EXHIBIT 10.16(C)
WHENEVER CONFIDENTIAL INFORMATION IS OMITTED HEREIN (SUCH OMISSIONS ARE DENOTED
BY AN ASTERISK *), SUCH CONFIDENTIAL INFORMATION HAS BEEN SUBMITTED SEPARATELY
TO THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
AMENDMENT
TO THE
SUPPLY AGREEMENT
This Amendment (the "Amendment") entered into effective as of December
21, 2006 (the "Amendment Effective Date") to the Supply Agreement, effective as
of June 23, 2005 (the "Supply Agreement"), by and between Alkermes, Inc.
("Alkermes") and Cephalon, Inc. ("Cephalon"), witnesseth that (capitalized terms
used but not defined herein shall have the meaning set forth in the Supply
Agreement):
RECITALS:
WHEREAS, pursuant to the Supply Agreement, the Parties agreed, among
other things, that Alkermes was responsible for providing the capital necessary
to permit the Manufacture of the Product Requirements pursuant to such Supply
Agreement; and
WHEREAS, Alkermes and Cephalon have now agreed to amend the terms and
conditions governing responsibilities for providing the capital necessary to
meet the Product Requirements for the Product.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parties agree as follows:
1. A new Section 5.5 shall be added to the Supply Agreement and shall
read as follows:
"5.5 LINE 5 AND LINE 6.
(A) PRODUCT MANUFACTURING EQUIPMENT PURCHASE. Notwithstanding
anything to the contrary herein, effective the Amendment Effective
Date, Alkermes will sell and Cephalon will purchase for the Purchase
Price described below all equipment that on September 30, 2006 (the
"Agreement Date") constituted the second wet process line for the
Manufacture of the Product at the Alkermes Manufacturing Facility in
Wilmington, Ohio ("Line 5") and the third wet process line for the
Manufacture of the Product at the Alkermes Manufacturing Facility in
Wilmington, Ohio ("Line 6") (such equipment along with all other
equipment thereafter added to Line 5 and Line 6, the "Product
Manufacturing Equipment") as well as reimburse Alkermes for all
related Capital Improvements (as defined below) made prior to the
Agreement Date. Within ten (10) days of the Amendment Effective Date,
Cephalon will pay Alkermes the purchase price of Nineteen Million
Three Hundred Fifty-Six Thousand
* Confidential Treatment Requested.
Seven Hundred Fifty-Six Dollars ($19,356,756) (the "Purchase Price").
Upon receipt of the Purchase Price Alkermes will transfer to Cephalon
the title to and risk of loss of all Product Manufacturing Equipment
in existence on the Agreement Date and all Capital Improvements made
prior to the Agreement Date. Thereafter, Alkermes will supply to
Cephalon at the end of each calendar quarter a detailed listing of all
Capital Improvements made to Line 5 and Line 6 during such calendar
quarter and will supply supporting documentation for all Fully
Capitalized Costs (as defined below) incurred by Alkermes as requested
by Cephalon from time to time.
Notwithstanding anything to the contrary herein, whether or not
Alkermes has supplied to Cephalon any listing thereof in accordance
with the preceding paragraph, Cephalon will own any Product
Manufacturing Equipment and other Capital Improvements made to Line 5
or Line 6 for which Cephalon has made the related payment to Alkermes
of Fully Capitalized Costs pursuant to Section 5.5(b). To evidence and
perfect Cephalon's ownership interest in the Product Manufacturing
Equipment and other Capital Improvements, Alkermes agrees to execute
and deliver all deeds, assignments, bills of sale and other documents
reasonably requested by Cephalon, including appropriate Uniform
Commercial Code financing statements with respect to the Product
Manufacturing Equipment and other Capital Improvements. Alkermes will
keep the Product Manufacturing Equipment and other Capital
Improvements free and clear of all liens and encumbrances, other than
those which may result from any act of Cephalon. All costs incurred by
Cephalon for insuring the Product Manufacturing Equipment and other
Capital Improvements, and for paying any taxes, including personal
property and sales taxes that may accrue with respect to the Product
Manufacturing Equipment and other Capital Improvements, shall be
deemed to be Cephalon Incurred Shared Expenses.
(B) CAPITAL IMPROVEMENTS. Following the Agreement Date, Alkermes
has continued and will continue to design, engineer, procure
additional equipment for, develop, construct and validate Line 5 and
Line 6 (all such activities the "Capital Improvements"). Within ten
(10) days of the Amendment Effective Date, Cephalon will reimburse
Alkermes for the Fully Capitalized Costs of Capital Improvements
incurred by Alkermes during October 2006 and any other Fully
Capitalized Costs associated with Line 5 and Line 6 incurred by
Alkermes during this period. Within the period ending thirty (30) days
after the later of (i) the Amendment Effective Date or (ii) Cephalon's
receipt of Alkermes' invoice therefor, Cephalon will reimburse
Alkermes for the Fully Capitalized Costs of Capital Improvements
incurred by Alkermes during November 2006 and any other Fully
Capitalized Costs associated with Line 5 and Line 6 incurred by
Alkermes during this period. Within fifteen (15) days of the end of
each month after the Amendment Effective Date, Alkermes will invoice
Cephalon for the Fully Capitalized Costs of Capital Improvements
incurred by Alkermes during the prior month and any other Fully
Capitalized Costs associated with Line 5 and Line 6 incurred by
Alkermes during such period. Cephalon will pay each such
* Confidential Treatment Requested.
2
invoice within thirty (30) days of receipt; provided, however, that
Cephalon shall not be obligated to pay pursuant to this Section 5.5(b)
for any Fully Capitalized Costs exceeding in the aggregate Fifty-One
Million Six Hundred Forty-Three Thousand Two Hundred Forty-Four
Dollars ($51,643,244). All costs incurred by Alkermes with respect to
Line 5 and Line 6 that are not reimbursed by Cephalon pursuant to this
Section 5.5(b) or included in the Purchase Price will, to the extent
covered by Development Plan budgets approved by the JSC, be deemed to
be Alkermes Incurred Shared Expenses or, to the extent appropriate, be
included in Fully Burdened Manufacturing Costs. "Fully Capitalized
Costs" shall mean costs that normally would be capitalized in
accordance with Cephalon's accounting policies (whether incurred by
Cephalon or Alkermes), including direct labor costs of both Cephalon
and Alkermes as well as out-of-pocket costs, including out-of-pocket
costs incurred for equipment and third-party design, engineering,
development, construction and validation services. Alkermes' labor
costs will be calculated at the Development FTE Rate.
(C) ACCOUNTING FOR LINE 5 AND LINE 6. The Purchase Price, the
Fully Capitalized Costs of Capital Improvements and any other Fully
Capitalized Costs associated with Line 5 and Line 6 reimbursed by
Cephalon to Alkermes will be capitalized by Cephalon in accordance
with its accounting policies. All such amounts will be depreciated by
Cephalon on a straight line basis over the life of the Product
Manufacturing Equipment in accordance with Cephalon's accounting
policies and GAAP and the depreciation charge each month will be
deemed to be Cephalon Incurred Shared Expenses.
(D) [**], effective the last Business Day of each calendar
quarter during the life of the Product Manufacturing Equipment,
Cephalon will calculate [**] on the total of [**]. The rate used to
calculate [**] will be fixed at [**] per annum. At the end of each
calendar quarter Cephalon will invoice Alkermes for [**] for that
calendar quarter, and Alkermes will pay this invoice [**].
(E) USE OF PRODUCT MANUFACTURING EQUIPMENT. Alkermes will have
the right to use the Product Manufacturing Equipment in accordance
with the provisions of this Agreement and the Amendment without any
obligation to make any payments to Cephalon with respect to such use.
Subject to its obligations under this Agreement and the Amendment,
Alkermes will have the right at any time to manufacture products other
than the Product using Line 5 and Line 6; provided, however, that in
the event Alkermes uses Line 5 or Line 6 to manufacture products other
than the Product, Alkermes' costs associated with such use, including
maintenance costs, shall not be considered Alkermes Incurred Shared
Expenses and Alkermes will reimburse Cephalon for one hundred percent
(100%) of the depreciation charge for the Fully Capitalized Costs for
Line 5 or Line 6 for the period and to the extent Line 5 or Line 6 is
used by Alkermes to manufacture products other than the Product, which
fully reimbursed depreciation charge for such period shall not be
considered Alkermes Incurred Shared Expenses or Cephalon Incurred
Shared Expenses.
* Confidential Treatment Requested.
3
Alkermes will maintain each piece of Product Manufacturing Equipment
in good operating order and repair, normal wear and tear excepted,
and, subject to the preceding sentence, the expense of such
maintenance will be deemed to be an Alkermes Incurred Shared Expense.
(F) ABANDONMENT OF PRODUCT MANUFACTURING EQUIPMENT. If at any
time prior to termination of this Agreement the Product Manufacturing
Equipment is deemed to be impaired, abandoned or obsolete in
accordance with Cephalon's accounting policies, then any impairment
charge will be deemed to be a Cephalon Incurred Shared Expense.
(G) REPURCHASE OF PRODUCT MANUFACTURING EQUIPMENT. At any time
after December 21, 2008 or in the event the Parties enter into a
Technology Transfer Agreement, Alkermes will have an option to
purchase all Product Manufacturing Equipment as installed (including
any development and/or validation data or information) and other
Capital Improvements at their net book value in Cephalon's financial
statements at the time of option exercise. In addition, in the event
of expiration or termination of this Agreement (a "Termination
Event"), Alkermes will have an option to purchase all Product
Manufacturing Equipment as installed (including any development and/or
validation data or information) and other Capital Improvements at
their net book value in Cephalon's financial statements on the date of
such Termination Event [**], as set forth in Cephalon's financial
statements on the date of such Termination Event. Within thirty (30)
days of a notice from Alkermes of its interest in exercising any such
repurchase option, Cephalon will provide Alkermes with notice of the
Product Manufacturing Equipment's and the relevant Fully Capitalized
Costs' then current net book value. Alkermes will have the right to
request an audit of Cephalon's determination of net book value of the
Product Manufacturing Equipment and such Fully Capitalized Costs,
which shall be conducted by an independent public accountant of
national prominence at Alkermes' expense. Such accountant will treat
all information subject to audit under this Section 5.5(g) as
confidential and will provide a report to Alkermes and Cephalon
regarding only the accuracy or inaccuracy of the net book value
determination. Following receipt of Cephalon's notice regarding the
net book value of the Product Manufacturing Equipment and the Fully
Capitalized Costs (and any audit conducted by Alkermes), Alkermes will
provide Cephalon notice of whether it intends to purchase the Product
Manufacturing Equipment and other Capital Improvements. If Alkermes
provides notice of its intended purchase, Alkermes will pay Cephalon
the purchase price described above, and Cephalon will transfer to
Alkermes the title to and risk of loss of all Product Manufacturing
Equipment and other Capital Improvements. Cephalon and Alkermes will
promptly execute and deliver all deeds, assignments, bills of sale and
other documents for the purchase of the Product Manufacturing
Equipment and other Capital Improvements reasonably requested by
Alkermes to evidence and perfect Alkermes' ownership of the Product
Manufacturing Equipment and other Capital Improvements. Upon the
execution and delivery of such documents,
* Confidential Treatment Requested.
4
Cephalon will promptly file amendments terminating any Uniform
Commercial Code financing statements that have been filed with respect
to the Product Manufacturing Equipment and other Capital Improvements.
In the event that following a Termination Event or the signature of a
Technology Transfer Agreement, (i) Alkermes provides notice to
Cephalon that it does not intend to purchase the Product Manufacturing
Equipment and other Capital Improvements or (ii) in response to an
inquiry from Cephalon, Alkermes indicates that it does not intend to
purchase the Product Manufacturing Equipment and other Capital
Improvements, then Cephalon may request that Alkermes arrange for the
removal from the Alkermes Manufacturing Facility in Wilmington, Ohio
of the Product Manufacturing Equipment. The Parties will work together
in good faith to determine a mutually agreeable time and method for
the removal of the Product Manufacturing Equipment from the Alkermes
Manufacturing Facility. Alkermes will then remove, crate and ship such
Product Manufacturing Equipment in accordance with such plan, at
Cephalon's cost and expense, to any destination in the United States
that Cephalon may designate. In the event that following a Termination
Event or the signature of a Technology Transfer Agreement, Alkermes
determines that any Product Manufacturing Equipment cannot be so
removed from the Alkermes Manufacturing Facility without destroying
any portion thereof or significantly disrupting the operation thereof,
Alkermes shall purchase such Product Manufacturing Equipment for the
purchase price described above."
2. Except as specifically amended herein, all provisions of the Supply
Agreement shall remain in full force and effect in accordance with
their terms. In the event of a conflict between the provisions of the
Supply Agreement and those of this Amendment, this Amendment shall
control. This Amendment, together with the Supply Agreement,
represents the entire agreement between the Parties regarding the
subject matter hereof, and there are no prior or contemporaneous
written or oral promises or representation relating to this subject
not incorporated herein, including the Binding Term Sheet between the
Parties dated October 17, 2006. No amendment or modification of the
terms and conditions of this Amendment shall be binding on either
Party unless reduced to a writing referencing this Amendment and
signed by an authorized officer of the Party to be bound.
3. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original for all purposes, but all of which
together shall constitute one and the same instrument. This Amendment
may be executed and delivered by facsimile and upon such delivery the
facsimile signature will be deemed to have the same effect as if the
original signature had been delivered to the other Party.
4. This Amendment shall be governed by and construed in accordance with
the Laws of the State of Delaware (other than its choice of law
principles).
* Confidential Treatment Requested.
5
[SIGNATURE PAGE FOLLOWS]
* Confidential Treatment Requested.
6
IN WITNESS WHEREOF, each of the Parties has caused this Amendment to
be executed and delivered by its duly authorized representatives to be effective
as of the date set forth above.
ALKERMES, INC. CEPHALON, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ By: /s/ J. ▇▇▇▇▇ ▇▇▇▇▇
--------------------------------- ------------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Name: J. ▇▇▇▇▇ ▇▇▇▇▇
Title: Vice President Title: Executive Vice President & CFO
* Confidential Treatment Requested.
