Distribution & Product Acquisition Agreement

CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.


DISTRIBUTION AND PRODUCT ACQUISITION AGREEMENT


THIS DISTRIBUTION AND PRODUCT ACQUISITION AGREEMENT (the "AGREEMENT") is dated as of May 2, 2005 (the "EFFECTIVE DATE") by and between Biovail Laboratories International SRL, a Barbados International Society with Restricted Liability having a principal place of business at Chelston Park, Building 2, Collymore Rock, St. Michael, BHI, Barbados, W.I. ("BLS"), and Kos Pharmaceuticals, Inc., a Florida corporation having a principal place of business at 1 Cedar Brook Drive, Cranbury, New Jersey 08512 ("KOS"). BLS and Kos are sometimes referred to herein individually as a "PARTY" and collectively as the "PARTIES".


RECITALS


WHEREAS, BLS desires to sell to Kos, and Kos desires to purchase from BLS, all of BLS's rights in the Territory to the Transferred Products, including the assets described herein, and the assumption of certain liabilities relating to such Transferred Products;


WHEREAS, BLS desires to grant certain exclusive distribution rights relating to the Marketed Product to Kos;


WHEREAS, BLS has rights to develop the Vasocard Product in the Territory and BLS and Kos desire to form a strategic alliance for the purposes of developing and commercializing the Vasocard Product in the Territory;


WHEREAS, BLS desires to grant certain rights to Kos, and Kos desires to accept such rights, to perform Phase IV Clinical Trials with respect to the Marketed Product in the Territory; and


WHEREAS, the Parties hereto desire to set forth the terms and conditions of such transfers, grants and related matters.


NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants contained herein, the Parties, intending to be legally bound, agree as follows:


ARTICLE 1
DEFINITIONS


The following terms shall have the following meanings as used in this Agreement:
1.1 "ACT" means the United States Federal Food, Drug and Cosmetics Act, as amended from time to time, and the rules, regulations and guidelines promulgated thereunder.


1.2 "AFFILIATE" means a Person that controls, is controlled by or is under common control with a Party. For the purposes of this definition, the word "control" (including, with correlative meaning, the terms "controlled by" or "under common control with") means the actual power, either directly or indirectly through one or more intermediaries, to direct the management and policies of such Person, whether by the ownership of fifty percent (50%) or more of the voting stock of such Person (it being understood that the direct or indirect ownership of a lesser percentage of such stock shall not necessarily preclude the existence of control), or by contract or otherwise. Notwithstanding the foregoing, for the purposes of this Agreement, none of the following persons shall be considered to be an "Affiliate" of Kos or any of Kos's Affiliates: (i) Michael Jaharis or the spouse or any sibling or lineal descendent of Michael Jaharis or their estates, (ii) any trust for the benefit of Michael Jaharis or the spouse or any sibling or lineal descendent of Michael Jaharis, or (iii) any corporation, limited liability company, partnership, limited partnership, or other entity that is beneficially owned or controlled by any of the persons in clauses (i) or (ii) above, other than a publicly traded entity and its direct and indirect subsidiaries.


1.3 "AUTHORIZED GENERIC" means a generic equivalent of the Marketed Product for sale in the Territory which has been authorized by the holder of the NDA for the Marketed Product and has been mutually agreed upon by the Parties pursuant to Section 4.6 of this Agreement.


1.4 "BANKRUPTCY EVENT" means that the person or entity in question becomes insolvent, or voluntary or involuntary proceedings by or against such person or entity are instituted in bankruptcy or under any insolvency law, or a receiver or custodian is appointed for such person or entity, or proceedings are instituted by or against such person or entity for corporate reorganization or the dissolution of such person or entity, which proceedings, if involuntary, shall not have been dismissed within sixty (60) days after the date of filing, or such person or entity makes an assignment for the benefit of its creditors, or substantially all of the assets of such person or entity are seized or attached and not released within sixty (60) days thereafter.


1.5 "BIOSTUDY" means that certain study in connection with the Development of the Vasocard Product as more particularly described on Schedule 1.5.


1.6 "BIOVAIL TRADE DRESS" means the packaging and labeling (including the package insert) that has been approved by the FDA prior to the Closing Date for use with the Marketed Product in the Territory.


1.7 "BIOVAIL TRADEMARK" means each trademark that has been utilized by BLS (or its Affiliates) prior to the Closing Date in the Territory in connection with the Distribution of the Marketed Product and which are set forth on Schedule 1.7.


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1.8 "BUSINESS DAY" means any day other than (i) Saturday or Sunday or (ii) any other day on which banks in New York, New York, United States or Bridgetown, Barbados are permitted or required to be closed.


1.9 "CGCP" means current Good Clinical Practices for the design, conduct, performance, monitoring, auditing, recording, analyses, and reporting of clinical trials, including the requirements in 21 C.F.R. Parts 11, 50, 54, 56, 312, and 314, that provide assurance that the data and reported results are credible and accurate, and that the rights, integrity, and confidentiality of trial subjects are protected.


1.10 "CGLP" means current Good Laboratory Practices as promulgated under the Act at 21 C.F.R. Part 58, as the same may be amended or re-enacted from time to time and as required by Law in countries other than the United States where non-clinical laboratory studies are conducted.


1.11 "CGMP" means current Good Manufacturing Practices relating to manufacturing practices for fine chemicals, active pharmaceutical ingredients, intermediates, bulk products or finished pharmaceutical products, including the principles set forth in 21 C.F.R. Parts 210 and 211.


1.12 "COMPLETION OF THE BIOSTUDY" means the availability of the report for the study referenced in the definition of "Initiation of the Biostudy" hereunder.


1.13 "CONTROL" means, with respect to any intellectual property right or other intangible property, that a Party or one of its Affiliates owns or has a license or sublicense to such item or right, and has the ability to grant access, license or sublicense in or to such right without violating the terms of any agreement or other arrangement with any Third Party.


1.14 "CORPORATE TRADEMARK" means the "Biovail" or "Biovail Pharmaceuticals" tradenames, the Biovail symbol, the Biovail.com website addresses and all goodwill associated therewith and all other trademarks, trade names, brand names, logo types, symbols, trade dress and domain names (including the overall look and feel of BLS's (or its Affiliate's) package design, the block color design of all BLS's (and its Affiliate's) packaging, the color coding of all BLS's (and its Affiliate's) packaging, labeling and package inserts) other than the Transferred Product Trade Dress and the Transferred Product Trademarks (including registrations and applications for registration thereof and all renewals, modifications and extensions thereof) used by BLS or its Affiliates in connection with the manufacture, marketing, sale and distribution of their products.


1.15 "COVER" means, with respect to the Marketed Product, or with respect to technology, that, in the absence of a license granted under a Valid Claim, the making, use, offering for sale, sale, or importation of the Marketed Product, or the practice of such technology, would infringe such Valid Claim.


1.16 "DILIGENT EFFORTS" means, (i) with respect to the Vasocard Product, the carrying out of obligations or tasks consistent with the standard of practice in the pharmaceutical industry for the development of a pharmaceutical product having similar market potential, profit potential or strategic value as the Vasocard Product, based on conditions then prevailing, including,


-3- without limitation, the maturity of the Vasocard Product and the intellectual property protection surrounding the Vasocard Product and (ii) with respect to the Marketed Product, the carrying out of obligations or tasks consistent with the standard of practice in the pharmaceutical industry for the distribution, marketing, offering for sale and selling, of a pharmaceutical product having similar market potential, profit potential or strategic value as the Marketed Product, based on conditions then prevailing, including, without limitation, the maturity of the Marketed Product and the intellectual property protection surrounding the Marketed Product. Diligent Efforts requires that the Party, at a minimum, provided that such actions are commercially reasonable: (a) determine the general industry practices with respect to the applicable activities; (b) reasonably promptly assign responsibility for such obligations to specific employee(s) who are held accountable for progress, and monitor such progress on an on-going basis; (c) set and consistently seek to achieve specific and meaningful objectives for carrying out such obligations; and (d) make and implement decisions and allocate resources designed to advance progress with respect to such objectives.


1.17 "DEVELOP", "DEVELOPED" or "DEVELOPMENT" means all activities relating to the development of the Vasocard Product up through, and including, obtaining Regulatory Approval of the Vasocard Product, including all test method development, stability testing, toxicology, formulation, process development, cGMP audits (but only those performed prior to Regulatory Approval and excluding any audits for commercial manufacture), cGLP audits, cGCP audits, validation, quality assurance/quality control development, preclinical and clinical testing and studies, regulatory affairs and outside counsel regulatory legal services relating to any of the foregoing, and any activities relating to the manufacture of the Vasocard Product other than commercial quantities thereof. For the avoidance of doubt, the conduct of Phase IV Clinical Trials shall not be considered Development.


1.18 "DEVELOPMENT EXPENSES" means any and all expenses incurred by BLS or its Affiliates in connection with the Development of the Vasocard Product.


1.19 "DISTRIBUTION" means any and all activities directed to the distribution, marketing, offering for sale and selling of a pharmaceutical product, including, advertising, educating, planning, promoting and conducting reporting. For purposes of clarity, Distribution shall not include any Phase IV Clinical Trials.


1.20 "DRUG APPROVAL APPLICATION" means an application for Regulatory Approval required before commercial sale or use of a pharmaceutical product in the Territory as a drug in a regulatory jurisdiction, including, without limitation, an NDA.


1.21 "FIRST COMMERCIAL SALE" means, with respect to a pharmaceutical product, the first commercial sale of such product in the Territory in compliance with all applicable Laws. For the avoidance of doubt, sales for clinical studies, compassionate use, named patient programs, under a treatment IND, for test marketing, in any nonregistrational studies or in any similar instances shall not constitute a First Commercial Sale.


1.22 "FDA" means the United States Food and Drug Administration or any successor federal agency thereto.


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1.23 "GAAP" means United States generally accepted accounting principles, consistently applied.


1.24 "GENERIC ENTRY" means the first to occur of (i) the end of the **** during which the aggregate number of prescriptions filled for an A/B rated generic version(s) of the Marketed Product (which generic version(s) is labeled for the same indications as the Marketed Product) sold by one or more Third Parties in the Territory constitutes on average at **** of the Total Market for the Marketed Product during such **** period; provided, however in the event that the date of such Generic Entry is triggered pursuant to this clause (i), then the date of Generic Entry shall be deemed to be the beginning of the **** period; or (ii) the first commercial sale in the Territory of an Authorized Generic.


1.25 "GENERIC ENTRY LOST PROFITS" means, if Generic Entry occurs prior to **** an amount equal to the profits (after taking into account any and all costs and expenses associated with the sale of the Marketed Product) (such "profits", "costs" and "expenses" being determined in accordance with GAAP) that Kos would have actually realized from the date of such Generic Entry through **** on the sale of Ordered Product by Kos in the Territory had such Generic Entry not occurred prior to ****.


1.26 "GENERIC ENTRY LOST PROFITS CAP" means the amount in effect during a given calendar month from the Closing Date and ending **** in which Generic Entry first occurs, calculated based on the following formula: an amount equal to **** on the Closing Date and until ****, which amount shall be decreased monthly in equal monthly installments, on a straight line amortization basis over the period from **** through **** to zero.


1.27 "GENT AGREEMENT" means that certain Product Development and License Agreement dated as of May 31, 2000, between BLS (or its predecessors in interest), the University of Gent and Jean-Paul Remon ("REMON"), as amended from time to time.


1.28 "GOVERNMENTAL AUTHORITY" means any court, tribunal, arbitrator, agency, legislative body, commission, official or other instrumentality of (i) any government of any country, (ii) a federal, state, province, county, city or other political subdivision thereof or (iii) any supranational body, in each case having jurisdiction over the applicable subject matter.


1.29 "IND" means an Investigational New Drug Application filed with FDA, or any successor applications, as defined in the Act.


1.30 "INITIATION OF THE BIOSTUDY" means the initiation of the Biostudy to be conducted with the highest strength between the "Vasocard" and Vasocard/Cardizem LA formulations.


1.31 "INTELLECTUAL PROPERTY" means Know-How and Patents.


1.32 "KNOW-HOW" means any of the following that is directly related to the Marketed Product in the Territory that either (a) is Controlled by BLS or its Affiliates on the Closing Date or (b) comes within the Control of BLS or its Affiliates during the Term (with respect to the Marketed Product): non-public information, whether or not patented or patentable, results and data of any type whatsoever, in any tangible or intangible form whatsoever, including without limitation, databases, ideas, discoveries, inventions, trade secrets, practices, methods, tests,


-5- assays, techniques, specifications, processes, formulations, formulae, knowledge, know-how, skill, experience, materials, including pharmaceutical, chemical and biological materials, products and compositions, scientific, technical or test data (including pharmacological, biological, chemical, biochemical, toxicological and clinical test data), analytical and quality control data, stability data, studies and procedures, drawings, plans, designs, diagrams, sketches, technology, documentation, and patent-related and other legal information or descriptions.


1.33 "LAW" or "LAWS" means all laws, statutes, rules, codes, regulations, orders, judgments and/or ordinances of any Governmental Authority.


1.34 "LOSSES" means any and all amounts paid or payable to Third Parties with respect to a Third Party Claim, including without limitation, damages (including all incidental and consequential damages), deficiencies, defaults, awards, settlement amounts, assessments, fines, dues, penalties, costs, liabilities, obligations, taxes, liens, losses, lost profits, fees and expenses (including, without limitation, court costs, interest and reasonable fees of attorneys, accountants and other experts).


1.35 "LIABILITIES" means any and all debts, liabilities and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured, or determined or determinable, including those arising under any laws, action or governmental order and those arising under any contract, agreement, arrangement, commitment or undertaking, or otherwise.


1.36 "MARKETED PRODUCT" means the extended release tablet formulation pharmaceutical product of the active pharmaceutical ingredient diltiazem hydrochloride currently marketed under the Biovail Trademark Cardizem(R) LA as specified in the FDA approved NDA # 21-392.


1.37 "MARKETED PRODUCT INVENTORY LEVEL FOR LARGE WHOLESALERS" means the number of Units of inventory of the Marketed Products held in stock by the Large Wholesalers as reported in accordance with BLS's (or its Affiliate's) distribution services agreements with such wholesalers, as of the Closing Date, on an SKU-by-SKU basis.


1.38 "NDA" means a new drug application or any supplements or amendments thereto submitted to the FDA for commercial sale or use of a pharmaceutical product in the Territory.


1.39 "ORDERED PRODUCT" means Marketed Product ordered from an Authorized Supplier.


1.40 "PATENT" means any of the following that is directly related to the Marketed Product in the Territory that (a) Cover Know-How and (b) are Controlled by BLS or its Affiliates: (i) patents, re-examinations, reissues, renewals, extensions, supplementary protection certificates and term restorations, any confirmation patent or registration patent or patent of addition based on any such patent, (ii) pending applications for patents, including without limitation continuations, continuations-in-part, divisional, provisional and substitute applications, and inventors' certificates, (iii) all priority applications of any of the foregoing, and (iv) patent applications filed during the Term which claim any invention conceived prior to the Closing Date, including, without limitation, all patents listed on Schedule 7.1.3(c)(i).


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1.41 "PERSON" means any natural person, corporation, firm, business trust, joint venture, association, organization, company, partnership or other business entity, or any government, or any agency or political subdivisions thereof.


1.42 "PHASE IV CLINICAL TRIALS" means certain post-marketing studies to delineate additional information about a pharmaceutical product's risks, benefits, and optimal use, commenced after receipt of Regulatory Approval in the indication for which such trial is being conducted.


1.43 "PRE-MARKETING" means all sales and marketing activities undertaken prior to and in preparation for the launch of the Vasocard Product in the Territory. Pre-Marketing shall include advertising, education, product-related public relations, health care economic studies, governmental affairs activities for reimbursement and formulary acceptance, sales force training, trademark selection, filing, prosecution and enforcement, and other pre-launch activities prior to the First Commercial Sale of the Vasocard Product in the Territory.


1.44 "REGULATORY APPROVAL" means all approvals (including, without limitation, where applicable, pricing and reimbursement approval and schedule classifications), product and/or establishment licenses, registrations or authorizations of any Regulatory Authority, necessary for the manufacture, use, storage, import, export, transport, offer for sale, or sale of a pharmaceutical product in a regulatory jurisdiction in the Territory.


1.45 "REGULATORY AUTHORITY" means any national (e.g., the FDA), regional, state or local regulatory agency, department, bureau, commission, council, court or Governmental Authority in the Territory.


1.46 "SUPPLY AGREEMENT" means that certain Supply and Employee Agreement to be entered into between an Affiliate of BLS and Kos as of the date hereof relating to the Marketed Product.


1.47 "TAXES" (and with correlative meaning, "TAX" and "TAXABLE") means all taxes of any kind imposed by a federal, state, local or foreign Governmental Authority, including those on, or measured by or referred to as, income, gross receipts, sales, use, ad valorem, value added, franchise, profits, license, excise, stamp, premium, property, transfer or windfall profits taxes, customs, duties or similar fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts imposed by such Governmental Authority with respect to such amounts.


1.48 "TERRITORY" means (i) with respect to the Transferred Products, the United States, Puerto Rico and the US Virgin Islands and (ii) in all other cases, the United States of America and Puerto Rico.


1.49 "TEVETEN AGREEMENTS" means, collectively, the Teveten Rights Agreement and the Teveten Supply Agreement. A "Teveten Agreement" shall mean either of the Teveten Rights Agreement or the Teveten Supply Agreement, individually, as applicable.


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1.50 "TEVETEN RIGHTS AGREEMENT" means that certain Teveten Rights Agreement dated as of February 18, 2002 between BLS (or predecessor thereof) and Solvay Pharmaceuticals Marketing & Licensing AG, as amended.


1.51 "TEVETEN SUPPLY AGREEMENT" means that certain Teveten Products and Eprosartan Supply Agreement dated as of February 18, 2002 between BLS (or predecessor thereof) and Solvay, as amended.


1.52 "THIRD PARTY" means any entity other than Kos or BLS or their respective Affiliates.


1.53 "TOTAL MARKET" means, with respect to the Marketed Product, the aggregate total number of prescriptions filled for said Marketed Product and any generic and other versions of said Marketed Product made available in finished form in the Territory.


1.54 "TRANSFERRED PRODUCTS" means, collectively, the Teveten(R) Products, as such term is defined in the Teveten Rights Agreement.


1.55 "TRANSFERRED PRODUCT ADVERSE EVENT DOCUMENTATION" means copies of BLS's and its Affiliates' files (whether paper or electronic), in each case relating solely to the Transferred Products in the Territory and containing (i) data for both postmarketing (PMS) and IND safety, (ii) records for all expedited reports submitted by BLS in the Territory, (iii) documents relating to label changes in the Territory, if any, and (iv) FDA submissions by BLS relating to safety since the receipt of marketing authorization in the Territory, in the case of each of the foregoing to the extent that such information is in the possession of BLS or its Affiliates as of the Closing Date and is legally permitted to be assigned.


1.56 "TRANSFERRED PRODUCT ASSIGNED CONTRACTS" means those agreements listed on Schedule 1.56 attached hereto.


1.57 "TRANSFERRED PRODUCT BOOKS AND RECORDS" means copies of the material books and records of BLS and/or its Affiliates related solely (or, to the extent not related solely, those portions thereof related solely) to the Transferred Products in the Territory or the Purchased Assets.


1.58 "TRANSFERRED PRODUCT COPYRIGHTS" means any and all Transferred Product Marketing Materials for the Territory as of the Closing Date which may be subject to copyright protection and/or registration, including, but not limited to, designs, graphics, logos, colors, text and any combination thereof, but excluding the Corporate Trademarks.


1.59 "TRANSFERRED PRODUCT FINISHED GOODS" means a Transferred Product packaged and ready for sale to an ultimate customer in the Territory.


1.60 "TRANSFERRED PRODUCT INVENTORY" or "TRANSFERRED PRODUCT INVENTORIES" means all of BLS's (or its Affiliate's) inventories of Transferred Product Finished Goods owned by BLS (or its Affiliates) as of the Closing Date, and all work-in-process, components, packaging materials and other raw materials related solely to the Transferred Products as set forth on Schedule 1.60, whether in the possession of BLS or an Affiliate of BLS or in the


-8- possession of or in transit to any distribution center. For purposes of this Agreement, "TRANSFERRED PRODUCT INVENTORY" shall be deemed to include samples of Transferred Product Finished Goods as set forth on Schedule 1.60 for use in promoting Transferred Product Finished Goods and that are not intended to be sold, consistent with FDA requirements.


1.61 "TRANSFERRED PRODUCT INVENTORY LEVEL FOR LARGE WHOLESALERS" means the number of Units of inventory of the Transferred Products held in stock by BLS's (or its Affiliate's) wholesalers in the Territory, namely, Cardinal Health, McKesson Corporation and AmerisourceBergen Drug Corporation and their affiliates (collectively, the "LARGE WHOLESALERS"), as reported in accordance with BLS's (or its Affiliate's) distribution services agreements with such wholesalers, as of the Closing Date, on an SKU-by-SKU basis.


1.62 "TRANSFERRED PRODUCT KNOW-HOW" shall have the meaning ascribed to the term "Teveten Know How" in the Teveten Rights Agreement.


1.63 "TRANSFERRED PRODUCT MARKETING MATERIALS" means copies of all marketing materials used solely and specifically with respect to the Transferred Product in the Territory, including all advertising and display materials, product data, price lists, sales materials, marketing information, and marketing plans, in the case of each of the foregoing to the extent that such information is in existence, in the possession of BLS or its Affiliates as of the Closing Date and is legally permitted to be assigned.


1.64 "TRANSFERRED PRODUCT REGISTRATIONS" means those Regulatory Approvals for the Transferred Products in the Territory listed on Schedule 1.64.


1.65 "TRANSFERRED PRODUCT TRADEMARKS" means the trademarks (whether registered or not), including registrations and applications for registration thereof and all goodwill associated therewith (and all renewals, modifications and extensions thereof), and the registrations and applications for registration and all goodwill associated therewith (and all renewals, modifications and extensions thereof) for domain names used in connection with the Transferred Products in the Territory, and which are listed on Schedule 1.65.


1.66 "TRANSFERRED PRODUCT TRADE DRESS" means the current trade dress used solely in connection with the Transferred Products in the Territory and the packaging, labeling and package inserts solely and exclusively associated with the sale of the Transferred Products in the Territory (including the lettering of each of the Transferred Product's name used solely and exclusively in connection with the sale of the Transferred Products in the Territory).


1.67 "UNIT" means an individual unit of a Transferred Product.


1.68 "VALID CLAIM" means: (a) a claim of an issued Patent that has not (i) expired or been canceled, (ii) been declared invalid or unenforceable by a decision of a court or other appropriate body of competent jurisdiction, from which no appeal is or can be taken, (iii) been admitted to be invalid or unenforceable through reissue, disclaimer or otherwise, or (iv) been abandoned, disclaimed or dedicated to the public; and (b) a claim included in a pending patent application that is being actively prosecuted in accordance with this Agreement and that has not been (i) canceled, (ii) withdrawn from consideration, (iii) finally determined to be unallowable


-9- by the applicable governmental authority (from which no appeal is or can be taken), or (iv) abandoned or disclaimed.


1.69 "VASOCARD PRODUCT" means that certain combination pharmaceutical product combining the Product with the active pharmaceutical ingredient enalapril to be Developed by BLS pursuant ...