-----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, Vcg/C4VPNPDA4N7Co1bubq2hWE8g5u+WGLgqwWNojcmgTDYJVREXstMkACKNntTH Nj7jS+shWFbWY+AV5jiLQw== 0000950153-99-000170.txt : 19990217 0000950153-99-000170.hdr.sgml : 19990217 ACCESSION NUMBER: 0000950153-99-000170 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDICIS PHARMACEUTICAL CORP CENTRAL INDEX KEY: 0000859368 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 521574808 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14471 FILM NUMBER: 99542674 BUSINESS ADDRESS: STREET 1: 4343 EAST CAMELBACK RD STREET 2: STE 250 CITY: PHOENIX STATE: AZ ZIP: 85018 BUSINESS PHONE: 2125992000 MAIL ADDRESS: STREET 1: 4343 E CAMELBACK RD STREET 2: SUITE 250 CITY: PHOENIX STATE: AZ ZIP: 85018 10-Q 1 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 or the transition period from to Commission file number 0-18443 MEDICIS PHARMACEUTICAL CORPORATION (Exact name of Registrant as specified in its charter) Delaware 52-1574808 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 4343 East Camelback Road Phoenix, Arizona 85018-2700 (Address of principal executive offices) (602) 808-8800 (Registrant's telephone number, including area code) 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 latest practicable date. Class Outstanding at February 9, 1999 ----- ------------------------------- Class A Common Stock $.014 Par Value 18,767,808 Class B Common Stock $.014 Par Value 281,974 2 MEDICIS PHARMACEUTICAL CORPORATION TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page Item 1-- Financial Statements Condensed Consolidated Balance Sheets as of December 31, 1998, and June 30, 1998 3 Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended December 31, 1998 and 1997 5 Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 1998 and 1997 6 Notes to the Condensed Consolidated Financial Statements 7 Item 2 -- Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II. OTHER INFORMATION Item 4 -- Submission of Matters to a Vote of Security Holders 20 Item 6 -- Exhibits and Reports on Form 8-K 22 SIGNATURE 23
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MEDICIS PHARMACEUTICAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS
December 31, 1998 June 30, 1998 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 74,308,683 $147,411,127 Short-term investments 151,253,090 90,510,029 Accounts receivable, net 23,215,774 18,899,868 Inventories, net 11,074,594 9,208,384 Deferred tax assets 3,086,470 3,300,000 Accrued interest income 1,793,031 2,050,264 Other current assets 9,385,240 6,750,170 ------------ ------------ Total current assets 274,116,882 278,129,842 ------------ ------------ Property and equipment, net 1,436,045 1,343,603 Intangible assets: Intangible assets related to 143,417,858 70,386,665 acquisitions Other intangible assets 5,888,625 6,874,626 Less accumulated amortization 8,090,213 5,977,399 ------------ ------------ Net intangible assets 141,216,270 71,283,892 ------------ ------------ Other non-current assets 1,724,334 1,592,907 ------------ ------------ $418,493,531 $352,350,244 ============ ============
The accompanying notes are an integral part of this statement. 3 4 MEDICIS PHARMACEUTICAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, 1998 June 30, 1998 ------------- ------------- LIABILITIES Current liabilities: Accounts payable $ 5,024,034 $ 5,496,526 Notes payable 17,137 11,364 Accrued incentives 1,369,295 1,786,392 Accrued royalties 1,570,541 1,040,993 Short-term contract obligation 22,000,000 -- Other accrued liabilities 3,596,475 6,838,397 ------------- ------------- Total current liabilities 33,577,482 15,173,672 ------------- ------------- Long-term liabilities: Notes payable 88,783 94,556 Other non-current liabilities 117,454 124,115 Long-term contract obligation 33,274,948 -- Deferred tax liability 6,782,076 10,502,416 COMMITMENTS AND CONTINGENCIES MINORITY INTEREST 2,010,934 1,960,000 STOCKHOLDERS' EQUITY: Preferred Stock, $0.01 par value, 5,000,000 shares authorized; no shares issued -- -- Class A Common Stock, $0.014 par value; shares authorized: 50,000,000; issued and outstanding: 18,730,638 and 18,474,256 at December 31, 1998 and at June 30, 1998, respectively 262,229 258,640 Class B Common Stock, $0.014 par value; shares authorized:1,000,000; issued and outstanding: 281,974 at December 31, 1998 and at June 30, 1998 3,948 3,948 Additional paid-in capital 350,729,035 344,107,350 Accumulated deficit (8,353,358) (19,874,453) ------------- ------------- Total stockholders' equity 342,641,854 324,495,485 ------------- ------------- $ 418,493,531 $ 352,350,244 ============= =============
The accompanying notes are an integral part of this statement. 4 5 MEDICIS PHARMACEUTICAL CORPORATION CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended Six Months Ended December 31, December 31, ----------------------------------- ----------------------------------- 1998 1997 1998 1997 -------------- -------------- -------------- -------------- Net sales $ 28,016,287 $ 16,927,572 $ 52,797,891 $ 30,838,903 -------------- -------------- -------------- -------------- Operating costs and expenses: Cost of product revenue 5,315,953 3,003,499 10,023,671 5,549,238 Selling, general and administrative 8,907,353 6,205,934 18,204,319 11,581,544 Research and development 707,766 903,563 733,634 1,447,684 In-process research and development 9,500,000 35,400,000 9,500,000 35,400,000 Depreciation and amortization 1,349,380 608,149 2,305,795 1,091,706 -------------- -------------- -------------- -------------- Operating costs and expenses 25,780,452 46,121,145 40,767,419 55,070,172 -------------- -------------- -------------- -------------- Operating income (loss) 2,235,835 (29,193,573) 12,030,472 (24,231,269) Interest income 2,490,157 930,323 5,596,829 2,126,965 Interest expense (2,577) (6,563) (10,235) (14,889) -------------- -------------- -------------- -------------- Income (loss) before taxes 4,723,415 (28,269,813) 17,617,066 (22,119,193) Income tax expense (1,542,842) (2,780,773) (6,346,105) (5,180,491) -------------- -------------- -------------- -------------- Net income (loss) $ 3,180,573 $ (31,050,586) $ 11,270,961 $ (27,299,684) ============== ============== ============== ============== Basic net income (loss) per common share $ 0.17 $ (2.16) $ 0.60 $ (1.90) ============== ============== ============== ============== Diluted net income (loss) per common share $ 0.16 $ (2.16) $ 0.58 $ (1.90) ============== ============== ============== ============== Shares used in computing basic net income (loss) per share 18,851,374 14,367,123 18,812,151 14,340,235 ============== ============== ============== ============== Shares used in computing diluted net income (loss) per share 19,722,388 14,367,123 19,498,234 14,340,235 ============== ============== ============== ==============
The accompanying notes are an integral part of this statement. 5 6 MEDICIS PHARMACEUTICAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended ------------------------------------- December 31, 1998 December 31, 1997 --------------- --------------- Net income $ 11,270,961 $ (27,299,684) Adjustments to reconcile net income (loss) to net cash provided by operating activities: In-process research and development 9,500,000 35,400,000 Minority interest 50,934 -- Depreciation and amortization 2,305,795 1,091,706 Provision for doubtful accounts 222,079 138,000 Deferred income tax (benefit) expense (3,506,810) 3,915,000 Other non-cash expenses 10,000 14,000 Gain on sale of available-for-sale securities 25,672 -- Accretion of discount of investments (292,204) (72,359) Accretion of discount on contract obligation 360,377 -- Change in operating assets and liabilities: Inventories (2,022,501) (1,734,264) Accounts receivable (4,381,694) (2,867,088) Accounts payable (472,492) 360,371 Accrued incentives (417,097) (384,279) Other current liabilities (2,712,374) (1,399,451) Other current assets (60,071) (301,333) --------------- --------------- Net cash provided by operating activities 9,880,575 6,860,619 --------------- --------------- Cash flows from investing activities: Purchase of property and equipment (285,423) (222,565) Purchase of intangible assets (23,774,081) (58,382,620) Payment of license agreement (973,999) (627,750) Increase in other assets (131,427) -- Purchase of available-for-sale investments (116,676,868) (32,002,249) Sale of available-for-sale securities 27,200,808 40,714,373 Maturity of available-for-sale securities 29,350,000 20,500,000 --------------- --------------- Net cash used in investing activities (85,290,990) (30,020,811) --------------- --------------- Cash flows from financing activities: Proceeds from the exercise of stock options 2,414,967 715,194 Decrease in other non-current liabilities (6,661) (28,484) --------------- --------------- Net cash provided by financing activities 2,408,306 686,710 --------------- --------------- Effect of foreign currency exchange rate on cash and cash equivalents (100,335) -- --------------- --------------- Net decrease in cash and cash equivalents (73,102,444) (22,473,482) Cash and cash equivalents at beginning of period 147,411,127 33,623,397 --------------- --------------- Cash and cash equivalents at end of period $ 74,308,683 $ 11,149,915 --------------- ---------------
The accompanying notes are an integral part of this statement. 6 7 MEDICIS PHARMACEUTICAL CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 1. ORGANIZATION AND BASIS OF PRESENTATION Medicis Pharmaceutical Corporation ("Medicis" or the "Company") is the leading independent pharmaceutical company in the United States focusing primarily on the treatment of dermatological conditions. The Company offers prescription, over-the-counter ("OTC"), and cosmetic dermatology products emphasizing the clinical effectiveness, quality, affordability and cosmetic elegance of its products. Medicis has achieved a leading position in branded products for the treatment of acne, acne-related conditions, psoriatic conditions and anti-pruritic conditions while also offering the leading OTC fade cream product line in the United States. The Company has built its business by successfully introducing prescription pharmaceuticals such as the DYNACIN(R) and TRIAZ(R) products for the treatment of acne and LUSTRA(R) for the treatment of dyschromia and other discolorations of the skin. The Company's business has also been built by acquiring and successfully marketing prescription pharmaceuticals such as the LIDEX(R) and SYNALAR(R) corticosteroid products for thE treatment of psoriasis and eczema; LOPROX(R) for the treatment of fungal infections; NOVACET(R) for the treatment of acne rosacea; and such OTC products as ZOSTRIX(R) topical analgesics and ESOTERICA(R) fade cream products. The financial information is unaudited but reflects all adjustments, consisting only of normal recurring accruals, which are, in the opinion of the Company's management, necessary to a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The financial statements should be read in conjunction with the Company's audited financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations relating thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998 ("fiscal 1998"). Certain immaterial amounts on the face of the balance sheet have been reclassified to conform with the current period's presentation. 2. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure about Segments of an Enterprise and Related Information," ("SFAS No. 131"). SFAS No. 131 establishes a new method by which companies will report operating segment information. This method is based on the manner in which management organizes the segments within a company for making operating decisions and assessing performance. The Company is evaluating the provisions of SFAS No. 131 and, upon adoption, may report operating segments. The adoption of SFAS No. 131 will have no impact on the Company's consolidated results of operations, financial position or cash flows. 7 8 As of July 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income," ("SFAS No. 130"). SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and shareholders' equity. SFAS No. 130 requires certain items such as unrealized foreign currency exchange gains or losses and unrealized gains or losses on the Company's available-for-sale securities to be included in other comprehensive income as separately presented portions of other comprehensive income in shareholders equity. During the second quarter of fiscal 1999 and fiscal 1998, the amounts of unrealized foreign currency exchange gains and losses and unrealized gains or losses on such securities were not material. 3. ACQUISITION OF THE HOECHST MARION ROUSSEL, INC. PRODUCTS In November 1998, the Company agreed to license with an option to purchase the LOPROX(R), TOPICORT(R) and A/T/S(R) products from Hoechst Marion Roussel, Inc. The Company, using cash reserves, paid $22.0 million and will make two additional annual payments of $22.0 million. Medicis then has the option to purchase the products for $16.5 million. The Agreement has been accounted for as the acquisition of products and the Company has recorded an obligation for the present value of the required license payments and purchase option as a contract obligation. 4. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------ ------------ 1998 1997 1998 1997 -------- -------- -------- -------- (in thousands, except per share data) Numerator: Net income (loss) $ 3,181 $(31,051) $ 11,271 $(27,300) -------- -------- -------- -------- Denominator for basic earnings per common share 18,851 14,367 18,812 14,340 Effect of dilutive securities: Stock options 871 -- 686 -- -------- -------- -------- -------- Denominator for diluted earnings per common share 19,722 14,367 19,498 14,340 ======== ======== ======== ======== Basic net income per common share $ 0.17 $ (2.16) $ 0.60 $ (1.90) ======== ======== ======== ======== Diluted net income per common share $ 0.16 $ (2.16) $ 0.58 $ (1.90) ======== ======== ======== ========
Options to purchase 6,900 and 22,060 shares of common stock at prices ranging from $57.44 to $63.00 and $46.25 to $63.00 per share were outstanding for the three and six months ended December 31,1998, respectively. These were not included in the computation of diluted earnings per share because the option exercise price was greater than the average market price of the Company's common shares and, therefore, the effect would 8 9 be anti-dilutive. The Company also has no dilutive securities for the 1997 periods given that inclusion of such securities would be dilutive to net loss. 5. CONTINGENCIES The Company and certain of its subsidiaries, from time to time, are parties to certain actions and proceedings incident to their business. Liability in the event of final adverse determinations in any of these matters is either covered by insurance and/or established reserves or, in the opinion of management, after consultation with counsel, should not, in the aggregate, have a material adverse effect on the consolidated financial position or results of operations of the Company and its subsidiaries. 6. INVENTORIES Although the Company utilizes third parties to manufacture and package inventories held for sale, the Company takes title to certain inventories and records the associated liability once inventories are manufactured. Inventories are valued at the lower of cost or market as determined by net realizable value using the first-in-first-out method. Inventories, net of reserves, at December 31, 1998, and June 30, 1998, consist of the following:
December 31, 1998 June 30, 1998 ------------------ ----------------- Raw materials $ 2,699,066 $ 1,086,585 Finished goods 8,375,528 8,121,799 ------------------ ----------------- Total inventories $ 11,074,594 $ 9,208,384 ================== =================
7. INCOME TAXES Income taxes have been provided using the liability method in accordance with SFAS No. 109, "Accounting for Income Taxes." The provision for income taxes reflects management's estimation of the effective tax rate expected to be applicable for the full fiscal year. This estimate is reevaluated by management each quarter based on estimated tax expenses for the year. At December 31, 1998, the Company took advantage of additional tax deductions available relating to the exercise of non-qualified stock options and disqualified dispositions of incentive stock options. Accordingly, the Company recorded a $3.8 million increase to equity with a corresponding $3.8 million reduction to taxes payable. Quarterly adjustments for the exercise of non-qualified stock options and disqualified dispositions of incentive stock options may vary as they relate to the actions of the option holder or stockholder. 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the attached condensed consolidated financial statements and notes thereto and with the Company's audited financial statements, notes to the consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations relating thereto included or incorporated by reference in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998 (the "1998 Form 10-K"). This report on Form 10-Q contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, from time to time, the Company or its representatives have made or may make forward-looking statements, orally or in writing. Forward looking statements involve known and unknown risks and uncertainties. The Company's actual actions or results could differ materially from those anticipated in forward looking statements as a result of certain factors including, but not limited to, those factors discussed in the documents filed by the Company with the Securities and Exchange Commission from time to time, including the prospectus dated February 6, 1998, which is set forth in the Company's Registration Statement on Form S-3 and the 1998 Form 10-K. The Company undertakes no obligation to update any forward looking statements. OVERVIEW Medicis was founded in 1987 to develop and market prescription and over-the-counter ("OTC") products to treat dermatological conditions. Innovative Therapeutics, Inc. (the predecessor of the Company) was incorporated under the laws of the District of Columbia on July 1, 1987, subsequently changed its name to Medicis Corporation and was merged with and into Medicis Corporation, which was incorporated in July 29, 1988 under the laws of Delaware, pursuant to an Agreement of Merger dated July 29, 1988. Medicis Corporation subsequently changed its name to Medicis Pharmaceutical Corporation. Medicis is the leading independent pharmaceutical company in the United States focusing primarily on the treatment of dermatological conditions. The Company offers prescription, OTC, and cosmetic dermatology products, emphasizing the clinical effectiveness, quality, affordability and cosmetic elegance of its products. Medicis has achieved a leading position in Dermatology by competing successfully in the sales market and development of branded products for the treatment of acne, acne-related conditions, psoriatic conditions, and anti-pruritic conditions, while also offering the leading OTC capsaicin and fade cream product lines in the United States. The Company has built its business through successfully introducing prescription pharmaceuticals such as DYNACIN(R) and TRIAZ(R) products for the treatment of acne, LUSTRA(R) for the treatment of dyschromia and other discolorations of the skin. The Company's business has also been built by acquiring and successfully marketing prescription pharmaceuticals such as the LIDEX(R) and SYNALAR(R) corticosteroid products for the treatment of psoriasis and eczema; LOPROX(R) for the treatment of fungal infections; NOVACET(R) for 10 11 the treatment of acne rosacea; and such OTC products as ZOSTRIX(R) topical analgesics and ESOTERICA(R) fade cream products. Prescription pharmaceuticals accounted for 77.0%, 86.5% and 83.2% of net sales in the fiscal years ending June 30, 1998 ("fiscal 1998"), June 30, 1997 ("fiscal 1997") and June 30, 1996 ("fiscal 1996"), respectively. Although DYNACIN(R) products accounted for a majority of the Company's total sales in fiscal 1997 and fiscal 1996, the Company believes it will no longer derive the majority of its net sales from DYNACIN(R) in the future. The Company derives a majority of its revenue from sales of DYNACIN(R), LIDEX(R), TRIAZ(R), LUSTRA(R) and ZOSTRIX(R) products and the recently acquired LOPROX(R) product from HMR (the "Key Products"). The Company believes that sales of the Key Products will constitute the majority of net sales for the foreseeable future. Accordingly, any factor adversely affecting the sale of the Key Products individually or collectively would have a material adverse effect on the Company's business, financial condition and results of operations. Each of the Key Products could be rendered obsolete or uneconomical by regulatory or competitive changes. The sale of Key Products could also be affected adversely by other factors, including manufacturing or supply interruptions, the development of new competitive pharmaceuticals to treat the conditions addressed by the Key Products, technological advances, factors affecting the cost of production, marketing or pricing actions by one or more of the Company's competitors, changes in the prescribing practices of dermatologists, changes in the reimbursement policies of third-party payors, product liability claims or other factors. The Company's results of operations may vary from period to period due to a variety of factors, including expenditures incurred to acquire, license and promote pharmaceuticals; expenditures and timing relating to acquisition and integration of businesses; changes in prescribing practices of dermatologists; the introduction of new products by the Company or its competitors; cost increases from third-party manufacturers; supply interruptions; the availability and cost of raw materials; the mix of products sold by the Company; changes in marketing and sales expenditures; market acceptance of the Company's products; competitive pricing pressures; general economic and industry conditions that affect customer demand; and the Company's level of research and development activities. In addition, the Company's business has historically been subject to seasonal fluctuations, with lower sales generally being experienced in the first quarter of each fiscal year. As a result of customer buying patterns, a substantial portion of the Company's revenues has been in the last month of each quarter. The Company schedules its inventory purchases to meet anticipated customer demand. As a result, relatively small delays in the receipt of manufactured products by the Company could result in revenues being deferred or lost. The Company's operating expenses are based on anticipated sales levels, and a high percentage of the Company's expenses are relatively fixed in the short term. Consequently, variations in the timing of recognition of revenue could cause significant fluctuations in operating results from period to period and may result in unanticipated periodic earnings shortfalls or losses. There can be no assurance that the Company will maintain or increase revenues or profitability or avoid losses in any future period. 11 12 The Company's strategy for growth is substantially dependent upon its continued ability to acquire products primarily targeted at the skin care market. The Company engages in limited proprietary research and development of new products and must rely upon the willingness of other companies to sell or license product lines or technologies. Other companies, including those with substantially greater financial, marketing and sales resources, compete with the Company to acquire such products. There can be no assurance that the Company will be able to acquire rights to additional products on acceptable terms, or at all. The failure of the Company to acquire additional products or successfully introduce new products could have a material adverse effect on the Company's business, financial condition and results of operations. Further, any new internally developed or acquired products may have different distribution channels, pricing resources and levels and competition than the Company's current products. Consequently, there can be no assurance that the Company will be able to compete favorably and attain market acceptance in any new product category or successfully integrate any acquired products or businesses. In addition, any such products may require the Company to significantly increase its sales force and incur commensurate expense levels in anticipation of a new product introduction. Failure of the Company to successfully introduce and market new products, whether internally developed or acquired from third parties, would have a material adverse effect on the Company's business, financial condition and results of operations. The Company has recently experienced and will continue to experience a period of significant expansion of its operations that has placed a significant strain upon its management system and resources. The Company's ability to compete effectively and to manage future growth, if any, will require the Company to continue to improve its financial and management controls, reporting systems and procedures on a timely basis and expand, hire, train and manage an increasing number of employees. The Company's failure to do so would have a material adverse effect upon the Company's business, financial condition and results of operations. The Company's business strategy includes potential acquisitions of products and businesses and introductions of new products. The Company anticipates that the integration of additional new businesses or potential products, if any, would require significant expense and management time and attention. Failure to manage such change effectively would have a material adverse effect on the Company's business, financial condition and results of operations. The Company recognizes revenues from sales upon shipment to its customers. At the time of sale, the Company records reserves for returns based on estimates using historical experience. Sales are reported net of actual and estimated product returns and net of pricing adjustments and/or discounts. The Company applies royalty obligations to the cost of sales in the period the corresponding sales are recognized. 12 13 Medicis' customers include the nation's leading wholesale pharmaceutical distributors, such as McKesson Drug Company ("McKesson"), Bergen Brunswig Drug Company ("Bergen Brunswig"), Cardinal Health, Inc. ("Cardinal"), and other major drug chains. In fiscal 1998, McKesson, Bergen Brunswig and Cardinal accounted for 16.9%, 13.2% and 12.6%, respectively, of the Company's sales. In fiscal 1997, McKesson, Cardinal and Bergen Brunswig accounted for 20.6%, 16.3% and 10.9%, respectively, of the Company's sales. The loss of, or deterioration in, any of these customer accounts could have a material adverse effect upon the Company's business, financial condition or results and operations. To enable Medicis to focus on its core marketing and sales activities, the Company selectively out-sources certain non-sales and non-marketing functions, such as laboratory research, manufacturing and warehousing. As the Company expands its activities in these areas, additional financial resources are expected to be utilized. The Company typically does not enter into long-term manufacturing contracts with third-party manufacturers. Whether or not such contracts exist, there can be no assurance that the Company will be able to obtain adequate supplies of such products in a timely fashion, or at all. The Company may increase total expenditures for research and development and expects that research and development expenditures as a percentage of net sales will fluctuate from period to period. Actual expenditures will depend on a variety of factors, including the Company's financial condition, as well as the results of clinical testing, delays or changes in government-required testing and approval procedures, technological and competitive developments and strategic marketing decisions. There can be no assurance that any product or technology under development will result in the successful introduction of any new product. The Year 2000 issue results from the inability of some computer programs to identify the year 2000 properly, potentially leading to errors or system failure. A company's business may be adversely affected if it, or any of its suppliers and customers or others with whom it transacts business (including its banks and governmental agencies), have not timely resolved the year 2000 issue. In response to its rapid growth, the Company selected a new management information system in fiscal 1997, which was implemented in fiscal 1998, that is expected to meet its presently anticipated needs. In selecting a system, Year 2000 compliance was one of the criteria. The Company is reviewing the areas within its business and operations which could be adversely affected by Year 2000 issues and evaluating the costs associated with modifying and testing its systems for the Year 2000. Although the Company is not yet able to estimate its incremental cost for the Year 2000 issues, within its internal information systems, based on its preliminary review to date, the Company does not believe Year 2000 issues will have a material adverse effect on the Company's business, financial condition and results of operations. The Company is currently working with critical third parties to determine the impact of Year 2000 issues on their business and operations and its collateral impact on the business and operations of the Company and to determine such third parties plans to remediate Year 2000 issues where their systems interface with the Company's systems. The assessment and 13 14 necessary modification for the Year 2000 issue are estimated to be completed in late 1999. RESULTS OF OPERATIONS The following table sets forth certain data as a percentage of net sales for the periods indicated.
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, ----------------------------------- ----------------------------------- 1996 1997 1998 1996 1997 1998 ----- ----- ----- ----- ----- ----- Net sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Gross profit 73.5 82.3 81.0 73.3 82.0 81.0 In-process research and development -- (209.1) (33.9) -- (114.8) (18.0) Operating expenses (1) (46.5) (45.6) (39.1) (48.6) (45.8) (40.2) Operating income (loss) 27.0 (172.4) 8.0 24.7 (78.6) 22.8 Net interest income 15.4 5.4 8.9 9.0 6.9 10.6 Income tax benefit (expense) (4.2) (16.4) (5.5) 9.8 (16.8) (12.0) ----- ----- ----- ----- ----- ----- Net income (loss) 38.2% (183.4)% 11.4% 43.5% (88.5)% 21.4% ===== ===== ===== ===== ===== =====
(1) Excludes in-process research and development THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 1997 Net Sales Net sales for the three months ended December 31, 1998 (the "second quarter of fiscal 1999") increased 65.5%, or $11.0 million, to $28.0 million from $16.9 million for the three months ended December 31, 1997 (the "second quarter of fiscal 1998"). The Company's net sales increased in the second quarter of fiscal 1999 primarily as a result of the effect of sales associated with the acquisition of the Hoechst Marion Roussel, Inc. products ("HMR Products") which were acquired in November 1998 and the GenDerm products acquired in December 1997 and the unit and dollar sales growth of the Company's LUSTRA(R) product. The Company's prescription products accounted for 74.4% of net sales in the second quarter oF fiscal 1999 and 80.5% of net sales in the second quarter of fiscal 1998. The OTC and doctor-dispensed products accounted for 25.6% of net sales and 19.5% of net sales in the second quarter of fiscal 1999 and 1998, respectively. Gross Profit Gross profit during the second quarter of fiscal 1999 increased 63.0%, or $8.8 million, to $22.7 million from $13.9 million in the second quarter of fiscal 1998. As a percentage of net sales, gross profit decreased to 81.0% in the second quarter of fiscal 1999 from 82.3% in the second quarter of fiscal 1998, primarily as a result of greater OTC sales as a percentage 14 15 of total net sales. OTC products have a lower gross profit percentage than the Company's prescription brands. Selling, General and Administrative Expenses Selling, general and administrative expenses in the second quarter of fiscal 1999 increased 43.5%, or $2.7 million, to $8.9 million from $6.2 million in the second quarter of fiscal 1998, primarily due to the expenses associated with the promotion and administration of the Company's GenDerm products which were acquired in December 1997 and advertising associated with the Company's existing brands, including LUSTRA(R). Additionally, selling, general and administrative costs also increased due to an increase in variable costs commensurate with increased sales volume, the expansion of the Company's sales force to 68 sales representatives from 47 sales representatives at fiscal year end June 30, 1998 and additional personnel costs attributable to the hiring of additional full-time equivalent employees and cost-of-living salary adjustments. Selling, general and administrative costs, as a percentage of net sales, decreased 4.9 percentage points in the second quarter of fiscal 1999 relative to the second quarter of fiscal 1998. Research and Development Expenses Research and development expenses in the second quarter of fiscal 1999 decreased 21.7%, or $196,000, to $708,000 from $904,000 in the second quarter of fiscal 1998, primarily due to the timing of various research and development projects offset by expenses associated with the clinical support of the Company's existing products. In-Process Research and Development The Company recorded a $9.5 million charge to operations as in-process research and development during the second quarter of fiscal 1999 as part of the allocated purchase price of HMR. In the second quarter of fiscal 1998 the Company recorded a $35.4 million charge to operations as in-process research and development as part of the allocated purchase price of GenDerm. The amounts allocated to in-process research and development were based on independent appraisals. Depreciation and Amortization Expenses Depreciation and amortization expenses in the second quarter of fiscal 1999 increased 121.9%, or $741,000, to $1,349,000 from $608,000 in the second quarter of fiscal 1998, primarily due to amortization of intangible assets associated with the Company's acquisition of the HMR Products in November 1998 and GenDerm in December 1997. Operating Income Operating income during the second quarter of fiscal 1999, absent special charges for in-process research and development increased 89.1%, or $5.5 million, to $11.7 million from $6.2 million in the second quarter of fiscal 1998. This increase was primarily a result of 15 16 higher sales volume, coupled with a of 6.5 percentage point decrease in operating costs as a percentage of net sales offset by a lower gross profit as a percentage of net sales. Interest Income Interest income in the second quarter of fiscal 1999 increased 167.7%, or $1.6 million, to $2.5 million from approximately $0.9 million in the second quarter of fiscal 1998, primarily due to higher cash equivalent and short-term investment balances in the second quarter of fiscal 1999. These balances are primarily the result of the Company's February 1998 receipt of cash proceeds from its public offering and the Company's cash flow from operations. Income Tax Expense Income tax expense during the second quarter of fiscal 1999 decreased $1.3 million to $1.5 million from $2.8 million in the second quarter of fiscal 1998. The provision for income taxes recorded for the second quarter of fiscal 1999 reflects management's estimate of the effective tax rate expected to be applicable for the full fiscal year. This estimate is reevaluated by management each quarter based on forecasts of income before taxes for the year. The decrease in income tax expense as compared to the second quarter of fiscal 1998 is due to a reduction in pre-tax income. The decrease in pre-tax income is primarily related to the reduction of the special charge for in-process research and development in fiscal 1998 for which no tax benefit was realized. The fiscal 1999 charge for in-process research and development which represents a tax benefit to the Company and is deducted to reach pre-tax income. The decrease in the effective tax rate as compared to the first quarter of fiscal 1998 is primarily attributable to an increase in tax exempt interest income. Net Income Net income during the second quarter of fiscal 1999 increased approximately $34.2 million, to $3.2 million from a loss of $31.0 million from the second quarter of fiscal 1998. The increase is a result of the $35.4 million charge to operating expenses in fiscal 1998 for in-process research and development. Absent the special charges for in-process research and development in fiscal 1999 and fiscal 1998, net income increased approximately 191.6%, or $8.3 million, to $12.7 million from $4.4 million in the second quarter fiscal 1999 compared to the second quarter of fiscal 1998. The increase is primarily attributable to an increase in sales volume, lower operating expenses as a percentage of sales, and interest income generated by higher cash and cash equivalent balances. SIX MONTHS ENDED DECEMBER 31, 1998 COMPARED TO THE SIX MONTHS ENDED DECEMBER 31, 1997 Net Sales Net sales for the six months ended December 31, 1998 (the "1999 six months") increased 71.2% or $22.0 million, to $52.8 million from $30.8 million for the six months ended December 31, 1997 (the "1998 six months") primarily as a result of the GenDerm 16 17 acquisition in December 1997 and the HMR Product acquisition in November 1998. The Company net sales also increased as result of an increase in unit and dollars sales of LUSTRA(R), which was introduced by the Company in the third quarter of fiscal 1998. The company's prescription products accounted for 69.2% of net sales in the 1999 six months as compared to 83.8% of net sales in the 1998 six months. The OTC and doctor-dispensed products accounted for 30.8% of net sales in the 1999 six months as compared to 16.2% of net sales for the 1998 six months. Gross Profit Gross Profit in the 1999 six months increased 69.1%, or $17.5 million, to $42.8 million from 25.3 million in the 1998 six months. As a percentage of net sales, gross profit decreased 1.0 percentage points to 81.0% in the 1999 six months from 82.0% in the 1998 six months, primarily as a result of greater OTC sales as a percentage of total net sales. OTC products have a lower gross profit percentage than the Company's prescription products. Selling, General and Administrative Expenses Selling, general and administrative expenses in the 1999 six months increased 52.2%, or $6.1 million, to $17.7 million from $11.6 million in the 1998 six months. The increase is primarily due to an increase in selling, general and administrative expenses associated with promotion and administration of the Acquired Brands and also the HMR Products acquired in November 1998, and the sampling and advertising of the Company's existing products. Additionally, selling, general and administrative expenses increased due to variable compensation commensurate with increased sales volume, personnel costs attributable to an increase in full-time equivalent employees, and cost-of-living salary adjustments. Selling, general and administrative costs, as a percentage of net sales, have decreased 4.2 percentage points in the 1999 six months compared to the 1998 six months. Research and Development Expenses Research and development expenses in the 1999 six months decreased 12.6% or $173,000 to approximately $1.2 million, from $1.4 million in the 1998 six months primarily due to the timing of various research and development projects offset by expenses associated with the clinical support of the Company's existing products. Depreciation and Amortization Expenses Depreciation and amortization expenses in the 1999 six months increased 111.2%, or $1.2 million, to $2.3 million from $1.1 million in the 1998 six months primarily due to amortization of the intangible assets associated with the Company's acquisition of the HMR Products in November 1998 and a full six months of amortization as a result of the GenDerm acquisition in December 1997. 17 18 In-Process Research and Development The Company recorded a $9.5 million charge to operations as in-process research and development during the 1999 six months as part of the allocated purchase price of HMR. In the 1998 six months the Company recorded a $35.4 million charge to operations as in-process research and development as part of the allocated purchase price of GenDerm. The amounts allocated to in-process research and development were based on independent appraisals. Operating Income Operating income in the 1999 six months increased $36.3 million to $12.0 million from net operating loss of $24.3 million in the 1998 six months primarily as a result of the $35.4 charge for in-process research and development to operating expenses relating to the Company's purchase of GenDerm in December 1997. Absent special charges, operating income in the 1999 six months increased 92.8%, or $10.4 million, to $21.5 from $11.1 million in the 1998 six months as a result of higher sales volume, coupled with an 4.2 percentage point decrease in the Company's selling, general and administrative expenses as a percentage of net sales. Interest Interest income in the 1999 six months increased 163.1%, or $3.5 million to $5.6 million from approximately $2.1 million in the 1998 six months, primarily due to higher cash and short-term investment balance in the 1999 six months generated from cash flow from operations and the public offering completed by the Company in February 1998. Income Tax Income tax expense in the 1999 six months increased 22.5%, or $1.1 million to $6.3 million from of $5.2 million in the 1999 six months. The provision for income taxes recorded for the 1998 six months reflects management's estimate of the effective tax rate expected to be applicable for the full fiscal year. This estimate is reevaluated by management each quarter based on forecasts of income before taxes for the year. The increase in income tax expense in the 1999 six months as compared to the 1998 six months is due to a increase in pre-tax income offset by the special charge for in-process research and development in fiscal 1998 for which no tax benefit was realized. A tax benefit is associated with the charge for in-process research and development incurred in the 1999 six months as a result of the HMR Product acquisition. No income tax benefit is associated with the charge for in-process research and development incurred in the 1998 six months as a result of the GenDerm acquisition. The decrease in the effective tax rate in the 1999 six months as compared to the 1998 six months is primarily attributable to an increase in tax exempt interest income. 18 19 Net Income Net income in the 1999 six months increased approximately $38.6 million to $11.3 million from a net loss of $27.3 million in the 1998 six months. This increases is a result of the $35.4 million charge for in-process research and development to operating expenses relating to the Company's purchase of GenDerm in the 1998 six months. Absent special charges, net income in the 1999 six months increased 156.4%, or $12.7 million, to $20.8 million from $8.1 million in the 1998 six months as a result of an increase in sales volume, and a decrease in selling, general and administrative costs as a percentage of sales. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1998 and June 30, 1998, the Company had cash equivalents and short-term investments of approximately $225.6 million and $237.9 million, respectively. The Company's working capital was $240.5 million and $263.0 million at December 31, 1998 and June 30, 1998, respectively. The decrease in working capital is primarily attributable to a $22.0 million payment and a short-term obligation of $22.0 million incurred by the Company as a result of the HMR acquisition offset by the Company's cash flow from operations of approximately $9.9 million. At December 31, 1998 and June 30, 1998, the Company had inventories of $11.1 million and $9.2 million, respectively. The increase in the Company's inventory balances is primarily related to inventory associated with the HMR Products acquired by the Company in November 1998 and an increase in the Company's inventory held by third parties which the Company is required to record in its inventory balance and which fluctuates due to the timing of the third parties manufacturing cycles which the Company does not control. At December 31, 1998 and June 30, 1998, the Company had current liabilities of $33.6 million and $15.2 million, respectively. The increase is primarily due to the $22.0 million short-term obligation incurred by the Company as a result of the acquisition of the HMR products. In accordance with various manufacturing agreements, the Company is required to provide manufacturers with pro forma estimated production requirements by product and in accordance with minimum production runs. From time to time, the Company may not take possession of all merchandise which has been produced by the manufacturer. However, the Company records its obligation to the manufacturer at the time finished inventory is produced. In November 1998, the Company agreed to license with an option to purchase the LOPROX(R), TOPICORT(R) and A/T/S(R) products from Hoechst Marion Roussel, Inc. The Company, using cash reserves, paid $22.0 million and will make two additional annual payments of $22.0 million. Medicis then has the option to purchase the products for $16.5 million after three years. The $22.0 million due on the first anniversary of the transaction is recorded as a short-term obligation and the remaining $33.3 million is recorded as a long-term obligation. 19 20 On January 12, 1999, the Company announced that its Board of Directors had approved a 3-for-2 stock split to be effected in the form of a 50% stock dividend. The dividend will be paid to holders of record of the Class A and Class B Common Stock and all stock option holders on January 29, 1999, i.e. the record date for payment on February 16, 1999, i.e. the payment date. Holders of the Company's Class A and Class B Common Stock receive one additional share of Common Stock for each two shares held. Similar adjustments will be made under the Company's Rights Agreement, dated as of August 15, 1995 (as amended from time-to-time) between the Company and Norwest Bank Minnesota, N.A., so that one additional right shall be issued to accompany each share of Common Stock issued pursuant to the dividend. Inflation did not have a significant impact upon the results of the Company during the three months ended December 31, 1998. PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On November 24, 1998, the Company held its 1998 Annual Meeting of Stockholders (the "Annual Meeting"). The holders of 15,303,664 shares of Class A Common Stock and 281,974 shares Class B Common Stock were present in person or represented by proxy at the meeting. At the Annual Meeting the Company's stockholders approved the following: 1) Election of Directors The stockholders elected the following persons to serve as directors of the Company for terms of three years, or until their successors are duly elected and qualified. Votes were cast as follows:
Number of Votes for Which Number of Proxy Withheld Votes for Authority ----------- --------- Jonah Shacknai 18,069,014 54,390 Michael A. Pietrangelo 18,069,014 54,390 Lottie Shackelford 18,069,014 54,390
2) Approved the adoption of the 1998 Medicis Pharmaceutical Corporation Stock Option Plan, (the "1998 Plan"). The 1998 Plan provides for the reservation of 3,000,000 shares of Class A Common Stock for issuance pursuant to incentive stock options or non-qualified options. Votes were cast as follows:
Number of Number of Number of Votes for Votes Against Votes Abstaining --------- ------------- ---------------- 9,832,995 5,603,704 29,965
3) Approve the appointment of Ernst & Young LLP as independent auditors for the fiscal year ending June 30, 1999. Votes were cast as follows:
Number of Number of Number of Votes for Votes Against Votes Abstaining --------- ------------- ---------------- 18,039,599 71,754 12,051
20 21 ITEM 6. EXHIBITS AND REPORTS ON FORMS 8-K (a) Exhibits No. 10.72(d) THIRD AMENDMENT TO CREDIT AND SECURITY AGREEMENT dated the 22nd day of November 1998 by and between MEDICIS PHARMACEUTICAL CORPORATION, a Delaware corporation, ("Borrower"), and NORWEST BANK ARIZONA, NATIONAL ASSOCIATION, a national banking association, as successor-in-interest to NORWEST BUSINESS CREDIT., a Minnesota corporation ("Lender"). No. 10.73(c) AMENDED AND RESTATED PATENT COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT made the 22nd day of November 1998 by and between MEDICIS PHARMACEUTICAL CORPORATION, a Delaware corporation ("Assignor") and NORWEST BANK ARIZONA, NATIONAL ASSOCIATION, a national banking association ("Lender"). No. 10.74(c) AMENDED AND RESTATED TRADEMARK, TRADENAME, AND SERVICE MARK COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT made as of the 22nd day of November 1998 by and between MEDICIS PHARMACEUTICAL CORPORATION, a Delaware corporation ("Assignor"), and NORWEST BANK ARIZONA, NATIONAL ASSOCIATION, a national banking association ("Lender"). No. 10.77(a) FIRST AMENDMENT TO SECURITIES ACCOUNT PLEDGE AND SECURITY AGREEMENT made as of the 22nd day of November 1998 by and between MEDICIS PHARMACEUTICAL CORPORATION, a Delaware corporation, ("Borrower"), and NORWEST BANK ARIZONA, NATIONAL ASSOCIATION, a national banking association ("Lender"). No. 10.78(a) FIRST AMENDMENT TO ACKNOWLEDGMENT OF CONTROL OF PLEDGED SECURITIES ACCOUNT made the 22nd day of November 1998 by and among Medicis Pharmaceutical Corporation, a Delaware corporation ("Borrower"), and NORWEST BANK ARIZONA, NATIONAL ASSOCIATION, a national banking association ("Lender"). No. 10.88 REPLACEMENT ACQUISITION REVOLVING NOTE made as of the 22nd day of November 1998 by and between MEDICIS PHARMACEUTICAL CORPORATION, a Delaware corporation ("Borrower"), and NORWEST BANK ARIZONA, NATIONAL ASSOCIATION, a national banking association ("Lender"). No. 10.89 ASSET PURCHASE AGREEMENT made the 15th day of November 1998 by and among MEDICIS PHARMACEUTICAL CORPORATION and HOECHST MARION ROUSSEL, INC., HOECHST MARION ROUSSELL DEUTSCHLAND GMBH and HOECHST MARION ROUSSEL, S.A. 22 22 No. 10.90 LICENSE AND OPTION AGREEMENT made the 15th day of November 1998 by and among MEDICIS PHARMACEUTICAL CORPORATION and HOECHST MARION ROUSSEL, INC., HOECHST MARION ROUSSEL DEUTSCHLAND GMBH and HOECHST MARION ROUSSEL, S.A. No. 10.91 LOPROX LOTION SUPPLY AGREEMENT made the 15th day of November 1998 by and between MEDICIS PHARMACEUTICAL CORPORATION and HOECHST MARION ROUSSEL, INC. No. 10.92 SUPPLY AGREEMENT made the 15th day of November 1998 by and between MEDICIS PHARMACEUTICAL CORPORATION and HOECHST MARION ROUSSEL DEUTSCHLAND GMBH. No. 27.1 Financial Data Schedule (see Note 3 to the Notes to the Condensed Consolidated Financial Statements incorporated herein for computation of Per Common Share results.) (b) No reports on Form 8-K have been filed during the quarter for which this report is filed. 23 23 SIGNATURE 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. MEDICIS PHARMACEUTICAL CORPORATION Date: 2/16/99 By: /s/ Jonah Shacknai ------------------------------------ Jonah Shacknai Chairman and Chief Executive Officer Date: 2/16/99 By: /s/ Mark A. Prygocki Sr. ------------------------------------ Mark A. Prygocki, Sr. Chief Financial Officer Secretary and Treasurer 24 24 Exhibits Exhibit Index No. 10.72(d) THIRD AMENDMENT TO CREDIT AND SECURITY AGREEMENT dated the 22nd day of November 1998 by and between MEDICIS PHARMACEUTICAL CORPORATION, a Delaware corporation, ("Borrower"), and NORWEST BANK ARIZONA, NATIONAL ASSOCIATION, a national banking association, as successor-in-interest to NORWEST BUSINESS CREDIT., a Minnesota corporation ("Lender"). No. 10.73(c) AMENDED AND RESTATED PATENT COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT made the 22nd day of November 1998 by and between MEDICIS PHARMACEUTICAL CORPORATION, a Delaware corporation ("Assignor") and NORWEST BANK ARIZONA, NATIONAL ASSOCIATION, a national banking association ("Lender"). No. 10.74(c) AMENDED AND RESTATED TRADEMARK, TRADENAME, AND SERVICE MARK COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT made as of the 22nd day of November 1998 by and between MEDICIS PHARMACEUTICAL CORPORATION, a Delaware corporation ("Assignor"), and NORWEST BANK ARIZONA, NATIONAL ASSOCIATION, a national banking association ("Lender"). No. 10.77(a) FIRST AMENDMENT TO SECURITIES ACCOUNT PLEDGE AND SECURITY AGREEMENT made as of the 22nd day of November 1998 by and between MEDICIS PHARMACEUTICAL CORPORATION, a Delaware corporation, ("Borrower"), and NORWEST BANK ARIZONA, NATIONAL ASSOCIATION, a national banking association ("Lender"). No. 10.78(a) FIRST AMENDMENT TO ACKNOWLEDGMENT OF CONTROL OF PLEDGED SECURITIES ACCOUNT made the 22nd day of November 1998 by and among Medicis Pharmaceutical Corporation, a Delaware corporation ("Borrower"), and NORWEST BANK ARIZONA, NATIONAL ASSOCIATION, a national banking association ("Lender"). No. 10.88 REPLACEMENT ACQUISITION REVOLVING NOTE made as of the 22nd day of November 1998 by and between MEDICIS PHARMACEUTICAL CORPORATION, a Delaware corporation ("Borrower"), and NORWEST BANK ARIZONA, NATIONAL ASSOCIATION, a national banking association ("Lender"). No. 10.89 ASSET PURCHASE AGREEMENT made the 15th day of November 1998 by and among MEDICIS PHARMACEUTICAL CORPORATION and HOECHST MARION ROUSSEL, INC., HOECHST MARION ROUSSELL DEUTSCHLAND GMBH and HOECHST MARION ROUSSEL, S.A. 25 No. 10.90 LICENSE AND OPTION AGREEMENT made the 15th day of November 1998 by and among MEDICIS PHARMACEUTICAL CORPORATION and HOECHST MARION ROUSSEL, INC., HOECHST MARION ROUSSEL DEUTSCHLAND GMBH and HOECHST MARION ROUSSEL, S.A. No. 10.91 LOPROX LOTION SUPPLY AGREEMENT made the 15th day of November 1998 by and between MEDICIS PHARMACEUTICAL CORPORATION and HOECHST MARION ROUSSEL, INC. No. 10.92 SUPPLY AGREEMENT made the 15th day of November 1998 by and between MEDICIS PHARMACEUTICAL CORPORATION and HOECHST MARION ROUSSEL DEUTSCHLAND GMBH. No. 27.1 Financial Data Schedule EX-10.72 2 EX-10.72 1 Exhibit 10.72 THIRD AMENDMENT TO CREDIT AND SECURITY AGREEMENT THIS THIRD AMENDMENT TO CREDIT AND SECURITY AGREEMENT (the "Amendment") is made as of the 22nd day of November, 1998 by and between MEDICIS PHARMACEUTICAL CORPORATION, a Delaware corporation ("Borrower"), and NORWEST BANK ARIZONA, NATIONAL ASSOCIATION, a national banking association, as successor-in-interest to NORWEST BUSINESS CREDIT, INC., a Minnesota corporation ("Lender"). R E C I T A L S: WHEREAS, Borrower and Norwest Business Credit, Inc. ("NBCI") are parties to that certain Credit and Security Agreement dated as of August 3, 1995, as modified by letter agreements dated March 6, 1996 and April 11, 1996, First Amendment to Credit and Security Agreement dated as of May 29, 1996 among Borrower, NBCI and Lender, and Second Amendment to Credit and Security Agreement dated as of November 22, 1998 between Borrower and Lender (collectively, the "Credit Agreement"), pursuant to which Lender agreed to make available to Borrower, on a revolving basis, a sum not to exceed $2,000,000 (the "Revolving Loan"), which Revolving Loan is evidenced by that certain Promissory Note dated August 3, 1995 from Borrower to NBCI in an amount not to exceed $2,000,000 (the "Revolving Note"), and committed to advance $3,000,000 (the "Term Credit Facility") to finance capital expenditures, product development costs, brand purchase contracts, licensing agreements and other financial needs mutually agreed upon in writing by Borrower and Lender in their sole and absolute discretion, which Term Credit Facility is evidenced by that certain Multiple Advance Note dated May 29, 1996 from Borrower to Lender in an amount not to exceed $3,000,000 (the "Term Note"), and an additional $20,000,000 revolving credit facility (the "Acquisitions Credit Facility") to finance acquisition of complementary businesses, brand product lines, brand purchase contracts, licensing agreements, and internal product research and development costs, which Acquisitions Credit Facility is evidenced by that certain Acquisitions Revolving Note dated November 22, 1996 from Borrower to Lender in an amount not to exceed $20,000,000 (the "Original Acquisitions Revolving Note"); WHEREAS, the Revolving Loan and the Term Credit Facility expired unused on the Termination Date and Lender has no further obligation to advance any sums under the Revolving Loan or the Term Credit Facility; WHEREAS, Borrower has requested that Lender increase the Acquisitions Credit Facility to $25,000,000 and extend the term of the Credit Agreement and Acquisitions Credit Facility for an additional two (2) years and make certain modifications and amendments to the terms of the Credit Agreement and other Loan Documents, and Lender is willing to do so on the terms and conditions contained herein; WHEREAS, on or about January 14, 1998, Lender agreed, in connection with the next modification of the Credit Agreement, to amend and restate the Patent Collateral Assignment and Security Agreement dated August 3, 1995, as amended, and the Trademark, Tradename and Service Mark Collateral Assignment and Security Agreement dated August 3, 1995, as amended, 2 to further confirm that the collateral was assigned by Borrower to Lender as security rather than as an absolute assignment; and WHEREAS, the origination fee paid by Borrower in connection with the Second Amendment was fully amortized over the initial two-year term of the Acquisitions Credit Facility and will not be applied as a credit to any subsequent fees from Borrower to Lender; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and Lender, intending to be legally bound, agree as follows: 1. INTERPRETATION. Except as otherwise defined herein, all capitalized terms used herein shall have the meanings ascribed thereto in the Credit Agreement. 2. RECITALS. The recitals set forth above are true and accurate in every respect. 3. OUTSTANDING INDEBTEDNESS. As of November 22, 1998: the outstanding principal balance of the Revolving Loan is $0.00 and the accrued and unpaid interest on the Revolving Loan is $0.00; the outstanding principal balance of the Term Credit Facility is $0.00 and the accrued and unpaid interest on the Term Credit Facility is $0.00; and the outstanding principal balance of the Acquisitions Credit Facility is $0.00 and the accrued and unpaid interest on the Acquisitions Credit Facility is $0.00. 4. NO OFFSETS. Borrower acknowledges with respect to the amounts owing to Lender that, as of the date of execution of this Amendment (which may be after the effective date of this Agreement), Borrower has no offset, defense or counterclaim with respect thereto, no claim or defense in the abatement or reduction thereof, or any other claim against Lender or with respect to any document forming part of the transaction in respect of which the Revolving Loan or the Term Credit Facility was made or forming part of any other transaction under which Borrower is indebted to Lender. Borrower acknowledges that all interest imposed under the Revolving Note and the Term Note through the date of execution hereof, and all fees and other charges that have been collected from or known by Borrower to have been imposed upon Borrower with respect to the Revolving Loan evidenced by the Revolving Note or the Term Credit Facility evidenced by the Term Note were and are agreed to, and were properly computed and collected, and that Lender has fully performed all obligations that it may have had or now have to Borrower, and Lender has no obligation to make any additional loan or extension of credit to or for the benefit of Borrower, except as provided in the Credit Agreement, as amended by this Amendment. 5. REPRESENTATIONS AND WARRANTIES OF BORROWER. To induce Lender to enter into this Amendment and the arrangement contemplated by this Amendment, Borrower represents and warrants to Lender as follows: (a) This Amendment and all other instruments executed and delivered to Lender concurrently herewith, were executed in accordance with the requirements of law and in accordance with any requirements of Borrower's certificate of incorporation and bylaws and any amendments thereto. -2- 3 (b) The execution and delivery of this Amendment and any other instruments executed and delivered to Lender concurrently herewith, and the full and complete performance of the provisions hereof will not result in any breach of, or constitute a default under, or result in the creation of any lien, charge or encumbrance upon any property or assets of Borrower under any indenture, mortgage, deed of trust, bank loan or credit agreement or other instrument to which Borrower is a party or by which Borrower is bound. (c) The Loan Documents executed by Borrower and this Amendment are the legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their terms. (d) Except as previously disclosed to Lender in writing, there are no actions, suits or proceedings pending or, to the knowledge of the Borrower, threatened against or affecting Borrower or any of its Subsidiaries or the properties of Borrower or any of its Subsidiaries before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which, if determined adversely to the Borrower or any of its Subsidiaries, would reasonably be expected to have a material adverse effect on the financial condition, properties or operations of the Borrower or any Subsidiaries and where such claim(s) exceed $200,000, individually, or $500,000 in the aggregate. (e) Except for the sale of TRIAZ under an Applicable License, Borrower has not derived ten percent (10%) or more of Borrower's Net Sales in any Fiscal Year from any Applicable License as described in Section 6.14 of the Credit Agreement. (f) Except as disclosed by Borrower to Lender in writing contemporaneously with the execution and delivery of this Amendment, Borrower does not have any new patent applications pending since January 29, 1998 before the PTO Office; and none of the pending patent applications as of January 29, 1998 and thereafter has yet been approved by the PTO Office. (g) There are no oral agreements, understandings or course of conduct that would modify, amend, rearrange, vary, diminish or impair the Loan Documents or the obligation of Borrower to pay the indebtedness evidenced thereby or to perform fully the obligations of Borrower in strict accordance with the Loan Documents, or which would permit Borrower to void or avoid its obligations in whole or in part. (h) All of the respective representations and warranties made by Borrower in the Loan Documents remain true, complete and correct as of the date hereof, including, without limitation, the representations and warranties in Section 5 of the Credit Agreement, except to the extent of any changes to such representations and warranties previously disclosed in writing to Lender. No representation or warranty made by Borrower and contained herein or in the other Loan Documents, and no certificate, information or report furnished or to be furnished by Borrower in connection with any of the Loan Documents or any of the transactions contemplated hereby or thereby, contains or will contain a misstatement of material fact, or omits or will omit to state a -3- 4 material fact required to be stated in order to make the statements contained herein or therein not misleading in the light of the circumstances under which such statements were made. 6. CONTINUED ENFORCEABILITY OF LOAN DOCUMENTS. Except as modified herein, all of the terms and provisions of the Loan Documents remain in full force and effect. In the event of any conflict between the terms and provisions of this Amendment and the terms and provisions of the Loan Documents, the terms and provisions of this Amendment shall govern and prevail. Borrower acknowledges, confirms and ratifies the enforceability of the Credit Agreement, the Acquisitions Revolving Note and the Loan Documents, as modified pursuant to this Amendment, and the continuing validity, enforceability and priority of the liens and security interests granted in the Loan Documents. 7. RELEASE OF CLAIMS. (a) Borrower hereby releases Lender and its officers, employees and agents from all claims and demands (known and unknown) it may have on the date hereof arising out of or in any way relating to the extension or denial of credit by Lender to Borrower or other matters relating to the indebtedness, any collateral securing payment and performance of such indebtedness, or any matter preliminary to the execution and delivery by Borrower and Lender of this Amendment. The release set forth above shall not extend to any claim arising after the date of execution hereof (which may be after the effective date of this Agreement) to the extent based on acts or omissions of Lender occurring after such date, except that such release is specifically intended by the parties to include the transactions leading up to the execution of this Amendment. This Amendment and the release provisions contained in this Section 7 are contractual, and not a mere recital. (b) Borrower acknowledges and agrees that Lender is not, and shall not be, obligated in any way to continue or undertake any loan, financing or other credit arrangement with Borrower, including, without limitation, any renewal of the indebtedness evidenced by the Loan Documents, except on the terms and subject to the conditions set forth in the Loan Documents as hereby amended and modified. (c) Borrower understands and acknowledges that Lender and Account Holder are separate and distinct corporate entities, as well as affiliate corporations, and Borrower has knowingly and consciously made the determination to proceed with the credit arrangements with Lender as provided in this Credit Agreement and to maintain the investment advisor and custodian relationship with Account Holder as provided in the Investment Agreement. Borrower (i) knowingly waives and releases Lender for, from and against any claim, demand, cause of action, liability, damages and expenses incurred by Borrower and (ii) covenants and agrees that it will not claim, or attempt to claim, rights of setoff, off-set, recoupment or the like against Lender, in the case of both clauses (i) and (ii), arising out of, based upon, relating to, or otherwise occurring as a result of, any acts or omissions of, or any breach of contract or tort or any other theory of liability by, Account Holder. This provision is not intended to affect any rights or remedies of Borrower against Lender pursuant to the Credit Agreement. 8. CONDITIONS OF CLOSING. Lender's obligation to enter into this Amendment and the other documents and instruments required hereunder shall be subject to the satisfaction of all of -4- 5 the following conditions on or before December 31, 1998 (the "Closing" or the "Closing Date") in a manner, form and substance satisfactory to Lender, which conditions may be waived by Lender in writing in its sole and absolute discretion. (a) On the Closing Date, the representations and warranties of Borrower set forth in the Loan Documents shall be true and correct in all material respects when made and at and as of the time of the Closing. (b) The following shall have been delivered to Lender, each duly authorized, executed and acknowledged, where applicable: (i) This Amendment. (ii) A Replacement Acquisitions Revolving Note from Borrower payable to the order of Lender in the principal amount of $25,000,000. (iii) An Amended and Restated Patent Collateral Assignment and Security Agreement. (iv) An Amended and Restated Trademark, Tradename and Service Mark Collateral Assignment and Security Agreement. (v) The First Amendment to the Securities Account Pledge and Security Agreement. (vi) The First Amendment to Acknowledgment of Control of Pledged Securities Account. (c) Borrower shall have performed and complied in all material respects with all agreements and conditions contained in the Loan Documents to be performed by or complied with by Borrower prior to or at the Closing, and no Event of Default or Default shall have occurred and be continuing or would occur by Borrower entering into this Amendment and each condition precedent to the effectiveness of each of the Loan Documents shall have been satisfied. (d) Lender shall have received such documents as Lender shall require to establish the proper organization and good standing of Borrower, the authority of Borrower to execute this Amendment and any other documents or instruments required hereunder, and evidence that all approvals and/or consents of, or other action by, any shareholder, governmental agency or other Person whose approval or consent is necessary or required to enable Borrower to (a) enter into and perform its obligations under the Loan Documents and (b) grant to Lender the Security Interests, have been obtained. (e) All filings of Uniform Commercial Code financing statements and other filings and actions necessary to perfect and maintain the Security Interests as first, valid and perfected security interest in the Collateral shall have been filed or taken (or such filings delivered for filing immediately following the Closing, to Lender or a third party acceptable to Lender) and confirmation thereof shall have been received by Lender. -5- 6 (f) Lender shall have determined to its satisfaction that, as of the Closing Date, there has been no material adverse change in the financial condition of Borrower from the financial statements dated as of September 30, 1998 and other documents submitted by Borrower to Lender prior to the Closing Date. (g) Borrower shall have paid to Lender an extension fee of $37,500, which shall be fully earned and non-refundable upon Lender's execution and delivery of this Amendment, and, when invoiced, Lender's reasonable attorneys' fees and costs incurred in connection with this Amendment. (h) Lender shall be satisfied that (a) Borrower has good and indefeasible title to all of the Collateral and (b) Borrower at all times shall be entitled to the use and quiet enjoyment of all assets necessary and desirable for the continued ownership and operation of Borrower's business, including, without limitation, the use of equipment, licenses, fixtures and warehouses. (i) Lender shall have received an opinion of counsel to the Borrower, addressed to Lender, with respect to the transactions contemplated by this Amendment, in form and substance reasonably satisfactory to Lender and its counsel. 9. DEFINITIONS. (a) The definitions of "Acquisitions Committed Amount", "Acquisitions Credit Facility", "Acquisitions Revolving Note", "Borrowing Base" and "Net Income" in Section 1.1 of the Credit Agreement are hereby deleted in their entirety and the following inserted therefor: "Acquisitions Committed Amount" means a principal amount of $25,000,000. "Acquisitions Credit Facility" means the revolving credit facility in a principal amount not to exceed the Acquisitions Committed Amount. "Acquisitions Revolving Note" means that certain Replacement Acquisitions Revolving Note dated November 22, 1998 from Borrower to Lender in a principal amount not to exceed the Acquisitions Committed Amount, and any note or notes taken in exchange or replacement therefor and any modifications, renewals, extensions or increases thereof. "Borrowing Base" means seventy-five percent (75%) of the Market Value of the Securities Accounts. "Net Income" means, for any period, all income less costs and expenses for the applicable period, determined in accordance with GAAP, plus, to the extent deducted in initially determining Net Income, any extraordinary, non-recurring acquisition expenses reflected in the proforma consolidated financial statements provided to Lender in connection with any acquisition transaction -6- 7 that is the subject of an Advance under the Acquisitions Credit Facility. and (b) Section 1.1 of the Credit Agreement is hereby amended to add the following definitions in proper alphabetical order: "Market Value of the Securities Accounts" means the value of all of the financial assets in any Securities Accounts that constitute Collateral securing the obligations of the Borrower in which Lender holds a valid, enforceable first priority lien and security interest, free and clear of any other liens, claims or encumbrances, and, with respect to all such non-cash financial assets, the value of such financial assets marked-to-market as of the close of business on the last Banking Day of the immediately preceding month. "Maturity Date" means November 22, 2000. "Securities Account" or "Securities Accounts" means, individually or collectively, any "securities account" (as defined in the Uniform Commercial Code, as adopted in the States of Arizona and Minnesota, maintained by Borrower or any Affiliate of Borrower with Norwest Bank Minnesota, National Association, pursuant to that certain Investment Advisory Agreement dated as of October 17, 1996 (as it may be amended, modified, supplemented, rested, extended or replaced from time to time) that constitute Collateral securing the obligations of the Borrower in which Lender holds a valid, enforceable first priority lien and security interest, free and clear of any other liens, claims or encumbrances. "Third Amendment" means that certain Third Amendment to Credit and Security Agreement dated as of November 22, 1998 between Borrower and Lender. 10. ADVANCES. (a) The preface to Section 2.1 of the Credit Agreement is hereby deleted in its entirety and the following inserted therefor: Section 2.1 Advances. The Lender agrees, on the terms and subject to the conditions herein set forth, to make Advances to the Borrower from time to time during the period from the date hereof to and including the Maturity Date with respect to the Acquisitions Credit Facility, or the earlier date of termination in whole of the Acquisitions Credit Facility pursuant to Sections 2.4(a) or 8.2 hereof, in an aggregate principal amount at any time outstanding not to exceed the lesser of (a) the Borrowing Base and (b) the Acquisitions Committed Amount, which Advances shall be -7- 8 secured by the Collateral as provided in Article 3 hereof. The Acquisitions Credit Facility shall be a revolving credit facility and it is contemplated that the Borrower will request Advances, make prepayments and request additional Advances thereunder, and it is contemplated that Borrower will request Advances for financing acquisition of complementary businesses, brand product lines, brand purchase contracts, licensing agreements, and internal product research and development costs and other purposes mutually agreed upon in writing by Borrower and Lender in their sole and absolute discretion, which Advances will be repaid in accordance with the terms of this Agreement. The Borrower agrees to comply with the following procedures in requesting Advances under this Section 2.1: (b) Section 2.1(a) of the Credit Agreement is hereby deleted in its entirety and the following inserted therefor: (a) The Borrower will not request any Advance under this Section 2.1 if, after giving effect to such requested Advance, the sum of the outstanding and unpaid Advances under this Section 2.1 or otherwise, would exceed the Borrowing Base. and (c) Section 2.1(b) of the Credit Agreement is hereby deleted in its entirety and the following inserted therefor: (b) Each request for an Advance under this Section 2.1 shall be made to the Lender prior to 11:00 a.m. (Phoenix time) of the day of the requested Advance by the Borrower. Each request for an advance may be made in writing or by telephone, specifying the date of the requested Advance and the amount thereof, and shall be made by (A) any officer of the Borrower; or (B) any person designated as the Borrower's agent by any officer of the Borrower in a writing delivered to the Lender; or (C) any person reasonably believed by the Lender to be an officer of the Borrower or such a designated agent. 11. NOTE. Section 2.2 of the Credit Agreement is hereby deleted in its entirety and the following inserted therefor: Section 2.2 Note. All Advances made by the Lender under this Section 2.1 shall be evidenced by and repayable with interest in accordance with the Acquisitions Revolving Note. The principal of the Acquisitions Revolving Note shall be payable as provided herein and on the earlier of the Maturity Date or acceleration by the Lender pursuant to Section 8.2 hereof, and shall bear interest as provided herein. -8- 9 12. INTEREST. Section 2.3(a) of the Credit Agreement is hereby deleted in its entirety and the following inserted therefor: (a) Except as otherwise provided in Section 2.13, clause (b), the principal of the Loans outstanding from time to time during any month shall bear interest (computed on the basis of actual days elapsed in a 360-day year) at the Floating Rate; provided, however, that from the first day of any month during which any Default or Event of Default occurs or exists at any time, in the Lender's discretion and without waiving any of its other rights and remedies, the principal of the Loans outstanding from time to time shall bear interest at the Default Rate during the entire Default Period; and provided, further, that in any event no rate change shall be put into effect which would result in a rate greater than the highest rate permitted by applicable law. Interest accruing on the principal balance of the Advances outstanding from time to time shall be payable on the first day of each succeeding month and on the Maturity Date, or earlier demand or prepayment in full. The Borrower agrees that the interest rate contracted for includes the interest rate set forth herein, plus any other charges or fees set forth herein and costs and expenses incident to this transaction paid by the Borrower to the extent the same are deemed interest under applicable law. In the event, and on each occasion, that Lender shall have determined that dollar deposits in the aggregate amount of the Acquisition Credit Facility Advances are not generally available in the London interbank market, or that the rates at which such dollar deposits are being offered will not adequately and fairly reflect the cost to Lender of making or maintaining the outstanding Acquisitions Credit Facility Advances, or that reasonable means do not exist for ascertaining the Floating Rate, Lender shall, as soon as practicable thereafter, give written or facsimile transmission notice of such determination to Borrower. In the event of any such determination, until Lender shall have advised Borrower that the circumstances giving rise to such notice no longer exist, the interest rate on any outstanding Acquisitions Credit Facility Advances shall be the Base Rate, as such Base Rate changes from time to time, plus 125 basis points. Each determination by Lender hereunder shall be conclusive absent manifest error. 13. MANDATORY PREPAYMENT. (a) Section 2.5(a) of the Credit Agreement is hereby deleted in its entirety and the following inserted therefor: Section 2.5 Remargining and Mandatory Prepayment of Credit Facilities. (a) If, as of the end of any calendar month, the Advances exceed the Borrowing Base due to a decrease in the Market Value of the Securities Account, then, on or before five (5) Banking Days after Borrower's receipt of written notice thereof, -9- 10 Borrower shall cause the aggregate outstanding principal amount of the Advances to equal the Borrowing Base by (a) prepaying the Advances to the extent necessary to reduce the sum of the outstanding principal balance of the Advances to the Borrowing Base or less, and/or (b) depositing additional cash or financial assets into the Securities Accounts. Any payment received by the Lender under this Section 2.5(a) or under Section 2.4 may be applied to the Advances, including interest thereon and any fees, commissions, costs and expenses due and unpaid hereunder and under the Security Documents, in such order and in such amounts as the Lender, in its discretion, may from time to time determine. and (b) Section 2.5(b) of the Credit Agreement is hereby deleted in its entirety and the following inserted therefor: (b) Without notice or demand, except as provided in Section 2.5(a) above, if the sum of the outstanding principal balance of the Advances shall at any time exceed the Borrowing Base, Borrower shall within forty-eight (48) hours (excluding Saturdays, Sundays and Holidays) thereof cause the aggregate outstanding principal amount of the Advances to equal the Borrowing Base by (a) prepaying the Advances to the extent necessary to reduce the sum of the outstanding principal balance of the Advances to the Borrowing Base or less, and/or (b) depositing additional cash or financial assets into the Securities Accounts. Any payment received by the Lender under this Section 2.5(b) or under Section 2.4 may be applied to the Advances, including interest thereon and any fees, commissions, costs and expenses due and unpaid hereunder and under the Security Documents, in such order and in such amounts as the Lender, in its discretion, may from time to time determine. 14. FEES. (a) Section 2.11(c) of the Credit Agreement is hereby deleted in its entirety and the following inserted therefor: Except as otherwise required by applicable laws or regulatory or internal audit requirements, so long as no Advances are outstanding and no Default or Event of Default has occurred and is continuing, Lender shall not undertake any collateral audits or inspections of the operations or business of the Borrower. To the extent that Lender is required by applicable laws or regulatory or internal audit requirements to undertake any collateral audits or inspections of the operations or business of the Borrower when no Advances are outstanding (and no Default or Event of Default has occurred and is continuing), Borrower shall not be required to pay any audit fees or out-of-pocket costs and expenses incurred by Lender in connection therewith. Upon any request for an Advance -10- 11 by Borrower (but not as a condition to such Advance), Lender may undertake a collateral audit and inspection of the operation and business of the Borrower and so long as any Advance remains outstanding (and provided that no Default or Event of Default has occurred and is continuing), Lender shall not undertake more than two (2) collateral audits or inspections of the operations or business of the Borrower in any Fiscal Year and Borrower shall not be required to pay any audit fees or out-of-pocket costs and expenses incurred by Lender in connection therewith. Upon the occurrence of a Default or Event of Default and during the continuance thereof, Lender may undertake such collateral audits and inspections of the operations or business of the Borrower as Lender deems necessary in its sole and absolute discretion and the Borrower hereby agrees to pay the Lender, on demand, audit fees of $60 per hour (or the then applicable rate charged by Lender) per auditor in connection with any such audits or inspections by the Lender of any collateral or the corresponding operations or business of the Borrower, together with all actual out-of-pocket costs and expenses incurred in conducting any such audit or inspection. and Section 2.11 is hereby amended to add the following: (e) Borrower hereby agrees to pay to Lender an extension fee of $37,500, which shall be fully earned and non-refundable upon Lender's execution and delivery of the Third Amendment, and, when invoiced, Lender's reasonable attorneys' fees and costs incurred in connection with the Third Amendment. 15. CONDITIONS PRECEDENT TO THE INITIAL ADVANCE. Section 4.1 of the Credit Agreement is hereby amended to add the following: (dd) The Acquisitions Revolving Note in the maximum principal amount of $25,000,000. (ee) An amended and restated Patent Collateral Assignment and Security Agreement, in form and substance reasonably satisfactory to Lender. (ff) An amended and restated Trademark, Tradename and Service Mark Collateral Assignment and Security Agreement, in form and substance reasonably satisfactory to Lender. (gg) A First Amendment to the Securities Account Pledge and Security Agreement, in form and substance reasonably satisfactory to Lender. -11- 12 (hh) A First Amendment to Acknowledgment of Control of Pledged Securities Account, in form and substance reasonably satisfactory to Lender. (ii) A certificate of the Secretary or an Assistant Secretary of the Borrower, certifying as to the resolutions of the directors and, if required, the shareholders of the Borrower, authorizing the execution, delivery and performance of the Third Amendment, the Acquisitions Revolving Note, and all other documents and instruments incident thereto and to the transactions contemplated by the Third Amendment, reasonably satisfactory to Lender and its counsel. (jj) An opinion of counsel to the Borrower, addressed to Lender, with respect to the transactions contemplated by the Third Amendment, in form and substance reasonably satisfactory to Lender and its counsel. 16. CONDITIONS PRECEDENT TO ALL ADVANCES. Section 4.2(c) of the Credit Agreement is hereby deleted in its entirety and the following inserted therefor: (c) Borrower has not been required to remargin the Acquisitions Credit Facility by depositing additional cash or financial assets into the Securities Accounts and/or by reducing the outstanding principal balance of the Advances in any two (2) consecutive months, pursuant to Section 2.5(a). 17. FINANCIAL CONDITION; NO ADVERSE CHANGE. Section 5.5 of the Credit Agreement is hereby deleted in its entirety and the following inserted therefor: Section 5.5 Financial Condition; No Adverse Change. The Borrower has heretofore furnished to the Lender audited financial statements of the Borrower for its Fiscal Year ended June 30, 1998 and such statements fairly present the financial condition of the Borrower on the dates thereof and the results of its operations and cash flows for the period then ended and were prepared in accordance with generally accepted accounting principles applied in a consistent manner. Since the date of such financial statements of the Borrower, there has been no material adverse change in the business, properties or condition (financial or otherwise) of the Borrower. 18. NET INCOME AFTER TAXES. Section 6.12 of the Credit Agreement is hereby deleted in its entirety and the following inserted therefor: -12- 13 Section 6.12 Net Income After Taxes. Borrower's Net Income After Taxes, on a consolidated basis, shall be no less than the following for the following periods:
======================================================= PERIOD NET INCOME AFTER TAXES ------------------------------------------------------- October 1, 1998 through $2,500,000 December 31, 1998 ------------------------------------------------------- January 1, 1999 through $8,000,000 June 30, 1999 and each six month period thereafter during the term of this Agreement =======================================================
19. CURRENT RATIO. Section 6.18 of the Credit Agreement is hereby deleted in its entirety and the following inserted therefor: Section 6.18 Current Ratio. During the term of this Agreement, Borrower shall maintain on a consolidated basis, measured quarterly as of the last day of each fiscal quarter commencing with the fiscal quarter ending September 30, 1998, a Current Ratio of no less than 3:1. 20. CAPITAL EXPENDITURES. Section 7.10 of the Credit Agreement is hereby deleted in its entirety and the following inserted therefor: Section 7.10 INTENTIONALLY DELETED 21. PATENT APPLICATIONS. The list of all of Borrower's patent applications filed with, and/or approved by, the PTO Office is attached hereto as Schedule 1 to this Amendment and such patent applications are hereby incorporated as Exhibit F to the Credit Agreement and Schedule "A" to the Amended and Restated Patent Collateral Assignment. 22. TRADEMARK, TRADENAME AND SERVICE MARK APPLICATIONS. The list of all of Borrower's trademark, tradename and service mark applications filed with, and/or approved by, the PTO Office is attached hereto as Schedule 2 to this Amendment and such trademark, tradename and service mark applications are incorporated as Exhibit F to the Credit Agreement and Schedule "A" to the Amended and Restated Trademark Collateral Assignment. 23. MISCELLANEOUS. (a) Arbitration Agreement; Waiver of Right to Jury Trial. The Agreement contains an arbitration provision, governing law provision and waiver of right to jury trial. In the event of any dispute arising out of or related to this Amendment, the provisions of Section 9.12 of the Agreement shall apply. -13- 14 (b) Voluntary Agreement. Borrower represents and warrants to Lender that (i) it is, or has had the opportunity to be, represented by legal counsel of its choice in regard to the transaction provided for by this Amendment and that such counsel (if engaged) has explained the significance of the terms, and the meaning and effect of this Amendment; (ii) it is fully aware and clearly understands all of the terms and provisions contained in this Amendment; (iii) it has voluntarily, with full knowledge and without coercion or duress of any kind, entered into this Amendment and the documents executed in connection with this Amendment; (iv) it is not relying on any representations, either written or oral, express or implied, made to it by Lender other than as set forth in this Amendment; and (v) the consideration received by Borrower to enter into this Amendment and the arrangement contemplated by this Amendment has been actual and adequate. (c) Entire Agreement. This Amendment and the Loan Documents constitute the entire agreement among the parties as to the agreements and understandings contemplated by this Amendment. All parties to this Amendment acknowledge that there are no agreements, understandings, warranties or representations among the parties except as set forth in the Loan Documents and this Amendment. (d) Counterpart Execution. This Amendment may be executed in counterparts, each of which shall be deemed an original document, and all of which combined shall constitute a single document. (e) Waiver. Neither this Amendment nor any of the provisions hereof may be changed, waived, discharged or terminated, except by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought. (f) Headings. Paragraph or other headings contained in this Amendment are for reference purposes only and are not intended to affect in any way the meaning or interpretation of this Amendment. (g) Severability. If any clause or provision of this Amendment is determined to be illegal, invalid, or unenforceable under any present or future law by the final judgment of a court of competent jurisdiction, such clause or provision shall be ineffective, but the remainder of this Amendment will not be affected thereby. (h) Binding Effect. All of the provisions of this Amendment shall be binding upon and shall inure to the benefit of Borrower and Lender and their permitted successors and assigns, including, without limitation, any successor holder of any Note and any successor mortgagee/beneficiary under any security document. (i) Time of the Essence. Time is of the essence of each and every provision under this Amendment. (j) Amendment. Except as specifically set forth herein, the Agreement and the other Loan Documents shall remain in full force and effect. In the event of a conflict between the terms and provisions of this Amendment and the terms and provisions of the Agreement, the terms and provisions of this Amendment shall govern and control. Nothing -14- 15 contained in this Amendment is intended to or shall be construed as relieving any person or entity, whether a party to this Amendment or not, of any of such person's or entity's obligations to Lender. -15- 16 IN WITNESS WHEREOF, this Amendment is executed to be effective as of the date first above written. BORROWER: MEDICIS PHARMACEUTICAL CORPORATION, a Delaware corporation By: /s/ Mark A. Prygocki, Sr. ------------------------------ Name: Mark A. Prygocki, Sr. Title: Chief Financial Officer Execution Date: November 22, 1998 LENDER: NORWEST BANK ARIZONA, NATIONAL ASSOCIATION, a national banking association By: /s/ Tim Billings ------------------------------ Name: Tim Billings Title: Vice President Execution Date: November 22, 1998 -16- 17 SCHEDULE 1 18 SCHEDULE 2 EX-10.73 3 EX-10.73 1 Exhibit 10.73 AMENDED AND RESTATED PATENT COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT THIS AMENDED AND RESTATED PATENT COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT (the "Agreement") is made and entered into as of this 22nd day of November, 1998 by and between MEDICIS PHARMACEUTICAL CORPORATION, a Delaware corporation ("Assignor"), and NORWEST BANK ARIZONA, NATIONAL ASSOCIATION, a national banking association ("Lender"). RECITALS: A. Assignor and Lender, as successor-in-interest to Norwest Business Credit, Inc. ("NBCI"), are parties to that certain Patent Collateral Assignment and Security Agreement dated August 3, 1995, as amended (the "Original Collateral Assignment"); B. In connection with Assignor's prior securities offering, Lender agreed to amend and restate the Collateral Assignment for the purpose of, among other things, confirming that the Collateral was assigned by Assignor to Lender as security rather than as an absolute assignment; C. The Revolving Loan and the Term Credit Facility expired unused on the Termination Date and Lender has no further obligation to advance any sums under the Revolving Loan or the Term Credit Facility; D. Assignor has requested that Lender increase the Acquisitions Credit Facility to $25,000,000 and extend the term of the Credit and Security Agreement dated August 3, 1995, as amended (as it may be amended, modified, restated, extended and/or renewed from time to time, the "Loan Agreement") and the Acquisitions Credit Facility for an additional two (2) years and make certain modifications and amendments to the terms of the Loan Agreement and other Loan Documents, and Lender is willing to do so on certain terms and conditions, including, without limitation, Assignor's reaffirmation in the form of this Agreement of Assignor's grant of a security interest to Lender in certain trademark, tradename and service mark rights upon the terms and subject to the conditions of this Agreement; NOW, THEREFORE, in consideration of premises, the covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Original Collateral Assignment is hereby amended and restated in its entirety and Assignor hereby agrees with Lender as follows: 1. Definitions. Except as otherwise defined herein, all capitalized terms used herein shall have the meanings given to such terms in the Loan Agreement. 2. Grant. For value received, Assignor hereby grants, assigns and conveys to Lender, not as an ownership interest, but as security for the Obligations (hereinafter defined), all of Assignor's patent rights used in connection with or related to Assignor's business, as the same may be amended pursuant hereto from time to time, (being collectively called a "Patent"), now existing anywhere in the world or hereafter adopted or acquired, whether currently in use or not, all registrations and recordings thereof, and all applications in connection therewith, whether 2 pending or in preparation for filing, including registrations, recordings and applications in the United States Patent and Trademark Office or in any office or agency of the United States of America or any state thereof or any foreign country, including, without limitation, those Patents referred to in Schedule A attached hereto and incorporated herein by this reference; (ii) all of Assignor's right, title and interest in all Patent licenses relating to the Patents (whether as licensee or licensor), including each Patent license, if any, referred to in Schedule A attached hereto and incorporated herein by this reference; (iii) all reissues, extensions or renewals of any of the items described in clauses (i) and (ii) of this Section 2; and (iv) all proceeds of, and rights associated with, the foregoing, including any claim by Assignor against third parties for past, present or future infringement or dilution of any Patent, Patent registration or Patent license, including any Patent, Patent registration or Patent license referred to in Schedule A, or for breach or enforcement of any Patent license. All of the foregoing property, interests and rights are hereinafter collectively referred to as the "Patent Collateral". Assignor agrees not to sell or assign its interest in, or grant any license of, the Patent Collateral without the prior written consent of Lender, which may be withheld in Lender's sole and absolute discretion. 3. Obligations Secured. The foregoing collateral assignment and grant of security interest is made for the purpose of securing (in such order of priority as Lender may elect) the following (the "Obligations"): (a) The payment of indebtedness in the total principal amount of up to $25,000,000, with interest thereon, evidenced by the Loan Agreement and Acquisitions Revolving Note; (b) Payment of all sums advanced by Lender to protect the Patent Collateral pursuant to the Loan Agreement and/or this Agreement, with interest thereon at a rate equal to the Default Rate (which rate of interest is hereinafter referred to as the "Agreed Rate"); (c) Payment of all fees and late charges now or hereafter due pursuant to the Loan Documents and other sums, with interest thereon, that may hereafter be loaned to Assignor, or its successors or assigns, by Lender, or its successors and assigns, when evidenced by a promissory note or notes reciting that they are secured by this Agreement; (d) Performance of every obligation of Assignor contained in the Loan Documents; (e) Performance of every obligation, covenant and agreement of Assignor contained in any agreement, document or instrument now or hereafter executed by Assignor reciting that the obligations thereunder are secured by this Agreement or the Loan Documents; and (f) For the benefit of Lender, compliance with and performance of each and every provision of any other agreement, document, instrument, law, rule or regulation by which the Trademark Collateral is bound or may be affected. 4. Representations and Warranties. Assignor represents, warrants, covenants and agrees that: 2 3 (a) The Patents referred to on Schedule A hereto are existing and have not been adjudged invalid or unenforceable, in whole or in part; (b) Except as provided in this Agreement and the other Loan Documents, Assignor is the exclusive owner of the entire and unencumbered right, title and interest in and to the Patent Collateral except those items of Patent Collateral in respect of which Assignor is licensor, and to the best knowledge of Assignor, except as set forth on Schedule A, no claim has been made that the use of any Patent Collateral does or may violate the asserted rights of any third party; (c) To the best knowledge of Assignor, Assignor owns directly or is entitled to use, by license or otherwise, all Patent Collateral and rights with respect thereto used in, necessary for, or of importance to the conduct of Assignor's business; and (d) Assignor has the unqualified right to enter into this Agreement and perform its terms. 5. Notification of Lender. Assignor shall immediately notify Lender in writing of any change in the legal, trade or fictitious business names used by Assignor and shall, upon Lender's request, execute any additional financing statements and other assignments, agreements and certificates necessary, in Lender's opinion, to reflect the change in trade names or fictitious business names. 6. Use of Patent Collateral. Assignor shall have the duty, through counsel experienced in patent matters and reasonably acceptable to Lender, to prosecute diligently any Patent applications of the Patents pending as of the date of this Agreement or thereafter until the Assignor's obligations to Lender shall have been paid in full, to file and prosecute opposition and cancellation proceedings and to do any and all acts which are necessary or desirable to preserve and maintain all rights in the Patents, except those Patent applications and Patents pending which are not necessary for or used in the operation of the Assignor's business. Any expenses incurred in connection with the Patents shall be borne by Assignor. Assignor shall not abandon any Patent without the consent of the Lender, which consent shall not be unreasonably withheld. 7. Abandonment. Assignor shall notify Lender immediately if it knows, or has reason to know, that any application or registration relating to any item of the Patent Collateral listed on Schedule A hereto may be suspended, cancelled, or dedicated to the public or placed in the public domain, or of any material adverse final determination or development (including any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office, or any foreign counterpart thereof or any court) regarding Assignor's ownership of any of the Patent Collateral, its right to register the same, or to keep and maintain and enforce the same. 8. Applications. Assignor shall provide Lender with notice of the adoption of any new Patents necessary for or related to the operation of Assignor's business, and upon request of Lender, Assignor shall execute and deliver any and all agreements, instruments, documents and papers as Lender may reasonably request to evidence Lender's security interest in such Patent 3 4 Collateral. Assignor shall take all reasonable steps, including in any proceeding before the United States Patent and Trademark Office or any similar office or agency in any other country or any political subdivision thereof, to maintain and pursue any application with respect to the Patent Collateral listed on Schedule A hereto (and any other Patent Collateral with respect to which Assignor is obligated to give the notice described in Section 7 above). Assignor shall appear in and contest any action or proceeding purporting to affect this Agreement or the rights or powers of Lender, and shall pay all costs and expenses (including, without limitation, costs of litigation and attorneys' fees) in any such action or proceeding in which Lender may appear. 9. Inspections. Assignor hereby grants to Lender and its employees and agents the right to visit Assignor's facilities which relate to any of the Patent Collateral, and to inspect the facilities upon prior written notice at reasonable times during regular business hours. 10. Patent Enforcement. If no Event of Default shall have occurred and be continuing, Assignor shall have the right, and if an Event of Default shall have occurred and be continuing, Assignor shall have the right, with the prior written consent of Lender, which will not be unreasonably withheld, to bring any opposition proceedings, cancellation proceedings or lawsuit in its own name to enforce or protect the Patents, in which event Lender may, if necessary, be joined as a nominal party to such suit if Lender shall have been satisfied that it is not thereby incurring any risk of liability because of such joinder. Assignor shall promptly, upon demand, reimburse and indemnify Lender for all damages, costs and expenses, including attorneys' fees, incurred by Lender in the fulfillment of the provisions of this Section. 11. Other Agreements. Assignor agrees that, until all of the Obligations shall have been satisfied in full, it will not enter into any agreement which is inconsistent with Assignor's obligations or Lender's rights under this Agreement, without Lender's prior written consent in Lender's sole and absolute discretion. Assignor shall not amend or modify in any material respect any of the license agreements listed on Schedule A hereto without the consent of Lender in Lender's sole and absolute discretion. 12. Events of Default. If any Event of Default shall have occurred and be continuing and applicable contractual cure and grace periods shall have expired, Lender shall have, in addition to all other rights and remedies given it by this Agreement, those allowed by law and the rights and remedies of a secured party under the Uniform Commercial Code as enacted in any jurisdiction in which the Patent Collateral may be located and, without limiting the generality of the foregoing, the Lender may immediately, without demand of performance and without other notice (except as set forth next below) or demand whatsoever to Assignor, all of which are hereby expressly waived, and without advertisement, sell at public or private sale or otherwise realize upon, in Phoenix, Arizona, or elsewhere, all or from time to time any of the Patent Collateral, or any interest which the Assignor may have therein, and after deducting from the proceeds of sale or other disposition of the Patent Collateral all expenses (including all reasonable expenses for brokers' fees and legal services), shall apply the balance of proceeds as provided with respect to other personal property securing the Loan. Notice of any sale or other disposition of the Patent Collateral shall be given to Assignor at least thirty (30) days before the time of any intended public or private sale or other disposition of the Patent Collateral is to be made, which Assignor hereby agrees shall be reasonable notice of such sale or other disposition. 4 5 At any such sale or other disposition, any holder of the Note or Lender may, to the extent permissible under applicable law, purchase the whole or any part of the Patent Collateral sold, free from any right of redemption on the part of Assignor, which right is hereby waived and released. 13. Fees and Costs. Any and all fees, costs and expenses, of whatever kind or nature, including, without limitation, (i) attorneys' fees and expenses incurred by Lender in connection with the preparation of this Agreement and all other documents relating hereto and the consummation of this transaction, the filing or recording of any documents (including all taxes in connection therewith) in public offices, (ii) the payment or discharge of any taxes, maintenance fees, encumbrances and (iii) those incurred in or otherwise protecting, maintaining or preserving the Patent Collateral after Assignor shall have failed to do so in accordance with the terms of this Agreement and/or the Loan Documents, or in defending or prosecuting any actions or proceedings arising out of or related to the Patent Collateral, shall be borne and paid by Assignor on demand by Lender and until so paid shall be added to the principal amount of the Obligations and shall bear interest at the Agreed Rate. 14. Power of Attorney. Assignor hereby makes, constitutes and appoints Lender or any officer or agent of Lender as Lender may select as Assignor's true and lawful attorney-in-fact, with the power to endorse Assignor's name on all applications, documents, papers and instruments necessary to Lender to use the Patent Collateral, or to grant or issue any exclusive or non-exclusive license under the Patent Collateral to anyone else, or necessary for Lender to assign, pledge, convey or otherwise transfer title in or dispose of the Patent Collateral to anyone else. Assignor hereby ratifies all that such attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney shall be irrevocable for the life of this Agreement and may be exercised by Lender only at any time after the occurrence and during the continuance of an Event of Default. 15. Indemnification. Assignor shall and does hereby agree to indemnify, defend and hold Lender harmless for, from and against any and all liability, loss or damage which it may or might incur under or by reason of the Patent Collateral or under or by reason of this Agreement and for, from and against any and all claims and demands whatsoever which may be asserted against Lender by reason of any alleged obligation or undertaking in its part to perform or discharge any of the terms, covenants or agreements under or by reason of the Patent Collateral or under or by reason of this Agreement; provided, however, that the foregoing agreement to indemnify, defend and hold harmless shall not apply to the extent that such claims and demands arise from the gross negligence or intentional misconduct of Lender. Except as provided in the immediately preceding sentence, should Lender incur any such liability, loss or damage, or in the defense of any such claim or demand, the amount thereof, including costs, expenses and reasonable attorneys' fees, together with interest thereon at the Agreed Rate, shall be secured hereby and by the other Loan Documents, and Assignor shall reimburse Lender therefor (together with such interest) immediately upon demand. Upon receiving knowledge of any suit, claim or demand asserted by a third party that Lender believes is covered by this indemnity, Lender shall give Assignor notice of the matter and the opportunity to defend it, at Assignor's sole cost and expense, with legal counsel satisfactory to Lender. Lender may require Assignor to defend the matter. If Assignor promptly undertakes its responsibility to defend the matter, 5 6 Assignor shall, at reasonable intervals, keep Lender apprised of the status of the matter and Assignor's actions pertaining thereto. In addition, even if Assignor accepts and undertakes its responsibility to defend the matter, Lender may, at its sole cost and expense, retain separate legal counsel to advise Lender with respect to the matter. Assignor or its counsel shall cooperate with such separate counsel of Lender. If Assignor does not promptly accept and undertake its responsibility to so defend the matter, Lender may employ an attorney or attorneys to protect its rights hereunder, and in the event of such employment, Assignor shall upon demand pay Lender all reasonable attorneys' fees and expenses incurred by Lender, whether or not an action is actually commenced. 16. Release. Upon payment in full and performance of all the Obligations secured hereby and termination of all obligations of Lender to make loans and advances and otherwise extend credit to Assignor (other than by reason of the exercise by Lender of its rights and remedies), this Agreement shall become and be void and of no effect, but the affidavit of any officer of Lender showing that any such conditions to release have not been satisfied shall be and constitute conclusive evidence of the validity, effectiveness and continuing force of this Agreement, and any person may and is hereby authorized to rely thereon. Upon such termination, all the estate, right, title, interest, claim and demand of Lender in and to the Patent Collateral shall revert to Assignor, and Lender shall, at the request of Assignor and at the sole cost and expense of Assignor, deliver to Assignor one or more instruments canceling the Assignment and reassigning the Agreement to Assignor. 17. Notices. All notices, requests, demands and consents to be made hereunder to the parties hereto shall be in writing and shall be delivered by hand or sent by certified mail, postage prepaid, return receipt requested, through the United States Postal Service to the addresses set forth in the Loan Agreement or such other address which the parties may provide to one another in accordance with the Loan Agreement. Such notices, requests, demands and consents, if sent by mail shall be deemed given when delivered. 18. No Prior Assignments. Assignor hereby represents and warrants to Lender that no previous assignment of its interest in the Patent Collateral has been made (except for the Original Collateral Assignment and such as have been terminated or reassigned to Assignor) and, except for transfers to Lender, Assignor agrees not to assign, sell, pledge, transfer, or otherwise encumber its interest in the Patent Collateral so long as this Agreement is in effect. 19. No Release. This Agreement shall not effect the release of any other collateral now or hereafter held by Lender as security for the Obligations, nor shall the taking of additional security for the Obligations hereafter effect a release or termination of this Agreement or any terms or provisions hereof. 20. Further Assurances. Assignor, upon request of Lender, shall execute and deliver such further documents, as may be reasonably necessary to carry out the intent of this Agreement and to perfect and preserve the rights and interests of Lender hereunder and the priority thereof. 21. No Waiver. No failure or delay on the part of Lender in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial 6 7 exercise of any right, power, or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The rights, powers and remedies hereunder are cumulative and may be exercised by Lender either independently of or concurrently with any other right, power or remedy contained herein or in any document or instrument executed in connection with the Obligations. 22. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ARIZONA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES. 23. Cumulative Rights. All of Lender's rights and remedies with respect to the Patent Collateral, whether established hereby or by the Loan Agreement, or by any other agreements or by law shall be cumulative and may be exercised singularly or concurrently. 24. Severability. The provisions of this Agreement are severable, and if any clause or provision shall be held invalid and unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction, and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision of this Agreement in any jurisdiction. 25. Successors and Assigns. The benefits and burdens of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties. 26. Authority of Assignor and Signatories. Assignor hereby represents and warrants to Lender that all necessary consents and approvals have been obtained and that this Agreement has been duly authorized by all necessary action and that it constitutes and will constitute a valid and binding obligation of Assignor. Assignor hereby represents and warrants that the signatory executing this Agreement on behalf of the Assignor has been duly authorized by Assignor to execute this Agreement on behalf of Assignor as an officer of Assignor. 27. Number and Gender. In this Agreement, the singular shall include the plural and the masculine shall include the feminine and neuter gender, and vice versa, if the context so requires. 28. Counterparts. This Agreement may be executed and acknowledged in counterparts, all of which executed and acknowledged counterparts shall together constitute a single document. Signature and acknowledgment pages may be detached from the counterparts and attached to a single copy of this Agreement to form physically one document, which may be recorded. 29. Integration. The Loan Documents contain the complete understanding and agreement of Assignor and Lender and supersede all prior representations, warranties, agreements, arrangements, understandings and negotiations. 7 8 30. Survival. Subject to the applicable provisions of the Loan Agreement, the representations, warranties and covenants of Assignor in the Loan Documents shall survive the execution and delivery of the Loan Documents and the making of the Loan described therein. 31. Filing/Recordation. This Agreement may be filed/recorded in such public offices and with such governmental authorities as Lender may determine from time to time. Lender may so file/record this Agreement as a "security interest", "collateral assignment", "assignment" or similar designation as Lender may determine (so long as such designation is consistent with the terms of this Agreement) and Lender may from time to time rerecord/refile or take other action to change the designation under which this Agreement is recorded (so long as such designation is consistent with the terms of this Agreement). 32. Affirmation of Security Interest. This Agreement amends, restates and supersedes (except as provided herein) the Original Collateral Assignment. Notwithstanding the amendment and restatement of the Original Collateral Assignment, Assignor acknowledges that consideration has been given by Lender for this Agreement and nothing contained herein is intended to impair, limit or otherwise affect Lender's continuing first lien priority security interest in the Patent Collateral. IN WITNESS WHEREOF, this Agreement is made as of the date first above written. MEDICIS PHARMACEUTICAL CORPORATION, a Delaware corporation By: /s/ Mark A. Prygocki, Sr. ---------------------------------- Name: Mark A. Prygocki, Sr. ------------------------------- Title: Chief Financial Officer ------------------------------- NORWEST BANK ARIZONA, NATIONAL ASSOCIATION, a national banking association By: /s/ Tim Billings ---------------------------------- Name: Tim Billings ------------------------------- Title: Vice President ------------------------------- 8 9 SCHEDULE A LIST OF PATENT COLLATERAL EX-10.74 4 EX-10.74 1 Exhibit 10.74 AMENDED AND RESTATED TRADEMARK, TRADENAME AND SERVICE MARK COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT THIS AMENDED AND RESTATED TRADEMARK, TRADENAME AND SERVICE MARK COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT (the "Agreement") is made and entered into as of this 22nd day of November, 1998 by and between MEDICIS PHARMACEUTICAL CORPORATION, a Delaware corporation ("Assignor"), and NORWEST BANK ARIZONA, NATIONAL ASSOCIATION, a national banking association ("Lender"). RECITALS: A. Assignor and Lender, as successor-in-interest to Norwest Business Credit, Inc. ("NBCI"), are parties to that certain Trademark, Tradename and Service Mark Collateral Assignment and Security Agreement dated August 3, 1995, as amended (the "Original Collateral Assignment"); B. In connection with Assignor's prior securities offering, Lender agreed to amend and restate the Collateral Assignment for the purpose of, among other things, confirming that the Collateral was assigned by Assignor to Lender as security rather than as an absolute assignment; C. The Revolving Loan and the Term Credit Facility expired unused on the Termination Date and Lender has no further obligation to advance any sums under the Revolving Loan or the Term Credit Facility; D. Assignor has requested that Lender increase the Acquisitions Credit Facility to $25,000,000 and extend the term of the Credit and Security Agreement dated August 3, 1995, as amended (as it may be amended, modified, restated, extended and/or renewed from time to time, the "Loan Agreement") and the Acquisitions Credit Facility for an additional two (2) years and make certain modifications and amendments to the terms of the Loan Agreement and other Loan Documents, and Lender is willing to do so on certain terms and conditions, including, without limitation, Assignor's reaffirmation in the form of this Agreement of Assignor's grant of a security interest to Lender in certain trademark, tradename and service mark rights upon the terms and subject to the conditions of this Agreement; NOW, THEREFORE, in consideration of premises, the covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Original Collateral Assignment is hereby amended and restated in its entirety and Assignor hereby agrees with Lender as follows: 1. Definitions. Except as otherwise defined herein, all capitalized terms used herein shall have the meanings given to such terms in the Loan Agreement. 2. Grant. For value received, Assignor hereby grants, assigns and conveys to Lender, not as an ownership interest, but as security for the Obligations (hereinafter defined), (a) 2 all of Assignor's trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, certification marks, collective marks, logos, other source of business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature used in connection with or related to Assignor's business (all of the foregoing items in this clause (a), as the same may be amended pursuant hereto from time to time, being collectively called a "Trademark"), now existing anywhere in the world or hereafter adopted or acquired, whether currently in use or not, all registrations and recordings thereof, and all applications in connection therewith, whether pending or in preparation for filing, including registrations, recordings and applications in the United States Patent and Trademark Office or in any office or agency of the United States of America or any state thereof or any foreign country, including, without limitation, those Trademarks referred to in Schedule A attached hereto and incorporated herein by this reference; (b) all of Assignor's right, title and interest in Trademark licenses relating to the Trademarks (whether as licensee or licensor), including each Trademark license referred to in Schedule A attached hereto and incorporated herein by this reference; (c) all reissues, extensions or renewals of any of the items described in clauses (a) and (b) of this Section 2; (d) all of the goodwill of the business connected with the use of, and symbolized by the items described in, clauses (a) and (b) of this Section 2; and (e) all proceeds of, and rights associated with, the foregoing, including any claim by Assignor against third parties for past, present or future infringement or dilution of any Trademark, Trademark registration or Trademark license, including any Trademark, Trademark registration or Trademark license referred to in Schedule A, or for any injury to the goodwill associated with the use of any such Trademark or for breach or enforcement of any Trademark license. All of the foregoing property, interests and rights are hereinafter collectively referred to as the "Trademark Collateral". Assignor agrees not to sell or assign its interest in, or grant any license of, the Trademark Collateral without the prior written consent of Lender, which may be withheld in Lender's sole and absolute discretion. 3. Obligations Secured. The foregoing collateral assignment and grant of security interest is made for the purpose of securing (in such order of priority as Lender may elect) the following (the "Obligations"): (a) The payment of indebtedness in the total principal amount of up to $25,000,000, with interest thereon, evidenced by the Loan Agreement and Acquisitions Revolving Note; (b) Payment of all sums advanced by Lender to protect the Trademark Collateral pursuant to the Loan Agreement and/or this Agreement, with interest thereon at a rate equal to the Default Rate (which rate of interest is hereinafter referred to as the "Agreed Rate"); (c) Payment of all fees and late charges now or hereafter due pursuant to the Loan Documents and other sums, with interest thereon, that may hereafter be loaned to Assignor, or its successors or assigns, by Lender, or its successors and assigns, when evidenced by a promissory note or notes reciting that they are secured by this Agreement; (d) Performance of every obligation of Assignor contained in the Loan Documents; 2 3 (e) Performance of every obligation, covenant and agreement of Assignor contained in any agreement, document or instrument now or hereafter executed by Assignor reciting that the obligations thereunder are secured by this Agreement or the Loan Documents; and (f) For the benefit of Lender, compliance with and performance of each and every provision of any other agreement, document, instrument, law, rule or regulation by which the Trademark Collateral is bound or may be affected. 4. Representations and Warranties. Assignor represents, warrants, covenants and agrees that: (a) The Trademarks referred to on Schedule A hereto are existing and have not been adjudged invalid or unenforceable, in whole or in part; (b) Except as provided in this Agreement and the other Loan Documents, Assignor is the exclusive owner of the entire and unencumbered right, title and interest in and to the Trademark Collateral except those items of Trademark Collateral in respect of which Assignor is licensor, and to the best knowledge of Assignor, except as set forth on Schedule A, no claim has been made that the use of any Trademark Collateral does or may violate the asserted rights of any third party; (c) To the best knowledge of Assignor, Assignor owns directly or is entitled to use, by license or otherwise, all Trademark Collateral and rights with respect thereto used in, necessary for, or of importance to the conduct of Assignor's business; and (d) Assignor has the unqualified right to enter into this Agreement and perform its terms. 5. Notification of Lender. Assignor shall immediately notify Lender in writing of any change in the legal, trade or fictitious business names used by Assignor and shall, upon Lender's request, execute any additional financing statements and other assignments, agreements and certificates necessary, in Lender's opinion, to reflect the change in trade names or fictitious business names. 6. Use of Trademark Collateral. Assignor shall have the duty, through counsel experienced in trademark matters and reasonably acceptable to Lender, to prosecute diligently any Trademark applications of the Trademarks pending as of the date of this Agreement or thereafter until the Assignor's obligations to Lender shall have been paid in full, to file and prosecute opposition and cancellation proceedings and to do any and all acts which are necessary or desirable to preserve and maintain all rights in the Trademarks, except those items of Trademark Collateral which are not necessary for or used in the operation of the Assignor's business. Any expenses incurred in connection with the Trademarks shall be borne by Assignor. Assignor shall not abandon any Trademark without the consent of the Lender, which consent shall not be unreasonably withheld. 3 4 7. Abandonment. Assignor shall notify Lender immediately if it knows, or has reason to know, that any application or registration relating to any item of the Trademark Collateral listed on Schedule A hereto may be suspended, cancelled, or dedicated to the public or placed in the public domain, or of any material adverse final determination or development (including any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office, or any foreign counterpart thereof or any court) regarding Assignor's ownership of any of the Trademark Collateral, its right to register the same, or to keep and maintain and enforce the same. 8. Applications. Assignor shall provide Lender with notice of the adoption of any new Trademarks necessary for or related to the operation of Assignor's business, and upon request of Lender, Assignor shall execute and deliver any and all agreements, instruments, documents and papers as Lender may reasonably request to evidence Lender's security interest in such Trademark Collateral and the goodwill and general intangibles of Assignor relating thereto or represented thereby. Assignor shall take all reasonable steps, including in any proceeding before the United States Patent and Trademark Office or any similar office or agency in any other country or any political subdivision thereof, to maintain and pursue any application with respect to the Trademark Collateral listed on Schedule A hereto (and any other Trademark Collateral with respect to which Assignor is obligated to give the notice described in Section 7 above). Assignor shall appear in and contest any action or proceeding purporting to affect this Agreement or the rights or powers of Lender, and shall pay all costs and expenses (including, without limitation, costs of litigation and attorneys' fees) in any such action or proceeding in which Lender may appear. 9. Inspections. Assignor hereby grants to Lender and its employees and agents the right to visit Assignor's facilities which relate to any of the Trademark Collateral, and to inspect the facilities upon prior written notice at reasonable times during regular business hours. 10. Trademark Enforcement. If no Event of Default shall have occurred and be continuing, Assignor shall have the right, and if an Event of Default shall have occurred and be continuing, Assignor shall have the right, with the prior written consent of Lender, which will not be unreasonably withheld, to bring any opposition proceedings, cancellation proceedings or lawsuit in its own name to enforce or protect the Trademarks, in which event Lender may, if necessary, be joined as a nominal party to such suit if Lender shall have been satisfied that it is not thereby incurring any risk of liability because of such joinder. Assignor shall promptly, upon demand, reimburse and indemnify Lender for all damages, costs and expenses, including attorneys' fees, incurred by Lender in the fulfillment of the provisions of this Section. 11. Other Agreements. Assignor agrees that, until all of the Obligations shall have been satisfied in full, it will not enter into any agreement which is inconsistent with Assignor's obligations or Lender's rights under this Agreement, without Lender's prior written consent in Lender's sole and absolute discretion. Assignor shall not amend or modify in any material respect any of the license agreements listed on Schedule A hereto without the consent of Lender in Lender's sole and absolute discretion. 4 5 12. Events of Default. If any Event of Default shall have occurred and be continuing and applicable contractual cure and grace periods shall have expired, Lender shall have, in addition to all other rights and remedies given it by this Agreement, those allowed by law and the rights and remedies of a secured party under the Uniform Commercial Code as enacted in any jurisdiction in which the Trademark Collateral may be located and, without limiting the generality of the foregoing, the Lender may immediately, without demand of performance and without other notice (except as set forth next below) or demand whatsoever to Assignor, all of which are hereby expressly waived, and without advertisement, sell at public or private sale or otherwise realize upon, in Phoenix, Arizona, or elsewhere, all or from time to time any of the Trademark Collateral, or any interest which the Assignor may have therein, and after deducting from the proceeds of sale or other disposition of the Trademark Collateral all expenses (including all reasonable expenses for brokers' fees and legal services), shall apply the balance of proceeds as provided with respect to other personal property securing the Loan. Notice of any sale or other disposition of the Trademark Collateral shall be given to Assignor at least thirty (30) days before the time of any intended public or private sale or other disposition of the Trademark Collateral is to be made, which Assignor hereby agrees shall be reasonable notice of such sale or other disposition. At any such sale or other disposition, any holder of the Note or Lender may, to the extent permissible under applicable law, purchase the whole or any part of the Trademark Collateral sold, free from any right of redemption on the part of Assignor, which right is hereby waived and released. 13. Fees and Costs. Any and all fees, costs and expenses, of whatever kind or nature, including, without limitation, (i) attorneys' fees and expenses incurred by Lender in connection with the preparation of this Agreement and all other documents relating hereto and the consummation of this transaction, the filing or recording of any documents (including all taxes in connection therewith) in public offices, (ii) the payment or discharge of any taxes, maintenance fees, encumbrances and (iii) those incurred in or otherwise protecting, maintaining or preserving the Trademark Collateral after Assignor shall have failed to do so in accordance with the terms of this Agreement and/or the Loan Documents, or in defending or prosecuting any actions or proceedings arising out of or related to the Trademark Collateral, shall be borne and paid by Assignor on demand by Lender and until so paid shall be added to the principal amount of the Obligations and shall bear interest at the Agreed Rate. 14. Power of Attorney. Assignor hereby makes, constitutes and appoints Lender or any officer or agent of Lender as Lender may select as Assignor's true and lawful attorney-in-fact, with the power to endorse Assignor's name on all applications, documents, papers and instruments necessary to Lender to use the Trademark Collateral, or to grant or issue any exclusive or non-exclusive license under the Trademark Collateral to anyone else, or necessary for Lender to assign, pledge, convey or otherwise transfer title in or dispose of the Trademark Collateral to anyone else. Assignor hereby ratifies all that such attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney shall be irrevocable for the life of this Agreement and may be exercised by Lender only at any time after the occurrence and during the continuance of an Event of Default. 15. Indemnification. Assignor shall and does hereby agree to indemnify, defend and hold Lender harmless for, from and against any and all liability, loss or damage which it may or 5 6 might incur under or by reason of the Trademark Collateral or under or by reason of this Agreement and for, from and against any and all claims and demands whatsoever which may be asserted against Lender by reason of any alleged obligation or undertaking in its part to perform or discharge any of the terms, covenants or agreements under or by reason of the Trademark Collateral or under or by reason of this Agreement; provided, however, that the foregoing agreement to indemnify, defend and hold harmless shall not apply to the extent that such claims and demands arise from the gross negligence or intentional misconduct of Lender. Except as provided in the immediately preceding sentence, should Lender incur any such liability, loss or damage, or in the defense of any such claim or demand, the amount thereof, including costs, expenses and reasonable attorneys' fees, together with interest thereon at the Agreed Rate, shall be secured hereby and by the other Loan Documents, and Assignor shall reimburse Lender therefor (together with such interest) immediately upon demand. Upon receiving knowledge of any suit, claim or demand asserted by a third party that Lender believes is covered by this indemnity, Lender shall give Assignor notice of the matter and the opportunity to defend it, at Assignor's sole cost and expense, with legal counsel satisfactory to Lender. Lender may require Assignor to defend the matter. If Assignor promptly undertakes its responsibility to defend the matter, Assignor shall, at reasonable intervals, keep Lender apprised of the status of the matter and Assignor's actions pertaining thereto. In addition, even if Assignor accepts and undertakes its responsibility to defend the matter, Lender may, at its sole cost and expense, retain separate legal counsel to advise Lender with respect to the matter. Assignor or its counsel shall cooperate with such separate counsel of Lender. If Assignor does not promptly accept and undertake its responsibility to so defend the matter, Lender may employ an attorney or attorneys to protect its rights hereunder, and in the event of such employment, Assignor shall upon demand pay Lender all reasonable attorneys' fees and expenses incurred by Lender, whether or not an action is actually commenced. 16. Release. Upon payment in full and performance of all Obligations secured hereby and termination of all obligations of Lender to make loans and advances and otherwise extend credit to Assignor (other than by reason of the exercise by Lender of its rights and remedies), this Agreement shall become and be void and of no effect, but the affidavit of any officer of Lender showing that any such conditions to release have not been satisfied shall be and constitute conclusive evidence of the validity, effectiveness and continuing force of this Agreement, and any person may and is hereby authorized to rely thereon. Upon such termination, all the estate, right, title, interest, claim and demand of Lender in and to the Trademark Collateral shall revert to Assignor, and Lender shall, at the request of Assignor and at the sole cost and expense of Assignor, deliver to Assignor one or more instruments canceling the Assignment and reassigning the Agreement to Assignor. 17. Notices. All notices, requests, demands and consents to be made hereunder to the parties hereto shall be in writing and shall be delivered by hand or sent by certified mail, postage prepaid, return receipt requested, through the United States Postal Service to the addresses set forth in the Loan Agreement or such other address which the parties may provide to one another in accordance with the Loan Agreement. Such notices, requests, demands and consents, if sent by mail shall be deemed given when delivered. 6 7 18. No Prior Assignments. Assignor hereby represents and warrants to Lender that no previous assignment of its interest in the Trademark Collateral has been made (except for the Original Collateral Assignment and such as have been terminated or reassigned to Assignor) and, except for transfers to Lender, Assignor agrees not to assign, sell, pledge, transfer, or otherwise encumber its interest in the Trademark Collateral so long as this Agreement is in effect. 19. No Release. This Agreement shall not effect the release of any other collateral now or hereafter held by Lender as security for the Obligations, nor shall the taking of additional security for the Obligations hereafter effect a release or termination of this Agreement or any terms or provisions hereof. 20. Further Assurances. Assignor, upon request of Lender, shall execute and deliver such further documents, as may be reasonably necessary to carry out the intent of this Agreement and to perfect and preserve the rights and interests of Lender hereunder and the priority thereof. 21. No Waiver. No failure or delay on the part of Lender in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power, or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The rights, powers and remedies hereunder are cumulative and may be exercised by Lender either independently of or concurrently with any other right, power or remedy contained herein or in any document or instrument executed in connection with the Obligations. 22. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ARIZONA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES. 23. Cumulative Rights. All of Lender's rights and remedies with respect to the Trademark Collateral, whether established hereby or by the Loan Agreement, or by any other agreements or by law shall be cumulative and may be exercised singularly or concurrently. 24. Severability. The provisions of this Agreement are severable, and if any clause or provision shall be held invalid and unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction, and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision of this Agreement in any jurisdiction. 25. Successors and Assigns. The benefits and burdens of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties. 26. Authority of Assignor and Signatories. Assignor hereby represents and warrants to Lender that all necessary consents and approvals have been obtained and that this Agreement has been duly authorized by all necessary action and that it constitutes and will constitute a valid and binding obligation of Assignor. Assignor hereby represents and warrants that the signatory 7 8 executing this Agreement on behalf of the Assignor has been duly authorized by Assignor to execute this Agreement on behalf of Assignor as an officer of Assignor. 27. Number and Gender. In this Agreement, the singular shall include the plural and the masculine shall include the feminine and neuter gender, and vice versa, if the context so requires. 28. Counterparts. This Agreement may be executed and acknowledged in counterparts, all of which executed and acknowledged counterparts shall together constitute a single document. Signature and acknowledgment pages may be detached from the counterparts and attached to a single copy of this Agreement to form physically one document, which may be recorded. 29. Integration. The Loan Documents contain the complete understanding and agreement of Assignor and Lender and supersede all prior representations, warranties, agreements, arrangements, understandings and negotiations. 30. Survival. Subject to the applicable provisions of the Loan Agreement, the representations, warranties and covenants of Assignor in the Loan Documents shall survive the execution and delivery of the Loan Documents and the making of the Loan described therein. 31. Filing/Recordation. This Agreement may be filed/recorded in such public offices and with such governmental authorities as Lender may determine from time to time. Lender may so file/record this Agreement as a "security interest", "collateral assignment", "assignment" or similar designation as Lender may determine (so long as such designation is consistent with the terms of this Agreement) and Lender may from time to time rerecord/refile or take other action to change the designation under which this Agreement is recorded (so long as such designation is consistent with the terms of this Agreement). 32. Affirmation of Security Interest. This Agreement amends, restates and supersedes (except as provided herein) the Original Collateral Assignment. Notwithstanding the amendment and restatement of the Original Collateral Assignment, Assignor acknowledges that consideration has been given by Lender for this Agreement and nothing contained herein is intended to impair, limit or otherwise affect Lender's continuing first lien priority security interest in the Trademark Collateral. IN WITNESS WHEREOF, this Agreement is made as of the date first above written. MEDICIS PHARMACEUTICAL CORPORATION, a Delaware corporation By: /s/ Mark A. Prygocki, Sr. ---------------------------------- Name: Mark A. Prygocki, Sr. ------------------------------- Title: Chief Financial Officer ------------------------------- 8 9 NORWEST BANK ARIZONA, NATIONAL ASSOCIATION, a national banking association By: /s/ Tim Billings ---------------------------------- Name: Tim Billings ------------------------------- Title: Vice President ------------------------------- 9 10 SCHEDULE A LIST OF TRADEMARK COLLATERAL EX-10.77 5 EX-10.77 1 Exhibit 10.77 FIRST AMENDMENT TO SECURITIES ACCOUNT PLEDGE AND SECURITY AGREEMENT THIS FIRST AMENDMENT TO SECURITIES ACCOUNT PLEDGE AND SECURITY AGREEMENT (the "Amendment") is made as of the 22nd day of November, 1998 by and between MEDICIS PHARMACEUTICAL CORPORATION, a Delaware corporation ("Borrower"), and NORWEST BANK ARIZONA, NATIONAL ASSOCIATION, a national banking association (Lender"). W I T N E S S E T H: WHEREAS, Borrower and Lender are parties to that certain Securities Account Pledge and Security Agreement dated as of November 22, 1996 (as amended hereby and as hereafter amended, modified, supplemented, restated, extended or replaced from time to time, the "Security Agreement"), pursuant to which Borrower pledged and granted to Lender a security interest in and to all of Borrower's right, title and interest in and to the Securities Account and all financial assets now or hereafter held in the Securities Account and all security entitlements in connection therewith, to secure the payment and performance of Borrower obligations to Lender pursuant to that certain Credit and Security Agreement dated as of August 3, 1995, as amended (the "Credit Agreement"); WHEREAS, Borrower and Lender intend to increase the Acquisitions Credit Facility to $25,000,000 and extend the term of the Credit Agreement and the Acquisitions Credit Facility for an additional two (2) years and make certain modifications and amendments to the terms of the Credit Agreement and other Loan Documents; and WHEREAS, Borrower has requested that Lender amend the Security Agreement to amend Borrower's covenant to maintain a certain minimum amount of Collateral in the Securities Account; NOW, THEREFORE, in consideration of the foregoing premises, the covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and Lender hereby agree as follows: 1. Definitions. Except as otherwise defined herein, all capitalized terms used herein shall have the meanings ascribed thereto in the Credit Agreement. 2. Right to Direct Account Holder. Section 3 of the Agreement is hereby deleted in its entirety and the following inserted therefor: 3. Right to Direct Account Holder. Provided that no Default or Event of Default has occurred and is continuing, Borrower may effect Entitlement Orders, withdrawals, investment requests or directions to the Account Holder with respect to the 2 Securities Collateral from time to time, provided that any such Entitlement Order, withdrawal, investment request or direction shall be made in strict accordance with the Investment Agreement and the Medicis Pharmaceutical Corporation Corporate Investment Policy, a copy of which is attached as Exhibit "A" to the Acknowledgment of Control of Pledged Securities Account of even date herewith among Borrower, Lender and Account Holder (the "Acknowledgment"), and, provided, further, before and after affecting the Entitlement Order, withdrawal, investment request or direction of Borrower, the ratio of the outstanding and unpaid Advances to the Market Value of the Securities Accounts (the "Loan-to-Value Ratio") is and will continue to be .75:1.0 or less. Notwithstanding anything to the contrary in the Acknowledgment, in the event that Account Holder elects to resign as investment advisor and custodian under the Investment Agreement, Borrower may select a successor Account Holder, subject to the reasonable approval of Lender (and provided that such successor Account Holder enters into an investment management or custodial agreement and an acknowledgment of control of pledged securities account agreement in substantially the form of the Acknowledgment), and Lender will notify Account Holder of such election and authorize Account Holder to pay over or deliver to such successor Account Holder any documents, instruments, certificates and securities with respect to the Securities Account. 3. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of Arizona. 4. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original and all of which combined shall constitute one and the same instrument. This Amendment shall be deemed effective upon each party's receipt of a signed facsimile copy of this Amendment from the other party. 5. Successors and Assigns. This Amendment shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. 6. Amendment. Except as otherwise amended hereby, all of the terms and provisions of the Agreement shall remain in full force and effect. [THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK] -2- 3 IN WITNESS WHEREOF, Borrower and Lender have caused this Amendment to be executed as of the day and year first above written. BORROWER: MEDICIS PHARMACEUTICAL CORPORATION, a Delaware corporation By: /s/ Mark A. Prygocki, Sr. -------------------------------------- Name: Mark A. Prygocki, Sr. Title: Chief Financial Officer LENDER: NORWEST BANK ARIZONA, NATIONAL ASSOCIATION, a national banking association By: /s/ Tim Billings -------------------------------------- Name: Tim Billings Title: Vice President -3- EX-10.78 6 EX-10.78 1 Exhibit 10.78 FIRST AMENDMENT TO ACKNOWLEDGMENT OF CONTROL OF PLEDGED SECURITIES ACCOUNT THIS FIRST AMENDMENT TO ACKNOWLEDGMENT OF CONTROL OF PLEDGED SECURITIES ACCOUNT (the "Amendment") is made as of the 22nd day of November, 1998 by and among MEDICIS PHARMACEUTICAL CORPORATION, a Delaware corporation ("Borrower"), and NORWEST BANK ARIZONA, NATIONAL ASSOCIATION, a national banking association (Lender"), and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association ("Account Holder"). W I T N E S S E T H: WHEREAS, Borrower, Lender and Account Holder are parties to that certain Acknowledgment of Control of Securities Account Pledge and Security Agreement dated as of November 22, 1996 (as amended hereby and as hereafter amended, modified, supplemented, restated, extended or replaced from time to time, the "Agreement"), which governs the relationship among Borrower, Lender and Account Holder with respect to the Securities Account; WHEREAS, Borrower and Lender intend to increase the Acquisitions Credit Facility to $25,000,000 and extend the term of the Credit and Security Agreement dated as of August 3, 1995, as amended (the "Credit Agreement") and the Acquisitions Credit Facility for an additional two (2) years and make certain modifications and amendments to the terms of the Credit Agreement and other Loan Documents; and WHEREAS, Borrower and Lender intend to make certain modifications to the Securities Account Pledge and Security Agreement dated November 22, 1996, as amended (the "Pledge Agreement"), and such amendments must be reflected in the terms, provisions and conditions of this Agreement; NOW, THEREFORE, in consideration of the foregoing premises, the covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower, Lender and Account Holder hereby agree as follows: 1. Definitions. Except as otherwise defined herein, all capitalized terms used herein shall have the meanings ascribed thereto in the Agreement. 2. Recital. The second Recital of the Agreement is hereby deleted in its entirety and the following inserted therefor: WHEREAS, Borrower and Account Holder are parties to that certain Investment Advisory Agreement dated as of October 17, 1996 (as it may be amended, modified, supplemented, replaced, restated or extended from time to time with the consent of Lender, the "Investment Agreement"), pursuant to which 2 Account Holder has opened and maintains that certain Reserve Asset Management Account No. 13275500 (such account and any other "securities accounts" (as defined in the Uniform Commercial Code, as adopted in the States of Arizona and Minnesota), maintained by Borrower or any Affiliate of Borrower with Account Holder pursuant to the Investment Agreement that constitute Collateral securing the obligations of the Borrower in which Lender holds a valid, enforceable first priority lien and security interest, free and clear of any other liens, claims or encumbrances, are collectively referred to as the "Securities Account") and holds in the Securities Account all cash and securities initially deposited plus any additional cash and securities that may be received from time to time for the Securities Account, subject to Borrower's right to effect Entitlement Orders, withdrawals, investment requests or directions to the Account Holder with respect to the Securities Collateral from time to time; 3. Account Holder's Responsibility. Section 2(d) of the Agreement is hereby deleted in its entirety and the following inserted therefor: (d) Notwithstanding anything to the contrary contained herein, Account Holder shall refuse any Entitlement Order or any other withdrawal, investment request or direction of Borrower with respect to the Securities Account and the financial assets therein, if, before or after affecting the Entitlement Order, withdrawal, investment request or direction of Borrower, the ratio of the outstanding and unpaid Advances to the Market Value of the Securities Accounts (the "Loan-to-Value Ratio") is or will be more than .75:1.0. For purposes hereof, the "Market Value of the Securities Account" means the value of all of the financial assets in any Securities Account that constitutes Collateral securing the obligations of the Borrower in which Lender holds a valid, enforceable first priority lien and security interest, free and clear of any other liens, claims or encumbrances, and, with respect to all such non-cash financial assets, the value of such financial assets marked-to-market as of the close of business on the last Banking Day of the immediately preceding month. Upon the written request of Borrower or Account Holder, Lender shall forthwith notify Account Holder of the then outstanding and unpaid Advances. 4. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of Arizona. 5. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original and all of which combined shall constitute one and the same instrument. This Amendment shall be deemed effective upon each party's receipt of a signed -2- 3 facsimile copy of this Amendment from the other party. 6. Successors and Assigns. This Amendment shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. 7. Amendment. Except as otherwise amended hereby, all of the terms and provisions of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, Borrower, Lender and Account Holder have caused this Amendment to be executed as of the day and year first above written. BORROWER: MEDICIS PHARMACEUTICAL CORPORATION, a Delaware corporation By: /s/ Mark A. Prygocki, Sr. ----------------------------------- Name: Mark A. Prygocki, Sr. Title: Chief Financial Officer LENDER: NORWEST BANK ARIZONA, NATIONAL ASSOCIATION, a national banking association By: /s/ Tim Billings ----------------------------------- Name: Tim Billings Title: Vice President ACCOUNT HOLDER: NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association By: ----------------------------------- Name: Title: -3- EX-10.88 7 EX-10.88 1 Exhibit 10.88 REPLACEMENT ACQUISITIONS REVOLVING NOTE Phoenix, Arizona November 22, 1998 For value received, the undersigned, MEDICIS PHARMACEUTICAL CORPORATION, a Delaware corporation (the "Borrower"), hereby promises to pay on or before the Maturity Date to the order of NORWEST BANK ARIZONA, NATIONAL ASSOCIATION, a national banking association (the "Lender"), at its main office in Phoenix, Arizona, or at any other place designated at any time by the holder hereof, in lawful money of the United States of America and in immediately available funds, the principal sum of the Acquisitions Committed Amount, or so much thereof as shall be outstanding from time to time, together with interest on the principal amount outstanding from time to time, computed on the basis of the actual number of days elapsed and a 360-day year, from the date hereof until this Note is fully paid at the rate from time to time in effect under the Credit and Security Agreement dated as August 3, 1995 by and between Norwest Business Credit, Inc., the predecessor-in-interest to Lender, and the Borrower, as amended (the "Credit Agreement"). Except as otherwise defined herein, all capitalized terms used herein shall have the meanings ascribed thereto in the Credit Agreement. The principal hereof and interest accruing thereon shall be due and payable as provided in the Credit Agreement. The principal amount of this Note may be borrowed, repaid and reborrowed from time to time in accordance with the Credit Agreement. This Note is issued pursuant, and is subject, to the Credit Agreement, which provides, among other things, for acceleration hereof. This Note is the Acquisitions Revolving Note referred to in the Credit Agreement. This Note is secured, among other things, pursuant to the Credit Agreement and the Loan Documents (as defined in the Credit Agreement), and may now or hereafter be secured by one or more other security agreements, mortgages, deeds of trust, assignments or other instruments or agreements. The Borrower hereby agrees to pay all costs of collection, including attorneys' fees and legal expenses in the event this Note is not paid when due, whether or not legal proceedings are commenced, as more particularly enumerated in the Credit Agreement. The Borrower agrees that the interest rate contracted for includes the interest rate set forth in the Credit Agreement plus any other charges or fees set forth herein and costs and expenses incident to this transaction paid by the Borrower to the extent the same are deemed interest under applicable law. Presentment or other demand for payment, notice of dishonor and protest are expressly waived. 2 This Note replaces and supersedes that certain Acquisitions Revolving Note dated November 22, 1996 from Borrower in favor of Lender in the original principal amount of $20,000,000 (the "Original Acquisitions Revolving Note"). Notwithstanding the replacement of the Original Acquisitions Revolving Note, Borrower acknowledges that consideration has been given by Lender for this Note and the execution and delivery of this Note does not constitute an accord and satisfaction or repayment of the Original Acquisitions Revolving Note and this Note is not made as payment or satisfaction of the Original Acquisitions Revolving Note, but simply as a replacement and increase of the Original Acquisitions Revolving Note. Borrower acknowledges, confirms and ratifies the enforceability of this Note, the Loan Documents, as modified, and the continuing validity, enforceability and priority of the liens and security interests granted in the Loan Documents and securing the Original Acquisitions Revolving Note and this Note. IN WITNESS WHEREOF, this Note is executed and delivered as of the date first above written. MEDICIS PHARMACEUTICAL CORPORATION, a Delaware corporation By: /s/ Mark A. Prygocki, Sr. --------------------------------- Name: Mark A. Prygocki, Sr. ------------------------------ Title: Chief Financial Officer ------------------------------ -2- EX-10.89 8 EX-10.89 1 Exhibit 10.89 ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT BY AND AMONG HOECHST MARION ROUSSEL, INC., HOECHST MARION ROUSSEL DEUTSCHLAND GmbH, HOECHST MARION ROUSSEL, S.A. AND MEDICIS PHARMACEUTICAL CORPORATION DATED AS OF NOVEMBER 15, 1998 TRADEMARK NOTICE: 'Loprox', 'Topicort' and 'A/T/S' are registered trademarks of HMR, certain rights to which are granted to MEDICIS in accordance with this AGREEMENT. The use of such trademarks in this AGREEMENT is in each case deemed to be accompanied by an appropriate notice of trademark registration. 2 ASSET PURCHASE AGREEMENT TABLE OF CONTENTS ARTICLE I. DEFINITIONS.........................................................1 1.1 "AAA"...........................................................1 1.2 "ACTIVE INGREDIENTS"............................................1 1.3 "AFFILIATE".....................................................1 1.4 "AGREEMENT".....................................................2 1.5 "APPLICABLE LAWS"...............................................2 1.6 "ASSETS"........................................................2 1.7 "CICLOPIROX"....................................................2 1.8 "CLAIM".........................................................2 1.9 "COMPETING NAIL TOPICAL PRODUCT"................................2 1.10 "CONFIDENTIAL INFORMATION"......................................2 1.11 "COPLEY"........................................................3 1.12 "COPLEY PRODUCT AGREEMENT"......................................3 1.13 "DEVELOPMENT STAGE PRODUCT".....................................3 1.14 "EXCLUDED HMR PRODUCT LIABILITY"................................3 1.15 "FDA"...........................................................3 1.16 "HERBERT".......................................................3 1.17 "HERBERT AGREEMENT".............................................3 1.18 "HMR"...........................................................3 1.19 "HMR GmbH"......................................................3 1.20 "HMRI"..........................................................3 1.21 "HMR INDEMNIFIED PARTY".........................................3 1.22 "HMR NEWLY DEVELOPED PRODUCT"...................................3 i 3 ASSET PURCHASE AGREEMENT 1.23 "HMR NOTICE"....................................................3 1.24 "HMR RIGHT OF FIRST OFFER"......................................3 1.25 "HMR SA"........................................................4 1.26 "HMR SUPPLIED PRODUCTS".........................................4 1.27 "IMPROVEMENT"...................................................4 1.28 "INTELLECTUAL PROPERTY".........................................4 1.29 "INTERNET SIDE LETTER"..........................................4 1.30 "KNOW-HOW"......................................................4 1.31 "LIABILITIES"...................................................4 1.32 "LICENSE AND OPTION AGREEMENT"..................................4 1.33 "LICENSE EFFECTIVE DATE"........................................4 1.34 "LINE EXTENSIONS"...............................................4 1.35 "LOPROX LOTION".................................................4 1.36 "LOPROX LOTION SUPPLY AGREEMENT"................................5 1.37 "MEDICIS".......................................................5 1.38 "MEDICIS INDEMNIFIED PARTY".....................................5 1.39 "MEDICIS NEWLY DEVELOPED PRODUCT"...............................5 1.40 "MEDICIS NOTICE"................................................5 1.41 "MEDICIS RIGHT OF FIRST OFFER"..................................5 1.42 "NDAs"..........................................................5 1.43 "NEW A/T/S GEL MANUFACTURER"....................................5 1.44 "OTHER INFORMATION".............................................5 1.45 "PACO"..........................................................5 1.46 "PACO AGREEMENTS"...............................................5 1.47 "PACO A/T/S AGREEMENT"..........................................6 ii 4 ASSET PURCHASE AGREEMENT 1.48 "PACO LOPROX AGREEMENT".........................................6 1.49 "PACO LOPROX ASSIGNMENT AGREEMENT"..............................6 1.50 "PATENTS".......................................................6 1.51 "PRODUCT KNOW-HOW"..............................................6 1.52 "PRODUCTS"......................................................6 1.53 "PURCHASE DATE".................................................6 1.54 "PURCHASE PRICE"................................................6 1.55 "RULES".........................................................6 1.56 "SHARED KNOW-HOW"...............................................6 1.57 "SIMILAR PRODUCTS"..............................................7 1.58 "SUPPLY AGREEMENT"..............................................7 1.59 "TERRITORY".....................................................7 1.60 "TRADEMARK LICENSE AGREEMENT"...................................7 1.61 "TRADEMARKS"....................................................7 1.62 "TRANSACTION DOCUMENTS".........................................7 1.63 "TRANSITION SERVICES AGREEMENT".................................7 ARTICLE II. PURCHASE AND SALE OF ASSETS........................................8 2.1 Sale, Transfer and Assignment of the PATENTS, the TRADEMARKS and the PRODUCT KNOW-HOW.............................8 2.2 Transfer of the NDAs............................................8 2.3 PACO LOPROX ASSIGNMENT AGREEMENT................................8 2.4 ACTIVE INGREDIENTS Not Included in ASSETS.......................9 2.5 A/T/S/ Gel......................................................9 2.6 MEDICIS Use of Drug Master Files and NDAs.......................9 iii 5 ASSET PURCHASE AGREEMENT ARTICLE III. PURCHASE PRICE; CONDITION TO PURCHASE............................11 3.1 PURCHASE PRICE; Conveyance.....................................11 3.2 Condition to Purchase..........................................11 3.3 Interest; Taxes................................................12 ARTICLE IV. GRANT OF LICENSES; RELATED RIGHTS.................................12 4.1 Grant of Licenses by HMR.......................................12 4.2 Grant of Licenses by MEDICIS...................................13 4.3 IMPROVEMENTS...................................................14 4.4 Generic Products...............................................14 4.5 Certain Restrictions on Sale of ACTIVE INGREDIENTS.............15 ARTICLE V. RIGHTS OF FIRST OFFER..............................................16 5.1 MEDICIS RIGHT OF FIRST OFFER...................................16 5.2 HMR RIGHT OF FIRST OFFER.......................................18 5.3 Development of Newly Developed Products........................19 5.4 Rilopirox......................................................19 5.5 Theramycin Z Product...........................................20 ARTICLE VI. GREY-MARKET RESTRICTIONS..........................................20 6.1 No Sales By MEDICIS Outside the TERRITORY......................20 6.2 No Sales by HMR Inside the TERRITORY...........................20 ARTICLE VII. REGULATORY MATTERS; RECALLS......................................21 7.1 Communication with Agencies....................................21 7.2 Product Recalls................................................21 ARTICLE VIII. PROMOTION AND MARKETING.........................................22 8.1 Party Names; Change of Promotional Material....................22 8.2 Medical and Other Inquiries....................................22 iv 6 ASSET PURCHASE AGREEMENT ARTICLE IX. INTELLECTUAL PROPERTY.............................................22 9.1 Notices........................................................22 9.2 Actions........................................................23 ARTICLE X. REPRESENTATIONS AND WARRANTIES; COVENANTS..........................23 10.1 Representations and Warranties of the Parties..................24 10.2 Representations and Warranties of HMR..........................26 10.3 Mutual Limitations on Warranties and Damages...................26 10.4 Survival of Representations and Warranties.....................27 10.5 Covenants of the Parties.......................................27 ARTICLE XI. CONFIDENTIAL INFORMATION..........................................27 11.1 Ownership......................................................27 11.2 Confidentiality................................................27 11.3 Public Announcements and Statements............................27 ARTICLE XII. MANUFACTURING....................................................28 12.1 Manufacturing by MEDICIS.......................................28 ARTICLE XIII. INDEMNIFICATION AND LIMITATION OF LIABILITY.....................28 13.1 Indemnification by MEDICIS.....................................28 13.2 Indemnification by HMR.........................................28 13.3 Process of Indemnification.....................................29 13.4 Settlements....................................................29 13.5 Right of Set-Off...............................................29 ARTICLE XIV. MISCELLANEOUS....................................................30 14.1 Governing Law..................................................30 14.2 Headings and References........................................30 14.3 Dispute Resolution.............................................30 v 7 ASSET PURCHASE AGREEMENT 14.4 Severability...................................................32 14.5 Entire Agreement...............................................32 14.6 Amendment......................................................32 14.7 Notices........................................................32 14.8 Assignment, Sublicense and Binding Effect......................33 14.9 No Agency......................................................34 14.10 No Strict Construction.........................................34 14.11 Waiver.........................................................34 14.12 Counterparts...................................................34 EXHIBITS EXHIBIT A - List of NDAs EXHIBIT B - List of PATENTS EXHIBIT C - List of PRODUCTS EXHIBIT D - List of TRADEMARKS vi 8 ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT This Asset Purchase Agreement (the "AGREEMENT") is entered into as of November 15, 1998, by and among Hoechst Marion Roussel, Inc., a Delaware corporation ("HMRI"), Hoechst Marion Roussel Deutschland GmbH, a German limited liability company ("HMR GmbH"), Hoechst Marion Roussel, S.A., a French corporation ("HMR SA"), and Medicis Pharmaceutical Corporation, a Delaware corporation ("MEDICIS"). Capitalized terms used in this AGREEMENT shall have the meanings ascribed to them in Article I hereof or as otherwise set forth herein. RECITALS A. HMRI, HMR SA and HMR GmbH (sometimes collectively and jointly and severally referred to herein as "HMR") and MEDICIS are parties to the LICENSE AND OPTION AGREEMENT which provides for the contemporaneous execution and delivery of this document. B. MEDICIS desires to purchase from HMR, and HMR desires to sell, transfer and assign to MEDICIS, effective as of the PURCHASE DATE, the ASSETS. C. The parties are willing to grant certain licenses to each other as specified in Article IV hereof. D. Pursuant to and as provided in this AGREEMENT, HMRI, MEDICIS and PACO have entered into the PACO LOPROX ASSIGNMENT AGREEMENT. NOW, THEREFORE, in consideration of the mutual promises hereinafter made and the mutual benefits to be derived from this AGREEMENT, the parties hereto, intending to be legally bound, hereby agree as follows: ARTICLE I. DEFINITIONS 1.1 "AAA" shall have the meaning set forth in Section 14.3(b) hereof. 1.2 "ACTIVE INGREDIENTS" means CICLOPIROX, desoximetasone and erythromycin, or any of them, as the case may be. 1.3 "AFFILIATE" means any individual, corporation or other legal entity which any party directly or indirectly through one or more intermediaries controls or which is controlled by or under common control with such party. For the purpose of this AGREEMENT, "control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of an individual, corporation or other legal entity, whether through the ownership of voting securities, by contract, or otherwise; provided, however, that COPLEY shall not be an AFFILIATE of HMR. 1 9 ASSET PURCHASE AGREEMENT 1.4 "AGREEMENT" means this Asset Purchase Agreement by and among HMRI, HMR GmbH, HMR SA and MEDICIS. 1.5 "APPLICABLE LAWS" shall mean all applicable laws, statutes, rules, regulations, ordinances, orders, decrees, writs, judicial or administrative decisions and the like of any nation or government, any state or other political subdivision thereof, any entity exercising executive, judicial, regulatory or administrative functions of or pertaining to government (including, without limitation, any governmental authority, agency, department, board, commission or instrumentality of any governmental unit or any political subdivision thereof), any tribunal or arbitrator of competent jurisdiction, and any self-regulatory organization. 1.6 "ASSETS" means the PATENTS, the PRODUCT KNOW-HOW, the TRADEMARKS and the NDAs being sold, transferred and assigned by HMR to MEDICIS under Article II hereof. 1.7 "CICLOPIROX" means ciclopirox acid and/or ciclopirox olamine. 1.8 "CLAIM" shall have the meaning set forth in Section 14.3(a). 1.9 "COMPETING NAIL TOPICAL PRODUCT" means any product or products for topical application to the nail containing CICLOPIROX, or that would otherwise be similar to or competitive with the DEVELOPMENT STAGE PRODUCT. 1.10 "CONFIDENTIAL INFORMATION" means any and all data and information of a proprietary or confidential nature that are owned or controlled by any party hereto or their respective AFFILIATES and are made available by one party or its AFFILIATES to any other party or its AFFILIATES prior to, on or after the PURCHASE DATE and that are directly or indirectly related to the PRODUCTS and/or IMPROVEMENTS or the manufacture, use or sale thereof, including, but without limitation, clinical or non-clinical data, formulations, processing information, technical reports and specifications, marketing and sales information, customer lists, supplier lists and pricing information. CONFIDENTIAL INFORMATION shall not include information which: (i) was known or used by the receiving party or its AFFILIATES prior to its date of disclosure to the receiving party, as evidenced by the prior written records of the receiving party or its AFFILIATES; (ii) either before or after the date of the disclosure to the receiving party is lawfully disclosed without restriction on disclosure to the receiving party or its AFFILIATES by an independent, unaffiliated third party whose disclosure of such information does not violate any obligation to or right of the party owning or controlling the CONFIDENTIAL INFORMATION; or (iii) either before or after the date of the disclosure to the receiving party becomes published or generally known in the industry through no fault or admission on the part of the receiving party or its AFFILIATES. 2 10 ASSET PURCHASE AGREEMENT 1.11 "COPLEY" means Copley Pharmaceutical, Inc., a Delaware corporation. 1.12 "COPLEY PRODUCT AGREEMENT" shall have the meaning set forth in Section 4.4(a) hereof. 1.13 "DEVELOPMENT STAGE PRODUCT" shall have the meaning set forth in Schedule 5.1 hereto. 1.14 "EXCLUDED HMR PRODUCT LIABILITY" means any LIABILITY of HMR or their AFFILIATES arising under any applicable federal, state, local or other product liability law, regulation, common law principle, court order or judgment, jury verdict or arbitral award arising out of or related to the manufacture of the HMR SUPPLIED PRODUCTS by HMR or its AFFILIATES after the PURCHASE DATE; excluding, however, any such LIABILITY due to, caused by, resulting from or arising out of any breach by HMR or any of their AFFILIATES of Article VI of the SUPPLY AGREEMENT or Article VI of the LOPROX LOTION SUPPLY AGREEMENT. 1.15 "FDA" means the United States Food and Drug Administration, or any successor to its responsibilities with respect to pharmaceutical products such as the PRODUCTS. 1.16 "HERBERT" means Vision Pharmaceuticals L.P., a Texas limited partnership (formerly known as Herbert Laboratories), the general partner of which is Allergan General, Inc., a Delaware corporation that is a subsidiary of Allergan, Inc. 1.17 "HERBERT AGREEMENT" means the Manufacturing Agreement, dated as of June 11, 1990, between HMRI and HERBERT, relating to 'A/T/S' Gel, including any amendments thereto. 1.18 "HMR" means HMRI, HMR SA and HMR GmbH, collectively and jointly and severally. 1.19 "HMR GmbH" means Hoechst Marion Roussel Deutschland GmbH, a German limited liability company. 1.20 "HMRI" means Hoechst Marion Roussel, Inc., a Delaware corporation. 1.21 "HMR INDEMNIFIED PARTY" shall have the meaning set forth in Section 13.1 hereof. 1.22 "HMR NEWLY DEVELOPED PRODUCT" shall have the meaning set forth in Section 5.1 hereof. 1.23 "HMR NOTICE" shall have the meaning set forth in Section 5.1(a) hereof. 1.24 "HMR RIGHT OF FIRST OFFER" shall have the meaning set forth in Section 5.2 hereof. 3 11 ASSET PURCHASE AGREEMENT 1.25 "HMR SA" means Hoechst Marion Roussel, S.A., a French corporation. 1.26 "HMR SUPPLIED PRODUCTS" means the HMR MANUFACTURED PRODUCTS (as defined in the SUPPLY AGREEMENT) and the LOPROX LOTION. 1.27 "IMPROVEMENT" means any and all modifications or refinements related to any PRODUCT or its use or the manufacturing processes thereof, whether patented or not patented, which may be made, developed or acquired by a party prior to, on or after the PURCHASE DATE including, without limitation, modifications in the size, dosage strength or excipients of any PRODUCT, but not including LINE EXTENSIONS. 1.28 "INTELLECTUAL PROPERTY" means the KNOW-HOW, the PATENTS and the TRADEMARKS. 1.29 "INTERNET SIDE LETTER" means that certain side letter agreement pertaining to Internet Domain Names between HMRI and MEDICIS, dated as of the LICENSE EFFECTIVE DATE. 1.30 "KNOW-HOW" means the SHARED KNOW-HOW and the PRODUCT KNOW-HOW. 1.31 "LIABILITIES" means any and all liabilities, losses, damages, penalties, fines, assessments, expenses and costs of any kind or nature, primary or secondary, direct or indirect, absolute or contingent, known or unknown, including without limitation costs of settlement, reasonable attorneys fees and related costs and expenses and any liabilities for claims of personal injury or death, suffered or incurred by an indemnified party hereunder. 1.32 "LICENSE AND OPTION AGREEMENT" means the License and Option Agreement, dated as of November 15, 1998, among HMRI, HMR SA, HMR GmbH and MEDICIS. 1.33 "LICENSE EFFECTIVE DATE" means the LICENSE EFFECTIVE DATE as defined in the LICENSE AND OPTION AGREEMENT, which date is November 15, 1998. 1.34 "LINE EXTENSIONS" means human dermatology products containing the ACTIVE INGREDIENTS of the PRODUCTS but in a different dosage form from the PRODUCTS (e.g., products in a gel rather than a cream form), but not including (i) IMPROVEMENTS or (ii) the additional Loprox PRODUCT discussed in Schedule 13 to the LICENSE AND OPTION AGREEMENT, Loprox Gel, Topicort Ointment 0.05% or the DEVELOPMENT STAGE PRODUCT. 1.35 "LOPROX LOTION" shall have the meaning set forth in the LOPROX LOTION SUPPLY AGREEMENT. 4 12 ASSET PURCHASE AGREEMENT 1.36 "LOPROX LOTION SUPPLY AGREEMENT" means the Loprox Lotion Supply Agreement, dated as of the LICENSE EFFECTIVE DATE, between HMRI and MEDICIS. 1.37 "MEDICIS" means Medicis Pharmaceutical Corporation, a Delaware corporation. 1.38 "MEDICIS INDEMNIFIED PARTY" shall have the meaning set forth in Section 13.2 hereof. 1.39 "MEDICIS NEWLY DEVELOPED PRODUCT" shall have the meaning set forth in Section 5.2 hereof. 1.40 "MEDICIS NOTICE" shall have the meaning set forth in Section 5.2(a) hereof. 1.41 "MEDICIS RIGHT OF FIRST OFFER" shall have the meaning set forth in Section 5.1 hereof. 1.42 "NDAs" means HMR's New Drug Applications, Abbreviated New Drug Applications and Abbreviated Antibiotic Drug Applications (as such terms are defined by the FDA) for the PRODUCTS (except A/T/S Gel which is owned by HERBERT) filed and approved in accordance with the requirements of the FDA, as they may be amended or supplemented from time to time, and as set forth on Exhibit A hereto. 1.43 "NEW A/T/S GEL MANUFACTURER" shall have the meaning set forth in Schedule 2.5 hereto. 1.44 "OTHER INFORMATION" means: (i) information relating to a disapproval or cancellation of an NDA (or any similar approval, disapproval or cancellation outside of the TERRITORY); (ii) information on modifications required to be made in the contents of an NDA (or any similar approval outside the TERRITORY) in order to prevent, or to warn against risks of, death or bodily harm; (iii) information on withdrawal of a PRODUCT from the marketplace in the TERRITORY (or outside the TERRITORY); (iv) information on important revisions of the precautions in the usage of a PRODUCT as set forth in the labeling pursuant to an NDA (or any similar revisions outside the TERRITORY); and (v) any information which could adversely impact the marketing of a PRODUCT in the TERRITORY. 1.45 "PACO" means Paco Pharmaceutical Services, Inc., a Delaware corporation. 1.46 "PACO AGREEMENTS" means the PACO LOPROX AGREEMENT and the PACO A/T/S AGREEMENT. 5 13 ASSET PURCHASE AGREEMENT 1.47 "PACO A/T/S AGREEMENT" means the Toll Manufacturing Agreement, dated as of the LICENSE EFFECTIVE DATE, between HMRI and PACO relating to the A/T/S Solution, including any amendments thereto. 1.48 "PACO LOPROX AGREEMENT" means the Toll Manufacturing Agreement, dated as of the LICENSE EFFECTIVE DATE, between HMRI and PACO relating to Loprox Lotion, including any amendments thereto. 1.49 "PACO LOPROX ASSIGNMENT AGREEMENT" means the Assignment and Assumption Agreement, dated as of the LICENSE EFFECTIVE DATE, by and among PACO, HMRI and MEDICIS relating to the PACO LOPROX AGREEMENT, which shall only be effective on the PURCHASE DATE. 1.50 "PATENTS" means the U.S. patent applications and U.S. patents issuing therefrom owned by HMR or their AFFILIATES corresponding to, or that shall correspond to, and which are limited to the subject matter described in the PCT patent applications specified in Exhibit B hereto, other than to the extent of claims for active ingredients other than the ACTIVE INGREDIENTS; for the avoidance of doubt claims related to rilopirox, the DEVELOPMENT STAGE PRODUCT or HMR's CICLOPIROX Powder shall not be included within the PATENTS. 1.51 "PRODUCT KNOW-HOW" means technical, scientific and medical information, knowledge, know-how, inventions and trade secrets, other than the SHARED KNOW-HOW, pertaining to or related to the development, registration, manufacturing, formulation, sale, use and commercialization of solely the PRODUCTS, including, but without limitation, physico-chemical data, specifications, quality control information and procedures and information concerning the clinical, toxicological and pharmacological properties of the PRODUCTS, owned by HMR or their AFFILIATES, excluding, however, technical scientific and medical information, knowledge, know-how, inventions and trade secrets which are solely related to the manufacture or formulation of the ACTIVE INGREDIENTS. 1.52 "PRODUCTS" means the human dermatology products and (unless the context indicates otherwise) samples thereof listed in Exhibit C to this AGREEMENT, but not the ACTIVE INGREDIENTS thereof. 1.53 "PURCHASE DATE" shall mean the date this AGREEMENT is effective in accordance with Section 3.2 of this AGREEMENT. 1.54 "PURCHASE PRICE" shall mean U.S. $16.5 million, subject to adjustment in accordance with Schedules 4.3A and 4.3B of the LICENSE AND OPTION AGREEMENT. 1.55 "RULES" shall have the meaning set forth in Section 14.3(b) hereof. 1.56 "SHARED KNOW-HOW" means technical, scientific and medical information, knowledge, know-how, inventions and trade secrets, other than the PRODUCT 6 14 ASSET PURCHASE AGREEMENT KNOW-HOW, which (i) is owned by HMR or their AFFILIATES and pertain or relate to the PRODUCTS and other products of HMR or its AFFILIATES, or (ii) is controlled by or licensed to HMR or their AFFILIATES on a non-exclusive basis, but not owned by HMR or their AFFILIATES, and are necessary for, used in or relate to the development, registration, manufacturing, formulation, sale, use and commercialization of the PRODUCTS, including, but without limitation, manufacturing processes and techniques, quality control information and procedures, and technical, scientific and medical information, knowledge, know-how, inventions and trade secrets which are the subject of the PACO AGREEMENTS, excluding technical, scientific and medical information, knowledge, know-how, inventions and trade secrets which are related solely to the manufacture or formulation of the ACTIVE INGREDIENTS, or which are the subject of the HERBERT AGREEMENT. 1.57 "SIMILAR PRODUCTS" mean any products for human dermatological purpose containing the ACTIVE INGREDIENTS of the PRODUCTS, including without limitation, any products based upon any IMPROVEMENTS and any LINE EXTENSIONS of the PRODUCTS. 1.58 "SUPPLY AGREEMENT" means the Supply Agreement, dated as of the LICENSE EFFECTIVE DATE, by and between HMR GmbH and MEDICIS. 1.59 "TERRITORY" means the United States of America and its territories and possessions. 1.60 "TRADEMARK LICENSE AGREEMENT" means the Trademark License Agreement dated as of the LICENSE EFFECTIVE DATE, by and among HMRI, HMR GmbH, HMR SA and MEDICIS. 1.61 "TRADEMARKS" means the trademarks associated with the PRODUCTS in the TERRITORY set forth on Exhibit D hereto held by HMR or their AFFILIATES. 1.62 "TRANSACTION DOCUMENTS" means this AGREEMENT, the LICENSE AND OPTION AGREEMENT, the TRADEMARK LICENSE AGREEMENT, the INTERNET SIDE LETTER, the TRANSITION SERVICES AGREEMENT, the SUPPLY AGREEMENT, the LOPROX LOTION SUPPLY AGREEMENT, the TECHNICAL AGREEMENT, the HERBERT ASSIGNMENT AGREEMENT, the PACO A/T/S ASSIGNMENT AGREEMENT and the PACO LOPROX ASSIGNMENT AGREEMENT. 1.63 "TRANSITION SERVICES AGREEMENT" means the Transition Services Agreement, dated as of the LICENSE EFFECTIVE DATE, by and between HMRI and MEDICIS. Unless the context clearly indicates otherwise, the use herein of the singular shall include the plural, and the use of the masculine shall include the feminine and vice versa. 7 15 ASSET PURCHASE AGREEMENT ARTICLE II. PURCHASE AND SALE OF ASSETS 2.1 Sale, Transfer and Assignment of the PATENTS, the TRADEMARKS and the PRODUCT KNOW-HOW. Subject to Section 4.4 of this AGREEMENT, effective as of the PURCHASE DATE, HMR hereby sells, assigns and transfers to MEDICIS all right, title and interest in and to (i) the PRODUCT KNOW-HOW and the TRADEMARKS, along with the goodwill represented by the TRADEMARKS for all of the PRODUCTS in the TERRITORY, and (ii) the PATENTS, except that, if any of such PATENTS are required to be commonly owned with the PATENTS retained by HMR pursuant to the following sentence, then the PATENTS subject to this requirement shall not be assigned to MEDICIS, subject to the grant to MEDICIS by HMR of a paid-up, royalty free, exclusive license under such PATENTS. HMR retains all right, title and interest in and to all of the patents and patent applications arising from the NON-PRODUCT CLAIMS (as such term is defined in the LICENSE AND OPTION AGREEMENT). HMR shall execute and deliver to MEDICIS all documents that may be required in order to vest legal, record ownership of the assigned rights and properties in MEDICIS. 2.2 Transfer of the NDAs. Subject to Section 2.6 hereof, HMR hereby transfer to MEDICIS all right, title and interest in and to the NDAs in the TERRITORY (other than rights to such know-how and information related to the ACTIVE INGREDIENTS which have been superseded and are the subject of Drug Master Files established by HMR pursuant to Section 2.5 of the LICENSE AND OPTION AGREEMENT, which MEDICIS covenants not to access) and represent and warrant to MEDICIS that HMR have provided prior to the PURCHASE DATE, or shall provide within thirty (30) days after PURCHASE DATE, to MEDICIS all necessary product regulatory and/or manufacturing documentation, information and OTHER INFORMATION in HMR's possession or control comprising or relating to the NDAs in the TERRITORY (other than rights to such know-how and information related to the ACTIVE INGREDIENTS which have been superseded and are the subject of Drug Master Files established by HMR pursuant to Section 2.5 of the LICENSE AND OPTION AGREEMENT, which MEDICIS covenants not to access) which has not been provided to MEDICIS on or before the PURCHASE DATE. From and after the PURCHASE DATE, HMR shall promptly take all necessary actions reasonably requested by MEDICIS to facilitate all required approvals of or with respect to the transfer of the NDAs in the TERRITORY. MEDICIS acknowledges that the NDA and the manufacturing information for A/T/S Gel is not being transferred to MEDICIS hereunder and that with respect to such A/T/S Gel MEDICIS has instead been assigned and has all rights and benefits accruing to HMRI under the HERBERT AGREEMENT. The Drug Master Files for the PRODUCTS and the ACTIVE INGREDIENTS (or equivalent information in the NDAs pursuant to Section 2.5 of the LICENSE AND OPTION AGREEMENT) shall remain with HMRI (except for A/T/S Gel which remains with HERBERT) and shall not be available for review by MEDICIS, but MEDICIS shall have certain rights of reference thereto (except for A/T/S Gel) pursuant to Section 2.6 hereof. 2.3 PACO LOPROX ASSIGNMENT AGREEMENT. Effective as of the PURCHASE DATE, HMRI, MEDICIS and PACO have entered into the PACO LOPROX 8 16 ASSET PURCHASE AGREEMENT ASSIGNMENT AGREEMENT pursuant to which HMRI has assigned to MEDICIS all of its rights under the PACO LOPROX AGREEMENT. 2.4 ACTIVE INGREDIENTS Not Included in ASSETS. Notwithstanding anything to the contrary contained in this AGREEMENT but subject to Article V of this AGREEMENT, any rights to the ACTIVE INGREDIENTS of the PRODUCTS shall not be included in the ASSETS other than (i) the rights (but not development or manufacturing rights as to the ACTIVE INGREDIENTS) necessary to develop, make, have made, use, distribute, sell and have sold PRODUCTS containing the ACTIVE INGREDIENTS; (ii) the right to enforce the restrictions on sale of the ACTIVE INGREDIENTS set forth in this AGREEMENT; (iii) the rights conferred by the SUPPLY AGREEMENT and the LOPROX LOTION SUPPLY AGREEMENT; (iv) the rights to reference the NDAs and Drug Master Files corresponding thereto in accordance with Section 2.6(b) hereof (but not development or manufacturing rights as to the ACTIVE INGREDIENTS) necessary to develop, sell, make and have made IMPROVEMENTS and MEDICIS NEWLY DEVELOPED PRODUCTS other than any COMPETING NAIL TOPICAL PRODUCT; and (v) the rights necessary to conduct clinical tests or to conduct tests as required by APPLICABLE LAWS with respect to or using the PRODUCTS, the ACTIVE INGREDIENTS (if manufactured or supplied by or on behalf of HMR and other than for the development or registration of a COMPETING NAIL TOPICAL PRODUCT) and any IMPROVEMENTS and any MEDICIS NEWLY DEVELOPED PRODUCTS other than any COMPETING NAIL TOPICAL PRODUCT; provided, however, that MEDICIS, its AFFILIATES, and their successors, assigns, licensees and sublicensees shall not violate the restrictions specified in Section 2.6 hereof in exercising their rights under this Section 2.4. 2.5 A/T/S/ Gel. HMR GmbH and MEDICIS have agreed to certain matters, rights and obligations relating to A/T/S Gel as set forth in Schedule 2.5 hereto. 2.6 MEDICIS Use of Drug Master Files and NDAs. (a) New Drug Master Files. MEDICIS acknowledges that as of the LICENSE EFFECTIVE DATE no Drug Master Files had been prepared for desoximetasone, ciclopirox acid and ciclopirox olamine and that the information contained in the NDAs of the PRODUCTS that relate to the raw materials and/or the ACTIVE INGREDIENTS shall not be available for access, review, utilization or disclosure by MEDICIS, its AFFILIATES and their successors and assigns and their licensees and sublicensees, and MEDICIS covenants and agrees that it shall not, directly or indirectly, access, utilize or disclose such information. If not already accomplished by the PURCHASE DATE, HMR shall complete the preparation and filing with the FDA Drug Master Files for desoximetasone, ciclopirox acid and ciclopirox olamine. Upon acceptance of such Drug Master Files by the FDA, MEDICIS shall instruct the FDA to supersede, and if permitted delete, the information corresponding to such Drug Master Files in the relevant NDA with that of the Drug Master Files. The Drug Master Files and such portions of the NDAs as would be covered in such Drug Master Files shall remain with and shall at all times be the sole property of HMR and their AFFILIATES (except for A/T/S Gel which remains with and is the property of HERBERT), shall not be assigned or otherwise transferred to 9 17 ASSET PURCHASE AGREEMENT MEDICIS hereunder, and shall not be available for review by MEDICIS, its AFFILIATES, their successors and assigns and their licensees and sublicensees, but MEDICIS shall have a limited right of reference thereto in accordance with paragraph (b) of this Section 2.6. (b) Rights to Reference Drug Master Files and the NDAs. Subject to the other provisions of this Section 2.6 and Sections 5.2 and 6.1, MEDICIS shall have a limited right of reference solely in the TERRITORY to the NDAs and Drug Master Files of the PRODUCTS solely for the PRODUCTS, IMPROVEMENTS and MEDICIS NEWLY DEVELOPED PRODUCTS, which shall not include any rights for or related to (i) information and NDAs related to A/T/S Gel and (ii) the development, regulatory approval and/or commercialization of any COMPETING NAIL TOPICAL PRODUCT. Subject to the provisions of Sections 5.1 and 6.2 hereof, HMR, their AFFILIATES, their successors and assigns and their licensees and sublicensees shall (i) have an unrestricted right of reference to the Drug Master Files and the NDAs for the DEVELOPMENT STAGE PRODUCT and HMR's CICLOPIROX Powder, and (ii) retain the right to utilize and reference any data and/or intellectual property rights (other than the TRADEMARKS, except for the trademark rights licensed to HMR pursuant to Section 4.2(c) hereof) necessary to support the regulatory approval, manufacture, commercialization and marketing of the DEVELOPMENT STAGE PRODUCT and HMR's CICLOPIROX Powder. (c) DEVELOPMENT STAGE PRODUCT. Notwithstanding any other provision of this AGREEMENT or any provision of the other TRANSACTION DOCUMENTS, and except to the extent that rights or information are lawfully available to a third party (which is not HMR or their AFFILIATES, or their successors, assigns, licensees or sublicensees), for such purposes as are utilized by MEDICIS, its AFFILIATES, their successors and assigns and their licensees and sublicensees, under applicable U.S. Federal statutes or the regulations or rules promulgated thereunder (including those rights that any such third party would have under the U.S. Federal Food, Drug and Cosmetic Act, the U.S. Freedom of Information Act or any other U.S. Federal statute, but excluding (A) rights triggered or provided by any contractual or license rights granted to any such third party by HMR or their AFFILIATES or their successors and assigns or their licensees and sublicensees or (B) information which enters the public domain due to, by or pursuant to the action or inaction, directly or indirectly, of MEDICIS, its AFFILIATES, their successors and assigns and their licensees and sublicensees), MEDICIS, its AFFILIATES, their successors and assigns and their licensees and sublicensees shall not directly or indirectly access, review, disclose, reference or utilize the Drug Master Files, the NDAs or the INTELLECTUAL PROPERTY (including but not limited to New Drug Applications for the MEDICIS NEWLY DEVELOPED PRODUCTS, any IMPROVEMENTS, the HMR NEWLY DEVELOPED PRODUCTS, the DEVELOPMENT STAGE PRODUCT, or the additional Loprox PRODUCT discussed in Schedule 13 hereto, or any other regulatory approval based upon, arising out of or related to the Drug Master Files, the NDAs, such New Drug Applications or the INTELLECTUAL PROPERTY (other than the TRADEMARKS) or any information contained therein) (i) for the development, regulatory approval and/or commercialization of a COMPETING NAIL TOPICAL PRODUCT, or (ii) that relate to the ACTIVE INGREDIENTS; provided, however, that in no event or circumstance whatsoever shall the existence of such information in the public domain be deemed a release, modification or waiver of the restrictions 10 18 ASSET PURCHASE AGREEMENT on rights of reference specified in this paragraph (c) or in paragraph 2.6(b) hereof unless a third party (which is not HMR, their AFFILIATES, or their successors and assigns or their licensees or sublicensees) would have rights of reference to such information (except to the extent (A) such rights are triggered or provided by any contractual or license rights granted to any such third party by HMR or their AFFILIATES or their successors and assigns or their licensees and sublicensees or (B) such information enters the public domain due to, by or pursuant to the action or inaction, directly or indirectly, of MEDICIS, its AFFILIATES, their successors and assigns and their licensees and sublicensees). Nothing in this Section 2.6 shall limit MEDICIS, its AFFILIATES and their successors and assigns or their licensees and sublicensees from using any ACTIVE INGREDIENTS lawfully manufactured or supplied by a third party (which is not HMR or their AFFILIATES or their successors and assigns or their licensees and sublicensees) lawfully using information available to such third party for the purposes utilized by such third party without using information which is proprietary to HMR or its AFFILIATES or their successors and assigns or their licensees and sublicensees. ARTICLE III. PURCHASE PRICE; CONDITION TO PURCHASE 3.1 PURCHASE PRICE; Conveyance. Subject to the terms and conditions of this AGREEMENT, including the conditions set forth in Section 3.2, and the set-off rights in Section 13.5 of this AGREEMENT, in reliance on the representations, warranties, covenants and agreements of HMR contained herein, and in partial consideration of the sale, conveyance, assignment, transfer and delivery of the ASSETS provided for in Article II hereof, and the licenses granted to MEDICIS to the SHARED KNOW-HOW and IMPROVEMENTS and the other rights granted under this AGREEMENT, MEDICIS shall pay to HMR in accordance with Schedule 3.1 on the third anniversary of the LICENSE EFFECTIVE DATE, in full payment therefor, the PURCHASE PRICE by wire transfer in immediately available funds, to such account as HMR shall have designated to MEDICIS in writing prior to the third anniversary of the LICENSE EFFECTIVE DATE. 3.2 Condition to Purchase. Notwithstanding any other provision of this AGREEMENT or the LICENSE AND OPTION AGREEMENT, this AGREEMENT and the rights and obligations of the parties hereunder, including without limitation the sale, conveyance, assignment, transfer and delivery of the ASSETS and the grant of the various licenses provided for herein, shall not be effective until MEDICIS has made full payment of, and HMR has received, the PURCHASE PRICE in accordance with the provisions of Section 3.1 hereof and all amounts payable by MEDICIS under Section 3.1 and Sections 13.4 and 13.6 of Schedule 13 of the LICENSE AND OPTION AGREEMENT; provided, however, that in the event of a bona fide good faith dispute among the parties with respect to any amount or amounts payable under Sections 13.4 or 13.6 of Schedule 13 of the LICENSE AND OPTION AGREEMENT, for purposes of this Section 3.2 the foregoing condition with respect to payment of such amount or amounts shall be deemed to be waived without further action by the parties. Except to the extent of any waiver under the immediately preceding sentence, the payment by MEDICIS and receipt by HMR of the PURCHASE PRICE and such amounts under Section 3.1 and Schedule 13 of the 11 19 ASSET PURCHASE AGREEMENT LICENSE AND OPTION AGREEMENT are an express condition precedent to the effectiveness of the rights and obligations of the parties hereunder and the sale, conveyance, assignment, transfer and delivery of the ASSETS and to the grant of the various licenses provided for herein. This AGREEMENT shall automatically terminate in the event that this AGREEMENT will not become effective as expressly provided for in Article XV of the LICENSE AND OPTION AGREEMENT, or if MEDICIS notifies HMR that it will not exercise the OPTION (as defined in the LICENSE AND OPTION AGREEMENT). 3.3 Interest; Taxes. Any payment under this AGREEMENT that is not paid when due shall bear interest from the due date until payment in full, at a rate equal to one (1) percent per month. If Federal, State or local laws or regulations require that taxes be withheld on any payment made under this AGREEMENT, the paying party shall be entitled to (i) deduct those taxes from the payment, (ii) pay the taxes to the proper taxing authority and (iii) send evidence of the obligation together with proof of payment to the other parties hereto. ARTICLE IV. GRANT OF LICENSES; RELATED RIGHTS 4.1 Grant of Licenses by HMR. Subject to (i) the right of HMR and their AFFILIATES to manufacture the PRODUCTS in the TERRITORY for sale by HMR and their AFFILIATES to others solely for use or resale outside the TERRITORY, and (ii) Section 4.4 hereof, effective as of the PURCHASE DATE: (a) HMR hereby grant to MEDICIS a perpetual, royalty-free, non-exclusive license, with the right to transfer, sublicense or assign pursuant to Section 14.8 hereof, to use and exploit the SHARED KNOW-HOW to (i) develop, make, have made, use, distribute, sell and have sold the PRODUCTS and any IMPROVEMENTS and MEDICIS NEWLY DEVELOPED PRODUCTS (but not any COMPETING NAIL TOPICAL PRODUCT) in the TERRITORY and (ii) make and have made the PRODUCTS and any IMPROVEMENTS and MEDICIS NEWLY DEVELOPED PRODUCTS (but not any COMPETING NAIL TOPICAL PRODUCT) outside the TERRITORY solely within North America solely for use and resale in the TERRITORY. (b) HMR hereby grant to MEDICIS a perpetual, royalty-free, non-exclusive license, with the right to transfer, sublicense or assign pursuant to Section 14.8 hereof, to use and exploit in the TERRITORY any other patents owned by HMR or their AFFILIATES in the TERRITORY pertaining to any of the PRODUCTS (except patents pertaining to the ACTIVE INGREDIENTS and rilopirox) owned by HMR or their AFFILIATES for the respective period of validity of each such patent, required (i) for developing, making, having made, using, distributing, selling or having sold the PRODUCTS in the TERRITORY and (ii) to make and have made the PRODUCTS outside the TERRITORY solely within North America solely for use and resale in the TERRITORY. (c) HMR hereby grant to MEDICIS a perpetual, royalty-free, exclusive license, with the right to transfer, sublicense or assign pursuant to Section 14.8 hereof, 12 20 ASSET PURCHASE AGREEMENT to use and exploit IMPROVEMENTS developed by HMR or their AFFILIATES prior to, on or after the PURCHASE DATE with the PRODUCTS, other IMPROVEMENTS, MEDICIS NEWLY DEVELOPED PRODUCTS and HMR NEWLY DEVELOPED PRODUCTS sold and/or licensed to MEDICIS in accordance with Section 5.1 hereof, but in no event any COMPETING NAIL TOPICAL PRODUCT, (i) within the TERRITORY and (ii) outside the TERRITORY solely within North America solely for use and resale in the TERRITORY. 4.2 Grant of Licenses by MEDICIS. Subject to the right of MEDICIS to manufacture the PRODUCTS outside the TERRITORY solely within North America solely for use and resale in the TERRITORY, effective as of the PURCHASE DATE: (a) Subject to the terms of this AGREEMENT, MEDICIS hereby grants to HMR a perpetual, royalty-free, exclusive license, with the right to transfer, sublicense or assign pursuant to Section 14.8 hereof, to use and exploit IMPROVEMENTS developed by MEDICIS or its AFFILIATES prior to, on or after the PURCHASE DATE with the PRODUCTS, other IMPROVEMENTS, HMR NEWLY DEVELOPED PRODUCTS and MEDICIS NEWLY DEVELOPED PRODUCTS sold and/or licensed to HMR in accordance with Section 5.2 hereof (i) outside the TERRITORY and (ii) within the TERRITORY solely for use and resale outside the TERRITORY. (b) MEDICIS hereby grants to HMR a perpetual, royalty-free, non-exclusive license, with the right to transfer, sublicense or assign pursuant to Section 14.8 hereof, to use and exploit the PATENTS and the PRODUCT KNOW-HOW solely to make and have made the PRODUCTS, any IMPROVEMENTS and any HMR NEWLY DEVELOPED PRODUCTS within the TERRITORY solely for use and resale outside the TERRITORY. (c) Notwithstanding the rights provided to MEDICIS hereunder, MEDICIS hereby grants to HMR a perpetual, royalty-free, exclusive license to use and exploit the Loprox trademark in the TERRITORY, with the right to freely transfer, sublicense or assign, which right shall not be limited by Section 14.8 hereof, solely in connection with the DEVELOPMENT STAGE PRODUCT, solely in the event and provided that (i) HMR, their AFFILIATES and their successors, assigns, licensees and sublicensees elect to market, license or sell the DEVELOPMENT STAGE PRODUCT in the TERRITORY; and (ii) if HMR, their AFFILIATES and their successors, assigns, licensees and sublicensees use the TRADEMARK 'Loprox' in the initial filing of the NDA for the DEVELOPMENT STAGE PRODUCT with the FDA, HMR, their AFFILIATES and their successors, assigns, licensees and sublicensees shall amend such NDA filing to change such TRADEMARK to a trademark other than the TRADEMARK 'Loprox' as soon as feasible; provided, however, if HMR, their AFFILIATES and their successors, assigns, licensees and sublicensees are mandated by the FDA to use the TRADEMARK 'Loprox' as a condition to securing regulatory approval for the DEVELOPMENT STAGE PRODUCT, HMR, their AFFILIATES and their successors, assigns, licensees and sublicensees shall have the right to use such TRADEMARK in connection with the DEVELOPMENT STAGE PRODUCT. 13 21 ASSET PURCHASE AGREEMENT (d) Subject to the terms of this AGREEMENT, unless the RILOPIROX OPTION (as defined in the LICENSE AND OPTION AGREEMENT) has been exercised and the RILOPIROX RIGHTS (as defined in the LICENSE AND OPTION AGREEMENT) have been licensed to MEDICIS, MEDICIS hereby grants to HMR a perpetual, royalty-free, exclusive license, with the right to transfer, sublicense or assign, which right shall not be limited by Section 14.8 hereof, to use and exploit within and outside the TERRITORY any rights related to rilopirox incidentally transferred to MEDICIS hereunder. (e) Pursuant to Section 13.7 of Schedule 13 to the LICENSE AND OPTION AGREEMENT, if required pursuant to such Section, MEDICIS hereby grants to HMR a perpetual, royalty-free, exclusive license to use and exploit the PATENTS and PRODUCT KNOW-HOW (to the extent not released or conveyed to HMR otherwise pursuant to such Section 13.7) in the TERRITORY to develop, make, have made, use, distribute, sell and have sold the additional Loprox product discussed in Schedule 13 to the LICENSE AND OPTION AGREEMENT, with the right to transfer, sublicense or assign, which right shall not be limited by Section 14.8 hereof. (f) MEDICIS hereby grants to HMR a perpetual, royalty-free, exclusive license, with the right to transfer, sublicense or assign, which right shall not be limited by Section 14.8 hereof, to use and exploit within and outside the TERRITORY any rights (including without limitation rights within the PATENTS and PRODUCT KNOW-HOW) related to the DEVELOPMENT STAGE PRODUCT, HMR's CICLOPIROX Powder and active ingredients other than the ACTIVE INGREDIENTS incidentally transferred to MEDICIS hereunder. 4.3 IMPROVEMENTS. All IMPROVEMENTS developed by a party to any PRODUCT after the PURCHASE DATE shall be the sole and exclusive property of such party, subject to the licenses granted in this Article IV. 4.4 Generic Products. (a) Notwithstanding anything to the contrary contained in Section 4.1, the sale of the ASSETS and other rights provided by HMR to MEDICIS pursuant to this AGREEMENT are subject to COPLEY's exclusive right to market and sell in the future generic versions of the PRODUCTS pursuant to the Product Agreement, dated as of October 8, 1993, by and between an AFFILIATE of HMRI and COPLEY (the "COPLEY PRODUCT AGREEMENT"). HMR represent and warrant to MEDICIS, as of the PURCHASE DATE, that in accordance with the terms of the COPLEY PRODUCT AGREEMENT and as of the LICENSE EFFECTIVE DATE, an AFFILIATE of HMR had notified COPLEY that the COPLEY PRODUCT AGREEMENT would be terminated, effective June 1, 1999, and COPLEY had provided to an AFFILIATE of HMR its written acknowledgment of such termination of the COPLEY PRODUCT AGREEMENT. (b) In addition to and without limiting the provisions of Section 6.2, HMR agrees that from and after the PURCHASE DATE, neither HMR nor any of their AFFILIATES shall (i) except as specifically required by the COPLEY PRODUCT 14 22 ASSET PURCHASE AGREEMENT AGREEMENT, enter into any agreement or otherwise grant to COPLEY or any other person or entity (whether or not an AFFILIATE of HMR), any right to market, sell and/or manufacture in the TERRITORY a generic version of any PRODUCT, any SIMILAR PRODUCT or any human dermatology product containing an ACTIVE INGREDIENT; (ii) except as specifically required by the COPLEY PRODUCT AGREEMENT, sell to COPLEY any ACTIVE INGREDIENT for inclusion in any human dermatology product sold, marketed or distributed in the TERRITORY or license or otherwise convey to any person any rights to use or exploit the PRODUCT KNOW-HOW; or (iii) utilize, direct or cause COPLEY or its AFFILIATES to conduct activities in violation of HMR's covenants, duties or obligations hereunder. Notwithstanding the foregoing, the restrictions on the sale of ACTIVE INGREDIENTS set forth in this Section 4.4(b) shall not apply to erythromycin. (c) From and after the PURCHASE DATE, HMR and their AFFILIATES shall not grant to COPLEY the right to market, sell and/or manufacture in the TERRITORY a generic version of any PRODUCT, any SIMILAR PRODUCT, or any human dermatology product containing any ACTIVE INGREDIENT or sell any ACTIVE INGREDIENT for inclusion in any human dermatological product sold, marketed or established in the TERRITORY to COPLEY, subject to any rights granted to COPLEY pursuant to the COPLEY AGREEMENT prior to its termination, provided such grant of rights was not in violation of HMR's obligations under the LICENSE AND OPTION AGREEMENT. In addition, HMR and its AFFILIATES shall not enter into any agreement or other arrangement with COPLEY other than continuing arrangements as specifically contemplated by the COPLEY PRODUCT AGREEMENT or any agreement or other arrangement with any other third party, pursuant to which COPLEY or such third party would have the right to manufacture, market and/or sell in the TERRITORY any generic or other versions of any PRODUCT or any product having the same ACTIVE INGREDIENTS as the PRODUCTS. 4.5 Certain Restrictions on Sale of ACTIVE INGREDIENTS. In addition to and without limiting the provisions of Section 6.2, and subject to the right of HMR to supply ACTIVE INGREDIENTS to licensees or purchasers of HMR NEWLY DEVELOPED PRODUCTS pursuant to Section 5.1 hereof, the DEVELOPMENT STAGE PRODUCT and HMR's CICLOPIROX Powder, HMR agrees that, during the TERM and subject to Section 4.4(b) and any rights of HMR hereunder with respect to the DEVELOPMENT STAGE PRODUCT, neither HMR nor any of their AFFILIATES shall sell to any person or entity (whether or not an AFFILIATE of HMR) any ACTIVE INGREDIENT for inclusion in any human dermatology product sold, marketed or distributed in the TERRITORY or license or otherwise convey to any person any rights to use or exploit the PRODUCT KNOW-HOW in the TERRITORY. Notwithstanding the foregoing, the restrictions on the sale of ACTIVE INGREDIENTS set forth in this Section 4.5 shall not apply: (i) to erythromycin; or (ii) from and after the PURCHASE DATE if MEDICIS has purchased prior to the PURCHASE DATE, or from and after such time as MEDICIS purchases on or after the PURCHASE DATE, more than ten percent (10%) of its requirements for any ACTIVE INGREDIENT (other than erythromycin) from parties other than HMR or their AFFILIATES, as to that ACTIVE INGREDIENT; provided, however, that such restrictions shall continue to apply in the event MEDICIS has purchased or purchases more than ten (10%) of such requirements from parties other than HMR 15 23 ASSET PURCHASE AGREEMENT or their AFFILIATES due to the inability of HMR or their AFFILIATES to fulfill the requirements of MEDICIS as to that ACTIVE INGREDIENT, provided that in such event MEDICIS purchases no more than a four (4) month supply (or, if greater, the supplier's minimum batch quantity) of such ACTIVE INGREDIENT from an alternate supplier or suppliers and, if HMR or their AFFILIATES' inability to fulfill MEDICIS' requirements continues or will continue beyond the exhaustion of such alternate supply, MEDICIS may continue to purchase such ACTIVE INGREDIENT in such four (4) month or greater supply amounts as permitted by this Section 2.4. From and after the PURCHASE DATE and for so long as the restrictions on the sale of ACTIVE INGREDIENTS under this Section 4.5 are applicable, MEDICIS shall notify HMRI in writing of any purchases of more than ten percent (10%) of its requirements for any ACTIVE INGREDIENT (other than erythromycin) from parties other than HMR or their AFFILIATES, which notice shall indicate if such purchases were due to the inability of HMR or their AFFILIATES to fulfill the requirements of MEDICIS as to that ACTIVE INGREDIENT and were within the quantity limitations set forth in the immediately preceding sentence. ARTICLE V. RIGHTS OF FIRST OFFER 5.1 MEDICIS RIGHT OF FIRST OFFER. If at any time on or after the PURCHASE DATE, HMR or its AFFILIATES shall develop or cause to be developed any human dermatology product containing an ACTIVE INGREDIENT, including without limitation any LINE EXTENSION but excluding (i) IMPROVEMENTS and (ii) the DEVELOPMENT STAGE PRODUCT (each, an "HMR NEWLY DEVELOPED PRODUCT"), MEDICIS shall have a right of first offer to license on an exclusive basis or purchase all patents, patent applications and proprietary know-how solely related thereto (but not to the ACTIVE INGREDIENTS) necessary for the manufacture and sale in the TERRITORY of the HMR NEWLY DEVELOPED PRODUCT (except for intellectual property rights constituting shared know-how relating to the HMR NEWLY DEVELOPED PRODUCT, which shall be licensed to MEDICIS on a non-exclusive basis) subject to the terms set forth in this Section 5.1 below (the "MEDICIS RIGHT OF FIRST OFFER"): (a) Notice of an HMRI NEWLY DEVELOPED PRODUCT. Upon completion of Phase III clinical trials for an HMR NEWLY DEVELOPED PRODUCT and no later than upon submission of an NDA for such HMR NEWLY DEVELOPED PRODUCT, HMR shall give to MEDICIS written notice (the "HMR NOTICE") setting forth: (i) a description of the HMR NEWLY DEVELOPED PRODUCT, (ii) the terms and conditions, which shall be commercially reasonable, of the proposed license and/or sale to MEDICIS and (iii) the payment terms, which shall be commercially reasonable, of the proposed license and/or sale to MEDICIS. (b) Exercise of MEDICIS RIGHT OF FIRST OFFER. At any time within ninety (90) days after receipt of an HMR NOTICE, MEDICIS may, by giving written notice to HMRI, elect to exercise the MEDICIS RIGHT OF FIRST OFFER on the terms set forth in the HMR NOTICE or any such other terms as the parties may agree, which shall be 16 24 ASSET PURCHASE AGREEMENT documented in a written agreement. During such ninety (90) day period, neither HMR nor their AFFILIATES, or any person acting on their behalf, will directly or indirectly solicit or encourage any inquiries or proposals for, or enter into any discussions with respect to, the license and/or sale in the TERRITORY of the HMR NEWLY DEVELOPED PRODUCT to any third party. (c) Effect of Refusal. In the event the parties cannot reach agreement with respect to MEDICIS' acquisition or license of an HMR NEWLY DEVELOPED PRODUCT in accordance with this Section 5.1, HMR and/or an AFFILIATE may license or sell such HMR NEWLY DEVELOPED PRODUCT to a third party which is not an AFFILIATE of HMR (but shall not themselves directly sell, market, promote or distribute such HMR NEWLY DEVELOPED PRODUCT), provided that (i) the terms and conditions of any such license or sale are no less favorable to HMR than those offered by HMR to MEDICIS pursuant to this Section 5.1, in which case no consent or approval by, or right of first refusal for, MEDICIS shall be required for HMR to enter into a written agreement with such third party, or (ii) if the terms and conditions of any such license or sale are less favorable to HMR than those offered by HMR to MEDICIS pursuant to this Section 5.1, MEDICIS shall have a right of first refusal, exercisable within thirty (30) calendar days after HMR provides notice of such less favorable terms and conditions to MEDICIS, to license or acquire the HMR NEWLY DEVELOPED PRODUCT on such terms and conditions. (d) No Rights Conferred upon MEDICIS. This Section 5.1 does not confer upon MEDICIS or its AFFILIATES the right to use or exploit any intellectual property right of HMR or their AFFILIATES with respect to HMR NEWLY DEVELOPED PRODUCTS, including those granted hereunder. Any agreement that may be executed between the parties with respect to any HMR NEWLY DEVELOPED PRODUCT shall include provisions mutually acceptable to the parties regarding the use, or prohibition against the use of, such intellectual property rights. (e) DEVELOPMENT STAGE PRODUCT. Notwithstanding any other provision of this AGREEMENT, the DEVELOPMENT STAGE PRODUCT shall not be an HMR NEWLY DEVELOPED PRODUCT for purposes of this AGREEMENT, and is not subject to the MEDICIS RIGHT OF FIRST OFFER. The parties have agreed to certain matters, rights and obligations pertaining to the DEVELOPMENT STAGE PRODUCT as set forth on Schedule 5.1 hereto, the terms of which are incorporated herein by reference. (f) Certain Products. The parties acknowledge and agree that (i) the additional Loprox PRODUCT discussed in Schedule 13 to the LICENSE AND OPTION AGREEMENT, Loprox Gel and Topicort Ointment 0.05% (but not line extensions thereof) are not to be considered HMRI NEWLY DEVELOPED PRODUCTS; and (ii) HMR's CICLOPIROX Powder and Loprox Vaginal Cream shall be considered HMR NEWLY DEVELOPED PRODUCTS; provided, however, that the exercise of the MEDICIS RIGHT OF FIRST OFFER with respect to HMR's CICLOPIROX Powder and Loprox Vaginal Cream shall not be subject to the notice provisions of Section 5.1(a) or (b). 17 25 ASSET PURCHASE AGREEMENT 5.2 HMR RIGHT OF FIRST OFFER. If at any time on or after the PURCHASE DATE, MEDICIS or its AFFILIATES shall develop or cause to be developed any human dermatology product containing an ACTIVE INGREDIENT of any PRODUCT, including without limitation a LINE EXTENSION but excluding IMPROVEMENTS (each, a "MEDICIS NEWLY DEVELOPED PRODUCT"), HMR shall have a right of first offer on the terms and conditions set forth in this Section 5.2 to license on an exclusive basis or purchase all patents, patent applications and proprietary know-how owned by MEDICIS or its AFFILIATES and necessary for the manufacture and sale outside the TERRITORY of such MEDICIS NEWLY DEVELOPED PRODUCT (except for intellectual property constituting shared know-how relating to the MEDICIS NEWLY DEVELOPED PRODUCT, which shall be licensed to HMRI on a non-exclusive basis) (the "HMR RIGHT OF FIRST OFFER"): (a) Notice of a MEDICIS NEWLY DEVELOPED PRODUCT. Upon completion of Phase III clinical trials for a MEDICIS NEWLY DEVELOPED PRODUCT and no later than upon submission of an NDA for such MEDICIS NEWLY DEVELOPED PRODUCT, MEDICIS shall give to HMRI on behalf of HMR written notice (the "MEDICIS NOTICE") setting forth: (i) a description of the MEDICIS NEWLY DEVELOPED PRODUCT, (ii) the terms and conditions, which shall be commercially reasonable, of the proposed sale to HMR and (iii) the payment terms, which shall be commercially reasonable, of the proposed sale to HMR. (b) Exercise of HMR RIGHT OF FIRST OFFER. At any time within ninety (90) days after receipt of the MEDICIS NOTICE, HMR may, by giving written notice to MEDICIS, elect to exercise the HMR RIGHT OF FIRST OFFER on the terms set forth in the MEDICIS NOTICE or such other terms as the parties may agree, which shall be documented in a written agreement. During such ninety (90) day period, neither MEDICIS nor its AFFILIATES, or any person acting on their behalf, will directly or indirectly solicit or encourage any inquiries or proposals for, or enter into any discussions with respect to, the license and/or sale outside the TERRITORY of the MEDICIS NEWLY DEVELOPED PRODUCT to any third party. (c) Effect of Refusal. In the event the parties cannot reach agreement with respect to HMR's acquisition or license of a MEDICIS NEWLY DEVELOPED PRODUCT in accordance with this Section 5.2, MEDICIS and/or an AFFILIATE may license or sell such MEDICIS NEWLY DEVELOPED PRODUCT to a third party which is not an AFFILIATE of MEDICIS (but shall not themselves directly sell, market, promote or distribute such MEDICIS NEWLY DEVELOPED PRODUCT), provided that (i) the terms and conditions of any such license or sale are no less favorable to MEDICIS than those offered by MEDICIS to HMR pursuant to this Section 2.5, in which case no consent or approval by, or right of first refusal for, HMR shall be required for MEDICIS to enter into a written agreement with such third party, (ii) if the terms and conditions of any such license or sale are less favorable to MEDICIS than those offered by MEDICIS to HMR pursuant to this Section 5.2 HMR shall have a right of first refusal, exercisable within thirty (30) calendar days after MEDICIS provides notice of such less favorable terms and conditions to HMR, to license or acquire the MEDICIS NEWLY DEVELOPED PRODUCT on such terms and conditions. 18 26 ASSET PURCHASE AGREEMENT (d) No Right Conferred upon HMR. This Section 5.2 does not confer upon HMR or their AFFILIATES the right to use or exploit any intellectual property right of MEDICIS or its AFFILIATES with respect to MEDICIS NEWLY DEVELOPED PRODUCTS, including any rights granted hereunder. Any agreement that may be executed between the parties with respect to any MEDICIS NEWLY DEVELOPED PRODUCT shall include provisions mutually acceptable to the parties regarding the use, or prohibition against the use of, such intellectual property rights. 5.3 Development of Newly Developed Products. HMRI and MEDICIS shall on a periodic basis keep the other party informed of development work on any HMR NEWLY DEVELOPED PRODUCT or MEDICIS NEWLY DEVELOPED PRODUCT, respectively, being developed by such party or any of its AFFILIATES and MEDICIS shall assume primary responsibility for organizing and scheduling periodic communications for that purpose. 5.4 Rilopirox. In the event MEDICIS exercises the RILOPIROX OPTION (as defined in the LICENSE AND OPTION AGREEMENT) pursuant to Section 5.4(a) of the LICENSE AND OPTION AGREEMENT but the parties do not reach agreement with respect to MEDICIS' acquisition of the RILOPIROX RIGHTS (as defined in the LICENSE AND OPTION AGREEMENT) in accordance with such Section 5.4(a), HMR and/or an AFFILIATE may license the RILOPIROX RIGHTS to a third party, provided that (i) the terms and conditions of any such license are no less favorable to HMR than those offered to HMR by MEDICIS pursuant to Section 5.4(a) of the LICENSE AND OPTION AGREEMENT, and that no consent or approval by, or right of first refusal for, MEDICIS shall be required, (ii) if the terms and conditions of any such license are less favorable to HMR than those offered to HMR by MEDICIS pursuant to Section 5.4(a) of the LICENSE AND OPTION AGREEMENT, MEDICIS shall have a right of first refusal, exercisable within thirty (30) calendar days after HMR provides notice to MEDICIS thereof, to license the RILOPIROX RIGHTS on such terms and conditions, and if such right of refusal is not so exercised by MEDICIS by notice to HMR, no consent or approval by MEDICIS shall be required and (iii) from and after the PURCHASE DATE, neither HMR nor their AFFILIATES shall use or exploit the RILOPIROX RIGHTS in the TERRITORY for human dermatology products for human medical uses without the prior written consent of MEDICIS. For purposes of this Section 5.4, "human dermatology products for human medical uses" shall not include products which are or have been developed or used for mucosal infections, such as oral lozenges, vaginal creams and vaginal ovulas. MEDICIS acknowledges that Clariant GmbH (i) has been granted the right to develop cosmetology products containing rilopirox, such as products for dandruff, deodorants, human medical applications like cleansing preparations for the intimate region (mucous membrane application) and liquid cleansing preparations for the whole body; (ii) shall retain such rights even if Clariant GmbH has become or in the future becomes an AFFILIATE of HMR; provided, however, in such case HMR shall not assist Clariant GmbH in the development of such products other than providing Clariant GmbH, its affiliates, successors, assigns or licensees with a license of necessary intellectual property rights (other than INTELLECTUAL PROPERTY which is exclusively licensed or sold to MEDICIS hereunder) and rights of reference to Drug Master Files and New Drug Applications held by HMR and/or their AFFILIATES; and (iii) Clariant GmbH has certain rights in U.S. 19 27 ASSET PURCHASE AGREEMENT Patent No. 5,494,658 (related to antidandruff agents and cosmetic preparations) which are not included within the PATENTS. 5.5 Theramycin Z Product. Notwithstanding any provision of Section 5.2 or any other provision of this AGREEMENT, neither HMR nor their AFFILIATES shall have any rights in or to erythromycin as contained in MEDICIS' Theramycin Z product line or any similar products, improvements thereto or line extensions thereof, whether existing prior to, on or after the PURCHASE DATE. ARTICLE VI. GREY-MARKET RESTRICTIONS The parties recognize that the value on the intellectual property rights being conveyed hereunder to each party will depend on the degree to which products of one party incorporating the intellectual property rights are sold in areas in which the other party owns the intellectual property rights. To permit the parties to reach mutual agreement on the value of the rights being conveyed, to minimize transaction costs, and to avoid future litigation for infringement, the parties have agreed as follows: 6.1 No Sales By MEDICIS Outside the TERRITORY. Except in the case of products as to which a written agreement is executed pursuant to Section 5.2, MEDICIS, its AFFILIATES and any successors or assigns of MEDICIS or its AFFILIATES shall not at any time on or after the PURCHASE DATE, (i) sell, market, promote or distribute, directly or indirectly, any PRODUCTS or SIMILAR PRODUCTS outside the TERRITORY, or (ii) sell or distribute any PRODUCTS or SIMILAR PRODUCTS to any person in the TERRITORY if MEDICIS has actual knowledge that such person intends to sell such PRODUCTS or SIMILAR PRODUCTS outside the TERRITORY. In providing or granting any rights to the PRODUCTS or SIMILAR PRODUCTS in the TERRITORY from and after the PURCHASE DATE, MEDICIS shall secure from each grantee, licensee, beneficiary or acquiree of such rights its agreement to restrictions relating to outside the TERRITORY contained in this AGREEMENT, including an agreement to refrain from knowingly engaging, directly or indirectly, in parallel importation or dealing in "grey market" products in connection with its sale and distribution of the PRODUCTS or SIMILAR PRODUCTS. 6.2 No Sales by HMR Inside the TERRITORY. In addition to and without limiting the provisions of Section 4.4, and except as specifically provided in Sections 4.1, clauses (i) and (ii), 4.4 and 5.1(e), or in the case of products as to which a written agreement has been executed pursuant to Section 5.1, HMR, their AFFILIATES and any successors or assigns of HMR or their AFFILIATES shall not at any time on or after the PURCHASE DATE, (i) sell, market, promote or distribute, directly or indirectly, any PRODUCTS or SIMILAR PRODUCTS in the TERRITORY; or (ii) sell or distribute any PRODUCTS, SIMILAR PRODUCTS or any ACTIVE INGREDIENT to any person outside the TERRITORY if HMR has actual knowledge that such person intends to sell such PRODUCTS or SIMILAR PRODUCTS or human dermatology products containing such ACTIVE INGREDIENT in the TERRITORY. In providing or granting any rights to the PRODUCTS or SIMILAR PRODUCTS, outside the 20 28 ASSET PURCHASE AGREEMENT TERRITORY, HMR shall secure from each such grantee, licensee, beneficiary or acquiree of such rights its agreement to restrictions relating to inside the TERRITORY contained in this AGREEMENT, including an agreement to refrain from knowingly engaging, directly or indirectly, in parallel importation or dealing in "grey market" products in connection with its sale and distribution of the PRODUCTS or SIMILAR PRODUCTS. Notwithstanding the foregoing, MEDICIS acknowledges that (i) HMR and their AFFILIATES, and their grantees, licensees, beneficiaries and acquirees of any rights related to the DEVELOPMENT STAGE PRODUCT, shall be free to commercialize the DEVELOPMENT STAGE PRODUCT and any other product for topical application to the nail in the TERRITORY without restriction, and that the restrictions in this Section 6.2 and in Section 4.5 hereof shall not apply with respect to the DEVELOPMENT STAGE PRODUCT, and (ii) subject to Section 5.4 hereof, this Section 6.2 shall not apply to HMR's exploitation of the RILOPIROX RIGHTS. ARTICLE VII. REGULATORY MATTERS; RECALLS 7.1 Communication with Agencies. From and after the PURCHASE DATE, MEDICIS shall have responsibility for all communication with the FDA relating to the PRODUCTS. The parties shall also cooperate at their own expense to ensure that (i) MEDICIS obtains, in a timely manner, all information concerning the PRODUCTS outside the TERRITORY necessary to meet its regulatory obligations in the TERRITORY, and (ii) that HMRI receives, in a timely manner, all information concerning the PRODUCTS inside the TERRITORY necessary to meet the regulatory obligations of HMR and their AFFILIATES outside the TERRITORY. 7.2 Product Recalls. In the event that on or after the PURCHASE DATE (i) any governmental agency or authority issues a request or directive or order that any PRODUCT in the TERRITORY be recalled or retrieved, (ii) a court of competent jurisdiction orders that any PRODUCT in the TERRITORY be recalled or retrieved, or (iii) MEDICIS reasonably determines (or MEDICIS reasonably determines after consulting in good faith with HMRI in the case of PRODUCTS which were manufactured by HMR or one of their AFFILIATES and with respect to which MEDICIS believes HMR may be responsible under this Section 7.2) that any PRODUCT should be recalled or retrieved in the TERRITORY or a "dear doctor" letter is required relating to restrictions on the use of any PRODUCT in the TERRITORY, MEDICIS shall conduct such activity (unless by mutual agreement MEDICIS has not yet assumed regulatory responsibility pursuant to Section 7.2 of the LICENSE AND OPTION AGREEMENT for the PRODUCT being recalled or retrieved, whereupon HMR shall conduct such activity) and, in the event that clauses (i) or (ii) in the following sentence apply, HMR shall reasonably assist MEDICIS in taking all appropriate corrective actions and shall cooperate in the investigation surrounding the recall. To the extent that any such actions on or after the PURCHASE DATE primarily relate to or arise out of (i) the PRODUCTS prior to the LICENSE EFFECTIVE DATE; or (ii) the manufacture or supply of PRODUCTS by HMR or their AFFILIATES or by PACO pursuant to the PACO LOPROX AGREEMENT after the LICENSE EFFECTIVE DATE in breach of Article VI of the SUPPLY AGREEMENT, HMR 21 29 ASSET PURCHASE AGREEMENT shall be solely responsible for all costs and expenses of or associated with any such action, including reimbursement of MEDICIS for any out-of-pocket costs incurred by MEDICIS as a result of such action. To the extent that any such actions on or after the LICENSE EFFECTIVE DATE do not primarily relate to or arise out of any of the foregoing, MEDICIS shall be solely responsible for all costs and expenses of or associated with any such action, including reimbursement of HMR therefor. ARTICLE VIII. PROMOTION AND MARKETING 8.1 Party Names; Change of Promotional Material. From and after the PURCHASE DATE, all advertising and promotional materials for the PRODUCTS sold in the TERRITORY shall identify MEDICIS as the marketer of the PRODUCTS sold in the TERRITORY, to the extent the marketer is identified in such materials, in such form as MEDICIS shall determine. From and after the PURCHASE DATE, subject to the provisions of the SUPPLY AGREEMENT and the LOPROX LOTION SUPPLY AGREEMENT, and if requested by HMR or as required by APPLICABLE LAWS, packaging of the HMR SUPPLIED PRODUCTS sold in the TERRITORY shall identify HMR or one of their AFFILIATES or PACO as the manufacturer of the HMR SUPPLIED PRODUCTS if HMR or one or their AFFILIATES or PACO, as the case may be, is the manufacturer of such HMR SUPPLIED PRODUCTS. 8.2 Medical and Other Inquiries. From and after the PURCHASE DATE, MEDICIS shall have all responsibility for all correspondence and communication with physicians and other health care professionals in the TERRITORY relating to the PRODUCTS, except for correspondence and communication relating to the manufacturing of the HMR SUPPLIED PRODUCTS or the ACTIVE INGREDIENTS thereof by HMR or an AFFILIATE pursuant to the SUPPLY AGREEMENT or the LOPROX LOTION SUPPLY AGREEMENT, in which case HMR shall take such actions as MEDICIS may reasonably request. ARTICLE IX. INTELLECTUAL PROPERTY 9.1 Notices. From and after the PURCHASE DATE, MEDICIS and HMR shall each promptly, but in any event no later than fifteen (15) calendar days after such party receives notice of or becomes aware of any of the following, notify the other in writing of: (a) Any suit, claim or proceeding by a third party against HMRI or MEDICIS, or any AFFILIATE or sublicensee of HMR or MEDICIS, alleging infringement of such third party's intellectual property rights as a result of the manufacture, use, sale, promotion or marketing of the PRODUCTS anywhere in the TERRITORY; (b) Any patent nullity actions, declaratory judgment actions or alleged patent invalidity or non-infringement of patent or patents pursuant to a Paragraph IV patent 22 30 ASSET PURCHASE AGREEMENT certification by a party filing an Abbreviated New Drug Application ("ANDA") with respect to the PATENTS in the TERRITORY; (c) Any actual or threatened unlawful disclosure or infringement by any third party of all or any part of the PATENTS, TRADEMARKS or the KNOW-HOW in the TERRITORY; or (d) Any information that may reasonably be considered material to the validity or enforceability of the PATENTS. 9.2 Actions. From and after the PURCHASE DATE, but subject to Article XIII of this AGREEMENT, MEDICIS shall have the sole right and obligation, at its expense, to enforce and defend the rights to the PATENTS, the PRODUCT KNOW-HOW and the TRADEMARKS in the TERRITORY, including without limitation the sole right and obligation to (i) defend any action or claim by any third party alleging that MEDICIS' manufacture, marketing, distribution, sale or promotion of the PRODUCTS in the TERRITORY infringes such third party's intellectual property rights and (ii) prosecute any actual or threatened unauthorized disclosure or any infringement in the TERRITORY of the PATENTS, the PRODUCT KNOW-HOW or the TRADEMARKS. Any amounts recovered in connection with any such any such enforcement or defense shall be awarded solely to MEDICIS. HMR and their AFFILIATES shall reasonably cooperate with and assist MEDICIS in prosecuting patent applications based on the PATENTS and in prosecuting or defending actions in which the validity, infringement or enforceability of the PATENTS may be in issue. Such cooperation may include responding to discovery requests, providing such documentary evidence and truthful testimony (in written or oral form), making available current HMR employees with relevant knowledge, and assisting MEDICIS in locating and requesting information from former HMR employees with relevant knowledge, as MEDICIS may reasonably request, but shall not include becoming a plaintiff or co-plaintiff or otherwise a party (unless joined by a party which is not MEDICIS or its AFFILIATES, whereupon MEDICIS shall not have the sole right to control the conduct of such action(s)). Such assistance shall not include making available or providing testimony from former HMR employees. MEDICIS shall reimburse HMR and their AFFILIATES their reasonable expenses (including without limitation attorneys' fees) in providing the cooperation and assistance called for by this Section 9.2 and will hold them harmless for all liability and all costs or expenses associated with or arising out of their truthful and good faith actions in providing cooperation and assistance. ARTICLE X. REPRESENTATIONS AND WARRANTIES; COVENANTS 10.1 Representations and Warranties of the Parties. HMR and MEDICIS each represent and warrant to the other, as of the PURCHASE DATE, as follows: (a) Each party has the power, authority and right to enter into this AGREEMENT and to perform its obligations hereunder, and its execution, delivery and 23 31 ASSET PURCHASE AGREEMENT performance of this AGREEMENT does not conflict with any material term of any other agreement to which it is a party or by which it is bound. (b) No consent, approval, order or authorization of, or registration, declaration or filing with, any governmental agency is required to be obtained or made by or with respect to such party in connection with its execution, delivery and performance of this AGREEMENT. (c) Each party is a corporation or limited liability company, duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, with full corporate power and authority to consummate the transactions contemplated hereby. The execution and delivery of this AGREEMENT by each party and the consummation and performance of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate and other proceedings, and this AGREEMENT has been duly authorized, executed and delivered by each party and, assuming the enforceability against the other party hereto, constitutes the legal, valid and binding obligation of each party, enforceable in accordance with its terms except (i) if such enforcement would be subject to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally; and (ii) as specific performance and other equitable remedies are subject to the general discretion of the court. 10.2 Representations and Warranties of HMR. Subject to the matters specifically disclosed to MEDICIS in the applicable subsection of Schedule 10.2 hereto, HMRI, HMR SA and HMR GmbH hereby jointly and severally represent and warrant to MEDICIS, as of the PURCHASE DATE, that: (a) HMR or their AFFILIATES own all right, title and interest in and to the PATENTS, the NDAs, the PRODUCT KNOW-HOW and the TRADEMARKS in the TERRITORY, free and clear of any and all liens, encumbrances, claims, mortgages, security interests, charges or restrictions. (b) HMR or their AFFILIATES have (i) the sole legal right to assign and convey good and marketable title to the PATENTS and the TRADEMARKS to MEDICIS in the TERRITORY pursuant to this AGREEMENT, (ii) the legal right in the TERRITORY to assign the PRODUCT KNOW-HOW to MEDICIS in the TERRITORY, free and clear of all liens, encumbrances, claims, mortgages, security interests, charges or restrictions, (iii) the legal right to license the SHARED KNOW-HOW to MEDICIS in the TERRITORY, free and clear of any and all liens, encumbrances, claims, mortgages, security interests, charges or restrictions and (iv) the legal right to grant to MEDICIS the other rights described in Section 4.1 hereof. HMR's execution and delivery of this AGREEMENT and the other related documents delivered by HMR in connection with transactions contemplated herein and the performance of this AGREEMENT by HMR (and the transactions contemplated herein): (i) do not and will not conflict with, violate or constitute or result in a default or an event creating rights of acceleration, termination or cancellation, or a loss of right, under any law, judgment, order or decree, under the articles of incorporation or bylaws of HMR or under any mortgage, contract or agreement to 24 32 ASSET PURCHASE AGREEMENT which HMR is a party or by which HMR is bound; and (ii) will not result in the creation or imposition of any lien, charge, mortgage, claim, pledge, security interest, restriction or encumbrance of any kind on, or liability with respect to, the INTELLECTUAL PROPERTY in the TERRITORY. (c) All material registrations and filings, including the payment of maintenance and renewal fees, have been timely made in the TERRITORY for the PATENTS and the TRADEMARKS, as are necessary to preserve the rights of HMR or to prosecute patent applications in the ordinary course of HMR's management of their intellectual property rights. MEDICIS acknowledges that no patent applications had been filed by HMR, and no patents have issued, for the PATENTS in the TERRITORY as of the LICENSE EFFECTIVE DATE. (d) HMRI or their AFFILIATES own all right, title and interest in and to the NDA's, free and clear of any and all liens, encumbrances, claims, mortgages, security interests, charges or restrictions thereon and has the legal right to transfer to MEDICIS all right, title and interest in and to the NDA's for the PRODUCTS in the TERRITORY. Neither HMRI nor their AFFILIATES have with respect to the PRODUCTS made any untrue statement of a material fact or a fraudulent statement to the FDA, failed to disclose a material fact required to be disclosed to the FDA or committed an act, made a statement or failed to make a statement that could reasonably be expected to provide a basis for the FDA to invoke its policy respecting "Fraud, Untrue Statements of Material Facts, Bribery and Illegal Gratuities" as set forth in 56 Fed. Reg. 46191 (September 10, 1991). Except as previously disclosed in writing to MEDICIS, HMR has not received any notice that the FDA has commenced or threatened to initiate any action to withdraw its approval or request the recall of any PRODUCT, or commenced or threatened to initiate any action to enjoin production at any facility for the manufacture of the PRODUCTS. (e) No default by HMR or their AFFILIATES under the PACO LOPROX AGREEMENT has been declared and is continuing and, to the knowledge of HMR, no condition exists which, with notice or lapse of time or both, would constitute a default by HMRI or their AFFILIATES under such agreement. Such agreement is valid and subsisting and is in full force and effect, and to the knowledge of HMR, no claim exists or has been asserted with respect to such agreement that would adversely affect the rights granted to MEDICIS hereunder. Except as previously disclosed in writing to MEDICIS, (i) HMR has not received notice that PACO intends to cancel or terminate such agreement or to exercise or not exercise any options or rights under such agreement based upon any breach of such agreement by HMR; or (ii) to the knowledge of HMR, PACO is not in breach of the PACO LOPROX AGREEMENT and no condition exists which, with notice or lapse of time or both, would constitute a default by PACO under such agreement. (f) Except (i) as specifically permitted by the express terms of the LICENSE AND OPTION AGREEMENT and this PURCHASE AGREEMENT; and (ii) for obligations specifically assumed by MEDICIS under the TRANSACTION DOCUMENTS, neither HMR nor any of their AFFILIATES has taken any action, failed to take any action required of them or otherwise caused the covenants contained in Section 10.5(c) of the LICENSE 25 33 ASSET PURCHASE AGREEMENT AND OPTION AGREEMENT to be breached or otherwise to be untrue as of and on the PURCHASE DATE. (g) MEDICIS acknowledges that (i) Topicort Ointment 0.05% was not sold in the TERRITORY as of the LICENSE EFFECTIVE DATE; (ii) none of the representations, warranties and covenants made in this Section 10.2 with respect to the PRODUCTS shall apply to Topicort Ointment 0.05%; and (iii) the sole representations, warranties and covenants made by HMR with respect to Topicort Ointment 0.05% are that HMR has the requisite power, authority and right to convey the rights conveyed in this AGREEMENT with respect to the Topicort Ointment 0.05%, free and clear of any and all liens, encumbrances or security interests. 10.3 Mutual Limitations on Warranties and Damages. (a) OTHER THAN THE REPRESENTATIONS AND WARRANTIES MADE BY THE PARTIES PURSUANT TO SECTIONS 10.1 AND 10.2 OR ELSEWHERE HEREIN, THE PARTIES DISCLAIM ANY AND ALL OTHER WARRANTIES WHETHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY WARRANTY ARISING FROM COURSE OF DEALING OR USAGE OF TRADE. (b) IN ADDITION TO THEIR RESPECTIVE REMEDIES UNDER ARTICLE XIII AND ANY REMEDY PROVIDED HEREIN, AT LAW OR IN EQUITY FOR BREACH OF THIS AGREEMENT AS LIMITED BY THIS SECTION 10.3, MEDICIS AND HMR SHALL EACH BE ENTITLED TO ANY AND ALL RIGHTS AND REMEDIES PROVIDED HEREUNDER OR AVAILABLE AT LAW OR IN EQUITY OR UNDER THE TRANSACTION DOCUMENTS WITH RESPECT TO RIGHTS AND OBLIGATIONS ARISING HEREUNDER; PROVIDED, HOWEVER, THAT UNDER NO CIRCUMSTANCES SHALL ANY PARTY BE LIABLE TO ANY OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES, INCLUDING LOSS OF PROFITS. FURTHERMORE, NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, IN NO EVENT SHALL THE AGGREGATE LIABILITY OF HMR OR MEDICIS PURSUANT TO ARTICLE XIII OR OTHERWISE HEREUNDER, AND/OR UNDER THE LICENSE AND OPTION AGREEMENT, THE TRANSITION SERVICES AGREEMENT, THE TRADEMARK LICENSE AGREEMENT OR THE TECHNICAL AGREEMENT EXCEED U.S. $82.5 MILLION LESS OR PLUS ANY ADJUSTMENTS PURSUANT TO SCHEDULES 4.3A, 4.3B AND 13 OF THE LICENSE AND OPTION AGREEMENT, PROVIDED THAT SUCH LIMITATION SHALL NOT APPLY WITH RESPECT TO LIABILITY TO ANY THIRD PARTY UNDER ARTICLE XIII OR OTHERWISE. 10.4 Survival of Representations and Warranties. The representations and warranties made by HMR and by MEDICIS in this Article X are made as of the PURCHASE DATE, and they shall only be valid and survive for a period of two (2) years from and after the 26 34 ASSET PURCHASE AGREEMENT PURCHASE DATE and shall thereafter be of no force or effect except to the extent required to enforce the parties' accrued rights and obligations hereunder following the end of such two (2) year period for any claims which have been properly notified by one party to any other party prior to the expiration of such two (2) year period. 10.5 Covenants of the Parties. MEDICIS on the one hand and HMR on the other each covenants to the other that it shall comply in all material respects with all laws, including tax laws, applicable to it and its activities under this AGREEMENT. The parties further agree that they shall, without payment or further consideration, execute and deliver any further or additional instruments or documents and perform any acts which may be reasonably necessary in order to effectuate and carry out the purposes of this AGREEMENT. ARTICLE XI. CONFIDENTIAL INFORMATION 11.1 Ownership. CONFIDENTIAL INFORMATION furnished hereunder by any party to any other party shall remain the sole property of the disclosing party; provided, however, that CONFIDENTIAL INFORMATION comprising or included within the PATENTS or the PRODUCT KNOW-HOW shall be included in the ASSETS. Data and inventions concerning the PRODUCTS developed or made from and after the LICENSE EFFECTIVE DATE shall be owned by the developing or inventing party. 11.2 Confidentiality. Each party agrees that at all times after the PURCHASE DATE it shall keep, and cause its AFFILIATES and/or permitted sublicensees to keep, confidential all CONFIDENTIAL INFORMATION, and none of the parties nor any of their AFFILIATES and/or permitted sublicensees shall use or disclose the CONFIDENTIAL INFORMATION except as expressly permitted in this AGREEMENT. Each party acknowledges that the CONFIDENTIAL INFORMATION is highly valuable, proprietary and confidential and that any disclosure to any officer, employee, or agent of such party or any of its AFFILIATES shall be made only to the extent necessary to carry out its responsibilities under this AGREEMENT and only if such officer, employee or agent shall be bound by an agreement to maintain such information in confidence. 11.3 Public Announcements and Statements. Neither HMR nor MEDICIS, nor any AFFILIATE thereof, shall issue or cause publication of any press release or other public announcement or public communication with respect to this AGREEMENT or the transactions contemplated hereby without the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed. No party shall use the name of any other party in any public statement or press release without the prior written approval of the other party, which approval may not be unreasonably withheld or delayed; provided, however, that the disclosing party shall give the other parties a minimum of five (5) business days to review any such press release or other public statement. Notwithstanding the foregoing, each party may make any disclosure which such party, in the opinion of its counsel, is obligated to make pursuant to applicable law, in which case such party shall still endeavor to give the other party an opportunity to review such disclosure but shall not be obligated to do so if such disclosure must, 27 35 ASSET PURCHASE AGREEMENT in the opinion of its counsel, be made without time for review. The failure of a party to draft such disclosure in a timely fashion shall not be deemed a reason to avoid submitting such disclosure to the other party hereto. ARTICLE XII. MANUFACTURING 12.1 Manufacturing by MEDICIS. Subject to the terms of the SUPPLY AGREEMENT, MEDICIS shall have the right to manufacture the PRODUCTS in the TERRITORY (and as permitted herein in other countries in North America, to the extent legally permissible) from and after the PURCHASE DATE; provided, however, that MEDICIS' rights to manufacture (i) the LOPROX LOTION and A/T/S Solution shall be subject to the PACO AGREEMENTS, and (ii) A/T/S Gel shall be subject to the HERBERT AGREEMENT. ARTICLE XIII. INDEMNIFICATION AND LIMITATION OF LIABILITY 13.1 Indemnification by MEDICIS. In addition to any other rights HMR may have at law or in equity, and subject to Section 10.3, MEDICIS shall indemnify, defend and hold harmless HMR and their AFFILIATES, employees, agents, officers and directors, and their successors and assigns (each, an "HMR INDEMNIFIED PARTY"), from and against any and all LIABILITIES which the HMR INDEMNIFIED PARTY may incur, suffer or be required to pay resulting from or arising out of: (i) the marketing, distribution, sale or promotion of the PRODUCTS by MEDICIS after the LICENSE EFFECTIVE DATE; (ii) the manufacture of the PRODUCTS by MEDICIS or its AFFILIATES or by a third party (other than an AFFILIATE of HMR) after the LICENSE EFFECTIVE DATE, unless HMR had knowledge as of the LICENSE EFFECTIVE DATE that, based on facts in existence and circumstances persisting on the LICENSE EFFECTIVE DATE, such third party's manufacture of the PRODUCTS after the LICENSE EFFECTIVE DATE would be likely to result in or create such LIABILITIES; and (iii) any breach of any representation, warranty or covenant of MEDICIS or its AFFILIATES in the TRANSACTION DOCUMENTS. 13.2 Indemnification by HMR. In addition to any other rights MEDICIS may have at law or in equity, and subject to Section 10.3, HMRI, HMR SA and HMR GmbH shall jointly and severally indemnify, defend and hold harmless MEDICIS and its AFFILIATES, employees, agents, officers and directors, and its successors and assigns (each, a "MEDICIS INDEMNIFIED PARTY"), from and against any and all LIABILITIES which the MEDICIS INDEMNIFIED PARTY may incur, suffer or be required to pay resulting from or arising out of: (i) the manufacture or supply of the PRODUCTS by HMR or their AFFILIATES prior to the LICENSE EFFECTIVE DATE or after the LICENSE EFFECTIVE DATE in breach of HMR GmbH's representations, warranties, covenants and obligations under the SUPPLY AGREEMENT or HMRI's representations, warranties, covenants and obligations under the LOPROX LOTION SUPPLY AGREEMENT, other than for any EXCLUDED HMR PRODUCT LIABILITY; (ii) any liability arising prior to the LICENSE EFFECTIVE DATE in 28 36 ASSET PURCHASE AGREEMENT any way relating to any PRODUCT, regardless of the date of first assertion of any claim or action relating thereto; (iii) any breach of any representation, warranty or covenant by HMR or any AFFILIATE in this AGREEMENT; or (iv) any LIABILITIES arising from or related to any litigation or claim asserted by COPLEY, relating to the COPLEY PRODUCT AGREEMENT or the TRANSACTION DOCUMENTS. 13.3 Process of Indemnification. Promptly after an indemnified party becomes aware of any potential LIABILITY hereunder, such party shall deliver written notice to the indemnifying party stating the nature of the potential LIABILITY; provided, however, that the failure to give such notification shall not affect the indemnification provided hereunder except to the extent the indemnifying party is actually prejudiced as a result of such failure. The indemnified party shall give the indemnifying party such information with respect to the potential LIABILITY as the indemnifying party may from time to time reasonably request. The indemnifying party shall have the right to conduct the defense of any suit or claim related to the LIABILITY if it has assumed responsibility for the suit, claim or other proceeding in writing; provided, however, that if in the reasonable judgment of the indemnified party such suit, claim or other proceeding involves an issue or matter which could have a material adverse effect on the business, operations or assets of the indemnified party, the indemnified party may elect, at its own expense, to conduct a separate defense thereof, but in no event shall any such election be construed as a waiver of any indemnification rights such indemnified party may have under this Article XIII, at law or in equity, or otherwise. If the indemnifying party defends the suit or claim, the indemnified party may participate in (but not control) the defense thereof at its sole cost and expense; provided, however, that the indemnifying party shall pay the reasonable fees and costs of any separate counsel required for the indemnified party to the extent such representation is due to a conflict of interest between the parties. 13.4 Settlements. No party may settle any claim, action or proceeding related to a LIABILITY to a third party without the consent of the other parties, which consent shall not be unreasonably withheld or delayed, if such settlement would impose any monetary obligation on the other party or require the other party to submit to an injunction or otherwise limit the other party's rights under this AGREEMENT, and any payment made by a party in such a settlement without obtaining such consent shall be at its own cost and expense. Notwithstanding the foregoing, the indemnifying party will be liable under this Article XIII for any settlement effected without its consent if the indemnifying party has refused to acknowledge liability for indemnification hereunder and/or declines to defend the indemnified party in any such claim, action or proceeding and it is determined by arbitration pursuant to Section 14.3 hereof that the indemnifying party was liable to the indemnified party for indemnification related to such settlement. 13.5 Right of Set-Off. In addition to any other remedies the parties may have for indemnification under this AGREEMENT or at law or in equity, any party may set off against any amount otherwise due and yet unpaid to the other party hereunder any amount owed by such first party to another party under any provision of this AGREEMENT or the LICENSE AND OPTION AGREEMENT or any instrument or agreement delivered pursuant hereto, or otherwise. 29 37 ASSET PURCHASE AGREEMENT ARTICLE XIV. MISCELLANEOUS 14.1 Governing Law. This AGREEMENT shall be deemed to have been made in the State of Delaware and its form, execution, validity, construction and effect shall be determined in accordance with the laws of the State of Delaware, without giving effect to the principles of conflicts of law thereof. 14.2 Headings and References. All section headings contained in this AGREEMENT are for convenience of reference only and shall not affect the meaning or interpretation of this AGREEMENT. 14.3 Dispute Resolution. (a) Any dispute, controversy or claim arising out of or relating to this AGREEMENT, or the breach, termination or invalidity of this AGREEMENT or the rights of any party for indemnification hereunder (each, a "CLAIM"), shall be submitted in the first instance to the President, North American Region of HMRI, for HMR and the Chief Executive Officer of MEDICIS for MEDICIS. (b) If any CLAIM cannot be resolved by the individuals designated in Section 14.3 (a) within thirty (30) days after being submitted to them, and except for the right of any party to apply to a court of competent jurisdiction for a temporary restraining order to preserve the status quo or to prevent irreparable harm pending the selection and confirmation of a panel of arbitrators in accordance herewith, such CLAIM shall be settled by arbitration in accordance with the Commercial Arbitration Rules (the "RULES") of the American Arbitration Association (the "AAA") in effect on the day the arbitration is commenced in accordance with this AGREEMENT, except as modified by this Section 14.3. After expiration of the thirty (30) day period pursuant to Section 14.3(a) hereof, any party may commence arbitration by serving upon the other party a written demand for arbitration sent by a courier service of internationally recognized reputation in accordance with this AGREEMENT, with a copy of the same delivered by a courier service of internationally recognized reputation to the AAA regional office in which any party is then located. The number of arbitrators shall be three, one of whom is selected by MEDICIS, one of whom is selected by HMRI and one of whom is selected by HMRI and MEDICIS (or by the other two arbitrators if the parties cannot, within thirty (30) days after the commencement of the arbitration proceeding, agree on the third arbitrator). In the event that any party shall fail to appoint an arbitrator within thirty (30) days after the commencement of the arbitration proceeding, such arbitrator and the third arbitrator shall be appointed by the AAA in accordance with the RULES. The arbitration award shall be rendered by a majority of the members of the board of arbitration. Except as expressly provided in Section 14.4 hereof, the panel shall not be entitled to modify this AGREEMENT or the transactions contemplated herein. The arbitration proceeding shall be conducted in the English language and shall be brought in Chicago, Illinois, unless the parties agree in writing to conduct the arbitration in another location. The AAA shall have jurisdiction over all parties to this AGREEMENT for purposes of the arbitration. 30 38 ASSET PURCHASE AGREEMENT (c) The arbitration decision shall be final and binding and shall not be appealable to any court in any jurisdiction. The prevailing party may enter such decision in any court having competent jurisdiction. (d) Any statute of limitations or other equitable or legal doctrine which would otherwise be applicable to any action brought by either of the parties shall be applicable in the arbitration. In the event any party to this AGREEMENT files a petition under the bankruptcy laws of the United States or has a petition filed against it which results in an order for relief or other indicia that a bankruptcy case has commenced, it is the express intention of the parties that this AGREEMENT shall control and be enforced in accordance with its terms and conditions that any CLAIM shall remain subject to arbitration to the maximum extent permitted by law. (e) There shall be no rights of discovery in connection with the arbitration except as follows: (i) Each party shall have the right to request the arbitrators to issue subpoenas for documents in accordance with the RULES. (ii) Each party shall have the right to initiate two (2) depositions of each other party to the arbitration; and each party shall have the right to initiate one (1) additional oral deposition pursuant to a subpoena issued by the arbitrators or any court of competent jurisdiction. (iii) At any time following the tenth day after the commencement of the arbitration in accordance with this AGREEMENT, a written notice served upon all parties shall be sufficient to compel the attendance of any party at a deposition upon not less than sixty (60) days notice and no subpoena shall be required for that purpose. If a person fails or refused to testify at a deposition, that person shall not be permitted to testify at the hearing, except for good cause shown. The number of depositions that may be initiated by any party may be varied by agreement of all parties to the arbitration but not by any action, order or request of the arbitrators or any court. (iv) Not less than thirty (30) days prior to the scheduled arbitration proceeding, the arbitrator shall conduct a preliminary hearing in accordance with the AAA guidelines. Not less than five (5) days prior to the preliminary hearing, all parties to the arbitration shall serve upon all other parties to the arbitration a written list of witnesses and exhibits to be used at the arbitration hearing. Except for good cause shown, no witness or exhibit may be utilized at the arbitration hearing other than as set forth on such list. The arbitrators shall receive evidence at a single hearing. The arbitrators shall award reasonable attorneys' fees and costs in favor of the prevailing party or parties. The arbitrator shall issue a final award not more than twenty (20) days following the conclusion of the hearing. The arbitrators shall have the power to hear and decide, by documents only or with a hearing (at the arbitrators' sole discretion) any prehearing motions in the nature of a pre-trial motion to dismiss or for summary judgment. (f) The arbitrators shall be entitled to receive reasonable compensation at an hourly rate to be established between the arbitrators and the AAA. If required by the 31 39 ASSET PURCHASE AGREEMENT arbitrators, MEDICIS on the one hand, and HMRI, on the other, will deposit with the AAA an equal share of the total anticipated fee of the arbitrators in an amount to be estimated by the AAA. The non-prevailing party in the proceedings shall be ordered to pay, and shall have the ultimate responsibility for, all arbitrators' fees and the fees of the AAA and such fees shall be included in the judgment to be entered against the non-prevailing party. (g) Notwithstanding any other provision of this AGREEMENT, any party may apply to a court of competent jurisdiction within the TERRITORY, for an order in true nature of a temporary restraining order or preliminary injunction for purposes of maintaining the status quo pending the final resolution of any dispute pursuant to the arbitration provisions hereof. (h) Each party consents to the jurisdiction and administration of the AAA for purposes of the arbitration proceedings contemplated herein. 14.4 Severability. If any provision of this AGREEMENT is held by a court of competent jurisdiction to be invalid or unenforceable, it shall be modified to the minimum extent necessary to make it valid and enforceable. 14.5 Entire Agreement. This AGREEMENT, including the exhibits hereto, and the other TRANSACTION DOCUMENTS constitute the entire AGREEMENT between the parties and their AFFILIATES relating to the subject matter hereof and supersede all previous writings and understandings, whether oral or written, including without limitation the Confidentiality Agreement, dated as of May 28, 1998, and the Letter of Intent, dated June 8, 1998, by and between HMRI and MEDICIS relating to the subject matter of this AGREEMENT. 14.6 Amendment. This AGREEMENT may not be amended, supplemented or otherwise modified except by an instrument in writing signed by both parties that specifically refers to this AGREEMENT. 14.7 Notices. Any notice required or permitted under this AGREEMENT shall be in writing and sent by reputable courier service, charges prepaid, or by facsimile transmission with confirmation by reputable courier service, to the address or facsimile number specified below. Such notices shall be deemed given three (3) business days after such deposit in the mail or with a courier or one (1) business day after such facsimile transmission. If to HMR: Hoechst Marion Roussel, Inc. Route 202-206 P. O. Box 6800 Bridgewater, New Jersey 08807-0800 Fax Number: (908) 231-3730 Attention: Vice President, Licensing & Alliances 32 40 ASSET PURCHASE AGREEMENT with copies to: Hoechst Marion Roussel, Inc. Route 202-206 P. O. Box 6800 Bridgewater, New Jersey 08807-0800 Fax Number: (908) 231-2243 Attention: Vice President and General Counsel Hoechst Marion Roussel Deutschland GmbH Konigsteiner Strasse 10 65812, Bad Soden Germany Fax Number: +49-69-305-17905 Attention: General Manager Hoechst Marion Roussel, S.A. 102, route de Noisy 93235 Romainville France Fax Number: 33-1-4991-3916 Attention: General Counsel If to MEDICIS: Medicis Pharmaceutical Corporation 4343 East Camelback Road Phoenix, Arizona 85018 Attention: Jonah Shacknai Fax Number: (602) 808-3875 with a copy to: Bryan Cave LLP Two North Central Avenue, Suite 2200 Phoenix, Arizona 85004-4408 Fax Number: (602) 364-7000 Attention: Frank M. Placenti, Esq. 14.8 Assignment, Sublicense and Binding Effect. Each party shall have the right to assign or sublicense its rights in whole or in part under this AGREEMENT to an AFFILIATE of such party without the other party's consent or to a third party with the other party's prior written consent, which consent shall not be unreasonably withheld, provided that (i) in either case such party guarantees to the other party all of such party's obligations hereunder; (ii) in the case of any sublicense by MEDICIS hereunder, the sublicensee agrees in a written, executed agreement delivered to HMR and naming HMR as an intended third party beneficiary therein to (a) observe and perform those obligations of MEDICIS hereunder reasonably determined by MEDICIS to relate to such sublicense; and (b) acquire its requirements for the HMR MANUFACTURED PRODUCTS (as defined in the SUPPLY AGREEMENT) from HMR GmbH pursuant to the SUPPLY AGREEMENT during its term and subject to its conditions; and (c) in the case of any sublicense by HMR hereunder, the sublicensee agrees in a 33 41 ASSET PURCHASE AGREEMENT written executed agreement delivered to MEDICIS and naming MEDICIS as an intended third party beneficiary therein to observe and perform those obligations of HMR hereunder reasonably determined by HMR to relate to such sublicense. 14.9 No Agency. It is understood and agreed that each party shall have the status of an independent contractor under this AGREEMENT and that nothing in this AGREEMENT shall be construed as authorization for any party to act as agent for the other. MEDICIS shall not incur any liability for any act or failure to act by employees of HMR and vice versa. Notwithstanding anything to the contrary in this Section 14.9, HMR GmbH and HMR SA each hereby appoint HMRI, and any duly appointed statutory agent of HMRI, as its agent for service of process as to any proceeding commenced pursuant to or in connection with this AGREEMENT or the TRANSACTION DOCUMENTS. 14.10 No Strict Construction. This AGREEMENT has been prepared jointly and shall not be strictly construed against any party. 14.11 Waiver. No waiver of any of the provisions of this AGREEMENT shall be deemed, or shall constitute, a waiver of any other provision hereof (whether or not similar) nor shall such waiver constitute a continuing waiver, and no waiver shall be binding unless executed in writing by the party making the waiver. 14.12 Counterparts. This AGREEMENT may be executed in counterparts, each of which shall be an original as against any party whose signature appears thereon but all of which together shall constitute one and the same instrument. 34 42 ASSET PURCHASE AGREEMENT IN WITNESS WHEREOF, the parties, through their authorized officers, have duly executed this as of the date first written above. HOECHST MARION ROUSSEL, INC. MEDICIS PHARMACEUTICAL CORPORATION By: /s/ Thomas Hofstaetter By: /s/ Jonah Shacknai Name: Thomas Hofstaetter Name: Jonah Shacknai Title: Senior Vice President Title: Chairman and Chief Executive Officer HOECHST MARION ROUSSEL DEUTSCHLAND GmbH By: /s/ Peter Schlikker Name: DR. PETER SCHLIKKER Title: Member of the Board By: /s/ Dieter Kohl Name: Dieter Kohl Title: Member of the Board HOECHST MARION ROUSSEL, S.A. By: /s/ O. Jacquesson Name: O. Jacquesson Title: Member of the Board 35 43 ASSET PURCHASE AGREEMENT EXHIBIT A List of NDAs (Per Section 1.42) As used in this AGREEMENT, the term "NDAs" shall include the following U.S. regulatory approvals, but shall exclude information contained in such approvals which would normally be included within a Drug Master File: 'A/T/S' Solution AADA#62-405 'Loprox' Cream NDA #18-748 'Loprox' Lotion NDA #19-824 'Loprox' Gel NDA #20-519 'Topicort' Emollient Cream NDA #17-856 'Topicort' Gel NDA #18-586 'Topicort' LP Emollient Cream NDA #18-309 'Topicort' Ointment 0.05%* NDA #18-594 'Topicort' Ointment 0.25% NDA #18-763 - ---------- *Non-commercialized in the TERRITORY A-1 44 ASSET PURCHASE AGREEMENT EXHIBIT B List of PATENTS (Per Section 1.50) U.S. patent applications and U.S. patents corresponding to, or claiming a right or priority based upon the subject matter described in, the following Patent Cooperation Treaty (PCT) patent applications, other than to the extent of claims for active ingredients other than the ACTIVE INGREDIENTS; for the avoidance of doubt, claims related to rilopirox or the DEVELOPMENT STAGE PRODUCT or HMR's CICLOPIROX Powder shall not be included within the PATENTS: 1. 'Loprox' Gel: WO 98/13042 PCT/EP97/05068, filed 16 September 1997 (Antimycotic gel with high active substance release) 2. 'Loprox' Shampoo: WO 98/13009 PCT/EP97/05070, filed 16 September 1997 (Use of a shampoo containing 1-hydroxy - 2-pyridones for the treatment of seborrhoic dermatitis) 3. 'Loprox': WO 98/13043 PCT/EP/9705069, filed 16 September 1997 (Use of 1-hydroxy - 2-pyridones for the treatment of skin disorders which are caused by antibiotic resistant bacteria) 4. W/O 97/20560, PCT/EP96/05132, filed 4 December 1995 (Use of 1-hydroxy - 2-pyridones for the topical treatment of mycotic infections which are caused by azole resistant fungi) B-1 45 ASSET PURCHASE AGREEMENT EXHIBIT C List of PRODUCTS (Per Section 1.52) 1. A/T/S - Erythromycin based topical acne treatment a) 2% solution, formulated as approved in AADA #62-405. b) 2% gel, formulated as approved in NDA #50-617 (owned by HERBERT). 2. Loprox - CICLOPIROX based topical anti-fungal. a) 0.77% cream, formulated as approved in NDA #18-748, or as formulated pursuant to the LOPROX CREAM PLAN. b) 0.77% lotion, formulated as approved in NDA #19-824, or as formulated pursuant to the LOPROX LOTION PLAN. c) 0.77% gel, formulated as approved in NDA #20-519. d) the additional Loprox PRODUCT discussed in Schedule 13 to the LICENSE AND OPTION AGREEMENT, as described in Investigational New Drug Application #51,286. 3. Topicort - Desoximetasone based topical anti-inflammatory. a) 0.25% cream, formulated as approved in NDA #17-856. b) 0.05% gel, formulated as approved in NDA #18-586. c) 0.05% cream, formulated as approved in NDA #18-309. d) 0.25% ointment, formulated as approved in NDA #18-763. e) 0.05% ointment, formulated as approved in NDA #18-594 (non-commercialized in the TERRITORY). C-1 46 ASSET PURCHASE AGREEMENT EXHIBIT D List of TRADEMARKS (Per Section 1.61) List of TRADEMARKS U.S. Registration No. ------------------ --------------------- 'Topicort' 1046658 'Topicort' 621695 'A/T/S' 1284012 'Loprox' 1221402 'Loprox TA' Application No. 75/207.214 10.2-1 EX-10.90 9 EX-10.90 1 Exhibit 10.90 LICENSE AND OPTION AGREEMENT LICENSE AND OPTION AGREEMENT BY AND AMONG HOECHST MARION ROUSSEL, INC., HOECHST MARION ROUSSEL DEUTSCHLAND GMBH, HOECHST MARION ROUSSEL, S.A. AND MEDICIS PHARMACEUTICAL CORPORATION DATED AS OF NOVEMBER 15, 1998 TRADEMARK NOTICE: 'Loprox', 'Topicort', 'Dermatop' and 'A/T/S' are registered trademarks of HMR, certain rights to which are granted to MEDICIS in accordance with the TRADEMARK LICENSE AGREEMENT (as defined herein). The use of such trademarks in this AGREEMENT is in each case deemed to be accompanied by an appropriate notice of trademark registration. 2 LICENSE AND OPTION AGREEMENT TABLE OF CONTENTS Page ---- ARTICLE I. DEFINITIONS.......................................... 1 1.1 "AAA"..................................... 1 1.2 "ACTIVE INGREDIENTS"...................... 1 1.3 "AFFILIATE"............................... 2 1.4 "AGREEMENT"............................... 2 1.5 "ALTERNATE SITE".......................... 2 1.6 "APPLICABLE LAWS"......................... 2 1.7 "CANADA".................................. 2 1.8 "CANADIAN AGREEMENTS"..................... 2 1.9. "CANADIAN OPTION"......................... 2 1.10 "CANADIAN RIGHTS"......................... 2 1.11 "CICLOPIROX".............................. 2 1.12 "CLAIM"................................... 2 1.13 "COMPETING NAIL TOPICAL PRODUCT".......... 2 1.14 "COMPLETE FRANKFURT DATA"................. 2 1.15 "CONFIDENTIAL INFORMATION"................ 2 1.16 "COPLEY".................................. 3 1.17 "COPLEY PRODUCT AGREEMENT"................ 3 1.18 "CRO"..................................... 3 1.19 "DEVELOPMENT STAGE PRODUCT"............... 3 1.20 "EXCLUDED HMR PRODUCT LIABILITY".......... 3 1.21 "FORCE MAJEURE"........................... 3 1.22 "FDA"..................................... 3 i 3 LICENSE AND OPTION AGREEMENT 1.23 "FRANKFURT DATA"......................... 4 1.24 "FRANKFURT SITE"......................... 4 1.25 "HERBERT"................................ 4 1.26 "HERBERT AGREEMENT"...................... 4 1.27 "HERBERT ASSIGNMENT AGREEMENT"........... 4 1.28 "HMR".................................... 4 1.29 "HMR GmbH"............................... 4 1.30 "HMRI"................................... 4 1.31 "HMR INDEMNIFIED PARTY".................. 4 1.32 "HMR NEWLY DEVELOPED PRODUCT"............ 4 1.33 "HMR NOTICE"............................. 4 1.34 "HMR RIGHT OF FIRST OFFER"............... 4 1.35. "HMR SUPPLIED PRODUCTS".................. 4 1.36. "HMR SA"................................. 4 1.37 "HSR ACT"................................ 4 1.38 "IMPROVEMENT"............................ 4 1.39 "INTELLECTUAL PROPERTY".................. 5 1.40 "INTERNET SIDE LETTER"................... 5 1.41 "JOINT PATENT COUNSEL"................... 5 1.42 "KNOW-HOW"............................... 5 1.43 "LIABILITIES"............................ 5 1.44 "LICENSE"................................ 5 1.45 "LICENSE EFFECTIVE DATE"................. 5 1.46 "LINE EXTENSIONS"........................ 5 1.47 "LOPROX CREAM MATTER".................... 5 ii 4 LICENSE AND OPTION AGREEMENT 1.48 "LOPROX CREAM PLAN"........................ 5 1.49 "LOPROX CREAM REGULATORY GOALS"............ 5 1.50 "LOPROX LOTION"............................ 5 1.51 "LOPROX LOTION MATTER"..................... 6 1.52 "LOPROX LOTION PLAN"....................... 6 1.53 "LOPROX LOTION REGULATORY GOALS"........... 6 1.54 "LOPROX LOTION SUPPLY AGREEMENT"........... 6 1.55 "MEDICIS".................................. 6 1.56 "MEDICIS INDEMNIFIED PARTY"................ 6 1.57 "MEDICIS NEWLY DEVELOPED PRODUCT".......... 6 1.58 "MEDICIS NOTICE"........................... 6 1.59 "MEDICIS RIGHT OF FIRST OFFER"............. 6 1.60 "NDAs"..................................... 6 1.61 "NEW A/T/S GEL MANUFACTURER"............... 6 1.62 "NON-PRODUCT CLAIMS"....................... 6 1.63 "OPTION"................................... 6 1.64 "OTHER INFORMATION"........................ 6 1.65 "PACO"..................................... 7 1.66 "PACO AGREEMENTS".......................... 7 1.67 "PACO A/T/S AGREEMENT"..................... 7 1.68 "PACO A/T/S ASSIGNMENT AGREEMENT".......... 7 1.69 "PACO LOPROX AGREEMENT".................... 7 1.70 "PACO LOPROX ASSIGNMENT AGREEMENT"......... 7 1.71 "PATENTS".................................. 7 1.72 "PRODUCT KNOW-HOW"......................... 7 iii 5 LICENSE AND OPTION AGREEMENT 1.73 "PRODUCTS"....................................... 8 1.74 "PURCHASE AGREEMENT"............................. 8 1.75 "PURCHASE DATE".................................. 8 1.76 "PURCHASE PRICE"................................. 8 1.77 "RILOPIROX OPTION"............................... 8 1.78 "RILOPIROX RIGHTS"............................... 8 1.79 "RULES".......................................... 8 1.80 "SHARED KNOW-HOW"................................ 8 1.81 "SIMILAR PRODUCTS"............................... 8 1.82 "SUPPLY AGREEMENT"............................... 8 1.83 "TERM"........................................... 8 1.84 "TERRITORY"...................................... 8 1.85 "TRADEMARK LICENSE AGREEMENT".................... 9 1.86 "TRADEMARKS"..................................... 9 1.87 "TRANSACTION DOCUMENTS".......................... 9 1.88 "TRANSITION SERVICES AGREEMENT".................. 9 ARTICLE II. GRANT OF LICENSE; RELATED RIGHTS........................... 9 2.1 Grant of LICENSE................................. 9 2.2 ACTIVE INGREDIENTS Not Included in the LICENSE... 10 2.3 Generic Products; COPLEY......................... 10 2.4 Certain Restrictions on Sale of ACTIVE INGREDIENTS............................... 12 2.5 MEDICIS Use of Drug Master Files and NDAs........ 13 2.6 A/T/S Gel........................................ 14 ARTICLE III. LICENSE AND DISTRIBUTION FEES............................. 15 3.1 LICENSE and Distribution Fees.................... 15 iv 6 LICENSE AND OPTION AGREEMENT ARTICLE IV. OPTION TO PURCHASE......................................... 15 4.1 Option to Purchase............................... 15 4.2 Effect of the OPTION Being Exercised............. 16 4.3 Loprox Cream Schedule and LOPROX LOTION Schedule. 16 4.4 Grant of CANADIAN OPTION......................... 16 ARTICLE V. RIGHTS OF FIRST OFFER....................................... 17 5.1 MEDICIS RIGHT OF FIRST OFFER..................... 17 5.2 HMR RIGHT OF FIRST OFFER......................... 19 5.3 Development of Newly Developed Products.......... 20 5.4 Grant of RILOPIROX OPTION........................ 20 5.5 Theramycin Z Product............................. 21 ARTICLE VI. SCOPE OF LICENSE EXCLUSIVITY............................... 21 6.1 No Sales By MEDICIS Outside the TERRITORY........ 22 6.2 No Sales by HMR Inside the TERRITORY............. 22 ARTICLE VII. REGULATORY MATTERS; ADVERSE REACTIONS; RECALLS............ 22 7.1 Licenses, Filings, Registrations, Permits and Regulatory Approvals................. 22 7.2 Communication with Agencies...................... 23 7.3 Governmental Inspections......................... 23 7.4 Adverse Reactions................................ 24 7.5 Product Recalls.................................. 24 ARTICLE VIII. PROMOTION AND MARKETING.................................. 25 8.1 Party Names; Change of Promotional Material...... 25 8.2 Advertising and Promotional Materials............ 25 8.3 Medical and Other Inquiries...................... 25 V 7 LICENSE AND OPTION AGREEMENT 8.4 Customer Complaints.............................. 26 ARTICLE IX. INTELLECTUAL PROPERTY...................................... 26 9.1 Notices.......................................... 26 9.2 Actions During the Term.......................... 27 9.3 Actions After the PURCHASE DATE.................. 28 9.4 Patent Prosecution............................... 28 ARTICLE X. REPRESENTATIONS AND WARRANTIES; COVENANTS................... 29 10.1 Representations and Warranties of the Parties.... 29 10.2 Representations and Warranties of HMR............ 30 10.3 Covenants of the Parties......................... 33 10.4 Covenants of MEDICIS............................. 34 10.5 Covenants of HMR................................. 34 10.6 Mutual Limitations on Warranties and Damages..... 35 10.7. Survival of Representations and Warranties....... 35 ARTICLE XI. CONFIDENTIAL INFORMATION................................... 36 11.1 Ownership........................................ 36 11.2 Confidentiality.................................. 36 11.3 Public Announcements and Statements.............. 36 ARTICLE XII. IMPROVEMENTS.............................................. 36 12.1 Improvements..................................... 36 12.2 Regulatory Responsibility with Respect to Improvements.......................... 37 ARTICLE XIII. ADDITIONAL LOPROX PRODUCT................................ 37 13.1 Additional Loprox Product........................ 37 ARTICLE XIV. MANUFACTURING............................................. 37 14.1 Manufacturing by MEDICIS......................... 37 vi 8 LICENSE AND OPTION AGREEMENT ARTICLE XV. TERM AND TERMINATION....................................... 37 15.1 Term of the AGREEMENT............................ 37 15.2 Termination by HMR............................... 38 15.3 Termination by MEDICIS........................... 38 ARTICLE XVI. RIGHTS AND DUTIES UPON TERMINATION OR EXPIRATION; REMEDIES............................. 39 16.1 Monies Paid or Due............................... 39 16.2 Survival of Rights............................... 39 16.3 Remaining PRODUCT................................ 40 16.4 Damages.......................................... 40 16.5 Transition Upon Termination...................... 40 ARTICLE XVII. PAYMENT TERMS GENERALLY; taxes........................... 41 17.1 Place of Payment; Interest....................... 41 17.2 Taxes............................................ 41 ARTICLE XVIII. INDEMNIFICATION and LIMITATION OF LIABILITY............. 41 18.1 Indemnification by MEDICIS....................... 41 18.2 Indemnification by HMR........................... 41 18.3 Process of Indemnification....................... 42 18.4 Settlements...................................... 43 18.5 Right of Set-Off................................. 43 ARTICLE XIX. MISCELLANEOUS............................................. 43 19.1 FORCE MAJEURE.................................... 43 19.2 Governing Law.................................... 44 19.3 Headings and References.......................... 44 19.4 Dispute Resolution............................... 44 vii 9 LICENSE AND OPTION AGREEMENT 19.5 Severability..................................... 46 19.6 Entire Agreement................................. 46 19.7 Amendment........................................ 46 19.8 Notices.......................................... 46 19.9 Assignment, Sublicense and Binding Effect........ 47 19.10 No Agency........................................ 48 19.11 No Strict Construction........................... 48 19.12 Waiver........................................... 48 19.13 Counterparts..................................... 48 EXHIBITS EXHIBIT A - List of PRODUCTS EXHIBIT B - List of NDAs EXHIBIT C - List of PATENTS EXHIBIT D - List of TRADEMARKS EXHIBIT E - List of Canadian Products and New Drug Submissions viii 10 LICENSE AND OPTION AGREEMENT LICENSE AND OPTION AGREEMENT This License and Option Agreement (the "AGREEMENT") is entered into as of November 15, 1998, by and among Hoechst Marion Roussel, Inc., a Delaware corporation ("HMRI"), Hoechst Marion Roussel Deutschland GmbH, a German limited liability company ("HMR GmbH"), Hoechst Marion Roussel, S.A., a French corporation ("HMR SA"), and Medicis Pharmaceutical Corporation, a Delaware corporation ("MEDICIS"). Capitalized terms used in this AGREEMENT shall have the meanings ascribed to them in Article I hereof or as otherwise set forth herein or in the Schedules hereto. RECITALS A. HMRI, HMR SA and HMR GmbH (sometimes collectively and jointly and severally referred to herein as "HMR") have developed and currently sell, or have obtained the rights to sell, the PRODUCTS in the TERRITORY during the TERM of this AGREEMENT. B. MEDICIS is willing to acquire from HMR, and HMR is willing to grant to MEDICIS, under the PATENTS and the KNOW-HOW, a license during the TERM to make, have made, use, sell and have sold the PRODUCTS in the TERRITORY. C. MEDICIS is willing to acquire from HMR, and HMR is willing to grant to MEDICIS, an option to purchase, upon the expiration of the TERM, the PATENTS, the PRODUCT KNOW-HOW, the TRADEMARKS and the associated goodwill for all of the PRODUCTS in the TERRITORY and an option to license the SHARED KNOW-HOW to make, have made, use, sell and have sold the PRODUCTS in the TERRITORY, on the terms and subject to the conditions set forth in the PURCHASE AGREEMENT executed simultaneously herewith. D. Pursuant to and as provided in this AGREEMENT, HMR GmbH and MEDICIS are entering into the SUPPLY AGREEMENT, and HMRI and certain of its AFFILIATES and MEDICIS are entering into, among others, the LOPROX LOTION SUPPLY AGREEMENT, the TRADEMARK LICENSE AGREEMENT and the TRANSITION SERVICES AGREEMENT. NOW, THEREFORE, in consideration of the mutual promises hereinafter made and the mutual benefits to be derived from this AGREEMENT, the parties hereto, intending to be legally bound, hereby agree as follows: ARTICLE I. DEFINITIONS 1.1 "AAA" shall have the meaning set forth in Section 19.4(b) hereof. 1.2 "ACTIVE INGREDIENTS" means CICLOPIROX, desoximetasone and erythromycin, or any of them, as the case may be. 1 11 LICENSE AND OPTION AGREEMENT 1.3 "AFFILIATE" means any individual, corporation or other legal entity which any party directly or indirectly through one or more intermediaries controls or which is controlled by or under common control with such party. For the purpose of this AGREEMENT, "control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of an individual, corporation or other legal entity, whether through the ownership of voting securities, by contract, or otherwise; provided, however, that COPLEY shall not be an AFFILIATE of HMR. 1.4 "AGREEMENT" means this License and Option Agreement by and among HMR and MEDICIS. 1.5 "ALTERNATE SITE" shall have the meaning set forth in Section 13.2(a) of Schedule 13. 1.6 "APPLICABLE LAWS" shall mean all applicable laws, statutes, rules, regulations, ordinances, orders, decrees, writs, judicial or administrative decisions and the like of any nation or government, any state or other political subdivision thereof, any entity exercising executive, judicial, regulatory or administrative functions of or pertaining to government (including, without limitation, any governmental authority, agency, department, board, commission or instrumentality of any governmental unit or any political subdivision thereof), any tribunal or arbitrator of competent jurisdiction, and any self-regulatory organization. 1.7 "CANADA" means Canada and its territories and possessions. 1.8 "CANADIAN AGREEMENTS" shall have the meaning set forth in Section 4.4(a) hereof. 1.9. "CANADIAN OPTION" shall have the meaning set forth in Section 4.4(a) hereof. 1.10 "CANADIAN RIGHTS" shall have the meaning set forth in Section 4.4(a) hereof. 1.11 "CICLOPIROX" means ciclopirox acid and/or ciclopirox olamine. 1.12 "CLAIM" shall have the meaning set forth in Section 19.4(a) hereof. 1.13 "COMPETING NAIL TOPICAL PRODUCT" means any product or products for topical application to the nail containing CICLOPIROX, or that would otherwise be similar to or competitive with the DEVELOPMENT STAGE PRODUCT. 1.14 "COMPLETE FRANKFURT DATA" shall have the meaning set forth in Section 13.3(a) of Schedule 13. 1.15 "CONFIDENTIAL INFORMATION" means any and all data and information of a proprietary or confidential nature that are owned or controlled by any party hereto or their respective AFFILIATES and are made available by one party or its AFFILIATES to any other 2 12 LICENSE AND OPTION AGREEMENT party or its AFFILIATES prior to, during or after the TERM and that are directly or indirectly related to the PRODUCTS and/or IMPROVEMENTS or the manufacture, use or sale thereof, including, but without limitation, clinical or non-clinical data, formulations, processing information, technical reports and specifications, marketing and sales information, customer lists, supplier lists and pricing information. CONFIDENTIAL INFORMATION shall not include information which: (i) was known or used by the receiving party or its AFFILIATES prior to its date of disclosure to the receiving party, as evidenced by the prior written records of the receiving party or its AFFILIATES; (ii) either before or after the date of the disclosure to the receiving party is lawfully disclosed without restriction on disclosure to the receiving party or its AFFILIATES by an independent, unaffiliated third party whose disclosure of such information does not violate any obligation to or right of the party owning or controlling the CONFIDENTIAL INFORMATION; or (iii) either before or after the date of the disclosure to the receiving party becomes published or generally known in the industry through no fault or admission on the part of the receiving party or its AFFILIATES. 1.16 "COPLEY" means Copley Pharmaceutical, Inc., a Delaware corporation. 1.17 "COPLEY PRODUCT AGREEMENT"shall have the meaning set forth in Section 2.3(a) hereof. 1.18 "CRO" shall have the meaning set forth in Section 13.3(a) of Schedule 13. 1.19 "DEVELOPMENT STAGE PRODUCT" shall have the meaning set forth in Schedule 5.1. 1.20 "EXCLUDED HMR PRODUCT LIABILITY" means any LIABILITY of HMR or their AFFILIATES arising under any applicable federal, state, local or other product liability law, regulation, common law principle, court order or judgment, jury verdict or arbitral award arising out of or related to the manufacture of the HMR SUPPLIED PRODUCTS by HMR or its AFFILIATES after the LICENSE EFFECTIVE DATE; excluding, however, any such LIABILITY due to, caused by, resulting from or arising out of any breach by HMR or any of their AFFILIATES of Article VI of the SUPPLY AGREEMENT or Article VI of the LOPROX LOTION SUPPLY AGREEMENT. 1.21 "FORCE MAJEURE" shall have the meaning set forth in Section 19.1 hereof. 1.22 "FDA" means the United States Food and Drug Administration, or any successor to its responsibilities with respect to pharmaceutical products such as the PRODUCTS. 3 13 LICENSE AND OPTION AGREEMENT 1.23 "FRANKFURT DATA" shall have the meaning set forth in Section 13.1 of Schedule 13. 1.24 "FRANKFURT SITE" shall have the meaning set forth in Section 13.1 of Schedule 13 hereto. 1.25. "HERBERT" means Vision Pharmaceuticals L.P., a Texas limited partnership (formerly known as Herbert Laboratories), the general partner of which is Allergan General, Inc., a Delaware corporation that is a subsidiary of Allergan, Inc. 1.26 "HERBERT AGREEMENT" means the Manufacturing Agreement, dated as of June 11, 1990, between HMRI and HERBERT, relating to 'A/T/S' Gel, including any amendments thereto. 1.27 "HERBERT ASSIGNMENT AGREEMENT" means the Assignment and Assumption Agreement, dated as of the LICENSE EFFECTIVE DATE, by and among HERBERT, HMRI and MEDICIS. 1.28 "HMR" means HMRI, HMR SA and HMR GmbH, collectively and jointly and severally. 1.29 "HMR GmbH" means Hoechst Marion Roussel Deutschland GmbH, a German limited liability company. 1.30 "HMRI" means Hoechst Marion Roussel, Inc., a Delaware corporation. 1.31 "HMR INDEMNIFIED PARTY" shall have the meaning set forth in Section 18.1 hereof. 1.32 "HMR NEWLY DEVELOPED PRODUCT" shall have the meaning set forth in Section 5.1 hereof. 1.33 "HMR NOTICE" shall have the meaning set forth in Section 5.1(a) hereof. 1.34 "HMR RIGHT OF FIRST OFFER" shall have the meaning set forth in Section 5.2 hereof. 1.35. "HMR SUPPLIED PRODUCTS" means the HMR MANUFACTURED PRODUCTS (as defined in the SUPPLY AGREEMENT) and the LOPROX LOTION. 1.36. "HMR SA" means Hoechst Marion Roussel, S.A., a French corporation. 1.37 "HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. 1.38 "IMPROVEMENT" means any and all modifications or refinements related to any PRODUCT or its use or the manufacturing processes thereof, whether patented or not 4 14 LICENSE AND OPTION AGREEMENT patented, which may be made, developed or acquired by a party during or prior to the TERM, including, without limitation, modifications in the size, dosage strength or excipients of any PRODUCT, but not including LINE EXTENSIONS. 1.39 "INTELLECTUAL PROPERTY" means the KNOW-HOW, the PATENTS and the TRADEMARKS. 1.40 "INTERNET SIDE LETTER" means that certain side letter agreement pertaining to Internet Domain Names between HMRI and MEDICIS, dated as of the LICENSE EFFECTIVE DATE. 1.41 "JOINT PATENT COUNSEL" shall have the meaning set forth in Section 9.4(a) hereof. 1.42 "KNOW-HOW" means the SHARED KNOW-HOW and the PRODUCT KNOW-HOW. 1.43 "LIABILITIES" means any and all liabilities, losses, damages, penalties, fines, assessments, expenses and costs of any kind or nature, primary or secondary, direct or indirect, absolute or contingent, known or unknown, including without limitation costs of settlement, reasonable attorneys' fees and related costs and expenses and any liabilities for claims of personal injury or death, suffered or incurred by an indemnified party hereunder. 1.44 "LICENSE" shall mean the licenses granted by HMR to MEDICIS in Section 2.1 hereof. 1.45 "LICENSE EFFECTIVE DATE" means the date of this AGREEMENT as first set forth above. 1.46 "LINE EXTENSIONS" means human dermatology products containing the ACTIVE INGREDIENTS of the PRODUCTS but in a different dosage form from the PRODUCTS (e.g., products in a gel rather than a cream form), but not including (i) IMPROVEMENTS; or (ii) the additional Loprox PRODUCT discussed in Schedule 13 hereto, Loprox Gel, Topicort Ointment 0.05% or the DEVELOPMENT STAGE PRODUCT. 1.47 "LOPROX CREAM MATTER" shall have the meaning set forth in Section 4.3A(a) of Schedule 4.3A hereto. 1.48 "LOPROX CREAM PLAN" shall have the meaning set forth in Section 4.3A(b) of Schedule 4.3A hereto. 1.49 "LOPROX CREAM REGULATORY GOALS" shall have the meaning set forth in the LOPROX CREAM PLAN. 1.50 "LOPROX LOTION" shall have the meaning set forth in the LOPROX LOTION SUPPLY AGREEMENT. 5 15 LICENSE AND OPTION AGREEMENT 1.51 "LOPROX LOTION MATTER" shall have the meaning set forth in Section 4.3B(a) of Schedule 4.3B hereto. 1.52 "LOPROX LOTION PLAN" shall have the meaning set forth in Section 4.3B(b) of Schedule 4.3B hereto. 1.53 "LOPROX LOTION REGULATORY GOALS" shall have the meaning set forth in the LOPROX LOTION PLAN. 1.54 "LOPROX LOTION SUPPLY AGREEMENT" means the Loprox Lotion Supply Agreement, dated as of the LICENSE EFFECTIVE DATE, between HMRI and MEDICIS. 1.55 "MEDICIS" means Medicis Pharmaceutical Corporation, a Delaware corporation. 1.56 "MEDICIS INDEMNIFIED PARTY" shall have the meaning set forth in Section 18.2 hereof. 1.57 "MEDICIS NEWLY DEVELOPED PRODUCT" shall have the meaning set forth in Section 5.2 hereof. 1.58 "MEDICIS NOTICE" shall have the meaning set forth in Section 5.2(a) hereof. 1.59 "MEDICIS RIGHT OF FIRST OFFER" shall have the meaning set forth in Section 5.1 hereof. 1.60 "NDAs" means HMR's New Drug Applications, Abbreviated New Drug Applications and Abbreviated Antibiotic Drug Applications (as such terms are defined by the FDA) for the PRODUCTS (except A/T/S Gel which is owned by HERBERT) filed and approved in accordance with the requirements of the FDA, as they may be amended or supplemented from time to time, and as set forth on Exhibit B hereto. 1.61 "NEW A/T/S GEL MANUFACTURER" shall have the meaning set forth in Section 1 of Schedule 2.6 hereto. 1.62 "NON-PRODUCT CLAIMS" shall have the meaning set forth in Section 9.4(b) hereof. 1.63 "OPTION" shall have the meaning set forth in Section 4.1 hereof. 1.64 "OTHER INFORMATION" means: (i) information relating to a disapproval or cancellation of an NDA (or any similar approval, disapproval or cancellation outside of the TERRITORY); (ii) information on modifications required to be made in the contents of an NDA (or any similar approval outside the TERRITORY) in order to prevent, or to warn against risks of, death or bodily harm; (iii) information on withdrawal of a PRODUCT from the marketplace in the TERRITORY (or outside the TERRITORY); (iv) information on important revisions of the precautions in the usage of a PRODUCT as set forth in the labeling pursuant to an NDA (or 6 16 LICENSE AND OPTION AGREEMENT any similar revisions outside the TERRITORY); and (v) any information which could adversely impact the marketing of a PRODUCT in the TERRITORY. 1.65 "PACO" means Paco Pharmaceutical Services, Inc., a Delaware corporation. 1.66 "PACO AGREEMENTS" means the PACO A/T/S AGREEMENT and the PACO LOPROX AGREEMENT. 1.67 "PACO A/T/S AGREEMENT" means the Toll Manufacturing Agreement, dated as of the LICENSE EFFECTIVE DATE, between HMRI and PACO relating to the A/T/S Solution, including any amendments thereto. 1.68 "PACO A/T/S ASSIGNMENT AGREEMENT" means the Assignment and Assumption Agreement, dated as of the LICENSE EFFECTIVE DATE, by and among PACO, HMRI and MEDICIS relating to the PACO A/T/S AGREEMENT. 1.69 "PACO LOPROX AGREEMENT" means the Toll Manufacturing Agreement, dated as of the LICENSE EFFECTIVE DATE, between HMRI and PACO relating to LOPROX LOTION, including any amendments thereto. 1.70 "PACO LOPROX ASSIGNMENT AGREEMENT" means the Assignment and Assumption Agreement, dated as of the LICENSE EFFECTIVE DATE, by and among PACO, HMRI and MEDICIS relating to the PACO LOPROX AGREEMENT, which shall only be effective on the PURCHASE DATE. 1.71 "PATENTS" means the U.S. patent applications and U.S. patents issuing therefrom owned by HMR or their AFFILIATES corresponding to, or that shall correspond to, and which are limited to the subject matter described in the PCT patent applications specified in Exhibit C hereto, other than to the extent of claims for active ingredients other than the ACTIVE INGREDIENTS; for the avoidance of doubt claims related to rilopirox, the DEVELOPMENT STAGE PRODUCT or HMR's CICLOPIROX Powder shall not be included within the PATENTS. 1.72 "PRODUCT KNOW-HOW" means technical, scientific and medical information, knowledge, know-how, inventions and trade secrets, other than the SHARED KNOW-HOW, pertaining to or related to the development, registration, manufacturing, formulation, sale, use and commercialization of solely the PRODUCTS, including, but without limitation, physico-chemical data, specifications, quality control information and procedures and information concerning the clinical, toxicological and pharmacological properties of the PRODUCTS, as owned or controlled by or licensed to HMR or their AFFILIATES on an exclusive basis, excluding, however, technical, scientific and medical information, knowledge, know-how, inventions and trade secrets which are solely related to the manufacture or formulation of the ACTIVE INGREDIENTS. 7 17 LICENSE AND OPTION AGREEMENT 1.73 "PRODUCTS" means the human dermatology products and, unless the context indicates otherwise, samples thereof listed in Exhibit A to this AGREEMENT, but not the ACTIVE INGREDIENTS thereof. 1.74 "PURCHASE AGREEMENT" means the Asset Purchase Agreement, dated as of the LICENSE EFFECTIVE DATE and effective as of the PURCHASE DATE, by and among HMRI, HMR GmbH, HMR SA and MEDICIS. 1.75 "PURCHASE DATE" shall have the meaning set forth in the PURCHASE AGREEMENT. 1.76 "PURCHASE PRICE" shall mean U.S. $16.5 million, subject to adjustment in accordance with Schedules 4.3A and 4.3B hereto. 1.77 "RILOPIROX OPTION" shall have the meaning set forth in Section 5.4(a) hereof. 1.78 "RILOPIROX RIGHTS" shall have the meaning set forth in Section 5.4(a) hereof. 1.79 "RULES" shall have the meaning set forth in Section 19.4(b) hereof. 1.80 "SHARED KNOW-HOW" means technical, scientific and medical information, knowledge, know-how, inventions and trade secrets, other than the PRODUCT KNOW-HOW, which (i) is owned by HMR or their AFFILIATES and pertain or relate to both the PRODUCTS and other products of HMR or their AFFILIATES, or (ii) is controlled by or licensed to HMR or their AFFILIATES on a non-exclusive basis, but not owned, by HMR or their AFFILIATES and are necessary for, used in or relate to the development, registration, manufacturing, formulation, sale, use and commercialization of the PRODUCTS, including, but without limitation, manufacturing processes and techniques, quality control information and procedures, and technical, scientific and medical information, knowledge, know-how, inventions and trade secrets which are the subject of the PACO AGREEMENTS, excluding technical, scientific and medical information, knowledge, know-how, inventions and trade secrets which are related solely to the manufacture or formulation of the ACTIVE INGREDIENTS, or which are the subject of the HERBERT AGREEMENT. 1.81 "SIMILAR PRODUCTS" mean any products for human dermatological purpose containing the ACTIVE INGREDIENTS of the PRODUCTS, including without limitation, any products based upon any IMPROVEMENTS and any LINE EXTENSIONS of the PRODUCTS. 1.82 "SUPPLY AGREEMENT" means the Supply Agreement, dated as of the LICENSE EFFECTIVE DATE, by and between HMR GmbH and MEDICIS. 1.83 "TERM" shall have the meaning set forth in Section 15.1 hereof. 1.84 "TERRITORY" means the United States of America and its territories and possessions. 8 18 LICENSE AND OPTION AGREEMENT 1.85 "TRADEMARK LICENSE AGREEMENT" means the Trademark License Agreement, dated as of the LICENSE EFFECTIVE DATE, by and among HMRI, HMR GmbH, HMR SA and MEDICIS. 1.86 "TRADEMARKS" means the trademarks associated with the PRODUCTS in the TERRITORY set forth on Exhibit D hereto held by HMR or their AFFILIATES. 1.87 "TRANSACTION DOCUMENTS" means this AGREEMENT, the PURCHASE AGREEMENT, the TRADEMARK LICENSE AGREEMENT, the INTERNET SIDE LETTER, the TRANSITION SERVICES AGREEMENT, the SUPPLY AGREEMENT, the LOPROX LOTION SUPPLY AGREEMENT, the TECHNICAL AGREEMENT, the HERBERT ASSIGNMENT AGREEMENT, the PACO A/T/S ASSIGNMENT AGREEMENT and the PACO LOPROX ASSIGNMENT AGREEMENT. 1.88 "TRANSITION SERVICES AGREEMENT" means the Transition Services Agreement, dated as of the LICENSE EFFECTIVE DATE, by and between HMRI and MEDICIS. Unless the context clearly indicates otherwise, the use herein of the singular shall include the plural, and the use of the masculine shall include the feminine, and vice versa. ARTICLE II. GRANT OF LICENSE; RELATED RIGHTS 2.1 Grant of LICENSE. Subject to (i) the right of HMR and/or their AFFILIATES to manufacture the PRODUCTS for sale by HMR and/or their AFFILIATES to others solely for use and resale outside the TERRITORY and for sale by HMR to MEDICIS in accordance with the terms of the SUPPLY AGREEMENT and the LOPROX LOTION SUPPLY AGREEMENT, (ii) the provisions of the COPLEY PRODUCT AGREEMENT and the obligations of HMRI and its AFFILIATES under the COPLEY PRODUCT AGREEMENT referenced in Section 2.3 hereof, (iii) the provisions of the HERBERT AGREEMENT, the PACO AGREEMENTS, the SUPPLY AGREEMENT, the LOPROX LOTION SUPPLY AGREEMENT and the TRADEMARK LICENSE AGREEMENT, (iv) the restrictions of Section 2.5 and Article VI hereof, (v) the exclusive right of HMR, their AFFILIATES and their successors, assigns, licensees and sublicensees to use and exploit the PATENTS for the DEVELOPMENT STAGE PRODUCT and HMR's CICLOPIROX Powder, and active ingredients other than the ACTIVE INGREDIENTS, and (vi) the other terms and conditions of this AGREEMENT, each as more fully set forth in this AGREEMENT, upon the LICENSE EFFECTIVE DATE: (a) HMR hereby grant to MEDICIS an exclusive royalty-free license to use and exploit the PATENTS and the PRODUCT KNOW-HOW to develop, make, have made, use, distribute, sell and have sold the PRODUCTS and any IMPROVEMENTS and MEDICIS NEWLY DEVELOPED PRODUCTS (but not any COMPETING NAIL TOPICAL PRODUCT) in the TERRITORY during the TERM and to make and have made the PRODUCTS and any IMPROVEMENTS and MEDICIS NEWLY DEVELOPED PRODUCTS (but not any 9 19 LICENSE AND OPTION AGREEMENT COMPETING NAIL TOPICAL PRODUCT) outside the TERRITORY solely within North America during the TERM solely for use and resale in the TERRITORY; (b) HMR hereby grant to MEDICIS a non-exclusive royalty-free license to use and exploit the SHARED KNOW-HOW to develop, make, have made, use, distribute, sell and have sold the PRODUCTS and any IMPROVEMENTS and MEDICIS NEWLY DEVELOPED PRODUCTS (but not any COMPETING NAIL TOPICAL PRODUCT) in the TERRITORY during the TERM and to make and have made the PRODUCTS and any IMPROVEMENTS and MEDICIS NEWLY DEVELOPED PRODUCTS (but not any COMPETING NAIL TOPICAL PRODUCT) outside the TERRITORY solely within North America during the TERM solely for use and resale in the TERRITORY; and (c) Subject to Article XII hereof, HMR hereby grant to MEDICIS an exclusive royalty-free license to use and exploit in the TERRITORY during the TERM any IMPROVEMENTS to any PRODUCTS and MEDICIS NEWLY DEVELOPED PRODUCTS (but not any COMPETING NAIL TOPICAL PRODUCT) for human dermatological use developed by HMR or their AFFILIATES during the TERM. 2.2 ACTIVE INGREDIENTS Not Included in the LICENSE. Notwithstanding anything to the contrary contained in this AGREEMENT but subject to Article V of this AGREEMENT, any rights to the ACTIVE INGREDIENTS shall not be included in the LICENSE (including without limitation rights to use the NDAs provided hereunder) other than (i) the rights (but not development or manufacturing rights as to the ACTIVE INGREDIENTS) necessary to sell PRODUCTS containing the ACTIVE INGREDIENTS; (ii) the right to enforce the restrictions on sale of the ACTIVE INGREDIENTS set forth in this AGREEMENT; (iii) the rights conferred by the SUPPLY AGREEMENT and the LOPROX LOTION SUPPLY AGREEMENT; (iv) the rights to reference the NDAs and Drug Master Files corresponding thereto in accordance with Section 2.5(b) hereof (but not development or manufacturing rights as to the ACTIVE INGREDIENTS) necessary to develop, sell, make and have made IMPROVEMENTS and MEDICIS NEWLY DEVELOPED PRODUCTS other than any COMPETING NAIL TOPICAL PRODUCT; and (v) the rights necessary to conduct clinical tests or to conduct tests as required by APPLICABLE LAWS with respect to or using the PRODUCTS, the ACTIVE INGREDIENTS (if manufactured or supplied by or on behalf of HMR and other than for the development or registration of a COMPETING NAIL TOPICAL PRODUCT), and any IMPROVEMENTS and MEDICIS NEWLY DEVELOPED PRODUCTS other than any COMPETING NAIL TOPICAL PRODUCT; provided, however, that MEDICIS, its AFFILIATES, and their successors, assigns, licensees and sublicensees shall not violate the restrictions specified in Section 2.5 hereof in exercising their rights under this Section 2.2. 2.3 Generic Products; COPLEY. (a) Notwithstanding anything to the contrary contained in this AGREEMENT, the LICENSE and the sale and/or license of the INTELLECTUAL PROPERTY and NDAs by HMRI to MEDICIS pursuant to the PURCHASE AGREEMENT (upon its effectiveness) are each subject to COPLEY's exclusive right to market and sell in the future 10 20 LICENSE AND OPTION AGREEMENT generic versions of the PRODUCTS pursuant to the Product Agreement, dated as of October 8, 1993, by and between an AFFILIATE of HMRI and COPLEY (the "COPLEY PRODUCT AGREEMENT"). Except as set forth in Schedule 2.3, HMR represent and warrant to MEDICIS as of the LICENSE EFFECTIVE DATE as follows: (i) pursuant to the COPLEY PRODUCT AGREEMENT, COPLEY has the exclusive right to market and sell a generic version of certain products, including the PRODUCTS, that the AFFILIATE of HMR determines to allow to be marketed in a generic version or that become, or are about to become, subject to multi-source competition; (ii) the existing products distributed and marketed by COPLEY under the COPLEY PRODUCT AGREEMENT do not include a generic version of any of the PRODUCTS or any product containing any of the ACTIVE INGREDIENTS; (iii) in accordance with the terms of the COPLEY PRODUCT AGREEMENT, an AFFILIATE of HMR has notified COPLEY that the COPLEY PRODUCT AGREEMENT will be terminated, effective June 1, 1999, and COPLEY has provided to an AFFILIATE of HMR its written acknowledgment of such termination of the COPLEY PRODUCT AGREEMENT; (iv) neither HMR nor any of their AFFILIATES have granted to COPLEY the right to market, sell and/or manufacture a generic version of any PRODUCT or any product containing any or all of the ACTIVE INGREDIENTS; (v) neither HMR nor their AFFILIATES have sold to COPLEY any ACTIVE INGREDIENTS pursuant to the COPLEY PRODUCT AGREEMENT; and (vi) to the actual knowledge of HMR, none of the PRODUCTS listed on Exhibit A under the caption "Loprox" are, or are about to become, subject to multi-source competition within the meaning of the COPLEY PRODUCT AGREEMENT. HMR further represents, warrants and covenants that its interpretation of the COPLEY PRODUCT AGREEMENT is that a product "is, or is about to become, subject to multi-source competition" in the TERRITORY if, when and only when the FDA has given final approval of an ANDA for a generic version of that product. (b) In addition to and without limiting the provisions of Section 6.2, HMR agrees that, during the TERM, neither HMR nor any of their AFFILIATES shall (i) except as specifically required by the COPLEY PRODUCT AGREEMENT, enter into any agreement or otherwise grant to COPLEY or any other person or entity (whether or not an AFFILIATE of HMR) any right to market, sell and/or manufacture in the TERRITORY a generic version of any PRODUCT, any SIMILAR PRODUCT or any human dermatology product containing an ACTIVE INGREDIENT; (ii) except as specifically required by the COPLEY PRODUCT AGREEMENT, sell to COPLEY any ACTIVE INGREDIENT for inclusion in any human dermatology product sold, marketed or distributed in the TERRITORY or license or otherwise convey to any person any rights to use or exploit the PRODUCT KNOW-HOW; or (iii) utilize, direct or cause COPLEY or its affiliates to conduct activities in violation of HMR's covenants, duties or obligations hereunder. Notwithstanding the foregoing, the restrictions on the sale of ACTIVE INGREDIENTS set forth in this Section 2.3 shall not apply to erythromycin. (c) HMR and their AFFILIATES shall not grant to COPLEY the right to market, sell and/or manufacture in the TERRITORY a generic version of any PRODUCT, any SIMILAR PRODUCT, or any human dermatology product containing any ACTIVE INGREDIENT or sell any ACTIVE INGREDIENT for inclusion in any human dermatological product sold, marketed or established in the TERRITORY to COPLEY, unless (i) HMR determines in good faith that the PRODUCT is, or is about to be, subject to "multi-source 11 21 LICENSE AND OPTION AGREEMENT competition" within the meaning of the COPLEY PRODUCT AGREEMENT (as interpreted by HMR and set forth in Section 2.3(a) or as may be otherwise determined by court order) and that the AFFILIATE of HMR is contractually obligated under the COPLEY PRODUCT AGREEMENT to grant such right to sell a generic version of the PRODUCT or to sell such ACTIVE INGREDIENT; and (iii) HMR gives written notice at least fifteen (15) days in advance to MEDICIS of HMR's determination that its AFFILIATE is required by the COPLEY PRODUCT AGREEMENT to grant such rights or to sell such ACTIVE INGREDIENT to COPLEY, stating in reasonable detail the facts and circumstances upon which HMR based its determination. In addition, HMR and its AFFILIATES shall not enter into any agreement or other arrangement with COPLEY other than as specifically contemplated by the COPLEY PRODUCT AGREEMENT or any agreement or other arrangement with any other third party, pursuant to which COPLEY or such third party would have the right to manufacture, market and/or sell in the TERRITORY any generic or other versions of any PRODUCT or any product having the same ACTIVE INGREDIENTS as the PRODUCTS. (d) MEDICIS covenants during the TERM that it shall not take any action or fail to take any action or otherwise cause the PRODUCTS to be subject to "multi-source competition" within the meaning of the COPLEY PRODUCT AGREEMENT (as defined in Section 2.3(a) or as may be otherwise determined by court order). 2.4 Certain Restrictions on Sale of ACTIVE INGREDIENTS. In addition to and without limiting the provisions of Section 6.2, and subject to the right of HMR to supply ACTIVE INGREDIENTS to licensees or purchasers of HMR NEWLY DEVELOPED PRODUCTS pursuant to Section 5.1 hereof, the DEVELOPMENT STAGE PRODUCT and HMR's CICLOPIROX Powder, HMR agrees that, during the TERM and subject to Section 2.3(b) and any rights of HMR hereunder with respect to the DEVELOPMENT STAGE PRODUCT, neither HMR nor any of their AFFILIATES shall sell to any person or entity (whether or not an AFFILIATE of HMR) any ACTIVE INGREDIENT for inclusion in any human dermatology product sold, marketed or distributed in the TERRITORY or license or otherwise convey to any person any rights to use or exploit the PRODUCT KNOW-HOW in the TERRITORY. Notwithstanding the foregoing, the restrictions on the sale of ACTIVE INGREDIENTS set forth in this Section 2.4 shall not apply: (i) to erythromycin; or (ii) from and after such time as MEDICIS purchases more than ten percent (10%) of its requirements for any ACTIVE INGREDIENT (other than erythromycin) from parties other than HMR or their AFFILIATES, as to that ACTIVE INGREDIENT; provided, however, that such restrictions shall continue to apply in the event MEDICIS purchases more than ten (10%) of such requirements from parties other than HMR or their AFFILIATES due to the inability of HMR or their AFFILIATES to fulfill the requirements of MEDICIS as to that ACTIVE INGREDIENT, provided that in such event MEDICIS purchases no more than a four (4) month supply (or, if greater, the supplier's minimum batch quantity) of such ACTIVE INGREDIENT from an alternate supplier or suppliers and, if HMR or their AFFILIATES' inability to fulfill MEDICIS' requirements continues beyond the exhaustion of such alternate supply, MEDICIS continues to purchase such ACTIVE INGREDIENT in such four (4) month or greater supply amounts as permitted by this Section 2.4. For so long as the restrictions on the sale of ACTIVE INGREDIENTS under this Section 2.4 are applicable, MEDICIS shall notify HMRI in writing of 12 22 LICENSE AND OPTION AGREEMENT any purchases of more than ten percent (10%) of its requirements for any ACTIVE INGREDIENT (other than erythromycin) from parties other than HMR or their AFFILIATES, which notice shall indicate if such purchases were due to the inability of HMR or their AFFILIATES to fulfill the requirements of MEDICIS as to that ACTIVE INGREDIENT and were within the quantity limitations set forth in the immediately preceding sentence. 2.5 MEDICIS Use of Drug Master Files and NDAs. (a) New Drug Master Files. MEDICIS acknowledges that no Drug Master Files have been prepared for desoximetasone, ciclopirox acid and ciclopirox olamine and that the information contained in the NDAs of the PRODUCTS that relate to the raw materials and/or the ACTIVE INGREDIENTS shall not be available for access, review, utilization or disclosure by MEDICIS, its AFFILIATES and their successors and assigns and their licensees and sublicensees, and MEDICIS covenants and agrees that it shall not, directly or indirectly, access, utilize or disclose such information. As soon as reasonably practicable after the LICENSE EFFECTIVE DATE, HMR shall prepare and file with the FDA Drug Master Files for desoximetasone, ciclopirox acid and ciclopirox olamine. Upon acceptance of such Drug Master Files by the FDA, HMR shall instruct the FDA to supersede, and if permitted delete, the information corresponding to such Drug Master Files in the relevant NDA with that of the Drug Master Files. The Drug Master Files and such portions of the NDAs as would be covered in such Drug Master Files shall remain with and shall at all times be the sole property of HMR and their AFFILIATES (except for A/T/S Gel which remains with and is the property of HERBERT), shall not be included within the LICENSE, and shall not be available for review by MEDICIS, its AFFILIATES, their successors and assigns and their licensees and sublicensees, but MEDICIS shall have a limited right of reference thereto in accordance with paragraph (b) of this Section 2.5. (b) Rights to Reference Drug Master Files and the NDAs. Subject to the other provisions of this Section 2.5 and Sections 5.2 and 6.1, MEDICIS shall have a limited right of reference solely in the TERRITORY to the NDAs and Drug Master Files of the PRODUCTS solely for the PRODUCTS, IMPROVEMENTS and MEDICIS NEWLY DEVELOPED PRODUCTS, which shall not include any rights for or related to (i) information and NDAs related to A/T/S Gel and (ii) the development, regulatory approval and/or commercialization of any COMPETING NAIL TOPICAL PRODUCT. Subject to the provisions of Sections 5.1 and 6.2 hereof, HMR, their AFFILIATES, their successors and assigns and their licensees and sublicensees shall (i) have an unrestricted right of reference to the Drug Master Files and the NDAs for the DEVELOPMENT STAGE PRODUCT and HMR's CICLOPIROX Powder, and (ii) retain the right to utilize and reference any data and/or intellectual property rights (other than the TRADEMARKS, except for the trademark rights reserved or licensed to HMR pursuant to Section 2 of the TRADEMARK LICENSE AGREEMENT and Section 4.2(c) of the PURCHASE AGREEMENT) necessary to support the regulatory approval, manufacture, commercialization and marketing of the DEVELOPMENT STAGE PRODUCT and HMR's CICLOPIROX Powder. 13 23 LICENSE AND OPTION AGREEMENT (c) DEVELOPMENT STAGE PRODUCT. Notwithstanding any other provision of this AGREEMENT or any provision of the other TRANSACTION DOCUMENTS, and except to the extent that rights or information are lawfully available to a third party (which is not HMR or their AFFILIATES, or their successors, assigns, licensees or sublicensees), for such purposes as are utilized by MEDICIS, its AFFILIATES, their successors and assigns and their licensees and sublicensees, under applicable U.S. Federal statutes or the regulations or rules promulgated thereunder (including those rights that any such third party would have under the U.S. Federal Food, Drug and Cosmetic Act, the U.S. Freedom of Information Act or any other U.S. Federal statute, but excluding (A) rights triggered or provided by any contractual or license rights granted to any such third party by HMR or their AFFILIATES or their successors and assigns or their licensees and sublicensees or (B) information which enters the public domain due to, by or pursuant to the action or inaction, directly or indirectly, of MEDICIS, its AFFILIATES, their successors and assigns and their licensees and sublicensees), MEDICIS, its AFFILIATES, their successors and assigns and their licensees and sublicensees shall not directly or indirectly access, review, disclose, reference or utilize the Drug Master Files, the NDAs or the INTELLECTUAL PROPERTY (including but not limited to New Drug Applications for the MEDICIS NEWLY DEVELOPED PRODUCTS, any IMPROVEMENTS, the HMR NEWLY DEVELOPED PRODUCTS, the DEVELOPMENT STAGE PRODUCT, or the additional Loprox PRODUCT discussed in Schedule 13 hereto, or any other regulatory approval based upon, arising out of or related to the Drug Master Files, the NDAs, such New Drug Applications or the INTELLECTUAL PROPERTY (other than the TRADEMARKS) or any information contained therein) (i) for the development, regulatory approval and/or commercialization of a COMPETING NAIL TOPICAL PRODUCT, or (ii) that relate to the ACTIVE INGREDIENTS; provided, however, that in no event or circumstance whatsoever shall the existence of such information in the public domain be deemed a release, modification or waiver of the restrictions on rights of reference specified in this paragraph (c) or in paragraph 2.5(b) hereof unless a third party (which is not HMR, their AFFILIATES, or their successors and assigns or their licensees or sublicensees) would have rights of reference to such information (except to the extent (A) such rights are triggered or provided by any contractual or license rights granted to any such third party by HMR or their AFFILIATES or their successors and assigns or their licensees and sublicensees or (B) such information enters the public domain due to, by or pursuant to the action or inaction, directly or indirectly, of MEDICIS, its AFFILIATES, their successors and assigns and their licensees and sublicensees). Nothing in this Section 2.5 shall limit MEDICIS, its AFFILIATES and their successors and assigns or their licensees and sublicensees from using any ACTIVE INGREDIENTS lawfully manufactured or supplied by a third party (which is not HMR or their AFFILIATES or their successors and assigns or their licensees and sublicensees) lawfully using information available to such third party for the purposes utilized by such third party without using information which is proprietary to HMR or its AFFILIATES or their successors and assigns or their licensees and sublicensees. 2.6 A/T/S Gel. HMR GmbH and MEDICIS have agreed to certain matters, rights and obligations relating to A/T/S Gel as set forth in Schedule 2.6 hereto. 14 24 LICENSE AND OPTION AGREEMENT ARTICLE III. LICENSE AND DISTRIBUTION FEES 3.1 LICENSE and Distribution Fees. Subject to the terms and conditions of this AGREEMENT, in consideration of the LICENSE granted to MEDICIS for the TERM hereunder and for the OPTION: (a) Subject to any adjustments in accordance with Schedule 13 or Schedules 4.3A or 4.3B hereto, MEDICIS shall pay to HMR in accordance with Schedule 3.1 and Article XVII hereof U.S. $22 million on (or, if such day is not a business day, on the first business day after) each of the LICENSE EFFECTIVE DATE, the first anniversary of the LICENSE EFFECTIVE DATE, and the second anniversary of the LICENSE EFFECTIVE DATE, for a total of U.S. $66 million. (b) Except as set forth in this Section 3.1 and in Schedules 2.6 and 13, no other royalties or fees of any kind shall be paid by MEDICIS for the LICENSE and other rights granted to MEDICIS hereunder. ARTICLE IV. OPTION TO PURCHASE 4.1 Option to Purchase. MEDICIS shall have the option to purchase, upon the expiration of the TERM, all right, title and interest in and to (i) the PATENTS, the PRODUCT KNOW-HOW, the TRADEMARKS and the associated goodwill for all of the PRODUCTS in the TERRITORY, (ii) a license to the SHARED KNOW-HOW and IMPROVEMENTS, and (iii) certain other rights, subject to the terms of the COPLEY PRODUCT AGREEMENT and the following terms and conditions as more fully set forth in the PURCHASE AGREEMENT executed contemporaneously herewith (the "OPTION"): (a) ACTIVE INGREDIENTS Not Included in OPTION. Notwithstanding the provisions of this Section 4.1 and except for the rights in the SUPPLY AGREEMENT and the LOPROX LOTION SUPPLY AGREEMENT, any rights to the ACTIVE INGREDIENTS of the PRODUCTS shall not be subject to the OPTION. (b) Exercise of the OPTION. The OPTION shall be deemed to be exercised unless MEDICIS provides written notice to HMRI no later than the second anniversary of the LICENSE EFFECTIVE DATE of its election not to exercise the OPTION. The giving of such notice shall not affect the LICENSE granted in Section 3.1 hereof, which shall remain in effect in accordance with its terms through the end of the TERM. (c) Payment. Subject to the provisions of Schedules 4.3A and 4.3B and the termination of this AGREEMENT pursuant to Section 15.3, if the OPTION is exercised pursuant to Section 4.1(b), MEDICIS shall pay the PURCHASE PRICE to HMR on the third anniversary of the LICENSE EFFECTIVE DATE. 15 25 LICENSE AND OPTION AGREEMENT 4.2 Effect of the OPTION Being Exercised. If the OPTION is exercised, each of MEDICIS and HMR shall, upon payment of the amount required by Section 4.1(c), take any actions necessary to implement the PURCHASE AGREEMENT. 4.3 Loprox Cream Schedule and LOPROX LOTION Schedule. The parties have agreed to certain matters, rights and obligations pertaining to (i) Loprox Cream, as set forth in Schedule 4.3A hereto, the terms and exhibit to which are incorporated herein by reference, and (ii) LOPROX LOTION, as set forth in Schedule 4.3B hereto, the terms and exhibit to which are incorporated herein by reference. 4.4 Grant of CANADIAN OPTION. (a) HMR hereby grants to MEDICIS the option (the "CANADIAN OPTION") to acquire a license together with an option to purchase and license all trademark, know-how, patent and other intellectual property and proprietary rights necessary to make, develop, have made, use, distribute, sell and have sold in CANADA the products listed in Exhibit E hereto (which Exhibit also lists such products' Canadian New Drug Submission), which products are the only products which contain the ACTIVE INGREDIENTS (other than erythromycin) sold in CANADA by HMR or their AFFILIATES as of the LICENSE EFFECTIVE DATE, and an option to license all trademark, know-how, patent and other intellectual property and proprietary rights of HMR and their AFFILIATES in CANADA necessary to develop, make, have made, use, distribute, sell and have sold human dermatology products for human medical uses containing rilopirox in CANADA (the "CANADIAN RIGHTS"). The CANADIAN OPTION shall be exercisable by MEDICIS on or before the date which is sixty (60) days from the LICENSE EFFECTIVE DATE by giving written notice to HMR in accordance with Section 19.8 hereof. If MEDICIS exercises the CANADIAN OPTION, then on or before March 1, 1999, HMR and MEDICIS (and/or their appropriate AFFILIATES) shall enter into agreements with respect to the CANADIAN RIGHTS on substantially similar terms as set forth in this AGREEMENT, the PURCHASE AGREEMENT, the SUPPLY AGREEMENT (except for those provisions relating to the supply of free product samples to MEDICIS), the TRADEMARK LICENSE AGREEMENT and the TRANSITION SERVICES AGREEMENT (collectively, the "CANADIAN AGREEMENTS"), which agreements shall also provide that (i) MEDICIS shall pay to HMR (or its designated AFFILIATES) U.S. $2.5 million upon the parties' mutual execution and delivery of such agreements and an additional U.S. $2.5 million on each of the first and second anniversaries of the LICENSE EFFECTIVE DATE, for a total of U.S. $7.5 million; (ii) MEDICIS shall pay an additional U.S. $2.5 million on the date of purchase of the CANADIAN RIGHTS by MEDICIS; and (iii) the supply prices to MEDICIS of the products subject to the CANADIAN OPTION shall be not more than five percent (5%) greater than the cost to HMR's Canadian AFFILIATE of manufacturing and shipping such products at and from its Canadian manufacturing facility. MEDICIS shall not be required to make any additional payment to HMR in connection with MEDICIS' acquisition of the CANADIAN RIGHTS pertaining to the additional Loprox PRODUCT discussed in Schedule 13 hereto, and HMR shall not be required to pay any costs for the development or regulatory approval of such additional Loprox PRODUCT in CANADA. The CANADIAN AGREEMENTS shall also contain such other terms and provisions regarding manufacture, 16 26 LICENSE AND OPTION AGREEMENT supply and delivery in CANADA of the products to MEDICIS, transition services, regulatory matters, intellectual property rights, promotion, marketing and other matters the parties may reasonably agree, and as may be necessary or appropriate to reflect the Canadian context, Canadian law and regulations and other matters mutually deemed relevant by the parties. (b) For a period of sixty (60) days after the LICENSE EFFECTIVE DATE, upon reasonable advance notice by MEDICIS to HMR, HMR shall afford to MEDICIS and its employees, auditors, legal counsel and other authorized representatives reasonable opportunity and access during normal business hours to inspect, investigate, and audit the operations and business of HMR that relate solely to the CANADIAN RIGHTS and shall provide MEDICIS with such information and materials as MEDICIS may reasonably request (other than the equivalent of Drug Master Files) in connection with its due diligence review of the CANADIAN RIGHTS and the related business and operations of HMR and its AFFILIATES. MEDICIS acknowledges that such information shall be deemed to be CONFIDENTIAL INFORMATION of HMR subject to Article XI hereof. ARTICLE V. RIGHTS OF FIRST OFFER 5.1 MEDICIS RIGHT OF FIRST OFFER. If at any time during the TERM, HMR or its AFFILIATES shall develop or cause to be developed any human dermatology product containing an ACTIVE INGREDIENT, including without limitation any LINE EXTENSION but excluding (i) IMPROVEMENTS and (ii) the DEVELOPMENT STAGE PRODUCT (each, an "HMR NEWLY DEVELOPED PRODUCT"), MEDICIS shall have a right of first offer to (i) license on an exclusive basis all patents, patent applications and proprietary know-how solely related thereto (but not to the ACTIVE INGREDIENTS) necessary for the manufacture and sale in the TERRITORY of the HMR NEWLY DEVELOPED PRODUCT (except for intellectual property rights constituting shared know-how relating to the HMR NEWLY DEVELOPED PRODUCT, which shall be licensed to MEDICIS on a non-exclusive basis) subject to the terms set forth in this Section 5.1 below; and (ii) if the OPTION is or has been exercised pursuant to Section 4.1 hereof, purchase and/or license all of such rights on the terms set forth in the PURCHASE AGREEMENT (the "MEDICIS RIGHT OF FIRST OFFER"): (a) Notice of an HMR NEWLY DEVELOPED PRODUCT. Upon completion of Phase III clinical trials for an HMR NEWLY DEVELOPED PRODUCT and no later than upon submission of an NDA for such HMR NEWLY DEVELOPED PRODUCT, HMR shall give to MEDICIS written notice (the "HMR NOTICE") setting forth: (i) a description of the HMR NEWLY DEVELOPED PRODUCT, (ii) the terms and conditions, which shall be commercially reasonable, of the proposed license and/or sale to MEDICIS and (iii) the payment terms, which shall be commercially reasonable, of the proposed license and/or sale to MEDICIS. (b) Exercise of MEDICIS RIGHT OF FIRST OFFER. At any time within ninety (90) days after receipt of an HMR NOTICE, MEDICIS may, by giving written notice to HMRI, elect to exercise the MEDICIS RIGHT OF FIRST OFFER on the terms set forth in the 17 27 LICENSE AND OPTION AGREEMENT HMR NOTICE or any such other terms as the parties may agree, which shall be documented in a written agreement. During such ninety (90) day period, neither HMR nor its AFFILIATES, or any person acting on their behalf, will directly or indirectly solicit or encourage any inquiries or proposals for, or enter into any discussions with respect to, the license and/or sale in the TERRITORY of the HMR NEWLY DEVELOPED PRODUCT to any third party. (c) Effect of Refusal. In the event the parties cannot reach agreement with respect to MEDICIS' acquisition or license of an HMR NEWLY DEVELOPED PRODUCT in accordance with this Section 5.1, HMR and/or an AFFILIATE may license or sell such HMR NEWLY DEVELOPED PRODUCT to a third party which is not an AFFILIATE of HMR (but shall not themselves directly sell, market, promote or distribute such HMR NEWLY DEVELOPED PRODUCT), provided that (i) the terms and conditions of any such license or sale are no less favorable to HMR than those offered by HMR to MEDICIS pursuant to this Section 5.1, in which case no consent or approval by, or right of first refusal for, MEDICIS shall be required for HMR to enter into a written agreement with such third party, or (ii) if the terms and conditions of any such license or sale are less favorable to HMR than those offered by HMR to MEDICIS pursuant to this Section 5.1, MEDICIS shall have a right of first refusal, exercisable within thirty (30) calendar days after HMR provides notice of such less favorable terms and conditions to MEDICIS, to license or acquire the HMR NEWLY DEVELOPED PRODUCT on such terms and conditions. (d) No Rights Conferred to MEDICIS. This Section 5.1 does not confer upon MEDICIS or its AFFILIATES the right to use or exploit any intellectual property right of HMR or their AFFILIATES, including those granted hereunder, with respect to any HMR NEWLY DEVELOPED PRODUCTS. Any agreement that may be executed between the parties with respect to any HMR NEWLY DEVELOPED PRODUCT shall include provisions mutually acceptable to the parties regarding the use, or prohibition against the use of, such intellectual property rights. (e) DEVELOPMENT STAGE PRODUCT. Notwithstanding any other provision of this AGREEMENT, the DEVELOPMENT STAGE PRODUCT shall not be an HMR NEWLY DEVELOPED PRODUCT for purposes of this AGREEMENT, and is not subject to the MEDICIS RIGHT OF FIRST OFFER. The parties have agreed to certain matters, rights and obligations pertaining to the DEVELOPMENT STAGE PRODUCT as set forth on Schedule 5.1 hereto, the terms of which are incorporated herein by reference. (f) Certain Products. The parties acknowledge and agree that (i) the additional Loprox PRODUCT discussed in Schedule 13 hereto, Loprox Gel and Topicort Ointment 0.05% (but not line extensions thereof) are not to be considered HMR NEWLY DEVELOPED PRODUCTS; and (ii) HMR's CICLOPIROX Powder and Loprox Vaginal Cream shall be considered HMR NEWLY DEVELOPED PRODUCTS; provided, however, that the exercise of the MEDICIS RIGHT OF FIRST OFFER with respect to HMR's CICLOPIROX Powder and Loprox Vaginal Cream shall not be subject to the notice provisions of Section 5.1(a) or (b). 18 28 LICENSE AND OPTION AGREEMENT 5.2 HMR RIGHT OF FIRST OFFER. If at any time during the TERM, MEDICIS or its AFFILIATES shall develop or cause to be developed any human dermatology product containing an ACTIVE INGREDIENT, including without limitation any LINE EXTENSION but excluding IMPROVEMENTS (each, a "MEDICIS NEWLY DEVELOPED PRODUCT"), HMR shall have a right of first offer to (i) license on an exclusive basis all patents, patent applications and proprietary know-how solely related thereto necessary for the manufacture and sale outside the TERRITORY of such MEDICIS NEWLY DEVELOPED PRODUCT (except for intellectual property rights constituting shared know-how relating to the MEDICIS NEWLY DEVELOPED PRODUCT, which shall be licensed to HMRI on a non-exclusive basis) subject to the terms of this Section 5.2 below; and (ii) if the OPTION has been exercised pursuant to Section 4.1 hereof, to purchase and/or license all of such rights, on the terms and conditions set forth in the PURCHASE AGREEMENT (the "HMR RIGHT OF FIRST OFFER"): (a) Notice of a MEDICIS NEWLY DEVELOPED PRODUCT. Upon completion of Phase III clinical trials for a MEDICIS NEWLY DEVELOPED PRODUCT and no later than upon submission of an NDA for such MEDICIS NEWLY DEVELOPED PRODUCT, MEDICIS shall give to HMRI on behalf of HMR written notice (the "MEDICIS NOTICE") setting forth: (i) a description of the MEDICIS NEWLY DEVELOPED PRODUCT, (ii) the terms and conditions, which shall be commercially reasonable, of the proposed license and/or sale to HMR and (iii) the payment terms, which shall be commercially reasonable, of the proposed license and/or sale to HMR. (b) Exercise of HMR RIGHT OF FIRST OFFER. At any time within ninety (90) days after receipt of the MEDICIS NOTICE, HMR may, by giving written notice to MEDICIS, elect to exercise the HMR RIGHT OF FIRST OFFER on the terms set forth in the MEDICIS NOTICE or such other terms as the parties may agree, which shall be documented in a written agreement. During such ninety (90) day period, neither MEDICIS nor its AFFILIATES, or any person acting on their behalf, will directly or indirectly solicit or encourage any inquiries or proposals for, or enter into any discussions with respect to, the license and/or sale outside the TERRITORY of the MEDICIS NEWLY DEVELOPED PRODUCT to any third party. (c) Effect of Refusal. In the event the parties cannot reach agreement with respect to HMR's acquisition or license of a MEDICIS NEWLY DEVELOPED PRODUCT in accordance with this Section 5.2, MEDICIS and/or an AFFILIATE may license or sell such MEDICIS NEWLY DEVELOPED PRODUCT to a third party which is not an AFFILIATE of MEDICIS (but shall not themselves directly sell, market, promote or distribute such MEDICIS NEWLY DEVELOPED PRODUCT), provided that (i) the terms and conditions of any such license or sale are no less favorable to MEDICIS than those offered by MEDICIS to HMR pursuant to this Section 5.2, in which case no consent or approval by, or right of first refusal for, HMR shall be required for MEDICIS to enter into a written agreement with such third party, or (ii) if the terms and conditions of any such license or sale are less favorable to MEDICIS than those offered by MEDICIS to HMR pursuant to this Section 5.2, HMR shall have a right of first refusal, exercisable within thirty (30) calendar days after MEDICIS provides notice of such less favorable terms and conditions to HMR, to license or acquire the MEDICIS NEWLY DEVELOPED PRODUCT on such terms and conditions. 19 29 LICENSE AND OPTION AGREEMENT (d) No Rights Conferred to HMR. This Section 5.2 does not confer upon HMR or its AFFILIATES the right to use or exploit any intellectual property right of MEDICIS or its AFFILIATES, including any rights granted hereunder, with respect to any MEDICIS NEWLY DEVELOPED PRODUCT. Any agreement that may be executed between the parties with respect to any MEDICIS NEWLY DEVELOPED PRODUCTS shall include provisions mutually acceptable to the parties regarding the use, or prohibition against the use of, such intellectual property rights. 5.3 Development of Newly Developed Products. HMRI and MEDICIS shall on a periodic basis keep the other party informed of development work on any HMR NEWLY DEVELOPED PRODUCT or MEDICIS NEWLY DEVELOPED PRODUCT, respectively, being developed by such party or any of its AFFILIATES and MEDICIS shall assume primary responsibility for organizing and scheduling periodic communications for that purpose. 5.4 Grant of RILOPIROX OPTION. (a) HMR grants to MEDICIS the option to license (the "RILOPIROX OPTION") all trademark, know-how, patent and other intellectual property and proprietary rights of HMR and their AFFILIATES in the TERRITORY necessary to make, develop, have made, use, distribute, sell and have sold in the TERRITORY human dermatology products for human medical uses containing rilopirox (the "RILOPIROX RIGHTS"). The RILOPIROX OPTION shall be exercisable by MEDICIS on or before the date which is thirty (30) days after the date on which HMR shall have made available for review in Frankfurt, Germany by MEDICIS substantially all of the due diligence materials relating to the RILOPIROX RIGHTS which have been reasonably requested by MEDICIS in writing within twenty (20) calendar days after the LICENSE EFFECTIVE DATE. The RILOPIROX OPTION may be exercised by MEDICIS by giving written notice to HMR in accordance with Section 19.8 hereof. Following exercise by MEDICIS of the RILOPIROX OPTION, HMR and MEDICIS (and/or their appropriate AFFILIATES) shall negotiate in good faith to enter into (i) within sixty (60) days after the exercise of the RILOPIROX OPTION, a letter of intent with respect to MEDICIS' license of the RILOPIROX RIGHTS and (ii) on or before April 1, 1999, a definitive license agreement and any other necessary agreements for such license of the RILOPIROX RIGHTS by MEDICIS. In the event MEDICIS exercises the RILOPIROX OPTION but the parties cannot reach agreement with respect to MEDICIS' acquisition of the RILOPIROX RIGHTS in accordance with this Section 5.4(a), HMR and/or an AFFILIATE may license the RILOPIROX RIGHTS to a third party, provided that (i) the terms and conditions of any such license are no less favorable to HMR than those offered to HMR by MEDICIS pursuant to this Section 5.4(a), in which case no consent or approval by, or right of first refusal for, MEDICIS shall be required, (ii) if the terms and conditions of any such license are less favorable to HMR than those offered to HMR by MEDICIS pursuant to this Section 5.4(a), MEDICIS shall have a right of first refusal, exercisable within thirty (30) calendar days after HMR provides notice to MEDICIS thereof, to license the RILOPIROX RIGHTS on such terms and conditions, and if such right of refusal is not so exercised by MEDICIS by notice to HMR, no consent or approval by MEDICIS shall be required for the license on such terms and conditions and (iii) neither HMR nor their AFFILIATES shall use or exploit the RILOPIROX RIGHTS in the TERRITORY for human dermatology products 20 30 LICENSE AND OPTION AGREEMENT for human medical uses during the TERM (or, if the OPTION is exercised, thereafter) without the prior written consent of MEDICIS. For purposes of Section 4.4(a) hereof and this Section 5.4(a), "human dermatology products for human medical uses" shall not include products which are or have been developed or used for mucosal infections, such as oral lozenges, vaginal creams and vaginal ovulas. MEDICIS acknowledges that Clariant GmbH (i) has been granted the right to develop cosmetology products containing rilopirox, such as products for dandruff, deodorants, human medical applications like cleansing preparations for the intimate region (mucous membrane application) and liquid cleansing preparations for the whole body; (ii) shall retain such rights even if Clariant GmbH becomes an AFFILIATE of HMR in the future; provided, however, in such case HMR shall not assist Clariant GmbH in the development of such products other than providing Clariant GmbH, its affiliates, successors, assigns or licensees with a license of necessary intellectual property rights (other than INTELLECTUAL PROPERTY which is exclusively licensed to MEDICIS hereunder) and rights of reference to Drug Master Files and New Drug Applications held by HMR and/or their AFFILIATES; and (iii) Clariant GmbH has certain rights in U.S. Patent No. 5,494,658 (related to antidandruff agents and cosmetic preparations) which are not included within the PATENTS or the LICENSE. (b) From and after the LICENSE EFFECTIVE DATE and throughout the period in which the RILOPIROX OPTION is exercisable, upon reasonable advance notice by MEDICIS to HMR, HMR shall afford to MEDICIS and its employees, auditors, legal counsel and other authorized representatives reasonable opportunity and access during normal business hours to inspect, investigate and audit the development files of HMR that relate solely to the RILOPIROX RIGHTS and shall provide MEDICIS with such information and materials as MEDICIS may reasonably request (other than the equivalent of Drug Master Files) in connection with its due diligence review of the RILOPIROX RIGHTS and the related business and operations of HMR and its AFFILIATES. MEDICIS acknowledges that such information shall be deemed to be CONFIDENTIAL INFORMATION of HMR subject to Article XI hereof. (c) HMR's rights and obligations with respect to claims in the PATENTS for rilopirox shall be as provided in Section 9.4 hereof, and if the RILOPIROX RIGHTS are licensed by MEDICIS, in the definitive license agreement for the RILOPIROX RIGHTS. 5.5 Theramycin Z Product. Notwithstanding any provision of Section 5.2 hereof or any other provision of this AGREEMENT, neither HMR nor their AFFILIATES shall have any rights in or to erythromycin as contained in MEDICIS' Theramycin Z product line or any similar products, improvements thereto or line extensions thereof, whether existing prior to, on or after the LICENSE EFFECTIVE DATE. ARTICLE VI. SCOPE OF LICENSE EXCLUSIVITY In order to permit the parties to place a value on the exclusive nature of the LICENSE set forth in Section 2.1 hereof and to reduce uncertainty about the rights being conveyed, the parties have agreed to more fully define the exclusive nature of the exclusive licenses provided hereunder in this Article VI. 21 31 LICENSE AND OPTION AGREEMENT 6.1 No Sales By MEDICIS Outside the TERRITORY. Except in the case of products as to which a written agreement is executed pursuant to Section 5.2, MEDICIS, its AFFILIATES and any successors or assigns of MEDICIS or its AFFILIATES shall not, during the TERM, (i) sell, market, promote or distribute, directly or indirectly, any PRODUCTS or SIMILAR PRODUCTS outside the TERRITORY, or (ii) sell or distribute any PRODUCTS or SIMILAR PRODUCTS to any person in the TERRITORY if MEDICIS has actual knowledge that such person intends to sell such PRODUCTS or SIMILAR PRODUCTS outside the TERRITORY. In providing or granting any rights to the PRODUCTS or SIMILAR PRODUCTS in the TERRITORY, MEDICIS shall secure from each grantee, licensee, beneficiary or acquiree of such rights its agreement to restrictions relating to outside the TERRITORY contained in this AGREEMENT, including an agreement to refrain from knowingly engaging, directly or indirectly, in parallel importation or dealing in "grey market" products in connection with its sale and distribution of the PRODUCTS or SIMILAR PRODUCTS. 6.2 No Sales by HMR Inside the TERRITORY. In addition to and without limiting the provisions of Section 2.3, and except as specifically provided in Sections 2.1, clauses (i) through (v), 2.3 and 5.1(e), or in the case of products as to which a written agreement has been executed pursuant to Section 5.1, HMR, their AFFILIATES and any successors or assigns of HMR or their AFFILIATES shall not, during the TERM: (i) sell, market, promote or distribute, directly or indirectly, any PRODUCTS or SIMILAR PRODUCTS in the TERRITORY; or (ii) sell or distribute any PRODUCTS, SIMILAR PRODUCTS or any ACTIVE INGREDIENT to any person outside the TERRITORY if HMR has actual knowledge that such person intends to sell such PRODUCTS or SIMILAR PRODUCTS or human dermatology products containing such ACTIVE INGREDIENT in the TERRITORY. In providing or granting any rights to the PRODUCTS or SIMILAR PRODUCTS outside the TERRITORY, HMR shall secure from each such grantee, licensee, beneficiary or acquiree of such rights its agreement to restrictions relating to inside the TERRITORY contained in this AGREEMENT, including an agreement to refrain from knowingly engaging, directly or indirectly, in parallel importation or dealing in "grey market" products in connection with its sale and distribution of the PRODUCTS or SIMILAR PRODUCTS. Notwithstanding the foregoing, MEDICIS acknowledges that (i) HMR and their AFFILIATES, and their grantees, licensees, beneficiaries and acquirees of any rights related to the DEVELOPMENT STAGE PRODUCT, shall be free to commercialize the DEVELOPMENT STAGE PRODUCT and any other product for topical application to the nail in the TERRITORY without restriction, and that the restrictions in this Section 6.2 and in Section 2.4 hereof shall not apply with respect to the DEVELOPMENT STAGE PRODUCT PRODUCT, and (ii) subject to Section 5.4 hereof, this Section 6.2 shall not apply to HMR's exploitation of the RILOPIROX RIGHTS. ARTICLE VII. REGULATORY MATTERS; ADVERSE REACTIONS; RECALLS 7.1 Licenses, Filings, Registrations, Permits and Regulatory Approvals. Subject to the provisions of Schedules 4.3A, 4.3B and 13 hereto, on such date within six (6) months after the LICENSE EFFECTIVE DATE as MEDICIS may in its sole discretion determine, HMR and 22 32 LICENSE AND OPTION AGREEMENT MEDICIS agree that (i) MEDICIS shall assume responsibility in the TERRITORY for all FDA regulatory matters for all PRODUCTS except the Loprox Cream and the LOPROX LOTION, and (ii) MEDICIS and HMRI shall each send a letter to the FDA informing the FDA that MEDICIS has assumed such responsibility. HMRI shall provide MEDICIS with all assistance and data, reports and other information reasonably requested by MEDICIS to assume such responsibilities. From and after MEDICIS' assumption of such responsibilities, HMRI shall timely provide such manufacturing-related information to MEDICIS as may be necessary for MEDICIS to meet its regulatory obligations to maintain the NDAs and file the required reports thereunder. Each party shall cooperate with and undertake such efforts as are commercially reasonable to assist the other party in making and maintaining all regulatory filings that may be necessary in connection with the execution, delivery and performance of this AGREEMENT. Until the LOPROX CREAM REGULATORY GOALS are achieved, HMRI shall remain responsible for all FDA regulatory matters pertaining to the Loprox Cream and, until the LOPROX LOTION REGULATORY GOALS have been achieved, HMRI shall remain responsible for all FDA regulatory matters pertaining to the LOPROX LOTION. 7.2 Communication with Agencies. During the TERM, each party shall promptly provide the other party with copies of any significant communications to or from the FDA with respect to the PRODUCTS. From and after the date on which MEDICIS assumes responsibility for FDA regulatory matters for all PRODUCTS except the Loprox Cream and the LOPROX LOTION pursuant to Section 7.1 hereof, MEDICIS shall have responsibility for all communication with the FDA relating to the PRODUCTS other than the Loprox Cream and the LOPROX LOTION. From and after such date, the parties shall also cooperate at their own expense to ensure that (i) MEDICIS obtains, in a timely manner, all information concerning the PRODUCTS outside the TERRITORY necessary to meet its regulatory obligations in the TERRITORY, and (ii) that HMRI receives, in a timely manner, all information concerning the PRODUCTS inside the TERRITORY necessary to meet the regulatory obligations of HMR and their AFFILIATES outside the TERRITORY. Upon the earlier of (i) the PURCHASE DATE; or (ii) achievement of the LOPROX CREAM REGULATORY GOALS, MEDICIS and HMRI shall each send a letter to the FDA informing the FDA that MEDICIS is assuming all responsibility for FDA regulatory matters as to the Loprox Cream and MEDICIS shall thereafter do so. Upon the earlier of (i) the PURCHASE DATE; or (ii) achievement of the LOPROX LOTION REGULATORY GOALS, MEDICIS and HMRI shall each send a letter to the FDA informing the FDA that MEDICIS is assuming all responsibility for FDA regulatory matters as to the LOPROX LOTION and MEDICIS shall thereafter do so. 7.3 Governmental Inspections. During the TERM, each party shall advise the other party in writing of any governmental visits to, or written or oral inquiries about, any facilities or procedures for the manufacture, storage or handling of the PRODUCTS, or the marketing, selling, promotion or distribution of the PRODUCTS promptly after any such visit or inquiry (and in advance for any scheduled visits). Each party shall promptly furnish to the other party any report, correspondence, warning letter and other documents issued by or provided to the governmental authority in connection with such visit or inquiry, purged only of trade secrets of such party that are unrelated to the other party's activities under this AGREEMENT and any information that is unrelated to the PRODUCTS. Each party shall permit the relevant 23 33 LICENSE AND OPTION AGREEMENT governmental authorities to inspect its facilities in connection with the activities contemplated by this AGREEMENT. 7.4 Adverse Reactions. From and after the date on which MEDICIS assumes responsibility for FDA regulatory matters for all PRODUCTS except the Loprox Cream and the LOPROX LOTION pursuant to Section 7.2 hereof, MEDICIS shall during the TERM be responsible for reporting of adverse experience information to meet the current requirements for Adverse Drug Reaction reporting to the FDA for all PRODUCTS except the Loprox Cream and the LOPROX LOTION. MEDICIS shall be responsible during the TERM for Adverse Drug Reaction reporting with respect to (i) Loprox Cream only upon achievement of the LOPROX CREAM REGULATORY GOALS and (ii) LOPROX LOTION only upon the achievement of the LOPROX LOTION REGULATORY GOALS. Promptly after the LICENSE EFFECTIVE DATE, the parties shall develop and comply with a standard operating procedure for the reporting of adverse events that shall permit each party to comply with its FDA and other regulatory reporting obligations with respect to adverse events. This would include 15-day alerts, periodic reports, exchange of label changes pertinent to safety and exchange of information on safety issues. In the event of MEDICIS exercising the CANADIAN OPTION a standard operating procedure describing the handling of adverse events and reporting within CANADA shall promptly be developed by the parties. Each party may audit the other company for compliance with the standard operating procedures mentioned in this paragraph. 7.5 Product Recalls. In the event that during the TERM (i) any governmental agency or authority issues a request or directive or orders that any PRODUCT in the TERRITORY be recalled or retrieved, (ii) a court of competent jurisdiction orders that any PRODUCT in the TERRITORY be recalled or retrieved or (iii) HMRI and MEDICIS reasonably determine that any PRODUCT should be recalled or retrieved in the TERRITORY or a "dear doctor" letter is required relating to restrictions on the use of any PRODUCT in the TERRITORY, MEDICIS shall conduct such activity (unless MEDICIS has not yet assumed regulatory responsibility pursuant to Section 7.2 hereof for the PRODUCT being recalled or retrieved, whereupon HMR shall conduct such activity) and the parties shall take all appropriate corrective actions and shall cooperate in the investigation surrounding the recall. To the extent that any such actions during the TERM primarily relate to or arise out of (i) the PRODUCTS prior to the LICENSE EFFECTIVE DATE; (ii) the manufacture or supply of PRODUCTS by HMR or their AFFILIATES in breach of Article VI of the SUPPLY AGREEMENT or Article VI of the LOPROX LOTION SUPPLY AGREEMENT or by PACO pursuant to the PACO LOPROX AGREEMENT, after the LICENSE EFFECTIVE DATE; (iii) the LOPROX CREAM MATTER prior to achievement of the LOPROX CREAM REGULATORY GOALS or after achievement of the LOPROX CREAM REGULATORY GOALS if such actions relate to, arise out of or are attributed to any act, event or omission occurring, or the manufacture of the Loprox Cream prior to, achievement of the LOPROX CREAM REGULATORY GOALS; or (iv) the LOPROX LOTION MATTER prior to achievement of the LOPROX LOTION REGULATORY GOALS or after achievement of the LOPROX LOTION REGULATORY GOALS if such actions relate to, arise out of or are attributed to any act, event or omission occurring, or the manufacture of the LOPROX LOTION prior to, achievement of the LOPROX LOTION REGULATORY GOALS, HMR shall be solely responsible for all costs and expenses of or associated with any such action, 24 34 LICENSE AND OPTION AGREEMENT including reimbursement of MEDICIS for any out-of-pocket costs incurred by MEDICIS as a result of such action. To the extent that any such actions during the TERM do not primarily relate to or arise out of any of the foregoing, MEDICIS shall be solely responsible for all costs and expenses of or associated with any such actions, including reimbursement of HMR therefor. ARTICLE VIII. PROMOTION AND MARKETING 8.1 Party Names; Change of Promotional Material. Promptly after execution of this AGREEMENT and from and after such date or dates as HMR and MEDICIS shall reasonably agree, subject to applicable regulatory approvals, all advertising and promotional materials for the PRODUCTS sold in the TERRITORY shall identify MEDICIS as the marketer of the PRODUCTS sold in the TERRITORY, in such form as MEDICIS shall determine; provided, however, that HMR acknowledges and agrees that MEDICIS may market, sell and distribute after the LICENSE EFFECTIVE DATE any trade or sample inventory of HMRI or its AFFILIATES which bears the name of HMRI or an AFFILIATE and which is acquired by MEDICIS pursuant to the SUPPLY AGREEMENT or the LOPROX LOTION SUPPLY AGREEMENT. Subject to the provisions of the SUPPLY AGREEMENT and the LOPROX LOTION SUPPLY AGREEMENT, and if requested by HMRI or as required by applicable law, packaging of the HMR SUPPLIED PRODUCTS sold in the TERRITORY shall identify HMRI or one of its AFFILIATES or PACO as the manufacturer of the HMR SUPPLIED PRODUCTS. 8.2 Advertising and Promotional Materials. (a) During the TERM, MEDICIS shall be responsible for development of all new advertising and promotional materials related to the PRODUCTS sold in the TERRITORY, which materials shall in all material respects comply with applicable law. (b) Promptly after the LICENSE EFFECTIVE DATE, HMRI shall submit an appropriate letter to the FDA, designating MEDICIS to the FDA as the contact for review and discussion of all promotional materials for the PRODUCTS, after which time MEDICIS shall timely file with the FDA, in accordance with all applicable laws and regulations, all promotional materials for the PRODUCTS required to be filed with the FDA. 8.3 Medical and Other Inquiries. Promptly after the LICENSE EFFECTIVE DATE, MEDICIS shall assume all responsibility for all correspondence and communication with physicians and other health care professionals in the TERRITORY relating to the PRODUCTS, except for correspondence and communication relating to the manufacturing of the PRODUCTS or the ACTIVE INGREDIENTS thereof by HMR or an AFFILIATE, in which case HMR shall take such actions as MEDICIS may reasonably request. HMR shall use commercially reasonable efforts to provide MEDICIS with such assistance as MEDICIS may reasonably request in connection with the handling of inquiries from and communication to physicians and other health care professionals; provided, however, that MEDICIS acknowledges that HMR and their AFFILIATES plan to dissolve their worldwide dermatology group as of December 31, 1998. MEDICIS shall include the PRODUCTS in its programs for communications with physicians 25 35 LICENSE AND OPTION AGREEMENT and other health care professionals, as such programs may from time to time exist. MEDICIS shall keep such records and make such reports as shall be reasonably necessary to document such communications in compliance with all applicable regulatory requirements. Except in the case of medical emergency, HMR shall refer all questions relating to the PRODUCTS sold in the TERRITORY raised by health care professionals and customers to MEDICIS for its response. In the case of medical emergency questions handled by HMR, HMR shall provide MEDICIS with a report identifying the individual making the inquiry and containing the question(s) asked and the information provided in response promptly after handling the question. 8.4 Customer Complaints. As soon as practicable after execution of this AGREEMENT, the parties shall develop mutually agreed upon standard operating procedures applicable to customer complaints and inquiries. The parties intend that customer complaints shall be initially received by MEDICIS, which shall log the complaint and determine whether a response by MEDICIS or HMRI is appropriate. All complaints reasonably expected to relate to manufacturing processes of HMR SUPPLIED PRODUCTS shall be referred to HMRI for investigation. ARTICLE IX. INTELLECTUAL PROPERTY 9.1 Notices. During the TERM, MEDICIS and HMR shall each promptly, but in any event no later than fifteen (15) calendar days after such party receives notice of or becomes aware of any of the following, notify the other in writing of: (a) Any suit, claim or proceeding by a third party against HMR or MEDICIS, or any AFFILIATE or sublicensee of HMR or MEDICIS, alleging infringement of such third party's intellectual property rights as a result of the manufacture, use, sale, promotion or marketing of the PRODUCTS anywhere in the TERRITORY; (b) Any patent nullity actions, declaratory judgment actions or alleged patent invalidity or non-infringement of patent or patents pursuant to a Paragraph IV patent certification by a party filing an Abbreviated New Drug Application ("ANDA") with respect to PATENTS in the TERRITORY; (c) Any actual or threatened unlawful disclosure or infringement by any third party of all or any part of the PATENTS, TRADEMARKS, or the KNOW-HOW in the TERRITORY; or (d) Any information that may reasonably be considered material to the validity or enforceability of the PATENTS. The parties agree that time is of the essence with respect to the timing of notices given or required to be given under Sections 9.1 and 9.2. 26 36 LICENSE AND OPTION AGREEMENT 9.2 Actions During the TERM. During the TERM, and subject to Sections 9.3 and 18.3 hereof: (a) HMR shall have the first right, at its sole expense, to respond to, defend or prosecute any actions, claims, proceedings, infringements or the like with respect to which notice is given by one party to the other pursuant to Section 9.1 hereof. In the event HMR elects to undertake any such response, defense or prosecution, MEDICIS shall, at HMR's reasonable request and at HMR's expense, cooperate with and assist HMR and its legal counsel in such undertaking, including without limitation by being a plaintiff or co-plaintiff and by causing its officers to execute pleadings and other necessary documents. HMR shall also cooperate with MEDICIS and its legal counsel with respect to, and keep MEDICIS and its counsel reasonably informed regarding the status of any actions taken by HMR pursuant to this Section 9.2(a). (b) In the event that within ten (10) calendar days after giving or receiving notice pursuant to Section 9.1 hereof, HMR has not undertaken action deemed by MEDICIS in its reasonable discretion to be appropriate to respond to, defend or prosecute any actions, claims, proceedings, infringements or the like with respect to which such notice has been given or received by HMR, or if at any time HMR abandons any such undertaking, then, in such event, MEDICIS shall have the option, at its expense, to respond to, defend or prosecute any such action, claim, proceeding, infringement or the like, and HMR shall, at MEDICIS' reasonable request and expense, cooperate with and assist MEDICIS in such undertaking, including without limitation by being a plaintiff or co-plaintiff and by causing its officers to execute pleadings and other necessary documents. MEDICIS shall also keep HMR and its counsel reasonably informed at all times as to the status of any actions taken by MEDICIS pursuant to this Section 9.2(b). (c) Neither party shall settle any suit or claim relating to the PATENTS or the KNOW-HOW without obtaining the prior written consent of the other party, which consent shall not be unreasonably withheld. (d) All costs and damages obtained by or awarded to a party defending or prosecuting an action or claim pursuant to this Section 9.2 shall, after each party has been reimbursed for all costs and expenses of every kind and character relating to such action, including reasonable attorneys' fees, be awarded (i) 90% to MEDICIS and 10% to HMR as to damages relating to periods after the LICENSE EFFECTIVE DATE; and (ii) 50% to MEDICIS and 50% to HMR with respect to damages relating to periods prior to the LICENSE EFFECTIVE DATE; provided, however, that with respect to damages relating to periods after the LICENSE EFFECTIVE DATE, if MEDICIS has defended or prosecuted such action or claim, any and all such amounts remaining after the reimbursement of expenses shall be awarded to MEDICIS; and, provided, further, that in the event HMR is paid only 10% of any award pursuant to this Section 9.2(d) and the OPTION is not exercised other than as a result of any breach of this AGREEMENT by HMR or any termination of this AGREEMENT by MEDICIS pursuant to Section 15.3 hereof, MEDICIS shall pay to HMR an amount equal to 80% of such award within ten (10) business days following the expiration of the TERM. Subject to the respective reimbursement obligations of the parties pursuant to this Section 9.2, the party defending or prosecuting any such action or claim shall have the first right to reimbursement for 27 37 LICENSE AND OPTION AGREEMENT its costs and expenses out of any sums obtained or awarded in any such action or claim or in its settlement. (e) With respect to any action for infringement occurring both within and outside the TERRITORY, the parties will confer in good faith regarding the management of the action and any damage award shall be allocated proportionately between the parties based upon damages occurring within and outside the TERRITORY following reimbursement of expenses to the party defending or prosecuting the action. 9.3 Actions After the PURCHASE DATE. After the PURCHASE DATE, the provisions of the PURCHASE AGREEMENT shall govern the rights and obligations of the parties to (i) defend any action or claim by any third party alleging that MEDICIS' manufacture, marketing, distribution, sale or promotion of the PRODUCTS in the TERRITORY infringes such third party's intellectual property rights and (ii) prosecute any actual or threatened unauthorized disclosure or any infringement in the TERRITORY of the PATENTS or the KNOW-HOW. 9.4 Patent Prosecution. Patent applications in the TERRITORY based on the PATENTS shall be prosecuted in accordance with the provisions of this Section 9.4. (a) HMR and MEDICIS shall jointly retain U.S. patent counsel ("JOINT PATENT COUNSEL") who currently neither represents nor is adverse to either HMR or MEDICIS to prosecute U.S. patent applications based on or claiming the priority of the PCT applications identified as Items 1 through 4 of Exhibit C. JOINT PATENT COUNSEL may be discharged only by agreement of HMR and MEDICIS. (b) JOINT PATENT COUNSEL shall be instructed to timely prosecute the patent applications in such a manner that, by use of continuations, continuations-in-part, or divisionals, claims covering the ACTIVE INGREDIENTS, active ingredients other than the ACTIVE INGREDIENTS (including without limitation rilopirox), the DEVELOPMENT STAGE PRODUCT, or HMR's CICLOPIROX Powder, or their use, or their manufacture ("NON-PRODUCT CLAIMS") shall be presented in separate applications than those which contain all other claims within the PATENTS for the PRODUCTS, any IMPROVEMENTS and/or MEDICIS NEWLY DEVELOPED PRODUCTS (but not any COMPETING NAIL TOPICAL PRODUCT), their use, or their manufacture ("PRODUCT CLAIMS"). JOINT PATENT COUNSEL shall also be instructed to prosecute the applications in such a manner as to avoid, if possible, the filing of a terminal disclaimer that would require that applications containing PRODUCT CLAIMS and those that contain NON-PRODUCT CLAIMS be jointly owned. (c) JOINT PATENT COUNSEL shall be instructed to keep HMR and MEDICIS regularly and promptly informed as to the progress of the prosecution of applications containing PRODUCT CLAIMS. JOINT PATENT COUNSEL shall also be instructed that its sole responsibility and obligation in prosecuting applications containing PRODUCT CLAIMS is to obtain in a timely manner the greatest possible, commercially meaningful patent protection for the PRODUCTS, and that it shall use its best professional judgment to achieve that result. Any 28 38 LICENSE AND OPTION AGREEMENT further instructions to JOINT PATENT COUNSEL shall be issued only by agreement of HMR and MEDICIS. (d) JOINT PATENT COUNSEL shall be instructed to keep HMR and MEDICIS regularly and promptly informed as to the progress of the prosecution of applications containing NON-PRODUCT CLAIMS. JOINT PATENT COUNSEL shall prosecute these applications on instructions from HMR. ARTICLE X. REPRESENTATIONS AND WARRANTIES; COVENANTS 10.1 Representations and Warranties of the Parties. HMR and MEDICIS each represent and warrant to the other, as of the LICENSE EFFECTIVE DATE, as follows: (a) Each party and any of its AFFILIATES who are parties to the TRANSACTION DOCUMENTS has the power, authority and right to enter into the TRANSACTION DOCUMENTS to which it is a party and to perform its obligations thereunder. The execution, delivery and performance of the TRANSACTION DOCUMENTS by each party and any of its AFFILIATES who are parties to the TRANSACTION DOCUMENTS do not conflict with any material term of any other agreement to which it or any of its AFFILIATES is a party or by which it or any of its AFFILIATES is bound. (b) None of such parties, nor any of their employees or consultants who shall be undertaking any activities related to this AGREEMENT or the PRODUCTS, has been debarred or the subject of debarment proceedings by the FDA. (c) Except with respect to the filing of a pre-merger notification report under the HSR ACT, no consent, approval, order or authorization of, or registration, declaration or filing with, any governmental agency is required to be obtained or made by or with respect to such party in connection with its execution, delivery and performance of this AGREEMENT. (d) Each party is a corporation or limited liability company, duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, with full corporate power and authority to consummate the transactions contemplated hereby. The execution and delivery of this AGREEMENT by each party and the consummation and performance of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate and other proceedings, and this AGREEMENT has been duly authorized, executed and delivered by each party and, assuming the enforceability against the other party hereto, constitutes the legal, valid and binding obligation of each party, enforceable in accordance with its terms except (i) if such enforcement would be subject to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally; and (ii) as specific performance and other equitable remedies are subject to the general discretion of the court. The SUPPLY AGREEMENT, the LOPROX LOTION SUPPLY AGREEMENT, the PURCHASE AGREEMENT, the TRADEMARK LICENSE AGREEMENT, the TRANSITION SERVICES AGREEMENT and all other documents executed by each party or its 29 39 LICENSE AND OPTION AGREEMENT AFFILIATES and delivered as of the LICENSE EFFECTIVE DATE constitute the valid and binding obligation of such party or its AFFILIATE enforceable in accordance with their respective terms, subject to the same exceptions as set forth above. 10.2 Representations and Warranties of HMR. Subject to the matters specifically disclosed in the applicable subsection of Schedule 10.2 hereto, HMRI, HMR SA and HMR GmbH hereby jointly and severally represent and warrant to MEDICIS, as of the LICENSE EFFECTIVE DATE, that: (a) Except for the DEVELOPMENT STAGE PRODUCT, the PRODUCTS are the only human dermatology products containing the ACTIVE INGREDIENTS which, as of the LICENSE EFFECTIVE DATE, HMR or their AFFILIATES sell or have developed for sale in the TERRITORY; provided, however, that in the event that HMR or their AFFILIATES have developed other human dermatology products containing the ACTIVE INGREDIENTS for sale in the TERRITORY, HMR's sole obligation and liability hereunder shall be to convey rights to such products to MEDICIS on substantially the same terms as provided herein as to Topicort Ointment 0.05% pursuant to Section 10.2(m) hereof without payment of further consideration by MEDICIS. For purposes of this Section 10.2(a) only (and for no other provision of this AGREEMENT) "developed for sale in the TERRITORY" as to any product shall mean having filed an Investigative New Drug Application or NDA as to such product. (b) HMR or their AFFILIATES own all right, title and interest in and to the PATENTS, the NDAs, the PRODUCT KNOW-HOW (except for rights constituting PRODUCT KNOW-HOW which are not owned but which are controlled or licensed by HMR) and the TRADEMARKS in the TERRITORY, free and clear of any and all liens, encumbrances, claims, mortgages, security interests, charges or restrictions. Except for the corporate names of HMR and their AFFILIATES or contract manufacturers, the TRADEMARKS constitute all of the trademarks, trade names and service marks used in connection with the development, marketing, promotion, sale and distribution of the PRODUCTS in the TERRITORY within the two (2) year period prior to the LICENSE EFFECTIVE DATE. (c) HMR or their AFFILIATES have (i) the sole legal right in the TERRITORY to license the PATENTS, license the TRADEMARKS pursuant to the TRADEMARK LICENSE AGREEMENT, and assign and convey good and marketable title to the PATENTS and the TRADEMARKS to MEDICIS in the TERRITORY; and (ii) the legal right to license the PRODUCT KNOW-HOW and the SHARED KNOW-HOW in the TERRITORY free and clear of all liens, encumbrances, claims, mortgages, security interests, charges or restrictions; and (iii) the legal right to grant to MEDICIS the rights described in Sections 4.1 and 4.4 hereof. HMR's execution and delivery of this AGREEMENT and the other related documents delivered by HMR in connection with transactions contemplated herein and the performance of this AGREEMENT by HMR or their AFFILIATES (and the transactions contemplated herein): (i) do not and will not conflict with, violate or constitute or result in a default or an event creating rights of acceleration, termination or cancellation, or a loss of right, under any law, judgment, order or decree, under the articles of incorporation or bylaws of HMR or under any mortgage, contract or agreement to which HMR or their AFFILIATES is a party or 30 40 LICENSE AND OPTION AGREEMENT by which HMR or their AFFILIATES is bound; and (ii) will not result in the creation or imposition of any lien, charge, mortgage, claim, pledge, security interest, restriction or encumbrance of any kind on, or liability with respect to, the INTELLECTUAL PROPERTY in the TERRITORY. (d) (i) All NDAs required for the marketing and sale of the PRODUCTS in the TERRITORY have been approved by the FDA, and all PRODUCTS are eligible for immediate sale in the TERRITORY without regulatory limitations, and HMR is in full compliance with all material terms and conditions of such NDAs. HMR has not received any notice that the FDA has commenced or threatened to initiate any action to withdraw its approval or request the recall of any PRODUCT or commenced or threatened to initiate any action to enjoin production at any facility for the manufacture of the PRODUCTS. (ii) All manufacturing operations for the PRODUCTS sold in the TERRITORY conducted by or on behalf of HMR or its AFFILIATES have been and are being conducted in compliance with the good manufacturing practice regulations set forth in 21 C.F.R. Parts 210 and 211 and neither HMR nor their AFFILIATES has, with respect to the PRODUCTS, made an untrue statement of a material fact or fraudulent statement to the FDA, failed to disclose a material fact required to be disclosed to the FDA or committed an act, made a statement or failed to make a statement that could reasonably be expected to provide a basis for the FDA to invoke its policy respecting "Fraud, Untrue Statements of Material Facts, Bribery and Illegal Gratuities" as set forth in 56 Fed. Reg. 46191 (September 10, 1991). No PRODUCTS sold in the TERRITORY are or have been adulterated or misbranded within the meaning of the Federal Food, Drug and Cosmetic Act of 1938, as amended, 21 U.S.C. Sections 301 et. seq., in any manner that gives rise to any liability on the part of HMRI or its AFFILIATES. With respect to any NDA relating to the PRODUCTS submitted to but not approved by the FDA, HMR has complied in all material respects with the requirements of 21 U.S.C. Sections 355 and 357 and 21 C.F.R. Parts 312, 314 and 430 et. seq. and has provided all additional information and taken all additional action requested by the FDA in connection therewith. HMR has made available for MEDICIS' inspection copies of any and all material reports of inspection observations, establishment inspection reports, warning letters and other documents received by HMR from the FDA that indicate or suggest lack of compliance with the FDA regulatory requirements in connection with the manufacture or sale of the PRODUCTS. (e) No default under any material agreement or other material arrangement relating to the PRODUCTS in the TERRITORY, including without limitation the HERBERT AGREEMENT and the PACO AGREEMENTS, has been declared and is continuing and, to the knowledge of HMR, no condition exists which, with notice or lapse of time or both, would constitute a default under any such material agreement or other material arrangement. All of such agreements are valid and subsisting and are in full force and effect and, to the knowledge of HMR, no claim exists or has been asserted with respect to such agreements that would adversely affect the rights granted to MEDICIS hereunder. HMR has not received notice that any party to any such agreements intends to cancel or terminate such agreements or to exercise or not exercise any options or rights under such agreements. 31 41 LICENSE AND OPTION AGREEMENT (f) The manufacture, marketing, distribution, sale and promotion of the PRODUCTS in the TERRITORY: (i) does not in any material respect violate or conflict with any NDA, law, governmental specification, authorization or requirement, or any decree, judgment, order or similar restriction, and (ii) to the knowledge of HMR, has not been the subject of any investigation or inquiry by any governmental agency or authority regarding violations or alleged violations of law or been found by any such agency or authority to be in violation of any law. (g) No proceedings have been instituted or are pending in the TERRITORY which challenge any rights of HMR with respect to, or the validity of, the PATENTS or the TRADEMARKS. Neither the PRODUCTS, the INTELLECTUAL PROPERTY nor HMR's business relating to the manufacture of the PRODUCTS or the marketing and sale of the PRODUCTS in the TERRITORY is the subject of: (i) any outstanding judgment, order, writ, injunction or decree of, or settlement agreement with, any person, corporation, business entity, court, arbitrator or administrative or governmental authority or agency, limiting, restricting or affecting the PRODUCTS, the INTELLECTUAL PROPERTY or such business in a way that would have an adverse effect on MEDICIS' manufacture, sale and marketing of the PRODUCTS as contemplated herein; and (ii) any pending or, to the knowledge of HMR, threatened claim, suit, proceeding, charge, inquiry, investigation or action of any kind. (h) All material registrations and filings, including the payment of maintenance and renewal fees, have been timely made in the TERRITORY for the PATENTS and the TRADEMARKS, as are necessary to preserve the rights of HMR or to prosecute patent applications in the ordinary course of HMR's management of their intellectual property rights. MEDICIS acknowledges that no patent applications have been filed by HMR, and no patents have issued, for the PATENTS in the TERRITORY as of the LICENSE EFFECTIVE DATE. (i) To the actual knowledge of HMR after due inquiry the use and exploitation by MEDICIS of the PATENTS, the KNOW-HOW and the TRADEMARKS for the manufacture, use, marketing and sale of the PRODUCTS in the TERRITORY shall not infringe the valid intellectual property rights of any third party. (j) Neither HMR nor any of its AFFILIATES is a party to or is bound by any agreement or other arrangement pursuant to which HMR or such AFFILIATE has agreed to grant or honor chargebacks, rebates or the like in connection with the sale and/or distribution of the PRODUCTS in the TERRITORY. (k) The financial statements previously provided to MEDICIS relating to the sales of the PRODUCTS in the TERRITORY by HMR fairly present the information stated therein for the respective periods. (l) HMR has not, nor to the knowledge of HMR has PACO or HERBERT, received any notice that the FDA has commenced, or threatened to initiate any action to withdraw its approval or request a recall of any PRODUCT, or commenced or threatened to initiate any action to enjoin production in any facility in which a PRODUCT is manufactured. To the knowledge of HMR, there is no outstanding injunction, judgment, order, decree, ruling or 32 42 LICENSE AND OPTION AGREEMENT charge relating to any PRODUCT in the TERRITORY, or any action, suit, proceeding, hearing or investigation in or before any court or quasi judicial or administrative agency of any federal, state or local jurisdiction pertaining to any PRODUCT in the TERRITORY, nor, has any such proceeding been threatened. To the knowledge of HMR, there are no facts which, if known by a potential claimant or governmental authority, would give rise to a claim or proceeding which, if asserted or conducted, would materially adversely affect any PRODUCT in the TERRITORY. (m) MEDICIS acknowledges that (i) Topicort Ointment 0.05% is not currently sold in the TERRITORY; (ii) none of the representations, warranties and covenants made in this Section 10.2 with respect to the PRODUCTS shall apply to Topicort Ointment 0.05%; and (iii) the sole representations, warranties and covenants made by HMR with respect to Topicort Ointment 0.05% are that HMR has the requisite power, authority and right to convey the rights conveyed in this AGREEMENT with respect to the Topicort Ointment 0.05%, free and clear of any and all liens, encumbrances or security interests. 10.3 Covenants of the Parties. (a) MEDICIS on the one hand and HMR on the other each covenants to the other that it shall comply in all material respects with all laws, including tax laws, applicable to it and its activities under this AGREEMENT. The parties further agree that they shall, without payment or further consideration, execute and deliver any further or additional instruments or documents and perform any acts which may be reasonably necessary in order to effectuate and carry out the purposes of this AGREEMENT. (b) HMR has delivered to MEDICIS a list which identifies each agreement pursuant to which HMRI has agreed to grant or honor rebates in connection with the sale and/or distribution of the PRODUCTS. Within five (5) days following the LICENSE EFFECTIVE DATE, HMRI shall request in writing of the other party to each such agreement that any and all PRODUCTS subject to such agreement be immediately withdrawn therefrom and, if MEDICIS is a party to a similar agreement with such other party and if MEDICIS so requests, that the PRODUCTS be made subject to MEDICIS' agreement with such other party. In the event of any such request by MEDICIS, MEDICIS shall also within such five (5) day period request in writing of the other party that the PRODUCTS be made subject to MEDICIS' agreement with such other party. If the other party to any such agreement initially refuses to withdraw the PRODUCTS from such agreement, HMRI shall, at MEDICIS' request, assist MEDICIS in adding such PRODUCTS to any existing rebate arrangement between MEDICIS and such other party or in entering into its own rebate arrangement with such other party with respect to the PRODUCTS. HMRI and MEDICIS shall each use their commercially reasonable good faith efforts to implement the provisions of this Section 10.3(b). If, after the parties have taken any and all actions required under this Section 10.3(b), any PRODUCTS cannot be withdrawn from any agreement identified in the list delivered to MEDICIS as provided in this Section 10.3(b), (i) MEDICIS shall reimburse HMRI for the amounts of any rebates required to be paid by HMRI thereunder in connection with the sale and/or distribution of the PRODUCTS from and after the LICENSE EFFECTIVE DATE on a monthly basis within thirty (30) days after presentation by HMR of an invoice therefor, and (ii) HMRI shall take any and all actions required to ensure that 33 43 LICENSE AND OPTION AGREEMENT the PRODUCTS are not in any manner subject either to any renewal of such agreement or to any new agreement entered into between HMRI and the other party to such agreement. 10.4 Covenants of MEDICIS. (a) During the TERM, MEDICIS shall use its reasonable commercial efforts to promote the PRODUCTS, using efforts comparable to the efforts devoted by a company the size of MEDICIS to products with commercial potential similar to that of the PRODUCTS. (b) MEDICIS shall not at any time during the TERM take any action or omit to take any action which will in any material way compromise its rights under the HERBERT AGREEMENT or the PACO A/T/S AGREEMENT, or materially increase its obligations thereunder. (c) No provision of the HERBERT AGREEMENT or the PACO AGREEMENTS shall be amended during the TERM without the prior written consent of HMRI, which consent shall not be unreasonably withheld or delayed. If the OPTION is not exercised by MEDICIS, the HERBERT AGREEMENT and the PACO A/T/S AGREEMENT shall be deemed to be reassigned to HMRI upon the expiration of the TERM. 10.5 Covenants of HMR. (a) NEITHER HMR nor any of their AFFILIATES will at any time during the TERM take any action or omit to take any action which will in any material way compromise HMRI's rights under the PACO LOPROX AGREEMENT, or materially increase HMR's obligations thereunder. (b) Following the LICENSE EFFECTIVE DATE, HMR shall reimburse and indemnify MEDICIS promptly upon its request for any and all losses suffered or amounts paid by MEDICIS as a result of any chargeback and/or rebate agreements or arrangements entered into by HMRI or an AFFILIATE which relate to the sale of the PRODUCTS and are not disclosed on the portion of Schedule 10.2 hereto relating to Section 10.2(j) of this AGREEMENT. (c) Except (i) as specifically permitted by the express terms of this AGREEMENT; and (ii) for obligations specifically assumed by MEDICIS under the TRANSACTION DOCUMENTS, neither HMR nor any of their AFFILIATES shall take any action, fail to take any action required of them or otherwise cause (1) any of the representations and warranties contained in Section 10.2 of the PURCHASE AGREEMENT; or (2) any of the representations and warranties contained in Sections 10.2(b), (c), (d), (e), (f), (g) (except to the extent such representations and warranties in Section 10.2(g) relate to the PATENTS), (h), (i) or (l) (subject to Section 7.5, which shall control) herein, to be untrue during the TERM or as of the PURCHASE DATE. Notwithstanding any other provision of this Section 10.5(c), HMR shall have no responsibility for (i) the obligations of HERBERT or PACO under the HERBERT AGREEMENT or the PACO A/T/S AGREEMENT arising after the LICENSE EFFECTIVE 34 44 LICENSE OPTION AGREEMENT DATE; or (ii) obligations, including regulatory obligations, specifically assumed by MEDICIS under the TRANSACTION DOCUMENTS. 10.6 Mutual Limitations on Warranties and Damages. (a) OTHER THAN THE REPRESENTATIONS AND WARRANTIES MADE BY THE PARTIES PURSUANT TO SECTIONS 10.1 AND 10.2 OR ELSEWHERE HEREIN, THE PARTIES DISCLAIM ANY AND ALL OTHER WARRANTIES WHETHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY WARRANTY ARISING FROM COURSE OF DEALING OR USAGE OF TRADE. (b) EXCEPT AS EXPRESSLY SET FORTH IN SCHEDULES 4.3A, 4.3B AND 13 HERETO AND IN ADDITION TO THEIR RESPECTIVE REMEDIES UNDER ARTICLE XVIII AND ANY REMEDY PROVIDED HEREIN, AT LAW OR IN EQUITY FOR BREACH OF THIS AGREEMENT AS LIMITED BY THIS SECTION 10.6, MEDICIS AND HMR SHALL EACH BE ENTITLED TO ANY AND ALL RIGHTS AND REMEDIES AVAILABLE AT LAW OR IN EQUITY OR UNDER THE TRANSACTION DOCUMENTS WITH RESPECT TO RIGHTS AND OBLIGATIONS ARISING THEREUNDER; PROVIDED, HOWEVER, THAT UNDER NO CIRCUMSTANCES SHALL ANY PARTY BE LIABLE TO ANY OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OF ANY KIND, INCLUDING LOSS OF PROFITS. FURTHERMORE, NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, IN NO EVENT SHALL THE AGGREGATE LIABILITY OF HMR OR MEDICIS PURSUANT TO ARTICLE XVIII OR OTHERWISE HEREUNDER, AND/OR UNDER THE PURCHASE AGREEMENT, THE TRANSITION SERVICES AGREEMENT, THE TRADEMARK LICENSE AGREEMENT OR THE TECHNICAL AGREEMENT EXCEED U.S. $82.5 MILLION LESS OR PLUS ANY ADJUSTMENTS TO THE LICENSE FEES OR PURCHASE PRICE MADE PURSUANT TO SCHEDULES 4.3A, 4.3B OR 13 HERETO, PROVIDED THAT SUCH LIMITATION SHALL NOT APPLY WITH RESPECT TO ANY LIABILITY TO ANY THIRD PARTY UNDER ARTICLE XVIII OR OTHERWISE. 10.7. Survival of Representations and Warranties. The representations and warranties made by HMR and by MEDICIS in this AGREEMENT are made as of the LICENSE EFFECTIVE DATE, and they shall only be valid and survive for a period ending on the earlier of the three (3) year anniversary of the LICENSE EFFECTIVE DATE or the date which is one (1) year after the date of termination of this AGREEMENT and shall thereafter be of no force or effect, except to the extent required to enforce the parties' accrued rights and obligations hereunder following the end of such period for any claims which have been properly notified by one party to any other party prior to the expiration of such period. 35 45 LICENSE AND OPTION AGREEMENT ARTICLE XI. CONFIDENTIAL INFORMATION 11.1 Ownership. Without limiting the rights granted to and by the parties under this AGREEMENT, CONFIDENTIAL INFORMATION furnished hereunder by either party to the other shall remain the sole property of the disclosing party. Data and inventions concerning the PRODUCTS developed or made during the TERM shall be owned by the developing or inventing party. 11.2 Confidentiality. Each party agrees that during the TERM and at all times thereafter, it shall keep, and cause its AFFILIATES and/or permitted sublicensees to keep, confidential all CONFIDENTIAL INFORMATION, and neither party nor any of its AFFILIATES and/or permitted sublicensees shall use or disclose the CONFIDENTIAL INFORMATION except as expressly permitted in this AGREEMENT. Each party acknowledges that the CONFIDENTIAL INFORMATION is highly valuable, proprietary and confidential and that any disclosure to any officer, employee, or agent of such party or any of its AFFILIATES shall be made only to the extent necessary to carry out its responsibilities under this AGREEMENT and only if such officer, employee or agent shall be bound by an agreement to maintain such information in confidence. 11.3 Public Announcements and Statements. Neither HMR nor MEDICIS, nor any AFFILIATE thereof, shall issue or cause publication of any press release or other public announcement or public communication with respect to this AGREEMENT or the transactions contemplated hereby without the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed. Neither party shall use the name of the other party in any public statement or press release without the prior written approval of the other party, which approval may not be unreasonably withheld or delayed; provided, however, that both parties shall give the other party a minimum of five (5) business days to review any such press release or other public statement. Notwithstanding the foregoing, each party may make any disclosure which such party, in the opinion of its counsel, is obligated to make pursuant to applicable law, in which case such party shall still endeavor to give the other party an opportunity to review such disclosure but shall not be obligated to do so if such disclosure must, in the opinion of its counsel, be made without time for review. The failure of a party to draft such disclosure in a timely fashion shall not be deemed a reason to avoid submitting such disclosure to the other party hereto. ARTICLE XII. IMPROVEMENTS 12.1 Improvements. All IMPROVEMENTS developed by a party to any PRODUCT during the TERM shall be the sole and exclusive property of such party; provided, however, that subject to the respective obligations of the parties under Article VI hereof, (i) HMR shall grant to MEDICIS pursuant to Section 2.1 hereof an exclusive royalty-free license during the TERM to use and exploit in the TERRITORY, and outside the TERRITORY solely within North America to make and have made PRODUCTS for use and resale in the TERRITORY, any 36 46 LICENSE AND OPTION AGREEMENT IMPROVEMENTS to any PRODUCTS for human dermatological use developed by HMR or its AFFILIATES during the TERM solely with the PRODUCTS and with other IMPROVEMENTS, LINE EXTENSIONS, MEDICIS NEWLY DEVELOPED PRODUCTS and HMR NEWLY DEVELOPED PRODUCTS sold and/or licensed to MEDICIS in accordance with Section 5.1 hereof; and (ii) MEDICIS hereby grants to HMRI an exclusive royalty-free license during the TERM to use and exploit, outside the TERRITORY, and within the TERRITORY to make and have made PRODUCTS for use and resale outside the TERRITORY, any IMPROVEMENTS to any PRODUCTS for human dermatological use developed by MEDICIS or its AFFILIATES during the TERM solely with the PRODUCTS and with other IMPROVEMENTS, LINE EXTENSIONS, HMR NEWLY DEVELOPED PRODUCTS and MEDICIS NEWLY DEVELOPED PRODUCTS sold and/or licensed to HMR in accordance with Section 5.2 hereof. 12.2 Regulatory Responsibility with Respect to IMPROVEMENTS. Notwithstanding any provision of this AGREEMENT granting a license to any IMPROVEMENT by or to any party: (i) MEDICIS shall bear all costs and expenses associated with obtaining regulatory approval for sales within the TERRITORY of any IMPROVEMENT licensed by HMR to MEDICIS hereunder; and (ii) HMR shall bear all costs and expenses associated with obtaining regulatory approval for sales outside of the TERRITORY of any IMPROVEMENT licensed by MEDICIS to HMR hereunder. ARTICLE XIII. ADDITIONAL LOPROX PRODUCT 13.1 Additional Loprox Product. The parties have made certain agreements regarding an additional Loprox PRODUCT which are set forth in Schedule 13 attached hereto and incorporated herein. ARTICLE XIV. MANUFACTURING 14.1 Manufacturing by MEDICIS. Subject to the terms of the SUPPLY AGREEMENT, MEDICIS shall have the right to manufacture the PRODUCTS in the TERRITORY (and in other countries in North America, to the extent legally permissible) during the TERM; provided, however, that MEDICIS' rights during the TERM to manufacture (i) LOPROX LOTION and A/T/S Solution shall be subject to the PACO AGREEMENTS, and (ii) A/T/S Gel shall be subject to the HERBERT AGREEMENT. ARTICLE XV. TERM AND TERMINATION 15.1 Term of the AGREEMENT. The term of this AGREEMENT (the "TERM") shall commence on the LICENSE EFFECTIVE DATE and, subject to earlier termination pursuant to Sections 15.2 and 15.3 hereof, shall terminate on the third anniversary of the LICENSE 37 47 LICENSE AND OPTION AGREEMENT EFFECTIVE DATE, without any further action of HMR or MEDICIS; provided, however, that if MEDICIS has initiated an irrevocable wire transfer or otherwise irrevocably commenced payment of the PURCHASE PRICE on or before the third anniversary of the LICENSE EFFECTIVE DATE, the TERM shall continue for up to three (3) business days to permit the PURCHASE AGREEMENT to become effective. Subject to the terms of the PURCHASE AGREEMENT upon its effectiveness, after the expiration or termination of this AGREEMENT, MEDICIS thereafter shall not have any right hereunder to make, have made, use, sell or have sold the PRODUCTS in the TERRITORY under this AGREEMENT. Upon such expiration, the TRANSACTION DOCUMENTS (other than the PURCHASE AGREEMENT) shall simultaneously terminate in accordance with their respective terms, without any further action of HMR or MEDICIS, and the PURCHASE AGREEMENT shall not become effective. 15.2 Termination by HMR. Subject to Section 16.2 hereof, HMR may terminate this AGREEMENT upon written notice to MEDICIS at any time in the event of nonpayment of any amount duly payable by MEDICIS under Sections 3.1 or 4.1(c) or Sections 13.4 or 13.6 of Schedule 13 hereof that is continuing for sixty (60) days after MEDICIS has received written notice from HMR of such nonpayment and such breach has not been cured within such sixty (60) day period; provided, however, that this AGREEMENT may not be terminated based upon nonpayment of any amount by MEDICIS that is subject to a right of set-off pursuant to Section 18.5. If HMR terminates this AGREEMENT pursuant to this Section 15.2, the TRANSACTION DOCUMENTS (other than the PURCHASE AGREEMENT) shall simultaneously terminate in accordance with their respective terms, without any further action of HMR or MEDICIS, and the PURCHASE AGREEMENT shall not become effective. 15.3 Termination by MEDICIS. Subject to Section 16.2 hereof, MEDICIS may terminate this AGREEMENT during the TERM upon written notice to HMR at any time in the event of: (i) a material breach by HMR of any representation, warranty or covenant relating to the INTELLECTUAL PROPERTY or any part thereof in Sections 10.2(b), (c), (d)(i), (g), (h) or (i) or Section 9.4 of this AGREEMENT; (ii) a material breach by HMR or its AFFILIATES of Sections 2.1, 2.3, 4.2 or Schedules 4.3A or 4.3B hereof; (iii) a material breach by HMR of Section 1 of the TRADEMARK LICENSE AGREEMENT, in each of the foregoing cases (i), (ii) and (iii), where such breach is continuing for sixty (60) days after HMR has received written notice from MEDICIS of such breach, specifying in reasonable detail the particulars of the alleged breach, and such breach has not been cured within such sixty (60) day period or, if such breach cannot by its nature be cured within sixty (60) days, if reasonable progress as determined by MEDICIS in its sole and exclusive discretion has not been made by HMR during such sixty (60) day period toward curing such breach; (iv) any termination of the SUPPLY AGREEMENT pursuant to Section 3.3(c) of the SUPPLY AGREEMENT, provided written notice of termination hereunder is provided within thirty (30) days following such termination of the SUPPLY AGREEMENT; or (v) except as specifically permitted by the express written terms of this AGREEMENT and for obligations specifically assumed by MEDICIS under the TRANSACTION DOCUMENTS, HMR or any of its AFFILIATES takes any action, fails to take any action or otherwise causes (1) any of the representations and warranties contained in Section 10.2 of the PURCHASE AGREEMENT or (2) any of the representations and warranties contained in Sections 10.2(b), (c), (d)(i), (g) (except to the extent such representations and 38 48 LICENSE AND OPTION AGREEMENT warranties in Section 10.2(g) relate to the PATENTS), (h) or (i) herein to be untrue during the TERM or as of the PURCHASE DATE. If MEDICIS terminates this AGREEMENT pursuant to this Section 15.3, the TRANSACTION DOCUMENTS (other than the PURCHASE AGREEMENT) shall simultaneously terminate in accordance with their respective terms, without any further action of HMR or MEDICIS and the PURCHASE AGREEMENT shall not become effective. ARTICLE XVI. RIGHTS AND DUTIES UPON TERMINATION OR EXPIRATION; REMEDIES 16.1 Monies Paid or Due. (a) Upon the termination or expiration of this AGREEMENT under Article XV and subject to (i) any liability of either party pursuant to Article XVIII hereof; (ii) the provisions of Section 4.3A(d) of Schedule 4.3A hereto and of Section 4.3B(c) of Schedule 4.3B hereto; and (iii) the provisions of Sections 16.4 and 18.5 hereof, each party shall have the right to retain all payments already received from the other party pursuant to this AGREEMENT, and each party shall pay to the other all sums accrued hereunder which are then due, including without limitation and by way of example only: (1) any sums then due and payable to HMR under Sections 3.1(a) or 4.1(c) hereof or Sections 13.4 or 13.6 of Schedule 13 hereto, and (2) any sums then due and payable to MEDICIS under Schedule 2.6 and Section 4.3A(d) of Schedule 4.3A hereto, Section 4.3B of Schedule 4.3B(c) hereto or Sections 13.2 or 13.3 of Schedule 13 hereof. (b) The termination of this AGREEMENT by MEDICIS under Section 15.3 hereof shall terminate MEDICIS' obligation to make any payments set forth in Sections 3.1(a) or 4.1(c) or in Schedule 13 of this AGREEMENT that would accrue after, and are not due and payable at the time of, the effective date of the termination. (c) The termination of this AGREEMENT by HMR under Section 15.2 hereof shall terminate HMR's obligation to make any payments set forth in Schedules 4.3A, 4.3B or 13 to this AGREEMENT that would accrue after, and are not due and payable at the time of, the effective date of the termination. 16.2 Survival of Rights. (a) Subject to Section 16.2(c) hereof, upon effectiveness of the PURCHASE AGREEMENT in accordance with its terms, the PURCHASE AGREEMENT shall thereafter govern the continuing rights of the parties, and no provision of this AGREEMENT shall survive except that (i) the obligations of HMR pursuant to Section 4.3A(c) of Schedule 4.3A hereto if the LOPROX CREAM REGULATORY GOALS have not been obtained as of the end of the TERM and (ii) the provisions of Schedule 13 hereto shall survive as provided therein. 39 49 LICENSE AND OPTION AGREEMENT (b) Subject to Section 16.2(c) hereof, in the event that the PURCHASE AGREEMENT for whatever reason does not become effective in accordance with its terms, the provisions of Sections 2.5, 4.1(c) (if the OPTION has been exercised and the PURCHASE AGREEMENT does not become effective solely because MEDICIS has failed to pay the amounts payable under Sections 3.1 and 4.1(c) hereof and Sections 13.4 and 13.6 of Schedule 13 hereof), 9.2 (except for MEDICIS' right to initiate the prosecution of any action, claim, proceeding, infringement or the like under paragraph (b) of Section 9.2 hereof), 10.6, 15.1, 17.2, 19.2, 19.4, 19.5, 19.6, 19.7, 19.8, 19.10, 19.11 and 19.12 and of Articles XI and XVIII hereof and this Article XVI and Section 13.7 of Schedule 13 shall survive the termination or expiration of this AGREEMENT. (c) The termination or expiration of this AGREEMENT shall not affect the accrued rights and obligations of HMR or MEDICIS arising under or out of this AGREEMENT or claims arising during the TERM, subject to Section 10.7 hereof, and the obligations relating to such claims. In addition, any provision required to interpret and enforce the parties' rights and obligations under this AGREEMENT shall survive to the extent required for the full observation and performance of this AGREEMENT by the parties hereto. 16.3 Remaining PRODUCT. Upon termination of this AGREEMENT without exercise of the OPTION, MEDICIS, in its sole discretion, may elect (i) to sell all or any portion of the PRODUCTS remaining in inventory or ordered by MEDICIS prior to the effective date of the termination, for a period following such termination not to exceed six (6) months; or (ii) resell any such unexpired PRODUCTS with at least twelve (12) months of shelf life remaining to HMR at the actual purchase price paid by MEDICIS for such PRODUCTS; provided, however, that in the event of termination of this AGREEMENT by HMR pursuant to Section 15.1 due to a nonpayment by MEDICIS, the foregoing election shall be made by HMR. In the event that either party elects the option set forth in clause (i) above, the parties shall cooperate to achieve a smooth transition with respect to the marketing of the PRODUCTS, and HMRI shall have no obligation to pay or reimburse MEDICIS for any PRODUCTS that MEDICIS has on hand at the end of the specified period. 16.4 Damages. Subject to Section 10.6, a party shall be entitled to damages from the other party if the other party breaches any provision of this AGREEMENT. In the event that this AGREEMENT is terminated by MEDICIS pursuant to Section 15.3(iv) hereof upon termination of the SUPPLY AGREEMENT pursuant to Section 3.3(c) thereof, such termination shall not be automatically presumed to be a breach of this AGREEMENT by HMR, and HMR shall only be liable to MEDICIS for damages hereunder relating to such termination if HMR is in breach of the provisions of this AGREEMENT. 16.5 Transition Upon Termination. If this AGREEMENT expires or is terminated in accordance with its terms or by mutual agreement and the PURCHASE AGREEMENT does not become effective, MEDICIS shall upon expiration or termination of the TERM (i) cooperate with HMR and/or their AFFILIATES to assure a smooth transition to HMR and/or their AFFILIATES of the sale, marketing and distribution of the PRODUCTS in the TERRITORY, including providing services to HMR and/or their AFFILIATES of a similar nature to those 40 50 LICENSE AND OPTION AGREEMENT provided by HMRI to MEDICIS pursuant to the TRANSITION SERVICES AGREEMENT; and (ii) transfer (without further consideration other than the payment of the expenses of such transfer) to HMRI all right, title and interest in and to any IMPROVEMENTS developed by MEDICIS or its AFFILIATES to use solely with the PRODUCTS, other IMPROVEMENTS, LINE EXTENSIONS, HMR NEWLY DEVELOPED PRODUCTS, and/or MEDICIS NEWLY DEVELOPED PRODUCTS sold and/or licensed to HMR in accordance with Section 5.2 hereto, for use outside of the TERRITORY. ARTICLE XVII. PAYMENT TERMS GENERALLY; TAXES 17.1 Place of Payment; Interest. All amounts to be paid under this AGREEMENT shall be paid in United States dollars by wire transfer in immediately available funds, to such account as the receiving party shall have designated on the LICENSE EFFECTIVE DATE and from time to time thereafter in writing not less than ten (10) days prior to the date of payment; and any such payment shall be deemed to have been paid when recorded in the proper account. Any payment that is not paid when due shall bear interest from the due date until payment in full, at a rate equal to one (1) percent per month. 17.2 Taxes. If Federal, State or local laws or regulations require that taxes be withheld on any payment, MEDICIS shall be entitled to (i) deduct those taxes from the payment, (ii) pay the taxes to the proper taxing authority and (iii) send evidence of the obligation together with proof of payment to HMR. ARTICLE XVIII. INDEMNIFICATION AND LIMITATION OF LIABILITY 18.1 Indemnification by MEDICIS. In addition to any other rights HMR may have at law or in equity, and subject to Section 10.6, MEDICIS shall indemnify, defend and hold harmless HMR and their AFFILIATES, employees, agents, officers and directors, and their successors and assigns (each, an "HMR INDEMNIFIED PARTY"), from and against any and all LIABILITIES which the HMR INDEMNIFIED PARTY may incur, suffer or be required to pay resulting from or arising out of: (i) the marketing, distribution, sale or promotion of the PRODUCTS by MEDICIS or its AFFILIATES after the LICENSE EFFECTIVE DATE; (ii) the manufacture of the PRODUCTS by MEDICIS or its AFFILIATES or by a third party (other than an AFFILIATE of HMR) after the LICENSE EFFECTIVE DATE, unless HMR had knowledge as of the LICENSE EFFECTIVE DATE that, based on facts in existence and circumstances persisting on the LICENSE EFFECTIVE DATE, such third party's manufacture of the PRODUCTS after the LICENSE EFFECTIVE DATE would be likely to result in or create such LIABILITIES; and (iii) any breach of any representation, warranty or covenant of MEDICIS or its AFFILIATES in the TRANSACTION DOCUMENTS. 18.2 Indemnification by HMR. In addition to any other rights MEDICIS may have at law or in equity, and subject to Section 10.6, HMRI, HMR SA and HMR GmbH shall jointly and 41 51 LICENSE AND OPTION AGREEMENT severally indemnify, defend and hold harmless MEDICIS and its AFFILIATES, employees, agents, officers and directors, and its successors and assigns (each, a "MEDICIS INDEMNIFIED PARTY"), from and against any and all LIABILITIES which the MEDICIS INDEMNIFIED PARTY may incur, suffer or be required to pay resulting from or arising out of: (i) the manufacture or supply of the PRODUCTS by HMR or their AFFILIATES prior to the LICENSE EFFECTIVE DATE or after the LICENSE EFFECTIVE DATE in breach of any of HMR GmbH's representations, warranties, covenants and obligations under the SUPPLY AGREEMENT or of any of HMRI's representations, warranties, covenants and obligations under the LOPROX LOTION SUPPLY AGREEMENT, other than for any EXCLUDED HMR PRODUCT LIABILITY; (ii) any liability arising prior to the LICENSE EFFECTIVE DATE in any way relating to any PRODUCT, regardless of the date of first assertion of any claim or action relating thereto; (iii) any breach of any representation, warranty or covenant by HMR or any AFFILIATE in the TRANSACTION DOCUMENTS, including failure or refusal to implement the LOPROX CREAM PLAN or the LOPROX LOTION PLAN (other than as related to the infringement of the intellectual property rights of third parties as described in the following subsections (v) and (vi)); (iv) any LIABILITIES arising from or related to any litigation or claim asserted by COPLEY relating to the COPLEY PRODUCT AGREEMENT or the TRANSACTION DOCUMENTS; (v) any infringement of the valid intellectual property rights of any third party as a result of the use and exploitation by MEDICIS of the PATENTS, the KNOW-HOW and the TRADEMARKS for the manufacture, use, marketing and sale of the PRODUCTS in the TERRITORY if such infringement was known to HMR as of the LICENSE EFFECTIVE DATE or relates to or arises from the manufacture of the ACTIVE INGREDIENTS; or (vi) any infringement of the type described in the preceding subsection (v) if such infringement was not known but should have been known to HMR as of the LICENSE EFFECTIVE DATE after due inquiry; provided however, that HMR shall only be required to indemnify and hold harmless the MEDICIS INDEMNIFIED PARTIES for fifty percent (50%) of any such LIABILITIES under this subsection (vi). 18.3 Process of Indemnification. Promptly after an indemnified party becomes aware of any potential LIABILITY hereunder, such party shall deliver written notice to the indemnifying party stating the nature of the potential LIABILITY; provided, however, that the failure to give such notification shall not affect the indemnification provided hereunder except to the extent the indemnifying party is actually prejudiced as a result of such failure. The indemnified party shall give the indemnifying party such information with respect to the potential LIABILITY as the indemnifying party may from time to time reasonably request. The indemnifying party shall have the right to conduct the defense of any suit or claim related to the LIABILITY if it has assumed responsibility for the suit, claim or other proceeding in writing; provided, however, that if in the reasonable judgment of the indemnified party such suit, claim or other proceeding involves an issue or matter which could have a material adverse effect on the business, operations or assets of the indemnified party, the indemnified party may elect, at its own expense, to conduct a separate defense thereof, but in no event shall any such election be construed as a waiver of any indemnification rights such indemnified party may have under this Article XVIII, at law or in equity, or otherwise. If the indemnifying party defends the suit or claim, the indemnified party may participate in (but not control) the defense thereof at its sole cost and expense; provided, however, that the indemnifying party shall pay the reasonable fees 42 52 LICENSE AND OPTION AGREEMENT and costs of any separate counsel required for the indemnified party to the extent such representation is due to a conflict of interest between the parties. 18.4 Settlements. Neither party may settle any claim, action or proceeding related to a LIABILITY to a third party without the consent of the other party, which consent shall not be unreasonably withheld or delayed, if such settlement would impose any monetary obligation on the other party or require the other party to submit to an injunction or otherwise limit the other party's rights under this AGREEMENT, and any payment made by a party in such a settlement without obtaining such consent shall be at its own cost and expense. Notwithstanding the foregoing, the indemnifying party will be liable under this Article XVIII for any settlement effected without its consent if the indemnifying party has refused to acknowledge liability for indemnification hereunder and/or declines to defend the indemnified party in any such claim, action or proceeding and it is determined by arbitration pursuant to Section 19.4 hereof that the indemnifying party was liable to the indemnified party for indemnification related to such settlement. 18.5 Right of Set-Off. In addition to any other remedies any party may have for indemnification under this AGREEMENT or at law or in equity, any party may set off against any amount otherwise due and yet unpaid to the other party hereunder any amount owed by such first party to the other party under any provision of this AGREEMENT or any instrument or agreement delivered pursuant hereto, or otherwise. ARTICLE XIX. MISCELLANEOUS 19.1 FORCE MAJEURE. If the performance by any party of any obligation under this AGREEMENT is prevented, restricted, interfered with or delayed by reason of FORCE MAJEURE, the party so affected shall, upon giving written notice to the other party, be excused from such performance to the extent of such prevention, restriction, interference or delay, provided that the affected party uses its reasonable efforts to avoid or remove such causes of non-performance and continues performance with the utmost dispatch whenever such causes are removed; provided, however, that notwithstanding anything contained in this Section 19.1, either party may exercise any right to terminate this AGREEMENT which arises under Section 15.2 or 15.3 hereof. For the purposes of this AGREEMENT, "FORCE MAJEURE" is defined as follows: acts of God; acts, regulations, orders, decrees or laws of any government or agency thereof that are not due to or caused by any action or inaction of the party claiming the benefit of force majeure where such action or inaction is in violation of such party's obligations under the TRANSACTION DOCUMENTS or APPLICABLE LAWS; war; damage to or destruction of facilities; labor disturbances (whether or not any such labor disturbance is within the power of the affected party to settle); epidemic; civil commotion; and failure of suppliers, public utilities or common carriers. In the event of FORCE MAJEURE lasting more than three (3) months (or which the parties acknowledge will last more than three (3) months), the parties agree to meet and discuss how this AGREEMENT can be justly and fairly implemented under the circumstances. 43 53 LICENSE AND OPTION AGREEMENT 19.2 Governing Law. This AGREEMENT shall be deemed to have been made in the State of Delaware and its form, execution, validity, construction and effect shall be determined in accordance with the laws of the State of Delaware, without giving effect to the principles of conflicts of law thereof. 19.3 Headings and References. All section headings contained in this AGREEMENT are for convenience of reference only and shall not affect the meaning or interpretation of this AGREEMENT. 19.4 Dispute Resolution. (a) Any dispute, controversy or claim arising out of or relating to this AGREEMENT, or the breach, termination or invalidity of this AGREEMENT or the rights of either party for indemnification hereunder (each, a "CLAIM"), shall be submitted in the first instance to the President, North American Region of HMRI, for HMR and the Chief Executive Officer of MEDICIS for MEDICIS. (b) If any CLAIM cannot be resolved by the individuals designated in Section 19.4 (a) within thirty (30) days after being submitted to them, and except for the right of either party to apply to a court of competent jurisdiction for a temporary restraining order to preserve the status quo or to prevent irreparable harm pending the selection and confirmation of a panel of arbitrators in accordance herewith, such CLAIM shall be settled by arbitration in accordance with the Commercial Arbitration Rules (the "RULES") of the American Arbitration Association (the "AAA") in effect on the day the arbitration is commenced in accordance with this AGREEMENT, except as modified by this Section 19.4. After expiration of the thirty (30) day period pursuant to Section 19.4(a) hereof, either party may commence arbitration by serving upon the other party a written demand for arbitration sent by a courier service of internationally recognized reputation, in accordance with this AGREEMENT, with a copy of the same delivered by a courier service of internationally recognized reputation, to the AAA regional office in which either party is then located. The number of arbitrators shall be three, one of whom is selected by MEDICIS, one of whom is selected by HMRI and one of whom is selected by HMRI and MEDICIS (or by the other two arbitrators if the parties cannot, within thirty (30) days after the commencement of the arbitration proceeding, agree on the third arbitrator). In the event that either party shall fail to appoint an arbitrator within thirty (30) days after the commencement of the arbitration proceeding, such arbitrator and the third arbitrator shall be appointed by the AAA in accordance with the RULES. The arbitration award shall be rendered by a majority of the members of the board of arbitration. Except as expressly provided in Section 19.5 hereof, the panel shall not be entitled to modify this AGREEMENT or the transactions contemplated herein. The arbitration proceeding shall be conducted in the English language and shall be brought in Chicago, Illinois, unless the parties agree in writing to conduct the arbitration in another location. The AAA shall have jurisdiction over all parties to this AGREEMENT for purposes of the arbitration. 44 54 LICENSE AND OPTION AGREEMENT (c) The arbitration decision shall be final and binding and shall not be appealable to any court in any jurisdiction. The prevailing party may enter such decision in any court having competent jurisdiction. (d) Any statute of limitations or other equitable or legal doctrine which would otherwise be applicable to any action brought by either of the parties shall be applicable in the arbitration. In the event any party to this AGREEMENT files a petition under the bankruptcy laws of the United States or has a petition filed against it which results in an order for relief or other indicia that a bankruptcy case has commenced, it is the express intention of the parties that this AGREEMENT shall control and be enforced in accordance with its terms and conditions that any Claim shall remain subject to arbitration to the maximum extent permitted by law. (e) There shall be no rights of discovery in connection with the arbitration except as follows: (i) Each party shall have the right to request the arbitrators to issue subpoenas for documents in accordance with the RULES. (ii) Each party shall have the right to initiate two (2) depositions of each other party to the arbitration; and each party shall have the right to initiate one (1) additional oral deposition pursuant to a subpoena issued by the arbitrators or any court of competent jurisdiction. (iii) At any time following the tenth day after the commencement of the arbitration in accordance with this AGREEMENT, a written notice served upon all parties shall be sufficient to compel the attendance of any party at a deposition upon not less than sixty (60) days notice and no subpoena shall be required for that purpose. If a person fails or refused to testify at a deposition, that person shall not be permitted to testify at the hearing, except for good cause shown. The number of depositions that may be initiated by either party may be varied by agreement of all parties to the arbitration but not by any action, order or request of the arbitrators or any court. (iv) Not less than thirty (30) days prior to the scheduled arbitration proceeding, the arbitrator shall conduct a preliminary hearing in accordance with the AAA guidelines. Not less than five (5) days prior to the preliminary hearing, all parties to the arbitration shall serve upon all other parties to the arbitration a written list of witnesses and exhibits to be used at the arbitration hearing. Except for good cause shown, no witness or exhibit may be utilized at the arbitration hearing other than as set forth on such list. The arbitrators shall receive evidence at a single hearing. The arbitrators shall award reasonable attorneys' fees and costs in favor of the prevailing party or parties. The arbitrator shall issue a final award not more than twenty (20) days following the conclusion of the hearing. The arbitrators shall have the power to hear and decide, by documents only or with a hearing (at the arbitrators' sole discretion) any prehearing motions in the nature of a pre-trial motion to dismiss or for summary judgment. (f) The arbitrators shall be entitled to receive reasonable compensation at an hourly rate to be established between the arbitrators and the AAA. If required by the arbitrators, 45 55 LICENSE AND OPTION AGREEMENT MEDICIS on the one hand, and HMRI, on the other, will deposit with the AAA an equal share of the total anticipated fee of the arbitrators in an amount to be estimated by the AAA. The non-prevailing party in the proceedings shall be ordered to pay, and shall have the ultimate responsibility for, all arbitrators' fees and the fees of the AAA and such fees shall be included in the judgment to be entered against the non-prevailing party. (g) Notwithstanding any other provision of this AGREEMENT, any party may apply to a court of competent jurisdiction within the TERRITORY, for an order in true nature of a temporary restraining order or preliminary injunction for purposes of maintaining the status quo pending the final resolution of any dispute pursuant to the arbitration provisions hereof. (h) Each party consents to the jurisdiction and administration of the AAA for purposes of the arbitration proceedings contemplated herein. 19.5 Severability. If any provision of this AGREEMENT is held by a court of competent jurisdiction to be invalid or unenforceable, it shall be modified to the minimum extent necessary to make it valid and enforceable. 19.6 Entire Agreement. This AGREEMENT, including the exhibits hereto, and the TRANSACTION DOCUMENTS, constitute the entire AGREEMENT between the parties and their AFFILIATES relating to the subject matter hereof and supersede all previous writings and understandings, whether oral or written, including without limitation the Confidentiality Agreement, dated as of May 28, 1998, and the Letter of Intent, dated June 8, 1998, by and between HMRI and MEDICIS, relating to the subject matter of this AGREEMENT. 19.7 Amendment. This AGREEMENT may not be amended, supplemented or otherwise modified except by an instrument in writing signed by both parties that specifically refers to this AGREEMENT. 19.8 Notices. Any notice required or permitted under this AGREEMENT shall be in writing and sent by reputable courier service, charges prepaid, or by facsimile transmission with confirmation by reputable courier service, to the address or facsimile number specified below. Such notices shall be deemed given three (3) business days after such deposit in the mail or with a courier or one (1) business day after such facsimile transmission. If to HMRI, HMR Hoechst Marion Roussel, Inc. GmbH or HMR SA: Route 202-206 P. O. Box 6800 Bridgewater, New Jersey 08807-0800 Fax Number: (908) 231-3730 Attention: Vice President, Licensing & Alliances 46 56 LICENSE AND OPTION AGREEMENT with copies to: Hoechst Marion Roussel, Inc. Route 202-206 P. O. Box 6800 Bridgewater, New Jersey 08807-0800 Fax Number: (908) 231-2243 Attention: Vice President and General Counsel Hoechst Marion Roussel Deutschland GmbH Konigsteiner Strasse 1010 65812, Bad Soden Germany Fax Number: +49-69-305-17905 Attention: General Manager Hoechst Marion Roussel, S.A. 102, route de Noisy 93235 Romainville France Fax Number: 33-1-4991-3916 Attention: General Counsel If to MEDICIS: Medicis Pharmaceutical Corporation 4343 East Camelback Road Phoenix, Arizona 85018 Attention: Jonah Shacknai Fax Number: (602) 808-3875 with a copy to: Bryan Cave LLP Two North Central Avenue, Suite 2200 Phoenix, Arizona 85004-4408 Fax Number: (602) 364-7000 Attention: Frank M. Placenti, Esq. 19.9 Assignment, Sublicense and Binding Effect. Each party shall have the right to assign or sublicense its rights in whole or in part under this AGREEMENT to an AFFILIATE of such party without the other party's consent or to a third party with the other party's prior written consent, which consent shall not be unreasonably withheld, provided that (i) in either case such party guarantees to the other party all of such party's obligations hereunder; and (ii) in the case of any sublicense by MEDICIS hereunder, the sublicensee agrees in a written, executed agreement delivered to HMR and naming HMR as an intended third party beneficiary therein to (a) observe and perform those obligations of MEDICIS hereunder reasonably determined by MEDICIS to relate to such sublicense; (b) acquire its requirements for the HMR MANUFACTURED PRODUCTS from HMR GmbH pursuant to the SUPPLY AGREEMENT, during its term and subject to its conditions; and (c) acquire its requirements of the LOPROX LOTION from HMRI 47 57 LICENSE AND OPTION AGREEMENT pursuant to the LOPROX LOTION SUPPLY AGREEMENT, during its term and subject to its conditions. 19.10 No Agency. It is understood and agreed that each party shall have the status of an independent contractor under this AGREEMENT and that nothing in this AGREEMENT shall be construed as authorization for either party to act as agent for the other. MEDICIS shall not incur any liability for any act or failure to act by employees of HMR and vice versa. Notwithstanding anything to the contrary in this Section 19.10, HMR GmbH and HMR SA hereby appoint HMRI, and any duly appointed statutory agent of HMRI, as its agent for service of process as to any proceeding commenced pursuant to or in connection with this AGREEMENT or the TRANSACTION DOCUMENTS. 19.11 No Strict Construction. This AGREEMENT has been prepared jointly and shall not be strictly construed against either party. 19.12 Waiver. No waiver of any of the provisions of this AGREEMENT shall be deemed, or shall constitute, a wavier of any other provision hereof (whether or not similar) nor shall such waiver constitute a continuing waiver, and no waiver shall be binding unless executed in writing by the party making the waiver. 19.13 Counterparts. This AGREEMENT may be executed in counterparts, each of which shall be an original as against any party whose signature appears thereon but all of which together shall constitute one and the same instrument. 48 58 LICENSE AND OPTION AGREEMENT IN WITNESS WHEREOF, the parties, through their authorized officers, have duly executed this as of the date first written above. HOECHST MARION ROUSSEL, INC. MEDICIS PHARMACEUTICAL CORPORATION By: /s/ Thomas Hofstaetter By: /s/ Jonah Shacknai ---------------------- ------------------- Name: Thomas Hofstaetter Name: Jonah Shacknai Title: Senior Vice President Title: Chairman and Chief Executive Officer HOECHST MARION ROUSSEL DEUTSCHLAND GmbH By: /s/ Peter Schlikker --------------------- Name: DR. PETER SCHLIKKER Title: Member of the Board By: /s/ Dieter Kohl ---------------------- Name: Dieter Kohl Title: Member of the Board HOECHST MARION ROUSSEL, S.A. By: /s/ O. Jacquesson ---------------------- Name: O. Jacquesson Title: Member of the Board 49 59 LICENSE AND OPTION AGREEMENT EXHIBIT A List of PRODUCTS (Per Section 1.73) 1. A/T/S - Erythromycin based topical acne treatment a) 2.0% solution, formulated as approved in AADA #62-405. b) 2.0% gel, formulated as approved in NDA #50-617 (owned by HERBERT). 2. Loprox - CICLOPIROX based topical anti-fungal. a) 0.77% cream, formulated as approved in NDA #18-748, or as formulated pursuant to the LOPROX CREAM PLAN. b) 0.77% lotion, formulated as approved in NDA #19-824, or as formulated pursuant to the LOPROX LOTION PLAN. c) 0.77% gel, formulated as approved in NDA #20-519. d) the additional Loprox PRODUCT discussed in Schedule 13 to this AGREEMENT, as described in Investigational New Drug Application #51,286. 3. Topicort - Desoximetasone based topical anti-inflammatory. a) 0.25% cream, formulated as approved in NDA #17-856. b) 0.05% gel, formulated as approved in NDA #18-586. c) 0.05% cream, formulated as approved in NDA #18-309 d) 0.25% ointment, formulated as approved in NDA #18-763. e) 0.05% ointment, formulated as approved in NDA #18-594 (non-commercialized in the TERRITORY). A-1 60 LICENSE AND OPTION AGREEMENT EXHIBIT B List of NDAs (Per Section 1.60) As used in this AGREEMENT, the term "NDAs" shall include the following U.S. regulatory approvals, but shall exclude information contained in such approvals which would normally be included within a Drug Master File: 'A/T/S' Solution AADA #62-405 'Loprox' Cream NDA #18-748 'Loprox' Lotion NDA #19-824 'Loprox' Gel NDA #20-519 'Topicort' Emollient Cream NDA #17-856 'Topicort' Gel NDA #18-586 'Topicort' LP Emollient Cream NDA #18-309 'Topicort' Ointment 0.05%* NDA #18-594 'Topicort' Ointment 0.25% NDA #18-763 - -------------------- * Non-commercialized in the TERRITORY. B-1 61 LICENSE AND OPTION AGREEMENT EXHIBIT C List of PATENTS (Per Section 1.71) U.S. patent applications and U.S. patents corresponding to, or claiming a right of priority based upon the subject matter described in, the following Patent Cooperation Treaty (PCT) patent applications, other than to the extent of claims for active ingredients other than the ACTIVE INGREDIENTS; for the avoidance of doubt claims related to rilopirox or the DEVELOPMENT STAGE PRODUCT or HMR's CICLOPIROX Powder shall not be included within the PATENTS: 1. 'Loprox' Gel: WO 98/13042 PCT/EP97/05068, filed 16 September 1997 (Antimycotic gel with high active substance release) 2. 'Loprox' Shampoo: WO 98/13009 PCT/EP97/05070, filed 16 September 1997 (Use of a shampoo containing 1-hydroxy - 2 - pyridones for the treatment of seborrheic dermatitis) 3. 'Loprox': WO 98/13043 PCT/EP/9705069, filed 16 September 1997 (Use of 1-hydroxy - 2- pyridones for the treatment of skin disorders which are caused by antibiotic resistant bacteria) 4. W/O 97/20560, PCT/EP96/05132, filed 4 December 1995 (Use of 1-hydroxy - 2 - pyridones for the topical treatment of mycotic infections which are caused by azole resistant fungi) Those rights under any and all other patents owned by HMR and their AFFILIATES pertaining to any of the PRODUCTS for use in the TERRITORY. C-1 62 LICENSE AND OPTION AGREEMENT EXHIBIT D List of TRADEMARKS (Per Section 1.86) List of TRADEMARKS U.S. Registration No. ------------------ --------------------- 'Topicort' 1046658 'Topicort' 621695 'A/T/S' 1284012 'Loprox' 1221402 'Loprox TA' Application No. 75/207.214 D-1 63 LICENSE AND OPTION AGREEMENT EXHIBIT E List of Canadian Products and New Drug Submissions (Per Section 4.4) Part I. Canadian Products 'Loprox' - -------- Topical Cream, 1% Lotion, 1% 'Topicort' - ---------- Emollient Cream, 0.25% Gel, 0.05% Mild Emollient Cream, 0.05% Ointment, 0.25% 'Dermatop'* - ----------- Emollient Cream, 0.1% Ointment, 0.1% *Never manufactured or sold in CANADA Part II. Canadian New Drug Submissions 'Loprox': 9427 - H28-71 'Topicort': 9427-H28-59 'Dermatop': 9427-H0028/8-45 D-1 EX-10.91 10 EX-10.91 1 Exhibit 10.91 LOPROX LOTION SUPPLY AGREEMENT LOPROX LOTION SUPPLY AGREEMENT BY AND BETWEEN HOECHST MARION ROUSSEL, INC. AND MEDICIS PHARMACEUTICAL CORPORATION DATED AS OF NOVEMBER 15, 1998 TRADEMARK NOTICE: 'Loprox' and 'A/T/S' are registered trademarks of HMR, certain rights to which are granted to MEDICIS in accordance with the TRADEMARK LICENSE AGREEMENT (as defined herein). The use of such trademarks in this AGREEMENT is deemed to be accompanied by an appropriate notice of trademark registration. 2 LOPROX LOTION SUPPLY AGREEMENT TABLE OF CONTENTS
Page ARTICLE I. DEFINITIONS............................................................................................5 1.1 "AAA"...................................................................................................5 1.2 "ACT"...................................................................................................5 1.3 "ACTIVE INGREDIENT".....................................................................................5 1.4 "AFFILIATE".............................................................................................5 1.5 "AGREEMENT".............................................................................................6 1.6 "APPLICABLE LAWS".......................................................................................6 1.7 "BACKORDERS"............................................................................................6 1.8 "cGMP"..................................................................................................6 1.9 "CICLOPIROX"............................................................................................6 1.10 "CLAIM".................................................................................................6 1.11 "CONTRACT YEAR".........................................................................................6 1.12 "CPI"...................................................................................................6 1.13 "CPI INCREASE"..........................................................................................6 1.14 "EFFECTIVE DATE"........................................................................................6 1.15 "EXCLUDED HMR PRODUCT LIABILITY"........................................................................6 1.16 "EXTENDED SUPPLY INTERRUPTION"..........................................................................6 1.17 "FDA"...................................................................................................7 1.18 "FORCE MAJEURE".........................................................................................7 1.19 "FORECAST MONTH"........................................................................................7 1.20 "HERBERT"...............................................................................................7 1.21 "HERBERT AGREEMENT".....................................................................................7 1.22 "HMR GmbH"..............................................................................................7 1.23 "HMRI"..................................................................................................7 1.24 "HMRI INDEMNIFIED PARTY"................................................................................7 1.25 "INITIAL TERM"..........................................................................................7 1.26 "INTERRUPTED MEDICIS ORDERS"............................................................................7 1.27 "LIABILITY".............................................................................................7 1.28 "LICENSE AND OPTION AGREEMENT"..........................................................................7
i 3 LOPROX LOTION SUPPLY AGREEMENT 1.29 "LOPROX LOTION".........................................................................................7 1.30 "LOST SALES"............................................................................................7 1.31 "MEDICIS"...............................................................................................7 1.32 "MEDICIS INDEMNIFIED PARTY".............................................................................8 1.33 "NDAs"..................................................................................................8 1.34 "NET SALES".............................................................................................8 1.35 "PACO"..................................................................................................8 1.36 "PACO AGREEMENTS".......................................................................................8 1.37 "PACO A/T/S AGREEMENT"..................................................................................8 1.38 "PACO LOPROX AGREEMENT".................................................................................8 1.39 "PURCHASE AGREEMENT"....................................................................................8 1.40 "RULES".................................................................................................8 1.41 "QUALIFIED ALTERNATE SUPPLIER"..........................................................................8 1.42 "SHORTFALL".............................................................................................8 1.43 "SPECIFICATIONS"........................................................................................8 1.44 "SUPPLY AGREEMENT"......................................................................................8 1.45 "SUPPLY INTERRUPTION"...................................................................................8 1.46 "TERRITORY".............................................................................................8 1.47 "TRADE QUOTA"...........................................................................................8 1.48 "TRADEMARK LICENSE AGREEMENT"...........................................................................9 1.49 "TRANSITION SERVICES AGREEMENT".........................................................................9 1.50 "24-MONTH FORECAST".....................................................................................9 ARTICLE II. MANUFACTURE, PURCHASE AND SALE OF LOPROX LOTION.......................................................9 2.1 Purchase and Sale........................................................................................9 2.2 A/T/S Solution and A/T/S Gel.............................................................................9 2.3 Labeling and Packaging..................................................................................10 2.4 Forecasts...............................................................................................10 2.5 Communication...........................................................................................11 2.6 Minimum Inventory.......................................................................................11 2.7 Delivery................................................................................................12 2.8 Shortages/Damaged Goods/Rejected Goods..................................................................12 2.9 Current Inventory, including A/T/S Solution and A/T/S Gel...............................................13
ii 4 LOPROX LOTION SUPPLY AGREEMENT 2.10 SUPPLY INTERRUPTION.....................................................................................14 2.11 Supply Price for LOPROX LOTION..........................................................................18 2.12 Payment.................................................................................................19 2.13 Advertising/Marketing/Sales Costs and Product Pricing...................................................19 2.14 Samples.................................................................................................19 2.15 Compliance with APPLICABLE LAWS.........................................................................21 2.16 Rights Necessary for Manufacturing......................................................................21 ARTICLE III. TERM AND TERMINATION................................................................................21 3.1 Term of this AGREEMENT..................................................................................21 3.2 Renewal Periods.........................................................................................21 3.3 Early Termination.......................................................................................21 3.4 Consequences of Termination and Survival................................................................22 3.5 Accrued Obligations.....................................................................................23 ARTICLE IV. MANUFACTURING COMPLIANCE, ACCESS AND REGULATORY MATTERS..............................................23 4.1 Tests; Retained Samples.................................................................................23 4.2 Manufacturing Compliance................................................................................23 4.3 Changes in SPECIFICATIONS...............................................................................24 4.4 Access to Facilities....................................................................................24 4.5 Regulatory Correspondence...............................................................................25 4.6 Inquiries and Complaints relating to LOPROX LOTION......................................................25 4.7 Response to Complaints and/or Adverse Drug Reactions (or Events)........................................25 4.8 Additional Information..................................................................................25 ARTICLE V. LOPROX LOTION RECALLS................................................................................26 5.1 Recalls During INITIAL TERM.............................................................................26 5.2 Recalls Thereafter......................................................................................26 ARTICLE VI. WARRANTIES AND REMEDIES..............................................................................26 6.1 FDA Approval............................................................................................26 6.2 Conformity with SPECIFICATIONS..........................................................................26 6.3 Compliance with the Federal Food, Drug and Cosmetic Act.................................................26 6.4 No Liens................................................................................................27 6.5 Exclusion of Other Warranties...........................................................................27
iii 5 LOPROX LOTION SUPPLY AGREEMENT ARTICLE VII. INDEMNIFICATION, LIMITATION OF LIABILITY AND INSURANCE..............................................27 7.1 Indemnification by MEDICIS..............................................................................27 7.2 Indemnification by HMRI.................................................................................28 7.3 Process of Indemnification..............................................................................28 7.4 Settlements.............................................................................................28 7.5 Limitation of Liability.................................................................................29 7.6 Distribution Insurance..................................................................................29 7.7 Manufacturer's Insurance................................................................................29 7.8 LOPROX LOTION Liability Claims..........................................................................29 ARTICLE VIII. GENERAL PROVISIONS.................................................................................30 8.1 FORCE MAJEURE...........................................................................................30 8.2 Governing Law...........................................................................................30 8.3 Headings and References.................................................................................30 8.4 Dispute Resolution......................................................................................30 8.5 Severability............................................................................................33 8.6 Entire Agreement........................................................................................33 8.7 Amendment...............................................................................................33 8.8 Notices.................................................................................................33 8.9 Assignment and Binding Effect...........................................................................34 8.10 No Agency..............................................................................................34 8.11 No Strict Construction.................................................................................34 8.12 Counterparts...........................................................................................34
iv 6 LOPROX LOTION SUPPLY AGREEMENT LOPROX LOTION SUPPLY AGREEMENT This Supply Agreement (the "AGREEMENT") is entered into as of November 15, 1998, by and between Hoechst Marion Roussel, Inc., a Delaware corporation ("HMRI"), and Medicis Pharmaceutical Corporation, a Delaware corporation ("MEDICIS"). Capitalized terms shall have the meanings ascribed to them in Article I hereof or as otherwise set forth in this AGREEMENT. RECITALS A. HMRI is engaged in the manufacture of or has toll manufactured LOPROX LOTION pursuant to certain NDAs owned during the INITIAL TERM by HMRI or its AFFILIATES. B. MEDICIS is willing to purchase its requirements for LOPROX LOTION from HMRI in accordance with, and for the INITIAL TERM of, this AGREEMENT. C. HMRI is willing to supply such LOPROX LOTION to MEDICIS in accordance with, and for the INITIAL TERM of, this AGREEMENT. D. In addition to the actions contemplated by this AGREEMENT, HMRI, certain AFFILIATES of HMRI and MEDICIS are entering into the LICENSE AND OPTION AGREEMENT, the SUPPLY AGREEMENT, the TRADEMARK LICENSE AGREEMENT, the TRANSITION SERVICES AGREEMENT and the PURCHASE AGREEMENT. NOW, THEREFORE, in consideration of the mutual promises hereinafter made and the mutual benefits to be derived from this AGREEMENT, the parties hereto, intending to be legally bound, hereby agree as follows: ARTICLE I. DEFINITIONS 1.1 "AAA" shall have the meaning set forth in Section 8.4 hereof. 1.2 "ACT" means the United States Federal Food, Drug and Cosmetic Act, as amended. 1.3 "ACTIVE INGREDIENT" means CICLOPIROX. 1.4 "AFFILIATE" means any individual, corporation or other legal entity which either party directly or indirectly through one or more intermediaries controls or which is controlled by or under common control with such party. For the purpose of this AGREEMENT, "control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of an individual, corporation or other legal entity, whether through E-1 7 LOPROX LOTION SUPPLY AGREEMENT the ownership of voting securities, by contract, or otherwise; provided, however, that Copley Pharmaceutical, Inc., a Delaware corporation, shall not be an AFFILIATE of HMRI. 1.5 "AGREEMENT" means this LOPROX LOTION Supply Agreement between HMRI and MEDICIS. 1.6 "APPLICABLE LAWS" shall mean all applicable laws, statutes, rules, regulations, ordinances, orders, decrees, writs, judicial or administrative decisions and the like of any nation or government, any state or other political subdivision thereof, any entity exercising executive, judicial, regulatory or administrative functions of or pertaining to government (including, without limitation, any governmental authority, agency, department, board, commission or instrumentality of any governmental unit or any political subdivision thereof), any tribunal or arbitrator of competent jurisdiction, and any self-regulatory organization.1.7 1.7 "BACKORDERS" shall have the meaning set forth in Section 2.10(c) (i)(B)(3) hereof. 1.8 "cGMP" shall mean the then-current Good Manufacturing Practices as promulgated under the ACT at 21 CFR (chapters 210, 211, 600 and 610), as the same may be amended or re-enacted from time to time and as interpreted in accordance with then-current industry standards and FDA policies. 1.9 "CICLOPIROX" means ciclopirox acid and/or ciclopirox olamine. 1.10 "CLAIM" shall have the meaning set forth in Section 8.4(a) hereof. 1.11 "CONTRACT YEAR" shall mean the twelve (12) month period commencing on the EFFECTIVE DATE and ending on the first anniversary of the EFFECTIVE DATE and each consecutive twelve (12) month period thereafter during the INITIAL TERM. 1.12 "CPI" shall have the meaning set forth in Section 2.11(a) hereof. 1.13 "CPI INCREASE" shall have the meaning set forth in Section 2.11 (a) hereof. 1.14 "EFFECTIVE DATE" means the date of this AGREEMENT as first set forth above. 1.15 "EXCLUDED HMR PRODUCT LIABILITY" means any LIABILITY of HMR or their AFFILIATES arising under any applicable federal, state, local or other product liability law, regulation, common law principle, court order or judgment, jury verdict or arbitral award arising out of or related to the manufacture of the LOPROX LOTION by or on behalf of HMRI or its AFFILIATES after the EFFECTIVE DATE; excluding, however, any such LIABILITY due to, caused by, resulting from or arising out of any breach by HMRI or any AFFILIATE of Article VI of this AGREEMENT. 1.16 "EXTENDED SUPPLY INTERRUPTION" shall have the meaning set forth in Section 2.10(c)(i)(B)(1) hereof. E-1 8 LOPROX LOTION SUPPLY AGREEMENT 1.17 "FDA" means the United States Food and Drug Administration or any successor entity thereto. 1.18 "FORCE MAJEURE" shall have the meaning set forth in Section 8.1 hereof. 1.19 "FORECAST MONTH" shall have the meaning set forth in Section 2.4 (b) hereof. 1.20 "HERBERT" means Vision Pharmaceuticals L.P., a Texas limited partnership (formerly known as Herbert Laboratories), the general partner of which is Allergan General, Inc., a Delaware corporation that is a subsidiary of Allergan, Inc. 1.21 "HERBERT AGREEMENT" means the Manufacturing Agreement, dated as of June 11, 1990, between HMRI and HERBERT, as amended, relating to A/T/S Gel. 1.22 "HMR GmbH" means Hoechst Marion Roussel Deutschland GmbH, a German limited liability company. 1.23 "HMRI" means Hoechst Marion Roussel, Inc., a Delaware corporation. 1.24 "HMRI INDEMNIFIED PARTY" shall have the meaning set forth in Section 7.1 hereof. 1.25 "INITIAL TERM" means the three (3) year period commencing upon the EFFECTIVE DATE. 1.26 "INTERRUPTED MEDICIS ORDERS" shall have the meaning set forth in Section 2.10(c)(i)(B)(4) hereof. 1.27 "LIABILITY" means any and all liabilities, losses, damages, penalties, fines, assessments, expenses and costs of any kind or nature required to be paid by a party hereunder (or its AFFILIATE) to any third party (which shall not include any AFFILIATE of such paying party), primary or secondary, direct or indirect, absolute or contingent, known or unknown, including without limitation costs of settlement, reasonable attorneys' fees and related costs and expenses and any liabilities for claims of personal injury or death, suffered or incurred by an indemnified party hereunder. 1.28 "LICENSE AND OPTION AGREEMENT" means the License and Option Agreement, of even date herewith, among HMRI, certain of its AFFILIATES and MEDICIS. 1.29 "LOPROX LOTION" means the human dermatology products listed in Exhibit B to this AGREEMENT and (unless the context indicates otherwise) samples thereof as listed in Exhibit C to this AGREEMENT as manufactured for sale in the TERRITORY. 1.30 "LOST SALES" shall have the meaning set forth in Section 2.10(c) (i)(B)(2) hereof. 1.31 "MEDICIS" means Medicis Pharmaceutical Corporation, a Delaware corporation. E-1 9 LOPROX LOTION SUPPLY AGREEMENT 1.32 "MEDICIS INDEMNIFIED PARTY" shall have the meaning set forth in Section 7.2 hereof. 1.33 "NDAs" means the New Drug Applications, Abbreviated New Drug Applications and Abbreviated Antibiotic Drug Applications (as such terms are defined by the FDA) for the LOPROX LOTION filed and approved in accordance with the requirements of the FDA, as may be amended or supplemented from time to time, and as set forth on Exhibit A hereto. 1.34 "NET SALES" shall have the meaning set forth in Section 2.10(c) (i)(B)(5) hereof. 1.35 "PACO" means Paco Pharmaceutical Services, Inc., a Delaware corporation. 1.36 "PACO AGREEMENTS" means the PACO A/T/S AGREEMENT and the PACO LOPROX AGREEMENT. 1.37 "PACO A/T/S AGREEMENT" means the Toll Manufacturing Agreement, dated of even date herewith, between HMRI and PACO relating to A/T/S Solution, including any amendments thereto. 1.38 "PACO LOPROX AGREEMENT" means the Toll Manufacturing Agreement, dated of even date herewith, between HMRI and PACO relating to Loprox Lotion, including any amendments thereto. 1.39 "PURCHASE AGREEMENT" means the PURCHASE AGREEMENT as defined in the LICENSE AND OPTION AGREEMENT. 1.40 "RULES" shall have the meaning set forth in Section 8.4(b) hereof. 1.41 "QUALIFIED ALTERNATE SUPPLIER" shall have the meaning set forth in Section 2.10(b) hereof. 1.42 "SHORTFALL" shall have the meaning set forth in Section 2.14 hereof. 1.43 "SPECIFICATIONS" mean the written specifications for the LOPROX LOTION contained in the NDAs, as the same may be amended from time to time by HMRI pursuant to the provisions of Section 4.3 herein. 1.44 "SUPPLY AGREEMENT" shall mean the Supply Agreement, dated of even date herewith, between HMR GmbH and MEDICIS. 1.45 "SUPPLY INTERRUPTION" shall have the meaning set forth in Section 2.10 hereof. 1.46 "TERRITORY" means the United States of America and its possessions and territories. 1.47 "TRADE QUOTA" shall have the meaning set forth in Section 2.14 (a) hereof. E-1 10 LOPROX LOTION SUPPLY AGREEMENT 1.48 "TRADEMARK LICENSE AGREEMENT" means the Trademark License Agreement, dated of even date herewith, among HMR GmbH, HMRI, an AFFILIATE of HMRI and MEDICIS. 1.49 "TRANSITION SERVICES AGREEMENT" means the Transition Services Agreement, dated of even date herewith, between HMRI and MEDICIS. 1.50 "24-MONTH FORECAST" shall have the meaning set forth in Section 2.4(b) hereof. Unless the context clearly indicates otherwise, the use herein of the singular shall include the plural, and the use of the masculine shall included the feminine. ARTICLE II. MANUFACTURE, PURCHASE AND SALE OF LOPROX LOTION 2.1 Purchase and Sale. Pursuant and subject to the terms and conditions of this AGREEMENT, HMRI agrees to manufacture or have manufactured MEDICIS' requirements for LOPROX LOTION for sale or distribution by MEDICIS in the TERRITORY during the INITIAL TERM of this AGREEMENT, and MEDICIS agrees to purchase from HMRI its requirements for LOPROX LOTION for sale or distribution by MEDICIS in the TERRITORY during the INITIAL TERM of this AGREEMENT; provided, however, that if during any CONTRACT YEAR during the INITIAL TERM MEDICIS purchases from HMRI LOPROX LOTION having an aggregate supply price of U.S. $400,000 (plus the CPI INCREASE for the second and third CONTRACT YEAR), MEDICIS may in such CONTRACT YEAR or in the next succeeding CONTRACT YEAR purchase from the QUALIFIED ALTERNATIVE SUPPLIER LOPROX LOTION having an aggregate supply price of not more than U.S. $65,000. HMRI may during the INITIAL TERM abandon its manufacture of LOPROX LOTION due to the regulatory requirement of any government or agency thereof; provided, however, that in the event HMRI at any time is required to so abandon such manufacture, HMRI shall immediately notify MEDICIS in writing of such requirement; and, provided further, that such right of abandonment shall not prejudice any rights and remedies, if any, MEDICIS may have hereunder in connection with or as a result of such abandonment, including without limitation any rights and remedies relating to any SUPPLY INTERRUPTION or EXTENDED SUPPLY INTERRUPTION or the termination rights under Section 3.3(c) of the SUPPLY AGREEMENT arising therefrom. 2.2 A/T/S Solution and A/T/S Gel. MEDICIS shall purchase its requirements of (i) A/T/S Solution from PACO pursuant to the PACO A/T/S AGREEMENT and the Assignment and Assumption Agreement, dated of even date herewith, assigning such agreement from HMRI to MEDICIS, and (ii) A/T/S Gel from HERBERT pursuant to the HERBERT AGREEMENT and the Assignment and Assumption Agreement, dated of even date herewith, assigning such agreement from HMRI to MEDICIS. If the OPTION (as defined in the LICENSE AND OPTION AGREEMENT) is not exercised in accordance with Section 4.1 of the LICENSE AND E-1 11 LOPROX LOTION SUPPLY AGREEMENT OPTION AGREEMENT, after the INITIAL TERM, MEDICIS, its AFFILIATES, or its successors, assigns or sublicensees shall in no event obtain supply of A/T/S Gel or samples thereof from HERBERT, its AFFILIATES, or its successors, assigns or sublicensees pursuant to the HERBERT AGREEMENT or otherwise, nor A/T/S Solution or LOPROX LOTION or samples thereof from PACO, its AFFILIATES, or its successors, assigns or sublicensees pursuant to the PACO AGREEMENTS or otherwise. 2.3 Labeling and Packaging. MEDICIS shall be responsible for paying all out-of-pocket costs of the design of any new packaging and labeling of HMRI or MEDICIS for the LOPROX LOTION and shall provide to HMRI (which shall actually prepare such packaging and labeling) MEDICIS' logo, color codes, designs, information, graphics and art work to be applied to LOPROX LOTION, which MEDICIS warrants shall be consistent with the FDA approved labeling for LOPROX LOTION, shall be in accordance with APPLICABLE LAWS and shall not knowingly infringe upon the proprietary rights of any third party. MEDICIS shall provide such logo, color codes, designs, information, graphics and art work pursuant to this Section 2.3 to HMRI by such time in advance of the delivery requirements for the LOPROX LOTION as HMRI shall have notified MEDICIS in writing is sufficient for purposes of this AGREEMENT. 2.4 Forecasts. (a) Long-Range Forecasts. Upon execution of this AGREEMENT, and thereafter at least six (6) months prior to the commencement of each succeeding calendar year, commencing with the first (1st) calendar year, MEDICIS shall provide HMRI with a rolling annual forecast of the quantities of LOPROX LOTION, by finished dosage form and package size (SKU), with the first two (2) calendar years divided by months, that MEDICIS intends to order during the five (5) year period commencing with that calendar year or part thereof. The parties acknowledge that such forecasts shall represent reasonable good faith estimates, and not purchase or supply commitments. (b) Short-Term Forecasts. Upon execution of this AGREEMENT, and thereafter no later than the tenth (10th) calendar day of any calendar month (the "FORECAST MONTH") (with the previous month's forecast to govern in the event of the failure or delay of such delivery), MEDICIS shall deliver to HMRI a rolling monthly forecast of the quantities of LOPROX LOTION, by finished dosage form and package size (SKU), that MEDICIS intends to order during the ensuing twenty-four (24) month period (including the FORECAST MONTH) after receipt by HMRI of the forecast. It is acknowledged that the monthly forecasts in the 24-MONTH FORECAST for the period from the LICENSE EFFECTIVE DATE through the end of the third (3rd) full calendar month following the LICENSE EFFECTIVE DATE shall constitute confirmed MEDICIS orders for purposes of this AGREEMENT. HMRI may, by notice to MEDICIS given within ten (10) business days following its receipt of a forecast, elect not to confirm, in whole or in part, the forecast for the third calendar month after the FORECAST MONTH which (i) is made at a time when HMRI has the right to suspend the provision of LOPROX LOTION pursuant to Section 2.12(b) hereof, (ii) cannot be filled due to circumstances arising under Section 8.1 hereof, (iii) are in excess of the quantities forecasted by MEDICIS in the 24-MONTH FORECAST (which quantities HMRI may, at its option, apportion pro rata E-1 12 LOPROX LOTION SUPPLY AGREEMENT among each month in a calendar quarter in the 24 MONTH FORECAST for purposes of this clause), or (iv) relates to any period of time beyond the 24-MONTH FORECAST. All rejections, in whole or in part, of MEDICIS orders by HMRI must be in writing and delivered within such ten (10) business day period. Unless so rejected by HMRI, the forecast for such third (3rd) calendar month after the FORECAST MONTH shall become a binding obligation on MEDICIS to purchase, and a binding obligation on HMRI to supply, such quantities. MEDICIS' first short term forecast (the "24-MONTH FORECAST") is attached hereto as Exhibit D. Unless mutually agreed by HMRI and MEDICIS in writing, the monthly forecast submitted by MEDICIS for such third calendar month shall be at least eighty per cent (80%) and not be more than one hundred twenty per cent (120%) of the most recent forecast for such third calendar month provided to HMRI pursuant to Section 2.4(a) hereof. (c) HMRI Twenty Four (24) Month Supply Commitment. Subject to Sections 2.4(b)(i), 2.10 and 8.1 hereof, HMRI covenants and agrees that during each of the successive calendar quarters reflected in the 24-MONTH FORECAST, HMRI shall confirm and deliver to MEDICIS at least the quantities of LOPROX LOTION forecasted to be ordered by MEDICIS for such calendar quarter as set forth in the 24-MONTH FORECAST, provided that such quantities are actually ordered by MEDICIS pursuant to Section 2.4(b) hereof. 2.5 Communication MEDICIS acknowledges that LOPROX LOTION is produced in full lot quantities, as set forth on Exhibit E attached hereto. Separate orders are not necessary and are not legally binding. The written forecasts from MEDICIS as confirmed by HMRI pursuant to Section 2.4(b) hereof shall constitute legally binding orders between MEDICIS and HMRI for the LOPROX LOTION. All forecasts by MEDICIS hereunder shall be in writing and addressed as follows: Hoechst Marion Roussel, Inc. HMRI External Manufacturing PPU Marion Park Building C Kansas City, Missouri 64137 Attention: Jerry Malone Telephone: (816) 966-5017 Fax: (816) 966-7130 MEDICIS shall be obligated to purchase all such LOPROX LOTION which is confirmed by HMRI in accordance with Section 2.4(b), provided that such LOPROX LOTION meets the SPECIFICATIONS. After receipt by MEDICIS of HMRI's written confirmation, no other purchase order, shipping document, confirmation or waybill shall be deemed to modify, supplement or substitute for the terms and conditions of this AGREEMENT, except upon the mutual written agreement of the parties. All such documents shall be subject to, and shall be deemed to incorporate, the terms and conditions of this AGREEMENT. 2.6 Minimum Inventory. Subject to the constraints imposed by any breach by HMRI of any of the terms of this AGREEMENT, by any SUPPLY INTERRUPTION or by any EXTENDED SUPPLY INTERRUPTION, and subject to HMRI's fulfillment of its delivery E-1 13 LOPROX LOTION SUPPLY AGREEMENT obligations under Sections 2.4(b) and 2.4(c) hereof, MEDICIS shall maintain at its expense at all times after the six (6) month anniversary of the EFFECTIVE DATE, including immediately prior to delivery of a new shipment of LOPROX LOTION, inventory of LOPROX LOTION equivalent to the quantities of such LOPROX LOTION sold by MEDICIS over a three (3) month period (or by HMRI and/or its AFFILIATES for any period prior to the EFFECTIVE DATE) which shall be computed as being the average of the quantities sold during the three (3) most recently completed calendar quarters. 2.7 Delivery. The LOPROX LOTION shall be shipped by HMRI FOB the place of manufacture or an HMRI warehouse facility in the TERRITORY. MEDICIS shall pay for all freight and insurance costs with respect to shipment within the TERRITORY. All shipments shall be made by refrigerated carriers. All deliveries of confirmed MEDICIS orders shall be available for shipment to MEDICIS on or before the last day of the calendar month for which the relevant order was confirmed by HMRI hereunder. 2.8 Shortages/Damaged Goods/Rejected Goods. (a) Shortages/Damaged Goods. MEDICIS shall notify HMRI in writing of any obvious visible damage or obvious shortage in quantity of any shipment of LOPROX LOTION within its possession within six (6) business days after receipt at MEDICIS' regional distribution centers. In the event of (a) any shortage in quantity of any shipment of LOPROX LOTION that is not within MEDICIS' possession, (b) any non-obvious shortage in quantity of any shipment of LOPROX LOTION within MEDICIS' possession or (c) any non-obvious damage to any LOPROX LOTION, MEDICIS shall notify HMRI in writing within the earlier of (i) ten (10) business days after discovery of such shortage or damage or (ii) the shelf life of such LOPROX LOTION, provided that MEDICIS shall provide documentation reasonably satisfactory to HMRI demonstrating that such shortage or damage existed when such LOPROX LOTION was delivered by HMRI. Notification under this Section 2.8(a) shall specify the finished dosage form and package size (SKU) of such LOPROX LOTION. In the event of any shortage or damage as described in this Section 2.8(a) (and provided HMRI is reasonably satisfied with any required documentation relating thereto), HMRI shall make up the shortage or replace the damaged shipment within thirty (30) business days after notification by MEDICIS, if replacement LOPROX LOTION stock is available, or, if no such replacement stock is available, as soon as reasonably practicable after receiving such notice. MEDICIS shall deduct the invoiced amount relating to any shortage of LOPROX LOTION or damaged LOPROX LOTION from payment of the HMRI invoice or invoices for such LOPROX LOTION. (b) Rejected Goods. MEDICIS shall notify HMRI in writing of any claim relating to LOPROX LOTION failing to meet the SPECIFICATIONS at the time title passes to MEDICIS in accordance with Section 2.7 hereof (other than due solely to storage, handling or shipping by MEDICIS, its AFFILIATES, customers and/or carriers) within the earlier of (i) thirty (30) business days after discovery of such failure to meet the SPECIFICATIONS or (ii) the shelf life of such LOPROX LOTION. Such notification shall specify the finished dosage form and package size (SKU) of such LOPROX LOTION. Subject to the provisions of Section 2.8(c) hereof, HMRI shall replace any such LOPROX LOTION that fails to meet the E-1 14 LOPROX LOTION SUPPLY AGREEMENT SPECIFICATIONS within thirty (30) business days after notification by MEDICIS, if replacement LOPROX LOTION stock is available, or, if no such replacement stock is available, as soon as reasonably practicable after receiving such notice. MEDICIS shall not be responsible, and shall receive a credit from HMRI, for any additional costs of shipping and freight required to be paid as a result of any replacement of LOPROX LOTION under this Section 2.8(b). The provisions of this Section 2.8(b) shall not apply to LOPROX LOTION which fails to meet the SPECIFICATIONS due solely to storage, handling or shipping by MEDICIS, its AFFILIATES, customers and/or carriers. MEDICIS shall deduct the invoiced amount for any LOPROX LOTION which fails to meet the SPECIFICATIONS (other than due solely to storage, handling or shipping by MEDICIS, its AFFILIATES, customers and/or carriers) from payment of the HMRI invoice or invoices for such LOPROX LOTION. (c) Disputes. In the event of a dispute regarding whether any LOPROX LOTION fails to meet the SPECIFICATIONS which HMRI and MEDICIS are unable to resolve, a sample of such LOPROX LOTION shall be submitted by MEDICIS to an independent laboratory reasonably acceptable to both parties for testing and the test results obtained by such laboratory shall be final and controlling. The fees and expenses of such laboratory testing and all additional shipping and transportation costs incurred as a result of the dispute shall be borne entirely by the party against whom such laboratory's findings are made. In the event the test results indicate that the LOPROX LOTION in question fails to meet the SPECIFICATIONS, HMRI shall replace such LOPROX LOTION within thirty (30) business days after receipt of such results if replacement LOPROX LOTION stock is available, or, if no such replacement stock is available, as soon as reasonably practicable after receiving such notice. MEDICIS shall not be responsible, and shall receive a credit from HMRI, for any additional costs of shipping and freight required to be paid as a result of any replacement of LOPROX LOTION under this Section 2.8(c). MEDICIS shall deduct the invoiced amount for any LOPROX LOTION which is so determined to fail to meet the SPECIFICATIONS from payment of the HMRI invoice or invoices for such LOPROX LOTION. 2.9 Current Inventory, including A/T/S Solution and A/T/S Gel. In accordance with the terms of the TRANSITION SERVICES AGREEMENT, HMRI or its AFFILIATES shall deliver to MEDICIS in its initial or subsequent shipments to MEDICIS at the prices set forth in Exhibit B (for this purpose the supply price for A/T/S Solution is U.S. $1.55 per 60 ml bottles and for A/T/S Gel is U.S. $3.25 per 30 gm tube) and Exhibit C, respectively, attached hereto, existing inventory of the LOPROX LOTION, A/T/S Solution and A/T/S Gel and all existing samples thereof in inventory of HMRI and its AFFILIATES and in process with at least twelve (12) months of shelf life remaining. If MEDICIS has distributed such existing inventory of LOPROX LOTION, A/T/S Solution and A/T/S Gel first, MEDICIS shall notify HMRI in writing of the quantities of LOPROX LOTION, A/T/S Solution and A/T/S Gel that have not been sold or given to MEDICIS' customers, as the case may be, at a date as of nine (9) months prior to their respective expiration dating. HMRI shall instruct MEDICIS in writing whether, at HMRI's expense, to destroy such LOPROX LOTION, A/T/S Solution and A/T/S Gel or to return such LOPROX LOTION, A/T/S Solution and A/T/S Gel to HMRI or its AFFILIATES. Within ten (10) days after receiving each such notification by MEDICIS, HMRI shall reimburse MEDICIS for all amounts paid by MEDICIS to HMRI for such destroyed or returned LOPROX LOTION, E-1 15 LOPROX LOTION SUPPLY AGREEMENT A/T/S Solution and A/T/S Gel and any and all reasonable disposal, shipping or other expenses incurred by MEDICIS in connection with the destruction or return of such LOPROX LOTION, A/T/S Solution and A/T/S Gel. 2.10 SUPPLY INTERRUPTION. For purposes of this AGREEMENT, a "SUPPLY INTERRUPTION" shall be deemed to occur: (i) if HMRI's ability to supply adequate quantities of LOPROX LOTION in saleable form in a timely manner to MEDICIS is adversely affected or inhibited as reasonably determined by both parties, (ii) if HMRI fails to deliver to MEDICIS, in saleable form in accordance with the terms of this AGREEMENT, any portion, greater than 6% in quantity, of any confirmed order for any SKU of LOPROX LOTION, or (iii) if in any calendar quarter covered by the 24-MONTH FORECAST, HMRI fails to deliver, in saleable form in accordance with the terms of this AGREEMENT, LOPROX LOTION in accordance with the 24-MONTH FORECAST or, if less, in the applicable portion of MEDICIS' last short-term forecast provided prior to the SUPPLY INTERRUPTION. For purposes of this AGREEMENT, a SUPPLY INTERRUPTION shall be deemed to have been fully cured once HMRI has delivered to MEDICIS all confirmed orders and, for any calendar months for which there have been no confirmed orders due to the SUPPLY INTERRUPTION, at least the minimum quantities in saleable form of LOPROX LOTION forecasted to be ordered by MEDICIS during such calendar months as set forth in the 24-MONTH FORECAST or, if less, in the applicable portion of MEDICIS' last short-term forecast provided prior to the SUPPLY INTERRUPTION. In the event of any SUPPLY INTERRUPTION, the following terms and conditions shall apply: (a) Pro Rata Entitlement. In the event of a SUPPLY INTERRUPTION, MEDICIS shall be entitled to a pro rata (in unit quantity) share of the manufacturing capacity of HMRI and its AFFILIATES (in the event HMRI or its AFFILIATES are then manufacturing LOPROX LOTION and not PACO) for the manufacture of LOPROX LOTION, and HMRI and its AFFILIATES shall also be subject to a pro rata (in unit quantity) entitlement to such manufacturing capacity. If, for example, during a period of SUPPLY INTERRUPTION, HMRI receives orders for a total of 2,000 units, of which 500 units (i.e., 25% of the total orders) are ordered by MEDICIS and 1,500 units (i.e., 75% of the total orders) are ordered by third parties or by AFFILIATES of HMRI, MEDICIS shall be entitled to receive 25% of HMRI's manufacturing capacity during the period of such SUPPLY INTERRUPTION. Thus, if HMRI were able to manufacture only 1,000 units during the period of such SUPPLY INTERRUPTION, MEDICIS would be entitled to receive 25% of such total number of units (i.e., 250 units) and third parties and AFFILIATES of HMRI would be entitled to receive 75% of such total number of units (i.e., 750 units). MEDICIS' entitlement to HMRI's and its AFFILIATES' manufacturing capacity under this Section 2.10(a) shall be in addition to any other rights and remedies MEDICIS may have under this AGREEMENT as a result of any SUPPLY INTERRUPTION. (b) QUALIFIED ALTERNATE SUPPLIER. At any time during the INITIAL TERM, MEDICIS shall have the right to designate and qualify one and only one qualified alternate supplier, which selection shall be reasonably acceptable to HMRI (the "QUALIFIED ALTERNATE SUPPLIER"). The QUALIFIED ALTERNATE SUPPLIER may only be utilized by MEDICIS during the INITIAL TERM as specifically set forth in this Section 2.10 or in Section 2.1 hereof. HMRI, at MEDICIS' sole expense, shall promptly provide at such E-1 16 LOPROX LOTION SUPPLY AGREEMENT times and locations as may reasonably be requested by MEDICIS, reasonable cooperation to MEDICIS in qualifying such alternate supplier for LOPROX LOTION. Such cooperation shall include, without limitation, participation by HMRI's representatives in at least two meetings in North America during the INITIAL TERM. From the time that any SUPPLY INTERRUPTION begins until such SUPPLY INTERRUPTION is fully cured, MEDICIS may obtain any resulting shortage of LOPROX LOTION from the QUALIFIED ALTERNATE SUPPLIER. If the OPTION (as defined in the LICENSE AND OPTION AGREEMENT) is not exercised in accordance with Section 4.1 of the LICENSE AND OPTION AGREEMENT, (i) MEDICIS, its AFFILIATES, or its successors, assigns or sublicensees shall not obtain supply of LOPROX LOTION, A/T/S Solution and A/T/S Gel or of the ACTIVE INGREDIENT from the QUALIFIED ALTERNATE SUPPLIER, its AFFILIATES, or its successors, assigns or sublicensees for a period of three (3) years after the INITIAL TERM, and (ii) HMRI, its AFFILIATES, or its successors, assigns or sublicensees after the INITIAL TERM may obtain supply of the LOPROX LOTION, A/T/S Solution and A/T/S Gel or of the ACTIVE INGREDIENT from such QUALIFIED ALTERNATE SUPPLIER, its AFFILIATES, or its successors, assigns or sublicensees after the INITIAL TERM. (c) LOST SALES Remedy. (i) (A) For each calendar quarter or portion thereof during an EXTENDED SUPPLY INTERRUPTION and as liquidated damages and not as a penalty, HMRI shall pay to MEDICIS an amount equal to MEDICIS' LOST SALES as provided herein. (B) For purposes of this Section 2.10(c) and this AGREEMENT: (1) An "EXTENDED SUPPLY INTERRUPTION" shall mean a period which: (a) begins on the sixty-first (61st) consecutive day of a SUPPLY INTERRUPTION; provided that during the first six (6) months during the term hereof, the first (1st) day of a SUPPLY INTERRUPTION shall begin such period (which in all cases must be before the two (2) month anniversary of the date on which the FDA approves the QUALIFIED ALTERNATE SUPPLIER or, if earlier, the date that is eighteen (18) months after the EFFECTIVE DATE); and (b) ends on the earliest of (x) the date as of which HMRI has fully cured the SUPPLY INTERRUPTION, (y) the date that is eighteen (18) months after the EFFECTIVE DATE, or (z) the two (2) month anniversary of the date on which the FDA approves the QUALIFIED ALTERNATE SUPPLIER. E-1 17 LOPROX LOTION SUPPLY AGREEMENT (2) "LOST SALES" shall mean, determined on a quarterly basis for each calendar quarter or portion thereof during an EXTENDED SUPPLY INTERRUPTION, the greater of: (a) 65% of the dollar amount MEDICIS would have invoiced for BACKORDERS placed with MEDICIS during such quarter or portion thereof; or (b) 70% of the average of NET SALES for the four (4) most recently completed calendar quarters prior to the commencement of the SUPPLY INTERRUPTION immediately preceding such EXTENDED SUPPLY INTERRUPTION; provided, however, that (i) for any such calculation for any calendar quarter or portion thereof in 1998, such average shall be of NET SALES for the three (3) rather than four (4) most recently completed calendar quarters prior to the commencement of such SUPPLY INTERRUPTION, (ii) any calculation under this Section for a portion of a calendar quarter shall be made on a pro rata basis based on a ninety (90) day calendar quarter, (iii) to the extent that NET SALES for any calendar quarter (or pro rata portion thereof) are based on sales of quantities of LOPROX LOTION which exceeds the quantity of the INTERRUPTED MEDICIS ORDERS for such LOPROX LOTION for the calendar quarter (or portion thereof) for which LOST SALES are being determined, the corresponding NET SALES value of such quantities in excess of the INTERRUPTED MEDICIS ORDERS shall be excluded from the determination of NET SALES, and (iv) only quantities of inventory for which MEDICIS is out-of-stock due to the SUPPLY INTERRUPTION shall be included in the calculation of NET SALES. (c) Notwithstanding anything to the contrary in subparagraphs 2(a) or 2(b) above, in the event MEDICIS is out-of-stock for LOPROX LOTION during any period of any EXTENDED SUPPLY INTERRUPTION due solely to MEDICIS' failure to maintain a minimum inventory of such LOPROX LOTION in accordance with Section 2.6 hereof and subject to the qualifications set forth therein, in determining LOST SALES hereunder: (i) any BACKORDERS or portions thereof which cannot be filled due solely to the failure on the part of MEDICIS in accordance with Section 2.6 shall be excluded from the calculation pursuant to subparagraph 2(a) above, and (ii) the corresponding NET SALES value of any such quantities of inventory which MEDICIS has failed to maintain in accordance with Section 2.6 shall be excluded from the determination of NET SALES for purposes of subparagraph 2(b) above. (3) "BACKORDERS" shall mean orders actually received by MEDICIS from third-party customers of MEDICIS (which cannot be E-1 18 LOPROX LOTION SUPPLY AGREEMENT AFFILIATES of MEDICIS) for LOPROX LOTION which MEDICIS cannot fill because it is out-of-stock due to a SUPPLY INTERRUPTION, which must be within the quantities of the INTERRUPTED MEDICIS ORDERS. (4) An "INTERRUPTED MEDICIS ORDER" shall mean any quantities of LOPROX LOTION (other than samples) which was ordered or forecasted to be ordered by MEDICIS but not delivered by HMRI in saleable form because of a SUPPLY INTERRUPTION, which shall be limited: (a) for time periods within the relevant short-term forecasts submitted by MEDICIS and confirmed by HMRI pursuant to Section 2.4(b) hereof, to the quantities that were actually included by MEDICIS in such confirmed short-term forecasts prior to the SUPPLY INTERRUPTION; or (b) for time periods beyond such confirmed short-term forecasts, to the quantities set forth in the 24-MONTH FORECAST or, if less, in the applicable portion of MEDICIS' last short-term forecast (which would not have yet been confirmed by HMRI) submitted prior to the SUPPLY INTERRUPTION pursuant to Section 2.4(b). (5) "NET SALES" shall mean the gross invoice amount of LOPROX LOTION invoiced by MEDICIS, HMRI or HMRI on behalf of MEDICIS to third parties in the TERRITORY during a calendar quarter, less (i) promotional and trade discounts; (ii) sales and excise taxes, value-added and other taxes, shipping costs and insurance premiums and duties which are billed to customers as separate items on invoices; (iii) allowances for short shipments, claims for returned goods and price adjustments; and (iv) contracts charge-backs and government rebates (provided that for any calendar quarters after the EFFECTIVE DATE, such charge-backs and rebates shall be limited to those which are the responsibility of MEDICIS under the LICENSE AND OPTION AGREEMENT). HMRI shall promptly provide MEDICIS with any and all documents and information reasonably requested by MEDICIS in order to enable MEDICIS to make any determination of NET SALES required under this AGREEMENT. (C) MEDICIS covenants and agrees that it shall not solicit orders from customers outside the ordinary course of business, make or announce any price increases or otherwise act in any manner not in the ordinary course of business with respect to the LOPROX LOTION subject to the EXTENDED SUPPLY INTERRUPTION where such actions would have the effect of increasing the quantities of BACKORDERS, during any period (i) in which an EXTENDED SUPPLY INTERRUPTION is continuing, or (ii) after such time that HMRI notifies MEDICIS that an EXTENDED SUPPLY INTERRUPTION is likely to occur until such time as the E-1 19 LOPROX LOTION SUPPLY AGREEMENT EXTENDED SUPPLY INTERRUPTION is cured or avoided as further notified by HMRI to MEDICIS. (D) During the period of any such EXTENDED SUPPLY INTERRUPTION, MEDICIS shall invoice HMRI quarterly for LOST SALES, and HMRI shall pay each such invoice not later than ten (10) business days after its receipt thereof. Each such invoice shall be accompanied by documentation reasonably satisfactory to HMRI setting forth the LOST SALES covered by the invoice. (ii) Notwithstanding anything to the contrary in Section 2.10(c)(i) hereof, MEDICIS shall have no right to recover for LOST SALES under Section 2.10(c)(i) in connection with any EXTENDED SUPPLY INTERRUPTION which is caused solely and directly by force majeure due to: (a) an act of God; (b) any act, regulation, order, decree or law of any government or agency thereof which is not a result of or caused by any action or inaction on the part of HMRI or an AFFILIATE in violation of its obligations under any of the TRANSACTION DOCUMENTS or APPLICABLE LAWS; (c) war or civil commotion; (d) damage to or destruction of HMRI's or PACO's manufacturing facilities resulting from an act of God; (e) labor disturbances which are not specific to the operations or facilities of HMRI or its AFFILIATES or PACO and which are not within the power of HMRI or its AFFILIATES or PACO to settle or control; (f) epidemic; (g) failure of a sole source of supply to HMRI or PACO of a particular supply item for LOPROX LOTION or failure of PACO to supply LOPROX LOTION to HMRI by reason of any force majeure (as force majeure is defined in this Section 2.10(c)(ii)); (h) failure of all sources of supply to HMRI or PACO of a particular supply item for LOPROX LOTION where HMRI or PACO has multiple sources of supply for such item, provided such failure is not due to or caused by any action or inaction on the part of HMRI or PACO; (i) the failure of public utilities; or (j) the failure of common carriers. 2.11 Supply Price for LOPROX LOTION. The supply price of LOPROX LOTION to be paid by MEDICIS to HMRI for the INITIAL TERM shall be as specified in Exhibits B and C attached hereto; provided, however, that the supply prices shall be increased on March 1 of each year by the increase in the U.S. consumer price index released by the U.S. Department of Labor (the "CPI") using March 1, 1998 as the base reference point (the "CPI INCREASE"); provided, further, if the supply price set forth in Exhibits B and C for LOPROX LOTION is less than HMRI's costs to manufacture and/or supply such LOPROX LOTION to MEDICIS, the price for such LOPROX LOTION shall be increased by an amount so that the supply price for such LOPROX LOTION equals the cost for such LOPROX LOTION. HMRI shall use its reasonable commercial efforts to lower the prices of other trade or sample LOPROX LOTION to the fullest extent possible to give MEDICIS the same economic benefits that it would have received under this AGREEMENT had such price not been increased. E-1 20 LOPROX LOTION SUPPLY AGREEMENT 2.12 Payment. (a) All payments required by this AGREEMENT shall be made in United States Dollars. All invoices are net and payment must be received not later than (i) forty-five (45) calendar days after the date of invoice or (ii) if later, thirty (30) days after delivery pursuant to Section 2.7 hereof. The date of each invoice shall be on or about the date of shipment of LOPROX LOTION. Payment shall be made without deduction, deferment, set-off, lien or counterclaim of any nature, other than for rejected or returned goods. Time for payment shall be of the essence. Unless MEDICIS notifies HMRI in writing of a good faith dispute, with respect to payments not received within five (5) calendar days after the end of such forty-five (45) calendar day or longer period, interest shall accrue on any amount overdue, at the rate of prime plus two percent (2%) per annum, such interest to begin accruing on a daily basis from the date of invoice, and shall accrue both before and after judgment; provided, however, in the case of a good faith dispute regarding payment resolved to be due and not paid within five (5) business days after such resolution, interest shall accrue on any amount overdue, at the rate of prime plus two percent (2%) per annum, such interest to begin accruing on a daily basis from the date such payment becomes overdue, and shall accrue both before and after judgment; provided, further, in the case of a good faith dispute regarding payment, MEDICIS may in its discretion determine to pay such amounts disputed to be overdue and in the event amounts are finally determined not to be due, HMRI shall repay such excess amounts determined not be due to MEDICIS, and interest shall accrue on any such amount, at the rate of prime plus two percent (2%) per annum, such interest to begin accruing on a daily basis from the date such disputed payment was received by HMRI. (b) With respect to defaults of payment not cured within fifteen (15) business days after receipt of written notice from HMRI to MEDICIS, HMRI shall, in its sole discretion, and without prejudice to any other of its accrued rights, be entitled to suspend the provision of LOPROX LOTION; provided, however, a good faith bona fide dispute by MEDICIS regarding a payment pursuant to this AGREEMENT shall not be considered a default of payment so long as MEDICIS notifies HMRI in writing of such dispute within sixty (60) calendar days from the date of invoice. MEDICIS understands that it shall notify HMRI promptly upon a determination that a dispute exists regarding a payment. 2.13 Advertising/Marketing/Sales Costs and Product Pricing. MEDICIS shall be responsible for all advertising, marketing and sales costs associated with the distribution of LOPROX LOTION in the TERRITORY. MEDICIS shall have complete authority for all pricing decisions for LOPROX LOTION in the TERRITORY. MEDICIS shall not alter the LOPROX LOTION and shall not recommend or knowingly sell the LOPROX LOTION for any uses except as described in the FDA approved LOPROX LOTION labeling. 2.14 Samples. (a) During each CONTRACT YEAR of the INITIAL TERM, HMRI shall provide MEDICIS with samples of LOPROX LOTION with a value totaling U.S. $130,000, based upon the sample unit prices set forth in Exhibit C hereto (plus the CPI INCREASE for the E-1 21 LOPROX LOTION SUPPLY AGREEMENT second and third CONTRACT YEAR), at no cost to MEDICIS; provided, however, that subject to the terms of this AGREEMENT, if MEDICIS does not purchase LOPROX LOTION other than samples with an aggregate supply price of U.S. $400,000 (as increased by the CPI INCREASE for any portion of a CONTRACT YEAR for which such CPI INCREASE is in effect) (the "TRADE QUOTA") from HMRI during any CONTRACT YEAR of the INITIAL TERM (a "SHORTFALL"), at the end of such CONTRACT YEAR containing a SHORTFALL, MEDICIS shall reimburse HMRI for the samples on a pro rata basis at the full sample unit prices set forth in Exhibit C hereto (plus the CPI INCREASE, as applicable). By way of example only and without taking into account the CPI INCREASE during the first CONTRACT YEAR, if during such CONTRACT YEAR MEDICIS purchases LOPROX LOTION other than samples with an aggregate supply price of U.S. $300,000, the amount of the reimbursement by MEDICIS under this Section 2.14(a) would be equal to the product of One-Fourth (1/4) and U.S. $130,000, or U.S. $32,500. (b) In the event a SUPPLY INTERRUPTION occurs in the same CONTRACT YEAR in which a SHORTFALL occurs, then (i) to the extent that the aggregate quantities of LOPROX LOTION other than samples purchased by MEDICIS from the QUALIFIED ALTERNATE SUPPLIER during the period of such SUPPLY INTERRUPTION exceeds by more than 5% the quantities of the INTERRUPTED MEDICIS ORDERS for such period, MEDICIS' TRADE QUOTA under Section 2.14(a) for the next succeeding CONTRACT YEAR shall be increased by the aggregate supply price of such excess quantities (as determined by reference to the prices in the CONTRACT YEAR in which the SUPPLY INTERRUPTION occurs); (ii) the aggregate supply price of the quantities of all LOPROX LOTION other than samples purchased by MEDICIS from the QUALIFIED ALTERNATE SUPPLIER during the period of such SUPPLY INTERRUPTION shall be credited towards MEDICIS' TRADE QUOTA for such CONTRACT YEAR under Section 2.14(a) hereof, but only to the extent such quantities do not exceed the quantities of the INTERRUPTED MEDICIS ORDERS for such period; and (iii) in the event that the QUALIFIED ALTERNATE SUPPLIER has not been qualified prior to the commencement of such SUPPLY INTERRUPTION, MEDICIS shall receive credit towards its TRADE QUOTA pursuant to Section 2.14(a) to the extent of the INTERRUPTED MEDICIS ORDERS. With respect to subpart (ii) of the immediately preceding sentence and by way of example only, without taking into account any CPI INCREASE, if during any such CONTRACT YEAR MEDICIS were to purchase from HMRI and the QUALIFIED ALTERNATE SUPPLIER LOPROX LOTION other than samples with aggregate supply prices of U.S. $300,000 and U.S. $100,000, respectively, and the aggregate supply price for the INTERRUPTED MEDICIS ORDERS for the period of the SUPPLY INTERRUPTION during such CONTRACT YEAR were U.S. $50,000, the amount of the reimbursement by MEDICIS under Section 2.14(a) hereof would be equal to (1) U.S. $50,000 divided by U.S. $400,000, multiplied by (2) U.S. $130,000, or U.S. $16,250. (c) Except as otherwise provided by this Section 2.14, prices for samples of LOPROX LOTION purchased by MEDICIS from HMRI shall be at the full sample unit price set forth in Exhibit C attached hereto. E-1 22 LOPROX LOTION SUPPLY AGREEMENT (d) MEDICIS shall select the mix of the samples of the LOPROX LOTION which MEDICIS is to receive, which shall be within HMR HMRI's manufacturing capacities for each such sample as reasonably determined by HMRI. (e) Samples shall be delivered to MEDICIS by HMRI in accordance with Section 2.7 hereof. 2.15 Compliance with APPLICABLE LAWS. HMRI and its AFFILIATES shall comply fully with APPLICABLE LAWS in the performance of this AGREEMENT. 2.16 Rights Necessary for Manufacturing. In accordance with the terms and conditions of the LICENSE AND OPTION AGREEMENT during the INITIAL TERM, HMRI reserves the right, and in accordance with the terms of the PURCHASE AGREEMENT during any mutually agreed extension of the term hereof, MEDICIS grants to HMRI a royalty-free, non-exclusive license, to use the PATENTS, the TRADEMARKS and the PRODUCT KNOW-HOW solely to make and have made LOPROX LOTION in the TERRITORY (i) for sale to MEDICIS under and pursuant to this AGREEMENT and (ii) for use and resale outside the TERRITORY in accordance with the terms of the LICENSE AND OPTION AGREEMENT and the PURCHASE AGREEMENT. ARTICLE III. TERM AND TERMINATION 3.1 Term of this AGREEMENT. The term of this AGREEMENT shall be the INITIAL TERM unless this AGREEMENT is earlier terminated in accordance with the provisions of Section 3.3 hereof. 3.2 Renewal Periods. The term of this AGREEMENT shall only be extended by the mutual agreement of the parties. MEDICIS acknowledges that if the OPTION is exercised, then the PACO LOPROX AGREEMENT is automatically assigned by HMRI to MEDICIS and is automatically assumed by MEDICIS on the third (3rd) anniversary of this AGREEMENT pursuant to that certain Assignment and Assumption Agreement between MEDICIS and HMRI of even date herewith. 3.3 Early Termination. (a) This AGREEMENT shall automatically be terminated upon the termination of the LICENSE AND OPTION AGREEMENT by HMRI pursuant to Section 15.2 thereof or by MEDICIS pursuant to Section 15.3 thereof. (b) Either of MEDICIS or HMRI, as the case may be, may terminate this AGREEMENT forthwith by notice in writing to the other party upon the occurrence of any of the following events: E-1 23 LOPROX LOTION SUPPLY AGREEMENT (i) if the other party commits a material breach of this AGREEMENT, which in the case of a breach capable of remedy shall not have been remedied within sixty (60) days of the receipt by the other party of a notice identifying the breach and requiring its remedy or such longer time as the party in breach may demonstrate to the other party is necessary to remedy the breach using its reasonable efforts to do so; or (ii) if the other party ceases for any reason to carry on business or convenes a meeting of its creditors or has a receiver or manager appointed in respect of all or substantially all of its assets or is the subject of an application for an administration order or of any proposal for a voluntary arrangement or enters into liquidation (whether compulsorily or voluntarily) or undergoes any analogous act or proceedings under foreign law; or (iii) the enactment of any law, order or regulation by governmental authority that would render it impossible for such party to perform its obligations hereunder; provided, however, that if the enactment of any such law, order or regulation renders it impossible for HMRI to perform hereunder and such law, order or regulation is enacted as a result of or is caused by any action or inaction on the part of HMRI, HMRI shall have no right to terminate this AGREEMENT under this Section 3.3(b) as a result of such enactment. (c) MEDICIS shall additionally have certain rights to terminate this AGREEMENT, the SUPPLY AGREEMENT and the LICENSE AND OPTION AGREEMENT pursuant to Section 3.3(c) of the SUPPLY AGREEMENT and Section 15.3 of the LICENSE AND OPTION AGREEMENT. 3.4 Consequences of Termination and Survival. (a) Termination of this AGREEMENT for whatever reason shall not affect the accrued rights and obligations of HMRI or MEDICIS arising under or out of this AGREEMENT. The provisions of Articles V (LOPROX LOTION Recalls), VI (Warranties and Remedies) and VII (Indemnification, Limitation of Liability and Insurance) and of Sections 2.2, 2.8, 2.9, 2.10(b), 2.10(c), 2.12, 3.5, 8.2, 8.4, 8.5, 8.6, 8.8, 8.10 and 8.11 of this AGREEMENT and this Section 3.4 shall survive the expiration or termination of this AGREEMENT or of any extensions thereof. In addition, any other provisions which are required to interpret and enforce the parties' rights and obligations under this AGREEMENT shall also survive such expiration or termination to the extent required for the full observation and performance of this AGREEMENT by the parties hereto. (b) If the OPTION (as defined in the LICENSE AND OPTION AGREEMENT) is exercised pursuant to Section 4.1 of the LICENSE AND OPTION AGREEMENT, upon the expiration of the INITIAL TERM of this AGREEMENT, at MEDICIS' request, the parties or their AFFILIATES shall enter into a supply agreement for the supply of the ACTIVE INGREDIENT for the LOPROX LOTION by HMR GmbH or its AFFILIATES to MEDICIS pursuant to which HMR GmbH or its AFFILIATES shall agree: (i) to sell the ACTIVE INGREDIENT to MEDICIS for as long as HMR GmbH or its AFFILIATES manufacture the ACTIVE INGREDIENT at a supply price equal to U.S. $3,295 per kilo of ciclopirox acid and $2,540 per kilo of ciclopirox olamine subject to any CPI E-1 24 LOPROX LOTION SUPPLY AGREEMENT INCREASE or exchange rate adjustment pursuant to Section 2.11 of the SUPPLY AGREEMENT; (ii) to manufacture and sell to MEDICIS at least a four (4) year supply of the ACTIVE INGREDIENT if HMR GmbH ceases to manufacture such ACTIVE INGREDIENT, where such four (4) year supply is based on the amount of such ACTIVE INGREDIENT purchased by MEDICIS during the twelve (12) month period prior to HMR GmbH's ceasing to manufacture such ACTIVE INGREDIENT for MEDICIS; and (iii) in the event HMR GmbH ceases to manufacture the ACTIVE INGREDIENT, HMRI shall, at its election, either (a) provide the specifications and production process flow chart to allow MEDICIS to initiate and establish a source of supply with an FDA approved third party manufacturer with whom MEDICIS shall enter into an exclusive supply agreement, prohibiting such manufacturer from manufacturing for or selling or providing know how to any other person or entity, or (b) arrange for an alternative source of supply from a third party supplier reasonably acceptable to MEDICIS and on terms and conditions reasonably acceptable to MEDICIS. 3.5 Accrued Obligations. In the event that this AGREEMENT is terminated by HMRI pursuant to the provisions of Section 3.3 hereof, MEDICIS shall immediately pay to HMRI (i) all amounts outstanding and remaining to be paid for LOPROX LOTION supplied prior to the termination, (ii) all amounts that would be due to HMRI related to binding quantities of LOPROX LOTION ordered pursuant to Section 2.4 hereof, (iii) all amounts outstanding and remaining to be paid for samples supplied pursuant to Section 2.14(b) hereof prior to the termination, and (iv) subject to Section 2.14(b) hereof, an amount equal to the value of the samples supplied pursuant to Section 2.14(a)(i) hereof prior to the termination if during the CONTRACT YEAR in which this AGREEMENT is terminated MEDICIS has not purchased LOPROX LOTION other than samples with an aggregate supply price of at least an amount equal to U.S. $400,000 (plus the CPI INCREASE for the second and third CONTRACT YEAR) multiplied by a fraction, the numerator of which is equal to the number of days during the then current CONTRACT YEAR during which this AGREEMENT was in effect prior to its termination and the denominator of which is equal to 365. ARTICLE IV. MANUFACTURING COMPLIANCE, ACCESS AND REGULATORY MATTERS 4.1 Tests; Retained Samples. HMRI shall perform, or cause to be performed, tests on each lot of LOPROX LOTION, including all samples thereof, manufactured pursuant to this AGREEMENT before delivery to MEDICIS. Such tests shall include required assay and stability testing and the testing of LOPROX LOTION for compliance with the SPECIFICATIONS and the NDAs. HMRI shall maintain in accordance with prudent industry standards all retained samples of LOPROX LOTION and of the raw materials for LOPROX LOTION. 4.2 Manufacturing Compliance. LOPROX LOTION, including all samples thereof, shall be manufactured in accordance with the SPECIFICATIONS, cGMPs and the NDAs and shall be manufactured and supplied from plants approved in the relevant NDA, and the choice of E-1 25 LOPROX LOTION SUPPLY AGREEMENT locations shall be in HMRI's sole discretion; provided, however, that HMRI hereby represents and warrants to MEDICIS that any change in manufacturing location as permitted by this Section 4.2 shall not (i) materially adversely affect HMRI's ability to perform and comply fully with all of its obligations under this AGREEMENT or (ii) materially adversely affect HMRI's capacity to supply any quantities of LOPROX LOTION within the 24-MONTH FORECAST as compared to HMRI's capacity to supply such quantities prior to the date of such change in location. 4.3 Changes in SPECIFICATIONS. Any changes in SPECIFICATIONS or the test methods or manufacturing processes referenced in the NDAs shall not be made by HMRI without MEDICIS' prior substantive involvement and written approval, which approval shall not be unreasonably withheld or delayed. Any changes in SPECIFICATIONS or the test methods or manufacturing processes referenced in the NDAs shall not be made by MEDICIS without HMRI's prior substantive involvement and written approval, which approval shall not be unreasonably withheld or delayed. If, upon a change in SPECIFICATIONS or such test methods or manufacturing processes made by MEDICIS without HMRI's prior substantive involvement and written approval, LOPROX LOTION no longer meets the old or new SPECIFICATIONS or does not pass inspection under the old or new test method, then MEDICIS shall bear responsibility for such problem and any financial consequences flowing from such failure, including without limitation failed lots and recalls. If, upon a change in SPECIFICATIONS or such test methods or manufacturing processes made by HMRI without MEDICIS' prior substantive involvement and written approval, LOPROX LOTION no longer meets the old or new SPECIFICATIONS or does not pass inspection under the old or new test method, then HMRI shall bear responsibility for such problem and any financial consequences flowing from such failure, including without limitation failed lots and recalls. 4.4 Access to Facilities. (a) MEDICIS Access. Upon the reasonable prior written request of MEDICIS, MEDICIS shall have the right to inspect those portions of the manufacturing and testing facilities where LOPROX LOTION is being manufactured or tested, as the case may be, during regular business hours, to ascertain compliance with cGMP and the SPECIFICATIONS. If the FDA or other applicable governmental regulatory agency asserts any notice to the effect that there has been a failure to comply with any law or regulation in connection with the manufacture of LOPROX LOTION, or if HMRI delivers LOPROX LOTION that does not meet the SPECIFICATIONS, then MEDICIS shall have the right to inspect such portions of the manufacturing facilities that relate to the manufacture of LOPROX LOTION upon reasonable notice and during normal business hours. (b) HMRI Access. Upon the reasonable prior written request of HMRI, HMRI shall have the right to inspect those portions of the warehouse and distribution facilities of MEDICIS where the LOPROX LOTION is being stored and distributed, during regular business hours, to observe LOPROX LOTION storage and distribution or other related activities. If the FDA or other applicable governmental regulatory agency asserts any notice to the effect that MEDICIS has failed to comply with any law or regulation in connection with the storage or E-1 26 LOPROX LOTION SUPPLY AGREEMENT distribution of LOPROX LOTION, then MEDICIS shall promptly notify HMRI and HMRI shall have the right to inspect such portions of the warehouse and distribution facilities of MEDICIS that relate to the storage or distribution of LOPROX LOTION upon reasonable notice and during normal business hours. 4.5 Regulatory Correspondence. MEDICIS shall promptly provide to HMRI copies of all MEDICIS correspondence to or from the FDA relating to LOPROX LOTION. HMRI shall notify MEDICIS in writing of and make available (or cause to be made available) to MEDICIS within three (3) days after receipt by HMRI all regulatory correspondence regarding regulatory letters and correspondence bearing on the safety and efficacy of LOPROX LOTION. 4.6 Inquiries and Complaints relating to LOPROX LOTION. Except for technical product complaints relating to the manufacture of LOPROX LOTION or as otherwise required by law or governmental regulation, MEDICIS shall be responsible for investigating and responding to all inquiries, complaints and adverse events regarding LOPROX LOTION. It shall be MEDICIS' responsibility to comply with all material federal, state and local governmental reporting requirements regarding adverse drug events and quality matters relating to the LOPROX LOTION from and after the date on which MEDICIS assumes responsibility for such matters pursuant to the LICENSE AND OPTION AGREEMENT. From and after the date on which MEDICIS assumes responsibility pursuant to the LICENSE AND OPTION AGREEMENT for FDA regulatory matters for LOPROX LOTION, MEDICIS shall comply with the standard operating procedures to be developed under Section 7.4 of the LICENSE AND OPTION AGREEMENT. In the event of a dispute in respect of the therapeutic action or quality of LOPROX LOTION: (i) if the dispute involves only MEDICIS and a subsequent purchaser, then MEDICIS and HMRI shall consult prior to any compromise or settlement of such dispute; and (ii) if the dispute involves MEDICIS, HMRI and a subsequent purchaser, then both parties must consent in writing prior to any compromise or settlement of such dispute. 4.7 Response to Complaints and/or Adverse Drug Reactions (or Events). Pursuant to any reported complaint and/or adverse drug reaction (or event), if the nature of the reported complaint and/or adverse drug reaction (or event) requires testing, HMRI shall, at MEDICIS' reasonable request and expense, perform ,or cause to be performed, analytical testing of corresponding retention samples and provide the results thereof to MEDICIS as soon as reasonably practicable; provided, however, that HMRI shall be responsible for the reasonable costs of such testing and reporting to the FDA or any other governmental regulatory agency if it is mutually and reasonably agreed upon between MEDICIS and HMRI that HMRI is responsible for such reported complaint and/or adverse drug reaction (or event). Such testing shall be performed using approved testing procedures. 4.8 Additional Information. HMRI shall provide to MEDICIS in a timely manner, but in no event less than sixty (60) days prior to the due date of MEDICIS' annual report to the FDA with respect to LOPROX LOTION, all information (in written form) which MEDICIS reasonably requests regarding LOPROX LOTION in order to comply with applicable federal and state drug laws. MEDICIS shall also be responsible for assuring that all labeling, packaging and E-1 27 LOPROX LOTION SUPPLY AGREEMENT promotional material produced by it relating to LOPROX LOTION complies with federal, state and local law. ARTICLE V. LOPROX LOTION RECALLS 5.1 Recalls During INITIAL TERM. In the event that during the INITIAL TERM (i) any governmental agency or authority issues a request or directive or order that LOPROX LOTION in the TERRITORY be recalled or retrieved, (ii) a court of competent jurisdiction orders such a recall or retrieval, or (iii) HMRI and MEDICIS reasonably determine that LOPROX LOTION should be recalled or retrieved in the TERRITORY or a "dear doctor" letter is required relating to restrictions on the use of LOPROX LOTION in the TERRITORY, the rights and obligations of the parties shall be governed by Section 7.5 of the LICENSE AND OPTION AGREEMENT, which is incorporated herein by this reference. 5.2 Recalls Thereafter. In the event that after the INITIAL TERM (i) any governmental agency or authority issues a request or directive or order that LOPROX LOTION in the TERRITORY be recalled or retrieved, (ii) a court of competent jurisdiction orders such a recall or retrieval, or (iii) MEDICIS reasonably determines that LOPROX LOTION should be recalled or retrieved in the TERRITORY or a "dear doctor" letter is required relating to restrictions on the use of LOPROX LOTION in the TERRITORY, the rights and obligations of the parties shall be governed by Section 7.2 of the PURCHASE AGREEMENT, which is incorporated herein by this reference. ARTICLE VI. WARRANTIES AND REMEDIES 6.1 FDA Approval. HMRI warrants as of the date hereof that LOPROX LOTION is approved by the FDA for the uses set forth in the LOPROX LOTION labeling approved by HMRI as of the date hereof. LOPROX LOTION shall conform to and shall be manufactured in conformity with, the regulations of the FDA. 6.2 Conformity with SPECIFICATIONS. HMRI warrants that the LOPROX LOTION sold to MEDICIS pursuant to this AGREEMENT shall meet the SPECIFICATIONS for LOPROX LOTION in effect at the time title to such LOPROX LOTION passes from HMRI to MEDICIS pursuant to Section 2.7 hereof. 6.3 Compliance with the Federal Food, Drug and Cosmetic Act. HMRI warrants that all LOPROX LOTION delivered to MEDICIS pursuant to this AGREEMENT shall, at the time of such delivery, not be adulterated within the meaning of the ACT and shall not be an article which may not, under the provisions of the ACT, be introduced into interstate commerce. E-1 28 LOPROX LOTION SUPPLY AGREEMENT 6.4 No Liens. HMRI warrants that all LOPROX LOTION delivered to MEDICIS pursuant to this AGREEMENT shall, at the time of such delivery, be free and clear of all liens, security interests and other encumbrances. 6.5 Exclusion of Other Warranties. (a) EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, THE EXPRESS WARRANTIES PROVIDED IN SECTIONS 6.1, 6.2, 6.3 AND 6.4 ARE IN LIEU OF, AND HMRI HEREBY DISCLAIMS, ALL CONDITIONS, WARRANTIES AND STATEMENTS IN RESPECT OF LOPROX LOTION AND IN RESPECT OF THE MANUFACTURING SERVICES PROVIDED HEREUNDER, WHETHER EXPRESS OR IMPLIED, BY STATUTE, CUSTOM OF THE TRADE OR OTHERWISE (INCLUDING WITHOUT LIMITATION ANY SUCH CONDITION, WARRANTY OR STATEMENT RELATING TO THE DESCRIPTION OR QUALITY OF LOPROX LOTION, THEIR MERCHANTABILITY OR THEIR FITNESS FOR A PARTICULAR PURPOSE OR USE UNDER ANY CONDITIONS) AND ANY SUCH CONDITION, WARRANTY OR STATEMENT IS HEREBY EXCLUDED. (b) EXCEPT AS EXPRESSLY SET FORTH IN SECTION 2.10(c) HEREOF AND IN ADDITION TO THEIR RESPECTIVE REMEDIES UNDER ARTICLE VII AND ANY REMEDY PROVIDED HEREIN, AT LAW OR IN EQUITY FOR BREACH OF THIS AGREEMENT AS LIMITED BY SECTION 6.5(a), MEDICIS AND HMRI SHALL BE ENTITLED TO ANY AND ALL RIGHTS AND REMEDIES AVAILABLE AT LAW OR IN EQUITY OR UNDER THE TRANSACTION DOCUMENTS WITH RESPECT TO RIGHTS AND OBLIGATIONS ARISING THEREUNDER; PROVIDED, HOWEVER, THAT IN NO EVENT SHALL HMRI OR MEDICIS BE LIABLE TO THE OTHER PARTY UNDER OR WITH RESPECT TO THIS AGREEMENT FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OF ANY KIND, INCLUDING LOSS OF PROFITS. ARTICLE VII. INDEMNIFICATION, LIMITATION OF LIABILITY AND INSURANCE 7.1 Indemnification by MEDICIS. In addition to any other rights HMRI may have at law or in equity and subject to Section 6.5 hereof, MEDICIS shall indemnify, defend and hold harmless HMRI and its AFFILIATES, and their employees, officers and directors, and their successors and assigns (each, an "HMRI INDEMNIFIED PARTY"), from and against any and all LIABILITIES which the HMRI INDEMNIFIED PARTY may incur, suffer or be required to pay resulting from or arising in connection with: (i) the marketing, distribution, sale or promotion of the LOPROX LOTION by MEDICIS or its AFFILIATES after the EFFECTIVE DATE; or (ii) the manufacture of the LOPROX LOTION by MEDICIS or its AFFILIATES or by a third party (other than an AFFILIATE of HMRI) after the EFFECTIVE DATE, unless HMRI had knowledge as of the EFFECTIVE DATE that, based on facts in existence and circumstances persisting on the EFFECTIVE DATE, such third party's manufacture of LOPROX LOTION after the EFFECTIVE DATE would be likely to result in or create such LIABILITIES. E-1 29 LOPROX LOTION SUPPLY AGREEMENT 7.2 Indemnification by HMRI. In addition to any other rights MEDICIS may have at law or in equity and subject to Section 6.5 hereof, HMRI shall indemnify, defend and hold harmless MEDICIS and its AFFILIATES, employees, officers and directors and its successors and assigns (each, a "MEDICIS INDEMNIFIED PARTY"), from and against any and all LIABILITIES which the MEDICIS INDEMNIFIED PARTY may incur, suffer or be required to pay resulting from or arising in connection with: (i) the manufacture of LOPROX LOTION by HMRI or its AFFILIATES or its subcontractors prior to the EFFECTIVE DATE or after the EFFECTIVE DATE in breach of any of HMRI's representations, warranties, covenants and obligations under this AGREEMENT, excluding, however, any EXCLUDED HMR PRODUCT LIABILITY; (ii) the manufacture, marketing, distribution, sale or promotion of the PRODUCTS by HMRI or by its AFFILIATES or its subcontractors or by any third party prior to the EFFECTIVE DATE, regardless of the date of first assertion of any claim or action relating thereto; or (iii) the manufacture (except for matters which are the subject of subpart (i) of this Section 7.2), marketing, distribution, sale or promotion of LOPROX LOTION outside the TERRITORY by HMRI or by any AFFILIATE of HMRI or by any third party (other than MEDICIS, MEDICIS' AFFILIATES, assignees and sublicensees and the QUALIFIED ALTERNATE SUPPLIER) after the EFFECTIVE DATE. 7.3 Process of Indemnification. Promptly after an indemnified party becomes aware of any potential LIABILITY hereunder, such party shall deliver written notice to the indemnifying party, stating the nature of the potential LIABILITY; provided, however, that the delay in giving or the failure to give such notification shall not affect the indemnification provided hereunder except to the extent the indemnifying party shall have been actually prejudiced as a result of such delay or failure. The indemnified party shall give the indemnifying party such information with respect to the potential LIABILITY as the indemnifying party may from time to time reasonably request. The indemnifying party shall have the right to conduct the defense of any suit, claim or other proceeding related to the LIABILITY if it has assumed responsibility for the suit, claim or other proceeding in writing; provided, however, if in the reasonable judgment of the indemnified party, such suit, claim or proceeding involves an issue or matter which could have a material adverse effect on the business, operations or assets of the indemnified party, the indemnified party may elect, at its own expense, to conduct a separate defense thereof, but in no event shall any such election be construed as a waiver of any indemnification rights such indemnified party may have under this Article VII, at law or in equity, or otherwise. If the indemnifying party defends the suit or claim, the indemnified party may participate in (but not control) the defense thereof at its sole cost and expense; provided, however, that the indemnifying party shall pay the reasonable fees and costs of any separate counsel to the extent such representation is due to a conflict of interest between the parties. 7.4 Settlements. Neither party may settle a claim or action related to a LIABILITY without the consent of the other party, which consent shall not be unreasonably withheld, if such settlement would impose any monetary obligation on the other party or require the other party to submit to an injunction or otherwise limit the other party's rights under this AGREEMENT, and any payment made by a party in such a settlement without obtaining such consent shall be at its own cost and expense. Notwithstanding the foregoing, the indemnifying party will be liable under this Article VII for any settlement effected without its consent if the indemnifying party E-1 30 LOPROX LOTION SUPPLY AGREEMENT has refused to acknowledge liability for indemnification hereunder and/or declines to defend the indemnified party in any such claim, action or proceeding and it is determined by arbitration pursuant to Section 8.4 hereof that the indemnifying party was liable to the indemnified party for indemnification related to such settlement. 7.5 Limitation of Liability. Subject to the terms of this AGREEMENT, with respect to any claim by one party against the other arising out of the performance or failure of performance of the other party under this AGREEMENT, the parties expressly agree that the liability of such party to the other party for such breach shall be limited under this AGREEMENT or otherwise at law or in equity to direct damages only and in no event shall a party be liable to the other party for indirect, incidental, special or consequential damages, including without limitation, lost profits. 7.6 Distribution Insurance. MEDICIS shall obtain and maintain in effect for the term of this AGREEMENT liability insurance or indemnity policies with an insurer reasonably acceptable to HMRI, in an amount not less than U.S. $5 million with an indemnity to principals clause with respect to the distribution of LOPROX LOTION, which policies shall name HMRI as additional insured and shall be blanket policies. Such policies shall insure against liability on the part of MEDICIS and any of its AFFILIATES, as their interests may appear, due to injury, disability or death of any person or persons, or injury to property, arising from the distribution of the LOPROX LOTION. Upon the execution of this AGREEMENT and thereafter on January 1 of each year during the term, MEDICIS shall provide to HMRI a certificate of insurance (i) summarizing such insurance coverage, (ii) identifying any exclusions and (iii) indicating that the terms of MEDICIS' insurance policies are in accordance with this Section 7.6. MEDICIS shall promptly notify HMRI of any material alterations to the terms of such policies or in the amounts for which insurance is provided. 7.7 Manufacturer's Insurance. HMRI shall obtain and maintain in effect for the term of this AGREEMENT liability insurance or indemnity policies with an insurer reasonably satisfactory to MEDICIS, in an amount not less than U.S. $5 million with an indemnity to principals clause with respect to the manufacture of the LOPROX LOTION, which policies shall name MEDICIS as an additional insured and shall be blanket policies. Such policies shall insure against liability on the part of HMRI and any of its AFFILIATES, as their interests may appear, due to injury, disability or death of any person or persons, or injury to property arising from the negligence of HMRI or its AFFILIATES in the manufacture of the LOPROX LOTION. Upon the execution of this AGREEMENT and thereafter on January 1 of each year during the term, HMRI shall provide to MEDICIS a certificate of insurance (i) summarizing such insurance coverage, (ii) identifying any exclusions and (iii) indicating that the terms of HMRI's insurance policies are in accordance with this Section 7.7. HMRI shall promptly notify MEDICIS of any material alterations to the terms of such policies or in the amounts for which insurance is provided. 7.8 LOPROX LOTION Liability Claims. As soon as it becomes aware, each party shall give the other party prompt written notice of any claim involving LOPROX LOTION, any injury alleged to have occurred as a result of the use or application of LOPROX LOTION, and E-1 31 LOPROX LOTION SUPPLY AGREEMENT any circumstances that may give rise to litigation or recall of LOPROX LOTION or regulatory action that may affect the sale or manufacture of LOPROX LOTION, specifying, to the extent the party has such information, the time, place and circumstances thereof and the names and addresses of the persons involved. Each party shall also furnish promptly to the other party copies of all papers received in respect of any claim, action or suit arising out of such alleged defect, injury or regulatory action. ARTICLE VIII. GENERAL PROVISIONS 8.1 FORCE MAJEURE. If the performance by either party of any obligation under this AGREEMENT, is prevented, restricted, interfered with or delayed by reason of FORCE MAJEURE, the party so affected shall, upon giving written notice to the other party, be excused from such performance to the extent of such prevention, restriction, interference or delay, provided that the affected party shall use its reasonable efforts to avoid or remove such causes of non-performance and shall continue performance with the utmost dispatch whenever such causes are removed and, provided further, that notwithstanding anything contained in this Section 8.1, MEDICIS shall be entitled to any and all rights and remedies which may arise under Sections 2.10 and 3.3(c) hereof as a result of or in connection with any such prevention, restriction, interference with or delay of HMRI's performance of any of its obligations hereunder. For the purposes of this AGREEMENT (and except with respect to "force majeure" for purposes of Section 2.10(c)), "FORCE MAJEURE" is defined as follows: acts of God; acts, regulations, orders, decrees or laws of any government or agency thereof that are not due to or caused by any action or inaction of the party claiming the benefit of force majeure where such action or inaction is in violation of such party's obligations under the TRANSACTION DOCUMENTS or APPLICABLE LAWS; war; civil commotion; damage to or destruction of facilities; labor disturbances (whether or not any such labor disturbance is within the power of the affected party to settle); epidemic; and failure of suppliers, public utilities or common carriers. 8.2 Governing Law. This AGREEMENT shall be construed in accordance with the laws of the State of Delaware in the United States of America, without giving effect to the principles of conflicts of law thereof. 8.3 Headings and References. All section headings contained in this AGREEMENT are for convenience of reference only and shall not affect the meaning or interpretation of this AGREEMENT. 8.4 Dispute Resolution. (a) Any dispute, controversy or claim arising out of or relating to this AGREEMENT, or the breach or termination of this AGREEMENT or the rights of either party for indemnification hereunder (each, a "CLAIM"), shall be submitted in the first instance to the President, North American Region of HMRI, for HMR and the Chief Executive Officer of MEDICIS for MEDICIS. E-1 32 LOPROX LOTION SUPPLY AGREEMENT (b) If any CLAIM cannot be resolved by the individuals designated in Section 8.4 (a) within thirty (30) days after being submitted to them, and except for the right of either party to apply to a court of competent jurisdiction for a temporary restraining order to preserve the status quo or to prevent irreparable harm pending the selection and confirmation of a panel of arbitrators in accordance herewith, such CLAIM shall be settled by arbitration in accordance with the Commercial Arbitration Rules (the "RULES") of the American Arbitration Association (the "AAA") in effect on the day the arbitration is commenced in accordance with this AGREEMENT, except as modified by this Section 8.4. After expiration of the thirty (30) day period pursuant to Section 8.4(a) hereof, either party may commence arbitration by serving upon the other party a written demand for arbitration sent by a courier service of internationally recognized reputation, in accordance with this AGREEMENT, with a copy of the same delivered by a courier service of internationally recognized reputation, to the AAA regional office in which either party is then located. The number of arbitrators shall be three, one of whom is selected by MEDICIS, one of whom is selected by HMRI and one of whom is selected by HMRI and MEDICIS (or by the other two arbitrators if the parties cannot, within thirty (30) days after the commencement of the arbitration proceeding, agree on the third arbitrator). In the event that either party shall fail to appoint an arbitrator within thirty (30) days after the commencement of the arbitration proceeding, such arbitrator and the third arbitrator shall be appointed by the AAA in accordance with the RULES. The arbitration award shall be rendered by a majority of the members of the board of arbitration. Except as expressly provided in Section 8.5 hereof, the panel shall not be entitled to modify this AGREEMENT or the transactions contemplated herein. The arbitration proceeding shall be conducted in the English language and shall be brought in Chicago, Illinois, unless the parties agree in writing to conduct the arbitration in another location. The AAA shall have jurisdiction over all parties to this AGREEMENT for purposes of the arbitration and the parties hereby expressly consent to such jurisdiction. (c) The arbitration decision shall be final and binding and shall not be appealable to any court in any jurisdiction. The prevailing party may enter such decision in any court having competent jurisdiction, and the parties expressly agree that the state and federal courts in the State of Delaware shall have such jurisdiction. Each party hereby expressly waives any right to object to such jurisdiction on the basis of venue or forum non conveniens. (d) Any statute of limitations or other equitable or legal doctrine which would otherwise be applicable to any action brought by either of the parties shall be applicable in the arbitration. In the event either party to this AGREEMENT files a petition under the bankruptcy laws of the United States or has a petition filed against it which results in an order for relief or other indicia that a bankruptcy case has commenced, it is the express intention of the parties that this AGREEMENT shall control and be enforced in accordance with its terms and conditions that any CLAIM shall remain subject to arbitration to the maximum extent permitted by law. (e) There shall be no rights of discovery in connection with the arbitration except as follows: E-1 33 LOPROX LOTION SUPPLY AGREEMENT (i) Each party shall have the right to request the arbitrators to issue subpoenas for documents in accordance with the RULES. (ii) Each party shall have the right to initiate two (2) depositions of each other party to the arbitration; and each party shall have the right to initiate one (1) additional oral deposition pursuant to a subpoena issued by the arbitrators or any court of competent jurisdiction. (iii) At any time following the tenth day after the commencement of the arbitration in accordance with this AGREEMENT, a written notice served upon all parties shall be sufficient to compel the attendance of any party at a deposition upon not less than sixty (60) days notice and no subpoena shall be required for that purpose. If a person fails or refused to testify at a deposition, that person shall not be permitted to testify at the hearing, except for good cause shown. The number of depositions that may be initiated by either party may be varied by agreement of all parties to the arbitration but not by any action, order or request of the arbitrators or any court. (iv) Not less than thirty (30) days prior to the scheduled arbitration proceeding, the arbitrator shall conduct a preliminary hearing in accordance with the AAA guidelines. Not less than five (5) days prior to the preliminary hearing, all parties to the arbitration shall serve upon all other parties to the arbitration a written list of witnesses and exhibits to be used at the arbitration hearing. Except for good cause shown, no witness or exhibit may be utilized at the arbitration hearing other than as set forth on such list. The arbitrators shall receive evidence at a single hearing. The arbitrators shall award reasonable attorneys' fees and costs in favor of the prevailing party or parties. The arbitrator shall issue a final award not more than twenty (20) days following the conclusion of the hearing. The arbitrators shall have the power to hear and decide, by documents only or with a hearing (at the arbitrators' sole discretion) any prehearing motions in the nature of a pre-trial motion to dismiss or for summary judgment. (f) The arbitrators shall be entitled to receive reasonable compensation at an hourly rate to be established between the arbitrators and the AAA. If required by the arbitrators, MEDICIS on the one hand, and HMRI, on the other, will deposit with the AAA an equal share of the total anticipated fee of the arbitrators in an amount to be estimated by the AAA. The non-prevailing party in the proceedings shall be ordered to pay, and shall have the ultimate responsibility for, all arbitrators' fees and the fees of the AAA and such fees shall be included in the judgment to be entered against the non-prevailing party. (g) Notwithstanding any other provision of this AGREEMENT, any party may apply to a court of competent jurisdiction within the TERRITORY for an order in the nature of a temporary restraining order or preliminary injunction for purposes of maintaining the status quo pending the final resolution of any dispute pursuant to the arbitration provisions hereof. (h) Each party consents to the jurisdiction and administration of the AAA for purposes of the arbitration proceedings contemplated herein. E-1 34 LOPROX LOTION SUPPLY AGREEMENT 8.5 Severability. If any provision of this AGREEMENT is held by a court of competent jurisdiction to be invalid or unenforceable, it shall be modified to the minimum extent necessary to make it valid and enforceable. 8.6 Entire Agreement. This AGREEMENT, including the Exhibits and Schedules hereto, and the TRANSACTION DOCUMENTS constitute the entire AGREEMENT between the parties and their AFFILIATES relating to the subject matter hereof and supersede all previous writings and understandings, whether oral or written, relating to the subject matter of this AGREEMENT. 8.7 Amendment. This AGREEMENT may not be amended, supplemented or otherwise modified except by an instrument in writing signed by both parties that specifically refers to this AGREEMENT. 8.8 Notices. Any notice required or permitted under this AGREEMENT shall be in writing and sent by a courier service of internationally recognized reputation, charges prepaid, or by facsimile transmission with confirmation by reputable courier service, to the address or facsimile number specified below. Such notices shall be deemed given three (3) business days following deposit with such courier service or one (1) business day following such facsimile transmission. If to HMRI: Hoechst Marion Roussel, Inc. HMRI External Manufacturing PPU Marion Park Building C Kansas City, Missouri 64137 Attention: Jerry Malone Fax: (816) 966-7130 Copy to: Hoechst Marion Roussel, Inc. Route 202-206 P.O. Box 6800 Bridgewater, New Jersey 08807-0800 Attention: Vice President and General Counsel Fax: 908-231-2243 If to MEDICIS: Medicis Pharmaceutical Corporation 4343 East Camelback Road Phoenix, Arizona 85018 Attention: Jonah Shacknai Fax: 602-808-3875 E-1 35 LOPROX LOTION SUPPLY AGREEMENT Copy to: Bryan Cave LLP Two North Central Avenue, Suite 2200 Phoenix, Arizona 85004-4408 Fax Number: (602) 364-7000 Attention: Frank M. Placenti, Esq. 8.9 Assignment and Binding Effect. Each party shall have the right to assign its rights in whole or in part under this AGREEMENT to an AFFILIATE of such party without the other party's consent or to a third party with the other party's prior written consent, which consent shall not be unreasonably withheld, provided that in either case such party guarantees to the other party all of such party's obligations hereunder and the assignee agrees in writing to observe and perform the obligations of the assignor hereunder. 8.10 No Agency. It is understood and agreed that each party shall have the status of an independent contractor under this AGREEMENT and that nothing in this AGREEMENT shall be construed as authorization for either party to act as agent for the other. Neither party shall incur any liability for any act or failure to act by employees of the other party. 8.11 No Strict Construction. This AGREEMENT has been prepared jointly and shall not be strictly construed against either party. 8.12 Counterparts. This AGREEMENT may be executed in two counterparts, each of which shall be an original as against any party whose signature appears thereon but both of which together shall constitute one and the same instrument. Remainder of this page left blank intentionally. E-1 36 LOPROX LOTION SUPPLY AGREEMENT IN WITNESS WHEREOF, the parties, through their authorized officers, have duly executed this as of the date first written above. HOECHST MARION ROUSSEL, INC. MEDICIS PHARMACEUTICAL CORPORATION By: /s/ Thomas Hofstaetter By: /s/ Jonah Shacknai ---------------------------- ------------------------------- Name: Thomas Hofstaetter Name: Jonah Shacknai Title: Senior Vice President Title: Chairman and Chief Executive Officer E-1 EX-10.92 11 EX-10.92 1 Exhibit 10.92 SUPPLY AGREEMENT SUPPLY AGREEMENT BY AND BETWEEN HOECHST MARION ROUSSEL DEUTSCHLAND GMBH AND MEDICIS PHARMACEUTICAL CORPORATION DATED AS OF NOVEMBER 15, 1998 TRADEMARK NOTICE: 'Loprox' and 'Topicort' are registered trademarks of HMR, certain rights to which are granted to MEDICIS in accordance with the TRADEMARK LICENSE AGREEMENT (as defined herein). The use of such trademarks in this AGREEMENT is in each case deemed to be accompanied by an appropriate notice of trademark registration. 2 SUPPLY AGREEMENT TABLE OF CONTENTS
Page ---- ARTICLE I. DEFINITIONS.................................................................................... 6 1.1 "AAA"............................................................................... 6 1.2 "ACT"............................................................................... 6 1.3 "ACTIVE INGREDIENTS"................................................................ 6 1.4 "AFFILIATE"......................................................................... 6 1.5 "AGREEMENT"......................................................................... 7 1.6 "APPLICABLE EXCHANGE RATE".......................................................... 7 1.7 "APPLICABLE LAWS"................................................................... 7 1.8 "AVERAGE EXCHANGE RATE"............................................................. 7 1.9 "BACKORDERS"........................................................................ 7 1.10 "cGMP".............................................................................. 7 1.11 "CICLOPIROX"........................................................................ 7 1.12 "CLAIM"............................................................................. 7 1.13 "CONTRACT YEAR"..................................................................... 7 1.14 "CPI"............................................................................... 7 1.15 "CPI INCREASE"...................................................................... 7 1.16 "EFFECTIVE DATE".................................................................... 7 1.17 "EXCLUDED HMR PRODUCT LIABILITY".................................................... 8 1.18 "EXTENDED SUPPLY INTERRUPTION"...................................................... 8 1.19 "FDA"............................................................................... 8 1.20 "FORCE MAJEURE"..................................................................... 8 1.21 "FORECAST MONTH".................................................................... 8
i 3 SUPPLY AGREEMENT 1.22 "HMR GmbH".......................................................................... 8 1.23 "HMR GmbH INDEMNIFIED PARTY"........................................................ 8 1.24 "HMR MANUFACTURED PRODUCTS"......................................................... 8 1.25 "HMRI".............................................................................. 8 1.26 "INITIAL RENEWAL PERIOD"............................................................ 8 1.27 "INITIAL TERM"...................................................................... 8 1.28 "INTERRUPTED MEDICIS ORDERS"........................................................ 8 1.29 "LIABILITY"......................................................................... 8 1.30 "LICENSE AND OPTION AGREEMENT"...................................................... 9 1.31 "LOPROX LOTION"..................................................................... 9 1.32 "LOPROX LOTION SUPPLY AGREEMENT".................................................... 9 1.33 "LOST SALES"........................................................................ 9 1.34 "MEDICIS"........................................................................... 9 1.35 "MEDICIS INDEMNIFIED PARTY"......................................................... 9 1.36 "NDAs".............................................................................. 9 1.37 "NET SALES"......................................................................... 9 1.38 "PURCHASE AGREEMENT"................................................................ 9 1.39 "RENEWAL PERIOD".................................................................... 9 1.40 "RULES"............................................................................. 9 1.41 "QUALIFIED ALTERNATE SUPPLIER"...................................................... 9 1.42 "SHORTFALL"......................................................................... 9 1.43 "SPECIFICATIONS".................................................................... 9 1.44 "SUPPLY INTERRUPTION"............................................................... 9 1.45 "TERRITORY"......................................................................... 10 1.46 "TRADE QUOTA"....................................................................... 10
ii 4 SUPPLY AGREEMENT 1.47 "TRADEMARK LICENSE AGREEMENT"....................................................... 10 1.48 "TRANSITION SERVICES AGREEMENT"..................................................... 10 1.49 "24-MONTH FORECAST"................................................................. 10 ARTICLE II. MANUFACTURE, PURCHASE AND SALE OF HMR MANUFACTURED PRODUCTS................................... 10 2.1 Purchase and Sale................................................................... 10 2.2 [Reserved].......................................................................... 11 2.3 Labeling and Packaging.............................................................. 11 2.4 Forecasts........................................................................... 11 2.5 Communication....................................................................... 12 2.6 Minimum Inventory................................................................... 13 2.7 Delivery............................................................................ 13 2.8 Shortages/Damaged Goods/Rejected Goods.............................................. 13 2.9 Current Inventory................................................................... 15 2.10 SUPPLY INTERRUPTION................................................................. 15 2.11 Supply Price for HMR MANUFACTURED PRODUCTS and Exchange Rate and Adjustment.......................................................................... 20 2.12 Payment............................................................................. 21 2.13 Advertising/Marketing/Sales Costs and Product Pricing............................... 22 2.14 Samples............................................................................. 22 2.15 Compliance with APPLICABLE LAWS..................................................... 23 2.16 Rights Necessary for Manufacturing.................................................. 23 ARTICLE III. TERM AND TERMINATION......................................................................... 24 3.1 Term of this AGREEMENT.............................................................. 24 3.2 RENEWAL PERIODS..................................................................... 24
iii 5 SUPPLY AGREEMENT 3.3 Early Termination................................................................... 25 3.4 Consequences of Termination and Survival............................................ 26 3.5 Accrued Obligations................................................................. 27 ARTICLE IV. MANUFACTURING COMPLIANCE, ACCESS AND REGULATORY MATTERS....................................... 28 4.1 Tests; Retained Samples............................................................. 28 4.2 Manufacturing Compliance............................................................ 28 4.3 Changes in SPECIFICATIONS........................................................... 28 4.4 Access to Facilities................................................................ 29 4.5 Regulatory Correspondence........................................................... 29 4.6 Inquiries and Complaints relating to the HMR MANUFACTURED PRODUCTS.................. 29 4.7 Response to Complaints and/or Adverse Drug Reactions (or Events).................... 30 4.8 Additional Information.............................................................. 30 4.9 Technical Agreement................................................................. 30 ARTICLE V. HMR MANUFACTURED PRODUCTS RECALLS.............................................................. 30 5.1 Recalls During INITIAL TERM......................................................... 30 5.2 Recalls During RENEWAL PERIODS or Thereafter........................................ 31 ARTICLE VI. WARRANTIES AND REMEDIES....................................................................... 31 6.1 FDA Approval........................................................................ 31 6.2 Conformity with SPECIFICATIONS...................................................... 31 6.3 Compliance with the Federal Food, Drug and Cosmetic Act............................. 31 6.4 No Liens............................................................................ 31 6.5 Exclusion of Other Warranties....................................................... 31
iv 6 SUPPLY AGREEMENT ARTICLE VII. INDEMNIFICATION, LIMITATION OF LIABILITY AND INSURANCE....................................... 32 7.1 Indemnification by MEDICIS.......................................................... 32 7.2 Indemnification by HMR GmbH......................................................... 33 7.3 Process of Indemnification.......................................................... 33 7.4 Settlements......................................................................... 33 7.5 Limitation of Liability............................................................. 34 7.6 Distribution Insurance.............................................................. 34 7.7 Manufacturer's Insurance............................................................ 34 7.8 HMR MANUFACTURED PRODUCT Liability Claims........................................... 35 ARTICLE VIII. GENERAL PROVISIONS.......................................................................... 35 8.1 FORCE MAJEURE....................................................................... 35 8.2 Governing Law....................................................................... 35 8.3 Headings and References............................................................. 35 8.4 Dispute Resolution.................................................................. 36 8.5 Severability........................................................................ 38 8.6 Entire Agreement.................................................................... 38 8.7 Amendment........................................................................... 38 8.8 Notices............................................................................. 38 8.9 Assignment and Binding Effect....................................................... 39 8.10 No Agency........................................................................... 39 8.11 No Strict Construction.............................................................. 39 8.12 Counterparts........................................................................ 39
v 7 SUPPLY AGREEMENT SUPPLY AGREEMENT This Supply Agreement (the "AGREEMENT") is entered into as of November 15, 1998, by and between Hoechst Marion Roussel Deutschland GmbH, a German limited liability company ("HMR GmbH"), and Medicis Pharmaceutical Corporation, a Delaware corporation ("MEDICIS"). Capitalized terms shall have the meanings ascribed to them in Article I hereof or as otherwise set forth in this AGREEMENT. RECITALS A. HMR GmbH is engaged in the manufacture of the HMR MANUFACTURED PRODUCTS pursuant to certain NDAs owned during the INITIAL TERM by HMR GmbH or its AFFILIATES. B. MEDICIS is willing to purchase its requirements for the HMR MANUFACTURED PRODUCTS from HMR GmbH in accordance with, and for the INITIAL TERM and any RENEWAL PERIOD of, this AGREEMENT. C. HMR GmbH is willing to supply such HMR MANUFACTURED PRODUCTS to MEDICIS in accordance with, and for the INITIAL TERM and any RENEWAL PERIOD of, this AGREEMENT. D. In addition to the actions contemplated by this AGREEMENT, HMR GmbH, certain AFFILIATES of HMR GmbH and MEDICIS are entering into the LOPROX LOTION SUPPLY AGREEMENT, the LICENSE AND OPTION AGREEMENT, the TRADEMARK LICENSE AGREEMENT, the TRANSITION SERVICES AGREEMENT and the PURCHASE AGREEMENT. NOW, THEREFORE, in consideration of the mutual promises hereinafter made and the mutual benefits to be derived from this AGREEMENT, the parties hereto, intending to be legally bound, hereby agree as follows: ARTICLE I. DEFINITIONS 1.1 "AAA" shall have the meaning set forth in Section 8.4 hereof. 1.2 "ACT" means the United States Federal Food, Drug and Cosmetic Act, as amended. 1.3 "ACTIVE INGREDIENTS" means CICLOPIROX and desoximetasone, or either of them, as the case may be. 1.4 "AFFILIATE" means any individual, corporation or other legal entity which either party directly or indirectly through one or more intermediaries controls or which is 8 SUPPLY AGREEMENT controlled by or under common control with such party. For the purpose of this AGREEMENT, "control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of an individual, corporation or other legal entity, whether through the ownership of voting securities, by contract, or otherwise; provided, however, that Copley Pharmaceutical, Inc., a Delaware corporation, shall not be an AFFILIATE of HMR GmbH. 1.5 "AGREEMENT" means this Supply Agreement between HMR GmbH and MEDICIS. 1.6 "APPLICABLE EXCHANGE RATE" shall have the meaning set forth in Section 2.11(b) hereof. 1.7 "APPLICABLE LAWS" shall mean all applicable laws, statutes, rules, regulations, ordinances, orders, decrees, writs, judicial or administrative decisions and the like of any nation or government, any state or other political subdivision thereof, any entity exercising executive, judicial, regulatory or administrative functions of or pertaining to government (including, without limitation, any governmental authority, agency, department, board, commission or instrumentality of any governmental unit or any political subdivision thereof), any tribunal or arbitrator of competent jurisdiction, and any self-regulatory organization. 1.8 "AVERAGE EXCHANGE RATE" shall have the meaning set forth in Section 2.11(b) hereof. 1.9 "BACKORDERS" shall have the meaning set forth in Section 2.10(c)(i)(B)(3) hereof. 1.10 "cGMP" shall mean the then-current Good Manufacturing Practices as promulgated under the ACT at 21 CFR (chapters 210, 211, 600 and 610), as the same may be amended or re-enacted from time to time and as interpreted in accordance with then-current industry standards and FDA policies. 1.11 "CICLOPIROX" means ciclopirox acid and/or ciclopirox olamine. 1.12 "CLAIM" shall have the meaning set forth in Section 8.4(a) hereof. 1.13 "CONTRACT YEAR" shall mean the twelve (12) month period commencing on the EFFECTIVE DATE and ending on the first anniversary of the EFFECTIVE DATE and each consecutive twelve (12) month period thereafter during the INITIAL TERM and any RENEWAL PERIOD. 1.14 "CPI" shall have the meaning set forth in Section 2.11(a) hereof. 1.15 "CPI INCREASE" shall have the meaning set forth in Section 2.11(a) hereof. 1.16 "EFFECTIVE DATE" means the date of this AGREEMENT as first set forth above. 9 SUPPLY AGREEMENT 1.17 "EXCLUDED HMR PRODUCT LIABILITY" means any LIABILITY of HMR or their AFFILIATES arising under any applicable federal, state, local or other product liability law, regulation, common law principle, court order or judgment, jury verdict or arbitral award arising out of or related to the manufacture of the HMR MANUFACTURED PRODUCTS by HMR GmbH or its AFFILIATES after the EFFECTIVE DATE; excluding, however, any such LIABILITY due to, caused by, resulting from or arising out of any breach by HMR GmbH or any AFFILIATE of Article VI of this AGREEMENT. 1.18 "EXTENDED SUPPLY INTERRUPTION" shall have the meaning set forth in Section 2.10(c)(i)(B)(1) hereof. 1.19 "FDA" means the United States Food and Drug Administration or any successor entity thereto. 1.20 "FORCE MAJEURE" shall have the meaning set forth in Section 8.1 hereof. 1.21 "FORECAST MONTH" shall have the meaning set forth in Section 2.4(b) hereof. 1.22 "HMR GmbH" means Hoechst Marion Roussel Deutschland GmbH, a German limited liability company. 1.23 "HMR GmbH INDEMNIFIED PARTY" shall have the meaning set forth in Section 7.1 hereof. 1.24 "HMR MANUFACTURED PRODUCTS" means the human dermatology products listed in Exhibit B to this AGREEMENT and (unless the context indicates otherwise) samples thereof as listed in Exhibit C to this AGREEMENT as manufactured for sale in the TERRITORY. 1.25 "HMRI" means Hoechst Marion Roussel, Inc., a Delaware corporation. 1.26 "INITIAL RENEWAL PERIOD" shall have the meaning set forth in Section 3.2 (a) hereof. 1.27 "INITIAL TERM" means the three (3) year period commencing upon the EFFECTIVE DATE. 1.28 "INTERRUPTED MEDICIS ORDERS" shall have the meaning set forth in Section 2.10(c)(i)(B)(4) hereof. 1.29 "LIABILITY" means any and all liabilities, losses, damages, penalties, fines, assessments, expenses and costs of any kind or nature required to be paid by a party hereunder (or its AFFILIATE) to any third party (which shall not include any AFFILIATE of such paying party), primary or secondary, direct or indirect, absolute or contingent, known or unknown, including without limitation costs of settlement, reasonable attorneys' fees and related costs and expenses and any liabilities for claims of personal injury or death, suffered or incurred by an indemnified party hereunder. 10 SUPPLY AGREEMENT 1.30 "LICENSE AND OPTION AGREEMENT" means the License and Option Agreement, of even date herewith, among HMR GmbH, certain of its AFFILIATES and MEDICIS. 1.31 "LOPROX LOTION" shall have the meaning set forth in the LOPROX LOTION SUPPLY AGREEMENT. 1.29 "LOPROX LOTION SUPPLY AGREEMENT" means the Loprox Lotion Supply Agreement, of even date herewith, between HMRI and MEDICIS. 1.33 "LOST SALES" shall have the meaning set forth in Section 2.10(c)(i)(B)(2) hereof. 1.34 "MEDICIS" means Medicis Pharmaceutical Corporation, a Delaware corporation. 1.35 "MEDICIS INDEMNIFIED PARTY" shall have the meaning set forth in Section 7.2 hereof. 1.36 "NDAs" means the New Drug Applications, Abbreviated New Drug Applications and Abbreviated Antibiotic Drug Applications (as such terms are defined by the FDA) for the HMR MANUFACTURED PRODUCTS filed and approved in accordance with the requirements of the FDA, as may be amended or supplemented from time to time, and as set forth on Exhibit A hereto. 1.37 "NET SALES" shall have the meaning set forth in Section 2.10(c)(i)(B)(5) hereof. 1.38 "PURCHASE AGREEMENT" means the PURCHASE AGREEMENT as defined in the LICENSE AND OPTION AGREEMENT. 1.39 "RENEWAL PERIOD" means the INITIAL RENEWAL PERIOD and any additional renewal periods pursuant to Section 3.2(b) hereof. 1.40 "RULES" shall have the meaning set forth in Section 8.4(b) hereof. 1.41 "QUALIFIED ALTERNATE SUPPLIER" shall have the meaning set forth in Section 2.10(b) hereof. 1.42 "SHORTFALL" shall have the meaning set forth in Section 2.14 hereof. 1.43 "SPECIFICATIONS" mean the written specifications for the HMR MANUFACTURED PRODUCTS contained in the NDAs, as the same may be amended from time to time by HMR GmbH pursuant to the provisions of Section 4.3 herein. 1.44 "SUPPLY INTERRUPTION" shall have the meaning set forth in Section 2.10 hereof. 11 SUPPLY AGREEMENT 1.45 "TERRITORY" means the United States of America and its possessions and territories. 1.46 "TRADE QUOTA" shall have the meaning set forth in Section 2.14(a) hereof. 1.47 "TRADEMARK LICENSE AGREEMENT" means the Trademark License Agreement, dated of even date herewith, among HMR GmbH, HMRI, an AFFILIATE of HMRI and MEDICIS. 1.48 "TRANSITION SERVICES AGREEMENT" means the Transition Services Agreement, dated of even date herewith, between HMRI and MEDICIS. 1.49 "24-MONTH FORECAST" shall have the meaning set forth in Section 2.4(b) hereof. Unless the context clearly indicates otherwise, the use herein of the singular shall include the plural, and the use of the masculine shall included the feminine. ARTICLE II. MANUFACTURE, PURCHASE AND SALE OF HMR MANUFACTURED PRODUCTS 2.1 Purchase and Sale. Pursuant and subject to the terms and conditions of this AGREEMENT, HMR GmbH agrees to manufacture or have manufactured MEDICIS' requirements for the HMR MANUFACTURED PRODUCTS for sale or distribution by MEDICIS in the TERRITORY during the INITIAL TERM and any RENEWAL PERIOD of this AGREEMENT, and MEDICIS agrees to purchase from HMR GmbH its requirements for the HMR MANUFACTURED PRODUCTS for sale or distribution by MEDICIS in the TERRITORY during the INITIAL TERM and any RENEWAL PERIOD of this AGREEMENT; provided, however, that if during any CONTRACT YEAR during the INITIAL TERM MEDICIS purchases from HMR GmbH HMR MANUFACTURED PRODUCTS having an aggregate supply price of U.S. $2.6 million (plus the CPI INCREASE for the second and third CONTRACT YEAR), MEDICIS may in such CONTRACT YEAR or in the next succeeding CONTRACT YEAR purchase from the QUALIFIED ALTERNATIVE SUPPLIER HMR MANUFACTURED PRODUCTS having an aggregate supply price of not more than U.S. $435,000. HMR GmbH may during the INITIAL TERM or any RENEWAL TERM abandon its manufacture of any HMR MANUFACTURED PRODUCT due to the regulatory requirement of any government or agency thereof; provided, however, that in the event HMR GmbH at any time is required to so abandon such manufacture, HMR GmbH shall immediately notify MEDICIS in writing of such requirement; and, provided further, that such right of abandonment shall not prejudice any rights and remedies, if any, MEDICIS may have hereunder in connection with or as a result of such abandonment, including without limitation any rights and remedies relating to any SUPPLY INTERRUPTION or EXTENDED SUPPLY INTERRUPTION or the termination rights under Section 3.3(c) arising therefrom. 12 SUPPLY AGREEMENT 2.2 [Reserved]. 2.3 Labeling and Packaging. MEDICIS shall be responsible for paying all out-of-pocket costs of the design of any new packaging and labeling of HMR GmbH or MEDICIS for the HMR MANUFACTURED PRODUCTS and shall provide to HMR GmbH (which shall actually prepare such packaging and labeling) MEDICIS' logo, color codes, designs, information, graphics and art work to be applied to each HMR MANUFACTURED PRODUCT, which MEDICIS warrants shall be consistent with the FDA approved labeling for the HMR MANUFACTURED PRODUCTS, shall be in accordance with APPLICABLE LAWS and shall not knowingly infringe upon the proprietary rights of any third party. MEDICIS shall provide such logo, color codes, designs, information, graphics and art work pursuant to this Section 2.3 to HMR GmbH by such time in advance of the delivery requirements for the HMR MANUFACTURED PRODUCTS as HMR GmbH shall have notified MEDICIS in writing is sufficient for purposes of this AGREEMENT. 2.4 Forecasts. (a) Long-Range Forecasts. Upon execution of this AGREEMENT, and thereafter at least six (6) months prior to the commencement of each succeeding calendar year, commencing with the first (1st) calendar year, MEDICIS shall provide HMR GmbH with a rolling annual forecast of the quantities of each HMR MANUFACTURED PRODUCT, by finished dosage form and package size (SKU), with the first two (2) calendar year divided by months, that MEDICIS intends to order during the five (5) year period commencing with that calendar year or part thereof. The parties acknowledge that such forecasts shall represent reasonable good faith estimates, and not purchase or supply commitments. (b) Short-Term Forecasts. Upon execution of this AGREEMENT, and thereafter no later than the tenth (10th) calendar day of any calendar month (the "FORECAST MONTH") (with the previous month's forecast to govern in the event of the failure or delay of such delivery), MEDICIS shall deliver to HMR GmbH a rolling monthly forecast of the quantities of each HMR MANUFACTURED PRODUCT, by finished dosage form and package size (SKU), that MEDICIS intends to order during the ensuing twenty four (24) month period (including the FORECAST MONTH) after receipt by HMR GmbH of the forecast. It is acknowledged that the monthly forecasts in the 24-MONTH FORECAST for the period from the LICENSE EFFECTIVE DATE through the end of the third (3rd) full calendar month following the LICENSE EFFECTIVE DATE shall constitute confirmed MEDICIS orders for purposes of this AGREEMENT. HMR GmbH shall within ten (10) business days following its receipt of each forecast confirm in writing, in whole or in part, the quantities of HMR MANUFACTURED PRODUCT that HMR GmbH shall supply hereunder, and such confirmation shall pertain only to the third (3rd) month after the FORECAST MONTH. HMR GmbH may elect not to confirm, in whole or in part, any forecast which (i) is made at a time when HMR has the right to suspend the provision of HMR MANUFACTURED PRODUCTS pursuant to Section 2.12(b) hereof, (ii) cannot be filled due to circumstances arising under Section 8.1, (iii) are in excess of the quantities forecasted by 13 SUPPLY AGREEMENT MEDICIS in the 24-MONTH FORECAST (which quantities HMR GmbH may, at its option, apportion pro rata among each month in a calendar quarter in the 24-MONTH FORECAST for purposes of this clause), or (iv) relates to any period of time beyond the 24-MONTH FORECAST. All rejections, in whole or in part, of MEDICIS orders by HMR GmbH must be in writing and delivered within such ten (10) business day confirmation period. By virtue of HMR GmbH's written confirmation and to the extent of such written confirmation, the forecast for such third (3rd) calendar month after the FORECAST MONTH shall become a binding obligation on MEDICIS to purchase, and a binding obligation on HMR GmbH to supply, such quantities. MEDICIS' first short term forecast (the "24-MONTH FORECAST") is attached hereto as Exhibit D. Unless mutually agreed by HMR GmbH and MEDICIS in writing, MEDICIS shall be required to purchase that percentage of the quantity of each HMR MANUFACTURED PRODUCT specified in each short-term forecast for successive quarters as follows:
Percentage of HMR MANUFACTURED PRODUCTS indicated in Each Short-Term Period of the Forecast Forecast that MEDICIS is Required to Purchase ---------------------- --------------------------------------------- First Three Month Period 100% Second Three Month Period 75% Third Three Month Period 50% Fourth Three Month Period 25%
(c) HMR GmbH Twenty Four (24) Month Supply Commitment. Subject to Sections 2.4(b)(i), 2.10 and 8.1 hereof, HMR GmbH covenants and agrees that during each of the successive calendar quarters reflected in the 24-MONTH FORECAST, HMR GmbH shall confirm and deliver to MEDICIS at least the quantities of HMR MANUFACTURED PRODUCTS forecasted to be ordered by MEDICIS for such calendar quarter as set forth in the 24-MONTH FORECAST, provided that such quantities are actually ordered by MEDICIS pursuant to Section 2.4(b) hereof. 2.5 Communication MEDICIS acknowledges that each HMR MANUFACTURED PRODUCT is produced in full lot quantities, as set forth on Exhibit E attached hereto. Separate orders are not necessary and are not legally binding. The written forecasts from MEDICIS as confirmed by HMR GmbH pursuant to Section 2.4(b) hereof shall constitute legally binding orders between MEDICIS and HMR GmbH for the HMR MANUFACTURED PRODUCTS. All forecasts by MEDICIS hereunder shall be in writing and addressed as follows: Hoechst Marion Roussel Deutschland GmbH Demand Management D-65926 Frankfurt Germany Attention: Juergen Herberg, Demand Manager Telephone: 49-69-305-15292 Fax: 49-69-359356 14 SUPPLY AGREEMENT MEDICIS shall be obligated to purchase all such HMR MANUFACTURED PRODUCTS which are confirmed by HMR GmbH in accordance with Section 2.4(b), provided that such HMR MANUFACTURED PRODUCTS meet the SPECIFICATIONS. After receipt by MEDICIS of HMR GmbH's written confirmation, no other purchase order, shipping document, confirmation or waybill shall be deemed to modify, supplement or substitute for the terms and conditions of this AGREEMENT, except upon the mutual written agreement of the parties. All such documents shall be subject to, and shall be deemed to incorporate, the terms and conditions of this AGREEMENT. 2.6 Minimum Inventory. Subject to the constraints imposed by any breach by HMR GmbH of any of the terms of this AGREEMENT, by any SUPPLY INTERRUPTION or by any EXTENDED SUPPLY INTERRUPTION, and subject to HMR GmbH's fulfillment of its delivery obligations under Sections 2.4(b) and 2.4(c) hereof, MEDICIS shall maintain at its expense at all times after the six (6) month anniversary of the EFFECTIVE DATE, including immediately prior to delivery of a new shipment of HMR MANUFACTURED PRODUCTS, inventory of each HMR MANUFACTURED PRODUCT equivalent to the quantities of such HMR MANUFACTURED PRODUCT sold by MEDICIS over a three (3) month period (or by HMR GmbH and/or its AFFILIATES for any period prior to the EFFECTIVE DATE) which shall be computed as being the average of the quantities sold during the three (3) most recently completed calendar quarters. 2.7 Delivery. The HMR MANUFACTURED PRODUCTS shall be shipped by HMR GmbH Delivered Duty Unpaid (DDU), per Incoterms 1990, to the port of New York or such other mutually agreeable port in the TERRITORY. MEDICIS shall pay for all import licenses and charges and all freight and insurance costs with respect to shipment within the TERRITORY. All deliveries of confirmed MEDICIS orders shall be made on or before the last day of the calendar month for which the relevant order was confirmed by HMR GmbH hereunder; for the avoidance of doubt, for purposes of this sentence, "deliveries" shall be deemed to be made when the HMR MANUFACTURED PRODUCTS physically arrive in the TERRITORY, and shall not be considered to be the time when the HMR MANUFACTURED PRODUCTS clear U.S. customs. 2.8 Shortages/Damaged Goods/Rejected Goods. (a) Shortages/Damaged Goods. MEDICIS shall notify HMR GmbH in writing of any obvious visible damage or obvious shortage in quantity of any shipment of an HMR MANUFACTURED PRODUCT within its possession within six (6) business days after receipt at MEDICIS' regional distribution centers. In the event of (a) any shortage in quantity of any shipment of an HMR MANUFACTURED PRODUCT that is not within MEDICIS' possession, (b) any non-obvious shortage in quantity of any shipment of an HMR MANUFACTURED PRODUCT within MEDICIS' possession or (c) any non-obvious damage to any HMR MANUFACTURED PRODUCT, MEDICIS shall notify HMR GmbH in writing within the earlier of (i) ten (10) business days after discovery of such shortage or damage or (ii) the shelf life of such HMR MANUFACTURED PRODUCT, provided that MEDICIS shall provide documentation reasonably satisfactory to HMR GmbH demonstrating that such shortage 15 SUPPLY AGREEMENT or damage existed when such HMR MANUFACTURED PRODUCT was delivered by HMR GmbH. Notification under this Section 2.8(a) shall specify the finished dosage form and package size (SKU) of such HMR MANUFACTURED PRODUCT. In the event of any shortage or damage as described in this Section 2.8(a) (and provided HMR GmbH is reasonably satisfied with any required documentation relating thereto), HMR GmbH shall make up the shortage or replace the damaged shipment within thirty (30) business days after notification by MEDICIS, if replacement HMR MANUFACTURED PRODUCT stock is available, or, if no such replacement stock is available, as soon as reasonably practicable after receiving such notice. MEDICIS shall deduct the invoiced amount relating to any shortage of HMR MANUFACTURED PRODUCTS or damaged HMR MANUFACTURED PRODUCTS from payment of the HMR GmbH invoice or invoices for such HMR MANUFACTURED PRODUCTS. (b) Rejected Goods. MEDICIS shall notify HMR GmbH in writing of any claim relating to an HMR MANUFACTURED PRODUCT failing to meet the SPECIFICATIONS at the time title passes to MEDICIS in accordance with Section 2.7 hereof (other than due solely to storage, handling or shipping by MEDICIS, its AFFILIATES, customers and/or carriers) within the earlier of (i) thirty (30) business days after discovery of such failure to meet the SPECIFICATIONS or (ii) the shelf life of such HMR MANUFACTURED PRODUCT. Such notification shall specify the finished dosage form and package size (SKU) of such HMR MANUFACTURED PRODUCT. Subject to the provisions of Section 2.8(c) hereof, HMR GmbH shall replace any such HMR MANUFACTURED PRODUCT that fails to meet the SPECIFICATIONS within thirty (30) business days after notification by MEDICIS, if replacement HMR MANUFACTURED PRODUCT stock is available, or, if no such replacement stock is available, as soon as reasonably practicable after receiving such notice. MEDICIS shall not be responsible, and shall receive a credit from HMR GmbH, for any additional costs of shipping, freight, customs and duties required to be paid as a result of any replacement of HMR MANUFACTURED PRODUCTS under this Section 2.8(b). The provisions of this Section 2.8(b) shall not apply to HMR MANUFACTURED PRODUCTS which fail to meet the SPECIFICATIONS due solely to storage, handling or shipping by MEDICIS, its AFFILIATES, customers and/or carriers. MEDICIS shall deduct the invoiced amount for any HMR MANUFACTURED PRODUCTS which fail to meet the SPECIFICATIONS (other than due solely to storage, handling or shipping by MEDICIS, its AFFILIATES, customers and/or carriers) from payment of the HMR GmbH invoice or invoices for such HMR MANUFACTURED PRODUCTS. (c) Disputes. In the event of a dispute regarding whether any HMR MANUFACTURED PRODUCT fails to meet the SPECIFICATIONS which HMR GmbH and MEDICIS are unable to resolve, a sample of such HMR MANUFACTURED PRODUCT shall be submitted by MEDICIS to an independent laboratory reasonably acceptable to both parties for testing and the test results obtained by such laboratory shall be final and controlling. The fees and expenses of such laboratory testing and all additional shipping and transportation costs incurred as a result of the dispute shall be borne entirely by the party against whom such laboratory's findings are made. In the event the test results indicate that the HMR MANUFACTURED PRODUCT in question fails to meet the SPECIFICATIONS, HMR GmbH shall replace such HMR MANUFACTURED PRODUCT within thirty (30) business days after 16 SUPPLY AGREEMENT receipt of such results if replacement HMR MANUFACTURED PRODUCT stock is available, or, if no such replacement stock is available, as soon as reasonably practicable after receiving such notice. MEDICIS shall not be responsible, and shall receive a credit from HMR GmbH, for any additional costs of shipping, freight, customs and duties required to be paid as a result of any replacement of HMR MANUFACTURED PRODUCTS under this Section 2.8(c). MEDICIS shall deduct the invoiced amount for any HMR MANUFACTURED PRODUCTS which are so determined to fail to meet the SPECIFICATIONS from payment of the HMR GmbH invoice or invoices for such HMR MANUFACTURED PRODUCTS. 2.9 Current Inventory. In accordance with the terms of the TRANSITION SERVICES AGREEMENT, HMR GmbH or its AFFILIATES shall deliver to MEDICIS in its initial or subsequent shipments to MEDICIS at the prices set forth in Exhibit B and Exhibit C, respectively, attached hereto, existing inventory of the HMR MANUFACTURED PRODUCTS and all existing samples thereof in inventory of HMR GmbH and its AFFILIATES and in process with at least twelve (12) months of shelf life remaining. If MEDICIS has distributed such existing inventory of HMR MANUFACTURED PRODUCTS first, MEDICIS shall notify HMR GmbH in writing of the quantities of each such HMR MANUFACTURED PRODUCT that have not been sold or given to MEDICIS' customers, as the case may be, at a date as of nine (9) months prior to their respective expiration dating. HMR GmbH shall instruct MEDICIS in writing whether, at HMR GmbH's expense, to destroy such HMR MANUFACTURED PRODUCTS or to return such HMR MANUFACTURED PRODUCTS to HMR GmbH or its AFFILIATES. Within ten (10) days after receiving each such notification by MEDICIS, HMR GmbH shall reimburse MEDICIS for all amounts paid by MEDICIS to HMR GmbH for such destroyed or returned HMR MANUFACTURED PRODUCTS and any and all reasonable disposal, shipping or other expenses incurred by MEDICIS in connection with the destruction or return of such HMR MANUFACTURED PRODUCTS. 2.10 SUPPLY INTERRUPTION. For purposes of this AGREEMENT, a "SUPPLY INTERRUPTION" shall be deemed to occur: (i) if HMR GmbH's ability to supply adequate quantities of HMR MANUFACTURED PRODUCTS in saleable form in a timely manner to MEDICIS is adversely affected or inhibited as reasonably determined by both parties, (ii) if HMR GmbH fails to deliver to MEDICIS, in saleable form in accordance with the terms of this AGREEMENT, any portion, greater than 6% in quantity, of any confirmed order for any SKU of any HMR MANUFACTURED PRODUCT, or (iii) if in any calendar quarter covered by the 24-MONTH FORECAST, HMR GmbH fails to deliver, in saleable form in accordance with the terms of this AGREEMENT, HMR MANUFACTURED PRODUCTS in accordance with the 24-MONTH FORECAST or, if less, in the applicable portion of MEDICIS' last short-term forecast provided prior to the SUPPLY INTERRUPTION. For purposes of this AGREEMENT, a SUPPLY INTERRUPTION shall be deemed to have been fully cured once HMR GmbH has delivered to MEDICIS all confirmed orders and, for any calendar months for which there have been no confirmed orders due to the SUPPLY INTERRUPTION, at least the minimum quantities in saleable form of HMR MANUFACTURED PRODUCTS forecasted to be ordered by MEDICIS during such calendar months as set forth in the 24-MONTH FORECAST or, if less, in the applicable portion of MEDICIS' last short-term forecast provided prior to the SUPPLY 17 SUPPLY AGREEMENT INTERRUPTION. In the event of any SUPPLY INTERRUPTION, the following terms and conditions shall apply: (a) Pro Rata Entitlement. In the event of a SUPPLY INTERRUPTION, MEDICIS shall be entitled to a pro rata (in unit quantity) share of the manufacturing capacity of HMR GmbH and its AFFILIATES for the manufacture of HMR MANUFACTURED PRODUCTS, and HMR GmbH and its AFFILIATES shall also be subject to a pro rata (in unit quantity) entitlement to such manufacturing capacity. If, for example, during a period of SUPPLY INTERRUPTION, HMR GmbH receives orders for a total of 2,000 units, of which 500 units (i.e., 25% of the total orders) are ordered by MEDICIS and 1,500 units (i.e., 75% of the total orders) are ordered by third parties or by AFFILIATES of HMR GmbH, MEDICIS shall be entitled to receive 25% of HMR GmbH's manufacturing capacity during the period of such SUPPLY INTERRUPTION. Thus, if HMR GmbH were able to manufacture only 1,000 units during the period of such SUPPLY INTERRUPTION, MEDICIS would be entitled to receive 25% of such total number of units (i.e., 250 units) and third parties and AFFILIATES of HMR GmbH would be entitled to receive 75% of such total number of units (i.e., 750 units). MEDICIS' entitlement to HMR GmbH's and its AFFILIATES' manufacturing capacity under this Section 2.10(a) shall be in addition to any other rights and remedies MEDICIS may have under this AGREEMENT as a result of any SUPPLY INTERRUPTION. (b) QUALIFIED ALTERNATE SUPPLIER. At any time during the INITIAL TERM and any RENEWAL PERIOD, MEDICIS shall have the right to designate and qualify one and only one qualified alternate supplier, which selection shall be reasonably acceptable to HMR GmbH (the "QUALIFIED ALTERNATE SUPPLIER"). The QUALIFIED ALTERNATE SUPPLIER may only be utilized by MEDICIS during the INITIAL TERM and any RENEWAL PERIOD as specifically set forth in this Section 2.10 or in Section 2.1 hereof. HMR GmbH, at MEDICIS' sole expense, shall promptly provide at such times and locations as may reasonably be requested by MEDICIS, reasonable cooperation to MEDICIS in qualifying such alternate supplier for the HMR MANUFACTURED PRODUCTS. Such cooperation shall include, without limitation, participation by HMR GmbH's representatives in at least two meetings in North America during the INITIAL TERM. From the time that any SUPPLY INTERRUPTION begins until such SUPPLY INTERRUPTION is fully cured, MEDICIS may obtain any resulting shortage of HMR MANUFACTURED PRODUCTS from the QUALIFIED ALTERNATE SUPPLIER. If the OPTION (as defined in the LICENSE AND OPTION AGREEMENT) is not exercised in accordance with Section 4.1 of the LICENSE AND OPTION AGREEMENT, (i) MEDICIS, its AFFILIATES, or its successors, assigns or sublicensees shall not obtain supply of the HMR MANUFACTURED PRODUCTS or of the ACTIVE INGREDIENTS, in their current formulations, from the QUALIFIED ALTERNATE SUPPLIER, its AFFILIATES, or its successors, assigns or sublicensees for a period of three (3) years after the INITIAL TERM, and (ii) HMR GmbH, its AFFILIATES, or its successors, assigns or sublicensees after the INITIAL TERM may obtain supply of the HMR MANUFACTURED PRODUCTS or of the ACTIVE INGREDIENTS from such QUALIFIED ALTERNATE SUPPLIER, its AFFILIATES, or its successors, assigns or sublicensees after the INITIAL TERM. 18 SUPPLY AGREEMENT (c) LOST SALES Remedy. (i) (A) For each calendar quarter or portion thereof during an EXTENDED SUPPLY INTERRUPTION and as liquidated damages and not as a penalty, HMR GmbH shall pay to MEDICIS an amount equal to MEDICIS' LOST SALES as provided herein. (B) For purposes of this Section 2.10(c) and this AGREEMENT: (1) An "EXTENDED SUPPLY INTERRUPTION" shall mean a period which: (a) begins on the sixty-first (61st) consecutive day of a SUPPLY INTERRUPTION; provided that during the first six (6) months during the term hereof, the first (1st) day of a SUPPLY INTERRUPTION shall begin such period (which in all cases must be before the two (2) month anniversary of the date on which the FDA approves the QUALIFIED ALTERNATE SUPPLIER or, if earlier, the date that is eighteen (18) months after the EFFECTIVE DATE); and (b) ends on the earliest of (x) the date as of which HMR GmbH has fully cured the SUPPLY INTERRUPTION, (y) the date that is eighteen (18) months after the EFFECTIVE DATE, or (z) the two (2) month anniversary of the date on which the FDA approves the QUALIFIED ALTERNATE SUPPLIER. (2) "LOST SALES" shall mean, determined on a quarterly basis for each calendar quarter or portion thereof during an EXTENDED SUPPLY INTERRUPTION, the greater of: (a) 65% of the dollar amount MEDICIS would have invoiced for BACKORDERS placed with MEDICIS during such quarter or portion thereof; or (b) 70% of the average of NET SALES for the four (4) most recently completed calendar quarters prior to the commencement of the SUPPLY INTERRUPTION immediately preceding such EXTENDED SUPPLY INTERRUPTION; provided, however, that (i) for any such calculation for any calendar quarter or portion thereof in 1998, such average shall be of NET SALES for the three (3) rather than four (4) most recently completed calendar quarters prior to the commencement of such SUPPLY INTERRUPTION, (ii) any calculation under this Section for a portion of a calendar quarter shall be made on a pro rata basis based on a ninety (90) day calendar quarter, (iii) to the extent that NET SALES for any calendar quarter (or pro rata portion thereof) are based on sales of 19 SUPPLY AGREEMENT quantities of an HMR MANUFACTURED PRODUCT which exceed the quantities of the INTERRUPTED MEDICIS ORDERS for such HMR MANUFACTURED PRODUCT for the calendar quarter (or portion thereof) for which LOST SALES are being determined, the corresponding NET SALES value of such quantities in excess of the INTERRUPTED MEDICIS ORDERS shall be excluded from the determination of NET SALES, and (iv) only quantities of inventory for which MEDICIS is out-of-stock due to the SUPPLY INTERRUPTION shall be included in the calculation of NET SALES. (c) Notwithstanding anything to the contrary in subparagraphs 2(a) or 2(b) above, in the event MEDICIS is out-of-stock for any HMR MANUFACTURED PRODUCT during any period of any EXTENDED SUPPLY INTERRUPTION due solely to MEDICIS' failure to maintain a minimum inventory of such HMR MANUFACTURED PRODUCT in accordance with Section 2.6 hereof and subject to the qualifications set forth therein, in determining LOST SALES hereunder: (i) any BACKORDERS or portions thereof which cannot be filled due solely to the failure on the part of MEDICIS in accordance with Section 2.6 shall be excluded from the calculation pursuant to subparagraph 2(a) above, and (ii) the corresponding NET SALES value of any such quantities of inventory which MEDICIS has failed to maintain in accordance with Section 2.6 shall be excluded from the determination of NET SALES for purposes of subparagraph 2(b) above. (3) "BACKORDERS" shall mean orders actually received by MEDICIS from third-party customers of MEDICIS (which cannot be AFFILIATES of MEDICIS) for HMR MANUFACTURED PRODUCTS which MEDICIS cannot fill because it is out-of-stock due to a SUPPLY INTERRUPTION, which must be within the quantities of the INTERRUPTED MEDICIS ORDERS. (4) An "INTERRUPTED MEDICIS ORDER" shall mean any quantities of HMR MANUFACTURED PRODUCTS (other than samples) which were ordered or forecasted to be ordered by MEDICIS but not delivered by HMR GmbH in saleable form because of a SUPPLY INTERRUPTION, which shall be limited: (a) for time periods within the relevant short-term forecasts submitted by MEDICIS and confirmed by HMR GmbH pursuant to Section 2.4(b) hereof, to the quantities that were actually included by MEDICIS in such confirmed short-term forecasts prior to the SUPPLY INTERRUPTION; or 20 SUPPLY AGREEMENT (b) for time periods beyond such confirmed short-term forecasts, to the quantities set forth in the 24-MONTH FORECAST or, if less, in the applicable portion of MEDICIS' last short-term forecast (which would not have yet been confirmed by HMR GmbH) submitted prior to the SUPPLY INTERRUPTION pursuant to Section 2.4(b). (5) "NET SALES" shall mean the gross invoice amount of HMR MANUFACTURED PRODUCTS invoiced by MEDICIS, HMRI or HMRI on behalf of MEDICIS to third parties in the TERRITORY during a calendar quarter, less (i) promotional and trade discounts; (ii) sales and excise taxes, value-added and other taxes, shipping costs and insurance premiums and duties which are billed to customers as separate items on invoices; (iii) allowances for short shipments, claims for returned goods and price adjustments; and (iv) contracts charge-backs and government rebates (provided that for any calendar quarters after the EFFECTIVE DATE, such charge-backs and rebates shall be limited to those which are the responsibility of MEDICIS under the LICENSE AND OPTION AGREEMENT). HMRI shall promptly provide MEDICIS with any and all documents and information reasonably requested by MEDICIS in order to enable MEDICIS to make any determination of NET SALES required under this AGREEMENT. (C) MEDICIS covenants and agrees that it shall not solicit orders from customers outside the ordinary course of business, make or announce any price increases or otherwise act in any manner not in the ordinary course of business with respect to the HMR MANUFACTURED PRODUCTS subject to the EXTENDED SUPPLY INTERRUPTION where such actions would have the effect of increasing the quantities of BACKORDERS, during any period (i) in which an EXTENDED SUPPLY INTERRUPTION is continuing, or (ii) after such time that HMR GmbH notifies MEDICIS that an EXTENDED SUPPLY INTERRUPTION is likely to occur until such time as the EXTENDED SUPPLY INTERRUPTION is cured or avoided as further notified by HMR GmbH to MEDICIS. (D) During the period of any such EXTENDED SUPPLY INTERRUPTION, MEDICIS shall invoice HMR quarterly for LOST SALES, and HMR GmbH shall pay each such invoice not later than ten (10) business days after its receipt thereof. Each such invoice shall be accompanied by documentation reasonably satisfactory to HMR GmbH setting forth the LOST SALES covered by the invoice. (ii) Notwithstanding anything to the contrary in Section 2.10(c)(i) hereof, MEDICIS shall have no right to recover for LOST SALES under Section 2.10(c)(i) in connection with any EXTENDED SUPPLY INTERRUPTION which is caused solely and directly by force majeure due to: (a) an act of God; (b) any act, regulation, order, decree or law of any government or agency thereof which is not a result of or caused by any action or inaction on the part of HMR GmbH or an AFFILIATE in violation of its obligations under any of the TRANSACTION 21 SUPPLY AGREEMENT DOCUMENTS or APPLICABLE LAWS; (c) war or civil commotion; (d) damage to or destruction of HMR GmbH's manufacturing facilities resulting from an act of God; (e) labor disturbances which are not specific to the operations or facilities of HMR GmbH or its AFFILIATES and which are not within the power of HMR GmbH or its AFFILIATES to settle or control; (f) epidemic; (g) failure of a sole source supply to HMR GmbH of a particular supply item for HMR MANUFACTURED PRODUCTS by reason of any force majeure (as force majeure is defined in this Section 2.10(c)(ii)); (h) failure of all sources of supply to HMR GmbH of a particular supply item for HMR MANUFACTURED PRODUCTS where HMR GmbH has multiple sources of supply for such item, provided such failure is not due to or caused by any action or inaction on the part of HMR GmbH; (i) the failure of public utilities; or (j) the failure of common carriers. 2.11 Supply Price for HMR MANUFACTURED PRODUCTS and Exchange Rate and Adjustment. (a) The supply price of the HMR MANUFACTURED PRODUCTS to be paid by MEDICIS to HMR GmbH for the INITIAL TERM and the INITIAL RENEWAL PERIOD shall be as specified in Exhibits B and C attached hereto; provided, however, that the supply prices shall be increased on March 1 of each year by the increase in the U.S. consumer price index released by the U.S. Department of Labor (the "CPI") using March 1, 1998 as the base reference point (the "CPI INCREASE"); provided, further, if the supply price set forth in Exhibits B and C for a particular HMR MANUFACTURED PRODUCT is less than HMR GmbH's costs to manufacture and supply such HMR MANUFACTURED PRODUCT to MEDICIS, the price for such HMR MANUFACTURED PRODUCT shall be increased by an amount so that the supply price for such HMR MANUFACTURED PRODUCT equals the cost for such HMR MANUFACTURED PRODUCT. HMR GmbH shall use its reasonable commercial efforts to lower the prices of other trade or sample HMR MANUFACTURED PRODUCTS to the fullest extent possible to give MEDICIS the same economic benefits that it would have received under this AGREEMENT had such price not been increased. (b) Exchange Rate and Adjustment. The reference exchange rate for this AGREEMENT is 1.80 Deutsche Mark buys U.S. $1.00 ("APPLICABLE EXCHANGE RATE"). In the event of changes of such exchange rate as indicated below, the purchase prices shall be adjusted as set forth below, with the overriding premise being that the parties shall equally bear the impact of any such change in the APPLICABLE EXCHANGE RATE. Initial Six (6) Month Period. In the event that the average exchange rate for the Deutsche Mark to the U.S. Dollar in a particular month (as computed by the Frankfurt am Main currency exchange and published monthly by the Deutsche Bundesbank Devisenkursstatistik) ("AVERAGE EXCHANGE RATE") during the first six (6) months should exceed 2.15 DM/U.S. $ or decrease below 1.45 DM/U.S. $, then a new purchase price shall be immediately renegotiated in good faith and be immediately applicable prior to the expiration of the first six (6) month period. 22 SUPPLY AGREEMENT Subsequent To Initial Six (6) Month Period. In the event that the AVERAGE EXCHANGE RATE calculated for the last six (6) months ending at the end of each six (6) month period should deviate from the prevailing APPLICABLE EXCHANGE RATE by five percent (5%) or more, then the purchase price for all deliveries for each of the HMR MANUFACTURED PRODUCTS supplied to MEDICIS during the ensuing six (6) month period shall be adjusted using a new APPLICABLE EXCHANGE RATE as follows: APPLICABLE EXCHANGE RATE + AVERAGE EXCHANGE RATE = new APPLICABLE EXCHANGE RATE - ------------------------------------------------ 2 The purchase prices shall then be adjusted as follows: Current purchase price x APPLICABLE EXCHANGE RATE = Adjusted purchase price ------------------------ New APPLICABLE EXCHANGE RATE Example: Current purchase price in U.S. $ per 60 gram tube of 'Topicort' Cream: U.S. $ 5.35 APPLICABLE EXCHANGE RATE: 1.80 DM:1 U.S. $ AVERAGE EXCHANGE RATE: 1.70 DM: 1 U.S. $ Calculation of new APPLICABLE EXCHANGE RATE: 1.80x1.70 = 1.75 (which is the new APPLICABLE EXCHANGE RATE) -------- 2 Calculation of adjusted purchase price for 60 gram tube: 5.35 x 1.80 = 5.50 U.S. $ (which is the adjusted purchase price) ---- 1.75 2.12 Payment. (a) All payments required by this AGREEMENT shall be made in United States Dollars. All invoices are net and payment must be received not later than (i) forty-five (45) calendar days after the date of invoice or (ii) if later, thirty (30) days after delivery to the port of New York or such other port in the TERRITORY as the parties have mutually agreed pursuant to Section 2.7 hereof. The date of each invoice shall be on or about the date of shipment of HMR MANUFACTURED PRODUCTS. Payment shall be made without deduction, deferment, set-off, lien or counterclaim of any nature, other than for rejected or returned goods. Time for payment shall be of the essence. Unless MEDICIS notifies HMR GmbH in writing of a good faith dispute, with respect to payments not received within five (5) calendar days after the end of such forty-five (45) calendar day or longer period, interest shall accrue on any amount overdue, at the rate of prime plus two percent (2%) per annum, such interest to begin accruing on a daily basis from the date of invoice, and shall accrue both before and after judgment; provided, however, in the case of a good faith dispute regarding payment resolved to be due and not paid within five (5) business days after such resolution, interest shall accrue on any amount overdue, at the rate of prime plus two percent (2%) per annum, such interest to begin accruing on a daily basis from the date such payment becomes overdue, and 23 SUPPLY AGREEMENT shall accrue both before and after judgment; provided, further, in the case of a good faith dispute regarding payment, MEDICIS may in its discretion determine to pay such amounts disputed to be overdue and in the event amounts are finally determined not to be due, HMR GmbH shall repay such excess amounts determined not be due to MEDICIS, and interest shall accrue on any such amount, at the rate of prime plus two percent (2%) per annum, such interest to begin accruing on a daily basis from the date such disputed payment was received by HMR GmbH. (b) With respect to defaults of payment not cured within fifteen (15) business days after receipt of written notice from HMR GmbH to MEDICIS, HMR GmbH shall, in its sole discretion, and without prejudice to any other of its accrued rights, be entitled to suspend the provision of HMR MANUFACTURED PRODUCTS; provided, however, a good faith bona fide dispute by MEDICIS regarding a payment pursuant to this AGREEMENT shall not be considered a default of payment so long as MEDICIS notifies HMR GmbH in writing of such dispute within sixty (60) calendar days from the date of invoice. MEDICIS understands that it shall notify HMR GmbH promptly upon a determination that a dispute exists regarding a payment. 2.13 Advertising/Marketing/Sales Costs and Product Pricing. MEDICIS shall be responsible for all advertising, marketing and sales costs associated with the distribution of HMR MANUFACTURED PRODUCTS in the TERRITORY. MEDICIS shall have complete authority for all pricing decisions for the HMR MANUFACTURED PRODUCT in the TERRITORY. MEDICIS shall not alter the HMR MANUFACTURED PRODUCTS and shall not recommend or knowingly sell the HMR MANUFACTURED PRODUCTS for any uses except as described in the FDA approved HMR MANUFACTURED PRODUCTS labeling. 2.14 Samples. (a) During each CONTRACT YEAR of the INITIAL TERM, HMR GmbH shall provide MEDICIS with samples of the HMR MANUFACTURED PRODUCTS with a value totaling U.S. $870,000, based upon the sample unit prices set forth in Exhibit C hereto (plus the CPI INCREASE for the second and third CONTRACT YEAR), at no cost to MEDICIS; provided, however, that subject to the terms of this AGREEMENT, if MEDICIS does not purchase HMR MANUFACTURED PRODUCTS other than samples with an aggregate supply price of U.S. $2.6 million (as increased by the CPI INCREASE for any portion of a CONTRACT YEAR for which such CPI INCREASE is in effect) (the "TRADE QUOTA") from HMR GmbH during any CONTRACT YEAR of the INITIAL TERM (a "SHORTFALL"), at the end of such CONTRACT YEAR containing a SHORTFALL, MEDICIS shall reimburse HMR GmbH for the samples on a pro rata basis at the full sample unit prices set forth in Exhibit C hereto (plus the CPI INCREASE, as applicable). By way of example only and without taking into account the CPI INCREASE during the first CONTRACT YEAR, if during such CONTRACT YEAR MEDICIS purchases HMR MANUFACTURED PRODUCTS other than samples with an aggregate supply price of U.S. $1.95 million, the amount of the reimbursement by MEDICIS under this Section 2.14(a) would be equal to the product of One-Fourth (1/4) and U.S. $870,000, or U.S. $217,500. 24 SUPPLY AGREEMENT (b) In the event a SUPPLY INTERRUPTION occurs in the same CONTRACT YEAR in which a SHORTFALL occurs, then (i) to the extent that the aggregate quantities of HMR MANUFACTURED PRODUCTS other than samples purchased by MEDICIS from the QUALIFIED ALTERNATE SUPPLIER during the period of such SUPPLY INTERRUPTION exceeds by more than 5% the quantities of the INTERRUPTED MEDICIS ORDERS for such period, MEDICIS' TRADE QUOTA under Section 2.14(a) for the next succeeding CONTRACT YEAR shall be increased by the aggregate supply price of such excess quantities (as determined by reference to the prices in the CONTRACT YEAR in which the SUPPLY INTERRUPTION occurs); (ii) the aggregate supply price of the quantities of all HMR MANUFACTURED PRODUCTS other than samples purchased by MEDICIS from the QUALIFIED ALTERNATE SUPPLIER during the period of such SUPPLY INTERRUPTION shall be credited towards MEDICIS' TRADE QUOTA for such CONTRACT YEAR under Section 2.14(a) hereof, but only to the extent such quantities do not exceed the quantities of the INTERRUPTED MEDICIS ORDERS for such period; and (iii) in the event that the QUALIFIED ALTERNATE SUPPLIER has not been qualified prior to the commencement of such SUPPLY INTERRUPTION, MEDICIS shall receive credit towards its TRADE QUOTA pursuant to Section 2.14(a) to the extent of the INTERRUPTED MEDICIS ORDERS. With respect to subpart (ii) of the immediately preceding sentence and by way of example only, without taking into account any CPI INCREASE, if during any such CONTRACT YEAR MEDICIS were to purchase from HMR GmbH and the QUALIFIED ALTERNATE SUPPLIER HMR MANUFACTURED PRODUCTS other than samples with aggregate supply prices of U.S. $1.95 million and U.S. $650,000, respectively, and the aggregate supply price for the INTERRUPTED MEDICIS ORDERS for the period of the SUPPLY INTERRUPTION during such CONTRACT YEAR were U.S. $325,000, the amount of the reimbursement by MEDICIS under Section 2.14(a) hereof would be equal to (1) U.S. $325,000 divided by U.S. $2.6 million, multiplied by (2) U.S. $870,000, or U.S. $108,750. (c) Except as otherwise provided by this Section 2.14, prices for samples of HMR MANUFACTURED PRODUCTS purchased by MEDICIS from HMR GmbH shall be at the full sample unit price set forth in Exhibit C attached hereto. (d) MEDICIS shall select the mix of the samples of the HMR MANUFACTURED PRODUCTS which MEDICIS is to receive, which shall be within HMR GmbH's manufacturing capacities for each such sample as reasonably determined by HMR GmbH. (e) Samples shall be delivered to MEDICIS by HMR GmbH in accordance with Section 2.7 hereof. 2.15 Compliance with APPLICABLE LAWS. HMR GmbH and its AFFILIATES shall comply fully with APPLICABLE LAWS in the performance of this AGREEMENT. 2.16 Rights Necessary for Manufacturing. In accordance with the terms and conditions of the LICENSE AND OPTION AGREEMENT during the INITIAL TERM, HMR GmbH reserves the right, and in accordance with the terms of the PURCHASE AGREEMENT during 25 SUPPLY AGREEMENT any RENEWAL PERIODS, MEDICIS grants to HMR GmbH a royalty-free, non-exclusive license, to use the PATENTS, the TRADEMARKS and the PRODUCT KNOW-HOW solely to make and have made the HMR MANUFACTURED PRODUCTS in the TERRITORY (i) for sale to MEDICIS under and pursuant to this AGREEMENT and (ii) for use and resale outside the TERRITORY in accordance with the terms of the LICENSE AND OPTION AGREEMENT and the PURCHASE AGREEMENT. ARTICLE III. TERM AND TERMINATION 3.1 Term of this AGREEMENT. The term of this AGREEMENT shall be the INITIAL TERM unless a RENEWAL PERIOD is applicable in accordance with Section 3.2 hereof, or unless this AGREEMENT is earlier terminated in accordance with the provisions of Section 3.3 hereof. 3.2 RENEWAL PERIODS. (a) If the OPTION (as defined in the LICENSE AND OPTION AGREEMENT) is exercised pursuant to Section 4.1 of the LICENSE AND OPTION AGREEMENT and unless MEDICIS provides written notice to HMR GmbH no later than the second anniversary of the EFFECTIVE DATE of its election not to extend this AGREEMENT, this AGREEMENT shall be extended under the same terms and conditions as those set forth herein, subject to the CPI INCREASES each year, for a period of two (2) years after the expiration of the INITIAL TERM (the "INITIAL RENEWAL PERIOD"). In the alternative, if the OPTION is exercised and upon the request of MEDICIS by written notice to HMR GmbH given no later than the second anniversary of the EFFECTIVE DATE, from and after the date of such notice the parties shall negotiate in good faith to extend the term of this AGREEMENT for an additional period of two (2) years after the expiration of the INITIAL TERM under the same conditions as those set forth herein, subject to the CPI INCREASES each year, except that (i) this AGREEMENT would no longer be deemed to be on a requirements basis and MEDICIS would be free to obtain the HMR MANUFACTURED PRODUCTS from third parties, (ii) there would be no penalty for HMR GmbH's delay or failure to supply the HMR MANUFACTURED PRODUCTS hereunder, and (iii) the parties would negotiate mutually acceptable minimum purchases (by product SKU) which would become an additional obligation of MEDICIS hereunder. Any extension of this AGREEMENT pursuant to the immediately preceding sentence of this Section 3.2 shall be effected pursuant to a written amendment to this AGREEMENT executed by each of the parties hereto. (b) Upon expiration of the INITIAL RENEWAL PERIOD, the term of this AGREEMENT may be extended for additional consecutive two (2) year periods upon the mutual written agreement of the parties entered into no later than one (1) year prior to the expiration of the then-current RENEWAL PERIOD. 26 SUPPLY AGREEMENT 3.3 Early Termination. (a) This AGREEMENT shall automatically be terminated upon the termination of the LICENSE AND OPTION AGREEMENT by HMRI pursuant to Section 15.2 thereof or by MEDICIS pursuant to Section 15.3 thereof. (b) Either of MEDICIS or HMR GmbH, as the case may be, may terminate this AGREEMENT forthwith by notice in writing to the other party upon the occurrence of any of the following events: (i) if the other party commits a material breach of this AGREEMENT, which in the case of a breach capable of remedy shall not have been remedied within sixty (60) days of the receipt by the other party of a notice identifying the breach and requiring its remedy or such longer time as the party in breach may demonstrate to the other party is necessary to remedy the breach using its reasonable efforts to do so; or (ii) if the other party ceases for any reason to carry on business or convenes a meeting of its creditors or has a receiver or manager appointed in respect of all or substantially all of its assets or is the subject of an application for an administration order or of any proposal for a voluntary arrangement or enters into liquidation (whether compulsorily or voluntarily) or undergoes any analogous act or proceedings under foreign law; or (iii) the enactment of any law, order or regulation by governmental authority that would render it impossible for such party to perform its obligations hereunder; provided, however, that if the enactment of any such law, order or regulation renders it impossible for HMR GmbH to perform hereunder and such law, order or regulation is enacted as a result of or is caused by any action or inaction on the part of HMR GmbH, HMR GmbH shall have no right to terminate this AGREEMENT under this Section 3.3(b) as a result of such enactment. (c) In addition to its right to terminate this AGREEMENT pursuant to Section 3.3(b) hereof, MEDICIS may terminate this AGREEMENT and the LOPROX LOTION SUPPLY AGREEMENT forthwith by notice in writing to HMR GmbH in the event that during the INITIAL TERM and prior to the earlier of the date which is twenty four (24) months after the EFFECTIVE DATE and the date on which the FDA approves the QUALIFIED ALTERNATE SUPPLIER, (i) HMR GmbH abandons or terminates the manufacture of the HMR MANUFACTURED PRODUCTS, or (ii) HMR GmbH is unable or fails to supply to MEDICIS hereunder and HMRI is unable or fails to supply to MEDICIS under the LOPROX LOTION SUPPLY AGREEMENT, or MEDICIS, with the written consent of HMR GmbH and HMRI, which consent shall not be unreasonably withheld or delayed, reasonably and in good faith determines that HMR GmbH and HMRI will be unable to supply to MEDICIS for six (6) or more consecutive months hereunder and under the LOPROX LOTION SUPPLY AGREEMENT, HMR MANUFACTURED PRODUCTS and LOPROX LOTION with an aggregate supply price equal to at least 50% of the total U.S. Dollar amount of the quantities of HMR MANUFACTURED PRODUCTS and LOPROX LOTION included by MEDICIS in confirmed orders for such period and, for any months during such period for which there are no confirmed 27 SUPPLY AGREEMENT orders, the quantities of HMR MANUFACTURED PRODUCTS and LOPROX LOTION forecasted to be ordered during such months as set forth in the 24-MONTH FORECAST hereunder and the "24-MONTH FORECAST" as defined in the LOPROX LOTION SUPPLY AGREEMENT or, if less, in the applicable portion of MEDICIS' last short-term forecasts submitted hereunder and under Section 2.4(b) of the LOPROX LOTION SUPPLY AGREEMENT prior to such six (6) month or longer period; provided, however, that MEDICIS may not terminate this AGREEMENT or the LOPROX LOTION SUPPLY AGREEMENT pursuant to this Section 3.3(c) if the abandonment, termination or failure to supply is caused solely and directly by force majeure due to: (a) an act of God; (b) any act, regulation, order, decree or law of any government or agency thereof which is not a result of or caused by any action or inaction on the part of HMR GmbH or an AFFILIATE in violation of its obligations under any of the TRANSACTION DOCUMENTS or APPLICABLE LAWS; (c) war or civil commotion; (d) damage to or destruction of HMR GmbH's manufacturing facilities resulting from an act of God; (e) labor disturbances which are not specific to the operations or facilities of HMR GmbH or its AFFILIATES and which are not within the power of HMR GmbH or its AFFILIATES to settle or control; (f) epidemic; (g) failure of a sole source of supply to HMR GmbH or its AFFILIATES of a particular supply item for HMR MANUFACTURED PRODUCTS or LOPROX LOTION by reason of any force majeure (as force majeure is defined in this Section 3.3(c)); (h) failure of the source of supply for LOPROX LOTION to supply LOPROX LOTION to HMRI by reason of any force majeure (as force majeure is defined in this Section 3.3(c)); (i) failure of all sources of supply to HMR GmbH or its AFFILIATES of a particular supply item for HMR MANUFACTURED PRODUCTS where HMR GmbH or its AFFILIATES has multiple sources of supply for such item, provided such failure is not due to or caused by any action or inaction on the part of HMR GmbH or its AFFILIATES; (j) the failure of public utilities; (k) the failure of common carriers; or (l) an event of force majeure as defined in Section 2.10(c)(ii) of the LOPROX LOTION SUPPLY AGREEMENT. MEDICIS shall additionally have certain rights to terminate the LICENSE AND OPTION AGREEMENT upon termination of this AGREEMENT pursuant to this Section 3.3(c) and Section 15.3 of the LICENSE AND OPTION AGREEMENT. 3.4 Consequences of Termination and Survival. (a) Termination of this AGREEMENT for whatever reason shall not affect the accrued rights and obligations of either HMR GmbH or MEDICIS arising under or out of this AGREEMENT. The provisions of Articles V (HMR MANUFACTURED PRODUCT Recalls), VI (Warranties and Remedies) and VII (Indemnification, Limitation of Liability and Insurance) and of Sections 2.8, 2.9 (last sentence), 2.10(b), 2.10(c), 2.12, 3.5, 8.2, 8.4, 8.5, 8.6, 8.8, 8.10 and 8.11 of this AGREEMENT and this Section 3.4 shall survive the expiration or termination of this AGREEMENT or of any extensions thereof. In addition, any other provisions which are required to interpret and enforce the parties' rights and obligations under this AGREEMENT shall also survive such expiration or termination to the extent required for the full observation and performance of this AGREEMENT by the parties hereto. (b) If the OPTION (as defined in the LICENSE AND OPTION AGREEMENT) is exercised pursuant to Section 4.1 of the LICENSE AND OPTION 28 SUPPLY AGREEMENT AGREEMENT, upon the expiration of the INITIAL TERM and any RENEWAL PERIOD of this AGREEMENT, at MEDICIS' request, the parties or their AFFILIATES shall enter into a supply agreement for the supply of the ACTIVE INGREDIENT CICLOPIROX for the HMR MANUFACTURED PRODUCTS by HMR GmbH or its AFFILIATES to MEDICIS pursuant to which HMR GmbH or its AFFILIATES shall agree: (i) to sell the ACTIVE INGREDIENT CICLOPIROX to MEDICIS for as long as HMR GmbH or its AFFILIATES manufacture the ACTIVE INGREDIENT CICLOPIROX at a supply price equal to U.S. $3,295 per kilo of ciclopirox acid and $2,540 per kilo of ciclopirox olamine subject to any CPI INCREASE or exchange rate adjustment pursuant to Section 2.11 hereof; (ii) to manufacture and sell to MEDICIS at least a four (4) year supply of the ACTIVE INGREDIENT CICLOPIROX if HMR GmbH ceases to manufacture such ACTIVE INGREDIENT, where such four (4) year supply is based on the amount of such ACTIVE INGREDIENT CICLOPIROX purchased by MEDICIS during the twelve (12) month period prior to HMR GmbH's ceasing to manufacture such ACTIVE INGREDIENT CICLOPIROX for MEDICIS; and (iii) in the event HMR GmbH ceases to manufacture the ACTIVE INGREDIENT CICLOPIROX, HMR GmbH shall, at its election, either (a) provide the specifications and production process flow chart to allow MEDICIS to initiate and establish a source of supply with an FDA approved third party manufacturer with whom MEDICIS shall enter into an exclusive supply agreement, prohibiting such manufacturer from manufacturing for or selling or providing know how to any other person or entity, or (b) arrange for an alternative source of supply from a third party supplier reasonably acceptable to MEDICIS and on terms and conditions reasonably acceptable to MEDICIS. (c) If the OPTION is exercised pursuant to Section 4.1 of the LICENSE AND OPTION AGREEMENT, upon termination of the INITIAL TERM and any RENEWAL TERM of this AGREEMENT, at MEDICIS' request, the parties or their AFFILIATES may enter into a supply agreement for the supply of the ACTIVE INGREDIENT desoximetasone for the HMR MANUFACTURED PRODUCTS by HMR GmbH to MEDICIS upon terms mutually agreeable to the parties. 3.5 Accrued Obligations. In the event that this AGREEMENT is terminated by HMR GmbH pursuant to the provisions of Section 3.3 herein, MEDICIS shall immediately pay to HMR GmbH (i) all amounts outstanding and remaining to be paid for HMR MANUFACTURED PRODUCTS supplied prior to the termination, (ii) all amounts that would be due to HMR GmbH related to binding quantities of HMR MANUFACTURED PRODUCTS ordered pursuant to Section 2.4 hereof, (iii) all amounts outstanding and remaining to be paid for samples supplied pursuant to Section 2.14(b) prior to the termination, and (iv) subject to Section 2.14(b), an amount equal to the value of the samples supplied pursuant to Section 2.14(a)(i) prior to the termination if during the CONTRACT YEAR in which this AGREEMENT is terminated MEDICIS has not purchased HMR MANUFACTURED PRODUCTS other than samples with an aggregate supply price of at least an amount equal to U.S. [$2.6 million] (plus the CPI INCREASE for the second and third CONTRACT YEAR) multiplied by a fraction, the numerator of which is equal to the number of days during the then current CONTRACT YEAR during which this AGREEMENT was in effect prior to its termination and the denominator of which is equal to 365. 29 SUPPLY AGREEMENT ARTICLE IV. MANUFACTURING COMPLIANCE, ACCESS AND REGULATORY MATTERS 4.1 Tests; Retained Samples. HMR GmbH shall perform, or cause to be performed, tests on each lot of HMR MANUFACTURED PRODUCT, including all samples thereof, manufactured pursuant to this AGREEMENT before delivery to MEDICIS. Such tests shall include required assay and stability testing and the testing of the HMR MANUFACTURED PRODUCTS for compliance with the SPECIFICATIONS and the NDAs. HMR GmbH shall maintain in accordance with prudent industry standards all retained samples of the HMR MANUFACTURED PRODUCTS and of the raw materials for the HMR MANUFACTURED PRODUCTS. 4.2 Manufacturing Compliance. HMR GmbH shall manufacture the HMR MANUFACTURED PRODUCTS, including all samples thereof, in accordance with the SPECIFICATIONS, cGMPs and the NDAs. HMR GmbH shall manufacture and supply HMR MANUFACTURED PRODUCTS from HMR GmbH's plants approved in the relevant NDA, and the choice of locations shall be in HMR GmbH's sole discretion; provided, however, that HMR GmbH hereby represents and warrants to MEDICIS that any change in manufacturing location as permitted by this Section 4.2 shall not (i) materially adversely affect HMR GmbH's ability to perform and comply fully with all of its obligations under this AGREEMENT or (ii) materially adversely affect HMR GmbH's capacity to manufacture any quantities of HMR MANUFACTURED PRODUCTS as compared to HMR GmbH's capacity to manufacture such quantities prior to the date of such change in location. 4.3 Changes in SPECIFICATIONS. Any changes in SPECIFICATIONS or the test methods or manufacturing processes referenced in the NDAs shall not be made by HMR GmbH without MEDICIS' prior substantive involvement and written approval, which approval shall not be unreasonably withheld or delayed. Any changes in SPECIFICATIONS or the test methods or manufacturing processes referenced in the NDAs shall not be made by MEDICIS without HMR GmbH's prior substantive involvement and written approval, which approval shall not be unreasonably withheld or delayed. If, upon a change in SPECIFICATIONS or such test methods or manufacturing processes made by MEDICIS without HMR GmbH's prior substantive involvement and written approval, an HMR MANUFACTURED PRODUCT no longer meets the old or new SPECIFICATIONS or does not pass inspection under the old or new test method, then MEDICIS shall bear responsibility for such problem and any financial consequences flowing from such failure, including without limitation failed lots and recalls. If, upon a change in SPECIFICATIONS or such test methods or manufacturing processes made by HMR GmbH without MEDICIS' prior substantive involvement and written approval, an HMR MANUFACTURED PRODUCT no longer meets the old or new SPECIFICATIONS or does not pass inspection under the old or new test method, then HMR GmbH shall bear responsibility for such problem and any financial consequences flowing from such failure, including without limitation failed lots and recalls. 30 SUPPLY AGREEMENT 4.4 Access to Facilities. (a) MEDICIS Access. Upon the reasonable prior written request of MEDICIS, MEDICIS shall have the right to inspect those portions of the manufacturing and testing facilities of HMR GmbH where HMR MANUFACTURED PRODUCTS are being manufactured or tested, as the case may be, during regular business hours, to ascertain compliance with cGMP and the SPECIFICATIONS. If the FDA or other applicable governmental regulatory agency asserts any notice to the effect that HMR GmbH has failed to comply with any law or regulation in connection with the manufacture of the HMR MANUFACTURED PRODUCTS, or if HMR GmbH delivers HMR MANUFACTURED PRODUCTS that do not meet the SPECIFICATIONS, then MEDICIS shall have the right to inspect such portions of the manufacturing facilities of HMR GmbH that relate to the manufacture of the HMR MANUFACTURED PRODUCTS upon reasonable notice and during normal business hours. (b) HMR GmbH Access. Upon the reasonable prior written request of HMR GmbH, HMR GmbH shall have the right to inspect those portions of the warehouse and distribution facilities of MEDICIS where the HMR MANUFACTURED PRODUCTS are being stored and distributed, during regular business hours, to observe HMR MANUFACTURED PRODUCTS storage and distribution or other related activities. If the FDA or other applicable governmental regulatory agency asserts any notice to the effect that MEDICIS has failed to comply with any law or regulation in connection with the storage or distribution of the HMR MANUFACTURED PRODUCTS, then MEDICIS shall promptly notify HMR GmbH and HMR GmbH shall have the right to inspect such portions of the warehouse and distribution facilities of MEDICIS that relate to the storage or distribution of the HMR MANUFACTURED PRODUCTS upon reasonable notice and during normal business hours. 4.5 Regulatory Correspondence. MEDICIS shall promptly provide to HMR GmbH copies of all MEDICIS correspondence to or from the FDA relating to the HMR MANUFACTURED PRODUCTS. HMR GmbH shall notify MEDICIS in writing of and make available (or cause to be made available) to MEDICIS within three (3) days after receipt all regulatory correspondence regarding regulatory letters and correspondence bearing on the safety and efficacy of the HMR MANUFACTURED PRODUCTS. 4.6 Inquiries and Complaints relating to the HMR MANUFACTURED PRODUCTS. Except for technical product complaints relating to the manufacture of HMR MANUFACTURED PRODUCTS or as otherwise required by law or governmental regulation, MEDICIS shall be responsible for investigating and responding to all inquiries, complaints and adverse events regarding HMR MANUFACTURED PRODUCTS. From and after the date on which MEDICIS assumes responsibility for FDA regulatory matters for all HMR MANUFACTURED PRODUCTS except the 'Loprox' Cream pursuant to the LICENSE AND OPTION AGREEMENT, it shall be the responsibility of MEDICIS to comply with all material federal, state and local governmental reporting requirements regarding adverse drug events and quality matters relating to the HMR MANUFACTURED PRODUCTS other than the 'Loprox' Cream. It shall be MEDICIS' responsibility to comply with such requirements relating to the 31 SUPPLY AGREEMENT 'Loprox' Cream from and after the respective dates on which MEDICIS assumes responsibility for such matters for each such HMR MANUFACTURED PRODUCT. From and after the date on which MEDICIS assumes responsibility pursuant to the LICENSE AND OPTION AGREEMENT for FDA regulatory matters for an HMR MANUFACTURED PRODUCT, MEDICIS shall comply with the standard operating procedures to be developed under Section 7.4 of the LICENSE AND OPTION AGREEMENT. In the event of a dispute in respect of the therapeutic action or quality of a HMR MANUFACTURED PRODUCT: (i) if the dispute involves only MEDICIS and a subsequent purchaser, then MEDICIS and HMR GmbH shall consult prior to any compromise or settlement of such dispute; and (ii) if the dispute involves MEDICIS, HMR GmbH and a subsequent purchaser, then both parties must consent in writing prior to any compromise or settlement of such dispute. 4.7 Response to Complaints and/or Adverse Drug Reactions (or Events). Pursuant to any reported complaint and/or adverse drug reaction (or event), if the nature of the reported complaint and/or adverse drug reaction (or event) requires testing, HMR GmbH shall, at MEDICIS' reasonable request and expense, perform analytical testing of corresponding retention samples and provide the results thereof to MEDICIS as soon as reasonably practicable; provided, however, that HMR GmbH shall be responsible for the reasonable costs of such testing and reporting to the FDA or any other governmental regulatory agency if it is mutually and reasonably agreed upon between MEDICIS and HMR GmbH that HMR GmbH is responsible for such reported complaint and/or adverse drug reaction (or event). Such testing shall be performed using approved testing procedures. 4.8 Additional Information. HMR GmbH shall provide to MEDICIS in a timely manner, but in no event less than sixty (60) days prior to the due date of MEDICIS' annual report to the FDA with respect to the HMR MANUFACTURED PRODUCTS, all information (in written form) which MEDICIS reasonably requests regarding the HMR MANUFACTURED PRODUCTS in order to comply with applicable federal and state drug laws. MEDICIS shall also be responsible for assuring that all labeling, packaging and promotional material produced by it relating to HMR MANUFACTURED PRODUCTS complies with federal, state and local law. 4.9 Technical Agreement. The parties have agreed to the allocation of certain responsibilities as set forth in the Technical Agreement attached hereto as Attachment 1. In the event of any conflict between the provisions of this AGREEMENT and such Technical Agreement, the provisions of this AGREEMENT shall govern. During the INITIAL TERM and any RENEWAL PERIOD, the parties hereto shall keep each other informed as to any changes which may be necessary to such Technical Agreement. ARTICLE V. HMR MANUFACTURED PRODUCTS RECALLS 5.1 Recalls During INITIAL TERM. In the event that during the INITIAL TERM (i) any governmental agency or authority issues a request or directive or order that an HMR MANUFACTURED PRODUCT in the TERRITORY be recalled or retrieved, (ii) a court of 32 SUPPLY AGREEMENT competent jurisdiction orders such a recall or retrieval, or (iii) HMR GmbH and MEDICIS reasonably determine that any HMR MANUFACTURED PRODUCT should be recalled or retrieved in the TERRITORY or a "dear doctor" letter is required relating to restrictions on the use of any HMR MANUFACTURED PRODUCT in the TERRITORY, the rights and obligations of the parties shall be governed by Section 7.5 of the LICENSE AND OPTION AGREEMENT, which is incorporated herein by this reference. 5.2 Recalls During RENEWAL PERIODS or Thereafter. In the event that during any RENEWAL PERIOD or thereafter (i) any governmental agency or authority issues a request or directive or order that an HMR MANUFACTURED PRODUCT in the TERRITORY be recalled or retrieved, (ii) a court of competent jurisdiction orders such a recall or retrieval, or (iii) MEDICIS reasonably determines that any HMR MANUFACTURED PRODUCT should be recalled or retrieved in the TERRITORY or a "dear doctor" letter is required relating to restrictions on the use of any HMR MANUFACTURED PRODUCT in the TERRITORY, the rights and obligations of the parties shall be governed by Section 7.2 of the PURCHASE AGREEMENT, which is incorporated herein by this reference. ARTICLE VI. WARRANTIES AND REMEDIES 6.1 FDA Approval. HMR GmbH warrants as of the date hereof that each HMR MANUFACTURED PRODUCT is approved by the FDA for the uses set forth in the HMR MANUFACTURED PRODUCT labeling approved by HMR GmbH as of the date hereof. All HMR MANUFACTURED PRODUCTS shall conform to, and the HMR MANUFACTURED PRODUCTS manufactured by HMR GmbH shall be manufactured in conformity with, the regulations of the FDA. 6.2 Conformity with SPECIFICATIONS. HMR GmbH warrants that each HMR MANUFACTURED PRODUCT manufactured by HMR GmbH and sold to MEDICIS pursuant to this AGREEMENT shall meet the SPECIFICATIONS for such HMR MANUFACTURED PRODUCT in effect at the time title to such HMR MANUFACTURED PRODUCT passes from HMR GmbH to MEDICIS pursuant to Section 2.7 hereof. 6.3 Compliance with the Federal Food, Drug and Cosmetic Act. HMR GmbH warrants that all HMR MANUFACTURED PRODUCT delivered to MEDICIS pursuant to this AGREEMENT shall, at the time of such delivery, not be adulterated within the meaning of the ACT and shall not be an article which may not, under the provisions of the ACT, be introduced into interstate commerce. 6.4 No Liens. HMR GmbH warrants that all HMR MANUFACTURED PRODUCTS delivered to MEDICIS pursuant to this AGREEMENT shall, at the time of such delivery, be free and clear of all liens, security interests and other encumbrances. 6.5 Exclusion of Other Warranties. 33 SUPPLY AGREEMENT (a) EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, THE EXPRESS WARRANTIES PROVIDED IN SECTIONS 6.1, 6.2, 6.3 AND 6.4 ARE IN LIEU OF, AND HMR GMBH HEREBY DISCLAIMS, ALL CONDITIONS, WARRANTIES AND STATEMENTS IN RESPECT OF HMR MANUFACTURED PRODUCTS AND IN RESPECT OF THE MANUFACTURING SERVICES PROVIDED HEREUNDER, WHETHER EXPRESS OR IMPLIED, BY STATUTE, CUSTOM OF THE TRADE OR OTHERWISE (INCLUDING WITHOUT LIMITATION ANY SUCH CONDITION, WARRANTY OR STATEMENT RELATING TO THE DESCRIPTION OR QUALITY OF HMR MANUFACTURED PRODUCTS, THEIR MERCHANTABILITY OR THEIR FITNESS FOR A PARTICULAR PURPOSE OR USE UNDER ANY CONDITIONS) AND ANY SUCH CONDITION, WARRANTY OR STATEMENT IS HEREBY EXCLUDED. (b) IN ADDITION TO THEIR RESPECTIVE REMEDIES UNDER ARTICLE VII AND ANY REMEDY PROVIDED HEREIN, AT LAW OR IN EQUITY FOR BREACH OF THIS AGREEMENT AS LIMITED BY SECTION 6.5(A), MEDICIS AND HMR GMBH SHALL BE ENTITLED TO ANY AND ALL RIGHTS AND REMEDIES AVAILABLE AT LAW OR IN EQUITY OR UNDER THE TRANSACTION DOCUMENTS WITH RESPECT TO RIGHTS AND OBLIGATIONS ARISING THEREUNDER; PROVIDED, HOWEVER, THAT EXCEPT AS EXPRESSLY SET FORTH IN SECTION 2.10(C) HEREOF, IN NO EVENT SHALL HMR GMBH OR MEDICIS BE LIABLE TO THE OTHER PARTY UNDER OR WITH RESPECT TO THIS AGREEMENT FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OF ANY KIND, INCLUDING LOSS OF PROFITS. ARTICLE VII. INDEMNIFICATION, LIMITATION OF LIABILITY AND INSURANCE 7.1 Indemnification by MEDICIS. In addition to any other rights HMR GmbH may have at law or in equity and subject to Section 6.5 hereof, MEDICIS shall indemnify, defend and hold harmless HMR GmbH and its AFFILIATES, and their employees, officers and directors, and their successors and assigns (each, an "HMR GmbH INDEMNIFIED PARTY"), from and against any and all LIABILITIES which the HMR GmbH INDEMNIFIED PARTY may incur, suffer or be required to pay resulting from or arising in connection with: (i) the marketing, distribution, sale or promotion of the HMR MANUFACTURED PRODUCTS by MEDICIS or its AFFILIATES after the EFFECTIVE DATE; or (ii) the manufacture of the HMR MANUFACTURED PRODUCTS by MEDICIS or its AFFILIATES or by a third party (other than an AFFILIATE of HMR GmbH) after the EFFECTIVE DATE, unless HMR GmbH had knowledge as of the EFFECTIVE DATE that, based on facts in existence and circumstances persisting on the EFFECTIVE DATE, such third party's manufacture of the HMR MANUFACTURED PRODUCTS after the EFFECTIVE DATE would be likely to result in or create such LIABILITIES. 34 SUPPLY AGREEMENT 7.2 Indemnification by HMR GmbH. In addition to any other rights MEDICIS may have at law or in equity and subject to Section 6.5 hereof, HMR GmbH shall indemnify, defend and hold harmless MEDICIS and its AFFILIATES, employees, officers and directors and its successors and assigns (each, a "MEDICIS INDEMNIFIED PARTY"), from and against any and all LIABILITIES which the MEDICIS INDEMNIFIED PARTY may incur, suffer or be required to pay resulting from or arising in connection with: (i) the manufacture of the HMR MANUFACTURED PRODUCTS by HMR GmbH or its AFFILIATES prior to the EFFECTIVE DATE or after the EFFECTIVE DATE in breach of any of HMR GmbH's representations, warranties, covenants and obligations under this AGREEMENT, excluding, however, any EXCLUDED HMR PRODUCT LIABILITY; (ii) the manufacture, marketing, distribution, sale or promotion of the PRODUCTS by HMR GmbH or by any AFFILIATE of HMR GmbH or by any third party prior to the EFFECTIVE DATE, regardless of the date of first assertion of any claim or action relating thereto; or (iii) the manufacture (except for matters which are the subject of subpart (i) of this Section 7.2), marketing, distribution, sale or promotion of the PRODUCTS outside the TERRITORY by HMR GmbH or by any AFFILIATE of HMR GmbH or by any third party (other than MEDICIS, MEDICIS' AFFILIATES, assignees and sublicensees and the QUALIFIED ALTERNATE SUPPLIER) after the EFFECTIVE DATE. 7.3 Process of Indemnification. Promptly after an indemnified party becomes aware of any potential LIABILITY hereunder, such party shall deliver written notice to the indemnifying party, stating the nature of the potential LIABILITY; provided, however, that the delay in giving or the failure to give such notification shall not affect the indemnification provided hereunder except to the extent the indemnifying party shall have been actually prejudiced as a result of such delay or failure. The indemnified party shall give the indemnifying party such information with respect to the potential LIABILITY as the indemnifying party may from time to time reasonably request. The indemnifying party shall have the right to conduct the defense of any suit, claim or other proceeding related to the LIABILITY if it has assumed responsibility for the suit, claim or other proceeding in writing; provided, however, if in the reasonable judgment of the indemnified party, such suit, claim or proceeding involves an issue or matter which could have a material adverse effect on the business, operations or assets of the indemnified party, the indemnified party may elect, at its own expense, to conduct a separate defense thereof, but in no event shall any such election be construed as a waiver of any indemnification rights such indemnified party may have under this Article VII, at law or in equity, or otherwise. If the indemnifying party defends the suit or claim, the indemnified party may participate in (but not control) the defense thereof at its sole cost and expense; provided, however, that the indemnifying party shall pay the reasonable fees and costs of any separate counsel to the extent such representation is due to a conflict of interest between the parties. 7.4 Settlements. Neither party may settle a claim or action related to a LIABILITY without the consent of the other party, which consent shall not be unreasonably withheld, if such settlement would impose any monetary obligation on the other party or require the other party to submit to an injunction or otherwise limit the other party's rights under this AGREEMENT, and any payment made by a party in such a settlement without obtaining such consent shall be at its own cost and expense. Notwithstanding the foregoing, the indemnifying party will be liable under this Article VII for any settlement effected without its consent if the indemnifying party 35 SUPPLY AGREEMENT has refused to acknowledge liability for indemnification hereunder and/or declines to defend the indemnified party in any such claim, action or proceeding and it is determined by arbitration pursuant to Section 8.4 hereof that the indemnifying party was liable to the indemnified party for indemnification related to such settlement. 7.5 Limitation of Liability. Subject to the terms of this AGREEMENT, with respect to any claim by one party against the other arising out of the performance or failure of performance of the other party under this AGREEMENT, the parties expressly agree that the liability of such party to the other party for such breach shall be limited under this AGREEMENT or otherwise at law or in equity to direct damages only and in no event shall a party be liable to the other party for indirect, incidental, special or consequential damages, including without limitation, lost profits. 7.6 Distribution Insurance. MEDICIS shall obtain and maintain in effect for the term of this AGREEMENT liability insurance or indemnity policies with an insurer reasonably acceptable to HMR GmbH, in an amount not less than U.S. $5 million with an indemnity to principals clause with respect to the distribution of each HMR MANUFACTURED PRODUCT, which policies shall name HMR GmbH as an additional insured and shall be blanket policies. Such policies shall insure against liability on the part of MEDICIS and any of its AFFILIATES, as their interests may appear, due to injury, disability or death of any person or persons, or injury to property, arising from the distribution of the HMR MANUFACTURED PRODUCTS. Upon the execution of this AGREEMENT and thereafter on January 1 of each year during the term, MEDICIS shall provide to HMR GmbH a certificate of insurance (i) summarizing such insurance coverage, (ii) identifying any exclusions and (iii) indicating that the terms of MEDICIS' insurance policies are in accordance with this Section 7.6. MEDICIS shall promptly notify HMR GmbH of any material alterations to the terms of such policies or in the amounts for which insurance is provided. 7.7 Manufacturer's Insurance. HMR GmbH shall obtain and maintain in effect for the term of this AGREEMENT liability insurance or indemnity policies with an insurer reasonably satisfactory to MEDICIS, in an amount not less than U.S. $5 million with an indemnity to principals clause with respect to the manufacture of the HMR MANUFACTURED PRODUCTS, which policies shall name MEDICIS as an additional insured and shall be blanket policies. Such policies shall insure against liability on the part of HMR GmbH and any of its AFFILIATES, as their interests may appear, due to injury, disability or death of any person or persons, or injury to property arising from the negligence of HMR GmbH or its AFFILIATES in the manufacture of the HMR MANUFACTURED PRODUCTS. Upon the execution of this AGREEMENT and thereafter on January 1 of each year during the term, HMR GmbH shall provide to MEDICIS a certificate of insurance (i) summarizing such insurance coverage, (ii) identifying any exclusions and (iii) indicating that the terms of HMR GmbH's insurance policies are in accordance with this Section 7.7. HMR GmbH shall promptly notify MEDICIS of any material alterations to the terms of such policies or in the amounts for which insurance is provided. 36 SUPPLY AGREEMENT 7.8 HMR MANUFACTURED PRODUCT Liability Claims. As soon as it becomes aware, each party shall give the other party prompt written notice of any claim involving an HMR MANUFACTURED PRODUCT, any injury alleged to have occurred as a result of the use or application of an HMR MANUFACTURED PRODUCT, and any circumstances that may give rise to litigation or recall of an HMR MANUFACTURED PRODUCT or regulatory action that may affect the sale or manufacture of an HMR MANUFACTURED PRODUCT, specifying, to the extent the party has such information, the time, place and circumstances thereof and the names and addresses of the persons involved. Each party shall also furnish promptly to the other party copies of all papers received in respect of any claim, action or suit arising out of such alleged defect, injury or regulatory action. ARTICLE VIII. GENERAL PROVISIONS 8.1 FORCE MAJEURE. If the performance by either party of any obligation under this AGREEMENT, is prevented, restricted, interfered with or delayed by reason of FORCE MAJEURE, the party so affected shall, upon giving written notice to the other party, be excused from such performance to the extent of such prevention, restriction, interference or delay, provided that the affected party shall use its reasonable efforts to avoid or remove such causes of non-performance and shall continue performance with the utmost dispatch whenever such causes are removed and, provided further, that notwithstanding anything contained in this Section 8.1, MEDICIS shall be entitled to any and all rights and remedies which may arise under Sections 2.10 and 3.3(c) hereof as a result of or in connection with any such prevention, restriction, interference with or delay of HMR GmbH's performance of any of its obligations hereunder. For the purposes of this AGREEMENT (and except with respect to "force majeure" for purposes of Sections 2.10(c) and 3.3(c) hereof), "FORCE MAJEURE" is defined as follows: acts of God; acts, regulations, orders, decrees or laws of any government or agency thereof that are not due to or caused by any action or inaction of the party claiming the benefit of force majeure where such action or inaction is in violation of such party's obligations under the TRANSACTION DOCUMENTS or APPLICABLE LAWS; war; civil commotion; damage to or destruction of facilities; labor disturbances (whether or not any such labor disturbance is within the power of the affected party to settle); epidemic; and failure of suppliers, public utilities or common carriers. 8.2 Governing Law. This AGREEMENT shall be construed in accordance with the laws of the State of Delaware in the United States of America, without giving effect to the principles of conflicts of law thereof. 8.3 Headings and References. All section headings contained in this AGREEMENT are for convenience of reference only and shall not affect the meaning or interpretation of this AGREEMENT. 37 SUPPLY AGREEMENT 8.4 Dispute Resolution. (a) Any dispute, controversy or claim arising out of or relating to this AGREEMENT, or the breach or termination of this AGREEMENT or the rights of either party for indemnification hereunder (each, a "CLAIM"), shall be submitted in the first instance to the President, North American Region of HMRI, for HMR and the Chief Executive Officer of MEDICIS for MEDICIS. (b) If any CLAIM cannot be resolved by the individuals designated in Section 8.4 (a) within thirty (30) days after being submitted to them, and except for the right of either party to apply to a court of competent jurisdiction for a temporary restraining order to preserve the status quo or to prevent irreparable harm pending the selection and confirmation of a panel of arbitrators in accordance herewith, such CLAIM shall be settled by arbitration in accordance with the Commercial Arbitration Rules (the "RULES") of the American Arbitration Association (the "AAA") in effect on the day the arbitration is commenced in accordance with this AGREEMENT, except as modified by this Section 8.4. After expiration of the thirty (30) day period pursuant to Section 8.4(a) hereof, either party may commence arbitration by serving upon the other party a written demand for arbitration sent by a courier service of internationally recognized reputation, in accordance with this AGREEMENT, with a copy of the same delivered by a courier service of internationally recognized reputation, to the AAA regional office in which either party is then located. The number of arbitrators shall be three, one of whom is selected by MEDICIS, one of whom is selected by HMR GmbH and one of whom is selected by HMR GmbH and MEDICIS (or by the other two arbitrators if the parties cannot, within thirty (30) days after the commencement of the arbitration proceeding, agree on the third arbitrator). In the event that either party shall fail to appoint an arbitrator within thirty (30) days after the commencement of the arbitration proceeding, such arbitrator and the third arbitrator shall be appointed by the AAA in accordance with the RULES. The arbitration award shall be rendered by a majority of the members of the board of arbitration. Except as expressly provided in Section 8.5 hereof, the panel shall not be entitled to modify this AGREEMENT or the transactions contemplated herein. The arbitration proceeding shall be conducted in the English language and shall be brought in Chicago, Illinois, unless the parties agree in writing to conduct the arbitration in another location. The AAA shall have jurisdiction over all parties to this AGREEMENT for purposes of the arbitration and the parties hereby expressly consent to such jurisdiction. (c) The arbitration decision shall be final and binding and shall not be appealable to any court in any jurisdiction. The prevailing party may enter such decision in any court having competent jurisdiction, and the parties expressly agree that the state and federal courts in the State of Delaware shall have such jurisdiction. Each party hereby expressly waives any right to object to such jurisdiction on the basis of venue or forum non conveniens. For purposes of any such legal proceeding and any arbitration under this Section 8.4, HMR GmbH hereby irrevocably appoints HMRI as its agent for service of process in the United States of America. 38 SUPPLY AGREEMENT (d) Any statute of limitations or other equitable or legal doctrine which would otherwise be applicable to any action brought by either of the parties shall be applicable in the arbitration. In the event either party to this AGREEMENT files a petition under the bankruptcy laws of the United States or has a petition filed against it which results in an order for relief or other indicia that a bankruptcy case has commenced, it is the express intention of the parties that this AGREEMENT shall control and be enforced in accordance with its terms and conditions that any CLAIM shall remain subject to arbitration to the maximum extent permitted by law. (e) There shall be no rights of discovery in connection with the arbitration except as follows: (i) Each party shall have the right to request the arbitrators to issue subpoenas for documents in accordance with the RULES. (ii) Each party shall have the right to initiate two (2) depositions of each other party to the arbitration; and each party shall have the right to initiate one (1) additional oral deposition pursuant to a subpoena issued by the arbitrators or any court of competent jurisdiction. (iii) At any time following the tenth day after the commencement of the arbitration in accordance with this AGREEMENT, a written notice served upon all parties shall be sufficient to compel the attendance of any party at a deposition upon not less than sixty (60) days notice and no subpoena shall be required for that purpose. If a person fails or refused to testify at a deposition, that person shall not be permitted to testify at the hearing, except for good cause shown. The number of depositions that may be initiated by either party may be varied by agreement of all parties to the arbitration but not by any action, order or request of the arbitrators or any court. (iv) Not less than thirty (30) days prior to the scheduled arbitration proceeding, the arbitrator shall conduct a preliminary hearing in accordance with the AAA guidelines. Not less than five (5) days prior to the preliminary hearing, all parties to the arbitration shall serve upon all other parties to the arbitration a written list of witnesses and exhibits to be used at the arbitration hearing. Except for good cause shown, no witness or exhibit may be utilized at the arbitration hearing other than as set forth on such list. The arbitrators shall receive evidence at a single hearing. The arbitrators shall award reasonable attorneys' fees and costs in favor of the prevailing party or parties. The arbitrator shall issue a final award not more than twenty (20) days following the conclusion of the hearing. The arbitrators shall have the power to hear and decide, by documents only or with a hearing (at the arbitrators' sole discretion) any prehearing motions in the nature of a pre-trial motion to dismiss or for summary judgment. (f) The arbitrators shall be entitled to receive reasonable compensation at an hourly rate to be established between the arbitrators and the AAA. If required by the arbitrators, MEDICIS on the one hand, and HMRI, on the other, will deposit with the AAA an equal share of the total anticipated fee of the arbitrators in an amount to be estimated by the AAA. The non-prevailing party in the proceedings shall be ordered to pay, and shall have the ultimate 39 SUPPLY AGREEMENT responsibility for, all arbitrators' fees and the fees of the AAA and such fees shall be included in the judgment to be entered against the non-prevailing party. (g) Notwithstanding any other provision of this AGREEMENT, any party may apply to a court of competent jurisdiction within the TERRITORY for an order in the nature of a temporary restraining order or preliminary injunction for purposes of maintaining the status quo pending the final resolution of any dispute pursuant to the arbitration provisions hereof. (h) Each party consents to the jurisdiction and administration of the AAA for purposes of the arbitration proceedings contemplated herein. 8.5 Severability. If any provision of this AGREEMENT is held by a court of competent jurisdiction to be invalid or unenforceable, it shall be modified to the minimum extent necessary to make it valid and enforceable. 8.6 Entire Agreement. This AGREEMENT, including the Exhibits and Schedules hereto, and the TRANSACTION DOCUMENTS constitute the entire AGREEMENT between the parties and their AFFILIATES relating to the subject matter hereof and supersede all previous writings and understandings, whether oral or written, relating to the subject matter of this AGREEMENT. 8.7 Amendment. This AGREEMENT may not be amended, supplemented or otherwise modified except by an instrument in writing signed by both parties that specifically refers to this AGREEMENT. 8.8 Notices. Any notice required or permitted under this AGREEMENT shall be in writing and sent by a courier service of internationally recognized reputation, charges prepaid, or by facsimile transmission with confirmation by reputable courier service, to the address or facsimile number specified below. Such notices shall be deemed given three (3) business days following deposit with such courier service or one (1) business day following such facsimile transmission. If to HMR GmbH: Hoechst Marion Roussel Deutschland GmbH Konigsteiner Strasse 10 65812, Bad Soden Germany Attention: General Manager Fax: +49-69-305-17905 Copy to: Hoechst Marion Roussel, Inc. Route 202-206 P.O. Box 6800 Bridgewater, New Jersey 08807-0800 Attention: Vice President and General Counsel Fax: 908-231-2243 40 SUPPLY AGREEMENT If to MEDICIS: Medicis Pharmaceutical Corporation 4343 East Camelback Road Phoenix, Arizona 85018 Attention: Jonah Shacknai Fax: 602-808-3875 Copy to: Bryan Cave LLP Two North Central Avenue, Suite 2200 Phoenix, Arizona 85004-4408 Fax Number: (602) 364-7000 Attention: Frank M. Placenti, Esq. 8.9 Assignment and Binding Effect. Each party shall have the right to assign its rights in whole or in part under this AGREEMENT to an AFFILIATE of such party without the other party's consent or to a third party with the other party's prior written consent, which consent shall not be unreasonably withheld, provided that in either case such party guarantees to the other party all of such party's obligations hereunder and the assignee agrees in writing to observe and perform the obligations of the assignor hereunder. 8.10 No Agency. It is understood and agreed that each party shall have the status of an independent contractor under this AGREEMENT and that nothing in this AGREEMENT shall be construed as authorization for either party to act as agent for the other. Neither party shall incur any liability for any act or failure to act by employees of the other party. Notwithstanding anything to the contrary in this Section 8.10, HMR GmbH hereby appoints HMRI and any duly appointed statutory agent of HMRI as its agent for service of process as to any proceeding commenced pursuant to or in connection with this AGREEMENT. 8.11 No Strict Construction. This AGREEMENT has been prepared jointly and shall not be strictly construed against either party. 8.12 Counterparts. This AGREEMENT may be executed in two counterparts, each of which shall be an original as against any party whose signature appears thereon but both of which together shall constitute one and the same instrument. 41 SUPPLY AGREEMENT IN WITNESS WHEREOF, the parties, through their authorized officers, have duly executed this as of the date first written above. HOECHST MARION ROUSSEL, INC. MEDICIS PHARMACEUTICAL CORPORATION By: /s/ Peter Schlikker By: /s/ Jonah Shacknai ---------------------- ------------------- Name: DR. PETER SCHLIKKER Name: Jonah Shacknai Title: Member of the Board Title: Chairman and Chief Executive Officer By: /s/ Dieter Kohl ---------------------- Name: Dieter Kohl Title: Member of the Board EX-27.1 12 EX-27.1
5 6-MOS DEC-31-1998 JUN-30-1999 74,308,683 151,253,090 25,942,380 2,726,606 11,074,594 274,116,882 1,971,287 535,242 418,493,531 33,577,482 0 0 0 266,177 342,375,677 418,493,531 52,797,891 52,797,891 10,023,671 10,023,671 30,743,748 0 (5,586,594) 17,617,066 6,346,105 11,270,961 0 0 0 11,270,961 0.60 0.58
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