.5. "Capital Contribution" shall mean, with respect to any Member, the aggregate amount of cash and the fair market value of property contributed by such Member to the capital of the Company. "Capital Stock" of any Person shall mean any and all shares, interests, participations or other equivalents (including options and warrants and securities convertible into shares) of corporate stock of such Person. "Cash Flow" shall mean, for any Fiscal Year or quarterly portions thereof, the cumulative gross cash receipts of the Company, including receipts from the sale, exchange or other disposition of the Company's assets, but expressly excluding (i) Capital Contributions to the Company and (ii) proceeds from loans to the Company. "Certificate of Formation" shall mean the Certificate of Formation of the Company, as amended from time to time. "Change of Control" shall be deemed to have occurred in the event that, after the date of this Agreement, (i) any Person or any Persons acting together that would constitute a "group" (a "Group") for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any successor provision thereto, together with any Affiliates thereof, shall beneficially own (as defined in Rule 13d-3 of the Exchange Act or any successor provision thereto) at least 35% of the Voting Stock of the subject company; (ii) any Person or Group, together with any Affiliates thereof, shall succeed in having sufficient of its or their nominees elected to the Board of Directors of the subject company such that such nominees, when added to any existing director remaining on the Board of Directors of the subject company after such election who is an Affiliate of such Group, shall constitute a majority of the Board of 2 8 Directors of the subject company; or (iii) the subject company sells, leases or transfers all or substantially all of its assets in a single transaction or series of related transactions. Notwithstanding the foregoing, a Change of Control shall not be deemed to have occurred (a) if Mr. Steven Sablotsky, together with any members of his family, directly or indirectly acquires over 35% of the Voting Stock of Noven provided that Noven (i) continues to be subject to and complies with the informational requirements of the Exchange Act of 1934, as amended, (ii) maintains the listing of its common stock on the Nasdaq National Market or other registered national securities exchange or (b) if Novartis or its Affiliates, directly or indirectly, shall beneficially own at least 35% of the Voting Stock of Noven. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, including the corresponding provisions of any successor law. "Company" shall have the meaning provided in the first paragraph of this Agreement. "Company Minimum Gain" shall have the meaning given the term "partnership minimum gain" in Regulations Sections 1.704-2(b)(2) and 1.704-2(d). "Confidential Information" shall have the meaning provided in Section 4.5(b). "Distributable Funds", with respect to any Fiscal Year or quarterly portion thereof, shall mean an amount equal to the Net Cash Flow of the Company minus reserves for anticipated future working capital and other purposes, which reserves shall be three million dollars ($3,000,000) or as determined from time to time by the Management Committee. "Eligible Representative" shall have the meaning provided in Section 12.2(a). "Fiscal Year" shall mean each calendar year ending December 31, or such other annual accounting period of the Company as determined by the Members. Notwithstanding the foregoing, the first Fiscal Year of this Agreement shall end December 31, 1998. "Formation Agreement" shall mean the Formation Agreement dated as of May 1, 1998 by and between Novartis and Noven. "Income" shall mean the gross income of the Company for any Fiscal Year, including gains realized on the sale, exchange or other disposition of the Company's assets. "Interest" of any Member shall mean the entire limited liability company interest of such Member in the Company, and any and all rights, powers and benefits accorded a Member under this Agreement and the duties and obligations of such Member hereunder. "Key Personnel" shall mean Robert C. Strauss. "License Agreement" shall mean that certain Restated License Agreement dated as of November 15, 1991, by and between Noven, as licensor, and Ciba, as licensee, the rights and obligations of Ciba pursuant to which Novartis has assumed as the successor-in-interest to Ciba. 3 9 "Limited Assignment Agreement" shall mean that certain Limited Assignment Agreement dated as of May 1, 1998 by and among Novartis, Noven and the Company "Loss" shall mean the aggregate of losses, deductions and credits of the Company for any Fiscal Year, including losses realized on the sale, exchange or other disposition of the Company's assets. "Management Committee" shall have the meaning provided in Section 5.3. "Manager" shall have the meaning provided in Section 5.3(a). "Mediator" shall have he meaning provided in Section 12.2(c). "Member" and "Members" shall mean Novartis, Noven and any other Person admitted to the Company pursuant to this Agreement. "Member Minimum Gain" shall mean an amount, determined in accordance with Regulations Section 1.704-2(i)(3) with respect to any Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability. "Member Nonrecourse Debt" shall have the meaning given the term "partner nonrecourse debt" in Regulations Section 1.704-2(b)(4). "Member Nonrecourse Deductions" shall have the meaning given the term "partner nonrecourse deductions" in Regulations Section 1.704-2(i). "Net Cash Flow" shall mean, for any Fiscal Year or quarterly portion thereof, Cash Flow less the cumulative amount of (i) all operating expenses of the Company which require a cash expenditure, (ii) all payments of interest on and any other amounts due with respect to indebtedness, leases or other commitments or obligations of the Company (including loans by Members to the Company) during the Fiscal Year for which Net Cash Flow is being calculated or within ninety (90) days after the end of such Fiscal Year and (iii) any sum expended by the Company for capital expenditures. "Net Income" shall mean the amount, if any, by which Income for any Fiscal Year exceeds Loss for such Fiscal Year. "Net Loss" shall mean the amount, if any, by which Loss for any Fiscal Year exceeds Income for such Fiscal Year. "Nonrecourse Deduction" shall have the meaning given such term in Regulations Section 1.704-2(b)(1). "Nonrecourse Liability" shall have the meaning given such term in Regulations Section 1.704-2(b)(3). 4 10 "Novartis Contributed Assets" shall mean the Sublicense Agreement, the Assignment Agreement and the Trademark License. "Novartis Preferred Return" shall mean, with respect to Novartis, a cumulative amount equal to $6,100,000 per annum (or an amount equal to $16,712.33 per day for any period less than a year including the first Fiscal Year of this Agreement), beginning on the date hereof, which amount, to the extent not distributed to Novartis in any Fiscal Year pursuant to Section 7.1(a) shall be added to the Novartis Preferred Return for the subsequent year and shall bear interest at a rate equal to the Yield of a Corporate Bond plus two hundred fifty (250) basis points per annum, compounded annually. "Noven Contributed Assets" shall mean seven million five hundred thousand dollars ($7,500,000). "Offering Notice" shall have the meaning provided in Section 9.5(a). "Offeree" shall have the meaning provided in Section 9.5(a). "Offeror" shall have the meaning provided in Section 9.5(a). "Opt-Out Amount" shall have the meaning provided in Section 3.3(c). "Opt-Out Member" shall have the meaning provided in Section 3.3(c). "Percentage Interest" shall have the meaning provided in Section 3.2. "Person" shall mean any individual, corporation, partnership, joint venture, association, joint-stock company, limited liability company, trust, unincorporated organization, government or any agency or political subdivision thereof, or any other legal entity. "Present Value of Novartis' Preferred Return" shall mean the present value of Novartis' Preferred Return as of the date said present value is calculated. For purposes of the preceding calculation, the period shall be ten (10) years and the discount rate shall be equal to the Yield of a Corporate Bond plus two hundred fifty (250) basis points. "President" shall have the meaning provided in Section 5.2. "Regulations" shall mean the Treasury Regulations promulgated pursuant to the Code, as amended from time to time, including the corresponding provisions of any successor regulations. "Representatives" shall have the meaning provided in Section 12.2(b). "Securities Acts" shall have the meaning provided in Section 13.15(a)(i). "Specified Valuation Amount" shall have the meaning provided in Section 9.5(a). 5 11 "Sublicense Agreement" shall mean that certain Sublicense Agreement by and among the Company, Novartis and Noven dated as of May 1, 1998. "Supply Agreement" shall mean that certain Supply Agreement by and between Noven and Ciba dated as of August 31, 1995, the rights and obligations of Ciba pursuant to which Novartis has assumed as the successor-in-interest to Ciba. "Tax Matters Member" shall have the meaning provided in Section 8.2. "Trademark License" shall mean that certain Trademark License by and between the Company and Novartis dated as of May 1, 1998. "Transfer" shall mean, as a noun, any transfer, sale, assignment, exchange, charge, pledge, gift, hypothecation, conveyance, encumbrance or other disposition, whether direct or indirect, voluntary or involuntary, by operation of law or otherwise and, as a verb, directly or indirectly, voluntarily or involuntarily, by operation of law or otherwise, to transfer, sell, assign, exchange, charge, pledge, give, hypothecate, convey, encumber or otherwise dispose of. "Vivelle" shall mean the 17(beta)-estradiol single active ingredient product in a matrix which Novartis has been marketing and will continue to market up through the Closing Date (as defined in the Formation Agreement) under the trademark Vivelle pursuant to the License Agreement. "Vivelle II" shall mean the second generation product of Vivelle which has been designated by Noven as G2E2. "Vivelle Business" shall mean the manufacture, marketing and sale of the 17(beta)-estradiol single active ingredient product in a matrix currently being marketed by Novartis under the trademark "Vivelle" pursuant to the License Agreement. "Vivelle Net Income Ratio" shall mean, for any Fiscal Year, the average percentage of Net Income realized by the Company from sales of Vivelle determined as a fraction, the numerator of which is the aggregate Net Income from sales of Vivelle and the denominator of which is the aggregate net sales of Vivelle for such Fiscal Year. "Vivelle Quarterly Net Income Ratio" shall mean, for any quarter of a Fiscal Year, the cumulative average percentage of Net Income realized by the Company from sales of Vivelle determined as a fraction, the numerator of which is the aggregate Net Income from sales of Vivelle for such quarter and all preceding quarters of such Fiscal Year and the denominator of which is the aggregate net sales of Vivelle for such quarter and all preceding quarters of such Fiscal Year. "Voting Securities" of a any Person shall mean the Capital Stock of such Person which ordinarily has voting power for the election of directors of such Person, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency. 6 12 "Yield of a Corporate Bond" shall mean for any given day the yield set forth in the Merrill Lynch Bond Index under the category "1-10 year high quality corporate bond" as published in the Wall Street Journal National Edition, or if such yield is no longer available, the yield from another publicly available index for AAA-AA rated corporate bonds with a maturity of ten (10) years or less. ARTICLE II GENERAL PROVISIONS Section 2.1 Formation. The Members hereby form the Company pursuant to the Act. A Certificate of Formation described in Section 18-201 of the Act, substantially in the form of Exhibit A to the Formation Agreement (the "Certificate of Formation"), has been filed with the Secretary of State of the State of Delaware in conformity with the Act. Section 2.2 Name. The name of the Company shall be "Vivelle Ventures LLC". The business and affairs of the Company shall be conducted under such name or such other name as the Members deem necessary or appropriate to comply with the requirements of law in any jurisdiction in which the Company may elect to do business. Section 2.3 Place of Registered Office; Registered Agent. The address of the registered office of the Company in the State of Delaware is 1013 Centre Road, Wilmington, Delaware 19805. The name and address of the registered agent for service of process on the Company in the State of Delaware is Corporation Service Company, 1013 Centre Road, Wilmington, Delaware 19805. Section 2.4 Place of Business. The business address of the Company shall be determined by the Management Committee. The Company may from time to time have such other place or places of business within or without the State of Delaware as the Management Committee may deem advisable. Section 2.5 Purpose. The purpose of the Company shall be to maintain and grow a franchise in women's health, focusing initially on the Vivelle Business and all other activities reasonably necessary to carry out such purpose. Section 2.6 Limitations on Company Powers. Notwithstanding anything contained herein to the contrary, the Company shall not do business in any jurisdiction that would jeopardize the limitation on liability afforded to the Members under the Act or this Agreement. Section 2.7 Ancillary Agreements. (a) The Members agree that services may be provided to the Company by a Member or an Affiliate of a Member and the business of the Company shall be conducted in accordance with the terms of written agreements attached hereto as Annexes from time to time (the "Ancillary Agreements"). Attached hereto are Ancillary Agreements the forms of which are hereby agreed upon as of the date hereof: 7 13 Annex I: Form of Distribution and Services Agreement Annex II: Form of Marketing and Promotional Services Agreement (b) The Members agree that in the event that Noven reasonably believes that Novartis has breached its obligations under the Distribution and Services Agreement, the Limited Assignment Agreement, the Trademark License or the Sublicense Agreement, Noven may, on behalf of the Company, assert a breach thereof and pursue all remedies at law or equity with respect thereto. The Members further agree that Noven may, on behalf of the Company, exercise the rights of the Company contained in Sections 5.4, 5.5, 5.6, 8.1 and 10.1 of the Distribution and Services Agreement; provided, however, that if the Management Committee has already approved an expenditure, accounting principle or methodology as part of the Annual Plan, then Noven may not exercise such right for such Fiscal Year. (c) The Members agree that in the event that Novartis reasonably believes that Noven has breached its obligations under the Marketing and Promotional Services Agreement, the Limited Assignment Agreement or the Sublicense Agreement, Novartis may, on behalf of the Company, assert a breach thereof and pursue all remedies at law or equity with respect thereto. The Members further agree that Novartis may, on behalf of the Company, exercise the rights of the Company contained in Sections 4.4, 4.5, 4.6, 7.1 and 9.1 of the Marketing and Promotional Services Agreement; provided, however, that if the Management Committee has already approved an expenditure, accounting principle or methodology as part of the Annual Plan, then Novartis may not exercise such right for such Fiscal Year. (d) Notwithstanding Noven's and Novartis' right to bring an action on behalf of the Company pursuant to paragraphs (c) and (d) above, the Company retains the right on its own behalf to exercise all of the rights granted to it and enforce all of the obligations owed to it pursuant to the Distribution and Services Agreement, the Marketing and Promotional Services Agreement, the Limited Assignment Agreement, the Trademark License and the Sublicense Agreement; provided that such exercise or enforcement has not been initiated by Noven pursuant to paragraph (c) or Novartis pursuant to paragraph (d). Section 2.8 Term. The Company shall remain in existence until dissolved, liquidated or terminated as provided in Article X. ARTICLE III CAPITAL CONTRIBUTIONS Section 3.1 Initial Capital Contributions. Each Member shall contribute, as an initial Capital Contribution to the Company, the following: (i) Novartis shall contribute the Novartis Contributed Assets; and (ii) Noven shall contribute the Noven Contributed Assets. The Members agree that the fair value of the Novartis Contributed Assets, taking into account (1) the terms and conditions of the Sublicense Agreement, including, without limitation, the obligation of 8 14 the Company to make payments under the Sublicense Agreement and (2) the obligation of the Company to make payments in the amount of the Novartis Preferred Return, is $7,806,122.(1) Section 3.2 Percentage Ownership Interest. The Members shall have the following initial percentage ownership interests in the Company ("Percentage Interest") immediately following the making of the Capital Contributions set forth in Section 3.1: Novartis 51% Noven 49%
The Percentage Interest of the Members in the Company shall be adjusted appropriately to reflect any Transfer of an Interest in the Company or any disproportionate additional Capital Contributions made by the Members. Section 3.3 Additional Capital Contributions. (a) No Member shall be obligated, at any time, to guarantee or otherwise assume or become liable for any obligations of the Company or to make any additional Capital Contributions (in excess of those required under Section 3.1), advances or loans to the Company, unless such obligations are specifically accepted and agreed to by such Member. (b) If, at any time or times hereafter, including, without limitation, in the event that the Company is unable to obtain sufficient bank financing to commence its operations, the Management Committee shall determine that additional capital (in excess of the amounts required under Section 3.1) is required by the Company, the President shall notify the Members of the amount of such additional capital and the anticipated time such additional capital will be required. The Management Committee shall determine whether such additional capital shall be provided by the Members by way of additional Capital Contributions or by way of loans from Members. In the event that all or any part of such additional capital is provided by way of loans from the Members, each Member shall have the right to participate in such loans to the extent of such Member's Percentage Interest. The terms of such loans shall be determined by the Management Committee but shall be the same for all Members. In the event that all or any part of such additional capital is to be provided by way of additional Capital Contributions by the Members, the Members shall be offered the opportunity to make such additional Capital Contributions in proportion to their respective Percentage Interests. In the event that all Members elect to contribute additional Capital Contributions in proportion to their Percentage Interests, no adjustment shall be made to the Percentage Interests of the Members as a result of such contributions. - ------------------------------------ 1 This valuation (X = $7,806,122) is calculated to give Novartis a 51% Percentage Interest, based on a contribution by Noven of $7,500,000 for its 49% Percentage Interest, according to the formula $X/.51 = $7,500,000/.49 9 15 (c) If the Management Committee determines that additional capital shall be provided by way of additional Capital Contributions and if any Member elects not to make such additional Capital Contributions to the Company pursuant to Section 3.3(b) (the "Opt-Out Member"), the Opt-Out Member shall promptly notify the other Member. The other Member shall thereupon have the right, but not the obligation, to contribute to the Company the amount of the Opt-Out Member's additional Capital Contribution that the Opt-Out Member elects not to make (the "Opt-Out Amount"). In the case of any additional Capital Contributions made pursuant to this Section 3.3(c), the Capital Accounts of the Members shall be adjusted in accordance with Regulations Section 1.704-1(b)(2)(iv)(f) immediately prior to the making of such additional Capital Contributions. The respective Percentage Interests of the Members shall then be recalculated, based upon the Capital Accounts of the Members immediately after such additional Capital Contributions are made pursuant to this Section 3.3(c). Any determinations with respect to the Capital Accounts of the Members and the recalculated Percentage Interests of the Members pursuant to this Section 3.3(c) shall be made by the Management Committee in its reasonable discretion. Section 3.4 Return of Capital Contribution. Subject to Article VII, no Member shall have any right to withdraw or make a demand for withdrawal of the balance reflected in such Member's Capital Account (as determined under Section 3.5) until the full and complete winding up and liquidation of the business of the Company. Section 3.5 Capital Accounts. A separate capital account (the "Capital Account") shall be maintained for each Member in accordance with Section 1.704-1(b)(2)(iv) of the Regulations. Without limiting the foregoing, the Capital Account of each Member shall be increased by (i) the amount of any cash and the fair market value of any property contributed to the Company by such Member (net of any liability secured by such contributed property that the Company is considered to assume or take subject to), (ii) the amount of Income allocated to such Member and (iii) the amount of income or profits, if any, allocated to such Member not otherwise taken into account in this Section 3.5. The Capital Account of each Member shall be reduced by (i) the amount of any cash and the fair market value of any property distributed to the Member by the Company (net of liabilities secured by such distributed property that the Member is considered to assume or take subject to), (ii) the amount of Loss allocated to the Member and (iii) the amount of expenses or losses, if any, allocated to such Member not otherwise taken into account in this Section 3.5. If any property other than cash is distributed to a Member, the Capital Accounts of the Members shall be adjusted as if the property had instead been sold by the Company for a price equal to its fair market value and the proceeds distributed. No Member shall be obligated to restore any negative balance in its Capital Account. No Member shall be compensated for any positive balance in its Capital Account except as otherwise expressly provided herein. The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with the provisions of Regulations Section 1.704-1(b)(2) and shall be interpreted and applied in a manner consistent with such Regulations. The Members agree that the initial Capital Accounts of the Members on the date hereof are as set forth on Schedule 1. 10 16 Section 3.6 New Members. Subject to Section 5.4, the Management Committee may issue additional Interests and thereby admit a new Member or Members, as the case may be, to the Company, only if such new Member (i) has delivered to the Company its Capital Contribution; (ii) has agreed in writing to be bound by the terms of this Agreement by becoming a party hereto; and (iii) has delivered such additional documentation as the Management Committee shall reasonably require to so admit such new Member to the Company. ARTICLE IV MEMBERS Section 4.1 Members. The initial Members of the Company are Novartis and Noven. Section 4.2 Admission of New Members. No Person shall be admitted as a member of the Company without the approval of the Management Committee as provided in Section 5.4. Section 4.3 Voting. Each Member shall be entitled to vote upon all matters upon which Members have the right to vote in proportion to its respective Percentage Interests in the Company. Section 4.4 Liability of Members. All debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and no Member shall be obligated personally for any such debt, obligation or liability of the Company solely by reason of being a Member. Section 4.5 Access to and Confidentiality of Information; Records. (a) Subject to the provisions of Section 4.5(b), each Member shall have the right to obtain from the Company from time to time upon reasonable demand for any purpose reasonably related to the Member's interest as a Member of the Company, the documents and other information described in Section 18-305(a) of the Act. Any demand by a Member pursuant to this section shall be in writing and shall state the purpose of such demand. (b) Any information relating to a Member's business, operations or finances which is proprietary to, or considered proprietary by, a Member is hereinafter referred to as "Confidential Information". All Confidential Information in tangible form (plans, writings, drawings, computer software and programs, etc.) or provided to or conveyed orally or visually to a receiving Member, shall be presumed to be proprietary to the provider of such information at the time of delivery to the receiving Member. All such proprietary information shall be protected by the receiving Member from disclosure with the same degree of care with which the receiving Member protects its own Confidential Information from disclosure. Each receiving Member agrees (i) not to disclose such Confidential Information to any Person except to those of its 11 17 employees or representatives who need to know such Confidential Information in connection with the conduct of the business of the Company and who have agreed to maintain the confidentiality of such Confidential Information and (ii) that neither it nor any of its employees or representatives will use the Confidential Information for any purpose other than in connection with the conduct of the business of the Company; provided that such restrictions shall not apply if such Confidential Information (A) is or hereafter becomes public other than by a breach of this Agreement, (B) was already in the receiving Member's possession prior to any disclosure of the Confidential Information to the receiving Member by the divulging Member and is not covered by any preexisting confidentiality agreement between the Members or (C) has been or is hereafter obtained by the receiving Member from a third party not bound by any confidentiality obligation with respect to the Confidential Information; and, provided further, that nothing herein shall prevent any Member from disclosing any portion of such Confidential Information (1) to the Company and allowing the Company to use such Confidential Information in connection with the Company's business or (2) pursuant to judicial order, but only to the extent of such order and after reasonable notice to the original divulging Member. (c) The receiving Members and their Affiliates shall each act to safeguard the secrecy and confidentiality of, and any proprietary rights to, any non-public information relating to the Company and its business, except to the extent such information is required to be disclosed by law or reasonably necessary to be disclosed in order to carry out the business of the Company. Each Member may, from time to time, provide the other Members written notice of its non-public information which is subject to this Section 4.5(b). Section 4.6 Limitation on Actions of Members; Binding Authority. No Member shall, without the prior written consent of the other Members, take any action on behalf of, or in the name of, the Company, or enter into any contract, agreement, commitment or obligation binding upon the Company, or, in its capacity as a Member of the Company, perform any act in any way relating to the Company or the Company's assets, except in a manner and to the extent consistent with the provisions of this Agreement. Any action taken by the Management Committee pursuant to this Agreement shall constitute the act of and serve to bind the Company, and each Member hereby agrees neither to dispute such action nor the obligation of the Company created thereby. Persons dealing with the Company are entitled to rely conclusively upon the power and authority of the Management Committee set forth herein. 12 18 ARTICLE V MANAGEMENT Section 5.1 Determination by Members. The Members shall act on any matters to be determined by them pursuant to this Agreement through their representative Managers on the Management Committee established pursuant to Section 5.3. Unless otherwise specified in this Agreement, a determination by the Members under any provision of this Agreement shall be made by the affirmative vote of a majority of the Percentage Interests. Section 5.2 President. Noven shall be entitled to appoint an individual to act as "president" of the Company (the "President") with such authority as is set forth in this Agreement. Noven shall also be entitled to appoint any successor to the President. The Members hereby appoint Mr. Robert C. Strauss as President. The President shall hold office until his or her death, resignation or removal by a majority vote of the Management Committee. The President shall manage the day-to-day business operations and affairs of the Company subject to direction and oversight by the Management Committee. The President shall be responsible for the implementation of the decisions of the Management Committee and shall have the power to represent and bind the Company regarding the incurrence of monetary obligations or making of payments provided for in the Annual Plan approved by the Management Committee pursuant to Section 5.4(i). Decisions on matters hereunder requiring the express approval of the Members or which are set forth in Section 5.4, however, shall be made solely by the Management Committee. The President shall have such other powers and perform such other duties as usually pertain to the office of the President and as from time to time may be assigned to him by the Management Committee. The annual compensation of the President shall be included in the Annual Plan. Section 5.3 Management Committee. (a) The Members hereby establish a management committee (the "Management Committee"). The Management Committee shall consist of five (5) individuals appointed to act as "managers" of the Company within the meaning of the Act (the "Managers") as follows: Novartis shall be entitled to designate three (3) Managers; and (ii) Noven shall be entitled to designate two (2) Managers. The initial members of the Management Committee are set forth on Schedule 2. The Management Committee shall have general management powers with respect to the management and operation of the business and affairs of the Company and shall be responsible for policy setting and approval of the overall direction of the Company. The Management Committee shall delegate the day-to-day management obligation and responsibility of the Company to the President. (b) Each member of the Management Committee shall hold office until death, resignation or removal at the pleasure of the Member that appointed him or her. If a vacancy occurs on the Management Committee, the Member with the right to appoint and remove such vacating Manager shall appoint his or her successor. (c) The Management Committee shall meet on the tenth business day of the first month of each fiscal quarter unless otherwise agreed by the Management Committee and at such other times as may be necessary for the Company's business on at least five (5) days prior 13 19 written notice of the time and place of such meeting given by at least (2) Managers. Notice of regular meetings of the Management Committee is not required. Managers may waive in writing the requirements for notice before, at or after a special meeting, and attendance at such a meeting without objection by a Manager shall be deemed a waiver of such notice requirement. Minutes of all Management Committee meetings shall be recorded, signed by all Managers in attendance at the relevant meeting and filed with the permanent records of the Company. (d) At least four (4) Managers (present in person, by telephone or through another Manager by power of attorney) shall constitute a quorum for the transaction of business by the Management Committee. Except as provided in Section 5.4, approval by the Management Committee of any matter shall require the vote of a majority of the Managers then in office voting at a duly held meeting of the Management Committee. Any Manager unable to attend a Management Committee meeting either in person or by telephone shall be permitted to give a written power of attorney to another Manager, and such other Manager may then vote at such meeting on behalf of the absent Manager. (e) Any meeting of the Management Committee may be held by conference telephone call or through similar communications equipment by means of which all persons participating in the meeting can communicate with each other. Participation in a telephonic meeting held pursuant to this Section shall constitute presence in person at such meeting. (f) Any action required or permitted to be taken at a meeting of the Management Committee may be taken without a meeting if all the Managers consent thereto in writing. In addition, if at any regularly scheduled meeting or special meeting called in accordance with the provisions of paragraph (c) above a quorum for the transaction of business is not obtained, any action required or permitted to be taken at such meeting in the presence of a quorum may still be taken if the number of Managers required to approve such action consents thereto in writing. Written consents shall be filed with the minutes of the proceedings of the Management Committee and shall be sent to each of the Managers. (g) Managers shall be entitled to receive from the Company reimbursement for reasonable and direct travel expenses (including travel, lodging and meals) incurred in attending meetings of the Management Committee, but shall not otherwise be entitled to compensation or reimbursement of expenses. Section 5.4 Matters Requiring Supermajority Management Committee Approval. Notwithstanding anything contained herein to the contrary, no act shall be taken, sum expended, decision made or obligation incurred by the Company with respect to the following matters without the prior affirmative vote or written consent of at least four (4) Managers: (i) the approval of the annual operating and capital budgets of the Company (the "Annual Plan") and any material amendments thereto; (ii) the approval of the annual sales and marketing plan of the Company and any material amendments thereto; 14 20 (iii) the approval of any amendment to the Certificate of Formation of the Company; (iv) the approval of any material amendment to any of the Ancillary Agreements, the Sublicense Agreement, the Assignment Agreement, the Trademark License or the entry into any product supply contract, other than the Supply Agreement, with an alternative or second supplier; (v) the entry into any contract between the Company and a third party sales force and the approval of any material amendments thereto; (vi) the creation by the Company of any indebtedness in excess of one million dollars ($1,000,000) or obligation to guaranty such indebtedness, which creation is not provided for in the Annual Plan approved by the Management Committee pursuant to subparagraph (i); (vii) the entry into any technology transfer, licensing or sublicensing arrangement, other than the Sublicense Agreement and the Trademark License; (viii) the entry into any agreements regarding the contribution and subsequent marketing of new products not falling under the terms of the License Agreement; (ix) the purchase price of any new products not falling under the terms of the License Agreement; (x) the admission of new Members; (xi) the acquisition of any asset by the Company in one transaction or series of related transactions for consideration in excess of five hundred thousand dollars ($500,000), which acquisition is not provided for in the Annual Plan approved by the Management Committee pursuant to subparagraph (i); (xii) the disposition of any assets of the Company in one transaction or series of related transactions with an aggregate fair market value in excess of five hundred thousand dollars ($500,000), which disposition is not provided for in the Annual Plan approved by the Management Committee pursuant to subparagraph (i); and (xiii) the settlement of any commercial litigation which would require a payment by the Company in excess of one million dollars ($1,000,000) or which involves injunctive relief or consent orders which would enjoin the Company from selling any of its products. Section 5.5 Delegation of Authority. The President shall devote such time to the Company's business as is necessary and appropriate to direct and supervise the Company's day- 15 21 to-day business and operations in a prudent and reasonable manner, but nothing in this Agreement shall preclude the employment of any agent or third party to manage or provide other services in respect of the Company's assets or business, with the approval of the Management Committee, subject to the control and supervision of the President. The President shall have responsibility for the safekeeping and use of all funds and assets of the Company, whether or not in his immediate possession or control, and shall not employ or permit another to employ such funds or assets in any manner except for the exclusive benefit of the Company. Section 5.6 Obligations of Members. (a) The Members agree that the manufacture, packaging and sale of the Company's products will be subject to Novartis' requirements for quality control and quality assurance and that Novartis shall initially provide such services pursuant to a Distribution and Services Agreement. (b) Each of the Members agrees to cause the Company to obtain product liability insurance as soon as practicable, such insurance to be comparable in scope, term, coverage and deductible amounts to that maintained by other similarly situated businesses. Section 5.7 Other Activities. Nothing in this Agreement shall in any way limit or prohibit any of the Members from engaging in any other business or activity, and neither the Company nor any Member shall have any right, by virtue of this Agreement, the relationship of the Members or otherwise, either to participate in or to share in any other venture, activity or opportunity of any other Member or in the income or proceeds derived from any such venture, activity or opportunity. Section 5.8 Power to Bind Company. No Manager (acting in his capacity), as such) shall have any authority, to bind the Company to any third party with respect to any matter except pursuant to a resolution expressly authorizing such action which resolution is duly adopted by the Management Committee by the affirmative vote required for such matter pursuant to this Agreement. ARTICLE VI ALLOCATIONS Section 6.1 General Rule. Net Income and Net Loss shall be determined for each Fiscal Year in accordance with the accounting method followed by the Company for federal income tax purposes. Except as otherwise provided in Section 6.2 or 6.3, Net Income and Net Loss shall be allocated among the Members at the end of each Fiscal Year as follows: (a) Net Income for each Fiscal Year shall be allocated among the Members in the following order of priority: 16 22 (i) First, to Novartis until the cumulative amount allocated to Novartis pursuant to this Section 6.1(a)(i) for the current Fiscal Year and all prior Fiscal Years equals the Novartis Preferred Return for the current Fiscal Year and all prior Fiscal Years. Amounts allocated pursuant to this Section 6.1(a)(i) shall be deemed to be allocated out of Net Income attributable to sales of Vivelle in an amount equal to the total amount being allocated pursuant to this Section 6.1(a)(i) multiplied by a fraction, the numerator of which is the amount of Net Income attributable to sales of Vivelle for the current Fiscal Year, and the denominator of which is the total amount of Net Income for the current Fiscal Year. The remainder of the amount allocated pursuant to this Section 6.1(a)(i) shall be deemed to be allocated out of Net Income which is not attributable to sales of Vivelle. (ii) Second, any remaining Net Income attributable to sales of Vivelle for each Fiscal Year shall be allocated as follows: (A) 70% to Novartis and 30% to Noven until the cumulative amount of Net Income allocated to the Members pursuant to this Section 6.1(a)(ii)(A) equals the product of $30,000,000 multiplied by the Vivelle Net Income Ratio; (B) then 60% to Novartis and 40% to Noven until the cumulative amount of Net Income allocated to the Members pursuant to this Section 6.1(a)(ii)(B) equals the product of $10,000,000 multiplied by the Vivelle Net Income Ratio; and (C) Thereafter, to the Members in proportion to their respective Percentage Interests. (iii) Third, all remaining Net Income shall be allocated to the Members in proportion to their then respective Percentage Interests. (b) (i) Except as provided in Section 6.1(b)(ii), Net Loss for each Fiscal Year shall be allocated among the Members in proportion to their then respective Percentage Interests. (ii) Any Net Loss resulting from the termination of any license or know-how pursuant to Section 10.4 shall be allocated to the Member to whom such license or know-how reverts upon termination. (c) The determination of the amount of Net Income which is attributable to sales of Vivelle and the Vivelle Net Income Ratio shall be made by the Management Committee in its reasonable discretion. 17 23 Section 6.2 Limitation on Loss Allocation. Losses allocated to a Member pursuant to Section 6.1(b) shall not exceed the maximum amount of losses that can be allocated without causing a Member to have an Adjusted Capital Account Deficit at the end of any Fiscal Year. In the event that any Member would have an Adjusted Capital Account Deficit as a consequence of an allocation of losses pursuant to Section 6.1(b), the amount of losses that would be allocated to such Member but for the application of this Section 6.2 shall be allocated to the other Members (to the extent that such allocations would not cause such Members to have an Adjusted Capital Account Deficit) in proportion to their Percentage Interests. Any allocation of items of income, gain, loss, deduction or credit pursuant to this Section 6.2 shall be taken into account in computing subsequent allocations pursuant to Section 6.1, and prior to any allocation of items in such Section so that the net amount of any items allocated to each Member pursuant to Section 6.1 and this Section 6.2 shall, to the maximum extent practicable, be equal to the net amount that would have been allocated to each Member pursuant to the provisions of Section 6.1 and this Section 6.2 if such allocation under this Section 6.2 had not occurred. Section 6.3 Special Allocations. Notwithstanding any provision of Section 6.1 or 6.2 to the contrary, the following special allocations shall be made in the following order: (a) If there is a net decrease in Company Minimum Gain during any Fiscal Year, each Member shall be specially allocated items of Income for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Member's share of the net decrease in Company Minimum Gain, determined in accordance with Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 6.3(a) is intended to comply with the minimum gain chargeback requirement in Regulations Section 1.704-2(f) and shall be interpreted consistently therewith. To the extent permitted by such Regulations and for purposes of this Section 6.3(a) only, each Member's net decrease in Company Minimum Gain shall be determined prior to any other allocations pursuant to this Article VI with respect to such Fiscal Year and without regard to any net decrease in Company Minimum Gain during such Fiscal Year. (b) Notwithstanding any other provision of this Article VI except Section 6.3(a), if there is a net decrease in Member Minimum Gain attributable to a Member Nonrecourse Debt during any Fiscal Year each Member who has a share of the Member Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(5), shall be specially allocated items of Income for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Member's share of the net decrease in Member Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2)(ii). This Section 6.3(b) is intended to comply with the minimum gain chargeback requirement in Regulations Section 1.704-2(i)(4) and shall be interpreted consistently therewith. Solely for purposes of this Section 6.3(b), each Member's net decrease in Member Minimum Gain shall be determined prior to any other 18 24 allocations pursuant to this Article VI with respect to such Fiscal Year, other than allocations pursuant to Section 6.3(a). (c) In the event that any Member unexpectedly receives any adjustments, allocations or distributions described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Income shall be specifically allocated to each such Member in an amount and manner sufficient to eliminate, to the extent required by the Regulations, the Adjusted Capital Account Deficit of such Member as quickly as possible, provided that an allocation pursuant to this Section 6.3(c) shall be made if and only to the extent that such Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Article VI have been tentatively made as if this Section 6.3(c) were not in this Agreement. The foregoing provision is intended to comply with Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted and applied in a manner consistent with such Regulations. (d) In the event that any Member has an Adjusted Capital Account Deficit at the end of any Fiscal Year, then each such Member shall be specially allocated items of Income in the amount of such excess as quickly as possible, provided that an allocation pursuant to this Section 6.3(d) shall be made if and only to the extent that such Member would have an Adjusted Capital Account Deficit in excess of such sum after all other allocations provided for in this Article VI have been tentatively made as if this Section 6.3(d) were not in this Agreement. (e) Any item of Nonrecourse Deduction shall be allocated to the Members in accordance with their then respective Percentage Interests. (f) Any Member Nonrecourse Deductions for any Fiscal Year or other period shall be specially allocated to the Member who bears the economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in accordance with Regulations Section 1.704-2(i). (g) To the extent an adjustment to the adjusted tax basis of any Company asset is required to be taken into account in determining Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m), the amount of such adjustment to the Capital Account 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 Members in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such Regulations Section. (h) Any special allocation of items of income or gain pursuant to Section 6.3(a), (b), (c) or (d) shall be taken into account in computing subsequent allocations pursuant to this Article VI, so that the net amount of any items allocated to each Member shall, to the extent practicable, be equal to the net amount that would have been allocated to each such Member pursuant to the provisions of this Article VI if such special allocations under this Section 6.3 had not occurred. Section 6.4 Allocation with Respect to Transferred Interests. Each item of Income or Loss allocable to a Member's Interest that is transferred in whole or in part during any 19 25 Fiscal Year shall, if permitted by law, be allocated on a daily basis according to the varying Percentage Interests of the Members during such year. Section 6.5 Section 704(c) Allocations. In accordance with Section 704(c) of the Code and the Regulations thereunder, Income and Loss with respect to any property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its fair market value at the time of contribution. Any elections or decisions relating to such allocations shall be made by the Tax Matters Member in a manner that reasonably reflects the purpose and intention of this Agreement. Allocations pursuant to this Section 6.5 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 Member's Capital Account or share of profits, losses, other items or distributions pursuant to any provision of this Agreement. ARTICLE VII DISTRIBUTIONS Section 7.1 Distribution of Distributable Funds. Except as provided in Section 10.3, Distributable Funds, if any, shall be distributed to the Members not less frequently than each fiscal quarter and at the times determined by the Management Committee as follows: (a) First, to Novartis until Novartis has received cumulative distributions for the current Fiscal Year and all prior Fiscal Years equal to the Novartis Preferred Return for all such Fiscal Years. (b) Second, remaining Distributable Funds shall be distributed as follows: (i) 70% to Novartis and 30% to Noven until the cumulative amount distributed to the Members under this Section 7.1(b)(i) equals the amount of Net Income allocated to the Members for all prior Fiscal Years under Section 6.1(a)(ii)(A) plus an amount equal to the product of $30,000,000 multiplied by the Vivelle Quarterly Net Income Ratio; (ii) 60% to Novartis and 40% to Noven until the cumulative amount distributed to the Members under this Section 7.1(b)(ii) equals the amount of Net Income allocated to the Members for all prior Fiscal Years under Section 6.1(a)(ii)(B) plus an amount equal to the product of $10,000,000 multiplied by the Vivelle Quarterly Net Income Ratio; and (iii) Thereafter, to the Members in proportion to their respective Percentage Interests. 20 26 Section 7.2 Year End True-Up. If after the fourth quarter the cumulative amount of distributions to a Member made pursuant to Section 7.1 exceed the amount that such Member would have received if funds were distributed only annually at the end of the Fiscal Year, such Member shall promptly remit the excess to the Company. The Company shall promptly distribute the amounts that it receives pursuant to the preceding sentence so that each Member receives the amount of Distributable Funds such Member would have received if distributions had been made only at the end of the Fiscal Year rather than quarterly. Section 7.3 Guaranteed Payment to Novartis. Amounts payable by the Company to Novartis pursuant to the terms of the Sublicense Agreement shall be a "guaranteed payment" for capital provided by Novartis to the Company within the meaning of Code Section 707(c). ARTICLE VIII BOOKS, RECORDS, TAX MATTERS AND BANK ACCOUNTS Section 8.1 Books and Records. The Company shall maintain or cause to be maintained accurate books and records of account in accordance with generally accepted accounting principles in the United States, consistently applied. The books and records shall be maintained at the Company's principal office or at a location designated by the Members, and all such books and records shall be available to any Member at such location for review and copying, at such Member's sole cost and expense, during normal business hours on at least twenty-four (24) hours prior notice. No later than thirty (30) days after the end of each month and Fiscal Year, the President shall prepare and deliver to the Members a balance sheet at the end of such month or Fiscal Year and an income statement, cash flow statement and statement of Members' Capital Accounts for such month or Fiscal Year. All Fiscal Year-end financial statements shall be audited by Coopers & Lybrand, L.L.P. or such other firm of independent certified public accountants approved by the Management Committee. Section 8.2 Tax Matters Member. Novartis is hereby designated as the "tax matters partner" of the Company, as defined in Section 6231(a)(7) of the Code (the "Tax Matters Member"). Except as otherwise provided in this Agreement, all elections required or permitted to be made by the Company under the Code or state or local tax law shall be timely determined and made by Novartis. In addition, upon the request of any Member, the Company shall make an election pursuant to Code Section 754 to adjust the basis of the Company's property in the manner provided in Code Sections 734(b) and 743(b); provided, however, that any costs incurred in connection with such election shall be borne by the requesting Member. The Company hereby indemnifies and holds harmless Novartis from and against any claim, loss, expense, liability, action or damage resulting from its acting or its failure to take any action as the Tax Matters Member, provided that any such action or failure to act does not constitute gross negligence or willful misconduct. The Tax Matters Member shall not file any return prior to the review by, and the consent to the filing thereof by, Noven, which consent shall not be unreasonably withheld or delayed. 21 27 Section 8.3 Bank Accounts. All funds of the Company are to be deposited in the Company's name in such bank account or accounts as may be designated by the Management Committee, and shall be withdrawn on the signature of such Person or Persons as the Management Committee may authorize. Section 8.4 Accounting Method. The Company's books of account shall be maintained in accordance with U.S. generally accepted accounting principles consistently applied throughout the periods indicated ("GAAP"). ARTICLE IX SALE, ASSIGNMENT, TRANSFER OR OTHER DISPOSITION Section 9.1 General Restriction. Except as otherwise provided in this Article IX, neither Member shall Transfer, directly or indirectly, all or any part of its Interest without the written consent of the other Member, and any attempt to so Transfer such Interest without the written consent of the other Member shall be null and void and of no effect. Section 9.2 Permitted Transfers. A Member may Transfer its Interest to a wholly owned subsidiary of such Member. Novartis' Interest may be Transferred to an Affiliate and may be Transferred in connection with a merger or acquisition of Novartis. Section 9.3 Admission of Transferee. No Transfer shall be permitted unless such Transfer is made in compliance with Section 9.1 and the potential transferee is admitted as a Member under this Section 9.3. If a Member Transfers all or any portion of its Interest in compliance with Section 9.1, such transferee may become a Member if (i) such transferee agrees in writing to be bound by the terms of this Agreement, (ii) the transferor and/or transferee pays all reasonable legal and other fees and expenses incurred by the Company in connection with such Transfer and (iii) the transferor and transferee execute and deliver such documents and certificates as may be required by applicable law or otherwise reasonably requested by the Company or any Member. Section 9.4 Withdrawals. Each of the Members does hereby covenant and agree that it will not withdraw, resign, retire or dissociate from the Company, except as a result of a Transfer of its entire Interest in the Company permitted under the terms of this Agreement, and that it will carry out its duties and responsibilities hereunder until the Company is terminated, liquidated and dissolved under Article X. No Member shall be entitled to receive any distribution or otherwise receive the fair market value of its Interest as a result of any purported resignation or withdrawal not in accordance with the terms of this Agreement. Section 9.5 Buy/Sell. At any time following the second anniversary of the date of this Agreement, either Member may purchase from or sell to the other Member for cash, all, but not less than all, of such Member's Interest in the manner set forth below: 22 28 (a) Such Member (the "Offeror") shall serve upon the other Member (the "Offeree") a notice (the "Offering Notice") which shall contain the following terms: (1) a statement of intent to rely on this Section 9.5; and (2) the aggregate dollar amount (the "Specified Valuation Amount") which the Offeror would be willing to pay in cash for 100% of the Interests in the Company as of the date of the Offering Notice (b) The Offeree may elect to do one of the following and such option may be exercised at any time within forty-five (45) days after the Offeree's receipt of the Offering Notice: (1) to sell all, but not less than all, of the Offeree's Interest to the Offeror for a cash purchase price equal to the product of (X) the Specified Valuation Amount and (Y) the Offeree's Percentage Interest; or (2) to purchase all, but not less than all, of the Offeror's Interest for a cash purchase price equal to the product of (X) the Specified Valuation Amount and (Y) the Offeror's Percentage Interest. (c) If the Offeree does not exercise either of the options set forth above within such forty-five (45) day period, then, as of the day following the expiration of such period, the Offeree shall conclusively be deemed to have elected to sell the Offeree's Interest. (d) The election (or deemed election) of the Offeree shall be irrevocable and binding on the Offeror and the Offeree, and the sale, purchase and transfer of (and payment for) the relevant Interest (the "Closing") shall be completed according to the following procedure: (i) The purchasing Member shall send a written notice to the selling Member (the "Closing Notice") specifying the date on which the Closing is to occur (the "Closing Date"), which date shall be within sixty (60) days after delivery of the Offeree's response (or after the termination of the forty-five (45) day period, as the case may be); but may be postponed as appropriate to obtain any necessary governmental consents or approvals or to allow termination of the Hart-Scott-Rodino Antitrust Improvement Act of 1976 (the "HSR Act") waiting period, in which case the Closing Date shall be the fifth business day following receipt of the last such consent or approval or termination of the HSR Act waiting period; (ii) The Closing shall take place at 10:00 a.m., local time, on the date specified in the Closing Notice at the offices of White & Case LLP, 1155 Avenue of the Americas, New York, New York 10036, or at such other place and time as the parties may mutually agree; (iii) If the Offeror is the purchaser, the Offeror shall on the Closing Date pay by wire transfer to the account of the Offeree the full purchase price for the Offeree's Interests, and the Offeree shall execute and deliver all documents 23 29 necessary to transfer its Interests to the Offeror; If the Offeree is the purchaser, the Offeree shall on the Closing Date pay by wire transfer to the account of the Offeror the full purchase price for the Offeror's Interests, and the Offeror shall execute and deliver all documents necessary to transfer its Interest to the Offeree; and (iv) If Noven is the purchaser of Novartis' Interest, Noven shall, at the Closing, pay Novartis by wire transfer an additional cash amount equal to the Present Value of Novartis' Preferred Return. (e) Both Novartis and Noven agree to file with the Federal Trade Commission and the Antitrust Division of the United States Department of Justice all required notification and report forms and other documents and exhibits required under the HSR Act to permit the purchase contemplated by this Section. (f) Both Novartis and Noven agree that (i) if the purchasing Member shall fail to pay for the selling Member's Interest on the Closing Date, absent default by the selling Member, the purchasing Member shall be liable to the selling Member for monetary damages and (ii) if the selling Member refuses to transfer its Interest to the purchasing Member on the Closing Date, absent default by the purchasing Member, the purchasing Member shall (without prejudice to any other rights the purchasing Member may have against the selling Member) be entitled to specific performance and injunctive and other equitable relief to enforce the performance of the selling Member's obligations under this Section. (g) Both Novartis and Noven agree that the sale of one Member's Interest to the other Member pursuant to this Section shall not in and of itself result in the dissolution of the Company. ARTICLE X DISSOLUTION Section 10.1 Limitations. The Company may be dissolved, liquidated or terminated only pursuant to the provisions of this Article X, and the parties hereto do hereby irrevocably waive any and all other rights they may have to cause a dissolution of the Company or a sale or partition of any or all of the Company's assets. Section 10.2 Dissolution Events. (a) The Company shall be dissolved upon (i) the later to occur of (A) the tenth anniversary of the date of this Agreement or (B) the expiration of the term of the License Agreement, which term may be extended by written agreement of Novartis and Noven; or (ii) the earlier to occur of (A) the unanimous vote of the Management Committee or (B) the entry of a decree of judicial dissolution pursuant to Section 18-802 of the Act. 24 30 (b) The Company may be dissolved by a Member upon the material breach by the other Member of this Agreement, the Restated License Agreement, the Sublicense Agreement, the Supply Agreement, the Assignment Agreement, the Trademark License or any of the Ancillary Agreements; provided that the non-breaching Member notifies the breaching Member in writing of such breach and the breaching Member does not cure the breach within thirty (30) days after receiving the notice. (c) The Company may be dissolved by either Member within ninety (90) days following the second anniversary of the date of this Agreement or within ninety (90) days following the third anniversary of the date of this Agreement in the event that the Company fails to have (i) sales of at least the lesser of (A) $20,000,000 or (B) 90% of the annual budget sales or (ii) profits sufficient to pay in full Novartis' Preferred Return for each such year; provided, however, that Noven may cure the condition described in (c)(ii) above by paying Novartis the difference between the Preferred Return and the portion of the Preferred Return paid to Novartis by the Company within thirty (30) days of receipt of written notice of such deficiency. (d) The Company may be dissolved by Novartis: (i) if before the second anniversary of the date of this Agreement there has been a Change of Control of Noven, or thereafter if there has been a Change of Control of Noven and the acquiring Person is one of the top ten pharmaceutical companies (as measured by annual dollar sales as computed by IMS or other comparable data for the most recent calendar year for which statistics are available); or (ii) if before the second anniversary of the date of this Agreement, Noven shall terminate the employment of its Key Personnel "without Cause" or its Key Personnel is caused to leave Noven's employment for "Good Reason," each as defined in that certain Employment Agreement dated as of December 14, 1997 by and between Noven and Robert C. Strauss. Section 10.3 Liquidation. In all cases of dissolution of the Company, the business of the Company shall be continued to the extent necessary to allow an orderly winding up of its affairs, including the liquidation of the assets of the Company pursuant to the provisions of this Section 10.3, as promptly as practicable thereafter, and each of the following shall be accomplished: (a) The Management Committee shall cause to be prepared a statement setting forth the assets and liabilities of the Company as of the date of dissolution, a copy of which statement shall be furnished to all of the Members. (b) The property of the Company shall be liquidated or distributed in kind under the supervision of the Management Committee as promptly as possible, but in an orderly, businesslike and commercially reasonable manner. The Management Committee may, in the exercise of its business judgment and if commercially reasonable or required by a prior agreement of the Members or the Company determine (i) to sell all or any portion of the property of the 25 31 Company to a Member, provided that the purchase price is not less than the fair market value of such property as determined in good faith by the Management Committee or its designee, or to any other Person or (ii) not to sell all or any portion of the property of the Company, in which event such property and assets shall be distributed in kind pursuant to Section 10.3(d). (c) Any gain or loss realized by the Company upon the sale of its property shall be deemed recognized and allocated to the Members in the manner set forth in Article VI. To the extent that an asset is to be distributed in kind, such asset shall be deemed to have been sold at its fair market value on the date of distribution, the gain or loss deemed realized upon such deemed sale shall be allocated in accordance with Article VI and the amount of the distribution shall be considered to be such fair market value of the asset. (d) The proceeds of sale and all other assets of the Company shall be applied and distributed as follows and in the following order of priority: (i) to the payment of the debts and liabilities of the Company and the expenses of liquidation or distribution; (ii) to the setting up of any reserves which the Management Committee shall determine to be reasonably necessary for contingent, unliquidated or unforeseen liabilities or obligations of the Company or the Members arising out of or in connection with the Company; and (iii) the balance, if any, to the Members having positive Capital Account balances (after all adjustments thereto otherwise required hereunder) proportionately to their respective positive Capital Account balances (as so adjusted); provided, however, that, in the discretion of the Management Committee, sale proceeds and assets to be distributed in kind need not be distributed pro rata so long as the aggregate distributions are in the amounts set forth in this Section 10.3(d)(iii). Section 10.4 Termination of Licenses and Know-How. Upon the dissolution and liquidation of the Company, any licenses or know-how granted by a Member to the Company shall terminate and revert back to the Member granting such license or know-how, and neither the Company nor any other Member shall have any right, interest or obligation with respect thereto except as expressly set forth in such license or grant. ARTICLE XI EXCULPATION AND INDEMNIFICATION Section 11.1 Exculpation of Members. No Member shall be liable to the Company or to the other Members for damages or otherwise with respect to any actions taken or not taken in good faith and reasonably believed by such Member to be in or not opposed to the best interests of the Company except to the extent any related loss results from fraud, gross 26 32 negligence or willful or wanton misconduct on the part of such Member or the material breach of any obligation under this Agreement or of the fiduciary duties owed to the Company or the other Members by such Member. Section 11.2 1 Indemnification by Company. The Company shall indemnify, hold harmless and defend the Members, the Managers and all their respective agents and employees from and against any loss, expense, damage or injury suffered or sustained by them by reason of any acts or omissions arising out of their activities on behalf of the Company or in furtherance of the interests of the Company, including but not limited to any judgment, award, settlement, reasonable attorneys' fees and other costs or expenses incurred in connection with the defense of any actual or threatened action, proceeding or claim, if the acts or omissions were not performed or omitted fraudulently or as a result of gross negligence or willful misconduct by the indemnified party. Reasonable expenses incurred by the indemnified party in connection with any such proceeding relating to the foregoing matters may be paid or reimbursed by the Company in advance of the final disposition of such proceeding upon receipt by the Company of (i) written affirmation by the Person requesting indemnification of its good faith belief that it has met the standard of conduct necessary for indemnification by the Company and (ii) a written undertaking by or on behalf of such Person to repay such amount if it shall ultimately be determined by a court of competent jurisdiction that such Person has not met such standard of conduct, which undertaking shall be an unlimited general obligation of the indemnified party but need not be secured. ARTICLE XII DISPUTE RESOLUTION Section 12.1 Dispute Settlement. The parties hereto shall use their best efforts to resolve any dispute arising out of or in connection with this Agreement by good faith negotiation and mutual agreement. Upon written notice of the chief executive officer ("CEO") of a party, the CEOs of each party shall meet at a mutually convenient time and place to attempt to resolve any such dispute. However, in the event that the CEOs of the parties hereto are unable to resolve any dispute arising out of or in connection with this Agreement, such parties shall first attempt to settle such dispute through a non-binding mediation proceeding as set forth in Section 12.2. In the event any party to such mediation proceeding is not satisfied with the results thereof, then any unresolved disputes shall be finally settled in accordance with an arbitration proceeding as set forth in Section 12.3. In no event shall the results of any mediation proceeding be admissible in any arbitration or judicial proceeding. Section 12.2 Mediation. Mediation proceedings shall be conducted in accordance with the Commercial Mediation Rules of the American Arbitration Association (the "AAA") in effect on the date the notice of mediation was served, other than as specifically modified herein, and shall be non-binding on the parties thereto. (a) Any party may commence a mediation proceeding by serving written notice thereof to the other party or parties, by mail or otherwise, designating one executive officer of 27 33 such notifying party, which executive officer must be, in title, at least one management level above the person(s) directly involved in the dispute on behalf of such party (an "Eligible Representative"), to be its representative in the mediation proceeding and designating the issue(s) to be mediated and the specific provisions of this Agreement under which such issue(s) and dispute arose. The initiating party shall simultaneously file two copies of the notice with the AAA, along with a copy of this Agreement. (b) Within ten (10) business days of receipt of such notice, each other party shall designate, in writing, to the other party or parties an Eligible Representative to be its representative in the mediation proceeding (such representatives and the representative of the original notifying party are collectively referred to herein as the "Representatives"). (c) The Representatives shall select one neutral third party AAA mediator (the "Mediator") with expertise in the pharmaceutical industry. If a Mediator has not been selected within five (5) business days thereafter, then a Mediator with expertise in the pharmaceutical industry shall be selected by the AAA in accordance with the Commercial Mediation Rules of the AAA. (d) The Mediator shall schedule sessions, as necessary, for the presentation by all Representatives of their respective positions, which, at the option of the Mediator, may be heard by the Mediator jointly or in private, without any other Representatives present. The mediation proceeding shall be held in New York, New York or such other place as agreed by the Mediator and all of the Representatives. The Representatives may submit to the Mediator, no later than ten (10) business days prior to the first scheduled session, a brief memorandum in support of their position. (e) The Mediator shall make written recommendations for settlement in respect of the dispute within ten (10) business days of the last scheduled session. If any Representative involved is not satisfied with the recommendation for settlement, it may commence an arbitration proceeding in accordance with Section 12.3. Section 12.3 Arbitration.(a) Arbitration proceedings shall be conducted under the Rules of Commercial Arbitration of the AAA (the "Rules"). The arbitration panel shall consist of three arbitrators. One such arbitrator shall be selected by Novartis ("Novartis' Arbitrator"). One arbitrator will be selected by Noven ("Noven's Arbitrator"). These arbitrators shall be selected by the respective parties within ten business days after receipt by either Novartis or Noven of a written notification from the other party of a decision to arbitrate a dispute pursuant to this Agreement. Should either Novartis or Noven fail to select an arbitrator within said ten-business day period, the party who so fails to select an arbitrator will have its arbitrator selected by the AAA upon the application of the other party. The third arbitrator shall be selected by Novartis' Arbitrator and Noven's Arbitrator. Such third arbitrator shall be the chairperson of the panel. If said arbitrators cannot agree upon a third arbitrator within thirty days from the date of appointment of the last selected arbitrator, then either Novartis' Arbitrator or Noven's Arbitrator may apply to the AAA to appoint said third arbitrator. Any arbitrator who is selected shall disclose promptly to the AAA and to both parties any financial or personal interest the arbitrator may have in the result of the arbitration and/or any other prior or current relationship, or expected 28 34 or discussed future relationship, with the parties or their representatives. The arbitration panel shall promptly conduct proceedings to resolve the dispute in question pursuant to the then existing Rules. To the extent any provisions of the Rules conflict with any provision of this Section 12.3, the provisions of this Section 12.3 shall control. (b) Novartis and Noven agree to facilitate the arbitration by each paying to the AAA one-half of the required deposit before commencement of the proceedings. In any final award and/or order, the arbitration panel shall apportion all the costs (other than attorney's fees which shall be borne by the party incurring such fees) incurred in conducting the arbitration in accordance with what the arbitration panel deems just and equitable under the circumstances. (c) Novartis and Noven agree to facilitate the arbitration proceedings by making available to one another and to the arbitration panel, for inspection and photocopying, all documents, books and records, if determined by the arbitration panel to be relevant to the dispute, and by making available to one another and to the arbitration panel personnel directly or indirectly under their control, for testimony during hearings if determined by the arbitration panel to be relevant to the dispute. Novartis and Noven agree, unless undue hardship exists, to agree to conduct arbitration hearings to the greatest extent possible on consecutive business days and to strictly observe time periods established by the Rules or by the arbitration panel for the submission of evidence and of briefs. Unless otherwise agreed to by Novartis and Noven, a stenographic record of the arbitration proceedings shall be made and a transcript thereof shall be ordered for each party, with each party paying one-half of the total cost of such recording and transcription. (d) The arbitration panel shall have all powers of law and equity, which it can lawfully assume, necessary to resolve the issues in dispute including, without limiting the generality of the foregoing, making awards of compensatory damages, issuing both prohibitory and mandatory orders in the nature of injunctions and compelling the production of documents and witnesses for presentation at the arbitration hearings on the merits of the case. The arbitration panel shall neither have nor exercise any power to act as amicable compositeur or ex aequo et bono; or to award special, indirect, consequential or punitive damages. The decision of the arbitration panel shall be in written form and state the reasons upon which it its based. The statutory, case law and common law of the State of Delaware shall govern in interpreting their respective rights, obligations and liabilities arising out of or related to the transactions provided for or contemplated by this Agreement, including without limitation, the validity, construction and performance of all or any portion of this Agreement, and the applicable remedy for any liability established thereunder, and the amount or method of computation of damages which may be awarded, but such governing law shall not include the law pertaining to conflicts or choice of laws of Delaware; provided however, that should the parties refer a dispute arising out of or in connection with an Ancillary Agreement or an agreement between the Company and either Noven or Novartis which specifically references this Article, then the statutory, case law and common law of the State whose law governs such agreement (except the law pertaining to conflicts or choice of law) shall govern in interpreting the respective rights, obligations and liabilities of the parties arising out of or related to the transactions provided for or contemplated by such agreement, including, without limitation, the validity, construction and performance of all or any portion of such agreement, and the applicable remedy for any liability established thereunder, and the amount or method of computation of damages which may be awarded. 29 35 (e) Should any term or provision of this Section 12.3 be held invalid, the remainder of this Section shall be valid and enforceable. Any party may seek enforcement of this Section by application to the United States District Court for the Southern District of New York, for such relief as shall be necessary or reasonably required to implement the provisions of this Section 12.3 (f) Unless the parties otherwise agree, the venue of arbitration proceedings conducted pursuant to this Section 12.3 shall be Wilmington, Delaware. ARTICLE XIII MISCELLANEOUS Section 13.1 Notices. All notices, requests, demands and other communications hereunder shall be given in writing and shall be: (a) personally delivered; (b) sent by telecopier, facsimile transmission or other electronic means of transmitting written documents; or (c) sent to the Members at their respective addresses indicated herein by registered or certified U.S. mail, return receipt requested and postage prepaid, or by private overnight mail courier service. The respective addresses to be used for all such notices, demands or requests are as follows: (a) If to Noven, to: Noven Pharmaceuticals, Inc. 11960 S.W. 144th Street Miami, FL 33186 Attention: Mr. Robert C. Strauss, President and Chief Executive Officer Telephone: (305) 253-5099 Facsimile: (305) 232-1836 with a copy to: Foley & Lardner 3000 K Street, N.W. Suite 500 Washington, D.C. 20007 Attention: Sybil Meloy, Esq. Telephone: (202) 672-5300 Facsimile: (202) 672-5399 or to such other person or address as Noven shall furnish to Novartis in writing. 30 36 (b) If to Novartis, to: Novartis Pharmaceuticals Corporation 59 Route 10 East Hanover, NJ 07936 Attention: Office of the CEO Telephone: (973) 781-8005 Facsimile: (973) 781-7036 with copies to: Novartis Pharmaceuticals Corporation 59 Route 10 East Hanover, NJ 07936 Attention: Thomas Kendris, Esq., Legal Department Telephone: (973) 781-5234 Facsimile: (973) 781-6477 and White & Case LLP 1155 Avenue of the Americas New York, NY 10036 Attention: William F. Wynne, Jr., Esq. Telephone: (212) 819-8200 Facsimile: (212) 354-8113 or to such other person or address as Novartis shall furnish to Noven in writing. If personally delivered, such communication shall be deemed delivered upon actual receipt; if electronically transmitted pursuant to this paragraph, such communication shall be deemed delivered on the day transmitted unless it is received after 5:00 p.m., New York time, or on a day which is not a business day, in which case it shall be deemed delivered on the next business day after transmission (and sender shall bear the burden of proof of delivery); if sent by overnight courier pursuant to this paragraph, such communication shall be deemed delivered upon receipt; and if sent by U.S. mail pursuant to this paragraph, such communication shall be deemed delivered as of the date of delivery indicated on the receipt issued by the relevant postal service, or, if the addressee fails or refuses to accept delivery, as of the date of such failure or refusal. Either Member may change its address for the purposes of this Agreement by giving notice thereof in accordance with this Section. Section 13.2 Governing Law. This Agreement and the rights of the Members hereunder shall be governed by, and interpreted in accordance with, the laws of the State of Delaware. Section 13.3 Successors. This Agreement shall be binding upon, and inure to, the benefit of the parties and their successors and permitted assigns. Section 13.4 Construction. Whenever from the context it appears appropriate, each term stated in either the singular or the plural shall include the singular and the plural, and 31 37 pronouns stated in either the masculine, the feminine or the neuter gender shall include the masculine, feminine and neuter. Section 13.5 Table of Contents and Captions Not Part of Agreement. The table of contents and captions contained in this Agreement are inserted only as a matter of convenience and in no way define, limit or extend the scope or intent of this Agreement or any provisions hereof. Section 13.6 Severability. If any provision of this Agreement shall be held invalid, illegal or unenforceable in any jurisdiction and in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired, and the Members undertake to implement all efforts which are necessary, desirable and sufficient to amend, supplement or substitute all and any such invalid, illegal or unenforceable provisions with enforceable and valid provisions which would produce as nearly as may be possible the economic result previously intended by the Members without renegotiation of any material terms and conditions stipulated herein. Section 13.7 Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be as effective as delivery of a manually executed counterpart of this Agreement. Section 13.8 Entire Agreement and Amendment. This Agreement constitutes the entire agreement between the Members with respect to the subject matter set forth herein. The Members hereto may amend this Agreement at any time, but no amendment shall be effective unless it is in writing and duly executed by all of the Members. Section 13.9 Further Assurances. Each Member agrees to execute and deliver any and all additional instruments and documents and do any and all acts and things as may be necessary or expedient to effectuate more fully this Agreement and carry on the business contemplated hereunder. Section 13.10 No Third Party Rights. The provisions of this Agreement are for the exclusive benefit of the Members and the Company, and no other party (including without limitation, any creditor of the Company) shall have any right or claim against any Member by reason of those provisions or be entitled to enforce any of those provisions against any Member. Section 13.11 Incorporation by Reference. Every Exhibit, Schedule and Annex attached to this Agreement and the Formation Agreement is incorporated in this Agreement by reference unless this Agreement otherwise expressly provides. Section 13.12 Limitation on Liability. The Members shall not be bound by, or be personally liable for, by reason of being a Member, a judgment, decree or order of a court or in any other manner, for the expenses, liabilities or obligations of the Company, and the liability of 32 38 each Member with respect to the obligations of the Company shall be limited solely to the amount of its Capital Contributions as provided under Article III. Section 13.13 Remedies Cumulative. The rights and remedies given in this Agreement and by law to a Member shall be deemed cumulative, and the exercise of one of such remedies shall not operate to bar the exercise of any other rights and remedies reserved to a Member under the provisions of this Agreement or given to a Member by law. Section 13.14 No Waiver. One or more waivers of the breach of any provision of this Agreement by any Member shall not be construed as a waiver of a subsequent breach of the same or any other provision, nor shall any delay or omission by a Member to seek a remedy for any breach of this Agreement or to exercise the rights accruing to a Member by reason of such breach be deemed a waiver by a Member of its remedies and rights with respect to such breach. Section 13.15 Investment Representations. Each Member agrees and mutually represents to the other Members as follows: (a) The Members understand: (i) that the Interests evidenced by this Agreement have not been registered under the Securities Act of 1933, as amended, the Delaware Securities Act or any other state securities laws (the "Securities Acts") because the Company is issuing these Interests in reliance upon the exemptions from the registration requirements of the Securities Acts providing for issuance of securities not involving a public offering; (ii) that the Company has relied upon the fact that the Interests are to be held by each Member for investment; and (iii) that exemption from registration under the Securities Acts may not be available if the Interests were acquired by a Member with a view to distribution. (b) Accordingly, each Member hereby confirms to the other Members that such Member is acquiring the Interests for the Member's own account, for investment and not with a view to the resale or distribution thereof. (c) Before acquiring an Interest, each Member has investigated the Company and its business and has had made available to it all information necessary for the Member to make an informed decision to acquire the Interest. Each Member considers itself to be a Person possessing experience and sophistication as an investor adequate for the evaluation of the merits and risks of the Member's investment in the Interest. 33 39 IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement as of the date and year first above written. NOVARTIS PHARMACEUTICALS CORPORATION By: /s/ Wayne P. Yetter ------------------------------------ Title: President and Chief Executive Officer NOVEN PHARMACEUTICALS, INC. By: /s/ Robert C. Strauss ------------------------------------ Title: President and Chief Executive Officer 40 SCHEDULE 1 MEMBERS AND INITIAL CAPITAL ACCOUNT BALANCES
Member Name Initial Capital Account ----------- ----------------------- Novartis Pharmaceuticals Corporation $7,806,122 Noven Pharmaceuticals, Inc. $7,500,000
41 SCHEDULE 2 INITIAL MEMBERS OF THE MANAGEMENT COMMITTEE Debra E. Freire Kenneth P. Schuster Milton H. Grannatt Robert C. Strauss Steven Sablotsky EX-10.34 4 MARKETING & PROMOTIONAL AGREEMENT 1 EXHIBIT 10.34 ================================================================================ MARKETING AND PROMOTIONAL SERVICES AGREEMENT BY AND BETWEEN NOVEN PHARMACEUTICALS INC. AND VIVELLE VENTURES LLC Dated as of May 1, 1998 ================================================================================ 2 MARKETING AND PROMOTIONAL SERVICES AGREEMENT This Marketing and Promotional Services Agreement (the "Agreement") is made this 1st day of May, 1998, by and between Noven Pharmaceuticals Inc., a Delaware corporation ("Noven") and Vivelle Ventures LLC, a Delaware limited liability company (such entities hereafter also referred to individually as a Party or collectively as the "Parties"). W I T N E S S E T H: WHEREAS, Noven and Novartis Pharmaceuticals Corporation, a Delaware corporation ("Novartis") have entered into a Formation Agreement dated as of May 1, 1998 (the "Formation Agreement"), whereby they have formed Vivelle Ventures LLC for the purpose of creating a platform to maintain and grow a franchise in women's health, focusing initially on the manufacture, marketing and sale of the 17 Beta-estradiol single active ingredient product in a transdermal matrix currently being marketed by Novartis under the trademark "Vivelle" pursuant to the License Agreement; WHEREAS, in connection with the formation of Vivelle Ventures LLC, Noven has agreed to enter into this Agreement to provide marketing, sales, promotional and related services to Vivelle Ventures LLC. NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements contained herein, and intending to be legally bound hereby, the Parties agree as follows: ARTICLE I DEFINITIONS AND PRINCIPLES OF CONSTRUCTION Section 1.1 Definitions. For purposes of this Agreement, the following terms shall be defined as follows: "Affiliate" of any Person means any other entity or Person controlling, controlled by, or under common control with, such entity or Person. For purposes of this definition, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether by ownership of voting securities, by contract or otherwise. "Approval" means any and all approvals, registrations, licenses, authorizations, visas, price approvals, drug identification numbers, or permits required by any GRB within the Territory in order to import, offer for sale, sell, market, manufacture, have made or use the Product in the Territory. 3 "Consent" means any approval, waiver or authorization of, or filing or registration with, or notification to, any Person. "Direct Costs and Expenses" means all fixed and variable costs and expenses, including overhead, determined in accordance with generally accepted accounting principles in effect in the United States consistently applied, incurred by Noven in connection with providing the Services contemplated under this Agreement. "Distribution and Services Agreement" means that certain Distribution and Services Agreement dated as of May 1, 1998 by and between Novartis and Vivelle Ventures LLC. "Formation Agreement" means the Formation Agreement dated as of May 1, 1998 between Noven and Novartis. "GRB" means the U.S. Food and Drug Administration or any other government regulatory body of a country where the Product is to be sold or distributed which has authority over clinical testing, manufacturing, marketing and sale of pharmaceutical products. "GMP" means good manufacturing practice as required by GRB regulations. "Governmental Authority" means any court, agency or commission or other governmental authority or instrumentality, whether domestic or foreign. "Internal Accounts" shall have the meaning set forth in Section 4.4 hereof. "License Agreement" means that certain Restated License Agreement dated as of November 15, 1991 by and between Noven, as licensor, and Ciba, as licensee, the rights and obligations of Ciba pursuant to which Novartis has assumed as the successor-in-interest to Ciba. "Limited Assignment Agreement" means that certain Limited Assignment Agreement dated as of May 1, 1998 by and among Novartis, Noven and Vivelle Ventures LLC. "Operating Agreement" means that certain operating agreement of Vivelle Ventures LLC dated as of May 1, 1998. "Person" means any individual, firm, corporation, partnership or other entity. "Product" means Vivelle. "Product Application" means a formal application seeking approval to manufacture, market and sell a Product within a country in the Territory submitted by Vivelle Ventures LLC to the appropriate GRB under applicable laws, or such application owned by Vivelle Ventures LLC, including any Abbreviated New Drug Application (ANDA) or New Drug Application (NDA), as defined in the U.S. Federal Food, Drug and Cosmetic Act and applicable regulations promulgated thereunder, as such are from time to time amended. - 2 - 4 "Product Packaging" means the packaging and trade dress of the Product as determined by Vivelle Ventures LLC including the proprietary marks of the Product licensed to Vivelle Ventures LLC by Novartis pursuant to the Trademark License. "Product Specification" means Vivelle Ventures LLC's specifications for the Product as set forth in the applicable Product Application, as such specification may be amended from time to time, either by Vivelle Ventures LLC itself or in response to directives issued by a relevant Governmental Authority. "Services" means those marketing, promotional, sales and related services provided to Vivelle Ventures LLC by Noven or Noven's Affiliates or designees pursuant to this Agreement as set forth in Schedule A hereto, as such Schedule may be amended from time to time, or such other services as Noven and Vivelle Ventures LLC may agree. "Supply Agreement" means that certain Supply Agreement dated as of August 31, 1995 by and between Noven and Ciba, the rights and obligations of Ciba pursuant to which Novartis has assumed as the successor-in-interest to Ciba. "Territory" means the United States, its territories and possessions. "Trademark License" means the Trademark License Agreement between Novartis and Vivelle Ventures LLC dated as of May 1, 1998 whereby Novartis has granted a license to Vivelle Ventures LLC to market, distribute and sell pharmaceutical products bearing the Vivelle trademark. "Vivelle" means the 17 Beta-estradiol single active ingredient product in a matrix which Novartis has been marketing and will continue to market up through the Closing Date (as defined in the Formation Agreement) under the trademark Vivelle pursuant to the License Agreement. "Vivelle II" means the second generation product of Vivelle which has been designated by Noven as G2E2. Section 1.2 Monetary Terms. All monetary terms set forth herein are expressed in U.S. dollars. Section 1.3 Hereof. The words "hereof," "herein," "hereto," "hereunder" and "hereinafter" and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Section 1.4 Plural and Singular. The terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa. Section 1.5 Including. The word "including" shall mean including, without limitation, and the words include and "includes" shall have corresponding meanings. - 3 - 5 ARTICLE II PURPOSE Section 2.1 Purpose. This Agreement sets forth an identification of the Services and the terms and conditions under which Noven shall provide such Services to Vivelle Ventures LLC within the Territory. ARTICLE III SERVICES Section 3.1 Services. At the direction of Vivelle Ventures LLC, Noven shall provide, or cause a Noven Affiliate to provide, Vivelle Ventures LLC with Services in connection with the business of Vivelle Ventures LLC, as set forth in Schedule A, as may be amended from time to time by mutual agreement of Noven and Vivelle Ventures LLC. Noven agrees to provide the Services (or cause the Services to be provided by an Affiliate) in a competent manner consistent with industry standards for like services performed by third parties on their own behalf. Section 3.2 Timing Of Performance. Noven and/or its Affiliates furnishing Services under this Agreement shall use commercially reasonable efforts to provide the Services in a timely manner; provided, however, that neither Noven nor any of its Affiliates shall be liable to Vivelle Ventures LLC and/or any of its Affiliates for any delay damages or penalties. Section 3.3 Independent Contractor. At all times during the term hereof, Noven shall be an independent contractor in providing Services hereunder with the sole right to supervise, manage, operate, control, and direct the performance of such Services and the sole obligation to employ, compensate, and manage its employees and business affairs. Nothing contained in this Agreement shall be deemed or construed to create a partnership or joint venture, to create the relationships of employee/employer or principal/agent, or otherwise create any liability whatsoever of either Party with respect to the indebtedness, liabilities, obligations or actions of the other or any of their employees or agents, or any other person or entity. Section 3.4 Adverse Incident Reporting. During the term of this Agreement, each party shall immediately notify the other of any information (howsoever obtained and from whatever source) concerning any unexpected side effect, injury, toxicity or sensitivity reaction, or any unexpected incidence, and the severity thereof, associated with the clinical uses, studies, investigations, testing and marketing of the Product. During such times, each Party shall further notify the other immediately of any information received regarding any threatened or pending action by any GRB which may affect the safety and efficacy claims of the Product. Upon receipt of any such information, the parties shall consult with each other in an effort to arrive at a mutually acceptable procedure for taking appropriate action; provided, however, that nothing contained herein shall be construed as restricting either party's right to make a timely report of - 4 - 6 such matter to any GRB or take other action that it deems to be appropriate or required by applicable law or regulation. Section 3.5 Documentation. Subject to confidentiality restrictions from third-parties and applicable laws and regulations relating to retention and/or disclosure of information, in the event that Novartis purchases all of Noven's Interest (as that term is defined in the Operating Agreement) in Vivelle Ventures LLC pursuant to Section 9.5 of the Operating Agreement, Noven shall promptly provide all the books, records, files, studies, correspondence and other documents created or received by Noven in the course of providing the Services to the extent such information does not disclose confidential, proprietary or commercial information relating to Noven's own business. ARTICLE IV COMPENSATION Section 4.1 Payment of Direct Costs and Expenses; Advances. (a) Noven shall not charge Vivelle Ventures LLC for providing Services but shall be reimbursed for all of Noven's Direct Costs and Expenses attributable to providing Services hereunder. Noven shall invoice Vivelle Ventures LLC and Vivelle Ventures LLC shall reimburse Noven for all such Direct Costs and Expenses on a monthly basis . (b) Vivelle Ventures LLC agrees to advance Noven funds on a monthly basis necessary to pay Noven's Direct Costs and Expenses attributable to the retention and operation of a contract sales force; provided that Noven (i) submits a written estimate of its projected Direct Costs and Expenses attributable to the foregoing and (ii) promptly remits to Vivelle Ventures LLC any advanced amounts not actually expended for the foregoing purpose. Section 4.2 Method and Timing of Payment. Any payment made by Vivelle Ventures LLC to Noven hereunder shall be made by wire transfer or, at the option of Noven, by check, in U.S. dollars to the account designated by Noven. Payment by Vivelle Ventures LLC shall be deemed to have been made as of the day on which such payment is received at the account designated by Noven. Unless otherwise specified herein, all monthly payments under this Agreement will be due no later than the first business day after the fifteenth (15th) day of the subject month. If Vivelle Ventures LLC fails to make a timely payment due under this Agreement, interest at an annual rate equal to the Yield of a Corporate Bond (as such term is defined in the Operating Agreement) plus 250 basis points shall accrue on the amount of payment for each day such payment is overdue, provided that such interest shall in no event exceed the maximum rate permitted by applicable law. Section 4.3 Withholding Taxes. Any withholding or other taxes that Vivelle Ventures LLC or any of its Affiliates are required by law to withhold or pay on behalf of Noven with respect to the payments to Noven under this Agreement shall be deducted from such payments to Noven and paid contemporaneously with the remittance to Noven; provided, - 5 - 7 however, that in regard to any tax so deducted Vivelle Ventures LLC shall furnish Noven with proper evidence of the taxes paid on its behalf. Noven will furnish Vivelle Ventures LLC with appropriate documents to secure application of the most favorable rate of withholding tax under applicable tax treaties. Section 4.4 Internal Accounts; Accounting Methodology. Noven shall initially apply its internal accounting principles and methodology in determining its Direct Costs and Expenses. The accounting principles and methodology used to determine Direct Costs and Expenses must be consistent with U.S. generally accepted accounting principles and shall be reviewed and approved by the Management Committee of Vivelle Ventures LLC prior to Noven providing any Services for which it will seek reimbursement. If Vivelle Ventures LLC disagrees as to the accounting principles or methodology adopted by Noven, it shall request Noven to make necessary changes or adjustments. If Noven objects to such changes or adjustments, the matter shall be submitted to dispute resolution in accordance with Article XII of the Operating Agreement. The accounting principles and methodology of Noven approved by Vivelle Ventures LLC shall be applied during the term of this Agreement, unless any material changes are made thereafter in which case a separate approval must be obtained from Vivelle Ventures LLC with respect to any material changes. The internal accounts (the "Internal Accounts") prepared by Noven applying the accounting principles and methodology approved by Vivelle Ventures LLC to Noven's Direct Costs and Expenses relating to Services provided hereunder, must be submitted to Vivelle Ventures LLC for approval by the Management Committee on an annual basis. Section 4.5 Books, Records and Inspection Rights. Noven shall maintain complete and accurate books and records in connection with the Services it provides to Vivelle Ventures LLC for the sole of purpose of documenting Direct Costs and Expenses. Upon reasonable written request of Vivelle Ventures LLC, Noven shall permit representatives of Vivelle Ventures LLC to inspect or to use an independent accounting firm to audit, in each case at Vivelle Ventures LLC's own expense, the Internal Accounts of Noven. Section 4.6 Market Rate for Services. In the event Vivelle Ventures LLC believes that the Direct Costs and Expenses for any Service provided under this Agreement substantially exceeds the market rate for said Services and provides Noven with appropriate evidence of the market rate for said Service, Noven shall at its sole discretion either provide said Service at the existing market rate or consent to Vivelle Ventures LLC contracting the service to a third party at the specified market rate. In the event that Noven consents to the Service being performed by a third party contractor, Noven shall be released from any obligation under this Agreement to provide said Service and Vivelle Ventures LLC shall agree to indemnify and hold Noven harmless for any loss incurred by Noven as a result of the third party providing said Service. - 6 - 8 ARTICLE V CONFIDENTIALITY Section 5.1 Confidentiality. (a) Each Party acknowledges that the information disclosed in connection with the activities contemplated hereunder may contain confidential information of the disclosing Party ("Confidential Information"), and that any such Confidential Information shall remain the property of the disclosing Party (such Party hereinafter referred to as the "Disclosing Party"). Each Party agrees, covenants and acknowledges that, except to the extent expressly permitted by this Agreement or as otherwise agreed to by the Parties in writing, from and after the date of this Agreement, it will not disclose, give, sell, use or otherwise divulge any Confidential Information received from the Disclosing Party (whether written or oral) which is marked as CONFIDENTIAL or orally indicated to be confidential and subsequently confirmed in writing as confidential within thirty (30) days after its disclosure. (b) Each Party agrees, covenants and acknowledges that from and after the date of this Agreement, it will exercise the same degree of care with respect to protecting the Confidential Information of the Disclosing Party as the care it exercises with respect to its own Confidential Information. (c) In the event a Party or its respective employees, officers, directors or advisors, who have received Confidential Information (hereafter the "Recipient"), become legally compelled to disclose any Confidential Information, such Recipient shall provide the Disclosing Party with prompt written notice of such requirement so that such Disclosing Party may seek a protective order or other remedy or waive compliance with this Section 5.1. In the event that such protective order or other remedy is not obtained, or such Disclosing Party waives compliance with this Section 5.1, then the Recipient shall furnish only that portion of Confidential Information which is legally required to be provided and exercise its best efforts to obtain assurances that appropriate confidential treatment will be accorded the Confidential Information. (d) The confidentiality and restrictive use obligations under this Section 5.1 shall not apply to (i) any information that, at the time of disclosure, is or subsequently becomes available publicly; provided, however, that such information was not disclosed in breach of this Agreement by the Recipient or any of its Affiliates or their respective employees, officers, directors or advisors, or (ii) is hereafter made available to the Recipient from a source other than the Disclosing Party, which source did not obtain same from the Disclosing Party and did not impose an obligation of confidentiality on the Recipient. (e) The Parties recognize that the performance of the obligations under this Section 5.1 are special, unique and extraordinary in character, and that in the event of the breach by either Party or their Affiliates or their respective employees, officers, directors or advisors of the terms and conditions of this Section 5.1, the Disclosing Party shall be entitled, if it so elects, to institute and prosecute proceedings in any court of competent jurisdiction, either at law or in equity, to enforce the specific performance thereof by such Party or to enjoin such Party or their - 7 - 9 Affiliates or their respective employees, officers, directors or advisors from violating the provisions of this Section 5.1. ARTICLE VI INSURANCE Section 6.1 Insurance. At its sole cost and expense, Vivelle Ventures LLC agrees to obtain and maintain product liability, clinical trial liability (as applicable) and environmental liability insurance (with Noven named as an additional insured), with an insurer rated "A" or better by A.M. Best, in an amount agreed upon by the Management Committee of Vivelle Ventures LLC. Such insurance may not be canceled, modified or terminated except upon (30) days' prior written notice to Noven. From time to time, at the request of Noven, Vivelle Ventures LLC will cause certificates of such insurance to be supplied to Noven evidencing compliance with the obligations set forth herein. Vivelle Ventures LLC shall not assert against Noven, and Vivelle Ventures LLC hereby waives, any and all claims against Noven for damages imposed upon or incurred by Vivelle Ventures LLC arising out of, based upon or resulting from any claim covered by such insurance. ARTICLE VII INDEMNIFICATION Section 7.1 Indemnification. Vivelle Ventures LLC hereby agrees to indemnify, defend and hold harmless Noven from and against any and all claims, losses, demands, costs, or liabilities, including reasonable attorneys' fees, resulting from or in connection with third party claims arising from Noven's performance of the Services hereunder, unless such third party claims are due to Noven's gross negligence or willful misconduct in performing Services. Such indemnification shall survive the termination of this Agreement. Promptly upon receipt by Noven of notice of the assertion of any third party claim in respect to which indemnity may be sought against Vivelle Ventures LLC pursuant to this Section 7.1, Noven shall notify Vivelle Ventures LLC in writing thereof; but the omission to so notify Vivelle Ventures LLC will not relieve Vivelle Ventures LLC from any liability which it may have to Noven under this Section 7.1, except to the extent such failure to so notify materially prejudices the ability of Vivelle Ventures LLC to defend against such action. In defending against the claim, Vivelle Ventures LLC shall have the right to employ counsel of its own choosing and shall at all times have the power to direct the defense against the claim. Noven shall provide such assistance and cooperation, at Vivelle Ventures LLC's cost, as Vivelle Ventures LLC may reasonably request in connection with the defense of any claim with respect to which indemnity may be sought against Vivelle Ventures LLC pursuant to this Section 7.1. - 8 - 10 ARTICLE VIII WARRANTY DISCLAIMER Section 8.1 Warranty Disclaimer. In performing the Services, Noven and/or its Affiliates performing the Services under this Agreement will use the same degree of care as it exercises when performing like services for itself or for its Affiliates. Any and all work performed or decisions made by Vivelle Ventures LLC and/or its Affiliates or others, in reliance on information, data, or other analysis furnished by Noven and/or its Affiliates under this Agreement shall be at the sole risk and expense of Vivelle Ventures LLC and/or its Affiliates. Noven and its Affiliates performing the Services under this Agreement shall have no liability whether in contract, breach of contract, tort (including negligence), warranty, breach of warranty, strict liability or otherwise for the Services performed hereunder. NO WARRANTIES OR GUARANTEES OF ANY NATURE (INCLUDING THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR PURPOSE) ARE EXPRESSED NOR ARE ANY TO BE IMPLIED IN FACT OR IN LAW FOR THE SERVICES TO BE PROVIDED BY NOVEN AND/OR ITS AFFILIATES HEREUNDER. ARTICLE IX FORCE MAJEURE Section 9.1 Force Majeure. (a) The excuse of "Force Majeure" can be claimed by Noven and/or its Affiliates performing the Services under this Agreement in the event that the failure of Noven and/or failure of its Affiliate to perform any term, condition or obligation of the Agreement when due, other than the payment of money, is caused by: (i) acts of God or the public enemy, fire, explosion, perils of the sea, flood, drought, war, riot, sabotage, accident, embargo, destruction of production or transportation facilities; or (ii) interruption of or delay in transportation, inadequacy or shortage or failure of normal sources of supply of materials, or equipment breakdowns, labor trouble from whatever cause arising including strikes and lockouts and whether or not the demands of the employees involved are reasonable and within Noven's or its Affiliate's power to concede; or (iii) voluntary or involuntary compliance with any order, action, or direction of any court, governmental officer, department, agency, authority, or committee thereof, which renders it impossible for Noven or its Affiliates to perform hereunder; or (iv) any other extraordinary cause not within the reasonable control of Noven or its Affiliate affected which, despite the exercise of reasonable diligence, Noven or its Affiliate is unable to prevent, avoid or remove. - 9 - 11 (b) In the event that Noven and/or its Affiliate is prevented or delayed in the performance of any term, condition or obligation under this Agreement due to Force Majeure, Noven and/or its Affiliate affected by Force Majeure, shall give prompt notice to Vivelle Ventures LLC of the commencement, expected duration and termination of any such Force Majeure contingency. Such nonperformance shall be excused and the time for performance extended for the period of delay or inability to perform due to such Force Majeure and the consequences thereof. (c) In each such instance, Noven and/or its Affiliate claiming Force Majeure must show to the reasonable satisfaction of Vivelle Ventures LLC and/or its Affiliate the existence of the event or occurrence constituting a permitted delay and the necessity for a delay in performance of the affected obligation of Noven and/or its Affiliates. Whenever possible, Noven and/or its Affiliate claiming Force Majeure shall endeavor to use commercially reasonable efforts to perform in spite of the Force Majeure. ARTICLE X MISCELLANEOUS Section 10.1 Notices. All notices, requests, demands and other communications hereunder shall be given in writing and shall be: (a) personally delivered; (b) sent by telecopier, facsimile transmission or other electronic means of transmitting written documents; or (c) sent to the Parties at their respective addresses indicated herein by registered or certified U.S. mail, return receipt requested and postage prepaid, or by private overnight mail courier service. The respective addresses to be used for all such notices, demands or requests are as follows: (a) If to Vivelle Ventures LLC, to: c/o Noven Pharmaceuticals Inc. 11960 S.W. 144th Street Miami, FL 33186 Attention: Mr. Robert C. Strauss, President Telephone: (305) 253-5099 Facsimile: (305) 232-1836 with copies to: Novartis Pharmaceuticals Corporation 59 Route 10 East Hanover, NJ 07936 Attention: Thomas Kendris, Esq., Legal Department Telephone: (973) 781-5234 Facsimile: (973) 781-6477 and - 10 - 12 White & Case LLP 1155 Avenue of the Americas New York, NY 10036 Attention: William F. Wynne, Jr., Esq. Telephone: (212) 819-8200 Facsimile: (212) 354-8113 or to such other person or address as Vivelle Ventures LLC shall furnish to Noven in writing. (b) If to Noven, to: Noven Pharmaceuticals Inc. 11960 S.W. 144th Street Miami, FL 33186 Attention: Mr. Robert C. Strauss, President and CEO Telephone: (305) 253-5099 Facsimile: (305) 232-1836 with a copy to: Foley & Lardner 3000 K Street, N.W. Suite 500 Washington, D.C. 20007 Attention: Sybil Meloy, Esq. Telephone: (202) 672-5300 Facsimile: (202) 672-5399 or to such other person or address as Noven shall furnish to Vivelle Ventures LLC in writing. If personally delivered, such communication shall be deemed delivered upon actual receipt; if electronically transmitted pursuant to this paragraph, such communication shall be deemed delivered on the day transmitted unless it is received after 5:00 p.m. New York time, or on a day which is not a business day, in which case it shall be deemed delivered on the next business day after transmission (and sender shall bear the burden of proof of delivery); if sent by overnight courier pursuant to this paragraph, such communication shall be deemed delivered upon receipt; and if sent by U.S. mail pursuant to this paragraph, such communication shall be deemed delivered as of the date of delivery indicated on the receipt issued by the relevant postal service, or, if the addressee fails or refuses to accept delivery, as of the date of such failure or refusal. Any Party may change its address for the purposes of this Agreement by giving notice thereof in accordance with this Section. - 11 - 13 Section 10.2 Entire Agreement; Assignment. This Agreement, including the exhibits and schedules hereto and the documents, schedules, certificates and instruments referred to herein, and the Operating Agreement constitute the entire agreement, and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. No amendment or modification to this Agreement shall be valid or binding upon the parties unless made in writing and signed by the representatives of such parties. Except as otherwise expressly permitted hereby, this Agreement shall not be assigned by operation of law or otherwise. Section 10.3 Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each Party hereto, and nothing in this Agreement shall be deemed to confer upon any other Person any right or remedy under or by reason of this Agreement. Section 10.4 Law Governing Agreement. THIS AGREEMENT SHALL BE CONSTRUED AND INTERPRETED ACCORDING TO THE INTERNAL LAWS OF THE STATE OF NEW YORK, EXCLUDING ANY CHOICE OF LAW RULES THAT MAY DIRECT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION. Section 10.5 Expenses. Each of the Parties shall bear its own expenses and the expenses of its counsel and other agents in connection with the transactions contemplated hereby. Section 10.6 Headings. The headings in this Agreement are inserted for convenience only and shall not constitute a part hereof. Section 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. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be as effective as delivery of a manually executed counterpart of this Agreement. Section 10.8 Mutual Drafting Acknowledgment. This Agreement is the result of the joint efforts of the Parties hereto and each provision hereof has been subject to the mutual consultation, negotiation and agreement of the parties and their counsel, and there shall be no construction against any Party based upon any presumption of that Party's involvement in the drafting hereof. Section 10.9 Cooperation.. Each of the Parties hereto shall use commercially reasonable efforts to take or cause to be taken all action, to cooperate with the other Party hereto with respect to all actions, and to do or cause to be done all things necessary, proper or advisable to consummate the transactions contemplated by this Agreement. Section 10.10 Term and Termination of this Agreement. This Agreement shall terminate at the earlier to occur of (i) the dissolution of Vivelle Ventures LLC in accordance with the provisions of Article X of the Operating Agreement, (ii) the purchase by Novartis of Noven's interest in Vivelle Ventures LLC, (iii) the permitted transfer of Noven's interest in Vivelle Ventures LLC to an unaffiliated third-party in accordance with Section 9.1 of the Operating - 12 - 14 Agreement, (iv) the mutual agreement of the Parties, (v) the election of the non-breaching Party in the event of a material breach of this Agreement provided that the non-breaching Party notifies the breaching Party in writing of such breach and the breaching Party does not cure the breach within thirty (30) days after receiving the notice and (vi) the election of a Party in the event of the liquidation, dissolution, winding-up, insolvency, bankruptcy, or filing any petition therefor, appointment of a receiver, custodian or trustee, or any other similar proceeding, by or of the other Party. Section 10.11 Dispute Resolution. The Parties agree that unresolved disputes between them relating to this Agreement shall be resolved in accordance with Article XII of the Operating Agreement. - 13 - 15 IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement as of the date and year first above written. VIVELLE VENTURES LLC By: /s/ Robert C. Strauss ----------------------------------------- Title: President NOVEN PHARMACEUTICALS INC. By: /s/ Steven Sablotsky ----------------------------------------- Title: Chairman 16 Schedule A Technical Services 1. Retention of Samples and Documentation. Noven shall take and retain, for such period as may be required under GRB regulations, representative samples of Product from each lot specifying its date of manufacture and packaging. In addition, Noven shall maintain and archive all other appropriate documents for so long as directed by Vivelle Ventures LLC but in no event shorter than a period in accordance with applicable GRB guidelines. 2. Packaging. Noven shall package unfinished dosage forms of Product in accordance with the Product Packaging. Product Shipment 1. Noven shall be responsible for arranging for the shipment of finished pre-packaged dosage forms of Product from the relevant manufacturing and/or packaging facility to a location designated by Novartis. Sales and Marketing Services 1. Marketing and Promotions. As directed by Vivelle Ventures LLC, Noven shall design and implement an overall marketing and sales program for the Product in the hospital and retail sales sectors of the overall market. In particular, Noven shall prepare annual and quarterly marketing plans which shall be submitted to the Management Committee of Vivelle Ventures LLC for approval. Each marketing plan shall, at a minimum, propose target sales levels for each Product, address marketing strategies and programs for Products, discuss the overall position of each Product in its relative market, and propose a budget for upcoming marketing expenditures. It is anticipated that a similar arrangement will apply in the event that Vivelle Ventures LLC decides to promote future products. 2. Sales. At the direction of Vivelle Ventures LLC, Noven shall staff, either directly or by contract, a sales field force to detail the Product to the hospital and retail sales sectors of the market, including, without limitation, physicians offices. The sales force shall be comprised of qualified pharmaceutical sales representatives. Noven shall communicate all orders for Product to Novartis who shall be responsible for filling said orders and shipping Product to distributors and customers. 3. Advertising. Noven shall be responsible for procuring the services of an advertising agency in connection with the marketing and promotion of the Product, which advertising agency shall be subject to the pre-approval of both Vivelle Ventures LLC and Novartis, such approval not to be unreasonably withheld. - 2 - 17 Noven shall further be responsible for directing and overseeing on Vivelle Ventures LLC's behalf the services provided by such advertising agency. - 3 - EX-10.35 5 SUBLICENSE AGREEMENT 1 EXHIBIT 10.35 SUBLICENSE AGREEMENT By and Among NOVARTIS PHARMACEUTICALS CORPORATION, NOVEN PHARMACEUTICALS, INC. and VIVELLE VENTURES LLC Dated as of May 1, 1998 2 SUBLICENSE AGREEMENT SUBLICENSE AGREEMENT dated as of May 1, 1998 (this "Agreement") by and among Novartis Pharmaceuticals Corporation, a Delaware corporation ("Novartis"), as the successor-in-interest to the Pharmaceuticals Division of Ciba-Geigy Corporation, a New York corporation ("CIBA"), Vivelle Ventures, LLC, a Delaware limited liability company ("LLC") and Noven Pharmaceuticals, Inc. a Delaware corporation ("Noven"). Capitalized terms used but not otherwise defined herein shall have the respective meanings assigned to such terms in the Restated License Agreement dated as of November 15, 1991 by and between Noven and CIBA (the "Restated License Agreement"), attached hereto as Exhibit A. W I T N E S S E T H: WHEREAS, Novartis, as successor-in-interest to Ciba, and Noven are parties to the Restated License Agreement, pursuant to which Noven has granted Novartis an exclusive license under the Patent Rights and Know-How, to manufacture, have manufactured, use and sell the Licensed Products and CIBA Products in the Territory; WHEREAS, Novartis and Noven have formed LLC for the purpose of creating a platform to maintain and grow a franchise in women's health, focusing initially on the manufacture and sale of the 17(beta)-estradiol single active ingredient in a matrix currently being marketed by Novartis under the trademark "Vivelle" pursuant to the Restated License Agreement ("Vivelle"); WHEREAS, Novartis and Noven have agreed that in connection with the formation of the joint venture, Novartis shall, as its contribution to LLC, among other things, grant an exclusive sublicense to LLC of Novartis' rights under the Restated License Agreement; and WHEREAS, LLC desires to obtain from Novartis a sublicense to manufacture, have manufactured, use and sell Vivelle in the United States and the other Licensed Products and CIBA Products in the Territory; NOW THEREFORE, in consideration of the agreements and covenants set forth above and herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Grant of Sublicense. (a) For the term of this Agreement, Novartis hereby grants LLC (i) an exclusive sublicense to manufacture, have manufactured, use and sell Vivelle in the United States on the terms and conditions provided herein and (ii) an exclusive sublicense to 3 manufacture, have manufactured, use and sell the other Licensed Products and CIBA Products in the Territory on the terms and conditions provided herein; (b) For the term of this Agreement, LLC agrees to be bound by and perform and discharge all the duties and obligations of Novartis under the Restated License Agreement to the extent not modified hereby. 2. Sublicense in Canada. (a) Novartis and Noven hereby grant LLC the right to sublicense the right to use and sell the Licensed Products (other than Vivelle) and CIBA Products in Canada. (b) During the period in which Novartis retains the right to manufacture, have manufactured, use and sell Vivelle in Canada, Novartis agrees to remit to LLC all profits it realizes through sales of Vivelle to its Affiliate in Canada within 15 days of receipt of payment therefor. During the period in which Novartis retains the right to manufacture, have manufactured, use and sell Vivelle in Canada, Novartis also agrees to use good faith efforts to continue to sell Vivelle to Novartis' Canadian Affiliate on the same terms and price that it and/or its Affiliates have been utilizing during the six months prior to the date of this Agreement; provided that if Novartis proposes to change the terms and/or price that it sells Vivelle to Novartis' Canadian Affiliate it shall discuss such proposal with Noven. (c) Novartis covenants to use commercially reasonable efforts to resolve all issues with its Canadian Affiliate necessary for Novartis to sublicense to LLC the right to manufacture, have manufactured, use and sell Vivelle in Canada. Subject to and effective upon resolution of such issues to the satisfaction of Novartis, Noven and Novartis' Canadian Affiliate as evidenced by written agreements, Novartis and Noven hereby grant the LLC the right to sublicense the right to use and sell Vivelle in Canada to Novartis' Canadian Affiliate. In connection with the foregoing, LLC covenants to enter into a long-term supply and sublicense agreement with Novartis' Canadian Affiliate substantially on the terms presently contained in the Restated License Agreement for the distribution of Licensed Products (including Vivelle) and CIBA Products in Canada and, with respect to Vivelle, at the price at which Novartis' Canadian Affiliate has been purchasing Vivelle from Novartis and/or its Affiliates during the six months prior to the date of this Agreement. 3. Payment of Royalties. (a) In consideration for the rights granted in Paragraph 1 above and in addition to any price paid to Noven for the supply of any or all of the Licensed Products pursuant to any separate supply agreement or assignment of existing supply agreement, LLC shall be obligated to pay all royalties owed to Noven for Licensed Products and CIBA Products, during the Royalty Period, according to the schedule set forth in Article 4 and the timing of Royalty Payments set forth in Article 5 respectively of the Restated License Agreement and as applied to Aggregate Net Sales in each calendar year. (b) Noven agrees that Novartis will not be liable for, and Noven hereby releases and holds Novartis harmless from all claims related to (i) the payment of any royalties owed to Noven by LLC for sales of Licensed Product by LLC (ii) the payment of any royalties owed to Noven by Novartis' Canadian Affiliate for sales of Licensed Products (other than Vivelle) and 2 4 CIBA Products in Canada by Novartis' Canadian Affiliate or (iii) once Novartis' Canadian Affiliate and the LLC execute the supply and sublicense agreement described in paragraph 2(c) above, the payment of any royalties owed to Noven by Novartis' Canadian Affiliate for sales of Vivelle in Canada. 4. Sublicense Term; Termination. This Sublicense is effective upon the date of its execution by Novartis and LLC and shall continue in effect until the earlier to occur of the following events: (a) the dissolution of LLC as provided in Article X of the Operating Agreement dated as of May 1, 1998 between Novartis and Noven; or (b) the termination of the Restated License Agreement. On termination of this Agreement, LLC shall return to Novartis all documented or written Know-How provided by Novartis under this Agreement and LLC shall have no further right or license hereunder to Noven's Know-How or Patent Rights. 5. Breach; Termination. This Agreement may be terminated by Novartis on a product-by-product basis (without prejudice to any of its other rights), in the event of a material breach by LLC, provided that LLC is given written notice of such claimed breach and a reasonable time, not to exceed sixty (60) days, in which to cure such breach. Such period to cure may be extended for up to thirty (30) days, upon written request, if such additional time is reasonably necessary to effect such cure and provided that such breaching party is using its reasonable efforts to diligently pursue such cure. The right to terminate this Agreement, as provided herein, shall not be affected in any way by a waiver of, or failure to take action with respect to, any previous default. On termination of this Agreement, LLC shall return to Novartis all documented or written Know-How provided by Novartis under this Agreement and LLC shall have no further right or license hereunder to Noven's Know-How or Patent Rights. 6. New Product Development. Noven shall use commercially reasonable efforts to develop follow-on products to Vivelle, including Vivelle II (as that term is defined in the Operating Agreement), under the terms of the Restated License Agreement. 7. Absolute Assignment of Restated License Agreement. In the event that Noven purchases all of Novartis' Interest (as that term is defined in the Operating Agreement) in LLC pursuant to Section 9.5 of the Operating Agreement, Novartis and Noven shall execute an assignment agreement assigning all of Novartis' rights and obligations under the Restated License Agreement to LLC and releasing Novartis from its obligations under the Restated License Agreement. In addition, Novartis shall transfer to Noven the NDA relating to the Milestone Products, ANDA No. 73-418, and any NDA or ANDA relating other Licensed Products and shall return to Noven all documented or written Know-How provided by Noven under the Restated License Agreement. 8. Noven Payments. Noven agrees that for purposes of the payment required under Article 13.4 a) 2) of the Restated License Agreement, the amounts paid by LLC to Noven 3 5 shall be considered part of the total payments made by Novartis to Noven within the thirty (30) day period of the date of termination. 9. Notices. Any notice or communication required or permitted to be given or made under this Agreement by one of the parties hereto shall be in writing and shall be deemed to have been sufficiently given or made for all purposes if mailed by certified mail, postage prepaid, addressed to such other party at its respective address as follows: (a) If to Noven, to: Noven Pharmaceuticals, Inc. 11960 S.W. 144th Street Miami, FL 33186 Attention: Mr. Robert C. Strauss, President and Chief Executive Officer Telephone: (305) 253-5099 Facsimile: (305) 232-1836 with a copy to: Foley & Lardner 3000 K Street, N.W. Suite 500 Washington, D.C. 20007 Attention: Sybil Meloy, Esq. Telephone: (202) 672-5300 Facsimile: (202) 672-5399 or to such other person or address as Noven shall furnish to the other parties hereto in writing. (b) If to Novartis, to: Novartis Pharmaceuticals Corporation 59 Route 10 East Hanover, NJ 07936 Attention: Office of the CEO Telephone: (973) 781-8005 Facsimile: (973) 781-7036 with copies to: Novartis Pharmaceuticals Corporation 59 Route 10 East Hanover, NJ 07936 Attention: Thomas Kendris, Esq., Legal Department Telephone: (973) 781-5234 Facsimile: (973) 781-6477 4 6 and White & Case LLP 1155 Avenue of the Americas New York, NY 10036 Attention: William F. Wynne, Jr., Esq. Telephone: (212) 819-8200 Facsimile: (212) 354-8113 or to such other person or address as Novartis shall furnish to the other parties hereto in writing. (c) If to LLC, to: Vivelle Ventures LLC c/o Noven Pharmaceuticals, Inc. 11960 S.W. 144th Street Miami, FL 33186 Attention: Mr. Robert C. Strauss, President Telephone: (305) 253-5099 Facsimile: (305) 232-1836 with copies to: Novartis Pharmaceuticals Corporation 59 Route 10 East Hanover, NJ 07936 Attention: Thomas Kendris, Esq., Legal Department Telephone: (973) 781-5234 Facsimile: (973) 781-6477 and White & Case LLP 1155 Avenue of the Americas New York, NY 10036 Attention: William F. Wynne, Jr., Esq. Telephone: (212) 819-8200 Facsimile: (212) 354-8113 or to such other person or address as LLC shall furnish to the other parties hereto in writing. 5 7 10. Force Majeure. Neither party shall be responsible or liable to the other hereunder for failure or delay in performance of this Agreement due to any war, fire, accident or other casualty, or any labor disturbance or act of God or the public enemy, or any other unforeseeable contingency beyond such party's control. In addition, in the event of the applicability of this Paragraph, the party affected by such force majeure shall immediately use its best efforts to eliminate, cure and overcome any of such causes and resume performance of its obligations. 11. Assignment. This Agreement and all rights and obligations hereunder are personal to the parties hereto and may not be assigned, other than to Affiliates of Novartis, without the express prior written consent of the other. Any assignment or attempt at same in the absence of such prior written consent shall be void and without effect. 12. Applicable Law. This Agreement shall be construed, and the rights of the parties determined, in accordance with the laws of the State of New York without regard to choice of law principles of the State of New York. 13. 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. In the event any provisions shall be held invalid, illegal or unenforceable the parties shall use best efforts to substitute a valid, legal and enforceable provision, which insofar as possible, implements the purposes hereof. The same principle shall apply in respect of the filling of any contractual gap. 14. No Waiver. The failure of any party hereto at any time or times to require performance of any provisions hereof shall in no manner affect its right to enforce such provision at a later time. No waiver by any party hereto of any condition nor the breach of any term, covenant or representation contained in this Agreement whether by conduct or otherwise in any one or more instances shall be deemed to be or construed as a further or continuing waiver of such condition or breach or a waiver of any other condition or deemed to be or construed as the breach of any other term, covenant or representation in this Agreement. 15. Draftsmanship. The parties acknowledge and agree that this Agreement is the product of extensive negotiation and neither party will be deemed to have drafted this Agreement. 16. Entire Agreement. This Agreement among the parties made on the date of execution hereof, constitute the entire understanding among the parties relating to the subject matter hereof, and no amendment or modification to this Agreement shall be valid or binding upon the parties unless made in writing and signed by the representatives of such parties. 17. Counterparts. This Agreement and any amendments hereto may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be as effective as delivery of a manually executed counterpart of this Agreement. 6 8 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives as of the day and year first written above. NOVARTIS PHARMACEUTICALS CORPORATION By: /s/ Wayne P. Yetter --------------------------------------------- Title: President and Chief Executive Officer NOVEN PHARMACEUTICALS, INC. By: /s/ Steven Sablotsky --------------------------------------------- Title: Chairman VIVELLE VENTURES LLC By: /s/ Robert C. Strauss --------------------------------------------- Title: President EX-10.36 6 LIMITED ASSIGMENT AGREEMENT 1 EXHIBIT 10.36 LIMITED ASSIGNMENT AGREEMENT By and Among NOVARTIS PHARMACEUTICALS CORPORATION, NOVEN PHARMACEUTICALS, INC. and VIVELLE VENTURES LLC Dated as of May 1, 1998 2 LIMITED ASSIGNMENT AGREEMENT LIMITED ASSIGNMENT AGREEMENT dated as of May 1, 1998 (this "Agreement") by and among Novartis Pharmaceuticals Corporation, a Delaware corporation ("Novartis"), as the successor-in-interest to the Pharmaceuticals Division of Ciba-Geigy Corporation, a New York corporation ("CIBA"), Vivelle Ventures, LLC, a Delaware limited liability company ("LLC") and Noven Pharmaceuticals, Inc. a Delaware corporation ("Noven"). Capitalized terms used but not otherwise defied herein shall have the respective meanings assigned to such terms in that certain Supply Agreement dated as of August 31, 1995 by and between Noven and CIBA (the "Supply Agreement"), attached hereto as Exhibit A. W I T N E S S E T H: WHEREAS, Novartis, as successor-in-interest to CIBA, and Noven are parties to the Supply Agreement, pursuant to which Noven has agreed to supply Novartis with the Licensed Product in the form of Laminate and System and Novartis has agreed to purchase annually certain minimum quantities of such Licensed Product; WHEREAS, Novartis and Noven have formed LLC for the purpose of creating a platform to maintain and grow a franchise in women's health, focusing initially on the manufacture and sale of the 17(beta)-estradiol single active ingredient in a matrix currently being marketed by Novartis under the trademark "Vivelle" pursuant to the Restated License Agreement; WHEREAS, Novartis and Noven have agreed that in connection with the formation of the joint venture, Novartis shall, as its contribution to LLC, among other things, make a limited assignment to LLC of its rights and obligations under the Supply Agreement; and WHEREAS, LLC desires to obtain the rights under the Supply Agreement and is willing to assume the obligation to purchase the quantities of Laminate and System specified in the Supply Agreement; NOW THEREFORE, in consideration of the agreements and covenants set forth above and herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Assignment and Assumption. (a) For the term of this Agreement, Novartis hereby assigns to LLC its rights under Sections 2.11, 4.1, 4.2, 4.3, 4.4, 4.5, 4.6, 5.1, 5.2, 5.3, 5.4, 6.1, 6.2, 6.3 and Article 7 of the Supply Agreement (the "Assigned Sections"). (b) For the term of this Agreement, LLC hereby accepts such assignment and assumes and agrees to perform and discharge the duties and obligations of Novartis arising under the Assigned Sections. 3 2. Consent to Assignment and Assumption; Release. For the term of this Agreement, Noven hereby consents to the assignment by Novartis of the rights under the Assigned Sections and the assumption by LLC of the performance, discharge of duties and obligations arising under the Assigned Sections. For the term of this Agreement, Noven hereby releases Novartis of all its duties and obligations (including, without limitation, its obligation to purchase the Annual Purchase Minimum or pay for any Laminate and/or System purchased by LLC) arising under the Assigned Sections. 3. Retention of Remaining Rights and Obligations. Notwithstanding the foregoing, Novartis retains all rights and obligations not assigned to LLC hereby. 4. Canada. Subject to Section 2 of that certain Sublicense Agreement dated as of May 1, 1998 by and among Novartis, Noven and LLC (the "Sublicense Agreement"), the parties agree that for purpose of sale to Novartis' Canadian Affiliate, Novartis may purchase Vivelle (as that term is defined in that certain Operating Agreement of Vivelle Ventures LLC dated as of May 1, 1998 by and between Novartis and Noven (the "Operating Agreement")) from LLC at the price at which LLC purchases Vivelle from Noven. 5. Absolute Assignment of All Rights and Obligations. In the event that Noven purchases all of Novartis' Interest (as that term is defined in the Operating Agreement) in LLC pursuant to Section 9.5 of the Operating Agreement, Novartis, Noven and LLC shall execute an assignment agreement assigning all of Novartis' rights and obligations under the Supply Agreement to LLC and releasing Novartis from its obligations under the Supply Agreement. 6. Indemnification. LLC agrees and warrants to indemnify, defend and hold harmless Noven and Novartis from and against any and all claims, damages, expenses, attorneys' fees, settlements, and judgments arising out of any injury or damage to a third party alleged to be caused by the Laminate or System supplied by Noven to LLC or manufactured for or by LLC; provided, however that Noven and/or Novartis notifies LLC within twenty (20) days of receipt of a claim or action, fully cooperates with LLC in the defense of such claim or action, and permits LLC to control the defense and settlement of such claim or action. Notwithstanding the above, LLC does not warrant and shall not be liable to indemnify Noven from and against any claims, damages, expenses, attorneys' fees, settlements and judgments arising out of any injury or damage to a third party caused by latent defects in the Laminate or System caused by the negligence or willful misconduct on the part of Noven, for which Noven shall have the right to control the defense and settle such claim or action. Noven agrees and warrants to indemnify and hold harmless LLC from and against any and all claims, damages, expenses, attorneys' fees, settlements and judgments for personal injury to a third party caused by latent defects in the Laminate or System caused by the negligence or willful misconduct of Noven. This provision shall survive the expiration or termination of this Agreement. 7. Recalls. If an authorized government agency of the United States or any country or territory based on requirements specifically notified to Noven by LLC shall seize any Laminate and System or if LLC deems it necessary to initiate a voluntary recall for any commercially reasonable reason, LLC shall immediately notify Noven of such seizure or recall and 2 4 shall consult with Noven regarding the timely compliance with all pertinent state or federal regulations pertaining thereto. Furthermore, each party shall make a permanent and complete record of all costs incurred thereby, a copy of which shall be delivered to the other party as soon after the completion of such recall or seizure as practically may be done. When the cause or reason of said recall or seizure resides in the negligent failure of Noven to manufacture in accordance with the Specifications or applicable, notified government rules and regulations, or in the failure of said product to maintain stability for the period described in the product labeling, Noven shall reimburse LLC for all reasonable costs incurred by LLC in effecting such recall or seizure, including all reasonable credits extended to LLC's customers as a result thereof. When the cause or reason for said recall or seizure is anything other than that set forth in the preceding sentence, including, but not limited to, failure by other than Noven to store, transport or care for the Laminate and System, LLC shall bear all costs of such recall or seizure and indemnify Noven therefrom including reimbursement for all reasonable costs incurred by Noven in effecting such recall or seizure. 8. Term; Termination. This Agreement is effective upon the date of its execution by the parties hereto and shall continue in effect until the earlier to occur of the following events: (a) the dissolution of LLC as provided in Article X of the Operating Agreement dated as of May 1, 1998 between Novartis and Noven; (b) the termination of the Supply Agreement; or (c) the termination of the Restated License Agreement. 9. Obligations upon Termination. Except as otherwise agreed by the parties, within thirty (30) days of the effective date of the expiration or any termination of this Agreement, LLC and any Supplier in possession of Know-How shall cease to use and deliver to Noven, upon written request, all Know-How, to the extent that such use is not permitted by the License Agreement except for any documents or records which either LLC or the Supplier is required to retain by law, and Noven shall do the same with respect to any LLC know-how in its possession. Noven shall deliver to LLC, at LLC's request and expense, all Laminate, System and preprinted packaging, labeling and stock materials which are in the possession of Noven, for which LLC shall be obligated to make payment upon delivery. 10. Notices. Any notice or communication required or permitted to be given or made under this Agreement by one of the parties hereto shall be in writing and shall be deemed to have been sufficiently given or made for all purposes if mailed by certified mail, postage prepaid, addressed to such other party at its respective address as follows: (a) If to Noven, to: Noven Pharmaceuticals, Inc. 11960 S.W. 144th Street Miami, FL 33186 3 5 Attention: Mr. Robert C. Strauss, President and Chief Executive Officer Telephone: (305) 253-5099 Facsimile: (305) 232-1836 with a copy to: Foley & Lardner 3000 K Street, N.W. Suite 500 Washington, D.C. 20007 Attention: Sybil Meloy, Esq. or to such other person or address as Noven shall furnish to the other parties hereto in writing. (b) If to Novartis, to: Novartis Pharmaceuticals Corporation 59 Route 10 East Hanover, NJ 07936 Attention: Office of the CEO Telephone: (973) 781-8005 Facsimile: (973) 781-7036 with copies to: Novartis Pharmaceuticals Corporation 59 Route 10 East Hanover, NJ 07936 Attention: Thomas Kendris, Esq., Legal Department Telephone: (973) 781-5234 Facsimile: (973) 781-6477 and White & Case LLP 1155 Avenue of the Americas New York, NY 10036 Attention: William F. Wynne, Jr., Esq. Telephone: (212) 819-8200 Facsimile: (212) 354-8113 or to such other person or address as Novartis shall furnish to the other parties hereto in writing. 4 6 (c) If to LLC, to: Vivelle Ventures LLC c/o Noven Pharmaceuticals, Inc. 11960 S.W. 144th Street Miami, FL 33186 Attention: Mr. Robert C. Strauss, President Telephone: (305) 253-5099 Facsimile: (305) 232-1836 with copies to: Novartis Pharmaceuticals Corporation 59 Route 10 East Hanover, NJ 07936 Attention: Thomas Kendris, Esq., Legal Department Telephone: (973) 781-5234 Facsimile: (973) 781-6477 and White & Case LLP 1155 Avenue of the Americas New York, NY 10036 Attention: William F. Wynne, Jr., Esq. Telephone: (212) 819-8200 Facsimile: (212) 354-8113 or to such other person or address as LLC shall furnish to the other parties hereto in writing. 11. Force Majeure. Neither party shall be responsible or liable to the other hereunder for failure or delay in performance of this Agreement due to any war, fire, accident or other casualty, or any labor disturbance or act of God or the public enemy, or any other unforeseeable contingency beyond such party's control. In addition, in the event of the applicability of this Paragraph, the party affected by such force majeure shall immediately use its best efforts to eliminate, cure and overcome any of such causes and resume performance of its obligations. 12. Assignment. This Agreement and all rights and obligations hereunder are personal to the parties hereto and may not be assigned, other than to Affiliates of Novartis, without the express prior written consent of the other. Any assignment or attempt at same in the absence of such prior written consent shall be void and without effect. 13. Applicable Law. This Agreement shall be construed, and the rights of the parties determined, in accordance with the laws of the State of New York without regard to choice of law principles of the State of New York. 5 7 14. 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. In the event any provisions shall be held invalid, illegal or unenforceable the parties shall use best efforts to substitute a valid, legal and enforceable provision, which insofar as possible, implements the purposes hereof. The same principle shall apply in respect of the filling of any contractual gap. 15. Supply Agreement. Unless otherwise specified herein, nothing contained in this Agreement shall affect the rights and obligations of the parties under the Supply Agreement or the Restated License Agreement, and the terms and conditions of the Supply Agreement and the Restated License Agreement shall remain in full force and effect. 16. No Waiver. The failure of any party hereto at any time or times to require performance of any provisions hereof shall in no manner affect its right to enforce such provision at a later time. No waiver by any party hereto of any condition nor the breach of any term, covenant or representation contained in this Agreement whether by conduct or otherwise in any one or more instances shall be deemed to be or construed as a further or continuing waiver of such condition or breach or a waiver of any other condition or deemed to be or construed as the breach of any other term, covenant or representation in this Agreement. 17. Draftsmanship. The parties acknowledge and agree that this Agreement is the product of extensive negotiation and neither party will be deemed to have drafted this Agreement. 18. Entire Agreement. This Agreement among the parties made on the date of execution hereof and Section 2 of the Sublicense Agreement, constitute the entire understanding among the parties relating to the subject matter hereof, and no amendment or modification to this Agreement shall be valid or binding upon the parties unless made in writing and signed by the representatives of such parties. 19. Counterparts. This Agreement and any amendments hereto may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be as effective as delivery of a manually executed counterpart of this Agreement. 6 8 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives as of the day and year first written above. NOVARTIS PHARMACEUTICALS CORPORATION By: /s/ Wayne P. Yetter --------------------------------------------- Title: President and Chief Executive Officer NOVEN PHARMACEUTICALS, INC. By: /s/ Steven Sablotsky --------------------------------------------- Title: Chairman VIVELLE VENTURES LLC By: /s/ Robert C. Strauss --------------------------------------------- Title: President EX-27 7 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 12,544,680 979,198 989,637 0 3,205,558 18,156,837 19,193,010 3,993,570 35,196,418 2,778,241 0 0 0 2,048 26,602,609 35,196,418 2,488,572 2,737,722 1,032,768 1,032,768 2,000,497 0 0 (3,276,400) 0 (3,276,400) 0 0 0 (3,276,400) (0.16) (0.16)
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