-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KDa+AmgxtGUMJZFNsT1AE2yN2vb/RA5iOTMlpax2FofpuEXdKJvfyPlJDXHfqhRQ NzeeTUaLGugvba/ehFF9cg== 0000950123-02-000138.txt : 20020413 0000950123-02-000138.hdr.sgml : 20020413 ACCESSION NUMBER: 0000950123-02-000138 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20011221 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20020107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OSI PHARMACEUTICALS INC CENTRAL INDEX KEY: 0000729922 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 133159796 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15190 FILM NUMBER: 2503168 BUSINESS ADDRESS: STREET 1: 106 CHARLES LINDBERGH BLVD CITY: UNIONDALE STATE: NY ZIP: 11553 BUSINESS PHONE: 5162220023 MAIL ADDRESS: STREET 1: 106 CHARLES LINDBERGH BLVD CITY: UNIONDALE STATE: NY ZIP: 11553-3649 FORMER COMPANY: FORMER CONFORMED NAME: ONCOGENE SCIENCE INC DATE OF NAME CHANGE: 19920703 8-K 1 y56066e8-k.txt OSI PHARMACEUTICALS INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON DC 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 December 21, 2001 ------------------------------- Date of Report (Date of earliest event reported) OSI PHARMACEUTICALS, INC. ------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 0-15190 13-3159796 -------------- --------- -------------- (State or other jurisdiction of (Commission (I.R.S. Employer incorporation) File Number) Identification No.) 58 SOUTH SERVICE ROAD MELVILLE, NY 11747 -------------------------- (Address of principal executive offices) (631) 962-2000 ---------------------------- (Registrant's telephone number, including area code) N/A ----------------------- (Former name or former address, if changed since last report) ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On December 21, 2001, OSI Pharmaceuticals, Inc., a Delaware corporation ("OSI"), acquired certain assets from Gilead Sciences, Inc., a Delaware corporation ("Gilead"), pursuant to the terms of an Asset Purchase Agreement (the "Asset Purchase Agreement") dated as of November 26, 2001 (the "Transaction"). The assets purchased by OSI (the "Assets") include: (a) a pipeline of three clinical oncology candidates, (b) related intellectual property, and (c) rights to Gilead's leased facilities located in Boulder, Colorado, as well as leasehold improvements and certain fixed assets which are used and kept in those facilities. In connection with this Transaction, OSI offered employment to 127 Gilead employees. OSI expects these employees to complement its development and commercialization capabilities in oncology. Additionally, OSI's pipeline of gene-targeted small molecule therapeutics for cancer is augmented with several acquired promising next-generation cytotoxics currently in clinical development. In consideration for the Assets, OSI paid Gilead $130 million in cash and issued to Gilead 924,984 shares of common stock, valued at $40 million as of the closing date of the Transaction. OSI would also be obligated to pay to Gilead up to an additional $30 million in either cash or a combination of cash and common stock upon the achievement of certain milestones related to the development of NX211, the most advanced of Gilead's oncology product candidates acquired by OSI. Additionally, OSI is assuming certain royalty and milestone obligations to third parties in connection with the oncology candidates acquired as part of the Transaction. The cash portion of the purchase price was paid from OSI's existing cash resources. Any liabilities assumed as part of the Transaction will be paid by OSI in the ordinary course of its business. Under the terms of the Asset Purchase Agreement, OSI entered into the following additional agreements with Gilead: (a) an Assumption Agreement, (b) an Investor Rights Agreement, (c) an Employee Matters Agreement, (d) a Transition Services Agreement, (e) a Data Transfer and Professional Services Agreement, (f) a Non-Disclosure Agreement, (g) a Manufacturing Agreement, (h) a License Agreement, (i) a Patent Assignment Agreement, (j) a NCS NX-24 Sublicense, and (k) a GS7836 Sublicense, as well as additional documents usual and customary for transactions similar to the Transaction. Pursuant to the license, the sublicenses and other agreements entered into in connection with the Transaction, OSI received exclusive, worldwide development and commercialization rights to Gilead's three clinical oncology candidates: NX211, GS7836, and GS7904L. NX211 (liposomal lurtotecan), a proprietary liposomal formulation of the active topoisomerase I inhibitor lurtotecan, is currently in Phase II clinical trials for the potential treatment of a variety of solid tumors, including ovarian and small cell lung cancer. GS7836, a novel nucleoside analogue, is in Phase I clinical trials and has demonstrated activity in a variety of refractory solid tumor xenograft models. GS7904L, a liposomal thymidylate synthase inhibitor, is also in Phase I clinical trials and has demonstrated promising activity in pre-clinical testing for the potential treatment of various solid tumors. In connection with the acquisition, OSI adopted a Non-Qualified Stock Option Plan for -2- Former Employees of Gilead Sciences, Inc. to induce certain former employees of Gilead to accept employment with OSI. OSI will grant options to purchase an aggregate of 750,249 shares of common stock at a purchase price to be determined on the date of grant. The options become exercisable one-third after one year from the date of grant with the remainder vesting ratably on a monthly basis over the succeeding two years. The Asset Purchase Agreement and the other material agreements consisting of the Investor Rights Agreement and Manufacturing Agreement, and the Gilead Stock Plan are attached hereto as Exhibits 2.1, 2.2, 10.1 and 10.2, respectively, and are incorporated herein by reference. Further details regarding the transaction are contained in OSI's press release dated December 21, 2001 attached as Exhibit 99.1 and incorporated herein by reference. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements of Businesses Acquired. OSI is currently in the process of determining whether the Transaction described above in Item 2 qualifies as an acquisition of a business pursuant to Article 11 of Regulation S-X of the Securities Exchange Act of 1934, as amended. If it is determined that the acquisition was that of a business, the required financial statements will be filed by an amendment to this report no later than March 8, 2002. (b) Pro Forma Financial Information. As described above in Item 2, on December 21, 2001, OSI acquired certain assets related to the oncology business of Gilead for which OSI paid to Gilead $130 million in cash and 924,984 shares of OSI common stock valued at $40 million upon the closing of the Transaction. OSI would also be obligated to pay to Gilead up to an additional $30 million in either cash or a combination of cash and common stock upon the achievement of certain milestones related to the development of NX211. The unaudited pro forma combined financial information discussed below is based upon the historical audited consolidated financial statements of OSI for the fiscal year ended September 30, 2001 and the unaudited financial information of the oncology division of Gilead for the 12 month period ended September 30, 2001. Treating OSI as the acquired, the unaudited pro forma combined financial information was determined using the purchase method of accounting as if the Transaction had been completed on September 30, 2001 for items related to the combined balance sheet information and as of October 1, 2000 for items related to the combined statement of operations information. For purposes of the unaudited combined pro forma financial information, OSI assumed a total purchase price (prior to payment of the contingent consideration) of approximately $175 million, including estimated direct expenses. The unaudited pro forma financial information reflects adjustments which are based upon preliminary estimates of the allocation of the purchase price to the acquired assets and liabilities of Gilead. The final allocation of the purchase price, which may be significantly different from the current estimate, will be based upon appraisals prepared by an independent third party and a comprehensive final evaluation of the fair value of the acquired intangible and tangible assets, including in-process research and development, and liabilities assumed as of the closing date of the Transaction. The final determination of tangible and intangible assets may result in depreciation and amortization expenses that are different than the preliminary estimates of these amounts. OSI anticipates a significant in-process research and development charge as of the acquisition date as a result of the acquisition. As a result of these uncertainties, the exact amount of the final purchase price and allocation of such purchase price may differ from the amounts assumed in this unaudited pro forma combined financial information, and in the case of the allocation, the differences may be material. The unaudited pro forma combined financial information is provided for informational purposes only and does not purport to represent what the actual results would have been had the acquisition occurred on the assumed date, nor is it necessarily indicative of future results or financial position. The unaudited pro forma combined financial information does not include the realization of cost savings from operating efficiencies, synergies or other restructuring resulting from the Transaction. UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION Assuming the acquisition occurred on September 30, 2001, OSI's cash and short-term investments would have decreased by approximately $135 million from $552 million to $417 million and the working capital would have decreased by approximately $138 million from $533 million to $395 million. Additionally, stockholders equity would have decreased significantly as a result of the charge for in-process research and development aquired. Assuming the acquisition occurred on October 1, 2000, the combined pro forma net loss before the cumulative effect of an accounting change for the 12 month period ended September 30, 2001 would have been approximately $63 million compared to $21 million. The pro forma basic and diluted net loss per share before the cumulative effect of an accounting change for the 12 months ended September 30, 2001 would have been ($1.82) based on 34,776,719 weighted average shares outstanding compared to the historical net loss of ($0.62) based on 33,851,735 weighted average shares outstanding. Contributing to the increase in the net loss are approximately $26 million in research and development expenses, $6 million of selling, general and administrative expenses of Gilead, and a decrease of interest income of approximately $7 million generated from the cash paid upon the closing of the Transaction. OSI did not acquire any revenue producing assets or activities from Gilead, and therefore, combined pro forma net revenue for the year ended September 30, 2001 remained unchanged from OSI's reported net income. (c) Exhibits. 2.1(1) Asset Purchase Agreement, dated November 26, 2001, by and between Gilead Sciences, Inc. and OSI Pharmaceuticals, Inc. 2.2 OSI Pharmaceuticals, Inc. Non-Qualified Stock Option Plan for Former Employees of Gilead Sciences, Inc. 4.1(2) Investor Rights Agreement, dated December 21, 2001, by and between Gilead Sciences, Inc. and OSI Pharmaceuticals, Inc., 10.1(2)(3) Manufacturing Agreement, dated December 21, 2001, by and between Gilead Sciences, Inc. and OSI Pharmaceuticals, Inc. 99.1 Press release, dated December 21, 2001. - ---------- (1) The schedules and certain exhibits to the Asset Purchase Agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K -3- promulgated by the Securities and Exchange Commission. The omitted schedules and exhibits from this filing will be provided upon request. Please see footnote 2 below with respect to certain exhibits to the Asset Purchase Agreement that have been filed. (2) A form of this exhibit is an exhibit to the Asset Purchase Agreement, and has been omitted therefrom pursuant to Item 601(b)(2) of Regulation S-K promulgated by the Securities and Exchange Commission. The executed, final copy of this exhibit is filed herewith pursuant to Item 601(b)(10) of Regulation S-K. (3) Portions of this exhibit have been redacted and are the subject of a confidential treatment request filed with the Secretary of the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. -4- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: January 7, 2002 OSI PHARMACEUTICALS, INC. By: /s/ ROBERT L. VAN NOSTRAND -------------------------- Name: Robert L. Van Nostrand Title: Vice President, Chief Financial Officer and Secretary EXHIBIT INDEX
Exhibit No. Description - ----------- ----------- 2.1(1) Asset Purchase Agreement, dated November 26, 2001, by and between Gilead Sciences, Inc. and OSI Pharmaceuticals, Inc. 2.2 OSI Pharmaceuticals, Inc. Non-Qualified Stock Option Plan for Former Employees of Gilead Sciences, Inc. 4.1(2) Investor Rights Agreement, dated December 21, 2001, by and between Gilead Sciences, Inc. and OSI Pharmaceuticals, Inc. 10.1(2)(3) Manufacturing Agreement, dated December 21, 2001, by and between Gilead Sciences, Inc. and OSI Pharmaceuticals, Inc. 99.1 Press release, dated December 21, 2001.
- ---------- (1) The schedules and certain exhibits to the Asset Purchase Agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K promulgated by the Securities and Exchange Commission. The omitted schedules and exhibits from this filing will be provided upon request. Please see footnote 2 below with respect to certain exhibits to the Asset Purchase Agreement that have been filed. (2) A form of this exhibit is an exhibit to the Asset Purchase Agreement, and has been omitted therefrom pursuant to Item 601(b)(2) of Regulation S-K promulgated by the Securities and Exchange Commission. The executed, final copy of this exhibit is filed herewith pursuant to Item 601(b)(10) of Regulation S-K. (3) Portions of this exhibit have been redacted and are the subject of a confidential treatment request filed with the Secretary of the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. EX-2.1 3 y56066ex2-1.txt ASSET PURCHASE AGREEMENT EXHIBIT 2.1 - -------------------------------------------------------------------------------- ASSET PURCHASE AGREEMENT between: GILEAD SCIENCES, INC., a Delaware corporation; and OSI PHARMACEUTICALS, INC., a Delaware corporation ----------------------------- Dated as of November 26, 2001 ----------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE 1. Sale and Purchase of Assets; Related Transactions........................................................1 1.1 Sale and Purchase of Assets.....................................................................1 1.2 Excluded Assets.................................................................................2 1.3 Purchase Price..................................................................................2 1.4 Sales and Transfer Taxes........................................................................3 1.5 Allocation of Purchase Price....................................................................3 1.6 Ancillary Agreements............................................................................4 1.7 Closing.........................................................................................5 2. Representations and Warranties of Seller.................................................................5 2.1 Title to Assets.................................................................................5 2.2 Specified Patents; Specified Know-How...........................................................5 2.3 Specified Contracts; Real Property Leases; Equipment; Certain Materials.........................6 2.4 Compliance with Legal Requirements..............................................................7 2.5 Regulatory Matters..............................................................................8 2.6 Employee Matters................................................................................8 2.7 Certain Liabilities.............................................................................9 2.8 Legal Proceedings...............................................................................9 2.9 Authority; Binding Nature of Agreement..........................................................9 2.10 Non-Contravention; Consents.....................................................................9 2.11 Acquisition of Securities......................................................................10 3. Representations and Warranties of Purchaser.............................................................10 3.1 Due Organization...............................................................................10 3.2 Capitalization.................................................................................10 3.3 SEC Filings; Financial Statements..............................................................11 3.4 Absence of Changes.............................................................................11 3.5 No Undisclosed Liabilities.....................................................................11 3.6 No Infringement................................................................................11 3.7 Compliance with Legal Requirements.............................................................12 3.8 Legal Proceedings..............................................................................12
i 3.9 Authority; Binding Nature of Agreement.........................................................12 3.10 Non-Contravention; Consents....................................................................12 3.11 Shares.........................................................................................13 3.12 Full Disclosure................................................................................13 4. Pre-Closing Covenants of Seller.........................................................................13 4.1 Access.........................................................................................13 4.2 Conduct of Business............................................................................14 4.3 HSR Filing.....................................................................................14 4.4 Consents.......................................................................................14 4.5 Conditions.....................................................................................15 5. Pre-Closing Covenants of Purchaser......................................................................15 5.1 Access..........................................................................................15 5.2 HSR Filing......................................................................................15 5.3 SEC Reports.....................................................................................15 5.4 Consents; Releases..............................................................................15 5.5 Employment Matters..............................................................................15 5.6 Nasdaq Listing..................................................................................16 5.7 Conditions......................................................................................16 6. Conditions Precedent to Purchaser's Obligation to Close.................................................16 6.1 Accuracy of Representations....................................................................16 6.2 Performance of Covenants.......................................................................17 6.3 HSR Act........................................................................................17 6.4 Additional Documents...........................................................................17 6.5 No Restraints..................................................................................17 6.6 Consents.......................................................................................17 7. Conditions Precedent to Seller's Obligation to Close....................................................17 7.1 Accuracy of Representations....................................................................18 7.2 Performance of Covenants.......................................................................18 7.3 HSR Act........................................................................................18 7.4 Delivery of Consideration......................................................................18
ii 7.5 Additional Documents...........................................................................18 7.6 No Restraints..................................................................................18 7.7 Nasdaq Listing.................................................................................19 7.8 Consents.......................................................................................19 8. Termination.............................................................................................19 8.1 Right to Terminate Agreement...................................................................19 8.2 Termination Procedures.........................................................................20 8.3 Effect of Termination..........................................................................20 9. Indemnification.........................................................................................20 9.1 Survival of Representations; Indemnification by Seller.........................................20 9.2 Indemnification by Purchaser...................................................................23 10. Miscellaneous...........................................................................................23 10.1 Time of Essence................................................................................23 10.2 No Other Representations.......................................................................23 10.3 Knowledge......................................................................................24 10.4 Access of Seller to Books and Records..........................................................24 10.5 Governing Law..................................................................................24 10.6 Venue and Jurisdiction.........................................................................24 10.7 Notices........................................................................................24 10.8 Public Announcements...........................................................................25 10.9 Assignment.....................................................................................25 10.10 Parties in Interest............................................................................25 10.11 Severability...................................................................................26 10.12 Entire Agreement...............................................................................26 10.13 Waiver.........................................................................................26 10.14 Amendments.....................................................................................26 10.15 Counterparts...................................................................................26 10.16 Interpretation of Agreement....................................................................26 10.17 Further Assurances.............................................................................27
iii TABLE OF EXHIBITS AND SCHEDULES Exhibit A........ Certain Definitions Exhibit B........ Form of Assumption Agreement Exhibit C........ Form of Investor Rights Agreement Exhibit D........ Form of Employee Matters Agreement Exhibit E........ Form of Transition Services Agreement Exhibit F........ Form of Data Transfer and Professional Services Agreement Exhibit G........ Form of Nondisclosure Agreement Exhibit H........ Form of Manufacturing Agreement Exhibit I........ Form of License Agreement Exhibit J........ Form of Patent Assignment Agreement Exhibit K........ Form of NCS/NX211 Sublicense Agreement Exhibit L........ Form of GSK/NX211 Sublicense Agreement Exhibit M........ Form of GS7904L Sublicense Agreement Exhibit N........ Form of GS7836 Sublicense Agreement
Schedule 1....... Certain excluded assets Schedule 2....... Contracts to be assigned Schedule 3....... Patents to be assigned Schedule 4....... Know-how to be assigned Schedule 5....... Regulatory filings Schedule 6....... Excluded employees Schedule 7....... Consents to be obtained Schedule 8....... Listed Available Employees
iv ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT is being entered into as of November 26, 2001, by and between: GILEAD SCIENCES, INC., a Delaware corporation ("Seller"); and OSI PHARMACEUTICALS, INC., a Delaware corporation ("Purchaser"). Seller and Purchaser are referred to collectively in this Agreement as the "Parties." Certain other capitalized terms used in this Agreement are defined in Exhibit A. RECITALS The Parties wish to provide for the purchase by Purchaser of certain assets from Seller, and to provide for certain related transactions, on the terms and subject to the conditions and other provisions set forth in this Agreement and in the Ancillary Agreements. AGREEMENT The Parties, intending to be legally bound, agree as follows: 1. SALE AND PURCHASE OF ASSETS; RELATED TRANSACTIONS. 1.1 SALE AND PURCHASE OF ASSETS. On the terms and subject to the conditions and other provisions set forth in this Agreement and in the Ancillary Agreements, at the Closing, Seller will sell and transfer to Purchaser, and Purchaser will purchase from Seller, all of the following (which, subject to Section 1.2, are referred to in this Agreement as the "Specified Assets"): (a) all of Seller's rights and interests as of the Closing Date in and to the Specified Patents; (b) all of Seller's rights and interests as of the Closing Date in and to the Specified Know-How; (c) all of Seller's rights as of the Closing Date under the Specified Contracts; (d) all items of equipment, fixtures and furnishings owned by Seller as of the Closing Date that are located and used primarily at the Boulder Facility; (e) all finished product inventories, work-in-process inventories, product-in-transit inventories and other inventories of the Specified Products, and all API inventories designated exclusively for use in the manufacture of the Specified Products, that are owned by Seller as of the Closing Date; (f) all laboratory supplies, laboratory animals, cell lines, reagents and related research materials owned by Seller as of the Closing Date that are located at the Boulder Facility and relate primarily to the Specified Products, to the extent freely transferable (subject to applicable contractual use restrictions); and 1 (g) those records of Seller, as they exist on the Closing Date, that only contain preclinical and clinical data relating exclusively to the Specified Products (it being understood that such records will not be subject to any restrictions on their use by Purchaser and that Seller may, subject to the provisions regarding confidentiality set forth in the Ancillary Agreements, retain copies of such records). 1.2 EXCLUDED ASSETS. Notwithstanding anything to the contrary contained in Section 1.1, but subject to Sections 1.6(i), 1.6(j), 1.6(k) and 1.6(l), Seller will not be required to sell or transfer to Purchaser, and the Specified Assets will not be deemed to include, any of the following or any right or interest in or to any of the following: (a) subject to Section 10.17, any Specified Contract if (i) a Consent is required to be obtained from any Person in order to permit the sale or transfer to Purchaser of Seller's rights under such Specified Contract and (ii) such Consent shall not have been obtained; (b) any cash, cash equivalents or accounts receivable; (c) the premises being leased to Seller at 3035 Center Green Drive in Boulder, Colorado, or any assets located at such premises; or (d) any asset identified on Schedule 1. 1.3 PURCHASE PRICE. As consideration for the sale of the Specified Assets to Purchaser: (a) at the Closing, Purchaser will pay to Seller (without deduction or setoff of any nature), by wire transfer of immediately available funds, the sum of $130,000,000; (b) at the Closing, Purchaser will issue and deliver to Seller (without deduction or setoff of any nature) the number of shares (rounded to the nearest whole share) of Purchaser Common Stock determined by dividing $40,000,000 by the Closing Five-Day Average Stock Price; provided, however, that in no event shall the number of shares of Purchaser Common Stock to be issued to Seller at the Closing pursuant to this Section 1.3(b) be less than 760,180 shares or greater than 961,404 shares (the shares of Purchaser Common Stock to be issued to Seller at the Closing pursuant to this Section 1.3(b) being referred to as the "Initial Shares"); (c) at the Closing, Purchaser will assume the Assumed Liabilities by delivering to Seller an Assumption Agreement substantially in the form of Exhibit B (the "Assumption Agreement"); (d) on the first business day after the NX211 Phase III Commencement Date, Purchaser will (without deduction or setoff of any nature) do one of the following three things: (i) pay to Seller, by wire transfer of immediately available funds, the sum of $20,000,000, (ii) issue and deliver to Seller the number of shares (rounded to the nearest whole share) of Purchaser Common Stock determined by dividing $20,000,000 by the Phase III Twenty-Day Average Stock Price or (iii) pay, issue and deliver to Seller any combination of cash (paid by wire transfer of immediately available funds) and shares of Purchaser Common Stock (with each 2 share of Purchaser Common Stock valued at the Phase III Twenty-Day Average Stock Price) with an aggregate combined value equal to $20,000,000 (any shares of Purchaser Common Stock to be issued to Seller pursuant to this Section 1.3(d) being referred to as "Subsequent Shares"); and (e) on the first business day after the NX211 NDA Filing Date, Purchaser will pay to Seller (without deduction or setoff of any nature), by wire transfer of immediately available funds, the sum of $10,000,000. The number of shares of Purchaser Common Stock to be issued pursuant to Section 1.3(b) and the number of shares of Purchaser Common Stock to be issued pursuant to Section 1.3(d) will be adjusted appropriately to reflect any stock split, stock dividend, recapitalization or other similar transaction affecting the Purchaser Common Stock that is effected or has a record date on or before the date of issuance of such shares. The Parties acknowledge that Purchaser will not be assuming any liabilities of Seller other than the Assumed Liabilities, and that Seller will remain responsible for all liabilities of Seller other than the Assumed Liabilities. 1.4 SALES AND TRANSFER TAXES. Purchaser will bear and pay, and will reimburse Seller for, any sales taxes, use taxes, transfer taxes, documentary charges, recording fees, filing fees or similar taxes, charges, fees or expenses that may become payable in connection with the sale of the Specified Assets to Purchaser, the issuance and delivery of the Initial Shares and any Subsequent Shares to Seller, the assumption by Purchaser of the Assumed Liabilities or any of the other transactions contemplated by this Agreement. 1.5 ALLOCATION OF PURCHASE PRICE. (a) The Parties will use their best efforts to agree upon an allocation of the consideration referred to in Section 1.3 among the Specified Assets and, to the extent appropriate, the Ancillary Agreements (the "Allocation") as soon as possible after the Closing Date. The Allocation will be determined in a manner consistent with this Section 1.5 and Section 1060 of the Internal Revenue Code and the Treasury Regulations thereunder, and will include the agreed value of the Initial Shares and the methodology for valuing any Subsequent Shares. Purchaser will provide a proposed allocation to Seller within 25 days after the Closing Date, and Seller will deliver to Purchaser a notice setting forth any proposed changes to such allocation within 15 days after the delivery of such proposed allocation to Seller, together with a reasonably detailed explanation of the reasons for such proposed changes. The Parties will negotiate in good faith to resolve any disputed items, and if the Parties are unable to agree on the Allocation within 15 days after delivery of such notice to Purchaser, then the dispute will be arbitrated by a "Big Five" accounting firm mutually acceptable to the Parties, whose determination will be conclusive and binding upon the Parties for tax purposes. (b) The Allocation (including the agreed value of the Initial Shares and the methodology for valuing any Subsequent Shares) will be conclusive and binding upon the Parties for tax purposes, and neither Party will make any statement or declaration to any taxing authority that is inconsistent with the Allocation, except as provided below. Neither Party will take or permit any of its affiliates or representatives to take any position on any tax return, with any taxing authority or in any judicial tax proceeding that is inconsistent with the Allocation except 3 as required by a final determination within the meaning of Section 1313(a) of the Internal Revenue Code or any equivalent provision of any applicable state or local law. Each Party will promptly provide the other Party with any additional information required to complete Form 8594 if the filing of such form is required. Each Party will timely notify the other Party, and will timely provide the other Party with assistance, in the event of an examination, audit or other proceeding regarding the Allocation. 1.6 ANCILLARY AGREEMENTS. At the Closing, the Parties will enter into the following additional agreements (the "Ancillary Agreements"): (a) an Investor Rights Agreement substantially in the form of Exhibit C (the "Investor Rights Agreement"); (b) an Employee Matters Agreement substantially in the form of Exhibit D (the "Employee Matters Agreement"); (c) a Transition Services Agreement substantially in the form of Exhibit E; (d) a Data Transfer and Professional Services Agreement substantially in the form of Exhibit F; (e) a Nondisclosure Agreement substantially in the form of Exhibit G; (f) a Manufacturing Agreement substantially in the form of Exhibit H; (g) a License Agreement substantially in the form of Exhibit I; (h) a Patent Assignment Agreement substantially in the form of Exhibit J; (i) if the NCS/NX211 Consent shall not have been obtained, a NCS/NX211 Sublicense Agreement substantially in the form of Exhibit K; (j) if the GSK/NX211 Consent shall not have been obtained, a GSK/NX211 Sublicense Agreement substantially in the form of Exhibit L; (k) if the GSK/GS7904L Consent shall not have been obtained, a GS7904L Sublicense Agreement substantially in the form of Exhibit M; and (l) if the SRI/GS7836 Consent shall not have been obtained, a GS7836 Sublicense Agreement substantially in the form of Exhibit N. 1.7 CLOSING. The closing of the purchase of the Specified Assets by Purchaser (the "Closing") will take place at the offices of Cooley Godward LLP in Colorado, at a time and on a date to be designated by Seller, which will be at least three business days but not more than fifteen business days after the satisfaction or waiver of the last to be satisfied or waived of the conditions set forth in Sections 6 and 7 (other than those conditions that by their nature are to be satisfied at the Closing). For purposes of this Agreement, "Closing Date" means the date as of which the Closing actually takes place. 4 \2. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants to Purchaser that, except as set forth in the Seller Disclosure Schedule: 2.1 TITLE TO ASSETS. As of the Closing Date, Seller will have good and valid title to the Specified Assets (provided, however, that Seller makes no representation or warranty as to its title to the Specified Patents except as set forth in Section 2.2(a), and makes no representation or warranty as to its title to the Specified Know-How), free and clear of any liens or encumbrances, except for (i) any lien for current taxes not yet due and payable, (ii) liens and encumbrances referred to in the Specified Contracts and (iii) minor liens and encumbrances that have arisen in the ordinary course of business and that do not materially detract from the value of the Specified Assets subject thereto. 2.2 SPECIFIED PATENTS; SPECIFIED KNOW-HOW. (a) Each of the Specified Patents is owned solely by Seller, except that the patents marked by an asterisk on Schedule 3 are owned jointly by Seller and North Carolina State University. Seller has made available to Purchaser copies of the Specified Patents, and has supplied to Purchaser copies of the patent applications included in the Specified Patents that are not publicly available as of the date of this Agreement. To Seller's knowledge, there are no intellectual property rights owned or controlled by any third party necessary to make, use, sell, offer for sale and import the Specified Products, as they currently exist, other than those intellectual property rights to be transferred, licensed or sublicensed to Purchaser pursuant to this Agreement or any of the Ancillary Agreements. Seller has received no written claim of infringement of any intellectual property rights of any Person arising out of the development, manufacture, use, sale, offer for sale or import of the Specified Products by Seller, except for claims of infringement that have been abandoned or resolved. To Seller's knowledge, Seller has complied with its obligation under 37 CFR Section 1.56(a) to disclose to the United States Patent and Trademark Office, during the pendency of any United States patent application included in the Specified Patents, information known to Seller to be material to the patentability of the pending claims in such application. (b) Seller has not granted any Person a license that is currently in effect under any of the Specified Patents for any purpose. (c) None of the Specified Patents is involved in any interference or opposition proceeding, and, to Seller's knowledge, no such proceeding is being threatened with respect to any of the Specified Patents. (d) Seller has disclosed trade secrets of Seller included in the Specified Know-How only to Persons that have executed written confidentiality agreements governing the use or disclosure of such trade secrets, except to the extent Seller disclosed such information in connection with making filings related to any Specified Assets or Specified Products with governmental or regulatory authorities. 5 (e) Seller has required all professional and technical employees who provided services to Seller in connection with the Specified Products, the Specified Patents or the Specified Know-How to execute agreements under which such employees were required to convey to Seller ownership of all inventions and developments conceived or created by them in the course of their employment with Seller. To Seller's knowledge, none of the activities of Seller's professional and technical employees who are providing services to Seller in connection with the Specified Products, the Specified Patents and the Specified Know-How is violating any agreement between any such employees and their former employers. 2.3 SPECIFIED CONTRACTS; REAL PROPERTY LEASES; EQUIPMENT; CERTAIN MATERIALS. (a) Seller has made available to Purchaser true and correct copies of each of the contracts identified on Schedule 2. Each contract identified on Schedule 2 is valid and in full force and effect. Seller is not in material breach of any contract identified on Schedule 2, and, to Seller's knowledge, no other party to any such contract is in material breach of such contract. (b) The contracts identified on Schedule 2 include the real property leases pursuant to which Seller has the right to occupy the Boulder Facility. All security deposits required to be made by Seller under such real property leases have been made by Seller, and no portion of such security deposits has been applied to any default by Seller under any of such real property leases. Seller has the right to occupy the Boulder Facility in accordance with the terms of such real property leases. Seller has made available to Purchaser all material information regarding the premises occupied by Seller under such real property leases. (c) Seller has made available to Purchaser all material information regarding the equipment, fixtures and furnishings that are owned by Seller and located at the Boulder Facility. (d) There are no laboratory supplies, laboratory animals, cell lines, reagents or related research materials owned by Seller at a location other than the Boulder Facility that relate exclusively to the Specified Products. 2.4 COMPLIANCE WITH LEGAL REQUIREMENTS. (a) Seller is in substantial compliance with all Legal Requirements relating to the use of the Specified Assets. Since January 1, 2000, Seller has not received any written notice from any governmental body alleging any failure to comply with any Legal Requirement relating to the use of the Specified Assets and the employment of the Available Employees, except for any such notice relating to a failure to comply that has since been cured. (b) To Seller's knowledge, at all times prior to August 1, 1999, Seller was in substantial compliance with all Environmental Laws applicable to the Specified Assets, the Boulder Facility and Seller's operations at the Boulder Facility. Seller is, and has been at all times since August 1, 1999, in substantial compliance with all Environmental Laws applicable to the Specified Assets, the Boulder Facility and Seller's operations at the Boulder Facility. To Seller's knowledge, no event has occurred or condition exists or has existed which would reasonably be expected to give rise to liability on the part of Purchaser pursuant to, or to materially impair Purchaser's compliance with, any Environmental Law applicable to the 6 Specified Assets and the Boulder Facility. The Boulder Facility has not been listed or, to Seller's knowledge, proposed for listing on the National Priorities List established by the United States Environmental Protection Agency, or any similar federal or state list. To Seller's knowledge, no material lien has attached to any of Seller's property at the Boulder Facility pursuant to any Environmental Law. (c) There has not been any action taken by Seller, operating practice by Seller or failure by Seller to act that would reasonably be expected to give rise to a material liability on the part of Purchaser as a result of: (i) the handling, storage, use, presence, transportation or disposal or arranging for transportation or disposal of any Hazardous Substance by Seller in, on, under, near or from the Boulder Facility; (ii) any emission, discharge or release of any Hazardous Substance by Seller on or from the Boulder Facility into or upon the air, surface water, ground water or land; (iii) any disposal, handling, manufacturing, processing, distribution, use, treatment or transport of any Hazardous Substances by Seller on or from the Boulder Facility; or (iv) the presence of any Hazardous Substances (including asbestos, urea formaldehyde foam installation or similar substances contained in building materials) in or on the Boulder Facility. (d) Seller holds all registrations, permits, licenses and approvals issued by or on behalf of any federal, state or local government body that are required pursuant to any Environmental Laws for the occupancy of and the conduct of business at the Boulder Facility and the ownership of the Specified Assets ("Environmental Permits"), except where the failure to hold such Environmental Permits would not have a material adverse effect on the value of the Specified Assets taken as a whole. Any such Environmental Permits held by Seller are currently in full force and effect. Seller is in substantial compliance with all terms and conditions of such Environmental Permits, and with all other applicable limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in Environmental Laws. (e) To Seller's knowledge, no underground storage tanks or surface impoundments exist at the Boulder Facility. (f) Seller has not, either expressly or by operation of law, assumed or undertaken any liability or corrective, investigatory or remedial obligation of any other Person relating to any Environmental Laws that would reasonably be expected to result in a material liability to Purchaser. (g) Seller has made available to Purchaser copies of any environmental reports, audits, permits, licenses, registrations and other environmental, health or safety documents relating to the Specified Assets and the Boulder Facility that are in Seller's possession or control. 7 2.5 REGULATORY MATTERS. (a) The Specified Regulatory Filings are current and in full force and effect and include all regulatory filings and governmental registrations made by or issued to Seller that relate specifically to the Specified Products. Seller has made available to Purchaser copies of all governmental correspondence (including copies of official notices, citations or decisions) in Seller's files relating to the Specified Regulatory Filings, except for governmental correspondence relating to the manufacture of Specified Products. To Seller's knowledge, in the course of the clinical development of the Specified Products, Seller has not used any employee or consultant who (at the time such employee or consultant provided services to Seller with respect to the Specified Products) was debarred by the FDA or the subject of pending disbarment proceedings by the FDA. (b) Seller is in substantial compliance with the laws applicable to the development, manufacture, labeling, testing and inspection of the Specified Products (at the Boulder Facility and otherwise) and the operation of manufacturing facilities used to manufacture the Specified Products, and with all applicable regulations, policies and procedures promulgated by the FDA with respect thereto. Seller has received no written notice that any recalls, field notifications or seizures have been ordered or, to Seller's knowledge, threatened by any governmental body with respect to any of the Specified Products. Seller has not received a warning letter or other similar written notice from the FDA regarding the Specified Products or the manufacturing facilities used to manufacture the Specified Products, except for written notices regarding matters that have since been cured, corrected or resolved. 2.6 EMPLOYEE MATTERS. Seller has made available to Purchaser (except to the extent prohibited under applicable Legal Requirements) accurate information with respect to the employment of, the job responsibilities of, the compensation payable by Seller to, the stock options of Seller held by and the employee benefits being provided to each of the Available Employees. As of the date of this Agreement, there are approximately 147 employees of Seller based at the Boulder Facility. 2.7 CERTAIN LIABILITIES. As of the date of this Agreement, Seller has no material liabilities relating to the Specified Assets, the Specified Products or the Available Employees other than (i) liabilities under or relating to the contracts and other instruments identified on Schedule 2, (ii) liabilities incurred in the ordinary course of business or consistent with past practices, (iii) liabilities referred to in, or relating to matters referred to in, the Seller Disclosure Schedule, (iv) liabilities under applicable Legal Requirements, (v) liabilities referred to in the written materials made available by Seller to Purchaser during the period from September 20, 2001 through the date of this Agreement and (vi) liabilities otherwise made known to or discovered by Purchaser in the course of Purchaser's investigation of the Specified Assets, the Specified Products, the Available Employees and the operations conducted at the Boulder Facility during the period from September 20, 2001 through the date of this Agreement. 2.8 LEGAL PROCEEDINGS. There is no lawsuit or other legal proceeding pending or, to Seller's knowledge, being threatened against Seller as of the date of this Agreement that involves the Specified Assets and would reasonably be expected to result in a judgment having a material adverse effect on the value of the Specified Assets taken as a whole. 8 2.9 AUTHORITY; BINDING NATURE OF AGREEMENT. Seller has all necessary corporate power and authority to execute and deliver this Agreement and the Ancillary Agreements and to perform its obligations under this Agreement and the Ancillary Agreements; and the execution, delivery and performance by Seller of this Agreement and the Ancillary Agreements have been duly authorized by all necessary action on the part of Seller and its board of directors. Seller has provided to Purchaser a copy of the resolutions adopted by the board of directors of Seller authorizing the execution, delivery and performance by Seller of this Agreement and the Ancillary Agreements. No vote of the holders of Seller's common stock is required to authorize the transactions contemplated by this Agreement. This Agreement constitutes, and, upon execution thereof, each of the Ancillary Agreements will constitute, the valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies. 2.10 NON-CONTRAVENTION; CONSENTS. Assuming the Consents referred to in Part 2.10 of the Seller Disclosure Schedule are obtained, the execution and delivery by Seller of this Agreement and the Ancillary Agreements and the sale of the Specified Assets by Seller to Purchaser will not: (a) materially contravene or result in a material violation or breach of any Legal Requirement applicable to the Specified Assets or any Specified Contract; or (b) result in the imposition of any lien or encumbrance upon any of the Specified Assets (except for minor liens that will not materially detract from the value of the Specified Assets taken as a whole). Except as set forth in Part 2.10 of the Seller Disclosure Schedule, Seller is not required to obtain any Consent from any Person, under any material Specified Contract, at or prior to the Closing in connection with the execution and delivery of this Agreement or the Ancillary Agreements or the sale of the Specified Assets to Purchaser. 2.11 ACQUISITION OF SECURITIES. Seller will acquire the Initial Shares and any Subsequent Shares for its own account and not with a view to the public distribution thereof. Seller acknowledges that additional representations and warranties with respect to the acquisition of the Initial Shares and any Subsequent Shares are set forth in the Investor Rights Agreement. 3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and warrants to Seller as follows: 3.1 DUE ORGANIZATION. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Each material subsidiary of Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it was organized, except where the failure to be in good standing would not reasonably be expected to have a material adverse effect on in the business, assets (tangible or intangible), liabilities or operations of Purchaser and its subsidiaries (collectively, the "Purchaser Corporations.") 3.2 CAPITALIZATION. The authorized capital stock of Purchaser consists of 200,000,000 shares of Purchaser Common Stock and 5,000,000 shares of preferred stock. As of November 16, 2001, 35,072,529 shares of Purchaser Common Stock were issued and 9 outstanding. No shares of preferred stock of Purchaser have been issued or are outstanding. All of the outstanding shares of Purchaser Common Stock have been duly authorized and validly issued, and are fully paid and nonassessable. No Person holds any preemptive or similar right with respect to any future issuance of Purchaser Common Stock. As of November 16, 2001, 3,745,690 shares of Purchaser Common Stock were reserved for future issuance pursuant to outstanding stock options granted to employees under Purchaser's stock option plans. Except for stock options and purchase rights outstanding under Purchaser's employee stock option and employee stock purchase plans, and except as set forth in the Purchaser Disclosure Schedule, there are (i) no outstanding options, calls, warrants or rights (whether or not currently exercisable) to acquire from any of the Purchaser Corporations any shares of the capital stock or other securities of any of the Purchaser Corporations, (ii) no outstanding securities, instruments or obligations that are or may become convertible into or exchangeable for any shares of the capital stock or other securities of any of the Purchaser Corporations, (iii) no agreements, commitments or arrangements to which any of the Purchaser Corporations is a party (other than Purchaser's employee benefit plans) under which any of the Purchaser Corporations is or may become obligated to issue any shares of its capital stock or other securities and (iv) no stockholder agreements, voting agreements or other similar agreements with respect to Purchaser Common Stock to which Purchaser is a party or, to Purchaser's knowledge, between or among any of Purchaser's stockholders. Part 3.2 of the Purchaser Disclosure Schedule describes all registration rights and similar rights possessed by holders of Purchaser Common Stock and other securities of Purchaser. 3.3 SEC FILINGS; FINANCIAL STATEMENTS. (a) Copies of all reports, registration statements, proxy statements and other documents filed by Purchaser with the SEC since January 1, 2000 (the "Purchaser SEC Documents") have been made available to Seller for its review. All reports, statements and other documents required to have been filed by Purchaser with the SEC have been so filed on a timely basis. As of the time it was filed with the SEC (or, if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing): (i) each of the Purchaser SEC Documents complied in all material respects with the applicable requirements of the Securities Act or the Exchange Act (as the case may be); and (ii) none of the Purchaser SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (b) The consolidated financial statements contained in the Purchaser SEC Documents: (i) complied as to form in all material respects with the published rules and regulations of the SEC applicable thereto; (ii) were prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods covered (except as may be indicated in the notes to such financial statements and, in the case of unaudited statements, as permitted by Form 10-Q of the SEC, and except that unaudited financial statements may not contain footnotes and are subject to normal and recurring year-end audit adjustments which will not, individually or in the aggregate, be material in amount); and (iii) fairly present the consolidated financial position of the Purchaser Corporations as of the respective dates thereof and the consolidated results of operations and cash flows of the Purchaser Corporations for the periods covered thereby. 10 3.4 ABSENCE OF CHANGES. Since June 30, 2001, there has not been any material adverse change in the business, condition, capitalization, assets (tangible or intangible), liabilities, operations, financial performance or prospects of the Purchaser Corporations, and no event has occurred or circumstance exists that could reasonably be expected to result in such a material adverse change. 3.5 NO UNDISCLOSED LIABILITIES. None of the Purchaser Corporations has any material accrued, contingent or other liabilities of any nature, except for (i) liabilities reflected in the consolidated balance sheet of the Purchaser Corporations as of June 30, 2001, contained in Purchaser's Report on Form 10-Q as filed with the SEC for the quarter ended June 30, 2001, and (ii) liabilities incurred by the Purchaser Corporations in the ordinary course of business since June 30, 2001. 3.6 NO INFRINGEMENT. Each of the Purchaser Corporations possesses all intellectual property rights required to conduct its business as now conducted, except to the extent the failure to possess such rights would not have a material adverse effect on the business, assets (tangible or intangible), liabilities or operations of the Purchaser Corporations. None of the Purchaser Corporations has received any notice of, or has any knowledge of, any asserted infringement of third party intellectual property rights. No event has occurred which, to Purchaser's knowledge, permits, or after notice or lapse of time or both would permit, the revocation or termination of any of the intellectual property rights of any of the Purchaser Corporations. 3.7 COMPLIANCE WITH LEGAL REQUIREMENTS. Each of the Purchaser Corporations is in substantial compliance with all applicable Legal Requirements. 3.8 LEGAL PROCEEDINGS. Except as disclosed in the Purchaser SEC Documents filed with the SEC before the date of this Agreement, there is no material pending or, to Purchaser's knowledge, threatened lawsuit or other legal proceeding that involves any of the Purchaser Corporations or any of the assets owned or used by any of the Purchaser Corporations. 3.9 AUTHORITY; BINDING NATURE OF AGREEMENT. Purchaser has all necessary power and authority to execute and deliver this Agreement, the Assumption Agreement and the Ancillary Agreements, and to perform its obligations hereunder (including its obligations relating to the issuance and delivery of the Initial Shares and any Subsequent Shares) and thereunder; and the execution, delivery and performance by Purchaser of this Agreement, the Assumption Agreement and the Ancillary Agreements have been duly authorized by all necessary action on the part of Purchaser and its board of directors. Purchaser has provided to Seller a copy of the resolutions of the board of directors of Purchaser authorizing the execution, delivery and performance by Purchaser of this Agreement, the Assumption Agreement and the Ancillary Agreements. No vote of the holders of Purchaser Common Stock is required to authorize the purchase by Purchaser of the Specified Assets, the issuance by Purchaser of the Initial Shares or any Subsequent Shares or any of the other transactions contemplated by this Agreement. This Agreement constitutes, and, upon execution thereof, each of the Assumption Agreement and the Ancillary Agreements will constitute, the valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, subject to (i) laws of general application relating 11 to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies. 3.10 NON-CONTRAVENTION; CONSENTS. Neither the execution, delivery or performance of this Agreement, the Assumption Agreement or any of the Ancillary Agreements, nor the consummation of any of the transactions contemplated by this Agreement (including the issuance and delivery of the Initial Shares and any Subsequent Shares), the Assumption Agreement or any of the Ancillary Agreements, will (a) conflict with or result in any violation of any provision of the certificate of incorporation, bylaws or other charter or organizational documents of any of the Purchaser Corporations, (b) result in a breach or default by any of the Purchaser Corporations under any material contract to which any of the Purchaser Corporations is a party, (c) result in a violation of any Legal Requirement or order to which any of the Purchaser Corporations is subject or (d) result in the creation of a lien or encumbrance on any material asset of any of the Purchaser Corporations. Purchaser is not and will not be required to obtain any Consent from any Person in connection with the execution, delivery or performance of this Agreement, the Assumption Agreement or any of the Ancillary Agreements or the consummation of any of the transactions contemplated hereby or thereby. 3.11 SHARES. The Initial Shares and any Subsequent Shares will, when issued, be validly issued, fully paid and nonassessable. The issuance of the Initial Shares and any Subsequent Shares is and will be exempt from the registration provisions of the Securities Act and the registration and qualification provisions of all applicable state securities laws. All notices and filings required to be made under state securities laws in connection with the offer, issuance and delivery of the Initial Shares and any Subsequent Shares have been or will be given and made by Purchaser on a reasonably timely basis. The Purchaser Common Stock is registered pursuant to Section 12(g) of the Exchange Act and is listed on The Nasdaq National Market, and Purchaser has taken no action that may have the effect of terminating the registration of the Purchaser Common Stock under the Exchange Act or delisting the Purchaser Common Stock from The Nasdaq National Market. 3.12 FULL DISCLOSURE. None of this Agreement, the Purchaser Disclosure Schedule, the certificate to be delivered pursuant to Section 7.5(b)(i), the Assumption Agreement and the Ancillary Agreements (i) contains or will contain any untrue statement of fact or (ii) omits or will omit to state any fact necessary to make any of the representations, warranties or other statements or information contained herein or therein not misleading. 4. PRE-CLOSING COVENANTS OF SELLER. 4.1 ACCESS. Subject to the provisions of the Confidentiality Agreements and to applicable Legal Requirements, during the period from the date of this Agreement through the Closing Date (the "Pre-Closing Period"), Seller will, after receiving reasonable advance notice from Purchaser, give Purchaser reasonable access (during normal business hours) to the Boulder Facility and to Seller's books and records relating to the Specified Assets and relating to those Available Employees who consent in writing to such access (the "Consenting Employees"), and will provide Purchaser with such information regarding the Specified Assets, the Consenting Employees and any other appropriate matters germane to the subject matter of this Agreement and the Ancillary Agreements as Purchaser may reasonably request, for the sole purposes of 12 enabling Purchaser (i) to further investigate, at Purchaser's sole expense, the Specified Assets, the Consenting Employees and any other appropriate matters germane to the subject matter of this Agreement and the Ancillary Agreements and (ii) to verify the accuracy of the representations and warranties set forth in Section 2; provided, however, that except as provided in Section 5.5, Purchaser will not (without Seller's approval, which will not be unreasonably withheld) contact or otherwise communicate with any of the Available Employees. To the extent requested by Purchaser, Seller will arrange to permit Purchaser to conduct interviews of any of the Available Employees during the Pre-Closing Period. Seller will request the consent of the Available Employees to the disclosure of their respective personnel files to Purchaser. 4.2 CONDUCT OF BUSINESS. Except (i) as contemplated or permitted by this Agreement or the Seller Disclosure Schedule, (ii) as contemplated by any of the Ancillary Agreements, (iii) as may be necessary to carry out any of the transactions contemplated by this Agreement or the Ancillary Agreements, (iv) as may be necessary to facilitate compliance with any Legal Requirement or the requirements of any Specified Contract or (v) as approved by Purchaser, during the Pre-Closing Period: (a) Seller will (i) conduct its operations at the Boulder Facility in the ordinary course and consistent with its past practices, to the extent such operations relate to the Specified Assets, and (ii) use commercially reasonable efforts to maintain good relations with the Available Employees and the parties to the Specified Contracts; and (b) Seller will not (i) license or dispose of any material Specified Assets, (ii) prematurely terminate or materially amend, grant a sublicense under or assign any of the Specified Contracts, (iii) commit a material breach of any Specified Contract entered into after the date of this Agreement, (iv) make any material changes to the compensation or benefits provided by Seller to the Available Employees or (v) enter into any employment, bonus or severance agreement with any of the Available Employees. If Seller requests Purchaser's approval of a proposed action that would result in a breach by Seller of this Section 4.2, Purchaser will respond promptly to Seller's request and will not unreasonably withhold its approval of the proposed action. All references in this Section 4.2 to the "Available Employees" will be deemed to refer instead only to the "Specified Employees" at such time as the Specified Employees are identified by Purchaser pursuant to Section 5.5. 4.3 HSR FILING. As promptly as possible after the date of this Agreement, Seller will file the notification form required to be filed on behalf of Seller under the HSR Act with respect to the transactions contemplated by this Agreement, and will request early termination of the applicable waiting period. 4.4 CONSENTS. Seller will use commercially reasonable efforts during the Pre-Closing Period to obtain the Consents identified in Part 2.10 of the Seller Disclosure Schedule (including the NCS/NX211 Consent, the GSK/NX211 Consent, the GSK/GS7904L Consent, the SRI/GS7836 Consent and the Consents identified on Schedule 7). 13 4.5 CONDITIONS. Seller will use commercially reasonable efforts (i) to cause the conditions set forth in Section 6 to be satisfied on a timely basis and (ii) otherwise to cause the Closing to take place as soon as reasonably practicable. 5. PRE-CLOSING COVENANTS OF PURCHASER 5.1 ACCESS. Subject to the provisions of the Confidentiality Agreements, during the Pre-Closing Period, Purchaser will, after receiving reasonable advance notice from Seller, give Seller reasonable access (during normal business hours) to the Purchaser Corporations' facilities, books and records, and will provide Seller with such information as Seller may reasonably request, for the sole purposes of enabling Seller (i) to further investigate, at Seller's sole expense, the business, condition, capitalization, assets, liabilities, operations, financial performance and prospects of each of the Purchaser Corporations and (ii) to verify the accuracy of the representations and warranties set forth in Section 3. 5.2 HSR FILING. As promptly as possible after the date of this Agreement, Purchaser will file the notification form required to be filed on behalf of Purchaser under the HSR Act with respect to the transactions contemplated by this Agreement, and will request early termination of the applicable waiting period. 5.3 SEC REPORTS. Purchaser will (i) promptly deliver to Seller a copy of each report or other document filed with the SEC on behalf of Purchaser during the Pre-Closing Period and (ii) take all actions reasonably necessary to ensure that Purchaser is eligible to use SEC Form S-3 (under general instruction I.A to SEC Form S-3) from and after the Closing. 5.4 CONSENTS; RELEASES. Purchaser will cooperate with Seller, and will provide Seller with such assistance as Seller may reasonably request, for the purpose of (i) attempting to obtain the Consents identified in Part 2.10 of the Seller Disclosure Schedule and (ii) arranging for Seller to be released and discharged from its obligations and other liabilities under the Specified Contracts. 5.5 EMPLOYMENT MATTERS. Within fourteen days after the date of this Agreement, Purchaser will provide to Seller a list identifying at least 105 of the Available Employees (the employees identified on such list being referred to in this Agreement as the "Specified Employees"), it being understood that at least 105 of the Specified Employees must be based at the Boulder Facility. Prior to the Closing, on a date mutually agreed by the Parties, Purchaser will extend to each Specified Employee an individualized written offer of employment that, if accepted, would contemplate that such Specified Employee would commence his or her employment with Purchaser on the later of January 1, 2002 or the day after the Closing Date and would provide such Specified Employee with compensation, benefits and terms of employment (including terms relating to job responsibilities) that in the aggregate are substantially as favorable to such Specified Employee as the compensation, benefits and terms of employment provided by Seller to such Specified Employee immediately prior to the Closing. Each such written offer of employment will include the terms set forth in Sections 1.1, 2.1, 2.2, 3.1, 3.2 and 4 of the Employee Matters Agreement to the extent such terms relate to the Specified Employee to whom such offer is extended. The offers made to the Specified Employees who are based at the Boulder Facility will specify a job location at the Boulder Facility. On the later of January 1, 14 2002 or the day after the Closing Date, Purchaser will hire each Specified Employee who accepts the written offer of employment extended to such Specified Employee by Purchaser (it being understood that, except as otherwise provided in any individual employment agreement between Purchaser and a Specified Employee, Purchaser will not be obligated to maintain the employment of or the compensation or employee benefits provided to such Specified Employee for any specified period thereafter). 5.6 NASDAQ LISTING. Purchaser will use commercially reasonable efforts to ensure that the Initial Shares are listed and available for quotation on The Nasdaq National Market as of the Closing Date. 5.7 CONDITIONS. Purchaser will use commercially reasonable efforts (i) to cause the conditions set forth in Section 7 to be satisfied on a timely basis and (ii) otherwise to cause the Closing to take place as soon as reasonably practicable. 6. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE. Purchaser's obligation to purchase the Specified Assets and to take the other actions required to be taken by Purchaser at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Purchaser, in whole or in part, in writing): 6.1 ACCURACY OF REPRESENTATIONS. Those representations and warranties of Seller set forth in Section 2 that refer specifically to and are made as of the date of this Agreement shall have been accurate as of the date of this Agreement, and all other representations and warranties of Seller set forth in Section 2 (and any representations and warranties of Seller set forth in the Ancillary Agreements) shall be accurate as of the Closing Date as if made on and as of the Closing Date; provided, however, that, for purposes of this Section 6.1, any inaccuracies in the representations and warranties of Seller will be disregarded unless all such inaccuracies, considered collectively, have a material adverse effect on the value of the Specified Assets taken as a whole. 6.2 PERFORMANCE OF COVENANTS. Seller shall have performed, in all material respects, all covenants required by this Agreement and the Ancillary Agreements to be performed by Seller on or before the Closing Date. 6.3 HSR ACT. The waiting period applicable to the consummation of the transactions contemplated by this Agreement under the HSR Act shall have expired or been terminated. 6.4 ADDITIONAL DOCUMENTS. Each of the Ancillary Agreements shall have been executed on behalf of Seller and delivered to Purchaser, and each of the following additional documents shall have been delivered to Purchaser: (a) a certificate, executed by an executive officer of Seller, confirming that, to the actual knowledge of such executive officer, the conditions set forth in Sections 6.1 and 6.2 have been satisfied; 15 (b) such bills of sale, assignments and other instruments as Seller may be required to execute in order to evidence and effectuate the transfer of the Specified Assets to Purchaser; and (c) such good standing certificates and other similar documents as Purchaser may reasonably request to ensure that the actions required to be taken by Seller at the Closing have been properly authorized. 6.5 NO RESTRAINTS. No injunction or other order preventing the consummation of the transactions contemplated by this Agreement shall have been issued since the date of this Agreement by any United States federal or state court of competent jurisdiction and shall remain in effect; and no United States federal or state Legal Requirement that makes consummation of the transactions contemplated by this Agreement illegal shall have been enacted or adopted since the date of this Agreement and shall remain in effect. 6.6 CONSENTS. The Consents identified on Schedule 7 shall have been obtained. 7. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE.. Seller's obligation to sell and transfer the Specified Assets to Purchaser and to take the other actions required to be taken by Seller at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Seller, in whole or in part, in writing): 7.1 ACCURACY OF REPRESENTATIONS. (a) The representations and warranties set forth in Section 3.2 shall be accurate in all material respects as of the Closing Date as if made on and as of the Closing Date. (b) All other representations and warranties of Purchaser set forth in Section 3 (and any representations and warranties of Purchaser set forth in the Ancillary Agreements) shall be accurate as of the Closing Date as if made on and as of the Closing Date; provided, however, that, for purposes of this Section 7.1(b), any inaccuracies in the representations and warranties of Purchaser will be disregarded unless all such inaccuracies, considered collectively, have a material adverse effect on the business, assets (tangible or intangible), liabilities or operations of the Purchaser Corporations. 7.2 PERFORMANCE OF COVENANTS. Purchaser shall have performed, in all material respects, all covenants required by this Agreement and by the Ancillary Agreements to be performed by Purchaser on or before the Closing Date. 7.3 HSR ACT. The waiting period applicable to the consummation of the transactions contemplated by this Agreement under the HSR Act shall have expired or been terminated. 7.4 DELIVERY OF CONSIDERATION. Seller shall have received the cash payment referred to in Section 1.3(a); and the Initial Shares shall have been duly issued and delivered by Purchaser to Seller. 16 7.5 ADDITIONAL DOCUMENTS. (a) Seller shall have received an opinion letter from Saul Ewing LLP, dated as of the Closing Date and reasonably satisfactory to Seller, in the form customarily delivered in a private placement of shares by a publicly traded corporation. (b) Each of the Ancillary Agreements and the Assumption Agreement shall have been executed on behalf of Purchaser and delivered to Seller, and each of the following additional documents shall have been delivered to Seller: (i) a certificate, executed by an executive officer of Purchaser, confirming that, to the actual knowledge of such executive officer, the conditions set forth in Sections 7.1 and 7.2 have been satisfied; and (ii) such good standing certificates and other similar documents as Seller may reasonably request to ensure that the actions required to be taken by Purchaser at the Closing have been properly authorized. 7.6 NO RESTRAINTS. No injunction or other order preventing the consummation of the transactions contemplated by this Agreement shall have been issued since the date of this Agreement by any United States federal or state court of competent jurisdiction and shall remain in effect; and no United States federal or state Legal Requirement that makes consummation of the transactions contemplated by this Agreement illegal shall have been enacted or adopted since the date of this Agreement and shall remain in effect. 7.7 NASDAQ LISTING. The Initial Shares shall have been listed and approved for quotation on The Nasdaq National Market. 7.8 CONSENTS. The Consents identified on Schedule 7 shall have been obtained. 8. TERMINATION. 8.1 RIGHT TO TERMINATE AGREEMENT. This Agreement may be terminated prior to the Closing: (a) by the mutual written consent of the Parties; (b) by either Party (by delivery of a written termination notification in accordance with Section 8.2) at any time after February 15, 2002 if the Closing has not taken place on or before February 15, 2002, unless the failure of the Closing to take place on or before such date is attributable to a breach by such Party of any of its obligations set forth in this Agreement or in any of the Ancillary Agreements; (c) by Seller (by delivery of a written termination notification in accordance with Section 8.2) if (i) there shall have been a breach on the part of Purchaser of any of its representations, warranties or covenants such that the condition set forth in Section 7.1 or 17 Section 7.2, as the case may be, would not be satisfied as of the time of such breach, (ii) Seller shall have given written notice of such breach to Purchaser, (iii) at least twenty days shall have elapsed since the delivery of such written notice to Purchaser, (iv) such breach shall not have been cured and (v) Purchaser shall not be using its commercially reasonable efforts to attempt to cure such breach; or (d) by Purchaser (by delivery of a written termination notification in accordance with Section 8.2) if (i) there shall have been a breach on the part of Seller of any of its representations, warranties or covenants such that the condition set forth in Section 6.1 or Section 6.2, as the case may be, would not be satisfied as of the time of such breach, (ii) Purchaser shall have given written notice of such breach to Seller, (iii) at least twenty days shall have elapsed since the delivery of such written notice to Seller, (iv) such breach shall not have been cured and (v) Seller shall not be using its commercially reasonable efforts to attempt to cure such breach. 8.2 TERMINATION PROCEDURES. If either Party wishes to terminate this Agreement pursuant to Section 8.1, such Party will deliver to the other Party a written termination notification stating that such Party is terminating this Agreement and setting forth a brief statement of the basis on which such Party is terminating this Agreement. 8.3 EFFECT OF TERMINATION. Upon the termination of this Agreement pursuant to Section 8.1, neither Party will have any obligation or other liability to the other Party, except that (i) the Parties will remain bound by the provisions of Section 10 and by the provisions of the Confidentiality Agreements, and (ii) neither Party will be relieved of any liability for any breach of its obligation to consummate the transactions contemplated by this Agreement or its obligation to take any other action required to be taken by such Party at or before the Closing. 9. INDEMNIFICATION. 9.1 SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION BY SELLER. (a) All of the representations and warranties of Seller set forth in this Agreement and in any certificate delivered pursuant to this Agreement, and all covenants of Seller set forth in Section 4, will terminate and expire, and will cease to be of any force or effect, on the Closing Date, and all liability of Seller with respect to such representations, warranties and covenants (and any liability with respect to the certificate delivered to Purchaser pursuant to Section 6.4(a)) will thereupon be extinguished. Notwithstanding the prior sentence: (i) the representations and warranties of Seller set forth in Sections 2.1, 2.3(a), 2.5 and 2.7 (and the certificate delivered to Purchaser pursuant to Section 6.4(a), to the extent it relates to such representations and warranties) will survive the Closing but will terminate and expire, and will cease to be of any force or effect, at 10:00 a.m. (California time) on the first anniversary of the Closing Date and all liability of Seller with respect to such representations and warranties (and any liability with respect to the certificate delivered pursuant to Section 6.4(a), to the extent it relates to such representations and warranties) will thereupon be extinguished; provided, however, that if, prior to such first anniversary, Purchaser shall have duly delivered to Seller, in conformity with all of the applicable procedures set forth in Section 18 9.1(f), a Claim Notice setting forth a claim for indemnification based upon Seller's breach of any of such representations or warranties, then the specific claim set forth in such Claim Notice will survive (and will not be extinguished upon) such first anniversary; (ii) the representations and warranties of Seller set forth in Section 2.2 (and the certificate delivered to Purchaser pursuant to Section 6.4(a), to the extent it relates to such representations and warranties) will survive the Closing but will terminate and expire, and will cease to be of any force or effect, at 10:00 a.m. (California time) on the date eighteen months after the Closing Date, and all liability of Seller with respect to such representations and warranties (and any liability with respect to the certificate delivered pursuant to Section 6.4(a), to the extent it relates to such representations and warranties) will thereupon be extinguished; provided, however, that if, prior to such date, Purchaser shall have duly delivered to Seller, in conformity with all of the applicable procedures set forth in Section 9.1(f), a Claim Notice setting forth a claim for indemnification based upon Seller's breach of any of such representations or warranties, then the specific claim set forth in such Claim Notice will survive (and will not be extinguished upon) such date; and (iii) the representations and warranties of Seller set forth in Sections 2.4(b), 2.4(c), 2.4(d), 2.4(e), 2.4(f) and 2.4(g) (and the certificate delivered to Purchaser pursuant to Section 6.4(a), to the extent it relates to such representations and warranties) will survive the Closing but will terminate and expire, and will cease to be of any force or effect, at 10:00 a.m. (California time) on the third anniversary of the Closing Date, and all liability of Seller with respect to such representations and warranties (and any liability with respect to the certificate delivered pursuant to Section 6.4(a), to the extent it relates to such representations and warranties) will thereupon be extinguished; provided, however, that if, prior to such third anniversary, Purchaser shall have duly delivered to Seller, in conformity with all of the applicable procedures set forth in Section 9.1(f), a Claim Notice setting forth a claim for indemnification based upon Seller's breach of any of such representations or warranties, then the specific claim set forth in such Claim Notice will survive (and will not be extinguished upon) such third anniversary. (b) Subject to the limitations set forth in this Section 9.1 and elsewhere in this Agreement, from and after the Closing Date, Seller will indemnify Purchaser against any Damages that Purchaser incurs as a result of any breach by Seller of any of the Specified Representations. Seller's obligation to indemnify Purchaser pursuant to this Section 9.1(b) will not relieve Seller of, or alter in any way, Seller's obligation to fully satisfy all of Seller's liabilities other than the Assumed Liabilities. (c) Seller will not be required to indemnify Purchaser with respect to any breach by Seller of any of the Specified Representations, except to the extent that the cumulative amount of the Damages actually incurred by Purchaser as a result of all such breaches of the Specified Representations exceeds $3,000,000; and Seller will only be required to pay, and will only be liable for, the amount by which the cumulative amount of the Damages actually incurred by Purchaser as a result of all such breaches of the Specified Representations exceeds $3,000,000. 19 (d) The total amount of the payments that Seller can be required to make under or in connection with this Agreement (including all indemnification payments required to be made to Purchaser with respect to breaches of the Specified Representations and all amounts payable to any counsel retained in accordance with Section 9.1(g)) will be limited in the aggregate to a maximum of $42,500,000, and Seller's cumulative liability will in no event exceed such amount. (e) Any indemnification payment required to be made by Seller under this Agreement may be made (at Seller's election) in cash or by delivery of shares of Purchaser Common Stock (or by delivery of a combination of cash and shares of Purchaser Common Stock). For purposes of this Section 9.1(e), each share of Purchaser Common Stock delivered to Purchaser will represent an indemnification payment in an amount equal to the Closing Five-Day Average Stock Price (subject to appropriate adjustment to reflect any stock split, stock dividend, recapitalization or other similar transaction affecting the Purchaser Common Stock that is effected or has a record date on or prior to the date of delivery of such Purchaser Common Stock to Purchaser). (f) If Purchaser wishes to assert an indemnification claim against Seller, Purchaser will deliver to Seller, as soon as reasonably practicable, a written notice (a "Claim Notice") setting forth: (i) the specific representation and warranty alleged to have been breached by Seller; (ii) a reasonably detailed description of the facts and circumstances giving rise to the alleged breach of such representation and warranty; and (iii) a reasonably detailed description of, and a good faith estimate of the total amount of, the Damages actually incurred or expected to be incurred by Purchaser as a result of such alleged breach. Notwithstanding anything to the contrary contained in this Agreement, Purchaser will not be permitted to deliver any Claim Notice to Seller (and will not be entitled to assert any claim set forth in any Claim Notice) unless Purchaser has reasonably determined that the breach alleged in such Claim Notice has actually occurred. (g) If Purchaser receives notice or otherwise obtains knowledge of any Matter or any threatened Matter that may reasonably be expected to give rise to an indemnification claim against Seller, then Purchaser will deliver to Seller a written notice describing such Matter in reasonable detail as soon as reasonably practicable; provided, however, that for the sole purpose of determining whether a Matter or threatened Matter may give rise to an indemnification claim against Seller within the meaning of this sentence, the limitation set forth in Section 9.1(c) will not be taken into account. Seller will have the right, at its election and at its sole expense, to assume the defense of any such Matter with its own counsel. If Seller elects to assume the defense of any such Matter, then: 20 (i) notwithstanding anything to the contrary contained in this Agreement, Seller will not be required to pay or otherwise indemnify Purchaser against any attorneys' fees or other expenses incurred on behalf of Purchaser in connection with such Matter following Seller's election to assume the defense of such Matter; (ii) Purchaser will make available to Seller all books, records and other documents and materials that are under the control of Purchaser or any of Purchaser's affiliates, advisors or representatives and that Seller reasonably considers necessary or desirable for the defense of such Matter; (iii) Purchaser will execute such documents and take such other actions as Seller may reasonably request for the purpose of facilitating the defense of, or any settlement, compromise or adjustment relating to, such Matter; (iv) Purchaser will otherwise fully cooperate as reasonably requested by Seller in the defense of such Matter; (v) Purchaser will not admit any liability with respect to such Matter; and (vi) Seller will have the exclusive right to settle, adjust or compromise such Matter, on such terms as Seller may consider appropriate, with the consent of Purchaser (which will not be unreasonably withheld). If Seller elects not to assume the defense of such Matter, then Purchaser will proceed diligently to defend such Matter with the assistance of counsel reasonably satisfactory to Seller; provided, however, that Purchaser will not settle, adjust or compromise such Matter, or admit any liability with respect to such Matter, without the prior written consent of Seller (which will not be unreasonably withheld). (h) To the extent Seller makes or is required to make any indemnification payment to Purchaser, Seller will be entitled to exercise, and will be subrogated to, any rights and remedies (including rights of indemnity, rights of contribution and other rights of recovery) that Purchaser or any of Purchaser's affiliates may have against any other Person with respect to any Damages, circumstances or Matter to which such indemnification payment is directly or indirectly related. Purchaser will take such actions as Seller may reasonably request for the purpose of enabling Seller to perfect or exercise Seller's right of subrogation hereunder. (i) The right of Purchaser to assert indemnification claims and receive indemnification payments pursuant to this Section 9.1 will be the sole and exclusive right and remedy exercisable by Purchaser with respect to any breach by Seller of any representation or warranty set forth in this Agreement or in any of the Ancillary Agreements; provided, however, that this Section 9.1(i) shall not prevent Purchaser from asserting a tort claim for fraud against Seller in appropriate circumstances. 9.2 INDEMNIFICATION BY PURCHASER. The Parties acknowledge that Purchaser's indemnification obligations with respect to breaches of the representations and warranties set forth in Section 3 are set forth in the Investor Rights Agreement, and that Purchaser's 21 indemnification obligations with respect to the Assumed Liabilities are set forth in the Assumption Agreement. 10. MISCELLANEOUS. 10.1 TIME OF ESSENCE. Time is of the essence of this Agreement. 10.2 NO OTHER REPRESENTATIONS. The Parties acknowledge that, except as expressly set forth in Sections 2 and 3 and in the Ancillary Agreements, neither Party has made or is making any representations or warranties whatsoever to the other, implied or otherwise. 10.3 KNOWLEDGE. Neither Party will be deemed to have breached any representation or warranty that is made to such Party's "knowledge" unless an officer of such Party with the rank of Vice President or above has actual knowledge, as of the date of this Agreement, that such representation or warranty is materially inaccurate. 10.4 ACCESS OF SELLER TO BOOKS AND RECORDS. At all times after the Closing Date, Purchaser will give Seller and Seller's advisors and representatives reasonable access to all books and records of Seller that are included in the Specified Assets (to the extent such books and records relate to any period prior to the Closing Date). 10.5 GOVERNING LAW. This Agreement will be construed in accordance with, and governed in all respects by, the laws of the State of Colorado (without giving effect to principles of conflicts of law). 10.6 VENUE AND JURISDICTION. If any legal proceeding or other legal action relating to this Agreement is brought or otherwise initiated, the venue therefor will be in the State of Colorado, which will be deemed to be a convenient forum. Purchaser and Seller hereby expressly and irrevocably consent and submit to the jurisdiction of the state and federal courts in the State of Colorado. 10.7 NOTICES. Any notice or other communication required or permitted to be delivered to either Party under this Agreement must be in writing and will be deemed properly delivered, given and received when delivered (by hand, by registered mail, by courier or express delivery service or by facsimile) to the address or facsimile telephone number set forth beneath the name of such Party below (or to such other address or facsimile telephone number as such Party shall have specified in a written notice given to the other Party): if to Purchaser: OSI Pharmaceuticals, Inc. 58 South Service Road Melville, New York 11747 Attention: Barbara Wood, General Counsel Facsimile: (631) 962-2021 22 with a copy to: Mintz Levin Cohn Ferris Glovsky & Popeo, PC 666 Third Avenue New York, New York 10017 Attention: Joel Papernik Facsimile: (212) 983-3115 if to Seller: Gilead Sciences, Inc. 333 Lakeside Drive Foster City, CA 94404 Attention: Gregg Alton, General Counsel Facsimile: (650) 522-5537 with a copy to: Cooley Godward LLP Five Palo Alto Square 3000 El Camino Real Palo Alto, CA 94306 Attention: Robert Jones Facsimile: (650) 849-7400 10.8 PUBLIC ANNOUNCEMENTS. Except as may be required by any Legal Requirement, neither Party will (and neither Party will permit any of its advisors or representatives to) issue any press release or make any public statement regarding this Agreement or any of the transactions contemplated by this Agreement, without the other Party's prior written consent (which will not be unreasonably withheld). 10.9 ASSIGNMENT. Neither Party may assign any of its rights or delegate any of its obligations under this Agreement (whether voluntarily, involuntarily, by way of merger or otherwise) to any other Person without the prior written consent of the other Party; provided, however, that Seller may, before or after the Closing, (i) assign to any Person its right to receive all or any portion of any of the cash payments to be made by Purchaser pursuant to Section 1.3 and (ii) assign, to any Person that assumes the applicable obligations of Seller under the Investor Rights Agreement, any or all of Seller's rights to receive the Initial Shares or any Subsequent Shares; and provided further, that (without limiting Purchaser's obligations under or relating to this Agreement) Purchaser may, before the Closing, assign its right to receive all or any of the Specified Assets to an affiliate of Purchaser. 10.10 PARTIES IN INTEREST. Nothing in this Agreement is intended to provide any rights or remedies to any employee of Seller or to any other Person other than the Parties. 23 10.11 SEVERABILITY. In the event that any provision of this Agreement, or the application of such provision to any Person or set of circumstances, shall be determined to be invalid, unlawful, void or unenforceable to any extent, the remainder of this Agreement, and the application of such provision to Persons or circumstances other than those as to which it is determined to be invalid, unlawful, void or unenforceable, will not be affected and will continue to be valid and enforceable to the fullest extent permitted by law. 10.12 ENTIRE AGREEMENT. This Agreement, the Confidentiality Agreements (which remain in full force and effect), the Assumption Agreement and the Ancillary Agreements set forth the entire understanding of the Parties and supersede all other agreements and understandings between the Parties relating to the subject matter hereof and thereof. 10.13 WAIVER. No failure on the part of either Party to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of either Party in exercising any power, right, privilege or remedy under this Agreement, will operate as a waiver thereof; and no single or partial exercise of any such power, right, privilege or remedy will preclude any other or further exercise thereof or of any other power, right, privilege or remedy. 10.14 AMENDMENTS. This Agreement may not be amended, modified, altered or supplemented except by means of a written instrument executed on behalf of both Parties. 10.15 COUNTERPARTS. This Agreement may be executed in several counterparts, each of which will constitute an original and all of which, when taken together, will constitute one agreement. 10.16 INTERPRETATION OF AGREEMENT. (a) Each Party acknowledges that it has participated in the drafting of this Agreement, and any applicable rule of construction to the effect that ambiguities are to be resolved against the drafting party will not be applied in connection with the construction or interpretation of this Agreement. (b) Whenever required by the context hereof, the singular number will include the plural, and vice versa; the masculine gender will include the feminine and neuter genders; and the neuter gender will include the masculine and feminine genders. (c) As used in this Agreement, the words "include" and "including," and variations thereof, will not be deemed to be terms of limitation, and will be deemed to be followed by the words "without limitation." (d) Unless the context otherwise requires, references in this Agreement to "Sections," "Schedules" and "Exhibits" are intended to refer to Sections of and Schedules and Exhibits to this Agreement. (e) The table of contents of this Agreement and the bold-faced headings contained in this Agreement are for convenience of reference only, will not be deemed to be a 24 part of this Agreement and will not be referred to in connection with the construction or interpretation of this Agreement. 10.17 FURTHER ASSURANCES. For a period of one year following the Closing, (i) Seller will use commercially reasonable efforts to make available to Purchaser the material benefits of any Specified Contract that (a) was not assigned to Purchaser as a result of the failure to obtain any Consent identified in Part 2.10 of the Seller Disclosure Schedule or (b) is not assignable and for which a waiver has not been received or obtained and (ii) each Party will, to the extent reasonably requested by the other Party and at such other Party's sole expense, execute and deliver such documents and instruments and take such other actions as such other Party may reasonably request in order to consummate and make effective the transactions contemplated by this Agreement. 25 The Parties have caused this Agreement to be executed as of November 26, 2001. GILEAD SCIENCES, INC. By: /s/ MARK PERRY -------------------------------------- Mark Perry, Executive Vice President, Operations OSI PHARMACEUTICALS, INC. By: /s/ COLIN GODDARD -------------------------------------- Colin Goddard, Chairman and CEO 26 EXHIBIT A CERTAIN DEFINITIONS For purposes of the Agreement: "AGREEMENT" means the Asset Purchase Agreement to which this Exhibit A is attached, including the Seller Disclosure Schedule and the Purchaser Disclosure Schedule. "ALLOCATION" has the meaning set forth in Section 1.5. "ANCILLARY AGREEMENTS" has the meaning set forth in Section 1.6. "API" means (i) with respect to GS7904L, the thymidylate synthase inhibitor GW1843; (ii) with respect to GS7836, the compound referred to by Seller as 4'-thio-ara-C; and (iii) with respect to NX211, ;lurtotecan. "ASSUMED LIABILITIES" means the following obligations and other liabilities (whether known, unknown, accrued, absolute, matured, unmatured, contingent or otherwise, and whether arising before or after the Closing) as they may exist at and/or after the Closing: (i) all obligations and other liabilities of Seller under or relating to the Specified Contracts; (ii) all obligations and other liabilities of Seller to Glaxo Wellcome Inc. and Glaxo Group Limited (or their successor(s) in interest, if any), North Carolina State University and Southern Research Institute under or relating to any license agreement or other agreement relating to any of the Specified Products; (iii) all obligations and other liabilities of Seller relating to any of the taxes, charges, fees and expenses that Purchaser is required to bear and pay pursuant to Section 1.4; and (iv) each other obligation or other liability of Seller relating to any of the Specified Assets, any of the Specified Products, any of the Transferred Employees (as defined in the Employee Matters Agreement) or the operations conducted at the Boulder Facility; provided, however, that (A) if the NCS/NX211 Consent is not obtained, then "Assumed Liabilities" will not include the obligations set forth in Section 4.07 of the License Agreement between North Carolina State University and Glaxo Wellcome Inc. dated May 26, 1998; and (B) if the SRI/GS7836 Consent is not obtained, then "Assumed Liabilities" will not include the obligations set forth in Section 4.4 of the License Agreement between Southern Research Institute and Seller dated December 15, 2002. "ASSUMPTION AGREEMENT" has the meaning set forth in Section 1.3(c). "AVAILABLE EMPLOYEES" means the employees of Seller who are based at the Boulder Facility or are listed on Schedule 8; provided, however, that none of the employees identified on Schedule 6 will be deemed to be "Available Employees." "BOULDER FACILITY" means the premises located at 2860 Wilderness Place, 2900 Center Green Court, 2970 Wilderness Place and 5311 Western Ave, Suite K, in Boulder, Colorado, that are being leased to Seller. A-1 "CLAIM NOTICE" has the meaning set forth in Section 9.1(f). "CLOSING" has the meaning set forth in Section 1.7. "CLOSING DATE" has the meaning set forth in Section 1.7. "CLOSING FIVE-DAY AVERAGE STOCK PRICE" means the average of the closing sale prices of a share of Purchaser Common Stock as reported on The Nasdaq National Market for the period of five consecutive trading days ending on the trading day immediately preceding the Closing Date. "CONFIDENTIALITY AGREEMENTS" means the Confidentiality Agreement between the Parties dated as of September 20, 2001, and the Confidentiality Agreement between the Parties dated as of November 1, 2001. "CONSENT" means any consent, approval or waiver. "DAMAGES" means out-of-pocket losses and damages, excluding indirect, consequential, incidental, special and punitive damages; provided, however, that for purposes of computing the amount of Damages incurred by any Person, there will be deducted an amount equal to the amount of any insurance proceeds, indemnification payments, contribution payments or reimbursements actually received by such Person or any of such Person's affiliates in connection with such Damages or the circumstances giving rise thereto. "EMPLOYEE MATTERS AGREEMENT" has the meaning set forth in Section 1.6(b). "ENVIRONMENTAL LAWS" means all federal, state or local laws (including any statute, rule, regulation, ordinance, code or rule of common law), and all judicial or administrative interpretations thereof, and all decrees, judgments, policies, written guidance or judicial or administrative orders relating to the environment, health, safety or Hazardous Substances, including the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9901 et seq., the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901 et seq., the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Section 11001 et seq., the Clean Air Act, 42 U.S.C. Section 7401 et seq., the Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq., the Toxic Substance Control Act, 15 U.S.C. Section 2601 et seq., the Safe Drinking Water Act, U.S.C. Section 300f et seq., the Occupational Safety and Health Act, 42 U.S.C. Section 1801 et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Section 136 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et seq., and their state counterparts or equivalents, all as amended, and any regulations or rules adopted or promulgated pursuant thereto. "ENVIRONMENTAL PERMITS" has the meaning set forth in 2.4(d). "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. A-2 "FDA" means the United States Food and Drug Administration. "GS7836" means any formulation of the compound known as 4-thio-AraC, and any analogs, homologs, congeners and derivatives thereof that are claimed in United States Provisional Patent Application No. 60/093,869 filed July 23, 1998, Patent Cooperation Treaty Patent Application No. PCT/US99/16630 filed July 23, 1999 or United States Patent Application Serial No. 09/493,247 filed January 28, 2000, in each case as originally filed, together with intermediates therefor that are useful specifically for the manufacture of 4-thio-AraC. "GS7904L" means any formulation of the thymidylate synthase inhibitor known as 1843U89 or GW 1843, and the analogs, homologs, congeners and derivatives thereof that are claimed in United States Patent No. 5,663,337, issued September 2, 1997, together with intermediates therefor that are useful specifically for the manufacture of such thymidylate synthase inhibitor. "GSK/GS7904L CONSENT" means the Consent identified as item 19 of Part 2.10 of the Seller Disclosure Schedule that is to be requested from Glaxo Wellcome Inc. and Glaxo Group Limited (or their successor(s) in interest, if any). "GSK/NX211 CONSENT" means the Consent identified as item 21 of Part 2.10 of the Seller Disclosure Schedule that is to be requested from Glaxo Wellcome Inc. and Glaxo Group Limited (or their successor(s) in interest, if any). "HAZARDOUS SUBSTANCE" means any: contaminant or pollutant; toxic, radioactive or hazardous waste, chemical, substance, material or constituent; asbestos; polychlorinated byphenyls (PCBs); paint containing lead or mercury; fixtures containing mercury or urea formaldehyde; natural or liquefied gas; flammable, explosive, corrosive, radioactive, medical and infectious waste; and oil or other petroleum product, all as defined in Environmental Laws. "HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules promulgated thereunder. "INITIAL SHARES" has the meaning set forth in Section 1.3(b). "INVESTOR RIGHTS AGREEMENT" has the meaning set forth in Section 1.6(a). "LEGAL REQUIREMENT" means any law, rule or regulation of any governmental body. "MATTER" means any claim, demand, dispute, action, suit, proceeding, investigation or other similar matter. "NCS/NX211 CONSENT" means the Consent identified as item 20 of Part 2.10 of the Seller Disclosure Schedule that is to be requested from North Carolina State University. A-3 "NX211" means any formulation of the topoisomerase I inhibitor known as GI147211C, more commonly known as lurtotecan, together with salts thereof and intermediates therefor that are useful specifically for the manufacture of lurtotecan. "NX211 NDA FILING DATE" means the first date on which (i) a New Drug Application relating to NX211 is filed with the FDA or (ii) a similar filing is made with any equivalent to the FDA in Europe (whether such filing is made using a central filing procedure or in an individual European country). "NX211 PHASE III COMMENCEMENT DATE" means the earlier of: (i) the date upon which the first dosing of a patient with NX211 occurs pursuant to a protocol for a clinical trial that is designed to provide pivotal safety and efficacy data regarding NX211 for a New Drug Application for submission to the FDA or similar filing with any foreign equivalent thereof; or (ii) the date upon which a New Drug Application is filed with the FDA or a similar filing is made with any equivalent to the FDA in Europe (whether such filing is made using a central filing procedure or in an individual European country), if no trial fulfilling all criteria set forth in clause "(i)" of this sentence shall have been conducted prior to the filing of such application. "PARTIES" has the meaning set forth in the introductory paragraph of the Agreement. "PERSON" means any individual, corporation, general partnership, limited partnership, limited liability company, trust, association, firm, organization, company, business, entity, union, society or governmental body. "PHASE III TWENTY-DAY AVERAGE STOCK PRICE" means the average of the closing sale prices of a share of Purchaser Common Stock as reported on The Nasdaq National Market for the period of twenty consecutive trading days ending on the trading day immediately preceding the NX211 Phase III Commencement Date. "PRE-CLOSING PERIOD" has the meaning set forth in Section 4.1. "PURCHASER COMMON STOCK" means the common stock, par value $.01 per share, of Purchaser (or such other securities into which the shares of such common stock shall be converted, whether by virtue of any recapitalization of Purchaser, any merger of Purchaser into another entity or otherwise). "PURCHASER CORPORATIONS" has the meaning set forth in Section 3.1. "PURCHASER DISCLOSURE SCHEDULE" means the disclosure schedule delivered by Purchaser to Seller contemporaneously with the execution and delivery of the Agreement. "PURCHASER SEC DOCUMENTS" has the meaning set forth in Section 3.3(a). "SEC" means the United States Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended. A-4 "SELLER DISCLOSURE SCHEDULE" means the disclosure schedule delivered by Seller to Purchaser contemporaneously with the execution and delivery of the Agreement. "SPECIFIED ASSETS" has the meaning set forth in Section 1.1. "SPECIFIED CONTRACTS" means (i) the contracts and other instruments identified on Schedule 2 and (ii) each other contract or other instrument relating exclusively to any one or more of the Specified Products that is executed or entered into on behalf of Seller on or after the date of this Agreement and prior to the Closing in the ordinary course of business or with the approval of Purchaser. "SPECIFIED EMPLOYEES" has the meaning set forth in Section 5.5. "SPECIFIED KNOW-HOW" means all proprietary inventions, technology, trade secrets, know-how, data, procedures and other information, in each case that (a) have been reduced to writing or stored electronically or are in another tangible form, (b) relate exclusively to the APIs and (c) are set forth on Schedule 4. "SPECIFIED PATENTS" means the patents identified on Schedule 3 and all divisions, continuations, continuations-in-part, reissues, extensions, reexaminations and renewals of such patents in the U.S. and all foreign countries. "SPECIFIED PRODUCTS" means NX211, GS7836 and GS7904L. "SPECIFIED REGULATORY FILINGS" means the regulatory applications and governmental registrations identified on Schedule 5. "SPECIFIED REPRESENTATIONS" means the representations and warranties of Seller set forth in Sections 2.1, 2.2, 2.3(a), 2.4(b), 2.4(c), 2.4(d), 2.4(e), 2.4(f). 2.4(g), 2.5 and 2.7 of the Agreement and any representations and warranties of Seller set forth in the Ancillary Agreements. "SRI/GS7836 CONSENT" means the Consent identified as item 18 of Part 2.10 of the Seller Disclosure Schedule that is to be requested from Southern Research Institute. "SUBSEQUENT SHARES" has the meaning set forth in Section 1.3(d). A-5 EX-2.2 4 y56066ex2-2.txt NON-QUALIFIED STOCK OPTION PLAN EXHIBIT 2.2 OSI PHARMACEUTICALS, INC. NON-QUALIFIED STOCK OPTION PLAN FOR FORMER EMPLOYEES OF GILEAD SCIENCES, INC. 1. Purpose OSI Pharmaceuticals, Inc. (the "Company") has acquired certain of the assets of Gilead Sciences, Inc. ("Gilead"). In connection therewith, the Company has adopted this Non-Qualified Stock Option Plan for Former Employees of Gilead Sciences, Inc. (the "Plan") as an incentive to induce certain former employees of Gilead to accept employment with, or become associated with, the Company or a parent or subsidiary of the Company, and to encourage them to acquire a proprietary interest in the Company through the ownership of common stock, par value $.01 per share (the "Common Stock"), of the Company. Such ownership will provide them with a more direct stake in the future welfare of the Company. No option granted under the Plan shall be considered an "incentive stock option" as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). As used herein, the term "parent" or "subsidiary" shall mean any present or future corporation which is or would be a "parent corporation" or "subsidiary corporation" of the Company as the term is defined in Section 424 of the Code (determined as if the Company were the employer corporation). 2. Administration of the Plan The Plan shall be administered by a committee (the "Committee") as appointed from time to time by the Board of Directors of the Company, which may be the Compensation Committee of the Board of Directors. Except as otherwise specifically provided herein, no person, other than members of the Committee, shall have any discretion as to decisions regarding the Plan. The Company may engage a third party to administer routine matters under the Plan, such as establishing and maintaining accounts for Plan participants and facilitating transactions by participants pursuant to the Plan. In administering the Plan, the Committee may adopt rules and regulations for carrying out the Plan. The interpretations and decisions made by the Committee with regard to any question arising under the Plan shall be final and conclusive on all persons participating or eligible to participate in the Plan. Subject to the provisions of the Plan, the Committee shall determine the terms of all options granted pursuant to the Plan, including, but not limited to, the persons to whom, and the time or times at which, grants shall be made, the number of shares to be covered by each option, the duration of options, the exercisability of options, and the option price. 3. Shares of Stock Subject to the Plan Except as provided in paragraphs 6(h), 6(i) and 7 hereof, the number of shares that may be issued or transferred pursuant to the exercise of options granted under the Plan shall not exceed 750,249 shares of Common Stock. Such shares may be authorized and unissued shares or previously issued shares acquired or to be acquired by the Company and held in treasury. 4. Eligibility Options may be granted only to directors, officer, employees and consultants who are former employees of Gilead. 5. Granting of options No options pursuant to this Plan may be granted after ten years from the effective date. The date of the grant of any option shall be the date on which the Committee authorizes the grant of such option. 6. Options Options shall be evidenced by stock option agreements in such form, consistent with the Plan, as the Committee shall approve from time to time, which agreements need not be identical and shall be subject to the following terms and conditions: (a) Option Price. The purchase price under each option shall be specified by the Committee, but shall in no case be less than the greater of the Fair Market Value of the Common Stock at the time the option is granted and the par value of such Common Stock. (b) Medium and Time of Payment. Stock purchased pursuant to the exercise of an option shall at the time of purchase be paid for in full in cash, or, upon conditions established by the Committee, by delivery of shares of Common Stock owned by the recipient. If payment is made by the delivery of shares, the value of the shares delivered shall be the Fair Market Value of such shares on the date of exercise of the option. In addition, unless otherwise provided by the Committee, an "in the money" option may be exercised on a "cashless" basis in exchange for the issuance to the optionee (or other person entitled to exercise the option) of the largest whole number of shares having an aggregate value equal to the value of such option on the date of exercise. For this purpose, the value of the 2 shares delivered by the Company and the value of the option being exercised shall be determined based on the Fair Market Value of the Common Stock on the date of exercise of the option. Upon receipt of payment and such documentation as the Company may deem necessary to establish compliance with the Securities Act of 1933, as amended (the "Securities Act"), the Company shall, without stock transfer tax to the optionee or other person entitled to exercise the option, deliver to the person exercising the option a certificate or certificates for such shares. It shall be a condition to the performance of the Company's obligation to issue or transfer Common Stock upon exercise of an option or options that the optionee pay, or make provision satisfactory to the Company for the payment of, any taxes (other than stock transfer taxes) the Company is obligated to collect with respect to the issue or transfer of Common Stock upon such exercise, including any federal, state, or local withholding taxes. (c) Waiting Period. The waiting period and time for exercising an option shall be prescribed by the Committee in each particular case; provided, however, that no option may be exercised after 10 years from the date it is granted. (d) Rights as a Stockholder. A recipient of options shall have no rights as a stockholder with respect to any shares issuable or transferable upon exercise thereof until the date a stock certificate is issued to him for such shares. Except as otherwise expressly provided in the Plan, no adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. (e) Non-Assignability of Options. Except as may otherwise be specifically provided by the Committee, no option shall be assignable or transferable by the recipient except by will or by the laws of descent and distribution. During the lifetime of a recipient, except as may otherwise be specifically provided by the Committee, options shall be exercisable only by such recipient. If the Committee approves provisions in any particular case allowing for assignment or transfer of an option, then such option will nonetheless be subject to a six-month holding period commencing on the date of grant during which period the recipient will not be permitted to assign or transfer such option, unless the Committee further specifically provides for the assignability or transferability of such option during this period. See paragraph 8 hereof for restrictions on sale of shares. (f) Effect of Termination of Employment. If a recipient's employment (or service as an officer, director or consultant) shall terminate for any reason, other than death or Retirement (as defined below), the right of the recipient to exercise any option otherwise exercisable on the date of such termination shall expire unless such right is exercised within a period of 90 days after the date of such termination. 3 The term "Retirement" shall mean the voluntary termination of employment (or service as an officer, director or consultant) by a recipient who has attained the age of 55 and who has completed at least five years of service with the Company. If a recipient's employment (or service as an officer, director or consultant) shall terminate because of death or Retirement, the right of the recipient to exercise any option otherwise exercisable on the date of such termination shall be unaffected by such termination and shall continue until the normal expiration of such option. Option rights shall not be affected by any change of employment as long as the recipient continues to be employed by either the Company or a parent or subsidiary of the Company. In no event, however, shall an option be exercisable after the expiration of its original term as determined by the Committee pursuant to subparagraph 6(c) above. The Committee may, if it determines that to do so would be in the Company's best interests, provide in a specific case or cases for the exercise of options which would otherwise terminate upon termination of employment with the Company for any reason, upon such terms and conditions as the Committee determines to be appropriate. Nothing in the Plan or in any option agreement shall confer any right to continue in the employ of the Company or any parent or subsidiary of the Company or interfere in any way with the right of the Company or any parent or subsidiary of the Company to terminate the employment of a recipient at any time. (g) Leave of Absence. In the case of a recipient on an approved leave of absence, the Committee may, if it determines that to do so would be in the best interests of the Company, provide in a specific case for continuation of options during such leave of absence, such continuation to be on such terms and conditions as the Committee determines to be appropriate, except that in no event shall an option be exercisable after 10 years from the date it is granted. (h) Recapitalization. In the event that dividends payable in Common Stock during any fiscal year of the Company exceed in the aggregate five percent of the Common Stock issued and outstanding at the beginning of the year, or in the event there is during any fiscal year of the Company one or more splits, subdivisions, or combinations of shares of Common Stock resulting in an increase or decrease by more than five percent of the shares outstanding at the beginning of the year, the number of shares available under the Plan shall be increased or decreased proportionately, as the case may be, and the number of shares deliverable upon the exercise thereafter of any options theretofore granted shall be increased or decreased proportionately, as the case may be, without change in the aggregate purchase price. Common Stock dividends, splits, subdivisions, or combinations during any fiscal year that do not exceed in the aggregate five percent of the Common Stock issued and outstanding at the beginning of such year shall be ignored for purposes of the Plan. All adjustments shall be made as of the day such action necessitating such adjustment becomes effective. 4 (i) Sale or Reorganization. In case the Company is merged or consolidated with another corporation, or in case the property or stock of the Company is acquired by another corporation, or in case of a separation, reorganization, or liquidation of the Company, the Board of Directors of the Company, or the board of directors of any corporation assuming the obligations of the Company hereunder, shall either (i) make appropriate provisions for the protection of any outstanding options by the substitution on an equitable basis of appropriate stock of the Company, or appropriate stock or options of the merged, consolidated, or otherwise reorganized corporation, or (ii) give written notice to optionees that their options, which will become immediately exercisable notwithstanding any waiting period otherwise prescribed by the Committee, must be exercised within 30 days of the date of such notice or they will be terminated. (j) General Restrictions. Each option granted under the Plan shall be subject to the requirement that, if at any time the Board of Directors shall determine, in its discretion, that the listing, registration, or qualification of the shares issuable or transferable upon exercise thereof upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the granting of such option or the issue, transfer, or purchase of shares thereunder, such option may not be exercised in whole or in part unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Board of Directors. The Company shall not be obligated to sell or issue any shares of Common Stock in any manner in contravention of the Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the rules and regulations of the Securities and Exchange Commission, any state securities law, the rules and regulations promulgated thereunder or the rules and regulations of any securities exchange or over the counter market on which the Common Stock is listed or in which it is included for quotation. The Board of Directors may, in connection with the granting of each option, require the individual to whom the option is to be granted to enter into an agreement with the Company stating that as a condition precedent to each exercise of the option, in whole or in part, he shall, if then required by the Company, represent to the Company in writing that such exercise is for investment only and not with a view to distribution, and also setting forth such other terms and conditions as the Committee may prescribe. Such agreements may also, in the discretion of the Committee, contain provisions requiring the forfeiture of any options granted and/or Common Stock held, in the event of the termination of employment or association, as the case may be, of the optionee with the Company. Upon any forfeiture of Common Stock pursuant to an agreement authorized by the preceding sentence, the Company shall pay consideration for such 5 Common Stock to the optionee, pursuant to any such agreement, without interest thereon. (k) "Fair Market Value." Fair Market Value for all purposes under the Plan shall mean the closing price of shares of Common Stock, as reported in The Wall Street Journal, in the NASDAQ National Market Issues or similar successor consolidated transactions reports (or a similar consolidated transactions report for the exchange on which the shares of Common Stock are then trading) for the relevant date, or if no sales of shares of Common Stock were made on such date, the average of the high and low sale prices of shares as reported in such composite transaction report for the preceding day on which sales of shares were made. If the shares are not listed on a national securities exchange or included for quotation in the NASDAQ National Market System at the time Fair Market Value is to be determined, then Fair Market Value shall be determined by the Committee in good faith pursuant to such method as to the Committee deems appropriate and equitable. Under no circumstances shall the Fair Market Value of a share of Common Stock be less than its par value. 7. Termination and Amendment of the Plan The Board of Directors or the Committee shall have the right to amend, suspend, or terminate the Plan at any time; provided, however, that no such action shall affect or in any way impair the rights of a recipient under any option right theretofore granted under the Plan; and, provided, further, that unless first duly approved by the stockholders of the Company entitled to vote thereon at a meeting (which may be the annual meeting) duly called and held for such purpose, except as provided in subparagraphs 6(h) and 6(i), no amendment or change shall be made in the Plan increasing the total number of shares which may be issued or transferred under the Plan, materially increasing the benefits to Plan participants or modifying the requirements as to eligibility for participation in the Plan. 8. Restriction on Sale of Shares No stock acquired by an optionee upon exercise of an option granted hereunder may be disposed of by the optionee (or other person eligible to exercise the option) within six months from the date such option was granted, unless otherwise provided by the Committee. 9. Effective Date of the Plan This Plan shall become effective on January 1, 2002 (the "Effective Date"). The Plan shall terminate after ten years from the Effective Date, or on such earlier date as the Board of Directors or the Committee may determine. Any option outstanding at the termination date shall remain outstanding until it has either expired or has been exercised. 6 10. Compliance with Rule 16b-3 With respect to persons subject to Section 16 of the Exchange Act, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors. To the extent any provision of the Plan or action by the Committee (or any other person on behalf of the Committee or the Company) fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. 7 EX-4.1 5 y56066ex4-1.txt INVESTOR RIGHTS AGREEMENT EXHIBIT 4.1 INVESTOR RIGHTS AGREEMENT by and between OSI PHARMACEUTICALS, INC. a Delaware corporation and GILEAD SCIENCES, INC., a Delaware corporation Dated as of December 21, 2001 INVESTOR RIGHTS AGREEMENT THIS INVESTOR RIGHTS AGREEMENT is being entered into as of December 21, 2001, by and between OSI PHARMACEUTICALS, INC., a Delaware corporation (the "Company"), and GILEAD SCIENCES, INC., a Delaware corporation (the "Investor"). Capitalized terms not defined herein shall have the meaning ascribed to them in that certain Asset Purchase Agreement, dated as of November 26, 2001, by and between the Company, as the purchaser, and the Investor, as the seller (the "Purchase Agreement"). RECITALS WHEREAS, pursuant to the Purchase Agreement, the Company is purchasing from the Investor, and the Investor is selling to the Company, certain assets (the "Specified Assets"); WHEREAS, as partial consideration for the Specified Assets, the Company is issuing to the Investor 924,984 shares (the "Initial Shares") of the Company's common stock, $.01 par value per share (the "Common Stock"); WHEREAS, as additional consideration for the Specified Assets, upon the satisfaction of certain conditions set forth in the Purchase Agreement, the Company may issue additional shares of Common Stock to the Investor (as set forth in Section 1.3(d) of the Purchase Agreement, the "Subsequent Shares"); and WHEREAS, the Company has agreed to grant to the Investor certain rights to cause the Company to register, under the Securities Act of 1933, as amended, the offer and sale of the Initial Shares and Subsequent Shares. NOW, THEREFORE, in consideration of the premises and the mutual promises made herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: 1. Definitions. In addition to those terms defined above and elsewhere in this Agreement, for the purposes of this Agreement, the following terms shall have the meanings set forth here: 1.1. "Affiliate" shall mean, with respect to any Person, any other Person which directly or indirectly controls, is controlled by, or is under common control with, such Person. 1.2. "Closing Date" shall have the meaning set forth in the Purchase Agreement. 1.3. "Common Stock" shall have the meaning set forth in the Recitals. 1.4. "Company" shall have the meaning set forth in the Heading. 1.5. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 1.6. "Initial Shares" shall have the meaning set forth in the Recitals. 1.7. "Investor" shall have the meaning set forth in the Heading. 1 1.8. "NASD" shall mean the National Association of Securities Dealers, Inc. 1.9. "Nasdaq National Market" shall mean The Nasdaq Stock Market, Inc. National Market. 1.10. "Person" shall mean an individual, corporation, partnership, trust, business trust, association, joint stock company, joint venture, pool, syndicate, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed herein. 1.11. "Purchase Agreement" shall have the meaning set forth in the Heading. 1.12. "Registration Statement" shall mean a registration statement filed pursuant to Section 3.1(a) or 3.1(b). 1.13. "SEC" shall mean the United States Securities and Exchange Commission. 1.14. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. 1.15. "Shares" shall mean the Initial Shares and the Subsequent Shares. 1.16. "Specified Assets" shall have the meaning set forth in the Recitals. 1.17. "Subsequent Shares" shall have the meaning set forth in the Recitals. 1.18. "Suspension" shall have the meaning set forth in Section 3.2(c). 1.19. "Suspension Notice" shall have the meaning set forth in Section 3.2(c). 2. Representations, Warranties and Covenants of the Investor. 2.1. Representations and Warranties. The Investor hereby represents and warrants to the Company as follows: (a) Accredited Investor, Investment Decision. (i) The Investor is an "accredited investor" as defined in Regulation D under the Securities Act and is knowledgeable, sophisticated and experienced in making investments of the type contemplated by the Purchase Agreement and this Agreement. (ii) The Investor has requested, received, reviewed and considered all information it has deemed relevant in making an informed decision to acquire the Shares. (iii) The Investor is acquiring the Shares for its own account for investment only and with no present intention of distributing any of the Shares and has no arrangement or understanding with any other Persons regarding the distribution of the Shares. (iv) The Investor understands that its acquisition of the Shares has not been registered under the Securities Act or registered or qualified under any state securities law in 2 reliance on specific exemptions therefrom, which exemptions may depend upon, among other things, the bona fide nature of the Investor's investment intent as expressed in this Agreement. (b) NASD. The Investor has no direct or indirect affiliation or association with any member of the NASD as of the date hereof. (c) Restricted Securities, Legends. The Investor understands that the Initial Shares are, and the Subsequent Shares will be, characterized as "restricted securities" under the Securities Act inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such law and applicable regulations such securities may be resold without registration under the Securities Act only in certain limited circumstances. The Investor understands that certificates evidencing the Shares may bear one or all of the following legends: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act"), and may not be transferred without (i) an opinion of counsel satisfactory to the corporation that such transfer may lawfully be made without registration under such Act or qualification under applicable state securities laws; or (ii) such registration or qualification, except for a transfer in compliance with Rule 144 under the Act." If required by the authorities of any state in connection with the issuance of sale of the Shares, the legend required by such state authority. Any purchaser of the Shares pursuant to an effective registration statement under the Securities Act will be entitled to receive a certificate bearing no restrictive legend. 2.2. Covenants. The Investor hereby covenants with the Company as follows: (a) The Investor will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any of the Shares except in compliance with the Securities Act and applicable state securities laws. In furtherance thereof, the Investor will not make any disposition of the Shares except (i) pursuant to a registration statement under the Securities Act covering such proposed disposition, (ii) upon prior notice to the Company and, if reasonably requested by the Company, delivery to the Company of an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration under the Securities Act, or (iii) in compliance with Rule 144 under the Securities Act. In addition, and not in limitation of the foregoing, the Investor agrees that, during the 90-day period following the Closing, it will not sell or otherwise dispose of more than 50% of the Shares. (b) The Investor acknowledges and agrees that no action has been or will be taken in any jurisdiction outside the United States by the Company that would permit an offering of the Shares, or possession or distribution of offering materials in connection with the issuance of the Shares, in any jurisdiction outside the United States where legal action by the Company for that purpose is required. The Investor outside the United States will comply with all applicable laws and regulations in each foreign jurisdiction in which it purchases, offers, sells or delivers Shares or has in its possession or distributes any offering material, in all cases at its own expense. 3 3. Registration of the Shares; Compliance With the Securities Act. 3.1. Registration Procedures and Expenses. The Company shall: (a) subject to prompt receipt of necessary information from the Investor after prompt request from the Company to the Investor to provide such information, use reasonable best efforts to prepare and file with the SEC, by the later of (i) five business days after the Closing Date of the Purchase Agreement; or (ii) January 2, 2002, a shelf registration statement to enable the resale of the Shares by the Investor from time to time on a delayed or continuous basis pursuant to Rule 415 of the Securities Act through the automated quotation system of the Nasdaq National Market or such other market as may be the principal market on which the Company's Common Stock is sold, or any other manner reasonably requested by the Investor, including privately-negotiated transactions; (b) in the event the SEC does not permit the Company to register the Subsequent Shares pursuant to the registration statement filed in accordance with Section 3.1(a), subject to prompt receipt of necessary information from the Investor after prompt request from the Company to the Investor to provide such information, use reasonable best efforts to prepare and file with the SEC, within five business days following satisfaction of the conditions set forth in Section 1.3(d) of the Purchase Agreement for the issuance by the Company of the Subsequent Shares, a shelf registration statement to enable the resale of the Subsequent Shares by the Investor from time to time on a delayed or continuous basis pursuant to Rule 415 of the Securities Act through the automated quotation system of the Nasdaq National Market or such other market as may be the principal market on which the Company's Common Stock is sold, or any other manner reasonably requested by the Investor, including privately-negotiated transactions; (c) use reasonable best efforts, subject to receipt of necessary information from the Investor after prompt request from the Company to the Investor to provide such information, to cause the Registration Statement to become effective as soon as practicable after the Registration Statement is filed by the Company; (d) use reasonable best efforts to prepare and file with the SEC such amendments and supplements to the Registration Statement and the prospectus used in connection therewith as may be necessary to keep the Registration Statement current and effective until the later of (i) two years after the Closing Date or (ii) all of the Shares may be sold pursuant to Rule 144 of the Securities Act without regard to any volume limitations; (e) furnish to the Investor such number of copies of the Registration Statement, prospectuses and preliminary prospectuses in conformity with the requirements of the Securities Act and such other documents as the Investor may reasonably request, in order to facilitate the public sale or other disposition of all or any of the Shares by the Investor; provided, however, that the obligation of the Company to deliver copies of prospectuses or preliminary prospectuses to the Investor shall be subject to the receipt by the Company of reasonable assurances from the Investor that the Investor will comply with the applicable provisions of the Securities Act and of such other securities or blue sky laws as may be applicable in connection with any use of such prospectuses or preliminary prospectuses; (f) take all reasonable actions necessary to ensure that the Initial Shares and any Subsequent Shares are listed and available for quotation on The Nasdaq National Market; 4 (g) file documents required of the Company for normal blue sky clearance in states specified in writing by the Investor; provided, however, that the Company shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has not so consented; (h) use reasonable efforts to assist the Investor with any proposed sale of the Shares by the Investor; (i) bear all expenses (exclusive of underwriting discounts and commissions) in connection with the procedures in paragraph (a) through (e) of this Section 3.1 and the registration of the Shares pursuant to the Registration Statement, including reasonable fees and expenses of counsel to the Investor not to exceed $7,500; and (j) advise the Investor promptly after it shall receive notice or obtain knowledge of the issuance of any stop order by the SEC delaying or suspending the effectiveness of the Registration Statement or of the initiation or threat of any proceeding for that purpose; and it will promptly use commercially reasonable efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued. The Company understands that the Investor disclaims being an underwriter, but the Investor's being deemed an underwriter by the SEC shall not relieve the Company of any obligations it has hereunder. 3.2. Transfer of Shares After Registration; Suspension. (a) The Investor agrees that it will not effect any disposition of the Shares or its right to purchase the Shares that would constitute a sale within the meaning of the Securities Act except as contemplated in the Registration Statement referred to in Section 3.1 and as described below or as otherwise permitted by law, and that it will promptly notify the Company of any changes in the information set forth in the Registration Statement regarding the Investor or its plan of distribution. (b) Except in the event that paragraph (c) below applies, the Company shall (i) if deemed necessary by the Company, prepare and file from time to time with the SEC a post-effective amendment to the Registration Statement or a supplement to the related prospectus or a supplement or amendment to any document incorporated therein by reference or file any other required document so that such Registration Statement will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and so that, as thereafter delivered to purchasers of the Shares being sold thereunder, such prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (ii) provide the Investor copies of any documents filed pursuant to this Section 3.2(b)(i); and (iii) inform the Investor that the Company has complied with its obligations in this Section 3.2(b)(i) (or that, if the Company has filed a post-effective amendment to the Registration Statement which has not yet been declared effective, the Company will notify the Investor to that effect, will use commercially reasonable efforts to secure the effectiveness of such post-effective amendment as promptly as possible and will promptly notify the Investor pursuant to this Section 3.2(b)(i) when the amendment has become effective). 5 (c) Subject to paragraph (d) below, in the event (i) of any request by the SEC or any other federal or state governmental authority during the period of effectiveness of the Registration Statement for amendments or supplements to a Registration Statement or related prospectus or for additional information; (ii) of the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose; (iii) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; or (iv) of any event or circumstance which, upon the advice of its counsel, necessitates the making of any changes in the Registration Statement or prospectus, or any document incorporated or deemed to be incorporated therein by reference, so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the prospectus, it will not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; then the Company shall promptly deliver a certificate in writing to the Investor (the "Suspension Notice") to the effect of the foregoing and, upon receipt of such Suspension Notice, the Investor will refrain from selling any Shares pursuant to the Registration Statement (a "Suspension") until the Investor's receipt of copies of a supplemented or amended prospectus prepared and filed by the Company, or until it is advised in writing by the Company that the current prospectus may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in any such prospectus. In the event of any Suspension, the Company will use its reasonable best efforts to cause the use of the prospectus so suspended to be resumed as soon as reasonably practicable. In addition to and without limiting any other remedies (including, without limitation, at law or at equity) available to the Investor, the Investor shall be entitled to specific performance in the event that the Company fails to comply with the provisions of this Section 3.2(c). (d) Notwithstanding the foregoing paragraphs of this Section 3.2, the Investor shall not be prohibited from selling the Shares under the Registration Statement as a result of Suspensions on more than one occasion of not more than thirty days in any twelve month period, unless, in the good faith judgment of the Company's Board of Directors, upon advice of counsel, the sale of the Shares under the Registration Statement would be reasonably likely to cause a violation of the Securities Act or the Exchange Act and result in liability to the Company. (e) Provided that a Suspension is not then in effect, the Investor may sell the Shares under the Registration Statement; provided, however, that it arranges for delivery of a current prospectus to the transferee of such Shares. Upon receipt of a request therefor, the Company has agreed to provide an adequate number of current prospectuses to the Investor and to supply copies to any other parties requiring such prospectuses. (f) In the event of a sale of the Shares by the Investor pursuant to the Registration Statement, the Investor must also deliver to the Company's transfer agent, with a copy to the Company, a Certificate of Subsequent Sale substantially in the form attached hereto as Exhibit A so that the Shares may be properly transferred. Assuming timely delivery to the Company's transfer agent of one or more stock certificates representing the Shares in proper form for transfer and assuming compliance by the Investor with the terms of this Agreement, the Company's transfer agent will issue and make appropriate delivery of one or more stock certificates in the name of the buyer so as to permit timely compliance by the Investor with applicable settlement requirements. 6 3.3. Assignment of Registration Rights. The rights to cause the Company to register the Shares pursuant to this Agreement may be assigned (but only with all related obligations) by the Investor to an Affiliate of the Investor; provided: (i) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; (ii) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement; and (iii) such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Securities Act. 3.4. Indemnification. (a) Definitions. For the purpose of this Section 3.4: (i) the term "Selling Stockholder" shall include the Investor and each person, if any, who controls the Investor within the meaning of Section 15 of the Securities Act, including any officer, director, trustee or Affiliate of such Investor; (ii) the term "Registration Statement" shall include any final prospectus, exhibit, supplement or amendment included in or relating to the Registration Statement referred to in Section 3.1; and (iii) the term "untrue statement" shall include any untrue statement or alleged untrue statement, or any omission or alleged omission to state in the Registration Statement a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (b) Indemnification by the Company Relating to the Company's Representations and Warranties in the Purchase Agreement. The Company represents and warrants to the Investor that all of the representations and warranties of the Company set forth in the Purchase Agreement are accurate in all respects as of the date hereof as if made on and as of the date hereof. The Company agrees to indemnify and hold harmless the Investor and its agents, directors, officers, employees, affiliates, successors and assigns (together with Investor, the "Investor Indemnitees") from and against any losses, claims, damages, liabilities or expenses which any of the Investor Indemnitees may suffer or incur, or to which any of the Investor Indemnitees may become subject (whether or not relating to any third-party claim), insofar as such losses, claims, damages, liabilities or expenses (or actions or proceedings in respect thereof) arise out of, are based upon or result directly or indirectly from, any inaccuracy in or other breach of the representation and warranty set forth in the first sentence of this Section 3.4(b). (c) Indemnification by the Company. The Company agrees to indemnify and hold harmless the Selling Stockholder from and against any losses, claims, damages or liabilities to which such Selling Stockholder may become subject (under the Securities Act or otherwise) insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon, (i) any untrue statement of a material fact contained in the Registration Statement, or (ii) any failure by the Company to fulfill any undertaking included in the Registration Statement, and the Company will reimburse such Selling Stockholder for any reasonable legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim; provided, however, that the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of, or is based upon, an untrue statement made in such Registration Statement in reliance upon and in conformity with written information furnished to the 7 Company by or on behalf of the Selling Stockholder specifically for use in preparation of the Registration Statement or the failure of the Selling Stockholder to comply with its covenants and agreements contained in this Agreement respecting the sale of the Shares or any statement or omission in any prospectus that is corrected in any subsequent prospectus that was delivered to the Investor prior to the pertinent sale or sales by the Investor; provided however, that the Selling Stockholder shall be entitled to be indemnified in any such case for any statement or alleged statement in or omission or alleged omission from such Registration Statement, preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, in which such statement or omission has been corrected, in writing, by the Investor and delivered to the Company at least ten days before the sale or sales from which such loss occurred. The Company shall reimburse the Selling Stockholder for the amounts provided for herein on demand as such expenses are incurred. (d) Indemnification by the Investor. The Investor agrees to indemnify and hold harmless the Company (and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, each officer of the Company who signs the Registration Statement and each director of the Company) from and against any losses, claims, damages or liabilities to which the Company (or any such officer, director or controlling person) may become subject (under the Securities Act or otherwise), insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon, (i) any failure to comply with the covenants and agreements contained in this Agreement respecting the sale of the Shares, or (ii) any untrue statement of a material fact contained in the Registration Statement if such untrue statement was made in reliance upon and in conformity with written information furnished by or on behalf of the Investor specifically for use in preparation of the Registration Statement, and the Investor will reimburse the Company (or such officer, director or controlling person), as the case may be, for any reasonable legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim; provided, however, that the Investor's obligation to indemnify the Company shall be limited to the net amount received by the Investor from the sale of the Shares; and further provided however, that the Selling Stockholder shall have no obligation to indemnify the Company in any such case for any statement or alleged statement in or omission or alleged omission from such Registration Statement, preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, in which such statement or omission has been corrected, in writing, by the Investor and delivered to the Company at least ten days before the sale or sales from which such loss occurred. (e) Notice of Claims, Etc. Promptly after receipt by any indemnified person of a notice of a claim or the beginning of any action in respect of which indemnity is to be sought against an indemnifying person pursuant to this Section 3.4, such indemnified person shall notify the indemnifying person in writing of such claim or of the commencement of such action, but the omission to so notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party under this Section 3.4 (except to the extent that such omission materially and adversely affects the indemnifying party's ability to defend such action) or from any liability otherwise than under this Section 3.4. Subject to the provisions hereinafter stated, in case any such action shall be brought against an indemnified person, the indemnifying person shall be entitled to participate therein, and, to the extent that it shall elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to such indemnified person. After notice from the indemnifying person to such indemnified person of its election to assume the defense thereof, such indemnifying person shall not be liable to such indemnified person for any legal expenses subsequently incurred by such indemnified person in connection with the defense thereof; provided, however, that if 8 there exists or shall exist a conflict of interest that would make it inappropriate, in the opinion of counsel to the indemnified person, for the same counsel to represent both the indemnified person and such indemnifying person or any Affiliate or associate thereof, the indemnified person shall be entitled to retain its own counsel at the expense of such indemnifying person; provided, however, that no indemnifying person shall be responsible for the fees and expenses of more than one separate counsel (together with appropriate local counsel) for all indemnified parties. In no event shall any indemnifying person be liable in respect of any amounts paid in settlement of any action unless the indemnifying person shall have approved the terms of such settlement; provided, however, that such consent shall not be unreasonably withheld. No indemnifying person shall, without the prior written consent of the indemnified person, effect any settlement of any pending or threatened proceeding in respect of which any indemnified person is or could have been a party and indemnification could have been sought hereunder by such indemnified person, unless such settlement includes an unconditional release of such indemnified person from all liability on claims that are the subject matter of such proceeding. (f) Contribution. If the indemnification provided for in this Section 3.4 is unavailable to or insufficient to hold harmless an indemnified party under paragraph (c) or (d) above in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and the Investor, as well as any other selling stockholders under such registration statement on the other in connection with the statements or omissions or other matters which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, in the case of an untrue statement, whether the untrue statement relates to information supplied by the Company on the one hand or an Investor or other selling stockholder on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement. The Company and the Investor agree that it would not be just and equitable if contribution pursuant to this paragraph (f) were determined by pro rata allocation (even if the Investor and other selling stockholders were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to above in this paragraph (f). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this paragraph (f) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this paragraph (f), the Investor shall not be required to contribute any amount in excess of the amount by which the net amount received by the Investor from the sale of the Shares to which such loss relates exceeds the amount of any damages which such Investor has otherwise been required to pay by reason of such untrue statement. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 4. Rule 144. The Company covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder (or, if the Company is not required to file such reports, it will, upon the request of the Investor, make publicly available such information as necessary to permit sales pursuant to Rule 144 under the Securities Act), and it will take such further action as the Investor may reasonably request, all to the extent required from time to time to enable the Investor to sell the Shares purchased hereunder without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (b) any similar rule or 9 regulation hereafter adopted by the SEC. Upon the request of the Investor, the Company will deliver to it a written statement as to whether the Company has complied with such information and requirements. 5. Notices. All notices, requests, consents and other communications hereunder shall be in writing, shall be mailed (a) if within domestic United States by first-class registered or certified airmail, or nationally recognized overnight express courier, postage prepaid, or by facsimile, or (b) if delivered from outside the United States, by International Federal Express or facsimile, and shall be deemed given (i) if delivered by first-class registered or certified mail domestic, three business days after so mailed, (ii) if delivered by nationally recognized overnight carrier, one business day after so mailed, (iii) if delivered by International Federal Express, two business days after so mailed, or (iv) if delivered by facsimile, upon electronic confirmation of receipt and shall be delivered as addressed as follows: (a) if to the Company, to: Robert L. Van Nostrand Vice President and Chief Financial Officer OSI Pharmaceuticals, Inc. 58 South Service Road, Suite 110 Melville, NY 11747 Phone: (631) 962-2000 Telecopy: (631) 752-3880 with a copy to: Spencer W. Franck, Jr., Esquire Saul Ewing LLP 1200 Liberty Ridge Drive Suite 200 Wayne, PA 19087 Phone: (610) 251-5082 Telecopy: (610) 408-4405 (b) if to the Investor, at its address on the signature page hereto, or at such other address or addresses as may have been furnished to the Company in writing, with a copy to: Laura Berezin, Esquire Cooley Godward LLP Five Palo Alto Square 3000 El Camino Real Palo Alto, CA 94306 Phone: (650) 843-5128 Telecopy: (650) 849-7400 10 6. Governing Law. This Agreement will be construed in accordance with, and governed in all respects by, the laws of the State of Colorado (without giving effect to principles of conflicts of law). 7. Venue and Jurisdiction. If any legal proceeding or other legal action relating to this Agreement is brought or otherwise initiated, the venue therefor will be in the State of Colorado, which will be deemed to be a convenient forum. The Company and the Investor hereby expressly and irrevocably consent and submit to the jurisdiction of the state and federal courts in the State of Colorado. 8. Parties in Interest. Nothing in this Agreement is intended to provide any rights or remedies to any other Person other than the Company and the Investor. 9. Successors and Assigns. Except as provided in Section 3.3, this Agreement may not be assigned by the Investor. Without the necessity of the prior written consent of the Investor, but after notice duly given and in compliance with this Agreement, the Company may assign its rights and delegate its duties hereunder to any successor-in-interest corporation in the event of a merger or consolidation of the Company with or into another corporation, or any merger or consolidation of another corporation with or into the Company that results directly or indirectly in an aggregate change in the ownership or control of more than 50% of the voting rights of the equity securities of the Company, or the sale of all or substantially all of the Company's assets. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective permitted successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 10. Severability. In the event that any provision of this Agreement, or the application of such provision to any Person or set of circumstances, shall be determined to be invalid, unlawful, void or unenforceable to any extent, the remainder of this Agreement, and the application of such provision to Persons or circumstances other than those as to which it is determined to be invalid, unlawful, void or unenforceable, will not be affected and will continue to be valid and enforceable to the fullest extent permitted by law. 11. Waiver. No failure on the part of either the Company or the Investor to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of either the Company or the Investor in exercising any power, right, privilege or remedy under this Agreement, will operate as a waiver thereof; and no single or partial exercise of any such power, right, privilege or remedy will preclude any other or further exercise thereof or of any other power, right, privilege or remedy. 12. Amendments. This Agreement may not be amended, modified, altered or supplemented except by means of a written instrument executed on behalf of both parties. 13. Counterparts. This Agreement may be executed in several counterparts, each of which will constitute an original and all of which, when taken together, will constitute one agreement. 14. Interpretation of Agreement. 14.1. Each party acknowledges that it has participated in the drafting of this Agreement, and any applicable rule of construction to the effect that ambiguities are to be resolved against 11 the drafting party will not be applied in connection with the construction or interpretation of this Agreement. 14.2. Whenever required by the context hereof, the singular number will include the plural, and vice versa; the masculine gender will include the feminine and neuter genders; and the neuter gender will include the masculine and feminine genders. 14.3. As used in this Agreement, the words "include" and "including," and variations thereof, will not be deemed to be terms of limitation, and will be deemed to be followed by the words "without limitation." 14.4. The headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement. [Signatures on next page] 12 IN WITNESS WHEREOF, the parties have caused this Investor Rights Agreement to be executed as of December 21, 2001. THE COMPANY: OSI PHARMACEUTICALS, INC. By: /s/ Geoffrey Cooper ----------------------------------------- Name: Geoffrey Cooper Title: Vice President, Business Development Address: 50 South Service Road, Suite 110 Melville, NY 11747 THE INVESTOR: GILEAD SCIENCES, INC. By: /s/ Mark L. Perry ----------------------------------------- Name: Mark L. Perry Title: Executive Vice President, Operations Address: 13 EXHIBIT A CERTIFICATE OF SUBSEQUENT SALE Bank of New York 101 Barclay Street New York, NY 10286 RE: Sale of Shares of Common Stock of OSI Pharmaceuticals, Inc. (the "Company") pursuant to the Company's Prospectus dated _____________, ____ (the "Prospectus") Dear Sir/Madam: The undersigned hereby certifies, in connection with the sale of shares of Common Stock of the Company included in the table of Selling Stockholders in the Prospectus, that the undersigned has sold the shares pursuant to the Prospectus and in a manner described under the caption "Plan of Distribution" in the Prospectus and that such sale complies with all applicable securities laws, applicable to the undersigned, including, without limitation, the Prospectus delivery requirements of the Securities Act of 1933, as amended. Selling Stockholder (the beneficial owner): Record Holder (e.g., if held in name of nominee): ------------------------------ Restricted Stock Certificate No.(s): ------------------------------------------- Number of Shares Sold: --------------------------------------- Date of Sale: ------------------------------------------------ In the event that you receive a stock certificate(s) representing more shares of Common Stock than have been sold by the undersigned, then you should return to the undersigned a newly issued certificate for such excess shares in the name of the Record Holder and BEARING A RESTRICTIVE LEGEND. Further, you should place a stop transfer on your records with regard to such certificate. Very truly yours, Dated: _____________________ By: ----------------------------------- Print Name: --------------------------- Title: --------------------------- cc: Robert L. Van Nostrand Vice President and Chief Financial Officer OSI Pharmaceuticals, Inc. 58 South Service Road, Suite 110 Melville, NY 11747 A-1 EX-10.1 6 y56066ex10-1.txt MANUFACTURING AGREEMENT EXHIBIT 10.1 Portions of this Exhibit have been redacted and are the subject of a confidential treatment request filed with the Secretary of the Securities and Exchange Commission. MANUFACTURING AGREEMENT between: GILEAD SCIENCES, INC., a Delaware corporation; and OSI PHARMACEUTICALS, INC., a Delaware corporation Dated as of December 21, 2001 TABLE OF CONTENTS
PAGE ARTICLE 1 CERTAIN DEFINITIONS........................................................ 2 ARTICLE 2 GOVERNANCE................................................................. 7 2.1 General........................................................................ 7 2.2 Development Teams.............................................................. 7 ARTICLE 3 API MATTERS................................................................ 9 3.1 Current Inventories............................................................ 9 3.2 Identification of Manufacturer................................................. 10 3.3 API Technology Transfer........................................................ 10 3.4 Continuing Manufacture by Gilead............................................... 11 3.5 Provision of APIs for Manufacture.............................................. 12 3.6 Mechanics...................................................................... 12 ARTICLE 4 SCALE-UP; OTHER DEVELOPMENT................................................ 12 4.1 Scale-Up and Process Development............................................... 12 4.2 Selection of Alternative Formulations.......................................... 13 4.3 Certain Royalty Obligations.................................................... 13 4.4 Other CMC Activities........................................................... 14 4.5 Performance Under Work Plan and Budgets........................................ 14 4.6 Confidentiality of CMC Activities.............................................. 14 4.7 Reverse Engineering............................................................ 14 4.8 GS7836......................................................................... 15 ARTICLE 5 PLANNING; FORECASTS; ORDERS; CAPACITY...................................... 15 5.1 Clinical Supply................................................................ 15 5.2 Prelaunch Planning............................................................. 16 5.3 Commercial Planning Forecasts.................................................. 17 5.4 Commercial Production Forecasts................................................ 18 5.5 Commercial Purchase Orders..................................................... 19 5.6 Delivery....................................................................... 19 ARTICLE 6 MANUFACTURE; TESTING; QUALITY ASSURANCE AND LABELING RESPONSIBILITIES...... 20 6.1 Raw Material Specifications.................................................... 20 6.2 Production and Manufacturing Standards......................................... 20 6.3 cGMP Compliance and QA Audits.................................................. 20 6.4 Change in Manufacturing Process Proposed by Gilead............................. 21 6.5 Changes to Specifications...................................................... 21 6.6 Quality Control Samples and Methods............................................ 22 6.7 Records........................................................................ 23
i TABLE OF CONTENTS (CONTINUED)
PAGE 6.8 Lot Failure.................................................................... 23 6.9 Rework or Reprocess............................................................ 23 6.10 Packaging and Labeling Responsibilities........................................ 23 6.11 Import Permits................................................................. 23 6.12 Testing and Release............................................................ 24 ARTICLE 7 DELIVERY; ACCEPTANCE AND REJECTION......................................... 24 7.1 Shipping....................................................................... 24 7.2 Shipments and Carrier.......................................................... 24 7.3 QC Samples; Documentation...................................................... 24 7.4 Shipping Insurance and Risk of Loss............................................ 25 7.5 Out-of-Specification Product................................................... 25 ARTICLE 8 REGULATORY ISSUES.......................................................... 27 8.1 Existing Filings............................................................... 27 8.2 Rights of Reference to DMFs.................................................... 28 8.3 Regulatory Filings Currently Being Compiled.................................... 29 8.4 Additional Regulatory Approval Applications.................................... 29 8.5 Regulatory Activities.......................................................... 30 8.6 Compliance With Law............................................................ 30 8.7 Records........................................................................ 31 8.8 Governmental Inquiries......................................................... 31 8.9 Stability Studies.............................................................. 32 8.10 Technical Agreement............................................................ 32 ARTICLE 9 PRICE, INVOICING AND COSTS................................................. 32 9.1 Costs of Clinical Supply....................................................... 32 9.2 Price for Commercial Supply.................................................... 33 9.3 Pricing Discussion............................................................. 34 9.4 Product Invoices............................................................... 35 9.5 Failure to Order Minimum....................................................... 35 9.6 Development Costs.............................................................. 35 9.7 Cost of Recalls, Product Withdrawals or Field Corrections...................... 36 9.8 Third-Party Royalties.......................................................... 36 9.9 Currency....................................................................... 36 9.10 Late Payments.................................................................. 36 9.11 Taxes.......................................................................... 36 9.12 Financial Audits............................................................... 37 ARTICLE 10 MANUFACTURING RIGHTS....................................................... 37 10.1 License to Gilead.............................................................. 37 10.2 Second Source for Liposomal Products........................................... 37 10.3 Use of Product Source.......................................................... 38 10.4 Selection of Product Source.................................................... 38
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PAGE 10.5 Technology Transfer............................................................ 39 10.6 Maintenance of Process Confidentiality......................................... 39 10.7 License to Product Source...................................................... 40 10.8 Inventoried Supply; Forecast Failure........................................... 40 10.9 Supply Failure................................................................. 41 10.10 Special Meeting After Supply Failure........................................... 42 10.11 Use of Product Source after Supply Failure..................................... 42 10.12 Elective Transfer of Manufacture by Gilead..................................... 43 10.13 Continued Supply in Interim Period............................................. 43 10.14 Loss of Second Source.......................................................... 44 10.15 GS7836......................................................................... 44 ARTICLE 11 INTELLECTUAL PROPERTY...................................................... 45 11.1 Ownership of Program Inventions................................................ 45 11.2 Confidentiality of Liposomal Inventions........................................ 45 11.3 License........................................................................ 45 11.4 No License; Covenant........................................................... 46 ARTICLE 12 COVENANTS.................................................................. 46 12.1 Mutual Covenants............................................................... 46 12.2 Gilead Covenants............................................................... 46 ARTICLE 13 INDEMNIFICATION AND INSURANCE.............................................. 47 13.1 OSI Indemnification............................................................ 47 13.2 Gilead Indemnification......................................................... 47 13.3 Procedure...................................................................... 47 13.4 Insurance...................................................................... 48 13.5 Limitation of Liability........................................................ 48 ARTICLE 14 CONFIDENTIALITY............................................................ 49 14.1 Treatment of Confidential Information.......................................... 49 14.2 Authorized Disclosure.......................................................... 49 14.3 Publicity...................................................................... 50 14.4 Return of Confidential Information............................................. 50 ARTICLE 15 TERM AND TERMINATION....................................................... 50 15.1 Term........................................................................... 50 15.2 Termination for Breach......................................................... 50 15.3 Effect of Termination.......................................................... 51 15.4 Survival....................................................................... 51 15.5 Excluded Remedies.............................................................. 52 15.6 Additional Termination Rights.................................................. 52 ARTICLE 16 DISPUTE RESOLUTION......................................................... 52
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PAGE 16.1 Disputes....................................................................... 52 16.2 Governing Law; Judicial Resolution............................................. 53 16.3 Patent and Trademark Dispute Resolution........................................ 53 16.4 Industry Expert Panel Resolution of Certain Issues............................. 53 16.5 Excluded Remedies.............................................................. 54 ARTICLE 17 MISCELLANEOUS.............................................................. 54 17.1 No Representations............................................................. 54 17.2 Knowledge...................................................................... 54 17.3 Governing Law.................................................................. 55 17.4 Venue and Jurisdiction......................................................... 55 17.5 Notices........................................................................ 55 17.6 Assignment..................................................................... 56 17.7 Parties in Interest............................................................ 56 17.8 Severability................................................................... 57 17.9 Entire Agreement............................................................... 57 17.10 Order of Precedence............................................................ 57 17.11 Waiver......................................................................... 57 17.12 Amendments..................................................................... 57 17.13 Counterparts................................................................... 58 17.14 Interpretation of Agreement.................................................... 58 17.15 Maintenance of Records......................................................... 58 17.16 Performance by Affiliates...................................................... 58 17.17 Force Majeure.................................................................. 59 17.18 Further Assurances; Covenant to Cooperate...................................... 59
-iv- MANUFACTURING AGREEMENT This Manufacturing Agreement (the "Manufacturing Agreement") is entered into effective as of December 21, 2001 (the "Closing Date") between OSI PHARMACEUTICALS, INC., a Delaware corporation with its principal offices at 58 South Service Road, Melville, New York, 11747 ("OSI"), and GILEAD SCIENCES, INC., a Delaware corporation with its principal offices at 333 Lakeside Drive, Foster City, California, 94404 ("Gilead"). OSI and Gilead are sometimes referred to herein individually as a "Party" and collectively as the "Parties", and references to "OSI" and "Gilead" shall include their respective Affiliates (as defined below). RECITALS OSI and Gilead are parties to the Asset Purchase Agreement (as defined below), which provides for the purchase by OSI of certain assets from Gilead, and for certain related transactions. Pursuant to the Asset Purchase Agreement and the Ancillary Agreements (as defined in the Asset Purchase Agreement), Gilead is, among other things, transferring, or granting certain rights in, the Products (as defined below, and which are, as of the Closing Date, in or expected soon to enter clinical trials) to OSI on the terms set forth in the Asset Purchase Agreement and the Ancillary Agreements. Gilead currently manufactures the Liposomal Products (as defined below), at least in part, using trade-secret and other proprietary technologies of Gilead not transferred to OSI pursuant to the Asset Purchase Agreement, and manufactures the remaining Product in a non-liposomal formulation, in each case at Gilead's manufacturing facilities in San Dimas, California, on a clinical scale. OSI desires to have the right to obtain supply of the Products from Gilead, on a clinical and, ultimately, on a commercial scale for each Product, and wishes to have the right to require Gilead to scale up to commercial scale the manufacturing process for each of the Products. Gilead and OSI may wish to develop alternative formulations of the Liposomal Products under certain circumstances in connection with the scale-up to commercial scale of the manufacturing processes therefor. While Gilead is willing, on the terms and conditions set forth herein, to continue to perform those aspects of manufacturing Products that involve the application of Gilead's proprietary technologies, the Parties wish for Gilead to transition responsibility for the manufacture of API (as defined below) for the Products to OSI or another entity. The Parties wish to provide for the logistics of their activities with respect to those Regulatory Approval Applications and Regulatory Approvals that relate to the Products. AGREEMENT The Parties, intending to be legally bound, agree as follows: ARTICLE 1 CERTAIN DEFINITIONS Capitalized terms used but not defined herein shall have the meanings given to such terms in the Asset Purchase Agreement. As used herein, the following initially capitalized terms shall have the following meanings: 1.1 "AFFILIATE" shall mean any Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, a Party, where "control", as used in this Section 1.1, means (a) direct or indirect possession of at least fifty percent (50%) of the outstanding voting securities of a corporation or a comparable ownership in any other type of legal entity or (b) that a legal entity or group of legal entities otherwise has the unilateral ability to direct the management of the entity, whether by contract or otherwise. 1.2 "ALTERNATIVE FORMULATION" shall have the meaning given in Section 4.2. 1.3 "ANTICIPATED LAUNCH DATE" shall have the meaning given in Section 5.2. 1.4 "API" shall mean, (i) with respect to GS7904L, the thymidylate synthase inhibitor GW1843; (ii) with respect to GS7836, the compound referred to by Gilead as 4'-thio-ara-C; and (iii) with respect to NX211, lurtotecan. 1.5 "API SOURCE" shall have the meaning given in Section 3.2. 1.6 "ASSET PURCHASE AGREEMENT" shall mean that certain Asset Purchase Agreement between the Parties dated November 26, 2001. 1.7 "BINDING AMOUNT" shall have the meaning given in Section 5.4(b)(ii). 1.8 "CERTIFICATE OF ANALYSIS" shall mean, with respect to an ingredient or filled and finished product, an appropriately signed certificate of analysis stating the identity, strength, quality and purity of such ingredient or filled and finished product. 1.9 "CMC" shall mean the Chemistry, Manufacturing and Controls portion of an IND or NDA. 1.10 "CMC ACTIVITIES" shall mean activities for manufacturing process development, and the development of liposomal formulations of Liposomal Products, including without limitation manufacturing processes, method and process development, analytical methods associated therewith, scale-up, and stability studies of the sort typically included in a CMC. 1.11 "CMC INFORMATION" shall mean data and information regarding the manufacture and/or characterization of any Liposomal Product (or Alternative Formulation) using the API for -2- such Liposomal Product that Gilead regards as confidential or a trade secret and that would not be disclosed in the Certificate of Analysis for such Liposomal Product. 1.12 "CMC ISSUE" shall mean any issue requiring knowledge of CMC Information for informed resolution. 1.13 "COMMERCIAL LAUNCH" shall mean the first commercial sale of a Product to a Third Party. 1.14 "COMMERCIALLY REASONABLE EFFORTS" shall mean, with respect to a manufacturing obligation, the level of efforts required to carry out such obligation in a sustained manner consistent with the efforts a similarly situated biopharmaceutical company would devote to a product of similar market potential, marketed by the manufacturer, based on conditions then prevailing. 1.15 "CONFIDENTIAL INFORMATION" shall mean all Information, and other information and materials, received by either Party from the other Party pursuant to this Manufacturing Agreement, other than that portion of such information or materials that: (a) is publicly disclosed by the disclosing Party, either before or after it becomes known to the receiving Party; (b) was known to the receiving Party, without obligation to keep it confidential, prior to when it was received from the disclosing Party, as shown by written records predating such receipt; (c) is subsequently disclosed to the receiving Party by a Third Party lawfully in possession thereof without obligation to keep it confidential; (d) has been publicly disclosed other than by the disclosing Party and without breach of an obligation of confidentiality with respect thereto; or (e) has been independently developed by the receiving Party without the aid, application or use of Confidential Information, as demonstrated by competent written proof contemporaneous with such development. Gilead's Confidential Information shall be deemed to include any information contained in a DMF for a Liposomal Product and all CMC Information, whether or not disclosed by Gilead to OSI and notwithstanding the fact that Gilead shall not be required hereunder to disclose either of the foregoing to OSI. 1.16 "CONTROL" shall mean possession of the ability to grant a license or sublicense as provided for herein without violating the terms of any agreement or other arrangement with any Third Party. 1.17 "DELIVERY DATE" shall mean the delivery date requested by OSI in a Purchase Order with respect to a given quantity of a Product. -3- 1.18 "DELIVERY FORECAST" shall mean, with respect to a particular time period, the quantity of a Product for which OSI forecasts it will request delivery during such time period. 1.19 ** 1.20 "DMF" shall mean a Type 2 Drug Master File or a filing with a Regulatory Authority outside the United States serving a purpose equivalent to that of a Type 2 Drug Master File in the United States, such that manufacturing information may be filed by a manufacturer in such country in a manner that remains confidential from the holder of the remaining portions of the Regulatory Approval Application or Regulatory Approval for the same pharmaceutical, as applicable. 1.21 "EXISTING FILINGS" shall have the meaning given in Section 8.1(b). 1.22 "FCA" shall mean "Free Carrier," as provided for in the Incoterms 2000 promulgated by the International Chamber of Commerce. 1.23 "FDA" shall mean the United States Food and Drug Administration, or any successor thereto. 1.24 "FTE" shall mean an annualized, full-time equivalent employee or consultant of Gilead. 1.25 "FULLY BURDENED COSTS" shall have the meaning given in Section 9.2(a). 1.26 "GOOD MANUFACTURING PRACTICES," "GMP" and "cGMP" shall mean the respective good manufacturing practices required by relevant Regulatory Authorities for the manufacture and testing of Products in effect at a particular time. 1.27 "GAAP" shall mean generally accepted accounting principles in the United States. 1.28 "GS7904L" shall mean the liposomal formulation of the thymidylate synthase inhibitor GW1843 that is the subject of Clinical Trial Exemption CTX #16807/008/A in the United Kingdom, or such Alternative Formulation of such compound as OSI may select as set forth in Article 4. 1.29 "GS7836" shall mean the formulation of the compound referred to by Gilead as 4'-thio-ara-C that is the subject of Canadian IND Control #072975. 1.30 "IND" shall mean an Investigational New Drug application. 1.31 "INDUSTRY EXPERT" shall have the meaning given in Section 16.4. 1.32 "INFORMATION" shall mean techniques and data specifically relating to the process development, manufacture or characterization of any Product, including, but not limited to, - -------------- ** This portion has been redacted pursuant to a confidential treatment request. -4- inventions, practices, methods, knowledge, know-how, skill, experience, test data (including pharmacological, toxicological and clinical test data, analytical and quality control data), regulatory submissions, correspondence and communications. 1.33 "INVENTIONS" shall mean inventions, discoveries, trade secrets and other know-how, information (including without limitation Information) or developments, together with all intellectual property rights therein (including without limitation Patents claiming any such inventions). 1.34 "LABELING AND PACKAGING SPECIFICATIONS" shall mean such specifications for labeling and packaging of each Product for shipment to OSI as the Development Team for such Product may agree. The Development Team may agree to multiple Labeling and Packaging Specifications for a particular Product for different countries in which OSI will sell such Product. 1.35 "LIPOSOMAL INVENTIONS" shall have the meaning given in Section 11.1(b). 1.36 "LIPOSOMAL PRODUCT" shall mean NX211 or GS7904L. 1.37 "LOT" shall mean a single production run of a Product. 1.38 "MANUFACTURING DEFECT" shall mean, with respect to a specimen of a Product, a failure of that specimen to conform to the Specification for such Product. With respect to a specimen of a Product manufactured using API supplied by OSI to Gilead hereunder, Manufacturing Defects shall exclude any such failure to conform to the relevant specification that results from a failure of the API to conform to the relevant specifications therefor at the time of delivery to Gilead. 1.39 "NDA" shall mean a New Drug Application for Regulatory Approval filed in the United States. 1.40 "NX211" shall mean that liposomal formulation of lurtotecan that is the subject of IND #58,163, or such Alternative Formulation of lurtotecan as the Parties may develop as set forth in Article 4. 1.41 "PATENT" shall mean (i) unexpired letters patent (including inventor's certificates) that have not been held invalid or unenforceable by a court of competent jurisdiction from which no appeal can be taken or has been taken within the required time period, including without limitation any substitution, extension, registration, confirmation, reissue, re-examination, renewal or any like filing thereof, and (ii) pending applications for letters patent, including without limitation any provisional, converted provisional, continued prosecution application, continuation, divisional or continuation-in-part thereof. 1.42 "PERIOD COST" shall have the meaning given in Section 5.3(c). 1.43 "PLANNING FORECAST" shall have the meaning given in Section 5.3(a). 1.44 "PRODUCT" shall mean any of NX211, GS7904L, or GS7836. -5- 1.45 "PRODUCT SOURCE" shall mean a second source manufacturer to which manufacture of a Liposomal Product is transferred or to be transferred as set forth in Article 10. In no event shall Gilead be deemed a Product Source hereunder. 1.46 "PROGRAM INVENTIONS" shall mean Inventions that are made, conceived, reduced to practice, developed, or otherwise generated in whole or in part by either Party or by the Parties jointly in the course of performance under this Manufacturing Agreement. 1.47 "PURCHASE ORDER" shall mean a purchase order from OSI to Gilead hereunder for a quantity of any Product. 1.48 "QA" shall mean quality assurance. 1.49 "QC" shall mean quality control. 1.50 "REGULATORY APPROVAL" shall mean any approvals (including supplements, amendments, pre- and post-approvals and pricing approvals), licenses, registrations or authorizations of any national, supra-national, regional, state or local regulatory agency, department, bureau, commission, council or other governmental entity, necessary for the manufacture, distribution, use or sale of a Product in a regulatory jurisdiction. 1.51 "REGULATORY APPROVAL APPLICATION" shall mean an application for Regulatory Approval or to conduct a clinical trial of a Product in a regulatory jurisdiction. 1.52 "REGULATORY AUTHORITY" shall mean the FDA or any foreign counterpart thereof in a country in which OSI is clinically developing any Product or marketing any Product. 1.53 "REGULATORY REQUIREMENTS" shall mean, with respect to a particular Product, the regulatory requirements applicable to the manufacture, use, advertising, promotion or sale of such Product in any regulatory jurisdiction. 1.54 "REQUIRED" shall have the meaning given in Section 6.5. 1.55 "SINGLE CONFIDANT" shall mean one (1) OSI representative who shall be permitted to be present to observe any discussions between Gilead and the FDA that are specific to Products, provided that such representative has first entered into a confidentiality agreement with Gilead in accordance with Section 8.8. Gilead shall notify OSI in advance of any such meeting at which Gilead reasonably believes that it may disclose CMC Information in the course of any such discussion. 1.56 "SIX-MONTH SUPPLY" shall mean, with respect to the inventory of a Liposomal Product in OSI's possession or control at a given time, a quantity of such Liposomal Product equal to the amount that OSI has forecasted pursuant to Section 5.4(a) to have delivered to it hereunder in the six (6) months calendar months following the date that is six (6) months after the date upon which the Six-month Supply is determined, in the most recent Product Forecast covering such time period. -6- 1.57 "SPECIFICATIONS" shall mean, with respect to each Product in a given regulatory jurisdiction, the specifications for such Product in such regulatory jurisdiction set forth in Appendix A, as it may hereafter be amended from time to time pursuant to Section 6.5. Appendix A contains multiple sets of Specifications, one for each Product. 1.58 "SUPPLY FAILURE" shall have the meaning given in Section 10.9. 1.59 "TERM" shall mean the term of this Manufacturing Agreement, as determined in accordance with Article 15. 1.60 "THIRD PARTY" shall mean an entity other than Gilead, OSI, or an Affiliate of either of them. 1.61 "TRANSFER PRICE" shall have the meaning given in Section 9.2. 1.62 "TRANSFERRED PRODUCT RIGHTS" shall mean those rights under Patents and Information relating to the Products transferred or granted to OSI pursuant to the Asset Purchase Agreement and pursuant to the Ancillary Agreements themselves delivered pursuant to the Asset Purchase Agreement. 1.63 "WORK PLAN AND BUDGET" shall have the meaning given in Section 4.1. ARTICLE 2 GOVERNANCE 2.1 GENERAL. Due to the long-term nature of the supply arrangements contemplated hereunder, and to the ongoing development of certain of the Products and the manufacturing processes therefor, the Parties wish to facilitate regular and efficient communication between themselves regarding their activities and issues relating to the manufacture and supply of Products hereunder. To such end, for each Product, the Parties will establish a Development Team in accordance with this Article 2 to oversee and coordinate the Parties activities hereunder with respect to such Product. 2.2 DEVELOPMENT TEAMS. (a) FORMATION. Within thirty (30) days after the Closing Date, OSI and Gilead shall establish a Development Team for each Product. (b) MEMBERSHIP. OSI and Gilead each shall designate two (2) representatives with appropriate expertise to serve as members of each Development Team. Each Party shall select one (1) person appointed by it to each Development Team to serve as co-chair of such Development Team. Either Party may designate substitutes for its Development Team representatives to participate if one or more of such Party's designated representatives is unable to be present at a meeting. A Party may replace its representatives -7- serving on a Development Team from time to time by written notice to the other Party specifying the prior representative(s) to be replaced and the replacement(s) therefor. Each Development Team will have the power to form working groups with appropriate representation from the Parties and appropriate Third Parties bound by obligations of confidentiality and non-use of information no less stringent than those set forth in Article 14. The co-chairpersons of each Development Team shall be responsible for calling meetings, preparing and circulating an agenda in advance of each meeting, and preparing and issuing minutes of each meeting within thirty (30) days thereafter. (c) MEETINGS. Each Development Team shall hold meetings at such times as it elects to do so, but in no event shall such meetings be held less frequently than once every three (3) months. The Development Team shall meet alternately at (i) OSI's facilities in Melville, New York or Boulder, Colorado, and (ii) Gilead's facilities in San Dimas, California, or at such locations as the Parties may otherwise agree. With the consent of the representatives of each Party serving on a Development Team, other representatives of each Party or of Third Parties involved in the manufacture, development or commercialization of the Products may attend meetings of such Development Team as nonvoting participants. Meetings of the Development Team may be held by audio or video teleconference with the consent of each Party, provided that at least two (2) meetings per year shall be held in person. Each Party shall be responsible for all of its own expenses of participating in the Development Teams. Meetings of a Development Team shall be effective only if at least one (1) Development Team member representing each Party is present or participating. The co-chairpersons within each Development Team will alternate responsibility for preparing minutes of such Development Team's meetings, which minutes will not be finalized until the co-chairperson thereof that did not prepare such minutes reviews and confirms the accuracy of such minutes in writing. (d) DECISION-MAKING. Each Development Team shall operate by consensus. With respect to matters to be discussed by the Development Team, the representatives of each Party shall present a unified position on behalf of such Party. In the absence of consensus of Development Team members with respect to any matter before the Development Team, such matter shall be deemed not to have been approved by the Development Team. Notwithstanding the foregoing, if it is unable to reach consensus as to (i) a matter directly relating to API manufacture by OSI or a Third Party after completion of technology transfer hereunder relating thereto, or (ii) Labeling and Packaging Specifications, the Development Team shall adopt OSI's position on such issue; provided that OSI's position is consistent with Gilead's capabilities, GMP and other applicable laws, rules, regulations and requirements of Regulatory Authorities. (e) SPECIFIC RESPONSIBILITIES. In addition to its overall responsibility for overseeing the Parties' activities with respect to the Product under this Manufacturing Agreement, the Development Team shall in particular: (i) Establish Additional Support Plans and Budgets (as defined in Section 3.3) in accordance with Section 3.3; -8- (ii) Decide on API supply procedures to be used by the Parties in accordance with Section 3.6; (iii) Establish Work Plans and Budgets as provided in this Manufacturing Agreement; (iv) Discuss any Proposed Specification Changes in accordance with Section 6.5; (v) Determine Labeling and Packaging Specifications; (vi) Oversee and coordinate regulatory activities in accordance with Article 8; and (vii) Engage in such other activities as are specifically set forth for the Development Teams elsewhere in this Manufacturing Agreement. (f) LIMITED AUTHORITY. The Development Team shall have only those powers set forth for it herein, and (without limiting the generality of the foregoing) shall not have any power to amend, modify or waive compliance with this Manufacturing Agreement. (g) MEETING AGENDAS. Each Party will disclose to the other Party its final agenda items along with appropriate related Information at least five (5) business days in advance of each meeting of the Development Team. ARTICLE 3 API MATTERS 3.1 CURRENT INVENTORIES. Ownership of the current (as of the Closing Date) inventories of API for each Product (the "API Inventories") is transferring from Gilead to OSI pursuant to the Asset Purchase Agreement. However, physical possession of the API Inventories has remained with Gilead. At OSI's request, Gilead shall transfer the API Inventories or a portion thereof to OSI or a Third Party. Gilead shall use the API Inventories to manufacture the Products in accordance with this Manufacturing Agreement. To the extent requested by OSI, throughout the Term with respect to each Product, Gilead shall maintain inventories of the API for such Product in accordance with its inventory practices for its own products, subject to OSI providing sufficient quantities of the relevant APIs for Gilead to do so once Gilead is, pursuant to Section 3.4, no longer required to manufacture such API. For clarity, Gilead's projected costs to maintain API inventories for finished Product manufacture (i) for clinical supply shall be included in the applicable Work Plans and Budgets covering clinical supply responsibilities, and (ii) for commercial supply shall be included in any calculation of Gilead's projected Fully Burdened Cost to manufacture the relevant Product pursuant to Section 9.2(a). Title and risk of loss -9- relating to all such API inventories shall remain with OSI notwithstanding Gilead's physical possession of such inventories. 3.2 IDENTIFICATION OF MANUFACTURER. As soon as is reasonably practicable after the Closing Date, and in any event no later than one hundred twenty (120) days after such date, OSI shall identify to Gilead the entity to which OSI wishes for Gilead to transfer the manufacturing process for the API of each Product, whether this be OSI, an OSI Affiliate or a Third Party (such entity chosen by OSI for a particular Product, the "API Source" therefor). Notwithstanding the foregoing, within forty-five (45) days after the Closing Date, (i) with respect to GS7836, OSI shall make every reasonable effort to identify the API Source therefor, and (ii) with respect to NX211, shall notify Gilead in writing whether OSI intends to engage either of Gilead's current contract manufacturers for the NX211 API as OSI's API Source therefor. OSI shall specify one (1) API Source per Product, and Gilead shall only be required to perform technology transfer as set forth below to one API Source per API for a Product. 3.3 API TECHNOLOGY TRANSFER. Once an API Source has been identified for a particular API and in consultation with the relevant Development Team, Gilead shall perform technology transfer activities to enable such API Source to manufacture API per Gilead's current process for such manufacture, as well as all process development currently underway and QA or QC technology currently used by Gilead for such API. Pursuant to the Asset Purchase Agreement, Gilead has assigned to OSI the Specified Know-How (as defined in the Asset Purchase Agreement) and has executed and delivered Ancillary Documents pursuant to which certain patents and other intellectual property rights relating to the manufacture of APIs were assigned, licensed and/or sublicensed to OSI. OSI shall grant an appropriate license or sublicense to each API Source as required to permit the API Source to manufacture the relevant API. Gilead's technology transfer activities in accordance with this Section 3.3 shall be at **. Gilead shall not be required to devote more than ** total (i.e. the equivalent of ** over the course of a year, which shall be provided by the efforts of a great number of Gilead people over a shorter period of time, consistent with the following sentence) to technology transfers relating to the manufacturing processes and analytical release testing for the APIs in accordance with this Section 3.3, with any additional FTE time agreed by the Parties being at the expense of OSI pursuant to a Work Plan and Budget. The Parties shall use their commercially reasonable efforts to complete such technology transfer within six (6) months after OSI identifies each API Source, and all such activities will be complete within twelve (12) months after the Closing Date; provided, however, that if OSI reasonably requires additional technology transfer assistance with respect to any API after twelve (12) months after the Closing Date but prior to eighteen (18) months after the Closing Date (the "Additional Support Period"), Gilead shall provide reasonable amounts of such assistance to OSI on a consulting basis pursuant to a written plan and budget approved by the applicable Development Team (an "Additional - -------------- ** This portion has been redacted pursuant to a confidential treatment request. -10- Support Plan and Budget") at **. Any Additional Support Plan and Budget shall be treated as a Work Plan and Budget for all purposes under this Manufacturing Agreement other than with respect to the rate at which Gilead shall charge OSI for any time of Gilead people devoted to performing under an Additional Support Plan and Budget, which rate is as stated in the foregoing sentence. Gilead shall not be required to provide any additional technology transfer support services after the expiration of the Additional Support Period. 3.4 CONTINUING MANUFACTURE BY GILEAD. (a) GS7836. If OSI, despite prioritizing and using commercially reasonable efforts to establish itself or a Third Party as the API Source for GS7836 such that it or such Third Party is capable of manufacturing ** of such API in a manner compliant with GMP, reasonably believes on February 1, 2002 that it will be unable to so establish an API Source prior to March 31, 2002 by the continued application of such efforts, it shall so notify Gilead and Gilead shall manufacture ** of approximately ** of such API pursuant to a Work Plan and Budget agreed by the applicable Development Team. (b) GS7904L. As the API Inventory of the API for GS7904L is currently projected to be sufficient to meet the needs of the clinical program for such Product for up to nine (9) months after the Closing Date, the Parties anticipate that technology transfer to an API Source for such API should be completed prior to the time OSI needs ** of such API to be produced to accommodate its requirements for clinical supply of finished GS7904L. Therefore, the Parties do not currently anticipate it will be necessary for Gilead to manufacture any further batches of the API for GS7904L, and Gilead shall not be required to manufacture any additional quantities of such API hereunder unless the Parties otherwise agree in writing. However, if despite the application of OSI's commercially reasonable efforts to establish an API Source for such API reasonably in advance of the time ** required by OSI has not yet established an API Source therefor, Gilead shall manufacture ** of such API prior to twelve (12) months after the Closing Date pursuant to a Work Plan and Budget agreed by the Development Team. (c) NX211. Gilead has in place relationships with contract manufacturers for the manufacture of the API for NX211, and shall continue to have manufactured such API by such contract manufacturers, and to test and release quantities of such API provided by such contract manufacturers, for a period extending until no later than twelve (12) months after the Closing Date, or such sooner time as technology transfer relating to such API is completed. Gilead will attempt to facilitate OSI's entering into relationships with Gilead's existing suppliers for supply of such API. To the extent OSI pursues such a relationship with either such supplier, then, given that each such supplier is already familiar with the manufacturing process for such API, the Parties' technology transfer responsibilities pursuant to Section 3.3 with respect to such API shall be focused on the transfer of analytical methods for its testing and release. - -------------- ** This portion has been redacted pursuant to a confidential treatment request. -11- 3.5 PROVISION OF APIS FOR MANUFACTURE. Once the activities required by Sections 3.3 and 3.4 are complete, Gilead shall have no further responsibility for the manufacture of, process development for, or QA or QC of the Product APIs. Thereafter, OSI shall be responsible to procure and supply to Gilead quantities of API sufficient for the manufacture of each Product by Gilead for supply to OSI hereunder. 3.6 MECHANICS. The Development Team for each Product shall agree to the specific procedures the Parties will follow to coordinate the supply by OSI to Gilead of quantities of API for each Product and ensure timely supply to Gilead of sufficient quantities of API to timely manufacture and supply finished Products to OSI hereunder. ARTICLE 4 SCALE-UP; OTHER DEVELOPMENT 4.1 SCALE-UP AND PROCESS DEVELOPMENT. Gilead currently manufactures the Products at a clinical scale. Gilead is willing to perform the process development in order to scale-up to commercial scale the manufacturing process for each Product, and any validation or analytical development relating thereto as further specified herein, and has certain such activities underway as of the Closing Date. Within ninety (90) days after the Closing Date, the Development Team for each Product shall meet to begin developing a mutually agreed work plan including an events timeline and an FTE budget for the activities it describes (a "Work Plan and Budget") for the scale-up to commercial scale of the manufacturing process for the relevant Product in its current (as of the Closing Date) formulation. The Development Teams shall work in good faith to develop such Work Plans and Budgets, and Gilead shall agree to devote up to ** per Product per year to such activities. Gilead's budgets for ongoing process development activities that it plans to conduct in the ninety (90) day interim period before the Development Teams meet to set such Work Plans and Budgets are set forth in Appendix D. Because the Parties do not wish to interrupt such ongoing activities, such budgets shall be treated, for purposes of Section 9.6, as Work Plans and Budgets covering time periods prior to the time the Development Teams are able to meet and set Work Plans and Budgets for further development activities as described under this Section 4.1. 4.2 SELECTION OF ALTERNATIVE FORMULATIONS. Gilead has available, as of the Closing Date, alternative liposomal formulations of the APIs for the Liposomal Products (each, an "Alternative Formulation") and in some cases preclinical data regarding the Alternative Formulations (the "Alternative Formulation - -------------- ** This portion has been redacted pursuant to a confidential treatment request. -12- Data"). The Alternative Formulation Data shall exclude any CMC Information regarding any Alternative Formulation. If it is not economically feasible to manufacture a Product at commercial scale using the current (as of the Closing Date) liposomal formulation for such Product, as reasonably determined by the Development Team for such Liposomal Product, then OSI shall have the right to review the Alternative Formulation Data for the Alternative Formulations for such Liposomal Product to determine whether OSI wishes to develop and scale-up to commercial scale an Alternative Formulation in lieu of such Liposomal Product as currently formulated. The Development Team shall review the relevant Alternative Formulation Data, as well as other information relevant to OSI's decision whether it wishes to proceed with an Alternative Formulation. If OSI decides to proceed with an Alternative Formulation, then the Development Team shall establish a Work Plan and Budget for the development and scale-up of the manufacturing process for such Alternative Formulation. Gilead shall agree to devote up to ** per Product for which OSI selects an Alternative Formulation per year to such activities. For clarity and without limiting the definition set forth in Section 1.15, the Alternative Formulation Data shall be deemed to be the Confidential Information of Gilead, and OSI shall not use the Alternative Formulation Data for any purpose other than the development of the relevant Product hereunder. 4.3 CERTAIN ROYALTY OBLIGATIONS. If Gilead reasonably believes that any change in the manufacturing process for a Liposomal Product developed pursuant to Section 4.1, or the selection of an Alternative Formulation for a Product pursuant to Section 4.2, would make the relevant Liposomal Product subject to a royalty payment obligation on sale of such Liposomal Product to OSI hereunder pursuant to the **, then Gilead shall (i) consider whether such change in process or Alternative Formulation is desirable for the Product in a manner consistent with the way Gilead would consider such issue for one of its own products, (ii) notify OSI whether such a royalty obligation would be triggered by making such change in process or selecting such Alternative Formulation, and (iii) make a recommendation to OSI whether Gilead advises adopting such change in process or Alternative Formulation for reasons relating to manufacturing efficiency, quality of Product or other technical reasons. OSI shall promptly thereafter advise Gilead in writing whether OSI wishes to proceed with such change in process or Alternative Formulation. 4.4 OTHER CMC ACTIVITIES. The Development Team for each Product may from time to time discuss other development activities relating to the formulation and manufacturing process for each Product and may agree to Work Plans and Budgets to govern any such additional activities. - -------------- ** This portion has been redacted pursuant to a confidential treatment request. -13- 4.5 PERFORMANCE UNDER WORK PLAN AND BUDGETS. Gilead shall devote the FTEs called for in each Work Plan and Budget agreed by a Development Team to performing the activities set forth therein in a professional manner, and shall seek in so doing to meet the timelines set forth in such Work Plan and Budget. Gilead may devote ** called for under any Work Plan and Budget (whether established pursuant to this Article 4 or in accordance with the other provisions of this Manufacturing Agreement) without approval from the relevant Development Team or OSI. The Parties recognize that the nature of the CMC Activities is such that timing and achievement of particular events is inherently uncertain, and Gilead shall be deemed to be in compliance with a Work Plan and Budget so long as Gilead commits the resources set forth therein to performing the tasks set forth therein. Gilead shall submit quarterly reports of its activities under the Work Plans and Budgets established hereunder at a level of detail to be determined by the Development Teams, which level shall, in any event, be consistent with the level of detail Gilead uses for its internal accounting purposes and with Section 4.6. OSI may engage a Third Party reasonably acceptable to Gilead and bound in writing to Gilead by obligations of confidentiality and non-use equivalent in scope to those set forth in Article 14 to verify Gilead's devotion of the FTE and other resources called for under any Work Plan and Budget at any time within two (2) years after the time period to which such Work Plan and Budget relates. 4.6 CONFIDENTIALITY OF CMC ACTIVITIES. The Parties recognize that CMC Activities involve the application of technology of Gilead protected by Gilead as trade secret information. The Parties intend that Gilead shall not be required to disclose its CMC Information to OSI notwithstanding anything else to the contrary in this Manufacturing Agreement. 4.7 REVERSE ENGINEERING. Except as permitted pursuant to Article 10 with respect to the establishment of a Product Source in accordance with such Article, OSI shall not develop or reproduce (or attempt to do either) the process for manufacturing any finished Liposomal Product using API, or otherwise deduce the CMC Information for any Liposomal Product, and shall not engage a Third Party to do any of the foregoing. 4.8 GS7836. The Parties recognize that the manufacture and formulation of finished GS7836 does not involve the application of Gilead's proprietary liposomal technologies. Therefore, OSI may elect to have a Third Party, rather than Gilead, perform the development activities described in this Article 4 with respect to GS7836. If OSI elects to have a Third Party perform such activities, then the Parties will not enter into Work Plans and Budgets for the same - -------------- ** This portion has been redacted pursuant to a confidential treatment request. -14- activities hereunder. OSI's right to transfer responsibility for manufacturing GS7836 (as opposed to process development) is set forth in Section 10.15. ARTICLE 5 PLANNING; FORECASTS; ORDERS; CAPACITY 5.1 CLINICAL SUPPLY. (a) DEVELOPMENT PLANS. OSI shall share with the Development Team for each Product plans for the clinical development of such Product in sufficient detail to convey OSI's estimated requirements for such Product prior to its Commercial Launch. OSI shall regularly update such plans as OSI revises its clinical programs for Products. Such plans will be used by the Development Team for planning purposes to establish Work Plans and Budgets for the clinical supply of the relevant Product each year. (b) FORECASTS, PURCHASE AND SUPPLY. As part of the Work Plans and Budgets for clinical supply, each Development Team shall monthly establish rolling, ** forecasts of quantities of the relevant Product for supply to OSI for use in clinical trials. Such forecasts shall be stated in a number of Lots of the relevant Product, with each such Lot being of the batch size set forth for such Product in Appendix B (or such other batch size for such Product as the relevant Development Team may subsequently agree). The first ** of each such forecast shall constitute firm orders, and OSI shall place a Purchase Order with Gilead for the amounts forecasted in the first ** of each such rolling forecast in accordance with the relevant Work Plan and Budget. (For clarity, this means that on an ongoing basis when the Development Team makes a monthly update to the rolling forecast for the applicable Product, OSI shall place a Purchase Order for month ** of the updated forecast, the first ** already being covered by previous OSI Purchase Orders). (c) CLINICAL BATCHES. The Parties recognize and agree that, due to the early stage in development of manufacturing processes for products still in preclinical development or in clinical trials, batch failures (meaning a nonconformity of a batch of a particular product to the specifications therefor at any stage in the manufacturing process) may occur in Gilead's manufacture of Products for supply to OSI as clinical supplies hereunder, and that such batch failures are an inherent risk associated with products in this stage of development. If such a batch failure occurs, Gilead shall schedule a new manufacturing run to replace the failed batch as soon as is reasonably practicable and shall not be in breach of this Manufacturing Agreement if it fails to meet the original Delivery Date for the shipment affected by the failed batch. Gilead's Development Costs associated with manufacturing any failed batch shall be paid to Gilead by OSI in the same manner as all other Development Costs (as provided in Section 9.6). After any clinical batch failure, Gilead shall, in consultation with the applicable Development Team, schedule a new production run to replace the failed batch as soon as is reasonably practicable. For ** per year per Product, the Development Team for such Product - -------------- ** This portion has been redacted pursuant to a confidential treatment request. -15- shall not be required to amend the Work Plan and Budget then in effect to specifically allow a production run to manufacture quantities of the Product required to replace the failed **, and Gilead's Development Costs to manufacture ** of such Product to replace the failed ** shall be deemed to have been included in the applicable Work Plan and Budget and paid to Gilead by OSI in accordance with Section 9.6 in addition to any amounts due to Gilead for production of the failed **. If there is more than ** of a Product in a calendar year, then the applicable Development Team shall meet to revise the applicable Work Plan and Budget to accommodate additional production runs as desired by the Parties, and Gilead shall not be required to supply quantities of the relevant Product that were to come from the batch that failed unless the Development Team so amends the applicable Work Plan and Budget. 5.2 PRELAUNCH PLANNING. In order to facilitate the orderly and efficient commencement of the commercial supply of each Product hereunder in relation to the timing of OSI's Commercial Launches of Products, OSI will communicate and consult with Gilead regarding OSI's plans for the timing for Commercial Launch of each Product. No later than ** prior to the anticipated date of Commercial Launch provided in OSI's development and launch plan for each Product (each, an "Anticipated Launch Date"), OSI shall submit to Gilead an initial Delivery Forecast for such Product for the time period beginning on the Anticipated Launch Date for such Product and ending on the ** anniversary of such date, on a monthly basis (the "Initial Forecast" for such Product), which Delivery Forecast shall be based on OSI's good faith estimate of the quantities of such Product of which it would need to receive delivery during such time period. No later than ** prior to the Anticipated Launch Date for such Product, OSI shall submit to Gilead OSI's revised Delivery Forecast covering the period covered by the Initial Forecast and through the end of the calendar year (the "Updated Forecast"). The Updated Forecast shall be treated as a Production Forecast for the ** thereof. Any remaining months of an Updated Forecast shall be for informational purposes, and OSI shall include its good faith projection of its requirements for such months of an Updated Forecast. 5.3 COMMERCIAL PLANNING FORECASTS. (a) On or before August 1 of each year beginning in the year of Commercial Launch for each Product, OSI shall provide to Gilead a separate Delivery Forecast for each Product on a calendar quarterly (or, where reasonably possible, monthly) basis for the ** period beginning on January 1 of the next calendar year (each, a "Planning Forecast"). ** The aggregate Delivery Forecast for a particular Product for the first calendar year of a Planning Forecast may not vary by more than ** from the Delivery Forecast for such Product for such calendar year in the previous Planning Forecast for such Product. Delivery Forecasts for a particular Product for the second calendar year of a Planning Forecast may not vary by more than ** from the Delivery Forecast for such Product for such calendar year in the previous Planning Forecast for such Product, in each case unless otherwise agreed in writing by Gilead. - -------------- ** This portion has been redacted pursuant to a confidential treatment request. -16- (b) Gilead will use each Planning Forecast for facilities, personnel and budget-planning purposes. If, for **, the sum of OSI's Purchase Orders requesting delivery hereunder in a particular calendar year for all Products taken together exceeds the aggregate quantities of Products set forth in OSI's Planning Forecast for such calendar year delivered on or before the August 1 preceding such calendar year by ** or more, then the Parties will discuss in good faith plans for Gilead to arrange for additional capacity for the manufacture of Products hereunder at **. Unless the Parties agree in writing to so expand capacity for the manufacture of Products for supply to OSI, Gilead shall not be required to supply to OSI aggregate quantities of Products in excess of such ** limit. (c) If OSI places Purchase Orders (pursuant to Section 5.5) for less of a particular Product in any calendar year than is set forth in the aggregate quantity forecasted for such calendar year in the final Planning Forecast therefor (i.e. the Planning Forecast for such Product provided no later than August 31 of the preceding calendar year) (such aggregate quantity, the "Minimum" for such calendar year), then Gilead shall use reasonable efforts to re-allocate the unutilized portion of any capacity and any other resources allocated to production of such Product for OSI and to cancel any cancelable obligations related thereto. OSI shall promptly reimburse Gilead for the costs of any such resources (but excluding capacity) that are not re-allocated or obligations that are not canceled, in each case by application of such efforts. As relates to the costs associated with OSI ordering less than the Minimum, if the amount of a particular Product actually ordered by OSI for delivery is less than ** of the Minimum for such Product for such year, then OSI shall bear a "Period Cost" charge equal to those of Gilead's indirect and/or overhead costs associated with manufacturing such Product for OSI that are under-absorbed as a result of OSI ordering less than had been projected at the time the Transfer Price was set. (d) If OSI orders amounts of a given Product in a calendar year in excess of the Delivery Forecast therefor in the final Planning Forecast for such calendar year (i.e. the Planning Forecast for such Product provided no later than August 31 of the preceding calendar year), then Gilead **. 5.4 COMMERCIAL PRODUCTION FORECASTS. (a) No later than the first business day of each calendar month (beginning, for each Product, within ** after the Updated Forecast is due for such Product), OSI shall provide Gilead with written notice of its Delivery Forecast for each Product on a monthly basis for the ** period beginning with the ** after such calendar month ("Production Forecast"). ** Production Forecasts will be stated in numbers of vials of each Product, and each monthly forecast shall be expressed in multiples of a standard production batch size (or Lot) notified OSI by Gilead in writing from time to time and set forth or updated at the times of such notices on Appendix B. Gilead will use Production Forecasts to plan for actual manufacturing runs of Products. - -------------- ** This portion has been redacted pursuant to a confidential treatment request. -17- (b) Delivery Forecasts for a particular Product for each of ** of a Production Forecast may not vary by more than ** from the Delivery Forecast for such Product for such ** when it was ** of a Production Forecast. Delivery Forecasts for a particular Product for each of ** of each Production Forecast may not vary by more than ** from the Delivery Forecast for such Product included in the Production Forecast when such month when it was ** of the Production Forecast. All monthly Delivery Forecasts in a Production Forecast shall be subject to the requirements of Section 5.3(a) for total annual (based upon calendar years) Product orders by OSI. (i) The first ** of each Production Forecast will constitute a minimum firm order and will be accompanied by a Purchase Order as set forth in Section 5.5. The remaining ** of each Production Forecast will constitute a non-binding forecast, subject to the limits of Section 5.4(a) and this Section 5.4(b). (ii) Gilead shall not be obligated to supply in a calendar month a quantity of a Product that is more than ** of the Delivery Forecast for such month in the final Production Forecast therefor made in compliance with this Section 5.4(b) (i.e. the Production Forecast due ** prior to the start of such calendar month), but if requested by OSI shall use reasonable efforts to supply any amounts of a Product in excess of ** of such final Production Forecast. Gilead shall notify OSI in writing promptly after receiving a Purchase Order from OSI whether it is able to fill and accepts the obligation to fill such Purchase Order to the extent exceeding such ** limit (any quantities requested in a Purchase Order that are in excess of such limit, the "Requested Additional Amount" for that Purchase Order). Any Requested Additional Amount that Gilead accepts (in whole or in part) pursuant to this Section 5.4(b) within ** business days after the date of such Purchase Order therefor shall be binding upon Gilead and OSI (together with the automatically binding amounts ordered falling within the ** limit, the "Binding Amount" for such Purchase Order). If Gilead fails to respond within ** business days after the date of a Purchase Order that requests delivery of a Requested Additional Amount that Gilead accepts the obligation to fill all or a portion of the Requested Additional Amount, then the Binding Amount for such Purchase Order shall be the amount that is binding upon the Parties pursuant to such ** limit. 5.5 COMMERCIAL PURCHASE ORDERS. With each Production Forecast, OSI will provide Gilead with a Purchase Order for Products for the first ** of such Production Forecast that states the specific dates on which Gilead should deliver the specific quantities of Products thus ordered. Gilead will use commercially reasonable efforts to fulfill such Purchase Order according to its terms. Any Purchase Orders for Product submitted by or on behalf of OSI shall reference this Manufacturing Agreement and shall be governed exclusively by the terms and conditions of this Manufacturing Agreement. Any term or condition in any Purchase Order, confirmation or other document furnished by OSI or Gilead with respect to Product orders or deliveries that is - -------------- ** This portion has been redacted pursuant to a confidential treatment request. -18- in any way inconsistent with the terms or conditions of this Manufacturing Agreement is hereby expressly rejected. 5.6 DELIVERY. Gilead will supply Product, pursuant to OSI Purchase Orders, within ** after the delivery date specified in the applicable Purchase Order for such shipment, in an amount within ** more or less of the Binding Amount therefor, due to reasonable batch yield variations; provided, however, that if a deviation occurs with respect to any batch of Product, the Development Team shall discuss how to address the deviation and set a new delivery for Gilead to deliver the affected shipment consistent with addressing such deviance in the manner and on the timeline agreed by the Development Team. Gilead shall deliver the affected shipment by the delivery date agreed in such an event by the Development Team. If any deviations remain unresolved for a period of ** days or more, then Gilead shall provide quantities of the relevant Product from an alternative batch of such Product to fill any affected shipments as soon as reasonably practicable. ARTICLE 6 MANUFACTURE; TESTING; QUALITY ASSURANCE AND LABELING RESPONSIBILITIES 6.1 RAW MATERIAL SPECIFICATIONS. Gilead shall use raw materials in the manufacture of Products that conform to the applicable Specifications for the relevant Product. Gilead shall verify such conformance in accordance with the testing standards and procedures specified therein. 6.2 PRODUCTION AND MANUFACTURING STANDARDS. Gilead shall manufacture, test, store and ship each Product supplied to OSI hereunder in a manner that (i) assures that such Product meets the Specifications for such Product upon delivery to OSI or its carrier FCA Gilead's San Dimas facility; (ii) is consistent with Section 12.2 and any Regulatory Approval Application or Regulatory Approval for the Product; and (iii) is in accordance with any other procedures and documents subsequently prepared and agreed to by the Parties in writing in accordance with the terms hereof. 6.3 cGMP COMPLIANCE AND QA AUDITS. Upon written request to Gilead and at reasonable intervals (but in any event no more frequently than once per calendar year), OSI shall have the right to have an Industry Expert (either one that is mutually agreed by the Parties or a single Industry Expert that would be the third Industry Expert if a panel were being established pursuant to Section 16.4) visit Gilead's manufacturing facilities during normal business hours to observe and inspect their - -------------- ** This portion has been redacted pursuant to a confidential treatment request. -19- manufacturing operations and the facilities and procedures used in the manufacture and storage of API and Products to be supplied to OSI hereunder, and to assess their compliance with cGMP, QA standards and other requirements under this Manufacturing Agreement; provided, however, that notwithstanding anything to the contrary in this Section 6.3, OSI's rights pursuant to this Section 6.3 with respect to manufacturing facilities used to manufacture each Product shall specifically exclude the right to observe the following trade secret-related steps in the manufacture of any Liposomal Product using its API: (i) manufacture of intermediates; and (ii) production of bulk Liposomal Product. 6.4 CHANGE IN MANUFACTURING PROCESS PROPOSED BY GILEAD. Following manufacture of the Lots of each Product data regarding which will be included in the DMF filed with the FDA and used to determine such Product's shelf life in accordance with the NDA in the United States, Gilead shall not make any change in the materials, equipment, process or procedures used to manufacture such Product for supply to OSI hereunder that (i) is not explicitly permitted pursuant to the applicable Specifications, and (ii) would constitute a material change under cGMP without OSI's prior written consent, such consent not to be unreasonably withheld. If OSI agrees to allow any such change requiring OSI's approval to be implemented, then the Parties shall revise the relevant Specifications accordingly, if necessary. Gilead shall not change the manufacturing process for any Product in a manner that would require a filing with a Regulatory Authority without OSI's prior written consent, other than pursuant to a Work Plan and Budget in accordance with Article 4. 6.5 CHANGES TO SPECIFICATIONS. (a) The Parties may revise the Specifications for any Product upon mutual written consent (such consent not to be unreasonably withheld), except that, as further described below in this Section 6.5, neither Party may withhold its consent to Required (as defined below) changes to the Specifications. Any changes to the Specifications that are agreed upon or required pursuant to this Section 6.5 shall be effective as of the date mutually agreed upon in writing by the Parties, and all references to the relevant Specifications shall thereafter be deemed to refer to the Specifications as so modified. (b) If either Party (the "Proposing Party") desires to change any Specifications it shall notify the other Party (the "Recipient") in writing of the proposed change (a "Proposed Specification Change"), and the Development Team shall review and discuss such Proposed Specification Change. As soon as reasonably practicable after receiving any such notification, but in any event within thirty (30) days after such receipt, the Recipient shall respond in writing to the Proposing Party whether it agrees to effect the Proposed Specification Change. Any Proposed Specification Change that is required by a Regulatory Authority or law or regulation of any jurisdiction in which OSI is developing and/or marketing the Product affected by the Proposed Specification Change shall be referred to herein as a "Required" change. The Parties shall make each Proposed Specification Change to a set of Specifications that is Required. -20- (c) For each Proposed Specification Change, Gilead shall indicate for informational purposes whether the implementation of such change is expected to result in material additional capital costs or other expenses of manufacturing the Product governed by such Specifications over those which Gilead is then incurring to manufacture or have such Product or API manufactured ("Additional Costs"). For Proposed Specification Changes that are not Required, promptly after Gilead's notice of any Additional Costs, OSI shall indicate in writing whether it continues to wish to implement such Proposed Specification Change. Neither Party shall have any obligation to implement any Proposed Specification Changes unless such Proposed Specification Changes are Required or the Parties (via their participation in the Development Teams) have agreed in writing nonetheless to implement such Proposed Specification Changes (each, an "Implemented Change"). (d) For Additional Costs associated with Implemented Changes, the Parties shall adjust the Transfer Price to reflect such Additional Costs as part of Gilead's Fully Burdened Costs to manufacture the affected Product as of the date the Implemented Change goes into effect, as set forth in Section 9.2(f). 6.6 QUALITY CONTROL SAMPLES AND METHODS. (a) Gilead shall retain samples of bulk drug and finally formulated Product for each Lot of Product for at least a period of one (1) year after the expiration date of Product from such Lot. The sample size shall be twice the size necessary to conduct quality control testing. Upon OSI's written request, Gilead shall provide OSI with up to one-half (1/2) the original amount of the retained samples. (b) In order to facilitate the prompt and efficient generation and exchange between the Parties of quality control data pertaining to Products to be supplied hereunder to OSI, Gilead will, at OSI's request, send to OSI test samples selected according to a sampling plan agreed between Gilead and OSI, before Gilead has finished all of its testing for a particular Lot. (c) To the extent requested by OSI, Gilead shall, pursuant to a Work Plan and Budget agreed by the applicable Development Team, perform technology transfer activities to transfer to an independent, Third Party laboratory the ability to conduct Gilead's validated QC methods for testing the Products for their conformity to the applicable Specifications. Gilead shall grant such Third Party a license under Patents and Information Controlled by Gilead, to perform such activities; provided that such Third Party shall enter into a written agreement with Gilead providing (i) for obligations of confidentiality and non-use of confidential information disclosed by Gilead to such independent laboratory (which shall specifically include information as to the validated methods taught the Third Party by Gilead) that are no less stringent than those set forth in Article 14 and that are perpetual (to reflect the fact that information disclosed to the Third Party will include trade secret information relating to liposomal technology methods), and (ii) for the grant by such Third Party to Gilead of a non-exclusive, perpetual license under all Liposomal Inventions conceived, reduced to practice or otherwise made by such Third Party in the course of its receipt of such technology transfer -21- or practice of such QC methods of Gilead, to practice such Liposomal Inventions in connection with its supply of Products hereunder to OSI, and to develop, make, analyze, use, sell, offer for sale and import products other than Products (such license, the "Grantback"). Such Third Party's agreement with Gilead shall indicate that the Third Party is not permitted to modify the QC methods disclosed to it by Gilead, and that the Grantback is intended not as permission to so modify such methods, but rather to protect the value of Gilead's trade-secret technologies and provide to Gilead freedom to operate in relation to such technologies. 6.7 RECORDS. Gilead shall itself maintain complete and adequate records pertaining to each stage of the manufacture, fill and finish of Products for supply pursuant to this Manufacturing Agreement and the methods and facilities used therefor all in accordance with the applicable regulations of relevant Regulatory Authorities. Gilead shall perform any additional testing desired by OSI beyond that called for in the applicable Specification at OSI's request and expense. 6.8 LOT FAILURE. Gilead agrees to notify OSI within five (5) business days after either (i) the discovery of any Lot failure, or deviation from or variance in manufacturing procedures or standard operating procedures that can reasonably be expected to result in a Lot failure, or (ii) its first knowledge of any confirmed failure of any Lot of Product to meet standards found in the relevant Product's regulatory filings or in the Specifications, and in each case that is reasonably likely to result in Gilead's inability to meet OSI's requested delivery dates for supply of any Product hereunder. 6.9 REWORK OR REPROCESS. Gilead shall conduct any rework or reprocessing activities with respect to Products or components thereof for supply to OSI by utilizing rework or reprocessing procedures, if any, that are both referenced in the applicable Specifications and permitted pursuant to the Regulatory Approval Applications or Regulatory Approvals, as applicable, for such Products. Gilead shall document all rework and reprocessing activities under this Manufacturing Agreement. 6.10 PACKAGING AND LABELING RESPONSIBILITIES. The Parties expect that Gilead will supply Products in filled and finished form, packaged and finally labeled as required for sale, in accordance with the Labeling and Packaging Specifications to be agreed by the Development Teams. The Development Teams may revise the Labeling and Packaging Specifications for their respective Products, once established by mutual written consent; provided that OSI shall not withhold its consent to any such change that is required for Gilead to perform its responsibilities pursuant to Section 12.2. -22- 6.11 IMPORT PERMITS. OSI shall be responsible for obtaining any necessary import permits for Products. 6.12 TESTING AND RELEASE. Gilead shall be responsible for all testing and release of Products hereunder at its San Dimas facility, except as provided in the rest of this Section 6.12. For quantities of Products supplied OSI for use of sale in countries of the European Union (the "EU"), Gilead shall have the right to conduct such portion of the testing and release thereof at its facilities within the EU as is required to be conducted within the EU for such quantities to be used and sold in Europe consistent with European law. Gilead currently has testing and release facilities in Dublin, Ireland and may conduct such testing and release at such Irish facilities, or at such other of its facilities within any country of the EU as it may prefer. For any country other than the United States and those of the EU, which other country requires testing and release of pharmaceuticals to occur within itself in order be sold or used clinically within such country, Gilead shall have the option to conduct the testing and release of quantities of Product bound for such country at a facility of its choosing and reasonably acceptable to OSI within such country. ARTICLE 7 DELIVERY; ACCEPTANCE AND REJECTION 7.1 SHIPPING. Gilead shall ship Products with completed and appropriately signed Certificates of Analysis relating thereto to OSI or OSI's designee identified by OSI in the Purchase Order for such Products. 7.2 SHIPMENTS AND CARRIER. Each shipment of Products will be delivered FCA Gilead's manufacturing and/or release facility (whichever later houses the shipment), to the common carrier specified by OSI in the applicable Purchase Order. OSI shall reimburse to Gilead the full cost of any freight, postage, shipping transportation and insurance charges associated with each shipment of Product as described below in Section 9.4. Gilead shall number each shipment with a vendor lot number that allows the Parties to trace raw materials and/or components used to manufacture such shipment of Product. 7.3 QC SAMPLES; DOCUMENTATION. OSI shall supply Gilead with sufficient quantities of API from each lot of API supplied by OSI to Gilead hereunder, and from time to time also with sufficient amounts of reference standards of API and its intermediates and degradation products, for Gilead to -23- perform appropriate QC testing relating to Products to be supplied hereunder. Gilead shall provide a Certificate of Analysis with each quantity of Product supplied OSI hereunder certifying that such quantity has been properly tested and released. 7.4 SHIPPING INSURANCE AND RISK OF LOSS. Except as provided herein with respect to Products that are non-conforming at the time of delivery FCA to the common carrier designated pursuant to this Manufacturing Agreement, title and risk of loss as to all materials shipped by Gilead pursuant to this Manufacturing Agreement shall pass to OSI when OSI, or OSI's designated carrier, takes possession of Product, consistent with shipment FCA, at the facility from which the shipments are delivered to the carrier. OSI shall arrange for insurance for each shipment of Product in the amounts and manner it desires and shall bear the costs of such insurance. OSI or the carrier for each shipment of Product shall be responsible for clearing such shipment through customs in the country of manufacture and in the country of destination, at OSI's sole expense. 7.5 OUT-OF-SPECIFICATION PRODUCT. (a) On a Product-by-Product basis, OSI may reject any shipment of Product that is (a) not in conformance with the Specifications for that Product, (b) adulterated or misbranded within the meaning of the United States Federal Food, Drug and Cosmetic Act, (c) not prepared in compliance with cGMP or other applicable laws or regulations, or (d) not packaged and shipped in accordance with the requirements of this Manufacturing Agreement, by written notice to Gilead within ** after OSI's (or its designee's) receipt of such shipment; provided, however, that if OSI will not be able to obtain data permitting it to determine whether it accepts or rejects a particular shipment within ** after its receipt thereof despite devoting commercially reasonable efforts to obtaining such data, OSI shall so notify Gilead as promptly as is reasonable practicable after the date OSI receives such shipment, and in any event no later than ** after such date of receipt by OSI, in which case the Development Team shall promptly discuss whether a ** extension of the deadline for OSI to notify Gilead if OSI rejects the shipment is appropriate. The Development Team shall provide its decision as to such matter prior to ** after such date of receipt by OSI. For clarity, the Parties intend that a ** extension may be appropriate in situations where a delay in OSI's receipt of a particular shipment causes a delay in OSI's ability to have a Third Party analyze such shipment, but that under the majority of circumstances, ** after delivery shall be a sufficient period for OSI to notify Gilead of a rejection. Any such notice of rejection shall be accompanied by (i) a report of analysis from the shipment analyzed, (ii) a product sample from the rejected shipment of Product to be used by Gilead in assessing whether Gilead agrees that such rejection was proper, and (iii) a copy of all records pertaining to the test methods employed and results thereof, and data generated with respect to the status (including temperature measurements) of such Product at all times from and after delivery of such Product to the common carrier specified under this Manufacturing Agreement. If no such notice of rejection of non- - -------------- ** This portion has been redacted pursuant to a confidential treatment request. -24- conforming Product is received by Gilead in accordance with the procedure and time-frame described herein, OSI shall be deemed to have accepted such delivery of Product. (b) If OSI provides a notice of rejection of non-conforming Product pursuant to Section 7.5(a), the Parties shall cooperate in good faith to determine whether such rejection is appropriate and Gilead shall use its Commercially Reasonable Efforts to promptly provide OSI with quantities of Product to replace the quantities initially rejected by OSI. (The manner in which the Parties will bear the costs of the rejected quantities is as provided below in this Section 7.5(b) and Section 7.5(c)). Gilead shall have a period of ** to determine whether it believes that such shipment of Product has been reasonably rejected and to notify OSI in writing of its determination. If Gilead disagrees with OSI's determination that such shipment of Product has been reasonably rejected, Gilead shall provide OSI with Gilead's report of analysis for the sample analyzed. In the event of such a disagreement, a sample from such shipment of Product shall be submitted to a mutually acceptable third party independent laboratory for determination of whether such Product has been reasonably rejected in accordance with Section 7.5(a). Such laboratory's determination shall be final, determinative and binding upon the Parties so long as the testing relied upon by such laboratory to make such determination has been performed in accordance with Gilead's validated methods for the relevant Product. The fees and expenses of such laboratory testing shall be borne entirely by the Party against whom such findings are made. If such laboratory determines that such Product has not been reasonably rejected, then such Product shall automatically be deemed to have been accepted by OSI, and OSI will pay the Transfer Price in accordance with Section 9.2 for both the quantities of Product initially rejected by OSI and any replacement quantities provided by Gilead pursuant to this Section 7.5(b). (c) If either (i) Gilead agrees with a determination by OSI that either a shipment of Product has been reasonably rejected, or (ii) a mutually acceptable Third-Party independent laboratory to which a dispute with respect to such determination has been submitted pursuant to Section 7.5 determines that a shipment of Product has been reasonably rejected, Gilead shall, at OSI's election, either use its Commercially Reasonable Efforts to replace, at Gilead's expense, such Product within sixty (60) days after the original delivery date of the rejected or defective Product, to the extent Gilead has not already made such replacement pursuant to Section 7.5(b), or reimburse or credit amounts actually paid by OSI to Gilead therefor. Final disposition (i.e. storage or destruction) of properly rejected or defective Product shall be the responsibility and at the expense of Gilead. (d) Notwithstanding anything express or implied to the contrary in the foregoing provisions of Section 7.5, in no event shall Gilead be liable for any non-conforming Product to the extent the non-conformity is caused by any circumstance, action or omission following the time that Gilead has delivered such Product to the common carrier as specified under this Manufacturing Agreement for delivery to OSI or its designee, and OSI shall be deemed to have accepted any quantities of Product that are defective solely due to such a cause. - -------------- ** This portion has been redacted pursuant to a confidential treatment request. -25- ARTICLE 8 REGULATORY ISSUES 8.1 EXISTING FILINGS. (a) GOALS. To the full extent consistent with the goal of protecting the confidentiality of Gilead's CMC Information contained in currently (as of the Closing Date) existing Regulatory Approval Applications for the Liposomal Products, the Parties intend that Gilead shall transfer sponsorship and ownership of all such Regulatory Approval Applications to OSI. This Section 8.1 sets forth the procedures the Parties shall follow to achieve such goal. (b) INTERIM RIGHTS OF REFERENCE AND PROCEDURES FOR EXISTING FILINGS. Gilead hereby grants OSI a right of reference to each of the Regulatory Approval Applications set forth on Appendix C (the "Existing Filings"), which have been filed prior to the Closing Date. OSI shall have no right to access or inspect, and shall not seek to access or inspect, any such Regulatory Approval Application for a Liposomal Product until and unless Gilead has segregated any CMC Information contained therein into a DMF for the relevant Product in accordance with Section 8.1(d)(i). Gilead shall not be required to take any action with respect to any Existing Filing that would result in the disclosure to OSI of any CMC Information contained in such Existing Filing. No later than thirty (30) days after the Closing Date, Gilead shall notify the FDA and other applicable Regulatory Authorities of, and as soon as is reasonably practicable thereafter take all actions reasonably necessary to effect or evidence, the grant of such rights to OSI. (c) DMF FILING. Promptly after the Closing Date, Gilead shall compile and file a DMF relating to the liposomal formulation aspects of manufacturing Liposomal Products covered by each of the Existing Filings, and shall file each such DMF with the FDA or other relevant Regulatory Authorities as soon as is reasonably practicable thereafter (subject, in the case of filings that must be made with Regulatory Authorities other than the FDA, to Section 8.4). Because the Canadian Existing Filing for GS7836 contains no information relating to liposomal formulation techniques, Gilead will not file a DMF in relation to such Existing Filing unless the Parties otherwise agree in writing. (d) TRANSFER OF REMAINDER OF FILING. (i) With respect to each Existing Filing for a Liposomal Product in a country where it is possible to (i) file a DMF and (ii) delete the information contained therein from the Existing Filing, after Gilead has achieved both of the foregoing, then Gilead shall take all actions, and deliver such documents, as are reasonably necessary to transfer sponsorship of and title in the remaining portion of such Existing Filing to OSI. With respect to the Canadian Existing Filing for GS7836, Gilead shall transfer the entire filing to OSI and shall take all actions, and deliver such documents, as are reasonably necessary to transfer sponsorship of and title in such Existing Filing to OSI. -26- (ii) With respect to Existing Filings for Liposomal Products in countries other than those described in Section 8.1(d)(i), Gilead shall, as soon as is reasonably practicable after the Closing Date and pursuant to Work Plans and Budgets and procedures agreed by the applicable Development Team, disclose to OSI the information contained in such Existing Filing, but not to be included in the DMF relating thereto that Gilead shall file in accordance with Section 8.1(c). Gilead hereby grants to OSI Gilead's entire right, title and interest in and to, and the attendant right to use, any information so disclosed to OSI by Gilead in connection with OSI's filing of Regulatory Approval Applications and Regulatory Approvals for, and other lawful purposes with respect to, the relevant Products, subject to (i) Gilead's right to use such information as may be required by law, rule, regulation or requirement of a Regulatory Authority in connection with the Products, (ii) Gilead's rights to use any such information that relates to general methods and know-how to the extent that it does not primarily relate to any Product, for purposes unrelated to the Products and (iii) any agreements Gilead may have entered into with a Third Party prior to the date hereof relating to such information (such as, for example, a Third Party having helped generate any clinical data contained in such a filing). The Parties intend that OSI shall use such information to file a new Regulatory Approval Application for the relevant Liposomal Product in each such country. For clarity, OSI shall continue to enjoy the right of reference set forth in Section 8.1(b) with respect to the Existing Filings in countries where the Parties intend that OSI shall eventually file a new Regulatory Approval Application omitting the information to be contained in the DMF corresponding thereto to be filed by Gilead in accordance with this Section 8.1. To the extent that any clinical trials covered by an Existing Filing are ongoing (or have commenced) on or prior to the Closing Date, OSI shall be permitted to continue to perform (or have a contract research organization continue to perform) such clinical trials under the relevant Existing Filing. For all clinical trials for Liposomal Products commenced after the Closing Date, OSI shall conduct (or have conducted) such clinical trials under OSI's new Regulatory Approval Application for the relevant Liposomal Product in the relevant regulatory jurisdiction, regardless of whether such trials were originally described in an Existing Filing. 8.2 RIGHTS OF REFERENCE TO DMFs. Gilead hereby grants OSI a right of reference to each DMF that Gilead shall file as required under this Article 8 with respect to the manufacture of any Product. OSI shall have no right to access or inspect, and shall not seek to access or inspect, any DMF filed by or on behalf of Gilead for a Product. Promptly after filing any DMF for a Product hereunder, Gilead shall notify the FDA and other applicable Regulatory Authorities of, and as soon as is reasonably practicable thereafter take all actions reasonably necessary to effect or evidence, the grant of such rights to OSI with respect to such DMF. 8.3 REGULATORY FILINGS CURRENTLY BEING COMPILED. Gilead has been, prior to the Closing Date, in the process of compiling INDs for each of GS7836 and GS7904L. In lieu of compiling such INDs in their entireties, Gilead shall: (i) in consultation with the applicable Development Teams and pursuant to Work Plans and Budgets established by such Development Teams, prepare a separate DMF to correspond to the -27- IND for each such Product and file each such DMF as soon as reasonably practicable; and (ii) disclose to OSI, as soon as is reasonably practicable and pursuant to Work Plans and Budgets and procedures agreed by the relevant Development Teams, all other information (a) not to be contained in the applicable DMF, (b) in Gilead's possession as of the Closing Date, and (c) that Gilead would have included in its own filing of the IND for each such Product had it continued to compile the IND therefor. In addition, with respect to GS7904L, Gilead shall disclose to OSI any information relating to the API for such Product contained in such a DMF that does not constitute a trade secret of Gilead (as determined in Gilead's reasonable discretion). With respect to GS7836, Gilead shall disclose to OSI any manufacturing information that will be contained in the DMF therefor. Gilead hereby grants OSI the right to use any information disclosed by it to OSI pursuant to this Section 8.3 in connection with OSI's filing Regulatory Approval Applications and Regulatory Approvals for the relevant Products. 8.4 ADDITIONAL REGULATORY APPROVAL APPLICATIONS. (a) In countries where it is possible to file a DMF and OSI wishes to file a Regulatory Approval Application for a Liposomal Product, Gilead shall file a DMF for such Liposomal Product pursuant to a Work Plan and Budget agreed by the applicable Development Team, at OSI's expense. OSI shall file all other Regulatory Approval Applications for such Product in such country. (b) In countries where it is not possible to file a DMF and OSI wishes to file a Regulatory Approval Application for a Liposomal Product, the Parties shall make arrangements to protect the confidentiality of Gilead's manufacturing information as set forth in this Section 8.4(b). In each such country, the Parties shall engage a Third Party to serve as an agent of both Parties for purposes of accessing Regulatory Approval Applications and Regulatory Approvals in such country. The Third Party would have the right to access such filings and receive and transmit communications relating thereto to and from the Regulatory Authority in such country. The Third Party would be bound to Gilead by written, perpetual obligations of confidentiality and non-use of all CMC Information equivalent in scope to those set forth in Article 14, and would serve to ensure that OSI could not access the contents of any Regulatory Approval Applications or Regulatory Approvals to the extent containing CMC Information, including without limitation by thoroughly redacting any such information from any correspondence relating to or portions of such a filing before sharing these with OSI. Any expenses associated with the services of such a Third Party shall be borne by OSI. The applicable Development Team may agree to alternative arrangements to protect the confidentiality of the CMC Information in a manner acceptable to Gilead. (c) With respect to GS7836, the applicable Development Team shall determine whether manufacturing information shall be filed as a separate DMF or as a CMC that is part of the main Regulatory Approval Application, and establish Work Plans and Budgets for any Gilead activities conducted in connection with such filings. -28- 8.5 REGULATORY ACTIVITIES. With respect to additional filings reasonably required by OSI for its Regulatory Approval Applications and/or Regulatory Approvals for the Products (including without limitation any updates to a DMF for a Product associated with the preparation of NDAs for the Products) and any record-keeping, audits, inspections and audits required by Regulatory Authorities relating to the manufacture of Products by Gilead hereunder, Gilead shall reasonably cooperate with OSI to provide such support as otherwise consistent with this Manufacturing Agreement pursuant to Work Plans and Budgets established by the relevant Development Teams. 8.6 COMPLIANCE WITH LAW. (a) Gilead shall be responsible to comply with all applicable laws and Regulatory Requirements of the Regulatory Authorities of countries in which OSI is clinically testing or marketing Products, and any other national, supra-national (e.g. the European Commission or the Council of the European Union), state or local regulatory agency, department, bureau, commission, council or other governmental entity relevant anywhere in the countries in which OSI is clinically developing or marketing the Products, regarding the manufacture, shipment, storage, use, and handling of the Products supplied hereunder, and disposal of hazardous waste products relating to Gilead's responsibilities hereunder. Gilead shall give OSI notice, as soon as reasonably practicable, of any impending inspections, both announced and unannounced, by a governmental agency of any facility used for or processes involved in the manufacture of a Product to be supplied to OSI hereunder. OSI shall keep Gilead informed on a prompt and ongoing basis of the standards imposed by Regulatory Authorities, laws and Regulatory Requirements relevant to the manufacture of Products hereunder (and any changes to such standards) by regular reports to the Development Teams. The Development Teams shall discuss and decide the best courses of action in light of such standards. Any changes to the Specification for a Product shall be made in accordance with the procedure set forth in Section 6.5. The increased costs of any mid-year changes in manufacturing processes, testing and release or other procedures performed hereunder by Gilead in relation to the manufacture of Products in order to comply with such standards shall be borne by OSI in accordance with Sections 6.5 and 9.2(f). (b) OSI shall be responsible for its failure to comply with all applicable laws and Regulatory Requirements regarding OSI's testing for release of any Product. OSI shall give Gilead notice, as soon as reasonably practicable, of any impending inspections in relation to any Product, both announced and unannounced, by a governmental agency of any facility used for or processes involved in the testing for release of a Product by OSI. 8.7 RECORDS. Specifically, but without limitation, Gilead shall maintain all records reasonably necessary to support and verify its compliance with this Manufacturing Agreement, the Specifications, laws and all applicable Regulatory Requirements, including all records relating to the manufacture, stability and quality control of all Products. Gilead shall maintain all such -29- records for a period of not less than three (3) years from the expiration date of each Lot of Product to which such records pertain, or such longer period as may be required by law, rule or regulation. 8.8 GOVERNMENTAL INQUIRIES. (a) Gilead shall notify OSI of any issues or other information of which Gilead becomes aware which may affect the regulatory status of any Product, and each Party shall notify the other Party of any issues or other information of which the notifying Party becomes aware which may affect the ability of Gilead to supply Product in accordance with OSI's forecasted requirements. Each Party agrees to notify the other Party by the close of the first full business day at its Facility (as defined in the next sentence) after the day of the notifying Party's first notice of any inquiries, notifications, or inspection activity by any governmental agency in regard to any Product (such period of time after notice or receipt of a given time, "Regulatory Notice Period"). ("Facility" for purposes of this Section 8.8 shall mean a Party's facility at which it receives notice of the relevant inquiry, notification or inspection activity by any governmental agency in regard to any Product.) Each Party shall use commercially reasonable efforts to furnish to the other Party (i) within the Regulatory Notice Period, any report or correspondence issued by the governmental authority in connection with such a visit or inquiry, and (ii) not later than one (1) business day prior to the date to be provided to a governmental authority, copies of any and all responses or explanations relating to items set forth above, in each case purged only of trade secrets or other confidential or proprietary information of Gilead. (b) Gilead shall be required to allow an OSI representative to observe any governmental visits to or inspections of Gilead's manufacturing facility for the Products, which visits and inspections are specific to Products; provided that the Parties would follow appropriate procedures to prevent the OSI representative from gaining access to, the opportunity to observe, or disclosure of any CMC Information, and Gilead would not have to permit the OSI representative to be present to observe any discussion of CMC Information ("Private Discussions"). Notwithstanding the foregoing, OSI may choose a single OSI representative who may be present during all Private Discussions hereunder and shall designate such person by written notice to Gilead as the "Single Confidant," in accordance with the definition thereof. The Single Confidant shall enter into a written agreement with Gilead providing for obligations of confidentiality and non-use of confidential information no less stringent than those contained in Article 14, but in light of the fact that Gilead would be disclosing CMC Information to the Single Confidant, the term of such obligations shall be perpetual. OSI shall guarantee the performance of the Single Confidant under such person's contract with Gilead. 8.9 STABILITY STUDIES. Gilead shall conduct or have conducted stability studies on API and Products for at least one (1) Lot of each Product in filled and finished form from each site where Gilead manufactures such Product, in each case at least one (1) time per year following the first -30- Commercial Launch of a Product by OSI. OSI shall be solely responsible for stability studies relating to API supplied to Gilead by OSI hereunder. Gilead shall conduct or have conducted such appropriate stability studies in accordance with the applicable Specifications, laws and Regulatory Requirements. Gilead shall provide OSI with an annual report of all stability results Gilead has obtained in such stability studies during the year preceding the report. If either Party desires to revise the design or frequency of stability studies, such Party shall so advise the Development Team, which shall be responsible to determine the advisability of implementing such revision. 8.10 TECHNICAL AGREEMENT. No later than ninety (90) days after the Closing Date, the Parties shall prepare a "Technical Agreement" for NX211, and shall prepare a Technical Agreement for each of GS7836 and GS7904L on a schedule to be determined by the Development Teams for such Products. Each such Technical Agreement shall set forth the responsibilities of the Parties with respect to such Product in sufficient detail to satisfy the requirements of Article 12 of Directive 91/356/EEC and any requirements of the FDA. The Parties shall make each such Technical Agreement available for inspection by the Regulatory Authorities as and to the extent they request. Each Technical Agreement shall accurately reflect the Parties' respective responsibilities with respect to the Product to which such Technical Agreement relates, and no Technical Agreement shall alter or vary from the Parties' responsibilities with respect to the Product to which it relates as embodied in this Manufacturing Agreement. Without limitation, each Technical Agreement shall clearly set forth the notification and other procedures the Parties shall follow in relation to any recall, product withdrawal or field correction relating to a quantity of the relevant Product supplied hereunder. ARTICLE 9 PRICE, INVOICING AND COSTS 9.1 COSTS OF CLINICAL SUPPLY. OSI shall pay to Gilead its Development Costs associated with each Work Plan and Budget for the manufacture of quantities of a Product for supply to OSI hereunder, in accordance with Section 9.6. 9.2 PRICE FOR COMMERCIAL SUPPLY. OSI shall pay to Gilead a Transfer Price for each unit supplied for commercial sale (or after the relevant Commercial Launch) of each Product calculated in accordance with this Section 9.2. (a) Annually, on or before August 31 of each year subsequent to calendar year 2001 (beginning, with respect to each Product, in the year prior to the Anticipated Launch Date for such Product), Gilead shall notify OSI of its estimated "Transfer Price" for units of each Product for commercial supply delivered by Gilead to OSI to apply for the following -31- calendar year, **. Such projection shall be based on Gilead's projected Fully Burdened Cost to manufacture (including without limitation testing and release) such Product in the upcoming calendar year. "Fully Burdened Cost" with respect to a Product shall **. (b) No later than October 31 of each calendar year after calendar year 2001 with respect to any Product for which a Transfer Price for commercial supply must be set to apply in the following year, Gilead shall notify OSI in writing of the final Transfer Price in dollars that Gilead proposes for units of each Product for commercial supply delivered in the calendar year following the date of such notice. Gilead's notice as to the final Transfer Prices it proposes shall include a statement of how Gilead has calculated the dollar figures it proposes. Within thirty (30) days after receiving such a notice from Gilead of any final Transfer Price, and with respect to each Product, OSI shall respond in writing as to whether it (i) accepts the Transfer Price proposed by Gilead for quantities of such Product to be delivered in the following calendar year, or (ii) disputes that the Transfer Price proposed by Gilead for such Product fairly reflects the appropriate calculations in accordance with Section 9.2(a). Additionally within such time frame, OSI may request in writing, and Gilead shall reasonably promptly provide, any additional data reasonably required to calculate a Transfer Price. (c) For each Product, if OSI does not dispute the Transfer Price proposed by Gilead, then the figure proposed by Gilead shall be the Transfer Price for such Product for all units of Product manufactured by or for Gilead and/or its Affiliates and delivered to OSI in the calendar year following the date of the Parties' notices pursuant to Section 9.2(b). (d) If OSI disputes an amount proposed by Gilead to be the Transfer Price for any Product, or as the Fully Burdened Cost therefor, then the Development Team for such Product shall discuss the issues for a period of up to twenty (20) days. If, after such discussions by the applicable Development Team, the Parties continue to disagree on such issue, then the Parties shall submit the issue to Gilead's independent auditor reasonably acceptable to OSI (the "Independent Accounting Firm"). The Independent Accounting Firm, using personnel other than those who perform regular accounting services for Gilead, shall calculate the disputed value in accordance with the basis specified in Section 9.2(a) based on no more than fifty (50) pages of written documentation from each Party. The Parties shall use their commercially reasonable efforts to cause the Independent Accounting Firm to render its calculation of the disputed value to the Parties within twenty (20) business days of the date the Parties submit such calculation to the Independent Accounting Firm. As relates to the disputed Transfer Price, neither Party shall initiate ex parte communications with the Independent Accounting Firm, but either Party may respond ex parte to any inquiry of the Independent Accounting Firm to the full extent requested by the Independent Accounting Firm. The Parties shall bear equally the costs of employing the Independent Accounting Firm for the purposes described in this Section 9.2(d). The Independent Accounting Firm's calculation of the disputed value shall be binding upon the Parties absent fraud. - -------------- ** This portion has been redacted pursuant to a confidential treatment request. -32- (e) If there is more than one Specification for a Product (because OSI markets such Product in more than one country), then to the extent that the Fully Burdened Costs associated with manufacturing such Product to each of the different Specifications materially differ from one another, the Parties shall determine a separate Transfer Price for commercial supply of such Product manufactured to each Specification. (f) For any Implemented Change to apply during any calendar year after the time the Transfer Price for the affected Product for such calendar year has been set, then prior to Gilead manufacturing such Product in accordance with the Implemented Change, the Parties shall set a new Transfer Price for such Product that takes into account any difference in Gilead's Fully Burdened Cost to manufacture such Product in accordance with such Implemented Change. The new Transfer Price shall be **. For clarity, to the extent that any Implemented Change hereunder is part of a larger change at Gilead's manufacturing facility that affects Gilead's manufacture of products other than Products, then the total costs of the overall change shall be allocated (for purposes of determining Fully Burdened Costs under this Manufacturing Agreement) across all affected products in a consistent manner. 9.3 PRICING DISCUSSION. At any time after twenty-four (24) months after the date of actual Commercial Launch for any Product (at which time the Parties will have greater experience with the manufacture of such Product at commercial scale and OSI's demand for the Product), OSI may request to negotiate with Gilead in good faith alternative pricing arrangements to replace those of Section 9.2 with respect to such Product. In such event, the Parties shall negotiate in good faith for a period of not less than three (3) months to seek to arrive at alternative pricing arrangements for such Product in light of their greater experience with it. If the Parties reach agreement, then they shall set forth their agreement in writing with specificity as to revised pricing terms with respect to such Product. If the Parties do not reach agreement, then the pricing with respect to such Product shall remain as set forth in this Manufacturing Agreement. Gilead shall not be required to agree to a revision to the pricing terms set forth in this Manufacturing Agreement as of the date hereof. Additionally, after the time referenced in the first sentence of this Section 9.3, if Gilead's Fully Burdened Costs to manufacture a particular Product decrease substantially between years other than due to differences in the volume of such Product ordered by OSI in the different years, then **, and the Parties shall agree to such a mechanism within three (3) months after a written notice from either Party that it wishes to commence such good faith negotiations. 9.4 PRODUCT INVOICES. Gilead shall invoice OSI at the time of delivery of each shipment of Products for commercial supply hereunder for the following amounts: - ---------- ** This portion has been redacted pursuant to a confidential treatment request. -33- (a) For each Product, the applicable Transfer Price multiplied by the number of units of such Product supplied as part of such shipment; and (b) The cost of any freight, postage, shipping, transportation and insurance charges associated with the delivery of Products to the extent actually incurred by Gilead. OSI shall pay such amounts within thirty (30) days after the date of the relevant invoice. 9.5 FAILURE TO ORDER MINIMUM. Gilead shall invoice OSI within ninety (90) days after the occurrence of an event under Section 5.3(c) giving rise to Gilead's right to be reimbursed for Period Costs pursuant to such Section. OSI shall pay each such invoice within thirty (30) days after the date thereof. 9.6 DEVELOPMENT COSTS. (a) Gilead shall invoice OSI quarterly in advance for all Development Costs budgeted pursuant to all Work Plans and Budgets hereunder for the upcoming calendar quarter (including without limitation those called for in Article 4, in Section 5.1, Article 8, or in Article 10). The amount of each such invoice shall be payable within thirty (30) days after the invoice date. Promptly after OSI's written request no earlier than thirty (30) days after the end of any calendar quarter, Gilead shall provide OSI with a statement of Development Costs for completed calendar quarters in the then-current calendar year. To the extent Gilead's actual Development Costs in any calendar quarter differ from the amount invoiced to and paid by OSI, the Parties shall reconcile such difference within thirty (30) days after the end of the calendar year containing such calendar quarter. (b) Gilead shall invoice OSI for all amounts due to Gilead pursuant to any Additional Support Plan and Budget (as defined in Section 3.3) in the same manner as Gilead invoices OSI for amounts due pursuant to Work Plans and Budgets, and such amounts shall be payable on the same timeline and in the same manner as is set forth with respect to Work Plans and Budgets as set forth in Section 9.6(a). 9.7 COST OF RECALLS, PRODUCT WITHDRAWALS OR FIELD CORRECTIONS. OSI shall have the right to control all recalls, product withdrawals and field corrections for Products and shall bear all costs associated therewith; provided, however, that Gilead shall bear the reasonable, actual expenses of any such procedure with respect to a Product to the extent required due to a Manufacturing Defect present at the time of delivery of the affected quantity of Product FCA to OSI or its carrier, including without limitation a credit to OSI for the Transfer Price paid to Gilead for quantities of Product in which a Manufacturing Defect was present at the time of such delivery FCA, provided in each case that OSI has brought such Manufacturing Defect to Gilead's attention within the time period for rejection set forth in Section 7.5. The notification and other procedures the Parties shall follow with respect to the recall of any quantity of a Product supplied hereunder shall be set forth in the Technical Agreements for each Product, as required by Section 8.10. -34- 9.8 THIRD-PARTY ROYALTIES. If Gilead is obligated to pay to any Third Party royalties in respect of its sales of any Product hereunder to OSI, then **. The Parties acknowledge that there are **. 9.9 CURRENCY. All payments required hereunder shall be made in United States dollars. 9.10 LATE PAYMENTS. Any amounts owed but not paid by OSI when due under this Manufacturing Agreement shall be subject to interest from and including the date payment is due through and including the date upon which OSI has made a wire transfer of immediately available funds into an account designated by Gilead at an annual rate equal to the sum of ** of interest quoted in the Money Rates section of the on-line edition of the Wall Street Journal (at http://www.interactive.wsj.com) calculated daily on the basis of a 365-day year, or similar reputable data source, or, if lower, the highest rate permitted under applicable law. 9.11 TAXES. OSI shall pay all governmental charges, import and export compliance fees, value added taxes, sales and consumption taxes, customs, duties and other taxes imposed by any governmental taxing authority in connection with the supply by Gilead of Products to OSI hereunder. 9.12 FINANCIAL AUDITS. Gilead shall keep or cause to be kept records relating to its Development Costs for each year for each Product, and other amounts due Gilead pursuant to this Manufacturing Agreement, in a manner consistent with GAAP and sufficient to allow an independent auditor to verify such amounts, for a period of three (3) years after the time period to which such records relate. OSI shall be entitled to have an independent auditor bound by written obligations of confidentiality and non-use equivalent in scope to those set forth in Article 14 audit such records no more frequently than once per year. **. ARTICLE 10 MANUFACTURING RIGHTS 10.1 LICENSE TO GILEAD. OSI hereby grants Gilead a non-exclusive, royalty-free license under all Transferred Product Rights (and other proprietary or intellectual property rights OSI may - ---------- ** This portion has been redacted pursuant to a confidential treatment request. -35- develop or acquire relating to the Products) as necessary and solely to manufacture (i) the API for each Product during the time period set forth in Section 3.4, and (ii) each Product, in both cases for supply to OSI hereunder. 10.2 SECOND SOURCE FOR LIPOSOMAL PRODUCTS. The Parties intend that OSI shall have the right to qualify a second source manufacturer for each Liposomal Product at OSI's expense and in accordance with this Article 10. Recognizing that technology transfer of the manufacturing process for each Liposomal Product to a second source will only be effective if conducted at a time when such process has been fully scaled up and validated at commercial scale, the Development Team for each Liposomal Product shall discuss on an ongoing basis an appropriate time to conduct such technology transfer relating to such Liposomal Product. The Development Team shall determine when to commence technology transfer to a Product Source for each Liposomal Product, and in any event shall agree to commence such technology transfer no earlier than the completion of process validation at commercial scale for the manufacturing process for such Liposomal Product. The Parties' goal and intent is to identify a Product Source (in the manner set forth in Section 10.4) for each Liposomal Product in advance of the time an NDA or NDA equivalent outside the United States is filed for such Liposomal Product in order that such Product Source may be named in such NDA (or equivalent) when it is filed. The applicable Development Teams shall discuss on an ongoing basis as the Liposomal Products proceed through development how best to achieve such goals. 10.3 USE OF PRODUCT SOURCE. OSI shall be entitled to have manufactured by a Product Source (once established), and the Product Sources shall be entitled to manufacture, quantities of the relevant Liposomal Products solely as follows: (a) In quantities sufficient to and used solely for the purpose of validating the Product Source in accordance with Section 10.5; (b) In quantities needed to re-establish a ** under the circumstances set forth and in accordance with Section 10.8(d); and (c) If a Supply Failure occurs with respect to any Liposomal Product, in quantities as set forth in Section 10.11. 10.4 SELECTION OF PRODUCT SOURCE. (a) At a time consistent with the timeline set by the Development Team for technology transfer of the manufacturing process for each Liposomal Product, OSI shall identify the Third Party it desires to have manufacture that Product for Gilead's approval, such approval not to be unreasonably withheld. For clarity, it shall be reasonable for Gilead to - ---------- ** This portion has been redacted pursuant to a confidential treatment request. -36- withhold its consent if the party that OSI proposes to be the Product Source competes with Gilead in the field of proprietary liposomal formulation technologies; provided that any disagreement between the Parties as to whether to use a particular Third Party as a Product Source shall be resolved as set forth in Section 10.4(c) in light of Section 10.4(b). In furtherance of the Parties' ability to timely agree as to a Product Source, Gilead may from time to time provide OSI with lists of Third Parties that Gilead views as its competitors in the field of proprietary liposomal formulation technologies. OSI may from time to time provide Gilead with a current list of Third Parties that OSI views as acceptable Product Sources. The Parties may otherwise jointly develop lists of Third Parties that would be acceptable to each Party to serve as a Product Source. Such lists provided by either Party or developed by the Parties shall be for informational purposes and shall not be binding upon either Party. (b) The Parties intend that OSI shall be entitled to establish and maintain a Product Source, and that at the same time Gilead's liposomal trade secrets shall be adequately protected. The Parties do not intend that Gilead's right to reasonably approve the identity of the Product Source as provided in Section 10.4(a) shall deprive OSI of its right to establish a Product Source as set forth herein. Rather, the Parties intend that Gilead's approval right shall be exercised by Gilead in a reasonable manner to ensure that its liposomal trade secrets are protected from being taught to Gilead's competitors in the field of liposomal products and liposomal manufacturing or otherwise exposed to the risk of being unduly devalued due to the identity of the Product Source, but not due to the mere fact that there is a Product Source at all. (c) If the Parties are unable to agree as to a Product Source for any Liposomal Product, then they shall engage a panel of Industry Experts in accordance with the procedures set forth in Section 16.4 to select an appropriate Product Source from a list of Third Parties proposed by the Parties. The Industry Experts shall be guided in their selection of a Product Source by the statements of the Parties' intent as set forth in Section 10.4(b). The Industry Experts shall give due consideration to the legitimate and reasonable interests of each Party, and the lists provided by Gilead from time to time in accordance with Section 10.4(a). 10.5 TECHNOLOGY TRANSFER. Promptly after the Parties agree in writing as to a Product Source for a particular Liposomal Product and such Product Source executes a written agreement with Gilead consistent with Sections 10.6 and 10.7, Gilead shall commence technology transfer of its manufacturing process for the relevant Liposomal Product to such Product Source by written disclosure and permitting representatives of the Product Source to observe Gilead's then-current process to manufacture the relevant Liposomal Product pursuant to Work Plans and Budgets to be agreed by the applicable Development Teams. OSI shall bear the expenses of the Product Sources to receive and participate in such technology transfer. The applicable Development Teams shall determine the procedures that the Parties shall follow to achieve qualification and validation (once the process for the manufacture for each Liposomal Product has been fully scaled up to and validated at commercial scale by Gilead) of the Product Sources such that quantities of the Liposomal Product respectively manufactured by each Product -37- Source may be sold commercially (or used in clinical trials) in accordance with applicable laws and regulations, and to maintain such qualification, together with associated Work Plans and Budgets to cover Gilead's participation in such activities. 10.6 MAINTENANCE OF PROCESS CONFIDENTIALITY. The Product Source to which Gilead transfers manufacture of any Liposomal Product shall enter into and be bound by a written agreement with Gilead providing for obligations to Gilead of confidentiality and non-use equivalent in scope to those set forth in Article 14 and which shall be subject to Section 10.14. Because Gilead would be disclosing valuable trade-secret liposomal manufacturing or sterile freeze-drying information to the Product Source, such obligation would be perpetual, notwithstanding the shorter time period set forth in Article 14 with respect to OSI's confidentiality and non-use obligations. In particular, the Product Source shall not be permitted to disclose Information disclosed to it by Gilead to OSI, and OSI shall not be permitted to access nor shall it seek to access Information from any Product Source that it would not be entitled to require Gilead to disclose to OSI pursuant to this Manufacturing Agreement. 10.7 LICENSE TO PRODUCT SOURCE. Gilead hereby agrees to grant to each Product Source to which a manufacturing process is transferred in accordance with this Article 10 a non-exclusive license under all Patents and Information Controlled by Gilead as of the date such Product Source is established, as necessary for the Product Source to manufacture the relevant Product solely for supply to OSI to the extent permitted pursuant to Section 10.3. To the extent that Gilead does not Control rights under Patents and Information granted it pursuant to the ** (as defined in Section 4.3) and covering a Product Source's manufacture or sale of the relevant Liposomal Product, then Gilead shall use commercially reasonable efforts to obtain from the other parties to the ** consent to grant the Product Source a sublicense for the purpose of manufacturing the relevant Product for supply to OSI, in advance of the time such Product Source is expected to commence the manufacture of commercial quantities of such Liposomal Product in a manner permitted hereunder; provided that if Gilead is unable to obtain such consent, the Parties shall use their commercially reasonable efforts to permit OSI to enjoy the benefit of having such Product Source manufacture the relevant Liposomal Product for OSI without the need for such a sublicense. Each Product Source shall, in its written agreement with Gilead pursuant to Section 10.6, explicitly covenant (i) not to exceed the scope of such license; and (ii) to use the subject matter claimed by such Patents, and such Information, solely for the purpose of supplying Products to OSI and for no other purpose. OSI shall use its best efforts to procure that each Product Source shall, in its written agreement with Gilead, grant to Gilead a non-exclusive, sublicenseable license, under all Liposomal Inventions conceived or reduced to practice by such Product Source in the course of its exercise of the license granted to it by Gilead ("Product Source Liposomal Inventions"), to develop, make, use, sell, offer for sale and import products other than Products (a "Product Source License"); provided, however, - ---------- ** This portion has been redacted pursuant to a confidential treatment request. -38- that if despite OSI's application of such efforts, a Product Source does not agree to grant such license, then such Product Source shall (in its written agreement with Gilead): (i) agree not to disclose any of its Product Source Liposomal Inventions to Gilead (and OSI shall not disclose any such Product Source Liposomal Inventions to Gilead), and (ii) grant Gilead a license under any such Liposomal Inventions actually disclosed by the Product Source (or OSI) to Gilead, that is equivalent in scope to the Product Source License. 10.8 INVENTORIED SUPPLY; FORECAST FAILURE. (a) The Parties recognize that, beginning prior to and continuing through the ** after Commercial Launch of each Liposomal Product, OSI will need to build up over time an inventory of such Liposomal Product. The level that OSI will need to establish will be a **. Beginning in the year prior to Commercial Launch of each Liposomal Product, the Parties shall discuss via their participation in the Development Team how best to achieve OSI's inventorying of a ** by no later than the first anniversary of the date of Commercial Launch of such Liposomal Product. Gilead shall reasonably cooperate with OSI to arrange to manufacture sufficient quantities of such Liposomal Product. (b) OSI will place its Initial Forecast and Updated Forecast in good faith with the goal of making both such forecasts include at least sufficient quantities of the relevant Liposomal Product to meet the market demand that OSI wishes to meet therefor in the ** following Commercial Launch and to enable OSI to inventory the ** that OSI shall build up during such **. (c) At all times after OSI has first established a ** of a given Liposomal Product, OSI shall maintain a ** of such Liposomal Product and shall place its forecasts and orders hereunder in good faith with the intent of obtaining sufficient supply from Gilead to meet OSI's requirements for sales of such Liposomal Product while maintaining a **. (d) If despite OSI's efforts in good faith pursuant to Section 10.8(c), in fact, OSI sells to Third Parties in arms' length transactions quantities of the relevant Liposomal Product sufficient that OSI, at the end of any calendar quarter, does not have on hand a **, then OSI shall include in its next Purchase Order with Gilead hereunder an order for a sufficient quantity of such Liposomal Product to replenish the Six-month Supply, and shall indicate in such Purchase Order what portion of the requested quantities is required to replenish the **. Gilead's responsibilities to attempt to fill amounts requested in a Purchase Order for delivery in any month beyond the limits imposed by the applicable Purchase Order are as set forth in Section 5.4(b)(ii). To the extent that Gilead does not elect to fill the amounts beyond such limits within the time period specified in such Section for Gilead to so elect, then OSI shall be entitled to obtain such amounts from the relevant Product Source; provided, however, that if OSI does elect to have any such quantities filled by the Product Source more than one (1) time in a given calendar year, then Gilead shall be entitled at any time thereafter by six (6) months written notice to OSI elect to cease to manufacture entirely such Liposomal - ---------- ** This portion has been redacted pursuant to a confidential treatment request. -39- Product for OSI and terminate this Manufacturing Agreement with respect to such Liposomal Product. In such event, Gilead shall continue to supply OSI with quantities of such Liposomal Product already covered by Purchase Orders placed in accordance with Section 5.5 prior to Gilead's notice that it elects to terminate this Manufacturing Agreement with respect to such Liposomal Product. 10.9 SUPPLY FAILURE. (a) Beginning ** prior to Commercial Launch of a given Liposomal Product, if at any time Gilead fails to deliver to OSI or its designee an amount of such Liposomal Product conforming to the applicable Specifications and Regulatory Requirements and laws greater than or equal to ** of the aggregate Binding Amounts of such Liposomal Product due in any two (2) consecutive calendar quarters (other than by reason of a force majeure event in accordance with Section 17.17), then a "Supply Failure" shall have occurred for such Liposomal Product. In such event, OSI may notify Gilead in writing of such Supply Failure, and request in such notice a special meeting of the Development Team for the relevant Liposomal Product (a "Special Meeting"). Such Special Meeting shall occur no later than sixty (60) days after the date of such written notification by OSI. Gilead shall provide to OSI a written, remedial plan detailing its plans to address any problems or issues contributing to the Supply Failure (a "Remedial Supply Plan") at least five (5) business days in advance of such Special Meeting. (b) If the approved shelf life for any Liposomal Product is less than **, then the Parties shall negotiate in good faith a reasonable adjustment to the time period and/or percentage of Binding Amount set forth in Section 10.9(a) with respect to such Liposomal Product. (c) For purposes of calculating whether a Supply Failure has occurred, no units of any Liposomal Product shall be deemed not to have been delivered until the date that is specified in Section 5.6 for such unit, and in the case of shipments affected by deviations, the date agreed by the Development Team in accordance with its plan to address the deviations. 10.10 SPECIAL MEETING AFTER SUPPLY FAILURE. At the Special Meeting, the Development Team will discuss the Remedial Supply Plan, any problems or issues contributing to the Supply Failure and whether the Remedial Supply Plan describes actions sufficient to ensure the continuous supply of the relevant Liposomal Product to OSI from that point forward. After such Special Meeting, if Gilead's Remedial Supply Plan is not so sufficient, or the Parties do not agree to an alternate plan describing actions that are so sufficient, then OSI may elect to have manufactured and supplied to it such Liposomal Product at and by the Product Source therefor in a quantity in accordance with Section 10.11; provided, that if the Parties disagree as to whether Gilead's Remedial Supply Plan (as Gilead may update it in writing in accordance with the Development Team's discussions within five (5) business days after the date of the Special Meeting) is so sufficient, then the Parties shall refer the issue of whether such plan is sufficient to ensure the -40- continuous supply of the relevant Product to OSI from that point forward to a panel of Industry Experts for resolution pursuant to Section 16.4. 10.11 USE OF PRODUCT SOURCE AFTER SUPPLY FAILURE. If OSI is entitled pursuant to Section 10.10 to obtain a supply of Liposomal Product with respect to which a Supply Failure has occurred from the Product Source therefor, then the Parties expect that OSI may wish to obtain a portion of its requirements of the affected Liposomal Product from a Product Source rather than from Gilead, and OSI shall be entitled to obtain an unlimited proportion of its requirements from a Product Source; provided, however, that if OSI purchases less than ** of the quantities of Liposomal Product of which it takes delivery in any calendar quarter from Gilead, then Gilead shall be entitled at any time thereafter by ** written notice to OSI to elect to cease to manufacture entirely such Liposomal Product for OSI and terminate this Manufacturing Agreement with respect to such Liposomal Product. In such event, Gilead shall continue to supply OSI with quantities of such Liposomal Product already covered by Purchase Orders placed in accordance with Section 5.5 prior to Gilead's notice that it elects to terminate this Manufacturing Agreement with respect to such Liposomal Product. 10.12 ELECTIVE TRANSFER OF MANUFACTURE BY GILEAD. At any time after the fifth anniversary of the Closing Date, Gilead may elect by three (3) months written notice to OSI to cease to manufacture any Product; provided that a Product Source has been validated in accordance with Section 10.5 or this Section 10.12 for such Product. If at the time of Gilead's notice to OSI that Gilead elects to so cease manufacture, then Gilead may require that OSI establish a Third Party reasonably acceptable to each Party (or selected in accordance with Section 10.4) to be the Product Source for such Product. In such event, technology transfer of the manufacturing process for the relevant Product shall proceed mutatis mutandis as set forth in Sections 10.5 for transfers to Product Sources as required by OSI, and the provisions of Sections 10.6 and 10.7 shall apply. 10.13 CONTINUED SUPPLY IN INTERIM PERIOD. If Gilead elects to transfer manufacture of a Product to a Product Source that must be established in accordance with Section 10.12, then Gilead shall continue to supply OSI with quantities of such Product until such time as quantities of such Product produced by the Product Source can legally be sold or used in clinical trials in the jurisdictions in which OSI sold such Product or used such Product in clinical trials at the time of Gilead's election to cease to manufacture such Product (the "Enablement Date"). Such continued supply shall be on the financial terms set forth in Article 9; provided, however, that if the term of such continued supply extends beyond the one (1) year anniversary of the date of Gilead's notice pursuant to Section 10.12, then the Transfer Price as calculated pursuant to Section 9.2 with - ---------- ** This portion has been redacted pursuant to a confidential treatment request. -41- respect to the relevant Product shall be increased by ** of such Transfer Price for units of such Product to be delivered between such anniversary and the next anniversary of such date, and the Transfer Price calculated to apply in subsequent years bounded by such anniversaries shall be increased by an additional ** as of each subsequent such anniversary (i.e., the Transfer Price calculated pursuant to Section 9.2 shall be increased by ** for Product in the second such year, by ** for Product supplied in the third such year, by ** for Product supplied in the fourth such year, etc.). After the Enablement Date, Gilead shall have no further obligation to OSI to manufacture and supply such Product to OSI. 10.14 LOSS OF SECOND SOURCE. (a) If any Product Source, once established as permitted under this Manufacturing Agreement, ceases the manufacture of the relevant Product for any reason (a "Defunct Product Source"), then OSI shall have the right to establish a new Product Source to replace the Defunct Product Source (any Product Source replacing either a Defunct Product Source or--pursuant to Section 10.14(b)--Gilead as the manufacturer of any Liposomal Product, a "Replacement Product Source"). Such new Replacement Product Source shall be selected and established in accordance with Sections 10.4 and 10.5, respectively, and Sections 10.6 and 10.7 shall apply to such Replacement Product Source and the Parties' activities in relation thereto. Sections 10.3, 10.8 and 10.11 shall apply to OSI's use of quantities of a Liposomal Product produced by any Replacement Product Source established to replace a Defunct Product Source, unless Gilead is replaced as a manufacturer in accordance with Section 10.14(b). (b) If Gilead elects pursuant to Section 10.8, 10.11 or 10.12 to terminate this Manufacturing Agreement with respect to any Liposomal Product, then OSI shall have the right to establish a Replacement Product Source for such Liposomal Product. Such Replacement Product Source shall be selected in accordance with Section 10.4. OSI shall require its then-existing Product Source for such Liposomal Product to perform technology transfer to such Replacement Product Source in accordance with Section 10.5 as if the then-current Product Source were Gilead, and the applicable Development Team shall discuss any issues arising in relation thereto. OSI shall solely bear all expenses of technology transfer to a Replacement Product Source hereunder. Section 10.6 shall apply to the Replacement Product Source that has received technology transfer to manufacture a given Liposomal Product from the first Product Source therefor as if such Replacement Product Source had received such transfer from Gilead. Section 10.7 shall apply to each Replacement Product Source for a Liposomal Product and the Parties' activities in relation thereto as it does for other Product Sources. 10.15 GS7836. The manufacture of finished GS7836 does not involve the application of Gilead's proprietary liposomal technologies. Therefore, OSI shall have the right, subject to - ---------- ** This portion has been redacted pursuant to a confidential treatment request. -42- the reasonable notice procedures contained herein, to elect to obtain supply of GS7836 from a manufacturer other than Gilead and terminate its supply relationship with Gilead hereunder for GS7836. OSI may elect to do so at any time by three (3) months written notice to Gilead, subject to Gilead's obligation to fulfil any Product Orders at that time in effect and OSI's obligation to purchase quantities ordered pursuant to such Purchase Orders, and the provisions of Section 5.3(c) relating to orders required for any time period for which a final Planning Forecast has already been provided. In such event, technology transfer of the manufacturing process for GS7836 shall proceed as set forth in Section 10.5 with respect to Liposomal Products, and Sections 10.6 and 10.7 shall apply mutatis mutandis to the Product Source for GS7836 as they apply to the Product Sources for Liposomal Products; provided, however, that the license to the GS7836 Product Source shall not be restricted by the limits of Section 10.3, and to the extent that no CMC Information is disclosed to the Product Source, the provisions relating to the protection of CMC Information and the grantback under Product Source Liposomal Inventions shall not apply. ARTICLE 11 INTELLECTUAL PROPERTY 11.1 OWNERSHIP OF PROGRAM INVENTIONS. (a) OSI shall solely own all Program Inventions that (i) have specific or general utility in or application to the use or composition of any API or Product, and (ii) do not constitute Liposomal Inventions. (b) Gilead shall solely own all Inventions that (i) have specific or general utility in or application to the use, application or method of manufacture or analysis of liposomal or lipid-based delivery or formulation technology ("Liposomal Inventions"), and (ii) are Program Inventions. (c) Ownership of all other Program Inventions other than those set forth in Section 11.1(a) or 11.1(b) (Program Inventions not described in such Sections, "Other Inventions") shall be owned by the inventing Party (with inventorship being determined in accordance with United States patent law), or if not invented with the meaning of such patent law, shall be owned solely by a Party having solely generated such Other Invention, or jointly by the Parties if they jointly generated such Other Invention. (d) Each Party hereby assigns such of its right, title and interest in and to the Program Inventions to the other Party as is necessary to achieve the ownership set forth in this Section 11.1, and agrees to execute and deliver all documents reasonably necessary to evidence or record such assignment. 11.2 CONFIDENTIALITY OF LIPOSOMAL INVENTIONS. Liposomal Inventions shall be the Confidential Information of Gilead. Nothing herein shall be deemed to require Gilead to disclose any such Liposomal Inventions to OSI. -43- 11.3 LICENSE. OSI hereby grants Gilead a non-exclusive, perpetual, sublicenseable license under the Program Inventions owned by OSI pursuant to Section 11.1(a) (i) to develop, make, use, sell, offer for sale and import products other than the Products worldwide; and (ii) for so long as Gilead is a supplier to OSI under this Manufacturing Agreement, to make Products for supply to OSI hereunder. 11.4 NO LICENSE; COVENANT. Other than as set forth in this Article 11, neither Party grants the Party any rights in or under its interest in Program Inventions. OSI covenants that it shall not practice any Program Invention that is a Liposomal Invention. ARTICLE 12 COVENANTS 12.1 MUTUAL COVENANTS. Each Party covenants to the other Party that such Party shall not enter into any agreement with any Third Party that is in conflict with the rights granted to the other Party under this Agreement, and shall not take any action that would in any way prevent it from granting the rights granted to the other Party under this Agreement, or that would otherwise materially conflict with or adversely affect the rights granted to the other Party under this Agreement. 12.2 GILEAD COVENANTS. Gilead covenants to OSI: (a) that it shall manufacture each Product in accordance with the Specifications therefor and other provisions of this Manufacturing Agreement, and in accordance with all applicable Regulatory Requirements, including without limitation QC and GMP; (b) that, upon delivery of any quantity of a Product to the common carrier designated pursuant to this Manufacturing Agreement, such quantity of a Product will be free from Manufacturing Defects and shall otherwise conform to the relevant Specifications; (c) that it shall not supply to OSI hereunder any quantity of Product that either (i) is defective in any way, (ii) is adulterated or misbranded or unsuitable, (iii) has been misused, contaminated, tampered with or otherwise altered or mishandled prior to the time of delivery FCA to OSI hereunder; or (iv) has been stored and handled prior to delivery FCA to OSI hereunder in a manner inconsistent with the relevant Specifications; and -44- (d) that it shall not use, during the Term, any employee or consultant that has been debarred by the FDA or other Regulatory Authorities, or, to the best of its knowledge, is the subject of debarment proceedings by the FDA or Regulatory Authorities. ARTICLE 13 INDEMNIFICATION AND INSURANCE 13.1 OSI INDEMNIFICATION. OSI shall defend, hold harmless and indemnify (collectively, "Indemnify") Gilead and its Affiliates, agents, directors, officers and employees (together with Gilead, the "Gilead Indemnitees") from and against any and all suits, claims, demands, liabilities, expenses and/or losses, including without limitation reasonable attorney's fees (collectively, "Losses") resulting from any Third-Party claim, demand, suit, action or proceeding (each, a "Third-Party Claim") arising out of (i) OSI's material breach of this Manufacturing Agreement; or (ii) the possession, storage, use, transport, disposal, promotion, sale, offering for sale, importation or commercialization of any Product by any OSI Indemnitee (as defined below) or OSI's licensee, distributor or corporate partner for any Product; provided, however, that OSI's obligation to Indemnify the Gilead Indemnitees pursuant to this Section 13.1 shall not apply to the extent of any Losses (i) for which Gilead is obligated to Indemnify the OSI Indemnitees pursuant to Section 13.2, or (ii) attributable to the negligence, recklessness or willful misconduct of Gilead. 13.2 GILEAD INDEMNIFICATION. Gilead shall Indemnify OSI and its Affiliates, agents, directors, officers and employees, (together with OSI, the "OSI Indemnitees") against all Losses to the extent resulting from any Third-Party Claim arising out of (i) Gilead's material breach of this Agreement, or (ii) the presence of a Manufacturing Defect in a quantity of Product at the time of delivery FCA hereunder; provided, however, that Gilead's obligation to Indemnify the OSI Indemnitees pursuant to this Section 13.2 shall not apply to the extent of any Losses (i) for which OSI is obligated to Indemnify the Gilead Indemnitees pursuant to Section 13.1, or (ii) attributable to the negligence, recklessness or willful misconduct of OSI. 13.3 PROCEDURE. If either Party is seeking indemnification under Section 13.1 or 13.2, it shall inform the indemnifying Party of the Third-Party Claim giving rise to the obligation to Indemnify pursuant to such Section as soon as reasonably practicable after receiving notice of the claim. The indemnifying Party shall have the right to assume the defense of any such Third-Party Claim for which it is obligated to indemnify the indemnified Party under Section 13.1 or 13.2. The indemnified Party shall cooperate with the indemnifying Party (and its insurer) as the indemnifying Party may reasonably request, and at the indemnifying Party's sole cost and expense. The indemnified Party shall have the right to participate, at its own expense and with counsel of its choice, in the defense of any claim or suit that has been -45- assumed by the indemnifying Party. Neither Party shall have any obligation to Indemnify the other Party in connection with any settlement made without the indemnifying Party's written consent, provided that the indemnifying Party does not unreasonably withhold or delay any such written consent. If the Parties cannot agree as to the application of Sections 13.1 or 13.2 to any Third-Party Claim, the Parties may conduct separate defenses of such claims, with each Party retaining the right to claim indemnification from the other in accordance with Section 13.1 or 13.2 upon resolution of the underlying claim. 13.4 INSURANCE. Each Party shall procure and maintain insurance or self-insurance, including without limitation product liability insurance in the case of OSI, adequate to cover its obligations hereunder and pursuant to the License Agreement between the Parties dated as of the Closing Date (which is an Ancillary Agreement), and which are consistent with normal business practices of prudent companies similarly situated at all times during which any Product is being clinically tested with human subjects or commercially distributed or sold by OSI. It is understood that such insurance shall not be construed to create a limit of either Party's liability with respect to its indemnification obligations under this Article 13. Each Party shall provide the other with written evidence of such insurance (or financial information that describes the amounts available under any self-insurance facility) upon request. Each Party shall provide the other with written notice at least thirty (30) days prior to the cancellation, non-renewal or material change in such insurance or self-insurance which materially adversely affects the rights of the other Party hereunder. 13.5 LIMITATION OF LIABILITY. EXCEPT AS EXPRESSLY PROVIDED IN THIS MANUFACTURING AGREEMENT, INCLUDING WITHOUT LIMITATION IN THIS ARTICLE 13, AND EXCEPT FOR INFRINGEMENT BY EITHER PARTY OF THE OTHER PARTY'S INTELLECTUAL PROPERTY RIGHTS OR BREACH OF CONFIDENTIALITY OBLIGATIONS, NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR LOST PROFITS OR FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES OF THE OTHER PARTY PURSUANT TO THIS MANUFACTURING AGREEMENT, HOWEVER CAUSED, UNDER ANY THEORY OF LIABILITY. IT IS EXPRESSLY UNDERSTOOD THAT THE OBLIGATION OF EITHER PARTY UNDER ARTICLE 13 OF THIS MANUFACTURING AGREEMENT TO INDEMNIFY FOR AMOUNTS THAT THE OTHER PARTY ACTUALLY PAYS TO A THIRD PARTY SHALL NOT BE LIMITED BY THIS SECTION 13.5. ARTICLE 14 CONFIDENTIALITY 14.1 TREATMENT OF CONFIDENTIAL INFORMATION. The Parties agree that during the Term, and for a period of five (5) years after this Manufacturing Agreement expires or terminates, a Party receiving Confidential Information of the other Party shall (i) maintain in confidence such Confidential Information to -46- the same extent such Party maintains its own proprietary industrial information of similar kind and value (but at a minimum each Party shall use commercially reasonable efforts to maintain such Confidential Information in confidence); (ii) not disclose such Confidential Information to any Third Party without prior written consent of the disclosing Party, except for disclosures made in confidence to any Third Party pursuant to a plan approved by a Development Team or to its licensees or sublicensees for the Product to which the Confidential Information relates who agree to be bound by obligations of non-disclosure and non-use at least as stringent as those contained in this Article 14; and (iii) not use such Confidential Information for any purpose except those purposes permitted by this Manufacturing Agreement. 14.2 AUTHORIZED DISCLOSURE. Notwithstanding any other provision of this Manufacturing Agreement, each Party may disclose Confidential Information of the other Party: (a) to the extent and to the persons and entities required by an applicable governmental law, rule or regulation or court order; provided, however, that the Party required to disclose Confidential Information shall first have given prompt notice to the other Party hereto to enable it to seek any available exemptions from or limitations on such disclosure requirement and shall reasonably cooperate in such efforts by the other Party; (b) to the extent and to the persons and entities required by rules of the National Association of Securities Dealers or any other securities exchange; or (c) as necessary to file or prosecute patent applications, prosecute or defend litigation or otherwise establish rights or enforce obligations under this Manufacturing Agreement, but only to the extent that any such disclosure is necessary. In particular, the Parties acknowledge that OSI and/or Gilead may be obligated to file a copy of this Manufacturing Agreement with the U.S. Securities and Exchange Commission with one of its quarterly reports on Form 10-Q, annual reports on Form 10-K or current reports on Form 8-K or with any registration statement filed with the U.S. Securities and Exchange Commission (the "SEC") pursuant to the Securities Act of 1933, as amended. In the event of any such filing, the Parties agree to cooperate and work together to request confidential treatment pursuant to, and in accordance with, the rules and regulations of the SEC. 14.3 PUBLICITY. The Parties agree that the joint public announcement of the execution of this Manufacturing Agreement shall be substantially in the form of the press release agreed and released by the Parties pursuant to the Asset Purchase Agreement. Any other publication, news release or other public announcement relating to this Manufacturing Agreement or to the performance hereunder, shall first be reviewed and approved by both Parties, which approval shall not be unreasonably withheld. -47- 14.4 RETURN OF CONFIDENTIAL INFORMATION. Promptly after the expiration or termination of this Manufacturing Agreement for any reason with respect to any Product, the Parties shall return to each other all tangible manifestations of each other's Confidential Information relating to such Product (or if this Manufacturing Agreement expires or terminates with respect to all Products for any reason, all Confidential Information) at that time in the possession of either Party, or, with the written permission of the other Party, destroy such items; provided that each Party may retain one (1) tangible manifestation of the other Party's Confidential Information in its legal department for archival purposes. ARTICLE 15 TERM AND TERMINATION 15.1 TERM. The term of this Manufacturing Agreement shall commence on the Closing Date and shall, unless earlier terminated in accordance with this Article 15 or otherwise mutually agreed in writing by the Parties, automatically expire on a Product-by-Product basis with respect to each Product when Gilead has fulfilled its technology transfer obligations in accordance with Article 10 for such Product, and is no longer required pursuant to such Article to supply quantities of such Product to OSI. 15.2 TERMINATION FOR BREACH. (a) Notice. If either Party believes that the other is in material breach of this Manufacturing Agreement with respect to one or more Products, then the Party holding such belief (the "Non-breaching Party") may deliver notice of such breach to the other Party (the "Notified Party"). Supply Failures shall not be deemed to be material breaches of this Manufacturing Agreement, but instead shall be treated as set forth in Article 10. The Notified Party shall have ninety (90) days to either cure such breach or, if cure cannot be reasonably effected within such ninety (90) day period, to deliver to the Non-breaching Party an objectively reasonable plan to cure such breach within a timeframe that is reasonably prompt in light of the circumstances then prevailing. Following delivery of such plan, the notified Party shall use commercially reasonable efforts to carry out the plan and cure the breach. Notwithstanding the foregoing, if the material breach is a failure to pay an amount when due hereunder, then the cure period shall be thirty (30) days, and the breaching Party shall not have the opportunity to present a plan to cure such breach and cure such breach beyond such thirty (30) day cure period. (b) Failure to Cure. If the Notified Party fails to cure such breach as provided for in Section 15.2(a), the Non-breaching Party may terminate this Manufacturing Agreement either in its entirety or with respect to one or more Products upon written notice to the Notified Party. -48- (c) Disputes. If a Party gives notice of termination under this Section 15.2 and the other Party disputes whether such termination is proper, then the issue of whether this Manufacturing Agreement may properly be terminated upon expiration of the notice period (unless such breach is cured as provided in Section 15.2(b)) shall be resolved in accordance with Article 16. If as a result of such dispute resolution process it is determined that the notice of termination was proper, then such termination shall be deemed to have been effective ninety (90) days following the date of the notice of termination; provided, however, that if the breach is a failure to pay an amount when due hereunder, and the reason for the non-payment is a good-faith dispute as to whether the payment not made is due hereunder, then the Non-breaching Party shall not be entitled to terminate this Manufacturing Agreement for reason of such non-payment until fifteen (15) days after the dispute as to whether payment was due is resolved in the Non-breaching Party's favor, if the Notified Party has not by that time paid such amounts, together with any interest due pursuant to Section 9.10 in relation to such amounts. If as a result of such dispute resolution process it is determined that the notice of termination was improper, then no termination shall have occurred and this Manufacturing Agreement shall remain in effect. 15.3 EFFECT OF TERMINATION. The expiration or termination of this Manufacturing Agreement shall not relieve Gilead from its obligation to deliver any Product ordered pursuant to a Purchase Order received and accepted by Gilead prior to the effective date of such expiration or termination, nor shall expiration or termination of this Manufacturing Agreement relieve OSI from accepting and, upon acceptance, paying for any such Product. Expiration or termination of this Manufacturing Agreement shall not relieve either Party of any liability having accrued hereunder prior to the effective date of such expiration or termination. 15.4 SURVIVAL. Sections 4.6, 8.7, 9.7, 9.10, 9.12, 10.6, 10.7 and 10.14 and Articles 11, 13, 14, 15, 16, and 17 shall survive any expiration or termination of this Manufacturing Agreement, subject to any later termination dates for particular obligations that are set forth in such Sections and Articles. 15.5 EXCLUDED REMEDIES. Rescission of the Asset Purchase Agreement or any Ancillary Agreement (other than this Manufacturing Agreement), or a refund of consideration paid to Gilead under any such agreement, are explicitly excluded from available remedies under this Manufacturing Agreement, and shall not be available under or awarded on the basis of this Manufacturing Agreement. 15.6 ADDITIONAL TERMINATION RIGHTS. Gilead shall have the right to terminate this Manufacturing Agreement with respect to particular Liposomal Products as set forth in Sections 10.8(d), 10.11 and 10.12. -49- ARTICLE 16 DISPUTE RESOLUTION 16.1 DISPUTES. The Parties recognize that disputes as to certain matters may from time to time arise during the term of this Manufacturing Agreement which relate to either Party's rights and/or obligations hereunder. It is the objective of the Parties to establish procedures to facilitate the resolution of disputes arising under this Manufacturing Agreement in an expedient manner by mutual cooperation and without resort to litigation. To accomplish this objective, the Parties agree to follow the procedures set forth in this Section 16.1 if and when a dispute arises under this Manufacturing Agreement. All disputes arising under this Manufacturing Agreement shall be discussed first by the applicable Development Team or Development Teams for the Product or Products to which the dispute relates. If the Development Team or Development Teams are unable to resolve any dispute within thirty (30) days after such dispute is submitted to it, either Party may, by written notice to the other Party, have such dispute referred to a senior executive officer of each Party for attempted resolution by good faith negotiations within thirty (30) days after such notice is received. (If the dispute arose among Development Team members, then the referral to the Parties' senior executive officers may occur immediately.) If the designated officers are not able to resolve such dispute within such thirty (30) day period, either Party may at any time thereafter pursue any legal or equitable remedy available to it; provided, however, that at the written request of either Party, any CMC Issue as to which the Parties have been unable to resolve their dispute within such time period shall be referred to a panel of Industry Experts for resolution pursuant to Section 16.4. 16.2 GOVERNING LAW; JUDICIAL RESOLUTION. Resolution of all disputes arising out of or related to this Manufacturing Agreement or the performance, enforcement, breach or termination of this Manufacturing Agreement and any remedies relating thereto, shall be resolved consistent with Sections 17.3 and 17.4. 16.3 PATENT AND TRADEMARK DISPUTE RESOLUTION. Any dispute, controversy or claim relating to the scope, validity, enforceability or infringement of any patent rights covering the manufacture, use or sale of any Product or of any trademark rights relating to any Product shall be submitted to a court of competent jurisdiction in the territory in which such patent or trademark rights were granted or arose. 16.4 INDUSTRY EXPERT PANEL RESOLUTION OF CERTAIN ISSUES. (a) GENERAL. Within thirty (30) days after a Party proposes to submit a CMC Issue, or an issue designated to be resolved by a panel of Industry Experts, for resolution -50- by a panel of industry experts (as is specifically permitted pursuant to Section 16.1), each Party shall appoint one (1) individual having at least ten (10) years of significant management level experience in the pharmaceutical manufacturing industry (each, an "Industry Expert"). Neither of such two (2) Industry Experts appointed by the Parties may be affiliated directly or indirectly with either Party or with either Party's Affiliates, sublicensees or business partners, and neither of such two (2) Industry Experts may have any direct or indirect interest of any kind in the resolution of the issue to be submitted by the Parties for resolution. Within ten (10) days after expiration of such thirty (30) day period, the two (2) Industry Experts chosen by the Parties shall select a third Industry Expert to join the panel and determine the issue(s) presented by the Parties. Such third (3rd) Industry Expert must meet all of the eligibility criteria set forth above in this Section 16.4 that are applicable to the other two (2) Industry Experts. Each Party shall submit written materials to the other Party and to the Industry Experts relating to the matters in issue within sixty (60) days after the selection of the third (3rd) Industry Expert, up to a maximum number of pages specified by the Industry Experts. Each Party shall then have fifteen (15) days to submit a written rebuttal to the other Party's materials to the other Party and to the Industry Experts, up to a maximum number of pages specified by the Industry Experts. The panel of Industry Experts shall decide each issue presented to them within ninety (90) days after they receive all such written materials from each Party. The panel shall have the discretion to interview the Parties' officers and employees to obtain further information relating to the matters in issue and to hear oral argument. Each Party shall cooperate with the panel and facilitate its efforts. The panel's determination shall be dispositive of all issues presented to it and such determination shall be given retroactive effect. Until such determination is delivered to the Parties, the Parties shall continue to perform their obligations under this Manufacturing Agreement in good faith and make any applicable payments accordingly. The Parties shall bear all expenses incurred pursuant to this Section 16.4 equally. (b) ADDITIONAL PROCEDURAL PROTECTIONS. Any proceedings before an Industry Expert (or panel thereof) shall be deemed to be the Confidential Information of both Parties; provided, however, that the decision of any Industry Expert shall be enforceable by either Party in a court of competent jurisdiction consistent with Sections 17.3 and 17.4. Neither Party shall initiate any ex parte communication with any Industry Expert; provided, however that the Industry Experts would conduct any discussions or interviews during which CMC Information would be disclosed solely in the presence of Gilead and/or its counsel present, and solely to the extent reasonably necessary to protect such CMC Information from being disclosed to OSI and its counsel. The Industry Experts shall issue their decision in writing and set forth the basis of their decision in writing. The Industry Experts shall make their decision by majority vote. Each Party shall have the right to have counsel present during all of its interactions with any Industry Expert. There shall be a written transcript of all proceedings involving the Industry Experts; provided that OSI shall only be able to access redacted copies of any CMC Information contained in such transcripts. The Industry Experts shall designate a prevailing Party and shall award the costs of the Industry Expert proceedings to such Party. -51- 16.5 EXCLUDED REMEDIES. Certain remedies shall be excluded under this Manufacturing Agreement, as set forth in Section 15.5. ARTICLE 17 MISCELLANEOUS 17.1 NO REPRESENTATIONS. The Parties acknowledge that, except as expressly set forth in Sections 2 and 3 of the Asset Purchase Agreement and in the other Ancillary Agreements, neither Party has made or is making any representations or warranties whatsoever to the other, implied or otherwise. 17.2 KNOWLEDGE. Neither Party shall be deemed to have breached any representation or warranty that is made to such Party's "knowledge" unless an officer of such Party with the rank of Vice President or above has actual knowledge, as of the date of this Manufacturing Agreement, that such representation or warranty is materially inaccurate. 17.3 GOVERNING LAW. This Manufacturing Agreement will be construed in accordance with, and governed in all respects by, the laws of the State of Colorado (without giving effect to principles of conflicts of law), subject to Section 16.3. 17.4 VENUE AND JURISDICTION. If any legal proceeding or other legal action relating to this Manufacturing Agreement is brought or otherwise initiated, the venue therefor will be in the State of Colorado, which will be deemed to be a convenient forum. Each Party hereby expressly and irrevocably consents and submits to the jurisdiction of the state and federal courts in the State of Colorado. 17.5 NOTICES. Any notice or other communication required or permitted to be delivered to either Party under this Manufacturing Agreement must be in writing and will be deemed properly delivered, given and received when delivered (by hand, by registered mail, by courier or express delivery service or by facsimile) to the address or facsimile telephone number set forth beneath the name of such Party below (or to such other address or facsimile telephone number as such Party shall have specified in a written notice given to the other Party): -52- if to OSI: OSI Pharmaceuticals, Inc. 58 South Service Road Melville, New York 11747 Attention: Barbara Wood, General Counsel Facsimile: (631) 962-2021 with a copy to: Mintz Levin Cohn Ferris Glovsky & Popeo, PC 666 Third Avenue New York, New York 10017 Attention: Joel Papernik Facsimile: (212) 983-3115 if to Gilead: Gilead Sciences, Inc. 650 Cliffside Drive San Dimas, CA 91773 Fax: (909) 599-1875 Attention: Vice President, Manufacturing With a copy to: Gilead Sciences, Inc. 333 Lakeside Drive Foster City, CA 94404 Attention: Vice President and General Counsel Facsimile: (650) 522-5537 17.6 ASSIGNMENT. (a) EITHER PARTY. Except as set forth in Sections 17.6(b) or (c), neither Party may assign or transfer this Manufacturing Agreement or any rights or obligations hereunder without the prior written consent of the other, except that a Party may make such an assignment without the other Party's consent to Affiliates or to a successor to substantially all of the business of such Party to which this Manufacturing Agreement relates, whether in a merger, sale of stock, sale of assets or other transaction. (b) GILEAD. Gilead may assign this Manufacturing Agreement with or without OSI's consent to any acquirer of the manufacturing facilities used to manufacture Products hereunder, and substantially all of Gilead's business conducted therein. -53- (c) OSI. OSI may assign this Manufacturing Agreement with respect to any Product, to its licensee or bona fide corporate partner for such Product. (d) SUCCESSORS. Any permitted successor or assignee of rights and/or obligations hereunder shall, in a writing to the other Party, expressly assume performance of such rights and/or obligations. Any permitted assignment shall be binding on the successors of the assigning Party. Any assignment or attempted assignment by either Party in violation of the terms of this Section 17.6 shall be null and void and of no legal effect. 17.7 PARTIES IN INTEREST. Nothing in this Manufacturing Agreement is intended to provide any rights or remedies to any employee of either Party or to any Affiliate or Third Party. 17.8 SEVERABILITY. In the event that any provision of this Manufacturing Agreement, or the application of such provision to any Person (as defined in the Asset Purchase Agreement) or set of circumstances, shall be determined to be invalid, unlawful, void or unenforceable to any extent, the remainder of this Agreement, and the application of such provision to Persons or circumstances other than those as to which it is determined to be invalid, unlawful, void or unenforceable, will not be affected and will continue to be valid and enforceable to the fullest extent permitted by law. 17.9 ENTIRE AGREEMENT. This Manufacturing Agreement, along with the Asset Purchase Agreement, the Confidentiality Agreements, the Assumption Agreement, and the other Ancillary Agreements set forth the entire understanding of the Parties and supersede all other agreements and understandings between the Parties relating to the subject matter hereof and thereof. 17.10 ORDER OF PRECEDENCE. If any information that is Confidential Information under this Manufacturing Agreement was also subject to the Confidentiality Agreements, then, from and after the Effective Date, such information will be governed solely by this Manufacturing Agreement and will no longer be subject to the Confidentiality Agreements. If any information that is Confidential Information under this Manufacturing Agreement is believed by either of the Parties to be Confidential Information under any other Ancillary Agreement, then the Parties' rights and obligations with respect to such information shall be governed by this Manufacturing Agreement. 17.11 WAIVER. No failure on the part of either Party to exercise any power, right, privilege or remedy under this Manufacturing Agreement, and no delay on the part of either Party in -54- exercising any power, right, privilege or remedy under this Manufacturing Agreement, will operate as a waiver thereof; and no single or partial exercise of any such power, right, privilege or remedy will preclude any other or further exercise thereof or of any other power, right, privilege or remedy. 17.12 AMENDMENTS. This Manufacturing Agreement may not be amended, modified, altered or supplemented except by means of a written instrument executed on behalf of both Parties. 17.13 COUNTERPARTS. This Manufacturing Agreement may be executed in several counterparts, each of which will constitute an original and all of which, when taken together, will constitute one agreement. 17.14 INTERPRETATION OF AGREEMENT. (a) Each Party acknowledges that it has participated in the drafting of this Manufacturing Agreement, and any applicable rule of construction to the effect that ambiguities are to be resolved against the drafting party will not be applied in connection with the construction or interpretation of this Manufacturing Agreement. (b) Whenever required by the context hereof, the singular number will include the plural, and vice versa; the masculine gender will include the feminine and neuter genders; and the neuter gender will include the masculine and feminine genders. (c) As used in this Manufacturing Agreement, the words "include" and "including," and variations thereof, will not be deemed to be terms of limitation, and will be deemed to be followed by the words "without limitation." (d) Unless the context otherwise requires, references in this Manufacturing Agreement to "Sections" and "Appendices" are intended to refer to Sections of and Appendices to this Manufacturing Agreement. (e) The table of contents of this Manufacturing Agreement and the bold-faced headings contained in this Agreement are for convenience of reference only, will not be deemed to be a part of this Manufacturing Agreement and will not be referred to in connection with the construction or interpretation of this Manufacturing Agreement. 17.15 MAINTENANCE OF RECORDS. Each Party shall keep and maintain all records required by law or regulation with respect to Products and shall make copies of such records available to the other Party upon request. -55- 17.16 PERFORMANCE BY AFFILIATES. Each of Gilead and OSI acknowledge that obligations under this Manufacturing Agreement may be performed by Affiliates of Gilead and OSI. Each of Gilead and OSI guarantee performance of this Manufacturing Agreement by its Affiliates. Wherever in this Manufacturing Agreement the Parties delegate responsibility to Affiliates or local operating entities, the Parties agree that such entities may not make decisions inconsistent with this Manufacturing Agreement, amend the terms of this Manufacturing Agreement or act contrary to its terms in any way. 17.17 FORCE MAJEURE. Both Parties shall be excused from the performance of their obligations under this Manufacturing Agreement to the extent that such performance is prevented by force majeure and the nonperforming Party promptly provides notice of the prevention to the other Party. Such excuse shall be continued so long as the condition constituting force majeure continues and the nonperforming Party uses reasonable efforts to remove the condition. For purposes of this Manufacturing Agreement, force majeure shall include conditions beyond the control of the Parties, including without limitation, an act of God, a terrorist act, voluntary or involuntary compliance with any regulation, law or order of any government, war, civil commotion, labor strike or lock-out, epidemic, failure or default of public utilities or common carriers, destruction of production facilities or materials by fire, earthquake, storm or like catastrophe; provided, however, the payment of invoices due and owing hereunder shall not be delayed by the payor because of a force majeure affecting the payor. 17.18 FURTHER ASSURANCES; COVENANT TO COOPERATE. Each of the Parties shall, at any time during the first year of the Term and to the extent requested by the other Party, execute and deliver any and all documents and instruments, and take any other actions, in each case that are reasonably necessary to consummate and make effective the transactions contemplated in this Manufacturing Agreement. Notwithstanding anything express or implied to the contrary in the foregoing sentence, neither Party shall be required, by the operation of such sentence, to execute and deliver any document, or to take any action, that this Manufacturing Agreement explicitly states is not required, or to take or continue any action in excess of a limit explicitly stated in this Manufacturing Agreement. -56- The Parties have caused this Manufacturing Agreement to be executed as of December 21, 2001. GILEAD SCIENCES, INC. By: /s/ Mark L. Perry. ------------------------------ OSI PHARMACEUTICALS, INC. By: /s/ Geoffrey Cooper ------------------------------ APPENDIX A SPECIFICATIONS ** - ---------- ** This portion has been redacted pursuant to a confidential treatment request. APPENDIX B ** - ---------- ** This portion has been redacted pursuant to a confidential treatment request. APPENDIX C ** - ---------- ** This portion has been redacted pursuant to a confidential treatment request. APPENDIX D ** - ---------- ** This portion has been redacted pursuant to a confidential treatment request. EX-99.1 7 y56066ex99-1.txt PRESS RELEASE EXHIBIT 99.1 OSI PHARMACEUTICALS AND GILEAD SCIENCES ANNOUNCE CLOSING OF ONCOLOGY ASSETS DEAL MELVILLE, N.Y. & FOSTER CITY, Calif.-- (BUSINESS WIRE) -- Dec. 21, 2001 - -- OSI Pharmaceuticals (Nasdaq: OSIP) and Gilead Sciences (Nasdaq: GILD) announced today that the two companies have completed the sale of Gilead's oncology assets to OSI. Through this transaction, OSI has acquired Gilead's pipeline of clinical stage oncology products and related intellectual property, as well as Gilead's Boulder, Colorado operations, including clinical research and drug development personnel, infrastructure and facilities. In consideration for the assets, Gilead received from OSI $130 million in cash and 924,984 shares of OSI common stock. Additionally, OSI will pay to Gilead up to an additional $30 million in either cash or a combination of cash and OSI common stock upon the achievement of certain milestones related to the development of NX211, the most advanced of Gilead's oncology product candidates. Through the acquisition, OSI accelerates its development and commercialization capabilities by augmenting and balancing its pipeline of gene-targeted small molecule therapeutics with three next generation cytotoxic drug candidates in clinical trials. For Gilead, the transaction allows the company to increase its focus on its core expertise in infectious diseases. "The addition of this outstanding oncology development team and strong clinical programs takes us one step further toward our goal of becoming leaders in oncology. These assets complement our existing strengths, help balance our pipeline and allow us to maintain our commitment to across-the-board excellence in our discovery and development capabilities," said Colin Goddard, Ph.D., Chairman and Chief Executive Officer of OSI Pharmaceuticals. "This transaction delivers clear benefits for both companies. At Gilead, we will continue to strengthen our core area of expertise in infectious diseases, while OSI will solidify its competitive business in oncology," said John C. Martin, Ph.D., President and Chief Executive Officer of Gilead Sciences. GILEAD SCIENCES Gilead Sciences, Inc., headquartered in Foster City, CA, USA, is an independent biopharmaceutical company that seeks to provide accelerated solutions for patients and the people who care for them. Gilead discovers, develops, manufactures and commercializes proprietary therapeutics for challenging infectious diseases (viral, fungal, and bacterial infections). Gilead maintains research, development, manufacturing or sales and marketing facilities in the United States, Europe and Australia. OSI PHARMACEUTICALS OSI Pharmaceuticals is a leading biotechnology company primarily focused on the discovery, development and commercialization of innovative products for the treatment of cancer. OSI has built a pipeline of discovery programs and drug candidates addressing major, unmet medical needs in cancer and selected opportunities including diabetes, arising from the Company's extensive drug discovery research programs that represent significant commercial opportunities. OSI's most advanced drug candidate, Tarceva(TM), a small molecule inhibitor of the EGFR gene, is currently in Phase III clinical trials for lung and pancreatic cancers. This press release contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those referred to in the forward-looking statements. The risk specific to Gilead is that the product development milestones related to NX211 will not occur and that Gilead will therefore not be entitled to future milestone payments. The reader is cautioned not to rely on these forward-looking statements. Product development risks are described in detail in the Gilead Annual Report on Form 10-K for the year ended December 31, 2000 and in Gilead's Quarterly Reports on Form 10-Q, all of which are on file with the U.S. Securities and Exchange Commission. All forward-looking statements are based on information currently available to Gilead and Gilead assumes no obligation to update any such forward-looking statements. There are also risks specific to OSI, which include, among others, preclinical development, completion of clinical trials, the FDA review process and other governmental regulation, pharmaceutical collaborators' ability to successfully develop and commercialize drug candidates, competition from other pharmaceutical companies, product pricing and third party reimbursement, and other factors described in OSI Pharmaceuticals' filings with the Securities and Exchange Commission. All forward-looking statements are based on information currently available to OSI and OSI assumes no obligation to update any such forward-looking statements. TARCEVA IS A TRADEMARK OF OSI PHARMACEUTICALS. 2 -----END PRIVACY-ENHANCED MESSAGE-----