MANUFACTURING, COMMERCIALIZATION AND DEVELOPMENT AGREEMENT

Manufacturing Agreement

You are currently viewing:

This Manufacturing Agreement involves

ICU Medical, Inc | HOSPIRA, INC | George A. Lopez | Christopher B.

. RealDealDocs™ contains millions of easily searchable legal documents and clauses from top law firms. Search for free - click here.

Title: MANUFACTURING, COMMERCIALIZATION AND DEVELOPMENT AGREEMENT
Governing Law: New York Date: 5/9/2005
Industry: Medical Equipment and Supplies Law Firm: Heller Ehrman White & McAuliffe Sector: Healthcare

Confidential

MANUFACTURING, COMMERCIALIZATION AND DEVELOPMENT AGREEMENT

THIS AGREEMENT is made this 25th day of February, 2005, to be effective as

of the Effective Date, by and among Hospira, Inc., a Delaware corporation having

its principal place of business at 275 North Field Drive, Lake Forest, Illinois

60045 ("Hospira"), and ICU Medical, Inc., a Delaware corporation having its

principal place of business at 951 Calle Amanecer, San Clemente, California

92673 ("ICU").

RECITALS

A. ICU and Hospira have entered into that certain Asset Purchase Agreement

dated as of February 25, 2005 (the "Asset Purchase Agreement"), which ICU

contemplates assigning to NEWCO, pursuant to which Hospira is transferring to

ICU certain of its assets related to the manufacture of the Transferred Products

and Transferred Components (each as defined below).

B. Hospira and ICU wish to enter into an arrangement whereby ICU will

manufacture the Transferred Components and Transferred Products for Hospira and

Hospira will (i) incorporate certain Transferred Components into certain

products to be marketed and sold by Hospira, and (ii) market and sell the

Transferred Products with certain technical assistance from ICU, all on the

terms contained herein. The Transferred Products and the Transferred Components

together comprise the "SLC Products," as such term is defined in the Asset

Purchase Agreement.

1 C. Hospira and ICU also wish to enter into an arrangement whereby

Hospira will manufacture Specified Components (as defined below) for ICU and ICU

will incorporate such Specified Components into certain of the Transferred

Products and Transferred Components prior to selling such Transferred Products

or Transferred Components to Hospira.

D. Hospira and ICU also wish to engage in the joint development of new

products on the terms contained herein and to enter into certain agreements with

respect to new products developed by Hospira or ICU individually.

NOW THEREFORE, in consideration of the mutual covenants and agreements

contained herein, and upon the terms and subject to the conditions set forth

below, Hospira and ICU hereby agree as follows:

ARTICLE 1 - DEFINITIONS

1.1 Certain Definitions. The following words and phrases, when used

herein, shall have the meanings set forth or referenced below:

"Act" shall mean the United States Food, Drug and Cosmetic Act, as

amended, and all regulations promulgated thereunder.

"ADR" shall have the meaning set forth in Section 14.4.

<PAGE>

Confidential

"Affiliate" shall mean with respect to any Person, another Person that

directly or indirectly, through one or more intermediaries, controls, is

controlled by, or is under common control with, such first Person. For purposes

of this definition, "control" as applied to any Person means the possession,

directly or indirectly, of the power to direct or cause the direction of the

management and policies of that Person, whether through the ownership of voting

securities, by contract, or otherwise.

"Asset Purchase Agreement" shall have the meaning set forth in the

Recitals.

"Audit Rights" shall mean the rights of a Party to select an independent

certified public accountant reasonably acceptable to the other Party to inspect,

during normal business hours and upon at least 10 Business Days' notice to such

other Party, the applicable records of such other Party to confirm the accuracy

of its calculations or compliance with specific provisions of this Agreement

that provide for such rights. The determination of the independent certified

public accountant shall be binding on the Parties.

"Business Day" shall mean any day other than a day which is a Saturday or

Sunday or other day on which commercial banks in Chicago, Illinois are

authorized or required to remain closed.

"cGMPs" shall mean all current and future good manufacturing practices and

quality systems regulations promulgated by any applicable Regulatory Authority

in a country in which the applicable Product is or will be sold, to the extent

applicable to such Product, including those promulgated by the FDA under 21

C.F.R. Part 820.

"Catheters" shall mean those Transferred Products identified on Exhibit

1.1C as Catheters.

1 "Confidential Information" shall mean (i) any and all technical data,

information, materials, trade secrets and other know-how currently owned by or

hereafter developed by, on behalf of, or derived either directly or indirectly

from either Party or its Affiliates, which relates to a Product, its

development, manufacture, promotion, marketing, distribution, sale or use, (ii)

any and all financial data and information relating to the business of either of

the Parties or of their Affiliates, which a Party or its Affiliates discloses to

the other Party or its Affiliates, (iii) the Specifications and all amendments

thereto, and (iv) the terms and conditions of this Agreement. If disclosed

orally or visually, such information shall be considered "Confidential

Information" only if it is identified as confidential at the time of disclosure

and is summarized in a writing to the receiving Party within 30 days of such

disclosure and identified as "Confidential." Notwithstanding the foregoing, the

information described above shall not be "Confidential Information" if it:

(a) is known to the receiving Party or any of its Affiliates at the

time of the disclosure, as evidenced by written records;

(b) is disclosed to the receiving Party or any of its Affiliates by

a Third Party not bound by a confidentiality or similar agreement to hold such

information in confidence;

<PAGE>

Confidential

domain through no fault of the receiving Party or any of its Affiliates;

(d) is independently developed by or for the receiving Party or any

of its Affiliates without use of Confidential Information, as evidenced by

written records;

(e) is required by applicable Laws to be disclosed; provided,

however, that no disclosure shall be made by a Party pursuant to this clause

unless prior notice is given to the other Party and such other Party has a

reasonable opportunity to limit such disclosure or take appropriate protective

precautions relating to such disclosure; or

(f) is necessary to disclose it to prosecute patent rights, obtain

Regulatory Approvals for the Products, or manufacture, market, sell or

distribute the Products pursuant to this Agreement; provided, however, that no

disclosure shall be made by a Party pursuant to this clause unless prior notice

is given to the other Party and such other Party has a reasonable opportunity to

limit such disclosure or take appropriate protective precautions relating to

such disclosure.

"Contract Year" shall mean a calendar year during the Term, except that

the first Contract Year shall commence on the Effective Date and end on December

31, 2005.

"Cover Costs" shall have the meaning set forth in Section 3.2(d).

"Custom Product" shall mean any Product specifically designed, configured

or packaged in response to an individual customer request.

"Customer Supply Agreements" shall have the meaning set forth in Section

3.2(d).

"Delivery Date" means the date for delivery of any Product as specified in

the applicable Purchase Order in accordance with the terms of this Agreement.

"Development Spending" shall have the meaning set forth in Section 7.1(a).

"Effective Date" shall mean the Closing Date, as defined in the Asset

Purchase Agreement.

1 "Facility" shall mean the manufacturing facility located at 4455

Atherton Drive, Salt Lake City, Utah.

"FDA" shall mean the United States Food and Drug Administration and any

successor agency thereto.

"Field Correction" shall have the meaning set forth in Section 4.3.

<PAGE>

Confidential

"GAAP" shall mean United States generally accepted accounting principles

consistently applied from period to period and throughout any period in

accordance with the applicable Party's past practices.

"Hospira Change of Control Event" shall mean (a) any transaction or series

of transactions that causes a Third Party to own, directly or indirectly, at

least 50% of the outstanding voting securities of Hospira or to be the surviving

corporation in a merger with Hospira; (b) as a result of or in connection with a

contested election of Hospira directors pursuant to a proxy fight for control of

the company, persons who were directors immediately before the election cease to

constitute a majority; or (c) the assignment, sale, transfer, spin-off, lease or

other disposition to a Third Party of all or substantially all of the assets of

Hospira or of the Critical Care business of Hospira.

"Hospira Derivative Product" shall mean any new product developed or

acquired by Hospira that is derived from Confidential Information shared with

Hospira by ICU.

"Hospira Marks" shall mean the corporate names "Hospira" and "Hospira,

Inc." and the trademarks, tradenames, service marks and logos of Hospira.

"ICU Change of Control Event" shall mean: (a) any transaction or series of

transactions that causes a Third Party to own, directly or indirectly, at least

50% of the outstanding voting securities of ICU or the surviving corporation in

a merger with ICU; (b) as a result of or in connection with a contested election

of ICU directors pursuant to a proxy fight for control of the company, persons

who were directors immediately before the election cease to constitute a

majority; or (c) the assignment, sale, transfer, spin-off, lease or other

disposition to a Third Party of all or substantially all of the assets of ICU or

of the assets associated with this Agreement.

"ICU Derivative Product" shall mean any new product developed or acquired

by ICU that is derived from the technology, know-how or Confidential Information

transferred to or shared with ICU by Hospira.

"ICU Marks" shall mean the corporate names "ICU," "ICU Medical" and "ICU

Medical, Inc." and the trademarks, tradenames, service marks and logos of ICU.

"including" shall mean "including without limitation."

"ISO" shall mean International Standards Organization.

"Laws" shall mean all national, international, federal, state and local

laws, statutes, regulations and guidelines, including cGMPs.

"Liabilities" shall have the meaning set forth in Section 11.1.

"MSDSs" shall have the meaning set forth in Section 3.6(e).

"Newco" shall have the meaning set forth in the Asset Purchase Agreement.

<PAGE>

Confidential

"New Hospira Competitive Product" shall mean any new product (other than a

New Joint Product or Hospira Derivative Product) developed or acquired by

Hospira independent of this Agreement, and without the use of Confidential

Information shared with Hospira by ICU, that could reasonably be expected to

reduce the sales of a Transferred Product by 10% or more. Notwithstanding the

foregoing, New Hospira Competitive Products shall not include any product for

which Hospira does not acquire manufacturing rights.

"New ICU Competitive Product" shall mean any new product (other than a New

Joint Product or an ICU Derivative Product) developed or acquired by ICU

independent of this Agreement, and without the use of technology, know-how or

Confidential Information transferred to or shared with ICU by Hospira, that

could reasonably be expected to reduce the sales of a Transferred Product by 10%

or more. Notwithstanding the foregoing, New ICU Competitive Products shall not

include any products for which ICU does not acquire marketing, sales or

distribution rights.

"New Joint Product" shall mean any of the following:

(a) a new product or an improvement or modification of a Transferred

Product or Transferred Component, in each case funded in whole or in part by the

Development Spending;

(b) an ICU Derivative Product or Hospira Derivative Product that the

Parties designate in writing as a New Joint Product; or

modifications to the Specifications in accordance with Section 3.1 for the

products described in subsections (a) or (b).

"Party" shall mean any of ICU, Newco or Hospira and their respective

successors and permitted assigns, and "Parties" shall mean ICU, Newco and

Hospira and their respective successors and permitted assigns.

"Person" means an individual, partnership, corporation, business trust,

limited liability company, limited liability partnership, joint stock company,

trust, the executors, administrators or other legal representative of an

individual in such capacity, unincorporated association, joint venture, a

government (or any agency or department of any government) or any other entity.

"Product" shall mean (i) any Transferred Product, (ii) any Transferred

Component, (iii) any New Joint Product, or (iv) any New ICU Competitive Product

or New Hospira Competitive Product that ICU has agreed in writing to manufacture

and sell to Hospira, and Hospira has agreed in writing to purchase from ICU, in

accordance with Article 8.

"Purchase Order" shall have the meaning set forth in Section 2.2(a).

"Regulatory Approval" shall mean all necessary and appropriate regulatory

approvals, licenses, registrations and authorizations from the applicable

Regulatory Authority to manufacture, use, store, import, export, transport,

promote, market and sell any Product in a country, and any renewals of the

foregoing.

<PAGE>

Confidential

"Regulatory Authority" shall mean any governmental authority or agency

charged with issuing approvals, licenses, registrations or authorizations

necessary for the manufacture, use, storage, import, export, transport,

marketing, promotion or selling of any Product in a country.

"Recall" shall have the meaning set forth in Section 4.3.

"Special Transaction" shall mean, collectively, the following: (i) the

transfer by ICU to Hospira of all tangible assets the use of which is

exclusively or more than 50% devoted to the manufacture of Transferred Products,

Transferred Components, New Joint Products and New Hospira Competitive Products

under this Agreement, in exchange for a payment by Hospira to ICU of the net

book value (defined in accordance with GAAP) of such assets, (ii) the grant by

ICU to Hospira of a non-exclusive license on commercially reasonable terms to be

negotiated in good faith by the Parties of all rights to any intellectual

property rights owned solely by ICU that is necessary to manufacture and sell

New Joint Products; (iii) the transfer by ICU to Hospira, and the release by ICU

of all rights to all manufacturing processes, documentation, specifications,

know-how, intellectual property and Regulatory Approvals necessary for the

manufacture and sale of the Transferred Products, Transferred Components and New

Hospira Competitive Products; (iv) the provision by ICU to Hospira of a copy of

all manufacturing processes, documentation, specifications, know-how,

intellectual property and Regulatory Approvals to the New Joint Products; and

(v) the cooperation of the Parties with respect to all of the foregoing, and

with respect to any further transfer of items described above by Hospira to any

Third Party; provided that ICU shall not be required to grant licenses or

transfer the items described in clauses (iii) and (iv) above that relate to ICU

proprietary components or products, but shall sell such components or products

to Hospira on commercially reasonable terms.

"Specifications" shall mean those product formulations, standards,

requirements and manufacturing, labeling, packaging and performance

specifications for the Products and Specified Components as determined by

Hospira and in effect at the time of manufacture of such Products and Specified

Components in accordance with Section 3.1.

"Specified Components" shall mean those components of the Transferred

Products or Transferred Components that, before the Effective Date, were

manufactured at Hospira facilities other than the Facility and supplied to the

Facility, as more particularly described on Exhibit 1.1A.

"Standard Products" shall mean Products that are not Custom Products.

"Surgicare Products" shall mean those Transferred Products identified as

Surgicare Products on Exhibit 1.1C, as such Transferred Products may be improved

or modified from time to time through changes to the Specifications in

accordance with Section 3.1.

"Term" shall have the meaning set forth in Section 13.1.

<PAGE>

Confidential

"Third Party" shall mean any Person other than the Parties and their

Affiliates.

"Third Party Rights" shall have the meaning set forth in Section 3.2(c).

"Transfer Price Credit" shall have the meaning set forth in Section

2.7(b)(i)(D).

"Transferred Components" shall mean those components that, before the

Effective Date, were manufactured at the Facility and supplied to other Hospira

facilities and Third Parties and are listed on Exhibit 1.1B, as such components

may be improved or modified from time to time through changes to the

Specifications in accordance with Section 3.1.

"Transferred Products" shall mean those products that, before the

Effective Date, were manufactured at the Facility and are listed on Exhibit

1.1C, as such products may be improved or modified from time to time through

changes to the Specifications in accordance with Section 3.1, unless such

changes to the Specifications result in the creation of a New Joint Product, as

provided in the definition of New Joint Product.

"United States" shall mean the United States of America and shall include

its territories and possessions, the District of Columbia and Puerto Rico.

1.2 Definitions Relating to Pricing. Certain words and phrases used herein

and related to pricing have the meanings set forth in Exhibit 1.2.

ARTICLE 2 - PURCHASE AND SALE OF PRODUCTS

2.1 Purchase and Sale of Products.

(a) Transferred Products. During the Term, Hospira shall purchase

all of its requirements of the Transferred Products for sale in the United

States (provided that Hospira shall purchase all of its worldwide requirements

for Catheters) from ICU, and ICU shall manufacture and sell Transferred Products

exclusively to Hospira on a worldwide basis, in accordance with the terms

hereof. If Hospira plans to transfer the manufacture of products comparable to

the Transferred Products from its Ireland facility or Costa Rica facility to

Third Parties, Hospira shall provide ICU with notice and negotiate in good faith

with ICU for the manufacture by ICU of such products. In addition, if Hospira

plans to sell the Transferred Products (other than the Catheters) to its

customers outside the United States, Hospira shall provide ICU with notice and

negotiate in good faith with ICU for the manufacture by ICU of such products;

provided that if Hospira and ICU are unable to reach agreement within 90 days

after notice, Hospira may transfer the manufacture of such Transferred Products,

or such products comparable to Transferred Products, to Third Parties.

(b) Transferred Components.

(i) For a period of five years after the Effective Date,

Hospira shall purchase all of its requirements of the Transferred Components

from ICU (but only to the extent that such Transferred Components are to be

incorporated into products, whether Transferred Products or not, that use

<PAGE>

Confidential

Transferred Components manufactured at the Facility as of the Effective Date),

and ICU shall manufacture and sell such Transferred Components exclusively to

Hospira, in accordance with the terms hereof; provided that ICU shall be able to

sell such Transferred Components to Third Parties if such Transferred Components

were sold to such Third Parties by Hospira as of the Effective Date. Nothing in

this Section 2.1(b) shall be deemed to prohibit Hospira from manufacturing, or

having manufactured by a Third Party, components that are the same as or similar

to the Transferred Components for use in products that do not use Transferred

Components manufactured at the Facility as of the Effective Date.

(ii) From and after the date that is five years after the

Effective Date, Hospira may manufacture, or have manufactured by a Third Party,

Transferred Components for incorporation into any product if ICU does not

provide transfer prices for such Transferred Components equal to or less than

Hospira can obtain by such self- or Third-Party manufacturing.

(iii) Notwithstanding the foregoing, with respect to those

Transferred Components that, as of the Effective Date, are purchased from Third

Parties by Hospira and shipped to other Hospira facilities, Hospira may, at its

option, elect to purchase such Transferred Components directly from a Third

Party, rather than through ICU; provided Hospira gives ICU commercially

reasonable notice of such election.

ICU, and ICU shall manufacture and sell exclusively to Hospira, in accordance

with the terms hereof, (i) New Joint Products and (ii) any New ICU Competitive

Product or New Hospira Competitive Product that ICU has agreed in writing to

manufacture and sell to Hospira and Hospira has agreed in writing to purchase

from ICU, in accordance with Article 8.

Nothing contained in this Agreement shall be construed to obligate Hospira to

purchase any minimum quantity of any of the Products, except as provided in

Section 3.2(a) (Forecasting).

2.2 Purchase Orders.

(a) Purchase Orders. Hospira shall deliver purchase orders to ICU on

Hospira's then applicable purchase order form (each a "Purchase Order") at least

(i) 21 days prior to the delivery date specified therein if such Purchase Order

is for Custom Products unless any such Custom Product requires a component that

is not then manufactured or purchased by ICU, (ii) 30 days prior to the delivery

date specified therein if such Purchase Order is for Standard Products that have

been included in the binding forecast delivered to ICU pursuant to Section

3.2(a), and (iii) at least 45 days prior to the delivery date specified therein

if such Purchase Order is for Standard Products not included in the binding

forecast delivered to ICU pursuant to Section 3.2(a) or for Custom Products that

require a component not then manufactured or purchased by ICU. Each Purchase

Order shall include the following information: Product list number and

description, quantity, the applicable Transfer Price, required delivery

schedule, delivery location, and shipping instructions. ICU shall accept all

such Purchase Orders; provided, that ICU shall not be required to accept any

Purchase Order for quantities of Products to be delivered in any month to the

extent such quantities exceed the lesser of (A) 125% of the aggregate quantities

for all Products ordered by Hospira pursuant to Purchase Orders that ICU was

<PAGE>

Confidential

required to accept hereunder in the same month for the previous calendar year

and (B) 125% of the aggregate quantities for all Products forecast for such

month in the most recent binding forecast delivered to ICU pursuant to Section

3.2(a), but will use all commercially reasonable efforts to fill such orders for

quantities over 125%. If there are significant changes in the Product mix

reflected in Purchase Orders from the Product mix ordered for the same month for

the previous calendar year or reflected in the most recent binding forecast,

then the Parties will consider such significant changes when comparing the total

aggregate quantities and negotiate in good faith to determine the quantities for

which ICU will be required to accept Purchase Orders. With respect to the first

12 months of this Agreement, the foregoing reference to the aggregate quantities

for all Products purchased by Hospira in the same month for the previous

calendar year shall mean the quantities of Products manufactured by Hospira in

the same month for the previous calendar year. Purchase Orders shall be

non-cancelable, subject to Section 3.2(c) (Failure to Supply) below. Hospira

will issue Purchase Orders with respect to all of the WIP (as defined in the

Asset Purchase Agreement) with the Transfer Prices set in accordance with

Section 2.3(a).

(b) Agreements Governing. All purchases of the Products by Hospira

from ICU during the Term shall be subject to the terms and conditions of this

Agreement, and any terms or conditions contained in a Purchase Order or

confirmation form which conflict with this Agreement shall be of no force and

effect unless the Parties specifically agree in writing to such terms and

conditions.

to reduce the delivery time for Custom Products from the applicable delivery

time specified in Section 2.2(a) above if Hospira reasonably determines that

such a reduced delivery time is necessary to remain competitive in the Custom

Product market.

2.3 Transferred Product and Transferred Component Pricing (Excluding

Surgicare Products).

(a) The initial Transfer Price (along with the Cost Savings

Estimate) for each of the Transferred Products and Transferred Components (other

than Surgicare Products) sold by ICU to Hospira hereunder shall be as set forth

on Exhibit 2.3 and shall be the Transfer Price until December 31, 2005. On or

before September 1 of each Contract Year, ICU shall make a good faith estimate

of the Cost Savings it expects to achieve for each Transferred Product or

Transferred Component (other than Surgicare Products) during the subsequent

Contract Year (the "Cost Savings Estimate") and shall submit such estimate,

along with its estimate of the Fully Burdened Manufacturing Cost and the

resulting Transfer Price for such Products, determined in accordance with

Exhibit 2.3(A), to Hospira in writing for approval, which approval shall not be

unreasonably withheld. Notwithstanding the foregoing, the Parties will negotiate

in good faith to adjust the Transfer Prices prior to such annual change if it

becomes apparent that the Transfer Price does not, or will not, materially

reflect the agreement set forth in Exhibit 2.3(A) in order to minimize future

Quarterly Variances. Notwithstanding the foregoing, with respect to Products

that resulted from the WIP (as defined in the Asset Purchase Agreement)

purchased by ICU pursuant to the Asset Purchase Agreement and, on the Effective

Date, that had completed the manufacturing process and were either awaiting

sterilization or in sterilization or awaiting the final quality assurance

release, the Transfer Price shall be Hospira's 2005 standard cost as set forth

in Exhibit 2.3.

<PAGE>

Confidential

(b) The Parties shall negotiate in good faith to develop, prior to

September 1 of Contract Year 2008 and each Contract Year thereafter, a method of

determining the Transfer Prices for Products for the following Contract Year

that eliminates the on-going calculation of Cost Savings and minimizes or

eliminates any Quarterly Variance or other reconciliation process, in any case

maintaining the general margin profile for each Party that results from the

agreement described in Exhibit 2.3(A).

2.4 RESERVED

2.5 Surgicare Product Pricing. The initial Transfer Price for each of the

Surgicare Products sold by ICU to Hospira hereunder shall be as set forth on

Exhibit 2.3 and shall be the Transfer Price until December 31, 2005. On or

before September 1 of each Contract Year, ICU shall determine the Transfer Price

it expects to charge Hospira for each Surgicare Product during the subsequent

Contract Year in accordance with Exhibit 2.5 and shall submit such estimate to

Hospira in writing for approval, which approval shall not be unreasonably

withheld.

2.6 New Joint Product Pricing. The Transfer Price for each New Joint

Product sold by ICU to Hospira hereunder shall be as set forth in Exhibit 2.6.

2.7 Payment.

(a) Invoices. ICU shall invoice Hospira at the time of shipment for

all Products purchased by Hospira hereunder at the Transfer Price specified in

the applicable Purchase Order. Such invoices shall be paid in U.S. Dollars

within 30 days after the invoice date.

(b) Reconciliation of Transfer Prices with Actual Costs.

(i) Calculation. ICU shall submit to Hospira within 10 days

following the end of each quarter a good faith estimate of each of the

calculations in clauses A, B, C and D below. ICU shall use commercially

reasonable efforts to submit to Hospira as soon as possible following the

end of each quarter, and in no event later than 25 days after the end of

each quarter, its actual calculations of each of the following:

(A) For Transferred Products (excluding Surgicare Products)

and Transferred Components, the aggregate actual Cost Savings

minus the aggregate Cost Savings Estimate (or, if greater, the

applicable Guaranteed Cost Savings), in each case for all

Transferred Products (excluding Surgicare Products) and

Transferred Components sold by ICU to Hospira during such

quarter, multiplied by the applicable Cost Savings Percentage,

(the "Quarterly Variance");

<PAGE>

Confidential

(B) For Surgicare Products, the Transfer Price minus the Final

Surgicare Product Cost, for all Surgicare Products sold by ICU

to Hospira during such quarter (the "Quarterly Surgicare

Variance");

New Joint Product Cost, for all New Joint Products sold by ICU

to Hospira during such quarter (the "Quarterly New Joint

Product Variance"); and

(D) The number of direct labor hours used to produce Products

during such quarter. Hospira shall receive a credit (the

"Transfer Price Credit") for such quarter if such number is

equal to or greater than 208,750 hours in that quarter. The

amount of the Transfer Price Credit is set forth on Exhibit

2.7(b).

If the sum of the Quarterly Variance, Quarterly Surgicare

Variance, Quarterly New Joint Product Variance and Transfer Price Credit,

if any, is less than zero, then such sum shall be the "Shortfall Amount".

If such sum is greater than zero, then such sum shall be the "Overpayment

Amount". Hospira shall have 30 days after receipt of such calculations to

(x) review and approve such calculations or (y) elect to have an audit of

the applicable financial records of ICU performed by Hospira, or its

representative, during normal business hours and upon at least five

Business Days' notice to ICU. In addition, Hospira shall also have annual

Audit Rights with respect to such calculations. ICU shall pay the cost (A)

of any quarterly audit performed by Hospira if the Parties agree that the

results of such audit establish that the Shortfall Amount or Overpayment

Amount were miscalculated in ICU's favor by more than $25,000 or (B) of

any audit conducted pursuant to Hospira's Audit Rights if the results of

any such audit establish that the Shortfall Amount or Overpayment Amount

was miscalculated in ICU's favor by more than $100,000. All individuals

conducting any audits shall sign a non-disclosure agreement with ICU on

terms at least as stringent as those contained in this Agreement.

(ii) Payment. Hospira shall pay ICU the Shortfall Amount, if

any, within 30 days of the date of Hospira's approval of ICU's

calculations or completion of the audit, as applicable, in accordance with

Subsection (i) above. ICU shall reimburse Hospira the Overpayment Amount,

if any, within 30 days of the date of Hospira's approval of its

calculations or completion of the audit, as applicable, in accordance with

Subsection (i) above.

2.8 Raw Materials Reimbursement.

(a) ICU shall use commercially reasonable efforts to use the Raw

Materials (as defined in the Asset Purchase Agreement) transferred to ICU

pursuant to the Asset Purchase Agreement in the manufacturing operations of ICU.

(b) If at the date that is 18 months after the Effective Date, ICU

has not sold or used any portion of the Raw Materials in its manufacturing

operations, then ICU shall receive a credit on the next quarterly reconciliation

pursuant to Section 2.7 equal to the gross value of the unused and unsold

portion of Raw Materials less the amount of the reserves for Raw Materials on

Hospira's books on the Effective Date, up to a maximum credit in the amount of

10 percent of the gross value as of the Effective Date of such Raw Materials.

<PAGE>

Confidential

time after receiving a credit from Hospira pursuant to this Section 2.8, ICU

shall return to Hospira the portion of such credit attributable to the Raw

Materials used or sold by ICU.

(d) Hospira shall have Audit Rights with respect to any calculations

pursuant to this Section 2.8 if the Parties are unable to resolve any dispute

through good faith discussions within 30 days of Hospira's dispute of such

calculations. The cost of any audit under this Section 2.8(d) shall be paid by

Hospira or ICU as determined in accordance with Section 2.7(b)(i).

ARTICLE 3 - MANUFACTURE OF PRODUCTS

3.1 Manufacture of Products.

(a) Specification Changes.

(i) Initiated by Hospira. Hospira may amend the Specifications

from time to time with the prior written consent of ICU, which

consent shall not be unreasonably withheld, and any resulting

changes to the Fully Burdened Manufacturing Cost for a Product will

be reflected in the applicable Transfer Price in accordance with the

terms of Article 2. If any amendment to the Specifications requires

Regulatory Approval, ICU and Hospira, as the case may be, shall make

commercially reasonable efforts to obtain such Regulatory Approval

as quickly as possible as required by Section 4.1 and ICU shall not

implement such change until such Regulatory Approval has been

received.

(ii) Initiated by ICU. ICU may amend the Specifications from

time to time with the prior written consent of Hospira, which

consent shall not be unreasonably withheld and any resulting changes

to the Fully Burdened Manufacturing Cost for a Product will be

reflected in the applicable Transfer Price in accordance with the

terms of Article 2. If any change to the Specifications requires

Regulatory Approval, ICU and Hospira, as the case may be, shall make

commercially reasonable efforts to obtain such Regulatory Approval

as quickly as possible as required by Section 4.1 and ICU shall not

implement such change until such Regulatory Approval has been

received.

(iii) Cost Impact. Promptly following a request by Hospira,

ICU shall provide Hospira with a good faith estimate of the impact

on the Fully Burdened Manufacturing Cost of any amendments to the

Specifications proposed pursuant to this Section 3.1(a).

(b) Manufacturing Changes.

<PAGE>

Confidential

(i) ICU shall notify Hospira in writing prior to the

implementation of any changes in its manufacturing process for a

Product that affect the fit, form or function of such Product

("Manufacturing Changes") and shall provide Hospira with a good

faith estimate of the impact of such Manufacturing Changes on the

Fully Burdened Manufacturing Cost. Such notice shall include

Manufacturing Changes that affect the Specifications, written

quality plans or procedures for production, manufacturing

procedures, component parts, raw materials, vendors or batch sizes.

(ii) Upon Hospira's request, ICU shall provide to Hospira

representative samples of Products manufactured using any

Manufacturing Changes in sufficient quantities for Hospira to

evaluate such Manufacturing Changes. Upon such notice of any such

Manufacturing Changes and after receipt of such representative

samples (if requested), Hospira shall use commercially reasonable

efforts to evaluate and notify ICU of its approval (which shall not

be unreasonably withheld) or disapproval of such Manufacturing

Changes within 30 days after the date of notice, but in any event

within 60 days after the date of notice. If Hospira does not notify

ICU of its disapproval of such Manufacturing Changes within such

period, then such Manufacturing Changes shall be deemed to be

approved by Hospira, and ICU shall notify Hospira when it has

implemented such Manufacturing Changes.

(iii) In the event any Manufacturing Change has an impact on

any Regulatory Approval, the responsibilities and costs for any

necessary amendments, notifications or resubmissions (as determined

by the responsible Party) shall be allocated as provided in Section

4.1. Changes to the Fully Burdened Manufacturing Cost caused by a

Manufacturing Change will be reflected in the applicable Transfer

Price in accordance with the terms of Article 2. If any

Manufacturing Change requires Regulatory Approval, ICU and Hospira,

as the case may be, shall use commercially reasonable efforts to

obtain such Regulatory Approval as quickly as possible as required

by Section 4.1 and ICU shall not implement such change until such

Regulatory Approval has been received.

at the Facility. If ICU plans to move any manufacturing of Products to a

location other than the Facility, ICU shall use commercially reasonable efforts

to notify Hospira at least 60 days (but in any event not less than 30 days) in

advance of such move and allow Hospira to inspect such new manufacturing

facilities to ensure compliance of facilities, equipment, and procedures with

applicable FDA regulations and cGMPs. ICU shall not manufacture Products at the

new facility until such time as Hospira has completed its inspection confirming

compliance. ICU shall use commercially reasonable efforts to ensure a smooth

transition to a new manufacturing facility and to avoid delays in any such

transition. Hospira shall use commercially reasonable efforts to complete its

inspections on a timely basis to avoid delays in any such transition. In the

event a manufacturing site change has an impact on any Regulatory Approval, ICU

shall reimburse Hospira for the costs of any Regulatory Approval amendment,

notification or resubmission deemed necessary by Hospira in its sole discretion

as a result of such manufacturing site change and the manufacture of the

Products to the new manufacturing site shall not begin until all Regulatory

Approvals have been obtained.

<PAGE>

Confidential

(d) Cost Reductions. ICU shall use all commercially reasonable

efforts to continuously reduce its Fully Burdened Manufacturing Cost for the

Products.

3.2 Inventory and Supply Matters.

(a) Forecasting. Hospira shall provide ICU with a rolling 12 month

forecast of its monthly requirements for the Products prior to the first day of

each calendar month during the Term, with the first three months of each such

forecast constituting a binding commitment by Hospira to purchase such

quantities. On a monthly basis, Hospira shall issue Purchase Orders in

accordance with Section 2.2(a) for the delivery during each month of the

quantities of Products as to which the then-current forecast is binding. The

last nine months of the forecast will not be binding on either Party and will be

used only for planning purposes.

(b) Capacity. ICU shall maintain sufficient manufacturing capacity

and means to produce and timely deliver Hospira's forecasted requirements of the

Products during the Term in accordance with the terms of this Agreement, to the

extent that quarterly growth in the aggregate quantity of all Products forecast

by Hospira is not greater than 25% of the aggregate quantity of all Products

purchased by Hospira in the same calendar quarter for the previous calendar

year. With respect to the first 12 months of this Agreement, the foregoing

reference to the aggregate quantities for all Products purchased by Hospira

shall mean the quantities of Products manufactured by Hospira in the same

calendar quarter for the previous calendar year. Hospira shall have the right to

review ICU's manufacturing capacity throughout the Term and, at Hospira's

request, ICU shall provide to Hospira evidence of ICU's manufacturing capacity.

it will be unable to deliver, Products ordered pursuant to the terms of this

Agreement for 60 or more consecutive days past any Delivery Date, ICU will

promptly notify Hospira. Hospira shall have the right to (i) agree to a revised

delivery date, (ii) cancel some or all existing Purchase Orders for such

Products without penalty, (iii) transfer the manufacture of such Products to

itself or a Third Party, or (iv) to the extent such failure to supply is a

material breach, terminate this Agreement in accordance with Section 13.3. ICU

shall not be deemed to have failed to deliver under the preceding sentence if it

is unable to manufacture Products ordered by Hospira as a direct result of

Hospira's failure to supply ICU with Specified Components under Section 5.2

hereof or as a direct result of Hospira's breach of its obligations under

Sections 3.1(a), (b) or (c). If Hospira elects option (iii), ICU shall, if so

requested by Hospira, (A) transfer and/or license to Hospira, as applicable, all

know-how, technology, trade secrets and patent rights necessary to manufacture

such Products (other than with respect to any component of such Product that can

be timely supplied by ICU), thereby enabling Hospira or its designee to

manufacture such Products, (B) reasonably assist Hospira or its designee in the

transfer and the start-up of manufacturing operations for such Products and make

all necessary plans, formulations and manufacturing processes, procedures, test

methods, specialized test equipment, and other items available to Hospira or its

<PAGE>

Confidential

designee, (C) grant Hospira or its designee access to ICU's regulatory files

relating to such Products, (D) transfer all Regulatory Approvals to Hospira

necessary to manufacture, market and sell such Products, and (E) supply such

other technical or regulatory assistance as is reasonably requested by Hospira

or its designee. ICU hereby grants to Hospira, without the necessity of any

further documentation, a non-exclusive, royalty free, irrevocable, worldwide

right and license to ICU's know-how, technology, trade secrets and patent rights

to make, have made, use and sell such Products. To the extent any know-how,

technology, trade secrets or patent rights are owned, controlled or licensed by

a Third Party ("Third Party Rights"), and are required to implement Hospira's

right to manufacture or have manufactured such Products, ICU shall use its best

efforts to obtain a license to all such Third Party Rights to allow Hospira or

its designee to use such Third Party Rights for the production of Products.

(d) Certain Temporarily Unavailable Products. Hospira may enter into

long-term contracts with its customers for the sale of products ("Customer

Supply Agreements"). These Customer Supply Agreements may include a provision

that requires Hospira to pay any incremental costs incurred by a customer in the

event the customer must purchase the products covered under the Customer Supply

Agreement from another vendor due to a backorder situation with Hospira ("Cover

Costs"). In the event that Hospira is unable to supply a product to its

customers as a direct result of ICU's inability or unwillingness to supply

Products under Purchase Orders placed by Hospira and accepted by ICU in

accordance with Section 2.2(a), ICU agrees that it shall be responsible for and

shall reimburse Hospira for any such Cover Costs. ICU shall not be deemed to

have been unable to supply under the preceding sentence if it is unable to

manufacture Products ordered by Hospira as a direct result of Hospira's failure

to supply ICU with Specified Components under Section 5.2 hereof or as a direct

result of Hospira's breach of its obligations under Sections 3.1(a), (b) or (c).

(e) Supply Resumption. If Hospira's manufacturing rights under

Section 3.2(c) above become effective because of ICU's inability to supply

Products and provided that Hospira has not elected to terminate this Agreement

pursuant to Section 13.3, and ICU is thereafter, during the Term, able to

demonstrate to Hospira's reasonable satisfaction that ICU is capable of

re-establishing and maintaining a satisfactory supply of such Products, then

Hospira shall transfer back to ICU all of the items, if any, previously

transferred by ICU to Hospira pursuant to Section 3.2(c) and resume purchasing

such Products from ICU for the remainder of the Term within 90 days after ICU

satisfactorily demonstrates its ability to meet Hospira's forecasts and ICU

reimburses Hospira for all incremental costs incurred by Hospira as a result of

Hospira manufacturing Products or having a Third Party manufacture Products

pursuant to Section 3.2(c) above. Notwithstanding the foregoing, Hospira shall

still be permitted to fulfill any contractual purchase commitments entered into

by Hospira with the Third Party manufacturer.

3.3 Product Delivery.

(a) Delivery Terms. Unless otherwise directed by Hospira, ICU shall

ship Products ordered by Hospira, FCA (Incoterms 2000) ICU's manufacturing

facility, in accordance with the quantities, delivery dates, and delivery and

shipping instructions specified in the applicable Purchase Order; provided that

if ICU moves manufacturing to a location other than the Facility or ICU's San

<PAGE>

Confidential

Clemente, California or Ensenada, Mexico facilities, any incremental increase in

shipping costs from such new location shall be shared equally by ICU and Hospira

and the Parties shall negotiate in good faith to implement procedures to

accomplish such cost sharing. If the carrier noted on the Purchase Order is not

available, or if the Purchase Order does not designate a carrier, then ICU shall

contact Hospira for instructions regarding the mode of shipment. ICU shall

deposit the Products with the designated carrier within the shipping periods

specified, and ICU shall not be liable for late delivery if so accomplished.

Title and risk of loss shall pass to Hospira upon delivery to the designated

carrier for shipment.

(b) Delays. If ICU is unable to deliver the Products on or prior to

the applicable Delivery Date, ICU shall notify Hospira as soon as possible. If

Hospira incurs actual costs as a result of ICU's inability to deliver, other

than costs related to its exercise of rights under Section 3.2(c) (iii) or (iv),

ICU shall reimburse Hospira for such actual costs upon presentation of such

costs to ICU. ICU shall have Audit Rights with respect to such costs. The

Parties acknowledge that any notice of delay or reimbursement of Hospira's costs

under this Section will not affect Hospira's remedies for breach hereunder,

including those set forth in Section 3.2(c) (Failure to Supply). ICU shall not

be deemed to have been unable to deliver under this Section 3.3(b) if it is

unable to manufacture Products ordered by Hospira as a direct result of

Hospira's failure to supply ICU with Specified Components under Section 5.2

hereof or as a direct result of Hospira's breach of its obligations under

Sections 3.1(a), (b) or (c).

to Hospira, for each shipment of Products one or more (i) certificates of

compliance indicating that representative samples of each lot of such Products

have been tested and including identities of the items tested, applicable

Specifications and test results, signed by a representative of the ICU quality

unit; and (ii) certificates of manufacturing compliance certifying that the

Products were manufactured in compliance with the applicable Specifications and

cGMPs, signed by a representative of the ICU quality unit. Hospira is entitled

to rely on such certificates at the time of delivery to Hospira. Such

certificates are required only for Products shipped directly to Hospira. For

Custom Products shipped directly to a customer of Hospira by ICU, ICU shall

maintain appropriate quality records, as reasonably requested by Hospira, which

may be reviewed by Hospira upon request.

(d) Storage. Following delivery to Hospira, Hospira shall be

responsible for properly storing the Products in accordance with the

Specifications in facilities selected by Hospira.

(e) Taxes. Hospira shall pay all sales and similar taxes payable

with respect to the sale and purchase of Products sold by Hospira, but not taxes

based on ICU's income or any importation duties.

3.4 Shelf Life. At the time of shipment by ICU under this Agreement, all

Products shall have a remaining shelf life greater than the approved shelf life

for such Product less two months.

<PAGE>

Confidential

3.5 Product Defects and Returns.

(a) Inspection. Except for latent defects, Hospira or its customers,

as applicable, shall have a period of 30 days from the date of delivery to

notify ICU that a shipment of Products is damaged or does not contain the

correct quantities of Products. Hospira shall have no obligation to test

Products to confirm compliance with the Specifications and shall be entitled to

rely upon the certificate provided by ICU pursuant to Section 3.3(c) above.

(b) Returns. Hospira shall have the right, with prior

SITE SEARCH

AGREEMENTS / CONTRACTS

CLAUSES

Search Contract Clauses >>

Browse Contract Clause Library>>

Get Email Updates