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VaxGen / Nexol Co. - Korea Joint Venture Agreement
Exhibit 10.24 JOINT VENTURE AGREEMENT
This Joint Venture Agreement (this "Agreement" or the "JVA") is made on this 25th day of February, 2002, by and among:
VAXGEN, INC. a company duly organized and existing under the laws of the State of Delaware, USA, and having its registered office at 1000 Marina Boulevard, Brisbane, California, U.S.A. (" VaxGen") ;
NEXOL BIOTECH CO., LTD. , a company duly organized and existing under the laws of the Republic of Korea, and having its registered office at Samwhan Camus Bldg., Suite 300, 17-3, Yoido-dong, Youngdeungpo-ku, Seoul, Korea (" Nexol") ;
NEXOL CO., LTD. , a company duly organized and existing under the laws of the Republic of Korea, and having its registered office at Samwhan Camus Bldg., Suite 300, 17-3, Yoido-dong, Youngdeungpo-ku , Seoul, Korea (" Nexol Co") ;
KOREA TOBACCO & GINSENG CORPORATION , a company organized and existing under the laws of the Republic of Korea, and having its registered office at 100, Pyungchon-dong, Daeduk-gu, Daejon, Republic of Korea (" KT&G" ) ; and
J. STEPHEN & COMPANY VENTURES LTD. , a company duly organized and existing under the laws of the Republic of Korea, and having its registered office at 23rd Floor, City Air Tower, Samsung- Dong, Kangnam-ku, Seoul, Korea (" JS") .
(VaxGen, Nexol, Nexol Co, KT&G and JS shall individually be referred to as a "Party" and collectively as the "Parties".) WHEREAS:
(A) The Parties desire to construct and operate a facility in Korea that will use cell culture technology licensed from VaxGen for the manufacture of a number of pharmaceutical products including, without limitation, AIDSVAX, an HIV vaccine using certain technology licensed to VaxGen from Genentech, Inc. (" Genentech") , a U.S. corporation.
(B) The Parties executed a Memorandum of Understanding on October 19, 2001, wherein they expressed their intention to establish a joint venture company in Koreawhich will construct and operate such facility, manufacture AIDSVAX and other pharmaceutical products, and carry out certain related product improvement and development projects under terms and conditions to be agreed by the Parties.
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(C) VaxGen executed a Land Purchase Agreement with Incheon City on February 25, 2002, pursuant to which VaxGen shall cause the JVC, which is defined below, to purchase from Incheon City certain land located in Incheon City for the purpose of establishing the manufacturing facilities for the production of AIDSVAX and other products as the JVC shall manufacture.
(D) The Parties enter into this Agreement to set out the terms governing their investment in the JVC and their relationship as shareholders in the JVC.
Now, therefore, it is agreed as follows: ARTICLE 1
DEFINITIONS
In this Agreement, unless otherwise clearly indicated by the context, the following expressions shall have the following meanings:
1.1 An "Affiliate" of a Party shall mean any corporation, association, or other entity which, directly or indirectly, controls the Party or is controlled by the Party or is under common control with the Party, where "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the affairs or management of an entity through the ownership of voting securities or otherwise, including, without limitation, having the power to elect a majority of the board of directors or other governing body of such entity.
1.2 "Common Shares" shall mean the common shares issued by the JVC to VaxGen pursuant to Article 4.2 (a) (i) of this Agreement.
1.3 "Contribution Agreement" shall mean the agreement to be entered into by and among Parties hereto in accordance with Article 4.2 (a) (i).
1.4 "Government Approval" of any action to be taken by any Party or by the JVC herein shall mean such approval of or confirmation or consent to said action, together with such licenses, permits, or other permissions reasonably required for said action, all as the statutes, decrees, regulations, and rulings of governmental authority (collectively "Legal Authority") within Korea may require to be obtained in connection with said action from such governmental authority or from political subdivisions thereof. Whenever any form of the phrase "Government Approval" is used herein, it shall be interpreted and construed to include the requirement that such approval be in form and substance acceptable to the Parties hereto.
1.5 "JVC" shall mean the joint venture company to be formed pursuant to Article 2 of this Agreement.
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1.6 "Preferred Shares" shall mean the preferred shares issued by the JVC to the non-VaxGen shareholders pursuant to Articles 4.2 and 4.6 of this Agreement.
1.7 "Shares" shall mean the Common Shares and the Preferred Shares issued by the JVC.
1.8 "Transaction Documents" shall mean such documents and agreements as are reasonably necessary in order to give effect to the purpose of this Agreement, including, but not limited to, the documents and agreements referred to in Articles 2.2, 3.1, and 4.2 of this Agreement.
1.9 "Technology" shall mean the Licensed Know-How and Licensed Patent Rights as defined in both the License Agreement and the Sub-License Agreement defined in Article 3.1 of this Agreement.
ARTICLE 2
COMPANY TO BE INCORPORATED
2.1 The Parties shall incorporate under the laws of the Republic of Korea, promptly after receipt of the Government Approvals for the in-kind investment by VaxGen, a joint stock company ( chusik hoesa ) named in Korean " Chusik Hoesa Celltrion" and in English "Celltrion, Inc." (hereinafter referred to as the " JVC").
2.2 The Parties shall adopt Articles of Incorporation for the JVC that are substantially similar in form and substance to the draft attached in Exhibit 1 hereto prior to investment by VaxGen and KT&G as set forth in Article 4.2 (a) (i) and Article 4.2 (a) (iii), respectively, and shall approve internal regulations as necessary in conformity with the terms and conditions of this Agreement. If any discrepancy is found between this Agreement and the JVC's Articles of Incorporation and internal regulations, the Parties shall amend the Articles of Incorporation and internal regulations to be consistent with this Agreement. The Agreement shall control and prevail prior to the time that the relevant amendment to the Articles of Incorporation and/or internal regulations is effective.
2.3 The duration of the JVC shall be perpetual subject to the provisions of this Agreement.
2.4 The purpose of the JVC will be to engage in the following business activities:
(a) the manufacture and sale of pharmaceutical products using cell culture technology, including but not limited to AIDSVAX;
(b) research and development with respect to AIDSVAX and other products; and
(c) any and all acts, things, business and activities which are related, incidental or conducive, directly or indirectly, to the attainment of the foregoing objectives.
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ARTICLE 3
TRANSACTION DOCUMENTS
3.1 As soon as practically possible, but no later than within sixty (60) days after the execution of this Agreement unless otherwise extended by the mutual agreement among the Parties, the Parties shall cause the JVC to enter into, the Transaction Documents with the relevant parties, including, but not limited to:
(a) a supply agreement with VaxGen, specifying the terms and conditions of the supply of the Products to VaxGen, as defined therein and during the term provided therein, substantially similar in form and substance to the draft attached hereto as Exhibit 2 ("Supply Agreement") ;
(b) a technology license agreement with VaxGen, specifying the terms and conditions of the license of certain technology by VaxGen to the JVC, substantially similar in form and substance to the draft attached hereto as Exhibit 3 ("License Agreement") ;
(c) a sub-license agreement with VaxGen, specifying the terms and conditions of the sub-license to the JVC by VaxGen of certain technology licensed to VaxGen by Genentech relating to the manufacture of AIDSVAX and Vaccine (as defined therein), substantially similar in form and substance to the draft attached hereto as Exhibit 4 ("Sub-License Agreement") ; and
(d) an assignment agreement with VaxGen, specifying the terms and conditions by which the JVC shall assume VaxGen's rights and obligations under the Land Purchase and Sale Agreement with Incheon Metropolitan City Government entered into on February 25, 2002, substantially similar in form and substance to the draft attached hereto as Exhibit 5 ("Assignment Agreement") .
ARTICLE 4
CAPITAL CONTRIBUTION
4.1 The total capitalization of the JVC during its lifetime shall be not less than US $80 million and not more than US $120 million, which amount may be adjusted by mutual agreement of the shareholders and board of directors of the JVC, in accordance with the then-existing circumstances. Upon the agreement among the Parties, additional investors shall be invited, as necessary, at the appropriate time to satisfy the financing needs of the JVC.
4.2 Unless otherwise agreed upon by all the Parties, the capitalization of the JVC for the first five (5) years from its incorporation shall be effected in several stages, as follows:
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(a) Upon incorporation of the JVC, and taking place within thirty (30) days from the execution of this Agreement: (i) VaxGen shall make an in-kind contribution of Technology to the JVC in accordance with the Contribution Agreement, which has been entered into on the same date as this Agreement by and among the Parties hereto, in form and substance substantially similar to the document attached hereto as Exhibit 7 , in return for 7,800,000 common shares ("Common Shares") in the JVC, with each Common Share having a par value of 5,000Won per share.
(ii) Nexol shall invest 13,000,000,000 Won (equivalent to US $10 million at the exchange rate of 1300 Won per USD) in cash in the JVC in return for 2,600,000 preferred shares in the JVC, issued pursuant to the terms specified in Article 4.6 below ("Preferred Shares") , with each Preferred Share having a par value of 5,000 Won per share.
(iii) KT&G shall invest 13,000,000,000 Won (equivalent to US $10 million at the exchange rate of 1300 Won per USD) in cash in the JVC, in return for 2,600,000 Preferred Shares.
(iv) JS shall invest 9,750,000,000 Won (equivalent to US $7.5 million at the exchange rate of 1300 Won per USD) in cash in the JVC, in return for 1,950,000 Preferred Shares.
(b) Within ninety (90) days from the execution of this Agreement, but earlier than the additional cash investment as contemplated in paragraph (c) of this Article 4.2, Nexol Co shall invest 2,600,000,000 Won (equivalent to US $2 million at the exchange rate of 1300 Won per USD) in cash in the JVC, in return for 520,000 Preferred Shares.
(c) No later than one hundred twenty (120) days from the date of execution of this Agreement, but prior to the investment under Paragraph (d) hereinbelow, KT&G and JS shall make additional cash investments in the JVC as follows:
(i) KT&G shall invest 6,500,000,000 Won (equivalent to US $5 million at the rate of 1300 Won per USD) in return for 260,000 Preferred Shares to be newly issued by the JVC at the premium price of 25,000 Won per share.
(ii) JS shall invest 9,750,000,000 Won (equivalent to US $7.5 million at the exchange rate of 1300 Won per USD)in return for 390,000 Preferred Shares to be newly issued by the JVC at the premium price of 25,000 Won per shares.
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(d) Within one hundred twenty (120) days from the execution of this Agreement, Nexol or any parties invited by Nexol and/or Nexol Co shall invest a total of 6,500,000,000 Won (equivalent to US $5 million at the exchange rate of 1,300 per USD) in the JVC in return for 260,000 Preferred Shares, and within one hundred fifty (150) days from the execution of this Agreement, the JVC shall invite other investors ("Other Investors") to invest a total of 6,500,000,000 Won (equivalent to US $5 million at the exchange rate of 1300 per USD) in the JVC in return for 260,000 Preferred Shares, to be newly issued by the JVC at the premium price of 25,000 Won per share (i.e., five times Par Value as defined in Article 4.5). All shareholders of the JVC shall be entitled to the right of first refusal to subscribe to these new Preferred Shares to be issued under this paragraph, and in the event two or more Parties desire to subscribe to and pay for these Preferred Shares, the JVC shall issue the Preferred Shares in proportion to the relative equity holding of each Party as of such subscription date; provided, however , that in the event that no Party or Other Investors are willing to invest the specified amount in the JVC, then Nexol (by itself or through its Affiliates) shall invest the specified amount in the same manner as described in this paragraph.
(e) As soon as practically possible after the U.S. Food and Drug Administration ("U.S. FDA") approves AIDSVAX, the JVC shall invite additional other investors ("Additional Other Investors") to altogether invest not less than 39,000,000,000 Won but not more than 52,000,000,000 Won (equivalent to approximately US $30 million to US $40 million) in the JVC in return for the corresponding number of Preferred Shares to be newly issued by the JVC at the premium price of at least 50,000 Won per share (i.e., ten times Par Value). All shareholders of the JVC shall be entitled to the right of the first refusal to subscribe to these new Preferred Shares to be issued under this paragraph, and in case two or more Parties want to subscribe to and pay for these Preferred Shares, the JVC shall issue the Preferred Shares in proportion to the relative equity holding of each Party as of such subscription date; provided, however , that in the event that no Party or Additional Other Investors are willing to invest such amount in the JVC, the Parties shall discuss alternative financing.
4.3 In the event that, with respect to any cash or in kind contribution by any of the Parties provided for in Article 4.2 above, the Won-USD exchange rate on the date of contribution deviates from 1300 Won per USD by 5% or more, the amount of the contribution shall be adjusted to equal the Korean Won equivalent of the contribution expressed in USD and indicated in parentheses in Article 4.2 above, that results from applying the telegraphic transfer dollar buying rate prevailing at the Korea Exchange Bank on the date of the contribution.
4.4 Any funds required by the JVC beyond the capital referred to in Article 4.2 of this Agreement shall be obtained through debt financing by the JVC as set forth in Article 9.6 hereof without recourse to the Parties. Except as otherwise agreed upon by the Parties, no Party shall be obligated to contribute any cash or property to the JVC or extend any financial assistance to the JVC.
4.5 Unless otherwise agreed upon by the Parties, the Parties shall cause the JVC to be allowed to issue only two types of shares throughout the term of this Agreement, common shares and preferred shares. All the common shares and the preferred shares issued by the JVC shall have a par value of 5,000 Won per share ("Par Value").
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4.6 The Preferred Shares to be issued by the JVC under this Article shall have the following features and/or be subject to the following terms:
(a) Dividend Preference : Holders of the Preferred Shares shall be entitled to receive dividends at the rate of one hundred percent (100%) of the Par Value during the Preferred Dividend Term as defined in Section 4.6 (d) below.
(b) Immediate Participation : Holders of the Preferred Shares shall be entitled to participate in the JVC's profits beyond the amount of the Dividend Preference in the form of "Immediate Participation" (as opposed to simple participation). Accordingly, the holders of the Preferred Shares shall participate pro-rata with the holders of Common Shares in all distributed profits remaining after the preferred dividend is paid.
(c) Cumulative : The holders of the Preferred Shares shall be entitled to the dividend preference on a cumulative basis so that any preferred dividend not paid in a given year will be forwarded to succeeding years as an outstanding obligation of the JVC until paid off. The JVC shall pay off these accrued dividends in the following order:
(i) the arrearage of preferred dividends,
(ii) preferred dividends for the current year, and
(iii) dividends to all shareholders.
(d) Convertible : All the Preferred Shares shall be converted into Common Shares upon the occurrence of the earlier of the following events or dates: (i) the Supply Agreement is terminated in accordance with the terms thereof or (ii) the end of the thirteenth (13th) fiscal year of the JVC. For the purpose of this Agreement, the period from the incorporation of the JVC to the last day prior to such conversion shall be referred to as the "Preferred Dividend Term".
(e) Voting : The holders of the Preferred Shares shall be entitled to the same voting rights as are given to the holders of Common Shares.
4.7 Notwithstanding the JVC's dividend obligations or any other provision set forth herein, the JVC shall maintain sufficient cash flow to purchase that certain land identified in the Land Purchase Agreement pursuant to the terms thereof.
4.8 During the term of the Agreement, each stock certificate issued hereunder will bear the following words:
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"Transfer of the shares of stock represented by this certificate is restricted subject to the Joint Venture Agreement dated February 25, 2002, among VaxGen, Inc., Nexol Biotech Co., Ltd., Nexol Co., Ltd., Korea Tobacco &Ginseng Corporation and J. Stephen &Company Ventures Ltd., a copy of which is on file at the principal office of the Company in Incheon, Korea."
ARTICLE 5
CONDITIONS TO INVESTMENT
5.1 The investment by the Parties in the JVC shall be subject to the satisfaction of the following conditions:
(a) TheLand Purchase Agreement shall have been entered into by VaxGen and Incheon Metropolitan City Government on the same date as this Agreement and on the terms and conditions satisfactory to the Parties to the JVA in connection withthe purchase by the JVC of certain land in the Songdo New City, which is where the JVC and its manufacturing plant is to be located.
(b) All necessary Government Approvals for the in-kind contribution by VaxGen as provided for in this JVA and the Contribution Agreement have been obtained.
(c) An appraisal undertaken of the value of the Technology to be licensed by VaxGen to the JVC shall result in a valuation of no less than 39 billion Won (equivalent to US $30 million), and the relevant court shall have affirmed that the value of the Technology, as appraised through the appraisal procedures provided for in the Korean Commercial Code, corresponds to the value of the Common Shares to be issued to VaxGen pursuant to Article 4.2 (a) (i) hereunder.
(d) The Parties shall have executed (or, where the JVC is a party, finalized for subsequent execution) all the documents and agreements necessary to implement the transactions contemplated in this JVA including, but not limited to, the Transaction Documents.
(e) Approval shall have been obtained from the respective Boards of Directors of the Parties for the transactions contemplated in this Agreement.
(f) The investments by KT&G in the JVC under Article 4.2 (a) shall be subject to the satisfaction of the condition that Nexol and JS shall have made their respective investments in the JVC under Article 4.2 (a) in full as provided in the JVA at least one day prior to KT&G's respective investment.
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ARTICLE 6
TRANSFER OF SHARES
6.1 Except as permitted by this Article 6 or with the prior written consent of all of the other Parties, no Party shall:
(a) transfer any Shares;
(b) grant, declare, create or dispose of any right or interest in any Shares; or
(c) create or permit to exist any pledge, lien, fixed or floating charge or other encumbrance over any Shares.
6.2 From the date of this Agreement until five (5) years thereafter ("Initial Period") , no Party shall transfer any Shares. After the expiration of said Initial Period, and with respect to the transfer of shares under Section 6.3 of this Agreement, a Party may transfer its Shares if all of the following conditions are satisfied:
(a) the receipt by the other Parties ("Continuing Parties") of an accession agreement executed by the transferee of such Shares;
(b) any loans (or the relevant part thereof (being in proportion to the shareholding ratio proportion of the selling Party prior to such transfer)) owing at that time by the JVC to the Party wishing to sell its Shares ("Seller") shall first have been assigned to, or equivalent financing made available by, the transferee of such Shares;
(c) any obligations of any Seller (or the relevant part thereof (being in proportion to the shareholding ratio prior to such transfer)) under any guarantees and/or indemnities to third parties in relation to the JVC's business or in respect of loans which have not yet been advanced to the JVC shall first have been assumed by the transferee of such Shares; and
(c) the terms of Article 6.4 below.
6.3 Notwithstanding the prohibition on transfer of Shares during the Initial Period set forth in Article 6.2 above and all of the terms of Article 6.4 below, (i) any Party may sell up to one third of its Shares in the JVC to the extent that the sale of such Shares is between such Party and its Affiliate, its shareholders or its investors. In relation to this Paragraph, it is agreed and understood that Nexol and/or Nexol Co shall have the right to sell up to one third of the Shares of the JVC held by Nexol and Nexol Co. However, in no event shall such sale of the Shares by Nexol and/or Nexol Co be made in the open market to obtain higher proceeds. With respect to JS, JS shall have the right to sell its remaining Shares in the JVC even after the sale of its Shares pursuant to paragraph (i) hereinabove, but on condition that such sale will be subject to Article 6.4 hereinbelow.
6.4 In the event that, after the Initial Period, the Seller proposes to transfer its Shares to a proposed third party purchaser ("Third Party Purchaser") , VaxGen and the other Continuing Parties shall have a right of first refusal with respect to the Seller's Shares. For this purpose, no transfer of the Seller's Shares shall be made unless the following provisions are complied with in respect of such transfer:
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(a) The Seller shall first give the other Parties (the "Offeree Parties") a notice ("Transfer Notice") of any proposed transfer together with details of the Third Party Purchaser, the purchase price and other material terms which the Seller and the Third Party Purchaser have agreed.
(b) The Offeree Parties shall have thirty (30) days from the date of its receipt of the Transfer Notice to purchase all or a part of the Shares proposed to be sold by the Seller on the terms set forth in the Transfer Notice in proportion to their then existing shareholding ratio of the JVC;
(c) In the event that any of the Offeree Parties elects not to purchase any or all such Shares during such thirty (30) day period in proportion to their then existing shareholding ratio of the JVC, such Offeree Party shall notify the other Offeree Parties, and the other Offeree Parties shall have thirty (30) days to purchase all or a part of the Shares proposed to be sold by Seller on the terms set forth in the Transfer Notice in proportion to their then existing shareholding ratio of the JVC;
(d) In the event that all or a part of the Shares proposed to be sold by the Seller is not sold in accordance with Paragraph (a) through (c) above within the aggregate sixty (60) day period set forth above ("Option Period"), the Seller may sell such remaining Shares to the Third Party Purchaser on terms no less favorable to the Seller than those set forth in the Transfer Notice within sixty (60) days of the expiration of the Option Period. If such remaining Shares are not sold by the Seller within sixty (60) days after the expiration of the Option Period, then the right of the Seller to sell such Shares shall expire and the obligations of this Article 6.4 shall be reinstated.
6.5 Since damages arising from breach of the obligations under this Article 6 may be difficult to compute with precision, the Parties agree that any Party found to have sold or transferred any Shares in violation of the terms of this Article shall pay to the non-breaching Parties twice the value of the Shares transferred in violation of this Article (as appraised by a licensed appraisal company) or twice the consideration received for said Shares, whichever shall be greater. The Parties agree that such computation of damages is fair and reasonable. Application of this provision shall not prevent a Party hereto from enforcing its rights or augmenting its protection by such other remedies as may be available, including without limitation, injunctive relief.
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ARTICLE 7
CONTRIBUTION OF TECHNOLOGY
7.1 VaxGen shall contribute to the JVC, upon the incorporation of the JVC, the license to use the Technology in accordance with the Contribution Agreement which shall be entered into by the Parties on the same date as this Agreement. The Technology to be contributed to the JVC and the detailed terms for use of the Technology by the JVC shall be specified in the License Agreement and the Sub-License Agreement. The major terms of these agreements shall consist of: (i) a non-exclusive sub-license, under the patent rights and know-how licensed from Genentech relating to gp120, to manufacture AIDSVAX, (ii) an exclusive license in Korea under certain intellectual property owned by VaxGen, to manufacture AIDSVAX and other products as the JVC may choose to manufacture in the future ("Licenses"), (iii) such Technology as may be necessary for designing, constructing, operating and validating the manufacturing plant that will be used to manufacture AIDSVAX, and for the manufacture of AIDSVAX, including, but not limited to, technology for fermentation control and product isolation and processing and formulation, as expressly set forth in the License Agreement. The Parties agree that the contribution of the Technology shall be valued at 39,000,000,000 Won which is equivalent to approximately US $30 million. The above mentioned contribution shall be irrevocable during the term of the License Agreement, and the JVC shall have the right to register its rights to use the Licenses in Korea.
7.2 Under the terms of the License Agreement and the Sub-License Agreement, VaxGen shall provide to the JVC the relevant documents, materials, designs, data and other information necessary for the use of the Technology by the JVC and shall use its best efforts to arrange, to the extent reasonably necessary for the operation of the facility as contemplated by the Parties, for the employees of the JVC to receive continuing and ongoing professional training and education at VaxGen and elsewhere, and VaxGen shall dispatch its own technicians and specialists with appropriate experience and qualifications to the JVC to assist in the transfer and use of the Technology by the JVC for the manufacture of AIDSVAX.
7.3 In the event VaxGen fails to obtain results in its pending clinical trials which, in VaxGen's sole opinion, support further application for marketing approval by the U.S. FDA and other regulatory agencies, and if VaxGen fails to commit to develop a "second-generation"product incorporating AIDSVAX, then the Parties shall cause the Supply Agreement to terminate without further liability or obligation of the Parties to each other (excepting those provisions of the Supply Agreement which expressly survive termination). In such case, VaxGen shall arrange to have the JVC to be contracted as manufacturer and/or supplier of other products, including gp120 and similar products of VaxGen, and the Parties shall thereafter make their best efforts to contract for the JVC to manufacture other products, including those of Genentech.
7.4 VaxGen shall license, and shall make its best efforts to cause Genentech to license, to the JVC any new and developed technologies pertaining to the development and/or manufacture of AIDSVAX and other products, at no additional cost to the JVC.
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ARTICLE 8
ESTABLISHMENT OF PILOT PLANT
8.1 For the purpose of expediting the smooth and efficient transfer of the Technology, the Parties agree to cause the JVC to invest US $7 million in equity or debt no later than June 1, 2002, to be used for capital expenses related to the construction of a 2x500 liter-scale pilot manufacturing facility in South San Francisco, California (the "Pilot Plant").
8.2 The $7 million capital would be used to capitalize a corporation ("Newco") in which the JVC would initially be the sole shareholder, receiving 7 million shares of common stock at a price of US $1.00 per share. VaxGen will supervise the design and construction of the Pilot Plant and manage its operations.
8.3 VaxGen would be responsible for all costs of validation, operation, and licensure of the Pilot Plant through additional capital contributions to Newco; provided, however , that VaxGen shall have the right to suspend or terminate such commitment in the event that the outcome of the pending Phase III trials of AIDSVAX are unfavorable or in the event that regulatory approval of AIDSVAX is otherwise delayed or denied.
8.4 At the end of each calendar year, VaxGen shall document and certify to Newco the amount of its expenditures during such year directly related to such validation, operation, and licensure. Newco shall issue to VaxGen shares of Newco common stock, at a rate of one share for each US $1.00 so expended. VaxGen will ensure that Genentech transfers to the Pilot Plant the same technologies that are eventually to be transferred to the Incheon facility. The Pilot Plant would be used primarily as the launch facility for AIDSVAX and as a site at which to train employees of the JVC who would eventually be involved in production at the Incheon facility.
8.5 The Parties agree that the Pilot Plant's first use priority shall be to: 1) support AIDSVAX process development and process validation for licensure of the vaccine; 2) expedite commercial licensure and launch of AIDSVAX; and 3) facilitate the transfer of AIDSVAX manufacturing technology from VaxGen to the JVC. Technology transfer will include on-site training of JVC personnel at the Pilot Plant. Even with first use priority being fully met, it is assumed that there will be some limited idle capacity in the plant over the coming years. Thus, the Parties further agree that procedures will be established to allow VaxGen to use such excess capacity, at VaxGen's expense, for the development of new products. Similarly, the Parties further agree that procedures will be established to allow the JVC to use such excess capacity, at the JVC's expense, for other needs such as contract manufacturing. Profits derived from any pilot plant manufacturing operations will be shared on the basis of ownership.
8.6 VaxGen shall have the right to purchase the interest of the JVC in Newco on terms to be agreed in good faith.
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8.7 The understanding in this Article 8 shall be incorporated into appropriate definitive agreements within ninety (90) days after the execution of the Transaction Documents.
ARTICLE 9
MANAGEMENT AND FINANCING OF JVC
The Parties undertake to secure that the administration of the JVC is effected in accordance with the provisions of this Article 9 in addition to the relevant provisions of the Articles of Incorporation of the JVC.
9.1 Board of Directors
(a) The JVC shall be administered and managed by the Board of Directors ("Board") which shall consist of five (5) directors, two of whom shall be nominated by VaxGen and one of whom shall each be nominated by Nexol, KT&G and JS. VaxGen shall be entitled to nominate two of the five directors for so long as it retains two-thirds or more of its initial shareholding as at incorporation. Each Party shall secure that the directors nominated by the other Parties are elected, removed or replaced as the other Parties may from time to time require; provided, however , that if such removal or replacement is without cause, the Party proposing the removal or replacement shall indemnify and hold the JVC and the other Parties harmless for any and all damages and other expenses that may arise from such action. In case the position of a director becomes vacant for any reason, the Parties shall cause their shares to be voted to elect a person nominated by the respective Party who nominated the director whose position has become vacant, and such successor shall fill the remaining term of the predecessor. In the event that there is any change in the shareholding ratios of the Parties of more than one-third of its initial shareholding as at incorporation, respectively, then each Party's right to designat...
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