Exclusive Distribution Agreement

EXCLUSIVE DISTRIBUTION AGREEMENT


This Exclusive Distribution Agreement ("AGREEMENT") is made as of 12:01 A.M., April 1, 2004 (the "EFFECTIVE DATE"), between Adams Laboratories, a Texas corporation, having its principal place of business at 14801 Sovereign Road, Fort Worth, TX 76145 ("CLIENT"), and Cardinal Health PTS, LLC, a Delaware limited liability company, by and through its Specialty Pharmaceutical Services group with offices at 15 Ingram Boulevard, Suite 100, LaVergne, TN 37086 ("CARDINAL HEALTH").


A. Client is, among other things, in the business of developing and marketing pharmaceutical products in the United States, the District of Columbia and Puerto Rico (the "TERRITORY").


B. Cardinal Health is, among other things, in the business of distributing pharmaceutical products to wholesalers, specialty distributors, physicians, clinics, hospitals, pharmacies, and other health care providers in the Territory, and of providing Information Systems and other services that support its customers' use of its distribution capabilities.


C. Client desires to engage Cardinal Health as its exclusive distribution agent for commercial sales of products referred to in Exhibit A in all formulations (collectively, the "PRODUCT"), and such other pharmaceutical products agreed to by the parties in the Territory and to perform certain other services described in this Agreement, all upon the terms and conditions set forth in this Agreement. However, during the first six (6) months following the Effective Date of this Agreement, Client shall have the right to transfer the return goods processing to another party.


THEREFORE, in consideration of the mutual conditions and covenants set forth herein, Cardinal Health and Client (collectively referred to as "PARTY" or "PARTIES") agree as follows:


1. APPOINTMENT/AUTHORIZATION.


1.1 Upon the terms and conditions set forth in this Agreement, Client appoints Cardinal Health as its exclusive distribution agent of Product in the Territory to Client's customers, including, but not limited to, wholesalers, specialty distributors, physicians, clinics, hospitals, pharmacies and other health care providers in the Territory (collectively, "CUSTOMERS").


1.2 Subject to the terms and conditions set forth in this Agreement, Cardinal Health accepts the appointment to represent Client as its authorized exclusive distribution agent of Product to Customers in the Territory.


1.3 Right of First Refusal.


(a) Client shall provide Cardinal Health with a right of first negotiation and refusal with respect to the distribution of new pharmaceutical products acquired or promoted by Client in the Territory after the Effective Date. Client shall grant Cardinal Health an exclusive right of negotiation with respect to the distribution of such new product for a period of thirty (30) days after Client's notice to Cardinal Health that such new product will be available for distribution. If the parties have not reached an agreement with respect to the distribution of the new product within thirty (30) days from the date of Client's notice, and entered into a definitive agreement within thirty (30) days thereafter, or if Cardinal Health notifies Client in writing at any point during such negotiation period that it is not interested or unable to distribute such new product(s), then Client shall have no further obligation with respect to that new product under this Section 1.3.


(b) Notwithstanding the foregoing, if the Parties negotiate in good faith but are unable to reach an agreement with respect to terms regarding the distribution of the new product, then after the expiration of the period identified above, and provided that Client enters into negotiations with a third party to provide such services, Client shall present to Cardinal Health a definitive letter of intent or bona fide offer from another source to provide such services, and a copy of such terms, assumptions and conditions (a "COMPETING OFFER") and Cardinal Health shall be provided the opportunity, for a period of not less than twenty (20) days after receipt of such notice and documentation of such Competing Offer, to meet the Competing Offer on substantially similar terms. If Cardinal Health substantially meets the Competing Offer, then Client shall enter into a definitive agreement upon such terms and conditions. If Cardinal Health does not substantially meet the Competing Offer, then Client may obtain such services from the third party in accordance with the terms of the Competing Offer.


2. SERVICES.


2.1 Cardinal Health shall provide the services set forth in the preliminary Operating Guidelines, which include, without limitation, storage, distribution, returns, customer support, financial support, EDI and system access support ("SERVICES"). A copy of the Operating Guidelines is attached hereto as EXHIBIT B and incorporated by reference. It being understood that the Parties will agree upon mutually acceptable final Operating Guidelines and any adjustments to Fees related to changes in the Operating Guidelines within thirty (30) days after the effective date of this Agreement and such final Operating Guidelines shall be inserted as Exhibit B in lieu of the current Exhibit B.


2.2 The Operating Guidelines may be amended from time to time upon the mutual written agreement of the Parties; provided, however, that any change, modification or amendment to the Operating Guidelines may result in an increase in the fees charged by Cardinal Health in Section 5.


2.3 Cardinal Health's services shall comply with the Operating Guidelines, provided Client's shipments of Product to Cardinal Health do not exceed its Forecast (as hereinafter defined) by more than twenty-five percent (25%).


2.4 All Product Returns shall be processed and handled by Cardinal Health in accordance with the Operating Guidelines; and, any customization or additional return services requested by Client shall be performed at an additional fee as agreed by the Parties.


2.5 Client is solely responsible for all Product recalls. In the event Product is subject to recall, or Client, on its own initiative, recalls any Product, Cardinal Health shall provide assistance to Client as set forth in the Operating Guidelines, provided that Client shall pay to Cardinal Health an amount equal to Cardinal Health's reasonable actual costs incurred with any such recall services. Such cost shall be in addition to the Service Fees described in Section 5 below.


3. PRODUCT SUPPLY/CLIENT RESPONSIBILITIES.


3.1 Client shall deliver Product for the first twelve months of this Agreement, exclusively to Cardinal Health's facility at 800 Industrial Blvd., Suite 100, Grapevine, TX 76051 ("Grapevine Facility"). After the first twelve months of this Agreement, Client may upon a minimum of thirty (30) days notice to Cardinal Health deliver mutually agreeable quantities of Product to Cardinal Health's


2 facility at 15 Ingram Blvd., Suite 100, LaVergne, TN 37086 ("LaVergne Facility"). Whichever or both of the Grapevine Facility and/or LaVergne Facility are receiving Product shall be the "Facility" under this Agreement.


3.2 Client shall be responsible for delivery of Product to the Facility, including all costs, expenses and risk of loss associated with such delivery. Title to Product shall remain with Client at all times, even when Product is stored or warehoused at the Facility. Client shall at all times insure the Product for damage, loss, destruction, theft or any such other property damage ("LOSS") as further set forth in Section 15 below. Except for Loss resulting solely from the gross negligence or willful misconduct of Cardinal Health, Client shall bear all risk of loss or damage with respect to the Product stored or warehoused at the Facility.*


3.3 Client shall provide Cardinal Health with a forecast of the volume of Product to be handled by Cardinal Health under this Agreement, not less often than semi-annually ("FORECAST"). Upon execution of this Agreement, Client shall deliver to Cardinal Health a customer list, which sets forth the Product prices (the "CUSTOMER PRICE LIST"). Client shall notify Cardinal Health of any change in the Customer Price List not less than forty-eight (48) hours prior to the effective date of any such change. Cardinal Health shall use commercially reasonably efforts to implement such price change in accordance with Client's instruction. Notwithstanding the foregoing, Client shall provide the initial Forecast no later than thirty (30) days after the Effective Date of this Agreement.


3.4 Cardinal Health shall visually inspect each shipment of Product for external damage or loss in transit and notify Client of any such damage or loss within a commercially reasonable period of time following discovery.


4. INFORMATION SYSTEM ACCESS.


4.1 During the term of this Agreement and subject to the terms herein, Client may use password(s) and identification number(s) provided by Cardinal Health to remotely access Client's data maintained on Cardinal Health's web enabled Operating System Base and certain support services associated therewith, as further set forth in the Operating Guidelines (collectively, the "SYSTEM") provided that such access is used solely by Client's employees and for Client's own internal business purposes. Client shall use that access solely to access Client's data and shall not access or attempt to access any other data, systems or software. Client shall be responsible for all use of the passwords and identification elements and shall ensure that they are used solely to effect the limited access authorized herein. The limited license to access the System granted herein does not include the right to copy, download or otherwise use any software or non-Client data maintained on the System.


4.2 The System shall be made available to Client at the fees set forth in the Fee Schedule. If Cardinal Health agrees to perform any custom enhancements to the System requested by Client, such customization services shall be billed separately based on an hourly rate set forth in the Fee Schedule (as defined in Section 5) and prior to such performance Cardinal Health shall notify Client of any related increase in the periodic fees hereunder relative to the ongoing support of the customizations.


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- --------- * Omitted information is the subject of a request for confidential treatment pursuant to Rule 406 under the Securities Act of 1933 and has been filed separately with the Securities and Exchange Commission.
4.3 During the term of this Agreement, Cardinal Health shall employ reasonable security measures and policies designed to safeguard the integrity, accessibility, and confidentiality of Client's data resident on the System and establish and maintain reasonable disaster and emergency recovery plans designed to minimize disruption from System operation interruptions.


4.4 Client shall not reverse engineer, reverse assemble, decompile, create derivative works, modify, or otherwise attempt to derive the source code of any software on the System or copy, download, modify, or create derivative works of such software. Also, Client shall not permit access to the System or related documentation to any other person or entity. The System and all parts thereof, in all of their tangible and intangible manifestations, all existing or new enhancements, developments, derivative works, and other modifications to the System (or any part thereof), and all related proprietary rights, are and shall remain the exclusive property of Cardinal Health.


4.5 THE SYSTEM, THE SOFTWARE THEREON AND ANY RESULTS OBTAINED THEREFROM ARE PROVIDED ON AN "AS IS" BASIS, WITHOUT WARRANTY OF ANY KIND, WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE. CARDINAL HEALTH MAKES NO REPRESENTATIONS OR WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, RELATING DIRECTLY OR INDIRECTLY TO THE SYSTEM OR ANY PART THEREOF INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY, NONINFRINGEMENT AND FITNESS FOR A PARTICULAR PURPOSE.


4.6 Cardinal Health shall use reasonable efforts to make the System available for access twenty-four (24) hours a day, seven (7) days a week absent scheduled and emergency maintenance periods.


4.7 Notwithstanding anything to the contrary, in the event of Client's breach of any of Cardinal Health's security policies or of the confidentiality provisions in this Agreement, Cardinal Health may revoke or suspend any or all passwords and identification numbers provided to Client hereunder.


5. FEES.


5.1 As compensation for the Services, Client shall pay to Cardinal Health the fees (the "FEES") set forth on EXHIBIT C (the "FEE SCHEDULE").


5.2 Cardinal Health shall issue an invoice to Client for the Services rendered under this Agreement or for any other amounts due on a monthly basis. Payment is due within twenty (20) days of the invoice date. If the Invoice is not paid within such twenty (20) day period, a service charge on the unpaid amount calculated at the rate of 1.5% per month (or the maximum rate permitted by law if such rate is less than 1.5% per month) shall be imposed until such amount is paid in full.


5.3 The Fees shall be held firm for the first contract year. Thereafter, Cardinal Health shall adjust the price not more often than once per contract year by the * of (i) the increase in the Producer Price Index - All Commodities published by the United States Department of Labor, Bureau of Statistics, as amended from time to time ("Index") or * percent (*%) if the Index increase is less than * percent (*%), or (ii) * percent (*%). For purposes of sub-Section (i), the base point shall be the index level on the first day of the contract year.


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- -------- * Omitted information is the subject of a request for confidential treatment pursuant to Rule 406 under the Securities Act of 1933 and has been filed separately with the Securities and Exchange Commission.
5.4 Notwithstanding the terms set forth above in Section 5.3, if Cardinal Health can reasonably demonstrate that the costs for providing the Services have materially increased, or are likely to materially increase in the coming year due to the adoption of any applicable law or regulation (or any material change in the interpretation or administration thereof), or due to unforeseen circumstances beyond Cardinal Health's reasonable control, then upon notice from Cardinal Health, the Parties agree to meet in good faith and negotiate a mutually acceptable adjustment to the Fees.


6. TERM AND TERMINATION.


6.1 The initial term of this Agreement shall begin on the Effective Date and shall continue for a period of three (3) years (the "INITIAL TERM"), unless terminated earlier pursuant to this Agreement. Thereafter, this Agreement shall automatically renew for additional terms of one (1) year each, unless written notice of termination is given by either Party at least ninety (90) days prior to the end of the Initial Term, or such other term, in which case this Agreement shall terminate at the end of the then current term.


6.2 This Agreement may be terminated:


(a) by either Party upon one hundred eighty (180) days prior written notice to the other Party, provided that in the event Client terminates this Agreement, without cause, prior to the end of the Initial Term, such termination shall be effective only upon payment to Cardinal Health of * percent (*%) of remaining fixed Fees set forth on the Fee Schedule for the remainder of the Initial Term, it being understood that there be no additional damages for such termination, and provided that if Cardinal Health terminates this Agreement, without cause, prior to the end of the Initial Term, such termination shall only be effective upon payment to Client of an amount which is equal to * Dollars ($*) multiplied by a fraction *, it being understood that there be no additional damages for such termination. For example, if Cardinal Health terminated effective *.


(b) by either party upon the breach by the other Party of a material provision of this Agreement and that Party's failure to cure such breach within thirty (30) days following written notice thereof from the non-breaching Party, provided that, with respect to any failure to make any payment when due under this Agreement, such period to cure shall be reduced to fifteen (15) days; or


(c) by either party immediately upon notice to the other Party following the commencement of any bankruptcy or insolvency proceeding (whether voluntary or involuntary) with respect to such other Party or its assets, which in the event of an involuntary proceeding, is not dismissed within sixty (60) days, the general assignment for the benefit of creditors by such other Party, or the appointment of a receiver, trustee or liquidator by or for such other Party.


6.3 Termination or expiration of this Agreement shall not relieve either Party from any liability or obligation that accrued prior to such termination or expiration. Upon termination or expiration of this Agreement, all Product shall be returned to Client or a designee of Client, at Client's sole cost and expense unless the termination is a result of a breach by Cardinal Health in which case Cardinal Health will pay the Product return expenses. Sections 13 and 14 shall survive termination or expiration of this Agreement.


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- --------- * Omitted information is the subject of a request for confidential treatment pursuant to Rule 406 under the Securities Act of 1933 and has been filed separately with the Securities and Exchange Commission.
7. AUDITS. No more than twice per calendar year, Client or its designee shall have the right during normal business hours (i.e., 8:00 a.m. to 5:00 p.m. local time), upon fifteen (15) business days prior written notice to Cardinal Health, to: (a) conduct a physical audit of such parts of the Facility that relate solely to Product stored and warehoused at the Facility under this Agreement; and (b) review and audit records that relate solely to the storage and distribution of the Product. Without limiting the foregoing, records review may include, at Client's option, a review of Product receiving, storage, picking, packing, shipping and related quality records and/or Client's Customer records including Customer orders and Customer accounts receivable. Cardinal Health and Client agree to participate in quarterly business reviews.


8. COMPLIANCE WITH LAWS. Each Party shall conduct its activities in connection with this Agreement in compliance with all applicable laws, rules, regulations, and orders of governmental entities.


9. REPRESENTATIONS AND WARRANTIES.


9.1 Each Party represents and warrants to the other that:


(a) it has full power and authority to enter into this Agreement and perform all obligations and conditions to be performed by it under this Agreement without any restriction by any other agreement or otherwise;


(b) the execution, delivery and performance of this Agreement have been duly authorized by all necessary corporate action of that Party; and


(c) this Agreement constitutes the legal, valid and binding obligation of that Party.


9.2 Client further represents and warrants to Cardinal Health that the Product:


(a) is and shall be manufactured in conformity with the Food, Drug and Cosmetic Act, as amended from time to time, and all other applicable laws, rules, regulations and orders of governmental entities relating to the manufacture, promotion, sale or distribution of the Product;


(b) does not violate or infringe any patent, trademark, tradename or other interest of any person or entity.


10. TAXES. Client shall pay when due all sales, use, gross receipts, excise, personal property taxes associated with the Product (excluding any personal property tax associated with Cardinal Health's equipment used in connection with the Services), and other taxes now or hereafter imposed as a result of the transactions contemplated by this Agreement, none of which have been included in the fees payable to Cardinal Health under this Agreement; provided that the amounts payable by Client under this section shall not include taxes based on the net income of Cardinal Health.


11. TRADEMARKS. Neither Party shall have the right to use the name of the other Party or any Affiliate of the other Party, or the other Party's or such Affiliates' trademarks, service marks, logos, or other similar marks in any manner except with the prior written approval of that Party; provided that the foregoing shall not prohibit Cardinal Health's use of Client' names or marks in connection with the performance of the Services in a manner consistent with this Agreement. In the event Cardinal Health


6 uses Client's trademarks or tradenames, Cardinal Health shall identify such as the property of Client. Moreover, Cardinal Health may not use any third party trademarks or tradenames with the Products without prior written approval of Client. "AFFILIATE," as used in this Agreement, means any legal entity which, during the Term hereof, controls, is controlled by, or is under common control with, such Party. For purposes of this definition, an entity shall be deemed to control another entity if it owns or controls, directly or indirectly, at least fifty percent (50%) of the voting interest of all equity interests of the other entity (or other such comparable ownership interest for an entity other than a corporation).


12. CONFIDENTIALITY.


12.1 Each Party acknowledges that as a result of this Agreement it may learn and have access to trade secrets and other confidential and proprietary information of the other Party through employees, representatives and/or agents acting on behalf of or subcontracted to either Party (collectively the "REPRESENTATIVES"), including without limitation, financial information, information regarding business practices and techniques, and systems and technology information, or any information identified as confidential in writing by either Party (the "CONFIDENTIAL INFORMATION"). Client acknowledges and agrees that all information and materials related to the System shall constitute Confidential Information. For purposes of this Agreement, Confidential Information shall not include information disclosed by one Party to the other Party to the extent that such information can be proven by written evidence: (a) to be in the public domain or generally available in the industry in which the disclosing Party engages in business without any violation of this Agreement by the other Party; (b) is already legally known to the other Party or any of its Affiliates at the time of its disclosure by the disclosing Party; (c) becomes known to the other Party or any of its Affiliates from a third party without any obligation of confidentiality or limitation on use; or (d) is independently developed by the other Party or any of its Affiliates prior to the date of its disclosure. The specific material terms of this Agreement shall be deemed to be the Confidential Information of each Party. Confidential Information shall not be deemed to be in the public domain or publicly known or in the receiving Party's possession because it is embraced by more general information in the receiving Party's possession or because it is embraced in general terms in publications.


12.2 Neither Party shall, directly or indirectly, at any time: (a) disclose to any third person or entity any Confidential Information of the other Party (whether learned before or after the date of this Agreement), or (b) use, or permit or assist any third person or entity to use, any such Confidential Information, excepting only: (i) disclosures required by law, rule, regulation or order, as reasonably determined by the disclosing Party or its legal counsel, and (ii) disclosures on a confidential basis to directors, officers, employees, and agents of that Party or its Affiliates who have a reasonable need to know such Confidential Information in the normal course of business of that Party or any of that Party's Affiliates.


12.3 The obligations of confidentiality hereunder shall survive the termination of this Agreement for a period of three (3) years. Upon termination of this Agreement (for any reason) each Party shall promptly: (i) return to the other Party all documentation and other materials (including copies of original documentation or other materials) containing any Confidential Information of the other Party; or (ii) with the other Party's consent, which consent will not be unreasonably withheld, certify to the other Party, pursuant to a certificate in form and substance reasonably satisfactory to the other Party, as to the destruction of all such documentation and other materials.


13. INDEMNIFICATION. Each Party shall indemnify and hold harmless the other Party and its parent and Affiliates, and each of their directors, officers, employees, agents, and representatives from and against all claims, liabilities, losses, damages, costs, and expenses, including, without limitation,


7 reasonable attorneys' fees ("LIABILITY") to a third party or property arising directly or indirectly out of any failure of that Party to perform fully all obligations and conditions to be performed by that Party pursuant to this Agreement or any breach of any warranty made by that Party in this Agreement. Client further agrees to indemnify and hold harmless Cardinal Health, its parent and Affiliates and each of their directors, officers, employees, agents and representatives from any and all Liability arising directly or indirectly out of or relating to (i) injury or death to person or property alleged to have been caused by Client's Product, (ii) any violation or infringement of any patent, trademark, tradename or other interest of any person or entity relating to Client's Product, and (iii) the manufacture, marketing, testing, shipping, sale, possession or use of Product, provided said Liability is not solely attributable to Cardinal Health's negligence or intentional misconduct.


14. LIMITATION OF LIABILITY. NOTWITHSTANDING THE FOREGOING PROVISIONS OF SECTION 13, OR ANY OTHER PROVISION OF THIS AGREEMENT TO THE CONTRARY, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY CONSEQUENTIAL (SPECIFICALLY EXCEPTING THOSE CONSEQUENTIAL DAMAGES ARISING FROM EACH PARTY'S OBLIGATION TO INDEMNIFY THE OTHER FOR LIABILITY ARISING OUT OF OR RELATING TO THIRD PARTY CLAIMS IN ACCORDANCE WITH SECTION 13 ABOVE), INCIDENTAL, INDIRECT, SPECIAL, OR OTHER SIMILAR DAMAGES ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT. FURTHER, IN NO EVENT SHALL CARDINAL HEALTH'S TOTAL LIABILITY UNDER THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION ANY OF CARDINAL HEALTH'S INDEMNITY OR OTHER FINANCIAL OBLIGATIONS UNDER SECTION 13 OR ANY OTHER PROVISION OF THIS AGREEMENT, EXCEED THE TOTAL FEES PAID BY CLIENT TO CARDINAL HEALTH FOR THE SERVICES WHICH WERE INVOLVED IN CAUSING ANY CLAIMS, DAMAGES, LOSSES, COSTS OR EXPENSES.


15. INSURANCE. Client shall, at its own cost and expense, obtain and maintain in full force and effect the following insurance during the term of this Agreement.


(a) Products and Completed Operations Liability Insurance covering the Product included in this Agreement with per-occurrence limits of not less than $5,000,000; and


(b) All-Risk Property Insurance, including transit coverage, in an amount determined by Client in its sole discretion covering Client's property while it is at the Cardinal Health facility or in transit to or from the Cardinal Health facility. Client's all-risk property insurance shall apply to all losses and be primary (with respect both to any insurance issued to Cardinal Health and to any deductible amount or self-insured amount retained by Cardinal Health) except for losses resulting solely from the gross negligence or intentional misconduct of Cardinal Health.


In the event that any of the required policies of insurance are written on a claims made basis, then such policies shall be maintained during the entire term of this Agreement and for a period of not less than five (5) years following the termina ...