EXHIBIT 10.33
SECOND CONSOLIDATED AGREEMENT
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AGREEMENT effective as of December 15, 1992 by and between Schein
Pharmaceutical, Inc., a corporation organized and existing under the laws of the
State of New York, having an office and place of business at 1800 Northern
Boulevard, Rosyln NY 11576 and its affiliated companies, including Danbury
Pharmacal, Inc. and Steris Laboratories, Inc. (hereinafter referred to as
"SPINC") and Alfred B. Engelberg, an individual residing at 136 Field Point
Circle, Greenwich CT 06830 (hereinafter referred to as ("ENGELBERG").
Statement
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SPINC and its affiliates are parties to an Agreement with ENGELBERG
entered into on July 17, 1985, a Supplemental Agreement of April 20, 1988 and a
Second Supplemental Agreement of July 11, 1989, a Consolidated Agreement dated
January 1, 1990 and renewals thereof effective January 1, 1991 and January 1,
1992. Under the terms of those agreements, ENGELBERG has performed certain
services on behalf of SPINC and its affiliates including the commencement and
completion of patent certification litigation involving ************************
********** ************* *** ******************* products. ENGELBERG is also
currently engaged in litigation on behalf of SPINC with respect to buspirone and
has prepared opinions relating to patent invalidity or infringement avoidance
with respect to ********** ******** *********** *********** ********* ***
**********
This Agreement is intended to fully define the relationship between the
parties from and after its effective date.
* redacted pursuant to confidential treatment request.
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NOW, THEREFORE, in consideration of the covenants and considerations
hereinafter set forth, the parties agree as follows:
1. Duties and Obligations of ENGELBERG
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1.1. ENGELBERG agrees to perform the following services for SPINC, during
the life of this Agreement:
(a) The defense of the patent infringement litigation which Bristol-
Meyers Squibb Company has commenced against Danbury Pharmacal, Inc. based upon
the Patent Certification Notice prepared by ENGELBERG with respect to buspirone.
ENGELBERG intends to be personally responsible for the defense of this action
with such assistance from other counsel as he deems necessary or desirable.
(b) The preparation for and defense of patent infringement litigation, if
any, which may hereafter be commenced against SPINC or its affiliates based upon
the following opinions by ENGELBERG:
(i) The draft Patent Certification Notice covering invalidity and non-
infringement of the listed patents covering ********** ******* dated
December 3, 1992.
(ii) The opinion with respect to patent invalidity or non-infringement of
the listed patents covering ********** containing products dated October
19, 1992.
(iii) The opinion with respect to avoidance of infringement of the listed
patents covering ********** dated July 20, 1990.
(iv) The opinion with respect to avoidance of infringement of the listed
patents covering ********* ************* dated December 3, 1992.
* redacted pursuant to confidential treatment request.
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(v) The preliminary opinion with respect to a study of the possibility of
avoiding infringement of the listed patent covering ********* *********
dated December 3, 1992.
(vi) Opinions, if any, to be rendered with respect to such products as
ENGELBERG identifies in writing to SPINC within sixty (60) days following
the execution of this Agreement, provided, however, that an Initial Written
Opinion, as defined hereinafter, is rendered with respect to each such
product no later than September 30, 1993; that such Initial written
Opinions are limited to a total of no more than six (6) products
belonging to a maximum of three (3) different recognized chemical classes
of drugs; and that each such product is not subject to a non-patent
exclusivity which prohibits an ANDA from being filed before December 31,
1994.
(c) The services set forth in Paragraph 1.1(b) shall be performed
personally by ENGELBERG or by individuals retained by ENGELBERG who are acting
under ENGELBERG's personal direction and control. The retention of such
individuals shall be subject to the approval of SPINC, which approval shall not
be unreasonably withheld, it being recognized by SPINC that the compatibility
between ENGELBERG and such individuals is critical to the successful completion
of the purpose of this Agreement. ENGELBERG and SPINC agree that an Initial
Written Opinion with respect to any potential patent challenge, i.e., a written
opinion which includes, a recommendation to proceed with a patent challenge, the
facts, documents and law justifying the challenge and the basic strategy to be
used in defending against a subsequent claim of infringement
* redacted pursuant to confidential treatment request.
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by the patent owner, is critical to the success of any patent challenge.
ENGELBERG agrees that he shall personally conduct the evaluation necessary to
prepare that Initial Written Opinion and shall author the Initial Written
Opinion. SPINC agrees that subsequent to the preparation of an Initial Written
Opinion, ENGELBERG shall have complete discretion as to the delegation of
responsibility for the defense of patent litigation and is not obligated to
personally devote his full time to the performance of the services set forth in
paragraph 1.1(b). SPINC acknowledges that it has already received an Initial
Written Opinion with respect to buspirone hydrochloride, ********* ********
******************** ********* ********** *** ********* **************
1.2. Nothing in this Agreement shall prevent ENGELBERG from engaging in any
business or activity including, without limitation, any pharmaceutical business
or activity or any legal activity, including patent challenges involving drugs,
except that ENGELBERG agrees that he will not directly or indirectly engage in
any business or legal activity (i) with respect to any drug product if such
involvement could diminish the exclusivity or market lead time of SPINC with
respect to a product for which ENGELBERG has rendered an Initial Written opinion
under paragraph 1.1 (a) or (b) or (ii) which would involve the use of
confidential business information of SPINC acquired by ENGELBERG in the course
of performing his duties under this Agreement. ENGELBERG further represents that
as of the date of this Agreement he has not had any discussions with any third
party or entered into any Agreement with any third party with respect to the
possibility of engaging in drug patent challenges
* redacted pursuant to confidential treatment request.
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and that the list of products to be identified by ENGELBERG under paragraph 1.1
(b) (vi) of this Agreement shall include all of the products listed in the
Orange Book which he then intends to study for possible patent challenges.
1.3 Nothing in this Agreement shall be construed as requiring ENGELBERG
to engage in any counseling or consultation with SPINC except with respect to
products which are the subject of ENGELBERG's obligations under paragraph 1.1
(a) or (b).
2. Duties and Obligations of SPINC
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2.1. SPINC agrees that it will perform the following activities during the
life of this Agreement:
(a) Promptly provide ENGELBERG with all assistance requested by ENGELBERG
to obtain information regarding the availability of raw materials or other
technical information, or to take such other actions, as needed, to determine
the feasibility of producing a product for which an Initial Written Opinion has
been or is proposed to be prepared by ENGELBERG.
(b) As to each product identified in paragraph 1.1(b), or any other
product, for which the parties hereto determine that it is appropriate to
prepare and serve a Patent Certification Notice, carry out, at SPINC's sole
expense, all of the work required to formulate a generic drug product and to
obtain the stability, dissolution, bioequivalence and other data required to
obtain approval of an ANDA under the 1984 Act. SPINC recognizes that it is
essential to the objectives of this Agreement that all such
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technical work be completed and submitted to the FDA in the initial ANDA
application before any Patent Certification Notice can be filed.
(c) Carry out, at SPINC's sole expense, all of the manufacturing and sales
activities relating to each drug product for which an ANDA approval is obtained
for a product containing a Patent Certification Notice prepared as a result of
studies carried out pursuant to this Agreement.
3. Warranties and Representations
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3.1. It is understood by the parties hereto that nothing herein shall be
construed as obligating either party hereto to proceed with any patent challenge
or the development of any product unless and until all legal and technical
issues relating to such product are completely evaluated and each party hereto
has independently determined that a patent challenge is justified. However, in
the event that either party decides, for any reason, not to proceed with a
particular product the other party hereto shall be free to do so subject to such
obligations to the other as are set forth in this Agreement.
3.2. Each of the parties agrees to use its best efforts to meet its
obligations as defined in Paragraph 1 and 2 of this Agreement.
3.3. SPINC acknowledges that there is no warranty or other assurance by
ENGELBERG that the studies to be conducted by ENGELBERG under paragraph
1.1(b)(vi) will result in any written opinions recommending patent challenges or
that litigation with
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respect to the patents on which Initial Written Opinions have already been
rendered will result in a decision holding any patent invalid, unenforceable or
non-infringed despite his best efforts.
3.4. ENGELBERG acknowledges that there is no assurance by SPINC that it can
procure timely approval of an ANDA despite the use of its best efforts.
3.5. SPINC agrees that it will not make any oral or written statements
concerning this Agreement at any time which are inconsistent with the terms of
this Agreement. SPINC further agrees that it will not make any written statement
about this Agreement in connection with any prospectus seeking public or private
investment in SPINC or its affiliates without the prior approval of ENGELBERG,
which approval will not be unreasonably withheld provided that any such
statement calls clear attention to the acknowledgment set forth in paragraph 3.3
of this Agreement and further notes that ENGELBERG is free to terminate his
obligations in accordance with paragraph 6.2 of this Agreement.
4. Reimbursement of Expenses
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4.1. SPINC shall either directly pay or shall reimburse ENGELBERG for all
out-of-pocket expenses incurred in the course of performing services under this
Agreement. Such expenses shall include, but are not necessarily limited to, the
cost of obtaining patent copies and patent file histories, technical literature
and patent searches, expert witness fees, fees of additional counsel, court
costs, deposition transcript expenses, and travel expenses. ENGELBERG shall
periodically render detailed invoices covering such expenses, and SPINC agrees
to pay such invoices within forty-five
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(45) days after receipt thereof. Alternatively, ENGELBERG may forward expense
invoices from third parties directly to SPINC and SPINC agrees to pay such
invoices directly within forty-five (45) days after receipt thereof. None of the
expenses incurred by SPINC shall be recoverable from the amounts to be paid to
ENGELBERG under paragraph 5.1 of this Agreement except for the amounts expressly
authorized in paragraph 5.1 of this Agreement.
4.2. SPINC shall not be responsible for such expenses as ENGELBERG may
incur to maintain an office for the purpose of carry out the services
contemplated under paragraph 1.1 of this Agreement.
4.3. SPINC shall be solely responsible for any damages, counsel fees, costs
or other monetary relief which a Court may award or require to be paid for any
reason with respect to any patent litigation under this Agreement. SPINC shall
be entitled to receive any reimbursement of costs awarded by a Court. Any
attorneys fees awarded to SPINC shall be divided equally with ENGELBERG.
5.0 Compensation
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5.1. SPINC agrees to pay ENGELBERG Fifty percent (50%) of the Marginal
Gross Profit in connection with the commercial manufacture and sale of each
product for which SPINC obtains an ANDA approval in an application containing a
certification of patent invalidity, non-infringement, unenforceability or non-
use based upon an Initial Written Opinion with respect to such patent heretofore
or hereafter rendered by ENGELBERG pursuant to paragraph 1.1 (b) of this
Agreement. For the purpose of this Agreement:
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(a) In the case of buspirone, ********* *** ********** **********
products and the products referred to in paragraphs 5.7 and 5.8 of this
Agreement, "Marginal Gross Profit" shall mean "Net Sales" less **** of
the Cost of Goods.
(b) As to all products other than those set forth in paragraph 5. (a),
"Marginal Gross Profit" shall mean "Net Sales" less **** of the Cost of
Goods.
(c) "Net Sales" shall mean the total amount received from all sales of a
product in arm's length transactions with third parties, less only charges
for taxes, delivery and other items separately stated and billed on the
invoices to customers, returns for credit and sales rebates or credits of
the type given in the normal course of business to particular classes of
customers to induce purchases of the product for which the discount is
given. No costs incurred in the manufacture, packaging and sale of the
Product shall be deducted in determining "Net Sales". Sales to affiliated
companies at prices which are less than those charged in an arm's length
transaction with a third party shall be adjusted to reflect the amount
which would have been received in an arm's length transaction, except that
no adjustment shall be required in those instances where the lower selling
price results from a successful competitive bid on a hospital or government
contract and the selling price is determined in
* redacted pursuant to confidential treatment request.
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accordance with past mutual profit reduction practices between SPINC and
its affiliate with respect to such contracts.
(d) "Cost of Goods" shall be determined by adding (i) the actual cost of
materials, including active and inactive ingredients, capsules, packaging
materials and any other materials used to produce a product, and (ii) the
unit labor and unit manufacturing costs determined under existing cost
accounting methods which are uniformly applied to all products manufactured
in the same facility in accordance with generally accepted accounting
principles.
5.2. In the event that the Marginal Gross Profit is zero or less, no
payment to ENGELBERG shall be made under this paragraph 5.2. No payments
pursuant to paragraph 5.1 shall be required for sales of a product which are
made after the expiration date of the last patent listed for any product in the
Approved Drug Products list of the FDA.
5.3. If, as to any product for which SPINC would be obligated to make
payments to ENGELBERG pursuant to paragraph 5.1, SPINC is successful in
negotiating a license agreement with the patent owner which gives SPINC the
right to manufacture the drug product or some other drug product in lieu
thereof, the parties agree that the payments required under paragraph 5.1 shall
apply but the amount paid as a royalty shall be subtracted from Net Sales to
determine the Marginal Gross Profit. If, as to any product for which SPINC would
be obligated to make payments to ENGELBERG pursuant to paragraph 5.1, SPINC
negotiates an agreement with the patent owner
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which results in a monetary payment to SPINC or in the payment of other
consideration such as goods, trade discounts, etc., in exchange for an agreement
by SPINC to refrain from the independent manufacture or sale of the patented
product, ENGELBERG shall receive fifty (50%) percent of the value of such
monetary payments or other consideration and such payments shall be made to
ENGELBERG promptly after receipt of the payment or benefit by SPINC.
5.4 SPINC may deduct from the payments to be made to ENGELBERG any fees
actually paid to additional counsel who are retained pursuant to either
paragraph 1.1 (c) or 6.3 of this Agreement and such out-of pocket expenses of
such additional counsel as are incurred due to the retention of additional
counsel, e.g. travel, meals, additional copies, etc. Out-of-pocket expenses for
transcripts, depositions, expert witnesses and any other type of expense which
would have been incurred even though no additional counsel had been retained
shall not be deductible from the payments to ENGELBERG. Fees and expenses which
are deductible under this paragraph may be deducted from any payment except that
in the case of buspirone, fees or expenses can only be deducted from a payment
if incurred in connection with buspirone after the date of this Agreement. No
deduction may be made for fees or expenses of any kind in connection with
payments for ************* ** ******************* *********
5.5 The payments to be made pursuant to paragraph 5.1, unless otherwise
specified, shall be made quarterly by SPINC within sixty (60) days after each
calendar quarter on all sales of each product made during the preceding calendar
quarter or, for the last
* redacted pursuant to confidential treatment request.
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calendar quarter in which a payment is owed to ENGELBERG, within sixty (60) days
from the last sale for which ENGELBERG is entitled to receive payment due to
expiration of the patent. Each such payment shall be accompanied by a statement
setting forth sufficient information with respect to sales to enable ENGELBERG
to verify the basis for the payment being made.
5.6 SPINC shall at all times maintain accurate and complete manufacturing
and sales records with respect to all drug products for which payments are due
pursuant to this paragraph 5 in such a manner that ENGELBERG may verify the
amounts of payments due and payable hereunder. Such records shall be open to
inspection by ENGELBERG or his authorized representative during normal business
hours on reasonable notice, but not more than twice during any calendar year.
5.7 The payments required under paragraph 5.1 shall be made by
SPINC with respect to its manufacture and sale of ************* **********
products until November 25, 1992 except that:
(a) The Cost of Goods shall include **** of the royalty paid
to Sandoz.
(b) The estimated final payment for products sold between
October 1, 1992 and November 25, 1992 shall be made to
ENGELBERG by bank wire transfer on December 29, 1992 subject
to adjustment for actual sales allowances and credits.
(c) ENGELBERG shall pay interest to SPINC on the amount of
the final payment for a period of ** days at a rate of ****
per annum, said interest payment to be deducted by SPINC from
the December 29, 1992 payment.
* redacted pursuant to confidential treatment request.
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5.8 The payments required under paragraph 5.1 shall be made by SPINC with
respect to its manufacture and sale of (a) *********************** products
from October 1, 1992 through February 28, 1993 and (b) ******** products from
October 1, 1992 through January 20, 1993. The payment for sales made by SPINC
between October 1, 1992 and December 31, 1992 shall be made to ENGELBERG by bank
wire transfer on March 1, 1993 and the payment for sales after January 1, 1993
shall be made to ENGELBERG by bank wire transfer on April 29, 1993.
5.9 SPINC expressly acknowledges that the payments due to ENGELBERG under
paragraphs 5.7 and 5.8 of this Agreement are based on services which were fully
performed by ENGELBERG under prior Agreements and are fully due and payable to
ENGELBERG or his estate irrespective of any termination of this Agreement for
any reason.
6. Term and Termination
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6.1 This Agreement shall continue until such time as the projects which
are the subject of this Agreement are completed and any payments with respect
thereto are due.
6.2 ENGELBERG shall have the right, at his sole option, to terminate this
Agreement upon the happening of any of the following events:
(a) SPINC is in default in performing any obligation under this
Agreement and such default continues for a period of thirty (30) days
after written notice thereof is given to SPINC and such default is not
cured.
* redacted pursuant to confidential treatment request.
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(b) SPINC is adjudicated bankrupt or insolvent or is placed in
receivership or enters into an insolvency proceeding or composition
with its creditors.
(c) A change in the management or effective financial control of SPINC
which, in the opinion of ENGELBERG, to be reasonably exercised,
seriously or adversely affects the operation or management of SPINC
or its ability to perform the terms and conditions of this Agreement.
(d) ENGELBERG becomes involved in a public service employment which
prevents him from continuing to carry out his duties and obligations
under this Agreement.
Termination of this Agreement by ENGELBERG pursuant to this paragraph shall
relieve him from any and all obligations of any kind under this Agreement.
Notwithstanding termination, ENGELBERG shall be entitled to receive the payments
set forth in Paragraph 5.1 of this Agreement, said payments to be reduced by any
fees or expenses reasonably incurred as a result of ENGELBERG's failure to
perform all of the services contemplated by this Agreement with respect to any
such product.
6.3 SPINC shall have the right to terminate this Agreement only upon the
happening of any of the following events:
(a) ENGELBERG defaults in performing a material obligation under this
Agreement and such default is not cured within thirty (30) days after
written notice thereof.
(b) ENGELBERG dies or becomes physically or mentally unable for a
continuous period of ninety (90) days to perform the services
contemplated by this Agreement.
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In the event of such termination, SPINC shall have no obligation to ENGELBERG
with respect to any product for which it has not received an Initial Written
Opinion. SPINC shall be entitled to proceed with those products for which
ENGELBERG has rendered an Initial Written Opinion and ENGELBERG or his estate
shall be entitled to receive the payments set forth in Paragraph 5.1 of this
Agreement with respect to those products, said payments to be further reduced by
any fees or expenses reasonably incurred as a result of ENGELBERG's failure to
perform all of the services contemplated by this Agreement with respect to any
such product.
7. Miscellaneous
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7.1 The parties mutually acknowledge that each party hereto has fully
performed all of its duties and obligations under all prior Agreements between
the parties; that there are no outstanding claims of any kind for services or
compensation except as expressly set forth in this Agreement; and that this
Agreement supersedes all prior agreements between the parties and shall
hereinafter be the only Agreement governing the rights and obligations of the
parties.
7.2 None of the rights or obligations under this Agreement shall be
assignable by any party hereto without the prior written consent of the other
party.
7.3 This Agreement is made under and shall be construed in accordance with
and governed by the laws of the State of New York.
7.4 Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in accordance
with the commercial arbitration rules of the American
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Arbitration Association and judgment upon the award rendered by the
Arbitrator may be entered in any court having jurisdiction thereof.
ALFRED B. ENGELBERG
/s/ Alfred B. Engelberg
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SCHEIN PHARMACEUTICAL, INC.
/s/ Martin Sperber
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Martin Sperber
Chairman of the Board