Exhibit 10.3

 

EXECUTION COPY

 

CONFIDENTIAL TREATMENT
PROCESSING SERVICES AGREEMENT

 

This PROCESSING SERVICES AGREEMENT (“Agreement”) is made this 11th day of
August, 2004 (“Effective Date”), by and between Cardinal Health PTS, LLC, having
a place of business at 4401 Alexander Blvd., NE, Albuquerque, New Mexico 87107
(“Cardinal Health”) and Cubist Pharmaceuticals, Inc. (“Cubist”), having its
principal place of business at 65 Hayden Avenue, Lexington, MA 02421.

 

A.            Cardinal Health provides contract pharmaceutical development,
manufacturing, packaging, analytical, and sales and marketing services to the
pharmaceutical industry.

 

B.            Cubist has certain proprietary technology relating to a certain
pharmaceutical Product and wants Cardinal Health to assist in the formulation,
filling, packaging and testing on such Product as provided in this Agreement and
the attachments hereto.

 

C.            Cardinal Health and Cubist are parties to an April 14, 2004
agreement, captioned a “Quotation”, for the development and approval of Cardinal
Health’s processing of Cubist’s CUBICIN® (daptomycin for injection) “Product”
(defined below) (the “Development Agreement”).

 

D.            Cardinal Health and Cubist are parties to a September 30, 2003
Packaging Agreement, pursuant to which Cardinal Health provides certain services
to Cubist in connection with the packaging of CUBICIN that has been processed by
a third party (the “Packaging Agreement”).

 

E.             Cubist desires to engage Cardinal Health to provide certain
services to Cubist in connection with the processing of CUBICIN; and Cardinal
Health desires to provide such services pursuant to the terms and conditions set
forth in this Agreement.

 

NOW, THEREFORE, in consideration of the mutual covenants, terms and conditions
set forth below, the parties agree as follows:

 

ARTICLE 1

DEFINITIONS

 

The following terms have the following meanings in this Agreement:

 

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1.1           “Affiliate(s)” means any corporation, firm, partnership or other
entity which controls, is controlled by or is under common control with a
party.  For purposes of this definition, “control” shall mean the ownership of
at least fifty percent (50%) of the voting share capital of such entity or any
other comparable equity or ownership interest.

 

1.2           “API” means the active pharmaceutical ingredient set forth in
Exhibit A which has been released by Cubist and provided to Cardinal Health,
along with a Certificate of Analysis, as provided in this Agreement.

 

1.3           “Applicable Laws” means all laws, ordinances, rules and
regulations within the Territory applicable to the Processing of the Product or
any aspect thereof and the obligations of Cardinal Health or Cubist, as the
context requires under this Agreement, including, without limitation, (i) all
applicable federal, state and local laws and regulations of each Territory;
(ii) the U.S. Federal Food, Drug and Cosmetic Act, and (iii) the Good
Manufacturing Practices for Finished Pharmaceuticals promulgated by the
Regulatory Authorities, as amended from time to time (“GMPs”).

 

1.4           “Batch” means a defined quantity of formulated bulk drug solution
which has been or is in the process of being packaged into Dosage Containers in
accordance with the Specifications.

 

1.5           “Batch Record” means a document consisting of master manufacturing
formula, appropriate packaging bill of materials and instructions, and exception
documentation, such as non-conforming material reports, deviations, variance
reports, and additional documentation which may have been processed as part of
the production record of a Batch.

 

1.6           “Calendar Quarter” means a period of three (3) consecutive months
commencing on January 1, April 1, July 1 or October 1 of any calendar year.

 

1.7           “Cardinal Health Materials” shall have the meaning set forth in
Article 12.

 

1.8           “Certificate of Analysis” or “COA” means a document certifying
that the Product was manufactured in a GMP compliant facility and was tested in
accordance with, and meets the applicable Specifications.  COAs for Product will
contain at least the following information: (a) date; (b) list number; (c) lot
number; (d) name of Product; (e) name of test; (f) Specification limit; (g) test
result as a numerical value unless designated pass/fail in the specification
limit; and (h) Cardinal Health Quality Assurance department approval.  .

 

1.9           “Change Order” shall have the meaning set forth in Section 4.5(a).

 

1.10         “Commencement Date” means the first date upon which a Regulatory
Authority approves Cardinal Health as a manufacturer of the Product.

 

1.11         “Confidential Information” is as defined in Section 11.2.

 

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1.12         “Contract Year” means each consecutive twelve (12) month period
beginning on the Commencement Date.

 

1.13         “Cubist Materials” shall have the meaning set forth in Article 12.

 

1.14         “Cubist’s Marks” shall mean Cubist’s name, any trademark, trade
name, service name, and any other names for which Cubist has rights or for which
application has been made, or may be made during the term of this Agreement, to
the applicable Regulatory Authority for recognition as a registered trademark or
service mark of Cubist or the Product, including, without limitation, the mark
CUBICIN.

 

1.15         “Defective Product “ shall have the meaning set forth in
Section 5.3.

 

1.16         “Dispute” shall have the meaning set forth in Section 18.9.

 

1.17         “Dosage Container” means any final dosage form container(s) the
parties may agree upon in writing from time to time.

 

1.18         “Effective Date” means the date set forth on page 1 of this
Agreement.

 

1.19         “Estimated Commitment” shall have the meaning set forth in
Section 4.1.

 

1.20         “Facilities” means Cardinal Health’s facilities located in
Albuquerque, New Mexico or such other facility as agreed to in writing by the
parties.

 

1.21         “FDA” means the United States Food and Drug Administration.

 

1.22         “Firm Commitment” shall have the meaning set forth in Section 4.1.

 

1.23         “Latent Defect” means a defect that Cubist could not reasonably
have discovered upon inspection and testing of samples from each Batch of
Product and that is conclusively determined to be attributable to Cardinal
Health prior to delivery of such Batch of Product in accordance with
Section 6.1.

 

1.24         “Intellectual Property” means all intellectual property (whether or
not patented), including without limitation, patents, patent applications,
know-how, trade secrets, copyrights, trademarks, designs, concepts, technical
information, manuals, standard operating procedures, instructions or
specifications.

 

1.25         “Master Batch Record” means a document consisting of the specific
procedures for the manufacturing formula and appropriate packaging bill of
materials to produce and store the product in accordance with the Specifications
and Applicable Laws.

 

1.26         “Minimum Requirement” shall have the meaning set forth in
Section 4.1.

 

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1.27         “Process” or “Processing” means the compounding, filling,
producing, labeling and packaging of the API and Raw Materials into Product in
accordance with the Specifications and the terms and conditions set forth in
this Agreement.

 

1.28         “Processing Date” means the day on which the Product is to be
compounded by Cardinal Health.

 

1.29         “Product” means the API Processed into Dosage Containers and
packaged in accordance with the Specifications.

 

1.30         “Purchase Order” shall have the meaning set forth in Section 4.3.

 

1.31         “Raw Materials” means all raw materials, supplies, components and
packaging necessary to manufacture and ship the Product in accordance with the
Specifications, as provided in Exhibit A, but not including the API.

 

1.32         “Regulatory Authority” means the US Food and Drug Administration
and any other governmental regulatory authority within a Territory involved in
regulating any aspect of the development, manufacture, market approval, sale,
distribution, packaging or use of the Product.

 

1.33         “Rolling Forecast” shall have the meaning set forth in Section 4.2.

 

1.34         “Specifications” means the procedures, requirements, standards,
quality control testing and other data and the scope of services as set forth in
Exhibit A for Product, which are hereby incorporated by reference into this
Agreement, along with any valid amendments or modifications thereto, subject to
the terms and conditions set forth in Article 8.

 

1.35         “Term” shall have the meaning set forth in Section 15.1.

 

1.36         “Territory” means the United States of America and any other
country which the parties agree in writing to add to this definition of
Territory in an amendment to this Agreement.

 

1.37         “Unit Pricing” shall have the meaning set forth in Section 7.1.

 

ARTICLE 2

VALIDATION, PROCESSING & RELATED SERVICES

 

2.1           Supply and Purchase of Product.  During the Term, Cardinal Health
shall Process and supply to Cubist the Product in accordance with the
Specifications, the Applicable Laws and the terms and conditions of this
Agreement. Cubist shall purchase the Product from Cardinal Health in accordance
with the terms and conditions of this Agreement.  Cardinal Health shall not use
any third party contractors or subcontractors to perform any of the Processing
without Cubist’s prior written consent.

 

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2.2           Other Related Services.  Cardinal Health shall provide other
services upon terms and conditions agreed to by the parties in writing from time
to time.

 

ARTICLE 3

MATERIALS

 

3.1           API. Cubist shall supply to Cardinal Health for Processing, at
Cubist’s sole cost, the API and applicable reference standards in quantities
sufficient to meet Cubist’s requirements for each Product as further set forth
in Article 4.  Prior to delivery of any of the API or reference standard to
Cardinal Health for Processing, Cubist shall provide to Cardinal Health a copy
of the API Material Safety Data Sheet (“MSDS”), as amended, and any subsequent
revisions thereto. Cubist shall supply the API and reference standards [ ]* no
later than [ ]* before the scheduled Processing Date upon which such API will be
used by Cardinal Health hereunder.  Cubist shall provide Cardinal Health with
the API certificates of analysis, as provided to Cubist by its API supplier,
prior to the shipment of API to Cardinal Health. Upon receipt of the API,
Cardinal Health shall conduct UV and IR identification testing of the API only.
Cardinal Health shall use the API solely and exclusively for Processing under
this Agreement.

 

3.2           Raw Materials.  Cardinal Health shall be responsible for
procuring, inspecting and releasing adequate Raw Materials as necessary to meet
the Firm Commitment, unless otherwise agreed to by the parties in writing.  In
certain instances, Cubist may require a specific supplier to be used for Raw
Material.  In such an event, the supplier will be specified in the
Specifications, and Cubist shall be responsible for the timeliness, quantity and
quality of supply of such Raw Materials.  If the cost of any such Raw Material
is greater than Cardinal Health’s costs for the same raw material of equal
quality from other suppliers, Cardinal Health shall add the difference between
Cardinal Health’s cost of the Raw Material and Cubist’s mandated supplier’s cost
to the Unit Price of the Product.  [ ]* will be responsible for all costs
associated with qualification of a new supplier of a Raw Material not previously
qualified by Cardinal Health.  Unless a particular Raw Material can, with
Cubist’s prior written consent, be replaced with the same raw material from
another supplier, Cardinal Health shall [ ]* of Product if (i) [ ]*, a
particular Raw Material necessary to Process the Product, and (ii) Cardinal
Health placed orders for Raw Materials necessary to Process the Product promptly
following receipt of Cubist’s [ ]*.

 

3.3           Artwork and Packaging. Cubist shall provide or approve, prior to
the procurement of applicable components, all artwork,   and packaging
information necessary to Process the Product.  Such artwork and packaging
information is and shall remain the exclusive property of Cubist, and Cubist
shall be solely responsible for the content thereof.  Cardinal Health agrees not
to use such artwork, advertising and packaging information or any reproduction
thereof following the termination of this Agreement, or during the Term of this
Agreement in any manner other than solely for the purpose of performing its
obligations hereunder.

 

3.4           Reimbursement for Raw Materials. In the event of (i) a
Specification change for any reason permitted hereunder, (ii) termination or
expiration of this Agreement; or (iii) obsolescence of any Raw Material,  Cubist
shall bear the cost of any unused Raw Materials that Cardinal Health is unable
to use for any other product that it processes, provided that (a) Cardinal
Health purchased such Raw Materials in quantities consistent with Cubist’s [ ]*
and the

 

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* Confidential Treatment Requested.  Omitted portions filed with the Commission.

 

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supplier’s minimum purchase obligations, and (b) Cardinal Health has used
commercially reasonable efforts to use such Raw Materials for another product or
products that it processes.

 

ARTICLE 4

PURCHASE ORDERS & FORECASTS

 

4.1           Initial Forecasts.  On or before the [ ]* of the calendar quarter,
beginning at least [ ]* prior to the anticipated Commencement Date, Cubist shall
furnish to Cardinal Health a written [ ]* rolling forecast of the quantities of
Product that Cubist intends to order from Cardinal Health during the [ ]* period
commencing with the start of the next calendar quarter (“Initial Forecast”). 
The first [ ]* of such Initial Forecast shall constitute a binding commitment
for the quantities of Product specified therein (“Firm Commitment”) and the
following [ ]* of the Initial Forecast shall be non-binding, good faith
estimates (“Estimated Commitment”).

 

4.2           Rolling Forecasts.  Following the Initial Forecast, on or before
the [ ]* of each calendar quarter, Cubist shall furnish to Cardinal Health a
written [ ]* rolling forecast of the quantities of Product that Cubist intends
to order from Cardinal Health during the [ ]* period commencing with the start
of the next calendar quarter (“Rolling Forecast”).   The first [ ]* of such
Rolling Forecast shall constitute a Firm Commitment and the following [ ]* of
the Rolling Forecast shall be Estimated Commitments.

 

4.3           Purchase Orders and Supply.  Along with the Initial Forecast and
each Rolling Forecast, Cubist shall submit a purchase order for the Firm
Commitment portion of the Rolling Forecast, which specifies the actual number of
Batches to be Processed, the approximate number of Dosage Containers in each
Batch, and the requested delivery dates for each Batch during such period
(“Purchase Order”).  Except for the Purchase Orders accompanying the Initial
Forecast, Cubist shall submit each Purchase Order to Cardinal Health at least [
]* in advance of the delivery date requested in the Purchase Order. In the event
of a conflict between the terms of any Purchase Order and this Agreement, this
Agreement shall control.  Cardinal Health shall supply Cubist with Product in
conformance with the Specifications and the Master Batch Record and, subject
only to Section 4.4 below, in accordance with the quantities set forth in a
Purchase Order, including the specified delivery dates, provided that such
Purchase Order has been completed and submitted in accordance with this
Agreement.  Within [ ]* following Cardinal Health’s receipt of a Purchase Order,
Cardinal Health shall notify Cubist in writing of the anticipated Processing
Dates for the Product ordered under such Purchase Order, and will subsequently
notify Cubist of any changes to such Processing Dates; provided, that, any such
change shall not affect Cardinal’s obligation to deliver Product [ ]*.

 

4.4           Cardinal Health’s Cancellation of Purchase Orders. Notwithstanding
the terms and conditions set forth in Section 4.5 below, to the extent that
Cubist refuses or fails to make scheduled deliveries of the API necessary for
Cardinal Health to satisfy such Purchase Order and Cardinal Health does not
otherwise have sufficient quantity of API on hand to satisfy such Purchase
Order,  Cardinal Health reserves the right to cancel all, or any part of, a
Purchase Order upon written notice to Cubist, and Cardinal Health shall have no
further obligations or liability with respect to such Purchase Order.

 

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* Confidential Treatment Requested.  Omitted portions filed with the Commission.

 

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4.5           Cubist’s Modification or Cancellation.

 

(a)           Cubist may modify the delivery date, Specifications or quantity of
Product in a Purchase Order only by submitting a written change order (“Change
Order”) to Cardinal Health at least [ ]* in advance of the earliest scheduled
Processing Date for the Product covered by such Purchase Order.  Such change
order shall be effective and binding against Cardinal Health [ ]*; provided,
that Cardinal Health shall use commercially reasonable efforts to accommodate
the changes within reasonable manufacturing capabilities and efficiencies. 
Cardinal Health shall advise Cubist in writing of the reasonable costs
associated with making any such change. If Cubist does not indicate to Cardinal
in writing that Cardinal Health should proceed to make the change, Cubist shall
notify Cardinal Health whether or not Cubist wants Cardinal Health to supply the
Product pursuant to the original Purchase Order or pursuant to the changed
Purchase Order.  If the change is required by a change in Specifications, the
terms of Section 8.1 shall also apply.

 

(b)           If Cubist cancels any Purchase Order, Cubist shall pay a fee as
set forth in the following table:

 

[ ]*

[ ]*

[ ]*

[ ]*

[ ]*

[ ]*

[ ]*

[ ]*

[ ]*

[ ]*

[ ]*

[ ]*

[ ]*

[ ]*

[ ]*

[ ]*

[ ]*

[ ]*

 

(c)           If Cubist fails to place Purchase Orders sufficient to satisfy the
first [ ]* of the Firm Commitment for any Rolling Forecast, Cubist shall, within
[ ]* of receipt of invoice, pay to Cardinal Health the unit price for all units
that were not ordered, but would have been Processed if Cubist has placed
Purchase Orders sufficient to satisfy the Firm Commitment.

 

4.6           Failure to Deliver. If Cardinal Health has not supplied one or
more Batches of Product ordered by Cubist in a Purchase Order, Cubist may
increase or reduce its Firm Commitment and corresponding Purchase Orders for the
next calendar quarter by the number of Batches of Product that Cardinal Health [
]*, and Cardinal Health shall supply Product to Cubist in accordance with such
revised Purchase Orders.  Any such increase or reduction by Cubist shall in no
way affect any other remedies that Cubist may have in law or equity for Cardinal
Health’s failure to supply such Batches in accordance with a Purchase Order.

 

4.7           Inspection of Processing, Records and Facilities. Cubist may base
up to [ ]* representatives at the Facilities to observe the Processing, provided
that Cubist provides Cardinal Health at least [ ]* advance written notice of the
attendance of such Cubist representatives.  Cubist shall have the right, on
reasonable advance written notice, to perform: (i) one annual quality assurance
audit and inspection of Cardinal Health’s records and production facilities
relating to the Processing so that Cubist may evaluate Cardinal Health’s quality
control, manufacturing, labeling, packaging and testing processes and Standard
Operating Procedures,

 

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* Confidential Treatment Requested.  Omitted portions filed with the Commission.

 

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and (ii) one annual audit of Cardinal Health’s inventory and inventory control
processes, including physical counts of inventory, comparison of physical counts
to inventory counts in Cardinal Health’s documentation and on its systems, and
an audit of Cardinal Health’s inventory receipt and shipment processes;
provided, that, Cubist shall have the right to perform additional audits and
inspections to the extent that: (a) Cubist has reasonable cause to believe that
the Facilities or Cardinal Health’s production of Product hereunder is not in
compliance with GMPs, the Specifications or this Agreement; (b) such an audit is
mandated by a Regulatory Authority or necessary to respond to questions from any
Regulatory Authority; or (c) the Product is recalled.  Cubist shall indemnify
and hold harmless Cardinal Health for any action or activity of such
representatives while on Cardinal Health’s premises, except to the extent any
harm is caused by the negligent or wrongful action or activity by or on behalf
of Cardinal Health and its employees and agents.

 

ARTICLE 5

TESTING; SAMPLES; RELEASE

 

5.1           Testing by Cardinal Health; Acceptance by Cubist.  Following
Processing, Cardinal Health shall test each Batch for conformance with
Specifications and compliance with GMPs in accordance with Cardinal Health’s
standard quality assurance procedures.  Initially, Cardinal Health will test
only for sterility and deliver samples of each Batch to a GMP-compliant third
party testing facility for finished Product testing on behalf of Cubist. 
Following transfer of the applicable test methods and upon at least [ ]* prior
written notice from Cubist to Cardinal Health, Cardinal Health will perform
finished Product testing pursuant to the Specifications.  Within [ ]* after
Cardinal Health’s completion of Processing, Cardinal Health shall provide Cubist
with an accurate and complete Batch Record and Certificate of Analysis for each
Batch Processed.  Prior to Cardinal Health becoming obligated to perform
finished Product testing, Cardinal Health shall be responsible for completing
the Certificate of Analysis only with respect to sterility.  Thereafter,
Cardinal Health shall provide complete Certificates of Analyses.  Cubist shall
have a period of [ ]* from the date of its receipt of all completed Batch
Records and Certificates of Analyses for a Batch of Product to complete its
review of such documents and either release the Batch for delivery or notify
Cardinal Health that the Batch does not comply with the Specifications. 
Cardinal Health shall deliver Product to Cubist in accordance with Section 6.1
only upon Cubist’s release of each Batch.  Prior to such Batch release by
Cubist, Cardinal Health shall store Product under quarantine in accordance with
Product labeling, the Master Batch Record and all Applicable Laws.  Cubist shall
have a period of [ ]* from the date of its receipt of a shipment of Product to
inspect such shipment for shortage of quantity, damage or failure of the Product
to conform to the warranty in Section 10.1.  Acceptance by Cubist shall occur
either upon Cubist’s providing written notice to Cardinal Health of acceptance
or upon the expiration of the [ ]* period, if Cubist has not provided notice of
rejection, as provided in Section 5.2; provided, however, in the case of Latent
Defects, Cubist shall have [ ]* from the date it becomes aware of any such
Latent Defect to reject any Product in accordance with Section 5.2.

 

5.2           Rejection; Disagreements Regarding Rejection. If Cubist rejects
Product for failure to conform to the Specifications and Applicable Laws or
damage caused prior to delivery, it shall promptly notify Cardinal Health.  In
the event of a disagreement between the parties as to the basis for Cubist’s
rejection, the parties shall cause a mutually acceptable, GMP-compliant,
independent laboratory to review records, test data and to perform comparative
tests and/or

 

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* Confidential Treatment Requested.  Omitted portions filed with the Commission.

 

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analyses on samples of the Product to determine whether the basis for Cubist’s
rejection is accurate.  The independent party’s results shall be final and
binding.  Unless otherwise agreed to by the parties in writing, the costs
associated with such testing and review shall be borne by the party which was
found by the independent laboratory to be incorrect.

 

5.3           Shortage in Quantities.  If Cubist determines that Cardinal Health
has invoiced Cubist for more vials than have been delivered in a particular
shipment, Cubist shall notify Cardinal Health and the parties shall work
together in good faith to resolve such discrepancy.  If Cardinal Health has
overcharged Cubist, Cardinal Health shall provide Cubist a corrected invoice.

 

5.4           Replacement of Product.  In the event of failure of Product to
conform to warranty in Section 10.1 or Product that was damaged prior to
delivery (“Defective Product”), whether as determined by Cardinal Health or an
independent laboratory under Section 5.2, Cardinal Health shall replace all such
Product with conforming Product.  THE OBLIGATION OF CARDINAL HEALTH TO
(i) REPLACE PRODUCT PURSUANT TO THIS SECTION 5.4 AND (ii) REIMBURSE CUBIST FOR
ITS ACTUAL COST OF ANY LOST, DAMAGED, OR DESTROYED API OR API THAT IS NO LONGER
USABLE AS A RESULT OF BEING USED FOR DEFECTIVE PRODUCT IN AN AMOUNT NOT TO
EXCEED THE LIMITATION SET FORTH IN SECTION 16.1 SHALL BE CUBIST’S SOLE AND
EXCLUSIVE REMEDY UNDER THIS AGREEMENT FOR DEFECTIVE PRODUCT [ ]* AND IS IN LIEU
OF ANY OTHER WARRANTY, EXPRESS OR IMPLIED.

 

5.5           Supply of Material for Replacement Product .  In the event
Cardinal Health is required to replace Product pursuant to Section 5.3 above,
Cubist shall supply, at its sole cost, Cardinal Health with sufficient
quantities of the API in order for Cardinal Health to complete such replacement.

 

ARTICLE 6

DELIVERY

 

6.1           Delivery. Cardinal Health shall segregate and store all Product in
accordance with the Product labeling, Master Batch Record and all Applicable
Laws until delivery to a common carrier selected by Cubist as set forth herein.
Cardinal Health shall tender the Product for delivery on the delivery date
specified in the applicable Purchase Order or such other date mutually agreed to
by the parties, [ ]*.  Cubist shall be responsible for all costs and risk of
loss associated with shipment of the Product.  Cubist shall retain title to the
API at all times; however, Cardinal Health shall assume all responsibility and
risk for the safekeeping, storage and handling of all API and Product while in
Cardinal Health’s possession or control, subject to the limitation set forth in
Section 16.1.

 

6.2           Failure to Take Delivery.  If Cubist fails to take delivery on any
scheduled delivery date, Cubist shall be invoiced on the first day of each month
for the stored Product and reasonable administration and storage costs.  For
each such Batch of undelivered Product, Cubist agrees that: (i) Cubist has made
a fixed commitment to purchase such Product, (ii) risk of ownership for such
Product passes to Cubist, (iii) such Product shall be on a bill and hold basis
for legitimate business purposes, (iv) if no delivery date is determined at the
time of billing, Cardinal Health

 

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* Confidential Treatment Requested.  Omitted portions filed with the Commission.

 

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shall have the right to ship the Product to Cubist within four (4) months after
billing, and (v) Cubist will be responsible for any decrease in market value of
such Product that relates to factors and circumstances outside of Cardinal
Health’s control.  Within five (5) days following a written request from
Cardinal Health, Cubist shall provide Cardinal Health with a letter confirming
items (i) through (v) of this Section for each such Batch of undelivered
Product.

 

ARTICLE 7

PRICING AND PAYMENT

 

7.1           Unit Pricing.  Cubist shall pay to Cardinal Health the unit
pricing set forth on Exhibit B-1 (“Unit Pricing”) for all Product.  In the event
Cubist requests services other than Processing Product, Cardinal Health shall
provide a written quote of the fee for such additional services and Cubist shall
advise Cardinal Health whether it wishes to have such additional services
performed by Cardinal Health.

 

7.2           Price Increase. The Unit Pricing may be adjusted on an annual
basis, effective on each anniversary date of this Agreement, upon [ ]* written
notice from Cardinal Health to Cubist in an amount equal to the most recent
annual percentage increase of the [ ]*, provided, however, that in no event
shall such increase be less than [ ]* or more than [ ]*.

 

7.3           Taxes; Duty. All taxes and duties assessed on the Raw Materials,
API or the Product prior to or upon sale to Cubist, other than taxes based on
Cardinal Health’s income, are the responsibility of Cubist, and Cubist shall
reimburse Cardinal Health for any such taxes or duties paid by Cardinal Health.

 

7.4           Payment Terms. Cardinal Health shall invoice Cubist for all
Product following delivery to Cubist pursuant to Section 6.1, and payment for
such invoices shall be due within [ ]* after Cubist’s receipt of such invoice.
In the event payment is not received by Cardinal Health on or before the [ ]*
after the date of the invoice, then such unpaid amount not disputed in good
faith shall accrue interest at the rate of [ ]* per month until paid in full.

 

7.5           Annual True-Up.  Within [ ]* following the end of each contract
year during the Term, the first of which shall commence on the Effective Date
and end twelve months thereafter, the parties shall reconcile the number of
units of Product ordered, shipped and paid for hereunder with the minimum annual
pricing set forth on Exhibit B-1 hereto.  In the event that Cubist has overpaid
for each unit based on the actual number of units purchased, Cardinal Health
shall refund to Cubist the difference. In the event Cubist has underpaid,
Cardinal Health will invoice Cubist for any amounts due to Cardinal Health.  For
purposes of example only, if Cubist actually purchases 2,500,000 vials of
Product, but forecasted only 1,000,000, and Cardinal Health invoiced Cubist for
all units at the price set for 1,000,000 units, then Cubist shall be entitled to
a refund so that it paid for all 2,500,000 units at the lower price set for
2,000,000 or more vials. Likewise, if Cubist actually purchases 1,000,000 vials
of Product, but forecasted 2,500,000, and Cardinal Health invoiced Cubist for
1,000,000 units at the price set for 2,500,000 units, then Cardinal Health shall
invoice Cubist in an amount such that Cubist shall have paid for all 1,000,000
units at the higher price set for 1,000,000 vials.

 

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* Confidential Treatment Requested.  Omitted portions filed with the Commission.

 

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ARTICLE 8

CHANGES TO SPECIFICATIONS OR PROCESS

 

8.1           Specification Changes.  All Specifications and any changes thereto
agreed to by the parties from time to time shall be in writing, dated and signed
by the parties.  No change in the Specifications shall be implemented by
Cardinal Health, whether requested by Cubist or requested or required by any
Regulatory Authority, until the parties have agreed in writing to such change,
the implementation date of such change, and [ ]* associated with such change. 
Cardinal Health shall respond promptly to any request made by Cubist for a
change in the Specifications, and both parties shall use commercially
reasonable, good faith efforts to agree to the terms of such change in a timely
manner.  Immediately after a request is made for any change in Specifications,
Cardinal Health shall notify Cubist of the [ ]* associated with such change and
shall provide [ ]* as Cubist may reasonably require.  Cubist shall pay all
mutually agreed upon costs associated with such agreed upon changes. If the
parties cannot reasonably agree in good faith upon [ ]* associated with a
requested change in the Specifications within [ ]* of the request for the
change, Cubist shall have the right to [ ]*, and the parties shall negotiate in
good faith an equitable settlement of the amounts that would otherwise be due
from Cubist to Cardinal Health for Cubist’s then current Firm Commitment, based
on the reasons for the requested change.

 

8.2           Process Changes.  A Process change shall be treated as a
Specification change and shall be handled as provided in Section 8.1.  Cardinal
Health shall promptly provide Cubist with any and all change control documents,
deviation reports, and any other investigation reports relating to the Process. 
Cardinal Health shall not implement changes to the Process without the prior
written consent from Cubist.

 

ARTICLE 9

RECORDS; REGULATORY MATTERS

 

9.1           Batch Records and Data.  Within [ ]* following the completion of
Processing of each batch, Cardinal Health shall provide Cubist with properly
completed copies of Batch Records prepared in accordance with the
Specifications; provided, however, that if testing reveals an
out-of-Specification (“OOS”) result, Cardinal Health shall immediately notify
Cubist in writing and shall provide such Batch Records within [ ]* following
resolution of the OOS result.  Cardinal Health will conduct OOS investigations
(including OOS investigations at third parties) with prior written approval from
Cubist.  If such an investigation indicates that Cardinal Health is responsible
for the OOS result, Cardinal Health will not charge Cubist for the investigation
costs, and Cardinal Health shall replace any Defective Product in accordance
with Sections 5.4 and 5.5.  If an OOS investigation does not indicate that
Cardinal Health is responsible for the cause of an OOS result, the cost of the
investigation will be invoiced to Cubist at [ ]*.

 

9.2           Recordkeeping.  Cardinal Health shall maintain true and accurate
books, records, test and laboratory data, reports and all other information
relating to Processing under this Agreement, including all information required
to be maintained by all Applicable Laws.  Such information shall be maintained
in forms, notebooks and records for a period of at least [ ]*, provided, however
that (i) Cardinal Health may maintain such records for a shorter period of no
less than [ ]* from the relevant finished Product expiration date if Cardinal
Health’s standard operating

 

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procedures provide for such a shorter period, and (ii) Cardinal Health shall in
no event retain such records for less than the period required under Applicable
Laws.  If Cardinal Health plans to discontinue such storage prior to expiration
of the [ ]* period, Cardinal Health shall provide Cubist with sufficient prior
written notice so that Cubist can arrange for alternative storage, and Cardinal
Health shall cooperate with Cubist to have any such documentation transferred to
an alternative storage facility.

 

9.3           Regulatory Compliance.  Cubist shall be solely responsible for all
permits and licenses required by any Regulatory Authority with respect to the
Product and the Processing under this Agreement other than with respect to the
Facilities, including any Product licenses, applications and amendments in
connection therewith.  Cardinal Health will be responsible to maintain all
permits and licenses required by any Regulatory Authority with respect to the
Facilities.  During the Term, Cardinal Health will: (a) assist Cubist with all
regulatory matters relating to Processing under this Agreement and (b) provide
all information necessary to support the CMC sections of Cubist’s regulatory
filings for Product, at Cubist’s request and at Cubist’s expense.  Each party
intends and commits to cooperate to satisfy all Applicable Laws relating to
Processing under this Agreement.

 

9.4           Governmental Inspections and Requests.  Cardinal Health shall
immediately advise Cubist if an authorized agent of any Regulatory Authority
visits the Facilities concerning the Processing of the Product.  Further, upon
receipt of a Regulatory Authority request to inspect the Facilities or audit
Cardinal Health’s books and records with respect to Processing under this
Agreement, Cardinal Health shall immediately notify Cubist, and shall provide
Cubist with a copy of any written document received from such Regulatory
Authority relating to the Product no later than [ ]* hours after Cardinal
Health’s receipt thereof.  Cubist shall have a right to have up to [ ]*
representatives attend any inspection described in the first two sentences of
this Section 9.4 or, in the alternative, Cardinal Health shall provide daily
reports generally summarizing the inspectional process and any findings
communicated by the Regulatory Authority to a designated Cubist representative. 
Cardinal Health shall furnish to Cubist a copy of the report by such Regulatory
Authority, if any, within [ ]* of Cardinal Health’s receipt of such report.  In
addition, Cardinal Health shall immediately notify Cubist of other Regulatory
Authority inspections of the Facilities that are not directly related to the
Processing of the Product if Cardinal Health has a reasonable basis to believe
that the subject of, or issues identified during, such inspection are likely to
impact the Processing of the Product.  Cardinal Health shall furnish to Cubist a
copy of the report by such Regulatory Authority regarding any such inspection to
the extent that the report relates to the Processing of the Product.  Cubist
shall notify Cardinal Health of any visits by Regulatory Authorities to
facilities manufacturing the API, performing testing on the Product, or
performing other services in connection with the Product if Cubist reasonably
believes that such visit may result in an inspection of the Facilities.

 

9.5           Recall.  In the event Cardinal Health believes a recall, field
alert, Product withdrawal or field correction may be necessary with respect to
any Product provided under this Agreement, Cardinal Health shall immediately
notify Cubist in writing. Cardinal Health will not act to initiate a recall,
field alert, Product withdrawal or field correction without the express prior
written approval of Cubist, unless otherwise required by Applicable Laws. In the
event Cubist believes a recall, field alert, Product withdrawal or field
correction may be necessary with

 

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respect to any Product provided under this Agreement, Cubist shall immediately
notify Cardinal Health in writing and Cardinal Health shall provide all
necessary cooperation and assistance to Cubist.  The cost of any recall, field
alert, Product withdrawal or field correction shall be borne by Cubist except to
the extent such recall, field alert, Product withdrawal or field correction is
caused by Cardinal Health’s breach of its obligations under this Agreement or
Applicable Laws or its negligence or willful misconduct, then such cost shall be
borne by Cardinal Health.  For purposes hereof, such cost shall be limited to
reasonable, actual and documented administrative costs incurred by Cardinal
Health or Cubist, as the case may be, for such recall, withdrawal or correction,
and replacement of the Defective Product to be recalled, in accordance with
Article 5.

 

9.6           Quality Agreements.  Within six (6) months following the execution
of this Agreement, the parties shall execute a Quality Agreement in
substantially the form attached to this Agreement as Exhibit C. The Quality
Agreement shall in no way determine liability or financial responsibility of the
parties for the responsibilities set forth therein.  In the event of a conflict
between the terms of this Agreement and the Quality Agreement, this Agreement
shall control.

 

9.7           Access to Drug Master File.  Cardinal shall grant Cubist reference
rights to all Drug Master Files (as described in 21 CFR 314.420) necessary to
support Cubist’s applications for approval of Product by Regulatory Authorities;
provided, that, Cardinal Health shall not file a Type II DMF for Product. 
Cardinal shall update its Drug Master Files annually and shall inform Cubist
prior to any modifications thereto in order to permit Cubist to amend or
supplement any affected regulatory submissions.

 

9.8           Inventory Reports.  Cardinal shall provide Cubist with up to date
quarterly inventory reports within [ ]* of the end of each calendar quarter.
Such reports shall specify amounts of both API and Product.

 

ARTICLE 10

REPRESENTATIONS AND WARRANTIES

 

10.1         Limited Warranty.  Cardinal Health represents and warrants to
Cubist that Product supplied hereunder shall, at the time of delivery, conform
to the Product Specifications and Applicable Laws, and will have been Processed
in conformance with the Product Specifications and Applicable Laws.  THE LIMITED
WARRANTIES SET FORTH IN THIS ARTICLE 10 ARE IN LIEU OF ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY, WARRANTY OF
NON-INFRINGEMENT AND ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE.  EXCEPT
FOR THE OTHER WARRANTIES EXPRESSED IN THIS ARTICLE 10, CARDINAL HEALTH MAKES NO
OTHER WARRANTY, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE PROCESSING OR THE
PRODUCT.

 

10.2         API.  Cubist warrants and covenants that the API will, at the time
of delivery by Cubist to Cardinal Health, meet the applicable API specifications
and will have been produced in compliance with Applicable Laws.

 

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10.3         Release Responsibility.   Cubist represents and warrants that it
will not release any Batch of Product if the required Certificates of Analysis
indicate that the Product does not comply with the Specifications.

 

10.4         Artwork.  Cubist represents and warrants that to the best of its
knowledge the artwork provided to Cardinal Health does not infringe on any third
party’s intellectual property rights, including, but not limited to, copyright,
trademark or trade name.  Cubist further represents that all artwork and the
content thereof provided to Cardinal Health shall comply with all Applicable
Laws.

 

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10.5         Intellectual Property.  Cubist represents and warrants to Cardinal
Health that to the best of its knowledge Cubist has all necessary authority and
right, title and interest in and to any copyrights, trademarks, trade secrets,
patents, inventions and developments related to the Product and the manufacture
thereof existing as of the Effective Date, and Cubist hereby grants to Cardinal
Health a non-exclusive, royalty-free license thereunder, without any right to
sublicense, solely to the extent necessary for Cardinal Health to perform its
obligations under this Agreement. Cardinal Health represents and warrants to
Cubist that the work to be performed by Cardinal Health under this Agreement,
other than as specifically instructed or approved in the Master Batch Record by
Cubist, will not violate or infringe upon any trademark, tradename, copyright,
patent or other rights held by any person or entity.

 

10.6         Existence and Power.  Each party hereby represents and warrants to
the other party that such party (i) is duly organized, validly existing and in
good standing under the laws of the state in which it is organized, (ii) has the
power and authority and the legal right to own and operate its property and
assets, and to carry on its business as it is now being conducted, and (iii) is
in compliance with all requirements of applicable law, except to the extent that
any noncompliance would not materially adversely affect such party’s ability to
perform its obligations under the Agreement.

 

10.7         Authorization and Enforcement of Obligations.  Each party hereby
represents and warrants to the other party that such party (i) has the power and
authority and the legal right to enter into this Agreement and to perform its
obligations hereunder and (ii) has taken all necessary action on its part to
authorize the execution and delivery of the Agreement and the performance of its
obligations hereunder.  The Agreement has been duly executed and delivered on
behalf of such party, and constitutes a legal, valid, binding obligation,
enforceable against such party in accordance with its terms.

 

10.8         No Consents.  Each party hereby represents and warrants to the
other party that all necessary consents, approvals and authorizations of all
Regulatory Authorities, agencies and other persons required to be obtained by
such party in connection with the Agreement have been or will be obtained as of
the date of any Processing.

 

10.9         No Conflict.  Each party hereby represents and warrants to the
other party that the execution and delivery of this Agreement and the
performance of such party’s obligations hereunder (i) do not conflict with or
violate any requirement of applicable laws or regulations or any material
contractual obligation of such party and (ii) do not materially conflict with,
or constitute a material default or require any consent under, any material
contractual obligation of such party.

 

10.10       Statement on Auditing Standards 70.  In the event that Cardinal
Health decides in its sole discretion to compile and maintain a Type II
Statement on Auditing Standards 70 qualification (“SAS 70 Qualification”) with
respect to the Facility, Cardinal Health shall make available to Cubist Cardinal
Health’s most recent SAS 70 Qualification reports upon Cubist’s request.

 

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ARTICLE 11

CONFIDENTIAL INFORMATION

 

11.1         Nondisclosure.  During the Term of this Agreement and for a period
of [ ]* after expiration or termination of this Agreement, neither party shall:

 

(a)           disclose, publish or otherwise make available (orally or in
writing) any Confidential Information of the other party to any third party
(except any employee, advisor, agent or consultant of the receiving party who
has a need to know or to have access to such Confidential Information) and
except as required by Applicable Laws or in the course of litigation or other
legal or administrative proceedings; or

 

(b)           use any Confidential Information of the other party except in
connection with performance of this Agreement or upon express prior written
consent of the other party.

 

11.2         Confidential Information.  For purposes of this Agreement,
“Confidential Information” means any and all information disclosed by a party at
any time in connection with this Agreement, except for any information which the
receiving party can establish by competent written evidence (a) was known to the
receiving party at the time of disclosure by the disclosing party, (b) was
generally available to the public at the time of disclosure by the disclosing
party, (c) after disclosure by the disclosing party, became generally available
to the public other than in breach of this Article 11, (d) after disclosure by
the disclosing party, became known to the receiving party from a third party
lawfully disclosing such information, or (e) was independently developed or
discovered by the receiving party without use of the disclosing party’s
Confidential Information.

 

ARTICLE 12

INTELLECTUAL PROPERTY

 

12.1         Ownership of Existing Technologies.  All rights to and interests in
Cubist’s Intellectual Property existing as of the Effective Date, including
without limitation Cubist’s rights in the Product, the API, or the formulation
thereof (“Cubist’s Existing IP”) and Cubist’s Confidential Information shall
remain vested solely in Cubist and no right or interest therein is transferred
or granted to Cardinal Health under this Agreement except as provided in
Section 10.5.  All rights to and interests in Cardinal Health’s Intellectual
Property existing as of the Effective Date (“Cardinal Health’s Existing IP”) and
Cardinal Health’s Confidential Information shall remain vested solely in
Cardinal Health and no right or interest therein is transferred or granted to
Cubist under this Agreement except as provided in Section 12.3.

 

12.2         Cubist Inventions. Cubist shall own all data, work product,
results, reports, inventions, developments, technologies and information,
whether or not patentable, including without limitation any Intellectual
Property, that are generated by Cardinal Health in connection with its
performance under this Agreement and arise from, are based upon, or relate to
Cubist’s Existing Intellectual Property or Cubist’s Confidential Information
(“Cubist Inventions”) with the exception that Cubist Inventions shall not
include any Process Invention.  As used herein, “Process Invention” means any
discovery, development, technology or information directed to

 

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any manufacturing, packaging or analytical process or methodology, developed by
Cardinal Health in connection with its performance under this Agreement, whether
or not patentable, that does not relate exclusively to the Product and/or the
API. For the avoidance of doubt, such discoveries, developments, technology and
information that do relate exclusively to the Product and/or the API shall be
Cubist Inventions.  Cubist will be responsible for obtaining patent protection
on inventions relating to the Cubist Inventions at its own cost.  Cardinal
Health agrees to execute all documents necessary to perfect title in any Cubist
Inventions in Cubist.

 

12.3         Cardinal Health Inventions.  Cardinal Health shall own Process
Inventions and all inventions, developments, technologies and information,
whether or not patentable that arise from, are based upon, or relate to the
Process Inventions or Cardinal Health’s Confidential Information or Cardinal
Health’s Intellectual Property, but excluding any Cubist Inventions (“Cardinal
Health Inventions”).  Cardinal Health will be responsible for obtaining patent
protection on Cardinal Health Inventions at its own cost.  Cubist agrees to
execute all documents necessary to perfect title in any Cardinal Health
Inventions in Cardinal Health.  Cardinal Health hereby grants to Cubist a [ ]*
license to use the Process Inventions, Cardinal Health Inventions, any other
Cardinal Health Intellectual Property and Cardinal Health Confidential
Information solely as necessary for Cubist to manufacture, market, distribute
and sell Product meeting the Specifications.

 

12.4         Cubist’s Marks.  Cubist’s Marks (whether owned by or licensed to
Cubist) shall remain the exclusive property of, and any use thereof by Cardinal
Health shall inure to the exclusive benefit of, Cubist.  This Agreement shall
not constitute a license to Cardinal Health to use Cubist’s Marks for any other
purpose than in connection with Cardinal Health’s performance of its duties
under this Agreement and in the form in which they are provided by Cubist, or as
approved in writing in advance by Cubist.  Upon termination of this Agreement
for whatever reason, Cardinal Health’s use of Cubist’s Marks shall cease. 
Cardinal Health shall not alter Cubist’s Marks without the prior written consent
of Cubist.  Cardinal Health shall not at any time do or permit any act to be
done which may in any way impair the rights of Cubist in Cubist’s Marks. 
Cardinal Health shall not obtain or assert any claim to any trademark protection
relating to Cubist’s Marks (whether owned by or licensed to Cubist), and any
rights so obtained shall be immediately transferred to Cubist.  Cardinal Health
shall advise Cubist of any conflict of which Cardinal Health becomes aware
between Cubist’s Marks and the name, trademarks or trade names of any third
party.

 

ARTICLE 13

INDEMNIFICATION

 

13.1         Indemnification by Cardinal Health.  Cardinal Health shall
indemnify and hold harmless Cubist, its Affiliates, directors, officers,
employees and agents from and against any and all suits, claims, losses,
demands, liabilities, damages, costs and expenses (including costs, reasonable
attorney’s fees and reasonable investigative costs) in connection with any
action by any third party arising out of or resulting from Cardinal Health’s:
(a) negligence or willful misconduct; (b) breach of its representations,
warranties or obligations set forth in this Agreement; (c) infringement or
violation of a third party’s patent, trade secret, copyright, trademark or other
proprietary rights, other than to the extent caused by Cubist’s express
instructions to Cardinal

 

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Health or by use of Cubist’s Confidential Information or Cubist’s Existing IP in
accordance with this Agreement, except to the extent that such action arises out
of or results from the material breach of this Agreement by Cubist or the
negligence or willful misconduct of Cubist.

 

13.2         Indemnification by Cubist.  Cubist shall indemnify and hold
harmless Cardinal Health, its Affiliates, directors, officers employees and
agents from and against any and all suits, claims, losses, demands, liabilities,
damages, costs and expenses (including costs, reasonable attorney’s fees and
reasonable investigative costs) in connection with any action by any third party
arising out of or resulting from Cubist’s (a) negligence or willful misconduct;
(b) breach of its representations, warranties or obligations set forth in this
Agreement; (c) sale, promotion, distribution or use of the Product, including,
without limitation, Product liability or strict liability; or (d) infringement
or violation of any third party patent, trade secret, copyright, trademark or
other proprietary rights resulting from the sale, promotion, distribution or use
of Product or the or by use of Cubist’s Confidential Information or Cubist’s
Existing IP in accordance with this Agreement, except to the extent that any
such action arises out of or results from the material breach by Cardinal Health
of this Agreement, or the negligence or willful misconduct of Cardinal Health.

 

13.3         Indemnification Procedures.  All indemnification obligations in
this Agreement are conditioned upon the party seeking indemnification promptly
notifying the indemnifying party of any claim or liability of which the party
seeking indemnification becomes aware (including a copy of any related
complaint, summons, notice or other instrument), cooperating with the
indemnifying party in the defense of any such claim or liability (at the
indemnifying party’s expense), and not compromising or settling any claim or
liability without prior written consent of the indemnifying party, which consent
shall not be unreasonably withheld or delayed.

 

ARTICLE 14

INSURANCE

 

14.1         Cardinal Health.  Cardinal Health shall, by and through its parent,
Cardinal Health, Inc. and at its own cost and expense, obtain and maintain in
full force and effect the following insurance during the term of this Agreement:
(i) Commercial General Liability insurance with per-occurrence and general
aggregate limits of not less than [ ]*; (ii)  Products and Completed Operations
Liability Insurance with per-occurrence and general aggregate limits of not less
than [ ]*; (iii) Workers’ Compensation and Employer’s Liability Insurance with
statutory limits for Workers’ Compensation and Employer’s Liability insurance
limits of not less than [ ]*; (iv) Professional Services Errors & Omissions
Liability Insurance with per claim and aggregate limits of not less than [ ]*
covering sums that Cardinal Health becomes legally obligated to pay as damages
resulting from claims made by Cubist for errors or omissions committed in the
conduct of the services outlined in the Agreements.  In lieu of insurance,
Cardinal Health may self-insure any or a portion of the above required
insurance.  In the event that any of the required policies of insurance are
written on a claims made basis, then such policies shall be maintained during
the entire term of this Agreement and for a period of not less than [ ]*
following the termination or expiration of this Agreement.  Cubist shall be
named as an additional insured under the Commercial General Liability and
Products and Completed Operations Liability insurance policies as respects the
manufacturing services outlined in this Agreement.  Cardinal

 

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Health shall furnish certificates of insurance for all of the above noted
policies and required additional insured status to Cubist as soon as practicable
after the Effective Date of the Agreement and upon renewal of any such
policies.  Each insurance policy that is required under this Section shall be
obtained from an insurance carrier with an A.M. Best rating of at least A- VII.

 

14.2         Cubist Insurance.  Cubist shall, at its own cost and expense,
obtain and maintain in full force and effect the following insurance during the
term of this Agreement: (i) Products and Completed Operations Liability
Insurance with per-occurrence and general aggregate limits of not less than [
]*; (ii) Workers’ Compensation and Employer’s Liability Insurance with statutory
limits for Workers’ Compensation and Employer’s Liability insurance limits of
not less than [ ]*; (iii) All Risk Property Insurance, including transit
coverage, in an amount equal to full replacement value covering Cubist’s
property while it is at Cardinal Health’s Facilities or in transit to or from
Cardinal Health’s Facilities.  In the event that any of the required policies of
insurance are written on a claims made basis, then such policies shall be
maintained during the entire term of this Agreement and for a period of not less
than [ ]* following the termination or expiration of this Agreement.  Cubist
shall obtain a waiver from any insurance carrier with whom Cubist carries
Property Insurance releasing its subrogation rights against Cardinal Health. 
Cubist shall not seek reimbursement for any property claim, or portion thereof,
that is not fully recovered from Cubist’s Property Insurance policy.  Cardinal
Health and its Affiliates shall be named as additional insureds under the
Products and Completed Operations Liability insurance policies as respects the
Products and completed operations outlined in this Agreement.  Cubist shall
furnish certificates of insurance for all of the above noted policies and
required additional insured status to Cardinal Health as soon as practicable
after the Effective Date of the Agreement and upon renewal of any such
policies.  Each insurance policy that is required under this Section shall be
obtained from an insurance carrier with an A.M. Best rating of at least A- VII.

 

ARTICLE 15

TERM AND TERMINATION

 

15.1         Term.  This Agreement shall commence on the Effective Date and
shall continue for a period of five (5) years, unless earlier terminated under
Section 15.2 below (the “Term”).  This Agreement shall thereafter automatically
renew for additional one (1) year periods, unless either party provides the
other party with one hundred and eighty (180) days written notice prior to any
such renewal that such party does not want the Agreement to renew.

 

15.2         Termination by Cubist.  Cubist may terminate this Agreement as
provided in [ ]*.

 

15.3         Termination by Either Party.

 

(a)           Material Breach.  Either party may terminate this Agreement
immediately, if the other party commits a material breach of this Agreement and
fails to cure such breach by the end of the sixty (60) day period following the
non-breaching party’s provision of written notice to the other party of such
breach;  provided, however, that failure to pay amounts due under this Agreement
that are not disputed in good faith within thirty (30) days after such payments
are due and receipt of notice from the party to whom such payment is due shall
constitute cause for

 

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immediate termination of this Agreement, or at the discretion of the party to
whom such payment is due, such party shall be relieved of any further obligation
to perform under this Agreement until all outstanding payments are brought
current.

 

(b)           Bankruptcy.  Either party may terminate this Agreement effective
upon written notice to the other party, if the other party becomes insolvent or
admits in writing its inability to pay its debts as they become due, files a
petition for bankruptcy, makes an assignment for the benefit of its creditors or
has a receiver, trustee or other court officer appointed for its properties or
assets.

 

15.4         Force Majeure.  If any default or delay occurs which prevents or
materially impairs a party’s performance and is due to a cause beyond the
party’s reasonable control, and provided that the default or delay is not caused
by or the fault of such party, including but not limited to an act of God,
flood, fire, explosion, earthquake, war, revolution, civil commotion, blockade
or embargo, the affected party shall promptly notify the other party in writing
of such cause and shall exercise reasonable commercial efforts to resume
performance under this Agreement as soon as possible.  Neither party will be
liable to the other party for any loss or damage due to such cause, and the Term
will not be extended thereby.  Neither party may terminate this Agreement
because of such default or delay except upon thirty (30) days prior written
notice to the other party if the default or delay has existed for three
(3) months and is continuing at the end of the thirty (30) day notice period.

 

15.5         Effect of Termination. Expiration or termination of this Agreement
shall be without prejudice to any rights or obligations that accrued to the
benefit of either party prior to such expiration or termination.  The rights and
obligations of the parties shall continue under Articles 5, 6 and 7 (only with
respect to outstanding Purchase Orders), 9, 10, 11, 12, 13, 16, 17 and 18, and
Sections 3.4, 15.5, notwithstanding expiration or termination of this Agreement.

 

ARTICLE 16

LIMITATIONS OF LIABILITY

 

16.1         CARDINAL HEALTH’S TOTAL LIABILITY FOR LOSSES TO API, BULK DRUG
PRODUCT OR OTHER MATERIALS PROVIDED BY CUSTOMER (OTHER THAN AS A RESULT OF [
]*), WHETHER OR NOT INCORPORATED INTO FINISHED PRODUCT SHALL NOT EXCEED [ ]* PER
BATCH, EXCEPT WHERE SUCH LOSSES OCCUR SPECIFICALLY AS A RESULT OF CARDINAL
HEALTH’S FAILURE TO [ ]* OF PRODUCT, OR [ ]* OF PRODUCT INTO [ ]* IN ACCORDANCE
WITH THE SPECIFICATIONS, IN WHICH CASE, CARDINAL HEALTH’S LIABILITY FOR SUCH
LOST PRODUCT SHALL NOT EXCEED THE LESSER OF [ ]* FOR EACH [ ]* OF LOST PRODUCT
OR [ ]*.  FOR PURPOSES OF THIS SECTION, THE TERM “LOST PRODUCT” SHALL ONLY MEAN
LOSSES OF PRODUCT (A) WHICH ARE REJECTED AFTER COMPLETION OF INSPECTION OF [ ]*
PRODUCT, AND (B) WHICH RESULT SOLELY FROM CARDINAL HEALTH’S FAILURE TO [ ]* OF
PRODUCT, OR [ ]* OF PRODUCT INTO [ ]* IN ACCORDANCE WITH THE SPECIFICATIONS, AND
(C) SOLELY TO THE EXTENT SUCH LOSSES OF PRODUCT EXCEED [ ]* OF THE TOTAL NUMBER
OF [ ]* VIALS THAT PASSED INSPECTION FROM THE SAME BATCH.   IN NO EVENT SHALL

 

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CARDINAL HEALTH’S TOTAL LIABILITY UNDER THIS AGREEMENT (INCLUDING WITHOUT
LIMITATION SECTION 16.3) EXCEED, OTHER THAN FOR [ ]*, THE GREATER OF: (I) [ ]*;
OR (II) [ ]* OF [ ]* PAID BY CUBIST TO CARDINAL HEALTH [ ]*; PROVIDED, HOWEVER,
IN THE CASE OF (II), IN NO EVENT SHALL CARDINAL HEALTH’S TOTAL LIABILITY EXCEED
[  ]*.

 

16.3         WITH THE EXCEPTION OF [ ]*, NEITHER PARTY SHALL BE LIABLE TO THE
OTHER PARTY FOR INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF
PERFORMANCE UNDER THIS AGREEMENT.

 

ARTICLE 17

NOTICE

 

Any notice from either party to the other party will be effective upon receipt
and must be personally delivered to such party or sent to such party by deposit
in the United States mail, first class, postage prepaid or telecopy transmission
(with written confirmation copy to follow via United States mail), to the
address for such party below or such other address as a party may designate from
time to time in accordance with this Section:

 

To Cubist:

 

Cubist Pharmaceuticals, Inc.

 

 

65 Hayden Avenue

 

 

Lexington, MA 02421

 

 

Attn: VP Manufacturing

 

 

Facsimile: 781.861.1585

 

 

 

With a copy to:

 

Cubist Pharmaceuticals, Inc.

 

 

65 Hayden Avenue

 

 

Lexington, MA 02421

 

 

Attn: General Counsel

 

 

Facsimile: 781.860.1407

 

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To Cardinal Health:

 

Cardinal Health PTS, LLC

 

 

4401 Alexander Blvd., NE

 

 

Albuquerque, NM 87107

 

 

Attn: General Manager

 

 

Facsimile: (505) 345-7513

 

 

 

With a copy to:

 

Cardinal Health, Inc.

 

 

7000 Cardinal Place

 

 

Dublin, Ohio 43017

 

 

Attn: Vice President and Associate General
Counsel, Pharmaceutical Technologies
& Services

 

 

Facsimile: (614) 757-5051

 

ARTICLE 18

MISCELLANEOUS

 

18.1         Entire Agreement; Amendments.  This Agreement and the Development
Agreement constitute the entire understanding between the parties and supersede
any contracts, agreements or understanding (oral or written) of the parties with
respect to the subject matter hereof.  In the case of any conflict between the
terms and conditions of this Agreement and those of the Development Agreement
with respect to the subject matter hereof, the terms and conditions of this
Agreement shall control.    For the avoidance of doubt, the Packaging Agreement
shall remain in full force and effect with respect to Cubicin processed by a
third party in accordance with the terms and conditions thereof and shall not be
amended in any respect by this Agreement.  No term of this Agreement may be
amended except upon written agreement of both parties, unless otherwise provided
in this Agreement.

 

18.2         Captions.  The captions in this Agreement are for convenience only
and are not to be interpreted or construed as a substantive part of this
Agreement

 

18.3         Further Assurances.  The parties agree to execute, acknowledge and
deliver such further instruments and all such other incidental acts as may be
reasonably necessary or appropriate to carry out the purpose and intent of this
Agreement.

 

18.4         No Waiver.  Failure by either party to insist upon strict
compliance with any term of this Agreement in one (1) or more instances will not
be deemed to be a waiver of its rights to insist upon such strict compliance
with respect to any subsequent failure.

 

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* Confidential Treatment Requested.  Omitted portions filed with the Commission.

 

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18.5         Severability.  If any term of this Agreement is declared invalid or
unenforceable by a court or other body of competent jurisdiction, the remaining
terms of this Agreement will continue in full force and effect.

 

18.6         Independent Contractors.  The relationship of the parties is that
of independent contractors, and neither party will incur any debts or make any
commitments for the other party except to the extent expressly provided in this
Agreement.  Nothing in this Agreement is intended to create or will be construed
as creating between the parties the relationship of joint ventures, co-partners,
employer/employee or principal and agent.

 

18.7         Successors and Assigns.  This Agreement will be binding upon and
inure to the benefit of the parties, their successors and permitted assigns. 
Neither party may assign this Agreement, in whole or in part, without the prior
written consent of the other party, except that either party may without the
other party’s consent assign this Agreement to an Affiliate or to a successor to
substantially all of the business or assets of the assigning company.

 

18.8         Governing Law.  This Agreement shall be governed by and construed
under the laws of the Commonwealth of Massachusetts, excluding its conflicts of
law provisions.

 

18.9         Alternative Dispute Resolution.  If a dispute, controversy or
disagreement (“Dispute”) arises between the parties in connection with this
Agreement, then the Dispute shall be presented to the respective presidents or
Senior Executives of Cardinal Health and Cubist for their consideration and
resolution.  If such parties cannot reach a resolution of the Dispute within
twenty-one (21) days of presentation to the respective presidents or Senior
Executives, then such Dispute shall be resolved by binding Alternative Dispute
Resolution in accordance with the then existing commercial arbitration rules of
The CPR Institute for Dispute Resolution (“CPR”), 366 Madison Avenue, New York,
NY 10017.  Arbitration shall be conducted in the jurisdiction of the defendant
party.

 

18.10       Prevailing Party.  In any dispute resolution proceeding between the
parties in connection with this Agreement, the prevailing party will be entitled
to its reasonable attorney’s fees and costs in such proceeding.

 

18.11       Injunctive Relief.  Notwithstanding Sections 18.9 and 18.10 or
anything else herein to the contrary, a party may seek a temporary restraining
order or a preliminary injunction from any court of competent jurisdiction in
order to prevent immediate or irreparable injury, loss, or damage on a
provisional basis, pending the decision of the arbitrator(s) on the ultimate
merits of any Dispute.  Despite such action, the parties will continue to
participate in good faith in the resolution of a Dispute in accordance with
Section 18.9.

 

18.12       Counterparts.  This Agreement may be executed in one (1) or more
counterparts, each of which will be deemed an original but all of which together
will constitute one (1) and the same instrument.

 

18.13       Public Announcements. Neither party will make any press release or
other public disclosure regarding this Agreement or the transactions
contemplated hereby without the other

 

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* Confidential Treatment Requested.  Omitted portions filed with the Commission.

 

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party’s express prior written consent, except as required under applicable law
or by any governmental agency, in which case the party required to make the
press release or public disclosure shall use commercially reasonable efforts to
obtain the approval of the other party as to the form, nature and extent of the
press release or public disclosure prior to issuing the press release or making
the public disclosure.

 

IN WITNESS WHEREOF, the parties have caused their duly authorized representative
to execute this Agreement effective as of the date first written above.

 

CARDINAL HEALTH PTS, LLC

 

CUBIST PHARMACEUTICALS, INC.

 

 

 

By:

 

 

 

By:

 

 

 

 

 

Name:

 

 

 

Name:

 

 

 

 

 

Title:

 

 

 

Title:

 

 

 

 

Cardinal Health, Inc., the parent company of Cardinal Health PTS, LLC, hereby
guarantees performance by Cardinal Health PTS, LLC of the contractual
obligations set forth in Section 14.1 of this Agreement.

 

AGREED TO AND ACCEPTED BY:

 

CARDINAL HEALTH, INC.

 

By:

 

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 

 

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* Confidential Treatment Requested.  Omitted portions filed with the Commission.

 

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EXHIBIT A

[ ]*

 

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* Confidential Treatment Requested.  Omitted portions filed with the Commission.

 

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EXHIBIT B

[ ]*

 

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* Confidential Treatment Requested.  Omitted portions filed with the Commission.

 

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EXHIBIT B-1

[ ]*

 

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* Confidential Treatment Requested.  Omitted portions filed with the Commission.

 

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EXHIBIT C

[ ]*

 

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* Confidential Treatment Requested.  Omitted portions filed with the Commission.

 

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