Document:

Exhibit 10.3

 

EURAND N.V.

 

INVESTOR RIGHTS AGREEMENT

 

INVESTOR RIGHTS AGREEMENT, dated as of               ,
2007 (the “Agreement”), among the investors listed on Schedule I
hereto (the “Investors”) and Eurand N.V., a public company with limited
liability, organized and existing under the laws of the Netherlands (the “Company”).

 

RECITALS

 

WHEREAS, the Company, as of the date of this
Agreement, has three classes of shares: the convertible, redeemable, cumulative
preferred shares in the Company, par value €0.01 per share (the “Series A
Preference Shares”), the ordinary shares in the Company, par value €0.01
per share (the “Ordinary Shares”), and the convertible, redeemable,
cumulative preferred shares in the Company, par value €0.01 per share (the “Series C
Preference Shares”). The rules governing both the Series A
Preference Shares, the Ordinary Shares and the Series C Preference
Shares are described in the articles of association of the Company (the “Articles”);
and

 

WHEREAS, in connection with the proposed public
offering by the Company of Ordinary Shares pursuant to a registration under the
Securities Act of 1933, as amended (such offering, the “Initial Public
Offering”), the Investors have the right to convert Series A
Preference Shares and Series C Preference Shares Owned (as defined below)
by such Investors at the time of the Initial Public Offering into Ordinary
Shares pursuant to the terms of such Series A Preference Shares and Series C
Preference Shares as described in the Articles; and

 

WHEREAS, the Company has agreed, in connection with
the Initial Public Offering, to grant the Investors certain rights; and

 

WHEREAS, the Company and the Investors desire to
define the rights of the Investors on the terms and subject to the conditions
herein set forth.

 

NOW, THEREFORE, in consideration of the mutual
promises and covenants set forth herein and for other good and valuable
consideration, the parties hereby agree as follows:

 

SECTION 1. DEFINITIONS

 

As used in this Agreement, the following terms have the
respective meanings set forth below:

 

Agreement:  shall mean this Investor Rights Agreement
among the Investors and the Company;

 

Commission:  shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act;

 

 

Exchange Act:  shall mean the Securities Exchange Act of
1934, as amended (or any successor act), and the rules and regulations
promulgated thereunder;

 

Holder:  shall mean any holder of Registrable
Securities;

 

Initiating Holder:  shall mean any Holder or Holders who in the
aggregate are Holders of more than 50% of the then outstanding Registrable
Securities;

 

Owns, Own, Owning or Owned: shall
mean beneficial ownership, assuming the conversion of all outstanding
securities convertible into Ordinary Shares and the exercise of all outstanding
options and warrants to acquire Ordinary Shares;

 

Person:  shall mean an individual, partnership,
joint-stock company, corporation, trust or unincorporated organization, and a
government or agency or political subdivision thereof;

 

Register, Registered and Registration:  shall mean a registration effected by
preparing and filing a registration statement in compliance with the Securities
Act (and any post-effective amendments filed or required to be filed) and the
declaration or ordering of effectiveness of such registration statement;

 

Registrable Securities:  shall mean (A) the Ordinary Shares
issued to the Investors upon the conversion of the Series A Preference
Shares and Series C Preference Shares, (B) any other Ordinary Shares
acquired by the Investors after the date hereof and (C) any shares of the
Company issued as a dividend or other distribution with respect to, or in
exchange for or in replacement of the Ordinary Shares referred to in clause (A) or
(B) but shall in any event exclude (x) Ordinary Shares sold by the
Investors pursuant to any registration statement or Rule 144 and (y)
Ordinary Shares sold by the Investors pursuant to a private placement in which
the Holder’s rights hereunder are not assigned;

 

Registration Expenses:  shall mean all expenses incurred by the
Company in compliance with Section 3(a), (b) and (c) hereof,
including, without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel for the Company, fees and expenses
of one counsel for all the Holders in an amount not to exceed $25,000, blue sky
fees and expenses and the expense of any special audits incident to or required
by any such registration;

 

Rule 144:  shall mean Rule 144 under the Securities
Act;

 

security, securities:  shall have the meaning set forth in Section 2(1) of
the Securities Act;

 

Securities Act:  shall mean the Securities Act of 1933, as
amended (or any successor act), and the rules and regulations promulgated
thereunder; and

 

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Selling Expenses:  shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities and all
fees and disbursements of counsel for each of the Holders other than fees and
expenses of one counsel for all the Holders in an amount not to exceed $25,000,
which are included in the Registration Expenses.

 

SECTION 2. BOARD OF DIRECTORS

 

Election of Directors. Upon the
request of the Investors, the Company shall use its best efforts to nominate
and cause to be elected as a non-executive director to the Board of Directors
of the Company (the “Board”) (i) as long as the Investors Own at least
twenty percent (20%) of the Ordinary Shares, up to two (2) representatives
designated by the Investors, and (ii) as long as the Investors Own at
least ten percent (10%) of the Ordinary Shares, one (1) representative
designated by the Investors (each, a “Warburg Pincus Director”). In the event
that any Warburg Pincus Director is unable to serve, or once having commenced
to serve, is removed or withdraws from the Board, upon the request of the
Investors, the Company shall use its best efforts, with due regard to the
provisions of the Articles that ultimately require shareholder approval to
elect such directors, to nominate and cause to be elected another Warburg
Pincus Director. The Parties are aware of the provisions of the Netherlands
Corporate Governance Code on the independence of non-executive directors and
shall fully respect the “explain” principle with respect to that code.

 

SECTION 3. REGISTRATION RIGHTS

 

(a)           Requested
Registration.

 

(i)            Request for
Registration. If the Company shall receive from an Initiating Holder, at
any time after the one hundred eighty (180)-day period following the closing of
the Initial Public Offering, a written request that the Company effect any
registration with respect to all or a part of the Registrable Securities,
the Company will:

 

(1)           promptly give written
notice of the proposed registration, qualification or compliance to all other
Holders; and

 

(2)           as soon as practicable,
use its best efforts to effect such registration (including, without
limitation, the execution of an undertaking to file post-effective amendments,
appropriate qualification under applicable blue sky or other state securities
laws and appropriate compliance with applicable regulations issued under the
Securities Act) as may be so requested and as would permit or facilitate
the sale and distribution of all or such portion of such Registrable Securities
as are specified in such request, together with all or such portion of the
Registrable Securities of any Holder or Holders joining in such request as are
specified in a written request received by the Company within ten (10) business
days after written notice from the Company is given under Section 3(a)(i)(1) above;
provided that the Company shall not be obligated to effect, or take any
action to effect, any such registration pursuant to this Section 3(a):

 

(A)          In any particular
jurisdiction in which the Company would be required to execute a general
consent to service of process in effecting

 

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such registration,
qualification or compliance, unless the Company is already subject to service
in such jurisdiction and except as may be required by the Securities Act
or applicable rules or regulations thereunder;

 

(B)           After the Company has
effected three (3) such registrations pursuant to this Section 3(a) and
such registrations have been declared or ordered effective and the sales of
such Registrable Securities shall have closed;

 

(C)           If the Registrable
Securities requested by all Holders to be registered pursuant to such request
do not have an anticipated aggregate public offering price (before any
underwriting discounts and commissions) of not less than $15,000,000;

 

(D)          During the period
starting with the date sixty (60) days prior to the Company’s good faith
estimate of the date of filing of, and ending on the date six (6) months
immediately following the effective date of, any registration statement
pertaining to securities of the Company (other than a registration of
securities in a Rule 145 transaction under the Securities Act, with
respect to an employee benefit plan or with respect to the Company’s first
registered public offering of its stock), provided that the Company is actively
employing in good faith all reasonable efforts to cause such registration
statement to become effective; provided, however, that the
Company may only delay an offering pursuant to this Section 3(a)(i)(2)(D) for
a period of not more than ninety (90) days, if a filing of any other
registration statement is not made within that period and the Company may only
exercise this right once in any twelve (12)-month period; or

 

(E)           If the Company shall
furnish to the Initiating Holders a certificate signed by the Chief Executive
Officer of the Company stating that in the good faith judgment of the Board it
would be seriously detrimental to the Company or its shareholders for a
registration statement to be filed in the near future, in which case the
Company’s obligation to use its best efforts to comply with this Section 3(a) shall
be deferred for a period not to exceed ninety (90) days from the date of
receipt of written request from the Initiating Holders; provided, however,
that the Company shall not exercise such right more than once in any twelve
(12)-month period.

 

The registration statement filed pursuant to the
request of the Initiating Holders may, subject to the provisions of Section 3(a)(ii) below,
include other securities of the Company which are held by Persons who, by
virtue of agreements with the Company, are entitled to include their securities
in any such registration (“Other Shareholders”). In the event any Holder
requests a registration pursuant to this Section 3(a) in connection
with a distribution of Registrable

 

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Securities to its partners or members, the
registration shall provide for the resale by such partners or members, if
requested by such Holder.

 

The registration rights set forth in this Section 3
may be assigned, in whole or in part, to any transferee of Registrable
Securities (who shall be bound by all obligations of this Agreement); provided,
however, that the rights hereunder shall not be assignable unless the
transferee of such Registrable Securities acquires Registrable Securities
representing at least 2% of the outstanding Ordinary Shares as of the date of
such transfer.

 

(ii)           Underwriting. If
the Initiating Holders intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to Section 3(a)(i).

 

If Other Shareholders request inclusion of their
securities in the underwriting, the Holders shall offer to include the
securities of such Other Shareholders in the underwriting and may condition
such offer on their acceptance of the further applicable provisions of this Section 3.
The Holders whose shares are to be included in such registration and the
Company shall (together with all Other Shareholders proposing to distribute
their securities through such underwriting) enter into an underwriting
agreement in customary form with the representative of the underwriter or
underwriters selected for such underwriting by the Initiating Holders and
reasonably acceptable to the Company; provided, however, that
such underwriting agreement shall not provide for indemnification or contribution
obligations on the part of the Holders materially greater than the
obligations of the Holders under Section 3(g)(ii). Notwithstanding any
other provision of this Section 3(a), if the representative advises the
Holders in writing that marketing factors require a limitation on the number of
shares to be underwritten, the securities of the Company held by Other
Shareholders shall be excluded from such registration to the extent so required
by such limitation. If, after the exclusion of such shares, further reductions
are still required, the number of shares included in the registration by each
Holder shall be reduced on a pro rata basis (based on the number of shares held
by such Holder), by such minimum number of shares as is necessary to comply
with such request. No Registrable Securities or any other securities excluded
from the underwriting by reason of the underwriter’s marketing limitation shall
be included in such registration. If any Other Shareholder who has requested
inclusion in such registration as provided above disapproves of the terms of
the underwriting, such Person may elect to withdraw therefrom by providing
written notice to the Company, the underwriter and the Initiating Holders. The
securities so withdrawn shall also be withdrawn from registration. If the
underwriter has not limited the number of Registrable Securities or other
securities to be underwritten, the Company and officers and directors of the
Company may include its or their securities for its or their own account
in such registration if the representative so agrees and if the number of
Registrable Securities and other securities which would otherwise have been
included in such registration and underwriting will not thereby be limited.

 

(b)           Company
Registration.

 

(i)            If the Company shall
determine to register any of its equity securities either for its own account
or for the account of Other Shareholders, other than a registration relating
solely to employee benefit plans, or a registration relating solely to a

 

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Rule 145 transaction
under the Securities Act, or a registration on any registration form which
does not permit secondary sales or does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of Registrable Securities, the Company will:

 

(1)           promptly give to each
of the Holders a written notice thereof (which shall include a list of the
jurisdictions in which the Company intends to attempt to qualify such
securities under the applicable blue sky or other state securities laws); and

 

(2)           include in such
registration (and any related qualification under blue sky laws or other
compliance), and in any underwriting involved therein, all the Registrable
Securities specified in a written request or requests, made by the Holders
within fifteen (15) days after receipt of the written notice from the Company
described in clause (1) above, except as set forth in Section 3(b)(ii) below.
Such written request may specify all or a part of the Holders’
Registrable Securities. In the event any Holder requests inclusion in a
registration pursuant to this Section 3(b) in connection with a
distribution of Registrable Securities to its partners or members, the
registration shall provide for the resale by such partners or members, if
requested by such Holder.

 

(ii)           Underwriting. If
the registration of which the Company gives notice is for a registered public
offering involving an underwriting, the Company shall so advise each of the
Holders as a part of the written notice given pursuant to Section 3(b)(i)(1) above.
In such event, the right of each of the Holders to registration pursuant to
this Section 3(b) shall be conditioned upon such Holders’
participation in such underwriting and the inclusion of such Holders’
Registrable Securities in the underwriting to the extent provided herein. The
Holders whose shares are to be included in such registration shall (together
with the Company and the Other Shareholders distributing their securities
through such underwriting) enter into an underwriting agreement in customary form with
the representative of the underwriter or underwriters selected for underwriting
by the Company and reasonably acceptable to the Holders; provided, however,
that such underwriting agreement shall not provide for indemnification or
contribution obligations on the part of the Holders materially greater
than the obligations of the Holders under Section 3(g)(ii). Notwithstanding
any other provision of this Section 3(b), if the representative determines
that marketing factors require a limitation on the number of shares to be
underwritten, the representative may (subject to the allocation priority
set forth below) limit the number of Registrable Securities to be included in
the registration and underwriting to not less than twenty percent (20%) of the
shares included therein (based on the number of shares). The Company shall
promptly advise all holders of securities requesting registration of such
limitation, and the number of shares of securities that are entitled to be
included in the registration and underwriting shall be allocated in the
following manner:  the securities of the
Company held by officers, directors and Other Shareholders of the Company
(other than Registrable Securities and other than securities held by holders
who by contractual right demanded such registration (“Demanding Holders”))
shall be excluded from such registration and underwriting to the extent
required by such limitation, and, if a limitation on the number of shares is
still required, the number of shares that may be included in the
registration and underwriting 

 

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by each of the Holders
and Demanding Holders shall be reduced, on a pro rata basis (based on the
number of shares held by such holder), by such minimum number of shares as is
necessary to comply with such limitation. If any of the Holders or any officer,
director or Other Shareholder disapproves of the terms of any such
underwriting, he she or it may elect to withdraw therefrom by providing
written notice to the Company and the underwriter. Any Registrable Securities
or other securities excluded or withdrawn from such underwriting shall be
withdrawn from such registration. Notwithstanding anything herein to the
contrary, the Company shall have the right, in its sole and absolute
discretion, to terminate, withdraw, delay or postpone any registration under
this Section 3(b).

 

(c)           Form F-3.
Following the Initial Public Offering, the Company shall use its best efforts
to qualify for registration on Form F-3 for secondary sales. After the
Company has qualified for the use of Form F-3 (and provided that the
Company is then eligible to use Form F-3), the Holders shall have the
right to request three (3) registrations on Form F-3 (such requests
shall be in writing and shall state the number of shares of Registrable
Securities to be disposed of and the intended method of disposition of shares
by such holders), provided that the Company shall not be obligated to
effect, or take any action to effect, any such registration pursuant to this Section 3(c):

 

(i)            Unless the Holder or
Holders requesting registration propose to dispose of shares of Registrable
Securities having an aggregate price to the public (before deduction of Selling
Expenses) of more than $10,000,000;

 

(ii)           Within one hundred
eighty (180) days of the effective date of the most recent registration
pursuant to this Section 3(c) in which securities held by the
requesting Holder could have been included for sale or distribution;

 

(iii)          In any particular
jurisdiction in which the Company would be required to execute a general
consent to service of process in effecting such registration, qualification or
compliance, unless the Company is already subject to service in such
jurisdiction and except as may be required by the Securities Act or
applicable rules or regulations thereunder;

 

(iv)          During the period starting with the date sixty (60) days prior to the
Company’s good faith estimate of the date of filing of, and ending on
the date six (6) months immediately following the effective date of, any
registration statement pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction under the Securities
Act or with respect to an employee benefit plan), provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; provided, however,
that the Company may only delay an offering pursuant to this Section 3(c)(iv) for
a period of not more than ninety (90) days, if a filing of any other
registration statement is not made within that period and the Company may only
exercise this right once in any twelve (12)-month period; or

 

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(v)           If the Company shall
furnish to the Holders a certificate signed by the Chief Executive Officer of
the Company stating that in the good faith judgment of the Board it would be
seriously detrimental to the Company or its shareholders for a registration
statement to be filed in the near future, in which case the Company’s
obligation to use its best efforts to comply with this Section 3(c) shall
be deferred for a period not to exceed ninety (90) days from the date of
receipt of written request from the Holders; provided, however,
that the Company shall not exercise such right more than once in any twelve
(12)-month period.

 

The Company shall give written notice to all Holders
of the receipt of a request for registration pursuant to this Section 3(c) and
shall provide a reasonable opportunity for other Holders to participate in the
registration, provided that if the registration is for an underwritten
offering, the terms of Section 3(a)(ii) above shall apply to all participants
in such offering. Subject to the foregoing, the Company will use its best
efforts to effect promptly the registration of all shares of Registrable
Securities on Form F-3 to the extent requested by the Holder or Holders
thereof for purposes of disposition. In the event any Holder requests a
registration pursuant to this Section 3(c) in connection with a
distribution of Registrable Securities to its partners or members, the
registration shall provide for the resale by such partners or members, if
requested by such Holder.

 

(d)           Expenses
of Registration. All Registration Expenses incurred in connection with any
registration, qualification or compliance pursuant to this Section 3 shall
be borne by the Company, and all Selling Expenses shall be borne by the Holders
of the securities so registered pro rata on the basis of the number of their
shares so registered.

 

(e)           Registration
Procedures. In the case of each registration effected by the Company
pursuant to this Section 3, the Company will keep the Holders, as
applicable, advised in writing as to the initiation of each registration and as
to the completion thereof. At its expense, the Company will:

 

(i)            keep such registration
effective for a period of one hundred twenty (120) days or until the Holders
(or in the case of a distribution to the partners or members of such Holder,
such partners or members), as applicable, have completed the distribution
described in the registration statement relating thereto, whichever first
occurs; provided, however, that (1) such one hundred twenty
(120)-day period shall be extended for a period of time equal to the period
during which the Holders or partners or members, as applicable, refrain from
selling any securities included in such registration in accordance with the
provisions in Section 3(f) hereof; and (2) in the case of any
registration of Registrable Securities on Form F-3 which are intended to
be offered on a continuous or delayed basis, such one hundred and twenty
(120)-day period shall be extended until all such Registrable Securities are
sold, provided that Rule 415, or any successor rule under the
Securities Act, permits an offering on a continuous or delayed basis; provided,
further, however, that the Company shall not be required to keep any
registration under this Section 3 in effect for a period of more than two
years;

 

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(ii)           furnish such number of
prospectuses and other documents incident thereto as each of the Holders, as
applicable, from time to time may reasonably request;

 

(iii)          notify each Holder of
Registrable Securities covered by such registration at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act of the happening of any event as a result of which the prospectus included
in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits 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; and

 

(iv)          furnish, on the date
that such Registrable Securities are delivered to the underwriters for sale, if
such securities are being sold through underwriters or, if such securities are
not being sold through underwriters, on the date that the registration
statement with respect to such securities becomes effective, (1) an
opinion, dated as of such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily
given to underwriters in an underwritten public offering and reasonably
satisfactory to a majority in interest of the Holders participating in such
registration, addressed to the underwriters, if any, and to the Holders participating
in such registration and (2) a letter, dated as of such date, from the
independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants
to underwriters in an underwritten public offering and reasonably satisfactory
to a majority in interest of the Holders participating in such registration,
addressed to the underwriters, if any, and if permitted by applicable
accounting standards, to the Holders participating in such registration.

 

(f)            Blackout
Right. If the Company shall furnish to the Holders a certificate signed by
the Chief Executive Officer of the Company stating that in the good faith
judgment of the Board (x) the Company is engaged in or proposes to engage in
discussions or negotiations with respect to, or if there is otherwise pending,
a fundamental event (including without limitation a merger, acquisition, other form of
business combination, divestiture, tender offer or financing) or there is an
event or state of facts relating to the Company, in each case which is material
to the Company and disclosure of same would in the judgment of the Company be
adverse to the interests of the Company (such negotiation, step, event or state
of facts being referred to herein as a “Material Activity”) or (y) the Company,
deems it necessary to file a post-effective amendment to the Form F-3, or
to supplement the prospectus to disclose the Material Activity, the Holders, at
the request of the Company, shall suspend any offers or sales pursuant to any
registration then in effect for a period of 90 days (or such earlier date on
which the Company shall have notified the Holders in writing); provided that
the Company shall not be permitted to deliver more than one certificate pursuant
to this paragraph in any twelve (12)-month period.

 

(g)           Indemnification.

 

 

9

 

 

(i)            The Company will
indemnify each of the Holders, as applicable, each of its officers, directors
and partners and members, and each Person controlling each of the Holders, with
respect to each registration which has been effected pursuant to this Section 3,
and each underwriter, if any, and each person who controls any underwriter,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering circular or
other document (including any related registration statement, issuer free-writing
prospectus, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or any violation by the Company of
the Securities Act or the Exchange Act applicable to the Company and relating
to action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each of such
Holders, each of its officers, directors and partners and members, and each
Person controlling each of such Holders, each such underwriter and each Person
who controls any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating and defending any such
claim, loss, damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by the Holders
or underwriter and stated to be specifically for use therein.

 

(ii)           Each of the Holders
will, if Registrable Securities held by it are included in the securities as to
which such registration, qualification or compliance is being effected,
indemnify the Company, each of its directors and officers and each underwriter,
if any, of the Company’s securities covered by such a registration statement,
each Person who controls the Company or such underwriter, each Other
Shareholder and each of their respective officers, directors, partners and
members, and each Person controlling such Other Shareholder against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, issuer
free-writing prospectus, offering circular or other document made by such
Holder in writing, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
by such Holder therein not misleading, and will reimburse the Company, the
underwriters, and such Other Shareholders, and their respective directors,
officers, partners, members, Persons or control persons for any legal or any
other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by such Holder and stated to be specifically for use therein; provided,
however, that the obligations of each of the Holders hereunder shall be limited
to an amount equal to the net proceeds to such Holder of securities sold in
such registration as contemplated herein.

 

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(iii)          Each party entitled to
indemnification under this Section 3(g) (the “Indemnified Party”)
shall give notice to the party required to provide indemnification (the “Indemnifying
Party”) promptly after such Indemnified Party has actual knowledge of any
claim as to which indemnity may be sought, and shall permit the
Indemnifying Party to assume the defense of any such claim or any litigation
resulting therefrom; provided that counsel for the Indemnifying Party, who
shall conduct the defense of such claim or any litigation resulting therefrom,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld) and the Indemnified Party may participate in
such defense at such party’s expense (unless the Indemnified Party shall have
reasonably concluded that there may be a conflict of interest between the
Indemnifying Party and the Indemnified Party in such action, in which case the
fees and expenses of counsel shall be at the expense of the Indemnifying
Party), and provided further that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 3(f) unless the Indemnifying Party is
materially prejudiced thereby. No Indemnifying Party, in the defense of any
such claim or litigation shall, except with the prior written consent of each
Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. Each Indemnified Party shall
furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be
reasonably required in connection with the defense of such claim and litigation
resulting therefrom.

 

(iv)          If the indemnification provided
for in this Section 3(g) is held by a court of competent jurisdiction
to be unavailable to an Indemnified Party with respect to any loss, liability,
claim, damage or expense referred to herein, then the Indemnifying Party, in
lieu of indemnifying such Indemnified Party hereunder, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such loss,
liability, claim, damage or expense in such proportion as is appropriate to
reflect the relative fault of the Indemnifying Party on the one hand and of the
Indemnified Party on the other in connection with the statements or omissions
(or alleged statements or omissions) which resulted in such loss, liability,
claim, damage or expense, as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue (or alleged untrue) statement of a material fact or the
omission (or alleged omission) to state a material fact relates to information
supplied by the Indemnifying Party or by the Indemnified Party and the parties’
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.

 

(v)           Notwithstanding the
foregoing, to the extent that the provisions on indemnification and
contribution contained in the underwriting agreement entered into in connection
with any underwritten public offering contemplated by this Agreement are in
conflict with the foregoing provisions, the provisions in such underwriting
agreement shall be controlling.

 

11

 

(h)           Information
by the Holders; Other Obligations.

 

(i)            Each of the Holders
holding securities included in any registration shall furnish to the Company
such information regarding such Holder and the distribution proposed by such
Holder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Section 3.

 

(ii)           In the event that,
either immediately prior to or subsequent to the effectiveness of any
registration statement, any Holder shall distribute Registrable Securities to
its partners or members, such Holder shall so advise the Company and provide
such information as shall be necessary to permit an amendment to such
registration statement to provide information with respect to such partners or
members, as selling security holders. Promptly following receipt of such
information, the Company shall file an appropriate amendment to such
registration statement reflecting the information so provided. Any incremental
expense to the Company resulting from such amendment shall be borne by such
Holder.

 

(iii)          The Holders shall (1) not
take actions that would prevent the distribution of Registrable Securities
included by such Holder in any registration statement filed hereunder from
being made in accordance with the (x) plan of distribution set forth in
such registration statement and (y) all applicable SEC rules and
regulations, (2) not deliver any form of prospectus in connection
with the sale of Registrable Securities as to which the Company has advised the
selling Holders in writing pursuant to Section 3(e)(iii) hereof, (3) comply
with their obligations under this Agreement, including Sections 3(f) and (4) upon
written request of the Company, notify the Company of any sales of Registrable
Securities covered by any registration statement.

 

(i)            Rule 144
Reporting.

 

With a view to making available the benefits of
certain rules and regulations of the Commission which may permit the
sale of restricted securities to the public without registration, the Company
agrees to:

 

(i)            make and keep public
information available as those terms are understood and defined in Rule 144,
at all times from and after ninety (90) days following the effective date of
the first registration under the Securities Act filed by the Company for an
offering of its securities to the general public;

 

(ii)           use its best efforts to
file with the Commission in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act at any
time after it has become subject to such reporting requirements; and

 

12

 

(iii)          so long as a Holder owns
any Registrable Securities, furnish as promptly as practicable (but no later
than 2 business days following a request therefore) to such Holder, a written
statement by the Company as to its compliance with the reporting requirements
of Rule 144 (at any time from and after ninety (90) days following the
effective date of the first registration statement filed by the Company for an
offering of its securities to the general public), and of the Securities Act
and the Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed as such Holder may reasonably
request in availing itself of any rule or regulation of the Commission
allowing the Holder to sell any such securities without registration.

 

(j)            Termination.
The registration rights set forth in this Section 3 shall not be available
to any Holder if, (i) in the written opinion of counsel to the Company,
all of the Registrable Securities then owned by such Holder could be sold in
any ninety (90)-day period pursuant to Rule 144 (without giving effect to
the provisions of Rule 144(k)) or (ii) all of the Registrable
Securities held by such Holder have been sold in a registration pursuant to the
Securities Act or pursuant to Rule 144.

 

SECTION 4. INTERPRETATION OF
THIS AGREEMENT

 

(a)           Directly
or Indirectly. Where any provision in this Agreement refers to action to be
taken by any Person, or which such Person is prohibited from taking, such
provision shall be applicable whether such action is taken directly or
indirectly by such Person.

 

SECTION 5. MISCELLANEOUS

 

(a)           Governing
Law. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York applicable to contracts made and to be
performed entirely within such State without regard to conflicts of law
principles.

(b)           Section Headings. The headings
of the sections and subsections of this Agreement are inserted for convenience
only and shall not be deemed to constitute a part thereof.

 

(c)           Notices.

 

(i)            All communications
under this Agreement shall be in writing and shall be delivered by hand or
facsimile or mailed by overnight courier or by registered or certified mail,
postage prepaid:

 

(1)           if to the Company, to
Olympic Plaza, Fred. Roeskestraat 123, 1076 EE Amsterdam, The Netherlands,
Attention: Gearóid M. Faherty, Chief Executive Officer (facsimile: (+39 02
95743381), or at such other address as it may have furnished in writing to
the Holders.

 

(2)           if to the Holders, at the address or
facsimile number listed on Schedule I hereto, or at such other address or
facsimile number as may have been furnished to the 

 

 

13

 

Company in writing, with
a copy to Warburg Pincus LLC, 466 Lexington Avenue, New York, NY 10017
(facsimile: (212) 922-0933), Attention: Scott A. Arenare, Esq.

 

(ii)           Any notice so addressed
shall be deemed to be given: if delivered by hand or facsimile, on the date of
such delivery; if mailed by overnight courier, on the first business day
following the date of such mailing; and if mailed by registered or certified mail,
on the third business day after the date of such mailing.

 

(d)           Reproduction
of Documents. This Agreement and all documents relating thereto, including,
without limitation, any consents, waivers and modifications which may hereafter
be executed may be reproduced by the Holders by any photographic,
photostatic, microfilm, microcard, miniature photographic or other similar
process and the Holders may destroy any original document so reproduced. The
parties hereto agree and stipulate that any such reproduction shall be
admissible in evidence as the original itself in any judicial or administrative
proceeding (whether or not the original is in existence and whether or not such
reproduction was made by the Holders in the regular course of business) and that
any enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence.

 

(e)           Successors
and Assigns. This Agreement shall inure to the benefit of and be binding
upon the successors and assigns of each of the parties.

 

(f)            Entire
Agreement; Amendment and Waiver. This Agreement constitutes the entire
understanding of the parties hereto relating to the subject matter hereof and
supersedes all prior understandings among such parties. This Agreement may be
amended, and the observance of any term of this Agreement may be waived,
with (and only with) the written consent of the Company and the Holders holding
a majority of the then outstanding Registrable Securities. Any amendment or
waiver effected in accordance with this Section 5(f) shall be binding
upon each Holder of Registrable Securities then outstanding (whether or not
such Holder consented to any such amendment or waiver).

 

(g)           Severability.
In the event that any part or parts of this Agreement shall be held
illegal or unenforceable by any court or administrative body of competent
jurisdiction, such determination shall not affect the remaining provisions of
this Agreement which shall remain in full force and effect.

 

(h)           Counterparts.
This Agreement may be executed in two or more counterparts (including by
facsimile), each of which shall be deemed an original and all of which together
shall be considered one and the same agreement.

 

[Remainder of Page Intentionally
Left Blank]

 

 

14

 

IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first set forth above.

 

	
   

  	
  EURAND N.V.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

 

WARBURG,
PINCUS EQUITY PARTNERS, L.P.

 

	
  By:

  	
  Warburg Pincus Partners
  LLC, its General Partner

  
	
  By:

  	
  Warburg Pincus &
  Co., its Managing Member

  

 

 

	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

 

WARBURG,
PINCUS VENTURES INTERNATIONAL, L.P.

 

	
  By:

  	
  Warburg Pincus Partners
  LLC, its General Partner

  
	
  By:

  	
  Warburg Pincus &
  Co., its Managing Member

  

 

 

	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

 

Schedule I

 

Investors

 

Investor Name and Address

 

Warburg, Pincus Equity Partners, L.P.

466 Lexington Avenue

New York, NY 10017

Facsimile: (212) 878-9351

Attention: Scott A. Arenare, Esq.

 

Notices to:

Warburg, Pincus Equity Partners, L.P.

28 King Street, St. James

SW1Y 6QW

London, United Kingdom

Tel: +44-207-321-0881

Attn: Nicholas Lowcock

 

 

Investor Name and Address

 

Warburg, Pincus Ventures International, L.P.

466 Lexington Avenue

New York, NY 10017

Facsimile: (212) 878-9351

Attention: Scott A. Arenare, Esq.

 

Notices to:

Warburg, Pincus Ventures International, L.P.

28 King Street, St. James

SW1Y 6QW

London, United Kingdom

Tel: +44-207-321-0881

Attn: Nicholas LowcockExhibit 10.4

 

EXCLUSIVE
DEVELOPMENT/LICENSE/SUPPLY AGREEMENT

 

between

 

EURAND
INTERNATIONAL S.p.A.,

Via Martin Luther King, 13

20060 Pessano con Bornago (Milan)

(Italy)

 

and

 

AXCAN
SCANDIPHARM, INC.

22, Inverness Center Parkway

Birmingham, AL  35242

(U.SA.)

 

for

 

EURAND
MINITABS® Pancrelipase with HP55 coating.

 

 

THIS EXCLUSIVE
DEVELOPMENT/LICENSE/SUPPLY AGREEMENT, effective as of the date
the last party to sign executes this agreement, between EURAND INTERNATIONAL
S.p.A., a corporation organized under the laws of Italy, with its principal
offices at Via Martin Luther King, 13 –20060 Pessano con Bornago (Milan) (“EURAND”)
and AXCAN SCANDIPHARM, INC., a corporation incorporated in the state of
Delaware with its principal offices at 22 Inverness Center Parkway, Birmingham,
AL  35242 (“SCANDIPHARM”) (hereafter
referred to individually as the “Party” or collectively as the “Parties”).

 

WITNESSETH
THAT:

 

WHEREAS, EURAND is the owner
of original processes and know-how for the development and manufacture of
modified release pharmaceutical products.

 

WHEREAS, EURAND desires to
sell exclusively to SCANDIPHARM in the Territory, as defined below, a
pancrelipase product prepared in selected dosages using EURAND MINITABS®
delivery system as hereinafter defined in provision 1.21 below (hereafter “Product”);

 

WHEREAS, SCANDIPHARM desires
to purchase the Product exclusively from Eurand for the Territory;

 

WHEREAS, EURAND and
SCANDIPHARM entered into a Confidentiality Agreement on even date herewith (“Confidentiality
Agreement”) pursuant to which EURAND will provide SCANDIPHARM with technical
documentation on the Product;

 

WHEREAS, SCANDIPHARM desires
to receive a license to register, package, market and sell the Product as
developed and manufactured by EURAND and EURAND is willing to grant such a
license on the terms and conditions set forth hereinafter;

 

NOW, THEREFORE, in
consideration of the agreements and covenants hereinafter set forth and
intending to be legally bound hereby, the parties hereto covenant and agree as
follows:

 

PORTIONS
OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

 

2

 

1.                                      DEFINITIONS

 

1.1                                 “Act” means the U.S. Federal Food, Drug and
Cosmetic Act, as amended from time to time and corresponding legislation in
other countries of the Territory.

 

1.2                                 “Active Ingredient” means the Pancrelipase
compound as defined in the USP, current edition.

 

1.3                                 “Affiliate” means, with reference to any
Person, any other Person directly or indirectly controlling, controlled or
under common control with such Person, and “control” means the power to direct
the management and policies of a Person, whether through the ownership of
voting securities, by contract or otherwise.

 

1.4                                 “Applicable Laws” means all laws, treaties,
ordinances, judgments, decrees, directives, injunctions, orders of any court,
arbitrator or governmental agency or authority, rules, regulations,
interpretations, authorizations and Applicable Permits of any international,
national, regional, local or other governmental body, agency, authority, court
or Person having jurisdiction over or related to the development, registration,
manufacture and sale of the Product or Finished Dosage Forms, as may be in
effect from time to time.

 

1.5                                 “Applicable Permits” means any waiver,
exemption, variance, permit, license or similar approval, including, without
limitation, product registrations by health or other government entities, required
to be obtained or maintained under Applicable Laws in connection with the
registration, manufacture, package and sale of the Product or Finished Dosage
Forms.

 

1.6                                 “Approval Date” means, with respect to a
particular country in the Territory, the date on which all Applicable Permits
necessary for sale of the Finished Dosage Forms in such country have been
issued.

 

1.7                                 “Contract Year” means, for the first
Contract Year, the period starting thirty days after the first batch of Product
produced for the purpose of selling to SCANDIPHARM’s customers is shipped from
EURAND to SCANDIPHARM, and ending twelve (12)

 

PORTIONS
OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

 

3

 

months later and for the
second and subsequent Contract Years, the twelve (12) month period commencing
on the day following the last day of the end of the first and subsequent
Contract Years, respectively.

 

1.8                                 “DMF” means the Drug Master File that will
be developed by EURAND which relates to the Product.

 

1.9                                 “FDA” means the Food and Drug Administration
In the United States and corresponding governmental regulatory agencies in
other countries within the Territory.

 

1.10                           “Finished Dosage Form(s)” means the Product
in finished package form ready for sale by SCANDIPHARM to wholesalers,
hospitals or and users.

 

1.11                           “Force Majeure” means any cause or causes
which wholly or partially prevent or delay the performance of obligations
arising under this Agreement and which are not reasonably within the control of
the non-performing party, including acts of God, government regulations, labor
disputes, fires, civil commotion, embargoes, shortage of materials or labor or
any delays in transportation or detention by customs, health or other
government authorities.

 

1.12                           “cGMP” means current Good Manufacturing
Practices as defined in regulations promulgated by the FDA under the Act and
corresponding regulations in the other countries of the Territory.

 

1.13                           “HP55 coating” or “HP 55 Coated” means a coating different
than Eudragit, containing hydroxypropyl methylcellulose phathalate,
commercially available under the trade name HP55, which is characterized in
that it dissolves at a pH of approximately 5.5, or a coating formed from a
polymer which is commercially recognized as being essentially the same as HP55.

 

1.14                           “IND” means an Investigational New Drug
application under the Act seeking authorization to commence clinical trials of
the Product in humans in such country of the Territory.

 

PORTIONS
OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

 

4

 

1.15                           “Know-How” means proprietary know-how, trade
secrets, compositions, coatings, inventions, data, technology and information
relating to the Product as wall as all the related confidential manufacturing
and analytical methodology and documentation on the Product.

 

1.16                           “Launch Date” means the date of the invoice
for SCANDIPHARM’s first bona fide sale of Finished Dosage Forms to any of its
customers.

 

1.17                           “NDA” means a New Drug Application under the
Act, a Product License Application or a corresponding filing required in any
country of the Territory seeking approval to market the Finished Dosage Forms.

 

1.18                           “Net Royalties” means royalties, net of any
withholding taxes, due on Net Sales.

 

1.19                           “Net Sales” means the aggregate invoiced sales
of the Finished Dosage Forms by SCANDIPHARM less returns, charge backs,
allowances, freight, discounts and sales, excise, value added, consumption or
similar taxes applicable to the Finished Dosage Forms, as well as duties,
customs or other governmental charges.

 

1.20                           “Person” means any individual, partnership,
association, joint venture or corporation.

 

1.21                           “Product” means a product, not yet in
commercial use as of the signing of this Agreement, that contains Pancrelipase
USP in the EURAND MINITABS® delivery system which has been coated with a
membrane of HP55, meeting the Specifications listed in Exhibit A, having a
label claim of 12,000 or 18,000, or 20,000 USP units of lipase per capsule.

 

1.22                           “Specifications” means the specifications of
the Product set forth in Exhibit A.

 

1.23                           “Territory” means North America (including
Canada, Mexico, and the United States) and its territories and possessions and
Latin America (including Central and South America) and its territories and
possessions.

 

2.                                      LICENSE, PAYMENT OF
DEVELOPMENT FEES AND COMPETITION

 

PORTIONS
OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

 

 

5

 

 

2.1                                 Grant of License. Subject to the terms and conditions of this
Agreement, EURAND hereby grants to SCANDIPHARM an exclusive royalty-bearing
license within the Territory to use the Product to register, package, market
and sell the Finished Dosage Forms.

 

2.2                                 Exclusivity. Subject to terns and conditions of this Agreement,
EURAND shall sell the Product exclusively to SCANDIPHARM in the Territory. The
exclusivity of the license granted pursuant to Section 2.1 may be partially
converted to non-exclusive by operation of Section 3.2(a) or 32 (c).

 

2.3                                 Sales Outside Territory. In the event that
SCANDIPHARM desires to market the Finished Dosage Forms outside the Territory,
EURAND will in goad faith discuss granting SCANDIPHARM a license to do so.

 

2.4                                 Use of EURAND’s Trademark by SCANDIPHARM. SCANDIPHARM shall market
the Finished Dosage Forms under its own trademark. In addition, SCANDIPHARM
shall refer to the EURAND MINITABS® technology and trademark on the pack,
internal leaflet and promotional material of the Finished Dosage Forms. For
this purpose, EURAND hereby grants SCANDIPHARM a non exclusive license to print
the following wording:  “Manufactured
using EURAND MINITABS® technology” or the related translation in the local
language of the countries of the Territory where the Finished Dosage Forms are
marketed. Prior to initial printing of the labeling, SCANDIPHARM shall send
EURAND a sample of labeling for prior written approval of the above. SCANDIPHARM
shall not make any change in the manner in which EURAND’s trademarks are used
on the labeling without prior written approval by EURAND. SCANDIPHARM covenants
that such use of EURAND’s trademark shall be strictly in accordance with the
terms of this Agreement and that all rights to and ownership of the EURAND
MINITABS® trademark remain with EURAND. SCANDIPHARM shall not

 

PORTIONS
OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

 

6

 

use the EURAND trademark on
any product which has not been manufactured by EURAND.

 

2.5                                 Payment of Development Fees by SCANDIPHARM to EURAND. In
consideration of the (i) development casts incurred and which will be incurred
by EURAND for the development of the Product and (ii) EURAND’s performance in
accordance with the terms and conditions of the Agreement including the
preparation and filing of the documentation referred to in Section 3.1 at the
FDA, SCANDIPHARM shall pay to EURAND the amounts and at the times shown in
Exhibit B.

 

2.6                                 Non-Competition Clause. During the term of this
Agreement only, SCANDIPHARM covenants not to develop, manufacture, have
manufactured, market, sell, promote, license, or distribute in the Territory
any enteric coated pancrelipase product formulated in minitabs other than the
Product, unless purchased from EURAND. During the term of this Agreement only,
EURAND covenants not to develop, manufacture, have manufactured, market, sell,
promote, license or distribute in the Territory any, enteric coated
pancrelipase product formulated in minitabs other than the Product, unless sold
to SCANDIPHARM. This provision is not intended to effect the obligations EURAND
previously entered into with Carlsson Rensselaer Associates under the Exclusive
Supply Agreement dated June 30, 1991. EURAND represents and warrants that, no
later than December 1, 2001, Eurand’s Exclusive Supply Agreement with CK will
terminate.

 

2.7                                 Eurand’s Rights in Know-How. EURAND and its Affiliates
shall own all Know-How developed before and during the course of the
performance of this Agreement which is directed to the formulation and
manufacture of the Product and Finished Dosage Forms provided that Eurand’s use
of the Know How shall not conflict with the rights granted to SCANDIPHARM under
this Agreement.

 

3.                                      REGISTRATION AND
LAUNCH OBLIGATIONS

 

PORTIONS
OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

 

 

7

 

 

3.1                                 EURAND Obligations.

 

(a)                                  EURAND shall prepare validation batches of
the Product following protocols which are in compliance with cGMP and any other
United States FDA requirements or regulations.

 

(b)                                 EURAND shall conduct accelerated and
real-time stability studies on the Product and on the Finished Dosage Forms
designed to meet the regulatory standards required for obtaining marketing
approval in the Territory. The protocol for these studies will be in compliance
with cGMP and any other United States FDA requirements or regulations. These
studies will be performed in a timely manner to support planned marketing and
regulatory submission activities by SCANDIPHARM in the Territory.

 

(1)                                  Product:  EURAND shall start the Product stability
studies upon signature of this Agreement.

 

(2)                                  Finished Dosage
Forms:  Upon signature of this
Agreement, EURAND shall send SCANDIPHARM a sufficient amount of Product, at no
additional charge, to be packaged by SCANDIPHARM into the final container/closure
system. SCANDIPHARM will undertake to return the Finished Dosage Forms to
EURAND within forty-five (45) days from the date of dispatch by airfreight of
the Product by EURAND to SCANDIPHARM. Upon receipt, EURAND will promptly
initiate the stability studies on the Finished Dosage Forms.

 

(c)                                  EURAND shall provide SCANDIPHARM with the
following documentation on the Product:

 

PORTIONS
OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

 

8

 

(i)                                     a
pharmaceutical development report;

 

(ii)                                  stability
protocols, designed in accordance with cGMP and International Conference on
Harmonization (ICH) guidelines, which are provided herewith In Exhibit C;

 

(iii)                               the results of
accelerated and long-term stability studies on the Product and on the Finished
Dosage Forms conducted according to the protocols.

 

EURAND shall supply the
United States FDA with supplemental documentation regarding the DMF as may be
necessary to maintain the DMF in a current status based on current FDA
guidelines at no additional charge to SCANDIPHARM. EURAND shall supply
SCANDIPHARM or the appropriate regulatory authority with supplemental
documentation including, but not limited to certificates of analysis, batch
records, documents used to support compliance with regulatory bodies, and
documents provided for under this Agreement, without additional cost to
SCANDIPHARM, with the exception that EURAND shall not be required to provide
SCANDIPHARM with supplemental documentation on clinical studies supporting
regulatory files. In the case of documentation such as batch records, which
contain information which is proprietary to EURAND, the documentation will be
provided directly to the regulatory authority or a designated third party under
appropriate assurances of confidentiality, but not to SCANDIPHARM. Should
SCANDIPHARM request EURAND to supply supplemental documentation, other than
that described in this provision, EURAND shall at its sole discretion, decide
whether or not to generate this additional documentation and whether or not to
charge SCANDIPHARM with the related fees.

 

(d)                                 EURAND shall file with the United States FDA
a complete DMF describing the preparation of the Product proposed in accordance
with FDA guidelines upon

 

PORTIONS
OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

 

9

 

successful completion of
twelve (12) months real-time stability testing and shall continue to update the
DMF as required by the Act. EURAND shall provide SCANDIPHARM with a letter of
authorization (LOA) to cross-reference this DMF upon request. EURAND will allow
the review of the DMF by a designated neutral third party acceptable to EURAND
at SCANDIPHARM’s request if such review is deemed necessary in conjunction with
regulatory filings, prior to the filing of the NDA with the United States FDA,
provided that all costs associated with the review of the DMF by a designated
neutral party shall be borne by SCANDIPHARM.

 

(e)                                  Samples. During the first twelve months after launch
of the Finished Dosage Form in the United States, EURAND agrees to sell 5%
(five percent) of SCANDIPHARM’s first year total purchases in the Territory to
SCANDIPHARM at a 30% discount from supply price to be used for marketing. During
the second twelve months after launch of the Finished Dosage Form in the United
States, EURAND shall sell to SCANDIPHARM a quantity of Product equal to 5%
(five percent) of SCANDIPHARM’s first year total purchases in the Territory at
a 30% discount from supply price, provided they are used for marketing. During
the third and fourth twelve month periods after launch, the 30% discount may be
applied to 3% of the preceding year’s purchases in the Territory, provided they
are used for marketing. Discounts from supply price for Product used for
marketing shall be credited against purchases in the subsequent year. EURAND
shall supply clinical study samples as required by SCANDIPHARM to conduct any
and all in vivo studies necessary to support an NDA, at no additional charge.

 

(f)                                    EURAND will advise SCANDIPHARM in advance of
any proposed changes to the coating on the Product or the Product itself for
any reason. EURAND shall

 

PORTIONS
OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

 

10

 

seek SCANDIPHARM’s prior
written approval, and shall bear all expenses associated with any changes to
the coating on the Product or the Product itself that are initiated by EURAND,
and that are not changes mandated by regulatory authorities or changes required
by SCANDIPHARM. Expenses that may be incurred associated with changes initiated
by Eurand to the coating on the Product or to the Product itself include but
are not limited to validation studies, analytical studies, stability studies,
regulatory filings, or other related activities necessary to allow for the
uninterrupted marketing of the Finished Dosage Form in the Territory. Any
expenses associated with changes to the coating on the Product or to the
Product itself that are the result of a shortage or unavailability of materials
that would not have been within Eurand’s reasonable control, or changes to the
coating on the Product or the Product itself required by regulatory bodies,
shall be paid for as follows:  Eurand
agrees to pay for all costs associated with development, stability and
validation, required to maintain an uninterrupted marketing of the Finished
Dosage Form in the Territory and SCANDIPHARM agrees to pay for all costs
associated with toxicology, clinical studies and registration costs required to
maintain an uninterrupted marketing of the Finished Dosage Form in the
Territory.

 

3.2                                 SCANDIPHARM Registration Obligations

 

(a)                                  SCANDIPHARM shall exercise commercially
reasonable efforts to apply for Applicable Permits and secure Marketing
Approval for the Finished Dosage Forms in the United States of America and
elsewhere in the Territory as quickly as possible. Should SCANDIPHARM fail to
apply for Applicable Permits in the United States within three (3) years from
the date of this Agreement, or should

 

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SCANDIPHARM fail to apply
for Applicable Permits in the remaining Territory within four (4) years from
the date of this Agreement, or should such filed Applicable Permits fail to
issue within two (2) years of such filing, provided that the failure to apply
for the Applicable Permits or the failure of the Applicable Permits to issue is
not the result of changes in any rules or regulations by any regulatory body
within the Territory (hereafter “Regulatory Issues”) or adverse medical events,
changes in reimbursement structure, political instability or threatened bodily
harm (hereafter “Commercial Issues”) not within SCANDIPHARM’s control, the
license under Section 2.1 hereof shall automatically convert on a
country-by-country basis to a non-exclusive license for the countries in which
the license did not issue. SCANDIPHARM shall maintain its exclusivity in the
countries where Applicable Permits, if required, were issued. Notwithstanding
any provision in this Agreement to the contrary, SCANDIPHARM shall have no
obligation to apply for or obtain Applicable Permits in any country in the
Territory if such registration or approval is reasonably deemed to be
unnecessary to market the Finished Dosage Forms in such country. SCANDIPHARM
will exert “commercially reasonable efforts” towards submission of any
additional documentation on the Finished Dosage Forms required under Applicable
Laws.

 

(b)                                 SCANDIPHARM and EURAND shall exchange with
each other copies of any “in vivo” clinical studies performed on the Finished
Dosage Forms during the term of this Agreement. Copies of “in-vivo” clinical
studies provided to EURAND by SCANDIPHARM shall be for internal purposes only
and shall not be provided by EURAND to any Person outside of EURAND, including
any of EURAND’s

 

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distributors and
subdistributors, without express written permission from SCANDIPHARM. Notwithstanding
the foregoing, upon SCANDIPHARM’s approval, and such approval shall not be
unreasonably withheld, EURAND may share such studies with others upon payment
to SCANDIPHARM of reasonable compensation in an amount to be agreed upon by the
parties.

 

(c)                                  During the term of this Agreement, upon
written request to SCANDIPHARM, SCANDIPHARM shall provide EURAND with a report
on the status of progress of all Applicable Permits in the Territory in each
country. SCANDIPHARM shall notify EURAND of the submission date of each
application for the Applicable Permits and the Approval Date thereof not later
than thirty (30) days after said dates.

 

(d)                                 Within six (6) months after receiving from
EURAND a final report successfully supporting a label claim of two years
expiration dating for the Product, if an NDA under the Act is not required, or
within six (6) months after FDA Approval of the Finished Dosage Form if an NDA
under the Act is required, SCANDIPHARM shall launch the Finished Dosage Forms
in the United States. SCANDIPHARM shall notify EURAND of the Launch Date of the
Finished Dosage Forms no later than two (2) weeks after said date. SCANDIPHARM
shall continue to sell the Finished Dosage Forms using commercially reasonable
efforts on a country-by-country basis throughout the Territory. Should
SCANDIPHARM fail to launch and continue to sell the Finished Dosage Form as
provided herein, provided that the failure to launch or SCANDIPHARM’s failure
to continue selling the Finished Dosage Form is not the result of Regulatory
Issues or Commercial Issues, the

 

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license under Section 2.1
hereof should automatically, partially convert, on a country-by-country basis,
to a non-exclusive license. If, due to Commercial Issues, SCANDIPHARM elects
not to launch or continue selling the Finished Dosage Form in a country in the
Territory and SCANDIPHARM advises EURAND of such, and if EURAND is able to
locate another marketer (hereafter “New Marketer”) for the Product in the
country in which SCANDIPHARM has elected not to launch or continue selling the
Finished Dosage Form, SCANDIPHARM shall release that country from this
Agreement and, upon request from EURAND shall transfer to New Marketer the
Product license application or the Applicable Permits. SCANDIPHARM shall be
entitled to recoup any documented expenses incurred attempting to get the
Finished Dosage Form approved from EURAND or from the New Marketer appointed by
EURAND, for said country prior to the New Marketer launching the Finished
Dosage Form in the country and prior to the transfer to New Marketer of the
Product license application or the Applicable Permits. If a New Marketer
launches the Finished Dosage Form in said country, EURAND and SCANDIPHARM shall
share equally in all royalty payments, if any, paid by New Marketer for each
year that SCANDIPHARM marketed and sold the Finished Dosage Form in said
country. After EURAND and SCANDIPHARM have shared equally in royalty payments
paid by New Marketer for each year that SCANDIPHARM marketed and sold the
Finished Dosage Form in said country, EURAND shall be entitled to 100% of
royalty payments paid by New Marketer. Further, SCANDIPHARM shall maintain its
exclusivity in those countries in the Territory where SCANDIPHARM launched and
continues to sell, except as 

 

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provided for in this
Agreement, the Finished Dosage Forms.

 

4.                                      PURCHASE AND SALE OF
THE PRODUCT

 

4.1                                 Purchase and Sale. During the terms of this Agreement, EURAND
shall sell the Product exclusively to SCANDIPHARM, and SCANDIPHARM shall
purchase and accept exclusively from EURAND, SCANDIPHARM’s total requirements
for the Product in the Territory.

 

4.2                                 Delivery Schedule. Commencing on the Approval Date and
continuing through the term of this Agreement, SCANDIPHARM shall provide EURAND
with a good faith quarterly rolling forecast covering its requirements of, and
the desired delivery dates of, the Product in the Territory during the
succeeding twelve (12) months. EURAND will establish standard batch sizes for
any strength of the Product. EURAND will advise SCANDIPHARM of those standard
batch sizes. EURAND hereby notifies SCANDIPHARM that all forecasts and orders
must be based on standard batch sizes which at present are as follows:  700,000 capsules 12,000 USP units of Lipase,
450,000 capsules 18,000 USP units of Lipase and 420,000 capsules 20,000 USP
units of Lipase. Batch sizes may change. SCANDIPHARM shall use commercially
reasonable efforts to provide EURAND with its firm orders in writing no later
than sixteen (16) weeks prior to the desired delivery ex-works. EURAND shall
not be obligated to fill orders exceeding the immediately preceding forecast by
more than thirty percent (30%) but shall make commercially reasonable efforts
to do so.

 

4.3                                 Standard of Manufacture. EURAND shall supply
SCANDIPHARM with Product meeting the Specifications. Each shipment of Product
from EURAND to SCANDIPHARM shall be sampled and analyzed by EURAND to determine

 

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                if the shipment meets the
Specifications. EURAND shall deliver to SCANDIPHARM with each shipment of the
Product a certificate of analysis stating that the Product meets the
Specifications.

 

4.4                                 Purchase of the Active Ingredient. If SCANDIPHARM
requests EURAND to purchase the Active Ingredient from a supplier different
than the supplier EURAND otherwise uses, EURAND will in good faith give due
consideration to such request, but the decision to change suppliers shall be
solely EURAND’s.

 

4.5                                 Right of Review. SCANDIPHARM may conduct its own analyses on
any shipment of the Product received pursuant to this Agreement. If SCANDIPHARM
conducts analysis, it shall notify EURAND within sixty (60) days after delivery
of the Product if the Product does not meet the Specifications. Any dispute
arising between EURAND and SCANDIPHARM concerning the conformity of any
shipment of Product which cannot be settled between the two parties, shall be
submitted to an independent expert. Said independent expert shall be mutually
agreed to by the parties. The decision of said expert shall be binding on
EURAND and SCANDIPHARM. The charges, including the fees and expenses of the
expert, relating to any dispute described in this paragraph shall be paid by
EURAND if the expert declares the delivery not to be in conformity or by
SCANDIPHARM if the expert declares the delivery to be in conformity. In the
event that the Product does not meet the Specifications, EURAND shall ask
SCANDIPHARM to return the Product to EURAND, with shipping expenses at EURAND’s
charge. EURAND shall replace the defective Product within a commercially
reasonable time, at no cost for SCANDIPHARM, in case the Product has already
been paid for by SCANDIPHARM.

 

4.6                                 Title. Risk of Loss. Title to and risk of loss with respect to
the Product shall pass from EURAND to SCANDIPHARM upon delivery to SCANDIPHARM’s
carrier at EURAND’s manufacturing plant in Milan, Italy.

 

 

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5.                                      PRICES

 

5.1

 

(a)                                  The initial price of the Product shall be set
upon the delivery by EURAND to SCANDIPHARM of documents supporting twenty-four
(24) months expiration dating, if registration is not required, or upon
Approval, if registration is required. The price of the Product (inclusive of
bulk packaging), ex works Eurand, for the first twelve months after the Launch
Date shall be the same as the last price EURAND charged SCANDIPHARM for
EURAND’s pancrelipase product with the Eudragit coating.

 

(b)                                 EURAND’s manufacturing costs shall be
determined in accordance with Exhibit C attached hereto. EURAND shall be
entitled to adjust the price set forth in Section 5.1(a) above to reflect
changes in its manufacturing costs; provided, however, such adjustments may be
made no more than once per calendar year (hereafter “Annual Adjustment”). EURAND
shall notify SCANDIPHARM of the revised price of the Product during the last
quarter of each calendar year during the term of the Agreement. The revised
price shall be applied to any delivery of Product made during the following
calendar year. In addition, the price applicable during any calendar year may
be adjusted by EURAND as soon as is practicable after thirty (30) days written
notice to SCANDIPHARM, to cover one hundred percent (100%) of any additional
cost or expense of manufacturing the Product due to a change in manufacturing
technique requested by SCANDIPHARM, a change in manufacturing technique
required by a change in Applicable laws (including a change in cGMP), or due to
an increase in the cost of raw materials (hereafter “Ongoing Cost Adjustments”).
Similarly, EURAND shall adjust the price to reflect any decrease in the cost of
raw materials incurred by EURAND.

 

 

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5.2                                 Payment Terms. EURAND shall send to SCANDIPHARM an invoice
showing the amount due under Section 5.1 with each shipment. SCANDIPHARM shall
pay EURAND the amount due by wire transfer to a bank designated by EURAND
within thirty (30) days of the date of invoice.

 

6.                                      ROYALTIES

 

6.1                                 Royalties.

 

(a)                                  SCANDIPHARM shall pay EURAND the following
Net Royalties on the Net Sales of the Finished Dosage Forms sold by SCANDIPHARM
in the Territory during the term of this Agreement:

 

•                              six percent
(6%) on annual Net Sales from US$0.00 to US$30,000,000;

 

•                              five percent
(5%) on annual Net Sales exceeding US$30,000,000.

 

SCANDIPHARM
shall provide EURAND with the ex-factory prices of the Finished Dosage Forms in
all countries of the Territory where the Product is marketed. No later than
thirty (30) days after the end of each calendar month, starting after the first
calendar month after the Launch Date, SCANDIPHARM shall report to EURAND the
Net Sales of the Finished Dosage Forms and the Net Royalties due during the
previous month in the Territory. The payment by SCANDIPHARM to EURAND shall be
in U.S. Dollars and shall be made within thirty (30) days after the end of each
calendar quarter beginning with the first calendar quarter after the Launch
Date. Payment shall be made via wire transfer to a bank designated by EURAND. SCANDIPHARM
shall keep true and accurate books of account and shall keep and maintain the
most recent five years’ records and 

 

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documents necessary for
EURAND to ascertain the Net Royalties due under this Agreement.

 

(b)                                 Upon the provision of reasonable notice, EURAND
shall have the right to designate a firm of certified public accountants to
inspect, with prior written notice, documents reflecting information needed to
compute royalties due to EURAND under this Agreement at any time during
SCANDIPHARM’s regular business hours during the term of this Agreement and for
a period of one year immediately after termination of this Agreement, to
ascertain the accuracy of such report. The expense of such audit shall be born
by EURAND unless the audit shall demonstrate a discrepancy greater than three
(3%) between Net Royalties reported and paid and those which were actually due,
in which event the expenses of audit shall be borne by SCANDIPHARM and any
royalties due shall be immediately paid to EURAND.

 

6.2                                 Taxes. All taxes, assessments, fees and other charges, if
any, levied under the laws or regulations with respect to payments due to
EURAND hereunder shall be for the account of EURAND, and if required to be
withheld from payments to EURAND, shall be deducted by SCANDIPHARM from such
payments to EURAND. Receipts Documents, if available, for all such withholdings
shall be provided to EURAND. 

SCANDIPHARM shall be
responsible for establishing its right to claim any exemption to such charges
or to its withholding, shall keep EURAND advised in writing on the basis and
status of all such exemption claims, and shall be liable for any penalty,
interest or other assessment against EURAND 

 

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for failing to pay or
withhold such charges in reliance on any such exemption claim.

 

6.3                                 Currency. All payments to be paid to EURAND hereunder shall
be computed and made in United States Dollars. For the purpose of computing
payments for Product sold in a currency other than United States Dollars, such
currency shall be converted into United States Dollars using the rate of
exchange as published by the Wall Street Journal the last day of the applicable
quarter. In each country where the local currency is blocked from removal from
the country, at the election of EURAND, payments accrued in that country shall
be paid to EURAND by SCANDIPHARM in local currency by deposit in a local bank
designated by EURAND.

 

6.4                                 Annual Minimum Net Royalties. During the term of this
Agreement, the Net Royalties from SCANDIPHARM to EURAND paid under this
Agreement, starting from the Launch Date of the Finished Dosage Forms in the
United States of America, shall total no less than the following:

 

•                              1st Twelve (12)
Month Period following launch of Finished Dosage Form:  US$750,000

 

•                              2nd
Twelve (12) Month Period following launch of Finished Dosage Form:  US$1,000,000

 

•                              3rd
Twelve (12) Month Period following launch of Finished Dosage Form:  US$1,500,000.

 

With respect to the fourth
twelve month period and subsequent twelve month periods, the
parties shall agree, no later than six (6) months prior to the

 

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commencement of each such
twelve month period, on the annual minimum Net Royalty to be paid during said
twelve month periods.

 

7.                                      TERM

 

7.1                                 Duration. This Agreement shall be effective from the date
the last person to sign executes this agreement and shall continue for a
minimum period of ten (10) Contract Years. Thereafter, this Agreement shall
continue in force for consecutive periods of two (2) Contract Years, provided
that this Agreement may be terminated by written notice delivered at least one
year prior to the expiration of the then current contract term.

 

7.2                                 Early Termination Due to Applicable Laws. Notwithstanding Article
7.1 hereof, in the event that the performance by a party to this Agreement of
its obligations hereunder is prohibited or substantially curtailed due to
compliance with Applicable Laws and the other party is notified of such event,
the affected party may within fifteen (15) days after such notice terminate
this Agreement as to the effected countries within the Territory, unless the
United States is the effected country, in which case SCANDIPHARM shall have the
option to terminate this Agreement as to all countries in the Territory,
without further obligation to the other, except for obligations incurred prior
to the time of such notice.

 

7.3                                 Early Termination by Reason of Patent Litigation. Notwithstanding
Article 7.1 hereof, in the event that either party to this Agreement is named
in a third party patent litigation related to the subject matter of this
Agreement and that seeks an award of damages or an injunction, EURAND shall use
its commercially reasonable efforts to develop a product comparable to the
Product (hereafter 

 

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“Comparable Product”).
EURAND agrees to pay for all documented costs associated with development,
stability and validation required to bring the Comparable Product to market in
all affected countries within the Territory. SCANDIPHARM agrees to pay for all
costs associated with toxicology, clinical studies and registration costs
associated with registering the Comparable Product in all affected countries in
the Territory. EURAND shall continue to supply the Product to SCANDIPHARM,
until the time that a Comparable Product is available for commercialization and
launch such that the supply of Product to SCANDIPHARM is not interrupted unless
a judicial order demands that EURAND cease producing the Product. If a mutually
agreeable Comparable Product can not be developed, SCANDIPHARM may terminate
this Agreement.

 

8.                                      EVENTS OF DEFAULT AND
REMEDIES

 

8.1                                 Events of Default. An event of default under this Agreement
shall be deemed to exist upon the failure by either party hereto to perform
fully any material provision of this Agreement and such failure continues (i)
for a period of sixty (60) days after written notice of such nonperformance or
(ii) if the non-performing Party shall commence within such sixty (60) days
from written notice of such nonperformance and shall thereafter proceed with
all due diligence to cure such failure, such failure is not cured within such
longer period (not to exceed ninety (90) days from written notice of such
nonperformance), as shall be reasonably necessary for such party to cure the
same with all due diligence.

 

8.2                                 Remedies for Breach Termination. Upon the occurrence and
during the continuation of any event of default hereunder, the party not in
default may terminate this Agreement in whole or only with regard to the
provision and/or 

 

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country of the Territory
which has given rise to the event of default and pursue any other remedies
provided under this Agreement or available at law.

 

9.                                      REPRESENTATIONS AND
WARRANTIES

 

9.1                                 Each party
represents and warrants to the other party that:

 

(a)                                  it is authorized to enter into and to perform
its obligations under this Agreement;

 

(b)           its
obligations under this Agreement do not conflict in any manner with any of its
previous obligations.

 

9.2                                 EURAND
represents and warrants that:

 

(a)                                  the Product delivered pursuant to this
Agreement shall meet the Specifications; and

 

(b)                                 it has no knowledge of any pending or
threatened claim or legal action asserting that the use, manufacture,
distribution or sale of the Product in any country of the Territory constitutes
an infringement of existing patents, trademarks or any industrial or
intellectual property rights.

 

EURAND expressly disclaims
all other warranties whether express or implied with respect to the Products
and the Finished Dosage Forms, whether as to merchantability, fitness for a
particular purpose or any other matter.

 

9.3                                 SCANDIPHARM
represents and warrants that:

 

(a)                                  the Products and the Finished Dosage Forms
are safe, effective, and suitable for the purpose for which they are sold;

 

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(b)                                 it has no knowledge of any pending or
threatened claim or legal action asserting that the use, manufacture,
distribution or sale of the Product and the Finished Dosage Forms in any
country of the Territory constitutes an infringement of existing patents,
trademarks or any industrial or intellectual property rights; and

 

(c)                                  SCANDIPHARM shall comply with all Applicable
Laws as they relate to SCANDIPHARM’s activities under this Agreement.

 

10.                               INDEMNIFICATION

 

10.1                           Indemnification of SCANDIPHARM. EURAND shall indemnify and
hold SCANDIPHARM harmless from, against and in respect of any and all damages,
losses, liabilities, expenses (including reasonable attorneys’ fees) costs and
interest, claims, demands, suits, penalties, judgments or administrative and
judicial orders imposed on, incurred by, sustained by, suffered by, or asserted
against SCANDIPHARM, with respect to or arising out of:

 

(a)                                  an injury that
is solely attributable to a breach of EURAND’s representation and warranty
under Section 9.2(a) herein; or

 

(b)                                 or is
attributable to any pending or threatened claim or legal action asserting that
the use, manufacture, distribution or sale of the Product constitutes an
infringement of EURAND’s existing patents, trademarks registered to EURAND or
any industrial or intellectual property rights owned by EURAND under applicable
law;

 

regardless of whether such
claims are alleged to arise from the negligence, strict liability, product
liability or other fault on the part of SCANDIPHARM, its agents 

 

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or employees. Such indemnity
shall not extend to any claim arising from SCANDIPHARM’s sole negligence.
However, in no event shall EURAND’s indemnification of SCANDIPHARM extend to
defects in the design of the Product and the Finished Dosage Forms.

 

10.2                           Indemnification of EURAND. SCANDIPHARM shall
indemnify and hold EURAND harmless from, against and in respect of any and all
damages, losses, expenses (including reasonable attorneys’ fees) costs,
interest, claims, demands, suits, penalties, judgments or administrative and
judicial orders and liabilities imposed on, incurred by, sustained by, suffered
by or asserted against EURAND, with respect to or arising out of:

 

(a)                                  an injury or
alleged injury to any person (including death) or to the property of any person
not a party here to, involving the Product and Finished Dosage Forms sold or
otherwise distributed by SCANDIPHARM in the Territory, to the extent that such
injury is not solely attributable to a breach of EURAND’s representation and
warranty under Section 9.2; or

 

(b)           a breach of warranty in Sections 9.3 (a) or (c) hereof by
SCANDIPHARM; or

 

(c)                                  the final sale,
packaging, promotion, advertising, distribution, or use, (exclusive of patent
infringement on any of the foregoing) of the Product or Finished Dosage Forms
sold or otherwise distributed by SCANDIPHARM in the Territory;

 

regardless of whether such
claims are alleged to arise from the negligence, strict liability, product
liability or other fault on the part of EURAND, its agents or

 

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employees. However, such
indemnity shall not extend to any claim arising from EURAND’s or its employees’
sole negligence provided however that a claim alleging or arising from EURAND’s
negligence in designing the Product, shall not be excluded from the
indemnification.

 

10.3                           No dispute over
paragraphs 10.1 or 10.2 will constitute grounds of any party to terminate or
avoid their obligations they have in this Agreement,

 

10.4                           Notice and Legal Defense. Promptly after receipt by
a party hereunder of any claim or notice of the commencement of any action,
administrative or legal proceeding, or investigation as to which the indemnity
provided for in Section 10.1 or 10.2 hereof may apply, the indemnified party
shall notify the indemnifying party of such fact. The indemnifying party shall
assume the defense thereof; provided, however, that if both the indemnified
party and the indemnifying party have reasonably concluded that there may be
legal defenses available to it which are different from or additional to, or
inconsistent with, those available to the indemnifying party, the indemnified
party shall have the right to select separate counsel to participate in the
defense of such action on behalf of such indemnified party, at the indemnified
party’s expense.

 

11.                               MISCELLANEOUS

 

11.1                           Assignment. Neither this Agreement nor any interest herein may
be assigned, in whole or in part, by either party hereto without the prior
written consent of the other party hereto, provided, that either party shall
have the right, without written consent of the other party, to assign all or
part of its rights, interest and obligations to an Affiliate, a successor to a
controlling or majority share of such party, or to a successor to substantially
all the business to which this Agreement relates. Subject 

 

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to the foregoing, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective permitted successors and assigns.

 

11.2                           Confidentiality. EURAND and SCANDIPHARM confirm that all
information provided by one party to the other pursuant to this Agreement
shall, to the extent it is confidential, be subject to the terms and conditions
of the Confidentiality Agreement which is hereby extended to protect that
information for the duration of this Agreement. SCANDIPHARM hereby agrees that
the confidential documentation on the Product is the exclusive property of
EURAND and shall be used by SCANDIPHARM only in the frame of this Agreement.
SCANDIPHARM shall be allowed to disclose such confidential documentation only
as necessary to obtain regulatory approval or Applicable Permits in the
Territory, or pursuant to a due diligence request associated with the issuance
of securities by SCANDIPHARM, its parent or any of its affiliates; the
acquisition, sale, merger, or recapitalization of all or a portion of
SCANDIPHARM, its parent or any of its affiliates; the acquisition of a company
or companies by SCANDIPHARM, its parent or any of its affiliates, subject to an
appropriate undertaking of confidentiality, or as may be required by law.
EURAND and SCANDIPHARM may also disclose such confidential information to
attorneys, consultants and advisors who assist them with their business as it
relates to this Agreement or in resolving any dispute under this Agreement
provided the attorneys, consultants or advisors agree to be bound by the terms
of the Confidentiality Agreement. In the event of the termination of this
Agreement and regardless of the reason for termination, SCANDIPHARM shall not
be allowed to use EURAND’s confidential documentation on the Product for any
purpose and/or to disclose such 

 

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documentation to third
parties except that in resolving a dispute under this Agreement. SCANDIPHARM
may disclose such confidential documentation to those of its attorneys,
consultants, and advisors to assist in resolving such dispute who agree to be
bound by the terms of the Confidentiality Agreement.

 

11.3                           Free Sale Certificate. Upon written request of
EURAND, SCANDIPHARM undertakes to provide EURAND with the US Free Sale
Certificate of the Finished Dosage Forms; for such Certificate EURAND shall pay
to SCANDIPHARM the documented expenses borne by SCANDIPHARM to get such
Certificate from the FDA in the United States of America.

 

11.4                           Supply of Commercial Information and Material on the Finished Dosage
Forms. Upon written request of EURAND, SCANDIPHARM shall supply EURAND with:

 

(i)                                     promotional
material on the Finished Dosage Forms;

 

(ii)                                  a quantity,
free of charge, of packs of the Finished Dosage Forms of each country of the
Territory up to four (4) packs during each calendar year;

 

(iii)                               non-binding
indications on the projected sales of the Finished Dosage Forms on a rolling
twelve month basis except that SCANDIPHARM shall supply EURAND with non-binding
indications on the projected sales of the Finished Dosage Forms as soon as
possible if SCANDIPHARM anticipates changes to projected sales.

 

11.5                           Exchange of Information. Upon written request,
SCANDIPHARM will inform EURAND about any useful marketing literature concerning
the sales of the Finished Dosage Forms in the Territory. Each party will
immediately report to the other any information concerning any side effect,
injury, toxicity or sensitivity 

 

PORTIONS
OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

 

28

 

reaction associated with
clinical uses, studies, investigations or tests of the Finished Dosage Forms or
Product. In reporting such incidents, the reporting party will use reasonable
efforts to indicate whether, in its judgment, any of them are unexpected or
unusual in type, incidence or severity.

 

11.6                           Force Majeure. Each of the parties shall be excused from the
performance or delay in performance of its obligations under this Agreement in
the event such performance is prevented by Force Majeure and such performance
shall be excused as long as the condition constituting such Force Majeure
continues plus an additional thirty (30) days after termination of such
condition; provided, that the non-performing party shall provide immediate
notice to the other party of the particulars of the occurrence constituting
Force Majeure and of its cessation and shall make diligent efforts to mitigate
the adverse consequences of such non-performance or delays in performance.

 

11.7                           Amendments. No amendment or modification of the terms of this
Agreement shall be binding on either party unless reduced to writing and signed
by both parties.

 

11.8                           No Implied Waiver. Failure by either party hereto on one or
more occasions to avail itself of a right conferred by this Agreement shall in
no event be construed as a waiver of such party’s right to enforce said right
in the future.

 

11.9                           Choice of Law. This Agreement shall be deemed to have been
entered into in the State of New York. This Agreement and all rights and
obligations hereunder, including matters of construction, validity and
performance, shall be governed by and construed in accordance with laws of the
State of New York without giving effect to its conflict of law principles and
the parties hereto agree to submit to 

 

PORTIONS
OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

 

29

 

the jurisdiction of the
courts of the State of New York with respect to any dispute or cause of action
arising hereunder and agree that the courts of the State of New York shall have
exclusive jurisdiction over such matters.

 

11.10                     Notices. Any notice and other communication required or
permitted to be given hereunder shall be in writing and shall be deemed given
when delivered personally, telecopied or received by express mail or registered
mail, return receipt requested, to the parties at the following addresses:

 

If
to EURAND, to:

 

EURAND
INTERNATIONAL Spa.,

Via
Martin Luther King, 13

20060
Pessano con Bornago (Milan)

Italy

Attn:                    Mr. Gearóid M. Faherty,

President
& Chief Executive Officer

Fax:  +39 02 95745012/18.

 

If
to AXCAN SCANDIPHARM, INC. to:

 

AXCAN
SCANDIPHARM, INC.

22
Inverness Center Parkway

Birmingham,
Alabama  35242 USA

Attn:                    John R. Booth, President and General Manager

cc:                                 Legal Department

Fax:                           +205-991-8176

 

11.11                     Execution of Additional Documents. Each party hereto agrees
to execute such further papers or agreements as may be reasonably necessary or
desirable to effect the purpose of this Agreement and carry out its provisions.

 

11.12                     Severability. In the event that any provision of this Agreement
shall be held invalid or unenforceable by any court of competent jurisdiction,
such holding shall not invalidate or render unenforceable any other provision
hereof.

 

11.13                     Captions. The article and section captions in this Agreement
have been inserted as a matter of convenience and are not part of this
Agreement.

 

PORTIONS
OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

 

30

 

11.14                     Counterparts. This Agreement may be executed in any number of
counterparts and the parties may execute and exchange facsimile copies of this
Agreement, each of which shall be deemed an original of this Agreement and all
of which together shall constitute one and the same instrument. Any party may
enter into this Agreement by executing a counterpart or facsimile copy. The
effective date of the Agreement will be on the date the last person to sign
this Agreement executes this Agreement.

 

11.15       Insurance.
SCANDIPHARM at its own cost shall cause EURAND to be added as an additional
insured on all policies of general commercial liability insurance and product
liability insurance covering SCANDIPHARM, which coverage shall have limits of
liability which shall not be less than US$ 5,000,000 per occurrence. Each
policy shall contain an endorsement, which provides that any amendments or
cancellation of such policy shall as to Eurand not be effective unless EURAND
shall have been given thirty (30) days prior written notice of any such intended
amendment or cancellations. Within five (5) days of the beginning of each
policy period, SCANDIPHARM shall supply EURAND with a certificate evidencing
the coverage required hereby in the amount thereof. Such coverage shall be
maintained for not less than five (5) years following termination of this
Agreement. If such coverage is of the “claims made” type, for ten (10) years
following termination of this Agreement.

 

11.16                     Arbitration.

 

(a)                                  If a dispute arises out of or relates to this
Agreement, or the breach, termination or validity thereof, the parties agree to
submit the dispute to mediation by the American Arbitration Association (“AAA”)
under its 

 

PORTIONS
OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

 

31

 

Commercial Arbitration Rules
in effect on the date of this Agreement. If not thus resolved, it shall be,
within thirty (30) days of the end of the mediation submitted to final and
binding arbitration by a sole arbitrator under the American Arbitration
Association under its Commercial Arbitration Rules in effect on the date of
this Agreement. The mediation and arbitration shall be in the English language
in New York City.

 

(b)                                 The requirement for mediation and arbitration
shall not be deemed a waiver of any right of termination under this Agreement,
and the arbitrator is not empowered to act or make any award other than based
solely on the rights and obligations of the parties prior to any such
termination.

 

(c)                                  The arbitrator shall be knowledgeable in the
law and technology of the Agreement and shall determine issues of arbitrability
but may not limit, expand or otherwise modify the terms of the agreement.

 

(d)                                 The Agreement shall be interpreted in
accordance with the laws of the State of New York, U.S.A., exclusive of its
conflicts of law provisions.

 

(e)                                  Each party shall bear its own expenses, but
those related to the compensation and expenses of the mediator and arbitrator
shall be borne equally.

 

(f)                                    Except as provided for in the indemnification
provisions in 10.1 and 10.2 herein, the arbitrator shall not have authority to
award punitive or other damages in excess of compensatory damages, and each
party irrevocably waives any claim thereto.

 

(g)                                 In so far as allowed by law, the parties,
their representatives, other participants and the mediator and arbitrator shall
hold the existence, content 

 

PORTIONS OF
THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

32

 

and result of mediation in
confidence, except that the Parties shall be allowed, under appropriate
assurances of confidentiality, to disclose such confidential information to
attorneys, consultants and advisors who assist them with their business as it
relates to this Agreement or in resolving any dispute under this Agreement, or
as may be required by law, except as provided in provision 11.2.

 

IN WITNESS WHEREOF, the
parties have caused this Agreement to be executed by their duly authorized
representatives.

 

 

	
  EURAND INTERNATIONAL S.p.A.

  	
   

  	
  AXCAN SCANDIPHARM INC.

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Gearóid M. Faherty

  	
   

  	
  By:

  	
  /s/ John R. Booth

  
	
   

  	
  Name:

  	
  Gearóid M. Faherty

  	
   

  	
   

  	
  Name:

  	
  John R. Booth

  
	
   

  	
  Title:

  	
  President & Chief Executive

  	
   

  	
   

  	
  Title:

  	
  President and General Manager

  
	
   

  	
   

  	
  Officer

  	
   

  	
   

  	
  Date:

  	
  May 16, 2000

  
	
   

  	
  Date:

  	
  16-5-’00

  	
   

  	
   

  

 

PORTIONS OF
THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

 

33

 

 

EXHIBIT
A:  SPECIFICATIONS OF THE PRODUCT 

 

[* * * *]

 

 

PORTIONS
OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

 

31

 

EXHIBIT
B:  DEVELOPMENT FEES

 

SCANDIPHARM shall pay to EURAND Development Fees in
the amount of US Dollars Three Million Five Hundred Thousand Dollars
(US$3,500,000) as follows:

 

•                                          US$500,000 upon
execution of this Agreement and receipt from EURAND of the pharmaceutical
development report.

 

•                                          US$750,000
ninety (90) days after successful completion of product validation batches.

 

•                                          US$250,000 upon
successful completion of six (6) months long-term stability results testing;

 

•                                          US$250,000 upon
successful completion of twelve (12) months long-term stability results
testing;

 

•                                          US$250,000 upon
successful completion of twenty-four (24) months long-term stability results
testing;

 

•                                          US$500,000 at
the filing by EURAND of the DMF on the Product at the FDA of the United States
of America;

 

•                                          US$500,000 on
the third anniversary of the signing of this Agreement or twelve (12) months
after the Launch Date of the Finished Dosage Forms in the United States of
America, whichever date comes first;

 

•                                          US$500,000 on
the third anniversary of signing of this Agreement or twenty-four (24) months
from the Launch Date of the Finished Dosage Forms in the United States of
America, whichever comes first.

 

PORTIONS
OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

 

 

EXHIBIT
C:  PROTOCOLS OF THE STABILITY STUDIES ON
THE PRODUCT AND ON THE FINISHED DOSAGE FORMS 

 

[* * * *]

 

PORTIONS
OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

 

33

 

EXHIBIT
D:  MANUFACTURING COSTS

 

“Manufacturing cost” means
for the Product the fully allocated manufacturing costs, incurred only in
connection with the manufacture of the Product, determined in accordance with
U.S. generally accepted accounting principles (GAAP) which includes and is
limited to:

 

1.                                       direct labor (salaries, wages and employee
benefits);

 

2.                                       direct materials (documented);

 

3.                                       actual and direct operating costs of building
and equipment used only in connection with the manufacture of the Product;

 

4.                                       allocated depreciation and repairs and
maintenance;

 

5.                                       in-process and product testing;

 

6.                                       an allocation of overhead costs incurred in
connection with the manufacturing of Product including:  raw material supply and manufacturing
administration and management; supply and material management, storage and
handling, and manufacturing and employee training;

 

7.                                       royalties paid to third parties; and

 

8.                                       no charges for idle capacity or underutilized
facilities or personnel shall be included in the manufacturing cost.

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