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EXHIBIT 10.5
EXCIPIENT SUPPLY AGREEMENT
This EXCIPIENT SUPPLY AGREEMENT (the "Agreement") is made as of the 31st
day of July, 1998 between PENFORD CORPORATION, a Washington corporation
(previously known as PENWEST, LTD.) ("Penford"), and PENWEST PHARMACEUTICALS
CO., a Washington corporation ("Penwest").
RECITALS:
WHEREAS, the Board of Directors of Penford has determined that it is in
the best interest of Penford and its shareholders to separate the
pharmaceutical division of its business from the food and paper division of its
business;
WHEREAS, Penford and Penwest wish to enter into an agreement describing
the terms and conditions upon which Penford will manufacture and supply to
Penwest, and Penwest will purchase from Penford, EMDEX(R) and CANDEX(R) (sugar
based tabletting binders hereinafter referred to as "Pharmaceutical Excipients")
in bulk form; and
WHEREAS, this Agreement is entered into pursuant to the Separation and
Distribution Agreement dated as of July 31, 1998 between Penford and Penwest
(the "Separation and Distribution Agreement");
NOW, THEREFORE, in consideration of the mutual covenants and agreements
made herein, the parties hereto agree as follows:
ARTICLE 1
SUPPLY OF PHARMACEUTICAL EXCIPIENTS
1.1 Purchases of Pharmaceutical Excipients. Except as otherwise set forth
herein, commencing as of the Distribution Date (as defined in the Separation
and Distribution Agreement) (the "Effective Date"), Penwest shall purchase
exclusively from Penford, Penwest's requirements for Pharmaceutical
Excipients. Penford shall manufacture and sell Pharmaceutical Excipients to
Penwest in bulk form.
1.2 Production Planning; Forecasts.
(a) To facilitate Penford's planning for the supply of
Pharmaceutical Excipients, Penwest shall give Penford, at the beginning of
every calendar quarter, an estimate of its requirements of the Pharmaceutical
Excipients for the following twelve (12) months (the "Rolling Forecast"). The
Rolling Forecast shall specify the monthly estimate for the first six (6)
months of the forecast period and the quarterly estimate for the next six (6)
months based on calendar quarters.
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(b) Penwest shall furnish Penford firm written purchase orders for
its planned monthly requirements of Pharmaceutical Excipients no later than
thirty (30) days prior to the required date for receipt of the shipment. Such
firm purchase orders shall be equal to no less than eighty percent (80%) of the
monthly estimate contained in the Rolling Forecast. The form of purchase order
to be used by Penwest shall be agreed upon by the parties in advance of Penwest
submitting firm orders for Pharmaceutical Excipients.
(c) Penford shall deliver Pharmaceutical Excipients F.O.B. Penford's
place of manufacture by the required date for receipt of the shipment.
(d) All invoices for Pharmaceutical Excipients shall be due and
payable within thirty (30) days from the date of invoice to Penwest, which date
of invoice shall not be earlier than the date of shipment.
(e) Penford shall inform Penwest as soon as possible regarding any
anticipated long-term or short-term supply problems.
1.3 Inspections. Throughout the period during which Penford is
responsible for the manufacture of Pharmaceutical Excipients for sale to
Penwest, Penwest shall have the right, on ten (10) days prior notice, to
inspect the manufacturing facility of Penford at which a Pharmaceutical
Excipient is being manufactured to assure compliance with (i) the terms and
conditions of this Agreement; (ii) current approved standards of Good
Manufacturing Practice (cGMP); and (iii) environmental laws and regulations;
provided, however, that such inspections (a) shall not be undertaken more
frequently than once per calendar year unless such inspection reveals a cause
for further investigation, and (b) shall be during normal business hours and
not unreasonably interrupt the operations of Penford.
ARTICLE 2
MANUFACTURING PRICE
2.1 Pharmaceutical Excipient Price. The price at which Penford shall sell
Pharmaceutical Excipients to Penwest (the "Purchase Price") shall be as set
forth in Exhibit A.
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ARTICLE 3
WARRANTY; COMPLAINTS
3.1 Warranty. Penford warrants that each Pharmaceutical Excipient, when
supplied by Penford to Penwest hereunder and through the product expiration date
thereafter, shall meet the product specifications for such Pharmaceutical
Excipient set forth on Exhibit B hereto, as such specifications may be modified
from time to time by mutual agreement of the parties (the "Specifications"). In
addition, Penford warrants that all Pharmaceutical Excipients delivered
hereunder shall be produced in accordance with cGMP and all applicable laws,
rules and regulations. Except as otherwise provided in this Agreement,
Penford's only liability for breach of this warranty shall be to replace, at
its own expense, the non-conforming Pharmaceutical Excipient as provided in
Section 3.2(b). EXCEPT FOR THE CONTRACTUAL PROVISIONS EXPRESSLY SET FORTH IN
THIS AGREEMENT, PENFORD DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, WRITTEN
OR ORAL, WITH RESPECT TO PHARMACEUTICAL EXCIPIENTS, INCLUDING, BUT NOT LIMITED
TO, ALL IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE. In no event shall Penford be liable to Penwest for special, incidental,
indirect or consequential damages arising out of the manufacture, use or sale of
any Pharmaceutical Excipient whether based on contract, tort or any other legal
theory.
3.2 Complaints Regarding Pharmaceutical Excipients. In the event Penwest
has a complaint with respect to a Pharmaceutical Excipient supplied to Penwest,
then:
(a) if Penwest's complaint concerns the quantity of such
Pharmaceutical Excipient, Penwest shall provide Penford written notice of its
complaint and provide sufficient evidence to substantiate the short quantity.
Upon receipt of such written notice and substantiating evidence, Penford shall
supply to Penwest as promptly as practicable, however in no event later than
forty-five (45) days, the said short quantity of such Pharmaceutical
Excipient. Such replacement quantity shall be provided by Penford at no
additional cost to Penwest, assuming that Penwest has already paid for the
agreed upon quantity;
(b) if Penwest's complaint concerns the quality of such
Pharmaceutical Excipient (non-compliance with the Specifications (as defined
below)), Penwest shall provide Penford written notice of its complaint and
provide sufficient analytical evidence, based on the use of assays reasonably
acceptable to Penford, to substantiate the impairment. Upon receipt of such
written notice and substantiating evidence, the impaired amount of
Pharmaceutical Excipients shall be replaced by Penford with an equal amount of
Pharmaceutical Excipients conforming with the Specifications (as defined
below), as promptly as practicable, however, in no event later than forty-five
(45) days. Such replacement quantity shall be provided by
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Penford at no additional cost to Penwest, assuming that Penwest has already
paid for such replacement quantity;
(c) should Penford disagree with the substantiating evidence provided
by Penwest, Penford shall supply the replacement quantity of Pharmaceutical
Excipients in accordance with the terms of paragraphs (a) and (b) of this
Section 3.2, and then both parties shall immediately and jointly carry out the
necessary analysis to verify whether Penwest's complaint is justified. Should
said analysis confirm the validity of the complaint by Penwest, then the matter
shall be deemed conclusively resolved. Should said analysis confirm the
invalidity of the complaint by Penwest, then Penford shall invoice Penwest for
the replacement quantity provided in accordance with the terms of this
Agreement;
(d) in the event that a disagreement concerning the quantity or
quality of a Pharmaceutical Excipient continues after the joint analyses by
Penwest and Penford, the matter shall be submitted to an independent laboratory
chosen by Penwest and reasonably acceptable to Penford. The findings of this
independent laboratory, based on the use of assays reasonably acceptable to
both Penford and Penwest, shall be final and binding on both Penford and
Penwest and the fees and expenses of this independent laboratory shall be paid
by the non-prevailing party; and
(e) this Section 3.2 sets forth Penwest's exclusive remedy for any
complaint described in this Section 3.2. In no event shall Penford be liable
for any special, incidental, indirect or consequential damages arising out of
or associated with any such complaint.
ARTICLE 4
PRODUCT LIABILITY INDEMNIFICATION
4.1 Product Liability Indemnification by Penford. Penford agrees to defend
Penwest and its affiliates and sublicensees, at Penford's cost and expense, and
to indemnify and hold Penwest and its affiliates and sublicensees, and their
respective directors, officers, employees and agents (the "Penwest Indemnified
Parties") harmless from and against any losses, costs, damages, fees or
expenses arising out of any claim relating to personal injury from the
development, manufacture, importation, use, sale or other disposition of a
Pharmaceutical Excipient manufactured by or for Penford, to the extent that
such claim arises out of a failure by Penford to manufacture such
Pharmaceutical Excipient in conformity with the Specifications and other
requirements set forth in Section 3.1. In the event of any such claim against
the Penwest Indemnified Parties by any party, Penwest shall promptly notify
Penford in writing of the claim and Penford shall manage and control, at its
sole expense, the defense of the claim and its settlement. The Penwest
Indemnified Parties shall cooperate with Penford and may, at their option and
expense, be represented in any
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such action or proceeding. Penford shall not be liable for any litigation costs
or expenses incurred by the Penwest Indemnified Parties without Penford's
written authorization so long as Penford has assumed the defense thereof as
provided in this Section 4.1.
4.2 Product Liability Indemnification by Penwest. Penwest agrees to
defend Penford and its affiliates and sublicenses, at Penwest's cost and
expense, and to indemnify and hold Penford and its affiliates and sublicensees,
and their respective directors, officers, employees, and agents (the "Penford
Indemnified Parties") harmless from and against any losses, costs, damages,
fees or expenses arising out of any claim relating to personal injury from the
development, manufacture, importation, use, sale or other disposition of any
Pharmaceutical Excipient sold by Penford to Penwest except to the extent that
such claim arises out of a failure by Penford to manufacture such
Pharmaceutical Excipient in accordance with the specifications and other
requirements set forth in Section 3.1. In the event of any such claim against
the Penford Indemnified Parties by any party, Penford shall promptly notify
Penwest in writing of the claim and Penwest shall manage and control, at its
sole expense, the defense of the claim and its settlement. The Penford
Indemnified Parties shall cooperate with Penwest and may, at their option and
expense, be represented in any such action or proceeding. Penwest shall not be
liable for any litigation costs or expenses incurred by the Penford Indemnified
Parties without Penwest's written authorization so long as Penwest has assumed
the defense thereof as provided in this Section 4.2.
ARTICLE 5
RIGHT OF PENWEST TO MANUFACTURE
5.1 Default Events. With respect to each Pharmaceutical Excipient, in the
event that Penford (a) fails to provide Penwest with such Pharmaceutical
Excipient in accordance with the forecast and order procedures of Article 1
hereof and such failure results in a shortfall of twenty percent (20%) or more
for any single calendar quarter or between fifteen percent (15%) and
twenty-five percent (25%) for any two consecutive calendar quarters, or (b)
supplies Penwest with Pharmaceutical Excipients which fail on more than two
occasions to conform to the Specifications (and Penford is unable to remedy the
nonconformity in accordance with Article 3 hereof), then Penwest shall have the
right to purchase such Pharmaceutical Excipient from a bona fide third party
supplier or manufacturer of such Pharmaceutical Excipient.
5.2 Competitive Bid Option. With respect to each Pharmaceutical
Excipient, in the event that Penwest can reasonably demonstrate to Penford that
a bona fide third party supplier has the documented capacity to manufacture
such Pharmaceutical Excipient of at least the same quality as the
Pharmaceutical Excipients manufactured by or for Penford, in at least the same
quantity and at a cost that is less than ninety percent (90%) of the Purchase
Price for such Pharmaceutical
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Excipient currently charged Penwest by Penford, then Penford shall have sixty
(60) days in which to reduce its Purchase Price for such Pharmaceutical
Excipient to the price to be charged Penwest by such third party. If within
such sixty (60) day period, Penford fails to reduce its Purchase Price for such
Pharmaceutical Excipient to the price to be charged by such third party, then
Penwest shall have the right to purchase any and all amounts of such
Pharmaceutical Excipient from such third party. Penwest shall notify Penford in
writing of any decision by Penwest to acquire Pharmaceutical Excipients from
such bona fide third party, and this Agreement shall thereafter be terminable
with respect to such Pharmaceutical Excipient at any time at Penford's election.
5.3 Cooperation by Penford. In the event that Penwest chooses to purchase
any Pharmaceutical Excipients from a bona fide third party supplier pursuant to
Sections 5.1 and 5.2, Penford shall cooperate with such third party supplier
and shall make available, free of charge, any and all technology which is
necessary or required to enable the third party supplier selected by Penwest to
manufacture such Pharmaceutical Excipients. Subject to any contrary requirement
of law and the right of each party to enforce its rights hereunder in any legal
action, such bona fide third party supplier shall enter into a confidentiality
agreement in form and substance satisfactory to Penford to keep strictly
confidential, and shall cause its employees and agents to keep strictly
confidential, any information of or concerning Penford which it or any of its
agents or employees may acquire pursuant to, or in the course of performing its
obligations under, any excipient supply agreement entered into between Penwest
and such third party supplier; provided, however, that such obligation to
maintain confidentiality shall not apply to information which (i) at the time of
disclosure was in the public domain; (ii) was already independently in the
possession of such third party supplier at the time of disclosure, or (iii) was
received by such third party supplier from a third party who did not receive
such information from the disclosing party under an obligation of
confidentiality.
ARTICLE 6
TERMINATION
6.1 Termination by Penford. Without prejudice to any other rights it may
have hereunder or at law or in equity, Penford may terminate this Agreement in
the event of any of the following:
(a) upon a material breach of this Agreement by Penwest which, if
curable and not a payment default, is not cured by Penwest within ninety (90)
days of a written notice thereof by Penford or which, if a payment default, is
not cured within thirty (30) days of a written notice thereof by Penford; or
(b) upon written notice at least one year prior to such termination
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6.2 Termination by Penwest. Without prejudice to any other rights it may
have hereunder or at law or in equity, Penwest may terminate this Agreement in
the event of any of the following:
(a) upon a material breach of this Agreement by Penford which, if
curable, is not cured by Penford within ninety (90) days of a written notice
thereof by Penwest; or
(b) upon written notice at least one year prior to such termination.
6.3 Survival of Obligations. Notwithstanding any termination of this
Agreement, (a) neither party shall be relieved of any obligation incurred prior
to such termination and (b) the obligations of the parties with respect to the
protection and nondisclosure of Confidential Information (Article 7), as well
as any other provisions which by their nature are intended to survive any such
termination, shall survive and continue to be enforceable.
ARTICLE 7
CONFIDENTIAL INFORMATION
7.1 Confidentiality. Subject to any contrary requirement of law and the
right of each party to enforce its rights hereunder in any legal action, each
party shall keep strictly confidential, and shall cause its employees and
agents to keep strictly confidential, any information of or concerning the
other party which it or any of its agents or employees may acquire pursuant to,
or in the course of performing its obligations under, any provisions of this
Agreement or which it may have obtained from the other party before the
commencement of this Agreement that relates to the subject matter of this
Agreement; provided, however, that such obligation to maintain confidentiality
shall not apply to information which (i) at the time of disclosure was in the
public domain; (ii) was already independently in the possession of the
receiving party at the time of disclosure, or (iii) was received by the
receiving party from a third party who did not receive such information from
the disclosing party under an obligation of confidentiality.
ARTICLE 8
MISCELLANEOUS
8.1 Term. The initial term of this Agreement shall commence on the
Effective Date and, subject to earlier termination pursuant to Article 6,
continue until December 31, 2003, and any subsequent renewal terms provided
that this Agreement shall automatically renew at the end of the initial term
for successive one year terms unless either party, at least ninety (90) days
prior to the expiration of the initial or renewal terms, provides written
notice of its election not to renew the term.
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8.2 Independent Status of Parties. Each party shall act as an independent
contractor and shall not bind nor attempt to bind the other party to any
contract, or any performance of obligations outside of this Agreement. Nothing
contained or done under this Agreement shall be interpreted as constituting
either party the agent of the other in any sense of the term whatsoever unless
expressly so stated.
8.3 Force Majeure. In the event of strikes, lock-outs or other industrial
disturbances, rebellions, mutinies, epidemics, landslides, lightning,
earthquakes, fires, storms, floods, sinking, drought, civil disturbances,
explosions, acts or decisions of duly constituted municipal, state or national
governmental authorities or of courts of law, as well as impossibility to obtain
equipment, supplies, fuel or other required materials, in spite of having acted
with reasonable diligence, or by reason of any other causes, which are not under
the control of the party requesting the abatement of performance, or causes due
to unexpected circumstances which may not be possible to eliminate or overcome
with due diligence by such party ("Force Majeure"), the parties agree that, if
either of them find themselves wholly or partially unable to fulfill their
respective obligations in this Agreement by reasons of Force Majeure, the party
affected will advise the other party in writing of its inability to perform
giving a detailed explanation of the occurrence of the event which excuses
performance as soon as possible after the cause or event has occurred. If said
notice is given, the performance of the party giving the notification, except
the payment of funds, shall be abated for so long as performance may be
prevented by such event of Force Majeure. Except for the payment of funds that
are due and payable, neither party shall be required to make up any performance
that was prevented by Force Majeure.
8.4 Publicity. Each of Penwest and Penford shall consult with each other
prior to issuing any press releases or otherwise making public statements with
respect to any transactions contemplated hereby.
8.5 Governing Law. This Agreement shall be governed by the laws of the
State of Washington.
8.6 Notices. Notices hereunder shall be effective if given in writing and
delivered or mailed, postage prepaid, by registered or certified mail to:
Penford Corporation
777-108th Avenue NE
Suite 2390
Bellevue, WA 98004-5193
Attention: The President
or to:
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Penwest Pharmaceuticals Co.
2981 Route 22
Patterson, NY 12563-9970
Attention: The President
8.7 Entire Agreement. This Agreement contains the full understanding of
the parties with respect to the subject matter hereof and supersedes all prior
understandings and writings relating thereto. No waiver, alteration or
modification of any of the provisions hereof shall be binding unless made in
writing and signed by the parties.
8.8 Headings. The article, section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
8.9 Construction. Each provision of this Agreement shall be interpreted
in a manner to be effective and valid to the fullest extent permissible under
applicable law. The invalidity or unenforceability of any particular provision
of this Agreement shall not affect the other provisions of this Agreement which
shall remain in full force and effect.
8.10 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and assigns, provided that this Agreement and the rights and
obligations contained herein or in any exhibit or schedule hereto shall not be
assignable, in whole or in part, without the prior written consent of the
parties hereto or except in connection with a sale by a party of all or
substantially all of its assets and any attempt to effect any such assignment
without such consent shall be void.
8.11 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement.
8.12 Amendments; Waivers. This Agreement may be amended or modified only
in writing executed on behalf of Penford and Penwest. No waiver shall operate
to waive any further or future act and no failure to object of forbearance
shall operate as a waiver.
8.13 Exhibits. Exhibits to this Agreement shall be deemed to be an
integral part hereof, and schedules or exhibits to such Exhibits shall be
deemed to be an integral part thereof.
8.14 Arbitration. Any dispute, controversy or claim arising out of or in
connection with this Agreement (including any questions of fraud or questions
concerning the validity and enforceability of this Agreement or any of the
rights
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herein), shall be determined and settled by arbitration in Seattle, Washington,
pursuant to the rules then in effect of the American Arbitration Association as
modified by this paragraph. Any award rendered shall be final and conclusive
upon the parties and a judgment thereon may be entered in any court having
competent jurisdiction. The party submitting such dispute shall given written
notice to that effect to the other party, stating the dispute to be arbitrated
and the name and address of a person designated to act as arbitrator on its
behalf. Within fifteen (15) days after such notice, the other party shall given
written notice to the first party stating the name and address of a person
designated to act as a substitute on its behalf. In the event that the second
party shall fail to notify the first party of its designation of an arbitrator
within the time specified, then the first party shall request the American
Arbitration Association to appoint a second arbitrator. The two arbitrators so
chosen shall meet within fifteen (15) days after the second arbitrator has been
appointed to appoint a third arbitrator. If the two arbitrators are unable to
agree on the appointment of third arbitrator within such fifteen (15) day
period, either party may request the American Arbitration Association to
appoint a third arbitrator. Each arbitrator appointed hereunder shall be
independent of the parties and either party may disqualify an arbitrator who is
or is affiliated with a supplier, customer or competitor of either party
without the consent of the other party. Each arbitrator shall be reasonably
knowledgeable regarding the area or areas in dispute. The arbitrators shall
follow substantive rules of law and the Federal Rules of Evidence, require the
parties to conduct discovery pursuant to the rules then in effect under the
Federal Rules of Civil Procedure in an expeditious manner, cause testimony to be
transcribed, and make an award accompanied by findings of fact and a statement
of reasons for the decision. All costs and expenses, including attorney's fees,
of all parties incurred in any dispute which is determined and/or settled by
arbitration pursuant to this paragraph shall be borne by the party determined to
be liable in respect of such dispute; provided, however, that if complete
liability is not assessed against only one party, the parties shall share the
total costs in proportion to their respective amounts of liability so
determined. Except where clearly prevented by the area in dispute, both parties
agree to continue performing their respective obligations under this Agreement
while the dispute is being resolved. Each party, and the arbitrators, shall use
their best efforts, subject to reasonable prosecution of the arbitration, court
order and disclosure required under securities laws, to keep the subject matter
of the arbitration and confidential information of each party confidential, and
the arbitrators are authorized to impose such protective orders as they may deem
appropriate for such purpose.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
PENFORD CORPORATION
By: /s/ Jeffrey T. Cook
--------------------------------
Title: CFO
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PENWEST PHARMACEUTICALS CO.
By: /s/ Jack V. Talley
--------------------------------
Title: President
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EXHIBIT A
The purchase price for the Pharmaceutical Excipients during the period
from the Effective Date through December 31, 1999 shall be $0.33 per pound.
Beginning on January 1, 2000, a new purchase price shall be negotiated in good
faith by the parties on an annual basis or for such other period of time as the
parties may agree upon. If the parties fail to reach agreement on a new
purchase price, the then current purchase price shall remain in effect,
provided that either party shall have the right to terminate this Agreement
upon ninety (90) days prior written notice.
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