MANUFACTURING AND FORMULATION AGREEMENT
AGREEMENT made as of this 3rd day of October, 2000, between KMG-BERNUTH, INC., a Delaware corporation, having its principal office in Houston, Texas, (hereinafter referred to as "KMG") and GB BIOSCIENCES CORPORATION, a Delaware corporation, having its principal office in Wilmington, Delaware, (hereinafter referred to as "GB").
WHEREAS, GB manufactures and/or sells and markets a monosodium/-disodium methanearsonic acid based pesticide products line (commonly referred to as MSMA and DSMA products) in the United States and certain other countries (the "Arsonates Line");
WHEREAS, GB and KMG and KMG's parent, KMG CHEMICALS, INC., a Texas corporation, have entered into that certain Asset Sale Agreement dated the date hereof by ("Asset Sale Agreement") which GB shall sell and KMG shall purchase the Arsonates Line of GB on the terms and conditions set forth therein; and
WHEREAS, a condition of the purchase of the Arsonates Line by KMG is that GB manufacture and formulate certain MSMA products for sale to KMG for an interim period on the terms and conditions set forth herein.
NOW THEREFORE, in consideration of mutual covenants and agreements herein contained, the parties agree as follows:
MANUFACTURE OF TECHNICAL AND FORMULATED PRODUCTS
1.1 GB shall manufacture active ingredient (monomethanearsonic acid) in accordance with the specifications set forth in SCHEDULE 1 ("Technical Product") and formulate Technical Product into the end-use products ("Formulated Products") described on and in accordance with the specifications set forth in SCHEDULE 2, and KMG shall purchase such Technical Product and Formulated Products, for the price and on the other terms and conditions set forth in this Agreement (Technical Product and Formulated Products are sometimes referred to collectively as "MSMA products"). Subject to the provisions of the Asset Sale Agreement, if requested by KMG, during the Term GB shall cause KMG to be a subregistrant under pesticide registrations pertaining to MSMA products held by GB or its affiliates.
1.2 GB shall manufacture and formulate MSMA products at its production facility ("Plant") located at 2239 Haden Road, Houston, Texas for KMG, and KMG shall purchase MSMA products from GB, until (i) GB shall have manufactured and formulated [omitted subject to a request for confidential treatment], subject to a 2% upward variance to facilitate batch production, of MSMA products (as determined from the Inventory Report, hereinafter defined and/or other reports generated by GB to reasonably verify such inventory amounts, and including Existing Inventory), or (ii) the expiration of thirty (30) days after receipt of written notice from KMG to GB that GB should cease manufacturing and formulating MSMA products or (iii) February 15, 2001, whichever is earliest ("Plant Shutdown"). GB agrees that it will use all commercially reasonable efforts to manufacture and formulate MSMA products at the Plant that, when combined with all Existing Inventory (hereinafter defined) shall be sufficient to satisfy clause (i) of the immediately preceding sentence prior to Plant Shutdown.
1.3 Prior to Plant Shutdown, but subject to the storage limitations for Technical Product set forth in Section 4.1, GB agrees to allocate its production of MSMA products among Technical Product and particular Formulated Products in the manner that KMG may reasonably request after consultation with GB. Notwithstanding the foregoing, it is the parties expectation that 25% of the MSMA products (including Existing Inventory) produced by GB and purchased by KMG hereunder shall be Technical Product and 75% of the MSMA products (including Existing Inventory) produced by GB and purchased by KMG hereunder shall be Formulated Products. If this ratio increases or decreases by more than 10%, the parties shall meet in good faith to discuss an equitable adjustment to the price paid for MSMA products hereunder. It is agreed that the MSMA products manufactured and formulated hereunder shall constitute the entire output of the Plant during the Term (hereinafter defined) of this Agreement and GB shall not manufacture, formulate or package MSMA products during the Term for any other person or entity and GB and its affiliates shall not sell MSMA products after the date hereof. Any MSMA products manufactured or formulated by GB prior to the date hereof and unsold by GB at the date hereof (the "Existing Inventory") shall be purchased by KMG on the terms and conditions of this Agreement, except for existing inventory of DMSA and Ansar 8100 held by GB at Closing, which the parties agree GB can sell until depleted. GB shall not be restricted in any way under this Agreement from manufacturing, formulating or packaging products other than MSMA products.
1.4 All costs and expenses necessary for the manufacturing and formulation of Technical Product and Formulated Products under this Agreement, including but not limited to the cost of raw materials, supplies and utilities, shall be borne by GB, provided, however, KMG shall purchase from GB (Ex Works the Plant, Incoterms 2000) at GB's actual cost all arsenic trioxide on hand at Plant Shutdown that has not been
used to manufacture and formulate MSMA products hereunder ("Raw Materials"). At its option, KMG may also purchase from GB any Packaging Materials (as hereinafter defined) used for Packaging MSMA and remaining at Plant Shutdown at GB's actual cost. GB's invoice for the Raw Materials and Packaging Materials purchased by KMG shall include reasonable evidence of its actual cost and shall be payable net 30 days.
1.5 After Plant Shutdown, GB shall thereafter have no obligation to manufacture Technical Product or Formulated Products for KMG.
1.6 Title and risk of loss of or damage to Technical Product shall pass to KMG on December 31, 2000, Plant Shutdown or delivery of Technical Product to a carrier for shipment per instructions from KMG, whichever is earlier. Title and risk of loss of or damage to Formulated Products shall pass to KMG upon delivery of Formulated Products, packaged for shipment, to one or more off-site storage location selected by the parties.
2.1 For MSMA products, including Existing Inventory, manufactured and formulated by GB and sold to KMG hereunder, KMG shall pay GB a fee of [omitted subject to a request for confidential treatment] ("Tolling Fee"), payable as set forth in Section 2.3.
2.2 The Tolling Fee shall be payable as follows: Each month GB shall invoice and KMG shall pay to GB the Tolling Fee (i) for each gallon of Formulated Product (including Existing Inventory of Formulated Product) placed into the agreed off-site storage facilities by GB in the preceding month and (ii) prior to Plant Shutdown, for each gallon of Technical Product (including Existing Inventory of Technical Product) delivered in the preceding month by GB for shipment per shipping instructions from KMG. The monthly Inventory Report (hereinafter defined) shall be used for the preparation of such monthly invoices. Upon Plant Shutdown, KMG shall pay GB the Tolling Fee for each gallon of Technical Product manufactured by GB hereunder (excluding Technical Product formulated into Formulated Product and Technical Product delivered for shipment prior to Plant Shutdown).
2.3 On or before five (5) business days after the end of each month during the Term, GB shall produce a report or accounting ("Inventory Report") of Formulated Product placed into the off-site storage area and of Technical Product as to which title and risk of loss has passed to KMG. In the preparation of the Inventory Report, GB shall be responsible for reporting on the amount of Formulated Product placed into the off-site storage area and of Technical Product as to which title and risk of loss has
passed to KMG. Each Inventory Report shall set forth the quantity of MSMA products (including Existing Inventory) manufactured and formulated under this Agreement during the preceding month and in the aggregate and be in such form as the parties may reasonably agree.
2.4 Notwithstanding anything to the contrary in this Article II, KMG shall take delivery of and pay for all Existing Inventory, MSMA products, Raw Materials (and Packaging Materials, if applicable) manufactured for or supplied to KMG hereunder no later than June 30, 2001.
2.5 The Tolling Fee payable under this Article II is exclusive of all sales taxes, duties, or other similar fees or charges related to the sale of the MSMA products; to the extent GB is subject to any such taxes, fees or charges, KMG shall reimburse GB.
PACKAGING AND SHIPPING
3.1 GB shall package, label, mark, and handle (such activities generally collectively referred to herein as "Packaging") the Formulated Products in accordance with the specifications in SCHEDULE 2 hereto. GB, at its sole cost and expense, shall supply all raw materials, containers, cartons, strapping and other packaging materials ("Packaging Materials") required to formulate and package the Formulated Products. Copies of material safety data sheets for the MSMA products, including applicable raw materials, and a list of packaging components are attached hereto as SCHEDULE 3 (the "Pa