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EXCIPIENT SUPPLY AGREEMENT
This EXCIPIENT SUPPLY AGREEMENT (the "Agreement") is made as of the ___
day of _____, 1997 (the "Effective Date") between PENFORD CORPORATION, a
Washington corporation (previously known as PENWEST, LTD.) ("Penford"), and
PENWEST PHARMACEUTICALS CO., a Washington corporation ("Penwest").
RECITALS:
WHEREAS, the Board of Directors of Penford has determined that it is in
the best interest of Penford and its shareholders to separate the pharmaceutical
division of its business from the food and paper division of its business;
WHEREAS, Penford and Penwest wish to enter into an agreement describing
the terms and conditions upon which Penford will manufacture and supply to
Penwest, and Penwest will purchase from Penford, EMDEX and CANDEX (sugar based
tabletting binders hereinafter referred to as "Pharmaceutical Excipients") in
bulk form; and
WHEREAS, this Agreement is entered into pursuant to the Separation
Agreement dated as of ______________, 1997 between Penford and Penwest (the
"Separation Agreement");
NOW, THEREFORE, in consideration of the mutual covenants and agreements
made herein, the parties hereto agree as follows:
ARTICLE 1
SUPPLY OF PHARMACEUTICAL EXCIPIENTS
1.1 PURCHASES OF PHARMACEUTICAL EXCIPIENTS. Except as otherwise set
forth herein, commencing as of the Effective Date, Penwest shall purchase
exclusively from Penford, Penwest's requirements for Pharmaceutical Excipients.
Penford shall manufacture and sell Pharmaceutical Excipients to Penwest in bulk
form.
1.2 PRODUCTION PLANNING; FORECASTS.
(a) To facilitate Penford's planning for the supply of
Pharmaceutical Excipients, Penwest shall give Penford, at the beginning of every
calendar quarter, an estimate of its requirements of the Pharmaceutical
Excipients for the following twelve (12) months (the "Rolling Forecast"). The
Rolling Forecast shall specify the monthly estimate for the first six (6) months
of the forecast period and the quarterly estimate for the next six (6) months
based on calendar quarters.
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(b) Penwest shall furnish Penford firm written purchase orders
for its planned monthly requirements of Pharmaceutical Excipients no later than
thirty (30) days prior to the required date for receipt of the shipment. Such
firm purchase orders shall be equal to no less than eighty percent (80%) of the
monthly estimate contained in the Rolling Forecast. The form of purchase order
to be used by Penwest shall be agreed upon by the parties in advance of Penwest
submitting firm orders for Pharmaceutical Excipients.
(c) Penford shall deliver Pharmaceutical Excipients F.O.B.
Penford's place of manufacture.
(d) All invoices for Pharmaceutical Excipients shall be due and
payable within thirty (30) days from the date of invoice to Penwest, which date
of invoice shall not be earlier than the date of shipment.
(e) Penford shall inform Penwest as soon as possible regarding
any anticipated long-term or short-term supply problems.
1.3 INSPECTIONS. Throughout the period during which Penford is
responsible for the manufacture of Pharmaceutical Excipients for sale to
Penwest, Penwest shall have the right, on ten (10) days prior notice, to inspect
the manufacturing facility of Penford at which a Pharmaceutical Excipient is
being manufactured to assure compliance with (i) the terms and conditions of
this Agreement; (ii) current approved standards of Good Manufacturing Practice
(cGMP); and (iii) environmental laws and regulations; provided, however, that
such inspections (a) shall not be undertaken more frequently than once per
calendar year unless such inspection reveals a cause for further investigation,
and (b) shall be during normal business hours and not unreasonably interrupt the
operations of Penford.
ARTICLE 2
MANUFACTURING PRICE
2.1 PHARMACEUTICAL EXCIPIENT PRICE. The price at which Penford shall
sell Pharmaceutical Excipients to Penwest (the "Purchase Price") shall be as set
forth in EXHIBIT A.
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ARTICLE 3
WARRANTY; COMPLAINTS
3.1 WARRANTY. Penford warrants that each Pharmaceutical Excipient,
when supplied by Penford to Penwest hereunder and through the product expiration
date thereafter, shall meet the product specifications for such Pharmaceutical
Excipient set forth on EXHIBIT B hereto, as such specifications may be modified
from time to time by mutual agreement of the parties (the "Specifications"). In
addition, Penford warrants that all Pharmaceutical Excipients delivered
hereunder shall be produced in accordance with cGMP and all applicable laws,
rules and regulations. Except as otherwise provided in this Agreement, Penford's
only liability for breach of this warranty shall be to replace, at its own
expense, the non-conforming Pharmaceutical Excipient as provided in Section
3.2(b). EXCEPT FOR THE CONTRACTUAL PROVISIONS EXPRESSLY SET FORTH IN THIS
AGREEMENT, PENFORD DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, WRITTEN OR
ORAL, WITH RESPECT TO PHARMACEUTICAL EXCIPIENTS, INCLUDING, BUT NOT LIMITED TO,
ALL IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
In no event shall Penford be liable to Penwest for special, incidental, indirect
or consequential damages arising out of the manufacture, use or sale of any
Pharmaceutical Excipient whether based on contract, tort or any other legal
theory.
3.2 COMPLAINTS REGARDING PHARMACEUTICAL EXCIPIENTS. In the event
Penwest has a complaint with respect to a Pharmaceutical Excipient supplied to
Penwest, then:
(a) if Penwest's complaint concerns the quantity of such
Pharmaceutical Excipient, Penwest shall provide Penford written notice of its
complaint and provide sufficient evidence to substantiate the short quantity.
Upon receipt of such written notice and substantiating evidence, Penford shall
supply to Penwest as promptly as practicable, however in no event later than
sixty (60) days, the said short quantity of such Pharmaceutical Excipient. Such
replacement quantity shall be provided by Penford at no additional cost to
Penwest, assuming that Penwest has already paid for the agreed upon quantity;
(b) if Penwest's complaint concerns the quality of such
Pharmaceutical Excipient (non-compliance with the Specifications (as defined
below)), Penwest shall provide Penford written notice of its complaint and
provide sufficient analytical evidence, based on the use of assays reasonably
acceptable to Penford, to substantiate the impairment. Upon receipt of such
written notice and substantiating evidence, the impaired amount of
Pharmaceutical Excipients shall be replaced by Penford with an equal amount of
Pharmaceutical Excipients conforming with the Specifications (as defined below),
as promptly as practicable, however, in no event later than sixty (60) days.
Such replacement quantity shall be provided by Penford at
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no additional cost to Penwest, assuming that Penwest has already paid for such
replacement quantity;
(c) should Penford disagree with the substantiating evidence
provided by Penwest, Penford shall supply the replacement quantity of
Pharmaceutical Excipients in accordance with the terms of paragraphs (a) and (b)
of this Section 3.2, and then both parties shall immediately and jointly carry
out the necessary analysis to verify whether Penwest's complaint is justified.
Should said analysis confirm the validity of the complaint by Penwest, then the
matter shall be deemed conclusively resolved. Should said analysis confirm the
invalidity of the complaint by Penwest, then Penford shall invoice Penwest for
the replacement quantity provided in accordance with the terms of this
Agreement;
(d) in the event that a disagreement concerning the quantity or
quality of a Pharmaceutical Excipient continues after the joint analyses by
Penwest and Penford, the matter shall be submitted to an independent laboratory
chosen by Penwest and reasonably acceptable to Penford. The findings of this
independent laboratory, based on the use of assays reasonably acceptable to both
Penford and Penwest, shall be final and binding on both Penford and Penwest and
the fees and expenses of this independent laboratory shall be paid by the
non-prevailing party; and
(e) this Section 3.2 sets forth Penwest's exclusive remedy for
any complaint described in this Section 3.2. In no event shall Penford be liable
for any special, incidental, indirect or consequential damages arising out of or
associated with any such complaint.
ARTICLE 4
PRODUCT LIABILITY INDEMNIFICATION
4.1 PRODUCT LIABILITY INDEMNIFICATION BY PENFORD. Penford agrees to
defend Penwest and its affiliates and sublicensees, at Penford's cost and
expense, and to indemnify and hold Penwest and its affiliates and sublicensees,
and their respective directors, officers, employees and agents (the "Penwest
Indemnified Parties") harmless from and against any losses, costs, damages, fees
or expenses arising out of any claim relating to personal injury from the
development, manufacture, importation, use, sale or other disposition of a
Pharmaceutical Excipient manufactured by or for Penford, to the extent that such
claim arises out of a failure by Penford to manufacture such Pharmaceutical
Excipient in conformity with the Specifications and other requirements set forth
in Section 3.1. In the event of any such claim against the Penwest Indemnified
Parties by any party, Penwest shall promptly notify Penford in writing of the
claim and Penford shall manage and control, at its sole expense, the defense of
the claim and its settlement. The Penwest Indemnified Parties shall cooperate
with Penford and may, at their option and expense, be represented in any
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such action or proceeding. Penford shall not be liable for any litigation costs
or expenses incurred by the Penwest Indemnified Parties without Penford's
written authorization so long as Penford has assumed the defense thereof as
provided in this Section 4.1.
4.2 PRODUCT LIABILITY INDEMNIFICATION BY PENWEST. Penwest agrees to
defend Penford and its affiliates and sublicenses, at Penwest's cost and
expense, and to indemnify and hold Penford and its affiliates and sublicensees,
and their respective directors, officers, employees and agents (the "Penford
Indemnified Parties") harmless from and against any losses, costs, damages, fees
or expenses arising out of any claim relating to personal injury from the
development, manufacture, importation, use, sale or other disposition of any
Pharmaceutical Excipient sold by Penford to Penwest except to the extent that
such claim arises out of a failure by Penford to manufacture such Pharmaceutical
Excipient in accordance with the specifications and other requirements set forth
in Section 3.1. In the event of any such claim against the Penford Indemnified
Parties by any party, Penford shall promptly notify Penwest in writing of the
claim and Penwest shall manage and control, at its sole expense, the defense of
the claim and its settlement. The Penford Indemnified Parties shall cooperate
with Penwest and may, at their option and expense, be represented in any such
action or proceeding. Penwest shall not be liable for any litigation costs or
expenses incurred by the Penford Indemnified Parties without Penwest's written
authorization so long as Penwest has assumed the defense thereof as provided in
this Section 4.2.
ARTICLE 5
RIGHT OF PENWEST TO MANUFACTURE
5.1 DEFAULT EVENTS. With respect to each Pharmaceutical Excipient, in
the event that Penford (a) fails to provide Penwest with such Pharmaceutical
Excipient in accordance with the forecast and order procedures of Article 1
hereof and such failure results in a shortfall of twenty percent (20%) or more
for any single calendar quarter or between fifteen percent (15%) and twenty-five
percent (25%) for any two consecutive calendar quarters, or (b) supplies Penwest
with Pharmaceutical Excipients which fail on more than two occasions to conform
to the Specifications (and Penford is unable to remedy the nonconformity in
accordance with Article 3 hereof), then Penwest shall have the right to purchase
such Pharmaceutical Excipient from a bona fide third party supplier or
manufacturer of such Pharmaceutical Excipient.
5.2 COMPETITIVE BID OPTION. With respect to each Pharmaceutical
Excipient, in the event that Penwest can reasonably demonstrate to Penford that
a bona fide third party supplier has the documented capacity to manufacture such
Pharmaceutical Excipient of at least the same quality as the Pharmaceutical
Excipients manufactured by or for Penford, in at least the same quantity and at
a cost that is less than ninety percent (90%) of the Purchase Price for such
Pharmaceutical
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Excipient currently charged Penwest by Penford, then Penford shall have sixty
(60) days in which to reduce its Purchase Price for such Pharmaceutical
Excipient to the price to be charged Penwest by such third party. If within such
sixty (60) day period, Penford fails to reduce its Purchase Price for such
Pharmaceutical Excipient to the price to be charged by such third party, then
Penwest shall have the right to purchase any and all amounts of such
Pharmaceutical Excipient from such third party. Penwest shall notify Penford in
writing of any decision by Penwest to acquire Pharmaceutical Excipients from
such bona fide third party, and this Agreement shall thereafter be terminable
with respect to such Pharmaceutical Excipient at any time at Penford's election.
5.3 COOPERATION BY PENFORD. In the event that Penwest chooses to
purchase any Pharmaceutical Excipients from a bona fide third party supplier
pursuant to Sections 5.1 and 5.2, Penford shall cooperate with such third party
supplier and shall make available, free of charge, any and all technology which
is necessary or required to enable the third party supplier selected by Penwest
to manufacture such Pharmaceutical Excipients. Subject to any contrary
requirement of law and the right of each party to enforce its rights hereunder
in any legal action, such bona fide third party supplier shall enter into a
confidentiality agreement in form and substance satisfactory to Penford to keep
strictly confidential, and shall cause its employees and agents to keep strictly
confidential, any information of or concerning Penford which it or any of its
agents or employees may acquire pursuant to, or in the course of performing its
obligations under, any excipient supply agreement entered into between Penwest
and such third party supplier; provided, however, that such obligation to
maintain confidentiality shall not apply to information which (i) at the time of
disclosure was in the public domain; (ii) was already independently in the
possession of such third party supplier at the time of disclosure, or (iii) was
received by such third party supplier from a third party who did not receive
such information from the disclosing party under an obligation of
confidentiality.
ARTICLE 6
TERMINATION
6.1 TERMINATION BY PENFORD. Without prejudice to any other rights it
may have hereunder or at law or in equity, Penford may terminate this Agreement
in the event of any of the following:
(a) upon a material breach of this Agreement by Penwest which, if
curable and not a payment default, is not cured by Penwest within ninety (90)
days of a written notice thereof by Penford or which, if a payment default, is
not cured within thirty (30) days of a written notice thereof by Penford; or
(b) upon written notice at least one year prior to such
termination.
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6.2 TERMINATION BY PENWEST. Without prejudice to any other rights it
may have hereunder or at law or in equity, Penwest may terminate this Agreement
in the event of any of the following:
(a) upon a material breach of this Agreement by Penford which, if
curable, is not cured by Penford within ninety (90) days of a written notice
thereof by Penwest; or
(b) upon written notice at least one year prior to such
termination.
6.3 SURVIVAL OF OBLIGATIONS. Notwithstanding any termination of this
Agreement, (a) neither party shall be relieved of any obligation incurred prior
to such termination and (b) the obligations of the parties with respect to the
protection and nondisclosure of Confidential Information (Article 7), as well as
any other provisions which by their nature are intended to survive any such
termination, shall survive and continue to be enforceable.
ARTICLE 7
CONFIDENTIAL INFORMATION
7.1 CONFIDENTIALITY. Subject to any contrary requirement of law and
the right of each party to enforce its rights hereunder in any legal action,
each party shall keep strictly confidential, and shall cause its employees and
agents to keep strictly confidential, any information of or concerning the other
party which it or any of its agents or employees may acquire pursuant to, or in
the course of performing its obligations under, any provisions of this Agreement
or which it may have obtained from the other party before the commencement of
this Agreement that relates to the subject matter of this Agreement; provided,
however, that such obligation to maintain confidentiality shall not apply to
information which (i) at the time of disclosure was in the public domain; (ii)
was already independently in the possession of the receiving party at the time
of disclosure, or (iii) was received by the receiving party from a third party
who did not receive such information from the disclosing party under an
obligation of confidentiality.
ARTICLE 8
MISCELLANEOUS
8.1 TERM. The initial term of this Agreement shall commence on the
Effective Date and, subject to earlier termination pursuant to Article 6,
continue until December 31, 2003, and any subsequent renewal terms provided that
this Agreement shall automatically renew at the end of the initial term for
successive one year terms unless either party, at least ninety (90) days prior
to the expiration of the initial or renewal terms, provides written notice of
its election not to renew the term.
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8.2 INDEPENDENT STATUS OF PARTIES. Each party shall act as an
independent contractor and shall not bind nor attempt to bind the other party to
any contract, or any performance of obligations outside of this Agreement.
Nothing contained or done under this Agreement shall be interpreted as
constituting either party the agent of the other in any sense of the term
whatsoever unless expressly so stated.
8.3 FORCE MAJEURE In the event of strikes, lock-outs or other
industrial disturbances, rebellions, mutinies, epidemics, landslides, lightning,
earthquakes, fires, storms, floods, sinking, drought, civil disturbances,
explosions, acts or decisions of duly constituted municipal, state or national
governmental authorities or of courts of law, as well as impossibility to obtain
equipment, supplies, fuel or other required materials, in spite of having acted
with reasonable diligence, or by reason of any other causes, which are not under
the control of the party requesting the abatement of performance, or causes due
to unexpected circumstances which may not be possible to eliminate or overcome
with due diligence by such party ("Force Majeure"), the parties agree that, if
either of them find themselves wholly or partially unable to fulfill their
respective obligations in this Agreement by reasons of Force Majeure, the party
affected will advise the other party in writing of its inability to perform
giving a detailed explanation of the occurrence of the event which excuses
performance as soon as possible after the cause or event has occurred. If said
notice is given, the performance of the party giving the notification, except
the payment of funds, shall be abated for so long as performance may be
prevented by such event of Force Majeure. Except for the payment of funds that
are due and payable, neither party shall be required to make up any performance
that was prevented by Force Majeure.
8.4 PUBLICITY. Each of Penwest and Penford shall consult with each
other prior to issuing any press releases or otherwise making public statements
with respect to any transactions contemplated hereby.
8.5 GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Washington.
8.6 NOTICES. Notices hereunder shall be effective if given in writing
and delivered or mailed, postage prepaid, by registered or certified mail to:
Penford Corporation
777-108th Avenue NE
Suite 2390
Bellevue, WA 98004-5193
Attention: The President
or to:
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Penwest Pharmaceuticals Co.
2981 Route 22
Patterson, NY 12563-9970
Attention: The President
8.7 ENTIRE AGREEMENT. This Agreement contains the full understanding
of the parties with respect to the subject matter hereof and supersedes all
prior understandings and writings relating thereto. No waiver, alteration or
modification of any of the provisions hereof shall be binding unless made in
writing and signed by the parties.
8.8 HEADINGS. The article, section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
8.9 CONSTRUCTION. Each provision of this Agreement shall be
interpreted in a manner to be effective and valid to the fullest extent
permissible under applicable law. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions of
this Agreement which shall remain in full force and effect.
8.10 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns, provided that this Agreement and the rights and obligations
contained herein or in any exhibit or schedule hereto shall not be assignable,
in whole or in part, without the prior written consent of the parties hereto or
except in connection with a sale by a party of all or substantially all of its
assets and any attempt to effect any such assignment without such consent shall
be void.
8.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement.
8.12 AMENDMENTS; WAIVERS. This Agreement may be amended or modified
only in writing executed on behalf of Penford and Penwest. No waiver shall
operate to waive any further or future act and no failure to object of
forbearance shall operate as a waiver.
8.13 EXHIBITS. Exhibits to this Agreement shall be deemed to be an
integral part hereof, and schedules or exhibits to such Exhibits shall be deemed
to be an integral part thereof.
8.14 ARBITRATION. Any dispute, controversy or claim arising out of or
in connection with this Agreement (including any questions of fraud or questions
concerning the validity and enforceability of this Agreement or any of the
rights
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herein), shall be determined and settled by arbitration in Seattle, Washington,
pursuant to the rules then in effect of the American Arbitration Association as
modified by this paragraph. Any award rendered shall be final and conclusive
upon the parties and a judgment thereon may be entered in any court having
competent jurisdiction. The party submitting such dispute shall give written
notice to that effect to the other party, stating the dispute to be arbitrated
and the name and address of a person designated to act as arbitrator on its
behalf. Within fifteen (15) days after such notice, the other party shall give
written notice to the first party stating the name and address of a person
designated to act as a substitute on its behalf. In the event that the second
party shall fail to notify the first party of its designation of an arbitrator
within the time specified, then the first party shall request the American
Arbitration Association to appoint a second arbitrator. The two arbitrators so
chosen shall meet within fifteen (15) days after the second arbitrator has been
appointed to appoint a third arbitrator. If the two arbitrators are unable to
agree on the appointment of a third arbitrator within such fifteen (15) day
period, either party may request the American Arbitration Association to appoint
a third arbitrator. Each arbitrator appointed hereunder shall be independent of
the parties and either party may disqualify an arbitrator who is or is
affiliated with a supplier, customer or competitor of either party without the
consent of the other party. Each arbitrator shall be reasonably knowledgeable
regarding the area or areas in dispute. The arbitrators shall follow substantive
rules of law and the Federal Rules of Evidence, require the parties to conduct
discovery pursuant to the rules then in effect under the Federal Rules of Civil
Procedure in an expeditious manner, cause testimony to be transcribed, and make
an award accompanied by findings of fact and a statement of reasons for the
decision. All costs and expenses, including attorney's fees, of all parties
incurred in any dispute which is determined and/or settled by arbitration
pursuant to this paragraph shall be borne by the party determined to be liable
in respect of such dispute; provided, however, that if complete liability is not
assessed against only one party, the parties shall share the total costs in
proportion to their respective amounts of liability so determined. Except where
clearly prevented by the area in dispute, both parties agree to continue
performing their respective obligations under this Agreement while the dispute
is being resolved. Each party, and the arbitrators, shall use their best
efforts, subject to reasonable prosecution of the arbitration, court order and
disclosure required under securities laws, to keep the subject matter of the
arbitration and confidential information of each party confidential, and the
arbitrators are authorized to impose such protective orders as they may deem
appropriate for such purpose.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
PENFORD CORPORATION
By: ______________________
Title: ___________________
PENWEST PHARMACEUTICALS CO.
By: ______________________
Title: ___________________
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EXHIBIT A
The purchase price for the Pharmaceutical Excipients at the
commencement of the Excipient Supply Agreement and during the first year of this
Agreement shall be $0.33 per pound. Upon completion of the first year of this
Agreement, a new purchase price shall be negotiated in good faith by the parties
on an annual basis or for such other period of time as the parties may agree
upon. If the parties fail to reach agreement on a new purchase price, the then
current purchase price shall remain in effect, provided that either party shall
have the right to terminate this Agreement upon ninety (90) days prior written
notice.
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