<PAGE>
EXHIBIT 10.1
Portions of this Exhibit have been redacted and are the subject of
a
confidential treatment request filed with
the Secretary of the Securities and
Exchange Commission.
Page 1
<PAGE>
SUPPLY AGREEMENT
This Supply Agreement ("Agreement") is entered into on this 2nd day
of
February, 2005 (the "Effective Date"), by
and between Schwarz Pharma
Manufacturing, Inc., an Indiana
corporation, doing business at 1101 "C" Avenue
West, Seymour, Indiana 47274 ("Schwarz"),
and OSI Pharmaceuticals, Inc., a
Delaware corporation with executive offices
at 58 South Service Road, Melville,
New York 11747 ("OSI").
RECITALS
WHEREAS, OSI is a developer and marketer of pharmaceutical
products,
including the Product (as hereinafter
defined);
WHEREAS, OSI would like to engage Schwarz to manufacture and supply
its
commercial and clinical requirements of the
Product for OSI pursuant to the
terms hereof; and
WHEREAS, Schwarz has the capability and capacity to manufacture
and
supply the Product pursuant to the terms
hereof.
NOW, THEREFORE, in consideration of the foregoing recitals and
the
mutual covenants contained herein, and
other good and valuable consideration,
the receipt and sufficiency of which is
hereby acknowledged by the parties, the
parties agree as follows:
ARTICLE 1. DEFINITIONS; INTERPRETATION
1.1 "Act"
shall mean the United States Food, Drug and Cosmetic Act (21
U.S.C. 301, et seq.) and regulations promulgated thereunder, as
each
may be amended from time to time.
1.2
"Affiliate" shall mean, with respect to a party, any person or
entity
controlling, controlled by or under common control with such
party,
with the term "control" (and its derivatives) meaning the direct
or
indirect ownership of fifty percent (50%) or more of the voting
common
stock or similar equity ownership interest or any other
arrangement
whereby a party controls or has the right to control the Board
of
Directors or equivalent governing body of a corporation or
entity.
1.3 "API"
shall mean the active pharmaceutical ingredient known as
erlotinib hydrochloride (formerly OSI-774-01).
1.4 "API
Specifications" shall mean the specifications for the API as
set
forth in Schedule 1.4 attached hereto, with such modifications
as
Schwarz and OSI may agree upon from time to time or as may be
requested
by OSI from time to time and consented to in writing by Schwarz,
which
consent shall not be unreasonably withheld. Any such
modification
Page 2
<PAGE>
shall become effective upon being reduced to a writing signed by
the
appropriate representatives of each party, whereupon Schedule 1.4
shall
be amended or
replaced in accordance with such signed writing.
1.5 "cGMP"
shall mean current good manufacturing practices required by the
Act and all applicable regulations thereunder.
1.6 "Failure
to Supply" shall mean that, during any ** period during the
Term (which period shall be measured as set forth below), (i)
multiple
instances of Inability to Supply have occurred and (ii) as a result
of
such instances of Inability to Supply, the aggregate quantity
of
Product that Schwarz has supplied during such ** period, either on
time
or within the ** cure period applicable to any Inability to
Supply,
represents less than ** of the aggregate quantity of Product
specified
in Valid Purchase Orders submitted to Schwarz in accordance with
this
Agreement for shipment during such ** . The ** period applicable to
any
determination of whether a Failure to Supply has occurred shall
commence upon the required delivery date specified in the Valid
Purchase Order to which the first applicable instance of Inability
to
Supply relates. Notwithstanding the foregoing, in the event that
the
amount of Product specified in any Valid Purchase Order to which
an
Inability to Supply relates constitutes more than ** of the
aggregate
amount of all Product specified in Valid Purchase Orders submitted
to
Schwarz in accordance with this Agreement for shipment during any
**
period as
measured in accordance with this Article 1.6, then the total
amount that Schwarz shall be deemed to have failed to timely supply
as
a result of such Inability to Supply shall be limited to such
amount
that is ** of such aggregate amount.
1.7 "FDA"
shall mean the United States Food and Drug Administration.
1.8 "Inability
to Supply" shall mean, with respect to any Valid Purchase
Order submitted to Schwarz in accordance with the terms of this
Agreement, that (i)
subject to the last sentence of Article 2.3.5,
Schwarz has failed to supply at least the aggregate quantity of
Product
specified in such Valid Purchase Order on or prior to the delivery
date
specified in such Valid Purchase Order and (ii) Schwarz has failed
to
cure such failure within ** following Schwarz's receipt of
written
notice from OSI of such failure by supplying, prior to the
expiration
of such ** period, the quantity of Product which, together with
the
quantity theretofore supplied in respect of such Valid Purchase
Order,
equals at least the aggregate quantity of Product specified in
such
Valid Purchase Order. Schwarz shall give written notice to OSI
prior to
the expiration of such ** period, specifically referencing this
Article
1.8, in the event Schwarz, in its sole discretion, determines that
it
is incapable of curing such failure within ** , in which event
an
Inability to Supply shall be deemed to have arisen as of the date
of
such notification; provided that under no circumstances shall
Schwarz
have any liability to OSI hereunder in the event no such
notification
is given.
----------
** This portion has been redacted pursuant
to a confidential treatment request.
Page 3
<PAGE>
1.9 "NDA"
shall mean the New Drug Application filed with the FDA in
respect
of the Product, including any sNDA and all subsequent submissions
in
respect of such New Drug Application or any such sNDA.
1.10 "Product" shall
mean the pharmaceutical drug product containing
erlotinib HCl for human use currently known as Tarceva(TM) as
intended
for either clinical or commercial use; provided that the
intravenous
(IV) and oral solution/suspension formulations of Tarceva(TM)
developed
by OSI shall not be included within this definition.
1.11 "Product
Specifications" shall mean the specifications for the Product
as set forth in Schedule 1.11 attached hereto, with such
modifications
as Schwarz and OSI may agree upon from time to time or as may
be
requested by OSI from time to time and consented to in writing
by
Schwarz, which consent shall not be unreasonably withheld. Any
such
modification shall become effective upon being reduced to a
writing
signed by the appropriate representatives of each party,
whereupon
Schedule 1.11 shall be amended or replaced in accordance with
such
signed writing.
1.12 "Proprietary
Information" shall mean all confidential information
disclosed by either party to the other hereunder and designated
in
writing by
the disclosing party as "Confidential" (or equivalent), and
all material disclosed orally which is declared to be confidential
by
the disclosing party, and shall include trade secrets, methods
of
manufacture and operation, and any other technical data, provided
by a
party or used in connection with the development, manufacture or
sale
of a Product, including without limitation, the API Specifications,
the
Product Specifications, Product formula, know-how, experimental
data,
inventions, discoveries, improvements, processes, methods,
developments, ideas, suggestions, devices, Master Batch
Records,
production batch records, clinical and pre-clinical data;
documents,
memoranda, customer reports, customer data, marketing strategy,
Product
costs and other financial information; licenses, and other
intellectual
property rights, and any other information about the general
business
operations as presently conducted by a party, or its Affiliate.
1.13 [RESERVED]
1.14 "Territory"
shall mean the United States of America, its territories
and possessions and the Commonwealth of Puerto Rico.
1.15 "Trademark(s)"
shall mean the trade name(s) used by OSI for the sale
and promotion of the Product as listed in Schedule 1.15
attached
hereto, as may be amended from time to time.
1.16 "Valid Purchase
Order" shall mean a purchase order which meets the
requirements of Article 2.
1.17 Other Defined
Terms. The following terms are defined in the Articles or
other sections of the Agreement indicated below.
Page 4
<PAGE>
**
Fee......................................................2.1.2
**
Notice...................................................2.1.2
**
Right....................................................2.1.2
Agreement...................................................preamble
Article 2.1.3
Fee..............................................2.1.3
Article 2.1.3
Right............................................2.1.3
Claim...........................................................13.1
Detailed Product
Forecast......................................2.3.2
Effective
Date..............................................preamble
Long-Term Product
Forecast.....................................2.3.1
Manufacturing
Documentation....................................8.6.2
Manufacturing
Process..........................................8.6.1
OSI.........................................................preamble
OSI
Indemnitees.................................................13.1
Purchase Order
Agreement........................................17.9
Quality Assurance
Agreement......................................2.8
Requirements...................................................2.1.1
Schwarz.....................................................preamble
Schwarz
Indemnitees.............................................13.2
Term.............................................................8.1
1.18 Interpretation. Unless otherwise
indicated to the contrary herein by
the context or use thereof: (a) the words, "herein," "hereto,"
"hereof," and words of similar import refer to this Agreement as
a
whole and not to any particular Section or paragraph hereof; (b)
the
word "including" means "including, but not limited to"; (c)
words
importing the singular will also include the plural, and vice
versa;
and (d) any reference to any federal, state, local, or foreign
statute
or law will be deemed also to refer to all rules and
regulations
promulgated thereunder. References to "$" or "Dollars" will be
references to United States Dollars.
ARTICLE 2. TERMS OF SUPPLY
2.1
Exclusivity.
2.1.1
Subject to the terms and conditions of this Agreement,
including Articles 2.1.2 and 2.1.3, (i) OSI agrees to purchase
exclusively from Schwarz pursuant to the terms of this
Agreement OSI's entire commercial and clinical requirements of
the Product for use, distribution, sale or resale in the
Territory (hereinafter referred to as OSI's "Requirements")
and (ii) OSI shall not
manufacture itself or purchase or
procure from any other manufacturer or source, including any
of its Affiliates, partners or any other parties with which
any of them has entered into any
----------
** This portion has been redacted pursuant
to a confidential treatment request.
Page 5
<PAGE>
collaboration arrangement regarding the Product, any of its
Requirements of the Product. For the avoidance of doubt,
except as expressly provided in this Agreement, OSI shall not
obtain any of its Requirements of the Product manufactured by
Schwarz from any third party (including, but not limited to,
F. Hoffman-LaRoche Ltd. or any of its Affiliates).
2.1.2
Notwithstanding Article 2.1.1, subject to the terms of this
Article 2.1.2, commencing after the second anniversary of the
Effective Date, OSI shall have the right (the " ** Right") to
manufacture for itself or purchase or procure from any of its
Affiliates or any third party up to ** of its Requirements of
the Product during any one or more calendar years, as
determined on the basis of the aggregate quantities of the
Product actually purchased from Schwarz, manufactured by OSI
and purchased or procured by OSI from any Affiliate of OSI or
any third party. The ** Right shall be exercisable on a
calendar year-by-calendar year basis and OSI shall have no
right to manufacture itself or procure from any party other
than Schwarz any of OSI's Requirements for the Product during
any calendar year in respect of which the ** Right has not
been exercised in accordance herewith. In order to exercise
the ** Right, OSI shall deliver written notice (a " **
Notice") to Schwarz not less than thirty (30) days prior to
placing an order for any portion of its Requirements of the
Product with an Affiliate of OSI or a third party or
commencing manufacture of any portion of its Requirements of
the Product itself. Not later than two (2) weeks after the
date on which OSI places any such order for any portion of its
Requirements of Product with an Affiliate or third party,
commences manufacture of any portion of its Requirements of
the Product itself or otherwise initiates supply of any
portion of its Requirements of the Product pursuant to its
exercise of the ** Right in a given calendar year, OSI shall
pay Schwarz ** (the " ** Fee") by wire transfer of immediately
available funds to an account designated by Schwarz. In no
event shall the ** Fee be pro rated, including on the basis of
when during the applicable calendar year the ** Notice is
given or in the event that less than ** of OSI's Requirements
of the Product for such calendar year are actually purchased
or procured from parties other than Schwarz. For the avoidance
of doubt, the ** Fee will be payable in respect of each
calendar year for which the ** Right is exercised. After
delivering a ** Notice, OSI shall provide to Schwarz quarterly
written reports specifying the amount of Product manufactured
by OSI or purchased or procured from a party other than
Schwarz during the preceding quarter, which reports shall be
certified by an officer of OSI and shall be delivered to
Schwarz within thirty (30) days following the end of each
calendar quarter during each year in respect of which a **
Notice has been given. Once per year during the Term, OSI
shall permit Schwarz and its authorized representatives to
review its books and records to the extent reasonably required
----------
** This portion has been redacted pursuant
to a confidential treatment request.
Page 6
<PAGE>
to verify
compliance with this Article 2.1.2 upon prior notice
and during normal business hours.
2.1.3
Notwithstanding Article 2.1.1, subject to the terms of this
Article 2.1.3, at any time following the fifth anniversary of
the Effective Date, OSI or an Affiliate of OSI shall have the
right (the "Article 2.1.3 Right") to manufacture, in its own
capacity, all or a portion of OSI's Requirements of the
Product during the remainder of the Term. OSI may exercise the
Article 2.1.3 Right by delivering written notice to Schwarz
not less than ninety (90) days prior to commencing manufacture
of all or a
portion of OSI's Requirements of the Product.
Concurrently with delivery of such notice, OSI shall pay
Schwarz ** (the "Article 2.1.3 Fee") by wire transfer of
immediately available funds to an account designated by
Schwarz.
2.1.4
Anything to the contrary notwithstanding, for purposes of this
Agreement, OSI's Requirements shall be deemed to include all
of the following parties' requirements of the Product for use,
distribution, sale and resale in the Territory: OSI and its
Affiliates and partners and any other party with whom any of
them has entered into any collaboration arrangement involving
the Product. OSI shall not avoid its purchase obligations
under this Agreement by purchasing or selling Product
indirectly through distributors, co-promotion partners,
licensees or similar purchasing or selling arrangements.
2.1.5 For
the avoidance of doubt, (i) in no event shall OSI's
exercise of the ** Right diminish OSI's obligations pursuant
to Article 2.1.1 in respect of the remaining ** of OSI's
Requirements for any year during which the ** Right has been
exercised or OSI's obligations pursuant to Article 2.1.1 in
respect of any year during which the ** Right has not been
exercised and (ii) in no event shall any exercise by OSI of
the ** Right or the Article 2.1.3 Right affect, diminish or
otherwise modify any provision of this Agreement other than
Article 2.1.1.
2.1.6
Subject to the terms and conditions of this Agreement, OSI
shall be permitted to resell Product purchased from Schwarz
hereunder to F. Hoffman-LaRoche Ltd. corresponding solely to
special license sales to be made by F. Hoffman-LaRoche Ltd.
within Europe prior to such time as F. Hoffman-LaRoche Ltd.
receives marketing approval to sell its own erlotinib
hydrochloride product within the country in question; provided
that OSI shall bear all responsibility and expense regarding
legal and regulatory compliance associated with such sales.
OSI hereby represents and warrants that such sales shall only
be made in full compliance with all applicable legal and
regulatory requirements.
2.2 Supply of
Product, API and Raw Materials. Subject to the terms and
conditions of this Agreement, Schwarz agrees to supply the Product
to
OSI in accordance with the Product Specifications, cGMP, any
applicable
laws and regulations, and the Quality Assurance
----------
** This portion has been redacted pursuant
to a confidential treatment request.
Page 7
<PAGE>
Agreement and in the quantities ordered and at the delivery
times
agreed upon by the parties pursuant to this Article 2. OSI shall
supply
to Schwarz without charge (unless otherwise required herein) all
API,
conforming to the API Specifications, which is required to
manufacture
Product hereunder. OSI shall supply API which meets the API
Specifications on dates and in amounts necessary to allow Schwarz
to
supply Product to OSI consistent with the forecasts set forth in
this
Article 2 and shall ensure that Schwarz is at all times in
possession
of sufficient API which meets API Specifications to meet such
forecasts. Schwarz shall supply all other necessary raw materials
for
the manufacture and packaging of the Product in accordance with
the
terms of this Agreement. Notwithstanding any other provision of
this
Agreement, Schwarz shall not be liable for any failure or delay to
meet
its obligations hereunder, to the extent such failure or delay
is
attributable to OSI's failure or delay to supply API which meets
the
API Specifications on a timely basis. Schwarz shall promptly notify
OSI
in writing if it becomes apparent to Schwarz that any API does not
meet
the API Specifications. Each party acknowledges that OSI shall
be
responsible for all aspects of securing and maintaining API
supply,
including, without limitation, obtaining FDA approval for any and
all
API suppliers and complying with all relevant legal and
regulatory
requirements regarding API supply. Schwarz will provide monthly
inventory reports of the API held by Schwarz. Schwarz and OSI agree
and
acknowledge that a true and correct report of Schwarz's inventory
of
the API as of the Effective Date is set forth in Schedule 2.2.
These
reports should be delivered no later than the close of business on
the
nineteenth (19th) day of each calendar month for the preceding
month.
Schwarz will exercise reasonable commercial efforts to ensure
the
accuracy of these inventory reports through proper internal
controls.
OSI or its designee shall have the right to inspect Schwarz's
inventory
reports and may at its own expense conduct a physical inventory of
any
OSI assets being held by Schwarz not more frequently than once
each
calendar year upon reasonable notice to Schwarz.
2.3
Forecasts.
2.3.1
Long-Term Forecasts for Required Product. No later than
January 15th of each calendar year during the Term, OSI shall
provide Schwarz with a forecast (a "Long-Term Product
Forecast") setting forth OSI's estimate of its Requirements of
Product for each of the three (3) years following the date of
such forecast, which shall in all cases represent a good faith
estimate of its actual demand for the Product based on market
conditions and OSI's need for a reasonable safety stock. The
initial Long-Term Product Forecast is attached hereto as
Schedule 2.3.1.
2.3.2
Detailed Forecast for Required Product. OSI shall also provide
Schwarz with a detailed rolling forecast setting forth OSI's
Requirements for the Product for each calendar quarter during
the succeeding twelve (12) month period (each, a "Detailed
Product Forecast") which shall in all cases represent a good
faith estimate of actual demand for the Product based on
market conditions and OSI's need for a reasonable safety
stock, the first quarter of which shall constitute a single
firm purchase order from OSI for all purposes hereunder. The
initial
Page 8
<PAGE>
Detailed Product Forecast for the period ** is attached hereto
as Schedule 2.3.2 and shall be updated quarterly for the
subsequent twelve (12) months no later than ** preceding the
first month of the first calendar quarter in question, so that
each quarter Schwarz shall have been provided with a rolling
Detailed Product Forecast for each calendar quarter during the
twelve (12) month period commencing ** after the date on which
such Detailed Product Forecast is due. The Detailed Product
Forecast shall be accompanied by a purchase order for the
first quarter of each such Detailed Product Forecast, which
purchase order shall contain quantities and delivery dates
consistent with this Article 2 and any other necessary detail.
The remaining portion of the Detailed Product Forecast shall
be firm, subject to the permissible variances set forth below
in Article 2.3.4. If OSI fails to provide any updated Detailed
Product
Forecast, the Detailed Product Forecast last provided
by OSI shall be deemed to be OSI's Detailed Product Forecast
for the next succeeding twelve (12) month period.
2.3.3
Initial Purchase Orders. An initial binding purchase order is
attached hereto as Exhibit A-1, which binding purchase order
covers the period from the ** . In addition, Schwarz and OSI
hereby agree that the outstanding purchase order attached
hereto as Exhibit A-2 (the "Prior Purchase Order") shall be
subject to and governed in accordance with the terms of this
Agreement as though such purchase order was made during the
term of and expressly subject to this Agreement; provided,
however, that (i) the price applicable to the Product to be
supplied pursuant to such Prior Purchase Order shall be as set
forth in that certain Purchase Order Agreement, dated October
21, 2004, between Schwarz and OSI, as amended (the "Purchase
Order Agreement"), (ii) the quantities of Product specified in
the Prior Purchase Order shall not be counted as Product
purchased pursuant to this Agreement for purposes of Schedule
5.1 hereto, (iii) OSI hereby acknowledges that the Product
specified in the Prior Purchase Order has heretofore been
supplied by Schwarz in full satisfaction of Schwarz's
obligations in respect of the Prior Purchase Order and under
the Purchase Order Agreement and this Agreement with respect
to
the Prior Purchase Order, and (iv) OSI shall pay the entire
remaining unpaid balance owing to Schwarz in respect of the
Prior Purchase Order, equal to ** , within ** after the
Effective Date, by wire transfer of immediately available
funds to an account specified by Schwarz.
2.3.4
Detailed Product Forecast Variances. Each updated Detailed
Product Forecast may modify the amounts estimated in the
previous Detailed Product Forecast for the periods of time in
question in accordance with the following limitations:
(a) For the
first calendar quarter covered by such
updated Detailed Product Forecast, no change in
excess of ** volume increase or decrease from the
prior Detailed Product Forecast for the period of
time in question may be made unless Schwarz consents;
----------
** This portion has been redacted pursuant
to a confidential treatment request.
Page 9
<PAGE>
(b) For the
second calendar quarter covered by such
updated Detailed Product Forecast, no change in
excess of a ** volume increase or decrease from the
prior Detailed Product Forecast for the period of
time in question may be made unless Schwarz consents;
and
(c) For the
third calendar quarter covered by such
updated Detailed Product Forecast, no change in
excess of an ** volume increase or decrease from the
prior Detailed Product Forecast for the period of
time in question may be made unless Schwarz consents.
2.3.5 Each
of the Long-Term Product Forecasts and the Detailed
Product Forecasts shall contain a detailed forecast for each
period for each dosage strength of the Product. The Long-Term
Product Forecasts, the Detailed Product Forecasts and all
purchase orders submitted by OSI (including without limitation
those purchase orders submitted pursuant to Article 2.3.2
above) shall be limited to whole batch quantities and shall
under no
circumstances contain partial batch quantities. To
the extent actual batch sizes manufactured by Schwarz differ
from the batch sizes set forth in the Quality Assurance
Agreement based on variations in yield or other factors, the
quantities of actual Product units contemplated by the
applicable purchase orders will be automatically adjusted to
reflect the actual batch sizes manufactured by Schwarz.
If OSI desires to exceed the limitations set forth in this Article
2,
Schwarz shall make reasonable efforts to accommodate such changes,
but
shall not be required to exceed such limitations.
2.4 Purchase
Orders. OSI agrees to initiate purchases of the Product by
issuing to Schwarz a purchase order not less than ** prior to
the
required delivery date set forth in such purchase order. Schwarz
agrees
to accept any order issued in accordance with this Article 2
which
specifies quantities consistent with those set forth in the
Detailed
Product Forecast and allowable variances in this Article 2 for
such
quarter and to meet the delivery dates specified thereon. All
purchase
orders hereunder shall be on OSI's standard purchase order form
attached hereto as Schedule 2.4, shall include a delivery date that
is
consistent with the requirements of this Article 2 and shall be
directed to Schwarz Manufacturing, Inc. ** . All purchase orders
shall
be governed exclusively by the terms of this Agreement. Any term
or
condition in any purchase order, confirmation, invoice or other
document furnished by Schwarz or OSI that is in any way
inconsistent
with these terms and conditions is hereby expressly rejected,
unless
mutually agreed upon in writing by both parties. Schwarz will
provide
written confirmation and acceptance within ** after receipt of
purchase
orders submitted by OSI, provided they meet the requirements of
this
Article 2. In the event any purchase order is not accepted, a
substitute delivery date and/or other terms which would make
the
purchase order acceptable must be submitted in writing to OSI
within **
after receipt of the purchase
----------
** This portion has been redacted pursuant
to a confidential treatment request.
Page 10
<PAGE>
order. OSI
may then re-submit the modified purchase order for
acceptance by Schwarz, or Schwarz will consider that purchase
order
null and void.
2.5 Schwarz
shall notify OSI as soon as practicable if Schwarz is unable to
supply the quantity of
Product ordered by OSI in accordance with this
Article 2; provided, however, that such notice shall in no way
limit
any right Schwarz may have to cure any supply failure as
contemplated
by the definition of Inability to Supply or otherwise limit
Schwarz's
rights hereunder. In the event that an Inability to Supply has
occurred, OSI shall have the right, upon written notice to Schwarz,
to
manufacture itself or procure from any Affiliate of OSI or any
third
party (including F. Hoffman-LaRoche Ltd. solely with regard to
Product
not manufactured by Schwarz) ** . Anything to the contrary
herein
notwithstanding, any Product manufactured or procured in
accordance
with this Article 2.5 may be manufactured or procured in full
batch
quantities; provided that under no circumstances shall such full
batch
quantities exceed the minimum batch sizes for the Product as
then
currently or as previously approved by the FDA.
2.6 OSI may,
at any time during the Term, identify, qualify with the FDA
and add to its NDA one or more alternate suppliers (the identity
and
number of which shall be determined in OSI's sole discretion) for
OSI's
Requirements of Product. Schwarz shall use commercially
reasonable
efforts to cooperate with OSI in connection with OSI's efforts
to
qualify one such alternate supplier. Schwarz acknowledges and
agrees
that OSI and its alternate suppliers, at all times during the
Term,
shall have the right to do all things, including filing documents
with
the FDA, reasonably necessary to ensure that such alternate
suppliers
are ready at all times to supply Product to OSI. OSI shall not
be
prohibited from retaining and storing Product which has been
manufactured by an alternate supplier in connection with the
steps
taken in accordance with this Article 2.6 to qualify (and maintain
as
qualified) such alternate supplier with the FDA and add such
alternate
supplier to OSI's NDA. Schwarz agrees and acknowledges that the
activities contemplated by this Article 2.6 shall not violate
OSI's
obligations pursuant to Article 2.1 hereof and OSI shall be free to
use
Product manufactured by an alternative supplier contemplated by
this
Article 2.6 to supply any amount of the Product which OSI has a
right
to procure pursuant to Articles 2.1.2, 2.1.3 or 2.5; provided,
however,
that OSI shall not otherwise use any of such Product manufactured
by
any such alternative supplier to supply any of its Requirements of
the
Product.
2.7 OSI agrees
to and hereby does grant and execute, at no cost to Schwarz,
all licenses and sub-licenses under any patents, regulatory
approvals,
Trademarks and permits held by OSI, including but not limited to
the
licenses and sub-licenses set forth on Schedule 2.7 attached
hereto,
for the sole purpose of allowing Schwarz to meet its
obligations
hereunder.
2.8 After the
Effective Date, the parties shall meet to negotiate in good
faith an agreement (the "Quality Assurance Agreement") that sets
forth
the quality assurance and quality control responsibilities of
the
parties, including documentation, raw material testing,
----------
** This portion has been redacted pursuant
to a confidential treatment request.
Page 11
<PAGE>
CMC work and maintenance, batch release, batch deviations,
batch
rejection, change control, stability program, annual reporting,
audits,
retained samples, Product complaints, adverse drug event
reporting,
complaints, recalls, contacts with FDA, FDA deficiency letters,
and
notifying OSI of FDA inspections and visits. The parties shall
use
commercially reasonable efforts to complete the Quality
Assurance
Agreement on or before sixty (60) days from the Effective Date.
2.9 Schwarz
and OSI shall comply in all material respects with all
applicable United States federal, state, and local laws and
regulations
applicable to each of the parties' activities related to the
Product
and pursuant to this Agreement.
ARTICLE 3.
[RESERVED]
ARTICLE 4. RELEASE, STORAGE AND SHIPMENT
4.1 Release of
Product shall be in accordance with the Quality Assurance
Agreement.
4.2 Schwarz
shall store the API and the Product in accordance with cGMP,
the Quality Assurance Agreement and the API Specifications or
Product
Specifications, as the case may be.
4.3 Schwarz
shall package all Product in accordance with the Quality
Assurance Agreement and the Product Specifications.
4.4 Schwarz
shall use a common carrier as instructed by OSI, or as selected
by Schwarz and approved by OSI.
4.5 The
Product will be supplied to OSI Ex-Works (Incoterms 2000)
Seymour,
Indiana, and risk of loss of the Product shall pass from Schwarz to
OSI
upon delivery of the Product to a common carrier approved by OSI.
OSI
shall at all times bear the risk of loss of API, except to the
extent
that any loss is directly attributable to Schwarz not storing
or
otherwise handling the API in accordance with this Agreement, the
API
Specifications, the Quality Assurance Agreement and cGMP.
4.6 Schwarz
shall be responsible for and agrees to assume any excess
shipping charges related to express shipments, partial shipments,
or
both, as necessary to meet the required delivery date in
accordance
with Article 2.
4.7 To the
extent Schwarz maintains any inventory of Product, Schwarz
shall
maintain reasonable Product segregation and inventory rotation.
Page 12
<PAGE>
ARTICLE 5. PRICE AND PAYMENT
5.1 Schwarz
shall supply the Product at the prices set forth on Schedule
5.1 attached hereto, subject to Article 5.2 of this Agreement.
Such
price will be adjusted on ** of each calendar year during the term
of
this Agreement subject to the terms of this Article 5.
5.2 All price
increases for the Product shall be effective for purchase
orders placed after ** of each calendar year, beginning ** .
Price
increases shall be equal to the greater of: (a) ** .
5.3 All
invoices from Schwarz for Product shall be payable within
thirty
(30) days from receipt of the invoice by OSI.
5.4 Any
amounts not paid by OSI within thirty (30) days shall be subject
to
interest beginning on such date at a rate equal to the lesser of
(a) **
per month or (b) the highest rate permitted by applicable law. In
each
case, applicable interest shall be calculated monthly on the basis
of a
twelve (12) month year. Any amounts that are the subject of a
good
faith dispute shall not be subject to such interest.
5.5 Within
five (5) days after the Effective Date, OSI shall pay Schwarz
**
owing to Schwarz pursuant to Schwarz's invoice # 11304 in respect
of
the acquisition of that certain Ackley imprinter purchased by
Schwarz
in connection with the manufacture of the Product. OSI hereby
agrees
and acknowledges that OSI has no interest in such imprinter and
Schwarz
owns such imprinter free and clear of any and all liens or
encumbrances
of OSI.
ARTICLE 6. NON-CONFORMING GOODS
6.1 OSI (or
its designee) shall examine all shipments of Product from
Sch
