CONFORMED COPY
GLOBAL PRINCIPLES AGREEMENT
between
WARNER-LAMBERT COMPANY
and
WELLCOME PLC
________________________
Dated December 17, 1993
________________________
TABLE OF CONTENTS
ARTICLE I
Definitions
SECTION 1.01. Definitions. . . . . . . . . . . . . . . . 1
SECTION 1.02. Terms Generally. . . . . . . . . . . . . . 14
ARTICLE II
Closings
SECTION 2.01. Closings . . . . . . . . . . . . . . . . . 15
SECTION 2.02. Core Territory . . . . . . . . . . . . . . 15
SECTION 2.03. Subsequent Closings . . . . . . . . . . . 16
SECTION 2.04. Deemed Closing Date of U.S. Partnership. . 16
ARTICLE III
Management of JV Entities; Funding
SECTION 3.01. Management of the JV Entities .. . . . . . 17
SECTION 3.02. Governing Boards; Membership; Powers . . . 17
SECTION 3.03. Quorum; Notice; Meetings . . . . . . . . . 20
SECTION 3.04. Designation of New Representatives
or Alternative Representatives . . . . . 20
SECTION 3.05. Other Positions of Representatives . . . . 21
SECTION 3.06. Annual Operating Plans; Incentive
Compensation Plans; Initial Plans;
Plan Compliance . . . . . . . . . . . . 21
SECTION 3.07. No Remuneration . . . . . . . . . . . . . 22
SECTION 3.08. Funding . . . . . . . . . . . . . . . . . 22
SECTION 3.09. Governance; Percentage Interest of
Wellcome in U.S. Partnership . . . . . . 23
SECTION 3.10. Expenses of JV Entities; Adjustments . . . 24
SECTION 3.11. Deliberations . . . . . . . . . . . . . . 25
SECTION 3.12. Bank Accounts . . . . . . . . . . . . . . 25
ARTICLE IV
Operations; JV Entities
SECTION 4.01. General . . . . . . . . . . . . . . . . . 25
SECTION 4.02. Form and Structure of JV Entities . . . . 25
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SECTION 4.03. Equitable Adjustment . . . . . . . . . . . 30
SECTION 4.04. Zovirax Arrangements . . . . . . . . . . . 31
SECTION 4.05. Management of JV Entities . . . . . . . . 33
SECTION 4.06. Operations to be Conducted in Accordance
with Annual Operating Plan and
Direction of the Relevant Governing
Board . . . . . . . . . . . . . . . . . 33
SECTION 4.07. Asset Contributions. . . . . . . . . . . . 33
SECTION 4.08. Management Standards . . . . . . . . . . . 34
ARTICLE V
Glaxo Arrangement and Wellcome Profit Participation
SECTION 5.01. Treatment of Glaxo Arrangement . . . . . . 34
SECTION 5.02. Payments . . . . . . . . . . . . . . . . . 35
SECTION 5.03. Wellcome Profit Participation and
Development Costs Obligations. . . . . . 36
SECTION 5.04. Control of Glaxo Arrangement
Products . . . . . . . . . . . . . . . . 37
ARTICLE VI
New Products
SECTION 6.01. Products Developed by the Parties . . . . 38
SECTION 6.02. OTC Switch Candidates . . . . . . . . . . 38
SECTION 6.03. Acquisition by a Party . . . . . . . . . . 40
SECTION 6.04. Acquisition by a JV Entity . . . . . . . . 41
SECTION 6.05. Continuing Development . . . . . . . . . . 41
SECTION 6.06. Use of Information . . . . . . . . . . . . 41
ARTICLE VII
Manufacturing; Supply; Services
SECTION 7.01. Manufacturing and Supply . . . . . . . . . 42
SECTION 7.02. Services . . . . . . . . . . . . . . . . . 42
SECTION 7.03. Operating Issues . . . . . . . . . . . . . 43
SECTION 7.04. Alternate Manufacturing Sites. . . . . . . 43
SECTION 7.05. Audits and Inspections . . . . . . . . . . 43
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ARTICLE VIII
Change of Control
SECTION 8.01. Definition of Change of Control;
Response to Third Parties . . . . . . . 44
SECTION 8.02. Effect of Change of Control . . . . . . . 45
ARTICLE IX
Covenants of Wellcome and W-L
SECTION 9.01. Access . . . . . . . . . . . . . . . . . . 45
SECTION 9.02. Financial Information . . . . . . . . . . 45
SECTION 9.03. Books and Records . . . . . . . . . . . . 46
SECTION 9.04. Conduct of Business . . . . . . . . . . . 46
SECTION 9.05. Approvals and Consents . . . . . . . . . . 47
SECTION 9.06. Regulatory . . . . . . . . . . . . . . . . 47
SECTION 9.07. Further Assurances . . . . . . . . . . . . 48
SECTION 9.08. Tax Matters . . . . . . . . . . . . . . . 48
SECTION 9.09. Employees; Sharing of Certain Costs. . . . 48
ARTICLE X
Post Closing Covenants of Wellcome and W-L
SECTION 10.01. Treatment of OTC Zovirax; Regulatory . . . 49
SECTION 10.02. Further Assurances . . . . . . . . . . . . 50
SECTION 10.03. Tax Matters. . . . . . . . . . . . . . . . 51
SECTION 10.04. U.S. Export Controls Compliance;
Restrictive Trade Practices Act 1976 . . 51
SECTION 10.05. JV Entity Books and Records; Audits. . . . 52
SECTION 10.06. Intellectual Property Rights . . . . . . . 52
SECTION 10.07. Access . . . . . . . . . . . . . . . . . . 53
SECTION 10.08. Benefit of Contracts . . . . . . . . . . . 53
SECTION 10.09. Use of Parent Names. . . . . . . . . . . . 54
SECTION 10.10. Competition. . . . . . . . . . . . . . . . 54
SECTION 10.11. Insurance. . . . . . . . . . . . . . . . . 55
SECTION 10.12. JV Prescription Zovirax. . . . . . . . . . 56
SECTION 10.13. Scope of JV Business; Non-Violation
of Existing Obligations. . . . . . . . 56
SECTION 10.14. Conduct of Business. . . . . . . . . . . . 56
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ARTICLE XI
Conditions to Wellcome's and W-L's Obligations
SECTION 11.01. Certain Action . . . . . . . . . . . . . . 57
SECTION 11.02. Government Approvals and Consents . . . . 57
SECTION 11.03. Tax Rulings . . . . . . . . . . . . . . . 58
SECTION 11.04. Representations and Warranties . . . . . . 58
SECTION 11.05. Performance of Covenants . . . . . . . . . 58
SECTION 11.06. Authorization of Agreements . . . . . . . 59
SECTION 11.07. Execution of Operative Documents . . . . . 59
SECTION 11.08. Certificate of Compliance . . . . . . . . 59
SECTION 11.09. Assignment of Certain Contracts
and Licenses . . . . . . . . . . . . . . 59
ARTICLE XII
Transfer of Joint Venture Interest
SECTION 12.01. Limitation on Right to Transfer . . . . . 60
SECTION 12.02. Permitted Transfers . . . . . . . . . . . 60
ARTICLE XIII
Indemnification
SECTION 13.01. Responsibility for Liabilities and
Expenses . . . . . . . . . . . . . . . . 61
SECTION 13.02. Indemnification . . . . . . . . . . . . . 63
ARTICLE XIV
Term and Termination
SECTION 14.01. Term of JV Entity . . . . . . . . . . . . 65
SECTION 14.02. OTC Zovirax Not Approved . . . . . . . . . 65
SECTION 14.03. Wellcome Events of Termination;
Remedies . . . . . . . . . . . . . . . . 68
SECTION 14.04. W-L Events of Termination; Remedies . . . 72
SECTION 14.05. W-L's Option to Purchase Wellcome's
Interest in the Glaxo Arrangement;
Wellcome Tag-Along Right . . . . . . . . 75
SECTION 14.06. Waiver of Right to Terminate . . . . . . . 76
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SECTION 14.07. Winding Up and Transfer of Assets;
Liquidation. . . . . . . . . . . . . . . 76
SECTION 14.08. Rationalization of Interests; Tax
Indemnification. . . . . . . . . . . . . 77
SECTION 14.09. Termination of Related Agreements. . . . . 77
SECTION 14.10. Failure to Satisfy Required Conditions . . 78
SECTION 14.11. Definitional Clarification . . . . . . . . 78
ARTICLE XV
General
SECTION 15.01. Expenses . . . . . . . . . . . . . . . . . 78
SECTION 15.02. Assignment and Binding Effect . . . . . . 79
SECTION 15.03. Inability to Agree Upon Value . . . . . . 79
SECTION 15.04. Financial Consolidation. . . . . . . . . . 79
SECTION 15.05. Notices. . . . . . . . . . . . . . . . . . 79
SECTION 15.06. Parties in Interest. . . . . . . . . . . . 80
SECTION 15.07. Press Releases . . . . . . . . . . . . . . 80
SECTION 15.08. Headings; Schedules; Counterparts . . . . 80
SECTION 15.09. Entire Agreement; Amendment;
Severability . . . . . . . . . . . . . . 81
SECTION 15.10. Waiver; Compliance . . . . . . . . . . . . 81
SECTION 15.11. Confidentiality. . . . . . . . . . . . . . 81
SECTION 15.12. Governing Law; Jurisdiction; Consent
to Service of Process; Agent for
Service. . . . . . . . . . . . . . . . . 82
Schedules
Schedule 1 Format for Calculating Certain Profits
and Losses
CONFORMED COPY
GLOBAL PRINCIPLES AGREEMENT dated December 17, 1993 (the 'Agreement'), by
and between WARNER-LAMBERT COMPANY, a Delaware corporation ('W-L') and WELLCOME
plc, a company incorporated in England ('Wellcome').
W-L and Wellcome are each engaged in the non-prescription consumer health
care products business. It is the desire of W-L and Wellcome, directly or
through their respective affiliates, to establish joint ventures in which their
respective non-prescription consumer health care businesses will be combined in
the United States, Canada, Australia and member states of the European Union and
countries in the Other European Territory (as hereinafter defined) and, at
future dates, in other countries throughout the world, including countries
within Eastern Europe, to which the Parties agree to extend their joint
ventures. While the specific form of the joint ventures may vary in different
countries, it is the intention of the parties, by this Agreement, to agree upon
certain principles which will govern the management and strategic development of
the joint ventures as agreed and implemented by the Parties.
NOW, THEREFORE, in consideration of the premises and the mutual covenants,
agreements, representations and warranties herein contained, and for other good
and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto intending to be legally bound hereby agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions.
'Administrative Services Allocation' shall mean, for purposes of
calculating Special Profit and Loss, an amount equal to 2% of Net Sales by a JV
Entity of (a) OTC Zovirax in the United States or (b) any OTC Switch Product in
the United States or the Remainder of the World, such Administrative Services
Allocation amount not to exceed U.S. $5 million in respect of each product in
each country (non-U.S. Dollar currencies to be converted to U.S. Dollars
pursuant to the Procedure for Converting Net Sales) in any Fiscal Year. Such
U.S. $5 million allocation limitation will be adjusted for each product for each
relevant Fiscal Year following the year in which such limitation is reached by a
percentage which shall equal the percentage change from the previous year in the
Consumer Price Index (1982-84=100), all items less energy, published by the
Bureau of Labor Statistics of the United States Department of Labor, or any
replacement index.
'Affiliate' with respect to any Person, shall mean any other Person
controlling, controlled by or under direct or indirect common control with such
Person but shall be deemed not to include a JV Entity. A Person shall be deemed
to control a corporation (or other entity) if such Person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of such corporation (or other entity), whether through the ownership of
voting securities, by contract or otherwise.
'Annual Operating Plan' shall have the meaning set forth in Section 3.06.
'Base Business Profit and Loss' shall mean, in the case of each JV Entity,
its Profit and Loss less its Export Profit and Loss, Glaxo Profit and Loss,
Special Profit and Loss and any items allocated pursuant to Section 4.02(c)(vi),
the result of which, if positive, would be Base Business Profit or, if negative,
would be Base Business Loss.
'Benchmark Direct Profit Contribution Target' shall have the meaning set
forth in Schedule 2 to the Supplemental Document Package.
'Business Day' shall mean, with respect to any particular Territory, a day
of the year in which banks are neither required nor authorized to close in such
Territory.
'Change of Control' shall have the meaning set forth in Section 8.01.
'Certified Public Accountants' shall mean the independent certified public
accountants of Wellcome, W-L or any JV Entity, as the case may be.
'Closing' shall have the meaning set forth in Section 2.01.
'Closing Date' shall have the meaning set forth in Section 2.01.
'Core Territory' shall mean Australia, Canada, the EC Territory, the Other
European Territory and the United States. For the purpose of this Agreement,
references to Australia shall also be deemed to include New Zealand.
'Cost of Goods Sold' shall have the meaning set forth in Schedule 1 hereto.
'Direct Profit Contribution' shall mean (i) Net Sales of JV Prescription
Zovirax and OTC Zovirax less (ii) the sum of Cost of Goods Sold, Promotion and
Advertising applicable thereto.
'EC Territory' shall mean the Territory made up of the following countries:
Belgium, Denmark, France, Germany, Greece, Ireland, Italy, Luxembourg, the
Netherlands, Portugal, Spain and the United Kingdom.
'Exclusivity' shall mean having the exclusive right to make, use and sell a
compound in the United States non-prescription consumer health care market due
to the existence of a valid compound patent relating to such compound or the
granting of exclusivity under the Drug Price Competition and Patent Term
Restoration Act of 1984, Pub. L. No. 98-417, 98 Stat. 1585-1605 (1984) or
similar legislation enacted in the United States.
'Existing Products' shall mean products presently included in the Wellcome
Contributed Business and W-L Contributed Business as identified on Schedule
1.01(a) and 1.01(b), respectively, in the Supplemental Document Package.
'Excess Sales' shall mean the amount, if any, by which Net Sales for the
two calendar months prior to a Closing Date exceed the product of (a) Net Sales
for the comparable two-month period for the prior year multiplied by (b) a
fraction, the numerator of which is Net Sales for the ten-month period preceding
the two-month period preceding such Closing Date, and the denominator of which
is Net Sales for the comparable ten-month period for the prior year.
'Export Profit and Loss' shall mean, in the case of each JV Entity, its Net
Sales to customers outside its Territory (both third-party customers and, for
purposes of this definition, JV Entities), less the items of (income)/expense
identified on Schedule 1 hereto relating to such extra-territorial Net Sales,
the result of which, if positive, would be Export Profit or, if negative, would
be Export Loss.
'FDA' shall mean the United States Federal Food and Drug Administration or
any successor agency of the United States.
'Fiscal Quarter' shall mean in the United States, a three-month period
ending on March 31, June 30, September 30 and December 31, and in the Remainder
of the World, a three-month period ending on February 28 (or 29), May 31, August
31 and November 30.
'Fiscal Year' shall mean in the United States the calendar year, and in the
Remainder of the World, the twelve-month period ending November 30.
'Fully Allocated Cost' shall mean (i) in the case of products, all directly
attributable costs for materials and labor plus an appropriate allocation of
indirect costs which support the manufacturing of such products, or (ii) in the
case of the lease of property or the provision of services, all directly
attributable costs plus an appropriate allocation of indirect costs (including
depreciation and amortization) which support the provision of such property or
services, all as more fully described for products, property and services in the
Operative Documents.
'General Manager' shall have the meaning set forth in Section 4.05.
'Glaxo' shall mean Glaxo Holdings plc, a company incorporated under the
laws of England.
'Glaxo Arrangement' shall mean the worldwide arrangements between Glaxo and
W-L established pursuant to the principles set forth in the Global Principles
Agreement between W-L and Glaxo dated as of December 10, 1993, and as initially
implemented by the Partnership Agreement between W-L and Glaxo OTC Inc. dated as
of December 10, 1993.
'Glaxo Development Costs' shall mean the costs incurred by Glaxo, W-L, an
entity established pursuant to the Glaxo Arrangement or a JV Entity as
development costs of obtaining any required
2
regulatory approval of claims, indications or dosage forms of products
attributable to the Glaxo Arrangement, as determined in accordance with U.S.
GAAP.
'Glaxo Management Fee' shall mean any amounts paid by Glaxo, an Affiliate
of Glaxo or an entity established pursuant to the Glaxo Arrangement in respect
of (i) the fixed percentage fee for field selling, detail field selling,
operations, general administration, corporate allocation and other
(income)/expense and (ii) any reimbursement of a JV Entity for the provision of
services to any such joint venture by a JV Entity at Fully Allocated Cost.
'Glaxo Profit and Loss' shall mean any profit or loss (for the avoidance of
doubt excluding income received by a JV Entity as a Glaxo Management Fee), net
of income tax, if any, payable by the JV Entity, attributable to any interest or
right in the Glaxo Arrangement held or owned by a JV Entity, W-L or an Affiliate
of W-L.
'Going Concern Value' shall mean the value determined in accordance with
Section 15.03 of a product or business of a JV Entity as if such product or
business were freely tradeable in the open market. Such valuation will not
reflect a premium for control or a discount for lack of marketability or
control.
'Governing Board' shall mean each Governing Board established in accordance
with Section 3.02 of this Agreement to manage the relevant JV Entity.
'Indebtedness' shall mean, for any Party or JV Entity (without
duplication): (a) obligations of such JV Entity for borrowed money (whether by
loan, the issuance and sale of debt securities or the sale of property to
another Person subject to an understanding or agreement, contingent or
otherwise, to repurchase such property from such Person); (b) obligations of
such JV Entity to pay the deferred purchase or acquisition price of property or
services, other than trade accounts payable (other than for borrowed money)
arising, in the ordinary course of business and accrued expenses so incurred, so
long as such trade accounts payable are payable within 120 days of the date the
respective goods are delivered or the respective services are rendered; (c)
indebtedness of others secured by a Lien on the property of such JV Entity,
whether or not the indebtedness so secured has been assumed by such JV Entity;
(d) obligations (contingent or otherwise) of such JV Entity in respect of
letters of credit, bankers' acceptances or similar instruments issued or
accepted by banks and other financial institutions for the account of such
Person; (e) capitalized lease obligations of such JV Entity; and (f)
indebtedness of others guaranteed by such JV Entity.
'JV Business' shall mean the combined Wellcome Contributed Business and W-L
Contributed Business in respect of any JV Entity, and the development,
marketing, distribution and selling by a JV Entity of such other consumer health
care products as may be added to such business from time to time in accordance
with the terms of this Agreement.
'JV Entity' shall mean in respect of the United States the U.S.
Partnership, and in respect of any other country such other organization as the
Parties may determine for the purpose of conducting the JV Business in that
country, it being understood that to the extent holding company structures are
utilized, the holding company and any entities it controls shall each be deemed
a JV Entity.
'JV Implementation Agreement' shall mean the agreement (or agreements) that
establish the structure of the JV Entity and provide for the JV Business to be
conducted in a relevant Territory in a form reflecting the provisions of this
Agreement with such alterations or additions as may be required by law or agreed
to by the Parties.
'JV Management' shall mean the General Manager and those persons appointed
by the General Manager to manage each of the JV Entities.
'JV Prescription Zovirax' shall mean a product sold by prescription having
Zovirax as its sole active ingredient in a cream form in three gram or less
packaging in the Remainder of the World.
'Launch Date' shall mean, in respect of OTC Zovirax, the earlier of (i) the
date of the first commercial sale of OTC Zovirax by the U.S. Partnership (other
than sales resulting from regional test marketing) or (ii) the date following an
NDA Approval that Wellcome approves in writing for the commercial distribution
of OTC Zovirax in the United States.
3
'Lien' shall mean any lien, mortgage, pledge, security interest, charge or
encumbrance of any kind (including, without limitation, any conditional sales or
other title retention agreement, any lease in the nature thereof and any
agreement to give any of the foregoing).
'Line Extension' shall mean any extensions of Existing Products in any
Territory (or products hereafter contributed by a Party other than OTC Switch
Products) which (i) utilize the same trademark as an Existing Product (or a
product hereafter contributed by a Party) or (ii) are of the same or similar
class, category or formulation as an Existing Product (or a product hereafter
contributed by a Party other than OTC Switch Products) which is marketed by a JV
Entity.
'NDA' shall mean a New Drug Application, including any amendments or
supplements thereto, filed with the FDA pursuant to 21 U.S.C. 355 (1970), as
such statute may be amended at any time in the future, or any regulation
thereunder.
'NDA Approval' shall mean the receipt of final approval from the FDA of an
NDA or a supplemental NDA to make, use and sell in the United States a subject
product with labeling reasonably acceptable to the Parties which in the case of
OTC Zovirax shall include as an indication the treatment of recurrent genital
herpes.
'NDA Disapproval' shall have the meaning set forth in Section 5.03(g).
'Net Sales' shall mean gross invoice amounts on sales of products to third
party customers less the following deductions reasonably and properly incurred
in the ordinary course of business and paid or given: off invoice (i.e.,
non-performance discounts), quantity (including bracket pricing) and cash
discounts and any other adjustments, including but not limited to those granted
on account of price adjustments, billing errors, rejected goods, damaged goods,
recalls, returns, rebates, chargebacks and prime vendor rebates, fees,
reimbursements or similar payments granted or given to wholesalers or other
distributors, buying groups, health care insurance carriers or other
institutions, freight and insurance charges billed to the customer, custom or
excise duties, sales tax, value added tax and other taxes (except income taxes)
or duties relating to sales of products, any payment made in respect of sales of
products to any governmental or quasi-governmental body or agency.
'Non-Core Territory' shall mean all countries other than those countries
that constitute the Core Territory.
'Non-Originating Party' shall mean (a) with respect to a product, the Party
which did not make available to a JV Entity such product or any Line Extension
thereof, (b) with respect to any OTC Switch Product, the Party that did not (i)
offer the OTC Switch Candidate or (ii) acquire an OTC Switch Candidate that
resulted in such OTC Switch Product, (c) with respect to any product resulting
from the Glaxo Arrangement, any Party other than W-L and (d) with respect to a
product described in Section 6.03, the Party which has not acquired the product
or is not considering the acquisition of the product described therein.
'Operative Documents' shall mean this Agreement, the Wellcome Standstill
Agreement, the W-L Standstill Agreement, the Representations and Warranties
Agreement, the JV Implementation Agreements and all ancillary documents referred
to herein and therein to be executed pursuant to this Agreement.
'Originating Party' shall mean (a) with respect to a product, the Party
which made available to a JV Entity such product or any Line Extension thereof,
(b) with respect to any OTC Switch Product, the Party that (i) offered the OTC
Switch Candidate or (ii) acquired an OTC Switch Candidate that resulted in such
OTC Switch Product, (c) with respect to any product resulting from the Glaxo
Arrangement, W-L and (d) with respect to a product described in Section 6.03,
the Party which has acquired the product or is considering the acquisition of
the product described therein.
'OTC Switch Candidate' shall mean a prescription drug product, a form of
which may potentially be sold, in the opinion of the Originating Party and for
one or more specified indications, without the necessity of a prescription, but
shall not include OTC Zovirax, JV Prescription Zovirax or any product resulting
from the Glaxo Arrangement.
4
'OTC Switch Product' shall mean a product (including line extensions
thereto) developed from an OTC Switch Candidate or which may otherwise be sold
without the necessity of a prescription other than OTC Zovirax or any product
resulting from the Glaxo Arrangement.
'OTC Zantac' shall mean a form of Zantac which may be sold without the
necessity of a prescription.
'OTC Zovirax' shall mean a form of Zovirax which may be sold without the
necessity of a prescription.
'Other European Territory' shall mean the Territory made up of the
following countries: Austria, Finland, Iceland, Lichtenstein, Norway, Sweden and
Switzerland.
'Party' shall mean Wellcome or W-L or any other Person which becomes a
party hereto.
'Permitted Liens' shall mean (i) any Lien for current taxes not delinquent
or taxes being contested in good faith by appropriate proceedings and (ii) other
Liens incidental to the conduct of a business or the ownership of property and
assets which were not incurred in connection with the incurrence of
Indebtedness, and which do not in the aggregate materially detract from the
value of the property or assets or materially impair the use thereof in the
operation of the business.
'Permitted Transfer' shall mean a transfer of a Party's interest in a JV
Entity or this Agreement in accordance with Article XII hereof.
'Person' shall mean any individual or corporation, company, partnership,
trust, incorporated or unincorporated association, joint venture or other entity
of any kind.
'Procedure for Converting Net Sales' shall mean, for the purposes of this
Agreement, the following method for converting Net Sales of JV Prescription
Zovirax, OTC Zovirax and any OTC Switch Product (or any other amount) in any
Territory other than the United States into U.S. Dollars. Net Sales shall be
first determined in the currency of the country in which they are recorded and
then converted to its equivalent in U.S. Dollars. An average monthly exchange
rate shall be utilized for conversion of major non-U.S. currencies which shall
be the sum of the 8:00 AM offered rates of exchange for each Business Day during
the month as quoted by Bank of New York (or its successor, or other bank to be
agreed if Bank of New York does not have a market in such currency) divided by
the number of Business Days in the month. In the case of minor non-U.S.
currencies, the 8:00 AM offered rate of exchange on the last Business Day of the
current and previous monthly period in which the Net Sales were recorded as
quoted by the aforesaid bank shall be used to compute an average monthly
exchange rate.
'Profit and Loss' shall mean, in the case of each JV Entity, collectively,
(i) Net Sales, less (ii) the aggregate of the items of (income)/expense
identified on Schedule 1 hereto, the result of which, if positive, would be
Profit or, if negative, would be Loss.
'Ranitidine' shall mean, the pharmaceutical compound
N-[2-[[[5-[(demethylamino)methyl]-2-furanyl]methyl]thio]ethyl]-N'
- -methyl-2-nitro-1, 1-ethenediamine and its hydrochloride salt; provided,
however, that for the avoidance of doubt, this definition shall not encompass
Ranitidine Bismuth Citrate.
'Ranitidine Bismuth Citrate' shall mean the pharmaceutical compound
N-[2-[[[5-[(dimethylamino)methyl]2-furanyl]methyl]thio]ethyl]-N'
- -methyl-2-nitro-1, 1-ethenediamine 2-hydroxy-1,2,3-propanetricarboxylate bismuth
(3+) complex.
'Regulatory Approval' shall mean the receipt of final approval from all
relevant governmental and other authorities to make, use and sell in a relevant
Territory the product in respect of which approval was sought, together with all
appropriate and reasonably acceptable pricing approvals.
'Remainder of the World' shall mean all countries other than the United
States.
'Representations and Warranties Agreement' shall mean the Representations
and Warranties Agreement entered into by W-L and Wellcome, dated the date hereof
and identified as Exhibit A in the Supplemental Document Package or such other
agreement containing representations and warranties as may be entered into by
the Parties or any of their respective Affiliates in substantially the form
thereof with such alterations thereto as may be contemplated herein or therein,
as the case may be.
5
'Special Profit and Loss' shall mean, in the case of each JV Entity, with
respect to OTC Zovirax in the United States or any OTC Switch Product in the
United States or the Remainder of the World, each individually, Net Sales of
such product less the sum of (i) the items of (income)/expense identified on
Schedule 1 hereto relating to such product (except those items delineated with
the letter 'A') and (ii) the Administrative Services Allocation, the result of
which, if positive, would be Special Profit or, if negative, would be Special
Loss.
'Strategic Plan' shall have the meaning set forth in Section 3.06.
'Supplemental Document Package' shall mean those Operative Documents
substantially the form of which has been agreed upon by the Parties and certain
schedules referred to herein.
'Taxes' shall mean taxes or other levies and assessments, including income,
profits, capital gain, franchise, excise, sales, use, transfer, registration,
customs, value added, withholding, occupation, property, payroll or other
governmental levies, including any penalties or interest thereon.
'Territory' shall mean the country, countries or territory in which a JV
Entity may operate or in which the Parties have agreed in principle to form a JV
Entity.
'U.K. GAAP' shall mean generally accepted accounting principles as
prevailing from time to time in the United Kingdom.
'United States' shall mean the fifty states of the United States of
America, the District of Columbia and U.S. military bases worldwide.
'U.S. GAAP' shall mean generally accepted accounting principles as
prevailing from time to time in the United States.
'U.S. Partnership' shall mean Warner Wellcome Consumer Health Products, a
Delaware general partnership formed by W-L and BW Consumer Products Inc., a
Delaware corporation and indirect wholly-owned subsidiary of Wellcome, as the JV
Entity in the United States.
'Variable Profit Contribution' shall mean (i) Net Sales less (ii) the sum
of Cost of Goods Sold, Freight, Promotional Allowances (as those terms are
defined in Schedule 1) and broker or other sales commissions.
'Wellcome Contributed Business' shall mean the business presently engaged
in by Wellcome and its Affiliates in the relevant Territories of developing,
marketing, distributing and selling the non-prescription consumer health care
products currently marketed or under development by it and which, as to the Core
Territory, are set forth in Schedule 1.01(a) (including JV Prescription Zovirax
to the extent set forth therein) to the Supplemental Document Package and which
will be identified in each JV Implementation Agreement to the extent appropriate
for the relevant JV Entity, together with all Line Extensions thereof, but
excluding export business to a Territory with respect to which there is no JV
Implementation Agreement.
'Wellcome Intellectual Property Agreement' shall mean any agreement under
which Wellcome or any of its Affiliates makes available patents, trademarks,
know-how and other intellectual property rights in substantially the forms
identified as Exhibits B and C in the Supplemental Document Package, as the same
may be amended or modified from time to time.
'Wellcome Manufacturing and Supply Agreement' shall mean any Manufacturing
and Supply Agreement to be entered into by Wellcome or any of its Affiliates and
a JV Entity in substantially the form identified as Exhibit D in the
Supplemental Document Package, as the same may be amended from time to time.
'Wellcome Marketing, Services and Development Agreement' shall mean any
Marketing, Services and Development Agreement to be entered into by Wellcome or
any of its Affiliates and a JV Entity in substantially the form identified as
Exhibit E in the Supplemental Document Package, as the same may be amended from
time to time.
'Wellcome Regulatory Documentation' shall mean all regulatory documents,
clinical studies and tests, including without limitation, all new drug
applications, abbreviated new drug applications, drug master files,
correspondence with appropriate regulatory agencies (registrations and licenses,
regulatory drug lists, advertising and promotion documents), adverse event
files, complaint files and manufacturing
6
records relating to products in the Wellcome Contributed Business and OTC
Zovirax which are reasonably necessary or appropriate to the conduct of the
business of the JV Entity.
'Wellcome Standstill Agreement' shall mean the Wellcome Standstill
Agreement dated as of the date hereof, as the same may be amended or modified
from time to time.
'W-L Contributed Business' shall mean the business presently engaged in by
W-L and its Affiliates in the relevant Territories of developing, marketing,
distributing and selling the non-prescription consumer health care products
currently marketed or under development by it and which, as to the Core
Territory, are set forth in Schedule 1.01(b) to the Supplemental Document
Package and which will be identified in each JV Implementation Agreement to the
extent appropriate for the relevant JV Entity, together with all Line Extensions
thereof, but excluding export business to a Territory with respect to which
there is no JV Implementation Agreement.
'W-L Intellectual Property Agreement' shall mean any agreement under which
W-L or any of its Affiliates makes available patents, trademarks, know-how and
other intellectual property rights relating to a JV Entity in substantially the
form identified as Exhibits B and C in the Supplemental Document Package, as the
same may be amended or modified from time to time.
'W-L Manufacturing and Supply Agreement' shall mean any Manufacturing and
Supply Agreement to be entered into by W-L or any of its Affiliates and a JV
Entity in substantially the form identified as Exhibit D in the Supplemental
Document Package, as the same may be amended or modified from time to time.
'W-L Marketing, Services and Development Agreement' shall mean any
Marketing, Services and Development Agreement to be entered into by W-L or any
of its Affiliates and a JV Entity in substantially the form identified as
Exhibit E in the Supplemental Document Package, as the same may be amended or
modified from time to time.
'W-L Regulatory Documentation' shall mean all regulatory documents,
clinical studies and tests, including, without limitation, all new drug
applications, abbreviated new drug applications, drug master files,
correspondence with appropriate regulatory agencies (registrations and licenses,
regulatory drug lists, advertising and promotion documents), adverse event
files, complaint files and manufacturing records relating to products in the W-L
Contributed Business which are reasonably necessary or appropriate to the
conduct of the business of the JV Entity.
'W-L Standstill Agreement' shall mean the W-L Standstill Agreement dated as
of the date hereof, as the same may be amended or modified from time to time.
'Zantac' shall mean a product containing Ranitidine; provided, however,
that for the avoidance of doubt, this definition shall not encompass Ranitidine
Bismuth Citrate.
'Zovirax' shall mean a product containing 9-(2-hydroxyethoxymethyl) guanine
and all pharmaceutically acceptable salts thereof.
'Zovirax Intellectual Property' shall have the meaning provided in the
Zovirax License Agreement.
'Zovirax License Agreement' shall mean any license agreement to be entered
into by Wellcome or any of its Affiliates and a JV Entity in substantially the
form identified as Exhibit F in the Supplemental Document Package, as the same
may be amended or modified from time to time.
'Zovirax Patent Expiration' shall mean April 22, 1997, or such earlier
date, if any, that the claim(s) relating to the compound itself contained in
United States Patent Number 4,199,574 relating to Zovirax shall be declared
invalid by a court of competent jurisdiction, which declaration shall be final
and not the subject of further appeal.
SECTION 1.02. Terms Generally. The definitions in Section 1.01 and
elsewhere herein shall apply equally to both the singular and plural forms of
the terms defined. The words 'include', 'includes' and 'including' shall be
deemed to be followed by the phrase 'without limitation'. All references herein
to Articles, Sections, paragraphs, clauses, Exhibits and Schedules shall be
deemed references to Articles, Sections, paragraphs and clauses of this
Agreement and Exhibits and Schedules included in the
7
Supplemental Document Package (except for Schedule 1 which shall be a Schedule
to this Agreement) unless the context shall otherwise require.
ARTICLE II
CLOSINGS
SECTION 2.01. Closings. Each closing of the transactions contemplated by
this Agreement in respect of a Territory (each a 'Closing') shall take place at
the offices of either Cravath, Swaine & Moore, Worldwide Plaza, 825 Eighth
Avenue, New York, New York or McKenna & Co., Mitre House, 160 Aldersgate Street,
London, England, or at such other place as the Parties may agree on dates to be
agreed upon by the Parties, as promptly as practicable following agreement by
the Parties on the form and content of a JV Implementation Agreement and all
Operative Documents relating thereto for that Territory and the satisfaction or
waiver of all of the conditions set forth in Article XI hereof in respect of
such Territory, but in no event later than ten Business Days (as measured in the
jurisdiction of the Closing) thereafter (the 'Closing Date').
SECTION 2.02. Core Territory. (a) This Agreement, the Wellcome Standstill
Agreement, the W-L Standstill Agreement, the Representations and Warranties
Agreement relating to JV Business to be conducted in the United States, Canada
and Australia, and the U.S. Partnership Agreement and the Operative Documents
referred to therein (such Partnership Agreement and Operative Documents to be
effective January 1, 1994) are being signed on the date hereof. In addition, a
Closing in respect of Australia and Canada will be effected as soon as
practicable following January 1, 1994.
(b) Upon the Parties' agreement, if any, as to the form and content of the
relevant JV Implementation Agreement and other Operative Documents, the receipt
of any rulings required prior to the execution of such JV Implementation
Agreement and the required transfer of any business, the relevant Operative
Documents shall be executed and thereafter there shall be a Closing upon the
satisfaction or waiver of the conditions to Wellcome's and W-L's obligations set
forth in Article XI hereof for each of the other countries in the Core
Territory, at which time the relevant JV Implementation Agreements shall be
executed and delivered and the relevant Governing Boards of such JV Entities
shall be established.
(c) In the event that a Closing has not occurred in respect of each of the
countries in the EC Territory and the Other European Territory prior to December
31, 1995, the Parties will explore alternative methods of conducting JV Business
in those countries. In the event alternative methods cannot be agreed upon, the
Parties shall consider whether the JV Entities previously established shall
continue and the appropriateness of modifying existing arrangements. In the
event the Parties agree to withdraw from the JV Entities previously established,
the methodology by which that shall be accomplished will be negotiated in good
faith by the Parties.
(d) Notwithstanding any provision in this Agreement to the contrary (but
without prejudice to Article IX), the Parties are not entering into any legally
binding arrangements in relation to the establishment of the JV Entities in the
EC Territory and Other European Territory. It is the intention of the Parties
that any JV Implementation Agreement with regard to the aforementioned
Territories will be entered into in accordance with the principles set forth in
this Agreement where practicable.
SECTION 2.03. Subsequent Closings. (a) JV Entities shall be established by
the Parties in such countries in the Non-Core Territory as and when agreed by
the Parties from time to time at such time as the relevant JV Implementation
Agreements have been executed and delivered and the conditions set forth in
Article XI herein and any other conditions set forth in the relevant JV
Implementation Agreements have been satisfied or waived.
(b) The Parties shall investigate the formation of JV Entities in the
countries in the Non-Core Territory during the period ending December 31, 1995.
The Parties intend, without being legally bound, to maintain their businesses in
those countries as they relate to the marketing of non-prescription consumer
health care products reasonably intact through such date or such earlier time as
the Parties may agree for the purpose of facilitating such investigation.
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SECTION 2.04. Deemed Closing Date of U.S. Partnership. For purposes of this
Agreement, references to a Closing Date shall be deemed to refer to January 1,
1994, in the case of the U.S. Partnership.
ARTICLE III
MANAGEMENT OF JV ENTITIES; FUNDING
SECTION 3.01. Management of the JV Entities. Subject to the oversight
responsibilities of the relevant Governing Board and the requirements of local
law, the day-to-day operations of each JV Entity shall be managed by a General
Manager.
SECTION 3.02. Governing Boards; Membership; Powers. (a) The Governing Board
of each JV Entity shall consist of seven members, four of whom shall be
representatives of W-L and three of whom shall be representatives of Wellcome,
and in the case of the Governing Board for the JV Entity operating in each of
the United States and Canada and the holding company for the JV Entities
operating in the EC Territory and the Other European Territory, the members
shall be the same individuals, unless otherwise agreed by the Parties. Subject
to local law, such representatives shall serve or designate others to serve on
the relevant Governing Boards of JV Entities to be formed in all other
Territories to be agreed upon by the Parties in accordance with this Agreement.
Each Governing Board will be responsible for the strategic direction and
oversight of the operations of the relevant JV Entity. Each Governing Board
shall have a Chairman who shall be designated by W-L from among its
representatives. Subject to local law, each Party may designate one or more
alternate representatives by notice to the other Party to act in the absence of
a representative. The participation and acts (including the execution of any
document) by any alternate representative shall be deemed to be the act of the
representative for whom the alternate representative is acting (and any
alternate representative of the Chairman of the Governing Board shall have all
the powers of the Chairman of the Governing Board in each case) without any
evidence of the absence or unavailability of such representative (or the
Chairman of the Governing Board). In the event of the removal, resignation or
death of any representative of either Party, the vacancy thereby created shall
be filled by the Party which designated the representative so removed, resigning
or deceased.
(b) Subject to local law, the Governing Boards shall act only upon the
unanimous written consent of the representatives without a meeting or upon the
majority vote of the representatives at a meeting thereof at which a quorum of
the representatives is present; provided, however, that:
(i) subject in the case of subparagraphs (A) and (B) to Section 5.04,
the following issues shall, subject to local law, be decided only by the
vote of at least 85% of all representatives:
(A) material acquisitions (subject to each Party's rights under
Article VI) or divestitures by any JV Entity, or a series of related
divestitures which taken together would be material, it being understood
that the divestiture of any single product brand in any country shall be
deemed material;
(B) material transactions, or a series of related transactions
which taken together would be material, between any JV Entity and either
Party or their Affiliates, other than a transaction described in
subparagraph (A) of this Section 3.02(b)(i), any JV Implementation
Agreement or any other Operative Document;
(C) subject to Section 3.06(a), that component of any Strategic
Plan or Annual Operating Plan or amendment thereto affecting the
manufacture, development, sale or marketing of JV Prescription Zovirax,
OTC Zovirax or any OTC Switch Product as to which Wellcome was the
Originating Party;
(D) admission to any JV Entity of any Person other than W-L or
Wellcome or any of their wholly owned (directly or indirectly)
Affiliates;
(E) the issuance of any equity interest in a JV Entity to any
Person (other than qualifying shares required by local law to be held by
a member of the Governing Board of a JV Entity);
9
(F) any act to dissolve any JV Entity or to terminate any JV
Business other than pursuant to Article XIV hereof;
(G) the dismissal or appointment of a Certified Public Accountant
or auditor with respect to a JV Entity or a change in Fiscal Year for a
JV Entity; and
(H) any amendment to the memorandum or articles of association or
similar constituent document of a JV Entity, or any material amendment
to an Operative Document to which a JV Entity is a party.
For purposes of subparagraphs (A) and (B) of this clause (i) only those
acquisitions, divestitures or transactions (other than a divestiture (including
out licenses) of a single product brand as set forth in subparagraph (A) of this
Section 3.02(b)(i)) involving a purchase price, or, in the case of a license
transaction, payments other than those calculated on the basis of product sales
(e.g., up-front fees and milestone payments), in excess of 5% of Net Sales of
the relevant JV Entity for the preceding Fiscal Year shall be deemed material.
(ii) Subject to local law and clause (i) above, each Governing Board
by simple majority vote shall have the power to, among other things:
(A) approve the nomination by W-L of the General Manager and the
chief financial officer of each JV Entity for the purpose of conducting
the day-to-day operations of such JV Entity;
(B) subject to Section 3.02(b)(i)(C), approve the Annual Operating
Plan and Strategic Plan or any amendment thereto of a JV Entity as
proposed by JV Management;
(C) consistent with Section 3.08, approve all proposals for
financing of the operations of such JV Entity;
(D) consistent with Section 4.02(b), approve the making of any
distribution by a JV Entity to any of its partners, shareholders or
parties in interest; and
(E) consider and coordinate any cross-border issues, including
sales of products between JV Entities, the utilization of alternative
manufacturing sites (subject to the terms of any relevant W-L
Manufacturing and Supply Agreement or Wellcome Manufacturing and Supply
Agreement), reliance on another JV Entity's regulatory licenses and
other sales, marketing and regulatory issues.
(c) No JV Entity shall be charged for any expense based on the depreciation
of a capital expenditure (within the meaning of U.S. GAAP or U.K. GAAP, as the
case may be) relating to the JV Business which capital expenditure shall have
been incurred with respect to a project or a series of related projects
commenced by either Party after the date of this Agreement which expenditure
exceeds $5 million unless such expenditure has been approved by the other Party.
For the avoidance of doubt, any capital expenditures in respect of a project or
a series of related projects commenced prior to the date hereof shall be deemed
approved by the other Party.
SECTION 3.03. Quorum; Notice; Meetings. The governing documents of each JV
Entity shall require, subject to local law, the personal presence of not fewer
than three representatives including at least one representative designated by
Wellcome and two representatives designated by W-L to constitute a quorum for
the transaction of business at any meeting of the Governing Board for such JV
Entity. In addition, any representative may call a meeting of such Governing
Board, and written notice specifying any matters to be considered at such
meeting and accompanied by supporting documentation (which notice may be waived
by any representative representing the other Party consenting thereto in
writing), shall be given to all representatives at least ten Business Days prior
to such meeting or such longer period as may be required by law. For all
purposes, subject to local law, each representative shall have one vote.
Meetings of each Governing Board shall be held not less often than once each
Fiscal Quarter. Each Party shall use reasonable efforts to ensure the existence
of a quorum at any duly convened meeting of a Governing Board and that no other
steps are taken which might reasonably be expected to impede the proper
management of any JV Entity.
SECTION 3.04. Designation of New Representatives or Alternate
Representatives. Any Party may at any time, by written notice to the other Party
and to the relevant Governing Board of any JV Entity,
10
remove (with or without cause) one or more of its representatives or alternate
representatives on any such Governing Board and designate new representatives or
alternate representatives. No representative or alternate representative may be
removed except by the Party designating the same.
SECTION 3.05. Other Positions of Representatives. Any Person may act in one
or more of the capacities of representative or alternate representative, member
of any committee or officer, director, manager or employee of any JV Entity or
any Party, notwithstanding that such Person acts in any other such capacity.
SECTION 3.06. Annual Operating Plans; Incentive Compensation Plans; Initial
Plans; Plan Compliance. (a) The General Manager of each JV Entity shall cause to
be submitted to the Governing Board of each JV Entity, (i) not later than
December 1 in each year or such date as may be otherwise agreed by the Governing
Board, for review and approval, an annual operating plan for the following
Fiscal Year including, among other things, projections and budgets with respect
to Cost of Goods Sold, sales, operating income, cash flows, capital
expenditures, financing, developing and marketing activities for the relevant JV
Business and integrating each product line therein (each an 'Annual Operating
Plan') and (ii) not later than April 1 in each year, for a three-year period
commencing with the following Fiscal Year, a strategic plan covering strategic
business issues to be addressed for such period (each a 'Strategic Plan', with
the Annual Operating Plan and the Strategic Plan being hereinafter collectively
referred to as the 'Plans'). Notwithstanding the foregoing, the initial Annual
Operating Plan and Strategic Plan, respectively, for a JV Entity shall be
prepared and submitted to the Governing Board within three months and six
months, respectively, following the Closing of the relevant JV Implementation
Agreement. Notwithstanding Section 3.02(b)(i)(C) and subject to Section
10.01(b), in the event of a disagreement between W-L and Wellcome as to any
aspect of the Plans for any period affecting the supply, development, sale or
marketing of JV Prescription Zovirax in the Remainder of the World, OTC Zovirax
or any OTC Switch Product as to which Wellcome was the Originating Party, only
those provisions of such Plans as shall have been approved or proposed by the
representatives of Wellcome on the Governing Board of the relevant JV Entity
shall be implemented.
(b) Notwithstanding anything in this Agreement to the contrary (including,
without limitation, Sections 3.06(a) and 5.04), no Plan or component thereof
shall be approved or implemented which unreasonably discriminates among the
following product categories: (i) products resulting from the Glaxo Arrangement,
(ii) OTC Zovirax and JV Prescription Zovirax, (iii) OTC Switch Products and (iv)
all other products included in the respective Contributed Businesses or acquired
or developed by the relevant JV Entity subsequent to the date hereof.
(c) With respect to each JV Entity, there shall be an incentive
compensation plan for all management employees whose principal responsibilities
relate to operations of such JV Entity. Such plan shall be based on the
performance of the JV Entity and shall set forth, among other things, monetary
incentives for such employees for the purpose of increasing the productivity and
profitability of such JV Entity.
(d) The provisions of the first such Strategic and Annual Operating Plans
insofar as they relate to OTC Zovirax shall be prepared by the relevant JV
Entity and insofar as they relate to JV Prescription Zovirax or an OTC Switch
Product of which Wellcome is the Originating Party shall be prepared by or for
Wellcome.
(e) Where any obligation in this Agreement or any Operative Document is
expressed to be of an Affiliate of W-L or Wellcome, then W-L or Wellcome, as the
case may be, shall assure that such Affiliate complies with such obligation and,
in the case of financial obligations, hereby guarantees to the other Party the
performance thereof (or, in lieu of its guarantee, Wellcome may procure the
guarantee of The Wellcome Foundation Limited). Each Party shall take all
reasonable steps to ensure, insofar as it is able, that each JV Entity complies
with all approved Plans and Operative Documents, including this Agreement.
SECTION 3.07. No Remuneration. Unless the Parties otherwise agree, no
Person shall be entitled to any fee, remuneration or compensation in connection
with their service as a representative, alternate representative or as a member
of any committee of the Governing Board.
11
SECTION 3.08. Funding. (a) W-L and Wellcome hereby agree to make available
such funds or other property as may be agreed upon to be necessary for the
conduct of the JV Business by each JV Entity in accordance with the relevant JV
Implementation Agreement and sound commercial principles.
(b) No JV Entity shall incur or suffer to exist any Indebtedness except
borrowings to finance net working capital needs as contemplated by the JV
Entity's Annual Operating Plan, or borrowings in accordance with Section
4.02(b). Such financing needs may be changed from time to time as agreed by the
Parties. In the case of the U.S. Partnership, to the extent practicable, W-L
shall make such Indebtedness available as loans bearing interest at W-L's
commercial paper rate. In the case of the JV Entities in the EC Territory and
the Other European Territory, W-L and Wellcome will make such Indebtedness
available through appropriate bank facilities. In the case of all other
countries, to the extent practicable, the Party making treasury services
available shall make such Indebtedness available as loans bearing interest at
the rate incurred by the Party in respect of short-term debt in the country in
which the JV Entity operates. In the event either Party is able to make
Indebtedness available at a lower rate than that offered by the other Party, it
shall have the right to do so.
(c) The incurrence of a Loss by a JV Entity for any period shall not
require any capital or other contribution by a Party to such a JV Entity, unless
required by local law or the relevant JV Implementation Agreement.
SECTION 3.09. Governance; Percentage Interest of Wellcome in U.S.
Partnership. If Wellcome's share of the Profits (including Wellcome's share of
Glaxo Profits and Losses) of the U.S. Partnership equals or exceeds 50% of the
total Profits (including all Glaxo Profits and Losses) of the U.S. Partnership
over a period consisting of eight consecutive Fiscal Quarters, Wellcome may give
written notice to W-L within 90 days after the end of such eighth Fiscal Quarter
that it wishes to renegotiate the provisions for governance of the JV Entities
as set forth herein. Following receipt of such notice, W-L and Wellcome shall
negotiate in good faith for a period of up to 60 days an appropriate amendment
to the provisions of this Article III to permit a greater role for Wellcome in
the governance of the JV Entities. If the Parties are unable to agree within
such 60-day period, Wellcome shall have (as its exclusive remedy) the right to
exercise the remedies contained in Sections 14.04(a)(i) and (ii), as applicable
(treating the U.S. Partnership and all JV Entities in the Remainder of the World
as Affected JV Entities), using the time periods set forth therein and as if any
period specified for the cure of dissatisfaction had expired.
SECTION 3.10. Expenses of JV Entities; Adjustments. (a) In connection with
products and services to be supplied pursuant to the various Operative
Documents, each of the JV Entities shall be charged with the items of expense
identified as items one through ten of Schedule 1 hereto (as those items are
more fully explained in said Schedule and the relevant JV Implementation
Agreements and the Operative Documents relating thereto).
(b) Except as provided in Section 6.03(b), to the extent that a Party or
any of its Affiliates provides products, services, or the use of property to a
JV Entity or makes charges at a price that includes (i) in the case of products
or services, a mark-up over the Fully Allocated Cost of such products or
services, (ii) royalties (other than third-party royalties and the royalty
payable to Wellcome pursuant to Section 4.04 hereof) or lease payments in
respect of the use of property in excess of Fully Allocated Cost, or (iii) any
other charge in excess of the Fully Allocated Cost thereof, the respective
interests of the Parties in the Profits and Losses of such JV Entity shall be
adjusted in such manner that, when combined with such mark-ups, royalties, lease
payments, or other charges in excess of Fully Allocated Cost, the total amount
received by and allocated to each Party in excess of Fully Allocated Cost (the
'Actual Allocation') shall conform to the allocation principles prescribed in
Section 4.02 (the 'Prescribed Allocation'). In the event the Parties have been
unable to agree within 90 days after the end of any Fiscal Year upon the amount
of adjustment to conform the Actual Allocation to the Prescribed Allocation, the
Parties shall submit the matter for resolution to an accounting firm selected by
the then Certified Public Accountants for each Party. The decision of that firm
shall be binding upon, and non-appealable by, the Parties. Based on that
decision (or in the event the Parties shall have agreed, their decision) the
Parties shall negotiate to determine the appropriate method of adjustment and,
failing agreement, within 30 days the Party that has received or has been
allocated an amount greater than it should have received or should have been
allocated (the 'Adjusting Party') shall pay to the
12
appropriate JV Entity the excess of such Party's Actual Allocation over the
amount it would have received under the Prescribed Allocation for distribution
in accordance with Section 4.02 and this Section. The Parties agree, to the
extent practicable, to minimize and balance such mark-ups, royalties, lease
payments, and other charges to minimize variances in any Fiscal Year from the
allocation principles set forth in Section 4.02 and this Section.
SECTION 3.11. Deliberations. The deliberations of each Governing Board
shall not extend to any business activity of the Parties other than as may be
necessary to perform their responsibilities in connection with the JV
Businesses.
SECTION 3.12. Bank Accounts. To the greatest extent practicable, each JV
Entity shall keep its funds separate from those of any other Person (other than
another JV Entity) maintaining its own depositary, banking and similar accounts.
Unless otherwise agreed by the Parties, to the extent that funds of any JV
Entity are held by one of the Parties or an Affiliate as a result of collection
or otherwise, such Party or Affiliate shall pay over the funds to the JV Entity
within 5 Business Days of receipt and shall pay to such JV Entity interest on
such funds beginning the date following receipt by such Party or Affiliate. The
rate paid will be an appropriate and equitable publicly available rate for short
term investments in the relevant currency in the respective country which is
agreed to by the JV Entity and the Parties. In the United States, the rate to be
used will be the Goldman Sachs 30 Day Commercial Paper Index in effect on the
days the funds are held.
ARTICLE IV
OPERATIONS; JV ENTITIES
SECTION 4.01. General. The JV Business shall be conducted by JV Entities to
be established from time to time by the Parties in accordance with this
Agreement and the relevant JV Implementation Agreements and Operative Documents.
SECTION 4.02. Form and Structure of JV Entities. The Parties hereto agree
that:
(a) The JV Entity which will conduct the JV Business in the United
States will be the U.S. Partnership, in the EC Territory and in the Other
European Territory it is intended that the JV Entities will be held
principally through a U.K. holding company and it is intended that such JV
Entities and holding company will where possible under local law be capable
on the relevant Closing Date of being classified as partnerships for United
States Federal income tax purposes, in Canada will be a partnership and in
Australia will be a corporation, and the nature of the entity constituting
each JV Entity in the Non-Core Territory shall be determined by the Parties
taking into consideration relevant tax, accounting and legal issues and
shall be in accordance with Section 15.04 and the Operative Documents.
(b) Subject to applicable requirements of law, tax considerations and
the provisions of the Operating Plan, unless otherwise agreed, the U.S.
Partnership will distribute an amount equal to Profits quarterly, and in
other countries in the Remainder of the World, the relevant JV Entity will
distribute or otherwise make available an amount equal to Profits annually,
all in accordance with the order of priority and allocation of profits and
losses set forth in paragraph (c). Additional cash on hand may be
distributed or otherwise made available as agreed upon by the Parties. In
the event that there is insufficient cash to fully distribute an amount
equal to Profits, such cash may be borrowed if agreed by the Parties or the
Parties may agree upon an alternative arrangement.
(c) Profits and Losses of each JV Entity shall be allocated between
the Parties in accordance with the provisions in the relevant JV
Implementation Agreement. The principles (except as may be modified by the
applicable JV Implementation Agreement) governing such allocation, shall be
as follows:
(i) Except to the extent adjusted pursuant to Article V, Glaxo
Profits and Losses shall be allocated as follows:
(A) In the United States, 100% to W-L unless and until, pursuant
to Article V, they shall be allocated 90% to W-L and 10% to Wellcome;
and
13
(B) In the Remainder of the World, 90% to W-L and 10% to
Wellcome.
(ii) Special Profits and Losses attributable to OTC Zovirax in the
United States shall be allocated as follows:
(A) In the event an NDA Approval for OTC Zovirax is received
prior to Zovirax Patent Expiration with at least one year of
Exclusivity from the Launch Date (which Launch Date must occur prior
to such Patent Expiration), in any Fiscal Year:
(1) Special Profits shall be allocated (x) 75% to Wellcome
and 25% to W-L to the extent that such Special Profits do not
exceed 20% of the Net Sales of OTC Zovirax in the United States;
and (y) 66-2/3% to Wellcome and 33-1/3% to W-L to the extent that
such Special Profits exceed 20% of the Net Sales of OTC Zovirax
in the United States; and
(2) Special Losses shall be allocated 75% to Wellcome and
25% to W-L.
(B) In the event (1) an NDA Approval for OTC Zovirax is not
received prior to Zovirax Patent Expiration with at least one year of
Exclusivity from the Launch Date (which Launch Date must occur prior
to such Patent Expiration), or (2) the Parties agree that there are
not reasonable prospects for the prospective Launch Date of OTC
Zovirax occurring prior to Zovirax Patent Expiration with at least
one year of Exclusivity, as the case may be, either Party may give to
the other Party written notice within 90 days after the occurrence of
either of such events that it wishes to commence negotiations of the
allocation set forth in subparagraph (c)(ii)(A) of this Section to
provide for an increased allocation of Special Profits or a decreased
allocation of Special Losses to W-L. The determination of an
increased allocation of Special Profits or a decreased allocation of
Special Losses to W-L shall be negotiated with reference to the
extent to which the value of OTC Zovirax has been impaired by the
failure (x) to have obtained such approval prior to Zovirax Patent
Expiration or (y) to have enjoyed at least one year of Exclusivity
from the Launch Date, as the case may be. In the event that OTC
Zovirax is not expected to be approved in the United States in the
foreseeable future following receipt of the aforesaid notice, the
Parties shall renegotiate an increased allocation of Base Business
Profits or a decreased allocation of Base Business Losses with
reference to the extent to which the projected value of OTC Zovirax
will be impaired by the failure to be so approved.
(C) In the event the Cost of Goods Sold (excluding intercompany
markups) of the U.S. Partnership for OTC Zovirax exceeds 25% of Net
Sales in the United States of OTC Zovirax for any Fiscal Year, the
Parties shall negotiate in good faith a different allocation from
that set forth in subparagraph (c)(ii)(A) for that Fiscal Year in
order to provide an increased allocation of Special Profits or a
decreased allocation of Special Losses to W-L for that Fiscal Year.
(iii) Special Profits and Losses attributable to the OTC Switch
Products of a JV Entity shall be allocated as follows:
(A) Special Profits shall be allocated (x) 75% to the
Originating Party and 25% to the Non-Originating Party to the extent
that such Special Profits do not exceed 20% of the Net Sales of the
OTC Switch Product; and (y) 66-2/3% to the Originating Party and 33-
1/3% to the Non-Originating Party to the extent such Special Profits
exceed 20% of the Net Sales of the OTC Switch Product; and
(B) Special Losses shall be allocated 75% to the Originating
Party and 25% to the Non-Originating Party.
(C) Any form of Zovirax to the extent that it is changed from
prescription to non-prescription status (other than a three-gram-or-
less cream formulation in the countries of the Core Territory (other
than the United States)) will be treated, if Wellcome determines that
such product is to be marketed as a consumer health care product, as
an OTC Switch Candidate in the Remainder of the World and Special
Profits and Losses therefrom shall be allocated in accordance with
subparagraphs (A) and (B) above, respectively, except
14
that a cream formulation larger than three grams having an indication
for use with cold sores in the Remainder of the World shall be
contributed by Wellcome to the relevant JV Entity upon change from
prescription to non-prescription status and the Special Profits and
Losses attributable thereto shall be allocated 50% to W-L and 50% to
Wellcome, subject to the royalty obligations set forth in Section
4.04 hereof.
(D) In the event the Cost of Goods Sold (excluding intercompany
markups) of a JV Entity for an OTC Switch Product exceeds 25% of Net
Sales of the OTC Switch Product for any Fiscal Year, the Parties
shall negotiate in good faith a different allocation from that set
forth in subparagraph (A) or (B) above for that Fiscal Year in order
to provide an increased allocation of Special Profits or a decreased
allocation of Special Losses to the Non-Originating Party for that
Fiscal Year.
(iv) Base Business Profits and Losses of the JV Entities shall be
allocated to the Parties as follows:
(A) In the case of the U.S. Partnership, Base Business Profits
and Losses shall be allocated 67% to W-L and 33% to Wellcome during
the two-year period ending on the day prior to the second anniversary
of the Closing Date for the U.S. JV Implementation Agreement.
Thereafter, Base Business Profits and Losses shall be allocated 70%
to W-L and 30% to Wellcome.
(B) In the case of the JV Entities in the other countries in the
Core Territory, Base Business Profits and Losses shall be allocated
50% to W-L and 50% to Wellcome. W-L shall have, directly or
indirectly, 51% of the voting power and Wellcome shall have, directly
or indirectly, 49% of the voting power of each such JV Entity.
(C) Subject to Section 4.03, in the case of JV Entities in the
Remainder of the World, excluding those in the Core Territory, Base
Business Profits and Losses shall be allocated 50% to W-L and 50% to
Wellcome. W-L shall have 51% of the voting power and Wellcome shall
have 49% of the voting power of each such JV Entity.
(v) The Export Profit and Loss realized by a JV Entity shall be
allocated between the Parties in accordance with the allocation ratio
applicable to the profit and loss on such product in the Territory or
Territories in which the ultimate sale to a third party takes place.
(vi) The income, gain, deduction or loss of each JV Entity from a
sale, exchange or other disposition of Wellcome Contributed Business, or
any portion thereof, or W-L Contributed Business, or any portion
thereof, shall be allocated 30% to Wellcome and 70% to W-L to the extent
that such sale, exchange or other disposition is of such businesses in
the United States, 50% to Wellcome and 50% to W-L to the extent that
such sale, exchange or other disposition is of such business in any
other country in the Core Territory and shall be allocated in proportion
to the allocation of Base Business Profits and Losses to the extent that
such sale, exchange or other disposition is of such businesses in the
Remainder of the World (other than the Core Territory). The income,
gain, deduction or loss of each JV Entity from a sale, exchange or other
disposition of OTC Switch Products shall be allocated 75% to the
Originating Party and 25% to the Non-Originating Party. The income,
gain, deduction or loss of the U.S. Partnership from a sale, exchange or
other disposition of OTC Zovirax in the United States shall be allocated
75% to Wellcome and 25% to W-L. To the extent that any interest in the
Glaxo Arrangement is held by a JV Entity, the income, gain, deduction or
loss of such JV Entity from a sale, exchange or other disposition of
such interest in the Glaxo Arrangement, or any portion thereof, shall be
allocated 90% to W-L and 10% to Wellcome (unless such profit allocation
shall have previously been adjusted pursuant to Article V), other than
any product which utilizes the Zantac trademark but does not contain
Ranitidine which shall be allocated in accordance with the allocation of
Base Business Profits and Losses set forth in Section 4.02(c)(iv) of
this Agreement.
SECTION 4.03. Equitable Adjustment. (a) To the extent Closings in the
countries in the Core Territory (other than the United States) do not occur
simultaneously resulting in an inequitable division
15
of Profits and Losses, the Parties agree to negotiate in good faith an
appropriate adjustment to account for such difference in timing of such
Closings.
(b) In the event that the profits projected by either Party to be generated
from the Wellcome Contributed Business and the W-L Contributed Business for any
JV Entity in the Remainder of the World, excluding the EC Territory, the Other
European Territory, Australia and Canada, are such that an approximately 50-50
profit split with respect to such JV Entity would be inequitable, then upon the
proposed formation of the relevant JV Entity, the Parties shall attempt to
negotiate an appropriate division of Base Business Profits and Losses and the
relevant JV Entity shall not be formed unless and until such division of Base
Business Profits and Losses is agreed upon by the Parties. In determining such
an appropriate division pursuant to this Section 4.03, the Parties shall take
into account such considerations as may be deemed to be relevant, including,
without limitation, any Net Sales of OTC Zovirax and JV Prescription Zovirax on
which no royalties were payable pursuant to Section 4.04.
SECTION 4.04. Zovirax Arrangements. (a) To the extent that Direct Profit
Contribution of OTC Zovirax and JV Prescription Zovirax in the EC Territory and
Other European Territory, collectively, calculated solely for purposes of this
clause, for each of the two twelve-month periods following the Closing Date for
the JV Implementation Agreement for the EC Territory and Other European
Territory,
(i) is 110% or more than the relevant twelve-month period's Benchmark
Direct Profit Contribution Target, 50% of the difference between (x) the
actual amount of such Direct Profit Contribution and (y) 110% of the
Benchmark Direct Profit Contribution Target, shall be paid by the
appropriate JV Entity to Wellcome; or
(ii) is 90% or less than the relevant twelve-month period's Benchmark
Direct Profit Contribution Target, 50% of the difference between (x) 90% of
the Benchmark Direct Profit Contribution Target and (y) the actual amount
of such Direct Profit Contribution, shall be paid by Wellcome to the
appropriate JV Entity.
The Benchmark Direct Profit Contribution Target for any Fiscal Year shall
be adjusted to pro rate the dollar amount thereof over the applicable
twelve-month period.
(b) Commencing with each full Fiscal Year following the second twelve-month
period referred to in paragraph (a), or any stub period following the end of
such twelve-month period until the commencement of the first Fiscal Year, to the
extent that the aggregate Net Sales of OTC Zovirax (including cream formulations
as to which Profits and Losses are allocated 50% to W-L and 50% to Wellcome
pursuant to Section 4.02(c)(iii)(C)) and JV Prescription Zovirax by all JV
Entities collectively in the Remainder of the World exceed U.S. $125 million in
any Fiscal Year (pro rated in the case of any stub period), as calculated
pursuant to the Procedure for Converting Net Sales, Wellcome shall be entitled
to a royalty of 15% on Net Sales of OTC Zovirax and JV Prescription Zovirax in
the Remainder of the World for any such Net Sales in excess of U.S. $125
million. The obligation to pay any such royalty shall be apportioned among the
various JV Entities in such reasonable manner as the Parties may agree. The
aforesaid $125 million sales base shall be changed in each Fiscal Year following
the Fiscal Year in which OTC Zovirax and JV Prescription Zovirax sales in the
Remainder of the World exceed such amount by a percentage which shall equal the
percentage change in the Nominal Price Index (1985=100), Expenditure on Medical
Goods -- Total Pharmaceutical Value in Current Prices (NCV) (or any replacement
index) published by the Organization for Economic Cooperation and Development or
any successor organization after adjusting such index to exclude (to the extent
practicable) the component attributable to the United States and any country in
which no JV Entity operates.
(c) In the event of termination in Canada pursuant to Section 14.02(b)(i),
the U.S. $125 million threshold set forth in Section 4.04(a) shall be reduced by
application of the following formula: (i) the Net Sales of OTC Zovirax and JV
Prescription Zovirax in Canada during the immediately preceding Fiscal Year,
shall be divided by (ii) the total Net Sales of OTC Zovirax and JV Prescription
Zovirax in the Remainder of the World during the immediately preceding Fiscal
Year with the result being multiplied by (iii) U.S. $125 million, provided,
however, that no such reduction shall exceed $25 million.
16
SECTION 4.05. Management of JV Entities. W-L will nominate, and the
relevant Governing Board may appoint pursuant to Section 3.02(b) hereof, a
General Manager and a chief financial officer of each JV Entity. The General
Manager shall have day-to-day operational responsibility for the JV Entity to
which his appointment relates.
SECTION 4.06. Operations to be Conducted in Accordance with Annual
Operating Plan and Direction of the Relevant Governing Board. The day-to-day
operations of each JV Entity shall be conducted by the relevant General Manager
in accordance with the Annual Operating Plan of such JV Entity and otherwise as
directed by the relevant Governing Board. For the avoidance of doubt, the
Parties agree that none of the actions referred to in Section 3.02(b) shall be
taken by any JV Entity without the approval of the relevant Governing Board in
accordance with that Section.
SECTION 4.07. Asset Contributions. In order to permit JV Business to be
conducted by the JV Entities, the Parties have agreed or will agree in the
relevant JV Implementation Agreements as to the manner in which certain assets
to be employed in the JV Business will be made available to the relevant JV
Entities. For such purposes in respect of a country in the Non-Core Territory or
to the extent not previously agreed upon in respect of a country in the Core
Territory, the Parties agree that such assets shall be made available on the
following basis:
(a) only those tangible assets agreed by W-L and Wellcome to be
necessary to conduct such JV Business shall be made available;
(b) intellectual property rights shall be made available pursuant to
the Wellcome Intellectual Property Agreement and the W-L Intellectual
Property Agreement;
(c) to the extent commercially practicable, registrations, licenses
and similar rights from governmental authorities relating to a product
included in the Wellcome Contributed Business or the W-L Contributed
Business, as the case may be, shall be assigned to a JV Entity or will
otherwise be made available to such entity to permit it to conduct the JV
Business in the relevant Territory subject to the payment of the costs of
such transfer by the relevant JV Entity, provided, however, that where
either Party or its Affiliates makes available any such registration,
license or other similar right, it shall use reasonable efforts to maintain
the same in full force and effect subject to compliance in full therewith
by the relevant JV Entity and the payment by the relevant JV Entity of all
costs relating thereto and the provision of such data and other information
as may be necessary or required by any authority in order to maintain such
status;
(d) all contracts to the extent a part of or related to the Wellcome
or W-L Contributed Businesses shall be assigned or the benefits thereof
otherwise made available in accordance with Section 10.08 unless identified
in an Operative Document as not being assigned or made available; and
(e) no inventory or receivables shall be transferred to a JV Entity
except to the extent required to minimize tax on the transferring party in
connection with the organization of the JV Entity or to satisfy other legal
requirements, and in any such case the Parties shall agree upon an
equitable method by which the JV Entity's acquisition thereof shall be
funded, if necessary.
SECTION 4.08. Management Standards. Subject to the supervision of the
relevant Governing Board, W-L will use its reasonable best efforts to assure
that the administration and management of each JV Entity is carried out in a
competent, professional and timely manner with reasonable skill and care. With
respect to any Operative Document between a JV Entity and W-L or one of its
Affiliates, any decision made or consent given by or on behalf of the JV Entity
shall be made or given on an arm's-length basis.
ARTICLE V
GLAXO ARRANGEMENT AND WELLCOME PROFIT PARTICIPATION
SECTION 5.01. Treatment of Glaxo Arrangement. W-L has entered into the
Glaxo Arrangement and Wellcome shall determine within 45 days from the date
hereof whether it objects to participation in the Glaxo Arrangement. In the
absence of a written objection, Wellcome shall acquire the rights and
obligations to participate in the development, marketing and sale of products
pursuant to the Glaxo
17
Arrangement, including, without limitation, the payment obligations set forth in
Section 5.02 and shall participate in Glaxo Profits and Losses in accordance
with Section 5.03. In the event such written objection is given, Wellcome shall
have no right to participate in the Glaxo Arrangement. Absent such objection in
respect of the United States, the Glaxo Arrangement will be assigned to the U.S.
Partnership and in all other Territories the Parties' participation in the Glaxo
Arrangement will be in a form and manner to be agreed upon by the Parties.
SECTION 5.02. Payments. (a) Upon the transfer of the OTC Zantac rights in
the United States pursuant to Section 5.01(a), Wellcome shall fund an amount
equal to 30% of W-L's share of all Glaxo Development Costs incurred prior to NDA
Approval of OTC Zantac for the development of OTC Zantac in the United States.
Wellcome shall also be responsible for 30% of and W-L shall be responsible for
70% of the milestone payments of U.S. $2.666 million and U.S. $2.666 million
paid pursuant to the Glaxo Arrangement by the U.S. Partnership or W-L, as the
case may be, in connection with the development of OTC Zantac in the United
States pursuant to the Glaxo Arrangement. Any amounts payable by Wellcome
pursuant to this Section 5.02 shall be increased to reflect the financing costs
of any payments previously made by W-L pursuant to the Glaxo Arrangement at an
assumed annual interest rate on such payments from the date of payment by W-L
through the date of payment by Wellcome pursuant to this Section equal to the
prime rate charged from time to time by Citibank, N.A. In the event Wellcome
shall so elect pursuant to Section 5.02(b), amounts payable by Wellcome pursuant
to this Section 5.02(a) shall not exceed U.S. $6.5 million.
(b) At such time as Wellcome payments pursuant to Section 5.02(a) equal
U.S. $6.5 million, Wellcome shall have the right, exercisable by delivery of
written notice to W-L within 60 days of its last payment and following receipt
from W-L of such information as shall be necessary to reach an informed
decision, to renegotiate Wellcome's liability for Glaxo Development Costs and
Wellcome's participation in Glaxo Profits and Losses attributable to OTC Zantac
in the United States. Absent the delivery of written notice of such election,
Wellcome shall continue to be responsible for 30% of W-L's share of all Glaxo
Development Costs incurred for the development of OTC Zantac in the United
States (including line extensions, other dosage forms and other indications) and
shall be entitled to the allocation of Glaxo Profits and Losses set forth in the
first sentence of Section 5.03(b) hereof.
SECTION 5.03. Wellcome Profit Participation and Development Costs
Obligations. The participation by Wellcome in the Glaxo Arrangement will be upon
the following terms:
(a) With respect to OTC Zantac in the United States, all income tax
deductions and credits attributable to the costs of development shall be
allocated to W-L and Wellcome in proportion to their respective funding of
such costs as provided in the U.S. Partnership Agreement.
(b) With respect to OTC Zantac in the United States in the event of
NDA Approval of OTC Zovirax and NDA Approval of OTC Zantac, Glaxo Profits
and Losses shall thereafter be allocated 90% to W-L and 10% to Wellcome;
provided, however, in the event Wellcome shall renegotiate, or failing to
have reached an agreement within 60 days of the commencement of such
renegotiation, elect, pursuant to Section 5.02(b) to cap its Glaxo
Development Cost obligations, the aforesaid 10% Glaxo Profit and Loss
allocation shall be reduced by the negotiated percentage or, failing
agreement, the result (the 'Profit Percentage') of multiplying such
allocation by a fraction equal to the ratio which U.S. $6.5 million bears
to the total Glaxo Development Costs incurred and paid by W-L, Wellcome and
the JV Entity up to the date of NDA Approval of OTC Zantac, if any.
Wellcome's obligation to fund Glaxo Development Costs incurred after the
date of NDA Approval of OTC Zantac shall also be reduced by the same
proportion.
(c) With respect to all products which utilize Ranitidine sold by a JV
Entity pursuant to the Glaxo Arrangement in the Remainder of the World,
Wellcome shall fund an amount equal to 30% of W-L's share of all Glaxo
Development Costs, and Glaxo Profits and Losses attributable thereto shall
be allocated 90% to W-L and 10% to Wellcome.
(d) With respect to all products which do not contain Ranitidine sold
by a JV Entity pursuant to the Glaxo Arrangement, Wellcome shall fund an
amount equal to 10% of W-L's share of all Glaxo Development Costs
attributable thereto and shall be entitled to the allocation of Glaxo
Profits and Losses set forth in Section 5.03(c) hereof unless the Zantac
trademark is utilized in
18
connection with the sale of any product which does not contain Ranitidine,
in which case the Glaxo Profits and Losses attributable thereto shall be
allocated in accordance with the allocation of Base Business Profits and
Losses set forth in Section 4.02(c)(iv) of this Agreement and Glaxo
Development Costs shall be shared on the same basis.
(e) Except as provided in paragraph (f) below, in the event of NDA
Disapproval of OTC Zantac, Wellcome shall not be entitled to reimbursement
of any amounts paid to W-L or contributed to a JV Entity as Glaxo
Development Costs and milestone payments pursuant to Section 5.02 hereof
but shall retain its interest in the Glaxo Arrangement, including its
interest in Glaxo Profits and Losses attributable to OTC Zantac in the
United States which shall be allocated in the manner set forth in paragraph
(b) above.
(f) With respect to OTC Zantac and any other product resulting from
the Glaxo Arrangement in the United States, in the event of NDA Disapproval
of OTC Zovirax, Wellcome shall relinquish any further interest in the Glaxo
Arrangement, and, except as hereafter provided, Wellcome shall be entitled
to reimbursement by W-L of all amounts paid by it pursuant to Section 5.02
hereof, such amounts to be increased to reflect the financing costs of any
such payments from the date of original payment by Wellcome at an assumed
annual interest rate on such payments equal to the prime rate charged from
time to time by Citibank, N.A., provided, however, that if NDA Disapproval
of OTC Zovirax shall occur after NDA Disapproval of OTC Zantac, Wellcome
shall not be entitled to reimbursement by W-L of any amounts paid by it
pursuant to Section 5.02 hereof.
(g) For purposes of this Section 5.03, NDA Disapproval of either OTC
Zovirax or OTC Zantac shall mean the absence of any reasonable prospects
for the issuance of NDA Approval prior to January 1, 1999, or such other
date as may be mutually agreed upon by the Parties. In the event W-L
commences termination proceedings pursuant to Section 14.02, Wellcome shall
have no further right to participate in OTC Zantac in the United States.
SECTION 5.04. Control of Glaxo Arrangement Products. Notwithstanding any
provision in this Agreement to the contrary, it is expressly understood that all
decisions or determinations by any JV Entity relating to the development,
marketing and sale by a JV Entity of a product resulting from the Glaxo
Arrangement including, without limitation, OTC Zantac, shall be made by the
Governing Board of the JV Entity with the representatives of W-L having the
determinative vote.
ARTICLE VI
NEW PRODUCTS
SECTION 6.01. Products Developed by the Parties. Within six months of the
Closing Date for each JV Entity, the General Manager of such JV Entity shall
present, for the review and approval of the relevant Governing Board the budget
for development and the key development projects to be undertaken by such JV
Entity. The expenses for such development shall be borne by each JV Entity
unless discontinued by decision of its Governing Board and the Base Business
Profits and Losses of such products shall be allocated in accordance with
Section 4.02(c)(iv).
SECTION 6.02. OTC Switch Candidates. (a) The Parties may each develop other
prescription drug products as OTC Switch Candidates at each Party's sole
discretion and cost. Prior to the date, or not later than ten days after the
date that the Originating Party files for Regulatory Approval for an OTC Switch
Candidate or within ten days following notification after the date of this
Agreement that a prescription drug product may be offered without the necessity
of a prescription, the Originating Party shall offer to the appropriate JV
Entity, by written notice, such OTC Switch Candidate for inclusion in the JV
Business of such JV Entity. The Non-Originating Party shall, within six months
after receipt of such notice or promptly following notice given to it by the
Originating Party of Regulatory Approval, whichever is earlier, decide whether
or not to accept such OTC Switch Candidate as JV Business on behalf of the
appropriate JV Entity. If the Non-Originating Party accepts the product as JV
Business on behalf of the JV Entity, the Originating Party shall supply such
product at its Fully Allocated Cost plus a reasonable mark-up agreed upon by the
Parties and such product shall be added to the relevant Manufacturing and Supply
Agreement and Intellectual Property Agreement (subject to pre-existing rights
of, and contractual arrangements with third parties), as the case may be, and to
such other
19
Operative Documents as may be required and the Originating Party shall deliver a
certificate to the Non-Originating Party confirming such matters as the
Non-Originating Party may reasonably request with respect to the OTC Switch
Candidate. The Special Profit and Loss with respect to such OTC Switch Candidate
shall be allocated between the Parties in the manner set forth in Section
4.02(c)(iii) and as provided for in the relevant JV Implementation Agreement. If
the Non-Originating Party does not accept such product or does not give notice
within the applicable time period referred to above and such product does not
become part of JV Business, the Originating Party may, for its own account,
license such product to a third party for distribution or sell its rights to
such product to a third party. If the Originating Party, after reasonable
efforts to license or sell such product on reasonable commercial terms, is
unable to do so, such Party may market such product pursuant to the procedures
set forth in Section 6.03(b)(i). W-L and Wellcome shall discuss OTC Switch
Candidates with each other on a periodic basis throughout the term of the JV
Entities, such discussions to be limited solely to the potential of such OTC
Switch Candidates to become OTC Switch Products.
(b) Notwithstanding the foregoing paragraph 6.02(a), an Originating Party
may propose to a Governing Board that an OTC Switch Candidate be developed by a
JV Entity. In the event the representatives of the Non-Originating Party on the
relevant Governing Board shall approve such development, the appropriate JV
Entity shall thereafter be responsible for funding the development of the OTC
Switch Candidate upon such terms (including funding) as shall be mutually
agreeable to the Parties.
(c) Except as provided in Sections 6.03 and 6.04, neither Party shall
license or dispose of the rights to market over-the-counter a prescription
product except in connection with the bona fide disposition or licensing of all
rights to the prescription product without the prior written consent, which
consent shall not be unreasonably withheld or delayed, of the other Party.
(d) In the event any prescription product which is owned by a Party or as
to which it holds the distribution rights is the subject of regulatory action
which permits the product to be sold without the necessity of a prescription, or
if sold without the necessity of a prescription but enjoying cost reimbursement
advantages loses such reimbursement advantages, the Parties shall negotiate in
good faith the treatment of such product as an OTC Switch Candidate to be
subject to the provisions of Section 6.02(a).
SECTION 6.03. Acquisition by a Party. (a) After either Party acquires, or,
at the discretion of the Originating Party, before such Party acquires, directly
or indirectly, any business which includes non-prescription drugs or other
consumer health care products, such Party shall as promptly as possible inform
the other Party and the relevant Governing Board by written notice of such
acquisition or proposed acquisition, and the appropriate JV Entity shall have
the exclusive right to acquire such non-prescription drugs or other consumer
health care products included in such business by indicating its desire to
acquire such products within 30 days after receipt of such notice. In the event
that the JV Entity delivers written notice to the Originating Party that the JV
Entity wishes to acquire any such products, the JV Entity shall negotiate with
the Originating Party to acquire such products on an arm's-length basis but in
any event on terms no less favorable than the terms on which they were acquired
(to the extent determinable).
(b) If the JV Entity declines to acquire such products or is unable to
reach agreement within 30 days after the date on which such notice was given,
the Originating Party may acquire (if it has not already acquired) the products
and shall (i) offer to supply the JV Entity with such products at Fully
Allocated Cost plus an appropriate mark-up agreed upon by the Parties and
request that the JV Entity market such products on a basis which assures the JV
Entity receipt of its Fully Allocated Cost in connection with the marketing of
such products, plus an appropriate mark-up determined by reference to similar
products sold or supplied in the same market or markets, or (ii) sell or license
such products to a third party; provided, however, that if the Originating Party
offers to sell or license such products as set forth in clause (ii) to any third
party, the Originating Party shall offer such terms to the JV Entity in writing
prior to entering into any agreement with such third party on terms more
favorable than last offered to the JV Entity. The JV Entity shall then have 30
days to accept or reject such offer. If accepted, the Parties shall proceed to
execute a marketing agreement, a purchase and sale agreement or a license
agreement, as the case may be, and if rejected or if no response is given within
the 30-day
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period, the Originating Party may enter into an agreement with the third party
on such terms. If the Originating Party is unable to agree with the JV Entity on
marketing terms pursuant to clause (i) above or to agree with a third party on
sales or license terms pursuant to clause (ii) above, the Originating Party may
market such products itself.
For the purposes of this Section 6.03, any actions to be taken by the JV
Entity shall be taken by the Non-Originating Party on behalf of such JV Entity.
SECTION 6.04. Acquisition by a JV Entity. If a JV Entity is considering the
acquisition of, directly or indirectly, any business which includes
non-prescription drugs or other consumer health care products, and if the
relevant Governing Board approves such acquisition for such JV Entity, such
business and products shall become part of the JV Business. If the Governing
Board determines that the JV Entity will not purchase such products and a Party
thereafter acquires such products, the provisions of Section 6.03(b) shall
apply.
SECTION 6.05. Continuing Development. If a product becomes part of the JV
Business pursuant to Section 6.02, 6.03 or 6.04, (i) any continuing development
of such product including, without limitation, any post-marketing surveillance,
shall be funded by the JV Entity and (ii) each of the Parties shall make
available to the JV Entity such licenses related to and required for the
marketing and sale of such product in the relevant Territory as such Party may
hold.
SECTION 6.06. Use of Information. For purposes of evaluating an OTC Switch
Candidate or developing and marketing an OTC Switch Product, OTC Zovirax or JV
Prescription Zovirax, the Originating Party (or Wellcome in the case of OTC
Zovirax and JV Prescription Zovirax) shall (as required elsewhere in this
Agreement or as reasonably required to make an informed decision in respect of
an OTC Switch Candidate) provide information relating to the formulation,
manufacture, use, safety, marketing or otherwise concerning such product to a JV
Entity or to the Non-Originating Party (or W-L in the case of OTC Zovirax and JV
Prescription Zovirax). Such information shall be so provided solely for the
purposes and business of the JV Entities as contemplated hereby (i.e., the non-
prescription consumer health care business and, in the case of JV Prescription
Zovirax, prescription pharmaceutical business outside the United States to the
extent specifically contemplated hereby) and for no other use and shall be held
confidential in accordance with Section 15.11 of this Agreement (but without
regard to the term of such Section 15.11).
ARTICLE VII
MANUFACTURING; SUPPLY; SERVICES
SECTION 7.01. Manufacturing and Supply. (a) The Parties agree that (i) all
products will be manufactured by the Originating Party or its designee (each the
'Manufacturer'), and (ii) upon shipment, the Manufacturer shall invoice the JV
Entity for its Fully Allocated Cost of the products sold plus a mark-up, all as
more specifically set forth in the relevant Wellcome Manufacturing and Supply
Agreement or the W-L Manufacturing and Supply Agreement, as the case may be. The
Fully Allocated Cost of any product manufactured by any Person unrelated to a
Party shall be the invoiced cost of such product.
(b) Any other materials required for the wholesale or retail distribution
of products included in JV Business shall, subject to any provisions of this
Agreement or the other Operative Documents to the contrary, be purchased by the
appropriate JV Entity from such sources and upon such terms as the JV Management
shall determine.
(c) To the extent there is a material adverse impact on a JV Entity or
either Party due to a material change in manufacturing production volumes as a
result of a marketing decision, regulatory action or other event, the Parties
agree to negotiate in good faith whether and to the extent an adjustment to the
Fully Allocated Cost of products sold to mitigate such material adverse impact
is appropriate.
(d) The Parties agree to negotiate in good faith a method for reimbursing
the Parties for an amount in excess of normal depreciation charges on capital
expenditures related to JV Business incurred on projects initiated after the
date of this Agreement.
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SECTION 7.02. Services. The Parties agree that (i) all services shall be
provided by W-L, Wellcome or a third party as designated by the Governing Board
of the JV Entity (each the 'Provider'), and (ii) monthly the Provider shall
invoice the JV Entity for the Fully Allocated Cost of such services provided
pursuant to the relevant Marketing, Services and Development Agreement plus a
mark-up based on such costs, all as more specifically set forth in the relevant
Wellcome Marketing, Services and Development Agreement or the W-L Marketing,
Services and Development Agreement, as the case may be. The Fully Allocated Cost
of any services provided by any Person unrelated to a Party shall be the
invoiced cost of such service.
SECTION 7.03. Operating Issues. Each Manufacturer will enter into a
Manufacturing and Supply Agreement substantially in the form identified as
Exhibit D in the Supplemental Document Package, completed, among other things,
by the addition of schedules specifying certain terms including the following:
(i) credit terms, (ii) currency, (iii) forecasting, (iv) carriage insurance, (v)
mode of transport, (vi) place and time of deemed delivery and (vii) interest
payable on overdue invoices, such terms to be based, to the extent deemed
appropriate by the Parties, on existing operating practices of the Manufacturer
or its Affiliate subject to subsequent agreement of the Parties and reflecting
the requirements of applicable local law. It is the intention of the Parties
that a Manufacturer or its Affiliate supplying Existing Products to a particular
Territory prior to the Closing shall continue to do so subsequent to the
Closing, it being understood that such products may be sold to a JV Entity in
the Territory of manufacture for resale by another JV Entity outside the
Territory of manufacture. A Manufacturer may solicit and receive technical
support and assistance from W-L or Wellcome or an Affiliate or its own personnel
pursuant to and as contemplated by the relevant W-L or Wellcome Marketing
Services and Development Agreement.
SECTION 7.04. Alternate Manufacturing Sites. Subject to the relevant
Manufacturing and Supply Agreement, any decision to specify an alternative site
for the manufacturing by Manufacturer or an Affiliate of Manufacturer of one or
more Products shall be made by the Party to this Agreement which is the
Manufacturer or an Affiliate of the Manufacturer in question.
SECTION 7.05. Audits and Inspections. In accordance with the provisions set
forth in the relevant Manufacturing and Supply Agreement or the Marketing,
Services and Development Agreement, as the case may be, the Party to this
Agreement that is neither Manufacturer nor Provider nor an Affiliate thereof
shall be entitled to conduct all audits and inspections contemplated by such
agreement on behalf of the Purchaser.
ARTICLE VIII
CHANGE OF CONTROL
SECTION 8.01. Definition of Change of Control; Response to Third Parties.
(a) In the event that a third party acquires after the date hereof beneficial
ownership (as defined below) of 30% or more of the voting capital of Wellcome or
W-L or, after acquiring 30% or more, thereafter acquires additional voting
capital resulting in beneficial ownership of 50% or more of the voting capital
of Wellcome or W-L, as the case may be (the 'Affected Party'), a Change of
Control will be deemed to have occurred. For the purposes of this Section
8.01(a) with respect to a Change of Control of W-L, a Person shall be deemed to
have 'beneficial ownership' of, and shall be deemed to 'beneficially own', any
securities which such Person or any of its Affiliates is deemed to 'beneficially
own' within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934
and the rules and regulations thereunder. For the purposes of this Section
8.01(a), a Change of Control of Wellcome will be deemed to have occurred in the
event that any Person acquires, whether by a series of transactions or not,
shares in the capital of Wellcome which (taken together with shares held or
acquired by persons acting in concert with such Person) carry 30% or more or 50%
or more, as the case may be, of the voting rights of Wellcome, all within the
meaning of Rule 9 of the City Code on Takeovers and Mergers issued by the Panel
on Takeovers and Mergers in London. It is expressly understood that the present
share ownership of The Wellcome Trust does not constitute a Change of Control
for purposes of this Section 8.01, provided, however, that any acquisition of
beneficial ownership by a third party of shares hereafter acquired from The
Wellcome Trust shall be subject in all respects to the Change of Control
provisions of this Agreement.
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(b) Under no circumstances shall the Non-Affected Party inform, directly or
indirectly, any third party of what action the Non-Affected Party would or would
not take in the event of a Change of Control until such time as such Change of
Control has occurred. The Non-Affected Party shall promptly notify the Affected
Party of any inquiries made by a third party (other than a regulatory authority)
relating to the subject of the preceding sentence.
SECTION 8.02. Effect of Change of Control. In the event a Change of Control
of either Wellcome or W-L shall occur, and the Non-Affected Party believes in
good faith that such Change of Control is prejudicial to its interest in the JV
Entities, such Party shall have the option, within 30 days following the
occurrence of the event listed in Section 8.01(a), to exercise the rights with
respect to all JV Entities set forth under Section 14.03(a)(i), (ii) and (iii)
as if the cure periods of such Sections had expired in the case in which W-L was
the Affected Party and to exercise the rights with respect to all JV Entities
set forth in Section 14.04(a)(i) and (ii) as if the cure periods of such
Sections had expired in the case in which Wellcome was the Affected Party.
ARTICLE IX
COVENANTS OF WELLCOME AND W-L
From and after the date of the execution of a JV Implementation Agreement
through the Closing Date with respect to thereto, Wellcome and W-L shall comply
with the following covenants for the Territory covered by such JV Implementation
Agreement; provided, however, that with respect to the United States, the EC
Territory, the Other European Territory, Australia and Canada, W-L and Wellcome
shall comply with the following covenants (other than Sections 9.04 and 9.07 in
the case of the EC Territory and the Other European Territory) from and after
the execution of this Agreement through the Closing Date of the JV
Implementation Agreements relating thereto.
SECTION 9.01. Access. Each Party shall give to the other Party and its
representatives reasonable access during normal business hours to the
properties, books and records of the other to the extent relating to the conduct
of the Wellcome Contributed Business or the W-L Contributed Business, as the
case may be, and furnish each other with all such information concerning the
Wellcome Contributed Business and the W-L Contributed Business, as the case may
be, as such Party may reasonably request.
SECTION 9.02. Financial Information. Each Party shall give to the other
Party and its representatives the balance sheets, profit and loss statements and
other financial statements as are prepared in the normal course of such Party's
business to the extent relating to the Wellcome Contributed Business and the W-L
Contributed Business, as the case may be, and such other information concerning
the financial condition of the Wellcome Contributed Business and the W-L
Contributed Business, as the case may be, as W-L or Wellcome, respectively, may
reasonably request. In addition, each Party shall allow the other Party, at
reasonable times and with reasonable notice, to have a Certified Public
Accountant audit such other Party's books and accounts, at the sole expense of
the Party requesting such audit, to the extent relating to the Wellcome
Contributed Business or the W-L Contributed Business, as the case may be.
SECTION 9.03. Books and Records. Wellcome and W-L shall continue to
maintain the books, accounts and records of the Wellcome Contributed Business
and the W-L Contributed Business, as the case may be, in the usual, regular and
ordinary manner on a basis consistent with prior years and periods, except as
required by law or U.S. GAAP or U.K. GAAP, as the case may be.
SECTION 9.04. Conduct of Business. (a) Each Party shall (i) except in the
ordinary course of its business or pursuant to this Agreement or any other
Operative Documents or with the prior written consent of the other Party, not
sell or transfer or create a Lien on any of the Wellcome Contributed Business or
the W-L Contributed Business, as the case may be, or enter into any agreement or
arrangement to do the foregoing, (ii) except in the ordinary course of its
business or pursuant to the prior written consent of the other Party, not enter
into or renew any material contract or commitment, or engage in any material
transaction, relating to the Wellcome Contributed Business or the W-L
Contributed Business, as the case may be, (iii) except in the ordinary course of
its business or pursuant to the prior written consent of the other Party, not
consent to the material amendment or termination of any material contract
relating to the Wellcome Contributed Business or the W-L Contributed Business,
23
as the case may be, (iv) except in the ordinary course of its business or
pursuant to the prior written consent of the other Party, not grant any material
new licenses under any of the products to be transferred to a JV Entity, (v) use
its reasonable best efforts to preserve for the JV Business the business
relations of the Wellcome Contributed Business or the W-L Contributed Business,
as the case may be, with suppliers, customers and others, and (vi) promptly
notify the other Party of any event which may have a material adverse effect on
the Wellcome Contributed Business or the W-L Contributed Business, as the case
may be, including, without limitation, any material governmental complaint,
investigation or hearing of which Wellcome or W-L has been advised.
(b) Any reference in this Section 9.04 to the written consent of a Party
shall be deemed to require that such consent not be unreasonably withheld.
SECTION 9.05. Approvals and Consents. Each of the Parties shall use its
reasonable best efforts to (i) obtain all governmental approvals and consents,
if any, necessary or desirable for the consummation of the transactions
contemplated by this Agreement and (ii) make or cause to be made any and all
declarations, filings and registrations with governmental authorities, which
approvals, consents, declarations, filings and registrations are agreed by the
Parties to be reasonably necessary or desirable for the consummation of the
transactions contemplated hereby.
SECTION 9.06. Regulatory. (a) Wellcome shall use its reasonable best
efforts to obtain all Regulatory Approvals required to market and sell all oral
solid forms of Zovirax without a prescription in the United States indicated for
the management of recurrent genital herpes and in the other countries of the
Core Territory for the cream form of OTC Zovirax in three gram or less packaging
for the treatment of cold sores and shall bear all development expenses related
thereto. Wellcome shall promptly notify W-L each time it submits an application
for government registration or marketing approval for any Zovirax formulation to
be sold without a prescription, shall promptly notify W-L of any significant
action taken on any such application, shall promptly advise W-L when any
Regulatory Approval has been obtained and shall keep W-L generally informed of
such regulatory efforts by Wellcome.
(b) Each of the Parties shall, to the extent necessary or appropriate, in
its reasonable opinion, give the other Party and any appropriate JV Entity
access to all of the Wellcome Regulatory Documentation and the W-L Regulatory
Documentation, as the case may be.
SECTION 9.07. Further Assurances. Each of Wellcome and W-L shall take all
reasonable steps to do or cause to be done such further acts and things and
deliver or cause to be delivered to each JV Entity and/or its designees such
additional assignments, agreements, powers and instruments as the JV Entity
and/or its designees may reasonably require or deem advisable to carry into
effect the purpose of this Agreement and the Operative Documents or to better
assure and confirm unto each JV Entity and/or its designees its rights, powers
and remedies hereunder and thereunder.
SECTION 9.08. Tax Matters. Each Party and its Affiliates shall render
reasonable cooperation to and assist the other Party and its Affiliates and each
JV Entity in obtaining all desirable rulings or consents of the relevant and
appropriate tax authorities agreed by the Parties to be reasonably necessary in
order to obtain all appropriate tax benefits for the Parties and their
Affiliates, and the respective JV Entities as contemplated herein and in the
other Operative Documents.
SECTION 9.09. Employees; Sharing of Certain Costs. (a) The identity of the
employees working for or to be charged to each JV Entity shall be determined
mutually by the Parties; provided, however, that in the event of any
disagreement between the Parties, the decision of W-L shall control.
(b) If, solely as a result of the formation of a JV Entity in the Remainder
of the World, the employment of an employee of either Party or an Affiliate is
terminated (whether by the Party or the Affiliate or a JV Entity) or otherwise
ceases by operation of law on or immediately after such formation, the Parties
shall share equally all severance and termination costs or compensation of the
employer in respect of such termination or cessation. For the avoidance of
doubt, the employment of any employee who is transferred to an employer which is
an Affiliate of either Party (including for this purpose any JV Entity) shall
not be deemed to have been terminated. All other costs or expenses relating to
the formation and operation of JV Entities which are incurred by either Party
shall be borne by such Party.
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ARTICLE X
POST CLOSING COVENANTS OF WELLCOME AND W-L
From and after the Closing Date with respect to each JV Entity, Wellcome
and W-L shall comply with the following covenants for the Territory in which
such JV Entity operates.
SECTION 10.01. Treatment of OTC Zovirax; Regulatory. (a) Wellcome shall use
its reasonable best efforts to obtain all Regulatory Approvals required to
market and sell all oral solid forms of Zovirax without a prescription in the
United States indicated for the management of recurrent genital herpes and in
each country in the Core Territory in the Remainder of the World for the cream
form of OTC Zovirax in three gram or less packaging for the treatment of cold
sores and shall bear all development expenses related thereto. The relevant JV
Entity shall be responsible for all pre-launch marketing and selling costs. For
the avoidance of doubt, expenses incurred during periods when there are no Net
Sales shall be treated as Losses. Following NDA Approval or Regulatory Approval,
as the case may be, of OTC Zovirax, any further development of such product
shall be funded by the relevant JV Entity.
(b) The Parties shall use their reasonable best efforts to achieve launch
for OTC Zovirax in the United States subsequent to NDA Approval. It is
understood that Wellcome shall be responsible for obtaining Regulatory Approval
for OTC Zovirax and shall have final approval of any decisions relating thereto
(including the Launch Date thereof). Wellcome shall promptly notify W-L each
time it submits an application for government registration or marketing approval
for any OTC Zovirax formulation to be sold without a prescription, shall
promptly notify W-L of any significant action taken on any such application, and
shall promptly advise W-L when any Regulatory Approval has been obtained and
shall keep W-L generally informed of such regulatory efforts by Wellcome.
(c) Subject to Section 10.12, the rights disclosed pursuant to Section
10.01(e), and the rights of third parties in Non-Core Territories to be
disclosed prior to the Closing Date of the relevant JV Implementation Agreement,
Wellcome shall cause to be granted to the relevant JV Entity an exclusive
license to use the Zovirax trademark (or, if the Zovirax trademark is not used
in the relevant country, the prescription trademark used in that country) in
connection with the marketing, selling or distribution of OTC Zovirax; provided,
however, that Wellcome shall not be bound to grant a license to use the Zovirax
trademark in respect of any Territory if it can demonstrate, to the reasonable
satisfaction of W-L's representatives on the Governing Board of the relevant JV
Entity, a regulatory or compelling commercial reason why such trademark should
not be used in such Territory and Wellcome shall not itself use the Zovirax
trademark or such alternative prescription trademark in connection with OTC
Zovirax, and shall not grant to any other Person a license to use the Zovirax
trademark in either case for the non-prescription sale of consumer health care
products. In the event the Zovirax trademark is not used in a Territory pursuant
to the proviso of the preceding sentence, the Parties shall consult with respect
to the selection, development and use of a suitable alternative trademark the
form and use of which shall be subject to Wellcome's approval.
(d) Wellcome will not, and will assure that its Affiliates do not, do
anything which is likely to derogate from the rights to be granted pursuant to
the Zovirax License Agreements to enjoy the benefits of OTC Zovirax thereby
conveyed or to impede the JV Entity's ability to realize such rights.
(e) Subject to the rights of third parties in Core Territories existing at
the date of this Agreement which have been disclosed to W-L prior to the date
hereof, it is expressly understood by the Parties that any Zovirax formulation
or indication to be marketed and sold without a prescription in a country in
which a JV Entity has been established shall be marketed and sold only through
such JV Entity; provided, however, that Wellcome shall not be required to switch
any products from the prescription to the non-prescription market except to the
extent set forth in Section 9.06(a) of this Agreement.
SECTION 10.02. Further Assurances. (a) Each of Wellcome and W-L shall take
all reasonable steps to do or cause to be done such further acts and things and
deliver or cause to be delivered to each JV Entity and/or its designees such
additional assignments, agreements, powers and instruments as the JV Entity
and/or its designees may reasonably require or deem advisable to carry into
effect the purpose of this Agreement and the Operative Documents or to better
assure and confirm unto each JV Entity and/or its designees its rights, powers
and remedies hereunder and thereunder.
25
(b) Each of Wellcome and W-L shall continue to comply with the covenant set
forth in Section 9.06(b) of this Agreement.
SECTION 10.03. Tax Matters. Each Party and its Affiliates shall cooperate
fully with and assist the other Party and its Affiliates and each JV Entity in
obtaining all desirable rulings or consents of the relevant and appropriate tax
authorities agreed by the Parties to be reasonably necessary in order to obtain
all appropriate tax benefits for the Parties, their Affiliates and the
respective JV Entities as contemplated herein and in the other Operative
Documents. Neither Party shall cause any tax election to be made by a JV Entity
which would have the effect of imposing a disproportionate liability for any tax
on the other Party or any of its Affiliates.
SECTION 10.04. U.S. Export Controls Compliance; Restrictive Trade Practices
Act 1976. (a) The Parties acknowledge that the products to be sold by a JV
Entity may be subject to export controls on resales and/or transfers to other
countries and parties including authorizations required from the appropriate
U.S. government agency under the laws and regulations of the United States of
America. No JV Entity shall be authorized to act in violation of any law,
including, without limitation, Part 769 of the Export Administration Regulations
of the U.S. Department of Commerce and/or agree to participate in a boycott as
defined in Section 999 of the U.S. Internal Revenue Code of 1986, as amended.
Each of the Parties and their appropriate Affiliates shall assist the JV Entity,
as requested and where practicable, in seeking U.S. government authorizations
for transactions subject to U.S. export control regulations.
(b) If there is any provision of this Agreement, or of any JV
Implementation Agreement or other Operative Document which causes or would cause
this Agreement or that Agreement or other Operative Document to be subject to
registration under the Restrictive Trade Practices Act 1976 ('RTPA'), then that
provision shall not take effect until the day after particulars of such
Agreement or Operative Document (as the case may be) have been furnished to the
Director General of Fair Trading pursuant to Section 24 RTPA.
SECTION 10.05. JV Entity Books and Records; Audits. (a) Each of the JV
Entities shall maintain its books and records in accordance with U.S. GAAP and
in sufficient detail to permit their conversion to U.K. GAAP by Wellcome and in
accordance with such other accounting principles as may be required by the law
of the jurisdiction in which such JV Entity is organized.
(b) Each of W-L and Wellcome, on such occasions as it may request, shall
have the right to have its Certified Public Accountants or its internal auditors
audit, examine or review the books, records and operations of each other to the
extent relevant to the JV Business and of each JV Entity, but at the cost of the
Party requesting such audit, examination or review.
(c) Policies with respect to internal audit functions of each JV Entity
shall be as determined by the General Manager of such JV Entity.
(d) Each Party and its Affiliates shall provide, on a timely basis, each JV
Entity with information necessary to meet the requirements of Section 3.10(b).
SECTION 10.06. Intellectual Property Rights. With respect to the
intellectual property rights included in the Wellcome and W-L Contributed
Business, Wellcome, W-L and each JV Entity (i) shall, promptly following their
becoming aware thereof, notify the relevant Governing Board of (A) any adverse
determination in any proceeding in the United States Patent and Trademark Office
or United States Copyright Office or comparable foreign bodies or (B) the
institution of any proceeding or any adverse determination in any Federal,
state, local or foreign court or administrative body regarding Wellcome's or
W-L's claim of ownership in or right to use any of the Wellcome or W-L
trademarks, patents, know-how or other intellectual property rights, their right
to register the same, or to keep and maintain such registration, (ii) shall
properly maintain and care for the Wellcome and W-L trademarks, patents,
know-how or other intellectual property rights owned by such Party or its
Affiliates to the extent necessary for the conduct of the JV Businesses
(including, without limitation, by taking all reasonable legal action necessary
to protect the Wellcome and W-L trademarks, patents, know-how or other
intellectual property rights owned by such Party or its Affiliates against
infringement by third parties) and (iii) shall not permit to lapse or become
abandoned, settle or compromise any pending or future material litigation or
material administrative proceeding without first having consulted with W-L
26
or Wellcome, as the case may be, as to the impact of the same on the relevant JV
Business, all as more fully set forth in the relevant W-L or Wellcome
Intellectual Property Agreement.
SECTION 10.07. Access. Each Party shall give to the other Party and its
representatives reasonable access during normal business hours to the
properties, books and records of the other to the extent relating to the conduct
of the Wellcome Contributed Business or the W-L Contributed Business, as the
case may be, and furnish each other with all such information to the extent
concerning the Wellcome Contributed Business and the W-L Contributed Business,
as the case may be, as such Party may reasonably request and which shall be
necessary for the conduct of the JV Business of any JV Entity after the Closing
Date.
SECTION 10.08. Benefit of Contracts. Wellcome and W-L recognize and agree
that, notwithstanding other provisions of this Agreement to the contrary, the
Parties may identify contracts the assignment of which are not commercially
practicable and third party consents to the transfer, in whole or in part, of
licenses, intellectual property rights and contracts which are necessary to the
conduct of the Wellcome Contributed Business or the W-L Contributed Business,
which consents may not be obtainable or may not be obtainable on commercially
reasonable terms by the Party responsible therefor. Such contracts will be
identified to each of the Parties and in such circumstances, Wellcome or W-L, as
the case may be, or their appropriate Affiliate, shall for the benefit and
account of the appropriate JV Entity, act under such licenses, rights and
contracts in the manner most effective under the circumstances so as to provide
their value and benefit to such JV Entity, in each case to the extent permitted
by law, and will evidence or confirm such arrangement to the extent requested by
the other Party or the JV Entity. Nothing in this Agreement shall be construed
as an attempt to assign any such license, right or contract to the extent such
assignment is not permitted by law or by the terms of the license, right or
contract in question.
SECTION 10.09. Use of Parent Names. (a) Except as otherwise agreed by each
of the Parties, the name of each JV Entity shall be Warner Wellcome Consumer
Health Products, together with such identifier as may be required by law. Each
of the Parties acknowledges that a JV Entity may in its conduct of the JV
Business be required or may desire to use the corporate names of such Party, its
subsidiaries and its divisions and the corporate logos of each and correlatives
of the same in labelling products included in the JV Business, and on stationery
and promotional materials of the JV Entity. Upon agreement as to such use, such
Party shall extend to each JV Entity a royalty free license for these purposes;
provided, however, that (i) the manner of use made of such name or logos shall
have been approved in writing in advance of its use by the relevant Party and
(ii) in the event a Party and its Affiliate cease to be participants in the JV
Entity, whether pursuant to Article XIV hereof or otherwise, (x) the license
contemplated by this Section 10.09 shall immediately terminate, subject only to
a right of the JV Entity to use existing stocks of labelling materials for a
period of not more than one year from the date of such termination unless
otherwise required by either Party which will undertake to bear the expense of
any more restrictive limitation and (y) the name of the JV Entity shall be
changed as promptly as commercially practicable to eliminate the name of the
Party which has ceased to be a participant.
(b) Subject to Section 10.09(a), to the extent the Parties agree to
register the name 'Warner Wellcome' in any jurisdiction, such name shall be
registered jointly in the names of W-L and Wellcome (or any respective
Affiliates designated by each) if authorized by applicable law or regulation. In
any jurisdiction where joint registration is not authorized by applicable law or
regulation, registration of the name 'Warner Wellcome' shall be made only
pursuant to such agreements relating to joint ownership, registration and the
use thereof as are mutually agreed to by the Parties.
SECTION 10.10. Competition. (a) Subject to the provisions of any agreements
which exist on the date hereof and local law in a particular country, Wellcome
and W-L each covenant and agree that for the term of this Agreement and each
Operative Document, neither it nor any of its Affiliates shall, directly or
indirectly, compete with the JV Business of a JV Entity in the Territory in
which it operates by engaging in the non-prescription consumer health care
business by manufacturing, marketing, selling or distributing products
competitive with those of the relevant JV Business, in each case except as
otherwise provided or contemplated by this Agreement or any other Operative
Agreement; provided, however, that this provision shall not apply to (i)
non-prescription consumer health care products
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manufactured by either Party on the date hereof which have not been included in
Schedules 1.01(b) and (c) to the Supplemental Document Package and line
extensions thereof (so long as such line extensions are not competitive with any
JV Business then conducted by a JV Entity; (ii) any products developed pursuant
to the Glaxo Arrangement; (iii) manufacturing products for a third party by a
Party to the extent no information which is proprietary to, or exclusively
licensed under an Intellectual Property Agreement, to a JV Entity is used in the
manufacturing of such products; or (iv) the development, manufacturing,
marketing, selling or distribution of any non-prescription generic health care
product that is principally marketed, sold or distributed through non-consumer
marketing channels. Except as specifically provided herein with respect to JV
Prescription Zovirax in the Remainder of the World, nothing in this Agreement
shall be deemed to hinder, restrain or limit the ability of either Party or any
of its Affiliates to engage in the business of developing, manufacturing,
marketing, selling and distributing prescription pharmaceutical products in any
Territory, as such business is now carried on or may hereafter develop.
(b) Assets have been or will be conveyed and licenses have been or will be
granted by W-L, Wellcome and/or their respective Affiliates to each of the JV
Entities for the purpose of permitting sales of the products representing JV
Business in certain Territories. Accordingly, each of W-L and Wellcome shall
take such actions as are necessary to prevent the JV Entities from selling such
products outside of the relevant Territories.
SECTION 10.11. Insurance. (a) Each Party shall maintain insurance in
respect of its equity interest in the U.S. Partnership that is both adequate and
appropriate for the conduct of the JV Business with reputable insurers
(including, where the Party believes it appropriate, through self-insurance
programs) against loss or damage, including fire, loss, theft, casualty, recall,
product liability and general insurance and no costs of such insurance shall be
charged to any JV Entity. W-L shall provide directors and officers insurance and
any other forms of insurance required to be obtained by a JV Entity (e.g.,
automobile insurance) and shall charge the cost thereof to the relevant JV
Entity.
(b) Without prejudice to Section 2.02(d), the provisions of this Section
10.11 as applicable to the U.S. Partnership and as it may be extended to other
Territories, shall be subject to such amendment as may be desirable, including
in relation to the EC Territory and Other European Territory, to take account of
all relevant factors, including, without limitation, taxation.
(c) Each Party shall maintain insurance in relation to any real property
owned by it, whether freehold or leasehold, occupied by a JV Entity and the
costs thereof shall be charged to the relevant JV Entity.
SECTION 10.12. JV Prescription Zovirax. To the extent Wellcome markets and
sells JV Prescription Zovirax in a specific Territory, such marketing and sales
will be undertaken by Wellcome on behalf of the relevant JV Entity pursuant to
marketing arrangements to be agreed upon by the Parties and reflected in the
appropriate Marketing, Services and Development Agreement. Wellcome shall market
such products with at least the same degree of effort as is currently utilized
(subject to any change in circumstances) and use its reasonable best efforts to
maximize the profits of the JV Entity attributable to any such marketing by
Wellcome of JV Prescription Zovirax in the Territory. In the event that Wellcome
introduces another form of Zovirax or combination product thereof for the
treatment of cold sores to be sold by prescription which results in a material
diversion of profits from JV Prescription Zovirax, the Parties agree to discuss
in good faith whether any adjustment to the allocation of Base Business Profits
and Losses or other action is appropriate.
SECTION 10.13. Scope of JV Business; Non-Violation of Existing Obligations.
The Parties shall not, and shall not permit any JV Entity to, knowingly expand
the intended scope of the JV Businesses and shall not knowingly, through the
activities of a JV Entity, violate any valid provision of a non-compete
obligation of either Party which exists on the date of this Agreement or which
is hereafter agreed to by the Governing Board of the relevant JV Entity.
SECTION 10.14. Conduct of Business. (a) With respect to each JV Entity, to
the extent Net Sales made by the Parties in the two calendar months prior to the
Closing Date (or its effective date in the case of the U.S. Partnership) in
respect of the JV Entity (i) are deemed to be Excess Sales, and (ii) the
Variable Profit Contribution of such Excess Sales results in an allocation of
profits other than that which
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would have resulted if such profits had been earned by the JV Entity and the
Variable Profit Contribution had been Base Business Profit, the Parties shall
negotiate to determine the extent to which the advantaged Party shall compensate
the disadvantaged party for such differential profit allocation. In the case of
the U.S. Partnership, any determination under this Section 10.14(a) shall be
based on the use of sales as normally reported by the Parties in accordance with
U.S. GAAP rather than Net Sales in all calculations.
(b) To the extent sales orders for Existing Products of the Parties remain
unfilled as of the Closing Date, such orders shall be transferred to the JV
Entity.
ARTICLE XI
CONDITIONS TO WELLCOME'S AND W-L'S OBLIGATIONS
The Closing of the transactions contemplated by each JV Implementation
Agreement shall be subject to the satisfaction at or prior to the Closing of
such transactions of the following conditions; provided, however, that after
December 31, 1995, either Party may terminate this Agreement if these conditions
have not been met or waived with respect to the countries in the Core Territory
in which a JV Entity has not been established (it being understood that such
period may be extended by mutual written consent of the Parties).
SECTION 11.01. Certain Action. At the Closing Date for each JV
Implementation Agreement, no suit, action, investigation or other proceeding
will have been instituted and be pending by any governmental agency of the
relevant Territory or any other Person in which it is sought to restrain,
prohibit, invalidate or set aside generally the transactions contemplated by the
relevant JV Implementation Agreement and the other Operative Documents referred
to therein.
SECTION 11.02. Government Approvals and Consents. At the Closing Date for
each JV Implementation Agreement, all necessary filings (other than in relation
to marketing approvals) required, if any, in or for the relevant Territory with
the appropriate governmental or other authorities in or for such Territory will
have been made and all necessary governmental approvals (other than in relation
to marketing approvals), if any, will have been received and any prescribed
waiting periods will have expired or been terminated. No government entity shall
have indicated its objection to, or its intent to challenge as violative of any
federal, state or foreign laws, any of the transactions contemplated by this
Agreement or the relevant JV Implementation Agreements. In the event a
government entity places a condition on its approval of the transactions as
contemplated by the Operative Documents which has a material effect on the
Wellcome Contributed Business or the W-L Contributed Business, the Parties shall
attempt to negotiate a mutually agreeable modification to the relevant JV
Implementation Agreement and the other appropriate Operative Documents.
SECTION 11.03. Tax Rulings. The Parties shall have applied for and received
all rulings or consents of the appropriate tax authorities which either Party
reasonably believes to be necessary or desirable in order to implement the JV
Implementation Agreement in the relevant Territory as contemplated herein and in
the other Operative Documents.
SECTION 11.04. Representations and Warranties. The representations of
Wellcome and W-L contained in the Representations and Warranties Agreement in
respect of certain countries in the Core Territory shall continue to be true and
correct in all material respects as of the date the representations were
originally given. In addition, there shall have been no material adverse change
in the condition of the Wellcome or W-L Contributed Business since the original
date of such representations. In connection with the execution of a JV
Implementation Agreement for a country in the Non-Core Territory, the Parties
shall agree upon such representations and warranties as shall be appropriate.
SECTION 11.05. Performance of Covenants. Each Party shall have performed
and complied in all material respects with each and every covenant, agreement
and condition contemplated by this Agreement and the relevant JV Implementation
Agreement to be performed or complied with by it prior to or on the Closing Date
for the relevant JV Implementation Agreement.
SECTION 11.06. Authorization of Agreements. All action on the part of each
Party necessary to authorize the execution, delivery and performance of this
Agreement, the relevant JV Implementation
29
Agreements and the Operative Documents, and the consummation of the transactions
contemplated herein and therein, shall have been duly and validly taken by each
Party, and each Party shall have furnished to the other Party a certificate of
the Secretary or an Assistant Secretary of W-L or Wellcome, as the case may be,
setting forth copies of the resolutions or other instruments authorizing this
Agreement, the relevant JV Implementation Agreements and the Operative Documents
and the transactions contemplated herein and therein.
SECTION 11.07. Execution of Operative Documents. All Operative Documents
required by the relevant JV Implementation Agreement in order to permit the
appropriate JV Entity to conduct JV Business in the appropriate country shall
have been executed and delivered and shall be fully effective in all respects.
SECTION 11.08. Certificate of Compliance. Each Party shall deliver to the
other Party a certificate of an authorized officer of such Party, certifying
compliance with the conditions set forth in this Article XI.
SECTION 11.09. Assignment of Certain Contracts and Licenses. Each Party
shall have obtained the consent, as appropriate, in form and substance
satisfactory to the other Party, to the assignment to the JV Entity in the
relevant Territory of all material contracts, product licenses and other
instruments which are part of the Wellcome Contributed Business or the W-L
Contributed Business, as the case may be, for the relevant Territory, or either
alternative arrangements shall have been made in accordance with Section 10.08
or undertakings reasonably acceptable to the Parties shall have been entered
into. Notwithstanding the provisions of Section 4.07(d), a JV Entity shall not
become responsible for any contract which is a part of or related to the
Wellcome or W-L Contributed Business except to the extent such contract is
specifically identified in an Operative Document as being assigned in whole or
in part or made available in accordance with Section 10.08.
ARTICLE XII
TRANSFER OF JOINT VENTURE INTEREST
SECTION 12.01. Limitation on Right to Transfer. A Party or any of its
Affiliates may not sell, assign, pledge, hypothecate or otherwise delegate,
subcontract or transfer in any manner, all or any part of its interest in the JV
Business, any JV Entity, this Agreement or the Operative Documents unless such
transfer (i) is permitted under Section 12.02 of this Agreement, (ii) is
consented to in writing by the other Party in its sole discretion, with specific
reference to this Section 12.01, (iii) is permitted in accordance with Article
XIV or (iv) is permitted by an Operative Document. In addition, to the extent
necessary to be classified as a partnership for United States Federal income tax
purposes, the interest in a JV Entity held principally by a JV Entity which is a
holding company shall be non-transferable except between Persons owning
interests in such JV Entity.
SECTION 12.02. Permitted Transfers. Nothing in this Article XII shall
prevent the transfer by any Party of all or part of its interest in any JV
Business, any JV Entity, this Agreement or the Operative Documents if such
interest is transferred to an organization which is an Affiliate and
wholly-owned (subject to directors' qualifying shares), directly or indirectly,
by Wellcome or W-L, as the case may be, but only for so long as it shall remain
an Affiliate of, and wholly-owned, directly or indirectly by, Wellcome or W-L;
provided, however, that (i) the JV Implementation Agreement for a JV Entity that
is capable of being classified as a partnership for United States Federal income
tax purposes shall not permit a transfer of an interest in such JV Entity if it
would prejudice such classification of such entity; (ii) that no such transfer
shall be effective unless the transferee of any interest so transferred under
this Section 12.02 shall have assumed by express agreement with the Parties
hereto (in form and substance satisfactory to the relevant Governing Board) all
of the obligations of the transferor under this Agreement and that no such
transfer shall relieve the transferor of its obligations under this Agreement in
the event the transferee fails to perform its obligations hereunder and (iii) a
Party (or any of its Affiliates) shall not transfer its interest in a JV Entity
which is classified as a partnership for United States Federal income tax
purposes in a manner which would constitute a termination of such partnership
under Section 708(b)(1)(B) of the Internal Revenue Code of 1986, as amended from
time to time, and any successor statute. Upon such transfer such transferee
shall be admitted as a Party, in
30
addition to the Party which was the transferor. In the event that any Affiliate
shall cease to be an Affiliate within the meaning of this Section, Wellcome or
W-L, as the case may be, shall assure that immediately prior thereto such
interest is transferred back to Wellcome or W-L or one of their respective
Affiliates as appropriate.
ARTICLE XIII
INDEMNIFICATION
SECTION 13.01. Responsibility for Liabilities and Expenses. (a) Each of W-L
and Wellcome shall be separately responsible for, and hereby indemnifies the
other Party and each JV Entity (on an after-tax basis) against all claims,
liabilities, damages, losses, expenses (including reasonable legal fees),
obligations, liens, assessments, judgments and fines (all of the foregoing being
a 'Claim') made by or owed to any Person to the extent attributable to death,
bodily injuries, pain or damages suffered, or obligations or liabilities and
which arose out of such Party's ownership or operation of the W-L Contributed
Business or the Wellcome Contributed Business, as the case may be, prior to the
Closing Date for the Territory in question. Such Claims shall also include, but
not be limited to, all Taxes due by such Party and as to which a JV Entity may
be jointly liable for payment with such Party. If the use of the product giving
rise to the Claim occurred prior to the Closing Date, such Claim shall be the
responsibility of W-L or Wellcome, as the case may be (depending on whether such
product was part of the W-L Contributed Business or the Wellcome Contributed
Business).
(b) Subject to Section 13.01, each JV Entity shall indemnify and hold W-L
and Wellcome and their respective Affiliates harmless (on an after-tax basis)
for all product liability Claims arising out of the JV Business conducted by
that JV Entity on or after the Closing Date of the JV Implementation Agreement
for such JV Entity; provided, however, that (i) as to any Claims arising out of
defects in the manufacture of any product included in JV Business conducted by
that JV Entity, W-L or Wellcome, whichever shall have manufactured such product,
shall indemnify and hold harmless (on an after-tax basis) the JV Entity and the
Party which did not manufacture such product to the extent agreed to in the
relevant Manufacturing and Supply Agreement and (ii) W-L shall not be entitled
to any indemnification under this Section 13.01(b) to the extent a court of
competent jurisdiction shall have finally determined that the product liability
Claim in question arose from the failure of W-L to have used reasonable best
efforts to satisfy the standard of conduct set forth in Section 4.08 of this
Agreement.
(c) To the extent any Claim is based on use of any product or damages
sustained over a period of time beginning prior to the Closing Date for the
relevant JV Implementation Agreement and continuing after such Closing Date, the
liability and costs of a JV Entity relating to such Claim shall be for the
account of Wellcome, W-L or the JV Entity, as the case may be. Damages based on
the time prior to such Closing Date, if any, shall be for the account of W-L or
Wellcome, as the case may be, and for the time on and after such Closing Date
for the relevant JV Entity.
(d) To the extent sales returns occurring on or after the Closing Date in
respect of sales prior thereto are deemed by the Parties to be in the ordinary
course of business, the cost of such returns shall be borne by the relevant JV
Entities. To the extent the Parties agree that such sales returns occurring on
or after the Closing Date are outside the ordinary course of business, the cost
of such returns shall be borne by the responsible Party provided, however, that
for purposes of this Section 13.01(d), product discontinuations and product
withdrawals shall be deemed to be outside the ordinary course of business.
Products returned in a re-salable condition shall be returned to the inventory
of the relevant JV Entities.
(e) Where any claim, litigation or arbitration is contemplated, commenced
or brought (a) by any JV Entity against any Party or any Affiliate or (b)
against any JV Entity by any Party or any Affiliate, irrespective of the amount
involved therein, the Party shall ensure that any officer, director,
representative or agent of it or any Affiliate shall not be involved in such
claim, litigation or arbitration on behalf of the JV Entity and shall have no
vote in determining whether such claim, litigation or arbitration is commenced
or is made or in any matters relating to the conduct or settlement thereof. The
provisions of this Section 13.01(e) shall apply, mutatis mutandis, to the making
of any decision by a
31
JV Entity to terminate any agreement between a Party or any Affiliate and the
relevant JV Entity other than one entered into by the relevant Party or
Affiliate solely as a partner or shareholder and not in any other capacity.
SECTION 13.02. Indemnification. (a) W-L shall indemnify and hold Wellcome
and each JV Entity harmless (on an after-tax basis) from all Claims suffered or
paid as a result of (i) the failure of any of the representations or warranties
made by W-L in this Agreement or any other Operative Document to be true and
correct in all material respects as of the date hereof or any applicable Closing
Date, (ii) any breach by W-L of any covenant made by W-L in this Agreement or
any of the Operative Documents and (iii) any Claim made by a third party which,
if successful, would constitute a breach of a warranty, covenant or agreement
made by W-L in this Agreement or any other Operative Document, subject in all
cases to any limitations set forth in this Agreement or any Operative Document.
(b) Wellcome shall indemnify and hold W-L and each JV Entity harmless (on
an after-tax basis) from all Claims suffered or paid as a result of (i) the
failure of any of the representations or warranties made by Wellcome in this
Agreement or any other Operative Document to be true and correct in all material
respects as of the date hereof or any applicable closing date, (ii) any breach
by Wellcome of any covenant made by Wellcome in this Agreement or any of the
other Operative Documents, (iii) any Claims made by a third party which, if
successful, would constitute a breach of a warranty, covenant or agreement made
by Wellcome in this Agreement or any other Operative Document, subject in all
cases to any limitations set forth in this Agreement or any Operative Document
and (iv) the termination of any broker previously engaged by Wellcome in the
United States the services of which have not been continued by the U.S.
Partnership after January 31, 1994.
(c) Subject to the requirements of Section 13.02(a) or (b) as applicable,
in the event a judgment shall be rendered by a court of competent jurisdiction
against only one of the Parties or another liability is incurred and paid by a
Party in its capacity as a partner of any JV Entity conducting JV Business in
partnership form (except any judgment obtained by a third party as a result of
the negligence of that Party or breach by that Party of the terms of this
Agreement or any Operative Document), the other Party shall reimburse such Party
for that percentage of such judgment or liability as shall correspond to the
appropriate profit and loss allocation to the reimbursing Party applicable to
the product giving rise to the judgment, or if the judgment is not related to a
specific product, the Base Business Profit and Loss allocation for the relevant
JV Entity.
(d) If a JV Entity incurs liability for any Tax in connection with any
actual or deemed contribution or transfer to a JV Entity at the time of its
formation of any tangible or intangible assets, property or business, including
the grant of any license, lease or similar right (collectively, 'Assets') or
with respect to a Party's prior ownership or operation of such Assets, the Party
transferring or contributing (or causing such transfer or contribution of) such
Assets will indemnify and hold harmless (on an after-tax basis) the JV Entity
from any liability (net of any refund or similar recovery) in respect of any
such Tax, including all costs and expenses directly or indirectly related to the
final determination of the JV Entity's liability for such Tax. In the event an
Affiliate of a Party shall be involved in the transfer or contribution of the
Assets, the Party and the Affiliate shall be jointly and severally liable for
the indemnification set forth in the preceding sentence.
(e) Any indemnification of a JV Entity, W-L or Wellcome hereunder shall
include and extend to the benefit of their respective directors, officers,
employees and representatives or alternative representatives of the Governing
Board and Affiliates (other than any indemnification by Wellcome of an officer
or director which is proscribed by law). Any person that may be entitled to
indemnification under this Agreement (an 'Indemnified Party') shall give notice
to the Person obligated to indemnify it (an 'Indemnifying Party') with
reasonable promptness upon becoming aware of any claim or other facts upon which
a claim for indemnification will be based; the notice shall set forth such
information with respect thereto as is then reasonably available to the
Indemnified Party. The Indemnifying Party shall have the right to undertake the
defense of any such Claim asserted by a third party with counsel satisfactory to
the Indemnified Party and the Indemnified Party shall cooperate in such defense
and make available all records, materials and witnesses reasonably requested by
the Indemnifying Party in connection therewith at the Indemnifying Party's
expense. If the Indemnifying Party shall have assumed the defense of the claim
with counsel reasonably satisfactory to the Indemnified Party, the Indemnifying
32
Party shall not be liable to the Indemnified Party for any legal or other
expenses (other than for reasonable costs of investigation) subsequently
incurred by the Indemnified Party in connection with the defense thereof. The
Indemnifying Party shall not be liable for any claim settled without its
consent, which consent may not be unreasonably withheld or delayed.
(f) To the extent that either Party is involved in any proceeding which
arose prior to the establishment of a JV Entity and books, records or former
employees of the Party shall be under the dominion and control of a JV Entity,
the JV Entity shall cooperate with the Party and make available all records,
materials and witnesses reasonably requested by the Party in connection with its
prosecution or defense of such proceeding at the Party's expense.
ARTICLE XIV
TERM AND TERMINATION
SECTION 14.01. Term of JV Entity. Each JV Entity shall commence as of the
Closing Date for the relevant JV Implementation Agreement for such JV Entity and
shall continue until it is dissolved and terminated pursuant to the terms of the
Operative Documents or pursuant to law. Except in those circumstances referred
to in Sections 8.02, 14.02, 14.03 and 14.04 and except for circumstances causing
dissolution or liquidation of a JV Entity set forth in a JV Implementation
Agreement it is understood and agreed that each JV Entity is intended to
continue without interruption until such relationship is specifically dissolved
by unanimous consent of the partners or shareholders, as the case may be, and
that upon dissolution the rights and obligations of the Parties under this
Agreement shall continue to be in effect, until the final distribution of the
assets of each JV Entity to the Parties.
SECTION 14.02. OTC Zovirax Not Approved. (a) Notwithstanding any other
provision of this Agreement, if an event set forth in Section 4.02(c)(ii)(B) has
occurred and the Parties have been unable to agree upon increased or decreased
allocations pursuant to that Section within six months from the delivery of the
written notice referred to in that Section, W-L may, in its sole discretion (as
its exclusive remedy), commence the termination procedures set forth in clause
(b) of this Section by giving written notice thereof to Wellcome.
(b) Notwithstanding any other provision of this Agreement, in the event W-L
delivers a notice pursuant to paragraph (a) of its intention to commence
termination, the Parties shall have the following rights and obligations with
respect to all, but not fewer than all, of the JV Entities in the United States
and Canada:
(i) Wellcome may, in its sole discretion, elect to withdraw from the
JV Entities in the United States and Canada all products included in the
Wellcome Contributed Business together with OTC Zovirax, JV Prescription
Zovirax and any OTC Switch Product as to which Wellcome was the Originating
Party, that constitute JV Business in the United States and Canada;
(ii) Wellcome may, in its sole discretion, elect to require W-L to
purchase all right, title and interest of Wellcome in the JV Entities in
the United States and Canada, including the JV Entities' rights in the
Operative Documents, but excluding any interest of such JV Entities in OTC
Zovirax, JV Prescription Zovirax, any OTC Switch Product as to which
Wellcome was the Originating Party, for an amount equal to 30% of the value
of the JV Entity in the United States and 50% of the value of the JV Entity
in Canada as of the end of the most recent Fiscal Quarter as valued at
their Going Concern Value; provided, however, that for purposes of
determining Going Concern Value for this Section, no value shall be
ascribed to OTC Zovirax, JV Prescription Zovirax, any such OTC Switch
Product; or
(iii) Wellcome may, in its sole discretion, elect to sell any of the
products included in the Wellcome Contributed Business withdrawn from the
JV Business pursuant to clause (i) to one or more third parties, provided,
however, that if Wellcome offers or negotiates to sell such products with
any third party Wellcome shall offer such terms to W-L in writing prior to
entering into any agreement with such third party. W-L shall thereafter
have 30 days to accept or reject such offer. If accepted, the Parties shall
proceed to execute a purchase and sale agreement, and if rejected or if no
response is given within the 30-day period, Wellcome may enter into a
purchase and sale agreement with the third party on such terms.
33
(c) It is expressly understood that in the event of any election of rights
by Wellcome pursuant to Section 14.02(b), (i) Wellcome shall receive all rights
to the marketing of OTC Zovirax, JV Prescription Zovirax and any OTC Switch
Products as to which Wellcome was the Originating Party,(ii) Wellcome will be
promptly compensated by W-L for its interest in the Going Concern Value of any
products developed by the JV Entity (other than Line Extensions) and any
products acquired by the JV Entity pursuant to Sections 6.03 and 6.04, (iii)
Wellcome will promptly pay to W-L the Going Concern Value of its interest in OTC
Zovirax and JV Prescription Zovirax in Canada and in all OTC Switch Products as
to which Wellcome was the Originating Party in the United States and Canada,
(iv) Wellcome will not retain any interest in the Glaxo Arrangement in the
United States and Canada and will not be compensated for the loss of its
interest (other than, with respect to Canada, as included in the calculation of
the Going Concern Value of the JV Entity in Canada set forth above in
subparagraph (b)(ii) and other than as provided in Section 5.03(f) and (v)
Wellcome shall have no further interest in the JV Entities in the United States
and Canada. An election permitted by Wellcome pursuant to the foregoing clauses
(i), (ii) and (iii) shall be made within six months of Wellcome's receipt of
W-L's notice of intention to commence termination and shall be recorded by
written notice delivered by Wellcome to W-L. Any such notice by Wellcome shall
be irrevocable and not subject to change except by agreement of the Parties.
(d) In the event W-L delivers a notice pursuant to paragraph (a) of its
intention to commence termination, Wellcome may, in its sole discretion and in
addition to the rights set forth in paragraph (b), elect to withdraw from the JV
Entities in the Remainder of the World (other than Canada). In such case
Wellcome shall have the right to elect either of the options set forth in
Section 14.03(a) below. An election permitted by Wellcome pursuant to this
paragraph (d) shall be made within six months of Wellcome's receipt of W-L's
notice of intention to commence termination and shall be recorded by written
notice delivered by Wellcome to W-L. Any such notice by Wellcome shall be
irrevocable and not subject to change except by agreement of the parties. It is
expressly understood that any election by Wellcome pursuant to this paragraph
(d) shall mean that Wellcome shall have commenced termination of the relevant JV
Entities in the Remainder of the World (other than Canada) for purposes of the
penultimate sentence of Section 14.08.
SECTION 14.03. Wellcome Events of Termination; Remedies. In the event that
(x) there is an NDA Approval for OTC Zovirax within the time periods set forth
in Section 4.02(c)(ii)(B), (y) there has been a successful renegotiation of an
increased allocation of Special Profits or a decreased allocation of Special
Losses to W-L pursuant to Section 4.02(c)(ii)(B) or (z) W-L has not commenced
the termination procedures set forth in Section 14.02 within the time periods
set forth therein, and Wellcome is dissatisfied with the performance of any of
the JV Entities in (1) the United States and Canada or (2) the Remainder of the
World (other than Canada), as the case may be, Wellcome may give written notice
to W-L setting forth in reasonable detail the basis for Wellcome's
dissatisfaction with such JV Entities (all of such JV Entities in (1) the United
States and Canada or (2) the Remainder of the World (other than Canada), the
'Affected JV Entities'), it being understood that Wellcome's dissatisfaction may
not relate to the Plans for OTC Zovirax, JV Prescription Zovirax or any OTC
Switch Product as to which Wellcome was the Originating Party, but such
dissatisfaction may relate to a material breach of any provision of this
Agreement or any of the other Operative Documents by W-L or the implementation
by the relevant JV Entity (other than through Wellcome or its employees) of any
Plan for OTC Zovirax, JV Prescription Zovirax or any OTC Switch Product as to
which Wellcome was the Originating Party. Following receipt of such notice, W-L
shall have one year to attempt to cure the cause of Wellcome's dissatisfaction.
W-L shall use its reasonable efforts to attempt to cure the cause of Wellcome's
dissatisfaction unless W-L does not intend to cure such dissatisfaction within
such one year period. In the latter case, W-L shall notify Wellcome in writing
and such one year period shall be deemed to terminate as of the date of such
notice. If, in the reasonable opinion of Wellcome, the cause of Wellcome's
dissatisfaction has not been cured within one year of W-L's receipt of such
written notice and such one year cure period expires or has terminated pursuant
to the previous sentence, then
(a) After the second anniversary and prior to the fifth anniversary of
the Closing Date for the initial JV Implementation Agreement in (1) the
United States or Canada if the Affected JV Entity is located in the United
States or Canada or (2) any other Territory if the Affected JV Entity is
located in the Remainder of the World (other than Canada), as the case may
be, Wellcome shall
34
have the right to, within 30 days after expiration or termination of such
one year cure period by written notice (which shall be irrevocable as to
the election made) sent to W-L:
(i) elect to withdraw from the Affected JV Entities any products
included in the Wellcome Contributed Business together with OTC Zovirax,
JV Prescription Zovirax and any OTC Switch Product as to which Wellcome
was the Originating Party, that constitute JV Business of such Affected
JV Entities. In such event W-L shall compensate Wellcome for the loss of
its interest in the Affected JV Entities' JV Business represented by the
Going Concern Value of any OTC Switch Product as to which W-L was the
Originating Party and any products developed by the JV Entity (other
than Line Extensions) and any products acquired by the JV Entity
pursuant to Sections 6.03 and 6.04. Wellcome shall compensate W-L for
the loss of its interest in the affected JV Business represented by the
Going Concern Value of (1) OTC Zovirax, if the affected JV Entity is in
the United States and (2) any OTC Switch Product as to which Wellcome
was the Originating Party. In the event Wellcome transfers its interest
in OTC Zovirax (if the Affected JV Entity is in the United States) or
any OTC Switch Product as to which Wellcome was the Originating Party to
a third party within twelve months after Wellcome has withdrawn its
products from such JV Entities pursuant to this clause (i), Wellcome
shall pay to W-L an amount equal to W-L's appropriate share of any
amounts so received (calculated on an after-tax basis) in excess of
Going Concern Value of OTC Zovirax or such OTC Switch Product, as the
case may be. In the event of any election pursuant to this clause (i),
Wellcome will retain its rights and obligations in the Glaxo Arrangement
but shall relinquish any and all remaining interest in such Affected JV
Entities;
(ii) elect to withdraw from the Affected JV Entities all rights to
JV Prescription Zovirax, OTC Zovirax and any OTC Switch Products as to
which Wellcome was the Originating Party. W-L shall pay to Wellcome an
amount equal to the Going Concern Value of the remainder of Wellcome's
interest in such Affected JV Entities (excluding any value attributable
to JV Prescription Zovirax, OTC Zovirax and any such OTC Switch Products
but including the value of the Glaxo Arrangement and all OTC Switch
Products as to which W-L was the Originating Party) as of the most
recently completed Fiscal Quarter. Wellcome shall compensate W-L for the
loss of its interest in the JV Business of the Affected JV Entities
represented by the Going Concern Value of JV Prescription Zovirax, OTC
Zovirax and any such OTC Switch Products. In addition, Wellcome shall
pay to W-L an amount equal to the minimal necessary costs of reducing
the scope of such JV Entities' activities due to Wellcome's withdrawal
of JV Prescription Zovirax, OTC Zovirax and any other OTC Switch
Products as to which Wellcome was the Originating Party. In the event
Wellcome transfers its interest in OTC Zovirax, JV Prescription Zovirax
and any OTC Switch Product as to which Wellcome was the Originating
Party to a third party within twelve months after Wellcome has withdrawn
OTC Zovirax, JV Prescription Zovirax and any such OTC Switch Product
from any JV Entities pursuant to this clause (ii), Wellcome shall pay to
W-L an amount equal to W-L's appropriate share of any amounts so
received (calculated on an after-tax basis) in excess of Going Concern
Value for OTC Zovirax, JV Prescription Zovirax or such OTC Switch
Product, as the case may be. In the event of any election pursuant to
this clause (ii), Wellcome shall not retain any interest in the Glaxo
Arrangement and shall not be compensated for such loss of interest
(other than as included in the calculation of the Going Concern Value of
the Affected JV Entities set forth above in the event and to the extent
Wellcome participates in the Glaxo Arrangement pursuant to Article V);
or
(iii) elect to sell its entire economic interest, including the
Glaxo Arrangement, JV Prescription Zovirax, OTC Zovirax and all OTC
Switch Products as to which Wellcome was the Originating Party, in the
Affected JV Entities to W-L at a price to be negotiated by the Parties.
If the Parties are unable to agree upon a price within a period of three
months, Wellcome may offer to sell its entire economic interest in such
Affected JV Entities to a third party, including JV Prescription
Zovirax, OTC Zovirax and all OTC Switch Products as to which Wellcome
was the Originating Party but excluding the Glaxo Arrangement which
shall be acquired by W-L pursuant to Section 14.05; provided, however,
that if Wellcome negotiates the sale of its entire economic interest in
such Affected JV Entities to a third party on price
35
and other material commercial terms that are more favorable than those
last offered to W-L, Wellcome shall offer the terms of such third party
offer to W-L in writing prior to entering into any agreement with such
third party. W-L shall then have 30 days to accept or reject such offer.
If accepted, the Parties shall proceed to finalize such sale and
purchase, and if rejected or if no response is given within the 30 day
period, Wellcome may sell such interest to the third party on such
terms; provided, however, that the identity of such third party shall
have been approved by W-L with any such approval not to be unreasonably
withheld and not to be withheld based solely on the fact that the third
party is a competitor of W-L or of a JV Entity;
(b) At any time on or after the fifth anniversary and prior to the
tenth anniversary of the Closing Date for the initial JV Implementation
Agreement in (1) the United States or Canada if the Affected JV Entity is
located in the United States or Canada or (2) any other Territory if the
Affected JV Entity is located in the Remainder of the World (other than
Canada), as the case may be, Wellcome shall have the right, within 30 days
after expiration or termination of such one year cure period by written
notice (which shall be irrevocable as to the election made) sent to W-L, to
elect either of the options set forth in Section 14.03(a)(ii) and (iii)
above;
(c) At any time on or after the tenth anniversary of the Closing Date
for the initial JV Implementation Agreement in (1) the United States or
Canada if the Affected JV Entity is located in the United States or Canada
or (2) any other Territory if the Affected JV Entity is located in the
Remainder of the World (other than Canada), as the case may be, Wellcome
shall have the right, within 30 days after expiration or termination of
such one year cure period by written notice sent to W-L, to elect the
option set forth in Section 14.03(a)(iii);
provided, however, that in the event that Wellcome elects any of the above with
respect to a JV Entity in (1) the United States or Canada, such election shall
also apply to all JV Entities in the United States or Canada or (2) the
Remainder of the World (other than Canada), such election shall also apply to
all other JV Entities in the Remainder of the World (other than Canada). In the
event of an election by Wellcome pursuant to Section 14.03(a)(i) or (ii) the
affected JV Entities may cause arrangements to be effected whereby Wellcome will
acquire the relevant products.
Wellcome may, in its discretion, elect the option set forth in clause
(a)(iii) at any time after the receipt of the NDA Approval referred to in
Section 4.02(c)(ii)(A)(1) or there has been a successful renegotiation pursuant
to Section 4.02(c)(ii)(B); provided, however, that W-L has not commenced the
termination procedures set forth in Section 14.02 or 14.04 for the Affected JV
Entities.
SECTION 14.04. W-L Events of Termination; Remedies. In the event that (x)
there is an NDA Approval for OTC Zovirax within the time periods set forth in
Section 4.02(c)(ii)(B), (y) there has been a successful renegotiation of an
increased allocation of Special Profits or a decreased allocation of Special
Losses to W-L pursuant to Section 4.02(c)(ii)(B) or (z) W-L has not commenced
the termination procedures set forth in Section 14.02 within the time periods
set forth therein, and W-L is dissatisfied with the performance of any of the
Affected JV Entities in (i) the United States and Canada or (ii) the Remainder
of the World (other than Canada) as the case may be, W-L may give written notice
to Wellcome setting forth in reasonable detail the basis for W-L's
dissatisfaction with the Affected JV Entities, it being understood that W-L's
dissatisfaction may only relate to the Plans for JV Prescription Zovirax, OTC
Zovirax or any OTC Switch Product as to which Wellcome was the Originating Party
except to the extent that the aforementioned Plans were prepared by the affected
JV Entity other than at the direction of Wellcome (W-L's dissatisfaction not
being based solely on implementation of such Plan other than by Wellcome or its
employees), or a material breach of any provision of this Agreement or any of
the other Operative Documents by Wellcome. Following receipt of such notice,
Wellcome shall have one year to attempt to cure the cause of W-L's
dissatisfaction. Wellcome shall use reasonable efforts to attempt to cure the
cause of W-L's dissatisfaction unless Wellcome does not intend to cure such
dissatisfaction within such one-year period. In the latter case, Wellcome shall
notify W-L in writing and such one year period shall be deemed to terminate as
of the date of such notice. If Wellcome, in the reasonable opinion of W-L, has
failed to cure such dissatisfaction within one year of receipt of such written
notice, and such one year cure period expires or has terminated pursuant to the
previous sentence, then
36
(a) After the second and prior to the fifth anniversary of the Closing
Date for the initial JV Implementation Agreement in (A) the United States
and Canada if the Affected JV Entity is located in the United States or
Canada, or (B) the Remainder of the World (other than Canada) if the
Affected JV Entity is in the Remainder of the World (other than Canada), as
the case may be, W-L shall have the right to, within 30 days after
expiration or termination of such one year cure period by written notice
(which shall be irrevocable as to the election made) sent to Wellcome:
(i) return to Wellcome all of the products included in the Wellcome
Contributed Business together with OTC Zovirax, JV Prescription Zovirax
and any OTC Switch Product as to which Wellcome was the Originating
Party, that constitute JV Business of the Affected JV Entities, and
Wellcome shall pay to W-L an amount equal to 50% of the Going Concern
Value of W-L's interest in OTC Zovirax in the United States and any OTC
Switch Products as to which Wellcome was the Originating Party as of the
most recently completed Fiscal Quarter preceding the date of W-L's
election. W-L shall compensate Wellcome for the loss of its interest in
the JV Business of the Affected JV Entities represented by the Going
Concern Value of any OTC Switch Product as to which W-L was the
Originating Party and any products developed by the JV Entity (other
than the Line Extensions) and any products acquired by the JV Entity
pursuant to Sections 6.03 and 6.04. In the event of any election
pursuant to this clause (i), Wellcome shall retain its rights and
obligations in the Glaxo Arrangement; or
(ii) return to Wellcome JV Prescription Zovirax, OTC Zovirax and
any OTC Switch Products as to which Wellcome was the Originating Party
and, in such event, W-L shall compensate Wellcome for the remainder of
its interest in the Affected JV Entities (excluding any value
attributable to JV Prescription Zovirax, OTC Zovirax, any such OTC
Switch Products or the Glaxo Arrangement but including any value
attributable to any OTC Switch Product as to which W-L was the
Originating Party) on a basis to be negotiated by the Parties. In
addition, Wellcome shall pay W-L an amount equal to 50% of the Going
Concern Value of its interest in JV Prescription Zovirax, OTC Zovirax
and any such OTC Switch Products as of the most recently completed
Fiscal Quarter. In the event of any election pursuant to this clause
(b), Wellcome shall retain its rights and obligations in the Glaxo
Arrangement;
(b) At any time on or after the fifth anniversary of the Closing Date
for the initial JV Implementation Agreement in (A) the United States and
Canada, if the Affected JV Entity is in the United States or Canada or (B)
the Remainder of the World (other than Canada) if the Affected JV Entity is
in the Remainder of the World (other than Canada), as the case may be, W-L
shall have the right to, within 30 days after expiration or termination of
such one year cure period by written notice (which shall be irrevocable as
to the election made) sent to Wellcome to elect the option set forth in
Section 14.04(a)(ii);
provided, however, that in the event that W-L elects any of the above with
respect to a JV Entity in (i) the United States or Canada such election shall
also apply to all other JV Entities in the United States or Canada or (ii) the
Remainder of the World (other than Canada), such election shall also apply to
all other JV Entities in the Remainder of the World (other than Canada).
In the event W-L exercises the option set forth in clause (a)(i), Wellcome
may elect to sell its interest in the Affected JV Entities to W-L at Going
Concern Value (excluding any value attributable to JV Prescription Zovirax, OTC
Zovirax, any OTC Switch Products as to which Wellcome was the Originating Party
and the Glaxo Arrangement) and retain JV Prescription Zovirax, OTC Zovirax, any
OTC Switch Products as to which Wellcome was the Originating Party and its
interest in the Glaxo Arrangement and compensate W-L as set forth in and to the
extent required by clause (a)(ii) above. If the Parties are unable to agree upon
a price within a period of three months, Wellcome may offer to sell its entire
economic interest in the Affected JV Entities excluding any value attributable
to OTC Zovirax, JV Prescription Zovirax and any OTC Switch Products as to which
Wellcome was the Originating Party to a third party; provided, however, that if
Wellcome offers such interest to a third party on price and other material terms
that are more favorable than those last offered to W-L, Wellcome shall offer the
terms of such third party offer to W-L in writing prior to entering into any
agreement with such third party. W-L shall then have 30 days to accept or reject
such offer. If accepted, the Parties shall proceed to finalize such sale and
purchase, and if rejected or if no response is given
37
within the 30-day period, Wellcome may sell such interest to the third party
only on such terms. In the event of any election pursuant to Section 14.04(a)(i)
as a result of which Wellcome has retained rights and obligations in the Glaxo
Arrangement, that retained interest shall be limited to the extent of any prior
affirmative elections made by Wellcome pursuant to Section 5.01(b) and Wellcome
shall have no continuing right to make any further elections pursuant to that
Section.
SECTION 14.05. W-L's Option to Purchase Wellcome's Interest in the Glaxo
Arrangement; Wellcome Tag-Along Right. (a) Notwithstanding the provisions set
forth in Sections 14.03 and 14.04, and in the event that Wellcome or W-L, as the
case may be, has elected to exercise any of the provisions for termination set
forth in Sections 14.03 or 14.04, W-L, at its sole option, after giving Wellcome
written notice of its intention to purchase Wellcome's entire interest in the
Glaxo Arrangement, shall negotiate in good faith to purchase such interest for a
price to reflect the value thereof but without ascribing any value to Wellcome's
interest in the Glaxo Arrangement except for products currently being marketed
or under development. If, after 60 days, the Parties cannot agree on such a
price, W-L shall send written notice to Wellcome that W-L still intends to
purchase Wellcome's interest in the Glaxo Arrangement, and W-L shall pay
Wellcome the Going Concern Value of Wellcome's interest as determined pursuant
to Section 15.03 within 30 days following receipt of the calculation of such
amount.
(b) In the event W-L shall assign, sell or otherwise transfer its entire
interest in the Glaxo Arrangement to a third party, W-L will assure that
Wellcome's interest in the Glaxo Arrangement is assigned, sold or otherwise
transferred on equivalent terms, and, in such event, Wellcome hereby agrees to
any such sale, assignment or transfer.
SECTION 14.06. Waiver of Right to Terminate. Notwithstanding the foregoing,
in the event that a Party fails to give a notice of termination within the time
periods set forth in Section 14.03 or 14.04, as the case may be, such Party
shall be deemed to have waived its right to terminate with respect to the event
or events which gave rise to such right to terminate.
SECTION 14.07. Winding Up and Transfer of Assets; Liquidation. Upon the
occurrence of an event of termination set forth in Section 8.02, 14.01, 14.02,
14.03 or 14.04, the relevant JV Entity shall continue to exist solely for the
purposes of winding up its affairs in an orderly manner, liquidating its assets
and satisfying the claims of its creditors and its shareholders. No Party shall
take any action that is inconsistent with, or not necessary to or appropriate
for, winding up the business and affairs of any JV Entity. During the period of
winding up, the rights and obligations set forth in this Agreement with respect
to the management of any JV Entity shall continue and, subject to Section 5.04
hereof, the relevant Governing Board shall continue to make all decisions
relating to the conduct of any remaining business or operations, including any
decisions relating to the sale or other disposition of any assets of any JV
Entity; provided, however, that if dissolution occurs as a result of an election
of a Party pursuant to Section 8.02, 14.01, 14.02, 14.03 or 14.04, then W-L and
its representatives on the relevant Governing Board, unless other arrangements
are agreed to by the Parties, shall have the exclusive right to wind up the
business of the Affected JV Entities and to liquidate their assets and may also
elect to exercise the right to continue the business of the Affected JV Entities
in accordance with relevant law.
SECTION 14.08. Rationalization of Interests; Tax Indemnification. In the
event of any restructuring event which occurs pursuant to Section 8.02 or this
Article XIV, the capital accounts or capital stock accounts of the Parties in
the JV Entities affected by the restructuring event shall be dealt with in the
manner provided by the relevant JV Implementation Agreement. In the event a
Party shall commence termination of a JV Entity pursuant to 14.02, 14.03 or
14.04 or shall have undergone a Change of Control pursuant to Section 8.02, that
Party shall indemnify the JV Entity on an after-tax basis for any income tax
liability of the JV Entity attributable to such termination. The Parties shall
cooperate to minimize any adverse tax consequences resulting from the
application of the provisions of this Article XIV.
SECTION 14.09. Termination of Related Agreements. In the event that
Wellcome withdraws any products or W-L returns any products to Wellcome in
accordance with this Article XIV, the Wellcome Operative Documents with respect
to such products shall terminate with respect to such products following an
orderly transition period, except to the extent such termination is agreed not
to be necessary based on the commercial requirements of the Parties. With
respect to any products not withdrawn or returned, the Wellcome Operative
Documents shall survive in accordance with their
38
respective terms upon any termination of this Agreement; provided, however, that
in the event W-L purchases Wellcome's interest in any JV Entities pursuant to
Article XIV, such Operative Documents shall terminate unless otherwise agreed by
the Parties, and Wellcome shall assign, without additional consideration, its
entire right, title and interest in and to the affected products or otherwise
make such products available to W-L on an irrevocable, exclusive, royalty-free
(subject to any applicable third party royalties) and perpetual basis, it being
understood that the valuation of Wellcome's interest shall reflect the transfers
contemplated by this proviso. Any payment by W-L for Wellcome's interest shall
be made to Wellcome or its Affiliates as their interests may appear. In the
event products are returned to Wellcome, the Parties shall use reasonable
efforts to accommodate each other's needs in respect of transition arrangements,
including, without limitation, the transfer of any regulatory approvals or
licenses with respect to such products.
SECTION 14.10. Failure to Satisfy Required Conditions. In the event that
any transaction contemplated by the provisions of this Article XIV cannot be
consummated by reason of the inability to satisfy any governmental, statutory or
regulatory approval or consent which may be required as a condition to the
consummation thereof, including, without limitation, any required approval of
Wellcome shareholders having been sought and not given, the Parties agree to
negotiate in good faith, subject to their respective fiduciary duties (and any
required approvals or consents), an alternative to the transaction which cannot
be so consummated with a view to obtaining for each of the Parties (in the
manner most effective under the circumstances) the economic benefits desired
under the application provisions of this Article XIV.
SECTION 14.11. Definitional Clarification. For purposes of Sections 14.02,
14.03 and 14.04 of this Article XIV, the term Wellcome Contributed Business
shall be deemed to exclude OTC Zovirax and JV Prescription Zovirax.
ARTICLE XV
GENERAL
SECTION 15.01. Expenses. Wellcome and W-L shall bear their own expenses
incurred in connection with this Agreement and the Operative Documents and the
consummation of the transactions contemplated hereby and thereby and preparation
therefor, including, without limitation, all expenses of their respective
representatives on each Governing Board and all Taxes incurred in connection
with the assignment and transfer of any assets to a JV Entity; provided,
however, that each Party shall, and shall cause such JV Entity, to the extent
legally able to do so, to deliver to any other Party that is required by law to
collect any such transfer or similar taxes an exemption certificate, in form and
substance satisfactory to such Party, with respect to such Taxes. In connection
with the application of this Section 15.01, the Parties shall cooperate within
reason to minimize any tax consequences to both Parties.
SECTION 15.02. Assignment and Binding Effect. Subject to the provisions of
Article XII, this Agreement and any of the rights or obligations hereunder shall
not be assignable by any Party without the prior written consent of the other
Party hereto. This Agreement shall be binding upon and inure to the benefit of
the Parties hereto and their respective permitted successors and assigns.
SECTION 15.03. Inability to Agree Upon Value. In the event the Parties
cannot agree on any determination of Going Concern Value, the fair market value
of a product or the fair market value of a contribution to a JV Entity within a
period of 90 days following the event requiring the determination of such value,
each Party shall choose an investment banker to determine such Going Concern
Value or other value, which Going Concern Value or other value shall be the
average of the two values determined by such investment bankers, unless the
higher value exceeds the lower value by more than ten percent, in which case the
Going Concern Value or other value shall be one or the other of such values as
decided by an investment banker selected by the first two investment bankers.
SECTION 15.04. Financial Consolidation. To the extent presently permitted
by U.S. GAAP, the Parties intend that W-L shall consolidate the sales of each JV
Entity for U.S. GAAP financial reporting purposes.
39
SECTION 15.05. Notices. All notices, demands, requests and other
communications required or permitted to be given hereunder shall be in writing
and deemed duly given on the date delivered by hand, mailed by registered or
certified mail, postage prepaid, or by overnight courier or by facsimile
transmission the receipt of which is confirmed by telephone and, pending the
designation of another address, addressed as follows:
If to Wellcome:
Wellcome plc
Unicorn House
160 Euston Road
London NW1 2BP ENGLAND
Attn: Company Secretary
With a copy to:
Burroughs Wellcome Co.
3030 Cornwallis Road
Research Triangle Park, NC 27709
Attn: Company Secretary
If to W-L:
Warner-Lambert Company
201 Tabor Road
Morris Plains, NJ 07950
(1) Attn: Vice President, Planning,
Investment and Development
(2) Attn: Vice President and General Counsel
SECTION 15.06. Parties in Interest. Nothing in this Agreement, express or
implied, is intended or shall be construed to confer upon or give to any Person,
firm or corporation other than the Parties hereto any remedy or claim under or
by reason of this Agreement, all of which shall be for the sole and exclusive
benefit of the Parties hereto.
SECTION 15.07. Press Releases. All press releases or other public
communication relating to the terms of this Agreement, the JV Entities and the
other Operative Documents (other than announcements, summaries or reports of
previously disclosed information) shall be subject, except as otherwise required
by law or the rules of any regulatory authority, to the prior approval of each
of Wellcome and W-L, which approval shall not be unreasonably withheld.
SECTION 15.08. Headings; Schedules; Counterparts. The headings of the
Sections and Articles of this Agreement are inserted as a matter of convenience
and for reference purposes only, and are of no binding effect.
All Exhibits or Schedules delivered pursuant to this Agreement shall be
deemed part of this Agreement and incorporated herein, where applicable, as if
fully set forth herein. All statements contained in any Exhibit or Schedule
delivered by or on behalf of the parties hereto, or in connection with the
transactions contemplated hereby, are an integral part of this Agreement. It is
also understood that the forms included in the Supplemental Document Package may
require alteration to conform to local custom, practice or usage. Variations in
those forms will be negotiated in good faith by the Parties.
This Agreement may be signed in any number of counterparts, each of which
for all purposes shall be deemed to be an original and all of which together
shall constitute the same agreement.
SECTION 15.09. Entire Agreement; Amendment; Severability. (a) This
Agreement, including the Exhibits and Schedules hereto and the other Operative
Documents represent the entire understanding and agreement between the Parties
hereto with respect to the subject matter hereof. This Agreement can be amended,
modified, supplemented, extended, terminated (except as provided in Article XIV
hereof), discharged or changed only by an agreement in writing which makes
specific reference to this Agreement and which is signed by all Parties.
40
(b) If and to the extent that any court of competent jurisdiction holds any
provision (or any part thereof) of this Agreement to be invalid or
unenforceable, such holding shall in no way affect the validity of the remainder
of the Agreement.
(c) If and to the extent compliance with any provision of this Agreement or
any other Operative Document, in the reasonable opinion of a Party, would result
in a violation of law or regulation, such Party need not comply with such
provision, provided that such Party shall provide, to the extent practicable,
prior written notice to the other Party and, where not practicable, prompt
notice following such non-compliance.
SECTION 15.10. Waiver; Compliance. Any failure of Wellcome or W-L to comply
with any obligation, covenant, agreement or condition herein contained may be
expressly waived, in writing only, by the other Party hereto and such waiver
shall be effective only in the specific instance and for the specific purpose
for which made or given.
SECTION 15.11. Confidentiality. (a) No Party shall, during the period while
any provision of this Agreement is in effect and for a period of five years
after all other provisions of this Agreement have ended or been terminated,
disclose any information (that is not publicly available or generally known
other than by breach of the provisions of this Agreement or made available by a
third party which is not in breach of an obligation of confidentiality) (i)
regarding the terms of this Agreement and of the other Operative Documents and
in particular the terms of the provisions relating to a Change of Control
contained in Article VIII hereof or in any other of the Operative Documents or
(ii) obtained by such Party pursuant to or in connection with the negotiation,
delivery and performance of this Agreement or the other Operative Documents or
the consummation of the transactions contemplated thereby to any Person, other
than its Affiliates; except (v) with the prior written consent of the other
Party; (w) to the extent necessary to comply with the requirements of the
Securities and Exchange Commission, the London Stock Exchange and other
regulatory authorities: (x) to the extent necessary to comply with law or
regulatory authority or the valid order of a court of competent jurisdiction, in
which event the Party making such disclosure shall so notify the other Party as
promptly as practicable (and if possible, prior to making such disclosure) and
shall seek confidential treatment of such information; (y) in connection with
enforcement of such Party's rights hereunder or (z) disclosures to a
professional advisor to such Party in connection with the performance by such
Party of its obligations hereunder.
(b) To the extent practicable, upon any termination of this Agreement, each
Party hereto will redeliver all documents, work papers and other material of any
other Party, specifically requested to be returned by a Party in writing,
relating to the transactions contemplated hereby, and all copies of such
materials, whether so obtained before or after the execution hereof, to the
Party furnishing the same.
SECTION 15.12. Governing Law; Jurisdiction; Consent to Service of Process;
Agent for Service. (a) This Agreement shall be governed, construed and enforced
in accordance with the laws of the State of New York without regard to the
applicable principles of conflicts of laws that might otherwise govern.
(b) Each of the Parties hereby irrevocably and unconditionally submits, for
itself and its property, to the jurisdiction of any New York State court sitting
in New York or any Federal court of the United States sitting in the Borough of
Manhattan in the City of New York, and any appellate court from any such court,
in any suit, action or proceeding arising out of or relating to this Agreement
or any of the Operative Documents, or for recognition or enforcement of any
judgment, and each of the Parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such suit, action or proceeding may be
heard and determined in such New York State court or, to the extent permitted by
law, by removal or otherwise, in such Federal court. It shall be a condition
precedent to each Party's right to bring any such suit, action or proceeding
that such suit, action or proceeding, in the first instance, be brought in such
New York State court or, to the extent permitted by law, by removal or
otherwise, in such Federal court (unless such suit, action or proceeding is
brought solely to obtain discovery or to enforce a judgment), and if each of
such New York state court and such Federal court refuses to accept jurisdiction
with respect thereto, such suit, action or proceeding may be brought in any
other court with jurisdiction. Neither Party may move to (i) transfer any suit,
action or proceeding from such New York State court or Federal court to another
jurisdiction, (ii) consolidate any such suit, action or proceeding brought in
such New York State court or Federal court with a suit, action or proceeding in
another jurisdiction or (iii) dismiss any such suit, action or proceeding
brought in such New York
41
State court or Federal court for the purposes of bringing the same in another
jurisdiction. Each Party agrees that a final judgment in any such suit, action
or proceeding shall be conclusive and may be enforced in any other jurisdiction
by suit on the judgment or in any other manner provided by law.
(c) Each of the Parties hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or any of the Operative
Documents in any New York State court sitting in New York or any Federal court
sitting in the Borough of Manhattan in the City of New York. Each Party hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such suit, action or proceeding in any
such court and further waives the right to object, with respect to such suit,
action or proceeding, that such court does not have jurisdiction over such
Party.
(d) Each Party irrevocably consents to service of process on it or any
agent for service appointed from time to time (including agents for service
appointed pursuant to clause (e) of this Section 15.12) in the manner provided
for notices in Section 15.05. Nothing in this Agreement shall affect the right
of either Party to serve process in any other manner permitted by law.
(e) Wellcome hereby designates and appoints Cahill Gordon & Reindel and
such other persons (reasonably satisfactory to W-L) hereafter selected by it,
irrevocably agreeing in writing so to serve, as its agent to receive on its
behalf service of all process in any proceedings referred to in clause (b) of
this Section 15.12, such service being hereby acknowledged by Wellcome to be
effective and binding service in every respect.
IN WITNESS WHEREOF, each of the Parties hereto has caused this Agreement to
be duly executed in its name and on its behalf, all as of the date first above
written.
WARNER-LAMBERT COMPANY,
by /s/ Fred G. Weiss
...................................
Name: Fred G. Weiss
Title: Vice President
WELLCOME plc,
by /s/ James M. T. Cochrane
...................................
Name: James M.T. Cochrane
Title: Director
42
SCHEDULE 1
FORMAT FOR CALCULATING
CERTAIN PROFITS AND LOSSES
JV Entity Items of Revenue:
1. Net Sales
Less JV Entity Items of Expense:
1. Cost of Goods Sold
*2. Promotion
Allowances
Consumer
Other
*3. Advertising
Media
Production
Market Research
Other Advertising
*4. Selling
Field Selling
Detail Field Selling
Other Selling
*5. Distribution Operations
Freight
Operations............................................................................ A
*6. General Administration and Corporate Allocations........................................... A
*7. R&D
8. Other (Income)/Expense..................................................................... A
9. Royalties
10. JV Entity Taxes
Income Based Taxes
Excise, Sales, Transfer and Other Taxes............................................... A
- ------------
(A) Indicates an item of JV Entity expense which shall not be allocated with
respect to OTC Zovirax in the United States or any OTC Switch Product for
purposes of calculating Special Profit or Loss, but instead shall be
provided for by the Administrative Services Allocation.
* Many of these services will be provided pursuant to a Marketing Services and
Development Agreement
DEFINITIONS FOR ITEMS OF EXPENSE
1. Cost of Goods Sold: The JV Entity's purchased cost of products sold or
otherwise disposed. Cost of goods sold shall include: the purchase price
invoiced to the JV Entity by the Manufacturer pursuant to Section 7.01 or in the
case of third party invoices, by such third party plus any freight, duty, third
party royalties or other such charges, as applicable, loss on returned goods,
obsolete or damaged goods, other merchandise expense and other such inventory
costs, all as determined in accordance with U.S. GAAP on a first in, first out
('FIFO') basis.
2. Promotion: The summation of allowances, consumer and other.
Allowances: Costs include market and trade development funds and any
performance monies given to trade accounts to incentivize promotion at the
retail level.
Consumer: The costs of promotional efforts directed at the consumer
which includes samples, couponing, sweepstakes and premiums.
1
Other: Miscellaneous promotional costs which include displays,
promotional packaging costs, trade literature, public relations, etc.
3. Advertising: The summation of Media, Production, Market Research and
Other Advertising.
Media: Placement expenses associated with different forms of
advertising, i.e. television, radio, magazine, billboard, agency fees, etc.
Production: Expenses associated with the development of the different
forms of advertising, i.e. talent, filming, commercial development, etc.
Market Research: The cost to undertake studies to gain an
understanding of consumer preferences and behavior as well as the cost of
purchasing syndicated data.
Other Advertising: Costs associated with programs directed at
professionals (dentists/doctors). These costs include convention, sampling,
educational brochures, etc.
4. Selling: The summation of Field Selling, Detail Field Selling and Other
Selling.
Field Selling: Field sales force salaries, benefits, incentive
bonuses, travel and entertainment, training, sales office expense, car
stock, relocation, auto, etc. Allocated to brand based on sales.
Detail Field Selling: Salaries, benefits, incentive bonuses, travel
and entertainment, auto, conventions, samples, supplies, etc. Allocated to
brand based on number of details.
Other Selling: Costs related to sales meeting for launch of a new
product or line extension and similar related costs.
5. Distribution Operations: The summation of freight and distribution
operations.
Freight: Cost of shipping product to the customer.
Operations: Cost of operating distribution centers and warehouses,
customer services and order entry.
6. General Administration: For Marketing Administration, Sales
Administration, Finance, Human Resources, other General Administration
departments serving the relevant JV Entity, includes salaries, benefits,
temporary help and departmental expenses including travel and entertainment,
supplies, conventions, telephone, consultant fees, depreciation of furniture and
fixtures, etc. In addition, allocation for administrative expenses from other
areas include Credit and Collection, Office Services, Cafeteria, Purchasing,
Library, Accounting, Health Services, Computer System Support, building
occupancy.
Corporate Allocations: Expenses to be allocated to the relevant JV
Entity such as Legal, Security, Management bonuses.
7. R & D: Costs, including normal allocations related to OTC Research,
Product Development, Process Development and Packaging Development performed by
W-L's Consumer Products Research and Development Division.
8. Other (Income)/Expense: Major items include any Glaxo Management Fee,
amortization expense for JV Entity patents, trademarks and goodwill, interest
income or expense, (gain)/loss on sales of fixed assets and bad debt expense.
9. Royalties: Includes the royalty payable to Wellcome pursuant to Section
4.04 and other amounts payable pursuant to license agreements entered into, or
assigned to, by a JV Entity.
10. JV Entity Taxes:
Income Based Taxes: Taxes, governmental license fees and turnover
taxes based on the income or sales of a JV Entity, including any penalties
or interest thereon.
Excise, Sales, Transfer and Other Taxes: Non-product specific taxes,
Taxes or other levies and assessments payable by a JV Entity, such as
certain excise, sales taxes on purchases, transfer, registration, value
added, withholding, property, payroll or other governmental levies,
including any penalties or interest thereon.
2