Exclusive Distribution And Supply Agreement

Exhibit 10.13


EXCLUSIVE DISTRIBUTION AND SUPPLY AGREEMENT


This Exclusive Distribution and Supply Agreement (the "Agreement") is made as of this 13th day of December, 2000 (the "Effective Date"), by and between Upsher-Smith Laboratories, Inc., a corporation organized under the laws of the State of Minnesota with a place of business at 14905 23rd Avenue North, Minneapolis, Minnesota 55447 (hereinafter referred to as "Upsher-Smith") and Eon Labs Manufacturing, Inc., a corporation organized under the laws of the State of Delaware, with a place of business at 227-15 North Conduit Avenue, Laurelton, New York 11413 (hereinafter referred to as "Eon").


BACKGROUND. Eon has secured and obtained regulatory approval from the FDA (as defined below) for the Product (as defined below). Eon desires to grant to Upsher-Smith exclusive rights to distribute the Product in the Territory (as defined below) and to supply (directly or through a contract manufacturer) to Upsher-Smith its requirements for the Product in the Territory. Upsher-Smith desires to obtain the rights and a secure supply of the Product which Upsher-Smith will market, sell and distribute in the Territory by Upsher-Smith, on an exclusive basis, under Upsher-Smith's private label, bearing Upsher-Smith's logo and trademark and NDC number identified on Appendix 2.1. In consideration of the mutual covenants hereinafter expressed, the parties agree as follows:


1. DEFINITIONS. Capitalized terms appearing in this Agreement (including the appendices to this Agreement) without definition shall have the meaning given them in Appendix 1 attached hereto.


2. DISTRIBUTION RIGHTS, PRODUCT MANUFACTURE AND SUPPLY.


2.1 EXCLUSIVE GRANT. Subject to the provisions of Section 6.2.1, Eon grants to Upsher-Smith the exclusive right to distribute (including the right to appoint subdistributors and sales agents) and sell the Product in the Territory. Upsher-Smith shall sell and distribute the Product in the Territory under Upsher-Smith's private label, bearing Upsher-Smith's logo and trademark identified on Appendix 2.1. Subject to the provisions of Section 6.2.1, during the Term or any Renewal Term of this Agreement, Eon shall not, directly or indirectly, sell the product in the territory, or authorize or permit any other party to sell or distribute 400 mg amiodarone in the territory manufactured under Eon's ANDA.


2.2 MANUFACTURE AND PURCHASE. Eon agrees to manufacture (or have manufactured) and supply the Products for sale and distribution in the Territory under Upsher-Smith's private label, bearing Upsher-Smith's logo and trademark identified on Appendix 2.1, and Upsher-Smith agrees to purchase from Eon its entire requirements for the Products during the Term or any Renewal Term of this Agreement.


2.3 EON'S AUTHORITY TO GRANT RIGHTS. Eon represents and warrants that it has the right, title and authority to grant to Upsher-Smith the rights granted, and to undertake the commitments made, by Eon under this Agreement. The commitments and obligations of Eon


under this Agreement do not violate any other agreement to which Eon is a party or any rights granted by Eon to any third party. Eon will not provide any consulting, research, analytical or developmental services to any third party with respect to any aspect of any amiodarone product which may compete with the Product.


3. TERM.


3.1 TERM. This Agreement will commence on the Effective Date set forth in the first paragraph of this Agreement and will continue until the expiration of the fifth (5th) Market Year, unless sooner terminated pursuant to the terms of this Agreement (the "Term").


3.2 RENEWAL. The term of this Agreement will automatically renew for successive renewal terms of three (3) Market Years each (each, a "Renewal Term"), unless written notice of non-renewal is given by either party to the other at least one year prior to expiration of the then current term; PROVIDED, HOWEVER, without the prior written consent of Upsher-Smith, Eon may not give written notice of non-renewal to Upsher-Smith unless Upsher-Smith is then in material breach of this Agreement.


4. MANUFACTURING PROCEDURES.


4.1 CONTRACT MANUFACTURE. The parties acknowledge and agree that manufacture of the Product may be undertaken on behalf of Eon by a contract manufacturer (the "Contract Manufacturer"). Any Contract Manufacturer secured by Eon will operate under a contract manufacture agreement (the "Contract Manufacture Agreement"). Any Contract Manufacture Agreement shall give Upsher-Smith all rights with respect to the manufacture of Product, SOPs and facility of the Contract Manufacturer (including the right of inspection) as Upsher-Smith is granted under this Agreement with respect to Eon.


4.2 MANUFACTURING PROCEDURES. Eon warrants that Eon (or any Contract Manufacturer) has the requisite experience, knowledge and expertise, suitable facility and qualified personnel, as well as the legal right, to perform its obligations under this Agreement in a sound, safe, lawful and workmanlike manner. In addition, Eon (or any Contract Manufacturer) will conform with the terms of Appendix 4 attached hereto.


5. FORECASTS AND PURCHASE ORDERS.


5.1 FORECASTS Upsher-Smith will deliver to Eon, prior to the first month of each Market Year, its Forecast for each Product for that Market Year. This Forecast will be updated quarterly on a rolling 12-month basis. Eon will use the Forecast for planning purposes only.


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5.2 PURCHASE ORDERS.


5.2.1 Products will be ordered by Upsher-Smith by the issuance of separate, pre-numbered purchase orders. Eon will supply Upsher-Smith with its estimated batch yield of Product to assist Upsher-Smith in ordering batch lot quantities.


5.2.2 Upsher-Smith's purchase orders will designate the desired quantities of the particular Product, delivery dates and destinations and will be submitted at least ninety (90) days prior to the shipment date specified. Eon will fill and ship all orders of Products in accordance with Upsher-Smith's purchase orders provided that if such orders exceed the Forecast for such period by more than twenty percent (20%), Eon shall not be required to fill and ship such excess amount, but shall use commercially reasonable efforts to do so. If any Upsher-Smith purchase order is not submitted at least ninety (90) days prior to the requested delivery dates, Eon will still use commercially reasonable efforts to meet Upsher-Smith's requested delivery dates. Eon may not produce Product more than sixty (60) days prior to the requested delivery date.


5.2.3 All sales of Products by Eon to Upsher-Smith will be subject to the provisions of this Agreement and will not be subject to the terms and conditions contained in any purchase order of Upsher-Smith or confirmation of Eon, except insofar as any such purchase order or confirmation establishes (a) the quantity by Products to be sold, (b) the shipment dates for those Products, and (c) the destinations to which those Products are to be shipped.


6. MILESTONE PAYMENTS, PRODUCT PURCHASE PRICE, ROYALTY PAYMENTS.


6.1 MILESTONE PAYMENTS. As consideration and reimbursement to Eon for certain of its expenses in developing, testing and securing regulatory approval for the commercial sale of the Product in the Territory, Upsher-Smith will pay to Eon the following milestone payments:


(a) Within thirty (30) days following execution of this Agreement by the parties, five hundred thousand dollars ($500,000);


(b) Within thirty (30) days following the First Commercialization Date, two hundred fifty thousand dollars ($250,000); and


(c) Within thirty days following the first anniversary of the Effective Date, an additional two hundred fifty thousand dollars ($250,000).


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6.2 ROYALTIES AND PAYMENT.


6.2.1 EARNED ROYALTY. From the First Commercialization Date, Upsher-Smith will pay to Eon an Earned Royalty equal to the applicable Royalty Percentage on Net Sales. Notwithstanding anything contained in this Agreement to the contrary, in the event a third party is selling an amiodarone 400 mg product in the Territory, the Royalty Percentage on which the Earned Royalty is computed will thereafter be reduced to nine percent (9%). In addition, in such event, Eon shall have the right to manufacture, distribute and market a generic form of the Product in the Territory, in exchange for its agreement to pay to Upsher-Smith an earned royalty of nine percent (9%) on its Net Sales in the Territory (as such terms shall be similarly defined as in this Agreement) during the Term or Renewal Term of this Agreement.


6.2.2 MINIMUM ROYALTY.


(a) Upsher-Smith shall pay to Eon each Market Year (or portion thereof) during the Term and each Renewal Term a minimum royalty as follows (the "Minimum Royalty"):


MARKET YEAR MINIMUM ROYALTY
----------- ---------------
1 $2,750,000
2 $3,500,000
3 $4,000,000
4 $4,000,000
5 and each Market $4,000,000
Year during any Renewal Term


If the Earned Royalty for such Market Year is less than the applicable Minimum Royalty, then 90 days after the end of the last quarter of such Market Year, Upsher-Smith shall pay to Eon the amount of the shortfall between the Minimum Royalty and the Earned Royalty for such Market Year (the "Shortfall"). Notwithstanding anything contained in this Agreement to the contrary, in the event a third party is selling an amiodarone 400 mg product in the Territory, upon written notice given by Upsher-Smith to Eon, detailing the basis of Upsher-Smith's understanding of such third party sales, this Section 6.2.2 shall become null and void (except as to Minimum Royalties accrued until the date of such notice which Upsher-Smith shall still be obligated to pay, on a prorated basis) and there shall thereafter be no Minimum Royalties.


(b) If there has been a Shortfall in any Market Year, then Upsher-Smith may give written notice at any time after the end of the second Market Year of its desire to renegotiate in good faith the Minimum Royalties for subsequent Market Years commencing with the third Market Year. Upon such notice from Upsher-Smith, Eon shall (within 30 days) give Upsher-Smith written notice indicating either that it is willing to renegotiate the Minimum Royalties, or that it does not wish to do so.


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(i) If Eon does not give timely written notice that Eon wishes to renegotiate, Upsher-Smith may at any time after expiration of the 30-day notice period, give Eon written notice of termination which will be effective 120 days following the date of the notice of termination.


(ii) If Eon gives timely written notice that it is willing to renegotiate, Upsher-Smith and Eon shall enter into good faith negotiations for a period of ninety (90) days (commencing with the date of Eon's written notice). If they are unable to reach agreement to adjust the Minimum Royalties during that time period, then Upsher-Smith may at any time within ninety (90) days after expiration of the 90-day negotiation period give Eon written notice of termination which will be effective 120 days following the date of the notice of termination.


(iii) It is understood that in the event of termination pursuant to this Section 6.2.2(b), Upsher-Smith and Eon shall honor all purchase orders placed prior to the date of termination.


6.2.3 PAYMENT AND REPORTING OF EARNED ROYALTIES. Earned Royalties will be paid quarterly within 60 days after the end of each Market Year quarter during the period for which any Earned Royalties may be due, and will be accompanied by a written summary listing the Net Sales of Upsher-Smith during that Market Year quarter on which Earned Royalties are due.


6.2.4 RECORDS AND INSPECTIONS. Upsher-Smith will maintain accurate records containing sufficient data from which Earned Royalties due Eon under this Agreement may be calculated. Upsher-Smith will maintain those records for two (2) years after the end of the Market Year to which those records relate. Upsher-Smith will, upon reasonable notice from Eon, permit examination of those records by an independent firm of accountants selected by Eon and reasonably acceptable to Upsher-Smith. The fees and expenses of such independent accountants shall be paid by Eon, unless (a) the audit of any Market Year that is closed evidences an underpayment of Earned Royalties for the closed Market Year by more than five percent (5%), and (b) either Upsher-Smith does not dispute such underpayment, or if Upsher-Smith disputes such underpayment, the dispute is finally resolved (in accordance with the terms of this Agreement) either by agreement of the parties or by a final and binding arbitration decision under Section 15.6.2 confirming such underpayment. Eon may not conduct more than one such audit during any Market Year, and any such audit may not cover a period of more than two Market Years (in addition to any closed quarters of the Market Year in which the audit is conducted). All records disclosed to those accountants will be deemed to be confidential information of Upsher-Smith subject to obligations of confidentiality and non-disclosure under this Agreement. Eon's accountants may not disclose to Eon any information relating to the business of Upsher-Smith, except as should properly be contained in any Summary to Eon under Section 6.2.3 or to enable Eon to enforce its rights to royalty payments or other payments due under this Section 6.


6.3 PRODUCT PURCHASE PRICE AND PAYMENT. Eon shall sell product to Upsher-Smith at the prices and on the terms listed in Appendix 6.3 attached hereto (the "Purchase Price"), packaged, labeled and delivered f.o.b. point of shipment (Eon's loading dock). The


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parties acknowledge that, as shown on Appendix 6.3, the Purchase Price to be paid to Eon will reflect the quantity of Products which are purchased by Upsher-Smith during each Market Year. Payment of the Purchase Price for all deliveries of conforming product and services will be made in U.S. dollars, in full within thirty (30) days after Upsher-Smith's receipt of the Product. If payment is not received in accordance with this Section 6.3, Eon shall not be obligated to deliver any further Product to Upsher-Smith until such payment has been made.


7. SHIPMENT AND RISK OF LOSS. Eon will ship all Products to Upsher-Smith, f.o.b. point of shipment (Eon's loading dock). The risk of loss of or damage to any Product ordered by Upsher-Smith and shipped by Eon will pass to Upsher-Smith upon Eon's tender of delivery to the carrier f.o.b. point of shipment. Upsher-Smith will pay the cost of all freight and insurance for each shipment.


8. OBLIGATIONS OF UPSHER-SMITH.


8.1. Conduct of Business. Upsher-Smith covenants and agrees with Eon that:


8.1.1 It will use its commercially reasonable efforts to promote the sale and distribution of the Product in the Territory in a manner consistent with that employed by Upsher-Smith in the promotion of other products of similar character, and shall use commercially reasonable efforts to facilitate the initiation of the sale of the Product in the Territory.


8.1.2 It will (a) not conduct its business related to the sale and promotion of the Product in a manner that knowingly, intentionally, willfully and unfairly reflects unfavorably on the Product and the good name, goodwill and reputation of Eon; (b) not make any misrepresentations with regard to Eon or the Product; (c) not publish or employ or cooperate in the publication or employment of any advertising material that misrepresents the Product; (d) not make representations or warranties to customers or potential customers with respect to the specifications, features or capabilities of the Product that are inconsistent with the warranty set forth in Section 9.1 below.


8.1.3 It will comply with all applicable local, state or federal rules, regulations, statutes and laws in promoting, marketing, storing, distributing and selling the Product.


8.1.4 It will refrain from distributing and selling the Product outside the Territory, unless previously authorized in writing by Eon on a case by case basis.


8.1.5 It will promptly notify Eon of any adverse or unexpected reaction or results or any charges, complaints or claims by customers or other persons or any actual or potential government action relevant to the Product and the parties will discuss with each other measures to be undertaken necessary to resolve the problem. (Similarly, Eon agrees that it will promptly notify Upsher-Smith of any adverse or unexpected reaction or results or any charges, complaints or claims by customers or other persons or any actual or potential government action relevant to the Product and the parties will discuss with each other measures to be undertaken


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necessary to resolve the problem.)


8.1.6 Upsher-Smith agrees that it will maintain an active sales organization (either directly or through an outside network of distributors, sales agents and representatives, or both) with personnel capable of competently dealing with the marketing of the Product throughout the territory.


8.2. NON-COMPETITION. During the Term and any Renewal Term and in any case for a period of not less than five (5) years from the date of this Agreement, neither party shall directly or indirectly develop, license, manufacture, distribute, promote, offer or sell in the Territory any amiodarone 400 mg. tablets, capsules or product other than the Product (as contemplated by this Agreement), without the other party's prior written consent, which may be withheld for any reason in such party's sole discretion; PROVIDED, HOWEVER, (a) in the event a party terminates this Agreement during the Term pursuant to Section 14.1 (a) or (b), this Section 8.2 shall expire immediately upon such termination as to the party giving notice (but not as to the bankrupt, insolvent or breaching party) and (B) in the event Upsher-Smith terminates the Agreement during the Term in accordance with Section 14.1(c), this section 8.2 shall expire immediately upon such termination as to Eon (but not as to Upsher-Smith).


9. PRODUCT WARRANTIES.


9.1 PRODUCT WARRANTIES. Eon warrants that all products sold by Eon to Upsher-Smith pursuant to this Agreement will conform and perform in accordance with the Specifications, will not be defective in materials or workmanship at the time of manufacture and shipment, and will have been manufactured, Labeled, Packaged, tested and shipped in compliance with the applicable ANDA, CGMP and the Act. Without limitation, Eon warrants that the Products delivered by Eon to Upsher-Smith shall be manufactured in an FDA Registered Facility under CGMP, and (a) as of the date of shipment are not adulterated or misbranded (within the meaning of the Act), and are not an article which may not, under the provisions of Section 404, 505 or 513 of the Act, be introduced in interstate commerce; and (b) at the time of delivery shall be in good, usable and merchantable condition. THIS WARRANTY IS EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES, COVENANTS AND CONDITIONS WHETHER WRITTEN, ORAL, EXPRESS OR IMPLIED BY STATUTE OR OTHERWISE (INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE) AND OF ALL OTHER OBLIGATIONS OR LIABILITIES ON THE PART OF EON. IN NO EVENT SHALL EON BE LIABLE TO UPSHER-SMITH FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGES ARISING OUT OF ANY WARRANTY CLAIM OR DEFECTIVE PRODUCT CLAIM, OTHER THAN IN CONNECTION WITH A THIRD PARTY CLAIM FOR PERSONAL INJURY OR PROPERTY DAMAGE. AS WELL, IN NO EVENT SHALL UPSHER-SMITH BE LIABLE TO EON FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGES ARISING OUT OF ANY WARRANTY CLAIM OR DEFECTIVE PRODUCT CLAIM, OTHER THAN IN CONNECTION WITH A THIRD PARTY CLAIM FOR PERSONAL INJURY OR PROPERTY DAMAGE.


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9.2 REGULATORY APPROVAL FOR THE PRODUCT.


9.2.1 Eon will maintain regulatory approval for the product in accordance wit ...